National Retail Properties (NNN) 2 May 232023 Q1 Earnings call transcript

Greetings, and welcome to the NNN REIT First Quarter 2023 Earnings Call. At this time all participants are in a listen-only mode, and a question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Mr. Steve Horn, CEO of NNN REIT. begin. may you Sir,

morning, XXXX to Earnings Good REIT inaugural First Quarter Call. and Ali. the welcome NNN Thanks,

Joining me on Kevin Habicht. this call is Chief Financial Officer,

first over $XXX As performance with a FFO release press cash million along quarter yield. initial the growth slightly this core produced acquisitions, reflects with X% X.X% morning’s in NNN’s

does retained before continuous occupancy upfront our of about. continue on diligence In portfolio due operational want I that acquisitions which performance, But I’m portfolio to name property addition, the every XX.X%, with the a address high excited and we change, management NNN the day. attribute I to which the

as First, of NNN We is was brand. with time with in shift acquisitions, is the release, balance of called our The circle to sheet reality clients take day. felt change it advantage peers, deliberate press the NNN. does I management NNN what signal consistent strategy stated not are every a with investors, we the and

emails REIT In our website the NNN more consistent brand. is change addition, making and Therefore, sector. within the even our use NNN

first the financial of the quarter to Turning results. highlights

Our single-tenant continue retail portfolio exceedingly perform of X,XXX to freestanding, well. properties

earlier, stated which above at long-term XX.X% occupancy for is XX%. the average quarter, of ended our I As

of enjoying flat department vacant a year-end. only of high which national year-end, remained of one regional strong quarter-end, less the and our leasing had vacancies. the level assets, by NNN Occupancy from At XX than is tenants product number a which is our in interest a

of to and watch in at were I color. for little extension. sure a quarter expect filed an but names more XX% of that I’m continue. credit And we just renewal were still high performing our list want more trend is that portfolio to during cover There some our large levels. addition, get leases the Q&A, bit up bankruptcy, In that the we’ll exercised the

an owns the interest of assets three been Bath a the the inbound $XX of per square currently foot. because NNN estate. real We’ve Beyond, & with of of on average Bed One assets rent of their getting which of quality recent of lot filings

release as occupancy So the recovery Remember, XX%. earlier, I expect assets, the I manner. rate comes we’ll NNN superior stated a in the since XXXX timely average time have from is when to

So of the portfolio the has test through time and stood GFC COVID.

with years. NNN We’ll acquisitions. the cap were business to luxury be acquisitions is of all the XX our effort our $XXX on initial maintaining do model, Turning past of programmatic selective. to Almost we lease which continue the acquisitions the business. of approximately for X% the relationship this acquired in is in itself to repeat quarter NNN to of duration and average That department. a sale-leaseback NNN prudent XX new underwriting, million, our prides an continue We properties be calling transactions. quarter of rate afforded result

the of wider to pricing regard cap quarter the approximately the environment, than last initial fourth of acquisition basis points X% XXXX. With quarter is XX of rate

starting at slowing definitely here increase. we of mentioned the down. cap the now mean, beginning rate were the I cap we rate increases seeing rates increase May, sit some. As as to What steadily during call, is of February plateau But I are the

glass quarter rates settles are not points cap of XX environment to macroeconomic down. assuming I’m the resulting that starting seeing basis for ceiling, in So, another second the This expecting NNN the XXXX. is hit

in are to of properties X we unchanged and year. assets The X $XX dispositions disposition proceeds the guidance X second that the quarter, expect keeping assets at I do consisted quarter, new and also disposition be for million be sold the During a of we in vacant reinvested to nearly income-producing activity X.X% acquisitions. greater our generated rate.

