NNN REIT(US:NNN)2023-08-02 17:35Financial Data and Key Metrics Changes - The company reported quarterly core FFO results of $0.80 per share for Q2 2023, an increase of $0.03 or 1.3% over the previous year [11] - Year-to-date core FFO results were $1.60 per share, representing a 2.6% increase over the prior year [11] - The AFFO for the first half of 2023 was $1.62 per share, a 1.3% increase over the previous year [11] - The AFFO dividend payout ratio for the first half of 2023 was approximately 68%, resulting in about $95 million of free cash flow [12] Business Line Data and Key Metrics Changes - The portfolio consists of 3,479 freestanding single-tenant properties with a high occupancy level of 99.4%, maintained for four consecutive quarters [3] - Nearly 90% of leases up for renewal during the quarter were extended at 105% of the prior rent [3] - The company sold 7 properties during the quarter, raising $28 million at a 5.1% cap rate, with year-to-date proceeds from property sales totaling $40 million at a 5.6% cap rate [8] Market Data and Key Metrics Changes - The initial cash cap rate for the first half of 2023 was 7.1%, which is 90 basis points higher year-over-year [4] - The company observed a 20 basis point increase in cap rates from Q1 to Q2 2023, with expectations of a slight increase of 10 to 20 basis points in the second half of the year [4][74] Company Strategy and Development Direction - The company announced an increase in its 2023 core FFO guidance to a range of $3.17 to $3.22 per share, reflecting a long-standing strategy aimed at consistent per share growth [6][13] - NNN has increased its acquisition guidance to $600 million to $700 million for the year, focusing on long-term lease deals with durations of 15 to 20 years [7] - The company maintains a strong balance sheet with over $750 million of liquidity and no material debt maturities until mid-2024 [14][33] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the current economic and capital market uncertainties, with a focus on maintaining high occupancy and strong lease renewals [40] - The company anticipates a return to a more normal growth cadence in 2024, with expectations of mid-single-digit per share growth [80] - Management noted that the credit watch list remains largely unchanged, with no significant concerns regarding tenant health [72] Other Important Information - The company has a disciplined approach to acquisitions, emphasizing relationship-based business models and targeting sale-leaseback transactions [32] - The company has begun to utilize its bank line more frequently in response to the current interest rate environment, with a weighted average debt maturity of over 12 years [39] Q&A Session All Questions and Answers Question: Can you talk about the new AFFO guidance and what kept the high end of guidance from moving higher? - The capitalized interest from increased split-funded acquisitions is a drag on AFFO for this year relative to prior years [44] Question: What are the bad debt assumptions in your guidance? - The company typically assumes a 1% rent loss annually, but current trends suggest it will be closer to 0.5% this year [46][84] Question: Can you provide an update on the credit watch list and any exposures? - The company has seen no significant changes in the credit watch list, with recent bankruptcies having minimal impact on revenue [72][86] Question: How is the acquisition pipeline evolving compared to 3 to 6 months ago? - The acquisition pipeline is stronger now than it was 3 to 6 months ago, with a robust sale-leaseback market [88]