Good morning. Good afternoon. My name is Simon, and I will be your conference operator today. At this time, I would like to welcome everyone to the Realty Income Q1 2020 Operating Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. Thank you. Mr. Andrew Crum, Associate Director, Realty Income, you may begin your conference.
Thank you all for joining us today for Realty Income's Q1 2020 Operating Results Conference Call. Discussing our results will be Sumit Roy, President and Chief Executive Officer, and Jonathan Pong, Senior Vice President, Head of Capital Markets and Finance. During this conference call, we will make certain statements that may be considered forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in any forward-looking statements. We will disclose in greater detail the factors that may cause such differences in the company's Form 10-Q. We will be observing a two-question limit during the Q&A portion of the call in order to give everyone the opportunity to participate. If you would like to ask additional questions, you may re-enter the queue. I will now turn the call over to our CEO, Sumit Roy.
Thank you, Andrew. Welcome, everyone. We'll discuss in detail the economic impact of the COVID-19 pandemic. First, I will highlight several Q1 results, which positioned us very favorably to start the year. During the Q1 , we generated AFFO per share of $0.88 and completed approximately $486 million in high-quality property acquisitions. Additionally, we raised approximately $752 million in well-priced equity at a price of $77.37 per share. We ended the quarter with a net debt to adjusted EBITDA ratio of five times, and our fixed charge coverage ratio of 5.5 times is the highest in our company's history. The impact of the COVID-19 pandemic has been, and continues to be, felt across geographies, economies, and industries, and our thoughts remain with all who have been impacted. We continue to manage the business with a focus on all stakeholders, our shareholders, clients, colleagues, and community.
Accordingly, we have leveraged technology to ensure seamless business continuity with our employees working safely from their homes, and I want to thank my colleagues for their hard work and dedication to ensuring the strength of our business operations. Our real estate portfolio is deliberately designed to generate predictable cash flow through a variety of economic environments, but our portfolio is not immune to the economic shutdown that has resulted from COVID-19. Our tenants operate across 51 different industries. We have always maintained stringent investment parameters, targeting high-quality tenants who are leaders in their respective industries. Approximately half our rental revenue is generated from investment-grade-rated tenants. Certain tenants have requested rent relief, and these requests have primarily been for rent deferral rather than rent abatement. We are reviewing rent deferral requests on a case-by-case basis. We view our tenants as partners and clients, and our relationship is symbiotic.
However, the approach we have taken is to independently review the individual financial and business positions of our tenants, and we have not and will not accept rent deferral requests that we believe are solely opportunistic in nature. For April, we have collected approximately 83% of contractual rent, and we received essentially all of expected rent from investment-grade-rated tenants. While we have not historically pursued properties leased to investment-grade-rated tenants as a primary objective, during periods of economic uncertainty, high-grade credit tenants do tend to provide more reliable streams of income, all else equal. We disclosed in our financial supplement the percentage of contractual rent collected by industry. Our top four industries, convenience stores, drug stores, dollar stores, and grocery stores, each sell essential goods and represent approximately 37% of our rental revenue.
We have received almost all of the contractual rent due to us from tenants in these industries. Other industries such as theaters, health and fitness, restaurants, and childcare have been challenged due to store closures and social distancing requirements. Of the 17% of rent not collected in April, 86% is from operators in these select industries. We believe that the strength of our corporate partnerships will be important as we seek mutually beneficial resolutions, and we are pleased to partner with leading operators in each of these industries. Additionally, we remain constructive on the long-term viability of each of these industries. The success of the theater industry has largely been tied to the quality of films produced by Hollywood, and the U.S. box office reached an all-time high as recent as 2018.
Additionally, the economic business model for studios continues to suggest, in our view, that the theater distribution channel will remain attractive going forward. We also expect the non-discretionary and low price point propositions of the quick service restaurant, health and fitness, and childcare industries to support resiliency of their rent-paying capabilities once their businesses are fully opened. As we continue to manage our portfolio to support long-term value creation. We believe the breadth and depth of our asset management and real estate operations department, which is our company's largest department, is a key competitive advantage vis-a-vis our competitors. Moving on to investment activity during the first quarter. In the Q1 of 2020, we invested approximately $486 million in 65 properties located in 22 states and the U.K. at a weighted average initial cash cap rate of 6% and with a weighted average lease term of 14.1 years.
On a total revenue basis, approximately 36% of total acquisitions during the quarter were from investment-grade-rated tenants. 95% of the revenues were generated from retail tenants, and 5% were generated from industrial tenants. These assets are leased to 25 different tenants in 17 industries. Of the $486 million invested during the quarter, $320 million was invested domestically in 61 properties at a weighted average initial cash cap rate of 6.5% and with a weighted average lease term of 14.8 years. $166 million was invested internationally in four properties located in the U.K. at a weighted average initial cash cap rate of 5.1% and with a weighted average lease term of 12.5 years, including our first industrial acquisition in the U.K. of two properties leased to an investment-grade operator. During the quarter, we sourced approximately $18.1 billion.
Of the $18.1 billion sourced during the quarter, $10.4 billion were domestic opportunities and $7.7 billion were international opportunities. Of the $486 million in total acquisitions closed in the Q1 , 55% were one-off transactions. Our investment spreads relative to our weighted average cost of capital were healthy during the quarter, averaging approximately 247 basis points for domestic investments and 272 basis points for international investments, which were well above our historical average spreads. We define investment spreads as initial cash yield less our nominal first-year weighted average cost of capital. Our disposition program remained active. During the quarter, we sold 17 properties for net proceeds of $126 million at a net cash cap rate of 6.2%, and we realized an unlevered IRR of 11.1%. Our portfolio is well diversified by tenant, industry, geography, and property type, which contributes to the stability of our cash flow.