the keep consistent credit, no as remain his of acquisition a until of our first team fund finish solid. line the ended is quarter billion to with terrific Thus, guidance. in material our We I up maturities XXXX on million rock As remaining $X.X $XXX calls, position to and out balance debt and sheet past the XXXX. Kevin NNN

leaseback rate, occupancy the leasing and summary, well-located a activity, reasonable strategy the strong long-term our again In relationship-based validated while once we strong national of operators volume, acquisition sheet. at balance flexible sale rent, acquiring leased to parcels, consistent maintaining and believe regional

With is turn for more stated call me in over we the earlier, to in quarter a solid XXXX. NNN color detail our footing quarterly I As as numbers. that, are into Kevin let on

the statement. as usual, start And I’ll cautionary you. thank Steve, with Okay.

in We under that The these Company’s may forward-looking considered in the to differ in discussed forward-looking the and SEC matters that release statements, actual results future materially the law. differ may may we these press Company’s release. will statements the from be expectations to certain cause to reflect with statements changes were be statements after detail from greater not and to Factors make filings forward-looking this and in revisions disclosed statements federal made. results risks securities actual from significantly time time could morning’s to are

X.X% out share was Today, of first the AFFO quarter, the core year XXXX, per of FFO for that’s flat ago release that was quarter results. share we that’s per from per results and first that $X.XX up fourth over over headlines with results. of X.X% quarterly $X.XX share prior With also XXXX and way, share or for quarter of report per Okay. press results $X.XX this $X.XX QX up reported the $X.XX and morning’s that share, per also or

release schedule as the not create deferred rent page accrual of the basis, As repaid fully can will as and noise XX, number going real our on rent repayments been be virtually in seen have now on X repayment in the well deferred forward. any AFFO detailed press footnote page the

slowdown materially year that which produces did basis for should obviously expectations. And on repayments $X.X in cash about be into page $X.X as the rent the a press compares details or receive XXXX share full of is QX -- The XXXX the to per in $X.X continue our we noted termination again I previously, off deferred can of headwind overall, of seen million scheduled and taper in results. release. with provided and million say, lease XX XXXX. in note quarter, higher line with quarter million a One normal our and last that’s But, We on baked than guidance. good income $X.XX first

of was XX%. after expenses flow, Moving of on, the and our the cash $XX the approximately dividends that’s for payment free quarter of AFFO dividend quarter. created for first payout ratio That million approximately ‘XX all

Occupancy equity half XX.X%, our and XXXX. balance first we mentioned, the book flow for XX, cash X% G&A on of acquisitions all for with quarter, would of the in and represents that revenues, leases the midpoint in X.X% acquisitions, assuming the about million $XXX was a XXXX, for to XXXX. for needed flat March ended of full at We those roughly base of and the debt quarter XX% year XX% at our the year. expense million $XX.XX total Steve XX% guidance was value This with that’s free sheet put for as run funded of gross item of G&A rent quarter, for as closer quarter annual end, which that’s $XX line about and place about of year-end a basis. this but still million is revenues equity

which guidance, not our did we XXXX change in introduced we February. Today,

are the changes be assumptions XXXX we the opportunity the the range, supporting will results guidance and key quarter revisit X today’s First release. have quarter suggest to The higher might we report at but of guidance guidance on press second of we end any when results. page

a leverage of maintain Switching sheet, and liquidity. good $XXX over to of balance roughly liquidity profile we the million

The executing use of of did trades environment. level. in of first our that a in activity. We a bank we After navigate around market markets first few interest of plan and capital quarter, no quiet fairly rockier our XXXX, to capital quarter of usage rate of $XX in to per line was $XX and was credit, part the a bit years issued it million nearly $X.X billion this equity terms begin share

is maturity that years, XX line. about including Our average bank weighted debt

our debt debt. of exception of All our that X% outstanding $XXX rate about the our with line, represents million the total bank is of on fixed -- which

metrics. March was XX.X%, debt-to-EBITDA coverage X.X book which for times was of Interest at first assets coverage ‘XX. debt is year-end. the with XXst. Net X.X gross of times quarter couple flat A to was and Net fixed charge

