Nnn REIT, Inc 10-Q for FY2022 Q1

Nnn REIT, Inc. (NNN)

10-Q 2022-05-03 For: 2022-03-31

Added on April 04, 2026

About this 10-Q

Nnn REIT, Inc filed this 10-Q on May 3, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).

Headline figures

Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $190.28M; up 5.8% from $179.78M a year earlier
Net income: $81.37M; up 43.8% from net income of $56.59M a year earlier
Diluted EPS: $0.46; up 53.3% from $0.30 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:
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Income and Comprehensive Income	2
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	32
Part II - Other Information
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	33
Signatures		34


	March 31, 2022			December 31, 2021
	(unaudited)
ASSETS
Real estate portfolio	$	7,591,643		$	7,444,289
Real estate held for sale		562			5,557
Cash and cash equivalents		53,736			171,322
Receivables, net of allowance of $717 and $782, respectively		2,816			3,154
Accrued rental income, net of allowance of $4,351 and $4,587, respectively		30,727			31,942
Debt costs, net of accumulated amortization of $19,946 and $19,377, respectively		6,921			7,443
Other assets		85,408			87,347
Total assets	$	7,771,813		$	7,751,054
LIABILITIES AND EQUITY
Liabilities:
Mortgages payable, including unamortized premium and net of unamortized debt costs	$	10,515		$	10,697
Notes payable, net of unamortized discount and unamortized debt costs		3,736,781			3,735,769
Accrued interest payable		58,022			23,923
Other liabilities		68,749			79,002
Total liabilities		3,874,067			3,849,391

Equity:
Stockholders’ equity:
Common stock, $0.01 par value. Authorized 375,000,000 shares; 175,810,465 and 175,635,792 shares issued and outstanding, respectively		1,759			1,757
Capital in excess of par value		4,669,590			4,662,714
Accumulated deficit		(759,232	)		(747,853	)
Accumulated other comprehensive income (loss)		(14,373	)		(14,956	)
Total stockholders’ equity of NNN		3,897,744			3,901,662
Noncontrolling interests		2			1
Total equity		3,897,746			3,901,663
Total liabilities and equity	$	7,771,813		$	7,751,054


	Quarter Ended March 31,
	2022			2021
Revenues:
Rental income	$	189,763		$	179,198
Interest and other income from real estate transactions		516			580
		190,279			179,778
Operating expenses:
General and administrative		11,042			11,748
Real estate		7,198			7,725
Depreciation and amortization		52,680			49,980
Leasing transaction costs		88			38
Impairment losses – real estate, net of recoveries		1,632			2,131
Executive retirement costs		3,594			—
		76,234			71,622
Gain on disposition of real estate		3,992			4,281
Earnings from operations		118,037			112,437
Other expenses (revenues):
Interest and other income		(35	)		(65	)
Interest expense		36,699			34,587
Loss on early extinguishment of debt		—			21,328
		36,664			55,850
Net earnings		81,373			56,587
Earnings attributable to noncontrolling interests		(1	)		—
Net earnings attributable to NNN		81,372			56,587
Series F preferred stock dividends		—			(4,485	)
Net earnings attributable to common stockholders	$	81,372		$	52,102
Net earnings per share of common stock:
Basic	$	0.46		$	0.30
Diluted	$	0.46		$	0.30
Weighted average number of common shares outstanding:
Basic		174,772,243			174,589,300
Diluted		174,911,213			174,714,617
Other comprehensive income:
Net earnings attributable to NNN	$	81,372		$	56,587
Amortization of interest rate hedges		583			1,368
Comprehensive income attributable to NNN		81,955			57,955
Comprehensive earnings attributable to noncontrolling interests		1			—
Total comprehensive income	$	81,956		$	57,955


