Q4 2020 Realty Income Corp Earnings Call
Okay.
Good afternoon, My name is free and it will be your conference operator today at this time I would like to welcome everyone to the Realty income fourth quarter and year end 'twenty 'twenty operating results conference call. All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you liked it we'll start of your question press. The pound key. Thank you I would now like to turn the call over to Andrew Crum.
Associate director at ability income you may begin sir.
Thank you all for joining us today for Realty income fourth quarter and year end 2020 operating results conference call.
Helping our results will be Sumit, Roy President and Chief Executive Officer, and Christie, Kelly Executive Vice President and Chief Financial Officer. During this conference call. We will make certain statements that may be considered forward looking statements under federal Securities law. The company's actual future results may differ significantly from the matters discussed in any forward looking statements, we will disclose in greater detail.
The factors that may cause such differences in the company's form 10-K.
We will be observing a two question limit during the Q&A portion of the call in order to give everyone. The opportunity to participate if you would like to ask additional questions you may reenter the queue.
I will now turn the call over to our CEO Sumit Roy.
Thanks, Andrew welcome everyone.
As we remain in a remote work environment to promote the safety of our employees and community I continue to be impressed by the resiliency and talent of our team to drive our business forward through the current pandemic. Additionally, I remain appreciative of the support and resiliency of our clients and partners, who continue to perform under challenging circumstances.
Chances.
On the personal front, we were excited to welcome Christie Kelly to our management team in January as Executive Vice President Chief Financial Officer on in February Michel Bouchard joined our team as Executive Vice President Chief Legal Officer General Counsel and Secretary.
Mike like them, who served as executive Vice President Chief Administrative Officer General Counsel and Secretary will retire after over 30 years of service.
Mike will remain serving our company through June 2021, as Chief administrative officer on.
We will continue leading our team members as well as assisting Christy and Michelle through that transition of Realty income until his well deserved retirement.
Well, it's kind of fully reflect Mike many contributions to our company for over three decades and I'm. So immensely grateful for his partnership with me throughout the years.
Moving on to financial matters, including a summary of the quarter on year.
During the fourth quarter, we invested over $1 billion in high quality real estate, including $467 million in the U K, bringing us to over $2 $3 billion invested during 2020, approximately 921 million of which was invested in the U K.
Investments during the year with largely concentrated in the grocery and home improvement industries, both of which continue to thrive during the current economic environment.
We maintain low leverage and ample liquidity throughout the year, while enhancing our financial flexibility.
Highlights include the establishment of a $1 billion commercial paper program. Our successful debut public issuance at Sterling denominated unsecured notes and record low coupon rates of five year on 12 year dollar denominated bonds in the REIT sector.
We have also been active in the equity capital markets to Accretively Fund our acquisition pipeline.
During the fourth quarter of 2020, we raised approximately 655 million of equity primarily through our ATM program.
And in January we raised an additional $670 million of equity through an overnight offering.
Accordingly, our balance sheet is well positioned to address what continues to be an active investment pipeline.
To that end, we are introducing 2021 acquisitions guidance guidance over $3 billion to $5 billion. As we are well positioned to continue the momentum we experienced on the close of last year on in January.
In the fourth quarter of 2020, we invested approximately $1 billion in 70 properties located in 22 states on the U K at a weighted average initial cash cap rate of five 4% and with a weighted average lease term of 13 four years.
On a total revenue basis, approximately 68% of total acquisitions during the quarter were from investment grade rated tenants 71 per cent of the revenue is generated from retail tenants. These assets are leased to 31 different tenants in 19 industries.
Off the $1 billion invested during the quarter $541 million was invested domestically in 59 properties at a weighted average initial cash cap rate of five 2% and with a weighted average lease term on 15.1 years.
During the quarter 461, $7 million was invested internationally in 11 properties located in the U K at a weighted average initial cash cap rate of five 7% and with a weighted average lease term of 11 seven years.
During 2020, we invested over $2 $3 billion and 244 properties located in 30 states on the U K at a weighted average initial cash cap rate of five 9% and with a weighted average lease term of 13.2 years.
On a revenue basis, 61% of 2020 acquisitions are from investment grade rated tenants 87 per cent of the revenues are generated from retail and 13% up from industrial assets. These assets on these to 56 different tenants in 26 industries two of the most significant industry.
Represented on grocery and home improvement.
Off the $2 3 billion invested during 2020 nearly $1 4 billion was invested domestically in 220 properties at a weighted average initial cash cap rate of five 8% and with a weighted average lease term of 14 nine years.
And approximately $921 million was invested internationally in 'twenty four properties located in the U K at a weighted average initial cash cap rate of six 1% and with a weighted average lease term of 10 eight years.
Transaction flow remains healthy as we sourced approximately $17 1 billion in the fourth quarter.
For the full year, we sourced approximately $63 $6 billion in potential transaction opportunities. The most we have ever reviewed in a given year off these opportunities $42 $4 billion with domestic opportunities on 'twenty $1 $2 billion were international opportunities.
Investment grade opportunities represented 50% of the volume sourced during the year.
After $63 6 billion dollar sourced 56% what portfolios on 44% approximately $28 2 billion with one off assets.
Of the $1 billion in total acquisitions closed in the fourth quarter, 66% were one off transactions.
On investment spreads relative to our weighted average cost of capital were healthy during the quarter, averaging approximately 130 basis points.
Moving to dispositions.
During the quarter, we sold 60 properties for net proceeds of $77 $5 million, realizing an unlevered IRR of eight 7%.
This brings us to 125 properties sold during 2020 per $261 million at a net cash cap rate of seven 8% and we realized an unlevered IRR of 11, 6%.
Our portfolio remains well diversified by clients industry, geography, and property type, which contributes to the stability of Paul cash flow.
At year end on our properties were leased to approximately 600 clients from 51 separate industries located in 49 States, Puerto Rico and the U K.
Approximately 84% of rental revenue is from our traditional retail properties.
The largest component outside of retail is industrial properties at approximately 11% of rental revenue.
Walgreens remains our largest tenant at five 7% of rental revenue.
Lenient stores remains our largest industry at 11, 9% book rental revenue.
Within our overall retail portfolio approximately 95% of our rent comes from tenants with a service non discretionary and low price point component to that business.
We continue to believe these characteristics allow our tenants to operate in a variety of economic environments and to compete more effectively with e-commerce.
These factors have been particularly relevant in today's retail climate, where the vast majority of recent U S retailer bankruptcies have been in industries that do not possess these characteristics.
We remain constructive on the credit quality of the portfolio with over half of our annualized rental revenue generated.
