Good day, ladies and gentlemen. Welcome to the National Retail Properties’ First Quarter 2020 Operating Results Conference Call. At this time, I am pleased to turn the floor over to your host, Mr. Jay Whitehurst, President and CEO. The floor is yours, Sir.

Thanks, Jess. Good morning, and welcome to the National Retail Properties First Quarter 2020 Earnings Call. Joining me on this call is our Chief Financial Officer, Kevin Habicht. After some opening remarks, I'll turn the call over to Kevin for more details on our results. First, let me say that our hearts go out to all the families affected by the COVID-19 coronavirus and the related economic dislocation across the country. We’d also like to offer our profound thanks to the medical professionals and first responders who are putting themselves at risk every day in order to keep the rest of us safe and healthy. With the sobering perspective in mind, today’s first quarter earnings release reflected another steady consistent quarter for National Retail Properties with high occupancy, continued transaction activity, and a very well-timed issuance of 10-year and 30-year debt that raised $700 million. All of that steady execution occurred largely prior to the unprecedented spread of the coronavirus across the United States and related global financial market instability that exploded in March. Based on the current uncertainty about the depth and duration of the economic turmoil that almost all companies are enduring at the moment, we’ve withdrawn our guidance for 2020 results. We hope to be able to provide updated guidance later in the year, but for now, there is simply too much uncertainty to project how 2020 will play out. Before discussing our quarterly performance, let me highlight some of the attributes of our long-term strategy that have positioned National Retail Properties to weather the current disruption. First, our balance sheet remains in excellent shape. We ended the first quarter with $217 million cash on hand and a zero balance drawn on our $900 million line of credit. Our next debt maturity is not until 2023, and we've taken a pause in our acquisitions in order to marshal our cash during this uncertain moment. Second, our portfolio consists primarily of large well-capitalized tenants. Our largest tenants operate over 1,000 units on average and are typically the leaders in their respective lines of trade. These are large regional and national companies that are generally better positioned than smaller operators to withstand a major disruption in their business, such as occurring at the moment. Third, our well-located real estate parcels remain integral to our tenants' business expenses once this disruption has passed. As we've often said, National Retail Properties is at its heart a real estate company. Our properties were highly occupied before all this started, and we're confident that those same well-located properties will continue to be in high demand after all this passes. And lastly, we've been here before. Our entire management team was with the company during the great recession in 2008, and most of us have been through a number of other major downturns in the past. We're a seasoned real estate company with in-house expertise to handle all the issues that might arise. Turning now to our first quarter 2020 results. Our portfolio of 3,125 single-tenant retail properties ended the quarter with an occupancy rate of 98.8%, which is consistent with our long-term average occupancy. We do expect our occupancy rate to fall in the second quarter, but we're working with many of our tenants to structure rent deferral programs that we hope will enable them to get through this period of business interruption and get their businesses back in full operation. We acquired 21 new properties in the first quarter, investing slightly over $67 million at an initial cash cap rate of 6.9%. As usual, about two-thirds of our investments were with our relationship tenants with whom we do recurring off-market business. Our acquisition volume was muted compared to prior quarters. We elected to postpone or cancel some acquisitions scheduled for late in the quarter as we saw the economic downturn beginning to grow. We also sold 14 properties during the quarter, generating proceeds of just over $36 million at a cash cap rate of 4.7%. Once again, our ability to raise capital for accretive recycling highlights a strategic advantage of National Retail Properties over many other REITs. Due to the sudden impact of the COVID-19 pandemic on retail businesses and the economy beginning in mid-March, we are reporting today that we received approximately 52% of our rents due for the month of April. We also entered into rent deferral agreements or are currently negotiating such agreements with tenants representing approximately 37% of our annualized base rent. While we are dealing with deferrals on an individual case-by-case basis, generally, our rent deferral discussions involve deferring one to three months of second-quarter base rent with a deferred rent to be repaid commencing in late 2020 through late 2021. Generally, the tenants remain responsible for paying the triple net charges on a current basis. We are not discussing or agreeing to rent forgiveness with tenants, nor are we advancing funds to tenants to be repaid as rent. As to the balance of the tenants who did not pay or agreed to deferral arrangements, we are pursuing our legal remedies. Many of those cases involve tenants that we felt could pay some or all of their April rent but have so far chosen not to do so, or tenants that insisted on some immediate rent forgiveness, which, as I said, was not the way we wanted to approach this fast-moving and fluid situation. We remain in dialogue with many of these tenants and are hopeful about our ability to reach some agreement for payment with many of these tenants over time. Consistent with our long-term practice of reporting results only quarterly, we do not anticipate reporting monthly rent collections for May or June in advance of our second-quarter earnings release. Lastly, before turning the call over to Kevin, I want to remind you all that we declared our regular quarterly common stock dividend in April. Our board will continue to review our dividend policy as we work through the current economic turmoil, and by no means is our dividend untouchable. We do believe, however, that our impressive streak of consistently increasing the dividend for 30 consecutive years is a powerful indicator of the value of our consistent conservative balance sheet philosophy and business model. So, in the first quarter behind us, you see National Retail Properties conserving its capital, working with its tenants to address the reality of their current business disruption, and planning ahead for the new normal. Let me now turn the call over to Kevin for more details on the first quarter, our strong liquidity position, and our thoughts around the balance of 2020.

