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 ofNational Retail Properties, Inc. for the year endedDecember 31, 2020 ("2020 Annual Report"). The terms "NNN" and the "Company" refer toNational Retail Properties, Inc. and all of its consolidated subsidiaries. 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 ("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; 16 -------------------------------------------------------------------------------- •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 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 2020 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, 2021 , NNN owned 3,161 Properties, with an aggregate gross leasable area of approximately 32,717,000 square feet, located in 48 states, with a weighted average remaining lease term of 10.6 years. Approximately 98 percent of the Properties were leased as ofMarch 31, 2021 . 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 and restaurant (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. 17 -------------------------------------------------------------------------------- Impact of COVID-19 on NNN's Business In 2020, 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 quarter endedMarch 31, 2021 , NNN and certain of NNN's tenants continue to be impacted by the COVID-19 pandemic which has resulted in the continued loss of revenue for certain tenants and challenged their ability to pay rent. As ofMarch 31, 2021 , NNN has entered into rent deferral lease amendments with certain tenants for an aggregate$51,269,000 and$4,677,000 of rent originally due for the years endingDecember 31, 2020 andDecember 31, 2021 , respectively. The rent deferral lease amendments require the deferred rents to be repaid at a later time during the lease term. Approximately$3,259,000 of deferred rent was repaid in 2020 and approximately$10,817,000 of deferred rent was repaid during the quarter endedMarch 31, 2021 . An additional$21,107,000 is due in 2021, with the remaining deferred rent to be collected periodically byDecember 31, 2025 . The following table details the rental revenue for the quarter endedMarch 31, 2021 (collected as ofApril 28, 2021 ), excluding the repayments of amounts previously deferred according to the rent deferral lease amendments as a percentage of annualized base rent: % of
Total Annual
Base Rent(1) % of Rent Collected (2)
1. Convenience stores 18.0 % 99.9 %
2. Automotive service 10.7 % 98.7 %
3. Restaurants - full service 10.2 % 91.5 %
4. Restaurants - limited service 9.5 % 99.9 %
5. Family entertainment centers 6.0 % 99.6 %
6. Health and fitness 5.2 % 94.2 %
7. Theaters 4.4 % 75.8 %
8. Recreational vehicle dealers, parts and accessories 3.5 % 100.0 %
9. Equipment rental 3.1 % 100.0 %
10. Automotive parts 3.1 % 99.7 %
11. Home improvement 2.6 % 99.1 %
12. Wholesale clubs 2.5 % 100.0 %
13. Medical service providers 2.1 % 99.6 %
14. General merchandise 1.7 % 99.1 %
15. Furniture 1.7 % 99.2 %
16. Home furnishings 1.6 % 99.9 %
17. Travel plazas 1.5 % 100.0 %
18. Consumer electronics 1.5 % 100.0 %
19. Drug stores 1.4 % 100.0 %
20. Bank 1.3 % 100.0 %
Other 8.4 % 99.7 %
Total 100.0 % 97.5 %
(1) Based on annualized base rent for all leases in place as of March 31, 2021 .
(2) As of April 28, 2021 , NNN has collected approximately 98% of rent originally due in April
2021 .
Historical rent collections and rent relief requests may not be indicative of
collections and requests in the future. Depending on the macroeconomic
conditions and the impact on tenants, deferred rents may be difficult to
collect.
NNN will continue to monitor the impact of the economic downturn, among other
things, when considering new property investments in 2021. As of March 31, 2021 ,
NNN had $311,231,000 of cash and cash equivalents and $900,000,000 available
18
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for borrowings under its unsecured revolving credit facility. 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.
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 economic downturn presents
material uncertainty and risk with respect to NNN's performance, business or
financial condition, results of operations and cash flows.
