NNN REIT, Inc. (NNN) Q3 2026 Earnings Call Transcript

Operator: Good day, ladies and gentlemen, and welcome to the Enrys Incorporated Third Quarter 26 Earnings Conference Call. At this time, all participants are on a listen-only mode. And a question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press 0 on your telephone keypad. And please note this conference is being recorded. I will now turn the conference over to your host, Mr. Steve Horn. CEO at NNN Inc. Sir, the floor is yours.

Stephen A. Horn Jr.: Thanks, Alec. Good morning. Thank you for joining NNN's third quarter 26 earnings call. Today on the call with me is our Chief Financial Officer, Vincent H. Chao. NNN's disciplined growth strategy, proven operations, and commitment to deploying shareholder capital and sufficiently accretive acquisitions continues. Our focus remains on delivering long term value navigating market challenges and capitalizing on opportunities to drive sustainable growth. As detailed in this morning's press release, NNN delivered another strong quarter of operating and financial performance. Highlighted by a 5.8% growth in AFFO compared to the prior year and delivered its 37th year of dividend growth being only 1 of 3 publicly traded REITs that hit that milestone. 1.4 billion in total availability and an industry leading average debt maturity in nearly 10 years, our balance sheet remains a significant competitive advantage. Providing us with the capacity to pursue attractive investment opportunities. While maintaining our disciplined approach to capital allocation. We look ahead to the fourth quarter and begin planning for 2027, we remain focused on our core objective delivering sustainable long term value growth for shareholders through disciplined capital allocation and accretive growth. NNN is in position to fund our acquisition activity through the undrawn forward equity, internally generated free cash flow and strategic dispositions without the need to access equity capital. While maintaining a leverage neutral balance sheet. This allows us to pursue investment opportunities without putting unnecessary pressure on our balance sheet or diluting existing shareholders. Importantly, we retain significant flexibility to accelerate dispositions should compelling acquisition opportunities emerge. 1 of the distinct advantages of our mature portfolio is the substantial value we created in our real estate over decades of ownership and active asset management. These embedded gains provide us with valuable source of capital that we can selectively unlock and redeploy to higher return opportunities. Before I get into the details of the quarter, I would like to take a moment to welcome Christina Chew, Chaz Muller to the NNN Board of Directors. Both are highly respected leaders who bring extensive public read and board experience along with valuable real estate experience and perspectives. Their insights will be important as we continue to execute our strategy and focus on creating long term value for our shareholders. I look forward to working with both. At the same time, I want to express my sincere appreciation to Betsy Holden for her many years of dedicated service to NNN. Her leadership, sound judgment, and steady voice has been invaluable to our company and our board. NNN is a stronger company today because of her contributions. And we are grateful for her commitment to our success. We wish her all the best in the years ahead. Shifting to the highlights of the third quarter financial results, our portfolio of 3.82 thousand freestanding single properties continue to deliver consistent and predictable performance. Supported by our weighted average remaining lease term of approximately 10 years. Occupancy remained exceptionally strong at 99.2 above our long term historical average of approximately 98 with only 31 vacant properties across the entire portfolio. Contributing to that high occupancy was releasing 5 assets during the quarter and 18 year to date, with a recovery rate of 132%, 121%, respectively. In addition, 33 of 36 assets renewed in a 105% of prior rent for the quarter, and 106% of 121 year-to-date at 104% of the prior rent tracking above historical averages. This continued stability reinforces the quality of our real estate the strength of our tenant relationships, and the durability of the cash flows that support the dividend. Turning to acquisitions during the quarter. We invested $222 million in 76 properties at an initial cap rate of 7.3%. Importantly, when you factor in the contractual rent escalators, these investments are expected to generate a projected long term yield of 8.4%. The transactions also carried a weighted average lease term of over 19 years. Reflecting the attractive economics and long term income visibility associated with the sale leaseback strategy. The first 9 months of the year, we invested $658 million in 206 properties at initial cap rate of 7.3% as well. With an expected projected long term yield of 8.6%. 1 point worth noting is nearly 40% of our closings were transactions under $5 million. We continue to believe the smaller transactions represent an important and often overlooked opportunity to create shareholder value. While these investments may not individually attract significant attention, collectively, they provide attractive risk adjusted returns, expand our investments, opportunity set, and demonstrate the scalability and the efficiency of the acquisition platform. Ultimately, our focus is on the quality of real estate, the returns we generate, the long term value we create for our shareholders. As we move towards the year end, we are seeing a meaningful shift in the acquisition market with cap rates moving higher following the third quarter. Important to recognize that the transactions we closed during the third quarter were either completed or fully committed before significant moves in both the debt and equity capital markets. As a result, initial pricing on those investments were largely established before the market adjusted. Late in the quarter, call it mid-September, we took a disciplined approach to reprice our acquisition pipeline to reflect the changes of cost of capital and our return expectations. In some cases, sellers accepted the revised economics while others elected not to move forward. Well, this resulted in elevated dead deal cost, which is in our revised guidance. We believe walking away from transactions that no longer meet our investment criteria is the right decision for the shareholders. Looking ahead, we expect initial cap rates on fourth quarter acquisitions to reflect the higher pricing environment. Assuming markets behave rationally, we anticipate further upward movement in initial acquisition yields during the first part of 2027. Our objective remains unchanged to deploy shareholder capital only when the risk adjusted returns justify the investment. Recognizing that sometimes the most valuable decision we make is the transaction we choose not to pursue. During the quarter, we sold 32 properties, which included 11 vacant, raising $50 million of proceeds. Income producing assets were sold at 7.8%. Year to date, we now have raised $123 million from the sale of 83 assets, which included 46 vacant, The income producing were sold at 7.3%, but if you include the vacant assets, about a 3.2%. The mission is always to release vacancies, but we will continue to sell nonperforming assets. We do not see a clear path to generate rental income with reasonable time frame. Balance sheet remains 1 of the strongest in the sector. Our credit facility is nearly fully available, The 9.8-year weighted debt maturity remains industry leading. And then he is in good position to fund the remainder of 2026 and beyond. With that, I will toss the call over to Vincent for more color and detail on the quarterly numbers and updated guidance.