Thank you, Jay. As always, I want to remind everyone that we might make forward-looking statements, and actual future results could differ significantly from what we discuss. We may not update these forward-looking statements to reflect changes after they are made. Risks that could impact actual results are disclosed periodically in our SEC filings and in today's press release. Regarding our quarterly core FFO, we reported results of $0.70 per share for the first quarter of 2020, which is 4.5% higher than last year's results and aligns with our projections. A few comments about the first quarter: our AFFO dividend payout ratio was 72.4%, consistent with the full-year 2019 levels. Occupancy stood at 98.8% at the end of the quarter, and G&A expense was 5.8% of revenues, flat with the previous quarter. We finished the quarter with $677.5 million in annual base rent for all leases as of March 31, 2020. On February 18th, we issued $700 million in unsecured debt—$400 million with a 10-year maturity at a 2.5% coupon and $300 million with a 30-year maturity at a 3.1% coupon. We used about half of the proceeds to redeem our $325 million of 3.8% notes due in March. It's worth noting that our first-quarter interest expense includes $2.3 million of accelerated note discount and amortization related to that early redemption. Without this non-cash expense, we would have reported $0.71 of core FFO per share, a 6% increase compared to last year. Importantly, this transaction improved our liquidity as the flu pandemic began and extended our next debt maturity to 2023. We ended the quarter with $217 million in cash and no outstanding amounts on our $900 million bank line. This has resulted in a weighted average debt maturity of 11.2 years at an average interest rate of 3.7%. Our liquidity position is strong with minimal capital obligations over the next three years. Our leverage metrics remain robust, with a debt-to-gross book assets ratio of 35.3%, unchanged from year-end. Net debt to EBITDA was 4.9 times as of March 31, and we had interest coverage of 4.6 times and fixed charge coverage of 4.1 times for the first quarter. Excluding the $2.3 million of note discount and amortization, those metrics would have improved to 5 times and 4.3 times, respectively. Only five of our 3,125 properties have mortgages, totaling $12 million. As Jay noted, we are withdrawing our 2020 earnings guidance due to the uncertainty caused by the virus pandemic, store closures, and economic turbulence. Until we have a clearer understanding of the shutdown duration, recovery shape, and what the new normal will be, we cannot reasonably predict how things will unfold. We are dealing with rent deferrals on a case-by-case basis, typically involving one to three months of deferred rent, which will be paid back over months from late 2020 through late 2021. Our focus is on working with tenants to find solutions for them to fulfill their rent obligations. Our strategy is to provide rent deferrals to help them survive the shutdown, with hopes of repayment in the near future. The length of the shutdown and the nature of the recovery heavily influence our situation. This uncertainty leaves us questioning whether our rent deferrals were adequate, but we believe we have struck a reasonable balance. As we navigate what is likely to be a challenging 2020 for the global economy, we remain committed to offering our tenants the best chance for success in the future. Jess, with that, we will take any questions.

Thank you. We'll move first to Collin Mings at Raymond James.

First question from me, just you highlighted the dividend track record but also acknowledged it wasn't untouchable? Can you just elaborate on how you plan to balance your dividend track record, and potentially increasing leverage on the margin for a few quarters versus aligning dividends with cash flow generation in a given quarter?

