Second Quarter 2018 Operating Results Announced By National Retail Properties, Inc.

News provided by

National Retail Properties, Inc.

Aug 01, 2018, 08:30 ET

ORLANDO, Fla., Aug. 1, 2018 /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, 2018.  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,

2018

2017

2018

2017

(in thousands, except per share data)

Revenues

$

155,518

$

145,550

$

308,353

$

286,981








Net earnings available to common stockholders

$

61,992

$

49,447

$

156,690

$

101,068

Net earnings per common share

$

0.40

$

0.33

$

1.02

$

0.68








FFO available to common stockholders

$

104,944

$

87,884

$

207,713

$

166,151

FFO per common share

$

0.68

$

0.59

$

1.35

$

1.12








Core FFO available to common stockholders

$

105,204

$

95,425

$

208,234

$

183,547

Core FFO per common share

$

0.68

$

0.64

$

1.35

$

1.24








AFFO available to common stockholders

$

105,303

$

96,412

$

208,182

$

185,457

AFFO per common share

$

0.68

$

0.65

$

1.35

$

1.25

Second Quarter 2018 Highlights:

  • FFO per common share increased 15.3% over prior year results
  • Core FFO per common share increased 6.3% over prior year results
  • AFFO per common share increased 4.6% over prior year results
  • Portfolio occupancy was 98.5% at June 30, 2018 as compared to 99.2% on March 31, 2018 and 99.1% on December 31, 2017
  • Invested $140.5 million in property investments, including the acquisition of 59 properties with an aggregate 336,000 square feet of gross leasable area at an initial cash yield of 7.1%
  • Sold 13 properties for $11.9 million producing $4.1 million of gains on sales
  • Raised $129.2 million net proceeds from the issuance of 3,136,802 common shares

First Half 2018 Highlights:

  • FFO per share increased 20.5% over prior year results
  • Core FFO per share increased 8.9% over prior year results
  • AFFO per share increased 8.0% over prior year results
  • Invested $317.5 million in property investments, including the acquisition of 111 properties with an aggregate 736,000 square feet of gross leasable area at an initial cash yield of 6.9%
  • Sold 28 properties for $83.5 million producing $42.7 million of gains on sales
  • Raised $130.5 million in net proceeds from the issuance of 3,181,461 common shares

Core FFO guidance for 2018 is $2.62 to $2.66 per share. The 2018 AFFO is estimated to be $2.66 to $2.70 per share. The Core FFO guidance equates to net earnings of $1.51 to $1.55 per share, plus $1.11 per share of expected real estate depreciation and amortization and excludes any gains from the sale of real estate and any charges for impairments and retirement severance costs. 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.

Jay Whitehurst, Chief Executive Officer, commented: "National Retail Properties continued its consistent performance in the second quarter, driven by a healthy portfolio, a strong pipeline of relationship-driven acquisitions, and continued access to  attractively priced capital.  We were pleased to recently announce a 5.3% increase in our dividend which will make 2018 the 29th consecutive year of increased annual dividends - a record only three publicly traded REITs can claim."

National Retail Properties invests primarily in high-quality retail properties subject generally to long-term, net leases.  As of June 30, 2018, the company owned 2,846 properties in 48 states with a gross leasable area of approximately 29.4 million square feet and with a weighted average remaining lease term of 11.5 years.  For more information on the company, visit www.nnnreit.com.

Management will hold a conference call on August 1, 2018, 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, and, risks related to the company's status as a REIT.  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 (the "Commission") 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 Commission.  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 Commission for the quarter and six months ended June 30, 2018.  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,

2018

2017

2018

2017

Income Statement Summary
















Revenues:







Rental and earned income

$

151,383

$

141,742

$

299,987

$

279,039

Real estate expense reimbursement from tenants

3,770

3,700

7,928

7,560

Interest and other income from real estate transactions

365

108

438

382


155,518

145,550

308,353

286,981









Operating expenses:







General and administrative

8,741

8,820

17,437

17,739

Real estate

5,828

5,424

11,690

11,087

Depreciation and amortization

43,304

41,326

87,802

81,469

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

3,835

(39)

6,083

1,167

Retirement severance costs

260

7,428

521

7,428


61,968

62,959

123,533

118,890









Other expenses (revenues):







Interest and other income

(37)

(37)

(63)

(175)

Interest expense

27,110

27,274

53,712

53,888


27,073

27,237

53,649

53,713









Earnings before gain on disposition of real estate

66,477

55,354

131,171

114,378









Gain on disposition of real estate

4,106

3,055

42,702

17,679









Earnings including noncontrolling interests

70,583

58,409

173,873

132,057









Earnings attributable to noncontrolling interests

(10)

(381)

(19)

(372)









Net earnings attributable to NNN

70,573

58,028

173,854

131,685

Series D preferred stock dividends

—

—

—

(3,598)

Series E preferred stock dividends

(4,096)

(4,096)

(8,194)

(8,194)

Series F preferred stock dividends

(4,485)

(4,485)

(8,970)

(8,970)

Excess of redemption value over carrying value of Series D

   preferred shares redeemed

—

—

—

(9,855)

Net earnings available to common stockholders

$

61,992

$

49,447

$

156,690

$

101,068









Weighted average common shares outstanding:







Basic

153,811

148,373

153,428

147,655

Diluted

154,204

148,719

153,840

148,024









Net earnings per share available to common stockholders:







Basic

$

0.40

$

0.33

$

1.02

$

0.68

Diluted

$

0.40

$

0.33

$

1.02

$

0.68

National Retail Properties, Inc.

(in thousands, except per share data)

(unaudited)

Quarter Ended

Six Months Ended

June 30,

June 30,

2018

2017

2018

2017

Funds From Operations (FFO) Reconciliation:







Net earnings available to common stockholders

$

61,992

$

49,447

$

156,690

$

101,068

Real estate depreciation and amortization

43,223

41,247

87,642

81,311

Gain on disposition of real estate

(4,106)

(2,658)

(42,702)

(17,282)

Impairment losses – depreciable real estate, net of recoveries

3,835

(152)

6,083

1,054

Total FFO adjustments

42,952

38,437

51,023

65,083

FFO available to common stockholders

$

104,944

$

87,884

$

207,713

$

166,151









FFO per common share:







Basic

$

0.68

$

0.59

$

1.35

$

1.13

Diluted

$

0.68

$

0.59

$

1.35

$

1.12









Core Funds From Operations Reconciliation:







Net earnings available to common stockholders

$

61,992

$

49,447

$

156,690

$

101,068

Total FFO adjustments

42,952

38,437

51,023

65,083

FFO available to common stockholders

104,944

87,884

207,713

166,151









Excess of redemption value over carrying value of preferred share
redemption

—

—

—

9,855

Impairment losses – non-depreciable real estate

—

113

—

113

Retirement severance costs

260

7,428

521

7,428

Total Core FFO adjustments

260

7,541

521

17,396

Core FFO available to common stockholders

$

105,204

$

95,425

$

208,234

$

183,547









Core FFO per common share:







Basic

$

0.68

$

0.64

$

1.36

$

1.24

Diluted

$

0.68

$

0.64

$

1.35

$

1.24






































Quarter Ended

Six Months Ended

June 30,

June 30,

2018

2017

2018

2017

Adjusted Funds From Operations (AFFO) Reconciliation:







Net earnings available to common stockholders

$

61,992

$

49,447

$

156,690

$

101,068

Total FFO adjustments

42,952

38,437

51,023

65,083

Total Core FFO adjustments

260

7,541

521

17,396

Core FFO available to common stockholders

105,204

95,425

208,234

183,547









Straight line accrued rent

68

(229)

(930)

(904)

Net capital lease rent adjustment

234

213

462

443

Below-market rent amortization

(1,417)

(682)

(2,115)

(1,341)

Stock based compensation expense

2,290

2,245

4,435

4,825

Capitalized interest expense

(1,076)

