Good morning, and welcome to the Agree Realty First Quarter 2020 Conference Call. Today, all participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note that today's event is being recorded. At this time, I would like to turn the conference over to Clay Thelen, Chief Financial Officer.
Please go ahead, Clay.
Thank you. Good morning, everyone, and thank you for joining us for Please note that during this call, we will make certain statements that may be considered forward looking under federal securities law. Our actual results may differ from the matters discussed in any forward looking statements for a number of reasons, including uncertainty related to the scope, severity and duration of the COVID-nineteen pandemic, The actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures on us and on our tenants. Please see yesterday's earnings release and our SEC filings, including our latest annual report on Form 10 ks and subsequent reports. For a discussion of various risks and uncertainties underlying our forward looking statements.
In addition, we discuss non GAAP financial measures, including core funds from operations, or core FFO Adjusted funds dropped from operations or AFFO and net debt to recurring EBITDA. Reconciliations of these non GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings release, website and SEC filings. I'll now turn the call over to Joey.
Thank you, Clay, and good morning, everybody, and thank you for joining us. First off, I would like to wish all of our listeners and their families health and safety during these difficult times. That I've learned from 2,008 and the Great Recession uniquely positioned ADC to not only survive, but thrive after this current crisis. That experience made us battle tested and has applied the experiences gained through that recession to all aspects of our company, Most importantly, our balance sheet and our portfolio construction. Our fortified balance sheet at approximately 0.7 times net debt to EBITDA, Pro form a for our outstanding forward equity gives us complete flexibility and the unquestioned ability to pursue opportunities which we feel will be even greater this year into the future.
This was further validated by the receipt of investment grade credit rating from S and P in the midst of this pandemic, which I note was prior to equitizing our balance sheet with over $500,000,000 in additional capital. Given the market dislocation, Strong visibility into our extremely high quality pipeline and lack of capitalized competition, we are increasing our acquisition guidance to $700,000,000 to $800,000,000 for the year. Rest assured that we will maintain our historic discipline and that the quality of our pipeline is of the utmost importance And we will and will further enhance our already stringent acquisition criteria. Before I provide some data for the month of Let me please take a moment to express my sincere gratitude to our finance, asset management, accounting, legal and lease administration teams for all their efforts, Closing the quarter remotely during a pandemic, including an ATM filing and 2 equity offerings, truly a remarkable effort. Regarding the month of April, our collections for the month demonstrate the thoughtful portfolio of construction we have undertaken and the resiliency of our tenant base.
I am very pleased to report that over 87% of total outstanding rent has been received and that 100% of our investment grade tenants paid their April rent. We have created a cross functional COVID response team that consists of asset management, legal, accounting and tenant relations that will manage any short term challenges, while also seeking to create long term value. Retailers that are opportunistic and choose not to pay rent will be met with full resistance And full recourse. Longer term, this crisis is a significant opportunity that our company is poised to take advantage of. We have begun to see additional high quality investment prospects and given the macro environment in our balance sheet and tenant relationships, I anticipate this to further accelerate.
We expect a long hard economic recovery for our country with relative winners and absolute losers And Agree Realty is positioned to emerge stronger than ever. Now excluding our strategic capital markets execution, I'll get into what is probably the least important reporting quarter of our careers. I'm pleased to report that the Q1 represented a We're in a strong start to the year as we continue to capitalize on opportunities across all phases of our business. During the quarter, we further strengthened our portfolios Through strategic investment activity and proactive asset management, while taking significant steps to offensively fortify our industry leading balance sheet. During the quarter, we invested $231,000,000 into 55 high quality retail net lease properties across our 3 external growth platforms.
51 of these properties were originated through our acquisition platform, representing total acquisition volume of nearly $228,000,000 While we achieved another strong quarter of acquisition volume during these uncertain times, most notable again is our discipline, Evidenced by a record 89% of annualized base rent acquired being derived from investment grade retailers. The 51 properties acquired during the quarter leased to 17 tenants operating in 14 secondtors, including off price, general merchandise, Auto Parts, Tired Auto Service, Dollar Stores and Home Improvement. The properties were acquired at a weighted average cap rate of 6 point 4% and had a weighted average lease term of 11 years. The acquisitions were marked by a number of unique opportunities. Most notably during the quarter, we acquired 6 Walmart Super Centers comprising more than 1 third of total acquisition capital deployed.
Today, I'm very pleased to report that Walmart is our largest tenant at 6.3% of annualized base rents and growing. We believe that the world's largest retailer is going to continue to thrive post pandemic, while the majority of their competition will either struggle, Go away or contract significantly. We continue to work with all of our retail partners to identify additional opportunities To add value. Identifying unique real estate opportunities with our tenants has been a hallmark of our approach for years. I am very pleased to report that we acquired the HomeGoods store in East Hampton, New York this past quarter.
This store took several years for the developer to entitle, permit and I'm sure many of our listeners are familiar with the store. Its addition represents another trophy like net lease asset to our portfolio. Additionally, we executed on a 12 property sale leaseback transaction with National Tire and Battery, raising TBC Corporation to our 9th largest tenant at 2.7 percent of annualized base rents. As you may recall, we added TBC, A leading investment grade tired auto service operator to our top tenant list in 2019 through a similar transaction. Given the recessionary environment, I anticipate that tired auto service as well as auto parts will continue to thrive.
The average age of cars on the road is already approaching 12 years, a record in the contemporary United States. With new car sales grinding to a halt, This sector is poised to further strengthen. We added 2 more assets to our ground lease portfolio during this past quarter, including the Loews in Toledo, Ohio and in Aldi in Minnesota. This ground lease portfolio stood at 8.5% of annualized base rents as of threethirty 1 And continues to derive nearly 90% of base rents from leading investment grade retailers. Moving on to our development and partner capital solutions platforms.
We had 4 development and PCS projects either completed or under construction during the quarter that represented total committed capital of more than $15,000,000 3 of those projects were completed during this past quarter, representing total investment volume of $12,000,000 The completed projects include The redevelopment of the former Kmart in Frankfort, Kentucky for Aldi, Dig Lot and Harbor Freight Tools, Our first development with Tractor Supply in Hart, Michigan and our 5th development project with Sunbelt Rentals in Converse, Texas. Construction continued during the quarter on our first development project with TJ Maxx in Harlingen, Texas immediately adjacent to a target And rent is anticipated to commence there in the Q3 of this year. You have all heard me speak about Our full service real estate capabilities before, yet another tool that we have been working to deploy for several months is the screening of current national vacancies And the ability to quickly review them using our comprehensive software for potential backfill candidates that are within our proverbial sandbox. It's very rewarding to see our team's efforts come to fruition on such projects. Subsequent to quarter end, we commenced construction on our first redevelopment for O'Reilly Auto Parts in Mayflower, Arkansas in a former box tenanted by Fred's.
