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BUILDING with
an EYE on the FUTURE
ANNUAL REPORT | 2023
TABLE OF CONTENTS
LETTER TO SHAREHOLDERS | 3
CORPORATE RESPONSIBILITY | 18
OUR OFFICERS AND DIRECTORS | 20
SHAREHOLDER INFORMATION | INSIDE BACK COVER
TOTAL SHAREHOLDER RETURN COMPARISON
(NNN = $43.10 at December 31, 2023)
NNN REIT, Inc. (NNN)
2.5%
8.5%
11.9%
10.4%
11.6%
11.0%
5 YEARS
10 YEARS
15 YEARS
20 YEARS
25 YEARS
30 YEARS
Indices
* NAREIT Equity REIT Index (FNERTR)
* Morgan Stanley REIT Index (RMS G)
S&P 500 Index (SPX)
* S&P 400 Index (MID)
* NNN is a member of this index
7.6%
7.4%
15.7%
12.6%
8.0%
7.6%
12.0%
9.3%
10.9%
10.6%
14.0%
13.3%
8.3%
8.0%
9.7%
9.8%
9.5%
9.2%
7.6%
9.7%
9.5%
n/a
10.1%
11.2%
VALUE OF $1,000 INVESTMENT
(As of December 31, 2023)
NNN REIT, Inc. (NNN)
$
1,130
$
2,251
$
5,386
$
7,247
$
15,685
$
23,016
5 YEARS
10 YEARS
15 YEARS
20 YEARS
25 YEARS
30 YEARS
Indices
* NAREIT Equity REIT Index (FNERTR)
* Morgan Stanley REIT Index (RMS G)
S&P 500 Index (SPX)
* S&P 400 Index (MID)
* NNN is a member of this index
$
$
$
$
1,442
1,429
2,072
1,809
$
$
$
$
2,149
$
4,695
$ 4,909
2,080
$ 4,508
3,111
2,422
$
$
7,091
6,508
$
$
$
4,661
6,347
6,475
$
$
$
$
9,602
$
15,304
9,007
6,170
10,051
n/a
$
$
18,128
23,839
Shareholder Information
GENERAL INFORMATION
Equiniti Trust Company, LLC (“EQ”)
55 Challenger Road, Floor 2
Ridgefield Park, NJ 07660
(866) 627-2644
SHAREHOLDER TOLL-FREE LINE
(866) 627-2644
Worldwide: (718) 921-8124
DIVIDEND REINVESTMENT
Equiniti Trust Company, LLC
Wall Street Station P.O. Box 922
New York, NY 10269
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
CORPORATE OFFICE
NNN REIT, Inc.
450 S. Orange Avenue, Suite 900
Orlando, FL 32801
(800) NNN-REIT
(407) 265-7348
www.nnnreit.com
34 CONSECUTIVE ANNUAL DIVIDEND INCREASES
FORM 10-K
A copy of the Company’s Form 10-K, as filed with the Securities and Exchange Commission (SEC) for
fiscal 2023, which includes as Exhibits the Chief Executive Officer and Chief Financial Officer certifications
required to be filed with the SEC pursuant to Section 302 of the Sarbanes Oxley Act, has been filed with
the SEC and may also be obtained by shareholders without charge upon written request to the Company’s
Secretary at the above address, or by visiting www.nnnreit.com. During fiscal 2023, the Company filed
with the New York Stock Exchange (NYSE) the Certification of its Chief Executive Officer confirming that
the Chief Executive Officer was not aware of any violations by the Company of the NYSE’s corporate
governance listing standards.
For more information and to access
our website, scan here.
2023
Highlights
$819.7 million
in property
investments, at an initial
cash cap rate
of 7.3%
4.5% FFO per
common share
growth
165 properties
acquired with a
weighted average remaining
lease term of
18.8 years
99.5% occupancy
with a weighted
average
remaining lease term
of 10.1 years
45 properties
sold for $116 million
of proceeds at an
average cap rate
of 5.9%
Maintained
dividend payout
ratio of 68%
of AFFO
3.8% Core
FFO per share
growth
34 CONSECUTIVE ANNUAL DIVIDEND INCREASES
Third longest track record of all REITs
$2.30
$2.20
$2.10
$2.00
$1.90
$1.80
$1.70
$1.60
$1.50
$1.40
$1.30
$1.20
$1.10
$1.00
1990
1995
2000
2005
2010
2015
2020
2023
318616_PROMO FINAL_PM.pdf P1
1 318616_PROMO FINAL_PM.pdf P2
2 NNN’s track record
of 34 consecutive annual
dividend increases
is the third longest
of all REITs
Dear Fellow Shareholders:
For almost 40 years, our company has been building with an eye toward the future, creating a durable
foundation balancing sustainable growth while creating shareholder value.
