Good morning. My name is Sia, and I will be the conference operator today. At this time, I would like to welcome everyone to the First Industrial First Quarter Results Conference. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Thank you.
At this time, I would like to turn the conference over to Art Harmon, Vice President of Investor Relations and Marketing. Please go ahead, sir.
Thank you, Thea. Hello, everybody, and welcome to our call. Before we discuss our Q1 2020 results and updated guidance, let me remind everyone that our call may include forward looking statements as defined by federal securities laws. These statements are based on management's expectations, plans and estimates of our prospects. Today's statements may be time sensitive and accurate only as of today's date, Thursday, April 23, 2020.
We assume no obligation to update our statements or the other information we provide. Actual results may differ materially from our forward looking statements, and factors which could cause this are described in our 10 ks and other SEC filings. You can find a reconciliation of non GAAP financials measures discussed in today's call in our supplemental report and our earnings release. The supplemental report, earnings release and our SEC filings are available at firstindustrial.com under the Investors tab. Our call will begin with remarks by Peter Baccile, our President and Chief Executive Officer and Scott Musil, our Chief Financial Officer, after which we'll open it up for your questions.
Also on the call today are Jojo Yap, our Chief Investment Officer Peter Schultz, Executive Vice President Chris Schneider, Senior Vice President of Operations and Bob Walter, Senior Vice President of Capital Markets and Asset Management. One note before we begin. Our team is practicing social distancing as we conduct this call, so we apologize in advance for any slight gaps or delays we may experience, particularly when we get to the Q and A segment of our call. With that, let me turn the call over to Peter.
Thanks, Art, and thank you all for joining us today. I'd like to begin my remarks today by saying that the entire First Industrial team hope that you, your families and loved ones have maintained your health while we all do what's necessary to get through COVID-nineteen together, hopefully sooner rather than later. With respect to measuring the eventual economic impact of COVID-nineteen and related stay at home orders in the U. S, it's still early. Over the coming months, as stay at home orders are reduced and eventually lifted, we will gain a wealth of knowledge about how our actions impacted outcomes.
While it is still early, we are extremely pleased about not only our strong Q1 results, but especially about how our team has performed during the past 6 weeks. I'd like to thank my 1st industrial teammates who have risen to the occasion, maintain high levels of productivity and responsiveness to our customers while largely working from home and employing social distancing practices to protect our customers, our communities and each other. Due to the shelter in place orders in most of the country, the virus has significantly impacted commerce. Unemployment has increased at an alarming rate in a short period of time and the second quarter is likely to show a significant reduction in GDP. Prior to the shelter in place orders, the vast majority of our tenants' businesses were doing well.
So, we're hopeful that the overall economy and their businesses will bounce back as the social distancing restrictions are reduced or removed, whenever that may be. Moving now to our recent rent collection experience. I'll start by saying we value our tenants and our relationships with them. In an effort to get ahead of these conversations, in late March, we contacted a number of our tenants to make sure they were knowledgeable about the available financial relief programs from the government. In cases where our customers may not have had firmly established financial relationships, we referred them to one of our bank resources willing to assist them in the process.
We also made an internal resource available to walk them through the loan application process. Through the end of March, we collected about 97% of our March billings, which was in line with what we experienced before COVID-nineteen. For April billings, as of April 22, we have collected about 93%, which includes Pier 1. For April billings for which we have yet to receive payment, approximately 2 thirds are in jurisdictions which currently have moratoriums on evictions or evictions aren't being enforced, which is negatively impacting collection. Because we're in the early phases of experiencing the economic impact of COVID-nineteen, it's prudent to include in our updated guidance an additional $1,000,000 of reserves for bad debt, which Scott will walk through shortly.
Moving now to rent relief requests from our tenants. Including those requests from clearly well capitalized tenants, total requests for rent relief in the form of rent deferral or abatement represented approximately 19% of our April billings. Excluding the well capitalized tenants and only including tenants that ask for specific terms, this represents 8% of our April billings, of which approximately 85% had paid April rent. This subset occupies an average of 48,000 square feet and represent a broad range of industries. At this time, we've not granted rent relief and it's not clear how many tenants will legitimately require rent relief.
We hope the range of information we've provided gives you an idea of what we are experiencing today. Needless to say, this is a point in time picture. We won't try to predict when infection rates will begin to decline and when or how the phase out of the shelter in place restrictions will flow through to our tenants' businesses and financial health. Moving now to general activity in the leasing markets. Prior to COVID-nineteen, there were a substantial number of new requirements across our markets, led by e commerce and food related businesses, but representing a broad range of uses.
