Q4 2020 National Retail Properties Inc Earnings Call
For patients is appreciated please hold the line and we'll be right back with you.
[music].
Uh huh.
Good morning, ladies and gentlemen, and welcome to the National retail properties fourth quarter and year end 2020 earnings conference call.
At this time, all participants have been placed on a listen only mode and we will open the floor for your questions and comments. After the presentation. It is now my pleasure to turn the floor over to your host Jay Whitehurst, Sir the floor is yours.
Thank you Matthew good morning, and welcome to the National retail properties fourth quarter and 2020 year end earnings call. Joining me on the call. This morning is our Chief Financial Officer, Kevin Habicht, Our Chief operating Officer, Steve Horn.
Before discussing the details of this past year I want to once again offer my sincere gratitude to all of the associates at National retail properties for their hard work perseverance flexibility collegiality professionalism and dedication in 2020, I could not be prouder of how this talented team work.
Worked tirelessly to create shareholder value and support each other during this past crazy year.
As I've said before perhaps the best word to describe national retail properties is consistent.
Consistent investment focus on single tenant retail properties consistency of people and culture consistently raising the dividend for 31 consecutive years consistent conservative balance sheet philosophy that maintains flexibility and dry powder consistent long term tenant relationships.
And although our long term track record of consistent per share growth was disrupted in 2020 due to the pandemic. We remained committed to our multi year business plan.
Highlights for National retail properties in 2020 include.
The increasing the common stock dividend for the 30 <unk> consecutive year of feat matched by only two other Reits and by less than 1% of all U S public companies.
Raising $700 million of well price debt capital early in the year, which put us in a strong liquidity position as the pandemic began to spread and enabled us to end of 2020 with $267 million of cash in the bank and nothing drawn on our 900 million dollar line of credit.
Reaching collaborative rent deferral agreements during the early stages of of the pandemic with a number of our relationship tenants, which solidified our relationships and set us up for future acquisition business.
Collecting 95, 7% of our rents due for the fourth quarter and 89, 7% of our annual base rent for the year 2020.
Supporting our associates and our community with programs and activities to advance associate wellbeing employee engagement and community involvement.
And lastly, enhancing our executive leadership team with the appointment of Steve Horn of 17 year veteran with the company as our Chief operating officer.
Let me now turn to some details about our fourth quarter and 2020.
As highlighted above our rent collections continued to trend positive during the quarter, resulting in collections of 95, 7% of fourth quarter rents for the year 2020, we collected just under 90% of rents due for the year and for the month of January 2021, we've.
<unk> approximately 95% of the rents due for the months.
These collection numbers compare compare very favorably with other retail real estate companies and are similar to the reported rent collections by companies with a significantly higher percentage of investment grade retail tenants.
I'd also like to highlight that we forgave zero rent in the fourth quarter and only for gave less than 5% of our annual rent for the entire year.
Consistent with our long term practice and multi year business model, we do not anticipate reporting monthly rent collections in 2021.
Yeah.
Notwithstanding the impact of the pandemic, our broadly diversified portfolio of 3143 single tenant retail properties ended the year with an occupancy rate of 98, 5%, which continues to exceed our long term average of 98%.
Our high lease renewal rate also continued in 2020 <unk>.
Approximately 80% of our expiring leases were renewed by the current tenants at approximately 100% of the expiring rent without material investment of lease incentives or tenant improvement dollars.
And with an average lease renewal term of over six years.
In our opinion this impressive statistic validates the high demand for our well located real estate sites.
A reminder, that our tenants are typically large well capitalized regional and national operators with the scale financial wherewithal and management expertise to whether significant disruptions in the business environment.
Additionally, the majority of our properties are located in suburban markets largely in the southern half of the United States, which have been somewhat less impacted by the pandemic and urban city centers.
We're pleased to see that many of our tenants businesses are bouncing back more quickly than we had initially anticipated.
And as our relationship tenants return to growth mode in the fourth quarter, we ramped up our acquisition activities as well during.
