STORE Capital (STOR) Q2 2020 Earnings Call Transcript

STORE Capital (STOR)
Q2 2020 Earnings Call
Aug 05, 2020, 12:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello, and welcome to STORE Capital's Q2 2020 earnings webcast. [Operator instructions] Please note, today's event is being recorded. I now would like to turn the conference over to Lisa Mueller, investor relations. Ms.

Mueller, please go ahead.

Lisa Mueller -- Investor Relations

Thank you, operator. And thank you, all, for joining us today to discuss STORE Capital's second-quarter 2020 financial results. This morning, we issued our earnings release and quarterly investor presentation, which includes supplemental information for today's call. These documents are available in the Investor Relations section of our website at ir.storecapital.com, under News and Results, Quarterly Results.

On today's call, management will provide prepared remarks, and then we will open up the call for your questions. [Operator instructions] Before we begin, I would like to remind you that today's comments will include forward-looking statements under the federal securities laws. Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts, and assumptions and are subject to risks and uncertainties, including those arising from the COVID-19 pandemic and its related impacts on us and our tenants that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Our actual financial condition and results of operations may vary materially from those contemplated by such forward-looking statements.

A discussion of the factors that could cause our results to differ materially from these forward-looking statements is contained in our SEC filings, including our reports on Form 10-K and 10-Q. With that, I would now like to turn the call over to Chris Volk, STORE's president and chief executive officer. Chris, please go ahead.

Chris Volk -- President and Chief Executive Officer

Thank you, Lisa. And good morning, everyone. And welcome to STORE Capital's second-quarter 2020 earnings call. With me today are Mary Fedewa, our chief operating officer; and Cathy Long, our chief financial officer.

First things first. We welcome the opportunity to speak to you today, and hope that you and your families continue to be healthy and safe. Our team has been working closely with our tenants throughout the pandemic. We've been encouraged by the uptrends in both business reopenings and collections since June.

We estimate that 92% of our locations are currently open for business, which is slightly ahead of where we were in June, and represents those states that have recently experienced new rounds of business closures. However, the mix of open businesses has altered with some sectors, such as education, demonstrating promising trends and a few sectors facing renewed closure mandates in certain markets. Mary will provide you added detail here, but our portfolio diversity has been important to our success, as is our generally suburban investment profile, which has limited our exposure to the nation's most sensitive pandemic centers and is more conducive to demands of social distancing. With that said, let me discuss our achievements for the quarter.

Our portfolio remains healthy with occupancy rate of 99.5%, and with continued stability in the percentage of net lease contracts rated investment-grade in quality based upon our STORE Score methodology. On the acquisition front, we began to curtail our acquisition efforts beginning in the first quarter, but did make just over $135 million of new investments during the second quarter. Those investments were funded with equity, and cash recycled from asset sales, the results of which elevated our unencumbered assets to about 62% of total investments and reduced our financial leverage to cost to historically low levels. Leverage on the unencumbered -- majority of our balance sheet stood at a sector low of 23% of cost, providing us with ample flexibility in our financing options to navigate this pandemic.

STORE's unencumbered asset leverage is lower than most any public REIT I know of, irrespective of corporate credit rating. Now as I do each quarter, here are some statistics relative to our second-quarter investment activity. Our weighted average lease rate during the quarter was 8.7%, representing a meaningful rise over prior quarters and reflective of the less robust capital availability in general across the middle-market segment of the economy that we are principally dedicated to. The average annual contractual lease escalation for investments made during the quarter was 1.8%, providing us with a gross rate of return, which you get by adding the lease escalations to the initial lease rate of about 10.5%.

Presently, we are not employing leverage on our new investments. Instead, we are electing to maintain a more conservative posture in these less certain times. However, we need to incorporate our customary corporate leverage in the area of 40%, our levered investor return would approximate 15% with net returns after operating costs of about 13%. Our historic investor returns and outperformance from STORE and from predecessor public companies have been mostly driven by our robust business model, which is why we take the time to disclose investment yields, contractual annual lease escalations, investment spreads to our cost of long-term borrowings and our operating cost as a percentage of assets.

These are the four essential variables that enable you to compute expected investment rates of return. Weighted average primary lease term of our quarterly new investments continue to be long at approximately 17 years. I would like to note here that our weighted average portfolio lease term has remained at about 14 years since 2015. Moreover, we're highly defensive with less than 3% of our primary lease terms maturing over the next five years, which is far and away the lowest I am aware of among our peer public net lease companies.

The major reason for this important contract attribute is that we are constantly extending lease terms as we add new investments into existing master lease arrangements. Given a recessionary environment, our lack of near-term lease maturities is definitely a good place to be. Another desirable attribute our net lease portfolio is the growing percentage of our multi-location contracts that are subject to master leases. Since 2015, that number has grown from 77% to 89% in 2018 and fully 93% today.

In part, this move is due to a greater origination emphasis on the importance of master leases. In part, this has been a function of repeat business where in new investments have been added to prior individual leases to form master lease contracts. In part, this has been a function of managing tenant relationships to make wider use of master leases. The long-term results of all this work, we believe, will be a further reduction in eventual lease renewal risk.

Perhaps more important is an elevation of interest alignment, which stands to be meaningful, especially in less certain moments like this. Alignments of interest are extremely important and limiting the number of leased deferrals having no fixed resolutions. The median post-overhead unit-level fixed charge coverage ratio for assets that we purchased during the quarter was 2.2:1. The median new tenant Moody's RiskCalc rating profile was BA2.

But if you incorporate the potent contract level fixed charge coverages, the median new investment contract rating or STORE Score for investments is more favorable at BAA2. Our average new investment was made at approximately 76% of replacement costs during the quarter, and all of the net lease investments made during the quarter were required to deliver unit-level financial statements. Here, we continue to be the net least sector leader with substantially all of our properties required to deliver us unit-level financial reporting. This is critical to our ability to evaluate contracts seniority and real estate quality, which has been essential to our ability to quickly assess our tenant's ability to pay the rents, which is especially important at times like this.

With that, I will turn the call over to Mary.

Mary Fedewa -- Chief Operating Officer

Thank you, Chris. And good morning, everyone. I'd like to start with a COVID update. The effects of COVID are fluid based on government support and community-specific business reopenings.

As we speak today, no one knows the duration and outcome of COVID and what the economic recovery will look like. However, at STORE, we have a good handle on what we can control. From the start, our business model was designed to be flexible and adaptable, and that allowed us to quickly pivot to address the new challenges of COVID. As we navigate through an ongoing period of uncertainty, we expect to continue to benefit from our focus on the fundamental building blocks of our model, which includes: profit center real estate, geographic sector and tenant diversity, strong contracts that require unit-level reporting, strong relationships with our tenants and a strong organization designed to tailor solutions to maximize returns.

It has become clear to us that there's a direct correlation between our tenants' businesses being open and rent collections. And we have included two new slides in our investor presentation, illustrating this. Currently, 92% of our locations are open, even with recent closure mandates. From a diversity perspective, approximately 90% of our contractual base rent and interest is in states with less than 25 cases per day per 100,000 people.

