AFIN - Earnings call transcript Q4 2019 | Necessity Retail REIT, Inc.

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Operator

Good day, and welcome to the American Finance Trust Fourth Quarter and Year-End 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded.

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

Louisa Quarto

operator. you, Thank and everyone, for us. joining Good thank morning, you in Relations section The call AFIN's Investor webcast being www.americanfinancetrust.com. is of the website at

on Pomerantz, Senior discuss to President, Asset Chief Kurtz, the are Vice Financial me Chief Zachary Weil, Katie Executive the and Officer; Management. Michael Officer; Joining results call

by to expressed may of forward-looking following or these the The subject uncertainties contains or differ Should uncertainties. materialize, statements, forward-looking and information results materially risks those from one implied are actual which risks or statements. more

We to the refer year that factors SEC annual discussion after filed and our report XX, these SEC cause date the could the XXXX, on that December detailed of of for all for all the you with more differences. filings, other February XX, risk on including Form ended filings XXXX, XX-K a

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

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

during earnings financial our release. which our be accordance the a isolation for we as evaluating non-GAAP prepared useful is results reconciliation should in call, the believe in company's financial measures, available or we directly with to Also comparable These be considered GAAP. most can measures substitute not in these will in A of financial performance. discuss today's measures GAAP measure

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

Mike Weil

that REIT to both pursue diversified the would Trust us high for to become of company enhanced for already retail-focused credit portfolio. and experiential a tenants opportunity existed stability this all better we capital high-quality year thank joining good with and markets. a morning, up balance asset suggested compelling step A and quality and that We for half Thanks, our improved portfolio you opening through position acquisitions our growth. grow significant publicly announced will today. Good Finance access retail-focused us ago, Louisa. to and traded, American opportunities A

capitalized objectives a happy first concluded XXXX per these report this and well NOI, on Year-over-year, to EBITDA XXXX traded completing our we're proud into that company, as carry full AFFO I'm in year cash and adjusted share. revenue, momentum After beyond. and to publicly we've to report increases positioned

full the per share in $X.XX for year XXXX AFFO compared to $X.XX share was XXXX. per

For driven the fourth quarter was fourth share $X.XX share of in increase the per per quarter, the quarter-over-quarter XXXX and AFFO of quarter $X.XX versus $X.XX third The in X.X% in in from of XXXX. per third quarter. rent portfolio by AFFO $X.X on dialysis share million million the the the acquisition additional last of $X.X from was acquisitions, day including quarter third the

million. Full million. increased X% from cash $XXX $XXX to EBITDA million X% NOI full increased the adjusted X.X% year to Revenue to year XXXX increased year-over-year $XXX annual and XXXX tenants for

enhance continues focus partially AFIN's that are acquisitions previously, proceeds discussed be we've growth As on by of supported dispositions profile company low to growth the of non-core the properties. opportunistic strategic that and from

$XXX properties strong year of weighted average rate of at as of team cap a We million over delivered on closed a single-tenant X.X%. our acquisitions

only portfolio the attractive acquisitions properties fundamentals, retail acquiring by improve to long-term opportunistically These leases. exhibit too. continue We not service-oriented but strong with yield, an

portfolio. portfolio's retail AFIN's mix, recent the properties average while a term to years. of improved lease single XX.X have overall nearly occupancy XXXX and leased of XXX% XX% over weighted in tenants since averaging XXXX XX% properties acquired property tenant diversification, durations are level acquired Over and across lease service-oriented our acquisitions the the delivering and

concentration higher has We XX% year. more highest is and than we've years, acquisition of service continue net of quality have AFIN's growth during the enthusiastic intend total retail portfolio the sector types these remain portfolio and which single-tenant of average and by past believe We acquiring that about grown time, of per an creditworthy the service over peers. of lease other we assets a volume retail three rate to like the tenants

