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Spirit Realty Capital Inc (NYSE:SRC)
Q2 2020 Earnings Call
Jul 31, 2020, 9:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to Spirit Realty Capital Q2 2020 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over your host, Pierre Revol, Senior Vice President, Strategy Planning and IR. Thank you. You may begin.

Pierre Revol -- Senior Vice President, Strategy Planning and Investor Relations

Thank you, operator. And thank you, everyone, for joining us today. Presenting on today's call will be President and Chief Executive Officer, Mr. Jackson Hsieh; and Chief Financial Officer, Mr. Michael Hughes. Ken Heimlich, Head of Asset Management, will be available for Q&A. Before we get started, I would like to remind everyone that this presentation contains forward-looking statements. Although the company believes these forward-looking statements are based upon reasonable assumptions, they are subject to known and unknown risks and uncertainties that can cause actual results to differ materially from those currently anticipated due to a number of factors.

I'd refer you to the safe harbor statement in today's earnings release, supplemental information and July update deck as well as our most recent filings with the SEC for a detailed discussion of the risk factors relating to these forward-looking statements. This presentation also contains certain non-GAAP measures. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures are included in today's release, supplemental information and July update deck furnished to the SEC under Form 8-K. Both today's earnings release, supplemental information and July update deck are available on the Investor Relations page of the company's website.

For our prepared remarks, I'm now pleased to introduce Mr. Jackson Hsieh. Jackson?

Jackson Hsieh -- President And Chief Executive Officer

Thanks, Pierre. And welcome, everyone, to our second quarter call. As most of you know, we decided to move up this call from its originally scheduled date. Since COVID-19 hit, Spirit has made a concerted effort to provide our stakeholders with more robust and granular information more often about our portfolio health, rent collection and tenants. We believe this approach is not only warranted given the circumstances, but also aligns with our culture and the way we approach our business every day. One of the models all of us work by is that there isn't good news, there isn't bad news, there's just news. We believe moving up our call to provide more timely information is just the right thing to do in the spirit of that model. Our people, processes and technology have really made it possible to provide enhanced timely disclosures, all while running the day-to-day operations remotely. Today, my update will focus on: number one, cash collections and deferrals; two, tenant performance; three, active portfolio management; and four, our external growth pipeline. Mike will then discuss our financials, the revenue recognition treatment of our deferrals, and provide you with an update on our capital markets activities. First, cash collections and deferrals. Monthly cash rent collections have continued to improve, reaching approximately 78% in April, 71% in May, and 77% in June, an increase of 18%, 6% and 1% respectively since each month was initially reported, aggregating to 75% for the second quarter.

For July, rent collections were 85% and all of our top 10 tenants paid rent. The improvement in rent collection has been primarily driven by more tenants reopening and returning to business and completing the term of rent deferral contractual arrangements. As of the end of July, 92.4% of our real estate assets are fully or partially opened versus 85.8% as of our NAREIT meetings at the beginning of June. Going forward, we expect our rent collections to improve throughout the remainder of the year, generally following the path laid out by our deferral agreements, with May being the trough where rent deferrals were most heavily concentrated. Furthermore, the initial contracts renegotiated have changed very little. And thus far we have only executed one short-term extension to a deferral agreement for a movie theater tenant. As of June 30, $1.4 million of contractual rent remains abated. And $9.7 million of contractual rent remains deferred, of which $4.6 million is subject to percentage rent based upon sales, giving us an opportunity to capture some or all of the deferred rent this year depending on tenant performance. Second, tenant performance. COVID has certainly changed the way we live, at least for now. And there have been several clear winners within our portfolio and some more challenged industries. It's probably not surprising that our tenants who provide essential staples, supplies and services are doing extremely well such as supermarkets, dollar stores, drugstores and home improvement. In many cases, these tenants have seen their sales increase since COVID hit. As traffic patterns recovered in May and June, our auto-related tenants saw their businesses begin to thrive again, such as C-stores, auto service, auto parts and carwashes. Sporting goods have become another bright spot as leisure and recreation has shifted predominantly to outdoor activities like biking, camping and the like.

Not surprisingly, quick-serve restaurants have proved a mainstay in a post-COVID world. And despite a few early hiccups as operators figured out how to adjust their labor model for drive-through and pickup only, I believe this segment will emerge as a real winner with a more profitable business model. The real dark horse winners have been home decor and home furnishings. At Home, one of our top tenants is a perfect example. They gave a business update earlier this week on their fiscal second quarter results and crushed it. Despite being shut down in many states for some period, At Home has performed remarkably well, partly fueled by pent-up consumer demand and investment in their omni-channel initiatives. But they have seen continued growth and captured new customers on a steady pace since reopening, indicating that consumers are willing to return to bricks-and-mortar retailers who provide selection and value as well as large square footage conducive to social distancing. Prior to COVID, we had conviction around the home decor and furnishings industry, and we are even more confident about their prospects going forward. There are still some industries that remain challenged. Our casual dining tenants are still operating under limited capacity guidelines in their states and municipalities as are our health and fitness tenants. In addition, entertainment is still struggling to find its footing with state and regional regulations, as are movie theaters which are being impacted from creeping delays in new studio content release dates. Even with these challenges, we are seeing some green shoots. For our casual dining, health of fitness and entertainment tenants that have been able to reopen and operate with limited capacity, we have seen strong demand for their business and profitability at lower levels of occupancy. The consumer demand we have seen for our entertainment assets bodes well for movie theaters when they are finally able to reopen and gain access to major film releases. In addition, since studios have not released any blockbuster films this year, there should be a prodigious amount of content that will drive moviegoer demand once reopenings occur. While I can't predict the length and breadth of COVID-19 in every state or regional governmental response, I am confident that our tenants' businesses are relevant and in demand. The vast majority of our operators are meeting the challenges put upon them and that when consumers can go to them, they will. I also take comfort in the fact that within each of our more challenged segments, we are diversified regionally and among operators. And our tenants tend to be large operators or public companies that are sophisticated, have access to capital, and most importantly, the staying power to either ride out COVID or adapt to it.

Additionally, our four Goodrich Quality Theaters, purchased as part of the SVC transaction late last year, received multiple offers during their bankruptcy proceedings. We're in the final negotiations with a strong creditworthy regional operator for a 20-year absolute net master lease on all four theaters. Terms discussed include a provision for funding tenant improvements with a return in the low 8% range and percentage rent commencement to occur in the fourth quarter. Third, active portfolio management. At our Investor Day last year, we talked about the importance of portfolio shaping and building a fortress portfolio and one of the key tools in that process is targeted dispositions. Given my previous remarks about the industries that are winning right now, we have seen pricing for certain assets compress considerably, making now an opportune time to exit targeted exposures in grocery and drug stores. As of today, we're under contract or LOI to sell four grocery stores and four drug stores amounting to $90 million at a 5.75% weighted average cash yield. These dispositions further evidence the liquidity within our portfolio and the robust demand for high-quality freestanding retail properties. Finally, external growth and pipeline. As you may recall in our last quarterly remarks, I stated we shifted many of our acquisition team members to their prior roles as asset managers. Having completed the majority of rent deferral agreements and with better visibility on our rent collections, we began moving team members back to transactions that we put on hold and sourcing new opportunities.

