National Retail Properties (NNN) 1 Aug 192019 Q2 Earnings call transcript

Good day, ladies and gentlemen, and welcome to the National Retail Properties Second Quarter 2019 Earnings Call. All lines have been placed on a listen-only mode and there will be a question-and-answer session following the presentation. [Operator Instructions]

At this time, it's my pleasure to turn the floor over to Mr. Jay Whitehurst, Chief Executive Officer. yours. is floor the Sir,

Thank you, Retail to National and Good second quarter morning, Properties' welcome XXXX the Tom. earnings call.

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

and will steady per Retail July our our the matched less common the mark dividend feat results in and XXXX second by quarter. enviable dividend us XX%, a only quarter With be two positioned of again, National beyond. States. XX dividends, in consistent positioned increase payout Once of X% to this other track $X.XXX to REITs by able companies XXXX record well Properties of posted continue approximately year annual consecutive we're by into in public ratio a XXXX, which than XXth United stock to increased to

tweets continue per sometimes headlines will in taking move average achieve business when markets era model History results. above-average long share post an to over term, has shown our risk. for our while and opinion In in the the below shareholders, that we steady, returns fluctuations, wild consistent

broadly remained our to rate details, of the retail portfolio properties XX.X%. into Looking up XX single-tenant healthy, X,XXX occupancy our points as diversified ticked basis

teams, And leasing us of that to and the end times, you've is of quarter pleased our X%. asset at many or the say second management minus due higher As XX% hard heard long-term to range. occupancy plus the rate our end work we're

of $XXX acquire retail new almost of and have retail with average X.X%. million XX.X duration quarter $XXX cash Year-to-date, invested yield years. second of we X.X% an XX initial properties properties busy million yield as single-tenant initial acquisitions investing a to cash an single-tenant had almost of well, lease at XXX We at now an in

invested lines XX tenants end half business of of of is first relationship we've in which done XX% XX year, relationship our of with for far tenants consistent the operating accounted trade. total with this different over recurring so dollars Through average. generally long-term These the XXXX, our

for acquisitions team and management, bears that a ultimately that's maintain tenant management hard these relationships. our fruit, team, stronger our our all But our perspective. able long-term deep time-consuming and and build when real document effort lease It's favorable work acquire to to terms locations, estate we're tailored to lease senior with asset

the second We of also almost proceeds. quarter, $XX during sold XX million properties generating

rate. sale a is as-is team note CVS particular sale cap vacant CVS was property a group we X.X% for which average of properties Year-to-date, of from our at Of gain our box, through formerly disposition raised an and at sold our on of This of over of leasing basis a just over million end rate have a X%. $X an the drugstore XX then million. to over dispositions June, re-leased $XX cap

raised at financial through a the and discussed ATM program. we've As of rate million that I our our Kevin model. second in strategic to But more metrics properties our before, business sheet balance want in highlight quarter to below advantage cap recycle acquisition capital cap selling disposition rates by is will accretively meaningfully ability over the our discuss we detail. well-priced equity do of $XX

sector the well a beyond. resulted continues us strategy balance in one this in Sticking second the process. strategy of is remaining some XXXX We very long-term well our capital is acquisition disciplined be selective positions our long-term and to priced, strongest to issuing while dilution, our it recognize that may create half to has sheet and that equity raise but for short-term in when of

business we by on consistent multiyear characterized per share basis. that reiterate with me let a a growth focus, closing, run In our long-term

reflect results another quarter Our second consistent that path. steady along step

comments. additional his provide to Kevin ask me let that, With

to after the company's forward-looking I'll the Jay that and in actual statements company's from to statements with these changes federal statements may materially will results forward-looking matters discussed greater be press and law. as we to cautionary statements in in expectations disclosed risks forward-looking to and from make maybe in not The the differ this filings revisions were release that reflect Thanks, release. future Factors under are time-to-time these usual considered from securities differ results cause made. that morning's the certain the statement could and actual statements we with may detail start SEC significantly

of press quarter With share consistent was for and results flat this morning's our per quarterly with with XXXX, from $X.XX of results prior is projections that, report estimates. which headlines the year release FFO second core and

of We this while maintaining prior a guidance $X.XX we $X.XX XXXX We quarter unchanged to and our implies are growth midpoint. with a from which share, on to and X.X% do the FFO per balance which prior the sheet. core liquid left track strong

of press today's Details is of X page guidance release. XXXX our on

XXXX payout of dividend XX.X% same as AFFO payout. year was the half the first was for ratio full Our XXXX which

