Q4 2020 VEREIT Inc Earnings Call
Good afternoon, and welcome to the very 2024th quarter earnings call.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.
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Please note. This event is being recorded I would now like to turn the conference over to Bonnie Rosen Senior Vice President of Investor Relations with for REIT. Please go ahead.
Thank you for joining us today for the very 2024th quarter earnings call. Joining me today are Glenn or Frano, Our Chief Executive Officer, Paul Mcdowell, Our Chief operating Officer, Mike part of lot of our Chief Financial Officer, and Tom Roberts, Our Chief investment Officer.
Today's call is being webcast on our website at <unk> Dot com in the Investor Relations section there will be a replay of the call beginning at approximately 230 P. M. Eastern time today dial in for the replay is 1877344 75 to nine with the confirmation code of 101.
5185 to the.
Before I turn the call over to Glenn I would like to remind everyone that certain statements. In this earnings call, which are not historical facts will be forward looking various actual results may differ materially materially from these forward looking statements and factors that could cause. These differences are detailed in our SEC filings, including the annual report filed today in.
Addition of stated more fully in our SEC reports very disclaims any intent or obligation to update these forward looking statements, except as expressly required by law.
We will conclude today's call by opening the line for questions. Glenn Let me turn the call of field.
Thanks, Bonnie and thanks for joining us.
We have a hell of a bit of data of who is in the presentation today as compared to one year ago.
At the time the company had settled its last legacy issues and transition to offense and the.
When the pandemic hit.
Well it may of briefly pause the progress and also the verified in many ways of the success of our business plan.
Once again and often this year with greater liquidity.
As we present today, along with Mike and Paul Tom will not only be available for Q&A, but also give a review of the transaction market.
Now, let's get to 2020 before I lay to present, our thoughts on 2021.
Our team worked well this year and I thank them.
Technology enabled us to be effective as the mostly work from home.
Our strengthened and diversified portfolio of resulted in high rent collection during the worst of times of 2020.
Ending at 98% during the fourth quarter with $12 million or one 5% of <unk> being deferred into next year.
Ensuring quality of income in 2021.
Our investment grade balance sheet was enhanced with the net debt to EBITDA reduced to five six times and our press decreased from $773 million the $373 million.
Liquidity was provided by $1 8 billion of unsecured financing at accretive rates and extend the duration of $484 million of equity was raised on the ATM.
Cash flow was enhanced by lowering the dividend, which will now be on an increasing trajectory.
We remained active by investing over 1 billion of capital $580 million in the last two quarters, including price.
<unk> per diluted share was $3.11 not far off our original guidance.
And our office exposure, which further reduced the 16, 5% from 18, 6% of ally.
At the beginning of the year by selling $333 million and we have closed an additional 98 million year to date.
Let me now hand, the call over to Tom to discuss the capital markets and opportunity set available to us as we grow the portfolio in 2021 Tom.
Thanks, Glenn the transaction market took a significant pause in the second quarter due to the pandemic and then accelerated towards the end of the year. The fourth quarter started to get back to more normal levels with the 145 billion in transactions compared to 180 billion in 2019 with 70 billion of activity in the <unk>.
Number only down 7% year over year.
With the single tenant net lease universe of 1.5 trillion, which is highly fragmented with approximately 8% to 10% public or private funds.
There will be continued increase of product in the market in 2021.
We access the market through different avenues.
2020, approximately 45% were sale leasebacks, 20% of build to suit forward commitments of mezzanine debt with the remaining balance of an existing leases the of real estate brokerage community.
Our experienced team has consistently source $25 billion to $30 billion of deals per year acquiring over 1 billion per year on average as Glenn mentioned our of Kimberly be focused on acquisitions with far fewer dispositions expected our team will be repurposed to increase this volume.
Our acquisition model is the number of channels to find opportunities providing portfolio of quality and a F F O of growth.
On balance sheet, we will source discount retail quick service restaurants, non investment grade industrial and mezzanine debt to position assets into our industrial partnership the <unk>.
Part of the shift we'll invest in investment grade industrial and long term office.
In 2020, we acquired 146 million of properties in Q1, we paused in Q2 accelerated by purchasing $300 million of preferreds in Q3 and acquired 180 million of properties in Q4.
Our 'twenty 'twenty property acquisitions had a weighted average lease term of 17, five years and 65% with fixed annual increases averaging one 7% with the remainder tied to CPI.
We have an active pipeline with signed contracts of a letter of intent well the 325 million and we are very confident in achieving our guidance. Both partnerships are fully engaged and have over a 160 million under negotiation there.
There continues to be good deal flow within our channels of opportunity and the team is very excited as we see the activity and the growth in 2021 of them beyond I'll now turn the call over to Paul on operations.
Thanks, Tom.
Chart with an overview on rent collection tenant credit and then move on to normal operating metrics.
Our portfolio continued to perform throughout the pandemic due to the underpinnings of our property type diversification industry breakdown.
That's the great tenancy.
<unk> versus private ownership and geographic location.
Our Q2 rent collection came in at 87% Q3 at 95% in Q4 at 98% the.
These percentages are based on pre Covid rents and we have not adjusted the denominator for any rent relief.
As we move past the rent disruptions the characterized at the beginning of the pandemic and get to more normalized rent collections. In 2021, we are now collecting approximately 99% of scheduled rent.
In 2021, our collection percentages will be based on current scheduled rents from our tenants that excludes cash basis tenants.
This change better reflects normalized collections and in January had a very modest positive impact on collection percentages of about 1%.
