NNN REIT Q1 2025 Earnings Report

NNN REIT EPS Results

• Actual EPS: $0.87
• Consensus EPS: $0.83
• Beat/Miss: Beat by +$0.04
• One Year Ago EPS: $0.84

NNN REIT Revenue Results

• Actual Revenue: $230.85 million
• Expected Revenue: $219.68 million
• Beat/Miss: Beat by +$11.17 million
• YoY Revenue Growth: +7.20%

NNN REIT Announcement Details

• Quarter: Q1 2025
• Date: 5/1/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, May 1, 2025
• Conference Call Time: 10:30AM ET

National Retail Properties is a REIT focused on retail-oriented properties across the United States. The company invests in high-quality retail properties subject to long-term leases that generate stable, consistent, predictable income. The company laid claim to 3,305 properties enclosing 33.8 million square feet of space in 48 states leased to 380 tenants engaged in 37 trades as of October 2022.

National Retail Properties was formed in 1984 as Golden Corral Realty Corporation. The company was intended as a means for employees to invest in Golden Corral but it soon took on a life of its own. The company split from its parent in 1993 and then became a REIT in 1998. Since then a number of mergers and acquisitions resulted in the company that is traded today.

National Retail Properties seeks to generate returns for shareholders through capital appreciation and dividends and is one of the most stable dividend payers in the REIT universe. The company made its 33rd consecutive distribution increase in 2022 ranking it 3rd on the list of REITs with sustained annual dividend increases. In regard to all publicly listed companies, there are less than 90 which have increased their payout for as many years or more as National Retail Properties. The compound annual growth rate runs in the range of 4% to 5%.

National Retail Properties is not limited in scope to the type of business it will lease to. The top four sectors occupying its space, however, are convenience stores, automotive-related, full-service, and limited-service restaurants which command a lion’s share of retail dollars. These segments made up nearly 49% of the portfolio in 2022 with no tenant making up more than 5% of the total income.

The top three tenants at the time are 7-11, Mister Car Wash, and Camping World followed by L.A. Fitness, GPM Investments (convenience), and Dave & Buster’s. The firm's average lease runs in the range of 10.6 years and occupancy runs high and above 99%. Properties are all single-occupier and leased on a net basis. Most properties are leased on a triple-net basis which means National Retail Properties is insulated from taxes, maintenance, and insurance costs. Other notable tenants include Yum! Brands and Wendy’s.

National Retail Properties uses leverage to enhance its returns. The company’s debt ratio is low however and its debt carries an investment-grade rating from Standard & Poors and Moody’s.

NNN REIT Q1 2025 Earnings Call Transcript

Key Takeaways

• Management has made strong progress resolving vacancies in 35 furniture stores and 69 restaurant assets, expecting the vast majority to be re-leased or sold by year-end with an estimated impact of <1% on 2025 core FFO per share.
• The portfolio closed Q1 with 97.7% occupancy and limited credit losses, while acquiring 82 new properties for ~$232 million at a 7.4% initial cap rate and reaffirming full-year acquisition guidance of $500–600 million.
• All Q1 acquisitions were sale-leaseback transactions, underscoring the company’s relationship-driven model and disciplined underwriting amid modest cap rate pressures in larger portfolio deals.
• NNN’s fortress balance sheet includes $1.1 billion of available revolver capacity, 11.6 years of debt term remaining, 2.5% floating-rate exposure and 100% unencumbered assets, supporting a 5.4% dividend yield at a 66% AFFO payout.
• First-quarter results delivered core FFO of $0.86 and AFFO of $0.87 per share (both +3.6% YoY), with a 95.9% NOI margin and maintained annual AFFO guidance of $3.39–$3.44 despite an $8.2 million lease termination fee.

Presentation

[Operator]

Greetings. Welcome to the NNN REIT, Inc. First Quarter twenty twenty five Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.

[Operator]

Please note this conference is being recorded. I will now turn the conference over to your host, Steve Horn, CEO. You may begin.

[Stephen Horn, President & CEO at NNN REIT]

Thanks, John. Good morning and thank you for joining NNN REIT's first quarter twenty twenty five earnings call. With me today is Vin Chao, our Chief Financial Officer. I'd like to start with a high level update on our vacant furniture and restaurant assets before we delve into the first quarter results. We're making excellent progress resolving these vacancies, and I'm confident that we will be in solid position to have the vast majority resolved by year end.