Vincent H. Chao: Thanks, Steve. Let's start with the. Our customary cautionary statements. During this call, we will make certain statements that may be considered forward looking statements under federal securities laws. The company's actual future results may differ significantly from the matters discussed in these forward looking statements and we may not release revisions to these forward looking statements reflect changes after the statements are made. Factors and risks that could cause actual results to differ from expectations are disclosed in greater detail in company's filings with the SEC and in this morning's press release. Now moving on to results. This morning, we reported AFFO per share of $0.91 and core FFO per share of $0.90, up 5.8%, 5.9% respectively over the prior year. Results were ahead of our internal projections with upside driven primarily by lower than expected bad debt and higher than expected interest and other income from real estate transactions. The upside in this line item was driven by settlement income from prior bank as well as land sale income. Our NOI margin for the quarter was 96.7% up 10 basis points sequentially as occupancy continued to tick higher to 99.2%. Annualized base rent was $974 million at quarter end, up 6.8% year over year fueled by our strong year to date acquisition volume. G&A as a percentage of total revenue was 5.4% down from 5% last quarter, while our cash G and A margin was 4.1% compared with 4.4% in the second quarter. Free cash flow after dividend was about $56 million in the third quarter. As noted earlier, bad debt was as better than expected as near term credit issues remain limited. While we will always remain vigilant, there have been no material changes to our watchlist. We continue to proactively identify opportunities to improve portfolio quality through leasing and targeted asset sales, prior to potential issues arising. On the capital markets front, we sold about 500 thousand shares under forward sale agreements at an average price of over $47 per share in the third quarter. We also settled over 2 million forward shares generating just under $90 million in net proceeds. As of September 30, we had about $204 million of available unsettled forward equity. Subsequent to quarter end, we entered into swaps totaling $100 million that when combined with previously completed swaps, fully hedged our $500 million term loan at an all in fixed rate of 4.35%. Turning to the balance sheet. At quarter end, we had no unencumbered no encumbered assets. 1.4 billion of available liquidity, and just 2.3% of our debt was tied to floating rates. Net debt to EBITDA of 5.6 times was down 10 basis points from last quarter and when including the impact of unsettled forward equity, pro forma net debt to EBITDA was 5.3 times, down from 5.4 times last quarter. We ended the third quarter with a sector leading debt duration of 9.8 years, which continues to be well matched versus our average lease duration of 10.1 years. On October 15, we announced $0.62 quarterly dividend, an increase of 3.3% over the prior year. Which. And paid $0.62 quarterly dividend in the third quarter, marking our 37th consecutive annual dividend increase. Current dividend equates to an attractive 6% dividend yield and a well covered 68% AFFO payout ratio. Finally, I will end my comments with some additional color regarding our updated 2026 outlook As disclosed in our earnings release, we are maintaining our AFFO per share guidance for 2026 of $3.55 to $3.59, which represents 3.8% year over year growth at the midpoint. An acceleration from 2.7% growth in 2025. There are a few line item updates that are summarized on page 3 of our earnings release. First, given year to date activity and expected sales in the fourth quarter, we are raising our disposition outlook by $30 million at the midpoint to a new range of $160 to $180 million. The increase reflects our disciplined approach to portfolio management as well as strong demand for our high quality properties. We also increased our G&A guidance by $1 million at the midpoint This was primarily driven by typical year end true ups as well as some debt deal costs booked in the quarter as we remain disciplined on transaction pricing. From a credit loss perspective, we are leaving our fourth quarter assumption unchanged but given the year-to-date outperformance versus plan, now project full year bad debt to be about 25 basis points of ABR, down from 40 basis points as of last quarter. Regarding our $350 million bond that matures in mid December, we have assumed a permanent financing in our model in our forecast to repay the notes while maintaining a low year end balance on our line of credit. Given our liquidity and access to multiple sources of capital, we have optionality regarding how we ultimately address this maturity. A few other run rate items to keep in mind as you update your models. First, we booked roughly $1 million in settlement and or land sale income for the third quarter that is not expected to recur. Second, our lease termination fees for the quarter totaled $1.4 million. Year-to-date performance and with $1.4 billion of total liquidity, including over $200 million of unsettled forward equity over $200 million of annual free cash flow generation, a conservatively managed balance sheet NNN remains well positioned to perform in the currently evolving environment. With that, I will turn the call back to Alec for questions.

