Nnn REIT, Inc 10-Q for FY2023 Q3

Nnn REIT, Inc. (NNN)

10-Q 2023-11-01 For: 2023-09-30

Added on April 04, 2026

About this 10-Q

Nnn REIT, Inc filed this 10-Q on November 1, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).

Headline figures

Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $205.13M; up 6.0% from $193.47M a year earlier
Net income: $106.79M; up 20.8% from net income of $88.42M a year earlier
Diluted EPS: $0.59; up 18.0% from $0.50 a year earlier

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Title of each class	Trading Symbol(s)	Name of exchange on which registered
Common Stock, $0.01 par value	NNN	New York Stock Exchange


Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐	Smaller reporting company	☐	Emerging growth company	☐


		PAGE REFERENCE
Part I – Financial Information
Item 1.	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Income and Comprehensive Income	2
	Condensed Consolidated Statements of Equity	3
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	33
Part II – Other Information
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	34
Signatures		36


	September 30, 2023			December 31, 2022
	(unaudited)
ASSETS
Real estate portfolio, net of accumulated depreciation and amortization	$	8,346,062		$	8,020,814
Cash and cash equivalents		77,137			2,505
Restricted cash and cash held in escrow		21,126			4,273
Receivables, net of allowance of $667 and $708, respectively		2,142			3,612
Accrued rental income, net of allowance of $3,880 and $3,836, respectively		28,777			27,795
Debt costs, net of accumulated amortization of $23,379 and $21,663, respectively		3,761			5,352
Other assets		82,303			81,694
Total assets	$	8,561,308		$	8,146,045
LIABILITIES AND EQUITY
Liabilities:
Line of credit payable	$	—		$	166,200
Mortgages payable, including unamortized premium and net of unamortized debt costs		—			9,964
Notes payable, net of unamortized discount and unamortized debt costs		4,227,164			3,739,890
Accrued interest payable		60,765			23,826
Other liabilities		115,321			82,663
Total liabilities		4,403,250			4,022,543

Equity:
Stockholders’ equity:
Common stock, $0.01 par value. Authorized 375,000,000 shares; 182,440,174 and 181,424,670 shares issued and outstanding, respectively		1,825			1,815
Capital in excess of par value		4,966,872			4,928,034
Accumulated deficit		(799,900	)		(793,765	)
Accumulated other comprehensive income (loss)		(10,739	)		(12,582	)
Total stockholders’ equity of NNN		4,158,058			4,123,502
Total liabilities and equity	$	8,561,308		$	8,146,045


	Quarter Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Revenues:
Rental income	$	204,856		$	193,102		$	610,912		$	573,401
Interest and other income from real estate transactions		276			369			968			1,132
		205,132			193,471			611,880			574,533
Operating expenses:
General and administrative		10,225			10,124			33,216			30,906
Real estate		6,459			5,875			20,141			19,246
Depreciation and amortization		59,523			56,388			178,546			166,512
Leasing transaction costs		96			96			223			260
Impairment losses – real estate, net of recoveries		1,001			971			3,675			7,221
Executive retirement costs		153			556			885			6,805
		77,457			74,010			236,686			230,950
Gain on disposition of real estate		19,992			5,889			40,222			10,656
Earnings from operations		147,667			125,350			415,416			354,239
Other expenses (revenues):
Interest and other income		(644	)		(33	)		(751	)		(120	)
Interest expense		41,524			36,962			120,509			110,400
		40,880			36,929			119,758			110,280
Net earnings		106,787			88,421			295,658			243,959
Loss attributable to noncontrolling interests		—			—			—			5
Net earnings attributable to common stockholders	$	106,787		$	88,421		$	295,658		$	243,964
Net earnings per share of common stock:
Basic	$	0.59		$	0.50		$	1.63		$	1.39
Diluted	$	0.59		$	0.50		$	1.63		$	1.38
Weighted average number of common shares outstanding:
Basic		181,398,273			176,900,786			181,120,963			175,542,356
Diluted		181,721,467			177,367,710			181,460,622			175,993,907
Other comprehensive income:
Net earnings attributable to NNN	$	106,787		$	88,421		$	295,658		$	243,964
Amortization of interest rate hedges		620			595			1,843			1,770
Comprehensive income attributable to NNN		107,407			89,016			297,501			245,734
Comprehensive loss attributable to noncontrolling interests		—			—			—			(5	)
Total comprehensive income	$	107,407		$	89,016		$	297,501		$	245,729


