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National Retail Properties Inc (NYSE:NNN)
Q4 2020 Earnings Call
Feb 11, 2021, 10:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the National Retail Properties Fourth Quarter and Year-end 2020 Earnings Conference Call. [Operator Instructions]

It is now my pleasure to turn the floor over to your host, Jay Whitehurst. Sir, the floor is yours.

Julian E. Whitehurst -- President and Chief Executive Officer

Thank you, Matthew. Good morning, and welcome to the National Retail Properties Fourth Quarter and 2020 Year-end Earnings Call. Joining me on the call this morning is our Chief Financial Officer, Kevin Habicht; and our Chief Operating Officer, Steve Horn. Before discussing the details of this past year, I want to once again offer my sincere gratitude to all the associates at National Retail Properties for their hard work, perseverance, flexibility, collegiality, professionalism and dedication in 2020. I could not be prouder of how this talented team worked tirelessly to create shareholder value and support each other during this past crazy year. As I've said before, perhaps the best word to describe National Retail Properties is consistent: consistent investment focus on single-tenant retail properties; consistency of people and culture; consistently raising the dividend for 31 consecutive years; consistent conservative balance sheet philosophy that maintains flexibility and dry powder; consistent long-term tenant relationships.

And although our long-term track record of consistent per-share growth was disrupted in 2020 due to the pandemic, we remain committed to our multiyear business plan. Highlights for National Retail Properties in 2020 include: increasing the common stock dividend for the 31st consecutive year, a feat matched by only two other REITs and by less than 1% of all U.S. public companies; raising $700 million of well-priced debt capital early in the year, which put us in a strong liquidity position as the pandemic began to spread and enabled us to end 2020 with $267 million of cash in the bank and nothing drawn on our $900 million line of credit; reaching collaborative rent deferral agreements during the early stages of the pandemic with a number of our relationship tenants, which solidified our relationships and set us up for future acquisition business; collecting 95.7% of our rents due for the fourth quarter and 89.7% of our annual base rent for the year 2020; supporting our associates and our community with programs and activities to advance associate well-being, employee engagement and community involvement; and lastly, enhancing our executive leadership team with the appointment of Steve Horn, a 17-year veteran with the company, as our Chief Operating Officer.

Let me now turn to some details about our fourth quarter and 2020. As highlighted above, our rent collections continued to trend positive during the quarter, resulting in collections of 95.7% of fourth quarter rents. For the year 2020, we collected just under 90% of rents due for the year. And for the month of January 2021, we have collected approximately 95% of the rents due for the month. These collection numbers compare very favorably with other retail real estate companies and are similar to the reported rent collections by companies with a significantly higher percentage of investment-grade retail tenants. I'd also like to highlight that we forgave zero rent in the fourth quarter and only forgave less than 0.5% of our annual rents for the entire year. Consistent with our long-term practice and multiyear business model, we do not anticipate reporting monthly rent collections in 2021. Notwithstanding the impact of the pandemic, our broadly diversified portfolio of 3,143 single-tenant retail properties ended the year with an occupancy rate of 98.5%, which continues to exceed our long-term average of 98%. Our high lease renewal rate also continued in 2020. Approximately 80% of our expiring leases were renewed by the current tenants at approximately 100% of the expiring rent without material investment of lease incentive or tenant improvement dollars and with an average lease renewal term of over six years.

In our opinion, this impressive statistic validates the high demand for our well-located real estate sites. A reminder that our tenants are typically large, well-capitalized, regional and national operators with the scale, financial wherewithal and management expertise to weather significant disruptions in the business environment. Additionally, the majority of our properties are located in suburban markets, largely in the southern half of the United States, which have been somewhat less impacted by the pandemic than urban city centers. We're pleased to see that many of our tenants' businesses are bouncing back more quickly than we had initially anticipated. And as our relationship tenants return to growth mode in the fourth quarter, we ramped up our acquisition activities as well. During the fourth quarter, we invested $102 million in 42 new single-tenant retail properties at an initial cash yield of 6.2% and at an average lease duration of 20 years. For the year 2020, we invested a total of $180 million in 63 new properties at a weighted average initial cash yield of just under 6.5% and with an average lease duration of over 18 years.

