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Spirit Realty Capital Inc (SRC) Q1 2021 Earnings Call Transcript

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Spirit Realty Capital Inc (NYSE: SRC)

Q1 2021 Earnings Call

May 6, 2021, 9:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings. Welcome to the Spirit Realty Q1 2021 Earnings Conference Call. [Operator Instructions] I will now turn the conference over to your host, Pierre Revol, Vice President of Strategic Planning and Investor Relations. You may begin.

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Pierre Revol -- Senior Vice President, Corporate Finance & Investor Relations

Thank you, operator, and thank you, everyone, for joining us for Spirit's First Quarter 2021 Earnings Call. Presenting today's call will be President and Chief Executive Officer, Jackson Hsieh; and Chief Financial Officer, Michael Hughes. Ken Heimlich, Chief Investment Officer, 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 yesterday's earnings release, supplemental information and Q1 investor 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 yesterday's release and supplemental information furnished to the SEC under Form 8-K. Yesterday's earnings release, supplemental information and Q1 investor 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 -- Board of Directors, President & Chief Executive Officer

Thank you, Pierre, and good morning, everyone. On our last call, I revisited the goals we laid out for Spirit at our Investor Day in December of 2019. I talked about our portfolio strategy, acquisition targets, balance sheet, team integration and technology, and the company was the strongest it has ever been. I also noted that the last pieces of the puzzle were for our hardest hit tenants to recover and to continue layering in accretive acquisitions so we could accelerate our earnings growth. I'm happy to say that those last pieces are falling into place, and I'm more positive in my outlook today than I was just a few months ago.

As you saw in our earnings release last night, we are significantly increasing our 2021 AFFO per share guidance, which is primarily driven by stronger tenant performance and better spreads on our relationship-driven acquisitions. Before I talk about Spirit's results, I want to highlight how the net lease model is proving to be a clear winner in the current economy. Net lease properties are granular and are generally located outside of CBD locations because the properties are single tenant and fully controlled by the operator, tenants can adjust their operations and use of their space to adapt with changing circumstances and consumer demand.

COVID was the ultimate stress test to the net lease model and showcased its durability. In addition, the transaction market is very deep, and there is tremendous diversity of opportunities across industry, asset types and tenants. This dynamic provides net lease investors like Spirit, ample opportunities to acquire real estate that is critical to an operator's profit generation under long-term leases. For Spirit, in particular, the impact of the vaccine rollout, government stimulus and robust jobs recovery has resulted in meaningful credit improvements across many of our tenant industries.

Many of our public tenants continue to access the capital markets and produce great results while our private operators are also experiencing improved performance, especially across lifestyle and experiential categories like gyms, restaurants and entertainment as customers are returning with pent-up demand. During the quarter, our lost rent, which we define as base rent not probable of collection, fell to 40 basis points, excluding movie theaters, a 60 basis point improvement compared to the fourth quarter. Our rent collections also steadily increased to 96% for the first quarter, and we expect further improvement throughout the year, particularly as theaters recover.

Another important metric is occupancy, which stands at 99.5% and hasn't dropped below 99% since the spin-off of SMTA. A key factor for Spirit's portfolio resiliency has been our focus on large sophisticated operators. A great example of one of these tenants is GPM Investments, a top tenant for Spirit, who we hosted at our latest town hall. For those of you unfamiliar with GPM, it is the seventh largest convenience store chain in the U.S. with approximately 3,000 stores operating under various brands, and they just went public last year. Like many large convenience store operators, they derive their income from fuel and merchandise.

Through the last three quarters of 2020, GPM delivered over 4% merchandise same-store sales growth where they derive a majority of their profit. And that strength has continued into the first quarter of 2021, where the growth rate remains above 4%. As a sophisticated operator in a highly fragmented industry, they're using technology to better understand how merchandise preferences differ across regions. Furthermore, they are addressing the e-vehicle trend through a JV with an Israeli EV charging company, allowing them to be better positioned in the future regardless of what type of vehicles people drive.

We're seeing many examples like GPM across our tenant base, and we will continue to partner with these types of operators as a core part of our portfolio strategy. As I mentioned earlier, one of the last puzzle pieces is the recovery of our hardest hit tenants and no industry in our portfolio has been hit harder than theaters. However, as you can see on Page nine of our investor presentation, our movie theater portfolio, representing 4.4% of ABR is showing signs of improvement. First, our public theater tenants representing $8.7 million of ABR have raised over $5.6 billion in public capital and are in a much better position to meet their obligations.

Second, our private theater tenants representing $14 million of ABR are beneficiaries of various government programs, including the CARES Act, Main Street Lending and The Shuttered Venue Operators Grant, which we believe will add a significant amount of liquidity to all our regional operators. Finally, as highlighted by box office trends, we are seeing consumers go back to the movies with theaters open and new content coming to market. The recent releases of Godzilla versus Kong and Mortal Kombat are salient indicators and even though they were released simultaneously via streaming, the box office did very well.

One last note to point out on our theaters. Our Q1 ABR does not reflect the new leases in place on our four former Goodrich theaters as those theaters are under renovation and will not open until later this year. Upon reopening, they will be subject to percentage rent arrangements for an interim ramp-up period. In addition, we are in the process of retenanting the three former Studio Movie Grill locations in Southern California, which were rejected in bankruptcy during the first quarter, and we'll update you once those agreements are finalized. Overall, the combination of improving balance sheets, better box office performance and successful retenanting has made us more positive on theaters.

While movie theaters were a headwind throughout 2020, as we move into 2021 and beyond, theaters could become a meaningful source of earnings acceleration. Turning to acquisitions. This quarter, we acquired 25 properties for $190.5 million with an initial cash capitalization rate of 7.57%, an economic yield of 8.44% and a weighted average lease term of 17.7 years. Of the deals we closed in the first quarter, 70% were sourced through existing relationship. The industrial assets we bought were a mix of distribution centers and light manufacturing that are mission-critical for the tenants.

