National Retail Properties (NNN) 13 Feb 182017 Q4 Earnings call transcript

Greetings, and welcome to the National Retail Properties Fourth Quarter 2017 Operating Results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Jay Whitehurst, CEO. ahead. go Please

Good Properties Brenda. welcome the to Thank quarter morning XXXX Retail fourth earnings National you, and release call.

FFO this year some Retail every business. turn was another Joining X.X% Kevin Properties financial results Kevin in on call strong with of detail. Chief our ended per our over We me XXXX more Financial to Habicht. share discuss After our call year opening aspect results. the I’ll very core of in remarks, growth the over to is Officer, XXXX for National

on said consistent report we’ve X, past many equity National shareholder As respectively. times, year-end XX, REIT XX, our exceeded X, through and to Retail major focus and indices is averages pleased over XX-year that produced periods many total returns long-term the I’m Properties XX XXXX, results, that the and

almost of an tenant portfolio occupancy diversified of properties with over rate broadly X,XXX XX%. remains healthy single Our retail

of continued the Our leases expiring high of rate by renewal rent. XXX% were lease Over in our current at renewed expiring the tenants XX% XXXX.

prior a tenant Mountain all due below of for national of as XXXX re-lease stores. vacant Our XXXX rate properties, XX% those successful The in pleased Gander strong including re-leased recovery recovery our XX of was approximately properties rent rate have also term. to Gander vacant rent for leased all quickly to was to Mountain average properties but re-leasing the of efforts our we very on lower the to long-term we former remain XX-year properties a our

relationship We our business slightly X.X% XX about invested prior in year. did in with XX% dozen did XX of tenants. retail properties lease average million portfolio were $XXX relationship XXXX we XXXX and relationship including cap with tenant no with our acquisition almost business tenants which at rate single the tenants On of an cash XXXX, three the with of we front, Roughly, XXX invested in an years. dollars over initial in of duration and

XXXX, like are few to As I’d we a highlight. takeaways ahead that key look there to

results First, are share per really matter. what

with in base. growth to National You’ll a management concerned execution of be of us, focus often growth long-term estate. approach is management per maintaining with to results, never conservative our asset on FFO allows meet share team than sake to and with or risk more volume results us Properties. headline highly in our less quarter while selective not balance growth per and in the core for This devoted To track acquisitions growth per REIT share headlines matters the quality year. real of at team in and the Retail to acquisitions less positions what consistent, growth shareholder multiyear value consistent are sheet, record any share us our a more creating concerned perpetuate

all retail is not Second, toxic.

trade Our to tenants very typically of lines respective make stores, mix major businesses. expanding adding playing primary The are and concepts or that consumer a regional that are and headlines. experiences, businesses customer their negative had on our in payroll our other services, are getting and tenants ecommerce customer national offense We up with necessities. that struggling large, resistant little focus tenant operate ecommerce retail exposure and and

equal. not Third, are all created portfolios

these reasonable general individual of the in Our withstands any estate safety our business. factors, margin rents. create better By locations at or in that focus is enduring good on on an concentrating any we real economy underwriting tenant’s turmoil

has and recession five the of XXXX, averaged our our dipped XX.X%, occupancy During in rate below the never years last and rate for XXXX depth the occupancy XX.X%.

for the associates difference. our of the our interest at after at is have excellence, XX years least years half putting over be this to hard of continue the Their The the with years. make over experience and impressed working our the associates institutional of importantly, Even National memory Company’s Retail and us most humbled all the our for give deep talent, of and and Company culture expertise experience their and XX high and averages estate invaluable. every in that who shareholders’ and associates I team, daily. real seize the XX face positions of Properties associates to first, of management senior culture been address The Lastly opportunities with commitment by the to challenges dedication all day. level work shareholders professional us

comment on to I environment. like markets Kevin, capital challenging Before would briefly turning over today’s call to the

affected, all currently more better Properties are to Retail National than While positioned this been challenging environment. are REITs very companies few confront

balance leverage issue credit. is us equity capacity low we price feel only we to of maintain flexibility $XXX when gives sheet tremendous our strong, Our Moreover, right. great million on the line

our one-off that at balance to that for also single capital we earnings to raise be rates sheet strength, ratio, deep are And retained our significant be can sold with addition accretive where cap In deployed attractive conservative a payout pool properties available tenant reinvestment. generate we dividend to have of needed.

increases yields rise; a portfolio, term relatively healthy high to of market continue yield oil Our our History that is with us cap cushion. upward current adjust acquisitions, is range, around in Properties acquisitions upper the selectively weather significantly X% provide higher meantime, to rates National the the and initial our X.X% property long-term than rates pipeline annually. balance and typically in like interest include most which leases will on our our In conservative Retail fortress and initial our of types tells if rent underwritten well-positioned meaningful sum, for cash sheet.

