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img228302693_0.jpg

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2024

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from to

Commission file number 001-11290

NNN REIT, INC.

(Exact name of registrant as specified in its charter)

Maryland

56-1431377

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer Identification No.)

450 South Orange Avenue, Suite 900

Orlando, Florida 32801

(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code: (407) 265-7348

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

Trading Symbol(s):

Name of exchange on which registered:

Common Stock, $0.01 par value

NNN

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 28, 2024, the registrant had 187,526,191 shares of common stock, $0.01 par value, outstanding.

 

 

TABLE OF CONTENTS

PAGE

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

33

Item 4.

Controls and Procedures

34

Part II – Other Information

 

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

Item 3.

Defaults Upon Senior Securities

35

Item 4.

Mine Safety Disclosures

35

Item 5.

Other Information

35

Item 6.

Exhibits

35

Signatures

36

 

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

NNN REIT, INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

 

 

September 30,
2024

 

 

December 31,
2023

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Real estate portfolio, net of accumulated depreciation and amortization

 

$

8,625,489

 

 

$

8,535,851

 

Cash and cash equivalents

 

 

173,526

 

 

 

1,189

 

Restricted cash and cash held in escrow

 

 

4,986

 

 

 

3,966

 

Receivables, net of allowance of $592 and $669, respectively

 

 

2,224

 

 

 

3,649

 

Accrued rental income, net of allowance of $4,117 and $4,168, respectively

 

 

33,849

 

 

 

34,611

 

Debt costs, net of accumulated amortization of $26,280 and $23,952, respectively

 

 

9,656

 

 

 

3,243

 

Other assets

 

 

73,913

 

 

 

79,459

 

Total assets

 

$

8,923,643

 

 

$

8,661,968

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Line of credit payable

 

$

—

 

 

$

132,000

 

Notes payable, net of unamortized discount and unamortized debt costs

 

 

4,372,293

 

 

 

4,228,544

 

Accrued interest payable

 

 

75,399

 

 

 

34,374

 

Other liabilities

 

 

107,025

 

 

 

109,593

 

Total liabilities

 

 

4,554,717

 

 

 

4,504,511

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock, $0.01 par value. Authorized 375,000,000 shares; 187,525,891 and
    182,474,770 shares issued and outstanding, respectively

 

 

1,877

 

 

 

1,826

 

Capital in excess of par value

 

 

5,194,330

 

 

 

4,971,625

 

Accumulated deficit

 

 

(818,862

)

 

 

(805,883

)

Accumulated other comprehensive income (loss)

 

 

(8,419

)

 

 

(10,111

)

Total equity

 

 

4,368,926

 

 

 

4,157,457

 

Total liabilities and equity

 

$

8,923,643

 

 

$

8,661,968

 

See accompanying notes to condensed consolidated financial statements.

1

 

NNN REIT, INC.

and SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(dollars in thousands, except per share data)

(unaudited)

 

 

 

Quarter Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

218,155

 

 

$

204,856

 

 

$

649,120

 

 

$

610,912

 

Interest and other income from real estate transactions

 

 

409

 

 

 

276

 

 

 

1,664

 

 

 

968

 

 

 

218,564

 

 

 

205,132

 

 

 

650,784

 

 

 

611,880

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

11,209

 

 

 

10,225

 

 

 

35,582

 

 

 

33,216

 

Real estate

 

 

7,263

 

 

 

6,459

 

 

 

21,175

 

 

 

20,141

 

Depreciation and amortization

 

 

63,369

 

 

 

59,523

 

 

 

186,487

 

 

 

178,546

 

Leasing transaction costs

 

 

22

 

 

 

96

 

 

 

75

 

 

 

223

 

Impairment losses – real estate, net of recoveries

 

 

760

 

 

 

1,001

 

 

 

2,908

 

 

 

3,675

 

Executive retirement costs

 

 

156

 

 

 

153

 

 

 

626

 

 

 

885

 

 

 

82,779

 

 

 

77,457

 

 

 

246,853

 

 

 

236,686

 

Gain on disposition of real estate

 

 

7,765

 

 

 

19,992

 

 

 

30,207

 

 

 

40,222

 

Earnings from operations

 

 

143,550

 

 

 

147,667

 

 

 

434,138

 

 

 

415,416

 

Other expenses (revenues):

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other income

 

 

(845

)

 

 

(644

)

 

 

(1,940

)

 

 

(751

)

Interest expense

 

 

46,491

 

 

 

41,524

 

 

 

137,137

 

 

 

120,509

 

 

 

45,646

 

 

 

40,880

 

 

 

135,197

 

 

 

119,758

 

Net earnings

 

$

97,904

 

 

$

106,787

 

 

$

298,941

 

 

$

295,658

 

Net earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.53

 

 

$

0.59

 

 

$

1.63

 

 

$

1.63

 

Diluted

 

$

0.53

 

 

$

0.59

 

 

$

1.63

 

 

$

1.63

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

184,007,176

 

 

 

181,398,273

 

 

 

182,757,097

 

 

 

181,120,963

 

Diluted

 

 

184,561,431

 

 

 

181,721,467

 

 

 

183,301,570

 

 

 

181,460,622

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

97,904

 

 

$

106,787

 

 

$

298,941

 

 

$

295,658

 

Amortization of interest rate hedges

 

 

450

 

 

 

620

 

 

 

1,692

 

 

 

1,843

 

Total comprehensive income

 

$

98,354

 

 

$

107,407

 

 

$

300,633

 

 

$

297,501

 

 

See accompanying notes to condensed consolidated financial statements.

2

 

NNN REIT, INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Quarter Ended September 30, 2024

(dollars in thousands, except per share data)

(unaudited)

 

 

 

Common
Stock

 

 

Capital in
  Excess of
Par Value

 

 

Accumulated
Deficit

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Total
Equity

 

Balances at June 30, 2024

 

$

1,838

 

 

$

5,012,642

 

 

$

(810,689

)

 

$

(8,869

)

 

$

4,194,922

 

Net earnings

 

 

—

 

 

 

—

 

 

 

97,904

 

 

 

—

 

 

 

97,904

 

Dividends declared and paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$0.5800 per share of common stock

 

 

—

 

 

 

635

 

 

 

(106,077

)

 

 

—

 

 

 

(105,442

)

Issuance of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,614 shares – director compensation

 

 

—

 

 

 

320

 

 

 

—

 

 

 

—

 

 

 

320

 

1,074 shares – stock purchase plan

 

 

—

 

 

 

49

 

 

 

—

 

 

 

—

 

 

 

49

 

3,848,657 shares – ATM equity program

 

 

39

 

 

 

181,095

 

 

 

—

 

 

 

—

 

 

 

181,134

 

Stock issuance costs

 

 

—

 

 

 

(2,909

)

 

 

—

 

 

 

—

 

 

 

(2,909

)

Amortization of deferred compensation

 

 

—

 

 

 

2,498

 

 

 

—

 

 

 

—

 

 

 

2,498

 

Amortization of interest rate hedges

 

 

—

 

 

 

—

 

 

 

—

 

 

 

450

 

 

 

450

 

Balances at September 30, 2024

 

$

1,877

 

 

$

5,194,330

 

 

$

(818,862

)

 

$

(8,419

)

 

$

4,368,926

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

3

 

NNN REIT, INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY – CONTINUED

Quarter Ended September 30, 2023

(dollars in thousands, except per share data)

(unaudited)

 

 

 

Common
Stock

 

 

Capital in
  Excess of
Par Value

 

 

Accumulated
Deficit

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Total
 Equity

 

Balances at June 30, 2023

 

$

1,825

 

 

$

4,963,808

 

 

$

(804,040

)

 

$

(11,359

)

 

$

4,150,234

 

Net earnings

 

 

—

 

 

 

—

 

 

 

106,787

 

 

 

—

 

 

 

106,787

 

Dividends declared and paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$0.5650 per share of common stock

 

 

—

 

 

 

700

 

 

 

(102,647

)

 

 

—

 

 

 

(101,947

)

Issuance of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,291 shares – director compensation

 

 

—

 

 

 

294

 

 

 

—

 

 

 

—

 

 

 

294

 

1,575 shares – stock purchase plan

 

 

—

 

 

 

62

 

 

 

—

 

 

 

—

 

 

 

62

 

9,800 restricted shares – net of forfeitures

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Stock issuance costs

 

 

—

 

 

 

(375

)

 

 

—

 

 

 

—

 

 

 

(375

)

Amortization of deferred compensation

 

 

—

 

 

 

2,383

 

 

 

—

 

 

 

—

 

 

 

2,383

 

Amortization of interest rate hedges

 

 

—

 

 

 

—

 

 

 

—

 

 

 

620

 

 

 

620

 

Balances at September 30, 2023

 

$

1,825

 

 

$

4,966,872

 

 

$

(799,900

)

 

$

(10,739

)

 

$

4,158,058

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

 

 

 

 

 

4

 

NNN REIT, INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY – CONTINUED

Nine Months Ended September 30, 2024

(dollars in thousands, except per share data)

(unaudited)

 

 

 

Common
Stock

 

 

Capital in
  Excess of
Par Value

 

 

Accumulated Deficit

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Total
Equity

 

Balances at December 31, 2023

 

$

1,826

 

 

$

4,971,625

 

 

$

(805,883

)

 

$

(10,111

)

 

$

4,157,457

 

Net earnings

 

 

—

 

 

 

—

 

 

 

298,941

 

 

 

—

 

 

 

298,941

 

Dividends declared and paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$1.7100 per share of common stock

 

 

—

 

 

 

1,941

 

 

 

(311,920

)

 

 

—

 

 

 

(309,979

)

Issuance of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27,838 shares – director compensation

 

 

—

 

 

 

959

 

 

 

—

 

 

 

—

 

 

 

959

 

3,061 shares – stock purchase plan

 

 

—

 

 

 

132

 

 

 

—

 

 

 

—

 

 

 

132

 

4,652,100 shares – ATM equity program

 

 

47

 

 

 

214,814

 

 

 

—

 

 

 

—

 

 

 

214,861

 

344,525 restricted shares – net of forfeitures

 

 

4

 

 

 

(4

)

 

 

—

 

 

 

—

 

 

 

—

 

Stock issuance costs

 

 

—

 

 

 

(3,219

)

 

 

—

 

 

 

—

 

 

 

(3,219

)

Amortization of deferred compensation

 

 

—

 

 

 

8,082

 

 

 

—

 

 

 

—

 

 

 

8,082

 

Amortization of interest rate hedges

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,692

 

 

 

1,692

 

Balances at September 30, 2024

 

$

1,877

 

 

$

5,194,330

 

 

$

(818,862

)

 

$

(8,419

)

 

$

4,368,926

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

5

 

NNN REIT, INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY – CONTINUED

Nine Months Ended September 30, 2023

(dollars in thousands, except per share data)

(unaudited)

 

 

 

Common
Stock

 

 

Capital in
  Excess of
Par Value

 

 

Accumulated Deficit

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Total
Equity

 

Balances at December 31, 2022

 

$

1,815

 

 

$

4,928,034

 

 

$

(793,765

)

 

$

(12,582

)

 

$

4,123,502

 

Net earnings

 

 

—

 

 

 

—

 

 

 

295,658

 

 

 

—

 

 

 

295,658

 

Dividends declared and paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$1.6650 per share of common stock

 

 

—

 

 

 

2,155

 

 

 

(301,793

)

 

 

—

 

 

 

(299,638

)

Issuance of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,097 shares – director compensation

 

 

—

 

 

 

833

 

 

 

—

 

 

 

—

 

 

 

833

 

5,151 shares – stock purchase plan

 

 

—

 

 

 

222

 

 

 

—

 

 

 

—

 

 

 

222

 

650,135 shares – ATM equity program

 

 

7

 

 

 

29,143

 

 

 

—

 

 

 

—

 

 

 

29,150

 

265,467 restricted shares – net of forfeitures

 

 

3

 

 

 

(3

)

 

 

—

 

 

 

—

 

 

 

—

 

Stock issuance costs

 

 

—

 

 

 

(933

)

 

 

—

 

 

 

—

 

 

 

(933

)

Amortization of deferred compensation

 

 

—

 

 

 

7,421

 

 

 

—

 

 

 

—

 

 

 

7,421

 

Amortization of interest rate hedges

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,843

 

 

 

1,843

 

Balances at September 30, 2023

 

$

1,825

 

 

$

4,966,872

 

 

$

(799,900

)

 

$

(10,739

)

 

$

4,158,058

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

6

 

 

NNN REIT, INC.

and SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net earnings

 

$

298,941

 

 

$

295,658

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

186,487

 

 

 

178,546

 

Impairment losses – real estate, net of recoveries

 

 

2,908

 

 

 

3,675

 

Amortization of notes payable discount

 

 

2,149

 

 

 

1,416

 

Amortization of debt costs

 

 

4,538

 

 

 

3,648

 

Amortization of mortgages payable premium

 

 

—

 

 

 

(21

)

Amortization of interest rate hedges

 

 

1,692

 

 

 

1,843

 

Gain on disposition of real estate

 

 

(30,207

)

 

 

(40,222

)

Performance incentive plan expense

 

 

9,976

 

 

 

8,997

 

Performance incentive plan payment

 

 

(1,274

)

 

 

(916

)

Change in operating assets and liabilities, net of assets acquired and liabilities assumed:

 

 

 

 

 

 

Decrease in receivables

 

 

1,425

 

 

 

654

 

Decrease (increase) in accrued rental income

 

 

8

 

 

 

(1,496

)

Increase in other assets

 

 

(1,057

)

 

 

(500

)

Increase in accrued interest payable

 

 

41,025

 

 

 

36,939

 

Increase in other liabilities

 

 

1,353

 

 

 

2,478

 

Other

 

 

(138

)

 

 

114

 

Net cash provided by operating activities

 

 

517,826

 

 

 

490,813

 

Cash flows from investing activities:

 

 

 

 

 

 

Proceeds from the disposition of real estate

 

 

106,764

 

 

 

89,542

 

Additions to real estate

 

 

(351,149

)

 

 

(524,719

)

Principal payments received on mortgages and notes receivable

 

 

470

 

 

 

440

 

Other

 

 

(1,099

)

 

 

(1,534

)

Net cash used in investing activities

 

 

(245,014

)

 

 

(436,271

)

 

See accompanying notes to condensed consolidated financial statements.

 

7

 

NNN REIT, INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED

(dollars in thousands)

(unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from line of credit payable

 

$

449,000

 

 

$

646,000

 

Repayment of line of credit payable

 

 

(581,000

)

 

 

(812,200

)

Repayment of mortgages payable

 

 

—

 

 

 

(9,947

)

Proceeds from notes payable

 

 

493,840

 

 

 

488,380

 

Repayment of notes payable

 

 

(350,000

)

 

 

—

 

Payment of debt issuance costs

 

 

(13,103

)

 

 

(4,248

)

Proceeds from issuance of common stock

 

 

216,934

 

 

 

31,528

 

Stock issuance costs

 

 

(3,206

)

 

 

(777

)

Payment of common stock dividends

 

 

(311,920

)

 

 

(301,793

)

Net cash provided by (used in) financing activities

 

 

(99,455

)

 

 

36,943

 

Net increase in cash, cash equivalents and restricted cash(1)

 

 

173,357

 

 

 

91,485

 

Cash, cash equivalents and restricted cash at beginning of period(1)

 

 

5,155

 

 

 

6,778

 

Cash, cash equivalents and restricted cash at end of period(1)

 

$

178,512

 

 

$

98,263

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Interest paid, net of amount capitalized

 

$

92,477

 

 

$

79,058

 

Supplemental disclosure of noncash investing and financing activities:

 

 

 

 

 

 

Change in other comprehensive income

 

$

1,692

 

 

$

1,843

 

Right-of-use asset recorded in connection with lease liability

 

$

—

 

 

$

6,401

 

Change in work in progress accrual

 

$

(2,539

)

 

$

24,498

 

 

(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, 2024, December 31, 2023 and September 30, 2023, NNN had restricted cash of $4,986, $3,966 and $21,126, respectively.

See accompanying notes to condensed consolidated financial statements.

8

 

NNN REIT, INC.

and SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2024

(Unaudited)

 

Note 1 – Organization and Summary of Significant Accounting Policies:

Organization and Nature of Business. NNN REIT, Inc., a Maryland corporation, is a fully integrated real estate investment trust (“REIT”) formed in 1984. The term "NNN" or the "Company" refers to NNN REIT, Inc. and all of its consolidated subsidiaries. NNN may elect to treat certain of its subsidiaries as taxable REIT subsidiaries.

NNN's assets primarily include real estate assets. NNN acquires, owns, invests in and develops properties that are leased primarily to retail tenants under long-term net leases and are primarily held for investment ("Properties" or "Property Portfolio", or individually a "Property").

 

 

September 30, 2024

Property Portfolio:

 

 

Total Properties

 

3,549

Gross leasable area (square feet)

 

36,550,000

States

 

49

Weighted average remaining lease term (years)

 

10.0

NNN's operations are reported within one reportable segment in the unaudited condensed consolidated financial statements and all properties are considered part of the Properties or Property Portfolio. As such, property counts and calculations involving property counts reflect all NNN Properties.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by U.S. generally accepted accounting principles. The unaudited condensed consolidated financial statements reflect all adjustments (including normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Operating results for the quarter and nine months ended September 30, 2024, may not be indicative of the results that may be expected for the year ending December 31, 2024. Amounts as of December 31, 2023, included in the condensed consolidated financial statements have been derived from the audited consolidated financial statements as of that date. The unaudited condensed consolidated financial statements, included herein, should be read in conjunction with the consolidated financial statements and notes thereto as well as Management's Discussion and Analysis of Financial Condition and Results of Operations in NNN's Form 10-K for the year ended December 31, 2023.

Principles of Consolidation. NNN's unaudited condensed consolidated financial statements include the accounts of each of the respective majority owned and controlled affiliates, including transactions whereby NNN has been determined to be the primary beneficiary in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification ("ASC") guidance included in Topic 810, Consolidation. All significant intercompany account balances and transactions have been eliminated.

Real Estate Portfolio. NNN records the acquisition of real estate at cost, including acquisition and closing costs. The cost of Properties developed or funded by NNN includes direct and indirect costs of construction, property taxes, interest, third-party costs and other miscellaneous costs incurred during the development period until the project is substantially complete and available for occupancy. NNN recorded $4,744,000 and $2,374,000 in capitalized interest during the development period for the nine months ended September 30, 2024 and 2023, respectively, of which $1,268,000 and $1,248,000 was recorded during the quarters ended September 30, 2024 and 2023, respectively.

Purchase Accounting for Acquisition of Real Estate. In accordance with the FASB ASC guidance on business combinations, consideration for the real estate acquired is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and, if applicable, to identified intangible assets and liabilities, consisting of the value of above-market and below-market leases and the value of in-place leases, as applicable, based on their respective fair values.

 

9

 

The fair value estimate is sensitive to significant assumptions, such as establishing a range of relevant market assumptions for land, building and rent and where the acquired property falls within that range. These market assumptions for land, building and rent use the most relevant comparable properties for an acquisition. The final value relies upon ranking comparable properties' attributes from most to least similar.

The fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant, and the "as-if-vacant" value is then allocated to land, building and tenant improvements based on the determination of their fair values.

In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded as other assets or liabilities based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases, and (ii) management's estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining term of the lease and the renewal option terms if it is probable that the tenant will exercise options. The capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases. The capitalized below-market lease values are amortized as an increase to rental income over the initial term unless the Company believes that it is likely that the tenant will renew the lease for an option term whereby the Company amortizes the value attributable to the renewal over the renewal period.

The aggregate value of other acquired intangible assets, consisting of in-place leases, is valued by comparing the purchase price paid for a property after adjusting for existing in-place leases to the estimated fair value of the property as-if-vacant, determined as set forth above. This intangible asset is amortized to expense over the remaining non-cancelable periods of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be written off in that period. The value of tenant relationships is reviewed on individual transactions to determine if future value was derived from the acquisition.

Lease Accounting. NNN records its leases on the Property Portfolio in accordance with FASB ASC Topic 842, Leases ("ASC 842"). In addition, NNN records right-of-use assets and operating lease liabilities as lessee under operating leases in accordance with ASC 842.

NNN's real estate is typically leased to tenants under triple-net leases, whereby the tenant is responsible for all operating expenses relating to the Property, including utilities, real estate taxes and assessments, property and liability insurance, maintenance, repairs and capital expenditures. The leases on the Property Portfolio are predominantly classified as operating leases and are accounted for as follows:

Operating method – Properties with leases accounted for using the operating method are recorded at the cost of the real estate and depreciated on the straight-line method over their estimated remaining useful lives, which generally range from 20 to 40 years for buildings and improvements and 15 years for land improvements. Leasehold interests are amortized on the straight-line method over the terms of their respective leases. Revenue is recognized as rentals are earned and expenses (including depreciation) are charged to operations as incurred. When scheduled rentals vary during the lease term, income is recognized on a straight-line basis so as to produce a constant periodic rent over the term of the lease. Accrued rental income is the aggregate difference between the scheduled rents which vary during the lease term and the income recognized on a straight-line basis.

Collectability. In accordance with ASC 842, NNN reviews the collectability of its rental income on an ongoing basis. NNN considers collectability indicators when analyzing accounts receivable (and accrued rent), historical bad debt levels, tenant credit-worthiness and current economic trends, all of which assists in evaluating the probability of outstanding and future rental income collections and the adequacy of the allowance for doubtful accounts. In addition, tenants in bankruptcy are analyzed and considerations are made in connection with the expected recovery of pre-petition and post-petition bankruptcy claims.

When NNN deems the collection of rental income from a tenant not probable, uncollected and previously recognized rental revenue and any related accrued rent are reversed as a reduction to rental income and, subsequently, rental income is only recognized when cash receipts are received. At this point, a tenant is deemed cash basis for accounting purposes. If NNN subsequently deems the collection of rental income is probable, any related accrued rental income or expense is restored.

 

10

 

As a result of the review of collectability, NNN recorded a write-off of $709,000 and $348,000 of outstanding receivables and related accrued rent for certain tenants reclassified to cash basis for accounting purposes during the nine months ended September 30, 2024 and 2023, respectively.

