Good morning, ladies and gentlemen, and welcome to the National Retail Properties 4th Quarter and Year End 2020 Earnings Conference Call. At this time, all participants have been placed on a listen only mode, It is now my pleasure to turn the floor over to your host, Jay Whitehurst. Sir, the floor is yours.
Thank you, Matthew. Good morning, and welcome to the National Retail Properties 4th Quarter and 2020 Year End Earnings Call. Joining me on the call this morning is our Chief Financial Officer, Kevin Habicht and our Chief Operating Officer, Steve Horn. Before discussing the details of this past year, I want to once again offer my sincere gratitude to all the associates at National Retail Properties for their hard work, perseverance, Flexibility, collegiality, professionalism and dedication in 2020. I could not be prouder of how this talented team worked tirelessly to create shareholder value and support each other during this past crazy year.
As I've said before, perhaps the best word to describe National Retail Properties is consistent. Consistent investment focus on single tenant retail properties, consistency of people and culture, consistently raising the dividend for 31 consecutive years, consistent conservative balance sheet philosophy that maintains flexibility in dry powder, consistent long term tenant relationships. And although our long term track record of consistent per share growth was disrupted in 2020 due to the pandemic, We remain committed to our multiyear business plan. Highlights for National Retail Properties in 2020 include Increasing the common stock dividend for the 31st consecutive year, a feat matched by only 2 other REITs and by less than 1% of all U. S.
Public companies. Raising $700,000,000 of well priced debt capital early in the year, which put us in a strong liquidity position as the pandemic began to spread and enabled us to end 2020 with $267,000,000 of cash in the bank and nothing drawn on our $900,000,000 line of credit. Reaching collaborative rent deferral agreements during the early stages of the pandemic with a number of our relationship tenants, which solidified our relationships and set us up for future acquisition business. Collecting 95.7 percent of our rents due for the 4th quarter and 89.7% of our annual base rent for the year 2020. Supporting our associates and our community with programs and activities to advance Associate well-being, employee engagement and community involvement and lastly, enhancing our executive leadership team with the appointment of Steve Horn, a 17 year veteran with the company as our Chief Operating Officer.
Let me now turn to some details about our Q4 2020. As highlighted above, our rent collections continued to trend positive during the quarter, resulting in collections of 95 0.7 percent of 4th quarter rents. For the year 2020, we collected just under 90% of rents due for the year. And for the month of January 2021, we have collected approximately 95% of the rents due for the month. These collection numbers compare very favorably with other retail real estate companies and are similar to the reported rent collections by companies with a significantly higher percentage of investment grade retail tenants.
I'd also like to highlight that we forgave 0 rent in the 4th quarter and only forgave less than 0.5% of our annual rents for the entire year. Consistent with our long term practice and multiyear business model, We do not anticipate reporting monthly rent collections in 2021. Notwithstanding the impact of the pandemic, Our broadly diversified portfolio of 3,143 single tenant retail properties ended the year with an occupancy rate of 98.5%, which continues to exceed our long term average of 98%. Our high lease renewal rate also continued in 2020. Approximately 80% of our expiring leases or tenant improvement dollars and with an average lease renewal term of over 6 years.
In our opinion, this impressive statistic validates the high demand for our well located real estate sites. A reminder that our tenants are typically large, well capitalized regional and national operators with the scale, financial wherewithal and management expertise to weather significant disruptions in the business environment. Additionally, the majority of our properties are located in suburban markets, largely in the southern half of the United States, which have been somewhat less impacted by the pandemic than urban city centers. We're pleased to see that many of our tenants businesses are bouncing back more quickly than we had initially anticipated. And as our relationship tenants returned to growth mode in the 4th quarter, We ramped up our acquisition activities as well.
During the Q4, we invested $102,000,000 in 42 New single tenant retail properties at an initial cash yield of 6.2% and at an average lease duration of for 20 years. For the year 2020, we invested a total of $180,000,000 in 63 new properties At a weighted average initial cash yield of just under 6.5% and with an average lease duration of over 18 years. An important strategic advantage of our business model is the long lease durations we achieve through our focus on sale leasebacks with our relationship tenants. We also had an active 4th quarter of dispositions selling 13 properties for $12,000,000 And for the year 2020, we sold 38 properties, raising over $54,000,000 of capital to be redeployed into our business. Our balance sheet remains strong.
