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Edited Transcript of SRC earnings conference call or presentation 13-Apr-20 12:30pm GMT

·55 mins read

Preliminary Q1 2020 Spirit Realty Capital Inc Earnings Call SCOTTSDALE Apr 15, 2020 (Thomson StreetEvents) -- Edited Transcript of Spirit Realty Capital Inc earnings conference call or presentation Monday, April 13, 2020 at 12:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Jackson Hsieh Spirit Realty Capital, Inc. - President, CEO & Director * Kenneth Heimlich Spirit Realty Capital, Inc. - Executive VP & Head of Asset Management * Michael C. Hughes Spirit Realty Capital, Inc. - Executive VP & CFO * Pierre Revol Spirit Realty Capital, Inc. - Senior VP and Head of Strategic Planning & IR ================================================================================ Conference Call Participants ================================================================================ * Anthony Paolone JP Morgan Chase & Co, Research Division - Senior Analyst * Christopher Ronald Lucas Capital One Securities, Inc., Research Division - Senior VP & Lead Equity Research Analyst * Greg Michael McGinniss Scotiabank Global Banking and Markets, Research Division - Analyst * Haendel Emmanuel St. Juste Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Equity Research Analyst * John James Massocca Ladenburg Thalmann & Co. Inc., Research Division - Associate * Ki Bin Kim SunTrust Robinson Humphrey, Inc., Research Division - MD * Vikram Malhotra Morgan Stanley, Research Division - VP * Wesley Keith Golladay RBC Capital Markets, Research Division - VP & Equity Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Greetings and welcome to the Spirit Realty Capital preliminary earnings results and business update call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Pierre Revol, Vice President of Strategic Planning and Investor Relations for Spirit Realty Capital. Please go ahead, sir. -------------------------------------------------------------------------------- Pierre Revol, Spirit Realty Capital, Inc. - Senior VP and Head of Strategic Planning & IR [2] -------------------------------------------------------------------------------- Thank you, operator, and thank you, everyone, for joining us today. Presenting on today's call will be President and Chief Executive Officer, Mr. Jackson Hsieh; Michael Hughes, Chief Financial Officer; and Ken Heimlich, Head of Asset Management, will be available for Q&A. Before we get started, I would like to remind everyone that this presentation contains forward-looking statements. Although the company believes these forward-looking statements are based upon reasonable assumptions, they are subject to known and unknown risks and uncertainties that can cause actual results to differ materially from those currently anticipated due to a number of factors. I'd refer you to the safe harbor statement in today's preliminary earnings release and presentation as well as our most recent filings with the SEC for a detailed discussion of the risk factors relating to these forward-looking statements. This presentation also contains certain non-GAAP measures. Reconciliation of non-GAAP financial measures to most directly comparable GAAP measures are included in today's release and presentation furnished to the SEC under Form 8-K. Both today's preliminary earnings release and presentation are available on the Investor Relations page of the company's website. For our prepared remarks, I'm now pleased to introduce Mr. Jackson Hsieh. Jackson? -------------------------------------------------------------------------------- Jackson Hsieh, Spirit Realty Capital, Inc. - President, CEO & Director [3] -------------------------------------------------------------------------------- Thanks, Pierre, and good morning. Like many of you, I'm here live from our Dallas home speaking to you on my iPhone. So I want to thank you for joining us during what we know is a very busy and challenging time for everyone. First and foremost, I hope you, your family and your employees are all safe and healthy. While we have all dealt with business disruption and inconvenience over the past few weeks, I know this crisis is exacting a very human and personal toll that overshadows any business concerns. Second, owing to the special (inaudible) employees are providing critical goods and services to people across the country while navigating through the hazards of COVID-19. Given the fast-changing environment, we decided to set up this preliminary earnings and business update call sooner than normal to briefly discuss our results for the first quarter but, more importantly, tell you what we've been doing over the past several weeks, what we are seeing in terms of April rents and let you know what our priorities are going forward. If you've had a chance to review our preliminary earnings release this morning, you saw that we had good operating capital deployment and financial results in the first quarter despite being impacted by various state and local stay-in place designations in March. We operated our portfolio of 1,772 owned properties at 99.4% of occupancy, ending the quarter with 11 vacant properties. Lost rent for the quarter was 0.6%, and property cost leakage was 2.4%. I do want to note that leakage was high this quarter, driven by property tax accruals for tenants who we believe payment is now doubtful. These accruals, along with higher impairment charges during the quarter, were all driven by COVID-19-related disruption during the latter part of March. We completed 8 acquisitions and revenue-producing capital expenditures totaling $213.4 million, with a weighted average cash yield of 6.5%. These assets were predominantly industrial, distribution and essential-oriented operators, and 96% of these tenants paid April rent. We sold 7 properties for total gross proceeds of $15.7 million, of which 3 were vacant. Our estimated AFFO per share for the quarter is expected to be $0.77 to $0.79, which is within our expectations that informed the guidance we had previously provided for the full year. Our balance sheet, liquidity, debt covenants and future loan maturities are well positioned to deal with the economic uncertainties created by COVID-19. As of April 10, after completing our recent $300 million funded term loan, we have over $830 million in corporate liquidity. Our adjusted debt to annualized adjusted EBITDAre will be in the range of 5.2 to 5.4x. So again, overall, a very good first quarter. But now let's talk about what we've been doing in response to the COVID-19 pandemic. In mid-February, as we began to recognize the challenging operating environment that was approaching, we developed 3 key focus areas for the Spirit team over the next 90 days. The first key focus area was preparedness and execution. Knowing that a complete office shutdown was highly probable, we established business continuity procedures and ordered critical equipment to enable our employees to work from home, well before Dallas County established shelter-in-place orders. Our first company-wide COVID-related action was on February 28, when we restricted all nonessential travel. In order to protect our employees through further social distancing, on March 16, we transitioned to a fully virtual work environment for our entire office. At that time, we also developed a COVID-19 watch list, by anticipating industries that would be impacted by social distancing and regional stay-in-place restrictions. Anticipating disruption in many of our tenants' businesses and what we believe would be a high velocity of tenant deferral requests resulted in us shifting more resources into our asset management team, and we freed up bandwidth within our legal, credit, research and technology teams to provide additional support. We also implemented newly designed processes, protocols and business intelligence dashboards to capture additional credit metrics, operation status, ownership classification and deferral logs. Our second key focus was leveraging our extensive experience of our asset management platform. As I've said at our December Investor Day event, asset management is the centerpiece of our operations, and the quality of our personnel reflects that priority. Of our 85 employees, 28 are members of the asset management platform. Headed by Ken Heimlich with over 30 years of asset management and workout experience at GE Capital, Trustreet Properties and CNL American properties fund, our asset management team is built to navigate the challenges brought on by the current environment. In addition, as you may recall from Investor Day, the entire acquisition team is comprised of former experienced asset managers. We've taken advantage of this resource and conscripted our entire acquisition team to work in asset management during this challenging time. Lastly, we have 4 of our in-house attorneys and 2 paralegals exclusively supporting the asset management platform. Taken together and including the focus of our executive management team, including myself, we've