Q3 2021 American Finance Trust Inc Earnings Call
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Good morning, and welcome to the American Finance Trust third quarter 2021 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your <unk>.
Allophone keypad. Please note. This conference is being recorded I would now like to turn the conference over to Lisa <unk> Executive Vice President. 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 <unk> website at Www Dot American Finance Trust Dot Com joining me today on the call to discuss our 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 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.
We refer 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 22021, and older 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 the call as stated in our SEC filings, even disclaims any intent or obligation to update or revise these forward looking statements except as required by law.
Also during today's call, we'll discuss non-GAAP financial measures, which we believe can be useful in evaluating the company's financial performance. These measures should be 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.
In our earnings release.
Please also refer to our earnings release for more information about what we consider to be important afraid tenants a terminal use throughout today's call I'll now turn the call over to Mike well Mike.
Thank you Louisa and good morning, and thank you all for joining us today.
Third quarter was an impressive quarter for <unk> and as we continue to grow our earnings and optimize our balance sheet, while posting very strong results. We had a 34% increase in <unk> per share to 30 for the third quarter up from 23 cents last year.
Cash NOI grew 37, 9% to $75 $7 million from $54.9 million in the third quarter of 2020, and the same store NOI increased $9.3 million to $72 $9 million over the same period.
We continued to reduce leverage by further lowering our net debt to adjusted EBITDA to six eight times, an improvement of one and a half turns since the beginning of the year or.
Our improved balance sheet contributed to the success of both the oversubscribed to 500 million dollar unsecured senior corporate notes offering and the corporate credit facility Upsize recast an amendment, we completed during the quarter.
We demonstrated the power of our platform this quarter through a series of transactions related to some of our truest Bank properties, we were able to negotiate a termination fee at 12 of our truest bank branches for a one time $10.4 million lease buyout fee, which is included in our third quarter revenue and thus in our.
Rose to F O for the quarter. The leases that were bought out had an average of seven years of lease term remaining and the fee. When we negotiate it is equal to 80% of the remaining total rent across the lease periods.
Within weeks of beginning to market. The terminated bank branches six are already under contract to be sold and L. O I's had been executed for three more for a total of $8 $3 million, we expect the sale price and lease termination fees for these nine properties totaled $15 $5 million one.
More than we paid for the property seven years ago.
The remaining three properties are currently being marketed.
The termination and sales further reduce the percent of our portfolio leased to true up to five 3% and we anticipate redeploying the proceeds from the fees and property sales into accretive new acquisitions that will further diversify our portfolio.
The truest transaction could not have been successful without great execution by our team.
Our team also delivered a major achievement this quarter in the form of our first issuance of unsecured debt.
Through a private placement, we issued $500 million in senior unsecured notes and an offering that closed on October 7th.
Standard and Poor's rating services and Fitch rating, both issued a rating of double B plus on the notes.
The seven year notes are due in 2028 and have an effective interest rate of four 5%.
We're very pleased with the market's reception and demand for the notes offering which was upsized from $400 million to $500 million and was oversubscribed by institutional investors.
The notes offering marks an important milestone for <unk> as we solidify our capital structure for the long term and focus on increasing our access to unsecured debt.
In connection with the notes offering we obtained corporate credit ratings, a double b, plus and that will be from Fitch and S&P, respectively with stable outlooks.
We believe the ratings demonstrate our consistent operating performance strong occupancy and rent collection rates during the pandemic high quality tenant roster geographic diversity and increasing exposure to necessity retail properties.
We believe that our continued focus on deleveraging the balance sheet improving occupancy at the multi tenant properties and our disciplined acquisition strategy will merit revisiting. These ratings in the future with an objective of obtaining an investment grade rating for the company.
Prior to the notes offering we also completed an amendment and recast of our corporate credit facility on October one.
This recast increased commitments from $540 million to $815 million in order to capture the benefit of an active corporate syndication market and the resulting favorable terms and pricing.
The maturity date of the facility was extended from seven months to four and a half years and includes two extension options as well as an accordion feature that could subject to certain conditions expand that facility to $1.25 billion.
Through this recast in the notes offering were laying a foundation for <unk> continued growth in years to come by building sustainability and flexibility into our balance sheet.
The success of these transactions and the many prior successes we've discussed since our listing in 2018 is a reflection on our team's hard work to enhance and grow Athens, primarily investment grade portfolio through strong leasing results and disciplined acquisition focus.
