Q3 2024 NNN REIT Inc Earnings Call
The End
The End
Greetings. Welcome to the NNN Reat 3rd Quarter 2024 earnings call.
At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press or zero on your telephone keypad.
Speaker Change: Please note this conference is being recorded. I will now turn the conference over to your host, Steve Horn, Chief Executive Officer. You may begin.
Hey, thanks, Alex. Good morning everyone. Welcome to NNN's third quarter of 2024 earnings call. I'm joined today by our Chief Financial Officer Kevin Habicht.
This year, and then has the lower consistent performance driven by active portfolio management and strategic acquisitions with our relationships.
Well we call our enen mode that sets us apart if the lovers are external growth.
Given our year to date results, we are tightening our 2024 core FFO per share guidance to a range of 328-332.
Additionally, we are now in position to exceed our original acquisition by the guidance, so we are raising the midpoint by 22% to 550 million. This increase showcases the strength of our pipeline and our execution ability.
On the Capital Market Front, we raised approximately 175 million through the ATM program of the Scorter. It's our extra largest quarter since the fall of 2019.
The discipline that being selected as a well-to-plying capital and opportunistic, reaching capital over the long duration has ended and in great shape through a volatile economic period.
In times like today's macro economic conditions, and it is just one of maintaining the solid balance sheet.
Reasonable acquisition volume does put an end-end in a place to execute to remain deal flow of 2024. But more importantly, to execute 2025 with limited if any needs to access the capital markets.
At the end of the quarter, we had nothing drawn or 1.2 billion line of credit, and nearly 175 million of cash as you're completing 350 million of volume through the first nine months.
At an M&M's industry leading free cash flow as a percentage of acquisition volume to the already high liquidity position.
We are ready to capitalize on deals from the right opportunity present.
Schifting the highlights of 34 financial results are portfolio of 3,549 free-standing single-tenant properties continue to perform well with 10 years of term.
Speaker Change: Maine Tain High-Ox to C-Levels of 99.3 which remains above our long-term average of 98% plus or minus a fraction and only 24 baking assets.
Speaker Change: If you've been in the past recently and it's the same ones we've been having to mention time and time again. It's big loss, time's home plus and precious big boy.
Speaker Change: And then is working diligently to resolve the challenges. But with regard to flourishing and times, I feel good about the real state because of the upfront underwriting and small, fungible boxes with reasonable rents, specifically the restaurants with Drive-Free Windows.
Speaker Change: We have received a fair amount of involved inbound calls in Quarren about the real estate.
and at this time, the Pierce Big Alives will continue to operate all three of you young. Kevin will provide more detail about the watch was later.
Speaker Change: During the acquisition, during the court, we invested 113 million and 18 new properties at a initial cash cap rate of 7.6.
We actually included the renting traces over the terminal lease. It would result in a 9.27 long-term project deal.
That was an adversaries duration of 18.4 years and that's the result of the sale lease back transactions.
Speaker Change: The first nine months we have invested roughly 350 million in 44 properties at a cash cap rate of 7.8 which is about 60-based points wider than the comparable period of 2023.
and 16 of the 28 closings were under 5 million, which proves an end-believed that smaller feels still been moved to needle for end-end shareover.
As we move through the year, Capri seems for the most part to be stabilizing. I don't see any material move either way as we head into the fourth quarter and as well as the deals we're pricing for the first quarter of 2025.
Speaker Change: I'm expecting VioViM to check up for the fourth corner and it does feel like the market opportunities are better today than they were six months ago
During the quarter, we also sold 9 properties, which included 5 vacant, raising 20 million of proceeds at a 4.4 cap rate, and we've been reinvesting at 7.6, so it's a good spread.
Here today we've now raised approximately 105 million proceeds from the sale of 29, which included eight vacions, and it overall blended 7.0 cap rate.
Admissions always to release the vacancy, but we'll continue to sell amount performing assets if we don't see a clear pass to generate the rental income in a reasonable time frame.
Our balance sheet is still one of the strongest in the sector. Our credit facility has plenty of capacity as I mentioned earlier with no balance outstanding.
More importantly, our next step maturity is until the fourth quarter of 2025 and we maintain an industry-fest 12.3-year weighted debt maturity. And at end, as well, position the funder remaining 2024 acquisition guidance in the beyond.