We ended the year with $267,000,000 of cash in the bank and zero balance drawn on our $900,000,000 line of credit. Kevin will provide more details on the $120,000,000 of equity capital we raised in 2020 via our ATM. As we enter 2021, we're well positioned to take advantage of the right opportunities when they present themselves and or whether further choppiness in the economy if that may occur. And taking all this into account, we're pleased to introduce guidance for 2021 as reflected in our press release. Consistent with our long term focus and culture, we approach guidance with a conservative mindset.
Although our portfolio continues to perform well and our relationship tenants are returning to growth mode, the pandemic is not yet behind us and there may be additional turmoil in the economy ahead. Kevin will review the details of our guidance in his remarks. Looking ahead to 2021 and beyond, you should expect us to continue to adhere to the core strategic drivers The real estate attributes of single tenant retail properties are far superior to the attributes of other property types and the universe of opportunities to acquire these properties remains vast. 2nd, a broadly diversified portfolio of Single tenant retail properties that generates a stable growing cash flow from long term leases. As noted above, our tenants are primarily large regional and national operators in lines of trade that provide customer services and e commerce resistant consumer necessities.
3rd, a fortress like balance sheet that provides us with the capability to Stand economic turbulence and positions us to be able to continue our long history of consecutive annual dividend increases. 4th, a relationship oriented acquisition model that results in high quality investments. Our proprietary tenant relationships allow us to obtain higher investment yields, superior lease documents, longer lease duration and better quality real estate. 5th, an active asset management that focuses on maximizing The value of each individual property. Our deep real estate expertise enables us to get the most out of our portfolio and to recycle capital through thoughtful disciplined dispositions.
And last but not least, A commitment to ESG, including a deep commitment to our team of great people and a supportive culture, which is the true backbone of our success. Almost 3 quarters of our associates have been with the company for at least 5 years and approximately half have been with us for 10 years or more. The executive leadership team averages almost 2 decades of tenure at the company. That level of commitment to culture and institutional knowledge We believe that as we continue to execute on these strategic drivers in the post pandemic world, We will consistently deliver core FFO per share growth and outperform REIT averages on a multiyear basis. And with that, let me turn the call over to Kevin for more details on our quarterly and year end numbers as well as our 2021 guidance.
Thanks, Jay. Let me start out with the usual cautionary statement that we will make certain statements that may be considered to be forward looking statements under federal Securities law, the company's actual future results may differ significantly from the matters discussed in these forward looking statements. And we may not release revisions to these forward looking statements to reflect changes after the statements were made. Factors and risks that could cause actual results To differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the SEC and in this morning's press release. With that, headlines from this morning's press release report quarterly core FFO results of $0.63 per share for the Q4 of 2020.
That's up 0.01 dollars Share higher than the preceding third quarter's $0.62 As noted in the press release, these results include $7,000,000 or $0.04 per share of receivables Write offs in connection with reclassifying certain tenants to cash basis rent recognition in the 4th quarter. Additionally, we recognized $2,500,000 of deferred rent repayment that was repaid in the Q4 and was included in calculating As Jay noted, occupancy was 98.5 percent at quarter end, up 10 basis points from the prior quarter. G and A expense for the Q4 was 5.7 percent of revenues and for the Q4 and then 5.8% for the full year 2020, which is fairly flat with 20 nineteen's G and A levels. Rent collections, as Jay noted, continue to improve throughout The Q4 today, we reported rent collections of approximately 95.7% for the Q4 and 95% for the month of January 2021. We have seen steady incremental improvement on the rent collections front over the past 8 months.
Effective periods, meaning that it does not include collections of previously deferred rent. In the 4th quarter, We also collected, as I mentioned, dollars 2,500,000 of rent that was previously deferred, which represented approximately 100% of the deferred rent repayment that was due in the Q4 of 2020. As we've previously noted as well, the majority of deferred rent Is due in 2021 and the very early indications suggest good collection results for those deferred rents. We have included on Page 22 of today's supplemental, which is on our website, some disclosure on the amounts and Timing of the anticipated repayment of deferred rent over the next couple of years. Moving on, at the end of the 4th quarter, we had approximately $50,000,000 or about 7.4 percent of our annual base rent being Recognize on a cash basis as a result of our estimation that it was not probable these tenants were going to pay substantially all of their remaining lease payments.