devoted over half of our employees to the asset management function on the front lines working daily with our tenants. I can tell you that this approach is working, and I'm highly confident in the talent we bring to bear to confront this challenge. Our third key focus was to strengthen our balance sheet and liquidity. Over the past 3 years, we have intentionally forged a fortress balance sheet with an acute focus on conservative leverage and liquidity. I saw firsthand in 2008 and 2001 and 1998 and 1987 how quickly things can turn. As the COVID-19 pandemic began to unfold, we took the important step to further strengthen our liquidity position by raising an additional $300 million of term loan proceeds at a very attractive borrowing cost, bringing our total liquidity in excess of $830 million. Our strong liquidity position gives us the ability to repay debt that matures in 2021 assists our tenants in working through these challenging times and notably to be opportunistic when attractive acquisitions present themselves. So now let's talk more specifically about our tenants, our portfolio and where we are to date. In a COVID-19 world, some industries are doing well, and some are being hit really hard. The most resilient industries in our portfolio include grocery, drug stores, convenience stores, professional services, warehouse stores, logistics and distribution, office supplies, pet supplies, dollar stores and home improvement. The most challenged industries in our portfolio are movie theaters, gyms, entertainment and casual dining. We began reaching out and having discussions with our tenants in early March as state governments were rolling out stay-at-home recommendations. The types of discussions and negotiations have depended on the particulars for that specific tenant, such as their financial performance, access to liquidity, their industry, the lease structure and their geographic location, mainly the extent to which a government action has forced their closure. So far, we have received and are evaluating 126 tenant requests. There are a few points I want you to walk away with as it pertains to rent deferral requests. First, all the rent deferral requests we are evaluating are rent deferrals and not loan forgiveness. Second, we are evaluating each tenant deferral situation on an individual basis and by no means does a request for rent deferral result in an agreement. While we will absolutely work with and support tenants in order to get them back on track, we will also enforce our contractual rights under our leases. Third, as we negotiate rent deferrals, we are considering any government stimulus that a tenant might qualify for in the near term. And finally, many of you have heard of tenants who certainly can pay rent but choose not to. We believe this is an unfair burden to place on landlords and actually impedes our ability to assess smaller, more challenged tenants. And we will pursue all of our rights and remedies under our leases to the fullest extent in those situations. So to sum it up, here is where we stand as of April 9. First, 9 of our top 10 tenants are paying April rent. Second, 17 of our top 20 tenants are paying April rent, including one that made a partial payment on some of their stores. That's a total equivalent of 83% of our top 20 tenants' contractual rent. Third, 62% of our properties are fully open and operating, 10% are partially open by providing either curbside service, takeout or pickup and 28% of our properties are closed. Fourth, 60% of April rent has been collected so far, and we expect it to increase to a range of 65% to 70% by the end of the month. And fifth, we have already executed 2 rent deferral agreements out of 23 that have been approved by our investment committee, which represents approximately $3.75 million in monthly rent. I hope (inaudible) give you some better insight into what we're seeing. (inaudible) information we gathered in a very short period of time (inaudible). It is hardly a coincidence that we haven't skipped a beat in executing at an extremely high level for our shareholders. We spoke at length at Investor Day about the Spirit process and our company's 5 KPIs: our balance sheet; our high-quality real estate portfolio; our defined and disciplined investment strategy; our strong operating systems; and our outstanding people. We didn't arrive at this situation by choice, but we came prepared. We paid it forward with a lot of work over the last 3 years and the payoff is coming now. We've built a fortress balance sheet and liquidity position. We constructed a durable, diversified, high-quality real estate portfolio. We have hired the best people. I wouldn't trade them for anyone. And perhaps, most importantly, the fire this organization has been through since May 2017 has forged us into an unbreakable team, sharpened our skills and given us the confidence to meet the challenges before us and be ready to take advantage of the opportunities that will undoubtedly unfold. As with any economic crisis, there will be winners and losers. I have every confidence this team and this company will come out ahead for our shareholders. With that, operator, we can open the line for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- [Operator Instructions] Our first question comes from line of Anthony Paolone with JPMorgan. -------------------------------------------------------------------------------- Anthony Paolone, JP Morgan Chase & Co, Research Division - Senior Analyst [2] -------------------------------------------------------------------------------- I guess my first question is, can you maybe give us some examples or talk about some of the negotiations to deferral rent and the scenario that it's collectible over the next whether it's 12 months, I think, you talked about and what needs to happen to business conditions to realistically receive that and make that a realistic outcome? -------------------------------------------------------------------------------- Jackson Hsieh, Spirit Realty Capital, Inc. - President, CEO & Director [3] -------------------------------------------------------------------------------- Sure, Anthony. I'll start with our typical lease agreement. So in a force majeure, economic rent is not precluded from the tenant's responsibilities. It's really generally related to nonmonetary exclusions. So I'll tell you kind of our approach to deferral conversations so far. First of all, it's a very methodical approach. It starts with first a tenant request. Tenant request comes in, and then we will follow with a landlord information request. We typically ask for most recent financial statements, balance sheet, cash flow coverage. We'll then start a landlord analysis, which is, can this tenant pay rent? What are their sources of liquidity? Are they getting available relief from their lenders, their vendors, their franchisors, their employees? Are there government assistant programs that they can get as part of that program? If they're owned by a private equity firm or the private equity firm is willing to put more money in their deferred fees? So generally, our deferral approach, and I'll give you more examples in a minute, but I would say that they fall into 3 buckets. The first is a partner-oriented approach. We will work through this together and get through it. The second approach would be, we haven't heard from the tenant, they haven't paid rent, so we'll send a general notice saying, "Hey, you forgot to pay rent, you've got a 10-day grace period, we need to talk to you." And the third bucket would be those, and this is a small number, that can pay and won't pay, and in those cases, we will put a much harsher approach towards the deferral comment. I can tell you that I've been on many of these calls, Tony, and I would say to the large majority of our tenants I've been so impressed with just the organization that these tenants are going through. And this started in sort of early to mid-March, where as things were turning down and closing down, tenants were giving us feedback real time on what they were doing with the sales closures, getting visibility. So I'll give you a good example, a couple of them, that have been approved. One of them was, there recently was a frozen -- a Freddy's Frozen Custard franchisee. So this store is still open. They're doing drive-thru business through DoorDash. They called us on May 23 and, basically, they kept all of their salary workers on -- in place. District managers were working in the stores. They started to cut back on hourly wages, and they asked for one month rent deferral in April, and they've basically agreed to pay it back before the end of June. So they're opening -- they're open and doing well. Before the crisis, this unit was doing about $1.7 million in sales and had pre-unit overhead of 3x coverage. The second is another franchisee. It's a multi-unit franchisee that does chicken. Units were about $1 million in sales per unit. That coverage was just a little bit north of 2x, and they reached out to us at the end of