National Retail Properties, Inc. (NYSE:NNN.PRE) Q4 2016 Earnings Conference Call - Final Transcript

Feb 13, 2017 • 10:30 am ET


National Retail Properties, Inc. (NYSE:NNN.PRE) Q4 2016 Earnings Conference Call - Final Transcript


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Greetings and welcome to the National Retail Properties Year-End 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As are reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Craig Macnab, CEO of National Retail Properties. Thank you. You may begin.

Craig Macnab

Audrey, thank you. Good morning and welcome to our 2016 year-end earnings release call. On this call with me is Jay Whitehurst, our President and soon to be CEO along with Kevin Habicht our long-time Chief Financial Officer, who will review details of our fourth quarter as well as our year-end financial results, following my opening comments.

2016 was another excellent productive year for NNN as we increased our core FFO per share by 5.9% to a record level of $2.35 per share. In the fourth quarter, we were active in the capital markets accessing well-priced capital, which further lowers our long-term cost of capital. Kevin will provide the details in his comments.

The demand for both of these offerings was well in excess of the amounts that we've raised, which suggests to me that investors respect the financial strength of NNN as well as the consistency of our performance plus our retail-only focus. In executing our strategy, our team remains focused on delivering multi-year results and we now had five consecutive years of terrific per share growth in core FFO. Significantly, we've achieved these results while using modest amounts of debt as Kevin will expand upon in his comments.

As indicated in our press release, we acquired 313 net leased retail properties last year, investing a record amount of $847 million. The average initial cash yield on these acquisitions was an impressive 6.9%. As many of you are aware, this attractive initial yield improves over time as the rent increases over the duration of our very long yield long leases yielding what we estimate to be just under 7.9%. 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 are purchased from existing tenants with an average investment per property of only $2.7 million. We've continued 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 of capital. We are proud that in 2016, we consummated acquisitions with 40 relationship tenants.

Our strategy continues to focusing on what we think of as small box retail and our current pipeline of deals is predominantly made up of opportunities in these categories. We like well-located retail properties, which is generally where small box retail is found. Small box retail is very granular within the range of 30% to 40% of our investment comprising land and importantly, we've experienced that there are multiple users interested in these