Solid, Consistent, and Built for the Long Haul

With its record of providing annual dividend increases now 30 years and counting, National Retail Properties Inc. (NYSE: NNN) heads into 2020 in a solid position. NNN’s balance sheet remains strong, the company continues to build long-lasting relationships with preeminent national and regional retailers, and its nationwide property holdings remain 99% occupied.

  • More than 3,100 retail properties leased to 400 tenants in 48 states
  • $715.6 million invested in properties leased to relationship tenants in 2019
  • $4.9 billion invested with relationship tenants since 2010
  • One of only three REITs to have increased annual dividends for 30 consecutive years or more

Advisor Access spoke with Jay Whitehurst, chief executive officer and president of National Retail Properties, about the company’s remarkable record of returns and its ability to withstand market disruptions such as COVID-19.

Advisor Access: Let’s start with the basics. Please provide an overview of National Retail Properties’ business portfolio, both in terms of geography and tenancy.

“We own stores in categories that are mostly e-commerce resistant.”

Jay Whitehurst: As this newsletter is being written, the coronavirus is spreading across the US, affecting businesses and their customers. We entered this current landscape in a strong position: Our balance sheet is in great shape; we have ample cash on hand; we increased our annual dividend for the 30th consecutive year; and we own strong retail real estate locations leased at reasonable rents. Our portfolio is 99% occupied, with 3,118 stores leased to more than 400 tenants in 37 lines of trade and located in 48 states. We own stores in categories that are mostly e-commerce resistant, creating a portfolio with long-term viability, as demonstrated by our twenty-year average occupancy being 98%.

AA: Have you made any standout investments or changes to your business over the last year or so?

JW: For us, it’s actually the opposite. One of the hallmarks of NNN has been our consistency. More than 80% of the $752.5 million we spent to acquire properties in 2019 was with relationship tenants. This has become one of our strategic moats—building and maintaining deep relationships with strong national retailers and large regional retailers. These relationships take years to develop and involve tremendous effort across our entire company, but it is worth it. Since 2010, we’ve invested $4.9 billion in properties with relationship tenants.

AA: National Retail Properties continues to demonstrate its solid footing in the REIT sector, and among American companies overall. Can you talk about your remarkable run of consecutive dividend increases, now spanning 30 years?

JW: We’re proud that our 30 consecutive annual dividend increases is a track record only matched by two other REITs and less than 100 other companies overall. Maintaining a safe and growing dividend is at the heart of our corporate culture, and we take pride in making meaningful cash returns to our stockholders each year. With a dividend payout ratio of 72% as of year-end, we remain well positioned to continue this string of dividend increases into the future.

AA: Markets worldwide are in flux for a variety of reasons, not the least of which is the threat posed by the spread of COVID-19. How, as a retail REIT, are you weathering this and other uncertainties?

JW: There are still too many unknowns to make any definitive predictions or timeline conjectures. But certain core facts bear repeating: Our business is built for a marathon. It is in moments like these that our historically stable dividend, strong balance sheet, and strict underwriting prove most valuable.

“We remain well positioned to continue this string of [30 consecutive] dividend increases into the future.”

There is no doubt some of our tenants will struggle over the short term, but our portfolio has withstood tough times before. Owning durable retail real estate locations, with strong demographics, good access, visibility, and high traffic counts, all leased at reasonable rents, has contributed to our longstanding high-occupancy track record. We believe that ownership, combined with our conservative balance sheet, provides us with an ample safety margin to get us through choppy markets. While the coronavirus and related market disruption will affect all businesses, we anticipate National Retail Properties is better positioned than most REITs to handle this unexpected event.

AA: What other market forces do you anticipate will affect REITs in 2020, for better or worse?

JW: Again, it is still too early, and there are simply too many unknowns, to allow for informed predictions. Our strict adherence to high standards, detailed analysis, and proven investment strategies have generated consistent returns for NNN shareholders for more than three decades. We believe staying true to our philosophy will get us through these difficult market circumstances.

AA: Any final thoughts for investors?

JW: We run our business with a long-term focus in mind. Over the last few years our stock price has fluctuated based on a variety of external factors, all while our performance has consistently delivered mid-single digits per share core FFO (funds from operations) growth. We believe we’re built for the long haul and will continue to operate with that long-term focus.

AA: Thank you, Jay.

Jay Whitehurst has served as chief executive officer of National Retail Properties since April 2017, and as president of the company since May 2006. Previously, Mr. Whitehurst served as chief pperating officer of the company from June 2004 to April 2017, and as general counsel of the company from 2003 to 2004. Prior to 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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