Second Quarter 2016 Operating Results Announced By National Retail Properties, Inc.

News provided by

National Retail Properties, Inc.

Aug 02, 2016, 08:30 ET

ORLANDO, Fla., Aug. 2, 2016 /PRNewswire/ -- National Retail Properties, Inc. (NYSE: NNN), a real estate investment trust, today announced its operating results for the quarter and six months ended June 30, 2016.  Highlights include:

Operating Results:

  • Revenues and net earnings, FFO, Core FFO and AFFO available to common stockholders and diluted per share amounts:

Quarter Ended

Six Months Ended

June 30,

June 30,

2016

2015

2016

2015

(in thousands, except per share data)

Revenues

$

130,926

$

117,208

$

257,907

$

233,394








Net earnings available to common stockholders

$

43,084

$

37,330

$

104,908

$

82,450

Net earnings per common share

$

0.30

$

0.28

$

0.73

$

0.62








FFO available to common stockholders

$

80,503

$

73,090

$

160,601

$

143,933

FFO per common share

$

0.56

$

0.55

$

1.13

$

1.08








Core FFO available to common stockholders

$

84,404

$

73,518

$

164,722

$

144,517

Core FFO per common share

$

0.59

$

0.55

$

1.15

$

1.09








AFFO available to common stockholders

$

86,531

$

75,181

$

168,280

$

147,304

AFFO per common share

$

0.60

$

0.56

$

1.18

$

1.11

Second Quarter 2016 Highlights:

  • FFO per share increased 1.8% over prior year results
  • Core FFO per share increased 7.3% over prior year results
  • AFFO per share increased 7.1% over prior year results
  • Portfolio occupancy was 99.1% at June 30, 2016 consistent with March 31, 2016 and December 31, 2015
  • Invested $343.6 million in property investments, including the acquisition of 165 properties with an aggregate 1,095,000 square feet of gross leasable area at an initial cash yield of 6.9%
  • Sold seven properties for $19.7 million producing $1.2 million of gains on sales
  • Raised $128.3 million net proceeds from the issuance of 2,763,555 common shares

First Half 2016 Highlights:

  • FFO per share increased 4.6% over prior year results
  • Core FFO per share increased 5.5% over prior year results
  • AFFO per share increased 6.3% over prior year results
  • Invested $468.7 million in 211 properties with an aggregate 1,686,000 square feet of gross leasable area at an initial cash yield of 6.9%
  • Sold 17 properties for $72.5 million producing $18.1 million of gains on sales
  • Raised $216.3 million in net proceeds from the issuance of 4,762,965 common shares

Craig Macnab, Chief Executive Officer, commented: "2016 is off to a terrific start with better than expected acquisitions. Our balance sheet remains very strong and our portfolio occupancy continues to be exceptional. Also, we are pleased to have recently announced a 4.6% increase in our third quarter dividend which will make 2016 our 27th consecutive year of increased annual dividends per share."

National Retail Properties invests primarily in high-quality retail properties subject generally to long-term, net leases.  As of June 30, 2016, the company owned 2,452 properties in 48 states with a gross leasable area of approximately 26.3 million square feet and with a weighted average remaining lease term of 11.4 years.  For more information on the company, visit www.nnnreit.com.

Management will hold a conference call on August 2, 2016, at 10:30 a.m. ET to review these results.  The call can be accessed on the National Retail Properties web site live at http://www.nnnreit.com.  For those unable to listen to the live broadcast, a replay will be available on the company's web site.  In addition, a summary of any earnings guidance given on the call will be posted to the company's web site.

Statements in this press release that are not strictly historical are "forward-looking" statements.  These statements generally are characterized by the use of terms such as "believe," "expect," "intend," "may," "estimated," or other similar words or expressions. Forward-looking statements involve known and unknown risks, which may cause the company's actual future results to differ materially from expected results.  These risks include, among others, general economic conditions, local real estate conditions, changes in interest rates, increases in operating costs, the preferences and financial condition of the company's tenants, the availability of capital, risks related to the company's status as a REIT and the profitability of the company's taxable subsidiary.  Additional information concerning these and other factors that could cause actual results to differ materially from these forward-looking statements is contained from time to time in the company's Securities and Exchange Commission ("SEC") filings, including, but not limited to, the company's Annual Report on Form 10-K.  Copies of each filing may be obtained from the company or the SEC.  Such forward-looking statements should be regarded solely as reflections of the company's current operating plans and estimates.  Actual operating results may differ materially from what is expressed or forecast in this press release.  National Retail Properties, Inc. undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date these statements were made.

