Q1 2020 Earnings Call
[music].
Good morning, and welcome to the Americas sales trusts first quarter 2020 conference call.
All participants will be in listen only mode should you need assistance they signal corporate specialist by pressing the star keep holiday.
After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw from the question Q. Please press Star then too.
Please note. This event is being recorded I would now like to turn the conference over to at least a Cortez executive Vice President. Please go ahead.
Thank you operator, good morning, everyone. Thank you for two I guess, that's called being webcast and the Investor Relations section of acres website at Www Dot American finance trucks Dot com.
Joining me today, all the stuff that's involved or my whole, while chief Executive Officer, and Katie Kurtz Chief Financial Officer.
That's all that information contains forward looking statements, which are subject to risks and uncertainties should one or more of these risks or uncertainties materialize actual results may differ materially from those expressed or implied by the forward looking statements.
Oh for all of you tore I think your filings, including annual report on form 10-K for the year on December 31st 2019 filed on February 27, 2020, and all other filings with the U.S. easy after that date.
Detailed discussion of the risks out there if I could talk these differences.
Any forward looking statements provided during this conference call our own estimate as of the data. This call as stated in RCC filings Asian disclaims any intention or obligation to update or revise these forward looking statements except as required by law.
Also during today's call will discuss non-GAAP financial measures, which we it'll be it can be useful and evaluating the called <unk> financial performance.
Measures should not be considered in isolation or did substitute for financial results prepared in accordance with gap.
Interrogation obvious measures to the most directly comparable GAAP measure is available on our earnings release.
Please also refer if our earnings release for more detailed information about what we consider to be in quite investment grade 10, eight times, we will use throughout today's call.
I'll now turn the call arbitrage, the Mike while Mike.
Thanks, Louise good morning, and thank you all for joining us today.
From all of US at American Finance Trust, we hope that you and your families are healthy and safe during this unprecedented global crisis.
The health and safety of our communities our tenants there are customers on our employees contractors and vendors remains a top concern of ours.
Last night, we reported first quarter results that highlight the strong momentum we had coming into this year going forward. We continue to have a high degree of confidence on our long term outlook that reflects the resilience and capabilities of our team and the financial strength of our portfolio.
However, given the concerns surrounding the covert 19 pandemic will start this call with an overview of the initiatives taken to navigate this period of uncertainty.
Beginning in early March we took proactive steps to prepare for an actively mitigate the inevitable disruption. This virus would cause and we're pleased with the initial results. We enacted safety measures both required and recommended by local and federal authorities, including remote policies cooperate.
Patient with localized closure or curfew directives and social distancing measures.
We remain in direct contact with our attendance cultivating open dialogue and deepening the relationships that we have carefully developed through prior transactions and historic operations, which we consider to be one of our most important strengths.
Thanks to these conversations and the strenuous due diligence and underwriting standards. Our team has adhere to over the last several years, we've had tremendous success in our rent collection during this pandemic.
For the month of April 8th in collect it nearly 79% of the cash ranch that were due across the portfolio, including 97% of the cash rent receivable from the top 20 tenants and over 92% of the cash rent payable in our single tenant portfolio.
Of the April cash rent remaining rent deferral amendments have been approved for 4% of the unpaid rent well rent deferrals with respect to an additional 16% of the unpaid cash rents are currently in negotiations.
Our proactive discussions with tenants have allowed us to understand potential challenges and work together to achieve mutually agreeable resolutions.
Not all tenant request ultimately result in modification agreements nor is the company foregoing its contractual rights under the lease agreements.
So far the typical deferral amendment to first payment of approximately 30% of the rent due for three months and is repaid within the first half of 2021.
The data to support these negotiations with tenants as well as other metrics were using to actively manage our portfolio. During these times is readily available to our teams because of technological and system investments Eightth and has had access to over the last several years.
We strive to be a good partner to our attendance during this unprecedented situation and continue to value the importance of our long term relationships.
Helping our tenants remain fiscally healthy secure and position for growth over the long term is the best thing. We can do is landlords to secure our own long term cash flow stability and steady value creation.
