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VEREIT Inc (NYSE:VER)
Q4 2020 Earnings Call
Feb 24, 2021, 1:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to the VEREIT 2020 Fourth Quarter Earnings Call. [Operator Instructions] [Operator Instructions]

I would now like to turn the conference over to Bonni Rosen, Senior Vice President of Investor Relations with VEREIT. Please go ahead.

Bonni Rosen -- Senior Vice President of Investor Relations

Thank you for joining us today for the VEREIT 2020 Fourth Quarter Earnings Call. Joining me today are Glenn Rufrano, our Chief Executive Officer; Paul McDowell, our Chief Operating Officer; Mike Bartolotta, our Chief Financial Officer; and Tom Roberts, our Chief Investment Officer. Today's call is being webcast on our website at vereit.com in the Investor Relations section. There will be a replay of the call beginning at approximately 2:30 p.m. Eastern time today. Dial-in for the replay is one (877) 344-7529 with a confirmation code of 10151852.

Before I turn the call over to Glenn, I would like to remind everyone that certain statements in this earnings call, which are not historical facts, will be forward-looking. VEREIT's actual results may differ materially from these forward-looking statements, and factors that could cause these differences are detailed in our SEC filings, including the annual report filed today. In addition, as stated more fully in our SEC reports, VEREIT disclaims any intent or obligation to update these forward-looking statements, except as expressly required by law. We will conclude today's call by opening the line for questions.

Glenn, let me turn the call over to you.

Glenn Rufrano -- Chief Executive Officer

Thanks, Bonni, and thanks for joining us. If I ever felt a bit of Deja Vu, it's in the presentation today as compared to one year ago. At that time, the company had settled its last legacy issues and transitioned to offense. And then the pandemic hit. While it may have briefly paused our progress, it also verified in many ways the success of our business plan. We are once again in offense this year with greater liquidity. As we present today, along with Mike and Paul, Tom will not only be available for Q&A but also give a review of the transaction market. Now let's get to 2020 before I later present our thoughts on 2021. Our team worked well this year, and I thank them. Technology enabled us to be effective as we mostly work from home. Our strengthened and diversified portfolio resulted in high rent collection during the worst times of 2020, ending at 98% during the fourth quarter with $12 million or 1.5% of AFFO being deferred into next year, ensuring quality of income in 2021.

Our investment-grade balance sheet was enhanced with net debt-to-EBITDA reduced to 5.6 times, and our press decreased from $773 million to $373 million. Liquidity was provided by $1.8 billion of unsecured financing at accretive rates and extended duration, while $484 million of equity was raised on the ATM. Cash flow was enhanced by lowering the dividend, which will now be on an increasing trajectory. We remain active by investing over $1 billion of capital, $580 million in the last two quarters, including prefs. AFFO per diluted share was $3.11, not far off our original guidance. And our office exposure was further reduced to 16.5% from 18.6% of ARI at the beginning of the year by selling $333 million. And we have closed an additional $98 million year-to-date.

Let me now hand the call over to Tom to discuss the capital markets and opportunities that are available to us as we grow the portfolio in 2021. Tom?

Thomas W. Roberts -- Executive Vice President and Chief Investment Officer

Thanks, Glenn. The transaction market took a significant pause in the second quarter due to the pandemic and then accelerated toward the end of the year. The fourth quarter started to get back to more normal levels with $145 billion in transactions compared to $180 billion in 2019, with $70 billion of activity in December, only down 7% year-over-year. With the single-tenant net lease universe of $1.5 trillion, which is highly fragmented with approximately 8% to 10% public or private funds, it's expected there will be continued increase of product in the market in 2021. We accessed the market through different avenues. 2020, approximately 45% were sale-leasebacks, 20% build-to-suit forward commitments in mezzanine debt with the remaining balance in existing leases to the real estate brokerage community.

Our experienced team has consistently sourced $25 billion to $30 billion of deals per year, acquiring over $1 billion per year on average. As Glenn mentioned, our activity to focus on acquisitions with far fewer dispositions expected, our team will be repurposed to increase this volume. Our acquisition model has a number of channels to find opportunities providing portfolio quality and AFFO growth. On balance sheet, we will source discount retail, quick service restaurants noninvestment-grade industrial and mezzanine debt to position assets into our industrial partnership. The partnership will invest in investment-grade industrial and long-term office. In 2020, we acquired $146 million of properties in Q1. We paused in Q2, accelerated by purchasing $300 million of preferreds in Q3 and acquired $180 million of properties in Q4. Our 2020 property acquisitions had a weighted average lease term of 17.5 years and 65% with fixed annual increases averaging 1.7% with the remainder tied to CPI.

We have an active pipeline with signed contracts or letter of intent of over $325 million, and we are very confident in achieving our guidance. Both partnerships are fully engaged and have over $160 million under negotiation. There continues to be good deal flow within our channels of opportunity, and the team is very excited as we see the activity and the growth in 2021 and beyond.

I'll now turn the call over to Paul on operations.

Paul McDowell -- Executive Vice President and Chief Operating Officer

Thanks, Tom. I'll start with an overview on rent collection, tenant credit and then move on to normal operating metrics. Our portfolio continued to perform throughout the pandemic due to the underpinnings of our property type diversification, industry breakdown, investment-grade tenancy, public versus private ownership and geographic location. Our Q2 rent collection came in at 87%, Q3 at 95% and Q4 at 98%. These percentages are based on pre-COVID rents, and we have not adjusted the denominator for any rent relief. As we move past the rent disruptions that characterize the beginning of the pandemic and get to more normalized rent collections in 2021, we are now collecting approximately 99% of scheduled rent. In 2021, our collection percentages will be based on current scheduled rents from our tenants that excludes cash basis tenants. This change better reflects normalized collections.

And in January, had a very modest positive impact on collection percentages of about 1% and is consistent with the calculation of the 2021 guidance that Glenn will discuss later. We continue to monitor our tenant's credit quality closely. And in Q4, we experienced no major bankruptcies, and our credit watchlist improved slightly. This is, in part, because we have a large amount of investment-grade and public company tenants within the portfolio with approximately 39% weighted investment-grade for the total portfolio and 49% within retail, which remain consistent during the pandemic. Over 65% of our tenants are public in the overall portfolio and approximately 74% within retail, with several of our private equity-owned tenants who benefited during the pandemic, able to go public. In fact, we had over 11% of our portfolio received credit positive news between last year and so far in 2021.

