National Retail Properties (NNN) 1 May 192019 Q1 Earnings call transcript

Good day, ladies and gentlemen, and welcome to the National Retail Properties First Quarter 2019 Earnings Conference Call. All lines have been placed on a listen-only mode and the floor will be open for your questions and comments following the presentation. [Operator Instructions] At this time, it is my pleasure to turn the call over to your host for today Mr. Jay Whitehurst, CEO and President. Sir, the floor is yours.

Jess. Thanks welcome Retail and XXXX first the call. earnings to morning Properties National quarter Good

this our turn call Kevin on detail me Joining is results. some to for opening on over our Habicht. Chief brief remarks, call I'll the Kevin more After Officer, Financial

of another first Properties. quarter Retail steady for quarter The consistent National XXXX was

Despite retail with Our portfolio single-tenant X,XXX an closures, of broadly average our continues adorably. with which long-term of to regarding rate XX.X% retail occupancy the of our portfolio XX%. diversified store is properties consistent headlines remain perform healthy

mentioned As e-commerce on and our national customer large, the operators we've are and experiences customer resistant before, in consumer XXX plus regional focused services, portfolio necessities. tenants that primarily are typically

new slightly properties yield of On initial cash X%, an over over single-tenant retail average the we XX in acquisitions front, lease of at with invested and an $XXX term years. XX million

As total first usual, of relationship were Over majority relationships roster our investments. XX% tenants. source invested vast a of dollars the of our were with tenant of in our our quarter the

$XX XX We over quarter generating an of cap proceeds the at first sold properties average during X.X% also million rate.

strategy continues hand would acquisition our some in our accretively. releasing less value reinvesting cap shareholder efforts a other the at validate vacant continue after our generate cap below barbell to we to recycle disposition ability average With approach. concluding some properties rate selling value rates capital see On situations our buyer sale rate, that proceeds. than simply low one to cap less significantly we on and the average reflect properties where long-term disposition the Our than hand selling

strongest sector. of the remained the at one of sheet in the quarter balance end our Our

on on entered we that we've you cash In with consistent for to well significant of XXXX balance of characterized remind let raised with a $X long-term a business and XXXX priced sheet, basis. capital As credit us of on and focus, closing, very outstanding at me our line we continues all the end position share run well our multi-year which previously, by volume discussed growth XXXX. our of per a

Our to me additional consistent our another his along comments that, Kevin fourth reflect ask quarter steady that path. provide let quarter on With first results results. step

may you, differ our Thank I'll projections to usual in XXXX under disclosed Jay, the in and press time cautionary flat not which to release. rate press debt. to XXXX statements FFO With $X.XX be that release may these from do We unchanged today's maintaining Page per it's found actual floating report liquid time the considered year changes consistent of the on with core and to this certain fixed X.X% guidance and press $X.XX will could large We from X XXXX while $X.XX of significantly and statement a Company's statements the share, and/or be midpoint. relying matters growth Great. the short-term strong make federal with start from estimates. sheet discussed again of these prior the of materially can of per Company's this results we FFO balance with morning's guidance results expectations results implies and and amounts core cause release. first forward-looking quarter that, with and Details filings not to securities made. headlines for the our which on quarterly morning's to share was and be in from may statements left statements reflect future forward-looking law. release we that this were after SEC Factors in greater to results forward-looking revisions risks are that differ actual statements detail at

quarter G&A the year March state XX.X% local was prior for full quarter. Our to in we was exclude various that with X.X% some XX.X% that our year taxes XX, was X.X% that and that dividend at flat for include that expense, put item. payout compares expense that XXXX. was and a rates G&A separate ratio and the of ago, reminding on Occupancy from in pay XX.X% AFFO and we compares you corporate with a while municipalities again, G&A line revenues that

For XXXX not annual all allows timing of our of to the first projections of dispositions issue place starting guesswork X, and common the any the million. base This QX for leases modeling rent XX, as of XXXX you XXXX. take was of estimation purposes acquisitions results, some in of for equity quarter ATM. April the $XXX.X or did out March We during

As and we frankly consistent the time. decades, we've past past neutral the couple noted relatively with behave in to manner expect a in of leverage over

of million million free after First provided million $XX flow, quarter dispositions of investments. all equity for new for and capital that like $XX of us $XX operating dividend payments cash that's

reminder, $XXX of a As million combination proceeds free flow. acquisitions stock disposition with cash equity XX% this funded XXXXs of and we issuance, of common

ahead the very liquidity will allow into which and curve. an So position, XXXX. acquisition us effort active to XXXX raising well leverage we equity good of entered maintain in We remain

and are per short time of results over bit notable run, financial lines This will we metrics bank been cash but share asset. no on credit flexibility. in As amounts undrawn matters the sheet. we may allow We've think on remain Jay $XX a in the had million with offense. very a mentioned, effective balance sheet an more inclined always good Leverage cost and balance we defense keep our structure million the ended a strong. line, outstanding with capacity to quarter $XXX and Capital a

debt is debt in and weighted X.X maturity XXXX maturity is next our average Our now years.

of fixed outstanding All is debt our rate.

