Second Quarter 2019 Operating Results Announced By National Retail Properties, Inc.

News provided by

National Retail Properties, Inc.

Aug 01, 2019, 08:30 ET

ORLANDO, Fla., Aug. 1, 2019 /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, 2019.  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,


2019


2018


2019


2018


(in thousands, except per share data)

Revenues

$

164,792



$

155,518



$

328,504



$

308,353










Net earnings available to common stockholders

$

70,097



$

61,992



$

141,537



$

156,690


Net earnings per common share

$

0.43



$

0.40



$

0.87



$

1.02










FFO available to common stockholders

$

110,859



$

104,944



$

221,203



$

207,713


FFO per common share

$

0.68



$

0.68



$

1.37



$

1.35










Core FFO available to common stockholders

$

110,859



$

105,204



$

219,872



$

208,234


Core FFO per common share

$

0.68



$

0.68



$

1.36



$

1.35










AFFO available to common stockholders

$

112,619



$

105,303



$

223,249



$

208,182


AFFO per common share

$

0.69



$

0.68



$

1.38



$

1.35


Second Quarter 2019 Highlights:

  • AFFO per common share increased 1.5% over prior year results
  • Portfolio occupancy was 98.8% at June 30, 2019 as compared to 98.2% on March 31, 2019 and 98.2% on December 31, 2018
  • Invested $275.8 million in property investments, including the acquisition of 71 properties with an aggregate 1,678,000 square feet of gross leasable area at an initial cash yield of 6.9%
  • Sold 13 properties for $42.0 million producing $12.6 million of gains on sales, net of noncontrolling interest
  • Raised $82.0 million net proceeds from the issuance of 1,531,684 common shares

First Half of 2019 Highlights:

  • FFO per share increased 1.5% over prior year results
  • Core FFO per share increased 0.7% over prior year results
  • AFFO per common share increased 2.2% over prior year results
  • Invested $392.8 million in property investments, including the acquisition of 104 properties with an aggregate 2,112,000 square feet of gross leasable area at an initial cash yield of 6.9%
  • Sold 30 properties for $61.4 million producing $23.0 million of gains on sales, net of noncontrolling interest
  • Raised $87.2 million in net proceeds from issuance of 1,632,864 common shares

Jay Whitehurst, Chief Executive Officer, commented: "National Retail Properties posted steady, consistent results in the second quarter of 2019, highlighted by a solid quarter of acquisitions and a meaningful uptick in our occupancy rate. In July, we increased our common stock dividend by three percent to 51.5 cents per quarter, while maintaining our very conservative dividend payout ratio. 2019 will mark our 30th consecutive year of increased annual dividends, a feat matched by only two other REITs and by less than 90 public companies in the United States."

National Retail Properties invests primarily in high-quality retail properties subject generally to long-term, net leases.  As of June 30, 2019, the company owned 3,043 properties in 48 states with a gross leasable area of approximately 32.1 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 1, 2019, 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, 2019.  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,



2019


2018


2019


2018

Income Statement Summary


















Revenues:









Rental income


$

164,596



$

155,153



$

327,622



$

307,915


Interest and other income from real estate transactions


196



365



882



438




164,792



155,518



328,504



308,353











Operating expenses:









General and administrative


9,276



8,741



18,798



17,437


Real estate


6,600



5,828



13,692



11,690


Depreciation and amortization


46,241



43,304



92,421



87,802


Impairment losses – real estate, net of recoveries


7,187



3,835



10,432



6,083


Retirement severance costs


—



260



—



521




69,304



61,968



135,343



123,533


Gain on disposition of real estate


13,002



4,106



23,447



42,702


Earnings from operations


108,490



97,656



216,608



227,522











Other expenses (revenues):









Interest and other income


(487)



(37)



(2,411)



(63)


Interest expense


29,811



27,110



59,768



53,712


Leasing transaction costs


75



—



127



—




29,399



27,073



57,484



53,649











Net earnings


79,091



70,583



159,124



173,873


Earnings attributable to noncontrolling interests


(413)



