NNN REIT, INC. 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 ofNNN REIT, Inc. for the year endedDecember 31, 2022 ("2022 Annual Report"). The term "NNN" or the "Company" refers toNNN REIT, Inc. and all of its consolidated subsidiaries. EffectiveMay 1, 2023 ,National Retail Properties, Inc. changed its name toNNN REIT, Inc.
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 are
some of the risks and uncertainties, although not all risks and uncertainties,
that could cause our actual results to differ materially from those presented in
our 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 NNN's 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 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;
•
NNN's ability to fully control the management of its net-leased properties may
be limited;
•
Vacant properties or bankrupt tenants 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,
could adversely affect NNN's business, disrupt operations and expose NNN to
liabilities to tenants, employees, capital providers, and other third parties;
•
Future investment in international markets could subject NNN to additional
risks;
•
NNN may suffer a loss in the event of a default of 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;
•
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;
•
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;
19
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The cost 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 2022 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, aMaryland 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 ofMarch 31, 2023 , NNN owned 3,449 Properties, with an aggregate gross leasable area of approximately 35,251,000 square feet, located in 49 states, with a weighted average remaining lease term of 10.3 years. Approximately 99 percent of the Properties were leased as ofMarch 31, 2023 . 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 ratios and profitability measures, industry trends and industry performance compared to that of NNN. 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, geography and tenant's line of trade. NNN's largest line of trade concentrations are the restaurant (including full and limited service) (17.9%), convenience store (16.3%), and automotive service (14.4%) 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 south and southeastUnited 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. 20 -------------------------------------------------------------------------------- As ofMarch 31, 2023 and 2022, the Property Portfolio remained at least 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.
Additional information related to NNN and the Property Portfolio is included in NNN's 2022 Annual Report.
Results of Operations Property Analysis
General. The following table summarizes the Property Portfolio:
March 31, December 31, March 31,
2023 2022 2022
Properties Owned:
Number 3,449 3,411 3,271Total gross leasable area (square feet) 35,251,000 35,010,000
33,545,000
Properties:
Leased and unimproved land 3,429 3,390
3,245
Percent of Properties - leased and unimproved land 99 % 99 % 99 % Weighted average remaining lease term (years) 10.3 10.4
10.6
Total gross leasable area (square feet) - leased 35,019,000 34,829,000
33,258,000
The following table summarizes the diversification of the Property Portfolio based on the top 20 lines of trade:
% of Annual Base Rent(1)
March 31, December 31, March 31,
Lines of Trade 2023 2022 2022
1. Convenience stores 16.3% 16.5% 17.5%
2. Automotive service 14.4% 13.7% 12.6%
3. Restaurants - full service 9.0% 9.1% 9.7%
4. Restaurants - limited service 8.9% 8.9%
9.2%
5. Family entertainment centers 5.8% 5.9% 6.2% 6. Health and fitness 4.8% 4.9% 5.0% 7. Theaters 4.3% 4.3% 4.4%
8. Recreational vehicle dealers, parts and 4.1% 4.1%
4.1%
accessories
9. Equipment rental 3.1% 3.1% 3.1%
10. Automotive parts 2.6% 2.6% 3.0%
11. Wholesale clubs 2.6% 2.6% 2.4%
12. Drug stores 2.6% 2.6% 1.2%
13. Home improvement 2.3% 2.3% 2.4%
14. Furniture 2.1% 2.3% 2.4%
15. Medical service providers 1.9% 1.9% 2.0%
16. General merchandise 1.5% 1.6% 1.6%
17. Home furnishings 1.4% 1.4% 1.5%
18. Consumer electronics 1.4% 1.4% 1.5%
19. Travel plazas 1.3% 1.4% 1.5%
20. Automobile auctions, wholesale 1.2% 1.3% 1.3%
Other 8.4% 8.1% 7.4%
100.0% 100.0% 100.0%
(1) Based on annualized base rent for all leases in place for each respective period.
21
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Property Acquisitions. The following table summarizes the Property acquisitions
(dollars in thousands):
Quarter Ended March 31,
2023 2022
Acquisitions:
Number of Properties 43 59
Gross leasable area (square feet)(1) 275,000 879,000
Cap rate(2) 7.0 % 6.2 %
Total dollars invested(3) $ 156,244 $ 210,823 (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
unsecured revolving credit facility (the "Credit Facility") or by issuing its
debt or equity securities in the capital markets.