The retail acquisitions added to existing relationships with Life Time Fitness, BJ's Wholesale, Kohl's and other existing tenants within our auto service, dollar store and entertainment portfolios. The second quarter is off to a good start. Quarter-to-date, we have closed on $166 million of investments with an initial cash capitalization rate of 7%, resulting in year-to-date acquisitions of $356 million with an initial cash capitalization rate of 7.3% and weighted average lease term of 15 years. The investment market remains competitive. And we're certainly seeing cap rate compression in many pockets, yet we continue to find deals that make sense for our underwriting with spreads that are attractive.

In fact, over the last 12 months, we have acquired over $850 million of assets with a weighted average lease term of over 15 years, a blended cash capitalization rate of 7% and a blended economic yield of 7.75%. The mix over the last 12 months has been evenly split between retail and industrial assets. We believe our early move into industrial assets has generated substantial alpha for our investors as cap rate compression for these property types have been meaningful. Our team is acutely focused on finding assets that meet our criteria for industry strength, tenant creditworthiness and good real estate, and our pipeline remains healthy.

Before I turn it over to Mike, I will just repeat that the company is in the best position I've seen during my entire tenure at Spirit. Our portfolio is performing well. we have cemented the processes and procedures we talked about extensively at our Investor Day, and we have deep relationships with our tenants. Finally, as you saw last week, we issued a press release in recognition of Earth Day, stating that we are developing a stand-alone ESG report aligned with investor favorite disclosures, SASB and TCFD and we will release this report before our 2022 annual shareholder meeting. We are pleased to be one of the earlier adopters within the net lease space on this front, and we look forward to updating you on our ESG efforts as we go through the year.

With that, I'll pass it to Mike.

Michael Hughes -- Executive Vice President, Chief Financial Officer

Thanks, Jackson. As you can see by our results, it was a solid quarter. Base cash rent grew $7.3 million, driven by net acquisitions and better tenant performance. Acquisitions contributed $5.7 million of this growth and our lost rent, which is a reduction of base rent, was only 2.2% or 120 basis point improvement over the last quarter. More importantly, our lost rent excluding theaters, fell to only 0.4% compared to 1% last quarter, which is better than our historically forecasted range. Our rent collections also improved, rising to 96% during the first quarter compared to 94% last quarter.

In addition to rent collections, we received $4.2 million in deferred rent repayments during the quarter, which is close to 100% of what was out. At quarter end, our accounts receivable balance related to deferred rent was $18.5 million, which excludes $6.5 million of deferred rent payables deemed not probable for collection. On the expense side, property cost leakage remained stable at approximately 2%, which is in line with our medium-term forecast. Our G&A, while seasonally higher in the first quarter, was still 3.3% lower compared to the same period last year. As I mentioned during our last update, we do expect G&A to normalize closer to 2019 levels throughout the rest of this year.

Finally, our interest expense rose modestly in the first quarter as we accessed the debt markets with a fairly large raise, carrying over $260 million in cash at quarter end. The cash will be used to fund acquisitions and the upcoming convertible debt maturity. Now turning to the balance sheet. We remain active in the capital markets. During the first quarter, we entered into forward contracts to issue an additional 1.4 million shares of common stock at a weighted average price of $41.13 per share. As of March 31, we had 5.5 million shares available under forward contracts.

We issued an aggregate $800 million in senior unsecured notes in early March comprised of a $450 million seven year and $350 million 11-year issuance, bearing coupons of 2.1% and 2.7%, respectively. It is worth highlighting that our unsecured borrowing costs continue to meaningfully improve with our spread to 10-year treasuries tightening over 150 basis points is our first 2016 issuance. We used a portion of the proceeds to repay $207 million of CMBS loans, which bore interest at a weighted average rate of 5.46% and retail our revolver, which had been previously drawn in January to repay the outstanding $178 million term loan.

We ended the quarter with $1.3 billion in liquidity, which leaves us well positioned to fund our acquisition pipeline and retire our remaining $190 million, 3.75% convertible notes due on the 15th. This is by far the cleanest balance sheet in Spirit's history with 99.8% of our debt unsecured, leaving only two properties encumbered by mortgages. And after the repayment of the convertible notes, our next debt maturity will not occur until the second half of 2026. Now turning to guidance. For 2021, we are maintaining our net capital deployment forecast of $700 million to $900 million, which includes acquisitions and revenue-producing capital expenditures, net positions.

However, we have meaningfully increased our AFO per share forecast from $3 to $3.10 and to $3.06 to $3.14 implying year-over-year growth of 4% to 6%. Given the large increase, I do want to spend a few minutes walking through the critical drivers of our outlook change. The first driver of results from our tenants was negatively impacted by COVID recovering faster than expected. As we discussed, lost rent during the first quarter, excluding theaters, was only 0.4%, significantly ahead of our expectations. Due to our first quarter results and the improvements we are seeing across our tenant base, we have reduced our assumptions for lost rent for the remainder of the year.

We have not changed our assumptions for a modest recovery in the back half of 2021 for theaters. However, as illustrated on Page nine of our investor presentation, cash collections from our theater tenants did improve during the first quarter, and that improvement has continued into April. So our actual and forecasted revenue contributions from our theater tenant have risen in the front half of the year. Finally, and despite the competitiveness in the acquisition market, we have achieved higher acquisition cap rates than we initially expected, resulting in improved spreads.

