Q1 2021 American Finance Trust Inc Earnings Call
Good day, and welcome to American Finance Trust fourth quarter and year end 2020 earnings call. All participants will be in a listen only mode should you need assistance. Please signal of a conference specialist by pressing Star then zero. After today's presentation, there will be an opportunity to ask questions to ask the question you made.
Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would like now to turn the conference over to Luis of quartile. Please go ahead.
Thank you operator, good morning, everyone and thank you for joining US this call is being webcast in the Investor Relations section of Athens website at Www Dot American Finance Trust Dot Com joining me today on the call to discuss the results are Michael Weil, Chief Executive Officer, and Katie Kurtz Chief Financial Officer.
The following 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.
For all of you to our SEC filings, including the annual report on form 10-K for the year ended December 31, 2020 filed on February 20, <unk> 'twenty 'twenty, one and all of their filings with the SEC. After that date for a more detailed discussion of the risk factors that could cause. These differences any forward looking statements provided during this conference call.
Are only made as of the date of this call as stated in our SEC filings Ethan disclaims any intent or obligation to update or revise these forward looking statements except as required by law.
We'll discuss implied investment grade tenants. Please refer to our earnings release for more information about what we consider to be implied investment grade tenants.
Also during today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating the company's financial performance. These measures should not be considered in isolation or the substitute for our 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.
I'll now turn the call over to our CEO of my while Mike.
Thanks, Luisa and good morning, and thank you all for joining US today yesterday, we reported strong fourth quarter and full year results that reflects significant momentum in the acquisitions leasing capital markets activity and proactive asset management that we've carried into the new year. Despite the challenges.
Sent it by the pandemic, we were able to deliver on the objectives. We identified last February before COVID-19.
We successfully grew our portfolio increase per share a F. F O increased dividend coverage and completed several transactions that resulted in significant long term improvements to our capital structure.
Our adviser has strengthened our management team to add significant shopping center leasing experience.
Okay.
Good morning. This is the operator, we're speaking of probably maybe the person last name.
Good morning.
Good morning. This is the operating out of your first one lost ground.
You are now rejoining the main conference quarters of rent collection growth of metric that we believe has become an important barometer of our success rent.
Rent collection increased from 87 per cent in the second quarter to 93 per cent in the third quarter and finally to 96 per cent in the fourth quarter.
To be clear all rent collection percentages are calculated based on the original rent we would have expected to receive before Covid started.
It's not adjusted for negotiated deferrals or other amendments are high collection rate also reflects the exploration of rent deferral agreements, where tenants have resumed paying full rent.
Our rent collection success is due to the way we've constructed our portfolio, we target necessity retail properties subject to long term leases within investment grade or implied investment grade tenants. We continue to acquire properties that met this high standard throughout 'twenty 'twenty ultimately completing in agri.
Again $218 million of acquisitions.
Over 75 per cent of our 'twenty 'twenty acquisitions or at least of necessity retail tenants based on contract purchase price. We acquired 107 properties at a weighted average cash cap rate of seven 9% of weighted average cap rate of eight 6% and with a weighted average 14.3.
The years of remaining lease term at closing.
Looking ahead, we have of growing forward acquisition pipeline for the new year as of February 15th we have $38 $6 million of forward acquisitions under contract at a weighted average cash cap rate of seven 3% and a weighted average cap rate of eight 8%.
The we prefer corporate guarantors on our leases, we thoroughly underwrite franchisees as well, which has allowed us to avoid any impact from the bankruptcy of N. P. C International of large franchisee of Pizza hut and Wendy's that is of tenant at properties held in the number of other REIT portfolios we do.
Not own any properties leased to N P C International.
At year end, our $4 billion portfolio was comprised of 920 properties with portfolio occupancy of 93, 9% and a weighted average remaining lease term of eight eight years annually.
Annualized straight line rent increased 4.9% year over year to $280 million from $267 million because of our acquisitions and leasing efforts.
