Q3 2020 American Finance Trust Inc Earnings Call
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Good morning, and welcome to the American Finance Trust third quarter 2020 earnings Conference call.
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I would now like to turn the conference over to Luis Accordo Executive Vice President. Please go ahead.
Thank you operator, good morning, everyone and thank you for joining this.
This call is being webcast in the Investor Relations section of this website at Www Dot American Finance Trust Dot com.
Joining me today on the call to discuss the results are Michael Chief Executive Officer, and Katie Kurtz Chief Financial Officer.
Oh and information contains forward looking statements are subject to risks and uncertainties.
Should one or more of these risks or uncertainties materialize actual results may differ materially I'm not expressed or implied by the forward looking statements.
Refer all of you tore as easy filings, including the annual report on form 10-K for the year ended December 31st 2019 filed on February 27, 2020, and older filings with the I think the opportunity for a more detailed discussion of the risk factors that could cause these differences.
Any forward looking statements provided during this conference call only made as of the date of this call.
They didn't RCC filings aten disclaims any intent or obligation to update or revise these forward looking statements except as required by law.
Also during today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating the companys financial performance.
These measures should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP.
A reconciliation of these measures to the most directly comparable GAAP measure is available in our earnings release.
We've also refer to our earnings release for more information about what we consider to be implied investment grade tenants attorney they'll use throughout today's call I'll now turn the call over to our field, Mike while Mike.
Thank you Luisa.
Good morning, and thank you all for joining us today.
Last night, we released third quarter results that highlight the resilience of our best in class portfolio, which is focused on necessity based retail assets that are net leased to predominantly investment grade an implied investment grade tenants.
We significantly improved rent collection across our portfolio through October 31, 2020, collecting 92% of the third quarter cash rent due up from 86% collected for the second quarter.
As the United States continues to emerge from the uncertainty brought on by the health crisis and economic challenges the country experience during the first half of the year, our portfolio has demonstrated improving metrics and strength.
Contributing to improved rent collection was a significant increase in rent collected in the multi tenant segment of our portfolio, which represents approximately 30% of our total straight line rent.
As of October 31, 2020, Multitenant collection was 82% of the third quarter cash rent do up from 67% collected for the second quarter being.
The improvement in multi tenant rent collection complements the 97% of rent we collect it in the single tenant portfolio.
And then 97% of the rent we collected from our top 20 tenants in the third quarter.
This trend is continuing into the fourth quarter as we collected over 94% of October cash rent portfolio wide.
To be clear all rent collection percentages are calculated based on the original rent we would have expected to receive before cobot started it's not adjusted for a negotiated deferrals or other amendment.
It also reflects the expiration of rent deferral agreements, where tenants have resumed paying full rent.
Throughout the pandemic, our occupancy has remained stable and we haven't been affected by any material bankruptcies. Unlike many of our peers, who have seen numerous bankruptcies of important tenants in their portfolios.
Turning to our strong quarter of earnings EPS AFFO per share increased to 23 cents in the third quarter, roughly 15% more than last quarter and an increase over the air AFFO from the same period in 2019.
Dividends paid in the quarter were equal to 21 cents per share through quarter end, we've negotiated lease extensions with 23 tenants that averaged 36 months in exchange for rent deferrals work credits that have a weighted average duration of five months, resulting in a net increase in cash rent a 44.1 million.
Dollars over the new lease terms.
These extensions however have a short term impact on HFO, representing $2.7 million or two cents per share during the third quarter that would have been due during the period, if those leases had not been renegotiated.
Regardless, we're excited about adding over $40 million of additional rent and the long term benefits. It provides to our stockholders and remind you that the majority of the deferrals had ended by the third quarter of this year.
Year over year, we've grown our portfolio by over 100 properties and 800000 square feet, increasing annualized straight line rent by $10 million to $274.5 million.
Occupancy is currently 94.2% and our real estate investments at cost totaled $3.9 billion.
Due to our disciplined underwriting our high quality portfolio is significantly leased to investment grade rated or implied investment grade rated tenants.
Among our single tenant assets, 62% of straight line rent comes from investment grade, an implied investment grade tenants, including 80% of our top 10 tenants portfolio wide.