Results of Operations
Property Analysis
General. The following table summarizes the Property Portfolio:
March 31, 2021 December 31, 2020 March 31, 2020
Properties Owned:
Number 3,161 3,143 3,125
Total gross leasable area (square feet) 32,717,000 32,461,000 32,500,000
Properties:
Leased and unimproved land 3,106 3,096 3,088 Percent of Properties - leased and unimproved land 98 % 99 % 99 % Weighted average remaining lease term (years) 10.6 10.7 11.1 Total gross leasable area (square feet) - leased 31,910,000 31,631,000 31,910,000
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 March 31, 2021 December 31, 2020 March 31, 2020
1. Convenience stores 18.0 % 18.2 % 18.1 %
2. Automotive service 10.7 % 10.3 % 9.9 %
3. Restaurants - full service 10.2 % 10.5 % 11.0 %
4. Restaurants - limited service 9.5 % 9.7 % 8.7 %
5. Family entertainment centers 6.0 % 5.9 % 6.7 %
6. Health and fitness 5.2 % 5.3 % 5.2 %
7. Theaters 4.4 % 4.4 % 4.7 %
8. Recreational vehicle dealers, parts and
accessories 3.5 % 3.5 % 3.4 %
9. Equipment rental 3.1 % 2.6 % 2.6 %
10. Automotive parts 3.1 % 3.1 % 3.1 %
11. Home improvement 2.6 % 2.6 % 2.6 %
12. Wholesale clubs 2.5 % 2.6 % 2.5 %
13. Medical service providers 2.1 % 2.2 % 2.1 %
14. General merchandise 1.7 % 1.7 % 1.7 %
15. Furniture 1.7 % 1.7 % 1.7 %
16. Home furnishings 1.6 % 1.6 % 1.6 %
17. Travel plazas 1.5 % 1.5 % 1.5 %
18. Consumer electronics 1.5 % 1.5 % 1.5 %
19. Drug stores 1.4 % 1.5 % 1.5 %
20. Bank 1.3 % 1.3 % 1.3 %
Other 8.4 % 8.3 % 8.6 %
100.0 % 100.0 % 100.0 %
(1) Based on annualized base rent for all leases in place for each respective period.
19
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Property Acquisitions. The following table summarizes the Property acquisitions
(dollars in thousands):
Quarter Ended March 31,
2021 2020
Acquisitions:
Number of Properties 29 21Gross leasable area (square feet)(1) 355,000 217,000
Initial cash yield 6.4 % 6.9 %
Total dollars invested(2) $ 105,626 $67,197
(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 NNN's
unsecured revolving credit facility (the "Credit Facility") (See "Debt - Line of
Credit Payable") or by issuing its debt or equity securities in the capital
markets.
Property Dispositions. The following table summarizes the Properties sold by NNN
(dollars in thousands):
Quarter Ended March 31,
2021 2020
Number of properties 11 14
Gross leasable area (square feet) 96,000
176,000
Net sales proceeds $ 17,575 $ 36,266
Net gain $ 4,281 $ 12,770
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 ended March 31, 2021 , total revenues increased as
compared to the same period in 2020, primarily due to scheduled rent increases
based on increases in the Consumer Price Index ("CPI") and to the income
generated from Properties acquired during the year ended December 31, 2020 and
quarter ended March 31, 2021 (See "Results of Operations - Property Analysis -
Property Acquisitions").
The following table summarizes NNN's revenues (dollars in thousands):
Quarter Ended March 31,
Percent
Increase
2021 2020 (Decrease)
Rental Revenues(1) $ 173,845 $ 169,300 2.7%
Real estate expense reimbursement from tenants 5,353 5,247 2.0%
Rental income 179,198 174,547 2.7%
Interest and other income from real estate transactions 580 516 12.4%
Total revenues $ 179,778 $ 175,063 2.7%
(1)Includes rental income from operating leases, earned income from direct
financing leases and percentage rent ("Rental Revenues").
Quarter Ended March 31, 2021 versus Quarter Ended March 31, 2020
Rental Income. Rental income increased for the quarter ended March 31, 2021 , as
compared to the same period in 2020. The increase for the quarter ended March
31, 2021 , is primarily due to scheduled rent increases and Property
acquisitions:
(i)a partial year of Rental Revenue from 29 properties with aggregate gross
leasable area of approximately 355,000 square feet during 2021, and
(ii)a full year of Rental Revenue from 63 properties with aggregate gross
leasable area of approximately 449,000 square feet in 2020.
