NNN REIT Inc (NNN) 2007 Q2 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the National Retail Properties Inc. second quarter 2007 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Craig Macnab, Chief Executive Officer. Thank you, you may begin.

Joe, thank you. Good afternoon and welcome to our second quarter 2007 earnings release call. On this call with me is Kevin Habicht, our Chief Financial Officer, who will review details of our second quarter financial results after brief opening comments from me.

We're extremely pleased with our record financial performance in the second quarter, which obviously positions us well to continue growing our FFO per share in 2007 as well as in 2008. Our strong results this year reflect the excellent execution by all of our associates. As you will hear when Kevin provides our guidance for 2007, we expect this level of performance to continue. Our portfolio continues to be in great shape, with over 98% of our properties occupied. In the additional detail at the back of our press release, you will see that we have very few leases that need to be renewed through the end of 2008, and this year, we have only four leases expiring.

The high level of occupancy is attributable to the quality of our fully diversified net lease retail portfolio. We currently own 859 properties, leased to approximately 200 different national or regional tenants in 43 states. These tenants operate in over 30 different segments of the retail industry,which provides us with very broad diversification.

In the second quarter, we were exceptionally busy on the acquisition front, acquiring $337.8 million of properties for our investment portfolio at an average cap rate of approximately 8.38%. These properties were acquired from 13 different tenants, and I should point out that we've completed sale leaseback transactions with eight of these 13 tenants in the recent past. In our largest sale leaseback transaction during the quarter, we purchased just over 50 properties as part of a transaction where the Pantry, which is now our largest tenant, acquired a convenience store chain doing business in the greater Charlotte, North Carolina, market. The company that the Pantry acquired has a dominant position in the Charlotte market, helped considerably by the high quality of the real estate that the target company had assembled over a long time. As a result, the financial productivity of these units that we acquired in the sale leaseback transaction is absolutely spectacular.

For those you've not familiar with the Pantry, they are the leading independent operator of convenience stores in the southeast, operating over 1,500 stores. From a credit perspective, I'd point out that they're a substantial public company and in their most recent fiscal year, their rent coverage was over 5 to 1. It's worth highlighting a couple of additional details regarding our acquisition activity and also the environment in which we operate. As evidenced by the high level of activity thus far this year, our acquisition team continues to look at a large volume of transactions that allow us to selectively acquire high-quality real estate.

Over the past two and a half years, our entire management team and our acquisition officers have worked very hard at developing relationships with growing retailers that compete in favorable growth categories. We have all allocated time and resources to developing relationships with companies that are either consolidating their retail category or are operating in a segment that allows them to open new stores. Our core competencies, including our market knowledge, add value to some of these transactions and assist us in realizing excellent risk-adjusted pricing. Our portfolio momentum and the large number of properties that we've acquired in the last couple of years is the result of our strategy to focus on developing relationships with growing retailers. We expect continued organic property acquisition growth from many of our existing relationships. We anticipate additional transactional activity from some of the new tenants that we completed sale leasebacks with in the second quarter.

The acquisition environment remains robust and if one is selective, which we are, there is plenty of opportunity to obtain attractive sale leaseback yields. For what it's worth, we've not seen any change in cap rates for the average one off triple net lease property as evidenced by the fact that we're continuing to sell individual properties in the high 6% to low 7% range. However, on the acquisition side, our team continues to execute well and we're acquiring properties at initial yields ranging from around 8% to the mid 9% range. Our capital recycling program, where we're selling properties internally using our NNN1031 Web site continues to be active, as we realized $92 million from selling real estate in the most recent quarter, which is on top of the $65 million that we sold in the first quarter of 2007. We're very pleased with our capital recycling strategy, where we are selling properties with either limited upside, or occasionally weaker real estate. We are then reinvesting the proceeds from selling these properties at higher yields, often with growth in their -- in red.

As mentioned in our press release, we have closed on the sale of a number of properties from our portfolio and our taxable REIT subsidiary at low cap rates in early July, realizing an additional $78 million in proceeds. Following this recent transaction, we've substantially sold our inventory of properties that we held in our taxable REIT subsidiary. In summary, NNN had an exceptional second quarter, executing very well and realizing the benefit of the tenant relationships that we've established over the last three years. Our fully diversified portfolio is in great shape, our acquisition activity thus far in 2007 has been significant, and our pipeline of future deals is solid.

I will now hand over to Kevin.

