NNN REIT's Q3 2025: Contradictions Emerge on Acquisition Volume, Occupancy, Credit Loss Assumptions, and Market Competition

Date of Call: November 4, 2025

Financials Results

• Gross Margin: NOI margin 98% for the quarter (no prior-period comparison provided)

Guidance:

• Raised 2025 core FFO per share to $3.36–$3.40.
• Raised 2025 AFFO per share to $3.41–$3.45.
• Increased 2025 acquisition outlook to $850M–$950M (midpoint $900M, a company record cadence).
• Increased disposition outlook to $170M–$200M (up $50M).
• Full-year bad-debt assumption now 25 bps (down from prior 60 bps), ~20 bps booked YTD.
• Expect occupancy to exceed 98% by year-end and to resolve >75% of former furniture/restaurant assets by end of Q1 2026.

Business Commentary:

• Strong Financial Performance:
• NNN REIT delivered strong performance in Q3 2025, closing 20 deals containing 57 assets for $283 million.
• The company maintained balance sheet flexibility with $1.4 billion in total availability and an average debt maturity of nearly 11 years.

• This success was driven by a disciplined growth strategy, proactive management, and a focus on deploying shareholder money into accretive acquisitions.

• Credit Risks and Resolutions:

• At Home emerged from bankruptcy, eliminating nearly $2 billion of funded debt and securing $500 million in new financing.
• NNN's proactive approach led to 100% of its leases being affirmed, demonstrating the strength of its underwriting and real estate.

• These resolutions allowed the company to position itself for earnings upside and further value creation.

• Occupancy and Asset Management:

• By Q3, NNN resolved 23 out of 35 furniture assets, with expectations to reduce this number to 0 or 2 by the end of the year.
• The company took back 64 assets from a restaurant operator, proactively repositioning them for future growth.
• These actions reflect the quality of the real estate and effective disposition and leasing teams, contributing to maintaining occupancy levels.

• Acquisition and Renewal Activity:
• During the quarter, NNN invested $283 million in 57 new assets, maintaining a cash cap rate of 7.3% and average lease duration of nearly 18 years.
• The company achieved a renewals rate of 92% with rental rates 108% above prior rents, demonstrating strong demand and execution.
• This success is attributed to the asset management and leasing teams, who effectively negotiated deals at a high level.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management: "we are raising our 2025 guidance for core FFO per share" and "confident that our occupancy will again exceed 98% by year-end." Highlights: record acquisition pacing ($283M in Q3; $750M YTD), improved bad-debt outlook (25 bps), and strong liquidity ($1.4B). These statements signal constructive operational and financial momentum.

Q&A:

• Question from Keunho Byun (BofA Securities): Could we get more color around the outsized interest income and what caused the increase at the low end of the range?
  Response: Higher-than-expected interest income resulted from elevated cash balances after the July debt offering invested in higher-yielding short-term deposits; Q4 interest income will decline as cash is deployed into acquisitions and fourth-quarter G&A timing is slightly higher.

• Question from Keunho Byun (BofA Securities): On acquisition volume rationale and use of equity given cap-rate/WACC dynamics?
  Response: NNN funds acquisitions on a leverage-neutral ~60/40 equity-debt mix; management estimates an all-in WACC in the mid-6%s–low-7%s, keeping deals accretive without levering up.

• Question from Brad Heffern (RBC Capital Markets): Why are you seeing record volumes now — pull from relationship tenants or improved cost-of-capital?
  Response: Higher volume driven primarily by tenant relationships and demand—tenants pushed deals this year; spreads are still accretive even if not as historically wide.

• Question from Brad Heffern (RBC Capital Markets): Are you seeing increased competition impacting pricing?
  Response: Increased competition is concentrated on large portfolios using leverage to compress cap rates; NNN focuses on smaller deals where competition remains more normal and pricing impact is limited.

