Attached files
| file | filename |
|---|---|
| 8-K - 8-K - American Finance Trust, Inc | afin123119-8xkearnings.htm |
| EX-99.2 - EXHIBIT 99.2 AFIN SUPPLEMENTAL Q4 2019 - American Finance Trust, Inc | ex992-afinsupplemental.htm |
EXHIBIT 99.1
FOR IMMEDIATE RELEASE
American Finance Trust Announces Fourth Quarter and Full Year 2019 Results
New York, February 26, 2020 - 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 quarter and year ended December 31, 2019.
Full Year 2019 Highlights
• | Revenue increased 3% year-over-year to $299.7 million as compared to $291.2 million in prior year |
• | Net loss attributable to stockholders was $3.1 million, or $0.03 per diluted common share, compared to a net loss of $37.4 million, or $0.35 per diluted common share in prior year |
• | Funds from operations ("FFO") increased 7.7% year-over-year to $98.6 million, or $0.93 per diluted share from $91.6 million, or $0.87 per diluted share, in prior year |
• | Adjusted funds from operations ("AFFO") increased 1.8% year-over-year to $104.9 million, or $0.99 per diluted common share from $103.0 million, or $0.98 per diluted common share, in prior year |
• | Cash net operating income ("Cash NOI") increased 9% to $231.3 million as compared to $212.1 million in the prior year |
• | Year-over-year acquisitions increased 77% to $423.0 million1 at a weighted average cash capitalization rate2 of 7.2% compared to $239.0 million at a weighted average cash capitalization rate of 7.1% |
• | Strong acquisition pipeline of an additional 54 properties for an aggregate contract purchase price of $82.5 million with an 18.4 year weighted-average lease term remaining3 |
• | Multi-tenant leasing pipeline of new leases and renewals under negotiation for an additional 86,000 square feet, bringing multi-tenant executed occupancy4 to 88.3% |
• | High quality portfolio of investment grade or implied investment grade5 rated tenants in 100% of Top 10 tenants portfolio-wide, 81.6% of tenants in single-tenant portfolio and 37.3% of anchor tenants6 in multi-tenant portfolio |
• | Contractually embedded rent growth with annual rent escalators7 averaging 1.3% per year in 80.3% of total leases |
Fourth Quarter 2019 Highlights
• | Revenue increased 2% to $76.2 million from $75.1 million in fourth quarter 2018 |
• | Net loss attributable to common stockholders was $4.8 million, or $0.04 per diluted common share, compared to a net loss of $13.5 million, or $0.13 per diluted common share for fourth quarter 2018 |
• | FFO was $22.4 million, or $0.21 per diluted share, compared to $27.9 million, or $0.26 per diluted share, for the fourth quarter 2018 |
• | AFFO increased 2% to $25.2 million, or $0.24 per diluted share, compared to $24.6 million, or $0.23 per diluted share in the prior year fourth quarter |
• | Cash NOI grew by 9% to $57.7 million as compared to $52.9 million for the fourth quarter 2018 |
• | Closed on the acquisition of 53 properties for an aggregate contract purchase price of $62.0 million at a weighted average cash capitalization rate of 7.3% and a weighted average capitalization rate of 7.5%8 |
• | Liquidity9 of $232.8 million to be used for future acquisitions, including current forward pipeline of $82.5 million |
CEO Comments
Michael Weil, Chief Executive Officer, commented, "We are proud to report increases in revenue, cash NOI and AFFO per share. We continue to improve the portfolio by opportunistically acquiring service-oriented retail properties with long-term leases. Year over year acquisitions increased 77% to $423 million at a weighted average capitalization rate of 7.8% with over 85% of acquisitions leased to service-oriented retail tenants with lease durations averaging over 12.5 years. These acquisitions improve our portfolio's diversification, weighted-average lease term and property mix. We believe we are well positioned to continue our deliberate portfolio growth through high-quality, accretive acquisitions in 2020 and beyond."