[Stephen Horn, President & CEO at NNN REIT]

On a post quarter update, in terms of our 35 furniture stores, 15 are resolved through leasing or sale and 15 have significant interest and we anticipate nearly all be handled by the end of the third quarter. For the restaurant assets, we gained full possession this quarter following the conclusion of the eviction process. We've leased or sold 38 and have strong interest in the other 31. Looking ahead, as we fully put to bed the two tenant defaults from the fourth quarter of twenty twenty four, we anticipate a total impact of only $1.5 to $0.25 on our stabilized core FFO per share for the year. That's less than 1%.

[Stephen Horn, President & CEO at NNN REIT]

This minimal effect serves to highlight the lasting significance of robust real estate fundamentals throughout the duration of a twenty year lease. Let's go to the highlights of our first quarter financial performance. Our portfolio of 3,641 freestanding single tenant properties continue its strong track record. Occupancy at the end of the quarter was 97.7, a slight dip from our long term average of approximately 98% plus or minus, due to the finalization of the eviction process. We are encouraged by the significant interest in our available properties from numerous strong national and regional tenants and I expect our occupancy rate to trend upwards as the year progresses.

[Stephen Horn, President & CEO at NNN REIT]

Notably, we experienced limited to no credit losses within the portfolio during the first quarter. Given the current macroeconomic backdrop, I'm confident in the portfolio's ability to deliver excellent performance over the long term. Our portfolio stability through events like GFC and the pandemic with minimal impact underscore its strengths. We prioritize relationships with sophisticated tenants and actively manage our assets to prepare for future uncertainties. While maintaining our disciplined underwriting approach, we successfully acquired 82 new properties during the quarter for approximately $232,000,000 These acquisitions featured an attractive initial cap rate of 7.4 and a long term lease duration of over eighteen years.

[Stephen Horn, President & CEO at NNN REIT]

Significantly, all of our acquisitions this past quarter were sale leaseback transaction, a testament to the effectiveness of NNN's acquisition team and relationship focused efforts. NNN takes pride in its relationship driven business model, which facilitates consistent repeat business. Not only in the current environment, but every transaction, we remain highly selective in our underwriting and will continue to prioritize sale leaseback transactions with our established tenant relationships and not operators or developers that are financial engineers. Regarding the current acquisition pricing market trends, we begin the year with the first quarter initial cash cap rate of 7.4%. This compression was in line with the February discussion.

[Stephen Horn, President & CEO at NNN REIT]

We anticipate some cap rate pressure in 2025 compared to the previous year. Now at the May, second quarter cap rates are mostly holding steady with the first quarter. However, we are seeing significant compression in the larger portfolio deals causing us to forego those opportunities. In the first quarter, we executed strategic dispositions. We sold 10 properties and generated $16,000,000 in proceeds and only one of those assets was vacant.

[Stephen Horn, President & CEO at NNN REIT]

These funds are earmarked for reinvestment in new acquisitions and this activity aligns with our full year disposition guidance. Continuing our history of sound financial management, Ben and the team have ensured a robust balance sheet. We finished the first quarter with nearly $1,100,000,000 availability on our $1,200,000,000 line of credit and $400,000,000 debt maturity in the fourth quarter is manageable. This reinforces the effectiveness of our self funding model. The strong financial footing provides the company with the necessary flexibility to execute our 2025 acquisition guidance of 500 to $600,000,000 To summarize, our first quarter performance in occupancy, leasing and rent collection further validates our consistent long term strategy.

[Stephen Horn, President & CEO at NNN REIT]

This involves acquiring well located properties with strong regional national tenants at appropriate rents, supported by strong and flexible balance sheet. With that, I'll turn the call over to Vin for more detail to review our quarterly numbers and updated guidance.

[Vincent Chao, EVP & CFO at NNN REIT]

Thank you, Steve. Let me start by letting you know that 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 to 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 the company's filings with the SEC and in this morning's press release. With that out of the way, before I get into the quarterly review, wanted to start with some broader commentary and initial observations.

[Vincent Chao, EVP & CFO at NNN REIT]

Although today's elevated level of uncertainty has created volatility in the capital markets, our fortress balance sheet combined with our deeply experienced team battle tested portfolio is well positioned for long term success in almost any environment. We know this because we've been there. In addition to the weathering the GFC and COVID-nineteen that Steve mentioned, we are also the only public net lease REIT to have experienced Black Monday, the bursting of the dot com bubble and the attacks on September eleventh, all while delivering thirty five years of consecutive dividend growth. While our long and successful track record gives me comfort that we can manage today's economic environment, it's the strength of the NNN platform and its people that give me the confidence that we will continue to create shareholder value in the years ahead and through economic cycles. The depth of talent, the strength of the processes and systems and the experience of the team are true differentiators within the REIT universe.

