Q3 2020 National Retail Properties Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the National retail properties third quarter 2020 operating results conference call.
All lines have been placed on a listen only mode and the part will be opened for your questions and comments following the presentation.
At this time it is my pleasure to turn the floor, but your host for today Mr. Jay Whitehurst, Sir the floor is yours.
Thanks, Josh.
Good morning, and welcome to the National retail properties third quarter 2020 earnings call. Joining me on this call is our Chief Financial Officer, Kevin Hovick and I'm also pleased to welcome our recently appointed Chief Operating Officer, Steve Ford to his first official earnings call.
And his 17 years at National retail properties Steve's been involved in all aspects of our business and has been one of the architects of our strategy and culture. There's no one more qualified to step into the role of C. O then Steve [noise].
So I don't know I want to express my deep appreciation to all the associates at National retail properties for their tireless efforts and inspiring collegiality as many of US continue to work remotely follow addressing all the challenges the family school and career in the midst of the continuing effects of the panda.
Eric.
And with that let me turn to some comments about our third quarter.
First I want to highlight that we increased our quarterly common stock dividend in August, making 2020, the 31st year of consecutive annual dividend increases.
This enviable record is matched by only two of the reach and less than 90 public companies in the United States.
Iran collections continue to trend positive during the quarter, resulting in collections that approximately 90% of third quarter Ranch.
The balance of the revenue for the third quarter was divided roughly equally between deferred rent and unresolved outstanding receivable rent.
Notably, we sort of gave less than one half of 1% of our third quarter rent.
We also announced today that our October Red collections were approximately 94%, indicating continued strength in our core portfolios.
As a reminder, our tenants are typically large well capitalized regional or national operators with a scale financial wherewithal and management expertise to weather significant disruptions in the business environment.
Additionally, the majority of our properties are located in suburban markets largely in the southern half of the U.S., which has been somewhat less impacted by the pandemic the urban city centers.
We're pleased to see many of our tenants businesses bouncing back more quickly than we had initially anticipated.
Although we continue to take a cautious approach to new acquisitions in the quarter, Steve and his acquisitions team remained active in sourcing and underwriting potential investments.
As our relationship tenants are returning to growth mode and as we identify portfolios in the market that meet our underwriting criteria. We anticipate our acquisition volume will begin to ramp back up in the near future.
That said cap rates in the marketplace remain at all time lows and the ability to underwrite corporate credit and store level performance post cobot is challenging so you should expect us to remain thoughtful and prudent in our new investments.
Our balance sheet remains strong with almost $300 million of cash in the bank and zero drawn on our $900 million line of credit as of quarter's end.
Thus, we are well positioned to take advantage of the right opportunities when they present themselves and or whether further choppiness in the economy if that may occur.
Our occupancy rate at the end of the quarter was 98.4%.
Our well located retail properties were in high demand prior to that pandemic as evidenced by our consistently high occupancy rate of 98% plus or minus 1% and our consistently high tenant lease renewal rate of 80% to 85% at approximately 100%.
Of prior rent.
Both of those impressive metrics have continued to hold true for 2020, and we believe our properties will remain in high demand in the post pandemic world.
Let me close by reiterating our long term approach to all aspects of our business.
We will continue to review and refine our strategy based on the lessons we learned from the pandemic.
We believe that the right long term strategy for can creating consistent per share growth on a multiyear basis is to own a broadly diversified portfolio of well located real estate acquired at reasonable prices and leased a strong regional and national tenants at reasonable rents.
All supported by a low leveraged balance sheet and a long tenured staff of industry experts with.
With that let me turn the call over to Kevin for more details on our third quarter results. Thanks, Jay as usual, we will make certain statements that may be considered to be forward looking statements under federal Securities law.
Companys actual future results may differ significantly from the matters discussed in these forward looking statements and we may not release revisions to these forward looking statements to reflect changes after the statements were made.
Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the Companys filings with the FCC and in this mornings press release.
