NNN REIT, Inc. — Form 10-Q Summary
Business Context and Reporting Period
NNN REIT, Inc., formerly National Retail Properties, Inc., is an integrated REIT that owns, acquires, develops and invests in retail properties leased primarily under long-term net leases. The filing covers the quarter and six months ended June 30, 2023; financial statements are unaudited. The company changed its name to NNN REIT, Inc. on May 1, 2023.
- 3,479 properties totaling approximately 35.5 million square feet across 49 states.
- Approximately 99% of properties were leased; weighted average remaining lease term was 10.2 years.
- Largest annual base-rent concentrations were convenience stores (16.9%), automotive service (14.5%) and full- and limited-service restaurants (17.7% combined).
Financial Performance and Key Metrics
| Metric | Q2 2023 | Q2 2022 | Change |
|---|---|---|---|
| Total revenues | $202.6 million | $190.8 million | 6.2% increase |
| Rental income | $202.4 million | $190.5 million | 6.2% increase |
| Operating expenses | $77.8 million | $80.7 million | 3.5% decrease |
| Earnings from operations | $138.7 million | $110.9 million | 25.1% increase |
| Net earnings attributable to common stockholders | $98.7 million | $74.2 million | 33.1% increase |
| Diluted earnings per share | $0.54 | $0.42 | 28.6% increase |
| Net earnings margin | 48.7% | 38.9% | Improved |
| Metric | Six Months 2023 | Six Months 2022 | Change |
|---|---|---|---|
| Total revenues | $406.7 million | $381.1 million | 6.7% increase |
| Net cash provided by operating activities | $299.3 million | $275.3 million | 8.7% increase |
| Net cash used in investing activities | $(288.1) million | $(329.5) million | Lower use of cash |
| Net cash used in financing activities | $(12.7) million | $(113.9) million | Lower use of cash |
| Dividends paid | $199.1 million | $185.6 million | 8.0% increase |
Six-month net earnings attributable to common stockholders were $188.9 million, or $1.04 per diluted share, compared with $155.5 million, or $0.89 per diluted share, in the prior-year period. The filing does not provide a clear FFO or adjusted FFO value in the supplied text.
Balance Sheet, Debt and Liquidity
- Total assets were $8.35 billion at June 30, 2023, including a net real estate portfolio of $8.22 billion.
- Total debt was $4.07 billion, up from $3.92 billion at December 31, 2022.
- Debt consisted of $3.74 billion of notes payable and $332.5 million drawn on the $1.1 billion revolving credit facility.
- The revolving facility had $767.5 million available, matures in June 2025, and may be extended to June 2026. NNN was in compliance with its financial covenants.
- All remaining mortgage principal of approximately $9.8 million was repaid in April 2023.
- Cash and cash equivalents were $2.3 million; including restricted cash, total cash, cash equivalents and restricted cash were $5.3 million.
- Notes payable had a stated principal balance of $3.8 billion, with a reported fair value of $3.14 billion at June 30, 2023.
Material Changes Versus the Prior Comparable Period
- Rental income growth primarily reflected contributions from recent property acquisitions.
- Acquisitions totaled 79 properties and $337.5 million during the first six months, compared with 102 properties and $364.6 million in the prior-year period. The weighted average acquisition cap rate increased to 7.1% from 6.2%.
- Property dispositions totaled 13 properties with $40.2 million of net sales proceeds and a $20.2 million gain, compared with 18 properties, $28.0 million of proceeds and a $4.8 million gain in the prior-year period.
- Interest expense increased 7.6% for the first six months, primarily because the revolving credit facility had a substantially higher average balance and interest rate. The average balance was $228.6 million at a 5.67% weighted average rate, compared with $9.0 million at 2.04% in the prior-year period.
- General and administrative expense increased 10.6% for the first six months, primarily due to higher long-term incentive compensation costs.
- Impairment losses declined to $2.7 million from $6.3 million, and executive retirement costs declined to $0.7 million from $6.2 million.
- Shares outstanding increased, including 650,135 shares issued through the ATM program for $28.6 million of net proceeds during the first six months.
Guidance, Outlook, Risks and Unusual Items
- No specific full-year earnings, revenue or FFO guidance is provided in the supplied filing text.
- Management expects liquidity to come from operating cash flow, cash resources, revolving-credit borrowings, debt or equity issuance and property dispositions. Future acquisition spending is discretionary.
- NNN had construction commitments for 39 properties totaling $268.2 million, of which $113.8 million had been funded; the remaining commitment was $154.3 million.
- Contractual cash obligations totaled $5.90 billion, including $3.80 billion of long-term debt principal and $1.75 billion of projected long-term debt interest.
- Twenty-two properties were vacant and unleased at June 30, 2023, representing less than 1% of the portfolio. Less than 1% of properties and gross leasable area was leased to a tenant in Chapter 11 bankruptcy as of July 31, 2023.
- Approximately 92% of COVID-related deferred rent had been repaid; the remaining deferred rent was substantially due by December 31, 2023.
- The company identified risks from inflation and economic conditions, tenant defaults or bankruptcies, interest-rate increases, debt maturities and covenants, access to capital, property concentration, vacancies, competition, cybersecurity, natural disasters and maintaining REIT qualification.
- The July 2023 dividend was increased to $0.5650 per share, payable in August 2023.
- Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material change in internal control over financial reporting.
Important Facts for Investors to Verify
- Whether the company’s acquisition activity, occupancy and rent collections remain sufficient to support dividend growth amid higher interest rates.
- The refinancing or repayment plan for the $350 million 2024 note maturity, $400 million 2025 note maturity and the $332.5 million revolving-credit balance.
- The effect of variable-rate debt, including the potential impact of further SOFR increases on interest expense and cash flow.
- Progress on the $154.3 million of remaining construction commitments and the related expected returns.
- Tenant credit quality, concentration in convenience stores, automotive service and restaurants, and developments involving the tenant in Chapter 11.
- The company’s FFO, adjusted FFO, payout ratios and other non-GAAP operating measures, which are not clearly provided in the supplied filing text.