And only 9% of our contractual base rent and interest is in both highly impacted counties and within highly impacted sectors. And you will see, we have also added some new slides to our corporate presentation, reflecting this geographic diversity. We have received virtually no new requests resulting in rent relief over the past few months. And repeat requests remain concentrated in the highly impacted sectors, such as restaurants, education, health clubs, family entertainment and movie theaters.

And the dollar amount of lease is also declining. Sections are up across all these highly impacted sectors with the exception of movie theaters, which continue to be constrained by mandated closures and delayed film releases. And we have already seen some paybacks on our earlier deferrals and expect the majority of deferrals to be paid back by the end of 2021. We continue to closely monitor additional government programs for businesses still impacted by COVID, which hopefully will provide more support for our customers in need.

Based on our most recent numbers, during the month of April, May and June, we received cash rent payments of 71%, 69% and 79%, respectively, which aggregates to about 73% in cash rent collections for the second quarter. As recently announced, we had 85% cash rent collection in July, which increases this aggregate number to 76% since COVID began. We also reached rent deferral agreements with most of our tenants. And as of today, 98% of all contractual base rent and interest has been resolved.

The steady increase in rent collections was primarily due to high rent collections from our tenants in the restaurants, furniture and education sectors whose businesses reopened following mandatory closures. And at the same time, our acquisition team continued to cultivate new and existing relationships and has maintained a healthy pipeline. We have also been able to provide our customers with growth capital they need for organic investments and acquisitions, and also to deploy capital at attractive yields for our shareholders. During the second quarter, we invested $135 million in real estate properties across 18 transactions at an average size of under $8 million.

Our acquisitions focused on COVID-resistant sectors, including manufacturing, and repeat customers accounted for about one-third of total acquisitions for the quarter. Our portfolio remain healthy. At quarter end, only 14 locations out of our more than 2,500 properties were vacant and not subject to a lease agreement. As of today, three of those properties are under contract.

Now turning to dispositions. We sold 16 properties in the second quarter, reflecting slower property sales due to COVID. Most of these properties were sold as part of our ongoing property management activities and resulted in a recovery, compared to original cost of over 65%. Year to date, we have recovered just under 70% from our property management sales.

Our portfolio composition at quarter end was steady with 65% of our properties in the service sector, 18% in experiential and service-driven retail businesses and the remaining 17% in manufacturing. Our portfolio remains well diversified, and at the end of the second quarter, our top 10 customers accounted for only 17% of base rent and interest. Our largest customer, Fleet Farm, represented just 2.8% of base rents. Furthermore, many of our top tenants were deemed essential and have experienced strong results during the pandemic.

COVID continues to be a dynamic situation. Five months into the pandemic, the news on mandated business closures changes every day. So looking ahead, we will stay focused on the factors we can control: adding value to our tenants, collecting rent and making selective and opportunistic acquisitions that help our tenants and are accretive to our shareholders. We are very proud of the STORE team that has worked closely with our customers to successfully navigate this pandemic.

And now before I turn the call over to Cathy, I wanted to touch on one more thing. COVID has had a substantial impact on college students looking to gain professional experience this summer. In response, STORE posted its first-ever Virtual Summer Externship in late July. This externship program comprised of 124 diverse participants representing 54 different colleges and five countries.

This two-day event included multiple panels where store employees and executives discussed a variety of important and educational topics, including transaction evaluation in REIT operations; women and minorities in the workplace; wealth creation and the past, present and future of real estate finance. This program is part of STORE's ongoing social engagement and diversity initiatives and was very well received by both the participants and STORE employees. And now I'll turn the call to Cathy to discuss our financial results.

Cathy Long -- Chief Financial Officer

Thank you, Mary. I'll begin by discussing our financial results for the second quarter, including the impact of COVID, and then I'll provide an update on our capital markets activity and balance sheet. Second-quarter revenues increased 2.7% from the year-ago quarter to $168 million, primarily due to the year-over-year growth in our real estate portfolio. The increase in revenues was partially offset by the impact of underperforming properties, especially tenants operating in industries that were highly impacted by the pandemic, as Mary mentioned earlier.

We typically focus our comments only on year-over-year results. However, since the impact of COVID was concentrated in the second quarter of 2020, today, I'll provide a bridge to explain the variance in AFFO from the first quarter to the second quarter to help you better understand the sequential changes. All other comparisons discussed on today's call will be year over year. Second-quarter revenues decreased by $9.6 million sequentially and were impacted by higher loss rents and reserves taken on COVID-deferred rent receivables, lower other income and a positive contribution from net acquisition activity.

Taken together, these items reduced quarter-over-quarter AFFO by $0.04 per diluted share. Higher interest expense also impacted AFFO by $0.01, resulting in a $0.05 overall sequential decline in AFFO per diluted share. Although the rent relief we provided our tenants was primarily in the form of rent deferrals, we did not accrue rental income in situations where the collectibility of the rental payments wasn't certain. In addition, we recorded a $2 million reserve against the deferred rent receivables.

Both of these factors reduced total revenues for the quarter. We recognized $38 million of net noncash rental revenue related to COVID deferrals during the quarter that was recorded on our balance sheet as lease receivables. We expect lease receivables to decrease as deferred rent payments are received in the future. Interest expense increased from the year-ago quarter by $4.6 million to $44 million, reflecting both the debt we issued under our Master Funding program last November to fund a portion of our 2019 portfolio growth, and the higher interest expense we incurred from maintaining excess liquidity on our balance sheet during these uncertain times.

Property costs for the second quarter increased by $3.3 million year over year, primarily due to property tax accruals related to nonperforming properties, including certain properties where our tenants' businesses were highly impacted by COVID. These higher costs were slightly offset by lower G&A expenses as the year-ago quarter included about $2 million in executive severance expense. As a percentage of our average portfolio assets, G&A expenses, excluding the impact of noncash equity compensation and last year's severance expense, was relatively flat at 47 basis points versus 46 basis points a year ago. During the quarter, we recognized an aggregate $5.3 million impairment provision on nine properties.

These properties were primarily restaurants that were likely to sell, and seven of these nine properties are in the process of being resolved. AFFO for the second quarter decreased to $109 million from $114 million a year ago, largely due to higher lost rents and property costs related to COVID. On a per-share basis, AFFO was $0.44 per diluted share, down from $0.50 per diluted share a year ago. We declared a second-quarter 2020 dividend of $0.35 per share, which was paid on July 15 to shareholders of record on June 30.

This dividend represented a payout ratio of approximately 80% of the $0.44 of AFFO. Second-quarter AFFO includes $38 million of net revenue that was subject to the COVID rent deferrals I mentioned earlier. These deferrals were negotiated with each tenant and include repayment schedules generally beginning in the fourth quarter of 2020. We expect the vast majority of these deferrals will be repaid by the end of 2021.

Excluding these deferrals, AFFO would have been $0.28 per diluted share for a second-quarter dividend payout ratio, excluding deferrals of approximately 125%. Now turning to our acquisition activity and balance sheet. We funded our second-quarter acquisitions with proceeds from our ATM equity program along with cash proceeds from asset sales. In connection with our addition to the S&P MidCap 400 Index in May, we issued 8.8 million shares of common stock under our ATM program at an average price of $20.5 per share, raising net equity proceeds of approximately $177 million.

