Greetings, welcome to the NNN REIT Inc. First Quarter 2024 Earnings Call. Please note, this conference is being recorded. I will now turn the conference over to your host, Stephen Horn, Chief Executive Officer. You may begin.

Thanks, Olli. Good morning, and welcome to NNN REIT's First Quarter 2024 Earnings Call. Joining me on the call is Chief Financial Officer, Kevin Habicht. As this morning's press release reflects, the company's performance to start 2024 produced strong results, including continued high occupancy and in-line acquisition volume driven by our proprietary tenant relationships. We are in a position to continue enhancing shareholder value as we move deeper into 2024 and beyond. Highlights of the first quarter results emphasize our continuous effort in actively managing the portfolio. The portfolio of 3,546 freestanding single-tenant properties continued to perform exceedingly well, maintaining high occupancy levels at 99.4%, which remains above our long-term average of 98% plus or minus a fraction. The leasing department had a terrific quarter, leasing 7 assets to QSR and auto service tenants primarily with a 91% rent recapture from the prior rent. This recapture is above historical levels of approximately 70%. Remember, NNN works hard not to give TI dollars to buy up rent. Currently, NNN only has 22 vacant assets in the portfolio, which is a testament to working with the relationship tenants to maximize value for shareholders. During the quarter, we also sold 6 properties, which were all income producing, raising almost $19 million of proceeds to be reinvested into new acquisitions. Over the course of the year, NNN sells assets defensively and proactively, but overall, we target the blended disposition cap rate to be 100 basis points lower than the deployment of capital pricing. The last point on the portfolio I'd like to mention is with regard to 2024 lease expirations, which we originally had 90 for the year. As of the end of the quarter, there are 39 left to handle, but I'm not expecting a departure from the norms, 85% renewal at 100% prior rent. Turning to acquisitions. During the quarter, we invested $125 million in 20 new properties at an initial cash cap rate of 8%. If we were required to straight line, the GAAP rent would be 9.2% with an average lease duration of over 18 years. Eight of the deals were sub-$5 million, meaning we realized that small deals can contribute to FFO per share growth. Twelve of the 13 deals were from relationship tenants, which we do repeat business with, creating a barrier to competition to solidify NNN's deal flow. It is this business model that allows the team to feel good about the pipeline for the second quarter. With regard to the acquisition pricing environment, in the last quarter, our initial cash cap rate of 8% was approximately 40 basis points wider than the fourth quarter of 2023 and 100 basis points year-over-year. The 40-point increase was a result of NNN being top of mind, which created a window of opportunity to push pricing mid-fourth quarter last year for the first quarter deal closing. NNN was in a good position because of our calling effort and our strong balance sheet to take advantage of the opportunities. As I mentioned during the February call, we observed increasing cap rates but as they sit today in May, it appears that the cap rate increase has started to flatten. I anticipate the second quarter pricing of 2024 to be similar to the first quarter pricing. This suggests that cap rates are stabilizing as sellers feel lower cap rates may be in the future. As sellers assume the macroeconomic environment may improve and the higher for longer narrative dissipates in the near future. NNN will maintain acquisition volume through sale-leaseback transactions with our stable of tenants. Based on our pipeline and dialogue with our partners, we remain comfortable with our ability to meet and hopefully exceed 2024 acquisition guidance of $400 million to $500 million, primarily due to sale leaseback deals on our leases. Our balance sheet remains one of the strongest in our sector. Our credit facility has plenty of capacity with only a balance outstanding of $116 million, down from $130 million at year-end. We just increased the capacity by $100 million to $1.2 billion this past month. So NNN is well positioned to fund 2024 acquisition guidance. With that, let me turn the call over to Kevin for more color and detail on our quarterly numbers.