<unk> generated from investment grade rated tenants.
Occupancy based on the number of properties was 97, 9%.
E R M.
During the fourth quarter, we released 77 properties recapturing 100.3 per cent of the expiring rents.
During 2020, we released 314 properties recapturing, 100% of the expiring rent.
Since our listing in 1990, Paul we have re leased or sold over 3500 properties with leases expiring recapturing over 100% of rent on those properties that were released.
In light of COVID-19 rent collection across our portfolio has remained stable over recent months during the fourth quarter. We collected 93, 6% of contractual rents view and further improvement in rent collection collection percentages is primarily dependent upon improvements in the theater industry.
Which I will touch on shortly.
We collected 100% of contractual rent for the fourth quarter from investment grade rated tenants, which further validates the importance of high quality real estate portfolio leads to large well capitalized clients.
While we have not historically prioritize investment grade rated tenants at the primary objective during periods of economic uncertainty high grade credit tenants tend to provide more reliable streams of income as the last several quarters have exemplified.
Our top four industries convenience stores grocery stores drug stores and dollar stores, each sell essential goods and represent over 37% of rental revenue and we have received nearly all of the contractual rent due to us from tenants in these industries since the pandemic began.
Uncollected rent continues to be primarily in the theater industry, representing approximately 80% of uncollected rent in December.
As the theater industry remains challenged I would like to update the investment community on our latest view.
The industry represents five six percentage of our contractual base.
While we do expect the industry to downsize in the future. We continue to believe it will remain a viable industry in a post pandemic environment, especially for high budget blockbuster movies.
You might recall that the U S box office reached an all time high as recent as 2018 and 2019 produced the highest perceived worldwide film of all time Avengers end game.
We continue to believe particularly book for blockbuster movies that its theatrical release will be the preferred distribution channel for studios going forward, given the superior economics afforded to them versus streaming platforms.
That said, we do acknowledge that the industry is changing and that there likely will be a rationalization of theaters in a post pandemic reality.
Under this scenario underperforming theaters may not survive.
We continue to maintain a full reserve.
Outstanding receivable balance low 37 about 77 total theater assets and continue to recognize revenue on a cash basis for these 37 asset.
During the fourth quarter, we established a full reserve for one additional theater asset and we disposed off one theater answer previously on cash accounting to.
To be clear, we do not expect to lose the entirety of rent associated with these properties longer term even in the event on potential closures.
As of year end, the total allowance for these 37 theatres totaled $23 $7 million.
Including $1 8 million of which in the straight line rent receivable reserve and thus has no <unk> impact.
Moving on.
Our same store rental revenue decreased three 2% during the quarter and one 7% year to date.
On a reported same store growth in cash.
Lutz deferred rent and unpaid rent that we have deemed to be collectible over the existing lease term, but excludes rent where collectability is deemed less than probable.
The decrease in same store rental revenue is primarily driven by reserves, we recognized in the theater industry on to a lesser extent, the health and fitness industry.
Now on to provide additional detail on our financial results for the quarter I would like to hand, it off to Christie.
Thank you Sumit on your chest Julien.
Yeah Paul.
Having joined the board in 2019.
Experience firsthand the talent of our Realty income team together with the exciting growth opportunities for our business.
I'm looking forward working together with our team to deliver our strategic objectives and realization of dream to aspiration, but I'll, let Tom.
And our board of directors.
I also look forward to engaging with our investors.
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We are grateful for the support of <unk>.
All of our loyal shareholders, who have invested in realty income over 26 years as a public comparable on spot.
I would now like to provide a general all day.
Our recent financial results, starting with the balance sheet.
We have continued to maintain a conservative capital Scott share and remain one of only a handful of REIT would that lead to a rating.
During the quarter, we completed our GAAP you public offering Sterling denominated senior unsecured note issuance.
Issuing 400 million pounds 20.
2030 point effective annual yield to maturity of 171%.
We also issued 725 million senior unsecured notes.
Number two adult tranche offering.
Five year 12 year note.
Moving record low U S dollar coupon rate from the REIT sector for each of those tenors.
Additionally, we raised approximately $655 million of equity during the quarter, primarily through our ATM program and in January 2021, we raised approximately $670 million through an overnight equity offering.
We earmarked to pre fund on active investment pipeline to start the year.
We ended the year with low leverage and strong coverage metrics with it.
Net debt to adjusted EBITDA ratio of five three times or five two times on a pro forma basis adjusting for the annualized impact of acquisitions and dispositions during the quarter.
And our fixed charge coverage ratio remains strong at five.
Five one times.
We ended the year with full availability under our $3 billion multi currency revolving credit facility.
No borrowings outstanding on our 1 billion dollar commercial paper program and over $824 million of cash on hand.
In January we completed the early redemption of all $950 million three to five notes due 2022.
Which was done to reduce our near term refinancing risk and take advantage of attractive borrowing rate.
Fixed income market.
Looking forward.
Our overall debt maturity schedule remains in excellent shape with only $44 million net debt maturity through year end 2021, excluding commercial paper borrowings.
Now moving on to our income statement.
<unk> per share during the quarter was 84 and $3 39 per day here on a fully diluted.
Representing annual growth of two 1%.
For 2020, our <unk> per share was negatively impacted by non straight line rent reserves at $44 $1 million.
Which represents approximately 13 cents per share of separation.
Over half of which is attributed to the theater industry.
Now moving onto guidance as we introduced our initial 2021 Ernie that's net we acknowledged that while some uncertainty related to the theater industry remain together.
Together with the backdrop of the pandemic.
Our confidence in providing GAAP guidance is supported by the overall health and stability of our portfolio combined with the acquisition pipeline.
To that end, our 2021 <unk> per share guidance of $3 from 44 cents to $3 49 represents approximately 1.5% to 3% growth over 2020.
Moving on to dividends.
In December we increased the dividend for the 100 day night time on our company's history.
We have increased our dividend every year since the company's listing on 1994.
Growing the dividend at a compound average annual rate of approximately four 4%.
And we are proud to be one of only three free in the S&P 500 dividend aristocrats on GAAP.
For having increased our dividend every year for the last 25 consecutive years.
And now I'd like to hand, the call back over to Sumit.
Thank you Christine.
As we reflect on 2020, we.
We stand behind the overall resiliency of our portfolio.
The relentless efforts of our team to add shareholder value on the outlook for our business over the long term.
The momentum in our investment pipeline are ample sources of liquidity on our size and scale positions us favorably to capitalize on near term growth opportunities around the globe.
At this time I would like to open it up for questions operator.
