NNN REIT, INC. The following discussion and analysis should be read in conjunction with the
consolidated financial statements and related notes included in the Annual
Report on Form 10-K of
Forward-Looking Statements
The information herein contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities and
Exchange Act of 1934 (the "Exchange Act"). Also, when NNN uses any of the words
"anticipate," "assume," "believe," "estimate," "expect," "intend," or similar
expressions, NNN is making forward-looking statements. Although management
believes that the expectations reflected in such forward-looking statements are
based upon present expectations and reasonable assumptions, NNN's actual results
could differ materially from those set forth in the forward-looking statements.
Further, forward-looking statements speak only as of the date they are made, and
NNN undertakes no obligation to update or revise forward-looking statements to
reflect changed assumptions, the occurrence of unanticipated events or changes
to future operating results over time, unless required by law. The following are
some of the risks and uncertainties, although not all risks and uncertainties,
that could cause our actual results to differ materially from those presented in
our forward-looking statement:
•
Changes in financial and economic conditions may have an adverse impact on NNN,
its tenants, and commercial real estate in general;
•
An epidemic or pandemic (such as the outbreak and worldwide spread of a novel
strain of coronavirus, and its variants ("COVID-19")), and the measures that
international, federal, state and local governments, agencies, law enforcement
and/or health authorities implement to address it, may precipitate or materially
exacerbate one or more of the other risks, and may significantly disrupt NNN's
tenants' ability to operate their businesses and/or pay rent to NNN or prevent
NNN from operating its business in the ordinary course for an extended period;
•
Loss of rent from tenants would reduce NNN's cash flow;
•
A significant portion of NNN's annual base rent is concentrated in specific
industry classifications, tenants and geographic locations;
•
NNN may not be able to successfully execute its acquisition or development
strategies;
•
NNN may not be able to dispose of properties consistent with its operating
strategy;
•
Certain provisions of NNN's leases or loan agreements may be unenforceable;
•
Competition from numerous other real estate investment trusts ("REIT"),
commercial developers, real estate limited partnerships and other investors may
impede NNN's ability to grow;
•
Uninsured losses may adversely affect NNN's operating results and asset values;
•
NNN's ability to fully control the management of its net-leased properties may
be limited;
•
Vacant properties or bankrupt tenants could adversely affect NNN's business or
financial condition;
•
Cybersecurity risks and cyber incidents could adversely affect NNN's business,
disrupt operations and expose NNN to liabilities to tenants, employees, capital
providers, and other third parties;
•
Future investment in international markets could subject NNN to additional
risks;
•
NNN may suffer a loss in the event of a default of or bankruptcy of a tenant or
a borrower;
•
Property ownership through joint ventures and partnerships could limit NNN's
control of those investments;
•
NNN may be unable to obtain debt or equity capital on favorable terms, if at
all;
•
The amount of debt NNN has and the restrictions imposed by that debt could
adversely affect NNN's business and financial condition;
•
NNN is obligated to comply with financial and other covenants in its debt
instruments that could restrict its operating activities, and the failure to
comply with such covenants could result in defaults that accelerate the payment
of such debt;
•
NNN's ability to pay dividends in the future is subject to many factors;
•
Owning real estate and indirect interests in real estate carries inherent risks;
•
NNN's real estate investments are illiquid;
•
NNN may be subject to known or unknown environmental liabilities and risks,
including but not limited to liabilities and risks resulting from the existence
of hazardous materials on or under properties owned by NNN;
•
NNN's failure to qualify as a REIT for federal income tax purposes could result
in significant tax liability;
•
Compliance with REIT requirements, including distribution requirements, may
limit NNN's flexibility and may negatively affect NNN's operating decisions;
•
The share ownership restrictions of the Internal Revenue Code of 1986, as
amended (the "Code"), for REITs and the 9.8% share ownership limit in NNN's
charter may inhibit market activity in NNN's shares of stock and restrict NNN's
business combination opportunities;
19
--------------------------------------------------------------------------------•
The cost of complying with changes in governmental laws and regulations may
adversely affect NNN's results of operations;
•
Non-compliance with Title III of the Americans with Disabilities Act of 1990
could have an adverse effect on NNN's business and operating results;
•
NNN's loss of key management personnel could adversely affect performance and
the value of its securities;
•
NNN's failure to maintain effective internal control over financial reporting
could have a material adverse effect on its business, operating results and the
market value of NNN's securities;
•
Acts of violence, terrorist attacks or war may affect NNN's properties, the
markets in which NNN operates and NNN's results of operations;
•
Changes in accounting pronouncements could adversely impact NNN's or NNN's
tenants' reported financial performance;
•
The market value of NNN's equity and debt securities is subject to various
factors that may cause significant fluctuations or volatility;
•
The phase-out of the London Interbank Offered Rate ("LIBOR") could affect
interest rates under NNN's variable rate debt;
•
Even if NNN remains qualified as a REIT, NNN faces other tax liabilities that
reduce operating results and cash flow; and
•
Adverse legislative or regulatory tax changes could reduce NNN's earnings and
cash flow and the market value of NNN's securities.