The following table summarizes those tenants classified as cash basis for accounting purposes as of September 30:

 

 

2024

 

 

2023

 

 

Number of tenants

 

 

11

 

 

 

8

 

 

Cash basis tenants as a percent of:

 

 

 

 

 

 

 

Total Properties

 

 

4.3

%

 

 

4.8

%

 

Total annual base rent

 

 

5.6

%

(1)

 

6.9

%

(2)

Total gross leasable area

 

 

6.5

%

 

 

6.4

%

 

 

Based on annualized base rent for all leases in place on each respective date.

 

(1)

$850,976,000 as of September 30, 2024.

 

(2)

$800,194,000 as of September 30, 2023.

During the nine months ended September 30, 2024 and 2023, NNN recognized $31,330,000 and $44,368,000, respectively, of rental income from certain tenants for periods following their classification to cash basis for accounting purposes, of which $10,446,000 and $14,281,000 was recognized during the quarters ended September 30, 2024 and 2023, respectively.

NNN includes an allowance for doubtful accounts in rental income on the Condensed Consolidated Statements of Income and Comprehensive Income.

Real Estate – Held for Sale. Real estate held for sale is not depreciated and is recorded at the lower of cost or fair value, less cost to sell. On a quarterly basis, the Company evaluates its Properties for held for sale classification based on specific criteria as outlined in FASB ASC Topic 360, Property, Plant and Equipment, including management's intent to commit to a plan to sell the asset. NNN anticipates the disposition of Properties classified as held for sale to occur within 12 months. At September 30, 2024 and December 31, 2023, NNN had recorded real estate held for sale of $3,564,000 (two properties) and $4,573,000 (one property), respectively, in real estate portfolio on the Condensed Consolidated Balance Sheets. The property classified as held for sale as of December 31, 2023 was sold during the nine months ended September 30, 2024.

Real Estate Dispositions. When real estate is disposed, the related cost, accumulated depreciation or amortization and any accrued rental income from operating leases and the net investment from direct financing leases are removed from the accounts, and gains and losses from the dispositions are reflected in income. FASB ASC Topic 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets ("ASC 610-20"), provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. An entity that transfers a nonfinancial asset in the scope of ASC 610-20 follows a two-step derecognition model to determine whether (and when) to derecognize the asset. NNN determined the key transactions impacted by ASC 610-20 are recorded in gain on disposition of real estate reported on the Condensed Consolidated Statements of Income and Comprehensive Income. In accordance with ASC 610-20, NNN evaluates any separate contracts or performance obligations to determine proper timing and/or amount of revenue recognition, as well as, transfer of control and transaction price allocation in determining the amount of gain or loss to record.

Impairment – Real Estate. NNN periodically assesses its long-lived real estate assets for possible impairment whenever certain events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. These indicators include, but are not limited to: changes in real estate market conditions, the ability of NNN to re-lease properties that are currently vacant or become vacant, properties reclassified as held for sale, persistent vacancies greater than one year, and properties leased to tenants in bankruptcy. Management evaluates whether an impairment in carrying value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), and the residual value of the real estate, with the carrying value of the individual asset. The future undiscounted cash flows are primarily driven by estimated future market rents. Future cash flow estimates are sensitive to the assumptions made by management regarding future market rents, which are affected by expectations about future market and economic conditions. If an impairment is indicated, a loss will be recorded for the amount by which the carrying value of the asset exceeds its estimated fair value. NNN's Properties are leased primarily to retail tenants under long-term net leases and primarily held for investment. Generally, NNN's Property leases provide for initial terms of 10 to 20 years, with cash flows provided over the entire term.

 

11

 

Credit Losses on Financial Instruments. FASB ASC Topic 326, Financial Instruments – Credit Losses, requires entities to estimate an expected lifetime credit loss on financial assets ranging from short-term trade accounts receivable to long-term financings. The guidance requires a lifetime credit loss expected at inception and requires pooling of assets, which share similar risk characteristics. NNN is required to evaluate current economic conditions, as well as make future expectations of economic conditions. In addition, the measurement of the expected credit loss is over the asset's contractual term.

NNN held mortgages receivable, including accrued interest, of $581,000 and $1,002,000 included in other assets on the Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023, respectively, net of $12,000 and $64,000 allowance for credit loss, respectively. NNN periodically evaluates the allowance for credit loss based on the fair value of the collateral and a 15-year historical collectability trend analysis.

Cash and Cash Equivalents. NNN considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents consist of cash and money market accounts. Cash equivalents are stated at cost plus accrued interest, which approximates fair value. Cash accounts maintained on behalf of NNN in demand deposits at commercial banks and money market funds may exceed federally insured levels or may be held in accounts without any federal insurance or any other insurance or guarantee. However, NNN has not experienced any losses in such accounts.

Restricted Cash and Cash Held in Escrow. Restricted cash and cash held in escrow may include (i) cash proceeds from the sale of assets held by qualified intermediaries in anticipation of the acquisition of replacement properties in tax-deferred exchanges under Section 1031 of the Internal Revenue Code of 1986, as amended (the "Code"), (ii) cash that has been placed in escrow for the future funding of construction commitments, or (iii) cash that is not immediately available to NNN. NNN held $4,986,000 and $3,966,000 in restricted cash and cash held in escrow as of September 30, 2024 and December 31, 2023, respectively.

Debt Costs – Line of Credit Payable. Debt costs incurred in connection with NNN's $1,200,000,000 unsecured revolving line of credit have been deferred and are being amortized to interest expense over the term of the loan commitment using the straight-line method, which approximates the effective interest method. NNN has recorded debt costs associated with the Credit Facility (as defined in "Note 3 – Line of Credit Payable") as an asset, in debt costs on the Condensed Consolidated Balance Sheets.

Debt Costs – Notes Payable. Debt costs incurred in connection with the issuance of NNN's unsecured notes have been deferred and are being amortized to interest expense over the term of the respective debt obligation using the effective interest method. NNN had debt costs of $43,820,000 and $42,595,000, included in notes payable on the Condensed Consolidated Balance Sheets, as of September 30, 2024 and December 31, 2023, respectively, net of accumulated amortization of $13,327,000 and $14,343,000, respectively.

Revenue Recognition. Rental revenues for properties under construction commence upon completion of construction of the leased asset and delivery of the leased asset to the tenant. Rental revenues for non-development real estate assets are recognized when earned in accordance with ASC 842, based on the terms of the lease of the leased asset. Leasehold interests are amortized on the straight-line method over the terms of their respective leases. When scheduled rentals vary during the lease term, income is recognized on a straight-line basis so as to produce a constant periodic rent over the term of the lease. Lease termination fees are recognized when collected subsequent to the related lease that is cancelled and NNN no longer has continuing involvement with the former tenant with respect to that property.

 

12

 

Earnings Per Share. Earnings per share have been computed pursuant to the FASB guidance included in FASB ASC Topic 260, Earnings Per Share. The guidance requires classification of the Company's unvested restricted share units, which carry rights to receive nonforfeitable dividends, as participating securities requiring the two-class method of computing earnings per share. Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings to common stockholders and undistributed earnings allocated to common stockholders by the weighted average common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the weighted average shares outstanding during the period.

The following table is a reconciliation of the numerator and denominator used in the computation of basic and diluted earnings per share using the two-class method (dollars in thousands):

 

 

 

Quarter Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Basic and Diluted Earnings:

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

97,904

 

 

$

106,787

 

 

$

298,941

 

 

$

295,658

 

Less: Earnings allocated to unvested restricted shares

 

 

(185

)

 

 

(171

)

 

 

(511

)

 

 

(448

)

Net earnings used in basic and diluted earnings per share

 

$

97,719

 

 

$

106,616

 

 

$

298,430

 

 

$

295,210

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Weighted Average Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

185,094,982

 

 

 

182,424,814

 

 

 

183,780,842

 

 

 

182,092,117

 

Less: Unvested restricted shares

 

 

(318,796

)

 

 

(290,458

)

 

 

(298,973

)

 

 

(268,713

)

Less: Unvested contingent restricted shares

 

 

(769,010

)

 

 

(736,083

)

 

 

(724,772

)

 

 

(702,441

)

Weighted average shares outstanding used in
     basic earnings per share

 

 

184,007,176

 

 

 

181,398,273

 

 

 

182,757,097

 

 

 

181,120,963

 

Other dilutive securities

 

 

554,255

 

 

 

323,194

 

 

 

544,473

 

 

 

339,659

 

Weighted average shares outstanding used in
     diluted earnings per share

 

 

184,561,431

 

 

 

181,721,467

 

 

 

183,301,570

 

 

 

181,460,622

 

 

Income Taxes. NNN has made an election to be taxed as a REIT under Sections 856 through 860 of the Code, and related regulations. NNN generally will not be subject to federal income taxes on taxable income it distributes to stockholders, provided it meets certain other requirements for qualifying as a REIT. As of September 30, 2024, NNN believes it has qualified as a REIT. Notwithstanding NNN's qualification for taxation as a REIT, NNN is subject to certain state and local income, franchise and excise taxes.

Fair Value Measurement. NNN's estimates of fair value of financial and non-financial assets and liabilities are based on the framework established in FASB ASC Topic 820, Fair Value Measurement. The framework specifies a hierarchy of valuation inputs which was established to increase consistency, clarity and comparability in fair value measurements and related disclosures. The guidance describes a fair value hierarchy based upon three levels of inputs that may be used to measure fair value, two of which are considered observable and one that is considered unobservable. The following describes the three levels:

•
Level 1 – Valuation is based upon quoted prices in active markets for identical assets or liabilities.
•
Level 2 – Valuation is based upon inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•
Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include option pricing models, discounted cash flow models and similar techniques.

 

13

 

Accumulated Other Comprehensive Income (Loss). The following table outlines the changes in accumulated other comprehensive income (loss) for the nine months ended September 30, 2024 (dollars in thousands):

 

 

 

Gain (Loss) on
Cash Flow Hedges(1)

 

 

Beginning balance, December 31, 2023

 

$

(10,111

)

 

Reclassifications from accumulated other comprehensive income to net earnings

 

 

1,692

 

(2)

Ending balance, September 30, 2024

 

$

(8,419

)

 

 

(1)

Additional disclosure is included in "Note 4 – Notes Payable and Derivatives".

 

(2)

Recorded in interest expense on the Condensed Consolidated Statements of Income and Comprehensive Income. There is no income tax expense (benefit) resulting from this reclassification.

New Accounting Pronouncements. In November 2023, the FASB issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"), effective for fiscal years, beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The amendments in this update require public entities to provide enhanced disclosures primarily around segment expenses. On an annual and interim basis, entities will disclose significant segment expenses that are regularly provided to the chief operating decision maker and included with each measure of segment profit or loss, an amount for “other segment items” by reportable segment accompanied by a description of its composition, and all annual disclosures about segment profit and loss currently required by Topic 280 to be disclosed in interim periods. While NNN only has one reportable segment, NNN is currently evaluating the potential impact the adoption of ASU 2023-07 will have on its future disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"), effective for annual periods beginning after December 15, 2024. The amendments in the update require public business entities on an annual basis to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold of equal to or greater than five percent of the amount computed by multiplying pretax income by the statutory income tax rate. The amendments also require that entities disclose on an annual basis information about the amount of income taxes paid disaggregated by federal, state, and foreign taxes and the amount of income taxes paid disaggregated by individual jurisdictions in which income taxes paid is equal to or greater than five percent of total income taxes paid. The amendments eliminate some of the previous required disclosures for all entities relating to estimates of the change in unrecognized tax benefits reasonably possible within 12 months. NNN is currently evaluating the potential impact the adoption of ASU 2023-09 will have on its future disclosures.

Use of Estimates. Additional critical accounting policies of NNN include management's estimates and assumptions relating to the reporting of assets and liabilities, revenues and expenses and the disclosure of contingent assets and liabilities which are required to prepare the unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Significant accounting policies include management's estimates of the purchase accounting for acquisition of real estate, the recoverability of the carrying value of long-lived assets and management's evaluation of the probability of outstanding and future lease payment collections. Estimates are sensitive to evaluations by management about current and future expectations of market and economic conditions. Actual results could differ from those estimates.

 

14

 

Note 2 – Real Estate:

Real Estate – Portfolio

Leases. At September 30, 2024, NNN's real estate portfolio had a weighted average remaining lease term of 10.0 years and consisted of 3,541 leases classified as operating leases and an additional four leases accounted for as direct financing leases.

The following is a summary of the general structure of the leases in the Property Portfolio, although the specific terms of each lease can vary significantly. Typically, the Property leases provide for initial terms of 10 to 20 years. The Properties are generally leased under triple-net leases, pursuant to which the tenant typically bears responsibility for all operating expenses of the Property, including utilities, real estate taxes and assessments, property and liability insurance, maintenance, repairs and capital expenditures. Certain Properties are subject to leases under which NNN retains responsibility for specific costs and expenses associated with the Property. NNN's leases provide for annual base rental payments (generally payable in monthly installments), and generally provide for limited increases in rent as a result of increases in the Consumer Price Index or fixed increases.

Generally, NNN's leases provide the tenant with one or more multi-year renewal options, subject to generally the same terms and conditions provided under the initial lease term, including rent increases. NNN's lease term is based on the non-cancellable base term unless economic incentives make it reasonably certain that an option period to extend the lease will be exercised, in which event NNN includes the renewal options. Some of the leases also provide that in the event NNN wishes to sell the Property subject to that lease, NNN first must offer the lessee the right to purchase the Property on the same terms and conditions as any offer which NNN intends to accept for the sale of the Property.

Real Estate Portfolio. NNN's real estate consisted of the following at (dollars in thousands):

 

 

 

September 30,
2024

 

 

December 31,
2023

 

Land and improvements(1)

 

$

2,901,152

 

 

$

2,878,400

 

Buildings and improvements

 

 

7,650,577

 

 

 

7,368,873

 

Leasehold interests

 

 

355

 

 

 

355

 

 

 

10,552,084

 

 

 

10,247,628

 

Less accumulated depreciation and amortization

 

 

(2,012,183

)

 

 

(1,863,451

)

 

 

8,539,901

 

 

 

8,384,177

 

Work in progress and improvements

 

 

79,447

 

 

 

144,068

 

Accounted for using the operating method

 

 

8,619,348

 

 

 

8,528,245

 

Accounted for using the direct financing method

 

 

2,577

 

 

 

3,033

 

Classified as held for sale(2)

 

 

3,564

 

 

 

4,573

 

 

$

8,625,489

 

 

$

8,535,851

 

 

(1)

Includes $39,373 and $96,464 in land for Properties under construction at September 30, 2024 and December 31, 2023, respectively.

 

(2)

As of September 30, 2024, two Properties were classified as held for sale. The one property classified as held for sale as of December 31, 2023 was sold during the nine months ended September 30, 2024.

 

 

15

 

NNN recognized the following revenues in rental income (dollars in thousands):

 

 

 

Quarter Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Rental income from operating leases

 

$

213,447

 

 

$

200,287

 

 

$

634,088

 

 

$

596,099

 

Earned income from direct financing leases

 

 

116

 

 

 

140

 

 

 

353

 

 

 

427

 

Percentage rent

 

 

200

 

 

 

336

 

 

 

1,347

 

 

 

1,390

 

Rental revenues

 

 

213,763

 

 

 

200,763

 

 

 

635,788

 

 

 

597,916

 

Real estate expenses reimbursed from tenants

 

 

4,392

 

 

 

4,093

 

 

 

13,332

 

 

 

12,996

 

 

$

218,155

 

 

$

204,856

 

 

$

649,120

 

 

$

610,912

 

Some leases provide for a free rent period or scheduled rent increases throughout the lease term. Such amounts are recognized on a straight-line basis over the terms of the leases.

For the nine months ended September 30, 2024 and 2023, NNN recognized ($8,000) and $1,496,000, respectively, of net straight-line accrued rental income, net of reserves, of which $123,000 and $493,000 of such income, net of reserves was recorded during the quarters ended September 30, 2024 and 2023, respectively.

Real Estate – Intangibles

In accordance with purchase accounting for the acquisition of real estate subject to a lease, NNN has recorded intangible assets and lease liabilities that consisted of the following at (dollars in thousands):

 

 

 

September 30,
2024

 

 

December 31,
2023

 

Intangible lease assets (included in other assets):

 

 

 

 

 

 

Above-market in-place leases

 

$

14,875

 

 

$

15,297

 

Less: accumulated amortization

 

 

(12,130

)

 

 

(12,080

)

Above-market in-place leases, net

 

$

2,745

 

 

$

3,217

 

 

 

 

 

 

 

 

In-place leases

 

$

119,143

 

 

$

122,802

 

Less: accumulated amortization

 

 

(86,722

)

 

 

(85,332

)

In-place leases, net

 

$

32,421

 

 

$

37,470

 

 

 

 

 

 

 

 

Intangible lease liabilities (included in other liabilities):

 

 

 

 

 

 

Below-market in-place leases

 

$

40,557

 

 

$

41,244

 

Less: accumulated amortization

 

 

(29,246

)

 

 

(29,117

)

Below-market in-place leases, net

 

$

11,311

 

 

$

12,127

 

The amounts amortized as a net increase to rental income for above-market and below-market in-place leases for the nine months ended September 30, 2024 and 2023, were $351,000 and $349,000, respectively, of which $109,000 and $115,000 were recorded for the quarters ended September 30, 2024 and 2023, respectively. The value of in-place leases amortized to expense for the nine months ended September 30, 2024 and 2023, was $4,687,000 and $5,197,000, respectively, of which $1,457,000 and $1,671,000 was recorded for the quarters ended September 30, 2024 and 2023, respectively.

 

16

 

Real Estate – Dispositions

The following table summarizes the properties sold and the corresponding gain recognized on the disposition of properties (dollars in thousands):

 

 

 

Quarter Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

 

 

# of Sold
Properties

 

Net
Gain

 

 

# of Sold
Properties

 

Net
Gain

 

 

# of Sold
Properties

 

Net
Gain

 

 

# of Sold
Properties

 

Net
Gain

 

Gain on disposition of real estate

 

9

 

$

7,765

 

 

13

 

$

19,992

 

 

29

 

$

30,207

 

 

26

 

$

40,222

 

 

 

Real Estate – Commitments

NNN has committed to fund construction on 16 Properties. The improvements on such Properties are estimated to be completed within 12 to 18 months. These construction commitments, as of September 30, 2024, are outlined in the table below (dollars in thousands):

 

Total commitment(1)

 

$

177,392

 

Less amount funded

 

 

(118,820

)

Remaining commitment

 

$

58,572

 

 

(1)

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

 

Real Estate – Impairments

NNN periodically assesses its long-lived real estate assets for possible impairment whenever certain events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.

As a result of NNN's review of long-lived assets, including identifiable intangible assets, NNN recognized real estate impairments, net of recoveries as summarized in the table below (dollars in thousands):

 

 

 

Quarter Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Total real estate impairments, net of recoveries

 

$

760

 

 

$

1,001

 

 

$

2,908

 

 

$

3,675

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Properties:

 

 

 

 

 

 

 

 

 

 

 

 

Vacant

 

 

—

 

 

 

1

 

 

 

2

 

 

 

4

 

Occupied

 

 

2

 

 

 

1

 

 

 

5

 

 

 

2

 

The valuation of impaired assets is determined using widely accepted valuation techniques including discounted cash flow analysis, income capitalization, analysis of recent comparable sales transactions, actual sales negotiations and bona fide purchase offers received from third parties, which are Level 3 inputs. NNN may consider a single valuation technique or multiple valuation techniques, as appropriate, when estimating the fair value of its real estate.

 

17

 

Note 3 – Line of Credit Payable:

In April 2024, NNN amended and restated its credit agreement to increase borrowing capacity under its unsecured revolving credit facility from $1,100,000,000 to $1,200,000,000 and amended certain other terms under the former revolving credit facility (as the context requires, the previous and new revolving credit facility, the "Credit Facility"). The Credit Facility had a weighted average outstanding balance of $75,769,000 and a weighted average interest rate of 6.28% during the nine months ended September 30, 2024. The Credit Facility has a base interest rate of the Secured Overnight Financing Rate ("SOFR") plus a SOFR adjustment of 10 basis points ("Adjusted SOFR"). The Credit Facility bears interest at Adjusted SOFR plus 77.5 basis points; however, such interest rate may change pursuant to a tiered interest rate structure based on NNN's debt rating. Additionally, as part of NNN's environmental, social and governance ("ESG") initiative, pricing may be reduced if specified ESG metrics are achieved. The Credit Facility matures in April 2028, unless the Company exercises its options to extend maturity to April 2029. The Credit Facility also includes an accordion feature which permits NNN to increase the facility size up to $2,000,000,000, subject to lender approval. In connection with the Credit Facility, loan costs are classified as debt costs on the Condensed Consolidated Balance Sheets. As of September 30, 2024, no amount was outstanding and $1,200,000,000 was available for future borrowings under the Credit Facility, and NNN was in compliance with each of the Credit Facility financial covenants.

Note 4 – Notes Payable and Derivatives:

Additional information related to NNN's notes payable and derivatives is included in NNN's Annual Report on Form 10-K for the year ended December 31, 2023.

In May 2024, NNN filed a prospectus supplement to the prospectus contained in its August 2023 shelf registration statement (see "Note 5 – Stockholders' Equity") and issued $500,000,000 aggregate principal amount of 5.500% notes due June 2034 (the "2034 Notes").

The 2034 Notes were sold at a discount with an aggregate net price of $493,840,000 with interest payable annually on June 15 and December 15, commencing on December 15, 2024. The discount of $6,160,000 is being amortized to interest expense over the term of the 2034 Notes using the effective interest method. The effective interest rate for the 2034 Notes after accounting for the note discount is 5.662%.

NNN received approximately $489,390,000 of net proceeds in connection with the issuance of the 2034 Notes, after incurring debt issuance costs consisting primarily of underwriting discounts and commissions, legal and accounting fees, rating agency fees and printing expenses, totaling $4,450,000 for the 2034 Notes.

The 2034 Notes are senior, unsecured obligations of NNN and are subordinated to all secured debt of NNN. NNN may redeem the 2034 Notes, in whole or part, at any time prior to the par call date at the redemption price as set forth in the supplemental indenture dated May 29, 2024 relating to the 2034 Notes; provided, however, that if NNN redeems the notes on or after the par call date, the redemption price will equal 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest thereon to, but not including, the redemption date.

