NNN REIT(NNN) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported quarterly core FFO results of $0.83 per share for Q1 2024, an increase of$ 0.03 or 3.8% compared to $0.80 per share in the previous year [47] - AFFO results were$ 0.84 per share for the first quarter, which is $0.02 or 2.4% higher than the year-ago results [47] - Occupancy remained high at 99.4%, above the long-term average of approximately 98% [34][48] - G&A expenses increased by 2.7% year-over-year to$ 12.6 million, representing 5.8% of revenues for the quarter [48] - The AFFO dividend payout ratio for Q1 2024 was 67%, resulting in approximately $50.6 million of free cash flow for the quarter [48] Business Line Data and Key Metrics Changes - The leasing department successfully leased seven assets to QSR and auto service tenants, achieving a 91% rent recapture from prior rent [34] - The company invested$ 125 million in 20 new properties at an initial cash cap rate of 8%, which is 40 basis points wider than the previous quarter and 100 basis points year-over-year [42][43] - The company sold six income-producing properties, raising nearly $19 million for reinvestment [41] Market Data and Key Metrics Changes - The cap rate for the quarter was reported at 8%, with expectations for stabilization in the second quarter pricing [38][39] - The company noted that the property insurance market has hardened, but it has not significantly impacted tenants' businesses [2] Company Strategy and Development Direction - The company aims to maintain acquisition volume primarily through sale leaseback transactions with stable tenants, with a guidance range of$ 400 million to $500 million for 2024 [50] - The company is focused on enhancing shareholder value and actively managing its portfolio [22] - The balance sheet remains strong, with a credit facility capacity increased to$ 1.2 billion, positioning the company well for future acquisitions [39] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in tenant ability to pay rent, with no significant concerns regarding rent coverage levels [1] - The company anticipates further cap rate expansion in the latter half of the year if the "higher for longer" interest rate narrative continues [13] - Management remains optimistic about navigating uncertainties and believes the fundamentals of the business are in good shape [60] Other Important Information - The company ended the quarter with $831 million of annual base rent in place for all leases as of March 31, 2024 [53] - The weighted average debt maturity was reported at 11.8 years, which will help mitigate refinancing headwinds [49] Q&A Session Summary Question: What is included in guidance for the year regarding bad debt? - The company assumes 100 basis points of rent loss in its guidance, which is consistent with historical realized losses of 30 to 50 basis points [66] Question: Can you provide details on lease termination fee income? - The company had unusually high lease termination fee income of$ 4.2 million in Q1, which is above the average of $3 million annually [52][93] Question: What is the status of tenants on the watch list? - Frisch's and other tenants have been monitored, with no significant changes reported. The company is in dialogue with tenants regarding their performance [73][80] Question: How does the company plan to handle upcoming debt maturities? - The company has optionality in its balance sheet and does not provide specific guidance on capital markets activities [78] Question: What is the outlook for acquisition opportunities? - The company is primarily focused on its current tenant roster for acquisition volume and is not seeing significant competition from other capital providers [85]