NNN REIT Inc (NNN) 2020 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the National Retail Properties Third Quarter 2020 Operating Results Conference Call. (Operator Instructions)

At this time, it is my pleasure to turn the floor over to your host for today, Mr. Jay Whitehurst. Sir, the floor is yours.

Thanks, Jess. And good morning, and welcome to the National Retail Properties Third Quarter 2020 Earnings Call. Joining me on this call is our Chief Financial Officer, Kevin Habicht. And I'm also pleased to welcome our recently appointed Chief Operating Officer, Steve Horn, to his first official earnings call. In his 17 years at National Retail Properties, Steve has been involved in all aspects of our business and has been one of the architects of our strategy and culture. And there's no one more qualified to step into the role of COO than Steve.

Also, I want to express my deep appreciation to all the associates at National Retail Properties for their tireless efforts and inspiring collegiality as many of us continue to work remotely while addressing all the challenges of family, school and career in the midst of the continuing effects of the pandemic. And with that, let me turn to some comments about our third quarter.

First, I want to highlight that we increased our quarterly common stock dividend in August, making 2020 the 31st year of consecutive annual dividend increases. This enviable record is matched by only 2 other REITs and less than 90 public companies in the United States.

Our rent collections continue to trend positive during the quarter, resulting in collections of approximately 90% of third quarter rents. The balance of the rent due for the third quarter was divided roughly equally between deferred rent and unresolved outstanding receivable rent. Notably, we forgave less than 0.5% of our third quarter rent. We also announced today that our October rent collections were approximately 94%, indicating continued strength in our core portfolio.

As a reminder, our tenants are typically large, well-capitalized regional and national operators with the scale, financial wherewithal and management expertise to weather significant disruptions in the business environment. Additionally, the majority of our properties are located in suburban markets, largely in the southern half of the U.S., which has been somewhat less impacted by the pandemic than urban city centers. We're pleased to see many of our tenants' businesses bouncing back more quickly than we had initially anticipated.

Although we continue to take a cautious approach to new acquisitions in the quarter, Steve and his acquisitions team remained active in sourcing and underwriting potential investments. As our relationship tenants are returning to growth mode and as we identify portfolios in the market that may meet our underwriting criteria, we anticipate our acquisition volume will begin to ramp back up in the near future. That said, cap rates in the marketplace remained at all-time lows and the ability to underwrite corporate credit and store-level performance post COVID is challenging. So you should expect us to remain thoughtful and prudent in our new investments.

Our balance sheet remained strong with almost $300 million of cash in the bank and 0 drawn on our $900 million line of credit as of quarter's end. Thus, we're well positioned to take advantage of the right opportunities when they present themselves and/or whether further choppiness in the economy if that may occur.

Our occupancy rate at the end of the quarter was 98.4%. Our well-located retail properties were in high demand prior to the pandemic as evidenced by our consistently high occupancy rate of 98%, plus or minus 1%, and our consistently high tenant lease renewal rate of 80% to 85% at approximately 100% of prior rent. Both of those impressive metrics have continued to hold true for 2020, and we believe our properties will remain in high demand in the post-pandemic world.

Let me close by reiterating our long-term approach to all aspects of our business. Although we will continue to review and refine our strategy based on the lessons we learned from the pandemic, we believe that the right long-term strategy for creating consistent per share growth on a multiyear basis is to own a broadly diversified portfolio of well-located real estate acquired at reasonable prices and leased to strong regional and national tenants at reasonable rents, all supported by a low-leveraged balance sheet and a long-tenured staff of industry experts.

With that, let me turn the call over to Kevin for more details on our third quarter results.

Thanks, Jay. As usual, we'll make certain statements that may be considered to be forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in these forward-looking statements, and we may not release revisions to these forward-looking statements to reflect changes after the statements were made. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the SEC and in this morning's press release.

With that, headlines from this morning's press release report quarterly FFO and core FFO results of $0.62 per share for the third quarter of 2020. As noted in the press release, these results include $14.8 million or $0.09 per share of receivables, write-offs in connection with reclassifying certain tenants to cash basis rent recognition. Additionally, we recognized $8.5 million of deferred rents in the third quarter, which were excluded in calculating AFFO. As Jim mentioned, occupancy was 98.4% at quarter end. G&A expense for the third quarter was 5.9% of revenue, fairly consistent with the first and second quarter of this year.

