Company to Host Investor Conference Call at
11:00 AM ET Tomorrow
NEW
YORK, May 4, 2022 /PRNewswire/ -- The Necessity
Retail REIT, Inc. (Nasdaq: RTL) ("RTL" or the "Company"), a real
estate investment trust focused on acquiring and managing a
diversified portfolio of primarily service-oriented and traditional
retail and distribution related commercial real estate properties
in the U.S., announced today its financial and operating results
for the first quarter ended March 31, 2022.
First Quarter 2022 and Subsequent Events
Highlights
- Revenue grew 19.9% to $94.9
million from $79.2 million for
the first quarter 2021
- Net income attributable to common stockholders was $39.9 million as compared to net loss of
$9.4 million for the first quarter
2021
- Cash net operating income ("NOI") rose 16.7% to $73.6 million from $63.1
million for the first quarter 2021
- Funds from Operations ("FFO") of $30.0
million, or $0.23 per diluted
share increased from $22.6 million,
or $0.21 per diluted share, for the
first quarter 2021
- Adjusted Funds from Operations ("AFFO") increased 24.3% to
$31.8 million from $25.5 million in the prior year first
quarter
- AFFO per share increased by 9.1% to $0.24 per share from $0.22 per share in the fourth quarter of 2021 and
flat compared to $0.24 per diluted
share in the prior year first quarter
- Paid dividends of $26.7 million
or $0.21 per share
- Acquired 59 properties for $842.0
million at a cash capitalization rate1 of 7.3%
and a weighted average capitalization rate2 8.6%
- Disposed of six properties for $265.2
million, including an office property leased to Sanofi in
New Jersey for $260.7 million
- High quality portfolio with 54% of the single tenant portfolio,
and 64% of top 20 tenants, investment grade rated or implied
investment grade rated3
- Occupancy at open-air assets grew to 87.6% from 86.8% at first
quarter 2021 and Executed Occupancy and Leasing
Pipeline4 at open-air shopping centers was 88.8%
compared to 88.5% in first quarter 2021
- Subsequent to quarter-end, closed on acquisition of 23
properties for $277.8 million,
substantially completing the previously announced $1.3 billion shopping center acquisition
- Multi-tenant acquisitions contributed $8.3 million of NOI in first quarter, expected to
add over $113 million of annualized
straight-line rent once all acquisitions are complete
"The momentum we carried into this year has continued to build
as we completed the acquisition of the majority of a $1.3 billion open-air shopping center portfolio
and the sale of the Sanofi office buildings that we had previously
announced," said Michael Weil, CEO
of RTL. "We have already started to experience year-over-year
growth thus far in 2022 in our AFFO, net income and NOI, and
quarter-over-quarter in our AFFO per share, despite these
acquisitions not starting to close until mid-quarter. With over 90%
of our straight-line rent coming from retail tenants, we are a
well-positioned pure-play retail REIT poised to continue to benefit
from strong trends in this sector as we work to add value for
shareholders."
Financial
Results
|
|
Three Months Ended
March 31,
|
(In thousands,
except per share data)
|
|
2022
|
|
2021
|
Revenue from
tenants
|
|
$
94,943
|
|
$
79,187
|
|
|
|
|
|
Net income (loss)
attributable to common stockholders
|
|
$
39,934
|
|
$
(9,411)
|
Net income (loss) per
common share (a)
|
|
$
0.31
|
|
$
(0.09)
|
|
|
|
|
|
FFO attributable to
common stockholders
|
|
$
30,008
|
|
$
22,571
|
FFO per common share
(a)
|
|
$
0.23
|
|
$
0.21
|
|
|
|
|
|
AFFO attributable to
common stockholders
|
|
$
31,751
|
|
$
25,540
|
AFFO per common share
(a)
|
|
$
0.24
|
|
$
0.24
|
(a)
|
All per share data
based on 130,048,111 and 108,436,571 diluted weighted-average
shares outstanding for the three months ended March 31, 2022 and
2021, respectively.
|
Real Estate Portfolio
The Company's portfolio consisted of 1,029 net lease properties
located in 47 states and the District of
Columbia and comprised 26.2 million rentable square feet as
of March 31, 2022. Portfolio metrics include:
- 91.4% leased, with 7.4 years remaining weighted-average lease
term5
- 64.4% of leases have weighted-average contractual rent
increases of 1.0% based on annualized straight-line rent
- 54% of single-tenant portfolio and 38% of multi-tenant anchor
tenants annualized straight-line rent derived from investment grade
or implied investment grade tenants
- 90% retail properties, 9% distribution properties and 1% office
properties (based on an annualized straight-line rent)
- 63% of the retail portfolio focused on either
service6 or experiential retail7 giving the
Company strong alignment with "e-commerce resistant" real
estate
Property Acquisitions
During the three months ended March 31, 2022, the Company
acquired 59 properties for an aggregate contract purchase price of
$842.0 million at a cash
capitalization rate of 7.3% and a weighted average capitalization
rate 8.6%.