As increase Jay increases. consecutive a of recent noted, dividend year the XXth dividend our marks in

which were Occupancy G&A of the second for X.X% points for year up was of first revenues half and the quarter XX, basis both of consistent was June was XX expense level. XX.X% at with XXXX X.X% which quarter. versus prior prior

XXXX results, leases June XX, the XXXX in was modeling million. rent annual all of base place as for $XXX.X of purposes For

and some of of you projections starting XXXX. out take allows X, timing acquisitions the QX July the this guesswork So – out dispositions of estimation for of to or

the relatively we've of leverage the with behave neutral manner And expect Jay we in a was noted raised our of in to $XX the million time. in That at As over price, couple decades, quarter. we consistent past net second and a ATM. $XX.XX noted, via past equity as primarily

totaled quarter $XX million. $XX dispositions dispositions totaled Second first and million half

the $XX in first raised of totals million So XXXX cash of half after plus for flow of plus million of the to $XX retained investments. $XXX first $XX new equity-light equity all half these disposition common million available of raise proceeds operating million dividends capital fund

curve entered we equity. the XXXX of on As ahead raising of terms a well reminder,

in entered $XX We very our effort modest the remain allow good line an and outstanding bank will with on liquidity liquidity. usage we position, maintain active several line bank of So into $XXX significant maintaining continuing and leverage years quarter to XXXX. which very us million acquisition million

very remained strong. metrics Leverage

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

So our fund sheet good future a position potential as weather in as turmoil. to balance market is economic capital well and acquisitions

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

not market have we know, manage particularly so all metrics balance you we our a cap-based leverage that. relevant found sheet around don't As

X,XXX X.X charge are was points of XX. quarter mortgages June five X.X both at year-end importantly, coverage times coverage was the second properties both times metrics for were than $XX higher debt-to-EBITDA totaling was More by XX of Interest X.X those and times Only encumbered million. and net fixed XXXX. our basis

easy. comps XXXX, and years particularly looks be year share solid our and multiple allocation remains are on basis sourcing of the So a to per making another not minds. forefront at multiyear the results for operating driving investment capital and prior capital of results When growth decisions

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

we to that, open any And up with questions. it will

Citi. take you, [Operator question McElroy Thank from our We'll first with Instructions] Christine sir.

original further you on Katy is of any the the McConnell progress say expectation, This accelerated is your to-date? made now? Christine. you guidance And about you've remainder acquisitions you of And for more morning. what's on Can the talk versus would your likely year-to-date Good given outlook with year? see your pace high-end

change morning. good our had Katy, We we didn't busy guidance. a Yes acquisition second quarter.

quarter than for a us. usual little The slower was first

that's kind out of comfortable the very with so, we're where comfortable And there. we're in finishing are the and of guidance we range

you future As acquisitions are know, to don't overpromise. so fuzzy want or and over-commit the we

environment I of opportunities provides a The for the that say looks So -- very us. but lot good. will pipeline still acquisition

very that say guidance. exceed our through with As repeat we're to pipeline off-market our prepared of we relationship looks that we year's that tenants I But business leases. materially where the of said, we're at do confident of we long-term this business year. leasebacks most recurring this sale will rest point, not with good the do And

call we guidance fourth precious impact Katy, a really we're more XXXX it exceed did and of the story. reminder the not which as year on confident And really extent occurs has it a yet. about little the is it just results extent, XXXX To in that later quarter, to

where the us. we'll opportunity see takes So

Great. Thank Okay. you.