[Vincent Chao, EVP & CFO at NNN REIT]

I'm not sure if everyone knows this, but the average associate has been with NNN for over ten years and the senior leadership team has been here for over twenty. This deep institutional knowledge is a key competitive advantage, particularly in times like these. NNN truly is a well oiled machine. With that, I'll get off my soapbox and get into the quarter. This morning we reported core FFO of zero eight six dollars per share and AFFO of $87 per share for the first quarter of twenty twenty five, each up 3.6% over the prior year period, while annualized base rent was up over 5% year over year.

[Vincent Chao, EVP & CFO at NNN REIT]

Results were slightly ahead of our internal plan driven primarily by lower than planned bad debt and net real estate expenses. Our NOI margin was 95.9% for the quarter while G and A as a percentage of total revenues was 5.65.9% as a percentage of NOI. Free cash flow after dividend was about $55,000,000 in the quarter. This quarter benefited from $8,200,000 of lease termination fees or about $04 per share. This fee was expected and largely driven by one lease that was dark but paying for some time.

[Vincent Chao, EVP & CFO at NNN REIT]

We were able to negotiate a deal to recapture the PV of the remaining rents and are now looking to sell the property. Turning to operating results. Overall leasing activity for the quarter was strong with 25 renewals and eight new leases completed in the quarter for a blended rent recapture rate of 98%, reflecting the high quality of the portfolio. Occupancy remained high at 97.7% despite the fall off from Badcock and Frisch's and has never dipped below 96.4% over the past twenty years reflecting the stability of the portfolio and its cash flows. As Steve mentioned, we are making good progress on addressing our vacancies and have now released or sold almost 50% of our former Badcock and Frisch's stores in only about two quarters and we have good visibility or good activity on the vast majority of the remaining stores, a testament to the strength of the underlying real estate.

[Vincent Chao, EVP & CFO at NNN REIT]

Although these two tenants have created some near term noise, the reality is that our experienced operations teams are well equipped to effectively handle these situations as they have over the last forty plus years. As Steve noted, when all said and done, we expect less than a 1% impact to annual FFO per share and importantly, we expect to achieve this outcome with minimal tenant CapEx. From a watch list perspective, things have not changed much since last quarter. No new tenants were added and our primary concern remains at home which we have been flagging for some time. As a reminder, we have 11 at homes that account for about 1% of ABR.

[Vincent Chao, EVP & CFO at NNN REIT]

In place rents are low at just over $6.5 per square foot and stores are well established with average tenure of about twelve years. Turning to the balance sheet, our BBB plus balance sheet remains in great shape and it's what me, let me sleep well at night despite what's going on in the world. We ended the first quarter with a sector leading eleven point six years of term remaining on our debt maturities and just 2.5% of our total debt tied to floating rates. This gives us strong visibility. Liquidity stood at 1,100,000,000.0, net debt to EBITDA was 5.5 times and 100% of our assets are unencumbered giving us great flexibility to execute our business plans.

[Vincent Chao, EVP & CFO at NNN REIT]

On April 15, we announced a $0.58 quarterly dividend per share, which equates to an attractive 5.4% annualized dividend yield at conservative 66% AFFO payout ratio. Lastly, I'd like to provide some color on our outlook for the balance of the year. As we discussed last quarter, we signed leases on former Frisch's locations that will add the greater of $2,800,000 annually or 7% of sales when rent commences on May 1. Also as discussed last quarter, we embedded a credit loss reserve of 60 basis points into the 2025 outlook. Given that we've had no notable credit loss year to date and in light of our outlook for the balance of the year, we feel comfortable with the 60 basis points for the full year.

[Vincent Chao, EVP & CFO at NNN REIT]

Finally, we have a $400,000,000 4 percent on maturing in November. For perspective, we believe current pricing on a new ten year issuance would be about 5.6%. We also have capacity on our revolver which is priced at silver plus 87.5 basis points and had an effective rate of 5.2% in the first quarter. As always, we'll be opportunistic and look for ways to capitalize on the current market volatility as we manage our financing needs. Also, while we do not provide guidance on termination fees given their inherently unpredictable timing, As you are updating your models, please keep in mind that the $8,200,000 booked in the first quarter was unusually high and not reflective of a normalized run rate.