During the fourth quarter, we invested $102 million and 42, new single tenant retail properties at an initial cash yield of six 2%.
And at an average lease duration of 20 years.
For the year 2020, we invested a total of $180 million and 63, new properties at a weighted average initial cash yield of just under six 5% and with an average lease duration of over 18 years.
An important strategic advantage of our business model is the long lease durations, we achieve through our focus on sale leasebacks with our relationship tenants.
We also had an active fourth quarter of dispositions selling 13 properties for $12 million and for the year of 2020, we sold 38 properties raising over $54 million of capital to be redeployed into our business.
Our balance sheet remains strong we ended the year with $267 million of cash in the bank and zero balance drawn on our $900 million line of credit.
Kevin will provide more details on the $120 million of equity capital, we raised in 2020 via our ATM.
As we enter 2021 were well positioned to take advantage of the right opportunities when they present themselves and or whether further choppiness in.
In the economy, if that may occur.
And taking all of this into account we are pleased to introduce guidance for 2021 as reflected in our press release.
<unk> with our long term focus and culture, we approached guidance with a conservative mindset.
Although our portfolio continues to perform well and our relationship tenants of returning to growth mode. The pandemic has not yet behind us and there may be additional turmoil in the economy ahead Ken.
Kevin will review the details of our guidance in his remarks.
Looking ahead to 2021 and beyond you should expect us to continue to adhere to the core strategic drivers of national retail properties long term success, including first our consistent focus on single tenant net leased retail properties for real estate attributes of single tenant retail.
Properties are far superior to the attributes of other property types and the universe of opportunities to acquire these properties remains fast.
Second our broadly diversified portfolio of single tenant retail properties that generates a stable growing cash flow from long term leases.
As noted above our tenants are primarily large regional and national operators in lines of trade that provide customer services and E commerce resistant consumer necessities.
Third of fortress like balance sheet that provides us with the capability to withstand economic turbulence and positions us to be able to continue our long history of consecutive annual dividend increases.
For our relationship oriented acquisition model that results in high quality investments are proprietary tenant relationships allow us to obtain higher investment yields superior lease documents longer lease duration and better quality real estate.
Fifth and active asset management that focuses on maximizing the value of each individual properties.
Our deep real estate expertise enables us to get the most out of our portfolio and to recycle capital through thoughtful disciplined dispositions.
And last but not least of commitment to ESG, including a deep commitment to our team of great people and of supportive culture, which is the true backbone of our success almost three quarters of our associates have been with the company for at least five years and approximately half has been with us for 10 years or more.
The executive leadership team average is almost two decades of tenure at the company.
That level of commitment to culture and institutional knowledge is invaluable.
We believe that as we continue to execute on these strategic drivers in the post pandemic World, We will consistently deliver core <unk> per share growth and outperform REIT averages on a multi year basis.
With that let me turn the call over to Kevin for more details on our quarterly and year end numbers as well as our 2021 guidance.
Thanks, Jay and let me start out with the usual cautionary statement that we will make certain statements that may be considered to be forward looking statements under federal Securities law. The company's actual future results may differ significantly from the matters discussed in these forward looking statements and we may not release revisions to these forward looking statements to reflect changes after the statements from <unk>.
Jade.
Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the SEC and in this morning's press release.
With that headlines from this morning's press release report quarterly core <unk> results of <unk> 63 per share for the fourth quarter of 2020 of that's up one penny from the preceding third quarters 62.
And the <unk> per share was <unk> 69 per share for the fourth quarter of which is seven <unk> per share higher than the preceding third quarters 62.
As noted in the press release. These results include $7 million of <unk> per share of receivables write off in connection with reclassifying certain tenants to cash basis rent recognition in the fourth quarter.
Additionally, we recognized $2 5 million of deferred rent repayment that was repaid in the fourth quarter and was included in calculating <unk>.
As Jay noted occupancy was 98, 5% at quarter end up 10 basis points from the prior quarter G&A expense for the fourth quarter was five 7% of revenues for.
For the fourth quarter, and then five 8% for the full year 2020, which is fairly flat for 2019, the G&A levels.