During the second quarter, we closed on only one transaction, a Texas-based sausage processing, packaging and distribution company whose products can be found at H-E-B, Costco and Walmart, to name a few. As Mike will discuss more in his remarks, we have total available liquidity of $1.2 billion, allowing us to be offensive. And we are seeing attractive opportunities that meet our investment criteria with less competition as compared to pre-COVID. We do expect to see more normalized acquisition run rate levels in the third and fourth quarter. Pricing for the same assets that we pursued in Q1 2020 has become more attractive in many cases. And with the experience of COVID-19, we have seen our strategy of investing in public noninvestment-grade companies validated. Before I hand it over to Mike, I wanted to remind you of a point I made at our Investor Day. There are several misconceived notions around a triple-net REIT. It takes a great deal of active management, a fortress balance sheet, strong operating systems, outstanding people, a defined and disciplined investment strategy, and a high-quality portfolio. We have these at Spirit and believe they will drive our success for years to come. Mike?

Michael Hughes -- Executive Vice President And Chief Financial Officer

Thanks, Jackson. And good morning. I'm glad we could finally report on the second quarter after months of incremental updates. As you've hopefully seen this morning, we have given you a lot of information. As we did last quarter, in addition to the earnings release, earnings supplemental and 10-Q, we posted our investor deck, which is full of detail about how COVID-19 is impacting our tenants' industries, our rent collections and our property costs. We hope you find the information helpful. Given there are a lot of questions around the revenue recognition accounting for deferred and abated rent, I'll just start there. Prior to COVID-19, subsequent changes to lease payments that were not provided for in the original lease were generally accounted for as a lease modification under ASC Topic 842. As applied to current circumstances, unless the lease contract already contained explicit or implicit and enforceable rights and obligations that required the lessor to defer rent for the lessee in the event of a pandemic or similar hardship, any deferral provided by the lessor would be considered a lease modification. In that event, the deferred rent would not be recognized during the deferral period, but instead only actually paid for the new rent schedule under a modified lease. In response to the large volume of rent deferrals caused by COVID-19 and the impracticability of analyzing every impact of lease per ASC Topic 842, the FASB provided some relief through new accounting guidance for lessors and lessees. In short, the guidance provides that if a lease concession related to the effects of the COVID-19 pandemic does not result in a substantial increase in the rights of the lessor or the obligations of the lessee, then the lessor and the lessee can treat the modification as though they were already enforceable. Said another way, the lease modification accounting would not apply. We applied the guidance to our deferrals recognized in revenues for the second quarter in the following manner. First, the deferred rent must be repaid within the original lease term.

Second, the original lease term or other significant lease terms cannot be materially modified. And finally, there's a minimum 75% probability that the tenant will repay the deferred rent as agreed, taking into consideration the tenant's credit worthiness, liquidity and the impact of COVID-19 on its business. The probability of collection for deferred rent amounts will be reevaluated each quarter, and the revenue treatment for each tenant is subject to change based on the facts and circumstances at the time of evaluation. We recorded $110.2 million of base cash rent during the second quarter, of which $22.3 million was deferred. We deferred approximately $300,000 of rents that did not meet the revenue recognition criteria, specifically the probability of collection hurdle. The deferred rent that was recognized in our revenue is also included in our non-GAAP metrics. As that deferred rent is repaid, the cash will be booked against a rent receivable in our balance sheet. Therefore, those repayments will not flow through our GAAP income or non-GAAP metrics in the future. Deferrals not recognized are booked on a cash basis and will only be recognized in our income statement and our non-GAAP metrics once that rent is paid. Since abated rent is generally forgiven and never repaid, there is no revenue recognition for abatements. We abated $2.4 million of rent during the second quarter. Finally, we evaluate our rental income for collectability by assessing our tenant's risk of payment based upon their industry, historical experience, payment history and financial condition. In accordance with GAAP, we recorded a provision for losses against rental income for those amounts that are not probable of collection. We commonly refer to this provision as lost rent. Our lost rent for the second quarter was $4.2 million or 3.6% of second quarter base rent. Approximately $500,000 resulted from bankruptcies, $1 million from lease restructures where rent was permanently reduced, and $2.7 million for tenants who remain default at quarter end. A breakdown of these numbers for Q2 as well as July can be found on Page four in our investor presentation, which we posted on our website this morning. Just to be clear, the sum of lost rent, deferrals unrecognized and abatements is the total amount of base rent not recognized in revenue or our non-GAAP metrics. Now turning to our P&L.

As you know, we are no longer providing earnings guidance for the year, but reported second quarter AFFO per share of $0.71. Annualized base rent, which annualizes the rent in place at quarter end, was $469.6 million, down $6.8 million compared to last quarter. The bulk of the reduction was due to the restructuring of the four Goodrich theaters with the filing bankruptcy, temporarily reducing the rent on those theaters by 90% during the quarter, offset by only limited Q2 acquisitions. As Jackson mentioned, we are working on finalizing a lease with the SC for our Goodrich theaters and hope that they will return to more normalized rent levels later this year. Property cost leakage for unreimbursed property costs is high for us this quarter at 4.1% primarily driven by the accrual of property tax reserves for the current and prior periods for tenants that have either defaulted or for which, in our belief, there is sufficient doubt regarding the tenant's ability to meet their obligations. We provided you with additional detail on our property cost leakage on Page seven of our investor presentation. A couple of final things to note on our income statement. G&A was lower this quarter primarily due to a reduction in bonus accruals and travel expenses. And you'll also notice a new line item, add back to AFFO and EBITDAre called costs related to COVID-19. These charges are primarily related to legal costs associated with negotiating and executing deferral and abatement agreements for tenants impacted by the pandemic. Finally, I'll end with the balance sheet. When COVID-19 hit the U.S., we moved quickly to enhance our liquidity by partnering with our relationship lenders to secure a new $400 million 2-year term loan with a borrowing rate of 1-month LIBOR plus 150 basis points. Following NAREIT in early June, we raised $330 million in equity proceeds, bringing our quarter in leverage down to 4.9 times inclusive of our unsettled forward contracts. Keep in mind that we raised the $730 million of capital after COVID-19 hit, and we were able to raise the debt and equity at a weighted average cost of 4.4%. I think the ability to raise well-priced capital even in a time of great uncertainty speaks to the strength of our company and the triple-net lease factor. We currently have approximately $1.2 billion of liquidity consisting of the forward equity, $29 million in cash and $800 million in undrawn revolver capacity. So the balance sheet is in exceptionally great shape. Despite what can only be characterized as a challenging environment, I believe Spirit is a well-positioned company in a steady and durable industry. And with our replenished balance sheet capacity, I look forward to pivoting to offense and building an accretive acquisition pipeline again.

