Executive Summary / Key Takeaways

• Consistent Performance and Dividend Growth: NNN REIT has demonstrated remarkable stability and a commitment to shareholder returns, extending its annual dividend increase streak to 36 consecutive years. This long track record is underpinned by a disciplined, relationship-driven acquisition strategy and proactive asset management.
• Record Acquisition Volume and Strong Pipeline: The company is on track for a record year in acquisitions, with a raised 2025 guidance midpoint of $900 million. This growth is fueled by strong tenant relationships and a focus on accretive sale-leaseback transactions, even amidst a competitive market.
• Proactive Management of Tenant Challenges: NNN has effectively addressed recent tenant issues, including the At Home bankruptcy (with all leases affirmed) and vacancies from former furniture and restaurant operators. Management expects the impact on stabilized core FFO per share from these resolutions to be less than 1%.
• Robust Financial Health and Liquidity: NNN maintains a strong Baa1 balance sheet with significant liquidity ($1.4 billion available as of Q3 2025), no floating rate debt, and a sector-leading average debt maturity of nearly 11 years, providing substantial financial flexibility.
• Optimistic Outlook with Reduced Credit Risk: The company has raised its 2025 Core FFO and AFFO per share guidance, while significantly lowering its full-year bad debt assumption to 25 basis points, reflecting confidence in its portfolio and tenant base.

A Foundation of Stability: NNN REIT's Enduring Strategy

NNN REIT, Inc. (NNN) stands as a testament to enduring strategy in the dynamic real estate sector. Established in 1984, this fully integrated real estate investment trust has built its foundation on acquiring, owning, investing in, and developing high-quality properties. These assets are primarily leased to tenants under long-term, triple-net leases, where the tenant bears responsibility for most property-level expenses, ensuring a predictable and stable cash flow for NNN. This model has allowed NNN to achieve a remarkable 36 consecutive years of annual dividend increases, a milestone shared by only two other publicly traded REITs.

The company's strategic approach is deeply rooted in a bottom-up investment philosophy, emphasizing long-standing tenant relationships and sale-leaseback transactions. This relationship-driven model has been a consistent theme, with over 80% of its Q4 2024 deal flow and all Q1 2025 acquisitions stemming from such partnerships. For instance, NNN's institutionalization of the car wash business through sale-leasebacks began as early as 2005 with Mister Car Wash (MCW), now its second-largest tenant. Similarly, a partnership with QuickTrip, initiated in 2019, has led to substantial transactions. This approach allows NNN to gain intimate knowledge of its tenants' performance, enabling well-informed investment decisions and effectively financing tenant growth.

NNN's operational excellence, rather than proprietary product technology, serves as its core differentiator in the REIT sector. The company's "well-oiled machine" is powered by a deeply experienced team, with the average associate having over 10 years and senior leadership over 20 years of tenure. This deep institutional knowledge and battle-tested portfolio management are critical assets, enabling efficient property selection, risk mitigation, and proactive tenant management. While NNN does not develop specific hardware or software, its strategic execution, supported by robust internal processes and experienced personnel, functions as a powerful operational technology, enhancing efficiency and risk management. The company also leverages cloud computing services for certain aspects of its business, acknowledging associated cybersecurity risks.

Competitive Landscape and Market Positioning

NNN operates within a highly competitive retail REIT market, contending with both larger, more diversified public REITs and an increasing presence of private capital. Key direct competitors include Realty Income Corporation , Simon Property Group, Inc. (SPG), Kimco Realty Corporation (KIM), and Federal Realty Investment Trust (FRT). While Realty Income , for example, offers broader diversification across property types and tenant mix, NNN differentiates itself through its focused expertise in stable, single-tenant retail properties. This specialization, coupled with its long-term net-lease strategy, provides NNN with predictable income streams and a potentially lower-volatility profile, appealing to investors seeking stability.

NNN's competitive advantage is further solidified by its disciplined acquisition approach, which often targets smaller transactions ($15 million to $20 million, and even under $5 million) in areas of historical expertise. This strategy results in less buyer competition for these specific deals, allowing NNN to achieve higher initial cap rates and built-in rent growth. In contrast, larger competitors often chase "elephant deals" or big portfolios, sometimes using leverage to compress cap rates. NNN's focus on its all-American property portfolio also helps maintain management's focus, distinguishing it from peers like Realty Income (O), which are increasingly diversifying into non-retail sectors.

The company's portfolio is diversified across 50 states and various lines of trade, with top concentrations in automotive service (18.40%), convenience stores (16.20%), and restaurants (14.50%). This diversification helps mitigate sector-specific risks. NNN's underwriting emphasizes alternative uses upon future rollover and current tenant strength, ensuring the quality of its real estate. This approach has enabled NNN to maintain a high occupancy rate, which stood at 97.50% as of September 30, 2025, and has historically never dipped below 96.4% over the past two decades.

