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 (NYSE:BNL)
Q3 2020 Earnings Call
Nov 06, 2020, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello. Welcome to Broadstone Net Lease's third-quarter 2020 earnings conference call. My name is Kate, and I will be your operator today. Please note that today's call is being recorded.

I would now like to turn the call over to Kevin Fennell, senior vice president of capital markets at Broadstone. Please go ahead.

Kevin Fennel -- Senior Vice President of Capital Markets and Strategy

Thank you for joining us today for Broadstone Net Lease's third-quarter 2020 earnings call on today's call. You will hear from our CEO, Chris Czarnecki; and our CFO, Ryan Albano. Before we begin, we want to remind everyone that the following presentation contains forward-looking statements, which are subject to risks and uncertainties, including but not limited to those related to the ongoing COVID-19 pandemic. If one or more of these risks or uncertainties materialize, our actual results may differ materially.

We caution you not to place undue reliance on these forward-looking statements and refer you to our SEC filings, including our Form 10-K for the year ended December 31st, 2019, Form 10-Q for the quarter ended June 30th, 2020, and other filings with the SEC for a more detailed discussion of the risk factors that may cause such differences. Any forward-looking statements provided during this conference call are only made as of the date of this call. I will now turn the call over to our CEO, Chris Czarnecki.

Chris Czarnecki -- Chief Executive Officer

Thank you, Kevin, and welcome everyone to Broadstone Net Lease's first earnings call as a publicly traded company. After our recently completed IPO, we are excited to have an expanded shareholder base, lower leverage, and enhanced liquidity, which we believe positions us to grow our portfolio through attractive and accretive property acquisition opportunities. Our team intends to continue executing on our proven diversified investment strategy and remains focused on creating long-term value for all of our shareholders. I also wanna take a moment to recognize all of the employees of Broadstone that have done such a tremendous job running the business during a very challenging period.

The team has continued to execute at a high level and it's very -- and is very excited about the future of the company. Our corporate accomplishments and portfolio performance results are a testament to the strength of our established platform, experienced management team, and differentiated investment strategy. Our initial public offering closed on September 21st raising net proceeds of $588.2 million after accounting for the underwriters' election to issue 3.5 million additional shares on October 20th. We used the proceeds to repay 456.7 million of debt and related accrued interest, thus significantly reducing our leverage ratio, and placed roughly $132 million of cash on the balance sheet.

In conjunction with the IPO, we also closed on a new $900 million unsecured revolving credit facility. All these factors further solidify our investment-grade balance sheet and position the company with ample liquidity to pursue attractive growth opportunities, which I'll discuss more in a moment. Aside from the IPO, business activity in the quarter was relatively muted, which is a positive assessment given the market backdrop created by the ongoing pandemic. As a result of our thoughtfully constructed and highly diversified portfolio, we collected approximately 97.9% of third-quarter rents and 98.5% of rents to date for October.

We also collected 100% of the deferred rent that was owed to us during the third quarter. During the quarter, we also sold five assets for net proceeds of $9.4 million, bringing total year-to-date dispositions to 18 assets for net proceeds of 54.8 million. For the properties that were leased, the weighted average disposition cap rate was 6.8%. Sales during the quarter included three vacant properties and two occupied quick-service restaurants.

On the leasing front, in Q3, we completed two lease extensions on healthcare assets for five and three years on leases that were previously expiring at the end of 2020 and mid-2021, respectively. Rents for these properties continue at the same scheduled rates and increased annually during the extension period. After quarter end, we also executed separate 10-year lease extensions at two of our properties leased to Tractor Supply who continues to be one of our top 20 tenants. A quick note on Tractor Supply in October.

Moody's and S&P assigned the company investment-grade ratings of Baa1 and BBB, respectively. While we do not place particular emphasis on investment-grade credit ratings, it is nice to see third-party validation of a business model that we've been investing in since 2016. While we are not actively acquiring properties during the quarter, we invested 3.5 million in meaningful expansions and improvements for existing tenants in exchange for additional rent. This brings our year-to-date total of other investment activity to $7.2 million on which we will generate a 7.4% weighted average return.

We continue to work with our tenants on additional expansions and improvements to our assets and view this as an accretive way to deploy capital into Q4 and 2021. As of September 30th, our portfolio includes 627 properties across 41 states and one province of Canada. The portfolio maintained 99.6% occupancy and has a weighted average remaining lease term of 10.8 years with 2.1% in-place annual rent escalators. Our portfolio is and will continue to be diversified across multiple asset types, which primarily include industrial, healthcare, restaurant, retail, and office properties.

We believe our strategy delivers attractive risk-adjusted returns, multiple avenues for growth, and defensive attributes afforded through portfolio diversification that help provide stability in an ever-changing world. Leading up to the IPO, our acquisitions team began advancing their actionable pipeline sourcing investment opportunities across multiple channels and asset types. I'm happy with the progress that we have made. And as of today, we have entered into two purchase contracts for $33 million of investments with an initial weighted average cash capitalization rate of 7%.

