NEW YORK, Nov. 3, 2021 /PRNewswire/ -- American Finance
Trust, Inc. (Nasdaq: AFIN) ("AFIN" 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, 2021.
Third Quarter 2021
Highlights
- Revenue grew 17.1% to $91.9
million from $78.5 million for
the third quarter 2020, inclusive of a $10.4
million lease buyout fee for 12 leases with Truist Bank
- Net loss attributable to common stockholders was $6.4 million as compared to $7.1 million for the third quarter 2020
- Cash net operating income ("NOI") grew 37.9% to $75.7 million from $54.9
million for the third quarter 2020
- Funds from Operations ("FFO") of $30.3
million, or $0.25 per diluted
share increased from $25.6 million,
or $0.24 per diluted share, for the
third quarter 2020
- Adjusted Funds from Operations ("AFFO") grew 41.4% to
$36.0 million1 from
$25.5 million, or 30.4% to
$0.30 per share from $0.23 per diluted share, in the prior year third
quarter
- Dividends of $25.2 million or
$0.21 per share
- Improved Net Debt to adjusted earnings before interest, taxes,
depreciation and amortization ("Adjusted EBITDA") to 6.8x
2
- Enhanced balance sheet, with weighted average interest rate of
3.6%, compared to 3.8% and 89.7% of debt fixed-rate versus 83.4% a
year ago
- Collected approximately 100% of original cash rent in third
quarter 2021, including 100% in single tenant portfolio, 100% in
the multi-tenant portfolio, and 100% among the top 20
tenants3,4
- Multi-tenant Executed Occupancy5 and Leasing
Pipeline6 are expected to add $2.1 million of annualized straight-line rent and
141,000 square feet to the portfolio over time as executed leases
commence
- Completed $86.5
million7 of acquisitions with a cash
capitalization rate8 of 8.58% and a weighted average
capitalization rate9 of 8.79%
- Completed 25 multi-tenant lease renewals with a
weighted-average new lease term of 5 years
- High quality portfolio with 58% of tenants in single-tenant
portfolio10 and 66% of the top 20 tenants portfolio-wide
rated as investment grade or implied investment
grade11
- Annual rent escalators12 with a weighted-average of
1.2% per year provide contractually embedded rent growth
"Our third quarter results reflect the ongoing success of the
last year, as we continue to execute on our initiatives to grow
earnings and optimize our balance sheet," said Michael Weil, CEO of AFIN. "We grew quarterly
AFFO more than 30% year-over-year to $0.30 per share and continued lowering our ratio
of Net Debt to Adjusted EBITDA, which is now 6.8x down from 8.1x
last year. Subsequent to quarter end we also completed a
$500 million unsecured corporate
notes offering with favorable pricing, along with a recast and
upsizing of our corporate credit facility. All of this progress
provides additional flexibility to support future growth. During
the quarter, we closed on over $86
million in acquisitions and we expect to end the year with
over $200 million in acquisitions
based on our forward pipeline. Since the fourth quarter of last
year, we have increased revenue by 19%, grown cash NOI by 29% and
increased AFFO per share while successfully navigating the
pandemic, increasing occupancy in our multi-tenant portfolio, and
enhancing both our team and our world-class portfolio."
Financial
Results
|
|
Three Months Ended
September 30,
|
(In thousands,
except per share data)
|
|
2021
|
|
2020
|
Revenue from
tenants
|
|
$
|
91,915
|
|
|
$
|
78,489
|
|
|
|
|
|
|
Net loss attributable
to common stockholders
|
|
$
|
(6,406)
|
|
|
$
|
(7,091)
|
|
Net loss per common
share (a)
|
|
$
|
(0.06)
|
|
|
$
|
(0.07)
|
|
|
|
|
|
|
FFO attributable to
common stockholders
|
|
$
|
30,282
|
|
|
$
|
25,631
|
|
FFO per common share
(a)
|
|
$
|
0.25
|
|
|
$
|
0.24
|
|
|
|
|
|
|
AFFO attributable to
common stockholders
|
|
$
|
36,005
|
|
|
$
|
25,465
|
|
AFFO per common share
(a)
|
|
$
|
0.30
|
|
|
$
|
0.23
|
|
|
|
(a)
|
All per share data
based on 118,862,852 and 108,429,315 diluted weighted-average
shares outstanding for the three months ended September 30,
2021 and 2020, respectively.