With that headlines from this mornings press release report quarterly FFO and core FFO results of 62 cents per share for the third quarter of 2020.
As noted in the press release. These results include $14.8 million or nine cents per share of receivables write offs in connection with reclassifying certain tenants to cash basis rent recognition.
Additionally, we recognized eight and a half million dollars of deferred rents in the third quarter, which were excluded in calculating AFFO.
As Jay mentioned occupancy was 98.4% at quarter end DNA expense for the third quarter was 5.9% of revenues fairly consistent with the.
First in the second quarter of this year.
Primary items of note in the third quarter results, our rent collections and receivables and collections continue to improve throughout the third quarter and into October and as Jay mentioned today, we reported record collections.
Approximately 90% for the third quarter and 94% for the month of October.
With the benefit of a few months of hindsight were relatively pleased with the progress being made as we work through a number of our tenants to find a path forward to pay the rent they show us weve.
We remain cautious as uncertainty will remain into 2021, but we continue to see some rays of light on the collections front.
At the end of the third quarter, we had approximately 6% of our rent being recognized on a cash basis as a result of our estimation that it was not probable these tenants were going to pay substantially all of their remaining lease payment.
This classification required us to write off all outstanding receivable balances for the tenant sales.
Only $3.4 million of rent receivables and $11.4 million of accrued rent balances, which totals 14.8 million or approximately nine cents per share for the quarter.
So without this non cash write off FFO results would have been notably better.
Please know that despite this GAAP accounting write off we will be pursuing these receivables.
Ongoing rent payments with the usual vigor.
Now over to the balance sheet rents receivable balances first as the rent receivables declined significantly from June thirtyth levels to $4.1 million at September Thirtyth, which is very much in line with our pre pandemic rent receivable levels of $3 million to $4 million.
These receivables have a general reserve of 18% or $879000 at September Thirtyth.
Secondly, the accrued rent income receivables increased slightly $2.3 million or 4% from June 30 levels and had a general reserve of 11% or $8 million at September Thirtyth.
In the third quarter, we recognized eight and a half a million dollars of non cash straight line rent.
About a nickel per share.
Arising from the WRAM deferral lease amendment.
This improved rental income is included in GAAP earnings FFO and core FFO results.
Consistent with our past practice, we exclude accrued straight line rent when calculating AFFO, we did footnote what an AFFO would have been if we had not done that.
As a reminder, we expect deferred rent payments to begin in earnest in the first quarter of 2021.
Weve approximately 3% of our annual base rent coming from tenants in bankruptcy, primarily consisting of checking achieve too.
2.1% and Ruby Tuesday, 0.6%.
We are involved on the creditors committee for both so we have no real news to report here due to confidentiality well both tenants have reported plans to close a number of their stores none of our stores are on their store closure list at this time.
We ended the second quarter was $295 million of cash on hand, and no amounts outstanding on our $900 million Bank credit facility we.
We did not drawn down on our bank line as many companies did this year.
We have not made material new property investments and our next debt maturity is in 2023, so were in very good liquidity position.
Our weighted average debt maturity is now 10.4 years with a weighted average interest rate of 3.7%.
The financial Covenant compliance remains in good shape as outlined on page nine of the press release. So the balance sheet is in very good shape and we have very few capital obligations. During the next three years.
Leverage metrics remains strong net debt to gross book assets was 34.4% net debt to EBITDA was 4.8 times at September Thirtyth.
Interest coverage was 4.6 times.
And fixed charge coverage 4.0 times for the third quarter 2020.
Only five over 3114 properties are encumbered by mortgages totaling about $12 million.
Consistent with last quarter, we have not provided 2020 earnings guidance in light of the uncertainty in the economy generally and retailing in particular, so we get a better read on the economic recovery and what the new normal might look like we are not able to reasonably predict precisely how things will play out.
As we work through a challenging 2020 for the global economy, we continue to endeavor to get on and then the best opportunity to succeed in the coming years as Jay said, our focus remains on the long term and adjust with that we will open it up for any questions.