We expect both transactions to close during the fourth quarter. The properties will have an expected weighted average remaining lease term of approximately 18.2 years and weighted average annual rent increases of approximately 1.9%. We also have $64 million of other properties under the letter of intent, which if successfully brought to conclusion, represent attractive acquisition opportunities likely to close in Q4 or Q1 2021. The team has done a great job quickly building a pipeline of attractive investments after the IPO, and our momentum continues to build heading into 2021.

As we continue to pursue additional investment opportunities, we do remain cautious on certain asset types that we believe could be more negatively affected by the ongoing pandemic, notably office and casual dining. We hold the same cautious views on assets within our existing portfolio where we maintain a heightened level of attention on these assets and tenants. Importantly, our diversified strategy and experienced team ensure that we have the flexibility to pursue growth where we find attractive risk-adjusted returns, while also limiting the negative effects of disruption occurring within any single sector or tenant. This quarter has been one of great significance for Broadstone Net Lease, and I'm proud of what our team has accomplished during these unprecedented times and excited for the opportunities we have ahead of us.

We remain focused on generating attractive risk-adjusted returns while creating long-term value for our shareholders. I would now like to turn the call over to Ryan to go over the results of the quarter in greater detail.

Ryan Albano -- Chief Financial Officer

Thanks, Chris. I'd like to first echo your comments and recognize everybody on the Broadstone team for their countless efforts and ability to adapt to near-constant change during this year. In addition to seamlessly running the business remotely, we completed a major milestone with the IPO. And I know everyone is focused on continuing to execute on our proven strategy moving forward.

Before diving into activities in the quarter, I'd like to provide additional details on our financial profile after the IPO. As Chris indicated, we significantly reduce leverage and strengthened their balance sheet using IPO proceeds. After accounting for the partial overallotment, we reduced our leverage ratio as measured by net debt to adjusted EBITDA for real estate from 7.2 times as of Q2 2020 to five times. We also increased our revolving credit facility to $900 million with a new three-year term plus an additional year available at our option resulting in a weighted average debt maturity of approximately five years with no significant debt maturities until 2023.

Given over $150 million of cash available to deploy, zero balance on our revolver, and a target leverage ratio of less than six times, we believe we have sufficient liquidity and financial flexibility to pursue our growth objectives in the near term. Moving to our quarterly performance update, I'd like to first give an update on our collection activity and the rent relief request we granted during Q2 at the onset of the pandemic. As Chris mentioned, as of today, we collected 97.9% of third-quarter rent, which compares favorably to the already strong collection results we saw in Q2 of 95.5%. This trend continued into October for which we collected 98.5% of base rent owed.

As a reminder, we granted 14 short-term partial deferrals in Q2. And as of September 30th, the deferral periods for each of those agreements have expired. During the third quarter, in addition to collecting 100% of base rent owed from each of these tenants, we also received 100% of previously deferred rent that was scheduled for repayment in the quarter. As of September 30th, we are scheduled to receive approximately 1.8 million of remaining deferred rent over a weighted average period of 4.2 months.

In exchange for three additional years of lease term, we also entered into a partial rent abatement agreement in Q2 with a casual dining tenant that runs through January of 2021 before returning to previously scheduled rent. The tenant is required to pay a minimum amount of base rent, which increases during the abatement period, as well as additional base rent based upon sales if certain thresholds are met or exceeded. The additional base rent clause became effective in August, and we have received approximately $0.2 million of additional rent pursuant to that clause for August and September combined. One final point on collection activity during the quarter relates to Art Van Furniture.

We resolved our claim in the Art Van bankruptcy proceedings and received $2.35 million representing approximately 78% of our total post-petition claim or 86.5% of the total post-petition base rent owed. As we have previously discussed, we retenanted six of our 10 former Art Van locations under long-term leases with American Signature who operates the Value City furniture brand. In addition to those six properties, we retenanted one of the remaining four properties under a long-term lease earlier this week. We continued to market for release and evaluate various alternatives for the three remaining locations.

During the quarter, we recognized an aggregate $14.7 million impairment provision on three properties. Two of the properties are former Art Van locations and one property was a vacant medical office building that we sold during the quarter. The length and severity of the pandemic have resulted in negative adjustments to our releasing and potential sale assumptions. The remaining carrying value on the two Art Van locations is approximately $9.4 million as of September 30th.

And as I previously mentioned, we continue to market and evaluate the most optimal solutions for these assets going forward. Moving to our earnings results. We reported an AFFO of $47.1 million in the third quarter, representing a 21% increase over the same period in 2019. The increase was primarily a result of the contribution from a large acquisition that we closed in late August of 2019.