An important strategic advantage of our business model is the long lease durations we achieve through our focus on sale leasebacks with our relationship tenants. We also had an active fourth quarter of dispositions, selling 13 properties for $12 million. And for the year 2020, we sold 38 properties, raising over $54 million of capital to be redeployed into our business. Our balance sheet remains strong. We ended the year with $267 million of cash in the bank and zero balance drawn on our $900 million line of credit. Kevin will provide more details on the $120 million of equity capital we raised in 2020 via our ATM. As we enter 2021, we're well positioned to take advantage of the right opportunities when they present themselves and/or weather further choppiness in the economy if that may occur. And taking all this into account, we're pleased to introduce guidance for 2021 as reflected in our press release. Consistent with our long-term focus and culture, we approached guidance with a conservative mindset.

Although our portfolio continues to perform well and our relationship tenants are returning to growth mode, the pandemic is not yet behind us, and there may be additional turmoil in the economy ahead. Kevin will review the details of our guidance in his remarks. Looking ahead to 2021 and beyond, you should expect us to continue to adhere to the core strategic drivers of National Retail Properties' long-term success, including: first, a consistent focus on single-tenant net leased retail properties. The real estate attributes of single-tenant retail properties are far superior to the attributes of other property types, and the universe of opportunities to acquire these properties remains vast. Second, a broadly diversified portfolio of single-tenant retail properties that generates a stable, growing cash flow from long-term leases. As noted above, our tenants are primarily large regional and national operators in lines of trade that provide customer services and e-commerce-resistant consumer necessities. Third, a fortress-like balance sheet that provides us with the capability to withstand economic turbulence and positions us to be able to continue our long history of consecutive annual dividend increases. Fourth, a relationship-oriented acquisition model that results in high-quality investments.

Our proprietary tenant relationships allow us to obtain higher investment yields, superior lease documents, longer lease duration and better quality real estate. Fifth, an active asset management that focuses on maximizing the value of each individual property. Our deep real estate expertise enables us to get the most out of our portfolio and to recycle capital through thoughtful, disciplined dispositions. And last, but not least, a commitment to ESG, including a deep commitment to our team of great people in a supportive culture, which is the true backbone of our success. Almost 3/4 of our associates have been with the company for at least five years, and approximately half have been with us for 10 years or more. The executive leadership team averages almost two decades of tenure at the company. That level of commitment to culture and institutional knowledge is invaluable. We believe that as we continue to execute on these strategic drivers in the post-pandemic world, we will consistently deliver core FFO per share growth and outperform REIT averages on a multiyear basis.

And with that, let me turn the call over to Kevin for more details on our quarterly and year-end numbers as well as our 2021 guidance.

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

Thanks, Jay. Let me start out with the usual cautionary statement that we will make certain statements that may be considered to be forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in these forward-looking statements, and we may not release revisions to these forward-looking statements to reflect changes after the statements were made. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the SEC and in this morning's press release. With that, headlines from this morning's press release report quarterly core FFO results of $0.63 per share for the fourth quarter of 2020. That's up $0.01 from the preceding third quarter's $0.62. And AFFO per share was $0.69 per share for the fourth quarter, which is $0.07 per share higher than the preceding third quarter's $0.62. As noted in the press release, these results include $7 million or $0.04 per share of receivables write-offs in connection with reclassifying certain tenants to cash-basis rent recognition in the fourth quarter.

Additionally, we recognized $2.5 million of deferred rent repayment that was repaid in the fourth quarter and was included in calculating AFFO. As Jay noted, occupancy was 98.5% at quarter end, up 10 basis points from the prior quarter. G&A expense for the fourth quarter was 5.7% of revenues and -- for the fourth quarter and then 5.8% for the full year 2020, which is fairly flat with 2019's G&A levels. Rent collections, as Jay noted, continue to improve throughout the fourth quarter. Today, we reported rent collections of approximately 95.7% for the fourth quarter and 95% for the month of January 2021. So we have seen steady incremental improvement on the rent collections front over the past eight months. To be clear, these rent collection percentages are for the regular original rent owed for those respective periods, meaning that it does not include collections of previously deferred rent. In the fourth quarter, we also collected, as I mentioned, $2.5 million of rent that was previously deferred, which represented approximately 100% of the deferred rent repayment that was due in the fourth quarter of 2020.

As we've previously noted as well, the majority of deferred rent is due in 2021, and the very early indications suggest good collection results for those deferred rents. We have included on page 22 of today's supplemental, which is on our website, some disclosure on the amounts and timing of the anticipated repayment of deferred rent over the next couple of years. Moving on. At the end of the fourth quarter, we had approximately $50 million or about 7.4% of our annual base rent being recognized on a cash basis as a result of our estimation that it was not probable these tenants were going to pay substantially all of their remaining lease payments. So this classification required us to write off all outstanding receivable balances for these tenants, which in the fourth quarter was $2 million of rent receivables and $5 million of accrued rent balances totaling $7 million or approximately $0.04 per share for the fourth quarter.