In June 2024, NNN redeemed the $350,000,000 3.900% notes payable that were due in June 2024. The notes were redeemed at a price equal to 100% of the principal amount and accrued and unpaid interest.

As of September 30, 2024, $8,419,000 remained in accumulated other comprehensive income (loss) related to NNN's previously terminated interest rate hedges. During the nine months ended September 30, 2024 and 2023, NNN reclassified out of accumulated other comprehensive income (loss) $1,692,000 and $1,843,000, respectively, of which $450,000 and $620,000 was reclassified during the quarters ended September 30, 2024 and 2023, respectively, as an increase in interest expense. Over the next 12 months, NNN estimates that an additional $1,858,000 will be reclassified as an increase in interest expense from these terminated derivatives. Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on NNN's long-term debt.

NNN does not use derivatives for trading or speculative purposes. NNN had no derivative financial instruments outstanding at September 30, 2024.

 

18

 

Note 5 – Stockholders' Equity:

Universal Shelf Registration Statement. In August 2023, NNN filed a shelf registration statement with the Securities and Exchange Commission (the "Commission") which became automatically effective ("Universal Shelf"). The Universal Shelf permits the issuance by NNN of an indeterminate amount of debt and equity securities, including preferred stock, depositary shares, common stock, stock purchase contracts, rights, warrants and units. NNN may periodically offer one or more of these securities in amounts, prices and on terms to be announced when and if these securities are offered. The specifics of any future offerings along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering.

At-The-Market Offerings. NNN has established an at-the-market equity program ("ATM") which allows NNN to sell shares of common stock from time to time. The following outlines NNN's ATM:

 

 

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, 2024

 

4,652,100

 

7,722,511

The following table outlines the common stock issuances pursuant to NNN's ATM (dollars in thousands, except per share data):

 

 

 

Quarter Ended
September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Shares of common stock

 

 

3,848,657

 

 

 

—

 

 

 

4,652,100

 

 

 

650,135

 

Average price per share (net)

 

$

46.31

 

 

$

—

 

 

$

45.51

 

 

$

43.52

 

Net proceeds

 

$

178,235

 

 

$

(300

)

 

$

211,727

 

 

$

28,292

 

Stock issuance costs(1)

 

$

2,899

 

 

$

(300

)

 

$

3,134

 

 

$

858

 

 

(1)

Stock issuance costs consist primarily of underwriters' and agents' fees and commissions, and legal and accounting fees.

Dividend Reinvestment and Stock Purchase Plan. In February 2024, NNN filed a shelf registration statement for its Dividend Reinvestment and Stock Purchase Plan ("DRIP") with the Commission that was automatically effective, and permits NNN to issue up to 4,000,000 shares of common stock. The following outlines the common stock issuances pursuant to NNN's DRIP (dollars in thousands):

 

 

Quarter Ended
September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Shares of common stock

 

 

15,043

 

 

 

19,339

 

 

 

49,352

 

 

 

55,261

 

Net proceeds

 

$

675

 

 

$

763

 

 

$

1,988

 

 

$

2,302

 

Dividends. The following table outlines the dividends declared and paid for NNN's common stock (dollars in thousands, except per share data):

 

 

Quarter Ended
September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Dividends

 

$

106,077

 

 

$

102,647

 

 

$

311,920

 

 

$

301,793

 

Per share

 

 

0.5800

 

 

 

0.5650

 

 

 

1.7100

 

 

 

1.6650

 

 

In October 2024, NNN declared a dividend of $0.5800 per share, which is payable in November 2024 to its common stockholders of record as of October 31, 2024.

 

19

 

Note 6 – Fair Value of Financial Instruments:

NNN believes the carrying value of its Credit Facility approximates fair value based upon its nature, terms and variable interest rate. At September 30, 2024 and December 31, 2023, the fair value of NNN's notes payable excluding unamortized discount and debt costs was $4,043,176,000 and $3,801,367,000, respectively, 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.

 

 

20

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included in the Annual Report on Form 10-K of NNN REIT, Inc. for the year ended December 31, 2023 ("2023 Annual Report"). The term “NNN” or the “Company” refers to NNN REIT, Inc. and all of its consolidated subsidiaries.

Forward-Looking Statements

The information herein contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934 (the “Exchange Act”). Also, when NNN uses any of the words “anticipate,” “assume,” “believe,” “estimate,” “expect,” “intend,” or similar expressions, NNN is making forward-looking statements. Although management believes that the expectations reflected in such forward-looking statements are based upon present expectations and reasonable assumptions, NNN's actual results could differ materially from those set forth in the forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and NNN undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law. The following is a summary of the risks and uncertainties, although not all risks and uncertainties, that could cause NNN's actual results to differ materially from those presented in NNN's forward-looking statement:

•
Changes in financial and economic conditions, including inflation, may have an adverse impact on NNN, its tenants and commercial real estate in general;
•
Loss of rent from tenants would reduce NNN's cash flow;
•
A significant portion of the source of the Property Portfolio annual base rent is concentrated in specific industry classifications, tenants and geographic locations;
•
NNN may not be able to successfully execute its acquisition or development strategies;
•
NNN may not be able to dispose of Properties consistent with its operating strategy;
•
Certain provisions of NNN's leases or loan agreements may be unenforceable;
•
Competition from numerous other real estate investment trusts (“REIT”), commercial developers, real estate limited partnerships and other investors or a lack of properties for sale may impede NNN's ability to grow;
•
A natural disaster or impacts of weather or other event resulting in uninsured loss may adversely affect the operations of NNN's tenants and therefore the ability of NNN's tenants to pay rent, NNN's operating results and asset values of NNN's Property Portfolio (as defined below);
•
NNN's ability to fully control the management of its net-leased Properties may be limited;
•
Bankrupt tenants or vacant Properties could adversely affect NNN's business or financial condition;
•
Cybersecurity risks and cyber incidents as well as other significant disruptions of NNN's information technology networks and related systems and resources, or those of NNN's vendors or other third-parties, could adversely affect NNN's business, disrupt operations and expose NNN to liabilities to tenants, associates, capital providers, governmental regulators and other third parties;
•
NNN relies upon cloud computing services to operate certain aspects of its business and any disruption could have an adverse effect on its financial condition and results of operations;
•
Future investment in international markets could subject NNN to additional risks;
•
NNN may suffer a loss in the event of a default or bankruptcy of a borrower;
•
Property ownership through joint ventures and partnerships could limit NNN's control of those investments;
•
NNN may be unable to obtain debt or equity capital on favorable terms, if at all;
•
The amount of debt NNN has and the restrictions imposed by that debt could adversely affect NNN's business and financial condition;
•
NNN is obligated to comply with financial and other covenants in its debt instruments that could restrict its operating activities, and the failure to comply with such covenants could result in defaults that accelerate the payment of such debt;
•
NNN's ability to pay dividends in the future is subject to many factors;
•
Future issuances of NNN's equity securities could dilute the interest of NNN's common stockholders;
•
Owning real estate and indirect interests in real estate carries inherent risks;
•
NNN's real estate investments are illiquid;
•
NNN may be subject to known or unknown environmental liabilities and risks, including but not limited to liabilities and risks resulting from the existence of hazardous materials on or under Properties owned by NNN;

 

21

 

•
NNN's failure to qualify as a REIT for federal income tax purposes could result in significant tax liability;
•
Compliance with REIT requirements, including distribution requirements, may limit NNN's flexibility and may negatively affect NNN's operating decisions;
•
The share ownership restrictions of the Internal Revenue Code of 1986, as amended (the "Code"), for REITs and the 9.8% share ownership limit in NNN's charter may inhibit market activity in NNN's shares of stock and restrict NNN's business combination opportunities;
•
Costs of complying with changes in governmental laws and regulations may adversely affect NNN's results of operations;
•
Non-compliance with Title III of the Americans with Disabilities Act of 1990 and similar state and local laws could have an adverse effect on NNN's business and operating results;
•
NNN's loss of key management personnel could adversely affect performance and the value of its securities;
•
NNN's failure to maintain effective internal control over financial reporting could have a material adverse effect on its business, operating results and the market value of NNN's securities;
•
An epidemic or pandemic (such as the outbreak and worldwide spread of a novel strain of coronavirus, and its variants ("COVID-19")), and the measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it, may precipitate or materially exacerbate one or more of the other risks, and may significantly disrupt NNN's tenants' ability to operate their businesses and/or pay rent to NNN or prevent NNN from operating its business in the ordinary course for an extended period;
•
Acts of violence, terrorist attacks or war may affect NNN's Properties, the markets in which NNN operates and NNN's results of operations;
•
Changes in accounting pronouncements could adversely impact NNN's or NNN's tenants' reported financial performance;
•
The market value of NNN's equity and debt securities is subject to various factors that may cause significant fluctuations or volatility;
•
Even if NNN remains qualified as a REIT, NNN faces other tax liabilities that reduce operating results and cash flow; and
•
Adverse legislative or regulatory tax changes could reduce NNN's earnings and cash flow and the market value of NNN's securities.

Additional information related to these risks and uncertainties are included in "Item 1A. Risk Factors" of NNN's 2023 Annual Report.

These risks and uncertainties may cause NNN's actual future results to differ materially from expected results. Readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. NNN undertakes no obligation to update or revise such forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

NNN, a Maryland corporation, is a fully integrated REIT formed in 1984. NNN's assets are primarily real estate assets. NNN acquires, owns, invests in and develops properties that are leased primarily to retail tenants under long-term net leases and are primarily held for investment ("Properties" or "Property Portfolio", or individually a "Property").

As of September 30, 2024, NNN owned 3,549 Properties in 49 states, with an aggregate gross leasable area of approximately 36,550,000 square feet, and a weighted average remaining lease term of 10.0 years. Approximately 99 percent of the Properties were leased as of September 30, 2024.

NNN's management team focuses on certain key indicators to evaluate the financial condition and operating performance of NNN. The key indicators for NNN include items such as: the composition of the Property Portfolio (such as tenant, line of trade and geographic diversification), the occupancy rate of the Property Portfolio, certain financial performance metrics and profitability measures, industry trends and industry performance compared to that of NNN.

 

22

 

NNN evaluates the creditworthiness of its significant current and prospective tenants. This evaluation may include reviewing available financial statements, store level financial performance, press releases, public credit ratings from major credit rating agencies, industry news publications and financial market data (debt and equity pricing). NNN may also evaluate the business and operations of its significant tenants, including past payment history and periodically meeting with senior management of certain tenants.

NNN continues to maintain its diversification by tenant, line of trade and geography. NNN's largest line of trade concentrations are the automotive service (16.8%), restaurant (including full and limited service) (16.7%) and convenience store (15.9%) sectors. These sectors represent a large part of the freestanding retail property marketplace and NNN's management believes these sectors present attractive investment opportunities. The Property Portfolio is geographically concentrated in the southeast (26.2%) and south (23.2%) United States, which are regions of historically above-average population growth. Given these concentrations, any financial hardship within these sectors or geographic regions could have a material adverse effect on the financial condition and operating performance of NNN.

As of September 30, 2024 and 2023, the Property Portfolio remained approximately 99 percent leased and had a weighted average remaining lease term of approximately 10 years. High occupancy levels coupled with a triple-net lease structure, provides enhanced probability of achieving consistent earnings.

Additional information related to NNN and the Property Portfolio is included in NNN's 2023 Annual Report.

Results of Operations

Property Analysis

General. The following table summarizes the Property Portfolio:

 

 

September 30,
2024

 

 

December 31, 2023

 

 

September 30,
2023

 

Properties Owned:

 

 

 

 

 

 

 

 

 

Number

 

 

3,549

 

 

 

3,532

 

 

 

3,511

 

Total gross leasable area (square feet)

 

 

36,550,000

 

 

 

35,966,000

 

 

 

35,797,000

 

Properties:

 

 

 

 

 

 

 

 

 

Leased and unimproved land

 

 

3,525

 

 

 

3,514

 

 

 

3,484

 

Percent of Properties – leased and unimproved land

 

 

99

%

 

 

99

%

 

 

99

%

Weighted average remaining lease term (years)

 

 

10.0

 

 

 

10.1

 

 

 

10.1

 

Total gross leasable area (square feet) – leased

 

 

36,243,000

 

 

 

35,683,000

 

 

 

35,462,000

 

Total annualized base rent(1)

 

$

850,976,000

 

 

$

818,749,000

 

 

$

800,194,000

 

 

(1)

Annualized base rent is calculated by multiplying the monthly cash base rent in place on each respective date, by 12.

 

 

23

 

The following table summarizes the diversification of the Property Portfolio based on the top 20 lines of trade:

 

 

 

 

% of Annual Base Rent

 

 

Lines of Trade

 

September 30,
2024(1)

 

December 31,
2023(2)

 

September 30,
2023(3)

1.

 

Automotive service

 

16.8%

 

15.6%

 

14.7%

2.

 

Convenience stores

 

15.9%

 

16.4%

 

16.8%

3.

 

Restaurants – limited service

 

8.4%

 

8.5%

 

8.8%

4.

 

Restaurants – full service

 

8.3%

 

8.7%

 

8.8%

5.

 

Family entertainment centers

 

7.2%

 

6.4%

 

5.8%

6.

 

Recreational vehicle dealers, parts and accessories

 

5.1%

 

4.6%

 

4.7%

7.

 

Theaters

 

4.0%

 

4.1%

 

4.2%

8.

 

Health and fitness

 

4.0%

 

4.5%

 

4.6%

9.

 

Equipment rental

 

3.2%

 

3.0%

 

3.0%

10.

 

Wholesale clubs

 

2.4%

 

2.5%

 

2.5%

11.

 

Automotive parts

 

2.4%

 

2.5%

 

2.5%

12.

 

Drug stores

 

2.2%

 

2.4%

 

2.5%

13.

 

Home improvement

 

2.1%

 

2.2%

 

2.3%

14.

 

Furniture

 

1.9%

 

2.0%

 

2.1%

15.

 

Medical service providers

 

1.8%

 

1.7%

 

1.8%

16.

 

General merchandise

 

1.4%

 

1.4%

 

1.5%

17.

 

Pet supplies and services

 

1.3%

 

1.1%

 

1.0%

18.

 

Home furnishings

 

1.3%

 

1.3%

 

1.3%

19.

 

Consumer electronics

 

1.3%

 

1.4%

 

1.4%

20.

 

Travel plazas

 

1.2%

 

1.3%

 

1.3%

 

Other

 

7.8%

 

8.4%

 

8.4%

 

 

 

 

100.0%

 

100.0%

 

100.0%

 

Based on annualized base rent for all leases in place on each respective date.

 

(1)

$850,976,000 as of September 30, 2024.

 

(2)

$818,749,000 as of December 31, 2023.

 

(3)

$800,194,000 as of September 30, 2023.

Property Acquisitions. The following table summarizes the Property acquisitions (dollars in thousands):

 

 

Quarter Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

Number of Properties

 

 

8

 

 

 

46

 

 

 

44

 

 

 

125

 

Gross leasable area (square feet)(1)

 

 

626,000

 

 

 

449,000

 

 

 

1,181,000

 

 

 

1,003,000

 

Cap rate(2)

 

 

7.6

%

 

 

7.4

%

 

 

7.8

%

 

 

7.2

%

Total dollars invested(3)

 

$

113,576

 

 

$

212,493

 

 

$

348,610

 

 

$

550,034

 

 

(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.

NNN typically funds Property acquisitions either through borrowings under NNN's Credit Facility (as defined in "Capital Structure – Line of Credit Payable"), by issuing its debt or equity securities in the capital markets, with undistributed funds from operations, or with proceeds from the sale of Properties.

 

24

 

Property Dispositions. The following table summarizes the properties sold by NNN (dollars in thousands):

 

 

Quarter Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Number of properties

 

 

9

 

 

 

13

 

 

 

29

 

 

 

26

 

Gross leasable area (square feet)

 

 

153,000

 

 

 

135,000

 

 

 

569,000

 

 

 

189,000

 

Net sales proceeds

 

$

20,047

 

 

$

49,006

 

 

$

105,852

 

 

$

89,164

 

Net gain on disposition of real estate

 

$

7,765

 

 

$

19,992

 

 

$

30,207

 

 

$

40,222

 

Cap rate(1)

 

 

4.4

%

 

 

6.0

%

 

 

7.0

%

 

 

5.8

%

 

(1)

The cap rate is a weighted average of properties occupied at disposition, calculated as the cash annual base rent divided by the total gross proceeds received for the properties.

NNN typically uses the disposition proceeds to either pay down the Credit Facility or reinvest in real estate.

Analysis of Revenues

The following table summarizes NNN's revenues (dollars in thousands):

 

 

Quarter Ended
September 30,

 

 

Percent
Increase

 

 

Nine Months Ended
September 30,

 

 

Percent
Increase

 

 

 

2024

 

 

2023

 

 

(Decrease)

 

 

2024

 

 

2023

 

 

(Decrease)

 

Rental Revenues(1)

 

$

213,763

 

 

$

200,763

 

 

 

6.5

%

 

$

635,788

 

 

$

597,916

 

 

 

6.3

%

Real estate expenses reimbursed
    from tenants

 

 

4,392

 

 

 

4,093

 

 

 

7.3

%

 

 

13,332

 

 

 

12,996

 

 

 

2.6

%

Rental income

 

 

218,155

 

 

 

204,856

 

 

 

6.5

%

 

 

649,120

 

 

 

610,912

 

 

 

6.3

%

Interest and other income from real
    estate transactions

 

 

409

 

 

 

276

 

 

 

48.2

%

 

 

1,664

 

 

 

968

 

 

 

71.9

%

Total revenues

 

$

218,564

 

 

$

205,132

 

 

 

6.5

%

 

$

650,784

 

 

$

611,880

 

 

 

6.4

%

 

(1)

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

Rental Income. Rental income increased for the quarter and nine months ended September 30, 2024, as compared to the same periods in 2023. The increase is primarily due to the Rental Revenues from NNN's recent Property acquisitions (see "Results of Operations – Property Analysis – Property Acquisitions").

 

25

 

Analysis of Expenses

The following table summarizes NNN's expenses (dollars in thousands):

 

 

 

Quarter Ended
September 30,

 

 

Percent Increase

 

 

Nine Months Ended
September 30,

 

 

Percent Increase

 

 

 

2024

 

 

2023

 

 

(Decrease)

 

 

2024

 

 

2023

 

 

(Decrease)

 

General and administrative

 

$

11,209

 

 

$

10,225

 

 

 

9.6

%

 

$

35,582

 

 

$

33,216

 

 

 

7.1

%

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reimbursed from tenants

 

 

4,392

 

 

 

4,093

 

 

 

7.3

%

 

 

13,332

 

 

 

12,996

 

 

 

2.6

%

Non-reimbursed

 

 

2,871

 

 

 

2,366

 

 

 

21.3

%

 

 

7,843

 

 

 

7,145

 

 

 

9.8

%

Total real estate

 

 

7,263

 

 

 

6,459

 

 

 

12.4

%

 

 

21,175

 

 

 

20,141

 

 

 

5.1

%

Depreciation and amortization

 

 

63,369

 

 

 

59,523

 

 

 

6.5

%

 

 

186,487

 

 

 

178,546

 

 

 

4.4

%

Leasing transaction costs

 

 

22

 

 

 

96

 

 

 

(77.1

)%

 

 

75

 

 

 

223

 

 

 

(66.4

)%

Impairment losses – real estate, net of
    recoveries

 

 

760

 

 

 

1,001

 

 

 

(24.1

)%

 

 

2,908

 

 

 

3,675

 

 

 

(20.9

)%

Executive retirement costs

 

 

156

 

 

 

153

 

 

 

2.0

%

 

 

626

 

 

 

885

 

 

 

(29.3

)%

Total operating expenses

 

$

82,779

 

 

$

77,457

 

 

 

6.9

%

 

$

246,853

 

 

$

236,686

 

 

 

4.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other income

 

$

(845

)

 

$

(644

)

 

 

31.2

%

 

$

(1,940

)

 

$

(751

)

 

 

158.3

%

Interest expense

 

 

46,491

 

 

 

41,524

 

 

 

12.0

%

 

 

137,137

 

 

 

120,509

 

 

 

13.8

%

Total other expenses

 

$

45,646

 

 

$

40,880

 

 

 

11.7

%

 

$

135,197

 

 

$

119,758

 

 

 

12.9

%

 

As a percentage of total revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

5.1

%

 

 

5.0

%

 

 

 

 

5.5

%

 

 

5.4

%

 

 

Non-reimbursed real estate

 

 

1.3

%

 

 

1.2

%

 

 

 

 

1.2

%

 

 

1.2

%

 

 

General and Administrative. General and administrative expenses increased in amount; however, remained relatively flat as a percentage of total revenues for the quarter and nine months ended September 30, 2024 as compared to the same periods in 2023. The increase is primarily attributable to an increase in compensation costs.

Real Estate. Total real estate expenses increased for the quarter and nine months ended September 30, 2024 as compared to the same periods in 2023. However, NNN focuses on non-reimbursed real estate expenses (total real estate expenses, net of reimbursements from tenants). These expenses are typically attributable to (i) Properties for which the lease terms do not obligate the tenant to pay certain operating expenses or (ii) vacant Properties. Non-reimbursed real estate expenses remained relatively flat as a percentage of total revenues for the quarter and nine months ended September 30, 2024 as compared to the same periods in 2023.

Depreciation and Amortization. Depreciation and amortization expense increased for the quarter and nine months ended September 30, 2024, as compared to the same periods in 2023. The increase is primarily due to the increase in NNN's Property Portfolio from recent acquisitions (see "Results of Operations – Property Analysis – Property Acquisitions"), and is partially offset by recent dispositions (see "Results of Operations – Property Analysis – Property Dispositions").

Impairment Losses – Real Estate, Net of Recoveries. As a result of NNN's review of long-lived assets, including identifiable intangible assets, NNN recognized real estate impairments, net of recoveries for the quarters and nine months ended September 30, 2024 and 2023, which were less than one percent of NNN's total assets for the respective periods as reported on the Condensed Consolidated Balance Sheets. Due to NNN's core business of investing in real estate leased primarily to retail tenants under long-term net leases, the inherent risks of owning commercial real estate, and unknown potential changes in financial and economic conditions that may impact NNN's tenants, NNN believes it is reasonably possible to incur real estate impairment charges in the future.