On May 1, 2023, we rebranded the company to NNN REIT, Inc. In many ways, changing our corporate name
is one of the most consistent things we have done.
We are, and always have been, a publicly traded Real Estate Investment Trust. We own a strong portfolio
of triple‑net‑leased properties. Our ticker symbol on the New York Stock Exchange has been NNN since
January 1994. For three decades, our web address has been www.nnnreit.com and our toll‑free phone number
has remained 1‑800‑NNN‑REIT. Many long‑term shareholders, tenants, and vendors refer to us as NNN.
For those reasons, rebranding to NNN REIT was seamless. Our core philosophy remains unchanged: we maintain
a solid balance sheet that keeps us well‑positioned to react to market conditions while reliably growing Core FFO
per share year‑over‑year and continuing our annual dividend increase track record of 34 years and counting.
MAINTAINING OUR MULTI-YEAR VIEW
For those familiar with the NNN story, our commitment to taking a multi‑year view in operating every aspect
of our business remains unwavering. Throughout our presentations, you will not find “month” as a metric on
any of our slides. While we diligently monitor monthly, quarterly, and annual market conditions, our overarching
focus remains rooted in the long term.
This steadfast philosophy has empowered us to maintain a resilient balance sheet, strategically positioning us to:
◆ Navigate through turbulent market conditions successfully;
◆ Seize opportunities promptly as they arise;
◆ Most importantly, maintain operations without requiring additional capital.
We remain dedicated to our long‑term objectives of executing our strategy through a bottom‑up approach
starting with consistent Core FFO per share growth, ensuring sustainable value creation for our shareholders
at below‑average risk levels.
2023 HIGHLIGHTS
The year was marked by several significant milestones, including our 34th consecutive annual dividend increase,
the rebranding to NNN REIT, Inc., and the expansion of our executive team to fortify our position for the future.
I am enthusiastic about the additions of Gina Steffens and Jon Adamo to our executive team. Gina, who
assumed the role of Executive Vice President and General Counsel late in the fourth quarter, brings a wealth
of experience from both public and private companies, particularly in transactional matters. Jon, named
318616_PROMO FINAL_PM.pdf P3
3 Executive Vice President, Portfolio Operations, boasts over 20 years of tenure with the company, making him
well‑equipped to drive shareholder value. Both individuals bring fresh perspectives, and I am eager to see their
contributions as we continue to grow.
Gina replaced Chris Tessitore, who retired at the end of 2023. We are grateful to Chris for his more than 18 years
of dedicated service to NNN’s shareholders, associates, board members and tenants. He was an integral part
of the growth of NNN, navigating our legal efforts with a steady hand, sound judgment and an innate skill for
solving complex issues. We wish him a happy retirement.
Operational highlights for the year included:
◆ The annual dividend per common share increased to $2.23, marking the 34th consecutive year of annual
dividend increases, positioning us among the top REITs;
◆ Core FFO per common share increased by 3.8% over the prior year;
◆ AFFO per common share increased by 1.6% over the prior year;
◆ A dividend yield of 5.2% at December 31, 2023;
◆ Raised $31.4 million in net proceeds from the issuance of 726,364 common shares;
◆
Issued $500 million principal amount of 5.600% senior unsecured notes due 2033;
◆ Maintained a sector‑leading 12‑year weighted average debt maturity;
◆ Achieved a total average annual shareholder return of 11.0% for the past 30 years, outperforming industry
equity averages across various time periods.
O P E N
TENANTS
390
TENANTS
PROPERTIES
3,532
PROPERTIES
STATES49
STATES
37
LINES OF TRADES
ANNUALIZED BASE RENT
$819M
LINES OF TRADES
ANNUALIZED BASE RENT
OUR APPROACH TO ACCRETIVE ACQUISITIONS
In 2023, NNN strategically added nearly $820 million of real estate to our property portfolio. While our
acquisition total may not match the volumes of others, this is by design. And this strategy sets us apart from
some other REITs.
NNN consciously differentiated from the other companies’ strategies of pursuing high volumes of acquisitions
with lower returns in recent years. Instead, we prudently invested capital into new property acquisitions,
responsibly growing our portfolio while managing associated risks.
