NNN REIT, Inc. Q2 FY2025 earnings call

• Welcomed Josh Lewis to the executive leadership team as new Chief Investment Officer, with his prolific dealmaking ability and deep market relationships.
• Successfully completed $500 million 5-year unsecured bond offerings with a 4.6% coupon.
• Increased 2025 guidance for core FFO per share to range between $3.34 and $3.39.
• Portfolio of ~3,663 properties performing well, renewed 17-20 leases with historical trend of 85%, leased 7 properties to new tenants.
• Sold 23 properties in Q2, generated over $50 million proceeds, re-deployed into new acquisitions.
• Balance sheet strong with average debt maturity of over 11 years and nearly $1.5 billion in available liquidity.

The portfolio of NNN REIT, Inc. consists of approximately 3,663 freestanding single-tenant properties. For the second quarter of 2025, core FFO per share was $0.84, up 1.2% over the prior year period. Annualized base rent was $894 million, an increase of almost 7% year-over-year. NOI margin was 98% for the quarter, while G&A as a percentage of total revenues and as a percentage of NOI was about 5%. Cash G&A was 3.7% of total revenues. AFFO per share for the quarter was slightly ahead of expectations, driven primarily by lower-than-planned bad debt. Free cash flow after dividend was about $50 million in the second quarter. Lease termination fees totaled $2.2 million in the quarter.

• Raised core FFO per share guidance to $3.34 - $3.39.
• Increased acquisition outlook to $600 million - $700 million, up $100 million from initial.
• Increased disposition outlook to $120 million - $150 million, up $35 million.
• Increased net real estate expense forecast due to delays in property release.

• At Home in bankruptcy, with no properties on initial closure list but need to account for potential impacts.
• Need to keep bad debt provisions due to uncertainties with At Home and normal turnover.

Q: Jeff Spector from Bank of America asked about investment guidance deceleration.

A: Stephen A. Horn said it's more conservative given first half activity and market competition.

Q: Spenser Glimcher from Green Street asked about update on available assets.

A: Stephen A. Horn said primarily former furniture store and Frisch's assets, with encouraging signs in re-leasing and sales.

Q: Ronald Kamdem from Morgan Stanley asked about refinancing strategies and vacant property timeline.

A: Vincent H. Chao said $500 million bond offering prefunded refinancing, and Stephen A. Horn said 9-12 months for rent commencement but quick activity on some assets.

Q: Smedes Rose from Citi asked about bad debt and cap rates.

A: Vincent H. Chao said 60 basis points bad debt kept for At Home and normal turnover, and Stephen A. Horn said spread widened with new capital in sector.

Q: John Kilichowski from Wells Fargo asked about composition of guidance raise.

A: Vincent H. Chao said moving parts including acquisitions, bond offering, and net expenses.

Q: Michael Goldsmith from UBS asked about leverage ratio and short-term debt.

A: Vincent H. Chao said leverage ticked up due to acquisition timing, and discussed benefits of short-term debt for asset-liability management.

Q: Rich Hightower from Barclays asked about ABR and GLA changes.

A: Vincent H. Chao said mostly related to At Home's bankruptcy.

Q: Wes Golladay from Baird asked about deal flow and tariffs.

A: Stephen A. Horn said better visibility on tariffs but not back to pre-2018 levels, and Vincent H. Chao added auto services robust.

Q: Omotayo Okusanya from Deutsche Bank asked about retail categories and 60 basis points bad debt.

A: Vincent H. Chao said tenant base mostly necessity/service-based, and discussed winners/losers in restaurants and other categories.

Q: John Massocca from B. Riley asked about non-reimbursed real estate expenses.

A: Vincent H. Chao said slower resolution of certain vacant properties, and Stephen A. Horn said timing of leasing route affecting timing.

Q: Linda Tsai from Jefferies asked about lease termination fees and extracting value from underperforming holdings.

A: Vincent H. Chao said lease termination fees may be elevated for next year, and Stephen A. Horn said discussions with tenants to maximize value by selling income-producing assets with term.