National Retail Properties Inc.

08/01/2024 | Press release | Distributed by Public on 08/01/2024 06:31

Second Quarter 2024 Operating Results and Increased 2024 Guidance Announced by NNN REIT, Inc Form 8 K

Second Quarter 2024 Operating Results and Increased 2024 Guidance

Announced by NNN REIT, Inc.

Orlando, Florida, August 1, 2024 - NNN REIT, Inc. (NYSE: NNN), a real estate investment trust, today announced its operating results for the quarter and six months ended June 30, 2024. Highlights include:

Operating Results:

•
Revenues and net earnings, FFO, Core FFO and AFFO and diluted per share amounts:

Quarter Ended
June 30,

Six Months Ended
June 30,

2024

2023

2024

2023

(dollars in thousands, except per share data)

Revenues

$

216,813

$

202,640

$

432,220

$

406,748

Net earnings

$

106,666

$

98,704

$

201,037

$

188,871

Net earnings per share

$

0.58

$

0.54

$

1.10

$

1.04

FFO

$

152,380

$

144,590

$

303,641

$

290,139

FFO per share

$

0.83

$

0.80

$

1.66

$

1.60

Core FFO

$

152,533

$

144,899

$

304,111

$

290,871

Core FFO per share

$

0.83

$

0.80

$

1.67

$

1.60

AFFO

$

153,596

$

146,079

$

306,855

$

294,245

AFFO per share

$

0.84

$

0.80

$

1.68

$

1.62

Second Quarter 2024 Highlights:

•
FFO and Core FFO per share increased 3.8% over prior year results
•
AFFO per share increased 5.0% over prior year results
•
Maintained high occupancy levels at 99.3%, with a weighted average remaining lease term of 10.0 years, at June 30, 2024 as compared to 99.4% at March 31, 2024 and 99.5% at December 31, 2023
•
$110.5 million in property investments, including the acquisition of 16 properties with an aggregate gross leasable area of approximately 272,000 square feet at an initial cash cap rate of 7.9%
•
Sold 14 properties for $67.3 million, producing $17.6 million of gains on sales
•
Raised $13.3 million in net proceeds from the issuance of 318,258 common shares
•
Issued $500 million principal amount of 5.500% senior unsecured notes due 2034
•
Redeemed $350 million principal amount of 3.900% senior unsecured notes due 2024
•
Expanded line of credit borrowing capacity from $1.1 billion to $1.2 billion and extended maturity to April 2028
•
Maintained sector-leading 12.6 year weighted average debt maturity

1

First Half of 2024 Highlights:

•
FFO per share increased 3.8% over prior year results
•
Core FFO per share increased 4.4% over prior year results
•
AFFO per share increased 3.7% over prior year results
•
$235.0 million in property investments, including the acquisition of 36 properties with an aggregate gross leasable area of approximately 555,000 square feet at an initial cash cap rate of 8.0%
•
Sold 20 properties for $85.8 million, producing $22.4 million of gains on sales
•
Raised $34.8 million in net proceeds from the issuance of 837,752 common shares

Core FFO guidance for 2024 was increased from a range of $3.25 to $3.31 per share to a range of $3.27 to $3.33 per share. The 2024 AFFO is estimated to be $3.31 to $3.37 per share. The Core FFO guidance equates to net earnings of $1.93 to $1.99 per share, plus $1.34 per share of expected real estate depreciation and amortization and excludes any gains from the sale of real estate, charges for impairments and executive retirement costs. The guidance is based on current plans and assumptions and subject to risks and uncertainties more fully described in this press release and the company's reports filed with the Securities and Exchange Commission.