20
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Analysis of Expenses
General. Operating expenses decreased for the quarter ended March 31, 2021 , as
compared to the same period in 2020, primarily due to the decrease in impairment
losses recognized on real estate which was partially offset by an increase in
general and administrative expenses. The following table summarizes NNN's
expenses (dollars in thousands):
Quarter Ended March 31,
2021 2020 Percent Increase (Decrease)General and administrative$ 11,748 $ 10,100 16.3% Real estate 7,725 7,635 1.2% Depreciation and amortization 49,980 49,188 1.6% Leasing transaction costs 38 36 5.6% Impairment losses - real estate, net of recoveries 2,131 5,513 (61.3)% Total operating expenses$ 71,622 $ 72,472 (1.2)% Interest and other income $ (65)$ (164) (60.4)% Interest expense 34,587 33,670 2.7% Loss on early extinguishment of debt 21,328 16,679 27.9% Total other expenses$ 55,850 $ 50,185 11.3% As a percentage of total revenues: General and administrative 6.5 % 5.8 % Real estate 4.3 % 4.4 % Quarter EndedMarch 31, 2021 versus Quarter EndedMarch 31, 2020 General and Administrative. General and administrative expenses increased in amount and as a percentage of total revenues for the quarter endedMarch 31, 2021 , as compared to the same period in 2020. The increase is primarily attributable to an increase in long-term incentive compensation costs. Impairment Losses - real estate, net of recoveries. NNN reviews long-lived assets for impairment whenever certain events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Events or circumstances that may occur include changes in real estate market conditions, the ability of NNN to re-lease properties that are currently vacant or become vacant, and the ability to sell properties at a price that exceeds NNN's carrying value. Management evaluates whether an impairment in 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 cost 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 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 COVID-19 alone would not be an indicator of impairment. NNN recognized real estate impairments, net of recoveries of$2,131,000 and$5,513,000 for the quarters endedMarch 31, 2021 and 2020, respectively. 21 --------------------------------------------------------------------------------
Interest expense. Interest expense increased for the quarter ended
Stated Interest
Transaction Effective Date Principal Rate Original Maturity
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
In addition to the note payable transactions outlined in the table above,
interest expense was impacted due to the Credit Facility having no weighted
average outstanding balance at March 31, 2021 compared to a $75,996,000 weighted
average outstanding balance with a weighted average interest rate of 2.5% for
the quarter ended March 31, 2020 . In addition, interest expense for the quarters
ended March 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. In March 2021 , NNN redeemed the
$350,000,000 3.300% notes payable due April 2023. The notes were redeemed at a
price equal to 100% of the principal amount, plus (i) a make-whole amount of
$21,328,000 , and (ii) accrued and unpaid interest.
In March 2020, NNN redeemed the $325,000,000 3.800% notes payable due October
2022. The notes were redeemed at a price equal to 100% of the principal amount,
plus (i) a make-whole amount of $16,679,000 , and (ii) accrued and unpaid
interest.
Liquidity
General. 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. While the total impacts of the economic downturn are unknown, NNN expects to meet short-term liquidity requirements through cash and cash equivalents, cash provided from operations and NNN's Credit Facility. As ofMarch 31, 2021 , NNN has$311,231,000 of cash and cash equivalents and$900,000,000 available for borrowings under its Credit Facility. NNN anticipates its long-term capital needs will be funded by the Credit Facility, cash provided from operations, the issuance of long-term debt or the issuance of common or preferred equity or other instruments convertible into or exchangeable for common or preferred equity. 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. 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, including cash held in escrow as ofMarch 31, 2021 andDecember 31, 2020 . The table below summarizes NNN's cash flows (dollars in thousands): Quarter EndedMarch 31, 2021 2020
Cash and cash equivalents:
Provided by operating activities $ 161,170 $128,084
Used in investing activities (88,512) (30,654)
Provided by (used in) financing activities (28,663) 118,841
Increase 43,995 216,271
Net cash at beginning of period 267,236 1,112
Net cash at end of period $ 311,231 $
217,383
22-------------------------------------------------------------------------------- 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, 2021 and 2020, 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. Changes in cash for investing activities are primarily attributable to the acquisitions and dispositions of Properties. NNN typically uses cash on hand or proceeds from its Credit Facility to fund the acquisition of its Properties. NNN's financing activities for the quarter endedMarch 31, 2021 , included the following significant transactions: (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 ; and •$21,328,000 payment in March of the make-whole amount from the early redemption of the 3.300% notes payable due inApril 2023 . (ii) Issuance of common stock resulted in the following net proceeds: •$1,158,000 from the issuance of 30,000 shares of common stock in connection with the at-the-market ("ATM") equity program; and •$569,000 from the issuance of 15,769 shares of common stock in connection with the Dividend Reinvestment and Stock Purchase Plan ("DRIP"). (iii) Dividends paid: •$90,848,000 to common stockholders; and •$4,485,000 to holders of the depositary shares of NNN's 5.200% Series F Cumulative Redeemable Preferred Stock (the "Series F Preferred Stock"). Contractual Obligations and Commercial Commitments. The information in the following table summarizes NNN's contractual obligations and commercial commitments outstanding as ofMarch 31, 2021 . The table presents principal cash flows by year-end of the expected maturity for debt obligations and commercial commitments outstanding as ofMarch 31, 2021 .
