Q4 2020 Broadstone Net Lease Inc Earnings Call
[music].
Hello, and welcome to broad stone net leases fourth quarter 2020 earnings Conference call. My name is Carrie and I will be your operator today. Please note that today's call is being recorded I will now turn the call over to Kevin funnel Senior Vice President of capital markets abroad Stone. Please go ahead.
Thank you for joining us today for <unk>. So net lease is fourth quarter 2020 earnings call on today's call you'll hear from our CEO, Chris start Nicky and our CFO right Alberto.
Before we begin we want to remind everyone that the following presentation contains forward looking statements, which are subject to risks and uncertainties, including but not limited to those related to the ongoing COVID-19 pandemic.
Should one or more of these risks or uncertainties materialize actual results may differ materially.
We caution you not to place undue reliance on these forward looking statements and refer you to our SEC filings, including our form 10-K for the year ended December 31 2020.
For a more detailed discussion of the risk factors that may cause such differences.
Any forward looking statements provided during this conference call are only made as of the date of this call I.
I will now turn the call over to our CEO Christopher Nicky.
Thank you, Kevin and welcome to everyone, joining our Q4 'twenty 'twenty earnings call.
I hope that 'twenty 'twenty, one is off to a safe and healthy start for everyone.
It's hard to believe that we're almost six months past the D&O IPO closing.
Leading up to and then during the road show, we talked with analysts and investors about what they should expect from BMO in the quarters after the IPO.
First and foremost the team communicated it continued intense focus on portfolio management and building on our already strong collections results from the first three quarters of 'twenty 'twenty, while also maintaining our high percentage of leased assets.
Next we communicated an intention to continue executing on our diversified net lease investment strategy with an over weighted focus on industrial health care select retail and <unk> properties.
Finally, we outlined several capital markets initiatives, including achieving a second credit rating and gaining access to the investment grade bond market as an important source of future long term debt capital.
The P and L team tackled all of these objectives in Q4 and into 'twenty 'twenty, one and I'm very excited to provide an update on the substantial progress we have made since our last call.
As we ended 2020, our portfolio continued to perform well and our collection results were among the best in the net lease space coming in at 99 per cent for the fourth quarter.
With broad vaccination efforts underway.
Near daily updates regarding incremental vaccine supply and distribution and reducing case counts across most of the country. We are encouraged that they're finally appears to be light at the end of the tunnel.
Our collections trends have only continued to strengthen into 'twenty 'twenty, one and Ryan will provide an update on January and February results in a moment.
Since the IPO in late September 2020, our team has been acutely focused on deploying the capital we raised into accretive acquisitions.
Our investments during the fourth quarter were very complementary brought stones existing portfolio in terms of the mix of asset types and sourcing channels as well as overall property and lease characteristics.
We closed six transactions comprising 19 properties for a total investment of $103 million.
The weighted average first year cash cap rate was $6 nine per cent for the quarters investments.
The leases include 1.9% weighted average rent escalations and a 14.4 year weighted average remaining lease term.
Complementing our existing portfolios long lease duration and best in class annual rent Escalations.
Acquisitions were diversified across our core property types, so heavily skewed towards industrial at 77 per cent of the total.
Transactions were split evenly between sale leasebacks and assumptions and we were successful in sourcing opportunities from multiple channels, including add on acquisitions with existing tenants and repeat transactions with brokers and real estate developers.
I want to briefly highlight two of the transactions.
Representing the largest acquisition in the quarter purchased a newly completed 644000 square foot warehouse and distribution facility tenanted by a leading contract brewer outside of Minneapolis, Minnesota for approximately $41 million.
The property has a remaining lease term of approximately 11 years and 2% annual rent escalations.
The company manufactures and distributes beverages for itself and third parties and the facility is strategically located and key to the tenants operations as it serves as the distribution center for its nearby production bottling facility.
We also added seven quick service restaurants, located across three states to our existing master lease with Jack's family restaurants, our second largest tenant exposure for approximately $13 $2 million.
The Master lease provides for 2% annual rent increases and the remaining term of the master lease was increased to approximately 16 years in connection with the acquisition of these new properties.
U S. R space broadly demonstrated resiliency during the pandemic and Jack specifically continued to perform well and gross footprint.
You also made incremental investments in our existing portfolio of properties.
In the fourth quarter, we invested $3 million with two tenants, which will generate a 7.5 per cent weighted average return.