Rent collections as Jay noted continue to improve throughout the fourth quarter today, we reported rent collections of approximately 95, 7% for the fourth quarter and 95% for the month of January 2021.
So we have seen.
The steady incremental improvement on the rent collections front over the past eight months.
To be clear of these rent collection percentages are for the regular original rent owed for those respective periods, meaning it does not include collections of previously deferred rent.
In the fourth quarter. We also collected as I mentioned $2 $5 million of rent that was previously deferred which represented approximately 100% of the deferred rent repayment that was due in the fourth quarter of 2020.
As we've previously noted as well the majority of deferred rent is due in 2021 in the very early indications suggest good collection results for those deferred rents. We have included on page 22 of today's supplemental which is on our website from disclosure.
The amounts and timing of the anticipated repayment of deferred rent over the next couple of years.
Moving on at the end of the fourth quarter, we had approximately $50 million or about seven 4% of our annual base rent being recognized on a cash basis as a result of our estimation that it was not probable of these tenants were going to pay substantially all of the remaining lease payments.
<unk>.
So this classification required us to write off of all outstanding receivable balances for these tenants, which in the fourth quarter was $2 million of rent receivables and $5 million of accrued rent balances totaling $7 million of approximately <unk> <unk> per share for the fourth quarter.
So without.
This non cash write off of <unk> results would have been notably better.
However, please know that despite the GAAP accounting write off we will be pursuing these receivables and ongoing rent payments with the usual vigor.
Rent receivables from cash basis tenants totaled approximately $10 million as of December 31, again. These receivables are not reflected on our balance sheet.
Now over to receivables that are on our balance sheet first rent receivables of $4 3 million, where it was fairly flat with September 30th levels and now very much in line with our pre pandemic rent receivable levels of $3 million to $4 million.
These rent receivables include of general reserve of 16% or $835000 at December 31.
Secondly, accrued rental income receivables decreased slightly to $54 million and had a general reserve of 11% for $6 9 million at December 31.
In the fourth quarter, we collected $2 $5 million of previously deferred rent which reduces.
It reduces the accrued rental income receivable.
This collection of previously deferred rent is excluded from GAAP earnings of <unk> and core <unk> results.
We did note that what a <unk> would have been if we had excluded the pandemic related accrued rent both of the deferral and the subsequent repayment.
We are currently less than 1% of our annual base rent coming from tenants in bankruptcy and that primarily consist of Ruby Tuesday today.
We'll know Chucky cheese exited bankruptcy during the fourth quarter and while we agreed to a 25% rent reduction for 15 months ending December 2021, none of our 53 leases were rejected in bankruptcy.
As Jay noted today, we initiated 2021 core <unk> per share guidance of $2 55 to $2 62 per share.
Some of the assumptions supporting this guidance are noted on page seven in today's press release and include <unk>.
G&A expense of $42 million to $44 million real estate expenses net of tenant reimbursements of 11% to $13 million acquisition volume of 4% to 500 million skewed probably 40 60 between first half and second half of 2021.
And then disposition volume of $80 million to $100 million.
While our rent collections materially improved throughout 2020.
Compared to many previous years, we have assumed there would be some continued uncertainty in the variable going forward into 2021.
Our cash basis tenants as I said represent approximately 50% of our $675 million of.
$50 million, sorry, $50 million of our $675 million of total annual base rent as of 12 31 2020.
We've assumed these cash basis tenants paid 50% of the rent due in 2021, and our guidance and that's relatively consistent with what they've been paying in recent months. Additionally on top of this we have assumed 2% rent loss from the remainder of our annual base rent, which equates to about 12 or $13 million.
<unk>.
And rent.
This rent loss or vacancy estimate is not made with any particular tenant concerns and on its face feels like a conservative assumption the assumption, meaning the actual rent loss could be better than guidance, but given this is our first issuance of the guidance in this pandemic it seemed prudent to be more conservative the knot and.
Those of US those of you of known us for the past 25 years or probably not too surprised by that approach.