Unlike companies that adopt a binary approach to accretion, viewing acquisitions simply as either accretive
or not, we embrace a nuanced perspective. We recognize varying levels of accretion, factoring in relative risk
to our investments. Our focus remains on acquisitions that we believe will yield appropriate returns relative
to the risk involved.
Throughout the year, we deployed approximately $820 million in property investments, including the acquisition
of 165 properties with an aggregate gross leasable area of approximately 1.3 million square feet at an initial
cash cap rate of 7.3% and a weighted average remaining lease term of 18.8 years. The majority of the capital
318616_PROMO FINAL_PM.pdf P4
4 deployed was directed towards our relationship business
partners. Additionally, the long‑term projected yield on 2023
acquisitions stands at 8.6%, showcasing the effectiveness
of our sale‑leaseback acquisition model over buying existing
shorter‑term leases.
Despite a market characterized by fluctuating bid-ask spreads
and ongoing price discovery, we maintained our thoughtful and
disciplined underwriting approach throughout 2023. By year‑end,
NNN’s average acquisition cap rate saw an uptick of almost 100
basis points year‑over‑year.
CORE PORTFOLIO PERFORMANCE
In 2023, NNN achieved a commendable 3.8% Core FFO growth,
bolstered by the acquisitions mentioned earlier. Moreover, the
year concluded with an unprecedented occupancy rate of 99.5%,
while dispositions of income‑producing assets were 140 basis
points lower than our acquisition cap rate.
The portfolio now comprises 3,532 freestanding properties, which
continue to demonstrate exceptional performance. With our
occupancy level consistently above our long‑term average,
we believe we are securing high‑quality properties in attractive
locations, appealing not only to existing tenants but also to
potential alternative users should the space become available.
Additionally, our portfolio boasts a robust weighted average
remaining lease term of 10.1 years.
NNN’S VACANT
STORE STRATEGY
When one of our properties becomes vacant,
we evaluate the net present value of the
alternatives for the property. That internal
evaluation – which includes a review of local
market data and the potential value of an
alternate re-use of the space – typically results
in one of three outcomes: re-lease the property;
redevelop the property; or sell the property.
Whichever outcome produces the best return
for NNN shareholders will dictate our action.
From 2007-2023:
◆ 83% of leases renewed – 983 leases out
of 1,180 (230 tenants)
◆ 67% of renewals were above prior rent,
25% below and 8% equal to
Overall, our battle‑tested portfolio performed exceptionally
well over the course of the year. However, we do business
with retailers and occasionally challenges do present themselves.
During the fourth quarter, our tenant Rite Aid filed for bankruptcy
protection, however, we anticipate minimal impact. At the time of the
filing, NNN owned six properties leased to Rite Aid, and as of the end of
January, two of those leases had been rejected by the tenant. However, the
rent on these properties aligns closely with market pricing, indicating strong rent
recovery within our historical averages.
On the disposition front, we raised approximately $116 million from the sale of 45 properties
at an average cap rate of 5.9%, including 21 vacant properties. While our priority remains to
re‑lease vacancies, we will continue to divest nonperforming assets when a clear path to generating
rental income is not evident within a reasonable time frame.
CORPORATE RESPONSIBILITY
We are proud of the progress made with our corporate responsibility activities over the last several years.
A significant internal update was the creation of an in-house corporate responsibility team which reports directly
to our Executive Vice President and General Counsel. This group focuses on environmental data collection and
property-level sustainability, while continuing to evolve the company’s sustainability program. Our corporate
stewardship is important to us and we are set up for consistent and meaningful improvements going forward.
318616_PROMO FINAL_PM.pdf P5
5 WELL-LADDERED DEBT MATURITIES
Weighted average debt maturity of 12.0 years as of December 31, 2023,
including a balance of $132,000,000 on the bank line of credit which matures June 2025
$500M
$450M
$400M
$350M
$300M
$250M
$200M
$150M
$100M
$ 50M
$ 0M
4.0%
3.5%
4.3%
2.5%
3.9%
3.6%
5.6%
3.5%
3.0%
4.8%
3.1%
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2048
2050
2051
2052
2024 AND BEYOND
Based on our initial acquisitions guidance for the year, NNN is well‑positioned
to execute our 2024 strategy with minimal capital market activity. Leveraging
disciplined use of our bank line of credit, combined with approximately
$180 million in annual free cash flow and an anticipated $100 million from
disposition activities, we aim to continue our thoughtful approach to capital
deployment. Management takes pride in being best‑in‑class capital allocators,
prioritizing quality over quantity. However, we remain open to capitalizing
on opportunities that may arise as market conditions evolve throughout
the year.