So the combination of improving tenant health, including the near-term improvements in our theater tenants, coupled with higher cap rates and acquisitions are the primary drivers of our revised AFO per share forecast. In conclusion, I'll echo Jackson's comments that our company is in the best position it has ever been in to meet our objectives, which should result in accelerating earnings growth for our investors. And we look forward to

Providing updates throughout the year.

With that, I will open up for questions.

Questions and Answers:

Operator

And at this time, we'll be conducting a question and answer session. [Operator Instructions] Our first question is from Wes Golladay with Baird. Please proceed with your question.

Wes Golladay -- Baird -- Analyst

Hey. Good morning, guys. Congrats on all the stuff on the balance sheet. And I do agree, it's in very nice shape now. A quick question for you. On the industrial assets, you mentioned a potential cap rate compression. Have you seen that yet? And can you give us an update on where you're buying industrial right now?

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

Hey. Good morning, Wes. It's Jackson. Without getting into too much specifics, yes, obviously, we're finding attractive cap rates depending on the type of credit, type of industry in a range of, I'll call it, low six cap range to mid-sevens. I can tell you that a lot of the assets that we've -- some of the assets that we have acquired in the last couple of years, we've actually got a reverse inquiry, just reversing bounds on potential to sell those assets and they've been meaningfully inside of where we purchased in that range.

Wes Golladay -- Baird -- Analyst

Got you. And do you get repeat business from those type of customers? I know you can get it with -- I mean, I see you doing it with some of your traditional retail focused tenants, but is that a source of business for you on industrial?

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

Actually, yes. Just the Shiloh opportunity was really from an existing private equity relationship that we had done on another platform investment we've done last year. Mac Papers, we've had follow-on investments. That was the paper deal we did in early 2020 where we've done additional follow-on opportunities. So it's a big part of what we're trying to do try to take that skill in retail and overlay it into the industrial area because a lot of these companies are still growing and looking for capital.

Wes Golladay -- Baird -- Analyst

Got it. And then maybe one quick one for you on the Main Event acquisition. It looks like you got an extra unit, but your exposure might have went down. Anything go on there?

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

I mean, Ken, why don't you pick that one? Not really just -- we're...

Ken Heimlich -- Executive Vice President, Chief Investment Officer

No. I think that's more a higher base rent. We are working with Main Event on a new unit of theirs and we're very happy to work with them on, again, growing our relationship with the tenants that we know and we like.

Wes Golladay -- Baird -- Analyst

Got it. Thanks, everyone.

Operator

And our next question is from Greg McGinniss with Scotiabank. Please proceed with your question.

Greg McGinniss -- Scotiabank -- Analyst

Hey. Good morning. I just want to dig into the wider cap rates that you're achieving than initially expected. I know you mentioned relationship-driven transactions helping to widen those cap rates. Are there any other factors that are pushing those up? And then how much of a benefit do you think the relationships are able to provide? And has there been a change in that contribution over the last year?

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

Okay. Thanks, Greg. I'll take it. Look, relationships help. They give you kind of insight into what it potentially takes to win, but tenants are pretty sophisticated. They got to get the best deal out there, but having a relationship is better than being literally outside the room. So I'd always argue that relationships are important. In terms of cap rate, I talked about that Shiloh transaction. Really interesting, it's a company that focuses on lightweight, reducing weight in cars. That's a big factor, right, for EV and for fuel efficiency. So we'd love that part of the business. That's what this company does.

Case in point, as part of the underwriting for this transaction, we closed on eight properties with this company, long-term leases. And post first quarter, they were able to assign two of those units to another business. So it just shows you that the reason they can do that is the rents were set at a very, very reasonable level. It's good real estate, good buildings. And so it shows you that there's fundamental demand for this type of property from users. And as part of our underwriting there, we like the credit. We like the basis, like what they did if the opportunity set is really attractive for us.

So I would say the difference that helps us is that we spend a lot of time on the particular industry credit as well as real estate. And that really -- that combination helps us really, I think, get conviction around certain opportunities. And once we do, we really dig into it.

Greg McGinniss -- Scotiabank -- Analyst

So is it a shift in terms of the types of assets that you're looking to acquire this year, which is why you're expecting a wider cap rate range then?

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

Well, our cap rate range is the guidance, I think, was out there at 6.5% to 7%. So the answer would be no. But -- and I think we did a good job securing -- I think we were early on coming back into the market. So that helps us quite a bit. But I think that as the market is competitive from a cap rate standpoint as you've heard from other -- our peers. And so we're going to continue to kind of do what we do. We think we can be very selective and we're finding good opportunities.

Greg McGinniss -- Scotiabank -- Analyst

Thanks. And then just one more for me. In light of the recent Trident acquisition, just wondering how you're thinking about larger portfolio acquisitions at this time. And if you're comfortable with the second part of this question, maybe touch on your willingness to combine with another public platform.

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

Well, on the portfolio question, we always have been -- we have been looking at portfolio since I'm still in this company. And as I've said, when you look at a portfolio, there's always good property, middle property, and there's always usually some challenging properties, i.e., the dogs. And so the challenge for us is we're able to do new sale leasebacks with existing customers at attractive cap rates on our lease term, annual bumps. We do the underwriting. And you know what? That's hard work, but I think we're doing a great job generating high-quality assets for our shareholders.

So any time we look at a portfolio, we've got to measure it against that. And so to date, either the portfolio didn't match up, but the pricing didn't sort of make sense. As it relates to the combination question, when I took over as Chief Executive Officer back in 2017, I get a question almost every quarter. And the answer is the same. We will always look at those opportunities, but today, to be honest with you, there's so much upside in our business in order to kind of just get back to a market multiple. We believe that's the best for our shareholders at this point.

So yes, companies think about this. If we had sold back in 2017, that would have been sort of a mistake, right? The company is far better today, balance sheet, assets, the people, the platform. So we're just going to kind of keep going. We think we've got a good path here to keep beating and raising.

