NNN REIT, Inc. Q3 FY2024 earnings call

• Portfolio performance: The portfolio of 3,549 freestanding single-tenant properties maintained a 99.3% occupancy rate, with only 24 vacant assets. - Acquisitions: $350 million invested in the first 9 months across 44 properties at a cash cap rate of 7.8%. - Dispositions: Cleaned up the portfolio by selling 9 properties in Q3, including urgent care and auto auction assets. - Balance sheet: Strong balance sheet with $1.2 billion line of credit unused, next debt maturity in Q4 2025, and a 12.3 year weighted debt maturity. - Financial results: Core FFO was $0.84 per share for Q3 2024, up 3.7% year-over-year; AFFO was $0.84 per share, up 2.4% year-over-year. Lease termination fee income totaled $10.2 million for the first 9 months of 2024, compared to $2.4 million for the same period in 2023.

The portfolio of 3,549 freestanding single-tenant properties had a 99.3% occupancy rate at quarter end, above the long-term average of 98%. During the third quarter, $113 million was invested in 8 new properties with an initial cash cap rate of 7.6%. For the first 9 months, approximately $350 million was invested in 44 properties at a cash cap rate of 7.8%. In the third quarter, 9 properties were sold, raising $20 million at a 4.4% cap rate. Year-to-date, $105 million has been raised from the sale of 29 properties at an overall blended 7.0% cap rate.

• Tightened 2024 core FFO per share guidance to a range of $3.28 to $3.32 and AFFO to $3.31 to $3.35. - Raised the midpoint of acquisition buying guidance by 22% to $550 million. - Positioned to execute remaining 2024 deals and 2025 with limited need for capital market access due to strong liquidity and balance sheet.

• Tenants Badcock Furniture and Frisch's present risks. Badcock has 32 properties representing 1.5% of annual base rent, with uncertainty around recovery from bankruptcy. Frisch's paid half rent in Q3, with 64 properties representing 1.5% of annual base rent. These could push rent loss above the usual 100 basis points assumption.

Q: Can you just talk about the transaction market?

A: Steve Horn mentions sellers are coming back, acquisition team has many opportunities, average deal size larger than 6 months ago, and market is highly competitive.

Q: What are you guys assuming now in 4Q as far as bad debt?

A: Kevin Habicht states typically assume 100 basis points, but Frisch's and Badcock could push higher, but even assuming 200 basis points, still within guidance range Q: Appreciate all the color and update on the -- like Frisch's, Badcock. I guess what are you guys assuming now in 4Q as far as bad debt?

A: Kevin Habicht explains typical 100 basis points assumption, Frisch's plus Badcock is 2.1% of ABR, and even with higher loss, still within guidance midpoint Q: On the acquisition guidance, can you talk about the opportunities you saw in the third quarter; how do they compare to the first half? What you're expecting for the fourth quarter?

A: Steve Horn says fourth quarter acquisition cap rates will be in line with third quarter, most deals through relationships, and fourth quarter deal volume expected to tick up Q: Regarding Badcock, does the Franchise Group guarantee help offset any rent losses?

A: Kevin Habicht states they intend to pursue the FRG guarantee, and Badcock is in bankruptcy where they typically pay rent, but they will pursue the guarantee for rent loss related to Badcock