In total during 2020, we invested $10 $3 million in our existing portfolio on.
Non wish we will generate a seven 4% weighted average return over the remaining lease term.
The timing and size of these investments can be difficult to predict but we routinely engage our tenant base to source opportunities like these that create incremental value for both the tenant and our assets.
During the fourth quarter, we sold six properties for approximately $24 million at a weighted average cap rate of 9.5 per cent on tentative properties.
Presenting the gain of approximately $1 million over our original purchase price.
These sales were generally of noncore assets, including several dental clinics that we have been proactively reducing our exposure to over the past several years.
For the year, we sold 24 properties for net proceeds of $77 5 million at a weighted average GAAP cap rate of seven 7% on tentative properties.
I need a gain of $3 $3 million over our original purchase price.
As of December 31st our portfolio includes 640 properties across 41 states and one property in Canada.
The portfolio was 99, 2% leased and had a weighted average remaining lease term of 10.7 years with 2.1 per cent annual rent escalations.
Occupancy declined approximately 60 basis points from Q3 2020.
This change was primarily driven by short term leases at two of our former art van sites expiring during the quarter.
We had just eight vacant assets reported at year end.
Three of which have now been re tendered with leases commencing in 'twenty and 'twenty, one, including the largest former art van site.
Our forward lease maturities are also highly manageable, representing just 0.4 per cent of ABR in 'twenty and 'twenty, one and a total of two nine per cent of a b or through 2023.
As part of our ongoing property management process, we evaluate lease maturities and potential explorations on a five year forward looking basis and will provide melbourne updates as they occur.
Finally during the quarter, our number one tenant exposure red lobster refinanced its large near term debt maturity, which should provide actually provide the company. Some additional financial flexibility as it continues to navigate the pandemic. It makes progress returning to normal operations.
Our balance sheet remains strong and provides us with significant financial flexibility as we continue to deploy the capital we raised in our initial public offering.
The strength of our balance sheet and portfolio outperformance was recently substantiated by S&P.
As we received an initial credit rating from Triple B.
A stable outlook in January.
This credit rating comes with immediate benefits in the form of reduced interest cost on the majority of our existing debt.
Primarily our bank term notes and revolving line of credit.
Second investment grade credit rating also further diversifies, our funding sources by providing us with access to the investment grade bond market future issuance.
While we typically experienced lighter acquisition volume in the first quarter. Following a strong sequence of closing activity at year end. We are seeing strong flows of potential investment opportunities take shape as we crossed the midpoint over the quarter.
The combination of the pandemic secretion of have and have not asset types with the continuation of near historic historically low interest rates is certainly enhanced competition, but we continue to source sufficient quality opportunities to support our near term growth objectives.
Ryan will speak more about our formal 2021 guidance in just a moment, but we expect to complete between 450 and $550 million of new acquisitions during the year.
With ample liquidity and expanded access to capital our team is highly active in sourcing and evaluating investment opportunities.
We currently have an active opportunities at north of $900 million.
As I've said before.
Our diversified strategy and experienced team ensures we have the flexibility to pursue growth, where we find attractive risk adjusted returns while also limiting the potential negative effects of disruption occurring within any single sector or with any single tenant.
It also affords us the ability to be highly selective within each of our property types.
We are reviewing significant levels of opportunities within each property type and naturally instituting greater selectivity in sectors experiencing higher degrees of disruption from the pandemic.
I'm very proud of what our management team has accomplished in our first full quarter as a publicly traded company and I'm excited by our team's energy and focus on the opportunities. We have ahead of us.
The current market backdrop requires us to be nimble and sometimes patient and we remain focused and committed to generating attractive risk adjusted returns, while creating long term value for our shareholders.
I'd now like to turn the call over to Ryan to go over our results in greater detail.
Thanks, Chris and thank you all for joining us today.
To begin by providing an update on our balance sheet and overall liquidity position. We ended the fourth quarter was $61 million of cash after adjusting for the dividend paid on January 15th and currently have full availability on our $900 million credit facility.
We carried 1.4 billion of net debt, resulting in net debt to adjusted EBITDA Ari.
0.15 times as of December 31st.
As Chris mentioned, we received a triple B rating from S&P in January and as of February 1st the interest rates on our $965 million of unsecured bank term loans decreased by 25 basis points.
Which represents over $2 $4 million of annual interest savings.
