AFIN - Earnings call transcript Q2 2019 | Necessity Retail REIT, Inc.

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Operator

Good morning and welcome to the American Finance Trust Second Quarter Earnings Call. Al participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Louisa Quarto, Executive Vice President. ahead. go Please

Louisa Quarto

of Good to us by operator. may uncertainties The materially and you or statements, these Relations thank is following of forward-looking on www.americanfinancetrust.com. on including ended Thank that contains more and discussion detailed statements. date implied information for all AFIN's morning, actual uncertainties. or other second materialize, you to differ joining forward-looking section Investor risk filings XXXX, the the refer March of year expressed for webcast are SEC call. or of and website that all for quarter differences. for results at being the The filings those subject you, which in from a everyone, filed AFIN's risks cause XXXX risks the XXXX call December one could factors earnings Should these XX, the Form with more We X, after our the report annual XX-K SEC

forward-looking conference as call provided of are during statements this this made the date of information only or Any call. portfolio

As update revise law. forward-looking filings, any or AFIN stated required statements as information or portfolio except these obligation or in by our intent SEC to disclaims

or website and of financial a XX-Q, at A our net in measures During GAAP. financial in prepared isolation believe evaluating to be substitute call, is performance. reconciliation earnings be GAAP our which not measures, posted the for all financial These will in Form with accordance supplement results today's as found discuss can www.americanfinancetrust.com. income of can on we release non-GAAP in non-GAAP considered company's we our which be useful measures should

over turn Mike CEO, the now our to I'll call Weil.

Mike Weil

call you success leasing, discuss overview Vice ongoing I'll our we'll detail, our Zach discuss Katie other to will Senior are quarter pipeline Pomerantz, and financial will today greater and morning for Kurtz, President strong the take on shareholders portfolio. Katie of management thank Management. provide of second and additional Good us. and an we're Chief provide questions. our our best-in-class Officer; With out Louisa. asset Financial having, then all Zach me our the joining and results participants Thanks, Asset and in building and details,

management We attentive redeployment complements through our in portfolio believe the is rent and embedded of portfolio. active best-in-class dispositions to a in of leases growth sales and our acquisitions, that the proceeds truly net result

to XXXX. During share or the up $XX AFFO XX% quarter, per we per increased $X.XX quarter $X.XX first the our share, or million over

we of first months and recorded XXXX, share For per share AFFO $X.XX $X.XX the per of six per of FFO share.

We interest average a X-year A. A-X with received first also through rate deal, million weighted offering $XXX term & from A-X rating were Poor's and AAA a asset-backed Standard The with completed, the Class average notes of a security a X.X%. our subsidiary, notes Class weighted rated

an strategy portfolio had quarter we portfolio transactions the believe real of in estate our future. active benefit the that Finally, we will continuing management

and in rise in leased to of Yum! Pizza $XX in properties profit. are retail own Tenants newly stores convenience X% reported operating same-store all a service an their This company service retail very now maintained acquired focus XX increase and posting whose part segment properties the on quarter Brands, quarter XX of Hut strong parent our the for XX% Hut recently We a Mountain Fresenius. include with tenants. of Pizza almost million, Pizza acquisition based the Express Huts, which we sales on

and impact on our retail and portfolios. from will Mountain grow increased Zach is sold also in will fuel the changing of about call our leasing whose multi-tenant provide speak the to our of later insulated assets of segment trade continue detail this rapidly profits our strategy unpredictable second and policies Chevron, and more the believe in portfolio. at and potential ExxonMobil in activity Express, well. as the service quarter Similarly reported We owning will single acquisitions is

this discuss like take in remain quarter. second We'll estate. I'd dispositions completed to moment real highlight. on quarter, But opportunistic net we we to buyers of a the to some we the closed want sales

redeploy identify sales we've sell We'll impact acquisitions on prior will in into so the said long-term have calls, that goals. meet portfolio a whole. in As as from our when order accretive also do evaluate selectively opportunistically our we that potential we'll portfolio assets strategic our can to proceeds positive company a to consistently net

We distribution branches, completed formerly sold quarter, sold transactions. had of a mostly X.X branches. C&S was SunTrust, The occupied Wholesale leased bank expected SunTrust lease leased The rent the years was only both was Grocers on types and remaining and center we the renewed. but two to of dark be the six center building not was lease. along asset and and to to paying In distribution we office these second bank vacant with

that booking building, and they the have not of risk to retrofit while A with for lease believe would lease. Utah. the on initial remaining years to that in million us notified $X.X property rent American return remaining, AFIN, owner. we the selling travel-related almost renew needed asset of with Salt gain. re-lease The of property leased sale office were total less a than had we $X.X had property booked maximize four sold a XX% the preserving of property and total while return during a Express the Express Lake purchase sum million term were XX% was we year the we of value services the and going time significant gain By avoided money to located and This American City, the a been of and one the the

to but of portfolio our these sales focus, are property redeployed. being Both retail lease reduced occupancy exposure NOI, duration impacted types of and extended the that while proceeds our are outside level our our temporarily average portfolio and