Operator: Thank you. Ladies and gentlemen, at this time, we will be conducting our question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. And you may press 2 if you wish to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. 1 moment, please, while we poll for questions. Thank you. Our first question today is coming from Nick Joseph with Citigroup. Your line is live.

Nick Joseph: Thanks. Appreciate the comments about cap rates moving, I think in September and after the third quarter. Obviously, rates rose significantly. We have seen them pull back a bit. I was just hoping you could quantify where you are seeing cap rates today and how you are thinking about returns just given the volatility that we are seeing in the interest rate environment?

Stephen A. Horn Jr.: Wes. I will take the first part of that, Nick, and then we will handle the second part. Far as the other cap rates, you know, kind of in this. In the opening remarks, the third quarter was pretty much baked, it was really the last couple of weeks of the third quarter that when we revisited our pipeline, in some cases, we were moving 50 to 60 basis points But overall, I am kinda seeing that 30- to 40-basis point. Movement for the fourth quarter. Expect it to go higher if everybody remains rational in the first part of 2027. And that is our opportunity set on the mix of clients that we deal with. And some of the sellers did not wanna, you know, take any increase. Which is okay, and we will move on to other transactions. But, yeah, 30- to 40-basis points range.

Vincent H. Chao: Yeah. And, Nick, on the return side of things, and our outlook and our expectations on returns really do not change. Given the volatility. I mean, we are repricing deals. We did push back on some of the pricing that we had in the third quarter and again in the fourth quarter. You know, I think the volatility means folks are not sure what they are willing to accept on the seller's side. And so we have built in a little bit of cushion in the fourth quarter outlook on acquisitions to. That, you know, people might walk away from some deals. So we are going to continue to be disciplined like we have over the last 40-plus years. We have operated in, you know, high interest rate cycles, low interest rate cycles. We have operated through lots of different economic cycles. And so all of that has allowed us to continue to raise that dividend year in, year out regardless of what is going on around us. And so we are going to maintain that discipline more that is very helpful.

Nick Joseph: Thank you. And then it looks like Mavis Tire I think, increased by 13 properties, ABR up about 60 basis points. Can you just touch on kind of what drove that and exposure to the tenant. The main driver of that increase was an M&A event where they acquired a tenant of ours.