With that, I will open up the call for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Shivani Sood with Deutsche Bank. Please proceed with your question.

Shivani Sood -- Deutsche Bank -- Analyst

Hey, good morning. You guys highlighted the good liquidity position and more attractive asset pricing that you're seeing in the market. Can you give us a sense of what you might be looking for in the pipeline? And then just given the uncertainty that we're still facing, I'd be curious to hear if your team is looking for additional credit enhancements or anything in terms of the underwriting.

Jackson Hsieh -- President And Chief Executive Officer

Shivani, it's Jackson. I'll try to start with that. I mean, I'll just anecdotally give you kind of an example. Like the transaction we closed in the second quarter, that deal got pushed one quarter. And the pricing on that asset was about 45-ish basis points wider than we originally had anticipated doing in the first quarter when COVID first truly came upon us. I'd say that, that for assets similar to that, so they would be either noninvestment grade, public or private industrial/manufacturing, in this case it was food manufacturing, distribution manufacturing, we're seeing those assets about 40 to 50 basis points wider than what we experienced in the pre-COVID environment. So that's where we're putting a lot of our time and attention right now. Obviously, on the investment-grade side, especially given the 1031 market still functioning, we're seeing cap rates compress in that area. In terms of our growth posture, we obviously did a lot of work in the front end, trying to get the balance sheet ready to restart our acquisition pipelines. So with that put in place and our ability to get more visibility on rent collections and sort of health of portfolio, which by the way has continued to increase since we started giving these updates in April, just kind of giving us the conviction that we're going to move forward. And like I said, I talked about this normalized acquisition run rate, which in my mind if you look at what we did last year and stripped out the SVC transaction, that was about $800 million for the year. So we kind of think of that as sort of the normal $200 million-type quarter as a sort of normalized run rate for our company.

So we feel good about that for the balance of the year, for the third and fourth quarter. A big part of what we didn't talk about too much, I'd just put it out there is, was as COVID started to engulf the organization, we moved a lot of our asset manager or acquisition team into asset management. There was obviously a lot of experience in that group. But we had also made commitments to bring onboard two very experienced acquisition members, one that has a very focused industrial orientation to his resume and experience; and the other, years of experience in C-stores. They came on board as we were sort of going through this whole rent deferral process. And obviously, we didn't move them into that deferral team, but they've continued to advance the pipeline. And so I feel really good about what we're seeing, given the kind of liquidity that's out there for those types of businesses that fit in that category of small publics, not investment grade, in those industries that we like. As it relates to security deposits and things like that, areas that have, what I'd say, challenged performance where they may have asked for a deferral, I think you can expect that people are looking at acquisitions for those types of industries, that there is going to be some type of security deposit put in place, i.e. three months, six months, maybe even a year of rent that's potentially held in escrow to the extent a tenant has to close down again. We're sort of seeing that anecdotally, and we expect that to continue for certain types of industries and tenants. So for example, like an entertainment area, if you were looking at a gym today, if you were looking at anything that was nonessential that was closed during COVID, my guess is assets like that if there are going to if there will be transactions like that this year, you'll see them have some form of a security deposit for rent to the extent there's a closure.

Shivani Sood -- Deutsche Bank -- Analyst

Thanks for that excellent color. And then just one clarifying one for us. You mentioned in your opening remarks, and I think these were the numbers: $9.7 million of rent remains deferred, $4.6 million of that is sort of just a percentage rent. So can you clarify, are those tenants only paying percentage rents until the deferred amounts are recurred are recovered? Or is the deferred amount payable through percentage rents?

Jackson Hsieh -- President And Chief Executive Officer

So the way to think about it is we kind of went through pretty methodically each deferral request. An important thing to note is I think we have like 36 tenants that asked for deferrals that retracted them just because the business got better. So that's an important concept and point to mention. But as it relates to the way we entered in the percentage rent, it sort of was an evolving discussion. In April, May, when these rent collection or these rent deferral conversations started to strike up, our kind of go-to idea was one to three months of rent deferral depending on the circumstances and facts around the tenant. And you've got to pay back within a 12-month schedule starting either in October of this year or beginning of next year, depending on sort of liquidity, whether they were open or not, those kinds of factors. I'll give you a good example. Like in the movies segment, we had one tenant that we agreed to a deferral just like that. And with the studios pushing these release dates out and states pushing reopenings, they came back and said, "Look, we think it may make more sense to put us on some form of percentage of sales rent between now until year-end. And then we'll kick back to a more normalized rent."

So there's not like kind of one size fits all as it relates to percentage rent, but we approach percentage rent as trying to sort of match up what the challenges were for that particular industry or tenant or business. Of course, it's like showing in our movie segment, only about half of our movie tenants are on percentage rent structure right now. So now that may continue to evolve and increase, but as time goes on because a lot of it's depending on sort of what state regulations and municipalities are doing with theaters and studio release dates, but hopefully that would give you some color as to what that how we ended there.

Shivani Sood -- Deutsche Bank -- Analyst

And so those sorry, just one last one. In the rent collection by industry on Page six on the investor presentation, are those amounts the percentage of rents included in those collection amounts by month?

Jackson Hsieh -- President And Chief Executive Officer

So yes, they are. So like if you're looking at July yes. And one thing to kind of note, what I think is one final point on that page. When we were at our NAREIT presentations, if you look at our retail industry category, there were 12 sub-industries within retail that had some form of deferral or whatever you want to call it, sort of some deferral structure in place. Well, that's now reduced to 8, and it's continuing to drop down as we go forward every month. So it's not just the percentage that's going down, it's the actual kind of industries that are that sit within each of these buckets that is reducing as well.

Shivani Sood -- Deutsche Bank -- Analyst

Okay, great, thanks for that color.

Jackson Hsieh -- President And Chief Executive Officer

Thanks.

Operator

Our next question comes from Ki Bin Kim with SunTrust. Please proceed with your question.

Ki Bin Kim -- SunTrust -- Analyst

Thanks. I'm sorry if I missed this, but can you just talk about the rent write-off activity? I noticed in your 10-Q, you wrote off about $5.6 million of rent and tenant reimbursements, which accounts for about 4.6% of your rental income run rate. So I'm just curious, how did you come up with that $5.6 million write-off? And when I compare that to June sorry, July's lost rent of 2.2%, if I compare that to 2Q's lost rent of 3.6%, and if I deducted from that 4.6% that you wrote off, it doesn't leave you much of a reserve. So I'm not sure if that math is perfectly correct, but can you just talk a little bit more about that?

