NNN REIT INC

Previous wording

This section generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this annual report on Form 10-K can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission ("Commission" or "SEC") on February 9, 2023.

Current wording

This section generally discusses 2024 and 2023 and year-to-year comparisons. Discussions of 2023 and 2022 year-to-year comparisons that are not included in this annual report on Form 10-K can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission ("Commission" or "SEC") on February 8, 2024.

Previous wording

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 real estate investment trust subsidiaries ("TRS"). Effective May 1, 2023, National Retail Properties, Inc. changed its name to NNN REIT, Inc.

Current wording

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 real estate investment trust subsidiaries ("TRS").

Previous wording

As of December 31, 2023, NNN owned 3,532 Properties in 49 states, with an aggregate gross leasable area of approximately 35,966,000 square feet, and a weighted average remaining lease term of 10.1 years. Approximately 99 percent of the Properties were leased as of December 31, 2023.

Current wording

As of December 31, 2024, NNN owned 3,568 Properties in 49 states, with an aggregate gross leasable area of approximately 36,557,000 square feet, and a weighted average remaining lease term of 10 years. Approximately 98 percent of the Properties were leased as of December 31, 2024.

Previous wording

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, geographic and line of trade 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.

Current wording

NNN's management team focuses on certain key indicators to evaluate the financial condition and operating performance of NNN. Key indicators 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.

Previous wording

NNN continues to maintain its diversification by tenant, geography and tenant's line of trade. NNN's largest lines of trade concentrations are the restaurant (17.2%) (including full and limited service), convenience store (16.4%), automotive service (15.6%) and family entertainment centers (6.4%) 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 (26.4%) and south (22.9%) 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.

Current wording

NNN continues to maintain its diversification by tenant, line of trade and geography. NNN's largest line of trade concentrations are the convenience store (17.0%), automotive service (16.9%), restaurant (16.2%) (including full and limited service) and family entertainment centers (7.2%) 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 (25.5%) and south (24.7%) 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.

Previous wording

As of December 31, 2023, 2022 and 2021, 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 net lease structure, provides enhanced probability of maintaining operating earnings.

Current wording

As of December 31, 2024 and 2023, the Property Portfolio remained at least 98 percent leased and had a weighted average remaining lease term of approximately 10 years. High occupancy levels coupled with a net lease structure, provides enhanced probability of achieving consistent operating results.

Previous wording

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.

Current wording

Lease Accounting. NNN records its leases on the Property Portfolio in accordance with FASB ASC Topic 842, Leases ("ASC 842").

Previous wording

NNN's real estate is generally leased to tenants on a net lease basis, whereby the tenant is responsible for all operating expenses relating to the Property, including property taxes, insurance, maintenance, repairs and capital expenditures.

Current wording

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.

Previous wording

NNN typically funds Property acquisitions either through borrowings under NNN's unsecured revolving credit facility (the "Credit Facility"), by issuing its debt or equity securities in the capital markets, with undistributed funds from operations or with proceeds from the sale of Properties.

Current wording

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.

Previous wording

Real Estate. Real estate expenses increased in amount and remained consistent as a percentage of revenues for the year ended December 31, 2023, as compared to the same period in 2022. NNN focuses on real estate expenses, net of reimbursements from tenants. NNN's net real estate expenses for the years ended December 31, 2023 and 2022 were $9,615,000 and $8,479,000, respectively. The increase is primarily attributable to non-reimbursable real estate expenses and certain properties that became vacant.

Current wording

Real Estate. Total real estate expenses increased for the year ended December 31, 2024, as compared to the same period in 2023. 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 increased in amount and as a percentage of total revenues for the year ended December 31, 2024 as compared to the same period in 2023 primarily due to a minor increase in the number of vacant properties.

Previous wording

Depreciation and Amortization. Depreciation and amortization expenses increased in amount for the year ended December 31, 2023, as compared to the same period in 2022. The increase is primarily attributable to the increase in NNN's Property Portfolio from recent acquisitions (see "Results of Operations – Property Analysis – Property Acquisitions").

Current wording

Depreciation and Amortization. Depreciation and amortization expenses increased in amount for the year ended December 31, 2024, as compared to the same period in 2023. The increase is primarily attributable 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").

Previous wording

Executive Retirement Costs. In April 2022, the former President and Chief Executive Officer retired from employment, as contemplated under the Company's long-term executive succession planning process and as previously announced in January 2022. During the years ended December 31, 2023 and 2022, NNN recorded executive retirement costs in connection with the long-term incentive compensation related to the retirement and transition agreement.