Property Dispositions
During the three months ended March 31, 2022, the Company
disposed of six properties, for an aggregate contract price of
$265.2 million.
Capital Structure and Liquidity Resources
As of March 31, 2022 the Company had a total borrowing
capacity under the credit facility of $550.8
million based on the value of the borrowing base under the
credit facility, and, of this amount, $378.0
million was outstanding under the credit facility as of
March 31, 2022 and $172.8
million remained available for future borrowings. Subsequent
to quarter end, the Company borrowed additional funds under the
credit facility to partially fund acquisitions. As of
March 31, 2022, the Company had $82.1
million of cash and cash equivalents. The Company's net
debt8 to gross asset value9 was 46.0%, with
net debt of $2.3 billion.
The Company's percentage of fixed rate debt was 84.2% as of
March 31, 2022. The Company's total combined debt had a
weighted-average interest rate cost of 3.7%10,
resulting in an interest coverage ratio of 2.9
times11.
Webcast and Conference Call
RTL will host a webcast and call on May
5, 2022 at 11:00 a.m. ET to
discuss its financial and operating results. This webcast will be
broadcast live over the Internet and can be accessed by all
interested parties through the RTL website,
www.necessityretailreit.com, in the "Investor Relations"
section.
Dial-in instructions for the conference call and the replay are
outlined below.
To listen to the live call, please go to RTL's "Investor
Relations" section of the website at least 15 minutes prior to the
start of the call to register and download any necessary audio
software. For those who are not able to listen to the live
broadcast, a replay will be available shortly after the call on the
RTL website at www.necessityretailreit.com.
Live Call
Dial-In (Toll Free):
1-877-407-0792
International Dial-In: 1-201-689-8263
Conference Replay*
Domestic Dial-In (Toll Free):
1-844-512-2921
International Dial-In: 1-412-317-6671
Conference Number: 13728724
*Available from 2:00 p.m. ET on
May 5, 2022 through August 5, 2022.
Footnotes/Definitions
|
1.
|
Cash capitalization
rate is a rate of return on a real estate investment property based
on the expected, annualized cash rental income during the first
year of ownership that the property will generate under its
existing lease or leases. Cash capitalization rate is calculated by
dividing this annualized cash rental income the property will
generate (before debt service and depreciation and after fixed
costs and variable costs) by the purchase price of the property,
excluding acquisition costs. The weighted-average cash
capitalization rate is based upon square feet.
|
2.
|
Capitalization rate is
a rate of return on a real estate investment property based on the
expected, annualized straight-line rental income that the property
will generate under its existing lease or leases. Capitalization
rate is calculated by dividing the annualized straight-lined rental
income the property will generate (before debt service and
depreciation and after fixed costs and variable costs) by the
purchase price of the property, excluding acquisition costs. The
weighted-average capitalization rate is based upon square
feet.
|
3.
|
As used herein,
investment grade includes both actual investment grade ratings of
the tenant or guarantor, if available, or implied investment grade.
Implied investment grade may include actual ratings of tenant
parent, guarantor parent (regardless of whether or not the parent
has guaranteed the tenant's obligation under the lease) or by using
a proprietary Moody's analytical tool, which generates an implied
rating by measuring a company's probability of default. The term
"parent" for these purposes includes any entity, including any
governmental entity, owning more than 50% of the voting stock in a
tenant. Ratings information is as of March 31, 2022. Based on
annualized straight-line rent as of March 31, 2022,
single-tenant portfolio tenants are 41.0% actual investment grade
rated and 12.9% implied investment grade rated, top 20 tenants are
55% actual investment-grade rated and 9% implied investment-grade
rated and anchor tenants in the multi-tenant portfolio are 26.8%
actual investment grade rated and 11.3% implied investment grade
rated.
|
4.
|
Includes (i) all leases
fully executed by both parties as of March 31, 2022 (ii) all leases
fully executed by April 30, 2022, but after March 31, 2022 and
(iii) all leases under negotiation with an executed nonbinding
letter of intent ("LOI") by both parties as of April 30, 2022.
There were seven leases fully executed as of March 31, 2022
totaling approximately 78,000 square feet, four leases fully
executed by April 30, 2022, but after March 31, 2022 totaling
approximately 20,000 square feet and 12 LOIs totaling approximately
66,000 square feet.
|
|
For the first quarter
of 2021, there were two executed leases where rent commenced over
time between the third quarter of 2021 and the fourth quarter of
2021 totaling approximately 11,000 square feet and two LOIs
totaling 21,000 square feet, net of one lease termination for 5,000
square feet after March 31, 2021.
|
|
There can be no
assurance that LOIs will lead to definitive leases that will
commence on their current terms, or at all. Leasing pipeline should
not be considered an indication of future performance.
|
5.
|
The weighted-average is
based on annualized straight-line rent as of March 31,
2022.
|
6.
|
Service retail is
defined as single-tenant retail properties leased to tenants in the
retail banking, restaurant, grocery, pharmacy, gas/convenience,
healthcare, and auto services sectors.