So without this noncash write-off, FFO results would have been notably better. However, please note that despite this GAAP accounting write-off, we will be pursuing these receivables and ongoing rent payment with the usual vigor. Rent receivables from cash-basis tenants totaled approximately $10 million as of December 31. Again, these receivables are not reflected on our balance sheet. Now over to receivables that are on our balance sheet. First, rent receivables of $4.3 million were -- was fairly flat with September 30 levels and now very much in line with our pre-pandemic rent receivable levels of $3 million to $4 million. These rent receivables include a general reserve of 16% or $835,000 at December 31. Secondly, accrued rental income receivables decreased slightly to $54 million and had a general reserve of 11% or $6.9 million at December 31. In the fourth quarter, we collected $2.5 million of previously deferred rent, which would -- reduces the accrued rental income receivable. This collection of previously deferred rent is excluded from GAAP earnings, FFO and core FFO results.

We did note that -- what AFFO would have been if we had excluded the pandemic-related accrued rent, both via deferral and the subsequent repayment. We have currently less than 1% of our annual base rent coming from tenants in bankruptcy, and that primarily consists of Ruby Tuesday today. I will note, Chuck E. Cheese exited bankruptcy during the fourth quarter. And while we agreed to a 25% rent reduction for 15 months ending December 2021, none of our 53 leases were rejected in bankruptcy. As Jay noted, today, we initiated 2021 core FFO per share guidance of $2.55 to $2.62 per share. Some of the assumptions supporting this guidance are noted on page seven in today's press release and include: G&A expense of $42 million to $44 million; real estate expenses net of tenant reimbursements of $11 million to $13 million; acquisition volume of $400 million to $500 million, skewed probably 40-60 between first half and second half of 2021; and then disposition volume of $80 million to $100 million. While our rent collections materially improved throughout 2020, compared to many previous years, we have assumed there would be some continued uncertainty in this variable going forward into 2021.

Our cash basis tenants, as I said, represent approximately 50% of our $675 million of...

Julian E. Whitehurst -- President and Chief Executive Officer

$50 million.

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

$50 million, sorry. $50 million of our $675 million of total annual base rent as of 12/31/2020. We've assumed these cash-basis tenants pay 50% of the rent due in 2021 in our guidance, and that's relatively consistent with what they've been paying in recent months. Additionally, on top of this, we have assumed 2% rent loss from the remainder of our annual base rent, which equates to about $12 million or $13 million in rent. This rent loss or vacancy estimate is not made with any particular tenant concerns and on its face feels like a conservative assumption, meaning the actual rent loss could be better than guidance. But given this is our first issuance of guidance in this pandemic, it seemed prudent to be more conservative than not. And those of us -- those of you who have known us for the past 25 years are probably not too surprised by that approach. We ended the fourth quarter with $267 million of cash on hand and no amounts outstanding on our $900 million bank credit facility.

We did not draw down our bank line as many companies did in 2020. We raised $60 million of equity in the fourth quarter at just over $40 per share. Our next debt maturity is in April 2023. It's $350 million with a 3.3% coupon. So we're in a very good liquidity position. Our weighted average debt maturity is now 10.2 years with a weighted average interest rate of 3.7%. Financial covenant compliance remains in very good shape, as outlined on page 10 of the press release. So the balance sheet and our leverage profile remains very strong. A couple of numbers. Net debt to gross book assets was 34.4%. Net debt-to-EBITDA was 5.0 times. Interest coverage was 4.5 times and fixed charge 4.0 times for the fourth quarter of 2020. Only five of our 3,000-plus properties are encumbered by mortgages totaling only $11.4 million. So 2021 seems the beginning of where 2020 left off with sustained rent collection levels and incremental improvement in tenant health, which allows us to continue to shift to a more offensive posture. As our focus remains on the long term, we will continue to endeavor to give NNN the best opportunity to succeed in the coming years.

And Matthew, with that, we will open it up to any questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question is coming from Katy McConnell. Your line is live.

Katy McConnell -- McConnell, Citigroup Inc. -- Analyst

Great. Thanks. Good morning, everyone. Can you provide some more color on how you arrived at 2021 acquisition guidance, just in the context of pre-COVID volumes and where liquidity stands today? Just to better understand how you're thinking about capital allocation priorities this year?

