NNN REIT, INC. This section generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this annual report on Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Annual Report on Form 10-K for the year endedDecember 31, 2020 filed with the Commission onFebruary 11, 2021 .
The term "NNN" or the "Company" refers to
Forward-Looking Statements
The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. NNN makes statements in this section that are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in this report entitled "Forward-Looking Statements." Certain risks may cause NNN's actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a discussion of such risk factors, see "Item 1A. Risk Factors."
Overview
NNN, aMaryland corporation, is a fully integrated real estate investment trust ("REIT") formed in 1984. NNN's assets are primarily real estate assets. NNN acquires, owns, invests in and develops properties that are leased primarily to retail tenants under long-term net leases and are primarily held for investment ("Properties," or "Property Portfolio," or individually a "Property").
NNN owned 3,223 Properties with an aggregate gross leasable area of
approximately 32,753,000 square feet, located in 48 states, with a weighted
average remaining lease term of 10.6 years as of
NNN's management team focuses on certain key indicators to evaluate the financial condition and operating performance of NNN. The key indicators for NNN include items such as: the composition of the Property Portfolio (such as tenant, geographic and line of trade diversification), the occupancy rate of the Property Portfolio, certain financial performance ratios and profitability measures, industry trends and industry performance compared to that of NNN. NNN evaluates the creditworthiness of its current and prospective tenants. This evaluation may include reviewing available financial statements, store level financial performance, press releases, public credit ratings from major credit rating agencies, industry news publications and financial market data (debt and equity pricing). NNN may also evaluate the business and operations of its tenants, including past payment history and periodically meeting with senior management of certain tenants. NNN continues to maintain its diversification by tenant, geography and tenant's line of trade. NNN's largest lines of trade concentrations are the convenience store (17.9%), automotive service (12.3%) and restaurant (19.2%) (including full and limited service) sectors. These sectors represent a large part of the freestanding retail property marketplace and NNN's management believes these sectors present attractive investment opportunities. The Property Portfolio is geographically concentrated in the south and southeastUnited States , which are regions of historically above-average population growth. Given these concentrations, any financial hardship within these sectors or geographic regions could have a material adverse effect on the financial condition and operating performance of NNN.
As of
26
--------------------------------------------------------------------------------Impact of COVID-19 on NNN's Business
Overview. Since
As a result, the COVID-19 pandemic and the government reaction to it negatively affected almost every industry directly or indirectly. A number of NNN's tenants experienced temporary closures of their operations and/or requested adjustments to their lease terms during this pandemic. As a result, these economic hardships have increased uncertainty with respect to the collectability of lease payments and have had a negative effect on NNN's financial results, including increased accounts receivables and related allowances and recognizing revenue on a cash basis from certain of its tenants.
During the years ended
As ofDecember 31, 2021 , NNN has entered into rent deferral lease amendments with certain tenants, for an aggregate$4,758,000 and$52,019,000 of rent originally due for the year endingDecember 31, 2021 and 2020, respectively. The rent deferral lease amendments required the deferred rents to be repaid at a later time during the lease term. Approximately$31,776,000 and$3,259,000 of the deferred rent was repaid in 2021 and 2020, respectively. Deferred rents of$14,526,000 are due to be repaid during the year endingDecember 31, 2022 , with the substantially all remaining deferred rent coming due periodically byDecember 31, 2023 .
The following table outlines the rent deferred and corresponding scheduled
repayment of the rent deferral lease amendments executed as of
Deferred Scheduled Repayment
Accrual Cash % of Accrual Cash % of Cumulative
Basis Basis Total Total Basis Basis Total Total Total
2020 $ 33,594 $ 18,425 $ 52,019 91.7 % $ 3,239 $ 20 $ 3,259 5.7 % 5.7 %
2021 990 3,768 4,758 8.3 % 25,935 5,841 31,776 56.0 % 61.7 %
2022 - - - - 5,391 9,135 14,526 25.6 % 87.3 %
2023 - - - - 19 3,334 3,353 5.9 % 93.2 %
2024 - - - - - 1,932 1,932 3.4 % 96.6 %
2025 - - - - - 1,931 1,931 3.4 % 100.0 %
$ 34,584 $ 22,193 $ 56,777 $ 34,584 $ 22,193 $ 56,777
27
-------------------------------------------------------------------------------- The following table details the rental revenue for the quarter endedDecember 31, 2021 (collected as ofJanuary 31, 2022 ), as a percentage of annualized base rent, excluding the repayments of amounts previously deferred according to the rent deferral lease amendments: % of Total Annual Base % of Rent Lines of Trade Rent(1) Collected 1. Convenience stores 17.9% 100.0% 2. Automotive service 12.3% 99.5% 3. Restaurants - full service 9.8%
97.3%
4. Restaurants - limited service 9.4%
99.6%
5. Family entertainment centers 5.9% 99.9%
6. Health and fitness 5.2% 98.9%
7. Theaters 4.5% 99.9%
8. Recreational vehicle dealers, parts and accessories 3.9% 99.9%
9. Equipment rental 3.2% 100.0%
10. Automotive parts 3.0% 99.7%
11. Wholesale clubs 2.5% 100.0%
12. Home improvement 2.5% 100.0%
13. Medical service providers 2.0% 98.4%
14. Furniture 1.7% 100.0%
15. General merchandise 1.7% 100.0%
16. Consumer electronics 1.5% 100.0%
17. Home furnishings 1.5% 100.0%
18. Travel plazas 1.5% 98.9%
19. Automobile auctions, wholesale 1.3% 99.9%
20. Drug stores 1.3% 100.0%
Other 7.4% 98.4%
Total 100.0% 99.4%
(1)
Based on annualized base rent for all leases in place as of
As ofJanuary 31, 2022 , NNN has collected 99.4% and 98.8% of the rental revenue for the quarter and year endedDecember 31, 2021 , respectively, as a percentage of annualized base rent, excluding the repayments of amounts previously deferred according to the rent deferral lease amendments.
Historical rent collections and rent relief requests may not be indicative of rent collections and requests in the future. Depending on macroeconomic conditions and their impact on a tenant's business and operations, deferred rents may be difficult to collect.