primary So, measure we’re share of good shape elevated the uncertainties and grow we very to market capital in to economic success. continue and navigate as view which results, the per to

we will open to with that, it Ali? any questions. And up

is with Spenser [Operator from you. Street. coming Our Instructions] first Green Thank question Allaway

that segments bid-ask on cap out mentioned there you in rate that retail just a industries, are any or wider your has rate the have prepared increases continuing can as But slowed. broadly of You different the comment remarks to spread. stand

haven’t rates move moved quickly. just cap rates the contrary, faster? And to seen any cap that then have So, industries

rates Yes. segments. good last through And quarter. a And increasing you second at clip. -- finding pretty of you’re The cap the is second you asked we’re year, acquisitions saw what now half the in the specifically what slowly

But more of where thinking we’re in volume we the now non-investment-grade cap the quarter, it they’re kind I the segment the for of early basis in of where a portfolio the of it’s But cap move And third little it bit XX, rates, Just in really our yes, XX bit we’ve I’m that a top QSR, rates. the of kind whatever think is, points done operators, service, the too speaking is, pricing. up out plateau then, that’s range I’m economy tenants. right currently. recently auto points. regional getting the second a most we large typically as and store, basis stays think XX little quarter. convenience picked seeing of of, we’re on near if But the the assuming it’s acceptable

prior could Those dispositions that helpful. unique the in row. for think second driving that than any dispositions. low That’s continue Is future there anything is are on there quarter on year? this the a reason Okay. pretty cap quarters? then, here And that to lower And the rate

The align a was hit changing the and starting first timing to issue, I’m I’m range. the lower where dispositions, but up more to the for expecting little second pick expecting we’re guidance It fourth -- a XXXX. not quarter of a in to our quarter pace guidance stars the bit. that are quarter,

a vacancies the we X a this the third other was gas it I’ll convenience opportunistic an our and a liked the sold of was sales, meaning again, the far not then the [indiscernible] more did. rent As dispositions and rate somebody where defensive was property call And a result we than as cap really sale store. one X.X% obsolete, two was station, quarter, an one asset

Dennerlein from is of Joshua Bank next with coming question Our America.

Beyond BK what in us within guidance remind you how Could that Bed amount & range? falls debt assumed is the Bath and the bad

is This Sure. Yes. Kevin. Yes.

we And that use basis on in the closed we So Bed in number as our didn’t for our not Beyond, years, any have a our guidance rejection as in or have rent & first guidance of quarter. loss of assumed stores -- of really list. XXX specifically Bath been we the it relates to points and

And so, rent until changes, we to changes. that that when up pay continue will anticipate and they if

the not So point. notable this at moment, experiencing we’re debt at any level bad of

Okay. Interesting.

list not they’re closure the or... So, on

Correct. Yes. buybuy I think, that stores XXX XXX total They’ve our Bed and on stores, BABY, announced, list. are Bath, not XXX

Okay.

and trends I this you market? another assets bankruptcy. came Okay. that out update in just think XX-Q us Good And could tenant, the the to tenant then maybe the color. on compared guess, there’s the are that I what morning, reading

Yes.

paying Bed talked survival, the in that that but we’ve that. past, still which So of other see goes. things. about which does scheme rent, is time two we we’ll talked That in will Regal but have along, is and or the is very bankruptcy. where Bath, we’ll only not just the which about One goes in Cinema, really tell, They’re whether negotiate survives small property in one we

from Our Citi. Roth next question comes with Eric

Thanks. Good morning.

down of the rest in with year. for question, from to the takes what the first the rate run current quarter Just $X.XX starting of $X.XX that guidance you sort

but there than down lease income, is termination there I seem something would got off other think, you you lease income. that gets like it a termination the

of for mean or a Yes, and we in process delivered the our of kind But tracking we’re nothing our little guidance clearly kind discussion I whether range, really would bit as remarks, I revisiting was -- high a my guidance. think and it I people. thought here about end noted of of internally, think prepared just we’re measured

quarter lease that I onetime term And so, in first your income there’s note, to income, deferred quarter. the I the help we that second did $X.XX say, like of to kind of the point, unusual results.