This project follows in the path of our Sunbelt Rentals projects And our tractor supply in Hart where we redeveloped a formerly vacant, now Shopko. We will continue to work with our retail partners I strongly prefer this approach to ground up development given the current GLA and vacant GLA that we anticipate seeing nationwide accelerate. While we strengthened our portfolio through record investment activity, we've also diversified our portfolio through strategic asset management and disposition efforts during the year. The Q1 was very active on the disposition front as we sold 6 assets for gross proceeds of approximately $25,100,000 Notable disposition activity during the Q1 included the sale of an Academy Sports, our only Joann Fabrics, 4 franchise restaurants And another Walgreens. Subsequent to quarter end, we sold 3 additional assets for approximately $7,700,000 I would also note that one of our 3 Dave and Buster's is currently under contract to sell.
This purchase agreement was entered into after the rise of COVID-nineteen at a very attractive cap rate. The contract purchaser is now fully Fundable with a $100,000 deposit and closing of course is subject to customary condition. Given the current year to date disposition activities, we are raising the bottom end of our disposition guidance to $35,000,000 for the year, which we will evaluate as the year progresses. Our asset management team has also been diligently focused on addressing our upcoming lease maturities. As a result of these efforts, our 2020 lease maturities stand at only 5 remaining lease expirations and represented just 0.2% of annualized base During the Q1, we executed new leases, extensions or options in approximately 180,000 square feet of gross leasable space.
In addition to several notable options being exercised, we are very pleased to announce that Alta will be joining Hobby Lobby in Mount Pleasant, Michigan at the site of our former Kmart development. This is yet another testament to our decision to hold this asset for redevelopment and frankly was a pleasant surprise. As of March 31, our growing retail portfolio consisted of 868 properties across 46 states. Our tenants comprised primarily of industry leading retailers operating in more than 31 retail sectors with almost 60% of annualized base rents coming from investment grade tenants. The portfolio remains nearly fully occupied at 99.3% and has a weighted average lease term of 9.8 years.
The minimal drop in occupancy was related to the now vacant Art Van flagship store. I'd like to take a moment to thank all of Thank you for your participation in trying times. Recent events have validated the methodical portfolio construction that we embarked on almost And we remain more focused than ever on continuing to improve what we believe is the highest quality retail portfolio in the country. Thank you for your patience. Happy to answer any questions after Clay provides an update on our balance sheet and discusses our financial results For the Q1, I'll turn it over to you Clay.
Thank you, Joey. I'll start with the balance sheet update and highlights from our recent capital markets activities. We had a very active quarter in the equity capital markets, raising more than $400,000,000 in common equity and an additional $370,000,000 in common equity with yesterday's announcement. In addition to capital raise, we also generated almost $35,000,000 through our disposition activity and free cash flow after dividend during the quarter. In addition to yesterday's $370,000,000 transaction, we commenced an overnight equity offering on March 30 totaling $175,000,000 Additionally, we are very active on our ATM during the Q1 and entered into forward sale agreements to sell 3,300,000 shares of common stock At an average gross price of $69 per share for anticipated net proceeds of more than $228,000,000 At the end of the quarter, we settled forward offerings totaling approximately $105,000,000 Given this settlement and combined with the company's 2019 forward equity activity, we had approximately $267,000,000 in unsettled forward activity available to us at quarter end.
And as announced yesterday, we will be settling these remaining forward offerings this week. This capital raising activity provides us Tremendous optionality and puts us in a very strong liquidity position. Pro form a at quarter end for the settlement of our overnight equity offering And previously raised forward equity, we have full access to our $500,000,000 credit facility, over $250,000,000 in cash on hand and the $370,000,000 in gross forward equity proceeds from yesterday's announcement. Further, our balance sheet remains in its most fortified position in the history of our As of March 31, our net debt to recurring EBITDA was approximately 4.8 times. And as Joey mentioned, pro form a and inclusive of all equity activities, Our net debt to recurring EBITDA was 0.7x.
Total debt to enterprise value at quarter end was approximately 26.5%, While fixed charge coverage, which includes principal amortization, stood at a company record 4.4x. Core funds from operations for the Q1 was $0.82 per share, a 10.7% year over year increase. Adjusted funds from operations per share for the quarter was $0.81 an increase of 13% year over year. General and administrative expenses in the quarter totaled $4,700,000 G and A expense was 8.3% of total revenue 7.8 percent excluding the non cash amortization of above and below market lease intangibles. We continue to anticipate G and A as a percentage of total revenue an approximate 50 basis point improvement from 2019 or in the lower 7% range for 2020, excluding the impact of above and below market lease intangible amortization in total revenues.
Income tax expense for the quarter totaled $260,000 For 2020, we continue to anticipate total income tax expense to be in the range of $1,000,000 to $1,200,000 The company paid a dividend of $0.585 per share on April 9 to stockholders of record on April 27, 2020, representing a 5.4% year over year increase. This was the company's 100 and 4th consecutive cash dividend since our IPO in 1994. Our payout ratios for the Q1 were conservative 72% of core FFO and AFFO per share, and we continue to believe we have a well covered dividend. With that, I'll turn the call back over to Joey.
Thank you, Clay. At this time, operator, we will open it up for questions.
We will now begin the question and answer Today's first question comes from Simon Yarmak of Stifel. Please proceed.
Good morning, everyone.
Good morning, Tom. How are you?
Hope all you guys are doing well and
that your families are safe.
Thank you very much.
Congratulations on a solid quarter, strong April rent collections and the recent capital market activity. Over the last couple of years, you've had a pretty conscious effort to increase your exposure to investment grade tenants, approaching 60% at the end of the Quarter, obviously, with the April rent collections, our investment grade tenants have essentially paid. How do you think about going forward where you want to take that number
Well, I appreciate the question, Simon. I would tell you, given the trajectory of our pipeline And it will be closed in Q1. There's no doubt that number will continue to increase. You'd also have to add in the disposition efforts with subsequent to quarter end with the 3 Shai's restaurants, as I mentioned. So our pipeline in close to date are very similar.
I would tell you in terms of tenant credit quality, the 89% in Q1 obviously is elevated again. I would remind everybody we're not imputing shadow investment grade credit ratings to Tractor Supply or Chick Fil A or The Publics or Hobby Lobby's of the world. And so, as I always say, and it's probably repetitive, investment grade is a data point For us, it's an output of our strategy, but there are still a number of retailers in this country that for whatever reason they may be private or may not have debt at all, Don't carry an investment grade credit rating. So, I wouldn't put a ceiling on that number. I would fully expect it to continue to rise, And I would anticipate it surpasses 60% in Q2 here, at the end of Q2.
Thank you. You touched in your prepared remarks, you've built this portfolio essentially over the last 10 years and you've done a great job at that. When you think about how you've been going through the last couple of weeks or last couple of months, is there anything that you would do differently in constructing your portfolio going forward That's a learning lesson from the pandemic.
