National Retail Properties, Inc. Stock

Greetings. Welcome to the NNN REIT Inc. Second Quarter 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Steve Horn, CEO at NNN REIT Inc. You may begin.

Thanks, Holly. Good morning, and welcome to NNN's Second Quarter 2026 Earnings Call. On the call today with me is Chief Financial Officer, Vin 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. We're 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 on August 14. Marking 2026 is our 37th consecutive year of annual dividend increases. That places NNN among 70 U.S. public companies and just 3 REITs to achieve that track record.

Given our continued consistent performance of the portfolio and the acquisition pipeline, we're updating our 2026 guidance for AFF per share to a range of $3.55 to $3.59, our second guidance increase for the year. This reflects our discipline of long-standing multiyear strategy for consistent per share growth.

As far as the portfolio performance, the 3,774 freestanding single-tenant properties continue to perform 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 an agreement to acquire PepBoys for approximately $700 million of cash further strengthening its position as one of the nation's leading automotive service providers. Additionally, big brand tire announced an agreement to acquire Belltire. The combination creates a network of more than 530 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 of 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 2026, we invested $430 million from 130 new properties at an initial cash cap rate of 7.4%, average lease duration just over 18 years. Cap rates range 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 laymord-friendly long-term duration triple-net lease. This strategy continues to provide the most attractive risk-adjusted opportunities that broadly marketed assets, including [ 1031 ] 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 noncore 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 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're lifting disposition range to a midpoint of $140 million.

Active portfolio management is essential to maintain the high-quality portfolio that is positioned to generate stable and growing cash flows. We believe selectively recycling capital from noncore assets into higher conviction investment opportunities will strengthen the portfolio and improve its long-term earnings and cash flow profile.

As far as the balance sheet, I don't want to take all the Vin's 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 maintained $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, the strong balance sheet and 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. We believe this approach will continue to support sustainable earnings growth and long-term value creation for our shareholders. We're focused on finishing 2026 strong and positioning NNN for continued success over the years ahead.

With that, I'll pass it over to Vin. He will can go through our quarterly numbers in detail and updated guidance.

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. 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 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 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 quarter.

Turning to tenant credit. Our watch list of near-term credit concerns remain 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.

From a capital markets perspective, during the quarter, we exercised the accordion option on our term loan issuing an additional $200 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 on 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 a modeling perspective, these shares were settled on 6/30 and therefore, are not included 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, $1.4 billion of available liquidity and 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 5.4x, 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 a $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 one 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, an acceleration from 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 $0.5 million decrease in expected net real estate expenses resulting from a faster-than-planned reduction in vacancies.

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, but 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'll turn the call over to Holly for questions.

[Operator Instructions] Your first question for today is from Ronald Kamdem with Morgan Stanley.

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're seeing. We did see sort of cap rates, I think, down 20 basis points from the cap rates in the first quarter. So we'd love to hear some -- what you're seeing on the trends in the competition as well in addition to the volumes.

Yes. I mean, just us lifting the acquisition volume from the original guide shows there's plenty of activity out there for us. We're seeing a lot of opportunities. The summertimes things slowed down a little bit, but going into the summer and 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's a fair amount of activity. Hopefully, we can end up on the higher side of our guidance, but we don't want to count our chickens until they're hatched.

But yes, a robust pipeline, and there's a few portfolios out in the market currently that we could have a good second half of the year.

As far as competition, it's the usual suspects, the other public REITs. We're not running into much of the private money out there. That could change the second half of the year, but competition is always robust in the net lease sector. I'm not seeing to go up or down in the remainder of the year. That being said, knowing what's in my pipeline, that's why we're kind of speculating that there'll be a little cap rate compression in the second half of the year.

Got it. That's helpful. And I think you -- my second question is just on the portfolio health and sort of asset management. It seems like the bad debt has been trending well below your 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 fair to say that 99-plus percent occupancy is in the best shape the portfolio has been?

I'm going to let Steve handle that historical perspective because he has more of it than I do. But from my perspective, yes, it's the best shape that the portfolio has been since I've been here. But as far as watch list tenants, as I mentioned on the -- in my prepared remarks, we don't really have any material tenants that are on the watch list from a near-term perspective. We do talk about some tenants that have historically had some -- we've been on the watches for a long time like AMC. Again, that's 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, at least in the near term, things are fairly calm on that front from a line of trade perspective.

It's really -- we've never really had a specific focus on lines of trade moving theater being maybe 1 exception. But overall, it's more idiosyncratic in terms of how we think about the watch list as opposed to specific lines of trade, again, as I often say, there's winners and losers in every line of trade.

Yes. As far as the portfolio health historically, our portfolio is in great shape. Currently, given the size of the portfolio, we do deal with retailers, so retailers do come and go throughout the years. But that's why we focus really hard on the asset level, financial performance and real estate quality. But yes, I mean, overall, the portfolio today is as good as it's ever been. But no major retailers in our top are giving us any heartburn. But more importantly, the asset level financial performance seems to be pretty robust for the last 18 months.

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

Congrats on the quarter. Can you walk us through how you're 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 kind of what is targeted for disposition?

I'll let Vin talk about the weighted average cost of capital, how we're looking at it then I'll follow up and talk about the dispositions.

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're in good shape from a liquidity perspective, from a cost of capital, our debt cost of capital is -- one, we always think about things on a long-term basis. So thinking a 10-year debt, cost of equity, we have an absolute hurdle that we think about sort of in the 8-plus percent range, which is sort of a long-term view.

And then from an earnings accretion perspective, dilution perspective, we look at the AFFO yield. And so if you take our typical 60-40, we blend probably around 6, 7 today. So that's plus or minus.

As far as the dispositions, yes, the majority of the dispositions this past quarter were the vacant assets, 19 were vacant. However, the income producing ones was from active portfolio management discussing with the retailer. They weren't stellar performers and the retailer was probably going to 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 -- the restaurants were more than 50% of the income producing and the remainder was primarily to being the stores.

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

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 it seems like the credit profile has improved?

Yes. We sold -- if you recall, we sold one actually in the first quarter. So we're always looking to reduce our exposure on the movie theaters that aren't performing as well that haven't rebounded completely to pre-COVID numbers.

We're not seeing them personally many of them on the market. But yes, we are always going through every industry, not just movie theaters and looking at our exposure and the real estate risk associated with those certain tenants. But yes, I'm looking actively to reduce our movie theater exposure as we move forward.

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

The reality is, Brad, I mean, we felt like given where we are in the year, we wanted to narrow the range, but we did feel a $0.01 increase at the midpoint was appropriate. And so that's just kind of how the numbers shake out, but there's nothing really preventing the high end from going up per se, specifically.

Your next question is from Smedes Rose with Citi.

You mentioned M&A activity that took place across the quarter. And I was just wondering, when you've seen this in the past, is there any -- do you have any sort of concerns around potential closings just as maybe competing stores overlap? And just sort of on that, there were some headline news earlier in the year around 7-Eleven looking to close some stores and leaning into a slightly different format. I'm just wondering if you've heard anything relative to your portfolio on that front?

No. As far as 7-Eleven, in 2025, we did a full -- a big renegotiation with 7-Eleven that renewed a lot of their leases, basically all of them at the end of the day. Yes, 7-Eleven is moving to close the larger format store. But our 7-Elevens are very low cost basis. We're kind of more of that $3 million, $4 million range in the 7-Elevens, and now they're building $10 million. I don't want to hone a $10 million in 7-Eleven. I want to maintain that $3 million to $5 million range. So I'm not concerned on our 7-Eleven portfolio.

As far as M&A, we have long-term leases with it, so they can't close them, but they've got to pay us rent and then we'll manage the portfolio as we move forward throughout the rental lease.

And one thing I'll just add to that, Smedes, is that on the renegotiations that Steve just mentioned on 7-Eleven, these were -- 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 where they're at in our portfolio.

Your next question is from Michael Goldsmith with UBS.

Just on the dispositions, I know you touched on a little bit on some [indiscernible] 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?

Yes. Good question. As far as the dispositions, we listed our midpoint a little bit signaling that we're going to have more dispositions and got back in the first quarter call, I said 2026 will be elevated. As far as the restaurants, we disposed off the top of my head, on Ruby Tuesdays we disposed of and the Bob Evans in particular, that we're just lower-performing assets and the management team contacted our portfolio manager and decided to work a deal out. And those things were in the high 5s that's sold. So it was a good deal for the tenant and good deal for us.

And as a follow-up, it looks like you increased your exposure to early childhood education of the category that some of the other triple net lease have played in. So can you give a little bit color -- more color on those acquisitions, maybe the opportunity set that you're seeing and then any sort of -- has there been any cap rate compression in that space specifically?

As part -- the last 15 years, we've 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're 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's when we'll lean in and do it.

So as far as a risk-adjusted return, we feel pretty good at the tenants that we're doing business with within that segment.

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

Your next question for today is from Spencer Glimcher with Green Street.

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 are being new tenants, assuming you would land 1 or 2 of these severe deals?

Yes. The portfolios we're currently evaluating would be new tenants for us if we ended up being awarded the deal.

Okay. 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?

Yes. It's primarily the auto space, convenience stores, we're seeing some opportunities. We're not seeing opportunities currently for NNN is the limited service restaurants. We're not seeing much M&A or growth in that sector. And of course, movie theaters, we're not seeing any growth either. But yes, really just kind of auto service and convenience stores seem to be -- and then also the early childhood education seems to be where a lot of the opportunities lie currently.

Your next question is from Rob Stevenson with Huntington.

Vin, 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?

I mean the biggest drivers -- Rob welcome back. Yes, the biggest drivers really are kind of always the same. I mean, bad debt is the big swing factor. And so things are pretty calm right now. But if that ticked higher 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 -- timing of our capital markets activities. We do have a $350 million debt maturity in December of this year. And so how we deal with that and timing of when we deal with that could influence the numbers a bit.

What's the best source of debt for you today? And where is pricing if you wanted to do something to fix that?

Yes. Look, I think we look at all opportunities, and we're evaluating a lot of different PAUSE options, and we do have plenty of liquidity to deal with it on the line of credit. We have the $272 million of forward equity that we could draw down on. But in all likelihood, we are thinking about some kind of debt offering later in the year. 10-year debt today, it moves around way more rapidly than ever before, but I'd say we're probably in the mid-5% to 5.6% on a 10-year debt. And if we want to do something shorter, we could be inside of 5%.

But just given what we've done in the last couple of bond offerings and with the term loan, I'm probably thinking more of a longer-term issuance.

Okay. That's helpful. And then last one for me. Steve, you guys have sold 35 vacant assets year-to-date. In terms of what's still vacant in the portfolio, is the majority of that likely to be sales going forward? Or is there a significant retenanting operation that's happening and that will start to 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?

Yes. Good question. Yes, we, for the most part, have gone through what the vacant assets that we want to sell. And right now, we are currently working on re-leasing, not the remainder, but the vast majority of them should be re-leasing. And it buries the stage -- 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 re-leased. But yes, we're -- for the most part, I think our vacant asset sales will be limited moving forward.

Your next question for today is from Wes Golladay with Baird.

I just want to go back to the comment about cap rate compression. Is that primarily due to mix or competition?

Both. But what I know what we're buying because we don't 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's modest, but it was really kind of on some deals to win them with our current tenants had to go a little bit lower than we have in the first half of the year or really the last 6 quarters.

