National Retail Properties Management Discusses Q2 2012 Results - Earnings Call Transcript

National Retail Properties (NNN)

Q2 2012 Earnings Call

August 02, 2012 10:30 am ET


Craig MacNab - Chairman, Director, and Chief Executive Officer

Kevin B. Habicht - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Treasurer, Assistant Secretary, Director, Director of CNL Commercial Finance Inc. and Director of Commercial Net Lease Realty Services Inc


Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division

Emmanuel Korchman

Paula J. Poskon - Robert W. Baird & Co. Incorporated, Research Division

Wes Golladay - RBC Capital Markets, LLC, Research Division

Todd Stender - Wells Fargo Securities, LLC, Research Division

R.J. Milligan - Raymond James & Associates, Inc., Research Division

Elizabeth Bland - Janney Montgomery Scott LLC, Research Division



Greetings, and welcome to the National Retail Properties Second Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Craig MacNab, Chief Executive Officer of National Retail Properties. Thank you. Mr. MacNab, you may begin.

Craig MacNab

Claudia, thanks very much. Good morning and welcome to our second quarter 2012 earnings release call. On this call with me are Jay Whitehurst, our President; and Kevin Habicht, our Chief Financial Officer, who will review details of our second quarter financial results following my brief opening comments.

We are pleased to have produced another consistent and predictable quarterly results with continued improvements in our business. Importantly, we are delighted to have raised our dividend for the 23rd consecutive year, which is a milestone that places us in an elite category of just over 100 large public companies that have this multiyear record of consistently raising our dividend.

In the second quarter, we acquired 27 properties investing $115 million at a very attractive initial yield of 8.50%. Our team is continuing to identify off-market transactions, as well as likely marketed net leased retail properties for us to acquire. First 6 months of the year have been productive for NNN as we've now invested $313 million in carefully underwritten net lease properties.

We continue to have attractive deal flow, allowing us to be selective and disciplined and we have a couple of attractive opportunities that we are working on that we expect to acquire in the months ahead. Consistent with last quarter's guidance, we are projecting a slightly slower second half of the year that we've experienced thus far this year as we are choosing not to chase some of the highly marketed deals that are currently being offered for sale.

Our fully diversified portfolio continues to be very well leased, with occupancy continuing to improve and we are now 98.2% leased. Nationally, there has been little new retail development and our generally small well-located retail properties are attracting solid tenant interest and are being leased up by our in-house team. Our high portfolio occupancy is an effective scorecard on how we have done with our real estate analysis on the front end when we acquire properties.

We have a terrific underwriting group that primarily focuses on real estate fundamentals when we make our initial acquisitions. Credit is obviously important to us as well, but our track record shows that if we focus on key real estate metrics such as location, acquiring properties with market grids and evaluating alternative uses for the space, good things happen for our shareholders over time.

Kevin will be providing more details about our noncash impairment but let me quickly say that like you, I am frustrated with this accounting charge, especially as we fully expect to recover the economic value that is being impaired over the years ahead.

Finally, despite the vagaries of the accounting for this investment, it is a, small; and b, has been a very profitable successful investment for NNN. National Retail Properties continues to be extremely well positioned. Our access to attractively priced capital continues to be outstanding and with our strong balance sheet, we have plenty of dry powder to deploy as we identify carefully underwritten acquisition opportunities. Kevin?

Kevin B. 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 these 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 the company's filings with the SEC and in this morning's press release.

With that out of the way, this morning, we reported second quarter FFO of $0.41 per share and AFFO of $0.46 per share. The FFO results included a $2.7 million noncash impairment charge in connection with our mortgage residual valuation. Excluding this item, it brings FFO to $0.43 per share, which results in a 13.2% increase over prior year levels. On the same basis, first half FFO per share also increased 13.2% from $0.76 per share to $0.86 per share. So 2012 continues to track -- be on track to generate 8% growth in FFO per share, which is consistent with our prior guidance.

As usual, the strong results were a combination of maintaining high occupancy and making new accretive investments while keeping our balance sheet strong. Occupancy was 98.2% at quarter end. That's up 70 basis points from the prior quarter and 130 basis points from a year ago. And as Craig mentioned, we completed a $115 million of accretive acquisitions in the second quarter.

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