Look, I think it's still early. I would tell you, we will no doubt do an after action review, hopefully sooner rather than later after this pandemic. I would tell you this pandemic from my perspective has accelerated what we already believe The trends in retail, what we saw from retailers in a brick and mortar perspective or an e commerce perspective going to an omni channel world, We always avoided experiential and discretionary goods. And so that was already part of our strategy. I think what this has done is exponentially increased what we already saw and that's the stronger survive and the weak obviously disappearing.
I think that's emblematic Of the tens of 1,000,000 of dollars in the 6 Walmart Super Centers we acquired during the quarter and Walmart's Ascend Ins as our top ten. So I would defer until after. I would tell you, I'm not thrilled to own 5 movie theaters today, obviously, but that's a minority of our portfolio at approximately 1.5%. We haven't touched the movie theater space in a number of years. But I would tell you that is the only sector in my head that I think that could Potentially, we could have more actively avoided, but again, we haven't acquired a movie theater, I believe, over 3.5 years.
So Ask me hopefully by the Q3 call, this will all be over and we'll have time to do an after action review, but we will certainly undertake one.
Sure. Just last question. In terms of the competitive landscape that's been changing over the last 6, 7 weeks, most of your peers really We're going to take down acquisition activity to a halt with losses, cost of capital. How has that Environment change, how competitive is that today? How strong is the 10/31 market in the current environment?
Then lastly, what is the Spread between the portfolio market and one off transaction.
So to your Most people think of our peers as our competition. We very, very, very rarely ever run into our peers. Most of them have differentiated business models. And so we very rarely run into our peers. Our traditional competition In the net lease space, in this highly fragmented net lease space, which I tell you our average price point of just over $4,000,000 It's generally financed purchasers either from the 1031 market that would be a larger 1031 transaction Or a private party purchaser.
And so I would tell you with the lockup in the CMBS market and frankly the inavailability of bank debt, That is very that's taking a significant amount of competition offline. Now you didn't ask this directly, but I think we will hopefully see cap rates rise accordingly. Your second question, Simon, was what?
The spread between portfolio sales and one off transactions.
I'll be honest, I think we have not actively reviewed any diversified portfolios or any portfolios that are Embedded in our Q1 activity or Q2 pipeline. So I would tell you it's a little earlier it's a little too early to See if that spread, what happens with that historic spread. That really our guidance, I would mention our We've guided the $700,000,000 to $800,000,000 includes no portfolio activity, no M and A activity, no sale leaseback activity, just regular way $150,000,000 or $170,000,000 or so $4,000,000 plus transaction. So I think we're going to see a lot of this
.:]
I want to be very careful on this call not to frankly set any expectations that we don't
The next question comes from RJ Milligan of R. W. Baird. Please proceed.
Hey, good morning guys. Good morning, Eric.
Joey, looking into obviously good rent collections in April, but looking into May, do you expect to More or less rent collected in the month of May?
Again, a good question. I wish I had transparency and visibility. We It was important for market participants to understand where our April collections were. I would tell you again, I mean the Governor of the great state of Georgia is opening up everything up looks like this weekend. So I was talking to a friend of mine in Atlanta.
He's not sure if anyone's actually going to go to any of these places besides the required haircut.
But it's going to be
a function frankly of how quickly, 1, retailers are actually able to reopen and potentially on the secondary level drive actual sales If people reopen businesses that don't drive sales, I'm not sure if that helps. 2nd, it's going to be a function Of individual choices, and I mentioned in my prepared remarks, of retailers. And we see retailers, and many of them have gone public saying they are not paying rent. That is a unilateral choice to breach a contract, which will rise to an eventual default. But it will be a choice of retailers.
I would tell you Most of these data points, I think are very misleading. I think April is helpful, so people can see the resiliency and strength of our portfolio in terms of the investment grade. But I would hope that no one was overly surprised or taken aback given the 60% investment grade portfolio Plus the shadow rated portfolio, if you want to do those run those on your own, plus the ground leases. So all of these Dana points are very fluid. I'll tell you what I'm very confident in.
We have not breached quiet enjoyment. This is not a force majeure event. And these retailers that do not end up insolvent any retailer That does not end up in a restructuring and reject a lease or a liquidation, which we think we have very few of, we'll pay their rent. And so whether they pay April or whether they pay May, we will collect those dollars and we have reminded some of retailers Hopefully a friendly way that they're accruing late fees, interest and penalties along the way. So short term cash preservation Now short term cash preservation methods on the retailer side will be longer term cash collected for us Absent a bankruptcy scenario.
Okay, that's helpful. And Joe, you mentioned the ground lease portfolio, which is A sizable part of Agree's portfolio, were there any ground leases in which you didn't receive rent in April?
Great question. We have 2 very small ground leases where we did not I believe 1 we received 50% of the rent, The other one, we did not receive rent. We have or will be putting them into default We look forward to taking those buildings for free. I will tell you there are 2 casual dining operations, very small in terms of de minimis in terms of Total rent, I would tell you it's about $125,000 approximately off the top of my head. But frankly, I was hoping we would even see more of those tenants Frankly default.
Again, we have no basis in the building and we would own that building for free if they fail to cure. So I would expect them to cure fairly quickly.
Okay. And my last question is, obviously, we're dealing with the impacts of COVID, but what's to follow is probably a deep recession. As you think out into 'twenty one and 'twenty two, are there any categories, industries That you're more concerned about versus less concerned about, not necessarily to deal with the shutdown, but the economic impact And longer term impact?
I would tell you it is effectively the same as our historic investment criteria. So we have avoided experiential, we've avoided restaurants absent ground leases, we've avoided movie theaters, which I've mentioned, we've avoided sporting We've avoided those discretionary goods that are easily replaceable online and frankly more and more goods are becoming easily inaccessible Online to more and more demographics and participants. So our focus and I think to your question, our greatest emphasis is doing our best to project what the world looks like post pandemic in that recessionary environment. And so I spoke to National's higher end battery and new car sales are going to go from $17,000,000 to somewhere in the single digit $1,000,000 So Then what are the impacts, secondary impacts of new car sales going dropping to such a degree? Well, I spoke to the National Tire and Battery And 12 years approaching average duration of car on the road.
And so how does that then disseminate into our retail portfolio and our future portfolio construction? Well, tired auto service for older cars is going to be required. More auto parts for older cars, AutoZone, O'Reilly, we have over 100 and Great relationships in our portfolio are going to be required. Used car sales will most likely, right, accelerate on a relative basis to new car sales. We do that the same thing for grocery.
Deep discount grocery is going to accelerate. Now that's a challenging sector because we'll see what the online Participation rate does from the historic 1.5%, but those will accelerate. At the end of the day here, off price retail Is going to have a field day, right? The TJ Maxx, the Marshalls, the HomeGoods, the Rosses and most likely the Burlingtons are going to have a field day, Because the department store space is all but effectively dead. And so I look at the apparel space and I say where are people going to buy apparel, Either Walmart, Target, off price and maybe Nordstrom's makes it or maybe Kohl's makes it.