Vincent H. Chao: Not that we did any more deals with them directly. Great. Thank you.

Operator: Thank you. Our next question is coming from James Feldman with Wells Fargo. Your line is live.

Jamie Feldman: Great. Thanks for taking the question. So I guess just to follow-up on the changes in the market. I mean, can you talk more about the types of assets that you think are moving the most types of sellers that are willing to change and those that are less willing to change just so we can get a better sense of how the sand is shifting.

Stephen A. Horn Jr.: Good question, James. We are in the market, but we do not you know, participate as far as transactions in every industry. So I can always specifically speak to what we are pursuing. And for us, it was more of the sale leaseback transaction of the middle market clients that are sophisticated. As, you know, we joke internally, they have CFOs. So, you the groups that understand that interest rates were because they are always talking in the capital markets. Primarily, those are the ones that accept the change. The open market transaction where there may be an existing lease those we found were a little bit stickier. Initially. Do I think they will move up eventually? Wes. But usually the sale leaseback guys are moving a little bit quicker. And the open market are a little bit stickier currently.

Jamie Feldman: Okay. Then I guess with the election results last night, just wondering if bonus depreciation transactions accelerate a bit. Just people may be concerned that it is not gonna be around for much longer. Just can you remind us, is that something you would as you think about your disposition pipeline, what would qualify in the portfolio? Like how large of a magnitude of assets do you think you could even sell under those kind of deals?

Stephen A. Horn Jr.: And level performance that we are monitoring is slipping over a course of time. So we will look to do active portfolio management and sell those and they may be at a little bit elevated cap rates because of the performance. As far as the depreciate. Accelerated depreciation is primarily convenience stores and car washes. And you know our portfolio. We have a lot of convenience stores and car washes that qualify for that. And we selectively will sell into that market when somebody is willing to pay us a extremely low cap rate that we will and we do. We prune the portfolio that way where we do not sell our gems. You cannot sell the real bad assets per se. Over time. So you kind of sell the lower performers that the accelerated depreciation asset will pay.

Jamie Feldman: So can you provide, like, just a ballpark of, like, just dollar amount? Like, how big that potential sales bucket might be? In the portfolio? Just on the bonus depreciation side?

Vincent H. Chao: Yeah, James. that is pretty hard to quantify just because those sellers kinda come in very late and last minute because they are tax-motivated at the end of the year. For instance, last year, we had a deal come in, on December 15, I want to say, and they were trying to close by year end. So it is a little episodic. I think from our perspective, we have a large pool of potential sellable properties, and we have identified, you know, we have we proactively identified a pool that we would be happy to part ways with at the right price. So if someone does come to us, we are ready to go pretty quickly. And again, it is a great opportunity for both sides, really. I mean, I think there is this view that depreciated buyers are, you know, not sophisticated or do not know what they are doing. I mean, obviously, they are getting legitimate benefit with the tax savings, and so we are kinda splitting that value between them and us, and so we can get better cap rates. And also, they are a little bit less quality focused because, again, their primary goal is to reduce their taxes. So it is a great opportunity for us. You know, hard to say, you know, what the total you know, potential is just because they are very episodic in when they come in. Okay. Great. Thank you.

Operator: Thank you. Our next question is coming from Jana Gallen with Bank of America.

Jana Gallen: Thank you. Good morning. This year, you have had very favorable performance on the portfolio bad debt. So just curious how you are thinking about the watch list from here. And any categories you are watching more closely.

Vincent H. Chao: Yeah. Hey, Jana. How are you doing? I mean, we look at the headlines just like you guys do, and we obviously have our conversations with our tenants. Very regularly. So we are always actively monitoring the portfolio. As I mentioned in my prepared remarks, we do not have any real changes to the watchlist today. But we certainly are aware of the consumer. You know, pressures on the consumer today. You know, and some of the. You know, there is been some pressure in the QSR space, a couple full service restaurants as well. But it is not completely broad based. Right? There are lots of QSR and lots of full service that are doing quite well. And so, you know, we. We are we are not looking at a 1 broad brush, but we certainly you know, are keeping an eye on those industries. And then entertainment's been in the news as well. So know, we do follow that. We do watch it closely, but, you know, given our current coverages and current outlook, we do not see any immediate impacts on the portfolio from those areas in any material way. So we are we are hopeful that continues, but we will be vigilant.

