NNN REIT, Inc. Q4 FY2024 earnings call

Welcome - Formally welcomed incoming CFO Vincent Chao, who joins in early January 2025 and will assume the role in Q2. ### Financials - 2024 core FFO grew 1.8% and AFFO by 2.8%. Fourth quarter included $1.2 million of lease termination fee income and a state franchise tax refund reducing G&A. ### Troubled Tenants - Badcock Furniture liquidated, rejecting leases on 32 properties; Frisch's properties in eviction process, with 28 released to another restaurant operator with percentage rent. ### 2025 Guidance - Initiated 2025 core FFO guidance at $3.33 to $3.38 per share and AFFO guidance at $3.39 to $3.44 per share, with assumptions including $500-$600M acquisitions, $80-$120M dispositions, G&A $47-$48M, and property expenses $15-$16M.

The portfolio comprises 3,568 freestanding single-tenant properties. Occupancy was 98.5% at quarter end, down due to two troubled tenants but above the long-term average of roughly 98%. In acquisitions, $217 million was invested in 31 new properties during the quarter, achieving an initial cap rate of 7.6 with an average lease duration of 20 years. Over 80% of the capital deployed was allocated to business relationship partners, with a long-term projected yield on these acquisitions of 8.8%. Disposition activity was elevated in 2024, with nearly $150 million sold at a 7.3 cap rate.

2025 Core FFO - Range of $3.33 to $3.38 per share. ### 2025 AFFO - Range of $3.39 to $3.44 per share. ### Assumptions - $500 million to $600 million in acquisitions, $80 million to $120 million in dispositions, G&A expense of $47 million to $48 million, and property expenses net of reimbursement of $15 million to $16 million.

Tenant Issues - Impact of Badcock and Frisch's vacancies on occupancy and rent recovery. ### Market Competition - Elevated competition with private money having higher return expectations, potentially compressing acquisition cap rates. ### Credit Loss - Assumed 60 basis points of rent loss, lower than historical averages but subject to tenant performance.

Q: On AFFO guidance despite lease terminations and tax benefit A: Better than expected releasing outcomes from Badcock and Frisch's, timing of resolutions helps.

Q: Frisch's released rent vs prior A: $2.8M annual base rent, 50% of prior, with potential percentage rent upside.

Q: Transaction market and competition A: 80% of Q4 deal flow from relationships, competition with private money having higher returns but not in their deal range.

Q: Rent coverage and tenant sectors A: Car wash and QSR spaces performing well, no major concerns currently.

Q: Badcock and Frisch's re-leasing mix A: Varied uses like medical, hardware, with fungible properties.

Q: G&A guidance and retirement charge A: G&A includes inflationary increase, retirement cost not in G&A.

Q: Lease expirations and M&A impact A: Typical recovery rates, M&A activity contributing to pipeline but not solely dependent.

Q: Acquisitions and dispositions sectors A: Focus on QSR, auto services; dispositions based on underperforming assets, not specific categories.