Our bandwidth is pretty tight, Wes. When we do acquisitions throughout the quarter. We're not competing barbelling it doing the high cap rate and the low cap rate or the high-risk deal and the low-risk deal and combined are trading narrowed.

Okay. And then you did mention a few new tenants that you're looking at. And I know that's a big part of the growth engine for the out years. Are you finding a lot more tennats this year relative to last year?

I don't know if it's a lot more, but exactly you're right, it's for the out years. One of the mandates we give our acquisition team is go find a half a dozen new tenants going forward because case in point, the M&A activity that happened, big brands buying Bell Tire. Bell Tire, we did a fair amount of deals with over the years. It's always that kind of that $15 million, $20 million range. Well, that's going to 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.

And just one last one, 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?

We do everything we can to maintain that relationship. Usually, the target gives good words for NNN that we've done business with. But a lot of times, the new -- the acquirer, the consolidator has a cheaper form of capital than NNN is willing to provide them. So the new business elsewhere. or they bring in their own relationships, and we do everything we can to break it.

Your next question is from Omotayo Okusanya with Deutsche Bank.

Congrats on the quarter and the solid outlook. I wanted to focus a little bit more on the dispositions and the guidance raise on that front? Obviously, you're getting great cap rates on this stuff well inside where you're acquiring assets. And clearly a win for you, but I'm 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 underperformed some of them being nonstrategic. Just trying to understand how that's -- how that pipeline is existing against that kind of backdrop?

Yes. No, it's a good question. I mean we have 3,700 assets. So we have a lot of great real estate. And when we're doing dispositions, it usually kind of falls into a couple of different categories. Once our defensive sale where our relationships will kind of give us the wink-wink not die that they might not renew in the out years or they're changing markets. So they give us plenty of opportunity where there's lease term where we can maximize the proceeds for that asset.

Secondly, there's sometimes there's individuals that like the real estate a lot more than we do or they have other opportunities that we don't know or can't do. So they overpay for the asset. And then also in that is the 1031 buyer that will always overpay NNN for an asset opposed to paying taxes to the government, so they do the 1031 exchange. So we're willing to part ways. And that's where we're 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 is a little bit lower, but we've had a good recovery rate recently because of the inflation. And we've been around the business for a long time that the cost base is fairly low in a lot of those assets. So we've had decent recovery rates that way.

That's helpful. And then for the increase in the acquisition guidance, could you kind of help us in regards to back half of '26 and kind of weighted average, when you kind of think some of those deals could happen just to help us for modeling purposes?

In terms of our guidance for the back half, I mean we typically take a pretty conservative, so when we're dealing with the deals that we are on our live deals, we have decent visibility over the next 90 days, we can kind of plan those out. Beyond that, we tend to be a little bit more conservative on more speculative deal activity. So we pushed those out usually towards the tail end of the quarters. But I'd say there's nothing really overly skewing the average for the back half. I mean, I think mid-quarter or mid-half convention for the back half is fair to start.

Great. All right. We look forward to you guys raising the high end of guidance and getting the stock back to $50.

[Operator Instructions] Your next question is from John Massocca with B. Riley.

Kind of a blue sky one, given we're kind of in the back half of the call here, how are you kind of thinking about leverage you've given -- it's not just a unique tenant end, but kind of in an environment where your cost of equity capital has become a little bit decoupled from your cost of debt capital. So like does that create an opportunity to maybe 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 kind of curious, your philosophy on that given maybe where we are in the interest rate cycle and as a kind of the decoupling of not just you, but kind of a lot of re-equity valuations from interest rates?

Yes. I mean I think that the way we think about it is just we look at our overall leverage, and we try to balance that. We are shooting for something plus or minus 5.5x. This is where we're shooting for, and we're comfortable going a little bit higher than that for a temporary period of time. But generally speaking, we try to manage right around 5.5%. And so that's going to kind of dictate the mix between equity and debt more so than the cost of equity and debt. But because we can do things on a forward basis, that gives us a really powerful tool to be able to issue equity when the price is right, and decide when to draw down as we need to, to manage the overall leverage level.

So I don't know that we just sit here and say, well, the cost of equity is much better -- I mean, to some degree, depending on how high the cost of equity or how much it improves. We could use that to delever, but we're at roughly 13, 8x multiple. It's improved, it's great, but we think it can be a lot better.

Okay. And then split hairs a little bit, but any thoughts on kind of wiping out the remainder of the term loan. What would kind of drive you to do that? What kind of made it attractive to leave it floating for a period of time? I know we're talking about a very small percentage of the overall debt stack. But maybe kind of also within that, what's your kind of view on a little bit more floating rate debt in the debt stack going forward?

Yes. I mean we have $100 million out of $500 million. So whatever we do on that last piece isn't going to 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's been so much volatility around rates just given a lot of the macro and geopolitical news that's been out there. And so we're 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're thinking about a potential offering in the back half of the year on the debt side. We are actively looking at hedging opportunities. And so again, it's a little volatile right now. But as things settle down, we are looking for opportunities to lock rate.

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

No, guys. Thanks for taking the time and joining the call. NNN is in a really good shape here. We're looking forward to closing out 2026 strong, solid pipeline, and I look forward to running it to you guys in the halls of the conference season coming up. Thank you.

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

Good day, everyone. Welcome to the NNN REIT Inc. First Quarter 2026 Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Steve Horn. The floor is yours.

Thank you, Kelly. Good morning. Thank you for joining NNN's First Quarter 2026 Earnings Call. I'm joined today with our Chief Financial Officer, Vin Chao.

NNN's disciplined, efficient and self-funded growth strategy continues to deliver results. Our proven long-term operating platform and consistent capital allocation focused on sufficiently accretive acquisitions remain central to our approach. We are committed to long-term value creation, navigating market conditions with discipline and capitalizing on opportunities to support that durable growth.

As detailed in the press release this morning, NNN delivered a strong quarter. We closed 15 transactions comprising of 41 properties for a total investment of $145 million with an initial cash yield of 7.5%.

At the same time, we maintained significant balance sheet flexibility, ending the quarter with $1.2 billion of total liquidity and industry-leading weighted average debt maturity of nearly 11 years.

Reflecting on our consistent performance and visibility into the remainder of the year, we are raising our 2026 AFFO per share guidance to a range of $3.53 to $3.59. This increase underscores the strength of our portfolio and effectiveness of our multiyear growth strategy.

Just one additional item before I get into the operations. If you haven't reviewed our updated investor presentation, it was released during the quarter. I encourage you to visit the website and take a look.

Turning to operating performance. Our portfolio of approximately 3,700 freestanding single-tenant properties across all 50 states continues to perform well. During the quarter, we renewed 36 of 43 lease expirations, consistent with our historical renewal rate of approximately 85% and rental rates 2% above prior levels.

Additionally, we leased seven properties to new tenants at rent rates about 10% above previous levels. It's demonstrating the continued demand of our assets and the outstanding job our asset management team is executing at high levels.

Our tenant base remains healthy with no material credit concerns currently. Occupancy increased sequentially by 30 basis points to 98.6%, now above our long-term average. This improvement reflects the strong execution of our leasing and disposition teams who are actively repositioning vacant assets to maximize value. In several cases, the team has secured high-quality investment-grade tenants further enhancing asset and value contributing incremental value creation.

With only 53 assets remaining and active solutions underway, combining with the solid overall performance of the portfolio, we expect occupancy to continue trending upward in the near term.

On the acquisition front, as I said earlier, we invested $145 million, 41 properties with a cash cap rate of 7.5%. More importantly, with a weighted average lease term of 19 years. The sale-leaseback nature of our transactions continues to provide accretive risk-adjusted returns, long-duration, predictable cash flows.

Regarding market conditions, cap rates in the first quarter remained largely consistent with recent quarters. While we are seeing some modest compression early in the second quarter, we expect relative stability going forward. As always, our platform is designed to operate effectively across macro -- many macro environments.

We do benefit from stable interest rate backdrop and the 10-year has remained fairly range bound, which continues to support transaction activity. We've had an elevated volume in 2025, and we are seeing a good amount of investment opportunity for the first half of the year.

During the quarter, we sold 25 properties, including 16 vacant assets, generating $36 million in proceeds of redeployment. Dispositions of income-producing assets were primarily noncore and we were executing approximately 30 basis points below our acquisition cap rate.

As we discussed previously, we expect to take more of a proactive approach to asset sales in 2026 to further optimize portfolio quality for the long term. As you know, tenant credit evolves, market shift and consumer behavior changes, which results in an active portfolio management becoming essential to maintaining high-quality durable cash flow.

Our balance sheet remains one of the strongest in the sector. We ended the quarter with just $80 million drawn on our credit facility and maintain a weighted asset debt maturity, as I said before, nearly 11 years.

NNN is well positioned to fund the remainder of 2026 acquisition pipeline and support continued growth. With a robust pipeline, strong financial position and proven leadership, we are confident in our outlook. We remain committed to our self-funded model, disciplined capital allocation and delivering sustainable long-term value for our shareholders, targeting a mid-single-digit earnings growth plus a dividend, which we've increased for 36 consecutive years, one of only three REITs.

With that, I'll turn the call over to Vin to give more detail on the financial results and updated guidance.

Thank you, 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 laws. The company's actual future results may differ significantly from 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.

Turning to results. This morning, we reported core FFO of $0.86 per share and AFFO of $0.87 per share, each flat over the prior year. As disclosed on Page 8 of today's earnings release, we booked $739,000 of lease termination fees this quarter versus $8.2 million a year ago, representing a $0.04 headwind without which AFFO per share growth was a solid 4.8%.

Results were modestly ahead of our internal projections with upside driven primarily by lower-than-expected bad debt and net real estate expense. Bad debt represented about 15 basis points of quarterly ABR, which was better than our 75 basis point assumption.

Our NOI margin was 95.9% in the first quarter, reflecting the efficiency of our triple net lease structure. G&A as a percentage of total revenue was 5.9%, in line with our expectations, while our cash G&A margin was 4.2%.

Annualized base rent grew 7% year-over-year to $935 million, driven by our strong acquisition activity. While free cash flow after dividend was about $52 million in the first quarter.

Regarding our watch list, as Steve mentioned, we are not currently tracking any significant near-term credit issues in the portfolio and we are optimistic that we can outperform our bad debt assumptions for the year.

That said, we remain proactive portfolio managers, and we'll continue to look for ways to derisk the portfolio ahead of potential future issues without incurring unwarranted dilution.

Included in this quarter's dispositions was AMC as well as an entertainment property. Our occupied dispositions have only 3 years of remaining lease term and despite the derisking nature and shorter term of the properties sold we are still able to generate an economic gain of over 6% on the sales given our low cost basis in the assets, which is a key component of our risk controls.

Turning to capital markets. During the quarter, we drew down the full $300 million available to us on our delayed draw term loan. The rate on the term loan has been swapped to a fixed all-in rate of 4.1%, we also sold roughly 1.7 million common shares on a forward basis through our ATM at just under $45 per share. We did not settle any forward equity, leaving us with expected future net proceeds of $74 million as of March 31.

Our next debt maturity is our $350 million unsecured note due in December of this year. As a reminder, we have an accordion feature that allows us to expand our existing term loan by $200 million and IG credit spreads have recently revisited historical lows following a brief widening in the immediate aftermath of the Iran conflict. This gives us multiple options with which to address our pending maturity as well as financing our investment plans on a leverage neutral basis.