We entered the third quarter with a strong balance sheet and liquidity position with approximately $700 million in cash. At June 30, we had approximately $3.6 billion of long-term debt with a weighted average maturity of six and a half years and a weighted average interest rate of 4.3%. As we gain better visibility into the reopening of the economy and continue to collect higher levels of rent, we expect to pay down this excess liquidity, which will reduce interest expense and increase AFFO. We have no significant debt maturities until the year 2024, and we're pleased to report that S&P recently affirmed their ratings on our Master Funding debt.

All told, we are well-positioned for the remainder of 2020 and beyond with a conservative and historically low leverage ratio of 38% on a net debt-to-portfolio-cost basis, and substantial financing flexibility, including access to a variety of attractive debt and equity financing options -- we continue to remain in compliance with our debt covenants and expect to remain in compliance with them for the foreseeable future. And now I'll turn the call back to Chris.

Chris Volk -- President and Chief Executive Officer

Thanks so much, Cathy. As is usual, and before turning the call over to the operator for your questions, I'd like to make a few comments. First, as we did for our first-quarter investor presentation, we have included a section that addresses the sensitivity of our tenants to the COVID-19 pandemic. With five consequential months having passed since the initial March general business shutdown, we know much more than we did then.

And can now illustrate portfolio trends in our regularly quarterly investor presentation. Above all, we know that our rent collection rate is tied to the ability of our tenants to conduct commerce and to be open for business. This correlation is absolutely causal. Another causal correlation is the higher level of rent collections that we've realized from our COVID insensitive tenants centered in so-called essential businesses.

For instance, our manufacturing real estate investments are generally essential and COVID insensitive, and so have the highest sector lease collection rates. I will point out here that many analysts and industry observers have noted the high correlation of net lease investment-grade tenants to rent collections during these trying times. We note this correlation, too, but believe it to not be causal. That's because most well-known net lease investment-grade tenants tend to be centered in essential non-COVID-sensitive businesses, which we believe to be the far more relevant issue.

Indeed, to prove the point, there are many investment-grade and strong balance sheet companies who have elected not to pay rents to their REIT landlords and other REIT sectors for a basic reason. No corporate credit rating can insulate a company from an inability to conduct commerce. The second point I'd like to make is that we firmly believe that sound corporate business models tend to prevail over the long term. In our COVID section of the presentation, we compared ourselves to the rent collection levels of net lease peers having varying levels of investment-grade tenant exposure.

Given that investment-grade tenants have virtually all paid their rents to these companies, we are not at the top of the rankings in terms of overall rent collections but we are certainly in the middle. However, with our July collection performance of 85%, driven, as a vast, by elevated tenant openings, we are getting close to the collection leaders. But then, we went one step further, which was to estimate our comparative cash investment yields at the reduced COVID rent collection levels. You should not be surprised to see us emerge as a sector leader.

In fact, with investment yields that average approximately 150 basis points over those realized by companies in pursuit of investment-grade tenants, we can generally afford to lose almost 20% in rents before we break even. That would be like giving 40% of our tenants a permanent half-off sale. This overlooks the fact that our tenant rent escalations will tend to also be higher and more frequent, which provides a further margin of safety. Of course, our tenants are not rated and they need companies like STORE to succeed.

But even with nonrated companies, we can create investment-grade contracts as a result of our payment priority and sector-leading portfolio diversity. That is the essence of the STORE Score. During the remainder of 2020 and going into 2021, you will see us make some improvements to this metric as we incorporate other important variables. The results will eventually be reflected in our regular quarterly corporate disclosure, which gets me to our third point.

What we see today encourages us. When our tenants have the ability to open or maintain their businesses, business has been there. Sometimes that business has been better than it was pre-COVID. Sometimes that business is less than it was pre-COVID.

But in the vast majority of instances, it is more than enough to do what you and we expect our tenants will do, which is to pay the rent. Keep in mind that our tenants do not have to return to 2019 performance levels. Going into this pandemic, most of our locations had unit-level coverages in the area of two to one or better, which gives us a material margin of safety. Fourth, enough uncertainty exists that we are still refraining from issuing guidance.

I'm personally hoping that such uncertainty faced by the time of our third-quarter call, at which point we would customarily issue performance guidance for 2021. Meanwhile, given this uncertainty, STORE will continue to do what we have done since the inception of this pandemic, which is to provide you with periodic performance updates. So you can expect to hear from us monthly about our portfolio rent collections activity for the three months between now and our third-quarter earnings call. I would like to conclude my remarks by talking about our dividend.

In June, our board, with a recommendation from management, maintained our $0.35 dividend. While the dividend is amply covered by our $0.44 in second-quarter adjusted funds from operations, our payout ratio rises to about 125% when you consider the fact that $38 million of the rents recognized for the quarter were not received in cash, but are subject to deferral arrangements with our tenants in response to this pandemic. Of course, we know so much more today than we did in March and April when much of the economy was closed. We have seen our initial reported rent collections elevated, and we have seen our rent collections steadily and meaningfully escalate over the past two months.

Our growing rent collections, together with sustained strength in property openings and tenant commerce, have given us and our board the confidence to maintain our dividend. And now I would like to turn the call over to the operator for any questions.

Questions & Answers:

Operator

Yes, thank you. We will now begin the question-and-answer session. [Operator instructions] And the first question comes from Sheila McGrath with Evercore.

Sheila McGrath -- Evercore ISI -- Analyst

I guess, Chris, I was wondering if you could touch on the 8.7% yield on investment in the quarter. It did appear to factor in elevated risk in the capital markets. Should we expect these elevated investment yields to continue in the near-term or revert back to the high sevens?

Chris Volk -- President and Chief Executive Officer

Sheila, it's Chris. And Mary and I will answer this together. But first of all, from a volume perspective, we did really not that much volume. So it was about one-third of the volume we normally would have done, and we did it in a time of exceptional market disruptions.

So whenever you have exceptional market disruption, the market -- the capital market becomes a little bit less robust. And so our tenants are able to get very attractive opportunities and seize on them, on transactions. And likewise, we're able to participate in that and get some good opportunities as well. So we are really encouraged by that.

What's been really interesting for us is in this marketplace, we've seen that the demand for investment-grade COVID-insensitive real estate has been really high because there's a lot of money out there on the sidelines chasing deals and looking for yields, especially in a 60-basis-point -- 50-basis-point, 10-year treasury market. So you people can really reach after those kinds of deals. You're seeing actually a widening in spreads between the kind of investment-grade COVID-insensitive stuff and then the middle market stuff, and we were able to seize on that and make some attractive bias, both for our shareholders and for our tenants this quarter.

Mary Fedewa -- Chief Operating Officer

Yeah, Sheila, it's Mary. I'll just add that most of these deals were already in our pipeline. They were with existing customers deals that needed to get done on their side. And also that these were underwritten in light of COVID, so they were in industries that are COVID resistant and they are very carefully underwritten from that perspective.

