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National Retail Properties, inc (NYSE:NNN)
Q2 2021 Earnings Call
Aug 3, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the National Retail Properties Second Quarter 2021 Operating Results Call. [Operator Instructions].

At this time, it's my pleasure to turn the floor over to Mr. Jay Whitehurst, Chief Executive Officer. Sir, the floor is yours.

Julian E. Whitehurst -- President and Chief Executive Officer

Thank you, Tom. Good morning, and welcome to the National Retail Properties Second Quarter 2021 Earnings Call. Joining me on this call is Chief Financial Officer, Kevin Habicht; and Chief Operating Officer, Steve Horn. As this morning's press release reflects, National Retail Properties performance in 2021 continues to produce strong results, including continued high occupancy, impressive rent collections and solid acquisitions driven by our proprietary tenant relationships. We're well positioned to continue enhancing shareholder value as we look ahead to the balance of 2021 and beyond. In July, we announced a roughly 2% increase in our common stock dividend effective later this month, thus making 2021 our 32nd consecutive year of annual dividend increases. National Retail Properties is in the select company of only 85 U.S. public companies, including only two other REITs, which have achieved this impressive track record. Based on our strong performance, we announced today a further increase in our 2021 guidance for core FFO per share to a range of $2.75 to $2.80 per share. Our long-standing strategy is designed and executed to generate consistent per share growth on a multiyear basis. And as the disruption caused by the pandemic and related store closures is easing, the value of this long-term approach is reflected in our second guidance increase this year.

Turning to the highlights of National Retail Properties second quarter financial results. Our portfolio of 3,173 freestanding single-tenant retail properties continue to perform exceedingly well. Occupancy was consistent with the prior quarter at 98.3%, which remains above our long-term average of 98%. We also announced collection of 99% of rents due for the second quarter. Collection of previously deferred rent remained at an equally high percentage and we forgave almost no rent during the quarter. These impressive collection results compare very favorably to other retail real estate companies including those with a significantly higher percentage of investment-grade tenants. Moreover, we believe that these results validate our strategy of doing direct sale leaseback transactions with large regional and national operators for well-located real estate parcels at low cost per property and reasonable rents. And while we're on the topic of large tenants, I'm pleased to report that one of our top tenants, Mister Car Wash, recently completed its initial public offering. Congratulations to John Lai and the entire management team at this impressive company. Mister Car Wash was one of our first relationship tenants 15 years ago, and we're very proud of the role that National Retail Properties has played in that company's growth and success.

Turning to acquisitions. During the quarter, we invested just under $103 million in 29 new properties at an initial cash cap rate of 6.7% and with an average lease duration of over 17 years. Almost all of our acquisitions were from relationship tenants with which we do repeat programmatic business. Year-to-date, we've invested over $208 million in 58 new properties leased to 10 different relationship tenants at an initial cash cap rate of 6.5% and an average lease duration of 17.5 years. In an environment where cap rates remain near all-time lows, we will continue to be very thoughtful in our underwriting and primarily pursue sale-leaseback transactions with our portfolio of relationship tenants. Based on our pipeline and conversations with those relationship tenants, we remain comfortable with our ability to meet and hopefully exceed our 2021 acquisition guidance of $400 million to $500 million, primarily via direct sale-leaseback transactions with long duration leases. During the second quarter, we also sold 15 properties, raising almost $23 million of proceeds to be reinvested in new acquisitions. And year-to-date, we've now raised over $40 million from the sale of 26 properties, including 15 vacant properties. Although job one is always to release vacancies and our leasing team does an excellent job of it. We'll continue to sell nonperforming assets if we don't see a clear path to generating rental income within a reasonable time period.

Our balance sheet remains one of the strongest in our sector. In June, Kevin led the recast of our unsecured line of credit, increasing the capacity of our facility from $900 million to $1.1 billion. Although our credit line has been upsized, the balance outstanding remains the same, 0, and we ended the quarter with approximately $250 million of cash on hand. With no material debt maturities until 2024, we remain well positioned to fund our 2021 acquisition guidance without needing to tap the capital markets.

And with that intro, let me turn the call over to Kevin for more color on our quarterly numbers and updated guidance.