And so I think our what my biggest Challenges and what our biggest opportunity is, is to be at the forefront. We were at the forefront. I believe we were at the forefront, at least I'll say. We were at the forefront of omni channel. Now we have to be at the forefront of a post pandemic recessionary environment with consumer behaviors that are structurally going to change
The next question comes from Collin Mings of Raymond James. Please proceed.
Thank you. Good morning, Joey. Good morning, Clay.
Good morning, Colin. How are you?
Hanging in there. First, I wanted to go back to your discussion with Simon as it relates to the upward revision to acquisition guidance. Can you maybe just expand on what you've closed quarter to date or quantify a little bit more your pipeline as far as that you expect to close near term? In the past, Joe, you've touched on having visibility on activity for call it 60 to 70 days. So particularly in the current environment, it would seem you have pretty good visibility on near term opportunities to
You are correct. I won't get into any details too many details on the pipeline. I'll tell you it is not dissimilar From the close in terms of Q1, I did mention that our Walmart activity will continue. We are very focused there. The composition of that pipeline is very similar in terms of credit quality.
We do have some time for some movement, both fallout and inclusions into that pipeline, but it does give us full confidence that we will hit that 7 $800,000,000 absent a second pandemic wave or something atypical hitting this country. So again, it's focused on the retailers you would expect We've talked about frankly on this call, plus a few other ones, but it is very similar to Q1 at its current state.
Got it. Okay. That's helpful. And then as far as the request for rent relief, I mean, in yesterday's release, you noted about 3rd of your tenants are asking for short term rent relief or other considerations just given the pandemic. You're pretty clear, again on this call, on your view about the obligations your tenants have.
To clarify, if anything, have you formally granted anything on the relief front yet? And then maybe how would you quantify the mix of requests that you actually view
To answer your first question, we have executed single digit A deferral request predominantly with small operators, the few small operators that we have in our portfolio. Those are deferral they are not abatements. They are deferrals. Those deferrals will be paid back Very quickly and at times we have credit enhancement on top of them. In terms of the 33% talent, I'll be honest with you, I did not want to even include it in this release.
And in our remarks, it was required by counsel, and we have fantastic counsel. I think the 33%, I would warn all market participants and everybody on this call that the 33% ranges from the frankly absurd Retailers that have no debt, that are open and operating and a couple that are even thriving frankly in this environment To a retailer that is a small operator that really needs help. And so the spectrum there ranges from A email request, can you help us? Are you willing to offer us any help in the general form? 2, can we not pay April rent and defer it to later or abate?
And so it is such a wide spectrum. I think it's frankly I will tell you there are a few retailers we have had harsh discussions with. They are not considered long term partners for us. They were made we were made them Quickly aware of our remedies in those leases. And I would tell you some paid, some didn't, they will pay.
And they we have made them put them on notice of the late fees, the penalties, the interest and our ability to either subject to the lease, Evict them and take possession or not evict them. And we've also reminded them that we are not a shopping center REIT or a mall REIT that has Co tenancy implications or traffic flow implications. So net lease is very unique in that context, but we will vigorously Pursue immediately default remedies upon any retailer that acts opportunistically. That said, we are willing to partner with a very minority piece, A Planet Fitness franchisee or we've got a small tenant in a legacy shopping center at the Chinese buffet restaurant That my father developed 30 years ago and has been there literally since inception. We're willing to be partners there for retailers that really need it.
I think it's very important for people to understand in net lease we have fixed returns, we don't get percentage rent, we don't get upside, we can't Ask for more rent in the future, and we are not willing to direct unilateral request to retailers that have the ability to pay.
Just on that last point, Joey, recognizing it's a handful of requests, can you maybe just expand upon what you're asking for in exchange for providing short term relief? Again, you touched on it's Generally deferment as opposed to some sort of forgiveness, but just maybe expand on, I think you touched on credit enhancements and Sounds like there may be some other options that maybe long term could be beneficial to you as you work with some of these tenants.
Yes. No, and I think that's the most important thing. So I want to be clear, we have not Abated $1 We don't intend to abate $1 of obligations here. Those would the ones the single digits are deferrals. I think the opportunity and I spoke in the prepared remarks is for us to work with our retail partners and that is a true partnership To help them potentially during this period of closure in exchange for consideration for long term value in the menu of options there It's significant and we've created and just preliminarily engaged in discussions like that.
We have the balance sheet and obviously the liquidity profile, which Clay spoke to in the ability to be a long term partner and take short term pain for long term value creation for our shareholders. That menu of options include exercises that menu of options for us in consideration include exercise current options. We could be your preferred developer. We can acquire short term stores in working in concert. We can do a sale leaseback if you have real estate on balance sheet.
We can do all types of different things given the unique full service nature and the capabilities that this fantastic team in Agree Realty has. That said, that retailer has to pass a few thresholds. Number 1, they have to be a partner. Number 2, they have to be solvent or they have to Frankly, be very confident in their future in that post pandemic recessionary world. And number 3, they have to be willing to come to the table To frankly make a new deal because that's what this is.
It's not within the four corners of the document. We're willing to work with our partners, But that is a new deal and it's a new document.
Thanks, Joey.
Thank you, RJ.
The next question comes from Christy McElroy of Citi. Please proceed.
Hi, good morning guys. For the tenants that have not paid in April and for Like utility costs and property taxes that don't generally run through your P and L. To what extent could landlords be on the hook for those, whether temporarily or permanently?
Yes, I'll speak to it generally for what our COVID response team has done. Number 1, and then I'll let Talk into some of those details where
they are
obviously in our P and Ls. Number 1, our COVID response team Confirm has gone open occupancy. We've been confirming property taxes were paid and utilities, predominantly water bills that is just standard practice for us has been paid. And so that is it's an important question. You're right, it's an obligation that they have.
Obviously, in net lease, some of those pieces run through Our expenses and then we would get reimbursed or sometimes tenants pay direct. Clay, you want to talk to you want to speak to the details of that question? They're over my head, frankly.
Yes, of course. So in terms of what's what comes through our P and L, in terms of real estate taxes and property operating That's approximately half of those expenses, Christy, just to provide a little provide some try to quantify that a little bit.
Okay. But presumably if they're not paid by the tenant, you're obligated to pay those? Correct.
That's correct. If the tenant does not pay, that would be an event of default similar to not paying rent and we would have the full remedies in the lease.
Okay. And I know you don't normally give FFO guidance, but just sort of how should we be approaching Q2 in terms of potential FFO impact In regards to the deferrals, but also as you think about tenants that still haven't paid, how would you how are you thinking about potentially assessing the collectability
Why does the collectability I think that and I'll turn again the details over to Clay. I'll tell you that Going into Q2 right now in a dynamic and fluid situation, we're not even into May obviously, it's very difficult for us to provide any short term guidance. I would encourage again people to especially in a portfolio with the credit quality Such as ours. To frankly, to ignore some of these short term, take them as data points, but don't let them be drivers. Clay, I'll let you take The details to your question though.