I guess the way I’d respond to that is, our dividend policy is not set on the basis of one or two quarters but rather on what we think is reasonably sustainable over the longer term. So one of the reasons you want to have a 72% payout ratio like we did going into this pandemic is to provide some cushion and ability to support the dividend as we go through challenging periods like 2008-09 and like we're going through today. So we were comfortable declaring our regular quarterly dividend a couple weeks ago and we'll evaluate things as we go. While clearly as Jay mentioned, we have a degree of pride in our 30-year consecutive years of increasing the dividend, it's obviously not sacrosanct. The challenge with a current downturn is that it's driven by healthcare that's more difficult to handicap and how it will play out. But hopefully we're going to gain some visibility in the coming months as to the timing and shape of that recovery. And that will help inform our thoughts about the appropriate dividend policy in the coming quarters. But I guess to reiterate where I started, we're not going to decide our dividend policy based on one or two quarters of results.

And just to highlight again, Collin, we are in a very, very strong liquidity position that helped make that decision a lot easier recently.

And Jay, I recognized you aren't going to provide monthly updates. But just any initial color you can provide on collections or anticipated collections here in May, relative to April based on what you've received or heard from tenants? And are there many tenants that may have paid in April that have indicated they don't plan to pay in May?

Collin, there is no real color I can give you on May. I think if you think about it though, to the extent you've agreed to rent deferrals in April and May then you can really expect that your May rent will be deferred. One thing to follow up on your question though, just to talk for a moment about our approach to all this. I think I mentioned it a little bit in my comments and Kevin mentioned it a little bit in his comments, we're just taking a very long-term view toward our tenant relationships. These are our customers and in many, many cases they've been our customers for a long time. And so we want to be firm but fair with our long-term customers, but we are not looking to punch anybody in the nose in the middle of this unexpected unforeseen disruption. So we're taking a very collaborative approach to working with our tenants through all this.

Jay, just to that point. As you negotiate these deferrals, have you agreed to, or have your tenants agreed to any sort of additional thing in exchange for you granting them the deferral or is it simply just picking off the payments for now?

Generally, Collin, what we wanted to do at this moment, while things are moving so fast, is to just deal simply with short-term rent deferrals that, as Kevin talked about, get paid back relatively soon and relatively fast. And so we did not look at this initial situation as something that we wanted to again, try to push more onto our tenants. We just wanted to work with them at the moment and deal with these short-term deferrals.

We’ll go next to Christy McElroy at Citigroup.

It looks like the straight-line rents were lower than the normal piece in the first quarter. Did you write off any straight-line rents receivable associated with converting any leases to cash basis accounting? And just in the context of the current environment and trends towards non-payment of rent. How do you think about the potential for needing to convert to cash basis converting more in recent quarters?

No, there wasn't any notable write-off of accrued rent in the first quarter. Obviously, given we have a meaningful amount of deferrals in process for the second quarter, straight-line rents, obviously, will be materially higher going forward. What was the last part of that question?

Well, I guess just how you’re thinking about the potential for needing to convert more, it leads to the cash basis. So as we think about the second quarter and you've had 48% non-payment of rents. How are you thinking about the potential for uncollectability probably on the…

Yes, to your point at the moment, we don't think that that will become a material amount, but that's something we're just going to have to evaluate as we go along the collectability of these deferred amounts. And if in fact, we get to a point where, as you know, if it's not probable, then we may need to go to a cash basis kind of recognition. But right now, we're presuming that the vast majority of these deferrals will get approved and paid in accordance with the deferral plan.

And then just of the 48% that didn't pay rent in April, do you have a sense for how many also did not pay their operating expenses like utilities and property taxes? So for us in trying to think about the potential cash burn as rents are not paid and some are deferred. How do we underwrite the operating expenses that you may have to cover that have not historically run through your P&L, and how are you tracking that non-payment of expenses?

The vast majority of those are still paying for the expenses. Generally, in our deferral agreements, we're requiring that those expenses get paid. We are looking to only defer base rent. And just one metric that we use internally for thinking about that, if and that's only if, where a tenant is not paying rent. We tend to assume that the property level expenses are going to equate to about 15% of the rent. So let's say rent was $1 million a year, there's probably $150,000 of property expenses that might go along with that. So that's one way to estimate if and when that ever comes into play and that's the way we internally budget or project that.

And then just lastly follow-up on Collin’s question, understanding that you're taking a balanced approach to the deferral negotiations, and recognizing you're taking a long-term view, you've got a ton of relationships and you need to be collaborative. Can you kind of break out that 40%? I know you've had 37% of your rents requesting deferrals. But also as you pointed out, a lot of these are national tenants that can pay rents. So how would you break out that 40% between what you're actually having negotiations on deferrals versus those that you're playing more hardball, in terms of ultimately wanting to collect those rents, and you’ve talked about pursuing legal remedies?