And it's consistent with the calculation of the 2021 guidance that Glenn will discuss later.
We continue to monitor our tenants credit quality closely.
And in Q4, we experienced no major bankruptcies and our credit watch list improved slightly.
This is in part because we have a large amount of investment grade and public company tenants within the portfolio with approximately 39% rated investment grade for the total portfolio and 49% within retail which remained consistent during the pandemic.
Our over 65% of our tenants are public and the overall portfolio and approximately 74% within retail with several of our private equity owned tenants who benefited during the pandemic able to go public.
Fact, we had over 11% of our portfolio received credit positive news between last year and so far in 2021, most notably our largest tenants red lobster's announcement that of group led by the public Company Thai Union acquired the remaining 51% of Red lobster.
From Golden Gate capital.
Okay.
They were also able to recently successfully refinanced their debt and have a strong liquidity position.
In addition, Albertsons Academy Sports C store owner GPM, Inc.
Investments Petco and driven brands are now all public companies with the top golf Callaway merger set to close early this year.
We also had a top tenant tractor supply received an investment grade rating.
Restaurants had been a focus of our attention since the beginning of the pandemic and we are pleased that both of our tenants and the name brands in the industry in general seem to have successfully adapted their business plans and are doing better.
We have seen this improvement directly correlated to our steadily improving rent collections in this sector in this sector.
Additionally, our restaurant tenants have not only been able to pay rent.
But also keep up with the repayment of their previously deferred rent at 100% for 2020 with casual dining being the bulk of that of Mt.
Turning to our leasing activity, we had an incredibly active year with almost 100% more non COVID-19 related leasing completed during 2020 compared to the prior year.
The team executed 256 leases on over $7 1 million square feet.
Of which roughly $2 8 million square feet were early renewals.
Total activity for 2020 included three 5 million square feet of industrial one 6 million square feet of retail.
One 6 million square feet of office, and 484000 square feet of restaurant.
For renewal leases, we recaptured approximately 99% of prior rents on an initial cash basis.
And approximately 95% including early renewals.
Many of these newly extended leases have additional built in rent increases, bringing the total recapture over the length of the leases to a 101%.
Occupancy ended the quarter at 98, 1%.
Also the team had COVID-19 related leasing activity.
An additional $4 3 million square feet during the year, bringing total activity to an impressive 11 4 million square feet.
We remain very focused on being in front of our exploration schedules, which is best illustrated by the $2 8 million square feet of early renewals done throughout the year.
This has been a consistent effort.
In addition, we experienced good tenant retention levels of roughly 80% during the pandemic, which is in line with our long term averages of 75% to 85%.
Office retention has been on par with this range and we have been successful in extending leases and then placing those properties on the market for sale.
In 2020, we sold two office properties with new lease extensions at disposition cap rates, averaging approximately six 1% and.
And we have another large office property under contract, where we completed a blend and extend last year.
We remain focused on managing leasing and continue to meaningfully reduce our office portfolio.
Our office rollover through 2023 is very manageable when looked at in the context of the overall portfolio with.
With approximately 2% of rents rolling each of this year and next.
And under 1% in 2023.
With much of 2020 ones office rollover concentrated in the second half of the year.
Office NOI for 2021 should not be materially impacted.
Industrial explorations as a percentage of total portfolio of rents range from 1% to one 5% over each of the next three years.
For 2021, industrial rollover could have a larger effect on occupancy due to the square footage. However.
However, rollover is also concentrated towards the end of the year and with average rents approximating $3.30 per square foot, providing us with manageable re leasing spreads.
In closing we've been very pleased with our portfolios performance and our ability to manage the lease rollovers with good retention and a good economic terms protecting protecting the durability of our income.
Further portfolio segment information and details can be found in our investor presentation filed today I will now turn the call over to Mike.
Thanks, Paul and thank you all for joining us today.
I will cover some of the fourth quarter in 2020 financial highlights the <unk>.
Next of COVID-19 on our earnings as well as providing some guidance metrics for 2021.
<unk> for the quarter was 76 and $3 11 for the year I'll break out of some of the Covid related items that are included in our <unk> and those that are not included.
The items are in the following three categories.
Executed deferral of earnings for Q4 rents as of February where the collection of the future cash flows was deemed probable totaled $132000.
For 2020, this amount of totaled $17 9 million of which only approximately $11 7 million goes into 2021 of the receivable at.
$6 2 million or 100% of what was the old was collected in Q4.
This rent is included in the <unk> further we don't expect any material of deferrals related to 2021 rent going forward.
Executed blend and extent of amendments, which contain an abatement of rent for a specified period totaled of very minimal 607000 in Q4.
For 2020 of this amount totaled $18 3 million net.
The good of the effect of these amendments reduced <unk>.
And we do not anticipate any material of abatements related to 2021 left.
Lastly, we reserved rent of $9 1 million in Q4 of is related to the impact of COVID-19, pandemic of which $3 6 million represents the general allowance the rental revenue and $5 5 million of represents runs from tenants being accounted for a cash basis and thus the amounts not probable of collection as a percent of.
The 31 2020.
For 2020 reserve, Brian totaled $23 million related to COVID-19.
Of which $9 6 million represents of the general allowance for rental revenue of $13 4 million represents runs from tenants being accounted for a lot of cash basis. These.
These amounts also reduced <unk> and we feel are well covered on the downside to give us more confidence in the stability of the 2021 protections.
For 2021 guidance, we have assumed the loss of $9 9 million from cash basis tenants the.
The only 0.9% of ally.