We ended the fourth quarter with $267 million of cash on hand of no amounts outstanding on our $900 million of bank credit facility.
We did not draw down our bank line as many companies did in 2020, we raised $60 million of equity in the fourth quarter at just over $40 per share.
Our next debt maturity is in April 2023 of the $350 million with of three 3% coupon.
So we're in very good liquidity position, our weighted average debt maturity is now 10, two years with a weighted average interest rate of three 7%.
Financial Covenant compliance remains in very good shape as outlined on page 10 of the press release for the balance sheet and our leverage profile remains very strong couple of numbers.
Net debt the gross book assets was 34, 4%.
Net debt to EBITDA was 5.0 times interest coverage was four five times and fixed charge for point of zero times.
For the fourth quarter of 2020.
Only five of our 3000 plus properties are encumbered by mortgages totaling only of 11 $4 million. So 2021 seems the beginning of where 2020 left off with sustained rent collection levels and the incremental improvement in the tenant health, which allows us to continue to shift to of.
A more offensive posture.
As our focus remains on the long term, we will continue to endeavor to give in and then the best opportunity to succeed in the coming years and.
And Matthew with that we will open it up to any questions.
Certainly ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time, we do ask for a while posing a question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality. Once again, if you have any questions or comments. Please press star one on your phone please hold while the poll for.
Questions.
Your first question is coming from Katie Mcconnell Your line is live.
Great. Thanks. Good morning, everyone can you provide some more color on how you arrived in 2021 acquisition guidance just in the context.
The volume liquidity stands today.
Better understand how you're thinking about capital allocation priorities this year.
Sure Katy this is Jay I'll give you a little bit of high level, and then I can turn it over to Steve a little bit for the pipeline, but as you know the vast majority of our acquisitions are sourced through our relationship tenants doing repeat programmatic business with the.
The three dozen or so relationship tenants that we've done work with over the last few years and those tenants slowed down their growth during the pandemic.
And so it made it.
Kind of easy for us to to slow down and wait to see how things settled out because our customers were doing the same day.
Our customers are now returning to growth mode. So it feels to us like the this kind of <unk>.
For the 500 million dollar projection for 2021 is.
It may it may prove to be accurate it may be a little conservative it may be a little optimistic, but but it feels like our relationship tenants are back in more of a growth mode and so this is us.
It's a lower number than we had acquired in the few years before the pandemic, but it's <unk>.
Certainly in that ballpark and so it's driven primarily by talking with our relationship tenants.
The we look in the open market for deals of all the time, but but we historically have found that the best risk adjusted return.
For all of those factors that I talked about in the.
My opening comments comes from doing a relationship business with our repeat customers. Steve do you want to add anything about the the pipeline with those folks and what youre hearing from them.
Steve Yes.
In the fourth quarter, we noticed more kind of M&A activity, meaning M&A, our tenants looking to acquire other businesses that may be struggling they've been doing in kind of the rifle shot approach as far as new store growth. So we're definitely hearing from our tenants that the growth engine for them.
Starting up again.
So the brokers investment bankers, we notice coming out with more portfolios in certain industries, where they can capitalize on the robust pricing currently as.
<unk> is the number that we're throwing out there the market is a little bit smaller for us meaning movie theaters, there's really no market for them in the family Entertainment.
As far as health and fitness.
Much smaller market, but we feel we can find the 400 $500 million and kind of our wheelhouse with our current relationships.
Yes.
Okay, great. Thanks, and then can you just touch on the type of properties acquired during the quarter of that might have contributed to the lower cap rate versus some of your prior.
And then how should we think about pricing for the 20 <unk>.
On the pipeline.
Yes.
2021 pipeline I think we're thinking of kind of mid six's cap rate cap rates continue to remain very low.
Fourth quarter was a.
Primarily <unk>, our fast food deal that we have been in dialogue with the franchisees for many many years and finally the deal.
Came up and and so these were the types of properties that trade at at lower cap rates and it's at the low end low end of the range of what we do but we're very happy with the operator very happy with the real estate.