Thank you ladies and gentlemen, if you have a question. It is star one on your telephone keypad at this time again it is star one for any questions or comments.
Our first question will come from Katy Mcconnell with Citi.
Thanks, and good morning, everyone could you provide some more color.
Well some of the higher risk categories you mentioned.
And what are your updated thoughts around when and where occupancy.
Got it.
Paul.
Yeah.
Yes, I think where we will stick with our big.
The trouble four lines of trade really is where where the pain continue.
Continues to reside I think which is mid theaters.
Health and fitness casual dining and family Entertainment I will say.
Going into this we five theaters would be the most troublesome and with the benefit of six month I would say.
That's still feels the case out of those four lines of trade it feels like the most challenged so.
That's the way I'd, probably prioritize that.
In terms of where occupancy will will bottom out and when that's.
Thats a good guys as you know, even maybe a little more cautious than folks and thinking that.
Maybe there is.
More pain to be.
And the 2021 as some of the Federal reserve Federal government.
Trillions of dollars.
Stimulus starts to wear off and so that's that's where in our minds, we still think.
Let's see how the patients does after all the morphine is removed and so.
But but given that our occupancy is currently at 98%, which is 90 plus is still very normal.
We could see a little bit of fallout from our troubled lines of trade going forward, but it doesn't feel again anything that we will be particularly problematic for us dealing with.
Katy Katy this is Jason just to add on to that if you look at the other lines of trade that have been doing well such as convenience stores and fast food and car washes auto service.
Tire stores those those other lines seems like business is coming back back very nicely. So as Kevin said, our focus is on really just those primarily those four lines of trade that are struggling some and even there we're dealing with larger operators in most.
To those lines of trade and so we feel relatively good right now about how all that is going and as Kevin said truly movie theaters is where we think there's probably.
The greatest chance for the.
More significant pain than even in those other three more troubled lines of trade.
Got it thanks, and then maybe can you just talk a little bit more about your strategy around investment grade exposure.
How are you thinking about underwriting.
Hi, Brian.
Brian.
Yeah, Katy I'd say that we are definitely I'm sure all companies, including our company is going to be looking back trying to think.
What did we learn and from the pandemic and how do we want to behave differently.
Right now at 90% rent collection for the.
Third quarter and 94% for October.
We we remain I guess I should say I can say, we remain unconvinced, we remain very comfortable let me put it differently, we remain very comfortable with our strategy of pursuing large, but non investment grade tenants, which allows us to get a better initial yield.
Better lease bumps.
More landlord friendly lease and and quite often properties at lower initial prices and lower initial rents, which we think creates a good margin of safety. So.
Right now at the rent collection level, we are at.
We feel like that initial strategy is.
Proving to be.
Someone of US smart play, but it is something that we're going to be looking at certainly in detail over time as this continues to play itself out.
Okay, great. Thank you.
We'll go next to Vikram Malhotra of Morgan Stanley.
Thanks, Aaron Your line is open. Please go ahead.
Alright hearing no response, we'll move to Rob Stevenson with Janney.
Good morning, guys.
Kevin.
When you look at the the move from cash to GAAP, the 40 million hit in the quarter. How much is there rolling forward behind that I mean tenants that didn't quite meet the threshold to move them to cash in the third quarter, we could likely fall there in the fourth quarter and the first quarter or basically was this basically like.
A big sort of move for you guys and it's going to take multiple quarters before you get back there again, how would you characterize that sort of moves yes, I'd say, it's hard to make that call is sitting here today, but.
I can't say, we're done but I don't it doesn't feel like we've got a bunch more or we would have taken moved on a cash basis already so so.
The extent anybody is on the bubble if you will.
Time will tell but again.
It really doesn't feel like there is there is.
A lot more coming at this point, given today's point, 94% rent collections and pretty.
Pretty much everybody moving the right direction, maybe with the exception of theaters and so so I.
