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National Retail Properties Inc (NYSE:NNN)
Q2 2020 Earnings Call
Aug 3, 2020, 10:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to your National Retail Properties' Second Quarter 2020 Operating Results Conference Call. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Jay Whitehurst. Sir, the floor is yours.

Julian E. Whitehurst -- President and Chief Executive Officer

Thank you. Good morning and welcome to the National Retail Properties' second quarter 2020 earnings call. Joining me on this call is our Chief Financial Officer, Kevin Habicht.

First, I want to express my heartfelt appreciation to all the associates at National Retail Properties for their hard work, dedication, ingenuity, flexibility and respect for each other as we address and work through the myriad impacts of the COVID-19 pandemic on our lives and the business this past quarter. And to all of those first responders and healthcare workers who are out there keeping us safe and healthy, I offer our deepest thanks as well.

Second quarter results for National Retail Properties reflect the basic strength and resiliency of our long term strategy and business model. We ended the quarter in a strong liquidity position with $225 million of cash in the bank, plus $900 million of available capacity on our line of credit. Our fortress-like balance sheet and long term perspective were driving factors behind the recent announcement of an increase in our common share dividend. Once that dividend is paid later this month, 2020 will become our 31st year of increased dividends, a feat matched by only two other REITs and less than 90 public companies in the United States.

We collected approximately 69% of our rents due in the second quarter and agreed to defer approximately 21% of our second quarter rents. As the pandemic spread and businesses shut down, National Retail Properties adopted a very collaborative approach with those tenants that were materially impacted, while remaining measured, consistent and fair. Our typical rent deferral agreement had a term of less than three months with repayment of the deferred rent typically commencing in the fourth quarter and continuing through the end of 2021. To us, this is the way a long term partner should behave.

For those tenants that were unwilling to pay rent or agree to a deferral arrangement, we're pursuing our legal remedies for payment and enforcement of the lease. It is noteworthy that in all of our negotiations and agreements with tenants, we have forgiven only 0.1% of our quarterly base rent. Today's press release also includes our disclosure that July rent collections were approximately 84%. Consistent with our long term practice of reporting results only quarterly, we do not anticipate reporting monthly rent collections for August or September prior to our third quarter earnings release.

Our well-located retail properties were in high demand prior to the COVID-19 pandemic, as evidenced by our consistently high occupancy rate of 98% plus or minus 1% and our consistently high tenant lease renewal rate of 80% to 85% at approximately 100% of prior rent. Both of those impressive metrics continued to hold true through the first half of 2020 and we believe our properties will remain in high demand in the post-pandemic world.

Our pause in acquisitions was evident as we acquired no new properties in the second quarter investing only $7 million to complete some projects that were already under way. Year to date, we have invested $74 million at a 6.9% initial cash cap rate. We're continuing to take a thoughtful approach to new capital commitments and focusing on maintaining our strong liquidity position. Consistent with that philosophy, we have continued to raise capital in 2020 issuing $53 million of equity via our ATM and raising $40 million through property dispositions through the first half of the year. We ended the second quarter with more cash on the balance sheet than at the end of Q1, all without increasing our leverage. This is an enviable position from which to start the second half of 2020.

In closing, I want to reiterate the long term approach to all aspects of our business. We believe that well located real estate acquired at reasonable prices and leased to strong regional and national tenants at reasonable rents, all supported by a low leverage balance sheet and a long-tenured staff of industry experts, remains the right formula for creating shareholder value on a multi-year basis.

With that, I'll turn the call over to Kevin for more details on our second quarter results.

Kevin B. Habicht -- Executive Vice President and Chief Financial Officer

Thank you, Jay. And as usual, I'll start with our cautionary statement that we will make certain statements that may be considered to be forward-looking statements under Federal Securities law. The company's actual future results may differ significantly from the matters discussed in these forward-looking statements and we may not release revisions to these forward-looking statements to reflect changes after the statements were made. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the SEC and in this morning's press release.

