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spk05: Greetings and welcome to the NNNREIT second quarter 2023 earnings conference call. At this time all participants are on a listen only mode and a question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Steve Horn. Sir, you may begin.
spk09: Thanks, Ali. Good morning, and welcome to NNN's second quarter 2023 earnings call. Joining me on the call is Chief Financial Officer Kevin Hobbins. As this morning's press release reflects, M&N's performance in the second quarter produced 1.3% core FFO per share growth over prior year's results, along with investments of slightly over $180 million with a 7.2% initial cash yield. The solid acquisitions for the quarter are driven by our tenant relationships. In addition, our portfolio continued with a high occupancy of 99.4%. and strong lease renewals for the quarter that have been trending above historical levels year to date. These results have NNN in position to create shareholder value as we transition into the second half of 2023 and beyond. In July, we announced an increase in our common stock dividend to be paid August 15th, thus making 2023 our 34th consecutive year of annual dividend increases. NNN is in select company of the under 75 U.S. public companies, including two other REITs, which have achieved this impressive record of accomplishment. Based on our first six-month performance, we announced an increase of our 2023 core FFO guidance to a range of 317 to 322 per share. Our long-standing strategy is designed to deliver consistent per-share growth on a multi-year basis. This discipline of this long-term approach is reflected in the guidance increase during the current challenging economic backdrop. Turning to the highlights of the quarter, our portfolio of 3,479 freestanding single-tenant properties continued to perform exceptionally well, maintained high occupancy levels of 99.4 for four consecutive quarters, which remains above our long-term 98% average. At quarter end, NNN only had 22 vacant assets, which is the result of our leasing department's effort working in non-performing properties and creating value for NNA. In addition, nearly 90% of the leases that were up for renewal during the quarter exercised an extension at 105% of the prior rent. Moving to acquisitions, during the quarter we invested just north of $180 million in 36 new properties with an initial cash cap rate of 7.2%, with an average lease duration of 19.7. We closed on 19 transactions in the quarter, and 17 were from our relationship tenants that we do repeat business. The first half of the year, we invested over $337 million in 79 new properties with an initial cash cap rate of 7.1 and an average lease duration of 19.4. Given that M&M closed on roughly 60% of the original midpoint acquisition guidance, Coupled with the visibility of our acquisition pipeline, NNN has bumped up acquisition volume guidance to $600 to $700 million for the year. Almost all of our acquisitions this year are long-term lease deals, defined 15 to 20 years. And that is a result of the calling effort of NNN's acquisition team. NNN prides itself on maintaining the relationship business model and targeting sale-leaseback transactions. There is a lot that goes into deploying capital at the right risk-adjusted returns and the value of NNN's lease form as a tool to mitigate risk within the portfolio, which is easier to obtain if you have the sale-leaseback model, can sometimes be overlooked. With regard to the acquisition pricing environment, as I mentioned in the May call, we are seeing that cap rate increases started to plateau and stabilize. That played out in the second quarter as expected with a 20 basis point increase over Q1 versus the 40 basis point pickup quarter before. The first six months cash cap rate was 7.1, which is 90 basis points higher year over year. As far as the second half of the year, I'm seeing NNN's initial cap rates slightly higher than the second quarter in the range of 10 to 20 basis points. During the quarter, we also sold seven properties, two which were vacant, raised 28 million of proceeds at a 5.1 cap rate to be easily reinvested into their creative acquisitions. Year-to-date, we have now raised $40 million in proceeds and a 5.6 cap rate from the sale of 13 properties, including five vacant. Although job one is to release vacancies, in year-to-date, NNN has had a 97% rent recapture with minimal TI dollars reinvested. We will continue to sell non-performing assets if we cannot see a clear path to generate rental income within a reasonable timeframe. The current banking conditions, along with the higher interest rates, are creating a softer 1031 market, but NNN is navigating the water successfully. Our balance sheet remains one of the strongest in our sector. Our credit facility has plenty of capacity, no material debt maturities until mid-2024, strong free cash flow, and a viable disposition strategy. NNN is well positioned to fund our 2023 acquisition guidance. In closing, I want to thank our associates for their dedication and hard work for putting in position to finish 2023 strong and set us up for 2024 and beyond. With that, let me turn the call over to Kevin for some more color and detail on our quarterly numbers and updated guidance.
