34 Years of Annual Dividend Increases

NNN REIT, Inc. (NYSE: NNN), a real estate investment trust, invests primarily in high-quality retail properties subject to long-term leases. As of March 31, 2024, the company owned 3,546 properties in 49 states with a gross leasable area of approximately 36.1 million square feet and with a weighted average remaining lease term of 10.0 years.

President and CEO Steve Horn talks to Advisor Access about the company’s strategy that has led to 34 successive years of dividend growth.

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Advisor Access: Would you provide an overview of NNN REIT?

Steve Horn: The company has been listed on the New York Stock Exchange for 30 years, but we’ve been in business for a little over 40 years. We are a real estate investment trust with a 99.4%-occupied portfolio of more than 3,500 single-tenant, net-leased properties leased to almost 400 tenants in 49 states that has increased its annual dividend for 34 consecutive years. NNN shareholders have realized long-term value at below average risk through our simple but consistent strategy: grow our business 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; maintain a conservative balance sheet management strategy.

AA: NNN REIT invests in single-tenant net-leased retail properties throughout the United States. Why do you find this provides stronger performance through various economic cycles than other tenant types?

SH: We own 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. 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 98.1% so we think that is a validation of our investment strategy and thorough underwriting approach.

AA: NNN REIT has increased its dividend for 34 consecutive years, one of only three REITs to have done so. How is the firm able to achieve this?

SH: Our goal at NNN is not acquisition volume; it is Core FFO per share growth year-over-year. We target mid-single digit per share Core FFO growth, which allows us to reasonably grow the dividend while keeping our payout ratio low. Having a low payout ratio means that we maintain a cushion protecting our dividend. So if an unexpected market disruption occurs, we’re still well-positioned to maintain, and hopefully increase, our annual dividend. Our conservative capital management strategy and strong portfolio occupancy combine to enhance the stability of our annual dividend.

AA: Last year NNN invested $819.7 million in property investments, including the acquisition of 165 properties. Would you explain NNN’s acquisition approach?

SH: There are two key elements to our acquisition approach. First, we are long-term, relationship-based and we partner with large regional or national operators. Some, actually, are global. And we look for partners, not financial engineers. We’re investing in their business. We want to be a good real estate partner, and we want to find a good operating partner who we think will be successful for the long term. Second, we maintain an internal return on equity hurdle: designed to help ensure that when we deploy capital, we are sufficiently compensating NNN shareholders. This instills an internal culture of discipline that keeps us focused on buying high quality properties at reasonable prices.

AA: We’ve discussed NNN’s positioning for long-term growth and value creation. How do you handle vacancies?

SH: Overall, our battle-tested portfolio is performing exceptionally well. The current 99.4% occupancy rate sits slightly higher than our 25-year average occupancy of 98.1%. However, we do business with retailers and occasionally challenges do present themselves. From time to time, we will have tenants file for bankruptcy or look to terminate a lease because of a merger, etc. When we do get a vacancy, our strategy is to re-lease, sell or redevelop vacant properties, whichever option creates the highest net present value. Historically, we have averaged an 85% renewal rate with existing tenants.

AA: Is there anything else you would like investors to know about NNN?

SH: NNN has maintained a light capital market footprint. We don’t want to be in a position where we would regularly need to access the capital markets in order to execute our strategy. NNN is well-positioned to execute our 2024 strategy with minimal capital market activity. Leveraging disciplined use of our $1.2 billion credit facility, combined with approximately $190 million in annual free cash flow and an anticipated $100 million from disposition activities, we aim to continue our thoughtful approach to capital deployment. Management takes pride in being best-in-class capital allocators, prioritizing quality over quantity.

AA: Thank you, Steve.

Stephen (Steve) A. Horn, Jr. has served as President and Chief Executive Officer 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’s 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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