American Finance Trust, Inc.
Q1 2021 Earnings Call Transcript

Published: 9 May 2021

[Operator:]

Good morning and welcome to the American Finance Trust First Quarter 2021 Earnings Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Louisa Quarto, Executive Vice President. Please go ahead.

[Louisa Quarto:]

Thank you, operator. Good morning everyone and thank you for joining us. This call is being webcast in the Investor Relations section of AFIN's website at www.americanfinancetrust.com. Joining me today on the call to discuss the 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 and 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.

[Michael Weil:]

Thanks Louisa. Good morning and thank you for joining us today. Our first quarter results highlight the resilience of our best-in-class portfolio which is focused on necessity-based retail assets that are net leased to predominantly investment grade and implied investment grade tenants. While our intentionally constructed portfolio was designed to withstand potential downturns in the economy and be resistant to e-commerce, we never anticipated being tested by a global pandemic. In that context, I'm pleased that AFIN's portfolio is returning to or has surpassed pre-pandemic metrics on a number of fronts including AFFO per share, cash NOI, and portfolio occupancy, demonstrating its strength and resilience over the last four quarters. AFFO per share was $0.24 for the first quarter, up from $0.23 in the first quarter last year. Cash NOI increased to $63.1 million, up from $59 million in first quarter 2020. Our portfolio occupancy at quarter end was 94.9%, up from 94.7% at the end of the first quarter 2020 and 93.9% at the end of last year. Multi-tenant leasing pipeline occupancy is 88.5%, an increase from 87.3% at the same time last year and 88.2% at the end of the prior quarter. From a balance sheet perspective, we lowered our weighted average interest rate by 40 basis points to 3.8% and increased our weighted average debt maturity by one year to 4.5 years.

[Jason Doyle:]

Thanks Mike. And I'm very happy to be here. First quarter of 2021 revenue was $79.2 million, up from $77.2 million in the fourth quarter 2020, and a 6.2% increase from the $74.6 million in the first quarter of 2020. The company's first quarter GAAP net loss attributable to common stockholders was $9.4 million, compared to a net loss of $9.2 million in the first quarter of 2020. NOI was $65.7 million, a $1.7 million increase from the $64 million we recorded for the fourth quarter, and a 5.6% increase over the $62.3 million NOI we reported in the first quarter of 2020. For the first quarter of 2021, our FFO attributable to common stockholders was $22.6 million or $0.21 per share compared to $0.22 per share for the same period in 2020. First quarter AFFO was $25.5 million or $0.24 per share, compared to $0.23 per share in the first 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 ended the first quarter with net debt of $1.7 billion at a weighted average interest rate of 3.8% and a net debt to gross asset value of 40.4%. The components of our net debt include $280.9 million drawn on our credit facility, $1.5 billion of outstanding secured debt and cash and cash equivalents of $84.2 million. The amount drawn under our credit facility represents the majority of our floating rate debt. Liquidity, which is measured as undrawn availability under our credit facility, plus cash and cash equivalents stood at $218.5 million, based on our March 31st cash balance and borrowing availability.

[Michael Weil:]

Thanks, Jason. We had a very productive quarter and look forward to continuing to execute on our growth strategy. We continue to optimize our intentionally constructed portfolio of single-tenant and multi-tenant assets, focused on necessity retail properties. Year-over-year, we've maintained the strength of our portfolio and improved our balance sheet, which now features a lower weighted average interest rate and longer weighted average remaining loan term. Despite returning to prepandemic results and essentially complete rent collection, our stock price has yet to return to the levels it was trading at in February of 2020. For this reason and given our healthy dividend yield, we believe our company represents a truly compelling current valuation. Going forward, we'll continue to maintain our steady and deliberate approach to growing our portfolio through high-quality accretive acquisitions. We look forward to a continued return to operational normalcy for our tenants and anticipate further benefits to AFIN from the successful vaccine rollout across the US. We look forward to continuing the type of accretive activity we've highlighted today and anticipate a very strong year for AFIN. Thank you for joining us today. I look forward to your questions. Operator, please go ahead.

[Operator:]

Thank you. We will now begin the question-and-answer session. Our first question comes from Bryan Maher of B. Riley Securities. Please go ahead.

[Bryan Maher:]

Good morning, Michael. And welcome Jason. And first, congratulations on all the successes you guys have had over the past couple of quarters. I'm not quite so sure, most of the buy side would have anticipated that just a year ago. So kudos.

[Jason Doyle:]

Thanks, Bryan.

[Bryan Maher:]

First question I have. On the multi-tenant portfolio, we were pleasantly surprised to see the uptick in executed occupancy there. I believe last quarter you announced that you had added two industry veterans to kind of spearhead that. Can you talk a little bit about the approach that they're taking and the type of tenants that they're pursuing and where you think this occupancy can go over the next year or two?

[Michael Weil:]

Yeah. Thank you. Don Foster and Stephanie Drews have been with us now coming up on three quarters and their impact has been significant. They're working very closely with Jason Slear, who heads up our retail platform. The biggest change besides the fact that they're industry veterans as you said, they're very plugged in. They have direct relationships with many of the national retailers.

[Bryan Maher:]

Great. And then as it relates to your Truist Bank branches is there any new thoughts there? Is there a market for those assets or are you just happy kind of holding those to maturity and kind of clipping the coupons?