Sheila McGrath -- Evercore ISI -- Analyst

OK, great. And one follow-up, did you get anything in return for the negotiations on short-term deferrals, just lease extension? Or just give us some insight there.

Mary Fedewa -- Chief Operating Officer

Yes, yes, you bet. This is Mary. For sure, most of our notes have interest -- our interest-bearing notes, and the majority of our deferrals were in the form of note. And if we did lease mods, we might grab some percentage rents, some rent escalations.

In a few cases, we would do some lease extensions, but any lease extension was a multiple of the months that we were able to negotiate.

Sheila McGrath -- Evercore ISI -- Analyst

OK, thank you.

Operator

Thank you. And the next question comes from Frank Lee with BMO.

Frank Lee -- BMO Capital Markets -- Analyst

Good morning, just want to touch on future acquisitions. How should we think about funding for those? And are you still comfortable with sort of matched funding additional acquisitions with ATM and dispositions?

Chris Volk -- President and Chief Executive Officer

The ATM market has been ideal for us because we just gradually fund it, and draw on the ATM as we've needed. I think we're going to be very deliberate. I mean, you could see that in the second quarter, we did $130 million -- $137 million of acquisitions. So it's not anywhere near the pace that we're used to.

But we -- you can also see from our quarterly report, our investor presentation that we've maintained the pipeline at a very high level, so that there are a lot of transactions out there. We're positioned to do a lot more business, so we're waiting to see our way through this pandemic. In the meantime, there'll be some opportunities that we can seize on. And in all likelihood, if we can do it and then if we can do in an accretive way, the ATM market would be ideal.

Frank Lee -- BMO Capital Markets -- Analyst

OK, thanks. And then, for the tenants that were required to start paying back deferred rents in July, do you have a sense of what percentage paid their deferrals on time in July?

Cathy Long -- Chief Financial Officer

It's Cathy. A lot of the deferrals are really scheduled to begin in Q4. So that's when we would see the majority of them. The ones that Mary mentioned in her script, that there were some people who paid back early.

And that was -- they just paid back before they were scheduled.

Frank Lee -- BMO Capital Markets -- Analyst

OK, great. Thank you.

Operator

Thank you. And next question comes from Ki Bin Kim with SunTrust.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Thanks. Good morning. Can we just clarify a couple of things? The rent collection number, 73% in 2Q and 85% in July. Was there any impact from a change in the denominator by which like known bankruptcies or store closures reduced the denominator?

Chris Volk -- President and Chief Executive Officer

There's no impact at all. It's just like for like. That's correct.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

OK. And how about asset sales? I'm not sure what the rent collection numbers look like for the assets that you've sold. But curious if that had an impact on any of the stats.

Chris Volk -- President and Chief Executive Officer

Well, there was no impact from asset sales, acquisitions or anything else. There's no change in the denominator, period. And by the way, Ki Bin, just to add, we sold so few assets anyway. It just wouldn't matter.

And the assets -- some of the assets we sold had no revenues, so they were vacant.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

OK. And can you just clarify how much reserve or move to cash-accounting basis there was in 2Q to account for rent that you deemed uncollectible? And with that in play --

Cathy Long -- Chief Financial Officer

Sure, it's Cathy. So I provided a walk, and I can give you a little more detail on that. So from Q1 to Q2, net acquisition activity, which was the acquisitions we did during the quarter, which were sort of back-end weighted in June plus the asset sale. So that net activity was a positive $0.01 to AFFO per share.

Other income, which has random things in it like lease modification fees that you received or something like that that was down quarter over quarter, but that one jumps around. So other income was often variable. That was $0.01 down. So now you're $0.01 up and $0.01 down, so that's a loss.

And then, the rest of the change in revenue was $0.04 lost rent down. And most of that was COVID-related, but also included the reserve. So I had mentioned that we have deferred receivables on the balance sheet for these deferral arrangements that we did. And I did put a reserve on those of about $2 million.

But the rest were where we did not collect or we didn't record revenue. So virtually, put them temporarily on a cash basis. For example, Mary had mentioned that there's about 2% unresolved. So about half of those people, I put on cash basis temporarily.

Does that make sense?

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

It does. But maybe you can provide a little bit different perspective. So if I include the cash basis rent, which might be -- obviously, be in collect, they will be zero. And any reserves that you took against accruals, what would that number in total look like as a percent of total build rents?

Cathy Long -- Chief Financial Officer

The loss rent is $0.04 of AFFO per share. So that includes everything. Yes, that includes reserve, that includes lost rent, anything that hit P&L.

Chris Volk -- President and Chief Executive Officer

And Ki, one of the things that we did for you on the comments that we gave you was we've actually walked you through, not only our AFO, but our cash AFFO. So we backed out of AFFO, the amount of deferral. So you actually got a cash number and you understood that our payout ratio from a dividend perspective was 125% during the quarter if you were to use an AFFO number backing out the deferrals. But if you were to go to our statement of cash flows, which will be filed tomorrow.

Mary Fedewa -- Chief Operating Officer

With our Q.

Chris Volk -- President and Chief Executive Officer

With our Q. What you have to do is you have to sort of take the second-quarter numbers and subtract the first-quarter numbers. You will find the statement of cash flows on cash generated by operations come in pretty close to the kinds of coverages that we were talking about. In fact, maybe the coverages are a little bit better than that.

So -- and I think that's an important thing in a time like this. And I understand why you're focusing on where the cash is, and I think that the statements will speak for themselves.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Thank you.

Operator

Thank you. The next question comes from Linda Tsai with Jefferies.

Linda Tsai -- Jefferies -- Analyst

Hi. in terms of the 8% of your tenants that aren't open with your expectation for opening, is it fair to assume they aren't paying rent right now?

Chris Volk -- President and Chief Executive Officer

Linda, you're clipping in and out. We must have a -- because we were having problems with the connection earlier. Can you try that again, please?

Linda Tsai -- Jefferies -- Analyst

Oh, sure. I was just asking about the tenants that aren't currently open. Any expectation of when they'll open and assume they aren't currently paying rent?

Chris Volk -- President and Chief Executive Officer

OK. So the biggest culprit is going to be, the movie theaters and the family entertainment stuff. And theaters are just closed. And I want to sort of give you some anecdote, though.

This is just an interesting thing. So yesterday, in this state, there were two fitness clubs. One was Mountainside Fitness, one was EOS Fitness. And they filed a suit against the government because they've been mandated to close.

And basically, because the judge came out in their favor and said that the government can't force businesses to close indefinitely. I mean, they have to have some rules. And so as a result, Mountainside, and I presume EOS, will both the opening -- reopening on August 11, under DHS, which is Department Health Safety, security or health safety guidelines, basically state health guidelines. So -- which they were all willing to do, right? So a lot of fitness clubs have been working their hearts out to make sure that people are safely distanced and they have plexiglass barriers between machines and so on and so forth.

And so something like that, it's going to have an impact across the country. And so if you were looking at our numbers for July, for example, on the rent numbers. Fitness clubs went down in collection because of mandates like this, whereas other sectors went up. And so we've seen some fluctuation like that.