Expected Maturity Date (dollars in thousands)
Total 2021 2022 2023 2024 2025 Thereafter
Long-term debt(1) $ 3,361,085 $ 474 $ 664 $ 9,947 $ 350,000 $ 400,000 $ 2,600,000
Long-term debt - interest(2) 1,642,562 92,610 123,447 123,201 115,506 107,250 1,080,548
Headquarters office lease(3) 3,266 594 804 821 837 210 -
Ground leases(4) 7,741 432 582 582 601 639 4,905
Total contractual cash obligations
(1)Includes only principal amounts outstanding under mortgages payable and notes payable and excludes unamortized mortgage premiums, note discounts and note costs. See "Debt-Notes Payable". (2)Interest calculation based on stated rate of the principal amount. (3)NNN is a lessee for its headquarters office lease. (4)NNN is a lessee for three ground lease arrangements. In addition to the contractual obligations outlined above, NNN has committed to fund construction on eight Properties. The improvements on such Properties are estimated to be completed within 12 months. These construction commitments, atMarch 31, 2021 , are outlined in the table below (dollars in thousands): Total commitment(1)$ 12,077 Less amount funded 6,637 Remaining commitment$ 5,440 (1) Includes land, construction costs, tenant improvements, lease costs and capitalized interest. 23
-------------------------------------------------------------------------------- As ofMarch 31, 2021 , NNN did not have any other material contractual cash obligations, such as purchase obligations, financing lease obligations or other long-term liabilities other than those reflected in the tables above and previously disclosed under Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included in NNN's Annual Report on Form 10-K for the year endedDecember 31, 2020 . In addition to items reflected in the tables, NNN has issued preferred stock with cumulative preferential cash distributions, as described below under "Dividends." 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. 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 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 uncollectability of 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. NNN currently expects a short-term decrease in cash from operations as its tenants are impacted by the pandemic and, while contractually obligated, some have not paid all rent amounts due (See "Impact of COVID-19 on NNN's Business"). As ofMarch 31, 2021 , NNN owned 55 vacant, un-leased Properties which accounted for approximately two percent of total Properties held in the Property Portfolio. Additionally, as ofApril 28, 2021 , less than one percent of total Properties, and less than one percent of aggregate gross leasable area held in the Property Portfolio was leased to one tenant that is currently in bankruptcy under Chapter 11 of theU.S. Bankruptcy Code. As a result, this tenant has the right to reject or affirm its lease with NNN. NNN generally monitors the financial performance of its significant tenants on an ongoing basis. A prolonged continuation of business closures, reduced capacity at businesses or other social-distancing practices 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. 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 pandemic precludes any prediction as to the ultimate adverse impact on NNN (See "Impact of COVID-19 on NNN's Business"). Dividends. NNN has made an election to be taxed as a REIT under Sections 856 through 860 of the Code, as amended, and related regulations and intends to continue to operate so as to remain qualified as a REIT for federal income tax purposes. NNN generally will not be subject to federal income tax on income that it distributes to its stockholders, provided that it distributes 100 percent of its REIT taxable income and meets certain other requirements for qualifying as a REIT. If NNN fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four years following the year during which qualification is lost. Such an event could materially adversely affect NNN's income and ability to pay dividends. NNN believes it has been structured as, and its past and present operations qualify NNN as, a REIT. One of NNN's primary objectives, consistent with its policy of retaining sufficient cash for reserves and working capital purposes and maintaining its status as a REIT, is to distribute a substantial portion of its funds available from operations to its stockholders in the form of dividends. 24 --------------------------------------------------------------------------------
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,
2021 2020
Series F Preferred Stock(1):
Dividends $ 4,485 $ 4,485
Per depositary share 0.3250 0.3250
Common stock:
Dividends 90,848 88,148
Per share 0.5200 0.5150
(1) The Series F Preferred Stock has no maturity date and will remain outstanding unless
redeemed by NNN. The earliest redemption date for the Series F Preferred Stock is
In
Capital Resources Generally, cash needs for Property acquisitions, debt payments, capital expenditures, development and other investments have been funded by equity and debt offerings, bank borrowings, the sale of Properties and, to a lesser extent, by internally generated funds. Cash needs for operating and interest expenses and dividends have generally been funded by internally generated funds. If available, future sources of capital include proceeds from the public or private offering of NNN's debt or equity securities, secured or unsecured borrowings from banks or other lenders, proceeds from the sale of Properties, as well as undistributed funds from operations.