With that, headlines from this morning's press release report quarterly FFO results of $0.65 per share for the second quarter of 2020 and AFFO per share was reported at $0.49 per share, which reflects $30.2 million or $0.17 per share of non-cash straight-line rents arising from the rent deferral agreements we discussed last quarter in connection with the economic shutdown.

Occupancy was 98.7% at quarter end, that's down 10 basis points from the prior quarter. G&A expense was -- for the second quarter was 5.7% of revenues and that's down from 5.8% of revenues in the first quarter. The primary items of note in our second quarter results are rent collections and receivables. First, rent collections improved monthly throughout the second quarter and into July. Today, we reported rent collections of approximately 69% for the second quarter and 84% for the month of July.

In the midst of the storm, it's never totally clear if we're doing too much or too little with our rent deferrals, but we're hoping we've struck a reasonable balance and with the benefit of three months of hindsight, we are relatively pleased with the progress being made as we work with a number of our tenants to find a path forward to pay the rent they owe us. However, uncertainty continues and it's our opinion, it will be 2021 before we all get a better read on how the economy is going to perform. So we remain cautious looking to reserve options, but we see some rays of light on the collections front.

Now, over to receivables. First, accrued rental income receivables, sometimes called straight-line rent. We recognized $35.8 million of accrued rent related to the tenant rent deferral agreements, but reserved $5.6 million producing a net increase in accrued rent of $30.2 million for the quarter in connection with those rent deferral lease amendments. This accrued rental income is included in GAAP earnings, it's included in FFO and core FFO results. But consistent with our past practice, we excluded accrued straight-line rent when calculating AFFO. We did footnote what AFFO would have been if we had not done this, as I referenced at the beginning of my remarks. These rent deferral agreements were entered into with certain tenants, which represented 21% of the rent due in the second quarter. On average, the rent deferrals covered 2.4 months of rent, 84% of which related to second quarter rent and 16% relates to third quarter rent. We expect to have 94% of these rent deferrals paid back to us by the end of 2021.

Secondly, the rent receivables increased by $17 million during the second quarter. We established a reserve of $2.6 million resulting in a net rent receivable increase of $14.4 million for the quarter. These receivables are concentrated in our four retail lines of trades where our collections have generally been hit the hardest, which we noted on last quarter's call, namely theaters, full service restaurants, health and fitness, and family entertainment. We expect these receivables will be paid, resolved with a rental deferral agreement or end up in litigation.

We ended the second quarter with $225 million of cash on hand and no amounts outstanding on our bank credit facility. We did not draw down our bank line as many companies did. We have not made material new property investments and our next debt maturity is in 2023, so in very good liquidity position. And as our stock rallied 50% off its lows, we opted to issue [Technical Issues] shares of common equity in the second quarter near $37 per share on average via our ATM, not a large amount of the scheme of things and you shouldn't read too much into it, but just adding a bit more cushion and help preserving options.

Our weighted average debt maturity is now 10.7 years with a weighted average interest rate of 3.7%. Financial covenant compliance is in good shape as outlined on Page 9 in the press release. So we're in a very good liquidity position with very few capital obligations during the next three years. Our leverage metrics remain very strong. Net debt to gross book assets was 35.1%, net debt to EBITDA was 4.8 times at June 30. Interest coverage was 4.6 times and fixed charge coverage was 4.1 times for the second quarter. Only five of our 3,117 properties are encumbered by mortgages totaling only $12 million.

Consistent with last quarter, we have not provided 2020 earnings guidance in light of the uncertainty in the economy, generally, and in retailing, in particular. Until we get a better read on the economic recovery and what the new normal might look like, we're not able to reasonably predict precisely how things will play out. As we work through what is undoubtedly a challenging 2020 for the global economy, we will continue to endeavor to give NNN the best opportunity to succeed in the coming years.