Moving to the balance sheet. Our Baa1 rated balance sheet remains a competitive advantage that provides us with the flexibility to fund future growth while protecting against downside risk. At the end of the quarter, we had no encumbered assets, $1.2 billion of available liquidity and just 1.6% of our debt tied to floating rates.

Including the impact of our unsettled forward equity, pro forma net debt-to-EBITDA was 5.6x, unchanged from last quarter. Our debt duration remains the highest in the net lease space at 10.5 years and is well matched with our lease duration at 10.1 years.

On April 15, we announced a $0.60 quarterly dividend, representing 3.4% year-over-year growth and equating to an attractive 5.7% annualized dividend yield and a conservative 69% AFFO payout ratio.

I will end my opening remarks with some additional color on our updated 2026 outlook. Based on our better-than-expected first quarter performance and our growing pipeline of investment opportunities, we are raising the midpoint of both our AFFO and core FFO per share guidance by $0.01 to new ranges of $3.53 to $3.59 and $3.48 to $3.54, respectively. The midpoint of our increased AFFO per share guidance represents an acceleration of year-over-year growth to 3.5% from 2.7% last year.

Line item guidance, which is summarized on Page 3 of our earnings release, remains unchanged, although I would highlight that we are tracking to the low end of the $14 million to $15 million range for net real estate expenses and towards the high end of our $550 million to $650 million acquisition guidance based on our near-term pipeline visibility.

With expected free cash flow of about $212 million, $130 million of expected dispositions and $1.2 billion of available liquidity, we are well positioned to fund our acquisition plans for the year.

From a credit loss perspective, we are lowering our bad debt assumption for the full year from 75 basis points to 60 basis points, which reflects the outperformance in the first quarter. Our assumptions for the balance of the year are unchanged, but as I mentioned earlier, given year-to-date trends, we are hopeful we can outperform our bad debt projections in the coming quarters.

And with that, I'll turn the call back over to Kelly for questions.

[Operator Instructions] Your first question is coming from John Kilichowski with Wells Fargo.

Vin, very helpful color in the opening remarks on the funding for the acquisition guide. If I think about the incremental $74 million that you've raised and the term loan. It sounds like you have capacity to go well above the acquisition guide here and you are trending up. What's keeping that acquisition guide sort of consistent here in 1Q?

John, this is Steve. I'll take that. We have a very robust pipeline and opportunity set that we're looking at currently. But the old adage, you don't want to count them until they're done. We're actively in negotiations trading paper, but until they're well-advanced closing stage, we don't want to get above our skis here.

Yes. But John, you are correct in the sense that the $75 million or $74 million of equity does give us a little bit of additional capacity. So at our typical 60-40 equity debt mix, it would be about $125 million of additional capacity.

Very helpful. And then the second one is just on the credit loss guide. I appreciate the updated color on the 60 bps. Of that, what is pure conservatism versus what is something you feel like you have an outlook on? And maybe an extension of that would be the 7-Eleven headlines on store closures. Have you had any discussions with them? Is there any impact to you that would be in that guide?

No, from 7-Eleven, but I'll let Steve opine a little bit more on that. But as far as the credit loss assumption, there's very little in terms of embedded or something that we expect to happen other than there was a small amount of 15 basis points in the first quarter. Beyond that, there's really nothing material that's known that we would put into that number.

As far as the 7-Eleven, yes, we've never done "business with 7-Eleven". They acquired a lot of our large regional operators that we did business with year-over-year. Our average cost basis in our 7-Eleven portfolio is about $2.2 million. We just did a significant renewal in 2025 with 7-Eleven and our average lease term with 7-Eleven is about 8.5 years. So we're very confident. We haven't had any discussions or none of our stores are on the closure list.

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

Good morning. This is Dan Byun on for Jana. Following the recent ATM issuance, could you characterize your current overall WACC in your investment spreads today?

Yes. Look, the WACC, it does change on a daily basis. But I'd say if you're talking about just the near-term sort of AFFO yields and debt math, we're probably in the high 6s at [ 6.8% ], maybe [ 6.75% ] in that area.

And then for my next question, last quarter, you expected cap rates to compress more in 2Q and 3Q. Is that still your view? Or the higher rate environment and reduced competition?

Yes. My view is the same on cap rates as it was the first quarter, and it's coming into reality that our first quarter cap rates were in line with the last many quarters. And we expected second quarter some compression. I do still expect that for the deals that I see being priced.

And then I kind of see them being at that compressed level. As of right now, things change for modeling purpose at that lower level.

Your next question is coming from Spenser Glimcher with Green Street.

You mentioned proactive portfolio management several times, but also you noted that you have -- you don't have anything active on your watch list. So if there are no imminent credit issues, can you just share some color or walk us through kind of what you're leaning on to guide your asset management decisions today?

Yes, I mean I wouldn't say we don't have a watch list, and we're watching a lot -- we always watch tenants. So we do have a watch list. Case in point, AMC is on our watch list. We've talked about that before. We were able to sell one in the quarter and I think we're pretty pleased with that outcome given the nature of AMC sales, we're still able to on net for the quarter, come out with an economic gain, not a GAAP gain for our occupied properties.

So that's the kind of thing that we look at. So yes, in the near term, meaning the next -- for this year, we're not seeing any material concerns that we think are worth calling out. That doesn't mean we don't have tenants that we think are maybe medium to longer term are ones that we are watching a little bit more carefully. And so we'll look to try to address some of those as we can.

I'll just add 1 more thing to it. When we're doing active portfolio management, it's not just focusing in on credit. You have credit risk always credit changes. But more importantly, you might have real estate risk and the probability of that being renewed at the end of the term. So we're trying to get ahead of that looking years out and making the portfolio a more stable platform because things do change.

Okay. Great. And then you also mentioned that you have -- you did, I think, some deals with seven new tenants in the quarter. Are you able to share details on what industries these tenants operate in?

It was a combination primarily quick fast food restaurants and convenience stores. And I think there was one car wash in there.

Your next question is coming from Smedes Rose with Citi.

This is Nick Kerr on for Smedes this morning. So I guess the first one is just are you seeing or hearing anything from any of your tenants that might suggest any changes in underlying consumer spending habits maybe across the restaurant or the experiential type spaces?

Most -- many of our tenants, 61% are public. I mean we do get those reads and we also have our own conversations privately with our tenants. But there's nothing I would say that's a broad strokes takeaway obviously, certain restaurant tenants are doing better than others.

On net, to the extent that there is continued pressure on the consumer, then you would expect that to pressure some of the more cyclical businesses. But nothing has bubbled up that is sort of a meaningful broad stroke kind of takeaway, more specific to tenants.

Got it. That's helpful. And then you mentioned you're trending towards the high end of your acquisition guidance. So could you just remind us what your visibility into your pipeline is like from today or how long that is? And then just if you have any color on what that quarterly cadence of acquisition volume would look like through the balance of the year, that would be useful.

Yes. You can't really look at it. I encourage you to look at kind of overall on an annual basis when you're looking at volume because quarter-to-quarter, it could be very volatile. But as I said in the opening remarks, our acquisition opportunity set is really healthy currently. And as Vin mentioned, we're trending to the high end of our range currently if everything closes.

Your next question is coming from Ronald Kamdem with Morgan Stanley.

This is Jenny on for Ron. First question on sale leaseback. I think you talked about a lot of the acquisitions from long-standing relationships. Just curious, your current relationship conversation, is there any accelerating sale leasebacks given the current macro environment and so forth?

Yes. I think that's reflective in our -- in the pipeline, we've talked about it a couple of times on the call that there's a big opportunity with sale-leasebacks currently, it's elevated this year than it was in 2025, and we did have record volume in 2025. But it feels like there's a lot of sellers out there that are using the sale leaseback for debt refi, balance sheet management.

That's helpful. The second is, can you confirm the latest status of Frisch's and Badcock and bad calls, like what's -- are they all cleaned up? Just what's the current status on that?

All our Badcock are currently accounted for and cleaned up, and we had near 100% recovery. So really in great shape with regard to Badcock. Frisch is we have -- we're well on our way for Frisch. All the Frisch are in our 53 vacant assets. And we're working all the assets currently and have a tremendous amount of interest in those assets, and I'm expecting some real good positive outcomes as we move through the year.

And Jenny, with occupancy back to 98.6% above our long-term averages, I mean, there's not really a strong pressure to fire sale anything or do anything that quickly. I think we're in a good position at this point, and so we can be a little bit pickier -- choosier.

Your next question is coming from Alec Feygin with Baird.

I guess first one would be, what's the term income currently assumed in the guidance?

Yes. So we don't give lease termination fee guidance per se. What we have commented on, is that we think that this year will be a normalized year, which is typically between $3 million to $4 million.

Again, not guidance per se because, again, these things are episodic. It's the right thing to do for the business is to take a lease termination fee because we can solve a future problem and we can get a fee on top of it. We'll do that. So we don't want to set artificial guideposts. But historically, I think $3 million to $4 million is about what we averaged, maybe a little bit less than that. And so we're expecting it to be more of a normal year. And if you look at what we did in the quarter, it's pretty consistent with that.

Got it. And second for me would be, are there any categories that are currently seeing a bid from private market participants where you can be opportunistic in asset sales, less so from a real estate or credit perspective, but just seeing a high bid?

Yes. No. There's not a particular segment and the amount of money they need to deploy, I wouldn't be -- I mean, obviously, it's the pricing is super attractive, we would do something. But no, right now, we're looking to sell $130 million of assets in the market, and there's no big private capital market bid for those.

Your next question is coming from Michael Goldsmith with UBS.

You touched a little bit on it before, where you're talking about expected cap rate compression from the first to second quarter. Is that just broad compression? Or are there specific asset categories where you are seeing that level of compression?

It's broad as far as our opportunity set. As you know, you know us well, we do a lot of mining of our portfolio. So it's kind of the auto service, the convenience store sectors primarily that, we're seeing a lot of -- not a lot -- minimal amount of compression kind of that 15 to 25 basis points. And sometimes it...

Anything specific you think that's driving that?

I think it's -- as I always say, it's the first half of the year. People want to do deals. So the competition gets a little bit more aggressive and is willing to compress their spreads.

Got it. And then just in terms of specific categories, you mentioned that you bought a car wash. Can you just talk about your comfort level in that category? And then, I think you mentioned that you sold an AMC. Are you able to provide the cap rate on where theaters are trading right now?

Yes. No, we don't provide cap rates on the individual. I mean, overall, our income producing cap rates were 30 basis inside our acquisitions. As far as -- no, we didn't buy -- I didn't say I bought a car wash. There's a car wash operator with one of the seven assets that we re-leased.

That being said, I'm very comfortable with our car wash holdings. We've done since 2005. Our basis is extremely low. And we -- and then didn't get into the pie-eating contest when there is a lot of availability for car washes over the years.

[Operator Instructions] Your next question is coming from John Massocca with B. Riley Securities.

Maybe speaking to the theme around kind of the cap rate compression you're potentially seeing in the pipeline and on the horizon for the remainder of the year. Is that changing at all based on any changes in the competitive environment? I guess, with interest rates moving around and maybe some dislocation in certain other capital sources, are you seeing less competition outside of other REITs? And I guess if you are, are other REITs kind of filling in that gap. I'm just kind of curious what the overall competitive environment is for your potential partners here.

