Q2 2021 American Finance Trust Inc Earnings Call
Good morning, and welcome to the American Finance Trust second quarter 2021 earnings call.
At this time all participants are in a listen only mode. The question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero from your telephone keypad.
I would now like to turn the conference over to the Louisa Quarto Executive Vice President. Please go ahead. Thank you operator, good morning, everyone and thank you for joining US this call is being webcast and the Investor Relations section of Athens website at Www Dot American Finance Trust Dotcom joined.
Joining me today on the call to discuss the results are Michael Weil, Chief Executive Officer, and Jason Doyle Chief Financial Officer.
The following information contains forward looking statements, which are subject to risks and uncertainties should 1 or more of these risks or uncertainties materialize actual results may differ materially from those expressed or implied by the forward looking statements.
And 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 21st 2021 and all other 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 and disclaims any intent or obligation to update or revise these forward looking statements except as required by law.
Also during today's call and we'll discuss non-GAAP financial measures, which we believe can be useful in evaluating the company's financial and 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 and that's directly comparable GAAP measure is available and our earnings release.
Please also refer to our earnings release for more information about what we consider to be implied investment grade tenants of term we will use throughout today's call.
And I will turn the call over to Mike, while our CEO Mike.
Thanks, Luisa and good morning, and thank you all for joining us today are.
Our second quarter results highlight the strength of predictability and performance of our best in class necessity based portfolio, especially our single tenant assets that are net leased to predominantly investment grade and implied investment grade tenants.
We continue to Derisk, our balance sheet using all the tools at our disposal such as the asset backed securities we issued during the quarter and the commencement of an initiative to reduce net debt to adjusted EBITDA. We believe these efforts will result in an investment grade rating over time.
And we meaningfully lowered net debt to adjusted EBITDA to 7.4 times from 8.3 times during the last quarter after paying down maturing mortgages and growing adjusted EBITDA the.
The growth and adjusted EBITDA was driven in part by robust leasing and the multi tenant portfolio combined with our focus on controlling costs the lower G&A.
And the factors also contributed to our per share <unk> increase of 30% to 26 cents for the second quarter up from 20 last year.
Cash NOI grew 19, 5% to $65.4 million from $54.7 million and the second quarter 2020, and the same store NOI increased $2.3 million to $64.5 million over the same period driven in part by substantial leasing momentum in the multi.
Tenant segment of our portfolio.
At quarter and total portfolio occupancy was 94, 9% up a point from 93, 9% at the end of last year, and our $4.1 billion portfolio has grown by 92 properties and 1 million square feet. Since the end of the second quarter of 2020.
Annualized straight line rent has increased $14 million to $286 million.
We've accomplished this performance and an environment that is showing increased competitive activity yet we remain disciplined underwriters.
As reflected in our high quality portfolio, where a majority of our leases are with investment grade rated or implied investment grade rated tenants and the fact that we have avoided any material bankruptcies and our portfolio.
As of June 32021, among our single tenant assets, 61% of straight line rent comes from the investment grade and implied investment grade tenants, including 70% of our top 20 tenants portfolio wide.
I'd like to take a moment and focus on the lease expiration schedule for our portfolio.
Based on annualized straight line rent as of June 30th our full year exposure to expiring leases is only 2% and each of our multi tenant and single tenant portfolios. Please refer to our filed 10-Q for further information on events. Following this reporting period.
Our long duration leases and staggered lease explorations and provide us with ample opportunity to extend near term leases.
Near term maturity monitoring and early engagement with current or potential replacement tenants as.
The long been a part of our asset management strategy and.
In some cases, starting 2 years before of leases set to renew allow us sufficient time to navigate a positive outcome for all parties.
No single property and our 939 property portfolio that has less than 2 years of remaining lease term represents more than 2% of our annualized straight line rent, providing further diversification to complement our staggered lease explorations.
Our 2 largest tenants.
Truest and Santa Fe have weighted average remaining lease terms of 8.1 years and 11.5 years respectively.
Our portfolio's diversification is supported by our acquisition efforts, which are focused on retail assets that have long remaining lease terms and contractual rent increases.
We closed on 17 and such assets during the second quarter, which combined with first quarter acquisitions and our forward pipeline totaled 63 potential property acquisitions, and 2021 for $196.7 million at a weighted average cap rate of 8.4% and.
The 11.3 years of weighted average remaining lease term.