Implicit in these figures as of collection rate of about 35% for these guidance in 2000 of 21.
G&A for the year ended at $61 3 million below our original guidance range of 64 million to 66 million for the year, mostly due to less travel and other expenses due to the pandemic.
Our guidance for 2021 G&A is estimated to go back to our $64 million to $66 million range, which is one of the lowest from the net lease sector at approximately 4% of assets.
Ultimately, 5% of revenue due to both of our size and scale.
Capital expenditures for the year came in at approximately $27 million compared with the original guidance of approximately $30 million to $40 million.
Over the last few years this amount of average between 25 and $30 million and for 2021, we expect the capex to be in the range of 30% to 49.
Turning to our balance sheet at the end of the fourth quarter of the company had corporate liquidity of approximately $2 billion.
Comprised of $524 million in cash and cash equivalents and $1 5 billion credit facility Undrawn.
In addition, we reduced secured debt by $196 million for the year, which had an average cost of five 4% and we increased our unencumbered asset ratio to 82%.
During 2020 of the company announced the redemption of $400 million of the reached six 7% series of preferred stock.
The very manageable $373 million outstanding which is pre payable at any time of ensures.
We were able to take advantage of the low interest rate environment and favorable conditions for high quality investment grade companies issuing $1 8 billion of debt at some of the lowest rates in the company's history accretively reduce fan of financing other debt and lengthening of duration.
We continually received great support from the fixed income to the community and our pricing and spreads reflect the triple B flat rating, even though only one rating agency Fitch has of that level.
We'll continue to strive towards upgraded rating with the other two rating agencies. Although we're pleased we were one of the few reached the maintain our stability of our rating and our outlook even during the depths of the pandemic.
On the equity side, the company issued 484 million under the ATM program, the 394 million zone in the fourth quarter at an average price of $37.
The fixed charge coverage ratio remains healthy at three four times, which has been increased from three times as of 12, 31, 19, mostly due to our ability to accretively reduce preferred stock.
Net debt to gross real estate investment ratio was 38% the weighted average duration of our debt is now six years and we of 99, 4% fixed our net debt.
The normalized EBITDA was reduced from five six times.
And with that I will turn the call back to Glenn.
Thanks, Mike.
When considering our dividend reduction in Q2 of last year duration of the pandemic and its effect on our tenants and the capital market guidance the decision.
Almost a year later the portfolio performance liquid capital markets and the introduction of the vaccine have mitigated those concerns.
We find ourselves back to a position to providing guidance and will therefore increase the dividend for Q1 from 38 five.
$46 two or.
Or a 20% increase.
The board will revisit the dividend during the year and given the low payout ratio consider future increases.
The size of the increase you took into consideration the productive investment of cash flow, providing <unk> growth in the last two quarters and for acquisition opportunities. We envisioned this year.
I'll now turn to guidance for 2021.
<unk> per share of between $3 20 of $3 30, representing.
Representing the year over year increase of four 5% at the midpoint.
Real estate operations with average occupancy between 97 of 98%.
Acquisitions totaling 1 billion to $1 3 billion, but the average cap range between six five and seven 5%.
Office dispositions of between 202 hundred $50 million with average cap rates between six and six and three quarter percent, creating spread for investing.
Strategic dispositions between $50 million of $100 million and acquisitions for the investment partnerships between 400 $600 million.
Office dispositions include the $98 million closed so far this year at an average cap rate of five 6% and we will continue to take this property type from the current 16, 5% of <unk> to the target below 15%.
Strategic dispositions, we will focus on casual dining flat leases and noncore assets.
We have had consistently high rent collections from the beginning of the pandemic and will diligently work to continue the success.
The year, ending 2000 of 'twenty, we moved the increased acquisition volume.
Bolstered by the $500 million in cash from both cash flow and equity raised we are not dependent on external funding to achieve our 2021 volume estimates.
Our acquisition model has a number of channels to find opportunities providing portfolio quality and <unk> growth.
With the breadth of irons, we have in the fire our team is confident in our guidance expectations.
I'll finish by mentioning how pleased of the board is with the addition of Susan's Garrett and Brazil.
Sure.
They bring additional core competencies, which will help us and certainly me and strategy and making the appropriate decisions moving forward.
I will now open the call for questions.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
Yeah.
Uh huh.
Yes.
And our first question will come from Sheila Mcgrath of Evercore ISI. Please go ahead.
I guess good afternoon, Glenn you issued a lot of I E. T M. In the fourth quarter, just your thought process there and your view of the balance sheet position at this point going into 'twenty 'twenty, one perhaps in perspective from a year ago.
I like I liked the question Sheila I'll expand it a little bit and maybe talk.
Mike talked about net debt to EBITDA as well so we are going to.
His hand, it over to Mike to review our balance sheet at the end of last year and the end of this year.
All aspects of it and the differences there the positive of one certainly on cash as well as net debt to EBITDA, the Mike why don't I hand, it over to you.
Sure, Thanks, Glenn and Sheila Hi, how are you.
I think of it I think the first place to look is just in our liquidity total liquidity at the end of 2020 is 2 billion of 19.
And it's really made up of $523 million of cash available on the balance sheet and of fully Undrawn line of basically a 1 billion funds.
And that's in comparison to the liquidity at the end of last year of 1 billion 359, because we have of roughly 12% $13 million of cash and debt.
Already drawn down about $150 million of the line at that point, that's the difference of $660 million of liquidity and that's really made up of those two pieces, we have $510 million of cash more this year at year end and 150 less debt, we have a fully undrawn.
