Leased Over One Million Square Feet in Third
Quarter
Company to Host Investor Webcast and Conference
Call at 11:00 AM ET Tomorrow
NEW
YORK, Nov. 2, 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 third quarter ended September 30, 2022.
Third Quarter 2022 and Subsequent Events
Highlights
- Revenue grew 26.4% to $116.2
million from $91.9 million for
the third quarter 2021
- Net loss attributable to common stockholders was $56.5 million as compared to net loss of
$6.4 million for the third quarter
2021
- Cash net operating income ("Cash NOI") rose 12.3% to
$85.0 million from $75.7 million for the third quarter 2021
- Funds from Operations ("FFO") was $0.22 per share, a decrease from $0.25 per share in the third quarter 2021 due to
a $10.4 million lease buyout fee
received in third quarter 2021
- Adjusted Funds from Operations ("AFFO") was $34.2 million, compared to $36.4 million in the prior year third
quarter
- AFFO per share was $0.26 per
share, an 18% increase compared to the fourth quarter 2021, the
last period prior to the $1.3 billion
open-air shopping center portfolio acquisition
- Paid dividends on common stock of $28.3
million or $0.21 per
share
- Executed 41 new leases in multi-tenant portfolio that total
over 500,000 square feet with $3.5
million of annualized straight-line rent
- Executed 42 lease renewals in multi-tenant portfolio that total
over 550,000 square feet and $8.4
million in annualized straight-line rent
- Occupancy at open-air assets grew to 90.6% from 87.9% in the
third quarter 2021 and Executed Occupancy and Leasing
Pipeline1 at open-air shopping centers grew to 92.8%
compared to 89.4% in the prior quarter
- Acquired two properties for an aggregate contract purchase
price of $76.1 million at a cash
capitalization rate2 of 6.6% and a weighted average
capitalization rate3 of 7.9%
- Dispositions of $331 million for
the nine months ended September 30,
2022 and a disposition pipeline totaling $261 million in contract sales price
- High quality portfolio with 54% of the single tenant portfolio,
and 61.9% of top 20 tenants, investment grade rated or implied
investment grade rated4
"We had an excellent third quarter, highlighted by leasing over
a million square feet, the highest level since our listing, and
increasing our executed and pipeline occupancy to almost 93% in our
multi-tenant portfolio," said Michael
Weil, CEO of RTL. "We also completed the predominantly
open-air portfolio acquisition while producing 18% growth in AFFO
per share compared to the last full quarter before we began
acquiring the large portfolio of shopping centers. Our results
affirm our belief in necessity-based retail real estate, especially
in the single-tenant and open-air shopping center spaces. We are
pleased that we have been able to extract meaningful accretion from
both our acquisitions and our leasing efforts across the portfolio.
We look forward to unlocking additional value appreciation as we
expect to benefit from our successful and ongoing efforts to drive
cash flow, while continuing to pay a very compelling dividend to
our shareholders."
Financial
Results
|
|
Three Months Ended
September 30,
|
(In thousands,
except per share data)
|
|
2022
|
|
2021
|
Revenue from
tenants
|
|
$
116,176
|
|
$
91,915
|
|
|
|
|
|
Net loss attributable
to common stockholders
|
|
$
(56,466)
|
|
$
(6,406)
|
Net loss per common
share (a)
|
|
$
(0.43)
|
|
$
(0.06)
|
|
|
|
|
|
FFO attributable to
common stockholders
|
|
$
29,351
|
|
$
30,282
|
FFO per common share
(a)
|
|
$
0.22
|
|
$
0.25
|
|
|
|
|
|
AFFO attributable to
common stockholders
|
|
$
34,160
|
|
$
36,433
|
AFFO per common share
(a)
|
|
$
0.26
|
|
$
0.31
|
(a)
|
All per share data
based on 133,115,729 and 118,862,852 diluted weighted-average
shares outstanding for the three months ended September 30, 2022
and 2021, respectively.
|
Real Estate Portfolio
The Company's portfolio consisted of 1,050 net leased properties
located in 47 states and the District of
Columbia and comprised approximately 28.8 million rentable
square feet as of September 30, 2022. Portfolio metrics
include:
- 92.6% leased, with 7.0 years remaining weighted-average lease
term5
- 63.9% of leases have weighted-average contractual rent
increases of 0.9% based on annualized straight-line rent which
increase the cash that is due under these leases over time
- 54% and 40% of annualized straight-line rent in the
single-tenant portfolio and from multi-tenant anchor tenants,
respectively, was derived from investment grade or implied
investment grade tenants
- 91% retail properties, 8% distribution properties and 1% office
properties (based on an annualized straight-line rent)
- 59% 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 September 30, 2022, the
Company acquired two properties for an aggregate contract purchase
price of $76.1 million at a cash
capitalization rate of 6.6% and a weighted average capitalization
rate of 7.9%.