[Vincent Chao, EVP & CFO at NNN REIT]

All that said, given our strong start to the year, our internally funded investment plan and with over 40% of our acquisition volume already completed, we are comfortable maintaining our 2025 outlook for core FFO per share of $3.33 to $3.38 and AFFO per share of $3.39 to $3.44 Details regarding the underlying assumptions supporting our guidance also remain unchanged and can be found on page three of this morning's press release. Lastly, you may have noticed some changes to the earnings release presentation. We take pride in the transparency of our disclosures and are committed to providing investors and analysts with the information they need to efficiently and effectively underwrite the long term value of our company. We hope you find the changes we made helpful in your analysis and I'm always available to discuss ideas on how we can improve our reporting. Before I turn the call back to the operator for Q and A, I want to thank the executive team and the board of directors for entrusting me as only the second CFO in NNN's history.

[Vincent Chao, EVP & CFO at NNN REIT]

There's a long tradition of success here that I along the rest of the team will work tirelessly to continue. I also want to thank the entire organization for their warm welcome to the company and for their help in making this a seamless transition. With that, John, please open up the lines for questions.

[Operator]

Certainly. At this time, we will be conducting a question and answer session. The first question comes from Daniel Bayonne with Bank of America. Daniel, please proceed.

[Daniel Bailey, Asset-Based Lending Analyst at Bank of America]

Good morning. Good morning. Your 1Q acquisition pace was much higher than expected. Could you expand on that? Do you see less competition in the transaction markets?

[Stephen Horn, President & CEO at NNN REIT]

John, good question. This is Steve. We operate in a highly competitive market. And it's been a highly competitive market for twenty plus years I've been doing it. Just the names have come and gone.

[Stephen Horn, President & CEO at NNN REIT]

Now, the result was all of our transactions except one were sale leaseback primarily through the relationships. But it was elevated just more timing. Going into the fourth quarter, we knew there were some M and A deals that we're looking to get done, and they landed in the first quarter. However, it was within our guidance range for the full year. And it was primarily the auto services, again, was the sector where there's a fair amount of consolidation going on.

[Daniel Bailey, Asset-Based Lending Analyst at Bank of America]

Got it. And if I could just follow-up on that. Could you touch on the expected pace of acquisitions moving forward? And do you plan on expanding into the auto services?

[Stephen Horn, President & CEO at NNN REIT]

We do the bottom up approach. We can only buy stuff that's for sale and we look for consistent core FFO growth over time. We maintain guidance of the 500 to $600,000,000 But as Ben alluded to, we're kind of 40% there. And looking at the pipeline for the second quarter, I'm very comfortable that we'll hit that guidance range given where we stand today. But given everything that's going on in the macro economy and the uncertainty, I don't think it's prudent to elevate acquisition volume since I don't have visibility to the third or fourth quarter yet.

[Stephen Horn, President & CEO at NNN REIT]

However, that being said, if everything kind of maintains status quo, I could see us hitting good acquisitions for the year.

[Daniel Bailey, Asset-Based Lending Analyst at Bank of America]

Got it. Thank you.

[Operator]

The next question comes from Spencer Glenscher with Green Street. Please proceed.

[Spenser Glimcher, Managing Director at Green Street Advisors, LLC]

Thank you. Given the recent economic volatility and ongoing uncertainty, can you talk about existing tenant appetite for growth? Then maybe on the flip side, are there any tenants who had expressed interest to grow and maybe kind of hit the brakes on growth plans as of late?

[Stephen Horn, President & CEO at NNN REIT]

Overall, I think they're reevaluating their growth plans. Though deals that we had in the pipeline were canceled because of what's going on, they don't want to miss out on opportunities if things settle down. So kind of what I alluded to in the first question, our pipeline for Q2 is pretty solid, and we're just starting to look at stuff for Q3. But no, our tenants are still looking to grow at the margin. I don't think you're going to see any heroic M and A deals in the near term.

[Stephen Horn, President & CEO at NNN REIT]

So we've noticed that pace has slowed down in The U. S.

[Spenser Glimcher, Managing Director at Green Street Advisors, LLC]

Okay. And then any changes to tenant rent coverages, just with ongoing tariffs and things related to consumer spending?

[Vincent Chao, EVP & CFO at NNN REIT]

Yeah. Hey, This is Vin. Yeah, as far as rent coverage and tariffs and all that, mean, I would just say on a tariff perspective, you know, service tenants and non discretionary tenants, that's about 85% of our ABR. And so we feel relatively okay about tariff impacts other than the impact on the overall economy which will filter through if things stay in place or I'm not sure where we're at today. In any case, we feel like we're comfortable on the tariff side.