Really you have of balance sheet going into 'twenty one.
That is ready to move forward and to make acquisitions.
The fully loaded of the assets.
I think the other thing to think about when you think about our balance sheet at this point with the debt transactions that we did this year, we added $1 8 billion of the debt added this year. They were all highly accretive as we add of bad debt with lower cost debt.
We were putting on the books and the higher cost debt that we were paying off and you see that in our statistics, our outstanding our average outstanding at the end of last year was $4 eight years, that's now increased to six years.
And our average rate on our portfolio of debt last year was four 3% and went out of three 9%, which youll see a benefit of that flow through in the future.
And then as Glenn mentioned, our net debt to EBITDA.
We were at five five without the perhaps last year, we're at five six without the price this year, but we did pay off $300 million of the press during the year and as you know we announced another 100 million of run off in January but if you just take into account, but we paid off during 2020.
With the press our net debt to EBITDA went from six 3% to six one so as you can see that dropped it down significantly as a way to pay that off.
Thanks, Mike in Chile, and in the beginning of the presentation I did mentioned, there's a bit of data of blue between last year and this year. That's part of your question is the appropriate the differences.
Unfortunately, the pandemic was in the middle but the differences are the fact that we believe our portfolio is now been proven given the collections.
As we move into this year.
And with that cash on the balance sheet, we of pre funded.
Almost all if not all of our acquisition pipeline.
Two of data.
So we feel really good about.
Moving into this year, sorry, it's been delayed a year.
We like the position we're in.
Great. One more question, it's nice to see a F of flow guidance with year over year of growth this year with hindsight of the pandemic.
The pressure on certain tenant types are there any segments that you have written off looking at current acquisition and Alternatively any news segments or property types, you might consider in the future.
I will turn the part of the certainly the last part over to Tom.
You know the the portfolio of construct was created back in 2015 with metrics around the portfolio of <unk>.
<unk> of the properties of percentage of credit of percentage of industries retail industries. So we've been very disciplined in how we have built or more importantly, recreated the portfolio. We have sold over $5 4 billion over the last five years.
Going forward, we consistently look at those metrics and right now in terms of what we would not be interested in buying we're very cautious on casual dining.
It may be a very good property type and it is a good property type, but as we speak about it now it is part of our list of dispositions just just because we like our metrics, where we are and we don't want to increase those percentages in terms of industry groups that we could be interested it Tom why don't I turn it over to you and some of the interesting opportunities you have.
Been saying.
Sure. Thanks Glenn.
You mentioned theaters casual dining would probably not be high on our list of acquisitions.
The opportunities that we always like discount retail.
Okay.
The Q S ours.
And not in non investment grade industrial of the areas that we've been focusing on some examples of transactions. We've worked on are some sporting good.
Concepts that have performed really well during the pandemic and I think the unique opportunities in the market where cap rates, maybe are higher than the norm over the last two or three years. So we were able to take advantage of those opportunities in the market <unk>.
<unk> stores is obviously a market that we've been active in and we like a lot of automotive and general share Thats tire home improvement home furnishing two of certain extent there is some some good operators that of perform really well during the pandemic debt.
Let me focus on the other way.
The acquired some assets last year in the equipment rental space, which is kind of a quasi industrial because it's a lot of land associated with these buildings with yards and storage area. So.
Kind of a.
Summary of the <unk>.
Active of.
The product types for us.
Okay, great. Thank you.
Thank you Sheila.
The next question comes from Caitlin Burrows of Goldman Sachs. Please go ahead.
Oh, hi, good afternoon.
I was wondering if you could talk about as it relates to guidance what it is.
Now of kind of defense if any are assumed in guidance, whether that's bankruptcy impacts of that debt and how that compares to the 2020 of 2019 results.
I would take that when the Caitlin on Craig.
I think you're seeing credit loss, we do sensitivities, obviously you create range as we have sensitivities around all the variables in guidance and are they continuing quite a lot, we're ranging between 1% and 2%.
Probably a little higher than we had last year.
But what we also have which is the difference this year and Mike has gone through this.
We have general reserves for Covid tenants, which we did not have last year, which are relatively substantial Thanksgiving you those numbers and we also have cash based tenant reserves.
Essentially and so we have those of two additional from.
Provisions.
In 2021, which we did not have in 2020.
And the combination of all of those we think very fairly represents what this income quality should be.
Got it okay.
And then one of the topics that sometimes comes up with the investors is inflation risk and I know of REIT has reduced its exposure to flat leases in recent years, but could you just got true what impact do you think inflation or rising rates generally what's happening and what people should keep in mind.
Sure I'll take that as well.
Think of inflation, the the analogy I make which may be it may be silly, you'll tell me I think of a bit of his cholesterol, it's never really good but the good and bad cholesterol and we have good and bad inflation.
Unfortunately lived through 1979, and 80, well, we had bad inflation stagflation. So I know what bad inflation is when I think about inflation of we think about inflation today, we think it could be good inflation. The all of the stats we seek the this year or at least 5% GDP growth of more so I'd start out by saying if inflation is good inflow.
Asian, and effectively helps our tenants.
Increases the volume of their businesses it will be good for us ultimately well. So we start there and then as we think about the levels of where inflation could hit US first of all I would go to the balance sheet.
We're 99% plus fixed as Mike indicated so we're not gonna have any exposure. There. We've raised primarily all of the equity we need so we're not gonna have exposure there.
<unk> have been increased we have virtually no up and coming from maturities over the next few years. So the balance sheet is very protected against any inflationary trends from an operating standpoint, when you Paul holds out there.