Yes. I mean, for the 20-plus years I've been doing this, John, it's been a highly competitive environment. It's just the names have come and gone. And then there's been a couple of loss REITs that have been around for the 20-plus years. And the private capital has always been involved. They are nontraded REITs to -- now that the financial institutions have been raising money and creating the REITs. But now it's highly competitive. It always is names change. So I don't view it as competition that there's more competition. I view it that people just want to do more deals right now in the first half of the year.

Have you seen any pullback in like non-REIT capital over the course of kind of year-to-date, just given some of the changes in that environment?

Yes. I mean most of the non-REIT capital are playing in segments we don't play in the large industrial so they can deploy a vast amount of money at one time. They're not buying a Taco Bell in Terre Haute, Indiana with a franchisee.

Fair enough. And then I know you don't want to disclose the cap rate on the AMC asset sale. But can you maybe talk about who the buyer was? I mean was it another landlord? Is it a tenant? Is it someone looking to redevelop it? But just kind of curious if this was a true kind of fear to feeder transaction.

It was somebody looking to redevelop the asset.

There are no further questions in queue at this time. I would now like to turn the floor back over to Steve Horn for closing remarks.

Again, thanks for joining us on the call, and it ends in really good shape going forward, optimistic. And again, I look forward seeing many of you, I guess, in the next few weeks at NAREIT. Thanks. Good day.

Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.

Greetings, and welcome to the NNN REIT Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Steve Horn, CEO of NNN REIT. Sir, the floor is yours.

Thanks, Ali, and good morning. Welcome to NNN REIT's Fourth Quarter 2025 Earnings Call. Joining me on the call is our Chief Financial Officer, Vin Chao. As outlined in this morning's press release, NNN delivered a solid operating and financial performance in 2025, generating 2.7% growth in AFFO per share and completing over $900 million of acquisitions, the highest annual volume in NNN's history. The momentum exiting 2025 driven by elevated acquisition activity and the portfolio management of the vacancies positions NNN well entering more uncertain macroeconomic environment in 2026. I am certain in the team's ability to execute across the full investment cycle from sourcing the right opportunities to thoughtful underwriting to proactive management of the highly diversified portfolio by geography, tenant and industry.

Before turning to the results and the outlook, I want to highlight several accomplishments in 2025. First, our 36th consecutive annual dividend increase. We maintained a highly flexible balance sheet, including a 10.8 year weighted average debt maturity, which is best-in-class. No incumbered assets and $1.2 billion of total available liquidity. We completed the executive team positioning and also we continued performance on the acquisition platform alongside proactive portfolio management. The long-term value proposition remains unchanged at its core, our strategy still continues to focus on executing a disciplined bottom-up investment approach, growing the dividend annually while maintaining a top-tier payout ratio, delivering mid-single-digit AFFO per share growth over the long term, aligning acquisitions, dispositions and balance sheet management to support these objectives.

Turning to our outlook as we move through early of 2026, NNN enters the year on solid financial footing. At year-end, we had $1.2 billion of total available liquidity, followed by a record acquisition year. Looking ahead, we expect to fund our 2026 strategy through a combination of approximately $210 million of retained free cash flow, roughly $130 million of planned dispositions which together should result in manageable equity needs throughout the year while maintaining leverage neutral.

NNN's self-funding business model can consistently deliver growth in good and challenging economic conditions. Our long-standing approach to capital deployment remains selective and opportunistic will not change. Current cap rates have stabilized for the most part, the fourth quarter initial cap rate in line with the third quarter and we're seeing that trend continue early in the first quarter of 2026, but anticipating slight compression as we move further into the year.

During the quarter, we invested just over $180 million across 55 properties, at an initial cash cap rate of 7.4% and with a weighted average lease term of over 18 years. NNN historically sources most of its acquisition through long-standing relationship, does not typically target investment-grade portfolios which tend to have tenant-friendly lease provisions and lower organic growth, if any.

Turning to the fourth quarter operating performance. Our portfolio of 3,692 [ free steam ] single-tenant properties is performing at a high level. As we sit here today, we're not having any conversations with portfolio tenants that raise concerns regarding operating performance or the ability to meet rent obligations. Our occupancy is up 80 basis points from last quarter to 98.3% which is in line with our long-term average of give or take, 98%. The increase in occupancy was a direct result of our asset management team and leasing department executing at a high level, addressing the elevated vacant assets from the end of the third quarter. I would classify the quarter as "in line on renewals and leasing". 55 of our 64 renewed ahead of our average renewal rate of 85%, but the run rates were 104% above prior. We leased 4 properties to new tenants at 109% in the prior run, demonstrating strong demand for the assets.

As a quick update on the assets of the furniture and restaurants, which were trending ahead of schedule, First, the furniture assets. As of today, we have the last 5 properties under contract for sale. We expect the majority of those to close during the current quarter, but however, one or two could slip to the second quarter. With respect to the restaurant assets, the team continues to make solid progress identifying the optimal outcome for each property. Solutions include asset sales, releasing a redevelopment with strong brands across multiple industries. Currently, 32 properties remain, 15 are for sale and 4 are in advanced discussions about leasing. The remaining 13 were actively marketed. We expect to reach resolution on these assets progressively throughout the year.

On disposition side, fourth quarter, we saw 18 income producing along with 42 vacant, generating $82 million of proceeds during the quarter. For the full year, dispositions totaled $190 million, including 49 vacant at a 6.4% cap rate and 67 vacant assets. While re-leasing remains our priority, we continue to be selective disposing of nonperforming assets where there's no clear path for near-term income generation.

With that, let me turn the call over to Vin to provide additional detail with our quarterly results and updated guidance.

Thank you, 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. The company's actual future results may differ significantly from 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.

Now on to results. This morning, we reported core FFO and AFFO of $0.87 per share, each up 6.1% year-over-year. For the full year, core FFO per share was $3.41 and AFFO per share was $3.44 each up 2.7% versus 2024. These solid results come despite several headwinds to start the year and reflect the resilience of our cycle-tested business model. AFFO per share for the quarter came in slightly ahead of our expectations. The upside was driven by a number of small positive variances, including lower net real estate expenses, lower G&A and higher interest income. There were no notable run rate items to call out this quarter.

G&A as a percentage of total revenue was 4.9% for the quarter and 5.1% for the full year. As a percentage of NOI, which we think is a better way to think about it, G&A was 5.1% for the quarter and 5.3% for the year. Free cash flow after dividend was about $51 million in the fourth quarter.

As Steve mentioned, we ended the year at 98.3% occupancy, up 80 basis points over last quarter, which again speaks to the resiliency of our business model and the portfolio and the strength of our leasing and asset management teams. Annualized base rent was $928 million at the end of the quarter, an increase of close to 8% year-over-year compared to a 7% increase last quarter, driven by our strong acquisition activity throughout the year. With regard to our watch list, there have been no material changes since last quarter, and we believe our bad debt assumptions are sufficient to absorb any future tenant issues. Although headline risk can create noise, it's important to keep in mind that NNN's proven strategy of focusing on real estate quality, property and corporate-level credit and low cost and rent basis using a long-term sale-leaseback structure has allowed NNN to successfully navigate various economic cycles with limited long-term cash flow impacts.

Turning to our capital markets activity. In November, we paid off our $400 million 4% coupon note at maturity. In December, we closed on a $300 million delayed draw term loan and entered into [ forward ] term swaps totaling $200 million that fixed SOFR 3.22%. In conjunction with the execution of the term loan, we amended our revolving credit facility to eliminate the SOFR credit spread adjustment, reducing the effective interest rate on our revolver by 10 basis points. Subsequent to the end of the quarter, we drew down $200 million against the term loan, leaving us with $100 million of remaining availability.

Moving to the balance sheet. Our BBB+ rated balance sheet remains in great shape. At the end of the quarter, we had no encumbered assets and $1.2 billion of available liquidity. Pro forma for the full drawdown of our term loan floating rate debt represented just 1% of total debt. Our leverage was consistent with last quarter at 5.6x and our duration remains the highest in the net lease space at 10.8 years and is well matched with our lease duration of 10.2 years.

On January 15, we announced a $0.60 quarterly dividend, representing a 3.4% year-over-year increase in equating to an attractive 5.5% annualized dividend yield and a prudent 69% AFFO payout ratio.

I'll end my opening remarks with some additional color regarding our initial 2026 outlook. We are establishing an AFFO per share guidance range of $3.52 to $3.58. And core FFO per share guidance of $3.47 to $3.53. The midpoint of our AFFO range represents 3.2% year-over-year growth in 2026, accelerating from 2.7% growth in 2025 and as we move past the tenant issues experienced in late 2024. Consistent with past years, our initial outlook embeds a self-funded level of acquisitions with further upside dictated by market conditions and our cost of capital as we remain focused on driving efficient per share earnings growth. Specifically at the midpoint, our outlook embeds $600 million of acquisitions, which is funded primarily with $130 million of dispositions, expected free cash flow of about $210 million and a leverage neutral amount of incremental debt financing.

From a credit loss perspective, we have included 75 basis points of bad debt in our full year outlook, which we think is prudently conservative to start the year. Additional details regarding the underlying assumptions embedded in our guidance can be found in our earnings release.

With that, I'll turn the call back over to the operator for questions.

[Operator Instructions] Our first question is coming from Michael Goldsmith with UBS.

In the press release, Steve, you mentioned proactive portfolio management. So can you kind of provide the latest and greatest on what you're doing there, where you see it? And then I guess you can also tie that into your occupancy took a step up during the quarter to above 98%. But is that the long-term number you want to be? Or are you been higher than that in the past. Just trying to get a sense of where you're at in that?

Yes. I mean I think ideally, you want to be slightly above that, but we do deal with retailers. So with lease terms that come up, so we do get assets back. But what I mean on the proactive portfolio management, you have a portfolio and there's a bell curve. Everybody has kind of the bottom 10%, and with our relationships, we're always constantly in discussions. So we have a good idea of who's going to renew at the end of lease terms. And if we can get a sense of that, if there's 5 years left and we can dispose of the asset with the goal of getting our renewal rates higher over the course of time. We're just trying to get ahead of future problems. And it's more on the real estate side because credit can turn on a dime. And -- but we always are monitoring credit, talking to the tenants. We're just really just trying to keep the portfolio in good stead over time, which I think we have as far as our renewal rates being around that 85% and having over 100% recapture rate.

Got it. And then just on the bad debt assumption. It looks like you're starting with 75 basis points. Last year, I know it wasn't you who set up, but it started lower and then prior to that, I think the number was a bit higher. So can you just talk about why is 75 basis points the right way to start the year? And I think earlier, you mentioned that there was not any material changes on your watch list. So I'm just trying to get a sense of some context around that number.

Yes. Thanks for the question. Yes. So one, I would just start off by saying, no matter what number we put out there were either too conservative or too aggressive. So typically, it's been about 100 basis points. That's the long-term sort of starting point. Last year, we went to 60 basis points because we had already taken out two of our larger problem tenants, the most immediate concerns with the two tenants, the furniture and restaurant operator. So they've already taken out the numbers, and so we went with a lower number to start to reflect any other future speculative.