In our portfolio, as of April 22, we have signed 72% of our 2020 lease expirations, which is consistent with our experience the past several years. These signings have a cash rental rate increase of 8.4%. Over the past few weeks, we have seen leasing activity on most of our vacancies, but the pace around some of those conversations has slowed or paused. As a result, as part of our revised guidance, we have pushed out the leasing assumptions for 2 of our developments to the end of the year, which Scott will walk through shortly. We feel very good about the long term prospects for our business.
The COVID-nineteen virus has accelerated the adoption of e commerce for many consumers for necessities as well as routine needs, which should boost future demand. We also expect an increase in inventories to provide cushion against product shortages due to supply chain shocks such as we are experiencing now. All in all, in the long run, these factors should drive incremental demand for industrial space. Moving to dispositions. We've closed on $13,000,000 of sales in addition to the Tampa portfolio we closed in early February.
Through today, we closed on $40,000,000 of sales this year, on our way to meeting our 2020 sales guidance range of $125,000,000 to $175,000,000 As we noted on our last call, we expect sales to be back end loaded in the year. Note that our sales guidance excludes the expected $55,000,000 Phoenix sale in the 3rd quarter in which the tenant exercised its purchase option in 2019. As always, sales process is focused on maximizing value for shareholders while improving our cash flow growth profile. As we think about new investment opportunities at this point in time, we will continue to be judicious with our capital with a near term emphasis on maintaining liquidity. We are proceeding with all of our developments in process, which totaled 1,500,000 square feet and a total investment of $154,000,000 at March 31.
At this time, we are not targeting any new speculative development starts. This includes the postponement of our planned summer start at First Park Miami, where we will continue to monitor the market. Due to the impact of COVID-nineteen, we are seeing some delays in certain of our projects as contractors and suppliers deal with shutdown orders, social distancing requirements, slower approval and permitting and other restrictions. Of this group, only our 100,000 square foot Philadelphia development has been halted entirely due to statewide restrictions on construction deemed non essential, although those supplemental Page 22 that we've adjusted some of our estimated completion dates accordingly. Let me recap some recent investment activity.
In February, we were pleased to acquire Nottingham Reg Logistics Center, a 2 building development forward, totaling 751,000 square feet in the Greater Baltimore Industrial Market, where the submarket vacancy is under 4%. The park has I-ninety five frontage and is located just 12 miles north of the Port of Baltimore at the intersection of Route 43. Today, it is 15% pre leased and we are seeing good interest on the remainder of the space. Our total investment is estimated to be $82,000,000 with an expected cash yield of 5.7%. In the Q1 and second quarter to date, we also completed the acquisition of 2 buildings in the East Bay market of Northern California for a total purchase price of $14,000,000 at a weighted average yield of 5.2%.
The first property is a 39,000 square footer in Fremont and the other is a 23,000 square foot building in Hayward, both are in the I-eight thousand and eighty corridor. The buildings are 58% occupied. We also acquired a 24,000 square foot building in Los Angeles in the South Bay that we plan to redevelop. The purchase price was $14,400,000 In the Q1, in addition to the First Park Miami land, we also acquired a 9 acre site in Southern California in the Inland Empire East for $2,000,000 that is developable to 189,000 square feet. On the development front, we placed in service our Ferrero built to suit development at PV 303, totaling 644,000 square feet with $53,000,000 and a stabilized yield of 7.9%.
With that, let me turn it over to Scott to discuss our results, our strong balance sheet position and our updated guidance. Scott?
Thanks, Peter. Let's start with our EPS and FFO for the Q1. Diluted EPS was $0.32 versus $0.19 1 year ago. NAREIT funds from operations were $0.45 per fully diluted share compared to $0.41 per share in 1Q 2019. Q1 2020 FFO includes our previously disclosed restructuring charge related to the closure of our Indianapolis office and costs related to the vesting of equity awards for retirement eligible employees we talked about on our last call.
This was offset by income related to the final settlement of 1 of our 2 outstanding insurance claims for damaged properties that we previously disclosed. Excluding these items, FFO remains unchanged at $0.45 per share. 1st quarter FFO also includes an approximately $800,000 non cash write off of a deferred rent receivable related to our lease with Pier 1 in Baltimore. We have received April's rents, but due to the economic uncertainty caused by the COVID-nineteen virus, we feel this write off is prudent. We are now assuming Pier 1 will pay rent through June and vacate the building, the impact of which I will walk through shortly when I discuss our revised 2020 FFO and portfolio guidance.
Our occupancy was strong at 97.1%, down 50 basis points from the prior quarter and down 20 basis points from a year ago. As for leasing volume during the quarter, 1,300,000 were renewals and 925,000 Square Feet were for developments and acquisitions with lease up. Tenant retention by square footage was 68.9%. Same store NOI growth on a cash basis, excluding termination fees, was 8.4%. Lower free rent on developments accounted for about half of that growth.
