NNN REIT’s Cap Rate Compression Timing, Vacancy Resolutions Clash in Earnings Calls

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Date of Call: Aug 5, 2026

Guidance:

• Updated 2026 AFFO per share guidance raised by one cent at the midpoint to a range of $3.55 to $3.59, implying about 3.8% YOY growth at the midpoint.
• Acquisition volume guidance increased to $750 million (midpoint), up from $600 million.
• Annual disposition guidance midpoint raised to $140 million.
• Full-year bad debt expected to be about 40 basis points, down from 60 basis points prior.

Business Commentary:

Strong Financial Performance and Dividend Growth:

• NNN RE-INC reported AFFO of $0.90 per share and core FFO of $0.89 per share, up 5.9% and 6.0%, respectively, over the prior year.
• The company announced a 3.3% increase in the quarterly dividend, marking the 37th consecutive year of annual dividend increases.
• The growth was driven by high occupancy rates, impressive rent collections, and solid acquisitions.

Acquisition and Disposition Strategy:

• NNN RE-INC invested $290 million in 89 new properties in Q2, with an initial cash cap rate of 7.3% and an average lease duration of nearly 18 years.
• The company sold 26 properties, including 19 vacant assets, generating approximately $37 million in proceeds.
• The strategy is supported by a robust pipeline and disciplined capital recycling to optimize portfolio quality.

Portfolio Health and Occupancy Levels:

• Portfolio occupancy increased by 50 basis points from Q1 to 99.1% in Q2, reflecting a positive momentum across the tenant base.
• The watch list of near-term credit concerns remains immaterial, leading to better-than-budgeted credit loss year-to-date.
• The strong portfolio health is attributed to proactive portfolio management and strong tenant performance.

Guidance and Outlook:

• NNN RE-INC updated its 2026 guidance for AFF per share to a range of $3.55 to $3.59, reflecting disciplined capital allocation and consistent per share growth.
• The company expects modest cap rate compression in the second half of the year, supported by the composition of its active acquisition pipeline.
• The positive outlook is bolstered by a strong balance sheet, a robust acquisition pipeline, and an experienced management team.

Sentiment Analysis:

Overall Tone: Positive

• "NNN's performance in 2026 continues to produce strong results, including high occupancy, impressive rent collections..." "Given our continued consistent performance...we're updating our 2026 guidance for AFF per share to a range...our second guidance increase of the year." "The portfolio today is as good as it's ever been..."

Q&A:

• Question from Ronald Camden (Morgan Stanley): Could you talk about the acquisition activity, trends, and competition?
  Response: Lifting the acquisition volume shows a robust pipeline with opportunities; competition is from other public REITs; modest cap rate compression is expected in the second half.

• Question from Ronald Camden (Morgan Stanley): On portfolio health, what industries are you watching, and is 99%+ occupancy the best shape?
  Response: Portfolio is in the best shape ever; no material tenants on the watch list; movie theater business is performing well.

• Question from Jana Gallen (Bank of America): How are you thinking about marginal cost of capital for acquisitions and the nature of dispositions?
  Response: Cost of equity has improved; dispositions are mostly vacant assets (19 of 26) and some non-core income-producing assets sold at cap rates ~170 bps below acquisition cap rates.

• Question from Brad Heffern (RBC Capital Markets): Regarding AMC and movie theaters, is there an opportunity to reduce exposure given improved credit?
  Response: Actively looking to reduce movie theater exposure; sold one in Q1; evaluating all industries for optimal exposure and real estate risk.

• Question from Brad Heffern (RBC Capital Markets): On the FFO guidance, what offset prevented the high end from increasing?
  Response: The decision was to narrow the range while increasing the midpoint by one cent; there is nothing preventing the high end from moving up.

• Question from Smedes Rose (Citi): Concerns about M&A closings and 7-Eleven store format changes impacting the portfolio?
  Response: Not concerned about 7-Eleven portfolio as they have low-cost basis leases; M&A activity involves long-term leases, so closures are manageable.

• Question from Michael Goldsmith (UBS): Can you specify the restaurants sold in dispositions and are there more to come?
  Response: Disposed of lower performing assets like Ruby Tuesdays and Bob Evans; 2026 will be elevated for dispositions.

• Question from Michael Goldsmith (UBS): Increased exposure to early childhood education; can you provide color and cap rate trends?
  Response: Opportunities arise when initial cap rates and real estate metrics are attractive; a recent deal involved a new tenant with a strong management team and low leverage.

• Question from Spencer Glimcher (Green Street): Are the portfolios in the market new tenants?
  Response: Yes, the portfolios being evaluated would be new tenants if awarded.

• Question from Spencer Glimcher (Green Street): Which tenant segments are looking to grow most aggressively?
  Response: Primarily auto service, convenience stores, and early childhood education; limited service restaurants and movie theaters show little growth.

• Question from Rob Stevenson (Huntington): What are the major levers that push guidance to the bottom versus top of the range?
  Response: Key drivers are bad debt (a big swing factor), timing and volume of acquisitions, and timing of capital markets activities, including a $350 million debt maturity in December.

• Question from Rob Stevenson (Huntington): What is the best source of debt and pricing for fixing the December maturity?
  Response: Evaluating options including the line of credit, forward equity, or a potential longer-term debt offering around mid-5% to 5.6% for a 10-year issuance.

