NNN REIT, Inc.

Please stand by. Good day, ladies and gentlemen, and welcome to your National Retail Properties First Quarter 2021 Earnings Conference Call. All lines have been placed in the listen-only mode, and the floor will be open for your questions and comments following the presentation. As a reminder, today's call is being recorded. If you should require assistance throughout the conference, please press star, then zero. At this time, it is my pleasure to turn the floor over to your host, Jay Whitehurst. Sir, the floor is yours.

Thank you, Melinda. Good morning and welcome to the National Retail Properties first quarter 2021 earnings call. Joining me on this call is our Chief Financial Officer, Kevin Hobbitt, and our Chief Operating Officer, Steve Horn. As this morning's press release reflects, 2021 is off to a great start for National Retail Properties. Beyond our impressive financial results, during the first quarter, we were pleased and honored to be named as one of the few REITs in the 2021 Bloomberg Gender Equality Index. And I'd like to take this opportunity to thank everyone in our office who put in the time and effort to achieve that important recognition. Given our strong start to the year, we're pleased to announce an increase in our guidance for 2021 Core FFO by approximately 6% from a range of $2.55 to $2.62 per share to a range of $2.70 to $2.75 per share. Kevin will have more details on this increase in his remarks. Turning to the highlights of our first quarter financial results, Our portfolio of 3,161 freestanding single-tenant retail properties continued to perform exceedingly well. Occupancy was 98.3% at the end of the quarter, which remains above our long-term average of 98%. And while our occupancy rate ticked down 20 basis points from December 31st, we're seeing impressive activity in our leasing department including interest by a number of strong national tenants in some of our vacancies. We also announced collection of 97% of rents due for the first quarter, as well as collection of 98% of rents due for the month of April. Our impressive collection results continue to compare very favorably to other retail real estate companies, including those with a significantly higher percentage of investment-grade tenants. The majority of the remaining uncollected rent in the first quarter was simply deferred rent that we expect to collect when the tenant's repayment obligation kicks in later this year. Notably, we only forgave 0.1% of our first quarter rents. Recently, our two largest bankruptcies were resolved in favorable fashion. Chuck E. Cheese's affirmed all 53 of our leases in exchange for a 25% temporary base rent reduction that will expire at the end of this year. And Ruby Tuesdays affirmed 26 of our 34 leases, accounting for over 80% of our annual rent from Ruby Tuesdays, again in exchange for a comparable temporary base rent reduction. These impressive post-pandemic occupancy, leasing, and rent collection outcomes have once again validated our consistent long-term strategy of acquiring well-located parcels leased to strong regional and national operators at reasonable rents while maintaining a strong and flexible balance sheet. Although we continue to be prudent in our underwriting, we acquired 29 new properties in the quarter for just under $106 million at an initial cash cap rate of 6.4%, and with an average lease duration of 17 and a half years. Almost all of our acquisitions were from relationship tenants with which we do repeat programmatic business. In an unsettled post-pandemic environment where cap rates remain at all-time lows, we will continue to be very thoughtful in our underwriting and primarily pursue sale leaseback transactions with our relationship tenants. We also reported that during the first quarter, we sold 11 properties, raising $17.6 million of proceeds to be reinvested into new acquisitions. And our balance sheet remains rock solid. During the quarter, we issued $450 million of unsecured 30-year interest-only bonds at a rate of 3.5%. Kudos to Kevin and his team for once again raising well-priced capital when it's available. A portion of those bond proceeds were used to redeem our 2023 debt maturities. So we ended the first quarter with $311 million of cash in the bank, a zero balance on our $900 million line of credit, no material debt maturities until 2024, and an average debt duration of over 13 years. Thus, we're well positioned to fund all of our 2021 acquisition guidance with the available capital on hand. And with that, let me turn the call over to Kevin for more details on our quarterly numbers and updated guidance.

Thank you, Jay. And as usual, I'll note that we will make certain statements that may be considered to be forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in these forward-looking statements, and we may not release provisions to these forward-looking statements to reflect changes after the statements were made. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the SEC and in this morning's press release. With that, headlines from this morning's press release report quarterly core FFO results of 69 cents per share for the first quarter of 2021. That's up six cents from the preceding fourth quarter, 63 cents. and down a penny from the prior year's 70 cents per share. Results for the first quarter included two non-recurring type items totaling $5 million. First, we collected $2.2 million of receivables from cash basis tenants that relate to prior quarters. And second, we received $2.8 million of lease termination fee income, which is more than typical for a context full year 2020 was $2 million of lease termination fee income. So these two items, totaling approximately $5 million, added just under 3 cents per share to our results. Today we also reported that AFFO per share was 76 cents per share for the first quarter, which is 7 cents per share higher than the preceding fourth quarter, 69 cents. We did footnote this amount included $9.4 million of deferred rent repayment in our accrued rental income adjustment in the first quarter AFFO number. Rent collections continue to drift higher. As Jay mentioned, we reported today rent collections of approximately 97% for the first quarter, 98% for April rent collections. Most notable, collections from our cash basis tenants, which represent approximately $50 million, or 7% of our annual base rent, improved to approximately 80% for the first quarter. Previously, we projected these cash basis tenants would pay at their historical payment rate of about 50% of rent, so improving to 80% added about $4 million of revenues in the first quarter versus our prior guidance. As Jay mentioned today, we increased our 2021 core FFO per share guidance from a range of $2.55 to $2.62 per share to a range of $2.70 to $2.75 per share. This incorporates the better than expected rent collections and the results from Q1. Some of the assumptions supporting this guidance are noted on page 7 of today's press release, and they're largely unchanged from last quarter's guidance. The driver for the increase in full year guidance is the $5 million of first quarter non-recurring items I previously mentioned and the assumed higher rent collection rates more in line with current collection rates. So while we previously assumed 50% rent collections from the $50 million of cash basis tenant annual base rent, we are now assuming 80% rent collections. So that incremental 30% amounts to $15 million for the full year. And for the remainder of our tenants, we previously assumed 2% potential rent loss, and we now assume 1% of potential rent loss, which equates to approximately $6 million of improvement for the year. So compared to prior guidance, current guidance incorporates approximately a total of $21 million and improved rent collection, plus $5 million of one-time items in Q1, or a total of $26 million, and that all equates to about 15 cents per share. Shane noted we ended the fourth quarter with $311 million of cash on hand, nothing outstanding on our $900 million bank line. We did execute a $450 million 30-year debt offering with a 3.5% coupon on March 1st. and used a large portion of those proceeds to pay off our $350 million of 3.3% notes due in 2023. While time will tell, given where we are in the 40-year declining interest rate cycle, it felt like it was a good time to continue to push out debt maturities at these rates. Our weighted average debt maturity is now 13.3 years with a 3.7% weighted average fixed interest rate. Our next debt maturity is $350 million with a 3.9% coupon in mid-2024. So in very good liquidity and leverage position, have no need to raise any additional capital to meet our 2021 acquisition guidance. A couple stats. Net debt gross book assets was 34.7% at quarter end. Net debt to EBITDA was 5.0 times at March 31st. interest coverage was 4.6 times and fixed charge coverage 4.1 times for the first quarter of 2021. Only five of our 3,161 properties are encumbered by mortgages totaling about 11 million dollars. So 2021 is off to a good start as the economy and retailers seem to be catching wind in their sales from the several trillion dollar stimulus injected by the government which feels like it will continue into 2022. Our focus remains on the long term as we continue to endeavor to give NNN the best opportunity to succeed in the coming years. And, Melinda, with that, we will open it up to any questions.