We'll take our Hawthorne Markets. with next question Capital RBC from Brian

rates do see With falling, for more you question. first dispositions? My opportunities opportunistic Hi.

morning. hi Brian, good

We investors buyers. often have one-off dispositions a very selling very our most And rates effective are Those the in-house properties individual its disposition remaining disposition platform. exchange in of We run to XXXX rates low. cap cap environment, internally.

a capital. provide really does continue recycle it accretively So us meaningful to opportunity to with

that flat wants or barbell for be is someone be world those properties in rate that very another, strategy. that those. reason that disposition -- I badly. in need philosophy us of is -- have our there pay not don't for estate of one the a us it's out that very and residual reason a long-term should holder feel like for may at out value cases, there's really but kind willing look to cap properties many low some a or real We compelling. leases around point we so we're it the to But someone property, wants else either is of properties we And to the dispositions our

And so we'll sell into that market.

like we costs. think the of those sell carrying reason there's the vacant before to expiration the properties on we barbell, end some of at other lease that have then that would properties And or looking where the we're

a the clean end, And the so it's other at possible. keep sale as portfolio to kind as defensive of

rate sell REIT those business far think other rates. distinction, between areas to cap providing many But where our cap are we world and between us we very really two meaningful in a rates low able and below it's averaging are a cap our acquisition I

then they most trade guess the do seem I And why expansion like lines have of plans? Great. the

access particular in where we can often simple operated per at you What cost is estate locations say buy, and are businesses real situations properties property. the on good that low in sale. we're at tenants can we good sentence visibility and Brian, rent and for by with focused their acquire low what’s strong signage only those

what retail opportunities we at is strong the look those you existing lines do portfolio make business which good across to if in described with do finding trade all trade those of of our are of trade. just lines I of on that up of And locations. all are retailers there opportunities So lines

Thank you. you. Got

our Malhotra take with question next from Morgan Vikram We'll Stanley.

on Kevin is This Vikram. Hi. for

questions quick couple for a me. Just

I of increase specific in Just there the as acquisition is in G&A there's we But I volume. expense, know up in G&A. to the guidance estate expense real estate slight from the should assume anything the at? terms of be there real The of as a moving terms is the well looking

just Yes end. rate. million Not really. $X.X $XX million, increase $XX run tuning was on a fine our That on million

So yes there. nothing much to in read

Okay. dispositions Is quite noticed And related missed I before, on sorry have I this a the balance but sheet for that fell to may your bit. I'm just interest non-controlling a quarter? the down it

Yes.

Okay.

Sounds good. Thanks a lot.

We'll take Green question with Street next from Spenser Allaway Advisors. our

know Hi, drugstore I certainly on tenants investment thank lower you. the CVS have more traditionally that rates. pickup. some cap as have sale? provide comps obviously the asset CVS least garnered the you at in seen cap But rates space color have Can recent I such seen grade

the Is Certainly drove about of performance rates mid-X the cap low? the -- or of expected mid-cap that that perhaps cap location deal, the there north the anything cited. you so specific the properties

a you're Spenser. a in I'd bookstore very well absolutely Yes, it's too But former I location. was morning, won't But Borders former, driven say get this Florida. detail. by was is primarily good Yes, right. into that here This is much located the

I that as-is can't best bankrupt. space. good -- have went When of finding the and an was And got lease basis. of didn't it essence growth Borders on remember I a we've our or long-term came to But can't tenant lease it it in that did a very went recall I a good when lot take they on leasing space a very And team back think to the just us job bankrupt location.

in disposition that our So the your we it through it around location and created properties that the upgrade version on and to that can exactly good then way. one turn of property you It credit box harvest tenant look of is a re-lease platform. vacant it a getting high-credit take was kind sell to and value a when a

lease terms? cite Did said signed lease? you Absolutely. already you the you how did mention Did long -- the you long-term you mention sorry

Spenser I Kevin do didn't because I don't you? recall.

that. I'll Okay. follow up on

a fund one capital Okay, one given to ATM be about as kind guys additional to the appears last growth maybe to you which Kevin future program is I you substantial trading like interest into equity the head pretty premium me. any year? for just value I and have are there guys you back ample realize But the know of to where pre-fund acquisitions. you asset spoke of

in capital, interest have always it's when We raising Yes. price. available low

alluded in XXXX example. good was I As a comments, my

So equity of ATM pre-operated equity. in our XXXX we and acquisitions flow, million of and funded $XXX of that cash between kind dispositions XX% with

So well acquisitions my is led yes, have entered we'll to to we're make. -- know coming We and very point. more which XXXX But equitized. XXXX we

we And yes, so capital are so. be low do available price when your to you we too probably to in point, inclined and it's get surprised if shouldn't