At this time on like to remind everyone in order to ask a question. Please press Star then one on your telephone keypad.
Please limit yourself to two questions.
Like to ask additional questions you may reenter the queue.
Please hold for your first.
The first question is from the crowd.
Malhotra with Morgan Stanley.
Thanks, Thanks for taking the question and thanks for taking the questions.
Just hi, how are you.
Escalations.
Congratulations on the new role.
Chris maybe just to just to start off with the occupancy.
No degradation as you outlined it.
I'm just wondering if you can talk about two things pertaining to that one.
<unk> plans to backfill some of that or recapture some of that occupancy loss and then as we think about kind of 'twenty one.
What's sort of embedded in terms of.
<unk> other areas, where you might lose occupancy.
Those are great questions that come in thank you.
So on.
At the end of the third quarter, we were right at 98, 6% and a question was asked where do you think of them on the end of the Euro and.
And we had said that he was going to be right around 98 per cent and the fact that we came at 97 nine.
Was was fairly accurate.
And what we saw coming was the MPC bankruptcy filing as you might recall, we have approximately 150 assets with NBC, most of which happens to be the pizza hut.
And then we have 19 assets that are that are Wendy's. That's also run by MPC.
We were expecting.
66 assets to be to be rejected through the bankruptcy process.
And that was the reason why we had guided the market to a 98, approximately a 98% occupancy number.
We.
We were you know and all of those 66 assets did come back to us during the fourth quarter, which is the largest driver of this 97 point 97, nine you will see that the net increase in vacant assets from third quarter to fourth quarter was circa 45 assets. So despite the <unk>.
<unk> that we got.
66 assets back we were able to resolve.
A lot more assets than we had originally thought because these assets are very well located on vikram and we were able to attract.
Either Sars that wanted to take some of these assets and we feel very good about.
You know being able to resolve these assets fairly quickly. The other point I'll make is most of these pizza huts with NBC had less than two years remaining on.
On the lease term and so on so our asset management team had already begun the process of trying to figure out alternatives, knowing fully well that you know that.
These were the assets that would come back even if it were to have not filed bankruptcy. So.
We feel pretty good about being able to resolve these assets as you can see from the resolution.
We had the most number of resolutions in the fourth quarter.
This was a record quarter for us and so on.
It's a testament to the team that we have in place a ban on T J, who drive that particular process for us.
Continued to do an absolutely amazing job. Despite the backdrop of the pandemic and we are very hopeful that we will we will fly them right back up above.
Above 98%.
Look we have frictional vacancy on and we've always suggested that to the to the group that because we want to have the ability to reposition some of these assets.
We're always going to be in this 98 circa 98% occupancy rate because we do want to reposition some of these are switched on statements time.
And and that will continue to be what we target going forward.
That makes sense and then just one Christy for you.
The overall <unk> growth I know, there's some dilution or maybe just some headwinds near term you all see pre funded some of this.
Can you just give us a rough sense of the F O growth sort of in the first half year over year versus the second half of the year.
You know I think back on that.
In terms of.
Where we're going to see asset growth I think you can expect that to be a bit similar to historical norm on.
Outside of probably the second quarter of last year, where we pulled back on acquisitions like that but nothing out of the ordinary.
Okay. Thank you.
Your next question is from Katie Mcconnell with Citi.
Thank you Eddie.
Yes.
Katy are you there.
He might be on mute case.
Why don't we go to the next next call.
Your next question is from handles thank Jesse with Mizuho.
Yeah, Hi, thank you.
Hello there.
Can you talk a bit about the decline in net cash yields in the fourth quarter to the first three quarters of last year, the average cash yield closer to 6%.
On the 5% in the fourth quarter. So you can talk a bit about what drove that decline.
Decline and you also mentioned that 61 per cent of the <unk> volume was one off transactions. So how should we think about that.
The balance between one offs and portfolios.
Near term and what type of pricing differential that you're seeing there.
Yeah. Good question hurdle as you pointed out the <unk>.
Lower cap rate was largely driven by the mix of assets that we purchased here in the U S.
If you are if you look at the prepared remarks, I suggested that 29% of what we purchased here in the U S where industrial assets single tenant industrial assets.
These were very well placed assets with clients that who are.
Executing on their Omnichannel strategy.
Had lease terms.
That we're not off.
10 years, some 15 year leases.
Good growth in markets that we wanted to enhance our our exposure and with rents that were right around <unk>.
On market trends and so as you know.
Industrial assets tend to be.
Trading a lot more aggressively and as such.
Certainly had a bit of a downdraft on our on our cap rate, but the fact that we were able to do five 2% for the U S assets was largely driven by that.
Okay. Thank you for that and then maybe a bit of color on the guide for this year 3.25 billion I'm curious, how we should think about the yield on that front and that's part of your conversations with potential sellers I'm curious if in light of potential 10 31 per appeal would you consider issuing units with sellers and how that.
Mike.
Perceived or any any initial sense of or.
Have you discussed that with potential sellers on what feedback you might be getting on that.
Sure again, good questions handle low.
We came out in early January with what our pipeline look for the first quarter and you might recall we.
We had about 800 million slightly above $800 million that we had disclosed to the market at that time on.
That we had in our pipeline than we were 12 days into the year.
So I don't think you.
You know it should have come as a surprise that we had an incredibly healthy pipeline.
Developed coming out of the fourth quarter and and.
If you look at what we were able to achieve in the fourth quarter of $1 billion. We had a tremendous amount of momentum that sort of carried forward into the fourth into the first quarter and that has continued.
It is also a testament to the amount of sourcing that we are able to do the new swim lanes that we have created for ourselves to continue to grow the portfolio.
And I think it's a it's a testament to the strategy that we put in place a couple of years ago.
To be able to you know not post numbers that scene.
That seemed very large relative to what we have come out with in years past, but.
That's precisely the you know the path that we wanted to we wanted to go down.
You mentioned what is the expected cap rates I think you should expect cap rates to be similar to what we achieved.
In 2020, and given the mix of portfolio.
The adult optimal portfolio allocation that rehab sort of highlighted to the market.
It's really going to be a function of which particular portfolio our assets close within a quarter as to whether the cap rates are going to come out if if it's going to have a slightly more industrial slant to it it's going to be low cap rates, if it's going to be more retail it's going to have slightly higher cap rate, having said that even re.
Especially those.
Those types of retail that are deemed essential.
The portfolios are now trading in the mid fours.
And so you know the pricing environment has gotten a lot more aggressive but thankfully we have the cost per capital B, we're still able to generate 160 basis points of spread.