Among tenant, portfolio XX% more Please earnings our comes XXX% single tenant top about implied assets, grade including to investment-grade information implied of our tenants wide. we XX our refer of to and straight-line release be consider from rent investment-grade for what tenants. investment

related lease XX.X $XXX sold properties average repay of service weighted was XX in XXXX, proceeds Our million proceeds $XX.X of to for gross fourth single-tenant years term proceeds tenants. and also million the comes used $XX.X for $XX.X approximately million of million, of a XX% of gain million, five rent strategically total properties $X.X quarter In sold on retail gross from is debt. retail which and net we including of

a one also year average the properties weighted branches the last expirations an SunTrust and warehouse generating during X.X%, lease XX be rate that bank not renewed, were sold premium expected the they year, into strategy. properties which were didn't Bank, that We sold had above now $XX.X our fit cap of upcoming we cash two original were leased price. and named to office Bank, million at purchase of retail one to sold large Truist

As opportunities portfolio credit as take rate which we've assets also of of on years. average advantage remaining reflected lease X.X% a the longer and XX.X duration of focus point sources discussed This weighted continue between accretive term growth. we pipeline, acquisition previously, lease these and sale we've view We cap XXX quality. of to with our basis arbitrage and as new acquisition has in similar of average been an a the able to is capital

of retail such as restaurant categories are that $XX.X Heading into concepts favor stores, for centers dialysis for We certain forward that and be experiences by those complement an XXXX, retail service unsuitable customers. omni-channel online net greatly expect platforms in either we gas to convenience stations and a providing experience or online acquisitions. buyers with million pipeline

Kearney, millennial been new XX% and and of physical shown stores physical shoppers locations initially to prefer. AT has generation in products. that Z model found and prefer way to have online-only that that more an connect Z customers adding generation go Y customers Retailers shop research utilized to rapidly Consulting firm, to direct the with discover

has out to the U.S. started stores. year. to an previously recently teamed that products over and company online-only growing business across retailer, eyewear popular in dentists the anticipates their revolved SmileDirectClub, as this connecting around XX% has been stores the Walmart customers whose Parker, and by country and Canada locations model XXX put retail count store Warby with up Walmart opening across

who to for customers physically time, meet of are same to in that acknowledgment is be products distribution seems leading becoming There omni-channel by the a successfully located retail brick-and-mortar and and they At broad sell their their competing to already network services. is tremendous stores. where retailer using Amazon against Walmart a brands order it's important centers and promote

few companies Perhaps enough can Internet-based more grow brick-and-mortar to base forward without profitably of sufficiently suggest these customer very their importantly, degree trends presence. establishing pivot direct-to-consumer that some

capital over past ways to an demonstrated in access markets earlier, the drive noted we to our strategy. ability year, I As effective

we utilize have a completed XXXX, at-the-market In to and ABS of AFIN's the programs a brought shareholders. and asset-backed Series wider of stock. common offering class preferred and stock AFIN Series for or security offerings These institutional exposure set preferred A A

in company. preferred investment banks we $XXX.X issued equity. XXXX, the on research In million three Further, raised have

rate notes We AAA fixed also was $XXX million on Poors. classes A successfully rate by issuing long-term X.X%. and notes completed an both rated offering, dual-class average The & Standard of ABS interest weighted

will overall increases with position pleased to to manage in we per fixed We'll the capital duration shareholder long high-quality drive to believe unlock and grow long-term that AFFO allows the of financing rate accessing portfolio. dialogue through high-quality multiple assets channels effectively structure. our we continue the portfolio seek optimize rating us have financing tenants We're and partners consistently as we as AFIN's and portfolio Assets and value own. with and continue agencies share to value the leases

has believe We a a remains offering to implied XX AFIN of a peers, opportunity, lease weighted years. or of a actual portfolio compelling investment-grade investment average higher tenants trading a concentration our while almost that and at term discount that

an levels allocating income. Street remained bond Our for investors to to Wall journal recent yield at focused are according environment a attractive in dividend and REITs low article where, yields stock is

our In debt-to-EBITDA turn as dividend With over XXXX, ratio. tell for net on it overview to metrics, retail progress to Zach don't continue further who we'll institutional proposition, I'll making yet to story and our estate of coverage such an value the and activity that, know our investors while XXXX