 

26

 

Interest Expense. Interest expense increased for the quarter and nine months ended September 30, 2024, as compared to the same periods in 2023. The following represents the primary changes in fixed rate long-term debt that impacted interest expense (dollars in thousands):

Transaction

 

Effective Date

 

Principal

 

 

Stated
Rate

 

Original Maturity

Issuance 2033 Notes

 

August 2023

 

$

500,000

 

 

5.600%

 

October 2033

Issuance 2034 Notes

 

May 2024

 

 

500,000

 

 

5.500%

 

June 2034

Redemption 2024 Notes

 

June 2024

 

 

(350,000

)

 

3.900%

 

June 2024

The increase in interest expense was partially offset by the Credit Facility having a weighted average outstanding balance of $75,769,000 with a weighted average interest rate of 6.28% for the nine months ended September 30, 2024 compared to a weighted average outstanding balance of $201,296,000 with a weighted average interest rate of 5.79% for the nine months ended September 30, 2023.

Liquidity and Capital Resources

NNN's demand for funds has been, and will continue to be, primarily for (i) payment of operating expenses and dividends, (ii) property acquisitions and construction commitments, (iii) capital expenditures, (iv) payment of principal and interest on its outstanding indebtedness, and (v) other investments.

Financing Strategy. NNN's financing objective is to manage its capital structure effectively in order to provide sufficient capital to execute its operating strategy while servicing its debt requirements, maintaining its investment grade credit rating, staggering debt maturities and providing value to NNN's stockholders. NNN's capital resources have and will continue to include, if available (i) proceeds from issuing debt or equity in the capital markets; (ii) secured or unsecured borrowings from banks or other lenders; (iii) proceeds from the sale of Properties; and (iv) to a lesser extent, by internally generated funds as well as undistributed funds from operations. However, there can be no assurance that additional financing or capital will be available, or that the terms will be acceptable or advantageous to NNN.

NNN typically expects to fund both its short-term and long-term liquidity requirements, including investments in additional properties, with cash and cash equivalents, cash provided from operations, borrowings from NNN's Credit Facility or proceeds from the sale of Properties. As of September 30, 2024, NNN had $178,512,000 of cash, cash equivalents and restricted cash or cash held in escrow and $1,200,000,000 available for future borrowings under the Credit Facility. NNN may also fund liquidity requirements with new debt or equity issuances, although newly issued debt may be at higher interest rates than the rates on NNN's existing outstanding debt. NNN has the ability to limit future property acquisitions and strategically increase property dispositions. NNN expects these sources of liquidity and the discretionary nature of its property acquisition funding needs will allow NNN to meet its financial obligations over the long term.

Cash Flows. NNN had $178,512,000 of cash, cash equivalents and restricted cash, of which $4,986,000 was restricted cash or cash held in escrow at September 30, 2024. The table below summarizes NNN's cash flows (dollars in thousands):

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

Cash, cash equivalents and restricted cash:

 

 

 

 

 

 

Provided by operating activities

 

$

517,826

 

 

$

490,813

 

Used in investing activities

 

 

(245,014

)

 

 

(436,271

)

Provided by (used in) financing activities

 

 

(99,455

)

 

 

36,943

 

Increase

 

 

173,357

 

 

 

91,485

 

Net cash at beginning of period

 

 

5,155

 

 

 

6,778

 

Net cash at end of period

 

$

178,512

 

 

$

98,263

 

 

 

27

 

Cash flow activities include:

Operating Activities. Cash provided by operating activities represents cash received primarily from rental income and interest income less cash used for general and administrative expenses. NNN's cash flow from operating activities has been sufficient to pay the distributions for each period presented. The change in cash provided by operations for the nine months ended September 30, 2024 and 2023, is primarily the result of changes in revenues and expenses as discussed in “Results of Operations.” Cash generated from operations is expected to fluctuate in the future.

Investing Activities. Changes in cash for investing activities are primarily attributable to the acquisitions and dispositions of Properties as discussed in "Results of Operations – Property Analysis." NNN typically uses cash on hand, borrowings from its Credit Facility or proceeds from the sale of Properties to fund the acquisition of its Properties.

Financing Activities. NNN's financing activities for the nine months ended September 30, 2024, included the following significant transactions:

•
$132,000,000 in net repayments of NNN's Credit Facility,
•
$489,390,000 in net proceeds from the issuance in May of the 5.500% notes payable due in June 2034,
•
$350,000,000 payment in June for the redemption of the 3.900% notes payable due in June 2024,
•
$211,727,000 from the issuance of 4,652,100 shares of common stock in connection with the at-the-market equity program ("ATM"),
•
$1,988,000 from the issuance of 49,352 shares of common stock in connection with the Dividend Reinvestment and Stock Purchase Plan ("DRIP"), and
•
$311,920,000 in dividends paid to common stockholders.

Material Cash Requirements

NNN's material cash requirements include (i) long-term debt maturities; (ii) interest on long-term debt; (iii) common stock dividends (although all future distributions will be declared and paid at the discretion of the Board of Directors); and (iv) to a lesser extent, Property construction and other Property related costs that may arise.

The table below presents material cash requirements related to NNN's long-term obligations outstanding as of September 30, 2024 (see "Capital Structure") (dollars in thousands):

 

 

Date of Obligation

 

 

 

Total

 

 

2024

 

 

2025

 

 

2026

 

 

2027

 

 

2028

 

 

Thereafter

 

Long-term debt(1)

 

$

4,450,000

 

 

$

—

 

 

$

400,000

 

 

$

350,000

 

 

$

400,000

 

 

$

400,000

 

 

$

2,900,000

 

Long-term debt – interest(2)

 

 

2,107,069

 

 

 

44,563

 

 

 

176,250

 

 

 

161,725

 

 

 

146,733

 

 

 

132,067

 

 

 

1,445,731

 

Credit Facility

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Headquarters office lease

 

 

9,476

 

 

 

210

 

 

 

210

 

 

 

981

 

 

 

1,005

 

 

 

1,030

 

 

 

6,040

 

Total contractual cash obligations

 

$

6,566,545

 

 

$

44,773

 

 

$

576,460

 

 

$

512,706

 

 

$

547,738

 

 

$

533,097

 

 

$

4,351,771

 

 

(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.

 

 

28

 

Property Construction. NNN has committed to fund construction on 16 Properties. The improvements of such Properties are estimated to be completed within 12 to 18 months. These construction commitments, at September 30, 2024, are outlined in the table below (dollars in thousands):

 

Total commitment(1)

 

$

177,392

 

Less amount funded

 

 

(118,820

)

Remaining commitment

 

$

58,572

 

 

(1)

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

Management anticipates satisfying these obligations with a combination of NNN's cash provided from operations, current capital resources on hand, its Credit Facility, debt or equity financings and property dispositions.

Properties. Typically, the Properties are leased under long-term triple-net leases, which require the tenant to pay all utilities and real estate taxes and assessments, to maintain the interior and exterior of the Property, and to carry property and liability insurance coverage. Therefore, management anticipates that capital demands to meet obligations with respect to these Properties will be modest for the foreseeable future and can be met with funds from operations and working capital. Certain Properties are subject to leases under which NNN retains responsibility for specific costs and expenses associated with the Property. Management anticipates the costs associated with these Properties, NNN's vacant Properties or those Properties that become vacant will also be met with funds from operations and working capital. NNN may be required to borrow under its Credit Facility or use other sources of capital in the event of significant capital expenditures or major repairs.

The lost revenues and increased property expenses resulting from vacant Properties or the inability to collect lease payments could have a material adverse effect on the liquidity and results of operations if NNN is unable to re-lease the Properties at comparable rental rates and in a timely manner.

As of September 30, 2024, NNN owned 24 vacant, un-leased Properties which accounted for less than one percent of total Properties, and approximately one percent of aggregate gross leasable area held in the Property Portfolio.

Additionally, as of October 28, 2024, 0.7 percent of total annualized base rent, 1.0 percent of total Properties and 1.8 percent of aggregate gross leasable area held in the Property Portfolio, was leased to two tenants currently in bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. As a result, these tenants have the right to reject or affirm their leases with NNN.

NNN generally monitors the financial performance of its significant tenants on an ongoing basis.

Dividends. One of NNN's primary objectives is to distribute a substantial portion of its funds available from operations to its stockholders in the form of dividends, while retaining sufficient cash for reserves and working capital purposes and maintaining its status as a REIT.

The following table outlines the dividends declared and paid for NNN's common stock (dollars in thousands, except per share data):

 

 

Quarter Ended
September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Dividends

 

$

106,077

 

 

$

102,647

 

 

$

311,920

 

 

$

301,793

 

Per share

 

 

0.5800

 

 

 

0.5650

 

 

 

1.7100

 

 

 

1.6650

 

 

In October 2024, NNN declared a dividend of $0.5800 per share which is payable in November 2024 to its common stockholders of record as of October 31, 2024.

 

29

 

Capital Structure

NNN has used, and expects to use in the future, various forms of debt and equity securities primarily to fund property acquisitions and construction on its Properties and to pay down or refinance its outstanding debt.

The following is a summary of NNN's total outstanding debt as of (dollars in thousands):

 

 

September 30,
2024

 

 

Percentage
of Total

 

 

December 31, 2023

 

 

Percentage
of Total

 

Line of credit payable

 

$

—

 

 

 

—

 

 

$

132,000

 

 

 

3.0

%

Notes payable

 

 

4,372,293

 

 

 

100.0

%

 

 

4,228,544

 

 

 

97.0

%

Total outstanding debt

 

$

4,372,293

 

 

 

100.0

%

 

$

4,360,544

 

 

 

100.0

%

 

Line of Credit Payable. In April 2024, NNN amended and restated its credit agreement to increase borrowing capacity under its unsecured revolving credit facility from $1,100,000,000 to $1,200,000,000 and amended certain other terms under the former revolving credit facility (as the context requires, the previous and new revolving credit facility, the "Credit Facility"). The Credit Facility had a weighted average outstanding balance of $75,769,000 and a weighted average interest rate of 6.28% during the nine months ended September 30, 2024. The Credit Facility has a base interest rate of the Secured Overnight Financing Rate ("SOFR") plus a SOFR adjustment of 10 basis points ("Adjusted SOFR"). The Credit Facility bears interest at Adjusted SOFR plus 77.5 basis points; however, such interest rate may change pursuant to a tiered interest rate structure based on NNN's debt rating. Additionally, as part of NNN's environmental, social and governance ("ESG") initiative, pricing may be reduced if specified ESG metrics are achieved. The Credit Facility matures in April 2028, unless the Company exercises its options to extend maturity to April 2029. The Credit Facility also includes an accordion feature which permits NNN to increase the facility size up to $2,000,000,000, subject to lender approval. In connection with the Credit Facility, loan costs are classified as debt costs on the Condensed Consolidated Balance Sheets. As of September 30, 2024, there was no amount outstanding and $1,200,000,000 was available for future borrowings under the Credit Facility, and NNN was in compliance with each of the Credit Facility financial covenants.

Universal Shelf Registration Statement. In August 2023, NNN filed a shelf registration statement with the Securities and Exchange Commission (the "Commission") which became automatically effective ("Universal Shelf"). The Universal Shelf permits the issuance by NNN of an indeterminate amount of debt and equity securities, including preferred stock, depositary shares, common stock, stock purchase contracts, rights, warrants and units.

 

30

 

Debt Securities – Notes Payable. Each of NNN's outstanding series of unsecured notes is summarized in the table below (dollars in thousands):

Notes(1)

 

Issue Date

 

Principal

 

 

Discount(2)

 

 

Net
Price

 

 

Stated
Rate

 

Effective
Rate(3)

 

Maturity Date

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(5)

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

2034

 

May 2024

 

 

500,000

 

 

 

6,160

 

 

 

493,840

 

 

5.500%

 

5.662%

 

June 2034

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 each note issuance were used to (i) pay down the outstanding balance on NNN's Credit Facility, (ii) redeem notes payable prior to maturity, (iii) redeem outstanding preferred stock, (iv) fund future property acquisitions, and/or (v) for general corporate purposes.

(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.

(5)

The aggregate principal balance of the unsecured note maturities for the next five years is $1,550,000.

Each series of the notes represents senior, unsecured obligations of NNN and is subordinated to all secured debt of NNN. NNN may redeem each series of notes, in whole or in part, at any time prior to the par call date for the notes at the redemption price as set forth in the applicable supplemental indenture relating to the notes; provided, however, that if NNN redeems the notes on or after the par call date, the redemption price will equal 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest thereon to, but not including, the redemption date.

In connection with the outstanding debt offerings, NNN incurred debt issuance costs totaling $43,820,000 consisting primarily of underwriting discounts and commissions, legal and accounting fees, rating agency fees and printing expenses. Debt issuance costs for all note issuances have been deferred and presented as a reduction to notes payable and are being amortized over the term of the respective notes using the effective interest method.

In accordance with the terms of the indentures, pursuant to which NNN's notes have been issued, NNN is required to meet certain restrictive financial covenants, which, among other things, require NNN to maintain (i) certain leverage ratios and (ii) certain interest coverage. At September 30, 2024, NNN was in compliance with those covenants.

 

31

 

Equity Securities

At-The-Market Offerings. NNN has established an ATM which allows NNN to sell shares of common stock from time to time. The following outlines NNN's ATM:

 

 

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, 2024

 

4,652,100

 

7,722,511

The following table outlines the common stock issuances pursuant to NNN's ATM (dollars in thousands, except per share data):

 

 

Quarter Ended
September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Shares of common stock

 

 

3,848,657

 

 

 

—

 

 

 

4,652,100

 

 

 

650,135

 

Average price per share (net)

 

$

46.31

 

 

$

—

 

 

$

45.51

 

 

$

43.52

 

Net proceeds

 

$

178,235

 

 

$

(300

)

 

$

211,727

 

 

$

28,292

 

Stock issuance costs(1)

 

$

2,899

 

 

$

(300

)

 

$

3,134

 

 

$

858

 

 

(1)

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

Dividend Reinvestment and Stock Purchase Plan. In February 2024, NNN filed a shelf registration statement for its DRIP with the Commission that was automatically effective, and permits NNN to issue up to 4,000,000 shares of common stock. NNN's DRIP provides an economical and convenient way for current stockholders and other interested new investors to invest in NNN's common stock. The following outlines the common stock issuances pursuant to NNN's DRIP (dollars in thousands):

 

 

Quarter Ended
September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Shares of common stock

 

 

15,043

 

 

 

19,339

 

 

 

49,352

 

 

 

55,261

 

Net proceeds

 

$

675

 

 

$

763

 

 

$

1,988

 

 

$

2,302

 

 

Critical Accounting Estimates

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by U.S. generally accepted accounting principles. The unaudited condensed consolidated financial statements reflect all adjustments (including normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The preparation of NNN's unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as other disclosures in the unaudited condensed consolidated financial statements. Estimates are sensitive to evaluations by management about current and future expectations of market and economic conditions. On an ongoing basis, management evaluates its estimates and assumptions; however, actual results may differ from these estimates and assumptions, which in turn could have a material impact on NNN's consolidated financial statements. A summary of NNN's critical accounting estimates is included in NNN's 2023 Annual Report. NNN has not made any material changes to these policies during the periods covered by this Quarterly Report on Form 10-Q.

 

32

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

NNN is exposed to interest rate risk primarily as a result of its variable rate Credit Facility and its fixed rate long-term debt which is used to finance NNN's Property acquisitions and development activities, as well as for general corporate purposes. NNN's interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to reduce overall borrowing costs. To achieve its objectives, NNN borrows at both fixed and variable rates on its long-term debt and periodically uses derivatives to hedge the interest rate risk of future borrowings. As of September 30, 2024, NNN had no outstanding derivatives.

As of September 30, 2024, NNN's variable rate Credit Facility had no amount outstanding and a weighted average outstanding balance of $75,769,000 with a weighted average interest rate of 6.28% for the nine months ended September 30, 2024 compared to a weighted average outstanding balance of $201,296,000 with a weighted average interest rate of 5.79% for the same period in 2023.

The information in the table below summarizes NNN's market risks associated with its debt obligations outstanding. The table presents, by year of expected maturity, principal payments and related interest rates for debt obligations outstanding as of September 30, 2024. The table incorporates only those debt obligations that existed as of September 30, 2024, and it does not consider those debt obligations or positions which could arise after this date and therefore has limited predictive value. As a result, NNN's ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period, NNN's hedging strategies at that time and interest rates. If interest rates on NNN's variable rate debt increased by one percent, NNN's interest expense would have increased by less than one percent for the nine months ended September 30, 2024.

 

Debt Obligations(1) (dollars in thousands)

 

 

 

 

Variable Rate Debt

 

 

Fixed Rate Debt

 

 

 

 

Credit Facility

 

 

Unsecured Debt(2)

 

 

 

 

Debt
Obligation

 

 

Weighted
Average
Interest Rate

 

 

Principal
Debt
Obligation

 

 

Effective
Interest
Rate

 

 

2024

 

$

—

 

 

 

—

 

 

$

—

 

 

 

—

 

 

2025

 

 

—

 

 

 

—

 

 

 

400,000

 

 

 

4.03

%

 

2026

 

 

—

 

 

 

—

 

 

 

350,000

 

 

 

3.73

%

 

2027

 

 

—

 

 

 

—

 

 

 

400,000

 

 

 

3.55

%

 

2028

 

 

—

 

 

 

—

 

 

 

400,000

 

 

 

4.39

%

 

Thereafter

 

 

—

 

 

 

—

 

 

 

2,900,000

 

 

 

4.22

%

(3)

Total

 

$

—

 

 

 

—

 

 

$

4,450,000

 

 

 

4.12

%

 

Fair Value:

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2024

 

$

—

 

 

 

 

 

$

4,043,176

 

 

 

 

 

December 31, 2023

 

$

132,000

 

 

 

 

 

$

3,801,367

 

 

 

 

 

 

(1)

NNN's unsecured debt obligations have a weighted average interest rate of 4.1% and a weighted average maturity of 12.3 years.

(2)

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.

(3)

Weighted average effective interest rate for years after 2028.

 

 

33

 

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. An evaluation was performed under the supervision and with the participation of NNN's management, including NNN's Chief Executive Officer, Chief Financial Officer and Chief Accounting and Technology Officer ("NNN's Chief Officers"), of the effectiveness as of September 30, 2024, of the design and operation of NNN's disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based on that evaluation, NNN's Chief Officers concluded that the design and operation of these disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting. There has been no change in NNN's internal control over financial reporting that occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, NNN's internal control over financial reporting.

 

 

34

 

PART II. OTHER INFORMATION

 

Item 1A. Risk Factors.

There were no material changes in NNN's risk factors disclosed in Item 1A. Risk Factors in NNN's Annual Report on Form 10-K for the year ended December 31, 2023.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Not applicable.

Item 3. Defaults Upon Senior Securities. Not applicable.

Item 4. Mine Safety Disclosures. Not applicable.

Item 5. Other Information. Not applicable.

Item 6. Exhibits

The following exhibits are filed with the Securities and Exchange Commission ("Commission") as a part of this report, unless otherwise noted, each exhibit was previously filed with the Commission and is incorporated by reference below.

 

31.

Section 302 Certifications(1)

 

 

 

 

 

 

 

 

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

 

 

 

 

 

 

 

 

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

 

 

 

 

 

 

32.

Section 906 Certifications(1)

 

 

 

 

 

 

 

 

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

 

 

 

 

 

 

 

 

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

 

 

 

 

 

 

 

101.

Interactive Data File

 

 

 

 

 

 

 

 

101.1

The following materials from the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 2024, are formatted in Inline Extensible Business Reporting Language ("Inline XBRL"): (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of income and comprehensive income, (iii) condensed consolidated statements of equity, (iv) condensed consolidated statements of cash flows and (v) notes to condensed consolidated financial statements.

 

 

 

 

 

 

 

104.

Cover Page Interactive Data File

 

 

 

 

 

 

104.1

The cover page XBRL tags are embedded within the Inline XBRL document and included in Exhibit 101.

 

(1)

In accordance with Item 601(b)(32) of Regulation S-K, this exhibit is not deemed "filed" for purposes of section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

 

 

 

35

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DATED this 31st day of October, 2024.

NNN REIT, INC.

 

 

By:

/s/ Stephen A. Horn, Jr.

 

Stephen A. Horn, Jr.

 

President, Chief Executive Officer and Director

 

 

 

 

By:

/s/ Kevin B. Habicht

 

Kevin B. Habicht

 

 

Executive Vice President, Chief Financial Officer and Director

 

 

 

 

36

 

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Stephen A. Horn, Jr., certify that:

1.
I have reviewed this report on Form 10-Q of NNN REIT, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

October 31, 2024

 

 

/s/ Stephen A. Horn, Jr.

Date

 

Name:

 

Stephen A. Horn, Jr.

 

 

Title:

 

President and Chief Executive Officer

 

 

 

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Kevin B. Habicht, certify that:

1.
I have reviewed this report on Form 10-Q of NNN REIT, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

October 31, 2024

/s/ Kevin B. Habicht

Date

Name:

Kevin B. Habicht

 

Title:

Executive Vice President and Chief Financial Officer

 

 

 

Exhibit 32.1

CERTIFICATION PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Stephen A. Horn, Jr., President and Chief Executive Officer, certifies, to the best of his knowledge, that (1) this Quarterly Report of NNN REIT, Inc. (“NNN”) on Form 10-Q for the period ended September 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (this “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (2) the information contained in this Report fairly presents, in all material respects, the financial condition of NNN as of September 30, 2024 and December 31, 2023 and its results of operations for the quarters and nine months ended September 30, 2024 and 2023.

October 31, 2024

/s/ Stephen A. Horn, Jr.

Date

Name:

Stephen A. Horn, Jr.