If I hopefully I've been sufficiently elusive in that answer.
Hello.
If it doesn't feel like we've got a bunch mortgages teed up the calm and like I said, if we add material concerns today, we would have taken action earlier third quarter sales.
Okay, and then how are you guys.
Pursuing the people that don't even come to a deferral agreement could you guys pushing towards objections.
On the non payers in the non agreement people.
Our VIX is prohibited is that one of the things that sort of keeping.
The non agreements.
At current levels, how would you sort of characterize that what sort of pathways are you guys pursuing at this point given market conditions, and presumably a more difficult environment to backfill any vacancy.
Rob Hey, this is Jay we we maintain a constant dialogue with most of our tenants and so in those instances, where we don't have a deferral agreement. It to a large degree has amounted to a resulted from a disagreement between national retail price.
Ladies and the tenant as to what rent relief is appropriate there may have been some instances, where we felt that the tenant was entitled to us.
With header was entitled to a deferral, but the tenant wanted summit rent relief beyond that and there may have been some instances where the tenant one of the deferral, but we felt it based on the the tenants condition then the condition of their business that they were in a position to be able to pay.
Continue to pay full rent and and.
And so we are we are talking to all of the tenants, where we don't have an agreement.
Consistently but.
But but we are in the meantime, pursuing our legal remedies with all of that and so there may be some instances where weve.
Filed for eviction actions, there may be some jurisdictions, where you're not entitled the landlord is not entitled to complete the eviction, but to the extent, we can pursue legal remedies up to a point, we are largely going ahead and doing that.
At this precise moment re tenanting a lot of.
Vacant properties.
It's not particularly realistic there may be some instances, where you can re tenant something quickly, but but generally it's going to be.
This isn't there.
The market is not right yet for being able to do a great deal of that but regardless, we wanted to be in a position to have our.
Right now in place and be ready to move forward. If ultimately we don't reach an agreement with those tenants. Our goal is to still reach an agreement with each of those tenants.
Okay, and how many of the 3100 properties are currently open.
Due to.
Government prohibition.
Yes, we we don't track that closely we kind of pickup anecdotal information from other sources, but ill look at Steve and see if you not I'd say, 99% of our properties are open right now yes. This is Steve yes, 99%, probably a fair number.
With the developments in Illinois recently, they shut them down.
But at the end of the day the vast majority of the portfolio is open remember Rob we deal with large operators. So if they've got some units in an area, where it's closed but it's a small portion of their overall business. We our experience is that doesn't.
It Doesnt change our ability to get the rent paid.
All right and then last one from me is.
In the release, you talked about acquisitions ramping back up what's really your appetite at this point for acquisitions versus keeping that liquidity given the levels of uncertainty you guys were doing anywhere from 100 million to a little over 300 million a quarter coming into the pandemic.
You know do you keep obviously you basically didn't do anything on a net basis this quarter and so I mean do you ramp that up slowly and just stay at a 25 or 50, maybe a 75 million dollar a quarter or in the near term and preserve the majority of your liquidity.
Is there opportunity that you're seeing out there that would cause you to dive back in at the two to 300 million a quarter level. How do you. How are you and the board thinking about that these days in terms of deployment of capital. Yes. It's it is to our I'm going to let Steve talk about where we're sourcing our deals and and what what he.
Seeing out there in the pipeline right now, but at the high level. Rob. We are we are not insane reinstituting acquisition guidance or or anything like that it we're pleased that.
The businesses have turned around we're pleased that our relationship tenants are getting back into growth mode, but we're still going to be very thoughtful about our new acquisitions and.
Albeit we do expect to be making some.
But where we're not in a position yet to kind of talk about what a new run rate would be we want to see how things play out a little bit, but with that Steve you want to give a little more color on the pipeline maybe yes.
This is Steve the acquisition team has been in the market really in the third quarter. After we get to the second quarter.