Zachary Pomerantz

year, term of At owned properties, portfolio of the occupancy the XX.X% X.X of and we lease end Mike. XXX remaining Thanks, with weighted average years. a

of our leases As Mike through by at that tenants from contractual the year, portfolio, acquisitions X% growth the include rent remains which X.X% and rent driven of revenue escalators. XX% mentioned, per average our increased

high portfolio leased quality are of XXXX made of activities owning on assets long-term with basis a to to diversified retail our the estate We impact real further strategy tenants. our pleased a

from makes end Retail and the million annual across a properties. tenant term average portfolio, and square XXXX, portfolio escalators. of XX% XX% a properties average XX.X of with XX% Occupancy X.X% single the weighted distribution years of XXX%, up tenant comprised remaining single at balance foot with nearly office XX.X is of lease XX% up rent

expirations this with five expiring years. portfolio, of There are in very minimal near-term XX% leases within lease next only the

annualized investment-grade have XX% high We of quality from is portfolio year-over-year. investment-grade in tenants our or concentration tenants, as straight-line implied derived of tenant up the single X% high a these rent

XX% at of total portfolio's our XXXX, from of tenant end grew single properties the and at to up properties of of end straight-line rent the XXXX. portfolio we XXX XXX Lastly, or rent XX% straight-line the

All transactions of since of completed first and the quarter leased in single-tenant the assets. XXXX transactions fact, completed in all net XXXX, were

draw net store flexible features Large single tenant, where can helps allow visit leases, our trends. single-tenant by and believe smaller These and terms size smaller such of We that tenants. our shoppers Ross, lease multi-tenant experiential from benefit our frequency shoppers with share tenant and service anchor concepts such attract [indiscernible] tenants the and ongoing have but an growth as the and of both tenant negotiable balancing rent lease Buy retail that traffic assets. lease tenants retail drive relationship in-line with tenants, at symbiotic that Complementing HomeGoods. the Best responsive the supplemented businesses anchor leases retail a to be are which for the portfolio many as the unit a centers to are tenants anchor anchor portfolio

We what optionality we that that retail multi-tenant with the consistent see consumers. occupancy is and believe own growth for portfolio convenience the headed, deliver properties which single-tenant to opportunity the and offer to retail complements we composite as assets. is and is Our an rent direction

of million XXXX, Our foot occupancy has as XX-property, multi-tenant XX, December square average annual of X.X X.X% portfolio escalators. rent XX.X% with

to $XX million is million Annualized year from $XX rent straight-line ago. up a

in remaining average lease with weighted our to term up and the continue current X.X portfolio, on as performing tenants leases space available of We leasing renewing evidenced by years. focus

leases the passage occupancy despite the XX XX.X%. This slightly than occupancy San of year-end commenced XX,XXX Sporting was $XXX,XXX Executed X.X reported months. feet over yet Dicks of at square we only Executed that a will XX,XXX with of as Pedro Crossing includes where such lease add ago rent less average is annual year year a rent. in square base as has foot goods

loss part of where from on and NOI only program. rent believe rent bankruptcy, creditworthy years, our through minimis AFIN tenant quarter. multi-tenant including prior the We X.XX% monitoring the experienced due SLR will average, the has pursue large of growth to that portfolio's leasing in de strategic in the was due rent past AFIN to our lost resulted program. tenant focus the payments. active tenants two this bankruptcies is paying to continue On over termination average rent defaults

is In an We you aggregate, parent we opportunity other point which no in at each more tenant Furniture, X.XX% exposure out rent, company to Katie, new to that of less walk have our Van, the and us these the of in tenants REITS. like leases straight-line represented current financial rents. with negotiate number troubled detail. a will a would to bankruptcies annualized totaled market through than Art World of significant results retail-focused