While as ofDecember 31, 2021 , NNN's rent collections have returned to pre-pandemic levels, the extent to which COVID-19 impacts NNN's operations and those of NNN's tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the outbreak, the actions taken to contain the outbreak or mitigate its impact, and the direct and indirect economic effects of the outbreak and containment measures, among others. A prolonged continuation of or repeated temporary business closures, reduced capacity at businesses or other social-distancing practices, and quarantine orders may adversely impact NNN's tenants' ability to generate sufficient revenues to meet financial obligations, and could force tenants to default on their leases, or result in the bankruptcy of tenants, which would diminish the rental revenue NNN receives under its leases. Additionally, an increase in the number of vacant properties would increase NNN's real estate expenses, including expenses associated with ongoing maintenance and repairs, utilities, property taxes and property and liability insurance. NNN will continue to monitor the impact of the economic downturn on retailers, retail real estate, capital markets and investment returns, among other things, when considering new property investments. As ofDecember 31, 2021 , NNN had$171,322,000 of cash and cash equivalents and$1,100,000,000 available for borrowings under its unsecured revolving credit 28 --------------------------------------------------------------------------------
facility (the "Credit Facility"). While the impacts of COVID-19 continue to unfold, NNN currently expects these combined resources, in addition to the cash provided by NNN's operations to be sufficient to meet NNN's demand for funds.
Business Continuity. As a result of the COVID-19 pandemic, NNN provided the flexibility for its associates to work remotely without any adverse impact on its ability to continue to operate its business nor any material adverse impact on NNN's financial reporting systems, internal controls over financial reporting or disclosure controls and procedures. The rapid development and fluidity of the economic downturn precludes any prediction as to the ultimate adverse impact on the economy, retailing and NNN and will ultimately depend on future developments, none of which can be predicted with any certainty. Nevertheless, the COVID-19 related economic disruption presents uncertainty and risk with respect to NNN's performance, business or financial condition, results of operations and cash flows. See Item "1A. Risk Factors." Critical Accounting Estimates The preparation of NNN's consolidated financial statements in conformance with accounting principles generally accepted inthe United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as other disclosures in the financial statements. On an ongoing basis, management evaluates its estimates and assumptions; however, actual results may differ from these estimates and assumptions, which in turn could have a material impact on NNN's financial statements. A summary of NNN's accounting policies and procedures are included in Note 1 of NNN's consolidated financial statements. Management believes the following critical accounting policies, among others, affect its more significant estimates and assumptions used in the preparation of NNN's consolidated financial statements. Real Estate Portfolio. NNN records the acquisition of real estate at cost, including acquisition and closing costs. The cost of properties developed or funded by NNN includes direct and indirect costs of construction, property taxes, interest and other miscellaneous costs incurred during the development period until the project is substantially complete and available for occupancy. Purchase Accounting for Acquisition of Real Estate. In accordance with theFinancial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") guidance on business combinations, consideration for the real estate acquired is allocated to the acquired tangible assets, consisting of land, building and tenant improvements and, if applicable, to identified intangible assets and liabilities, consisting of the value of above-market and below-market leases and value of in-place leases, as applicable, based on their respective fair values. The fair value estimate is sensitive to significant assumptions, such as establishing a range of relevant market assumptions for land, building and rent and where the acquired property falls within that range. These market assumptions for land, building and rent use the most relevant comparable properties for an acquisition. The final range relies upon ranking comparable properties' attributes from most similar to least similar. Lease Accounting. NNN records its leases on the Property Portfolio in accordance with FASB Accounting Standards Update ("ASU") 2016-02, "Leases (Topic 842)," ("ASC 842"). NNN's real estate is generally leased to tenants on a net lease basis, whereby the tenant is responsible for all operating expenses relating to the Property, including property taxes, insurance, maintenance, repairs and capital expenditures. NNN's Property Portfolio primarily consists of leases accounted for using the operating method. Under the operating method, revenue is recognized as rentals are earned and expenses (including depreciation) are charged to operations as incurred. When scheduled rentals vary during the lease term, income is recognized on a straight-line basis so as to produce a constant periodic rent over the term of the lease. Accrued rental income is the aggregate difference between the scheduled rents which vary during the lease term and the income recognized on a straight-line basis. InApril 2020 , the FASB issued interpretive guidance relating to the accounting for lease concessions provided as a result of COVID-19. In this guidance, entities can elect not to apply lease modification accounting with respect to such lease concessions and instead, treat the concession as if it was a part of the existing contract. This guidance is only applicable to 29 -------------------------------------------------------------------------------- COVID-19 related lease concessions that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee. NNN elected to make this policy election for COVID-19 lease concessions, including the rent deferral lease amendments effective during the years endedDecember 31, 2021 and 2020. Collectability. In accordance with ASC 842, NNN reviews the collectability of its lease payments on an ongoing basis. NNN considers collectability indicators when analyzing accounts receivable (and accrued rent) and historical bad debt levels, tenant credit-worthiness and current economic trends, all of which assists in evaluating the probability of outstanding and future lease payment collections. In addition, tenants in bankruptcy are analyzed and considerations are made in connection with the expected recovery of pre-petition and post-petition bankruptcy claims. At the point NNN deems the collection of lease payments not probable, previously recognized and uncollected rental revenue and any related accrued rent are reversed as a reduction to rental income and, subsequently, any lease revenue is only recognized when cash receipts are received. As a result of the review of lease payments collectability, NNN recorded a write-off of$21,792,000 of outstanding receivables and related accrued rent during the year endedDecember 31, 2020 , and reclassified certain tenants as cash basis for accounting purposes. During the year endedDecember 31, 2021 , no outstanding receivables and related accrued rent were written off and no tenants were reclassified as cash basis for accounting purposes.
NNN includes an allowance for doubtful accounts in rental income on the Consolidated Statements of Income and Comprehensive Income.
As ofDecember 31, 2021 , approximately six percent of total Properties, and approximately seven percent of aggregate gross leasable area held in the Property Portfolio, were leased to 11 tenants that NNN has determined to recognize revenue on a cash basis. During the years endedDecember 31, 2021 and 2020, NNN recognized$52,129,000 and$4,722,000 , respectively, of rental income from certain tenants for periods following their classification to cash basis for accounting. NNN had no tenants classified as cash basis for accounting purposes for the year endedDecember 31, 2019 .
Real Estate - Held For Sale. Real estate held for sale is not depreciated and is recorded at the lower of cost or fair value, less costs to sell.