Property Dispositions. The following table summarizes the Properties sold by NNN
(dollars in thousands):
Quarter Ended March 31,
2023 2022
Number of properties 6 10
Gross leasable area (square feet) 16,000 81,000
Net sales proceeds $ 11,925 $ 20,074 Net gain on disposition of real estate
6.6 % 5.9 %
(1) The cap rate is a weighted average of properties occupied at disposition,
calculated as the cash annual base rent divided by the total sales price of
the properties.
NNN typically uses the proceeds from a Property disposition to either pay down the Credit Facility or reinvest in real estate.
Analysis of Revenue
General. During the quarter endedMarch 31, 2023 , total revenues increased as compared to the same period in 2022, primarily due to the income generated from newly acquired Properties. (See "Results of Operations - Property Analysis - Property Acquisitions").
The following table summarizes NNN's revenues (dollars in thousands):
Quarter Ended Percent
March 31, Increase
2023 2022 (Decrease)
Rental Revenues(1) $ 199,090 $ 185,163 7.5 %
Real estate expense reimbursement from
tenants 4,540 4,600 (1.3 )%
Rental income 203,630 189,763 7.3 %
Interest and other income from real
estate transactions 478 516 (7.4 )%
Total revenues $ 204,108 $ 190,279 7.3 %
(1) Includes rental income from operating leases, earned income from direct
financing leases and percentage rent ("Rental Revenues").
22--------------------------------------------------------------------------------
Quarter Ended
Rental Income. Rental income increased for the quarter endedMarch 31, 2023 , as compared to the same period in 2022. The increase is primarily due to Property acquisitions:
•
a partial period of Rental Revenue from 43 Properties with aggregate gross leasable area of approximately 275,000 square feet acquired in 2023, and
•
a full period of Rental Revenue from 223 Properties with aggregate gross leasable area of approximately 2,629,000 square feet acquired in 2022.
Analysis of Expenses
General. Operating expenses increased for the quarter ended
Quarter Ended
March 31, Percent Increase
2023 2022 (Decrease)
General and administrative $ 12,251 $ 11,042 10.9 %
Real estate 6,846 7,198 (4.9 )%
Depreciation and amortization 59,148 52,680 12.3 %
Leasing transaction costs 75 88 (14.8 )%
Impairment losses - real estate, net of
recoveries 2,640 1,632 61.8 %
Executive retirement costs 423 3,594 (88.2 )%
Total operating expenses $ 81,383 $ 76,234 6.8 %
Interest and other income $ (33 ) $ (35 ) (5.7 )%
Interest expense 38,891 36,699 6.0 %
Total other expenses $ 38,858 $ 36,664 6.0 %
As a percentage of total revenues:
General and administrative 6.0% 5.8%
Real estate 3.4% 3.8%
Quarter Ended
General and Administrative. General and administrative expenses increased in amount and as a percentage of total revenues for the quarter endedMarch 31, 2023 , as compared to the same period in 2022. The increase is primarily attributable to an increase in long-term incentive compensation costs. Depreciation and Amortization. Depreciation and amortization expenses increased for the quarter endedMarch 31, 2023 , as compared to the same period in 2022, primarily due to the acquisition of 43 Properties with an aggregate gross leasable area of approximately 275,000 square feet in 2023 and 223 Properties with an aggregate gross leasable area of approximately 2,629,000 square feet in 2022. 23 -------------------------------------------------------------------------------- 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 as summarized in the table below (dollars in thousands): Quarter EndedMarch 31, 2023 2022
Total real estate impairments, net of recoveries
1,632 Number of Properties: Vacant 3 3 Occupied 1 2 For the quarters endedMarch 31, 2023 and 2022, real estate impairments, net of recoveries, was 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. Executive Retirement Costs. Executive retirement costs decreased for the quarter endedMarch 31, 2023 , as compared to the same period in 2022. InApril 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 inJanuary 2022 . During the quarters endedMarch 31, 2023 and 2022, NNN recorded executive retirement costs in connection with the long-term incentive compensation related to the retirement and transition agreement. Interest Expense. Interest expense increased for the quarter endedMarch 31, 2023 , as compared to the same period in 2022. The increase is primarily due to the Credit Facility having a weighted average outstanding balance of$182,350,000 with a weighted average interest rate of 5.35% for the quarter endedMarch 31, 2023 compared to no weighted average outstanding balance for the quarter endedMarch 31, 2022 .