Our ample liquidity and prudent leverage profile robust internal cash generation driven by our resilient rent collections and access to multiple sources of capital hung together to provide significant near term financial flexibility as we continue to execute on our diversified investment strategy while maintaining.
Our strong credit profile.
In efforts to offer insight.
Two our robust internal cash generation I would like to provide further detail on our collection activity as we have effectively returned to pre Covid collection levels.
Chris mentioned as of today, we collected 99% of fourth corner right.
Which continues the favorable trend we observed in the third quarter, when we consistently experienced high 90 per cent collection rates.
Additionally, as of today, we have collected 99.8 per cent and 99, 7% of rent for January and February respectively.
As of December 31st we are scheduled to receive less than $1 million of remaining deferred right.
As of February 1st all deferral and abatement periods have ended.
The single partial rent abatement, we granted in 'twenty and 'twenty continued to pay rent as we agreed and.
As we did during Q3 'twenty 'twenty. We received additional then part of the percentage of sales clause in the agreement.
Which totaled $22 million in the fourth quarter.
Finally, we have not received any additional request for rent relief since the early part of the pandemic.
Before moving on to our financial results I'd like to take a moment and briefly cover our continued progress and substantial resolution of the assets previously leased by art van furniture.
We are happy with the outcome that we were able to achieve with the patient and methodical approach to navigating both the bankruptcy proceeding and long term asset management strategy related to these assets.
We mentioned on our last call that we leased six of our 10 assets, representing 71 per cent of art Van square footage to American signature in the second quarter under 10 year leases at 72% of prior rents.
In the fourth quarter, we leased one of the smaller remaining assets to a leading mattress retailer for 134% of prior rents.
And subsequent to quarter end, we entered into a 10 year lease for the largest asset representing $18 four per cent of the former art van square footage for approximately 70% of prior rents upon lease commencement later this year with the with an experienced regional furniture and mattress operator.
Who has been in business for over 80 years.
We are currently pursuing releasing and sell opportunities for the final two assets, which only represent nine 5% of former art van square footage or less than 3% of our total ABR and reconsider the art van matter to be effectively resolved.
Now turning to our Q4 financial results, we reported <unk> of $46 $9 million in the fourth quarter, representing 30 cents per diluted share.
While in line with our expectations. This is a decrease on a per share basis, when compared to Q3.
This is primarily attributable to the additional shares issued in connection with our IPO coupled with the full impact of additional public company costs, which were partially offset by $1.4 million of interest savings from debt repayment.
These results reflect the first full quarter of per share performance since the IPO, especially considering the late December closings for nearly all of the Q4 acquisitions from which we expect to see full earnings contribution beginning in Q1 2021.
In our view Q4 per share results provide a post IPO run rate estimate of the business and serve as the basis for performance comparison as we execute on our growth plan.
For the fourth quarter, we incurred $8 million of cash G&A expenses.
In $9.2 million of total G&A the.
The sequential increase in cash G&A was largely driven by a full quarter of public company costs.
Nodal, notably, including D&O insurance as well as incremental expenses from performance related compensation.
As previously discussed we expect to continue achieving economies of scale with respect to G&A expenses.
Over time, as our portfolio growth outpaces, our cost structure.
As we have continued to ramp our acquisition pipeline and getting clear insight into operating expenses after the IPO.
We are providing initial guidance today for 2021 that we expect to refine during the course of the year.
For the <unk> 'twenty 'twenty, one and full year, we expect to report total F O between $1 $27 33 per diluted share.
Which represents an implied growth rate of 5.8 per cent to 10, 8%.
Compared to what we consider to be our run rate view of 2021 based on our Q4 per share results annualized.
This guidance is based on the following key assumptions acquisition volume between $450 million and $550 million.
Disposition volume between 50 million and $100 million in total cash G&A expenses between $32 million and $35 million.
It's worth noting that our per share results for the year are particularly sensitive to both the timing and amount of investment activity dispositions and capital markets activities that occurred during the year.
Finally at our February 19, 2021 Board meeting, our director said, a 25 distribution per common share and O P unit to holders of record as of March 31, 2021 payable on or before April 15th 2021.
We will evaluate future increases to our dividend with our board as we continue to grow our earnings base and intend to target a long term <unk> payout ratio in the mid 70 to low 80 per cent range.
With that I will turn it back over to Chris.
Thanks Ryan.
I'll end, our prepared remarks by reiterating that we remain excited by the opportunity set in the market and the expanded capital market's tools at our disposal.