And, Terren, with that, we will open it up for any questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] We'll take our first question from Brian Hawthorne with RBC Capital Markets. Please go ahead, sir.

Brian Hawthorne -- RBC Capital Markets -- Analyst

Hi, guys. I guess, just kind of want to talk about the leasing environment. How deep is the demand you've seen for your leases and have you seen any change in interest for renewals throughout the pandemic?

Julian E. Whitehurst -- President and Chief Executive Officer

Hey, Brian, good morning. The -- I would say that leasing demand right now is less than usual for vacant properties. I mean, I think there's just a lot of businesses are waiting to see what they want to do about opening new stores. But as I reported in my comments this morning, our lease renewal metrics have remained very consistent with our long term average of around 80% to 85% of the tenants renewing their lease at around a 100% of prior rent and that is without the landlord providing any lease incentive or additional dollars to incentivize the tenant for that renewal. So those renewals are on an as-is basis. So, so far, it's remained very consistent with our long term average.

Brian Hawthorne -- RBC Capital Markets -- Analyst

Great. And then, I guess, what would cause you to look at potentially extending any deferral agreements and what could that look like if you were to start doing those -- doing extensions?

Julian E. Whitehurst -- President and Chief Executive Officer

Yeah. As we talked about in the prior call and earlier in this call, we've taken a very collaborative approach with our tenants as an initial proposition for a first deferral. So to the extent the tenant's business was significantly disrupted, we were quick to be -- and to willing to discuss short term deferral only, not forgiveness, but deferral only, to be repaid starting later this year typically and continuing through the latter part of next year typically. And to the extent tenants -- that's not enough for some tenants, then we will engage in what we sometimes refer to with folks as a Phase 2 discussion, which would be a more far ranging discussion about ways to create value for National Retail Properties if we have to do further deferrals or other provisions that you might have to do with the tenant to make things work out.

And we have a lot of tools in that toolkit. We can talk about extending term, we can start talk about changing lease rent bumps during the term of the lease, we can talk about new transactions, we can talk about substitution of properties that are currently leased for ones that the tenant might might want to swap out. So there's a lot of tools in that tool kit. But it really -- so forward that, that has not come into play in any great measure at all. We've had good success with these first initial deferrals that were, as Kevin said, almost completely structured to deal with second quarter rent. And then you've seen in July that tenant rents started to pick up notably.

Brian Hawthorne -- RBC Capital Markets -- Analyst

Okay, great. Thank you, guys.

Operator

We'll take our next question from Spenser Allaway with Green Street Advisors. Please go ahead, sir.

Spenser Allaway -- Green Street Advisors, LLC -- Analyst

Hi, thank you, guys. Can you throw in a little bit more color on which specific tenant industries are driving the increased rent collections in July versus 2Q?

Kevin B. Habicht -- Executive Vice President and Chief Financial Officer

Spenser, that's a good question, but I think it's kind of across the board. The lines of trade that have been -- that's struggling the most during the last few months has been the theaters and health and fitness. And those lines of trade, kind of, continue to struggle as those -- as it's difficult to get those businesses opened and reopened. So, I'd say, that probably has not contributed much to the increase. But otherwise, I think, across the board, the businesses got better.

Spenser Allaway -- Green Street Advisors, LLC -- Analyst

Okay. And then you guys raised equity in the quarter and I mean, you obviously have ample liquidity and access to the line. So what would you need to occur in order for you guys to get more aggressive on the external growth front in the back half of the year?

Julian E. Whitehurst -- President and Chief Executive Officer

Spenser, we just want to see how things settle out over the long term. As I've said already in this call a few times, we take a long term view of the business and we just want to see how this continues to play out. Each month, since April, things have gotten a little better and felt a little better, but you -- by no means, no one is saying that this is behind us yet. So we just want to get a better feel for how the next few months are going to play out, as that relates to pricing, as well as cost of capital -- pricing for properties, as well as cost of capital.

