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With 876 Properties In Their Portfolio As Of
September 2007, National Retail Properties Is Focused On Acquiring,
Developing, And Managing Its Net-Leased Retail Properties For Major Retail
Customers
Financial
REIT – Freestanding Retail
(NNN-NYSE)
National Retail Properties, Inc.
450 South Orange Avenue, Suite 900
Orlando, FL 32801
Phone: 407-265-7348
Craig Macnab
Chief Executive Officer
Interview conducted by:
Walter Banks, Publisher
CEOCFOinterviews.com
Published - February 22, 2008
BIO:
Craig Macnab joined National Retail Properties as Chief Executive Officer in
February 2004. He has reinvigorated the $2 billion REIT, sharpening the
company's investment focus on net-leased retail concepts and doubling the
portfolio to nearly 900 properties.
Prior to joining NNN, Mr. Macnab was Chief
Executive Officer of JDN Realty from April 2000 to 2003, where he initiated
and led the restructuring of the company including successfully refinancing
its credit facilities, settling its class action litigation, and altering
its business strategy to include becoming a grocery-anchored developer. JDN
was acquired by Developers Diversified Realty.
Previously, Mr. Macnab was President of Tandem
Capital, a private investment company that he founded, providing growth
capital – primarily in the form of mezzanine debt – to small public
companies. Prior experience includes having been an investment banker for
seven years at Lazard Freres and Company in New York and six years at JC
Bradford where he was co-head of the merger and acquisition department.
Mr. Macnab serves on the Board of Directors of
Developers Diversified Realty, the nation's leading owner of market-dominant
community centers. He has a B.Com from the University of Witwatersrand and
an MBA from Drexel University.
CEOCFO:
Mr. Macnab, you made some changes, such as with your name; what is the
vision for National Retail Properties?
Mr. Macnab: “National Retail Properties
is focused on one niche segment in the commercial real estate market. We
acquire, develop and manage net-leased retail properties. As of the end of
September (2007), we owned 876 retail properties, with a variety of national
and regional retail tenants. We changed our name a couple of years ago to
reinforce our branding around our focus on net-leased retail properties. We
own properties in 43 different states, so hence the National name is
consistent with owning properties throughout the United States and our focus
is exclusively on retail properties.”
CEOCFO: You are already in a lot of
states, what is necessary for future growth?
Mr. Macnab: “We have been one of the
largest acquirers of net-leased retail properties in the last couple of
years and in fact, it may be that we are the single largest acquirer. So far
this year we have acquired $545 million of properties through the end of
September, and that is actually about 193 different properties that our team
had to individually underwrite, so that is a lot of work. However, we are
acquiring these properties in almost every case directly from rapidly
growing retailers who choose to have other companies own and manage their
real estate. Therefore, for us to continue to expand our portfolio and build
value for shareholders, we need to reinforce our relationships with our
existing tenants, as well as identify new retailers and build a relationship
and a rapport with them. Such that as they are consolidating their segment
or simply be opening new stores, we would get to own that property for
them.”
CEOCFO: Please explain net-leased
properties and its advantages for the retailer and your company.
Mr. Macnab: “Net-leased properties are
ones where tenants pay the insurance, the taxes, and the maintenance for the
properties. This has a number of advantages for the retailer in that to a
large extent they get to control their own destiny. For example, if they
want to have the parking lot swept on a daily basis as opposed to on a
weekly basis, they can contract to do that. If they would like to keep the
lights in the parking field on 24 hours a day, well that is a decision that
they can make, as opposed to the landlord making that decision for them.
What that essentially means for us, because there are advantages for us
also, is that our revenue stream, in other words, the rent we receive, is a
very high quality number in that we don’t have expenses against that. We
don’t have to pay the insurance or the taxes or maintenance, our tenants pay
that.”
CEOCFO: So you don’t build, you just
acquire these properties.
Mr. Macnab: “We have a modest amount of
development to provide services to our tenants – we’ve built more than 200
stores – but our primary method of growth is to acquire properties. We
currently have a development portfolio of about $85 million right now.”
CEOCFO: What do you look for in
properties?
Mr. Macnab: “Two things; first it needs
to be well located real estate, with excellent visibility, preferably at a
busy intersection, meaning a high traffic count, with good ingress and
egress. In other words, strong real estate fundamentals. Secondly, we sign
long leases with our tenants and in fact our average lease length in our
portfolio today is about 13 years. We need our tenants to pay rent for a
long time, so we pay attention to the financial strength of our tenants.