Katie Kurtz

XXXX. the Fourth in loss Zach. The revenue Thanks, XXXX full-year a was and year. increase XXXX. quarter versus $XX.X quarter X% increase million in of total $XXX.X the was XXXX for the We from GAAP fourth million, to million we’ve December XXXX, reported company's $XX.X increase the $XX.X million, million was $XXX.X ended over XXXX in a compared year $XXX.X million, revenue million $X.X for net prior million X% XX, recorded X.X% $XXX NOI a

or million $XX.X share per million to an XXXX, was increase. $XX.X and $X.XX FFO per in year X% share $X.XX Full the compared

a stockholders share year common XXXX, fourth Full the million attributable million AFFO $X.XX per of For X.X% $XXX $XXX.X or and quarter our to XXXX, FFO was year-over-year. compared or per million in to increase was $X.XX $X.XX share. share $XX.X per

million $XX.X $X.XX was per share. quarter or And per quarter AFFO of fourth share XXXX fourth AFFO compared to $X.XX

be release income GAAP found supplement As measures Form in always, XX-K. earnings can net and to our of non-GAAP reconciliation a

million. ended our net of our drawn a outstanding of drawn mortgage of credit net equivalents facility at $XXX.X cash end, leaving with our components rate all mortgage We The $X.X debt only average billion debt At debt the were on debt X.X%. billion million and includes $X.X credit interest quarter's facility, amount quarter on fourth weighted of on $XX.X of interest cash the rates fixed, floating. at and our

which at XXXX measured cash respectively, compared net the adjusted XXXX. gross debt net of depreciation plus XX.X% availability plus to assets at was annualized total as XXXX. million December times X.X XX, asset Liquidity, equivalents facility, value at X.X end undrawn $XXX.X and XX, the accumulated and or is And times The December to EBITDA and XX.X%. was stood amortization our credit the at debt under company's cash to

in common equity, underwritten in successfully equity, AFIN issuance million $XXX our We through common equity we and of stock and completing $XX raised markets Through offering, million million stock. preferred XXXX, preferred while capital of million $XXX.X notes. inaugural in programs, and the ATM $XX.X rates were debt both two active separate in preferred in and ABS raising

As Mike were XXXX. We markets with deploying the into the contemplated accretive of proceeds previously during in discussed, purchased total these and have million capital acquisitions acquisitions. $XXX goal I new transactions

With for that, Mike call back turn to the closing some remarks. I'll

Mike Weil

on available that you beyond. and relevant news selection look we've in on the out to for our forward optimize to capital year laid and We've Twitter previously access to plans single-tenant service had are a company. Thanks, and taken company. listed to used are a of multi-tenant our articles Katie. XXXX to on We XXXX, differentiated We've focused research assets expanded to markets delivered that believe AFIN and grow productive financing very continuing advantage retail. I a and expanded and have encourage of access our the highly follow we this @AFIN_REIT strategy on we execute in portfolio and to of

continue forward, deliberate execute contractual We'll current accretive rent portfolio high-quality steady properties, occupancy tenants and seek growth. we'll investment-grade approach at predominantly high to growing to leases Going our and long-term acquisitions. sustain through maintain embedded to and levels implied our investment-grade with our our maintain

expect update attractive with and and near be see in opportunities the retail these next We We forward both areas real on to in further continue to to estate look you future. in markets in active quarterly financing updates to call. continue sharing progress our our

for please Operator, the open line questions.

Operator

now We ahead. Please will Metz session. of first Jeremy Instructions] [Operator the comes question from Capital being go BMO question-and-answer Markets. our And

Jeremy Metz

Hey, guys. morning. Good

Mike Weil

you Hey, morning. Good are How doing? Jeremy.

