National Retail Properties (NNN)

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National Retail Properties, Inc. (NNN)

Q3 2012 Earnings Conference Call

November 05, 2012 10:30 a.m. ET


Craig MacNab – Chairman & CEO

Jay Whitehurst –President

Kevin Habicht – CFO


Manny Korchman – Citigroup

Josh Barber – Stifel Nicolaus

Paula Poskon – Robert W Baird

Todd Stender – Wells Fargo

Rich Moore – RBC Capital Markets

Paula Poskon – Robert W Baird



Greetings, and welcome to the National Retail Properties’ Third Quarter 2012 Earnings Conference 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. Thank you, Mr. MacNab. You may begin.

Craig MacNab

Brenda, thanks very much. Good morning, and welcome to our third quarter 2012 earnings call. On this call with me this morning are Jay Whitehurst, our President; and Kevin Habicht, our Chief Financial Officer, who will review details of our third quarter financial results following my brief opening comments. Also, Kevin will update you on this year’s guidance plus provide some of the key assumptions in our 2013 guidance.

We’ve just completed another strong predictable quarter at NNN and are optimistic that our acquisition momentum will continue in the fourth quarter. As indicated in our press release, we’re projecting second consecutive year of excellent FFO per share growth. Equally importantly, we are also guiding towards steady growth in 2013 helped by the net lease retail acquisitions that we’ve already made this year as well as those that we’re anticipating to close in the current quarter.

In the third quarter, we acquired 30 properties, investing $140 million at an initial cash yield of approximately 8.65%. We acquired these properties from 12 different tenants and each one of these tenants is what we describe as a relationship tenant, which of course means that we had little if any competition on these transactions. As a result, we’ve been able to maintain very attractive initial yields, which of course get better over time as the rent continues to grow.

We’re pleased that a couple of our casual dining restaurant tenants were able to complete public offerings in the most recent quarter. In particular, Bloomin’ Brands, whose primary restaurant concept is Outback Steakhouse with whom we completed a $98 million portfolio acquisition at the beginning of this year.

We’ve previously discussed that our underwriting process includes an evaluation of the future prospects of a tenant including their financing plans. It is gratifying when our internal evaluation of the likelihood of Bloomin’ Brands goes public comes to fruition soon after our portfolio acquisition.

Dispositions in the third quarter were again steady and consistent with a little portfolio of pruning occurring, plus our excellent in-house disposition team very successfully closed out our convenience store joint venture. This joint venture generated meaningful returns to our JV partner, which of course means that we similarly earned a very good return on our equity plus we were pleased to realize promote and transaction fee income in the third quarter.

In terms of the portfolio, our fully diversified portfolio continues to be fully occupied and is now 97.9% occupied. National Retail Properties continues to be very well positioned. We have cash on the balance sheet, which we expect to invest this quarter. Our portfolio is in excellent shape and as this year’s acquisitions come into our full year rent roll, we’re optimistic about our growth opportunity in 2013. Kevin?

Kevin Habicht

Thanks, Craig. Let me start by saying, we will make certain statements that may be considered to be forward-looking statements under Federal Securities Law. 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 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, this morning, we reported third quarter FFO of $0.52 per share, recurring FFO of $0.43 per share and AFFO of $0.47 per share. The $0.52 FFO results include two items we backed out to get to the $0.43 of recurring FFO. Those two items were $7.7 million reversal of a tax valuation allowance that we established in 2009 and 2010 in connection with some impairments we took in our TRS back then. And secondly, a $1,964,000 of incremental income we realized in the third quarter as the result of winding down our joint venture.

This recurring FFO of $0.43 per share represents a 7.5% increase over 2011, $0.40 per share third quarter. Similarly, the recurring FFO for the nine months of $1.28 per share represents a 10.3% increase over prior-year amount. As usual, the strong results were a combination of maintaining high occupancy and making new accretive acquisition, while keeping our balance sheet strong.

Occupancy was 97.9% at the quarter end, that’s down 30 basis points from the prior quarter, but it’s up 70 basis points from a year ago. And as Craig mentioned, we completed a $140 million of accretive acquisitions in the third quarter. Just looking back over the past seven quarters of back to the beginning of 2011, we acquired $1.2 billion of acquisition over the past seven quarters and notably, our balance sheet remains in very good shape and modestly less leverage than seven quarters ago.

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