(10)



(423)



(19)











Net earnings attributable to NNN


78,678



70,573



158,701



173,854


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)


Net earnings available to common stockholders


$

70,097



$

61,992



$

141,537



$

156,690











Weighted average common shares outstanding:









Basic


161,893



153,811



161,502



153,428


Diluted


162,352



154,204



161,995



153,840











Net earnings per share available to common stockholders:









Basic


$

0.43



$

0.40



$

0.87



$

1.02


Diluted


$

0.43



$

0.40



$

0.87



$

1.02


National Retail Properties, Inc.

(in thousands, except per share data)

(unaudited)




Quarter Ended


Six Months Ended



June 30,


June 30,



2019


2018


2019


2018

Funds From Operations (FFO) Reconciliation:









Net earnings available to common stockholders


$

70,097



$

61,992



$

141,537



$

156,690


Real estate depreciation and amortization


46,165



43,223



92,269



87,642


Gain on disposition of real estate, net of noncontrolling 
     interests


(12,590)



(4,106)



(23,035)



(42,702)


Impairment losses – depreciable real estate, net of recoveries


7,187



3,835



10,432



6,083


Total FFO adjustments


40,762



42,952



79,666



51,023


FFO available to common stockholders


$

110,859



$

104,944



$

221,203



$

207,713











FFO per common share:









Basic


$

0.68



$

0.68



$

1.37



$

1.35


Diluted


$

0.68



$

0.68



$

1.37



$

1.35











Core Funds From Operations Reconciliation:









Net earnings available to common stockholders


$

70,097



$

61,992



$

141,537



$

156,690


Total FFO adjustments


40,762



42,952



79,666



51,023


FFO available to common stockholders


110,859



104,944



221,203



207,713











Retirement severance costs


—



260



—



521


Gain on sale of equity investments


—



—



(1,331)



—


Total Core FFO adjustments


—



260



(1,331)



521


Core FFO available to common stockholders


$

110,859



$

105,204



$

219,872



$

208,234











Core FFO per common share:









Basic


$

0.68



$

0.68



$

1.36



$

1.36


Diluted


$

0.68



$

0.68



$

1.36



$

1.35














Quarter Ended


Six Months Ended



June 30,


June 30,



2019


2018


2019


2018

Adjusted Funds From Operations (AFFO) Reconciliation:









Net earnings available to common stockholders


$

70,097



$

61,992



$

141,537



$

156,690


Total FFO adjustments


40,762



42,952



79,666



51,023


Total Core FFO adjustments


—



260



(1,331)



521


Core FFO available to common stockholders


110,859



105,204



219,872



208,234











Straight-line accrued rent


(413)



68



(1,160)



(930)


Net capital lease rent adjustment


167



234



338



462


Below-market rent amortization


(173)



(1,417)



(401)



(2,115)


Stock based compensation expense


2,524



2,290



5,071



4,435


Capitalized interest expense


(345)



(1,076)



(471)



(1,904)


Total AFFO adjustments


1,760



99



3,377



(52)


AFFO available to common stockholders


$

112,619



$

105,303



$

223,249



$

208,182











AFFO per common share:









Basic


$

0.70



$

0.68



$

1.38



$

1.36


Diluted


$

0.69



$

0.68



$

1.38



$

1.35











Other Information:









Rental income from operating leases(1)


$

160,234



$

150,969



$

318,632



$

298,798


Earned income from direct financing leases(1)


$

208



$

225



$

420



$

455


Percentage rent(1)


$

300



$

189



$

722



$

734











Real estate expense reimbursement from tenants(1)


$

3,854



$

3,770



$

7,848



$

7,928


Real estate expenses


(6,600)



(5,828)



(13,692)



(11,690)


Real estate expenses, net of tenant reimbursements


$

(2,746)



$

(2,058)