So this classification required us to write off all outstanding receivable balances for these tenants, which in the Q4 was $2,000,000 of Rent receivables and $5,000,000 of accrued rent balances totaling $7,000,000 or approximately $0.04 per share for the 4th quarter. So without this non cash write off, FFO results would have been notably better. However, please know that despite this GAAP accounting write off, we will be pursuing these receivables and ongoing rent payments With the usual vigor, rent receivables from cash basis tenants totaled approximately $10,000,000 as of December 31. Again, these receivables are not reflected on our balance sheet. Now over to receivables that On our balance sheet, 1st rent receivables of $4,300,000 was fairly flat with September 30 levels and now very much in line with Our pre pandemic rent receivable levels of $3,000,000 to $4,000,000 These rent receivables include a general reserve of 16% or $835,000 at December 31.
Secondly, accrued rental income Receivables decreased slightly to $54,000,000 and had a general reserve of 11% or $6,900,000 at December 31. In the Q4, we collected $2,500,000 of previously deferred rent, which reduces the accrued rental income receivable. This collection of previously deferred rent is excluded from GAAP earnings, FFO and core FFO results. We did note that What AFFO would have been if we had excluded the pandemic related accrued rent, both the deferral and the subsequent repayment. We have currently less than 1% of our annual base rent coming from tenants in bankruptcy And that primarily consists of Ruby Tuesday today.
I will note Chuck E. Cheese exited bankruptcy during the Q4. And while we agreed to a 25 percent rent reduction for 15 months ending December 2021, none of our 53 Leases were rejected in bankruptcy. As Jay noted, today we initiated 2021 core FFO per share guidance of $2.55 to $2.62 per share. Some of the assumptions supporting this guidance are noted on Page 7 in today's press Release and include G and A expense of $42,000,000 to $44,000,000 real estate expenses net of Tenant reimbursements of $11,000,000 to $13,000,000 acquisition volume of $400,000,000 to $500,000,000 skewed probably $40,000,000 $60,000,000 between first half and second half of twenty twenty one, and then disposition volume of $80,000,000 to $100,000,000 While our rent collections materially improved throughout 2020, compared to many previous years, we have assumed there would There will be some continued uncertainty in this variable going forward into 2021.
Our cash basis tenants, As I said, represent approximately 50 percent of our $675,000,000 of $50,000,000 sorry, dollars 50,000,000 of our $675,000,000 of total annual base rent as of twelvethirty onetwenty twenty. We've assumed these cash basis tenants pay 50% of the rent due in 2021 in our guidance, and that's relatively consistent with what they've been paying in recent months. Additionally, on top of this, we have assumed 2% Rent loss from the remainder of our annual base rent, which equates to about $12,000,000 or $13,000,000 in rent. This rent loss or vacancy estimate is not made with any particular tenant concerns and on its face feels like a conservative Assumption meaning actual rent loss could be better than guidance. But given this is our first issuance of guidance in this pandemic, it seemed prudent to be more conservative than not.
And those of you who have known us for the past 25 years are probably not too surprised by that approach. We ended the Q4 with $267,000,000 of cash on hand and no amounts outstanding on our $900,000,000 bank credit facility. We did not draw down our bank line as many companies did in 2020. We raised $60,000,000 of equity in the Q4 at just over $40 per share. Our next debt maturity is in April 2023 at $350,000,000 with a 3.3% coupon.
So we're in very good liquidity position. Our weighted average debt maturity is now 10.2 years with a weighted average interest rate of 3.7%. Financial covenant compliance remains in very good shape as outlined on Page 10 of the press release. So the balance sheet, our leverage profile remains very strong. Couple of numbers.
Net debt to gross book assets was 34.4%. Net debt To EBITDA was 5.0 times, interest coverage was 4.5 times and fixed charge 4.0 times for the Q4 of 2020. Only 5 of our 3,000 plus properties are encumbered by mortgages totaling only $11,400,000 So 2021 seems to be getting where 2020 left off with sustained rent collection levels and incremental improvement in tenant health, which allows us to continue to shift to a more offensive posture. As our focus remains on the long term, we will continue to endeavor to give NNN the best opportunity to succeed in the coming years. And Matthew, with that, we will open it up
to provide optimum sound quality. Your first question is coming from Katie McConnell. Your line is live.
Great, thanks. Good morning, everyone. Could you provide some more color on how you arrived at 2021 acquisition guidance just in the context of pre COVID volumes and where liquidity stands today, Just to better understand how you're thinking about capital allocation priorities this year?