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

Looking assets was XX.X%. to book net leverage metrics, debt at quarter-end gross

year-end times is was X.X net believe debt big XXXX. five relevant properties of from X,XXX X.X As and to we million. was more leverage for you which are times, quarter. know, Coverage fans points mortgages X.X were were Both encumbered times base by of charge metrics. EBITDA, $XX Interest our metrics cap the first was not is of unchanged those coverage market totaling I higher. approximately XX basis fixed Only

we operating growth sourcing comps making and So, results a driving results and year mind. XXXX of years solid capital When will forefront our multi-year in of allocation multiple the decisions not investment believe at on easy. basis be prior the for per share another are particularly remains capital

terms And the but least can of my if accounting final now all many impact last, tenant best decide sheet balance and strategy Our very saved new property will the for been on comment or the investment are strategy dealing in with. for years. you type of type, consistent touch our us have lease I’ve

some what's the X income be a in is revenue item line with lease the we supplemental of you of the recorded as impact this the consistent little to lines visibility into added presentation For which Page one which info bottom we at lease revenues, five modest most item release prior called income. to the of NNN, note one collapse visible more of the of now fairly press being period. We've must give line with to

case, changes where The the new office and and headquarters will create the own investment our of from and accounting lease rules land this Again, properties where on lease a asset ground leases. we use a our are lease we these is de and that liabilities in The require third-party. building a reporting minimis other rate balance sheet. a fairly impact the three area for accounting our some leases lessee, the new

leasing the costs Additionally, are on costs to accounting now for a are expensing that not contingent acquisitions lease time. lease new getting us that any connected requires

in For lease the firm have can drafting those be some us may use for costs be on responsibilities. we we you expense in any have showed this it's dependent in capitalized that XXXX, those will costs. to past the but costs any acquisition, a leasing going capitalized when see occasionally where forward and difficult will that properties little and part first since results. in In we the volume occurs third-party entirely quarter acquisition involved note our never we would been a I law of this as factors. to acquire amount other It's past, estimate internal $XX,XXX beginning

change no on expensing front that us. our for there's in So

reserves rules allow Lastly, establishing not new of for will uncollectability the receivables. general for any the

as So and been we low open it balance. the going for reported potentially uncollectable new forward, rules have reported those amounts noise to the this results us to impact inclined accounting questions. our all that, any more does can material the numbers. the new meaningfully push probability on have not the to with entire the to lease in impact In of wait until inject reserve a results past, of degree may in gets lumpiness sooner. will some to we collection then But And Jess, seem of despite a all, receivable up receivable write-off

to Instructions] Citi. [Operator first We'll McElroy move Christy with

Good with the in your occupancy quarter, This last balance tenants mentioned of the Mcconnell can and is closures occupancy us wondering are for morning. if you expecting held flat Katy on you you or expectations had I'm update those Christy. year? in including quarter the just that disruption disruption on tenant any given first

issues. dealing remain that you're are Katy, retailers, area is the like continue the we When generally to we healthy feel landlord are always going and to now. the in tenants portfolio where generally have you with

we've that previously relates bank of we of not larger Shopko, leases own about on, paying it those As Two the those yet. three. Shopko tenant in right talked of we sale terminated resolution All case still defaults of is are and working has own one three are of bankruptcies rent still pending now. we property. that to those stores, three the those

properties, and still those. to two pending working Virginia we of had we're as it of on. one the College getting them also, relates are resolution And those rent three are So on still we

of say guess, to more from impactful So we're are. stay defaults resolved the or on a bankruptcies past that. making that headway going of of we're good are where everything's fully yet, of I going – piece those ahead, looking none we ballpark been cautiously good but you'd to in have optimistic, Otherwise the kind

to just vacancy in College of clarification, as three And were the point just December our out, for Virginia properties XX.

a that new in QX. So wasn't event

three in QX. But moment. continue as We vacant go go the the vacant to at although said, and Jay expect rent pay to the Shopko's Shopko's they to

strategic in-house point have level a think expertise. to at I out just leasing we that maybe And

We value of every vacancies our part all on and have work company focused portfolio, hard. estate these real a and being to are very that's day working releasing of existing and our properties folks that come out creating we

Thank you. great. Okay

next move Malhotra with Vikram to Morgan We'll Stanley.