Speaker Change: with that. Let me turn the call over to Kevin for more color and detail on the quarterly numbers and update a guide.
Thanks Steve, as usual I'll begin with the note that we will make certain statements that may be considered to be forward-looking statements under federal securities law. 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 were made.
Factors in the risk that could call actual results of different materially from expectations they're disclosed from time to time in greater detail in the company's feelings with the SEC and in this morning's press release.
Okay with that headline from this morning's press release report quarterly core FFO results with 84 cents per share for the third quarter of 2024. That is up 3 cents or 3.7% over year ago results with 81 cents per share.
The AFO-AFFO results were 84 cents per share for the third quarter, which is 2 cents or 2.4% higher than year ago results.
Third Quarter Results did include $3.9 million of least termination fee income, which is relatively high for us, and that compares with $385,000 for the third quarter of 2023.
and as you may recall, we reported a above average lease termination fee income in the first two quarters of this year as well.
So we are reporting $10.2 million dollars of police termination fee and come for the first nine months of 2024. And that compares with $2.4 million dollars for the first nine months of 2023.
He looks back over the last five years, we've averaged annual lease termination fee income of about three million dollars. So this year is running well above normal.
But even without that incremental income, overall a good quarter and in line with their expectations.
The occupancy was 99.3% of quarter-end that was flat with a prior quarter. Gene expense was $11.2 million for the quarter and represents 5.1% of revenues for the quarter and 5.5% of revenues for the first nine months.
Speaker Change: Again, which is in line with our expectation from guidance.
has a percentage of NOI net operating income. GNA was 5.3% and 5.7% for the quarter.
and nine months respectively. As I noted on our last call, I think this is a valuable metric as you think about a net-lead company versus all the other reach across the other property sectors.
It puts us on a level playing field and a highlights the efficiency of the Net League format which accrues to the benefit of sure Net League shareholder determines.
Our AFFO dividend payout ratio for the first nine months of 2024 with 67.4%.
and that resulted in approximately $151 million dollars of free cash flow for the nine months and that's after the payment of all expenses and all dividends.
and incorporating the increased third quarter dividend rate we currently anticipate the free cash flow amount coming in at approximately $193 million for the full year of 2024.
We ended the quarter with $851 million of annual base rent in place for all leases as of September 30, 2024, and so that would take into account all acquisitions and dispositions.
Speaker Change: completed during the quarter.
We did affirm our 2024 guidance but did take from the top and bottom of the range by one penny leaving the midpoint on change.
So the new Core FFO guidance is now $3.28 to $3.32 for share. And a similar revision was made to AFFO guidance, which is now stands at $3.31 to $3.35 for share.
I speak mentioned a quick update on a couple of tenants that are having credit challenges, both of which we've talked about for a few quarters now. Back-com furniture was...
previously owned by a company named FRG and Back Talk was sold.
with the F-R-G guarantee in place to come home plus.
Speaker Change: who files for bankrupts the MGLI. So we own 32 bad-top furniture stores representing 0.6% of our annual base rent, which translates to about $5.2 million in annual base rent.
Speaker Change: We are operating under the assumption that we'll get these properties back, but precisely when is unknown as it's still working its way through the bankruptcy process.
We will pursue the FRG guarantee of these races, but we do recognize that FRG may have its own credit challenge.
The second ten of note is Frisch's, is it mid-west big boy hamburger concept that has been around for several decades. They only paid us half rent owed in third quarter, half the rent owed in third quarter.
Speaker Change: So we own 64 precious properties at quarter-end representing 1.5% of annual base rent and that translates to $12.6 million.
Well, I don't want to get too detailed in the plans here to do the various claims we're pursuing to protect our interests in this regard. We did want to provide some information on these situations.
Both of these tenants are on cash-racist accounting so we are only recording what we actually collect.
Over the years, our guidance has generally assumed a hundred basis points of rent loss in any given period, but these two tenet issues could push us over that level obviously in the fourth quarter.
We should get some incremental clarity on these two situations in the fourth quarter, which I would, we think will allow us to better estimate the outcomes when we provide our 2025 guidance in February.
These kinds of tenant credit events are historically a normal part of our business. The way we think about it is as long as our rents are not too far from market rent, we don't lose too much sleep.
Speaker Change: If we get properties back there may be some timing gap in the income production Whether we decide to sell, release, or redevelop the properties, but in the long run Which is our perspective, our experience suggests that any law strength will likely be an manageable headwind.