Property Dispositions
During the three months ended September 30, 2022, the
Company disposed of eight properties, for an aggregate contract
sales price of $35.4 million.
Capital Structure and Liquidity Resources
As of September 30, 2022, the Company had a total borrowing
capacity under the credit facility of $517.9
million based on the value of the borrowing base under the
credit facility, and, of this amount, $478.0
million was outstanding under the credit facility as of
September 30, 2022 and $39.9
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
September 30, 2022, the Company had $41.2 million of cash and cash equivalents. The
Company's net debt8 to gross asset value9 was
51.5%, with net debt of $2.8
billion.
The Company's percentage of fixed rate debt was 83.1% as of
September 30, 2022. The Company's total combined debt had a
weighted-average interest rate cost of 4.2%10,
resulting in an interest coverage ratio of 2.5
times11.
Webcast and Conference Call
RTL will host a webcast and call on November 3, 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: 13730901
*Available from 2:00 p.m. ET on
November 3, 2022 through February 3, 2023.
Footnotes/Definitions
1.
|
Includes (i) all leases
fully executed by both parties as of September 30, 2022 but where
the tenant has yet to take possession as of September 30, 2022,
(ii) all leases fully executed by both parties as of October 31,
2022, but after September 30, 2022 and (iii) all leases under
negotiation with an executed nonbinding letter of intent ("LOI") by
both parties as of October 31, 2022. There were six leases fully
executed as of September 30, 2022 where the tenant had yet to take
possession totaling approximately 104,100 square feet, one lease
fully executed as of October 31, 2022, but after September 30, 2022
totaling approximately 2,300 square feet and 21 LOIs executed as of
October 31, 2022 totaling approximately 262,000 square feet. 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.
|
2.
|
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.
|
3.
|
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-line 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.
|
4.
|
As used herein,
investment grade includes both actual investment grade ratings of
the tenant or guarantor, if available, or implied investment grade
ratings. Implied investment grade ratings may include actual
ratings of tenant parent or guarantor parent (regardless of whether
or not the parent has guaranteed the tenant's obligation under the
lease) or 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 September 30, 2022. Based
on annualized straight-line rent as of September 30, 2022,
single-tenant portfolio tenants were 39.9% actual investment grade
rated and 14.4% implied investment grade rated, top 20 tenants were
52.4% actual investment-grade rated and 9.5% implied
investment-grade rated and anchor tenants in the multi-tenant
portfolio were 30.9% actual investment grade rated and 9.5% implied
investment grade rated.
|
5.
|
The weighted-average is based on annualized
straight-line rent as of September 30, 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 $2.8
billion less cash and cash equivalents of $41.2 million as of
September 30, 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 September 30, 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 September 30,
2022.
|
About The Necessity Retail REIT, Inc.