(560)

(1,904)

(1,113)

Total AFFO adjustments

99

987

(52)

1,910

AFFO available to common stockholders

$

105,303

$

96,412

$

208,182

$

185,457









AFFO per common share:







Basic

$

0.68

$

0.65

$

1.36

$

1.26

Diluted

$

0.68

$

0.65

$

1.35

$

1.25









Other Information:







Percentage rent

$

189

$

198

$

734

$

746

Amortization of debt costs

$

894

$

868

$

1,781

$

1,727

Scheduled debt principal amortization (excluding maturities)

$

132

$

125

$

266

$

253

Non-real estate depreciation expense

$

84

$

81

$

165

$

164

2018 Earnings Guidance:

Core FFO guidance for 2018 is $2.62 to $2.66 per share. The 2018 AFFO is estimated to be $2.66 to $2.70 per share. The Core FFO guidance equates to net earnings of $1.51 to $1.55 per share, plus $1.11 per share of expected real estate depreciation and amortization and excludes any gains from the sale of real estate and any charges for impairments and retirement severance costs. 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.

2018 Guidance

  Net earnings per common share excluding any gains on sale of real estate, impairment 
    charges or retirement severance costs

$1.51 - $1.55 per share

  Real estate depreciation and amortization per share

$1.11 per share

 Core FFO per share

$2.62 - $2.66 per share

  AFFO per share

$2.66 - $2.70 per share

  G&A expenses (excluding retirement severance costs)

$34 - $35 Million

  Real estate expenses, net of tenant reimbursements

$8 - $9 Million

  Acquisition volume

$500 - $600 Million

  Disposition volume

$100 - $140 Million

National Retail Properties, Inc.

(in thousands)

(unaudited)

June 30,
2018

December 31,
2017

Balance Sheet Summary








Assets:



Real estate:



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

$

6,609,368

$

6,418,700

Accounted for using the direct financing method

9,188

9,650

Real estate held for sale

10,463

14,311

Cash and cash equivalents

1,885

1,364

Receivables, net of allowance

2,548

4,317

Accrued rental income, net of allowance

26,118

25,916

Debt costs, net of accumulated amortization

4,781

5,380

Other assets

80,590

80,896

Total assets

$

6,744,941

$

6,560,534





Liabilities:



Line of credit payable

$

166,700

$

120,500

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

13,000

13,300

 Notes payable, net of unamortized discount and unamortized
   debt costs

2,448,390

2,446,407

Accrued interest payable

19,401

20,311

Other liabilities

108,339

119,106

Total liabilities

2,755,830

2,719,624





Stockholders' equity of NNN

3,988,775

3,840,593

Noncontrolling interests

336

317

Total equity

3,989,111

3,840,910





Total liabilities and equity

$

6,744,941

$

6,560,534




















Common shares outstanding

156,990

153,577





Gross leasable area, Property Portfolio (square feet)

29,389

29,093





National Retail Properties, Inc.

Debt Summary

As of June 30, 2018

(in thousands)

(unaudited)


Unsecured Debt

Principal

Principal,
Net of
Unamortized
Discount

Stated Rate

Effective
Rate

Maturity Date

Line of credit payable

$

166,700

$

166,700

L + 87.5 bps

2.744%

   January 2022









Unsecured notes payable:









2021

300,000

298,441

5.500%

5.689%

   July 2021

2022

325,000

322,649

3.800%

3.985%

   October 2022

2023

350,000

348,649

3.300%

3.388%

   April 2023

2024

350,000

349,549

3.900%

3.924%

   June 2024

2025

400,000

399,257

4.000%

4.029%

   November 2025

2026

350,000

346,648

3.600%

3.733%

   December 2026

2027

400,000

398,480

3.500%

3.548%

   October 2027

Total

2,475,000

2,463,673

















Total unsecured debt(1)

$

2,641,700

$

2,630,373

















Debt costs


(22,682)






Accumulated amortization

7,399






Debt costs, net of accumulated amortization

(15,283)






Notes payable, net of unamortized discount and
unamortized debt costs

$

2,448,390







(1)

Unsecured notes payable have a weighted average interest rate of 4.0% and a weighted average maturity of 6.4 years.