|
Real Estate Portfolio
The Company's portfolio consisted of 968 net lease properties
located in 47 states and the District of
Columbia and comprised 20.1 million rentable square feet as
of September 30, 2021. Portfolio metrics include:
- 93.2% leased, with 8.7 years remaining weighted-average lease
term13
- 77.5% of leases have weighted-average contractual rent
increases of 1.2% based on annualized straight-line rent
- 58% of single-tenant portfolio and 31% of multi-tenant anchor
tenants annualized straight-line rent derived from investment grade
or implied investment grade tenants
- 82% retail properties, 11% distribution properties and 7%
office properties (based on an annualized straight-line rent)
- 71% of the retail portfolio focused on either
service14 or experiential retail15 giving the
Company strong alignment with "e-commerce resistant" real
estate
Property Acquisitions
During the three months ended September 30, 2021, the
Company acquired 32 properties for an aggregate contract purchase
price of $86.5 million at a
weighted average capitalization rate of 8.79%.
Property Dispositions
During the three months ended September 30, 2021, the
Company disposed of three properties, for an aggregate contract
price of $3.0 million. Further, as of
October 31, 2021, the Company has
executed eight PSAs to sell an additional eight properties for an
aggregate contract price of $16.0 million and three LOIs to dispose of
three properties for $2.2 million.
Capital Structure and Liquidity Resources
As of September 30, 2021 the Company had a total borrowing
capacity under the credit facility of $494.1
million based on the value of the borrowing base under the
credit facility, and, of this amount, $186.2
million was outstanding under the credit facility as of
September 30, 2021 and $307.9
million remained available for future borrowings. As of
September 30, 2021, the Company had $99.0 million of cash and cash equivalents. The
Company's net debt16 to gross asset value17
was 38.9%, with net debt of $1.7
billion.
The Company's percentage of fixed rate debt was 89.7% as of
September 30, 2021. The Company's total combined debt had a
weighted-average interest rate cost of 3.6%18,
resulting in an interest coverage ratio of 3.6
times19.
Rent Collection Update
Third Quarter of 2021
For the third quarter of 2021, AFIN collected approximately 100%
of the original cash rents that were due across the portfolio,
including 100% of the original cash rent payable from the top 20
tenants in the portfolio (based on the total of third quarter
original cash rent due across our portfolio) and 100% of the
original cash rent payable in the single tenant portfolio and 100%
of the original cash rent payable in the multi-tenant portfolio.
Cash rent collected includes both contractual rents and deferred
rents paid during the period4.
Footnotes/Definitions
1
|
Inclusive of a
$10.4 million lease buyout fee recorded during the quarter
even though cash was received after the end of the
quarter
|
2
|
Represents ratio of
net debt as of a particular date, to the Company's calculation of
its Adjusted EBITDA multiplied by four for the three months ended
on that date. Annualized results include termination fee income of
$10.4 million which was recorded in the third quarter of 2021.
For the third quarter 2021, net debt represents total debt of $1.8
billion less cash and cash equivalents of $99.0 million as of
September 30, 2021.
|
3
|
We calculate
"original cash rent collections" by comparing original cash rent
due under our lease agreements to the total amount of rent
collected during the period, which includes both original cash rent
due and payments of amounts deferred from prior periods.
Eliminating the impact of deferred rent paid, we collected 99% of
original cash rent due in the single-tenant portfolio, 97% of
original cash rent due in the multi-tenant portfolio, 99% of
original cash rent due in the total portfolio. Top 20 tenants based
on third quarter 2021 original cash rent due. This information may
not be indicative of future periods.
|
4
|
The impact of the
COVID-19 pandemic on the Company's future results of operations and
liquidity will depend on the overall length and severity of the
COVID-19 pandemic, which management is unable to
predict.
|
5
|
Includes occupancy,
measured by the percentage of square footage of which the tenant
has taken possession of divided by the respective total rentable
square feet, as of a particular date as well as all leases fully
executed by both parties as of the same date where the tenant has
yet to take possession as of such date. For the third quarter of
2021 and as of October 31, 2021, there are 15 additional leases
executed where rent commences over time between the fourth quarter
of 2021 and the first quarter of 2022 totaling approximately
122,000 square feet. For the fourth quarter of 2020 and as of
January 31, 2021, there were four additional leases executed where
rent commences over time between the first quarter of 2021 and the
third quarter of 2021 totaling approximately 34,000 square
feet.
