Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

National Retail Properties Inc (NYSE:NNN)

Q3 2007 Earnings Call

November 5, 2007 2:00 pm ET

Executives

Craig Macnab - CEO

Kevin Habicht - CFO

Analysts

Ambika Goel - Citigroup

Charles Place- Ferris Baker Watts

David Fick - Stifel Nicolaus

Ken Avalos - Raymond James

Dustin Pizzo - Banc of America

Operator

Welcome to the National Retail Properties Inc. third quarter2007 earnings conference call. (Operator Instructions) It is now my pleasure tointroduce your host, Mr. Craig Macnab, Chief Executive Officer for NationalRetail Properties Inc. Mr. Macnab, you may begin.

Craig Macnab

Andrea, thank you very much. Good afternoon and welcome toour third quarter 2007 earnings release call. On this call with me is KevinHabicht, our Chief Financial Officer, who will provide information and anupdate on our guidance and review details of our third quarter financialresults after brief opening comments from me.

We're extremely pleased with our financial performance inthe third quarter, which positions us well for the balance of this year and,most importantly, sets us up for 2008. Our portfolio continues to be in greatshape with over 98% of our properties occupied with very limited lease rolloverin the next 15 months. A high level of occupancy is attributable to the qualityof our fully diversified net lease retail portfolio.

We currently own as of the end of the third quarter 876properties leased to approximately 200 different national or regional tenantsdoing business in 43 states. These tenants operate in over 30 differentsegments of the retail industry which provides us with broad diversification.

In the last 90 days, we've completed a variety of transactionswhich are significant as we strive to build value for our shareholders. Thesetransactions include firstly our joint venture with Crow Holdings Real EstateFund. We anticipate acquiring somewhere between $200 million and $220 millionof convenience stores in this joint venture with National Retail Propertiesinvesting $15 million of equity in the joint venture that we will manage andfrom which we will earn recurring fees.

Strategically this joint venture, focused exclusively onconvenience stores, is significant to NNN for a variety of reasons:

  • The joint venture is a new source of capital for us, which is obviously important in this current liquidity and credit environment.
  • We will moderate our direct exposure to convenience stores as we acquire properties in the joint venture that might otherwise have gone directly into our portfolio of real estate.
  • This joint venture allows us to leverage the experience, knowledge and relationships that we have in the convenience store industry as we continue acquiring properties from our existing relationship tenants and other convenience store operators that we are currently talking to.

At the end of the third quarter, the joint venture made itsinitial acquisition closing on approximately $30 million of convenience storesand we're currently working on a couple of other acquisition opportunities thatare destined for the joint venture.

Secondly, we were very pleased to complete our equityoffering of 4 million shares in early October, which means that today ourbalance sheet is in extremely good shape with zero outstanding on our recentlyexpanded $400 million line of credit. As a reminder, we are now back to a morenormal sale leaseback environment, where a cash buyer such as NNN has aninherent advantage over a leveraged buyer of real estate.

Thirdly, in the third quarter we completed our firstacquisition of theater properties from a privately held theater operator thatis one of the ten largest screen operators in the U.S.This transaction strengthens the diversification of our portfolio and we hopeto complete modest additional transactions with this theater operator in thefuture.

Let me provide a couple of brief comments on our sense ofthe current acquisition environment. There continues to be plenty of net leaseretail product on the market. And based on the deals that we're currentlyevaluating, we expect the deal flow arising from corporate transactions toperhaps be better in 2008 than it has been in the recent past.

With the dislocation in credit markets leading to a highercost of debt financing, a sale leaseback transaction is again a more attractivefinancing vehicle than other forms of debt capital. Also, it is important topoint out that companies are currently being purchased at lower EBIT multipleswith more cash equity in transactions, which means that the credit behind apotential sale leaseback transaction is stronger today than it was in therecent past.

Cap rates have really not altered since the advent of theliquidity crunch in the market. Let me give you a couple of examples of this.We're currently selling a Walgreen’s property that we developed and it is undercontract in the low 6% range. Also a couple of weeks ago, we closed on the saleof a high-quality restaurant property in the Dallas Metroplex area, again inthe low 6% range.