[Michael Weil:]

Bryan, I don't know that I would -- first of all yes we are very happy with Truist. We think they're doing a great job in the market. Their merger has gone seamlessly and they're a very important tenant. As we sit today at about 6% of straight-line rent, I'm not in any urgent thought that we need to sell further, but we certainly will opportunistically dispose. And just to give you an idea in our portfolio we don't have dark Truist branches. They are all open and operating. They average in the neighborhood of $100 million per location in deposits which again is a very high deposit metric. So we believe that these branches will continue to be important to the Truist network. And we're -- we watch it very closely, but my short answer is, we're probably happy at the moment. But I don't know -- we have 10-plus years of remaining average lease term and we will continue to look opportunistically at the entire portfolio.

[Bryan Maher:]

Great and just last for me. Are there any soft spots in the portfolio whether it's a tenant a type of asset that you might wish you had a little less of at this point or are you pretty comfortable with everything in there?

[Michael Weil:]

I am comfortable with the portfolio because of the diversity. Again, it's geographic industry and individual tenant diversification that I think matters. The portfolio occupancy is approaching 95%. The single-tenant portfolio is as we talked about at essentially 100% gives me really great comfort. Rent collection matches occupancy or exceeds occupancy. So the portfolio is performing. We didn't have to do anything to support our tenants financially. We didn't make any loans to our tenants. We didn't do anything that was out of normal course. They've done a great job getting through the COVID period. They're open they're operating they're paying rent and I'm pleased with the performance and the overall portfolio so I think we're in really good shape.

[Bryan Maher:]

Thanks a lot, Michael.

[Michael Weil:]

Thanks Bryan.

[Operator:]

Our next question comes from Frank Lee of BMO. Please go ahead.

[Frank Lee:]

Hi, good morning everyone. Just want to touch on the 26,000 square feet of leases you currently have in leasing pipeline. How do the rents and concessions compare to let's say prepandemic levels?

[Michael Weil:]

We are in the exact range that we had underwritten these vacancies. These are not excessive concessions by any means both on a free rent and TI. Now we haven't disclosed details especially of the pipeline, so I want to be a little careful on what I do disclose. We are looking at some ways that we can talk about that in the future in how we disclose. But I'm very comfortable that these are marketed deals in some of the vacancies. Again, this goes back to the earlier question and comment regarding the value that Don and Stephanie are bringing. In several of the larger leases, they were competitive situations where we had in some cases, three tenants wanting the same space. So of course, that lets us be very competitive and certainly within market expectations. So I'll give you one example. We had one tenant that didn't want to take 100% of the vacancy, but they were pretty attractive from a credit and lease term perspective. But because we had a couple other very interested and strong parties competing for the space, we were able to get our preferred tenant to take 100% of the space at the market rents because they didn't want to lose out. So again, the activity, the focus, the intel in the individual markets is incredibly valuable and will really drive positive results.

[Frank Lee:]

Okay. Great. And then this is the third quarter in a row where we haven't seen any disposition activity. You talked a bit about Truist. But how are you currently thinking about other strategic asset sales to help fund acquisitions or to manage exposure?

[Michael Weil:]

Well, I don't think -- first of all, I don't think we have any significant overexposure to any one credit. So we are looking at the portfolio. I do have an overview approach of looking at NOI and revenue from rental. So I got to say, long duration leases, contractual rent growth, investment grade or implied investment grade tenants, I think of it as very valuable income stream. And as we are seeing positive performance metrics in the portfolio, I will continue to tell you that we would be an opportunistic seller, but by no means are we aggressively looking to thin out the portfolio. I'd like to be growing the portfolio.

[Frank Lee:]

Okay. And then just last one for me. If we take a look at this slide you have in your presentation, where you compare your current results to pre-pandemic levels, just curious were there any metrics that you were particularly surprised by in terms of how quickly they returned back to previous levels?

[Michael Weil:]

Frankly, what I'm most pleased with and I don't know that we're feeling full impact of it yet, but we will. The multi-tenant occupancy it's something that you and I have talked about quite a bit. We are a very capable operator of multi-tenant retail properties. And this is going to be very valuable. So to have this level of activity in new leasing this early tells me that retail is strong. And I frankly, as you would imagine for all the metrics to be so strong and positive and to be back to pre-COVID levels, I'm looking hopefully and with real focus on seeing the -- I'd love to see the stock price come back up to match what I think is the quality of the portfolio. So we continue to look aggressively at acquisitions. We're not chasing cap rates right now or ever frankly. We like the industries that we're in. I'm very excited about what we're seeing in the multi-tenant. And rent collection is so important as we all know. So to be at that almost 100% level is compliments to our team and how hard they've worked and the close relationships they've built with our tenants.

[Frank Lee:]

Okay. Great. Thank you, Mike.

[Michael Weil:]

Thanks, Frank.

[Operator:]

This concludes the question and answer session. I would like to turn the conference back over to Mr. Weil for any closing remarks.

[Michael Weil:]

Great. Well, again thank you all for spending some time with us today. We are available. If anybody has follow-up questions, please feel free to reach out. And we look forward to a healthy and safe spring and summer and seeing the country really get back into a great place again. So thank you all again for joining us.

[Operator:]

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.