	Common Stock		Capital in Excess of Par Value			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity of NNN			Noncontrolling Interests		Total Equity
Balances at June 30, 2023	$	1,825	$	4,963,808		$	(804,040	)	$	(11,359	)	$	4,150,234		$	—	$	4,150,234
Net earnings		—		—			106,787			—			106,787			—		106,787
Dividends declared and paid:
$0.5650 per share of common stock		—		700			(102,647	)		—			(101,947	)		—		(101,947	)
Issuance of common stock:
8,291 shares – director compensation		—		294						—			294			—		294
1,575 shares – stock purchase plan		—		62						—			62			—		62
9,800 restricted shares – net of forfeitures		—		—			—			—			—			—		—
Stock issuance costs		—		(375	)		—			—			(375	)		—		(375	)
Amortization of deferred compensation		—		2,383			—			—			2,383			—		2,383
Amortization of interest rate hedges		—		—			—			620			620			—		620
Balances at September 30, 2023	$	1,825	$	4,966,872		$	(799,900	)	$	(10,739	)	$	4,158,058		$	—	$	4,158,058


	Nine Months Ended September 30,
	2023			2022
Cash flows from operating activities:
Net earnings	$	295,658		$	243,959
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		178,546			166,512
Impairment losses – real estate, net of recoveries		3,675			7,221
Amortization of notes payable discount		1,416			1,262
Amortization of debt costs		3,648			3,533
Amortization of mortgages payable premium		(21	)		(65	)
Amortization of interest rate hedges		1,843			1,770
Gain on disposition of real estate		(40,222	)		(10,656	)
Performance incentive plan expense		8,997			14,000
Performance incentive plan payment		(916	)		(103	)
Change in operating assets and liabilities, net of assets acquired and liabilities assumed:
Decrease in receivables		654			1,264
Decrease (increase) in accrued rental income		(1,496	)		3,298
Increase in other assets		(500	)		(822	)
Increase in accrued interest payable		36,939			33,461
Increase in other liabilities		2,478			641
Other		114			(4	)
Net cash provided by operating activities		490,813			465,271
Cash flows from investing activities:
Proceeds from the disposition of real estate		89,542			50,919
Additions to real estate		(524,719	)		(576,188	)
Principal payments received on mortgages and notes receivable		440			412
Other		(1,534	)		(1,951	)
Net cash used in investing activities		(436,271	)		(526,808	)


(1)	Cash, cash equivalents and restricted cash is the aggregate of cash and cash equivalents and restricted cash and cash held in escrow from the Condensed Consolidated Balance Sheets. As of September 30, 2023, NNN had restricted cash of $21,126. NNN did not have restricted cash and cash held in escrow as of September 30, 2022.


	September 30, 2023
Property Portfolio:
Total Properties		3,511
Gross leasable area (square feet)		35,797,000
States		49
Weighted average remaining lease term (years)		10.1


	2023			2022
Number of tenants		8			8
Cash basis tenants as a percent of:
Total Properties		4.8	%		5.2	%
Total annual base rent(1)		6.9	%		7.1	%
Total gross leasable area		6.4	%		6.8	%


(1)	Based on annualized base rent for all leases in place for each respective period.


	Gain (Loss) on Cash Flow Hedges(1)
Beginning balance, December 31, 2022	$	(12,582	)
Reclassifications from accumulated other comprehensive income to net earnings		1,843		(2)
Ending balance, September 30, 2023	$	(10,739	)


(1)	Additional disclosure is included in "Note 5 – Notes Payable and Derivatives".