The Necessity Retail REIT (Nasdaq: RTL) is the preeminent
publicly traded real estate investment trust (REIT) focused
on "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 the
outcome to be materially different. The words such as "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 RTL's
control, which could cause actual results to differ materially from
the results contemplated by the forward-looking statements. These
risks and uncertainties include 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 the related
impact on RTL, RTL's tenants and the global economy and financial
markets, as well as those set forth in the Risk Factors section of
RTL's most recent 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
RTL's subsequent reports. Further, forward-looking statements speak
only as of the date they are made, and RTL 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 over time, unless required 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") 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, the Company has excluded
from the increase in straight-line rent for 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)
|
|
|
September
30,
2022
|
|
December 31,
2021
|
|
(Unaudited)
|
|
|
ASSETS
|
|
|
|
Real estate
investments, at cost:
|
|
|
|
Land
|
$
1,009,048
|
|
$
729,048
|
Buildings, fixtures
and improvements
|
3,515,775
|
|
2,729,719
|
Acquired intangible
lease assets
|
654,735
|
|
402,673
|
Total real estate
investments, at cost
|
5,179,558
|
|
3,861,440
|
Less: accumulated
depreciation and amortization
|
(744,265)
|
|
(654,667)
|
Total real estate
investments, net
|
4,435,293
|
|
3,206,773
|
Cash and cash
equivalents
|
41,150
|
|
214,853
|
Restricted
cash
|
19,288
|
|
21,996
|
Deposits for real
estate acquisitions
|
—
|
|
41,928
|
Deferred costs,
net
|
22,176
|
|
25,587
|
Straight-line rent
receivable
|
67,953
|
|
70,789
|
Operating lease
right-of-use assets
|
17,964
|
|
18,194
|
Prepaid expenses and
other assets
|
46,732
|
|
26,877
|
Assets held for
sale
|
1,525
|
|
187,213
|
Total
assets
|
$
4,652,081
|
|
$
3,814,210
|
|
|
|
|
LIABILITIES AND
EQUITY
|
|
|
|
Mortgage notes payable,
net
|
$
1,807,533
|
|
$
1,464,930
|
Credit
facility
|
478,000
|
|
—
|
Senior notes,
net
|
491,983
|
|
491,015
|
Below market lease
liabilities, net
|
140,241
|
|
78,073
|
Accounts payable and
accrued expenses (including $2,864 and $1,016 due to related
parties as of
September 30, 2022 and December 31,
2021, respectively)
|
55,506
|
|
32,907
|
Operating lease
liabilities
|
19,153
|
|
19,195
|
Derivative liabilities,
at fair value
|
—
|
|
2,250
|
Deferred rent and other
liabilities
|
7,919
|
|
9,524
|
Dividends
payable
|
5,837
|
|
6,038
|
Total
liabilities
|
3,006,172
|
|
2,103,932
|
|
|
|
|
|
|
|
|
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 September 30, 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, 4,595,175 and 4,594,498 issued
and outstanding as of September 30, 2022
and December 31, 2021, respectively
|
46
|
|
46
|
Common stock, $0.01 par
value per share, 300,000,000 shares authorized, 134,244,502 and
123,783,060 shares issued and outstanding as of
September 30, 2022 and December 31,
2021, respectively
|
1,343
|
|
1,238
|
Additional paid-in
capital
|
2,999,273
|
|
2,915,926
|
Distributions in excess
of accumulated earnings
|
(1,374,378)
|
|
(1,217,435)
|
Total stockholders'
equity
|
1,626,363
|
|
1,699,854
|
Non-controlling
interests
|
19,546
|
|
10,424
|
Total
equity
|
1,645,909
|
|
1,710,278
|
Total liabilities
and equity
|
$
4,652,081
|
|
$
3,814,210
|
The Necessity Retail
REIT, Inc.
Consolidated
Statements of Operations (Unaudited)
(In thousands,
except share and per share data)
|
|
|
Three Months
Ended
September 30,
|
|
2022
|
|
2021
|
Revenue from
tenants
|
$
116,176
|
|
$
91,915
|
|
|
|
|
Operating
expenses:
|
|
|
|
Asset management fees
to related party
|
7,939
|
|
9,880
|
Property operating
expense
|
28,051
|
|
13,384
|
Impairment of real
estate investments
|
30,046
|
|
4,554
|
Acquisition,
transaction and other costs
|
210
|
|
3,426
|
Equity-based
compensation [1]
|
3,857
|
|
4,149
|
General and
administrative
|
8,499
|
|
5,589
|
Depreciation and
amortization
|
57,494
|
|
32,762
|
Total operating
expenses
|
136,096
|
|
73,744
|
Operating (loss) income before gain on sale of real estate
investments
|
(19,920)
|
|
18,171
|
Gain on sale of real
estate investments
|
1,608
|
|
478
|
Operating
(loss) income
|
(18,312)
|
|
18,649
|
Other (expense)
income:
|
|
|
|
Interest
expense
|
(32,402)
|
|
(19,232)
|
Other
income
|
25
|
|
18
|
Total other expense,
net
|
(32,377)
|
|
(19,214)
|
Net loss
|
(50,689)
|
|
(565)
|
Net loss (income)
attributable to non-controlling interests
|
60
|
|
(4)
|
Allocation for
preferred stock
|
(5,837)
|
|
(5,837)
|
Net loss
attributable to common stockholders
|
$
(56,466)
|
|
$
(6,406)
|
|
|
|
|
Basic and Diluted
Net Loss Per Share:
|
|
|
|
Net loss per share
attributable to common stockholders — Basic and Diluted
|
$
(0.43)
|
|
$
(0.06)
|
Weighted-average shares
outstanding — Basic
|
133,115,729
|
|
118,862,852
|
Weighted-average shares
outstanding — Diluted
|
133,115,729
|
|
118,862,852
|
______
|
[1]
|
For the three months
ended September 30, 2022 and 2021, includes expense related to the
Company's restricted common shares of $0.7 million and $0.3
million, respectively.
|
The Necessity Retail
REIT, Inc.