Long time followers of NNN know our position, real estate lease that reads the will rents when the race in our opinion, and that which allows us to deal with whatever tenant credit problems might come our way.
Despite these challenges, like I said, we were able to affirm the earnings guidance that we've increased in the second quarter.
Speaker Change: With that, I'll switch over to the balance sheet. So yeah, I've been alluded to after 18 months, very little equity insurance when our stock was in the high 30s, low 40s. We did sell some equity in the third quarter.
at an average price, a touchover $47 dollars for share, generating metproceeded the $178.9 million dollars.
Coins of Emily, we ended the quarter with that amount of cash on her balance sheet, as no amount to outstanding on our 1.2 million, 1.2 billion dollar bank line.
Speaker Change: So we're in very good leverage in the Quiddity position as we finished 2024 and Roland the 2025.
Speaker Change: We don't have any debt due until November 2025 and our weighted average debt maturity stands at 12.3 years at quarter-end.
Maintaining our life capital market footprint, we funded 74% of our $350 million of year-to-date acquisitions with free cash flow of $151 million and $160 million of property disposition proceeds.
for the full year based on the midpoint of our acquisition and disposition guidance. We should fund approximately 57% of 2024 acquisitions with three cash flow and property disposition proceed.
Speaker Change: A couple of leverage metrics, and that's a gross book, asset, I quarter-end was 39.6%.
That Death to EBITDA was 5.2 times 5.2 at September 30, interest coverage and fixed charge coverage was 4.2 times for the third quarter and as a reminder, none of our properties are in combat by mortgages.
So, you know, and closing, you know, we remain focused on working to appropriately allocate capital, which us means ensuring we're getting what we believe or sufficient returns will neck what you all controlling the risk through property underwriting and maintaining a sound balance sheet.
and our mind is value equity adequately, whether that equity is produced by free cash flow, this position proceeds, or new equities should be said that the hard-earned growing per share results over the long term.
and Hollywood that we will open and lock to any questions.
Speaker Change: Sir Inley, at this time we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.
A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
for participants using speaker equipment and maybe necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions.
Speaker Change: Your first question for today is from Spencer, Gwimter, with Green Street.
Spencer, Gwimter: Hi, good morning. Can you talk about the transaction markets? You've just thus earned a 4Q, how did a level of deal being source compared to his North norms? Can you just talk about competition in the market for deals that aren't coming from relationship tenants?
Now I feel like tomorrow's sponsor
So the overall market is I can mention the opening remarks. It definitely feels like sellers are coming back to the market. Our acquisition team is sort of through a lot of opportunities.
Speaker Change: and the current relationships and advisors, flash brokers, bringing deals to the market. It just feels like the M&A has picked up a little bit, so the average transaction in the market is definitely larger today than it was six months ago.
Speaker Change: and our current relationships are starting to do some growth and it's really kind of a second-gen space and redeveloping assets we're seeing good opportunities.
is far as competition in the market.
You know, it's a very highly competitive market. It has been for the 20 plus years I've been working in it.
and the participants come and go.
It does feel like maybe a little bit of the private monies to start to come into it But at the end of the day, they don't really affect and then so much Kevin, what I mentioned, the amount of smaller deals that we did, the private monies and looking for those deals.
But again, overall it's highly competitive and that's why I think we felt cap rate to decrease a little bit in the third quarter in the fourth quarter, you know, it's decreasing a little bit more, but you know, for the most part why
Speaker Change: Hi, thank you. And then I know the disposition is obviously very marginal in the scheme of your portfolio, but can you just provide some detail on the nine assets that were soldier in the quarter in terms of industry and then cap rate if on the occupied assets?
and so the cap rate on the act by acid was 4.4.
Speaker Change: I was the nine assets, five of them were bacon and I would say this past quarter it was kind of clean up the portfolio a little bit, you know, solving future potential issues. You know, we sold some of that, you know, first-in-care assets.
Speaker Change: and then we sold an auto auction part that was not being used.
Great thanks so much.
Your next question is from Joshua Denerling with Bank of America.
Hey guys, I'm pretty sure I'll call her an update on the like, precious backpack.
Joshua Denerling: I guess, why are you guys assuming now in four QSFAR as bad dad? I know you mentioned the typical Suma 100 Bbs football, these 10 minutes would go higher.