The remainder is attributable to rental rate bumps and increases in rental rates on new and renewal leasing, which was partially offset by a slight decrease in average occupancy. Cash rental rates were up 10.8% overall with renewals up 8.9% and new leasing 16.1%. And on a straight line basis, overall rental rates were up 26.5% with renewals increasing 27.1 percent and new leasing up 24.8%. Now moving on to the balance sheet. At March 31, our net debt plus preferred stock to EBITDA was 5.2x.
Today, we have approximately $70,000,000 of cash and $400,000,000 of availability on our line of credit for total liquidity of $470,000,000 From a debt maturity standpoint, we have very little coming due in 2020 and 2021. In 2020, we recently paid off a $15,000,000 mortgage loan and have no other debt maturities the remainder of the year. In 2021, we have a couple of debt maturities. First, we have a $200,000,000 term loan that matures in January at an interest rate of 3.39% with a handful of banks with which we have relationships spanning many years. We contemplate renewing this term loan inside of the expiring interest rate.
After that, we have our line of credit coming due in October, but note that the maturity date for the line is extendable for 1 year at our option, which enables us to push this maturity to October 2022. Lastly, in 2021, we have $63,000,000 of mortgage debt coming due in October that we can pay off using the availability per share. We have also reduced our assumption for average quarter end occupancy by 100 basis points to a midpoint of 96.5%. This reflects the pushback of our leasing, including Pier 1 as I just discussed and the lease up of our remaining vacancies to the 4th quarter at First Joliet in Chicago and Building B of First Logistics Center at 7,881 in Pennsylvania. Excluding the FFO impact of Pier 1, this change in leasing assumption represents an additional $0.02 per share.
Lastly, we are increasing our bad debt expense assumption from $500,000 per quarter to $900,000 per quarter for the remainder of the year, which is $0.01 a share, Including the $300,000 of bad debt expense we recognized in the Q1, our bad debt expense assumption for 2020 is now $3,000,000 an increase of $1,000,000 from our prior guidance. Please note that guidance does not reflect any potential non cash write offs of deferred rent receivables related to tenants that are having financial difficulties. Other key assumptions for guidance are as follows: Same store NOI growth on a cash basis before termination fees of 2.75% to 4.25 percent, a decrease of 125 basis points at the midpoint due to our updated occupancy and bad debt assumptions. Our G and A guidance remains at $31,000,000 to $32,000,000 and guidance also includes the anticipated 2020 costs related to our completed and under construction developments at March 31. In total, for the full year 2020, we expect to capitalize about $0.04 per share of interest related to our developments.
Our guidance does not reflect the impact of any other future sales, acquisitions or new development starts after this call other than the expected Q3 sale of the building in Phoenix for which the tenant exercised its purchase option. The impact of any future debt issuances, debt repurchases or repayments after this call the impact of any future gain related to the final settlement of one insurance claim from a damaged property and guidance also excludes the potential issuance of equity. Let me turn it back over to Peter.
Thanks, Scott. Before we open it up to questions, again, let me thank the entire First Industrial team for their excellent efforts during this unprecedented time. We, like all of you, look forward to getting back to normal soon. As a company, we've built our business to perform through the cycle and particularly for unexpected times like these. Through disciplined risk management in our investments and operations, top rated customer service, a high quality infill portfolio and a strong balance sheet, we are well positioned to succeed in this turbulent environment.
Lastly, we focused on serving and working closely with our customers for as long as it takes and to find the optimal outcome for all involved. With that, we will now move to the question and answer portion of our call. We ask that you please limit your questions to 1 plus a follow-up
Our first question will come from Dave Rodgers with Baird. Please go ahead.
Yes, good morning, everybody. Thanks for all the detail on April rent. Wanted to start there, if I could. I think, Peter, you said 19% of April billings requested relief, and I want to verify that that was correct. And then also is that on a dollar of rent basis or was that on a percentage of lease basis?
Maybe I was confused about that. And then can you dive a little bit further into what you had said requests for specific terms and kind of how you clarified that and how you're looking at that? And then I'll have a follow-up. Thanks.
Sure. First of all, it is on dollars. The 19% is on dollars. Secondly, in terms of terms, typically asking for deferrals, some abatements and typically it was a 2 or 3 month deferral request.
Okay. And then how do
you anticipate handling some of that?