Christy, we haven't quantified the answer to your question. However, if you consider the tenants who haven't paid and with whom we don't have deferral arrangements, I believe that most of these tenants are ones we think are capable of paying but have chosen not to so far. We are taking the necessary steps in this situation. We are still in discussions with them and are hopeful, perhaps too optimistic, that many of these cases will eventually result in payments.

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

Obviously very changing times for everyone. Maybe just to expand or maybe a comment first. I know you mentioned, you won't be providing May or June but sort of in this environment given kind of the historical stability of the triple net model and the triple net company to be, I just encourage I’d be actually really good to get updates on May and June either way. So to the extend you can give any color that would be helpful over the next few months. Just on the deferrals, you talked about having said like pushed them out couple of months, but I'm just wondering on the tenants that have not paid and you're discussing. Would you be still willing to provide deferrals in exchange for say term or something else given that if they haven’t paid, it doesn't seem like they will certainly come around in the near-term and pay?

Vikram, each discussion with each tenant is on a case-by-case basis. And so yes, we may well enter into those kind of discussions about other approaches to dealing with this and getting the rent restarted and the tenant back in occupancy if the tenant is choosing not to pay and we don't have a deferral agreement. We do intend to exercise our rights. But for the moment, we are keeping it simple with our tenants and recognizing that this is a challenging time for everyone, as you said, and just trying to work with them on simple deferral arrangements.

And then just on any tenants that may have announced bankruptcy or some sort of restructuring, I know Chuckie Cheese, there’s an article out that they may be in some sort of restructuring. You did call it a few tenants last quarter. Any updates on those any thoughts around Chuckie Cheese specifically?

No nothing beyond kind of what's in the news there.

And then just the last one on the dividend, just I want to make sure I heard correctly. Obviously, it is a key focus, you have the track record. It may not be sacrosanct. But given when you say liquidity position, is it fair to assume that if there is a shortfall over the near term, let's say second and third quarter, you would be willing to hypothetically lever up or use other proceeds to kind of keep the dividend intact, as long as you view this as a one to two quarter issue?

Yes, I think as Kevin mentioned, our dividend philosophy is a multiyear approach. And so no one month or one quarter or so. We’ve positioned ourselves so that a month or a quarter situation doesn't affect that long-term approach.

And I think what we're hoping and I think everybody hopes is that in the matter of months, hopefully not too many, we'll all have greater visibility on how things are going to shake out. And then once you have a better sense for that, we have a better ability to inform our decision about the sustainable dividend over a long period of time. But in the meantime for the next quarter or two, we're very comfortable with our dividends.

And last one if I may, just some color around tenants requesting deferral, the types of tenants and specifically, I think you have 18% of your tenants are true investment grade. Has that group actually paid rents?

Yes, we've had a very high success rate on getting paid by our investment-grade tenants.

We'll go next to Brian Hawthorne with RBC Capital.

Just one question from me, of the tenants that are paying rents. Are they paying full month's rent or are any of them paying partial rents?

All of them are paying full rent, yes.

We'll go next to Rob Stevenson at Janney.

On the 11% non-collections and non-deferrals, I mean, obviously, AMC is a well-publicized non-payer. But could you talk about what lines of trade that 11% is primarily aggregated in?

Rob, these tenants come from various lines of trade that you might expect to be more troubled based on our portfolio. However, aside from those in industries where their business is essentially shut down, I don't see any significant commonalities among them.

When considering the different types of trade and restaurants, both full-service and limited-service, do you have an estimate of how much of their usual revenues they're generating with takeout-only? Is it around 25% of normal revenues, or maybe 10%? Where do they stand on that, and what is their capacity to pay rent if in-person dining doesn't resume quickly?

I think it's too early to try to project where it comes out at the end. In some instances, the takeout business is strong, and in others, it's not. So, it's kind of all over the ballpark. The food service restaurants are doing relatively well on all of that and the casual dining restaurants are trying, they're working hard to make it work. I will say just one thing in general about tenants that's notable. We talked to a lot of our tenants, they are all working very hard to figure out a way to get reopened and get business started again in a fashion that's safe for their employees and their customers. But what we see are good smart operators trying lots of different things to get themselves open. What we are having any conversations with really are companies that are just throwing in the towel. They're all working on ways to get their businesses restarted.

And then last one from me. Kevin, what percentage of your tenants are paying electronically by some form versus the sort of old school mailing in a check? And at what point in the month, given the various payment dates, do you really know what you're going to get paid for that month normally?