Julian E. Whitehurst -- President and Chief Executive Officer

Sure. Katy, this is Jay. I'll give you a little bit of high level, and then I can turn it over to Steve a little bit for the pipeline. But as you know, the vast majority of our acquisitions are sourced through our relationship tenants doing repeat programmatic business with the three dozen-or-so relationship tenants that we've done work with over the last few years. And those tenants slowed down their growth during the pandemic. And so it made it -- it was kind of easy for us to slow down and wait to see how things settled out because our customers were doing the same, though our customers are now returning to growth mode. So it feels to us like this kind of $400 million to $500 million projection for 2021 is -- it may prove to be accurate.

It may be a little conservative. It may be a little optimistic. But it feels like our relationship tenants are back in more of a growth mode. And so this is a lower number than we had acquired in the few years before the pandemic, but it's certainly in that ballpark. And so it's driven primarily by talking with our relationship tenants. We look in the open market for deals all the time, but we historically have found that the best risk-adjusted return for all those factors that I talked about in my opening comments comes from doing relationship business with our repeat customers. Steve, do you want to add anything about the pipeline with those folks and what you're hearing from them?

Stephen A. Horn Jr. -- Executive Vice President and Chief Operating Officer

Hey, Katy. This is Steve. Yes. In the fourth quarter, we noticed more kind of M&A activity, meaning M&A, our tenants looking to acquire other businesses that may be struggling. They've been doing kind of the rifleshot approach as far as new store growth. So we're definitely hearing from our tenants that the growth engine for them is starting up again. Also, brokers, investment bankers, we noticed coming out with more portfolios in certain industries where they could capitalize on the robust pricing currently. Now as far as the number that we're throwing out there, the market is a little bit smaller for us, meaning movie theaters, there's really no market for them; family entertainment; and as far as health and fitness, a much smaller market. But we feel we can find the $400 million, $500 million in kind of our wheelhouse with our current relationships.

Katy McConnell -- McConnell, Citigroup Inc. -- Analyst

Okay. Great. And then can you just touch on the type of properties acquired during the quarter that might have contributed to the lower cap rate versus some of your prior deals? And then how should we think about pricing for the 2021 pipeline?

Julian E. Whitehurst -- President and Chief Executive Officer

Yes. The 2021 pipeline, I think we're thinking of kind of mid-6s cap rate. Cap rates continue to remain very low. Fourth quarter was a primarily QSR, fast food deal that we have been in dialogue with the franchisee for many years. And finally, the deal came up. And so it's -- these were the types of properties that trade at lower cap rates, and it's at the low end -- lower end of the range of what we do. But we are very happy with the operator, very happy with the real estate, and so it seemed like the right time to stretch a little on the initial cap rate. Remember that it's a 20-year lease. And if you add in our typical 1.5% to 2% rent bumps over the 20-year lease, you build in over 100 basis points of additional long-term yield. We don't straight-line it in the lease document, and we don't talk -- we don't straight-line it in our reporting in our conversations, but it does give us a much more compelling long-term yield doing these 20-year deals.

Katy McConnell -- McConnell, Citigroup Inc. -- Analyst

Okay, got it. Thanks, everyone.

Stephen A. Horn Jr. -- Executive Vice President and Chief Operating Officer

Thank you.

Operator

Your next question is coming from R.J. Milligan. Your line is live.

R.J. Milligan -- Raymond James & Associates, Inc. -- Analyst

Hey, good morning, guys. A couple of questions on the guidance, Kevin. What's contributing to the increase in G&A for 2021?

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

Nothing in particular. So there's -- I mean, nothing notable. Just general increase.

R.J. Milligan -- Raymond James & Associates, Inc. -- Analyst

Okay. And so then looking at the guidance, if you back out the deferral paybacks in the fourth quarter, gets you to a run rate of $117 million of AFFO. You annualize that, reduce that by, say, a $4 million increase in G&A, you get a run rate of about $465 million or about $2.68, excluding acquisition activity. I'm just trying to bridge to the guidance of $2.61 to $2.68 with acquisition activity. Is -- what's the main difference there?

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

I'm not sure I followed all that. I mean the way we look at it is, I mean, we start with our annual base rent of $675 million and then back out these reserves that we've talked about: $25 million roughly for our cash-basis tenants; $12 million, $13 million for our other parts of our rent. And then if you step through the guidance of property expenses, G&A, etc, you end up at about $2.58 on core FFO. And then if you look at the page 22 of the supplemental that I alluded to in my comments, it gives you the detail on the repayment of deferral rent, and so that is really -- which is about $0.20 per share for the fourth quarter -- I'm sorry, for 2021. That gets you the delta between our core FFO estimate and AFFO. I'm not sure I exactly got to the answer to your question. Maybe we'll talk about it off-line, but I -- that's the math.