Additional information related to these risks and uncertainties are included in "Item 1A. Risk Factors" of NNN's 2021 Annual Report.
These risks and uncertainties may cause NNN's actual future results to differ materially from expected results, readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. NNN undertakes no obligation to update or revise such forward-looking statements, whether as a result of new information, future events or otherwise. Overview NNN, aMaryland corporation, is a fully integrated 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"). As ofMarch 31, 2022 , NNN owned 3,271 Properties, with an aggregate gross leasable area of approximately 33,545,000 square feet, located in 48 states, with a weighted average remaining lease term of 10.6 years. Approximately 99 percent of the Properties were leased as ofMarch 31, 2022 . 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 line of trade concentrations are the convenience store (17.5%), automotive service (12.6%) and restaurant (including full and limited service) (18.9%) 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 ofMarch 31, 2022 and 2021, the Property Portfolio remained at least 98 percent leased and had a weighted average remaining lease term of approximately 11 years. High occupancy levels coupled with a net lease structure, provides enhanced probability of maintaining operating earnings.
Additional information related to NNN is included in "Item 1. Business" of NNN's 2021 Annual Report.
20
--------------------------------------------------------------------------------Impact of COVID-19 on NNN's Business
NNN and certain of NNN's tenants were impacted by the COVID-19 pandemic which resulted in the loss of revenue for certain tenants and challenged their ability to pay rent. As a result, during 2021 and 2020, NNN entered into rent deferral lease amendments with certain tenants for rent originally due for the years endingDecember 31, 2021 and 2020, which require the deferred rents to be repaid at a later time during the lease term. Substantially all remaining deferred rent will come due periodically byDecember 31, 2023 .
The following table outlines the rent deferred and corresponding scheduled repayment of the COVID-19 rent deferral lease amendments (dollars in thousands):
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 While NNN's rent collections have returned to pre-pandemic levels, NNN's operations and those of NNN's tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence.
Historical rent collections and rent relief requests may not be indicative of 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. Results of Operations Property Analysis
General. The following table summarizes the Property Portfolio:
December 31,
March 31, 2022 2021 March 31, 2021
Properties Owned:
Number 3,271 3,223 3,161
Total gross leasable area (square
feet) 33,545,000 32,753,000 32,717,000
Properties:
Leased and unimproved land 3,245 3,191 3,106
Percent of Properties - leased and
unimproved land 99 % 99 % 98 %
Weighted average remaining lease term
(years) 10.6 10.6 10.6
Total gross leasable area (square
feet) - leased 33,258,000 32,395,000 31,910,000
21--------------------------------------------------------------------------------
The following table summarizes the diversification of the Property Portfolio based on the top 20 lines of trade:
% of Annual Base Rent(1)
March 31, December 31, March 31,
Lines of Trade 2022 2021 2021
1. Convenience stores 17.5% 17.9% 18.0%
2. Automotive service 12.6% 12.3% 10.7%
3. Restaurants - full service 9.7% 9.8% 10.2%
4. Restaurants - limited service 9.2% 9.4%
9.5%
5. Family entertainment centers 6.2% 5.9% 6.0%
6. Health and fitness 5.0% 5.2% 5.2%
7. Theaters 4.4% 4.5% 4.4%
8. Recreational vehicle dealers, parts and 4.1% 3.9% 3.5%
accessories
9. Equipment rental 3.1% 3.2% 3.1%
10. Automotive parts 3.0% 3.0% 3.1%
11. Home improvement 2.4% 2.5% 2.6%
12. Wholesale clubs 2.4% 2.5% 2.5%
13. Furniture 2.4% 1.7% 1.7%
14. Medical service providers 2.0% 2.0% 2.1%
15. General merchandise 1.6% 1.7% 1.7%
16. Home furnishings 1.5% 1.5% 1.6%
17. Consumer electronics 1.5% 1.5% 1.5%
18. Travel plazas 1.5% 1.5% 1.5%
19. Automobile auctions, wholesale 1.3% 1.3% 1.1%
20. Drug stores 1.2% 1.3% 1.4%
Other 7.4% 7.4% 8.6%
100.0% 100.0% 100.0%
(1) Based on annualized base rent for all leases in place for each respective period.