So it seemed like the right the right time to stretch a little on the initial cap rate remember that it's a 20 year lease and if you add in our typical one of half to 2% rent bumps over the 20 year lease you built in.
Over 100 basis points of additional long term yield we don't straight line. It in the lease document and we don't talk we don't straight line in our reporting and our conversations but it does give us a.
Much more compelling long term yield do in these 20 year deals.
Yeah.
Okay got it thanks, everyone.
Thank you. Your next question is coming from RJ Milligan Your line is live.
Hey, good morning, guys.
Couple of questions on the guidance Kevin.
Contributing to the increase in G&A for 2021.
Nothing in particular.
So there is nothing notable just general increase.
Okay.
Oh, okay.
And so then looking at the guidance if you back out the deferral paybacks in the fourth quarter gets you to a run rate of all of $117 million of <unk>.
Realize that reduced that by say of $4 million increase in G&A, you get a run rate of about $465 million or about $2 68, excluding acquisition activity and I'm just trying to bridge to the guidance of $2, 61% to 268 with acquisition activity is what's the main difference there.
Not sure I, followed all of that I mean, the way we look at it is I mean, we start with our annual base rent of $675 million.
And then back out.
These reserves that we've talked about $25 million roughly for our cash basis tenants.
<unk> 13 million for our non other parts of our rent.
And then.
If you step through the guidance.
Property expenses G&A et cetera.
You end up at about $2 58 on core <unk> and then if you look at the page 22 of the supplemental.
I alluded to in my comments. It gives you the detail on that.
For the repayment of deferral of rent and so that is really the which is about <unk> 20 per share for.
For the fourth quarter I'm, sorry for 2021.
That gets you the delta between our core <unk> estimate and the <unk>.
I'm not sure exactly got to the answer to your question, maybe we talk about it offline but.
That's the math.
Okay. So what's in the in the cash basis bucket, you mentioned, the 50% assumption and that's relatively in line with what you saw in the fourth quarter.
Can you talk about the tenants in there.
We are making up that assumption.
Yes, the bulk of the bulk of that particular bucket is really for tenants. So it's like Chuck E cheese Ruby Tuesday.
Fresh is.
I don't think the AMC and AMC. So that's that's probably 90 plus percent of that cash basis bucket on an annual base rent kind of calculation and so that's what's driving that so we'll see if we can do better than the 50%.
That's been historical I will say and I think you've probably seen and we're experiencing.
Trends are ticking positive I would say across the board in retail world, but.
For guidance purposes, we assume theyre going to stay fairly flat to where what we've experienced in recent months.
So for the check of cheese for example, net in that bucket, that's using the already reduced rent for check of cheese.
Yes, so yes that is probably the one one tenant we were.
We did make a change as I noted in my comments. So we amended the lease to reduce the rent for the fourth quarter of 2020, and the full year 2021 by 25%, so, but that's really the only tenant of any note where that occurred.
I guess I'm, just trying to get to that.
The 50% assumption given the Chuck E cheeses emergence of emerge from bankruptcy and the rent has been reduced the debt 50%. If you were just assuming on Chuck E. Cheese is probably conservative given that they have not rejected any leases.
Yes, yes, so yes, my 50% number is an average for that whole bucket. So yeah. It's got some good better performers and some worst performers in it.
So yes, you might think some of our others. Some theatres for example might not be paying quite that level, 50%, so but that can add another type of it the.
The big bucket and then on.
On top of that there is an additional 12 to 13 million of additional just no specific tenant, but but rent loss built into that number.
Correct.
That's where the other 625 million of if you will of annual base rent, that's not cash basis.
And of normal year, we would assume 1%.
Rent loss of vacancy just because that's the.
The things happen and so in this environment We Inc.
We made at 2% so.
Yeah.
Got it and then just back on the acquisitions to follow up on <unk> questions.
Is it is the the <unk>.
Volume really dependent on sort of the relationship tenants in there of growth and what do you expect the cadence of that for under the 500 million to be throughout the year.
Net RJ.
The back.