R.J. Milligan -- Raymond James & Associates, Inc. -- Analyst

Okay. So what's in the cash-basis bucket? You mentioned the 50% assumption, and that's relatively in line with what you saw in the fourth quarter. What -- can you talk about the tenants in there that are making up that assumption?

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

Yes. The bulk of that particular bucket is really four tenants. So it's like Chuck E. Cheese, Ruby Tuesday, Frisch's and...

Julian E. Whitehurst -- President and Chief Executive Officer

And AMC.

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

And AMC. So that's probably 90-plus percent of that cash-basis bucket on an annual base rent kind of calculation. And so that's what's driving that. So we'll see if we can do better than the 50%. That's been historical, I will say. And I think you've probably seen and we're experiencing, trends are ticking positive, I would say, across the board in the retail world. But for guidance purposes, we assume they're going to stay fairly flat to where -- what we've experienced in recent months.

R.J. Milligan -- Raymond James & Associates, Inc. -- Analyst

And so for the Chuck E. Cheese, for example, in that bucket, that's using the already reduced rent for Chuck E. Cheese.

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

Yes. So yes, that is probably the one tenant where we did make a change, as I noted in my comments. So we amended the lease to reduce the rent for the fourth quarter of 2020 and the full year 2021 by 25%. So -- but that's really the only tenant of any note where that occurred.

R.J. Milligan -- Raymond James & Associates, Inc. -- Analyst

I guess I'm just trying to get to that the 50% assumption. Given that Chuck E. Cheese has emerged from bankruptcy and the rent has been reduced, that, that 50%, if you were just assuming, on Chuck E. Cheese is probably conservative given that they have not rejected any leases.

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

Yes. Yes. So yes, so my 50% number is an average for that whole bucket. So yes, it's got some good -- better performers and some worse performers in it. So yes, you might think some of our others, some theaters, for example, might not be paying quite that level, 50%. So that's an average for that -- it's a big bucket, yes.

R.J. Milligan -- Raymond James & Associates, Inc. -- Analyst

And then on top of that, there's an additional $12 million to $13 million of additional, just no specific tenant, but rent loss built into that number.

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

Correct. That's for the other $625 million, if you will, of annual base rent that's not cash basis. But in a normal year, we would assume 1% rent loss or vacancy just because that's -- things happen. And so in this environment, we made it 2%. So...

R.J. Milligan -- Raymond James & Associates, Inc. -- Analyst

Got it. And then just back on the acquisitions, to follow-up on Katy's questions, is it -- is the volume really dependent on sort of the relationship tenants and their growth? And what do you expect the cadence of that $400 million to $500 million to be throughout the year?

Julian E. Whitehurst -- President and Chief Executive Officer

Yes. R.J., we've back-end loaded, as we do pretty much every year, back-end loaded the guidance -- in the guidance a little bit. I think it's kind of 40% first half of the year, 60% second half. And so that's what we're thinking. It's really -- but you can never see far enough ahead to be able to pin it down very precisely. We just know that we're dealing with large operators who are in the growth mode and have the wherewithal to do it. And as Steve mentioned, in some instances, it's a bit of a target-rich environment for them to be able to expand their business. And so we think that will ultimately result in sale leasebacks for us.

R.J. Milligan -- Raymond James & Associates, Inc. -- Analyst

Great. That's it from me. Thanks, guys.

Operator

Your next question is coming from Wes Golladay. Your line is live.

Julian E. Whitehurst -- President and Chief Executive Officer

Wes?

Wes Golladay -- Robert W. Baird & Co. Incorporated -- Analyst

Can you hear me? Hello?

Julian E. Whitehurst -- President and Chief Executive Officer

Yes.

Wes Golladay -- Robert W. Baird & Co. Incorporated -- Analyst

Okay. Sorry about that. Yes, just want to go back to Chuck E. Cheese. So how much of the rent is being abated this year? And I guess, what does -- how much does that impact that 50% bucket?

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

Well, none is being -- so it's $3.6 million round numbers, $295,000 a month this year. And so -- but that's kind of baked into our numbers, though.

Wes Golladay -- Robert W. Baird & Co. Incorporated -- Analyst

Got you. And then you kind of highlighted Frisch, and we have seen that they've, over the last year, closed a few stores. Are you part of the -- I guess, did you experience any store closings? Or do you have a master lease somewhere like what you have for Chuck E. Cheese with Frisch?