For the entire year, which is north of what our historical spreads. So we feel very good about.
The quality of assets, we are buying and how we are re shaping our portfolio.
Along the lines of what we had shared with the market.
Third quarter etcetera, so really the cap rate is going to be a function of the composition of assets that we provide within a given quarter.
The last question you had talked about was 10 31, and you know what is the impact or our ability to issue.
Hum you know op units well, it's not new for US we have done this in the past we bought.
Assets from retail shareholders, who wanted to buy I wanted to take all per unit says.
As consideration for proceeds and we were able to satisfy that so.
Could I see that momentum picking up potentially to two before having to pay taxes, absolutely and we are very well equipped.
Two.
<unk> advantage of that and use our equity as currency.
To provide that to potential sellers, but having said all of that 10 31, it's not a big part of our business even on the disposition side.
As you can see most of the answers that we sell tend to be vacant assets and that doesn't lend itself to the 10 31 market.
It's primarily.
Developers are or tenants, who want to own their own assets that that's to play in that.
Particular area and on the occupied side you know a lot of the transactions. We did in 2020 were.
Existing tenants exercising.
Their option to purchase.
That's the reason why we were able to generate.
Very good proceeds and very good overall returns on.
And the opportunistic sales tend to be.
You know an area, where perhaps we run into some 10 31 buyers, but that I would say, it's about 25 per cent of.
You know the sellers that we interact with so for US I think the on the on the disposition side is going to be fairly muted.
On the acquisition side, I think not having 10 31 be as aggressive, especially on the smaller boxes like <unk> and drugstores et cetera.
We could see.
Cap rates increase.
Because of the lack of 10 31 buyers and so that could potentially accrue to our benefit, especially when we are engaging in.
And these one off asset acquisitions.
Thank you Sumit very helpful very thorough and welcome Kristin and I look forward to meet you in person.
Thank you so much handle me too.
Your next question is from Greg Mcginniss with Scotia Bank.
Hi, Greg Hi.
Hey, Christy.
John It's Christy starting.
With you first welcomes and secondly, if I can just dig into guidance real quick.
The acquisition guidance of at least $3 billion to $5 billion.
<unk>, which is an interesting way to say that.
Probably confident youre going to get more than that but how should we be thinking about what gets you to the top or bottom end of the eight <unk> per share guidance range given that acquisition.
The expectation.
I know the question was geared towards Christy and Christy Please jump in but why don't I take that a little bit and then I'll hand, it off to Christy if that's okay Greg.
You know for US we wanted to make sure that we came out with a range that represented the facts on the ground today.
And we wanted to make sure that the range was was conservative enough, where even if the situation we're not going to improve.
And it wants to be as we have experienced early on in the year in January on December of last year that this is the range that we feel very comfortable with.
What I, what I, what I'm, suggesting is that there that could be a fair amount of upside to the range that we have shed and it's largely a function of what's going to happen to the theater industry at large but also to a smaller extent to the to the health and fitness industry.
And there we feel very confident that the theatre business is going to improve especially with the.
On the vaccination, having taken hold on.
You know every every day, we see more news about Pfizer in Modena, and now potentially J&J being being on.
On the approved list that the acceleration of getting to a point, where we have herd immunity is very realistic and I've seen base case models that suggest that as early as end of June.
We could we could get close to having herd immunity.
The other data point that I would point to Greg is what we have seen in China.
And over the Chinese.
On the lunar new year, we can.
They had record.
Ticket sales and in fact, one of the movies that are that were shown.
Todd.
Almost you know $50 million more in sales than the record that had been set by Avengers end game here in the U S on in Canada, and their opening weekend and so you know all of these facts sort of lead us to believe that.
There is a possibility that there is a fair amount of upside on the assumptions that we have.
You know are shown in our model.
And that that could that could help get us to the top end of the range and you know if.
If a lot of other things fall into place potentially we could do even better so.
We cant we cant go out with that expectation you know when you when you lay out all the various different scenarios, you've you've come up with what's what's the probability weighted outcome and that's what we have shared with the market but.
You know there are there are things that could play in our favor and its really is a function of how you think about the theater industry and what do you think the recovery is going to look like and we've shared with you AD Nauseum you know some of the some of the.
The assumptions that we have drawn in terms of taking 37 of our 77 assets on.
On viewing it on a cash accounting basis, and how that book late through the base model.
If if you all view shifts to say you know, that's perhaps a bit too conservative.
Then then there is there is good upside and that's what we are super excited about.
There are certainly other levers for us to play like you correctly pointed out.
The acquisition market is something we are super excited about and part of it is intentional and part of it is a function of you know more.
More and more.
Operators and clients that we want to do business with are wanting.
Wanting to engage with sale leaseback transactions and so that too could could act as a potential tailwind and and you know look we've come out with numbers.
You've seen our history about you know.
The early estimates that we come out with on what we are able to achieve.
During the year, but not saying that.
There too there could be some tailwind. So this acquisition fronts. There are assumptions that we have made about the theater business on the health health and fitness business. There are assumptions, we've made about how quickly we could get to a point where things are starting to normalize.
Et cetera, and all of those have room on capacity for potentially surprising on the upside so.
We feel we feel pretty good and then I'll hand, it back to Kristy, if there's anything else you would like to add.
Thank you Sumit and Greg. Thanks, so much for the question, but I, absolutely Echo everything that a few minutes that we spent.
As you can imagine in the backdrop of 2020, a good bit of time really thinking about the guidance then.
Being very thoughtful about how we.
Went out and trying to see if our range of assets held per share.
And as soon as said there are a number of levers that we have to the upside.
In terms of sale leaseback transactions a bit more on the acquisition side.
And also really looking at them at primarily the theater industry and so there is positive momentum and.
In light of that as well.
We do feel as Sumit said I'm.
Very good about where we are right now on the momentum that we had on the business.
Okay, great. Thank you for all that color from my second question Sumit.
Inflation is increasingly a top of conversation with investors could you perhaps provide some context on realty CPI based on lease escalator exposure and how the company is positioned to provide growing returns relative to peers in an inflationary environment.
Sure.
So I would say about 20%.
Probably a little bit.
On a bigger than that of our leases have CPI adjustments and but a lot of these have a floor and a ceiling associated with them. So yes. So you know a rising CPI environment, but we have some level of protection, but that does tend to be especially here in the U S. It tends to be a.
Slower on receiving associated with it.
For US you know the the we've encountered this problem before you know what happens in an inflationary environment. The fact that we have leases that are net lease in nature.
We are less.
Sort of.
You know that.