On a per-share basis, AFFO was $0.38 per diluted share, an increase of 2.7% as compared to Q3 of 2019. Per-share results were lower than headline AFFO growth, given the impact of additional shares. For the third quarter, we incurred $7.2 million of G&A expense. While we will likely incur incremental public company costs in the near term, we expect to achieve economies of scale with respect to G&A expenses over time as our portfolio growth outpaces our cost structure.

Finally, I'd like to provide an update on our dividend. We previously declared a dividend of thirteen and a half cents on August 4th that was paid to shareholders and OP unitholders of record as of September 30th in October. At our November 5th, 2020, board meeting, our board of directors set a $0.25 distribution per common share in OP unit to holders of record as of December 31st, 2020, payable on or before January 15th, 2021. With that, I will turn it back over to Chris.

Chris Czarnecki -- Chief Executive Officer

Thank you, Ryan. Our portfolio has proven its resiliency in the face of unprecedented uncertainty. And after completing the IPO, we're excited to turn our attention to the attractive opportunities set that we believe exists in the net lease market. We continue to advance opportunities through our investment process and we believe we are well-positioned to exceed our initial Q4 acquisition expectations in the same diversified manner as we have employed historically.

This concludes our prepared remarks and we'll now open the line for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question is from John Kim from BMO Capital Markets. Go ahead.

John Kim -- BMO Capital Markets -- Analyst

Thanks. Good afternoon. I guess as of today, looks like there's going to be inviting presidency with the split governments and I was just wondering if you had any comments as far as what you think this means in terms of the transaction market with the likelihood 1031 will remain intact.

Chris Czarnecki -- Chief Executive Officer

Sure. Hey, John. It's great to talk to you. Thank you for the question.

I think in general, the transaction market as we've experienced in the fourth quarter has been robust and I don't know that that's particularly weighted toward any one view of the market one way or the other, or excuse me, what's going to hit the election one way or the other. From the 1031 perspective, it's one that we've continued to monitor and have paid attention to. And Green Street had some good comments on it earlier this year. I think incrementally, it might mean a little bit less of smaller asset sales from folks who would be looking to trade out of properties and then move into other ones.

On the whole, though, I think an offsetting factor which is still of interest to us is the ability to do unit deals and do tax-deferred OP transactions, and that's a toolkit that -- a tool, excuse me, that we have and have used quite a bit over the years. And so I think that gives us an opportunity to potentially be able to execute on some transactions that may not have been available to us before. And on the disposition front, while we do do disposition activity, it's not a huge part of our business. It's usually on the average two or 3% a year of the portfolio.

So that's probably a little bit more of awash all in. But haven't really seen a dramatic change in the transaction market or seeing anything particularly different with the changing political landscape.

John Kim -- BMO Capital Markets -- Analyst

OK. And then you mentioned, Chris, the $64 million assets you have on your letters of intent. Can you just remind us what your typical success rate is on closing on transactions when it goes into that stage and any commentary you can provide on property type or deal expectations on these assets?

Chris Czarnecki -- Chief Executive Officer

Sure. So I think there's a few things. Our general success rate is usually quite high from an LOI to ultimate execution. At the same time, there's always diligence and a very thoughtful review by our team and contract structuring and things that do occasionally change or push a little bit.

So I always want to offer that caution. But in general, one of the ways that we think about going forward with acquisitions is to really do a lot of the work upfront and stand behind ROIs such that we've done a lot of underwriting and that's something I think the team has done really, really well. So I think that translates into a pretty high degree of closures with respect to LOIs. In terms of where those LOIs reside today and the existing things that are under contract that's about 97 million of things under our -- $97 million of property under our control today.

And we would see that sort of still blending into the high 6% initial cash cap rate zone. I would tell you that it's a good mix of industrial healthcare assets a little bit, the QSR, and our niche retail. So very consistent with our portfolio that we've built over the last five years. I think these are very complementary assets.

They fit the strategy that we've employed and should be very seamless from an integration perspective to the portfolio and consistent with what we've bought before.

John Kim -- BMO Capital Markets -- Analyst

OK. And then final question for me is on the dispositions that included three vacant assets. And I think Ryan mentioned one of them was an MOB. But can you just talk about disposition strategy going forward if you do see an upcoming or current vacancy? Is the strategy or your preference more to the asset rather than retenant it at a high CAPEX, or just -- and how you think about managing vacancy in your portfolio?

Chris Czarnecki -- Chief Executive Officer

Yeah. Absolutely. I think it's asset by asset dependent. And as Ryan talked about, we did release just another one of the vacant Art Van sites this week with relatively no issue.

And so I think you know we take each one individually. The one vacant MOB we had was one that we had worked on both we've seen strategies and sale strategies and ultimately decided to move forward with the sale component of it. So we take it piece by piece and look toward what the best outcome is based on each of the assets. And again, we also did a reasonable amount of releasing for those other MOBs during the quarter plus the Tractor Supply.