Thanks to a history of prudent underwriting our high quality portfolio is significant lease to investment grade rated or implied investment grade rated tenants among our single tenant assets, 66% of straight line rent comes from investment grade an implied investment grade tenants, including 80% of our top.
10 tenants portfolio wide.
Once we emerge from this crisis, we're confident that our longstanding approach to asset selection and our unrelenting work will yield and even stronger position from which to capitalize on opportunities that are short to arise from such a wide spread disruptive event.
We see very little risk that any completed deferral agreements will not be collected due to the financial strength and credit worthiness of our portfolio tenant roster.
The company has also taken additional steps to enhance our financial flexibility and minimize risk. During this uncertain time as a result liquidity comprising cash on our balance sheet and availability for future borrowings under our credit facility totaled $215 million at the end of the first quarter sales.
Really positioning the company for the future.
In March we draw on our credit facility to enhance our liquidity position as the scope of the crisis became apparent.
Additionally, the board approved to change in the common stock dividend to an annualized rate of 85 cents per share or quarterly 21 cents per share beginning in the second quarter of 2020.
Our first quarter AFFO was 23 cents per share.
We believe this action was prudent in the current environment in order to preserve capital and will strengthen eighth ins cash flow by $6.8 million per quarter.
In April the board adopted a short term stockholders right plan to discourage the accumulation of our stock through open market trading as a result of the current volatility in the trading price of our shares the board believes that this plan along with other recently announced actions is in the best interest of the company.
We believe that while over the long term the global economy will rebound the short term reality across the U.S. will be challenging.
We expect that the financial strength and credit worthiness of the tenants in our portfolio will offset the potential effects of this crisis, and we'll continue to position eightth and well in the long run.
Although we are likely still in the early stages of this economic event, we're pleased with the resiliency our portfolio has shown so far in these uncertain times.
Turning to the first quarter results.
We recorded a year over year increases in revenue from tenants and NOI and adjusted EBITDA for the first quarter cash NOI was $59 million versus $55.7 million in the first quarter of 2019.
The 5.9% year over year increase was driven by the significant acquisitions that eightth and completed during 2019.
First quarter 2020, adjusted EBITDA increased 8.6% year over year to $50 million and revenue from tenants increased 4% to $74.6 million.
During the first quarter eighth and completed the acquisition of 31 properties totaling $90 million of contract purchase price.
The weighted average cap rate for these acquisitions was 8.4% with a weighted average remaining lease term of 16.8 years.
We have closed on one asset in the second quarter, which combined with our pipeline of definitive agreements in place total 35 additional acquisitions for $44.7 million at a weighted average 8.1% cap rate and over 16.2 years to weighted average remaining lease term.
We've taken a prudent stance with our acquisition pipeline and are evaluating historical cap rates were carefully determining appropriate risk adjusted cap rate targets for potential new acquisitions going forward and will ensure that all assets meet our revised criteria.
Turning to portfolio metrics annualized straight line rent has increased 12.7% year over year. After a very active year of acquisitions. We're pleased with the progress our acquisitions have made to further our strategy of acquiring diversified retail assets leased on a long term basis to high quality 10.
Vince.
Retail makes up 71% of the 11.6 million square foot single tenant portfolio with the balance comprised of 16% distribution and 14% office properties.
Occupancy across the single tenant portfolio is over 99.3% with a weighted average remaining lease term of 10.9 years and 1.3% average annual rent escalators.
There are very minimal near term lease expirations in this portfolio with only 10% of leases expiring within the next four years.
We've continued to cultivate a high concentration of investment grade or implied investment grade tenants with 66% of the annualized straight line rent in our single tenant portfolio meeting this high quality standard.
Additionally, we continue to reduce our exposure to any one tenant through our acquisitions and dispositions.
In the first quarter and the beginning of the second quarter, we sold for Truest formally Suntrust Bank branches for gross proceeds of $9.5 million and are under contract to sell to more.
Additionally, eight of the truest branches, we own will become first horizon National Court branches as part of the transaction truest was required to enter into in order to gain regulatory approval for the merger between Suntrust and BB and T that created truest.
First horizon National Corp is a strong regional investment grade rated operator with approximately 300 branches.
