Image source: The Motley Fool.

DATE

Wednesday, Aug. 5, 2026 at 10:30 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer - Stephen A. Horn Jr.
• Chief Financial Officer - Vincent H. Chao

TAKEAWAYS

• AFFO Per Share -- $0.90, representing a 5.9% increase from the prior year quarter.
• Core FFO Per Share -- $0.89, a 6.0% increase driven by better than budgeted credit loss.
• Occupancy Rate -- 99.1%, an increase of 50 basis points from the first quarter and 110 basis points from the prior year.
• Total Revenue -- $244.3 million, up from $226.8 million in the prior year quarter due to property additions.
• Acquisition Volume -- $291.0 million, consisting of 89 properties acquired at an initial cash cap rate of 7.3%.
• Average Lease Duration -- 17.9 years for acquisitions closed during the second quarter, providing long-term cash flow visibility.
• Guidance Midpoint: 2026 AFFO Per Share -- $3.57, raised by $0.01 from the previous guidance midpoint.
• Guidance Midpoint: 2026 Acquisitions -- $750 million, an increase from the previous $600 million target based on active pipeline visibility.
• Disposition Volume -- $36.7 million, including 19 vacant properties and seven income-producing assets sold to optimize the portfolio.
• Disposition Cap Rate -- 5.6% for income-producing assets, which was 170 basis points below the company's acquisition cap rate.
• Annualized Base Rent -- $959.1 million, a 7.3% increase over the prior year reflecting high investment volume.
• Weighted Average Debt Maturity -- 10.1 years, which management noted is nearly double the nearest net lease peer.
• Available Liquidity -- $1.4 billion, including $1.2 billion of unused line of credit capacity and $272.1 million of unsettled forward equity.
• NOI Margin -- 96.6%, a 70 basis point increase from the first quarter driven by higher occupancy and lower net real estate expenses.
• Full Year Bad Debt Guidance -- 40 basis points, lowered from the previous 60 basis point projection due to year-to-date performance.
• G&A Expense -- 5.8% of total revenue, while the cash G&A margin was 4.4%.
• Quarterly Dividend -- $0.62 per share, representing a 3.3% increase and the 37th consecutive year of annual increases.
• ATM Forward Equity Sales -- 6 million common shares, priced at a weighted average of $45.91 per share to fund future growth.
• Free Cash Flow -- $56 million, representing the amount remaining after dividend payments during the second quarter.
• Pro Forma Net Debt-to-EBITDA -- 5.2x, when accounting for the impact of unsettled forward equity.
• Uncollected Rent -- Under 5 basis points of the total quarterly rent, reflecting strong tenant credit performance.
• Real Estate Expenses -- Decreased by $500,000 in the 2026 guidance due to a faster than planned reduction in vacancy.

Need a quote from a Motley Fool analyst? Email [email protected]

RISKS

• Horn stated, "we believe modest cap rate compression is possible during the second half of the year," noting that the competitive environment and the composition of the pipeline may impact acquisition yields.
• Horn stated, "they have not rebounded completely to pre-COVID numbers," regarding movie theater performance, leading the company to actively seek a reduction in its exposure to the sector.

SUMMARY

Management at NNN REIT, Inc. (NNN +0.90%) reported second quarter results with occupancy at 99.1% and updated its 2026 financial guidance. The company increased the midpoint for its 2026 acquisition volume to $750 million while announcing the 37th consecutive year of annual dividend increases. The company utilized forward equity sales and term loan expansions to maintain a weighted average debt maturity of 10.1 years. Management stated the portfolio remains focused on direct sale leaseback transactions with relationship tenants in the automotive service, convenience store, and early childhood education sectors.

• CFO Chao noted that pro forma net debt-to-EBITDA decreased to 5.2x, stating that forward equity provides a "powerful tool to be able to issue equity when the price is right" and draw it down as needed.
• CEO Horn attributed sales momentum to "deep tenant relationships" and "proprietary deal flow," highlighting that most volume is sourced through direct sale leaseback transactions rather than broadly marketed assets.
• Management highlighted strategic tenant consolidation, specifically Mavis Tire's $700 million acquisition of Pep Boys, which CEO Horn stated would strengthen one of the company's leading tenants.
• The company increased its 2026 disposition guidance to a midpoint of $140 million, which CEO Horn described as "disciplined capital recycling" from noncore assets into higher conviction opportunities.
• CFO Chao indicated that watch list considerations are idiosyncratic, noting, "there's winners and losers in every line of trade" rather than sector-wide credit concerns.
• Management reported that early childhood education has become a more significant component of the acquisition mix, with CFO Chao noting a new relationship tenant characterized by a low-levered balance sheet and high rent coverage.
• CEO Horn stated that while 7-Eleven is shifting toward larger format stores, the company's existing 7-Eleven properties have a low cost basis of $3 million to $4 million and remain subject to long-term lease renewals.