We take a disciplined and opportunistic approach to acquisitions and have targeted acquisitions that we believe provide superior risk adjusted returns.
Since 2017, we have acquired over 500 properties with a weighted average remaining lease term and acquisition of 16 years and a weighted average cap rate of 8.1%.
77 per cent of the properties, we've acquired have been service retail properties.
Retail comprised of 71% of the $12.6 million square foot single tenant portfolio based on straight line rent with the balance consisting of 16% distribution and 13% office properties.
Of the retail portion, 83% are service retail properties that we believe to be necessity based in nature and more resistant to e-commerce.
As of June 30th occupancy across the single tenant portfolio is over 99% with a weighted average remaining lease term of 10, 1 years and 1.3% average annual rent escalators.
Our 33 property 7.2 million square foot multi tenant portfolio has executed occupancy of 88% as of June 30 of 2021 and increased from 86, 2% of year ago.
The well positioned centers and our multi tenant portfolio are desirable real estate and good communities, where people want to shop, our team's hard work and the quality of our real estate resulted in an uptake uptick in leasing demand from new and existing tenants and delivered strong results and the second quarter.
We've executed 10, new leases that are expected to add $1.4 million of new annualized straight line rent over time as rent commences.
We're also building a robust leasing pipeline that is.
Definitive agreements are executed will result, and an additional $1.2 million of new annualized straight line rent and at 72000 square feet and would increase net occupancy and this portfolio to 89, 1%.
Don and foster and Stephanie Drews had been leading our leasing initiative and the multi tenant portfolio.
Since they joined our team and the fourth quarter of last year occupancy and the multi tenant portfolio has seen the net increase of 139000 feet of leased space.
Our current executed and pipeline leases would if fully executed double this growth and increase the total occupancy in this portfolio by 4.4% since they joined the team.
Not only have we signed quality tenants such as 210 year Burlington coat factory leases. We've also renewed over 600000 square feet of leases and 2021 totaling over $7.7 million and annual rent.
And I'm very pleased with the direction. This portfolio has had it and the contribution it has made to our performance this quarter.
Moving to our balance sheet, we have minimal near term debt maturities and our capital stack and we reduced our net debt to EBITDA to 7.4 times this quarter from 8.3 times last quarter.
90% of our debt matures in 2025, or later and our weighted average debt maturity has increased by 2 full years to 5.3 years from 3.3 years and the same quarter of 2020 and.
At the same time, the weighted average interest rate of our debt has decreased by 10 basis points to 3.7%.
91, 4% of our debt is fixed rate locking in rates in an environment of historically low interest rates.
We constantly monitor our balance sheet and the markets for opportunities to improve and enhance our capital structure.
We executed on 1 such opportunity in the second quarter we.
We completed the issuance of $240 million in principal amount of investment grade rated ABS notes with a weighted average interest rate of 2.9% and a weighted average debt maturity of $8.9 years the.
Note proceeds were used to repay $75 million of near term maturing mortgage debt that had a 5.5% interest rate and also pay down $80 million on our credit facility the.
The remainder was used to fund subsequent debt Paydowns, which freed up cash on hand to fund the third quarter acquisitions.
The notes along with the notes we previously issued under the same master indenture are secured by a diversified pool of 357, net least necessity based single tenant properties.
The issuance demonstrates our ability to actively manage debt maturities and take advantage of the historically low interest rate environment.
Okay.
Finally last quarter, we collected 100% of the original cash rent payable for the second quarter and a row consistent with prior quarters. All rent collection percentages are calculated using the original rent we would have expected to recede before Covid started has the denominator. The numerator includes cash rent and deferred rent payment.
<unk> received during the quarter.
Excluding the impact of deferred rent payments, we collected 99% of the original cash rent due and the total portfolio during the second quarter.
<unk> had an excellent quarter and all measures from strong leasing and the multi tenant portfolio and growth and per share <unk> to the low cost ABS issuance and decreasing net debt to adjusted EBITDA by almost 1 full turn and we delivered results that meaningfully improve Athens balance sheet and credit profile.
I'll turn it over to Jason to take us through the numbers in greater detail Jason.
Thanks, Mike.
Second quarter 2021 revenue was $81.6 million up from $79.2 million and the first quarter of 'twenty, 1 and an 8.9% increase from the $74.9 million and the second quarter of 2020.