For this year, I think as we looked at it, we don't really have any changes in the watch list. We haven't really had any known issues that are of any materiality. But we felt like, hey, going back to 75% would just be a prudent way to start the year. So far, we really haven't been impacted too much by some of the retailer headlines that have been out there, and we hope that remains the case. But historically, we've done between 30 and 50 basis points of realized bad debt. And so starting at 75% feels like a comfortable way to start to begin the year.

Our next question is coming from Spencer Glimcher with Green Street.

Maybe just piggybacking off the credit loss questions. Can you guys share some color on kind of rent coverage levels? And where is the portfolio coverage today? And how does that compare to historic levels?

Yes. Good question, Spenser. The vast majority of our tenants report property level financials, but we're not seeing a decrease in the overall portfolio. I was actually just looking at some of the carwash assets, I was surprised they ticked up a little bit. But when you focus on rent coverage, you got to really keep in mind it's a stale number because not all tenants report quarterly, some are on an annual basis. And the economy is moving so fast the consumer, we don't get hung up on one number in particular. We kind of look at the trends and that comes back to our active portfolio management.

But overall, depending on the industry, we have the car wash, a lot of them are over 3x, 4 x all the way down to auto service might be closer to 2x. But overall, we're comfortable with the rent coverage and don't have any concerns with it.

Yes. And Spencer, we've talked about this before. I mean when you think about rent coverage, depending on what line of trade you're talking about, one number may be very good for one line of trade and not so great for another line of trade. So looking at the overall portfolio average, can help maybe somewhat with directional changes, but it's not necessarily a meaningful number in and of itself.

Yes, understood. That's why I was just asking maybe compared to historic levels. Yes, to your point, that the trends are important. But yes, second [indiscernible], just can you talk about which segments you your existing clients are looking to grow more aggressively in the near term?

Yes. We do the bottom-up approach. We don't target a specific sector because we can only buy stuff as for sale. But that being said, we do focus on the relationships and we focus on the smaller parcels, high visibility, high trafficked roads. And I'd say for '25 and the pipeline, it seems like auto services and convenience stores, our biggest opportunities currently.

Our next question is coming from Smedes Rose with Citi.

I just want to ask a little bit about the pace of kind of lease termination fees. I know they had been elevated back in the third quarter and then seems a little more normal in the fourth quarter, but maybe a little higher than normal. I'm just wondering what you're expecting as we move through 2026 on that front?

Smedes. Yes, as we've kind of discussed in the past, I mean, we did -- for the full year, it was about $11 million, just over $11 million of lease termination fees in 2025. The fourth quarter was around $230,000. So again, I would characterize that as a much more normalized level. But historically, we've probably done around $3 million-ish a year prior to the last 2 years, which were elevated.

So that's, call it, just a little bit less than $1 million a quarter, would be sort of a normal level, but it is chunky, so it's not like you just have a very stable quarterly number. That's why we don't focus on it too much. But as far as how we're thinking about 2026, I would say we're assuming a more normalized level, more consistent with the $3 million to $4 million lease termination level.

Okay. And then I just want to ask you, just sort of in general, from yourselves and from others, it seems like 2026 acquisition activity remains relatively elevated to maybe what we've seen in the past. And I'm just curious as to -- are you not seeing kind of incremental competition for your assets? I know a lot of your has come through long-term relationships already. But just in general, maybe some thoughts on the kind of the broader landscape of what you're seeing in terms of acquisition competition?

Yes. We've always operated in a highly competitive environment. There's always been competition, just the names have changed over the course of 20 years of my career. So I'm not really seeing an incremental competition entering the market. All the deals we do for the most part are with sophisticated tenants. So they have a fiduciary responsibility to market the asset. But we just kind of get the first call and the last call, and that's where we rely on our relationships. But that's why I do expect cap rates to compress a little bit possibly in the second, third quarter, just because there's peers out there that feel the need to elevate the acquisition activity, so they got to win a lot more deals.

Our next question is coming from John Kilichowski with Wells Fargo.

My first one is just on the acquisition guide and thinking about funding mix. Could you just walk us through the building blocks here? I think it's about $200 million of free cash flow. You got high-end dispositions, $150 million. I'm just curious how much are you willing to take leverage up to maybe go above and beyond that high end? Or what's that capacity there?

John. So one, we really don't have any upside to take our leverage. We're sitting at 5.6x. I think ideally, we generally have been around 5.5x. So not looking to lever up to drive that acquisition volume. So as I said, we're projecting $600 million at the midpoint of our guidance, that is pretty much entirely self-funded with free cash flow of $210 million as expected, $130 million of dispositions and then some incremental debt financing to stay leverage neutral.

And then again, beyond that, if there are additional opportunities, it really will depend on where -- what the market conditions are, where the cap rates we're talking about and what's our cost of capital at that time. The other thing that we could look to do is rather than lever up is leading to some more dispositions. That would be an alternate source of equity if the stock is not where it needs to be.

Got it. Very helpful. And then an extension of that would be sort of the cost of those dispositions. I know there's a handful of vacancies. What's like a good blended cap, I guess, we should be thinking about in terms of the costs that you're getting on those sales?

We don't know exactly which assets we're going to dispose of in the aggregate of that, at the high end of the range of $150 million. This year, there will be a little bit more defensive sales on the portfolio pruning. So I would guess on income-producing assets, I would expect a little bit of an elevated cap rate selling the assets.

But when you blend it out, it will be, I would guess, significantly below the 150 basis points of where we're going to deploy capital.

Yes. And John we do have some vacancies are still higher than they were prior to the two tenants having some issues there in late 2024. And so there will still be a healthy number of vacant sales in 2026.

Our next question is coming from Ronald Kamdem with Morgan Stanley.

Just two quick ones. Just on the occupancy. Just where do you expect that to trend through the year, number one. And then the bad debt question, just if you think about sort of the experience that you had last year coming into this year, a 75 sort of basis points -- 75-basis point guidance. Can you just talk us through where you sort of got the confidence that you're not going to see another major one?

Yes. I'll take the occupancy and Vin can talk more about the bad debt. I think end of the first quarter, early second quarter. I expect the occupancy to trend up a little exactly what Vin said, we'll sell a few more vacancies that are in progress right now. But I don't expect it to be significantly higher, but trending a little bit higher. And our historical average is 98%, plus or minus. So I think we'll plateau there.

Yes. And Ron, on the bad debt, I mean, what gives us confidence in the 75. I mean, I think, one, you've got history, right? This is a portfolio that's been through every cycle, you can imagine. And historically, the company has realized, call it, 30 to 50 basis points of bad debt. So that's part of it.

The other part is, as Steve and I both mentioned in our prepared remarks, we're really not seeing anything that we feel is an imminent issue from a watch list perspective, nothing at least of a material nature. There's always going to be some small tenants that fall out here and there. But from a material perspective, nothing really that we feel like we need to call out. And so that's giving us the confidence that again 75 basis points is higher than our historical. But again, to start the year, we're just trying to make sure that we're not getting ahead of ourselves.

Our next question is coming from Jana Galan with Bank of America.

Again, following up on the 2026 guidance, the expectation for the real estate expenses is down versus 2025. And it sounds like you're thinking that term fees will be lower. So would this just be better occupancy? Or were there any kind of onetime things that could be driving the expenses?

Yes. So Jana, last year, we did [ $17.3 million ] on net real estate expenses, and that's because we did have an elevated number of vacancies tied to the restaurant and the furniture operator. So we were sort of the peak, call it, 90-ish vacancies. We're down to about 64% at the end of the year. I think we do have some line of sight on some of the additional resolutions that Steve outlined in his prepared remarks. And so that's driving further vacancy declines and that would result in lower real estate expense net.

And then maybe just on the watch list, you mentioned no imminent issues, no major changes. But just curious, the current watch list. Are there any kind of kind of common themes with industries or regions? Or is this more like idiosyncratic one-off issues?

Yes. I think I would characterize it more as idiosyncratic. -- definitely no regional trends to call out, but the tenants that are on the watch list, I mean, AMC is on there, they've been on there just from a movie industry perspective. There's nothing imminent that we're sort of expecting from them, but that's a pretty specific situation. I wouldn't call that broad trend. And obviously, At Home is still on our watch list, even though they exited bankruptcy successfully and without any real issue to us. But again, idiosyncratic.

Our next question is coming from Brad Heffern with RBC Capital Markets.

Steve, can you give your thoughts on car wash. It looks like maybe you invested more in the quarter, and you've got 4 car wash tenants in the top 20. Has been a source of investor concern at times, although not necessarily a source of concern from REITs. But do you think the sector has sort of gotten through its tough patch and what's the outlook?

Yes. Based on our analysis of the car washes, ours are performing at a high level, high rent coverage. Most of the car washes that we did, the bulk of them [indiscernible] over a decade ago. So our price point on those are extremely low, and so the rent coverage by definition, is extremely high. We're highly selective when we do carwashes. So we really look at the price point -- and what we're finding just on an ancillary note, on a few of the vacancies on the restaurants, we had some car washes interested because it's great real estate. So they want to redevelop it. And we found there is a lot of cities that wouldn't allow a car wash in the city because there's already so many. So it's kind of interesting.

I kind of look -- now there's a barrier to entry to a lot of our car washes and they're performing well. But yes, no concerns. And we were fortunate we didn't do the Zip's deal we kind of looked at all the price points of that. So we're pretty good at underwriting car wash.

Okay. Got it. And then, Vin, on G&A, it's a pretty big jump year-over-year. Is there anything unusual in there like investing in the platform or something like that?

Yes. So it is up a little bit more from a percentage basis more than inflationary amount. I think just to keep things in perspective, though, I mean, if you look at it as a percentage of total revenues, we expect to be in that 5.5 percent-ish range. So still very manageable. So in that context, not a significant jump. But there are a couple of things that are driving that increase, one of which is we were in a free rent period on our headquarters in Orlando here in 2025. And so that's about $1 million headwind in 2026. And then we did have a number of promotions.

Our team is executing well and developing well. And so we have a number of promotions as well as a few net new hires. And then lastly, we did add one new executive to the team, in August. So those are sort of the drivers of the higher than inflationary amount of G&A.

Our next question is coming from Rich Hightower with Barclays.

Vin, I want to go back to, I think, one1 of your parts of the prepared commentary where you talk about sort of debt structure being sort of matched up with the average lease term in the portfolio, and I thought that was a helpful comment. So maybe if you don't mind talking about as you sort of increase the balance of term loans relative to other sources of debt within the debt stack, how do you sort of think about that trade-off between headline coupon and duration risk if we split it up that way?

Yes. Look, it all goes into the mixer as far as how we think about it, right? I mean we do have to think about the overall cost of debt. But at the same time, we were tracking around 11 years of duration and our lease duration actually has picked up in the last 2 quarters, which is not typical. But as we think about that, we had a little bit of room to close that gap. And so that allowed us to do a little bit of shorter-term debt on the term loan side. Again, it's not a strategy in and of itself to use short-term debt. It's just looking at our assets and liability matching and making sure that we're relatively close on that front and then weaving in some lower cost of debt if we can.

Okay. That's helpful. And secondly, I guess, on one of your peer calls earlier today, we sort of heard the comment that as far as the competition within the marketplace for acquisitions, you do have some buyers maybe a little more motivated by some of the accelerated depreciation features of the OBBBA bill that passed. And so what are you seeing in that regard? Do you see sort of irrational pricing? And would this cause you potentially maybe to lean into the disposition side of guidance a little more and obviously being cognizant of sort of earnings dilution that might come with that? Just how do you balance that out?