The fourth quarter continued to prove the quality of our strategy and demonstrate our ability to execute over the long term.
We are focused on continuing to deliver positive results for our shareholders with an emphasis on long term value creation and attractive risk adjusted returns.
I'm incredibly proud of what the team's hard work and look forward to a great 2021.
This concludes our prepared remarks, thank you for your time and attention this afternoon.
Later, you can now open up the line for questions.
We will now begin question and answer session.
Ask a question you May press Star then one on your Touchtone phone.
To withdraw your question. Please press Star then two.
Ask that you limit yourself to two questions and a follow up.
If you have further questions you may reenter the question queue. At this time, we will pause momentarily to assemble our roster.
Yeah.
The first question is from Caitlin Burrows of Goldman Sachs.
Hi, everyone. Good afternoon.
Acquisitions in the quarter were healthy volumes in cap rates in sectors that I think a lot of investors want to be in that.
So can you.
Just give more detail on how you source.
Actions in the quarter.
Yeah, Hey, Caitlin its Chris.
A couple of notes around that I think are sourcing was very well diversified during the corner.
One of our larger industrial acquisitions was with a developer that we had transacted with before so that was fairly natural for us like U S. R transaction was with an existing tenant that we had been looking to expand with overtime.
Also on the health care front that was with an existing tenant as well and then one of the other industrial transactions was one that we had started working on prior to Covid outbreak.
Outbreak and then the seller and chosen to put it on the shelf and you came back to the market. So we were sort of.
First in line to Reengage on that matter and and then also working the brokerage network as well from one of the smaller industrial opportunities so very broad sourcing in that regard.
Got it Okay, and then thinking I take 'twenty 'twenty, one guidance in the $500 million of acquisitions at the midpoint. How does this compare to your historical average acquisition activity and the pipeline that you see today compare to historical levels. I think you mentioned in the prepared remarks that it was about 900 million now just wondering how that can be.
First about your work done in the past.
Sure I think the $500 million at the midpoint is fairly consistent with or are call. It five year historical average if you think between 2015 and 2019, excluding twenty-twenty for obvious reasons with the IPO and whatnot. So it feels like that's a very accomplishable number given the quality of the team.
And the depth of their relationships.
Sitting here today.
First quarter can occasionally be a little bit quieter, but we feel like the opportunity set in that $900 million range that I referenced.
A point in time, you know what the team is working on but it's really nicely diversified across virtually all of those property types that we're focused on select retail the medical industrial and so.
You know from our perspective, that's a very good sign are with just the amount of opportunities for us to work on and to keep our selectivity high and keep our focus where it needs to be so I'm feeling good about where that is at the moment.
Got it Okay, and then maybe last one just on the G&A side I know you guys touched on how they're more public company costs and as you think about 'twenty 'twenty. One and then also going forward would you say that the increase versus the second half of 'twenty I. Just you did those public company costs and then when we go out further.
Do you think that it should be more stable or how do you see that growing or not over the next call. It three years.
Sure I'll give me sort of the quick increase in REIT income box, maybe longer term you know the biggest increase we saw from a public company cost was our D&O insurance that drove a lot of it hum.
Sort of guide towards where we thought G&A would be in Q3, obviously with that information.
But the increased cost is a one that.
It's factored in there now so I think that helps the estimate and then maybe Brian you want to talk longer term.
Sure in terms of 'twenty 'twenty, one and then maybe longer term you know the way we're thinking about it is we're right in line with what we communicated during the Q3 call, where we're looking at cash G&A and the $8 million a quarter Mark give or take so we came in there.
For Q4, and what we realized.
Then you know with that kind of carries through our guidance as we think about 'twenty 'twenty, one as a whole as we migrate into a longer term view I would say probably incremental in the sense of G&A, we certainly expect our our overall topline to far outpace the growth in G&A as we move forward here, we the only sort of incremental.
Cost out as we as we migrate into the longer term.
Got it okay. Thank you.
The next question is from Anthony Pallone of.
J P Morgan.
Yeah. Thanks, Your health care vertical is is fairly unique you don't hear as many of your net lease peers talking about that as a focal point can you just talk about.
Just the opportunity set there and in yields and you know.
How big that could be over the next 12 months do you think about deal flow.
Sure so.