And we're seeing lots of deals, but the reality is all the deals that we are looking at in the market pre pandemic it wouldn't be deals and then we do.
Primarily we source a lot of our deals two thirds approximately come from our relationship tenants and what we're finding is our relationship tenants now are starting to get Nancy you get into growth mode. If it's through M&A or just single site development.
We're starting to see the pipeline pick up.
But were not historically doing the 10 31 deals.
So we're getting back into it.
Okay. Thanks, guys.
Well go next to RJ Milligan at Raymond James.
Hey, good morning, guys first.
First question I just wanted to.
Talking about the 94% of rent collected in October is that based on pre pandemic right.
Rents or is that based on what was due in October I'm, just trying to get.
Yes, and whether or not the denominators changed yes.
Good question pre pandemic levels, what was originally do pre pandemic not adjusted for new deferrals et cetera.
And so with 6%.
In deferrals.
Does that leaves is there anything that's left unresolved.
Well that was for third quarter. So, yes, so you're the 6%.
There is not much unresolved if thats your point.
I'm, just trying to get to backhaul to the 100%. So it is 94% of the free pandemic rents are collected in October.
What's your sense deferred.
In October and what percent is unresolved.
Yeah. So just let me talk about third quarter just for a second so third quarter was 90% plus about 5% preferred plus about another 5% unresolved or in discussion or.
Something going on there.
And so.
Going to 94% in October.
The deferrals.
Drop off considerably going into the fourth quarter. So you probably shouldn't anticipate we have 5% deferred rent in the fourth quarter like we did in the third quarter.
That might be where the math is.
Okay. That's helpful.
The three.
3%, Tim you mentioned, where it was the rents were in bankruptcy, but.
But 6% on a on a cash basis, what's and what's the other 300 basis points, but can you talk about maybe the categories that theaters that that fall into that other 3% that's now on cash.
That would be probably a good assumption yes.
Theaters.
Notice that the limited service restaurant collections were actually slightly lower than the full service can you maybe talk about that I would have thought it might be the other the other way around yes.
Yes, Thats RJ, that's really just a timing thing related to deferrals with some tenants that we're not losing any sleep over at all so we had.
A tenant may maybe more than one, but I think primarily one tenant where there was more the rent deferral agreement that we reached applied more to third quarter rents and so that number looks a little lower for the third quarter that number was higher for the second quarter.
And but the deferral will be over in the third quarter and.
And we're not losing any any sleep over that being repaid over time.
Okay, and then back to Katie his question on the spot.
Expected tenant fall out I think you guys had previously commented that you expect us to be worse no eight nine lost 350 basis points of occupancy that there's currently.
Round numbers, 5% still unresolved and then another 6% on a cash basis.
What's how much of that 6% on a cash basis is I.
I guess is that 11% essentially that 6%.
Rents on a cash basis, 5% unresolved wouldn't.
Looking at 1100 basis points currently as to either concerning or unresolved.
I'm not sure you can put cash basis, an unresolved and separate bucket.
Gather the get the 11, though.
Clearly to them.
Overlap there so.
But yes, we did say we thought.
Vacancy could go dipped below 2008, nine levels, which was 96.4% though was exactly the end of the world.
And I guess it might still feel that way generally, but I think what we're trying to convey here and the tone of what we're seeing in our rent collections is that it's better than our expectations three months ago, and six months ago and so.
We'll see where where where it goes but it feels.
It feels relatively solid outside of the theater arena at this point.
Yeah, Yeah, RJ I do think mixing those two is it a little bit of putting an apple and an orange together.
I don't think it leave it there thanks, Kevin So there may be some overlap I also want to emphasize that comment that Kevin made in his prepared remarks, which is I.
I believe you made that to the extent these tenants are in.
On a cash basis only that doesn't mean that we are not pursuing those tenants for collection and while it's certainly very prudent and conservative to assume that you that none of that gets collected I think historically, we're in a position where weve collect.
We do better than zero.