Most notably, our largest tenant, Red Lobster's announcement, that a group led by the public company, Thai Union, acquired the remaining 51% of Red Lobster from Golden Gate Capital. They were also able to recently successfully refinance their debt and have a strong liquidity position. In addition, Albertsons, Academy Sports, c-store owner, GPM Investments, Petco and Driven brands are now all public companies with the Topgolf-Callaway merger set to close early this year. We also had a top tenant, Tractor Supply, receive an investment-grade rating. Restaurants have been a focus of our attention since the beginning of the pandemic, and we are pleased that both our tenants and the name brands in the industry, in general, seem to have successfully adapted their business plans and are doing better. We have seen this improvement directly correlated to our steadily improving rent collections in this sector.

Additionally, our restaurant tenants have not only been able to pay rent but also keep up with the repayment of their previously deferred rent at 100% for 2020, with casual dining being the bulk of that amount. Turning to our leasing activity. We had an incredibly active year with almost 100% more non-COVID related leasing completed during 2020 compared to the prior year. The team executed 256 leases on over 7.1 million square feet, of which roughly 2.8 million square feet were early renewals. Total activity for 2020 included 3.5 million square feet of industrial, 1.6 million square feet of retail, 1.6 million square feet of office and 484,000 square feet of restaurant. For renewal leases, we recaptured approximately 99% of prior rents on an initial cash basis and approximately 95%, including early renewals. Many of these newly extended leases have additional built-in rent increases, bringing the total recapture over the length of the leases to 101%. Occupancy ended the quarter at 98.1%.

Also, the team had COVID-related leasing activity on an additional 4.3 million square feet during the year, bringing total activity to an impressive 11.4 million square feet. We remain very focused on being in front of our exploration schedules, which is best illustrated by the 2.8 million square feet of early renewals done throughout the year. This has been a consistent effort. In addition, we experienced good tenant retention levels of roughly 80% during the pandemic, which is in line with our long-term averages of 75% to 85%. Office retention has been on par with this range, and we have been successful in extending leases and then placing those properties on the market for sale. In 2020, we sold two office properties with new lease extensions at disposition cap rates averaging approximately 6.1%, and we have another large office property under contract where we completed a blend-and-extend last year.

We remain focused on managing, leasing and continue to meaningfully reduce our office portfolio. Our office rollover through 2023 is very manageable when looked at in the context of the overall portfolio, with approximately 2% of rents rolling each of this year and next and under 1% in 2023. With much of 2021's office rollover concentrated in the second half of the year, office NOI for 2021 should not be materially impacted. Industrial expirations as a percentage of total portfolio rents range from 1% to 1.5% over each of the next three years. For 2021, industrial rollover could have a larger effect on occupancy due to square footage.

However, rollover is also concentrated toward the end of the year and with average rents approximating $3.30 per square foot, providing us with manageable releasing spreads. In closing, we have been very pleased with our portfolio's performance and our ability to manage lease rollovers with good retention and a good economic terms, protecting the durability of our income. Further portfolio segment information and details can be found in our investor presentation filed today.

I will now turn the call over to Mike.

Michael J. Bartolotta -- Executive Vice President and Chief Financial Officer

Thanks, Paul, and thank you all for joining us today. I will cover some of our fourth quarter and 2020 financial highlights, the effects of COVID-19 on our earnings as well as providing some guidance metrics for 2021. AFFO for the quarter was $0.76 and $3.11 for the year. I'll break out some of the COVID-related items that are included in our AFFO and those that are not included. These items are in the following three categories: executed deferral agreements for Q4 rents as of February, where the collection of future cash flows was deemed probable, totaled $132,000. For 2020, this amount totaled $17.9 million, of which only approximately $11.7 million goes into 2021 as a receivable. And $6.2 million or 100% of what was owed was collected in Q4. This rent is included in AFFO.

Further, we don't expect any material deferrals related to 2021 rent going forward. Executed blend and extend amendments, which contain an abatement of rent for a specified period totaled a very minimal $607,000 in Q4. For 2020, this amount totaled $18.3 million. The negative effect of these amendments reduced AFFO, and we do not anticipate any material abatements related to 2021 rent. Lastly, we reserved rent of $9.1 million in Q4 that was related to the impact of COVID-19 pandemic, of which $3.6 million represents the general allowance for rental revenue and $5.5 million represents rents from tenants being accounted for on a cash basis and thus announced not probable of collection as of December 31, 2020. For 2020, reserve rent totaled $23 million related to COVID-19, of which $9.6 million represents the general allowance for rental revenue and $13.4 million represents rents from tenants being accounted for on a cash basis.

These amounts also reduced AFFO and we feel are well covered on the downside to give us more confidence in the stability of our 2021 projections. For 2021 guidance, we have assumed a loss of $9.9 million from cash basis tenants or only 0.9% of ARI. Implicit in these figures is a collection rate of about 35% for these tenants in 2021. G&A for the year ended at $61.3 million, below our original guidance range of $64 million to $66 million for the year, mostly due to less travel and other expenses due to the pandemic. Our guidance for 2021 G&A is estimated to go back to our $64 million to $66 million range, which is one of the lowest in the net lease sector at approximately 0.4% of assets and approximately 5% of revenue due to both our size and scale.

Capital expenditures for the year came in at approximately $27 million compared with our original guidance of approximately $30 million to $40 million. Over the last few years, this amount has averaged between $25 million and $30 million. And for 2021, we expect capex to be in the range of $30 million to $40 million. Turning to our balance sheet. At the end of the fourth quarter, the company had corporate liquidity of approximately $2 billion, comprised of $524 million in cash and cash equivalents and $1.5 billion credit facility undrawn. In addition, we reduced secured debt by $196 million for the year, which had an average cost of 5.4%, and we increased our unencumbered asset ratio to 82%. During 2020, the company announced the redemption of $400 million of the REIT's 6.7% Series F preferred stock. This leaves a very manageable $373 million outstanding, which is prepayable at any time we choose.