I think did I hear you
say that you haven't done any of those to date, but I guess as you roll to May, what is your confidence in terms of and maybe roll it into a bigger question, you've got Pier 1 as part of the same store pool. You're rolling that out July 1, but then you haven't really given any deferral yet. So how does that all roll in as you kind of look at the end of the year between Pier 1, the remaining bad debt and then how you think about what deferrals you'd be willing to give?
Sorry, there was a lot of that.
Sure. So as you point out, Pier 1 is in the math. With respect to the rents that we have not yet received, some will undoubtedly be granted some kind of relief, Some may end up in bad debt. And right now, we it's interesting, Dave, every day we get a rent check from somebody who either asked for relief or who flat out told us they're not paying rent. So, this is a really fluid situation.
In terms of any relief that we may provide, we're going to try to recover that rent in 2020. So that shouldn't have any impact on same store either.
Great. Thanks. I'll jump back in.
The next question will come from Craig Mailman with KeyBanc Capital Markets. Please go ahead.
Hey, guys. Just Scott or Peter, just on
the bad debt. So
the $1,000,000 increase, if you assume that Pier 1 is about $1,500,000 a year, should we assume that a portion of their rent was already kind of assumed in that bad debt? And as we think about the balance of the year, if you had $300,000 plus the $1,500,000 of the back end, it's roughly $1,200,000 for the remaining 3 quarters. Is 400,000 dollars of bad debt a quarter sufficient, you think, in this environment? Or kind of just thoughts on that?
Thanks, Craig. I'm going to ask Scott to cover that question for you.
Hey, Craig. The Pier 1, the non payment of the rent, the less the vacancy we're assuming, that will not impact our $900,000 per quarter bad debt assumption. So that's out of it. Now, if we bill rent in May or June and we don't collect it, that will impact our bad debt expense. But as far as so when you look at what we've established for bad debt expense in our guidance for the second, third and fourth quarter, it's about $900,000 And we'll give you a construct of how we came up with that number.
The first thing we did is we look back to our experience back during the Great Recession, and the worst years we had were 2,008, 2,009 and bad debt expense was about 85 basis points of gross revenues during that period. So the $900,000 per quarter for the second, third and fourth quarter is about 85 the great recession was. But we said to ourselves, in the past, the great recession was. But we said to ourselves, in the past 10 years, we've done a lot to improve this portfolio and tenant quality. Specifically, on the tenant quality front, we've sold a lot of buildings that had a lot of tenants in it.
And if you look at our average size tenant today, it's about twice the size of our tenant about 10 years ago. So we think the tenant quality today and the portfolio quality is better. So if we had this same portfolio back in 2,008, 2,009, we think our bad debt experience would have been less than 85 basis points. So due to those facts, we were comfortable with the $900,000 per quarter that we established for bad debt expense.
Got you. So the Pier 1 is just kind of coming out of occupancy, not necessarily being treated in bad debt.
For the last half of the year, correct. If they don't pay me in June, that will come out of bad debt.
Right. Okay. And then just separately, Peter, you mentioned that spec starts here are kind of a no go, but just bigger thoughts on development even as kind of COVID kind of dissipates the impact there. I mean, do you revisit the spec construction cap that you guys raised a couple of years ago? Does that get kind of throttled back a little bit?
Or just given the size of the company, maybe that kind of stays? And just kind of thoughts generally on your appetite for spec?
Sure. With respect to the cap, I guess, I'll say, remember, it's a limit and not a target. So, the market environment absolutely is what drives our decision making and our underwriting. It isn't really whether there is capacity under the cap. There is about $135,000,000 of capacity under the cap today.
And with the level of the cap of $475,000,000 theoretically, that could be higher given the way we've typically established that cap, but we don't have any plans to increase it obviously in this environment. But again, it's not a target and rationality prevails here.
Thank you.
The next question will come from Rob Stevenson with Janney. Please go ahead.
Good morning, guys. Scott, are you given the what you did in the Q1 and the 2.75 to 4.25 same store guidance for the year now, Are you expecting for deferrals, etcetera, to push cash same store NOI negative at some point in 2020 here?
No. As Peter mentioned earlier, any rent requests that we grant in 2020, we're making the assumption that those are going to be paid back by the end of 2020. So as a result, there wouldn't be any impact to our same store.
So what I mean, other than Pier 1, what drives down the reduction in guidance given where you are now with Q1 already in the bag?
Yes. I'll just reconcile you from what our guidance was before. On our Q4 call, we said our same store guidance midpoint was going to be about 4.75%. About 1% offset has to do with our new occupancy assumptions. So that's having to do with Pier 1 vacating June 30th and not paying the remaining 6 months and other just decline in occupancy in the portfolio.