On on that over time, so it's it's the proper accounting treatment for those those rents at the moment, but it does not change at all our resolve to get them collected and.
In my mind, our ability to get some part of that collected.
Right. So that speaks to the JV cheeses for example, which is on a cash basis, but have not thus far not rejected any of the leases.
Yes, that's a good good example of that.
Okay. That's it for me guys. Thank you. Thank you.
Well go next to Linda Tsai of Jefferies.
Hi, good morning.
The dip in quarter over quarter occupancy, who were the tenants are where the lines of trade that drove this.
That that drove the decline in the 30 basis point decline Linda.
I don't think we know I think it's just kind of a little bit here in a little bit there that not.
I don't think there's any anything.
There weren't any notable trends or anything that we took away from that and I'm sitting here right now I don't have that in front of me.
Okay.
Given the confidence and things moving in the right direction across the other sectors do you internally model winter coverage scenarios that could potentially undermine that progress.
Yes, Linda that's certainly one of the reasons behind not reinstituting, any kind of guidance or not trying to paint ourselves into a corner.
As Steve mentioned, the vast majority of our acquisitions are directly with our relationship retailers and they are certainly modeling that into their growth plans and expansion payment plans. So.
So we are kind of following them in that regard, but yeah were very watchful of what might be coming to create future disruption and it is certainly why we like to have the $300 million of cash in the bank and the.
Full capacity on the line of credit.
And that means sorry, if I missed sales how are you thinking about funding for acquisitions as you restart the class one.
I mean, I think all along we've said in terms of acquisitions. It will probably play out a little bit like 2008, and nine for US which was a walk before you run on acquisitions and B to the we've got nearly $300 million of cash. So thats, obviously, a go to stores and then ill.
Italy unused line of credit so.
Early innings, if you will of any kind of.
Move towards acquisitions, it would be more debt fund cash finance and then a little bit of debt, maybe but in the scheme of things you should not anticipate our overall leverage profile changing of any any note.
Thank you.
Next we'll go to Thomas Okay Ladenburg Thalmann. Your line is open Sir Please go ahead.
Arnie.
Fine.
So maybe building a little bit on Argus question, as we think about that bankrupt tenant bucket and I understand there may be some receivables outstanding there from kind of past months or any of them not current on rents as of today I'd like in October as it goes to the chapter 11 process.
Yes, yes.
Maybe and what percentage do you feel like Chucky cheese, just based on the numbers is paying rent today, but.
Is that Oh.
That's 3 million bucket, how much kind of maybe.
Yeah.
Flows into that kind of 96% collection.
I would say of our and this isn't really a bankruptcy question, but more of a cash basis bucket, which includes bankrupt tenants.
We're collecting probably about half of that the rent due.
On the cash basis tenant.
Okay.
Very helpful.
And then I know, you're a little reticent to talk too much about some of the bankrupt tenants but.
Maybe what's the exposure to Ruby Tuesdays at this point I know you had around 35 properties at year end 2019, the property count the same and maybe roughly the percentage of of tend to be here today, yes, its rise relatively unchanged and about 0.6% of annual base rent.
Okay, and then John John John This is Jay just to add one thing about the Ruby Tuesday, we we went into that deal very focused on low cost per property and low rent per property I think our average Ruby Tuesday property is.
About a million five $1.5 million, we paid for an average rent is probably less than $100000 per property, so that and as Kevin noted they none have been rejected in the bankruptcy at this point, but those we were very focused on keeping that as.
Keeping that risk low by keeping the investment low in the ramp up.
Very helpful and then lastly.
Lastly, as you think about acquisitions.
What would you need to see from a cap rate perspective to maybe the rat ramp acquisitions little more is that potentially a gating factor I know you mentioned in the prepared remarks that cap rates that remain.
[noise] pretty low on a relative basis would that expansion be necessary before we got to a more pad 2019 level of investment activity.