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

Thanks, Jay. And as usual, I'll start with the cautionary statement that we will make certain statements that may be considered to be forward-looking statements under federal securities laws. 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 $0.70 per share for the second quarter of 2021. That's up $0.01 from the preceding first quarter, $0.69 per share, and it's up $0.05 from the prior year's $0.65.

Today, we also reported that AFFO per share was $0.77 per share for the second quarter and that's also up $0.01 from the preceding first quarter $0.76. We did footnote this amount includes $8.3 million of deferred rent repayments and our accrued rental income adjustment in the second quarter AFFO number. So without that, we would have produced AFFO of $0.72 per share. So excluding those deferral repayments, our AFFO dividend payout ratio for the first six months was 72.7%, that's fairly consistent with prior year's levels. Occupancy, as Jay mentioned, was 98.3% at quarter end. That's been fairly flat compared to recent quarters. G-and-A expense was $11.9 million for the second quarter. The increase for the quarter and the six months was largely driven by incentive compensation. Rent collections continue to remain strong in the second quarter. As Jay mentioned, today, we reported rent collections of approximately 99% for the second quarter rent. Collections from our cash basis tenants, which represent about 7% of our total annual base rent improved to approximately 92% for the second quarter rent, and that's up from 80% previously reported for that cohort in the first quarter of 2021.

As Jay noted, we increased our 2021 core FFO per share guidance from a range of $2.70 to $2.75 per share to a new range of $2.75 to $2.80 per share. This incorporates the better-than-expected rent collections and the actual results in the first half of 2021. Some of the assumptions supporting this guidance are noted on page seven of today's press release, which are largely unchanged from last quarter's guidance. The driver for the increase in our full year guidance is the assumed higher rent collection rate more in line with our current collection rates. So while we previously assumed 80% rent collection from the $50 million of cash basis tenant annual base rent, we are now assuming 90% rent collections that incremental 10% amounts to about $5 million on an annual basis. And for the remainder of our tenants, we continue to assume 1% of potential rent loss. And again, that's consistent with our prior guidance. We ended the quarter with $250 million of cash on hand and no amounts outstanding on our newly recast $1.1 billion bank credit facility. This bank line, as Jay noted, increased from $900 million in size to $1.1 billion. The interest rate was reduced 10 basis points to LIBOR plus 77 basis points and maturity was extended to June of 2025.

Our liquidity is in excellent shape, our weighted average debt maturity is now 13 years with a 3.7% weighted average fixed interest rate. Our next debt maturity is $350 million with a 3.9% coupon in mid-2024. The very good liquidity and leverage position have no real need to raise any additional capital to meet 2021 acquisition guidance, and we're well positioned as we look forward to 2022. A couple of numbers. Net debt to gross book assets was 35%. At quarter end, net debt to EBITDA was 5.0 times at June 30. Interest coverage, 4.7 times and fixed charge coverage 4.2 times for the second quarter. Only five of our 3,000-plus properties are encumbered by mortgages. So 2021 is shaping up to be a very solid year for us as the economy and retailers capture the government stimulus, which feels like it will have some tailwinds in 2022. Our focus remains over the long term as we continue to endeavor to give NNN the best opportunity to succeed in the coming years and, importantly, growing per share results.

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

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] We'll take our first question from Katy McConnell with Citi.

Parker Decraene -- Citi -- Analyst

Hi. Good morning, guys. This is Parker Decraene, actually on for Katy. Jay, I just -- I noticed that you guys bought a theater asset during the quarter. And I was just wondering if you guys, given the improved rent collections, just on a more long-term basis, how you think about the industry and sort of the changing dynamics there.

Julian E. Whitehurst -- President and Chief Executive Officer

Right. And I -- let me clarify something there. We did not buy that theater. AMC had been a guarantor of another theater, they spun off some theaters but remained a guarantor of the lease. And so AMC took over that theater as part of a restructuring, a workout with the other tenant that was struggling. So we did not -- we didn't buy another theater, it just became an AMC in our portfolio. That is the line of trade that we've certainly still continue to have the most concern about coming out of the pandemic. We're happy with the -- or comfortable, I should say, with the theater exposure that we have. We acquired our theaters a number of years ago at lower price per property and more reasonable rents than some of the theater transactions that have traded in the last few years that we passed on. But that said, that business has been challenged for quite a period of time. And so we have not been looking to expand our theater exposure for a number of years now. And we'll going to continue to be very thoughtful about any theater transactions that are out there in the world that we might be looking at. It's unlikely you'd see us buy any movie theaters anytime soon.