Greg McGinniss -- Scotiabank -- Analyst

Alright. Thank you, Jackson. Appreciate it.

Operator

Our next question is from Chris Lucas with Capital One Securities. Please proceed with your question.

Chris Lucas -- Capital One Securities -- Analyst

Good morning, guys. Nice quarter. I guess, let me start with this, Mike. Just on the forward equity, stock prices run well past the price that you had executed on. Are you required to execute on those forwards? Or is there an out for you given the significant appreciation above that forward price level at this point?

Michael Hughes -- Executive Vice President, Chief Financial Officer

Yes. No, we are contractually obligated to execute on those contracts in some form, right? I mean, we could unwind them, but we got to then settle them. And actually, that net settlement does affect our earnings. So there was some dilution in Q1 related to the unsold forward equity contracts because our stock price has run up ahead of where we struck those. Announced the treasury stock that gap in valuation is what impacts your dilution on those unsettled shares. So we can unwind them. We cannot take all the shares in, but there would be a cost. I mean, we are obligated to essentially take those in, in some form.

Chris Lucas -- Capital One Securities -- Analyst

So not likely worth the effort, right?

Michael Hughes -- Executive Vice President, Chief Financial Officer

Yes. I mean, you end up in the same place, honestly. So whether you take them all in or you net settlement you end up economically you're in the same place.

Chris Lucas -- Capital One Securities -- Analyst

And then Jackson, as news out this morning on At Home that they are -- have agreed to be acquired by a private equity shop. I guess, bigger picture question, given the environment that a number of the public retailers have experienced over the last year, i.e., improved balance sheet, improved leverage metrics, etc. Are there things in your lease contracts that provide some insulation from potential private equity transaction that typically uses a lot more leverage in the pro forma company?

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

I would say the simple answer is no. I mean, that's always something that is a possibility, right? So one of the things that we try to focus on is, if you look at our ABR today, it's over 52% of public companies and around 20%, 25%, 27% are PE-backed. Specifically on At Home, that's a great company. We love the company when we first met them as a public company. And at that time, there were rumors about Kohl's potentially acquiring them. That was the chatter that was before at Investor Day. One of the reasons why we were so interested in that opportunity in that company was they just had a great business model, and this is pre-COVID, right?

The model that what they were offering customers was very, very unique. They were able to really reduce G&A in order to just deliver that kind of warehouse discount home decor opportunity to customers. And we just thought -- whether it's public or private, this is a winner, right? We'd love the concept. We love the management team. And obviously, they had a misstep on their earnings and to COVID, they've recovered. So it's not surprising to me that someone has sort of said, "Hey, I want to take your -- I want to execute your business plan faster" because that's for me, if I were sitting there as a public company, they can kind of roll out opportunities at a certain pace with a PE-backed company that may be able to accelerate that.

So my guess is we'll continue to look at them, whether they're public or private because we like the business concept. We really like the team. And obviously, we'll be focused on what the credit looks like. Credit today looks great pre buyout. And if there is a presumed rumored buyout. Obviously, there might be more leverage in the future. But to answer your question, we don't have gates on leverage in our typical lease. So...


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Chris Lucas -- Capital One Securities -- Analyst

Okay. And then last question for me. I think subsequent to the quarter end, you acquired a headquarters campus. Just kind of curious as to what was unique or interesting about that relative to sort of your more traditional sort of industrial retail focus?

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

Yes. So I mean, I think we've talked about it. We bought, if you recall, a couple of quarters ago, a BofA office building in Hunt Valley, Maryland. We really liked it, it has very unique characteristics. And this Tupperware opportunity sort of is very similar. Tupperware, obviously, as a public company, they generate north of just shy of $2 billion in revenues, they are a public company, Single B. They had really good earnings, as you can see they're public, so I won't mention their earnings, but we like the industry because it's related to food prep and food storage. As you know, we've been looking at food manufacturing opportunities as well. So we like that segment.

But I think what attracted to us on this opportunity was there was a change in management about 13 months ago, meeting new leadership team there. We also really like the real estate opportunity. This is in Ken's former neighborhood in Orlando, so he knows the asset well. It's a campus opportunity. It's located right on a rail system, the fun rail system. So it's proximity to transportation is excellent. We like the fact that it's in a very strong submarket within that Orlando market. And it's got unique building features related to what Tupperware does. There's some research and development facilities in there. So -- and it's also got a very good rent per square foot. So long-term lease.

So it had a lot of characteristics that made us feel like it's very sticky opportunity in -- with a good credit in the right industry, going in the right direction. And most importantly, that if we had to retenant it, we feel confident about that given the submarket. So we will continue to look at those opportunities very selectively. Like I said, professional office is only 2.5% of our ABR. So it's not going to be a significant portion of our overall ABR, but we're very selective, and we'll continue to look at those opportunities.

Chris Lucas -- Capital One Securities -- Analyst

Super. Thank you for your responses.

Operator

Our next question is from Brent Dilts with UBS. Please proceed with your question.

Brent Dilts -- UBS -- Analyst

Hey, guys. Just a couple on movie theaters. Do you know what percent of your theater base was open as of the end of 1Q? And just what percent is expected to reopen in 2Q as restrictions get lifted?

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

Ken, you can take it, the Regals are not open yet.

Ken Heimlich -- Executive Vice President, Chief Investment Officer

Yes. We're -- about 85% of all of our theaters are open today, and that will be 100% by the end of this month.

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

And Brent, one thing on the movie theaters, I think if you listened to my comments, we talked about we're getting more positive about what's happening there. And if you listen very carefully to Mike's comments on his earnings new guidance, there is a lot of meaningful upside to our earnings picture. If we're able to have success within that portfolio. We love the fact that our public companies, as you know, raised a bunch of money, like $5.5 billion, right, for leverage and deleveraging. We love the fact that our regional operators have all received CARES money and PPP, and they're in the process of getting those SPA grants, which are really important for them.