The reported results are preliminary and not final and there can be no assurance that the results will not vary from the final information filed on Form 10-Q with the SEC for the quarter and six months ended June 30, 2016.  In the opinion of management, all adjustments considered necessary for a fair presentation of these reported results have been made. 

Funds From Operations, commonly referred to as FFO, is a relative non-GAAP financial measure of operating performance of an equity REIT in order to recognize that income-producing real estate historically has not depreciated on the basis determined under GAAP.  FFO is defined by the National Association of Real Estate Investment Trusts ("NAREIT") and is used by the company as follows:  net earnings (computed in accordance with GAAP) plus depreciation and amortization of assets unique to the real estate industry, excluding gains (or including losses), any applicable taxes and noncontrolling interests on the disposition of certain assets, the company's share of these items from the company's unconsolidated partnerships and any impairment charges on a depreciable real estate asset.

FFO is generally considered by industry analysts to be the most appropriate measure of performance of real estate companies.  FFO does not necessarily represent cash provided by operating activities in accordance with GAAP and should not be considered an alternative to net earnings as an indication of the company's performance or to cash flow as a measure of liquidity or ability to make distributions.  Management considers FFO an appropriate measure of performance of an equity REIT because it primarily excludes the assumption that the value of the real estate assets diminishes predictably over time, and because industry analysts have accepted it as a performance measure.  The company's computation of FFO may differ from the methodology for calculating FFO used by other equity REITs, and therefore, may not be comparable to such other REITs.  A reconciliation of net earnings (computed in accordance with GAAP) to FFO, as defined by NAREIT, is included in the financial information accompanying this release.

Core Funds From Operations ("Core FFO") is a non-GAAP measure of operating performance that adjusts FFO to eliminate the impact of certain GAAP income and expense amounts that the company believes are infrequent and unusual in nature and/or not related to its core real estate operations.  Exclusion of these items from similar FFO-type metrics is common within the REIT industry, and management believes that presentation of Core FFO provides investors with a potential metric to assist in their evaluation of the company's operating performance across multiple periods and in comparison to the operating performance of its peers because it removes the effect of unusual items that are not expected to impact the company's operating performance on an ongoing basis.  Core FFO is used by management in evaluating the performance of the company's core business operations and is a factor in determining management compensation.  Items included in calculating FFO that may be excluded in calculating Core FFO may include items like transaction related gains, income or expense, impairments on land or commercial mortgage residual interests, preferred stock redemption costs or other non-core amounts as they occur.   The company's computation of Core FFO may differ from the methodology for calculating Core FFO used by other equity REITs, and therefore, may not be comparable to such other REITs. A reconciliation of net earnings (computed in accordance with GAAP) to Core FFO is included in the financial information accompanying this release.

Adjusted Funds From Operations ("AFFO") is a non-GAAP financial measure of operating performance used by many companies in the REIT industry. AFFO adjusts FFO for certain non-cash items that reduce or increase net income in accordance with GAAP.  AFFO should not be considered an alternative to net earnings, as an indication of the company's performance or to cash flow as a measure of liquidity or ability to make distributions. Management considers AFFO a useful supplemental measure of the company's performance.  The company's computation of AFFO may differ from the methodology for calculating AFFO used by other equity REITs, and therefore, may not be comparable to such other REITs.  A reconciliation of net earnings (computed in accordance with GAAP) to AFFO is included in the financial information accompanying this release.

National Retail Properties, Inc.