Julian E. Whitehurst -- President and Chief Executive Officer

Oh, with Frisch's...

Stephen A. Horn Jr. -- Executive Vice President and Chief Operating Officer

Multiple master leases with Frisch's.

Wes Golladay -- Robert W. Baird & Co. Incorporated -- Analyst

Okay. Good. So it's like a similar setup. Okay. Good. And then one of the things you're doing is you're still raising capital, but you have a large cash balance. So it's creating a little bit of a drag on the earnings guide for the year. How do you, I guess, expect the balance sheet and the cash balance to, like, progress throughout the year?

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

Yes, fair question. Yes. I think as you're hopefully getting a sense, as we are moving to a more offensive posture here, looking probably to not issue equity of any note in 2021. And the good news is we don't need to -- even to hit our acquisition guidance and do the things we want to do. We really don't need to raise any additional equity. So it's not saying we definitely won't, but we're just -- and we don't give guidance on capital raising debt or equity. But fair point that we don't need to do anything the rest of this year to keep a leverage-neutral balance sheet and not issue any equity.

Julian E. Whitehurst -- President and Chief Executive Officer

Yes, as you've heard us talk about -- Wes, as you've heard us talk about before, we, just to a large degree, try to divorce capital raising from capital deploying. So to the extent the stock is trading at a price that we think is advantageous, we would certainly be inclined to raise even more capital while Steven and the acquisitions group looks for ways to deploy it. But -- I mean, we feel very good about the position that we're in, that we can go forward with our acquisition plans without needing to issue any equity at the moment.

Wes Golladay -- Robert W. Baird & Co. Incorporated -- Analyst

Got it. Makes sense. And then maybe on the disposition bucket. I know in the past, you had a mix of offensive dispositions and then just kind of maintenance or pruning the portfolio to maybe get out of something before you see some issues. What are you looking at this year as far as your dispositions? Will it be more the offensive category or more of the risk management bucket?

Julian E. Whitehurst -- President and Chief Executive Officer

Historically, it breaks down in terms of properties, about 50% of properties in each direction. In terms of dollar volume, it's predominantly offensive dispositions that generate more dollars, but it will probably be the same, in the range maybe 60-40 offensive, give or take 20 basis points on either side of that. We're -- we know we, every year, take advantage of some instances where folks come to us and want some of our properties at cap rates that we just can't turn down. And we are always looking at pruning the portfolio along the way.

Wes Golladay -- Robert W. Baird & Co. Incorporated -- Analyst

Got it. Thanks for taking the question.

Operator

Your next question is coming from Spenser Allaway. Your line is live.

Spenser Allaway -- Green Street Advisors -- Analyst

Hi, thank you. Jay, you mentioned that cap rates remain low. Can you just provide a little bit more color on what you guys saw being shopped in the fourth quarter? And then how cap rates are trending across the various retail industries?

Julian E. Whitehurst -- President and Chief Executive Officer

Sure, Spenser. I'll tell you what, I'm going to turn that over to Steve to talk about.

Stephen A. Horn Jr. -- Executive Vice President and Chief Operating Officer

Spenser, the -- obviously, there's a fair amount of distribution centers that are out there that NNN doesn't play in. There's a couple of c-stores portfolios that were out there and just some typical single-tenant net lease mix portfolios. And on the mix portfolios, the lease terms were fairly short. So the cap rates pretty robust, meaning having a seven in front of them. QSR portfolios were out there a fair amount because a significant amount of small franchisees decided to sell. And those portfolios were going in the high 5s, low 6s as well. Some rental portfolios were out there and a fair amount of kind of warehouse club, the Costcos, BJs were out there. But that being said, the 1031 market is significant and is always there. But historically, NNN, we didn't play in that market because of the short-term leases where we like doing the sale leasebacks.

Spenser Allaway -- Green Street Advisors -- Analyst

Okay. It's really helpful. And then just one more. So now that we're about a year into the pandemic now, have discussions changed at all with tenants when you guys are negotiating new leases? So anything that either tenants or you guys are placing more of an emphasis on in light of the current environment?

Stephen A. Horn Jr. -- Executive Vice President and Chief Operating Officer

When the pandemic started, we were wondering what language is going to change in the lease. But the -- obviously, we haven't done a significant amount of volume since the pandemic started. However, the acquisitions that we've done, we have not found any change in our tenants' behavior when it came to the long-term lease.