Back end loaded as we do pretty much every year backend loaded the guidance in the guidance a little bit I think its kind of 40% first half of the year, 60% second half and.
And so that's what we're thinking.
It's it really but you can never see far enough ahead too to be able to pin it down very precisely we just know that we're dealing with large operators who are in the growth mode and have the wherewithal to do it and as Steve mentioned in some instances, it's a bit of a target rich environment for them to be able to.
Expand their business and so we think that will.
Ultimately result in sale leasebacks for us.
Great. That's it from me thanks, guys.
Thank you. Your next question is coming from Wes Golladay. Your line is live.
Whereas the rent.
Can you hear me.
Hello, Yes.
Yes.
Okay, sorry about that just wanted to go back to Chuck E cheese, so how much of the rent is being debated this year.
And I guess it would of how much does that impact that 50% bucket.
Non as being sales thats not.
For our $3 6 million round numbers.
The 295000 of months.
This year.
And so.
But thats.
That's kind of baked into our numbers, though.
Got you and then you kind of highlighted fresh and we have seen that they have over the last year of closed a few stores are you part of the I guess did you experienced in the store closings or do you have a master lease similar to what you have for Chucky cheese with fresh.
With the fresh is multiple leases with the precious.
Okay kits I think of similar set of okay. Good.
And then one of the things you're doing is you're still raising capital, but you have of large cash balance that's creating a little bit of a drag on the earnings guide for the year.
I guess expect the balance sheet and the cash balance to progress throughout the year.
Yes Fair question, Yes, I think as.
As you hopefully getting a sense as we are moving to a more offensive posture here looking probably to the not issue equity of any note in 2021 and good news is you don't need to even the.
Hit our acquisition guidance and do the things we want to do we really don't need to raise any additional equity so.
It's not saying, we definitely won't but we just we don't give guidance on capital raising debt or equity, but but.
Fair point that we don't we don't need to do anything for the rest of this year too.
To keep a leverage neutral balance sheet and not issue any equity.
Yes.
As you've heard us talk about west as you've heard us talk about before.
Two of large degree try to divorce.
Capital raising from capital deploying so to the extent of the stock is trading at a price that we think is advantageous we would certainly be inclined to raise even more capital.
While while Steve in the acquisitions group looks for ways to deploy it but we.
We feel very good about the position that we're in that we can go forward with our acquisition plans without needing to issue any equity at the moment.
Got it makes sense and then maybe on the the disposition bucket I know in the past <unk> had the mix of offense of the dispositions and then just kind of maintenance of pruning the portfolio to maybe get out of something before you see some issues. What are you looking at this year as far as your dispositions will be for the off into the category of more of the risk management the bucket.
The <unk>.
Historically it breaks down.
In terms of properties about 50% of the proper.
Properties in each direction in terms of dollar volume, it's predominantly <unk>.
Offensive dispositions that generate more dollars, but.
It will probably be the same in the range.
Maybe 60, 40 offensive give or take 20 basis 20 basis points on either side of that.
We know.
We every year take advantage of some instances where folks come to us and some of our properties at cap rates that we just.
Can't turn down and we are always looking at the pruning the portfolio along the way.
Got it thanks for taking the questions.
Thank you. Your next question is coming from Spencer Alloway. Your line is live.
Thank you.
Jay you mentioned the cap rates remain low can you just provide a little bit more color on what you guys saw being shopped in the fourth quarter, and then how cap rates of training across the various retail industry.
Sure Spencer I'll tell you, what I'm going to turn that over to Steve to talk about.
Hey, Spencer.
The obviously, there's a fair amount of distribution centers that are out there that in and then doesn't play in.
There is a couple of C store portfolios that were out there and just some typical single tenant net lease mixed portfolios.
And then on the mixed portfolio as the lease term for a fairly short so the cap rates pretty.
For a robust meaning having of seven in front of them.
The <unk> portfolios were out there a fair amount because a significant.
Amount of small franchisees decided to sell.
And those portfolios were growing in the high fives low sixes as well.