XX-year we into accretive renegotiated were opportunistically quarters, Bank occupied we and during second When we prior XX-year, in plan have quarter, branches redeploy sold XX-year bank the portfolio leases SunTrust we lease SunTrust of terms. to six branches acquisitions. for the As which there the

assets. most of sold from currently lease term on originally term, been have To-date properties the we're under XX-year which Therefore, properties, group all average have have leases approximately term. SunTrust and occupied had agreement SunTrust a we're currently of the years the that as remaining and branches the to SunTrust sell also extending we we remaining sell of lease eight the

leased average from our $XX.X rate The a these net for pipeline million $XX X.X% occupied of primarily assets, contract has million. be to The point proceeds service will of weighted sale almost basis XXX properties average SunTrust a of at spread SunTrust a X.X%. cap X.X%, average five the of the weighted aggregate at redeployed under price weighted sold which of an over properties additional rate sold. were of branches to a properties cap rate an into we cap We're sell retail

XX the We As our XX, of our properties best-in-class believe portfolio of our Columbia. June among peers. is portfolio states XXX in and consisted District of located

the last less Our approximately net of single-tenant This year than of two-thirds significantly or XXXX. portfolio, no expirations XXXX which makes our through has up next rent year. is less we're at XX% end and through than lease our lease peers expecting X% about this straight-line

tenants in leased Please implied single-tenant XX% what to earnings portfolio the to of we're more portfolio-wide for tenants. we of information and about quality refer investment-grade are XX% top our our investment-grade implied Similarly, confident or investment-grade XX tenants. credit our our release leases. consider to of be

tenants of program identification the risk credit more X% we employ to list. credit goal other or order No of robust than early effectiveness replacement in watch rent actions. Additionally, can found of similar tenant with of a maximize our strategic the analysis be renegotiation, in in this with of

term XX.X% passage weighted of Across rentable on leases before three the our annual and X.X despite and feet X.X square months XX.X have at X.X% years increase quarter million remaining space. rent from the years average average respectively. of the nine a sits an occupancy six of last portfolio, years, quarter that, and escalators of include lease Portfolio

across lease up is XX.X% XX.X in single-tenant last up Our escalators of XXX with and the years, investment-grade property remaining the term a rent average quarter. is from to portfolio X.X% single-tenant average years portfolio from XX% quarter. annual first leased tenants, XX.X weighted Occupancy XX%

growing and long-duration rates on find of objectives, accretive segment that portfolio investment our attractive continue with are single-tenant to align and focused cap our believe leases. opportunities the including We're what we

tenants, multi-tenant Our experiential service to meaningfully contribute to drive we to e-commerce retail and XX% of retail of our portfolio With lease we from continues tenants. to foot to traditional seek types focus, these space tenants. rent coming defensive traffic as

almost $XX within million leases of approximately of Across average has two multi-tenant that. XX in foot XX% rent X% straight-line remaining years. expire annual Our escalators of square next and leases X.X% term annual expire X.X portfolio with the occupancy the the multi-tenant X% with executed only an years, of after X.X property, and weighted a average lease year rent, million portfolio

Our remains sustained lease on asset has efforts upcoming discuss. in minimal management found renewing maturities further success team and Zach our as will focused their

reiterate we've quarters, all opportunity XXth, at approved occupied shareholders currently X.X% between discussed BB&T. merger properties include leases pending of merger the to SunTrust rent few the to last and the the want the and the take July the annual own In SunTrust escalators. SunTrust On I we

XX the contractually payments years SunTrust duration averages properties which through AFIN from lease the rent these entitled of Further to receive over full remaining. is term,

and merger a estate of good will, maintain We the the relationship professionals monitor with at real continue course, banks. the to

it additional Let on results. detail our to me financial provide to now hand over Katie Katie?