Spenser Allaway -- Green Street Advisors, LLC -- Analyst

Thank you.

Operator

We'll take our next question from Rob Stevenson with Janney. Please go ahead.

Robert Stevenson -- Janney Montgomery Scott, LLC -- Analyst

Good morning, guys. First question revolving around the -- any changes to the 1031 program with -- given the election. Are you guys anticipating on queuing up some additional dispositions into year-end to possibly take advantage of that? Is that not in the cards or in the strategy at this point? How are you guys thinking about that and the opportunistic ability to be able to sell assets at potentially significantly lower cap rates than January or February?

Kevin B. Habicht -- Executive Vice President and Chief Financial Officer

Yeah, yeah, Rob, the dispositions has been a core competency for us for a long time, and we have a good steady flow of disposition business. When we've gone back and looked at it, only about, call it, 30% plus or minus of our disposition has been to 1031 exchange buyers. And so we don't anticipate that affecting us a great deal in terms of those dispositions. It -- we will see if we ramp that up, come the end of the year, a lot of our 1031 dispositions are kind of reverse [Phonetic] inquiries where we are being contacted by buyers who are trying to get through. So you're right, there may be a push to do that at the end of the year that will be kind of demand-driven. But we'll see. It's not a big component of our overall disposition platform.

Robert Stevenson -- Janney Montgomery Scott, LLC -- Analyst

Okay. And then when you look at your more challenged operators out there, whether or not it be Dave & Buster's, Main Event, Chuck E. Cheese, theaters or the gyms, is there any significant lease expirations coming up in those categories in 2021 where the operator has been challenged and you're likely to get the assets back at that point, rather than being a renewal?

Julian E. Whitehurst -- President and Chief Executive Officer

The rather short answer to that is no. There's nothing I think in the upcoming lease expirations that's...

Kevin B. Habicht -- Executive Vice President and Chief Financial Officer

Yeah.

Julian E. Whitehurst -- President and Chief Executive Officer

...nothing [Phonetic] or disproportionate to those lines of trade.

Kevin B. Habicht -- Executive Vice President and Chief Financial Officer

Yeah. To be honest, it's really outside of those lines of trade so -- but with near-term expirations, we should be fine.

Robert Stevenson -- Janney Montgomery Scott, LLC -- Analyst

Okay, all right. That was what I was trying to get at. Thanks, guys. Appreciate the time.

Operator

We'll take our next question from John Massocca with Ladenburg Thalmann. Please go ahead.

Julian E. Whitehurst -- President and Chief Executive Officer

John.

Operator

It appears that Mr. Massocca is no longer there. We'll move to our next question with Vikram Malhotra with Morgan Stanley. Please go ahead. Mr. Malhotra? Excuse me [Phonetic].

Vikram Malhotra -- Morgan Stanley -- Analyst

Hear me?

Operator

Oh, we can hear you now. Please go ahead.

Vikram Malhotra -- Morgan Stanley -- Analyst

Hello. Can you hear me?

Kevin B. Habicht -- Executive Vice President and Chief Financial Officer

Yes, we can.

Julian E. Whitehurst -- President and Chief Executive Officer

Go ahead, Vikram.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay. I just wanted to clarify the impairment you took this quarter. Could you just give us a bit more color on what that was? In case, if I missed that, I apologize. And then just second on the asset sales. Can you clarify, kind of, how you're thinking about vacant properties?

Kevin B. Habicht -- Executive Vice President and Chief Financial Officer

Sure. Yeah, on the impairment, we had $21.8 million during the quarter. Probably two-thirds of that roughly related to one small family entertainment operator retailer that were looking to sell a number of properties. And so that's the bulk of that related to. As it relates to dispositions, so far, it's been a kind of our usual balance between occupied and vacant. I think three of our eight this past quarter -- three of our eight properties sold in the second quarter were vacant, which again is, in terms of mix, that's kind of the normal. I think going forward, we'll -- again, we'll see, sorry to keep, kind of, saying that, you will see if that picks up or not. It seems like it would, but we'll just have to see.