Liquidity and Capital Resources
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 development; (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 the issuance of public or private equity or debt capital market transactions; (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 and advances from NNN's Credit Facility. As ofMarch 31, 2023 , NNN had$3,240,000 of cash and cash equivalents and$891,000,000 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 debt outstanding. 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. 24 --------------------------------------------------------------------------------
Cash Flows. NNN had
Quarter Ended March 31,
2023 2022
Cash and cash equivalents:
Provided by operating activities
(142,346 ) (189,643 )
Used in financing activities (39,928 ) (92,281 )
Decrease (1,452 ) (117,586 )
Net cash at beginning of period 6,778 171,322
Net cash at end of period $ 5,326 $ 53,736
Cash flow activities include:
Operating Activities. Cash provided by operating activities represents cash
received primarily from Rental Revenue 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 quarters ended March 31, 2023 and
2022, 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 or
proceeds from its Credit Facility to fund the acquisition of its Properties.
Financing Activities. NNN's financing activities for the quarter ended
•
•
•
•
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 ofMarch 31, 2023 (see "Capital Structure") (dollars in thousands): Date of Obligation Total 2023 2024 2025 2026 2027 Thereafter Long-term debt(1)$ 3,809,774 $ 9,774 (2)$ 350,000 $ 400,000 $ 350,000 $ 400,000 $ 2,300,000 Long-term debt - interest(3) 1,787,713 102,472 129,006 120,750 106,225 91,233 1,238,027 Credit Facility 209,000 - - 209,000 - - - Headquarters office lease 10,721 618 837 210 981 1,005 7,070 Total contractual cash obligations$ 5,817,208 $ 112,864 $ 479,843 $ 729,960 $ 457,206 $ 492,238 $ 3,545,097
(1) Includes only principal amounts outstanding under mortgages payable and notes
payable and excludes unamortized mortgage premiums, note discounts and debt
costs.
(2) In
of
this repayment. (3) Interest calculation on notes payable based on stated rate of the principal
amount.
25--------------------------------------------------------------------------------Property Construction . NNN has committed to fund construction on 32 Properties. The improvements of such Properties are estimated to be completed within 12 months. These construction commitments, atMarch 31, 2023 , are outlined in the table below (dollars in thousands): Total commitment(1)$ 253,106 Less amount funded (100,365 ) Remaining commitment$ 152,741
(1) Includes land, construction costs, tenant improvements, lease costs and
capitalized interest.
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. Properties. Generally, the Properties are leased under long-term triple net leases, which require the tenant to pay all property 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.
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.
As of
Additionally, as ofApril 27, 2023 , 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 two tenants currently in bankruptcy under Chapter 11 of theU.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 March 31,
2023 2022
Common stock:
Dividends $ 99,401 $ 92,751
Per share 0.550 0.530
In
26
--------------------------------------------------------------------------------Capital Structure
NNN has used, and expects to use in the future, various forms of debt and equity
securities primarily to pay down or refinance its outstanding debt, to finance
property acquisitions and to fund construction on its Properties.
The following is a summary of NNN's total outstanding debt as of (dollars in
thousands):
March 31, Percentage December 31, Percentage
2023 of Total 2022 of Total
Line of credit payable $ 209,000 5.3 % $ 166,200 4.2 %
Mortgages payable(1) 9,774 0.2 % 9,964 0.3 %
Notes payable 3,740,945 94.5 % 3,739,890 95.5 %
Total outstanding debt $ 3,959,719 100.0 % $ 3,916,054 100.0 %
(1) In
of
this repayment.