And then that's offset by another 0 point 3% related to our additional bad debt expense that we discussed in our guidance. So those two pieces get you pretty close to the 3.5% same store midpoint that we currently are guiding on for 2020 cash same
store. Okay. So if you have leasing occurring before Q4 and your bad debt expense isn't running you as high as $900,000 per quarter, there's upside to that number?
That's correct. Absolutely.
Okay. And then Peter, Jojo, what are you guys looking for if you are going to grant deferrals? Are you guys just doing straight out deferrals? Or are you guys going to be asking for rent bumps, additional term, other type of credit enhancements, etcetera, for granting any of these deferrals?
That's a lease by lease, tenant by tenant conversation. It really depends on their particular situation. Obviously, we're getting involved in their financials and looking into their liquidity and their ability not only to pay rent now, but in the future. And based on what that concludes, that's how we'll respond with relief that we think is a win win for them and for us.
Okay. Thanks, guys.
The next question will come from Ki Bin Kim with SunTrust. Please go ahead.
Thanks. The 7% uncollected rent in April, can I assume that 7% deferrals and what percent of the deferrals is actually making it into same store NOI assumptions? I'm assuming the percentage not meeting the 75% of collectability threshold and such.
Ki Bin, it's Peter. I'll start and I'll turn it over to Scott. We want to make sure that everybody is comparing that 93% apples to apples. And so I'm going to ask Scott to go through the 97% and what that means. And then the 93% and the gap, the apples to apples gap is 4%.
And we'll get into the answer to what happens to that 4% after. Scott?
So, Ki Bin, we had
a couple of questions on this, as Peter mentioned. So, we gave a statistic on our call that said we collected 97% of our March rents. That was actually at the end of March. Today, where we stand today, we're at about 99 percent on that. And I would say, in our business with a portfolio as large as ours, it's not uncommon for tenants to take longer than 30 days to pay the rent, could be working capital issues, could be new tenants that take a little bit longer to make that first payment.
As far as the 93% statistic that we gave, that was April collections as of today, we're pretty close to being on track compared to our prior COVID-nineteen experience. That was about 95%. So that 7% that's remaining, we've got another week to go to collect that. So that number hopefully will go up. The remaining percent that's left, we'll have to figure it out on a case by case basis on whether we do rent deferrals or not.
Now the last question you had, I think if I can cover this, is that we gave a statistic in the script, requests with specific tenants, excluding companies that clearly have strong balance sheets, And we gave that percentage 8%. Now as it turns out, 85% of those tenants have already paid rent. So, there's sort of a disconnect between that statistic of what tenants are asking and the statistic of what's been unpaid for the month of April. I'm done. I'll see if you have any follow-up.
I went through quite a few numbers there, Ki Bin.
Yes. I think I'll have to go
through the transcript on that one. But
I think the bottom line is
this on the 93% that we're talking about, that number could go higher. Whatever is left over from April, we'll make a tenant by tenant decision to determine if we need to do rent deferral. I think that's the easy answer. Okay.
Again, apples to apples, that 93 today compares to 95 pre COVID today. And at the end of
the month, that
97 in March compares to whatever the number is for us in April, a week from now. So the gap is not that big is really the point. It's actually fairly small.
Yes, I missed the opening remarks. So thanks for that. When you look at your tenant profiles, I'm not sure what the best way is to slice and dice it, but how do you categorize what you consider at risk tenancy? And I'm not sure if there's an element of looking your tenants as smaller tenants or larger tenants and if that really matters to gauge risk profiles, but any kind of color you can provide there?
Sure. Really, it's instead of occupancy size, we look at company size. We look at company size and we look at what business they're in right now. And it wouldn't surprise you that any business that whose revenues are wholly dependent upon selling things that involve people being outside, such as sporting equipment or sporting goods companies, ship and boat services or manufacturers, furniture sales and distribution, flooring, catering, nobody is having any gatherings, moving services. So things like that where all of their revenues are dependent upon everyday activity, those are obviously the companies who are having the most trouble.
Does that answer your question?
Yes. I'm not sure if you want to provide it on an open call, but like do you have a sense of what percentage that makes up your ABR?
The total balance is about 1,400,000 dollars in terms of tenants getting to the apples to apples comparison. Within that number exist
some of those businesses.
Okay. And just last question, any Pier 1 type of tenants on the horizon that you're concerned about? I'm not sure if the automotive section is a risk or not, like Karma Automotive.
Ki Bin, this is Scott. I would say no. We went through our March bad debt calls. We're going to go through our April bad debt calls in early May. But where I stand today, I don't see any Pier 1 tenants on the horizon.
With Karma, we do have a substantial security deposit that they pledged with us when they lease. So we have that credit enhancement for that tenant.
Okay. Thank you, guys.