Having said that, we do think that cap rates will slightlyincrease at the margin and as a result we're in the process of attempting tomove cap rates and yields higher on acquisitions that we're looking at.Remember, we're already obtaining better than market yields for the propertiesthat we're acquiring as evidenced by our average yield on acquisitions thisyear of 8.34%.

In summary, National Retail Properties had a solid thirdquarter. Importantly, our capital markets activities over the past 60 days havepositioned us very well for the opportunities that we anticipate in the monthsahead. Our balance sheet is in great shape, our diversified portfolio isperforming well and our pipeline of acquisition opportunities is promising.

I willnow hand over to Kevin.

Kevin Habicht

Thanks, Craig. Let me start with the normal cautionarystatement that we will make certain statements that may be considered to beforward-looking statements under federal security laws and the company's actualfuture results may differ significantly from the matters discussed in anyforward-looking statements, and we may not release revisions to thoseforward-looking statements to reflect changes after the statements are made.

Factors and risks that could cause actual results to differmaterially from expectations are disclosed from time to time in greater detailin the company's filings with the SEC and in this morning's press release.

With that, let me as indicated in the press release, wereported third quarter 2007 FFO results totaling $30.9 million or $0.46 pershare, which represented a 21% increase over 2006's $0.38 per share. Strippingout unusual items for both quarters, impairments and lease termination fee income,per share results increased by 6.8% in the third quarter over a year ago; thatwould be $0.47 versus $0.44.

For the first nine months of '07, FFO per share was $1.42per share, up 17.4% from $1.21 per share in the first nine months of '06.Again, stripping out the unusual items for both year-to-date amounts,impairments, restructuring charges, lease termination fees, et cetera, pershare results increased by 6.9% in the first nine months year over year. Thatwould be $1.40 versus $1.31.

We're very pleased with these improved results. Accretiveacquisitions, capital recycling and improved operating expense margins arecontributing to yet another successful year here.

With regard to 2007 FFO per share guidance, we're increasingthe bottom end of the range slightly to $1.84 to $1.87 per share. This willrepresent a range of 10% to 12% FFO per share growth over 2006's $1.67 pershare. As a reminder, our initial 2007 guidance was $1.74 to $1.80. We've beenable to increase guidance throughout the year.

Today we are introducing 2008 FFO per share guidance of$1.95 to $1.99 per share. This represents an FFO per share growth range of 4%to 8%. At the moment, we see the results slightly weighted towards the secondhalf of the year versus the first half.

The primary assumptions in the 2008 guidance are $300million to $400 million of acquisitions, $80 million of core portfoliodispositions, G&A expense of $24 million, mortgage residual income of $4.5million before any minority interest, net property expenses net of tenantreimbursements of $3.1 million, and pre-tax, pre-overhead gains on sale fromour TRS properties of $10 million to $10.5 million.

We believe the visibility is fairly good on this guidance,but as always, the projections are based on a number of factors anduncertainties discussed in our public filings and can have some choppiness fromquarter to quarter.

Let me go quickly through some of the details in the thirdquarter and then we'll take questions. Looking at the income statement, totalrevenues for the third quarter increased to $47.8 million. That was driven byadditional rent from net new investments that we made over the past year, aswell as accretive capital recycling from dispositions. The acquisitions in thecore portfolio totaled $140.2 million in the third quarter. Occupancy atquarter end was 98.2%. That was down 20 basis points from the immediately priorquarter and flat with year ago numbers.

We'll point out on page 5 of the press release includes someadditional disclosure regarding contingent percentage rents, straight linerents and capital lease earned income for your information.

Looking at the line item, interest and other income fromreal estate transactions consists primarily of mortgage and mezzanine loanincome and some miscellaneous items, which increased for the quarter but wereflat on a year-to-date basis. At the end of the third quarter we had $21.8million outstanding in our structured mezzanine loans. Mortgage receivableswere about $45.8 million at quarter end.