The company's second quarter GAAP net loss attributable to common stockholders was 7.4 million and that's compared to net losses of $9.4 million and the first quarter of 'twenty, 1 and 'twenty, 1.8 and the second quarter of 2020.
NOI was $68.2 million of 2 and a half million dollar increase from the $65.7 million, we recorded for the last quarter and the 9.
3% increase over the 62.4 million of NOI, we reported and the second quarter of 2020.
For the second quarter of 21 of <unk> attributable to common stockholders was $25.1 million or 23 per share compared to 21 per share for the same period in 2020 and.
And 9.5% increase.
Second quarter, <unk> increased 35% to $28.7 million or 26 cents per share compared to <unk> 20 per share and the second quarter 2020.
As always a reconciliation of GAAP net income the non-GAAP measures can be found in our earnings release supplement and form 10-Q.
Building on Mike's balance sheet comments, we ended the second quarter with net debt of $1.7 billion at a weighted average interest rate of 3.7% and net debt to the gross asset value from 38, 4%.
The components of our net debt include $155.7 million drawn on our credit facility.
$1.7 billion of outstanding secured debt and cash and cash equivalents of about $137.1 million.
The amount drawn under our credit facility represents the majority of our floating rate debt.
Liquidity, which is measured as undrawn availability under our credit facility, plus cash and cash equivalents for the $389.7 million.
On our June 30, cash balances and borrowing availability.
The company distributed $23.1 million and common dividends to shareholders and the quarter for 21 per share.
With that I'll turn the call back to Mike for some closing remarks.
Thanks, Jason.
We achieved excellent results for the second quarter of both on our financials and the high level of activity across the company. Our portfolio is among the strongest in our sector and we continue to maintain our steady and deliberate approach to growth line.
The high quality accretive acquisitions the.
The single tenant and multi tenant properties and our portfolio of complement each other and result, and what we believed to be of stronger retail portfolio than either segment on its own.
And we're focused on continuing to strengthen our balance sheet and working towards obtaining an investment grade credit rating.
We believe this will facilitate additional capital structure diversification, which may include accessing the equity and unsecured debt capital markets to further derisk the company's balance sheet I'm very excited about the direction that <unk> finished heading and look forward to answering any questions. You have operator. Please go ahead and open the line for Q&A.
Thank you.
At this time, all that'd be conducting a question and answer session.
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Thank you.
First question is from the line of Bryan Maher with B Riley. Please proceed with your questions.
Great. Thank you good morning, and congratulations on a very strong quarter numbers looked really good.
Thanks for question.
2 questions for me.
Really when it comes to the occupancy and the improvement to be expected and the multi tenant portfolio.
And you talk about getting to 89, 1% over time I'm, assuming you would expect it to go even higher over a longer period of time, but what period of time are we talking about here is that kind of year end 2021 is that you know first half of 2022, and then as far as the big picture of portfolio goes and where do.
You think we end up at the end of the year and occupancy maybe give or take 50 bps.
Yeah.
Thanks, Brian.
So first of all of the the leasing.
And it has been driving the NOI growth and the portfolio, we've really seen.
Pick up since the I would say fourth quarter of 2020.
And I really give a lot of that credit to our internal team, which is led by Jason clear and then as I mentioned and my comments, Don and Foster and Stephanie Drews, who just their continual focus and relationship and frankly knowledge has has been a great asset to the company and 1 that.
Im going to continue to expect positive results from.
And.
When we talk about occupancy in the portfolio at.
At the end of the second quarter and we include.
The the leases.
And our pipeline.
And for us to put them and our pipeline, we have a high level of confidence that that they will be executed it gets us as you mentioned to that.
Over 89% level.
Yeah.
I believe that this portfolio of multi tenant shopping centers because of the quality of the real estate the location and the communities and just the fact that.
People like to shop, they liked the physical experience of shopping and we're giving them the right kind of tenant mix in the portfolio they can and they can.
Complete numerous activities at the centers, so I'm thinking that as I've said before.
We expect to see this in the low to mid nineties from an occupancy standpoint.
And I'm, not giving guidance I'm going to just be a little bit cautious as to the exact timing of that but I think as you project out from what you've seen from December through the.
June 30 and period.
And I do believe that you will continue.
To see that occupancy growth and I do expect us by year end.
To really start getting into that goal range of of.
Mid nineties.
Okay, Great and then.