 

Title:

President and Chief Executive Officer

 

A signed original of this written statement required by Section 906 has been provided to NNN and will be retained by NNN and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

 

Exhibit 32.2

CERTIFICATION PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Kevin B. Habicht, Executive Vice President and Chief Financial Officer, certifies, to the best of his knowledge, that (1) this Quarterly Report of NNN REIT, Inc. (“NNN”) on Form 10-Q for the period ended September 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (this “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (2) the information contained in this Report fairly presents, in all material respects, the financial condition of NNN as of September 30, 2024 and December 31, 2023 and its results of operations for the quarters and nine months ended September 30, 2024 and 2023.

October 31, 2024

/s/ Kevin B. Habicht

Date

Name:

Kevin B. Habicht

 

Title:

Executive Vice President and Chief Financial Officer

 

A signed original of this written statement required by Section 906 has been provided to NNN and will be retained by NNN and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

v3.24.3
Cover - shares
 9 Months Ended
Sep. 30, 2024
Oct. 28, 2024
Entity Information [Line Items]    
Document Type 10-Q  
Amendment Flag false  
Document Quarterly Report true  
Document Period End Date Sep. 30, 2024  
Document Transition Report false  
Entity File Number 001-11290  
Entity Registrant Name NNN REIT, INC.  
Entity Central Index Key 0000751364  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2024  
Document Fiscal Period Focus Q3  
Entity Incorporation, State or Country Code MD  
Entity Tax Identification Number 56-1431377  
Entity Address, Address Line One 450 South Orange Avenue, Suite 900  
Entity Address, City or Town Orlando  
Entity Address, State or Province FL  
Entity Address, Postal Zip Code 32801  
City Area Code 407  
Local Phone Number 265-7348  
Title of 12(b) Security Common Stock, $0.01 par value  
Trading Symbol NNN  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   187,526,191
v3.24.3
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2024
Dec. 31, 2023
ASSETS    
Real estate portfolio, net of accumulated depreciation and amortization $ 8,625,489 $ 8,535,851
Cash and cash equivalents 173,526 1,189
Restricted cash or cash held in escrow 4,986 3,966
Receivables, net of allowance of $592 and $669, respectively 2,224 3,649
Accrued rental income, net of allowance of $4,117 and $4,168, respectively 33,849 34,611
Debt costs, net of accumulated amortization of $26,280 and $23,952, respectively 9,656 3,243
Other assets 73,913 79,459
Total assets 8,923,643 8,661,968
Liabilities:    
Line of credit payable 0 132,000
Notes payable, net of unamortized discount and unamortized debt costs 4,372,293 4,228,544
Accrued interest payable 75,399 34,374
Other liabilities 107,025 109,593
Total liabilities 4,554,717 4,504,511
Stockholders’ equity:    
Common stock, $0.01 par value. Authorized 375,000,000 shares; 187,525,891 and 182,474,770 shares issued and outstanding, respectively 1,877 1,826
Capital in excess of par value 5,194,330 4,971,625
Accumulated deficit (818,862) (805,883)
Accumulated other comprehensive income (loss) (8,419) (10,111)
Total equity 4,368,926 4,157,457
Total liabilities and equity $ 8,923,643 $ 8,661,968
v3.24.3
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Sep. 30, 2024
Dec. 31, 2023
Statement of Financial Position [Abstract]    
Allowance on receivables $ 592 $ 669
Accrued rental income allowance 4,117 4,168
Debt costs accumulated amortization $ 26,280 $ 23,952
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 375,000,000 375,000,000
Common stock, shares issued (in shares) 187,525,891 182,474,770
Common stock, shares outstanding (in shares) 187,525,891 182,474,770
v3.24.3
Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Revenues:        
Rental income $ 218,155 $ 204,856 $ 649,120 $ 610,912
Interest and other income from real estate transactions 409 276 1,664 968
Total revenues 218,564 205,132 650,784 611,880
Operating expenses:        
General and administrative 11,209 10,225 35,582 33,216
Real estate 7,263 6,459 21,175 20,141
Depreciation and amortization 63,369 59,523 186,487 178,546
Leasing transaction costs 22 96 75 223
Impairment losses – real estate, net of recoveries 760 1,001 2,908 3,675
Executive retirement costs 156 153 626 885
Total operating expenses 82,779 77,457 246,853 236,686
Gain on disposition of real estate 7,765 19,992 30,207 40,222
Earnings from operations 143,550 147,667 434,138 415,416
Other expenses (revenues):        
Interest and other income (845) (644) (1,940) (751)
Interest expense 46,491 41,524 137,137 120,509
Total other expenses (revenues) 45,646 40,880 135,197 119,758
Net earnings $ 97,904 $ 106,787 $ 298,941 $ 295,658
Net earnings per share        
Basic (in dollars per share) $ 0.53 $ 0.59 $ 1.63 $ 1.63
Diluted (in dollars per share) $ 0.53 $ 0.59 $ 1.63 $ 1.63
Weighted average shares outstanding:        
Basic (in shares) 184,007,176 181,398,273 182,757,097 181,120,963
Diluted (in shares) 184,561,431 181,721,467 183,301,570 181,460,622
Other comprehensive income:        
Net earnings $ 97,904 $ 106,787 $ 298,941 $ 295,658
Amortization of interest rate hedges 450 620 1,692 1,843
Total comprehensive income $ 98,354 $ 107,407 $ 300,633 $ 297,501
v3.24.3
Condensed Consolidated Statements of Equity (Unaudited) - USD ($)
Total
Common Stock
Capital in Excess of Par Value
Accumulated Deficit
Accumulated Other Comprehensive Income (Loss)
Balances at Dec. 31, 2022 $ 4,123,502,000 $ 1,815,000 $ 4,928,034,000 $ (793,765,000) $ (12,582,000)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net earnings 295,658,000     295,658,000  
Dividends declared and paid:          
Common stock dividends declared and paid (299,638,000)   (2,155,000) (301,793,000)  
Issuance of common stock:          
Director compensation 833,000   833,000    
Stock purchase plan 222,000   222,000    
ATM equity program 29,150,000 7,000 29,143,000    
Restricted shares, net of forfeitures   3,000 (3,000)    
Stock issuance costs (933,000)   (933,000)    
Amortization of deferred compensation 7,421,000   7,421,000    
Amortization of interest rate hedges 1,843,000       1,843,000
Balances at Sep. 30, 2023 4,158,058,000 1,825,000 4,966,872,000 (799,900,000) (10,739,000)
Balances at Jun. 30, 2023 4,150,234,000 1,825,000 4,963,808,000 (804,040,000) (11,359,000)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net earnings 106,787,000     106,787,000  
Dividends declared and paid:          
Common stock dividends declared and paid (101,947,000)   700,000 (102,647,000)  
Issuance of common stock:          
Director compensation 294,000   294,000    
Stock purchase plan 62,000   62,000    
Stock issuance costs (375,000)   (375,000)    
Amortization of deferred compensation 2,383,000   2,383,000    
Amortization of interest rate hedges 620,000       620,000
Balances at Sep. 30, 2023 4,158,058,000 1,825,000 4,966,872,000 (799,900,000) (10,739,000)
Balances at Dec. 31, 2023 4,157,457,000 1,826,000 4,971,625,000 (805,883,000) (10,111,000)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net earnings 298,941,000     298,941,000  
Dividends declared and paid:          
Common stock dividends declared and paid (309,979,000)   1,941,000 (311,920,000)  
Issuance of common stock:          
Director compensation 959,000   959,000    
Stock purchase plan 132,000   132,000    
ATM equity program 214,861,000 47,000 214,814,000    
Restricted shares, net of forfeitures   4,000 (4,000)    
Stock issuance costs (3,219,000)   (3,219,000)    
Amortization of deferred compensation 8,082,000   8,082,000    
Amortization of interest rate hedges 1,692,000       1,692,000
Balances at Sep. 30, 2024 4,368,926,000 1,877,000 5,194,330,000 (818,862,000) (8,419,000)
Balances at Jun. 30, 2024 4,194,922,000 1,838,000 5,012,642,000 (810,689,000) (8,869,000)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net earnings 97,904,000     97,904,000  
Dividends declared and paid:          
Common stock dividends declared and paid     635,000 (106,077,000)  
Common stock dividends declared and paid (105,442,000)        
Issuance of common stock:          
Director compensation 320,000   320,000    
Stock purchase plan 49,000   49,000    
ATM equity program 181,134,000 39,000 181,095,000    
Stock issuance costs (2,909,000)   (2,909,000)    
Amortization of deferred compensation 2,498,000   2,498,000    
Amortization of interest rate hedges 450,000       450,000
Balances at Sep. 30, 2024 $ 4,368,926,000 $ 1,877,000 $ 5,194,330,000 $ (818,862,000) $ (8,419,000)
v3.24.3
Condensed Consolidated Statements of Equity (Unaudited) (Parenthetical) - $ / shares
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Common stock dividends declared and paid (in dollars per share) $ 0.58 $ 0.565 $ 1.71 $ 1.665
Issuance of common stock - Director compensation (in shares) 8,614 8,291 27,838 24,097
Issuance of common stock - Stock purchase plan (in shares) 1,074 1,575 3,061 5,151
Issuance of common stock - ATM equity program (in shares) 3,848,657 9,800 4,652,100 650,135
Issuance of common stock - restricted shares, net (in shares)     344,525 265,467
v3.24.3
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Cash flows from operating activities:    
Net earnings $ 298,941 $ 295,658
Adjustments to reconcile net earnings to net cash provided by operating activities:    
Depreciation and amortization 186,487 178,546
Impairment losses – real estate, net of recoveries 2,908 3,675
Amortization of notes payable discount 2,149 1,416
Amortization of debt costs 4,538 3,648
Amortization of mortgages payable premium 0 (21)
Amortization of interest rate hedges 1,692 1,843
Gain on disposition of real estate (30,207) (40,222)
Performance incentive plan expense 9,976 8,997
Performance incentive plan payment (1,274) (916)
Change in operating assets and liabilities, net of assets acquired and liabilities assumed:    
Decrease in receivables 1,425 654
Decrease (increase) in accrued rental income 8 (1,496)
Increase in other assets (1,057) (500)
Increase in accrued interest payable 41,025 36,939
Increase in other liabilities 1,353 2,478
Other (138) 114
Net cash provided by operating activities 517,826 490,813
Cash flows from investing activities:    
Proceeds from the disposition of real estate 106,764 89,542
Additions to real estate (351,149) (524,719)
Principal payments received on mortgages and notes receivable 470 440
Other (1,099) (1,534)
Net cash used in investing activities (245,014) (436,271)
Cash flows from financing activities:    
Proceeds from line of credit payable 449,000 646,000
Repayment of line of credit payable (581,000) (812,200)
Repayment of mortgages payable 0 (9,947)
Proceeds from notes payable 493,840 488,380
Repayment of notes payable (350,000) 0
Payment of debt issuance costs (13,103) (4,248)
Proceeds from issuance of common stock 216,934 31,528
Stock issuance costs (3,206) (777)
Payment of common stock dividends (311,920) (301,793)
Net cash provided by (used in) financing activities (99,455) 36,943
Net increase in cash, cash equivalents and restricted cash [1] 173,357 91,485
Cash, cash equivalents and restricted cash at beginning of period [1] 5,155 6,778
Cash, cash equivalents and restricted cash at end of period [1] 178,512 98,263
Supplemental disclosure of cash flow information:    
Interest paid, net of amount capitalized 92,477 79,058
Supplemental disclosure of noncash investing and financing activities:    
Change in other comprehensive income 1,692 1,843
Right-of-use asset recorded in connection with lease liability 0 6,401
Change in work in progress accrual $ (2,539) $ 24,498
[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, 2024, December 31, 2023 and September 30, 2023, NNN had restricted cash of $4,986, $3,966 and $21,126, respectively.

v3.24.3
Condensed Consolidated Statements of Cash Flows (Unaudited) (Parenthetical) - USD ($)
$ in Thousands
Sep. 30, 2024
Dec. 31, 2023
Sep. 30, 2023
Statement of Cash Flows [Abstract]      
Restricted cash or cash held in escrow $ 4,986 $ 3,966 $ 21,126
v3.24.3
Pay vs Performance Disclosure - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Pay vs Performance Disclosure        
Net Income (Loss) $ 97,904 $ 106,787 $ 298,941 $ 295,658
v3.24.3
Insider Trading Arrangements
 3 Months Ended
Sep. 30, 2024
Trading Arrangements, by Individual  
Rule 10b5-1 Arrangement Adopted false
Non-Rule 10b5-1 Arrangement Adopted false
Rule 10b5-1 Arrangement Terminated false
Non-Rule 10b5-1 Arrangement Terminated false
v3.24.3
Organization and Summary of Significant Accounting Policies
 9 Months Ended
Sep. 30, 2024
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and Summary of Significant Accounting Policies

Note 1 – Organization and Summary of Significant Accounting Policies:

Organization and Nature of Business. NNN REIT, Inc., a Maryland corporation, is a fully integrated real estate investment trust (“REIT”) formed in 1984. The term "NNN" or the "Company" refers to NNN REIT, Inc. and all of its consolidated subsidiaries. NNN may elect to treat certain of its subsidiaries as taxable REIT subsidiaries.

NNN's assets primarily include real estate assets. NNN acquires, owns, invests in and develops properties that are leased primarily to retail tenants under long-term net leases and are primarily held for investment ("Properties" or "Property Portfolio", or individually a "Property").

 

 

September 30, 2024

Property Portfolio:

 

 

Total Properties

 

3,549

Gross leasable area (square feet)

 

36,550,000

States

 

49

Weighted average remaining lease term (years)

 

10.0

NNN's operations are reported within one reportable segment in the unaudited condensed consolidated financial statements and all properties are considered part of the Properties or Property Portfolio. As such, property counts and calculations involving property counts reflect all NNN Properties.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by U.S. generally accepted accounting principles. The unaudited condensed consolidated financial statements reflect all adjustments (including normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Operating results for the quarter and nine months ended September 30, 2024, may not be indicative of the results that may be expected for the year ending December 31, 2024. Amounts as of December 31, 2023, included in the condensed consolidated financial statements have been derived from the audited consolidated financial statements as of that date. The unaudited condensed consolidated financial statements, included herein, should be read in conjunction with the consolidated financial statements and notes thereto as well as Management's Discussion and Analysis of Financial Condition and Results of Operations in NNN's Form 10-K for the year ended December 31, 2023.

Principles of Consolidation. NNN's unaudited condensed consolidated financial statements include the accounts of each of the respective majority owned and controlled affiliates, including transactions whereby NNN has been determined to be the primary beneficiary in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification ("ASC") guidance included in Topic 810, Consolidation. All significant intercompany account balances and transactions have been eliminated.

Real Estate Portfolio. NNN records the acquisition of real estate at cost, including acquisition and closing costs. The cost of Properties developed or funded by NNN includes direct and indirect costs of construction, property taxes, interest, third-party costs and other miscellaneous costs incurred during the development period until the project is substantially complete and available for occupancy. NNN recorded $4,744,000 and $2,374,000 in capitalized interest during the development period for the nine months ended September 30, 2024 and 2023, respectively, of which $1,268,000 and $1,248,000 was recorded during the quarters ended September 30, 2024 and 2023, respectively.

Purchase Accounting for Acquisition of Real Estate. In accordance with the FASB ASC guidance on business combinations, consideration for the real estate acquired is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and, if applicable, to identified intangible assets and liabilities, consisting of the value of above-market and below-market leases and the value of in-place leases, as applicable, based on their respective fair values.

The fair value estimate is sensitive to significant assumptions, such as establishing a range of relevant market assumptions for land, building and rent and where the acquired property falls within that range. These market assumptions for land, building and rent use the most relevant comparable properties for an acquisition. The final value relies upon ranking comparable properties' attributes from most to least similar.

The fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant, and the "as-if-vacant" value is then allocated to land, building and tenant improvements based on the determination of their fair values.

In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded as other assets or liabilities based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases, and (ii) management's estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining term of the lease and the renewal option terms if it is probable that the tenant will exercise options. The capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases. The capitalized below-market lease values are amortized as an increase to rental income over the initial term unless the Company believes that it is likely that the tenant will renew the lease for an option term whereby the Company amortizes the value attributable to the renewal over the renewal period.

The aggregate value of other acquired intangible assets, consisting of in-place leases, is valued by comparing the purchase price paid for a property after adjusting for existing in-place leases to the estimated fair value of the property as-if-vacant, determined as set forth above. This intangible asset is amortized to expense over the remaining non-cancelable periods of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be written off in that period. The value of tenant relationships is reviewed on individual transactions to determine if future value was derived from the acquisition.

Lease Accounting. NNN records its leases on the Property Portfolio in accordance with FASB ASC Topic 842, Leases ("ASC 842"). In addition, NNN records right-of-use assets and operating lease liabilities as lessee under operating leases in accordance with ASC 842.

NNN's real estate is typically leased to tenants under triple-net leases, whereby the tenant is responsible for all operating expenses relating to the Property, including utilities, real estate taxes and assessments, property and liability insurance, maintenance, repairs and capital expenditures. The leases on the Property Portfolio are predominantly classified as operating leases and are accounted for as follows:

Operating method – Properties with leases accounted for using the operating method are recorded at the cost of the real estate and depreciated on the straight-line method over their estimated remaining useful lives, which generally range from 20 to 40 years for buildings and improvements and 15 years for land improvements. Leasehold interests are amortized on the straight-line method over the terms of their respective leases. Revenue is recognized as rentals are earned and expenses (including depreciation) are charged to operations as incurred. When scheduled rentals vary during the lease term, income is recognized on a straight-line basis so as to produce a constant periodic rent over the term of the lease. Accrued rental income is the aggregate difference between the scheduled rents which vary during the lease term and the income recognized on a straight-line basis.

Collectability. In accordance with ASC 842, NNN reviews the collectability of its rental income on an ongoing basis. NNN considers collectability indicators when analyzing accounts receivable (and accrued rent), historical bad debt levels, tenant credit-worthiness and current economic trends, all of which assists in evaluating the probability of outstanding and future rental income collections and the adequacy of the allowance for doubtful accounts. In addition, tenants in bankruptcy are analyzed and considerations are made in connection with the expected recovery of pre-petition and post-petition bankruptcy claims.

When NNN deems the collection of rental income from a tenant not probable, uncollected and previously recognized rental revenue and any related accrued rent are reversed as a reduction to rental income and, subsequently, rental income is only recognized when cash receipts are received. At this point, a tenant is deemed cash basis for accounting purposes. If NNN subsequently deems the collection of rental income is probable, any related accrued rental income or expense is restored.

As a result of the review of collectability, NNN recorded a write-off of $709,000 and $348,000 of outstanding receivables and related accrued rent for certain tenants reclassified to cash basis for accounting purposes during the nine months ended September 30, 2024 and 2023, respectively.

The following table summarizes those tenants classified as cash basis for accounting purposes as of September 30:

 

 

2024

 

 

2023

 

 

Number of tenants

 

 

11

 

 

 

8

 

 

Cash basis tenants as a percent of:

 

 

 

 

 

 

 

Total Properties

 

 

4.3

%

 

 

4.8

%

 

Total annual base rent

 

 

5.6

%

(1)

 

6.9

%

(2)

Total gross leasable area

 

 

6.5

%

 

 

6.4

%

 

 

Based on annualized base rent for all leases in place on each respective date.

 

(1)

$850,976,000 as of September 30, 2024.

 

(2)

$800,194,000 as of September 30, 2023.

During the nine months ended September 30, 2024 and 2023, NNN recognized $31,330,000 and $44,368,000, respectively, of rental income from certain tenants for periods following their classification to cash basis for accounting purposes, of which $10,446,000 and $14,281,000 was recognized during the quarters ended September 30, 2024 and 2023, respectively.

NNN includes an allowance for doubtful accounts in rental income on the Condensed Consolidated Statements of Income and Comprehensive Income.

Real Estate – Held for Sale. Real estate held for sale is not depreciated and is recorded at the lower of cost or fair value, less cost to sell. On a quarterly basis, the Company evaluates its Properties for held for sale classification based on specific criteria as outlined in FASB ASC Topic 360, Property, Plant and Equipment, including management's intent to commit to a plan to sell the asset. NNN anticipates the disposition of Properties classified as held for sale to occur within 12 months. At September 30, 2024 and December 31, 2023, NNN had recorded real estate held for sale of $3,564,000 (two properties) and $4,573,000 (one property), respectively, in real estate portfolio on the Condensed Consolidated Balance Sheets. The property classified as held for sale as of December 31, 2023 was sold during the nine months ended September 30, 2024.

Real Estate Dispositions. When real estate is disposed, the related cost, accumulated depreciation or amortization and any accrued rental income from operating leases and the net investment from direct financing leases are removed from the accounts, and gains and losses from the dispositions are reflected in income. FASB ASC Topic 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets ("ASC 610-20"), provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. An entity that transfers a nonfinancial asset in the scope of ASC 610-20 follows a two-step derecognition model to determine whether (and when) to derecognize the asset. NNN determined the key transactions impacted by ASC 610-20 are recorded in gain on disposition of real estate reported on the Condensed Consolidated Statements of Income and Comprehensive Income. In accordance with ASC 610-20, NNN evaluates any separate contracts or performance obligations to determine proper timing and/or amount of revenue recognition, as well as, transfer of control and transaction price allocation in determining the amount of gain or loss to record.

Impairment – Real Estate. NNN periodically assesses its long-lived real estate assets for possible impairment whenever certain events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. These indicators include, but are not limited to: changes in real estate market conditions, the ability of NNN to re-lease properties that are currently vacant or become vacant, properties reclassified as held for sale, persistent vacancies greater than one year, and properties leased to tenants in bankruptcy. Management evaluates whether an impairment in carrying value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), and the residual value of the real estate, with the carrying value of the individual asset. The future undiscounted cash flows are primarily driven by estimated future market rents. Future cash flow estimates are sensitive to the assumptions made by management regarding future market rents, which are affected by expectations about future market and economic conditions. If an impairment is indicated, a loss will be recorded for the amount by which the carrying value of the asset exceeds its estimated fair value. NNN's Properties are leased primarily to retail tenants under long-term net leases and primarily held for investment. Generally, NNN's Property leases provide for initial terms of 10 to 20 years, with cash flows provided over the entire term.