Impairment - Real Estate. NNN periodically assesses its long-lived real estate assets for possible impairment whenever certain events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. These indicators include, but are not limited to: changes in real estate market conditions, the ability of NNN to re-lease properties that are currently vacant or become vacant, properties reclassified as held for sale, persistent vacancies greater than one year, and properties leased to tenants in bankruptcy. Management evaluates whether an impairment in carrying value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), and the residual value of the real estate, with the carrying value of the individual asset. The future undiscounted cash flows are primarily driven by estimated future market rents. Future cash flow estimates are sensitive to the assumptions made by management regarding future market rents, which are affected by expectations about future market and economic conditions. If an impairment is indicated, a loss will be recorded for the amount by which the carrying value of the asset exceeds its estimated fair value.NNN's Properties are leased primarily to retail tenants under long-term net leases and primarily held for investment. Generally, NNN's Property leases provide for initial terms of 10 to 20 years, which provide for cash flows over this term. NNN generally intends to hold these assets for the long-term, therefore, a temporary change in cash flows due to the COVID-19 pandemic alone was determined not to be an indicator of impairment. 30 -------------------------------------------------------------------------------- Revenue Recognition. Rental revenues for properties under construction commence upon completion of construction of the leased asset and delivery of the leased asset to the tenant. Rental revenues for non-development real estate assets are recognized when earned in accordance with ASC 842, based on the terms of the lease of the leased asset. Lease termination fees are recognized when collected subsequent to the related lease that is cancelled and NNN no longer has continuing involvement with the former tenant with respect to that property.
The core principle of ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)", is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services. Certain contracts are excluded from ASU 2014-09, including lease contracts within the scope of ASC 842. NNN determined the key revenue stream impacted by ASU 2014-09 is gain on disposition of real estate reported on the Consolidated Statements of Income and Comprehensive Income. In accordance with ASU 2014-09, NNN evaluates any separate contracts or performance obligations to determine proper timing and/or amount of revenue recognition, as well as, transaction price allocation.
New Accounting Pronouncements. Refer to Note 1 of the
Results of Operations Property Analysis General. The following table summarizes the Property Portfolio as ofDecember 31 : 2021 2020 2019 Properties Owned: Number 3,223 3,143 3,118 Total gross leasable area (square feet) 32,753,000 32,461,000 32,460,000 Properties: Leased and unimproved land 3,191 3,096 3,086 Percent of Properties - leased and unimproved land 99 % 99 % 99 % Weighted average remaining lease term (years) 10.6 10.7
11.2
Total gross leasable area (square feet) - leased 32,395,000 31,631,000
31,818,000
The following table summarizes the lease expirations, assuming none of the
tenants exercise renewal options, of the Property Portfolio for each of the next
10 years and then thereafter in the aggregate as of
% of % of
Annual Gross Annual Gross
Base # of Leasable Base # of Leasable
Rent(1) Properties Area(2) Rent(1) Properties Area(2)
2022 2.8% 75 739,000 2028 4.7% 157 1,245,000
2023 2.6% 113 1,402,000 2029 2.8% 71 987,000
2024 3.3% 93 1,455,000 2030 3.7% 106 1,194,000
2025 5.9% 192 2,013,000 2031 8.3% 190 2,781,000
2026 5.5% 217 2,139,000 Thereafter 51.9% 1,751 15,065,000
2027 8.5% 224 3,375,000
(1)
Based on the annualized base rent for all leases in place as of December 31,
2021 .
(2)
Approximate square feet.
31
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The following table summarizes the diversification of the Property Portfolio based on the top 20 lines of trade:
% of Annual Base Rent(1)
Lines of Trade 2021 2020 2019
1. Convenience stores 17.9% 18.2% 18.2%
2. Automotive service 12.3% 10.3% 9.6%
3. Restaurants - full service 9.8% 10.5% 11.1%
4. Restaurants - limited service 9.4% 9.7%
8.8%
5. Family entertainment centers 5.9% 5.9% 6.7% 6. Health and fitness 5.2% 5.3% 5.2% 7. Theaters 4.5% 4.4% 4.7%
Recreational vehicle dealers, parts
8. and accessories 3.9% 3.5% 3.4%
9. Equipment rental 3.2% 2.6% 2.6%
10. Automotive parts 3.0% 3.1% 3.1%
11. Wholesale clubs 2.5% 2.6% 2.5%
12. Home improvement 2.5% 2.6% 2.6%
13. Medical service providers 2.0% 2.2% 2.1%
14. Furniture 1.7% 1.7% 1.6%
15. General merchandise 1.7% 1.7% 1.8%
16. Consumer electronics 1.5% 1.5% 1.5%
17. Home furnishings 1.5% 1.6% 1.7%
18. Travel plazas 1.5% 1.5% 1.6%
19. Automobile auctions, wholesale 1.3% 1.1% 1.0%
20. Drug stores 1.3% 1.5% 1.6%
Other 7.4% 8.5% 8.6%
100.0% 100.0% 100.0%
(1)
Based on annualized base rent for all leases in place as of
The following table summarizes the diversification of the Property Portfolio by
state as of
# of % of Annual Base
State Properties Rent(1)
1. Texas 502 16.9%
2. Florida 229 8.6%
3. Ohio 192 5.5%
4. Illinois 163 5.5%
5. North Carolina 163 4.7%
6. Georgia 153 4.6%
7. Indiana 149 4.0%
8. Tennessee 150 3.8%
9. Virginia 116 3.4%
10. California 65 3.3%
Other 1,341 39.7%
3,223 100.0%
(1) Based on annualized base rent for all leases in place as ofDecember 31, 2021 . 32
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Property Acquisitions. The following table summarizes the Property acquisitions
for each of the years ended
2021 2020 2019
Acquisitions:
Number of Properties 156 63 210
Gross leasable area (square feet)(1) 1,341,000 449,000 3,164,000
Initial cash yield 6.5 % 6.5 % 6.9 %
Total dollars invested(2) $ 555,415 $ 179,967 $ 752,497
(1)
Includes additional square footage from completed construction on existing
Properties.
(2)
Includes dollars invested in projects under construction or tenant improvements
for each respective year.
NNN typically funds Property acquisitions either through borrowings under the Credit Facility or by issuing its debt or equity securities in the capital markets.