Sure, of course. So it's important
to note, as Joey mentioned, that our discussion with tenants have been focused on deferrals. So not rent relief and specifically deferrals. So I'll focus on that. In terms of deferrals, it's really an impact in terms of the timing of when we collect cash. And so not the total amount of cash received.
And so since FFO reflects straight line, It will not be impacted by deferrals. However, on the other hand, AFFO is essentially a cash measure and therefore it will reflect when rent is due under the deferral agreements. I'd highlight, you mentioned collectability a little bit, Christy. We apply the new lease accounting that came effective in 2019 Under these rules, it's determining when it's probable or the probability of us collecting rents from a tenant, And we must write off any receivables to the extent those receivables aren't collectible at a probability of at least 75% chance of The probability of collection. And so that assessment is something that we'll be very focused on going forward.
It's something our COVID response team It's very focused on and we've obviously had a number of conversations certainly too across the organization and continuing to monitor that.
Our next question comes from Nate Crossett of Berenberg. Please proceed.
Hey, good morning, guys.
Good morning.
Just on equity raises, clearly a meaningful amount over the last couple of weeks. How are you guys thinking about longer term leverage targets Going forward, are you kind of changing the threshold bands you want to be in or is this kind of a temporary opportunistic type of leverage level?
I appreciate the question. I think these equity raises are clearly offensive for The equity we have raised has I'm hesitant to use it, but I'll say it, has effectively built a war chest that Enables us to go execute on the investment front. I think longer term, which is an important question during this pandemic and outside of this pandemic, I I think it is inappropriate to run a balance sheet at 5 to 6 times levered for a net lease company. I would tell you that we will not most likely surpass 5 times a levered, absent having a forward equity option outstanding to us. I think during the we can always raise debt.
Raising debt is very easy. We have an unsecured we have access to The unsecured public bond market today, the private placement market, the term loan market, that is always easy. And so now what we have the ability to do is delever which We have executed delever this balance sheet in an offensive manner, add in debt when we feel appropriate and in opportunities where it is obviously accretive to our portfolio, Ron, a conservative balance sheet that gives us the offensive capabilities, but to your I think the most important part of your question is, I would tell you our Stated pre pandemic range of 5 to 6 times is now out the window given the current environment.
Okay. That's helpful. And then just quickly on the debt, obviously, you don't need to raise any debt by any means right now. But if you were to go out, What does the pricing look like today versus pre COVID, I guess? Yes.
Clay, I'll let Clay speak to that generally. I'll tell you we are not actively in the debt market. We've obviously seen a number of companies access. So the market is open. It opens in shuts and windows as you would expect.
Pricing spreads have gapped out significantly. I think frankly our credit quality is only improving in this type of situation. But Clay, do you want to give any specifics in terms Of anticipated spreads? I know we haven't been active in the market looking.
No, look, I'd say it's tough to say just given And we're certainly watching closely. There just haven't been a lot of data points. There are a few investment grade deals Prior to earnings blackouts, but that's really been it. In those deals, obviously, pricing spreads were much wider than they were 6 weeks ago, but Just not a lot of data points currently and certainly something we'll continue to monitor very closely. Okay.
And then just one more if I could. I suspect most of your tenants are too large for the PPP program. But what about the Fed lending program? Do you think some of the more troubled tenants could tap that lending facility? And Could you guys personally tap the PPP program to lower your own G and A costs?
I'll speak to the second question. We believe we would have been eligible to tap the PPP program. I don't think it is it was we did not think it was appropriate for us To tap the PPP program, we've made we are obviously quite solvent. We have a balance sheet that we've spoken about Pretty extensively here, we aren't going to do opportunistically tap any government programs at Agree Realty. Frankly, that would be that would To your first question, the government programs, the availability to our tenants are I'll tell you, we have not done a lot of research or spent our time in our tenants' ability to have government programs.
It's the only one that I've really seen that could be applicable with some of the fallen angels stuff in terms of the bonds for former investment grade companies. I haven't spent any time on it personally. Clay, I don't know if you want to speak to it. I know you've been a little bit too busy, but we don't have a bunch of small Tenants are small businesses in our portfolio that are reliant upon government loans right now.
Yes, I would just add specific to the PPP Our tenants having above over 500 employees would eliminate them From being eligible. And so we don't really view that as a real option given our tenant base. Okay. Thanks, guys.
Thank you.
Our next question comes from Rob Stevenson with Janney. Please proceed.
Good morning, guys. Joey, what percentage of your acquisition pipeline is on tenants that are currently not open for business? And how are you thinking About that mix as you sort of backfill the pipeline into the 3rd and 4th quarters when you start We start looking out, is that even a consideration considering that the economy is likely to be open at that point in time or is that still factoring into Any relevant attractiveness of certain tenants?
Yes. No, that's honestly a great question. I would tell you, Number 1, most of the tenants that we're looking at just because of the nature of their business, if you look at our portfolio and the statistics that we released and again, I think our property Specifically, who spent so much time calling every tenant and talking to them. I would tell you, I don't have an exact number, but approximately 80%, I would tell you, are open Leased, that was emblematic of our current portfolio. Whether or not they are currently paying rent, there's mechanisms to structure around that.
Again, I think as Colin mentioned earlier, our average duration to closing is 60 to 70 days. So I mean, we have some time to Watch and see how they pay rent if they ask existing sellers for deferrals. I'll tell you again, it's not a big consideration for us given The long term nature and duration of those leases, the price point, frankly, the price per square foot and the basis we access These properties and acquire them at and then our relationships with the tenant. I'll tell you there is one acquisition in the Q1, which we closed That was not open. And in that case, we look to the seller to provide an escrow for any deferral That was structured pre closing.
And in that case, That could be a mechanism for any considerations in future acquisitions if we feel it's warranted.
Okay. And then you talked about some of your non long term partners that are healthy and choosing not to pay. Have you had conversations with them about that You would consider disclosing their names? I mean, certainly if they're public companies, that would be a problem for them and sort of shaming them publicly.
I hesitate. I will tell you that we have made tenants aware of our rights And our remedies and I think that there are considerations for tenants here about their public the public perspective frankly. I think there are those considerations for them and I think they should take them into account. I think one other piece on that, when tenants say we're not paying rent, What many people forget and I think it was Connor Flynn that actually mentioned it. What many people forget is A lot of the rent is amortized TI across the space, not necessarily in net lease, but in shopping centers as well as the mall space.
So landlords have effectively in that case been lenders to these tenants. They have built tenant specifics. They've either provided tenants TIA or landlords work That have effectively financed the tenant's operation in advance and part of the rental rate that it's amortized into is frankly the repayment of those obligations. And so, we don't have the option as to not pay our lenders. We don't have the option, frankly.