Yes, I don't know the exact answer, but it's a very high percent that pay electronically in some form or fashion. I’d call it 80%. And usually by the 10th or 15th, we've got a good read on how it's going to go. I mean, obviously, April didn't follow quite the norm but usually by mid-month, we have a good read on that.

Rob, your question was what was the normal, and Kevin's answer was what’s normal. In April, the discussions occurred all through the month.

We'll go next to Spenser Allaway at Green Street.

Maybe first you could just share what portion of your tenant base is currently open. I don't think we touched on that yet.

We don't track that Spenser closely, because there's close, there's partially open, partially closed, and there's fully open. But anecdotally, we think it’s probably around close to maybe half, half, fully open and another 30% or so maybe partially open and a quarter maybe fully closed but that's anecdotal. Those are very rough numbers.

That was the basis for my second question. Given that some states are beginning to lift their closure mandates, I was curious if you are optimistic about what percentage of your tenant base might be able to reopen now that some states are easing restrictions.

The information that we've gotten is, to the extent that states are allowing more customers to come in, they're positioning themselves to be able to take advantage of that. So yes, you're right, it’s a fluid number that moves. And so I think we expect that will get better if the openings continue.

And just one more if I may, on maybe your assets that you sold during the quarter were vacant, and could you provide the disposition cap rate on those which were occupied?

I think the disposition cap rate we reported at, or Jay mentioned, at 4.7% I believe. And in terms of the 14 properties sold, six were vacant for total proceeds of about $8.4 million.

And Spenser, there was no cap rate on the vacant…

We'll go next to Todd Stender at Wells Fargo.

Traffic volumes seem to be down. Could you provide your insights on that sector since it represents your largest industry focus, as well as any updates or discussions you’ve had with tenants? Thank you.

Todd, I hate to do it to you. But I need you to start your question again, the first half of it was cut off.

When it comes to convenience stores, just because it's your largest tenant, largest industry exposure and they're open, but traffic volumes must be down. Maybe just comment on what you're seeing, what you're talking with the tenants about. Any details would be helpful? Thank you.

Sure. Convenience store business remained one of the much better, more solid businesses during the month of April. And yes, the traffic is down. The number of gallons sold at a convenience store down, but the margin on gasoline was up. And as you may recall, about two-thirds of the profitability of a convenience store is on inside sales. And our convenience stores are suburban kind of locations where families go to get their necessities. So the inside sales with the convenience stores in our portfolio has been very solid. So we always felt like that was a good business as well as good real estate. And so far through this pandemic, that's proven itself to be the case again.

Can you share your thoughts on rent deferrals? You're currently focused on cash, but what outcomes do you foresee? Do you believe you'll gain more real estate from tenants or extend lease terms? Could you describe some ongoing negotiations and potential financial outcomes?

Well, right now we're not having those kinds of negotiations about other things that might, other types of currency that might come into play down the road. Right now what we want to do is try to just be a good partner to our longstanding tenants and craft these short-duration deferrals simply and quickly with them. Down the road, assuming that we maintain a good relationship with our tenants, as I fully expect we will, then just like always we will be able to have a wide range discussion with our tenants about future business or changes in the lease documents or other elements of back and forth with the tenant as we get down the road. But for the moment, as I said earlier, what we didn't want to do right now was just punch our tenants in the nose in the face of a disruption that they didn't cause.

And then Kevin, you haven't tapped the line of credits just to sit on cash right now. Do you need to see dislocation in the credit markets to see that and just kind of ride this out with liquidity? And how do you think about tapping the line right now?

Yes, and we got this question in 2008-09 as well and we didn't draw it down then either. Obviously, the banks had a little bit more liquidity challenges back then than they have today. And we've debated internally and we could change your mind, but we just don't feel the need to draw down the bank line today, with $217 million of cash, no material capital spending, new investments, or debt obligations, we really don't have a need to do that. I know a number of REITs have done this, and they may have a different view of their liquidity. But for now, we're good where we are.

Yes, Todd, I think we do not see any instability in the capital markets at this time. If we felt there was an issue with accessing it, we would likely take action quickly. However, we are monitoring the situation and currently, we do not have that concern at all.

We'll go next to Joshua Dennerlein at Bank of America.

I just wanted to touch base on your comment in the opening remarks about tenants you are following in 2Q. Is there any particular tenant that just kind of known move-outs or was that something related to the pandemic?

No, I believe it's simply a broader observation that we have maintained high occupancy rates for an extended period. Therefore, it seems reasonable to anticipate that this might decrease somewhat in the current environment.