• Question from Michael Goldsmith (UBS): Any other credit issues and what are bad-debt assumptions now vs earlier?
  Response: Portfolio credit is in good shape; full-year bad-debt assumption reduced to 25 bps (from 60 bps) with ~20 bps booked YTD and no expected credit loss from At Home after collections.

• Question from Michael Goldsmith (UBS): Can you walk through the occupancy path into year-end and early 2026?
  Response: Expect occupancy >98% by year-end: 15 of 64 restaurant assets already resolved, 12 more slated by year-end, 14 expected in Q1; visibility to resolving >75% of former furniture/restaurant assets by end of Q1 2026.

• Question from William John Kilichowski (Wells Fargo): At what point would equity be insufficient (stock/AFFO yield) and you'd stop using equity for acquisitions?
  Response: NNN can self-fund roughly $550M; beyond that maintaining leverage neutrality would require equity or increased dispositions — no fixed price cutoff, decisions will be case-by-case based on deal specifics.

• Question from William John Kilichowski (Wells Fargo): What about one-time/termination fees running off next year and the impact?
  Response: YTD lease termination fees ~ $11M vs historical run-rate ~$3M (so ~$8M headwind if normalizes), but a reduction in real-estate expense net (vacancy-related) from ~$17.5M toward historical ~$12M will partially offset that headwind.

• Question from Spenser Allaway (Green Street Advisors): Is increased competition impeding your ability to push cap rates with existing tenants?
  Response: Relationship tenants are sophisticated; NNN may capture small certainty-of-close benefits (~5–10 bps) but competition hasn't meaningfully changed execution on typical smaller deals.

• Question from Spenser Allaway (Green Street Advisors): Color on the seven new tenants and their industry/growth profile?
  Response: Seven re-leases were primarily in convenience stores, QSR and auto service/parts; management noted high demand but did not provide detailed growth forecasts for those tenants.

• Question from Richard Hightower (Barclays): Have you disclosed the amount of pre-petition rent collected from At Home or what to expect in 4Q?
  Response: Amount not disclosed publicly, but management has collected all of June rent from At Home.

• Question from Richard Hightower (Barclays): Do you expect renewal spreads to remain elevated?
  Response: Renewal spreads likely will normalize; re-leasing at 125% is probably not sustainable — expect re-leases closer to ~100% and renewal rates in the ~85–95% range.

• Question from Wesley Golladay (Robert W. Baird): Does Q4 acquisition guidance imply $100M–$200M and did you pull deals into Q3?
  Response: Yes — some volume was pulled into Q3 and management expects additional deals to close in the back half of Q4, so guidance is conservatively staged to allow for potential slides into Q1.

• Question from Jenny Leeds (Morgan Stanley): Will you hold the At Home assets or dispose of them?
  Response: No knee-jerk disposition; At Home emerged with a de-risked capital structure and the assets have low in-place rents and strong real-estate quality, so management intends to hold unless presented with attractive offers.

• Question from Jenny Leeds (Morgan Stanley): Plans for addressing the November bond maturity and broader refinancing approach?
  Response: Multiple options under consideration — prefunding, revolver capacity, bond market, or bank debt; bank loans are being considered to better match maturities (noted a 2029 hole).

• Question from Linda Yu Tsai (Jefferies): If cost of equity stays the same, will funding mix for 2026 acquisitions look similar?
  Response: If equity cost remains elevated, dispositions can substitute for equity; free cash flow (~$200M) and dispositions would be used to maintain a similar funding mix rather than dramatically increasing equity issuance.

• Question from Linda Yu Tsai (Jefferies): Which tenants are pushing you to do more deals and will that continue into 2026?
  Response: Activity is coming mainly from auto services/auto parts and related sectors; management has 60–90 days of visibility into 2026 and cannot confirm continuation beyond early-quarter pricing activity.

• Question from James Kammert (Evercore ISI): Did you collect rent from the new restaurant operator (Dolly's) in Q3 and is that in guidance?
  Response: Only an immaterial amount was collected early in the quarter; nothing material — the guidance accounts for that.