INDUSTRY GLOSSARY

• ABR: Annualized Base Rent, which represents the monthly cash base rent at the end of a period multiplied by 12.
• AFFO: Adjusted Funds From Operations, a non-GAAP financial measure used to evaluate the performance of a REIT by adjusting FFO for non-cash items.
• ATM: At-the-market equity program, allowing a company to sell shares directly into the secondary market at prevailing prices.
• Cap Rate: Capitalization rate, calculated as the initial cash annual base rent divided by the purchase price of a property.
• Core FFO: A non-GAAP measure that adjusts FFO to eliminate the impact of infrequent or unusual items.
• EBITDAre: Earnings Before Interest, Taxes, Depreciation, and Amortization for Real Estate, a standardized metric for REIT performance.
• Forward Sale Agreement: A contract to sell equity at a future date at a price determined at the time of the agreement.
• Net Lease: A lease structure where the tenant is responsible for most property-level expenses, including taxes, insurance, and maintenance.
• NOI: Net Operating Income, representing property-level income after operating expenses but before interest and taxes.

Full Conference Call Transcript

Operator: Greetings. Welcome to the NNN REIT Inc. Second Quarter 26 Earnings Call. At this time, all participants are in a listen only mode. A Q&A session will follow the formal presentation. If anyone should require operator assistance during the conference, Please note this conference is being recorded. I will now turn the conference over to your host, Steve Horn, CEO at NNN Reinc. You may begin.

Stephen A. Horn Jr.: Thanks, Ali. Good morning, and welcome to NNN's second quarter 26 earnings call. On the call today with me is Chief Financial Officer, Vincent H. Chao. As this morning's press release reflects, NNN's performance in 2026 continues to produce strong results including high occupancy, impressive rent collections with under 5 basis points of uncollected rent. And solid acquisitions driven by our deep tenant relationships. Well positioned to continue enhancing shareholder value as we move into the second half of the year and beyond. In July, we announced just over a 3% increase in our common stock dividend, payable August 14. Marking 2026 as our 37th consecutive year of annual dividend increases.

That places NNN among 70 US public companies and just 3 REITs to achieve that track record. Given our continued consistent performance of the portfolio, and the acquisition pipeline, we are updating our 2026 guidance for AFFO per share to a range of $3.55 to $3.59. Our second guidance increase of the year. This reflects our discipline of long standing multiyear strategy for consistent per share growth. As far as the portfolio performance, 3.77 thousand freestanding single-tenant properties continue to do exceedingly well during the second quarter. Occupancy is up 50 basis points from the first quarter to 99.1 which is an increase of 110 basis points from last year. We see positive momentum across our tenant base.

Highlighted by 2 significant M&A transactions announced in mid July involving tenants in the portfolio. Mavis Tire announced the agreement to acquire Pep Boys for approximately $700 million of cash further strengthening its position as 1 of the nation's leading automotive service providers. Additionally, Big Brand Tire announced an agreement to acquire Bell Tire. Combination creates a network of more than 350 stores with over $1.5 billion in annual revenue. Acquisitions for the quarter, we invested just north of $290 million in 89 new properties at an initial cash cap rate 7.3%. More importantly, an average lease duration of just shy of 18 years. The product mix is primarily auto service, discount retail, and early childhood education.

With a median purchase price of $2.1 million. An average of 3.2 million. During the first half of 26, we invested $430 million in 130 new properties at an initial cash cap rate of 7.4%. Average lease to duration just over 18 years. Cap rates have been fairly stable over the past 6 quarters, reflecting competitive investment environment. But looking ahead, we believe modest cap rate compression is possible during the second half of the year, supported by the composition of our active acquisition pipeline. And the portfolios that are currently in the market today. Our investment approach remains unchanged. We continue to apply disciplined underwriting standards and focus on originating direct sale leaseback transactions with relationship tenants.

Where we can negotiate favorable economics and structure investments utilizing our landlord friendly long term duration triple net lease. This strategy continues to provide the most attractive risk adjusted opportunities than broadly marketed assets. Including 31 driven transactions. Given the visibility provided by our pipeline and our ongoing discussions with transaction partners, we are increasing the midpoint of our 2026 acquisition guidance to $750 million from $600 million We expect most of the acquisition volume to be sourced through direct original sale leaseback transactions reinforcing our emphasis on proprietary deal flow disciplined capital deployment and long term value creation.