(in thousands, except per share data)

(unaudited)

Quarter Ended

Six Months Ended

June 30,

June 30,

2016

2015

2016

2015

Income Statement Summary
















Revenues:







Rental and earned income

$

126,929

$

113,224

$

249,404

$

225,288

Real estate expense reimbursement from tenants

3,248

3,324

6,838

6,838

Interest and other income from real estate transactions

301

213

764

376

Interest income on commercial mortgage residual interests

448

447

901

892


130,926

117,208

257,907

233,394









Operating expenses:







General and administrative

8,735

7,830

17,984

16,435

Real estate

4,567

4,658

9,355

9,417

Depreciation and amortization

36,489

34,202

71,144

66,343

Impairment – commercial mortgage residual interests valuation

632

428

852

428

Impairment losses – real estate and other charges, net of recoveries

5,459

2,686

6,031

3,714


55,882

49,804

105,366

96,337









Other expenses (revenues):







Interest and other income

(72)

(35)

(91)

(47)

Interest expense

24,081

21,678

47,667

43,464

Real estate acquisition costs

280

96

409

695


24,289

21,739

47,985

44,112









Income tax benefit

—

495

—

54









Earnings before gain on disposition of real estate, net of income tax
   expense

50,755

46,160

104,556

92,999









Gain on disposition of real estate, net of income tax expense

1,178

30

18,053

7,230









Earnings including noncontrolling interests

51,933

46,190

122,609

100,229









Loss (earnings) attributable to noncontrolling interests

9

(2)

16

(62)









Net earnings attributable to NNN

51,942

46,188

122,625

100,167

Series D preferred stock dividends

(4,762)

(4,762)

(9,523)

(9,523)

Series E preferred stock dividends

(4,096)

(4,096)

(8,194)

(8,194)

Net earnings available to common stockholders

$

43,084

$

37,330

$

104,908

$

82,450





































































































Quarter Ended

Six Months Ended

June 30,

June 30,

2016

2015

2016

2015







Weighted average common shares outstanding:







Basic

143,443

133,267

142,142

132,471

Diluted

143,977

133,601

142,694

132,825









Net earnings per share available to common stockholders:







Basic

$

0.30

$

0.28

$

0.74

$

0.62

Diluted

$

0.30

$

0.28

$

0.73

$

0.62


















National Retail Properties, Inc.

(in thousands, except per share data)

(unaudited)

Quarter Ended

Six Months Ended

June 30,

June 30,

2016

2015

2016

2015

Funds From Operations (FFO) Reconciliation:







Net earnings available to common stockholders

$

43,084

$

37,330

$

104,908

$

82,450

Real estate depreciation and amortization

36,407

34,086

70,984

66,113

Gain on disposition of real estate, net of income tax and
   noncontrolling interest

(1,178)

(30)

(18,053)

(7,178)

Impairment losses – depreciable real estate, net of recoveries and
   income tax

2,190

1,704

2,762

2,548

Total FFO adjustments

37,419

35,760

55,693

61,483

FFO available to common stockholders

$

80,503

$

73,090

$

160,601

$

143,933









FFO per common share:







Basic

$

0.56

$

0.55

$

1.13

$

1.09

Diluted

$

0.56

$

0.55

$

1.13

$

1.08









Core Funds from Operations Reconciliation:







Net earnings available to common stockholders

$

43,084

$

37,330

$

104,908

$

82,450

Total FFO adjustments

37,419

35,760

55,693

61,483

FFO available to common stockholders

80,503

73,090

160,601

143,933









Impairment  – commercial mortgage residual interests valuation

632

428

852

428

Impairment losses – non-depreciable real estate and other charges

3,269

—

3,269

156

Total Core FFO adjustments

3,901

428

4,121

584

Core FFO available to common stockholders

$

84,404

$

73,518

$

164,722

$

144,517









Core FFO per common share:







Basic

$

0.59

$

0.55

$

1.16

$

1.09

Diluted

$

0.59

$

0.55

$

1.15

$

1.09









National Retail Properties, Inc.

(in thousands, except per share data)

(unaudited)









Quarter Ended

Six Months Ended

June 30,

June 30,

2016

2015

2016

2015

Adjusted Funds From Operations (AFFO) Reconciliation:







Net earnings available to common stockholders

$

43,084

$

37,330

$

104,908

$

82,450

Total FFO adjustments

37,419

35,760

55,693

61,483

Total Core FFO adjustments

3,901

428

4,121

584

Core FFO available to common stockholders

84,404

73,518

164,722

144,517









Straight line accrued rent

84

187

(157)

(18)

Net capital lease rent adjustment

353

342

692

676

Below market rent amortization

(661)

(676)

(1,520)

(1,700)

Stock based compensation expense

2,667

2,368

5,370

4,777

Capitalized interest expense

(316)

(558)

(827)

(948)