• Question from John Massocca (B. Riley): What is driving the acceleration in dispositions for 4Q and expected split between vacant and rent-paying sales?
  Response: Acceleration driven primarily by the decision to monetize former restaurant assets; management expects a higher mix of vacant sales in Q4, possibly >50% vacant given current visibility.

• Question from John Massocca (B. Riley): For modeling, what cap-rate spread should be assumed for occupied sales versus acquisitions?
  Response: Management suggests modeling occupied sale cap rates ~100 bps inside acquisition cap rates, though some proactive or defensive sales could vary.

Contradiction Point 1

Acquisition Volume and Market Conditions

It involves differing perspectives on the reasons for increased acquisition volumes and market conditions, which could impact investor expectations for future growth and strategic positioning.

What's driving the record acquisition volumes? Pricing or strategic initiatives? - Brad Heffern(RBC Capital Markets)

2025Q3: Relationship tenants are pushing for more deals, which we can execute at historically accretive levels. Volume has increased due to opportunities, not necessarily because of pricing. - Stephen Horn(CEO)

Are you starting to see your partners becoming more active in their business now that they have visibility on taxes and potential increased visibility on tariffs? - Wesley Keith Golladay(Robert W. Baird & Co. Incorporated, Research Division)

2025Q2: I think it's a good question. I think there's better visibility on the tariffs and the conversations that we have with our tenants. But I don't think they're quite there yet that they're ready to ramp up the pre levels going back to 2018, 2019. - Stephen Horn(CEO)

Contradiction Point 2

Occupancy and Leasing Trends

It involves differing projections for occupancy and leasing trends, which could impact financial forecasts and investor expectations.

Can you outline the forward-looking occupancy trajectory? - Michael Goldsmith(UBS Investment Bank, Research Division)

2025Q3: Occupancy expected to exceed 98% by year-end, with 15 of the 64 restaurant properties resolved, and a line of sight to resolve the remaining by year-end. - Stephen Horn(CEO)

Can you provide more details on the average time to release a vacant property and how this timeline compares to your historical average of 9 to 12 months? - Smedes Rose(Citigroup)

2025Q2: The 9 to 12 months is when rent starts coming in, but we'll have activity within kind of 30, 40 days of marketing that asset. But to sell it or re-lease it, there's usually contingencies in the contract before they start paying rent. And then if it's a redevelopment, that's really when the 9 to 12 months comes into play. - Stephen Horn(CEO)

Contradiction Point 3

Acquisition Strategy and Market Competition

It involves the company's approach to funding acquisitions and the impact of market competition on its deal-making strategy, which are crucial for understanding the company's growth prospects.

Why fund acquisitions with equity considering current stock price and cap rates? - Keunho Byun (BofA Securities)

2025Q3: At current stock prices, using equity is cost-effective. We're positioned to issue equity at a lower cost than current debt levels. We can still achieve accretive acquisitions with a 60-40 equity-debt mix, leveraging our strong balance sheet. - Stephen Horn(CEO)

How are you managing your investing spread amid high debt costs? - Bennett Rose (Citi)

2024Q4: We have a 60-40 spread in terms of our acquisitions. 60% of our acquisitions are equity, 40% are debt... Our current debt level is around 5.5%. - Kevin B. Habicht(CFO)

Contradiction Point 4

Credit Loss Assumptions

It pertains to the company's expectations regarding credit losses, which are critical for financial planning and risk management.

Are there other credit issues in your portfolio, and what are your bad debt assumptions? - Michael Goldsmith (UBS Investment Bank)

2025Q3: Bad debt assumptions reduced to 25 basis points from 60 basis points due to At Home's resolution. - Vincent Chao(CFO)

Have there been any changes to credit loss assumptions for 2025? - Spenser Allaway (Green Street)

2024Q4: No material change. Guidance assumes 60 basis points, historically closer to 100. This year's credit loss appears manageable. - Kevin B. Habicht(CFO)