Sure, Katie. This is Jay. I'll give you A little bit of high level and then I can turn it over to Steve a little bit for the pipeline. But as you know, the vast majority of our acquisitions are sourced That we've done work with over the last few years. And those tenants slowed down their growth during the pandemic.
And so it made it, it was kind of easy for us to slow down and wait to see how things settled out because our customers were doing the same. Our customers are now returning to growth mode. So it feels to us like this kind of $400,000,000 to $500,000,000 projection for 2021 is it may prove to be
accurate, it may be
a little conservative, it may It may be a little conservative. It may be a little optimistic, but it feels like our relationship tenants are back in more of a growth mode. And so this is a lower number than we had acquired in the few years before the pandemic, but it's certainly in that ballpark. And so it's driven primarily by talking with our relationship tenants. We look in the open market for deals all the time, but we historically have found that the best risk adjusted return For all those factors that I talked about in my opening comments comes from doing relationship business Steve, do you want to add anything about the pipeline with those folks and what you're hearing from them?
Katie, this is Steve. In the Q4, we noticed more kind of M and A activity, meaning M and A are tenants Looking to acquire other businesses that may be struggling. They've been doing kind of the rifle shot approach as far as new store growth. So we're definitely hearing from our tenants that the growth engine for them is starting up again. Also, brokers, investment bankers, We noticed coming out with more portfolios in certain industries where they could capitalize on the robust pricing currently.
Now as far as the number that we're throwing out there, the market is a little bit smaller for us, meaning Movie theaters, there's really no market for them, family entertainment, and as far as health and fitness, Much smaller market, but we feel we can find the $400,000,000 $500,000,000 in kind of our wheelhouse with our current relationships.
Okay, great. Thanks. And then can you just touch on the type of properties acquired during the quarter that might have contributed to the lower cap rate There are some of your prior deals and then how should we think about pricing for the 2021 pipeline?
2020, 2021 pipeline, I think we're thinking of kind of mid-6s cap rate. Cap rates continue to remain very low. 4th quarter was a primarily QSR fast food deal that we have been in dialogue with the franchisee for many, The types of properties that trade at lower cap rates and it's at the low end lower end of the range of what we do, but we're very happy with The operator, very happy with the real estate. And so it seemed like the right time to stretch a little on the initial cap rate. Remember that it's a 20 year lease and if you add in our typical 1.5% to 2% rent bumps Over the 20 year lease, you build in over 100 basis points of additional long term yield.
We don't straight line it in the lease document and we don't talk we don't straight line it in our reporting in our conversations, But it does give us a much more compelling long term yield doing these 20 year deals.
Okay. Got it. Thanks, everyone.
Thank you. Your next question is coming from RJ Milligan. Your line is live.
Hey, good morning guys.
A couple of questions
on the guidance, Kevin. What's contributing to the increase in G and A for 2021?
Nothing in particular. So there's I mean nothing notable just general increase.
Okay. And so then looking at the guidance, if you back out the deferral paybacks in the 4th quarter, Get you to a run rate of $117,000,000 of AFFO. You annualize that, reduce that by say $4,000,000 increase in G and A, you get a run rate of about $465,000,000 or about $268,000,000 excluding acquisition activity. And I'm just trying to bridge To the guidance of $261,000,000 to $268,000,000 with acquisition activity, what's the main difference there?
Not sure I followed all that. I mean the way we look at it is, I mean we start with our annual base rent of 675,000,000 And then back out, these reserves that we've talked about $25,000,000 roughly for our cash basis tenants, $12,000,000 $13,000,000 for our other parts of our rent. And then if you step through the guidance of Property expenses, G and A, etcetera, you end up at about $258,000,000 on Core FFO and then if you look at the Page 22 of the supplemental that I alluded to in my comments Gives you the detail on the repayment of deferral rent. And so that is really the which is about $0.20 per share for The Q4 I'm sorry, for 2021, that gets you the delta between our Core FFO estimate and AFFO. I'm not sure I exactly got to the answer to your question.
Maybe we talk about it offline, but That's the math.
Okay. So what's in the cash basis bucket? You mentioned the 50% assumption, and that's relatively in line with what you saw in the Q4. What can you talk about the tenants in there that You know, are making up that assumption.
Yes. The bulk of that particular bucket is really for tenants. So it's Like Chuck E. Cheese, Ruby Tuesday, Frisch's and AMC. So That's probably 90 plus percent of that cash basis bucket on an annual base rent kind of calculation.