As susceptible to an environment, where inflation expectation on actual inflation goes out because so much of the cost either.
Insurance property.
Taxes et cetera are paid by our R. R.
And so from that perspective, we feel pretty good.
We started to see the 10 year Treasury.
Go off.
In anticipation of expected inflation going up but thankfully so far.
Our spreads have come down as well.
And our all in costs on the tenure has gone up slightly but not not dramatically you know we can still issue.
Tenured in today's environment, we think right around the 2122 ZIP code and that is still you know relative to what we've been able to do in the past a very good all in costs on the <unk>.
You know financing so we feel pretty good about that.
Some of this is now offset by what we are seeing in the in the in the U K as well as in and.
And in Europe.
Yeah.
Interest rates continue to be low inflation expectations are very much contained and so there are all in cost of financing continues to be super.
Exciting.
And so the fact that we've created all of these different alternatives also helps US you know shield shields us somewhat from inflation expectations are rising in particular geographies.
And so we feel pretty good about about that as well and and the fact that we have long term leases you know.
Also as a as a benefit.
Look at some point, if the inflation expectations are going up and it is largely translating to better GDP growth et cetera that should translate to better fundamentals for our tenants and so you know not so much. This year, we only have about one seven per cent of our leases expiring, but in future years.
That should start to reflect on higher market trends et cetera, and so, especially in 2022 2023, we have you know a bit more of a.
Exploration.
With regards to our leases I could see us marking to market some of our leases.
Leases during renewal time on so.
I think from from all of those perspectives, we feel pretty good and one on one of the questions that often comes up okay.
The interest rate environment continues to go up.
It's going to it's going to impact your cost of capital and that is absolutely true, but what we have found in prior cycles is that cap rates tend to follow suit as well.
And there is definitely a lag.
But you know it does it does sort of follow and then.
It allows us to continue to maintain the spreads that we have on in certain situations, even enhance our spreads if the cap rate moves faster than than our cost of capital. So we feel like we are very well positioned.
As a as a company on based on some of the investments we've made.
And on some of the areas that we're focused on we feel like we are very well.
Situated.
To handle on interest rate environment.
That increases on inflationary expectation environment that increases.
Alright, Thanks Sumit.
Sure. Thanks.
Thanks, Craig.
The next question is from Caitlin Burrows with Goldman Sachs.
Hey, Caitlin Hi, everyone, Hi, and welcome to the Christie Christian So their earnings calls.
Just following following up on the guidance question one on.
The case since you guys showed was income taxes and that they are expected to increase.
In 2021, and I think that's related to UK activity, but could you give us some more detail on what's driving this and how we should think about it increasing in the future.
Teekay activity.
It is Caitlin and I think that you can expect modest increases as we continue to.
And our U K present.
Okay.
Like the year over year increase from 2020, I guess should we just see that if youre, making a similar amount of UK investment dollars.
The income tax dollars May go up I don't know kind of similar type rate.
Similarly, yet.
Okay.
And then when we think about the deferrals that we have.
Income put in place in 2020, I guess could you give some detail on when you expect to receive notice and to the extent that any have already been dealt and kind of how that collection is going.
And similarly, when you'll start to notice the reserve seat, we're taking we're conservative right or the opposite of conservative would be.
Okay.
Sounds good Caitlin Yeah, I think first of all what I can say is that as it relates to the deferrals that we've been taking.
Essentially when we look at the.
Overall deferrals.
We're really looking at a short term payback and within 18 months.
And as it relate to.
Collections and the like.
We are experiencing collections, even before the deferrals are coming due so we've been having some positive traction on that all that being said you know we've got 2021 in front of us.
Yeah.
Got it okay. So when we think about it.
What's built into guidance on the reserves that you guys took last year. Obviously you gave the guidance range you gave.
Thinking that it would be accurate, but is it right to think that as we go through 2021, we'll start to maybe even early in the year to get some clarity on whether or not day reserves 2020, where.
The right amount.
Yeah, Yeah, and we go through.
Caitlin you may already know this but is very rigorous review on our receivables positioning and its prospects.
It involves finance it involves vehicle our asset management group and research and so in terms of the actions that we've taken.
We feel very solid about the reserve position.
And as we looked forward a collection and consistent and steady you know where we are right now on the fourth quarter. We've got you know close.
Close to 94 per cent.
Collections.
And really when you take a look at the uncollected rent in our company.
It's really a story about theaters, 80% of the uncollected rent. It is focused on the theater business, which is five six percentage you know with our contractual rent.
Wednesday.
And the remaining does that story is really around health and fitness, which is primarily the remaining 16% is on.
Uncollected rent.
And we did increase from collections on the health and fitness business that emits that and we've talked about we still have theaters in front of us.
There have been really positive momentum and we view that potentially could be an upside for our business going forward.
Okay. Thanks for that day.
Sure I Caitlin.
Your next question is from Rob Stevenson with Janney.
Hey, guys.
Just a question on the <unk>.
Comments on the movie Theater business.
Given that would you be in incremental buyer of movie theaters on any type of scale.
Going forward here.
Yeah.
So Rob I think this question was asked last quarter as well.
Yeah.
Look we like movie theater business, but the one of the lessons learned through this process is that should this represent.
At least when the pandemic started 6% of our overall portfolio.
And I think what we have concluded through this process is that this business.
Should survive.
But there will be some level of real estate rationalization and.
And we are very happy to have put together this portfolio largely through sale leasebacks with the operators themselves and so feel very good about you know.
Our current portfolio, but the idea.
Long term is to continue to dwindle, our our our exposure to this particular industry to something that is closer to a 3% Zip code. So.
I think that.
Answer to your question Rob.
We feel like over time, you need to get it down to about 3% of our overall portfolio.
Okay helpful. And then how are you thinking about non UK European acquisitions at this point and given.
What's going on over there.
Non European UK acquisition, so how am I thinking about the UK non UK European X. So the continent, So Germany Scandinavia on the outside of the U K or you got.
Should we expect that you guys use the UK as a launching point to make bigger.
Bigger acquisitions and expand throughout Europe is it only going to wind up being U K at this point for the near term how are you thinking about that in the context of the last 12 to 18 months and your experience there well we'd be expecting to see.
Other line and the acquisitions at some point in 2021 or early 2022. So in addition to the U S on the U K.
Continental Europe acquisitions.
We've always said that.
You know U K was our first step into a European strategy, a western European strategy and that continues to be.
On the path that we are embarking upon drawn.
We are very well established in the U K some of the numbers that we have posted.
I I believe is a testament to that statement.