Kevin over to our Let turn call more results. the for color me now on

results let will laws. forward-looking future the usual make results cautionary that the differ statements release and release The certain press SEC out be filings in that after forward-looking could changes time-to-time were cause in from and statements, that securities considered revisions With actual from morning’s that discussed expectations risks these actual are detail And XXXX to the may differ $X.XX over the to we Factors the with way. from matters with statements forward-looking per of materially this and statements made. of Headlines may FFO me greater results, significantly Company’s this the may X% growth results. core statements quarter operating disclosed fourth to reflect we Jay. these morning’s in press statement share of Thanks, fourth include announcing federal be represent in quarter Company’s from which under release. to not results

we we increase XXXX. had was line in throughout the per guidance $X.XX core of represents share that our FFO prior increased XXXX which results full For over X.X% and year, results a announced and with

relying record at a basis XXXX by States. XXXX our range large to dividends, share dividend short-term the consecutive single strong finished than while of XX side increased which the sheet three XX.X% public U.S. we of floating quarter fourth payout digit in the points our on year ratio higher XXst. balance a variable So, and/or per rate of the ticked X.X% held and XXth We We XX.X% marks fewer at AFFO United not maintaining companies mid December liquid in amounts in in increased debt. dividend multiyear on only and maintained during our a XX growth up the Occupancy REITs and XXXX.

G&A and for as additional XXXX. drive X.X% compared to year to with decreasing the operating continue to of efficiencies for X.X% We expense revenues

is encumbered results, loss other impairment leases cost properties, modeling charge we place the $X $XXX.X getting One of for XXXX in of For million. full XX, on in included XXXX land In of as the and statement. in line that item parcel want annual December dispute million. charges us the base the we a to took to needed settle all fourth quarter one that adjacent our million to rent I access was was income note purposes a connection to of with item that retail $X

significant way value realize will hope this which this XXXX. optimistic for we the in are to pave property, We unlocking for

So, stay turn optimistic and around it’s results of the X% then. to guidance in a FFO XXXX. our details are getting into press property and per XXXX, release, our for growth previous on well. until We are But, this X% we page going very core of AFFO of and out implies which share six tuned. that guidance, we’re lot particulars But details maintained not to

of quarter proceeds like year. with the this million that after of rates equity $XX year common all of our dividend million, AFFO million the ATM. made During represents you via XXXX, retained $XXX if plus of the XXXX, the for and Equity of the we our during $XXX payments, investments $XX total combine we of And XXXX million we million issued disposition totaled fourth of XX% $XXX capital $XXX raised in million. acquisition equity that’s

$XXX our term XXXX. $XXX million announced that extending fourth the facility, had During and previously increasing from we bank to recast credit quarter, availability million the had January we to

line. years, line less average bank our was six our on points, for million. the the on weighted Additionally, balance debt the with our base modestly very note basis to is believe sector. year on the bank lowest which each important current of I in drawn reduced $XXX is rating past point that LIBOR XXXX for We borrowing ended One than million was our to outstanding plus the $XXX cost XX.X

a of remain its So, despite particularly leverage from a variable very and we’ve We not that been well-positioned attractive user short-term and pricing. perspective heavy a capital, availability rate position. liquidity

all of debt is our of rate. exception line, With the fixed our outstanding bank

good to in future economic fund weather and turmoil. and remains Our potential balance acquisitions position capital sheet to market