Credit Losses on Financial Instruments. FASB ASC Topic 326, Financial Instruments – Credit Losses, requires entities to estimate an expected lifetime credit loss on financial assets ranging from short-term trade accounts receivable to long-term financings. The guidance requires a lifetime credit loss expected at inception and requires pooling of assets, which share similar risk characteristics. NNN is required to evaluate current economic conditions, as well as make future expectations of economic conditions. In addition, the measurement of the expected credit loss is over the asset's contractual term.

NNN held mortgages receivable, including accrued interest, of $581,000 and $1,002,000 included in other assets on the Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023, respectively, net of $12,000 and $64,000 allowance for credit loss, respectively. NNN periodically evaluates the allowance for credit loss based on the fair value of the collateral and a 15-year historical collectability trend analysis.

Cash and Cash Equivalents. NNN considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents consist of cash and money market accounts. Cash equivalents are stated at cost plus accrued interest, which approximates fair value. Cash accounts maintained on behalf of NNN in demand deposits at commercial banks and money market funds may exceed federally insured levels or may be held in accounts without any federal insurance or any other insurance or guarantee. However, NNN has not experienced any losses in such accounts.

Restricted Cash and Cash Held in Escrow. Restricted cash and cash held in escrow may include (i) cash proceeds from the sale of assets held by qualified intermediaries in anticipation of the acquisition of replacement properties in tax-deferred exchanges under Section 1031 of the Internal Revenue Code of 1986, as amended (the "Code"), (ii) cash that has been placed in escrow for the future funding of construction commitments, or (iii) cash that is not immediately available to NNN. NNN held $4,986,000 and $3,966,000 in restricted cash and cash held in escrow as of September 30, 2024 and December 31, 2023, respectively.

Debt Costs – Line of Credit Payable. Debt costs incurred in connection with NNN's $1,200,000,000 unsecured revolving line of credit have been deferred and are being amortized to interest expense over the term of the loan commitment using the straight-line method, which approximates the effective interest method. NNN has recorded debt costs associated with the Credit Facility (as defined in "Note 3 – Line of Credit Payable") as an asset, in debt costs on the Condensed Consolidated Balance Sheets.

Debt Costs – Notes Payable. Debt costs incurred in connection with the issuance of NNN's unsecured notes have been deferred and are being amortized to interest expense over the term of the respective debt obligation using the effective interest method. NNN had debt costs of $43,820,000 and $42,595,000, included in notes payable on the Condensed Consolidated Balance Sheets, as of September 30, 2024 and December 31, 2023, respectively, net of accumulated amortization of $13,327,000 and $14,343,000, respectively.

Revenue Recognition. Rental revenues for properties under construction commence upon completion of construction of the leased asset and delivery of the leased asset to the tenant. Rental revenues for non-development real estate assets are recognized when earned in accordance with ASC 842, based on the terms of the lease of the leased asset. Leasehold interests are amortized on the straight-line method over the terms of their respective leases. When scheduled rentals vary during the lease term, income is recognized on a straight-line basis so as to produce a constant periodic rent over the term of the lease. Lease termination fees are recognized when collected subsequent to the related lease that is cancelled and NNN no longer has continuing involvement with the former tenant with respect to that property.

Earnings Per Share. Earnings per share have been computed pursuant to the FASB guidance included in FASB ASC Topic 260, Earnings Per Share. The guidance requires classification of the Company's unvested restricted share units, which carry rights to receive nonforfeitable dividends, as participating securities requiring the two-class method of computing earnings per share. Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings to common stockholders and undistributed earnings allocated to common stockholders by the weighted average common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the weighted average shares outstanding during the period.

The following table is a reconciliation of the numerator and denominator used in the computation of basic and diluted earnings per share using the two-class method (dollars in thousands):

 

 

 

Quarter Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Basic and Diluted Earnings:

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

97,904

 

 

$

106,787

 

 

$

298,941

 

 

$

295,658

 

Less: Earnings allocated to unvested restricted shares

 

 

(185

)

 

 

(171

)

 

 

(511

)

 

 

(448

)

Net earnings used in basic and diluted earnings per share

 

$

97,719

 

 

$

106,616

 

 

$

298,430

 

 

$

295,210

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Weighted Average Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

185,094,982

 

 

 

182,424,814

 

 

 

183,780,842

 

 

 

182,092,117

 

Less: Unvested restricted shares

 

 

(318,796

)

 

 

(290,458

)

 

 

(298,973

)

 

 

(268,713

)

Less: Unvested contingent restricted shares

 

 

(769,010

)

 

 

(736,083

)

 

 

(724,772

)

 

 

(702,441

)

Weighted average shares outstanding used in
     basic earnings per share

 

 

184,007,176

 

 

 

181,398,273

 

 

 

182,757,097

 

 

 

181,120,963

 

Other dilutive securities

 

 

554,255

 

 

 

323,194

 

 

 

544,473

 

 

 

339,659

 

Weighted average shares outstanding used in
     diluted earnings per share

 

 

184,561,431

 

 

 

181,721,467

 

 

 

183,301,570

 

 

 

181,460,622

 

 

Income Taxes. NNN has made an election to be taxed as a REIT under Sections 856 through 860 of the Code, and related regulations. NNN generally will not be subject to federal income taxes on taxable income it distributes to stockholders, provided it meets certain other requirements for qualifying as a REIT. As of September 30, 2024, NNN believes it has qualified as a REIT. Notwithstanding NNN's qualification for taxation as a REIT, NNN is subject to certain state and local income, franchise and excise taxes.

Fair Value Measurement. NNN's estimates of fair value of financial and non-financial assets and liabilities are based on the framework established in FASB ASC Topic 820, Fair Value Measurement. The framework specifies a hierarchy of valuation inputs which was established to increase consistency, clarity and comparability in fair value measurements and related disclosures. The guidance describes a fair value hierarchy based upon three levels of inputs that may be used to measure fair value, two of which are considered observable and one that is considered unobservable. The following describes the three levels:

•
Level 1 – Valuation is based upon quoted prices in active markets for identical assets or liabilities.
•
Level 2 – Valuation is based upon inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•
Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include option pricing models, discounted cash flow models and similar techniques.

Accumulated Other Comprehensive Income (Loss). The following table outlines the changes in accumulated other comprehensive income (loss) for the nine months ended September 30, 2024 (dollars in thousands):

 

 

 

Gain (Loss) on
Cash Flow Hedges(1)

 

 

Beginning balance, December 31, 2023

 

$

(10,111

)

 

Reclassifications from accumulated other comprehensive income to net earnings

 

 

1,692

 

(2)

Ending balance, September 30, 2024

 

$

(8,419

)

 

 

(1)

Additional disclosure is included in "Note 4 – Notes Payable and Derivatives".

 

(2)

Recorded in interest expense on the Condensed Consolidated Statements of Income and Comprehensive Income. There is no income tax expense (benefit) resulting from this reclassification.

New Accounting Pronouncements. In November 2023, the FASB issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"), effective for fiscal years, beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The amendments in this update require public entities to provide enhanced disclosures primarily around segment expenses. On an annual and interim basis, entities will disclose significant segment expenses that are regularly provided to the chief operating decision maker and included with each measure of segment profit or loss, an amount for “other segment items” by reportable segment accompanied by a description of its composition, and all annual disclosures about segment profit and loss currently required by Topic 280 to be disclosed in interim periods. While NNN only has one reportable segment, NNN is currently evaluating the potential impact the adoption of ASU 2023-07 will have on its future disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"), effective for annual periods beginning after December 15, 2024. The amendments in the update require public business entities on an annual basis to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold of equal to or greater than five percent of the amount computed by multiplying pretax income by the statutory income tax rate. The amendments also require that entities disclose on an annual basis information about the amount of income taxes paid disaggregated by federal, state, and foreign taxes and the amount of income taxes paid disaggregated by individual jurisdictions in which income taxes paid is equal to or greater than five percent of total income taxes paid. The amendments eliminate some of the previous required disclosures for all entities relating to estimates of the change in unrecognized tax benefits reasonably possible within 12 months. NNN is currently evaluating the potential impact the adoption of ASU 2023-09 will have on its future disclosures.

Use of Estimates. Additional critical accounting policies of NNN include management's estimates and assumptions relating to the reporting of assets and liabilities, revenues and expenses and the disclosure of contingent assets and liabilities which are required to prepare the unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Significant accounting policies include management's estimates of the purchase accounting for acquisition of real estate, the recoverability of the carrying value of long-lived assets and management's evaluation of the probability of outstanding and future lease payment collections. Estimates are sensitive to evaluations by management about current and future expectations of market and economic conditions. Actual results could differ from those estimates.
v3.24.3
Real Estate
 9 Months Ended
Sep. 30, 2024
Real Estate [Abstract]  
Real Estate

Note 2 – Real Estate:

Real Estate – Portfolio

Leases. At September 30, 2024, NNN's real estate portfolio had a weighted average remaining lease term of 10.0 years and consisted of 3,541 leases classified as operating leases and an additional four leases accounted for as direct financing leases.

The following is a summary of the general structure of the leases in the Property Portfolio, although the specific terms of each lease can vary significantly. Typically, the Property leases provide for initial terms of 10 to 20 years. The Properties are generally leased under triple-net leases, pursuant to which the tenant typically bears responsibility for all operating expenses of the Property, including utilities, real estate taxes and assessments, property and liability insurance, maintenance, repairs and capital expenditures. Certain Properties are subject to leases under which NNN retains responsibility for specific costs and expenses associated with the Property. NNN's leases provide for annual base rental payments (generally payable in monthly installments), and generally provide for limited increases in rent as a result of increases in the Consumer Price Index or fixed increases.

Generally, NNN's leases provide the tenant with one or more multi-year renewal options, subject to generally the same terms and conditions provided under the initial lease term, including rent increases. NNN's lease term is based on the non-cancellable base term unless economic incentives make it reasonably certain that an option period to extend the lease will be exercised, in which event NNN includes the renewal options. Some of the leases also provide that in the event NNN wishes to sell the Property subject to that lease, NNN first must offer the lessee the right to purchase the Property on the same terms and conditions as any offer which NNN intends to accept for the sale of the Property.

Real Estate Portfolio. NNN's real estate consisted of the following at (dollars in thousands):

 

 

 

September 30,
2024

 

 

December 31,
2023

 

Land and improvements(1)

 

$

2,901,152

 

 

$

2,878,400

 

Buildings and improvements

 

 

7,650,577

 

 

 

7,368,873

 

Leasehold interests

 

 

355

 

 

 

355

 

 

 

10,552,084

 

 

 

10,247,628

 

Less accumulated depreciation and amortization

 

 

(2,012,183

)

 

 

(1,863,451

)

 

 

8,539,901

 

 

 

8,384,177

 

Work in progress and improvements

 

 

79,447

 

 

 

144,068

 

Accounted for using the operating method

 

 

8,619,348

 

 

 

8,528,245

 

Accounted for using the direct financing method

 

 

2,577

 

 

 

3,033

 

Classified as held for sale(2)

 

 

3,564

 

 

 

4,573

 

 

$

8,625,489

 

 

$

8,535,851

 

 

(1)

Includes $39,373 and $96,464 in land for Properties under construction at September 30, 2024 and December 31, 2023, respectively.

 

(2)

As of September 30, 2024, two Properties were classified as held for sale. The one property classified as held for sale as of December 31, 2023 was sold during the nine months ended September 30, 2024.

 

NNN recognized the following revenues in rental income (dollars in thousands):

 

 

 

Quarter Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Rental income from operating leases

 

$

213,447

 

 

$

200,287

 

 

$

634,088

 

 

$

596,099

 

Earned income from direct financing leases

 

 

116

 

 

 

140

 

 

 

353

 

 

 

427

 

Percentage rent

 

 

200

 

 

 

336

 

 

 

1,347

 

 

 

1,390

 

Rental revenues

 

 

213,763

 

 

 

200,763

 

 

 

635,788

 

 

 

597,916

 

Real estate expenses reimbursed from tenants

 

 

4,392

 

 

 

4,093

 

 

 

13,332

 

 

 

12,996

 

 

$

218,155

 

 

$

204,856

 

 

$

649,120

 

 

$

610,912

 

Some leases provide for a free rent period or scheduled rent increases throughout the lease term. Such amounts are recognized on a straight-line basis over the terms of the leases.

For the nine months ended September 30, 2024 and 2023, NNN recognized ($8,000) and $1,496,000, respectively, of net straight-line accrued rental income, net of reserves, of which $123,000 and $493,000 of such income, net of reserves was recorded during the quarters ended September 30, 2024 and 2023, respectively.

Real Estate – Intangibles

In accordance with purchase accounting for the acquisition of real estate subject to a lease, NNN has recorded intangible assets and lease liabilities that consisted of the following at (dollars in thousands):

 

 

 

September 30,
2024

 

 

December 31,
2023

 

Intangible lease assets (included in other assets):

 

 

 

 

 

 

Above-market in-place leases

 

$

14,875

 

 

$

15,297

 

Less: accumulated amortization

 

 

(12,130

)

 

 

(12,080

)

Above-market in-place leases, net

 

$

2,745

 

 

$

3,217

 

 

 

 

 

 

 

 

In-place leases

 

$

119,143

 

 

$

122,802

 

Less: accumulated amortization

 

 

(86,722

)

 

 

(85,332

)

In-place leases, net

 

$

32,421

 

 

$

37,470

 

 

 

 

 

 

 

 

Intangible lease liabilities (included in other liabilities):

 

 

 

 

 

 

Below-market in-place leases

 

$

40,557

 

 

$

41,244

 

Less: accumulated amortization

 

 

(29,246

)

 

 

(29,117

)

Below-market in-place leases, net

 

$

11,311

 

 

$

12,127

 

The amounts amortized as a net increase to rental income for above-market and below-market in-place leases for the nine months ended September 30, 2024 and 2023, were $351,000 and $349,000, respectively, of which $109,000 and $115,000 were recorded for the quarters ended September 30, 2024 and 2023, respectively. The value of in-place leases amortized to expense for the nine months ended September 30, 2024 and 2023, was $4,687,000 and $5,197,000, respectively, of which $1,457,000 and $1,671,000 was recorded for the quarters ended September 30, 2024 and 2023, respectively.

Real Estate – Dispositions

The following table summarizes the properties sold and the corresponding gain recognized on the disposition of properties (dollars in thousands):

 

 

 

Quarter Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

 

 

# of Sold
Properties

 

Net
Gain

 

 

# of Sold
Properties

 

Net
Gain

 

 

# of Sold
Properties

 

Net
Gain

 

 

# of Sold
Properties

 

Net
Gain

 

Gain on disposition of real estate

 

9

 

$

7,765

 

 

13

 

$

19,992

 

 

29

 

$

30,207

 

 

26

 

$

40,222

 

 

 

Real Estate – Commitments

NNN has committed to fund construction on 16 Properties. The improvements on such Properties are estimated to be completed within 12 to 18 months. These construction commitments, as of September 30, 2024, are outlined in the table below (dollars in thousands):

 

Total commitment(1)

 

$

177,392

 

Less amount funded

 

 

(118,820

)

Remaining commitment

 

$

58,572

 

 

(1)

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

 

Real Estate – Impairments

NNN periodically assesses its long-lived real estate assets for possible impairment whenever certain events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.

As a result of NNN's review of long-lived assets, including identifiable intangible assets, NNN recognized real estate impairments, net of recoveries as summarized in the table below (dollars in thousands):

 

 

 

Quarter Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Total real estate impairments, net of recoveries

 

$

760

 

 

$

1,001

 

 

$

2,908

 

 

$

3,675

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Properties:

 

 

 

 

 

 

 

 

 

 

 

 

Vacant

 

 

—

 

 

 

1

 

 

 

2

 

 

 

4

 

Occupied

 

 

2

 

 

 

1

 

 

 

5

 

 

 

2

 

The valuation of impaired assets is determined using widely accepted valuation techniques including discounted cash flow analysis, income capitalization, analysis of recent comparable sales transactions, actual sales negotiations and bona fide purchase offers received from third parties, which are Level 3 inputs. NNN may consider a single valuation technique or multiple valuation techniques, as appropriate, when estimating the fair value of its real estate.
v3.24.3
Line of Credit Payable
 9 Months Ended
Sep. 30, 2024
Debt Disclosure [Abstract]  
Line of Credit Payable

Note 3 – Line of Credit Payable:

In April 2024, NNN amended and restated its credit agreement to increase borrowing capacity under its unsecured revolving credit facility from $1,100,000,000 to $1,200,000,000 and amended certain other terms under the former revolving credit facility (as the context requires, the previous and new revolving credit facility, the "Credit Facility"). The Credit Facility had a weighted average outstanding balance of $75,769,000 and a weighted average interest rate of 6.28% during the nine months ended September 30, 2024. The Credit Facility has a base interest rate of the Secured Overnight Financing Rate ("SOFR") plus a SOFR adjustment of 10 basis points ("Adjusted SOFR"). The Credit Facility bears interest at Adjusted SOFR plus 77.5 basis points; however, such interest rate may change pursuant to a tiered interest rate structure based on NNN's debt rating. Additionally, as part of NNN's environmental, social and governance ("ESG") initiative, pricing may be reduced if specified ESG metrics are achieved. The Credit Facility matures in April 2028, unless the Company exercises its options to extend maturity to April 2029. The Credit Facility also includes an accordion feature which permits NNN to increase the facility size up to $2,000,000,000, subject to lender approval. In connection with the Credit Facility, loan costs are classified as debt costs on the Condensed Consolidated Balance Sheets. As of September 30, 2024, no amount was outstanding and $1,200,000,000 was available for future borrowings under the Credit Facility, and NNN was in compliance with each of the Credit Facility financial covenants.
v3.24.3
Notes Payable and Derivatives
 9 Months Ended
Sep. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Notes Payable and Derivatives

Note 4 – Notes Payable and Derivatives:

Additional information related to NNN's notes payable and derivatives is included in NNN's Annual Report on Form 10-K for the year ended December 31, 2023.

In May 2024, NNN filed a prospectus supplement to the prospectus contained in its August 2023 shelf registration statement (see "Note 5 – Stockholders' Equity") and issued $500,000,000 aggregate principal amount of 5.500% notes due June 2034 (the "2034 Notes").

The 2034 Notes were sold at a discount with an aggregate net price of $493,840,000 with interest payable annually on June 15 and December 15, commencing on December 15, 2024. The discount of $6,160,000 is being amortized to interest expense over the term of the 2034 Notes using the effective interest method. The effective interest rate for the 2034 Notes after accounting for the note discount is 5.662%.

NNN received approximately $489,390,000 of net proceeds in connection with the issuance of the 2034 Notes, after incurring debt issuance costs consisting primarily of underwriting discounts and commissions, legal and accounting fees, rating agency fees and printing expenses, totaling $4,450,000 for the 2034 Notes.

The 2034 Notes are senior, unsecured obligations of NNN and are subordinated to all secured debt of NNN. NNN may redeem the 2034 Notes, in whole or part, at any time prior to the par call date at the redemption price as set forth in the supplemental indenture dated May 29, 2024 relating to the 2034 Notes; provided, however, that if NNN redeems the notes on or after the par call date, the redemption price will equal 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest thereon to, but not including, the redemption date.

In June 2024, NNN redeemed the $350,000,000 3.900% notes payable that were due in June 2024. The notes were redeemed at a price equal to 100% of the principal amount and accrued and unpaid interest.

As of September 30, 2024, $8,419,000 remained in accumulated other comprehensive income (loss) related to NNN's previously terminated interest rate hedges. During the nine months ended September 30, 2024 and 2023, NNN reclassified out of accumulated other comprehensive income (loss) $1,692,000 and $1,843,000, respectively, of which $450,000 and $620,000 was reclassified during the quarters ended September 30, 2024 and 2023, respectively, as an increase in interest expense. Over the next 12 months, NNN estimates that an additional $1,858,000 will be reclassified as an increase in interest expense from these terminated derivatives. Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on NNN's long-term debt.

NNN does not use derivatives for trading or speculative purposes. NNN had no derivative financial instruments outstanding at September 30, 2024.
v3.24.3
Stockholders' Equity
 9 Months Ended
Sep. 30, 2024
Equity [Abstract]  
Stockholders' Equity

Note 5 – Stockholders' Equity:

Universal Shelf Registration Statement. In August 2023, NNN filed a shelf registration statement with the Securities and Exchange Commission (the "Commission") which became automatically effective ("Universal Shelf"). The Universal Shelf permits the issuance by NNN of an indeterminate amount of debt and equity securities, including preferred stock, depositary shares, common stock, stock purchase contracts, rights, warrants and units. NNN may periodically offer one or more of these securities in amounts, prices and on terms to be announced when and if these securities are offered. The specifics of any future offerings along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering.

At-The-Market Offerings. NNN has established an at-the-market equity program ("ATM") which allows NNN to sell shares of common stock from time to time. The following outlines NNN's ATM:

 

 

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, 2024

 

4,652,100

 

7,722,511

The following table outlines the common stock issuances pursuant to NNN's ATM (dollars in thousands, except per share data):

 

 

 

Quarter Ended
September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Shares of common stock

 

 

3,848,657

 

 

 

—

 

 

 

4,652,100

 

 

 

650,135

 

Average price per share (net)

 

$

46.31

 

 

$

—

 

 

$

45.51

 

 

$

43.52

 

Net proceeds

 

$

178,235

 

 

$

(300

)

 

$

211,727

 

 

$

28,292

 

Stock issuance costs(1)

 

$

2,899

 

 

$

(300

)

 

$

3,134

 

 

$

858

 

 

(1)

Stock issuance costs consist primarily of underwriters' and agents' fees and commissions, and legal and accounting fees.