So I think it very much just depends on where we are relative to market rents, where we are with the tenant, and their desire to stay. And the great thing is is we have very little near-term lease maturities coming. And so it's a manageable process and we're always thinking five years out on that front.

John Kim -- BMO Capital Markets -- Analyst

I realize you have very little upcoming expirations. But should we think about releasing CAPEX rising particularly in certain asset classes like office and MOBs, and to a lesser extent, industrial?

Chris Czarnecki -- Chief Executive Officer

I don't think anything specific there to guide toward the healthcare assets that we released didn't have any CAPEX exposure or any CAPEX increases. And then the other ones were fairly nominal. Almost nothing. So I don't know that there's anything particular to guide toward on heavy CAPEX for any of the particular asset classes based upon what we're seeing today.

John Kim -- BMO Capital Markets -- Analyst

Great. Appreciate the color. Thanks a lot.

Chris Czarnecki -- Chief Executive Officer

Of course. Thank you.

Operator

Our next question is from Vikram Malhorta from Morgan Stanley. Go ahead.

Vikram Malhorta -- Morgan Stanley -- Analyst

Thanks for taking the questions. Just -- maybe just going back to the acquisition. You talked about sort of the pipeline, the composition, kind of the closure rate. I'm just sort of maybe wondering just bigger picture.

Can you give us a better sense of sort of the funnel that the broader set that you're considering just so we get a sense of what the run rate could start to look like 4Q heading into '21.

Chris Czarnecki -- Chief Executive Officer

Sure. Absolutely, Vikram. So I think, as we've moved forward and as the acquisitions team has started to move their pipeline into an actionable state, we've seen and thought about our volumes being fairly consistent with previous years. So I believe this year, from a run rate acquisition sourcing, we've been north of $17 billion.

The team has looked at and thought about from an acquisition perspective and underwritten. And then now, we've obviously been able to, with the IPO proceeds, begin to move that forward into closings. And so from our view, what we're seeing in the market where we're working on a number of different transactions, the pipeline and the opportunities that feel pretty robust. And assuming current market conditions hold, we feel like we can be executing close to historical or above historical levels in 2021, maybe excluding the large year of 2019, but more in line with historical averages over the past five years.

And so that's generally how we're thinking about it today. Again, we're on track to exceed our projections for Q4, which were scaled to be coming out of the IPO and -- but feel really good about where we're headed for 2021 based on the broader opportunities set, the active pipeline, and whatnot from there.

Vikram Malhorta -- Morgan Stanley -- Analyst

OK. That's that's helpful. And then just in terms of the -- where we are today with the economy. Obviously, there's a final election result.

But just given where we are with COVID there right now and especially in the restaurant and the retail sectors, what are you -- can you kind of maybe give us the puts and takes as you see it on occupancy over the next few months?

Chris Czarnecki -- Chief Executive Officer

Sure. I think you've kind of hit on some of the things that we're closely focused on there and I said during the prepared remarks continue to pay very close attention to our casual dining portfolio, which has held up well even with some sales declines that have been experienced across the entire industry. Most of our casual dining has strong national operators and corporate tenants so that does give us additional surety there and a little bit more credit strength behind our operators, but it is certainly one that we're paying close attention to. Our QSR component has performed well and in line with expectations, and they've certainly been consistent on a year-over-year basis.

Where more of our portfolio was weighted, since that is only about 15% of it, is to the industrial side and healthcare side. Again speaking fairly generally, the cold storage component, the food processing, the packaged good sides of our industrial businesses have been showing relatively good strength and have performed at high levels over the last several months. And then healthcare, as people were not able to defer a lot of elective procedures, they've also seen their businesses bounce back in a nice way. So occupancy is always a different -- difficult thing to predict.

We see caution around the restaurant space because of the winter months and all the reasons that you'd expect. But we feel good about where we are from a high level of leased perspective in the 99% zone.

Vikram Malhorta -- Morgan Stanley -- Analyst

OK. Great. And then just last one on the G&A. Can you maybe remind us sort of what sort of run-rate costs may carry on into '21 and maybe what may go away just sort of looking for as we model things out what's sort of a good run rate heading into '21?

Chris Czarnecki -- Chief Executive Officer

Absolutely, Vikram. I'm gonna kick it to Ryan to talk about that for you.

Ryan Albano -- Chief Financial Officer

Sure. Hi, Vikram. In terms of runway -- run rate, the logic we're thinking about it right now is, as I had mentioned in some of my remarks, where we have seen a little bit of uptake in our G&A related to you know additional costs of being a public company and whatnot. I'd say, in line with kind of our previous thoughts which is run rate of G&A excluding stock-based comp, I'd say some more and then kind of $8 million, give or take, per quarter.