And I think you know this is Tony but from for the benefit of everybody. You know, we do have a focus on health care. It is a little bit more niche oriented beam either hospital affiliated off campus or large regional physicians groups and then some adjacencies within there. It's one that if you book it or look at our historical volume.
Does move around a little bit.
The transactions we did in Q4, the one transaction was with an existing tenant some of the transactions were working on in Q1 are with existing tenants who are in that large regional physicians group of specialist.
Area of focus where they are growing their practices.
There are some portfolio opportunities that were also currently contemplating as well.
You know cap range somewhere in the mid sixes, maybe a touch from that for certain circumstances as well and again, it's one of the opportunity set that does flex up and down and at the moment. There's certainly a number of interesting transactions that were contemplating in there.
Okay. Thank you and then just my other item I want to touch on a train.
From Ryan you you'd mentioned a percentage rent number in four Q and I didn't write it down fast enough, but also just if you could help us just like what happens with that as we kind of roll forward and how to think about whether that stays or how that was structured settlement related to an abatement.
Sure in.
In terms of that percent rent number.
The last time, we'll really see is in Q4 show up the abatement itself burned off in January so we shouldn't see that going forward and I'd say you know what it was it was fairly incremental drilling during Q4.
Okay sure we're thinking about like roll on a run rate, we don't have to really make an adjustment for that so much that she was kind of the base rent that you guys laid out.
Correct.
Okay and the other detail was just any order of magnitude of dollar amount around what the annualized incremental rent is from backfill in Yorktown boxes.
Oh that was done that the large site that we released was done that 70 per cent of prior rents.
I'm struggling to put a dollar figure on that for you I'm sorry off the top of my head, but maybe we can follow up with that you are right I Dunno now we can we can follow up dollar amount wise, but as I think about it the six out of 10 that we had initially released.
That we talked about in the last call was about 72 per cent of previous rents.
The one smaller location that we re leased during Q4 again pretty small and nominal nature, but we re leased at about 134 per cent of prior rents and then the larger asset that we re leased.
At the.
After the end of the quarter, we re leased at 70 per cent as Chris had mentioned.
Okay I'll go back and look at those rents. Thank you.
Thank you.
The next question is from John Kim of BMO capital markets.
Good afternoon.
Just given the rise in interest rates I'm just wondering if.
If retail or other factors become more attractive to you or if there's a risk of acquisition volume.
Lower than expected or are you just willing to take that.
Narrow spread right now.
I'm sorry could you just repeat the last piece, that's got a little choppy from me John Oh, sorry.
Are you willing to take the.
The more narrow spread between interest rates and cap rates in this current environment or do you look at other asset types outside of industrial as far as the waiting of your acquisitions.
Yeah, I think that's that's sort of maybe fundamentally the what I view the strength of our model is the ability to selectively move between some of the.
Property types, depending on where competition is most robust so I.
I think it's it's you've probably heard enough from the last few weeks from some of our peers that industrial competition today is quite robust and that's you know more for them.
Probably more generic distribution than anything else, but the ways, we fight against that to try to keep our spreads strong is one is certainly thinking about adjacent.
Adjacencies within the industrial space that we have the ability to do and have done before so.
You know looking at some food processing opportunities at the moment, which we've done in the past and you know those are ways to keep.
Keep our spread a little bit stronger than that as you alluded to we can also pivot to some of our other asset classes, where we think there's a better risk adjusted returns so.
Certainly thinking about that with regard to health care in select retail opportunities, which you.
You know at the moment or are a little bit bigger part of our Q1 view.
View, but then ultimately still see the ability to add solid industrial and U S are a little bit later in the year as well. So I don't know if there's anything I should throw in there I'm sorry, yeah, maybe if I could add to that I would just say that you know and we certainly contemplated some of that in our guidance and how we thought about the world and frankly, we feel very calm.
And in the full year number in the guidance given on the acquisition front, knowing that borrowing costs or interest rates in general could be a little bit higher in compressed spreads in certain areas as Chris mentioned, the industrial or whatever but we felt very confident in those numbers given the R.
Our diversified investment strategy, and our ability to source and different areas, where that spread compression has less of an impact.
That's great that's my side and the confidence in the guidance is strong from myself, especially where we sit today.
Okay, and you guys mentioned the timing of the acquisition from sales would impact your earnings this year.
As well as the seasonality in acquisitions, which tends to be in in the back half of the year.
I guess two part question. One is there anything that you could do on your side to change that seasonality or is that more from the seller's point of view.