John I don't we don't think of cap rates is a gating factor is one part of what we look at in our overall risk return analysis, but historically, we've been able to achieve cap rates that were adequately accretive for us by doing business with our long term customers.
And the things we look at our not just the initial cash cap rate, but the duration of the lease and the amount of the rent escalations the rent bumps in the leases and.
That's who Steve is working with our relationship tenants that are used to those long term leases with the.
With the rent bumps in there and so the overall returns still.
Is what we look at in addition to looking at the initial.
Cash yields so I would say that we certainly we expected cap rates might drift higher when all this started we have not seen that if anything they may have be drifting a little bit lower for properties that get identified is essential.
Businesses, but.
We're able to find in our pipeline with our relationship tenants and were able to identify.
That are.
At adequate yields for us.
Okay.
Very helpful. That's it for me. Thank you all very much. Thanks.
And once again, ladies and gentlemen at what Star one if you had a question or comment.
We will go next to Spencer on the way at Green Street.
Yes.
Can you find a little bit more color on divestments made in the quarter, what industries and if they were occupied commission rate.
The dispositions your sales.
Yes, very fine yeah, yeah, as I made a small number when we sold three properties.
None of them were vacant that we sold and.
I would label mourn the defensive category in terms of dispositions, but it was only three properties totaling $2.4 million of.
Proceeds.
Okay, and you mentioned, the fact that they weren't offensive.
Physician when you look at the portfolio today are there any industries.
And to reduce your exposure to.
Now what.
Spencer more than.
More than just looking at.
The industry is what we're looking at all the time are which are the individual properties that we think are not long term core holdings. So it's more tied toward what's the what is the what are the real estate attributes of the different sites that we've got and what what might they be released for is this.
Rent above market.
Is this tenant likely to renew or or are we likely to get the property back. So we're sorting for more than just.
Lines of trade.
I will say that said right now.
We would certainly be an unlikely acquirer of more a movie theater properties. If there was a market for selling those properties at the moment, we might be sellers into that market, but but theres, not and and we're dealing with larger theater operators. So while we are.
Spec there may be some some paying with what we've got there.
We are.
At this point, we think will be just working with those tenants most likely going down the road to the extent there has to be any work done.
Okay, and then Karen.
What percent of your deal activity is related to temporary wines and has there been any concern or check and that can be given the potential at least go away.
Yes, very few of our acquisitions come from the 10 31 market and so to the extent it was too it might go away.
And cap rates move upward, we may find more things that that meet our underwriting criteria in the acquisition market as far as our dispositions go I think it's about 30% of our recent disposition volume has been to 10 31 buyers.
So 70% of what we sell goes to.
Folks that aren't doing 10 31 exchanges. So we don't expect if that were to go away. We don't expect it to have a material impact.
On our disposition business or.
Any part of our business really.
Okay. Thank you.
Well go next to the equity Malhotra of Morgan Stanley.
Thanks, so much for taking the question sorry about that earlier.
Maybe just building upon.
On the comments you provided on acquisition then.
Im just trying to maybe be consigned, a little bit of difference and I'm, noting between some of your peers reinstating guidance being a little bit more vocal on deal activity and the opportunity set versus sort of.
Your view of the World.
And I'm just trying to understand what what you could be seeing differently and I get it cap rate. That's one equation the ability of tenants to protect their own cash flow. This probably another thing.
Thing to consider but I'm, just trying to get a better sense of.
Some of the the signposts and maybe what how you're viewing the world just wouldn't be near term versus some of your peers and that's causing a little difference and acquisition outlook.
Vikram me and I will speak to the way the the peers are looking at it but I would say that we're just.
As with all aspects of our business. We are taking a long term view to all of this and certainly the pandemic and the business disruption that occurred from.
Store closures and.
All of the economic turmoil.
To us made sense to.
Take take a pause in acquisitions and and it was bolstered by the fact that our core customer. These relationship tenants also took a pause. So we were able to continue to satisfy our core customers and as Steve said, they we stayed in the market and looked at other deals, but there wasn't anything.
