NNN REIT (NNN) Q2 FY26 earnings call: guidance and Q&A

Asked about the activity driving the raised acquisition guidance, observed cap rate compression, and competition.

Management confirmed robust activity and a strong pipeline, with several portfolios in the market. Competition is mainly from other public REITs. They anticipate modest cap rate compression in H2 FY26 due to pipeline composition.

“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.”

asked by Ronald Kamdem · answered by Stephen Horn

Inquired about the current health of the portfolio given low bad debt, specific industries on watch, and if 99%+ occupancy is a historical high.

Vin Chao stated the portfolio is in its best shape since he joined, with immaterial near-term credit concerns. Steve Horn confirmed overall portfolio health is as good as ever, with no major retailers causing concern.

“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.”

asked by Ronald Kamdem · answered by Vincent Chao

Asked about the marginal cost of capital for accelerating acquisitions and the nature of dispositions (vacant vs. opportunistic low cap rates).

Vin Chao discussed improved cost of equity and a blended cost of capital around 6-7%. Steve Horn explained dispositions were mostly vacant assets (19 out of 26), with income-producing sales being non-core assets sold at tight cap rates (high 5s) to optimize the portfolio.

“As far as the dispositions, yes, the majority of the dispositions this past quarter were the vacant assets, 19 were vacant.”

asked by Jana Galan · answered by Stephen Horn

Followed up on AMC's improved credit and asked if NNN sees opportunities to reduce theater exposure.

Steve Horn confirmed NNN is actively looking to reduce movie theater exposure, especially for underperforming assets, and had already sold one in Q1. He noted the movie theater business is doing well, and AMC recently received a credit upgrade.

“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.”

asked by Brad Heffern · answered by Stephen Horn

Asked for more color on early childhood education acquisitions, the opportunity set, and cap rate trends in that space.

Steve Horn stated NNN has played in this space for 15 years and is knowledgeable. They lean in when they see the right opportunity with good initial cap rates, real estate metrics, and strong management teams. Vin Chao added that a small portfolio deal was done with a new relationship tenant, characterized by a strong management team, low-levered balance sheet, and attractive real estate.

“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.”

asked by Michael Goldsmith · answered by Stephen Horn

Asked about NNN's leverage philosophy given the decoupling of equity and debt costs, and if they would lean more on equity.

Vin Chao stated NNN targets a net debt-to-EBITDA of around 5.5x, comfortable going slightly higher temporarily. This target dictates the mix between equity and debt more than relative costs. The ability to issue forward equity provides flexibility.

“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.”

asked by John Massocca · answered by Vincent Chao