Therefore, the two things we need are well-located real estate and a
creditworthy tenant. Our tenants are national brand name retailers that most
people are familiar with; these are the major drug stores, such as Walgreens,
CVS, and Rite Aid. Secondly, in the book category, we have Barnes & Noble,
Borders, and in the consumer electronics we have Best Buy and Circuit City
and all the way down the list in the various categories of retail.”
CEOCFO: What about the face of your
properties; what are we looking at?
Mr. Macnab: “Our properties are almost
exclusively freestanding, in other words, one tenant in that building, such
as if you were to think of a bank branch or a restaurant property. The good
news about it is that it is a vast market; there are billions of dollars of
net-leased retail properties on the market at the present time.”
CEOCFO: So generally, when we see a
Walgreens going up, you are generally looking at a net-leased property and
typical in today’s market.
Mr. Macnab: “Yes you are and that is the
format that an outfit like Walgreens would choose. One of the strengths of
it is that generally, these are in better locations as opposed to being in a
strip mall or a power center, where you are going to have to take the space
that is available in that center. Therefore, this format presents the
retailer with prime location.”
CEOCFO: Tell us about the competition
for the acquisition of net-leased retail properties; what sets you apart and
why do people sell to you?
Mr. Macnab: “Like every industry in this
great country, there is enormous competition. Having said that, there are
only a handful of competitors in this category who have the balance sheet
strength, the financial wherewithal to acquire $600 to $700 million of
properties a year, which is what we are on track for in 2007. Therefore,
where we have a competitive advantage is focusing on portfolios of
transactions where there are multiples of locations and bigger dollar
amounts are required. Most of our competition are individuals or small
companies that are buying one property at a time. We generally are
purchasing or completing transactions where we acquire multiple properties.
For example, in the 3rd Quarter in early July (2007), we closed
on a $158 million transaction, buying 52 different properties at that time.
In addition, one of the things that is occurring right now, obviously is
that the financial markets are in disarray. What that means is that we are
getting back to a more normal environment where credit is less readily
available, where financial institutions are more conservative and what this
means is that companies that have plenty of cash or access to cash are going
to be at a competitive advantage. Fortunately, National Retail Properties is
in that condition; we have a great balance sheet, we have cash in the bank
right now waiting to be invested in high quality real estate.”
CEOCFO: I guess that tenants are pretty
excited when they hear that National Retail Properties is taking over their
property.
Mr. Macnab: “What happens is that a
tenant has a high degree of comfort that we are going to do what we said we
were going to do. In fact, we take pride as a company; all of our associates
do that, because our word is our bond. When we commit to acquire a
portfolio, the tenant knows that we are going to show up at the closing
table with cash and that gives them a great deal of certainty. Therefore, if
a transaction is being contemplated to buy a company and selling the real
estate is a component of the transaction, they know that we are going to be
there and deliver for them.”
CEOCFO: What are your targets over the
next couple of years and do you currently have the capital to complete those
targets?
Mr. Macnab: “We recently announced our
guidance for FFO, which is earnings in our industry and we’ve guided people
towards a growth range next year of 4 to 8%. I would observe that some
people think that is conservative and by the way, in terms of guidance that
we provided in 2007, it was $1.74 to $1.80 at the beginning of the year and
our current guidance is $1.84 to $1.87. Hopefully, if things go the way that
we want, we can do better than the 4 to 8% range that we are talking about.
However, having said that, we do have the financial capacity to execute on
that level of growth.”
CEOCFO: How many new acquisitions are
you looking at over the next year or so?
Mr. Macnab: “Our earnings guidance for
next year assumes $300 to $400 million of acquisitions, which of course is
less than we are going to do this year. However, if market conditions allow
it and we identify good properties, we might be able to exceed that.”
CEOCFO: I know that you said that you
have the wherewithal to acquire $600 to $700 million this year; do you
expect to accomplish that?
Mr. Macnab: “Yes and we will probably be
on the high end of that range.”
CEOCFO: In closing, address potential
investors who are looking at National Retail Properties and what they might
miss at first glance.
Mr. Macnab: “That is the $64.00
question. Number one, we are a market leader in our category of net-leased
retail properties. Number two, we have a very strong balance sheet and a lot
of capital ready to invest in high quality properties. Number three, we have
fully diversified portfolio, so in terms of risk management, which is
something management thinks about a great deal, we are not exposed in any
one way. Finally, we are proud of our management team and their ability to
execute. However, I think at the end of the day you have got to ask yourself
the question, ‘Has National Retail Properties done it before’? To that
question, not only have we raised our dividend for 18 consecutive years, but
also, the last 15 years we have produced a 14% average annual rate of return
for shareholders and we hope to do that over the next 15 years. Therefore,
in terms of why investors should look at our company; we have delivered in
the past and we have a great balance sheet that should enable us to do it in
the future.”
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