March, and they were open, they're doing drive-thru business, and they're seeing about 15% impact on the top line. The conversation started out first with any 3-month deferral. Then we asked them about where they are with the CARES Act. And they were actually able to get some -- if they believe they'll get proceeds through that channel. So we ended up negotiating actually a 1-month deferral in April, and they'll pay back without interest by the end of June. To give another example, we have another gym-type operator. They're closed. There's no business there, and we've negotiated a 3-month deferral, which they'll pay back within -- starting in -- later this year and start paying back over the course of a year. We've got another entertainment-type asset that's closed, had really strong coverage before going into the crisis, north of 3x. And they've asked for a one-month deferral, that they'll pay back over 6 months. So I would say that the thing you should come away with and get away from this conversation is we've only approved a small number of these requests because it takes time and diligence. We've got to go through an investment committee. And I can tell you that as time has gone on, the federal assistance and emergency aid that's come through has helped a number of our tenants, whether it be the payment protection plan or the Main Street Lending Program. And I'm so impressed with our tenant's ability to navigate through these challenging times. And I'm just -- I feel very good that we are going to get through this. -------------------------------------------------------------------------------- Anthony Paolone, JP Morgan Chase & Co, Research Division - Senior Analyst [4] -------------------------------------------------------------------------------- Do you think that May will be better or worse just as this progresses? -------------------------------------------------------------------------------- Jackson Hsieh, Spirit Realty Capital, Inc. - President, CEO & Director [5] -------------------------------------------------------------------------------- What we wanted to do is give a snapshot into April. We're all watching what the health professionals are telling us and watching the curves and seeing what these impacts of social distancing. I can't tell you that these -- our tenants are doing everything they can to maintain their operations with their employees, push out vendors -- push out franchisors. I'll tell you one other thing that -- it's an interesting phenomenon right now. And we've talked about this with a couple of our tenants, especially that are in the restaurant business. Right now with the federal aid coming in, so people that have been furloughed generally are getting state unemployment and that averages -- and it depends on different states, but in this particular state we are talking about, their employees were getting $580 a week. So the federal government is going to put in an additional $600 per week for the next 4 months. That's $1,180 per week that an unemployed employee would get. So as these small businesses try to apply for these payment protection programs, and you're familiar with that program, it's $10 million forgiveness of loan at 2.5x monthly payroll. The challenge is that there are some people actually that are making more money than they were before this happened. So these operators are trying to balance all of these different factors. And we, as a landlord, lenders, everyone is sort of in the -- we're sort of all in this together. And I'm encouraged that things will snap back eventually, but it's hard to predict what's going to happen in May at this point. Just -- but we do appreciate kind of -- especially ours basically owning up to their commitments because you've seen some different propaganda out there about people not wanting to pay rent and just the other things. So we really appreciate that. -------------------------------------------------------------------------------- Anthony Paolone, JP Morgan Chase & Co, Research Division - Senior Analyst [6] -------------------------------------------------------------------------------- Last one for me, if I may, just for Mike. Can you just give us the roll forward on the -- like line of credit, cash position as of today? -------------------------------------------------------------------------------- Michael C. Hughes, Spirit Realty Capital, Inc. - Executive VP & CFO [7] -------------------------------------------------------------------------------- Yes, Tony. This is Mike. Yes, we have over $830 million of liquidity today and as we've put in the deck, loan balance is close to 0. So as we roll forward, it looks pretty good. The only maturity we have is in 2021, which, as Jackson mentioned, we can take care of with the liquidity we have. That's the converts of about $345 million. There's really nothing else for a long time. So cash flow is good. Liquidity is good. The term loan is in place. We still have another $100 million accordion on that, that we can take still. And of course, we've illustrated that the bank market certainly is open to us to add incremental liquidity. So everything looks pretty good where we sit. -------------------------------------------------------------------------------- Anthony Paolone, JP Morgan Chase & Co, Research Division - Senior Analyst [8] -------------------------------------------------------------------------------- So what was the cash position? Because there's nothing on the line, what's cash? -------------------------------------------------------------------------------- Michael C. Hughes, Spirit Realty Capital, Inc. - Executive VP & CFO [9] -------------------------------------------------------------------------------- Yes, cash today -- let's see, we have, I mean, basically, the line is undrawn, and cash is roughly $50 million, around that. -------------------------------------------------------------------------------- Operator [10] -------------------------------------------------------------------------------- (Operator Instructions) Our next question comes from the line of Haendel St. Juste with Mizuho. -------------------------------------------------------------------------------- Haendel Emmanuel St. Juste, Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Equity Research Analyst [11] -------------------------------------------------------------------------------- Jackson, I just wanted to clarify one thing. I think you mentioned that you have 126 requests being evaluated. I guess I'm curious, is that on an asset level basis? I think you have almost 300 tenants. So maybe clarify that for us. -------------------------------------------------------------------------------- Jackson Hsieh, Spirit Realty Capital, Inc. - President, CEO & Director [12] -------------------------------------------------------------------------------- Yes. No, that's on a tenant basis. So that's 126 tenants that have come in. So some of them could be operating one unit, some could be more. So the number of properties is far greater. But the important thing to understand there is, first of all, not all 126 deferrals will be accepted, I can tell you that. The 23 that have been approved so far, about half of those are looking for 30-day deferrals that will pay back generally before the end of the quarter -- second quarter. About 14% are 60-day deferral requests and about 32%, rough math, the balance are 90-day deferrals. So they're sort of all case-by-case, and we're going through them very methodically at this point. As I said, it takes time to go through these. -------------------------------------------------------------------------------- Haendel Emmanuel St. Juste, Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Equity Research Analyst [13] -------------------------------------------------------------------------------- Got it. Got it. And maybe, Michael, for you, can you help us understand the accounting treatment of this, the income statement impact of these deferrals, what's getting booked in the second quarter versus shifting into third quarter? Is that -- is what's not being booked in the second quarter effectively going to be written off as some form of bad debt? Or how does that impact the income statement in the second quarter? And then if the tenant catches up on deferral in the third quarter, what does that (inaudible)? -------------------------------------------------------------------------------- Jackson Hsieh, Spirit Realty Capital, Inc. - President, CEO & Director [14] -------------------------------------------------------------------------------- I'll try to give a layman's view on it, and then I'll let Mike do it. But at this -- when we talk about these rents received, that's cash. So 60% is cash collected rents, like not GAAP cash, cash money. And we think, like I said, it's going to probably go up to 70%, close to 70%. Typically, when we get a rent deferral request, the first thing that we do when it comes to investment committee is, are we going to recognize this rent, the deferred rent as cash