NNN REIT, Inc. Q1 FY2026 earnings call

Acquisition and Investment - Closed 15 transactions with 41 properties, total investment $145 million, initial cash yield 7.5%, weighted average lease term 19 years. - Strong acquisition activity driving annualized base rent growth 7% y-o-y. - Pipeline of investment opportunities is robust. ### Portfolio Performance - Portfolio of ~3,700 freestanding single-tenant properties across 50 states performs well. - Renewed 36 of 43 lease expirations, rental rates 2% above prior levels; leased 7 properties to new tenants at 10% above previous levels. - Occupancy increased to 98.6, above long-term average, with 53 assets remaining and active solutions underway. ### Market Conditions - Cap rates in Q1 largely consistent with recent quarters, expecting relative stability going forward. - Stable interest rate backdrop supports transaction activity; elevated volume in 2025, good investment opportunity in first half of 2026. ### Dispositions - Sold 25 properties, including 16 vacant assets, generating $36 million in proceeds of redeployment; dispositions of income-producing assets primarily non-core, executing ~30 basis points below acquisition cap rate. ### Balance Sheet - Ended quarter with $1.2 billion of total liquidity, industry-leading weighted average debt maturity nearly 11 years, just $80 million drawn on credit facility, 1.6% of debt tied to floating rates, BAA1 rated balance sheet providing flexibility.

The portfolio of approximately 3,700 freestanding single-tenant properties across all 50 states performed well. Annualized base rent grew 7% year-over-year to $935 million. Core FFO was 86 cents per share and AFFO was 87 cents per share, each flat over the prior year. NOI margin was 95.9% in the first quarter. G&A as a percentage of total revenue was 5.9%, in line with expectations. Cash G&A margin was 4.2%. Free cash flow after dividend was about $52 million in the first quarter. Occupancy increased sequentially by 30 basis points to 98.6. Renewed 36 of 43 lease expirations, consistent with historical 85% renewal rate and rental rates 2% above prior levels. Leased seven properties to new tenants at rent rates about 10% above previous levels. Invested $145 million in 15 transactions with 41 properties, initial cash yield of 7.5% and weighted average lease term of 19 years. Sold 25 properties, generating $36 million in proceeds of redeployment, with dispositions of income-producing assets primarily non-core and executing approximately 30 basis points below acquisition cap rate.

AFFO Guidance - Raised 2026 AFFO per share guidance to range of 353 to 359, midpoint increased by $0.01 to new range of $3.53 to $3.59. ### Core AFFO Guidance - Midpoint of core AFFO per share guidance increased by $0.01 to new range of $3.48 to $3.54. ### Acquisition Guidance - Tracking towards high end of $550 to $650 million acquisition guidance based on near-term pipeline visibility. ### Bad Debt Assumption - Lowered bad debt assumption for full year from 75 basis points to 60 basis points, reflecting first quarter outperformance.

Tenant Credit - Tenant credit involves market shift and consumer behavior changes, requiring active portfolio management to maintain high-quality, durable cash flow. ### Cap Rate and Market Conditions - While expecting relative stability, cap rates and market conditions can change, impacting transactions and portfolio value. ### Debt and Liquidity - Changes in interest rates and credit spreads can affect debt costs and availability of liquidity, impacting ability to fund acquisitions and growth. ### Asset Sales - Proactive approach to asset sales may be affected by market conditions and availability of buyers, impacting portfolio optimization.

Q: Vin, very helpful color in the opening remarks on the funding for the acquisition guide. If I think about the incremental 74 that you've raised and the term loan, it sounds like you have capacity to go well above the acquisition guide here and you are trending up. What's keeping that acquisition guide sort of consistent here in 1Q?

A: Hey, John, Steve, I'll take that. We have a very robust pipeline and opportunity set that we're looking at currently. But, you know, the old adage, you don't want to count them until they're done. You know, we're actively in negotiations, trading paper. But until they're, you know, well-advanced closing stage, you know, we don't want to get above our skis here. Yeah, but, John, you are correct in the sense that 75 or 74 million of equity does give us a little bit of additional capacity.

Q: And then the second one is just on the credit loss guide. Appreciate the updated color on the 60 bps. Of that, what is pure conservatism versus what is something you feel like you have an outlook on? And maybe an extension of that would be the 7-11 headlines on shore closures. Have you had any discussions with them? Is there any impact to you that would be in that guide?