Primary items of note in the third quarter results are rent collections and receivables. Rent collections continued to improve throughout the third quarter and into October. And as Jay mentioned today, we reported rent collections of approximately 90% for the third quarter and 94% for the month of October. With the benefit of a few months of hindsight, we're relatively pleased with the progress we have made as we worked through a number of our tenants to find a path forward to pay the rent they owe us. We remain cautious as uncertainty will remain into 2021, but we continue to see some rays of light on the collections front.

At the end of the third quarter, we had approximately 6% of our rent being recognized on a cash basis as a result of our estimation that it was not probable these tenants were going to pay substantially all of their remaining lease payment. This classification required us to write off all outstanding receivable balances for the tenants totaling $3.4 million of rent receivables and $11.4 million of accrued rent balances, which totals $14.8 million or approximately $0.09 per share for the quarter. So without this noncash write-off, FFO results would have been notably better. Please know that despite this GAAP accounting write-off, we will be pursuing these receivables and the ongoing rent payments with the usual vigor.

Now over to the balance sheet, rent receivable balances. First, the rent receivables declined significantly from June 30 levels to $4.1 million at September 30, which is very much in line with our pre-pandemic rent receivable levels of $3 million to $4 million. These receivables have a general reserve of 18% or $879,000 at September 30.

Secondly, the accrued rent income receivables increased slightly, $2.3 million or 4% from June 30 levels and had a general reserve of 11% or $8 million at September 30. In the third quarter, we recognized $8.5 million of noncash straight-line rent, about $0.05 per share arising from the rent deferral lease amendment. This accrued rental income is included in GAAP earnings, FFO and core FFO results. But consistent with our past practice, we exclude accrued straight-line rent when calculating AFFO. We did footnote what AFFO would have been if we had not done this. As a reminder, we expect deferred rent payments to begin in earnest in the first quarter of 2021.

With approximately 3% of our annual base rent coming from tenants in bankruptcy, primarily consisting of Chuck E. Cheese, 2.1%; and Ruby Tuesday, 0.6%. We are involved on the creditors committee for both, so we have no real news to report here due to confidentiality. While both tenants have reported plans to close a number of their stores, none of our stores are on their store closure list at this time.

We ended the second quarter with $295 million of cash on hand and no amounts outstanding on our $900 million bank credit facility. We did not draw down on our bank line as many companies did this year. We've not made material new property investments and our next debt maturity is in 2023. So we're in very good liquidity position. Our weighted average debt maturity is now 10.4 years with a weighted average interest rate of 3.7%.

The financial covenant compliance remains in good shape as outlined on Page 9 of the press release. So the balance sheet is in very good shape, and we have very few capital obligations during the next 3 years. Leverage metrics remain strong. Net debt to gross book assets was 34.4%. Net debt-to-EBITDA was 4.8x at September 30. Interest coverage was 4.6x and fixed charge coverage 4.0x for the third quarter 2020. Only 5 of our 3,114 properties are encumbered by mortgages totaling about $12 million.

Consistent with last quarter, we have not provided 2020 earnings guidance in light of the uncertainty in the economy generally and retailing in particular. Until we get a better read on the economic recovery and what the new normal might look like, we're not able to reasonably predict precisely how things will play out. As we work through a challenging 2020 for the global economy, we continue to endeavor to give NNN the best opportunity to succeed in the coming years. As Jay said, our focus remains on the long term.

And Jess, with that, we will open up for any questions.

(Operator Instructions) Our first question will come from Katy McConnell at Citi.

Could you provide some more color around your expectations for tenant fallout with some of the higher-risk categories you mentioned that you do have exposure to? And what are your updated thoughts around when and where occupancy could potentially bottom out for your portfolio?

Yes. I think we'll stick with our big -- the troubled 4 lines of trade really is where the pain continues to reside, I think, which has been theaters, health and fitness, casual dining and family entertainment. I will say, going into this, we thought theaters would be the most troublesome. And with the benefit of 6 months, I would say, that feels the case. Out of those 4 lines of trade, that feels like the most challenged. And so that's the way I would probably prioritize that.