We're able to take advantage of the low interest rate environment and favorable conditions for high-quality investment-grade companies, issuing $1.8 billion of debt at some of the lowest rates in the company's history, accretively refinancing other debt and lengthening our duration. We continue to receive great support from the fixed income community, and our pricing and spreads reflect a BBB flat rating, even though only one rating agency, Fitch, has us at that level. We will continue to strive toward upgraded rating with the other two rating agencies, although we are pleased, we were one of the few REITs to maintain our stability of our rating and our outlook even during the depths of the pandemic. On the equity side, the company issued $484 million under its ATM program with $394 million done in the fourth quarter at an average price of $37.

Our fixed charge coverage ratio remained healthy at 3.4 times, which has been increased from three times as of 12/31/19, mostly due to our ability to accretively reduce our preferred stock. Our net debt-to-gross real estate investments ratio was 38%. The weighted average duration of our debt is now six years, and we are 99.4% fixed. Our net debt-to-normalized EBITDA was reduced to 5.6 times.

And with that, I will turn the call back to Glenn.

Glenn Rufrano -- Chief Executive Officer

Thanks, Mike. When considering our dividend reduction in Q2 of last year, duration of the pandemic and its effect on our tenants and the capital markets guided the decision. Almost a year later, the portfolio performance, liquid capital markets and the introduction of the vaccine have mitigated those concerns. We find ourselves back to a position of providing guidance and will, therefore, increase the dividend for Q1 from $0.385 to $0.462 or a 20% increase. The Board will revisit the dividend during the year and, given the low payout ratio, consider future increases. The size of this increase took into consideration the productive investment of cash flow providing AFFO growth in the last two quarters and for acquisition opportunities we envision this year. I'll now turn to guidance for 2021.

AFFO per share between $3.20 and $3.30, representing a year-over-year increase of 4.5% at the midpoint. Real estate operations with average occupancy between 97% and 98%. Acquisitions totaling $1 billion to $1.3 billion, with average cap rates between 6.5% and 7.5%. Office dispositions between $200 million and $250 million, with average cap rates between 6% and 6.75%, creating spread for investing. Strategic dispositions between $50 million and $100 million, and acquisitions for the investment partnerships between $400 million and $600 million. Office dispositions include the $98 million closed so far this year at an average cap rate of 5.6%, and we'll continue to take this property type from the current 16.5% of ARI to the target below 15%. Strategic dispositions will focus on casual dining, flat leases and noncore assets. We have had consistently high rent collections from the beginning of the pandemic and will diligently work to continue this success. By year ending 2020, we move to increase acquisition volume.

Bolstered by the $500 million in cash from both cash flow and equity raised, we are not dependent on external funding to achieve our 2021 volume estimates. Our acquisition model has a number of channels to find opportunities, providing portfolio quality and AFFO growth. With the breadth of irons we have in the fire, our team is confident in our guidance expectations. I will finish by mentioning how pleased the Board is with the addition of Susan Skerritt and Priscilla Almodovar. They bring additional core competencies, which will help us and certainly me in strategy and making the appropriate decisions moving forward.

I'll now open the call for questions.

Questions and Answers:

Operator

[Operator Instructions] And our first question will come from Sheila McGrath of Evercore ISI. Please go ahead.

Sheila McGrath -- Evercore ISI -- Analyst

Yes. Good afternoon. Glenn, you issued a lot of ATM in fourth quarter. Just your thought process there and your view of the balance sheet position at this point going into 2021 perhaps in perspective from a year ago?

Glenn Rufrano -- Chief Executive Officer

I like that question, Sheila. I'll expand it a little bit and maybe talk -- have Mike talk about net debt-to-EBITDA as well. So what I'm going to do is hand it over to Mike to review our balance sheet at the end of last year and the end of this year all aspects of it and the difference. The positive one certainly on cash as well as net debt-to-EBITDA. So Mike why don't I hand it over to you?

Michael J. Bartolotta -- Executive Vice President and Chief Financial Officer

Sure. Thanks, Glenn. And Sheila, hi, how are you? I think the first place to look is just in our liquidity. I mean, our total liquidity at the end of 2020 is $2 billion in 2019 and it's really made up of $523 million of cash available on the balance sheet and a fully undrawn line of basically $1.5 billion. And that's a comparison to liquidity at the end of last year of $1.359 billion. Because we had roughly $12 million to $13 million of cash and we've already drawn down about $150 million of the line at that point. That's a difference of $660 million of liquidity. And that's really made up of those two pieces. We had $510 million of cash more this year at year end and $150 million less debt. We have a fully undrawn line.

We really have a balance sheet going into 2021 that is ready to move forward and make acquisitions. And so it's fully0loaded in that, kind of, sense. I think the other thing to think about when you think about our balance sheet at this point with the debt transactions that we did this year, we had $1.8 billion of debt added this year. They were all highly accretive. As we added that debt it was lower cost debt we were putting on the books and higher cost debt that we were paying off. And you see that in our statistics. Our outstanding -- our average outstanding at the end of last year was 4.8 years. That's now increased to six years. And our average rate on our portfolio of debt last year was 4.3% and we're now at 3.9%, which you'll see a benefit of that flowing through in the future.

And then as Glenn mentioned our net debt to EBITDA we were at 5.5 without the prefs last year. We're at 5.6 without the prefs this year. But we did pay off $300 million of the prefs during the year. And as, you know, we announced another $100 million that went off in January. But if you just take into account what we paid off during 2020 with the prefs our net debt-to-EBITDA went from 6.3 to 6.1. So as you can see that dropped it down significantly as we were able to pay that off.

Glenn Rufrano -- Chief Executive Officer

Thanks, Mike. And Sheila in the beginning of the presentation, I did mention there's a bit of deja vu between last year and this year. That's why your question is so appropriate. The differences are -- unfortunately the pandemic was in the middle, but the differences are the fact that we believe our portfolio has now been improving given the collections as we move into this year. And with that cash on the balance sheet we have prefunded almost all if not all of our acquisition pipeline $1 billion to $1.3 billion. So we feel really good about moving into this year. Sorry, it's been delayed a year, but we like the position we're in.

Sheila McGrath -- Evercore ISI -- Analyst

Great. One more question. It's nice to see AFFO guidance with year-over-year growth this year. With hindsight of the pandemic and pressure on certain tenant types are there any segments that you have written-off looking at for acquisition? And alternatively any new segments or property types you might consider in the future?