Financial Results
Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||
(In thousands, except per share data) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Revenue from tenants | $ | 76,231 | $ | 75,092 | $ | 299,744 | $ | 291,207 | ||||||||
Net loss attributable to common stockholders | $ | (4,827 | ) | $ | (13,524 | ) | $ | (3,101 | ) | $ | (37,409 | ) | ||||
Net loss per common share (a) | $ | (0.04 | ) | $ | (0.13 | ) | $ | (0.03 | ) | $ | (0.35 | ) | ||||
FFO attributable to common stockholders | $ | 22,412 | $ | 27,884 | $ | 98,584 | $ | 91,574 | ||||||||
FFO per common share (a) | $ | 0.21 | $ | 0.26 | $ | 0.93 | $ | 0.87 | ||||||||
AFFO attributable to common stockholders | $ | 25,220 | $ | 24,632 | $ | 104,888 | $ | 103,031 | ||||||||
AFFO per common share (a) | $ | 0.24 | $ | 0.23 | $ | 0.99 | $ | 0.98 | ||||||||
(a) All per share data based on 107,286,620 and 106,096,401 diluted weighted-average shares outstanding for the three months ended December 31, 2019 and 2018, respectively, and 106,397,296 and 105,560,053 for the years ended December 31, 2019 and 2018, respectively.
Real Estate Portfolio
The Company’s portfolio consisted of 819 net lease properties located in 47 states and comprised of 18.5 million rentable square feet as of December 31, 2019. Portfolio metrics include:
• | 94.6% leased with 8.8 years weighted-average remaining lease term |
• | 80.3% of leases have contractual rent increases of 1.3% on average based on annualized straight-line rent |
• | 81.6% of single-tenant portfolio and 37.3% of multi-tenant portfolio anchor tenant annualized straight-line rent derived from investment grade or implied investment grade tenants |
• | 79% retail properties, 11% industrial and distribution properties and 10% office properties (based on annualized straight-line rent) compared to 75% retail, 14% industrial and distribution and 12% office as of December 31, 2018 |
• | 70.0% of the retail portfolio, based on straight line rent, is focused on either service10 or experiential retail11 giving the company strong alignment with "e-commerce resistant" real estate |
Property Acquisitions
During the three months ended December 31, 2019, the Company completed the acquisition of 53 properties for an aggregate contract purchase price of $62.0 million at a weighted average capitalization rate of 7.5%.
For the year ended December 31, 2019, AFIN closed on the acquisition of 218 properties for an aggregate contract purchase price of $423.0 million with a weighted-average capitalization rate of 7.8% and 12.6 year weighted-average remaining lease term and with average annual rent increases of 1.6%.
The Company’s pipeline of acquisitions as of January 31, 2020 includes 54 properties for an aggregate purchase price of $82.5 million. There can be no assurance that all these acquisitions will be completed on their current terms, or at all.
Property Dispositions
The Company sold five properties during the fourth quarter of 2019 for $16.3 million, of which approximately $6.3 million was used to repay related mortgage debt.
The Company sold 25 properties during 2019 for $132.0 million, of which approximately $92.6 million was used to repay related mortgage debt.
Capital Structure and Liquidity Resources
As of December 31, 2019, the Company had a total borrowing capacity under its credit facility of $484.1 million. Of this amount, $333.1 million was outstanding under this facility as of December 31, 2019 and $150.9 million remained available for future borrowing12. As of December 31, 2019, the Company had $81.9 million of cash and cash equivalents. The Company’s net debt13 to gross asset value14 was 39.2%, with net debt of $1.6 billion.
The Company's percentage of fixed rate debt was 79.9% as of December 31, 2019. The Company’s total combined debt had a weighted-average interest rate cost of 4.3%15, resulting in an interest coverage ratio of 2.8 times16.
During the fourth quarter of 2019, the Company sold 881,174 shares of Series A preferred stock, generating gross proceeds of $22.4 million from sales through its Preferred Stock ATM program. Also, the Company sold 510,000 shares Class A common stock, generating gross proceeds of $7.4 million, through its Common Stock ATM program.
Footnotes/Definitions
1 Represents the contract purchase price and excludes acquisition costs which are not capitalized per GAAP.
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. For acquisitions, cash capitalization rate is calculated by dividing the annualized cash rental income the property will generate (before debt service and depreciation and after fixed costs and variable costs) and the purchase price of the property. The weighted-average cash capitalization rate is based upon square feet.