In terms of where occupancy will bottom out and when, that's a good guess. As you know, we've been maybe a little more cautious than folks in thinking that maybe there's more pain to become into 2021 as some of the Federal Reserve, federal government, trillions of dollars of stimulus starts to wear off. And so that's where, in our minds, we still think -- let's see how the patient does after all the morphine is removed. And so -- but given that our occupancy is currently at 98%, which is at 98%-plus, it's still very normal. We could see a little bit of fallout from our troubled lines of trade going forward. But it doesn't feel again anything that will be particularly problematic for us dealing with.

Katy, this is Jay. Just to add on to that, if you look at the other lines of trade that have been doing well, such as convenience stores and fast food and car washes, auto service, tire stores, those other lines seemed like business is coming back very nicely. So as Kevin said, our focus is on really just those -- primarily those 4 lines of trade that are struggling some. And even there, we're dealing with larger operators in most of those lines' trade. And so we feel relatively good right now about how all that is going. And as Kevin said, truly movie theaters is where we think there's probably the greatest chance for the more significant pain than even in those other 3 more troubled lines of trade.

Got it. And then maybe could you just talk a little bit more about your strategy around investment-grade exposure? And how are you thinking about underwriting risk differently as we start with some increased acquisition volumes again?

Yes. Katy, I'd say that we are definitely -- I'm sure all companies, including our company, is going to be looking back, trying to think what did we learn from the pandemic and how do we want to behave differently. Right now, at 90% rent collection for the third quarter and 94% for October, we remain -- I guess I could say we remain unconvinced -- we remain very comfortable -- let me put it differently.

We remain very comfortable with our strategy of pursuing large but non-investment-grade tenants, which allows us to get a better initial yield, better lease bumps, a more landlord-friendly lease and quite often properties at lower initial prices and lower initial rents, which we think creates a good margin of safety. So right now at the rent collection level we are at, we feel like that initial strategy is proving to be somewhat of a smart play. But it is something that we're going to be looking at certainly in detail over time as this continues to play itself out.

We'll go next to Vikram Malhotra at Morgan Stanley. All right. Hearing no response, we'll move to Rob Stevenson with Janney.

Kevin, when you look at the move from cash to GAAP, the $14 million hit in the quarter, how much is there rolling forward behind that, I mean, tenants that didn't quite meet the threshold to move them to cash in the third quarter but could likely fall there in the fourth quarter or in the first quarter? Or basically, was this basically like a big sort of move for you guys and it's going to take multiple quarters before you get back there again? How would you characterize that sort of moves?

Yes. It's hard to make that call sitting here today. But I can't say we're done. But I don't -- it doesn't feel like we've got a bunch more or we would have take -- moved them to cash basis already. So to the extent anybody is on the bubble, if you will, time will tell. But again, it really doesn't feel like there's a lot more coming at this point, given, to Jay's point, 94% rent collections and pretty much everybody moving in the right direction, maybe with the exception of theaters. And so I -- hopefully, I've been sufficiently elusive in that answer. But it doesn't feel like we've got just a bunch more just teed up to come. And like I said, if we had material concerns today, we would have taken action earlier in the third quarter, so...

Okay. And then how are you guys pursuing the people that don't even come to a deferral agreement? Are you guys pushing towards evictions on the non-payers and the nonagreement people? Are evictions prohibitive? Is that one of the things that's sort of keeping the nonagreements at current levels? How would you sort of characterize that? And what sort of pathways are you guys pursuing at this point, given market conditions and presumably a more difficult environment to backfill any vacancy?

Yes. Rob, this is Jay. We maintain a constant dialogue with most of our tenants. And so in those instances where we don't have a deferral agreement, it, to a large degree, has amounted to a -- resulted from a disagreement between National Retail Properties and the tenant as to what rent relief is appropriate. There may have been some instances where we felt that the tenant was entitled to it -- was entitled to a deferral, but the tenant wanted some rent relief beyond that. And there may have been some instances where the tenant wanted a deferral, but we felt that based on the tenant's condition and the condition of their business that they were in a position to be able to pay -- continue to pay full rent. And so we are talking to all of the tenants where we don't have an agreement consistently.

But we are, in the meantime, pursuing our legal remedies with all of that. And so there may be some instances where we've filed for eviction actions. There may be some jurisdictions where you're not entitled -- the landlord is not entitled to complete the eviction. But to the extent we can pursue legal remedies up to a point, we are largely going ahead and doing that. At this precise moment, re-tenanting a lot of vacant properties is not particularly realistic. There may be some instances where you can re-tenant something quickly. But generally, it's going to be a -- this isn't -- the market is not ripe yet for being able to do a great deal of that. But regardless, we want to be in a position to have our rights in place and be ready to move forward if ultimately we don't reach an agreement with those tenants. Our goal is to still reach an agreement with each of those tenants.