I think [indiscernible] in point, we had elevated dispositions because we've leaned into it on the vacant and the income producing. But as far as competition, a peer that may have on a call earlier, plays in a different market. Buys open portfolios or existing portfolios and larger ones, $50 million, $100 million. The competition that is in the market currently on the private side has to deploy a vast amount of capital. They're not going to go do a $10 million, $15 million sale leaseback. So the competition really isn't affecting us.

If I had to do $1.5 billion, $2 billion, I'd probably have a different tune that competition is affecting us. But going from the midpoint of $600 million, we can find our fair share fairly easily and do the sale leaseback structure. Kind of what Vin just mentioned, it's an oddity that a net lease company lease duration, if you have any size, actually ticks up quarter-over-quarter. That's a combination of doing a sale leaseback and our acquisitions average over 18 years. But more importantly, it comes back to -- and I think it was Michael asked about the proactive portfolio management question that the proactive portfolio management is that we're selling shorter-term leases. The lease duration of our income-producing assets we sold were 6.1%. The [indiscernible] paying rent were 5%. So when you do that combination, and we sold them at a 6.4% cap rate, that's pretty stellar execution.

Our next question is coming from Omotayo Okusanya with Deutsche Bank.

Yes. So just wanted to understand, again, the occupancy, the quarter-over-quarter occupancy gain. Was most of that mainly because you just sold vacant assets? Or so we're really kind of thinking about really strong leasing activity as well in the fourth quarter and the implications for 2026?

Yes, I would say most of that upside was driven by vacant asset sales. We did have some releasing as well during the quarter. And so that's -- we're seeing good demand there, which is reflected in our recapture rates. But between, I think, about vacancies that were resolved because of vacant sales versus releasing, it's pretty heavily skewed to the vacant sales. So -- but as far as implications for 2026, again, I think we have a number of line of sight on a number of additional vacancy resolutions from an asset sale or a release perspective. And so I think we are expecting vacancies to decrease over the course, and that's reflected in our real estate expense net dropping year-over-year as well.

That's helpful. And then in regards to the '26 guidance, again, with the midpoint, 3.2% earnings growth that good to see acceleration from 2.7% in 2025. And I think, again, there is some headwind as it relates to termination fees, which was elevated in 2025. So the question is again, I just kind of think about what is normalized again not necessarily asking the '27 guidance or anything like that. But how do you guys kind of think about just normalized AFFO per share growth and kind of ultimately where you were trying to get to in terms of steady state earnings growth?

Yes. I think our bottom-up approach is we try to do that mid-single digits over the course of the long multiyear approach. And then a given year, for example, this year, '25 was 2.7%, our midpoint is 3.2%. Could the following year be elevated off of that. It's all [indiscernible] on the macroeconomic and the composition of the portfolio. But mid-single-digit consistent FFO growth is -- you followed us for a while that's our mantra.

Our next question is coming from Alec Feygin with Baird.

So you mentioned in your prepared remarks that you expect cap rates to compress later down in the year. Is that due to deal mix, -- or can you just speak about why that's your assumption?

I think it's a prudent assumption to think you might have a little compression in the cap rate. And it's really driven by working, as I said, in a highly competitive environment, it's driven by the pressure of peers deploying capital. And that's what it comes down to as we move through the year.

[Operator Instructions] Next question is coming from Linda Tsai with Jefferies.

The $3.55 midpoint of your AFFO per share guidance include a refinancing headwind from the $350 million debt coming due in December?

Linda, yes, we do have that debt coming due. It's not until the end of the year. So we do have some refinancing assumptions embedded, but it doesn't -- the actual refinancing part doesn't really impact us too much just given how late in the year that maturity is. But yes, we do have some assumptions embedded there.

Any sense of where -- what rate you could refinance that at?

Yes. So I mean, we're looking at a range of options. As we talked about in an earlier question, we do look at our duration and we look at our cost of debt and the different options that we have. We did execute on the term loan and a little bit shorter-term bond offering last year. So those are all still potential options. But I think if you're just talking about where could we price a 10-year today, it'd probably be in the 5.25-ish maybe 5.20% rate on a 10-year bond.

Got it. And then just a follow-up on the cap rate compression comment in 2Q and 3Q. Any sense of the magnitude?

I think it's going to be a slight compression right now. We're starting to price Q2 deals, call it, 5 to 10 basis points currently for Q2.

Our next question is coming from James Kammert with Evercore ISI.

Could you remind me after all this major acquisition activity in what is the representative average lease escalator now in the portfolio?

Yes. I mean we're a battleship, Jim. We could layer on $1 billion of acquisitions, and it's not going to change the portfolio escalator. It's still 1.5% for modeling purposes.

Fair enough. And then just to layer on, Steve, your earlier comment that you did a bit of defensive sales of occupied assets is what I read or interpreted, including in the fourth quarter. Realizing is hindsight, but what kind of drove that a little bit higher than maybe anticipated 7.6% cap rate of those 18 occupied assets disposed is that one particular tenant concentration? Or just curious what was going on there?

No, for the most part, it's -- we kind of get the "wink wink nod nod" from the tenant when we're in discussions that they want to exit a market. Who knows the market better and the asset better than the actual tenant. So we have those conversations and there was about 4 or 5 years left on leases, that they said they're not going to renew at the end of the year. So we sell them And then it wasn't one in particular tenant. There was one in particular industry. It was just kind of overall portfolio pruning. And that's -- a few of them more [indiscernible] paying rent. So the tenant wasn't occupying them. So you know those are problems that you're going to get back.

But then there's another handful of income producing where the tenant -- in this particular case, what I'm thinking of is kind of casual dining said, "Hey, we're going to exit the market or redevelop another site. So we decided those are 6 years left, so we got out of them.

Our final question today is coming from John Massocca with B. Riley.

I know you've talked a lot about kind of cap rate trends over the course of the call, but maybe are you seeing some of that compression already in the, let's call it, 1Q pipeline, given that's kind of where you have the most visibility? Or is that relatively flat on a cap rate basis versus what you saw in 4Q?

Yes, it could be Q3, Q4 and Q1, kind of what I mentioned in the opening remarks are all kind of flat because we're -- we are through pricing on the first quarter at this point. Any deals that we source now is kind of early second quarter. And knowing the pricing in the second quarter, I'm seeing a slight compression. But first quarter is flat.

Okay. And then in terms of dispositions in 4Q, of those vacant assets, kind of roughly how much of that was former [indiscernible] locations?

The vast majority were [indiscernible] opposed to former [indiscernible]. The [indiscernible], as I mentioned, we have 5 of them left, which will all be for sale. But the restaurant assets, we were marketing for a long time since [indiscernible] all 2025, issue that they just kind of completed in that fourth quarter.

Okay. And then in terms of -- as I think about the disposition assumption in 2026 guidance, I mean, how much of that is general vacant assets or even stuff tied to specifically [indiscernible] in form [indiscernible] assets?

I mean I think the -- it will be probably more of the restaurant type assets that were tied to [ Frishes ] just because that's the majority of our vacant assets. So just mathematically, it works out that way. We treat all vacant assets the same if they're [indiscernible], or another industry, it's just math. Do we re-lease it at present value of cash flow, do we dispose of it, reinvest the proceeds. It's whatever is best for our shareholders. That's what we do.

But I guess, the visibility you have today? I mean, how much of the kind of overall expected disposition volume roughly would you expect to be vacant assets. Just because you have these [indiscernible] that are still kind of...

As a percentage. '26 will be less of a percentage than '25. I think the vacant assets in '25, it was a good percentage. '26 will be less.

Thank you. We have reached the end of our question-and-answer session. So I'd like to turn the call back over to Mr. Horn for any closing remarks.

No, I appreciate you guys taking the time listening in and then good questions. Look forward to seeing you kind of through the conference season. And then we're in good shape. I'll turn the page on '25 and get back to growth in '26. Thank you.

Thank you. Ladies and gentlemen, this does conclude today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Good day, everyone. Welcome to the NNN REIT Third Quarter 2025 earnings. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Steve Horn. The floor is yours.

Thanks, Kelly. Good morning. Thank you for joining NNN's Third Quarter 2025 earnings call. I'm joined today by our Chief Financial Officer, Vin Chao.

NNN's disciplined growth strategy, proven operations and commitment to deploying shareholder money and sufficiently accretive acquisition continues. Our focus remains on delivering long-term value, navigating market challenges and capitalizing on opportunities that drive sustainable growth.

As detailed in this morning's press release, NNN delivered strong performance in the third quarter, the team did an outstanding job closing 20 deals containing 57 assets for $283 million. While maintaining balance sheet flexibility with $1.4 billion in total availability the industry-leading average debt maturity of nearly 11 years.

Based on our consistent performance, we are raising our 2025 guidance for core FFO per share to a range of $3.36 to $3.40. And reflecting the strength and discipline of our multiyear growth strategy. In addition, we're increasing our 2025 acquisition value to a midpoint of $900 million, which would be an all-time high for the company.

Before we discuss today operations and market conditions, I want to highlight several important risk management events that demonstrate NNN's proactive approach and resilience.

At home, emerging bankruptcy in late October and eliminated substantially all of its nearly $2 billion of funded debt and secured $500 million in a new financing. More importantly, NNN had 100% on of its leases affirmed during the restructuring, given the strong property level performance and low in-place rent.

Moving to the vacant assets. By the end of the third quarter, we resolved 23 of the 35 furniture assets, and we have strong interest in the remaining assets. We expect to only have two left to work out by the end of the year. There's still a real possibility of reducing that number to 0. This rapid progress reflects both the quality of our real estate and the effectiveness of our disposition and leasing team members.

Around the same time, we were doing with the furniture tenant, we proactively took back 64 assets that were previously leased to a restaurant operator by quickly executing an indiction process. This decisive action allows us to reposition the assets for future growth.

As we discussed on previous earnings calls, we executed a lease on 28 assets, which provided ample time for the new operator to prepare for openings, commenced rental payments, more importantly, allow us to evaluate the performance. However, an unfortunate legal dispute that does not involve NNN arose between our new tenant and former tenant and is ongoing with no definitive end.

With that backdrop, during the quarter, NNN and the tenant agreed to part ways due to the continued legal uncertainty, temporarily reducing our occupancy to 97.5% as of September 30.

Out of the 64 properties, 15 have been sold or re-leased, 12 more are slated to be resolved by year-end and 14 more are expected to be sold during the first quarter. Based on our execution and current visibility since the end of September, we are confident that our occupancy will again exceed 98% by year-end. We have clear line of sight to resolving more than 75% of the former furniture and restaurant operator assets by the end of the first quarter of 2026.

Importantly, NNN has already recognized the full financial impact of these events positioning us for earnings upside as we release these assets and redeploy the proceeds from the sales without the need for future capital. NNN's proactive management, rapid asset resolution reinforces our ability that turn short-term challenges into long-term value creation. We are well positioned to capture upside as these assets are resolved, further strengthening our portfolio and supporting continued growth.