Thanks, Steve. And as usual, I'll start with the normal cautionary statement that we will make certain statements that may be considered to be forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in these forward-looking statements, and we may not release revisions to these forward-looking statements to reflect changes after the statements were made. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the SEC and in this morning's press release. Okay. With that out of the way, yes, headlines from this morning's press release report quarterly core FFO results of $0.83 per share for the first quarter of 2024, which is up $0.03 or 3.8% over year-ago results of $0.80 per share. AFFO results were $0.84 per share for the first quarter, which is $0.02 or 2.4% higher than year-ago results. We did have unusually high lease termination fee income of $4.2 million in the first quarter, which compares with $1.7 million in the prior year first quarter. Over the past 5 years, we've averaged about $3 million of annual lease termination fee income, so this quarter's $4.2 million was well above average. But even with that incremental income overall, it was another good quarter and in line with our expectations. Occupancy was 99.4% at quarter-end, as Steve mentioned. G&A expense came in at $12.6 million for the quarter that's up 2.7% versus prior year and represents 5.8% of revenues for the quarter, and again, in line with our guidance. Our AFFO dividend payout ratio for the first quarter of 2024 was 67%, resulting in approximately $50.6 million of free cash flow for the quarter after the payment of all expenses and dividends. We currently anticipate this free cash flow amount coming in at approximately $194 million for the full year 2024. We ended the quarter with $831 million of annual base rent in place for all leases as of March 31, 2024. This would take into account all acquisitions and dispositions completed during the quarter. Switching over to the balance sheet, a couple of just little items. There was a small amount of equity issuance at a little over $42 a share, generating $21 million in net proceeds during the quarter. Shortly after quarter-end, we completed a recast of our bank credit facility increasing capacity by $100 million to $1.2 billion and extending the term out to April 2028. There were no other material changes to the terms of that loan. We greatly appreciate the support of our bank group over many years. We maintain a good leverage and liquidity profile with over $1 billion of availability on our bank credit facility. As we've talked about, maintaining our light capital market footprint, we've funded nearly 56% of our first quarter acquisitions of $124.5 million with free cash flow of the $50.6 million I mentioned and the $18.5 million of disposition proceeds. Based on the midpoint of our acquisition and disposition guidance for 2024, we should fund close to 65% of 2024 acquisitions with free cash flow and disposition proceeds. Our weighted average debt maturity remains 11.8 years at quarter-end, which will help us slow the refinance headwind that all companies are facing in the coming years. A couple of stats: Net debt to gross book assets was 41.6%, debt-to-EBITDA was 5.5x at March 31st, interest coverage and fixed charge coverage was 4.5x for the first quarter. Again, none of our properties are encumbered by mortgages. So we remain focused on appropriately allocating capital, ensuring we are getting what we believe are appropriate returns on equity while controlling risk through property underwriting and maintaining a sound balance sheet, valuing equity adequately, whether that equity is produced by free cash flow, disposition proceeds, or new equity issuances at the heart of growing per share results over the long term in our opinion. So in closing Q1, it was a solid start to the year. We believe we are in a relatively good position to navigate the uncertainties that are out there as we continue to focus on growing per share results. We are mindful that this is a long-term multiyear endeavor as we think about our business. The fundamentals of the business remain in good shape. And with that, we will open it up to any questions.

Your first question for today is from Joshua Dennerlein with Bank of America.

Just wanted to go over what's in guidance for the year. What do you guys assume as far as bad debt goes? And then is there any additional lease term fee income that you included in guidance?

Yes. So as it relates to bad debt, we've assumed a 100 basis points rent loss in our guidance. That's what we typically do, and we're not straying from that practice. We're trying to signal that we're worried that it should be higher than that. Historically, our realized loss is less than that, meaning 30 to 50 basis points. So it still feels like we're kind of in that realm, if you will, of normal collections on that front. In terms of lease termination fees, we didn't have $4.2 million in our guidance for the first quarter. We did have some amount, but not that amount, not that much. Those things come up a little bit more sporadically. So historically, on a longer-term project, meaning a full year projection, 12 to 15 months out into the future, we don't assume very much of that happening. It really comes about by a function of just working the portfolio as we come across particular cases of particular properties, in particular circumstances where there's an opportunity to create some value via lease termination income possibility, then we pursue it. We understand that it's lumpy and it's not particularly predictable. Historically, we typically run around $3 million a year. So in some sense, it has some degree of regularity to it, but it varies quarter to quarter. To answer your question, we assume we'll get some more this year just because we always assume we'll get some more. But we don't provide guidance around that just because it's a little too tough to predict.