A: No, from 7-11, but I'll let Steve opine a little bit more on that. But as far as the credit loss assumption, there's very little in terms of embedded or something that we expect to happen other than there was a small amount, 15 basis points in the first quarter. Beyond that, there's really nothing material that's known that we would put into that number. As far as the 7-Eleven, we've never done, quote, business 7-Eleven. They acquired a lot of our large regional operators that we did business with year over year. Our average cost basis in our 7-Eleven portfolio is about $2.2 million. We just did a significant renewal in 2025 with 7-Eleven, and our average lease term with 7-Eleven is about eight and a half years. So we're very confident. We haven't had any discussions, or none of our stores are on the closure list.

Q: Following the recent ATM issuance, could you characterize your current overall WAC and your investment spreads today?

A: Yeah, look, the WAC, it does change on a daily basis, but I'd say if you're talking about just the near-term sort of AFO yield and debt math, we're probably in the six, high sixes, at 6.8 maybe, 6.75 in that area.

Q: Last quarter you expected cap rates to compress more in 2Q and 3Q. Is that still your view, or...?

A: It's the higher rate environment and reduced competition. Yeah. Go ahead. No, no. My view is the same on cap rates as it was, you know, the first quarter. And it's coming into reality that our first quarter cap rates were in line with the last many quarters. And we expected second quarter some compression. I do still expect that for the deals that I see being priced. And then I kind of see them being at that compressed level. As of right now, things change for modeling purposes at that lower level.

Q: Your asset management decisions today. Hey, Spencer, good to hear from you. Yeah, I mean, I wouldn't say we don't have a watch list. I mean, we're watching a lot, we always watch tenants, so we do have a watch list. Case in point, AMC is on our watch list. We've talked about that before. We were able to sell one in the quarter, and I think we were pretty pleased with that outcome given the nature of AMC sales. We're still able to, on net for the quarter, come out with an economic gain, not a gap gain for our occupied properties. So that's the kind of thing that we're going to look at. So, yes, in the near term, meaning for this year, we're not seeing any material concerns that we think are worth calling out. That doesn't mean we don't have tenants that we think are maybe medium to longer term are ones that we are watching a little bit more carefully. And so we'll look to try to address some of those as we can. I'll just add one more thing to it. Yeah, when we're doing active portfolio management, it's not just focusing in on credit. You know, you have credit risk, always credit changes, but more importantly, you might have real estate risk and the probability of that being renewed at the end of the term. So we're trying to get ahead of that, looking years out and making the portfolio a more stable platform because things do change.

Q: You also mentioned that you have, you did, I think, some deals with seven new tenants in the quarter. Are you able to share details on what industries these tenants operate in?

A: It was a combination, primarily quick, you know, fast food restaurants and convenience stores. And I think there was one car wash in there.

Q: So I guess the first one is just, are you seeing or hearing anything from any of your tenants that might suggest any changes in underlying consumer spending habits, maybe across the restaurant or more of the experiential type spaces?

A: You know, many of our tenants, 61% are public, so we do get those reads, and we also have our own conversations privately with our tenants, but there's nothing I would say that's a broad strokes takeaway. Obviously, certain restaurant tenants are doing better than others. On net, to the extent that there is continued pressure on the consumer, then you would expect that to pressure some of the more cyclical businesses, but You know, nothing's bubbled up that is sort of a meaningful, you know, broad stroke kind of takeaway. More specific to the individual tenants.

Q: You mentioned you're trending towards the high end of your acquisition guide. So could you just remind us what your visibility and your pipeline is specifically? like from today or how long that is. And then just if you have any color on what that quarterly cadence of acquisition volume would look like through the balance of the year, that would be useful.

A: Yeah, you can't really look at it. I encourage you to look at it kind of overall, you know, on an annual basis when you're looking at volume because quarter to quarter is It could be very volatile. But as I said in the opening remarks, our acquisition opportunity set is really healthy currently. And as Vin mentioned, we're turning to the high end of our range currently if everything closes.

Q: First question on sell-leaseback. I think you talk about a lot of the acquisitions from long-standing relationships. Just curious, your current relationship conversation, is there any accelerating sell-leaseback given the current macro environment and so forth?