Mortgages Payable

Principal
Balance

Interest Rate

Maturity Date

Mortgage(1)

13,083

5.230%

July 2023





Debt costs

(147)



Accumulated amortization

64



Debt costs, net of accumulated amortization

(83)



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

$

13,000










(1)   Includes unamortized premium















National Retail Properties, Inc.

Property Portfolio



 Top 20 Lines of Trade

As of June 30,

Line of Trade

2018(1)

2017(2)

1.

Convenience stores

18.8

%

18.1

%

2.

Restaurants – full service

12.1

%

11.7

%

3.

Restaurants – limited service

7.9

%

7.8

%

4.

Automotive service

7.7

%

6.9

%

5.

Family entertainment centers

6.5

%

6.1

%

6.

Health and fitness

5.6

%

5.6

%

7.

Theaters

4.8

%

4.7

%

8.

Automotive parts

3.6

%

3.7

%

9.

Recreational vehicle dealers, parts and accessories

3.1

%

3.4

%

10.

Wholesale clubs

2.4

%

2.2

%

11.

Medical service providers

2.3

%

2.4

%

12.

Equipment rental

1.9

%

0.6

%

13.

Bank

1.9

%

2.6

%

14.

Drug stores

1.9

%

2.0

%

15.

Furniture

1.8

%

1.9

%

16.

General merchandise

1.8

%

1.9

%

17.

Travel plazas

1.7

%

1.9

%

18.

Home improvement

1.7

%

1.8

%

19.

Consumer electronics

1.7

%

1.8

%

20.

Home furnishings

1.6

%

1.6

%

Other

9.2

%

11.3

%

Total

100.0

%

100.0

%

Top 10 States

State

% of Total(1)

State

% of Total(1)

1.

Texas

18.2

%

6.

Georgia

4.8

%

2.

Florida

8.6

%

7.

Tennessee

3.9

%

3.

Ohio

5.5

%

8.

Indiana

3.9

%

4.

Illinois

5.3

%

9.

Virginia

3.9

%

5.

North Carolina

4.8

%

10.

Alabama

3.1

%


(1)

Based on the annualized base rent for all leases in place as of June 30, 2018.

(2)

Based on the annualized base rent for all leases in place as of June 30, 2017.

National Retail Properties, Inc.

Property Portfolio



Top Tenants ( ≥ 2.0%)

Properties

% of Total(1)

7-Eleven

140

5.6%

Mister Car Wash

96

4.1%

Camping World

40

4.0%

LA Fitness

30

3.9%

GPM Investments (Convenience Stores)

151

3.7%

AMC Theatre

20

3.4%

Couche Tard (Pantry)

86

3.1%

Bell American (Taco Bell)

115

2.6%

Sunoco

61

2.5%

BJ's Wholesale Club

9

2.4%

Chuck E. Cheese's

53

2.3%

Frisch's Restaurant

74

2.0%

Lease Expirations(2)

% of
Total(1)

# of
Properties

Gross Leasable
Area(3)


% of
Total(1)

# of
Properties

Gross Leasable
Area(3)

2018

0.6%

17

217,000

2024

2.3%

53

887,000

2019

2.4%

68

974,000

2025

4.6%

130

1,144,000

2020

3.1%

115

1,467,000

2026

5.4%

181

1,838,000

2021

4.0%

120

1,300,000

2027

8.3%

193

2,670,000

2022

6.2%

123

1,675,000

2028

5.5%

173

1,300,000

2023

2.9%

112

1,355,000

Thereafter

54.7%

1,513

13,855,000

(1)

Based on the annual base rent of $599,630,000, which is the annualized base rent for all leases in place as of June 30, 2018.

(2)

As of June 30, 2018, the weighted average remaining lease term is 11.5 years.

(3)

Square feet.

SOURCE National Retail Properties, Inc.