So nothing specific there. And then for the one to three months of rent deferrals that you're granting, what's driving that range? And then how do you even come up with that range in this environment?

Well, our approach was to just do something short-term and easy with our good customers at the moment. It's impossible, where you said, certainly where we said a couple weeks ago and even today to try to figure out when exactly this will start to lift and as Kevin said, what will be the shape of the recovery. So we said, let's just behave the way National Retail Properties typically behaves, which is take slow, thoughtful, methodical steps along the way. And then the discussion with the tenants is really over just kind of one to three months, because we feel like that's a good reasonable time period to start with, while everyone tries to figure out how this is going to play itself out a little bit.

Yes, I mean at the end of the day, it's a judgment call, and it's difficult to know where things are going to play out. But like I said, hopefully, we've struck the right balance between doing too much and doing too little. And hopefully, we're about right but we'll see.

And just maybe one follow-up on that, like since we got three months from now and it's kind of the economy pandemic, it's kind of the same as is that you have another three months of rent deferrals. How does that change kind of the payback? Would we think like it's pushed out any general thoughts on that would be helpful?

It's a lot of speculation that I'm hesitant to get too definitive about trying to answer that. But to the extent we get to the end of these deferral periods and the tenant's business is still struggling in a fashion that we need to have a discussion about greater deferrals, then we'll just have those discussions. As I mentioned to one of the other answers, there's other currencies besides just flat-out rent that a landlord can talk to a tenant about to create greater value at the property, either lease term or changing lease bumps, or changing lease documents, or some other things. And so to the extent this extends longer and we have to have a second discussion with any tenants, it may be a more wide-ranging discussion than the nice simple conversation we wanted to have for this first problem here in April.

And one last question from me. For the rent deferral that you have, like the 37% of ADR. Is there any common themes as far as like industry exposure that you saw more requests from or just kind of curious on how that’s playing out?

Josh, if you examine the list of lines of trade in our portfolio, you'll understand where they're coming from. The sectors most impacted by the shutdowns and stay-at-home orders include restaurants, family entertainment, health and fitness, and movie theaters. These are the areas where tenants faced significant business challenges.

We’ll go next to John Massocca at Ladenburg Thalmann.

Understanding it’s still pretty uncertain times. What would you need to see to kind of maybe reaccelerate your acquisition platform and activity?

John, there's no bright line answer to that. We are, as we’ve said, we're in great financial position to kind of just stay in position and see how this recovery plays itself out. We are anxious to get back to playing offense, I will say. And we paused some of the acquisition deals that were scheduled for the first quarter have been paused, and we're hopeful that we'd be able to restart those when that moment comes where you said okay, we see the light at the end of the tunnel. But it is definitely more of an art than a hard science on that moment.

And are you seeing maybe, I know you guys have been through a lot of third-party transactions. But are you seeing potential for deals out there, potential deal flow either third-party kind of transaction market or with some of your traditional sale-leaseback partners coming to you?

John, so far we haven't encountered many deals falling apart that are returning at higher cap rates. In the 10/31 exchange market, where many broker advertisements are found, the cap rates remain very low. It seems the impact of this situation hasn't fully filtered into the transaction market yet, highlighting the significant gap between what buyers are willing to pay and what sellers are asking.

And then with kind of the invoice portfolio. Have you seen any tenants that were looking for maybe kind of opportunistic deferrals back off? And I know it's kind of fluid given the timing of expected receipt of rent. But did you have some people who may have been in that 11% bucket that kind of maybe saw the light and ended up paying later in April, or have indicated they're going to pay in May?

The short answer is yes. We have had discussions with tenants whom we believed could pay and wanted to explore what relief options were available. After those conversations, they ended up in the group that paid rent. Our goal is to maintain a good, open, and honest dialogue with each of our tenants. We are committed to a long-term relationship with them, and we believe that collaborating and having straightforward conversations throughout this process is the right approach.

And then one last quick one, if I may, given the backdrop of the pandemic. Has your outlook on leverage changed at all?

No, I don't think materially. I think we're comfortable where we are. Obviously, when you come into this, you always wish you had less leverage and more liquidity, but we are fairly conservatively leveraged and have an above-average amount of liquidity. So we're in pretty good shape. I don't think there's much we would change in the way we operate the balance sheet at this point.

Our outlook on leverage is what has positioned us to be in such good shape right now for this.

We'll go next to Linda Tsai at Jefferies.