Julian E. Whitehurst -- President and Chief Executive Officer

Yeah.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay.

Julian E. Whitehurst -- President and Chief Executive Officer

Vikram, just at a kind of a strategic business model level, job one is -- continues to be to release our vacant properties. And so that's what you will see us attempt to do, first and foremost, as always. But we may be a little bit quicker to dispose off vacant properties and monetize those if we have not had success getting them released within nine months or a year. Historically, we sometimes held properties longer than that, trying to get them released and we may be a little bit quicker to monetize that and turn that money into new acquisitions.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay. And then just -- I wanted your updated thoughts on how to think about the occupancy trajectory from here on over the next, call it, six or 12 months. I know, during NAREIT, you had offered a certain kind of hypothetical bare case view on occupancy. And I'm just wondering, now that we're a couple of more months under our belts, like how are you thinking about the effects of a recession on occupancy versus, say, the GFC?

Kevin B. Habicht -- Executive Vice President and Chief Financial Officer

Yeah, it's still hard -- very hard to answer that. I will say, I think, we're probably slightly more optimistic than we were. I mean, like I said, with the benefit of three months of hindsight, it feels like things are moving in the right direction. Collections obviously have ticked up. We actually had a couple of rent deferral agreements that got sent back to us and said, we've got the money, we're going to pay rent, we don't need the deferral agreements. At the margins, slightly better. Having said that, we -- I think one of the ways we've framed versus that 2008, '09, we lost 300, 350 basis points of occupancy and this feels worse than that. So we obviously think it'll be more than that. But we think whatever that number is, which we don't know obviously, it appears that we'll be just fine in terms of balance sheet, dividend, all the critical kind of metrics. And it really just becomes a matter of releasing properties in due course and getting back -- turning back on the acquisition engine when we think it's appropriate.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay and then just last one for me, if I can clarify. You had alluded to the fact that if you need to offer more deferrals, you might look at pulling certain levers in terms of bumps, etc. But just as you think -- as we think about the next six months, is this your base case? Are you planning for a certain percentage of deferrals to discontinue through the balance of the year?

Julian E. Whitehurst -- President and Chief Executive Officer

We -- Vikram, I think I understand the question. We are optimistic that the majority of our deferrals -- the initial deferrals will be paid back on schedule and the tenants will otherwise get back on the regular rent payment schedule through this third quarter and into the end of the year. It would be unrealistic to assume that we won't have some other problems and need to do some additional deferrals or lease restructurings with some tenants. But to date, to echo Kevin's modest sense of optimism, to date, we've had very few discussions about those kind of things with tenants.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay, great. Thanks so much.

Operator

We'll return to John Massocca with Ladenburg Thalmann. Sir, your line is now open.

John Massocca -- Ladenburg Thalmann & Co., Inc. -- Analyst

Good morning.

Julian E. Whitehurst -- President and Chief Executive Officer

Hey, John.

Kevin B. Habicht -- Executive Vice President and Chief Financial Officer

Hi, John.

John Massocca -- Ladenburg Thalmann & Co., Inc. -- Analyst

Second time, John. All right. So I just wanted to dive a little bit on Chuck E. Cheese. Kind of given what's going on there, I guess, thinking what are your views, kind of early views on recovery potential there. Just any kind of color would be helpful.

Julian E. Whitehurst -- President and Chief Executive Officer

We -- they're in bankruptcy. We are -- Kevin, we are on the creditors committee...

Kevin B. Habicht -- Executive Vice President and Chief Financial Officer

We are.

Julian E. Whitehurst -- President and Chief Executive Officer

...for that. Right? So -- but they've projected some other leases already, none of which being ours, and we will just see how that plays out. We -- that's an example to us of acquiring good real estate locations at reasonable prices and reasonable rents. And, so far, they've -- those properties have stayed in the business in the bankruptcy.