Yeah, yeah, fair question, Kevin. So yeah, how much rent laws are we assuming in the fourth quarter? You know, as I mentioned, we typically have always assumed a hundred-based of points in our guidance.
I wouldn't know that, you know, freshest plus bad cock is 2.1% of our ABR.
Joshua Denerling: and that also is...
Kevin: That's what I mean.
Roughly all that's a worst case assuming virtually all that 200 basis points of rent loss
with still put us in the middle of our guidance range. Beyond that, we're not going to really speculate on who in particular will pay how much and when and part because we don't have good visibility on that at this point.
Freshers is not in the bankrupt seat, bad cock is, so that adds a little bit to the challenge. But like I said, even a filmie, 200 basis points of total run-offs, I think you still can get us.
and to the middle midpoint of our guidance range, which is worst case. And folks who have followed us for a long time though, we tend to be...
Kevin: A little bit on the conservative side in terms of guidance, maybe that's an understatement, I don't know. So maybe we still have a shot to get in the pop half of our guys' range even with these panic-preda challenges.
Speaker Change: Okay, appreciate that. And maybe just two falls. Are there any other one timers like that we should...
I think it should strip out to think about the run rate going into 4Q or any kind of adjustments there. And then, just be me a follow up on your answer. How do we think about the down time if these tenants kind of get back to properties?
Speaker Change: Yeah, so yeah, I know we're not really pointing folks to any others that we feel like have the kind of level of concern that fresh is in bad talk currently has. I mean Steve did.
mentioned big locks, which is a tent at Bankruptcy, but like he said, we think there's a pathway for getting all three of those stores to remain open and least to big locks. You know, we've talked about other tentants and recent quarters that, you know,
Speaker Change: Our challenge, I mean, at home still, we'll see where all that goes, but nobody feels like it is.
is that we're particularly worried about in the near term that I would point you towards, I guess.
Down time. Yeah, so yeah, and that's I alluded to that in my comments, you know, that kind of timing of the gap. If, if, if, if in when we get properties back, it, it takes several months that kind of gets them released.
and Dorsold. And so that's really kind of the issue that period, having said that we are seeing very...
Robust is all used that word interest and a good number of our bad cock and precious properties.
from other retailers and very credible retailers. And so that's encouraging. So maybe that wittled down a bit of the time gap from prior tenant to new tenant.
Speaker Change: But it's going to be in a 6-9, 12-month kind of process to kind of work through that.
at the end of the day, if we can recapture a very large portion of our prior rent, then
Again, in the long run we don't feel like there's any really headwind of note that we have to deal with.
We feel pretty good about where we are today despite what.
seems to have some pending vacancies coming our way. We like our rents, existing rents on the properties, we like the locations and, like to say, they're strong interest from other retailers. And I think that's consistent, frankly, probably what you're hearing from.
The Shopping Center reads, I think, are all experiencing pretty strong demands for existing retail space.
Speaker Change: Thanks, guys.
Speaker Change: Thanks.
Your next question for today is from Michael Goldsmith with UBS.
Good morning, thanks a lot for taking my questions. You know, it's not like a detail on the credit and how you're thinking about it. Just like, you know...
Yes, traditionally you've talked about a hundred-based appointment for just...
Maybe like as we think about the 2025, would you approach the bad debt assumption to be any differently than you would have, like in a, what would be maybe a more normal year? Thanks.
Yeah, I mean
We might, yes, as the answer. We haven't put out 25 guidance on the little reluctance to get two particular on that at this point. I do think...
Speaker Change: We will learn a lot in this fourth quarter as to how both bad cock and frisches is going to play out in terms of timing, et cetera, as well being able to better gauge kind of maybe releasing the assumptions around and its properties we're getting back.
Speaker Change: So, I'm probably...
Speaker Change: I'm reluctant to put out a number there but yeah in my mind is it.
Will we likely assume more than 100 basis points or 2025? I would say probably, but the question is, you know, what's the number? And you know, we still, you know, think we're well-positioned to grow per share results next year.
I want to go into at this point. We'll be obviously more definitive when we release the Secretary.
No, that's totally a fair. I understand that. And just on the acquisition guidance, like clearly you have...
Speaker Change: some better visibility into the pipeline. Can you talk about the opportunities you saw in the third quarter? How did they compare it to the first half? What you're expecting for the fourth quarter and then just also within that acquisition cap rates came down by 30 basis points, so are you seeing or expecting any further compression there? Thank you.