Debt
NNN expects to use debt primarily for property acquisitions and development of single-tenant retail properties, either directly or through investment interests. Additionally, debt may be used to refinance existing debt. The following is a summary of NNN's total outstanding debt as of (dollars in thousands):
Percentage Percentage
March 31, 2021 of Total December 31, 2020 of Total
Mortgages payable $ 11,222 0.3 % $ 11,395 0.4 %
Notes payable 3,298,302 99.7 % 3,209,527 99.6 %
Total outstanding debt $ 3,309,524 100.0 % $ 3,220,922 100.0 %
Line of Credit Payable. NNN's $900,000,000 unsecured revolving credit facility
(the "Credit Facility") had no weighted average outstanding balance during the
quarter ended March 31, 2021 . The Credit Facility matures January 2022 , unless
the Company exercises its option to extend maturity to January 2023 . The Credit
Facility bears interest at LIBOR plus 87.5 basis points; however, such interest
rate may change pursuant to a tiered interest rate structure based on NNN's debt
rating. The Credit Facility also includes an accordion feature which permits NNN
to increase the facility size up to $1,600,000,000 , subject to lender approval.
As of March 31, 2021 , there was no outstanding balance and $900,000,000 was
available for future borrowings under the Credit Facility, and NNN was in
compliance with each of the financial covenants.
Notes Payable. In March 2021 , NNN filed a prospectus supplement to the
prospectus contained in its August 2020 shelf registration statement and,
subsequently, in March 2021 , issued $450,000,000 aggregate principal amount of
3.500% notes due April 2051 (the "2051 Notes").
The 2051 Notes were sold at a discount with an aggregate purchase price of
$441,594,000 with interest payable semi-annually commencing on October 15, 2021 .
The discount of $8,406,000 is being amortized to interest expense over the term
of the notes using the effective interest method. The effective interest rate
for the 2051 Notes after accounting for the note discount is 3.602%.
The 2051 Notes are senior unsecured obligations of NNN and are subordinated to
all secured debt and to the debt and other liabilities of NNN's subsidiaries.
Additionally, the 2051 Notes are each redeemable at NNN's option, in whole or
part anytime,
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for an amount equal to (i) the sum of the outstanding principal balance of the
notes being redeemed plus accrued interest thereon to the redemption date, and
(ii) the make-whole amount, if any, as defined in the supplemental indenture
dated March 10, 2021 , relating to the 2051 Notes.
NNN received approximately $436,417,000 of net proceeds in connection with the
issuance of the 2051 Notes after incurring debt issuance costs consisting
primarily of underwriting discounts and commissions, legal and accounting fees,
rating agency fees and printing expenses, totaling $5,177,000 . 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.
In March 2021, NNN redeemed the $350,000,000 3.300% notes payable due April
2023. The notes were redeemed at a price equal to 100% of the principal amount,
plus (i) a make-whole amount of $21,328,000 , and (ii) accrued and unpaid
interest.
Debt and Equity Securities
NNN has used, and expects to use in the future, issuances of debt and equity
securities primarily to pay down its outstanding debt and to finance
acquisitions.
Securities Offerings. 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,
2020 .
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 programs:
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
The following table outlines the common stock issuances pursuant to NNN's ATM equity programs for the quarter endedMarch 31, 2021 (dollars in thousands, except per share data): 2021 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 endedMarch 31, 2020 . Dividend Reinvestment and Stock Purchase Plan. InFebruary 2021 , NNN filed a shelf registration statement which was automatically effective with the Commission for its DRIP, which permits the issuance by NNN of 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, 2021 2020 Shares of common stock 15,769 12,528 Net proceeds $ 569$ 696 26
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Recent Accounting Pronouncements
Refer to Note 1 to the
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