Thank you, Craig. With that let me start off by saying we're going to make certain statements that might be considered to be forward-looking statements under federal securities laws. The company's actual future results may differ significantly from the matters discussed in any forward-looking statements and we may not release revisions to those forward-looking statements to reflect changes after the statements are made. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the SEC and this morning's press release.

With that, I'm very happy to report, as indicated in the press release, we reported second quarter 2007 FFO results totaling $31.5 million or $0.47 per share. That represents 11.9% over 2006's $0.42 per share. Stripping out unusual items for both quarter, and that would be impairment and restructuring charge, any lease termination fee income, and some rent recognition triggered in the May '06 D.C. office property sale, the per-share results increased by 7.1% in the second quarter year over year, which would be $0.45 versus $0.42. For the first half of 2007, we reported FFO per share was $0.96, up 14.3% from $0.84 per share in the first half of 2006. Again, if you strip out the unusual items, the per-share results would have been $0.93 versus $0.86 or an 8.1% increase for the first half.

We are very pleased with these results, which are being driven really by a variety of factors from accretive acquisitions, lower capital costs, squeezing G&A, and as Craig mentioned, the benefits of recycling capital. On our last conference call, we increased FFO guidance to $1.79 to $1.83 per share. Today, we are increasing FFO guidance again to $1.83 to $1.87 per share based on the acquisitions completed in the first half as well as the revised higher projected core portfolio acquisitions of 6 to $700 million for the year. Not only has the acquisition pipeline been strong, but we've been able to close more of the deals earlier in the year, which only improves bottom line results. Our new 2007 FFO per share guidance represents a 10.8% growth from 2006 to the midpoint of 2007 guidance. Even with a 6% increase in our dividend earlier this year, our dividend payout ratio is tracking to be 76% for 2007, which is among the lowest in our sector.

The other primary assumptions in our '07 guidance are 100 to $150 million of core portfolio dispositions. The top end of that range is up slightly from 120 million we previously gave guidance on. G&A expense, $24 million, which is the same as prior guidance and pretax, preoverhead gains on sale from our TRS properties of 10 to $10.5 million. We believe the visibility is fairly good on this guidance, but as always, the projections are based on a number of factors and uncertainties as discussed in our public filings.

With that, let me quickly go through some of the details in our second quarter, and then we'll take some questions. Looking at the income statement, total revenues for the second quarter increased to $46.4 million. That was driven by additional rent from net new investments made over the past year as well as accretive capital recycling from dispositions. Acquisitions in the core portfolio totalled $337.8 million in the first quarter, as Craig just discussed. Occupancy at June 30 was 98.4%. That's up 50 basis points from the immediately prior quarter and flat with year-ago numbers. Page 5 in the press release includes some additional disclosure regarding percentage rents, straight line rent, and capital lease earned income for your information.

Interest and other income from real estate transactions. That consists primarily of mortgage and mezz loan income and some miscellaneous items. The $957,000 reported for the second quarter was down from prior year amounts due to lower mezzanine loan balance outstanding. We had some pay off in the second quarter of '06, actually. At the end of the second quarter, we had $17.6 million in structured mezzanine loans outstanding.

The interest income from mortgage residual assets was $1.1 million for the second quarter. That's down from $1.2 million the immediately prior quarter and down from $1.9 million last year. The decrease is a result of the amortization of the underlying loans in the mortgage securitization pools and these results were in-line with our projections and we're still estimating a total of 4.25 million in interest on this line item for full-year 2007. G&A expense was $5.9 million for the second quarter. That's down from $6.8 million last year, largely due to lower compensation expense and down slightly from $6.2 million first quarter of this year, primarily due to some seasonal expenses in the first quarter. As I mentioned, our guidance for G&A in this year is $24 million. Notably, I will point out that we are seeing meaningful operational leverage efficiencies as G&A for the first half of 2007 was 14% of revenues as compared to 19.9% of revenues in the first half of '06. So a lot of operating efficiencies coming to bear and dropping to the bottom line.

Property expenses net of tenant reimbursements were flat with prior-year amounts for the quarter. During the second quarter, we did report $1.42 million of lease termination fee income. That compares with $466,000 in the second quarter of 2006 and compares to $700,000 to the first quarter of '07. In other expenses in revenues, the interest and other income line item of $1.024 million that was flat with prior year amounts, down slightly from the prior quarter. Interest expense for the second quarter increased to $12.4 million. That's up from $11.2 million in second quarter of '06 due to somewhat higher average debt balances offset by slightly lower average interest rates due to our convertible debt issuance last fall.