At quarter end, our properties were leased to approximately 630 tenants in 51 different industries located in 49 states, Puerto Rico, and the U.K. 84% of our rental revenue is from our traditional retail properties. The largest component outside of retail is industrial properties at approximately 11% of rental revenue. Walgreens remains our largest tenant at 6% of rental revenue. Convenience stores remains our largest industry at 11.9% of rental revenue. Within our overall retail portfolio, approximately 95% of our rent comes from tenants with a service, non-discretionary, and/or low price point component to their business. We continue to believe these characteristics allow our tenants to operate in a variety of economic environments and to compete more effectively with e-commerce. These factors have been particularly relevant in today's retail climate, where the vast majority of recent U.S. retailer bankruptcies have been in industries that do not possess these characteristics.
We continue to feel good about the credit quality in the portfolio, with approximately half of our annualized rental revenue generated from investment grade rated tenants. The weighted average rent coverage ratio for our retail properties is 2.8 times on a full year basis, while the median is 2.5 times. Occupancy based on the number of properties was 98.5%, a decrease of 10 basis points versus the prior quarter. During the quarter, we re-leased 93 properties, recapturing 99% of the expiring rent. Since our listing in 1994, we have re-leased or sold over 3,200 properties with leases expiring, recapturing over 100% of rent on those properties that were re-leased. Our same-store rental revenue increased 0.2% during the quarter.
The lower same-store rent growth is partially driven by a change in methodology, as we are now recognizing percentage rent during the period it is accrued rather than during the period it is paid, which also resulted in higher same-store rent growth in the Q4 of 2019. Moving on, I'll provide additional detail on our financial results for the quarter, starting with the income statement. Our G&A expense as a percentage of revenue, excluding approximately $3.5 million of severance related to the departure of our former CFO, was 4.4% for the quarter, and our cash G&A margin, excluding severance, was 3.5%. We continue to have the lowest G&A ratio in the net lease REIT sector. Our non-reimbursable property expenses as a percentage of revenue was 1.3%.
As a result of an early redemption of our $250 million 2021 notes, we recognized approximately $9.8 million loss on extinguishment of debt during the quarter. Briefly turning to the balance sheet. We have continued to maintain our conservative capital structure and remain one of only a handful of REITs with at least two A ratings. In April, we drew $1.2 billion on our revolving credit facility to increase our cash position as a conservative measure due to uncertainties related to COVID-19. Under the revolving credit facility, our two A credit ratings provide for a borrowing rate of LIBOR plus 77.5 basis points. We currently have approximately $1.2 billion of cash on hand and an additional $1.1 billion available under our revolving credit facility, which provides significant financial flexibility.
Looking forward, our overall debt maturity schedule remains in excellent shape, as the weighted average maturity of our bonds is 8.3 years.
Additionally, we have approximately $400 million of total debt coming due throughout the remainder of 2020 and 2021. In summary, our balance sheet is in great shape, we continue to have low leverage, strong coverage metrics, and ample liquidity. In March, we increased the dividend for the 106th time in our company's history. We have increased our dividend every year since the company's listing in 1994, growing the dividend at a compound average annual rate of approximately 4.5%. We are proud to be one of only three REITs in the S&P 500 Dividend Aristocrats Index for having increased our dividend every year for the last 26 consecutive years. Moving on. As we navigate through the current state of economic volatility and uncertainty, we believe a strong financial position is paramount. The timeline for economic uncertainty remains unclear, we believe we are well-positioned with significant financial flexibility.
Further, we believe we are well-positioned to capitalize on opportunities going forward once we receive additional clarity regarding the current crisis. To wrap it up, we've completed a very strong quarter and we're well-positioned from both a balance sheet and portfolio standpoint, heading into this period of uncertainty. The COVID-19 pandemic has resulted in an economic environment largely unprecedented, but I'm confident in the resiliency of our tenant credit profile, the quality of our real estate, and the talent of our team members to continue generating favorable shareholder value over the long term. At this time, I'd like to open it up for questions. Operator?
Thank you. Ladies and gentlemen, at this time, I'd like to remind everyone that in order to ask a question, please press star then the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. Please limit yourself to two questions. If you would like to ask additional questions, you may reenter the queue. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Haendel St. Juste with Mizuho. Your line is open.
Hey, I guess good morning to you all out there.
Good morning, Haendel.
Thanks for taking my question. Sumit, first, a high-level question. I'd be curious how COVID-19 and your portfolio operations since have impacted your view on portfolio allocation or on subcategory exposures. Certainly curious on how that's impacting your forward thinking on portfolio strategy, and it sounds like you're still a fan of movie theaters, casual dining, childcare. Curious if perhaps you can sprinkle in some more commentary on those sectors, and perhaps when do you expect to be made whole on those rents and your plans for those subsectors' exposures on a longer-term basis? Thank you.
Sure. Thank you for your question, Haendel. There's a lot that you've asked. I'll try to take it one at a time. Starting with a high-level view as to the COVID-19 situation and whether we would have done things differently entering into this crisis. The answer remains that look, none of us, at least I wasn't smart enough to anticipate a scenario for a downturn where businesses would go from X revenues to zero literally overnight. The downturn in and of itself is not something that we hadn't anticipated. We were in the longest recovery in the last 60, 70 years. A lot of our thinking had been centered around there is a downturn coming. How is the portfolio currently constituted? How is it going to withstand?
We were sort of using the last great recession as a filter to run through our portfolio allocation, our industry concentration, et cetera. Under any of those scenarios, we felt we were very well-positioned. What we didn't anticipate was the social distancing phenomenon. I would argue that had this downturn taken on a color, not necessarily the drivers of the downturn being similar to the last recession, 2008 through 2010, but if the social distancing norm wasn't part of the equation, the industries that we find most impacted by this pandemic, theaters and fitness, those would have continued to thrive as they did in the last downturn. Which is why we hesitate to say that unless our view of what's going to cause downturns in the future has dramatically altered, which it might.
Pandemics are going to be situations that are going to occur more often in the future where businesses can be shut down overnight for long periods of time. If that becomes a norm going forward, and I'm not smart enough to say whether it will or it won't, then yes, I do think that it will change our philosophy around the allocation that we currently have. What we also think will happen, having gone through this pandemic, is that we are going to be better prepared. There will be more allocation of resources and infrastructure put in place to anticipate a possible pandemic in the future. In situations like that, where businesses are not essentially shut down for vast periods of time, the businesses that we are exposed to that are most impacted, i.e., theaters, health and fitness, casual dining, et cetera, won't be quite as impacted.