And so that's what's So we'll see if we can do better than the 50%. That's been historical. I will say and I think you've probably seen and We're experiencing trends are ticking positive, I would say, across the board in retail world. But For guidance purposes, we assume they're going to stay fairly flat to where what we've experienced in recent months.
So for the Chuck E. Cheese, for example, in that bucket, that's using the already reduced rent for Chuck E. Cheese?
Yes. So yes, that is probably the one tenant where we did make a change, as I noted in my Comments that we amended the lease to reduce the rent for the Q4 of 2020 and the full year 2021 by 25%. So but that's really the only tenet of any note where that occurred.
I guess I'm just trying to get to that the 50% Assumption, given that Chuck E. Cheese has emerged from bankruptcy and the rent has been reduced, that 50%, if you were just assuming on Chuck E. Cheese is Probably conservative given that they have not rejected any leases. Yes.
So my 50% number is an average for that whole bucket. So yes, it's got some good better performers and some worse performers in it. So yes, you might think Some of our others, some theaters, for example, might not be paying quite that level, 50%. So that's an add on for that. The big bucket.
And then
on top of that, there's an additional $12,000,000 to $13,000,000 of Additional, just no specific tenant, but rent loss built into that number?
Correct. That's for the other $625,000,000 if you will of annual base rent that's not cash basis. In a normal year, we would assume 1% Rent loss or vacancy, just because that's things happen. And so in this environment, We made it 2%.
Got it. And then just back on the acquisitions to follow-up on Katie's questions. Is it is the volume really dependent on sort of the relationship tenants and their growth? And what do you expect the cadence of that $400,000,000 to $500,000,000 to be throughout the year.
Yes. R. J, we've Back end loaded as we do pretty much every year, back end loaded in the guidance a little bit. I think it's kind of 40% first half The year 60%, second half. And so that's what we're thinking.
It's really come but you can never see far enough ahead to be able to pin it down very precisely. We just know that we're dealing with large operators who are in the growth mode and have the wherewithal to do it. And as Steve mentioned, in some instances, it's a bit of a target rich environment for them to be able to expand their business. And so we think that will ultimately result in sale leasebacks for us.
Great. That's it for me. Thanks, guys.
Thank you. Your next question is coming from Wes Golladay. Your line is live.
Yes.
Can you hear me? Hello?
Yes.
Okay. Sorry about that.
Yes, I
just want to go back to Chuck E. Cheese. So how much of the rent is being abated this year? And I guess, how much does that impact that 50% bucket?
None is being It's
a $3,600,000 round number, dollars 295,000 a month
Got you. And then you kind of highlighted Frish and we have seen that they over the last year closed a few stores. Are you part of it I guess did you experience any store closings or do you have a master Least similar like what you have for Chuck E. Cheese with Frisch?
With Frisch's, multiple managed leases with Frisch's.
Okay, good. So it's like a similar setup. Okay, good. And then one of the things you're doing is you're still raising capital, but you have a large cash Balance was creating a little bit of a drag on the earnings guide for the year. How do you, I guess, expect the balance sheet and the cash balance to progress throughout the year?
Yes, fair question. Yes, I think as you're hopefully getting a sense as we are moving to a more offensive posture here, Looking probably to not issue equity of any note in 2021. And good news is we don't need to. Even to Hit our acquisition guidance and do the things we want to do. We really don't need to raise any additional equity.
So it's not saying We definitely won't, but we just and we don't give guidance on capital raising debt or equity, but a fair point We don't need to do anything the rest of this year to keep a leverage neutral balance sheet and not issue any equity.
Yes. And Wes, as you've heard us talk about Wes, as you've heard us talk about before, we, to a large degree, try to divorce Capital raising from capital deploying. So to the extent the stock is trading at a price that we think is advantageous, We would certainly be inclined to raise even more capital, while Steve and the acquisitions group looks for ways to deploy it. But we feel very good about the position that we're in that we can Go forward with our acquisition plans without needing to issue any equity at the moment.
Got it. Makes sense. And then maybe on the disposition bucket, I know in the past you've had a mix of offensive dispositions and then just Kind of maintenance and pruning the portfolio to maybe get out of something before you see some issues. What are you looking at this year as far as your dispositions? Will it be Were the offensive category more of the risk management bucket?