rent for GAAP purposes. And as you know that to be able to recognize that, you have to have 75% confidence that you're going to get that money back, the tenant would be able to pay through the course of the deferral. So I can tell you that of the 23 that have been approved, a small handful of tenants that have requested a deferral we will not recognize as GAAP cash rent in the second quarter because we think there may be some risk to that. So it's going to be based on management team, accounting and, of course, our third -- our outside accountants. Mike, is that -- do you want to give more detail there? Hopefully, that was an offset. -------------------------------------------------------------------------------- Michael C. Hughes, Spirit Realty Capital, Inc. - Executive VP & CFO [15] -------------------------------------------------------------------------------- Yes, I think you did a great job on that. I mean that's generally the premise. I mean, obviously, there's some technical details around lease modification accounting and not changing the lease. But Jackson is generally right, you have to have a high probability of being paid back on that deferral, and we're certainly assessing that every time we do any kind of deal with a deferral request. So (inaudible) get paid back, (inaudible) in a relatively reasonable period of time, which also affects the probability to pay back, then like any kind of GAAP accounting, you would treat that as base cash rent for the purposes of your accounting treatment. So -- and if you don't, then you would obviously not treat that as base cash rent and that would only be recognized on a cash base when you get paid sometime down the road. -------------------------------------------------------------------------------- Haendel Emmanuel St. Juste, Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Equity Research Analyst [16] -------------------------------------------------------------------------------- Got it. -------------------------------------------------------------------------------- Jackson Hsieh, Spirit Realty Capital, Inc. - President, CEO & Director [17] -------------------------------------------------------------------------------- Yes. And Haendel, one thing I would note, it's -- in order to do this, and I'm sure all of our peers are going through this exercise, it does take a lot of effort because you've obviously got to be, hopefully, somewhat methodical about the process. Everything has got to be documented, go through Investment Committee. We're constantly working between our asset management and accounting on the likelihood of collectability, [the other impacts to] impairment. Are we looking -- thinking about tax accruals and things like that. So they're all -- there is a tremendous amount of effort that we've had to put in place process-wise over the last, I'd say, 3 weeks, and it's going pretty smoothly. But first of all, it would be complicated to do if we were in the office, but we're now all remote. So I'm very happy that we set up all these processes well in advance of this sort of what I'll call onslaught of requests because they started to come in pretty fast and furiously in the last 1.5 weeks or the month of March. -------------------------------------------------------------------------------- Haendel Emmanuel St. Juste, Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Equity Research Analyst [18] -------------------------------------------------------------------------------- Got it. Got it. And Jackson, just a follow-up. I'm just curious in understanding that the COVID pandemic is temporary. Thinking longer term, wondering how this experience, the recent tenant-level results, perhaps impacts your view on industry exposures. I understand this is all (inaudible) from the participants in the longer term. If there could be a view on perhaps less gym, less movie theaters, less experiential. Just curious how you could be thinking about what we're experiencing today and how that might impact your views on the portfolio balance going forward. -------------------------------------------------------------------------------- Jackson Hsieh, Spirit Realty Capital, Inc. - President, CEO & Director [19] -------------------------------------------------------------------------------- No, it's a great question. And it was something we were already thinking about before because as you know from our Investor Day presentation, we talked about getting the company back up to $600 million of rents. One of the things, obviously, that's working for us today is tenants that are in the, what I'll call, essential category versus nonessential. So that's, obviously, one takeaway that we will really try to refine as we think about investment going forward. But the other thing that I think is really important is when you own critical, essential, I use this term a lot, mission-critical assets for tenants, they need to be in those places, they need to operate, especially if it's mission-critical. So they generally pay well. So that is a really, obviously, important thesis. And I think for us as it relates to assets that have more "experiential", more social gathering type aspects to it, look, I could see us going forward on new deals, looking for interest escrows for 3 months in case that there is another forced closure because it's not clear whether -- when we come back to work, when they open the country up, maybe they've got to close it again. We saw that in China when they opened up "the country", movie theaters were open that first weekend, then they closed them again. So I think going forward, if we're going to get into certain types of businesses, particularly entertainment, we might look at some additional new structures that could help us mitigate some of these closures. We have confidence in these assets. Gyms are going to come back very, very quickly once people reopen because a lot of these gyms have monthly customers that they've frozen dues and as soon as they reopen, they're going to turn those on and they'll be back. Indoor entertainment, these kids are all the backyards, they need -- or basements or wherever they are, probably -- so they need to get out and do things. People are going to have parties again. So it will be good once we reopen. I think movies will be a little bit more challenged just given -- I think that will just depend on releases from the studios and take a little more time for people to come back into those venues. But I think long term, those categories will be very good. But to answer your question, yes, we are really looking at what's working, what's not working. I've actually had a research team. They've been pretty busy, but they're looking at how does our heat map play out? How are things performing? What do we think was right? How much correlation do we have in the portfolio? If you look in Q1, pretty much everything we did was very industrial distribution rate. We did that big deal with Mac Papers. We bought a company that does safety and industrial products distribution, N95 mask, so they're crushing it right now. We did a car wash portfolio, a UnitedAg portfolio, (inaudible) warehouse store. So there were no restaurants or entertainment type stuff in the first quarter. So you might see us continue to look at things like that. -------------------------------------------------------------------------------- Operator [20] -------------------------------------------------------------------------------- Our next question comes from the line of John Massocca with Ladenburg Thalmann. -------------------------------------------------------------------------------- John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [21] -------------------------------------------------------------------------------- So sorry if I missed this, but what percentage of contractual rent did not formally request the deferment, but also didn't pay in April kind of above and beyond that 42%? -------------------------------------------------------------------------------- Jackson Hsieh, Spirit Realty Capital, Inc. - President, CEO & Director [22] -------------------------------------------------------------------------------- Well, here's the trouble. It's -- so 60% paid, as we said, right? So that's just in. There are -- some of those 126 when they pay, they're just -- look, when this happened, a lot of people 3 weeks ago didn't really know what the federal government was going to do. And obviously, the fed and the treasury secretary have been all over this. So I have a lot of confidence of what they are doing right now. So things looked really bleak at one point, like maybe 3 weeks ago, 2 weeks ago, but things are changing for some of our different tenants sort of case-by-case. So to answer your question, I've got 42% that we have in that table, not all of them -- some were reviewed. I can give you a case example, like one of them on Friday, we said, "Okay, you want a rent deferral request, send us these financial statements, send us your most current operating statement, send us