As far as dispositions, during the quarter, we sold 26 properties including 19 vacant assets, generating approximately $37 million in proceeds for reinvestment. The income producing assets were primarily non core properties that were sold at cap rates approximately 170 basis points below our acquisition cap rate. Demonstrating continued demand for well located net lease assets. As we have previously discussed, we expect to be more active on the disposition front throughout 2026 as we continue to optimize portfolio quality and enhance long term shareholder value. While our strategy remains focused on acquiring durable, income producing real estate, disciplined capital recycling is an important component of our investment process.

And with that backdrop, we are lifting disposition range to a midpoint of $140 million Active portfolio management is essential to maintain a high quality portfolio that is positioned to generate stable and growing cash flows. We believe selectively recycling capital from non core assets into higher conviction investment opportunities. Will strengthen the portfolio and improve its long term earnings cash flow profile. As far as the balance sheet, I do not want to take all of his thunder, but the balance sheet remains among the strongest in the net lease sector and continues to provide significant financial flexibility. We ended the quarter with a weighted average debt maturity of approximately 10.1 years.

Which is nearly double the nearest net lease peer and we also maintain $1.4 billion of liquidity. This conservative capital structure positions us well to fund the remainder of 2026 pipeline while maintaining ample capacity for future growth. Having a robust acquisition pipeline a strong balance sheet, experienced management team, we remain confident in our outlook. We are committed to our self funded growth strategy disciplined capital allocation, and maintaining the financial flexibility that has long differentiated our platform. Believe this approach will continue to support sustainable earnings growth and long term value creation for our shareholders. We are focused on finishing 2026 strong positioning NNN for continued success over the years ahead.

With that, I will pass it over to Vincent. He can go through our quarterly numbers in detail. And updated guidance.

Vincent H. Chao: Thanks, Steve. Let's start with our customary cautionary statements. During this call, we will make certain statements that may be considered forward looking statements under federal securities law. 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 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. Turning to results.

This morning, we reported AFFO of $0.90 per share and core FFO of $0.89 per share up 5.9% and 6.0% respectively over the prior year. Results were ahead of our internal projections, with the upside driven primarily by lower than expected bad debt, which totaled about 2 basis points of quarterly ABR. Our NOI margin of 96.6% in the second quarter was up 70 basis points versus last quarter as we further drove portfolio occupancy above our long run average. Thereby reducing net real estate expenses. G&A as a percentage of total revenue was 5.8% while our cash G&A margin was 4.4%. Annualized base rent grew by over 7% year over year to $959 million.

On the back of our strong acquisition volumes. Free cash flow after dividend was about $56 million in the second. Turning to the tenant credit. Our watch list of near term credit concerns remains immaterial at this time. Which has led to better than budgeted credit loss year to date. That said, our portfolio management team remains focused on identifying and proactively mitigating potential future credit risks through asset sales, targeted lease terminations, and leasing. A capital markets perspective, during the quarter, we exercised an accordion option on our term loan issuing an additional $100 million to bring total term loan size to $500 million.

Of this total, $400 million has been swapped to an attractive all in fixed rate of 4.1%. In addition, we lowered the spread in our term loan and revolver by 5 basis points. In light of our improving cost of equity, we were active on the ATM in the second quarter, selling roughly 6 million common shares on a forward basis at just under $46 per share. We also settled 1.7 million forward shares generating net proceeds of about $73 million which were used to pay down our revolver. From modeling perspective, these shares were settled on 6/30 and therefore are not included in the in the reported weighted average share count.

As of June 30, we had roughly $272 million of unsettled forward equity, which combined with our $215 million of expected free cash flow and $140 million of expected dispositions for the year, provides us with ample liquidity with which to execute our strategic objectives for 2026 and beyond. Regarding the balance sheet, at the end of the quarter, we had no encumbered assets, $4 billion of available liquidity, just 2.5% of our debt tied to floating rates. Net debt-to-EBITDA of 5.7x was unchanged from last quarter but including the impact of unsettled forward equity, pro forma net debt-to-EBITDA was 5.2x down from 5.6x last quarter.

Our sector leading debt duration of 10.1 years was well matched with our lease duration also 10.1 years. On July 15, we announced the $0.62 quarterly dividend which is a 3.3% increase in the quarterly rate and represented our 37th consecutive annual dividend increase. An achievement that we are extremely proud of and 1 that reflects the sustainability of our growth model. The new dividend rate equates to a 5.3% annualized dividend yield and a healthy 69% AFFO payout ratio. Lastly, I will end my comments with some additional color regarding our updated 2026 guidance. As disclosed in our earnings release, we are raising both core FFO and AFFO per share guidance for 2026 by $0.01 at the respective midpoints.