The next question will come from Rich Anderson with SMBC. Please go ahead.
Thanks. Good morning, everyone. Hope everyone is well. So just a question on the April rent again, if I may. And this is just perhaps educational, but you book all of it.
Let's think of April as the full quarter, Q2, just make it easy. When you come around and you report 2nd quarter results, would you have booked 100 percent of the rent even though a small portion of it was not paid? Or would that be adjusted somehow because of the rent deferrals? And when at what point do you engage a bad debt contra account in all of this? Like what's the mechanism from which you start to report bad debt in that metric as well?
So 3 piece, cash rent, rent deferred and bad debt. How does that how
does that Got
it. So let's just assume that April is end of June and we're at 93% and it doesn't grow. We think it's going to though. What we would do is we would evaluate that 7%. We're either going to work with the tenants to assume deferral on it.
And if the tenants are creditworthy, we think we're going to get paid back over the payment period, there would be no establishment of bad debt expense. And there might be other tenants that we don't establish bad debt expense that might pay us, in this example, sometime in July. So for bad debt expense to be triggered, we have to make the evaluation that there really isn't any chance based upon the company's business, their liquidity based upon discussions that we're not going to get anything from them for their outstanding receivables. And at that point in time, we would then take the bad debt expense reserve.
Okay, great. That's helpful. Now what happens if you give a deferral, but you conclude that the payback won't happen this year, then what happens to the number? But it might happen next year.
As far as bad debt expense?
No, as far as a deferral.
Okay. But you're asking if that situation happens, what's the impact on bad debt?
No, I'm not asking that. I'm asking if there's a rent deferral and you deem it payback a year from now, how does that impact how you would report 2nd quarter revenue?
We would still report the revenue. It would probably be on a straight line type basis and we would make the same evaluation. So, if the tenant payback period is a year, we would have to evaluate whether or not we're going to get that money back over that year period. So it's really the same analysis. Obviously, we'd have to do a little bit more digging if it's a year payback because we're taking more credit risk on that.
Perfect. Thanks very much for that. Second question is, you say in your press release the exclusion of write offs for deferred rent. Does that mean that there's a growing portion of tenants that you've moved from GAAP to cash because of the potential of pay of collectability of rent in the future? Is that what
I should translate to? That has
nothing to do with the rent deferral discussion we're talking about. I understand that. With our example, when we talked about it in the script, we said we wrote off $800,000 of a deferred rent receivable or straight line rent receivable related to Pier 1. Under GAAP accounting, that receivable builds up time and then it decreases at the end of the lease. Since we made the assumption that we're not going to receive any more rent from Pure 1, we wrote that off.
So that's meant to specifically address deferred rent receivables that have built up since the start of the lease. And the reason that we didn't guide on it, it was very difficult for us to come up with what a projection of that would be. If you have a tenant and you're at the back end of the lease and you have a bad debt issue, that number is going to be very small. But if you have a tenant at the front end of the lease and you have a bad debt issue, that deferred rent receivable is going to be a lot higher because free rent periods and rent bumps. So as a result, we're not including that in our forecasted guidance because it really is too difficult to project, whereas cash statistics, we have a 20 year history or 25 year history with the company.
Understood. Thanks very much. Appreciate it.
No problem.
The next question will come from Michael Carroll with RBC Capital Markets. Please go ahead.
Yes, thanks. I just wanted to follow-up on the bad debt assumption. Scott, when you went through it, it sounded more like that you're just performing a model exercise. Have you are you tracking any specific tenants that would be a concern? Or you're just kind of thinking, okay, this is what happened historically, and we're going to increase that because of the current environment looks a little bit more disruptive in the near term?
Yes. What I would say, again, when you look at where we're at on April, I think there was a question about any peer ones out there. We're not aware of that. And Mike, frankly, we don't have enough payment history pre COVID or post COVID-nineteen to come up with a run rate on it. So we basically looked back to the worst period that in the company's history for many companies during the Great Recession.
We started we used that as a starting point. And then again, based upon the improvement of the portfolio and tenant quality, we thought that, that bad debt allowance was adequate. But again, as we stand here today, we don't really see any big problems on the horizon. But again, we're only 1 month really through this COVID-nineteen experience.
Okay. And have you started analyzing, I guess, the validity of the 8% of tenants that provided the details on their deferrals? And do you anticipate providing any of those? Or just what's some of the factors that you're going to look at for that?
Well, what I would say is this, on the 8%, that's who made requests. A large portion of those, Mike, already paid April rent. So we're not really engaging those clients just because they've already paid April rent. So anyway, there's a de minimis amount on that list, which is about 1% that's unpaid. So that 1% is probably the tenant base that we have to possibly go back and engage in a rent deferral conversation.