Kevin This for on Vikram. is

disclose me. on the dispositions? you question Just the cap rate to a quick for happen Did

The was cap about rate X.X%. on Kevin our dispositions

but tenants, of terms didn't just you what color And in top in composition those then I the give a movement any Okay whole of of what great. of see the those? composition can around the lot was the acquisition.

Yeah a much it was top – a or needle small X properties of outside tenants. group mix it broadly across, was very of it of portfolios different but acquisitions Nothing the relationship think with really any primarily trying the remember, or diversified because to I'm relationship one-off of overall tenants. of It lot notably XX portfolio. it of move our our individual I didn't our was was tenants, our with

of Okay. I just line a the be a last terms cash toward last I for turned would positive of turned – it what straight quarter is actually know just rents, flow at of one for or to And which looked Great. into to in negative year, first if into the appears then be. it the expect the positive XXXX, end me, I

terms CPI have don't know the rest you you to of a trend? year? expect So you to straight-lines trend record that the of going over expect base of forward, that you do in of escalators. do How just I lot how given that

Yeah bit in a little lumpiness and of there that. is

you're that property when on a that give leasing five new to Kevin. So number. that then start off, you'll years, and you're somebody, right free An three rent months of influence occasion will

up much recent bounding plus zero around number been thousand range down not quarters. by hundred As been the a has you minus, or it's or our dollars, few over very know,

close mark. zero that In would terms trend, think of we're to a I

So it fourth year quarter XXX. of was a last positive

bit As first not quarter, from depending leasing zero. little a but activity, you quarter it's but XXX, noted too a on XXXX, far negative it straying the this will vary

Okay.

zero forward in be the So bet? of assuming going just terms best probably

That's assumption, a yes. reasonable

wrong if too that. You far be you won't assume

right. All lot. Thanks a Okay.

We'll with move Hawthorne Markets. to Capital next RBC Brian

Hi.

guys on has looking in? concepts you – Just one any question me. for Are to concepts any or new at new your that of kind you'd come there radar like is invest up

that real for programmatic always operators every within retail day building and market folks. is we're an off we're that that doing with right But who we'll long-term of looking not high looking notable Steve operator existing estate us have that estate big our on And team that to rent acquisitions retailers relationships business of think new currently period repeat led to a have is Brian, to long us real for leased trade concepts roads our of what time. with. say or are kind the folks line move are our comfort these to primary into. office, in doing is by no get good concepts we retailers looking the business focus materially with those gives along we for the for of own for There Horn spend we a traffic

Raymond Collin Mings next move We'll James. to with

guys. Thank you. good Hey, morning

Hi.

just just confirm for for a but in just players has me, pricing mean XXXX? for the as touch as a this XQ, XXXX public – than question imagined just higher you here overall on the on and can the the just yield – acquisitions I that to of was bit cost mix during improve related capital I given environment the continued quarter especially the well I First minute,

Collin. Right,

are – out are world good a We very general Cap at is down there don't XXXX. up the kind leases if all our in cash high have with X.X% little a worth anything Cap rates bit. moving good to them X% quality of see assets. term trending start yield bonds typical in of rates years on for with not we operators XX.X and

very of our continue expect through a think our quarter did rates not this did first team rest getting So very job these of that I at the remaining our year. the getting of first acquisition out acquisitions solid good guys for there, yield I good a good did a job Cap are – our good would to but quarter team yield. low acquisitions.