Our total portfolio has grown by 20% to almost $4 $2 billion in assets since the lifting and added almost $50 million in annualized straight line rent.
At the same time, we've completed multiple transactions in the ABS and see MBS market and continued to diversify our tenant pool.
In addition to this growth our high quality portfolio remains comprised of a majority of leases where tenants are investment grade rated or implied investment grade rated.
As of September 32021, among our single tenant assets 58, 2% of straight line rent comes from investment grade and implied investment grade tenants.
Portfolio wide, 66% of our top 20 tenants are investment grade or implied investment grade.
Our focus on high quality tenants and proactive portfolio management have helped us avoid any material bankruptcies. Despite the ongoing evolution of the retail industry.
Our focus has long been an necessity retail properties.
Recent data showing that foot traffic has increased over 27% year over year and the expectation that holiday spending this year will increase close to 10% as encouraged other sophisticated investors to increase their exposure to retail as well.
In the third quarter, we closed on 32, such properties for an aggregate contract purchase price of $86 5 million combined with first half acquisitions and our forward pipeline. We anticipate completing 74 property acquisitions for the full year at a total contract purchase price.
$225 2 million, a weighted average cap rate of eight 4%.
And with 11, one years of weighted average remaining lease term at the time of closing.
Retail comprises 82% of the $12 4 million square feet single tenant portfolio based on straight line rent with the balance consisting of 11% distribution and 7% office properties.
Of the retail portion over 80% are service retail properties that we believe to be necessity based in nature and more resistant to e-commerce.
As of September 30th occupancy across the single tenant portfolio is over 96% with a weighted average remaining lease term was 10 four years and one 3% average annual rent escalators.
Our 33 property seven 2 million square foot multi tenant portfolio has executed occupancy plus leasing pipeline of 89, 9% as of September 32021.
An increase from 86, 1% a year ago.
Our team's hard work and the quality of our real estate resulted in an uptick in leasing demand from new and existing tenants and delivered strong results in the third quarter.
We've executed 15, new leases that are expected to add $1.7 million of new annualized straight line rent over time as rent commences.
We're also building a robust leasing pipeline that if definitive agreements are executed will result in an additional $500000 of new annualized straight line rent and would increase net occupancy in this portfolio to 89.9% if and when the tenants take occupancy.
Year to date, our team has completed 86 lease renewals that total over 900000 square feet with a weighted average renewal lease term of five years.
Since the beginning of the year, we've increased occupancy in the multi tenant portfolio by a total of three 2% to 87, 9%.
Moving to our balance sheet, we have minimal near term debt maturities and our capital stack and as mentioned earlier, we further reduced our net debt to adjusted EBITDA to six eight times by the end of the third quarter.
19, 90% of our debt matures in 2025, or later and our weighted average debt maturity is five years at.
At the same time, the weighted average interest rate of our debt has decreased by 20 basis points to three 6%.
89, 7% of our debt is fixed rate locking in rates and in an environment of historically low interest rates.
With the completion of the notes issuance.
And credit facility recast 24, 9% of our debt is now unsecured.
We constantly monitor our balance sheet and the markets for opportunities to improve and enhance our capital structure.
Demonstrating the resilience of the portfolio, we collected 99% of the original cash rent payable for the quarter.
Consistent with prior quarters, all rent collection percentages are calculated using the original rent we would have expected to receive before COVID-19 started as the denominator.
The numerator includes cash rent and deferred rent payments received during the quarter.
Excluding the impact of deferred rent, we collected 97% of the original cash rent due in the total portfolio during the third quarter.
<unk> had another excellent quarter in all measures from balance sheet enhancements to acquisitions to strong leasing in the multi tenant portfolio and growth in <unk>, we delivered results that meaningfully meaningfully improve athens balance sheet and credit profile.
I'll turn it over to Jason Doyle to take us through the numbers in greater detail Jason.
Thanks, Mike third quarter 2021 revenue was $91 9 million inclusive of the previously mentioned <unk> termination agreement with $10 4 million.
From $81 6 million in the second quarter of 2021, and up 17, 1% from the $78 5 million in the third quarter of 2020.
The third company the company's third quarter GAAP net loss attributable to common stockholders was $6 4 million compared to losses of $7 4 million in the second quarter of 2021, and $7 1 million in the third quarter of 2020.
NOI was $78 5 million, a $10 3 million increase from the $68 $2 million, we recorded for last quarter, and a 20% increase over the $64 3 million of NOI.
Orders in the third quarter of 2020.