[Vincent Chao, EVP & CFO at NNN REIT]

As far as rent coverages go, as you know, we don't really talk about rent coverages in detail. But the data is usually a little stale and so it's not reflective of any sort of tariff impact at this point anyway. But generally speaking, I would say rent coverages have remained stable on that.

[Stephen Horn, President & CEO at NNN REIT]

A little kind of real time coverage for you, Spencer. Our team was out at the Car Wash Conference this past weekend and reported that the car wash sales were very strong for the quarter. And the CEOs that I spoke with and if it was collision or the tire sector within the auto services said the last two months they've seen an uptick in their sales. So that was all positive. But yes, to echo what Vince said, for the most part, I would expect our rent coverage to be pretty stable throughout the portfolio.

[Spenser Glimcher, Managing Director at Green Street Advisors, LLC]

Okay. Thank you for the color.

[Operator]

The

[Operator]

next question comes from John Jelichowski with Wells Fargo. Please proceed.

[John Kilichowski, Vice President - Equity Research Analyst at Wells Fargo]

Good morning. Thank you. I guess an extension of the tariff question. It sounds like the existing portfolio is still performing well, but maybe as we think about your strategy on underwriting go forward for new investments, have tariffs impacted that at all? Are you looking at different sectors or is it same old, same old?

[Stephen Horn, President & CEO at NNN REIT]

If you look across our portfolio, not that we're tariff proof by any means, but we have a very solid tariff resistant portfolio. Since two thirds to three quarters of our deal flow comes from our tenant base, I still expect it to be representative of our current portfolio. Now, when you get into discretionary tenants, this is what separates the sale leaseback model opposed to buying from developers. The sale leaseback model, it's an inherent the tenant does some underwriting and they're signing the fifteen to twenty year lease. So they do a self selection and they know their consumer better than any real estate executive.

[Stephen Horn, President & CEO at NNN REIT]

So, we sit down with the tenants and it's more on the discretionary side that we are kind of sidestepping deals right now that might be pro form a on if it's family entertainment sector where there's a little bit more discretionary income. But I think the auto services and C store, if the opportunities come, we'll still lean into those.

[John Kilichowski, Vice President - Equity Research Analyst at Wells Fargo]

Okay. And then maybe just jumping to the Frisch's and Badcock side. We appreciate the update. How has that impacted the non reimbursable percentage of your OpEx outlook? It sounds like credit is your credit expectations are still flat.

[Vincent Chao, EVP & CFO at NNN REIT]

Yeah, I mean, you look at our guidance for net real estate expenses, it's a little bit higher than we've historically reported, which is probably more than the $13,000,000 range, we're 15 to 16 for the year on guidance. That's reflective of some of the vacancies from the Badcock and Frisch's. So as we release those or sell them over the course of the year that should improve, but that's all embedded in our outlook.

[John Kilichowski, Vice President - Equity Research Analyst at Wells Fargo]

All right, thank you.

[Operator]

The next question is from Michael Goldsmith with UBS. Michael, please proceed.

[Michael Goldsmith, US REITs Analyst at UBS Securities LLC]

Good morning. Thanks a lot for taking my question. Acquisition cap rates ticked down about 10 basis points in the quarter. So in terms of what you're seeing in the pipeline, are you expecting that trend to kind of continue to tick down or maybe just kind of flat line from there? Just trying to get a sense of where we're headed from a cap rate perspective.

[Stephen Horn, President & CEO at NNN REIT]

Yes. Good question, Michael. Yes, I'm not seeing a material move up or down for the second quarter pricing. It's pretty much in line with the first quarter. Now as deals might slide in the third quarter, you might have five, ten basis points either way.

[Stephen Horn, President & CEO at NNN REIT]

But the $740,000,000 kind of where I'm looking at the second quarter. Again, quarter is too far out to speculate. But as we run out our models, we're not putting increase in cap rates Because people at first half of the year are looking to deploy money. So deals cap rates get compressed a little bit unjustifiably, I would say. And as I mentioned in my opening remarks, there were some large portfolio transactions that got done and they looked like they were going sub seven.

[Stephen Horn, President & CEO at NNN REIT]

And we just didn't think that was the right price for the portfolios.

[Michael Goldsmith, US REITs Analyst at UBS Securities LLC]

Got it. And I'm a little jealous that I wasn't able to make it to the Car Wash Conference this year. But last night, Mr. Car Wash earnings, they talked about a steady reprieve to the competitive intrusion with the number of competitive new builds since the peak in 2023, but they also talked a little bit about you know, market rationalization over the next several years. So do you think, you know, the tenants, the car wash tenants that you have, do you see those, the those ones that you partner with or as net winners over time and and thus, have limited downside from that Thanks.

