Craig Macnab, chairman & CEO, Julian Whitehurst, president and COO Kevin Habicht, executive vice president and CFO are presenting for National Retail Properties at NAREIT's REIT Week.
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Below are notes from the session:
11:05: Macnab: We have high levels of occupancy and very little volatility. In each of the last eight years, our portfolio has been more than 96 percent occupied.
11:07: Macnab: In terms of building value for shareholders, we need to make acquisitions. Every year--other than 2009--we've made more than $250 million in acquisitions. The triple-net space is a very large sandbox. We think making that level of acquisitions is very attainable. We have a target of $200 million of acquisitions in 2011. ... Over a 15-year lease, our average yield from new acquisitions is 10.25 percent--clearly a wide spread over our cost of capital.
11:11: Macnab: (Are you seeing retailers asking for less space) While we do have some big-box tenants in our portfolio, we are not doing new business with those tenants. With an average of $2.5 million per property, we are doing business with tenants that are right-sizing their properties. With bigger shopping center owners, that is more of an issue. … When we are making acquisitions, by buying properties directly from retailer, there is a level of self selection at work. … Retailers entering 15-year leases have to have a high confidence that they are going to be in that space for a long time. … Given that we're not in the development business, we've got to “catch as catch can.” One of the reasons we have high levels of occupancy is that our underwriting is looking at one property at a time and the tenant at hand has to be confident that they're going to be in that location for a long period of time.
11:15: Macnab: Internally as management we take great pride that we're in the real estate business. … Unlike some of our competitors, we have good in-house leasing capability, typically people that did this as big shopping center companies. If we have a vacant property, we lease it up before we sell it. We do not sell vacant properties. … Our strategy is to lease it up and maximize the value.
11:19: Macnab: In 2010, we had about 25 different leasing events—some of those were renewals and on our renewals we renewed at over 100 percent of what the base rent was previously. In terms of releasing vacancy, we didn't have much of that. In some cases it was done at higher than the vacancy and in a few cases it was done at less than what the previous tenant paid. It was maybe 5. Given that we have 1,200 properties, it was not enough to move the needle.
11:21: Macnab: We have very little secured debt on our properties. Occasionally we buy a property that has existing debt. We have $24 million in secured debt. … We choose to not put property level debt on our assets. … Tenants like that if they want to do something, it's just one phone call as opposed to having to bring in the secured lender into that conversation.
11:25: Macnab: (asked about the book category) Ten to 12 years ago we were doing some build-to-suit development work with Barnes and Noble. … In general, it's extremely good real estate and Barnes & Noble is making money in those stores. Having said that, the category is under duress. … The long-term outlook for the book business is not promising. When we look at real estate where Barnes & Noble is located, the market rent is generally more than what they are paying. So we are in good shape. We have three Borders that are going dark. Two of them are going to retailer committees in the next 45 days. In both case we're talking about A+ national retailers, excellent credits. We're not putting any capital expenditures or TI dollars. We're going to do just fine. On the third property, in Richmond, Va., it's well-located. We have tenant interest, although we don't have a letter-of-intent yet.
At broader level, with 1,200 properties there's going to be some level of noise. A year from now might be talking about office supplies. But generally if you have well-located properties with rents at our about market and you have other potential tenants, you're going to be just fine.