A: Yeah, I think that's reflective in the pipeline. We've talked about it a couple times on the call that there's a big opportunity with sale leasebacks currently. It's elevated, you know, this year than it was in 2025. And we did have record volume in 2025. But it feels like there's a lot of sellers out there that are using the sale leaseback, you know, for debt refis, you know, balance sheet management.

Q: The second is, can you confirm the latest status of Frisch's and Badcock? Like, what's Are they all cleaned up? Just what's the current status on that?

A: So the current status, all our bad cocks are currently accounted for and cleaned up and we had near 100% recovery. So really in great shape with regard to bad cock. Frishes, we have a,你know, we're well on our way for frishes. All the frishes are in our 53 vacant assets. and we're working all the assets currently and have a tremendous amount of interest in those assets, and I'm expecting some real good positive outcomes as we move through the year. And, Jenny, one thing I'd like to say, with occupancy back to 98.6 above our long-term averages, I mean, there's not really a strong pressure to fire sale anything or do anything,你know, that quickly. I mean,我think we're in a good position at this point, and so we can be a little bit pickier, choosier.

Q: What's the term income currently assumed in guidance? Yeah, so we don't give lease termination fee guidance per se. What we have commented on is that we think that this year will be a normalized year, which is typically between $3 million to $4 million. Again, not guidance per se because, again, these things are episodic. If the right thing to do for the business is to take a lease termination fee because we can solve a future problem and we can get a fee on top of it, we'll do that. So we don't want to set deadlines. artificial guideposts. But historically, I think three to four million is about what we averaged, maybe a little bit less than that. And so we're expecting this to be more of a normal year. And if you look at what we did in the quarter, it's pretty consistent with that.

Q: Are there any categories that are currently seeing a bid from private market participants where you can be opportunistic in asset sales? less so from a real estate or credit perspective, but just seeing a high bid?

A: No, there's not a particular segment. And the amount of money they need to deploy, I wouldn't be,你know, I mean, obviously the pricing is super attractive. We would do something. But, no, right now我们're looking to sell 130 million of assets in the market, and there's no big private capital market bid for those.

Q: You touched a little bit on it before when你were talking about expected cap rate compression from the first to the second quarter. Is that just broad compression, or are there specific asset categories where you are seeing that level of compression?

A: It's broad as far as our opportunity set. As you know, you know as well, we do a lot of mining of our portfolio. So it's kind of the auto service, the convenience store sectors primarily that we're seeing a lot of, not a lot, a minimal amount of compression, kind of that 15 to 25 basis points.

Q: You mentioned that you bought a car wash. Can you just talk about your comfort level in that category? Then I think you mentioned that you sold an AMC. Are you able to provide the cap rate on where theaters are trading right now?

A: Yeah, no, we don't provide cap rates on the individual. I mean, overall, our income-producing cap rates were 30 basis inside our acquisitions. As far as, no, we didn't buy, I didn't say I bought a car wash. It was a car wash operator. It was one of the seven assets that we re-leased. That being said, I'm very comfortable with our car wash holdings. We've done them since 2005. Our basis is extremely low. And NNN didn't get into the pie-eating contest when there was a lot of availability for car washes over the years.

Q: Speaking of the theme around kind of the cap rate compression you're potentially seeing in the pipeline and on the horizon for the remainder of the year, is that changing at all based on any changes in the competitive environment, I guess, with interest rates moving around and maybe some dislocation in certain other capital sources? Are you seeing less competition moving outside of other REITs? And I guess if you are, are other REITs kind of filling in that gap? I'm just kind of curious what the overall competitive environment is for your potential partners here.

A: Yeah, I mean, for the 20 plus years I've been doing this, John, it's been a highly competitive environment. It's just the names have come and gone. And then there's been a couple of us REITs that have been around for the 20 plus years. And,你know, the private capital has always been involved their non-traded REITs to now it's the financial institutions have been raising money and trading the REITs. But no, it's highly competitive. It always is. Names change. So I don't view it as competition, that there's more competition. I view it that people just want to do more deals right now in the first half of the year.

Q: I know you don't want to disclose the cap rate on the AMC asset sale, but can you maybe talk about who the buyer was? Was it another... landlord? Is it a tenant? Is it someone looking to redevelop? But just kind of curious if this was a true kind of theater-to-theater transaction.

A: It was somebody looking to redevelop the asset.