Good day, ladies and gentlemen, and welcome to your National Retail Properties first quarter 2021 earnings conference call. Our lines have been placed in only-listen mode, and the flow will be open for your questions and comments following the presentation. As a reminder, today's call is being recorded. If you should require assistance throughout the conference, please press star then zero. At this time, it is my pleasure to turn the floor over to your host, Julian Whitehurst. Sir, the floor is yours.
Thank you, Melinda. Good morning and welcome to the National Retail Properties first quarter 2021 earnings call. Joining me on this call is our Chief Financial Officer, Kevin Habicht, and our Chief Operating Officer, Stephen Horn. As this morning's press release reflects, 2021 is off to a great start for National Retail Properties.
Beyond our impressive financial results, during the first quarter, we were pleased and honored to be named as one of the few REITs in the 2021 Bloomberg Gender Equality Index. I'd like to take this opportunity to thank everyone in our office who put in the time and effort to achieve that important recognition. Given our strong start to the year, we're pleased to announce an increase in our guidance for 2021 core FFO by approximately 6% from a range of $2.55-$2.62 per share to a range of $2.70-$2.75 per share.
Kevin will have more details on this increase in his remarks. Turning to the highlights of our first quarter financial results, our portfolio of 3,161 freestanding single-tenant retail properties continued to perform exceedingly well. Occupancy was 98.3% at the end of the quarter, which remains above our long-term average of 98%. While our occupancy rate ticked down 20 basis points from December 31st, we're seeing impressive activity in our leasing department, including interest by a number of strong national tenants in some of our vacancies.
We also announced collection of 97% of rents due for the first quarter, as well as collection of 98% of rents due for the month of April. Our impressive collection results continue to compare very favorably to other retail real estate companies, including those with a significantly higher percentage of investment-grade tenants.
The majority of the remaining uncollected rent in the first quarter was simply deferred rent that we expect to collect when the tenant's repayment obligation kicks in later this year. Notably, we only forgave 0.1% of our first quarter rents. Recently, our two largest bankruptcies were resolved in favorable fashion. Chuck E. Cheese affirmed all 53 of our leases in exchange for a 25% temporary base rent reduction that will expire at the end of this year.
Ruby Tuesday affirmed 26 of our 34 leases, accounting for over 80% of our annual rent from Ruby Tuesday, again, in exchange for a comparable temporary base rent reduction. These impressive post-pandemic occupancy, leasing, and rent collection outcomes have once again validated our consistent long-term strategy of acquiring well-located parcels leased to strong regional and national operators at reasonable rents while maintaining a strong and flexible balance sheet.
Although we continue to be prudent in our underwriting, we acquired 29 new properties in the quarter for just under $106 million at an initial cash cap rate of 6.4% and with an average lease duration of 17 and a half years. Almost all of our acquisitions were from relationship tenants with which we do repeat programmatic business.
In an unsettled post-pandemic environment where cap rates remain at all-time lows, we will continue to be very thoughtful in our underwriting and primarily pursue sale-leaseback transactions with our relationship tenants. We also reported that during the first quarter, we sold 11 properties, raising $17.6 million of proceeds to be reinvested into new acquisitions. Our balance sheet remains rock solid. During the quarter, we issued $450 million of unsecured 30-year interest-only bonds at a rate of 3.5%.
Kudos to Kevin and his team for once again raising well-priced capital when it's available. A portion of those bond proceeds were used to redeem our 2023 debt maturities. We ended the first quarter with $311 million of cash in the bank, a zero balance on our $900 million line of credit, no material debt maturities until 2024, and an average debt duration of over 13 years. We're well positioned to fund all of our 2021 acquisition guidance with the available capital on hand. With that, let me turn the call over to Kevin for more details on our quarterly numbers and updated guidance.
Thank you, Jay. As usual, I'll note 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 $0.69 per share for the first quarter of 2021. That's up $0.06 from the preceding fourth quarter, $0.63, and down $0.01 from the prior year's $0.70 per share.