(2)	Recorded in interest expense on the Condensed Consolidated Statements of Income and Comprehensive Income.


	September 30, 2023			December 31, 2022
Land and improvements(1)	$	2,823,053		$	2,669,498
Buildings and improvements		7,226,852			6,985,394
Leasehold interests		355			355
		10,050,260			9,655,247
Less accumulated depreciation and amortization		(1,813,920	)		(1,660,308	)
		8,236,340			7,994,939
Work in progress and improvements		106,615			21,737
Accounted for using the operating method		8,342,955			8,016,676
Accounted for using the direct financing method		3,107			3,352
Classified as held for sale(2)		—			786
	$	8,346,062		$	8,020,814


	September 30, 2023			December 31, 2022
Intangible lease assets (included in other assets):
Above-market in-place leases	$	15,356		$	15,356
Less: accumulated amortization		(11,979	)		(11,477	)
Above-market in-place leases, net	$	3,377		$	3,879

In-place leases	$	122,956		$	124,198
Less: accumulated amortization		(83,890	)		(79,675	)
In-place leases, net	$	39,066		$	44,523

Intangible lease liabilities (included in other liabilities):
Below-market in-place leases	$	41,217		$	41,371
Less: accumulated amortization		(28,849	)		(28,121	)
Below-market in-place leases, net	$	12,368		$	13,250


Total commitment(1)	$	391,604
Less amount funded		(207,403	)
Remaining commitment	$	184,201


(1)	Includes land, construction costs, tenant improvements, lease costs, capitalized interest and third-party costs.


	2023 ATM	2020 ATM
Shelf registration statement:
Effective date	August 2023	August 2020
Termination date	August 2026	August 2023
Total allowable shares	17,500,000	17,500,000
Total shares issued as of September 30, 2023	—	7,722,511


(1)	Includes $100,788 and $22,356 in land for Properties under construction at September 30, 2023 and December 31, 2022, respectively.


(2)	As of September 30, 2023, no Properties were classified as held for sale.


	Quarter Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Rental income from operating leases	$	200,287	$	188,840	$	596,099	$	558,942
Earned income from direct financing leases		140		148		427		449
Percentage rent		336		235		1,390		1,231
Rental revenues		200,763		189,223		597,916		560,622
Real estate expense reimbursement from tenants		4,093		3,879		12,996		12,779
	$	204,856	$	193,102	$	610,912	$	573,401


(1)	Stock issuance costs consist primarily of underwriters' fees and commissions, and legal and accounting fees.


	September 30, 2023			December 31, 2022			September 30, 2022
Properties Owned:
Number		3,511			3,411			3,349
Total gross leasable area (square feet)		35,797,000			35,010,000			34,265,000
Properties:
Leased and unimproved land		3,484			3,390			3,328
Percent of Properties – leased and unimproved land		99	%		99	%		99	%
Weighted average remaining lease term (years)		10.1			10.4			10.4
Total gross leasable area (square feet) – leased		35,462,000			34,829,000			34,096,000


		% of Annual Base Rent(1)
	Lines of Trade	September 30, 2023	December 31, 2022	September 30, 2022
1.	Convenience stores	16.8%	16.5%	16.7%
2.	Automotive service	14.7%	13.7%	13.6%
3.	Restaurants – full service	8.8%	9.1%	9.4%
4.	Restaurants – limited service	8.8%	8.9%	9.0%
5.	Family entertainment centers	5.8%	5.9%	6.0%
6.	Recreational vehicle dealers, parts and accessories	4.7%	4.1%	4.1%
7.	Health and fitness	4.6%	4.9%	4.9%
8.	Theaters	4.2%	4.3%	4.3%
9.	Equipment rental	3.0%	3.1%	3.2%
10.	Wholesale clubs	2.5%	2.6%	2.4%
11.	Drug stores	2.5%	2.6%	1.2%
12.	Automotive parts	2.5%	2.6%	2.9%
13.	Home improvement	2.3%	2.3%	2.4%
14.	Furniture	2.1%	2.3%	2.3%
15.	Medical service providers	1.8%	1.9%	1.9%
16.	General merchandise	1.5%	1.6%	1.6%
17.	Consumer electronics	1.4%	1.4%	1.5%
18.	Home furnishings	1.3%	1.4%	1.5%
19.	Travel plazas	1.3%	1.4%	1.5%
20.	Automobile auctions, wholesale	1.2%	1.3%	1.3%
	Other	8.2%	8.1%	8.3%
		100.0%	100.0%	100.0%


