National Retail Properties, Inc. (NNN)
Q1 2008 Earnings Call Transcript
May 1, 2008 12:00 pm ET
Craig Macnab – Chairman and CEO
Kevin Habicht – EVP and CFO
Michael Bilerman – Citigroup
Ambika Goel – Citigroup
Dustin Pizzo – Banc of America Securities
Charlie Place – Ferris Baker Watts
David Fick – Stifel Nicolaus
Jeff Donnelly – Wachovia
Previous Statements by NNN
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Thanks, Manny. Good afternoon, and welcome to our first quarter 2008 earnings release call. On this call with me today is Kevin Habicht, our Chief Financial Officer, who will review details on our first quarter financial results, after brief opening comments from me. We are extremely pleased with our record financial performance in the first quarter, which obviously positions us well for the balance of 2008. Also we are delighted to be raising guidance in this economic environment.
Our portfolio continues to be in great shape with occupancy around 98%, plus we have very little lease turnover in the remaining eight months of 2008. These are challenging times for both the consumer and retailers. However, in this environment the defensive attributes of our portfolio are clearly a strength of NNN. With over 930 investment properties, we own a fully diversified portfolio. Also the average lease duration of our portfolio is 13 years. And as I mentioned a moment ago, we have a modest number of leases coming due later this year.
In the first quarter, we acquired 33 properties for $150 million for our investment portfolio, at an average cap rate of just over 8.9%. These properties were acquired from 11 different tenants and I should point out that we previously completed sale-leaseback transactions with eight of these tenants. It's worth highlighting a couple of additional details regarding our acquisition activity and the environment in which we operate.
As evidenced by the high level of activity, our acquisition team continues to look at a large volume of transactions that allow us to selectively acquire carefully underwritten net lease retail real estate. Most importantly, we are now participating in what I like to characterize as a more normalized environment where cash is king and portfolio purchasers who are using large amounts of debt are no longer active in our marketplace.
Less competition is obviously beneficial to NNN. To be sure, there are fewer deals out there, but with less competition our hand is strengthened. Our weighted average yield of approximately 8.9% was higher than we had guided towards and reflects two things. Firstly, we are obtaining higher cap rates from our longstanding tenants, and secondly, we have on occasion been able to capitalize on special situations where certain of our competitors do not have access to capital to close a transaction.
In this type of situation there are very few companies that can react as quickly and as diligently as NNN, and in those transactions, we have obtained slightly higher cap rates. The first quarter was an unusually productive quarter for us, both in terms of volume and the initial cap rate. This activity early in the year is obviously integral to our ability to raise guidance in 2008. We continue to be active selling properties, realizing $82 million from selling real estate in the first quarter.
The majority of these sales occurred in our TRS, directly off our 1031 Web site at very good prices. These sales are a continuation of our capital recycling strategy, which we’ll be continuing in 2008. We’ve achieved very low cap rates on our dispositions in the first quarter. For example, the cap rate on our TRS sales thus far this year has averaged around 6.25%, which speaks to the core competence of our team and our web-based disposition platform. By the way, we currently have several properties from our TRS under contract for sale at cap rates that are comparable to what we received in the first quarter.
As a reminder, our ability to sell properties directly at excellent pricing is an invaluable tool, enables us to execute our capital recycling program, plus selectively sell assets from portfolios that we might acquire.
In summary, we had a great quarter, realizing the benefit of the tenant relationships that we’ve established over the last several years. As we look at National Retail Properties, our portfolio is in excellent shape. Our acquisition activity in 2008 is off to a great start. Our pipeline of acquisition opportunities is solid and our capital recycling activity remains robust.
Following our convertible debt offering, our balance sheet is very strong and we have plenty of capacity under our bank credit facility. We are optimistic about the way that National Retail Properties is positioned to continue to grow our FFO per share in 2008, on top of two very good years of growth. I'll now hand over to Kevin.
Thanks, Craig. I'll start with the cautionary statement that we’ll make certain statements that may be considered to be forward-looking statements under federal securities laws. 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 these forward-looking statements to reflect changes after the statements were made. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in our company's filings with the SEC and in this morning's press release.