Glenn Rufrano -- Chief Executive Officer

I'll turn part of that certainly the last part over to Tom. The portfolio of construct was created back in 2015 with metrics around the portfolio of percentages of properties, percentage of credit, percentage of industries, retail industries. So we've been very disciplined in how we have built or more importantly we created the portfolio. We have sold over $5.4 billion over the last five years.

Going forward, we consistently look at those metrics. And right now in terms of what we would not be interested in buying, we're very cautious on casual dining. It may be a very good property type. And it is a good property type. But as we speak about it now it is part of our list of dispositions just because we like our metrics where we are and we don't want to increase those percentages. In terms of industry groups that we could be interested in -- Tom why don't I turn it over to you and some of the interesting opportunities you've been seeing.

Thomas W. Roberts -- Executive Vice President and Chief Investment Officer

Sure. Thanks, Glenn. As you mentioned -- theaters casual dining would probably not be high in our list of acquisitions. The opportunities that we always like in discount retail QSRs and non-investment-grade industrial would be areas that we'd be focusing on. Some examples of the transactions we've worked on are some sporting good concepts that have performed really well during the pandemic and I think we've -- there are unique opportunities in the market where cap rates maybe are higher than the norm over the last two year or three years. So we're able to take advantage of those opportunities in the market.

C-stores is obviously, a market that we've been active in and we like a lot. Automotive in general service tire, home improvement, home furnishing to a certain extent there's some good operators that have performed really well during the pandemic that we focus on. The other area that we acquired some assets last year in the equipment rental space which is kind of quasi-industrial because it's a lot of land associated with these buildings with yards and storage areas. So kind of a summary of the active product types for us.

Sheila McGrath -- Evercore ISI -- Analyst

Okay. Great. Thank you.

Thomas W. Roberts -- Executive Vice President and Chief Investment Officer

Thank you, Sheila.

Operator

Thank you. The next question comes from Caitlin Burrows of Goldman Sachs. Please go ahead.

Caitlin Burrows -- Goldman Sachs -- Analyst

Hi. Good afternoon. I was wondering if you could talk about as it relates to guidance what additional credit events if any are assumed in guidance whether that's bankruptcy impact, bad debt and how that compares to either 2020 or 2019 results?

Glenn Rufrano -- Chief Executive Officer

I'll take that one Caitlin. On credit vacancy and credit loss, we do sensitivities obviously to create ranges. We have sensitivities around all the variables and guidance, and vacancy and credit loss we're ranging between 1% and 2%. That's probably a little higher than we had last year. But what we also have, which is a difference this year and Mike has gone through this. We have general reserves for COVID tenants, which we did not have last year, which are relatively substantial. Mike has given you those numbers.

And we also have a cash-based tenant reserves essentially. And so we have those two additional provisions in 2021 which we did not have in 2020. And the combination of all of those we think very fairly represents what this income quality should be.

Caitlin Burrows -- Goldman Sachs -- Analyst

Got it, OK. And then one of the topics that sometimes comes up with investors is inflation risk. And I know VEREIT has reduced its exposure to flat leases in recent years. So could you just go through what impact you think inflation or rising rates generally would have on VEREIT and what people should keep in mind?

Glenn Rufrano -- Chief Executive Officer

Sure. I'll take that as well. When I think of inflation, the analogy I make which maybe silly you'll tell me, I think of it as cholesterol. It's never really good, but there's good and bad cholesterol, and we have good and bad inflation. I unfortunately lived through 1979 and 1980 when we had bad inflation, stagflation. So I know what bad inflation is. When I think about inflation, when we think about inflation today, we think it could be good inflation. All the stats we see for this year are at least 5% GDP growth or more. So I'd start out by saying, if inflation is good inflation, it effectively helps our tenants, increases the volume of their businesses, it will be good for us ultimately well. So we start there.

And then, as we think about the levels of where inflation could hit us, first, I would go to the balance sheet. We're 99%, plus 6%, as Mike indicated. So we're not going to have any exposure there. We've raised primarily all the equity we need. So we're not going to have exposure there. Our durations have been increased. We have virtually no up and coming maturities over the next few years. So the balance sheet is very protected against any inflationary trends. From an operating standpoint, Paul calls out there collecting all the rents he can. But we have our leases in the current portfolio between 1.25% and 1.5% growth.

And as Tom just mentioned, last year all the assets that we bought, we had about 1.7% growth with 35% tied to inflation in addition to the fixed 1.7%. So we have some protection in operations. And that comps acquisitions are always dependent upon where cap rates are of course. If there's inflation we could have increases in debt. And equity always follows debt. It's just a question of timing. It lags normally, but spreads usually come back to life. So we think about inflation a lot. That's how we think about it. And the last thing I'd say is in real estate a little inflation never hurt anything.

Caitlin Burrows -- Goldman Sachs -- Analyst

And then one small thing. Sorry, if you mentioned it. It looks like in the fourth quarter there was $11 million of non-routine expenses. So wondering if you could just mention what this was related to, and whether we should expect any similar expense going forward?

Glenn Rufrano -- Chief Executive Officer

Mike, I'm going to hand it over to...

Michael J. Bartolotta -- Executive Vice President and Chief Financial Officer

Non-routine?

Caitlin Burrows -- Goldman Sachs -- Analyst

It was on the line for litigation and non-routine expense.

Michael J. Bartolotta -- Executive Vice President and Chief Financial Officer

I'm sorry. Yes, I was thinking about it. Yes. That relates to the fact that we had some litigation that stemmed back from our old coal days and some investments that had eventually gone into litigation and has now been resolved. And so that was what we put on the books was primarily for that. It was about $10.9 million.

Caitlin Burrows -- Goldman Sachs -- Analyst

And this is one-time?

Michael J. Bartolotta -- Executive Vice President and Chief Financial Officer

Right. No. It's a non-recurring event. It happened to be a specific issue.

Caitlin Burrows -- Goldman Sachs -- Analyst

Got it. Okay, thank you.

Michael J. Bartolotta -- Executive Vice President and Chief Financial Officer

Sure.