At quarter end, we had $193 million of our $968 million total liabilities were floating-rate debt at that point. We also reported the sale of nine properties from our core portfolio, core investment portfolio during the second quarter. Those are reflected in our investment portfolio discontinued operations, detailed on page 7. These sales generated $53.5 million of net proceeds and produced a gain of $22.6 million. This gain is excluded from our FFO calculation. We continue to review our core portfolio and expect additional dispositions this year. As I mentioned, our core portfolio disposition guidance we've increased 100 to $150 million for '07.

Investment property sales in the first half generated $61 million in net proceeds, so we see additional potential for another 40 to $90 million in the second half. We think this activity improves the club's quality of our portfolio, demonstrates the embedded value, and supplies capital for accretive acquisitions as we sell at retail prices and buy wholesale. Discontinued ops inventory properties. These are our TRS properties, we sold a total of 16 from our TRS in the second quarter with net proceeds of $38.7 million. Three of the 16 properties were out of our development unit and 13 properties were from our 1031 exchange unit. As I mentioned, for the quarter, total pretax preoverhead gain on sale from our TRS was $1.7 million. That compares to $2.3 million last year and that compares to $4.7 for the first quarter of '07.

As I mentioned for the year we expect total pretax pre-overhead gains on sale of our TRS was $1.7 million, that compares to $2.3 million last year, and compares to $4.7 million for the first quarter of '07. As I mentioned, for the year, we expect total pre-tax, pre-overhead gains of approximately 10 to $10.5 million. We have reduced our TRS inventory as of June 30 and have a number of properties under contract for sale in the third quarter. As Craig mentioned, the market for the disposition of these properties that we've developed or acquired for sale continues to be good. As we've noted in the past, there is some choppiness in the reported gains on sale number from this activity, depending on the timing.

Looking at the balance sheet, we finished the second quarter with total liabilities of $968.4 million. Of this amount, only $56.5 million was secured debt. 95.2% of our assets are unencumbered. During the second quarter, we generated $30.8 million from net proceeds from the issuance of shares under our stock purchase DRIP program, as well as the $750,000 shares issued in connection with the underwriter's over-allotment option exercise from the first quarter offering that we did a few months ago. As of June 30, 2007, total debt to total assets was 41.6% on a growth book basis. That excludes accumulated depreciation. That 41.6 is down from 42.6 the prior year. On a market cap leverage basis, our leverage was 38.3% at quarter end.

Interest coverage was 3.5 times for the second quarter and 3.6 for the first half of '07. Fixed charge coverage was 3.0 times for the quarter and 3.1 times for the first half. These coverages have improved over recent years due to the lower borrowing cost and the accretive impact of our capital recycling efforts. In closing, we are very pleased with the results for the first half and we're in a good position and have good visibility on producing record results and meeting our guidance for the year. We believe the portfolio and balance sheet are in very good shape and are optimistic we're going to be able to continue delivering incremental per share results as we create value through targeted acquisitions, developments, and dispositions. With that, Craig, I'll turn it back over to you for questions. .

Joe. We would like to take any questions, if there are any, please.

(OPERATOR INSTRUCTIONS). Our first question is from Jonathan Litt with Citigroup. Please go ahead with your question.

Hi, this is Ambika with Jon. Can you comment on the cap rate of the dispositions in July and during the quarter?

It's actually quite low. During the second quarter, we sold properties from three different places. One, the core portfolio, a couple of development properties, as well as some of our inventory in our exchange TRS, and in that order, being cap rates from the investment portfolio were being sold in the high sixes, around 7% or so for some of the development properties and a little bit higher than that for some of our exchange properties with an aggregate cap rate in the low 7s. Our sale in early July, which was a mix of properties both from our investment portfolio and from our TRS about half and half again was around 7%.

Okay.

Extremely good pricing.

Right. And then just looking at acquisition guidance for the remainder of the year, the piece kind of slows down. Is that more driven by the fact that a lot of the acquisitions came in earlier than expected, or is that a factor of deal volumes slowing down in the marketplace?

It's definitely not deal volume. Deal opportunities are very robust. Companies like us are at a strong disadvantage -- sorry, a strong advantage being a cash buyer in this type of environment. Leverage buyers struggle to deliver and our pipeline is very, very robust. You might recall that at the beginning of this year our acquisition guidance was in the range of 250 to $300 million or so. One of the strengths of our business model is that we don't need to make acquisitions in volume. Every deal comes in and goes through the same internal filter and underwriting and if we think that we're being compensated for the risk we're taking, we'll pursue that opportunity.