Year over year, the portfolio grew 4.3 per cent to $19 3 million square feet.
70% of our top 20 tenants have investment grade or implied investment grade credit.
Based on straight line rent 78 per cent of leases across the portfolio include contractual rent increases averaging 1.3 per cent per year.
Our portfolio has two distinct but complementary components.
887 single tenant properties and 33 multi tenant power centers.
Occupancy in the single tenant portfolio was 99.4% at year end with 10.5 years of weighted average remaining lease term.
The composition of our single tenant portfolio based on straight line rent is 60 per cent service retail 12 per cent traditional retail, 15% distribution and 13% office, which is primarily one property, which serves as the U S headquarters for Santa Fe.
62 per cent of the straight line rent in this portfolio comes from investment grade or implied investment grade tenants since.
Since 2017, all of our acquisition activity has been in the single tenant portfolio.
Year over year single tenant assets have increased to 70 per cent from 67 per cent of our overall portfolio based on straight line rent.
Although the single tenant portfolio is primarily comprised of net leases, where the landlord has no or very few maintenance or other responsibilities and is primarily leased to investment grade or implied investment grade tenants that doesn't mean, there's no management required for a successful operation.
A great example of this is a portfolio of properties previously leased to the gas and convenience store operator White oak in early 2020, we identified issues at 19 properties leased to this tenant we proactively reached out through our network to of known operator Imperial reliance as a.
Central replacement tenant and commenced aggressive negotiations and legal action against White Oak in September we negotiated with the former tenant to pay the past due rent and surrender all 19 properties back the Ethan.
Imperial Imperial reliance immediately took over operation at 18 of the 19 properties and the remaining property was leased the hips are trading.
After a short period of free rent the two new operators began making 100 per cent rental payments on their new 20 year leases, which included annual rent Escalations and feature of approximately $1 million more in straight line rent than the prior leases.
These properties are open and operating under BP Conoco, and Phillips 66 banners.
Because of our aggressive negotiations proactive management and extensive network, we were able to turn the situation into a long term positive with stronger tenants and longer lease durations.
Our multi tenant portfolio was 84, 7% occupied at year end with 4.7 years of weighted average remaining lease term.
Executed occupancy combined with our leasing pipeline is 88, 2%, which includes six new leases for nearly 215000 square feet, where we have executed letters of intent from new tenants and who we expect to take possession of their space in 'twenty and 'twenty one.
These pipeline leases are expected to add $1.6 million of new annual rent.
One of the leases in the pipeline is for a new 20 year anchor tenant at the Centrum that will add 109000 square feet of occupancy and $652000 of annual base rent.
This level of executed occupancy combined with the leasing pipeline is comparable to the first quarter of 2020 before any significant impact from Covid. We're also in late stage negotiations with a fortune 100 tenant for 37000 square feet at another one of our properties further illustrating our continued.
<unk> performance and proactive leasing efforts.
In light of the challenges posed during 'twenty 'twenty I'm pleased with how we have continued to sign new and extended the leases with our tenants such as the four new long term leases, we signed in the fourth quarter debt will add nearly $520000 of annual rent once commenced.
It's especially rewarding when leases the result from the relationships, we built through the proactive management of our portfolio.
A great example of this is one of our pipeline of leases that recently commenced with Dick's Sporting goods based on our strong relationship. They signed the lease in January at Centennial Plaza for 50000 square feet and opened a new concept store.
For us to lease up 50000 square feet of retail space, especially now illustrates our aggressive approach to portfolio management.
The fact that Dicks selected one of our properties for this concept store speaks to the depth of our relationship and the quality of the center, where it's located.
Yeah.
Our adviser strengthen their team recently with the addition of Stephanie Drews and Don Foster who are focused on building relationships with the tenants of our multi tenant portfolio driving leasing initiatives and proactively delivering key portfolio enhancements combined they bring over 50 years of experience to our team having previous.