Absolutely. those XX% methods but, kind to would acquisitions? one And last the around probably sorry same of of funding the via expect okay year up you wrap three probably

multiyear continue. no have reason to historically recent around we've comfortable we to our commit you're won't as that. that percent I to want to leverage profile don't XX% on in is with. neutral of approaches And that well ended that times, a so XX%. relatively lower manner period. won't high behave we're leveraged very But a -- commit we general I side the in XX%-or-so And historically, frankly, that to alluding believe give we over the

that guessing continue. will I'm So

And multiyear this. just said to Spenser, word was at that highlight one we how And really that's Yes. Kevin look focus.

at little extent do comes the short-term well-priced create the to right opportunity raise the capital a thing But a of it's of year for to the So dilution. it to long-term. the end may

it. us expect should You do to

guys. you, Thank Excellent.

Raymond We'll Mings take with from Collin our James. next question

Hey, guys. morning, good

Collin. Hey,

for question quick Just me. a

year-over-year looks you the on Just it sequentially? to incremental then up exposure again rental sequentially the the during some meaningfully category It's equipment obviously there's and expand also can like activity quarter.

that the one rental retail -- We small equipment strong north It in our very profile were These fits $XX individual Yes. second of a the did of equipment operator. was It's acquisition million with it well. properties portfolio really a large a quarter. transaction. companies

$XX leaseback we've with a started that around I happy very was an very million work overall But sale the this think transaction new the portfolio with property it of tenants one it was operator. with transaction to happy direct -- operator. and with the relationship

any in or Any on was other Okay. terms it focus cap geographic us you given that of their how details underwritten rates, size details of deal? the give just could

The bandwidth of cap rates really narrow. for our acquisitions is pretty

our And across recollection overall kind that geographically, in the it's it's of is think bandwidth I So of States. diversified United my average. the Collin just

All Okay. guys. right. Thanks

question next We'll from with take Stender Fargo. Wells Todd our

Thanks.

-- Just of call can kind many were quarter broadly relationship Just how it. many maybe portfolio? looking the investing mix XX then you how at how good-sized of these it second marketed? acquired but investments, were say you many guys versus characterize were those a break of out And properties,

we've Yes. before the I'll -- do just I Todd, rental question. on Collin best And that can asked the that about piece. equipment

piece one was that so And of it.

rentals. So was large equipment chunk good a a --

deals and we and square with were low-priced very was a And had service with also locations few We and tire that retailers auto property discount per those it washes. per few happy some low did rent car a and we foot. stores where

was very many in the So of in restaurants -- a second bit is us. quarter, different or stores not But otherwise, was from there which middle fairway. there the it convenience were pretty much the down little fast-food

and were I guess you in many existing participated auctions? how And maybe how tenants many

then, XX% first over either we've existing of did then that tenants. and were a I tenants. guess our Almost with A existing little with all by direct invested our deal relationship relationship or were with. mean, off-market And a built folks dollars I

Okay.

the about. properties where more kind little they're the retailer of business relationship that It's concerned back holds a

$XXX -- the But of average get we even the quarter get a highlight estate. duration that second lease importantly, worth can ourselves you're And or think we off. size. some sample you with burned the things to And up the term the of I I opposed years. do lease leases to is duration business I XX.X in existing think kind when XX.X-year big focus to really duration. very but getting a our to first on of want of year, negotiate that, -- $XXX is And one very million has the direct as million the for relationship are bidding better the really half where deals is than higher doing those setting well for real slightly So a is almost long-term. quarter lease not buying

the cash sources? a Thank modeled estimate What's just Okay. as I reasonable guess we've capital that. we you sourcing for capital -- back you at to free out for guys the when flow for subject. Kevin, look XXXX

Yes. $XXX to million. million $XXX

XX-year market spread activity the always REITs, capital, are And if all XXX you'd in equity rates think low, of but attractive. much more guys looking if preferred that's interest it that what a of guess the so you're Okay. bit you we see pricing can debts to at But basis essentially don't preferred or of the across maybe been looking because that. accurate. as points Are I seeing perpetual just You then even market? get pricing at just kind get I

Definitely looking yes.