With some of our relationships, we currently have some organic portfolio growth, which is to say that we can see for the next -- over the next six to nine months we're going to acquire -- we know we're going to acquire properties from these tenants. We have some of that in the pipeline and then there are a couple other deals which we have on the letter of intent and a couple under content.

So would it be fair to say what's in guidance currently is conservative and you could easily come out above that level?

I think, like everybody on this call right now, we're just trying to make sure that we understand what the market is going to allow and so forth. In the near term, I don't think you're going to find us being extremely aggressive. It's not our history, it's not our nature and in our pipeline, we currently have some high-quality transactions at pretty good yields. And that's what you're going to see us doing this year. I spent some time talking in my prepared remarks talking about the quality of the real estate we acquired in the second quarter. As you know, Ambika, because you saw the 8-Ks that The Pantry filed, they made about a $250 million acquisition in early April and we purchased $150 million of real estate in conjunction with that transaction. I've got to tell you, it was a quality real estate. And if we can keep finding properties like that, we'll do it all day long.

Okay. My last question, what's the estimated cap rate on the acquisitions at the end of the year?

I think we are still in the 8.25 to 8.35% range. Given the activity in the beginning of this year, we'll probably be on the higher end of that, Ambika. 8.35, maybe a good single point estimate.

Okay, great. Thank you.

The next question is from Dustin Pizzo with Banc of America Securities. Please state your question.

Craig, just a follow-up on one of your comments earlier. The 1031 and the highly levered buyers. Can you comment a bit more on the affect that you're seeing of the wider spreads more recently on those buyers? Are you seeing them en masse move to the sidelines? And also, in the back half of the year and looking out, how you think it will affect the asset sales from the inventory portfolio, on a pricing basis?

Dustin, I think it's a fair question. I think the first point is that we're very pleased to have completed the transactions which we have already this year, which is why I stepped out and commented that we've already closed $78 million of properties that we've sold this year. So clearly, those were under contract, say a month, six weeks ago, and lenders came to the table and those properties were closed.

We have a very small amount of inventory left. We have some selective properties that we are going to be selling. I think for people coming out of an exchange, where they're looking to sell an asset and avoid paying taxes by exchanging into a net lease retail property, those transactions are probably still going to go through. I think at the margin, that buyer that was looking at a leveraged, maybe double digit or high single digit return, buying a net lease, property and using as much debt as possible in the near term, they're not going to be in the marketplace.

Okay. So as --

I think that on balance it doesn't affect our business. On balance, we're much better off competing on the acquisition side, where we make more of our money by competing against rational, logical, cash buyers. And there are not many of those, so we're seeing a lot of deal flow.

Sure. So would you say on the acquisition side of the corollary, it's more the quality of the real estate you're seeing and the pricing you've been able to get is more an effect, at least more recently, that you guys just continue to develop the relationship with some of your existing tenants than it is necessarily the incremental buyer in the market going away?

The relationships are what is driving our business. But by the same token, there are still transactions going on in the marketplace where private equity groups or consolidators are buying companies and looking to effect sale leaseback transactions. What we are seeing is very good deal flow and that is enabling us to be selective on what we're buying, selective in terms of, A, the quality of the real estate, and B, the caliber of the tenant.

Okay. Just quickly a nitpicky. Where's the weighted average cost of debt right now for you guys?

We're still probably right around in the low 6s. We've been around 6, 6.20 kind of number.

I think that's a pretty good rate.

Right at 6.

Great. Thanks, guys.

Yep.

The next question is from David Fick with Stifel Nicolaus. Please state your question.

Good afternoon. You guys have $125 million convert out there with a face rate of under 4%, I believe. I'm sure you're well aware of the FAS B fast tracking unanimous vote to require recognition of conversion costs in the interest in FFO -- or in net income. What does that mean to you and what assumptions are you making about guidance?

It has no impact on our '07 guidance. It wouldn't get applied until '08, the way I read it. They're coming out with an exposure draft in the next number of days and we'll see where it goes, and that have well could have some impact on next year, potentially.

Okay.

But we haven't given any '08 guidance, therefore we haven't incorporated that into any analysis.

Right. Craig, just going back briefly to your forward view on the acquisition pipeline, I presume that you expect to see more transactions based on what's happening in the debt market and that you're going to see more attractive pricing. Do you anticipate focusing more on portfolio deals or small packages or oneoffs?

I think --

Is that a correct assumption?