Jana Gallen: Thanks, Vincent. And then I also appreciate you kind of calling out the settlement and land sale and other nonrecurring items. I guess, just as we think about next year, if you can kind of help us think, you know, any 1 timers in 2026 that you know, could be, you know, either positive or negatively offset?

Vincent H. Chao: Yeah. I mean, that is the nature of the 1 timers. They are to predict, unfortunately, Jan. I wish I could tell you with a crystal ball there. But we always do have some of that stuff. So I mean, I would not say it is it is not predict. I. Non recurring is not a good word. it is not predictable, but it is recurring. We do have that stuff come through every year. So I am not I just cannot tell you exactly when it is gonna hit. But if you look at historically, we have always had some amount of that, some years more than others. I do not think there is anything to look into for next year that would particularly jump out at us as something meaningful. Yeah. I think lease termination fees are in that bucket. We have talked about those more in the past. Thankfully, we have talked about it less today, which is great. But you know, we do not have as many at the really, really big sort of dark or sublease tenants out there that created some very large swings in lease termination fees a couple years ago. So we do think we will have a, you know, a similar level in 2027 as 2026 in terms of lease termination fees for the full year. Exactly when they hit, I cannot really say. Thank you.

Operator: Thank you. Our next question is coming from Ronald Kamdem with Morgan Stanley. Your line is live.

Jenny: Hey, good morning. This is Jenny on for Ronald. Thanks for taking my question. I think my first is, I want to ask about the balance sheet. Thinking about the term loan swap reset to 4.35% in mid November. Maybe talk a little bit more on the impact of interest expenses next year and how should we think about refinancing upcoming?

Vincent H. Chao: Sure. Sure. So, I mean, 1, you know, we have very, very little floating rate debt following the swap in November. We will have even less. And so the actual short term rate movements that we are expecting and people are projecting should not should not really have much of an impact on our 2027 outlook. We do have the $350 million bond, I should say, that comes due in December. that is at a 3.6% coupon. And so, you know, we would be hard pressed to find a 3.6% coupon that had any sort of duration to it. So there will be some drag from that in 2027. Know, the range of options available to us you know, we could we could hit the term loan market again. it is not my preference. Obviously, we do have unsecured bonds that we could issue anywhere, you know, that you can pick your duration there. But you know, 5-year bond, it would be probably in the mid-5s to high-5s range today. A 10-year bond would be more like 6%. So those are, you know, 2 extremes there. Know, a lot of our peers in the space have been active in the convert market. that is something we have explored as well. We could get a bit better of a coupon than the 5 year that I just mentioned on a convert. So those are all things that we are evaluating and watching and just given the volatility in the markets with the 10 year moves that we have seen in the last couple weeks and months and this year overall. We wanna be nimble and wanna be able to act quickly when the time is right. Very helpful.

Jenny: I guess the follow-up is on the equity is So you do have about 2.5 million shares ATM program now. And think about dividend yield move to about 6%. How should we think about going forward that you measure issuing equities versus using the lines from here?

Vincent H. Chao: Well, I mean, the equity and debt question is always a function of leverage. Right? We are trying to maintain a leverage neutrality. You know, I am targeting sort of 5.5 times plus or minus. We are very close to that right now. And so whatever we buy, we are gonna do it on a leverage neutral mix. You know, as far as actual equity versus, say, dispositions or free cash flow, You know, right now, the 1 thing I really do think is a great advantage for us is that we do not have is we use less you know, common equity as part of our acquisition plan year in, year out. Than most of our peers do. So we rely on free cash flow and dispositions to fund a very large percentage of our investment activity. And so we do not have to enter the equity market We do not need to, and we are sitting on $200 million or so that was raised at just under $46 a share. We feel pretty good about that equity that we raised already, and know, when you combine that with our sort of call it $600 million of annual acquisition volume that we can do without new equity probably have buying power in the call it $900 million to $1 billion ish range. Know, whether or not we execute on that depends on if we get the price that makes sense to us. We are not just going to buy because our, you know, our raised cost of equity or cost of capital is lower. Does not mean we are gonna you know, overpay for assets. So that is kinda how we are thinking about that. Very helpful. Thank you.