After this converging completes and the dispositions under contract or completed our exposure to truest will be 6.2% of our portfolio straight line rent down significantly from 8.9% at the time eighth enlisted in 2018.
Our 33 property 7.2 million square foot Multitenant portfolio complements our single tenant net lease portfolio in quality with an occupancy of 87.3% as of March 31, 2020 up from 84.8% in first quarter 2019.
Annualized straight line rent is up to $88 million from $87 million a year ago.
During the first quarter, we continued to focus on leasing up available space and renewing leases with top tenants.
In the quarter, we signed three new leases and seven lease renewals, helping to increase the portfolio occupancy and rent.
At Northpark Center, and patent Creek, New long term leases will add over $120000, an annual rent while lease renewals will add nearly $200000 an additional annual rent and extend the weighted average remaining lease term.
80, we walk us through the financial results in more detail. Please.
Thanks, Mike.
First quarter plenty 20 revenue was $74.6 million, 84.3% increased from $71.5 million in the first quarter 2019.
The company's first quarter GAAP net loss attributable to common stockholders was $9.2 million versus $3.2 million in that same quarter 2019.
I know I was $62.3 million, 86.1% increase over to $58.7 million, we recorded for 2019.
For the first quarter 2020.
Now that's attributable to common stockholders was $23.7 million or 22 cents per share.
First quarter after about was $25.2 million or 23 cents per share compared to the first quarter 2019 assets out of 25 cents per share.
I thought that was down slightly compared to the fourth quarter, which was 24 cents per share. We typically experience increased cost in the first quarter due to the 10-K and annual meeting of shareholders.
Additionally, the majority of about 90 million in acquisitions during the quarter closed in March with an acquisition for $28.8 million closing on the last day of the quarter.
As always a reconciliation of GAAP net income to non-GAAP measures can be found in our earnings release supplement and form 10-Q.
We ended the first quarter with net debt of $1.6 billion at a weighted average interest rate up 4.2%.
The components of our net debt include for hunting and $83.1 million drawn on our credit facility $1.3 billion, an outstanding take care.
Cash and cash equivalent of $175.7 million.
Our cash balance at the end of the quarter was mainly driven by the 135 million.
On our credit facility in March to enhance liquidity as Mike mentioned earlier at quarter that interest rates on our mortgage that world.
Leaving only the drawn amount on our credit facility has slowed.
Quantity, which is measured and on availability under our credit facility Black passing passionately Atlanta stood at $215 million at March 31st Twentytwenty.
The company's net debt to gross asset value or total assets plus accumulated depreciation and amortization was 38.8%.
With that I'll turn the call back to Mike for some closing remarks.
Thanks, Katy with a strong first quarter reflected in our financials, we know that the real test of 2020 will be how we respond to the challenges that arise in the remainder of the year well there are a number of factors out of our control I believe we've taken bold and decisive action that is also prudently measured to enhance our ability to respond.
Onto new developments as they arise I'm very proud of our team for showing great dedication focus and expertise through our hard work and the tenant relationships. We've developed our first quarter was successful and we believe our second quarter is off to a <unk> a good start.
I'm also very appreciative of the continued support of our banking partners over the last few weeks, despite working remotely our team and our partners have continued to work effectively to maintain the momentum that eightth and carried into the started the year.
When the appropriate time comes we believe there'll be opportunities to capitalize on the current market disruption and we intend to be well position to act on these opportunities we're committed to working with our tenants and relentlessly pursuing the best interest of the company I look forward to sharing further updates with you in our next quarterly call API.
Operator, please open the line for questions.
We will now begin the question and answer session. So like a question you made press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the key to withdraw from the question Q. Please press Star then too.
The first question is from Brian Mayor of B. Riley FBR. Please go ahead.
Good morning, Michael on Katie I Hope you guys are doing well in these difficult times.
Hi, Brian.
Shifting.
Some discussion on the tenant is there any particular tenet type in the portfolio that has been more of a concern or add more for deferrals than others within the portfolio.
Well, Brian first let me just reiterate a couple of points that I made in my opening comments.
Our top 20 tenants, which represents about 56% of the straight line rent.