Okay. Do you think that those same tenants will come back and ask for deferrals in May? I mean, would they restart the conversation Or would you start the conversation with them, here in the near term?
Well, I think we would wait for them to restart the conversation. Again, for us, the vast majority of the tenants on that 8% lease list already paid April rent. So there really isn't a reason for us to go back and engage them. But they might come back and ask for rent relief. And again, we'll just have to take care of that on a tenant by tenant basis, Mike.
Okay, great. Thank you.
The next question will come from Sarah Tan with JPMorgan. Please go ahead.
Hey, actually, it's Mike. I got disconnected and Q and A started. So I apologize if this was asked already. But two things. 1, do you anticipate having any problems meeting the disposition targets, just given the climate?
Maybe you can comment on that. And then when you talk about a pause in spec development, is it safe to say that includes the value add acquisitions as well?
So on the first question, sales guidance. So we sold 40. That means another 110 to get to the midpoint of our range. We also are looking look, still demand on the part of users and investors for industrial. The question is, how long will the wait and see happen?
That's why we said in our remarks that we expect those sales to be back end loaded. Our experience in the Great Recession, you might remember that we continued to sell $100,000,000 to $200,000,000 a year in the Great Recession. And the assets that we were selling were not as attractive, let's just say, as the ones that we might have to dispose of now. So we feel decent about it, but of course, we'll see. Nobody has a crystal ball on how long and how deep the economic disruption is going to be.
I'm sorry, what was the second part of your question?
Just wanted to make sure that spec developments, when you talk about putting a pause on spec development, that included making the value added acquisitions as well, where you buy, say, vacant building and lease it up?
Yes. Well, I mean, again, the emphasis is on maintaining liquidity until we have a clear picture about the duration of this disruption. And again, Mike, I can't say we wouldn't do any value add. It depends I mean, obviously, a huge one we probably wouldn't do given that conflicts with our objectives on the liquidity front. Okay.
Thank you.
The next question is a follow-up from Dave Rodgers with Baird. Please go ahead, sir.
Yes. Before we wrap up, I
did want to talk a little bit
about demand that you might be seeing in the last month, 2 months since the COVID outbreak happened? And maybe diving a little bit deeper on that is what are you seeing in retrospect versus prior periods, maybe in April? What types of tenants? What size of either tenant or size of space are you still seeing activity? And then maybe the second question is, as you look out, you guys talked about the economy maybe opening back up in the early part of summer.
But what have you done in your own modeling and your thinking about when you expect really leasing activity to recover in earnest? So those would be my 2 follow ups. Thanks.
So I'll start out and then I'll kick it over to Jojo just to reiterate. In terms of leasing activity, that 72% of our 2020 rollovers that we've signed is actually a couple of points ahead of the prior 2 years, and we're showing pretty good rent growth there. So we're pleased with that. So there is activity. Jojo, do you want to add some details?
Sure. In
terms of pre COVID, it's been very strong, of course, So I'm not going to add to that. But in terms of when post basically at COVID, basically you have industries, especially still out looking for space that includes e commerce related, food related, those companies that needed enhanced delivery services, essential goods. Reverse logistics also has actually picked up because of our returns actually, and we would expect that due to increase in e commerce. And finally, there are some short term needs because some of the product that's coming into the market is not being absorbed, if you may, or bought. And so those are looking for, David, short term space.
Hey, David, it's Peter Schultz. I would add to what Peter and Jojo said, in addition to e commerce and food and beverage, medical and cleaning supplies as well. And to your question, it's really been across space sizes and geography. And while clearly decision making has slowed and some requirements have put on pause, we continue to see new RFPs from prospective tenants as well as existing tenants that are expanding. And while there's no doubt that in person inspections have slowed, business is still happening.
Did that answer your question, Dave?
Yes. Thanks for all that. And then just the second part of it in terms of kind of how do you see the economy reopening, you're talking about maybe early summer, but then what do you think happens with leasing post that? Are we back to normal? Does it take until 2021 to hit the ground?
What's your at least base assumption here a month in?
Yes. As Scott pointed out in his remarks, our assumption is that we begin to reopen and get back to work in the summer. Clearly, that's going to be phased. We may have some hiccups. It's too difficult to project, but it's probably a gradual return to normalcy.
Clearly, if the medical community comes up with treatments in a timely way or in fact quickly, that could accelerate their recovery. And if they don't we're waiting 18 months for a vaccine, that's going to have a different impact on the pace of the recovery. I think generally, people want to get back to work, but obviously we have to do it in a safe manner and none of us knows how long that's going to take.