|
7.
|
Experiential
retail is defined as multi-tenant properties leased to tenants in
the restaurant, discount retail, entertainment, salon/beauty, and
grocery sectors, among others. The Company also refers to
experiential retail as e-commerce defensive retail.
|
8.
|
Total debt of $1.9
billion less cash and cash equivalents of $82.1 million as of March
31, 2022. Excludes the effect of deferred financing costs, net,
mortgage premiums, net and includes the effect of cash and cash
equivalents.
|
9.
|
Defined as the carrying
value of total assets plus accumulated depreciation and
amortization as of March 31, 2022.
|
10.
|
Weighted based on the outstanding principal balance of the debt.
|
11.
|
The interest coverage
ratio is calculated by dividing Adjusted EBITDA by cash paid for
interest (interest expense less amortization of deferred financing
costs, net,
and amortization of mortgage premiums on
borrowings, net) for the quarter ended March 31,
2022.
|
About The Necessity Retail REIT, Inc.
The Necessity Retail REIT (Nasdaq: RTL) is the preeminent
publicly traded real estate investment trust (REIT) focused "Where
America Shops". RTL acquires and manages a diversified
portfolio of primarily necessity-based retail single tenant and
open-air shopping center properties in the U.S. Additional
information about RTL can be found on its website at
www.necessityretailreit.com.
Supplemental Schedules
The Company will file supplemental information packages with the
Securities and Exchange Commission (the "SEC") to provide
additional disclosure and financial information. Once posted, the
supplemental package can be found under the "Presentations" tab in
the Investor Relations section of RTL's website at
www.necessityretailreit.com and on the SEC website at
www.sec.gov.
Important Notice
The statements in this press release that are not historical
facts may be forward-looking statements. These forward-looking
statements involve risks and uncertainties that could cause actual
results or events to be materially different. The words "may,"
"will," "seeks," " "anticipates," "believes," "expects,"
"estimates," "projects," "plans," "intends," "should" and similar
expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain these
identifying words. These forward-looking statements are subject to
a number of risks, uncertainties and other factors, many of which
are outside of the Company's control, which could cause actual
results to differ materially from the results contemplated by the
forward-looking statements. These risks and uncertainties include
(a) the potential adverse effects of (i) the ongoing global
COVID-19 pandemic, including actions taken to contain or treat
COVID-19, and (ii) the geopolitical instability due to the ongoing
military conflict between Russia
and Ukraine, including related
sanctions and other penalties imposed by the U.S. and European
Union, and other countries, as well as other public and private
actors and companies, on the Company, the Company's tenants,
and the global economy and financial markets, and (b) that
any potential future acquisition is subject to market conditions
and capital availability and may not be identified or completed on
favorable terms, or at all, as well as those risks and
uncertainties set forth in the Risk Factors section of the
Company's Annual Report on Form 10-K for the year ended
December 31, 2021 filed on
February 24, 2022 and all other
filings with the SEC after that date as such risks, uncertainties
and other important factors may be updated from time to time in the
Company's subsequent reports. Forward looking statements speak only
as of the date they are made, and the Company undertakes no
obligation to update or revise any forward-looking statement to
reflect changed assumptions, the occurrence of unanticipated events
or changes to future operating results, unless required to do so by
law.
Accounting Treatment of Rent Deferrals/Abatements
The majority of the concessions granted to the Company's tenants
as a result of the COVID-19 pandemic are rent deferrals or
temporary rent abatements with the original lease term unchanged
and collection of deferred rent deemed probable. The Company's
revenue recognition policy requires that it must be probable that
the Company will collect virtually all of the lease payments due
and does not provide for partial reserves, or the ability to assume
partial recovery. In light of the COVID-19 pandemic, the Financial
Accounting Standards Board ("FASB") and SEC agreed that for leases
where the total lease cash flows will remain substantially the same
or less than those after the COVID-19 related effects, companies
may choose to forgo the evaluation of the enforceable rights and
obligations of the original lease contract as a practical expedient
and account for rent concessions as if they were part of the
enforceable rights and obligations of the parties under the
existing lease contract. As a result, rental revenue used to
calculate Net Income and National Association of Real Estate
Investment Trusts ("NAREIT") Funds From Operations ("FFO") has not
been, and the Company does not expect it to be, significantly
impacted by these types of deferrals. In addition, since the
Company currently believes that these deferral amounts are
collectable, they have been excluded from the increase in
straight-line rent for Adjusted FFO ("AFFO") purposes the amounts
recognized under accounting principles generally accepted in
the United States of America
("GAAP") relating to these types of rent deferrals. Conversely, for
abatements where contractual rent has been reduced, the reduction
in revenue is reflected over the remaining lease term for
accounting purposes but represents a permanent reduction in revenue
and the Company has, accordingly, reduced its AFFO.
Contacts: Investors and Media:
Email: investorrelations@necessityretailreit.com
Phone: (866) 902-0063
The Necessity Retail REIT, Inc.
