NNN REIT, Inc.

Good morning, ladies and gentlemen, and welcome to the National Retail Properties Third Quarter 2021 operating results. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Jay Whitehurst. Sir, the floor is yours.

Thank you, Matthew. Good morning, and welcome to the National Retail Properties Third Quarter 2021 earnings call. Joining me on this call is Chief Financial Officer Kevin Hobbitt and Chief Operating Officer Steve Horn. We're pleased to report another solid quarter for National Retail Properties with increasing acquisition volume, high occupancy and rent collections, and a rock solid balance sheet. We increased our common stock dividend in August, making 2021 our 32nd consecutive year of increased dividends. Only 86 other U.S. public companies, including only two other REITs, can offer that impressive track record of consistent dividend growth to investors. And as our press release this morning indicates, we are again raising our guidance for 2021 core FFO per share to a range of $2.80 to $2.84 per share, which reflects an approximate 9 percent increase over 2020 performance. We're also issuing guidance for 2022 core FFO per share of $2.90 to $2.97, reflecting approximately 4% growth over 2021 from midpoint to midpoint. Kevin will provide more details on the individual factors behind our guidance for both 2021 and 2022, but the Reader's Digest version of the story is that National Retail Properties is humming on all cylinders. Turning to the highlights of our third quarter financial results, our portfolio of 3,195 freestanding single tenant retail properties continues to perform exceedingly well. Occupancy ticked up slightly from the prior quarter to 98.6% and remains above our long-term average of 98%. We also announced collection of 99% of rents due for the third quarter. collection of previously deferred rent remained at an equally high percentage, and we forgave 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 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. Our acquisitions, which are sourced primarily from our portfolio of relationship tenants with which we do repeat, programmatic, long-term sale leaseback transactions, continue to ramp up. During the third quarter, we invested $247 million in 49 new properties at an initial cash cap rate of 6.4% and with an average lease duration of 19 years. Year to date, we've invested $455 million in 107 new properties at an initial cash cap rate of 6.5% and an average lease duration of 18 years. Our relationship tenants, with which we do the majority of our business, have returned to growth mode and our transaction volume has ticked up accordingly. We've increased our 2021 acquisition guidance to a range of $550 million to $600 million, and we've issued initial guidance for 2022 acquisitions in the range of $550 million to $650 million, as we anticipate returning to our typical pre-pandemic run rate of acquisition volume. During the third quarter, we also sold 27 properties, raising $30 million of proceeds to be reinvested into new acquisitions. Year to date, we've now raised over $70 million from the sale of 53 properties, divided roughly equally between leased properties and vacant properties. Our balance sheet remains one of the strongest in our sector, highlighted by our issuance of $450 million of 3% interest-only 30-year notes in September. With over $200 million of cash remaining after redemption of our 5.2% preferred in October, a zero balance on our $1.1 billion line of credit, no material debt maturities until 2024, and a weighted average debt duration of almost 15 years, we have one of the strongest balance sheets in our sector and remain well positioned to fund future acquisitions and take advantage of opportunities that may present themselves. On the personnel front, I want to once again say thank you to our talented and resilient associates, for their hard work, flexibility, respect, and professionalism. We reopened our office fully in July, and I'm absolutely certain that we are all better together under one roof. I'm also proud of our company's recent recognition as a 2021 Cigna Wellbeing Award recipient. Let me close by reiterating our long-term approach to all aspects of our business. Although we will continue to review and refine our strategy, We believe that the right long-term approach for creating consistent per share growth on a multi-year basis is to own a broadly diversified portfolio of well-located real estate acquired at reasonable prices and leased to strong regional and national tenants at reasonable rents, all supported by a low leverage balance sheet and long tenured staff of industry experts. This strategy has, once again, proven to be resilient and durable during a period of upheaval and crisis, and has put us in a great position to play offense as we look ahead to 2022 and beyond. With that, I'll turn the call over to Kevin for more details on our third quarter results and 2022 guidance.