And also if you could probably provide any more color on whether or not the pace of acquisitions and dispositions will be spread evenly beginning in the second quarter or more towards the second half of the year.
Yeah, so changing the seasonality I Wouldnt go too far into the seasonality component I mean, they're there they're it exists and you know first quarter is probably the one where we see it a little bit the most.
I think for US it's maintained a vibrant pipeline at all points in beans, and thinking about it long term also I'm working on unfortunate opportunities, especially with tenants that we already know.
A part of their puzzle.
For future growth as well and we're doing some of that and that gives us longer term visibility into the pipeline.
What I'd say you know in terms of.
Where we sit today.
I'm feeling really good about the guidance as I said, a moment ago, but you know in terms of timing. It certainly has some near term impacts on F. O. If timing is more back weighted but.
You know really concentrated on the long term.
And you know, our our guidance and with respect to the midpoint of our guidance has a slight weighting towards the second half.
But really keeping the business focused on the long term so.
So we've incorporated that into our thinking just based on our best estimate of where we sit at the moment.
Okay and my final question, Chris You mentioned in your prepared remarks that we're near the six month anniversary of your IPO.
Which coincides with the exploration of the lockup restrictions.
Do you have any indication of what percentage of the owners.
Our long term owners versus those more likely to fall upon their expiration date.
Sure. So I think it's a very diversified shareholder base, it's 4000, plus individuals and hundreds of.
Hundreds of wealth managers.
We have worked very hard to stay in close contact with them over the period as we do with our new institutional shareholders. We we had a specific.
Meaning run through January to talk about all the progress you made I think the general feedback was people were feeling positive and appreciated that we were I guess stealing from your headline last night of executing our business plan and seen see me Hum.
What we were doing so.
Not specific thoughts around the around any.
Any changes in the shareholder base. The entire group is very important to us and we want to provide them as much clarity on the future business.
As we can and expect them to be long term holders I don't know Ron is there anything else you want to put in there because you're part of that would be as well no I think you summed it up well Chris.
That's very helpful. Thank you.
Thanks.
The next question comes from Vikram Malhotra of Morgan Stanley.
Thanks for taking the question just maybe going back to the acquisitions, both on the industrial and healthcare side can you maybe just walk us through kind of you know it just seems broadly acquisition that picked up across the board public private net lease even though their participants what sort of competition you're seeing.
And both segments you know what are your expectations for pricing through the year and just any differences that you're seeing between the two segments.
Yeah.
Sure Yeah, I think there's certainly there's a number of.
Number of folks are continuing to take a look at the net lease space in many ways. It is one of the more investable spaces in the real estate market today, just with less uncertainty around some of the <unk>.
Business construct you know for US we're looking at a pretty broad range of transactions and obviously, a broad and diversified set of acquisition opportunities. So that leads to different competition are different competitors in different segments.
Industrial we've seen certainly private buyers or P M.
Our institutional buyers compete with us on transactions to the extent that we obviously know who the competitor is.
More on the a and the <unk> in select retail front, you tend to see more of specialist within the public REIT space there for us.
As a competitor on the health care side, because we do have a more niche focus there I think we don't see as many public Reits involved there, but tendency more private buyers and more private aggregators.
Health care assets. So that's that's a little different you know more broadly I'd say actively thinking about transactions between sort of.
So post 6% to 7% cap rate range feel like we can be very effective at the mid six zone, plus or minus on each in each individual transaction and that's true.
Generally how we're thinking about acquisitions at the moment.
Okay, Great and then can you just remind me I may or May have may have missed this earlier sorry, but.
Within the guidance are you know what sort of expectations for occupancy through the year.
Sure so occupancy as I said in the opening remarks was down about 60 basis points, but we'll sort of be reverting all other things being equal with the.
Leasing of the large art van site in Chicago, which was about 45 basis points of the change plus some other leasing we've done so we would see.
See occupancy being fairly robust I don't know Ryan if we have a specific thought around the exact number that's plugged into the model, but you share in terms of guidance and just thinking about it from a modeling perspective.
We use an assumption of 50 basis points on cash rent in terms of.
Occupancy leakage or vacancy and such.
That feels comfortable with where the portfolio sits today, our general rent collections and so on.
We've historically run inside of that probably closer to about 40 basis points, though.
Where collections are for January and February being just about 20 basis points on protection.
That's appropriate for the moment.
And then just lastly to clarify remember.