So as part, you know, the cap rate, you know, the fourth quarter will be pretty much in line with the third quarter of what we're seeing. Now there's some deals with my price a little bit different and it might go either way, but pretty much in line.
As far as the opportunities, the vast majority close to 100% of our deals have been through our relationships.
and they've been up fair amount of smaller deals to get the 350 million.
But as I mentioned, I think an Spencer's question that the overall average deal size seems to be increasing as we move to the fourth and first quarter And that's the result of M&A activity that, you know, the private equity groups.
Speaker Change: are looking to do sale lease facts, so we're seeing a fair amount of advisory calls to us on the deal front.
Speaker Change: Thank you very much.
Your next question is from Smith's Rose with City.
Hey, good morning. This is Maddie Farges on First Needs.
Maddie Farges: I just wanted to ask about the updated guidance ranges. Could you move your walk us through some of the moving pieces behind the one cent AFFO decline at the midpoint, the fight lowered a CNA and higher acquisition?
Yeah, I wouldn't read too much into that.
It's frankly, there's a little bit of a per share around me to kind of make that tweak as well, just getting...
Out there.
The range on the Core FFO and the range on the AFFO both the same, which is four cents from top to bottom. And so yeah, I wouldn't read too much into that tweak in terms of the guidance.
I'm just sort of going back on to credit loss assumptions. Do you have any plans to increase the amount you're baking into guidance from 100 basis points? So if you think ahead to 2025.
Yeah, I was like I said, we're not putting out 20-25 guidance at this point, you know, as I...
I alluded to or mentioned it, you know.
Maddie Farges: It's 100 basis points. Might be a little light as we enter 2025, but we're going to know a whole lot more in the next three months in terms of how fresh and bad talks are going to play out. So that will inform our decision around that.
and so as I said,
Speaker Change: I think will be consistent as we have in prior years that whatever we assume it will be a conservative assumption. And so we will...
We have a long history of not only meeting guidance but hopefully slightly exceeding guidance and so and or raising it and so Whatever we come out with I think that that's lost to people still
Well, for bail.
Great, thank you, that's it for me.
Thanks for having me
Here next question for today is from Linda's side with Jeffries.
Hi, recording that clock is the franchise group guarantee help offset any red losses.
Yeah, any collections obviously from FRG would obviously reduce our rent loss and so we...
and Ken to pursue that guarantee of Bangkok's fill in.
Speaker Change: Bankruptcy and Bankruptcy as typical a they pay rent typically in bankruptcy so but we will to extend we are losing rent related to bad cop we will pursue FRG guarantee.
And then any color on Big Boy, we read that there isn't clear leadership. Is it a going concern? And then to reten it how much time would that take and would there be like $T.I. dollars? That's...
It's far as fresh as...
Yes, Kevin mentioned they're not in bankruptcy right now. I probably echo your sediment. We are aware we're at now that the management team. They are going concerned currently.
But we are, you know, several quarters tried to work with management and resolved some issues, you know, two of the assets we sold in the third quarter of our work were fresh So we are actually managing the portfolio.
But with regard to going forward, we kind of hit a stalemate with them, so we're exercising our legal rights and pursued the addiction.
Speaker Change: and the follow up on this.
Second part of that question, you know, as it relates to P.I. Our pre-disposition is to take lower rent and low trying to buy rent higher if you will and giving a tenant a bunch of money in order to get that higher rent. It's been our...
Observation over the years is that frequently ten improvement dollars.
has little to no economic value at the end of the least term and therefore.
Speaker Change: To the extent you're going to provide and you all...
and Investment Stamp, when you almost need to get a return on those T-I dollars as well as a return of those T-I dollars.
Speaker Change: would frequently.
is not what the tenant wants to hear and therefore...
Speaker Change: We've been generally inclined to put much fewer dollars to no dollars and...
Take the lower rent and exchange for that trade off. And we think we end up with a safer rent, and one that's intended can more likely afford and operate a profitable store.
So while there obviously could be some P.I. dollars related to all of these, it's our earning co-enation, it's the limit that materialially.
Speaker Change: Thanks for that, and then you've spent some time discussing how least Turkey income has been a bit higher year to date. It's the current expectation that's elevated level continues in 2025.