I appreciate that color. And then sorry if I missed it, but did you say what the lease term fee related to, like which tenant?

No. Yes, we really would rather not get into the details of that, but we think it's value-enhancing activity for us. It always involves a tenant and either potentially a new tenant or potentially a buyer of the property. It's a bit of a three-party kind of negotiation we're trying to work out. But yes, we don't plan to go into the details on which tenant or tenants. Usually, it's not just one; it's one or two or three that we have some level of dialogue with on that front. The amounts can be small, or the amounts can be larger. But yes, we don't have any details to provide on that.

And then maybe if I could just sneak one more in. Just on the top tenants, I saw that Frisch's has closed some stores recently. What's the latest with them? And are you guys having any dialogue with them on potentially closing stores?

Yes. So I mean we've talked about Frisch's on our watch list. They have been for a period of time. We don't have any news to report there. There are no rumblings of restructuring, in our minds it conforms somewhat to our history with tenants that have some challenges. It's the 80-20 rule where 80% of the stores are fine and 20% have challenges. Those are the ones that need work, and I think that's the case with them as well. No news there, and we're just working through that with time and don't really have anything new to report.

Yes. Just kind of expanding on that thought, we're working with all our tenants if they want to work on a site to get out of it or what may be the reason. And Frisch's, we're working day to day with them. But today is the first, and rent is due.

Your next question is from Brad Heffern with RBC Capital Markets.

Kevin, on that lease termination commentary, I'm not sure I really understood that. Are you saying that you proactively reach out to tenants and suggest that they might want to terminate their leases so that you can release the properties or sell them to someone else? Or can you just explain how that works?

Yes, every circumstance is different, and it varies a lot. Because we get store-level performance, we know how stores are performing or not. We're in dialogue with our tenants, and we have a feel for what their thoughts are regarding particular properties. We're just actively involved with our tenants and the properties, and if there's an economic opportunity that might include lease termination income, then we're going to pursue it. It's really case-by-case specific, and the devil is always in the details, but it comes from maintaining relationships with tenants and trying to extract value from 3,500 properties as best we can.

Okay. And then you talked about Frisch's, but can you go through the others on the watch list? I'm specifically wondering about JOANNs, but a quick sound bite on the usual suspects would be great, too.

Yes. The size and composition of the list really hasn't changed. We've talked about Frisch's in recent quarters. Everybody is talking about theaters for many quarters. We've mentioned JOANNs, which did file for bankruptcy. We only have 2 stores with them; it's less than 0.1% of our tenant base. They have since worked through that bankruptcy process, and both of our stores will be affirmed, those leases will be affirmed. So we're not looking at any loss exposure there. The other ones we've mentioned in recent quarters are Big Lots. Again, we have 3 stores; that's about 0.1% of our tenant base. We talked about At Home stores, which is a larger exposure for us at 1.1% of our rent, we have 12 stores with them. The challenge with those is that they're just bigger boxes, so if we get one of those back, it's a little more work. But again, they're current on rent, and it feels like they have some runway to continue with that. So we don't have any news to report on that. Those names we've talked about in recent quarters haven't changed, and the situations don't feel like they've changed notably.

Your next question is coming from Smedes Rose with Citi.

We were just wondering, I think you have some debt maturities coming up later this year. I'm just curious what you are assuming in your guidance around those maturities.

Yes. I mean we don't give any guidance on capital markets activities, but I'll say this: we have optionality. We love that, and that's one of the things we try to position our balance sheet to create that optionality. We can issue debt long-term, 10 years. We've not issued anything less than 10 years in my tenure here. Today, it would be kind of priced in the mid- to high 5s. We could also park it on our bank line because we have such availability there; for a period, we could leave it there if we had the view that maybe rates would be ticking lower later. That cost today is in the low 6s. So there's not a huge material cost difference at the moment between 10-year debt and our bank line. Whichever option we choose, it won't have much impact on the bottom line between those two alternatives. We'll see how that plays out.