Consolidated Balance Sheets
(In thousands. except share and per share
data)
|
|
|
|
|
|
March 31,
2022
|
|
December 31,
2021
|
|
(Unaudited)
|
|
|
ASSETS
|
|
|
|
Real estate
investments, at cost:
|
|
|
|
Land
|
$
880,799
|
|
$
729,048
|
Buildings, fixtures and improvements
|
3,307,831
|
|
2,729,719
|
Acquired intangible lease assets
|
553,854
|
|
402,673
|
Total real estate investments, at cost
|
4,742,484
|
|
3,861,440
|
Less: accumulated depreciation and amortization
|
(684,177)
|
|
(654,667)
|
Total real estate investments, net
|
4,058,307
|
|
3,206,773
|
Cash and cash
equivalents
|
82,106
|
|
214,853
|
Restricted
cash
|
15,131
|
|
21,996
|
Deposits for real
estate acquisitions
|
40,331
|
|
41,928
|
Deferred costs,
net
|
20,599
|
|
25,587
|
Straight-line rent
receivable
|
63,608
|
|
70,789
|
Operating lease
right-of-use assets
|
18,070
|
|
18,194
|
Prepaid expenses and
other assets
|
33,573
|
|
26,877
|
Assets held for
sale
|
—
|
|
187,213
|
Total
assets
|
$
4,331,725
|
|
$
3,814,210
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
|
|
|
Mortgage notes payable,
net
|
$
1,476,577
|
|
$
1,464,930
|
Credit
facility
|
378,000
|
|
—
|
Senior notes,
net
|
491,338
|
|
491,015
|
Below market lease
liabilities, net
|
118,957
|
|
78,073
|
Accounts payable and
accrued expenses (including $1,779 and $1,016 due to related
parties as of
March 31, 2022 and December 31, 2021,
respectively)
|
33,143
|
|
32,907
|
Operating lease
liabilities
|
19,180
|
|
19,195
|
Derivative liabilities,
at fair value
|
—
|
|
2,250
|
Deferred rent and other
liabilities
|
7,223
|
|
9,524
|
Dividends
payable
|
6,014
|
|
6,038
|
Total
liabilities
|
2,530,432
|
|
2,103,932
|
|
|
|
|
Mezzanine Equity:
|
|
|
|
Shares subject to
repurchase
|
53,388
|
|
—
|
|
|
|
|
7.50% Series A
cumulative redeemable perpetual preferred stock, $0.01 par value,
liquidation
preference $25.00 per share, 12,796,000 shares authorized,
7,933,711 issued and outstanding
as of March 31, 2022 and December 31, 2021
|
79
|
|
79
|
7.375% Series C
cumulative redeemable perpetual preferred stock, $0.01 par value,
liquidation
preference $25.00 per share, 11,536,000 shares authorized,
4,594,498 issued and outstanding
as of March 31, 2022 and December 31, 2021
|
46
|
|
46
|
Common stock, $0.01 par
value per share, 300,000,000 shares authorized, 132,994,603(1)
and
123,783,060 shares issued and outstanding as of March 31,
2022 and December 31, 2021,
respectively
|
1,265
|
|
1,238
|
Additional paid-in
capital
|
2,937,262
|
|
2,915,926
|
Distributions in excess
of accumulated earnings
|
(1,204,337)
|
|
(1,217,435)
|
Total stockholders'
equity
|
1,734,315
|
|
1,699,854
|
Non-controlling
interests
|
13,590
|
|
10,424
|
Total
equity
|
1,747,905
|
|
1,710,278
|
Total
liabilities, mezzanine equity and total
equity
|
$
4,331,725
|
|
$
3,814,210
|
The Necessity Retail
REIT, Inc.
Consolidated
Statements of Operations (Unaudited)
(In thousands,
except share and per share data)
|
|
|
|
Three Months Ended
March 31,
|
|
2022
|
|
2021
|
Revenue from tenants
|
$
94,943
|
|
$
79,187
|
|
|
|
|
Operating expenses:
|
|
|
|
Asset
management fees to related party
|
7,826
|
|
7,321
|
Property
operating expense
|
19,139
|
|
13,439
|
Impairment
of real estate investments
|
5,942
|
|
—
|
Acquisition, transaction and other costs
|
279
|
|
42
|
Equity-based compensation [1]
|
3,498
|
|
4,347
|
General
and administrative
|
6,833
|
|
6,449
|
Depreciation and amortization
|
37,688
|
|
32,319
|
Total operating expenses
|
81,205
|
|
63,917
|
Operating income before gain on sale of real estate
investments
|
13,738
|
|
15,270
|
Gain on sale of real
estate investments
|
53,569
|
|
286
|
Operating income
|
67,307
|
|
15,556
|
Other (expense) income:
|
|
|
|
Interest
expense
|
(23,740)
|
|
(19,334)
|
Other
income
|
18
|
|
24
|
Gain on
non-designated derivative
|
2,250
|
|
—
|
Total other expense, net
|
(21,472)
|
|
(19,310)
|
Net income
(loss)
|
45,835
|
|
(3,754)
|
Net (income) loss
attributable to non-controlling interests
|
(64)
|
|
6
|
Allocation for
preferred stock
|
(5,837)
|
|
(5,663)
|
Net income (loss) attributable to common
stockholders
|
$
39,934
|
|
$
(9,411)
|
|
|
|
|
Basic and Diluted Net Income (Loss) Per
Share:
|
|
|
|
Net income (loss) per
share attributable to common stockholders — Basic and Diluted
|
$
0.31
|
|
$
(0.09)
|
Weighted-average shares
outstanding — Basic
|
128,640,845
|
|
108,436,571
|
Weighted-average shares
outstanding — Diluted
|
130,048,111
|
|
108,436,571
|
______
[1]
|
For the three months
ended March 31, 2022 and 2021, includes expense related to the
Company's restricted common shares of $0.3 million and $1.4
million, respectively.