Operator: Thank you. Our next question is coming from Brad Heffern with RBC. Your line is Hey, everybody.

Brad Heffern: Thanks. Wanted to check-in on a couple tenant things. First on CVS, I know it is not in the top list anymore, but I assume you still own some. Any initial thoughts on the separation and how you would view that for the outlook there?

Vincent H. Chao: Yeah. Look. I mean, it is pretty recent news. I mean, I think. it is funny. I was I was a retail sales analyst covering CBS when they bought the PPM business and got into the insurance side of things. And it was this great deal. Now they are on unwinding it. I think as a landlord, it probably makes it simpler. You know, you just have the retail business rather than having to worry about the insurance side. Well. But, you know, we really do not have exposure to CVS. So you know, we are we are not we are not really guess, we really have not thought about it that much. Okay. Got it. Thanks for that.

Brad Heffern: I was wondering if you could give an update on Dave and Buster's. Obviously, there is some negative ratings outlook changes there. The debt is trading at a pretty penal level. I guess, you have any coverage data on your locations? And then how would you be positioned if something were to happen there?

Vincent H. Chao: Yeah. Look. Dave and Buster's is an entertainment company. it is going through a cycle right now. Down. Downward shift in the cycle. So they have been, you know, they have been posting less than great results for a while at the corporate level. I would say that at the property level, our coverages are still very healthy. Even at the corporate level, you know, even though EBITDA margins have come down fairly significantly over the last say, 2 years or so. They are still relatively high. And so, again, we think that they. We have priced those deals at a level where we can weather the current cycle. But, you know, we will want to see some improvement here relatively soon. They do have a new management team in place. They do have a back to basics strategy in place. We think that you know, will help them. But if the consumer's under pressure, then obviously, a concept like a Dave and Buster's will, you know, typically have a little bit more difficulty. But right now, again, we are not we are not seeing anything in the numbers, anything in our property level that would cause us to have immediate concerns. But you know, that is the 1 we are watching closely. Okay. Thank you.

Operator: Thank you. Our next question is coming from Michael Goldsmith with UBS. Your line is live.

Michael Goldsmith: Good morning. Thanks a lot for taking my question. While we are talking about tenants, maybe can we talk a little bit about Camping World as well? Their third quarter adjusted EBITDA was down 62% year over year. Just wanted to get a sense of what you are seeing from that tenant in terms of coverage and how you are thinking about it going?

Vincent H. Chao: Yeah. So not to sound like a broken record, but. Yeah. Same kind of situation. A different market, but RVs are more cyclical business by nature. Consumers under pressure and this most recent quarter, which was this week, certainly reflected that. I think in the case of Camping World, they really have been doing everything they can to offset some of the pressures that we are seeing on the business near term. So they had leaned into their news business for a long time, and that was a successful strategy. The used business has also seen some pressure this most recent quarter, but they have also leaned into their insurance business, which is performing well, and they seeing margin expansion even their used business saw margin expansion this quarter even though the volumes were down. And, you know, I think the key there is they are doing whatever they can control. They are controlling. So they brought inventory down. it is as low as it is ever been in, like, 5 or 6 years going into the fourth quarter. They have, you know, increased their SG&A sort of run rate improvements. To $150 million annualized. So they are trying to control the controllables and based on our property level performance, we do not really have any immediate concerns with them either. They are 1 of our longest tenured partners, so we have a very good relationship with them and know no maturities for quite a while with these guys. Thanks for that, Vincent.

Michael Goldsmith: And then just my second question is just on the implied fourth quarter acquisitions. I know you have talked about being disciplined in today's market, but it implies a material deceleration. Just wanted to just say. Or ask about, you know, whether we should interpret that as, like, the right way to think about acquisition volume in the near term and then just the prospects for that reaccelerating next year, just given the evolving new backdrop? Thanks.

Stephen A. Horn Jr.: Yeah. Mean, as far as, you know, the fourth quarter, we are in process of, you know, repricing the deals, and that is why we left it because we do not know at the end of the day where it will fall out. So we are very comfortable putting the midpoint in that $750 million range. You know, we are not giving any guidance for 2027 acquisition volume. Quite yet. But the pipeline, there is a lot of opportunities in it. And so it is pretty big bandwidth which way it goes. Thank you very much. Good luck in the fourth quarter.