	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 December 31, 2021	$	1,757	$	4,662,714		$	(747,853	)	$	(14,956	)	$	3,901,662		$	1	$	3,901,663
Net earnings		—		—			81,372			—			81,372			1		81,373
Dividends declared and paid:
$0.5300 per share of common stock		—		696			(92,751	)		—			(92,055	)		—		(92,055	)
Issuance of common stock:
8,429 shares – director compensation		—		305			—			—			305			—		305
1,173 shares – stock purchase plan		—		52			—			—			52			—		52
153,300 restricted shares – net of forfeitures		2		(2	)		—			—			—			—		—
Stock issuance costs		—		(65	)		—			—			(65	)		—		(65	)
Amortization of deferred compensation		—		5,890			—			—			5,890			—		5,890
Amortization of interest rate hedges		—		—			—			583			583			—		583
Balances at March 31, 2022	$	1,759	$	4,669,590		$	(759,232	)	$	(14,373	)	$	3,897,744		$	2	$	3,897,746


	Series F Preferred Stock		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 December 31, 2020	$	345,000	$	1,753	$	4,633,771		$	(644,779	)	$	(16,445	)	$	4,319,300		$	4	$	4,319,304
Net earnings		—		—		—			56,587			—			56,587			—		56,587
Dividends declared and paid:
$0.3250 per depositary share of Series F preferred stock		—		—		—			(4,485	)		—			(4,485	)		—		(4,485	)
$0.5200 per share of common stock		—		—		578			(90,848	)		—			(90,270	)		—		(90,270	)
Issuance of common stock:
8,324 shares – director compensation		—		—		267			—			—			267			—		267
1,715 shares – stock purchase plan		—		—		70			—			—			70			—		70
30,000 shares – ATM equity program		—		1		1,233			—			—			1,234			—		1,234
287,957 restricted shares – net of forfeitures		—		3		(3	)		—			—			—			—		—
Stock issuance costs		—		—		(156	)		—			—			(156	)		—		(156	)
Amortization of deferred compensation		—		—		3,920			—			—			3,920			—		3,920
Amortization of interest rate hedges		—		—		—			—			1,368			1,368			—		1,368
Balances at March 31, 2021	$	345,000	$	1,757	$	4,639,680		$	(683,525	)	$	(15,077	)	$	4,287,835		$	4	$	4,287,839


(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. NNN had no restricted cash and cash held in escrow at March 31, 2022 and 2021.


	March 31, 2022
Property Portfolio:
Total properties		3,271
Gross leasable area (square feet)		33,545,000
States		48
Weighted average remaining lease term (years)		10.6


	March 31,
	2022			2021
Number of tenants		9			12
Cash basis tenants as a percent of:
Total properties		5.4	%		6.1	%
Total gross leasable area		7.0	%		7.7	%


	Gain (Loss) on Cash Flow Hedges(1)
Beginning balance, December 31, 2021	$	(14,956	)

Reclassifications from accumulated other comprehensive income to net earnings		583		(2)
Ending balance, March 31, 2022	$	(14,373	)


(1)	Additional disclosure is included in Note 6 – Derivatives.
(2)	Recorded in interest expense on the Condensed Consolidated Statements of Income and Comprehensive Income.


	March 31, 2022			December 31, 2021
Land and improvements(1)	$	2,556,405		$	2,527,483
Buildings and improvements		6,536,540			6,375,583
Leasehold interests		355			355
		9,093,300			8,903,421
Less accumulated depreciation and amortization		(1,517,047	)		(1,470,062	)
		7,576,253			7,433,359
Work in progress for buildings and improvements		11,811			7,277
Accounted for using the operating method		7,588,064			7,440,636
Accounted for using the direct financing method		3,579			3,653
	$	7,591,643		$	7,444,289


(1)	Includes $8,070 and $8,979 in land for Properties under construction at March 31, 2022 and December 31, 2021, respectively.


	March 31, 2022			December 31, 2021
Intangible lease assets (included in other assets):
Above-market in-place leases	$	15,335		$	15,335
Less: accumulated amortization		(10,993	)		(10,821	)
Above-market in-place leases, net	$	4,342		$	4,514

In-place leases	$	121,431		$	122,069
Less: accumulated amortization		(74,480	)		(73,345	)
In-place leases, net	$	46,951		$	48,724

Intangible lease liabilities (included in other liabilities):
Below-market in-place leases	$	41,160		$	41,705
Less: accumulated amortization		(27,214	)		(27,447	)
Below-market in-place leases, net	$	13,946		$	14,258