Results for the first quarter included two non-recurring type items totaling $5 million. We collected $2.2 million of receivables from cash basis tenants that relate to prior quarters. Second, we received $2.8 million of lease termination fee income, which is more than typical. For context, full year 2020 was $2 million of lease termination fee income.
These two items totaling approximately $5 million, added just under $0.03 per share to our results. Today, we also reported that AFFO per share was $0.76 per share for the first quarter, which is $0.07 per share higher than the preceding fourth quarter, $0.69. We did footnote this amount included $9.4 million of deferred rent prepayment in our accrued rental income adjustment in the first quarter AFFO number. Rent collections continue to drift higher.
As Jay mentioned, we reported today rent collections of approximately 97% for the first quarter, 98% for April rent collection. Most notable, collections from our cash basis tenants, which represent approximately $50 million or 7% of our annual base rent, improved to approximately 80% for the first quarter.
Previously, we projected these cash basis tenants would pay at their historical payment rate of about 50% of rent. Improving to 80% added about $4 million of revenues in the first quarter versus our prior guidance. As Jay mentioned today, we increased our 2021 core FFO per share guidance from a range of $2.55-$2.62 per share, to a range of $2.70-$2.75 per share. This incorporates the better than expected rent collections and the results from Q1.
Some of the assumptions supporting this guidance are noted on page seven of today's press release, and they're largely unchanged from last quarter's guidance. The driver for the increase in full year guidance is the $5 million of first quarter non-recurring items I previously mentioned, and the assumed higher rent collection rates more in line with current collection rates.
While we previously assumed 50% rent collections from the $50 million of cash basis tenant annual base rent, we are now assuming 80% rent collection. That incremental 30% amounts to $15 million for the full year. For the remainder of our tenants, we previously assumed 2% potential rent loss, and we now assume 1% of potential rent loss, which equates to approximately $6 million of improvement for the year.
Compared to prior guidance, current guidance incorporates approximately a total of $21 million in improved rent collection, + $5 million of one-time items in Q1, or a total of $26 million, and that all equates to about $0.15 per share. As Jay noted, we ended the fourth quarter of $311 million of cash on hand, nothing outstanding on our $900 million bank line.
We did execute a $450 million 30-year debt offering with a 3.5% coupon on March 1st, and used a large portion of those proceeds to pay off our $350 million of 3.3% notes due in 2023. While time will tell, given where we are in the 40-year declining interest rate cycle, it felt like it was a good time to continue to push out debt maturities at these rates.
Our weighted average debt maturity is now 13.3 years with a 3.7% weighted average fixed income interest rate. Our next debt maturity is $350 million with a 3.9% coupon in mid-2024. In very good liquidity and leverage position, have no need to raise any additional capital to meet our 2021 acquisition guidance. A couple stats. Net debt to gross book assets was 34.7% at quarter end. Net debt to EBITDA was 5.0 times at March 31st.
Interest coverage was 4.6 times, and fixed charge coverage 4.1 times for the first quarter of 2021. Only five of our 3,161 properties are encumbered by mortgages totaling about $11 million. 2021 is off to a good start as the economy and retailers seem to be catching wind in their sales from the several trillion dollar stimulus injected by the government, which feels like it'll continue into 2022. Our focus remains on the long term as we continue to endeavor to give NNN the best opportunity to succeed in the coming years. Melinda, with that, we will open it up to any questions.
Thank you. The floor is now open for questions. If you do have a question, please press star then one on your telephone keypad to join the queue. If you're using a speakerphone, please pick up your handset to provide the best sound quality. Again, ladies and gentlemen, if you do have a question or comment, please press star then one on your telephone keypad at this time. It looks like our first question comes from Ronald Kamdem with Morgan Stanley. Please go ahead.
Hey, guys. Good afternoon. Congrats on the quarter. Just looking at the acquisitions, just wondering if you could provide just a little bit more color in terms of what you're seeing in terms of the pipeline and maybe what I know you guys remain disciplined, but what are you seeing in terms of pricing as well? Thanks.
Sure, Ron. This is Jay. I'll start with a little bit of high level and then turn it over to Stephen Horn to talk a little bit more about what he sees out there. Just as a reminder, our primary focus is on doing repeat programmatic business with our portfolio of relationship tenants that are strong regional and national operators, and that will continue to be our primary focus.