Thanks, Jay. As usual, I'll start with a cautionary statement. We will make certain statements that may be considered to be forward-looking statements under federal securities law. 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, as Jay mentioned, headlines from this morning's press release report quarterly core FFO results of 71 cents per share for the third quarter of 2021. That's up one cent from the preceding second quarter, 70 cents per share, and up nine cents from the prior years, 62 cents per share. Today we also reported that AFFO was 75 cents per share for the third quarter. That's down two cents from the preceding second quarter 77 cents, and that's largely a result of scheduled deferral repayments beginning to taper off from the peak levels in the first half of 2021. We did footnote this AFFO amount included 4.3 million of deferred rent payment in our accrued rental income adjustment for the third quarter. without which would have produced AFFO of 73 cents per share. Excluding all deferral repayments, our AFFO dividend payout ratio for the first nine months was 73.5%, and that's fairly consistent with prior year levels. Jay noted occupancy was 98.6% at quarter end. That's fairly consistent with recent quarters. G&A expense was $11.1 million for the third quarter, and that increase for the quarter and the nine months is really largely driven by incentive compensation. We ended the quarter with $706 million of annual base rent in place for all leases as of September 30th, 2021. As Jay mentioned, rent collections continue to remain strong in the third quarter. with rent collections of approximately 99% for the third quarter. Collections from our cash basis tenants, which represent about 50 million or 7.1% of our total annual base rent improved to approximately 94% for the third quarter. That's up from 92% in the second quarter and 80% previously reported in the first quarter of 2021. Today, we did increase our 2021 core FFO per share guidance to a range of $2.75 to $2.80 per share. And that's up from a range of, I'm sorry, we increased it from a range of $2.75 to $2.80 to a new range of $2.80 to $2.84 per share. And similarly, increased the AFFO guidance to a range of $3 to $3.04 per share. Notably, this guidance exceeds our 2019 results by approximately 2 to 2.5% despite the headwinds and reduced acquisition levels in 2020. Today's 2021 guidance incorporates the continued strong collections and increased acquisition activity. Some of the assumptions for this guidance are noted on page 7 in today's Press release, and they're largely unchanged from last quarter's guidance with the exception of the increased acquisition guidance of 550 million to 600 million of acquisitions versus the previous guidance of 400 to 500 million. We expect to continue the high level of rent collection rates, but have assumed a total of 1.5%, 1.5% of potential rent loss. In time, we're optimistic that will drift back towards our usual 1.0% rent loss assumption in our guidance. Today, we also initiated 2022 core FFO per share guidance of $2.90 to $2.97 per share. That represents a 4.1% increase over 2021 results using the guidance midpoint for both years. 2022 AFFO guidance was set at $2.99 to $3.06 per share, and that reflects the scheduled slowdown and deferral repayments in 2022 as noted on page 13 of the press release. The supporting assumptions for the 2022 guidance is on page seven of today's press release. It includes G&A expense of $45 to $47 million, real estate expenses net of tenant reimbursements of $10 to $12 million, acquisition volume of $550 to $650 million, skewed 40-60 between first half and second half of 2022, and disposition volume of $80 to $100 million. We've assumed rent collections remain at high levels and have assumed potential rent loss of 1.5% of annual base rent. Switching over to the balance sheet, largely as a result of the $450 million 30-year 3% debt offering we completed in September, we ended the third quarter with $543.5 million of cash on hand. However, $345 million of that cash was used shortly after quarter end on October 15th to redeem our 5.2% preferred stock. That would have left us with approximately $200 million of cash on a pro forma basis and no amounts outstanding on our $1.1 billion bank credit facility at quarter end. So our liquidity remains in excellent shape. Weighted average debt maturity is now approximately 14.9 years with a 3.7% weighted average fixed interest rate. Our next debt maturity is $350 million of 3.9% coupon debt that's due in mid-2024. So with leverage and liquidity in very good shape, the balance sheet is well positioned for 2022. A couple of leverage debt, net debt to gross book assets was 39.8%. Net debt to EBITDA was 5.4 times. And that's at September 30th, and that's pro forma for the preferred redemption that we completed soon after quarter end. Interest coverage was 4.8 times and fixed charge coverage was 4.2 times for the third quarter of 2021. That is not pro forma for the preferred redemption and the dividends on the preferred So 2021 looks to be another very solid year. We're well positioned to continue that performance into 2022. And as Jay noted, our focus remains on the long term as we continue to endeavor to grow per share results on a consistent basis. So with that, Matthew, we will open it up to any questions.