Current wording

Executive Retirement Costs. In April 2022, the former President and Chief Executive Officer retired from employment, as contemplated under the Company's long-term executive succession planning process and as previously announced in January 2022. In addition, in January 2024, the former Executive Vice President, General Counsel and Secretary retired from employment as previously announced in November 2023. During the years ended December 31, 2024 and 2023, NNN recorded executive retirement costs in connection with the long-term incentive compensation related to these retirement and transition agreements.

Previous wording

Interest Expense. Interest expense increased for the year ended December 31, 2023, compared to the same period in 2022. The increase is primarily due to:

Current wording

Interest Expense. Interest expense increased for the year ended December 31, 2024, compared to the same period in 2023. The following represents the primary changes in fixed rate long-term debt that impacted interest expense (dollars in thousands):

Previous wording

the Credit Facility having a weighted average outstanding balance of $169,620,000 with a weighted average interest rate of 5.86% for the year ended December 31, 2023 compared to a weighted average outstanding balance of $39,220,000 with a weighted average interest rate of 4.13% for the year ended December 31, 2022.

Current wording

The increase in interest expense was partially offset by the Credit Facility having a weighted average outstanding balance of $60,775,000 with a weighted average interest rate of 6.25% for the year ended December 31, 2024, compared to a weighted average outstanding balance of $169,620,000 with a weighted average interest rate of 5.86% for the year ended December 31, 2023.

Previous wording

Properties are leased to tenants under long-term, net leases which typically require the tenant to pay certain operating expenses for a Property, thus, NNN's exposure to inflation is reduced with respect to these expenses. Inflation may have an adverse impact on NNN's tenants and challenge their ability to meet lease obligations, including to pay rent. See "Item 1A. Risk Factors."

Current wording

Properties are leased to tenants under long-term triple-net leases which typically require the tenant to pay certain operating expenses for a Property, thus, NNN's exposure to inflation is reduced with respect to these expenses. Inflation may have an adverse impact on NNN's tenants and challenge their ability to meet lease obligations, including to pay rent. See "Item 1A. Risk Factors."

Previous wording

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

Current wording

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 debt, and (v) other investments.

Previous wording

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.

Current wording

Financing Strategy. NNN's financing objective is to manage its capital structure effectively in order to provide sufficient capital to execute its operating and investing strategies 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.

Previous wording

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 December 31, 2023, NNN had $5,155,000 of cash, cash equivalents and restricted cash and $968,000,000 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.

Current wording

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 December 31, 2024, NNN had $9,062,000 of cash, cash equivalents and restricted cash or cash held in escrow and $1,200,000,000 was 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.

Previous wording

As of December 31, 2023, NNN's ratio of total debt, none of which was secured debt, to total gross assets (before accumulated depreciation and amortization) was approximately 42 percent. The ratio of total debt to total market capitalization was approximately 36 percent. Certain financial agreements to which NNN is a party contain covenants that limit NNN's ability to incur additional debt under certain circumstances. The organizational documents of NNN do not limit the absolute amount or percentage of debt that NNN may incur.

Current wording

As of December 31, 2024, NNN's ratio of total debt, none of which was secured debt, to total gross assets (before accumulated depreciation and amortization) was approximately 40 percent. The ratio of total debt to total market capitalization was approximately 37 percent. Certain financial agreements to which NNN is a party contain covenants that limit NNN's ability to incur additional debt under certain circumstances. The organizational documents of NNN do not limit the absolute amount or percentage of debt that NNN may incur.

Previous wording

Cash Flows. NNN had $5,155,000 in cash and cash equivalents, of which $3,966,000 was restricted cash or cash held in escrow at December 31, 2023. The table below summarizes NNN's cash flows for each of the years ended December 31 (dollars in thousands):

Current wording

Cash Flows. NNN had $9,062,000 of cash, cash equivalents and restricted cash, of which $331,000 was restricted cash or cash held in escrow at December 31, 2024. The table below summarizes NNN's cash flows for each of the years ended December 31 (dollars in thousands):

Previous wording

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 year presented. The change in cash provided by operations for the years ended December 31, 2023, 2022 and 2021, 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.

Current wording

Operating Activities. Cash provided by operating activities represents cash received primarily from rental income less cash used for general and administrative and interest expenses. NNN's cash flow from operating activities has been sufficient to pay the distributions for each year presented. The change in cash provided by operations for the years ended December 31, 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.