The interest income from mortgage residual assets was $1.1million for the third quarter. That was flat with the prior quarter and downfrom $1.7 million last year. The decrease is a result of normal amortization ofthe underlying loans in the mortgage securitization pool. We are estimating atotal of $4.5 million of income for 2007 on this line item.

In the third quarter we did take a $638,000 impairmentcharge related to the mortgage residuals we own. Given the turmoil in thecredit markets, the third party evaluation firm felt it was needed to increasethe discount rate assumption on the securitization projections and even thoughthe residuals continue to perform well in terms of default performance andprepayments fees. This adjustment is a non-cash adjustment and the projectedcash flow from the residuals really are not changed. It is really just a non-cashaccounting adjustment which actually will result in us reporting more incomefrom these residuals in the future, so today's impairment essentially getsrecouped in the future.

G&A expense was $5.2 million for the third quarter.That's up from $4.4 million last year, down from $5.9 million in the secondquarter of '07. These changes are largely due to some seasonality in thenumbers. Notably our G&A for the first nine months of 2007 was $17.5million, which is down from nearly $18 million for the same nine months of '06,which represents a 2.7% decrease on an absolute basis.

Our guidance for 2007 and 2008 for G&A is $24 million.We are seeing meaningful operational leverage efficiencies as G&A for thefirst nine months of '07 was 12.1% of revenues as compared to 14.2% in firstnine months of '06, and that's based on using all revenues excluding any kindof gains less property expenses.

Property expenses net of tenant reimbursements were flatwith prior year amounts for the quarter. During the third quarter we did report$262,000 of lease termination fees, and that's compared to $1.545 million inthe third quarter of '06.

Other expenses and revenues, interest and other income was$793,000, that's flat with prior year amounts. Interest expense for the thirdquarter increased slightly to $11.9 million. That's up from $11.8 million inthe third quarter of '06 due to somewhat higher average debt balances offset byslightly lower average interest rates.

At quarter end we had $40.2 million or 3.8% of our total$1.061 billion of total liabilities as floating rate debt. If you look atfloating rate debt as a percent of our total gross book assets, which I thinkis a more meaningful metric, that was 1.6%.

We also reported the sale of 13 properties from our coreinvestment portfolio during the third quarter, which are reflected in theinvestment portfolio and discontinued ops on page 7. The sales generated netproceeds of $53.6 million and produced a gain of $22.5 million.

Total core portfolio dispositions for the first nine monthstotaled $114.6 million in net proceeds and produced a gain of $46.9 million. Wethink this activity helps us improve the quality of our portfolio. I think thatit demonstrates the embedded value of our core portfolio and supplies capitalfor accretive acquisitions as we sell at retail prices and buy wholesale.

Looking at discontinued ops, the inventory properties or TRSproperties, we sold a total of 27 properties from our taxable subsidiary withnet proceeds of $51.9 million. Two of those 27 properties were from ourdevelopment unit and 25 were from our 10-31 exchange unit. For the quartertotal pre-tax pre-overhead gain on sale from our TRS was $2.8 million. Thatcompares with $507,000 for the third quarter of '06.

Pre-tax TRS gains for year-to-date '07 was $9.2 millioncompared to $7.2 million year-to-date 2006. For the year we expect totalpre-tax gains of approximately $10 million to $11 million. We have reduced ourTRS inventory at quarter end but still have a number of properties undercontract or letter of intent for sale. This is a line item, obviously, thatcreates some choppiness in our reported results on the gain on sale dependingon the timing of the sale.

Taking a quick look at the balance sheet, we finished thethird quarter with total liabilities of $1.061 billion. Of that amount only$50.3 million was secured debt. 96.8% of our assets are unencumbered. Duringthe third quarter we generated $10.9 million of net proceeds from the issuanceof around 480,000 common shares from our stock purchase DRIP program.