Jackson Hsieh -- President And Chief Executive Officer

Mike, do you want to try to hit some of his comments, some of this? But maybe you could do it again.

Michael Hughes -- Executive Vice President And Chief Financial Officer

Yes. I mean Ki Bin, the way that we approach our reserves, I kind of covered this a little bit in my prepared remarks. And we evaluate tenants every quarter. And based on the situation of some of our tenants, whether they're someone bankrupt or some of them were behind on rent. Or we had gone, say, three months and they haven't paid rent and they haven't struck an agreement, we start reserving rent. So which I think we spell out, I think, pretty clearly on Page four of our deck. And that's what really drove the large increase in our rent reserves this quarter. I'm not sure if that answers your question, but that I mean there are new tenants this quarter that are driving that. And it's in the detail on Page four down below, we kind of break out. That's what we call lost rent. And we break out in that bucket what makes that up, whether it's restructured, driven by bankruptcy, or the other bucket, which the other bucket is the biggest bucket. And that includes tenants that either we were reserving because we don't think they're going to be able to continue paying rent or they haven't paid rent, at least had not struck an agreement yet.

Ki Bin Kim -- SunTrust -- Analyst

Okay. And 85% rent collected in July, is there any change in the denominator? Or is the denominator any smaller due to second quarter rent that was lost due to bankruptcies or restructurings?

Michael Hughes -- Executive Vice President And Chief Financial Officer

Yes. So if you actually look in the footnote, we give the ABR denominator. And actually if you look at from Q2 to July, the ABR actually went up due to some rent bumps. We have $117 million in Q2, and that went up to $39.3 million in July, which if we annualize that, it's a fairly large increase. But now the denominator, we're including we show our lost rent, we show abatements and all that. We're actually including all of that in the denominator. So we're not manipulating the denominator by taking out a base measure or taking out lost rent. We're trying to give you a clear picture of, look, if you start with what everything that we should have gotten contractually before we started to say, reserve or abate and whatnot, this is the clearest picture that we can give you based on where the starting point should have been.

Ki Bin Kim -- SunTrust -- Analyst

Okay, thank you.

Operator

Our next question comes from Haendel St. Juste with Mizuho. Please proceed with your question.

Haendel St. Juste -- Mizuho -- Analyst

Thank you. Good morning, everyone. So Jackson, things have changed a bit since we last talked at NAREIT. Your tone seems a bit more measured, or maybe it's just early in the day. But in your sense, your stock, your peers' stock prices are down. Since then COVID cases are up, and you have about 30% of your revenue from the COVID hotspot states: Florida, California, Arizona, Texas. So I'm curious how that impacts your near-term view? Or I guess how your near-term view on the business has evolved since then, since last month? Are you guys optimistic?

And then how does all of this play into your pace of capital deployment versus preserving balance sheet liquidity? You talked about deploying, I think, $200 million per quarter here in the next couple of quarters. I look at the forward, about $350 million or so, I thought that would have been deployed a bit more sooner. So just curious on sort of the views your views of the evolution since NAREIT and near-term capital deployment.

Jackson Hsieh -- President And Chief Executive Officer

Yes. I mean I would say, overall, very I'm still very positive. We really given the conversations that we're having in the portfolio with the operators, it's just we're very positive. I would say that if you think about just the temperature of what we've seen, I mean April was kind of a disaster, right? Just not really clear COVID, what the government was going to do, closures, and June was sort of the opposite in some ways. States are aggressively reopening. There's real pent-up demand. People open, people are showing up. And then sort of it got tempered in late June, I'd call it, early July with these case numbers going up. What I feel good about today is that the operators that we have and the real estate that we own, the lease structures that we have, the nature of the liquidity of our the large majority of our tenant base, they have come to figure out how to perform in COVID. They've figured out how to protect their employees. They figured out how to do their purchasing. They figured out how to if they have to remanage their balance sheet, not just rent deferrals, but as it related to debt exchanges or we doing term loans or sale leasebacks, they've sort of worked through a lot of that. So it gives us a lot of comfort that we've got a very sophisticated tenant base and diversified industry base. And we've got real people real demand from consumers. So I would say overall when I look at sort of the totality of what we've seen since NAREIT, every month that we've kind of given an update since April, it's gotten better. Just notionally, the top 10, top 20, percentage of rent collected by public, industry, deferrals were going down.

And yes, case numbers are going up, but it's sort of not fundamentally stopping people generally that would participate in a lot of the businesses for our tenants. And so yes, of course we're not going to go we're going to be very prudent about deploying capital, but we also see a great opportunity to get what I'll call very, very attractive risk-adjusted returns for things that we liked before COVID and like what we did in the first quarter, a lot of this industrial, especially in the food area. And we see opportunities to continue to deploy, which we want to do. And the pace of our acquisitions really are going to be dependent on making sure we get the right assets that we want with the right operators, the right restructures at the right price. And so the nice thing about not having guidance out there is we think this is what it's going to be. But if the market is not there, then we won't chase it, right? So and if there's more, we'll do more. But I think we feel very confident at this point about the systems and strategies that we put in place for the upside has really protected us from the downside with COVID. That's what we really believe where we are today. Organizationally, we're sort of cementing back into the growth mode.

Haendel St. Juste -- Mizuho -- Analyst

Got it. And maybe just some color on the near-term outlook for dispositions, assuming you close on, I think, the $90 million you mentioned, the four assets. Are you done for the year? And just curious on the demand for those assets overall in the marketplace. Did you see more demand than you thought? And then were those flat leases? I think you mentioned they were drug stores and grocery. Just curious on the core growth profile of these assets.

Jackson Hsieh -- President And Chief Executive Officer

Yes. Maybe, Ken, I'll pass it to you. But it was very robust demand. But maybe you want to give a comment on how we the brand extends to most drug stores and the nature of those supermarkets.

Kenneth Heimlich -- Executive Vice President And Head Of Asset Management

Yes. The short answer is yes, the what we've seen so far has exceeded our expectations in both pricing and timing of how quick the interest was and the depth of the interest. And on the drugstores, yes, they are flat lease. They some of them are actually in, I think, all four may be double net. So these are again asset types and lease structures that we've previously identified that we're OK letting go with them, especially with the kind of cap rates you're seeing for those types of industries today.

Haendel St. Juste -- Mizuho -- Analyst

Okay. And will that be for the year then? Or are you planning perhaps to maybe be opportunistic if demand or pricing comes in a bit more? Just curious on the level of dispositions we should expect near term.

Kenneth Heimlich -- Executive Vice President And Head Of Asset Management

I would suggest that's the bulk of it. We when if somebody makes you an offer that is compelling, obviously in the assets that we have targeted, we're going to respond to that. But I'd suggest that's the bulk of the dispositions.

Haendel St. Juste -- Mizuho -- Analyst

Got it.

