American Finance Trust today
American Finance Trust's portfolio is made up of 50% single-tenant retail properties, followed by 30% multi-tenant retail, 11% distribution warehouses, and 10% office. Its properties are located across 47 states with tenants operating in a wide range of industries with an emphasis on essential retail services primarily in the Northeast, Midwest, Southeast, and Sun Belt regions of the United States.
The majority of its tenants are institutional-grade, around 70%, with its top 10 tenants including REIT Americold Realty Trust, pharmaceutical company Sanofi, financial company Truist, Home Depot, and Dollar General. Currently its portfolio is 94.9% occupied, and it collected 100% of quarter two rents, including full cash and deferred rents due.
While American Finance Trust has been able to grow its portfolio by over 375 properties, the company's square footage available for lease has only grown 900,000 square feet, relatively small compared to the number of properties acquired in that time.
Thankfully, revenues make up for the lack of square footage. In three years, annualized straight-line rent has grown 20.2% from when the company first went public and reported Q2 2018 quarter results, and revenues have jumped nearly 15%.
The biggest reason share values have declined is the company is operating at a net deficit. In Q2 2021, the company was at a net loss per share of $0.07 and has operated at a net loss since Q2 2019. The company has had a tough time managing its debt, with fluctuating debt ratios far above the normal range. Currently its debt outstanding is $1.7 billion, and the company has $137.1 million in cash and cash equivalents on hand. Its debt-to-EBITDA is 7.4 times, a major improvement from Q2 2020 when it was 8.3 times, but these two factors are undoubtedly hurting the growth of the company.
Where American Finance Trust could be headed
The company is actively cleaning its balance sheet through its "deleveraging initiative." The plan includes action steps such as funding acquisitions in all cash or at lower debt-to-equity ratios and paying off higher interest debt. Which it completed in June 2021 having closed a $240 million securitization of long-term fixed rate notes to help pay off some of its higher interest debt. Personally, I would like to see the company maintain this debt ratio or continue to lower it over the next few years, as historically it fluctuates frequently and rarely stays below 7.5x.
In its acquisition pipeline, the company has 39 retail properties under contract or closing in Q3 2021 for a total of $133 million. It's also actively focusing on improving occupancy and leasing of multi-tenant properties, having added two new advisors to the team at the end of 2020. In Q2 2021, multi-tenant property occupancy reached 89.1%, which should add $2.7 million annualized straight rents to its revenues.
Personally, I don't see the company really taking off over the next three years but rather better positioning itself financially. It would be great to see the company at a net positive for earnings per share by this time 2024. While it's going to be a challenge, I do think it's possible if they continue to execute deleveraging initiatives while growing leasing activity and lease rates.
Dividends have been cut in the past, but American Finance Trust just increased payouts at the start of 2021. If all goes to plan, future dividend increases could be in store.
Retail is a challenging sector. While the company does have good exposure to e-commerce related assets and leases to retailers who primarily aren't impacted negatively by e-commerce, there's clearly still a gap in revenue potential. American Finance Trust's long average weighted lease term of 8.5 years means it has secured a solid portion of rental income for the near future.
Its next major debt maturity is due in 2023, meaning the company has a chance to really focus its efforts on growth and debt management over this time. I hope to see American Finance Trust in a superior position than we see today, but there is no guarantee the company will get there.