Additionally we issued $250 million of 6 7/8% unsecurednotes in early September. As of quarter end September 30th, we total debt tototal assets was 43.2% on a gross book basis that's down from 45.4% the prioryear. On a market cap basis leverage was 37.8%.

Just after the end of the third quarter and therefore notincluded in these stats we completed a 4 million share common equity offeringCraig alluded to, which generated $99.2 million of net proceeds. The value ofmaintaining balance sheet flexibility, we believe, pays off in the long run andgiven the state of the capital markets at the moment we believe we're in a verygood position, which will enhance our competitiveness at the margin.

Interest coverage for the third quarter was 3.6 times aswell as for the nine months was 3.6. Fixed charge coverage for the quarter andthe nine months was 3.1. The coverage has improved over recent years due tolower borrowing costs and accretive impact of our capital recycling efforts.

In closing, with expected FFO growth this year of 10% to 12%and with a 6% dividend increase made earlier in the year, which marked our 18thconsecutive year of annual dividend increases, we are very pleased with theresults for 2007 and believe we're in good position to deliver solid growth in'08.

We believe the portfolio and balance sheet are in very goodshape and optimistic we're going to be able to continue delivering incrementalper share results as we create value through targeted acquisitions,developments, and dispositions. With that, I think we'll take some questions.

Question-and-AnswerSession

Operator

Your first question comes from Ambika Goel - Citigroup.

Ambika Goel - Citigroup

I just wanted to get an overview of what you are seeing therobust deal flow for 2008, what kind of deals are they? One of your peers hadcommented that they're actually seeing transaction volume potentially slowbecause M&A activity has slowed in the back half of the year.

Craig Macnab

Well for sure the amount of capital rushing into deals isless than it was. Having said that, there continues to be plenty of capital onthe sidelines and deal flow ebbs and flows. The fact of the matter, really oneof the strengths of our business model, is that we are only acquiring a smallpercentage of the deals that we take a look at. There are more than enoughdeals out there in the market and we're going to get our share of them.

In 2008, as Kevin mentioned, we're looking at acquisitionvolume of $300 million to $400 million. That's considerably less than we willacquire this year. Looking at the deal flow we're currently seeing, it'spromising.

Ambika Goel - Citigroup

If you could give some color on that deal flow, is thatM&A activity that you expect to happen early next year or is that justcompanies looking to get real estate off their books?

Craig Macnab

Ambika, it is abalance of both. As you know, we've worked hard over the last couple of yearsto build preferred relationships with a variety of growing retailers that usesale and leasebacks to finance their growth, so we've got a portion of that. Secondly,there is some M&A activity that right now we're participating in.

Ambika Goel - Citigroup

Could you give the cap rates on the theaters that youacquired?

Craig Macnab

We are not giving outinformation on properties individually.

Ambika Goel - Citigroup

Were the cap rates on the theaters in line with theportfolio average?

Craig Macnab

Absolutely.

Ambika Goel - Citigroup

What should we expect for the cap rates for the acquisitionsand dispositions in 2008 guidance?

Kevin Habicht

I think next year weare indicating that acquisitions we're penciling in somewhere in the 8.5 range,again trying to move those higher, and we think the dispositions will be 100basis points south of that number, so the spread's still attractive for capitalrecycling.

Operator

Our next questioncomes from Charles Place -Ferris Baker Watts.

Charles Place - Ferris Baker Watts

Is there any feel or thought about the [green shoe] as itrelates to the deal that you did in October? Do you think that's going to beexercised?

Kevin Habicht

I don't believe so,given the market turmoil of recent weeks. We're not banking on that.

Craig Macnab

With the stockselling below where the equity offering was done, we're not anticipating theshoe being exercised.

Charles Place - Ferris Baker Watts

What was the cap rateon your third quarter acquisitions, the $140 million?

Craig Macnab

In the third quarterI think it was 8.18%.

Charles Place - Ferris Baker Watts

Did I understand your guidance, Kevin, as far as it relatesto '07 now, are you just pegging it at $1.87? There is no range any more?