3 The weighted-average remaining lease term (years) is based on annualized straight-line rent as of December 31, 2019.
4 Includes all leases where the tenant has taken possession as of December 31, 2019 as well as all leases executed by both parties as of December 31, 2019 where the tenant has yet to take possession as of such date.
5 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. Ratings information is as of December 31, 2019. Single-tenant portfolio tenants are 46.0% actual investment grade rated and 35.6% implied investment grade rate. Anchor tenants in the multi-tenant portfolio are 23.4% actual investment grade rated and 13.9% implied investment grade rated.
6 Anchor tenants are defined as tenants that occupy over 10,000 square feet of one of the Company's multi-tenant properties.
7 Based on annualized straight-line rent as of December 31, 2019. Contractual rent increases include fixed percent or actual increases, or CPI-indexed increases.
8 Capitalization rate is a rate of return on a real estate investment property based on the expected, annualized straight-lined rental income that the property will generate under its existing lease. 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. The weighted-average capitalization rate is based upon square feet.
9 Liquidity includes the amount available for future borrowings under the Company’s credit facility of $150.9 million and cash and cash equivalents. The $150.9 million is net of any letters of credit posted against the amount available for future borrowings as of December 31, 2019. In accordance with the Company's credit facility, the Company is permitted to pay distributions in an aggregate amount not exceeding 105% of Modified FFO (as defined in the credit facility) for any applicable period if, as of the last day of the period, the Company is able to satisfy a maximum leverage ratio after giving effect to the payments and also has a combination of cash, cash equivalents and amounts available for future borrowings under the credit facility of not less than $60.0 million. The Company relied on this exception for the two consecutive fiscal quarters ended September 30, 2019 and the three consecutive fiscal quarters ended December 31, 2019. The Company also expects it will rely on this exception in future periods.
10 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.
11 Experiential retail is defined as multi-tenant properties leased to tenants in the restaurant, discount retail, entertainment, salon/beauty, and grocery sectors, among others.
12 The borrowing capacity and availability for future borrowings under the Company’s credit facility is based on the borrowing base thereunder, which is the pool of eligible otherwise unencumbered real estate assets as December 31, 2019.
13 Total debt of $1.6 billion less cash and cash equivalents of $81.9 million as of December 31, 2019. Excludes the effect of deferred financing costs, net, mortgage premiums, net and includes the effect of cash and cash equivalents.
14 Defined as the carrying value of total assets plus accumulated depreciation and amortization as of December 31, 2019.
15 Weighted based on the outstanding principal balance of the debt.
16 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 December 31, 2019.
Webcast and Conference Call
AFIN will host a webcast and call on February 27, 2020 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): 1-888-317-6003
International Dial-In: 1-412-317-6061
Canada Dial-In (Toll Free): 1-866-605-3851
Participant Elite Entry Number: 9212654
Conference Replay*
Domestic Dial-In (Toll Free): 1-877-344-7529
International Dial-In: 1-412-317-0088
Canada Dial-In (Toll Free): 1-855-669-9658
Conference Number: 10138888
*Available one hour after the end of the conference call through May 27, 2020.
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. Forward-looking statements may include, but are not limited to, statements regarding stockholder liquidity and investment value and returns. 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. Actual results may differ materially from those contemplated by such forward-looking statements, including those set forth in the Risk Factors section of AFIN’s Annual Report on Form 10-K for the year ended December 31, 2018 filed on March 7, 2019 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 AFIN’s subsequent reports. Further, forward-looking statements speak only as of the date they are made, and AFIN 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.