John Massocca -- Ladenburg Thalmann & Co., Inc. -- Analyst

And then just in terms of maybe recovery, I mean, should we expect something in line with historical norms or is -- given the operating environment we're in, maybe something discounted to that?

Julian E. Whitehurst -- President and Chief Executive Officer

Yeah, the historical norm for us is, on vacant properties, we collect about $0.70 on $1, about 70% of our prior rent without -- and that's on an as-is basis, so without putting additional money into those properties. And, I think, right now, that's probably kind of the bright line we're looking at, but it's too early for us to have a feel for that. We -- it may be better or it may be worse.

John Massocca -- Ladenburg Thalmann & Co., Inc. -- Analyst

Okay. And then looking at kind of the 2Q rent collection, one industry that kind of stood out in terms of collection and not being maybe on the traditional industries that have been impacted particularly hard was with the Automotive Services. Can you just provide any color on what kind of caused that low level rent collection in that kind of industry? And are they maybe one of the 10 industries that have rebounded in July?

Julian E. Whitehurst -- President and Chief Executive Officer

The -- yeah, they -- without getting into talking about specific tenants, that sector also includes car washes. And the -- and so their -- those businesses were some that we were happy to talk to about deferral agreements when the pandemic first struck. And, your assumption is right, John. In many cases, those businesses have rebounded. And so that line of trade is notable in the exhibit to the press release, but it is not at all a line of trade that we are losing sleep over, in terms of getting back to full ramp, and getting those deferrals paid.

John Massocca -- Ladenburg Thalmann & Co., Inc. -- Analyst

Okay. And then...

Julian E. Whitehurst -- President and Chief Executive Officer

There's a lot of strong tenants in that line of trade.

John Massocca -- Ladenburg Thalmann & Co., Inc. -- Analyst

Okay. And then one quick detailed question to just make sure I was hearing it right. The amount potentially that you reserved for being below a collectability threshold, that's in that $5.6 million?

Kevin B. Habicht -- Executive Vice President and Chief Financial Officer

Correct. [Speech Overlap]

John Massocca -- Ladenburg Thalmann & Co., Inc. -- Analyst

Okay.

Kevin B. Habicht -- Executive Vice President and Chief Financial Officer

Sorry. Yeah, that's a general reserve for the accrued rent when the -- all the accrued rent is -- effectively all, is related to the rent deferral lease amendments that we entered into.Yes.

John Massocca -- Ladenburg Thalmann & Co., Inc. -- Analyst

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

Operator

We'll take our next question from Christy McElroy with Citi. Please go ahead.

Christy McElroy -- Citigroup, Inc -- Analyst

Hi, good morning, guys. Thanks. Just a quick follow-up on that reserve question. So you also mentioned a $2.6 million number. Was that a portion of the $5.6 million? And -- just to clarify that. And did you write-off any straight-line rent as well in the quarter?

Kevin B. Habicht -- Executive Vice President and Chief Financial Officer

Yeah. So, I'll answer the first one -- for the last one, no. We didn't write anything -- write any off. But, you have two different buckets of receivables. One, the accrued rent receivable, which we've always had over the years but we added to, significantly, in the second quarter as a result of the lease -- the rent deferral lease amendments. And so that accrued rent receivable went up $35.8 million. We reserved $5.6 million just for that accrued rent receivable. There are other receivables, which is just typical quarter end rent receivables. Somebody didn't pay rent and they didn't enter into a deferral agreement and so that receivable went up by $17 million, we reserved $2.6 million for that receivable. Two different buckets, So, yeah, the total of $8.1 million or $8.2 million, I guess, of total reserves for receivables.

Christy McElroy -- Citigroup, Inc -- Analyst

Okay, got it. Thank you. And then just on the accounting treatment of the deferred rent. So it looks like it was treated as a lease modification instead of taking advantage of FASB's relief for treating it as not a modification, given that it went through the straight-line rent line instead of accruing in the rental revenue line. Can you just talk about the nature of the deferrals that either made it ineligible for the FASB relief or that you decided to treat it that way as a modification?

