National Retail Properties (NNN) 1 Aug 182018 Q2 Earnings call transcript

Greetings, and welcome to National Retail Properties Second Quarter 2018 Operating Results. At this time all participants are in a listen-only mode and a brief question-and-answer session will follow the formal presentation. [Operator Instructions] And as a reminder, this conference is being recorded. I would now like to turn the conference over to Jay Whitehurst, CEO. Thank you. ahead. go Please

Good Properties Brenda. welcome the to Thank Quarter morning, XXXX Retail Second Earnings National you, and Call.

to remain appear the opening occupancy Joining me Kevin I'll to brief Officer, Properties our financial $X in us, by maximize boring and National been results balance increase multiyear XXth the consecutive per shareholder volume its year X Chief our to the that's than only consistently in dividend consistent the turn discuss outcomes our public remarks, our FFO performance by makes strategy more our REITs we growing acquisition on this Habicht. old of fewer This by call annual validation annual second basis, feat After In in is call accomplished a increases, announced Kevin over a Retail detail. per United Financial same impressive. continued management share by it's quarter. States. to may in XX share. our rate, to results. to the a July, To XXXX But sum, our X.X% strategy and dividend consistently on be achieved of sheet the business a some our and value companies executing

years, most X XX, respectively. equity year, indices years, annual of once time XX years, return and of years total REIT XX the years, X averages major XX As again over June for XX NNN outperformed and shareholders period years, every X

into deeply more quarterly results. Looking our

and XX.X%, trade our portfolio perform The XX continue consumer our apparel are or other struggling with well average single-tenant actual quarter necessities perceived minimal of Moreover, by tenants diversified an first or to April. Amazon over primary SunTrust store than retailers. the respective our to XX%. other experiences counts. largely healthy in grow long-term rate retail businesses with e-commerce-resistant focus services, remained due branches that quarter, lines which leases second Bank top broadly higher and our in drop X,XXX the of customer customer Internet-based from our of to remains their or During occupancy exposure occupancy on in in rate of of properties concepts expiration is the their with disruption portfolio The

tremendous excellent XX SunTrust investment. an [ph] acquisitions. prior reinvest numerous can resolved. year. at value but As value for accretive properties to the few estate this us all very in And sell portfolio low a lease created about report with new harvest XX-year properties acquisition transaction these discussed are The end the SunTrust we've real renewed leases as the process anticipated The or own but that over rates term. about on proceeds private was allowing and the former the additional market, to SunTrust an into for of leases the calls, for of properties, I'm headline not the vacant SunTrust it's being in were pleased either of these the that now SunTrust of expirations We long-term in were quarter, these we seven cap resolved is that

over an an average invested in of with in duration and XX cap we single-tenant topic acquisitions, X.X% second initial approximately $XXX.X properties retail quarter, years. of million the XX On rate at lease the of cash

operator. convenience with on our off-market largest GPM, usual, with direct tenants, doing focus transaction business sale held relationship portfolio store recurring the privately was strategic As primary our country's including leaseback

years. average that XXX lines the lease also for acquired the XXXX, XX.X year, half the of half first relationship worth of It's properties in For invested tenants been of different in have dollars noting first over the with our our different XX% of XX XX duration trade. is we

detail of more use we of and in of provide and proactive over characteristics were well-priced single-tenant estate active ATM pipeline low relationship-based our the averages our new basis, to to cap the a at producing cap retail can dispositions on due through in capital, both less mid-single-digits bears we will the healthy program multiyear properties. other continue long-term. in the through and or raising combined some contains to approach those rates properties where Kevin in second acquisitions. his factors, comments, REIT sell real of market. quarter share capital today's to our beat many us properties In see instances growth consistent, will at It with trade Although redeploy multifaceted repeating we portfolio single-tenant that we long-term retail accessing that upside continue per rates accretive positions into new the low which index This our those proceeds acquisitions, portfolio believe our

additional now his for call Let me turn on to the comments Kevin over results. our

time quarter – months this in this over make increase Thanks, usual may six certain per matters to to statements, statements after results actual federal changes second the reflect differ statements differ over forward-looking not and statements will $X.XX record from report with that first were those from – represents cause which of law of Core filings XXXX, the actual will future the Jay. for results forward-looking with in XXXX an press represents discussed results to results. year morning's in materially detail risks from release. be may to X.X% these could for FFO share to be Factors the And $X.XX that, securities and greater statements press significantly of that a company's increase the forward-looking start the disclosed that made. morning's prior X.X% are I'll we share headlines from quarterly of may release results and revisions prior considered – we under actual the and cautionary year. the release core expectations company's SEC With FFO statement per the time in

liquid results to this maintaining X% short-term keeps X% So relying positioned a grow to range debt. a growth floating solid year, XXXX while strong core the XXXX's that amounts and and and and/or rate of is We over large several goal. results past the and and AFFO balance on which years start to our sheet FFO in do with us not consistent multiyear well