Updated AFFO per share guidance of $3.55 to $3.59, implies about 3.8% year over year growth at the midpoint and acceleration from the 2.7% growth in 2025. The primary drivers of our improved earnings outlook are better than planned second quarter performance, a $150 million increase in expected acquisition volume, and a $500 thousand decrease in expected net real estate expenses resulting from a faster than planned reduction in vacancy.

We also raised the midpoint of our annual disposition guidance by $10 million and from a credit loss perspective, we are leaving our second half assumptions unchanged given the year to date outperformance versus plan, we now expect full year bad debt to be about 40 basis points, down from 60 basis points, as of last quarter. More details regarding line item guidance can be found on page 3 of our earnings release. While our guidance reflects our near term outlook, over the longer term, we continue to target sustainable mid single digit growth driven by disciplined capital allocation proactive portfolio management, and a largely self funded growth model supported by our conservatively managed balance sheet.

With that, I will turn the call over to Holly for questions.

Operator: Certainly. At this time, we will be conducting a Q&A 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. You may press 2 if you would like to remove your question from the queue. Before pressing the star keys. Once again, that is 1 to ask a question. 1 moment, while we poll for questions. Your first question for today is from Ronald Kamdem with Morgan Stanley.

Ronald Kamdem: Great. Maybe we could start with the acquisitions Obviously, the guide raise in the quarter. If you could talk a little bit about just what kind of activity that you are seeing and did see sort of cap rates, I think down 20 basis points from the cap rates in the first quarter. So we would love to hear some of what you are seeing on the trend and the competition as well. in addition to the volumes. Thanks.

Stephen A. Horn Jr.: Yes. I mean, just us lifting the acquisition volume from the original guide, you know, shows there is plenty of activity out there for us. We are seeing a lot of opportunities You know, the summertime things slow down a little bit, but going into the summer, and had a had a great second quarter because we were able to stack the pipeline, And then the remainder of the year, we have a good pipeline. there is a fair amount of activity. You know, hopefully, we can end up on the higher side. Of our guidance. But, you know, we do not want to count our chickens until they are hatched. But yeah. No.

Robust pipeline, and there is a few portfolios out in the market currently. That could have a good, you know, second half of the year. As far as competition, it is the usual suspects. Know, the other public REITs. We are not running into much of the private money out there. That could change the second half of the year. But competition's always robust in the net lease sector. I am not seeing to go up or down the remainder of the year. That being said, knowing what is in my pipeline, that is why we are kind of speculating that there will be a little cap rate compression the second half of the year.

Ronald Kamdem: Got it. that is helpful. And I think you hit my second question is just on the portfolio health and sort of asset management. Seems like the bad debt has been trending. You know, well below your, you know, expectations or even historical this year. So at this sort of juncture, what other sort of industries, what are you guys sort of watching out for And is it is it fair to say at 99 plus percent occupancy is the best shape the portfolio has been in? Thanks.

Vincent H. Chao: I am going to let Steve handle that historical perspective he has more of it than I do. But from my perspective, yes, it is the best shape the portfolio has been in, you know, since I have been here. But as far as watch list tenants as I mentioned in my prepared remarks, we do not really have any material tenants that are on the watch list you know, from a near term perspective. You know, we do talk about some that, you know, have historically had some been on the watch list for a long time like AMC.

Again, that is more of a movie theater thing and quite honestly the movie theater business has been doing quite well this year. Box office is up pretty strongly, and I think AMC just recently got a credit upgrade from S&P. And so you know, at least in the near term, things are fairly calm on that front. From a line of trade perspective. there is really, we have never really had you know, specific focus on line of trade, movie theater being maybe 1 exception. But overall, it is more idiosyncratic in terms of how we think about the watch list opposed to, you know, specific lines of training.

Gets again, as I often say, there is winners and losers in every line of trade. Yeah.

Stephen A. Horn Jr.: As far as the portfolio, how healthy-- historically, our portfolio is in great shape. Currently, given the size of the portfolio, know, we do deal with retailers. So retailers do come and go throughout the years. But that is why we focus really hard on the asset level financial performance, and real estate quality. But, yeah, I mean, overall, the portfolio today is as good as it is ever been. But, you know, no major retailers in our top are giving us any heartburn. But more importantly, the asset level financial performance seems to be pretty robust the last, you know, 18 months. Thanks so much.