[Stephen Horn, President & CEO at NNN REIT]

Very comfortable with our Car Wash Holdings. I mean, reality is Car Wash real estate is really solid in demand real estate. And the vast majority of our Car Wash Holdings are with Mr. Car Wash, arguably the best operator in the business. And we did those deals well before the market got overheated.

[Stephen Horn, President & CEO at NNN REIT]

So our average cost in the Mr. Car Wash is significantly lower than the deals that were done in the last few years. And our acquisition team did a fabulous job passing on the deals where they thought there were financial engineers getting into the car wash business. So yes, I'm comfortable and I think we're going to be net winners in the long run on our car wash holdings. Fortunately, we didn't do any zips, for example.

[Stephen Horn, President & CEO at NNN REIT]

That was a good one not to do for us. But the rest of our operators, think, are pretty solid and underwrote the assets appropriately.

[Michael Goldsmith, US REITs Analyst at UBS Securities LLC]

Thank you very much. Good luck in the second quarter.

[Stephen Horn, President & CEO at NNN REIT]

Thanks, Mike.

[Operator]

Up next, have Smedes Rose with Citi. Please proceed.

[Madeleine Fargis, Equity Research Senior Associate at Citi]

Hey, good morning. This is Maddie Farges on for Smedes. I just wanted to ask, there's been kind of some negative headlines and stock underperformance from some of your more discretionary focused tenants, particularly Gabe and Buster's and Camping World. Do you have any overall concerns from a tenant perspective on these? And is there maybe anything differentiating about the particular locations that you own that maybe make you less concerned from a risk perspective?

[Stephen Horn, President & CEO at NNN REIT]

We'll both answer this. Good question, Maggie. As far as Camping World, Camping World arguably is probably one of our greatest partnerships within the portfolio. We are actively managing that portfolio since we've been doing business with them for over fifteen years. So our rent coverage in the peak during COVID, who would have thought Camping World would explode and become a cash cow, that we were over eight times covered in those assets.

[Stephen Horn, President & CEO at NNN REIT]

And that's a testament to the management team at Camping World of calling us up and renegotiating leases, selling assets, and only wanting to stay in the strong assets. So the Camping World property level coverage, I'm very happy with and comfortable. And the same goes with Dave and Buster. Our Dave and Buster exposure primarily was from Main Event over a decade ago of doing deals with them. And the main event management team were true operators that wanted to keep the rent low.

[Stephen Horn, President & CEO at NNN REIT]

So our property level coverage at Dave and Buster is very solid. And kind of what I alluded to, there's a couple of deals in the past year, which we passed on David and Buster because they were newer assets. And then we just thought the cap rates were getting a little bit too low for us. But they're a good partner, and going forward, we'll probably do more deals with them in the future.

[Vincent Chao, EVP & CFO at NNN REIT]

Yeah, I think, Steve said it pretty well, so I don't have too much to add there. But the coverage on Dave and Buster's is pretty healthy here and, on Camping World, you know, they just reported yesterday, no stock didn't, do so well. But, from our perspective as a landlord, there are some positives in the quarter and I think their news business is a bright spot for them. So as we're dealing with tariffs and uncertainty and possibly an economic slowdown, Camping World, they're not catering to the highest end side of that market. And so we think that's relatively better, but then also the used business can really help offset some of the tariff impacts and that was quite strong yesterday.

[Madeleine Fargis, Equity Research Senior Associate at Citi]

Great, thank you both.

[Operator]

Up next is Linda Tsai with Jefferies. Linda, please proceed.

[Linda Tsai, Senior Analyst at Jefferies]

Hi, thanks for taking my question. Did less than expected bad debt contribute to 1Q and then of your 50 bps embedded reserves, how much of that is like known versus unknown?

[Vincent Chao, EVP & CFO at NNN REIT]

Yeah, hey Linda, it's Vin. So in the first quarter, we really didn't have much in the way of bad debt or credit loss. So if you think about it, 10 basis points of credit loss is about 05% of per share, so that you can think about it that way for the first quarter. As far as known or unknown, I mean, we've talked about at home that's probably the one on our watch list. That's the one that we're most focused But at this point, we have no credit loss associated, so

[Linda Tsai, Senior Analyst at Jefferies]

Thanks. And then on at home, what would be like the possible outcome? Do you think you would be able to sell those leases or would there be a backfill?