Vikram Malhorta -- Morgan Stanley -- Analyst

Great. Thanks a lot.

Chris Czarnecki -- Chief Executive Officer

Thank you.

Operator

Our next question is from Anthony Paolone from JP Morgan. Go ahead.

Anthony Paolone -- J.P. Morgan -- Analyst

Hi. Thank you. So your deal pipelines become more robust and sounds like pretty comparable to what a number of your peers are saying too. So just wondering like who are the sellers? Are you seeing more sale leasebacks or these more existing net leases that folks are selling?

Chris Czarnecki -- Chief Executive Officer

Yeah. Good question, Tony. Thank you for that. I think when we were we were talking with you guys early this year and talking on the roadshow, we highlighted a number of channels we source from.

And honestly, in addition to having a robust pipeline that sort of matches are our underlying portfolio, I think we've been sourcing through a number of those same channels into Q4 and for 2021. And so we have certain transactions going with developers that we've had long relationships with. We have two or actually maybe three existing tenants we're doing additional transactions with as well, and then obviously working through the broader market and looking at a few sale leaseback transactions there as well. And then we highlighted while not a huge number continued to invest in our own assets through tenant improvements and we have a few opportunities as I alluded to during the prepared remarks for Q4 and to 2021 there.

So -- and we're really executing on our own our broad funnel to bring a number of different opportunities into the pipeline. So we're sort of checking all the boxes of things we talked about earlier in the fall.

Anthony Paolone -- J.P. Morgan -- Analyst

OK. It sounds like a bit more skewed toward sale leasebacks or new leases as opposed to buying an existing net lease.

Chris Czarnecki -- Chief Executive Officer

I think it's -- I could double check it, but I think it's pretty -- it's a balance between the two at the moment. I -- there's at least a few sale leasebacks and a few existing leases as well. So it's just a mix.

Anthony Paolone -- J.P. Morgan -- Analyst

OK. Got it. And then the --

Chris Czarnecki -- Chief Executive Officer

Or expansions of existing leases as well, excuse me, for existing tenants, so grouping more into a master lease.

Anthony Paolone -- J.P. Morgan -- Analyst

OK. Got it. And then the last point or two of non-collections, how do -- how should we think about that over the next few quarters, or is that a bit of a moving target because maybe it's not the same group of tenants based on sort of that occupancy discussion you had with that Vikram?

Chris Czarnecki -- Chief Executive Officer

Yeah. It's more of a moving target. The last little bit there is simply deferred rent and then one small tenant into the pool has a partial amount left for October. And I don't know, Ryan, is there anything I should throw in there?

Kevin Fennel -- Senior Vice President of Capital Markets and Strategy

No. I don't think so. I mean, I think it's been strong, continues to remain strong, and overall I would say that in -- right in line with what we're seeing today.

Chris Czarnecki -- Chief Executive Officer

Yeah.

Anthony Paolone -- J.P. Morgan -- Analyst

OK. And then last question just roll the run rate on -- a way for it. The 1.7 million that shattered back with capital improvement slash reserves, what was that? And how should we think about that as a run rate matter?

Chris Czarnecki -- Chief Executive Officer

I'll kick it to Ryan for that.

Ryan Albano -- Chief Financial Officer

Sure. I'd say that's one sort of onetime item to describe it a little bit better that there was no impact historically to AFFO or to data AFFO. What it really relates to is a tenant-funded capital reserve item that they would fund every period since 2010. The number that you see there of the 1.6 is sort of the cumulative amount since 2010.

We reclassified during this period that amount to the balance sheet as a liability. And net-net to AFFO, it was zero given that there was sort of an offset to top line during this period. So overall, it's not something that we need to think about going forward from a modeling perspective.

Anthony Paolone -- J.P. Morgan -- Analyst

OK. So it was up in revenue or it was up in -- what was it up in? Where was it on the income statement, I guess?

Ryan Albano -- Chief Financial Officer

Yep. Historically, since 2010, each period, we had recorded it to revenue with an offset to AFFO. So no AFFO impact along the way as we reclassify that cumulative amount this quarter. We reclassified it from top line to a liability on the balance sheet and had a corresponding offset to the AFFO as well.

So again, no impact to AFFO this period either.

Anthony Paolone -- J.P. Morgan -- Analyst

OK. Thank you.

Operator

Our next question is from Ki Bin Kim from Truist. Go ahead

Ki Bin Kim -- Truist Securities -- Analyst

Thanks. Good afternoon. Can you just talk a little bit more about your industrial acquisition strategy? I'm still curious if that is predominantly where you wanna deploy capital and if you can provide some details on what type of assets, what type of markets you're looking at, and the yields, obviously.

