National Retail Properties, Inc. (NYSE:NNN) Q4 2015 Earnings Conference Call - Final Transcript

Feb 11, 2016 • 10:30 am ET


National Retail Properties, Inc. (NYSE:NNN) Q4 2015 Earnings Conference Call - Final Transcript


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Greetings and welcome to National Retail Properties Fourth Quarter and Year End 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Craig MacNab, Chairman and CEO. Thank you, you may begin.

Craig MacNab

Thank you, Rob. Good morning and welcome to our 2015 year end earnings release call. On this call with me is Jay Whitehurst, our President; and Kevin Habicht, our Chief Financial Officer, who will review details of our fourth quarter as well as our year end financial results following my opening comments. 2015 was another excellent productive year for NNN as we increased our recurring FFO per share by 6.7%, expanded our already fully diversified and well-occupied portfolio, while at the same time, maintaining a fortress-like balance sheet.

We remained focused on delivering multi-year results and have now had four consecutive years of terrific per share growth in recurring FFO. Significantly, we have achieved these results while using modest amounts of debt as Kevin will expand upon in his comments. As our press release indicated, we acquired 221 net lease retail properties last year, investing $726 million, helped by a slightly better than anticipated fourth quarter. The average initial cash yield on these acquisitions was an impressive 7.2%, despite the cap rate compression that seems to have occurred in all property types. As you are aware, this attractive yield improves over time as the rent increases contractually, frequently tied to CPI over the duration of our very long leases.

One interesting detail of our acquisition activity is that the vast majority of the transactions were single property acquisitions throughout the year, many of which were purchased from existing tenants with an average investment per property of only $3.3 million. Only one of our deals in 2015 was larger than $50 million in size, and we did not have competition on this particular transaction.

So we continue to adhere to our strategy of focusing on acquiring carefully underwritten retail properties at low price per property at initial cash yields that are both above what is found in the broker auction market, as well as comfortably in excess of our cost to capital. Last year, we had great success with repeat transactions with approximately $600 million being invested with our relationship tenants.

In the last couple of years, we have defaulted to one-off transactions helped by our significant number of relationships. We have looked at all of the larger deals that have taken place, and frankly, others were prepared to pay more than we were for the so-called portfolio premium. In 2016, the tide may be shifting back to a more normal environment, where larger amounts of money command a premium, and we will continue to carefully review some of the portfolios that we expect to come to market.

We continue to favor what I characterize