Yes. It's a correct assumption that we are seeing an improved deal flow, but we've been seeing that probably in the last couple of months. It's even stronger right now and it's noticeably stronger where either companies or agents are nervous that some of the people that they've been talking to, which are using a higher amount of debt may not be able to come through. I'll give you anecdotal evidence. We have an existing tenant and we looked at some business. They're opening six new stores and somebody else offered a more aggressive cap rate, quite a lot more aggressive because otherwise we would have had a very good opportunity.

That business was clearly going elsewhere. We chose not to move on the pricing. Over the weekend they came back to us and said, are you still there at that pricing? And the short answer is, no, we're not and we'll let you know what price we're interested in. So I think we're going to see good deal flow and we're going to get very good risk-adjusted earns. In terms of what types of deals we're still going to get lots of business from our existing relationships. And then on packages where as a cash buyer you have an advantage of the leverage buyer, we're still going to be competing in the transactions involving more than one property. Oneoff deals are just too competitive, too much time and effort.

So what is your assumption about your weighted average cap rate on acquisitions between now and year end in your guidance?

As Kevin said, total acquisition guidance is 600 to $700 million, so based on the $400 odd that we acquired, it's 200 to 300 at generally the same type of yields. However, we're hoping that we're going to be doing business with A quality real estate and high-caliber tenants.

Great. Thank you.

(OPERATOR INSTRUCTIONS). The next question is from Ken Avalos with Raymond James. Please go ahead with your question.

Hey, guys. Craig, could you spend just another minute talking about risk in general and the diligence process for you guys as you're seeing more deals, more velocity. And as a follow-up, how wary of you of committing more capital, given the market may be moving towards you?

Ken, those are all good questions. In terms of the underwriting process, a lot of deals that come through the hopper, we don't have to spend a whole lot of time on them, but every single piece of real estate that we acquire, every individual property is reviewed by a member of our acquisition team. So that standard is part of the way we conduct business and that's going to continue. Obviously, the first half of this year our team did a terrific job given the number of properties we acquired. In the second half of this year, we're not going to acquire nearly as many individual properties.

In terms of committing capital, at this point in time, we are -- I don't think I'd use the word, aggressive. We're, if anything, on the other end of the spectrum and being vigilant about what -- trying to see if there are better opportunities in terms of cap rates. We clearly have more than enough capital. Our balance sheet is in good shape and we're going to be prudent about that.

In addition, the balance sheet we've got a very good disposition pipeline from the second half of the year, which frees up a fair amount of capital on that front as well. Just responding to a couple of questions ago, Dustin's question. Our weighted average debt at quarter end was 5.96%.

Thanks. Can you spend a minute maybe talking about the acquisitions in Q2? Was there any -- outside of The Pantry-related deals, was there any large ones in there that maybe skewed the average size or per ticket number per store or anything?

Not really. There was a second transaction where we did acquire 27 properties from a particular tenant that we've worked with for a couple of years. Again, this is very good real estate, rent coverage above 3 to 1 and with that well-financed tenant. Very good operator in their segment. And then the rest were just a lot of single properties, but generally with relational tenants. We did do business in the third quarter with a couple of tenants that we'd not previously done business with and except for maybe two of those, I think we're going to continue doing business with those companies going forward.

Great. That's all I had, guys. Nice job. Thanks.

Thank you, Ken.

The next question is from Stephanie Krewson with Janney, Montgomery, Scott.

Hey, gentleman. I know you said this on your call, but I missed the detail. Can you please repeat what your lease termination fees were in the quarter?

Yes, second quarter, they were $1.024 million for second quarter '07 versus $466,000 in second quarter '06.

And were those all from continuing operations?

775 were in disc ops, 645 in continuing operations.

Thanks. Second question. A little more theoretical. Really, the only limitation you guys have with all your acquisition opportunities would be financing. How high would you take your leverage assuming that the public equity markets remain closed to REIT? And would you consider private equity alternatives? Not the whole company, but for financing your acquisition opportunities?

I think we clearly have plenty of opportunity to increase our leverage and to take it to a level that we still have an opportunity to go higher. Just thinking of a number of shopping center REITs which have tenants particularly shop tenants that don't have the credit and don't have the length of the leases that we do and yet they're operating in the 50 plus percent range. We've got a long way to go until we get there. We've still got plenty of room. I think the second point, which is quite encouraging and interesting from our business standpoint is that as we've gained a lot of traction in the acquisition environment, it may be that we have some opportunities to utilize other people's capital to help us make these acquisitions. But we're still a ways away from that. It's something at which in this current environment we're thinking more about, but it's still early days there.