Chris Czarnecki -- Chief Executive Officer

Sure. So our industrial, it's always worth reiterating and obviously talked a lot about during the IPO. But for us, we're focused on more secondary markets for industrial and slightly smaller assets relative to what you might think of for the very big million square foot distribution facilities or sort of coastal or I would say gateway market facilities. So our portfolio today is broken down roughly about a third in manufacturing, a third in distribution, and the remainder in food processing and cold storage and some flex space -- flex and R&D space, excuse me.

Our average asset size is about two hundred thousand square feet. Some of our bigger markets include -- actually our largest industrial markets include Chicago and Dallas, and then Wisconsin and Phoenix just more secondary markets. And I think what we're sourcing today is actually fairly similar in that regard. It's more secondary markets and midsized assets.

There are a mix of a couple of different property types within there. And obviously, once we get those closed, we'll give you more details. And I'd say there's a reasonable range on cap rates there but still finding good opportunities in that mid to high-6 zone for the industrial that we're looking at today.

Ki Bin Kim -- Truist Securities -- Analyst

OK. Thanks. And generally speaking, what is the reserve level that you're carrying right now?

Chris Czarnecki -- Chief Executive Officer

Sure. I'll pass that one to Ryan.

Ryan Albano -- Chief Financial Officer

Sure. We're typically looking at about 75 bps. And as we look at that reserve level, I think there are two things playing into it. I think historically we've operated inside of that but just given some of the uncertainty related to the environment and having an uptick recently in the number of cases and so on, I think that we could see the other side of that.

So I think today looking at a 75 bps assumption or so generally makes sense to me.

Ki Bin Kim -- Truist Securities -- Analyst

OK. And just last quick one here. I'm not sure if you already addressed it, but the 1.62 million of reserves or capital improvement that was reversed. Was -- did you already talk about that in the call?

Chris Czarnecki -- Chief Executive Officer

Yep. That's what I was describing earlier as the item had no AFFO impact previously or today and it was the reclass to the balance sheet as liability for the cumulative amount this period.

Ki Bin Kim -- Truist Securities -- Analyst

OK. Thank you.

Chris Czarnecki -- Chief Executive Officer

Thank you.

Operator

Our next question is from Caitlin Burrows from Goldman Sachs. Go ahead.

Caitlin Burrows -- Goldman Sachs -- Analyst

Hi. Good afternoon. I guess continuing on the acquisition front. Could you just talk about how competitive the landscape is right now and just what allows you to make acquisitions at the target cap rates that you want for in favor of property types like industrial or healthcare?

Chris Czarnecki -- Chief Executive Officer

Sure. I think the acquisition environment is competitive, but it's been competitive for a long time for us. And today, it's a continued focus on our core strategy and some of our smaller assets and secondary assets -- the secondary markets for the industrial space, it's relationships that we've built over the long term, and some of the developer relationships we've been able to work with and in building our brand in that regard, and then it's also an ability to execute with existing tenants as well. And so we certainly follow a lot of transactions and don't execute on many of them for a variety of reasons including competitive pricing.

But we feel like our reputation, our relationship collection, and our team has proven to be resilient and we continue to see the right deal flow to meet our acquisition criteria. And so we've been very focused on trying to continue to grow that portion of our portfolio as it's one that's been very successful for us.

Caitlin Burrows -- Goldman Sachs -- Analyst

OK. And then on the restaurant rent coverage that you reported three times. Could you give more details on this like what time frame of sales that includes if it's pre or post during a pandemic and how often you get the restaurant sales results?

Chris Czarnecki -- Chief Executive Officer

Sure. We receive I believe it's 99 or high 90% of four-wall reporting from the restaurant portfolio. It is through the end of Q2 at this point. Now some folks may report only once per year or some do quarterly as well, but it's the most up-to-date data we have through the end of the second quarter and even into third-quarter reporting for some that might report more quickly than you know 30 days after the quarters or under, whatnot.

Caitlin Burrows -- Goldman Sachs -- Analyst

OK. Thanks.

Chris Czarnecki -- Chief Executive Officer

Yep.

Operator

Our next question is from Chris Lucas from Capital One. Go ahead.

Chris Lucas -- Capital One Securities -- Analyst

Hey. Good afternoon, guys. Just on the investment side, talked a lot about the industrial properties that you're interested in. But maybe if you could rank order sort of where your comfort level is from sort of focus and best opportunity to sort of where things are less attractive for you right now from a risk-adjusted basis across the different kinds of lines of business that you invest in.

Chris Czarnecki -- Chief Executive Officer

Yeah. Absolutely. So I think as you said there's a high level of interest and industrial, and that's obviously where a lot of our time is spent. Those businesses have held up well.