Okay. And I just wanted to ask, sort of, bigger picture, when you're out looking at acquisition opportunities, any change in the pool of other providers of capital or where you feel like you have a distinct advantage relative to them? Or are things sort of eroding on that side? Or maybe just if you could just sort of speak to that.

On the acquisition side, we're really minding our current portfolio. The vast majority of the acquisition volume has come from our current tenant roster. Our current tenants believe in the sale-leaseback model, not owning the real estate. They're not really looking for other sources of capital that we're competing against. They're just looking at sale-leaseback providers and what the going rate is. So we're not seeing any other buckets of money coming into our sector for what we're looking to do. If we had to do $1.5 billion or $2 billion, we would probably have more competition. But at current guidance, we're not seeing any competition in our ability to execute.

Your next question for today is from Spencer Allaway with Green Street.

Maybe continuing on the tenant health topic. And Kevin, you mentioned receiving unit level operations. Can you just comment on whether there have been any changes to rent coverage levels or if there's been anything notable that's come up in negotiations with tenants in recent months?

Yes, no. The answer is no. There's been a little bit of softening in coverages, but not notable. Our tenants have been able to generally maintain a reasonable margin, if you will. From an ability to pay rent standpoint, our concerns have not grown at all. We still feel good on that front.

Okay. And then specifically on the property insurance side, and I realize your tenants bear that cost. But just given the spikes in insurance premiums nationwide, is this something that's been brought to your attention in terms of this line item becoming burdensome for any tenants?

We're aware of that issue, but we're not hearing that it is a big impact on their business. Rent is a real expense, but it's not the driver of their profitability and property insurance to a lesser degree. Because we deal with tenants that operate hundreds, if not thousands of stores, they generally are pretty sharp on getting property insurance coverages across a large number of properties. I think that helps them a bit at the margin to get reasonable rates as best they can. But yes, the overall property insurance market is challenging.

Okay. And then last one for me. I know you mentioned the 22 vacant assets. Have you guys kind of laid out a plan yet in terms of which portion or what portion of the 22 assets have been earmarked for sale versus re-tenanting? Or can you just provide some commentary on the plan for those assets?

So out of the 22, they're all earmarked for re-tenanting. That's the first thing we always try to do. After a certain timeframe, if we're not getting acceptable rental rates, we just do a present value analysis; re-tenant it, sell it, scrape and rebuild it. The truth is, more times than not, the economic decision would be to sell a vacant asset because of the time delay to get these tenants into it. But we always try to get the recurring revenue by re-tenanting it.

Your next question is from Linda Tsai with Jefferies.

Can you talk a little bit more about what you're seeing on the QSR and automotive services front in terms of cap rate expansion?

Yes. I mean given we had an 8 cash cap rate for the quarter, and we did a little bit more auto services this past quarter that we're seeing. The bandwidth is pretty tight around the 8; high 7s, low 8s is what we're seeing currently in today's market in car wash and collision repair in the auto service sector. Cap rates just on the sequential increase we've had for 5 straight quarters are starting to see the 8. Do I see it going above 8 for the second quarter? I think it's right at there; the pricing is on top of the first quarter, or is it too far out for the third and fourth quarters? If the higher for longer narrative continues, I would expect to see an 8 in the third quarter as well.

And then just for any tenants on a cash basis, does that include Frisch's, AMC, At Home, Big Lots?

Yes, it includes AMC and Frisch's. Those are the primary ones.

But At Home is not really something...

No. No. I mean, it is a judgment call. To be honest, it's something we look at quarterly and evaluate. We're not adverse to, quite frankly, putting tenants on cash basis; I think it’s a better accounting method. Right now, it's about 5% of our tenants, which is mostly AMC and Frisch's, which comprise that cash basis.

Got it. And then just a clarification on Frisch's. To the extent you have any of those 20%, you talked about the 80/20 stores that would close, and you don't think they're restructuring, and the rent is due. If they do move out, do you think they would be mostly better as backfills, or would they get sold vacant?