First, I know that tenant base has changed since then. But could you remind us what trough occupancy was during the financial crisis? And then second, when you think about occupancy going down in 2Q, you'll likely have a sense of who those tenants are and for those vacancies. Would you think the mix would be more backfill options or dispositions?

First off, at the depth of the recession in 2008, 2009, occupancy dropped to 96.4% and it recovered in a couple of years back into the 98% range. And as to your second question, I think it's just too early for us to talk about what properties might become vacant in the second quarter, or beyond, or what the right strategy for dealing with those properties. Our long-term philosophy on vacancies is that job one is to re-lease those properties. And so I would expect that that will still be job one for any vacancies that come out of this pandemic. And as you've seen us in the last couple of years, if after significant efforts to re-lease the property, we conclude that we're better off to sell the vacancy than you would see us do that. But there's nothing I think about what's out there now that would cause us to change our general operating philosophy about how to deal with vacant properties in the portfolio.

And then in terms of transactions as the world begins to open up. Are there thoughts on whether deals might be transacted differently, do you think face-to-face is necessary?

We do think face-to-face is necessary early on in relationships for folks to get to know each other. Down the road, there maybe less travel to visit an existing tenant for the 15th or 20th time, but I think there's no substitute for folks visiting with each other in the early stages of building a relationship.

We'll go next to Michael Gorman at BTIG.

Just a quick housekeeping for me. I just wanted to understand, of the 52% of rent collected in April. Did any of that then subsequently ask for deferral? So is there any overlap between the 52 and the 37 that you reported in the release?

I think there is some overlap, but I don't believe it's significant. However, I do suspect there is a small amount of overlap.

And then just, I guess could you just talk procedurally, because obviously you mentioned during the great recession, went down to 96.4 and…

We'll move on to RJ Milligan with Baird.

Just one quick question, most of my questions have been answered, but in terms of the dividend. How do you think about, or have you considered the idea of paying the dividend in stock?

I mean, not seriously yet, no. But that's always an option on the table, although it's not something we're currently considering.

To the extent, we felt like we weren't in a good position with the cash, RJ, just be one more thing we would analyze.

Would that potentially happen before you reduce the dividend?

I would presume so, if we were going to do that that couldn't be an intermediate kind of step to take that doesn't get you to cut the dividend fully. We didn't do that in '08-'09. We kept the dividend going up. I know a number of REITs did shift to the stock and cash combination to kind of bridge their way through the '08-'09 turmoil. But we haven't thought too much about that at this point.

We'll go next to Chris Lucas at Capital One.

Two quick ones for me. Jay, you mentioned I guess earlier in reference to the rent collected from investment grade rated tenants was very good. I guess curious just in terms of how you think about your credit profile of future acquisitions, your investment grade rated tenants sort of move up the , if you will?

Chris, we are continuously assessing our acquisition strategy. Our main focus has always been on well-located real estate leased to strong tenants, acquiring these properties at reasonable prices while ensuring that tenants pay fair rents. This approach has led to high occupancy and tenant lease renewal rates. In fact, 85% of the time, our tenants renew their leases without the need for us to invest in tenant improvements or other incentives. Therefore, you can expect us to maintain this philosophy. The investment-grade tenants in our portfolio were not rated as such when we acquired their properties; they were regional tenants that either expanded or were taken over by investment-grade companies. This gives us a combination of strong tenant balance sheets and quality real estate at favorable prices. However, we still consider investment-grade tenant credit as an expense that may not be permanent. While we appreciate having it at the moment, it hasn’t altered our perspective on moving towards properties that typically offer lower initial yields, growth, and price per property. Overall, we think about our strategy daily, but at this time, I feel more inclined to stay with our current approach.

And then just as it relates to the rent deferrals that you're giving. Are those being tailored to individual tenants based on March or their profit margin, or remaining term? Or are you trying to approach it on a simplified sort of one size fits all approach?

It's not a one-size-fits-all approach, but we've been aiming to keep it straightforward. We have a few sizes available, such as small, medium, and large. We've focused on having honest conversations with our tenants to understand what works for them, what is effective for us, and then we structure the deferrals accordingly.

We’ll return to Christy McElroy with Citigroup.

It’s Michael Bilerman here for Christy. Just to make sure in terms of your tenant obligations outside of the net lease payment they make to you, I guess what security do you have that the property taxes, insurance, the CapEx and everything is being paid and spent when half of your tenants are not paying rent to you?

Michael, we have a team that monitors all of that. It's part of our initial discussions with the tenants and is included in the deferral documentation. We are keeping track of it, but it's clear that the responsibility for taxes, maintenance, and insurance lies with the tenants.