Especially theaters and health and fitness will continue to do well, just like they did in the last downturn. This is a bit of a wait and see, and see how we learn from this particular situation, and what are the provisions put in place by the government to anticipate and be better prepared to handle situations like this going forward. Had this been a downturn that was triggered by any other factor outside of social distancing, these two industries would have done just fine. It's a little too early to say as to whether we need to make wholesale changes to our portfolio allocation going forward without getting some answers to some of the questions that remain that are unclear to me going forward. Going through the list of the industries that have been most impacted, it's the ones that I've just mentioned.
If you think about the theater industry, it represents approximately 6% of our revenue stream, and they are more impacted with essentially all their locations being closed, and they're generating zero revenues at this point. Although we think it'll take longer for patrons to get comfortable attending theaters post-shutdown, our fundamental thesis on the industry remains constructive, at least as of right now. We believe that it is unlikely that studios will bypass the theatrical releases and go direct to consumer, especially for major releases, since the margins of the theatrical releases are so much higher. Yes, people point to what's happened with "Troll" and the fact that they were able to get $19.99 for the releases to PVOD. It is largely being driven by the stay-at-home and having no alternatives, is our view.
I do think that theaters will continue to be the primary avenue for releases, especially the blockbuster movies, just given the economics. This industry will take longer to recover, though. I think people are going to be very hesitant to go back to theaters. If you look at the types of formats that we have on the theater side, we do believe that those that are less crowded, that have recliner seats, fewer patrons per theater, those are going to probably see more of a quicker comeback than the more traditional theaters. The other industry that I mentioned was our health and fitness industry. Those businesses went from being very healthy to generating fractions of revenues, like in the single digits. We do believe that that business has a potential to bounce back much more quickly than the theater business.
We believe that within a three-to-four-month timeframe, the businesses should normalize for the theater business. Casual dining, thankfully, it's a very small portion of our business. It's approximately 3% of our rent, and that too has been impacted, and that business will take longer. I think the fact that if you're not aligned with operators that have the balance sheet and the liquidity to withstand a long-duration shutdown or partial shutdown, you are going to see a few operators go under in that particular business. Thankfully, we are aligned with, in most cases in that particular area, with operators that are either publicly traded, have the liquidity and the wherewithal to continue to manage through this crisis. Another industry that we are keeping a close eye on is childcare, which represents about 2.5%, 2.4% of our rent.
Thankfully again, we are exposed to two of the larger national operators in KinderCare and La Petite. There do tend to be a lot of mom-and-pops, and they probably will be forced into bankruptcy within this particular industry just because they don't have the liquidity or the balance sheet strength to withstand a longer-term shutdown. Those are the four industries that we feel like we have to keep a closer eye on, and we are doing that. We are in constant conversations with our operators, and we are trying to work out solutions that is mutually beneficial.
That's great color. Thank you, Sumit. One more, if I may. More of a question on rents here, looking for a bit more color on April. How much of the April rent was paid on time, and maybe some color on how that compared to perhaps one year ago. There's investor concern that the PPP money isn't going to be enough to save enough landlords, so are we right to be concerned that May and June rents could prove more challenging to collect than April's? Thank you.
Sure. As you know, we ended up collecting almost 83% of the rent due to us in April. If you were to fast-forward to end of March, beginning of April, the numbers that we were looking at were much higher in terms of the requests that were coming in. Part of the reason that is so interesting about this particular situation is that the tenants' liquidity profile is changing almost on a daily basis. In the initial discussions that we were entering into with some of our tenants, through those discussions, they were waiting on banks. They were looking at structures like PIPEs, et cetera, to have access to additional forms of liquidity.
Over that 30-day period, people that we thought may have liquidity for a six to eight-month period ended up being able to raise private capital, either through a bank loan or through PIPEs, et cetera, and were able to create a liquidity position that was very different from where they looked at the beginning of the month. So our discussions therefore evolved during this time to help accommodate our own needs. Thankfully, given the type of relationships that we have, given the type of operators that we have that tend to be larger, better capitalized operators, have more access to capital, we were able to collect a lot more rent than what we had originally thought we were going to collect at the beginning of April. We suspect that the situation is going to be similar for the month of May.
One of the other variables that has changed is there are more states that are now opening up. This Friday is supposed to be the threshold date for a few more states to start opening up. There are businesses that will start to open up. Yes, things will take a while to sort of recover, but the fact that these businesses are going to open up, that changes their liquidity profile to the assumptions that we were originally running where businesses will be shut down for a period of time, certainly more than just a month. Because the data continues to change and evolve, it is very difficult for us to share with you the precise amount of rent we are going to collect for the month of May.
We do believe that the month of May will certainly be worse than the month of April from a rent collection perspective because there were some tenants that told us that they are paying us for the month of April, but that they would like for us to consider deferring their May rent. We recognize that that's going to be the case. We have only resolved 6% of the tenants that have come to us and asked us for a deferment. Partly because the remaining 94% has not been resolved, partly because their liquidity position continues to evolve and change. April was great. May we believe will be slightly worse, and June is just too far away to forecast out as to what's going to happen.
Thank you for the perspective. Best of luck.
Thank you, Haendel.
Your next question comes on the line of Christy McElroy with Citigroup. Your line is open.
Hey, Sumit. Thank you. You made a comment at the end of your remarks, in regard to capital allocation that you would be opportunistic, but only once you receive additional clarity regarding the current crisis. I just wanted to get a sense. You're obviously in a great immediate liquidity position, but you're also balancing that liquidity with funding potentially more deferrals and then non-payment of expenses. Is it reasonable to assume that you've meaningfully pulled back on sort of allocating capital toward acquisitions at this point for now, regardless of what the pipeline looks like? Maybe just give us a little bit more color on your desire to allocate to acquisitions in this environment.