Spenser Allaway -- Green Street Advisors -- Analyst

Okay. So no, you don't have tenants that are kind of pushing for -- they're saying, OK, we'll take longer term if we can negotiate some lower initial rent in the current environment.

Stephen A. Horn Jr. -- Executive Vice President and Chief Operating Officer

No, not yet. I mean, the market's pretty efficient. And really, for the most part, that's only changed in the sale leaseback market. The cap rates have compressed for the essential properties.

Spenser Allaway -- Green Street Advisors -- Analyst

Okay. Thank you, guys.

Operator

Your next question is coming from Jason Belcher. Your line is live.

Jason Belcher -- Wells Fargo Securities -- Analyst

Yes. Hi, I'm just wondering, other than the large QSR deal that you guys mentioned from Q4, what other sectors were you guys buying? What kind of average lease terms were in there? And maybe you can give us a range of the cap rates you guys saw?

Julian E. Whitehurst -- President and Chief Executive Officer

The QSR deal, Jason, made up the vast majority of what we did in the fourth quarter. But I would say if you looked at what we did for the year and what we are looking at in the pipeline going forward, it's going to be very similar to our current portfolio makeup, meaning convenience stores and fast food restaurants and perhaps carwashes, auto service-type uses, auto repair-type uses, equipment rental-type uses, the types of lines of trade that are near the top of our portfolio. I am sure at the moment -- or for going forward for the medium term, we'll have less of a -- appetite, be more selective on the types of properties that have been hit hardest in the pandemic while we wait to see how those businesses recover. And what's the right way to underwrite larger properties where people congregate in the post-pandemic world.

Jason Belcher -- Wells Fargo Securities -- Analyst

Okay. And then just on the rent deferral buckets scheduled for repayment into '22 and '23. I'm assuming that's largely theaters and casual dining. But if you could just touch on what else, if anything, might be in there.

Stephen A. Horn Jr. -- Executive Vice President and Chief Operating Officer

It's really a broad section. So if you think about it, we entered in deferral agreements with about 25% to 30% of our tenant base. And so it's a pretty broad section. But obviously, in the cash-basis tenants, we've talked really about what some of those might be. But otherwise, it's a pretty broad cross-section of deferrals. I mean so it's not anything in particular. I mean the restaurants, I guess, would be primary in that list and then family entertainment, and those would be, I guess, more concentrated.

Jason Belcher -- Wells Fargo Securities -- Analyst

Got it. That's helpful. Thanks a lot, guys.

Operator

Your next question is coming from Linda Tsai. Your line is live.

Linda Tsai -- Jefferies -- Analyst

Hi. On the Chuck E. Cheese temporary 25% rent reduction, any similar color to provide on theater rent deals? Collections improved 42% in 4Q from 35% in 3Q. Has that improved in the first two months of the year given positive capital raising activity?

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

Yes. I don't -- I mean, we have not given out, I guess, tenant and line of trade by month, I guess, disclosure. I mean we're optimistic that it might get better given the capital raising that's gone on. And so I think that's -- we're hopeful that might come to be, but we're not presuming that's going to be happening in 2021.

Julian E. Whitehurst -- President and Chief Executive Officer

Yes. Linda, we -- it feels to us like the other lines of trade that make up our portfolio that have -- were materially affected by the pandemic, casual dining and health clubs and family entertainment are -- it feels to us like those lines are going to pop back faster and that the movie theater line of trade is just going to take longer to come back. And so we're being much more cautious about -- as part of our conservative guidance is related to just our uncertainty about how fast the movie theater business, the movie business is going to come back into bloom.

Linda Tsai -- Jefferies -- Analyst

That makes sense. And then in terms of the 2% rent loss in '21, which you view as conservative, how does that translate to occupancy? And I realize occupancy improved sequentially this quarter.

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

Yes. I mean in our minds, we really don't think of it differently. We -- it's whether a 2% rent loss because a tenant that we don't evict is not paying rent or because the property becomes vacant is kind of the same to our bottom line. So I don't have any real color to give you on how much of that translates into actual vacancy.

Linda Tsai -- Jefferies -- Analyst

And just one last one. The QSR you engaged with for a while, guessing that's why the lease term was so long, do you think the 20-year lease term is repeatable on QSR going forward? Or was it specific to the seller you engaged with?

Julian E. Whitehurst -- President and Chief Executive Officer

Steve, you may have some additional color on this, but negotiating a long lease term in a sale-leaseback is very important to us. And so it is one of the items that we talk with the tenants about right at the beginning of the negotiation, along with cap rate and proceeds and all the rest of the terms of the transaction. So yes, it does not feel to me like that was a lightning in a bottle that, that was particularly unusual. It's just something that, to us, is very important and that we negotiate very hard for.