Jackson Hsieh -- President And Chief Executive Officer

And then one thing, Haendel, I was going to say like in terms of our tone, it's interesting, like, the team has done a phenomenal job, Ken and the credit team, legal team, just working through the very, very judiciously, with the number of deferral requests. And I think anecdotally, when you see a large number, like 36 retract deferrals, or we also say, "no, you're not getting a deferral," and then they pay rent, that's sort of a good fact pattern. And then you see things like tenants, I won't name names, but you agree on a deferral. We're ready to go, papered up. And then they come back and say, "guess what, you know what, business is exceeding our expectations. We're just going to settle up all the rent right now." And larger tenants, I would say, fit in that category. It just sort of gives us a lot of comfort that country is dealing with the COVID challenge as best they can.

People in this country sure, they're locked down, but I think they've kind of figured out, put the mask on, be careful, wash your hands, whatever. But they're not going to stay home and hide. They're going to go out in the supermarket. They're going to go to the home decor store and refit out that room. They're going to pick some of them going to go to those entertainment assets. Some of them are definitely going to movie theaters today. We have movie theaters that are open right now. So in the states that they're allowed to. So I think that we're all everyone is sort of moving forward and on disaster. There's and hopefully, we'll have a new fiscal stimulus package at some point that comes down to help people on the economic front, which out to trend well for our tenants.

Haendel St. Juste -- Mizuho -- Analyst

I think you mentioned movies again. I was curious if you had any thoughts you wanted to share on perhaps the AMC-Universal deal?

Jackson Hsieh -- President And Chief Executive Officer

I mean, I don't it's from what I can see from afar, just to understand a little bit about it, I mean I don't know if I would read a wholesale change instead of the way movie theaters are I don't think this is quite a quick game-changer as most say. I mean this Universal agreement with AMC is a very isolated agreement with them. Now obviously Universal is going to try to go to other operators, big ones and small ones to try to do a similar thing. What they effectively did was just open up a new window for on a film-by-film basis that if they so choose, to add that premium $20 service directly to the consumer. The DVD hard drive copy theatrical structure hasn't been changed. And I'm not sure if Universal is going to get full adoption by all of the movie operators. It's not just a one-and-done thing. And not sure how significant it's going to be anyway. But if you think about $20, I mean if a person can go to a movie theater and buy two tickets, they might want to just go and do that versus just stay home, and everybody's sick of staying home anyway and just watch the movies. So my personal belief is I do believe that movie theaters are still relevant. I think that when the content comes up, people will go. I actually think that the movie theaters are going to be smart as to how they bring people in. People wear masks, they'll sit in a certain way. If you think of our movie theater, everybody is facing forward, they're not yelling and screaming. They're not taking and trying to talk over people. There's good ventilation. So I think that when people actually finally get into a movie theater and they do it in a safe way, you'll see this go back to some form of a little bit normality. That's what I believe.

Haendel St. Juste -- Mizuho -- Analyst

Appreciate the thoughts. Thanks.

Operator

[Operator Instructions] Our next question comes from Nate Crossett with Berenberg. Please proceed with your question.

Nate Crossett -- Berenberg -- Analyst

Hey, good morning guys. Just now on the theaters, what's the percentage of your theaters that are open right now? And we've seen some of these guys get funding from PE. So I'm just wondering, have you noticed a change in the conversations after that funding has occurred?

Jackson Hsieh -- President And Chief Executive Officer

Ken, do you we have one. I mean, we have you can see what's it actually says 100%. I was looking at the charger, but I know we have one in Georgia that's open.

Kenneth Heimlich -- Executive Vice President And Head Of Asset Management

Yes. The yes. The majority of the conversations we're having with the theaters is how they're planning for the reopening. And obviously they they're having to be head on a swivel and adapt to the continued push of the release dates. But one a couple of things that we do like is it's allowed them to put plans in place, whether that be how they're going to clean the theaters and whatnot and how they're going to staff. It's built up a very large backlog of tent-pole films that will now get released later in the year, 2021 and into 2022. So what we're when we talked to our tenants, they're really focused on the next 18 months. But here that I would suggest to is the you look at the Goodrich. That was went into bankruptcy before COVID, Midwest regional operator. We have a 4-unit master lease. We had at least 4, five different regional operators make offers for our four theaters. We were very, very pleasantly surprised at the interest. We have operators that were talking to that are willing to put millions of dollars into these buildings. And this is what you would think as the lowest point in the theater industry. So it kind of reinforces our belief that the theater industry is going to be there. It's going to go through some changes and whatnot, but fundamentally it's still there.

Nate Crossett -- Berenberg -- Analyst

Okay. That's helpful. And then just one on the acquisition deal that you said the pricing was, I think, about 50 basis points wider post-COVID. Was that just because of less competition? And do you think do you get the sense that the increase in pricing is going to be a temporary phenomenon? Or I'm just wondering because the 10-year keeps going lower.

Jackson Hsieh -- President And Chief Executive Officer

Yes. I mean I think to me, the pressure phenomenon, for tenants that are, I'd call it, like manufacturing tenants that's smaller. Like, middle market, small tenant or even a public tenant. When you think about COVID, right? COVID comes in April. May, things start to reopen again. Which companies got the liquidity, the most liquid, the most investment grade, and then it moved to noninvestment grade, but liquid, big companies start to see spreads come in, capital get see their cost of funding normalize. I mean, I'd use even anecdotally our spreads. We're a BBB-rated company. Our spreads were kind of honestly like a joke in April and May. We've continued to compress today to more normalized levels. Right now, I would say that for smaller companies, smaller revenue-base companies, that liquidity is still challenging for them. So that makes like a sale-leaseback opportunity today pretty attractive. Remember, we're not doing 3-year financings. I mean these are 15-, 20-year long-term financings on what are hopefully mission-critical assets. So we can't we adjust our pricing just like, I think, a short-term lender can. But I do think that we offer a very compelling form of long-term capital that's just really not there right now personally for a lot of companies that fit in what I just described, like, the example we talked about with the Texas-based company. My guess is as the lenders get back to business that, that liquidity is going to continue to fall down into noninvestment grade, smaller revenue kind of companies, spreads will start to tighten. And then all of a sudden, it will get more competitive. But for right now, I think it's we're not the only one competing, but it's a lot less than what it was earlier in the year, I could say that.

Nate Crossett -- Berenberg -- Analyst

Yes. If the 1031 exchange program goes away, is that good for you guys because less competition or?

Jackson Hsieh -- President And Chief Executive Officer

Yes, the 1031 market, like, I would say, Ken, most of the buyers of our supermarkets and drugstores are selling are exchange buyers. So maybe like what that would sort of imply is maybe pricing starts to look a little bit more attractive where we could become more competitive there potentially if 1031 were to go away.

Nate Crossett -- Berenberg -- Analyst

Okay, thanks guys.