spk08: Thanks, Steve. 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 produce 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. Okay, with that, headlines from this morning's press release report quarterly core FFO results of $0.80 per share for the second quarter of 2023. That's up $0.03 or 1.3% over a year ago results of $0.79 per share. And first half 2023 results were $1.60 per share, which represents an increase of 2.6% over the prior year results. AFFO for the first half of 23 was $1.62 per share, and that's a 1.3% increase over prior year results. As we footnoted on page one of the press release, if you absent the accrual basis deferred rent repayments in both 2022 and 2023, this AFFO per share growth would have been 2.5% for the first half of 2023. Similarly, the scheduled cash basis deferred rent repayments continue to taper off as anticipated in 2023 and can be seen in the details provided on page 13 of the press release. Absent these cash basis deferred rent repayments in both 22 and 23, core FFO per share would have increased 3.2% for the first half of 2023. Separately, I'll note too that in the second quarter of 2023, results included $290,000 of lease termination income, and that compared with $1.7 million in the first quarter. But overall, a good quarter, which was in line with our expectations. Moving on, our AFFO dividend payout ratio for the first half of 2023 was approximately 68%. And that created approximately $95 million of free cash flow. That's after the payment of all expenses and dividends for the first half. As Steve mentioned, after quarter end, we announced what will be our 34th consecutive annual increase in our dividend that gets paid in a couple weeks on August 15th. Occupancy was 99.4% at quarter end. That's flat with the prior quarter and flat with year end 2022. G&A expense was $10.7 million for the quarter. That represents 5.3% of total revenues, and it was 5.7% for the first half of 2023. Notably, our midpoint guidance for this line item is still $44 million for the full year 2023, and that should put us closer to about 5.5% of revenues for the year. Lastly, we ended the quarter with $794.5 million of annual base rent in place for all leases as of June 30, 2023. Steve mentioned we did increase our 2023 core FFO guidance, increasing the bottom end by 3 cents and the top end by 2 cents to a range of $3.17 to $3.22 per share. AFFO guidance was increased to a range of $3.20 to $3.25 per share. The smaller increase in the AFFO guidance range is primarily a result of projected capitalized interest expense from increased investment of what we call split-funded acquisitions. These are acquisitions that are funded over time as the property is constructed. which we think is of value to our customer. We're doing more of that this year than typical. In typical year, probably 20 to 25% of our acquisition dollars are in that type of program where construction gets funded. This year, we're probably pushing closer to 35% in terms of total dollars invested in that sort of mode. But overall, in terms of per share growth, You know, the more modest growth in 2023 reflects really a couple things in my mind. A, the high bar from last year's 2022's 9.8% growth created and the lack of tailwinds that were helpful in 2022, coupled with the slowdown in our scheduled deferred rent repayments in 2023, as noted on page 13. The 23 guidance and key supporting assumptions are on page seven of today's press release, which is really the only notable change being a $100 million increase in our 2023 acquisition volume guidance, which is now $600 to $700 million. Switching over to the balance sheet, we maintain a good leverage and liquidity profile with over $750 million of liquidity. The second quarter was quiet in terms of capital markets activity. We issued $13 million of equity in the second quarter and $30 million of equity for the first half of 2023. So this fairly modest equity raise of $30 million in the first half plus $95 million of free cash flow in the first half and $40 million of property disposition proceeds totals $165 million which allowed us to fund nearly all of the equity portion of our $337 million of first half acquisitions on a leverage neutral basis. Consistent with our plan and prior comments, we have begun to use our bank line a little more after a few years of virtually nearly no usage. It's part of the plan to navigate this rockier interest rate and capital market environment. Our weighted average debt maturity is over 12 years, and that includes the bank line, which is among the longest in the industry. Our debt outstanding is all fixed rate with the exception of the bank line, which represents about 8% of our total debt. A couple numbers. Net debt to gross book assets was 40.8% as of June 30th. Net debt to EBITDA was 5.5 times at June 30th. Interest coverage and fixed charge coverage was 4.6 times for the second quarter. All properties owned by NNN are unencumbered by mortgages. In closing, we're in Good shape to navigate what seems to be elevated economic and capital market uncertainties and to be able to continue to grow per share results, which we view as the primary measure of success. Fundamentals, as Steve mentioned, of our business remain in good shape. Occupancy, releasing, renewals, acquisition, and disposition volumes and cap rates. We feel like we're on a pretty good track for this year. With that, we'll open it up. to any questions, Ollie.
spk05: Thank you. At this time, we will be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question is coming from Brad Heffern with RBC. You may proceed.