Property Dispositions. The following table summarizes the Properties sold by NNN
for each of the years ended
2021 2020 2019
Number of properties 74 38 59Gross leasable area (square feet) 1,015,000 425,000 1,113,000 Net sales proceeds
$ 122,018 $ 54,488 $
126,194
Net gain on disposition of real estate$ 23,094 $ 16,238 $ 32,463 Cap rate 7.4 % 6.1 % 5.9 %
NNN typically uses the proceeds from a Property disposition to either pay down the Credit Facility or reinvest in real estate.
Analysis of Revenue
General. NNN's total revenues increased for the year endedDecember 31, 2021 , as compared to the same period ended in 2020. The increase is primarily due to a decrease in receivables reserves, scheduled rent increases based on increases in the Consumer Price Index ("CPI") and to the income generated from newly acquired Properties. NNN's total revenues decreased for the year endedDecember 31, 2020 , as compared to the same period ended in 2019. The decrease is primarily due to the write-off of receivables and lower rent collection from certain tenants due to the impact of the COVID-19 pandemic. (See "Results of Operations - Property Analysis - Property Acquisitions"). The following summarizes NNN's revenues for each of the years endedDecember 31 (dollars in thousands): 2021 2020 Versus Versus 2020 2019 2021 2020 2019 Percent Percent Rental Revenues(1)$ 705,194 $ 640,754 $ 652,220 10.1 % (1.8 )% Real estate expense reimbursement from tenants 18,665 18,039 16,789 3.5 % 7.4 % Rental income 723,859 658,793 669,009 9.9 % (1.5 )% Interest and other income from real estate transactions 2,548 1,888 1,478 35.0 % 27.7 % Total revenues$ 726,407 $ 660,681 $ 670,487 9.9 % (1.5 )% (1)
Includes rental income from operating leases, earned income from direct financing leases and percentage rent ("Rental Revenues").
Comparison of Revenues - 2021 versus 2020
Rental Income. Rental income increased for the year endedDecember 31, 2021 , as compared to the same period in 2020. The increase is primarily due to a change in receivables reserves, scheduled rent increases based on increases in the CPI and Property acquisitions:
(i)
a partial year of Rental Revenue from 156 Properties with aggregate gross leasable area of approximately 1,341,000 square feet acquired in 2021, and
33
--------------------------------------------------------------------------------(ii)
a full year of Rental Revenue from 63 Properties with aggregate gross leasable area of approximately 449,000 square feet acquired in 2020.
Comparison of Revenues - 2020 versus 2019
Refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of NNN's Annual Report on Form 10-K for the year endedDecember 31, 2020 filed with the Commission onFebruary 11, 2021 , for a detailed comparison of revenues for the years endedDecember 31, 2020 versusDecember 31, 2019 .
Analysis of Expenses
General. Operating expenses decreased primarily due to a decrease in impairment losses recognized on real estate during the year endedDecember 31, 2021 , as compared to the same period in 2020. The decrease in impairment losses was partially offset by an increase in depreciation and amortization as a result of the continued growth of NNN's Property Portfolio as well as an increase in general and administrative expenses. The following summarizes NNN's expenses for the year endedDecember 31 (dollars in thousands): 2021 2020 Versus Versus 2020 2019 2021 2020 2019 Percent Percent General and administrative$ 44,640 $ 38,161 $ 37,651 17.0 % 1.4 % Real estate 28,385 28,362 27,656 0.1 % 2.6 % Depreciation and amortization 205,220 196,623 188,871 4.4 % 4.1 % Leasing transaction costs 203 76 261 167.1 % (70.9 )% Impairment losses - real estate, net of recoveries 21,957 37,442 31,992 (41.4 )% 17.0 % Executive retirement costs - 1,766 - (100.0 )% N/C Total operating expenses$ 300,405 $ 302,430 $ 286,431 (0.7 )% 5.6 % Interest and other income$ (216 ) $ (417 ) $ (3,112 ) (48.2 )% (86.6 )% Interest expense 137,874 129,431 120,023 6.5 % 7.8 % Loss on early extinguishment of debt 21,328 16,679 - 27.9 % N/C Total other expenses$ 158,986 $ 145,693 $ 116,911 9.1 % 24.6 % As a percentage of total revenues: General and administrative 6.1 % 5.8 % 5.6 % Real estate 3.9 % 4.3 % 4.1 %
Comparison of Expenses - 2021 versus 2020
General and Administrative Expenses. General and administrative expenses increased in amount and as a percentage of total revenues for the year endedDecember 31, 2021 , as compared to the same period in 2020. The increase in general and administrative expenses for the year endedDecember 31, 2021 , is primarily attributable to an increase in incentive compensation costs. Impairment Losses - Real Estate, Net of Recoveries. NNN periodically assesses its long-lived real estate assets for possible impairment whenever certain events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. These indicators include, but are not limited to: changes in real estate market conditions, the ability of NNN to re-lease properties that are currently vacant or become vacant, properties reclassified as held for sale, persistent vacancies greater than one year, and properties leased to tenants in bankruptcy. Management evaluates whether an impairment in carrying value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), and the residual value of the real estate, with the carrying value of the individual asset. The future undiscounted cash flows are primarily driven by estimated future market rents. Future cash flow estimates are sensitive to the assumptions made by management regarding future market rents, which are affected by expectations about future market and economic conditions. If an impairment is 34 -------------------------------------------------------------------------------- indicated, a loss will be recorded for the amount by which the carrying value of the asset exceeds its estimated fair value.NNN's Properties are leased primarily to retail tenants under long-term net leases and primarily held for investment. Generally, NNN's Property leases provide for initial terms of 10 to 20 years, which provide for cash flows over this term. NNN generally intends to hold these assets for the long-term, therefore, a temporary change in cash flows due to the COVID-19 pandemic alone was determined not to be an indicator of impairment.
As a result of NNN's review of long-lived assets, including identifiable intangible assets, NNN recognized real estate impairments, net of recoveries as summarized in the table below (dollars in thousands):
2021 2020 2019
Total real estate impairments, net of recoveries
$ 31,992 Number of Properties: Vacant 30 14 27 Occupied 12 17 12 For the years endedDecember 31, 2021 , 2020, and 2019, real estate impairments, net of recoveries, was less than one percent of NNN's total assets for the respective periods as reported on the Consolidated Balance Sheets. Due to NNN's core business of investing in real estate leased primarily to retail tenants under long-term net leases, the inherent risks of owning commercial real estate, and unknown potential changes in financial and economic conditions that may impact NNN's tenants, NNN believes it is reasonably possible to incur real estate impairment charges in the future.