Collecting all of the other anti cancer.
But we have in our leases in the current portfolio of between one of the quarter and one 5% growth and as Tom just mentioned last year.
All of the assets that we bought we had about one 7% growth with 35% tied to inflation. In addition to the one 7%. So we have some protection in operations in the that Tom's acquisitions are always dependent upon where cap rates are of course.
If there's inflation we could.
Have the increases in debt and equity always spotless debt. It's just the question of timing it lags normally.
The spreads usually come back to life.
So we think about inflation a lot that's how we think about it and the last thing I'd say is in real estate of little inflation never heard of anything.
Yeah.
And then one small thing.
You mentioned it it looks like in the fourth quarter, there was $11 million of non routine expenses. So wondering if you could just mentioned what the expense related to and whether we should expect any similar expense going forward.
Yeah.
Uh huh.
Mike I'm going to hand it over.
The longer term.
Sure.
We've done the lines of litigation and non routine Oh I'm, sorry, Yes, I was thinking about is that that relates to the fact that we had some litigation that stemmed back from our old cold days and some investments that had been the head of.
<unk> gone into the litigation has now been resolved.
So that was what we put on the books was primarily for the items about $10 nine the.
Alright.
Michael.
Alright.
It's a nonrecurring events one of the patents.
It happens to be of specifics specific issue.
Got it okay. Thank you.
Sure.
Thank you.
The next question comes from Anthony <unk> of J P. Morgan. Please go ahead.
Okay. Thanks.
One of the areas you mentioned as being an.
The investment target was mezz debt and you did some in the quarter can you talk about.
How are you looking at that to originating it's what category of falls into how big you might want that to be.
<unk> presented a preface Tony and then I'll hand, this over the Tom.
The all of the Mezz debt relates to relationships, we have with developers for investment grade industrial properties and those investment grade industrial properties. Ultimately, we expect to go into our partnership and so what we're doing is priming product of the partnership.
By taking.
Taking part in the mezzanine program, which we think of a very good safety deals are excellent properties.
Almost always two of relationship.
Tom.
What did I Miss there yeah yeah.
Yeah, I guess I the only highlight did it you know high single digit type returns and they are well covered I mean, there are 225 times coverage, so and that Glenn mentioned, there really pipeline of assets for the joint venture the industrial venture of to go into that to the adventure. So.
We liked that we liked the return on the current return and we like building the pipeline for the partnership.
And Tony we would like to make it as large as feasible of reasonable.
But the.
The dearth of really good transactions out there like that so.
Yep.
Hesitant to tell you how big it could be.
Okay, I see but it sounds like these are quicker turns just given the nature of the product type and how fast that's the best strategy.
That's correct.
And then just you know small minor point or question do you have any additional perhaps being called as part of the guidance.
We don't Tony and the 1 billion to of 1 billion sitting on the balance sheet.
Those are of property acquisition. So there are no perhaps.
That are in the guidance of being paid.
As you know it started we started out with the 1 billion, one and perhaps the now we have the $373 million.
We look at this as an allocation decision and there are differences you could take out perhaps at 67, which is the high rate and reduce debt for many of our industrial sales were included in debt or you could buy assets and refresh the portfolio create more of a wall to create growth and so we're going with the latter now but I you know I will tell you that those are not.
Debt investments, we see it as a free option, we can pay them anytime we want.
And my.
Mike's been sneaking him out of the Hollywood from 1 billion once of $3 73 billion of some day, Tony you'll wake up and they'll be gone.
Alright sounds good thank you.
The next question comes from sensor all the way of Green Street Advisors. Please go ahead.
Thank you based on the release this morning, it looks like cash NOI was down about 5% in full year 'twenty on year over year of basis can you guys. Just comment on what you guys are kind of expecting for next year for cash in Hawaii.
That's what the share I should say.
Sure Michael.
Mike can I turn that over to you.
Just give me one second.
And I think I think we're basically anticipating net and.
The number of head, let's see.
Yeah.
Like if you don't have that.
<unk> expenses will get back to you on that.
Okay. Yeah, that's no problem that is the.
Yeah. It was down this year I'm, assuming with the.
Depending on the length of your deferral of kind of agreements you should be expecting from sort of one time capture I'm assuming in 'twenty, one, but yeah I'll go the next offline on that I mean.
From what I can tell you that the bigger of the big pieces. There clearly are abatements, which I believe which is the.
A major piece.
In 2020, which will be gone in 2021.
And there may be some from.
The Pearl as well as your <unk>.
So of taking its primarily going to the COVID-19 related.
Okay.
And then maybe just one more thing you guys have the best in class disclosure. So thank you for all the information you provide on a quarterly basis.
But just curious if there's any chance you know moving forward, we could see more of a bus color just around rent coverage I know currently your share of retail and restaurant metrics I'm. Just curious if you if there's any chance you know of moving forward, we need to get color on you know the retail industry, even in the other property types.
Well, we do give the four wall coverage as well.
Sure.
And in addition to occupancy cost relationships.
What other stat would you be looking for Iraq.
Oh, maybe I'm mistaken, but I didn't realize the you guys provide rent coverage on the.
The different retail industry.
Well, we present full coverage on the on the retail and we present if you. If you go to our Investor presentation. We also present.
Occupancy.
Occupancy Colgate relationships Yep.
If you are there on page four with the page 22 page 22 of our other investor presentation that we put out last night, well would have all that information.
Now we have a new format this year.
So it may have been a little different for you to fine, but it's on it's on page 22 and that information I believe is there.