Sure. It's a bit of a balancing act, Christy, to be very honest. We are in a very good liquidity position. We have certainly a bit more visibility today than we did in April, which gives us a bit more confidence today than it did in the beginning of April. Having said that, we haven't been able to handicap the duration of this downturn. We know what the tenants are asking for, or the range of what they're asking for. The question that we are struggling with internally is, Is that an accurate reflection of what will truly transpire? That is what's keeping us a bit hesitant in being able to go out there and invest a lot of capital. Look, there was a reason why we came out with a very healthy acquisition number at the beginning of the year. It's because our pipeline was very strong.
A lot of what you saw that we ended up taking over the finish line was a reflection of the pipeline that we had in place, and some of which you will see we will also transact in the second quarter. Having said that, I think about the acquisitions market in three compartments, if you will. One, there's a core product that is still out there that is continuing to do really well. In fact, I would say there are tailwinds given this COVID-19 situation, and they are the usual suspects. The grocery business, the convenience store business, the drugstore business, as well as the dollar store businesses. Those businesses have continued to thrive. We don't see much of a change in cap rates, et cetera, there. That's a product that if we can opportunistically expand on, we will. We are going to be hyper-selective.
Part of this hyper-selectivity comes from not being able to handicap the duration of this downturn, and therefore, what is our true liquidity needs going to look like going forward? What we are trying to do, and every department is trying to do, is stay very close to our contacts, to continue to look for the opportunistic transactions. If and when there is a bit more clarity in terms of the duration of this pandemic, we want to be first in line to be very aggressive on the acquisitions front. We are going to tread carefully.
Then just on the debt capital front, you have a term loan, sorry if you already addressed this, but a June term loan coming due. What's your intention in regard to that? Do you have any desire to access the unsecured bond market today? Do you have a sense for where you could price a bond deal today?
The term loan, you're absolutely right. There's a $250 million slug that's coming due in June. The term loan market remains open. We've been told by the banks that we've spoken with that they'll be happy to refi that $250 million term loan. What is going to be different, however, is the actual term associated with that term loan. This was a five-year term loan that we had entered into. Today, the best I think we'll be able to do is a one plus one. For me, if I had to compare just keeping it outstanding on my line versus doing a term loan with banks, I think I have a better cost associated with my line being outstanding than refinancing it with the banks. That is an avenue available to us.
With regards to the unsecured bond market, I think there have been only two transactions that have been done recently of at least similarly rated companies. One was Camden, and then the other one was Boston Properties. I think one was done at a 2.8%, the other one was done at a 3.25%. We are similarly rated. We believe we'll be in that similar ZIP code. The advantage that we have today is we don't have to do anything in the unsecured market. We believe, given our ratings and given these two examples, that that market remains open to us, and we will opportunistically take advantage of that market if it presents itself. We don't have to do that.
Okay. Thank you.
Thanks.
Your next question comes from the line of Nick Yulico with Scotiabank. Your line is open.
Hi, this is Greg McGinniss. I'm with Nick. Just kind of curious what your ability is to offload vacant assets in this market. How will holding potentially more vacant assets plus tenants not paying rent or insurance impact property cost leakage expectations?
Yeah. Look, I do think that the transaction market has slowed a bit. We were able to sell 13 vacant assets in the first quarter. Opportunistically, people are still continuing to look for assets. We in fact had vacant assets that we were able to close subsequent to the Q1 . There continues to remain a market. It's just much more selective is how I would phrase it. Thankfully, if you look at our portfolio today, there isn't a lot of new resolutions that we have to go through for the remainder of the year. We feel like we are in a pretty good position. It is certainly slower today than it was in the midst of the Q1 .
Right. Okay. I appreciate the information given so far on kind of your expectations for May and how it's still evolving. Are you still expecting to collect the nearly 100% from investment-grade tenants that you did in April and May as well?
It's too early to tell. We do expect to collect a very high percentage. I don't know if it is going to be 100% just like we did in April. That's where some people have come in and opportunistically tried to take advantage of the situation. This is where I think the spirit of the conversations have been compromised, and we've drawn a pretty hard line when we have negotiated or engaged with some of these folks. At the same time, if their businesses and they can point to a short-term deferral request which is legitimate, we are engaging in those. The threshold for accepting proposals that are being put forth by investment-grade tenants, it's very, very high.
Our expectation will be that, if it's not similar to April, it should be pretty similar to April in terms of what we are able to do in May. Again, I just caveat that by saying it is still too early to tell.
Okay, thank you.
Your next question comes from the line of Shivani Sood with Deutsche Bank. Your line is open. Shivani?
Sorry, I was on mute. Yep. Thanks for taking the question. Just with regards to the theater tenants that didn't pay rent in the U.K. in April, can you just remind us of how the process works there versus the U.S., just in terms of your rights and obligations in this sort of a scenario and how it might be different?
Hi, Shivani. It's a good question. As far as we are concerned, it's the same tenant that we have here, Cineworld, that is our tenant in the U.K. We are not isolating our discussions based on geography. It is a holistic discussion that we are having with them. We recognize their liquidity situation. We do our own independent liquidity situation to get a feel for where they are, what does their local jurisdiction allow in terms of reopenings, how restrictive that is. Based on that, we continue to evolve our thinking in terms of where we ultimately end up with regards to resolutions with that particular tenant. It's largely the same. In fact, in the U.K., we have the ability to lock out a tenant, which we don't in the U.S. That is a bit more landlord-friendly than what we have in the U.S.
Like I said, we view our tenants as our clients, and it is a symbiotic relationship, and that is not our intent. We want to work with them, especially with businesses that have been impacted. I mean, these guys have gone from having a pretty good run to essentially zero revenues. We are trying to work with them. We are trying to understand what their situation is and come up with a solution that's mutually beneficial.
Thanks for that. Then can you share some color on the industrial acquisitions that were made in the U.K. in terms of how the structure of these leases and the underlying assets compares to what you guys own in the U.S.?
Yes. We were very proud. That was our first industrial transaction that we did. It is with an investment-grade pharmaceutical company, and we were very comfortable with the location. It's in an industrial hub, very good location, and we like the industry, we like the land. It's a true triple net lease, very similar to what we find here in the U.S. On all fronts, this was a good transaction for us.
Your next question comes from the line of Rob Stevenson with Janney. Your line is open.