Performed at a tremendous level and I think that really.
Highlights, where we've allocated our money and the and the quality of the of the tenants in the portfolio Zee.
Focus on quick service restaurant with primarily drive through capability proved to be a very valuable part of this portfolio.
And rent collection from those tenants was very high.
So I would say overall the diversity in the portfolio really drove home the value and was significant in us being able to collect such a high percentage of the rent in April and I do want to point out.
That at 79% through the end of April I think Thats a great milestone.
But as you know April is the first month of the quarter.
We continue to be in active discussions with the tenants that we've listed as in negotiation.
They're large national tenants, primarily and we expect deals will be reached with those tenants. We continue you know they they obviously are.
Large and they run their process alongside our process, we go back and forth, we're making great progress I'm really encouraged by where we are with them.
And when we do reach deals with them, we expect them to be retroactive to April. So we'll continue to update a second quarter results, but I I think we're really well positioned all things considered for the second quarter.
Right and I didn't want to take away, the 79%, which was definitely I think we and others were pleasantly surprised by that.
But to your point on your discussions of the remaining 16% and in addition, the ones that have already entered into a deferral agreements with you kind of what is the tone of those conversations I mean, it seems like some has been quite good at Mt, referring to year portfolio particular, but others.
Thank you kind of despite like Cheesecake factory, saying, we're just not going to pay right. So what does that tell and you're seeing with with the people you're talking to.
We have engaged in a very productive way both from the landlord side and from the tenant side, we all understand what we're going through as a an economy.
So to take an approach of.
All or nothing take it or leave it from both sides makes no sense, yes, we have certain legal rights under the lease we could simply insist on certain things and threatened default and you know X Y and Z and you know as well as we know that's not a productive outcome we have.
I've long term leases with these very important tenants in our portfolio and as I said in my comments, we have found the ability to partner with them their problems or their problems. Our focus is our focus we want to collect rent that's our that's our job that's what our shareholders expect of.
Yes, but in reaching some deferment.
Deferral agreement I think was very positive I think it continues to build on the relationships that we have with these tenants and you know come on and you in a retail portfolio, there's nothing more valuable than having great relationships with strong national retail tenant so.
I think our team.
Had the right attitude and the right focus and I'm very appreciative on the tenant side that they also came to the table looking to work out something that was necessary for them, but also accomplished what we needed as a landlord.
Great. That's helpful. And then how are you thinking about weighing your desire to preserve liquidity, both because of the unknown and maybe for better opportunities down the road versus.
You know acquisition opportunities, you're seeing right now kind of day to day, how do how do you think in way those two things.
On a case by case basis, Brian.
I have to tell you I have not seen many potential acquisitions that were attractive to me so far in this quarter.
Sellers are holding on to yesterday's cap rates.
As a buyer.
We have additional risk profiles that we're evaluating.
We.
We had some deals that we're still in due diligence money still refundable that we had conversations with the sellers.
And frankly, we we weren't satisfied with the outcome. So we chose.
Not to move forward as Katie mentioned, we have $215 million of availability.
That's very important to us right now.
When we see it could be tomorrow, it could be in months from now, but when we see the opportunities for the types of tenants that we've historically bought that are priced where we think they should be priced oh, we will be very engaged in that potential acquisition, but.
For the for the time being our focus remains finishing up some of the.
Lease negotiations that are progressing very well.
On continuing to stay in touch with tenants are to continue the rent collection process.
And really you know that these are unknown times for all of US and there was something very reassuring.
About a strong cash position I was very pleased and grateful to the work the board did regarding dividend reduction for the second quarter I think it's the right thing to do at this time and as Katie mentioned, it's a $6.8 million per quarter savings to the.
Company. If you look at the earned a AFFO in the first quarter of 23 cents in the second quarter and going forward I'm on a quarterly basis, we will be paying a 21 cents dividend. So I again, I think that was very prudent and that's.
That's how we've decided to approach this.
New World <unk> that we're working through right now very conservative prudent engaged manner, we talk to our tenant every day, we have follow ups and and I think that that is going to really be important as we finish and continue through 2020.
Yeah.