Previous wording

$34,200,000 in net repayments of NNN's Credit Facility,

Current wording

$132,000,000 in net repayments of NNN's Credit Facility,

Previous wording

$483,930,000 in net proceeds from the issuance of the 5.600% notes payable due in October 2033,

Current wording

$489,390,000 in net proceeds from the issuance in May of the 5.500% notes payable due in June 2034,

Previous wording

$28,292,000 from the issuance of 650,135 shares of common stock in connection with the at-the-market equity program ("ATM"),

Current wording

$211,619,000 from the issuance of 4,652,100 shares of common stock in connection with the at-the-market equity program ("ATM"),

Previous wording

$3,082,000 from the issuance of 76,229 shares of common stock in connection with the Dividend Reinvestment and Stock Purchase Plan (“DRIP”),

Current wording

$2,634,000 from the issuance of 64,654 shares of common stock in connection with the Dividend Reinvestment and Stock Purchase Plan (“DRIP”), and

Previous wording

$404,458,000 in dividends paid to common stockholders, and

Current wording

$420,239,000 in dividends paid to common stockholders.

Previous wording

Property Construction. NNN has committed to fund construction of 53 Properties. The improvements of such Properties are estimated to be completed within 12 to 18 months. These construction commitments, at December 31, 2023, are outlined in the table below (dollars in thousands):

Current wording

Property Construction. NNN has committed to fund construction of 15 Properties. The improvements of such Properties are estimated to be completed within 12 to 18 months. These construction commitments, at December 31, 2024, are outlined in the table below (dollars in thousands):

Previous wording

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 asset dispositions.

Current wording

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.

Previous wording

Properties. Typically, the Properties are leased under long-term triple net leases, which require the tenant to pay all real estate taxes and assessments, utilities, 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.

Current wording

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.

Previous wording

The lost revenues and increased property expenses resulting from vacant Properties or the inability to collect lease revenues 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.

Current wording

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.

Previous wording

As of December 31, 2023, NNN owned 18 vacant, un-leased Properties which accounted for less than one percent of total Properties and less than one percent of aggregate gross leasable area held in the Property Portfolio.

Current wording

As of December 31, 2024, NNN owned 54 vacant, un-leased Properties which accounted for less than two percent of total Properties and approximately two percent of aggregate gross leasable area held in the Property Portfolio.

Previous wording

Additionally, as of January 31, 2024, less than one percent of total Properties, and less than one percent of aggregate gross leasable area held in the Property Portfolio, was leased to one tenant currently in bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. As a result, this tenant has the right to reject or affirm their leases with NNN.

Current wording

Additionally, as of January 31, 2025, less than one percent of total annualized base rent, less than one percent of total Properties, and less than one percent of aggregate gross leasable area held in the Property Portfolio, was leased to three 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.

Previous wording

Common Stock 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.

Current wording

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.

Previous wording

On January 16, 2024, NNN declared a dividend of $0.5650 per share, payable February 15, 2024, to its common stockholders of record as of January 31, 2024.

Current wording

On January 14, 2025, NNN declared a dividend of $0.580 per share, payable February 14, 2025, to its common stockholders of record as of January 31, 2025.

Previous wording

Line of Credit Payable. NNN's $1,100,000,000 Credit Facility had a weighted average outstanding balance of $169,620,000 and a weighted average interest rate of 5.86% during the year ended December 31, 2023. In December 2022, NNN entered into an amendment to the Credit Facility, to change the base interest rate from London Interbank Offered Rate ("LIBOR") to 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 June 2025, unless the Company exercises its options to extend maturity to June 2026. 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 asdebt costs on the Consolidated Balance Sheet. As of December 31, 2023, there was $132,000,000 outstanding and $968,000,000 available for future borrowings under the Credit Facility.

Current wording

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 credit facility, the "Credit Facility"). The Credit Facility had a weighted average outstanding balance of $60,775,000 and a weighted average interest rate of 6.25% during the year ended December 31, 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 asdebt costs on the Consolidated Balance Sheet. As of December 31, 2024, there was no outstanding balance and $1,200,000,000 was available for future borrowings under the Credit Facility.

Previous wording

In connection with the outstanding note offerings, NNN incurred debt issuance costs totaling $42,595,000 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.

Current wording

In connection with the outstanding note 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.

Previous wording

Dividend Reinvestment and Stock Purchase Plan. In February 2021, NNN filed a shelf registration statement that was automatically effective with the Commission for a term of three years, for its DRIP, which permits NNN to issue up to 6,000,000 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 for the years ended December 31 (dollars in thousands):

Current wording

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 for the years ended December 31 (dollars in thousands):