Okay. And how many of the 3,100 properties aren't currently open due to government prohibition?

Yes. Rob, we don't track that closely. We kind of pick up anecdotal information from other sources. But I'll look at Steve. And Steve -- I'd say 99% of our properties are open right now.

Yes. This is Steve. Yes, about 99% is probably a fair number. With the developments in Illinois, recently, they shut some down. But at the end of the day, the vast majority of the portfolio is opening.

Yes. Remember, Rob, we deal with large operators. So if they've got some units in an area where it's closed, but it's a small portion of their overall business, we -- our experience is that, that doesn't change our ability to get the rent paid.

All right. Then the last one for me is, in the release, you talked about acquisitions ramping back up. What's really your appetite at this point for acquisitions versus keeping the liquidity, given the levels of uncertainty? You guys were doing anywhere from $100 million to a little over $300 million a quarter coming into the pandemic. Do you keep -- obviously, you basically didn't do anything on a net basis this quarter.

And so I mean, do you ramp that up slowly and just stay at a $25 million, a $50 million, maybe a $75 million a quarter in the near term and preserve the majority of your liquidity? Is there opportunity that you're seeing out there that would cause you to dive back in at the $200 million to $300 million a quarter level? How are you and the Board thinking about that these days in terms of deployment of capital?

Yes. It is 2 -- I'm going to let Steve talk about where we're sourcing our deals and what he's seeing out there in the pipeline right now. But at the high level, Rob, we are not reinstituting acquisition guidance or anything like that. We're pleased that businesses have turned around. We're pleased that our relationship tenants are getting back into growth mode. But we are still going to be very thoughtful about our new acquisitions. And albeit, we do expect to be making some. But we're not in a position yet to kind of talk about what a new run rate would be. We want to see how things play out a little bit. But with that, Steve, do you want to give a little more color on the pipeline maybe?

Yes. This is Steve. The acquisition team has been in the market really in the third quarter after we got to the second quarter. And we're seeing lots of deals. But the reality is all the deals that we were looking at in the market pre pandemic, they wouldn't be deals that NNN would do. Primarily, we source a lot of our deals, 2/3 approximately come from our relationship tenants. And what we're finding is our relationship tenants now are starting to get antsy to get into growth mode if it's through M&A or just single-site development. So we're starting to see the pipeline pick up. But we're not historically doing the 1031 deals, so we're getting back into it.

We'll go next to R.J. Milligan at Raymond James.

First question, I just wanted to talk about the 94% of rent collected in October. Is that based on pre-pandemic rents? Or is that based on what was due in October? I'm just trying to get to whether or not the denominator has changed.

Yes. No, good question. Pre-pandemic levels, what was originally due pre pandemic, not adjusted for new deferrals, et cetera. Yes.

And so with 6% in deferrals, that leaves it -- is there anything that's left unresolved?

Well, that was for the third quarter. So yes, so the 6% -- there's not much unresolved, if that's your point.

I'm just trying to get to the [back hole] of the 100%. So if 94% of the pre-pandemic rents are collected in October, what percent is deferred of -- in October and what percent is unresolved?

Yes. So just here -- let me talk about third quarter just for a second. So third quarter was 90% plus about 5% deferred plus about another 5% unresolved or in discussion or something's going on there. And so going to 94% in October, the deferrals drop off considerably going into the fourth quarter. So you probably shouldn't anticipate we have 5% deferred rent in the fourth quarter like we did in the third quarter. So that might be where the math is.

Okay. That's helpful. The 3%, Kevin, you mentioned was of the rents were in bankruptcy, but 6% on a cash basis. What's the other 300 basis points that -- can you talk about maybe the categories? Is that theaters that fall into that other 3% that's now on cash?

That would be probably a good assumption, yes, theaters.

Okay. Noticed that the limited service restaurant collections were actually slightly lower than the full service. Can you maybe talk about that? I would have thought it might be the other way around.