Historically, it breaks down In terms of properties, about 50% of the properties in each direction. In terms of dollar volume, it's predominantly offensive Dispositions that generate more dollars, but it will probably be the same in the range Maybe sixty-forty offensive, give or take, 20 basis points on either side of that. We know we every year take advantage of some instances where Folks come to us and want some of our properties at cap rates that we just can't turn down, and we are always looking at pruning the portfolio along the way.
Got it. Thanks for taking the questions.
Thank you. Your next question is coming from Spenser Allaway. Your line is live.
Hi, thank you. Jay, you mentioned that cap rates remain low. Can you just provide a little bit more color on what you guys saw being shopped in the Q4 and then how cap rates are trending across the various retail industries?
Sure. Spencer, I'll tell you what, I'm going to turn that over to Steve to talk about.
Hey, Spencer. Obviously, there's a fair amount of distribution centers that were out there that NNN doesn't play in. There is a couple of C store portfolios that were out there and just some typical single tenant net lease mixed portfolios. And on the mixed portfolios, the lease terms were fairly short. So the cap rates, pretty robust, meaning having a 7 in front of them.
QSR portfolios were out there, a fair amount because a significant amount of small franchisees Decided to sell, and those portfolios were going in the high fives, low 6s as well. Some rental Portfolios were out there and a fair amount of kind of warehouse club, the Costco's BJ's were out there. But that being said, the 1031 market is significant and is always there. But Historically, N and M, we didn't play in that market because of the short term leases where we like doing the sale leasebacks.
Okay. Thank you. That's really helpful. And then just one more. So in other words, we're about a year into this pandemic now, so have discussions changed at all with tenants when When you guys are negotiating new leases, so anything that either tenants or you guys are placing more of an emphasis on in light of the current environment?
When the pandemic started, we were wondering what language is going to change in the lease. But Obviously, we haven't done a significant amount of volume since the pandemic started. However, the acquisitions that we've done, we have not Found any change in our tenants' behavior when it came to the long term lease.
Okay. So no, you don't have tenants that are kind of pushing for they're saying, okay, we'll take Under term, if we can negotiate some lower initial rent in the current environment?
No, not yet. I mean, the market It's pretty efficient and really for the most part that's only changed in the sale leaseback market. The cap rates have compressed for the essential properties.
Okay. Thank you, guys.
Thank you. Your next question is coming from Jason Belcher. Your line is live.
Yes. Hi. Just wondering, other than the large QSR deal that you guys mentioned from Q4, What other sectors were you guys buying? What kind of average lease terms were in there? And maybe you can give us a range of the cap rates you guys saw?
The QSR deal, Jason made up the vast majority of what we did in the Q4. But I would say if you look At what we did for the year and what we are looking at in the pipeline going forward, it's going to be very similar to Our current portfolio makeup, meaning convenience stores and fast food restaurants and Perhaps car wash is auto service type uses, auto repair type uses, equipment rental type uses. The types of lines of trade that are near the top of our portfolio, I am sure at the moment or if we're going forward for the medium term, we'll have less of a While we wait to see how those businesses recover and what's the right way to underwrite Larger properties where people congregate in the post pandemic world.
Okay, thanks. And then just on the rent deferral buckets scheduled For repayment into 2022 and 2023. I'm assuming that's largely theaters and casual dining, but if you could just touch on What else, if anything, might be in there?
It's really a broad section. So if You think about it, we entered in deferral agreements with about 25% to 30% of our tenant base. And so it's a pretty broad section. But obviously, in the cash basis tenants, we've talked really about What some of those might be, but otherwise it's a pretty broad Cross section of deferrals, I mean, so it's not anything in particular. I mean, the restaurants, I guess, would be Primary in that list and then family entertainments and those would be, I guess, more concentrated.
Got it. That's helpful. Thanks a lot, guys.
Thank you. Your next question is coming from Linda Tsai. Your line is live.
Hi. On the Chuck E. Cheese temporary 25 percent rent reduction, any similar color to provide on theater rent deals? You know, Collections improved 42% in 4Q from 35% in 3Q. Has that improved in the 1st 2 months of the year given positive capital raising activity?
Yes, I don't I mean, we have not given out, I guess, tenant and line of trade by month, I guess, disclosure. I mean, we're optimistic that it might get better given the capital raising that's gone on. And so I think that's we're hopeful that might come to be, but we're not presuming that's going to be happening in 2021.