So if you just look at our theaters and just think about the rent from our cash-based movie tenants, and we haven't made any adjustments to those. That's about $10 million of, call it, incremental run rate earnings that can come in from that group. We're not putting in the forecast because like I said, we're still very -- we're cautiously optimistic about that. Then you look at the seven movie theaters, the four former Goodrich theaters that are being converted to Imagine and the three former Studio Movie Grills assets, which we're negotiating a lease with a new operator on.

When those properties come online, if you were to use rough justice, it's probably like $5.5 million of incremental revenue, right, that is not really in our forecast. So when I think about this opportunity, we talked about earnings acceleration. It could be like $15 million of run rate revenue, i.e., earnings coming through the P&L. That's not going to happen this year, but it's kind of more of a '22 and beyond pro forma impact. We love the fact that if you look at 2019 box office revenues, it was just north of $11 billion in 2019, as you know. And if you kind of factor in the slate of movies coming out, you could estimate $4 billion to $5 billion in potential box office revenues between now and the year-end.

So look, we love to -- we're cautiously optimistic here. And look, if this comes into being, we'll continue to be raised as we go forward. So the April numbers are a lot better than March for our theaters. And so that's the real booster rocket in my opinion, for our earnings beyond the normal, we're doing everything great. Acquisitions, operations, etc.

Brent Dilts -- UBS -- Analyst

Okay. Thanks, Jackson. You had an awful lot of follow-up questions I had related to that. So the only other thing I just want to clarify, I think you cited 96% of rents were collected in the first quarter. Is the 4% uncollected, is that pretty much all movie theater at this point just to clarify?

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

Pretty much. Pretty much. There's a couple of other things in there. But yes, the large majority is movie theaters. And that's why -- the collections are 98% excluded theaters. So we have a couple of those in there.

Brent Dilts -- UBS -- Analyst

Okay. Alright. That's it from me guys. Thank you.

Operator

Our next question is from Haendel St. Juste with Mizuho. Please proceed with your question.

Haendel St. Juste -- Mizuho -- Analyst

Hey, good morning. Thank you for taking my question. Jackson, can you talk a bit about the Fitness acquisitions in the first quarter here, it looks like about $35 million. What was the cap rate? How did you underwrite those? And maybe you could talk a little broadly about how you view on some of the COVID challenge in experiential sectors like theaters and gyms may be changing here as we shift our view to a world and economy post vaccine and with the economy on an upward trajectory and what your appetite for more or adding exposure to those type of sectors could be? Thanks.

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

Thanks, Haendel. So the -- we bought another Life Time fitness opportunity in Arizona in the first quarter. Life Time is interesting. They're really a Country Club. And they're almost -- they're really -- I mentioned in my comments, it's a lifestyle asset. It's not really experiential retail. I mean, people really use those facilities, not just for exercise, but there is day care, indoor tennis, there is dining facilities. They have like work -- there's workplaces within those facilities. So they're very much destination or it could not just go run on a peloton or exercise on a peloton machine. And so that's -- it's a really intriguing concept for us given what we've learned about COVID.

So we're evaluating actually other lifestyle opportunities today. I think they look really interesting, given changes in people's work life balance, need to get outside, need to do things that are just -- not just going inside the indoor type facilities. So that was, I would say, one of the leading factors in us pursuing that lifetime opportunity. I won't get into cap rates. I don't really like to disclose that on specific units. We did close on a main event in the first quarter. We love that concept. So they're doing a great job. People -- look, you know there's a lot of pent up -- the balance sheets of our -- of people in the United States are quite good with all the stimulus.

So there's a lot of pent-up demand for people who want to get out and do things, whether that's experiential retail. So that would be the main event. But that Life Time is -- we love that country club-type opportunity, it's stickier. It's more captive around different neighborhoods. So I think that's an area we're going to continue to evaluate and potentially look to add more in that segment.

Haendel St. Juste -- Mizuho -- Analyst

Got it. Got it. It seems like you're drawing a bit of distinction here between the Life Time and the more conventional fitness. I just wondering if I'm reading that correctly. So anything in your...

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

Yes. Yes. Can you -- those Life Time facilities dollar-wise are much more significant than a typical gym. I mean, you're talking about much more expensive build-out, much larger facilities, $30 million to $40 million per unit versus a VASA gym, which is going to be sub-$10 million. So -- and it's a different business model. It really is. So -- but we still like regional gyms. We're not getting away from that. But the Life Time was kind of an eye opener given how it's performed, how it's -- how their membership has rebounded so quickly and what they're trying to offer. And especially with more potential work from remote work flexibility, that's going to help those kinds of businesses, we believe, going forward.

Haendel St. Juste -- Mizuho -- Analyst

Got it. Got it. Thanks. And I understand you don't want to get into a specific tenant cap rates so much, but maybe you could talk about the first quarter cap rates in general. I was a bit surprised by the 76, I think overall, so maybe you could talk about what skewed that up, especially because you seem to acquire a lot of mission-critical manufacturing and industrial this quarter. Thanks.

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

I know we've looked at a lot of stuff to get those cap rates and those opportunities. Look, if we want to do more, the cap rate would be lower. I'll just tell you that. So there's no secret sauce, but it's just being really selective. It's picking the right operators. And it's -- we look at -- there's -- I don't have a score sheet of billions of things that we turn over. We look at a lot of things. But we're very fortunate to have buttoned down these assets earlier. My guess is, if I were to kind of look out for the balance of the year, it's definitely getting more competitive. So I would assume that our cap rates will kind of continue to adjust downwards on a quarter-over-quarter basis to kind of blend into that 6.5% to 7% weighted average cap rate by year-end.