spk10: Hey, good morning, guys. Kevin, a couple for you. So on the new AFFO guidance, last quarter I think you mentioned things were trending towards the high end of guide, and obviously the acquisition total went up. So can you talk about what the offset was that kept the high end of guidance from moving higher? I know in the prepared remarks you mentioned the capitalized interest, but I think that's backed out. Correct me if I'm wrong on that.
spk08: Yeah, so you're talking about the core FFO guidance or AFFO or both? Yeah.
spk10: Just the AFFO.
spk08: AFFO, yeah. Really what's dragging that back a little bit is two things this year is the scheduled accrual basis deferred repayments, which is a piece of the equation, but that's been out there for a while, so that's not changing much. It's really the capitalized interest piece. Because more of our acquisition investments are being done in what we call split-funded programs, that creates more capitalized interest. We back out capitalized interest in calculating AFFO. So that's a bit of a drag on our AFFO for this year relative to prior years. I would say generally, if you go back pre-pandemic, you would see our AFFO on a quarterly basis, our AFFO is normally a penny more than our core FFO generally, round numbers. And so penny a quarter, four cents a year, maybe five cents a year. That's typical kind of pre-pandemic kind of levels. We're working our way back there. We came hand grenade close this quarter. You know, our AFFO, 80 cents. I mean, I think we were like seven hundredths of one penny from rounding to 81 cents. So just one rounding, it went to 80 cents. And so we think it's still largely in line with our expectations. But because of the incremental capitalized interest expense, Currently, it's a little bit of a weight on our ASFO number in the short term.
spk10: Okay, got it. And as you mentioned, the line of credit is obviously being used more. I think the cost on that, you know, 6% plus with the latest Fed hike, it seems like that would be wide of what you could get by issuing bonds or doing a term loan. So what's your desire to continue to let that float versus terming it out?
spk08: Yeah, fair question. Yeah, you're right. The bank line cost is right at about 6% now, which is, you know, not – which I think we're comfortable getting the bank line up to about 50% of our capacity. That's probably a line that we prefer not to cross. So I think in some – Yeah, we would obviously be thinking about looking to take that out with longer-term debt, which, as you know, is priced as well, if not a little better, than the bank line currently is. So, yeah, we don't give guidance on our capital markets activities, but, yes, fair comment that over time we'll look to take that out with longer-term capital, whether it be debt and or equity.
spk04: Okay. Thank you. Thank you.
spk05: Our next question is coming from Joshua Dennerlein with Bank of America. You may proceed.
spk00: Hi. This is on behalf of Josh Dennerlein. So I had a quick question about bad debt assumptions in your guidance and maybe what's already been incurred year to date, especially with the increase.
spk08: Yeah. Our typical bad debt assumption, we assume we're going to lose 100 basis point of rent or 1% of our rent every year. That's in, I would think, virtually every year for the last number of years. We don't have any expectation of it being elevated currently. What we're seeing in terms of our tenants' behavior and their position, we don't think we needed to do anything besides what we normally do. Over the years, we've decided it was prudent to assume not everything will work out perfectly, and so we've assumed 100 basis points. We've not used very much of that at all. I would say even though we assume in our guidance 100 basis points, typical is probably closer to half of that, meaning about 50 basis points of rent loss. And so far this year, I would say we're going to be still in that kind of normal zone, the way things look like they're shaping up.
spk00: Okay, thank you. And also I wanted to touch on tenant health or maybe tenant watch list. I think I saw on the news about some Walgreens stores closing, as well as last quarter we had touched on Bed Bath & Beyond. So I'm curious if you can give an update.
spk08: Yeah, so overall I guess globally I would note that, you know, The size and the shape of our credit watch list I view as largely unchanged from recent quarters. The specific tenants you mentioned, as you know, Bed Bath & Beyond filed for bankruptcy. We had three stores with them. It was 0.2% of our annual base rent. We are getting back those three stores, and so that is good. those leases are rejected. Um, uh, and then, um, as it relates to, what was the other one you asked about? Sorry.
spk00: Um, Walgreens.
spk08: Yeah. Yeah. Walgreens, you know, uh, not worried at all about their ability to pay rent. Uh, I guess that's the most important thing. Um, uh, they did announce store closures. None of ours are in that, that list. And so, um, don't have any concerns at all on that front. And just a reminder, even to folks, investors, even if a tenant closes a store, the rent's due on the 1st, it doesn't change their obligation to pay us rent for those properties. But in this particular case, Walgreen, we don't have any closed stores on their closure list.