Line of Credit Payable. NNN's$1,100,000,000 Credit Facility had a weighted average outstanding balance of$182,350,000 and a weighted average interest rate of 5.35% during the quarter endedMarch 31, 2023 . InDecember 2022 , NNN entered into an amendment to the Credit Facility, to change the base interest rate from 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 inJune 2025 , unless the Company exercises its options to extend maturity toJune 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 as debt costs on the Condensed Consolidated Balance Sheets. As ofMarch 31, 2023 ,$209,000,000 was outstanding and$891,000,000 was available for future borrowings under the Credit Facility, and NNN was in compliance with each of the financial covenants. Universal Shelf Registration Statement. InAugust 2020 , NNN filed a shelf registration statement with theSecurities and Exchange Commission (the "Commission") which was automatically effective and permits the issuance by NNN of an indeterminate amount of debt and equity securities. Information related to NNN's publicly held debt and equity securities is included in NNN's 2022 Annual Report.
Net Stated Effective
Notes Issue Date Principal Discount(1) Price Rate Rate(2) Maturity Date 2024(3) May 2014$ 350,000 $ 707$ 349,293 3.900% 3.924% June 2024(4) 2025(3) October 2015 400,000 964 399,036 4.000% 4.029% November 2025(4) 2026(3) December 2016 350,000 3,860 346,140 3.600% 3.733% December 2026(4) 2027(3) September 2017 400,000 1,628 398,372 3.500% 3.548% October 2027(4) 2028(3) September 2018 400,000 2,848 397,152 4.300% 4.388% October 2028 2030(3) March 2020 400,000 1,288 398,712 2.500% 2.536% April 2030 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(3) September 2021 450,000 10,422 439,578
3.000% 3.118%
(1) The note discounts are amortized to interest expense over the respective term
of each debt obligation using the effective interest method. (2) Includes the effects of the discount at issuance. (3) NNN entered into forward starting swaps which were hedging the risk of
changes in forecasted interest payments on forecasted issuance of long-term
debt. Upon the issuance of a series of unsecured notes, NNN terminated such
derivatives, and the resulting fair value was deferred in other comprehensive
income. The deferred liability (asset) is being amortized over the term of
the respective notes using the effective interest method. Additional
disclosure is included in Note 5 - Notes Payable and Derivatives. (4) The aggregate principal balance of the unsecured note maturities for the next
five years is $1,500,000 .
27-------------------------------------------------------------------------------- Each series of the notes represents senior, unsecured obligations of NNN and is subordinated to all secured debt of NNN. Each of the notes is redeemable at the option of NNN, in whole or in part, at a redemption price equal to the sum of (i) the principal amount of the notes being redeemed plus all accrued and unpaid interest thereon through the redemption date and (ii) the make-whole amount, if any, as defined in the applicable supplemental indenture relating to the notes. In connection with the outstanding debt offerings, NNN incurred debt issuance costs totaling$38,145,000 consisting primarily of underwriting discounts and commissions, legal and accounting fees, rating agency fees and printing expenses. Debt issuance costs for all note issuances have been deferred and presented as a reduction to notes payable and are being amortized over the term of the respective notes using the effective interest method. In accordance with the terms of the indentures, pursuant to which NNN's notes have been issued, NNN is required to meet certain restrictive financial covenants, which, among other things, require NNN to maintain (i) certain leverage ratios and (ii) certain interest coverage. AtMarch 31, 2023 , NNN was in compliance with those covenants.
At-The-Market Offerings. Under NNN's shelf registration statement, NNN established an ATM equity program which allows NNN to sell shares of common stock from time to time. The following outlines NNN's ATM program:
2020 ATM
Established date August 2020
Termination date August 2023
Total allowable shares 17,500,000
Total shares issued as of
The following table outlines the common stock issuances pursuant to NNN's ATM
equity program for the quarter ended
Shares of common stock 349,809 Average price per share (net)$ 45.95 Net proceeds$ 16,074 Stock issuance costs(1)$ 294
(1) Stock issuance costs consist primarily of underwriters' fees and commissions,
and legal and accounting fees.
There were no common stock issuances pursuant to NNN's ATM equity program for
the quarter ended
Dividend Reinvestment and Stock Purchase Plan. InFebruary 2021 , NNN filed a shelf registration statement that was automatically effective with the Commission 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 (dollars in thousands): Quarter Ended March 31, 2023 2022 Shares of common stock 17,760 17,571 Net proceeds$ 822 $ 748 28
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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 byU.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 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 condensed consolidated financial statements. 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 are included in NNN's 2022 Annual Report. NNN has not made any material changes to these policies during the periods covered by this Quarterly Report on Form 10-Q. 29
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