In conclusion, NNN remains committed to its long‑term view and measured
approach to operations, maintaining a conservative balance sheet philosophy
to capitalize on market opportunities. We extend our gratitude to our
investors and stakeholders and look forward to maintaining your confidence
as we navigate the future together.
Sincerely,
Stephen A. Horn, Jr.
President and Chief Executive Officer
March 2024
STEPHEN A. HORN, JR.
President and
Chief Executive Officer
NNN’s 25-year
average occupancy
rate is 98%
318616_PROMO FINAL_PM.pdf P6
318616_PROMO FINAL_PM.pdf P7
7 318616_PROMO FINAL_PM.pdf P8
8 318616_PROMO FINAL_PM.pdf P9
$1,000 invested in NNN stock in 1994 would now be worth $23,016A net lease requires the tenant to directly pay many of the costs associated with a property. Our properties are typically leased on a triple-net basis, meaning the tenant pays for the real estate taxes, maintenance, insurance and utilities at the property level. We believe strongly that TRIPLE-NET LEASES provide increased stability to our RENTAL REVENUE OVER THE LONG TERM; we are insulated against increases in these property operating costs and our rental income growth goes directly to the bottom line. The real estate industry moniker for triple-net leases is “NNN,” which was selected as our New York Stock Exchange ticker symbol in 1994.GINA M. STEFFENSExecutive Vice President & General Counsel“NNN stands out because of its consistency, stability and impressive track record - and now that I’ve joined NNN, it is clear that consistency is not simply marketing rhetoric but a pillar of the NNN company culture. I’m excited to be a part of this team and about the future vision for NNN’s next stages of growth.”Triple‑Net Lease9 100% of assets
unencumbered
– no mortgages
NATIONWIDE REACH
(As a percentage of annualized base rent as of December 31, 2023)
ROCKY
MOUNTAIN
213 Properties
6.7%
MIDWEST
942 Properties
25.0%
NORTHEAST
426 Properties
14.4%
WEST
134 Properties
4.6%
SOUTH
824 Properties
22.9%
SOUTHEAST
993 Properties
26.4%
Top Five States
by Number of Properties
Texas
Florida
Ohio
Georgia
Illinois
549
278
195
172
169
3,532 Properties
390 Tenants
37 Lines of Trades
NNN'S STRATEGY RESULTS IN HIGHER OCCUPANCY, LESS VOLATILITY
NNN
REIT Industry (Excluding Hotels & Healthcare)
98.3%
98.2% 98.3%
97.4%
97.0%
96.7%
96.4%
96.9%
97.4%
97.9%
98.2%
98.6%
99.2%
99.1%
99.1%
99.0%
98.2%
99.0%
98.5%
99.4% 99.5%
NNN 98.1%
Average
93.5% 93.5%
93.0%
92.8%
92.1%
92.0%
93.3% 93.5%
93.7% 93.6%
92.7%
92.5%
92.0%
90.5%
90.1%
90.8% 90.7%
91.1% 91.0%*
90.1%
87.1%
100%
95%
90%
85%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
*REIT Industry Average as of Q3 2023
Source: S&P Capital IQ
318616_PROMO FINAL_PM.pdf P10
10 318616_PROMO FINAL_PM.pdf P11
NNN celebrated the 30th anniversary of our listing on the New York Stock Exchange by ringing the Closing Bell® on February 14, 2024.Image courtesy of NYSE Group. NYSE does not recommend or endorse any investments, investment strategies, companies, products or services.11 318616_PROMO FINAL_PM.pdf P12
12 JASON LAPIERRE
Vice President, Enterprise Systems
“We take pride in creating proprietary systems and reporting solutions that
enhance decision making. In the past year, our Enterprise Systems team
created applications for managing the acquisitions pipeline, capturing key
property and lease-related activities, and assigning those activities to
associates across multiple departments. These applications and related
reports have replaced manual operations, providing a single platform for
associates to quickly find and share information.”