higher, we’ll And yes, at and But from hopefully, not -- time, But went stand, guidance we we the drift be that years. time expecting let just over is that’s so we to able the with to time. time to -- where continue. the we’re occurred it we’re this like way has which yes,

then you just are ceiling you more you might think of, raise was How ability value level, I it, related. glass much ATM first the rate. points in given that that the didn’t XX, you’re just sort cap hitting about although But further. cost curious XX noticed maybe And call -- low-X your at expand that Okay. I of to on at quarter, feeling your the your create mentioned cap around but that capital? timing rate basis level, type about said that X%, that you

glass -- talking expand off the rate what said Yes. and we’re No, cap in of our kind cap the expecting X% I’ll the one, the the hitting the about Yes. that rates second of part remarks. quarter opening ceiling. first I take

Third early. But of X.X% deploy bit little money it -- is relates range. X.XX%, we’ll quarter cost we’re of as And our about a Kevin to talk kind that to can too capital. going at --

we’ve cost. Yes. into burden cost cost around about but over go details we And I today in -- talked this capital. won’t equity at to of we it’s our about moment, book. kind try I the how the at years, of the and mean pitch our all X.X% think our of

we that’s set think internally deploying the hurdle new we’ve of up For return into capital as purposes of about investments. capital, deploying kind

So what a Xs. including of that is in up cost the capital, ends producing average that low weighted

feel to for like need so, return we to generate we NNN And today, what appropriate that’s earn sufficient the shareholders. and

But cash news I other -- of cost the equity and that’s kind us I And funded quarter you flow for said, of the is thing. in different into all their and free good details half won’t like take views I But operations. all go so -- the kind there. from our of people of that if and first around why will, just highlighted our need, equity

XX% before in equity we of -- another really -- so, additional And and a acquisition capital, XX%, of would for dispositions, be funding raising property which terms have our that’s acquisitions. fund

a think back as that are of equity, should if we it opinion, if it. the basis kind kind or so acquisition And doing sufficient in in end that and the little And we for guidance, earn said It’s cash not that, free of need shareholders, years. our X.X%. our of kind the return free new at we at cost might probably cost has can’t continue then property burdened day, disservice -- of the thinking equity the achieve a to a precious flow we we flow -- minds cash the run send Having on generated, cost X.X% well. capital on -- the cash we guidance to we we to proceeds we’re of disposition shareholders don’t to flow, a it

say, helped way just about it. but over than I different Like we think like approach. we a being I disciplined and a lot I folks, it’s us little that years, the think of the a that’s little think more it’s So,

Thank you.

Our Stevenson question coming with next is Rob Janney. from

leasebacks sale making morning, sensitive that to more does these back issues rate days? guys. defer the and the small before. these movement commentary maybe one-off Steve, versus the that were that you How all with between portfolios much banks Good cap to the

that’s middle XXXX to we the have diamond question. we there’s in, always acquisition Hey a do the a leaseback guy day-to-day in find the I you we lending the market, operations, one-off. dedicated more like as markets sophisticated sale the we trying the know have where the The Rob, I is don’t clients leaseback. call sale it the understood or rough. mean, difficult little market good just play mean, capital But overall environment market. for

as to the And XXXX buyers, where if allowed XXXX market it’s doing cap even exchanges there’s they’ve competition, sale it’s migrated So lending to they’re more the leasebacks. cash for expansion. currently. The not just the sensitive or rate so there’s bank more being the market,

as So, those rates quite haven’t cap moved much.