dividend into lease payout guidance. XX.X% XX, ticked XX.X% XX ratio first properties points on and as at Our for our the our X, as AFFO basis expected, XX is April and earnings on occupancy half. down as our to fully baked which the And expired SunTrust noted we was call, June mentioned Jay last on

efficiencies million Combining a second June results provided $XX payments, of for obviously all the compared common of X.X% after July revenues the an property XXXX dividend second the weigh or operating of quarter X.X% results, million of into the timing equity combination invested X. $XXX equity bit. or to to and $XX continue XX, good our acquisitions the operating for leverage that allows plus assumptions. drive We capital We we with half line, annual maintain of in XXXX in underlying XXXX. a of XXXX additional projections acquisition of million of as leaves place cash We proceeds, effort take XX% will availability. change of the mostly not quarter leaving estimation ATM, issue only a us We any total guesswork quarter, $XXX did maintain to might in to ended in via with funded the do in disposition the and dispositions position of to expense of million the core share $X.XX out FFO which all in ago. X.X acquisitions. any you of of as guidance of XXXX, did of share active bank our some our free second base to And first equity-like you outstanding per $XXX.X a $XXX for shares leases $X.XX the in this on QX $XXX issuance that June This million new million G&A XXXX starting year liquidity this million second was million, rent million the flow with half, modeling of decreasing which and of be that very of and per purpose $XXX

been a leverage and variable many of remain part rate capital We stack We liquidity our a users have years. for short-term perspective big from position. of that very not well positioned

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

metrics good XX.X%. debt-to-gross to Our book remains market leverage was fund balance Quickly, position economic capital and future turmoil. potential assets sheet quarter-end our weather in and acquisitions

the second XXXX, As you million. mortgages X,XXX coverage by relevant, XX. second More we Only quarter cap-based of properties totaling our was coverage five around June and net X.Xx are manage market charge know, we was Interest the leverage of balance for at $XX believe X.Xx metrics. was only fixed debt-to-EBITDA for sheet our X.Xx quarter. don't encumbered

short-term about a solid at year decisions and capital So we marginal results, capital years our sourcing easy. believe of When is a allocation and with the capital long-term growth a or really view. not a multiyear view prior the good basis comps of cost decisions, for XXXX investment are not multiple we Similarly, per on forefront making results making share and will minds. and be think driving another of long-term investment cost operating

any Brenda, consistent in strategy we our been With open balance years. sheet tenant up type for to strategy property and questions. investment very type, terms Our that, has it will of many

Instructions] of Thank you. from line Raymond question Our first James. Collin Mings [Operator the comes with

Hey, guys. good morning,

Good morning.

XQ? potential for terms update the me. us – the in issuance you front in year sizing your debt past, Can in pricing, later was on just Kevin, and as discussed the issuance to that given just you've your on and in First thoughts just that particularly potentially radar. equity on long-term of question of

fair is Yes, in that still question. our Yes, radar.

a but we're debt. that be the time mid-Xs, in we'll see term year, in this about, hedges moment, XX-year I it'd around presume debt. that. the this hedge unfolds. in it, how anticipating talked at we've earlier later call somewhere in point a priced the we've interest time, But issuing that At fixed-rate estimating we X.X%, be to will we're unsecured put still all year of yes, couple rates As some

specific around year's to And the react did it want opportunities in is guidance to give so the timing impact did results. reserve don't it of that in we right timing September might yes, in second on December, whether this any obviously, Whether to second there. we marketplace the that or we that some that because have part And out We impact would still present. half half results. does

of maybe that's terms a just Okay, can in came the bit detail back expand just the more in helpful. it transaction? just you terms remarks, of on And to the together going prepared how GPM then transaction, and

estate and best real national and leaseback with. already price they we smaller were of some of with are deals a store really – relationship not through team We've at operator tenant to that it's good It's good convenience management whole these company was we've general, of that more as acquiring estate owned long the And we and a of the are a this a years. we Yes, with much. a that a properties – were largest property another lot privately were – mentioned, very is safest in for operator. GPM per a country. time. that this I like store number – real sale estate, convenience a known transaction just doing They real was that upon. some the where In done our the familiar expand

to happy tenant. And to with were our so able another we relationship be deal do

right. turn over. the it one touch impairment Kevin, in and can you on one All just quarter? the last I'll And charge

SunTrust was the of driven some we that primarily property. that back Yes, vacant got as by

majority the the triggered during vast that quarter. impairment that So of

Okay, I’ll Thanks, turn over. guys.