Property Acquisitions. The following table summarizes the Property acquisitions
(dollars in thousands):
Quarter Ended March 31,
2022 2021
Acquisitions:
Number of Properties 59 29
Gross leasable area (square feet)(1) 879,000 355,000
Initial cash yield 6.2 % 6.4 %
Total dollars invested(2) $ 210,823 $ 105,626 (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.
22
--------------------------------------------------------------------------------
Property Dispositions. The following table summarizes the Properties sold by NNN
(dollars in thousands):
Quarter Ended March 31,
2022 2021
Number of properties 10 11
Gross leasable area (square feet) 81,000 96,000
Net sales proceeds $ 20,074 $ 17,575
Net gain $ 3,992 $ 4,281 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. During the quarter endedMarch 31, 2022 , total revenues increased as compared to the same period in 2021, primarily due to scheduled rent increases and to the income generated from recently acquired Properties (See "Results of Operations - Property Analysis - Property Acquisitions").
The following table summarizes NNN's revenues (dollars in thousands):
Quarter Ended Percent
March 31, Increase
2022 2021 (Decrease)
Rental Revenues(1) $ 185,163 $ 173,845 6.5 %
Real estate expense reimbursement from 4,600 5,353 (14.1 )%
tenants
Rental income 189,763 179,198 5.9 %
Interest and other income from real 516 580 (11.0 )%
estate transactions
Total revenues $ 190,279 $ 179,778 5.8 %
(1) Includes rental income from operating leases, earned income from direct
financing leases and percentage rent ("Rental Revenues").
Quarter Ended
Rental Income. Rental income increased for the quarter endedMarch 31, 2022 , as compared to the same period in 2021. The increase is primarily due to scheduled rent increases based on increases in the Consumer Price Index and the income generated from Property acquisitions:
•
a partial period of Rental Revenue from NNN's 2022 acquisition of 59 Properties with an aggregate gross leasable area of approximately 879,000 square feet, and
•
a full period of Rental Revenue from NNN's 2021 acquisition of 156 Properties with aggregate gross leasable area of approximately 1,341,000 square feet.
23
--------------------------------------------------------------------------------Analysis of Expenses
General. Operating expenses increased for the quarter endedMarch 31, 2022 , as compared to the same period in 2021, primarily due to the increase in executive retirement costs and depreciation and amortization. The following table summarizes NNN's expenses (dollars in thousands): Quarter Ended March 31, Percent Increase 2022 2021 (Decrease) General and administrative$ 11,042 $ 11,748 (6.0 )% Real estate 7,198 7,725 (6.8 )% Depreciation and amortization 52,680 49,980 5.4 % Leasing transaction costs 88 38 131.6 % Impairment losses - real estate, net of 1,632 2,131 (23.4 )% recoveries Executive retirement costs 3,594 - N/C Total operating expenses$ 76,234 $ 71,622 6.4 % Interest and other income$ (35 ) $ (65 ) (46.2 )% Interest expense 36,699 34,587 6.1 % Loss on early extinguishment of debt - 21,328 (100.0 )% Total other expenses$ 36,664 $ 55,850 (34.4 )% As a percentage of total revenues: General and administrative 5.8 % 6.5 % Real estate 3.8 % 4.3 %
Quarter Ended
Depreciation and Amortization. Depreciation and amortization expenses increased for the quarter endedMarch 31, 2022 , as compared to the same periods in 2021, primarily due to Property acquisitions subsequent toMarch 31, 2021 . 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 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, with cash flows provided over the entire 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. 24 --------------------------------------------------------------------------------
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):
Quarter Ended March 31,
2022 2021
Total real estate impairments, net of recoveries
2,131 Number of Properties: Vacant 3 6 Occupied 2 1 For the quarters endedMarch 31, 2022 and 2021, real estate impairments, net of recoveries, was less than one percent of NNN's total assets for the respective periods as reported on the Condensed 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. InJanuary 2022 , as contemplated under the Company's long-term executive succession planning process, NNN announced thatJulian ("Jay") Whitehurst will retire from employment with the Company as President and Chief Executive Officer onApril 28, 2022 . During the quarter endedMarch 31, 2022 , NNN recorded executive retirement costs as a result of the accounting treatment for long-term incentive compensation related toMr. Whitehurst's Retirement and Transition Agreement.