Katie Kurtz

$XX.X at average $X.X cash X.X%. $XXX XX, under interest million. ended mortgage million debt, cash at Thanks credit of stood our and and less net and credit undrawn availability billion components total facility the our at cash debt plus on rate and with secured quarter we $XXX.X drawn debt, Mike. June which billion includes weighted the debt of cash net equivalents which of facility, Liquidity, cash measure as a second equivalents XXXX. of cash million of equivalents We The $X.X is

at As issuing subsidiaries $XXX million amounts of of indebtedness, successfully of security on credit Mike of to of an facility. $XXX corporate fixed-rate the used end from The which the proceeds our touched sale notes repay million were asset-backed majority on or drawn offering the net ABS completed one was of the notes. long-term May our

an $XXX issued interest by carry carry both average notes The were The interest notes Poor's. rated AAA $XXX X.X%. A A-X and classes rated and rated rate in Class two X.X%. & rate million single interest is Class seven-year million notes rate an notes X.X%. A-X The of on of The XX-year combined of were weighted Standard and were classes

to AFIN debt X.X XX, life high-quality an years as X.X of manage June channels, financing this fixed-rate attractive our issuance effectively basis Accessing to of cost provides additional weighted from AFIN capital the of through and long-term multiple consolidated with allows a extends flexibility On our average portfolio. and indebtedness XXXX.

The amortization versus company's total debt assets plus to asset depreciation gross accumulated the value remaining first neutral or net XX% and was quarter.

lease to adjusted times debt XX, X.X for $X.X Our EBITDA adjusted was quarter termination million of XXXX. fee second at annualized June

We for reported quarter as quarter million compared second revenue of $XX.X the XXXX. to first $XX.X million our

was for Our quarter million million stockholders the in prior to FFO quarter. $XX.X compared $XX.X attributable second the to common XXXX

common quarter quarter first the AFFO compared attributable XXXX million as in to second to stockholders the for $XX XXXX. was $XX.X million

$X.X For XXXX. a Lowe's was partially the driven payment one quarter termination with property cost These the financing. $X.XX XX%, per by of to ABS of associated by up lease share quarter, of were per at basis the on our and share $X.XX termination million a were offset multi-tenant from basis derivative on AFFO a for compared increases million $X.X second first

XX our and of all always www.americanfinancetrust.com. XX-Q, Form a at or The measures to income $XX.X per during company share website of dividends earnings which in be to GAAP can eight supplement release, stockholders of As record of June XXXX. April as are reconciliation our the on XX quarter non-GAAP posted and of million $X.XXX net paid found May

I'll Zach detail. discuss our in over acquisition, activity it and pass real dispositions to greater to leasing estate

Zach Pomerantz

average XXX,XXX rentable we to Thanks acquired weighted of XX lease what and retail believe average Katie. properties years a properties we cap term be $XX rate average X.X% and We properties cash an square weighted quarter. remaining at acquired rate of total feet. acquired weighted million were These cap of have during XX.X the a X.X%. service GAAP of attractive about exclusively

retail leased weighted of we single-tenant a leased Acquisitions the of included acquisitions, Mountain XXX-plus Since closed IMTAA, service acquisitions average straight-line years. XXX tenants. have Express portfolios by annualized rent and XX% remaining Pizza of which beginning Fresenius, term XXXX on These are to XX of Hut lease properties. have

has square the As taken possession. tenant of leases we had nine where the quarter executed new totaling end, XX,XXX feet

the tenant at was possession. of over our asset not an with And XXX,XXX of yet who at new stands XX-Hour of the A a great XX signed management XX-year leases the and the and end At multi-tenant has executed quarter, Lowe's occupancy XX-year XX% leases, replacement our example taken feet includes a totaling square which successful dark Fitness, where strategy Home respectively.

The $X.X million is extremely approximately Lowe's payment to to managed rent free traffic, of costs process. foot this through and with estimated space. the achieved extended expected increased the buildout We're termination from cost million lease capital $X.X and approximately the cover lease releasing related duration pleased

Similarly the Kentucky cash at flow at to Northwood to up Jefferson center. bring South Barnes replace signed Charleston, we positively Carolina an Noble in-place occupancy Commons minimal center foot substantial Marketplace downtime, to with impacting lease in we also a Ulta a from North with traffic generating XX% new in XX%. Louisville, and and lease signed recently XX-year the new Aldi with XX-year At

side touched in to repay sold SunTrust to XX American place C&S million leased are to Mike and eight earlier, of debt. on gross million proceeds center which had of related quarter was properties or the used we Eight distribution and leased the formerly leases On $XX.X second as for Express $XX.X two disposition the office leased and SunTrust. properties, during formerly

actively straight nears which As of X.X% XXX branch one July end, completion vacant as disposition we our comprising The SunTrust properties with based occupied -line overall of unoccupied on portfolio quarter branches rent. remaining plan of SunTrust own only we're XX, marketing. for