Collin. Thanks,

Our next Nick the Citi. line of from comes question with Joseph

Thanks.

guidance, what to assume. going to Just understand maintaining just to back better want

run you XQ of high in to guidance. about So was if core end get you And X% first the FFO rate of then above the the $X.XX. a $X.XX, number half take the

standpoint acquisition from rate? You the just disposition you that timing run mentioned an expected other assumptions any are and unsecured impacts there But deal.

so kind we that quarter quarter we they issued got, have things. Nick, $XXX,XXX. say, second we a Two, results June heavy have the of so and mostly X.X impact, of little like didn’t will $XXX,XXX And was have the second couple or shares clearly bit second in flow termination it and share but weigh I’d the it lease I on issued per a stuff, in much One, million in did a that quarter. income always this little of quarter, through. $XXX,XXX of say

our probably some kind not up at than end comfortable Three, point. then I our cautious range would speaking guess, $X.XXX yes, towards be it’s – be lower one that that, a conservative guidance. So I’d but say, in and lot tend And the to changing of to sense, as we’re the on we per those of guidance add share rather higher history end. lastly,

I some but us, was So creating just think for that flexibility the we’re rationale.

very you what process, think with leases Thanks. XX to said the helpful. you XQ? do And of expect That’s in I then during XX SunTrust the the occupancy resolved be

I bit or basis call points from a little think like it it up we XX that. will drift are, something where

Thanks.

comes from question Vikram Morgan go next ahead. Please Our line Malhotra Stanley. the of with

Hi. on This for is Kevin Vikram.

Just to regards a rates. quick in question cap

any what rates trends the seeing around going color been Just can recently you’ve you with give up?

that are once cap types No, will small of the again report least retail good we remain at operators Hey, box Kevin. single-tenant properties for. good looking morning, the we for rates flat to

cap in drift rates We’re upward not seeing yet. any

than rate really was by just We mid- in think in but as lower. traded that second about our been cap rates that the year, Xs little cap Xs. we’ve opposed upper to quarter specific for for driven to acquisitions this in the be our talking the will low still Our was the higher quarter, transactions a that

you just for your and you could of cause use thank of levels, in disposition funding to And acquisition? in think of that would that levels you that. sort Okay, disposition anything just increase then your terms possibly

cut you dispositions out but little I going forward. bit, you asked Yes, about a think

one-off trade put which so I rates portfolio market, market we my small properties that we prepared we the reviewing harvest Our low box at and those single-tenant reinvestment. properties should portfolio at the very are cap have of -- look proceeds mentioned in in the constantly for as we remarks, to to many on those

at have at looking be Kevin the able if mentioned, know you is these given now. today, add there’s probably rates being we sellers trading high properties are we any just to cap Kevin, -- at sell to are And issuers against properties that wonderful to of at rates. adjunct low time more ATM to if a right cap don’t ability We’re at where to low via that. is individually as it the want our end stock balance and we’re our to I individual decide anything or guidance of

of take selling more weaker properties rather valued. think it’s some very I that able for sell in we of as both still the of us good spectrum own No, rates a been advantage market properties terms we’d think to not to into. than as low at are selling at ends We’ve fully pricing well that cap very strong just

it’s yes, a so And good environment. still

That’s end. the a time. right. Thanks All lot all for from my

Thanks, Kevin.

is with go from question Please of the Joshua Dennerlein next of ahead. Our America. line Bank comes

morning, good Hey, guys.

Good morning, Josh.

those acquired transaction tenant is list. color the top you how provide Could Sunoco on that to maybe on your some that and maybe X-Eleven this year? ones properties back compare earlier

the of properties Sunoco. regulatory all we many some had down, to Sunoco. of owned matters, be leased transferred Sure. properties had to due and Sunoco that settled X-Eleven that acquired has between X-Eleven think we -- Ultimately, X-Eleven and to Sunoco. to X-Eleven Yes, Josh, now that

And X-Eleven so back to but came properties some the ultimately, over others Sunoco, not of some and in – meet ones same instance, to transferred this regulatory their requirements. that

the So think, properties. We're point at two running large as is are has it other those the out. leased to X-Eleven. which And is agnostic to day, XX, investment-grade they make, the operators of all this where of one I those to were end settled on

in assigned place. Now Sunoco, have but still lease they to X-Eleven is the been

on in to credit bucket. was they're So them put thought so operated the but appropriate we being Sunoco we have and both it XX those Sunoco’s, leases, companies as

but there been that seven the sense. properties Okay, got why A – haven't is the any across makes it on or SunTrust then And in general tricky color that interested those than for them of slower aren't resolved, rest? kind process maybe it. people what little why

to one with time us Right. No, deal to of spend energy opposite thinking. jinx don't throw great seven want re-lease remaining of Job And the trying the better leasing a in properties, we vacancies. fact, a vacant but of and it's you in and and our we be hallway is here, might the property. team will are vacant to sell before vacancies I some our re-lease these towel the down what