Good day, guys. Will you be buying assets where the tenant's either deferring or not paying rents? What % of the first quarter acquisitions have deferred or not paid April rents?
We will not be buying assets where going into that acquisition, there is an expectation for deferral of rent. That is just not part of our business model. It's not how net lease companies are structured, Rob, as you know. If a particular transaction was in the works and we had essentially done our diligence, we didn't have any outs, and it was a question of closing or not closing, we will absolutely close those transactions. In fact, I can think of one situation where a portion of the rent has been deferred for the month of April. Those were largely transactions that was already in the pipeline. There was a handshake agreement, and we felt like we needed to honor our transaction, and we have.
This is a situation that we feel pretty good about the tenant longer term, and we feel like they're going to be able to bounce back as soon as some of the social distancing is sort of lifted.
Okay. Can you talk about how April rent collections went within the industrial and office portfolios compared to the retail portfolio?
I would say, and I don't have the numbers right off the top of my head, but by and large, we collected 100% on the industrial and office side of the equation. Most, the vast majority, I almost want to say 100%, but I don't have the numbers in front of me, Rob. I would have had my whole team surrounding me and giving me numbers right now, but I don't have that situation. I think the vast majority, if not 100% of it, is on the retail side of the equation with regards to rent.
Okay. All right. Thanks, appreciate it.
Your next question comes from the line of Vikram Malhotra with Morgan Stanley. Your line is open.
Thanks for taking the question. Sumit, not to beat a dead horse, but just so that we understand hypothetically what could happen, it's all hypothetical given it's early. Given the deferral percentage you had in April, and then talking about some of those April tenants might needing a deferral, is it a bad assumption to say if we just sort of add up health, fitness, theater, sort of the areas where you've seen the issues, which is 24%, 25% of the rents? Is it fair to say that the deferrals in May could sort of trend up to that region and we shouldn't see anything materially different?
Yeah. Without boxing myself in Vikram, like I said, the only data we have to rely upon is what makes me hesitate to give you numbers. I look at April and I look at where we were towards the end of March and what our expectation was for the month of April, and where we actually ended up, I would say was very different. If you're trying to isolate the four biggest industries that have impacted in terms of vast preponderance of this 17% of deferral, you're absolutely right. Those four industries represent 86, almost 90% of the deferred amount. Could that be a ZIP code of where it all ends up? The answer is yes. Keep in mind, even within those four boxes, outside of the theater business, there was partial collection.
That can be more than offset by some of these other businesses that haven't been as impacted as these four businesses, and there are portions of that sort of have also falls into this deferred bucket. As a starting point, I would say that that would be how you think about the problem industries and where the deferment should dominate, in terms of the quantum of the deferment. Those are the four industries that would make up the vast majority of the-
Okay. Fair enough
deferred rent.
Maybe just how does this make you think about the IG mix? While it may not have been like a totally intentional strategy of specifically every quarter, every year having a certain IG mix, but certainly experience has been the IG has held up a lot more. I'm just wondering, near term and medium term, how do you think about the IG acquisitions relative to the others?
Look, what we have always said is we want to invest in businesses that have the operational strength to withstand various economic cycles. Though having an investment grade wasn't necessarily something that we were chasing, most of how we defined the box that we were chasing tended to be investment grade. Clearly, if you were to look at our April numbers, the investment grade side of the equation has held up very well. It's not by accident that is the case. They tend to have more access to liquidity. They have more capital sources than some of the more regional and smaller operators do. Therefore, they're able to, even in situations where their businesses are completely shut down, they're able to at least pay partial rent and/or in some cases full rent because they have the liquidity strength to do so.
If all else being equal, having an investment grade rating certainly is something that has shown really well in this particular situation.
Okay, great. Just last one. I know in this situation, it's sort of maybe just difficult or unfair to go to tenants and kind of give them deferrals in exchange for something, and I know we've had this conversation on multiple calls. I'm just sort of wondering, thinking about the power of the lease, the rights you have, similar things might have happened in a regular recession or on some other recession as well. Is there a group of tenants where, for example, you felt they do not need it and yet you want to sort of accommodate? What could you get in return, and what are you trying to enforce if that situation arises in terms of getting something in exchange for an extended deferral?
I mean, we feel like there are enough tenants today that genuinely need help, and they genuinely need to borrow our liquidity. Okay. We would much rather be there to help them get over this hump, especially if we believe that the medium to long-term prospects for those businesses and those particular operators continues to be strong. We would like to lend them our liquidity. Okay? That doesn't mean give them capital. It just means give them deferments. Right? If there are situations where you have a healthy tenant who is asking to opportunistically take advantage of our balance sheet, et cetera, that's where we do run into a little bit of an issue.
That's not to say we are not going to engage, but it's a much higher hurdle for them to convince us that they need to borrow our capital or our ability to defer rent and therefore create liquidity for them. If they cannot clearly show a path to, hey, this is existential, or even if it's not existential, it makes them much more stronger and allows them to be much more active. That's a very difficult argument for some of our tenants who are very strong to make. By and large, those that may have engaged in those types of discussions in the earlier stages have done the right thing and have ended up paying the rents that they owed to us. It is a tale of two cities.
There are those that clearly need our help, and we are working diligently with them to make that happen, and there's a much, much smaller group that wanted to be opportunistic, with whom, thankfully, the right resolutions are occurring.
Okay. Thank you.
Thanks, Vikram.
Your next question comes from the line of Todd Stender with Wells Fargo. Your line is open.
Sumit, I hope you're well.
I am, Todd. Hope you are well, too.
Sure am. Thank you. Under normal circumstances, as the landlord, triple net lease, you have negotiating power. You're the landlord. Now with COVID-19, you've lost some of that, I would imagine, with no viable tenant to really backfill the space. Can you just comment on how you're going into these rent deferral discussions, knowing that we could be in this for a while. Tenants' revenues are certainly down and may be down for a while. How do you look at your positioning right now far as negotiating power?