Parker Decraene -- Citi -- Analyst

Got it. Yes, that's what I figured. Thank you for the clarification there. And then just my second question is just on rent collections for full-service restaurants. I think they lagged a bit. Is that just tied to specific tenants or just sort of what's the sort of color there?

Julian E. Whitehurst -- President and Chief Executive Officer

Yes. Kevin, you may have a little bit of color. But I think for full service tenants and for movie theaters, they're both below kind of everybody else is running 98% or higher. And for those two categories, it's both continuing rent deferrals for tenants where the second quarter rents were deferred to be repaid later as opposed to rent forgiveness or even disputes with the tenants. It's just rent that we expect to get later down the road.

Parker Decraene -- Citi -- Analyst

Okay. Got it. Thanks, guys.

Operator

We'll take our next question from Elvis Rodriguez with Bank of America.

Elvis Rodriguez -- Bank of America -- Analyst

Good morning and thank you for taking the questions. Can you share an update on your acquisition pipeline? I know you commented on the call, having an opportunity to exceed that. How is it looking today? And what's the likelihood that you will exceed the high end of your range?

Julian E. Whitehurst -- President and Chief Executive Officer

Yes. Elvis, welcome to the call. Nice to talk to you. I'll let Steve Horn talk about the pipeline a little bit. But just at the macro level, let me kind of put -- remind folks about the way we look at this. Our strategic goal is to generate consistent mid-single-digits per share growth on a multiyear basis. And there's a lot of inputs that go into achieving that goal, acquisitions is certainly the most impactful. But it really is just an input into the calculation of achieving that long-term strategic goal of consistent mid-single-digits per share growth. And our strategy as it relates to acquisitions is to do repeat programmatic business with a portfolio of large regional and national operators with whom we can build these relationships and do this repeat business. If we do that, we get slightly better real estate because the retailer doesn't sell us a property that the retailer is worried about. We get a lease document that is tailored to our needs to what we think is important. And we get a long duration, 15- to 20-year lease. And those are all advantages to us over -- going out into the open market, the one-off market, the 1031 exchange market and acquiring properties in a one-off basis. And we get a slightly better cap rate with our relationship tenants than you would get in the open market. So that's the strategy behind what -- the strategy that drives our acquisition efforts. And so, Steve, with that kind of macro intro, you want to talk about the pipeline and how that all stands?

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

Yes. What a year makes a difference as far as the pipeline. I sat here last year at this time, we didn't have a pipeline. But our relationship tenants have started growing and they're continuing to grow through 2021. So our pipeline is pretty solid right now. Year-to-date, we've closed a little bit over $200 million. Our guidance, to your question, was $400 million to $500 million. So as I sit here today, I'm very comfortable with that guidance. Our pipeline is very robust. Keep in mind, we could always hit the number and just go buy whatever we wanted for -- if we just throw out the window lease duration and cap rate. But we're still looking for that low to 6% cap rate with long lease term, we're relying on our relationships. As far as the industry statures, it would be what you would expect, convenience stores, auto service and QSR restaurants. There's a significant amount of volume in those industries currently. So yes, feeling good about the pipeline as we sit here today.

Elvis Rodriguez -- Bank of America -- Analyst

Great. And just to follow up on that. Some of your peers have mentioned an increase in the sale leaseback activity. I'm assuming you're seeing the same, but just you're not chasing the lower quality sale leaseback opportunities. Is that the right way to categorize it?

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

No. I mean 2021, just based on our peers and the volume that's being done, there has been definitely an increase in the sale-leaseback market. But keep in mind, a lot of our peers buy just assets in the open market and don't focus completely on the sale leaseback. But yes, there's a lot of private equity activity in the QSR space and auto service space. So there has been an increase in the sale leaseback market.