Executive Retirement Costs. For the year ended
Interest Expense. Interest expense increased for the year endedDecember 31, 2021 , compared to the same period in 2020. The increase is attributable to an increase in outstanding debt, including the following activity related to NNN's notes payable (dollars in thousands): Stated Original Effective Interest Maturity Transaction Date Principal Rate Date Issuance 2030 Notes March 2020$ 400,000 2.500% April 2030 Issuance 2050 Notes March 2020 300,000 3.100% April 2050 Redemption 2022 Notes March 2020 (325,000 ) 3.800% October 2022 Issuance 2051 Notes March 2021 450,000 3.500% April 2051 Redemption 2023 Notes March 2021 (350,000 ) 3.300% April 2023 Issuance 2052 Notes September 2021 450,000 3.000% April 2052 In addition to the note payable transactions outlined above, interest expense was also impacted due to the Credit Facility having no weighted average outstanding balance atDecember 31, 2021 and a weighted average outstanding balance of$18,895,000 with a weighted average interest rate of 2.6% atDecember 31, 2020 . In addition, interest expense for the years endedDecember 31, 2021 and 2020, includes$2,078,000 and$2,291,000 , respectively, in connection with the early redemption of the 2023 Notes and 2022 Notes, respectively. Loss on Early Extinguishment of Debt. As part of NNN's financing strategy, NNN may opt to redeem outstanding notes payable prior to the original maturity date. Upon an early redemption, notes are redeemed at a price equal to 100% of the principal amount, plus (i) a make-whole amount, and (ii) accrued and unpaid interest. In March 2021, NNN redeemed the$350,000,000 3.300% notes payable that were due inApril 2023 with a make-whole amount of$21,328,000 . InMarch 2020 , NNN redeemed the$325,000,000 3.800% notes payable that were due in October 2022 with a make-whole amount of$16,679,000 . The make-whole amounts are included in loss on early extinguishment of debt on the Consolidated Statement of Income and Comprehensive Income. 35
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Comparison of Expenses - 2020 versus 2019
Refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of NNN's Annual Report on Form 10-K for the year endedDecember 31, 2020 filed with the Commission onFebruary 11, 2021 , for a detailed comparison of expenses for the years endedDecember 31, 2020 versusDecember 31, 2019 .
Impact of Inflation
NNN's leases typically contain provisions to mitigate the adverse impact of inflation on NNN's results of operations. Tenant leases generally provide for limited increases in rent as a result of fixed increases, increases in the CPI, and/or, to a lesser extent, increases in the tenant's sales volume. During times when inflation is greater than increases in rent, rent increases will not keep up with the rate of inflation. Properties are leased to tenants under long-term, net leases which typically require the tenant to pay certain operating expenses for a Property, thus, NNN's exposure to inflation is reduced with respect to these expenses. Inflation may have an adverse impact on NNN's tenants and challenge their ability to meet lease obligations, including to pay rent.
Liquidity and Capital Resources
NNN's demand for funds has been and will continue to be primarily for (i) payment of operating expenses and cash dividends; (ii) Property acquisitions and development; (iii) capital expenditures; (iv) payment of principal and interest on its outstanding debt; and (v) other investments. Financing Strategy. NNN's financing objective is to manage its capital structure effectively in order to provide sufficient capital to execute its operating strategy while servicing its debt requirements, maintaining its investment grade credit rating, staggering debt maturities and providing value to NNN's stockholders. NNN's capital resources have and will continue to include, if available (i) proceeds from the issuance of public or private equity or debt capital market transactions; (ii) secured or unsecured borrowings from banks or other lenders; (iii) proceeds from the sale of Properties; and (iv) to a lesser extent, by internally generated funds as well as undistributed funds from operations. However, there can be no assurance that additional financing or capital will be available, or that the terms will be acceptable or advantageous to NNN. NNN typically expects to fund its short-term liquidity requirements, including investments in additional Properties, with cash and cash equivalents, cash provided from operations and NNN's Credit Facility. As ofDecember 31, 2021 , NNN had$171,322,000 of cash and cash equivalents and$1,100,000,000 was available for future borrowings under the Credit Facility. (See "Overview - Impact of COVID-19 on NNN's Business"). As ofDecember 31, 2021 , NNN's ratio of total debt to total gross assets (before accumulated depreciation and amortization) was approximately 40 percent and the ratio of secured debt to total gross assets was less than one percent. The ratio of total debt to total market capitalization was approximately 30 percent. Certain financial agreements to which NNN is a party contain covenants that limit NNN's ability to incur additional debt under certain circumstances. The organizational documents of NNN do not limit the absolute amount or percentage of debt that NNN may incur. Additionally, NNN may change its financing strategy. 36 -------------------------------------------------------------------------------- Cash and Cash Equivalents. NNN's cash and cash equivalents includes the aggregate of cash and cash equivalents and restricted cash and cash held in escrow from the Consolidated Balance Sheets. NNN did not have restricted cash, including cash held in escrow as ofDecember 31, 2021 , 2020 and 2019. The table below summarizes NNN's cash flows for each of the years endedDecember 31 (dollars in thousands): 2021 2020 2019 Cash and cash equivalents: Provided by operating activities$ 568,425 $ 450,194 $ 501,727 Used in investing activities (432,177 ) (142,816 ) (619,408 ) Provided by (used in) financing activities (232,162 ) (41,254 ) 4,526 Increase (decrease) (95,914 ) 266,124 (113,155 ) Net cash at beginning of year 267,236 1,112 114,267 Net cash at end of year$ 171,322 $ 267,236 $ 1,112 Cash flow activities include: Operating Activities. Cash provided by operating activities represents cash received primarily from Rental Revenues and interest income less cash used for general and administrative expenses. NNN's cash flow from operating activities has been sufficient to pay the distributions for each period presented. The change in cash provided by operations for the years endedDecember 31, 2021 , 2020 and 2019, is primarily the result of changes in revenues and expenses as discussed in "Results of Operations." Cash generated from operations is expected to fluctuate in the future. Investing Activities. Changes in cash for investing activities are primarily attributable to acquisitions and dispositions of Properties as discussed in "Results of Operations - Property Analysis." NNN typically uses cash on hand or proceeds from its Credit Facility to fund the acquisition of its Properties.