Total AFFO adjustments

2,127

1,663

3,558

2,787

AFFO available to common stockholders

$

86,531

$

75,181

$

168,280

$

147,304









AFFO per common share:







Basic

$

0.60

$

0.56

$

1.18

$

1.11

Diluted

$

0.60

$

0.56

$

1.18

$

1.11









Other Information:







Percentage rent

$

164

$

112

$

638

$

297

Amortization of debt costs

$

757

$

714

$

1,513

$

1,423

Scheduled debt principal amortization (excluding maturities)

$

133

$

410

$

392

$

819

Non-real estate depreciation expense

$

84

$

122

$

165

$

240









2016 Earnings Guidance:






FFO guidance for 2016 is $2.31 to $2.36 per share before any impairment expense. The 2016 AFFO is estimated to be $2.36 to $2.41 per share. The FFO guidance equates to net earnings before any impairments or gains or losses from the sale of real estate of $1.30 to $1.35 per share, plus $1.01 per share of expected real estate depreciation and amortization. The guidance is based on current plans and assumptions and subject to risks and uncertainties more fully described in this press release and the company's reports filed with the Securities and Exchange Commission.

2016 Guidance

  Net earnings per common share before any impairment charges or
    gains (losses) on sale of real estate

$1.30 - $1.35 per share

  Real estate depreciation and amortization per share

$1.01 per share

FFO per share (Core)

$2.31 - $2.36 per share

  AFFO per share

$2.36 - $2.41 per share

  G&A expenses

$35.5 - $36.0 Million

  Real estate expenses, net of tenant reimbursements

$5.5 Million

  Acquisition volume

$650 - $750 Million

  Disposition volume

$85 - $100 Million

National Retail Properties, Inc.

(in thousands)

(unaudited)

June 30,
2016

December 31,
2015

Balance Sheet Summary








Assets:



Cash and cash equivalents

$

2,371

$

13,659

Restricted cash and cash held in escrow

242

601

Receivables, net of allowance

2,205

3,344

Mortgages, notes and accrued interest receivable, net of
   allowance

5,271

8,688

Real estate portfolio:



Accounted for using the operating method, net of accumulated
   depreciation and amortization

5,630,117

5,253,511

Accounted for using the direct financing method

13,826

14,518

Real estate held for sale

3,062

35,429

Commercial mortgage residual interests

10,580

11,115

Accrued rental income, net of allowance

25,221

25,529

Debt costs, net of accumulated amortization

3,396

4,003

Other assets

88,999

89,647

Total assets

$

5,785,290

$

5,460,044





Liabilities:



Line of credit payable

$

147,300

$

—

Mortgages payable, including unamortized premium and net of
   unamortized debt costs

16,900


23,964

Notes payable, net of unamortized discount and unamortized
   debt costs

1,953,479


1,951,980

Accrued interest payable

19,138

20,113

Other liabilities

100,977

121,594

Total liabilities

2,237,794

2,117,651





Stockholders' equity of NNN

3,547,253

3,342,134

Noncontrolling interests

243

259

Total equity

3,547,496

3,342,393





Total liabilities and equity

$

5,785,290

$

5,460,044





Common shares outstanding

146,002

141,008





Gross leasable area, Property Portfolio (square feet)

26,326

24,964

National Retail Properties, Inc.

Debt Summary

As of June 30, 2016

(in thousands)

(unaudited)



Unsecured Debt

Principal

Principal,
Net of
Unamortized
Discount

Stated Rate

Effective
Rate

Maturity Date

Line of credit payable

$

147,300

$

147,300

L + 92.5 bps

1.385

%

January 2019









Unsecured notes payable:









2017

250,000

249,851

6.875

%

6.924

%

October 2017

2021

300,000

297,551

5.500

%

5.689

%

July 2021

2022

325,000

321,682

3.800

%

3.985

%

October 2022

2023

350,000

348,146

3.300

%

3.388

%

April 2023

2024

350,000

349,420

3.900

%

3.924

%

June 2024

2025

400,000

399,090

4.000

%

4.029

%

November 2025

Total

1,975,000

1,965,740
















Total unsecured debt (1)

$

1,975,000

$

1,965,740
















Debt costs


(17,782)





Accumulated amortization

5,521





Debt costs, net of accumulated amortization

(12,261)





Notes payable, net of unamortized discount and
unamortized debt costs

$

1,953,479






(1) Unsecured notes payable have a weighted average interest rate of 4.5% and a weighted maturity of 6.5 years




