National Retail Properties, Inc. (NYSE:NNN) Q4 2018 Earnings Conference Call Transcript

Feb 12, 2019 • 10:30 am ET

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National Retail Properties, Inc. (NYSE:NNN) Q4 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good day, ladies and gentlemen, and welcome to National Retail Properties' Fourth Quarter and Year-End 2018 Earnings Call. All lines are placed on a listen-only mode, and the floor will be opened for questions and comments following the presentation. (Operator Instructions)

At this time, t is my pleasure to turn the floor over to your host, CEO, Jay Whitehurst. Sir, the floor is yours.

Executive
Julian E. Whitehurst

Thank you, Kat. Good morning, and welcome to the National Retail Properties' fourth quarter and year-end 2018 earnings call. Joining me on this call is our Chief Financial Officer, Kevin Habicht. After some brief opening remarks, I will turn the call over to Kevin for more detail on our results.

National Retail Properties had a very busy and productive fourth quarter, ending 2018 with annual core FFO per share growth of 5.2% over 2017 results while actually improving our already impressive leverage statistics. Our business model is designed and executed to deliver mid-single digits per share growth on a multi-year leverage neutral basis, and 2018 is another example of the power of that consistent strategy.

Our total shareholder return for 2018 once again exceeded the REIT averages over 1, 3, 5, 10, 15, 20, and 25 years, respectively. We're not slow, but we are steady, and history shows that steady wins. Our broadly diversified portfolio of almost 3,000 single-tenant retail properties remained healthy with an occupancy rate of 98.2%, which is slightly higher than our long-term average of 98%. The 400-plus tenants that lease our properties continue to operate businesses that are primarily focused on customer services, customer necessities, and e-commerce-resistant consumer necessities.

Every year, we assume we'll lose some rent due to struggling retailers. Currently, we have a minor exposure to two tenants: Shopko and Virginia College, which are in default of their respective leases. Although these two tenants combined account for less than 1% of our total annual rent, we do expect these defaults to create some additional vacancies for us in 2019. I should note that these events are factored into our guidance for 2019.

Turning to new investments, our acquisition, due diligence, legal, and asset management teams were very active in the fourth quarter as we invested almost $320 million in 136 new single-tenant retail properties at an initial cash yield of 6.7%. For the year 2018, we invested over $715 million in 265 new single-tenant retail properties at an initial cash yield of 6.8% and with an average lease term of 18.5 years.

As has been typical for the past few years, our tenant relationships provided the majority of our acquisition opportunities. In 2018, about 80% of our dollars invested were with a diversified pool of over 30 relationship tenants operating in 16 different lines of trade. We were also active on the disposition front, selling 15 properties in the fourth quarter. Year-to-date, we sold 61 properties at a blended cap rate of 5.1%, generating over $147 million in proceeds. The fact that our average disposition cap rate in the low 5%