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)
December 31, | |||||||
2019 | 2018 | ||||||
(Unaudited) | |||||||
ASSETS | |||||||
Real estate investments, at cost: | |||||||
Land | $ | 685,889 | $ | 629,190 | |||
Buildings, fixtures and improvements | 2,681,485 | 2,441,659 | |||||
Acquired intangible lease assets | 448,175 | 413,948 | |||||
Total real estate investments, at cost | 3,815,549 | 3,484,797 | |||||
Less: accumulated depreciation and amortization | (529,052 | ) | (454,614 | ) | |||
Total real estate investments, net | 3,286,497 | 3,030,183 | |||||
Cash and cash equivalents | 81,898 | 91,451 | |||||
Restricted cash | 17,942 | 18,180 | |||||
Deposits for real estate acquisitions | 85 | 3,037 | |||||
Goodwill | — | 1,605 | |||||
Deferred costs, net | 17,467 | 16,222 | |||||
Straight-line rent receivable | 46,976 | 37,911 | |||||
Operating lease right-of-use assets | 18,959 | — | |||||
Prepaid expenses and other assets (including $503 and $0 due from related parties as of December 31, 2019 and 2018, respectively) | 19,188 | 19,439 | |||||
Assets held for sale | 1,176 | 44,519 | |||||
Total assets | $ | 3,490,188 | $ | 3,262,547 | |||
LIABILITIES AND EQUITY | |||||||
Mortgage notes payable, net | $ | 1,310,943 | $ | 1,196,113 | |||
Credit facility | 333,147 | 324,700 | |||||
Market lease liabilities, net | 84,041 | 89,938 | |||||
Accounts payable and accrued expenses (including $1,153 and $2,634 due to related parties as of December 31, 2019 and 2018, respectively) | 26,817 | 28,383 | |||||
Operating lease liabilities | 19,318 | — | |||||
Derivative liabilities, at fair value | — | 531 | |||||
Deferred rent and other liabilities | 10,392 | 13,067 | |||||
Dividends payable | 3,300 | 80 | |||||
Total liabilities | 1,787,958 | 1,652,812 | |||||
7.50% Series A cumulative redeemable perpetual preferred stock, $0.01 par value, liquidation preference $25.00 per share, 8,796,000 shares authorized, 6,917,230 issued and outstanding as of December 31, 2019 and no shares issued and outstanding as of December 31, 2018 | 69 | — | |||||
Common stock, $0.01 par value per share, 300,000,000 shares authorized, 108,475,266 and 106,230,901 shares issued and outstanding as of December 31, 2019 and 2018, respectively | 1,085 | 1,063 | |||||
Additional paid-in capital | 2,615,089 | 2,412,915 | |||||
Accumulated other comprehensive (loss) income | — | (531 | ) | ||||
Distributions in excess of accumulated earnings | (932,912 | ) | (812,047 | ) | |||
Total stockholders' equity | 1,683,331 | 1,601,400 | |||||
Non-controlling interests | 18,899 | 8,335 | |||||
Total equity | 1,702,230 | 1,609,735 | |||||
Total liabilities and equity | $ | 3,490,188 | $ | 3,262,547 | |||
American Finance Trust, Inc.
Consolidated Statements of Operations (Unaudited)
(In thousands, except share and per share data)
Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Revenue from tenants | $ | 76,231 | $ | 75,092 | $ | 299,744 | $ | 291,207 | |||||||
Operating expenses: | |||||||||||||||
Asset management fees to related party | 6,777 | 5,848 | 25,695 | 23,143 | |||||||||||
Property operating expense | 14,344 | 14,059 | 52,715 | 54,068 | |||||||||||
Impairment of real estate investments | — | 11,023 | 827 | 21,080 | |||||||||||
Acquisition, transaction and other costs [1] | 3,022 | 1,616 | 6,257 | 7,557 | |||||||||||
Listing fees | — | — | — | 4,988 | |||||||||||
Vesting and conversion of Class B Units | — | — | — | 15,786 | |||||||||||
Equity-based compensation [2] | 3,211 | 2,935 | 12,717 | 5,266 | |||||||||||
General and administrative | 4,300 | 5,876 | 20,375 | 22,733 | |||||||||||
Depreciation and amortization | 31,802 | 32,638 | 124,713 | 139,907 | |||||||||||
Goodwill impairment | — | — | 1,605 | — | |||||||||||