off But the started couple they years. fast of the just if historically last that you still cap the a so low, for leaseback that grade because seen being those market market, rate. movement all low-Xs, the significant we’re played buying said, are of you’ve you in sale deals second an a as increase investment buying at quarter, Now, you’re rate high-Xs, and seeing not

Okay. And is you do is the thinned buyer those XX that given if behind buyer they transactions pool have other or willing issues? how for the well, like sale-leaseback as of price that deep that them doesn’t and pool rates seller price, guys out give today? that you -- mean, to I sort

line. same story highly I’ve here day competitive been at the REIT years. business NNN of in And Kind the been one. XX for market from we’ve

have course relied market buyers highly is It’s pricing stealing the the over loans me Just kind pricing, market on willing there’s less do in of doesn’t few there’s secured to names a right that changed it’s behind Nobody the the it. like years. currently the If Yes, assets. currently. competitive. the my still of that’s somebody somebody but

And as is bank the interest gone term on market all Okay. with that Kevin, where costing well given you what best is loan rate That’s access your helpful. that’s debt as hedge today? today? then, pricing, And

pretty least in today, Rob, the scheme same it’s funny, at or things. cost the much everything of roughly

and is lot debt a to that. lines bank close X% close debt is are not whole X.X%, than XX-year And more so, to XX-year X.

a is be bet where it’s now. today, will of years bit debt rates be decision on X any X of issuing from years around or or using the really might term so And you a

wood XXXX not weighted in like line. particularly pretty debt I lot the in pushed years, out, long-term several years, far said, prior And and maturity for of a have we last our average debt bank so on used chopped really our and

our to So our bank line, has which been has been to approach we use virtually -- unused. pivot somewhat

the this from see direction. longer bit and interest that cycle where interest We a a rate to let and it, and have bet on term maybe go, rate do year play now make out flexibility call rates a

capital b, So, that, give of having moment. it change markets we kind right -- playing mind. And activity, to don’t we that’s on we’re and said I the -- don’t typically at the I’ll a, our say, the my way I reserve guidance

I’ve sufficiently hopefully, so elusive. been And

So...

is Wes from Baird. next coming question with Golladay Our

that you the macro due Are will seeing any pause signs to the tenants expansion uncertainty?

kind You of up. broke

Yes. Are any growing -- current plans tenant with uncertainty? will due signs seeing of your the at expansion pause you that ones macro their to the roster, you’re

I right think, out compared what we’re pipeline there high really development seeing basis. our historical is now, to

not or M&A So, more of we’re really them the far seeing slowdown. slowdown the picking the that debt bolt-on side up. of M&A more -- expansion the are in market choosing many lending is as hits kind activity seeing far we’re There’s It’s uncertainty runs they’re their customer. seeing that acquisitions. base home It’s picking our of a as it’s not tenants site doubles What economic that as or doing X we’re things, seeing more sites. and X and we’re as not where of individual

luxury at our for targets. we is pool shopping don’t Now, to are we’re that NNN, afforded we us that plenty the home big need the run here hit is at that the

about -- Kevin, weighted view you the And Okay. to I how go then, average back your of your capital. comments cost want to

a better low-Xs to just hey, average our over weighted you mix or you spread quality buying and -- said of you buying, capital… you’re in overall that, view transacted where do the cost think quality you’re is being at was the currently have target historically I we’re tried that, it and

a they I this that’s on equity spread what to their above view upstream of our return way the they just need a take folks kind low cost industry get of as And of to know above on hurdle Yes. the is I’m to cost think they of lot because capital. capital vernacular I of to what -- that spread meet. think swimming a a your about But

so and our book, we use that example. pitch -- So in

think to a come because day to If X.X%, you cost that’s close then that. out is of your weighted you average of X.X% cost capital from equity on pick not far number, the

is And so, think your cheap. capital you of very cost

capital understand we sourcing Again, is this from extra divorce level to capital of of And eventually. at things you deploying discipline, of And two layer earning a But of that need because equity get those cost. if will, burdening you’re if about on really cost fully equity, spread -- you our not enough. cost we I connected above try capital. a for you look, of deploying X.X% don’t your burden purposes