XX.X%, metrics, year level. Looking book to gross net was points year-end XX that’s at briefly assets our ago debt from XXXX basis leverage up

share When FFO XXXX’s only XXXX. allocation another mortgages leverage Interest XXXX notable, December per net are of Fixed XXXX per driving the the core share. never quarter by the managed times and sourcing full fourth totaling coverage XXXX capital on cap results and EBITDA the for quarter know, X% was Growing properties X.X X,XXX of one. forefront solid follow of times you X.X I’ll results be making X.X job the we fourth our our coverage increase for per share times a believe we’ve full not decisions, balance XXXX As results million. the fourth More is and is X.X will results note, X.X% year. and investment times basis at sheet capital growth market operating or quarter. Only debt metrics. of year for volume growth, X multiyear Xst for size. mind, in was In $XX of encumbered charge and year around closing, based to our at was

very Our and and many type been investment balance our strategy years. of strategy have for consistent in terms sheet property tenant type

that, track Brenda, raising outperforming it of part With indices our questions. equity REIT We’re able equity our of any be record optimistic and we’re XXth an market we dividend, to perpetuate important the consecutive indices is to general open going of to will long year over up which term.

Our Nick [Operator line with ahead first your Please go the Citigroup. question comes Instructions] from of Joseph with questions.

to you deal cap the Jay, particularly adjusting in rates you Thanks. up historically pausing? that that adjust higher seen Have cap rates. will or rates market mentioned yet, volume

good volume. very have the all change make We pipeline seen trades out any our in lines feels there The of that across not up portfolio. still deal different of

at -- seek business just we those our regional If point, large yet. upward As do I rates, not level it with seeing cap and rate the from the tick that in that not higher. relates we vantage and we’re their of to are acquire high to range operators properties, cap start sixes noted national we, in for rates cap and with kind the move as comments, of seeing them

a think, seeing at properties, not the high start any trend rate you if of those buyer we lower sixes yet. to sooner. up are you rate, are were see going But movement cap I to

they’ll rates in move here, think adjust rates further movement that before that from even do occurred, you to you the up see Given do up cap need already have will rates adjust?

doing I’ve for this years. Kevin XX been and

of is that kind moving of it remain before. not demand they all There ought lot Nick, -- it assets. completely it to seen feel, out a flat. there just kind up they we’ve soon. our surprised So, does for of And I’m start like But,

at for XX-year some these been it’s movements, the mean, really months. two you if treasury I benchmark about level only of look as

rates it’s So, to before start higher those move. to I take rates higher going little cap a bit and rates think, persist at

issue net million then, flow? you acquire comfortable on be And to assets maybe and would to of Do with of debt free just it need funding you the capital. XXX or cash sources equity

dispositions are our and today. We have debt, cash free flow, given share where options is prices

also today. a pencil around of through sellers is And And critical $XX for managing don’t well of see to kind you the leverage comments. tried And in fourth the lack share; all but for quarter equity to kind only issuing numbers my our If which XXXX, of of line, usage terms we good the were I you not bank we of not liquidity as the here we’re that’s the in need highlight be. managing of can as news factor.

to So, we needing on without achieve our feel market. X% this can very per the year share X% comfortable we equity to growth lien

Stanley. with questions. next Our question line your the of Please from Morgan with ahead Kevin comes Egan go

leases a have what question just the terms income. you the that on these of quick in curious, I was had of I of year, rental looks -- the now been basis. last terms just properties same-store ‘XX XX you basis it? like you had page know and the supp, It would in property have do provided what

to give to number that have don’t I you. Yes.

to and there; the owned vacant during that the same showed increase yes, from that. answer the the X.X%, rent all Mountain which both bankruptcy. same added primary Gander two for periods, our the during which rent year, those cannot store not I store same X.X% as store of all then numbers rents disclosure we delta being properties between leases so you have noted, we were So, But,

have same So, context. rents those some for backing all would for owned for properties store Mountain Gander X.X%, out bankruptcy, just periods the been

reluctant a And been vacant disposition. question the vacancy. bit guys terms sort a and I sell It guess, picked of looks just historically the quick know like then, up quarter, this property I you of little dispositions pretty have to in

that? you any if color curious around have just I’m So,

if we mean, vacancy. back do. you I reluctant at we been to have look our sell history, Yes,

We’ve sold the year, -- to vacant we what vacant year say, this this of XXXX, related I those three; in in we we sold half vacant. classified are and six properties, So, that SunTrust. ahead up. ticked sold properties; XXXX, sold Half should the year, this of as gone we

as debate we March day we through the this, the XXst. we sold reality well because could You got rent is them maybe to up -- right as

of SunTrust paid rent through we even sold March We that us if call XXXX. December in So, of XXst XXXX, vacant. it

