National Retail Properties (NNN)

NNN 
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National Retail Properties, Inc. (NNN)

Q4 2009 Earnings Call

February 5, 2010 10:30 am ET

Executives

Craig Macnab - CEO

Kevin Habicht - CFO

Analysts

RJ Milligan - Raymond James and Associates

Greg Schweitzer - Citigroup

Jeffrey Donnelly - Wells Fargo

Presentation

Operator

Greetings, and welcome to the National Retail Properties Year End Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Craig Macnab, CEO for National Retail Properties. Thank you, Mr. Macnab. You may now begin.

Craig Macnab

Jackie, thank you very much and good morning and welcome to our 2009 year end earnings release call. On this call with me this morning is Kevin Habicht, our Chief Financial Officer, who will review details of our fourth quarter and our year end financial results following my brief opening comments.

In 2009, we hit a milestone that we are very proud of where we're in for the 20th consecutive year we raised our cash dividend. This puts NNN in illustrious company, as there are only about 156 public companies that have consistently raised their dividend for 20 years.

As of the end of the year our portfolio was 96.4% leased and again this year we have very limited lease roll over. By the way for those of you that keep track of this data, we've remained at least 96% leased for the last seven years.

At this time, we currently own 1015 properties leased over 200 different national or regional tenants in 44 states. Our tenants operate in over 13 different segments of the retail industry, which we feel provides us with very broad diversification. Finally, on average, these tenants are contractually obligated to pay us rent for the next 12 years.

In terms of acquisitions, 2009 was a quiet year for NNN, as we acquired eight properties for $38.9 million at an average cap rate of 9.69%. Our disposition activity was also modest, as we sold 11 properties for 21.9 million at about an 8% cap rate.

For your information, the market for investment properties has recently improved, such that Walgreens, which is the bell cow in our net leased retail sector, are again closing in the mid 7% range in better locations. This is obviously a far cry from the mid 6% cap rates that were prevalent at the top of the market, but less than the 8% closing cap rates for Walgreens that we saw just a few months ago.

On the acquisition side, there have not been many opportunities that have passed through our rigorous underwriting process. At this time, we're of course focused on the ability of the tenant to pay the rent, but we're also being disciplined in the price per square foot that we are willing to pay for our acquisitions. An example of this was that in the fourth quarter our purchase of properties from a well-known national restaurant operator were at a very small premium of what the land alone is worth. As you can imagine, we like to start the risk award and it's a great example of the type of opportunities that our team will uncover when capital is less plentiful than it has been.

We continue to be very selective as we evaluate acquisitions. However, our pipeline is looking a little better than it has been for the last several months, and the quality of these acquisition opportunities remains attractive. As we look at the future, I like the way we are positioned. Our portfolio is in good shape. Our balance sheet is very strong, which will allow us to take advantage of the carefully underwritten acquisitions that we hope to make this year.

Kevin?

Kevin Habicht

Thanks, Craig. Let me start off by with our cautionary statements that we'll make certain statements that may be considered to be forward-looking statements under federal securities law. And the company's actual future results may differ significantly from the matters discussed in these forward-looking statements and we may not release revisions to those forward-looking statements to reflect changes after the statements were made.

Factors and risks that could cause actual results to differ materially from our expectations are disclosed from time-to-time in greater detail in the company's filings with the SEC and in this morning's press release.

With that, a quick summary to start. First, FFO per share excluding just the non-cash impairments was $0.36 for the fourth quarter and $1.65 for the year 2009 which is at the bottom of our '09 FFO guidance range. Second, the 2010 FFO per share guidance range of $1.51 to $1.58 is unchanged. And third, as Craig alluded to you, there is little activity in the fourth quarter but our occupancy is holding up well and the balance sheet is in great shape which positions us well to capture acquisition opportunities.

With that, let me go me into a few details, as indicated in the press release, we reported fourth quarter 2009 FFO results which again excluding just the non-cash impairments totaled $0.36 for the quarter and $1.65 for the year, which was at the bottom of our $1.65 to $1.70 guidance range.

We also reported a recurring FFO metric this quarter, which not only eliminates the non-cash impairment charges but also three other items: One, a $3.4 million gain on debt buyback; secondly, a small $581,000 gain on sale of our TRS inventory property; and lastly, $731,000 of restructuring charge that we took in the first quarter related to downsizing in first quarter '09.

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