Kenneth Heimlich -- Executive Vice President And Head Of Asset Management

Sure.

Operator

Our next question comes from Linda Tsai with Jefferies. Please proceed with your question.

Linda Tsai -- Jefferies -- Analyst

Yes. With the security deposits, were any of those applied for 2Q or July payments?

Michael Hughes -- Executive Vice President And Chief Financial Officer

None.

Jackson Hsieh -- President And Chief Executive Officer

None. No.

Michael Hughes -- Executive Vice President And Chief Financial Officer

Yes. None.

Jackson Hsieh -- President And Chief Executive Officer

I can tell you that when we talk about these security deposits, some of the things that we're looking at in the third quarter that will close, that we expect to close, will have some rent structures like that in place, whether it's like a deposit that covers for a certain period of time to the extent there's some form of nonperformance. And then after a certain period of time, that security deposit will release to the operator. So just to kind of give us a bridge between now and normality.

Linda Tsai -- Jefferies -- Analyst

And then on Page five of the investor presentation, it looks like there was higher variation in the monthly collection from private equity versus public tenants in the retail category. Why have the PE collections lag that of the public tenants?

Jackson Hsieh -- President And Chief Executive Officer

So it's interesting. Like if you look, not all PE firms are the same. If you look at sort of generality, financing on public companies is they're generally in the camp of, "I want to lower my permanent cost of capital." And they're basically permanent companies, right, so high leverage is not necessarily good. So they generally systematically are trying to reduce leverage and improve profitability. PE is different, as you know, right? So they're more transitory. It's either they're going to hold it, sell it, merge it, recap it. Something is going to happen. It would be an event-driven issue. We probably had more challenge in the private equity negotiations in the beginning as it related to the collections. So I don't know. But I'd say it's generally it's sort of a case-by-case basis on the sponsor on the situation versus an overall trend. But what I will tell you is like the public strategy of investing in public tenants tenants that are public or investment-grade has helped us quite a bit from a performance standpoint.

Linda Tsai -- Jefferies -- Analyst

The rent deferral agreements with the PE firms, are they any different from the public ones?

Jackson Hsieh -- President And Chief Executive Officer

Well, there I would say that probably yes. I mean, that's a way to describe it. I mean, some were it really depends on the industry and the leverage situation that the portfolio company are sort of sitting in. I mean, I'll go back to my old example. I use it all the time. When I came on board here in 2016, Shopko had been an asset that had been owned by this company for a long time. This PE sponsor had given and recapped the company several times over, picking all its capital out and then some. So when we kind of came down to fix it, they were like, wow, got to do whatever you want to do. We're if there's something that would be done, if it's interesting first of all, we'll do something. So a lot of the private equity, the things that we look at when we're doing a private equity deal is what's the nature of the sponsor? How long have they been doing the investment? Do they still have capital? Do they still have skin in the game? Because at some point when they start to not have that, I think it tends to be more challenging when you're talking about a rent deferral, like "if you don't do this, see you later" kind of conversation.

Linda Tsai -- Jefferies -- Analyst

Just one last one. What are cap rate targets for industrial and C-stores? We've heard about cap rate compression in industrial. What are you seeing? And how do you source these assets?

Jackson Hsieh -- President And Chief Executive Officer

C-stores, for really highly sought-after C-stores, I mean they're right now ruthlessly competitive, really low five cap, high four cap for prime, prime c-store assets in the right marketplace with the right rent to sales. Industrial for us, we the industrial we're focused on is not multi-tenant industrial and multi-tenant industrial, shorter-term leases in these major industrial nodes. Those are not the things we're buying, obviously. Those are fairly competitive and are driving to be retenanted and things like that. The industrial that we categorize are mission-critical assets for those particular tenants. They may be in a major node or major market generally. But it's something unique to that business. And so it's a combination of real estate as well as credit underwriting. If we're looking at buildings for an industry that are really way out locations, that's a totally different kind of risk profile will be evaluated. So I would say just generally, the industrial we're looking at is demanding a higher cap rate because it's not designed to be kind of main in main Class A core industrial asset that's necessarily set up for retenanting. It may be it's an A minus, it could be B plus or it could be a B plus building really in A location, but overriding with a great tenant, great industry

I mean, I go back like our deal we did with Party City. It's a major distribution center. If there are other distribution centers in Chester, which is the Western Upper West Side County. But the critical facility for that company, even during COVID, which stayed open, like, they were distributing the goods out. So when we look at this industrial sector, we look at it through a couple of different lenses versus saying what bread and butter industrial we would focus on.

Operator

Our next question comes from Josh Dennerlein with Bank of America. Please proceed with your question.

John Massocca -- Morgan Stanley -- Analyst

Yes. I guess you mentioned you hired two folks on the acquisition team, one who's going to focus on C-stores, one on industrial. Curious to learn more about their backgrounds. And then are there any other areas of focus that you're going to hire in for the acquisition team?

Jackson Hsieh -- President And Chief Executive Officer

When we talked about, Joshua, at Investor Day, I think we had highlighted, we were looking at adding on more depth into that team. And so we're obviously when we made that statement, we had been involved in that process. These are individuals, which later in the year will get chance get more background on them, but they're very experienced, very tenured in their respective industry expertise that they sit in. And we obviously, industrial is a major area of focus for us. And so that was obviously very logical, and that person has done a great job. And a very we'll see a lot of opportunity to sort of arrive off of those efforts. And the individual that had C-store experience, someone has worked for operators, on development. And as you see, C-stores is a big portion of our portfolio, and we think that there's a lot of ability to actually improve the quality and direction of our existing C-store portfolio. So that individual is working on that right now. So you might see some distribution, some more dispositions in that segment over time as well as more acquisition as well. Once again, overall improvement in the quality of it. So and I think in terms of new people after that, I think the team as we've rebalanced the team, they're I think we're in pretty good shape right now in terms of numbers of people in that effort right now from what we're trying to do.

Josh Dennerlein -- Bank of America -- Analyst

Got it, thanks. Jackson. That's it from me.

Operator

Our next question comes from Vikram Malhotra with Morgan Stanley. Please proceed with your question.

Vikram Malhotra -- Morgan Stanley -- Analyst

Hi guys, thanks for taking the questions. Just maybe first, I wanted to clarify, I heard a comment earlier about percentage rents sort of being included in the 85% metric. It's probably a very small amount, but if you would just include rental income, what would that percentage be?

Jackson Hsieh -- President And Chief Executive Officer

Vikram, you might just repeat that question. Sorry, again I just didn't catch half of it because of my headset.

Vikram Malhotra -- Morgan Stanley -- Analyst

You said the 85% included tenants that also were just on a percentage rent basis. And I know it's a small amount, but just what's the because percentage rent is a new thing you've now entered into versus what you had say, in May or in June, I guess. What is the percentage of just pure rent collection?