remaining only our a of Sanofi two-thirds to and fits is to Jersey. portfolio, portfolio. XX.X believe office our we escalations. X.X% annual is includes reduced years is in has in office high-quality one a campus a we is leased sale Sanofi own and it office exposure of with credit rent our headquarters. asset Express that which tenant their of XX% is American the The credit-rated New the lease U.S. The lease nicely and AA-rated This

as General. XXXX pipeline service Dollar to consists leased we price of average as a Wash million including Checkers is IMTAA, $XX XX, as retail Mister retail traditional well assuming weighted of for July acquisition and weighted to purchase years. complete and XX.X rate average of forward-looking The locations lease-term pipeline them Our primarily Caliber remaining lease with Collision, cap approximately total properties Car all X.X% of the of a

properties opportunities we XX.X XXX quarter, cap in properties We're closed average first at about of expanding Combined and the a and lease forward currently market or and pipeline average seeing with the our a portfolio. second to X.X% years. rate weighted have in the in the we remaining either the we're closed look weighted of term excited

I'll turn Mike, you. to back it

Mike Weil

Zach. Thanks,

for our earnings The for improved execution quarter company. another the second steady quarter on with was strategy of AFIN portfolio

acquisitions last A were Our able for what at the first an very and effective funds ABS believe was we cost. Series above offering sell price we to preferred issue from successful raising stock is substantial quarter

acquisitions We beneficial to forward and half were timely The look our aligned the entirely focus. the in property execute strategy we continuing service ultimately with company, were on to second XXXX. our we of retail closed made sales to while the

the questions. Operator, for please up open lines

Operator

first [Operator of Instructions] And ahead. question comes Please Frank BMO. from our go Lee

Frank Lee

Hi. Good the portfolio? talk what you the occupancy morning, Can drove decline guys. about within in single-tenant

Mike Weil

Mike. Hi, Frank. It's

we trend was X.X that of property. that So Express, does backup. occupied occupied That decline but the it about center see acquisitions, capital of to as pretty we from storage. expect corporate sale that spoke assets redeploy the two cold to And C&W single-tenant is American we the pipeline the the come complete you refer minimal, and about, square feet that million occupancy

Frank Lee

in on identified Are you've of that other expect candidates the any larger assets we quarter. sale you potential couple disposition quarters? then larger a sold And there side, Okay. assets coming should in as non-core the the

Mike Weil

don't future sales. disclose We typically

very at have We on was and pleased the looked the execution C&W I the portfolio, Express the with American facility. and

I long-term Obviously consistent. tenancy. we that think that's like the to see very

important. very dark a versus occupied an course, Of is

So The five-years, was but dark. again, remaining term. lease The C&W X.X-year that was American was square X.X feet. Express under was primarily about million

just So, slow we steady perform. asset Zach really that really his management assets let by and the and approach, to a and great continue core take as team execution high-touch

So quarter. ended how we that's the

Frank Lee

if then XXXX. expiring that's we in And Okay. debt the look at

$XXX set initial are thoughts on your roughly that addressing maturities? expire have million You What these upcoming year? to next is

Mike Weil

something basis. to is on That quarterly a continue update that we

As all not I'm said assets we in refinancing. of past, we're outside the just we are as about relates concerned there time seasons. These of the think opportune what the it to that as

done are be part completion refinancing a do teams And ABS. ABS analyzing. with Our that that the about I that will through talked of the we believe securitization, of

flip at open. We're the are then again look XX-year. the low really wide side should to on is the benefit. so is yield as rates open. investment-grade portfolio, current like has aware and market, competitive our the well to call market But much slot ours a Obviously AFIN tremendous that CMBS leased And I new able market, XX-year, the to be the investors. for of yield-starved pay which seeing we're tenants to of that very everyone in be great fits company with attractive long-term which a on Interest a as of very again paying

Frank Lee

great. Thank Okay, you.

Mike Weil

Frank. you, Thank

Operator

session. question-and-answer to like turn Michael any conference closing our the Weil for I remarks. back concludes This over would to

Mike Weil

schedules Again, Andrea. appreciate the you, taking we our busy Thank to time call today. everybody of out join their

but forward next are continue continue results to we any We the Louisa of may grow answer questions very to to look there If excited We're to Quarto. portfolio speaking happy questions, quarter. as out to everybody be the about arise. again please reach this to follow-up not quarter, and only any that

Operator

attending for presentation. you Thank The conference has today's now concluded.

may You now disconnect.

Necessity Retail REIT (RTL) 9 Aug 192019 Q2 Earnings call transcript