Steve Horn, Chief Executive Officer, commented: "NNN REIT continues to operate with a high degree of discipline. During the second quarter, we deployed $110.5 million of capital in accretive, high quality real estate deals while maintaining a balance sheet with a sector-leading 12.6-year weighted average debt maturity. Our thoughtful approach to raising and deploying capital, combined with our high occupancy and active management of our robust property portfolio, enables us to increase our Core FFO per share guidance for 2024. In July, we increased our common stock dividend by nearly three percent to 58 cents per share while preserving our low dividend payout ratio. This marks our 35th consecutive year of increased annual dividends, a feat matched by only two other publicly traded REITs and by fewer than 80 public companies in the United States."

NNN REIT invests primarily in high-quality retail properties subject generally to long-term, net leases. As of June 30, 2024, the company owned 3,548 properties in 49 states with a gross leasable area of approximately 36.1 million square feet and a weighted average remaining lease term of 10.0 years. NNN is one of only three publicly traded real estate investment trusts to have increased annual dividends for 35 or more consecutive years. For more information on the company, visit www.nnnreit.com.

Management will hold a conference call on August 1, 2024, at 10:30 a.m. ET to review its results of operations. The call can be accessed on the NNN REIT website live at www.nnnreit.com. For those unable to listen to the live broadcast, a replay will be available on the company's website. In addition, a summary of any earnings guidance given on the call will be posted to the company's website.

Statements in this press release that are not strictly historical are "forward-looking" statements. These statements generally are characterized by the use of terms such as "believe," "expect," "intend," "may," "estimated," or other similar words or expressions. Forward-looking statements involve known and unknown risks, which may cause the company's actual future results to differ materially from expected results. These risks include, among others, general economic conditions, including inflation, local real estate conditions, changes in interest rates, increases in operating costs, the preferences and financial condition of the company's tenants, the availability of capital, risks related to the company's status as areal estate investment trust ("REIT"), and the potential impacts of an epidemic or pandemic on the company's business operations, financial results, and financial position on the world economy. Additional information concerning these and other factors that could cause actual results to differ materially from these forward-looking statements is contained from time to time in the company's Securities and Exchange Commission (the "Commission") filings, including, but not limited to, the company's (i) Annual Report on Form 10-K for the year ended December 31, 2023 and (ii) Quarterly Report on Form 10-Q for the quarters ended March 31, 2024 and June 30, 2024. Copies of each filing may be obtained from the company or the Commission. Such forward-looking statements should be regarded solely as reflections of the company's current operating plans and estimates. Actual operating results may differ materially from what is expressed or forecast in this press release. NNN REIT, Inc. undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date these statements were made.

2

Funds From Operations, commonly referred to as "FFO", is a relative non-GAAP financial measure of operating performance of an equity REIT in order to recognize that income-producing real estate historically has not depreciated on the basis determined under GAAP. FFO is defined by the National Association of Real Estate Investment Trusts ("NAREIT") and is used by the company as follows: net earnings (computed in accordance with GAAP) plus depreciation and amortization of assets unique to the real estate industry, excluding gains (or including losses), any applicable taxes and noncontrolling interests on the disposition of certain assets, the company's share of these items from the company's noncontrolling interests and any impairment charges on a depreciable real estate asset, net of recoveries.

FFO is generally considered by industry analysts to be the most appropriate measure of performance of real estate companies. FFO does not necessarily represent cash provided by operating activities in accordance with GAAP and should not be considered an alternative to net earnings as an indication of the company's performance or to cash flow as a measure of liquidity or ability to make distributions. Management considers FFO an appropriate measure of performance of an equity REIT because it primarily excludes the assumption that the value of the real estate assets diminishes predictably over time, and because industry analysts have accepted it as a performance measure. The company's computation of FFO may differ from the methodology for calculating FFO used by other equity REITs, and therefore, may not be comparable to such other REITs. A reconciliation of net earnings (computed in accordance with GAAP) to FFO, as defined by NAREIT, is included in the financial information accompanying this release.