Well, we have the option, I guess, but we're not we would never consider it right now is to not pay our And so what I've told our tenants is, if you are considering not paying your rent on a unilateral I will tell you that we will be paying all of our employees, we will be paying all of our lenders, we will be paying our dividend and many of our Our senior citizens or 70 year old that rely upon us to pay their rent, their mortgage and for frankly income. And so your unilateral decision not to pay your rent even though you're able to has a cascading effect that frankly is not tolerable to us.
Okay. And then one for Clay. When you factor in the forward deals and the debt capacity and the cash that you have right now, While staying within some sort of reasonable leverage level, how much of the dry powder do you have to close the incremental $500,000,000 to 600 $1,000,000 of acquisitions without raising any additional capital.
So just to make sure I understand I think you're asking what given the cash on hand, what capacity, what total volume and acquisitions are we able to close? And that's It's, again, given the slightly lower leverage range and kind of where we're comfortable running the balance sheet, it's North of $1,000,000,000 It's between $1,000,000,000 $1,500,000,000 in terms of what our capital available, including forwards outstanding, Would allow us to acquire and still stay at a very low leverage point.
Okay. And Rob, it's Joey. Let me Just jump in to kind of because I know there's a lot of numbers here and there's the additional disclosure that is posted for the walk here that we posted to our website. But I think it's important for everybody to just a high level and I'm going to use round numbers. So details For us to achieve the upper end of our acquisition guidance this year, net of dispositions Plus development anticipated development PCS spend, obviously net of free cash flow after the dividend.
We basically prior to the Cohen and Steers transaction would have ended the year at approximately without any additional So again, I'll just repeat that. Hitting the high end of our acquisition guidance, We would end the year without the Cone and Steers transaction at approximately 5 times net debt to EBITDA without any additional equity. What the Cone and Steers transaction allows this company to do is number 1, hopefully, and as the year progresses, we'll get more visibility. Number 1, exceed that guidance, Given the market dislocation and the opportunities that we see without exceeding that 5 times and is on a forward basis at our election As I think you're all aware. Secondly, if we do not exceed that guidance or if we end up at the lower end or middle end of that guidance, which frankly I don't anticipate the lower end of that guidance today.
If we don't exceed it, it basically starts funding our 2021, I forget what year it Our 2021 pipeline. So again, without a dollar of Code and Steers equity at the end of the year, top end of our guidance, we end up around 5%. And so I think that's what the transaction enabled us to do. It allows us to potentially exceed our guidance, Days of 5 times, because that 5 to 6 times is frankly out the window today and or Fund our pipeline going into 2021, which frankly aggregation of that pipeline will start typically using that 70 days in mid October of this year.
Okay, perfect. That was yes, that was exactly what I
was looking for. Thank you.
Okay.
Thanks, Scott.
Our next question comes from Ki Bin Kim with SunTrust. Please proceed.
Thanks, and good morning out there. And I usually don't do this too often, but just want to say great job on having the right mentality and So my question is You raised our acquisition guidance, but I think we all realize cap rates tend to move slowly. So do you have any concern that maybe Is there a better price to be had if you just waited a little bit more?
Was there a better price to be had? Look, I think today's market trades as much frankly on the macro dynamics. I mean oil has driven Negative oil prices for March April delivery or April June April May deliveries. The market is so dynamic and so fluid, the last thing that we would ever do Equitize our balance sheet and enable our capabilities is weighed out for another $1 or $2 or $4 whatever it is. I mean, if you look at it big picture, we effectively raised Equity in the low five times, right?
Joey, I meant for your acquisition, it's not for your own balance sheet.
Sorry, for acquisition. Look, look, We anticipate that hopefully cap rates will move given the lack of bid, but I'll tell you nothing that we do on the acquisition side is on the margin. If we can buy a Walmart high performing supercenter at a 6.5% cap or we think or we prospectively think cap rates are going to go up, let's just use a round number of 30 basis points. We're not going to wait for that 30 basis point perspective and possible increase. And so nothing we do, the same thing with the HomeGoods in the Hamptons.
We aren't going to wait for that HomeGoods in the Hamptons for the cap rates to move. The opportunities that we hit aren't marginal. The opportunities we hit are we look at as essential, And we will execute to them. And the good news is we continue to find more of them and we continue now we have the balance sheet to continue to execute that Going into 2021. And so we're not going to wait for cap rates to prospectively rise because even if they do rise, which I think you mentioned this can be slow and cascading.
Even if they do rise, we're going to be there at that time too. So we have a fixed cost Capital, we know what that is today and we have the liquidity to execute.
Okay. And on real estate taxes, what do you think the end result will be? I'm assuming not just for yourselves, but the industry is going to go back to these municipalities to get To lower realty taxes to reflect any reality? How do you think that all
plays out? Yes. I would anticipate from everybody's home to their commercial real estate that Everybody, the law firms are going to do great on those. We will work with our tenants in conjunction To hopefully lower their all of their obligations outside of their rent on a go forward basis. I mean, we want their all in occupancy costs to be as low as possible.
And so we will work with them. Obviously, this is a future consideration. During the appropriate time, we will partner with our tenants as we always do. They typically require both parties to potentially lower their real estate tax obligations given the revaluation.
Okay. And just last one, this is just a suggestion, but I think it will be helpful in the press release is just to provide a little table on your equity offerings, what's been done, what's Love to do just because you have many different layers going on at the same time?
No, I think Noted, I think the hopefully that the reconciliation of net debt to recurring EBITDA that is posted to our website We work to expand disclosures. If everybody would note on Page 6, we have now disclosed all retail sectors. We used to have a significant amount. I can't recall the exact amount, but 20% to 30% in other. We have now broken that down all the way to miscellaneous, Which is $75,000 a year at the bottom.
Again, that's on Page 6, and that's cell towers, billboards and donation bins that are on net lease properties that So hopefully that disclosure is helpful. The reconciliation again of net debt to EBITDA It's helpful and we will take that into account for as well for the future.
All right. Great job guys.
Thank you, Ki Bin. I appreciate it.
Our next question comes from Todd Stender of Wells Fargo. Please proceed.
Hi, thanks. And Joey and Clay and the rest of your team, I hope everybody stays healthy and safe.
You as well. Thank you, Doug.
Thank you. Most of my questions have been answered, had to do with the accounting around FFO, I guess the gap between FFO and FAD, which I answered. But probably an underwriting question going forward. When you look at your 4 wall coverage, I would imagine that's going to deteriorate for all retailers, whether they're open or not. Just how are you looking at that?
Maybe your acquisition guidance increased, But you probably need maybe a little bit more protection. And just as a safety net going forward, how do you think this is going to change underwriting?