Kevin B. Habicht -- Executive Vice President and Chief Financial Officer

No, we decided to book it as accrued rent. We did take advantage of that, that we did not reclassify these leases. And so -- but the lease deferral amendments were all treated as increase in accrued rental income.

Christy McElroy -- Citigroup, Inc -- Analyst

Increase in accrued. So you've put it through the straight-line rent as opposed to accruing it in the [Technical Issues]. In terms of the Q2 and July collection, so the amount of deferrals in Q2 implies about 10% unresolved, which you talked about, and then in July, can you provide the bucket -- out of the 16% remaining, can you provide the amount deferred and the amount unresolved? And then I guess the second part of that question is maybe you can give a little bit more color on that unresolved bucket. What portion of that are you pursuing those legal remedies and what portion of that are national tenants?

Kevin B. Habicht -- Executive Vice President and Chief Financial Officer

Yeah. So, you should think of July very similar to the 2Q in terms of the unresolved being about that same 10% number...

Christy McElroy -- Citigroup, Inc -- Analyst

Okay.

Kevin B. Habicht -- Executive Vice President and Chief Financial Officer

...meaning 84% collected. There is probably 6% that's being deferred in the third quarter, as I mentioned, some of our deferral is built in the third quarter and then 10% still unresolved. It's a little still hard to handicap exactly how it's going to -- that 10% is going to get broken out between collected, which we've had a fair amount collected, execute a deferral agreement or litigate. And so we're in the early stages of sorting that out.

Christy McElroy -- Citigroup, Inc -- Analyst

Okay, thank you.

Julian E. Whitehurst -- President and Chief Executive Officer

Christy, I'd just -- maybe I'll -- to add a little bit of color to that. The -- when I look at it, about half of that 10% are in the active discussions about deferrals that may well happen, that I'm a little more optimistic about. And about half of it is in discussions with tenants that I'm less optimistic won't -- will result in a deferral agreement, more likely may end up in legal process. But those are with -- a lot of the tenants that makeup that 10% are large strong companies that have simply chosen either not to pay or not to agree to deferral terms that we think are fair and reasonable.

Christy McElroy -- Citigroup, Inc -- Analyst

Okay, that's helpful. Thank you, guys.

Operator

[Operator Instructions] We'll take our next question from Chris Lucas with Capital One. Please go ahead.

Christopher Lucas -- Capital One Financial -- Analyst

Hey, good morning guys. I guess just, Kevin, just on the expense side of the equation, do you guys have much insight into the direct payments that tenants have to make, as it relates to expenses and how on top of those they are?

Kevin B. Habicht -- Executive Vice President and Chief Financial Officer

Yeah, I mean, we obviously track that along with rent and so taxes -- real estate tax has been the most important. So yeah, we definitely stay on top of that and make sure the tenants are staying on top of that. Our deferral agreements typically continue to require the tenant to pay those expenses and we're deferring generally just the base rent amount.

Christopher Lucas -- Capital One Financial -- Analyst

So when you're on -- and as it relates to just the sort of percentage rent collected or whatever metric you guys have provided, for those like that haven't paid rent and you don't have a deferral agreement, are you able to sort of stay on top of whether or not they paid any expenses or not, or is that a additional sort of unknown?

Kevin B. Habicht -- Executive Vice President and Chief Financial Officer

No, we know. We have a good sense on whether someone pays their taxes or not. The utilities and insurance etc, are less critical, obviously, and less sizable and so the real estate taxes is a big one, and, yeah, we continue to track that.

Christopher Lucas -- Capital One Financial -- Analyst

And that's factored into your collected result [Phonetic]?

Kevin B. Habicht -- Executive Vice President and Chief Financial Officer

Correct. Correct, yes.

