NNN REIT, Inc. (NYSE: NNN):
33 Years of Annual Dividend Increases
National Retail Properties (NYSE: NNN), a real estate investment trust, invests primarily in high-quality retail properties subject to long-term leases. As of March 31, 2023, the company owned 3,449 properties in 49 states with a gross leasable area of approximately 35.3 million square feet and with a weighted average remaining lease term of 10.3 years.
President and CEO Steve Horn talks to Advisor Access about the company’s strategy that has led to 33 successive years of dividend growth.
Click to view the NNN REIT Fact Sheet.
Click to view the NNN REIT Investor Presentation.
Advisor Access: Your company announced its name change to NNN REIT, Inc. What brought about the change?
Steve Horn: I’m excited about the name change. NNN has a legacy of consistency. The name NNN REIT capitalizes on our three decades of equity using NNN as our ticker symbol on the New York Stock Exchange as well as two decades using “nnnreit” as the foundation of our website, email addresses and toll-free phone number. The majority of the people in our circle of investors, peers and clients were already referring to us as NNN so this move simply leans into that already strong NNN REIT brand.
AA: For readers unfamiliar with NNN REIT, would you provide an overview of the company?
SH: We are a real estate investment trust with a broadly diversified portfolio of more than 3,400 single-tenant, net-leased properties in 49 states that has increased its annual dividend for 33 consecutive years. The building blocks for NNN shareholders continuing to realize long-term value at below average risk are pretty simple: execute our strategy using a bottom-up approach; increase the annual dividend yearly and ensure its safety; grow Core FFO (funds from operation) per share in the mid-single digits year over year; and maintain a conservative balance sheet management strategy.
AA: NNN has the third longest annual dividend increase track record of all public REITs and 99% of all public companies. How is the firm able to accomplish this?
SH: We take a multi-year view to all aspects of operating the business. Part of that is positioning the company financially so that we are prepared for what we don’t know is coming. Let me explain: Our AFFO (adjusted funds from operation) payout ratio for the first quarter of 2023 was approximately 67%. That means that we maintain a cushion protecting our dividend; so, if an unexpected portfolio disruption occurs, we’re still well-positioned to maintain and hopefully increase our annual dividend. Our conservative capital management strategy and strong portfolio occupancy have combined to position us to achieve 33 consecutive annual dividend increases to date.
AA: NNN also has a steady track record of high occupancy. You reported 99.4% portfolio occupancy in the last quarter. In this challenging macroeconomic environment, how has the company been able to maintain or even increase its occupancy rates?
SH: First, it starts by owning single-tenant properties. We have one building with one tenant on our properties. So, our buildings are either occupied or they are not. We don’t have issues that owners of other property types have to manage. Second, our underwriting process is deliberate and thorough. We look at each new property we are bringing into our portfolio from multiple perspectives. We obviously look at the current tenant and get comfortable with their operation and have confidence that they will be there for the length of the lease term. But we also evaluate the real estate characteristics of each property in depth so we are able to formulate contingency plans with an eye toward what potential alternative users of that site might find attractive down the road should that site ever become vacant. Our 25-year average occupancy rate is 98%, so we think that is a validation of our investment strategy and thorough underwriting approach.
AA: Your team had a record year of $847.7 million of new property acquisitions in 2022. What impact do rising interest rates have on your plans for 2023?
SH: Again, we take a measured approach with a multi-year view to everything we do. Our rock-solid balance sheet with a $1.1 billion line of credit and no material debt maturities due until 2024 keeps us well-positioned to remain competitive as opportunities arise. As I mentioned on our recent earnings call, while we saw cap rates steadily increase in 2022, we are now seeing them plateau to some degree. We are well-capitalized and have a strong pipeline of deals to evaluate. Any slight increases in interest rates won’t impact the long-term, fixed rate debt we have in place. We’ll remain opportunistic while continuing to be selective in our relationships and prudent with our underwriting.
AA: Is there anything else you would like investors to know about NNN?
SH: We’re on solid footing after a strong first quarter with $155 million in property acquisitions at an initial cap rate of 7% and a 19-year weighted average lease term and continued strong occupancy. We’ll continue to focus on growing our Core FFO and providing long-term shareholder value.
AA: Thank you, Steve.
Stephen (Steve) A. Horn, Jr. has served as President and Chief Executive Officer of NNN REIT, Inc. since April 2022. Previously, Steve served as Executive Vice President and Chief Operating Officer since August 2020, overseeing the acquisitions, underwriting, asset management, dispositions, legal and human resources departments. He had previously served as Chief Acquisition Officer since January 2014. Since that time, he has overseen the acquisition of approximately $5.1 billion of new investment properties as the company’s portfolio grew to more than 3,200 properties. Steve previously served as Senior Vice President of Acquisitions for the Company from June 2008 to December 2013, and as Vice President of Acquisitions of the Company from 2003 to 2008. Prior to 2003, he worked in the mergers and acquisitions group at A.G. Edwards & Sons in St. Louis, Missouri. He is a member of the National Association of Real Estate Investment Trusts and the International Council of Shopping Centers.
Investors and others should note that NNN REIT, Inc. posts important financial information, including non-GAAP reconciliations, using the investor relations section of the NNN REIT website, www.nnnreit.com, and Securities and Exchange Commission filings.
The material, information and facts discussed in this report are from sources believed to be reliable, but are in no way guaranteed to be complete or accurate. This report should not be used as a complete analysis of the company, industry or security discussed in the report. This is not an offer or solicitation of the securities discussed. Advisor-Access LLC and/or its employees, contractors and owners, may purchase or sell the securities mentioned in this report from time to time. Any opinions or estimates in this report are subject to change without notice. This report contains forward-looking statements that can be identified by the use of words such as “expect,” “intend,” “potential.” Forward-looking statements are predictions based on current expectations and assumptions regarding future events and are not guarantees or assurances of any outcomes, results, performance or achievements. You are cautioned not to place undue reliance upon these statements. These forward-looking statements are subject to a number of estimates and assumptions, and known and unknown risks, uncertainties and other factors. NNN REIT’s actual results may vary materially from those discussed in the forward-looking statements as a result of factors and uncertainties disclosed in NNN REIT’ reports filed with the Securities and Exchange Commission, which should be reviewed together with these forward-looking statements. The securities discussed may involve a high degree of risk and may not be suitable for all investors. NNN REIT has paid Advisor Access a fee to distribute this email. NNN REIT had final approval of the content and is wholly responsible for the validity of the statements and opinions.
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