Jackson Hsieh -- President And Chief Executive Officer

So the 85% is just contractual. Mike just fixed rent came in.

Michael Hughes -- Executive Vice President And Chief Financial Officer

Yes.

Jackson Hsieh -- President And Chief Executive Officer

So the percentage rate we're talking about is sitting in that. If you look on that Page four of the deck, this base rent uncollected, I mean it's basically sitting in there. So I made this reference to total $9.7 million of deferred rent. The $4.6 million less the $9.7 million, that's the those are restructured those are structured deferrals that have this percentage rent component for a period of time. They're limited. They're not percentage rent forever. They kind of and so think about why we did percentage rent. Generally it's probably because the tenants shut down, closed. And so when they reopen, they think there's a lot of ramp time. Or like a movie theater, there might be challenges with distribution of movies. So we're trying to find a bridge to get them to to get them from fixed payment. And by the way, things could do better. I made a comment about this, we can get paid back, hopefully, sooner.

Vikram Malhotra -- Morgan Stanley -- Analyst

Got it. Yes, no. I guess I was confused because I think you had mentioned on the page where you gave the industry collection. I think in that page, you have the percentage include those tenants that are on percentage rent, if I'm not wrong.

Michael Hughes -- Executive Vice President And Chief Financial Officer

Yes. It's on Page six yes, Page six in the deck, the July rent collection that you're talking about, the 85%, that does not have any percentage of rent collection. We didn't collect any percentage rent in July.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay. Fine. So just on the collections, I guess, obviously, your bull case would be in the third quarter of fourth, year-end, you go back to kind of normal hunt regular collections pre-COVID. But given sort now you've seen a pickup in cases in some of the key states, Florida, Texas, we're not you're now at 85%. I'm assuming kind of your base case for the next few months or next two quarters would be some percent lower. Is that the case? Are you planning for a certain amount of deferrals to just continue into year-end?

Jackson Hsieh -- President And Chief Executive Officer

Look, we don't want to give predictions as to what's going to happen. But I would tell you that, I guess, made a comment earlier. Since we started these little interim updates and these quarterly reports since April this year, we've seen our collections increase. I expect August to be higher than July and expect September to be higher than August. And that's partly because of just contractual deferrals of operating. But also a lot of our tenants have sort of figured out sort of how to deal with some of the challenges that were put on them. It's not perfect. Like, if you think about gyms today. 10% of our gyms are in California just when they shut the gyms down again. I'm not sure when they're going to reopen. But so those particular gyms that are set in California are experiencing some pain. But the other gyms that have reopened are actually performing well. So we're not internally, as a team, we're not expecting rent to go down from this point in July. We're actually we expect collections to continue to increase, albeit we're not going to be happy until we get 100% of our rent collected, to be honest with you, so.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay. Fair enough. And then maybe just last one, just cyclical impacts of the recession you see. Obviously you start to see some bankruptcies, just some lost rent, etc. What are you can you give us a rough sense, sort of range, sort of what are you baking in for occupancy at year-end?

Jackson Hsieh -- President And Chief Executive Officer

Well, just I mean on the recession, I mean a great example is like look at companies like At Home. I mean they are that's the COVID in some ways has really accelerated what we thought they would be doing maybe a couple of years from now but in terms of their rollout in omni-channel. But a lot of our tenants actually are going to perform well if the economy turns down. People are going to travel less, they're going to fly less, they're going to need some form of entertainment or staple goods or services. So we don't we have a lot of luxury things in our real estate. And we don't have a lot of urban exposure. A lot of it's suburban. And so if you think about that COVID recession case, we think that the suburbs will probably do a little bit better. We think that tenants that are providing essential services and experience will be better. Urban maybe more challenged, right? So we think that we're positioned as well as you could be from just a portfolio standpoint, if there's a down lag further down lag. And then the things that we're buying in the third and fourth quarter, you should expect them to have some ability to withstand an economic downturn, right? So we're buying things that are essential food type businesses, essential technology, essential services-type businesses right now. Those are the things that we're really focused on.

Operator

Our next question comes from John Massocca with Ladenburg Thalmann. Please proceed with your question.

Jackson Hsieh -- President And Chief Executive Officer

Mike, did you want to follow up with one other comment?

Michael Hughes -- Executive Vice President And Chief Financial Officer

Yes. I just I want to follow up on one thing on just lost rent because Vikram mentioned, I think it's worth clarifying. Just lost rent is high this quarter. And I think pre-COVID, our lost rent was very, very low, sub-1%. And typically when we have lost rent, we don't expect the tenant to pay. They're typically on their way out. We did provide additional detail on our lost rent on Page four this quarter because lost rent is just it's a little different in the COVID world. So just to kind of come back to the lost rent, at 3.6%, 0.9% was subject to restructuring. So again, that is rent that has been restructured, so that is kind of fixed. We do have some tenants with bankruptcy, but that bankruptcy bucket, there will be tenants that come out there with some kind of lease restructure. So even though we reserve for that today, there is some opportunity to recapture some of that. And the other bucket, which is kind of a new bucket, which is the largest driver of lost rent this quarter, a lot of that are tenants that haven't paid rent through the quarter, and we just haven't reached an agreement with yet. So there will be some recapture there as well. So when you think about the forecasting about the future, I know mentioned lost rent. The lost rent has a different characteristic this time and a different feel because there is going to be some recapture in our loss rent. It's not just gone forever as it would be traditionally when lost rent was more normalized. I just want to point that out. Thanks.

Operator

Our next person in queue our next participant is John Massocca with Ladenburg Thalmann. Please proceed with your question.

John Massocca -- Ladenburg Thalmann -- Analyst

Good morning, everyone. So just thinking on the acquisition side of things, has the last couple of months changed maybe what your kind of return threshold is going forward? And I guess to that same in that same kind of vein, are there opportunities maybe for kind of contrarian investments out there? I mean, I don't think it's really contrarian anymore, but you kind of mentioned how home decor had rebounded significantly. And are there other places that maybe haven't rebounded yet, but maybe you see an opportunity to get kind of above-market cap rates or relatively higher cap rates that you think are good long-term plays?

Jackson Hsieh -- President And Chief Executive Officer

I mean I think, John, like what we're seeing today is the stuff that we liked before COVID that's working well in COVID. We're getting better returns to straight out. So we're diligently working through that kind of opportunity. And that to me is like the safest because it's sort of proven. We understand what they do in our portfolio. It's more predictable, and we're getting better yields. So that to me, like we want to do that. We're always looking at different segments. As you know, we have our research effort. I spend a lot of time with Dave and Travis, our credit head of credit, constantly sort of looking at what works, what doesn't work, how do things affect, how we look at our heat map, our rankings, how does the recession impact. So we are looking at those through those lenses. But I would say today, we're not making kind of wholesale changes in what we do. We I think we said in the first quarter, we're gently trying to add more industrial-focused assets into our portfolio. That hasn't changed. We if we pursue things that have potential closure risk and we're comfortable with those industries and tenants, you'll likely see security deposits in place. And so but I don't think we're not wholesale changing anything that we're doing right now. But we'll continue to evaluate the opportunities in other segments.