our in is a little might preferred what preferred pieces capital case issue XX-year more that -- preferred we open as the about whether three particular XX-year minds, we And those and to the relative pricing in capital attractive to to window pursue more structure, consider when tends be of availability. of particularly what think in So on the and of its pricing. debt of that really terms the sporadic debt, piece be

priced equity X.X% that’s just got XXXX said, entered of you -- we've good we get was -- perpetual tend issued October a cost and at and coupon. well no generally capital. we we We equity well intention we look, time so And it. of can last XXXX the a as preferred was go priced that doing -- it if available, but had it's and

Let's some. go get

capital say full competes world. are not very now, well will I So but is it's but rates guess. it But upper right won't of say with it's of preferred I -- right it. fairly consider consideration. will full, is attractive issuance half would, I say debt -- XX-year the Or it now stack a XX-year our I and today's a preferred on definitely in

of understand, And being we'll as answer But the our end so, we most think above. up capital of about definitely important stack. yes, We understand all where as that may preferred the go. an think see And this part and coupons And is tend debt. and sum the we more The as piece I it an equity on -- we our to capital treat than equity minds view we call as such. obligations. principal on of

Thanks, Kevin.

We'll Massocca next Instructions] to [Operator Ladenburg John Thalmann. go with

morning. Good

morning, Good John.

this some tenants, been I quarter, near-term So most of was earlier any the College? of you have on my the update on at of the related questions the kind during on in like year successful Colleges, know that you're that? had of Virginia the just some but vacancies expecting answered, or but and of ShopKo Virginia close occupancy and couple stuff a the pickup the already occupancy to outcomes

And have have holiday temporarily to had to those asked Then a John, not. healthy running answer no, it is contracts relates we leased -- Colleges: portfolio We're three regular is haven't contract But been those our own and rent. one yet; but rejected above the very short have as really. ShopKo’s, of it may one XX% then those pending under the not paying are is yet only to the still occupied. tenants sale; sell store. at average. hasn't and are open we you enclosed all about almost three. Virginia It a at well two and The one we we

but leased of in our still the – kind We hope real do, our matured kind working in leasing all the a worked of the we and individual smaller vacancies they in or or expect one those we're is in deals the all the team properties And Colleges of either of the on they're do the other for that's work number Virginia our sold. on. The those got second got. time basis rates occupancy that just that drop the pending. we – we've our vacancy, increase hard of reduction and They've quarter

the recently of of then And there any particularly franchise kind have watchlist been to maybe the segment? restaurant changes tenant within kind Okay.

our real Logan's while. Ruby had on we've X% on less Both mean, But than for a changes. tenants, usual kind there. I of no been really. those of but Roadhouse Not no is Tuesday's suspects there. there no, change. are has on notable

me. for Thank much. it That's very Okay. you

Thanks, John.

Chris with next our take We'll question Lucas Securities. Capital One from

Hey, back everybody. answered. to Most going question. questions that Kevin my and of just asked good guess I been But capital market have morning,

performance Given and more than bond the so compression to a bias yields year sort equity? the debt the stock performance rate there in far relative this is of towards now

both. I a answer. That's surprise moment. hard a the like there one to What at

choose. So I to have think I

I'd to do And So no I we're the long is term for on the no. we years. price I do followed shorter – time long than those we do well, XX don't a who itching think better have have than say longer think anything we're side shorter. debt us

debt long-term priced reasonably well is well. priced but and equity's So as very

real other. bias or way no one So, the

have the a then spread at going more batches that preferred point back where now I refi in the that competitive out rate could you guess you And the not would point? of at one enough question, is this wide question – just is there are or I to a

probably we could. Yes,

But and XX-year as XX- well of out. we're the see come available we We redeemable at to well in Again, could have is outstanding a cheaper we that put coupon series all preferred going that a option is working kind D preferred where rate. to common reissue that context of of and us. X.X% and the redeem and equity as that issued debt as

this Thank you. Great. have I That's all morning.

Chris. Thanks, right. All

there to queue. like comments. the and to further you I'd over no the any back turn call for And questions ladies are in Whitehurst, gentlemen, Mr. closing

a all thank All right. we and and Tom, you have Thanks this good for day. of morning joining us

this your participation disconnect Ladies and at today's gentlemen, appreciate We may time. conclude and you this conference. does