your balance sheet." And they sort of basically said, you know what, we're just going to pay rent. We're too busy. So I don't want to give you a number that -- the best number I can give you is from a cash -- from a collective rent standpoint, we're at 60%. That number is going to go higher, and we hope it gets up close to 70%, could even possibly go into the low 70s. But I think we feel comfortable in that 65% to 70% range for April. -------------------------------------------------------------------------------- John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [23] -------------------------------------------------------------------------------- Okay. Understood. And then I know you mentioned that you haven't agreed to any abatements or a long-term lease modification. But have you had any requests, especially from people who have not paid April rent and... -------------------------------------------------------------------------------- Jackson Hsieh, Spirit Realty Capital, Inc. - President, CEO & Director [24] -------------------------------------------------------------------------------- Sorry, John, can you just do that question again? -------------------------------------------------------------------------------- John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [25] -------------------------------------------------------------------------------- I know you mentioned that you haven't agreed to any abatements or kind of long-term lease modifications, but if you had any requests, especially from people who haven't paid April rent or kind of are in that 18% that have not had an accepted deferral requests. -------------------------------------------------------------------------------- Jackson Hsieh, Spirit Realty Capital, Inc. - President, CEO & Director [26] -------------------------------------------------------------------------------- Yes. I mean, I would say, like the way to think about it and, like I said, it's very -- once again, I have to stress this, this is an extremely methodical process that we're approaching. So of those 23 approved by our investment committee, rent deferrals, those just didn't happen like over 24 hours. There was quite a bit of back and forth between our asset manager and the tenant in terms of getting financials, getting a clear picture of what's happening with the tenant. Are they open? Remember all those questions I mentioned. And then ultimately, a structure needs to be discussed between the tenant and the asset manager and that has to be approved by Investment Committee. I can tell you that just from the cadence, there have been some requests that have come in that weren't approved by the Investment Committee, and we made modifications and then that asset manager went back to the tenant and then there was an agreement. So the way you should think about it is, if 23 have been approved out of 126, there's something like 100 or so situations that are in various different stages. So if a tenant hasn't really given us financials, I mean we're not really dealing with these guys right now. And I think one of the things that -- and I'll let Ken talk about this, but I'll just set it up. As the landlord, we don't give up any of our rights or contractual rights by rushing. So I would say like time is probably on our side as it relates -- because where all of these things don't require us to waive our reservation of rights under our leases, and our typical lease has a 10-day grace period for rent, if a tenant doesn't pay in 10 days, there's typically a default premium, so usually about 5%. And if the tenant doesn't pay, there's actually sort of an imputed interest rate that gets charged for the time that they don't become current. So -- and maybe, Ken, I don't know if you want to describe sort of a little bit about what -- how your group and team are handling this, but... -------------------------------------------------------------------------------- Kenneth Heimlich, Spirit Realty Capital, Inc. - Executive VP & Head of Asset Management [27] -------------------------------------------------------------------------------- Yes, no, sure. Clearly, there's a lot more going through the system than otherwise normally would be, but we have a very systematic approach. For those folks that do not pay April rent Jackson mentioned earlier, we have a couple of different ways we're going to handle those. But again, Jackson mentioned that there -- you gain nothing and you lose nothing, whether you act upon a tenant that did not pay rent, whether you did that on last Friday, this Friday, clearly, you're not going to wait 60 days to address it. But we don't think it's prudent to jump in and start shooting letters out. It's like -- it's a very methodical approach. We're definitely attempting to make contact, try to come to a prudent resolution. And if that fails in the appropriate time frame, we will address that. Whether that's through default letters, reservation rights or whatever is necessary. -------------------------------------------------------------------------------- Operator [28] -------------------------------------------------------------------------------- Our next question comes from the line of Ki Bin Kim with SunTrust Robinson Humphrey. -------------------------------------------------------------------------------- Ki Bin Kim, SunTrust Robinson Humphrey, Inc., Research Division - MD [29] -------------------------------------------------------------------------------- What percent of your investment-grade tenants did not pay April rent? -------------------------------------------------------------------------------- Jackson Hsieh, Spirit Realty Capital, Inc. - President, CEO & Director [30] -------------------------------------------------------------------------------- So our investment-grade are, I think, around 20 -- just under 24%, I don't know if I have a number on that. Pierre, do you know? Pretty close to the majority... -------------------------------------------------------------------------------- Pierre Revol, Spirit Realty Capital, Inc. - Senior VP and Head of Strategic Planning & IR [31] -------------------------------------------------------------------------------- It's close to 0... -------------------------------------------------------------------------------- Jackson Hsieh, Spirit Realty Capital, Inc. - President, CEO & Director [32] -------------------------------------------------------------------------------- It's really -- yes. I mean -- I think the -- this is the thing, Ki Bin, to keep in mind. I mean we're only at April 13, right? And we had a holiday on Friday. Rent is still coming in. And everyone's -- tenants and landlords, everyone is sort of trying to figure this out. And one thing that I will really stress, when I -- when we talk to tenants, I mean, rent is just a very small component of the issues and challenges they're facing right now. I mean, it's amazing to hear these stories, how they're dealing with thousands of employees, how they're dealing with supply chain, how they're dealing with their franchisors if they are in a restaurant business, how they're dealing with different governmental action happening in different states, how they're dealing with their lenders, how they're dealing with government stimulus. And to be honest, we feel like rent is just one of those small pieces of the puzzle, not the piece of the puzzle. The landlord cannot, I can stress this, the landlord cannot solve all the problems for what's going on. -------------------------------------------------------------------------------- Ki Bin Kim, SunTrust Robinson Humphrey, Inc., Research Division - MD [33] -------------------------------------------------------------------------------- So just to clarify that, you're saying 0% of your investment-grade tenants, which is 24%, paid April rent, but maybe -- just to clarify that, maybe I can ask that in a different way. -------------------------------------------------------------------------------- Jackson Hsieh, Spirit Realty Capital, Inc. - President, CEO & Director [34] -------------------------------------------------------------------------------- No, no -- so all of our investment-grade tenants, the actual investment-grade paid April rent. -------------------------------------------------------------------------------- Ki Bin Kim, SunTrust Robinson Humphrey, Inc., Research Division - MD [35] -------------------------------------------------------------------------------- Okay. That's what I thought you said. Okay. So they all paid. Okay. And have you gotten any deferral requests from your investment-grade tenants or no? -------------------------------------------------------------------------------- Jackson Hsieh, Spirit Realty Capital, Inc. - President, CEO & Director [36] -------------------------------------------------------------------------------- No, we have not gotten any deferral requests from our investment-grade. -------------------------------------------------------------------------------- Ki Bin Kim, SunTrust Robinson