Operator: Your next question is from Jana Galan with Bank of America.

Analyst: Thank you. Good morning, and congrats on the quarter. Can you walk us through how you are thinking about your marginal cost of capital as you accelerate acquisitions? And then following up on the higher dispositions, are those mostly vacant or opportunistically low cap rates, or what is targeted for disposition.

Stephen A. Horn Jr.: I will let Vincent talk about the, you know, the weighted average cost of capital how we are looking at, then I will follow-up and talk about the dispositions.

Vincent H. Chao: Yeah. Hey, Jana. How are you doing? Look. As far as the cost of capital, I mean, we have seen an improvement on our cost of equity, which was nice to see. And so we were active on the ATM during the quarter. And so I think we are in good shape from a liquidity perspective. From a cost of capital. You know, our debt cost of capital is, you know, 1, we always think about things on a long term basis. So, you know, thinking a 10 year debt, know, cost of equity, you know, we have a an absolute hurdle that we think about. Sort of in the 8%-plus range, is sort of a long term view.

And then, you know, from an earnings accretion perspective, dilution perspective, you know, we look at the AFFO yield. And so if you take our typical 60/40, you know, we blend probably around 6.7% today. So that is a plus or minus.

Stephen A. Horn Jr.: As far as the dispositions, yeah. The majority of the dispositions this past quarter were the vacant assets, 19 of them were vacant. However, the income producing ones was from active portfolio management discussing with the retailer that they were not, you know, stellar performers and that they retailer was probably gonna not renew the lease. That being said, the 5.6% cap rate that we sold that was a pretty tight bandwidth. But the portfolio is stronger, and it was primarily you know, restaurants were, you know, more than 50% of the income producing and the remainder was primarily convenience stores.

Vincent H. Chao: Thank you.

Operator: Your next question for today is from Brad Heffern with RBC Capital Markets.

Brad Heffern: Hey, everybody. Thanks for the questions. Just following up on AMC. The yields on the debt have improved a lot. As you said, it was upgraded by S&P Do you see theaters trade at all right now? And might there be an opportunity to reduce exposure there just given, you know, it seems like the credit profile has improved?

Stephen A. Horn Jr.: Yeah. We sold, if you recall, we sold 1 actually in the first quarter. So we are we are always looking to reduce our exposure. On the movie theaters that are performing that well. They have not rebounded completely to pre COVID numbers. We are not seeing them personally. You know, many of them on the market, But, yeah, we are always going through every industry, not just movie theaters. Looking at our exposure and the real estate risk associated with those certain tenants. But, yes, I am I am looking actively to reduce our movie theater exposure as we move forward.

Brad Heffern: Okay. Got it. And then on the guidance, the FFO guidance, all the underlying assumptions look like they moved in a positive direction, you know, from acquisition volumes to know, taxes to everything. So what was the offset that kept the high end of the guidance from increasing along with the low end?

Vincent H. Chao: Reality is, Brad, I mean, felt like given where we are in the year, we want to narrow the range. But we did feel a 1p increase at the midpoint was appropriate. And so that is just kind of how the numbers shook out. But, you know, there is no nothing really preventing the high end from going up per se. Know, specifically. Okay?

Analyst: Thanks.

Stephen A. Horn Jr.: Thanks.

Operator: Your next question is from Smedes Rose with Citi.

Smedes Rose: Hi. Thanks. You mentioned, M&A activity, that took place across the quarter. And I was just wondering know, when you have seen this in the past, is there any do you have any sort of concerns around potential closings just as maybe, you know, competing stores overlap? And just sort of on that, there were some headline news you know, earlier in the year around 11 looking to close some stores and leaning into a slightly different format. I am just wondering if you have heard anything relative to your portfolio on that front.

Stephen A. Horn Jr.: No. In 2020 as far as 11, in 2025, we did a full, you know, a big renegotiation with 7-11. That renewed a lot of their leases basically, all of them at the end of the day. Yeah. 11 is moving into, quote, these larger format store. But our 7 Elevens, are very low cost basis. You know, we are we are kinda more of that $3 million to $4 million range. In the 7-Elevens. And, you know, now they are building, you know, $10 million. I do not wanna own a $10 million 7-11. I wanna maintain that $3 million to $5 million range. So I am not concerned about our 7-11 portfolio.

As far as, you know, m and a, we have long term leases. with it, so they cannot just-- they can close them, but they have got to pay us rent, and then we will manage the portfolio as we move forward throughout the length of the lease.