We continue to grow the single tenant segment of our portfolio as a percentage of rent annualized straight line rent from single tenant has expanded 300 basis points year over year to 69% of our portfolio total and has increased 8% since we lifted in 2018.
Atrenta acquisition efforts are focused on single tenant service and necessity retail assets that have long remaining lease terms and contractual rent increases.
We closed on 38, such assets in the third quarter, which combined with our pipeline totaled 108 property acquisitions for $220.1 million at a weighted average cash cap rate of 7.9% a weighted average cap rate of 8.6% and 14.2 years of weighted average remaining.
The lease term we.
We remain opportunistic with respect to our acquisition pipeline and are selectively approaching potential new acquisitions.
Retail makes up 71% of the 11.8 million square foot single tenant portfolio based on straight line rent with the balance comprised of 15% distribution and 14% office properties.
Of the retail portion, 82% our service retail properties that we believe to be necessity based in nature and more resistant to E commerce.
Occupancy across the single tenant portfolio is over 99% with a weighted average remaining lease term of 10.6 years and 1.3% average annual rent escalators there.
They're very minimal near term lease expirations in this portfolio with only 10% of leases expiring within the next four years.
Consistent with our own observations in the single tenant space Matthews Real estate services recently published a report titled the value of a drive through.
Weve been pleasantly reminded during the pandemic how much value resides in existing easy to use drive through feature for many types of retail businesses like pharmacies banking and especially quick service restaurants for QSR sales.
Since March QSR as had been an indispensable point of food distribution as people have turned to drive throughs for prepared meals that can be procured in the safest manner possible.
On average 50 million Americans eat at QSR is every day with 70% of QSR sales utilizing a drive thru concept.
In our portfolio, we own 169, QSR properties, 80% of which have a drive through based on straight line rent within.
Within our QSR QSR portfolio, we've collected 97% of October rents from tenants, such as Starbucks Burger King Chick Fil, a and Sonic we've.
We believe this was an attractive asset class before the Pan pandemic and are encouraged that others are now seeing this value as well we will continue to evaluate additional QSR opportunities where national brands are well operated by corporate or large creditworthy franchise tenants.
Our 33 property 7.2 million square foot Multitenant portfolio as occupancy of 85.9% as of September Thirtyth 2023.
During the third quarter, we were able to focus on leasing in the multi tenant portfolio executing a new 10 year deal with discount retailer five below for nearly 10000 square feet that will add over $159000 in annual base rent.
We also have a pipeline of 14, new long term leases with executed letters of intent for nearly 121000 square feet or 1.7% of the total multitenant portfolio the.
The pipeline is expected to add $1.9 million of new annualized rent with a weighted average lease term of 10 years, although leasing had slowed temporarily we're excited about the pick up in the third quarter and we expect to have positive absorption through the end of the year.
In addition to our focus on leasing up available space as we mentioned earlier, we recorded a significant increase in rent collected in this portfolio during the third quarter as deferral agreement ended and retail businesses ramped up operations that incorporate cobot compliance procedures move.
Moving to our balance sheet, we now have no significant near term debt maturities remaining in our capital structure with 76% of our debt maturing in 2025 or later.
In the third quarter, we completed a transformational $715 million CMBS financing that locked in rates at a time when rates are historically low.
In this transaction, we completed the refinancing of our existing $497 million CMBS loan and certain property on the company's credit facility borrowing base with a new five year CMBS loan.
Has done a great job managing the variables we control throughout this crisis and have benefited greatly from the work we've been doing for many years building a company with a best in class portfolio. That's diversified composed of high quality tenants in longterm leases that include contractual rent increases.
I will now turn the call over to Katie to take us through the third quarter financial results and the strength of our balance sheet.
My third quarter 2020 revenue what $78.5 million.
Up from $74.9 million in the second quarter of 2020, and it's 7.7% increase from the $72.9 million in the third quarter of 2019.
Anthony third quarter gap Matlock attributable to common stockholders with $7.1 million compared to in that lot of $21.8 million in the second quarter of 2020, and a net loss of $2.9 million in the third quarter of 2019.
I know I was $64.3 million, a slight increase from the $62.4 million, we recorded for the second quarter and at 6.3% increase over the 60.5 many of the N O I, we reported in the third quarter of 2019.