Yeah. Look, we've never thought of, despite the fact that we tend to be the largest landlord for so many of these tenants, we have never thought of that as leverage. We recognize the situation that our tenants find themselves in. We are genuinely interested. For some of the reasons that you just enumerated, we are genuinely interested in making sure that they survive and they come out healthy, and they're able to live to fight another day. However, we wouldn't be doing our job if we weren't thinking of what are some of the more creative ways to create options for ourselves with regards to some of these asset types. Yes, if you go down the traditional path of looking for an alternative operator within the same industry, yes, that's a path.
Perhaps a stronger operator who has a higher probability of surviving, engaging in those types of conversations sooner. Yes, that's certainly a path. We also have to get creative about where are these assets located, who could potentially benefit from these locations, truly think about asset management from a very different perspective than a pure real estate perspective to try to start creating alternatives and explore those alternatives, which is precisely what we are doing. That's not to say we are going to use this as a leverage in our negotiations. It's just us doing our job. Look, we understand what the situation, what COVID-19 has done to some of our tenants, and we are trying to do the right thing, and the most efficient resolution for us will always be that the incumbent survives and thrives as a going concern coming out of this.
Is there a path for us to take these tenants from the current situation that they find themselves in to that point where they can become a going concern? That's what we are exploring as a priority 1. As a second priority, it's what I just shared with you.
That's helpful. Last question. Just on a general rent deferral, it could be, I would imagine, a ranging of one month to three months, I think just for starters, if that's fair.
Yeah.
How long are you giving tenants the opportunity to repay that? Is this gonna bleed into Q1? Obviously, it was just April we're talking about, but we're in May right now. We're gonna be in June shortly. Could these deferral payments spread well into next year? How are you kind of framing that?
In none of our discussions has the deferral period gone past. The ask has always been, exactly like you said, 30 days to 90 days. What we have structured is 30 days to five months. One month to five months. Part of the reason why we did that was to say, "Pay us something." It helps us on our cash flow side, and the total quantum of your deferral is still going to be the same, okay? We will spread it out over a larger period. It's not that you're going to get 0% deferral. You'll get a portion of your rent deferred, and we will collect some rental income during this period, and it'll give you the time you need to get healthier. Those are the ones that we have resolved, and it has that flavor to it.
The payback of that deferred rent is approximately in that 9-10 months timeframe, is for us to be made whole. In no situation that I'm aware of today has anybody asked us for a deferral past three months.
That's helpful. Thank you.
Thank you.
Your next question comes from the line of John Massocca with Ladenburg Thalmann. Your line is open.
Good afternoon.
Hey, John.
If and when we get back to an environment where you feel you can go on the offense from an acquisition perspective, and understanding there are other factors that go into this decision, but for me, what kind of spreads would you want to see to your cost of capital to make re-accelerating the acquisition platform attractive? Is that even a gating factor today at all, or is it mostly just concerns about the macro volatility?
No. Anytime you're looking at the acquisitions market, John, you want to make sure that you continue to capture some level of spread day one, and then you have growth in the leases, which allows you to continue to capture more and more spread. That is absolutely something that we are going to take into consideration if and when we decide to selectively put our capital to work. Like I said, our priority today, not having the visibility into the duration of this particular pandemic is going to make us very selective in terms of where we put our capital to work on the acquisition front. I would say it's a little too early to tell.
What we are trying to do, however, is position ourselves from a liquidity perspective, from a capital perspective, from a discussions perspective to be ready to go if and when the market allows us and we have more visibility into where this pandemic is going and what is the true impact going to look like. As soon as that becomes a bit clearer to us than it is today, I think we want to be in a position to be first out of the gate, if you will to take advantage of the acquisitions market.
Over the last couple of quarters, you guys have achieved above historical average spreads. Is that necessary to get back into the acquisition market? If it came back more towards your long-term historical spreads, would that be fine?
Long-term historical spreads would absolutely be fine. We were in that 150 basis point spread. That's the average that we have accomplished through the history of our company, and that is certainly an area that would be attractive enough. Again, it is going to be a function of the product. If it is riskier assets, we are going to be a lot more hesitant to pursue those types of transactions, even at outsized spreads. If these are right down the fairway, like I said, we've compartmentalized the acquisition markets into 3 buckets. The first bucket that we go to is the one where markets really haven't changed. We hope it does, and if it does, those are products that will continue to have tailwinds in this environment and will continue to thrive in this environment. We will judiciously grow that particular element, but not today.
This is all predicated on having more clarity as to how long this pandemic is going to last.
Greatly appreciate the color. That's it for me. Thank you very much.
Thanks, John.
Your next question comes from the line of Linda Tsai with Jefferies. Your line is open.
Hi. Recognizing you have a great track record with your dividend and liquidity remains ample, for our own understanding, how much do revenues have to go down or decline before you're at 100% AFFO payout?
I think the easiest way to answer that, Linda, is our payout ratio at the end of 2019 or perhaps at the end of the first quarter was right around 80%. If we lose 20% of our AFFO, you're going to be at 100% payout ratio.
Thanks. Then how do you expect occupancy to look at the end of Q2 versus where you ended in Q1?
It's a very interesting question. We just don't know. A deferment does not mean these assets are coming back to us. Like I said, Linda, the vast majority of what we have been engaged in is a deferment. People want to continue to operate these locations. Will it be lower than the first quarter? I think it will because some of these smaller operators, unfortunately, despite us trying to work with them, may not survive. Thankfully, that's a very small percentage of our overall portfolio. Those will be coming back. I don't expect it to be dramatically different. Will it be lower than the 98.5? I think yes. The answer is it will certainly be lower.
Thanks. Sorry if you answered this earlier, but any sense of what % of your tenant base is open right now?
We would say about 80% of our retail tenants are open today. By that we mean they're either fully open or partially open. I would say 20% of our tenants are fully closed.
Thanks. That's it for me.
Your next question comes from the line of Chris Lucas with Capital One Securities. Your line is open.
Good afternoon, everybody. Hey, Sumit, just a couple of quick questions for you. When was the last transaction you completed in the Q1 ?
When was the last transaction we completed?
Yeah
In the Q1 ?
Yeah. How far into the quarter are we?
I wouldn't be surprised if there weren't assets we were closing in the last couple of days of the quarter.
Okay. Then have you closed anything so far yet this quarter?