Core Funds From Operations ("Core FFO") is a non-GAAP measure of operating performance that adjusts FFO to eliminate the impact of certain GAAP income and expense amounts that the company believes are infrequent and unusual in nature and/or not related to its core real estate operations. Exclusion of these items from similar FFO-type metrics is common within the REIT industry, and management believes that presentation of Core FFO provides investors with a potential metric to assist in their evaluation of the company's operating performance across multiple periods and in comparison to the operating performance of its peers because it removes the effect of unusual items that are not expected to impact the company's operating performance on an ongoing basis. Core FFO is used by management in evaluating the performance of the company's core business operations and is a factor in determining management compensation. Items included in calculating FFO that may be excluded in calculating Core FFO may include items such as transaction related gains, income or expense, impairments on land or commercial mortgage residual interests, executive retirement costs or other non-core amounts as they occur. The company's computation of Core FFO may differ from the methodology for calculating Core FFO used by other equity REITs, and therefore, may not be comparable to such other REITs. A reconciliation of net earnings (computed in accordance with GAAP) to Core FFO is included in the financial information accompanying this release.

Adjusted Funds From Operations ("AFFO") is a non-GAAP financial measure of operating performance used by many companies in the REIT industry. AFFO adjusts FFO for certain non-cash items that reduce or increase net income in accordance with GAAP. AFFO should not be considered an alternative to net earnings, as an indication of the company's performance or to cash flow as a measure of liquidity or ability to make distributions. Management considers AFFO a useful supplemental measure of the company's performance. The company's computation of AFFO may differ from the methodology for calculating AFFO used by other equity REITs, and therefore, may not be comparable to such other REITs. A reconciliation of net earnings (computed in accordance with GAAP) to AFFO is included in the financial information accompanying this release.

3

NNN REIT, Inc.

(dollars in thousands, except per share data)

(unaudited)

Quarter Ended
June 30,

Six Months Ended
June 30,

2024

2023

2024

2023

Income Statement Summary

Revenues:

Rental income

$

216,140

$

202,426

$

430,965

$

406,056

Interest and other income from real estate transactions

673

214

1,255

692

216,813

202,640

432,220

406,748

Operating expenses:

General and administrative

11,789

10,740

24,373

22,991

Real estate

6,758

6,836

13,912

13,682

Depreciation and amortization

62,503

59,875

123,118

119,023

Leasing transaction costs

20

52

53

127

Impairment losses - real estate, net of recoveries

944

34

2,148

2,674

Executive retirement costs

153

309

470

732

82,167

77,846

164,074

159,229

Gain on disposition of real estate

17,621

13,930

22,442

20,230

Earnings from operations

152,267

138,724

290,588

267,749

Other expenses (revenues):

Interest and other income

(976

)

(74

)

(1,095

)

(107

)

Interest expense

46,577

40,094

90,646

78,985

45,601

40,020

89,551

78,878

Net earnings

$

106,666

$

98,704

$

201,037

$

188,871

Weighted average shares outstanding:

Basic

182,438,791

181,092,031

182,119,471

180,969,809

Diluted

182,807,374

181,627,857

182,528,333

181,544,275

Net earnings per share available to stockholders:

Basic

$

0.58

$

0.54

$

1.10

$

1.04

Diluted

$

0.58

$

0.54

$

1.10

$

1.04

4

NNN REIT, Inc.

(dollars in thousands, except per share data)

(unaudited)

Quarter Ended
June 30,

Six Months Ended
June 30,

2024

2023

2024

2023

Funds From Operations ("FFO") Reconciliation:

Net earnings

$

106,666

$

98,704

$

201,037

$

188,871

Real estate depreciation and amortization

62,391

59,782

122,898

118,824

Gain on disposition of real estate

(17,621

)

(13,930

)

(22,442

)

(20,230

)

Impairment losses - depreciable real estate,
net of recoveries

944

34

2,148

2,674

Total FFO adjustments

45,714

45,886

102,604

101,268

FFO

$

152,380

$

144,590

$

303,641

$

290,139

FFO per share:

Basic

$

0.84

$

0.80

$

1.67

$

1.60

Diluted

$

0.83

$

0.80

$

1.66

$

1.60

Core Funds From Operations ("Core FFO") Reconciliation:

Net earnings

$

106,666

$

98,704

$

201,037

$

188,871

Total FFO adjustments

45,714

45,886

102,604

101,268

FFO

152,380

144,590

303,641

290,139

Executive retirement costs

153

309

470

732

Total Core FFO adjustments

153

309

470

732

Core FFO

$

152,533

$

144,899

$

304,111

$

290,871

Core FFO per share:

Basic

$

0.84

$

0.80

$

1.67

$

1.61

Diluted

$

0.83

$

0.80

$

1.67

$

1.60

5

NNN REIT, Inc.

(dollars in thousands, except per share data)

(unaudited)

Quarter Ended
June 30,

Six Months Ended
June 30,

2024

2023

2024

2023

Adjusted Funds From Operations ("AFFO") Reconciliation:

Net earnings

$

106,666

$

98,704

$

201,037

$

188,871

Total FFO adjustments

45,714

45,886

102,604

101,268

Total Core FFO adjustments

153

309

470

732

Core FFO

152,533

144,899

304,111

290,871

Straight-line accrued rent, net of reserves

95

(534

)

131

(1,003

)

Net capital lease rent adjustment

54

82

108

161

Below-market rent amortization

(125

)

(122

)

(242

)

(234

)

Stock based compensation expense

2,656

2,475

6,223

5,576

Capitalized interest expense

(1,617

)

(721

)

(3,476

)

(1,126

)

Total AFFO adjustments

1,063

1,180

2,744

3,374

AFFO

$

153,596

$

146,079

$

306,855

$

294,245

AFFO per share:

Basic

$

0.84

$

0.81

$

1.68

$

1.63

Diluted

$

0.84

$

0.80

$

1.68

$

1.62

Other Information:

Rental income from operating leases(1)

$

211,557

$

197,629

$

420,641

$

395,812

Earned income from direct financing leases(1)

$

118

$

143

$

237

$

287

Percentage rent(1)

$

259

$

291

$

1,147

$

1,054

Real estate expense reimbursement from tenants(1)

$

4,206

$

4,363

$

8,940

$

8,903

Real estate expenses

(6,758

)

(6,836

)

(13,912

)

(13,682

)

Real estate expenses, net of tenant reimbursements

$

(2,552

)

$

(2,473

)

$

(4,972

)

$

(4,779

)

Amortization of debt costs

$

1,787

$

1,202

$

3,088

$

2,401

Scheduled debt principal amortization (excluding maturities)

$

-

$

-

$

-

$

173

(2)

Non-real estate depreciation expense

$

115

$

97

$

226

$

205

(1)

For the quarters ended June 30, 2024 and 2023, the aggregate of such amounts is $216,140 and $202,426, respectively, and $430,965 and $406,056, for the six months ended June 30, 2024 and 2023, respectively, and is classified as rental income on the income statement summary.

(2)

In April 2023, NNN repaid the remaining mortgages payable principal balance of $9,774.

6

NNN REIT, Inc.

2024 Earnings Guidance

Guidance is based on current plans and assumptions and subject to risks and uncertainties more fully described in this press release and the company's reports filed with the Commission.

2024 Guidance

Net earnings per share excluding any gains on disposition of real
estate, impairment charges, and executive retirement costs

$1.93 - $1.99 per share

Real estate depreciation and amortization per share

$1.34 per share

Core FFO per share

$3.27 - $3.33 per share

AFFO per share

$3.31 - $3.37 per share

General and administrative expenses

$46 - $48 Million

Real estate expenses, net of tenant reimbursements

$10 - $11 Million

Acquisition volume

$400 - $500 Million

Disposition volume

$100 - $120 Million

7

NNN REIT, Inc.