Total operating expenses | 63,456 | 73,995 | 244,904 | 294,528 | |||||||||||
Operating income (loss) before gain on sale of real estate investments | 12,775 | 1,097 | 54,840 | (3,321 | ) | ||||||||||
Gain on sale of real estate investments | 4,519 | 2,186 | 23,690 | 31,776 | |||||||||||
Operating income | 17,294 | 3,283 | 78,530 | 28,455 | |||||||||||
Other income (expense): | |||||||||||||||
Interest expense | (18,990 | ) | (17,623 | ) | (77,994 | ) | (66,789 | ) | |||||||
Other income | 367 | 794 | 3,627 | 863 | |||||||||||
Total other expense, net | (18,623 | ) | (16,829 | ) | (74,367 | ) | (65,926 | ) | |||||||
Net (loss) income | (1,329 | ) | (13,546 | ) | 4,163 | (37,471 | ) | ||||||||
Net (income) loss attributable to non-controlling interests | (1 | ) | 22 | (16 | ) | 62 | |||||||||
Preferred stock dividends | (3,497 | ) | — | (7,248 | ) | — | |||||||||
Net loss attributable to common stockholders | $ | (4,827 | ) | $ | (13,524 | ) | $ | (3,101 | ) | $ | (37,409 | ) | |||
Basic and Diluted Net Loss Per Share: | |||||||||||||||
Weighted-average shares outstanding — Basic and Diluted | 107,286,620 | 106,096,401 | 106,397,296 | 105,560,053 | |||||||||||
Net loss per share attributable to common stockholders — Basic and Diluted | $ | (0.04 | ) | $ | (0.13 | ) | $ | (0.03 | ) | $ | (0.35 | ) | |||
______
[1] For the three months and year ended December 31, 2019, includes litigation costs related to AFIN’s 2017 merger with American Realty Capital - Retail Centers of America, Inc. (the “Merger”) of $0.7 million and $1.3 million, respectively. For the three months and year ended December 31, 2018, includes litigation costs related to the Merger of $0.4 million and $1.9 million, respectively, that were previously classified as general and administrative expenses.
[2] For the three months and year ended December 31, 2019, includes expense related to the Company’s restricted common shares of $0.3 million and $1.2 million, respectively. For the three months and year ended December 31, 2018, includes expense related to the Company’s restricted common shares of $0.3 million and $0.5 million, respectively, that was previously classified as general and administrative expenses.
American Finance Trust, Inc.
Quarterly Reconciliation of Non-GAAP Measures (Unaudited)
(In thousands)
Three Months Ended | Year Ended December 31, 2019 | |||||||||||||||||||
March 31, 2019 | June 30, 2019 | September 30, 2019 | December 31, 2019 | |||||||||||||||||
Adjusted EBITDA | ||||||||||||||||||||
Net (loss) income | $ | (3,200 | ) | $ | 8,540 | $ | 152 | $ | (1,329 | ) | $ | 4,163 | ||||||||
Depreciation and amortization | 32,086 | 30,924 | 29,901 | 31,802 | 124,713 | |||||||||||||||
Interest expense | 18,440 | 21,995 | 18,569 | 18,990 | 77,994 | |||||||||||||||
Impairment of real estate assets | 823 | 4 | — | — | 827 | |||||||||||||||
Acquisition, transaction and other costs [1] | 854 | 1,892 | 489 | 3,022 | 6,257 | |||||||||||||||
Equity-based compensation [2] | 3,021 | 3,268 | 3,217 | 3,211 | 12,717 | |||||||||||||||
Gain on sale of real estate investments | (2,873 | ) | (14,365 | ) | (1,933 | ) | (4,519 | ) | (23,690 | ) | ||||||||||
Other income | (2,545 | ) | (667 | ) | (48 | ) | (367 | ) | (3,627 | ) | ||||||||||
Goodwill impairment | — | 1,605 | — | — | 1,605 | |||||||||||||||
Adjusted EBITDA [3] | 46,606 | 53,196 | 50,347 | 50,810 | 200,959 | |||||||||||||||
Asset management fees to related party | 6,038 | 6,335 | 6,545 | 6,777 | 25,695 | |||||||||||||||
General and administrative | 6,061 | 6,441 | 3,573 | 4,300 | 20,375 | |||||||||||||||
NOI [3] | 58,705 | 65,972 | 60,465 | 61,887 | 247,029 | |||||||||||||||