|
The Necessity Retail
REIT, Inc.
Quarterly
Reconciliation of Non-GAAP Measures (Unaudited)
(In
thousands)
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2022
|
|
2021
|
Adjusted EBITDA
|
|
|
|
|
Net income
(loss)
|
|
$
45,835
|
|
$
(3,754)
|
Depreciation and amortization
|
|
37,688
|
|
32,319
|
Interest
expense
|
|
23,740
|
|
19,334
|
Impairment
of real estate investments
|
|
5,942
|
|
—
|
Acquisition, transaction and other costs
|
|
279
|
|
42
|
Equity-based compensation [1]
|
|
3,498
|
|
4,347
|
Gain on
sale of real estate investments
|
|
(53,569)
|
|
(286)
|
Other
income
|
|
(18)
|
|
(24)
|
Gain on
non-designated derivatives
|
|
(2,250)
|
|
—
|
Adjusted EBITDA
|
|
61,145
|
|
51,978
|
Asset
management fees to related party
|
|
7,826
|
|
7,321
|
General
and administrative
|
|
6,833
|
|
6,449
|
NOI
|
|
75,804
|
|
65,748
|
Amortization of market lease and other intangibles, net
|
|
(1,098)
|
|
(935)
|
Straight-line rent
|
|
(1,114)
|
|
(1,727)
|
Cash NOI
|
|
$
73,592
|
|
$
63,086
|
|
|
|
|
|
Cash Paid for Interest:
|
|
|
|
|
Interest
expense
|
|
$
23,740
|
|
$
19,334
|
Amortization of deferred financing costs, net
|
|
(2,893)
|
|
(2,474)
|
Amortization of mortgage premiums and (discounts) on borrowings,
net
|
|
13
|
|
321
|
Total cash paid for
interest
|
|
$
20,860
|
|
$
17,181
|
______
[1]
|
For the three months
ended March 31, 2022 and 2021, includes expense related to the
Company's restricted common shares of $0.3 million and $1.4
million, respectively.
|
The Necessity Retail
REIT, Inc.
Quarterly
Reconciliation of Non-GAAP Measures (Unaudited)
(In
thousands)
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2022
|
|
2021
|
Net loss attributable
to common stockholders (in accordance with GAAP)
|
|
$
39,934
|
|
$ (9,411)
|
Impairment
of real estate investments
|
|
5,942
|
|
—
|
Depreciation and amortization
|
|
37,688
|
|
32,319
|
Gain on
sale of real estate investments
|
|
(53,569)
|
|
(286)
|
Proportionate share of adjustments for non-controlling interest to
arrive at FFO
|
|
13
|
|
(51)
|
FFO attributable to common stockholders
[1]
|
|
30,008
|
|
22,571
|
Acquisition, transaction and other costs [2]
|
|
279
|
|
42
|
Legal fees
and expenses — COVID-19 lease disputes [3]
|
|
(8)
|
|
69
|
Amortization of market lease and other intangibles, net
|
|
(1,098)
|
|
(935)
|
Straight-line rent
|
|
(1,114)
|
|
(1,727)
|
Straight-line rent (rent deferral agreements)
[4]
|
|
(442)
|
|
(975)
|
Amortization of mortgage (premiums) and discounts on borrowings,
net
|
|
(13)
|
|
(321)
|
Gain on non-designated
derivatives
|
|
(2,250)
|
|
—
|
Equity-based compensation [5]
|
|
3,498
|
|
4,347
|
Amortization of deferred financing costs, net
|
|
2,893
|
|
2,474
|
Proportionate share of adjustments for non-controlling interest to
arrive at AFFO
|
|
(2)
|
|
(5)
|
AFFO attributable to common stockholders
[1]
|
|
$
31,751
|
|
$ 25,540
|
______
[1]
|
FFO and AFFO for the
three months ended March 31, 2022 and 2021 include income from a
lease termination fee of $4.5 million and $0.5 million,
respectively, which is recorded in Revenue from tenants in the
consolidated statements of operations.