That was being marketed recently.
We felt like was something that we really wanted to pursue I can't really give you a bright line test for win.
When the it will be back to full acquisition mode, but our core customers are are beginning to expand and grow again, and we will continue to support that and get back into the market.
With them at all all under the umbrella of we just want to be thoughtful and prudent because we're we're taking the long term view of running this business.
No I think that's right yes.
Back to pick from the 2008 nine.
Same thing happened 2009, I believe we acquired something like $45 million worth of properties in that year took a pause wait for the dust to clear and you know we have the ability to re engage in a more aggressive way, if and when appropriate and we've got the capital and firepower do.
That one of the things we do think about years say three years from now when we look back and say we should have really bought a much much more in the second half of 2020, and we don't think.
We're going to look back three years from now and say that that was really the case or that will have mattered much in the in the with the benefit of some hindsight so.
We just think it's a little more prudent to go a little slower at the moment.
And that does that make sense and just don't yet see a two years. So the comment just maybe many years ago.
You and you will be had read to the portfolio to make it more call it internet, who and now you've sort of seen we've gone to the spend that making I'm just sort of wondering.
Can you give some high level color on how you me.
I think the lead to the portfolio effect on.
Given what we've gone through but but also maybe if you have a view of certain sectors being.
Somewhat structurally either third or.
Retooling of footprint.
Accelerated from what May happen in the future if any comments on how you're thinking about that would be helpful.
That's a good that's a good question and we are going to continue to look for what lessons we learned a thing.
Through this pandemic right.
Right now if you have forced us to answer that question, we would probably say there we will not be acquiring very many movie theaters.
Going forward.
We'll see how all of that industry deals with this over the next few years.
And what you see as those properties get put to down the road, but.
Vikram as I've said in the in the.
The opening comments at this point, we still think is the right strategy.
For building a portfolio like we've got is to focus on good locations leased to large operators at reasonable prices and reasonable rents that if you have a good location at a reasonable rent.
You will be you will be able to weather and you take a long term perspective, you'll be able to weather the ups and downs of what might go on in the economy instead of trying to pick.
Winners in different large different winning lines of trade that may.
Ultimately be disrupted what you what you want to have is a good real estate locations.
Fair enough. Thanks, so much.
Well go next to Chris Lucas Capital One securities.
Hey, Good morning, guys, Kevin just a quick one for you on the year deferral agreement you guys have put in place.
Are any of those had they've gone through sort of a lease modification process are they all sort of fit with under this sort of a sense be.
Accommodation rules that came out.
They all fit Andrea the Fas the accommodation yep.
Okay, and then just kind of following up on some of the line of question as it relates to sort of the acquisition side.
Kind of given your you've always been a very relationship driven organization should we expect to see some new relationships to sort of help build out.
Future opportunities or do you do you can you know.
Should we consider that sort of that going forward to be consistent with the group that you've been working with.
Yeah.
Chris I'm going to turn it over to Steve for because I want to hear his answer to that too.
Chris This is Steve.
I mean, the main focus our acquisition is always maintaining the relationships with our current tenants. However that being said our acquisition guys are always on the hunt to find new tenants and.
And create more relationships and the reason is we kind of pride ourself at NNN is that we do business recurring business with a lot of our tenants and we hope they outgrow us or get acquired by a bigger company. So therefore, we're always on the lookout backfill and new relationships. So long winded way say, yes.
You can see new relationships come out of this.
Chris just for the record I am glad to hear that does answer.
Thanks Jay.
That's all I had this morning. Thanks.
Thanks.
And with no other questions holding I'll turn the conference back to Mr. Whitehurst for any additional or closing comment sales.
Thanks, Jess we thank you all for joining US this morning, and we look forward to talking with many of you virtually at May read in a few weeks have a good day.
Ladies and gentlemen that will conclude today's conference. We thank you for your participation you may disconnect. Your phone line at this time and have a great day.
[music].