Stephen A. Horn Jr. -- Executive Vice President and Chief Operating Officer

I think Jay is spot on. It's not lightning in the bottle. It's pretty standard for us in our relationships. And at the same time, the relationships want to control that asset for a long time. So if you give them a short-term lease and a sale leaseback, they're going to have less options. So now they control the asset for 40 years opposed to 15 or 20 years.

Linda Tsai -- Jefferies -- Analyst

Makes sense. Thank you.

Operator

[Operator Instructions] Your next question is coming from Joshua Dennerlein. Your line is live.

Joshua Dennerlein -- BofA Securities -- Analyst

Yes. Good morning guys. Kevin, I think this one's for you. I wanted to touch based on what you mentioned it was in guidance. It sounds like you're assuming 2% credit loss in your initial guide. Is that -- I guess I'm trying to think about how to think about that. Is that assuming 100% occupancy, so where you are right now at 98.5%, it just kind of assumes another 50 basis points down? Or potentially down to like 96.5%?

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

Yes. So it's the latter. I mean if, in fact, that rent loss is real vacant properties, which it could be, but it very well might not be, yes, it'd be 96%. So that's the way I think about it. But yes, 2% off of our current annual base rent run rate. So we already have some vacant properties in the portfolio that show up as zero in our annual base rent run rate. And so yes, it's a 2% reduction from current.

Joshua Dennerlein -- BofA Securities -- Analyst

Okay. And that's across the entire range or just the low end of your guidance.

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

That's across the entire range, yes, yes, yes.

Joshua Dennerlein -- BofA Securities -- Analyst

Okay. Okay. All right. That's super-helpful. That's that picture you have for me. Thank you.

Julian E. Whitehurst -- President and Chief Executive Officer

Thank you.

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

Thank, Josh.

Operator

Your next question is coming from John Massocca. Your line is live.

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

Good morning.

Julian E. Whitehurst -- President and Chief Executive Officer

Hey, John.

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

So as we think about renewals and kind of new rents on renewals versus kind of prior rents, it's been kind of trending higher versus the historical. I mean how are you expecting that to trend with regards to the 3% rent that's expiring in 2021? And I guess what kind of assumptions are you making in guidance in terms of where renewal rents trend versus kind of in-place rents?

Julian E. Whitehurst -- President and Chief Executive Officer

We do -- John, we do a very thorough analysis for the purpose of what we are plugging into the numbers for guidance on -- across kind of individual properties. But I'll tell you, we were surprised, pleasantly surprised that in 2020, we continued to have that high renewal rate at 100% of prior rents. 80% of the time, the tenants renewed in 2020. That -- and that's been consistent over a number of years. When we look ahead to 2021 and 2022, the majority of the properties with expiring leases in those two years are fast food restaurants and convenience stores. Is that right, Steve? Steve's nodding yes. And so we tend to have at or above-average renewals in those categories. So we feel pretty good about that kind of high level of renewal continuing with these types of -- these property types over the next couple of years.

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

Okay. That makes sense. And then I know you're trying not to disclose collection on a month-to-month basis, but we only get you in this type of forum four times a year. So is there any color you can provide on February rent collection? And I guess, is it kind of trending similar to January collection at this point?

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

I mean I don't think we have any surprises to note here. So yes, I don't have any real comments besides it seems to be consistent with what we've experienced in recent months. So...

Julian E. Whitehurst -- President and Chief Executive Officer

Yes, feels pretty good so far.

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

Okay. That's it for me. Thank you very much.

Operator

There are no further questions in the queue at this time.

Julian E. Whitehurst -- President and Chief Executive Officer

All right. Matthew, thank you, and we appreciate all of you dialing in, and we look forward to speaking with many of you virtually at various conferences coming up in the near future. Have a good day.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

Julian E. Whitehurst -- President and Chief Executive Officer

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

Stephen A. Horn Jr. -- Executive Vice President and Chief Operating Officer

Katy McConnell -- McConnell, Citigroup Inc. -- Analyst

R.J. Milligan -- Raymond James & Associates, Inc. -- Analyst

Wes Golladay -- Robert W. Baird & Co. Incorporated -- Analyst

Spenser Allaway -- Green Street Advisors -- Analyst

Jason Belcher -- Wells Fargo Securities -- Analyst

Linda Tsai -- Jefferies -- Analyst

Joshua Dennerlein -- BofA Securities -- Analyst

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

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