So, SunTrust property. that about second are leased those that the at half that’s we we’re really dispositions driving selling that vacant -- still the vacancies the result. properties seeing were those just But of you’re before sold

SunTrust think over bit, through time, a properties. see I moderate we you’ll plow vacant once the that kind of

vacant the no there’s is to one best status Job back to from re-leasing. concern committed to the not through that is philosophy we’ve to leasing, then, a much shareholder Kevin, properties. concluded producing here we’re into going with. once here But, you very look those value level, create properties way sell that the getting should income strategic trend properties. yourself But, still through remains leasing

B. questions the with next your Corak come from Riley. Our proceed Please of line David questions. with

new Camping is World, TI understand there Just starting with Gander, of TI. the with a associated the I bit achieved. rents

any deals changes since we they have there were piece. all option that together? is then, So, color to additional TI made just last Maybe were that an for on rent? some And just this the

no arrangement to Gander analysis with And we last since the are your our call, it. Mountain There talked changes since or about correct. is hey. David,

But rate. cap rent We were not a an Our has rent; to And down haircut into to deal as deal to for accretive big basic some -- adds we provide the disclosed the also with rent was that World original haircut. very additional proceeds Camping as part is additional that it Camping deal was World. we baked the an took that at of the is before, happy that lease numbers. our that’s that’s option the option draw them. onto for very

for us. take am hopeful are very the I return that so, And good money; they they’ll

believe the put in that incremental cut too, the importantly first was high burdened much the dollars TI round on sufficiently rent. on won’t us think, the low too we rent I with having risk any a rent they in, put of property position

think, I So, come both parties. out well it will for

guess, stores in a Gander portion just or the million what’s $XXX Is XX reflect the number, former basis? rate none at I run there ABR on that all? is, XX a the stores? in related Does is that that in guess, there topic, I to On question there full

year-end. They leased all at were

not So, it funding the any come. obviously, in -- rent any that does incremental that may was reflect base all TI rents reflects there. from It

me. Kevin, last then, And one for

only here, there the in and that that charge You the to to above quoting able the precisely any as last was guidance. range but go the noise be other mentioned range not ended on call still I’m high initial go plan within is things, that’s impairment you XQ end planned, if you’d of and get the ‘XX to well Obviously, in or noteworthy? thing there given,

charge only that’s fourth quarter, in mentioned my unusual That and a item X-plus-cents share. I the million was that prepared $X comments in

high So, if of everyone’s occurred, have and have that would the range, into estimates. had that if exceeded would above, we been well not not end or we hit

that was is, an delta. we to not create recoup we So, that charge that, the And but it view $X the of. an contemplated way I standpoint as about frankly investment going we and million $X accounting value only million real are from that think off really

allow good to for talk the our in more that so, it that as that And very But, and a investment, much we we about investment in quarters. had view it. to unfortunately and we hopefully the to coming as will minds, expense counting us it we that a capitalize very be didn’t view capital able

Advisors. the Please Knott of Street with questions. line Our go your with Michael comes ahead next from Green question

that for that coverage that? little maybe showed Just a on Any last X.X were reasons to think I curious, Kevin, it looked year, or down just tenant anything like related bit you versus your thoughts metrics times.

retailing. nothing there general besides in really that notable is malaise within No,

that. not by surprised we’re So,

list on Gander last the Mountain. was I think, of lower covered year one the tenants

uptick you to net it was And of arena. note nothing a the averages, helpful to will, so, the but in if coverage

we ups would And that that we over. -- are tenants that very and there want right right now. heads retailers, I sleep major Mountain tenants. other are Michael, tenants add, comfortable heads are that about losing making give now, the folks we just about are In with confident we given past, doing no Gander the folks we’ve the to up portfolio the feel and up

related And liquidity? of to the financial any of reform tax then, thoughts help to your condition impact sort tenants’ on or that,

Yes.

think we rate. A reasonably mean, Just a generally, high be pay helpful. going to of pretty I it’s retailers tax lot

theoretically. customers, dollars will pocket. few consumers they’ll their a I benefit that from Their So, have think more in