The managed 19 lifestyle shopping centers and mixed use projects along with retail asset management experience.
We believe the focus of these two will bring to this segment will be accretive the afib as they step into these roles at an opportune time.
Year over year, we're proud to report increases to revenue NOI and adjusted EBITDA revenue grew 1.8 per cent to $305 million for the full year 'twenty 'twenty and annual adjusted EBITDA increased two 2% to $205 million.
NOI for 2020 increased to $253 million from $247 million in 2019.
For the fourth quarter a F. F. O was 24 cents per share equal to the 24 cents per share we reported in the fourth quarter of 2019 and up four three per cent from 23 cents per share in the third quarter of 2020.
The quarter over quarter increase in per share a F. F. O was driven by an increase in rent collection in the multi tenant portfolio, where the tenants continued to see operating improvements throughout the year and less interest paid is supported by the refinancings we completed.
One of the accomplishments I'm most proud of in 'twenty 'twenty has been our uninterrupted ability to continue to manage large complex and accretive projects that significantly improved our balance sheet and will provide runway for our 2021 plans.
We began working several quarters ahead of significant loan maturities to evaluate multiple options for replacing and improving on the terms of the existing loans.
Only as a result of our early efforts were we able to execute refinancings that lowered our weighted average interest rate to three 8% from four 3% year over year, despite challenges related to COVID-19.
First and most significantly early in the third quarter, we completed the $715 million C. M. B S refinancing.
This loan primarily replaced an existing loans that only had two months of term remaining before its maturity and extended Athens overall weighted average debt maturity from three five years to five one years at the time of the completion.
This loan is interest only at 3.79% and essentially bottom tick the market last year for loans of this size and structure of.
Alone of this size requires a daunting amount of diligence as its secured by 368 single tenant properties coordinating site visits inspections and all of the other important diligent steps in the depths of the pandemic was excuse me in the depths of the pandemic was remarkable.
We extended our refinancing success in the third quarter, when we completed a $125 million refinancing of three buildings in new Jersey that serve as the U S headquarters for sanity the.
The exist the existing debt on this property was maturing in four months and we were able to secure a new five year financing fixed by a swap at an interest rate of 3.26%, which is 190 basis points lower than the debt it replaced.
Combined the lower effective interest rates on these two transactions supported of $1 million decrease in fourth quarter interest expense compared to the prior quarter and extended our weighted average debt maturity, which is currently at 4.8 years compared to three eight years at year end of 2019.
Finally in the fourth quarter, we successfully closed on our seven and three eighths percent series C cumulative perpetual preferred stock offering.
We raised over $88 million in gross proceeds through the offering including the proceeds from the over allotment option.
The series C shares priced at a lower effective dividend rate than our prior series a offering the net proceeds from the offering will help us capitalize on high quality necessity based acquisition opportunities, we see in the marketplace as reflected in our forward acquisitions pipeline.
We're pleased with the overall positioning the portfolio and believes that long duration leases and high quality tenants will drive shareholder value and per share a F. O increases as we continue to grow the portfolio, we believe that ace and remains a compelling investment opportunity, where the evaluation significantly below peers.
While offering a portfolio that has a high concentration of actual or implied investment grade tenants and a weighted average lease term of eight eight years.
Before I turn it over to Katie I would like to address the 8-K, we filed earlier this week as you've seen kt will be stepping down as CFO of a fan of.
The resignation is not related to any disagreements or disputes with management of the company I'd like to thank Katy for her hard work over the years and wish her well in her future endeavors.
We simultaneously announced the appointment of Jason Doyle as Athens, New CFO effective upon katie's departure.
Jason previously served as Chief Accounting officer of global net lease of $4 billion of publicly traded net lease REIT and affiliate of they are global Jason has been with our global since 2018, and we're extremely excited to bring him on board as Athens, New CFO, our deep bench of Premier talent at a are global.
As a testament to the successful transition and we're eager to have Jason joined the <unk> team.