Glenn Rufrano -- Chief Executive Officer

Thank you.

Operator

The next question comes from Anthony Paolone of JPMorgan. Please go ahead.

Anthony Paolone -- JPMorgan -- Analyst

Okay. Thanks. One of the areas you mentioned as being an investment target was mezz debt and you did some in the quarter. Can you talk about how you're looking at that originating it what category it falls into how big you might want that to be?

Glenn Rufrano -- Chief Executive Officer

Sure. I'll present it-I'll press this to me, and then I'll hand this over to Tom. The-all the mezz debt relates to relationships we have with developers for investment-grade industrial properties. And those investment-grade industrial properties ultimately, we expect to go into our partnership. And so what we're doing is priming product for the partnership by taking part in the mezzanine program, which we think are very good safe deals on excellent properties almost always through a relationship. Tom, anything else? What did I miss there?

Thomas W. Roberts -- Executive Vice President and Chief Investment Officer

Yeah. I guess, I'd only highlight that, it's high single-digit type returns and they're well covered. I mean they're two and 2.5 times covered. So-and as Glenn mentioned, they're really pipeline assets for the joint venture the industrial venture to go into that venture. So we like that. We like the return the current return and we like building the pipeline for the partnership.

Glenn Rufrano -- Chief Executive Officer

And Tony, we would like to make it as large as feasible or reasonable. But there's a dose of really good transactions out there like that. So I'm hesitant to tell you, how big it could be.

Anthony Paolone -- JPMorgan -- Analyst

Okay. I see. But it sounds like these are quicker turns just given the nature of the product type and how fast the investor gets billed?

Glenn Rufrano -- Chief Executive Officer

That's correct.

Anthony Paolone -- JPMorgan -- Analyst

And then just small minor point or question. Do you have any additional prefs being called as part of the guidance?

Glenn Rufrano -- Chief Executive Officer

We don't Tony. In the $1 billion to $1.3 billion on the balance sheet, those are property acquisitions. So there are no prefs that are in the guidance of being paid. But as you know it started-we started out with $1.1 billion in pref and now we have $373 million. We look at this as an allocation decision and there are differences. You could take out prefs at six, seven which is a high rate and reduced debt from many of our investors who included in debt or you could buy assets and refresh the portfolio, create more walls and create growth. And so we're going with the latter now. But I will tell you that those are not bad investments. We see it as a free option. We could pay them any time we want. And Mike's been sneaking them out of the portfolio from $1.1 billion to $3.73 billion. And someday, Tony, you'll wake up and they'll be gone.

Anthony Paolone -- JPMorgan -- Analyst

All right. Sounds good. Thank you.

Operator

The next question comes from Spenser Allaway of Green Street Advisors. Please go ahead.

Spenser Allaway -- Green Street Advisors -- Analyst

Thank you. Based on the release this morning, it looks like cash NOI was down about 5% in full year 2020 on a year-over-year basis. Can you maybe just comment on what you guys are kind of expecting for next year for cash NOI, or for this year I should say?

Glenn Rufrano -- Chief Executive Officer

Sure. Mike, can I turn that over to you?

Michael J. Bartolotta -- Executive Vice President and Chief Financial Officer

Just give me one second. I think we're basically anticipating -- hang on. I just don't have the number in my head. Let's see.

Glenn Rufrano -- Chief Executive Officer

Mike, if you don't have that, Spenser we'll get back to you on that.

Spenser Allaway -- Green Street Advisors -- Analyst

Okay. Yeah that's no problem. I was just -- it was down this year I'm assuming with -- depending on the length of your deferral kind of agreements you should be expecting some sort of onetime capture, I'm assuming in 2021. But yeah, I'll connect offline on that.

Michael J. Bartolotta -- Executive Vice President and Chief Financial Officer

I mean, what I can tell you there's a bigger -- the big pieces there are clearly abatements which is a major piece in 2020, which will be gone in 2021. And there may be some from deferral as well. I -- your point, so I'll say again it's primarily going to be COVID related.

Spenser Allaway -- Green Street Advisors -- Analyst

Okay. And then maybe just one more. So you guys have best-in-class disclosure. So thank you for all the information you do provide on a quarterly basis. But just curious, if there's any chance moving forward we could see more robust color just around rent coverage. I know currently, you share retail and restaurant metrics. But just curious, if you -- if there's any chance moving forward we could get color on the retail industries and then other property types?

Glenn Rufrano -- Chief Executive Officer

Well, we do give four-wall coverage as well. In addition to occupancy cost relationships, what other stat would you be looking for?

Spenser Allaway -- Green Street Advisors -- Analyst

Maybe I'm mistaken, but I didn't realize you guys provide rent coverage on the different retail industries?

Glenn Rufrano -- Chief Executive Officer

Well we present four-wall coverage on the retail and we present -- if you go to our investor presentation, we also present occupancy. Occupancy cost relationships.

Spenser Allaway -- Green Street Advisors -- Analyst

Okay.

Glenn Rufrano -- Chief Executive Officer

Yeah. So if you they're on page -- Paul what page?

Paul McDowell -- Executive Vice President and Chief Operating Officer

Page 22.

Glenn Rufrano -- Chief Executive Officer

Page 22 of our investor presentation that we put out last night would have all that information. We have a new format this year. So it may have been a little different for you to find, but it's on page 22. And that information I believe is there.

Spenser Allaway -- Green Street Advisors -- Analyst

Okay. Thank you.

Operator

The next question comes from Frank Lee of BMO. Please go ahead.

Frank Lee -- BMO -- Analyst

Hi. Good afternoon everyone. Glenn, just a follow-up on your comments on prefunding some of the acquisition pipeline from the ATM in the fourth quarter. Just curious does this suggest that volumes could be weighted toward the first half of the year. I just want to get a sense of the quarterly timing of the acquisitions?

Glenn Rufrano -- Chief Executive Officer

We -- again it's a sensitivity item as you would expect Frank as we're running the range for our AFFO guidance. We have different timing. But I think the most likely timing is about 40% in the first half of the year and 60% in the second half of the year.

Frank Lee -- BMO -- Analyst

Okay. Thanks. And then on the office properties that you're looking to sell this year, can you talk about how competitive the market is for your office assets? And have you seen any changes in the buyer pool?