Total commitment(1)	$	38,889
Less amount funded		19,881
Remaining commitment	$	19,008


Notes	Issue Date	Principal		Discount (1)		Net Price		Stated Rate			Effective Rate (2)			Maturity Date
2051 Notes	March 2021	$	450,000	$	8,406	$	441,594		3.500	%		3.602	%	April 2051
2052 Notes (3)	September 2021		450,000		10,422		439,578		3.000	%		3.118	%	April 2052


Shares of common stock		30,000
Average price per share (net)	$	38.59
Net proceeds	$	1,158
Stock issuance costs(1)	$	75


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


	March 31, 2022			December 31, 2021(1)
Land and improvements	$	546		$	6,440
Building and improvements		1,192			4,313
		1,738			10,753
Less accumulated depreciation and amortization		(714	)		(1,331	)
Less impairment		(462	)		(3,865	)
	$	562		$	5,557

Number of Properties		2			2


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


(1)	The note discounts are amortized to interest expense over the respective term of each debt obligation using the effective interest method.
(2)	Includes the effects of the discount at issuance.
(3)	NNN entered into forward swaps which were hedging the risk of changes in forecasted interest payments on forecasted issuance of long-term debt. Upon the issuance of the 2052 Notes, NNN terminated such derivatives, and the resulting fair value was deferred in accumulated other comprehensive income (loss) and is being amortized over the term of the respective notes using the effective interest method. Additional disclosure is included in Note 6 – Derivatives.


	2020 ATM
Established date	August 2020
Termination date	August 2023
Total allowable shares		17,500,000
Total shares issued as of March 31, 2022		1,599,304


(1)	The Series F preferred stock was redeemed in October 2021.


Notes Payable	Terminated	Description	Aggregate Notional Amount		Liability (Asset) Fair Value When Terminated			Fair Value Deferred In Other Comprehensive Income (1)
2024	May 2014	Three forward starting swaps	$	225,000	$	6,312		$	6,312
2025	October 2015	Four forward starting swaps		300,000		13,369			13,369
2026	December 2016	Two forward starting swaps		180,000		(13,352	)		(13,345	)
2027	September 2017	Two forward starting swaps		250,000		7,690			7,688
2028	September 2018	Two forward starting swaps		250,000		(4,080	)		(4,080	)
2030	March 2020	Three forward starting swaps		200,000		13,141			13,141
2052	September 2021	Two forward starting swaps		120,000		1,584			1,584


(1)	The amount reported in accumulated other comprehensive income (loss) will be reclassified to interest expense as interest payments are made on the related notes payable.


	Deferred									Scheduled Repayment
	Accrual Basis		Cash Basis		Total		% of Total			Accrual Basis		Cash Basis		Total		% of Total			Cumulative Total
2020	$	33,594	$	18,425	$	52,019		91.7	%	$	3,239	$	20	$	3,259		5.7	%		5.7	%
2021		990		3,768		4,758		8.3	%		25,935		5,841		31,776		56.0	%		61.7	%
2022		—		—		—		—			5,391		9,135		14,526		25.6	%		87.3	%
2023		—		—		—		—			19		3,334		3,353		5.9	%		93.2	%
2024		—		—		—		—			—		1,932		1,932		3.4	%		96.6	%
2025		—		—		—		—			—		1,931		1,931		3.4	%		100.0	%
	$	34,584	$	22,193	$	56,777				$	34,584	$	22,193	$	56,777


	March 31, 2022			December 31, 2021			March 31, 2021
Properties Owned:
Number		3,271			3,223			3,161
Total gross leasable area (square feet)		33,545,000			32,753,000			32,717,000
Properties:
Leased and unimproved land		3,245			3,191			3,106
Percent of Properties – leased and unimproved land		99	%		99	%		98	%
Weighted average remaining lease term (years)		10.6			10.6			10.6
Total gross leasable area (square feet) – leased		33,258,000			32,395,000			31,910,000