Kevin Habicht

No, all we did wasour old range was $1.83 to $1.87. We moved the bottom end up slightly from$1.84 to $1.87 so not much change there, but it is in that ZIP code. We feelvery good about the visibility obviously, for '07, but frankly feel pretty goodabout '08 as well.

Charles Place - Ferris Baker Watts

One of the thingsthat you mentioned, Craig, is that you said that the 2008 could be shaping upto be a stronger year relative to years past. We note that you're doing around$600 plus million of acquisitions in '07 here and then your guidance was between$300 million and $400 million. Is there potential that that number couldincrease substantially based on what you're seeing out there?

Craig Macnab

I think that whatwe're commenting on is that we feel at this point in time we've got a highdegree of visibility on achieving the metrics that we need to execute on togenerate the FFO per share in the guidance that Kevin mentioned.

Now, just as a reminder what will impact 2008 is not onlythe absolute amount of acquisition activity and we're sticking to our $300million to $400 million, but the timing of when that comes due. So right nowwe're working on a couple of transactions which are not done yet, I may add,but if they close, we will start off 2008 in the first half of the year with pretty goodacquisition activity, which means we'll get the rents for the entire year. Sothat helps give us comfort that we're going to achieve our numbers in 2008, butwe still have got to close those deals.

Charles Place - Ferris Baker Watts

One last thing here on some balance sheet information. What'syour percentage of fixed rate versus total debt and what's your averageinterest rate on total debt?

Kevin Habicht

Total debt averageinterest rate is around 6.15% and as a percentage of our total liability,floating rate debt is only 3.8%.

Craig Macnab

That was at the end of the quarter and obviously in thebeginning of the fourth quarter we did an equity offering, so that is evenlower today. Also LIBOR is pretty low.

Operator

Your next question comes from David Fick - Stifel Nicolaus.

David Fick - Stifel Nicolaus

Speaking of average interest rates, what forward assumptionsare you making about both the direction of rates and your cost of capital?

Kevin Habicht

From where we are now we're assuming that we are able toborrow at rates close to where they are today. And we recently did a ten-yeardeal and we have LIBOR probably a little higher than where it is today in ourassumptions, but not a material increase but certainly no decrease.

David Fick - Stifel Nicolaus

Craig, you mentioned that you guys haven't seen much move incap rates yet, and we're hearing from other property types across the board,most CEOs this quarter saying they are seeing some adjustments and that they'reseeing some hesitancy from their institutional partners to approve deals.

I am just wondering, I hate generic cap rate questions, butyou have a 10-31 business, so you're seeing flow there. Can you comment on the10-31 business? How confident you are in the presumption that you won't be ableto buy the real estate cheaper later?

Craig Macnab

David, your commentis absolutely on point about making generic comments, but let me attack it; acouple of different things. On our 10-31 business, where you have awell-located property in a bigger MSA and it doesn't have to be this mystiquewith East Coast/West Coast, it just got to be in a decent-sized community of morethan 100,000 people with recognized tenants. On a one-off basis, we are stillseeing and getting very good pricing on selling our properties.

Having said that, with borrowers unable to get interest-onlymortgages with the dislocations in the CMBS market, it is inevitable to us thatcap rates are going up, yields are going up on properties. It hasn't occurredyet and I am, frankly, a little mystified why that is in our property type. Weare trying to get slightly higher pricing and I may add we are running, if itwas easy we would have already done it, I can assure you.

I think just by way of analogy, if people think about someof the houses for sale on their street, how many of those are the buyers stillthinking that their house is unique and deserves a higher price? I think we'reseeing a little bit of that in the commercial real estate market, where sellersare a little slow to adapt to the new environment. But I do think that there islots of capital on the side line.

We are already getting very, very good pricing on ouracquisitions. As Kevin just mentioned, our guidance for next year assumes aweighted average cap rate in the mid-8% range and we think that's alreadybetter than market and we're proving that in the properties that we'rereselling. So we're not expecting a whole lot of improvement there, but we aretrying to get slightly better yields.