Dividend Reinvestment and Stock Purchase Plan. In February 2024, NNN filed a shelf registration statement for its Dividend Reinvestment and Stock Purchase Plan ("DRIP") with the Commission that was automatically effective, and permits NNN to issue up to 4,000,000 shares of common stock. The following outlines the common stock issuances pursuant to NNN's DRIP (dollars in thousands):

 

 

Quarter Ended
September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Shares of common stock

 

 

15,043

 

 

 

19,339

 

 

 

49,352

 

 

 

55,261

 

Net proceeds

 

$

675

 

 

$

763

 

 

$

1,988

 

 

$

2,302

 

Dividends. The following table outlines the dividends declared and paid for NNN's common stock (dollars in thousands, except per share data):

 

 

Quarter Ended
September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Dividends

 

$

106,077

 

 

$

102,647

 

 

$

311,920

 

 

$

301,793

 

Per share

 

 

0.5800

 

 

 

0.5650

 

 

 

1.7100

 

 

 

1.6650

 

 

In October 2024, NNN declared a dividend of $0.5800 per share, which is payable in November 2024 to its common stockholders of record as of October 31, 2024.
v3.24.3
Fair Value of Financial Instruments
 9 Months Ended
Sep. 30, 2024
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

Note 6 – Fair Value of Financial Instruments:

NNN believes the carrying value of its Credit Facility approximates fair value based upon its nature, terms and variable interest rate. At September 30, 2024 and December 31, 2023, the fair value of NNN's notes payable excluding unamortized discount and debt costs was $4,043,176,000 and $3,801,367,000, respectively, 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.
v3.24.3
Organization and Summary of Significant Accounting Policies (Policies)
 9 Months Ended
Sep. 30, 2024
Accounting Policies [Abstract]  
Principles of Consolidation

Principles of Consolidation. NNN's unaudited condensed consolidated financial statements include the accounts of each of the respective majority owned and controlled affiliates, including transactions whereby NNN has been determined to be the primary beneficiary in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification ("ASC") guidance included in Topic 810, Consolidation. All significant intercompany account balances and transactions have been eliminated.
Real Estate Portfolio

Real Estate Portfolio. NNN records the acquisition of real estate at cost, including acquisition and closing costs. The cost of Properties developed or funded by NNN includes direct and indirect costs of construction, property taxes, interest, third-party costs and other miscellaneous costs incurred during the development period until the project is substantially complete and available for occupancy. NNN recorded $4,744,000 and $2,374,000 in capitalized interest during the development period for the nine months ended September 30, 2024 and 2023, respectively, of which $1,268,000 and $1,248,000 was recorded during the quarters ended September 30, 2024 and 2023, respectively.

Purchase Accounting for Acquisition of Real Estate. In accordance with the FASB ASC guidance on business combinations, consideration for the real estate acquired is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and, if applicable, to identified intangible assets and liabilities, consisting of the value of above-market and below-market leases and the value of in-place leases, as applicable, based on their respective fair values.

The fair value estimate is sensitive to significant assumptions, such as establishing a range of relevant market assumptions for land, building and rent and where the acquired property falls within that range. These market assumptions for land, building and rent use the most relevant comparable properties for an acquisition. The final value relies upon ranking comparable properties' attributes from most to least similar.

The fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant, and the "as-if-vacant" value is then allocated to land, building and tenant improvements based on the determination of their fair values.

In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded as other assets or liabilities based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases, and (ii) management's estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining term of the lease and the renewal option terms if it is probable that the tenant will exercise options. The capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases. The capitalized below-market lease values are amortized as an increase to rental income over the initial term unless the Company believes that it is likely that the tenant will renew the lease for an option term whereby the Company amortizes the value attributable to the renewal over the renewal period.

The aggregate value of other acquired intangible assets, consisting of in-place leases, is valued by comparing the purchase price paid for a property after adjusting for existing in-place leases to the estimated fair value of the property as-if-vacant, determined as set forth above. This intangible asset is amortized to expense over the remaining non-cancelable periods of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be written off in that period. The value of tenant relationships is reviewed on individual transactions to determine if future value was derived from the acquisition.

Lease Accounting

Lease Accounting. NNN records its leases on the Property Portfolio in accordance with FASB ASC Topic 842, Leases ("ASC 842"). In addition, NNN records right-of-use assets and operating lease liabilities as lessee under operating leases in accordance with ASC 842.

NNN's real estate is typically leased to tenants under triple-net leases, whereby the tenant is responsible for all operating expenses relating to the Property, including utilities, real estate taxes and assessments, property and liability insurance, maintenance, repairs and capital expenditures. The leases on the Property Portfolio are predominantly classified as operating leases and are accounted for as follows:

Operating method – Properties with leases accounted for using the operating method are recorded at the cost of the real estate and depreciated on the straight-line method over their estimated remaining useful lives, which generally range from 20 to 40 years for buildings and improvements and 15 years for land improvements. Leasehold interests are amortized on the straight-line method over the terms of their respective leases. Revenue is recognized as rentals are earned and expenses (including depreciation) are charged to operations as incurred. When scheduled rentals vary during the lease term, income is recognized on a straight-line basis so as to produce a constant periodic rent over the term of the lease. Accrued rental income is the aggregate difference between the scheduled rents which vary during the lease term and the income recognized on a straight-line basis.
Collectability

Collectability. In accordance with ASC 842, NNN reviews the collectability of its rental income on an ongoing basis. NNN considers collectability indicators when analyzing accounts receivable (and accrued rent), historical bad debt levels, tenant credit-worthiness and current economic trends, all of which assists in evaluating the probability of outstanding and future rental income collections and the adequacy of the allowance for doubtful accounts. In addition, tenants in bankruptcy are analyzed and considerations are made in connection with the expected recovery of pre-petition and post-petition bankruptcy claims.

When NNN deems the collection of rental income from a tenant not probable, uncollected and previously recognized rental revenue and any related accrued rent are reversed as a reduction to rental income and, subsequently, rental income is only recognized when cash receipts are received. At this point, a tenant is deemed cash basis for accounting purposes. If NNN subsequently deems the collection of rental income is probable, any related accrued rental income or expense is restored.

As a result of the review of collectability, NNN recorded a write-off of $709,000 and $348,000 of outstanding receivables and related accrued rent for certain tenants reclassified to cash basis for accounting purposes during the nine months ended September 30, 2024 and 2023, respectively.

The following table summarizes those tenants classified as cash basis for accounting purposes as of September 30:

 

 

2024

 

 

2023

 

 

Number of tenants

 

 

11

 

 

 

8

 

 

Cash basis tenants as a percent of:

 

 

 

 

 

 

 

Total Properties

 

 

4.3

%

 

 

4.8

%

 

Total annual base rent

 

 

5.6

%

(1)

 

6.9

%

(2)

Total gross leasable area

 

 

6.5

%

 

 

6.4

%

 

 

Based on annualized base rent for all leases in place on each respective date.

 

(1)

$850,976,000 as of September 30, 2024.

 

(2)

$800,194,000 as of September 30, 2023.

During the nine months ended September 30, 2024 and 2023, NNN recognized $31,330,000 and $44,368,000, respectively, of rental income from certain tenants for periods following their classification to cash basis for accounting purposes, of which $10,446,000 and $14,281,000 was recognized during the quarters ended September 30, 2024 and 2023, respectively.

NNN includes an allowance for doubtful accounts in rental income on the Condensed Consolidated Statements of Income and Comprehensive Income.

Real Estate - Held for Sale

Real Estate – Held for Sale. Real estate held for sale is not depreciated and is recorded at the lower of cost or fair value, less cost to sell. On a quarterly basis, the Company evaluates its Properties for held for sale classification based on specific criteria as outlined in FASB ASC Topic 360, Property, Plant and Equipment, including management's intent to commit to a plan to sell the asset. NNN anticipates the disposition of Properties classified as held for sale to occur within 12 months. At September 30, 2024 and December 31, 2023, NNN had recorded real estate held for sale of $3,564,000 (two properties) and $4,573,000 (one property), respectively, in real estate portfolio on the Condensed Consolidated Balance Sheets. The property classified as held for sale as of December 31, 2023 was sold during the nine months ended September 30, 2024.
Real Estate Dispositions

Real Estate Dispositions. When real estate is disposed, the related cost, accumulated depreciation or amortization and any accrued rental income from operating leases and the net investment from direct financing leases are removed from the accounts, and gains and losses from the dispositions are reflected in income. FASB ASC Topic 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets ("ASC 610-20"), provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. An entity that transfers a nonfinancial asset in the scope of ASC 610-20 follows a two-step derecognition model to determine whether (and when) to derecognize the asset. NNN determined the key transactions impacted by ASC 610-20 are recorded in gain on disposition of real estate reported on the Condensed Consolidated Statements of Income and Comprehensive Income. In accordance with ASC 610-20, NNN evaluates any separate contracts or performance obligations to determine proper timing and/or amount of revenue recognition, as well as, transfer of control and transaction price allocation in determining the amount of gain or loss to record.
Impairment - Real Estate

Impairment – Real Estate. NNN periodically assesses its long-lived real estate assets for possible impairment whenever certain events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. These indicators include, but are not limited to: changes in real estate market conditions, the ability of NNN to re-lease properties that are currently vacant or become vacant, properties reclassified as held for sale, persistent vacancies greater than one year, and properties leased to tenants in bankruptcy. Management evaluates whether an impairment in carrying value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), and the residual value of the real estate, with the carrying value of the individual asset. The future undiscounted cash flows are primarily driven by estimated future market rents. Future cash flow estimates are sensitive to the assumptions made by management regarding future market rents, which are affected by expectations about future market and economic conditions. If an impairment is indicated, a loss will be recorded for the amount by which the carrying value of the asset exceeds its estimated fair value. NNN's Properties are leased primarily to retail tenants under long-term net leases and primarily held for investment. Generally, NNN's Property leases provide for initial terms of 10 to 20 years, with cash flows provided over the entire term.

Credit Losses on Financial Instruments

Credit Losses on Financial Instruments. FASB ASC Topic 326, Financial Instruments – Credit Losses, requires entities to estimate an expected lifetime credit loss on financial assets ranging from short-term trade accounts receivable to long-term financings. The guidance requires a lifetime credit loss expected at inception and requires pooling of assets, which share similar risk characteristics. NNN is required to evaluate current economic conditions, as well as make future expectations of economic conditions. In addition, the measurement of the expected credit loss is over the asset's contractual term.

NNN held mortgages receivable, including accrued interest, of $581,000 and $1,002,000 included in other assets on the Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023, respectively, net of $12,000 and $64,000 allowance for credit loss, respectively. NNN periodically evaluates the allowance for credit loss based on the fair value of the collateral and a 15-year historical collectability trend analysis.

Cash and Cash Equivalents

Cash and Cash Equivalents. NNN considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents consist of cash and money market accounts. Cash equivalents are stated at cost plus accrued interest, which approximates fair value. Cash accounts maintained on behalf of NNN in demand deposits at commercial banks and money market funds may exceed federally insured levels or may be held in accounts without any federal insurance or any other insurance or guarantee. However, NNN has not experienced any losses in such accounts.
Restricted Cash and Cash Held in Escrow

Restricted Cash and Cash Held in Escrow. Restricted cash and cash held in escrow may include (i) cash proceeds from the sale of assets held by qualified intermediaries in anticipation of the acquisition of replacement properties in tax-deferred exchanges under Section 1031 of the Internal Revenue Code of 1986, as amended (the "Code"), (ii) cash that has been placed in escrow for the future funding of construction commitments, or (iii) cash that is not immediately available to NNN. NNN held $4,986,000 and $3,966,000 in restricted cash and cash held in escrow as of September 30, 2024 and December 31, 2023, respectively.
Debt Costs

Debt Costs – Line of Credit Payable. Debt costs incurred in connection with NNN's $1,200,000,000 unsecured revolving line of credit have been deferred and are being amortized to interest expense over the term of the loan commitment using the straight-line method, which approximates the effective interest method. NNN has recorded debt costs associated with the Credit Facility (as defined in "Note 3 – Line of Credit Payable") as an asset, in debt costs on the Condensed Consolidated Balance Sheets.

Debt Costs – Notes Payable. Debt costs incurred in connection with the issuance of NNN's unsecured notes have been deferred and are being amortized to interest expense over the term of the respective debt obligation using the effective interest method. NNN had debt costs of $43,820,000 and $42,595,000, included in notes payable on the Condensed Consolidated Balance Sheets, as of September 30, 2024 and December 31, 2023, respectively, net of accumulated amortization of $13,327,000 and $14,343,000, respectively.
Revenue Recognition

Revenue Recognition. Rental revenues for properties under construction commence upon completion of construction of the leased asset and delivery of the leased asset to the tenant. Rental revenues for non-development real estate assets are recognized when earned in accordance with ASC 842, based on the terms of the lease of the leased asset. Leasehold interests are amortized on the straight-line method over the terms of their respective leases. When scheduled rentals vary during the lease term, income is recognized on a straight-line basis so as to produce a constant periodic rent over the term of the lease. Lease termination fees are recognized when collected subsequent to the related lease that is cancelled and NNN no longer has continuing involvement with the former tenant with respect to that property.
Earnings Per Share

Earnings Per Share. Earnings per share have been computed pursuant to the FASB guidance included in FASB ASC Topic 260, Earnings Per Share. The guidance requires classification of the Company's unvested restricted share units, which carry rights to receive nonforfeitable dividends, as participating securities requiring the two-class method of computing earnings per share. Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings to common stockholders and undistributed earnings allocated to common stockholders by the weighted average common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the weighted average shares outstanding during the period.

The following table is a reconciliation of the numerator and denominator used in the computation of basic and diluted earnings per share using the two-class method (dollars in thousands):

 

 

 

Quarter Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Basic and Diluted Earnings:

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

97,904

 

 

$

106,787

 

 

$

298,941

 

 

$

295,658

 

Less: Earnings allocated to unvested restricted shares

 

 

(185

)

 

 

(171

)

 

 

(511

)

 

 

(448

)

Net earnings used in basic and diluted earnings per share

 

$

97,719

 

 

$

106,616

 

 

$

298,430

 

 

$

295,210

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Weighted Average Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

185,094,982

 

 

 

182,424,814

 

 

 

183,780,842

 

 

 

182,092,117

 

Less: Unvested restricted shares

 

 

(318,796

)

 

 

(290,458

)

 

 

(298,973

)

 

 

(268,713

)

Less: Unvested contingent restricted shares

 

 

(769,010

)

 

 

(736,083

)

 

 

(724,772

)

 

 

(702,441

)

Weighted average shares outstanding used in
     basic earnings per share

 

 

184,007,176

 

 

 

181,398,273

 

 

 

182,757,097

 

 

 

181,120,963

 

Other dilutive securities

 

 

554,255

 

 

 

323,194

 

 

 

544,473

 

 

 

339,659

 

Weighted average shares outstanding used in
     diluted earnings per share

 

 

184,561,431

 

 

 

181,721,467

 

 

 

183,301,570

 

 

 

181,460,622

 
Income Taxes

Income Taxes. NNN has made an election to be taxed as a REIT under Sections 856 through 860 of the Code, and related regulations. NNN generally will not be subject to federal income taxes on taxable income it distributes to stockholders, provided it meets certain other requirements for qualifying as a REIT. As of September 30, 2024, NNN believes it has qualified as a REIT. Notwithstanding NNN's qualification for taxation as a REIT, NNN is subject to certain state and local income, franchise and excise taxes.
Fair Value Measurement

Fair Value Measurement. NNN's estimates of fair value of financial and non-financial assets and liabilities are based on the framework established in FASB ASC Topic 820, Fair Value Measurement. The framework specifies a hierarchy of valuation inputs which was established to increase consistency, clarity and comparability in fair value measurements and related disclosures. The guidance describes a fair value hierarchy based upon three levels of inputs that may be used to measure fair value, two of which are considered observable and one that is considered unobservable. The following describes the three levels:

•
Level 1 – Valuation is based upon quoted prices in active markets for identical assets or liabilities.
•
Level 2 – Valuation is based upon inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•
Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include option pricing models, discounted cash flow models and similar techniques.
Accumulated Other Comprehensive Income (Loss)

Accumulated Other Comprehensive Income (Loss). The following table outlines the changes in accumulated other comprehensive income (loss) for the nine months ended September 30, 2024 (dollars in thousands):

 

 

 

Gain (Loss) on
Cash Flow Hedges(1)

 

 

Beginning balance, December 31, 2023

 

$

(10,111

)

 

Reclassifications from accumulated other comprehensive income to net earnings

 

 

1,692

 

(2)

Ending balance, September 30, 2024

 

$

(8,419

)

 

 

(1)

Additional disclosure is included in "Note 4 – Notes Payable and Derivatives".

 

(2)

Recorded in interest expense on the Condensed Consolidated Statements of Income and Comprehensive Income. There is no income tax expense (benefit) resulting from this reclassification.
New Accounting Pronouncements

New Accounting Pronouncements. In November 2023, the FASB issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"), effective for fiscal years, beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The amendments in this update require public entities to provide enhanced disclosures primarily around segment expenses. On an annual and interim basis, entities will disclose significant segment expenses that are regularly provided to the chief operating decision maker and included with each measure of segment profit or loss, an amount for “other segment items” by reportable segment accompanied by a description of its composition, and all annual disclosures about segment profit and loss currently required by Topic 280 to be disclosed in interim periods. While NNN only has one reportable segment, NNN is currently evaluating the potential impact the adoption of ASU 2023-07 will have on its future disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"), effective for annual periods beginning after December 15, 2024. The amendments in the update require public business entities on an annual basis to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold of equal to or greater than five percent of the amount computed by multiplying pretax income by the statutory income tax rate. The amendments also require that entities disclose on an annual basis information about the amount of income taxes paid disaggregated by federal, state, and foreign taxes and the amount of income taxes paid disaggregated by individual jurisdictions in which income taxes paid is equal to or greater than five percent of total income taxes paid. The amendments eliminate some of the previous required disclosures for all entities relating to estimates of the change in unrecognized tax benefits reasonably possible within 12 months. NNN is currently evaluating the potential impact the adoption of ASU 2023-09 will have on its future disclosures.
Use of Estimates

Use of Estimates. Additional critical accounting policies of NNN include management's estimates and assumptions relating to the reporting of assets and liabilities, revenues and expenses and the disclosure of contingent assets and liabilities which are required to prepare the unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Significant accounting policies include management's estimates of the purchase accounting for acquisition of real estate, the recoverability of the carrying value of long-lived assets and management's evaluation of the probability of outstanding and future lease payment collections. Estimates are sensitive to evaluations by management about current and future expectations of market and economic conditions. Actual results could differ from those estimates.
v3.24.3
Organization and Summary of Significant Accounting Policies (Tables)
 9 Months Ended
Sep. 30, 2024
Accounting Policies [Abstract]  
Summary of NNN's Investment Portfolio

NNN's assets primarily include real estate assets. NNN acquires, owns, invests in and develops properties that are leased primarily to retail tenants under long-term net leases and are primarily held for investment ("Properties" or "Property Portfolio", or individually a "Property").

 

 

September 30, 2024

Property Portfolio:

 

 

Total Properties

 

3,549

Gross leasable area (square feet)

 

36,550,000

States

 

49

Weighted average remaining lease term (years)

 

10.0
Summary of tenants classified as cash basis

The following table summarizes those tenants classified as cash basis for accounting purposes as of September 30:

 

 

2024

 

 

2023

 

 

Number of tenants

 

 

11

 

 

 

8

 

 

Cash basis tenants as a percent of:

 

 

 

 

 

 

 

Total Properties

 

 

4.3

%

 

 

4.8

%

 

Total annual base rent

 

 

5.6

%

(1)

 

6.9

%

(2)

Total gross leasable area

 

 

6.5

%

 

 

6.4

%

 

 

Based on annualized base rent for all leases in place on each respective date.

 

(1)

$850,976,000 as of September 30, 2024.

 

(2)

$800,194,000 as of September 30, 2023.
Computation of Basic and Diluted Earnings Per Share

The following table is a reconciliation of the numerator and denominator used in the computation of basic and diluted earnings per share using the two-class method (dollars in thousands):

 

 

 

Quarter Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Basic and Diluted Earnings:

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

97,904

 

 

$

106,787

 

 

$

298,941

 

 

$

295,658

 

Less: Earnings allocated to unvested restricted shares

 

 

(185

)

 

 

(171

)

 

 

(511

)

 

 

(448

)

Net earnings used in basic and diluted earnings per share

 

$

97,719

 

 

$

106,616

 

 

$

298,430

 

 

$

295,210

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Weighted Average Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

185,094,982

 

 

 

182,424,814

 

 

 

183,780,842

 

 

 

182,092,117

 

Less: Unvested restricted shares

 

 

(318,796

)

 

 

(290,458

)

 

 

(298,973

)

 

 

(268,713

)

Less: Unvested contingent restricted shares

 

 

(769,010

)

 

 

(736,083

)

 

 

(724,772

)

 

 

(702,441

)

Weighted average shares outstanding used in
     basic earnings per share

 

 

184,007,176

 

 

 

181,398,273

 

 

 

182,757,097

 

 

 

181,120,963

 

Other dilutive securities

 

 

554,255

 

 

 

323,194

 

 

 

544,473

 

 

 

339,659

 

Weighted average shares outstanding used in
     diluted earnings per share

 

 

184,561,431

 

 

 

181,721,467

 

 

 

183,301,570

 

 

 

181,460,622

 
Changes in Accumulated Other Comprehensive Income (Loss) The following table outlines the changes in accumulated other comprehensive income (loss) for the nine months ended September 30, 2024 (dollars in thousands):

 

 

 

Gain (Loss) on
Cash Flow Hedges(1)

 

 

Beginning balance, December 31, 2023

 

$

(10,111

)

 

Reclassifications from accumulated other comprehensive income to net earnings

 

 

1,692

 

(2)

Ending balance, September 30, 2024

 

$

(8,419

)

 

 

(1)

Additional disclosure is included in "Note 4 – Notes Payable and Derivatives".

 

(2)

Recorded in interest expense on the Condensed Consolidated Statements of Income and Comprehensive Income. There is no income tax expense (benefit) resulting from this reclassification.
v3.24.3
Real Estate (Tables)
 9 Months Ended
Sep. 30, 2024
Real Estate [Abstract]  
Summary of Real Estate Subject to Operating Leases

Real Estate Portfolio. NNN's real estate consisted of the following at (dollars in thousands):

 

 

 

September 30,
2024

 

 

December 31,
2023

 

Land and improvements(1)

 

$

2,901,152

 

 

$

2,878,400

 

Buildings and improvements

 

 

7,650,577

 

 

 

7,368,873

 

Leasehold interests

 

 

355

 

 

 

355

 

 

 

10,552,084

 

 

 

10,247,628

 

Less accumulated depreciation and amortization

 

 

(2,012,183

)

 

 

(1,863,451

)

 

 

8,539,901

 

 

 

8,384,177

 

Work in progress and improvements

 

 

79,447

 

 

 

144,068

 

Accounted for using the operating method

 

 

8,619,348

 

 

 

8,528,245

 

Accounted for using the direct financing method

 

 

2,577

 

 

 

3,033

 

Classified as held for sale(2)

 

 

3,564

 

 

 

4,573

 

 

$

8,625,489

 

 

$

8,535,851

 

 

(1)

Includes $39,373 and $96,464 in land for Properties under construction at September 30, 2024 and December 31, 2023, respectively.