Thank you, Craig. Just one more follow-up. In terms of the debt, would you -- I'm assuming that you would want to maintain your current rating for the rating agencies?

Absolutely. So you could still lever up to the mid-50s or so and keep those ratings? I would think so, but --

I believe so, yes.

We have a fair amount of flexibility in our rating category.

Great. Thank you, gentleman.

The next question is from Jeff Donnelly with Wachovia Securities. Please go ahead with your question.

Good afternoon, guys. Craig, just a question more about acquisition strategy. If you're in a moment now where financing is difficult for people perhaps at the margin, do you think it benefits you maybe to sit back and maybe be less inquisitive in the near term and maybe delay a few months, maybe in an environment that has more attractive cap rates?

Jeff, that assumes that there are going to be more attractive cap rates, which I think we're already getting. But I think your question is a very good one and earlier in response to Ambika's question about saying is the acquisition -- question is acquisition guidance conservative, A, and B how aggressive are we being? I think, number one, we are being thoughtful about marrying the opportunity and the environment. At this point in time, in terms of our acquisition pipeline, we do have a number of properties under contract, one. Two, some of our relationship tenants are going to continue opening stores and we expect to provide sale leaseback financing. But very definitely in terms of new opportunities, we are being thoughtful about how we allocate capital.

I know you touched on it in a couple of other response, but just because you mentioned it in your response here, does that mean in light of the volatility we've been seeing you do not necessarily think that's going to translate into higher cap rates in the coming months or quarters?

It's too early to tell, but I am not overly confident that our -- if our average cap rate in 2007 is 8.35, if it was to be, I don't believe that there's a whole lot of room to move that much higher given the amount of capital on the sidelines looking for attractive real estate investments. Those prices are already premium prices. We many times make an offer in the low 8% range and somebody is 100 basis points better than that and god bless them. That's a good deal for them, it doesn't work for us, and we get beaten out all day long. Those people that were offering 7 caps for those kind of properties, sure, their cap rate is going to move to 20 basis points or something.

Is our cap rate at 8.25, 8.35 going to go much higher? If it does, it will be good for our business, but we're not budgeting that. Some of these very, very highly leveraged transactions, acquisition transactions where all of the deal is financed by a sale leaseback, we really haven't been participating much in that category. So those -- there the cap rate's going to have to go higher because people have been taking on a lot of risk to do that, but that means that thar going to move particularly in the restaurant space from the low 7s. There's one very big company that plays in the restaurant net lease sale leaseback arena. I don't know what they're going to do. Sometimes we see they're very aggressive, Stiles they're not. And they're still playing in this sand bucket in which we compete quite aggressively. We're not budgeting that cap rates are going to go much higher. If they do, that's just great.

Let me switch it around, then. Do you think there's a chance, say cap rates don't move, meaning you've had experience in many assets classes of property type of the years, and net lease, generally speaking, has always been a highly levered asset class, whereas, say, lending terms and office markets or hotels tends to be very cyclical and comes back very strongly in a rising economy, a rising environment. Do you think that means there's a chanceless less deterioration in its lending terms over the next few months?

Jeff, that's my expectation. I think one of the attributes about this property type is its core stability. It's a very steady as she goes ship. On the tenant side, we're not seeing a duress.

That's why I specifically pointed out we've sold $78 million properties in the month of July with cap rates at 7 and then there tends to be a couple of zeros near that 7. So very aggressive pricing and I think a lot of stability. Now in the case of National Retail Properties, what we are clearly doing here is we are getting the opportunity to acquire some higher quality real estate than we might otherwise have had. One of the properties we have under contract in the second half of this year is with a tenant that we previously talked to and somebody else offered more aggressive pricing. Bingo. We're back in the hunt at a little bit better pricing and growth in rent over the duration of the lease. Same properties, high quality, big company, one of the dominant players in its category.

Fantastic. Thank you.

(OPERATOR INSTRUCTIONS). I'm showing no further questions in queue. I would like to turn the call back over to management for closing remarks.

Joe, thanks very much. Obviously, we look forward to talking to all of you in 90 days or so, but let me just reiterate that one of the core strengths of National Retail Properties is the stability of the revenue stream we get from our existing tenants. We have very high property level occupancy, our balance sheet is in great shape, we are really well-pleased with the way we're positioned to take advantage of the environment.

Thanks very much.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.