Vincent H. Chao: And 1 thing I will just add to that, Smedes, is that on the on the renegotiations that Steve just mentioned on 7-11, you know, these were you know, they could have just taken an option, a 5-year option, but we did renegotiate I think it was 15-year leases with them. So, I mean, they are they wanted to stay in where they are at in our portfolio. Very good.

Smedes Rose: Okay. Thank you. Appreciate it.

Operator: Your next question is from Michael Goldsmith with UBS.

Michael Goldsmith: Good morning. Thanks for taking my question. Just on the dispositions, I know you touched on a little bit on some were vacant, some was active portfolio management. Can you talk a little bit about more specifically, what restaurants you were selling? And then also, are there more dispositions to be coming in the future quarters?

Stephen A. Horn Jr.: Yes. Good question. As far as the dispositions, we listed our midpoint a little bit signaling that we are going to have more dispositions and, yeah, as I have said before, I got back in the first quarter call. I said 20 to 26 would be elevated. As far as the restaurants we disposed, off the top of my head, 1 Ruby Tuesday. So we disposed of, and a Bob Evans in particular. Were just lower performing assets and the management team contacted our portfolio manager and decided to work a deal out. And, you know, those things were, you know, in the high 5s. That sold.

So it was a good deal for the tenant and good deal for us.

Vincent H. Chao: Thanks, Vincent.

Michael Goldsmith: And as a follow-up, it looks like you increased your exposure to early childhood education. that is a category some of the other triple net leads have played in. So can you give a little bit more color on those acquisitions? Maybe the opportunity set that you are seeing? And then any sort of you know, has there been any cap rate compression in that space specifically? Thanks.

Stephen A. Horn Jr.: As far as we have for the last 15 years, we have seen our fair share of volume opportunities in the early childhood segment. And this year, we did a little bit more than we have historically. We have played in that space We are very knowledgeable. And but when we see the right opportunity as far as the initial cap rate and the real estate metrics and the right management team, then that is when we will lean in and do it. So as far as our risk adjusted return, we feel pretty good at the tenants that we are doing business with within that segment. Yeah.

Vincent H. Chao: And just a little on this quarter, we did do you know, a small portfolio deal with a new relationship tenant very strong management team, low levered balance sheet, attractive fungible real estate, you know, in that, you know, 1- to 2-acre land size, you know, nice sized building. And know, high rent coverage to start. So you know, we feel very good about the with that.

Michael Goldsmith: Thank you very much. Good luck in the back half. Thanks.

Operator: Your next question for today is from Spenser Bowes Glimcher with Green Street.

Spenser Glimcher: Thank you. Sorry if I missed this, but just going back to the acquisition pipeline, you mentioned a few portfolios out in the market. Just curious if these would be new tenants, you would land 1 or 2 of these payer deals?

Stephen A. Horn Jr.: Yeah. The portfolios we are currently evaluating would be new tenants. For us if we ended up being awarded the deal.

Spenser Glimcher: K. Great. And then just on the relationship driven deals, which of your tenant segments are looking to grow the most aggressively right now? Is it still largely in the auto space, or is there any update there?

Stephen A. Horn Jr.: Yeah. it is primarily the auto space, convenience stores, We are seeing some opportunities. You know, where we are not seeing opportunities currently for NNN, is the limited service restaurants. We are not seeing much M&A or growth in that sector. And, of course, you know, movie theaters, we are not seeing any growth either. But, yeah, really, it is kind of auto service and convenience stores. So seem to be and then also, you know, the early childhood education seems to be where a lot of the opportunities lie currently.

Spenser Glimcher: Okay. Great. Thanks. that is all for me.

Operator: Your next question is from Rob Stevenson with Huntington.

Rob Stevenson: Good morning. Vincent, back to the sort of guidance question, any other major levers other than transaction volume that pushes you to the bottom of the range versus the top of the range at this point of the year?

Vincent H. Chao: I mean, the biggest drivers hey, Rob. How are doing? Welcome back. Yeah. Biggest drivers really are they are kinda always the same. I mean, bad debt is the big swing factor, and so things are pretty calm right now. But if that you know, ticked higher, you know, that could move us a little lower, although I think we have a pretty healthy cushion in our back half assumptions. Timing and volume of acquisitions is definitely a big driver. And then, I guess, to some degree, timing of our capital markets activities. We do have a $350 million debt maturity in the in the back you know, in December of this year.

And so, you know, how we deal with that and timing of when we deal with that could influence the numbers a bit.

Rob Stevenson: what is the best source of debt for you today, and where's pricing if you wanted to do something?