I think being a restaurant asset, it's a well-located piece of real estate with a drive-thru, so I think we would have an easy time re-tenanting the Frisch's assets. For the most part, it's really good real estate.

Last question. On lease term fees, should we model something similar in the future quarters?

Yes. I mean we don't provide guidance on that, partly because it's very episodic and hard to predict how and when that's all going to play out. But I wouldn't encourage you to annualize $4.2 million in the first quarter as a run rate; that's for sure. Our annual average is $3 million, so this was an unusual quarter. We obviously may have more lease termination fees in the future, but we generally don't anticipate large sums from it.

Your next question for today is from John Massocca with B. Riley Securities.

So maybe kind of building on that last answer, was that kind of outsized lease termination fee income known when you guys contemplated your initial guidance? And I guess if it was the case that it wasn't known, then maybe why wasn't that additive to the year-end number that you guys are anticipating?

Yes. If you back out our lease termination fee income in the first quarter, I think our guidance is appropriate, meaning I shouldn't say that. If you don't annualize the first quarter lease termination fee income, I think you might feel that our guidance is reasonable. We may have opportunity for the high end of that guidance. But that's our view; we really didn't feel like it warranted moving guidance based on that one-time income in the first quarter.

Okay. And then on occupancy, it's split here at 99.4%, but does that include any kind of leased but dark boxes? And to the extent you know, what's the spread between leased and true occupancy in the portfolio today roughly?

Yes. No, our occupancy is always based on leased properties. That's the way we report it. We also track it based on dollars invested in leased properties. There's always a component of dark properties out there, but they're leased and counted as occupied.

Do you know roughly how large that is in the portfolio today?

The dark properties? Historically, they're probably in the 1% kind of range.

Okay. And then sorry if I missed this in the prepared remarks; I had a little connectivity issue there at the beginning of the call. But did you have any color on the cadence of acquisition volume over the course of the remainder of the year?

Yes. I mean what we're seeing in the second quarter feels like it's going to be kind of in line with the first quarter. But again, John, as you know, in the third and fourth quarter, we don't have any clarity currently on that. One reason we leave our guidance at the $400 million to $500 million is because we don't know the macroeconomic changes that could occur. Given the discussion we've had with our tenants, I feel very comfortable in that $400 million to $500 million range for hitting that number this year.

Your next question for today is from Ronald Kamdem with Morgan Stanley.

Just two quick ones. Just starting with the sort of the cap rates. Obviously, you hit the 8% mark that's ticked up this quarter. Maybe can you just talk about, is that the right number we should be looking for given this interest rate environment? Are there other opportunities to even get higher cap rates and what you're hearing from tenants?

No, I think for right now, as we said, that's probably the right cap rate to use currently. That being said, you hear a lot about markets down 50%, but bear in mind that's the 1031 market. You're dealing with a lot of unsophisticated sellers and buyers for that matter. In the sale-leaseback market, we're dealing with highly sophisticated tenants and companies that understand that the cost of capital has increased. If the higher for longer persists, I would see some further cap rate expansion possibly in the back half of the year. But for modeling purposes, going into the unknown and not wanting to take a bet on either side, I feel comfortable that the 8% should continue.

Great. And sorry if you touched on, have you hit on what the plan is for the maturities and where you could issue that right now?

Yes. Yes. So new issuance, 10-year debt today is kind of in the mid- to high 5s today. The other option we have is given that we have an unused bank line, we could park it on our bank line, which is in the low 6s. The delta between those two options is not very large. In terms of modeling out this year, you can choose either one and be relatively close to how it will play out. We don't provide guidance on capital markets activities; we try to be opportunistic and take advantage of what the best options are at the moment. We'll see how it plays out. That's the way I think about our maturities coming due in June.

We have reached the end of the question-and-answer session, and I will now turn the call over to Steve for closing remarks.

Thank you for your time this morning. We look forward to executing for the second quarter, and we'll see you at the upcoming conferences. Thanks.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.