Yes, the team -- I think one of the things that we're able to do, we don't talk a lot about this process. We have a very holistic way of doing acquisitions. Credits involved very early on. Research is involved very early on, whether it emanates from our asset management team or from our acquisitions team, we're able to size it up very quickly. We're not just buying investment-grade off-the-run assets outside of our business strategy. So again, they've kind of work a little harder, turn over more stones. But when you dig in and find those opportunities, sometimes there's some -- we really spend the time and get on to that buyer interview call where we can talk to management, find out what's going on, find out what's motivating.

I was on one with Ken and the team yesterday, smaller deal. It's -- you learn a phenomenal but a lot about what's going on, what's driving their business. And that's one of the reasons why in our monthly town hall meetings, I bring a tenant in every month since we've done that since COVID started. And my guess, is we'll continue to do that going forward. We learned so much about these trends. And I think that we're small enough of a team where we can be very flexible and move very quickly. So once we learn this information. And look, we started off with this recent acquisition I talked about in the second quarter. So we're off to a good start. So our pipeline is really solid. So we're excited about it.

Haendel St. Juste -- Mizuho -- Analyst

Got it. Got it. Thank you.

Operator

Our next question is from Ronald Kamdem with Morgan Stanley. Please proceed with your question.

Ronald Kamdem -- Morgan Stanley -- Analyst

Great. Congrats on a great quarter. Just a couple of quick ones from me. One, taking the tenants health clearly feeling a lot better today than three to six months ago. Can you just remind us what the percent of tenants on cash basis, what was the assumptions for collections? And how did that change and the impact on the guidance? So what was the collection assumption before? And did that change with the updated guidance and what would it provide. Hopefully, that made sense.

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

Mike?

Michael Hughes -- Executive Vice President, Chief Financial Officer

Yes. You want to take that? Sure.

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

Yeah, go ahead.

Michael Hughes -- Executive Vice President, Chief Financial Officer

Yeah. So about 5% of our tenants are on a cash basis right now. We collected quite a bit of that in the first quarter, and that's where our lost rent was so low. Last quarter, I talked about our general assumption on lost rent reserves about 1% going into year. We added 50 basis points to that this year just because of COVID and uncertainty around that. Our lost rent and that was ex-theaters, so excluding theaters. So ex-theaters, we were up 0.4% on lost rent in the first quarter. And we've basically taken our assumption down to the 1% kind of normal assumption for the rest of the year. And that -- all that results in about $0.03 pickup in AFFO per share, right?

So if you kind of think midpoint to midpoint, that's $0.03. We also talked about theaters. We have that on Page nine, we put in our investor deck. If you look at that since Q4 to Q1, we've had -- we've picked up $800,000 of additional rent cash rent collection from theater tenants that are on a cash basis. That was more than we expected. We did forecast some modest improvement, but that was more than we expected, and you can see we're trending in April even more than that. And so I talked about that in my remarks about the front half of the year, we are -- we've also now forecasted additional cash rent collection from cash-basis theater tenants, right?

We haven't changed the back half of the year assumptions on that. But that's picking up another, call it, $0.105. And then you have the improved spreads and acquisitions on what we've done year-to-date, right? So we're running over a seven cap on our year-to-date acquisitions, even though that we expect that to moderate and maybe tighten up. Later in the year, you get a lot more AFFO contribution from the acquisitions in the front part of the year, obviously, than in the back part of the year. So that's adding some inflow as well. So that's kind of the change in the forecast assumptions generally.

Ronald Kamdem -- Morgan Stanley -- Analyst

Great. And then just switching back to Industrial. Obviously, there was a net lease deal announced in the market. I guess, my question is, number one, when you think about manufacturing versus distribution, is there a material spread in those cap rates? Number two, who are you sort of competing against when you're buying assets? And then number three, when you're thinking about the difference between ING and non-ING. Do you think that spread has gone too wide and it's a really fact spread right now, and we see that and we can see that compress.

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

Okay. I'll try to start with that, and maybe, Ken, you can follow up if I miss something. But on the first question, first of all, for the manufacturing that we focus on, it's light manufacturing. So it's pending assembly. So the cap rate differential between what I'll call our run-of-the-mill industrial distribution versus light manufacturing. I think it's like probably I'd say 100 to 150 basis points. Heavy manufacturing, where there's real smelting, real heavy-duty manufacturing, which are very specific kinds of facilities for those tenants, that's not a focus area for us. The real estate is not fungible enough, very specific, generally.

There, I think the cap rate range you could see could be in the 150 to 225 basis point premium over what I'll call a straight-up industrial type facility, agnostic for the credit, right? But just generally. In terms of who we're competing against, it's a lot of people. It's private equity firms, small private equity shops, other public competitors, obviously. So I think for us, where we have to decide early on and how we kind of manage our pipeline through prescreens is, first of all, if it's an existing customer, a huge priority. We will move the organization to potential follow-on business with either an existing customer or a PE firm or owner of existing business. So that's first and foremost.

But as it relates to just competing in the what I'll call the brokerage market, you have to be very efficient with your time. And so I think our screening process is very good. We get to the essence of, is this something we like? Is this something we can be competitive on? What do we think the buyer universe looks like here? Does it make sense for our timing and the weighting of what we're looking at. So is the seller really a seller? Sometimes you spend a lot of time and people don't transact, right? So there's a lot of things that go into that calculus. So we don't spend a tremendous amount of time wasting it. So that's an area that we look at.