Quarterly
Reconciliation of Non-GAAP Measures (Unaudited)
(In
thousands)
|
|
|
|
Three Months
Ended
September 30,
|
|
|
2022
|
|
2021
|
Adjusted
EBITDA
|
|
|
|
|
Net loss
|
|
$
(50,689)
|
|
$
(565)
|
Depreciation and
amortization
|
|
57,494
|
|
32,762
|
Interest
expense
|
|
32,402
|
|
19,232
|
Impairment of real
estate investments
|
|
30,046
|
|
4,554
|
Acquisition,
transaction and other costs
|
|
210
|
|
3,426
|
Equity-based
compensation [1]
|
|
3,857
|
|
4,149
|
Gain on sale of real
estate investments
|
|
(1,608)
|
|
(478)
|
Other
income
|
|
(25)
|
|
(18)
|
Adjusted
EBITDA
|
|
71,687
|
|
63,062
|
Asset management fees
to related party
|
|
7,939
|
|
9,880
|
General and
administrative
|
|
8,499
|
|
5,589
|
NOI
|
|
88,125
|
|
78,531
|
Amortization of market lease and other intangibles, net
|
|
(574)
|
|
(1,474)
|
Straight-line
rent
|
|
(2,586)
|
|
(1,392)
|
Cash
NOI
|
|
$
84,965
|
|
$
75,665
|
|
|
|
|
|
Cash Paid for
Interest:
|
|
|
|
|
Interest
expense
|
|
$
32,402
|
|
$
19,232
|
Amortization of deferred financing costs, net
|
|
(3,474)
|
|
(2,620)
|
Amortization of mortgage premiums and (discounts) on borrowings,
net
|
|
(454)
|
|
328
|
Total
cash paid for interest
|
|
$
28,474
|
|
$
16,940
|
______
|
[1]
|
For the three months
ended September 30, 2022 and 2021, includes expense related to the
Company's restricted common shares of $0.7 million and $0.3
million, respectively.
|
The Necessity Retail
REIT, Inc.
Quarterly
Reconciliation of Non-GAAP Measures (Unaudited)
(In
thousands)
|
|
|
|
Three Months
Ended
September 30,
|
|
Three Months
Ended
December 31,
|
|
|
2022
|
|
2021
|
|
2021
|
Net loss attributable
to common stockholders (in accordance with GAAP)
|
|
$
(56,466)
|
|
$ (6,406)
|
|
$
(40,219)
|
Impairment of real
estate investments
|
|
30,046
|
|
4,554
|
|
28,616
|
Depreciation and amortization
|
|
57,494
|
|
32,762
|
|
32,955
|
Gain on
sale of real estate investments
|
|
(1,608)
|
|
(478)
|
|
(3,982)
|
Proportionate share of adjustments for non-controlling interest to
arrive at
FFO
|
|
(115)
|
|
(150)
|
|
53
|
FFO attributable to
common stockholders [1]
|
|
29,351
|
|
30,282
|
|
17,423
|
Acquisition, transaction and other costs [2]
|
|
210
|
|
3,426
|
|
774
|
Legal fees
and expenses — COVID-19 lease disputes [3]
|
|
7
|
|
44
|
|
200
|
Amortization of market lease and other intangibles, net
|
|
(574)
|
|
(1,474)
|
|
(1,175)
|
Straight-line rent
|
|
(2,586)
|
|
(1,392)
|
|
(1,897)
|
Straight-line rent (rent deferral agreements)
[4]
|
|
(27)
|
|
(876)
|
|
(694)
|
Amortization of mortgage (premiums) and discounts on borrowings,
net
|
|
454
|
|
(328)
|
|
4
|
Loss on non-designated
derivatives [5]
|
|
—
|
|
—
|
|
3,950
|
Equity-based compensation [6]
|
|
3,857
|
|
4,149
|
|
3,485
|
Amortization of deferred financing costs, net
[7]
|
|
3,474
|
|
2,620
|
|
4,743
|
Proportionate share of adjustments for non-controlling interest to
arrive at
AFFO
|
|
(6)
|
|
(18)
|
|
3
|
AFFO attributable to
common stockholders [1]
|
|
$ 34,160
|
|
$
36,433
|
|
$
26,816
|
______
|
[1]
|
FFO and AFFO for the
three months ended September 30, 2021 include income from lease
termination fees of $10.4 million, 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
with American Realty Capital-Retail Centers of America, Inc. in
February 2017.