Interest expense. Interest expense increased for the quarter ended
Transaction Effective Date Principal Stated Rate Original Maturity
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, interest expense for the quarter ended
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. InMarch 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 . The make-whole amount is included in loss on early extinguishment of debt on the Condensed Consolidated Statement of Income and Comprehensive Income.
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 indebtedness; 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 short-term liquidity requirements, including investments in additional properties, with cash and cash equivalents, cash provided from operations and NNN's Credit Facility. As ofMarch 31, 2022 , NNN has$53,736,000 of cash and cash equivalents and$1,100,000,000 available for future borrowings under its Credit Facility. 25 --------------------------------------------------------------------------------
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 Condensed Consolidated Balance Sheets. NNN did not have
restricted cash or cash held in escrow as of
Quarter Ended March 31,
2022 2021
Cash and cash equivalents:
Provided by operating activities
(189,643 ) (88,512 )
Used in financing activities (92,281 ) (28,663 )
Increase (decrease) (117,586 ) 43,995
Net cash at beginning of period 171,322 267,236
Net cash at end of period
Cash flow activities include: Operating Activities. Cash provided by operating activities represents cash received primarily from Rental Revenue 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 quarters endedMarch 31, 2022 and 2021, 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 the 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 quarter ended
•
•
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 below 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) $ 3,810,447 $ 500 $ 9,947 $ 350,000 $ 400,000 $ 350,000 $ 2,700,000
Long-term debt - 1,924,653 102,711 136,701 129,006 120,750 106,225 1,329,260
interest(2)
Total contractual
cash
obligations $ 5,735,100 $ 103,211 $ 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". (2) Interest calculation on mortgage and notes payable based on stated rate of
the principal amount. See "Capital Structure".
26--------------------------------------------------------------------------------Property Construction . NNN has committed to fund construction on 13 Properties. The improvements of such Properties are estimated to be completed within 12 months. These construction commitments, atMarch 31, 2022 , are outlined in the table below (dollars in thousands): Total commitment(1)$ 38,889 Less amount funded 19,881 Remaining commitment$ 19,008
(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, utilities, 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 that 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.
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 each issuance of NNN's stock (dollars in thousands, except per share data):
Quarter Ended March 31,
2022 2021
Series F preferred stock(1):
Dividends $ - $ 4,485
Per depositary share - 0.3250
Common stock:
Dividends 92,751 90,848
Per share 0.5300 0.5200
(1) The Series F preferred stock was redeemed in
In
27
--------------------------------------------------------------------------------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 (dollars in
thousands):
March 31, Percentage December 31, Percentage
2022 of Total 2021 of Total
Mortgages payable $ 10,515 0.3 % $ 10,697 0.3 %
Notes payable 3,736,781 99.7 % 3,735,769 99.7 %
Total outstanding debt $ 3,747,296 100.0 % $ 3,746,466 100.0 %
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 quarter ended March 31, 2022 . The Credit Facility matures June 2025 ,
unless the Company exercises its options to extend maturity to June 2026 . The
Credit Facility bears interest at 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") initiative, 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, loan costs are
classified as debt costs on the Condensed Consolidated Balance Sheets. As of
March 31, 2022 , there was no outstanding balance and $1,100,000,000 was
available for future borrowings under the Credit Facility, and NNN was in
compliance with each of the financial covenants.
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 have ceased issuance of any new
LIBOR based debt. NNN anticipates that LIBOR will continue to be available until
June 30, 2023 . For a discussion of the phase-out of LIBOR and its impact to NNN,
see NNN's Annual Report on Form 10-K for the year ended December 31, 2021 .