LEASE EXPIRATIONS
Weighted average remaining lease term of 10.1 years
Only 6.8% of leases expire through 2025
(As a percentage of annualized base rent as of December 31, 2023)
60%
50%
40%
30%
20%
10%
0%
2024
2025
2026
2027
2028
2029
2030
2031
2032
Thereafter
13 318616_PROMO FINAL_PM.pdf P14
83% of leases renewed since 200714 318616_PROMO FINAL_PM.pdf P15
PORTFOLIO GROWTH (Number of properties owned as of December 31 for each respective year)20112012201320142015201620172018201920202021202220233,7503,5003,2503,0002,7502,5002,2502,0001,7501,5001,2501,0007503,4113,5322,9693,1182,7642,5352,2572,0541,8601,6221,4223,2233,143CONSERVATIVE BALANCE SHEET MANAGEMENTAs of December 31, 2023 – based on total gross book assets Unsecured Debt42% | $4,360.5 Million Common Equity 58% | $6,026.2 MillionGREAT PEOPLE IN A SUPPORTIVE CULTUREAverage tenure of an NNN employee is 10 years21YEARSAVERAGE TENURE OF SENIOR LEADERSHIP60%>5 YEARS45%>10 YEARS15 318616_PROMO FINAL_PM.pdf P16
16 JILL FUSSELL
Director, Property Manager
“One of the things I love about working at NNN is that everyone in the
company has the same goal: increasing shareholder value. We’re all on the
same page and that makes it easier when working with other departments.
There is a built-in efficiency because there is such depth of experience.”
TOP LINES OF TRADE
(As a percentage of annualized base rent as of December 31, 2023)
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Convenience Stores
16.4%
Automotive Service
15.6%
Restaurants – Full Service
8.7%
Restaurants – Limited Service
8.5%
Family Entertainment Centers
6.4%
RV Sales and Service
Health and Fitness
4.6%
4.5%
Theaters
4.1%
Equipment Rental
3.0%
Wholesale Clubs
2.5%
TOP TENANTS
0%
2%
4%
6%
7-Eleven
4.4%
Mister Car Wash
4.2%
Camping World
3.8%
Dave & Buster’s
3.5%
LA Fitness
3.1%
GPM Investments (C-stores)
3.0%
Flynn Restaurant Group (Taco Bell/Arby’s)
2.8%
AMC Theatres
2.7%
BJ’s Wholesale Club
2.5%
Mavis Tire Express Services
2.3%
17 Corporate
Responsibility
We are proud of the progress NNN has made in developing and expanding our corporate responsibility
strategy in recent years. We maintain an in-house Sustainability Team reporting directly to the Executive Vice
President and General Counsel, and with oversight by the Governance and Nominating Committee of the Board
of Directors. Comprising associates from various seniority levels and departments, the Sustainability Team
focuses on environmental data collection and property-level sustainability. We are committed to environmental
stewardship and believe that adhering to high standards contributes to long-term success for our stakeholders
and the community.
ABOVE: The first LEED certified convenience store in the United States, located in Gainesville, Florida.
18 OUR PEOPLE
We employ 82 top‑tier professionals at our headquarters in Orlando,
Florida. We strive to create and maintain a culture that enhances their work
experience and incentivizes them to remain a long‑term part of our team.
Statistics suggest we’re well on our way to achieving that: almost half of our
associates have been with the company for 10 years or longer; the executive
team, department heads, and senior managers average more than 21 years of
experience with the company.
OUR ETHICS
As a fiduciary to our shareholders it is paramount that NNN REIT conducts
business with integrity and with an unwavering commitment to the highest
level of ethics in everything we do. To help ensure that we meet our goal of
operating at the highest ethical level, NNN REIT has adopted a set of Guiding
Policies, which include our Corporate Governance Guidelines, Code of Business
Conduct Policy and Whistleblower Policy.
OUR ENVIRONMENT
As an owner of more than 3,500 triple‑net‑leased properties throughout
the U.S., we are also committed to good stewardship of the environment.
We actively engage with our tenants and other stakeholders to reduce
our energy, emissions, and water usage footprint. We have also implemented
various initiatives at our EPA ENERGY STAR® certified corporate headquarters
to minimize our own impact on the environment.
OUR COMMUNITY
For more than three decades, NNN has been an active partner with numerous
organizations to help our community become a better place to live and work
for everyone. We encourage our associates to volunteer and be actively
involved in the betterment of the Central Florida community. Our longest
running partnerships include Boys & Girls Clubs of Central Florida, Ronald
McDonald House of Central Florida, and Elevate Orlando. One of our newest
relationships is with the Coalition for the Homeless of Central Florida.
318616_PROMO FINAL_PM.pdf P19
19 Our Officers and Directors
EXECUTIVE
OFFICERS
STEPHEN A. HORN, JR.