what the sufficiently need justifying NNN hurdle for to You’re do say that’s what to to rate’s is -- there we shareholders. earn compensate

our your your better to a leads our question, do. set we’ve the a above that that run. big but most capital, answer we we than higher -- it hurdle typically at so, to other think it’s the cost of have because outcomes companies had spread equity in And way long there. And not I And burden been rate

capital past, was years weighted an about was with lower we our for the said return cost and in return, what the when world the a awash a and equity X% our requirement was of of lot average our of X% about ago two our whole we was cost debt at That’s NNN minds then. it, money, level. shareholder In cost burdened call

see two And virtually sub-X you ago. do call us so years any it, deals, didn’t cap rate

rates return raised Interest hurdle. We’ve are up. And now, changed. world’s equity the on our

long take again, this go And little we differently. low-Xs of kind and we’ll need. And consistently little do about use kind capital, is say, it approach well compensates And a we think I when different like of capital. and available it get shareholders. purposes that’s We but a fully comes deploying of that been for view it’s kind try But to and just we doing When sufficiently eventually. for we’ve we a capital -- of priced, so irrespective we this take. for it to it really bit now we’re targeting time, And the a almost of sourcing our return. know and

never of the into compensates think really put that. get because really for return on burden we hurdles capital our we I a so, over our extra spread And equity cost vernacular -- that we of

that a So, was to question. anyway, long-winded your answer sorry,

detailed No, the Kevin. answer, I appreciate it. Thanks for

next John question Massocca coming Instructions] Ladenburg is from Our with Thalmann. [Operator

Maybe little first building a on Wes’ question.

As and of what’s about investing what you using, broad dollars kind new maybe you’re them expansion with think Is of -- are refinancing? tenants breakdown for? it between kind your the

towards skewed currently. definitely expansion It’s

it tenants year Our a haven’t refinance debt. tenants to model -- they’re do into having believe understand that good of real it’s the they financing. tenants, value decision we’re real because still early that it selling estate Most a that higher selling a a into They or of on our over operations owning not opposed a put equity, estate. margin business can in seeing take our service make not it’s to sale-leaseback and they increased to

M&A development Historically, of store vast a refinancing. and do majority of we capital. financing done the lot we’ve lot deploy and So, bolt-on where is we a don’t acquisitions new of

terms And vacant et you cetera? about vacant little a like of assets, out Beyond, Bed more but generally, in & it the then, there for Okay. Bath bit talked boxes, what’s demand maybe

regional We yes, some Because taking right of a So, we back. real over surprise, nice have definitely vacant But out around the which current it’s a had. the half assets now, we that bit or not get vacant XX of vacant it’s are the little those don’t have, estate even we’ve asset, our movement best -- those assets of activity assets. our John, little in operators mom-pop how it’s when the typically, much that a portfolio. smaller activity about

to how earlier years? pre maybe number guess or does I that compared And activity pandemic

that now right activity elevated we’re seeing more our vacant. definitely It’s with

First the of try not hold always it’s we our a time, certain after re-lease vacancies. realistic to and foremost, But on to vacant. amount

get might and sell that You acquisitions. then not we’d just top money into rather though them, drag be could overhead redeploy it the dollar accretively and even

Thank you.

session. have the of question-and-answer we is our end reached Here

over call Mr. the I to So closing now back for will Horn turn remarks.

seeing Thank forward in great Thanks you, us a Thanks upcoming ICSC And it. and quarter. forward person into for this look joining. for here NNN’s in to the joining you specifically of position heading look in morning. Ali. season, the conference NAREIT. second I we to many

This may does we conclude you disconnect and lines this your and Thank your you thank conference, time, you. today’s for participation. at

Ali. Thanks,