Financing Activities. NNN's financing activities for the year ended
(i) Issuance and redemption of notes payable resulted in the following:
•
$436,417,000 in net proceeds from the issuance in March of the 3.500% notes payable due inApril 2051 , •$350,000,000 payment in March for the early redemption of the 3.300% notes payable due inApril 2023 , •$21,328,000 payment in March of the make-whole amount from the early redemption of the 3.300% notes payable due inApril 2023 , and •$434,611,000 in net proceeds from the issuance in September of the 3.000% notes payable due inApril 2052 .
(ii) Issuance and redemption of equity securities resulted in the following:
•
$345,000,000 payment to redeem the 13,800,000 depository shares of NNN's 5.200% Series F Cumulative Redeemable Preferred Stock (the "Series F Preferred Stock"), •$1,009,000 from the issuance of 30,000 shares of common stock in connection with the at-the-market ("ATM") equity program, and •$2,744,000 from the issuance of 62,577 shares of common stock in connection with the Dividend Reinvestment and Stock Purchase Plan ("DRIP").
(iii) Dividends paid:
•
$367,291,000 to common stockholders, and •$14,999,000 to holders of the depositary shares of the Series F Preferred Stock. 37
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Material Cash Requirements
NNN's material cash requirements include (i) long-term debt maturities; (ii) interest on long-term debt; (iii) to a lesser extent, Property construction and other Property related costs that may arise; and (iv) common stock dividends (although all future distributions will be declared and paid at the discretion of the Board of Directors).
The table presents material cash requirements related to NNN's long-term debt
outstanding as of
Date of Obligation
Total 2022 2023 2024 2025 2026 Thereafter
Long-term debt(1) $ 3,810,611 $ 664 $ 9,947 129,006 120,750 106,225 1,329,260 Total$ 5,769,500 $ 137,611 $ 146,648 $ 479,006 $ 520,750 $ 456,225 $ 4,029,260 (1) Includes only principal amounts outstanding under mortgages payable and notes payable and excludes unamortized mortgage premiums, note discounts and note costs. See "Capital Structure - Mortgages Payable" and "Capital Structure - Notes Payable". (2) Interest calculation on mortgage and notes payable based on stated rate of the principal amount. See "Capital Structure - Mortgages Payable" and "Capital Structure - Notes Payable".Property Construction . NNN has committed to fund construction of 13 Properties. The improvements of such Properties are estimated to be completed within 12 months. These construction commitments, atDecember 31, 2021 , are outlined in the table below (dollars in thousands): Total commitment(1)$ 40,991 Less amount funded 16,256 Remaining commitment$ 24,735 (1)
Includes land, construction costs, tenant improvements, lease costs and capitalized interest.
Management anticipates satisfying these obligations with a combination of NNN's cash provided from operations, current capital resources on hand, its Credit Facility, debt or equity financings and asset dispositions. Properties. Generally, the Properties are leased under long-term triple net leases, which require the tenant to pay all property taxes and assessments, to maintain the interior and exterior of the Property, and to carry property and liability insurance coverage. Therefore, management anticipates that capital demands to meet obligations with respect to these Properties will be modest for the foreseeable future and can be met with funds from operations and working capital.Certain Properties are subject to leases under which NNN retains responsibility for specific costs and expenses associated with the Property. Management anticipates the costs associated with these Properties, NNN's vacant Properties or those Properties that become vacant will also be met with funds from operations and working capital. NNN may be required to borrow under its Credit Facility or use other sources of capital in the event of significant capital expenditures or major repairs.
The lost revenues and increased property expenses resulting from vacant Properties or the inability to collect lease revenues could have a material adverse effect on the liquidity and results of operations if NNN is unable to re-lease the Properties at comparable rental rates and in a timely manner.
As of
Additionally, as of
NNN generally monitors the financial performance of its significant tenants on an ongoing basis.
A prolonged continuation of or repeated temporary business closures, reduced
capacity at businesses or other social-distancing practices and quarantine
orders as a result of COVID-19 may adversely impact NNN's tenants' ability to
generate sufficient revenues to meet financial obligations, and could force
tenants to default on their leases, or result in the bankruptcy of tenants,
which would diminish the Rental Revenue NNN receives under its leases. NNN
currently expects a short-term decrease in cash
38
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from operations as its tenants continue to be impacted by the COVID-19 pandemic
and, while contractually obligated, some have not paid all rent amounts due.
Additionally, an increase in the number of vacant properties would increase
NNN's real estate expenses, including expenses associated with ongoing
maintenance and repairs, utilities, property taxes, and property and liability
insurance. The ongoing development and fluidity of the COVID-19 pandemic
precludes any prediction as to the ultimate adverse impact on NNN (see "Overview
- Impact of COVID-19 on NNN's Business").
Common Stock Dividends. One of NNN's primary objectives is to distribute a substantial portion of its funds available from operations to its stockholders in the form of dividends, while retaining sufficient cash for reserves and working capital purposes and maintaining its status as a REIT.
The following table outlines the dividends declared and paid for NNN's common stock for the years endedDecember 31 (dollars in thousands, except per share data): 2021 2020 2019 Dividends$ 367,291 $ 356,409 $ 333,692 Per share 2.1000 2.0700 2.0300
The following table presents the characterizations for tax purposes of NNN's
common stock dividends for the years ended
2021 2020 2019
Ordinary dividends(1)
$ 2.100000 100.0000 %$ 2.070000
100.0000 %
(1)
Eligible for the 20% qualified business income deduction under section 199A of the Code.
On
Preferred Stock Distributions. Holders of NNN's preferred stock issuances are entitled to receive, when and as authorized by the Board of Directors, cumulative preferential cash distributions based on the stated rate and liquidation preference per annum. The following table presents the dividends declared and paid for NNN's preferred stock for the years endedDecember 31 (dollars in thousands, except per share data): Series F(1) Series E(2) 2021 2020 2019 2019 Dividends$ 14,999 $ 17,940 $ 17,940 $ 13,201 Per share(3) 1.086944 1.3000 1.3000 1.147917
(1) The Series F Preferred Stock was redeemed in
in 2021 include accumulated and unpaid dividends through, but not including,
the redemption date.