And of so, up may end that the stores. some in retailer

a to the a from And right much reform. lot it’s of it so, definitely environment tax mean, positive direction how stock retailing not we’re but on will be I putting anyway. the

how to more on anyone really We -- otherwise. just what It’s just the said. to and echo structure lot change given to leaseback, or stack tenants a they causing to their less or would a They’re capital relationship our them lift cause slight of their happy them mindset the relationship our do of slight Kevin sale have to talk it’s positive. particularly not CEOs but

quick then, for me. a couple ones just And of

high, Just box then, XX%. would a in releasing lot the a situation, on had it’s you big was a guess, to if otherwise there big category the say, nationally. like I take I looked think spreads, re-leasing But I excluded obviously, distress, with to tenants your pretty that, the haircut it Gander new you pretty of

could on in So, just curious, the comment of those sort numbers? you if dichotomy

much pull to a out there’s think, either. trend of I don’t

size a you on large order a long-term really is We we in average year, once to think last Mountain year, re-leasing. year, we Michael, to a conclusion. Gander come had other really. good supplement why and do just XX% Our sample a And our it’s recovery, need than only

size, on XX point XX Jay’s being that those Camping to new To and of tenants, leased in sample properties were released to Gander Yes. there’s World.

others only bucket. So, there’s XX in really that

point, you think year, to number can bad; the outlier drive as we or have that XX% long-term But, past So, would good about an higher. two average. that Jay’s or good,

job doing and they said, I comments talked our have they can a good are we arena. everyday best did is job. handled my that this, and day job; their they with on -- great opening in to do about that a folks charged our in staff leasing did people And the we that like I -- XXXX,

example, a on Yes. work. And value time, and the for to some create to that, we’re we be $X of that do want through create do underline, hundreds willing And and how we about the one the we have we charge we I maintain it’s push want believe. one talking value, on, will it of work many assets plow property sleeves on sometimes at think value. meaningful these of million do just And lot a and value to floor that we’re roll up on to even know least worth the don’t the worked but that at hours it people hopefully to and deals salvage and can and

willing to that. we’re estate do so, And accomplish the the work level real at to

And interest one be less me for capital the sophisticated, be might on higher you possibly providers then, competing of Do things from and push with feel of just like just of a there large side industry? even in for sort your rate the private that would capital quick rates last comment. cap

Yes.

from will result the market, think, we more end higher at day, which will rates. the from I a benefit disciplined of

rates private in of other our can higher, we the so, withstand And a drifting competitors, better number than world. particularly

this, at yes, should over be us to the so, helpful And margin, time.

from go comes question. line John question with next Thalmann. Our ahead of Please your Ladenburg the Massocca with

gentlemen. morning, Good

on first, congratulations And promotion. your John. morning, Good

much. Thank you very

XXXX X.X is So, is an the over outlier? the more give more or drove that of kind rate, color disposition? XQ is that you that on think Can and us of ‘XX of course the do cap first What you maybe question, sustainable of some something composition think

was of were places dispositions highly there came after. had mix and of that it other number very in different in than mentioned of portfolio. from it kind John, our bag dispositions vacant the Kevin a a sought that Yes. properties that We were

the in rates. So, very X low cap had some we trade

kind a barbell. of is philosophy disposition Our

down some low on the after of rates cap the back we also high at prune the for really tenant, not number road think Xs you are end And more higher So, a at it cap non-core of the those to sell to to the -- lease, to mentioned. to happy and that happy properties and we rate. the at are likely blended then properties sell or renew to sought that are

I think, properties particularly cap that that’s worth the have number But, X% noting recycling for in in the rate of portfolio, there. being fodder are for in anything that new our we other a range, otherwise X there very acquisitions. and good that great notable capital selling the very wasn’t into capital recycle about able to dispositions accretively

just And X.X or you is properties assets X.X occupied effects on that of the includes sold? the the vacant that

Just on the occupied properties.

then, equity attractive, think that kind to the XX where up of equity volume kind over could cost is you acquisitions just depressed, feel to disposition markets capital that $XXX maybe something the or don’t the has ramp market fund level? if is course remain year million of you you your order And in passed your of of

No, we continue we if could that’s the up, most definitely best of like feel capital our to growth. source ramp it