|
[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 sheets 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]
|
In the fourth quarter
and year ended December 31, 2021, the Company recognized a charge
$4.0 million for the change in value of an embedded derivative (a
7.5% collar on the price of stock/units to be issued in connection
with the CIM Portfolio Acquisition). Management does not consider
this non-cash charge for an embedded derivative fair value
adjustment in connection with this transaction to be capital in
nature and it is not part of recurring operations. Accordingly,
such charges are excluded for AFFO purposes.
|
[6]
|
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.
|
[7]
|
The Company issued
$500.0 million in Senior Notes in October 2021. The Senior Notes
pay semiannual interest which the Company accrues interest over
time for GAAP purposes. Accordingly, to better reflect the
Company's operating performance, beginning with the year ended
December 31, 2021 and for all periods thereafter, the Company has
elected to remove the impact of the change in accrued interest from
the calculation of AFFO, which was previously included in this line
item. The impact to AFFO for the removal of the change in accrued
interest included in this line item for the three months ended
September 30, 2021 was an increase to AFFO of $428,000.
|
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)
|
|
$ 3,367
|
|
$
(21,666)
|
|
$ 1,686
|
|
$
(5,015)
|
|
$ 1,927
|
|
$
(587)
|
|
$
(36,178)
|
|
$ (56,466)
|
Asset management fees
to
related party
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
7,939
|
|
7,939
|
Impairment of real
estate
investments
|
|
2,390
|
|
25,624
|
|
—
|
|
2,032
|
|
—
|
|
—
|
|
—
|
|
30,046
|
Acquisition,
transaction and
other costs
|
|
13
|
|
44
|
|
—
|
|
42
|
|
—
|
|
—
|
|
111
|
|
210
|
Equity-based
compensation
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
3,857
|
|
3,857
|
General and
administrative
|
|
81
|
|
712
|
|
—
|
|
98
|
|
—
|
|
3
|
|
7,605
|
|
8,499
|
Depreciation and
amortization
|
|
18,623
|
|
10,823
|
|
1,386
|
|
26,501
|
|
103
|
|
58
|
|
—
|
|
57,494
|
Interest
expense
|
|
17,133
|
|
2,055
|
|
—
|
|
2,325
|
|
—
|
|
—
|
|
10,889
|
|
32,402
|
Gain on sale of real
estate
investments
|
|
(34)
|
|
—
|
|
—
|
|
—
|
|
(2,111)
|
|
537
|
|
—
|
|
(1,608)
|
Other
income
|
|
(17)
|
|
(8)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(25)
|
Allocation for
preferred stock
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
5,837
|
|
5,837
|
Net income
attributable to non-
controlling interests
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(60)
|
|
(60)
|
NOI
|
|
$
41,556
|
|
$ 17,584
|
|
$ 3,072
|
|
$
25,983
|
|
$
(81)
|
|
$
11
|
|
$
—
|
|
$
88,125
|
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 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 include this adjustment. A
description of these non-GAAP measures and reconciliations to the
most directly comparable GAAP measure, which is net income (loss),
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, gains 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, which implies that
the value of a real estate asset diminishes predictably over time.
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 with American Realty Capital-Retail
Centers of America, Inc. in February
2017 (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 lease intangibles, amortization of deferred financing
costs, straight-line rent, and share-based compensation related to
restricted shares, the 2018 multi-year outperformance agreement
with the Advisor and the 2021 multi-year outperformance agreement
with the Advisor 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 and 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 our
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.
FFO and AFFO may include income from lease termination fees, which
is recorded in revenue from tenants in our consolidated statements
of operations.
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 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 (loss) 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 (loss), 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 calculate and 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.