|
6
|
For the third quarter
of 2021, includes (i) all leases fully executed by both parties as
of October 31, 2021, but after September 30, 2021 and (ii) all
leases under negotiation with an executed letter of intent ("LOI")
by both parties as of October 31, 2021. This represents 15 executed
leases totaling approximately 122,000 square feet and six LOIs
totaling approximately 19,000 square feet. No lease terminations
occurred during this period. 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. For the fourth quarter of 2020,
includes (i) all leases fully executed by both parties as of
January 31, 2021, but after December 31, 2020 and (ii) all leases
under negotiation with an executed LOI by both parties as of
January 31, 2021. This represents six new leases totaling
approximately 220,000 square feet, net of one lease termination for
5,000 square feet during this period.
|
7
|
Represents the
contract purchase price and excludes acquisition costs which are
capitalized per GAAP.
|
8
|
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.
|
9
|
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.
|
10
|
Percentage of
single-tenant portfolio tenants based on annualized straight-line
rent as of September 30, 2021.
|
11
|
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 September 30, 2021. Based
on annualized straight-line rent as of September 30, 2021,
single-tenant portfolio tenants are 46.4% actual investment grade
rated and 11.8% implied investment grade rated, top 20 tenants are
57% actual investment-grade rated and 9% implied investment-grade
rated and anchor tenants in the multi-tenant portfolio are 21.6%
actual investment grade rated and 9.4% implied investment grade
rated.
|
12
|
Contractual rent
increases include fixed percent or actual increases, or CPI-indexed
increases.
|
13
|
The weighted-average is based on annualized
straight-line rent as of September 30, 2021.
|
14
|
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
|
15
|
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.
|
16
|
Total debt of $1.8
billion less cash and cash equivalents of $99.0 million as of
September 30, 2021. Excludes the effect of
deferred financing costs, net, mortgage premiums, net
and includes the effect of cash and cash equivalents.
|
17
|
Defined as the
carrying value of total assets plus accumulated depreciation and
amortization as of September 30, 2021.
|
18
|
Weighted based on the outstanding principal balance of the debt.
|
19
|
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 change in accrued
interest and amortization of mortgage premiums
on borrowings) for the quarter ended September 30, 2021.
Adjusted EBITDA includes termination fee income of
$10.4 million which was recorded in the third quarter of
2021.
|
Webcast and Conference Call
AFIN will host a webcast and call on November 4, 2021 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 AFIN website,
www.americanfinancetrust.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 AFIN'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
AFIN website at www.americanfinancetrust.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: 13724121
*Available from 2:00 p.m. ET on
November 4, 2021 through February 4, 2022.
About American Finance Trust, Inc.
American Finance Trust, Inc. (Nasdaq: AFIN) is a publicly traded
real estate investment trust listed on the Nasdaq 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. Additional
information about AFIN can be found on its website at
www.americanfinancetrust.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 AFIN's website at
www.americanfinancetrust.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
"anticipates," "believes," "expects," "estimates," "projects,"
"plans," "intends," "may," "will," "would" 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 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 the potential
adverse effects of the ongoing global COVID-19 pandemic, including
actions taken to contain or treat COVID-19, on the Company, the
Company's tenants and the global economy and financial markets and
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, 2020 filed on
February 25, 2021 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. Further, 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 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 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, they have
been excluded from the increase in straight-line rent for AFFO
purposes the amounts recognized under 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@americanfinancetrust.com
Phone: (866) 902-0063
American Finance
Trust, Inc.
Consolidated
Balance Sheets
(In thousands.