 

(2)

As of September 30, 2024, two Properties were classified as held for sale. The one property classified as held for sale as of December 31, 2023 was sold during the nine months ended September 30, 2024.

 
Rental Income, Operating Leases

NNN recognized the following revenues in rental income (dollars in thousands):

 

 

 

Quarter Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Rental income from operating leases

 

$

213,447

 

 

$

200,287

 

 

$

634,088

 

 

$

596,099

 

Earned income from direct financing leases

 

 

116

 

 

 

140

 

 

 

353

 

 

 

427

 

Percentage rent

 

 

200

 

 

 

336

 

 

 

1,347

 

 

 

1,390

 

Rental revenues

 

 

213,763

 

 

 

200,763

 

 

 

635,788

 

 

 

597,916

 

Real estate expenses reimbursed from tenants

 

 

4,392

 

 

 

4,093

 

 

 

13,332

 

 

 

12,996

 

 

$

218,155

 

 

$

204,856

 

 

$

649,120

 

 

$

610,912

 
Intangible Assets, Lease Liabilities, and Related Amortization

In accordance with purchase accounting for the acquisition of real estate subject to a lease, NNN has recorded intangible assets and lease liabilities that consisted of the following at (dollars in thousands):

 

 

 

September 30,
2024

 

 

December 31,
2023

 

Intangible lease assets (included in other assets):

 

 

 

 

 

 

Above-market in-place leases

 

$

14,875

 

 

$

15,297

 

Less: accumulated amortization

 

 

(12,130

)

 

 

(12,080

)

Above-market in-place leases, net

 

$

2,745

 

 

$

3,217

 

 

 

 

 

 

 

 

In-place leases

 

$

119,143

 

 

$

122,802

 

Less: accumulated amortization

 

 

(86,722

)

 

 

(85,332

)

In-place leases, net

 

$

32,421

 

 

$

37,470

 

 

 

 

 

 

 

 

Intangible lease liabilities (included in other liabilities):

 

 

 

 

 

 

Below-market in-place leases

 

$

40,557

 

 

$

41,244

 

Less: accumulated amortization

 

 

(29,246

)

 

 

(29,117

)

Below-market in-place leases, net

 

$

11,311

 

 

$

12,127

 
Gains on Dispositions of Properties

The following table summarizes the properties sold and the corresponding gain recognized on the disposition of properties (dollars in thousands):

 

 

 

Quarter Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

 

 

# of Sold
Properties

 

Net
Gain

 

 

# of Sold
Properties

 

Net
Gain

 

 

# of Sold
Properties

 

Net
Gain

 

 

# of Sold
Properties

 

Net
Gain

 

Gain on disposition of real estate

 

9

 

$

7,765

 

 

13

 

$

19,992

 

 

29

 

$

30,207

 

 

26

 

$

40,222

 
Remaining Funding Commitments These construction commitments, as of September 30, 2024, are outlined in the table below (dollars in thousands):

 

Total commitment(1)

 

$

177,392

 

Less amount funded

 

 

(118,820

)

Remaining commitment

 

$

58,572

 

 

(1)

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

 
Real Estate Impairments

As a result of NNN's review of long-lived assets, including identifiable intangible assets, NNN recognized real estate impairments, net of recoveries as summarized in the table below (dollars in thousands):

 

 

 

Quarter Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Total real estate impairments, net of recoveries

 

$

760

 

 

$

1,001

 

 

$

2,908

 

 

$

3,675

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Properties:

 

 

 

 

 

 

 

 

 

 

 

 

Vacant

 

 

—

 

 

 

1

 

 

 

2

 

 

 

4

 

Occupied

 

 

2

 

 

 

1

 

 

 

5

 

 

 

2

 
v3.24.3
Stockholders' Equity (Tables)
 9 Months Ended
Sep. 30, 2024
Equity [Abstract]  
Schedule of ATM Program The following outlines NNN's ATM:

 

 

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, 2024

 

4,652,100

 

7,722,511
Schedule of Common Stock Issuances Pursuant to NNN's ATM

The following table outlines the common stock issuances pursuant to NNN's ATM (dollars in thousands, except per share data):

 

 

 

Quarter Ended
September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Shares of common stock

 

 

3,848,657

 

 

 

—

 

 

 

4,652,100

 

 

 

650,135

 

Average price per share (net)

 

$

46.31

 

 

$

—

 

 

$

45.51

 

 

$

43.52

 

Net proceeds

 

$

178,235

 

 

$

(300

)

 

$

211,727

 

 

$

28,292

 

Stock issuance costs(1)

 

$

2,899

 

 

$

(300

)

 

$

3,134

 

 

$

858

 

 

(1)

Stock issuance costs consist primarily of underwriters' and agents' fees and commissions, and legal and accounting fees.
Schedule of Common Stock Issuances Pursuant to NNN's DRIP The following outlines the common stock issuances pursuant to NNN's DRIP (dollars in thousands):

 

 

Quarter Ended
September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Shares of common stock

 

 

15,043

 

 

 

19,339

 

 

 

49,352

 

 

 

55,261

 

Net proceeds

 

$

675

 

 

$

763

 

 

$

1,988

 

 

$

2,302

 
Schedule of Dividends Declared and Paid The following table outlines the dividends declared and paid for NNN's common stock (dollars in thousands, except per share data):

 

 

Quarter Ended
September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Dividends

 

$

106,077

 

 

$

102,647

 

 

$

311,920

 

 

$

301,793

 

Per share

 

 

0.5800

 

 

 

0.5650

 

 

 

1.7100

 

 

 

1.6650

 
v3.24.3
Organization and Summary of Significant Accounting Policies (Summary of NNN's Investment Portfolio) (Details)
 9 Months Ended
Sep. 30, 2024
ft²
Property
State
Property Portfolio:  
Total properties | Property 3,549
Gross leasable area (square feet) | ft² 36,550,000
States | State 49
Weighted average remaining lease term (years) 10 years
v3.24.3
Organization and Summary of Significant Accounting Policies - (Summary of tenants classified as cash basis) (Details) - Tenant
Sep. 30, 2024
Sep. 30, 2023
Accounting Policies [Abstract]    
Number of tenants 11 8
Cash basis tenants as a percent of:    
Total Properties 4.30% 4.80%
Total annual base rent 5.60% 6.90%
Total gross leasable area 6.50% 6.40%
v3.24.3
Organization and Summary of Significant Accounting Policies - (Summary of tenants classified as cash basis) (Parenthetical) (Details) - USD ($)
Sep. 30, 2024
Sep. 30, 2023
Accounting Policies [Abstract]    
Lease income annualized on base rent $ 850,976,000 $ 800,194,000
v3.24.3
Organization and Summary of Significant Accounting Policies (Computation of Basic and Diluted Earnings per Share) (Details) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Basic and Diluted Earnings:        
Net earnings $ 97,904 $ 106,787 $ 298,941 $ 295,658
Less: Earnings allocated to unvested restricted shares (185) (171) (511) (448)
Net earnings used in basic and diluted earnings per share $ 97,719 $ 106,616 $ 298,430 $ 295,210
Basic and Diluted Weighted Average Shares Outstanding:        
Weighted average shares outstanding 185,094,982 182,424,814 183,780,842 182,092,117
Less: Unvested restricted shares (318,796) (290,458) (298,973) (268,713)
Less: Unvested contingent restricted shares (769,010) (736,083) (724,772) (702,441)
Weighted average shares outstanding used in basic earnings per share 184,007,176 181,398,273 182,757,097 181,120,963
Other dilutive securities 554,255 323,194 544,473 339,659
Weighted average shares outstanding used in diluted earnings per share 184,561,431 181,721,467 183,301,570 181,460,622
v3.24.3
Organization and Summary of Significant Accounting Policies (Changes in AOCI) (Details)
$ in Thousands
 9 Months Ended
Sep. 30, 2024
USD ($)
Accumulated Other Comprehensive Income (Loss) [Roll Forward]  
Balances $ 4,157,457
Balances 4,368,926
AOCI, cash flow hedges  
Accumulated Other Comprehensive Income (Loss) [Roll Forward]  
Balances (10,111) [1]
Reclassifications from accumulated other comprehensive income to net earnings 1,692 [1],[2]
Balances $ (8,419) [1]
[1]

(1)

Additional disclosure is included in "Note 4 – Notes Payable and Derivatives".
[2]

(2)

Recorded in interest expense on the Condensed Consolidated Statements of Income and Comprehensive Income. There is no income tax expense (benefit) resulting from this reclassification.
v3.24.3
Organization and Summary of Significant Accounting Policies (Narrative) (Details)
 3 Months Ended 9 Months Ended
Sep. 30, 2024
USD ($)
Sep. 30, 2023
USD ($)
Sep. 30, 2024
USD ($)
Segment
Sep. 30, 2023
USD ($)
Apr. 30, 2024
USD ($)
Dec. 31, 2023
USD ($)
Accounting Policies [Line Items]            
Interest costs capitalized $ 1,268,000 $ 1,248,000 $ 4,744,000 $ 2,374,000    
Revenue recognized on cash basis 10,446,000 $ 14,281,000 31,330,000 44,368,000    
Revolving credit facility borrowing capacity 1,200,000,000   $ 1,200,000,000      
Number of Operating Segments | Segment     1      
Classified as held for sale [1] 3,564,000   $ 3,564,000     $ 4,573,000
Write-off of outstanding receivables and related accrued rent     709,000 $ 348,000    
Escrow and other restricted accounts $ 4,986,000   $ 4,986,000     3,966,000
Land Improvements [Member]            
Accounting Policies [Line Items]            
Property estimated useful life 15 years   15 years      
Mortgage loan            
Accounting Policies [Line Items]            
Mortgage receivable $ 581,000   $ 581,000     1,002,000
Allowance for credit loss $ 12,000   $ 12,000     64,000
Minimum | Building and Building Improvements [Member]            
Accounting Policies [Line Items]            
Property estimated useful life 20 years   20 years      
Maximum | Building and Building Improvements [Member]            
Accounting Policies [Line Items]            
Property estimated useful life 40 years   40 years      
Revolving Credit Facility [Member]            
Accounting Policies [Line Items]            
Revolving credit facility borrowing capacity $ 1,200,000,000   $ 1,200,000,000   $ 1,100,000,000  
Loans Payable            
Accounting Policies [Line Items]            
Debt costs 43,820,000   43,820,000     42,595,000
Debt costs accumulated amortization $ 13,327,000   $ 13,327,000     $ 14,343,000
[1]

(2)

As of September 30, 2024, two Properties were classified as held for sale. The one property classified as held for sale as of December 31, 2023 was sold during the nine months ended September 30, 2024.

 
v3.24.3
Real Estate (Key Information for Leases) (Details)
 9 Months Ended
Sep. 30, 2024
Property
Lessor, Lease, Description [Line Items]  
Weighted average remaining lease term (years) 10 years
Leases classified as operating leases 3,541
Leases classified as direct financing leases 4
Minimum  
Lessor, Lease, Description [Line Items]  
Initial lease term 10 years
Maximum  
Lessor, Lease, Description [Line Items]  
Initial lease term 20 years
v3.24.3
Real Estate (Summary of Real Estate Subject to Operating Leases) (Details) - USD ($)
Sep. 30, 2024
Dec. 31, 2023
Property, Plant and Equipment [Line Items]    
Land and improvements [1] $ 2,901,152,000 $ 2,878,400,000
Buildings and improvements 7,650,577,000 7,368,873,000
Leasehold interests 355,000 355,000
Real estate subject to operating leases, gross 10,552,084,000 10,247,628,000
Less accumulated depreciation and amortization (2,012,183,000) (1,863,451,000)
Real estate subject to operating leases, net, before work in progress 8,539,901,000 8,384,177,000
Work in progress and improvements 79,447,000 144,068,000
Accounted for using the operating method 8,619,348,000 8,528,245,000
Accounted for using the direct financing method 2,577,000 3,033,000
Classified as held for sale [2] 3,564,000 4,573,000
Accounted for using the operating method, net of accumulated depreciation and amortization 8,625,489,000 8,535,851,000
Asset under construction    
Property, Plant and Equipment [Line Items]    
Land and improvements $ 39,373,000 $ 96,464,000
[1]

(1)

Includes $39,373 and $96,464 in land for Properties under construction at September 30, 2024 and December 31, 2023, respectively.
[2]

(2)

As of September 30, 2024, two Properties were classified as held for sale. The one property classified as held for sale as of December 31, 2023 was sold during the nine months ended September 30, 2024.

 
v3.24.3
Real Estate (Rental Income) (Details) - USD ($)
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Lease Income [Abstract]        
Rental income from operating leases $ 213,447,000 $ 200,287,000 $ 634,088,000 $ 596,099,000
Earned income from direct financing leases 116,000 140,000 353,000 427,000
Percentage rent 200,000 336,000 1,347,000 1,390,000
Rental revenues 213,763,000 200,763,000 635,788,000 597,916,000
Real estate expenses reimbursed from tenants 4,392,000 4,093,000 13,332,000 12,996,000
Rental income 218,155,000 204,856,000 649,120,000 610,912,000
Rental income accrued during period $ 123,000 $ 493,000 $ 8,000 $ 1,496,000
v3.24.3
Real Estate (Intangible Assets and Liabilities) (Details) - USD ($)
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Dec. 31, 2023
Intangible lease liabilities (included in other liabilities):          
Below-market in-place leases $ 40,557,000   $ 40,557,000   $ 41,244,000
Less: accumulated amortization (29,246,000)   (29,246,000)   (29,117,000)
Below-market in-place leases, net 11,311,000   11,311,000   12,127,000
Above-market in-place leases, net          
Intangible lease assets (included in other assets):          
Leases 14,875,000   14,875,000   15,297,000
Less: accumulated amortization (12,130,000)   (12,130,000)   (12,080,000)
Leases, net 2,745,000   2,745,000   3,217,000
In-place leases ,net          
Intangible lease assets (included in other assets):          
Leases 119,143,000   119,143,000   122,802,000
Less: accumulated amortization (86,722,000)   (86,722,000)   (85,332,000)
Leases, net 32,421,000   32,421,000   $ 37,470,000
Intangible lease liabilities (included in other liabilities):          
Amortization expense, in-place leases 1,457,000 $ 1,671,000 4,687,000 $ 5,197,000  
Above-market and below-market in-place leases          
Intangible lease liabilities (included in other liabilities):          
Amortization expense, above- and below-market leases $ 109,000 $ 115,000 $ 351,000 $ 349,000  
v3.24.3
Real Estate (Dispositions) (Details)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2024
USD ($)
Property
Sep. 30, 2023
USD ($)
Property
Sep. 30, 2024
USD ($)
Property
Sep. 30, 2023
USD ($)
Property
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]        
Gain | $ $ 7,765 $ 19,992 $ 30,207 $ 40,222
Assets Held-for-sale        
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]        
Number of properties sold at a gain | Property 9 13 29 26
v3.24.3
Real Estate (Commitments) (Details)
$ in Thousands
 9 Months Ended
Sep. 30, 2024
USD ($)
Property
Real Estate Properties [Line Items]  
Number of properties | Property 16
Total commitment $ 177,392 [1]
Less amount funded (118,820)
Real Estate Investment, Funding Commitments, Remaining Commitment, Total $ 58,572
Minimum [Member]  
Real Estate Properties [Line Items]  
Period for improvements to construction commitments 12 months
Maximum [Member]  
Real Estate Properties [Line Items]  
Period for improvements to construction commitments 18 months
[1]

(1)

Includes land, construction costs, tenant improvements, lease costs, capitalized interest and third-party costs.
v3.24.3
Real Estate (Impairments) (Details)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2024
USD ($)
Property
Sep. 30, 2023
USD ($)
Property
Sep. 30, 2024
USD ($)
Property
Sep. 30, 2023
USD ($)
Property
Real Estate [Abstract]        
Real estate impairments, net of recoveries | $ $ 760 $ 1,001 $ 2,908 $ 3,675
Vacant 0 1 2 4
Occupied 2 1 5 2
v3.24.3
Line of Credit Payable (Details) - USD ($)
 9 Months Ended
Sep. 30, 2024
Apr. 30, 2024
Line of Credit Facility [Line Items]    
Revolving credit facility borrowing capacity $ 1,200,000,000  
Revolving credit facility weighted average outstanding balance $ 75,769,000  
Weighted average interest rate 6.28%  
Option to increase facility size $ 2,000,000,000  
LIBOR    
Line of Credit Facility [Line Items]    
Basis spread on variable rate 77.50%  
SOFR    
Line of Credit Facility [Line Items]    
Basis spread on variable rate 10.00%  
Revolving Credit Facility [Member]    
Line of Credit Facility [Line Items]    
Revolving credit facility borrowing capacity $ 1,200,000,000 $ 1,100,000,000
Line of Credit    
Line of Credit Facility [Line Items]    
Line of credit payable $ 0  
v3.24.3
Notes Payable and Derivatives (Narrative) (Details) - USD ($)
 1 Months Ended 3 Months Ended 9 Months Ended
Jun. 30, 2024
May 31, 2024
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Dec. 31, 2023
Derivative [Line Items]              
Amortization of interest rate hedges     $ 450,000 $ 620,000 $ 1,692,000 $ 1,843,000  
Accrued interest payable     75,399,000   75,399,000   $ 34,374,000
Amortization of debt costs         4,538,000 3,648,000  
Interest rate cash flow hedge gain (loss) to be reclassified over next 12 months, net     1,858,000   1,858,000    
Notes Payable 2034 Member              
Derivative [Line Items]              
Aggregate principal amount issued   $ 500,000,000          
Debt interest rate percantage   5.50%          
Accrued interest payable     493,840,000   493,840,000    
Debt amortized interest expense         6,160,000    
Debt issuance costs     4,450,000   $ 4,450,000    
Debt note discount percentage         5.662%    
Net proceeds from debt issuance cost         $ 489,390,000    
Loans Payable              
Derivative [Line Items]              
Debt interest rate percantage 3.90%            
Notes payable redeemed $ 350,000,000            
Debt issuance costs     43,820,000   43,820,000   $ 42,595,000
Redemption price percentage 100.00%            
Loans Payable | Notes Payable 2034 Member              
Derivative [Line Items]              
Redemption price percentage   100.00%          
AOCI, cash flow hedges              
Derivative [Line Items]              
Amortization of interest rate hedges         8,419,000    
Accumulated Other Comprehensive Income (Loss)              
Derivative [Line Items]              
Amortization of interest rate hedges     $ 450,000 $ 620,000 $ 1,692,000 $ 1,843,000  
v3.24.3
Stockholders' Equity (Additional Information) (Details) - $ / shares
 3 Months Ended 9 Months Ended
Oct. 31, 2024
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Feb. 29, 2024
Dec. 31, 2023
Class of Stock [Line Items]              
Common stock, shares authorized (in shares)   375,000,000   375,000,000     375,000,000
Common stock dividends declared and paid (in dollars per share)   $ 0.58 $ 0.565 $ 1.71 $ 1.665    
Subsequent Event              
Class of Stock [Line Items]              
Common stock dividends declared and paid (in dollars per share) $ 0.58            
DRIP              
Class of Stock [Line Items]              
Common stock, shares authorized (in shares)           4,000,000  
v3.24.3
Stockholders' Equity (ATM Program) (Details) - USD ($)
$ / shares in Units, $ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Dec. 31, 2023
Class of Stock [Line Items]          
Total allowable shares (in shares) 375,000,000   375,000,000   375,000,000
Total shares issued (in shares) 187,525,891   187,525,891   182,474,770
Net proceeds     $ 216,934 $ 31,528  
Stock issuance costs     $ 13,103 $ 4,248  
ATM equity programs          
Class of Stock [Line Items]          
Shares of common stock (in shares) 3,848,657 0 4,652,100 650,135  
Average price per share (net) (in dollars per share) $ 46.31 $ 0 $ 45.51 $ 43.52  
Net proceeds $ 178,235 $ (300) $ 211,727 $ 28,292  
Stock issuance costs [1] $ 2,899 $ 300 $ 3,134 $ 858  
2020 ATM          
Class of Stock [Line Items]          
Total allowable shares (in shares) 17,500,000   17,500,000    
Total shares issued (in shares) 7,722,511   7,722,511    
2023 ATM          
Class of Stock [Line Items]          
Total allowable shares (in shares) 17,500,000   17,500,000    
Total shares issued (in shares) 4,652,100   4,652,100    
[1]

Stock issuance costs consist primarily of underwriters' and agents' fees and commissions, and legal and accounting fees.
v3.24.3
Stockholders' Equity (DRIP) (Details) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Class of Stock [Line Items]        
Net proceeds     $ 216,934 $ 31,528
DRIP        
Class of Stock [Line Items]        
Shares of common stock (in shares) 15,043 19,339 49,352 55,261
Net proceeds $ 675 $ 763 $ 1,988 $ 2,302
v3.24.3
Stockholders' Equity (Dividends) (Details) - USD ($)
$ / shares in Units, $ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Class of Stock [Line Items]        
Common stock dividends     $ 311,920 $ 301,793
Common stock dividends declared (in dollars per share) $ 0.58 $ 0.565 $ 1.71 $ 1.665
DRIP [Member]        
Class of Stock [Line Items]        
Common stock dividends $ 106,077 $ 102,647 $ 311,920 $ 301,793
Common stock dividends per share (in dollars per share) $ 0.58 $ 0.565 $ 1.71 $ 1.665
v3.24.3
Fair Value of Financial Instruments (Details) - USD ($)
Sep. 30, 2024
Dec. 31, 2023
Fair Value Disclosures [Abstract]    
Fair value of notes payable $ 4,043,176,000 $ 3,801,367,000
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