(2) The Series E preferred stock was redeemed in
paid in 2019 include accumulated and unpaid dividends through, but not
including, the redemption date. (3) 100% of preferred stock dividends were characterized as ordinary dividends
for tax purposes, eligible for the 20% qualified business income deduction
under section 199A of the Code.
In October 2021 , NNN redeemed all outstanding depositary shares (13,800,000)
representing interests in its Series F Preferred Stock. As of December 31, 2021 ,
NNN had no outstanding shares of preferred stock.
39
--------------------------------------------------------------------------------Capital Structure
NNN has used, and expects to use in the future, various forms of debt and equity securities primarily to pay down or refinance its outstanding debt, to finance property acquisitions and to fund construction on its Properties.
The following is a summary of NNN's total outstanding debt as of
Percentage Percentage
2021 of Total 2020 of Total
Mortgages payable $ 10,697 0.3 % $ 11,395 0.4 %
Notes payable 3,735,769 99.7 % 3,209,527 99.6 %
Total outstanding debt $ 3,746,466 100.0 % $ 3,220,922 100.0 %
Line of Credit Payable. In June 2021 , NNN amended and restated its credit
agreement to increase the borrowing capacity under its Credit Facility from
$900,000,000 to $1,100,000,000 and amended certain other terms under the former
Credit Facility. The Credit Facility had no weighted average outstanding balance
during the year ended December 31, 2021 . The Credit Facility matures in June
2025 , unless the Company exercises its options to extend maturity to June 2026 .
The Credit Facility bears interest at the London Interbank Offered Rate
("LIBOR") plus 77.5 basis points; however, such interest rate may change
pursuant to a tiered interest rate structure based on NNN's debt rating.
Additionally, as part of NNN's environmental, social and governance ("ESG")
initiatives, pricing may be reduced if specified ESG metrics are achieved. The
Credit Facility also includes an accordion feature which permits NNN to increase
the facility size up to $2,000,000,000 , subject to lender approval. In
connection with the Credit Facility, NNN incurred loan costs of $7,489,000 which
are included in debt costs on the Consolidated Balance Sheet. As of December 31,
2021 , there was no outstanding balance and $1,100,000,000 was available for
future borrowings under the Credit Facility.
In accordance with the terms of the Credit Facility, NNN is required to meet
certain restrictive financial covenants, which, among other things, require NNN
to maintain certain (i) leverage ratios, (ii) debt service coverage, (iii) cash
flow coverage, and (iv) investment limitations. At December 31, 2021 , NNN was in
compliance with those covenants. In the event that NNN violates any of these
restrictive financial covenants, it could cause the debt under the Credit
Facility to be accelerated and may impair NNN's access to the debt and equity
markets and limit NNN's ability to pay dividends to its common and preferred
stockholders, each of which would likely have a material adverse impact on NNN's
financial condition and results of operations.
LIBOR is used as a reference rate for NNN's revolving Credit Facility. On March
5, 2021 , the Financial Conduct Authority ("FCA") announced that USD LIBOR will
no longer be published after June 30, 2023 . This announcement has several
implications, including setting the spread that may be used to automatically
convert contracts from LIBOR to the Secured Overnight Financing Rate ("SOFR").
Additionally, as of December 31, 2021 , banks are expected to no longer issue any
new LIBOR debt. NNN anticipates that LIBOR will continue to be available at
least until June 30, 2023 . For a discussion of the phase-out of LIBOR and its
impact to NNN, see "Item 1A. Risk Factors - General Risks."
Mortgages Payable. As of December 31, 2021 and 2020, NNN had mortgages payable,
including unamortized premium and net of unamortized debt costs, of $10,697,000
and $11,395,000 respectively. The mortgages payable had an interest rate of
5.23% and matures July 2023 . The loan is secured by a first lien on five of the
Properties and the carrying value of the assets was $18,972,000 as of December
31, 2021 .
Universal Shelf Registration Statement. In
40
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Issue Net Stated Effective Maturity
Notes(1) Date Principal Discount(2) Price Rate Rate(3) Date
June
2024 May 2014 $ 350,000 $ 707 $ 349,293 3.900% 3.924% 2024(4)
November
2025 October 2015 400,000 964 399,036 4.000% 4.029% 2025(4)
December
2026 December 2016 350,000 3,860 346,140 3.600% 3.733% 2026(4)
October
2027 September 2017 400,000 1,628 398,372 3.500% 3.548% 2027
October
2028 September 2018 400,000 2,848 397,152 4.300% 4.388% 2028
2030 March 2020 400,000 1,288 398,712 2.500% 2.536% April 2030
October
2048 September 2018 300,000 4,239 295,761 4.800% 4.890% 2048
2050 March 2020 300,000 6,066 293,934 3.100% 3.205% April 2050
2051 March 2021 450,000 8,406 441,594 3.500% 3.602% April 2051
2052 September 2021 450,000 10,422 439,578 3.000% 3.118% April 2052
(1)
The proceeds from the note issuances were used to pay down outstanding debt of
NNN's Credit Facility, fund future property acquisitions and for general
corporate purposes. Proceeds from the issuance of the 2028 Notes and the 2048
Notes were also used to redeem all of the $300,000 5.500% notes payable that
were due 2021. Proceeds from the issuance of the 2030 Notes and the 2050 Notes
were also used to redeem all of the $325,000 3.800% notes payable that were due
in 2022. Proceeds from the issuance of the 2051 Notes were also used to redeem
all of the $350,000 3.300% notes payable that were due in 2023. Proceeds from
the issuance of the 2052 Notes were also used to redeem all of NNN's Series F
Preferred Stock.
(2)
The note discounts are amortized to interest expense over the respective term of
each debt obligation using the effective interest method.
(3)
Includes the effects of the discount at issuance.
(4)
The aggregate principal balance of the unsecured note maturities for the next
five years is $1,100,000 .
NNN entered into forward starting swaps which were hedging the risk of changes
in forecasted interest payments on the forecasted issuance of long-term debt.
