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Positioned to Deliver in the REIT Space
National Retail Properties Inc. (NYSE: NNN) continues to deliver for shareholders, adhering to a business strategy that has enabled the company to provide annual dividend increases for 29 consecutive years. The company maintains both a strong, flexible balance sheet and a diversified portfolio focused on single tenant retail properties operated by strong national and regional retailers in thirty-seven lines of trade.
- Nearly 3,000 single-tenant retail properties across the continental United States
- Invested $715.6 million in 265 properties in 2018
- One of only three equity REITs and 86 publicly traded companies in America to have increased annual dividends for 29 or more consecutive years
Advisor Access spoke with president and CEO Jay Whitehurst about the company’s strategies and strengths.
Advisor Access: Your tradition of annual dividend increases continued in 2018—it is now at 29 consecutive years—and you currently hold the third longest annual dividend increase track record in the REIT industry. How have you sustained this growth?
Jay Whitehurst: Our business model is designed to produce consistent, repetitive results on a multiyear basis. We maintain a conservative balance sheet strategy, with low leverage and an attractive cost of capital, which enables us to access the capital markets at advantageous long-term fixed rates. We have an occupancy average of 98% over twenty-plus years, and actively manage our portfolio to maximize value and sustain a steady rental revenue stream. We have a large number of long-term relationships with growing retail operators that result in consistent, repeat business.
All of this has enabled us to achieve consistent FFO (funds from operations) per share growth, allowing us to maintain a steadily growing, well-protected dividend. Our dividend payout ratio is currently 72% of our AFFO (adjusted funds from operations) so we remain well positioned to continue our annual dividend increase track record.
AA: Tell us about your business model. What kinds of properties do you hold, and where?
JW: We maintain an unwavering investment focus on single tenant retail properties operated by strong, growing, national retailers, as well as large regional retailers. We have a diversified nationwide portfolio with almost 3,000 properties in 48 states leased to more than 400 tenants in 37 lines of trade. Our properties are typically small-box buildings located at, or near, signalized intersections or along high traffic roads, with good signage and visibility and in close proximity to homes and workplaces. These compelling real estate attributes and our properties’ flexibility for alternative uses have been two of the major drivers behind our consistently high occupancy rate.
AA: NNN invested over $715 million in new properties in 2018. Are there any standout acquisitions?
JW: Our 2018 acquisition total involved 265 properties at an initial cash yield of 6.8%, with an 18.5-year lease term average. More than 80% of the dollars invested in 2018 acquisitions were with a pool of more than thirty relationship tenants in sixteen different lines of trade.
This is one of the strategic moats around our business. Over the past three years, we have done business with sixty-one relationship tenants, investing more than $1.75 billion. We’ve developed a comprehensive win-win culture with these tenants. We provide them with reliability, certainty, and creative problem-solving, as well as all the benefits that come from having a professional landlord that is a long-term holder. In return, we typically get the tenant’s better properties, where they are comfortable signing long-term leases, at better-than-market yields, with a lease document tailored to our standards. All of this supports our high occupancy and high lease renewal statistics.
AA: NNN has experienced very low turnover in management and the company’s senior management has a wealth of experience. Will change at the board level have any effect on the company’s direction?
JW: Our senior management team averages an eighteen-year tenure with the company, and half of our associates overall have been with the company more than ten years. That represents a wealth of institutional memory and a deep commitment to our company culture.
We recently added Betsy Holden, former co-CEO of Kraft Foods Inc., to our board, and have significantly refreshed our entire board in the last three years, improving our diversity and adding in-depth retail experience and fresh thinking in other areas. Our business model is based on consistent, steady multiyear growth, but our board is constantly challenging us to test our model and look for ways to maximize shareholder value.
AA: Do you expect headwinds or tailwinds for the retail REIT market in 2019?
JW: Every year we assume we will lose some rent due to struggling retailers. The impacts of these events are factored into our guidance and are typically offset by new acquisitions and lease renewals. Our balance sheet has been strong and flexible for many years, and in my opinion it has never been stronger than it is right now. We see very few companies better positioned than National Retail Properties to be able to continue to access capital and deliver per share growth to shareholders on a multiyear basis.
AA: Is there anything else you’d like investors to know about National Retail Properties?
JW: Our model is based on a multiyear view, setting out to produce consistent, repetitive, mid-single-digit growth in per share results. Our 25-year average annual total shareholder return is currently 12.8%, and our average total shareholder returns have frequently beaten REIT industry averages and most major equity indices over the past 1-, 3-, 5-, 10-, 15-, 20- and 25-year periods.
AA: Thanks for your time, Jay.
Julian E. (“Jay”) Whitehurst has served as president of NNN since May 2006 and as chief executive officer of the company since April 2017. Mr. Whitehurst previously served as chief operating officer from June 2004 to April 2017 and as executive vice president and general counsel from 2003 to 2006. Prior to February 2003, Mr. Whitehurst was a shareholder at the law firm of Lowndes, Drosdick, Doster, Kantor & Reed, P.A. He has been a member of the board of directors of InvenTrust Properties Inc., since 2016. Mr. Whitehurst is also a member of ICSC and NAREIT, and serves on the board of trustees and on the executive committee of Lake Highland Preparatory School.
Investors and others should note that National Retail Properties posts important financial information, including non-GAAP reconciliations, using the investor relations section of the National Retail Properties website, www.nnnreit.com, and Securities and Exchange Commission filings.
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The material, information and facts discussed in this report are from sources believed to be reliable, but are in no way guaranteed to be complete or accurate. This report should not be used as a complete analysis of the company, industry or security discussed in the report. This is not an offer or solicitation of the securities discussed. Advisor-Access LLC and/or its employees, contractors and owners, may purchase or sell the securities mentioned in this report from time to time. Any opinions or estimates in this report are subject to change without notice. This report contains forward-looking statements that can be identified by the use of words such as “expect,” “intend,” “potential.” Forward-looking statements are predictions based on current expectations and assumptions regarding future events and are not guarantees or assurances of any outcomes, results, performance or achievements. You are cautioned not to place undue reliance upon these statements. These forward-looking statements are subject to a number of estimates and assumptions, and known and unknown risks, uncertainties and other factors. National Retail Properties’ actual results may vary materially from those discussed in the forward-looking statements as a result of factors and uncertainties disclosed in National Retail Properties’ reports filed with the Securities and Exchange Commission, which should be reviewed together with these forward-looking statements. The securities discussed may involve a high degree of risk and may not be suitable for all investors. National Retail Properties has paid Advisor Access a fee to distribute this email. Jay Whitehurst had final approval of the content and is wholly responsible for the validity of the statements and opinions.
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