NNN REIT, Inc.

Please stand by. We're about to begin. Good day, ladies and gentlemen, and welcome to the National Retail Properties second quarter 2021 operating results call. After the presentation, there will be a question and answer session. If you should require assistance during the call, please press star zero and an operator will assist you. At this time, it's my pleasure to turn the floor over to Mr. Jay Whitehurst, CEO. Sir, the floor is yours.

Thank you, Tom. Good morning and welcome to the National Retail Properties second quarter 2021 earnings call. Joining me on this call is Chief Financial Officer Kevin Hobbitt and Chief Operating Officer Steve Horn. As this morning's press release reflects, National Retail Properties performance in 2021 continues to produce strong results, including continued high occupancy, impressive rent collections, and solid acquisitions driven by our proprietary tenant relationships. We're well positioned to continue enhancing shareholder value as we look ahead to the balance of 2021 and beyond. In July, we announced a roughly 2% increase in our common stock dividend effective later this month, thus making 2021 our 32nd consecutive year of annual dividend increases. National Retail Properties is in the select company of only 85 U.S. public companies, including only two other REITs, which have achieved this impressive track record. Based on our strong performance, we announced today a further increase in our 2021 guidance for core FFO per share to a range of $2.75 to $2.80 per share. Our long-standing strategy is designed and executed to generate consistent, per-share growth on a multi-year basis. And as the disruption caused by the pandemic and related store closures is easing, the value of this long-term approach is reflected in our second guidance increase this year. Turning to the highlights of National Retail Properties' second quarter financial results, our portfolio of 3,173 freestanding single-tenant retail properties continued to perform exceedingly well. Occupancy was consistent with the prior quarter at 98.3%, which remains above our long-term average of 98%. We also announced collection of 99% of rents due for the second quarter. Collection of previously deferred rent remained at an equally high percentage, and we forgave almost no rent during the quarter. These impressive collection results compare very favorably to other retail real estate companies, including those with a significantly higher percentage of investment grade tenants. Moreover, we believe that these results validate our strategy of doing direct sale leaseback transactions with large regional and national operators for well-located real estate parcels at low cost per property and reasonable rents. And while we're on the topic of large tenants, I'm pleased to report that one of our top tenants, Mr. Carwash, recently completed its initial public offering. Congratulations to John Lye and the entire management team at this impressive company. Mr. Carwash was one of our first relationship tenants 15 years ago, and we're very proud of the role that National Retail Properties has played in that company's growth and success. Turning to acquisitions, during the quarter we invested just under $103 million in 29 new properties at an initial cash cap rate of 6.7% and with an average lease duration of over 17 years. Almost all of our acquisitions were from relationship tenants with which we do repeat programmatic business. Year to date, we've invested over $208 million in 58 new properties leased to 10 different relationship tenants at an initial cash cap rate of 6.5% and an average lease duration of 17.5 years. In an environment where cap rates remain near all-time lows, we will continue to be very thoughtful in our underwriting and primarily pursue sale-leaseback transactions with our portfolio of relationship tenants. Based on our pipeline and conversations with those relationship tenants, we remain comfortable with our ability to meet and hopefully exceed our 2021 acquisition guidance of $400 to $500 million, primarily via direct sale leaseback transactions with long-duration leases. During the second quarter, we also sold 15 properties, raising almost $23 million of proceeds to be reinvested in new acquisitions. And year to date, we've now raised over $40 million from the sale of 26 properties, including 15 vacant properties. Although job one is always to release vacancies, and our leasing team does an excellent job of it, we'll continue to sell non-performing assets if we don't see a clear path to generating rental income within a reasonable time period. Our balance sheet remains one of the strongest in our sector. In June, Kevin led the recast of our unsecured line of credit, increasing the capacity of our facility from $900 million to $1.1 billion. Although our credit line has been upsized, the balance outstanding remains the same, zero, and we ended the quarter with approximately $250 million of cash on hand. With no material debt maturities until 2024, we remain well positioned to fund our 2021 acquisition guidance without needing to tap the capital markets. And with that intro, let me turn the call over to Kevin for more color on our quarterly numbers and updated guidance. Thanks, Jay.

And as usual, I'll start with a cautionary statement that we will make certain statements that may be considered to be forward-looking statements under federal securities laws. The company's actual future results may differ significantly from the matters discussed in these forward-looking statements, and we may not release revisions to these forward-looking statements to reflect changes after the statements were made. factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the SEC and in this morning's press release. With that, headlines from this morning's press release report quarterly core FFO results of 70 cents per share for the second quarter of 2021. That's up one cent from the preceding first quarter, 69 cents per share, and it's up five cents from The prior year, $0.65. Today, we also reported that AFFO per share was $0.77 per share for the second quarter, and that's also up $0.01 from the preceding first quarter's $0.76. We did footnote this amount includes $8.3 million of deferred rent repayments and our accrued rental income adjustment in the second quarter, AFFO number. So without that, we would have produced AFFO of 72 cents per share. Excluding those deferral repayments, our AFFO dividend payout ratio for the first six months was 72.7%. That's fairly consistent with prior years levels. Occupancy, as Jay mentioned, is 98.3% at quarter end. That's been fairly flat compared to recent quarters. G&A expense was $11.9 million for the second quarter. The increase for the quarter and the six months is largely driven by incentive compensation. Rent collections continue to remain strong in the second quarter. As Jay mentioned, today we reported rent collections of approximately 99% for the second quarter rent. Collections from our cash basis tenants, which represent about 7% of our total annual base rent, improved to approximately 92% for the second quarter rent, and that's up from 80% previously reported for that cohort in the first quarter of 2021. As Jay noted, we increased our 2021 core FFO per share guidance from a range of $2.70 to $2.75 per share to a new range of $2.75 to $2.80 per share. This incorporates the better than expected rent collections and the actual results from the first half of 2021. Some of the assumptions supporting this guidance are noted on page seven of today's press release, which are largely unchanged from last quarter's guidance. The driver for the increase in our full year guidance is the assumed higher rent collection rate, more in line with our current collection rates. So while we previously assumed 80% rent collection from the $50 million of cash basis tenant annual base rent, we are now assuming 90% rent collections. That incremental 10% amounts to about $5 million on an annual basis. And for the remainder of our tenants, we continue to assume 1% of potential rent loss. And again, that's consistent with our prior guidance. We ended the quarter with $250 million of cash on hand and no amounts outstanding on our newly recast $1.1 billion bank credit facility. This bank line, as Jay noted, increased from $900 million in size to $1.1 billion. The interest rate was reduced 10 basis points to LIBOR plus 77 basis points, and maturity was extended to June of 2025. Our liquidity is in excellent shape. Our weighted average debt maturity is now 13 years with a 3.7% weighted average fixed interest rate. Our next debt maturity is $350 million with a 3.9% coupon in mid-2024. The very good liquidity and leverage position have no real need to raise any additional capital to meet 2021 acquisition guidance. and we're well positioned as we look forward to 2022. A couple numbers, net debt to gross book assets was 35%. At quarter end, net debt to EBITDA was 5.0 times at June 30. Interest coverage, 4.7 times, and fixed charge coverage, 4.2 times for the second quarter. Only five of our 3,000-plus properties are encumbered by mortgages. So 2021 is shaping up to be a very solid year for us as the economy and retailers capture the government stimulus, which feels like it will have some tailwinds into 2022. Our focus remains on the long term as we continue to endeavor to give NNN the best opportunity to succeed in the coming years and, importantly, growing per share results. And with that, Tom, we will open it up to any questions.