$

(5,844)



$

(3,762)











Amortization of debt costs


$

931



$

894



$

1,851



$

1,781


Scheduled debt principal amortization (excluding maturities)


$

139



$

132



$

281



$

266


Non-real estate depreciation expense


$

78



$

84



$

158



$

165




(1) 

The condensed consolidated financial statements for the quarter and six months ended June 30, 2019 and 2018 are presented under
the new accounting standard, ASU 2016-02, "Leases (Topic 842)."  For the quarter and six months ended June 30, 2019, the
aggregate of such amounts is $164,596 and $327,622, respectively, classified as rental income on the income statement summary. For
the quarter and six months ended June 30, 2018, the aggregate of such amounts is $155,153 and $307,915, respectively.

2019 Earnings Guidance:






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.



2019 Guidance

  Net earnings per common share excluding any gains on disposition of real estate and
     impairment charges


$1.60 - $1.65 per share

  Real estate depreciation and amortization per share


$1.11 per share

Core FFO per share


$2.71 - $2.76 per share

  AFFO per share


$2.76 - $2.81 per share

  G&A expenses


$37.0 - $38.0 Million

  Real estate expenses, net of tenant reimbursements


$10.0 - $10.5 Million

  Acquisition volume


$550 - $650 Million

  Disposition volume


$80 - $120 Million

National Retail Properties, Inc.

(in thousands)

(unaudited)




June 30,
2019


December 31,
2018

Balance Sheet Summary










Assets:





Real estate:





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


$

7,110,598



$

6,851,216


Accounted for using the direct financing method


7,052



8,069


Real estate held for sale


288



16,147


Cash and cash equivalents


2,209



114,267


Receivables, net of allowance of $506 and $2,273, respectively


2,507



3,797


Accrued rental income, net of allowance of $1,842


28,198



25,387


Debt costs, net of accumulated amortization


3,468



4,081


Other assets


98,481



80,474


Total assets


$

7,252,801



$

7,103,438







Liabilities:





Line of credit payable


$

63,200



$

—


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


12,379



12,694


 Notes payable, net of unamortized discount and unamortized 
     debt costs


2,840,674



2,838,701


Accrued interest payable


17,984



19,519


Other liabilities


96,113



77,919


Total liabilities


3,030,350



2,948,833







Stockholders' equity of NNN


4,222,449



4,154,250


Noncontrolling interests


2



355


Total equity


4,222,451



4,154,605







Total liabilities and equity


$

7,252,801



$

7,103,438






















Common shares outstanding


163,513



161,504







Gross leasable area, Property Portfolio (square feet)


32,053



30,487


National Retail Properties, Inc.

Debt Summary

As of June 30, 2019

(in thousands)

(unaudited)


Unsecured Debt


Principal


Principal,
Net of
Unamortized
Discount


Stated Rate


Effective
Rate


Maturity Date

Line of credit payable


$

63,200



$

63,200



L + 87.5 bps


3.295

%


   January 2022












Unsecured notes payable:











2022


325,000



323,162



3.800

%


3.985

%


   October 2022

2023


350,000



348,913



3.300

%


3.388

%


   April 2023

2024


350,000



349,618



3.900

%


3.924

%


   June 2024

2025


400,000



399,346



4.000

%


4.029

%


   November 2025

2026


350,000



346,992



3.600

%


3.733

%


   December 2026

2027


400,000



398,621



3.500

%


3.548

%


   October 2027

2028


400,000



397,326



4.300

%


4.388

%


   October 2028

2048


300,000



295,809



4.800

%


4.890

%


   October 2048

Total


2,875,000



2,859,787



















Total unsecured debt(1)


$

2,938,200



$

2,922,987



















Debt costs




(26,932)








Accumulated amortization


7,819








Debt costs, net of accumulated amortization


(19,113)








Notes payable, net of unamortized discount and unamortized debt costs


$

2,840,674









(1)  Unsecured notes payable have a weighted average interest rate of 4.0% and a weighted average maturity of 8.8 years.