Vincent H. Chao: To, to fix that. Yeah. Look, I think we look at all and we are evaluating a lot of different options, and we do have, you know, plenty of liquidity to deal with it on the line credit. We have the 272 million of forward equity that we could draw down on. But, you know, in all likelihood, we are thinking about you know, some kind of debt offering later in the year. 10 year debt today, you know, you know, it moves around way more rapidly than ever before, but I would say we are probably in mid 5 to 5.6% on a 10 year debt.

And if we wanna do something shorter, you know, we could we could be know, inside of 5%. But, you know, just given what we have done in the last couple of bond offering and with the term loan, I am I am probably thinking more of a longer term issuance.

Rob Stevenson: Okay. that is helpful. And then last 1 for me. Steve, you guys have sold 35 vacant assets year to date. You know, in terms of what is still vacant in the portfolio, is the majority of that likely to be sales going forward, or is there a significant retenanting operation that is happening and that will start to, you know, modestly impact earnings going forward, how should we be thinking about the remaining vacancy in the portfolio and how you guys are sort of addressing that in the near term?

Stephen A. Horn Jr.: Yeah. Good question. Yeah. We for the most part have gone through what the vacant assets that we wanna sell. And right now, we are currently working on releasing the not the remainder, but the vast majority of should be releasing. And it varies this stage with you know, some might come online in the fourth quarter. Some might come online in the third quarter next year because it takes a while for the permitting and negotiations to get them released. But, yeah, we are the most part, I think our vacant asset sales will be limited moving forward.

Rob Stevenson: Okay. Thanks, guys. Appreciate the time. Thanks.

Operator: Your next question for today is from Wesley Golladay with Baird.

Wes Golladay: Hey, good morning, everyone. I just want to go back to the comment about cap rate compression. Is that primarily due to mix or competition?

Stephen A. Horn Jr.: Both, but what I what we are buying is what we have in our current portfolio, we do not go up and down the risk curve. So our composition is pretty much what we have in our current portfolio. But the cap rate compression, it is modest. But it was really kinda on some deals that to win them with our current tenants. You know, had to go a little bit lower than we have had the last first half of the year. Really the last 6 quarters. Our bandwidth is pretty tight, Wesley. When we do acquisitions throughout the quarter, we are not completely barbelling it, doing the high cap rate and the low cap rate.

Or the high risk deal and the low risk deal and combine it. Ours are pretty narrowed.

Wes Golladay: Okay. And then you did mention a few new tenants that you are looking at, and I know that is a big part of the, you know, the growth engine for the out years. Are you finding a lot more tennis this year relative to last year?

Stephen A. Horn Jr.: I do not I do not know if it is a lot more, but exactly right. it is for the out years. You know, 1 of the mandates we give our acquisition team is, you know, go find a half a dozen new tenants going forward because, you know, case in point, the M&A activity that happened you know, big brands buying Bell Tire. Bell Tire, we did a fair amount of deals with over the years. You know, it is always that kind of that $15 million to $20 million range. Well, that is gonna dry up. So the new relationships for the out years have to backfill it.

So that is a conscious effort that our guys and gals are always looking at.

Wes Golladay: Alright. And just 1 last 1. I apologize for this. But when a company is acquired, is there any chance you can retain the relationship, or they just typically go find another source going forward??

Stephen A. Horn Jr.: No. We do everything we can to maintain that relationship. Usually, the target gives good words for NNN. That we have done business with. But a lot of times, the new acquirer, the consolidator has a cheaper form of capital than NNN is willing to provide them. So they do business elsewhere. Or they bring in their own relationships, and we do everything we can to break it. Alright. Thanks for the time.

Vincent H. Chao: For the time.

Operator: Your next question is from Omotayo Okusanya with Deutsche Bank.

Omotayo Okusanya: Yes. Good morning, everyone. Congrats on the quarter and the solid outlook. I wanted to focus a little bit more on the disposition and the guidance raise, on that front. Obviously, you are getting great cap rates on this stuff, you know, well inside where you are acquiring assets. And you know, clearly a win for you. But I am still trying to understand how that pricing is coming about and why the buyer is kind of comfortable paying those prices, especially when you were talking about again, some of these assets being underperformers, some of them being nonstrategic. Just trying to understand how that is how that pipeline is existing against that kind of backdrop.

Stephen A. Horn Jr.: Yep. No. it is a good question. I mean, we have 3.7 thousand assets, so we have a lot of great real estate. And when we are doing dispositions, it usually kinda falls in a couple different categories. Know, 1's our defensive sale where our relationships will kinda give us the wink, nod. They might not renew in the out years or they are changing markets. So they give us plenty of opportunity where there is lease term or we can maximize the proceeds for that asset. Secondly, there is sometimes there is individuals that like the real estate a lot more than we do or they have other opportunities that we do not know or cannot do.