Yes. We believe we have.
Okay. My last question. Let me go back to that one. Any quantity that you want to share?
No. It's too early.
Okay.
What's already happened in the first month is probably not going to be reflective of what's going to happen in the remaining two months.
Okay. Last question from me is, you talked a lot about line of business exposure on the deferrals. Any geographic issues that you're running into? California's been particularly just providing leniency for tenants. Just curious whether that's had any impact on your deferral requests.
That's a great question, Chris. We have not seen that. When we have been doing our analysis, even with respect to a given tenant, obviously they share with us what their liquidity analysis looks like. We have been doing it independently of our tenants to try to get a sense for what their liquidity position looks like. Part of what we are trying to overlay with regards to our liquidity analysis is to look at the geographies and then take into consideration what some of the state-specific rulings have been. Like I would say that Georgia and Ohio and Tennessee, they've been a bit more aggressive in terms of opening up or allowing stores to open up. What does that mean? Which are the states that are going to be potentially slower in terms of store openings, et cetera?
What does that mean for the stores that we have in our portfolio and their ability to pay? At that level, we try to capture what the liquidity position of each of these tenants will look like when we engage in a conversation with the tenant. They either help support our thought process or challenge our thought process to continue to refine the analysis. This was based on forecasting when some of these states are going to open. Last Friday was the first day that some of the states decided to open up. What is actually going to end up playing out could be a little different from what we've underwritten. That too will be then overlaid on top of our analysis to reflect what is truly happening.
In some cases, states have pushed out the reopening days, in others, they've stayed true, and they have a different staging to what is considered phase I opening versus phase IV opening. For instance, in N.Y., it is very different from what it is here in California. We do take that into account, but it is in anticipation of what we see happening. It's again, too early to tell what the true impact is. Most of our operators are national operators, and so the conversation is more holistic, but we do overlay that into our liquidity analysis.
Great. Thank you. Appreciate it.
Your next question comes from the line of Collin Mings with Raymond James. Your line is open.
Thanks. Good afternoon. Just one quick one for me. Just recognizing there wasn't a lot of overlap in terms of timing, but just as you re-leased properties toward the end of Q1, was there any shift in what tenants would agree to as it relates to term or other lease language? How do you expect this to evolve just given the pandemic?
Most of our discussion, Collin, has been around making sure that we are collecting the deferred rents as soon as possible. I mean, that is key to us from a cash flow perspective, and we state that as one of the objectives that we have while entering into any of these negotiations. I think I mentioned this in one of the previous answers. Most of the ask that we receive from our tenant base has been 30- 90 days of deferment. What we have structured is a slightly longer deferment, and those are for the ones that we have structured. A slightly longer deferment period, but collecting partial rent during that longer deferment period. Making sure that we are getting back our deferred rent within a period of 10 months from the time that the deferment ends. That's the structure that we've engaged in.
The vast majority of the discussions haven't been resolved yet, part of it is because the liquidity situation continues to evolve for some of these tenants. Our goal is to try to collect it in the initial whatever was the initial lease term period and not start to engage in let's extend out lease terms. If that is economically a far better outcome for us, we will absolutely do that. For us, the goal is, yes, we will engage in a conversation, but we want to get paid back as quickly as possible. If that means not having to necessarily revise lease terms, that's okay with us.
I apologize, Sumit. I actually meant it in terms of leases that were up for natural expiration or renewal, if that dynamic had changed, or just how that dynamic had changed, not specifically related to any sort of rent deferment negotiation.
Oh, sorry about that, Collin. Look, we had a pretty good first quarter in terms of recapture rate. We were at 99%, which is right on top of our historical average. This is across the spectrum, renewals and new tenants. Do we expect that to change? Perhaps, it is again, going to be a sub-sector by sub-sector phenomenon. These are renewals in the grocery business or in drugstore business or dollar store businesses. Those will continue to get renewed with the existing rent options and the rent bumps that's associated with those options in place. If they tend to be in industries that have been more impacted, i.e., casual dining, et cetera, I think those are going to suffer.
Nevertheless, if those locations are inherently valuable to the operators and even though they are shut today, but they recognize that these are locations that have historically done very well and should do well once social distancing is alleviated, then I think they will still want to enter into discussions with us. It's too early, Collin, to tell you precisely how it's going to play out. The speed with which all of this happened was pretty dramatic. The Q1 , if that's the data that you want to lean on, it was a pretty good quarter for renewals.
Okay. Thank you.
Thanks.
Your next question comes from the line of Joshua Dennerlein with Bank of America. Your line is open.
Hey, good afternoon. Thanks. Good question. You mentioned earlier that you expect some tenants who paid in April are requesting May rent deferrals. Are those tenants concentrated in the four industries that drove most of the non-collection in April, or some of that in another industry category?
No. Look, the vast majority, I would say, falls into the four categories that we have highlighted. There are other businesses as well. Automotive services is another area that we have tenants that have paid April rents, and they have discussed with us, and we have actually are working with them to help alleviate or defer some of the rents for the month of May. The four industries that for sure continues to be the industries that are most impacted are the ones that we've talked about, Joshua.
Got it. Thanks. I don't think we talked about it yet on the call, just an update on the CFO search, where that is in the process, and maybe expectations on when you could get a new CFO in place.
Sure. Look, it's obviously a bit difficult right now given that so many of the existing CFOs are so entrenched right now in trying to resolve their own company's issues, et cetera. We do find ourselves in very interesting times. Having said that, look, we have engaged an external search firm to help us through the CFO search process. They're continuing to be very active. We've gone through a first round of interviews with a select few candidates that sort of were stepped up. We are continuing to go through first-round interviews. My hope was that we would be able to wrap this thing up by June. Given this COVID-19 situation and the inherent slowdown that this has imposed, it'll probably be much later by the time we get somebody to fill that seat. Truth be told, we have such a good team.
Between Jonathan and Sean, I don't feel like we are really lacking in any area of the business with regards to the CFO. That's not to say that it wouldn't help to have somebody else here helping take the load off of Jonathan and Sean. We want to find the right person, and that to us is of paramount importance. If it takes us a bit longer, that's okay. Given the current situation, I do think it'll take us a bit longer.