Net loss time, you'd outlined it sounds like this time as well you don't need cash.
No external capital necessarily to kind of get these acquisitions done, but assuming kind of you see a lot more volume.
Over the next 12 months is higher than you anticipate can you just talk about in an event where the volumes are just much higher how are you thinking about funding.
Sure you know I think you are absolutely correct is as we think about the full year guidance and the plan that we've outlined.
We can accomplish that without necessarily additional capital.
As we progress forward and if the if.
If the opportunity set rises in and we would exceed those numbers, we'd certainly come back to the market for.
Some additional capital the way that we're thinking about it is obviously will be looking to put an ATM in place.
In the near term I would say certainly sooner than needed. So that it is a tool that we could use and certainly depending on the size of the capital needed. We can think about the other avenues to that capital.
Whether it be follow on offerings or zone.
Great. Thanks, so much.
The next question is from Michael Gorman of BTG.
Yeah. Thanks, good afternoon.
I was thinking about this that you're coming up on the six month anniversary, but obviously you have a much longer track record.
In your time as a private company and if I think about the inverse of the interest rate question and as you think back whether it was the taper tantrum in 13 or the run up in the 10 year in 2016 when U S.
Do you see.
More acquisition opportunities are you seeing more disruption in your acquisition opportunities.
When there is that kind of volatility in the borrowing market, where maybe some of your competitors can't get financing until you get better looks.
Yeah.
You know that's a it's funny I was actually thinking some something along those same lines are this morning, and getting ready for the call. What I would say as you know I'm thinking back to the taper tantrum and I remember that very explicitly is that.
Volume at that time was a little bit disjointed and people kind of weighted to see how their they're there.
Their cost of capital shook out so I think that's slowed the market down in 2016, and they're more rising rates I don't specifically recall, there being a huge disruption volume and what I actually think is really the more impactful component around cap rates and opportunities as the supply demand component.
And how many players are in the market at any given time.
I think you do lose some of the smaller Oh, there's one when there is an inflection in that cost of capital and that is on the margin incrementally better for us.
Because we do have and are happy to do a five and $10 million acquisitions, and that's been part of our bread and butter, but I don't I don't think I'd changes the bigger macro picture of well capitalized institutional buyers, we're thinking more long term and are able to lock in some of their cost of capital early.
So I think it's just a little bit of a push and pull depending on the situation there.
But.
There was an opportunity to be a little bit more acquisitive, because some others pulled back we're all excited about that and have the team to do it.
No that's great and then Chris just kind of following up.
You've talked about you do kind of have a specialized strategy and some of the property types and I wonder if as you've been a public company now for the past six months in and kind of getting the story out there and being maybe a little bit more visible.
Do you find more opportunities seeking you out in terms of acquisitions, whether it's a specialized health care facility people that are more aware of brought us down to as a buyer of properties and in their space.
You know I think that's that's an observation that our acquisitions team is starting to I'd say absorb feel a little bit and I think we were always seen as a very credible buyer or as a private company.
But I think it doesn't hurt to have the incremental eyeballs on us just to use it and use the term has been a public company. It is very clear that we have greater access to capital.
From a proverbial toolkit that was a big part of going public discussion for us with new and old investors was being able to do some of the the capital markets transactions that.
We've talked about such as the ATM overnights Ah the high grade bond market now that we've got the second rating. So those things are a little bit less of a discussion point so I think.
You know that only builds over time as we continue to execute on our strategy, but I would say the acquisitions team, especially when they're doing sort of interviews and whatnot.
We've seen a little bit of incremental.
Our value and its being public and having a little bit more of a name brand.
Great. Thanks very much.
Thanks, Michael.
The next question is from keeping Kim of truest.
Thanks, Dan and good afternoon.
Hi can you just talk about the nature of some of the industrial assets you are buying and we lose the ability of those assets should there ever be a tenant turnover because I assumed the more random mill distribution warehouses, meaning we're paying to the boxes with good parking coverage.
Has different risk characteristics than a mass manufacturing plant that might have more of that kind of specific build out.
Yeah, absolutely I think.
Since we did a couple of industrial acquisitions, I think as you said the warehousing space.
More generic and.
Serves a more obvious client base I think what you are.
He didn't do is something that we pay a lot of attention to so one of the smaller industrial acquisitions during the fourth quarter was.
Our manufacturing and warehousing facilities, so you've got a little bit of shared space there and it's it's there you're focused very closely on the broader market. What other types of users are available for that space and.