(1)	Includes additional square footage from completed construction on existing Properties.
(2)	The cap rate is a weighted average, calculated as the initial cash annual base rent divided by the total purchase price of the Properties.
(3)	Includes dollars invested in projects under construction or tenant improvements for each respective period.


(1)	The cap rate is a weighted average of properties occupied at disposition, calculated as the cash annual base rent divided by the total sales price of the properties.


	Quarter Ended September 30,				Percent Increase			Nine Months Ended September 30,				Percent Increase
	2023		2022		(Decrease)			2023		2022		(Decrease)
Rental Revenues(1)	$	200,763	$	189,223		6.1	%	$	597,916	$	560,622		6.7	%
Real estate expense reimbursement from tenants		4,093		3,879		5.5	%		12,996		12,779		1.7	%
Rental income		204,856		193,102		6.1	%		610,912		573,401		6.5	%
Interest and other income from real estate transactions		276		369		(25.2	)%		968		1,132		(14.5	)%
Total revenues	$	205,132	$	193,471		6.0	%	$	611,880	$	574,533		6.5	%


(1)	Includes rental income from operating leases, earned income from direct financing leases and percentage rent ("Rental Revenues").


	Quarter Ended September 30,						Percent Increase			Nine Months Ended September 30,						Percent Increase
	2023			2022			(Decrease)			2023			2022			(Decrease)
General and administrative	$	10,225		$	10,124			1.0	%	$	33,216		$	30,906			7.5	%
Real estate		6,459			5,875			9.9	%		20,141			19,246			4.7	%
Depreciation and amortization		59,523			56,388			5.6	%		178,546			166,512			7.2	%
Leasing transaction costs		96			96			—			223			260			(14.2	)%
Impairment losses – real estate, net of recoveries		1,001			971			3.1	%		3,675			7,221			(49.1	)%
Executive retirement costs		153			556			(72.5	)%		885			6,805			(87.0	)%
Total operating expenses	$	77,457		$	74,010			4.7	%	$	236,686		$	230,950			2.5	%

Interest and other income	$	(644	)	$	(33	)		1,851.5	%	$	(751	)	$	(120	)		525.8	%
Interest expense		41,524			36,962			12.3	%		120,509			110,400			9.2	%
Total other expenses	$	40,880		$	36,929			10.7	%	$	119,758		$	110,280			8.6	%


As a percentage of total revenues:
General and administrative	5.0	%	5.2	%	5.4	%	5.4	%
Real estate	3.1	%	3.0	%	3.3	%	3.3	%


	Date of Obligation
	Total		2023		2024		2025		2026		2027		Thereafter
Long-term debt(1)	$	4,300,000	$	—	$	350,000	$	400,000	$	350,000	$	400,000	$	2,800,000
Long-term debt – interest(2)		2,000,508		41,100		157,006		148,750		134,225		119,233		1,400,194
Headquarters office lease		10,309		206		837		210		981		1,005		7,070
Total contractual cash obligations	$	6,310,817	$	41,306	$	507,843	$	548,960	$	485,206	$	520,238	$	4,207,264


(1)	Includes only principal amounts outstanding under notes payable and excludes unamortized note discounts and debt costs.
(2)	Interest calculation on notes payable based on stated rate of the principal amount.