Julian E. Whitehurst -- President and Chief Executive Officer

Yes. Elvis, our relationship tenants kind of took a pause in the middle of last year while they got their own businesses kind of sorted out and figured out how to do business through the pandemic, and they did figure that out. And you can see how that's all been reflected in both our occupancy rate and our collections rate. They've all bounced back across every sector. And so the conversations that we're having with them now they are in growth mode and they're looking to expand their businesses. And I think for a lot of the lines of trade there's good M-and-A opportunities in their particular lines of trade for our tenants to pick up some of the smaller companies that struggled more in the pandemic. So the pipeline feels good in the longer future, the wide end of the pipeline and the more distant future feels good to us as well.

Elvis Rodriguez -- Bank of America -- Analyst

Thank you.

Operator

And we'll take our next question from Spenser Allaway with Green Street.

Spenser Allaway -- Green Street -- Analyst

Hello. I don't think you guys touched on this yet, but can you just provide a little color on the industry mix overall for your acquisitions made in the quarter?

Julian E. Whitehurst -- President and Chief Executive Officer

Spenser, can you say that one more time? We didn't quite hear it.

Spenser Allaway -- Green Street -- Analyst

Yes. Can you provide a little color on the industry mix for the acquisitions made in the quarter?

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

Yes, it's Steve. The industry mix kind of looks like our current portfolio. But for the most part, it was a little bit heavier in auto services sector. But kind of your typical QSRs, we did have the general retailer Best Buy in there and some equipment rental. But for the most part, as auto service, it was a little bit heavier than historical.

Julian E. Whitehurst -- President and Chief Executive Officer

Yes. Second quarter -- Spenser, the second quarter was kind of the quarter of the Car Wash.

Spenser Allaway -- Green Street -- Analyst

Okay. And then just as the transaction market has opened up more and you guys have become a little bit more active again, has anything either surprised positively to surprise to the upside or to the downside in terms of cap rate movements? Or has anything really shocked you in terms of just transaction activity?

Julian E. Whitehurst -- President and Chief Executive Officer

I'll take the first step. I'd say nothing's really shocked us. We -- cap rates remain very low, but that's driven in our minds to a large degree by just a lot of -- as people say, cash sloshing around in the market. It's just a lot of capital out there chasing transactions. And what we found all through the years is that cap rates tend to not move up even in situations when one thinks they might. We -- otherwise, we felt like going into the pandemic, we felt like our retailers were the right -- they were -- they're experienced and had their own businesses in good shape, and we felt like they would get through it and out the other side. And they have. And our real estate, we felt was well located and was in high demand prior to the pandemic, and we expected that it would be in high demand after the pandemic. And again, I think our numbers indicate that that's validated itself too. So to a large degree, what we've seen it felt like is that this pandemic, just like the great financial crisis of '08, '09, has validated our strategy of dealing with larger operators and focusing on good locations at reasonable prices and low rents.

Spenser Allaway -- Green Street -- Analyst

Okay. Great. Thanks for that color. And then maybe just one more, if I may. On the disposition front, how many of these assets sold in the quarter were vacant? And then were any of the divestment cash basis tenant?

Julian E. Whitehurst -- President and Chief Executive Officer

The -- yes. I think the split in any one quarter, it's a little bit of a -- it's a small sample size. I think in general, our dispositions are going to be kind of 50% leased and 50% vacant. Give or take, 5% or 10%. Kevin, would you add anything?

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

And the proceeds are running in that kind of ballpark too. So year-to-date, it's about 50-50 on vacant versus occupied. I don't have the note or the data in front of me at the moment, just to, I guess, respond to it. The occupier and how many are cash basis, I don't think there's very many of those. That's not a driver. It might be 0. That's not a driver of our decision process, to be honest. We don't actually -- I mean, while we'd like everybody to be on approval basis and have strong credit and feel comfortable about future lease collection, being labeled cash basis is not the biggest signal in our mind, so...

Spenser Allaway -- Green Street -- Analyst

Okay. Thank you, guys.

Operator

We'll take our next question from Wes Golladay with Baird.

Wes Golladay -- Baird -- Analyst

Hi. Good morning, guys. I just had a question on the sale leaseback activity. Do you think we'll get back to 2019 levels for the industry? And with your tenants, do you expect to maintain your share with the existing relationships?