With that I'll ask Katy to walk us through the financial results in more detail.
Thanks, Mike and thank you for the Pine was one of the year ended December 31, 2020, we reported total revenue of $305.2 million.
One, 8% increase compared to $299 $7 million in the prior year.
The fourth quarter revenue was $77 2 million, a 1.3 per cent increase from $76 $2 million in the fourth quarter 2019.
The company's 2020, GAAP net loss was $46 $7 million versus the net loss of $3 one nine of them in 2019.
And full year 2020, NOI was 252.9 billion.
The $2 four per cent increase over the 247 million, we recorded four of 2019.
Full year uplift the.
With $97 million or 90 cents per share compared to $98 $6 million of 93 Krishna in 2019.
For the fourth quarter of 'twenty 'twenty are all true.
Her beautiful the common stockholders was $25 $5 million or 23 cents per share.
Oh yeah.
With $98 million or 90 cents per share compared to $104 $9 million of 99 cents per share net in 2019.
Fourth quarter of anthracite was $26 $1 million or 24 cents per share compared to fourth quarter of 2019 out of $25 $2 million or 24 cents per share as always a reconciliation of GAAP net income to non-GAAP measures can be found in our earnings release.
We ended the fourth quarter with net debt of one $7 billion kind of weighted average interest rate of 3.8 per se the.
The components of a netback of include $289 million drawn on our credit facility 1.5 billion about any mortgage debt and cash and cash equivalents of 100 of between $9 million.
Liquidity, which is neither of the undrawn availability under our credit facility plus cash and cash equivalents stood at two of them $28 $9 million on December 31st 2020.
The company's net debt to gross asset value of our total lack of classic accumulated depreciation and amortization was 40 points of the personnel on the net debt to annualized adjusted EBITDA was $8. One times at December 31, 'twenty 'twenty compared to 39, 2% of seven seven times, respectively at the end of 'twenty.
19 with that I'll turn the call back to Mike for some closing remarks.
Thanks Katie.
We had a very productive year in 2020, and we look forward to continuing to execute on our strategy in 'twenty 'twenty, one and beyond we of deliberate on the plans we laid out previously such as growing our portfolio and increasing dividend coverage and successfully navigated a challenging year, we continue to grow and optimize our <unk>.
<unk> constructed portfolio of single tenant and multi tenant assets focused on necessity retail properties.
Our strong portfolio includes quick service restaurants, many with drive through lanes that had been an increasingly important and COVID-19 friendly venue for food distribution underscoring the durability of our necessity based strategy.
We completed several significant refinancing transactions the derisked, our balance sheet and meaningfully impacted our weighted average remaining debt term.
The lower effective interest rate on these refinancings supported of $1 million decrease in fourth quarter interest expense compared to the prior quarter.
Going forward, we'll continue to maintain our steady and deliberate approach to growing our portfolio through high quality accretive acquisitions.
We will seek to sustain high occupancy levels at our properties execute long term leases with predominantly investment grade and implied investment grade tenants and maintain our current embedded contractual rent growth.
We continue to see attractive opportunities in both retail real estate and the capital and financing markets and we will actively pursue these types of accretive transactions in the near future when we identify them.
We're encouraged by the news of continued vaccine development and rollout, which will only benefit the performance of this portfolio as we all look forward to a return to normal.
I sincerely hope we all have good news on this front by the next time, we speak but I'm confident that Athens portfolio will continue to perform well, while the COVID-19 crisis abates.
Operator, please open the line for questions.
We will now begin the question and answer session to ask the question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up of your handset before pressing the keys. If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Frank Lee with BMO. Please go ahead.
Hey, good morning, everyone, Mike you might American in your remarks.
And Mike you mentioned in your remarks, the two new dedicated multi tenant asset managers and all the focus on driving these initiatives and key portfolio enhancement.
Can you talk about some of the initiatives initiatives that are underway any changes on how youre going to the approached leasing in order to help drive occupancy.