Okay. Thank you.
Okay.
The next question comes from Frank Lee of BMO. Please go ahead.
Hi, good afternoon, everyone.
Glenn just a follow up on your comments on pre funding some of the acquisition pipelines from from the ATM in the fourth quarter.
I'm just curious does this suggest that volumes could be weighted towards the first half of the year I just wanted to get a sense of the quarterly quarterly timing of the acquisitions.
We again, it's the sensitivity of item as you would expect frankly, we're running the range for our guidance, we have different timing, but I think the most likely timing is about 40% in the first half of the year and 60% in the second half of the year.
Okay. Thanks, and then on the office properties that Youre looking to sell this year can you talk about how competitive the market is for your office assets and if you've seen any changes in the buyer pool.
Yeah, I'll start and then hand it over to Tom.
As we mentioned as Paul mentioned, we sold two properties at six one last year and.
We did close on 98 million of.
This price just after January one at about a five six so very competitive for good office properties.
With the good tenancy.
Tom why don't I turn it over to you.
Yeah I would agree.
The most of these are investment grade credits, so very good credit and in some cases very very strong markets, where we've seen mid five caps and the other maybe lesser quality markets in the in the low to mid sixes. So I would say, it's it's not as attractive as industrial industrial is obviously the the most of.
Tractive product types of.
The similar credit and similar lease term was available on industrial the Nab 20 bidders.
We're getting good activity I think five to 10 and of <unk>.
<unk> typically go after these properties a lot of institutional type money for money.
The family offices, so a good well rounded.
Foster of potential acquisition.
The buyers.
And frankly, you could do if you noticed in our investor presentation. We.
We have about 56, 4% investment grade in the office right now.
That's what that's what's worked pretty well with Paul and Tom If we can we get those tenants to to get a little more term.
If market for them.
Okay. Thanks, and the one one last quick one of them on 'twenty one guidance are there any additional.
Sort of refinancing opportunities factored into the guidance.
We had about 300 and somewhat million in mortgages, Mike, but we paid off $200 million.
A $2 41 as of today.
And so that leaves about another $100 million left for the year that we probably will pay off and those those mortgages were at 5% I'm sure Mike.
The little over five 5%.
Yeah.
Okay, great. Thank you.
Thank you.
The next question comes from Handel St. Juste of Mizuho. Please go ahead.
Yeah.
Hey, how.
How are you guys.
Hi handle.
So our first question I guess I'm curious, what you're seeing out there from a portfolio of perspective.
And what your level of interest may be.
You know and in portfolios that are on the market two to acquire kind of that's what you mean.
Yes.
And your potential interest.
Sure Tom why don't I throw that over the.
Yes, it depends on how you define portfolios. Obviously, there was a large sale leaseback opportunities that are call it $25 million to $150 million. So those are those are the portfolios of which we actively play in.
The bigger deals of Theres, a big grocery portfolio that's come.
Coming to the market on the in the West Coast, Obviously, everybody has been talking about seven of 11 $5 billion portfolio. So.
Certainly the smaller ones, we're very active in the.
Depending on credit term and pricing it would dictate our interest in out of any larger portfolios.
Got it thank you for that.
I guess I'm curious in your conversations with Counterparties the asset sellers.
How often or how concerned are they about rising interest rates of potential 10, 31 of appeal, you're getting perhaps the sense that there more of.
Willing to transact now given the you know the potential or the rights on the horizon.
Well again, I may hand, it over to at the time, but.
You're right. There's certainly a lot of discussion of 10 31 could could go away.
I'm on the policy Committee at ICSC, where we're trying we're fighting hard to try to keep it but I'm not sure of what kind of win that fight.
Aye.
Our standpoint, it hasn't affected us much we have been of big seller into that market.
We don't we don't compete against.
10, 31 from a buying standpoint, primarily now to your point, if you're worried about it there's probably some more of those around trying to get underneath the cover of the change this year, but Tom is the is it to any great extent.
I mean, it's obviously in the.
Talk in the market, but as you mentioned the very little impact on our disposition, we did sell a lot of red lobsters and the temporary one market over the last three or four years, but most of our major disposition effort as the office, which is more institutional in nature. So generally not 10 31 guys.
As you mentioned, Brian we don't really compete in that market.
If I were in that situation I would certainly try to get something done sooner than later, if there's a possibility of the a lot of changing and if it happens clearly it could be in positive impact from our standpoint with the acquisition market, maybe less competitive, particularly on smaller deals.
<unk> and smaller transactions were.
10, 31 of the major competition.
Currently.
Got it got it and I say it is repealed yes for now, but I guess I'm curious on your view on issuing op units the sellers of assets of perhaps the attack mitigation strategy is that something that's coming up in conversations at all and maybe what do you see as the the pros and cons of a willingness to doing.
Do some of that with the tells you you're transacting with.
Well, we of the perfect structure for it so that we can beat the initial units as you know and it's been my experience that there's always been a lot of talk about doing deals with units, but not it's not as many deals done it maybe it gets better if 10 30 when it goes away.
And we'd love to do the unit deals. It makes a lot of sense basically of its equity and as long as its price right you're buying assets at 100% equity it brings down the leverage so it's a it's a good transaction but.
Negotiating those deals is never easy.
The characteristics that are necessary, it's usually a family.
You need to make sure Theres no one in the family wants to take over the business.
And that they have of tax problem, you've put those cash.
Doctor of sticks, together and that's the perfect seller.
For the units.
And if you could find that that's great. Then you just have to negotiate the term of the.