For the third quarter of 2021, our <unk> attributable to common stockholders was $30 3 million or <unk> 25 per share as compared to <unk> 24 cents per share for the same period in 2020 and eight 3% increase.
Third quarter, <unk> increased 41% to $36 million or <unk> 30 per share compared to 23 cents per share in the third quarter of 2020.
As always a reconciliation of GAAP net income to non-GAAP measures can be found in our earnings release supplement and Form 10-Q.
Building on Mike's balance sheet comments, we fully repaid mortgages related to stop census from the shops with Shelby crossing with borrowings under the credit facility during the third quarter.
Subsequent to the quarter end, we repaid approximately $186 million under our senior.
Secured revolving credit facility and $125 million of additional mortgage notes.
Further we added to our liquidity, which provides flexibility in funding future property acquisitions and for other general corporate purposes.
The seven year notes and credit facility recast combined with previously discussed financing transactions.
Our weighted average debt maturity to five seven years today.
From three years at the end of the second quarter of 2020.
We ended the third quarter with net debt of $1 7 billion at a weighted average interest rate of three 6% and a very modest net debt to gross asset value of 38, 9%.
At September 30th are components of our net that included 186 million drawn on our credit facility.
One 6 billion of outstanding secured debt and cash and cash equivalents of 99 million.
The amount drawn under our credit facility represents the majority of our floating rate that.
Liquidity, which is measured as undrawn availability under our credit facility plus cash and cash equivalents.
407 million based on our September 30, cash balance and borrowing availability.
The company distributed $25 2 million in common dividends to shareholders in the quarter or 21 cents per share.
With that I'll turn the call back to Mike for some closing remarks.
Thank you Jason the third quarter was one of our strongest quarter since our listing in 2018, we achieved excellent results not only in our portfolio and company financials, but also in our initiatives to diversify our balance sheet Delever the company and obtain a corporate credit rating.
In the last four quarters, we have successfully navigated the pandemic, maintaining near complete cash rent collection and increasing occupancy in our multi tenant portfolio, where we also added two dedicated experienced managers.
We reduced net debt to adjusted EBITDA at six eight times reduce the weighted average interest rate on our debt to three 6% and extended our weighted average debt maturity to five seven years from four eight years a year ago over.
Over the same period, we have acquired $150 million of properties increase the service retail makeup of our top 20 tenants to 66% and maintained a weighted average remaining lease term of more than eight and a half years.
We're positioned as strong as we've ever been since listing we believe we can execute on the steps necessary to elevate the strong initial credit ratings, we received two investment grade ratings over time.
Our initial entry into the unsecured credit market through the notes offering we completed provides additional diversity and flexibility to our balance sheet in order to continue to build and grow our portfolio, which we believe is among the strongest in our sector.
We continue to maintain our steady and deliberate approach to growth via high quality accretive acquisitions and expect to end the year with over $200 million of properties added to our portfolio. Our leasing team has generated significant leasing interest in the multi tenant portfolio, where our occupancy continues to climb with the addition of national reach.
<unk> tenants.
Very excited about everything <unk> has accomplished this quarter and this year and we expect to carry this momentum through December and into next year. Operator. Please go ahead and open the lines for Q&A.
Thank you as he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the classic queue. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Our first question is from Barry, Oxford with Colliers. Please proceed.
Okay.
Thanks, so much.
I'm not going to lose.
Yes.
Hey, how are you doing.
You alluded to in the call the attractiveness of retailing and retail coming back in and investors.
More and more interest.
And your and your property type.
Alright.
Yeah.
I'm, sorry, Barry I don't know if its my line or your line, but you're breaking up.
Can you hear me now Michael.
Better.
And try again.
Didn't hear the end of the question.
Yeah, no. That's okay. So I'm looking at the competitive acquisition market, our cap rates in 'twenty, two that youre going to buy are they going to be a little bit lower than what you typically have gotten just because of the competition.
Great Great. Thank you I did hear that.
No we're going to we're going to remain very disciplined and we've already been <unk>.
And that discipline in 2021, there are certainly opportunities to overpay, I'm seeing and I'm surprised by what I'm seeing from from some buyers in the market on a pretty consistent basis, we continue to rely on.
The.
Developer direct deals that we've been doing the.
Somewhat off market deals.
With net lease Barry as you know.
What you pay for the property is where you're going to own it because the single net single tenant net lease.
It just doesn't have the upside that the multi tenant does with with vacancy lease up.