But we are also encouraged by what we see happening in like the Mountainside, EOS case yesterday. But the other thing is that the state of Arizona, which was a poster child for being a very bad state, and this is where we live, has become a better state. So on June 30 or 29th, before the July 4 holiday, we had 54 cases -- 5,400 cases a day. And that has dropped massively.

We went into a mass coordinance in virtually every community, and it's come down a lot. Bars were closed and bars should be closed because you can't social distance and you can't drink through a mask and stuff. So I think that some of the steps that have been taken have been very constructive. And the state testing for positive people with a miserable 25%.

Today, it's now 12.6% as of yesterday. Still not great, but like way better. And it just shows you what states can do when they start to follow the rules and the guidelines.

Linda Tsai -- Jefferies -- Analyst

Thanks a lot for those additional details. Just one more. In terms of the COVID-resistant industries you invested in for 2Q, you highlighted manufacturing. Can you give us some other examples of industries you acquired? And can we expect a similar composition of industries and cap rates in the back half?

Mary Fedewa -- Chief Operating Officer

So Linda, I would say, in terms of acquisitions, industries, a similar composition, we did -- we're probably more -- a little bit more heavy on manufacturing this past quarter being COVID resistant stuff. But I think that's the case. In terms of cap rates, these are -- again, Chris mentioned, these were opportunistic cap rates, and we wouldn't see our way to be able to hold those after COVID. We would be expected to go back to ---

Chris Volk -- President and Chief Executive Officer

Yeah, I think post-COVID, what you're going to see is cap rates more or less reverting to where they have been for the last year or two. But I mean, you can't do a massive amount of business at these kinds of cap rates at all. So you'll see the cap rates reverting. That should be expected.

The good news is that the 10-year treasury is at 60 basis points. So we're able to borrow at probably the low to mid-threes today on a 10-year note transaction. So you're talking 400 to 450 basis points of spread, which is historically incredibly attractive.

Operator

Thank you. And the next question comes from Adam Gabalski with Morgan Stanley.

Adam Gabalski -- Morgan Stanley -- Analyst

Hey, guys. Thanks for taking the question. Can you just talk a little bit more about the level of buyer competition for assets? I know you had said across the middle-market segment, there's a little bit less capital availability. But can you just kind of talk about the level of competition you're seeing bidding for existing deals in the market?

Chris Volk -- President and Chief Executive Officer

Yeah. Mary and I will do this together. It's Chris. But I mean, at a high level, understand that most of the people who are buying assets aren't the public names that you all follow.

So about 90% of the business that gets done out there is really getting done away from the public markets. Those people that are buying assets or buying assets and need debt typically to get those assets acquired. So the debt markets have to be helpful to make that happen. So what you've seen in the last quarter has been public companies, for the most part, have retrenched a lot from an acquisition perspective.

So there's been less from the sort of institutional names that you do cover. And then, from the side that you don't cover, but it's bigger than the size that you do cover, debt financing has been less readily available. And there have been more people that have been cautious, and likewise, hanging on to liquidity and sitting on the sidelines. So when that happens at a time of economic disruption, you basically can find some interesting opportunities where transactions have to happen.

And there are a lot of transactions that just simply have to happen. And that allows our tenants to be able to take advantage of those opportunities and us to be there alongside them.

Adam Gabalski -- Morgan Stanley -- Analyst

Great. And then, just one more. Can you talk a little bit about your high-level expectations for occupancy in the back half of the year? And just more broadly, how you think occupancy sort of overall, post-COVID, could shake out relative to what happened in the GSE?

Chris Volk -- President and Chief Executive Officer

Sure. So if you look at our corporate presentation, I would encourage you all to look at the COVID section, especially, which starts on Page 26 and goes on for a few pages. But the very, very first slide takes -- it charts prior months openings to current months rent because the rent that people pay us tends to be a function of where they were open in the previous month, right? So hence, May with sort of the low month in the quarter for -- second quarter for collections because everybody was closed in April. And as people opened up in May, then things got better in June and so on and so forth.

So there's a lag. So now that's been predictive so far. I can't promise that that will be predictive for August or September. But to date, that's been the relationship.

So you've had basically sort of a flat where -- I think we were 91% opened in July, 92% in August. So as these numbers go up and movie theaters will open and other stuff will open, and I expect that there'll be a vaccine certainly on the horizon anyway, by the end of the year. And so as this stuff moves forward, there's a huge correlation between things that are open and our ability to collect rents and people's ability to conduct business. And as I said in the comments, they don't have to do the same business they were doing in 2019 to pay us the rent.

So it's very important. I mean, they could be doing materially less in terms of business and still be able to afford to pay the rent because there was always a margin for error in those numbers. I don't know if anybody will ask this question, but one of the people -- people sort of look at things like STORE Scores and fixed charge coverage ratios in our portfolio. And it's incredibly important to remember that those numbers that you're looking at reflect Q1 numbers.

They reflect, in some cases, Q4 but mostly Q1 numbers at this point. The Q2 numbers won't be due until August 15. I mean, and you should expect that those numbers will come down. Coverages are going to come down, not just for us but for everybody.

I mean, this is the way -- it is what happens when you -- happening. But the good news is lower coverages doesn't mean they can't pay the rent. It just means that they have lower coverages. And really, STORE has high coverage.

I mean, our very first public company, at FFCA, our average coverage was at 160 our of two. So I feel fairly good about where we are from a coverage perspective and from the ability of these folks to improve on their rent payments throughout the rest of the year. I feel very strongly about the viability of the sectors. I mean, one of the hardest-hit sectors has been education.

And it's just so hard for people to open up. And in the case of early childhood education, you're having spacing rules, occupancy limitations. Sometimes it's state-by-state for the multiunit operators. And so -- but yes, education is a fundamental need, and it will be there.

And so we are very confident in our tenants and in the portfolio. So I see this personally up trending through the rest of the year. And that's why our board was confident to finally pay the dividend, but we're confident in our ability to maintain that through the rest of the year given what we're seeing.

Adam Gabalski -- Morgan Stanley -- Analyst

Got it. And then, just one more quick one on AMC. We've heard from some other landlords that they've started paying partial rent in July. Is that sort of similar to what you guys are seeing with your exposure? And any just sort of color on how those conversations have been trending over the last few months?

Mary Fedewa -- Chief Operating Officer

Yeah, this is Mary. So we're not disclosing any comments on individual deferrals that we've made with tenants. But what I will say is that we do have a deal with AMC.

Adam Gabalski -- Morgan Stanley -- Analyst

OK, thank you.

Operator

Thank you. And the next question comes from Spenser Allaway with Green Street Advisors.

Spenser Allaway -- Green Street Advisors -- Analyst

Thank you. Realizing you guys have kept external growth guidance withdrawn, but can you just provide some color on how you're thinking about strategic dispositions in the back half of the year, particularly given the more elevated cap rates you're seeing in the market right now?