Turning to the operating results. Portfolio of approximately -- or portfolio of 3,697 freestanding single-tenant properties across all 50 states continue to perform well. I would classify this quarter as a home run on renewals. 92 of the 100 renewed ahead of our historical renewal rate of 85%. More importantly, rental rates were 108% above prior rents. We also leased seven new properties to new tenants at rates of 124% of previous rents, demonstrating strong demand and execution. Our asset management team and leasing team have done a fantastic job getting deals done at a high level. Our tenant base remains stable no material concerns at this time.

Moving to acquisitions. During the quarter, we invested 283. 57 new assets, an initial cap rate of [ $7.3 million ] with an average lease duration of nearly 18 years due to the sale-leaseback nature of our deals. The first 9 months, we've invested $750 million in 184 properties at a cash cap rate of $7.4 million, which has NNN tracking to a record year of acquisition buying.

As we move through the year, cap rates for the most part have stabilized, and I don't see any material way either up or down as we head into the fourth quarter and for the deals we were pricing for the first quarter of 2026.

As one of the original net lease companies in the public markets, NNN has successfully operated the diverse economic cycles, while private capital has increased competition, especially for the large portfolios, our disciplined approach and long-standing tenant relationships enable us to consistently execute and deliver a highly competitive environment.

During the quarter, we sold 23 properties, 11 of which were vacant, generating $41 million in proceeds from redeployment into income-producing properties. Also, the properties we sold were not core assets and the sales were executed at approximately 145 basis points below our invested cash cap rate, demonstrating strong upfront underwriting and value extraction.

Our balance sheet is one of the strongest in the sector. Our credit facility has plenty of capacity, as I mentioned earlier, with no balance outstanding and we maintained the industry's best nearly 11 years weighted debt maturity. NNN is well positioned to fund our remaining 2025 acquisition guidance and beyond. With a robust pipeline, strong financial foundation, improvement leadership, NNN is well positioned for continued success we are committed to optimizing our portfolio, driving sustainable growth, enhancing shareholder value.

With that, let me turn the call over to Vin for more color and detail on our quarterly numbers and updated guidance.

Thank you, 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 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 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.

Now on to results. This morning, we reported core FFO of $0.85 per share and AFFO of $0.86 per share for the third quarter of 2025, up 1.2% and 2.4%, respectively, over the prior year period. Annualized base rent was $912 million at the end of the quarter, an increase of over 7% year-over-year. Our NOI margin was 98% for the quarter, while G&A as a percentage of total revenues and as a percentage of NOI was about 5%. Cash G&A was 3.6% of total revenues.

AFFO per share for the quarter was slightly ahead of our expectations, driven primarily by lower-than-planned bad debt and higher interest income on our cash balances. Free cash flow after dividend was about $48 million in the third quarter. Lease termination fees totaled $669,000 in the quarter or less than $0.05 per share. This line item has begun to normalize following the proactive monetization of the largest of our dark on paying tenants.

From a watch list perspective, there have been no material changes since last quarter. And while we remain vigilant regarding potential issues, we do not currently view any of our watch list tenants as near-term concerns. At Home, which remains on the box list, successfully exited bankruptcy with a significantly derisked capital structure, reducing total debt by $1.5 billion through the bankruptcy process. As expected, at home, as seen all of our properties, reflecting the strength of our underwriting and the high quality of our real estate.

Turning to the balance sheet. Our Baa1 balance sheet remains in great shape. At the end of the quarter, we had no floating rate debt. No encumbered assets and $1.4 billion of liquidity, including full capacity on our $1.2 billion revolver and almost $160 million of cash. Our leverage ticked down modestly to 5.6x from 5.7x last quarter, and our debt duration remained the highest net lease space at 10.7 years.

As previously announced, on July 1, we issued $500 million of 4.6% and 5-year unsecured notes. Additionally, during the quarter, we issued 1.7 million shares, primarily through our ATM as part of our overall capital plan for the year. In total, we raised $72 million in gross proceeds at a weighted average price of $42.89 a per share.

Looking forward, we had a $400 million 4% coupon bond maturing later this month. With our July bond offering, we have prefunded a portion of this pending maturity and our force balance sheet provides us with multiple options to refinance accounts. As I've stated on prior calls, our balance sheet is a source of strength, and we will look for ways to utilize this competitive advantage to support growth while protecting downside risk.

On October 14, we announced a $0.60 quarterly dividend payable on November 14, which equates to an attractive 5.6% annualized dividend yield and a healthy 70% AFFO payout ratio. Notably since going public in 1984, NNN has paid over $5 billion in total dividends.

I will conclude my opening remarks with some additional comments regarding our updated outlook. We are raising core per share guidance to a new range of $3.36 to $3.40 and AFFO per share to $3.41 to $2.45. Increases reflect our year-to-date outperformance versus plan as well as our updated assumptions over the balance of the year. We now expect to complete $850 million to $950 million of acquisitions of $250 million from our prior forecast. We expect fourth quarter acquisitions will be weighted towards the back half of the quarter.

At the $900 million midpoint, our updated guidance represented a record level of annual investment volume for the company. We are also increasing our disposition outlook by $50 million to a new range of $170 million to $200 million. As a reminder, we typically fund our investments with a leverage-neutral 60-40 mix of equity and debt. From a credit loss perspective, we are now including 25 basis points of bad debt in our full year outlook, including about 20 basis points booked year-to-date. This is down from our prior 60 basis points projection given our limited losses thus far, the successful resolution of the at-home bankruptcy and the collection of prepetition rent from At Home. Lastly, there were no notable run rate adjustments to call in the third quarter.

With that, I'll turn the call back over to the operator for questions.

[Operator Instructions] Your first question is coming from [ Jana Galan ] with Bank of America.

This is Dan Byun of for [ Jana ]. My first question is we get a little bit more color around the outsized interest income as well as just what caused the increase at the low end of the range?

Yes. For interest income, really, we did do the debt offering in July 1, and so we were sitting on a fairly high cash balance. And interest rates on that, we were deploying that into money markets and other short-term interest-bearing deposits and rates were a little bit better than we had projected. So that was driving interest income. As far as the low end of the AFFO guidance, I mean, we did outperform for the quarter. And I think the upside is really fueled by the acquisition volume that we've had so far as well as what we expect for the balance of the year. Offset by a couple of things. And so I want to point to south. I think I saw a couple of notes suggesting the flow-through wasn't as much as expected. But if you look at our G&A guidance for the year, sort of the implied fourth quarter is a little bit higher than we had in the fourth quarter -- our third quarter. So that's just naturally just the timing of G&A expenses. And so there's a little bit of higher G&A in the fourth quarter and the third quarter. And as we deploy that cash into acquisitions, we will see interest income come down as well. So those are two things that are sort of a little bit of a headwind for the fourth quarter. .

Got it. And just a follow-up on the acquisition volume. Just could we get a bit more on the rationale behind using equity to fund this, given that the current stock price in your presentation, you showed that your cost of capital is around 7.3% year-to-date. It was around 7.4% cap rates. If I can get a little bit more on kind of just the investment spread and the rationale on that?

Yes. Look, I mean, I think when we think about how we deploy capital, we're looking to issue or funded, it was 60-40 equity and debt. And as far as the WACC I think what we put in the deck. Really, we don't try to change that too often. That's probably higher than a long-term debt perspective, that's higher than we would be issuing today. And so think about where are we positioned today and the potential for using a little bit shorter-term debt, just given how long our debt duration is. We probably could be in the mid-6s, maybe slightly higher than that on our hauling WACC. And so at that level, we can still fund 60-40 and be accretive on our acquisitions. We're certainly not looking to number up to drive growth.

Your next question is coming from Brad Heffern with RBC Capital Markets.

Maybe as a follow-on to that last question. I mean, [ Tripla's ] never really been a volume story historically, and it doesn't seem like spreads are uniquely attractive right now. So I guess I'm just wondering why we're seeing record volumes. Is that -- is it a pull from your relationship tenants? Or is there something that I'm missing on the cost of capital side that makes it more attractive than normal?

No. Again, you've been touched based on the cost of capital, yes. But our relationships are in the market, and we had the ability to do a little bit more elevated volume in the third quarter. And yes, basically, the tenants are kind of pushing us to do a little bit of the deals. And it's still accretive, maybe that historically as accretive. But yes, it's good deals, good real estate, and we can service the tenant base.

Okay. Got it. And then there's been a decent amount of talk on your peers' calls this quarter about increased competition. Obviously, you're seeing very high volumes. So I'm curious, are you seeing that? And is it impacting pricing at all?

I mean we've always operated in a highly competitive market, as I've been with the company. You had private REITs, non-traded REITs always in the market and it's a highly competitive space. The difference is now you're having more financial institution brand names that people recognize in the space. So that being said, the larger portfolios we're seeing increased competition and they're using leverage to lower the cap rates. The good news is NNN doesn't need to do that ridiculously high volume, so we don't need the big portfolios. And the $15 million to $20 million deals. We're not seeing that much competition outside of our ordinary competitors. We did five deals this past quarter under $5 million. So we're still finding our fair share.

Your next question is coming from Michael Goldsmith with UBS. Your line is live.

You provided an update on that home, and it seems like the fishes dolly situation. But are you seeing any other credit issues within your portfolio? And what are your bad debt assumptions now maybe compared to where they were earlier in the year?

I'll take the first half of that. Currently, our overall portfolio, just based on the bad that we mentioned earlier is in really good shape. And we are getting to a solution on the restaurant and the furniture tenants here in short over the next 4 months. And I'll let Vin talked about the bad debt assumptions.

Yes, Michael. As far as bad debt goes, as I mentioned in my prepared remarks here, we have assumed for the full year now 25 basis points of bad debt, that is down from our prior expectation of 60 basis points. And that's largely a function of at-home resolving with no issues and assuming all of our leases. We've also had pretty limited bad debt so far this year, roughly 20 basis points booked year-to-date. And then what's helping the fourth quarter a little bit here is we are actually getting prepetition rent from at home. So we'll have no for the loss from at home by the end of the year.

Got it. And as a follow-up, can you just kind of walk through the occupancy path going forward? I think you kind of laid out some sort of laid out kind of the plan of disposing of some assets. But can you just kind of walk through the trajectory and where it should be kind of by the end of the year and during 2026.

Yes. Kind of when I touched based on my prepared remarks. For the most part, it's the restaurant operator and 15 have been solved. So we have 12 more that will be resolved by the year-end, which will help with our occupancy. And we have 14 more that are under contract or under advanced negotiations that potentially can be resolved a little bit in the end of the year. But if not, for the most part, it will be resolved in the fourth quarter and kind of what we talked about with our renewals being at 92% this past quarter. That helps with the occupancy on a go-forward basis. And we don't see any other tenants in the portfolio that are calling us that there's issues.

Yes. One other thing on that, Michael, Steve mentioned the former restaurant tenant. But on the for furniture tenant, we do have line of sight on 10 additional resolutions by the end of the year. So another 10 vacancies that were targeted to be out of completed by year engine.

Your next question is coming from John Kilichowski with Wells Fargo.

The first one for me would be back on the cost of capital question. I'm just trying to think about '26 here. And Vin, I think you gave some helpful color on that your cost of debt might be a little bit tighter and therefore, there's some spread here, but it's inside of 100 bps. I'm curious, at what point would your stock need to trade or where would your AFFO yields or your CapEx need to be where the spread would you would say is insufficient, and therefore, equity is no longer a consideration.