And then finally, on the spreads, I'm assuming you're talking about like industrial, I'm not sure if it was industrial retail, but in -- yes, so industrial, which is interesting is if you looked at a core multi-tenant industrial facility, those are going at super aggressive cap rates, right? I mean, there you could be in the low 4s. And in some cases, if we looked at our long-term 15-year lease on a distribution center, you might not have the same bumps. You actually don't get as much credit as you think you might, right? So look, if you take a FedEx facility, right, 15-year FedEx on a great distribution center.

Those are really attractive, but you actually won't see as much spread between that opportunity and say, in core industrial distribution center facility in the Inland Empire, in fact if anything, I would say an Inland Empire facility might have more cap rate compression, lower cap rate because you've got the ability to increase rents. And so it's kind of a bifurcated market in that area. And so we typically will look at the more long-dated opportunities. We don't necessarily focus on investment grade. It's really -- if you were to take away what we do, I think we really try to identify industries and credits that move upward, i.e., credits on the move.

So that's an area where we think differentiates us where we can see an opportunity of a credit change. And we think if that -- we do our homework, right? We'll see cap rate compression in that asset. And we've been able to do that numbers -- a number of different times. So I think that's one area where we have an advantage.

Ronald Kamdem -- Morgan Stanley -- Analyst

Great. That's super helpful. The movie theater slide in your commentary were very helpful and actually answers all my questions. So I'll spare you. Congrats on the great quarter.

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

Thanks.

Michael Hughes -- Executive Vice President, Chief Financial Officer

Thanks.

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

These guys worked really hard on that page.

Operator

Our next question is from Linda Tsai with Jefferies. Please proceed with your question.

Linda Tsai -- Jefferies -- Analyst

Hi. Just a follow-up on Industrial. Is there a crossover in terms of the manufacturing also already being tenants in your portfolio on the retail side?

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

Not really. I don't think, Ken, I would say maybe -- no, not really. I mean, Party City, we don't have any retail facilities for Party City, but that's kind of a balloon manufacturing and gigantic distribution center. So not now.

Linda Tsai -- Jefferies -- Analyst

Thanks. And then just to follow up on collections. So 96% rent collections in 1Q, what was April rent collections like?

Michael Hughes -- Executive Vice President, Chief Financial Officer

Yes. We don't have those numbers tallied yet because we do have -- there's about 4% of our tenants that are subject to percentage of rent agreements, and we don't talk like those. They're going to be based on their April revenues, right? There's going to be a component of the rent. We don't get that information until really middle of May. So we expect things to continue to incrementally trend higher. Just for example, if you look at that Page nine, the movie theater slide, that improvement you see there in April and the cash collections from the cash theater tenants, a lot of that's driven off percentage rent.

And that is actually driven off of March revenues. So that doesn't have the big releases and the impact of the box office revenue increase that we've seen for Kong, Godzilla, Mortal Kombat. And so we expect things continue to trend higher because movie theater tenants are a big component of that gap in our rent collections.

Linda Tsai -- Jefferies -- Analyst

Thanks.

Operator

Our next question is from Harsh Hemnani with Green Street. Please proceed with your question.

Harsh Hemnani -- Green Street -- Analyst

Thank you. Jackson, you mentioned in the past that you're more interested in underwriting public company tenants. On the off chance that you do underwrite tenants owned by private equity businesses, is there anything additional in terms of underwriting that you'll look at over there to maybe held against the additional risk that you see?

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

Yes, Harsh. I mean, we really look at the history of the sponsor. That's really important. Is this a PE sponsor that has made investment, for instance, in this industry? Or is it the first time? That's important to understand. Because if they have history, they generally sort of know what to look for. They know how to add value. They know how to bring management teams into the business. The real estate underwriting becomes much more critical when we're doing something with a -- it's always important, but it's also much more important as it relates to a private company because the credit can change overnight, given if they do a levered recap or something like that.

So setting the rents is really important, making sure the property scores are good, the way we do it in our business. All really important. And I guess, what I'd also say is when you get a relationship with a good private equity sponsor -- private equity sponsors, they do a great job. I mean, they're willing to really push management teams, be aggressive on new initiatives. We're probably more aggressive than a public company can do it. And so what we look at is their track record. That's really important for us because, look, at the end of the day, we may be -- they may not be there 10 years from now. And so that's important.

But the other thing is that what we found is when we can perform for someone, and like Mac Papers is a great example, they needed to close that acquisition in the first -- at the end of the first quarter of 2020, and that was right when COVID was sort of starting to really flare up, you can see it. And we closed for them for that group. And it was important, and that's given us the opportunity to do more with them because people want predictable counterparties that do what you say. So yes, look, it's an important component, but we look at it very carefully. Also the industry itself. So look, at the end of the day, for us, Harsh, it's really simple math.

We make an investment. We want a tenant to stay there for the length of the lease term if they can hit their extension options, it's a home run for us. That's the math for us. So we have to be able to underwrite that real estate, the credit, the industry for the long term. And we've had a lot of success in that. So that's the business model.

Harsh Hemnani -- Green Street -- Analyst

Great. And then just following up on your comments on office, given that you're sort of looking into options on office. Have you looked at the combined varied and GLD income's one-off office portfolio? Is there anything you found interesting in there? And would you be a marginal buyer of those assets?

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

No. No and no. We haven't looked at it and we wouldn't. And that's not to say, but the reason is that, like I said, we have very specific criteria in our office lens and scale is not important for us. It's really finding that right, if the office building has below market leases with a really strong tenant or is a submarket that's super tight. So I mean -- and first of all, we have to have a lot more weighted average lease maturity to it. So yes, that situation is not for us. I'm sure other folks will look at it, but that's not really for us.

Harsh Hemnani -- Green Street -- Analyst

Okay. Thank you.

Operator

And our next question is from Joshua Dennerlein with Bank of America. Please proceed with your question.