Humphrey, Inc., Research Division - MD [37] -------------------------------------------------------------------------------- Okay. That's good to see. At least the investment-grade is working the way it should. Now my second question is, to your best judgment, what percent of the 42% of your tenants or of the rent, that is, are being asked to be deferred. And I know this might be tough, but what percent of that do you think is actually longer term and permanent? Because especially in the restaurant business or actually any business, at this point, but especially in the restaurant business, you don't have the equity cushions or line of credit to sustain 0 month -- 0-rent renew months in that business. -------------------------------------------------------------------------------- Jackson Hsieh, Spirit Realty Capital, Inc. - President, CEO & Director [38] -------------------------------------------------------------------------------- Yes. I mean, I'll try to help. Look, I know what you're trying -- I know you're trying to forecast where it goes. But I mean, the way to think about these requests, so they're 126 of them. And like I said, I don't believe 126 will be approved. And I think of those 126, some will just pay. About 20% of those are public tenants. The second mix category are franchise, private operators and the largest are private equity owned companies. And I would say that -- if you think about -- and we tried to give this thing on Page 5, if you think about the percentage and the number of tenants, and we'll go through the, what I'll call, maybe the easier group. Quick serve restaurants, many of them are actually open already, right? They're just open and operating either through a drive thru or pickup or DoorDash. And so they're seeing in my -- this was the rough numbers. We're seeing about a 20% decline in their business. Casual dining, depending on what type of casual dining it is, a good majority of our stores are open, but they're just providing select delivery, select menu. Look, they're not making a whole lot of money. They're keeping staff paid, kitchen staff, but it's more problematic for that group. And within the [higher-end] casual dining, many restaurants are actually closed. So I believe that casual dining will not recover as quickly. It will recover, but not as quickly as quick serve when we come back. I think on health and fitness, as I mentioned, because a lot of our operators charge monthly dues, that's going to open up pretty quickly, I believe, once the all-clear is announced. And as you listen in to what's happening, it's going to be a rolling all-clear. So as different states and different areas start to reopen, we'll start seeing health and fitness reopen. I think entertainment is probably a little -- will take a little bit more time. So Topgolf, that's really easy, both outside and when they reopen, I think you'll see a lot of people gravitate towards that. I think some of the indoor ones that are providing more games and bowling and slot machines -- video games, that type of thing, birthday parties. I think that those operators are really thinking through how do we make our customers feel safe. And they -- I'm sure wiping down, having wipes all over the units will be real helpful. I think maybe checking temperatures might be really helpful. The group that will probably be the longest to recover will be movie theaters. And that's simply a result of -- they're related to what's going on with the box office. And I'm sure you've heard there's a tremendous slate of great movies that have been backed up that will come out through that distribution channel. But my own judgment is, that will take the longest. And for us, as we structure these deferrals, that one will probably take more attention versus just a 1-month deferral like some of these other categories. I don't know if that helps you. -------------------------------------------------------------------------------- Operator [39] -------------------------------------------------------------------------------- Our next question comes from the line of Vikram Malhotra with Morgan Stanley. -------------------------------------------------------------------------------- Vikram Malhotra, Morgan Stanley, Research Division - VP [40] -------------------------------------------------------------------------------- So maybe just first to clarify, Jackson, you mentioned that it's only April 9 if you looked at this data. Do you have a sense or can you give us a stat on what percent of your tenants actually paid rent on April 9 last year versus what the actual percent paid rent this year? -------------------------------------------------------------------------------- Jackson Hsieh, Spirit Realty Capital, Inc. - President, CEO & Director [41] -------------------------------------------------------------------------------- Yes. We do look at that number. I mean, I compared the trend over the last few months. It's probably the better one. By -- usually by about this time, we're at about 90% of our rent collected. We always have some late payers or some people that don't pay on the first. But I would say, generally, by about this time, we're at 90%. And so what's unusual about this month is that it's not usual, right? So we know that by just definition, there are some major payers that we expect to pay this month, and then there's another group that sort of don't know what they want to do yet. And so that like gives us some confidence that this 60% collected number is going to move up based on our experience. But 90%... -------------------------------------------------------------------------------- Vikram Malhotra, Morgan Stanley, Research Division - VP [42] -------------------------------------------------------------------------------- Okay. That's helpful. Because I thought that there would be some tenants that probably pay into the second week or the third week, but I guess that's more in office, but that's helpful to have. Can you just maybe give a little bit more color on sort of the theaters, Goodrich, specifically, and just kind of your expectation going forward? -------------------------------------------------------------------------------- Jackson Hsieh, Spirit Realty Capital, Inc. - President, CEO & Director [43] -------------------------------------------------------------------------------- Yes. So I'll come back to Goodrich in a minute. But when you look at our movie segment, which is just a little over 7% of our total contractual rent, it's broken down into -- leaving Goodrich out, it's 7 operators and it's pretty balanced. So like our biggest one is not the big 2. So Regal and AMC are on the top end, but they're not the largest. So it's fairly spread out. And I would tell you that some of our regional theater operators have really, really good credit, like low debt to EBITDA. So we think that that's going to probably be an opportunity for some of the regionals and maybe consolidate more theaters as they think about their opportunity. And obviously, we're in a position to help them. So we will look at that very carefully with them. But getting back to Goodrich. So Goodrich paid March rent. They're going to pay a nominal rent this month. The bankruptcy courts right now, I don't know if you focused on what happened with Pier 1. We have one of those stores. The judge basically kind of put a time out on the going out of business sales as it relates to landlords getting paid rent during that administrative period. So the Goodrich situation is sort of the same thing, kind of things are frozen right now, at least for the next 60 days. I can tell you that we have interest in those theaters. The master lease is still in place. And -- but there's just not a whole lot happening in the bankruptcy courts right now, just generally, just given a lot of courts are not actually in place, physically in place right now. Ken, do you want to add any more on Goodrich at this point? -------------------------------------------------------------------------------- Kenneth Heimlich, Spirit Realty Capital, Inc. - Executive VP & Head of Asset Management [44] -------------------------------------------------------------------------------- No, no, I think that captures it. It's just -- it's what's going on in a lot of bankruptcy cases. They're kind of "mothballing" things for the next 30, 60 days until sale processes can be run as they should be. But... -------------------------------------------------------------------------------- Vikram Malhotra, Morgan Stanley, Research Division - VP [45] -------------------------------------------------------------------------------- Okay. That's helpful. Just last one, if I may. If you can just provide some thoughts on sort of dividend policy assuming this sort of persists for several months into the -- in the second and the third quarter, and maybe that 24% number increases in terms of deferrals, can you give us some thoughts about dividend policy kind of options you have, et cetera? -------------------------------------------------------------------------------- Jackson