[Vincent Chao, EVP & CFO at NNN REIT]

Yeah, let me just start with At Home in terms of their potential impact, right? I mean, I know there's been some news out there on them. At this point in the year, as I said, we don't have any loss, associated and so if something were to happen, we think, our 60 basis points would still cover us. If you think about, you know, if there is some kind of filing or something like that, that, you know, we'd have some couple months of additional rent as they go through that proceedings and so at 100 basis points if everything were to be rejected that's about 50 basis points but we think that's pretty highly unlikely given our low rent basis of just over $6.5 and so we feel comfortable with our outlook for credit loss. As far as the recovery on an at home, they're much larger as you know, so by default it probably will take us a little longer than your more fungible boxes that we typically invest in.

[Vincent Chao, EVP & CFO at NNN REIT]

But there is a lot of good interest, we're already getting inbounds from some really high quality tenants about some of the spaces which we're pretty happy about and we've also got some flexibility in terms of how we manage these properties. Mean, there's potential sale but they sit on 11 acre lots and so that gives us a lot of optionality in terms of redevelopment, carving up the boxes, things like that. So we're still evaluating all the different options, but we do feel pretty good.

[Linda Tsai, Senior Analyst at Jefferies]

Thanks for the context.

[Operator]

Your final question comes from John Massocca with B. Riley Securities. Please proceed, John.

[John Massocca, Senior Research Analyst at B Riley Financial]

Good morning.

[Stephen Horn, President & CEO at NNN REIT]

Good morning. Good morning, John.

[John Massocca, Senior Research Analyst at B Riley Financial]

So just on the lease termination income, apologies if I misheard something on that. But it seems like, you know, there's kind of this constant narrative like, yeah, it's a little unusual to have this much, but then there's a couple of quarters, you know, it's been pretty heavy in recent quarters. So what do you consider the new maybe run rate to assume for lease termination income and maybe kind

[John Massocca, Senior Research Analyst at B Riley Financial]

of what

[John Massocca, Senior Research Analyst at B Riley Financial]

drove lease termination income in 1Q?

[Vincent Chao, EVP & CFO at NNN REIT]

Hey, John, this is Vin. Yes, so in the first quarter, as I've mentioned in my prepared remarks, I mean, we did have basically one tenant that really drove the bulk of the $8,200,000 booked for the quarter. It was a dark paying tenant that had been dark for I don't want to say six years, five years, something like that. We were able to negotiate a great deal where we got basically the entire PV of the rent that was owed over the balance of the lease and we're now able to potentially sell that asset and redeploy those assets that capital. So we feel good about that outcome.

[Vincent Chao, EVP & CFO at NNN REIT]

As far as the go forward run rate, it's really tough. I mean, I would say lease termination fees are definitely part of the business. They are recurring, they're just very hard to predict. And that's why we don't really guide on it. If you look historically, we've probably been long term average, call it 2 to 3,000,000 a year.

[Vincent Chao, EVP & CFO at NNN REIT]

But recent years it's been a lot higher than that. So it's hard for me to say what the go forward run rate is because it is unpredictable. But we do have additional lease terminations embedded in the outlook, certainly not $8,200,000 going forward.

[Stephen Horn, President & CEO at NNN REIT]

I was going to add a little bit more, John, on lease term. As we get bigger lease term fees, there's more opportunities. If you actively manage your portfolio, you're going to have lease termination fees. The lease termination fee is solving future problems and redeploying those proceeds into current opportunities. So I agree with Ben.

[Stephen Horn, President & CEO at NNN REIT]

We don't know. It's kind of lightning in a bottle when they strike. You don't know as you're actively managing the properties. But the elevated lease term in the last couple of years is a result of us really focusing in and creating a high quality of earnings going forward.

[John Massocca, Senior Research Analyst at B Riley Financial]

But is there something maybe in terms of the tenant base or your portfolio of a certain vintage that drives this or something that's occurred in the last two, three years, seems like it wasn't really something that got called out on earnings calls five or more years ago as much as it has been in the last, call it, eight quarters?

[Stephen Horn, President & CEO at NNN REIT]

No, it's primarily been just one tenant working with us, reconfiguring their portfolio, and their larger boxes, higher rents, so that's why they've been elevated.

[John Massocca, Senior Research Analyst at B Riley Financial]

Okay. On the Frisch's side or former Frisch's side, I know it's early days with the new tenant in the leased assets, the re leased assets. But any outlook on to how their performance has been just given some of the rent there is contingent on that?