Some rental portfolios were out there and a fair amount of kind of the warehouse club club the Casco's Bj's, we're out there, but that being said the 10 31 market is significant and is always there, but historically, we didnt play in that market because of the short term relief.
This is where we'd like to and the sale leasebacks.
Okay. Thank you that's really helpful.
Then just one more so in other words, but about a year into the pandemic now have discussions changed at all the tenants. When you. When you guys are negotiating new leases. So anything that tenants are you guys are placing more of a simple Tucson in line of the current environment.
When the pandemic started we were wondering what language is going to change in the lease.
But the.
Obviously, we haven't done a significant amount of volume since the pandemic started however, the acquisitions that we've done we have not found any change in our tenants behavior. When it came to the the long term lease.
Okay.
The ancillary kind of pushing for the Shang Okay, we'll take longer term if we can negotiate from lower initial rent in the current environment.
No not yet I mean, the market's pretty efficient and really for the most part of the slight change in the sale leaseback market the cap rates have compressed for the essential properties.
Okay. Thank you guys.
Thank you. Your next question is coming from Jason Belcher. Your line is live.
Yeah, Hi.
Wondering other than the large <unk> deal that you guys mentioned from Q4 what are the.
There are sectors, where <unk>.
Spine, what kind of average lease terms, wherein there and maybe.
Can give us a range of the cap rates you guys saw.
The.
<unk> D of Jason made up the vast majority of what we did in the fourth quarter, but I would say if you looked at what we did for the year and what we are looking at in the pipeline going forward, it's going to be very similar to our current portfolio makeup meaning.
Convenience stores and fast food restaurants and perhaps.
Perhaps carwash is auto service type uses auto repair type uses equipment rental type uses the.
The types of lines of trade that are near the top of our portfolio.
I am sure at the moment or for going forward for the medium term, we will have less of a.
Appetite be more selective on the types of properties that have been hit hardest in the pandemic, while we wait to see how.
Those businesses recover and what's the right way to underwrite larger properties, where people congregate in the post pandemic world.
Okay. Thanks, and then just on the rent deferral buckets scheduled for repayment into 'twenty, two and 'twenty three.
Hum.
I'm, assuming that's largely theaters in casual dining, but if you could just touch on what else if anything might be in there.
It's really a broad section. So if you think about it we entered into deferral agreements with about 25% to 30% of our tenant base and so it's a pretty broad section, but obviously the.
And the cash basis.
Tennant's.
We've talked really about what some of those might be but otherwise its.
<unk>.
It's a pretty broad cross section of deferrals.
So its not anything in particular, I mean, the restaurants, I guess would be.
No.
Primary and that list and then family Entertainment.
Those would be I guess more concentrated.
Got it that's helpful. Thanks, a lot of gas.
Sure.
Thank you. Your next question is coming from Linda Tsai Your line is live.
Hi on the <unk>.
E cheese temporary 25% rent reduction any similar color to provide on theater rent deals collections improved 42% in <unk> from 35% from <unk> has that improved in the first two months of the year given positive positive capital raising activity.
Yes.
We have not given out I guess tenant in line.
The line of trade by month, I guess disclosure I mean, we're optimistic it might get better given the capital raising.
That's gone on.
And so I think thats.
We're hopeful that might come to be but we're not presuming that's going to be happening in 2021.
Yes, Linda.
It feels to us like the other lines of trade that make up our portfolio that have.
Were materially affected by the pandemic cash.
Casual dining and health clubs and family Entertainment are it feels to us like those lines are going to pop back faster and that the movie Theater line of trade is just going to take longer to come back.
And so.
We are aware.
Must be a much more cautious about.
It's part of our conservative guidance is related to just our uncertainty about how fast the movie theater business. The movie business is going to.
Come back.
Into bloom.
That makes sense and then in terms of the 2% rent loss in 'twenty, one, which you view as conservative how does that translate to occupancy and I realized occupancy improved sequentially this quarter.
Yes, I mean in our minds, we really don't think of it differently.
Sure.
Whether at 2% rent loss because.
And the tenant that we don't evict.