|
[2]
|
Primarily includes
prepayment costs incurred in connection with early debt
extinguishment as well as litigation costs related to the
Merger.
|
[3]
|
Reflects legal costs
incurred related to disputes with tenants due to store closures or
other challenges resulting from COVID-19. The tenants involved in
these disputes had not recently defaulted on their rent and, prior
to the second and third quarters of 2020, had recently exhibited a
pattern of regular payment. Based on the tenants involved in these
matters, their history of rent payments, and the impact of the
pandemic on current economic conditions, the Company views these
costs as COVID-19-related and separable from our ordinary general
and administrative expenses related to tenant defaults. The Company
engaged counsel in connection with these issues separate and
distinct from counsel the Company typically engages for tenant
defaults. The amount reflects what the Company believes to be only
those incremental legal costs above what the Company typically
incurs for tenant-related dispute issues. The Company may continue
to incur these COVID-19 related legal costs in the
future.
|
[4]
|
Represents amounts
related to deferred rent pursuant to lease negotiations which
qualify for FASB relief for which rent was deferred but not
reduced. These amounts are included in the straight-line rent
receivable on the Company's consolidated balance sheet but are
considered to be earned revenue attributed to the current period
for rent that was deferred for purposes of AFFO as they are
expected to be collected. Accordingly, when the deferred amounts
are collected, the amounts reduce AFFO. For rent abatements
(including those qualified for FASB relief), where contractual rent
has been reduced, the reduction in revenue is reflected over the
remaining lease term for accounting purposes but represents a
permanent reduction in revenue and the Company has, accordingly
reduced its AFFO.
|
[5]
|
Includes expense
related to the amortization of the Company's restricted common
shares and LTIP Units related to its multi-year outperformance
agreements for all periods presented.
|
The Necessity Retail
REIT, Inc.
Quarterly
Reconciliation of Non-GAAP Measures (Unaudited)
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store
|
|
Acquisitions
|
|
Disposals
|
|
Non-
Property
Specific
|
|
Total
|
(In thousands)
|
|
Single-
Tenant
|
|
Multi-
Tenant
|
|
Single-
Tenant
|
|
Multi-
Tenant
|
|
Single-
Tenant
|
|
Multi-
Tenant
|
|
|
Net income
(loss) attributable to common stockholders (in accordance with
GAAP)
|
|
$ 4,959
|
|
$ 6,715
|
|
$ 1,997
|
|
$ 926
|
|
$
53,779
|
|
$
—
|
|
$
(28,442)
|
|
$
39,934
|
Asset management
fees to related party
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
7,826
|
|
7,826
|
Impairment of
real estate investments
|
|
5,942
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
5,942
|
Acquisition,
transaction and other costs
|
|
60
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
219
|
|
279
|
Equity-based
compensation
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
3,498
|
|
3,498
|
General and
administrative
|
|
56
|
|
275
|
|
—
|
|
—
|
|
5
|
|
—
|
|
6,497
|
|
6,833
|
Depreciation and
amortization
|
|
17,581
|
|
11,166
|
|
1,645
|
|
7,284
|
|
12
|
|
—
|
|
—
|
|
37,688
|
Interest
expense
|
|
16,908
|
|
—
|
|
—
|
|
81
|
|
—
|
|
—
|
|
6,751
|
|
23,740
|
Gain on sale of
real estate investments
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(53,569)
|
|
—
|
|
—
|
|
(53,569)
|
Other
income
|
|
(17)
|
|
(1)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(18)
|
Gain on
non-designated derivatives
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(2,250)
|
|
(2,250)
|
Allocation for
preferred stock
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
5,837
|
|
5,837
|
Net income
attributable to non-controlling interests
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
64
|
|
64
|
NOI
|
|
$
45,489
|
|
$ 18,155
|
|
$ 3,642
|
|
$ 8,291
|
|
$
227
|
|
$
—
|
|
$
—
|
|
$
75,804
|
Non-GAAP Financial Measures
This release discusses the non-GAAP financial measures we use to
evaluate our performance, including FFO, AFFO, Adjusted Earnings
before Interest, Taxes, Depreciation and Amortization ("Adjusted
EBITDA"), Net Operating Income ("NOI") and Cash Net Operating
Income ("Cash NOI"). While NOI is a property-level measure, AFFO is
based on our total performance and therefore reflects the impact of
other items not specifically associated with NOI such as, interest
expense, general and administrative expenses and operating fees to
related parties. Additionally, NOI as defined herein, does not
reflect an adjustment for straight-line rent but AFFO does. A
description of these non-GAAP measures and reconciliations to the
most directly comparable GAAP measure, which is net income, is
provided below. Adjustments for unconsolidated partnerships and
joint ventures are calculated to exclude the proportionate share of
the non-controlling interest to arrive at FFO, AFFO and NOI
attributable to stockholders.