		% of Annual Base Rent(1)
	Lines of Trade	March 31, 2022	December 31, 2021	March 31, 2021
1.	Convenience stores	17.5%	17.9%	18.0%
2.	Automotive service	12.6%	12.3%	10.7%
3.	Restaurants – full service	9.7%	9.8%	10.2%
4.	Restaurants – limited service	9.2%	9.4%	9.5%
5.	Family entertainment centers	6.2%	5.9%	6.0%
6.	Health and fitness	5.0%	5.2%	5.2%
7.	Theaters	4.4%	4.5%	4.4%
8.	Recreational vehicle dealers, parts and accessories	4.1%	3.9%	3.5%
9.	Equipment rental	3.1%	3.2%	3.1%
10.	Automotive parts	3.0%	3.0%	3.1%
11.	Home improvement	2.4%	2.5%	2.6%
12.	Wholesale clubs	2.4%	2.5%	2.5%
13.	Furniture	2.4%	1.7%	1.7%
14.	Medical service providers	2.0%	2.0%	2.1%
15.	General merchandise	1.6%	1.7%	1.7%
16.	Home furnishings	1.5%	1.5%	1.6%
17.	Consumer electronics	1.5%	1.5%	1.5%
18.	Travel plazas	1.5%	1.5%	1.5%
19.	Automobile auctions, wholesale	1.3%	1.3%	1.1%
20.	Drug stores	1.2%	1.3%	1.4%
	Other	7.4%	7.4%	8.6%
		100.0%	100.0%	100.0%


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


(1)	Includes additional square footage from completed construction on existing Properties.
(2)	Includes dollars invested in projects under construction or tenant improvements for each respective year.


	Quarter Ended March 31,				Percent Increase
	2022		2021		(Decrease)
Rental Revenues(1)	$	185,163	$	173,845		6.5	%
Real estate expense reimbursement from tenants		4,600		5,353		(14.1	)%
Rental income		189,763		179,198		5.9	%
Interest and other income from real estate transactions		516		580		(11.0	)%
Total revenues	$	190,279	$	179,778		5.8	%


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


	Quarter Ended March 31,						Percent Increase
	2022			2021			(Decrease)
General and administrative	$	11,042		$	11,748			(6.0	)%
Real estate		7,198			7,725			(6.8	)%
Depreciation and amortization		52,680			49,980			5.4	%
Leasing transaction costs		88			38			131.6	%
Impairment losses – real estate, net of recoveries		1,632			2,131			(23.4	)%
Executive retirement costs		3,594			—		N/C
Total operating expenses	$	76,234		$	71,622			6.4	%

Interest and other income	$	(35	)	$	(65	)		(46.2	)%
Interest expense		36,699			34,587			6.1	%
Loss on early extinguishment of debt		—			21,328			(100.0	)%
Total other expenses	$	36,664		$	55,850			(34.4	)%


As a percentage of total revenues:
General and administrative	5.8	%	6.5	%
Real estate	3.8	%	4.3	%


Transaction	Effective Date	Principal			Stated Rate			Original Maturity
Issuance 2051 Notes	March 2021	$	450,000			3.500	%	April 2051
Redemption 2023 Notes	March 2021		(350,000	)		3.300	%	April 2023
Issuance 2052 Notes	September 2021		450,000			3.000	%	April 2052


	Date of Obligation
	Total		2022		2023		2024		2025		2026		Thereafter
Long-term debt(1)	$	3,810,447	$	500	$	9,947	$	350,000	$	400,000	$	350,000	$	2,700,000
Long-term debt – interest(2)		1,924,653		102,711		136,701		129,006		120,750		106,225		1,329,260
Total contractual cash obligations	$	5,735,100	$	103,211	$	146,648	$	479,006	$	520,750	$	456,225	$	4,029,260


(1)	Includes only principal amounts outstanding under mortgages payable and notes payable and excludes unamortized mortgage premiums, note discounts and note costs. See "Capital Structure".
(2)	Interest calculation on mortgage and notes payable based on stated rate of the principal amount. See "Capital Structure".


	March 31, 2022		Percentage of Total			December 31, 2021		Percentage of Total
Mortgages payable	$	10,515		0.3	%	$	10,697		0.3	%
Notes payable		3,736,781		99.7	%		3,735,769		99.7	%
Total outstanding debt	$	3,747,296		100.0	%	$	3,746,466		100.0	%