Amortization of market lease and other intangibles, net | (1,839 | ) | (1,723 | ) | (2,503 | ) | (1,307 | ) | (7,372 | ) | ||||||||||
Straight-line rent | (1,196 | ) | (1,566 | ) | (2,716 | ) | (2,847 | ) | (8,325 | ) | ||||||||||
Cash NOI [3] | $ | 55,670 | $ | 62,683 | $ | 55,246 | $ | 57,733 | $ | 231,332 | ||||||||||
Cash Paid for Interest: | ||||||||||||||||||||
Interest expense | $ | 18,440 | $ | 21,995 | $ | 18,569 | $ | 18,990 | $ | 77,994 | ||||||||||
Amortization of deferred financing costs, net and change in accrued interest | (1,329 | ) | (3,062 | ) | (725 | ) | (2,394 | ) | (7,510 | ) | ||||||||||
Amortization of mortgage premiums on borrowings | 794 | 839 | 839 | 1,344 | 3,816 | |||||||||||||||
Total cash paid for interest | $ | 17,905 | $ | 19,772 | $ | 18,683 | $ | 17,940 | $ | 74,300 | ||||||||||
——
[1] For the three months ended March 31, 2019, June 30, 2019, September 30, 2019 and December 31, 2019, includes litigation costs related to the Merger of $0.3 million, $0.2 million, $0.2 million and $0.7 million, respectively.
[2] Includes expense related to the amortization of the Company’s restricted common shares and LTIP Units.
[3] For the three months ended June 30, 2019 and year ended December 31, 2019 includes income from a lease termination fee of $7.6 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, consistent with what we believe to be general industry practice.
American Finance Trust, Inc.
Quarterly Reconciliation of Non-GAAP Measures (Unaudited)
(In thousands)
Three Months Ended | Year Ended December 31, 2019 | |||||||||||||||||||
March 31, 2019 | June 30, 2019 | September 30, 2019 | December 31, 2019 | |||||||||||||||||
Net income (loss) attributable to common stockholders (in accordance with GAAP) | $ | (3,227 | ) | $ | 7,884 | $ | (2,931 | ) | $ | (4,827 | ) | $ | (3,101 | ) | ||||||
Impairment of real estate investments | 823 | 4 | — | — | 827 | |||||||||||||||
Depreciation and amortization | 32,086 | 30,924 | 29,901 | 31,802 | 124,713 | |||||||||||||||
Gain on sale of real estate investments | (2,873 | ) | (14,365 | ) | (1,933 | ) | (4,519 | ) | (23,690 | ) | ||||||||||
Proportionate share of adjustments for non-controlling interests to arrive at FFO | (49 | ) | (27 | ) | (45 | ) | (44 | ) | (165 | ) | ||||||||||
FFO attributable to common stockholders [1] | 26,760 | 24,420 | 24,992 | 22,412 | 98,584 | |||||||||||||||
Acquisition, transaction and other costs [2] | 854 | 1,892 | 489 | 3,022 | 6,257 | |||||||||||||||
Litigation cost reimbursements related to the Merger [3] | (1,833 | ) | (115 | ) | — | (316 | ) | (2,264 | ) | |||||||||||
Amortization of market lease and other intangibles, net | (1,839 | ) | (1,723 | ) | (2,503 | ) | (1,307 | ) | (7,372 | ) | ||||||||||
Straight-line rent | (1,196 | ) | (1,566 | ) | (2,716 | ) | (2,847 | ) | (8,325 | ) | ||||||||||
Amortization of mortgage premiums on borrowings | (794 | ) | (839 | ) | (839 | ) | (1,344 | ) | (3,816 | ) | ||||||||||
Equity-based compensation [4] | 3,021 | 3,268 | 3,217 | 3,211 | 12,717 | |||||||||||||||
Amortization of deferred financing costs, net and change in accrued interest | 1,329 | 3,062 | 725 | 2,394 | 7,510 | |||||||||||||||
Goodwill impairment [5] | — | 1,605 | — | — | 1,605 | |||||||||||||||
Proportionate share of adjustments for non-controlling interests to arrive at AFFO | 1 | (7 | ) | 3 | (5 | ) | (8 | ) | ||||||||||||
AFFO attributable to common stockholders [1] | $ | 26,303 | $ | 29,997 | $ | 23,368 | $ | 25,220 | $ | 104,888 | ||||||||||
______
[1] FFO and AFFO for the three months ended June 30, 2019 and year ended December 31, 2019 includes income from a lease termination fee of $7.6 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, consistent with what we believe to be general industry practice.