(dollars in thousands)

(unaudited)

June 30,
2024

December 31,
2023

Balance Sheet Summary

Assets:

Real estate portfolio, net of accumulated depreciation and amortization

$

8,586,936

$

8,535,851

Cash and cash equivalents

2,130

1,189

Restricted cash and cash held in escrow

14,672

3,966

Receivables, net of allowance of $639 and $669, respectively

2,551

3,649

Accrued rental income, net of allowance of $4,087 and $4,168, respectively

33,956

34,611

Debt costs, net of accumulated amortization of $25,552 and $23,952, respectively

10,460

3,243

Other assets

76,590

79,459

Total assets

$

8,727,295

$

8,661,968

Liabilities:

Line of credit payable

$

12,000

$

132,000

Notes payable, net of unamortized discount and unamortized debt costs

4,370,807

4,228,544

Accrued interest payable

30,931

34,374

Other liabilities

118,635

109,593

Total liabilities

4,532,373

4,504,511

Total equity

4,194,922

4,157,457

Total liabilities and equity

$

8,727,295

$

8,661,968

Common shares outstanding

183,666,067

182,474,770

Gross leasable area, Property Portfolio (square feet)

36,095,000

35,966,000

8

NNN REIT, Inc.

Debt Summary

As of June 30, 2024

(dollars in thousands)

(unaudited)

Unsecured Debt

Principal

Principal,
Net of
Unamortized
Discount

Stated
Rate

Effective
Rate

Maturity Date

Line of credit payable

$

12,000

$

12,000

SOFR +
87.5 bps

6.185

%

April 2028

Unsecured notes payable:

2025

400,000

399,844

4.000

%

4.029

%

November 2025

2026

350,000

348,916

3.600

%

3.733

%

December 2026

2027

400,000

399,404

3.500

%

3.548

%

October 2027

2028

400,000

398,631

4.300

%

4.388

%

October 2028

2030

400,000

399,223

2.500

%

2.536

%

April 2030

2033

500,000

489,131

5.600

%

5.905

%

October 2033

2034

500,000

493,894

5.500

%

5.662

%

June 2034

2048

300,000

296,177

4.800

%

4.890

%

October 2048

2050

300,000

294,491

3.100

%

3.205

%

April 2050

2051

450,000

442,140

3.500

%

3.602

%

April 2051

2052

450,000

440,170

3.000

%

3.118

%

April 2052

Total

4,450,000

4,402,021

Total unsecured debt(1)

$

4,462,000

$

4,414,021

Debt costs

$

(43,820

)

Accumulated amortization

12,606

Debt costs, net of accumulated amortization

(31,214

)

Notes payable, net of unamortized discount and
unamortized debt costs

$

4,370,807

(1)

Unsecured debt has a weighted average interest rate of 4.1% and a weighted average maturity of 12.6 years.

As of June 30, 2024, Net Debt / EBITDA based on current quarter EBITDA annualized is 5.5x.

9

NNN REIT, Inc.

Debt Summary - Continued

As of June 30, 2024

(unaudited)

Credit Facility and Note Covenants

The following is a summary of key financial covenants for the company's unsecured credit facility and notes, as defined and calculated per the terms of the facility's credit agreement and the notes' governing documents, respectively, which are included in the company's filings with the Commission. These calculations, which are not based on U.S. GAAP measurements, are presented to investors to show that as of June 30, 2024, the company believes it is in compliance with the covenants.

Key Covenants

Required

June 30, 2024

Unsecured Bank Credit Facility:

Maximum leverage ratio

< 0.60

0.38

Minimum fixed charge coverage ratio

> 1.50

4.34

Maximum secured indebtedness ratio

< 0.40

-

Unencumbered asset value ratio

> 1.67

2.64

Unencumbered interest ratio

> 1.75

4.26

Unsecured Notes:

Limitation on incurrence of total debt

≤ 60%

41.0%

Limitation on incurrence of secured debt

≤ 40%

-

Debt service coverage ratio

≥ 1.50

4.3

Maintenance of total unencumbered assets

≥ 150%

244%

10

NNN REIT, Inc.