Just four wall coverage for us, again, most of our retailers do not Report EBITDA, if you ask Walmart what their store sales or EBITDA is on any specific location, I think they would tell you nicely to fly a kite. It's never been a driver of underwriting. We have never thought it was a proxy for credit. You can have a poor I don't want to pick on Walmart, let's pick You can have a poor performing Home Depot location, but Home Depot corporate is on the lease and the credit And the performance of that retailer can change for the positive or the negative. And so I would tell you much of our portfolio, The vast majority of which do not report EBITDA because we're not a lender.
I mean, it's really a lender covenant. We're a real estate owner. The vast majority I would say the majority of our portfolio is countercyclical. And so post pandemic, I would anticipate again, O'Reilly Auto Parts and AutoZone and TJ Maxx and the Walmarts of the world, they're frankly, their coverage to potentially go up. So our portfolio and Everyone's heard me say it, it's been constructed with 2 thoughts in mind.
One of them wasn't a pandemic, I'll readily admit that. It was a counter recession resistant And e commerce resistant. And so much of that recession resistance, frankly, Dollar General is going to thrive in a recessionary environment. So is National Tire and Battery and AutoZone O'Reilly, at least I believe they will.
All right. That's helpful. And just probably just the last question, just a balance sheet question. You referenced the 5 times net debt to EBITDA. I think it was at the high end of your guidance.
What kind of debt is assumed in there? And that was pre Cohen and Sears offering, so that it did assume some of the remaining shares on the forward equity to be settled. What kind of debt Expectations do you have in that number?
Typer amount of debt.
You're kidding.
Todd?
Todd, are you there?
Yes, sure, Ann. Can you hear me?
Yes. Are you referencing amount of debt or type
of What's budgeted? I would imagine you'll tap the unsecured bond market now that you've got the investment grade rating, but what kind of level is assumed in that number?
Clay, you want to take that?
Yes. Look, we're looking at obviously, we'll continue to be an unsecured borrower, Todd. And we have optionality now, certainly in terms of now we have the second rating. I think your question in regards to sizing, ultimately, this is just ultimately dependent on timing of uses of capital. We have full optionality given our current position, our cash position, and certainly the equity outstanding as well.
And so Ultimately dependent on uses and the timing of uses. And like I said, we'll closely monitor the unsecured bond market. That's obviously the private placement market takes its lead from that market. And so, we'll continue to monitor both very closely. And again, Based on uses, execute accordingly.
The next question comes from Linda Tsai with Jefferies. Please proceed.
Hi, good morning. Just given a comment on slow and cascading effect of cap rates, does that Does that mean that you're not seeing COVID impacts change cap rates for the deals currently in your pipeline?
Well, good morning, Linda. I think You just hit it on the head. It's slow and cascading, and it's slow and cascading primarily because it's such a large and fragmented market in terms of ownership. So I'll tell you we have seen opportunities where cap rates have gapped out and we are under contract or have closed or under LI on those opportunities because the seller has Potentially a differentiated set of facts and circumstances, maybe they need a liquidity event immediately, Then there are sellers that will continue to hold out and try to be opportunistic that have balance sheets and don't need the capital. And so I think it is very likely to be slow and cascading.
Our origination team, our acquisition team's job is to find the opportunities where frankly they move Cap rates go up faster and I'm not sure what the opposite of cascading is right now, but frankly rise Sure. And so but I do agree with you, it will be slow and cascading, in terms of macro cap rate environment.
Thanks. And just one more. What's the best way to think about run rate of acquisition 2Q through 4Q? Do you think it'll be do you think you'll see larger volumes in 3Q and 4Q?
In full transparency, I have No idea. Again, our increased guidance of $600,000,000 to $700,000,000 anticipates no large transactions, M and A, portfolios or sale leasebacks, just run of the mill regular way Agree Acquisitions Aggregating $4 plus 1,000,000 transactions. I mean, just for reference, the Sherwin Williams Transaction at the end of 2018 came together in 30 days From LOI execution or lease execution to close. And so really those deals the bigger deals frankly typically happen faster. So I have no idea, but they're not currently in our guidance or frankly in our pipeline.
Thanks.
Thank you.
The next question comes from Chris Lucas with Capital One Securities. Please proceed.
Good morning, everyone. It's been a long call, so I'll
just ask one question. Have you guys seen or do
you operate in many locations where civil authority may
No, we've seen we have evaluated and reviewed and our legal team has reviewed that. The last time I I was updated, I believe it was a couple of counties in California, where I don't think we have any assets. So no, That is not really a current consideration or concern of ours, but we will continue they will continue to monitor it. Obviously, it's a It's pretty expansive monitoring process.
Okay. Thanks guys. Appreciate it.
Thank you, Chris.
Our next question comes from John Massocca with Ladenburg Thalmann. Please proceed.
Good morning, everyone.
Good morning, Zach.
So just kind of building on Chris' question a little bit, and obviously, hopefully, it doesn't come to this with most tenants. To the extent you have a tenant that is not paying April or even May rent, can you walk us through the general process and timeline through kind of Unilaterally rectifying any disagreement and maybe your ability to kind of get value out of that asset? Yes.
I mean, look, it's all subject to obviously leases and landlord remedies and cure periods. I would tell you, I I wouldn't use the word rectify it. There's defaults. We will put landlord. We will notice we basically, you have to notice a tenant.
Essentially generally have a period then to respond and pay rent. If they don't, they are then in default. Some leases have cure periods to varying degrees. The random lease has to send a second notice Perfect. 2nd reminder, and then the landlord's remedies can range from acceleration of all obligations, Which some leases have, so all rental obligations accelerated to taking possession, evicting the tenant.
You can keep the tenant in place and make them pay rent. If you do evict the tenant, often there are responsibilities for a landlord to use reasonable Efforts to relet commercial efforts, reasonable efforts to relet that premises if you evict the tenant. The tenant is still on the hook for the rental rate for the rental income to the landlord, offset by any rental and Any re tenanting of the property and generally the tenant is also responsible if they are then responsible For the landlord's costs, including tenant allowance, build outs, leasing commissions, interest, penalties And any other costs associated with re tenanting. So to put that in perspective, generally speaking, a national tenant or a regional tenant With a big balance sheet and a down the middle lease needs to pay their rent.
And I mean, just Broadly speaking, in that kind of situation, and I know it's going to vary from locality to locality, but I mean, any kind of recovery in a situation where a tenant Is that going to be something that happens potentially by the end of this year or is it more of a 2021 type of situation?
All depends on obviously on back to Chris' question, the courts, the tidings, everything else, I will tell you That if I'm a national retailer and I know I'm obligated and I know I have liquidity to pay rent and I am not filing potentially filing Bankruptcy and in cash conservation mode, I'm not sure I want to undertake the frictional costs and the risk to fight a bunch of landlords across the country. And so again, my expectation for tenants is for them to pay their full rent on a timely basis and we will continue to remind them of that.
And then just one last quick kind
of detail question. How does the 87% of cash rent received in April compared to either last
I mean Clay, if you want to get in details, but generally we receive all our rents. So I mean
Yes, that's right, Joey. We're at the 21st of the month or the 20th of the month when we report it. So Everything would be fully received.