Glenn Rufrano -- Chief Executive Officer

Yeah. I'll start and then hand it over to Tom. As we -- as Paul mentioned, we sold two properties at 6.1% last year. And we did close on $98 million just after January 1st at about a 5.6%. So very competitive for good office properties with good tenancy. Tom, why don't I turn it over to you?

Thomas W. Roberts -- Executive Vice President and Chief Investment Officer

Yeah, I would agree. And obviously most of these are investment-grade credits. So very good credit and in some cases very, very strong markets where we've seen mid-size caps and in other -- maybe lesser quality markets in the low to mid-6s. So I would say, it's not as attractive as industrial. Industrial is obviously the most attractive product type. So similar credit and similar lease term was available in industrial. We have 20 bidders. But we're getting good activity. I think five to 10 bidders typically go after these properties, a lot of institutional type money foreign money family offices. So a good well-rounded roster of potential acquisition buyers.

Glenn Rufrano -- Chief Executive Officer

And Frank, if you noticed in our investor presentation, we have about 56.4% investment-grade in the office right now. And that's what's worked pretty well with Paul and Tom. If we can we get those tenants to get a little more term it's a very active market for them.

Frank Lee -- BMO -- Analyst

Okay. Thanks. And then one last quick one on 2021 guidance. Are there any additional sort of refinancing opportunities factored into the guidance?

Glenn Rufrano -- Chief Executive Officer

We had about $300 million and some odd million in mortgages. Mike but we paid off $200 million?

Michael J. Bartolotta -- Executive Vice President and Chief Financial Officer

Paid $241 million as of today.

Glenn Rufrano -- Chief Executive Officer

And so that leaves about another $100 million left for the year that we probably will pay off. And those mortgages were at 5% I'm sure Mike?

Michael J. Bartolotta -- Executive Vice President and Chief Financial Officer

A little over 5.5%.

Glenn Rufrano -- Chief Executive Officer

Yeah.

Frank Lee -- BMO -- Analyst

Okay guys. Thank you.

Glenn Rufrano -- Chief Executive Officer

Thank you.

Operator

The next question comes from Haendel St. Juste of Mizuho. Please go ahead.

Haendel St. Juste -- Mizuho -- Analyst

Hey, how are you guys?

Glenn Rufrano -- Chief Executive Officer

Good. Hi, Haendel.

Haendel St. Juste -- Mizuho -- Analyst

So first question, I guess I'm curious what you're seeing out there from a portfolio perspective and what your level of interest may be?

Glenn Rufrano -- Chief Executive Officer

In portfolios that are on the market to acquire Haendel. That's what you mean?

Haendel St. Juste -- Mizuho -- Analyst

Yeah. And your potential interest?

Glenn Rufrano -- Chief Executive Officer

Sure. Tom, why don't I throw that over to you?

Thomas W. Roberts -- Executive Vice President and Chief Investment Officer

Yeah. It depends on how you define portfolios. Obviously, there's large sale-leaseback opportunities that are call it $25 million to $150 million. So those are portfolios which we actively play in. Bigger deals that there's a big grocery portfolio that's coming to the market in the West Coast. Obviously everybody has been talking about seven -Eleven $5 billion portfolio. So, certainly the smaller ones were very active. And I think depending on credit term and pricing, it would dictate our interest in any larger portfolios.

Haendel St. Juste -- Mizuho -- Analyst

Got it. Thanks for that. And I guess I'm curious in your conversations with counterparties asset sellers. How often or how concerned are they about rising interest rates or potential 1031 repeal? Are you getting perhaps a sense that they're more willing to transact now given those potential threats on the horizon?

Glenn Rufrano -- Chief Executive Officer

I -- again, I may hand this over to Tom. But you're right. There's certainly a lot of discussion at 1031 could go away. I'm on the policy Committee at ICSC. We're trying -- we're fighting hard to try to keep it, but I'm not sure we're going to win that fight. From our standpoint, it hasn't affected us much. We have been a big seller into that market. We don't compete against 1031 from a buying standpoint primarily. Now to your point, if you're worried about it there's probably some more of those around trying to get underneath the cover of a change this year. But Tom is it to any great extent?

Thomas W. Roberts -- Executive Vice President and Chief Investment Officer

I mean it's obviously the talk in the market. But as you mentioned very little impact on our disposition. We did sell a lot of Red Lobsters in the 1031 market over the last three or four years. But most of our major disposition effort is office which is more institutional in nature. So generally, not 1031 guys.

As you mentioned Glenn we don't really compete in that market. If I were in that situation I would certainly try to get something done sooner than later if there's a possibility of the law changing. And if it happens clearly it could be a positive impact from our standpoint with the acquisition market may be less competitive particularly on smaller deals, the QSRs and smaller transactions where 1031 is a major competition currently.

Haendel St. Juste -- Mizuho -- Analyst

Got it. Got it. And say it is repealed for now. But I guess I'm curious on your view on issuing OP units to sellers of assets of perhaps a tax mitigation strategy. Is that something that's coming up in conversations at all? And maybe what do you see as the pros and cons or willingness to do some of that with the sellers you're transacting with?

Glenn Rufrano -- Chief Executive Officer

Well we have the perfect structure for it so that we can issue units as you know. And it's been my experience that there's always been a lot of talk about doing deals with units, but not as many deals done. Maybe it gets better if 1031 goes away. And we'd love to do unit deals. It makes a lot of sense. Basically it's equity. As long as it's priced right you're buying assets at 100% equity. It brings down your leverage. So it's a good transaction. But negotiating those deals is never easy. The characteristics that are necessary it's usually a family. You need to make sure there's no one in the family who wants to take over the business.

And they have a tax problem. You put those characteristics together and that's a perfect seller for units. And if you could find that, that's great then you just have to negotiate the term of providing help against recapture. For instance, if we buy one of those properties it could -- they'll want a 10 to 15-year lockup on sale. Otherwise they have to recapture. So there's all those negotiations that go on hand. We'd love to do more. If we could do more we would. But I don't think there's a big expectation that there'll be a flood.

Haendel St. Juste -- Mizuho -- Analyst

Got it. Thank you, Glenn.

Operator

The next question comes from Chris Lucas of Capital One. Please go ahead.