So we continue to follow the disciplined underwriting that we have always followed that people have always commented on and wondered how we've done.
So you will continue to see discipline in our acquisition strategy as it relates to single tenant net lease.
Great No that's great and then as it relates to going forward to acquisitions.
I hear you talking a little bit more about multi tenant or are we gonna see more multi tenant transactions from you in 'twenty, two or not necessarily.
I think thats, a reasonable possibility I think that there is a.
When you have a platform like we have where we can asset manage the properties and where we can increase occupancy through our extra.
Expertise I think it is very attractive and retail is very strong and we are committed to retail we understand retail and how the brick and mortar married to E. Commerce is extremely powerful we're seeing tremendous.
Results from <unk>.
Many of our retail tenants that we watch very closely.
So.
We are a retail focused necessity retail focused.
Company.
And we'll evaluate different opportunities as they present themselves.
Great. Thanks, I appreciate the color guys alright, Barry Thank you.
Our next question is from Bryan Maher with.
B Riley Securities. Please proceed.
Hi, Brian.
Michael and Jason and thanks for those comments the decent amount to unpack there.
I didn't I was trying to write as fast, but I didn't quite catch all of the truest.
Buyout commentary so it was $10 $4 million, you've got there's 12 properties. I think you said six earned contract re are under LOI.
Yes, it's now eight of the 12 are under contract.
The others are.
In the marketing in marketing process, and frankly three of the four had significant activity.
And and I heard you say something about a $15 million number what what did that represent as far as sales proceeds all 12 or just a portion of the 12.
Jason do you have.
I'm looking in my notes, but if you have that at your fingertips would you.
Sure the $15 million.
Uh huh.
Let me just pull it up.
It's for the nine properties.
Okay. So we will send you the details Brian.
Can send you the details so you have them, we expect to sell price and lease termination fees for these nine properties to total $15 $5 million, which is a 1 million dollar gain from what we paid.
Okay, so between that and the termination fee you're at around 26 ish plus three more to go so maybe ahead.
30 million Bucks for the 12 properties that.
The lease termination fee is in it.
Is included with the sale price and the $15 5 million.
Alright, that's helpful.
Okay, and then the occupancy decline in the quarter is that directly related to these assets.
No.
As we mentioned it we talked about it last quarter as well, that's really related to the United healthcare property.
That represents about 2% of the occupancy in the portfolio.
As as we think about the overall portfolio.
That's the only drop.
Of significance in the single tenant portfolio.
Multi tenant continued to grow we finished the fourth quarter of 'twenty.
At 84, 7% occupancy when we take into account executed and LOI at the end of the third quarter.
We're at 89, nine so let's call it 90% in the multi tenant.
So the United Health care asset, we have been actively marketing we have it in the market.
We're in conversation around sale and or joint venture redevelopment, but but that is an asset that we will be taking action on.
Okay, and then just one more kind of a two part question for me.
When you look at the acquisition you know out in the marketplace. There on the single tenant side is there any particular type of vendor, whether it's auto parts or quick service restaurants, or dialysis that you're skewing towards at the moment.
And with what we're seeing on the inflationary side are seller expectations starting to push higher.
As you enter into negotiations.
Yeah.
I don't think it's related to inflation, Brian I think it's related to.
A.
Surge of.
Interest in single tenant net lease in the second half of 2021.
So again as I said to Barry this is where the.
The discipline really comes into play.
We continue to source deals where our products.
Our acquired in the brick and mortar location so.
I don't.
What used to be the traditional single tenant net lease type of properties, the pharmacies et cetera.
To me there is just no no reason to pursue those right now they're at all time cap rate lows and I'm seeing people buy them and that's just not for us. So as you. If you look at our 2021 acquisition. It really continues to focus on service retail.
And it will continue to do so.
That's where we see great value, that's where where we see continued foot traffic.
And we just won't chase cap rates down.
Because there's no reason to put that money out.
Okay. Thanks, Michael.
Alright, Brian Thank you as always.
Thank you this does conclude.
Our question and answer session I would like to turn it back to Mike Weil for closing comments.
Great well I just want to close by thanking everybody for their time this morning.
As you can see from the third quarter results and the way the company is positioned into the end of the year end 2022, we're very excited about the direction.
And most excited about the performance we continue to execute not only on the real estate side of our business, but on the balance sheet as Jason Doyle and his team continue to position the company.
In such a great way. So thanks for joining us we look forward to talking to everybody and I know, we have NAREIT coming up so we will see you all there as well thank you.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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