We also do have a strong interest in expanding our healthcare portfolio further. That's -- there's a couple of healthcare transactions with existing tenants in our pipeline that we're working on and some new ones as well. Cap rates there have been pretty attractive in the upper 6% range, and we've been able to grow our verticals either the off-campus but hospital-affiliated component of our portfolio, so smaller MOBs there that feed the broader health system. And then secondarily or equally I should say, excuse me, is the large regional physicians groups that might be a specialist in their given market.

We're working on some repeat transactions with a few groups there as well. And so those cap rates and those least terms have been attractive to us. On the restaurant side of the business, as I've said a few times, casual dining is certainly a level of caution and not looking to really transact there. We are working on a few QSR opportunities.

Those are more specialized. And with existing folks that we know, the broader QSR market is probably priced to a point where we're not likely a buyer on a regular basis. That tends to be a very competitive market with smaller buyers and whatnot. I'm excited to add these assets if they come through to the portfolio, but it's not a spot where there has been a lot of large sale leasebacks or a lot of attractively priced opportunities.

And then our niche retail assets have been generally been priced reasonably attractively. We've got one or two coming as well this quarter. Those have been plus or minus the 7% cap rate for things that have done quite well during the pandemic. So happy to add those on the margin, but not looking to expand that massively.

So I guess rank order would be industrial and healthcare up top. Very happy that QSR, but don't see the pricing making sense there. And then on the margin a little bit of incremental retail.

Chris Lucas -- Capital One Securities -- Analyst

Thanks for that detail. Just a couple of sort of questions for Ryan. Just on the rent collection. Anything related to timing? I mean, is a hundred percent typical pre-COVID for you guys to have collected other than, say, for your creditors.

But is that we always sort of getting all the rent or there were timing issues that we should be thinking about as well?

Ryan Albano -- Chief Financial Officer

Yeah. No. I'd say historically we've been at that 99, 99.9, 100% of rent. So, yes.

That's how it's historically been and minus the general dislocation of COVID and some other things. That's where the portfolio has historically operated.

Chris Lucas -- Capital One Securities -- Analyst

OK. And then I just wanted to follow up on sort of a G&A guide. I mean, if I got it right, you had 72 in total G&A this quarter and about 800 of that was non-cash comp so that's 64 on a cash basis roughly. Can you maybe give me a sense as to what the -- either the cash component of -- or the cash G&A run rate should be or whether or not -- just sort of help me out with what I'm trying to tie what you previously stated with kind of what we saw in the third quarter.

Ryan Albano -- Chief Financial Officer

Sure. I'd say as we think about 2021 and so on, I'd say you know it's that cash G&A component or G&A ex the stock comp. I -- the few things that are coming to mind at the moment that sort of feed that eight plus or minus give or take kind of million-dollar quarter run rate is some additional costs of operating a public company, right, increased D&O insurance and things like as we continue to get back into deal activity and so on and see some uptick in T&E expenses and so on. But a lot of little things that lead to it.

And I think that that is I think about the 8 million give or take, I think that's a fair assessment of run rate as we sort of think about it going forward.

Chris Lucas -- Capital One Securities -- Analyst

Super. Thank you. That's all I had today.

Chris Czarnecki -- Chief Executive Officer

Thank you, Chris.

Operator

Our next question is from Michael Gorman from BTIG. Go ahead.

Michael Gorman -- BTIG -- Analyst

Yeah. Thanks. Good afternoon. Chris, if we just go back to -- on the acquisition side and then within the portfolio, you made some comments in your prepared remarks.

And then in response to prior question, could you just talk about how you're thinking or what the conversations you're having with your office tenants right now and how you're looking at potential office acquisitions? What's -- what are the conversations you're having that maybe make you less interested in the space as a part of the portfolio?

Chris Czarnecki -- Chief Executive Officer

Sure. So I think one of the things that we've long held is a cautious view on office. Our offices is generally more suburban in nature which is certainly more of a benefit during this time frame. We have included office and it's been a way for us to I would say differentiate ourselves on certain transactions and sale leasebacks where there might be a corporate office along with, say, several industrial facilities or whatnot.

So we've we've thought about our office exposure in that you know 10% of the portfolio plus or minus a little bit being a good spot for us. And where we sit today, we've had a lot of conversations with our office tenants as we have conversations with all of our tenants on a regular basis. Not everybody is fully back to work, but we feel like we have very good long-term leases and strong credit there. But ultimately, there's still just a lot to be sorted out on the long-term office model and whether tenants nationally need the same amount of space that they did before or whether they adopt some other hybrid model.

And so for us to make 15 or 20-year commitments, we want more surety on how people are going to operate their businesses once this is behind us. And so for us, it's really about just waiting to see how that shakes itself out and spending a lot of -- spending extra caution there and just making sure that our portfolio is in good shape, which collections have been good and our tenants have been -- have strong credit as I said and then really just continuing to see how that model shakes out over time.