Kevin Habicht

I think it is important. The context I think is important. Idon't think our acquisition cap rates over recent years compressed nearly asmuch as you saw in many other real estate sectors, so that may be a part ofmaybe not springing back as quickly or as high in these early innings, but weclearly think there is room to drift higher.

David Fick - Stifel Nicolaus

On the theater acquisition, without getting too specific oncap rates, you have a lot of competition out there. There is a company that youcompete with and that's their only business and then there is a couple of otherof your peers that have been historically theater buyers. What kind of cap rategenerally do you think is appropriate for a theater portfolio today for a stateof the art stadium seating asset?

Craig Macnab

Obviously thatquestion depends how the property is doing, what the rent coverage is, where itis located, what its competition is, the credit of the tenants and so forth.But having said that, in the current environment, assuming that you have acredit tenant with a new stadium theater facility, mid-8s to us is the rightkind of number. We think in small dollar amounts that is attainable and that'sin our budget for 2008.

Just staying withthat question for a minute, in all of these different categories, there areplenty of competitors all the time looking to buy and sell properties, and itis our opportunity to be in the right place at the right time, and make theright deal.

Operator

Our next question comes from the Ken Avalos - Raymond James.

Ken Avalos - Raymond James

Do you guys plan on selling down any trade lines or sellingdown or moving away from any particular states?

Craig Macnab

Ken, we have been active in the capital recycling businessand a couple of times a year we take a look at our entire portfolio and weidentify specific, individual properties that we think somebody else is a betterowner of than we are. It depends on a number of different factors, what theunit level trends are, our exposure to that category, who the tenant is, ourperception of that category and so forth.

Having said that, if you're looking for a broad-brush statementat the present time, we're just selling a small number of individual propertieswhere we think over the next ten to 15 years somebody else is better off owningthat individual property than us. We're selling a couple of grocery propertiesright now and I think so far this year we've done a very good job of gettingrid of our 10-31 inventory at extremely good prices.

The beginning of this year we went into the year with over$100 million of inventory reflecting some deals we completed at the end of2006. Today we've significantly depleted that inventory. At the margin, we'reselling a couple of restaurant properties right now.

Ken Avalos - Raymond James

Kevin, anybody new on the watch list this quarter?

Kevin Habicht

No, not really,hasn't changed that much. We continue to have very little exposure to any kindof bankruptcy issues with tenants and so still feel okay about that.

Ken Avalos - Raymond James

Continuing along myvery pessimistic line of questioning, Craig, cap rates haven't moved. Arguablythe cost of debt, given what the ten-year is doing hasn't really budged thatmuch, but I think the risk picture has clearly increased the backlog. As youthink about buying assets, how do you know or feel and get comfortable with thefact that you're getting compensated for the risk picture when absolute returnsit sounds like for '08 are getting modeled down at 8.5% versus 8.75%?

Craig Macnab

That depends on thequality of the real estate at the end of the day, doesn't it, and who thetenant is. We are doing a very disciplined and comprehensive job underwritingthe real estate and the ability of the tenant to pay the rent over the 15 to 20years we're entering into a new lease. I do think that the consumer or retailsales are going to moderate in 2008. For what it's worth, I think in every oneof the last 50 years, every one, retail sales have gone up, but they are notgoing to go up in 2008 at record pace. If they remain dead even -- in otherwords no growth -- our retailers will be easily able to pay our rent.

Ken Avalos - Raymond James

As you go through your underwritings, you think at themargin, the quality, maybe not so much quality of the tenants, but the metricsare at the margin moving in any noticeable direction for you?

Craig Macnab

As we're looking atnew properties, new acquisitions, we're very, very focused on how thatcategory, that company, these properties will change, will be affected by aweaker economic environment. I heard what you said about your concern. If youtake a look at our capital market's activity in the past two months, you willsee that we have been very cautious and conservative.