For the third quarter of 2020 or F. F. L attributable to common stockholders was 25 $26 million or 24 cents per share unchanged on the 24 cents per share for the same period in 2019 and up from 21 cents per share in the second quarter of this year.
Third quarter half with with $25.5 million for 23 cents per share compared to a second quarter F. L. A 20 cents per share and 22 cents per share in the third quarter of 2019.
As always a reconciliation of GAAP net income to non-GAAP measures can be found in our earnings really supplement and form 10-Q.
As my Medicine, we had an important quarter for a balance sheet. We completed the refinancing of our former former $497 million P. M B F well and certain properties on the company's credit facility Barnaby with a new five year 750 million dollar C. N B F. Well, we also completed.
Five year hundred and 25 million dollar indicated balance sheet low refinance of our fantasy property.
We ended the third quarter with net debt of $1.8 billion I had to leave it weighted average interest rate of 3.8% and NASDAQ to grow fast the value of 42%.
The components of on that that include 305 $9 million John on their credit facility.
1.5 billion, an outstanding secured that in cash and cash equivalent of $86.3 million.
So drawn amount on a credit facility is our only floating rate that.
Liquidity, which is measured at Amazon availability under a credit facility.
Cash and cash equivalent shut at 157 million.
Based on our September 30th cash balance and borrowing availability.
With that I'll turn the call back to make for some closing remarks.
Thanks, Katie through the continued hard work and dedication of our team we were able to complete two very large financing transactions that derisked our portfolio, while collecting over 92% of the cash rent payable in the entire portfolio, a 6% improvement over the second quarter.
We collect at 97% of rent and the single tenant portfolio and 82% of cash rent in the multi tenant portfolio by working directly with our tenants.
We will reap the benefit of these efforts in many future quarters, along with the continued outperformance of our investment grade portfolio.
We believe we're well positioned to capitalize on opportunistic acquisitions and accretive leasing as we build a pipeline a future deals.
We see tremendous opportunity in our stock at the current price and we believe there's enormous value relative to our portfolio of high quality tenants with longterm leases, where we've continued to collect almost all of the cash rent do throughout a pandemic and increase a F F O by 15% per.
Sure sure quarter over quarter I continue to be proud of our accomplishments this quarter and since inception, I look forward to closing out twenty-twenty as strong as we started it and discussing the value we see in a fan with many of you. It NAREIT in a few weeks operator. Please open the line for questions.
We will now begin the question and answer session to ask a question you may present star than one on your telephone keypad. If you were using a speaker phone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too at this time, we will pause momentarily too.
Assemble our roster.
Our first question comes from Brian Mayor with B Riley Securities. Please go ahead.
Your morning, Mike on Katie and thanks for all that information.
A couple of questions for me when we think about the ashes that you're acquiring can you drill down a little bit more granularly on on what specifically types of.
Service retail assets or brands or Qasr's, you've been gravitating to and who who are the sellers and are there expectations. Changing here is we kind of you know get towards the end of 2020.
Hey, Brian Good morning, and thanks as always for your question.
I'm gonna be a little bit vague, just because I I think we are in an area that not a lot of our peers are in so.
We continue to focus on single tenant net lease we continue to focus on what we think of as a necessity retail or the type of businesses that require.
The customer to go to the brick and mortar location.
As you've seen in some previous quarters, we've we've branched out a little bit into automotive supply and repair, which I think in tough economic.
Markets continue to be a very safe place to invest money is people need to maintain their cars and maybe not be so quick to trade demand and buy again.
So that continues to be an.
An interesting opportunity for us.
One of the things that we've continued to avoid that I do think is worth bringing up as we look at the portfolio.
In our top 20 tenants, we we don't have any fitness, we don't have any furniture and we don't have any theaters and that will continue to be a theme that we follow that has not been a change that's something that we've always felt was a little bit of a risky area too.
To acquire in Qasr's continue to be very interesting to us and the the way I would describe the sellers qasr's [noise] the.
The sellers.
Tend to be operators, obviously, and they're structuring the deals that we do as sale leasebacks, they're using the proceeds because the strong operators see this opportunity or this time as an opportunity to grow their businesses.
By acquiring smaller maybe not as well capitalized operators of similar Qasr's. So I think we're going to see the number a franchise operators probably decline.