Operator: Our next question is coming from Wes Golladay with Baird. Your line is live.

Wes Golladay: Hey, good morning, everyone. For the buyers of the assets you are selling, are they coming back to you as well, saying, 'Hey, we want a little bit of a higher cap rate?'

Stephen A. Horn Jr.: The buyers that we are selling into, So Yeah. Currently, no. Most of it. You know, the 7.8 for the quarter was, you know, primarily, you know, what I would say defensive sales of the portfolio. Assets that we wanted to get rid of to the strength in the overall portfolio. that is why it was elevated. It was not because the sellers came back. To change the cap rates. And then you factor in the accelerated depreciation buyers, the overall 31 guys, they are still fairly low right now. Yeah. They are they are incentivized to defer taxes more than anything. Than actually the price.

Wes Golladay: Okay. Thanks for that. And then for the deal that you end up passing on or the seller walks away, do those ever just come back to you, like, if the rates were to, you know, come back at rates are volatile right now? So if the tenure were to go, you know, high-4s, would those deals come back to you, do you think they are just gone for good? But the majority of them?

Stephen A. Horn Jr.: No. it is just not only if the rates back up, do they come back to us. it is if the seller actually realizes that is the new pricing. Of the deal, then they come back to us. So, yeah, those conversations are ongoing. Know, there is sometimes you lose it. You change the price of a deal, and the deal is gone forever because of egos. In some cases, the sophisticated seller will come back to you and understand that economics need to change. And if it is m and a, that seller is also rechanging his pricing on the m and a as far as the multiple he is probably pursuing. Good. Thank you very much.

Operator: Thank you. Our next question is coming from John Massocca with B. Riley. Your line is live.

John Massocca: Good morning. I think you touched on it in terms of, like, where deals were kind of being kinda repriced that you had in the pipeline, but is that same kind of cap rate we get by adding 30- to 40-basis points to 3Q reflective of what you see in the pipeline for 2027? Or you know, are do you think yields can move even higher just given where rates are ultimately shaking out here?

Stephen A. Horn Jr.: Yeah. We. I do not have a dataset for 2027 pipeline. Yet. So it is. You know, No. It feels like what will slip into the first quarter 27 that we are pricing, but we are still a little bit close to the, you know, the market shifting that we have not seen a higher cap rate closing in the first quarter. But it is my expectations as sellers finally realize that cap rates need to go up. And again, that assumes a rational market of you know, the institutions that are buying that leased assets. Okay.

John Massocca: And then on the disposition front, maybe had 2 questions. Any color on kind of what made those rent producing sales defensive. And then on the vacant assets, is that just kind of a hodgepodge of various tenants, or is any of that kind of the very tail end of some of the tenant credit related vacancies you had 2 years ago now?

Stephen A. Horn Jr.: Yeah. Yeah. The first part, a little bit of color. 1 of the assets we sold was a fitness center that was leased or I should say, re-leased to a non-credit tenant, very small. So we elected to divest out of that. That was a little bit higher of a cap rate. And then there is actually a leasehold position in there, which by definition, leaseholds are a higher cap rate. That skewed that number to the 7.8. All in the same turn, you know, we had some that we sold in there that had 4 handles on them. That were kind of, you know, rental equipment facilities. As far as the vacancy, Yeah.

Vincent H. Chao: In terms of vacant sales, really, we do not have. I am trying to think. I think we are we are done with the tenants you are referring to couple years ago are out of the portfolio in terms of the impacts. I mean, there is no there was not really anything tied to that. Yeah. I mean, it was a hodgepodge. Yeah. Was not the thing. Yeah.

Stephen A. Horn Jr.: I will say too on the cap rates this you know, there is the defensive nature that Steve talked about. They also had pretty limited term left too. So very short term. Deals.

John Massocca: Okay. I appreciate all that detail. that is it for me.

Operator: Thank you. Thanks. Thank you. Our next question is coming from James Kammert with Evercore. Your line is live.