	September 30, 2023		Percentage of Total			December 31, 2022		Percentage of Total
Line of credit payable	$	—		—		$	166,200		4.2	%
Mortgages payable(1)		—		—			9,964		0.3	%
Notes payable		4,227,164		100.0	%		3,739,890		95.5	%
Total outstanding debt	$	4,227,164		100.0	%	$	3,916,054		100.0	%


(1)	In April 2023, NNN repaid the remaining mortgages payable principal balance of $9,774.


Notes(1)	Issue Date	Principal		Discount(2)		Net Price		Stated Rate	Effective Rate(3)	Maturity Date
2024(4)	May 2014	$	350,000	$	707	$	349,293	3.900%	3.924%	June 2024(5)
2025(4)	October 2015		400,000		964		399,036	4.000%	4.029%	November 2025(5)
2026(4)	December 2016		350,000		3,860		346,140	3.600%	3.733%	December 2026(5)
2027(4)	September 2017		400,000		1,628		398,372	3.500%	3.548%	October 2027(5)
2028(4)	September 2018		400,000		2,848		397,152	4.300%	4.388%	October 2028
2030(4)	March 2020		400,000		1,288		398,712	2.500%	2.536%	April 2030
2033	August 2023		500,000		11,620		488,380	5.600%	5.905%	October 2033
2048	September 2018		300,000		4,239		295,761	4.800%	4.890%	October 2048
2050	March 2020		300,000		6,066		293,934	3.100%	3.205%	April 2050
2051	March 2021		450,000		8,406		441,594	3.500%	3.602%	April 2051
2052(4)	September 2021		450,000		10,422		439,578	3.000%	3.118%	April 2052


(1)	The proceeds from the note issuances were used to pay down outstanding debt of NNN’s Credit Facility, fund future property acquisitions and for general corporate purposes. Proceeds from the issuance of the 2028 Notes and the 2048 Notes were also used to redeem all of the $300,000 5.500% notes payable that were due 2021. Proceeds from the issuance of the 2030 Notes and the 2050 Notes were also used to redeem all of the $325,000 3.800% notes payable that were due in 2022. Proceeds from the issuance of the 2051 Notes were also used to redeem all of the $350,000 3.300% notes payable that were due in 2023. Proceeds from the issuance of the 2052 Notes were also used to redeem all of NNN's 5.200% Series F Cumulative Redeemable Preferred Stock.
(2)	The note discounts are amortized to interest expense over the respective term of each debt obligation using the effective interest method.
(3)	Includes the effects of the discount at issuance.
(4)	NNN entered into forward starting swaps which hedged the risk of changes in forecasted interest payments on forecasted issuance of long-term debt. Upon the issuance of a series of unsecured notes, NNN terminated such derivatives, and the resulting fair value was deferred in other comprehensive income. The deferred liability (asset) is being amortized over the term of the respective notes using the effective interest method. Additional disclosure is included in "Note 5 – Notes Payable and Derivatives".
(5)	The aggregate principal balance of the unsecured note maturities for the next five years is $1,500,000.


Debt Obligations (dollars in thousands)
	Variable Rate Debt				Fixed Rate Debt
	Credit Facility				Unsecured Debt(1)
	Debt Obligation		Weighted Average Interest Rate		Principal Debt Obligation		Effective Interest Rate
2023	$	—		—	$	—		—
2024		—		—		350,000		3.92	%
2025		—		—		400,000		4.03	%
2026		—		—		350,000		3.73	%
2027		—		—		400,000		3.55	%
Thereafter		—		—		2,800,000		3.99	%	(2)
Total	$	—		—	$	4,300,000		3.93	%
Fair Value:
September 30, 2023	$	—			$	3,529,934
December 31, 2022	$	166,200			$	3,140,774


(1)	Includes NNN’s notes payable, each exclude unamortized discounts and debt costs. The fair value is based upon quoted market prices as of the close of the period, which is a Level 1 valuation since NNN's notes payable are publicly traded on the over-the-counter market. Unsecured debt has a weighted average maturity of 12.6 years.
(2)	Weighted average effective interest rate for periods after 2027.