Universal Shelf Registration Statement. In August 2020 , NNN filed a shelf
registration statement with the Securities and Exchange Commission (the
"Commission") which was automatically effective and permits the issuance by NNN
of an indeterminate amount of debt and equity securities. Information related to
NNN's publicly held debt and equity securities is included in NNN's Annual
Report on Form 10-K for the year ended December 31, 2021 .
Debt Securities - Notes Payable. In 2021, NNN filed prospectus supplements to
the prospectus contained in its August 2020 shelf registration statement and
issued $450,000,000 aggregate principal amount of 3.500% notes due April 2051
(the "2051 Notes") and $450,000,000 aggregate principal amount of 3.000% notes
due April 2052 (the "2052 Notes" and, together with the 2051 Notes, the
"Notes"). Each note issuance is summarized in the table below (dollar in
thousands):
Effective
Notes Issue Date Principal Discount (1) Net Price
Stated Rate Rate (2) Maturity Date
2051 Notes
3.500 % 3.602 % April 2051
(3)
2052 Notes September 2021 450,000 10,422 439,578 3.000 % 3.118 % April 2052 (4)(5)
(1) The note discounts are amortized to interest expense over the respective term
of each debt obligation using the effective interest method. (2) Includes the effects of the discount at issuance. (3) NNN used the net proceeds from the issuance of the 2051 Notes to redeem all of
its 3.300% notes payable that were due 2023, fund future property acquisitions
and for general corporate purposes.
(4) In
to redeem all of its 13,800,000 outstanding depositary shares, each
representing a 1/100th interest in a share of its Series F preferred stock,
with the remainder of the net proceeds used to fund property acquisitions and
for general corporate purposes. (5) NNN entered into forward swaps which were hedging the risk of changes in
forecasted interest payments on forecasted issuance of long-term debt. Upon
the issuance of the 2052 Notes, NNN terminated such derivatives, and the
resulting fair value was deferred in accumulated other comprehensive income
(loss) and is being amortized over the term of the respective notes using the
effective interest method. Additional disclosure is included in Note 6 -
Derivatives.
28-------------------------------------------------------------------------------- Each series of Notes is senior, unsecured obligations of NNN and is subordinated to all secured debt of NNN and to the debt and other liabilities of NNN's subsidiaries. Each of the Notes is redeemable at NNN's option, at any time, in whole or in part, at a redemption price equal to (i) the sum of the outstanding principal amount of the notes being redeemed plus accrued interest thereon, but not including the redemption date, and (ii) the make-whole amount, if any, as defined in the applicable supplemental indenture related to the notes.
In connection with the Notes, NNN incurred debt issuance costs totaling
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. InMarch 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 . The make-whole amount is included in loss on early extinguishment of debt on the Condensed Consolidated Statement of Income and Comprehensive Income.Equity Securities 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$10,897,000 , representing issuance costs which is reflected as a reduction to earnings attributable to common stockholders.
As of
At-The-Market Offerings. Under NNN's shelf registration statement, NNN established an ATM equity program which allows NNN to sell shares of common stock from time to time. The following outlines NNN's ATM program:
2020 ATM
Established date August 2020
Termination date August 2023
Total allowable shares 17,500,000
Total shares issued as of
The following table outlines the common stock issuances pursuant to NNN's ATM
equity program for the quarter ended
Shares of common stock 30,000 Average price per share (net)$ 38.59 Net proceeds$ 1,158 Stock issuance costs(1)$ 75
(1) Stock issuance costs consist primarily of underwriters' fees and commissions,
and legal and accounting fees.
There were no common stock issuances pursuant to NNN's ATM equity program for
the quarter ended
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 NNN's DRIP (dollars in thousands): Quarter Ended March 31, 2022 2021 Shares of common stock 17,571 15,769 Net proceeds$ 748 $ 569 29
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Critical Accounting Estimates
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required byU.S. generally accepted accounting principles. The unaudited condensed consolidated financial statements reflect all adjustments (including normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The preparation of NNN's condensed consolidated financial statements 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 condensed consolidated 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 consolidated financial statements. A summary of NNN's critical accounting estimates are included in NNN's 2021 Annual Report. NNN has not made any material changes to these policies during the periods covered by this Quarterly Report on Form 10-Q.
Recent Accounting Pronouncements
Refer to Note 1 to the
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