For the fight providing.
Help against the recapture of for instance, if if we buy one of those properties.
It could they they'll want of 10 to 15 year lockup on sale of.
Otherwise they have recapture so there's all of those negotiations that go on on the Ohio, We'd love to do more if we can do more we would but I don't think there's a.
The expectation that there'll be a flood.
Got it thank you Glenn.
The next question comes from Chris Lucas of capital One. Please go ahead.
All right good afternoon, everybody Hey, Paul your lease expiration schedule. This year the office component is the largest bucket.
<unk>.
First off I guess is that sort of sprinkled throughout the year or is it back end loaded in terms of one of those explorations aren't and how big of the renewals look at this point in terms of your outlook.
Hey, Chris well a couple of things there.
Did we managed a lot of our office leasing exposure last year. So we did some early renewals and we're able to pull that down.
By of half a percentage point or so during the course of 2020.
We still have some wood to chop this year almost all of it.
The vast majority of it is back end loaded towards the very end of the year as I mentioned in my prepared remarks, so we're working through those renewals right now.
Some will keep.
Some will lose.
But we still think we'll maintain sort of our average retention levels that we've had over the past couple of years.
Okay. Thanks for that and then and when you took the bunch of renewals on the deals are those likely to be shorter in duration or I guess the question really becomes if you saw most of the renewals.
Do they become.
Yeah source of funds.
Well, it's always it's always it's always a fight on the renewal term is very important to us and sometimes as you'll note in my prepared remarks.
Mentioned, we have early renewals in our recapture levels in early renewals from of rent perspective are not as high as when we just do ordinary renewals. So very often when we negotiate with office tenants or any tenant will sometimes trade a little bit of upfront rent in exchange for term.
Tenants typically, particularly in the office markets like to have shorter terms to improve their flexibility. So it's always a negotiation, but once we conclude those negotiations then the view of at least with respect to the office has been recently for US to then move those from the portfolio into the sale category.
And we've had some pretty strong success over the past year doing that.
And you can see Chris we have guidance of two to 250 between six and six and three quarters, where we think those will sell which does does provide to your point the internal equity that we could invest that the spread.
Yes.
Okay. Thanks for that Glenn and then I guess.
Maybe sticking with you Glenn so if we roll back the clock a year and you were looking at some of your the lines of business of credits.
And then you sort of go through the pandemic and you see some of that maybe have benefited if you you know on at least on a relative basis from sort of the conditions that they've been operating under are there are there areas that you would look to the sort of take advantage of sort of debt.
The free pass they've got the current you're working through the pandemic I'm thinking of your grocery being one that certainly you know elevated sporting goods is another of its sort of an elevated <unk>.
Relative to where they were before.
From a third the other.
Tom mentioned the would be home furnishings.
Which was clearly a beneficiary of the the stay at home and people wanted to improve their home and those those those were the three clearly Chris but you'd also see a pharmacy.
<unk> has done really well home and garden.
As part of the the.
Home improvement.
Certainly has done well of warehouse clubs.
We have found.
Done really well and I won't quote wouldn't go target of warehouse club of Walmart, but they have certainly all benefited from having access to people.
And room to have people flow through their stores. So there are a number of of areas and where we see it is.
He is really in our collections, we have a page in our presentation that is page 16, where we have highlighted.
We call it high collection necessity either industry groups of property types and it's represented 80%.
Of our right and we have collected virtually 100%.
From those tenants from those categories.
Right from the beginning of the pandemic and then we have four categories that we happened to call improving on that same page.
Oh of restaurants entertainment retail.
Home furnishings, and retail sporting goods and you can see how the collections have increased from Q2 through January one of this year. So there are some real.
Winners through the pandemic some upfront.
And others that have been able to.
Learn how to work through the pandemic and create revenue the themselves.
And because of that if you see some sort of valuation disparity sort of come through on that basis because.
They have done so well.
Yeah, Yeah, we have and as Tom mentioned we.
We've taken some advantage of sporting goods and home furnishings, where we think the cap rates expanded.
More dramatically than we would've expected and in fact already coming in.
So there there will be some some of the.
The dislocation here that we hope we have taken some advantage of income continue to.
Okay. Thank you appreciate it.
Yeah.
The next question comes from Vikram Malhotra of Morgan Stanley. Please go ahead.
Thanks, I'm, sorry, I dialed in late so apologies if you've if you've outlined this but I'm just curious if you could give a bit more color on sort of the pipeline. It's obviously.
A large pipeline relative to what we've seen in the the prior years. So I'm just wondering if you can give us more color on sort of the debt.
The sub sectors Youre focused on pricing expectations, I know you talked a little bit about timing, but just any more color on the type of thing would be helpful.
Sure.
Also ramp up of hand, this the top but the for the balance sheet.
Sure.
Most interested and discount retail quick service restaurants, and non investment grade industrial. So those are the product types. There and then from the partnerships, it's investment grade industrial and long term leases with the potential for mez positions to position the industrial partnership and those that's the the breadth of the <unk>.
Product, we're looking for so we have our fingers out in the number of areas to produce acquisitions to come back into the portfolio and create more of it though I think your primary question of Vikram is on the balance sheet itself, which would be the first three elements that I spoke of and then why don't I hand, it over the top.
Yes, as I know.
Did any of my comments about half of our pipeline of sale leaseback. So.
The <unk> I'd, just say of what we have the relationship with the with an operator on the balance sheet. Currently that we're doing a sale leaseback with that group a couple of C store transactions.
Automotive, we've got a couple of deals there so.
