Focus on the Long Term Builds Resilience in the Short Term
Despite the challenges imposed on the retail and real estate markets by the COVID-19 pandemic, National Retail Properties (NYSE: NNN) not only maintained its solid footing, but also continued its outstanding run of delivering annual dividend increases to its investors. The company’s balance sheet remains solid, as does its focus on maintaining a portfolio of well-located properties and strong tenants.
- 3,143 properties in 48 states
- Retail properties leased to 400 tenants in 37 lines of trade
- Increased annual dividends for 31 consecutive years
- Total enterprise value over $10.6 billion
- Average annual total return of 12% over 25 years
Advisor Access spoke with Jay Whitehurst, chief executive officer and president of National Retail Properties.
Advisor Access: 2020 was a challenging year, but your company managed, yet again, to post solid financial results, including its 31st consecutive annual dividend increase. Can you outline those results, and describe what enables you to maintain this level of performance?
JW: Our disciplined, long-term focus has been key to our success. We maintain a strong, flexible balance sheet and have built a portfolio of well-located retail properties leased to strong regional and national tenants.
When the pandemic first struck, we took a collaborative approach with those tenants whose business had been significantly disrupted and allowed some to defer their base rent briefly, for a few months. These tenants are our customers and we felt it was the right thing to do as their long-term partner. We are on track to being repaid that deferred rent over the next year or so, and we certainly strengthened our relationships with those tenants by being a good partner, which we believe will result in additional future business.
Despite the pandemic, we maintained high occupancy, with a rate of 98.5% for the year. Our properties are located in suburban markets, with a predominance in the South and Mid-Atlantic regions, and those areas have generally fared better than others during the pandemic. Our impressive portfolio performance, coupled with our strong balance sheet, gave us the confidence to increase our annual dividend for the 31st consecutive year in August.
AA: Has the company made any significant changes in management or property holdings over the past year?
JW: We enhanced our executive leadership team with the appointment of Steve Horn, a 17-year veteran of the company, as chief operating officer. Steve has a deep understanding of our business strategy and culture; he has overseen the acquisition of approximately $4.5 billion of new investment properties.
Our average associate tenure is 10 years with the company, and the senior leadership team averages 20 years. That collective in-house knowledge, deep industry expertise, and vast experience proved invaluable in addressing the issues raised by our tenants as the pandemic unfolded.
AA: The COVID-19 pandemic has remodeled the purchasing habits of consumers in the retail space, at least in the short term. How have those changes affected NNN, and how has the company responded?
JW: We lease our properties to large corporations—our top 25 tenants average more than 1,000 stores each in their chains. These corporations have adapted and become more efficient in the pandemic era. Now, as vaccines are distributed and more states are reopening, retailers are beginning to see an increase in traffic. Although we are always evaluating our strategy and our performance, we haven’t had to make any significant changes to our business philosophy or operations. We still take a multiyear approach, focused on acquiring well-located parcels leased to large regional and national operators, and bolstered by a low-leveraged, flexible balance sheet.
AA: What changes do you anticipate as the country moves out of pandemic mode, both for the REIT retail space in general and for NNN in particular?
JW: We don’t anticipate many changes, if any, at NNN. Our tenants are optimistic about their businesses going forward. Our well-located retail properties were in high demand prior to the pandemic, and we believe they’ll continue to be strong retail locations post-pandemic. We will also continue to take a conservative approach; we’ll walk before we run as we ramp our acquisition activity back up.
AA: In closing, is there anything else you’d like investors to know about NNN?
JW: I’d just like to reiterate that, by staying true to our long-term strategy, we built a business that has withstood a once-in-a-hundred-year pandemic with minimal long-term impact. We remain well positioned, with strong occupancy, deep tenant relationships, and a well-capitalized balance sheet, all of which makes us feel good about the year ahead.
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 operating 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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