Jeremy Metz

Good.

we the Zach, to Just some here. multi wanted occupancy just start maybe you on on color first can give dip in saw. the

I leasing to think little back holiday you a quarter, a little if you bit. or go temp talked about that last propping it up some was bit

tenants out. those is So just flowing maybe I think that of part

at even just much month-to-month point, And occupancy at XX% less this short you point, leasing? a how than that of it's have, within year, So exactly here. temporary type what this term, happened

Zachary Pomerantz

morning. Good Thanks.

of yes, discussed. a at the in quarter So, the temporary seasonal last occupancy as only that the temporary Overall, that we from portfolio dip was occupancy seasonal time. the we the had result

leases. leasing continue rest to activity, new So grow the to of into is the and we normal have it

Mike Weil

Mike. it's Jeremy, Hey,

Let me just jump in for a minute.

the which math, that leases. that that was remember call supported takes as occupancy you do and XX.X% third that you and of of the the third materials disclosed long-term the XX.X% from to just X.X% was short-term if the quarter down you us reported If end leasing call, on quarter seasonal, referenced, at the that

compare the you increased, portfolio. quarter again, quarter, long-term of So to when occupancy third multi-tenant we've the fourth

And you XXXX, back go at quarter to if first started we XX.X%.

what So expect to at that in of you'll center. each trend we overall very steady growth not value see raises be four with valuable to that consistent, power we've the upcoming the the I tenancy long-term continue in quarters quarters. but occupancy, had that increases consider And XXXX multi-tenant portfolio only the

Jeremy Metz

of Yes, which was sounds definitely to wanted temp-driven, make was. that just like kind helps. it I all that it sure just it

balance I So that. Katie, lot the a about sheet. you talked appreciate

the up You significant coming of portion a lot this of have maturities debt pretty a stack. year,

how of take there? refi you to So and timing liquidity to be today? the next expectations help have you Will fund we of should kind layer out proceeds about look thinking additional the the beyond acquisitions

Katie Kurtz

of I that Thank been you. this year. Mike And hi, larger Jeremy, a we time something in now. due do September and maturity on have focused for some coming It's have

have in debt and pretty of I that kind much on that that a our portfolio of terms we consider normal course portfolio. the think we

actively managing that and refi time will out that sure before are we that. negotiating do to So enough we how making have and that September we

We're right feeling at books. was was in on also now. over X%. books our That Rates our that come rates the good really have about on since put

we're terms about. will So something better mix forward money looking and of interest to Mike rates. additional talking From that's out, be in I pulling some

We right our now are are where now. our and right happy sheet levels really with balance is leverage where

keeping we be refi in mind we'll debt. as that that So

Jeremy Metz

right. you you in color All particular, then about And It enhanced tends risk would pipelines active just focus on cap draw the out unusually in usually rate. that? just the a here? just Mike, any points little pipeline of possibly and to that the $X helpful? what seems how high, can those? Just there, some X% of around – be some And color sort billion So acquisitions have maybe talk

Mike Weil

line haven't buying will yet in deals. in pipeline, million an cap an and Starting the where but So of it because have But disclosed quarter. with rate assume you we it's been have cap cash we we the X.X%. the of as of starting the end rate did of cash, was January, average pipeline, GAAP it that $XX can

as So the have in with risk, net read into into don't line that what XX-year X.X%, with lease the rent range contractual as focused see very XX- we on growth X.X% read in typically been enhanced deals. to we

So that's type X.X% escalators. annual to of X%

we've these buying. similar very what to been So are

an X look on in will Page and company underwrite at don't see from we the can we're focused again which is can – the tenancy. straight-line tenancy. not well. I And If company And we're that I in names. you that basis, investment-grade doing additional the long-term bankruptcies We have occupancy chasing you XX% rent quarter We dealing same pipeline the you think way, the with. a deck, is that very there of The on is portfolio of the standpoint, as everything was report, high-quality, script, yield. investor tell the some the investment-grade you said in rated implied on see as or over

So – and its standpoint. very are with a credit comfortable we the sustainability ability from very, portfolio

Jeremy Metz

side. Last for Great. the to the investments question just taking turn me disposition is on on in

and active down good selling progress Truist been exposure. made You've the

So in of you this about should should point continue less? we here And the at beyond then we there X% strategic XXXX? mind, some to additional how an look Is or Truist have outside for been think dispositions that that in target on? say, you’ve