It is not paying rent or because of the property becomes vacant kind of of the same day, our bottom line. So.
I don't have any real color to give you on how much of that translates into the actual vacancy.
Okay.
Thanks, and just one last one the.
The U S are you engaged with for a while I'm guessing that's why the lease term with so long do you think the 20 year lease term as repeatable on <unk> going forward or was it specific to the seller you engaged with.
Yes.
Steve you may have some additional color on this but.
Negotiating a long lease term in the sale leaseback is very important to us and so it is one of the items that we talked with the tenants about.
At the beginning of the negotiation of along with cap rate and proceeds and and all of the rest of the terms of the transaction. So it does not feel to me like that was a <unk>.
Lightning in a bottle of if that was particularly unusual it's just something that to us is very important and that we negotiate very hard for.
I think J J is spot on it's not lightening in the bottle, it's pretty standard for us in our relationships and at the same time of the relationships, we want to control of that asset for a long time. So if you give them the short term lease and a sale leaseback theyre going to have less options. So the outlay.
The control of the asset for 40 years of opposed to 15 or 20 years.
Makes sense. Thank you.
Thank you once again, ladies and gentlemen, if you had the questions or comments. Please press star one on your phone at this time your.
Your next question is coming from Joshua Dental lien your line is live.
Yes, good morning, guys.
Kevin I think this one's for you I wanted to touch base on what you mentioned it was in guidance it sounds like you're assuming 2% credit losses in your initial guide.
That.
I guess I'm trying to think about how to think about that is that assuming 100% occupancy. So where you are right now at $98 5 million just kind of assumes another 50 basis points down or for <unk>.
Potentially.
Down to like 96 five.
Yes.
Later, I mean, if in fact that rent losses real vacant properties it could be but it very well might not be yes, it would be 96.
The way I think about it but at 2% off of our current annual base rent run rate. So we are already have some vacant properties in the portfolio of that show up is zero and our annual base rent run rate.
And so yes, it's a 2% reduction from current.
Okay, and thats across the entire range or just at the low end of your guidance.
That's across the entire range.
Okay, Alright, that's super helpful.
Thats actually it for me thank you.
Thanks Scott.
Thank you. Your next question is coming from John Masako. Your line is live.
Good morning.
Hey, John.
So as you can.
Think about.
Renewals and kind of new rents on renewals versus kind of prior rent that's been kind of trending higher versus the historical Inc.
How are you expecting that the trend with regards to the 3% of rent that's expiring in 2021.
And I guess, what kind of assumptions are you, making in guidance in terms of where.
Renewal rents trend versus kind of in place rents.
Okay.
We do.
John we do.
Very thorough.
<unk> analysis for the purpose of what we are plugging into the numbers for guidance on <unk>.
<unk> kind of individual properties.
I'll tell you we were surprised pleasantly surprised that in 2020, we continued to have that high renewal rate at 100% of prior rents 80% of the time the tenants renewed in 2020.
Net.
And that's been consistent over a number of years. When we look ahead to 2021 and 2022.
The majority of the properties with expiring leases in those two years are fast food restaurants, and convenience stores that right, Steve Steve's nodding, yes, and and so we tend to have.
<unk>.
At or above average renewals in those categories. So we feel pretty good about that.
Net.
That kind of.
High level of renewal continuing with these types of these property types over the next couple of years.
Okay.
That makes sense and then I know youre trying not disclosed collection on a month to month basis, but we only get you in this type of forum four times of year. So is there any color you can provide on February rent collection and I guess is it kind of trending similar to January collection at this point.
I mean, I don't think we have any surprises to the note here so.
Yes, I don't have any real comment besides it seems to be consistent with what we've experienced in recent months. So yes. It feels for it feels feels pretty good so far.
Okay.
That's it for me thank you very much.
Thank you there are no further questions in the queue at this time.
All right Matthew Thank you and we appreciate all of you dialing in and we look forward to speaking with many of you virtually at the various conferences coming up in the near future have a good day.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your lines at this time and have a wonderful day. Thank you for your participation.