NNN REIT, Inc.

Greetings and welcome to the NNN REIT Incorporated fourth quarter 2025 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. And please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Steve Horne, CEO of NNNREIT. Sir, the floor is yours.

Hey, thanks, Alec. Hey, good morning. Welcome to NNNREIT's fourth quarter 2025 earnings call. Joining me on the call is our Chief Financial Officer, Vincent Chow. As outlined in this morning's press release, NNN delivered a solid operating financial performance in 2025, generating 2.7% growth in AFFO per share and completing over 900 million of acquisitions, the highest annual volume in NNN's history. The momentum exiting 2025, driven by elevated acquisition activity and the portfolio management of the vacancies, positions NNN well entering more uncertain macroeconomic environment in 2026. I am certain in the team's ability to execute across the full investment cycle, from sourcing the right opportunities to thoughtful underwriting to proactive management of the highly diversified portfolio by geography, tenant, and industry. Before turning to the results and the outlook, I want to highlight several accomplishments in 2025. First, our 36th consecutive annual dividend increase. We maintained a highly flexible balance sheet, including a 10.8-year weighted average debt maturity, which is best in class, no encumbered assets, and $1.2 billion of total available liquidity. We completed the executive team positioning, and also we continued performance on the acquisition platform alongside proactive portfolio management. The long-term value proposition remains unchanged. At its core, our strategy still continues to focus on executing a disciplined bottom-up investment approach, growing the dividend annually while maintaining a top-tier payout ratio, delivering mid-single-digit AFFO per share growth over the long term, aligning acquisitions, dispositions, and balance sheet management to support these objectives. Turning to our outlook as we move through early of 2026, NNN enters the year on solid financial footing. At year end, we had $1.2 billion of total available liquidity, followed by a record acquisition year. Looking ahead, we expect to fund our 2026 strategy through a combination of approximately $210 million of retained free cash flow, roughly $130 million of planned dispositions, which together should result in manageable equity needs throughout the year while maintaining leverage neutral. NNN's self-funding business model can consistently deliver growth in good and challenging economic conditions. Our long-standing approach to capital deployment, remaining selective and opportunistic, will not change. Current cap rates have stabilized for the most part, with the fourth quarter initial cap rate in line with the third quarter, and we're seeing that trend continue early in the first quarter of 2026, but anticipating slight compression as we move further into the year. During the quarter, we invested just over $180 million across 55 properties at an initial cash cap rate of 7.4, and with a weighted average lease term of over 18 years. NNN historically sources most of its acquisitions through longstanding relationship and does not typically target investment-grade portfolios, which tend to have tenant-friendly lease provisions and lower organic growth, if any. Turning to the fourth quarter, operating performance, Our portfolio of 3,692 freestanding single-tenant properties is performing at a high level. As we sit here today, we're not having any conversations with portfolio tenants that raise concerns regarding operating performance or the ability to meet rent obligations. Our occupancy is up 80 basis points from last quarter to 98.3, which is in line with our long-term average of give or take 98%. The increase in occupancy was a direct result of our asset management team and leasing department executing at a high level addressing the elevated vacant assets from the end of the third quarter. I would classify the quarter as, quote, in line on renewals and leasing. 55 of our 64 renewed ahead of our average renewal rate of 85%, but the rental rates were 104% above prior. We leased four properties to new tenants at 109% of the prior rent, demonstrating strong demand for the assets. As a quick update on the assets of the furniture and restaurants, which were trending ahead of schedule, first, the furniture assets, as of today, we have the last five properties under contract for sale. We expect the majority of those to close during the current quarter, but however, one or two could slip to the second quarter. With respect to the restaurant assets, The team continues to make solid progress identifying the optimal outcome for each property. Solutions include asset sales, re-leasing, or redevelopment with strong brands across multiple industries. Currently, 32 properties remain, 15 are for sale, and four are in advanced discussions about leasing. The remaining 13 we're actively marketing. We expect to reach resolution on these assets progressively throughout the year. On disposition side, fourth quarter, we sold 18 income producing along with 42 vacant, generating 82 million of proceeds during the quarter. For the full year, dispositions totaled 190 million, including 49 vacant at a 6.4 cap rate and 67 vacant assets. While re-leasing remains our priority, we continue to be selective disposing of non-performing assets where there's no clear path for near-term income generation. With that, let me turn the call over to Finn to provide additional detail with our quarterly results and updated guidance.