Chris Lucas -- Capital One -- Analyst

Good afternoon, everybody. Hey Paul in your lease expiration schedule this year, the office component is the largest bucket. First off, I guess is that sort of sprinkled throughout the year? Or is it back-end loaded in terms of when those expirations are? And how do the renewals look at this point in terms of your outlook?

Paul McDowell -- Executive Vice President and Chief Operating Officer

Hey, Chris. Well a couple of things there. We did -- we managed a lot of our office leasing exposure last year. So we did some early renewals and we're able to pull that down by 0.5 percentage point or so during the course of 2020. We still have some wood to chop this year. Almost all of it -- or the vast majority of it is back-end loaded toward the very end of the year, as I mentioned in my prepared remarks. So we're working through those renewals right now. Some we'll keep. Some we'll lose. But we still think we'll maintain sort of our average retention levels that we've had over the past couple of years.

Chris Lucas -- Capital One -- Analyst

Okay. Thanks for that. And when you think about the renewals on those deals, are those likely to be shorter in duration? Or I guess the question really becomes if you solve for these renewals, do they become a potential source of funds?

Paul McDowell -- Executive Vice President and Chief Operating Officer

Well, it's always a fight on the renewal. Term is very important to us. And sometimes as you'll note in my prepared remarks, I mentioned that we have early renewals in our recapture levels and early renewals from a rent perspective are not as high as when we just do ordinary renewals. So very often when we negotiate with office tenants or any tenant, we'll sometimes trade a little bit of upfront rent in exchange for term.

Tenants typically, particularly in the office markets like to have shorter terms to improve their flexibility. So it's always a negotiation. But once we conclude those negotiations then the view at least with respect to the office has been recently for us to then move those from the portfolio into the sale category. And we've had some pretty strong success over the past year doing that.

Glenn Rufrano -- Chief Executive Officer

And you can see Chris we have guidance from $200 million to $250 million between 6% and 6.75 %, where we think those will sell which does provide to your point internal equity that we could invest at a spread.

Chris Lucas -- Capital One -- Analyst

Okay. Thanks for that one. And then I guess maybe sticking with you Glenn. So if we roll back the clock year and you were looking at some of your lines of business or credits and then you sort of go through the pandemic and you see some that maybe have benefited on -- at least on a relative basis from sort of the conditions that they've been operating under. Are there areas that you would look to sort of take advantage of sort of that free pass they got working through the pandemic and thinking grocery being one that's certainly elevated. Sporting goods is another that's sort of an elevated relative to where they were before?

Glenn Rufrano -- Chief Executive Officer

A third, I think Tom mentioned would be home furnishings, which was clearly a beneficiary of the stay-at-home and people wanted to improve their home. Those were -- those three clearly Chris, but you'd also say pharmacy has done really well. Home & Garden. as part of the home improvement era certainly has done well. Warehouse clubs, we have found have done really well. And I would call -- wouldn't call Target a warehouse club or Walmart, but they have certainly all benefited from having access to people and room to have people flow through their stores. So there are a number of areas. And where we see it is really in our collections. We have a page in our presentation that is page 16, where we have highlighted, we call it high collection necessity either industry groups or property types and it's represented 80% of our ARI.

And we have collected virtually 100% from those tenants -- from those categories right from the beginning of the pandemic. And then we have four categories that we happen to call improving on that same page; casual restaurants, entertainment, retail, home furnishings and retail, sporting goods. And you can see how the collections have increased from Q2 through January one of this year. So there are some real winners through the pandemic. Some upfront and others that have been able to learn how to work through the pandemic and create revenue for themselves.

Chris Lucas -- Capital One -- Analyst

And because of that have they -- do you see some sort of valuation disparities that have come through on that basis because they have done so well?

Glenn Rufrano -- Chief Executive Officer

Yes. Yes we have. And as Tom mentioned, we've taken some advantage of sporting goods and home furnishings, where we think the cap rates expanded more dramatically than we would have expected and in fact already coming in. So there will be some of the dislocation here that we hope we have taken some advantage of and can continue to.

Chris Lucas -- Capital One -- Analyst

Okay. Thank you. Appreciate it.

Operator

The next question comes from Vikram Malhotra of Morgan Stanley. Please go ahead.

Vikram Malhotra -- Morgan Stanley -- Analyst

Thanks. I'm sorry I dialed in late, so apologies if you've outlined this. But I was just curious if you could give a bit more color on sort of the pipeline. It's obviously a large pipeline relative to what we've seen in the prior year. So I'm just wondering if you can give us more color on sort of the sub-sectors you're focused on pricing expectations. I know you talked a little bit about timing, but just any more color on the pipeline would be helpful.

Glenn Rufrano -- Chief Executive Officer

Sure. I'll start off. I'm going to hand this to Tom. But for the balance sheet, we're most interested in discount retail, quick-service restaurants and non-investment-grade industrial. So those are the product types there. And then for the partnerships, it's investment-grade industrial and long-term leases with the potential for mezz positions to position the industrial partnership.

And those -- that's the breadth of the product we're looking for. So we have our fingers out in a number of areas to produce acquisitions to come back into the portfolio and create more AFFO. I think your primary question Vikram is on the balance sheet itself, which would be the first three elements that I spoke of. And then why don't I hand that over to Tom?

Thomas W. Roberts -- Executive Vice President and Chief Investment Officer

Yes. As I noted in my comments about half of our pipeline is sale leaseback. So QSRs, obviously, we have a relationship with an operator on the balance sheet currently that we're doing a sale-leaseback with that group. A couple of C-store transactions automotive, we've got a couple of deals there. So that seems to be a very active product cut. Car washes are also very active as well. So we'll look at those.

In addition, we did an equipment rental group last year. As I mentioned its kind of quasi industrial. So those are obviously very long-term leases with annual increases. We're able to negotiate master lease provisions and reporting, tenant reporting obligations as well, and obviously some more insight into the management and really get a sense of their business. So as you mentioned a strong pipeline and I think similar metrics to what we did last year probably shooting for that high 6%, 7% cap rate range. And we're looking at high-teen walls as well.