Joshua Dennerlein -- Bank of America -- Analyst

Yes. Hey, Jackson. Paul as well. Just a follow-up on At Home. Can it going private change your view on how you'll grow with the tenant at all?

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

We'll certainly want to understand what the new owner, assuming the new -- look, this is public company, so it's not done, right? So who knows, right. So that, yes, sure. I mean, we'll want to know what the business plan is, who the new owner is, what the management team is doing. Like I said, one of the nice things about that business model is there is an opportunity to capture market share, right? It's a great business. The idea is they want to roll out more units. There's clearly customer demand for it. So yes, we'll certainly be open to it, assuming that transaction moves forward.

Joshua Dennerlein -- Bank of America -- Analyst

Got it. All my other questions have been answered. Thanks, Jackson.

Operator

[Operator Instructions] Our next question is from John Massocca with Ladenburg Thalmann. Please proceed with your question.

John Massocca -- Ladenburg Thalmann -- Analyst

Good morning.

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

Hi, John.

John Massocca -- Ladenburg Thalmann -- Analyst

Just wanted to clarify something from the prepared remarks. Are you just viewing the upside from theaters coming from the in-place portfolio as those move more fully back into the rent tank bucket? Or was that also an indication that theaters might be interesting targets for acquisitions as the industry potentially starts to stabilize?

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

It was really the former. We think there's a lot of -- we want to get that -- we want to stabilize our current tenant base within the movie theater segment. That's $10 million I referred to, which is the rents from -- our movie tenants are basically run on a cash basis, the incremental rent. And then we have those seven vacant properties that are being occupied, right, which that's a good sign. People want to occupy our movie theaters because they're good locations, good real estate. And we think there's a 5.5-ish area incremental rent coming from us when they're open and finally up and running. So that's the high priority right now.

It's not buying new movie theaters. It's really capturing because that's what we -- that's the best thing we can do for shareholders, capture that, call it, $15 million of potential incremental rent/earnings coming to the P&L, very easy, which is uptick on weight, the factors look really good right now today. Given economies reopening and the movie slate looks great, people are willing to go into these theaters, as you know, you can look all over other places like China, we've seen success there. So it's starting to happen. But at the end of the day, look, the studios release these movies. So that's the part that's a little trickier for us to underwrite.

But the thing that gives us comfort is the operators have the time and they have the capital to get through it, we think, at this point. So we're cautiously optimistic about it.

John Massocca -- Ladenburg Thalmann -- Analyst

But in kind of the intermediate term, No real interest, I guess, on your own to add to that exposure?

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

Yes. That's a good point. Yes, that's a fair point. We're not looking to increase investment in the movie theater segment at this point.

John Massocca -- Ladenburg Thalmann -- Analyst

Okay. And then I know you already gave some color on the Shiloh transaction, but maybe could you provide some information on the underwriting and the credit there? I'm just thinking the context of some of the issues that business ran into when it was a public company before the reorg and the new ownership came in that you've transacted with?

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

Yes. I mean, well, first and foremost, we love the business, right? It's -- we think it's reducing weight in cars and metal materials. I mean, they're materially agnostic. But that's a major area as we continue to get more fuel efficiency and EV vehicles, the lighter the vehicle, the better efficiency it has. And then you need to have the safety and strength. So it's an industry that we think is very important. These guys provide materials to the -- they really support the auto industry, so the OEMs. So they focus on frame structure. So we like the industry, start with that. They came out of bankruptcy with basically very little debt, two times debt-to-EBITDA.

The sponsor was very experienced. They came in and put a new management team in place. The revenues are significant, north of $500 million for sure. We like the basis in the assets and the rent structure that we put in place. And like I said, they're primarily in the Midwest where these facilities were located. But as part of the underwriting, we shifted two of those units out of the Shiloh credit into other users with the same lease term. Basically, that was part of the transaction. So you'll see them drop out of our top 20. And I guess, the last thing is they're doing better on a pro forma basis today coming out of the reorg than we had initially underwrote. So because like I said, it's the right industry. So it's the right real estate and a very good sponsor.

John Massocca -- Ladenburg Thalmann -- Analyst

Okay. I appreciate the color and that is it for me. Thank you all very much.

Operator

And we have reached the end of the question-and-answer session, and I'll now turn the call over to Jackson Hsieh with closing remarks.

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

Thank you very much. I'd like to just have a shout out to two of our directors, Sheli Rosenberg and Tom Senkbeil, who are not renominating for a new tenure on our Board. They've done a tremendous service for the company and been a great partners with me as we've gotten through a lot since I've been at this company. So I want to thank them for their service. But we're excited about our three new directors coming on, potentially, Kristian, Michelle and Tom. And so that will be exciting for us at AGM. But I also want to thank our people. The flywheel is moving. Our portfolio is great, and we think this -- our future is bright. So appreciate all your support. Thanks.

Operator

[Operator Closing Remarks]

Duration: 66 minutes

Call participants:

Pierre Revol -- Senior Vice President, Corporate Finance & Investor Relations

Jackson Hsieh -- Board of Directors, President & Chief Executive Officer

Michael Hughes -- Executive Vice President, Chief Financial Officer

Ken Heimlich -- Executive Vice President, Chief Investment Officer

Wes Golladay -- Baird -- Analyst

Greg McGinniss -- Scotiabank -- Analyst

Chris Lucas -- Capital One Securities -- Analyst

Brent Dilts -- UBS -- Analyst

Haendel St. Juste -- Mizuho -- Analyst

Ronald Kamdem -- Morgan Stanley -- Analyst

Linda Tsai -- Jefferies -- Analyst

Harsh Hemnani -- Green Street -- Analyst

Joshua Dennerlein -- Bank of America -- Analyst

John Massocca -- Ladenburg Thalmann -- Analyst

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