John Massocca -- Morgan Stanley -- Analyst

Understood. And then maybe with kind of the in-place portfolio, and apologies, if I missed this in the kind of the prepared remarks. Can you maybe provide some color on the makeup of the tenants who received abatements? And I guess when you kind of think about kind of the traditional abatement conversation that's going on where it's usually kind of term for forgiven rent, I mean what gives you confidence that those tenants are going to kind of continue to operate the payout rent through that additional term?

Jackson Hsieh -- President And Chief Executive Officer

I'm going to let Ken hit that because we have very few abatements, and like I said, they're case by case, so.

Kenneth Heimlich -- Executive Vice President And Head Of Asset Management

Yes, yes. So there were some very, what I would call, tactical strategic times we felt an abatement made sense because the vast majority of the small abatements that we did do, we got a much stronger lease structure. That could be term, it could be master lease, it could be a lot of different things. But we felt like, "Hey, if you want to trade one month of abatement," that is in the past, and we come out of this with a better, longer-term lease, where there were times when we said we're going to make that trade, and we did. And it just makes a lot of sense. This is not about, "Hey, how is this going to affect us this quarter?" This is about, "How do we improve the portfolio long term."

John Massocca -- Morgan Stanley -- Analyst

Were there any particular industries that were overweight in those abatements? Sorry, it's my final one.

Kenneth Heimlich -- Executive Vice President And Head Of Asset Management

I'd suggest it was not any particular industry that were that was weighted. There was several different industries. It was more not about the industry, more about the tenant's position and the long-term outlook of the portfolio.

John Massocca -- Morgan Stanley -- Analyst

That's it from me. Thank you all very much.

Operator

Our next question comes from Greg McGinniss with Scotiabank. Please proceed with your question.

Greg McGinniss -- Scotiabank -- Analyst

Hey, good morning everyone. Jackson, first on transactions, you mentioned that you expect to see more normalized acquisition levels in Q3 and Q4. And I know you mentioned that you're happy to not be providing guidance, but does the $300 million quarterly average that we saw ahead of the pandemic seem reasonable based on what you see in the market today? Just trying to get a sense for how deep the transaction environment is compared to last year.

Jackson Hsieh -- President And Chief Executive Officer

That's still more comfortable like $200 million per quarter. At least from here on out, I consider that more of a normalized because $300 million a quarter included that one large portfolio we did late last year. So if I took that out, it's kind of more like $800 million, so around $200 million a quarter. And obviously to personally say that, that means we've been looking on things well in advance of this.

Greg McGinniss -- Scotiabank -- Analyst

Okay. Yes. And then for a second this is my second question here. So based on the deferrals, based on the disclosures on Page four regarding the expected second half deferrals, is the right way to interpret the $4.6 million number versus the $39.3 million in July rents that basically there's no deferrals in place for August and September?

Jackson Hsieh -- President And Chief Executive Officer

No, no. I think the way I would think what I would look at on Page four is you've got $4.6 million in the second half at an average period of six months. So the next six months, we're going to have kind of variable rent collection on that $4.6 million through the second half. And then I would look at that $5.1 million on that page. That's just a straight and that will ex deferral. That has a pretty short duration right now, less than two months. So if you think about July, that's August, September, we'd be done with that $5.1 million. And then it's going to be sort of TBD on the $4.6 million. Then you've got the abated $1.3 million there. So in the second half. So that's kind of like that's how we get to 100% when you really think about this. It's going to be the pace of that $4.6 million that we sort of highlighted there, which is the percentage rent. And that percentage rent, by the way, Ken, I mean we don't give a lot of guidance on this, but that actually reverts back to a fixed rent at some point.

Kenneth Heimlich -- Executive Vice President And Head Of Asset Management

100%. Yes.

Jackson Hsieh -- President And Chief Executive Officer

Yes. It's not permanent. It's not a long-term percentage rent. It's a very short window that gives us an opportunity to win, gives tenant the opportunity if it's not so good. But those deferrals go back to a normalized some of them will flip right back to a normalized you have to start paying rent period and it did certain and then sort of catch-up for rent that we're accruing still.

Greg McGinniss -- Scotiabank -- Analyst

So that will be fixed plus additional deferral on top for those percent rent payments?

Jackson Hsieh -- President And Chief Executive Officer

I mean, the way I think about it, the percentage rent is, let's say we could have structured a tenant say, we'll defer the next three months' rent, that's fixed, right? All the percentage rent does in some cases, is it just helps us get current rent to the extent there is, but we still got a meter going on the three months they've got to catch up. And then there's others where it's just straight percentage with a fixed deferral date certain. Ken, is there may be a simpler way to describe it? I don't think I'll try to not get too colorful here, but.

Kenneth Heimlich -- Executive Vice President And Head Of Asset Management

Yes. No, no. Just I would say that the highlights are all of these percent rent features are time limited. The vast majority expire by the end of this year. And any whatever rent they pay based on that percent rent, just to be clear, any shortfall between that and contractual rent is deferred, so that they that will come back at some point. Typically, that payback's going to start in 2021.

Operator

We have reached the end of the question-and-answer session. At this time, I'd like to turn it back to Jackson Hsieh for closing comments.

Jackson Hsieh -- President And Chief Executive Officer

Okay. Well, look, we all want to thank you for rearranging your schedules to participate in our call. And look, the headline here, takeaway here is that we feel very good about the current status of our portfolio and obviously our balance sheet. And the entire organization is very excited to be repivoting back to what I'll call a normalized acquisition growth posture going forward. So thank you, guys. Thank you all for participating. Take care.

Operator

[Operator Closing Remarks]

Duration: 75 minutes

Call participants:

Pierre Revol -- Senior Vice President, Strategy Planning and Investor Relations

Jackson Hsieh -- President And Chief Executive Officer

Michael Hughes -- Executive Vice President And Chief Financial Officer

Kenneth Heimlich -- Executive Vice President And Head Of Asset Management

Shivani Sood -- Deutsche Bank -- Analyst

Ki Bin Kim -- SunTrust -- Analyst

Haendel St. Juste -- Mizuho -- Analyst

Nate Crossett -- Berenberg -- Analyst

Linda Tsai -- Jefferies -- Analyst

John Massocca -- Morgan Stanley -- Analyst

Josh Dennerlein -- Bank of America -- Analyst

Vikram Malhotra -- Morgan Stanley -- Analyst

John Massocca -- Ladenburg Thalmann -- Analyst

Greg McGinniss -- Scotiabank -- Analyst

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