We I am delighted to also share with you that we've we've hired another full time person Ed.
Hum.
And our U K office, who has a lot of experience.
Doing acquisitions and has a lot of relationships etsy.
Et cetera in the western Western Europe European market and so.
The goal is to you know continue.
Continue to look for transactions and not be constrained by geography, but look for the right transactions and there are there are markets that we have identified invest in Europe that we would like to be able to grow into but it's largely a function of you know do we have the right operators willing to transact.
At the right prices et cetera, et cetera, so I'll be open to acquiring in western Europe. The answer is a categorical yes.
But.
You know do I expect to see something happen in Spain, I don't have a timeline for that or something in France, or Italy, or Germany, I don't have a timeline for you.
I was going to be a function of whats available and who we can get to.
<unk> worked with them and whether they fit into our overall targets client list.
And the financing options in the continent over there are they is attractive to you at this point.
The U K, if you were to buy something would you finance it in local currency.
Absolutely I mean, that's been on our goal is try to minimize our exchange rate risk as much as we can and we will we would follow a similar pattern to what we did in the U K.
We did our debut Sterling offering and prior to that we had done a private placement raising capital.
And U K denominated pound.
And that will continue to be how we finance our transactions and that's where it becomes super exciting Rob I mean, you can do a 10 year paper in euro denominated debt at $65 70 basis points, yes cap rates on a lot more aggressive, but when you sort of factor in the cost of financing for <unk>.
Lewis.
On a minus a three rated.
It suddenly starts to make a lot of sense and I think continuing to create alternative sources of capital continuing to look at.
Additional paths to growing our business.
It's something that our platform allows us to do and.
It's one that we are we are excited about and we'll continue to push on.
Okay. Thanks, guys I appreciate it.
Thanks, Rob.
Yeah.
Your next question is from Brent Thill with UBS.
Hey, guys.
Hey, Christie Library, welcome I assume it.
So most of the myself been asked but I did want to ask something.
The grocery sector exposures increased quite a bit in recent years on I know that was intentional but its up to nearly 10% of rents. So maybe could you talk about.
How youre viewing that sector longer term just given the wider adoption of online grocery delivery during the pandemic I mean do you think like what we've seen so far is it's mostly local delivery from stores, but do you think there's any risk that disconnects from the customers' local store over time, and maybe the grocery store becomes a little bit more challenged from an ecommerce perspective.
Yeah, you know Brent I don't know if you.
If you go to a local grocery even in this environment you still find them fairly full.
Hum.
You know not trying to be facetious here. It is deemed an essential retail and they have continued to perform having said that the most important thing that we are trying to focus on is the fact that the operators that we wanted to do business with they have an omnichannel strategy.
If you look at the the UK grocers that we have partnered with <unk> dominate the click and collect market and they dominate the you know delivery services and so most of the partners that we have and if you if you sort of on.
You know.
On pack, the 10% on its not quite 10%, but it's getting there.
Of our exposure, you'll find that all of the operators that we have done business with are substantially all of the operators that we've done business with tend to have this omnichannel strategy very well established are in the process of having it very well established they have the wherewithal on the balance sheet to do so and I do think that that is that is.
Going to be the future of this particular industry, which is why we got very comfortable.
That it's not just the industry, but it's the operators that we have targeted within these industries that we have done business with.
And they will they will be not only surviving but thriving in the new environment where potentially.
Potentially there is going to be more click and collect or delivery services. So we feel very good about R.
Our our specific exposure within this industry.
I don't know if this was a question or not as to whether you know I'll be sort of getting up against our limits with 10% I would say no.
Our investment policy allows us to go as high as 15% and for certain industries. We can always go back to the board and.
And on request exceptions, but of course, we have to put forth on pieces as to why it makes sense. But this is this is an industry, we feel very comfortable with Brent.
Okay. Yeah that makes sense I was just curious what your longer term thoughts were and then just one other quick one I don't know if you've really got much to say about it but the power grid issues in Texas recently, you have decent exposure to that market anything we should expect there longer term or is it just a blip.
Well, it's I don't want to Underplay, you know, what's happening in Texas, but thankfully you know as far as our exposure in Texas is concerned again, that's the advantage of having a triple net.
Business is that it's largely being handled by the operators.
And thankfully the disruption was fairly short term and so most of these businesses are going to be able to come back yes. They may have some some some issues with with product not not making it through this.
This this blip as you put it but.
I don't see this as being a major issue for the board for the specific clients that we have exposure to in Texas.
Great. Thank you guys have a good one.
Thank you Sue Brian Thank you.
Your next question is France.
Oh, LOI with Green Street.
Hi, Spencer.
Hi, Thank you.
And just a case of total commitments for your development pipeline I realize that's a small portion of your overall capital deployment and it is fairly elevated versus historical norms. So I'm. Just wondering if you could provide some color on how you're thinking about this bucket should we expect it to remain elevated and what kind of stabilizing I'm sorry your underwriting.
Yeah.
Spencer that's a great question Theres a reason why we have that sheet in our supplemental and we wanted to lay it out as clearly as possible.
This is another one of the avenues for us to continue to gain exposure to certain clients and do it at a cap rate that is north of what you would be able to transact in the open market and so you know it is about $160 million of commitment 100 of which is not funded yet.
But if you look at the break up you will see that it's largely driven by two.
Forward commitments, we have on the non retail side of the business and so you know what that allows us to do is again enter into these contracts in a particular asset type that is trading super aggressively on and be able to transact and get assets, maybe $40 $50.
60 basis points, North of where you know a a these assets would be trading had they been available today and so I think that is part of part of the advantage of doing this and this is again using our credit using our R. R.
Scale and size to be able to.
Get some of these assets at higher cap rates than what we would on the.
On the open market. The other side of this is you know repositioning. So I mean, I think it was big Crum, who had asked about hey, how are you thinking about these assets from MPC.
We have a history of being able to reposition some of our assets and be able to really capture and enhance our.
No rent from the same exact location by simply repositioning these assets and that is something we've been doing for a few years they tend to be smaller dollar amounts.
But.
Once again, we've given you that detailed on the supplemental and that will continue to be there.
A bigger and bigger portion of our business and I think as you as you've seen.
The velocity of our lease terminations et cetera will only increase.
This part of our business, which we have seasoned over the many years will we will start to play a bigger and bigger role and will certainly we hope be a value enhancing.
Part of our business model and so I would love to see this business continue to increase.
Within the parameters on what I've just shared with you.
And help us create another source of value creation for the overall business.
That's really helpful. Thank you.
Sure.