Hsieh, Spirit Realty Capital, Inc. - President, CEO & Director [46] -------------------------------------------------------------------------------- Yes. Well, we're paying, obviously, a dividend on Wednesday for the Q4 dividend. And of course, the dividends are really the Board's decision. But I can just tell you from where I'm sitting today, I'm very -- I feel very positive about the conversations we're having. Our tenants that are asking for deferral, it's important for you to really think about this. Our business is and, I would say, like some of our peers in the triple-net business, our business is not related to cotenancy. So we are focused on our tenant's ability to basically pay rent, be open, manage their parking lot, cover their roof expenses, pay their taxes, pay their insurance. And so it's a really different type of conversation that we're probably having with our tenants vis-à-vis retail landlords that have either malls or shopping centers or power centers. So ours are really more -- they control the door, right? They control what's happening. And so it's a very -- I think it's a very different type of discussion. We're not going to subsidize tenants that affect adjacent vacancy if that makes sense to you, right? We're really focused on, we have a tenant, they're operating. We want them to be successful. We want them to pay rent. So as it relates to dividends from my perspective today, we have the wherewithal and maintain it. It's going to be the Board's decision, and we feel really good about what we're seeing right now. This is early April, but what I can tell you is that the conversations that we're having with our tenants on deferrals, it's very methodical. These 126 tenants are really serious about their business. They're not giving up. That's what's really -- for me really impressive. They're not giving up. A lot of these are local, multiunit operators versus what I would characterize as a mom-and-pop single-unit operator. These are fairly sophisticated operators, and they're working through it very methodically, looking at all avenues, and we're partnering with them in this process. -------------------------------------------------------------------------------- Operator [47] -------------------------------------------------------------------------------- Our next question comes from the line of Chris Lucas with Capital One Securities. -------------------------------------------------------------------------------- Christopher Ronald Lucas, Capital One Securities, Inc., Research Division - Senior VP & Lead Equity Research Analyst [48] -------------------------------------------------------------------------------- Jackson, I guess you sort of raised the question or raised the topic that I was looking at, which is the expense side. A good portion of -- I guess the question for me would be you guys have talked a lot about rent. What about your insight into what tenants are doing with the expenses that they are typically paying directly? Do you have any insight into that? And how should we be thinking about your obligation on that front? -------------------------------------------------------------------------------- Jackson Hsieh, Spirit Realty Capital, Inc. - President, CEO & Director [49] -------------------------------------------------------------------------------- Yes. I mean, look, clearly, one of the things that we talk about on a rent deferral is, are you current on taxes? How are you -- it's a whole calculus that we kind of go through. I'll give you a good example, like, with the CARES Act, with this payment protection aid that's coming through, if you think about it, the way the government has set up the program is they've got to basically take those loan proceeds and if they want them to be basically forgiven, they've got to use about 75% of that money for payroll costs, and the remainder can be used for rent, mortgages and utilities. And if the loan is not forgiven, it's a 1% interest rate. So that's not a bad idea, right? But one thing that's really -- we did some modeling on this. So if a tenant that's operating a unit is effectively open, paying its employees through these loan act, paying for utilities, their margins will improve, right? Now their top line may be affected. But if you think about it, their margins are going to be improved because they're effectively not paying for their people costs, which are one of the largest expenses that they have in their operations. I can also tell you that these tenants have been extremely sophisticated about educating their employees about different -- how to get unemployment at the state level. Many of them are furloughed so that they still have health benefits. And so these tenants have been extremely thoughtful, and that's what's been so impressive to hear these conversations about how they're approaching the business as opposed to, hey, I don't know what's the deal. I don't know if that helps you with that. -------------------------------------------------------------------------------- Christopher Ronald Lucas, Capital One Securities, Inc., Research Division - Senior VP & Lead Equity Research Analyst [50] -------------------------------------------------------------------------------- I guess a question for me is when I think about rent deferral and how much you guys are talking about, I guess, I'm trying to figure out what's the multiplier on expenses that we should be thinking of sort of -- what's the real damage to the bottom line AFFO per share that's been done? -------------------------------------------------------------------------------- Jackson Hsieh, Spirit Realty Capital, Inc. - President, CEO & Director [51] -------------------------------------------------------------------------------- I mean, it's really -- I mean, if you think about the real damage, it's only if a tenant goes away, right? And -- because it's -- the way I would -- and this is why we wanted to provide this information to you, which is, I hope, helpful. If you look at the nature of the 126 deferrals, the weighted average remaining lease term on those deferrals is about just 10.5 years, 10.6 years. So that's a good thing. You wouldn't -- if it was a shorter lease term, it's more complicated because then you're dealing with renewals and so much complicated discussion. The other thing is if you look at the weighted average unit coverage for this group of tenants, pre the COVID-19, they were at 2.5x coverage. So that shows you that, hey, the business -- it was working, right? Things were working before this whole situation. So when we look at it as the landlord, we've got a long-term lease from a tenant or a group of tenants that were adequately having coverage to pay all of their taxes, rent, utilities. And so the question for us is, and this is where we went into, how to reserve this stuff. Not all of these renewals are where we'll recognize rent. And so if we're not going to recognize rent, that's when you see property tax accruals start going up, impairments start going up because we're -- and look, it's a bonus that they can get through this, but that's kind of how we're doing it and, I don't know, Pierre, if we have that one ratio on expenses if a tenant went away, we could think about. -------------------------------------------------------------------------------- Pierre Revol, Spirit Realty Capital, Inc. - Senior VP and Head of Strategic Planning & IR [52] -------------------------------------------------------------------------------- Yes. I mean one way to think about vacancy cost is, it's about $4 a foot. And so if -- on average, if you just look at our overall portfolio, it depends on which district or what area. I mean -- so if you had like a 1% occupancy, if you apply that $4 a foot concept, about $1.2 million to $1.3 million of NOI that get impacted. -------------------------------------------------------------------------------- Operator [53] -------------------------------------------------------------------------------- Our next question comes from the line of Wes Golladay with RBC. -------------------------------------------------------------------------------- Wesley Keith Golladay, RBC Capital Markets, Research Division - VP & Equity Research Analyst [54] -------------------------------------------------------------------------------- Maybe just a follow-up on Chris' question. So for the tenants that have actually deferred the rent where you agreed to it, how are you paying the taxes, insurance and all that for now? -------------------------------------------------------------------------------- Jackson Hsieh, Spirit Realty Capital, Inc. - President, CEO & Director [55] -------------------------------------------------------------------------------- So the majority of those that have been approved, we're recognizing it as rent because we believe that they're going to bounce back very quickly. So I mentioned to you, like 50% of 30-day deferrals. So a 30-day deferral that pays back in 2 months, I mean, you're not going to do