Yes. Look, I think the way we think about 2026, right, we've stated repeatedly that we can self-fund about $550 million without really hitting equity markets. And so that part is sort of addressed upfront. And then beyond that, we would require some additional equity if we wanted to maintain leverage mentality. Part of the solution could be to lean into dispositions a bit more. We do have higher vacancies than usual. And so that is a potential source of capital that can offset some of the equity needs or stock needs, I should say. But as far as when the stock price or where the stock price would be to say, "Hey, we're just cutting off equity". I mean I think that is hard question without knowing exactly what we're talking about buying. But I think the reality is we certainly don't want to be sufficiently less than where we're at today. And I think it's a case-by-case situation when we're dealing with the deal in front of us, it's hard to kind of talk theoretically.

Okay. And then the second one would just be on sort of onetime fees, any termination fees, anything else that you've received this year that you would expect to roll off next year to be somewhat of a headwind? I know I think historically, you've talked about maybe a $3 million being a run rate number. Is that a reasonable expectation for next year? And what would that mean as far as [ de-sale ] from this year?

Yes. Well, I think we had booked about $11 million year-to-date. So I think $3 million is probably more consistent with historical levels, and you saw that our volume or lease emission volume in the quarter. did normalize down to about $670,000. So we are starting to see some normalization, as I mentioned in the last quarter, I think we had a number of very large dark but paying tenants that we've been working our way through, and that was driving the outside of the [ tonation fees ]. So call it, $11 million to $3 million, would be the $8 million headwind. But I will point out, though, if you look at our real estate expense net, that's going to be the offset, maybe not 100%, but we do -- we expect to be around 7.5 million of real estate expense net this year, and that's largely because of the vacancies. As these vacancies they are addressed, and we kind of outlined visibility on 2020 plus by the end of the year to be resolved, that real estate expense and that will come down to our historical levels, which is closer to $12 million or so. So that will be a natural offset to termination had.

Your next question is coming from Spencer Glimcher with Green Street. Your line is live.

In regards to the higher acquisition volume, despite the lower spreads you're seeing today, do you think that the increased competition is impeding your ability to push cap rates with existing tenants? Because I would think with the long-standing relationships here, you have some leverage just given surety of close and just familiarity with your team. So do you think that the alternative capital sources are kind of swinging the pricing power pendulum more to tenants than we've seen historically?

I mean our relationship tenants are very sophisticated tenants and understand what the market is. So we're not stealing properties from our tenants. Yes, we may get 5, 10 basis points for certainty of closing, saving money on the transaction costs because our documents are in place. But I don't think it's the increased competition because what I stated we're always operating in a highly competitive market, just the names come and go.

Okay. Yes. And then I think you mentioned you did deals with seven new tenants and sorry if I missed this, but can you just provide some color on what industries or segments these are in? And you got a sense from these newer tenants that their growth pipeline look like in the next 12 to 24 months? Just trying to get a sense if these are higher-growth tenants in the near term.

Yes. The seven new tenants were just vacancies that we re-leased and primarily in the convenience store, QSR, auto service sector. But no, I don't have a grasp to give you a good number about their growth trajectory over the next 12 months. However, there's high demand for our vacant assets. So I feel like our tenants are trying to grow, and we're actually getting some new tenants portfolio.

Your next question is coming from Smedes Rose with Citi. Your line is live. Your line is live.

We'll come back to me Smedes.

Okay. You got it. Your next question is Rich Hightower with Barclays. Your line is live.

I guess really quickly on the at-home rent. Have you guys disclosed the -- I guess, the amount of prepetition rent that you've gotten from them or that you expect in 4Q?

Yes, Rich. Yes, at this point, we haven't disclosed the dollar amount, but at this point, we have collected all of that.

Okay. Great. And then I guess, maybe bigger picture, just -- it seems like renewal spreads have been pretty good, maybe relative to history. I mean, do you expect that trend to continue, maybe just with sort of the supply-demand tightness in retail generally? I mean what are you kind of seeing on that front?

And as we move forward, I'm not expecting it to be below our historical norms given the conversations we're having for the 2026 renewals. But do I think it is sustainable on the re-leasing to have 125%? Probably not. It will be closer to kind of our 100% renewal probably or re-leasing. And the renewals, I kind of expect to fall between that 85%, 95% range.

Next question is coming from Wes Golladay with Baird.

Just want to look at the acquisition guidance. It looks like it's implying about $100 million to $200 million for the fourth quarter, which is typically a big quarter for you guys. So just curious if you pulled any deals forward into 3Q? Or are you just being conservative here?

I think it's a little bit of a combination, Wes, that we pulled a little bit of the deal volume into the third quarter. And as Ben mentioned, that we have some deals that are slated to close probably back half of the fourth quarter. So you do want to be a little conservative if they did slide to the first quarter.

Your next question is coming from Ronald Camden with Morgan Stanley. Your line is live.

This is Jenny on for Ron. I hope you guys are doing well. Just want to follow up on the AT Home portfolio. Just curious, are you looking to hold those assets? Or if you have any plan to kind of dispose down?

Yes. I mean, given the position that At Home is in currently, it was a balance sheet issue, and they solved that issue. Their credit profile going forward is pretty solid. But more importantly, it's a testament to the real estate quality and the in-place rent being so low on those assets that they're good real estate and financially, they're performing. So there's no needer reaction to sell those assets. Now if somebody comes and offers us a really good deal Yes, absolutely, we would sell that at the right price.

Makes sense. Just switching gears to kind of refinancing plan. Have you thought about your debt maturity in 2026 yet? And like what's your approach given the current rate environment?

I think you said '26, [indiscernible] the '25, but yes. As far as the November maturity, we are looking at a variety of options. As I mentioned, we have some flexibility on how we deal with it. Certainly, we could running on line for some period of time. We have plenty of capacity focused on our revolver. That's one option. We could -- obviously, we could hit the bond market. We are looking at we've been considering some bank debt as well. We've got a maturity hole in 2029 that fits. And given the size of what we expect we'll need by the end of the year here and it fits a bit more in line with bank loan as opposed to a bond deal. So a couple of different options we're weighing, but we certainly are -- we've got lots of options as well.

Next question is coming from Linda Tsai with Jefferies. Your line is live.

If your cost of equity stays the same, with the mix of disposed and free cash flow and debt usage look similar for 2026 acquisitions?

Yes. I think if our cost of equity stay where it's at, it certainly makes the hurdle it makes it a little bit more challenging. So I mean, depending on what we're sourcing on the acquisition side will be part of the equation. But I think from a disposition perspective, yes, equity where it's at today, dispositions could be an alternative form of equity to help fund yields.

So yes, I mean I think free cash flow is what it is. It's not like I can increase that just or decrease it something that will be around $200 million or so. But I think that's a good point, though, and we're talking about the spread. I know that that's what folks are focused on in terms of earnings and whatnot. But from a cash flow perspective, even if the spread is a little tighter than we'd like it to be, we are still getting good cash flow spread on that. If we think about the dividend yield. And so that generates more free cash flow, which then generates additional internal capacity.

And then on Steve's comments that tenants are pushing you to do more deals. Can you give us some color on who these tenants are? And would these be the same types of tenants that would push you to do more higher acquisition volume in '26?

No. I mean, when I say push, there's opportunities to do deals with that event. And we passed on a lot, and we did at elevated number this year. But historically speaking, we kind of did that $750 million range. So midpoint of $900 million is not a big jump in acquisition volume per se. It just elevated a little bit. But primarily, it was kind of the auto services, auto parts of our portfolio that are being active of doing some new development and small M&A. .

Does that continue in '26?

In 2026, we only have line of sight in our industry, 60, 90 days. And the first quarter is starting to -- or pricing deals in the first quarter right now. I can't speak second or third quarter if they continue.

One final follow-up, just on the idea of tenants not calling you with any credit issues. What is the line of sight for that type of situation?

Usually, it's -- I mean, it could be 12 months. It's amazing how retailers have the innate ability to keep paying rent when things are going -- being challenged. Just per se, when you take a public company that's traded on the stock exchange just because their stock is getting hit doesn't mean they can't pay rent. They're just not as profitable. So we usually have a line of sight of 12 months plus. Just like when we were talking about freshes. I mean we were talking about fresh as 12 to 18 months because they knew the challenges were coming, and we started trying to work with them. But yes, so right now, as far as 2026, we're not hearing any rules.

Next question is coming from Jim Kammert with Evercore ISI.

Actually, just on that last point, Steve. First is kind of interesting. You said the tenant had a dispute with its former landlord or I missed that entirely. I'm trying to understand also what rent would have been collected by NNN in the third quarter that you would theoretically didn't lose correct in the fourth quarter?

I'll touch on the first part. The former tenant fishes entered into a lawsuit with our new tenant to operate in the markets. and it's tied up in the courts. And we thought we were going to have resolution spring time, early spring, but the courts keep delaying decision first kicked it out. I believe it was September then kicked it out until November. And that's when we decided we have to move forward and monetize these assets or re-lease them.

Yes. And Jim, on your second part of your question, I'm not sure I was following there. You were saying something about getting some fleet in and then giving it back later was a follow-up.

No, I'm sorry, I'm saying, did you collect rent from, I guess, it was Dollies or whatever it was the new tenant. Did you collect rent fund in the third quarter, meaning that, obviously, you're taking these assets back [Audio Gap]

[Operator Instructions] Your next question is coming from John Massocca with B. Riley Securities. Your line is live.

Apologies maybe if I missed this earlier in the call, but the other element of the guidance, right, is the ramp expected in 4Q in disposition activities. And I'm imagining the dollar lease situation plays a part in that. But is there anything else factoring into the acceleration in dispositions expected by year-end? And I guess in the context of the form of restaurant properties, the furniture properties, the broader market, like how should we expect the split in 4Q disposition activity to be between vacant and rent-paying assets?

Yes. I mean I think you're spot on in terms of the restaurant operator, the decision to kind of move in a different direction there is leading to some additional sale of assets. And so yes, there will be a higher mix of vacant sales than maybe we've historically had. Exactly what the split is, I can't say for sure, but I think plus might be vacant sales at this point in gout visibility.

And I guess kind of following on that question, is beyond what's going on with the former restaurant tenant properties. Is some of that increase in disposition activity at all a reaction to maybe where cap rates in capital markets are kind of diverging. Or is that just purely kind of working out of the former fishes in bad tack assets?

Yes. It's the latter part more so, but there's a high level of interest, and we have the opportunity to dispose of the former restaurant assets at good pricing. And then secondly, there's a fair amount of interest if it's QSR, convenience store for some of those restaurant assets as well.

SP257513526 I guess, I mean, I don't know if you don't give guidance on this, but it would be fair to assume kind of cap rate trends in the last 2 quarters continue into 4Q for occupied sales?

The occupied sales, yes, I still think for modeling purposes, 100 basis points inside of where we're deploying capital is probably a better number. because the tenant mix, we may do some dispositions that are defensive that would be a little bit elevated for proactive portfolio management, also selling assets at a real low cap rate. Yes, 100 basis points is what I would model. .

[Operator Instructions] There appear to be no further questions in queue at this time. I would now like to turn the floor back over to Steve Horn for closing remarks.

Thanks for joining us this morning, and we'll see many of you in person in the next few weeks and then into NAREIT. Enjoy the rest of your day. Thanks.

Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.