Julian E. Whitehurst -- President and Chief Executive Officer

Wes, I think the short answer to that question is yes and yes. I do think that as our tenants continue to get back into growth mode, we'll have the same level of volume or additional volume opportunities from each of them. And the acquisitions group that works for Steve is out building new relationships every day. And we'll continue to grow the overall pool of tenants with whom we do repeat programmatic business with. And overall, in the overall marketplace, I think it's going to be equal or greater volume as to what we were look -- what the entire universe is looking at pre-pandemic.

Wes Golladay -- Baird -- Analyst

Okay. Thanks for that. And then when we look at the back half of the year, you did kind of call out M-and-A activity. Will that be a big part of the second half story? And would you guide us to or maybe not guide us, but I guess, how should we think about the split between 3Q and 4Q?

Julian E. Whitehurst -- President and Chief Executive Officer

I wouldn't want to guess at that at this point. We know that there's -- that our tenants are looking at growing their business, and we know there's going to be opportunities out there, but it never makes a lot of sense to us to try to predict timing too precisely. Our guidance is generally kind of back-end loaded. So we feel good about where we are right now in case it turns out that this year, it's not back-end loaded. But I wouldn't want to get too granular on predicting when transactions might occur. There's a lot of things that might make things either speed up or slow down. Steve, did you have anything about the folks you're talking to?

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

No, I think as we say internally a lot, we're a couple of phone calls away from the pipeline not being as strong. So we don't try to focus on the timing, we kind of focus on getting the deals done as fast as we can. But as far as kind of our outlook, as you can imagine, our industry three months out, four months out, usually don't have a pipeline for December quite yet. So the pipeline when we talk about it is a little bit more shortsighted, third quarter, some will slide into the fourth quarter.

Wes Golladay -- Baird -- Analyst

Got it. Thanks a lot, guys.

Operator

And we'll take our next question from Ronald Kamdem with Morgan Stanley.

Ronald Kamdem -- Morgan Stanley -- Analyst

Sure. Congrats on the good quarter. Just two quick ones for me. One on the cash basis tenants collection, the 92%. Is that -- is it fair to say that 8% that's lagging, is that still just movie theaters and so forth? Or is there any other sort of notable bucket to call out?

Julian E. Whitehurst -- President and Chief Executive Officer

Not really. No. I mean it's -- we had the four big lines of trade that had some impact from the pandemic. And so our primary cash basis tenants are AMC, Frisch's, Chuck E. Cheese and Ruby Tuesday. Those four probably make up 90% of our cash basis tenant bucket. So it's a mix in that arena. But clearly, we've talked about the theaters are the most challenged and pressed and you can see that in our collection numbers to some degree, so -- but I call theaters and casual dining primarily.

Ronald Kamdem -- Morgan Stanley -- Analyst

Got it. That's helpful. And then I think this was asked earlier, I was just making sure I understand. So on the disposition side, was any of the assets cash basis tenants. Sorry, I don't think -- I missed the answer to that.

Julian E. Whitehurst -- President and Chief Executive Officer

Yes. No. I think we concluded that we really didn't sell any cash basis tenants in the second quarter. And like I said, we're not -- that's not a particular driving factor or important factor to us in making fold or sell kind of decision to be honest.

Ronald Kamdem -- Morgan Stanley -- Analyst

Got it. And then, sorry, last question, if I may. When you're thinking about sort of the industry mix and so forth, I think you talked about that sort of this quarter was big for car washes. Is there any sort of other sort of sub-sector or sub-segments that over the last three to six months that you've gotten more constructive on or more attractive? And is there any other that you'd probably want to sort of -- get away from? Thanks.

Julian E. Whitehurst -- President and Chief Executive Officer

The -- What we try to do is build relationships with retailers in all the different lines of trade where you'll find retail type properties located along high-traffic roads. And what history has taught us is that transaction volume among industries will kind of ebb and flow due to one reason or another. So we don't spend too much time trying to project ahead about what particular lines of trade are going to be active or anything like that. It's very -- we want to build relationships with lots of operators. And then after that, the whole process is very bottoms up. It's what real estate, are they acquiring and do they want to do a sale leaseback and if so, what's the right terms for that and then to get on down the road, I think if you look at what we've done recently, the -- there's -- Steve's group has done a good -- great job of building relationships with different tire store operators, not just -- and we've done some car wash deals with other -- with a number of different operators and equipment rental and -- but -- and we have deep relationships across all of the fast food concepts. So really looking down the road, I think what you should -- you'll see with us is the portfolio down the road will look a whole lot like the portfolio that it is right now. And we will continue to be pretty thoughtful and pretty prudent about doing bigger boxes, bigger and more special-purpose boxes, I think every REIT is going to be kind of cautious about those kind of properties for the time being. Those were the ones that gave people the most heartburn during the pandemic.