When we do business with those folks, some of the benefits that we get out of those relationships are that the tenants sell us better real estate. The tenants are more likely to call out the weaker properties out of a sale-leaseback and not commit to signing a long-term lease on those properties. We get better, higher-quality real estate. We're able to negotiate our own lease documents. We get slightly better lease economics.
One thing that's really an important factor to us is we get a longer lease duration. As I noted, our average duration for the first quarter was 17.5 years, and I believe our average duration for last year was a little north of 18 years. That's very important to us to create that long-term rental income stream. The pipeline does look good out there. Steve, let me turn it over to you to talk a little bit about the pipeline and pricing.
Yeah. This is Steve. If you kind of look out or we look back, I should say, in the fourth quarter, the pipeline today feels a lot more robust. I mean, there's some portfolios out there that weren't here in the fourth quarter. We're feeling good about that the sale-leaseback market seems to be opening up some. As far as pricing, I think just kind of based on our cash cap rate of approximately 6.4%. Cap rates are still near a historic low and no sign of increasing at this point. It's more in the investment-grade world and the deemed essential assets. They're still sitting extremely low compared to historical levels.
Great. One more, if I may. Just want to get your updated thoughts just on tenant health. When you think about the guidance, the confidence to sort of raise the collections to 80% for the cash tenants, what are you seeing in the market? What are you hearing from sort of your relationships that gives you the sort of confidence that we've turned the corner? Thank you.
Yeah, thanks. That's good. We have had great conversations with our relationship tenants kind of across the board, for the lines of trade that make up our portfolio. We've reported this earlier. Our tenants weathered the economic effects of the pandemic very well. We're starting to rebound into the fourth quarter, and that rebound is continuing.
What we're hearing from our relationship tenants is that they are more and more getting back into the mode of playing offense. I think that's reflected in Stephen Horn's comments about a growing number of sale-leaseback transactions that we're seeing out there in the market. Kev, is there anything else on that in terms of our guidance?
Yeah. Just, I guess, connected to that. Our guidance is following our actual recent historical rent collection from our tenants. When we increased from 50% to 80% to the cash basis bucket, that's because that's what happened in the first quarter when we were at 50% rent collection. That was consistent with fourth quarter 2020 collection rates.
We're tracking with them. We don't have any real sense on why that should change materially for the better or the worse at this point, but we'll keep you posted. It does feel like I said, the stimulus that's been pumped into the economy is finding its way to consumers and retailers.
Got it. Makes a lot of sense. That's all for me. Thanks, guys.
Next we go to the line of Harsh Hemnani with Green Street. Please go ahead.
Thank you. Can you talk about the industries or assets that you disposed this quarter and maybe the cap rate on that?
Yeah. Harsh, I think I understood the question. Talked about our acquisitions and the cap rate.
Dispositions.
Dispositions. It was a very small number, Harsh, so it's not much of a sample size there, but it was a few property. It's primarily culling properties at the kind of lower end of the spectrum. Wasn't it, Steve?
Yeah. It was more of a defensive corridor for us as far as if it was selling a few vacant assets, but assets that we kind of felt in the long term didn't fit the portfolio that we could result in issues going down the road.
Yeah, the way it broke out just between.
Vacant and occupied. Of the $17.6 million we sold, $11.7 million was occupied, $5.9 million vacant.
Great. Oh, were there any tenants that you moved out of the cash basis bucket just because of good collections?
Yeah, fair question. Yeah, we did not move anybody out of the cash basis bucket, nor did we add anybody. Good news there. Yeah, we haven't changed that. Our thought process on that is we're not going to be too knee-jerky about one good quarter, if you will. We'll need kind of a little more test of time before we're going to be more willing to pursue or think about moving somebody out of the cash basis bucket.
Great. Thank you.
Next, we go to the line of Wesley Golladay with Baird. Please go ahead.
Hey, good morning, guys. Just a quick question, Kevin, for you on the end of period rent, the $684.3 million. Does that include the adjusted rent for Ruby Tuesday and Chuck E. Cheese? Maybe a follow-up to that would be, were you able to maintain your master lease structure with Chuck E. Cheese?