except share and per share data)
|
|
|
September
30,
2021
|
|
December
31,
2020
|
|
(Unaudited)
|
|
|
ASSETS
|
|
|
|
Real estate
investments, at cost:
|
|
|
|
Land
|
$
|
746,355
|
|
|
$
|
723,316
|
|
Buildings, fixtures
and improvements
|
2,943,693
|
|
|
2,830,508
|
|
Acquired intangible
lease assets
|
462,378
|
|
|
454,245
|
|
Total real estate
investments, at cost
|
4,152,426
|
|
|
4,008,069
|
|
Less: accumulated
depreciation and amortization
|
(723,792)
|
|
|
(639,367)
|
|
Total real estate
investments, net
|
3,428,634
|
|
|
3,368,702
|
|
Cash and cash
equivalents
|
98,989
|
|
|
102,860
|
|
Restricted
cash
|
15,863
|
|
|
10,537
|
|
Deposits for real
estate acquisitions
|
752
|
|
|
137
|
|
Derivative assets, at
fair vale
|
2,028
|
|
|
—
|
|
Deferred costs,
net
|
17,216
|
|
|
16,663
|
|
Straight-line rent
receivable
|
71,370
|
|
|
66,581
|
|
Operating lease
right-of-use assets
|
18,318
|
|
|
18,546
|
|
Prepaid expenses and
other assets (including $140 and $1,939 due from related parties as
of
September 30, 2021 and December 31, 2020,
respectively)
|
41,998
|
|
|
23,941
|
|
Assets held for
sale
|
—
|
|
|
—
|
|
Total
assets
|
$
|
3,695,168
|
|
|
$
|
3,607,967
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
Mortgage notes
payable, net
|
$
|
1,587,462
|
|
|
$
|
1,490,798
|
|
Credit
facility
|
186,242
|
|
|
280,857
|
|
Below market lease
liabilities, net
|
79,809
|
|
|
78,674
|
|
Accounts payable and
accrued expenses (including $3,404 and $273 due to related parties
as of
September 30, 2021 and December 31, 2020,
respectively)
|
33,256
|
|
|
25,210
|
|
Operating lease
liabilities
|
19,209
|
|
|
19,237
|
|
Derivative
liabilities, at fair value
|
—
|
|
|
123
|
|
Deferred rent and
other liabilities
|
9,976
|
|
|
9,794
|
|
Dividends
payable
|
6,000
|
|
|
3,675
|
|
Total
liabilities
|
1,921,954
|
|
|
1,908,368
|
|
|
|
|
|
7.50% Series A
cumulative redeemable perpetual preferred stock, $0.01 par value,
liquidation
preference $25.00 per share, 12,796,000 and 8,796,000 shares
authorized, 7,933,711 and
7,842,008 issued and outstanding as of September 30, 2021 and
December 31, 2020, respectively
|
79
|
|
|
79
|
|
7.375% Series C
cumulative redeemable perpetual preferred stock, $0.01 par value,
liquidation
preference $25.00 per share, 11,536,000 and 3,680,000 shares
authorized, 4,594,498 and
3,535,700 issued and outstanding as of September 30, 2021 and
December 31, 2020, respectively
|
46
|
|
|
35
|
|
Common stock, $0.01
par value per share, 300,000,000 shares authorized, 123,506,474
and
108,837,209 shares issued and outstanding as of September 30,
2021 and December 31, 2020,
respectively
|
1,235
|
|
|
1,088
|
|
Additional paid-in
capital
|
2,913,276
|
|
|
2,723,678
|
|
Accumulated other
comprehensive income (loss)
|
2,028
|
|
|
(123)
|
|
Distributions in
excess of accumulated earnings
|
(1,150,789)
|
|
|
(1,055,680)
|
|
Total stockholders'
equity
|
1,765,875
|
|
|
1,669,077
|
|
Non-controlling
interests
|
7,339
|
|
|
30,522
|
|
Total
equity
|
1,773,214
|
|
|
1,699,599
|
|
Total liabilities
and equity
|
$
|
3,695,168
|
|
|
$
|
3,607,967
|
|
American Finance
Trust, Inc.