As we think about your comments on deleveraging and you've made some really good progress going from 8.3% to 7.4 but with a goal I suspect of getting the investment grade rating, where do you think you will need to be from a leverage standpoint, and given that you already bought.
Oh, and some pretty attractive rate how much further.
Further and rates go down once you hit that investment grade rating.
Yeah.
I think thats, a great point and.
It's not just about the rate because I think we've really done a great job of taking advantage of these historically low rates and.
And.
Yeah.
Securing that debt for long periods of time, taking our average debt maturity from.
About 3 and a half to 5 and a half years.
And this period, but I think it's more than just that.
Thank you.
There's an additional level of confidence.
And that we will bring to the market with a.
Net debt to EBITDA more in line with peers and this quarter was a tremendous.
The improvement for US as you said at 7.4 times.
I don't.
7.4 times as you heard adjacent and say representatives portfolio leverage of 38% so for us it too it's a real combination and I want to continue to see the NOI growth, which is going to be driven again.
By the opportunities, we have and the multi tenant portfolio.
And.
I think as we.
We start really focusing on the agencies and and investment grade rating and we're going to learn more and we're going to continue to drive that focus I would imagine it's probably in the high sixes low sevens minimum.
And but this quarter I think representing that significant change to 7.4 times, while growing <unk> to <unk> 26 cents per share.
It shows what what the opportunities are and what our focus is.
Great. Thanks, Michael.
Thanks, Brian.
As a reminder, you May press star 1 to ask the question the.
The next question is from the line of frankly with BMO. Please proceed with your question.
Hi, Frank.
Hey, Mike Good morning.
Can you walk us through how you think about balancing and deleveraging efforts versus sacrificing potential accretion from.
And from acquisitions.
And issuing equity at these levels.
Yeah.
I think the second quarter is a really good representation of of how we think about it Frank it's something that we take.
Very seriously and give a lot of thought to.
Obviously, we don't want to <unk>.
Just delever with without careful consideration.
But I think it's an important step for the company you and I've talked about it.
Hugh.
And some of your commentary and notes.
Adjusted bringing leverage down and.
And we've heard that.
Not just from you so I'm really pleased and proud of the work that we did and the second quarter.
As I said.
Answering Brian's question not only did we bring net debt to EBITDA down to 7.4 times, which is of.
Almost a full turn but.
But we did so in a quarter, where we saw <unk> growth to 26 cents. So I think where we're really focusing on the things that matter, the most and and I just have to.
Ill tell you how proud I am of the team and the work that got done this this quarter.
Acquisitions, we were very focused and selective on what we bought and at what cap rate.
The the leasing activity and the NOI growth being driven from the from the multi tenant portfolio.
The completion of the ABS securitization. So this is this was a really good quarter for us and and I'm really glad that you noticed that and we appreciate your note last night.
Okay, Great and then just the follow up on and the last question.
Is there a specific timeframe I know you said overtime.
Is there a timeframe you have in mind, where you like to get to investment grade level.
And.
Yes, yes.
My time frames are always as soon as possible.
And that's not much of a.
We're going to start the process, we have started the process by <unk>.
Knowing that we needed to address net debt to EBITDA.
We'll see what the what we learned from from the agencies.
In the third quarter.
Well, we'll see.
Hopefully, it's within the kind of the 4 quarter period, but we'll see.
Okay and then just last 1 for me you mentioned the.
2% remaining expiring and the multi tenant portfolio this year.
And what are your thoughts on getting those renewed or or how are discussions going.
I'm, sorry, I missed the beginning of your question would you repeat it.
And just the remaining 2% of explorations last on the multi tenant portfolio.
Thoughts on getting those renewed and how are discussions going.
And discussions are going very well.
We renewed about 700000 square feet of multi tenant leasing year.
Year to date.
So again, it's the the centers are very strong.
And the relationships, we have with the tenants retail is.
Back to pre pandemic levels and.
So I'm optimistic about the continued success in our renewals.
Okay, great. Thank you Mike.
Thanks Frank.
Thank you we've reached the end of the question and answer session and I'll now turn the call over to management for closing remarks.
Well. Thank you everybody for joining US again, we're very excited about the second quarter results. We appreciate your continued.
<unk> to the company and we look forward to talking to you now.
And now that earnings have been released.
Thank you. This concludes today's conference you may disconnect. Your lines at this time and thank you for your participation and have a wonderful day.