Property Portfolio

As of June 30, 2024

Top 20 Lines of Trade

As of June 30,

Lines of Trade

2024(1)

2023(2)

1.

Automotive service

16.7%

14.5%

2.

Convenience stores

16.2%

16.9%

3.

Restaurants - limited service

8.5%

8.8%

4.

Restaurants - full service

8.4%

8.9%

5.

Family entertainment centers

6.6%

5.7%

6.

Recreational vehicle dealers, parts and accessories

5.0%

4.2%

7.

Theaters

4.1%

4.3%

8.

Health and fitness

4.0%

4.7%

9.

Equipment rental

3.3%

3.0%

10.

Wholesale clubs

2.4%

2.5%

11.

Automotive parts

2.4%

2.5%

12.

Drug stores

2.3%

2.5%

13.

Home improvement

2.2%

2.3%

14.

Furniture

2.0%

2.1%

15.

Medical service providers

1.8%

1.8%

16.

General merchandise

1.4%

1.5%

17.

Home furnishings

1.3%

1.5%

18.

Consumer electronics

1.3%

1.4%

19.

Travel plazas

1.3%

1.3%

20.

Pet supplies and services

1.2%

1.0%

Other

7.6%

8.6%

Total

100.0%

100.0%

Top 10 States

State

% of
Total(1)

State

% of
Total(1)

1.

Texas

16.9%

6.

North Carolina

3.8%

2.

Florida

9.4%

7.

Tennessee

3.7%

3.

Illinois

5.2%

8.

Indiana

3.7%

4.

Ohio

4.8%

9.

Virginia

3.3%

5.

Georgia

4.7%

10.

California

3.2%

As a percentage of annual base rent, which is the annualized base rent for all leases in place.

(1)

$837,568,000 as of June 30, 2024.

(2)

$794,475,000 as of June 30, 2023.

11

NNN REIT, Inc.

Property Portfolio - Continued

As of June 30, 2024

Top 20 Tenants

Tenant

# of
Properties

% of
Total(1)

1.

7-Eleven

146

4.6%

2.

Mister Car Wash

121

4.1%

3.

Camping World

47

3.7%

4.

Dave & Buster's

32

3.5%

5.

GPM Investments (convenience stores)

150

2.9%

6.

Flynn Restaurant Group (Taco Bell/Arby's)

204

2.7%

7.

LA Fitness

26

2.7%

8.

AMC Theatre

20

2.7%

9.

BJ's Wholesale Club

13

2.4%

10.

Mavis Tire Express Services

140

2.2%

11.

Couche Tard (Pantry)

93

2.2%

12.

Walgreens

49

1.8%

13.

Chuck-E-Cheese

53

1.8%

14.

Sunoco

53

1.8%

15.

United Rentals

49

1.6%

16.

Frisch's Restaurants

66

1.5%

17.

Fikes (convenience stores)

58

1.5%

18.

Bob Evans

106

1.3%

19.

Life Time Fitness

3

1.3%

20.

Tidal Wave Auto Spa

35

1.3%

Lease Expirations(2)

% of
Total(1)

# of
Properties

Gross Leasable
Area(3)

% of
Total(1)

# of
Properties

Gross Leasable
Area(3)

2024

0.2%

10

107,000

2030

3.7%

118

1,576,000

2025

4.3%

169

1,451,000

2031

7.1%

184

2,684,000

2026

4.5%

209

2,024,000

2032

5.8%

213

2,317,000

2027

8.0%

234

3,565,000

2033

4.7%

135

1,403,000

2028

5.6%

229

2,120,000

Thereafter

51.5%

1,878

16,434,000

2029

4.6%

142

2,066,000

(1)

Based on the annual base rent of $837,568,000, which is the annualized base rent for all leases in place as of June 30, 2024.

(2)

As of June 30, 2024, the weighted average remaining lease term is 10.0 years.

(3)

Square feet.

12