Yes. That's -- R.J., that's really just a timing thing related to deferrals with some tenants that we're not losing any sleep over at all. So we had a tenant, maybe more than one, but I think primarily one tenant, where there was more -- the rent deferral agreement that we reached applied more to third quarter rents. And so that number looks a little lower for the third quarter. That number was higher for the second quarter. And -- but the deferral will be over in the third quarter. And we're not losing any sleep over that being repaid over time.

Okay. And then back to Katy's question on the expected tenant fallout. I think you guys had previously commented that you expect this to be worse than '08 and '09, lost 350 basis points of occupancy then. There's currently, round numbers, 5% still unresolved and then another 6% on a cash basis. What's -- how much of that 6% on a cash basis is -- I guess, is that 11% essentially that 6% of rents on a cash basis, 5% unresolved, so looking at 1,100 basis points currently as to either concerning or unresolved?

Yes. I'm not sure you can put cash basis and unresolved in separate buckets that you add together to get to 11%. So there's clearly some overlap there. So -- but yes, we did say we thought vacancy could go dip below 2008, '09 levels, which is 96.4%. So it wasn't exactly the end of the world. And I guess it might still feel that way generally. But I think what we're trying to convey here and the tone of what we're seeing in our rent collections is that it's better than our expectations 3 months ago and 6 months ago. And so we'll see where it goes, but it feels relatively solid outside of the theater arena at this point.

Yes. Yes, R.J., I do think mixing those 2 is a little bit of putting an apple and an orange together. I don't think it leads you -- as Kevin said, there may be some overlap. I also want to emphasize the comment that Kevin made in his prepared remarks, which is I believe he made this, to the extent these tenants are in -- on a cash basis only, that doesn't mean that we are not pursuing those tenants for collection. And while it's certainly very prudent and conservative to assume that none of that gets collected, I think historically, we're in a position where we collect -- we do better than 0 on that over time. So it's the proper accounting treatment for those rents at the moment. But it does not change at all our resolve to get them collected and in my mind, our ability to get some part of that collected.

Right. So that speaks to the Chuck E. Cheeses, for example, which is on a cash basis but have not thus far not rejected any of the leases?

Yes. That's a good example of that.

We'll go next to Linda Tsai at Jefferies.

What drove the dip in quarter-over-quarter occupancy? Who were the tenants? Or what were the lines of trade that drove this?

That drove the decline -- the 30 basis point decline, Linda?

Yes.

I don't think we know. I think it's just kind of a little bit here and a little bit there. Not -- I don't think there's anything to -- there weren't any notable trends or anything that we took away from that. And I'm sitting here right now, I don't have that in front of me.

Okay. Given the confidence in things moving in the right direction across the other sectors, do you internally model winter COVID scenarios that could potentially undermine that progress?

Yes. Linda, that's certainly one of the reasons behind not reinstituting any kind of guidance or not trying to paint ourselves into a corner. As Steve mentioned, vast majority of our acquisitions are directly with our relationship retailers. And they are certainly modeling that into their growth plans and expansion plans. So we are kind of following them in that regard. But yes, we're very watchful of what might be coming to create a future disruption. And it is certainly why we like to have the $300 million of cash in the bank and the full capacity on the line of credit.

And sorry, if I missed this earlier, how are you thinking about funding for acquisitions as you restart the platform?

I mean, I think all along, we've said in terms of acquisitions, it will probably play out a little bit like 2008 and '09 for us, which was: a, walk before we run on acquisitions; and b, to be -- we've got nearly $300 million of cash, so that's obviously a go-to source, and then a totally unused line of credit. So in the early innings, if you will, of any kind of move towards acquisitions, it would be more debt -- cash financed and then a little bit of debt maybe. But in the scheme of things, you should not anticipate our overall leverage profile changing of any note.

Next, we'll go to John Massocca at Ladenburg Thalmann.

So maybe building a little bit on R.J.'s question. As we think about that bankrupt tenant bucket and kind of understanding there maybe some receivables outstanding there from kind of past months, are any of them not current on rent as of today, like in October, as I go through the Chapter 11 process?

Yes.

Maybe, Kevin, what percentage -- I feel like Chuck E. Cheese is, just based on the numbers, just paying rent today. But is that -- of that $3 million bucket, how much kind of maybe the -- flows into that kind of 96% collection?

I would say of our -- and this isn't really a bankruptcy question, but more of a cash basis bucket, which includes bankrupt tenants, we're collecting probably about half of the rents due from the cash basis tenants.