Speaker Change: Yeah, that week we don't tip any guidance on and part because it's hard for us because it's you know, when that's going to happen and...
Speaker Change: and...
Speaker Change: in the process by which most of the fields come about typically involved at least three parties.
Speaker Change: and each of them have competing priorities to be honest.
So it's not prone to the degree of predictability that would make us feel comfortable giving guidance. We do think it's...
Speaker Change: Generally an outcome of active portfolio management. So if you're working your portfolio and you've got a dark asset...
Speaker Change: You know you?
We love for a way to help our tenants, what that dark asset or even an underperforming asset. It might be open and pain and personal.
Speaker Change: and paying rent and all those good things but we know it's underperforming based on store level results. And we generally will look for a solution that...
and then comes on ahead. The tenets feel good about it and who are the third party is whether it's a new tenets or a buyer that property thinks they're getting something a value but getting those three parties on the same page at the same time.
Speaker Change: is always a...
Challenge, but we think it's a good thing to do.
It's lumpy income, we fully recognize it's not a no-a-tis, it's a different quality event.
Ben Ranch, to be clear, however, we don't want to not do it because of those attributes. It's good, it's money and it's income and we think it's...
Good economic decision to make. We'll keep pursuing it as we work our portfolio, but we won't be giving guidance related to that going forward just because it's so hard to predict.
Speaker Change: Thank you.
Your next question for today is from Ronald Cambent with Morgan Stanley.
Hey, two quick ones, sorry to go back to the bad-debt conversation. But I guess I'm just wondering, you know, after sort of the experience with sort of the bad-talk of the furniture.
The this sort of impact like how you're thinking about the watch list or have any other been tenants been put on the sort of cascades of the counting. Just trying to figure out what sort of the implications are of this announcement to the rest of the Portfolio on how you're thinking about.
Speaker Change: and I'm going to talk to you about that.
Yeah, yeah, I don't think it was outside of the British bad-cock discussions we've had today, you know, I don't, I don't, I don't
Speaker Change: We don't think there's any overlay or read through to any of our other particular tenants directly, you know, our cash basis.
Speaker Change: Pennett List is 5.6% of our rent and it's still, you know, AMC, freshness has been on that list since COVID to be honest.
Badcock obviously is since it's in bankruptcy and so you know that's 85% of our cash base is less and so it's fairly concentrated with that handful of thinnest big losses obviously on there too but it's only...
Point 1% of our rent. So yeah, we're not reading through this. These two tenant credit issues in any material way to any of our other tenants at this point.
God, it makes sense. And then just switching gears a little bit on the sort of...
on the transaction side. I guess I'm just wondering, you know, obviously we've seen rates back up.
You still took up the acquisition guidance and so forth. So I guess you're not really seeing any impact. Just any sort of commentary on how the pipeline is building as you get into next year and Capric commentary. Thanks.
There's a pipeline, yeah, you alluded to it. We increased the acquisition midpoint. So, yes, the fourth quarter there should be an uptake, I feel confident. We'll hit that range.
Speaker Change: and remember Ron, when we deal with Ron and comes to market, you know, I take 60 to 90 days to get the deal under contract and to closing.
Speaker Change: and the kind of the backup in rates has been more a little bit more recent.
But all that being said, I think it's pretty typical in our industry. You kind of get near year end and sellers start coming to market. It's kind of that post-laver day push to get deals done by year end, especially in a presidential election year when there's the unknown certainty of change in tax rates or tax codes.
So the pipeline I'd deal guys as I mentioned are very active looking at a lot of deals. I've definitely noticed the pick-up.
Down the hall from me and secondly as far as cap rates, you know, the deals were priced and for the fourth quarter, currently are you out fairly in line with the third quarter and we're starting to price select few deals in the first quarter and they're the same as far as, you know, either way, not much of a difference.
Speaker Change: Great, that's it for me, thank you.
Speaker Change: The End
Your next question is from Rob Stevenson with Janney. Rob, your line is live.
Rob Stevenson, your line is live in the queue.
Rob Stevenson: Oh, I'm not sure what I'm doing.
and you speak about the value of the product. Alright, I think we can move on. I don't think rock in the iris.
Your next question is from RJ Milligan with Raymond James.
Hi guys, I'm Martin, it's a busy earnings tag so Rob's probably on some other calls.
What's driving the lower DNA and expense guy for the year and is that going to continue to 2025?