spk09: just really follow up on the Walgreens. That was a transaction we primarily did in the fourth quarter last year. So there was a self-selection process that Walgreens went through to sign 15-year leases.
spk00: Great. And also, if you have a few comments on Regal Cinemas.
spk08: Yeah. So Regal actually just exited, I guess, bankruptcy yesterday maybe and very recently. And so we only have one property with them. We're going to come out fine there. We offered up a small rent reduction but in exchange got the ability to develop an out parcel on that property. So I think when the dust settles down the road, we think we'll be pretty much even in terms of where we were, but it was a very small exposure under 0.1% of rent, and A, and B, it was a very modest rent reduction offered up in exchange for this ability to develop an out parcel on the property, which is reasonably well located, so we kind of like our odds on all that, but yeah. won't have any impact on our bottom line of note.
spk00: Great. Thanks so much for the caller.
spk05: Thank you. Our next question is coming from Eric Wolf with Citi. You may proceed.
spk07: Hey, thanks. If I look at your cap rate in the quarter, 7.2%, How wide was the cap rate range around that, and was there anything done, say, at north of an 8 in the quarter?
spk09: Can you say that last part? You kind of broke up on me.
spk07: Well, just how, like, if I think about the top end of where you're buying, was there anything done at north of an 8? Like, you know, I'm just trying to understand how wide the cap rate range was with the quarter.
spk09: So the bandwidth on our cap rates of that 7-2 is fairly tight, you know, Just looking at the overall list, we had a couple of legacy deals that we split-funded deals that we priced midway through last year that kind of dragged their feet. We're in the high sixes. The highest cap rate deal we did was kind of mid-sevens, so it's pretty tight bandwidth.
spk07: Got it. Yeah. I mean, the reason why I asked the question was, I was just curious if you're seeing any pockets of the market that are seeing a little bit more distress, maybe a little bit less access to capital, you know, causing sort of acquisition yields to rise there in spite of a similar risk profile. And then you talked about the, I think you call it the split level acquisitions. I mean, I guess I would be curious how you underwrite those relative to, you know, a more normal type of acquisition where you're getting all the income immediately.
spk09: Yeah, as far as the underwriting, we've been doing split funded for a decade. We were one of the first movers in the REIT industry to do it, where we use the current relationship, primarily our tenants, that they'll identify the site. And NNN essentially acts like a bank. We're not taking the risk of development. We like the split funded deals because there's no developer profit in them. So the tenants and NNN's interests are aligned to keep rent low. So that's one part we like. Historically, we always had kind of a 50, 75 basis point spread over the market. And then in recent times, that spread compressed. But we're still seeing, you know, kind of a 20, 30 basis point spread doing split funded. Again, the rent's typically lower because there's no profit baked in. It's not a developer lease. It's an NNN form lease. There's a lot of risk mitigation that goes into those deals.
spk08: Just a side note on that. These are relatively simple, smaller projects in the scheme of things. These projects don't go on for years. These are measured in months typically. They get developed pretty quickly, and so the pricing that we set on that, we're very comfortable kind of holding that during the construction period, if you will.
spk09: And one of the mitigants we do in those leases, if they do drag on for some unknown reason, we have, as we say, we've got to close the window and rent has to commence if the building is complete or not.
spk08: And I... Related to your question, and I want to broaden back the lens a little bit, because I think the thought was that the more stress tenants get under, the higher the cap rate. There might be an opportunity for higher cap rates for acquisitions. While an element of that is true, for us, raising the cap rate is not a great way to solve a risk problem, in our opinion. is that tends to only make the risk greater, meaning the cap rate's higher, which means the rent's higher, which means the tenant's less likely to succeed at that location. And so we've not, over the years, found increasing the cap rate is a good way to address risk. And for us, what would be a better approach and what we prefer and push to do is to reduce the proceeds invested in a property and and and not increase the uh cap rate materially and so uh that's the way we go at it we think that way you end up with a safer investment less proceeds in the property means lower rent tenant more likely to succeed to the extent the tenant doesn't succeed more easy that rent could be can be replaced more easily by the next tenant whoever that might be and so So we just go at it a little differently. So when we see risk out there, we don't run to raise cap rate as a mitigant, if you will. That works in the short run, I'm sure, but we don't think that's a great long-term approach.
spk07: Got it. Makes sense. Thank you.
spk05: Thank you. Our next question is coming from Spencer Alloway with Green Street. You may proceed.