Got it.

it So again anything deals sounds well not indicative the struck like again as team it as the mix, to market? attributable specifically was of maybe the broader

That's correct.

strategically tenant, think with component on is not sole there. our our building cap dealing are When also rate lowest proposition. relationships I a we focus the helps relationship of value

with just able were rate. our somewhat Retail National more we lowest of Properties get better cap of so on And to to there's deals, yields than relationship because many the the value working

another me Fair to enough. That actually leads question.

know Just on guys you your about given where you'd bigger us with your week, acquisitions, about international but picture update such will just heels and last relationship I go think just and even opportunity? for I any how model you based of Realty's this, have on of announcement the with tenants an think opportunities just talked

outside United deals the with We've looked – and others. some at before some of with tenants relationship States

with growth order volume single-digits us very concluded allows selective hasn't not And efforts. that single States, objectives volume in know tenant of – well. you staying U.S. when we can growth vast so United the hasn't worked us. – that generate so and share to And that it just that need for the we undertake to out be meet per like and far of in far in the level made The of selective for sense while mid feel herculean markets kind properties we have being that FFO to we that consistent supply produce to retail very our we've couple

Fair enough.

relationships. you approach sounds your never really here, say So of think at a very never ample with something it fair? kind so see some but domestically just like I of Is – opportunity, that point, current type

That's fair. very Yes.

would have. it well I said. said You Yes, better than

just acquisitions home the one during does the It on just like to here for bucket up the going earlier look back of the an me All ticked bit quarter. composition question a and improvement right. Last during quarter.

just touch seeing you recognizing the there, front, the nominal? improvement else talk can opportunities competition maybe on you're pretty about the Just that it's again that on still on anything maybe home bucket,

couple and of nominal is that it did. a we No, Right. that's acquisitions

rent focus the the rent. market estate, primarily versus per the – certainly the the square real of property for that the Our rent price, location and always rent the is foot on

segment a kind any – less is to just that so more others. We when is looking we retail at is we're And properties, location rent? what this retail of is quarter, really a are us no this or found criteria. for a And and looking than that those reasonable competitive of good is, first – properties this in couple of fit we're no that

turn Jay. I'll I appreciate color the over. it

at Spenser Green next We'll [Operator move Advisors. to Allaway Street Instructions]

you. Thank

going pricing to more cap rate for where compression? Just back seeing retail notable within lower the moving anything. if are specific a second, you're rates there that mentioned industries Are cap environment you

There have been, deals particular have that’s hey, go I been we've but – – morning wouldn't Spenser. really can't it's have past that There happened. X% below say probably some rates good the for cap some where there's in – been specific seen that sectors

happened, I the say caused that we're think we to for transactions feature one try going for to plenty with that that and to there's folks compelling thing good that buyers In it's another on or and two are was do. with just right our real yields or going to for them – relationship accretive deals that. that focused think out been still to of case, one we there – do stay we are our operators for dealing estate opportunities doing good think have adequately retailers

Thank Okay. you.

Thanks Spenser.

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

guys. morning. Hey Good

Josh. morning, Good

dark in release is we assets just you for and the And of likely or about kind the Your assets and year? going the dark should talked earlier the there? SunTrust occupancy Virginia then going the the evolution how expirations is forward all XQ or about other there Shopko down think in year-over-year. Is College that assets going with any

our down we're about average. year-over-year, Josh, at right but Yes, long-term we're

and quick I we general folks we over the just us where sustainable Virginia vacancies were we the the remind And unexpected, single-tenant we environment going in The not going have their are is we’re that some long of saw in tenant time are we today have long-term. didn't The are retail was in coming – number, think properties College a way were to where when reflection to that are we XX% the to So that own think through SunTrust, that the particular, occupied, that a of all – retail – they ago. way. vacancy. our are along working but SunTrust SunTrust

got unresolved or that where think I not properties only – are only There's working we're still pending. just believe. SunTrust I either three three there's we've do them

So or a kind general – here it's to not major – a vacancies tenant factor. attributable any there just particularly of and to one

And we're versus reminder again flat sequentially quarter. a that prior

we in Jay or So business. our And line X% nothing think of as decade as over new tend to minus standard our couple occupied the and or the period modeling us said, way current about think to being XX% that's plus quarter. want – is a of

sense. Makes it. Got

when You to does more situation at mean are mentioned of those resolve this a that SunTrust three sell assets, going or mean you release you're a them, that like you're is you going them – to point?

are remaining of are the those three pool These remaining Yes, on we best vacant of majority SunTrust where had them. to then which we're properties, have the are be in are still resolution. there's seven all sales. put of those of – currently think some assets we last working clarity few vacant I yes, little of SunTrust vacancies. pending that And And Josh, the certainly more sales, a four to are four that,

we're being They is to release those inclination that's road, working They end try the bit as income real properties last little a our properties. estate. harder. down good, to are be and hard sales those an resolved but pretty stream, we working good few and up start last why may generally are So those lease to

you Okay. you're pending that and Shopko them the when the not thing Virginia to on And college for is same going kind and College mentioned assets, asset the sell resolution Shopko, and release them? the of two two

those we of those were both the could school – call in previous some charter the find that first, are two another are hoped kind a we pending those and two Yes, – we'd College, potential of that to that Virginia said for sales user schools. our

hope those. the being find So we'll ended see but that way goal do, schools selling sales our We for case, school try up user to those And in happen. if those if was were another – structured. certainly this we'll deals to they was to see the

that a one As be to happens we're only it still one also two relates and those of Shopko's, is have the We that pending. working sale. is on to

it. I appreciate Thank it. Got you.