Yeah, I mean, there's some quarterly variations but you know, we've...
Rob Stevenson: Drop the range attached.
Rob Stevenson: About a million and a half dollars at the midpoint I guess it is for 2024 which you know was.
Rob Stevenson: You know, a couple percent. So I would think just some lower approvals. I think going as you look at.
20, 25, we'll put out guidance soon, but it'll have some sort of inflationary increase from where we are at this point, but I don't think it'll move much more than that. I mean, we have to work through this number, Jeff.
Rob Stevenson: And so a bigger picture, and I know this is a loser to 2025, but with the elevated term piece this year.
Board of the United States, and the other two are the two of the first set to drive for show-in-look next year, is that just acquisitions?
Yeah, that's the primary driver. Obviously, you've got the rest of the portfolio that has, you know, rent growth in, in bed, obviously in it that helps offset some of that that loss and then.
Rob Stevenson: You know, we'll see if there's any other income opportunity you see out.
Speaker Change: I don't know if these terms come and go to zero, like it's there, our normal is about 3 million but per year.
Rob Stevenson: So yeah, but those are that's clearly headwind. The term fees and the bad cauldron perishes are headwinds that will need to get offset by rent growth from the existing portfolio and acquisitions.
Good news, the acquisition pipeline is steam and the way it looks pretty solid.
and I think our implied volume in the Ford quarters looks pretty good. Relatives are total for the year and so far first quarter feels like it's shaping up pretty well pretty good as well.
So yeah those are the main drivers, yeah we don't weigh on too many lovers here as you know.
Thanks for the clarity, appreciate it.
As a reminder, if you would like to ask a question, please press star 1.
Your next question for today is from John Masaka with Be Riley Securities.
Speaker Change: Good morning.
Speaker Change: Hey, John.
is pushing on for a second. The 50% rent payment that occurred in 3-2 was that also the case in some past quarters?
Now, the second quarter is reported to full rent, so that was a delfe between two queue and three queue, so that's called $1.6 million, half rent from them, and so that's about a penny in the third quarter kind of headwind.
Speaker Change: and then...
Maybe looking a little bit kind of on the same vein. It'll realistic expenses, a net of kind of reimbursement, picked up a little bit in this guidance versus your two cute guidance. Is that tied to maybe a worsening outlook for the two kind of trouble tenants you previously mentioned or is there something else kind of driving that?
Yeah, I know nothing else driving that historically the way we think about generally rent-loss. If we're assuming call it our 100 normal 100 basis points of rent-loss.
We typically also assume that we'll have about 15 basis points of...
Rob Stevenson: of...
15% of the rent loss will show up in incremental property expenses. So when you get a property back, you get the big up property taxes and insurance utilities all those things. And so, in our mind, that's what we do. So yeah, to the expense that rent loss just higher typically property expenses goes along with that.
and obviously much smaller now but it is connected.
Speaker Change: and then kind of thinking about the least termination and, you know, multiple hires in kind of in past years. And what's thriving that is it's some of the same.
and a PE M&A in Re-Philard's Spanstein, you're talking about the acquisition side or something else kind of notable there.
It's really driven by discussions with our current tenants.
that want to get out of police and it's really just active portfolio management.
Speaker Change: and we do at least termination. We usually have kind of a burden and that somebody's going to backfill that asset or we're going to sell it.
So it's really, it comes down to portfolio management and having conversations that are retailer is looking to get out of a poor performing asset and there might be 10-11 years left on the lease.
Rob Stevenson: So the least term for the usual direct correlation of the remaining least term and or the rent on the asset will pay a multiple of years to get out of the lease.
is this something notable on the Macro-Siders and the Office of Making Ken and Small Receptives for that conversation?
I think what makes NNN unique in the situation that we...
Kerry Conversations on with our tenant base on our routine basis. So they know that we'll work with them, where you have a lot of landlords that just say, no, pay the rent, and it will be a future problem. So it's really making the portfolio stronger at the end of the day.
Speaker Change: Hi, Chris. That's it for me. Thank you very much for the color.
We have reached the end of the question and answer session and I will now turn a call over to Steve for closing remarks.
Thanks for joining us this morning and I'm sure I have a lot more dialogue in the upcoming week said, Navry, thank you.
This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.
Rob Stevenson: [inaudible]
Rob Stevenson: [inaudible]