spk02: Yeah, thank you. Maybe just following up on those cap rate questions, just curious now that we've moved into 3Q, has anything changed in terms of pricing either by credit or retail industry now that we're somewhat through this quarter?
spk09: Kind of what I mentioned in the prepared remarks, you can see in that 10 to 20 basis point pricing increase in the third quarter, I'm not expecting it any higher just given the resistance. Um, and primarily, you know, the deal flows for us is coming from the C store category auto service, uh, primarily. Um, so yeah, we're not seeing any, uh, significant increase, but just, you know, given the recent fed rate hike, you know, we, we deal with sophisticated tenants and they understand the cost of capital, um, is increasing. So we're able to pass through some of that.
spk02: Yep, okay, that makes sense. And then, again, sorry if I missed this in your prepared remarks, but can you just provide a little bit more color on that disposition? You guys disclosed the 5.1 cap rate, I believe. And, again, sorry if I missed it.
spk09: Yeah, no, so the 5.1 was the overall weighted average of the seven assets or five assets because two of them were vacant, so we're not counting that. We were opportunistic. Somebody... saw some land that they thought was a lot more valuable than NNN thought it was. So we were willing to depart an extremely low cap rate. But there's a barbell approach in there. You know, it's the weighted average cap rate. You know, we did some defensive sales in there that were, you know, seven and a half, eight cap. But then we had a couple in the fours to bring that down to a 5.1. Okay, great.
spk04: Thank you, guys. Thanks.
spk05: Thank you. Our next question is coming from Linda Tsai with Jefferies. You may proceed.
spk01: Hi, good morning. You talked about headwinds in 23 to earnings growth, you know, the nearly 10% growth last year, slowdown in scheduled rent repayments and capitalized interest being backed out of AFFO. You know, how are you thinking about 24? You know, the comparison will be easier. The rent repayment isn't as much of a headwind. Do you think capitalized interest remains a headwind, or are there other items to consider?
spk08: We haven't put out any guidance on 24 yet, but it feels like at this point, and I know it's really early and the world's changing fast, it feels like, we'll get back to what we think of as a more normal cadence. Still some headwinds out there in the capital markets would be my presumption for 24. And I think cap rates will need to adjust some more, in my opinion. But, yeah, we should have worked our way through a lot of the one-time items, both good and bad, in 2024. And so, you know, hopefully we get back to what we think of as a more normal cadence of kind of mid-single-digit kind of per share growth. It is interesting, if you look at 2022 and 2023 in combination, that two-year period, we're right at our kind of mid-single digit growth rate. It just happened to be that a lot of it came in 2022 and not so much in 23, but if you look at the average of the two years, it's kind of what we think of as kind of our sweet spot of a goal of a long-term per share growth rate. 2024 at the moment feels like the deferrals will be pretty much all behind us. The capitalized interest may continue because we're still doing more split funded deals than historically. Like I said, normal year for us is 20, 25% of our investments is in this split funded approach. This year just happens to be closer to 35% probably. And so I think that'll probably normalize with time, but we'll see. We don't have any visibility on that, so it's really hard for me to be very definitive with my thoughts on that.
spk01: Thanks. And then in terms of the balance of the year for acquisition volumes, do you expect volumes to be evenly distributed between 3Q and 4Q?
spk09: We're a very lumpy business. But as I sit here today, yeah, I would guess a little more even than historically, just given the visibility I have on the third queue.
spk04: Thanks. Thank you.
spk05: Once again, if you have any remaining questions or comments, please press star 1 on your phone at this time. Our next question is coming from Alec Fagan with Baird. You may proceed.
spk06: Hi, thanks for taking my question. The first one is, are you seeing any acceleration in either new retailer or developer relationships now that the lending conditions are more difficult?
spk09: So we're always in the market talking to developers, but our split-funded program is usually with a tenant. And what we find is we can talk about a lot of the capitalized interest, and we're a little bit above our historical averages. And that's a result of there's not as much M&A in the market, and our retailers still want to grow organically, so they're finding good opportunities of redeveloping existing sites. So that's why we've kind of leaned into it a little bit more than historically. But no, as far as new developer, because they can get, now we typically shied away from the developer because there's a lot of risks when you're doing those deals because the developer is negotiating the lease and they don't look to hold it long term. So there's a lot of unknown risks that are very difficult to underwrite within that lease. So we'd like to go back to our tenant relationships. and find a lot of good opportunities there.