Ronald Kamdem -- Morgan Stanley -- Analyst

Very helpful. Thank you.

Operator

And we'll take our next question from John Massocca with Ladenburg Thalmann.

John Massocca -- Ladenburg Thalmann -- Analyst

Good morning.

Julian E. Whitehurst -- President and Chief Executive Officer

Good morning.

John Massocca -- Ladenburg Thalmann -- Analyst

So I think I asked about this on the last earnings call, but obviously, with the kind of collections moving up to 92%, I don't know, has your outlook changed at all for moving some of these cash basis tenants to accrual accounting again? And I guess, if so or if not, I mean, how many months or quarters of -- kind of consistent payment do you want to see before making those changes?

Julian E. Whitehurst -- President and Chief Executive Officer

Well, consistent with our delivered and sometimes slow-moving thought process, we just -- again, I don't view it as a big one as having a tenant labeled as cash basis. I don't think it's bad accounting, meaning you report what you collect. And so all I have to say is, we're not in a particular hurry to get folks back to accrual basis. We said really at the time we moved on a cash basis, we certainly wasn't going to be one year, it would be more than a year before we -- but that it might be worthwhile to move them back to accrual. But we're going to want to see some quarters of performance from those tenants before we get too interested in making that change. So like I say, in the meantime, we don't view it as a big negative to have a labeled cash basis. In our minds, it's not terrible accounting. And so we'll -- all I have to say is it will probably be next year sometime before we start to possibly drift some of those tenants from cash basis to accrual basis.

John Massocca -- Ladenburg Thalmann -- Analyst

Okay. Understood. And then speaking of -- kind of tenant health, now that you're collecting close to 100% of rent, I mean broad brush strokes, what are you seeing in terms of kind of coverages? Do you have that data yet? What kind of like -- maybe what it was looking like historically pre-pandemic? Just any color there would be helpful.

Julian E. Whitehurst -- President and Chief Executive Officer

I mean the data is still kind of coming in. So -- and there's somewhat of a lag. Some tenants, we get quarterly data, some annual, but -- we -- it feels to us that the vast majority of our portfolio, they're at kind of prior coverage levels that we're very strong. And so we feel pretty good on that front. The one question always lingers in my mind anyway, how much of it is stimulus related. And so how lasting and long term will be once we get to a post-stimulus environment. But it feels very good right now in terms of coverages and what we've seen in a number of our tenants is not only -- is that their profitability has improved through this pandemic as they've rethought processes and cost structures and all kinds of things. Margins have held up very well. And so they've actually done well in terms of the profitability and therefore, the rent coverage.

John Massocca -- Ladenburg Thalmann -- Analyst

Okay. And then one last quick one. what drove the impairment in the quarter? Just thinking specifically with the pretty high rent collection? Just any color there would be helpful.

Julian E. Whitehurst -- President and Chief Executive Officer

On the impairments for the quarter, as a number of properties, I mean, it's primarily two or three larger dispositions that ended up getting impaired. And I'd say three of the top four were vacant properties that were sold or going to be sold. And so that was really the driver of that.

John Massocca -- Ladenburg Thalmann -- Analyst

Okay. That makes perfect sense. And that's it for me. Thank you very much.

Operator

[Operator Instructions] We'll go next to Linda Tsai with Jefferies.

Linda Tsai -- Jefferies -- Analyst

Hi. It looks like guidance on your real estate expenses net of reimbursements went down a little and then G-and-A went up. Can you just give some more color on the shifts?