anything with that, right? That's -- we're very confident about the tenants going in. We're going to recognize income, and we'll pay their expenses. So I think that -- yes? -------------------------------------------------------------------------------- Wesley Keith Golladay, RBC Capital Markets, Research Division - VP & Equity Research Analyst [56] -------------------------------------------------------------------------------- Sorry, go ahead. -------------------------------------------------------------------------------- Jackson Hsieh, Spirit Realty Capital, Inc. - President, CEO & Director [57] -------------------------------------------------------------------------------- Yes. I was going to say, like, when we look at these deferrals, we're really looking at are they going to -- what's their probability of surviving? And that's what I'm saying is when we're recognizing, and you'll see this with other companies, other peers of ours, when they're booking for GAAP purposes, cash rent, so they've -- in this case, they've deferred, they're booking it as income. They believe that they've got a 75% probability of being repaid back. So it's a high threshold. So for us, there are a number that we're not booking because we think there's some risk. And so when we believe that, we'll start to see lost rent go up for us. We'll start to see property cost leakage start going up like we talked about. So that's -- but I don't think -- it's a very -- it's a small portion of the portfolio. But that's really the point. -------------------------------------------------------------------------------- Wesley Keith Golladay, RBC Capital Markets, Research Division - VP & Equity Research Analyst [58] -------------------------------------------------------------------------------- Okay. Got it. And then it looks like you guys have done a deep dive on the CARES Act and the new fed facility. So I'm just wondering if you have a view on an estimate of what percentage of your tenants are eligible for either program? I do know that there's some governors on debt to EBITDA can be PE-backed all that. Just kind of wondering how your portfolio stands up to benefit. -------------------------------------------------------------------------------- Jackson Hsieh, Spirit Realty Capital, Inc. - President, CEO & Director [59] -------------------------------------------------------------------------------- Yes. So I think for direct benefit, auto dealers, auto service, the car washes, entertainment, health and fitness, home decor, home furnishings, movie theaters and, obviously, restaurants are going to be a direct beneficiary. The way this small business protection aid works is 500 employees or less subject to affiliation rules, right, except for -- when you look at these NAICS small business codes, 72, which is really restaurants and franchisees, that designation is 500 per location. Now you might have a private equity firm that owns a large hotel -- or sorry, large restaurant chain, they're probably only going to max -- they're going to max out at $10 million, no matter what. But the other program that I think is interesting, and it's fairly -- I kind of want to get some feedback. I haven't got it yet -- directly yet from tenants, is that Main Street Lending Program, which is like the $600 billion program that provides loans recourse up to businesses with 10,000 employees, and that loan is $1 million to $25 million kind of loan and then there's an expanded loan facility that can go up to, I believe, $150 million, so for certain eligible borrowers where their debt to EBITDA is greater than 6x. So -- look, these packages are still rolling out, too, right? So I have confidence the government is hearing industries in need. So obviously, you've got the restaurant industry in there. You've got hotels, airlines, other industries that are being impacted by -- the energy industry, autos, there's just a lot of things happening right now. So this is all happening real time, but we do think the government is being pretty sensible about this. -------------------------------------------------------------------------------- Operator [60] -------------------------------------------------------------------------------- Our next question comes from the line of Greg McGinniss with Scotiabank. -------------------------------------------------------------------------------- Greg Michael McGinniss, Scotiabank Global Banking and Markets, Research Division - Analyst [61] -------------------------------------------------------------------------------- Jack, I believe you mentioned about half the requests for rent deferrals are for one month deferrals. Curious what your confidence level is you're not going to be having these same conversations with those tenants next month? -------------------------------------------------------------------------------- Jackson Hsieh, Spirit Realty Capital, Inc. - President, CEO & Director [62] -------------------------------------------------------------------------------- I can't guarantee it. I can tell you that because that because I've been in Investment Committee on each one of these. And you look at the numbers, I would say for the 30-day deferrals, the ones that just went through, I have a pretty high confidence in those because they -- a lot of those situations, the tenant has access to the payment protection programs, and a lot of those tenants were actually doing okay, and they will operate it. So I think those will be okay. The ones where you have real closure are a little bit more challenging. And that -- companies can't just keep paying expenses if they're closed forever unless they get government assistance. The other thing about -- just going back to deferrals and tenants and things like that, I did say what's important for us is we -- and this is why I think our tenant rent will go up as the month continues to move forward, tenants that can pay rent really should pay rent. So I call tenants that can pay rent, they have their financial wherewithal to do it. If they don't do it, it obviously impacts our ability. We don't have infinite balance sheet to help tenants that really need our help. But I think some of the other longer term, and this is one discussion I had with a tenant, I said you really have to think very carefully about trying to cut a month or 2 months off, and you can clearly pay this rent. Because the other unintended consequence this could have on a tenant is that they -- if they have a lot of assets that are owned through the 1031 market, some of those buyers have mortgage debt on these properties or CMBS on these properties. And that will trickle down into a perception of higher risk that will impact future developers as they build these units, which means that they'll need more yield and which will mean more higher rent in effect or less proceeds for these tenants. So I think tenants, especially the big national and regional ones, you've seen some kind of one-size-fit-all kind of notices going out, I won't mention the names, you know which ones they are, say, "No, I'm not paying." Well, I'd tell you, like that will not serve them well as it relates to impact long-term in the 1031 market. It will hurt them. So -- and you've seen some people back off. And so hopefully, tenants are being thoughtful, I'm sure they are, about the impacts to landlords because we landlords, we're not the evil empire here. We have to pay rent, interest. We have salaried employees and dividend obligations. We have secured mortgages. It all impacts everyone. -------------------------------------------------------------------------------- Operator [63] -------------------------------------------------------------------------------- Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I'll turn the floor back to Mr. Hsieh for any final comments. -------------------------------------------------------------------------------- Jackson Hsieh, Spirit Realty Capital, Inc. - President, CEO & Director [64] -------------------------------------------------------------------------------- Okay. Thank you, operator. Well, to our audience, I really appreciate you getting on. There are 4 takeaways here. The first is, we got this right now. And I'm really thankful for the team I have in place. I think, if you've heard this, I think our business model, which is owning essential freestanding and retail properties, is not a 4-letter word. We don't manage adjacent occupancy. Our portfolio is predominantly national, regional and local multiunit operators versus mom-and-pop operators. And as we get back to growing rent through acquisitions, we will add more dimension to essential services and what we've learned out of this pandemic. So appreciate your attention, and be safe and look forward to speaking with you all soon. Take care. Thank you, operator. -------------------------------------------------------------------------------- Operator [65] -------------------------------------------------------------------------------- Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.