Wells move to We'll Fargo. with next Stender Todd

where on morning. you. you Jay, they're maybe guess, briefly rents on be are ultimately what on any those deals to X% relationship a touched yield, and I underwritten maybe to rent closed at. how about rates Can Good they market? talk compared color rental there? this you the about QX driven, there's Thanks. the you Thank drive could flexibility if

for to our keeping is of rent, properties of portfolio whenever the last to And doing the our or sale at years therefore and possible No, big leaseback. the ago, focus our look as generally. is a – acquisitions, are rent first that rents five all of that's piece or own what's buying. underwriting by quarter market We we the looking at other Sure. sits a the are rent you're similar as that properties low year property close on low cost what paid market the whether pretty it's being the the we're like keeping to comparable feel the what's underwriting

comfort we like that at of the lease. all of about given time the some XX% think tenants our around we evidence at term XXX% the then renewal and renew the expiration. rent, market rents to feel which renewal been leases, end current are you the If bumping least along tenants gives lease the the us at through the statistics XX% our of has level That of of at

down. you then but tenant into service went acquired quick casual just I names And it did dining and up, restaurants. came Okay. That's sold, We've pointing and guys of guess got I'm tenant looks then names? that guys you helpful. specify like out that to, the any spelled the Have you you some what of

quick in because of end up Well, quarter year, the the year. not fast-food a bought we restaurants portfolio serve, but the went I anything this did last we of of in near quarter think

casual And really just I that anything it And of opposed down so number. went I think because diluted else. dining think kind got moved that as to

So didn't again we bought sold needle kind anything so the XX in XX, we we of properties really of levels. move and concentration terms on those

then, I acquisitions. guess, Okay. on timing of And

For on you're the should purposes, get modeling we year. – can QX, you of assume million more you've back if but upwards end weighted $XXX in full million closed $XXX for

about Just guess. thinking some timing, I

Yes. It the little back was a skewed quarter. of toward the bit end

help assume So to Again, $XXX.X that. of of million as model in kind point good place April rent base X is XX. that's I there's another March annual beginning projections of would data

expenses start our can around – is property an rent, the cash to that and base for property as you subtract on So $X with year guidance of believe. your million, to some get NOI level I expenses

to that's – another that. go And at that'll so way

Kevin, under And just to Did that didn't shares any I with you. rate get the a ATM? issue you stick

correct. ATM. first Nothing is on the in That the quarter

But the the program? that DRIP issue was shares through

That's reinvestment. Correct. dividend

you you're guess hairs Is in you're the raising two? count share between I the still up, my how on I difference there's still – equity? splitting a Okay. goes cost mean, raise there equity

mind. no effectively is there's difference real The in the cost No, my same.

Okay. you. Thank

Thanks, Todd.

Ladenburg. at [Operator John We'll Massocca Instructions] next to move

morning. Good

John. morning, Good

of of of closed Are properties Camping Store them? do for the they've portfolio. term last that properties locations quarters, in Gander the let's the its me, how anything been, you a – of any leased own and there refining you over you stay, short have retail guys has know lease they've essentially I to – active Just World is or one have kind couple any

John, them Camping question did form. leases last we your we Outdoor World, leases Gander our When on XX first. to answer the standard with year did with

types with So World longstanding World are some we've related of Outdoor And a Outdoor done nothing exchanged with traditional all we Gander properties Camping nothing one and had our of those them lots – them. sold different in we we've Gander and of leases transactions two Outdoor. for where long-term, We – World Camping have to short-term Gander short-term, or back relationship did our especially Camping properties our instances.

but open our – Gander and otherwise, Outdoor properties operating. are So

for right. me. Thank very it you All That's much.

John. Thanks

And questions at this gentlemen, I have time. no other

for or to right, seeing We all ICSC thank Jess, morning NAREIT All and look you. a us the you conferences. day. upcoming Have this joining forward thank at good you we

today's We conclude for teleconference. will you This participation. thank your

may this a You disconnect day. time your at great have lines and