Consolidated
Statements of Operations (Unaudited)
(In thousands,
except share and per share data)
|
|
|
Three Months
Ended
September 30,
|
|
2021
|
|
2020
|
Revenue from
tenants
|
$
|
91,915
|
|
|
$
|
78,489
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
Asset management fees
to related party
|
9,880
|
|
|
6,918
|
|
Property operating
expense
|
13,384
|
|
|
14,226
|
|
Impairment of real
estate investments
|
4,554
|
|
|
—
|
|
Acquisition,
transaction and other costs [1]
|
3,426
|
|
|
1,507
|
|
Equity-based
compensation [2]
|
4,149
|
|
|
3,235
|
|
General and
administrative
|
5,589
|
|
|
3,312
|
|
Depreciation and
amortization
|
32,762
|
|
|
34,951
|
|
Total operating
expenses
|
73,744
|
|
|
64,149
|
|
Operating income before gain on sale of real estate
investments
|
18,171
|
|
|
14,340
|
|
Gain on sale of real
estate investments
|
478
|
|
|
2,178
|
|
Operating
income
|
18,649
|
|
|
16,518
|
|
Other (expense)
income:
|
|
|
|
Interest
expense
|
(19,232)
|
|
|
(20,871)
|
|
Other
income
|
18
|
|
|
871
|
|
Total other expense,
net
|
(19,214)
|
|
|
(20,000)
|
|
Net loss
|
(565)
|
|
|
(3,482)
|
|
Net (income) loss
attributable to non-controlling interests
|
(4)
|
|
|
10
|
|
Allocation for
preferred stock
|
(5,837)
|
|
|
(3,619)
|
|
Net loss
attributable to common stockholders
|
$
|
(6,406)
|
|
|
$
|
(7,091)
|
|
|
|
|
|
Basic and Diluted
Net Loss Per Share:
|
|
|
|
Net loss per share
attributable to common stockholders — Basic and Diluted
|
$
|
(0.06)
|
|
|
$
|
(0.07)
|
|
Weighted-average
shares outstanding — Basic and Diluted
|
118,862,852
|
|
|
108,429,315
|
|
Weighted-average
shares outstanding — Diluted
|
118,862,852
|
|
|
108,429,315
|
|
|
______
|
|
|
[1]
|
For the three months
ended September 30, 2020, includes litigation costs related to
AFIN's 2017 merger with American Realty Capital - Retail
Centers of America, Inc. (the "Merger") of $0.2 million. Litigation
costs related to the Merger incurred in the three months ended
September 30, 2021 were not significant.
|
[2]
|
For the three months
ended September 30, 2021 and 2020, includes expense related to
the Company's restricted common shares of $0.3 million and $0.3
million, respectively.
|
American Finance
Trust, Inc.
Quarterly
Reconciliation of Non-GAAP Measures (Unaudited)
(In
thousands)
|
|
|
|
Three Months
Ended
September 30,
|
|
Three Months
Ended
June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
Adjusted
EBITDA
|
|
|
|
|
|
|
Net loss
|
|
$
|
(565)
|
|
|
$
|
(3,482)
|
|
|
$
|
(1,482)
|
|
Depreciation and
amortization
|
|
32,762
|
|
|
34,951
|
|
|
32,428
|
|
Interest
expense
|
|
19,232
|
|
|
20,871
|
|
|
20,361
|
|
Impairment of real
estate investments
|
|
4,554
|
|
|
—
|
|
|
91
|
|
Acquisition,
transaction and other costs [1]
|
|
3,426
|
|
|
1,507
|
|
|
136
|
|
Equity-based
compensation [2]
|
|
4,149
|
|
|
3,235
|
|
|
5,283
|
|
Gain on sale of real
estate investments
|
|
(478)
|
|
|
(2,178)
|
|
|
(11)
|
|
Other
income
|
|
(18)
|
|
|
(871)
|
|
|
(20)
|
|
Loss on non-designated
derivatives
|
|
—
|
|
|
—
|
|
|
—
|
|
Adjusted EBITDA
[3]
|
|
63,062
|
|
|
54,033
|
|
|
56,786
|
|
Asset management fees
to related party
|
|
9,880
|
|
|
6,918
|
|
|
7,922
|
|
General and
administrative
|
|
5,589
|
|
|
3,312
|
|
|
3,540
|
|
NOI
[3]
|
|
78,531
|
|
|
64,263
|
|
|
68,248
|
|
Amortization of market lease and other intangibles, net
|
|
(1,474)
|
|
|
(1,652)
|
|
|
(1,041)
|
|
Straight-line
rent
|
|
(1,392)
|
|
|
(7,743)
|
|
|
(1,759)
|
|
Cash NOI
[3]
|
|
$
|
75,665
|
|
|
$
|
54,868
|
|
|
$
|
65,448
|
|
|
|
|
|
|
|
|
Cash Paid for
Interest:
|
|
|
|
|
|
|
Interest
expense
|
|
$
|
19,232
|
|
|
$
|
20,871
|
|
|
20,361
|
|
Amortization of deferred financing costs, net and change in accrued
interest
|
|
(2,192)
|
|
|
(2,782)
|
|
|
(2,361)
|
|
Amortization of mortgage premiums and (discounts) on borrowings,
net
|
|
328
|
|
|
521
|
|
|
323
|
|
Total
cash paid for interest
|
|
$
|
17,368
|
|
|
$
|
18,610
|
|
|
18,323
|
|
|
______
|
|
|
[1]
|
For the three months
ended September 30, 2020 includes litigation costs related to the
Merger of $0.2 million. Litigation costs related to the Merger
incurred in the three months ended September 30, 2021 were not
significant.