Julian E. Whitehurst -- President and Chief Executive Officer

Yes. Fair comment. They didn't move a whole lot, but they did move a little. On the property expenses just -- we generally model the property expenses to somewhat mirror vacancy or rent loss, if you will. And so to the extent rent loss projections improve, we kind of it --also tends to improve our property expense projection. So at the margin, that is the primary difference there. And on G-and-A that largely just a function of incentive comp, which was down notably last year, and we'll get back to more normal levels in this year, hopefully. And so just accruals related to that.

Linda Tsai -- Jefferies -- Analyst

Thanks. And then you talked about some of the challenges with movie theaters and full-service restaurants. What are your thoughts on fitness as an industry right now? Is this an area you would invest in further?

Julian E. Whitehurst -- President and Chief Executive Officer

Yes. At the -- when the pandemic struck, we were -- that was one of the lines of trade that we were concerned about. Our primary fitness exposure is with LA Fitness and Life Time Fitness and both of those companies have gotten through the pandemic in pretty good shape. And anecdotally, what we hear and feel is that customers do want to get back to working out at the gym. The folks that we're using the gym before want to get back to using the fitness facilities again. And so over the long haul, we think that that industry will rebound. I mentioned in answer to one of the previous questions that we're going to be very thoughtful about bigger boxes that are more special purpose and to some degree, the fitness center properties fall into that category. And so we'll be thoughtful about that. But to the extent a portfolio of fitness centers was out there or our relationship tenants had some transactions that they wanted to do. Those are things that we would look at. We would focus on the cost per property and the rent, but that would be something we would look at.

Linda Tsai -- Jefferies -- Analyst

Got it. Just one last one. As you look out over the next six to 12 months, what's your preferred source of financing?

Julian E. Whitehurst -- President and Chief Executive Officer

A tough one for us. So I was going to say stock at $60 a share.

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

Yes, there you go. Yes, so I mean, we are constantly kind of evaluating what's the best opportunity in the marketplace for us. The good news is we don't need any capital, frankly, for much of that time period that you laid out there. So it will be a variety. The usual mix of our capital structure, we're not looking to change that notably. And so it will be a blend of debt and equity as usual. Both are relatively well priced. But we try to pivot and source capital at good opportunities when the time is appropriate and capital is available and well priced. And so -- and we take a very long-term view to that, we don't think about -- we need to get more debt or more equity today or tomorrow. We just -- we know -- we're thinking about two years out and how to position the balance sheet and the liquidity that we have. So I'm being a little bit elusive. That's one reason we don't give guidance on our capital raises because we tend to be fairly opportunistic on that front, and we'll see what the market did meet up for us.

Julian E. Whitehurst -- President and Chief Executive Officer

Yes. Two other sources of capital that people forget about sometimes. One is dispositions, we have historically been able to sell $100 million or so properties per year at cap rates below what we are reinvesting at. So we've been able to accretively recycle capital through our disposition business, and we have hundreds, if not thousands of properties in the portfolio that would sell for very low cap rates. And the other is just kind of free cash flow after payment of dividends. We have, Kevin, what, around $120 million?

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

In a normal year, we were $120 million this year because of the rent deferral repayments, actually, that number notably higher. And so we're looking at total rent deferral repayments of around $30 million. So it will be closer to $150 million this year.

Julian E. Whitehurst -- President and Chief Executive Officer

All of which positions us really well to not need -- try to be in a position where we don't need capital in order to fund our guidance and deal with whatever opportunities are out there.

Linda Tsai -- Jefferies -- Analyst

Thank you.

Operator

And Mr. Whitehurst, there appears to be no further questions at this time. I'd like to turn the call back over to you for any closing remarks.

Julian E. Whitehurst -- President and Chief Executive Officer

All right. Thank you, Tom, and thank you all for joining us this morning. We look forward to hopefully seeing many of you in person during the fall conference season. Have a good day.

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

Julian E. Whitehurst -- President and Chief Executive Officer

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

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

Parker Decraene -- Citi -- Analyst

Elvis Rodriguez -- Bank of America -- Analyst

Spenser Allaway -- Green Street -- Analyst

Wes Golladay -- Baird -- Analyst

Ronald Kamdem -- Morgan Stanley -- Analyst

John Massocca -- Ladenburg Thalmann -- Analyst

Linda Tsai -- Jefferies -- Analyst

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