Firstly, we went out and termed out to all of our debt inthe first couple of days in September and then the first couple of days inOctober we went ahead and took advantage of the capital markets at that timeand sold 4 million shares. So right now we have cash on our balance sheet andby nature we're cautious and conservative people. We've recently taken a lookat a number of different deals which are going to get done at cap rates thatare consistent with what we're looking at and we just passed on those deals.There are lots of opportunities. We don't have to date every girl at the party.

Kevin Habicht

I think that's thekey is that, again, guidance for next year on acquisitions is $300 million to$400 million. I think that's achievable, that's not a big number in ouruniverse and we have the capital available today to fund that. We are in a goodposition to be relatively selective.

Operator

Our next question comes from Dustin Pizzo - Banc of America.

Dustin Pizzo - Banc of America

Craig, following up on Kevin's questions there, what's theaverage rent coverage ratio right now in the portfolio? Do you guys disclosethat?

Craig Macnab

We don't, Dustin, andobviously in our portfolio there are a couple of different categories oftenants. First one is if you start outwith some of our bigger categories, such as drug stores, not only do we haveexcellent rent coverage at the unit level, but companies like CVS have verygood rent coverage.

We have, in round numbers, about one half of our rent iscoming from publicly traded or investment grade rated type of companies, andthat includes say a company like Circuit City, that I don't think hasinvestment grade debt but with no debt outstanding it is a pretty good companyand we're confident that they're going to pay our rent.

As you move down into some of the other more regionaltenants, we obviously as we underwrite these properties take a very close lookat the rent coverage, and not all of those properties report their rent, by theway, to us, but if you take a look at what we're looking at underwriting rightnow in the recent past some of these transactions have been in a rent coverageratio of 1.75 to as much as 3 times.

Dustin Pizzo - Banc of America

The leases with some of the bigger box guys, like Circuit City that you mentioned, those arecross-collateralized, right?

Craig Macnab

No, sir.

Kevin Habicht

Typically no.

Dustin Pizzo - Banc of America

Typically no they'renot?

Kevin Habicht

No.

Dustin Pizzo - Banc of America

Kevin, just looking at your decision to execute theaccordion feature, how much of that was a function of the level activity thatyou're seeing in the market and how much of it was due to the attractive priceof that debt relative to what's going on in the unsecured market?

Kevin Habicht

I just think thereprobably wasn't any specific reason beyond that obviously capital is more deartoday and so having more availability is a better position to be in and at themargin I think that enhances our competitive position; and that capital ispretty reasonably priced. All of those things made a lot of sense just to pullthe trigger on that feature that was already embedded in our existing creditfacility.

Craig Macnab

Dustin, just if youstep back, we have access to capital in a variety of different buckets.Obviously, this new joint venture is a new addition, but if you take back onour line of credit specifically, which is your question, at the time we put inplace this existing credit facility, we were a company 50% to 60% the size thatwe are today in terms of total assets.

So an addition of another $100 million when we've acquiredover $1 billion of properties in the last three years or so, $100 million isnot a lot in the scheme of things.

Dustin Pizzo - Banc of America

Looking at the dividend, based on where the payout ratio ishere, should we expect to see you guys potentially bump that up in concert with FFO growth over the next fewyears?

Kevin Habicht

You should expect tosee, yes. This year, 2007, we were able to increase the dividend 6%. We havereached a point in terms of our payout ratio both on an FFO basis as well as amore tax-oriented taxable income basis, where we need to start growing ourdividend more in line with FFO per share growth. I think you'll see that take place in '08 aswell which will mark our 19th consecutive year of increased dividend.

Operator

There are no further questions. I would like to now turn thefloor back over to Craig Macnab for closing comments.

Craig Macnab

Andrea, thanks verymuch. We wish you all happy holidays. I guess we'll see some of you in Las Vegas for the NAREIT convention. We wish you all avery happy Thanksgiving and we'll be talking to you early in 2008.

Thanks for your interest in National Retail Properties. Goodafternoon.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: National Retail Properties Q3 2007 Earnings Call Transcript
This Transcript
All Transcripts