Upon the issuance of a series of unsecured notes, NNN terminated such
derivatives as outlined in the following table (dollars in thousands):
Liability Fair Value Deferred
Aggregate (Asset) Fair In Other
Notional Value When Comprehensive
Notes Terminated Description Amount Terminated (1) Income(2)
Three forward
2024 May 2014 starting swaps $ 225,000 $ 6,312 $ 6,312
Four forward
2025 October 2015 starting swaps 300,000 13,369 13,369
Two forward starting
2026 December 2016 swaps 180,000 (13,352 ) (13,345 )
Two forward starting
2027 September 2017 swaps 250,000 7,690 7,688
Two forward starting
2028 September 2018 swaps 250,000 (4,080 ) (4,080 )
Three forward
2030 March 2020 starting swaps 200,000 13,141 13,141
Two forward starting
2052 September 2021 swaps 120,000 1,584 1,584
(1)
The deferred liability (asset) is being amortized over the term of the
respective notes using the effective interest method.
(2)
The amount reported in accumulated other comprehensive income will be
reclassified to interest expense as interest payments are made on the related
notes payable.
Each series of notes represents senior, unsecured obligations of NNN and is
subordinated to all secured debt of NNN. The notes are redeemable at the option
of NNN, in whole or in part, at a redemption price equal to the sum of (i) the
principal amount of the notes being redeemed plus all accrued and unpaid
interest thereon through the redemption date, and (ii) the make-whole amount, if
any, as defined in the applicable supplemental indenture relating to the notes.
In connection with the outstanding note offerings, NNN incurred debt issuance
costs totaling $38,145,000 consisting primarily of underwriting discounts and
commissions, legal and accounting fees, rating agency fees and printing
expenses. Debt issuance costs for all note issuances have been deferred and are
being amortized over the term of the respective notes using the effective
interest method.
41
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As a part of NNN's financing strategy, NNN may opt to redeem outstanding notes
payable prior to the original maturity date. Upon early redemption, notes are
redeemed at a price equal to 100% of the principal amount, plus (i) a make-whole
amount, and (ii) accrued and unpaid interest. In March 2021 , NNN redeemed the
$350,000,000 3.300% notes payable that were due in April 2023 with a make-whole
amount of $21,328,000 . In March 2020, NNN redeemed the $325,000,000 3.800% notes
payable that were due in October 2022 with a make-whole amount of $16,679,000 .
The make-whole amounts are included in loss on early extinguishment of debt on
the Consolidated Statement of Income and Comprehensive Income.
In accordance with the terms of the indentures pursuant to which NNN's notes
have been issued, NNN is required to meet certain restrictive financial
covenants, which, among other things, require NNN to maintain (i) certain
leverage ratios, and (ii) certain interest coverage. At December 31, 2021 , NNN
was in compliance with those covenants. NNN's failure to comply with certain of
its debt covenants could result in defaults that accelerate the payment under
such debt and limit the dividends paid to NNN's common and preferred
stockholders which would likely have a material adverse impact on NNN's
financial condition and results of operations. In addition, these defaults could
impair its access to the debt and equity markets.
NNN does not use derivatives for trading or speculative purposes or currently
have any derivatives that are not designated as hedges. NNN had no derivative
financial instruments outstanding at December 31, 2021 .
Preferred Stock. InOctober 2021 , NNN redeemed all outstanding depositary shares (13,800,000) representing interests in its 5.200% Series F Preferred Stock. The Series F Preferred Stock was redeemed at$25.00 per depositary share, plus all accrued and unpaid dividends through, but not including, the redemption date, for an aggregate redemption price of $25.111944 per depositary share. The excess carrying amount of the Series F Preferred Stock redeemed over the cash paid to redeem the Series F Preferred Stock was$10,897,000 , representing issuance costs which is reflected as a reduction to earnings attributable to common stockholders. InOctober 2019 , NNN redeemed all outstanding depositary shares (11,500,000) representing interests in its 5.700% Series E preferred stock. The Series E preferred stock was redeemed at$25.00 per depositary share, plus all accrued and unpaid dividends through, but not including, the redemption date, for an aggregate redemption price of$25.079167 per depositary share. The excess carrying amount of preferred stock redeemed over the cash paid to redeem the preferred stock was$9,856,000 , representing issuance costs which is reflected as a reduction to earnings attributable to common stockholders.
As of
Common Stock. InSeptember 2019 , NNN filed a prospectus supplement to the prospectus contained in itsFebruary 2018 shelf registration statement and issued 7,000,000 shares of common stock at a price of$56.50 per share and received net proceeds of$379,410,000 . In connection with this offering, NNN incurred stock issuance costs totaling approximately$16,090,000 , consisting primarily of underwriters' fees and commissions, legal and accounting fees and printing expenses. NNN used the net proceeds from this offering to redeem the Series E preferred stock, repay outstanding debt under the Credit Facility, to fund property acquisitions, and for general corporate purposes. At-The-Market Offerings. Under NNN's shelf registration statement, NNN has established an ATM which allows NNN to sell shares of common stock from time to time. The following table outlines NNN's active ATM programs for the three years endedDecember 31, 2021 : 2020 ATM 2018 ATM Established date August 2020 February 2018 Termination date August 2023 August 2020 Total allowable shares 17,500,000 12,000,000
Total shares issued as of
42
-------------------------------------------------------------------------------- The following table outlines the common stock issuances pursuant to NNN's ATM equity programs for the years endedDecember 31 (dollars in thousands, except per share data): 2021 2020 2019 Shares of common stock 30,000 3,119,153 2,344,022 Average price per share (net)$ 33.65 $ 38.21 $ 53.71 Net proceeds$ 1,009 $ 119,185 $ 125,905 Stock issuance costs(1)$ 224 $ 2,130 $ 1,431 (1)
Stock issuance costs consist primarily of underwriters' and agent's fees and commissions, and legal and
accounting fees. Dividend Reinvestment and Stock Purchase Plan. InFebruary 2021 , NNN filed a shelf registration statement that was automatically effective with the Commission for its DRIP, which permits NNN to issue up to 6,000,000 shares of common stock. NNN's DRIP provides an economical and convenient way for current stockholders and other interested new investors to invest in NNN's common stock. The following outlines the common stock issuances pursuant to the DRIP for the years endedDecember 31 (dollars in thousands): 2021 2020 2019 Shares of common stock 62,577 138,507 362,918 Net proceeds$ 2,744 $ 5,092 $ 19,442 43
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