Caution on Use of Non-GAAP Measures
FFO, AFFO, Adjusted EBITDA, NOI and Cash NOI should not be
construed to be more relevant or accurate than the current GAAP
methodology in calculating net income or in its applicability in
evaluating our operating performance. The method utilized to
evaluate the value and performance of real estate under GAAP should
be construed as a more relevant measure of operational performance
and considered more prominently than the non-GAAP measures.
Other REITs may not define FFO in accordance with the current
NAREIT, an industry trade group, definition (as we do), or may
interpret the current NAREIT definition differently than we do, or
may calculate AFFO differently than we do. Consequently, our
presentation of FFO and AFFO may not be comparable to other
similarly titled measures presented by other REITs.
We consider FFO and AFFO useful indicators of our performance.
Because FFO and AFFO calculations exclude such factors as
depreciation and amortization of real estate assets and gains or
losses from sales of operating real estate assets (which can vary
among owners of identical assets in similar conditions based on
historical cost accounting and useful-life estimates), FFO and AFFO
presentations facilitate comparisons of operating performance
between periods and between other REITs in our peer group.
As a result, we believe that the use of FFO and AFFO, together
with the required GAAP presentations, provide a more complete
understanding of our performance, including relative to our peers
and a more informed and appropriate basis on which to make
decisions involving operating, financing, and investing activities.
However, FFO and AFFO are not indicative of cash available to fund
ongoing cash needs, including the ability to pay cash dividends.
Investors are cautioned that FFO and AFFO should only be used to
assess the sustainability of our operating performance excluding
these activities, as they exclude certain costs that have a
negative effect on our operating performance during the periods in
which these costs are incurred.
Funds from Operations and Adjusted Funds from
Operations
Funds from Operations
Due to certain unique operating characteristics of real estate
companies, as discussed below, the NAREIT, an industry trade group,
has promulgated a performance measure known as FFO, which we
believe to be an appropriate supplemental measure to reflect the
operating performance of a REIT. FFO is not equivalent to net
income or loss as determined under GAAP.
We calculate FFO, a non-GAAP measure, consistent with the
standards established over time by the Board of Governors of
NAREIT, as restated in a White Paper and approved by the Board of
Governors of NAREIT effective in December
2018 (the "White Paper"). The White Paper defines FFO as net
income or loss computed in accordance with GAAP, excluding
depreciation and amortization related to real estate, gains and
losses from sales of certain real estate assets, gain and losses
from change in control and impairment write-downs of certain real
estate assets and investments in entities when the impairment is
directly attributable to decreases in the value of depreciable real
estate held by the entity. Adjustments for consolidated
partially-owned entities (including our Operating Partnership) and
equity in earnings of unconsolidated affiliates are made to arrive
at our proportionate share of FFO attributable to our stockholders.
Our FFO calculation complies with NAREIT's definition.
The historical accounting convention used for real estate assets
requires straight-line depreciation of buildings and improvements,
and straight-line amortization of intangibles. We believe that,
because real estate values historically rise and fall with market
conditions, including inflation, interest rates, unemployment and
consumer spending, presentations of operating results for a REIT
using historical accounting for depreciation and certain other
items may be less informative. Historical accounting for real
estate involves the use of GAAP. Any other method of accounting for
real estate such as the fair value method cannot be construed to be
any more accurate or relevant than the comparable methodologies of
real estate valuation found in GAAP. Nevertheless, we believe that
the use of FFO, which excludes the impact of real estate related
depreciation and amortization, among other things, provides a more
complete understanding of our performance to investors and to
management, and when compared year over year, reflects the impact
on our operations from trends in occupancy rates, rental rates,
operating costs, general and administrative expenses, and interest
costs, which may not be immediately apparent from net income.
Adjusted Funds from Operations
In calculating AFFO, we start with FFO, then we exclude certain
income or expense items from AFFO that we consider to be more
reflective of investing activities, such as non-cash income and
expense items and the income and expense effects of other
activities that are not a fundamental attribute of our day to day
operating business plan, such as amounts related to litigation
arising out of the Merger. These amounts include legal costs
incurred as a result of the litigation, portions of which have been
and may in the future be reimbursed under insurance policies
maintained by us. Insurance reimbursements are deducted from
AFFO in the period of reimbursement. We believe that excluding the
litigation costs and subsequent insurance reimbursements related to
litigation arising out of the Merger helps to provide a better
understanding of the operating performance of our business. Other
income and expense items also include early extinguishment of debt
and unrealized gains and losses, which may not ultimately be
realized, such as gains or losses on derivative instruments and
gains and losses on investments. In addition, by excluding non-cash
income and expense items such as amortization of above-market and
below-market leases intangibles, amortization of deferred financing
costs, straight-line rent, and share-based compensation related to
restricted shares and the 2018 OPP from AFFO, we believe we provide
useful information regarding those income and expense items which
have a direct impact on our ongoing operating performance.
