NNN REIT(US:NNN)2025-05-01 15:32Financial Data and Key Metrics Changes - The company reported core FFO of $0.86 per share and AFFO of $0.87 per share for Q1 2025, each up 3.6% year-over-year, while annualized base rent increased over 5% year-over-year [14][15] - The NOI margin was 95.9% for the quarter, and G&A as a percentage of total revenues was 5.6% [15][19] - Free cash flow after dividends was approximately $55 million for the quarter [15] Business Line Data and Key Metrics Changes - The company successfully resolved 15 out of 35 vacant furniture stores through leasing or sale, with significant interest in the remaining properties [4] - For restaurant assets, the company gained full possession and has leased or sold 38 out of 69 properties, with strong interest in the remaining 31 [4][5] - Overall leasing activity was strong with 25 renewals and 8 new leases completed, achieving a blended rent recapture rate of 98% [16][17] Market Data and Key Metrics Changes - Occupancy at the end of the quarter was 97.7%, slightly below the long-term average of approximately 98% [5][10] - The company experienced limited to no credit losses within the portfolio during the first quarter [6][10] - The initial cash cap rate for acquisitions was 7.4%, with expectations of some cap rate pressure in 2025 compared to the previous year [8][9] Company Strategy and Development Direction - The company focuses on acquiring well-located properties with strong regional and national tenants at appropriate rents, supported by a strong balance sheet [10][22] - The acquisition strategy remains selective, prioritizing sale leaseback transactions with established tenant relationships [7][8] - The company aims to maintain its 2025 acquisition guidance of $500 to $600 million, with 40% of the acquisition volume already completed [10][22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the portfolio's ability to deliver excellent long-term performance despite current macroeconomic uncertainties [6][13] - The company has a strong balance sheet and is well-positioned for long-term success, having weathered past economic downturns [13][19] - Management anticipates minimal impact from tenant defaults, projecting less than a 1% effect on annual FFO per share [4][18] Other Important Information - The company ended the first quarter with nearly $1.1 billion available on its $1.2 billion line of credit, reinforcing its self-funding model [10][19] - A quarterly dividend of $0.58 per share was announced, equating to a 5.4% annualized dividend yield [20] Q&A Session Summary Question: Acquisition pace in Q1 was higher than expected; can you expand on that? - Management noted that all transactions except one were sale leaseback deals, driven by timing and relationships, and they remain competitive in the market [26][27] Question: Expected pace of acquisitions moving forward? - Management maintains guidance of $500 to $600 million for acquisitions but is cautious due to macroeconomic uncertainties [28][29] Question: Tenant appetite for growth amid economic volatility? - Tenants are reevaluating growth plans, with some deals canceled, but there is still interest in growth opportunities [32][33] Question: Changes to tenant rent coverages due to tariffs? - Rent coverages have remained stable, with 85% of ABR coming from service and non-discretionary tenants [35][36] Question: Impact of Frisch's and Badcock on OpEx outlook? - Guidance for net real estate expenses is higher due to vacancies from these tenants, but improvements are expected as properties are leased or sold [42][43] Question: Lease termination income and its predictability? - Lease termination fees are unpredictable, with a historical average of $2 to $3 million per year, but recent years have seen higher amounts [74][76] Question: Performance outlook for new tenants in former Frisch's locations? - New tenants are performing well during the initial phase, but management remains optimistic about their long-term performance [79] Question: Plans to reduce exposure to specific retail concepts? - The company has a watch list for tenants to reduce exposure, but selling these assets can be challenging [87][88]