Chris Volk -- President and Chief Executive Officer

Well, it's interesting. So we're seeing some ability to do elevated cap rates on a direct basis. And so your question seems to be suggesting whether or not there's sort of a decline in overall real estate NAV as a result of that. And I would say, no.

I think that the marketplace, for the most part of the middle market, is still kind of a seven to -- sometimes high sixes to mid-seven number. It's not -- so the numbers that we got were better than that. But again, we do a lot of stuff where we are not using brokers, and we're going direct. So we have more salespeople.

We got more credit people than pretty much anybody else in that lease space. So it allows us to have access to deal flow, which is the advantage of having more salespeople. I mean, it comes at a cost, but the advantage of having more salespeople. But I think that the actual broader numbers are not there.

And in fact, if we were going to elevate our acquisition pace to where we were prior to COVID, there'd be no chance at all that we could kind of repeat what we just did here with the mirror, $137 million. I mean, so if you're doing $137 million a month, you're going to be most likely in the high sevens, just where we've been in the past.

Mary Fedewa -- Chief Operating Officer

Yeah, Spenser, the dispositions you're asking about, certainly, the velocity has been down in the 1031 was extended to July 30 or 15th to use their deferral, and that's been listed and not extended. But we have not seen a broad repricing in the marketplace, as Chris mentioned, from just some --

Chris Volk -- President and Chief Executive Officer

Yes. And I would -- and I think also, if people get nervous about 1031 going away, there's likely going to be a rush for the doors on some of that stuff. So in the near term, you're going to have maybe even some contraction in cap rates as people are trying to take advantage of 1031 exchanges that they can do. Long term, if 1031 goes away, it will sort of hurt our ability to opportunistically sell to people who are getting subsidized by the U.S.

government, which is always a nice thing. But on the other hand, if you don't have people being subsidized by the U.S. government, it should elevate cap rates overall. I mean, and you'll see that especially in the investment-grade sector and the -- which is sort of much more of a retail product, right? So you're going to see -- where individual people are buying stuff through 1031.

If that market goes away, and there's no tax incentive anymore then basically, cap rates are likely going to elevate, that will push cap rates up potentially across all sectors and sort of widen the spreads out. And so that would be actually a net positive for us.

Spenser Allaway -- Green Street Advisors -- Analyst

Thank you.

Operator

Thank you. And the next question comes from John Massocca with Ladenburg Thalmann.

John Massocca -- Ladenburg Thalmann -- Analyst

Good morning. First off, apologies if I get a little choppy here. I've also had some reception issues. Kind of maybe focusing in on the education segment.

I mean, in your kind of conversations with particularly your kind of non-early education tenants. How have those gone? Are they expecting to open as kind of planned now that the kind of school year is starting? Are there any concerns about restrictions there and any potentially impact on cash collection?

Mary Fedewa -- Chief Operating Officer

Hey, John, this is Mary. So the schools that we own outside of early childhood education, they're primarily private schools, and they have actually superior online capabilities and parents are paying tuition and they're geared to go. They'll have -- they are suggesting a little bit in-person and some online sort of a combo. But they certainly can do the online if they need to.

So we're seeing a positive trend that way for the fall.

John Massocca -- Ladenburg Thalmann -- Analyst

And any positive trends in terms of maybe kind of enrollments so far?

Mary Fedewa -- Chief Operating Officer

Yeah, yeah.

John Massocca -- Ladenburg Thalmann -- Analyst

And then, as I kind of think about the portion of the portfolio that just kind of put on a cash basis in terms of how you guys are recognizing rent. How much of that or what percentage of that is currently either in bankruptcy or some kind of restructuring process? And is there anything significant outside of that portion that's in cash kind of recognition that is in bankruptcy or some kind of restructuring?

Mary Fedewa -- Chief Operating Officer

So there are always a few bankruptcies that we have. As you recall, we mentioned Art Van last quarter. That was in bankruptcy. That deal was resolved effective starting in Q3.

So the full impact of not having rent for Art Van, for example, hit Q2. But generally, if you look in our investor presentation, and we do a little walk every year of revenue growth. And there's always this -- there's a bucket we call work in process. And that is what you're talking about, the people who are in the process of having a workout, maybe they went bankrupt and you're waiting for the lease to be affirmed or things like that.

So there's always going to be that small amount. And over time, it's been about, I think, 50 basis points over time, every year, you have that. So it's a consistent thing, generally. But with COVID, we temporarily did put additional people on cash basis just because, for example, if they were not resolved or things like that.

But we don't expect that trend to continue.

Chris Volk -- President and Chief Executive Officer

And I would say that since -- as COVID started to take hit and there were business closures, we saw a handful of bankruptcies where people were kind of pushed over the edge. But since COVID has started, I'm not sure we've seen any bankruptcies. And what's kind of an interesting thing is, if you think about this, all these tenants and businesses, not just with STORE, but with -- across the country, have been working out their businesses with their bankers and their creditors and their landlords, and they've been doing it outside of bankruptcy. I mean, normally, a lot of times, these things we would have done in bankruptcy.

But all been done outside of bankruptcy and very constructively, and so we're encouraged by that. And we don't see anybody really wanting to rush toward the doors to file for bankruptcy at this point. So now if COVID turns into sort of -- after this, if there are companies that just don't survive and don't make it, STORE is built to handle that. I mean, STORE is built to handle recessions all day long.

We've got more diversity than anybody else in the space by like a factor of two. I mean, this buys you a huge reduction at risk just to have -- from a diversification standpoint. It's very important. So we can handle that.

What we have a harder time with is when every single business is required to close because businesses, irrespective of whether they're AAA companies or BBB companies, can't pay rents if they can't have revenues coming in the door. And nobody is really structured that way. And fortunately for us, obviously, we're at 92% occupancy today and growing. And so I expect that to grow, and there's a correlation between whether a business is going to be open.

And they could pay us around.

Operator

Thank you. And the next question comes from Chris Lucas with Capital One Securities.

Chris Lucas -- Capital One Securities -- Analyst

Hey, good morning, everybody. Cathy, just a couple of quick detailed questions for you. What was the dollar amount of cash contractual rent billings for 2Q?

Cathy Long -- Chief Financial Officer

Say that again?

Chris Lucas -- Capital One Securities -- Analyst

What was the dollar amount of cash contractual rent billings for 2Q?

Cathy Long -- Chief Financial Officer

If you look at the run rate that we had at the end of March, it was about $730 million. So a quarter of that would be about $180 million. So that would be the maximum you could get for base rent and interest for the quarter. Does that make sense?

Chris Lucas -- Capital One Securities -- Analyst

OK. And then, on the 30 -- it does. I mean, it doesn't -- I mean, I guess, the question becomes, as it relates to expense reimbursements or pass-throughs, whatever, is rent collection tracking those numbers as well? Or is there some meaningful delta?

Cathy Long -- Chief Financial Officer

I'm not sure I understand your question.

Chris Lucas -- Capital One Securities -- Analyst

Well, so you say your tenants pay rent, but they also have expenses to pay, some of which they pay directly, some of which you pay. What's -- yes, so on the expense side --

Cathy Long -- Chief Financial Officer

For the triple-net expenses, we're not finding that the tenants aren't paying those. So people who asked for rent deferrals were still paying their expenses. So if they had cam charges, electric, insurance, property taxes, that kind of thing. We were not finding that they weren't paying those.

