NNN REIT, Inc. Q4 FY2025 earnings call

• Achieved 36th consecutive annual dividend increase. Maintained a highly flexible balance sheet with a 10.8 year weighted average debt maturity, no encumbered assets, and $1.2 billion of total available liquidity.
• Completed executive team positioning and continued progress on the acquisition platform. In the fourth quarter, invested over $180 million across 55 properties at an initial cash cap rate of 7.4% with a weighted average lease term of over 18 years.
• Occupancy increased to 98.3%, up 80 basis points from the prior quarter due to effective asset management and leasing. Renewals and leasing were in line, with 55 of 64 renewing ahead of the average renewal rate and 4 properties leased to new tenants at 109% of prior run rates.
• Furniture assets: Last 5 properties under contract for sale, with most expected to close in the current quarter. Restaurant assets: 32 properties remain, with solutions including asset sales, redevelopment, etc., and progress being made to resolve these assets throughout the year.
• Dispositions in Q4: $82 million from 18 income-producing and 42 vacant assets; full year dispositions totaled $190 million, including 49 vacant at a 6.4% cap rate.

NNN REIT's portfolio of 3,692 single-tenant properties performed well in the fourth quarter. Core FFO and AFFO per share were $0.87 each, up 6.1% year-over-year. For the full year, core FFO per share was $3.41 and AFFO per share was $3.44, each up 2.7% versus 2024. Occupancy was 98.3%, up 80 basis points from the prior quarter. Annualized base rent was $928 million, an increase of close to 8% year-over-year, driven by strong acquisition activity throughout the year.

• Established AFFO per share guidance range of $3.52 to $3.58 and core FFO per share guidance of $3.47 to $3.53. Midpoint of AFFO range represents 3.2% year-over-year growth in 2026.
• Expect $600 million of acquisitions, funded primarily by $210 million of retained free cash flow, $130 million of planned dispositions, and incremental debt financing to stay leverage neutral.
• Included 75 basis points of bad debt in the full year outlook as a prudent conservative measure.

• Potential for actual results to differ significantly from forward-looking statements due to various factors disclosed in SEC filings and the morning press release.
• Credit and market risks, including tenant issues and macroeconomic uncertainties that could impact cash flow and portfolio performance.

Q: In the press release, Steve, you mentioned proactive portfolio management. So can you kind of provide the latest and greatest on what you're doing there...

A: Yes. I mean I think ideally, you want to be slightly above that, but we do deal with retailers. So with lease terms that come up, so we do get assets back. But what I mean on the proactive portfolio management, you have a portfolio and there's a bell curve. Everybody has kind of the bottom 10%, and with our relationships, we're always constantly in discussions. So we have a good idea of who's going to renew at the end of lease terms. And if we can get a sense of that, if there's 5 years left and we can dispose of the asset with the goal of getting our renewal rates higher over the course of time. We're just trying to get ahead of future problems. And it's more on the real estate side because credit can turn on a dime. And -- but we always are monitoring credit, talking to the tenants. We're just really just trying to keep the portfolio in good stead over time, which I think we have as far as our renewal rates being around that 85% and having over 100% recapture rate.

Q: In the press release, Steve, you mentioned proactive portfolio management. So can you kind of provide the latest and greatest on what you're doing there...

A: Yes. I mean I think ideally, you want to be slightly above that, but we do deal with retailers. So with lease terms that come up, so we do get assets back. But what I mean on the proactive portfolio management, you have a portfolio and there's a bell curve. Everybody has kind of the bottom 10%, and with our relationships, we're always constantly in discussions. So we have a good idea of who's going to renew at the end of lease terms. And if we can get a sense of that, if there's 5 years left and we can dispose of the asset with the goal of getting our renewal rates higher over the course of time. We're just trying to get ahead of future problems. And it's more on the real estate side because credit can turn on a dime. And -- but we always are monitoring credit, talking to the tenants. We're just really just trying to keep the portfolio in good stead over time, which I think we have as far as our renewal rates being around that 85% and having over 100% recapture rate.

Q: In the press release, Steve, you mentioned proactive portfolio management. So can you kind of provide the latest and greatest on what you're doing there...

A: Yes. I mean I think ideally, you want to be slightly above that, but we do deal with retailers. So with lease terms that come up, so we do get assets back. But what I mean on the proactive portfolio management, you have a portfolio and there's a bell curve. Everybody has kind of the bottom 10%, and with our relationships, we're always constantly in discussions. So we have a good idea of who's going to renew at the end of lease terms. And if we can get a sense of that, if there's 5 years left and we can dispose of the asset with the goal of getting our renewal rates higher over the course of time. We're just trying to get ahead of future problems. And it's more on the real estate side because credit can turn on a dime. And -- but we always are monitoring credit, talking to the tenants. We're just really just trying to keep the portfolio in good stead over time, which I think we have as far as our renewal rates being around that 85% and having over 100% recapture rate.