Mortgages Payable

Principal
Balance

Interest Rate

Maturity Date

Mortgage(1)

$

14,274

5.230

%

July 2023

Mortgage(1)

2,744

6.400

%

February 2017

$

17,018

(2)









Debt costs

(226)



Accumulated amortization

108



Debt costs, net of accumulated amortization

(118)



Mortgages payable, including unamortized
premium and net of unamortized debt costs

$

16,900



(1) Includes unamortized premium





(2) Mortgages payable have a weighted average interest rate of 5.4% and a weighted average maturity of 6.0 years

National Retail Properties, Inc.

Property Portfolio


Top 20 Lines of Trade

As of June 30,

Line of Trade

2016(1)

2015(2)

1.

Convenience stores

16.7

%

17.5

%

2.

Restaurants – full service

12.6

%

8.9

%

3.

Restaurants – limited service

7.7

%

7.1

%

4.

Automotive service

6.7

%

7.1

%

5.

Family entertainment centers

5.7

%

5.6

%

6.

Theaters

5.1

%

5.1

%

7.

Health and fitness

4.2

%

3.8

%

8.

Automotive parts

4.0

%

4.5

%

9.

Recreational vehicle dealers, parts and accessories

3.4

%

3.6

%

10.

Banks

3.3

%

3.6

%

11.

Sporting goods

2.8

%

3.4

%

12.

Wholesale clubs

2.5

%

2.8

%

13.

Medical service providers

2.2

%

2.0

%

14.

Drug stores

2.2

%

2.4

%

15.

Consumer electronics

2.1

%

2.3

%

16.

Travel plazas

2.0

%

2.2

%

17.

Home improvement

1.9

%

1.9

%

18.

General merchandise

1.8

%

2.1

%

19.

Home furnishings

1.8

%

2.0

%

20.

Grocery

1.6

%

1.6

%

Other

9.7

%

10.5

%

Total

100.0

%

100.0

%

Top 10 States

State

% of Total(1)

State

% of Total(1)

1.

Texas

18.9

%

6.

Indiana

4.3

%

2.

Florida

9.3

%

7.

Georgia

4.3

%

3.

Ohio

5.8

%

8.

Virginia

3.6

%

4.

Illinois

5.1

%

9.

Alabama

3.1

%

5.

North Carolina

4.9

%

10.

Tennessee

2.9

%

(1)

Based on the annualized base rent for all leases in place as of June 30, 2016.

(2)

Based on the annualized base rent for all leases in place as of June 30, 2015.

National Retail Properties, Inc.

Property Portfolio


Top Tenants (> 2.0%)

Properties

% of Total (1)

Sunoco

125

5.6

%

Mister Car Wash

90

4.1

%

LA Fitness

26

3.6

%

Couche-Tard (Pantry)

86

3.4

%

Camping World

32

3.4

%

7-Eleven

77

3.3

%

SunTrust

121

3.1

%

AMC Theatre

17

2.9

%

Bell American (Taco Bell)

115

2.9

%

Chuck E. Cheese's

53

2.6

%

BJ's Wholesale Club

8

2.5

%

Frisch's Restaurant

74

2.3

%

Gander Mountain

12

2.2

%

Bob Evans

117

2.1

%

Best Buy

19

2.0

%

Lease Expirations(2)

% of
Total(1)

# of
Properties

Gross Leasable
Area (3)


% of
Total(1)

# of
Properties

Gross Leasable
Area (3)

2016

0.3

%

9

130,000

2022

5.5

%

99

1,182,000

2017

2.3

%

44

852,000

2023

2.3

%

56

930,000

2018

5.9

%

183

1,645,000

2024

2.7

%

50

885,000

2019

3.2

%

79

1,116,000

2025

5.3

%

133

1,118,000

2020

4.0

%

136

1,549,000

2026

5.9

%

167

1,738,000

2021

4.6

%

120

1,343,000

Thereafter

58.0

%

1,348

13,419,000


(1)

Based on the annual base rent of $517,010,000, which is the annualized base rent for all leases in place as of June 30, 2016.

(2)

As of June 30, 2016, the weighted average remaining lease term is 11.4 years.

(3)

Square feet.

SOURCE National Retail Properties, Inc.