|
[2]
|
For the three months
ended September 30, 2021 and 2020, includes expense related to
the Company's restricted common shares of $0.3 million and $0.3
million, respectively.
|
[3]
|
For the three months
ended September 30, 2021 includes income from a lease termination
fee of $10.4 million, which is recorded in Revenue from
tenants in the consolidated statements of operations.
|
American Finance
Trust, Inc.
Quarterly
Reconciliation of Non-GAAP Measures (Unaudited)
(In
thousands)
|
|
|
|
Three Months
Ended
September 30,
|
|
|
2021
|
|
2020
|
Net loss attributable
to common stockholders (in accordance with GAAP)
|
|
$
|
(6,406)
|
|
|
$
|
(7,091)
|
|
Impairment of real
estate investments
|
|
4,554
|
|
|
—
|
|
Depreciation and amortization
|
|
32,762
|
|
|
34,951
|
|
Gain on
sale of real estate investments
|
|
(478)
|
|
|
(2,178)
|
|
Proportionate share of adjustments for non-controlling interest to
arrive at FFO
|
|
(150)
|
|
|
(51)
|
|
FFO attributable
to common stockholders [1]
|
|
30,282
|
|
|
25,631
|
|
Acquisition, transaction and other costs [2]
|
|
3,426
|
|
|
1,507
|
|
Legal
fees and expenses — COVID-19 lease disputes
[3]
|
|
44
|
|
|
16
|
|
Amortization of market lease and other intangibles, net
|
|
(1,474)
|
|
|
(1,652)
|
|
Straight-line rent
|
|
(1,392)
|
|
|
(7,743)
|
|
Straight-line rent (rent deferral agreements)
[4]
|
|
(876)
|
|
|
2,209
|
|
Amortization of mortgage (premiums) and discounts on borrowings,
net
|
|
(328)
|
|
|
(521)
|
|
Equity-based compensation [5]
|
|
4,149
|
|
|
3,235
|
|
Amortization of deferred financing costs, net and change in accrued
interest
|
|
2,192
|
|
|
2,782
|
|
Proportionate share of adjustments for non-controlling interest to
arrive at AFFO
|
|
(18)
|
|
|
1
|
|
AFFO attributable
to common stockholders [1]
|
|
$
|
36,005
|
|
|
$
|
25,465
|
|
|
|
______
|
|
[1]
|
FFO and AFFO for the
three months ended September 30, 2021 includes income from a lease
termination fee of $10.4 million, which is recorded in Revenue
from tenants in the consolidated statements of operations. While
such termination payments occur infrequently, they represent cash
income for accounting and tax purposes and as such management
believes they should be included in both FFO and AFFO. The income
from this termination fee was earned and recorded during the
three months ended September 30, 2021, however, we did not receive
the cash payment until October 1, 2021. Therefore, the cash payment
is not part of our cash flows for the period ended September 30,
2021.
|
[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.
|
Non-GAAP Financial Measures
This release discusses the non-GAAP financial measures we use to
evaluate our performance, including Funds from Operations ("FFO"),
Adjusted Funds from Operations ("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
National Association of Real Estate Investment Trusts ("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, vesting and conversion of the Class B
Units 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) as
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
for the three months ended September 30,
2021 includes income from a lease termination fee of
$10.4 million, which is recorded in
revenue from tenants in the consolidated statements of operations.
While such termination payments occur infrequently, they represent
cash income for accounting and tax purposes and as such management
believes they should be included in both FFO and AFFO. The income
from this termination fee was earned and recorded during the three
months ended September 30, 2021,
however, we did not receive the cash payment until October 1, 2021. Therefore, the cash payment is
not part of our cash flows for the period ended September 30, 2021.
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 American Finance Trust, Inc.