Yeah, I think first of all thanks for joining us today, Frank Dawn and Stephanie come with years of experience in the industry everything from lifestyle centers to power centers et cetera.
And most importantly is they have direct relationships with the national retailers from their years in the industry and we will be able to you know we've always worked with them in and of Great example of that is the the new lease that we executed with dicks sporting good on their new concept Stephanie was.
Integral in bringing that deal to conclusion, so quickly getting them in place and open.
And frankly, our experience has always been people like doing business with people that they know.
And being able to to be direct with the landlord the owner.
Is is important so we're not taking a slash the price approach by any means we are certainly I'm holding to market deals.
But we're able to respond very quickly.
Oh, we're able to.
Provide what is required both from the real estate and also from the legal perspective.
And it's just a continuation of what was already in place, but obviously I see great opportunity in the multi tenant portfolio and you know some of the some of the results even in just the fourth quarter I think are worth.
Talking about again.
The execution of the of the four new leases mm that'll generate $520000 of of annual rent.
And I want to highlight the six new leases the 215000 square feet.
Or in the pipeline, they're executed letters of intent. So that's not you know early conversations or indications that we execute at the letter of intent in the quarter, where we're moving to lease.
And you know that's a very very high probability of of completion.
And represents about $1.6 million of annual rent you've heard me talk in prior calls about the upside potential of the multi tenant portfolio and why we think the power centers are are certainly a part of our of necessity retail focus.
They're key to the communities, where they're located and adding $2 $1 million roughly.
Of annual rent once these leases commence.
Valuable and will pay up you know it'll be a earnings driver, so dawn and Stephanie.
You are welcome additions to the team where we're very excited about it and I think this will be the first of many quarters, where we have positive.
News to report.
Okay I appreciate the color.
And then my second question is on the acquisition side, how does the pipeline look beyond the assets you have under contract and then.
Should we think about the acquisition mix this year any changes to sectors or industries that you'll be focused on versus recent quarters. Thanks.
Thank you again, Frank first of all of I think the sectors that we've been focusing for the last couple of years have really proven.
To be valuable as we prepared for today's call.
It was very exciting to see that even through 2020, you know with the the devastating impact of the pandemic of our financial results are.
Pretty much back to where they were pre COVID-19.
Which is tremendous now it's very valuable.
So we've intentionally built this portfolio again, I'm I really like the necessity retail focus we want it to be resistant to changes in the economy, which are always something that have to be considered we we really focused on credit of the 10.
As well as their what their businesses, where we focused on retailers with omni channel presence and they did a great job in E Commerce and also in their brick and mortar.
The retail locations and and that has continued to pay off we we've all seen the benefit of the.
The drive thru aspect and I and I would like to just point out again, I you know them.
Very proud of the team and how we handled this white oak situation, it's probably a named many of you are familiar with because they're spread throughout the the net lease REIT sector.
We identified very early on.
That they were having problems I don't know I don't care to go into the details of what those problems, where or why but but leave it to say that.
We had concerns they presented us an option.
Where they actually expected us to invest more money in them.
And to me you know, we always have to be very prudent and cautious we don't want to put good money after them in the problems. So.
So we took a much different approach and we took a very aggressive approach and I think that comes down to.
Being an active asset manager of the platform a global we have terrific in house counsel.
And we were able to not only recover.
The past due rent the white oak owed us we.
We didn't give them more money as they went to them.
All of their landlords and ask for and we took back control of the properties and they're already re leased two of great. Operator, primarily you know 18 of the 19 went to imperial.
And again I just think the the the.
The value of such you know even with 920 properties. You know we have to know the mall and we do and again or single tenant team is very strong or multi tenant team I'm equally as strong our relationships with the tenants very valuable.
And I think it's got us in a great place at the end of the year and something that I look forward to for years to come.
Okay. Thanks, Mike that's all I had thank you.
Thank you Frank.