Vikram Malhotra -- Morgan Stanley -- Analyst

That makes sense. Thanks for that. And then maybe just Glenn a higher-level question on just one lessons from the pandemic in terms of what I'm most interested in is sort of interaction and communication with the underlying tenant base and just monitoring. You talked about coverages, I think, and you've given obviously a lot of detail. But I'm just wondering on the sort of asset management side. Anything sort of changing going forward in terms of communication? I asked just given -- I remember the comment for the last few quarters have been like many of the management teams have talked to the tenants a lot more than they did previously. So I'm just wondering if there are any changes going forward?

Glenn Rufrano -- Chief Executive Officer

Well, I'm going to let Paul answer certainly a lot of this, but there have been some changes. For instance, when the pandemic started, we had rent relief meetings constantly, with Paul being in charge and Mike, Tom and myself and others being in those meetings. And our team was every day talking to tenants that they would not talk to every day. So the communication was absolutely intense, I would say, in March, April, May, June.

And I'm happy to say now we have far fewer rent relief meetings. We have them on our schedule and they get canceled a lot which we all like, which means there's nothing to talk about. Paul's people are probably not talking as much to our tenants as they used to, which is good. So there's been a big change from March through today. And Paul how about what's going on there?

Paul McDowell -- Executive Vice President and Chief Operating Officer

Yes. I mean, I think, as Glenn mentioned at the height of the pandemic fully 33% of our tenants came looking for some kind of rent relief, most of which was opportunistic. But it did allow us to connect with the tenants, and so we did spend a lot of time talking with them. We have dedicated teams that spend all their efforts in our different property types office and industrial, restaurant and retail. And for example, Brett Sheets in our leasing team he's been working in that sector for probably 30 years and he knows these tenants inside and out. So we have a lot of -- we already had a lot of communication with tenants.

And you can see that not only in the pandemic relief discussions, but in the very large amount of leasing that we did last year. Each and every one of those leasing -- of that leasing activity required contact in connections with the tenants. So, we keep a very close relationship with all of our retail tenants and many of our restaurant franchisee tenants. And then of course as our office and industrial tenants start to roll over we have a very often very long discussions with them about tenant renewal.

Glenn Rufrano -- Chief Executive Officer

And Vikram I'd also mention that the entire team here is very much part of ICSC. I'm a trustee and Vice Chair now and are constantly talking to the retailers on a macro level not just the micro level in terms of what's happening at our property, but what's happening in their businesses. The meetings I have with the tenants through ICSC are very illuminating in terms of what's going on in that business.

Paul McDowell -- Executive Vice President and Chief Operating Officer

And many of our tenants we're their largest landlord. So, there's a natural relationship that comes just from that dynamic alone.

Vikram Malhotra -- Morgan Stanley -- Analyst

That makes sense. And just Glenn on that point just last question. You -- as we come out of the pandemic you talked a little bit about sale leasebacks. But what's your expectation of how soon the sale-leaseback market trend from here in terms of potentially newer types of tenants that may have been less open to doing that sort of coming and saying hey we'd like to monetize more of a real estate. Do you see sort of a wider net going forward?

Glenn Rufrano -- Chief Executive Officer

Well there's been some conversation on these calls whether or not tenants come to the sale-leaseback market or they go to the financing market. The 3% or 4% I'll call it a junk market for lack of a better term. So, there can be opportunities for our tenants today which they may not have in the past. And when Paul went through his conversation he talked about the tenants that we had that used to be private equity and now public. So there's been a lot of capital available out there. But even with that we're going to see more sale leasebacks.

And it could be with some newer tenants, but we're going to be careful about underwriting for a newer tenant and credit. I mean that would be a real concern for us because any sale-leaseback has to be underwritten properly. There'll be plenty of room for sale-leasebacks and various forms of financing for our tenants and we absolutely plan to be part of the sale leaseback market.

Vikram Malhotra -- Morgan Stanley -- Analyst

Great. Thanks so much.

Operator

The next question is a follow-up from Caitlin burrows of Goldman Sachs. Please go ahead.

Caitlin Burrows -- Goldman Sachs -- Analyst

Hi again. I was wondering if you could just go through recognizing that the acquisition guidance for this year is significant at over $1 billion. What would you say is the limiting factor on why not more? Or why do you think that's right target amount? I know Glenn that in the past you had been hesitant to give guidance because you didn't want to put a number out that you couldn't make. But with giving this kind of target, what makes that seem like the right amount?

Glenn Rufrano -- Chief Executive Officer

Well, Caitlin I'll start with the deja vu concept. It was almost exactly what we gave last year. We were very comfortable in the beginning of last year with that guidance and we're very comfortable with that guidance again. The difference is the funding which makes us more comfortable that we're funded already. And so that gives us a little more latitude.

Could it be larger which is maybe your point, it maybe could be. Maybe there are some larger deals out there which could expand it over time. But we didn't want to have an optimistic or pessimistic. We would just we wanted a reasonable case. And based upon what Tom's group has been doing for instance he mentioned that they have been buying as part of Cole Capital and buried $1 billion a year for the last few years. So we're comfortable that that product is out there and that we could reduce it.

Caitlin Burrows -- Goldman Sachs -- Analyst

Okay. Thanks.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Glenn Rufrano for any closing remarks.

Glenn Rufrano -- Chief Executive Officer

Thank you. Thank you everybody for joining us. We're excited about this year. We're happy we have growth in AFFO. We're happy where we've increased the dividend for our investors and we look forward to a very productive year. Thank you.

Operator

[Operator Closing Remarks]

Duration: 62 minutes

Call participants:

Bonni Rosen -- Senior Vice President of Investor Relations

Glenn Rufrano -- Chief Executive Officer

Thomas W. Roberts -- Executive Vice President and Chief Investment Officer

Paul McDowell -- Executive Vice President and Chief Operating Officer

Michael J. Bartolotta -- Executive Vice President and Chief Financial Officer

Sheila McGrath -- Evercore ISI -- Analyst

Caitlin Burrows -- Goldman Sachs -- Analyst

Anthony Paolone -- JPMorgan -- Analyst

Spenser Allaway -- Green Street Advisors -- Analyst

Frank Lee -- BMO -- Analyst

Haendel St. Juste -- Mizuho -- Analyst

Chris Lucas -- Capital One -- Analyst

Vikram Malhotra -- Morgan Stanley -- Analyst

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