Okay. Very helpful. And then I know you're a little reticent to talk too much about some of the bankrupt tenants. But maybe what's the exposure to Ruby Tuesdays at this point? I know you had around 35 properties at year-end 2019. Is the property count the same and maybe roughly the percentage of kind of ABR today?

Yes. It's relatively unchanged and about 0.6% of annual base rent.

John, this is Jay. Just to add one thing about the -- on the Ruby Tuesday. We went into that deal very focused on low cost per property and low rent per property. I think our average Ruby Tuesday property is about $1.5 million -- $1.5 million we paid for an average rent is probably less than $100,000 per property. So that -- and as Kevin noted, they -- none has been rejected in the bankruptcy at this point. But those -- we were very focused on keeping those -- keeping that risk low by keeping the investment low and the rent low.

Very helpful. And then kind of lastly, as you think about acquisitions, what would you need to see from a cap rate perspective to maybe to ramp (inaudible) is that potentially a gating factor? I know you mentioned in the prepared remarks that cap rates have remained pretty low on a relative basis. So would that expansion be necessary before we got to a more kind of 2019 level of investment activity?

John, I don't -- we don't think of cap rates as a gating factor. It's one part of what we look at in our overall risk-return analysis. But historically, we've been able to achieve cap rates that were adequately accretive for us by doing business with our long-term customers. And the things we look at are not just the initial cash cap rate but the duration of the lease and the amount of the rent escalations, the rent bumps in the leases. And that's who Steve is working with, our relationship tenants that are used to those long-term leases with the rent bumps in there.

And so the overall return still is what we look at in addition to looking at the initial cash yields. So I would say that we certainly -- we expected cap rates might drift higher when all this started. We have not seen that. If anything, they may have been drifting a little bit lower for properties that get identified as essential businesses. But we're able to find in our pipeline with our relationship tenants, we're able to identify deals that are at adequate yields for us.

(Operator Instructions) We will go next to Spenser Allaway at Green Street.

Yes. Can you guys provide a little bit more color on the divestments made in the quarter, what industries? And if they were occupied, can you share the cap rate?

The dispositions you're saying?

Yes.

Yes. Yes. I mean a small number, we only sold 3 properties. None of them were vacant that we sold. And I would label them more in the defensive category in terms of dispositions. But it's only 3 properties totaling $2.4 million of proceeds.

Okay. And you mentioned the fact that they were defensive dispositions. When you look at the portfolio today, are there any industries that you guys are looking to reduce your exposure to?

No, look, Spenser, more than just looking at kind of industries, what we're looking at all the time are which are the individual properties that we think are not long-term core holdings. So it's more tied toward what is the -- what are the real estate attributes of the different sites that we've got and what might they be re-leased for? Is this rent above market? Is this tenant likely to renew? Or are we likely to get the property back?

So we're sorting for more than just lines of trade. I will say, that said, right now, we would certainly be an unlikely acquirer of more movie theater properties. If there was a market for selling those properties at the moment, we might be sellers into that market. But there's not. And we're dealing with larger theater operators. So while we expect there may be some pain with what we've got there, we're -- at this point, we think we'll be just working with those tenants most likely going down the road to the extent there has to be any work done.

Okay. And then can you remind us what percent of your deal activity is related to 1031s? And has there been any concern or uptick in this activity, given the potential that these go away?

Yes. Very few of our acquisitions come from the 1031 market. And so to the extent it was to -- it might go away and cap rates move upward, we may find more things that meet our underwriting criteria in the acquisition market. As far as our dispositions go, I think it's about 30% of our recent disposition volume has been to 1031 buyers. So 70% of what we sell goes to folks that aren't doing 1031 exchanges. So we don't expect -- if that were to go away, we don't expect that to have a material impact on our disposition business or any part of our business really.

We'll go next to Vikram Malhotra of Morgan Stanley.

Sorry about that earlier. Maybe just building upon all the comments you've provided on acquisitions. And I'm just trying to maybe reconcile a little bit of difference that I'm noting between some of your peers reinstating guidance, being a little bit more vocal on deal activity and the opportunity set versus sort of your view of the world. I'm just trying to understand what you could be seeing differently?

And I get it, cap rate is one equation, the ability of tenants to project their own cash flow is probably another thing to consider. But I'm just trying to get a better sense of some of the signposts and maybe what -- how you're viewing the world differently near term versus some of your peers and that causing a little difference in acquisition outlook.

