NNN REIT, Inc.

Good morning, ladies and gentlemen, and welcome to the National Retail Properties First Quarter 2022 Earnings Call. 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, President and CEO, Steve Horn. Sir, the floor is yours.

Thank you, Matthew. Good morning, and welcome to the National Retail Properties First Quarter 2022 Earnings Call. Joining me on this call is our Chief Financial Officer, Kevin Havik. As this morning's press release reflects, 2022 is also a fantastic start for national retail properties. Beyond our financial results, post the quarter, early April, NNN released inaugural Corporate Responsibility and Sustainability Report. We created the report with the ISOs group. The report includes and highlights NNN's commitments, achievements, and initiatives on ongoing Also, before we get into the financial and portfolio detail, I want to address the current direction of NNN. As I mentioned earlier this year, I plan to continue executing the long-standing business model of NNN, locating, underwriting, and acquiring real estate with the right operators, all while delivering consistent year-over-year core FFO growth. We remain vigilant and continuously evaluating market opportunities but I currently plan to stay the course of delivering repeatable growth. Given our strong beginning of the year, we are pleased to announce an increase in our guidance for 2022 Core FFO from a range of 293 to 3 per share to a range of 301 to 308 per share. Kevin will have more details on this increase in his remarks. Turning to the highlights of our first quarter financial results, Our portfolio of 3,271 freestanding single-tenant properties continued to perform exceedingly well. Occupancy ticked up 20 basis points, ending the quarter at 99.2, which remains above our long-term average of 98. The increase is a result of activity out of our leasing department. The department enjoyed a high level of interest by a number of strong national and regional tenants to take out some of our vacancies. During the quarter, NNN did not have any credit issues within the portfolio. It's starting to be a trend here at NNN that we can report for five consecutive quarters we have had zero tenants in bankruptcy. Although we continue to maintain our traditional discipline in our underwriting, we acquired 59 new properties in the quarter for approximately $210 million at an initial cap rate of 6.2 and with an average lease duration of 17 years. Almost all of our acquisitions this past quarter were sale-leaseback transactions, and that is a result of the in-depth calling effort of our NNN's Acquisition Department. NNN prides itself on maintaining the relationships business model, with which we do repeat business. In an environment where cap rates remain at an all-time low, we will continue to be very thoughtful in our underwriting and primarily pursue sale-leaseback transactions with our relationship tenants. With regard to the acquisition pricing environment, The Q1 initial acquisition cash cap rate of 6.2 was a historic low for M&M. As mentioned during the February call, we expected a little more pressure on the cap rates for 2022 than 2021. As we now sit here at the beginning of May, it feels like cap rates have bottomed out and private competition has dissipated a little. This is a result of M&M feeling that cap rate compression for the moment is behind us. During the first quarter, we also sold 10 properties and generated about $20 million in proceeds, which will be reinvested into accretive acquisitions. This activity is on pace with our disposition guidance of $80 to $100 million. So I finish up, and at the risk of sounding like a broken record, Kevin and his team keep the balance sheet rock solid. We ended the first quarter with $54 million of cash in the bank, zero balance in our $1.1 billion line of credit, no material debt maturities until mid-2024. Thus, NNN is in terrific position to fund our 2022 acquisition target of 550 to 650 new properties. In summary, our occupancy rate, leasing activity, rent collection outcomes, we still believe, once again, validates our consistent long-term strategy acquiring well-located parcels, leased to strong regional and national operators at reasonable rents. will maintain a strong and flexible balance sheet. With that, let me turn the call over to Kevin for more detail on our quarterly numbers and updated guidance.

Thanks, Steve. And I'll start with the usual cautionary note that we may 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, the headlines from this morning's press release report quarterly core FFO results of 77 cents per share for the first quarter of 2022. That's up 8 cents or 11.6% over Q1 2021 and it's up 2 cents or 2.7% from the immediately preceding fourth quarter of 2021. Today, we also reported that AFFO per share was 79 cents per share for the first quarter. That's up two cents from the immediately preceding fourth quarter of 2021, 77 cents. These results include about a penny from some one-time items in Q1, about $1 million of lease termination revenue and $600,000 of percentage rent. We did footnote first quarter AFFO included $1.8 million of deferred rent repayment and our accrued rental income adjustment for the first quarter, without which would have produced an AFFO of 78 cents per share, as we've noted there. As these scheduled deferred rent repayments continue to taper off from peak levels in the first half of 2021, we're seeing improved results kicking in from our 2021 and 2022 acquisitions. I will also note that we took a $3.6 million charge in the first quarter in connection with the retirement of our CEO, all of which related to non-cash vesting of stock awards and was excluded in our core FFO and AFFO calculations. Excluding the deferred rent repayments I mentioned earlier, our AFFO dividend payout ratio for the first quarter of 2022 was 68%, and that's fairly consistent with historical levels. Occupancy, as Steve mentioned, was 99.2% a quarter, and that's up slightly from recent quarters. G&A expense came in at $11 million, and that's down from $11.7 million a year ago levels. We ended the quarter with $732 million of annual base rent in place for all leases as of March 31, 2022, which we think is a good starting point for folks thinking about projections going forward. Today, as Steve mentioned, we increased our 2022 core FFO per share guidance from a range of $2.93 to $3 per share. to a range of $3.01 to $3.08 per share. And similarly, we increased the AFFO guidance to a range of $3.08 to $3.15 per share, which reflects the scheduled slowdown in the deferral repayments in 2022 that we noted on page 13 of today's press release. The supporting assumptions for our 2022 guidance are on page 7 of today's press release and are largely unchanged from last quarter's guidance, albeit we are excluding any executive retirement charges from our guidance. We continue to assume a 1% rent loss assumption in our guidance, which is what we've normally assumed in our guidance for a number of years. despite the fact that we typically run at about half of that rent loss level normally, and that's where we are operating today as well. As usual, we don't give guidance on any of our assumptions for capital markets activity except for the general assumption that we intend to behave in a fairly leveraged, neutral manner over the long term. Switching over to the balance sheet, very quiet first quarter in terms of capital market activity. We were active in the debt markets last year, and are not unhappy to be on the sidelines at the moment. We ended the first quarter with $54 million of cash, nothing outstanding on our $1.1 billion bank line. So our liquidity remains in great shape. Our weighted average debt maturity is now 14.5 years, which seems to be among the longest in the industry. Our next debt maturity, as Steve mentioned, is $350 million of 3.9% debt coming due in mid-2024. and all of our outstanding debt is fixed rate debt. So leverage and liquidity is in very good shape, and the balance sheet is well positioned for 2022. Just a couple of numbers, Seth. Net debt to gross book assets was 40.5% at quarter end. Net debt to EBITDA was 5.3 times at March 31st. And interest coverage and fixed charge coverage was both 4.7 times for the first quarter. So 2022 is off to a very good start. While there's increased level of economic and capital market uncertainty, we are well positioned for such. And as Steve alluded to, possibly may lead to more disciplined acquisition environment, which we think is helpful to us at the margin. Core 2022 FFO guidance. now suggests 6% growth to the midpoint without any heroic assumptions. Our focus remains on growing per share results over the long term. And Matthew, with that, we will open it up to any questions.