In calculating AFFO, we exclude certain expenses which under
GAAP are characterized as operating expenses in determining
operating net income (loss). All paid and accrued merger,
acquisition and transaction related fees and certain other expenses
negatively impact our operating performance during the period in
which expenses are incurred or properties are acquired will also
have negative effects on returns to investors but are not
reflective of our on-going performance. In addition, legal fees and
expense associated with COVID-19-related lease disputes involving
certain tenants negatively impact our operating performance but are
not reflective of our on-going performance. Further, under GAAP,
certain contemplated non-cash fair value and other non-cash
adjustments are considered operating non-cash adjustments to net
income (loss). In addition, as discussed above, we view gains and
losses from fair value adjustments as items which are unrealized
and may not ultimately be realized and not reflective of ongoing
operations and are therefore typically adjusted for when assessing
operating performance. Excluding income and expense items detailed
above from our calculation of AFFO provides information consistent
with management's analysis of our operating performance.
Additionally, fair value adjustments, which are based on the impact
of current market fluctuations and underlying assessments of
general market conditions but can also result from operational
factors such as rental and occupancy rates, may not be directly
related or attributable to our current operating performance. By
excluding such changes that may reflect anticipated and unrealized
gains or losses, we believe AFFO provides useful supplemental
information. By providing AFFO, we believe we are presenting useful
information that can be used, among other things, to assess
performance without the impact of transactions or other items that
are not related to our portfolio of properties. AFFO presented by
us may not be comparable to AFFO reported by other REITs that
define AFFO differently. Furthermore, we believe that in order to
facilitate a clear understanding of our operating results, AFFO
should be examined in conjunction with net income (loss) calculated
in accordance with GAAP and presented in our consolidated financial
statements. AFFO should not be considered as an alternative to
net income (loss) as an indication of our performance or to cash
flows as a measure of our liquidity or ability to pay
dividends.
Adjusted Earnings before Interest, Taxes, Depreciation and
Amortization, Net Operating Income and Cash Net Operating
Income.
We believe that Adjusted EBITDA, which is defined as earnings
before interest, taxes, depreciation and amortization adjusted for
acquisition and transaction-related expenses, other non-cash items
such as the vesting and conversion of the Class B Units, expense
related to our multi-year outperformance agreement with the Advisor
and including our pro-rata share from unconsolidated joint
ventures, is an appropriate measure of our ability to incur and
service debt. Adjusted EBITDA should not be considered as an
alternative to cash flows from operating activities, as a measure
of our liquidity or as an alternative to net income as an indicator
of our operating activities. Other REITs may calculate Adjusted
EBITDA differently and our calculation should not be compared to
that of other REITs.
NOI is a non-GAAP financial measure used by us to evaluate the
operating performance of our real estate. NOI is equal to total
revenues, excluding contingent purchase price consideration, less
property operating and maintenance expense. NOI excludes all other
items of expense and income included in the financial statements in
calculating net income (loss). We believe NOI provides useful and
relevant information because it reflects only those income and
expense items that are incurred at the property level and presents
such items on an unleveraged basis. We use NOI to assess and
compare property level performance and to make decisions concerning
the operations of the properties. Further, we believe NOI is useful
to investors as a performance measure because, when compared across
periods, NOI reflects the impact on operations from trends in
occupancy rates, rental rates, operating expenses and acquisition
activity on an unleveraged basis, providing perspective not
immediately apparent from net income (loss). NOI excludes certain
items included in calculating net income (loss) in order to provide
results that are more closely related to a property's results of
operations. For example, interest expense is not necessarily linked
to the operating performance of a real estate asset. In addition,
depreciation and amortization, because of historical cost
accounting and useful life estimates, may distort operating
performance at the property level. NOI presented by us may not be
comparable to NOI reported by other REITs that define NOI
differently. We believe that in order to facilitate a clear
understanding of our operating results, NOI should be examined in
conjunction with net income (loss) as presented in our consolidated
financial statements. NOI should not be considered as an
alternative to net income (loss) as an indication of our
performance or to cash flows as a measure of our liquidity or our
ability to pay dividends.
Cash NOI, is a non-GAAP financial measure that is intended to
reflect the performance of our properties. We define Cash NOI as
NOI excluding amortization of above/below market lease intangibles
and straight-line adjustments that are included in GAAP lease
revenues. We believe that Cash NOI is a helpful measure that both
investors and management can use to evaluate the current financial
performance of our properties and it allows for comparison of our
operating performance between periods and to other REITs. Cash NOI
should not be considered as an alternative to net income, as an
indication of our financial performance, or to cash flows as a
measure of liquidity or our ability to fund all needs. The method
by which we calculate and present Cash NOI may not be directly
comparable to the way other REITs present Cash NOI.
Cash Paid for Interest is calculated based on the interest
expense less non-cash portion of interest expense and amortization
of mortgage (discount) premium, net. Management believes that Cash
Paid for Interest provides useful information to investors to
assess our overall solvency and financial flexibility. Cash Paid
for Interest should not be considered as an alternative to interest
expense as determined in accordance with GAAP or any other GAAP
financial measures and should only be considered together with and
as a supplement to our financial information prepared in accordance
with GAAP.
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SOURCE The Necessity Retail REIT, Inc.