Michael Gorman -- BTIG -- Analyst

That's helpful. Thanks. And obviously, it hasn't been much of an issue for you all with your portfolio given the collections and the occupancy. But if you think about the footprint and think about making new investments, how much maybe increased focus are you putting on local responses in local governments as we see greater differentiation in how people are opening up and what kind of regulations they're putting in place for different businesses? Is local governance playing a bigger role in your underwriting process?

Chris Czarnecki -- Chief Executive Officer

You know it's an interesting question. I think it's been a component of certain asset classes for us over time. I would say on the healthcare side and the certificate of need states and the restrictions imposed maybe not on the local level but on the state level have always been things we've thought about a number of our acquisition opportunities today coming out of this. We do have a better sense when we're visiting properties of where local impacts might be hitting our tenants in some way or another.

Future tenants, I should say, not current tenants. But we -- because of when we started to make acquisitions, we do have the benefit of the last six months and understanding how people have reconfigured their spaces and whatnot. So that is a nice benefit for us to have that sort of going into these Q4 acquisitions. And then ultimately, when I think about local restrictions or local components of the portfolio and future acquisitions, the one thing I really like about our portfolio is the cross diversification that exists among it and again not to speak at the state level so much but it's as easy within Texas.

We have a tremendous amount of industries, property types, and tenants, and whatnot. So even within a municipality of a state of that magnitude, we really don't have a lot of concentration within any one component such that if there was a change to some of those restrictions and some of those state-level or county-level changes we really shouldn't feel it across the whole portfolio. So that's a positive in my mind as well.

Michael Gorman -- BTIG -- Analyst

Great. And then maybe just last one for me as you think about the pipeline. And I apologize if I missed it. Was -- does the pipeline include any expansion into new property types like the expansion into cold storage was or into life sciences? Any new property types that are in that pipeline that you're evaluating?

Chris Czarnecki -- Chief Executive Officer

No. Not specifically today. It's the core industrial healthcare And, to us, our business mostly in the pipeline today.

Michael Gorman -- BTIG -- Analyst

Great. Thanks so much.

Chris Czarnecki -- Chief Executive Officer

Thank you.

Operator

Our next question is from Frank Lee from BMO. Go ahead.

Frank Lee -- BMO Capital Markets -- Analyst

Hi. Good afternoon, everyone. How should we think about funding for the acquisitions that are under LOI right now? Is there expectation these deals will be initially funded with cash in on the line versus establishing a team?

Chris Czarnecki -- Chief Executive Officer

Yeah, Frank. I'm gonna let Ryan take on that one.

Ryan Albano -- Chief Financial Officer

Sure. Yeah. I'd say early on here are -- we're sitting with significant amount of cash on the balance sheet ready to deploy. So we'll first put that to use and then work with the revolver that we just upsized in conjunction with the IPO to $900 million let's say, the acquisitions over the next coming quarters and whatnot should be funded primarily in that order.

Frank Lee -- BMO Capital Markets -- Analyst

OK. Great. And then what are your current thoughts on providing 2021 guidance with 4Q earnings?

Chris Czarnecki -- Chief Executive Officer

Sure. I think what we've tried to do today is give a little bit of an outlook on what the -- what acquisitions are shaping up to be both sort of in terms of Q4 and what the pipeline looks like and how we're thinking about the potential for next year. As we make our way sort of through Q4, we'll obviously continue to evaluate best practices and so on and as we move forward look to you know what those best practices are. I guess if you're asking today about specific AFFO guidance for next year or AFFO per share guidance for next year, right now where we're not specifically committing to that.

Frank Lee -- BMO Capital Markets -- Analyst

OK. Thank you.

Operator

This concludes the question-and-answer session. I would now like to turn the conference back over to Chris Czarnecki for closing remarks.

Chris Czarnecki -- Chief Executive Officer

Thank you so much. I will close by again continuing to both thank all of our investors and our employees for their diligent work in helping make Broadstone Net Lease so successful. We are very excited to continue to execute on our growth plan in Q4 and into -- and 2021 and we very much look forward to sharing updates with everyone as appropriate through the back half of the year and into the first quarter. Thank you all very much and have a great afternoon and weekend.

Operator

[Operator signoff]

Duration: 51 minutes

Call participants:

Kevin Fennel -- Senior Vice President of Capital Markets and Strategy

Chris Czarnecki -- Chief Executive Officer

Ryan Albano -- Chief Financial Officer

John Kim -- BMO Capital Markets -- Analyst

Vikram Malhorta -- Morgan Stanley -- Analyst

Anthony Paolone -- J.P. Morgan -- Analyst

Ki Bin Kim -- Truist Securities -- Analyst

Caitlin Burrows -- Goldman Sachs -- Analyst

Chris Lucas -- Capital One Securities -- Analyst

Michael Gorman -- BTIG -- Analyst

Frank Lee -- BMO Capital Markets -- Analyst

All earnings call transcripts

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