Mortgages Payable


Principal
Balance


Interest Rate


Maturity Date


Mortgage(1)


$

12,445



5.23

%


   July 2023










Debt costs


(147)







Accumulated amortization


81







Debt costs, net of accumulated 
     amortization


(66)







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


$

12,379







(1)   Includes unamortized premium








National Retail Properties, Inc.

Property Portfolio


Top 20 Lines of Trade






As of June 30,




Line of Trade


2019(1)


2018(2)


1.


Convenience stores


17.7

%


18.8

%


2.


Restaurants – full service


11.1

%


12.1

%


3.


Automotive service


9.1

%


7.7

%


4.


Restaurants – limited service


8.8

%


7.9

%


5.


Family entertainment centers


6.9

%


6.5

%


6.


Health and fitness


5.4

%


5.6

%


7.


Theaters


4.8

%


4.8

%


8.


Recreational vehicle dealers, parts and accessories


3.4

%


3.1

%


9.


Automotive parts


3.3

%


3.6

%


10.


Equipment rental


2.7

%


1.9

%


11.


Home improvement


2.6

%


1.7

%


12.


Wholesale clubs


2.3

%


2.4

%


13.


Medical service providers


2.2

%


2.3

%


14.


General merchandise


1.8

%


1.8

%


15.


Home furnishings


1.7

%


1.6

%


16.


Furniture


1.7

%


1.8

%


17.


Travel plazas


1.6

%


1.7

%


18.


Drug stores


1.6

%


1.9

%


19.


Consumer electronics


1.6

%


1.7

%


20.


Bank


1.5

%


1.9

%




Other


8.2

%


9.2

%




Total


100.0

%


100.0

%


Top 10 States



State



% of Total(1)



State



% of Total(1)


1.

Texas



17.4

%


6.

Georgia



4.5

%


2.

Florida



8.9

%


7.

Indiana



3.9

%


3.

Ohio



5.7

%


8.

Tennessee



3.9

%


4.

Illinois



5.2

%


9.

Virginia



3.7

%


5.

North Carolina



4.5

%


10.

California



3.1

%






(1) Based on the annualized base rent for all leases in place as of June 30, 2019.



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


National Retail Properties, Inc.

Property Portfolio


Top Tenants ( ≥ 2.0%)





Properties


% of Total(1)


7-Eleven


140



5.2

%


Mister Car Wash


109



4.4

%


Camping World


46



4.2

%


LA Fitness


30



3.8

%


Flynn Restaurant Group (Taco Bell/Arby's)


203



3.6

%


GPM Investments (Convenience Stores)


151



3.5

%


AMC Theatre


20



3.1

%


Couche Tard (Pantry)


85



2.9

%


Sunoco


61



2.3

%


BJ's Wholesale Club


9



2.3

%


Chuck E. Cheese's


53



2.1

%

Lease Expirations(2)




% of
Total(1)


# of
Properties


Gross Leasable
Area(3)




% of
Total(1)


# of
Properties


Gross Leasable Area(3)

2019


0.4

%


20



418,000



2025


4.9

%


141



1,486,000


2020


2.3

%


97



1,060,000



2026


4.8

%


179



1,697,000


2021


3.7

%


119



1,301,000



2027


7.4

%


194



2,624,000


2022


5.7

%


123



1,634,000



2028


4.8

%


158



1,176,000


2023


3.0

%


117



1,456,000



2029


3.2

%


75



1,109,000


2024


3.6

%


96



1,546,000



Thereafter


56.2

%


1,684



15,813,000




(1)   

Based on the annual base rent of $650,091,000, which is the annualized base rent for all leases in place as of
June 30, 2019.

(2)   

As of June 30, 2019, the weighted average remaining lease term is 11.4 years.

(3)   

Square feet.

SOURCE National Retail Properties, Inc.