Linda, we it feels to us like the other lines of trade that make up our portfolio that have We're materially affected by the pandemic. Casual dining and health clubs and family entertainment Trade is just going to take longer to come back. And so we're Much more cautious about as part of our conservative guidance is related to just our uncertainty about how Fast, the movie theater business, the movie business is going to come back into bloom.
That makes sense. And then in terms of the 2% rent loss in 2021, which you view as conservative, how does that translate To occupancy, and I realize occupancy improved sequentially this quarter.
Yes. I mean, in our minds, we really don't think of it differently. Whether a 2% rent loss because a tenant that we don't evict Is not paying rent or because the property becomes vacant, kind of the same to our bottom line. So I don't have any real color to give you on how much of that Translates into actual vacancy.
Thanks. And just one last one. The QSR you engaged with for a while, guessing that's why the lease term was so long. Do you think the 20 year lease term is repeatable on QSR going forward? Or was it specific to the seller you engaged with.
Steve, you may have some additional color on this, but Negotiating a long lease term in a sale leaseback is very important to us. And so it is one of the items that we talk with The tenant is about right at the beginning of the negotiation along with cap rate and proceeds And all the rest of the terms of the transaction. So yes, it does not feel to me like that was a Lightning in a bottle, that was particularly unusual. It's just something that to us is very important and that we negotiate very hard for.
I think Jade is spot on. It's not lightning in the bottle. It's pretty standard for us in our relationships. And at the same time, the relationships want to control that asset for a long time. So if you give them a short term lease and a sale leaseback, they're going to have less options.
So Now they control the asset for 40 years opposed to 15 or 20 years.
Makes sense. Thank you.
Thank
you. Your next question is coming from Joshua Dennerlein, your line is live.
Yes. Good morning, guys. Kevin, I think this one's for you. I wanted to touch base on What you mentioned was in guidance. It sounds like you're assuming 2% rent loss in your initial guide.
Is that I guess I'm trying to think about how to think about that. Is that assuming 100% occupancy? So where you are right now at 98.5%, it Just kind of assumes another 50 basis points down or potentially down to like 96.5?
Yes. So the latter. I mean, if in fact that rent loss is real vacant properties, It could be, but it very well might not be. Yes, it would be 96%. So that's the way I think about it.
But it adds 2% off of our Current annual base rent run rate. So we already have some vacant properties in the portfolio that Show up as 0 in our annual base rent run rate. And so, yes, it's a 2% reduction from current.
Okay. And that's across the entire range or just the low end of your guidance?
That's across the entire range. Yes, yes, yes.
Okay. All
right. That's super helpful. That's actually it for me. Thank you.
Thank you.
Thanks, Scott.
Thank Thank you. Your next question is coming from John Massocca. Your line is live.
Good morning.
Hey, John.
So as we think about renewals and kind of new rents on renewals versus kind of prior rents, it's Been kind of trending higher versus the historical. I mean, how are you expecting that to trend with regards to the 3% of Rent that's expiring in 2021. And I guess what kind of assumptions are you making in guidance in terms of where Renewal rents trend versus kind of in place rents?
We do John, we do a Very thorough analysis for the purpose of what we are plugging into the numbers for guidance on across kind of individual properties. But I'll tell you, we were surprised, pleasantly surprised That in 2020, we continued to have that high renewal rate at 100% of prior rents, 80% of the time the tenants renewed In 2020, that and that's been consistent over a number of years. When we look ahead to 20 2021 2022, the majority of the properties with expiring leases And those 2 years are fast food, restaurants and convenience stores. Is that right, Steve? Steve is nodding yes.
And so we tend to have atorabove Average renewals in those categories, so we feel pretty good about That kind of high level of renewal continuing with these Types of these property types over the next couple of years.
Okay. That makes sense. And then I know you're trying not to disclose collection on a month to month basis, but we only get you in this type of forum 4 times a year. So is there any color you can provide On February rent collection, I guess, is it kind of trending similar to January collection at this point?
I mean, I don't think we have any surprises to note here. So I yes, I don't want to have any real comment Besides, it seems to be consistent with what we've experienced in recent months.
Yes, it feels pretty good so far.
Thank you. There are no further questions in the queue at this time.
All right. Matthew, thank you and we appreciate all of you dialing in and we look forward to speaking with many of you virtually at various conferences coming up in the near Sure. Have a good day.
Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.