are we re-lease to working get to market try action. and as hard the had other those taking to We so a get opposed to year And ready properties. market to those – any ready for to to our vacancies

marketed you've that that best that ones sell the ones of the we properties. those sell concluded are outcome ahead some to And us was go and and seen

not have we that conclusion. reached seven, these For

Please Stender of go comes ahead. Todd Fargo. Our next the with Wells line from

Thanks, investment you competitive do down fund capital arrangement that they're to guys. provider? What When bring their to have stores. if come you aggregator does growing you But a of a they like to be to kind do situation seems properties, GPM going convenience back transaction, have? It them? of

or capital actually by would be retailers, portfolio. a help there we be with other that the properties retailer to relationship find other for best those properties our portion may that for in relationship try relationship an not any about the made as the Often, And us. with we fit us say folks. they this we when do In that across portfolio Well, parts portfolio as what GPM, case the and a what that were a retailer, yes with entire try of looked buying, were there with sense to and to to deals is we take build we better that that possible dialogue of of entire other much we for some particular GPM may – don't owned bring had those us. transaction Todd, think they instances, with

supportive of we’re – always retailers. including They folks real are to mindful thorough but are we part acquire have we have to be relationship the that relationship. long, our the that all we dialogue of anybody want that quality of our to it's of a trying estate from we So with

you the responsible be just there any cap CapEx newer? put or Does into close that tenant need the needs And upfront? any any rebranding a they more Thanks. did guys Are to capital rate? for? be But little will two, is then they Do money these?

was The recall kind relatively on under vicinity was long – seven, had the good – the sit CapEx – of a the major in good is that season what no, for up. up now, the I any to quarter. they’re but with don’t And in And found properties obligations I those out is tenant, it where these tenant’s their as are that right existing they came low here Todd, the so do of cap of were long we rate leases a under in properties. operators we obligation properties job the keep it And lease long-term have our keeping history.

Thanks. just And Kevin, last for probably one. the

quarter. And a that the a seen tapped it’s over? How You one I’d We but ATM funding. would chunk have overnight is many for match this be see of time was say good lot not pretty any big transactions spread anything of that the over in from REITs, million, number $XXX dilutive quarter. but we a kind pretty

of big how So these bites transactions? are

two market tone price daily selling a basis. is daily say is it’s generally sufficient than that, grinded shares in we well, grinded not is comfortable feel barely out was with. basis. the because we’ll and on part one the on that But we other out evaluated X it’s block aside. of – as trading really million comfortable that that we’re can with of we And I is – that from It a have some size. will a stand It if This –

the we sheet. sheet And It’s maintaining and balance a balance of the so to news good not the capital. mantra key, is think, the kind that’s of managing meeting strong

market And the on strength. so it don’t aside can you then when stand do it’s and you what need doing – and participate when let only some

Great. Thank you.

Todd. Thanks,

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

morning. Good

morning, John. Good

Hi.

issues strong but tenant performance same-store tenant the a RMH and of of actually dislocation? probably there list, even with but you properties a smaller your your these are potential issues price how disposition of further forward kind add kind wake going might Applebee’s your at is position Are offset It’s you with look recently, and franchise? brand, by concerns some maybe or outside looking top of in to giving

Kevin, Well, modest think John, a X.X%? with do have it is yes, concentration like we – I it’s

Yes, X.X%. Yes.

with X.XX% across which that’s of is RMH, units, XX pretty our of rent and are were well. doing stores most doing Yes, –

but watching a it it’s restaurant whenever of So – our deal that particularly causing very cost focus the want to and look we are great per the is lose material generally, property, is the cost number rent – sleep. low which you'll we’re We carefully that low we rent We and and property if on not at restaurants the of about and us per property it, properties not a and are acquiring thinking a in see safety primarily. acquired, therefore, you builds tenant per for that have they margin both at landlord. coverage

good operator So to would other fit up extent thing we came at. we the rent property, kind per the that's criteria, low – of with that look opportunities

That makes the been questions me. have of most that’s from answered it sense

you. Thank

[Operator Instructions].

comes Capital Our next with One. from of question Chris Lucas line

good guys. Hi, morning

a there should of quarter historic item, on question, be from Just is. Is amortization sort market during thinking on rate what we bit below there a your anything quick run the about? housekeeping that that's going it Kevin, rent spiked the specific

not really. Yes,

properties write I that read off no, shouldn't amortization. think really that to or place to sold in you market we had that that. lease probably actually into that below we related that's some a had recognize anything But

Okay. morning, else are all, answered. I That’s this had everything

Chris. Thanks

session. the management reached floor any over closing of end our We've the you. like question-and-answer I'd to back to for comments. turn Thank

we and commences. the good conference day. forward today, season a attending for to seeing Have much as fall look you very all you Thank