Mike Weil

as straight-line be but I little disposition relates any disclosed to we targets, to desire vague a to on I rent, a Truist, again, having So X% below want don't not have know bit that there. it get or

we're to comfortable I it with. be a the SunTrust that think that the platform, merged very credit continues quality of BB&T credit, for

in to accretive continue did jobs, of that there and most for internal we're believe of are dispositions very is disclosing on some to think opportunities. dispositions, right do XXXX, and and I – our now. those well discussions look with there do I some important I that we we’re XXXX redeployment, For one the very strategic not something potential know that rest But are going

Jeremy Metz

the for Thanks time.

Mike Weil

Jeremy. Thanks,

Operator

comes Riley Please of question go next from B. Our Matt FBR. ahead. Boone

Matt Boone

Hey, guys. morning. Good

XX,XXX couple square the Just commence? for quick on a portfolio me. to of of expected feet the questions When does executed multi-tenant

Mike Weil

Those at coming let's an date be this provided but specific. well, time, There's quarters. – leases that the will bit commence exact not over a more little I

into the in They're the in free commencement, period quarter. leases. them commence executed rent the first of they're the quarter will second some and So

commencement. what So it as I is think near-term of

Matt Boone

there be And you. no it There's turning all bankruptcies your but very any the saying, current that as portfolio, is weakness now? been any it like sounds to good. shape everything at Thank noting? worth Okay. stands were seems pretty might has then good in quality, a tenants right Or as of everything pretty from you good

Mike Weil

really the standpoint. pleased condition credit of from Matt, the portfolio I'm a with

As about to to than nonmaterial lot that previous has we've top had I of the we to in the point back lease credit implied on retailers portfolio fourth straight-line is our If portfolios the in minimal a have incurred say found investment-grade portfolio rent talked on over announcements X.X% that the been in XX again, problems There that is quarter and go the can commonly whole perform. rent a have years, we two some be the would of last portfolio. zero of less net And calls, XX% have straight-line of that tenants exposure continue basis bankruptcy. of I grade. investment

we this to So XXXX. performance continue in expect

Matt Boone

then it. And me. you. Thank for Got lastly

it primarily outbreak, that near-term up relates underwriting the coronavirus just to all impact for pipeline the to you you're term? the assets in near the shape any the in acquisition had expect way that at has of terms As

Mike Weil

no. going short answer, I'm to very Matt, start a with So

Matt Boone

Okay.

Mike Weil

But I'll it. expand

it So looking I markets, think the that on. for but only certain it information, We're the lightly. the markets, there day coronavirus is significance. event do for obviously I very in certainly are something just that not as don't for seeing focused global an every new we're take is we're because of U.S. announcements. all news

straight-line our is corporately guaranteeing investment-grade leases, of and the tenants implied I've from In think, rent our three fact, tenants. now, investment-grade as call. XX% said majority on our I times today's derived are of

period deals in going equates that term, continue coronavirus. this be been the some able tenants to that strong So be they've and to swings with to to are business rents to they same corporate healthy me until whether their and they pay tenants up very retail to short-term U.S. going coronavirus. the the population that are withstand have Long their as

with in jeopardy, that. it stay as as we So they far is it the in tenants. we relates problems any But They do. don't can doing are in touch near-term all our and as proactively not what to anticipate our rent,

Matt Boone

Thank Great. you.

Operator

no for remarks. I to Mike would over showing closing are Weil the questions at any further like We to back time. this turn conference

Mike Weil

XXXX. Well, like again, was very just taking us, you today. always the XXXX and follow-up We're We we're excited into please join for seeing anybody questions, has of If thank calls about any out. everybody going soon year. time to I your feel for to in terrific the free the forward to look to a year direction welcome reach and the excited us company.

Operator

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

may disconnect. You now

Necessity Retail REIT (RTL) 27 Feb 202019 Q4 Earnings call transcript