Okay. That's it for me. Thanks very much.
Thank you.
Our next question comes from Christy McElroy with Citi. Please proceed.
Great, thanks. It's Michael Bilerman. Joey, the direct issuance you did to institutional investor announced yesterday 6,200,000 shares, well over 10% of your share base even taking into account the other forwards. How did you think about the execution of doing something direct of that size and effectively not Providing your other institutional shareholders the ability to buy at a discounted price to maintain their ownership, per rata ownership levels?
Yes, Michael, you're breaking up a little bit. I understood the question. Hopefully, everybody heard it.
I'm happy to say it again if you want.
I think you're still chopping up. It could just the line generally, but I think everybody can hear and see the transcript. But the question was basically the difference between this transaction And the marketed transaction and how we perceive, what was it again you said?
Well, I mean effectively you took the opportunity to issue 6,200,000 shares direct To one institutional investor, that's well over 10% of your diluted share base even when you take into account the other forwards you have outstanding. You didn't provide that same opportunity to all your other existing shareholders to maintain their effective ownership base.
Got it.
So I think most of the times you see companies do smaller transactions direct either off their ATM or direct transaction, this was quite sizable. And so how do you sort of balance your relations with other shareholders versus One single one.
Yes, understood. I think context is important and then the details, I think, through the marketed offering we did at the end of March, Also the ATM activity, which the vast majority comes through reversed in terms of aggregate dollars raised, I think shareholders Have had hopefully significant opportunities plus buying in the open market to establish positions. That's 1. 2, I would point out with this offering, I really look at it as one, it was a unique opportunity. It was really a reopening of the last deal.
It was double the amount of the last deal. We weren't Given the opportunity set, we thought it was the right thing to do. I will note that it was at a tighter discount, Frankly, then the marketed deal and the net proceeds to the company were approximately $0.20 higher On the Conan Theorists transaction than the fully marketed deal. So it was a tighter discount with higher net proceeds to the company. And so we thought that made sense for all constituents, which were taken into a 1000.
And then as you think about that 87%, so clearly you would have been at 100% in March at this point. I think that's what you effectively insinuated in the Comment. So of that 13% that hasn't paid, I guess, what's your expectation as we go into May About how much of that 13 percentage points will be deferred. So I don't know if it's half that you're working on right now versus, I don't know, is it half that you expect to take to court and use your right under your leases? Just to give us some sense of where things stand overall?
So I think the best place to look for that, the starting point is probably I believe was our March 19th Press release, which outlines the 4 retail sectors that people considered at risk. And then you have to really go through that aggregates To approximately 10%, if I'm not wrong, Clay, correct me. And then you got to go through there and with there's a lot of media reports out there, frankly public statements from some of these retailers. You have to go through and say what is the eventual outcome and that's when we'll have to put the 75% test now to them that Clay referenced In terms of probability of paying, some of those retailers that are in the news, I. E.
A large movie theater, I think people are going to have to really look at that test Pretty closely. And so the entertainment retail portion, the movie theater portion are the biggest, the Most significant pieces of those for us. I think anticipation of May collection Versus April collection or a greater collection in May versus April, I'm not sure if that's the most probable outcome given their Cash liquidity positions and what we've read in the news.
But of that 13 percentage points of rent you haven't collected, it sounds like The vast majority, maybe up to 10 percentage points. It's just not going to get paid because of the issues, whereas 300 basis points Maybe you're working on deferrals. I'm just trying to get very specific in terms of how much you are actually working on these deferral programs so that we can start thinking about the cash impact and the cash runs collected and your ability to fund your obligations?
I fully understand it literally comes down to what does Dave and Buster's do. We have 3. I mentioned one is under track with $100,000 non refundable deposit at our title company. I'm not sure if we'll own it or not. That's how we have to walk away from 100,000.
What does Dave what happens with Dave and Buster's? Frankly, that's going to be subject to how quickly this virus dissipates. I'm just using them as an example by the way. How quickly this virus dissipates, the reopening rate of states, the return rate of customers, There are other capital providers outside of landlords' willingness because to willingness to frankly support them. I mean, you could be looking at They did a recent financing.
I'm just using that for example. Then you take that through the movie theater space. I would tell you, I don't think it's the full 10% We referenced in the release because I think a lot of those there is some opportunism in the restaurant space, which is very de minimis for us, specifically the fast food, I mean their drive thrus and windows, we've had a couple of fast food franchisees, I'll call it the big Whoppers, Not McDonald's, but we have a couple of fast food franchisees that did not pay their rent. We know they are open for drive thru and pickup. They chose not to pay their rent.
That is a choice they made. They will be put in default. We anticipate that they will either pay their rent. Whether they pay May or not, We'll see that their choice. So it's hard because again these are unilateral decisions to not pay their rent that are on our counterparties that we can Cajole and tell them what we're going to do and telegraph the future, but at the end of the day, they got to cut the checks down the ECH.
Right. So it doesn't sound like from you're not working on any abatements in terms of rent reductions, it's all deferrals or trying to get the tenant that pay. It sounds like the deferral amount is pretty marginal in terms of how much you're working on, right?
Yes. No, we've given 0 abatements. We will not give any abatements. They will all be any deferral that we give will be amortized into a deferral we have given Years? And then I'm interested to see frankly myself with some of these retailers try to pull in May.
We've got a lot of opportunists out there.
Well, that's the thing. And the
last people Right.
Because you already you said that 33% have asked for something, right? And I understand that some of that you feel is opportunistic and ridiculous. I'm trying to understand is, as we move into May, is that 87% going to drop down to, I don't know, 75% just because of the number of tenants that have decided, we paid our April, but we're not going to pay May. I'm just trying to understand the direction of where you think it's going to come out.
I think it's I wish I fully could tell you I knew that answer. I think it will be up to those again, up to those retailers' decisions and up to Governors, opening states and the dissipation hopefully in the elimination of this virus, which I don't anticipate, happening Frankly, in May. So but again, I understand 100% what you're trying to drive to. I would like to drive to and get full visibility myself. For us specifically, given our balance sheet and our liquidity profile, I would just encourage shareholders to look past short term Cash flow, Clay mentioned the difference between FFO and AFFO and you obviously understand that.
Short term cash flow And tenants' unwillingness to pay their contractual obligations versus the longer term, what's really going to happen here. And in the longer term, this portfolio and this balance sheet and the tenants that we own the real estate under Are going to survive, thrive. Will we have a little bit of minimal fallout? Sure, there may be a movie theater operator that doesn't make it. But on a relative basis, we come out big winners.
Yes. Okay. Thank you.
Thank you.
At this time, we are showing no further questioners in the queue. And this concludes our question and answer session. At this time, I would like to turn the conference back over to Joey Agree for any closing remarks.
Well, thank you everybody for joining us. Please stay safe. Good luck to the rest
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.