I think I think there can be a slightly smaller user base, but you've got who both have confidence in the tenant and who you're buying in their operational capacity. There. But you also then take the broader look of the real estate fundamentals.
And try to think through what was the next user if you did have a changeover there so for US it's really just about balancing those two things and sort of taking it back to our broader focus of not a pure real estate buy are not a pure credit buyer are trying to balance those things and make sure they're they're reasonably in check with each other and I think it varies.
As a passage.
Is there anything else you can jump in there with you.
So I think that's a good summary.
Okay. Thanks.
And in terms of your balance sheet, what are your plans for getting a second credit rating and if you did get one.
Is there any kind of a tangible benefit to the spreads that you're.
Youre getting from the market.
Sure Ryan you might take that one share. So we just recently did get that second credit rating from S&P.
And it came in at a triple B flat, so a notch up from where movies are currently has us.
It does it does provide.
Certainly interest savings immediately on all of our bank term debt.
Roughly 25 basis points on in place that today as.
As well as savings on our revolver as we use it so certainly in place benefits and also now provides us with increased access to capital via the the public bond market and and so on.
Yeah, sorry about that I thought that was the first rating.
Yeah.
And any plans on timing for tapping the unsecured bond market.
Sure, So where we see things certainly it's an attractive market today, especially from a cost and debt perspective, and thinking about what that is versus our current cost of debt and its certainly attractive what I would say is we don't really have a need for it in the near term certainly evaluating whether.
There's something opportunistically to do with the balance sheet, but frankly, I think where it will come in to place will be potentially later in the year as we think about.
Putting capital to work into claiming into acquisitions on the line and then looking to take that out into a longer term debt such as the public bond market. So probably not in the first half of the year are more.
More likely something that would be access later in the year.
Okay. Thank you.
The next question is a follow up from Caitlin Burrows of Goldman Sachs.
Oh, Hi, again, I know you talked a little bit before that occupancy, but I was wondering if you could go through what additional credit events. If any are assumed in guidance, whether that's bankruptcy assumptions bad debt levels, and how that would compare to 2020 or 2019 actual yourself.
Sure Ryan you want to take that share. So in guidance, we don't have any specific credit events layered into it what I would say is that we do have a 50 basis point.
They can see assumption on or occupancy or vacancy assumption on in place cash rents. So you know, we've historically run somewhere inside of that call. It closer to 40 basis points, but we've layered into the guidance and our thoughts around it from a modeling perspective about 50 basis points.
And nothing.
Got it and how that relates to that you mentioned the fire okay.
I know, it's not a target kind of acquisition property type right now, but could you give an update on what youre hearing from your office tenants and are there. Some property. He could look to dispose of in advance of lease expirations that are in place.
Sure absolutely so as you'd expect.
Moving to maintain a very close dialogue with our office tenants and and as you noted you know it's not an acquisition focus for us at the moment I think what we continue to see here is that there's there's variability in their thinking and they are continuing to.
Evaluate sort of been returned to work on a more fulsome basis in that discussion is obviously more real today than it was a quarter ago. So for US we continue to stay close to see how their monitoring.
On the near term from a sale perspective.
And ultimately I think the only.
Matter that we've talked about before is the.
The nationwide office to two pack there'll be have that they will not be returning to their office after the pandemic, but we have seven.
This year's O'brien, who goes out to 2028 are with them and so if there's an advantageous solution for us with respect to that property we will.
Certainly consider it but right now it's just dialogue with the tenant about what they plan to do and how they maintain the building.
Then more generally to the office portfolio just from a position of strength again, we continue to have the ability to to.
Be thoughtful about it portfolio as a whole only about 10% of the gross ABR.
Strong very strong credit profile from there for us in seven and a half years of term. So we have you.
Ability to be patient and thoughtful as as people think through their return to work on a more global basis. So that's where we said from the office.
Got it thanks.
Okay.
And this concludes our question and answer session I would now like to turn the conference back over to Chris <unk> for any closing remarks.
Great. Thank you for all the attention and questions today very much appreciate everybody joining the call. We are as I said very excited about what 2021 will bring from a growth perspective for brought us don't at least feel like our portfolio is in excellent shape and the team is focused on all of the things that.
We will deliver a great set of results for our shareholders and we look forward to catching up with everybody. Soon thank you so much and have a great day.
The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines have a great day.
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