But they did reach out and ask for some rent deferrals.

Chris Lucas -- Capital One Securities -- Analyst

Sure. And then, so let's switch over to -- go head.

Chris Volk -- President and Chief Executive Officer

Just to say, but at the same time, we did take a reserve for --

Cathy Long -- Chief Financial Officer

Some property.

Chris Volk -- President and Chief Executive Officer

Some property taxes that was not specific, which you would expect us to do as part of a caution. So some of the property costs were noncash and just reflected reserve.

Chris Lucas -- Capital One Securities -- Analyst

OK. And then, on the deferrals, Cathy, the $38 million, is that all for second quarter? And is there a schedule for what you're deferring for July at this point? Do we have a sense as to what that amount is going to be?

Cathy Long -- Chief Financial Officer

Yeah, the $38 million is net of the $2 million reserve. So it's really $40 million of deferrals with a $2 million reserve, and that is just Q2.

Chris Volk -- President and Chief Executive Officer

And we don't -- and Chris, we don't -- we, obviously, have some arrangements with some of our tenants that go on beyond Q3 and some that actually go through to Q4. And not a lot, but we have some. But we are in a time of uncertainty, so we don't really need to talk about it. I mean, it's liable to change.

In fact, it changed in Q2 alone. We have people that had deferrals and paid them right back. So it's what Mary said.

Chris Lucas -- Capital One Securities -- Analyst

OK, thank you. That's all I had. Appreciate it.

Operator

Thank you. And the next question comes from Nate Crossett with Berenberg.

Nate Crossett -- Berenberg -- Analyst

Hey, good morning, guys. I know guidance remains withdrawn, but I was kind of wondering if you could give us maybe your appetite for acquisitions in the back half of the year. I think you mentioned that the deals you did in 2Q were where the tenant needed to get a transaction done. So I'm just curious how much of the pipeline is kind of time-sensitive where the tenant is looking to close quickly?

Chris Volk -- President and Chief Executive Officer

There's some, but not a lot. And we haven't turned on the front end in a meaningful way at this point. And so we're still keeping a lot of powder dry, and we're waiting. And we're being very cautious.

So I mean -- and things change from day-to-day. It's hard to overcome the COVID new cycle. So whatever the COVID new cycle is on any day, is going to drive whether our stock goes up or down, no matter what we do. So -- but we're ready to do business.

And I think as we get into -- as I said in my comments earlier, if we get into the end of Q3, normally, that's when we would have given guidance, and we're going to cross our fingers, so we can do that for you.

Cathy Long -- Chief Financial Officer

And we continue, obviously, to have the construction -- the ongoing construction commitments that we'll fund throughout the rest of the year, that's probably $100 million.

Nate Crossett -- Berenberg -- Analyst

OK. I mean, is there a certain level of rent collections that we should be kind of looking for from you guys where we would kind of know that you're ready to start kind of ramping up again? Or is it just kind of you're going based on multiple factors?

Chris Volk -- President and Chief Executive Officer

I think we're going based upon multiple factors. It's not just all about rent collections.

Nate Crossett -- Berenberg -- Analyst

OK. Just quickly on the stuff you did do in Q2. Can you just give us any color on what was included in that? Was it industrial or --

Chris Volk -- President and Chief Executive Officer

It's $137 million. There is more than -- so corporately, we are at 17% manufacturing industrial, and there's a little more than 17% in Q2. So -- but it was across the board. So we did service no retail in Q2.

So it's just service and manufacturing assets, all COVID insensitive. And nice cap rates, mostly existing customers and decent coverages. And candidly, we were able to get a fair amount of credit enhancement on some of these things like rent deposits and whatnot, which is something you can also get in an environment like this. And so it wasn't on every transaction, but there were enough of them that we -- it was more than usual, to put it that way.

Operator

Thank you. And the next question comes from Ardie Kamran with KeyBanc.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Hi, this is Craig Mailman here with Ardie. HI, Cathy, it was helpful for you to give kind of the walk from 1Q to 2Q AFFO. But I'm just curious if you could give us just a little bit of breakout from maybe a GAAP perspective, how much in rents are actually just gone because you guys recut leases going forward? And then, just also kind of what the straight-line write-off was to kind of net out to a portion of the $0.04? And how much of the $0.04 was actually related to that versus just the write-offs and some other non-COVID-related items?

Cathy Long -- Chief Financial Officer

The $0.04 had the reserve in it. So that was a little -- that's probably $0.01 of the $0.04. And the rest, COVID-related, I would say most of it was related to temporary reductions that we gave people. And I'm guessing most of it was that, probably 80% of it was that, the temporary reductions.

And the rest of it might -- was just other types of people perhaps who might have been underperforming slightly before COVID hit and then were kind of pushed over the edge because of COVID, some small restaurants and things like that. But most of it were the temporary reductions.

Chris Volk -- President and Chief Executive Officer

So basically, the point is that you'll see that revenue number -- it will get recaptured, right? So in the Q2 number, you have this chunk of deferrals, which is most of everything. I mean, so the deferrals were most of everything. And then, you'll have some that was just non-recognized rent. But that stuff is going to -- the non-recognized rent will end up being recaptured over time, the substantial majority of it.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

So just -- and I apologize for the confusion here, but you guys -- $38 million of revenues that were deferred were included. How much of these temporary kind of rents weren't? Or excluded? And is it just because it was abated rather than kind of a deferral? Can you just give us a color why this almost $0.025, or 80% of that $0.03 was kind of excluded from the AFFO when the $30 million wasn't?

Cathy Long -- Chief Financial Officer

OK. Well, the deferrals were where we booked the revenue and took a note receivable and interest-bearing receivable for the difference with a specific payback schedule. So we had that group. There were some that were temporary lease modifications where rent would be reduced in the front end.

But you -- they're supposed to pay it back, say, during Q4 or something like that. So within a short period of time, that rental comes back to you. But that's just -- technically, they did it through a lease mod versus a note itself. And that might have been individual tenants maybe could or couldn't put a note payable on their balance sheet or something like that.

So those are the deferrals that have the structured paybacks. The hit to P&L were reductions that were where you're taking back something different. For example, we might have said, "OK, you can not pay 25% of your June rent, but then we want percent rents for the rest of the lease on top of the normal." So you're collecting it back, but not in a way that was set up as a receivable. Does that make sense?

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Got you. So just an accounting classification where there's something could take a receivable on their books as debt versus you guys technically classifying as a loan modification with the hope of getting it back in percent rents if that tenant is viable over the remaining life of the lease?

Cathy Long -- Chief Financial Officer

Right. Now generally, you're going to be basing the percentage rents on what their historical kind of sales volume was and what they thought they could achieve in this kind of post-COVID environment. So each of these deferral arrangements were done tenant-by-tenant, negotiated individually tenant-by-tenant based on the financial statements that we receive every quarter from these tenants. So the arrangements were based on what we thought -- we came to an agreement on the tenant of what needed to be deferred in that -- or if they needed to go to percentage rents or something like that.