spk06: Thank you for that. Outside of the capitalized interest being the drag on ASFO, is there any other one-time items in the quarter we should be aware of going forward?
spk08: No, nothing beyond that. I mean, I mentioned the lease termination income amounts, which can be lumpy, and it was elevated in the first quarter and was not in the second. But that's kind of the ongoing thing. And then, like I said, the deferred rent repayments, which are detailed on page 13 of the press release, give you kind of all the numbers fit to print on that topic. And so those are really the elements. But I think that the broad answer to your question is no, we don't see any one-time pluses or minuses going forward.
spk06: Thank you for that. Have a good rest of your day.
spk05: Thank you. We do have a question from Ronald Camden with Morgan Stanley. You may proceed.
spk03: Hey, sorry, jumped on a little late. Just can you, just taking a big step back, just give us an update on maybe the watch list, the bad debt that's baked into the guidance and how that's trended year to date, and any sort of particular, whether it's bed bath or any other sort of exposures you haven't tested already would be great.
spk08: Yeah, so yeah, I think... As you know, our assumption at the beginning of the year in terms of guidance is we assume we'll lose 100 basis points of rent. One percent of our rent will be lost for some reason or the other related to tenant issues. That's our typical rent loss assumption in our guidance. Historically, we've not realized that level. Normally, it's probably half a percent, 50 basis points. or less, I would say this year is trending to be normal, meaning probably over the scope of the year, it'll be closer to that 50 basis points. And so nothing unusual in that regard. And I would say nothing changed in terms of the quantity and the quality of the credit watch list, if you will. It doesn't feel like there's any big changes Brewing there, we've alluded to already. Two tenants that were bankrupt have exited bankruptcy, or not exited, but that bankruptcy is closed. So Bed Bath and Beyond is gone. So we had three stores there, and that was 0.2% of our rent. So those are new vacancies, if you will, that will release. I think I've mentioned in prior calls the rent on those properties $12, $13 a square foot, so that's something that we think will create a big challenge to replace. And then we had one Regal Cinema property. Regal did exit bankruptcy, I believe, yesterday, and that won't create any notable impact on our revenue or bottom line. but the list still has AMC on it, it's question mark, it still has some frishes, restaurants on there, question mark, Rite Aid, drug, but those have not changed, in my opinion, notably in recent quarters, and so we'll just keep watching those and deal with them if whatever comes up. It's interesting, as we look back over the years, for tenants that file bankruptcy, on average they end up assuming 85% of our leases. Bankruptcy is not the end of the world necessarily. It's the rejection of the lease that creates the potential for some lost revenue in the short term. Even then, if we get the property back and we release it, we're able to recoup the vast majority of that rent with the next tenant. Again, we try to do that with little to no incremental TI dollars or CapEx. Um, so, um, all in all, we think we're still in pretty good shape on the, on the, uh, credit watch, uh, rent loss kind of, um, um, arena.
spk03: Great. And then just last one, just, uh, just get a pulse on the acquisition market, which is obviously, um, you know, three 24 million in the quarter and so forth. But, um, so just compared to three to six months ago, right. Is the pipeline building? Is there more distress? Is there more sort of sale-leaseback activities for people needing capital? And then obviously some cap rate commentary would be helpful. But just trying to get a sense of how things are evolving today versus if we were doing this call three to six months ago. Thanks.
spk09: Based on us bumping guidance on acquisition volume, our pipeline is a little stronger today than it was three to six months ago. The sale-leaseback market is still fairly robust. We're not seeing the distressed sale-leasebacks just because we don't want to do business with the companies being distressed and has to do it. As far as the cap rates, we picked up 20 basis points second quarter over the first quarter, and we're kind of in the range of 10 to 20 basis points in the third quarter over the second quarter. But definitely starting to stabilize, not accelerating at the rate they were in the second half of last year. But no, we feel good about our pipeline. We're getting our fair share of deals. And NNN is in good shape as far as hitting its results on the acquisitions going forward.
spk04: Great. Thanks so much. Thanks, Ron. Thank you.
spk05: We have no further questions in queue at this time, so I will hand it back to Mr. Horn for any closing comments.
spk09: No, as I stated, NLM, we're in good shape to deliver the remainder of 2023 and position ourselves well in 2024. So thanks for joining us this morning. And as summer winds down, we look forward to seeing many of you in person at the fall conference season. Enjoy the day.
spk05: Thank you. This concludes today's conference and you may disconnect your lines at this time. We thank you for your participation.
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