You received only 52% of the rents in April, and 37% have requested deferrals. Some of the 37 are included in the 52, but still, there are about 15% of tenants who did not pay rent and haven't asked for a deferral, which could potentially be as high as 20%. How can you be sure that all their other financial obligations, which could become your responsibility, have actually been met?

Like I said, we’ve got a lease servicing group that tracks those responsibilities.

At what point will you find out that those tenants haven't paid? There is a group of about 20% of your tenants who either haven't paid rent or are working on deferrals. If you take the simple numbers of 52% and 37%, with some of the 37% included in the 52%, how will you know about the tenants who haven't requested deferrals and haven't paid their rent, mobile packs bill, or insurance bill? When will it become clear that those obligations may ultimately fall on you to fulfill?

We typically find out after the tax bill is due, we are part of the notice process for that. So, we deal with large tenants that we think are highly likely to honor the commitments that they're making to us. So I understand what you're saying. But we've got the tenant’s obligation to do it, and we find out when those bills aren't paid directly from the taxing authority or the insurance vendor.

For smaller tenants that cause concern, we may consider setting up an escrow arrangement where the funds for those obligations are reserved monthly instead of waiting until the end of the year.

It’s just the matter if your tenants have, half of your tenants have decided not to fulfill their contractual obligation with you, who’s to say that they're not making the same decision with other vendors of theirs. And so I think that’s where it starts to unravel pretty quickly if those obligations become part of yours from an OpEx perspective. It sounds like what are your more over next coming quarters, which then sort of takes me to my second question, which is the dividend. And I get the fact that your balance sheet is in a better shape. I understand you have access to liquidity. I understand the 30-year history. I understand where the payout ratio was. But to your own admission and everyone dealing with this, we don't know how long, we don't know how deep, we don't know what reopening is going to be like, we don't know what the re-infection rate is going to be in the fall. There may come a time where we look in hindsight that you would have preferred to have that cash in the company. And because your dividend is an annual commitment based on annual taxable net income, not quarterly, I guess I'm struggling to understand why even pay out a cash dividend on a quarterly basis when only half of your tenants are paying you rent, right? You may look back on this and say, oh God, I wish I had that 2Q and 3Q dividend payment, because we're going to have to adjust our policy going forward. And that cash would have been better staying within the enterprise for shareholders rather than being paid out.

Michael, this is something we carefully consider. We're discussing just April, and I believe you'll also mention May, since the deferrals will average around two months. For a few months, we feel confident enough in our liquidity to decide to see how the upcoming months unfold. We are always mindful of whether we need to adjust our dividend policy for the next quarter. However, after just one month, it seems premature to make a significant change to a long-standing dividend policy.

Yes, I mean as you said, our dividend payout ratio, liquidity, our balance sheet leverage metrics, we think afford us the ability to buy those some time to see how it plays out before making a rash one-quarter, two-quarter decision, about the dividend policy. And sure if the shutdown lasts many more months and it's everything's worse than what folks are currently anticipating, you can always look back and say, I wish changed things sooner. But we're just not there today. We don't have that visibility. And we'll see how it plays out.

But to the same token, if you can't even forecast your earnings for the rest of the year. How can you pay a quarterly dividend and get the cash out of the company? I think that's the struggle I think from my vantage point is, there’s so much uncertainty about your forecasting ability to pay out cash that you may have wanted to have 12 months from now, or six months from now, or not even be required to pay it out because your taxable income maybe lower, or will be lower. That’s to me maybe short sighted.

We totally understand what you're saying. And at the end of the day, it’s a judgment call and it's not an easy one at this point in time, but we're comfortable where we are.

We'll take our final question as a follow-up with Spenser Allaway at Green Street.

Just one more, so just curious. So the deals that you went back out of in the first quarter. Was this decision primarily due to the fact that the tenants were in industries that you assumed would perhaps be disproportionately hurt during this pandemic? Or was it more so to do with preserving cash at this point?

Spenser, I wouldn't say we backed out of them, I'd say we paused them. And it was completely due to our desire to marshal our cash. As the end of the quarter approached, we said we have a few significant deals but we said, almost on Michael's questions moment ago, we said when we look back later and say we should have preserved that money from these acquisitions and in that instance, we say yes let's preserve the cash.

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

All right. We thank you for joining us this morning. Have a good day. Bye now.

Ladies and gentlemen, that will conclude today's conference. You may disconnect at this time and have a great day.