And with the idea that you wanted the payback schedules to be something that could be achievable. So again, you looked at the tenant, how quickly could they reopen, and what were their post-COVID sales would be, so very, very tailored.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

OK. Was there any noncash write-off related to these? It sounds like you basically are going on cash accounting to some extent.

Cathy Long -- Chief Financial Officer

Well, there are some. There is a small handful of people on nonaccrual accounting, but there always will be.

Chris Volk -- President and Chief Executive Officer

I, mean the bulk of the number was taken in the form of rent deferrals. And things were -- and rent deferrals, from an AFFO perspective, are -- have to be included in AFFO. So when we reported AFFO, we're reporting it with this sort of noncash slide, which is unusual because a lot of times, people think about AFFO as sort of being a cash number, but it's not really technically designed to be a cash number. As an analyst, I think of it as being sort of like a long-term run rate cash number, but not necessarily like exactly cash net base.

It's never going to pay up. Precisely you're saving the cash flows. But in this case, if you were -- so what we did was we also backed it out for you, and we gave you a payout ratio not excluding the deferral. And then, if you tie that out to statement of cash flows, you're going to get pretty close.

Cathy Long -- Chief Financial Officer

Right, yeah, the perfect way to look is the statement of cash flows because that's going to show you cash provided by operating activities. And you'll be able to see the noncash rent coming out of there.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

OK. So if we think about sort of your real cash or FAD to support the dividend, you could be overpaying the dividend for several quarters here till the paybacks really accelerate in '21. Is that a fair way to think about it?

Chris Volk -- President and Chief Executive Officer

No. No, that's not fair at all. I think where we're at right today, we can absolutely cover the dividend. It's just where we were -- I mean, 72%, you can't.

72% is where we were in Q2. For July, we were at 85%. So at 85%, we are beyond being able to pay out the dividend from a cash perspective. So I think from a Q2 perspective, we're going to be short, and we cover the dividend.

We expect to be able to cover Q3 and Q4. And so for the whole year, we expect to cover it and then have room on top of that.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Right. OK, great. Thank you.

Operator

Thank you. And the final question is a follow-up from Ki Bin Kim with SunTrust.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

So the line is pretty spotty. So I tried to follow all of that, but I just want to go back very briefly to the $0.04 walk, the walk or impact from 1Q to 2Q. That's about $10 million. And you mentioned $2 million was reserved, but only off the deferral bucket.

Is it fair to assume that $2 million is a total reserve from your run rate, and maybe $8 million is lost through store closures or temporary rent abatements? Is that right?

Cathy Long -- Chief Financial Officer

Yes. So that would be -- so yeah.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

OK. So $2 million is about 1% of your 1Q revenue run rate. I'm just comparing that. And I know every property portfolio is different, every company is different.

But I concur that 1% reserve to other companies that have reported, and it just seems light. Any details that you can share beyond that to what went into that thinking?

Cathy Long -- Chief Financial Officer

Well, I'm not sure what your question is. So the lost rent, $0.04, is -- it's actually closer to $11 million. Of that, you've got a $2 million reserve. And the rest would be rent loss due to COVID or for example, not having rent for Art Van for the quarter.

Chris Volk -- President and Chief Executive Officer

So Ki, a lot of that number is going to come back, right? So basically on a cash basis for that. So the only thing that you're doing is you've got a $2 million reserve against $40 million worth of rent deferrals. And we did our best to come up with a number and I think that that's the right number. We also disclosed what the coverage was assuming that we didn't collect any of it, because if you don't collect any of it, the payout ratio is 125%, right? And if you look at where our stock is valued today, our stock is technically valued as if we're not going to collect any of the rent deferrals.

It's all going to go away. I mean, now, I don't think we're going to collect virtually all rent deferrals. But I mean, the stock is valued in that respect. I mean -- and we gave you that disclosure.

So we think that the right reserve is $2 million. Could it be $3 million or $4 million? Maybe, I don't know. We'll see where it comes out. I mean, we try to be conservative.

So we're not trying to -- we're not adding anything. We gave you the number without it, so you have it.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

OK, and any write-offs to the net account receivable balance is not in that $0.04, right? Because that's not -- that's typically not an AFFO anyway, right?

Cathy Long -- Chief Financial Officer

Right. There's not -- if we wrote off an accounts receivable that was from a prior quarter. Is that what you're asking?

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Well, I mean, [Inaudible] outside, you could do a reserve or you can do a straight-line rent receivable balance write-off, right, amid the different things. Also, I'm just curious, the $0.04 doesn't include any kind of straight-line account receivable write-off, right?

Cathy Long -- Chief Financial Officer

Straight-line rent receivable would have been less than $1 million.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

OK. And just last question. Someone asked you about the ABR in 2Q. You guys used to disclose it in your press release.

And I realize things are in [Inaudible] I think your answer was just $730 million from first quarter, divided by four. But that's not really the 2Q run rate. So do you have any additional color on just what the ABR is as of 2Q?

Cathy Long -- Chief Financial Officer

So what we -- what was difficult and why we didn't put it in the press release is because we have also some of these temporary deferrals going on. So it didn't really make sense to try to figure out what an annualized number would be because the deferrals were temporary, right? So for example, if you told somebody, OK, you have to -- you can pay 50% in June, but then your rent goes back to normal in July, if I would annualize June, the whole year would show at 50%, which wouldn't make any sense, right? So as soon as we would assume that COVID is a little bit more volatile, and showing ABR was more insightful, I think, knowing that the months were pretty even all year long, right? So you could annualize it because it's the same rent every single month. And during this COVID time, that's not true.

Operator

Thank you. And this concludes our question-and-answer session. I would like to turn the conference back to Christopher Volk for any closing comments.

Chris Volk -- President and Chief Executive Officer

Well, thank you, all, for attending the call today. Mary and Cathy and I are going to be available for any follow-up questions you've got. Given that we're working remotely. And we are not seeing many of you as we normally would during periodic conference events, which has been disappointing to us.

So during the third quarter, we're expecting, and we're planning on virtually conducting a few nondeal investor presentations. If you have an interest in being included in this kind of outreach, feel free to call us. In the meantime, have a great day. Thanks so much.

Bye.

Operator

[Operator signoff]

Duration: 75 minutes

Call participants:

Lisa Mueller -- Investor Relations

Chris Volk -- President and Chief Executive Officer

Mary Fedewa -- Chief Operating Officer

Cathy Long -- Chief Financial Officer

Sheila McGrath -- Evercore ISI -- Analyst

Frank Lee -- BMO Capital Markets -- Analyst

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Linda Tsai -- Jefferies -- Analyst

Adam Gabalski -- Morgan Stanley -- Analyst

Spenser Allaway -- Green Street Advisors -- Analyst

John Massocca -- Ladenburg Thalmann -- Analyst

Chris Lucas -- Capital One Securities -- Analyst

Nate Crossett -- Berenberg -- Analyst

Craig Mailman -- KeyBanc Capital Markets -- Analyst

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