And your equity markets of then, high where feel leverage in Xs, term? sitting sense. remained depressed, over long of do the kind comfortable still other Makes that, taking that if leverage, the side you here

it we much to we moment, all. need move don’t think the at At

get think would there anytime be that’s soon. comfortable Xs the today I is with to not low that. plan probably, in we our But,

of Please your next Wells with Thank Our questions. Instructions] Fargo. you. with ahead go from Stender question the comes Todd line [Operator

and answered. how do A You’ve its XX%, restaurants, lot just relative cap on anything about the industry and when above the think of questions maybe guess that at stores we how look are been got my industry But, thinking I to Company? you concentration, valuation rate I service peers, your about concentration? overall guess have convenience full you impact

in little of our store country. dozens almost let’s to all remember to there leased that a down different line the I over trade, got in we’ve think Todd, convenience of almost way XXX kind of store it’s important properties tenants the convenience bit. The work list

doing real our So, well, it assets. the very convenient store industry of tenants attributes small, is The convenience doing convenience we estate. diversified portfolio very is love real well, and are a of store store well-located very estate

So, it And the pay real while it, think guarding the we watch thinking others the want wrong of before best sure in make some you’re and you not it with when to and attention you about safest is you’re phrase is, that and about estate our person. I’ve concentration to used and concentration, portfolio.

would You safest dilute with higher with to not we want real eye and But, your risk. an it. best keep something do on estate

is succeed for property for it is full very it those low at of we trade, service us the are rent, and Lower our our rent service wrong. build and looked it, easier lines curve as to for limited operator closely possible, next keeping the and goes the the property if re-lease the there service so two As portfolios. restaurants, very to again, it the restaurant safety easier something that for we in relates of and portfolio, are cost a down margin and on diversified property We operator. our to highlight full at stay as

the our we’re like other going just about portfolio. categories, and the dollars but of in thoughtful very those be line per for all to the trade underwriting still every estate real opportunities property in and of top we for So, attributes the those in

to the think so cars, anybody get Amazon the with when start get I hypersensitive headlines is example self-driving about And not while I hit. that headlines. people think, is or of a what but group talking convenience restaurants, you concentration stores can good kind probably happens with that is

reactions I we’re net So, even very I if more are retail leased? kneejerk think sensitive, it’s -- is more sensitive like with just bad, your that initial think or all sell not triple stocks comments investors it’s to

future fighting think, rents good a ultimate The that well-located that after I we in you the with our how we corners and just aren’t our to that portfolio lost day, CEOs the focus of people Amazon operators. at assume overreaction Todd, or operators prices is comes small, reasonable figuring what to I and their with whomever with there meet benefits it’s described of time every out whole spend out good one That’s of relationship-oriented needs lot of for management out reasonable good in real past, of the is saying What all trade. are to to out up. have of lots operators the bit be to Amazon. their Yes. all a there is just who think that have this very compete security with to customers’ little that all get provide are how there and out the of CFOs a often of of day figuring get and And to them They roll everyday customer of give important different compete. future over in customer none how want different really succeed. are business is they lines long, to the oh than experience, and And corners door, an just teams are convenient gosh, how going and we how competing component should

gears switching our guess for I towards modeling just And acquisitions.

of Your volumes? little volumes more has markets, to gone for conservatively cost and we and bit. so up guidance than capital model your disruptions little capital backend last calls weight maybe Should that you the year, what acquired less the a maybe are

Yes.

we’ve that the feel XX% years, less backend Our years, with meaningful amount. anyway, things. didn’t the at acquired year. and guidance our by change initial of fairly are that we each what you the weighted like And compared than as But, out guidance XX% half second in come volumes were five to to to we last, the guidance meeting correct we’ve see is moment, probably where first recent of somewhat half, compelled our

guidance, per guidance day that feel feels with really, comfortable we’re which at feels good. And so, is the share XXXX -- importantly, achieve. of end our at we think moment what the trying the most to And our we

feel to don’t we so, And like that, terms a year half second but need weighted little we timing. change bit the in of of

management Thank session. floor closing I’d you. question-and-answer back comments. turn like This the our concludes to for to

we conferences at upcoming And many much. this very spring. look to you of forward Thank day. the you Good seeing

conference. today’s concludes This

You lines your may this participation. at for disconnect you time. Thank your