The next question will come from Eric Frankel with Green Street Advisors. Please go ahead.
Thank you. I apologize. I think I disconnected myself in the way through the call. I think most of my questions were answered regarding industry diversification in your rent roll and what industries you're probably disproportionately exposed to?
It's a pretty granular tenant base. We don't have large exposures. If you look at our top 20, nobody's really that large relative to the rest. In fact, I think our top 20 is about 22% of our rent roll. So, hard to say, but we really don't have concentrations.
We do have some exposures to businesses that will not fare well in this kind of economy, but the vast majority are doing pretty well and certainly have the wherewithal and the longevity to get through this. Is there any percentage you could point to regarding
kind of those industries that are not doing well, non essentials or luxury items or entertainment, however you want to describe those businesses that
are struggling. Do you have a rough sense
of what proportion of that is of your tenant base?
All I can say is it's not large, it's small. We don't have the percentage of that in front of us now.
Okay. Thank you.
Just two quick follow-up questions. 1, you have a fair amount
of your portfolio in the South Bay in Southern California. Maybe you could just talk about port activity and the kind of supply chain disruptions and how that's affecting tenants and activity around the port?
Sure. Yes. Jojo, you want to cover that question?
Sure. Thanks, Peter. In terms of South Bay, port volumes, Eric, has come down. And so, containerized the most correlated to our absorption is containerized cargo loaded imports and that has come down. Although it has we continue to see containers cargo come in and those products still have to be stored.
Now South Bay, it has the benefit of being about 1% vacant. So it's very, very tight, although you do have supply chain disruptions. One of the things that we're seeing right now, just like some of my team members have alluded to, interest and tour activity has slowed down. We're still responding to RFPs. A lot of the activity still right now is focused on e commerce type companies.
Right now that needs to be close to the population. Again, the market is very tight. When we're working with existing tenants, they're still very, very because of that very, very low vacancy, very few other choices for tenants to move. So that's the dynamic right now in South Bay.
Okay, thanks. If you don't mind, I have just one quick one other quick follow-up question regarding your recent acquisition in Baltimore. I understand that probably was in the works for a while, but it seems that you have a fair amount of leasing exposure in that market and submarket. Maybe you can just describe what your investment pieces there and how connectivity is faring both for Pier 1 and for Nottingham?
Sure. Peter Schultz, you want to take that?
Sure, Eric. Good morning. In terms of our thesis, the Baltimore market has been a strong performer, record low vacancies and record absorption. And if you look at the submarkets along I-ninety five north of the tunnel, which is where these assets are that you referenced that we just bought and our asset to Pier 1 is in, along that quarter, the vacancy rate is sub-four percent and it's really driven the majority of the absorption over the last several years by and large, the majority of it of over 21,000,000 square feet. The two buildings that we bought, you're right, that's been in the works for over a year.
The buildings were built to our specifications and they have unparalleled visibility and on I-ninety five and access off that exit. It was actually a former retail site that was rezoned for this project. So really a great spot there. As we mentioned in the script, 15% pre leased. We signed those leases just shortly before closing, and we're doing those TIs now.
And we've been pleased with the level of interest that we've seen on the balance of the project and our opportunity to outperform there. The buildings, just for a little detail for you, the larger one is 585,000 feet, 36 foot clear cross dock. The smaller building is 166,000 square foot front park rear load. That's the building that has the pre leasing, so over twothree of that building. In terms of Pier 1, Scott had some comments about that.
We've not been given any indication that they're going to vacate releasing exposure again given the strong dynamics that have been happening in that market and demand that we continue to see. Hopefully, that answers your question.
We do have time for one final question. That question will come from Craig Mailman with KeyBanc Capital Markets. Please go ahead, sir.
Hey, guys. Thanks for taking the follow-up. Just two quick ones. Just want to verify, it doesn't sound like it, but just want to make sure there's no security deposit application to that 93% collection?
That's absolutely correct. That's payments coming in from tenants. It does not there was no impact from security deposit applications.
Okay.
And then just Peter on your commentary around kind of 2 thirds of uncollected rents in areas with moratoriums, are you seeing kind of well capitalized companies taking advantage of these eviction waivers? Or is it mostly kind of companies you would have expected anyway?
It's kind of across the board. And I want to be careful not I don't really want to say people are taking advantage. Some may well be, but it's also not in their interest to be, let's just say, playing games because lots of bad things start to happen that they're not going to want to deal with judgments, we can draw down their security deposits or if they have an LC, we can draw that down. They also lose other options or rights in their leases, including renewal options. So, it's not in their interest.
We simply point out that a high percentage of those that haven't paid are in those jurisdictions because it may be a
factor. At this time, I would like to turn the