[Stephen Horn, President & CEO at NNN REIT]

Yes. I mean, just like any new retail concept, when they first open, they come out of the market really strong. There's that honeymoon period and we are currently in that honeymoon period. So they are performing exceedingly well currently. But as we look forward, they'll lose that a little bit, but very optimistic.

[Stephen Horn, President & CEO at NNN REIT]

I spoke with the CEO recently in the last week. Everything is going well for him. Getting stores open slowly but surely. And I would expect here in the next six months, we'll have I'll be able to answer that question as far as their performance a little bit more clear for you.

[John Massocca, Senior Research Analyst at B Riley Financial]

Fair. And then with the remaining kind of former restaurant properties, is the view with most of those that they would also remain restaurants? Or, you know, is it thought that either, you know, whoever you sell them to or yourself, if you're looking to release them, is going to convert them to something else? And if that is the case, what's kind of CapEx outlook there maybe for you or a potential buyer?

[Stephen Horn, President & CEO at NNN REIT]

It's too early to talk about the CapEx side of things, but we are getting interest if it's car washes, if it's convenience stores and if the large regional convenience store operators, great credit. And then there is some QSR involved. And we're early in negotiations, So we don't know if it's going to be a ground lease and they're going to fund the building or they're going to expect some CapEx from us currently. But that being said, we have some good interest on those sites right now.

[John Massocca, Senior Research Analyst at B Riley Financial]

Okay. I guess maybe the way you phrased it, would be fair to assume those are some of the later assets that are going to get dealt with in terms of both the former Fresh's and former Badcock's?

[Stephen Horn, President & CEO at NNN REIT]

I think Badcock is going to definitely outpace the former Frisches because we're probably going to sell more of those. In the Frisches, there's a lot of redevelopment opportunities. And just by definition, redevelopment takes a longer period of time to go through the permitting process and stuff like that.

[John Massocca, Senior Research Analyst at B Riley Financial]

Okay. That's it for me. I appreciate all the color. Thank you.

[Operator]

We have one additional question in the queue coming from Ronald Kamden with Morgan Stanley. Please proceed.

[Analyst]

Hey, this is Jenny on for Ron. Thanks for taking my question. I'm just curious if there's any specific like retail new concept like you're looking to reduce exposure in the next twelve to eighteen months.

[Vincent Chao, EVP & CFO at NNN REIT]

Mean, once they were looking to reduce exposure, I mean, obviously we have our watch list. And so those are ones that we would love to pare back exposure. But unfortunately, by the time they're on the watch list, it's a little hard to get economics that makes sense. So I'll give you an example, I mean AMC is on there. It's been on there forever more from a category perspective, not so much from a bottom up performance with the recent issues or anything like that.

[Vincent Chao, EVP & CFO at NNN REIT]

But it's not the easiest to sell one of those and so that's sort of our target list. We also have the dark but paying list, we have the sublease list and those are the ones that we're trying to proactively manage the best of our ability. But it's not specific to a content per se.

[Analyst]

I see, yeah, makes sense. Regarding the acquisition volume in the last twenty days or so, do you see any changes in the competition landscape compared to last year? If you can make some comment on that.

[Stephen Horn, President & CEO at NNN REIT]

Yes. I think the landscape is pretty similar. You probably have a little bit more of the private guys entering the market, again, as we move through the year. But again, kind of what I kind of said earlier, we work in a highly competitive market, just the names change. So I'm not seeing any more or less overall competition.

[Analyst]

Okay.

[Stephen Horn, President & CEO at NNN REIT]

There's of opportunity for us to hit our numbers.

[Analyst]

Makes sense. Thanks so much. That's all for me.

[Stephen Horn, President & CEO at NNN REIT]

Thanks, Jenny.

[Operator]

We have reached the end of the question and answer session. I will now turn the call over to Steve Horn, CEO, for closing remarks.

[Stephen Horn, President & CEO at NNN REIT]

I appreciate you guys taking the time this morning and jumping on the call. And we look forward to seeing you guys in the upcoming conference season here. Thanks.

[Operator]

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Participants

Executives

• Stephen Horn, President & CEO
• Vincent Chao, EVP & CFO

Analysts

• Daniel Bailey, Asset-Based Lending Analyst at Bank of America
• Spenser Glimcher, Managing Director at Green Street Advisors, LLC
• John Kilichowski, Vice President - Equity Research Analyst at Wells Fargo
• Michael Goldsmith, US REITs Analyst at UBS Securities LLC
• Madeleine Fargis, Equity Research Senior Associate at Citi
• Linda Tsai, Senior Analyst at Jefferies
• John Massocca, Senior Research Analyst at B Riley Financial
• Analyst