Christopher Lucas -- Capital One Financial -- Analyst

Okay.

Julian E. Whitehurst -- President and Chief Executive Officer

Yes. Chris, the -- all of the triple net expenses are part of the overall discussions with tenants that have not -- with tenants that make up that 10% AR bucket -- unresolved bucket.

Christopher Lucas -- Capital One Financial -- Analyst

Okay. And then I guess as it relates to -- retained cash flow has been a big component of your capital investment opportunity set, I guess, if you want us to call it that way. Anyway, do you have a number for us for the second quarter in terms of retained cash flow?

Kevin B. Habicht -- Executive Vice President and Chief Financial Officer

Not really. I mean, I guess, for the quarter, I mean, if you're looking at versus all-in dividends, etc.?

Christopher Lucas -- Capital One Financial -- Analyst

Yeah.

Kevin B. Habicht -- Executive Vice President and Chief Financial Officer

Yeah, I mean we're just about breakeven for the quarter. That's at -- that was at 69% rent collection. I think we are -- if you look at our AFFO of $83 million, dividend was $88 million, if that gives you any kind of context.

Christopher Lucas -- Capital One Financial -- Analyst

Yeah. Thank you. I appreciate it.

Kevin B. Habicht -- Executive Vice President and Chief Financial Officer

Yeah.

Christopher Lucas -- Capital One Financial -- Analyst

That's all I had.

Julian E. Whitehurst -- President and Chief Executive Officer

Yeah, so like on a straight cash base, we're at about breakeven.

Kevin B. Habicht -- Executive Vice President and Chief Financial Officer

For the quarter, yeah. And for the half, we're obviously still positive. Yeah.

Operator

We'll take our next question from Joshua Dennerlein with Bank of America. Please go ahead.

Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst

Hey guys, just maybe a follow-up to Christy's question.

Julian E. Whitehurst -- President and Chief Executive Officer

Josh, I think we lost you.

Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst

I'm looking at here, in history...

Julian E. Whitehurst -- President and Chief Executive Officer

Josh, you're cutting out. Terren, let's go on to the next call, and see if we can get Josh back.

Operator

We'll move back to Vikram Malhotra with Morgan Stanley. Please go ahead.

Vikram Malhotra -- Morgan Stanley -- Analyst

Thanks guys for accommodating. Just wanted to clarify on the rent -- on the deferrals, or even just the collections, just wondering if there is any change in your experience from tenants in states like Texas and Florida, where we've seen a ramp up in cases.

Julian E. Whitehurst -- President and Chief Executive Officer

No, we haven't really seen any regional or statewide notable variances in all of that at this point, Vikram. Remember, that we deal with large tenants that have businesses everywhere. So even to the extent there may be a hotspot that pops up and causes them to shut down some of the units in that hotspot, these are -- we're -- to the extent that tenant was paying his rent, they're still paying his rent.

Vikram Malhotra -- Morgan Stanley -- Analyst

Thank you.

Operator

[Operator Instructions] There appear to be no further questions at this time. Mr. Whitehurst, I'll turn the floor back to you.

Julian E. Whitehurst -- President and Chief Executive Officer

Thank you. We appreciate all of you joining us this morning. Have a good day.

Operator

[Operator Closing Remarks]

Duration: 42 minutes

Call participants:

Julian E. Whitehurst -- President and Chief Executive Officer

Kevin B. Habicht -- Executive Vice President and Chief Financial Officer

Brian Hawthorne -- RBC Capital Markets -- Analyst

Spenser Allaway -- Green Street Advisors, LLC -- Analyst

Robert Stevenson -- Janney Montgomery Scott, LLC -- Analyst

Vikram Malhotra -- Morgan Stanley -- Analyst

John Massocca -- Ladenburg Thalmann & Co., Inc. -- Analyst

Christy McElroy -- Citigroup, Inc -- Analyst

Christopher Lucas -- Capital One Financial -- Analyst

Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst

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