As there will be a.
An accumulation of larger operators, and that's where we see great opportunity.
Great and if memory serves me I I think this time last year around this time.
You had an uptick I think it's some of your multi tenant properties occupancies by doing seasonal rentals, maybe a holiday typo.
Hopkins for something that might've been Bacon are you seeing that opportunity again this year for the fourth quarter.
Not like we did last year, Brian beef and it would have been primarily a Q3 event. We we do have some short term opportunities with holiday and Halloween, but again due to covid there was much less of it.
So these third quarter results, which I have to say I'm I'm really.
Proud of these are not based on short term.
Rentals like we experienced in years prior I would have thought of that is icing on the cake, but this cake is fully baked with longterm leases.
[laughter], that's a good way of putting it [laughter] lack classroom me.
You know you guys have held up really well with Covid and I liked your comment about no bankruptcy tenants in the portfolios, but is there anything in the portfolio that is keeping you up at night or at least in the office a little bit later that you do have a concern about and that's all for me.
Okay. Thank you, Brian So we have gotten.
On a more regular credit review basis, we were already on what I would consider to be inappropriate credit review.
We.
Do not anticipate any material bankruptcies based on the information that is in the market to day on our tenants in the portfolio I feel cautiously very good about the overall strength of the portfolio.
We always talk about and and sometimes it feels like we say it too often but now I don't believe we can say it enough. You know we have such high exposure to investment grade or implied investment grade tenants, 80% of the top 10 tenants are investment grade.
And they're performing.
And I.
The longer this pandemic continues the cautiously more optimistic I get that with the development of a vaccine.
You know the the economy is going to.
Stay in this in this range for a little while and then I think as we enter into 2021 eye.
I think there's reason to believe that we're gonna start hearing positive economic news that will continue to benefit this portfolio. So again I I.
Hate to be one to Pat ourselves on the back, but I'm I'm really proud of the team the hard work and dedication to get the rent collection, where it was overall Q3, as we said 92% of the cash rent collected October.
Trended above that at 94% and then we're seeing the single tenant net lease at 70% of the straight line rent.
So again, just incredible stability in the portfolio and the the performance is speaking for itself now.
Alright, thank you.
Thanks, Brian.
Again, if you have a question. Please press Star then won the next question is from frankly would be M. O. Please go ahead.
Hi, good morning, everyone.
121000 square feet at least it under L. I Uhm, how did the rents in these terms compared to similar leases never signed prior to the pandemic.
Hi, Frank good morning, so.
So these are market leases and we did not see significant economics or changes to the economics over historical leasing for these types of tenants both the national and the local tenant so 10 year term on.
On average is is what we're seeing good retailers and we will of course be disclosing more information as we execute on these leases, but as as I said in my comments.
You know not only am I excited about this but I believe that the fourth quarter, we will have even more positive news on absorption.
That will just continue to.
Stabilize the multi tenant portfolio get it to where we all think it should be.
And you know, let it be Ah Ah Ah growth point in the overall Ethan portfolio.
On an earnings basis.
Okay great.
And then just on it took me on the disposition side Uhm. It looks like there are no sales and a quarter what are your current thoughts on acid recycling plant and further.
For their potentially reducing uhm some more tourists exposure.
You know I I think that we have always been an opportunistic seller.
We don't have any guidance out on.
Future dispositions I I think of ourselves as a net acquire a real estate.
But you know there's always opportunity I don't think these have been the quarters Q2, Q3, maybe even into 2021, where sellers are are going to to maybe maximize prices where they would have pre.
<unk> pandemic, so I'm I'm in no rush again, you know this portfolio is very stable performing very well.
And as I said Opportunistically, we will look at a disposition here or there, but nothing that'll change us from a net acquirer.
That'd be great. Thank you that's all I have.
Alright, Thanks Frank.
This concludes our question and answer session I would like to turn the conference back over to Mike while for any closing remarks.
Well again I just wanted to thank everybody for taking some time to listen to our third quarter results.
Katie and I and the team look forward to hopefully catching up with you at NAREIT and as we enter into the end of the year and the holiday season, I hope everybody <unk>.
Stays healthy and enjoy some time with your family. So thanks, Thanks again, everyone.
The carpets excuse me the conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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