Again, if you have a question. Please press star then one to be joined into the queue. Our next.
<unk> comes from Bryan Meher with B Riley Securities. Please go ahead.
Hi, Michael I'm Katy good morning.
Brian all the way on that line of questioning a little bit, but kind of drilling down on the segments of a little bit more is there anything that you're seeing out there relative to what you're used to let's say <unk> dialysis. These doors that you've kind of skewing towards in your acquisitions for 2021.
I think that you will see that we continue Qs sars or are continuing to be.
Very valuable assets in the portfolio.
As as you've come to know we have a kind of a.
Early position with the dialysis operators.
Again, because of the necessity nature of the real estate.
We continue to see great opportunities in the.
As as I've come to call. It DIY the do it yourself car repair the advanced autos, the O'reilly is et cetera.
You know these are these continued to be the types of businesses that even through Covid and you know I do want to make a point that you know I I.
I do finally feel that you know we do have we are at that light at the end of the tunnel kind of moment with Covid and I don't mean that it's going to be gone tomorrow, but the vaccine announcements continue to be very very positive.
You know many of the economists that I follow are talking about of Oh, the plus six.
Type of a scenario, meaning six months after the rollout of the vaccines and and I really think of that as kind of December January timeframe. So I'm thinking you know mid year 2021, which is you know not that far away. We may still wear masks and we still may be cautious.
With some of the activities that we do them, but as far as getting back to what feels like more normal routine I think that's in in the not too far out future I think youre going to continue to see.
The the home repair centers I'm doing well.
So I.
I would say that we will continue.
In the direction that that we've gone from 2019 and 2020.
We will you know we're always looking at new opportunities, we're always working very hard.
With some of the legacy developers that we work with.
Too to see where what direction, they're going in and.
And then of course, you know there are some great names out there, but we're going to continue to avoid them one that's in the news constantly.
You know us as a company like Chick Fil a REIT, we we all love I shouldn't say, we all but many of US love their food, but the the prices that they're trading I'm just arent logical to me I don't see them, having long term benefit to our portfolio and our shareholders. So we will continue.
To have that disciplined view and we'll continue to find opportunities like we've had in the past couple of years.
Great and then with what we've seen but more of an adoption of the E banking over COVID-19.
Do you have any updated thoughts on your true as branches do you look to get rid of more do you think you sit tight on those can you give us an update on that.
Yeah.
I, we haven't made any announcements regarding changes to the the truest portfolio.
You know as we've talked in prior quarters I think we have it at a very.
Appropriate level there there are about 6% on straight line rent, they're an investment grade credit.
The the stores continue to be open and operating.
And you know and as.
We sit today, we're very comfortable with the remaining lease term on on these portfolio on this portfolio.
So it's something Brian that you know, we'll we'll continue to evaluate I think it's always great. When your NOI can consist of 6% of an investment grade tenant debt that continues to operate and you know these branches do have drive throughs.
They're extremely well located in the kind of the mid Atlantic and southern markets.
So plenty of.
Opportunity there and it is certainly an asset.
Debt, if we chose to I believe we could take to market.
But as I said, having trimmed it all the way down to 6% from where it was.
I think right now it it's just of a great tenant to have in the portfolio and we're very happy.
Great. Thank you that's all for me alright.
Alright, Thanks, Brian.
Okay.
This concludes our question and answer session I would like to turn the conference back over to Mike Weil for any closing remarks.
Well, thank you operator.
Thank you everyone for joining us today, Katie and I are very pleased.
With the results for 2020 of the company has has done.
A very active in and valuable job in protecting the portfolio and in the NOI.
And we're looking forward to a very successful 2021 it.
It will be without Katie's leadership, and I just wanted to take a minute again and thank her for all of that she has done.
And we're very excited to have Jason Doyle as part of the team going forward and any questions on that we're happy to discuss so please.
Stay safe.
We look forward to talking to you with our first end of first quarter results and again, thanks for joining us today.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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