[2] Primarily includes prepayment costs incurred in connection with early debt extinguishment as well as litigation costs related to the Merger.
[3] Included in "Other income" in the Company's consolidated statement of operations.
[4] Includes expense related to the amortization of the Company’s restricted common shares and LTIP Units.
[5] | This is a non-cash item and is added back as it is not considered indicative of operating performance. |
American Finance Trust, Inc.
Quarterly Reconciliation of Non-GAAP Measures (Unaudited)
(In thousands)
Three Months Ended December 31, 2018 | Year Ended December 31, 2018 | |||||||
Net loss attributable to stockholders (in accordance with GAAP) | $ | (13,524 | ) | $ | (37,409 | ) | ||
Impairment of real estate investments | 11,023 | 21,080 | ||||||
Depreciation and amortization | 32,638 | 139,907 | ||||||
Gain on sale of real estate investments | (2,186 | ) | (31,776 | ) | ||||
Proportionate share of adjustments for non-controlling interests to arrive at FFO | (67 | ) | (228 | ) | ||||
FFO attributable to stockholders | 27,884 | 91,574 | ||||||
Acquisition, transaction and other costs | 1,616 | 7,557 | ||||||
Listing fees | — | 4,988 | ||||||
Vesting and conversion of Class B Units | — | 15,786 | ||||||
Amortization of market lease and other intangibles, net | (6,054 | ) | (15,498 | ) | ||||
Straight-line rent | (2,119 | ) | (9,501 | ) | ||||
Amortization of mortgage premiums on borrowings | (1,097 | ) | (3,790 | ) | ||||
Mark-to-market adjustments | — | (72 | ) | |||||
Equity-based compensation | 2,935 | 5,266 | ||||||
Amortization of deferred financing costs, net and change in accrued interest | 1,461 | 6,740 | ||||||
Proportionate share of adjustments for non-controlling interest to arrive at AFFO | 6 | (19 | ) | |||||
AFFO attributable to stockholders | $ | 24,632 | $ | 103,031 | ||||
American Finance Trust, Inc.
Quarterly Reconciliation of Non-GAAP Measures (Unaudited)
(In thousands)
Three Months Ended December 31, 2018 | Year Ended December 31, 2018 | |||||||
Adjusted EBITDA | ||||||||
Net (loss) income | $ | (13,546 | ) | $ | (37,471 | ) | ||
Depreciation and amortization | 32,638 | 139,907 | ||||||
Interest expense | 17,623 | 66,789 | ||||||
Impairment of real estate assets | 11,023 | 21,080 | ||||||
Acquisition, transaction and other costs | 1,616 | 7,557 | ||||||
Listing fees | — | 4,988 | ||||||
Vesting and conversion of Class B Units | — | 15,786 | ||||||
Equity-based compensation | 2,935 | 5,266 | ||||||
Gain on sale of real estate investments | (2,186 | ) | (31,776 | ) | ||||
Other income | (794 | ) | (863 | ) | ||||
Adjusted EBITDA | 49,309 | 191,263 | ||||||
Asset management fees to related party | 5,848 | 23,143 | ||||||
General and administrative | 5,876 | 22,733 | ||||||
NOI | 61,033 | 237,139 | ||||||
Amortization of market lease and other intangibles, net | (6,054 | ) | (15,498 | ) | ||||
Straight-line rent | (2,119 | ) | (9,501 | ) | ||||
Cash NOI | $ | 52,860 | $ | 212,140 | ||||
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 fees related to the Listing, 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. 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 to better assess the sustainability of our ongoing operating performance without the impact of transactions or other items that are not related to the ongoing performance of 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.
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, fees related to the Listing, 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.