Thank you, Steve. Let's start with our customary cautionary statements. During this call, we will make certain statements that may be considered forward-looking statements under federal securities law. The company's actual future results may differ significantly from matters discussed in these forward-looking statements, and we may not release revisions to these forward-looking statements to reflect changes after the statements are made. Factors and risks that could cause actual results to differ from expectations are disclosed in greater detail in the company's filings with the SEC and in this morning's press release. Now onto results. This morning, we reported core FFO and AFO of 87 cents per share, each up 6.1% year over year. For the full year, core FFO per share was $3.41 and AFO per share was $3.44, each up 2.7% versus 2024. These solid results come despite several headwinds to start the year and reflected resilience of our cycle-tested business model. AFO per share for the quarter came in slightly ahead of our expectations. The upside was driven by a number of smaller positive variances, including lower net real estate expenses, lower G&A, and higher interest income. There were no notable run rate items to call out this quarter. G&A as a percentage of total revenue was 4.9% for the quarter and 5.1% for the full year. As a percentage of NOI, which we think is a better way to think about it, G&A was 5.1% for the quarter and 5.3% for the year. Free cash flow after dividend was about $51 million in the fourth quarter. As Steve mentioned, we ended the year at 98.3% occupancy, up 80 basis points over last quarter, which again speaks to the resiliency of our business model and the portfolio and the strength of our leasing and asset management teams. Annualized base rent was $928 million at the end of the quarter, an increase of close to 8% year over year, compared to a 7% increase last quarter, driven by our strong acquisition activity throughout the year. With regard to our watch list, there have been no material changes since last quarter, and we believe our bad debt assumptions are sufficient to absorb any future tenant issues. Although headline risk can create noise, it's important to keep in mind that NNN's proven strategy of focusing on real estate quality, property and corporate level credit, and low cost and rent basis using a long-term sale-leaseback structure, has allowed NNN to successfully navigate various economic cycles with limited long-term cash flow impacts. Turning to our capital market activity, in November, we paid off our $400 million 4% coupon note at maturity. In December, we closed on a $300 million delayed draw term loan and entered into forward-starting swaps totaling $200 million that fixed SOFR at 3.22%. In conjunction with the execution of the term loan, we amended our revolving credit facility to eliminate the SOFR credit spread adjustment, reducing the effective interest rate on our revolver by 10 basis points. Subsequent to the end of the quarter, we drew down $200 million against the term loan, leaving us with $100 million of remaining availability. Moving to the balance sheet, our BBB Plus rated balance sheet remains in great shape. At the end of the quarter, we had no encumbered assets and $1.2 billion of available liquidity. Performer for the full drawdown of our term loan, floating rate debt represented just 1% of total debt. Our leverage was consistent with last quarter at 5.6 times, and our duration remained the highest in the net lease space at 10.8 years and is well matched with our lease duration of 10.2 years. On January 15th, we announced a 60 cent quarterly dividend representing a 3.4% year-over-year increase and equating to an attractive 5.5% annualized dividend yield and a prudent 69% AFO payout ratio. I'll end my opening remarks with some additional color regarding our initial 2026 outlook. We are establishing an AFO per share guidance range of $3.52 to $3.58, and core AFO per share guidance at $3.47 to $3.53. The midpoint of our AFO range represents 3.2% year-over-year growth in 2026, accelerating from 2.7% growth in 2025 as we move past the tenant issues experienced in late 2024. Consistent with past years, our initial outlook embeds a self-funded level of acquisitions with further upside dictated by market conditions and our cost of capital, as we remain focused on driving efficient per share earnings growth. Specifically at the midpoint, our outlook embeds $600 million of acquisitions, which is funded primarily with $130 million of dispositions, expected free cash flow of about $210 million, and a leveraged neutral amount of incremental debt financing. From a credit loss perspective, we have included 75 basis points of bad debt in our full year outlook, which we think is prudently conservative to start the year. Additional details regarding the underlying assumptions embedded in our guidance can be found in our earnings release. With that, I'll turn the call back over to the operator for questions.