Okay. Thank you. Appreciate that.
Thank you.
Your next question comes from the line of Barry Raskin with 2J Investment Group. Your line is open.
Hello. Greetings.
Hi, Barry.
Hi. Is it Sumit or Sumit?
It's Sumit.
That's a little bit in the middle there.
Yeah.
I have a couple of quick questions. One is, and many of the other questioners asked a lot of my questions, so that was really good. I guess I'm thinking of just from a more long-term perspective as it relates to your dividend, which is kind of your brand in terms of from the retail perspective. I guess fundamentally, how safe is this dividend and how much pressure is there on you and your organization to continue to meet the criteria to be a Dividend Aristocrat? I'm thinking, and the reason I'm asking is because when I look at these, what percentage, over 11% of your top 20 tenants by revenue being restaurants or casual dining gyms and theaters, my perspective is that these things aren't going to come back for a long time, like you said.
Even when the restrictions are lifted from a government perspective, I see more bankruptcies coming from these theaters and restaurants. As you said, maybe not as much from gyms, but the overhead and capital structure of these institutions seem very weak, if you have to go for three or four or six months without any revenue. That's sort of a fundamental question. Would you guys borrow money or would you need to borrow money to continue to pay that dividend? That's sort of my first question.
Yeah. Look, I mean, that really is what goes to the I think it was Shivani who had asked the question, how much room do you have? It goes back to our payout ratio. We have 20% of room within our business model to help support the dividends that we have in place. Yes, it is our brand. We are the monthly dividend company. It is very much part and parcel of how we operate our business. It is our mission. This is one of those tools that we certainly have available to us to manage liquidity, but one that we feel, at least given the lay of the land today, and despite all of the things that you've laid out, we do not need to pull on.
Part of that goes back to the liquidity strength that we have to be able to withstand disruptions, even medium-term disruptions, and still be able to maintain a profile of the business that continues to be very strong and continues to support the dividend. As you know, Barry, we were added to the Dividend Aristocrat earlier this year. It took us 25 years to get there.
Mm-hmm. You don't want to lose that.
You don't, and for a variety of reasons that I just laid out. At the same time, if this is a two-year phenomenon rather than a six-month phenomenon or a nine-month phenomenon, then that too is a lever that one might need to lean on. It is certainly not one that we feel like we need to lead with, and it is a testament to the portfolio that we have created. It is a testament to the ratings that we have and the access to liquidity that we have and our ability to be a lot more patient than potentially some of our peers. The fact that our portfolio has performed, at least for the month of April, the way it did, continues to provide some level of tailwinds to that thesis. Look, these things are evolving situations and things can change.
We remain hopeful.
Well, I think it is a testament to, which is why I'm an investor in your company for a long time. I think you have a very strong team. The pressure on the company to continue to perform in this way must be enormous. I could just see what would happen to the share price if that dynamic changed. Luckily, like you said, you guys seem to have the additional liquidity. I like what you said that in essence, your tenants in some cases can lean on you to use your liquidity, in essence, that you're their bank for a while. I know that because I own some real estate outside of owning. O, and we've had to give deferrals and in some cases, full forbearance to some of our tenants. In most cases, they will pay us back. Well, they say they're going to pay us back.
We'll see. I'm sure you guys are doing scenario planning for the worst-case scenario. I'm assuming you have contingencies in place. I appreciate that. My only other question has to do with how you're communicating with all of your tenants, particularly these more vulnerable tenants. If they get relief from PPP loans or insurance relief. Of course, that's a big hairy monster, the whole insurance industry and what's going to happen with force majeure and business interruption, and there's a lot of cases moving through the courts already on that. If any of your tenants, particularly these that get relief, have you put them on notice that if they do get this relief, that you're going to expect some relief back to you guys? Is that just kind of you're going to see and wait and see how that happens?
I'm wondering if they're already on notice that if they do get this relief that you'd like to have some legal means by which to share in that.
Yeah. Look, Barry, you said, how often do we communicate with our tenants? Constantly is the word that comes to mind, even with those that we have resolved a deferred structure for their rents. I will tell you that because our communication is so constant, and it's not just because we want to be made whole, it's to make sure that these guys are doing well and that they're continuing to withstand this pandemic situation as best as they can. There's a relationship here that we want to continue to build on. That in situations where some of our tenants who were able to get the PPP loan, they came back, and they paid us the rent, even though in the beginning, their request was for a deferral.
Nice. Yeah.
This goes back to the testament of being constantly in touch with your tenants and making sure that you remain engaged. The liquidity situation, I think I've referenced this multiple times during this call, continues to evolve. Not just for the better capitalized tenants who have access to multiple sources of capital, but even for some of these smaller tenants who tend to be a very small portion of our overall tenant portfolio. We're largely dominated by national and regional players. It's about staying in touch. It's about making sure that they're doing well, they're continuing to remain healthy. Through those where liquidity situations change, we can engage in those conversations. More often than not, they will pay if they feel like they're in a better place. That has been the situation for us.
Thank you. You haven't put people on notice specifically that if they get relief that you're just keeping in touch with them, and if they don't pay you back, then you ask them?
Well, it goes back to if there is a resolution in place, then there are provisions that if your liquidity situation were to change, you should consider paying us back. Remember that we've only resolved 6% of the tenants who have come and asked us for some sort of a deferment. A big reason for that is because the situation continues to evolve.
Yeah.
Rather than striking a transaction which could become obsolete, we'd much rather stay engaged and get real-time information on how things are evolving for each one of our tenants. Therefore, the situation with whether or not they can pay their rent changes. That's the reason why we have just chosen to stay engaged rather than necessarily get it over the finish line.
That's great. Thank you very much.
Thank you. I think we don't have any other questions.
My apologies. This concludes the question and answer portion of Realty Income's Conference Call. I will now turn the call over to yourself, Sumit Roy, for your concluding remarks.
Okay. Thank you all for joining us today, and we look forward to connecting with everyone virtually at the upcoming conferences. Thanks. Bye-bye.
Ladies and gentlemen, this concludes today's conference call. You may now disconnect.