That seems to be a very active product I'd kind of washes are also very active as well. So we will look at those and Additionally, we did it we did the equipment rental group last year as I mentioned is kind of quasi industrial so.
Those are obviously very long term leases with annual increases were able to negotiate a master lease provisions and reporting on the tenant reporting obligations.
The obligations as well and obviously some more insight into the management really get a sense of their business. So.
As you mentioned the strong pipeline.
Thank God of similar metrics to what we did last year, probably shooting for that high six seven cap rate range and we're looking at the high teen Wolf as well.
The then that makes sense. Thanks for that and then maybe just.
Atlanta higher level question on just kind of one you know lessons from the pandemic in terms of you know.
What I'm most interested in is it sort of interaction and communication with the underlying tenant base and just monitoring you talked about the coverages I think.
And you've given all of a sea of lot of detail, but I'm just wondering on the on the sort of asset management side.
You know anything sort of changing going forward in terms of communication.
Just given I remember the comments the last few quarters. It had been like many of the management teams of talk to the tenants.
A lot more than they did previously so I'm just wondering if there are any changes going forward.
Well, the I'm going to let Paul answer sort of a lot of this but there have been some changes for instance.
When the pandemic started we had rent relief meetings.
Italy.
The with Paul being in charge and like Tom and myself and other as being in those meetings.
And our team does every day talking to tenants that they would not talk to every day. So the communication was absolutely intense I would say in March April May June.
And I'm happy to say now we have far fewer rent relief meetings, we have the monarch schedule and they get cancelled a lot, which we all like which means there is nothing to talk about.
Pulse people were probably not talking as much of our tenant's business they used to which is good.
So theres been a big change from March through today, Paul how about what's going on there.
As Glenn mentioned it at the height of the pandemic fully 33% of our tenants came looking for some kind of rent relief most of which was opportunistic but it did allow us to connect with the tenants and so we did spend a lot of time talking with them we have dedicated teams.
That spanned all of their effort in our different property types of office and industrial restaurant and retail and for example, Brett sheets and our leasing team he's been.
Working in that sector for probably 30 years and he knows the tenants inside and out. So we have a lot of we already had a lot of communication with tenants and you can see that not only in the pandemic relief discussions, but in the very large amount of leasing that we did last year each.
Each and every one of those leasing act of that leasing activity required contact in connections with the tenants. So we keep a very close relationship with all of our with all of our retail tenants.
Many of our restaurant franchisee tenants and then of course as our office and industrial tenants start to rollover we have.
Very often very long discussions with them about kind of renewal.
And think of them and I'd also mentioned the way the entire team here is very much part of ICSC I'm, a trustee and vice chair now and.
Are constantly talking to the retailers on the macro level not just the micro level in terms of what's happening at our property, but what's happening in their businesses.
The the meetings I have with the with the tenants through ICSC are very illuminating in terms of what's going on in that business.
And many of our tenants we're their largest landlord. So there's a natural relationship that kind of just from that dynamic of wealth.
That makes sense and just Glenn on that's going to last question you.
And as we come out of the spend that make them you.
Can you talk a little bit about sale leasebacks, but.
What's your expectation of house of the sale leaseback market.
From here in terms of potentially newer types of tenants that may have been less and less open to doing that sort of coming in saying, hey, we'd like to monetize more of a real estate do you see sort of a wider net going forward.
Well then you know theres been some conversation on these calls.
Whether or not tenants come to the sale leaseback market or they go to the the financing market the.
The three of 4% of I'll call it of I'll call. It the junk market for lack of a better term. So there there can be opportunities for our tenants today, which they may not have in the past and when Paul went through as is his conversation he talked about the tenants that we had that you used to be private equity you know public. So there's been a lot of capital available out there.
But even with that.
Where we're gonna see more sale leasebacks and it could be with some newer tenants, but we're gonna be careful about about underwriting for a new of tenant in credit I mean that that would be of real concern for us because any sale leaseback has to be underwritten properly there'll be plenty of room for sale leasebacks and various forms of financing for our tenants.
We absolutely plan to be part of the sale leaseback market.
Great. Thanks, so much.
Yeah.
The next question is a follow up from Caitlin Burrows of Goldman Sachs. Please go ahead.
Hi, again.
If you could just go through recognizing that the acquisition guidance for this year is significant at over $1 billion what.
What would you say the limiting factor on why not more of our why do you think that's the right target amount I know Glenn debt in the past you had been hesitant to give guidance because we didn't want to put a number at the he could make but giving.
Given this kind of target what makes that seem like the right amount.
Well Caitlin.
I saw with the debut of concept it was almost exactly what we gave last year.
We were very comfortable in the beginning of last year with that guidance.
And we're very comfortable with that of that guidance again the difference is the funding.
Which makes us more comfortable that we're funded already.
And so that gives us a little more latitude you know could it be larger which made us maybe your point it may be could be maybe there were some larger deals out there, which could expand it over time, but we didn't we didn't want to have an optimistic or pessimistic. We went to the we wanted a reasonable case.
And based upon what Tom's group has been doing for instance, he mentioned that they've been they had been buying as part of cole capital and varied of one.
Billions of dollars a year for the last few years. So we're comfortable of that product is out there and that we can produce it.
Okay. Thanks.
This concludes our question and answer session I would like to turn the conference back over to Glenn with Franco for any closing remarks.
Thank you.
Thank you everybody for joining us we're excited about this year, we're happy we have growth in the SFO. We're happy where we are we've increased the dividend for our investors and we look forward to a very productive year. Thank you.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.