The ABR does reflect If we made a permanent rent change, meaning we didn't just defer it, but we made it permanent, it would get included in our annual base rent numbers. Chuck E. Cheese got a step down. Ruby Tuesday did, as you noted. What was the second part of your question? Sorry.
Did you maintain your master lease structure with Chuck E. Cheese? I'm not sure if you had one with Ruby Tuesday. It doesn't sound like you did.
We did maintain it, yes.
Got you. Can you talk about what the demand is for the non-core assets? If there is a firm bid, would you look to sell more this year, be it put behind your guidance?
No, Wes, as it relates to what you call non-core assets, I think we're seeing good demand for our vacant properties, both from buyers and to re-lease those properties.
The point I made earlier on in the pandemic was that our properties were in high demand before all of this, and I wasn't going to be surprised if they continued to be in high demand. These are generally well-located properties at reasonable rents, and so for some reason, we may get them back, but they're the kind of properties where tenants typically want to be, and you can find somebody else who wants to be there.
It's too early to report a great deal of results, but our leasing team is doing a very good job of getting out there and making these properties available, and they have a lot of properties where there's discussions going on, either for a sale or a re-lease.
If you were talking about non-core properties in the sense of leased properties that were hit by the pandemic and are in lines of trade that are currently viewed as still being at risk, I'd say there's not a great bid. Steve, would you say there's not a great deal of bids yet for those kind of properties? I mean, not to beat up on the movie theater industry.
Yeah
There's not many buyers of movie theaters out there at the moment.
The fitness arena and the movie theaters, yeah, the market isn't very robust. There's still a big gap between the bid and the ask. Currently, where people are willing to buy those assets, NNN isn't the seller of those numbers.
Got you. Thanks for the granular details there. Maybe one last one on the cap rate. It typically has been below your normal range the last two quarters. I think that's probably due to mix. I just wanted to confirm that. If so, do you get higher escalators with these lower cap rates?
Wes, I would say that it's probably a little bit more driven by some of it may be mix, but it's also just being driven by cap rates continue to drift downward slowly. We do business with strong operators with the kinds of properties that are in high demand. Even though we have a relationship, our tenants are smart business folks, and they know what the proper cap rate is that their properties command. We will win some business, win some ties, do a little better than the one-off market with our relationship tenants.
To the extent cap rates for their types of businesses are moderating down, we have to moderate down with them. I think that's more of what you're seeing than anything else. The bumps are staying about the same. Market bumps for the size of tenants that we do business with are in that 1.5%-2% per year range, and that's remained consistent.
Got it. Thanks a lot, guys.
We go to the line of John Massocca with Ladenburg Thalmann. Please go ahead.
Good morning.
John.
If we look at the rent deferral schedule in the earnings release, I guess what maybe drove the new deferrals that are going to occur in kind of Q2 through Q4 of this year? Are they also what's driving the repayments that are getting scheduled kind of in 2023, 2024, and 2025?
Yeah, we had a modest amount of new deferrals as we kind of mop up on agreements, if you will, with tenants who we hadn't come to final terms with. Yeah, some of those are getting pushed out a little further than the original batch, if you will, bigger batch of deferrals. Yeah. It's not a huge number one way or the other.
Yeah. John, let me add in, John, that we've really been very pleasantly surprised with how few conversations we've had with our tenants about a second round of deferrals. We really have had very few tenants come back and need to extend or restructure the original deferral agreement that we made with them. That's all part of the pleasant surprise of how well things have bounced back.
Okay. Have the small amount that have had additional deferrals or they're in this new kind of deferrals for 2021, are those tied to a specific industry, or has it been, it's not a huge number, but has it been kind of broad?
Yeah. I'd say they come from the lines of trade that were troubled right from the start.
The line of the trade.
Casual dining and movie theaters probably make up most of that, wouldn't you say, Steve?
Yeah. It's primarily movie theaters make up the first quarter. That was kind of what they stated at the beginning. We hadn't reached agreement. Discussions were going on in 2020. We finally got it documented in 2021.