Oh, that's terrific and we were definitely pleased to see the measured a movement in the dividend as opposed to cutting it to zero or one cents I think that your shareholders were appreciate it just kinda lastly from me and I'll be at one of your shareholders, whose emailed me is there any status on the mortgage refinance.
Thanks for the balance of 2020 debt.
Hi, Brian Theres, nothing that I can publicly disclose at this point other than we are fully engaged with a up banking group. We remain confident that this will be a positive outcome for a thin and as we move forward and have an appropriate.
Ah public disclosure, we will be sure to communicate that to the market.
Thank you and good luck with the second quarter.
Thanks, Brian talked you soon.
Okay and have you have a question. Please press Star then one the next question is from Jeremy Metz BMO. Please go ahead.
Hey, guys among our whats right for you here.
Hi, Jeremy High Frank.
So as you want to go back to the April collections, you know the 92% than the single tenant, obviously, particularly strong I'm, especially with the restaurants or your are are you know 16%. There again, you know it's easier to your comment that most of their there is quick are limited servers.
But just to work where the 92% comparable to what you know water bearing contract sure where are you there or you would have expected I'm sure in March warm or is there any sort of you know you alluded to some of the modification you've already discussed that 30% Cartagenia back.
Slowing in the denominator.
No it is not Jeremy.
That is the contractual 92% of the contractual rent due was paid and collected.
Okay and then.
I see where a few days and but as you know sorry <unk>. What's the early read on married you actually been kids is a you know.
Given how much worse quarter during the first couple of days are you.
Head of where you were.
Or well again kind of whatsoever.
I don't think it's it's up I don't think I can give kind of day to day updates on rent collection. Because it is you know a process, but I will tell you that that we expect.
The results in May again time will tell and we will disclose appropriately, but we have no reason to believe that that we won't see similar results for better because as I talked about the.
The 16% that in negotiation.
I as I said have high expectations for the outcome of that 16% and obviously, a big chunk of that will be.
Rent received.
One final workouts complete.
So.
I I've never been in a situation before where I could say I'm I'm looking forward to reporting results.
But again.
Being as engaged as we are with all of the tenants in the portfolio understanding.
What the the environment is we believe that we're going to continue to collect the high majority of our of our rent and that we're going to be able to continue to perform as a as you would expect.
Yeah, I know that's helpful and then.
One for carrier I was yourself and you could walk for your cash flow and potential.
Cash burn it there and if there isn't there just given the overall collections.
I'm, just even though they're strong just you know there obviously is a whole here.
And then just within that how should we think about their ability to continue to bear to different and there is you know it stays at this level are you done you know gets a little bit worse year, depending how those collection was quite out here how should we think about all that thanks.
Thanks, Jeremy so from a cash flow perspective.
I'll start by Reemphasizing that we're saving on 215 million of liquidity and that's both cash and amount available to be drawn on our line. So that number one from a liquidity standpoint also as Mike mentioned, we did do they deboning hot.
From a dollar tend to 85 cents.
Yeah as you know at 6.8 million dollar per quarter savings on cash flow compared to where we were in first quarter.
So that would be number two and then.
In addition to that at that need dividend rate as Mike mentioned.
Now were 21 cents per share.
Corridor on the dividend and our assets on the first quarter was 23 way of Ben and as he mentioned good conversation with our tenants. So good cash flow and rentler seat at 79% in the first quarter. So you know not you mentioned the word whole I wanted to.
Think of anything in terms of that I think where our balance sheet is well positioned we had good liquidity had a prudent move by our board and the second in the second quarter with the dividend and you know, Mike and I are feeling good for the second quarter.
Right thanks for that them.
Thanks, Jeremy.
This concludes our question and answer session I would like to turn the conference back over to Mike while for closing remark.
Well, thank you Kate and thanks, everybody for joining us today.
It is a a challenging time the world is facing and I hope, everybody say safe and healthy and and that we all get through this together, we'll continue to provide updates and as I think you've heard us over and over today in a tough market we are.
Remaining very optimistic because of the results that we've seen through April as well as the underlying value within the portfolio. So thank you all again for your time today, and if you have or any other questions. We look forward to following up by.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.