Your next question is from Wes Golladay with Baird.
Hi, everyone.
Just a quick question on dispositions you know how is demand for the non core assets for the tenants that are impacted by Covid. I know you were able to sell a theater. This quarter do you know what that will stay a theater.
I'm not sure.
You know, but I think west we've talked about this again.
Some of these theatres are located and Pri.
Prime locations and.
And we've already shared with you that look we don't think that the footprint of the theater business pre pandemic is going to be exactly the same post pandemic. So there will be some level of rationalization, but the good news is there is a fair amount of demand for.
Last mile distribution and theres much more of a focus on.
Development of multifamily given given some of the trends that we're seeing.
In some of these markets. So it is quite possible that these assets given that they sit on the <unk>.
Potentially 10, 12, even 15 acres of land.
Could be repositioned to a higher and better use.
But that question, which I think is going to be very specific to the particular location and where that.
Particular tier to falls in the performance rankings and if it tends to be in the top two quartile I would say that yes, the likelihood of it remaining a theater is high.
But if not I could easily see it.
You know being repositioned.
Perhaps you can easily but certainly repositioned.
Alright. Thank you for that and then could you did you I don't know if he shared it already but how much of the ABR is for tennis on cash accounting and what is the percentage collected from that tenant base and are those mostly related outside of the theaters most of them related to tenants that are in bankruptcy now.
Yes, Christy do you want to take this one.
We have you know when we take a book west at our over all collections I think I had mentioned this before.
That's you know our collections are stable at 94% at 80% of our uncollected rent is really as a result of the theater industry and the remaining is really in in regard to our.
The health and fitness.
Okay. Thank you Paul.
Thanks.
Thanks, Brad.
Yeah.
Okay. Our next question comes from Todd Stender with Wells Fargo.
Hi, Thanks, and welcome Christine.
Thank you Chad.
Sure Sumit, sorry, if you already covered this but I heard your quote cap rates on a few levels.
But when we look at your 3 billion plus acquisitions, whereas we would assume some good sized portfolios incorporated in that can you speak to portfolio premiums right now versus one off deals and maybe if you can bifurcate if there are premiums between retail and industrial.
Yeah.
That's a very good question Todd.
You know what we have been in in even as they either.
Last year there was a.
Portfolio discount.
I'm not a portfolio of premium, but there has we have seen a couple of portfolios come to market that have traded.
Very expensive thing.
And so.
I'm not quite sure.
Where this trend is going to go Todd but.
And then I think I mentioned this already that even even some.
Industries, and some tenants that we had seen.
Pre pandemic.
You know on.
Are now trading at levels as a portfolio.
40, 50 basis points lower so.
It's tough to tell I don't think it is a point that could be made across all industries and all operators I do think that that's and most industries, especially the higher yielding industries. If theres a portfolio transaction you will tend to see a discount not a premium.
But in certain.
The industries and the industries that are in favor today, we are certainly seeing.
You know a little bit of tightening.
With regards to the three to five.
We are not underwriting to very large portfolio transactions that is not part of ours. Our overall forecast Todd. So if that were to happen I think that would be.
That would be above and beyond.
The numbers that we have shared with you.
And and so that too could be a potential tailwind for our business.
As you might know there are several public.
Public sale leaseback transactions in the market.
None of which are reflected in the numbers that we have shed.
With respect to cap rates.
It is it has compressed and.
It has compressed even over the last five months four months so.
Whether it's retail here in the UK.
Industrial as you know, it's probably steady, but still fairly aggressive cap rates.
It's it's all has.
<unk> tended to become a lot more expensive today than it was six months ago.
In the UK thankfully the cap rate market is a bit more stable no I wouldn't I wouldn't go so far as to say that it's compressing.
But you know.
It's funny.
We tend to do certain transactions, where we are the only ones who are engaging in conversations.
And then we will find one or two other potential buyers start to come in on subsequent transactions. So.
This is this is an interesting acquisitions environment that we find ourselves in right now and.
But we feel very good again, the advantages that we have we feel like we'll be able to get more than our share of.
The transaction is done and we will continue to do it on spreads.
That will be very favorable and will help us drive earnings growth.
That's great color. Thanks Sumit.
Sure. Thanks Todd.
I wanted to circle back on your question.
They had that I had the theater theater numbers in my mind, but you were asking about cash accounting.
And I just wanted to let you know that right now we have almost 50 clients on a cash basis.
And just to give you some color, it's a little over five and half Miller.
Dollars as our monthly rent exposure.
For which you know over half of that is associated with the theater industry.
Let me note that house.
Okay.
Todd to any other questions.
That's it for me thank you.
Thanks, Tom.
Yeah.
Your next question is from John Lewis Osha with Ladenburg Thalmann.
First off welcome to how is it going first off welcome to the earnings call Christy.
John.
I know, we're getting a little long on the call here. So I'll keep it to one question has there been any change with regards to rent collection quarter to date in <unk> 'twenty, one versus say for 'twenty.
Essentially can you provide any color on any of these troubled industries or non paying tenants are any of them starting from maybe pay that hadn't been paying in December November October.
Yeah, I could probably help us out a little bit I mean, if we take a look at you know year to date on that.
January recollection was relatively consistent with what we've been seeing in the past month, you know towards that 94% range.
And essentially the theater industry.
Sales in majority at approximately 80%.
And we did see some pick up as it relates to health and fitness and it's.
It's a little early for February right.
Overall.
As we said at the start of the call it out and it's consistent and steady.
Okay, but the improvement you've seen so far this quarter has been largely on the health and fitness side rather than the theaters.
Like that yeah.
But I would like to say to you that theatres RK.
Okay.
That's it for me thank you very much.
Thank you.
Your next question comes from Katie <unk> with Citi.
Hi, Katy.
Okay I will try her second line.
Can you hear me now.
Can you hear me now.
Oh, Yes, we can't it's Michael Bilerman can you hear me.
Hi, Mike how can you hear you Mike.
This is what happens when I'm in the office Katie's in Philadelphia, we have an associate at home.
It creates that blind merging that doesn't work too well sometimes.
Yes.
Christy it's good to hear your voice I was wondering if you can provide some perspective.
Obviously, when you switch over from banking you went to Duke as the CFO and then went to CBRE you sit on park hotels Kite Realty tiers Board came out of Realty Income's fourth last year.
Net lease and what Realty income is very different from those other companies in terms of.
The type of business in terms of creating growth with this longer duration net leases.
Really where the competitive advantage is the cost of capital and obviously the relationship with the company has but the secret to the company is being able to access well priced capital on finding the deals.