Okay. One other kind of small movement was health and fitness collection ticked down a little bit. What's driving that, just given the positive kind of tailwinds from reopening and economic stimulus, et cetera?
Yeah, I don't think anything's changed materially. I don't think that you should read anything into that, at least from our perspective. We don't see that really as a notable trend, if you will.
John, this is Jay. We're not going to get into talking about specific tenants, but I will say in that group, we deal with large operators that we think ultimately will be in a position to have gotten through this and gotten out the other side and be in a position to pay their rent. Along the way, there may be some, like as Kevin said, just some ticks up or down, but we feel good about the tenants that we've got in that line of trade.
Okay. That's all for me. Thank you very much.
Our next question or comment comes from the line of Katy McConnell at Citi. Please go ahead.
Hey, guys. This is Parker Decraene for Katy. I guess not to beat up too much around the theater sort of aspect, but I was just wondering if you could touch on how conversations with some of those tenants over the past quarter have sort of changed. I think collections improved pretty significantly on a sequential basis. Also just sort of, what actual collections for April sort of came in as, if you can provide that. Thanks.
Sure. Well, yeah, again, we're not going to talk about specific tenants, but as Steve mentioned, some of our theater tenants, we were in longer discussions for the deferral agreement. Whereas in 2020, some of that theater rent would've been in the unresolved or outstanding bucket. Now it's in the deferred bucket.
As you can see at the level of collections that we're getting, everybody's kind of on track now, so it feels very solid at the moment. I think you might have asked about April. I don't know if you meant April collections in that line of trade. I think we're not in a position to do that, but we reported generally for April, we're at 98% of rent due for the month of April.
Got it. Okay. Yeah, I was looking for the theater number, but that's all right. All righty.
Sorry.
I'm all set. Thank you guys so much. Appreciate it.
Okay.
We take our last question from Linda Tsai at Jefferies. Please go ahead.
Hi. Can you discuss your strong rent collection of 97% in Q1 and 98% in April, and your comment that it exceeds some other companies with higher IG exposure? What accounts for this discrepancy if you're making an educated guess?
I think you might have to ask the companies that have the higher investment-grade some part of that question, Linda. I would say that from our perspective, this validates our strategy of dealing directly with large operators and doing direct sale-leasebacks with those operators so that you get the benefit I talked about in one of the earlier questions, where they only sell and lease back properties that they're comfortable signing a long-term obligation on.
We are very focused on keeping rent as low as possible to create a margin of safety for both our tenants and for ourselves if we get the properties back. If you deal with strong operators and they cull out the weaker properties and you focus on keeping the rent low, it should bounce back faster when things go well.
We sweat tenant credit, and we study it, and we think about it, but we really rely on good real estate locations leased to large operators as our ultimate security. We feel like that strategy has been validated through this process to be at least equal to, and maybe on a temporary basis somewhat better, than focusing more on investment-grade, where you pay more for the property, have higher rent, and have less growth in the lease.
Thanks for that. I guess given the strength in the retail sector you're seeing post-pandemic, is it fair to say that the occupancy decline will no longer be as bad as the Great Financial Crisis?
Well, you want to stick-
Yeah.
If you knock on wood and cross your fingers.
Yeah. No question, but yeah. That's for sure. I think what originally felt like would be worse than the 2008, 2009, the wild card obviously in this was several trillion dollars of stimulus that kind of came from left field. I think you're seeing really a lot of retail real estate companies doing relatively well and better than expected and kind of across the board. It's, like I say, several trillion dollars seemingly will take care of some problems for a period of time anyway.
Thanks.
That concludes our question and answer session. We return to Julian Whitehurst for closing remarks.
Thank you, Melinda. Before I close, I would like to offer my congratulations to Mary Fedewa for her well-deserved promotion to CEO of STORE Capital. In following Chris Volk, she's got big shoes to fill, but STORE is in great hands with Mary at the helm. Thank all of you all for joining us this morning. We look forward to talking with you and maybe even seeing you in person in the weeks ahead. Thank you.
Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time. Have a great day.