Vikram, I won't speak to the way the peers are looking at it. But I would say that we're just -- as with all aspects of our business, we're taking a long-term view to all of this. And certainly, the pandemic and the business disruption that occurred from store closures and all of the economic turmoil to us made sense to take a pause in acquisitions. And it was bolstered by the fact that our core customer, these relationship tenants, also took a pause. So we were able to continue to satisfy our core customers.

And as Steve said, we stayed in the market and looked at other deals. But there wasn't anything that was being marketed recently that we felt like was something that we really wanted to pursue. I can't really give you a bright-line test for when the -- it will be back to full acquisition mode. But our core customers are beginning to expand and grow again. And we will continue to support that and get back into the market with them, all under the umbrella of we just want to be thoughtful and prudent because we're taking the long-term view of running this business.

No, I think that's right. If you look back, Vikram, to 2008 and '09, same thing happened. 2009, I believe we acquired something like $45 million worth of properties in that year, took a pause, wait for the dust to clear and we have the ability to reengage in a more aggressive way if and when appropriate. And we've got the capital and firepower do that.

One of the things we do think about here is, say, 3 years from now, will we look back and say, "We should have really bought a much, much more in the second half of 2020?" And we don't think we're going to look back 3 years from now and say that, that was really the case or that will have mattered much in the -- with the benefit of some hindsight. So we just think it's a little more prudent to go a little slower at the moment.

That makes sense. And just on your 3-year sort of comment, just maybe many years ago, you and your peers had retooled the portfolio to make it more, call it, Internet-proof. And now you've sort of seen we've gone through this pandemic. And I'm just sort of wondering, even if you can give some high-level color on how you may think the retool the portfolio, if at all, given what we've gone through. But also maybe if you have a view of certain sectors being somewhat structurally either hampered or a retooling of the footprint being accelerated from what may happen in the future. Just any comments on how you're thinking about that would be helpful.

Yes. That's a good question. And we are going to continue to look for what lessons we learned through this pandemic. Right now, if you forced us to answer that question, we would probably say that we will not be acquiring very many movie theaters going forward. We will see how all of that industry deals with this over the next few years and what uses those properties get put to down the road.

But Vikram, as I said in the opening comments, at this point, what we still think is the right strategy for building a portfolio like we've got is to focus on good locations leased to large operators at reasonable prices and reasonable rents, that if you have a good location at a reasonable rent, you will -- you'll be able to weather -- and you take a long-term perspective, you'll be able to weather the ups and downs of what might go on in the economy instead of trying to pick winners in different winning lines of trade that may ultimately be disrupted. What you want to have is good real estate locations.

We'll go next to Chris Lucas of Capital One Securities.

Kevin, just a quick one for you. On the deferral agreements that you guys have put in place, are any of those -- have they gone through sort of a lease modification process? Or do they all sort of fit with under the sort of FASB accommodation rules that came out?

They all fit under the FASB combination, yes.

Okay. And then Jay, just kind of following up on some of the line of questions as it relates to sort of the acquisition side. Kind of given your -- you've always been a very relationship-driven organization, should we expect to see some new relationships to sort of help build out future opportunities? Or do you -- should we consider that sort of going forward to be sort of consistent with the group that you've been working with?

Chris, I'm going to turn that over to Steve Horn because I want to hear his answer to that, too.

Chris, this is Steve. I mean the main focus for our acquisitions is always maintaining the relationships with our current tenants. However, that being said, our acquisition guys are always on the hunt to find new tenants and create more relationships. And the reason is we kind of pride ourselves at NNN is that we do business, reoccurring business, with a lot of our tenants. And we hope they outgrow us or get acquired by a bigger company. So therefore, we're always on the lookout backfilling new relationships. So a long-winded way to say, yes, you're going to see new relationships come out of this.

Chris, just for the record, I'm glad to hear that's his answer.

And with no other questions holding, I'll turn the conference back to Mr. Whitehurst for any additional or closing comments.

Thanks, Jess. We thank you all for joining us this morning, and we look forward to talking with many of you virtually at NAREIT in a few weeks. Have a good day.

Ladies and gentlemen, that will conclude today's conference. We thank you for your participation. You may disconnect your phone line at this time, and have a great day.