So they overpay for the asset. And then also in that is the 1.03 thousand buyer Will always overpay NNN for an asset as opposed to paying taxes to the government. So they do the 1.03 thousand exchange. So we are willing to part ways, and that is where we are getting a lot of our low cap rates. And then the other piece is within dispositions is the vacant assets, which obviously your recovery rate's a little bit lower But we have had a good recovery rate recently because of the inflation. And we have been in business for a long time. That the cost basis is fairly low in a lot of those assets.

So we have had decent recovery rates that way.

Omotayo Okusanya: that is helpful. And then for the increase in the acquisition guidance, could you kind of help us in regards to back half of 2026 and kind of what weighted average when, you know, you kind of think some of those deals could happen just help us for modeling purposes?

Vincent H. Chao: Hey, Tayo. How are you doing? In terms of our guidance for the back half, I mean, we typically take a pretty conservative approach. So, you know, when we are dealing with the deals that we are in on the you know, our live deals, you know, we have decent visibility over the next 90 days. We can kinda plan those out. Beyond that, we tend to be a little bit more conservative on more speculative deal activity, so we push those out usually towards you know, tail end of the quarters. So but I would say there is nothing really, you know, overly skewing know, the average for the back half.

I mean, I think, you know, mid quarter or mid half convention for the back half is fair. To start.

Omotayo Okusanya: Great. Alright. We look forward to you guys raising the high end of guidance and getting the stock back to $50.

Stephen A. Horn Jr.: that is 2.

Operator: As a reminder, if you would like to ask a question, please press 1. Your next question is from John Massocca with B. Riley.

John Massocca: Riley. Good morning. Kind of a blue sky 1. Even we are kind of in the back half of the call here. How are you kind of thinking about leverage given it is not just unique to NNN, but kind of in an environment where your cost of equity capital has become a little decoupled from your cost of debt capital. So, like, does that create an opportunity to maybe you know, lean more on that equity capital rather than going to the debt market, especially given you have kind of a successive series of maturities here over the next couple of years.

Just kinda curious your philosophy on that, given maybe where we are and the interest rate cycle and is it kind of the decoupling of not just you, but kind of a lot of REIT equity valuations from interest rates?

Vincent H. Chao: Yeah. I mean, I think that the way we think about it is we look at our overall leverage and we try to balance that. We are you know, shooting for something plus or minus 5.5x is where we are shooting for, and we are comfortable going a little bit higher than that for a temporary period of time. But generally speaking, we try to we try to manage right around 5.5. And so, you know, that is gonna kinda dictate the mix between equity and debt more so than the cost of equity and debt.

But, you know, because we, you know, we can do things on a forward basis, you know, that gives us a really powerful tool to be able to issue equity, know, when the price is right, and, know, decide when to draw it down as we need to manage the overall leverage level. So you know, I do not know that we just sit here and say, you know, the cost of equity is much better. I mean, to some degree depending on how high the cost of equity or how much improves, we could use that to delever.

But we are roughly 13.8x multiple You know, it is it is great, but we think it can be a lot better.

John Massocca: Okay. And then splitting hairs a little bit, but any thoughts on kind of swapping out the remainder of the term loan you know, what would kinda drive you to do that? What kind of, you know, made it attractive to it floating for a period of time? I know we are talking a very small percentage of the overall debt stack, but maybe kind of also within that, what is your kind of view on a little bit more floating rate debt in the debt stack going forward?

Vincent H. Chao: Yeah. I mean, we have a 100 million out of 500. So whatever we do on that last piece is not gonna really move the needle on the total, for the full 500. So I think our decision to leave the last $100 million floating was more driven by the fact that there is been so much volatility around, you know, rates just given a lot of the macro and geopolitical news that is been out there. And so we are just waiting for things to settle down a bit before we lock in that last piece.

And I think the same goes for how we are thinking about a potential offering in the in the back half of the year on the debt side. You know, we are actively looking at, you know, hedging opportunities. And so, again, it is a little volatile right now, but as things settle down, we are looking for opportunities to lock rate.

John Massocca: I appreciate that color. that is it for me. Thank you.

Operator: We have reached the end of the Q&A session, and I will now turn call over to Steve for closing remarks.

Stephen A. Horn Jr.: Hello, guys. Thanks for taking the time and joining the call. And it in a really good shape here. We are looking forward to closing out 26 strong. Solid pipeline, and I look forward to running into you guys in the halls of the conference season coming up. Thank you.

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