James Kammert: Good morning. Thank you. I believe in a recent industry show, some C store executives were lamenting indications of stalling foot traffic coming into the stores and maybe impacting the higher margin in store sales. I am curious, are you seeing any of that hearing any of that color from your C store tenants? And any translation to potential, you know, plateauing or moderation of the rent coverage?

Stephen A. Horn Jr.: You are spot on. The foot traffic has, you know, softened a little bit at the convenience stores. Yeah. Our primary tenant, 7-11. As far as the c store world. But as far as, you know, the mortgage softening inside the store, yes, they are going from 35% to the low 30s, but still highly profitable. At the inside store sales. And, you know, gallons are kind of remaining flat for the most part and still getting a decent healthy margin. But as far as the rent coverage deterioration, nothing that we are concerned with in the C store world. Great. Thank you, guys.

Operator: Thank you. Our next question is coming from Mark Akinyemi with Barclays. Your line is live.

Mark Akinby: Just to tack on to a few that were already asked. I was wondering if you could elaborate on how you are thinking about residual value for your Dave and Buster's and Camping World properties in a worst case scenario?

Vincent H. Chao: that is a pretty theoretical question. I mean, do not know if we really have a great answer on that. I mean, I think it all depends on the location, obviously, and you know, when it happened, what. what is going on in the rest of the market. I mean, it is it is a pretty hard answer. Question to answer.

Stephen A. Horn Jr.: But I want to know what the 10-year is going to be at December 31, I can tell you that. Joking. Okay. But as far as. I mean, I will speak specifically to Camping World. Camping World is. As Vincent alluded to earlier, has been a long term tenant of ours. And we do a lot of portfolio management with Camping World where they will buy some assets back of market they wanna divest out of, and at the same time, extend term on assets that we own. So our rent coverage, while it is not as healthy as it was in 2021-2022, it is still fairly healthy at the Camping World. So we have not got into the granular. But those are land plays. So the land percentage of acquisition cost is fairly high. And they are good real estate, high visibility real estate. As far as the 50% of our Dave and Buster assets were related to main event assets, were a little bit smaller. And, yeah, the coverage is acceptable right now. Thank you.

Operator: Our next question is coming from Spenser Allaway with Green Street. Your line is live. Thank you.

Spenser Glimcher: Just 2 quick follow ups on the credit losses which, you know, you guys have noted have trended better than expected. So first, does that figure include any rent negotiations or restructurings? I do not believe it does. And then 2, has there been much of that activity in 2026 just given the solid health of the portfolio?

Vincent H. Chao: Yeah. So in terms of our credit loss, yeah, it is. that is that is whatever we are owed if we got paid or not. So, you know, if it is renegotiated or there is a new lease in place, then that would fall into that bucket. No. But it would show up in our rent recapture you know, renewal rates and our releasing rates. So it show up in that metric.

Stephen A. Horn Jr.: And as far as, like, restructuring this year, no. Nothing material.

Spenser Glimcher: Okay. Great. Yeah. that is it for me. Thanks, guys. Thanks.

Operator: Thank you. Our next question is coming from James Feldman with Wells Fargo. Your line is live.

Jamie Feldman: Great. Thanks for taking the follow-up. You know, I guess since the news is fresh, as you thought about the potential for a Democratic sweep in the election last night or midterms last night, Did you or your clients think anything might be different coming out of this? You know, like, when you think about the bingo card and plan your strategy, or do you think it is just business as usual? Just wondering if there is anything we may not be thinking about that could come from this.

Stephen A. Horn Jr.: No, Jamie. Our tenants are thinking it is business as usual. Yeah. I say it is the 1 thing. it is beauty of the long term lease. That we go through political cycles, interest rate cycles, So, no, it is it is business as usual, and then we will keep focusing on real estate metrics as the primary security of our investment. Okay. Thank you.

Operator: Thank you. As we have no further questions in the queue at this time, I would like to turn the call back over to Mr. Horn for any closing remarks.

Stephen A. Horn Jr.: Thanks, Alec. I appreciate you guys taking the time and interest in NNN. We are in a really good position. Looking forward to finishing out the year strong. getting the 2027 game plan all wrapped up. And we will see the majority of you here in a couple weeks at NAREIT. Thanks.

Operator: Thank you. Ladies and gentlemen, this does conclude today's call, and you may disconnect your lines at this time. And we thank you for your participation.