Financial Performance and Operational Strength

NNN's financial performance in the third quarter of 2025 and the first nine months of the year underscores its resilient business model. For the quarter ended September 30, 2025, rental income increased by 5.3% to $229.77 million compared to the prior year. For the nine months ended September 30, 2025, rental income grew by 5.8% to $686.85 million. Annualized Base Rent (ABR) saw a robust 7.2% increase year-over-year, reaching $912.22 million as of September 30, 2025. The company reported a net income of $96.84 million for Q3 2025, with Core FFO per diluted share growing by 1.2% to $0.85 and AFFO per diluted share increasing by 2.4% to $0.86 over the prior year period. NNN's NOI margin remained strong at 98% for the quarter.

Acquisition activity has been a significant driver of growth. In Q3 2025, NNN invested $283 million in 57 new assets at an initial cash cap rate of 7.3% with an average lease duration of nearly 18 years. For the first nine months of 2025, total investments reached $750 million across 184 properties at a cash cap rate of 7.4%. This strong volume positions NNN for a record year in acquisitions. Dispositions are also a strategic component of portfolio management, with 23 properties sold in Q3 2025, generating $41 million in proceeds. These sales, often of non-core assets, were executed at approximately 145 basis points below the invested cash cap rate, demonstrating effective value extraction.

NNN's balance sheet remains a core strength, earning a Baa1 credit rating. As of September 30, 2025, the company had $158.69 million in cash and cash equivalents and $1.20 billion available under its Credit Facility, providing substantial liquidity of $1.4 billion. The company boasts a sector-leading weighted average debt maturity of 10.7 years, with no floating rate debt and no encumbered assets, maximizing financial flexibility. NNN's leverage modestly ticked down to 5.6x net debt to annualized EBITDAre from 5.7x in the prior quarter. The company's financing strategy includes a 60-40 mix of equity and debt for acquisitions, with management estimating an all-in weighted average cost of capital (WACC) in the mid-6s, allowing for accretive investments. NNN can self-fund approximately $550 million without needing to access equity markets.

Outlook and Forward Guidance

NNN has raised its 2025 guidance, reflecting strong year-to-date performance and an optimistic outlook. The company now projects Core FFO per share in the range of $3.36 to $3.40 and AFFO per share in the range of $3.41 to $3.45. This updated guidance is supported by an increased acquisition volume forecast, now set at a midpoint of $900 million, which would mark an all-time high for the company. Disposition guidance has also been raised to a range of $170 million to $200 million.

A key positive development in the outlook is the significant reduction in the full-year bad debt assumption to 25 basis points, down from a prior projection of 60 basis points. This revision is primarily due to the successful resolution of the At Home bankruptcy, where NNN had 100% of its leases affirmed, and the collection of pre-petition rent. Furthermore, NNN has made substantial progress in resolving vacancies from former furniture (Badcock) and restaurant (Frisch's) operators. Management anticipates that occupancy will exceed 98% by year-end 2025, with a clear line of sight to resolving over 75% of these assets by the end of Q1 2026. The total impact of these tenant defaults on stabilized core FFO per share is expected to be less than 1%.

While lease termination fees, which were unusually high in early 2025 due to proactive portfolio management, are expected to normalize to historical levels of around $3 million annually, this potential headwind will be largely offset by a reduction in net real estate expenses as vacant properties are re-leased.

Risks and Challenges

Despite NNN's robust performance and strategic positioning, several risks warrant investor attention. The company's concentration in specific industry classifications and geographic regions, while diversified, could expose it to localized economic downturns or sector-specific challenges. The inherent illiquidity of real estate investments and the potential for real estate impairment losses remain ongoing considerations.

NNN also faces a highly competitive market, particularly for larger portfolio deals, where other financial institutions may use aggressive leverage to lower cap rates. While NNN's relationship-driven approach mitigates some of this, persistent cap rate compression could impact future acquisition spreads. Cybersecurity risks and reliance on cloud computing services also present operational vulnerabilities that could disrupt business and expose the company to liabilities.

Conclusion

NNN REIT, Inc. continues to demonstrate its enduring strength as a dividend champion in the net lease retail sector. Its 36-year streak of increasing annual dividends is a testament to a disciplined, relationship-focused acquisition strategy, proactive asset management, and a fortress-like balance sheet. The company's operational excellence, akin to a technological moat, enables it to consistently identify accretive opportunities and effectively manage tenant challenges, as evidenced by the swift resolution of recent vacancies and the successful resolution of the At Home bankruptcy.

With a record acquisition pipeline, a significantly reduced bad debt outlook, and strong liquidity, NNN is well-positioned for continued per-share growth. While the competitive landscape and broader economic factors present ongoing considerations, NNN's strategic focus on high-quality, fungible real estate and its proven ability to extract value from its portfolio reinforce its compelling investment thesis for long-term, income-focused investors. The company's consistent performance and clear forward guidance signal a resilient future, even in a dynamic retail environment.