• Question from Rob Stevenson (Huntington): How should we think about the remaining vacancy in the portfolio?
  Response: Vacant asset sales will be limited moving forward; the majority of remaining vacancies are expected to be released, with some retenanting activity in Q3/Q4 or early next year.

• Question from Wes Galladay (Baird): Is cap rate compression due to mix or competition?
  Response: Competition is the primary driver; compression is modest and seen on some deals to win with current tenants, within a tight bandwidth.

• Question from Wes Galladay (Baird): Are you finding more new tenants this year relative to last year?
  Response: Yes, finding many more new tenants, which is a conscious effort for the out years; relationships are often difficult to retain post-acquisition.

• Question from Jana Gallen (Bank of America): How are you achieving high cap rates on dispositions of underperforming/non-strategic assets?
  Response: Sells to tenants giving notice of non-renewal, other buyers valuing the real estate highly (e.g., 1031 exchangers), and decent recovery rates on vacant assets with low cost basis.

• Question from Jana Gallen (Bank of America): Can you help model the timing of the increased acquisition guidance?
  Response: Conservative approach with visibility over the next 90 days for live deals; more speculative activity is pushed to the tail end of quarters; a mid-half convention is fair.

• Question from John Masaka (B Reilly): How are you thinking about leverage given decoupling of cost of equity and debt?
  Response: Target leverage is around 5.5x; balance between equity and debt is managed to reach this target, using forward equity to issue when priced right.

• Question from John Masaka (B Reilly): Any thoughts on swapping the remaining term loan and adding more floating rate debt?
  Response: Left the last $100 million floating due to rate volatility; waiting for stability before hedging; considering opportunities to lock rates as things settle.

Contradiction Point 1

Nature of Competition and Cap Rate Compression

Contradiction on the expected timing and level of cap rate compression, affecting acquisition strategy and financial outlook.

Ronald Camden (Morgan Stanley) - Ronald Camden (Morgan Stanley)

2026Q2: Competition remains robust... The company expects modest cap rate compression in the second half of the year. - Steve Horn(CEO)

Can you discuss the acquisition activity driving the raised guidance, including current cap rate trends and competitive dynamics? - Keunho Byun (BofA Securities)

2026Q1: The view remains unchanged. Q1 cap rates were consistent... modest compression is still expected for Q2 deals, with cap rates likely settling at that compressed level. - Stephen Horn(CEO)

Contradiction Point 2

Growth Strategy and New Tenant Acquisition

Contradiction on the level of proactivity in acquiring new tenants.

Wes Galladay (Baird) - Wes Galladay (Baird)

2026Q2: The company is finding more new tenants this year relative to last year. - Steve Horn(CEO)

Has the number of new tenants grown year-over-year? - Spenser Allaway (Green Street Advisors, LLC)

2026Q1: The company does maintain a watch list (e.g., AMC). In the near term... there are no material credit concerns. - Vincent Chao(CFO)

Contradiction Point 3

Portfolio Vacancy Outlook

Contradiction on the expected path and management of vacant assets, impacting occupancy forecasts.

Rob Stevenson (Huntington) - Rob Stevenson (Huntington)

2026Q2: The company has largely sold the vacant assets it intended to. The remaining vacant assets are in the process of being released. Most will be re-leased... - Steve Horn(CEO)

What is the outlook for the remaining vacant assets—will the focus be on sales or retenanting? - Ronald Kamdem (Morgan Stanley)

2025Q4: ...occupancy expected to trend slightly higher in Q1–Q2 due to ongoing vacancy resolutions but will plateau around the 98% historical average. - Stephen Horn(CEO)

Contradiction Point 4

Leverage Management and Debt Refinancing

Contradiction on the strategy and timing for managing leverage and refinancing a major debt maturity.

John Masaka (B. Reilly) - John Masaka (B. Reilly)

2026Q2: Leverage management is the primary driver, targeting ~5.5x net debt to EBITDA.... The raised disposition guidance midpoint reflects a focus on optimizing portfolio quality. - Vin Chow(CFO)

Does the decoupling of equity valuations from interest rates create an opportunity to use cheaper equity for de-leveraging? - Linda Yu Tsai (Jefferies LLC)

2025Q4: For 2026, a more normalized level of $3–4M is expected." (on lease termination fees, showing focus on normalization) "...potential rates for a 10-year bond refinancing are around 5.20–5.25%. - Vincent Chao(CFO)

Contradiction Point 5

Projected Exposure from Movie Theater Assets

Contradiction in stance on actively reducing exposure to a specific industry.

What are your thoughts on the company's recent financial performance? - Brad Heffern (RBC Capital Markets)

2026Q2: The company is always looking to reduce exposure in underperforming industries. They sold one theater in Q1 and are actively evaluating reducing their movie theater portfolio. - Steve Horn(CEO)

With AMC's improved credit profile, is there an opportunity to reduce exposure by selling movie theater assets? - Spenser Allaway (Green Street Advisors)

2025Q3: The 7 new tenants... are primarily in the convenience store, QSR (Quick Service Restaurant), and auto service sectors. The company doesn't have specific growth trajectory data for them... - Steve Horn(CEO)

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