Talk about sort of your perspectives.
How you think the company should be capitalized how you think about capital raising relative to your prior experiences.
Certainly Michael it's great.
Thanks, again and at what point the screen.
And in fact I wasn't at CBRE I was at Yale out John.
Broker.
Close enough.
So until the J L L C B area.
But in terms of.
Overall thought Michael you've known me for a long time and I.
Thank you know you really.
And obviously I understand the triple net lease business.
Really being competitive and leveraging our scale and thoughtfulness on the capital market side. It is really I think what you've seen from US historically, what you saw from us at the beginning at the year and what you can expect from us going into the future.
As Tim mentioned, we're excited about what we're seeing in the U K and transcend.
The debt markets and what we can execute at.
And should something come to fruition on the continent.
We have a lot we had some very favorable access we believe on the continent kind of that perspective as well.
And when we take a look at capitalization.
I mean, you can expect us to protect our balance sheet and really be focused.
They'll get done that net debt to EBITDAR of 5.5%.
Five times, as we mentioned and really going for us in that regard.
And you know sitting back you mentioned some of those other businesses I mean as you know a.
Realty income is just a fantastic business.
With a great team and I'm really excited about joining the team we have a long runway ahead of us a great growth potential.
And Tim it's been mentioning and I'm really excited.
Exciting things to continue to add value to our clients.
As you think about sort of cash flow growth.
A little bit about on the call of some of the.
Industries that are having some issues and how that could sort of guidance, but part of the weaker growth is the pre funding of a lot of the transaction volumes given the sheer amount of equity that you raised from the fourth quarter on earlier this year, how should we think about your cadence on equity.
Because it is depressing current earnings showed was that like a rebalance for 'twenty, one or should we expect an acceleration of growth as we move through the year on into 2022 solely focused on the transaction side of the equation.
Not necessarily Michael I mean, we were just taking advantage of the market you know at that point in time and it was really an opportunistic play given the.
The acquisition pipeline that we had in front of us. So you can expect us to still be managing our debt to equity equation thoughtfully and keeping with our a rating.
Not being.
Overly aggressive if you will cause perturbation.
Okay. Thank you.
Thanks, Michael.
The next question is from Joshua <unk> with Bank of America.
Yeah, Hey, guys.
Just wanted to see what the latest.
This was on the 711 portfolio thats in the market.
And kind of your current feeling about.
If you would if you would consider adding to your 711 exposure.
Hi, Joshua I'll I'll take that question. So you know we don't.
Talk about specific transactions.
You also can see that 711 is a top 10 tenant of ours.
It's a client that we have done repeat business with we help to do that for a sale lease back in 2016 on did subsequently for other sale leasebacks directly with them.
So clearly it's a it's a it's an operator it's a.
That we really like it is in an industry that we liked especially.
Standing at 711 has within the convenience store business, we really like that positioning.
And so then the question becomes okay, what about the 11% industry exposure that you have to convenience store business is that is that a factor that could potentially curbed our ability to do more and I think I've answered the question.
Before we have a limit on 15%.
We can always get exceptions in the event, we can make the case that a particular industry is one that we are very favorable be inclined towards.
I would like to see it increase and this is one of those industries that we would feel very comfortable in increasing our allocation to but again, we have to be very specific that is industry increase in allocation, but with particular clients in mind on 711 would definitely fall investors in that process.
Got it okay. Thanks, thanks for that oil before.
Thanks, Josh.
Your next question is from Linda Tsai with Jefferies.
Hi, congratulations.
Thanks, Tom.
In terms of acquisitions, what type of competition do you run into on larger portfolio deals and who would be willing to take on tenant concentration to get some of these larger deals done.
Are you asking us about.
Whether we would be willing to take the tenant concentration or is this a general question Linda.
Just more of a general question around competition.
When youre looking at these larger portfolio deals.
And maybe some of the competitors are out there that would be willing to take on concentration.
Sure. So that's you know that's one of the things that we've talked about Linda is the fact that we do have the size and the scale to absorb large portfolios now.
The way I would define large portfolios is 1 billion plus you know most peers.
Would run into concentration questions.
Doing half that size, especially if they already have a preexisting exposure to that particular client.
But we find ourselves in the enviable position of being able to continue to increase the.
The allocation for a given client and it's largely a testament to the size of our overall business and balance sheet.
But clearly when you start dropping 5 billion $6 billion.
Our types of transactions that.
Don't come very often and when they do.
You know outside of US I don't know if there is there is any other public net lease buyers that could potentially entertain absorbing that.
That's sort of size.
Then in terms of who are the alternative buyers of this.
It's largely driven by what is available on the financing side of the equation and ABS has become preferred mechanism of financing. These large.
Scaled transactions, especially with highly rated.
Operators.
And then once once those boxes are checked you can pretty much assume.
You know some of the private equity folks getting involved and being super excited about claim.
And in that size, because they can put capital to work on.
And lever up the the portfolio too.
Call It 80, 590%.
And be able to get very hot enhance their cash on cash yield so.
That's the group that would be the traditional competition Paul.
Or you know very large.
Sale leaseback opportunities with highly rated operators.
When interest rates starts to move in the direction that it has.
And that does start to put pressure on on some of these players because the cost of financing on that 80% 90% leverage.
Starts to creep up so it really is going to have to be coupled with what we see in the financing market to help define who the potential competition could be.
Got it.
Then just in terms of the cash basis tenants what percentage did you collect from the cash basis tenants in <unk> and in <unk>.
Now I'll, let kristy answer that.
We had a couple of million Linda I believe.
Okay, and then just for the 40 theaters that arent on a cash basis.
It sounds like we should assume they're paying some level of rent free.
40 or are they concentrated under one banner versus another on your disclosure you show 40, Regal in 30 to AMC.
Yeah, I can answer that.
Yes about 41 of these assets.
When we did our internal analysis, we deem them to be in the top quartile.
And that's how we came up with the 41, but when we talked about us getting some rent from both AMC as well as Regal, especially in the month of December it was across the entire portfolio.
Even those assets those 37 assets that rehab on cash accounting.
They paid us rent.
900 per cent.
You know, but they paid us some rent for the month of December.
And that's really the.
You know the upside for us going forward.
Thank you.
Sure Okay.
Yes.
Okay.
At this time this concludes the <unk>.
Question and answer portion of Realty income Conference call I will now turn the conference over to <unk>.
Roy for Tom.
Net remarks.
So thank you everyone for joining us today, and we look forward to speaking with you at the upcoming virtual conferences take care Bye bye.
Thanks, everybody.
Okay.
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