President & Chief Executive Officer
KEVIN B. HABICHT
Executive Vice President
& Chief Financial Officer
MICHELLE L. MILLER
Executive Vice President
& Chief Accounting and
Technology Officer
GINA M. STEFFENS
Executive Vice President,
General Counsel & Secretary
JON ADAMO
Executive Vice President,
Portfolio Operations
DIRECTORS
STEVEN D. COSLER, CHAIRPERSON
Operating Partner
Water Street Healthcare Partners
PAMELA K. M. BEALL 1, 2
Retired Executive Vice President
& Chief Financial Officer
Marathon Petroleum Corporation
DAVID M. FICK 1, 3
Adjunct Professor
Johns Hopkins University
Carey Business School; and,
President
Nandua Oyster Company
EDWARD J. FRITSCH 2, 3
Retired President
& Chief Executive Officer
Highwoods Properties, Inc.
ELIZABETH CASTRO GULACSY 1
Former Chief Financial Officer & Treasurer
SeaWorld Entertainment, Inc.
KEVIN B. HABICHT
Executive Vice President
& Chief Financial Officer
NNN REIT, Inc.
BETSY D. HOLDEN 1, 3
Retired Senior Advisor
McKinsey & Company; and,
Retired Co-CEO
Kraft Foods, Inc.
STEPHEN A. HORN, JR.
President & Chief Executive Officer
NNN REIT, Inc.
KAMAU O. WITHERSPOON 1, 2
Chief Executive Officer
Shipt
1 Member, Audit Committee
2 Member, Governance and Nominating Committee
3 Member, Compensation Committee
20 COMMENTS/REQUEST INFORMATION
Your feedback is important to us. If you have a comment
or question, or would like to receive additional investor
information, please fill out, detach and return this card.
COMMENT/QUESTION:
PLEASE SEND ME INFORMATION ON:
Dividend Reinvestment and/or Direct Stock Purchase
Investor kit
Investor fact sheet
All of this information is also available on our website at www.nnnreit.com.
Name
Address
email
City
State
Zip
NO POSTAGE
NECESSARY
IF MAILED
IN THE
UNITED STATES
BUSINESS REPLY MAIL
FIRST-CLASS MAIL
PERMIT NO. 478
ORLANDO FL
POSTAGE WILL BE PAID BY ADDRESSEE
STEPHEN A HORN, JR
NNN REIT INC
450 S ORANGE AVE STE 900
ORLANDO FL 32801-9803
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
.
Commission file number 001-11290
NNN REIT, INC.
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
56-1431377
(I.R.S. Employer Identification No.)
450 South Orange Avenue, Suite 900
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 265-7348
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Trading Symbol(s):
Name of exchange on which registered:
Common Stock, $0.01 par value
NNN
New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Accelerated filer
Large accelerated filer
Non-accelerated filer
☐
☐
☒
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of
its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
At June 30, 2023, the aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant was
approximately $7,736,299,000 based upon the last reported sale price on the New York Stock Exchange on June 30, 2023, the last business
day of the registrant's most recently completed second fiscal quarter. For purposes of this disclosure, shares of common stock held by each
executive officer and director have been excluded in that such persons may be deemed to be "affiliates" as that term is defined under the
Rules and Regulations of the Exchange Act. The determination of affiliate status is solely for the purpose of this report and shall not be
construed as an admission for the purposes of determining affiliate status.
The number of shares of common stock outstanding as of January 30, 2024 was 182,474,875.
DOCUMENTS INCORPORATED BY REFERENCE:
Registrant incorporates by reference into Part III (Items 10, 11, 12, 13 and 14) of this Annual Report on Form 10-K portions of NNN REIT,
Inc.'s definitive Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission (the
“Commission”) pursuant to Regulation 14A.
TABLE OF CONTENTS
PAGE
Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 1C. Cybersecurity
Item 2. Properties
Item 3.
Item 4. Mine Safety Disclosures
Legal Proceedings
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6. Reserved
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Financial Statements and Supplementary Data
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Part IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
Signatures
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9
23
23
24
24
24
25
27
28
44
45
78
78
80
80
80
80
80
81
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86
87
[This page intentionally left blank]
PART I
Unless the context otherwise requires, references in this Annual Report on Form 10-K to the terms “registrant” or “NNN” or the
“Company” refer to NNN REIT, Inc. (formerly known as National Retail Properties, Inc.), and all of its consolidated subsidiaries.
NNN may elect to treat certain of its subsidiaries as taxable real estate investment trust subsidiaries (“TRS”). On May 1, 2023,
National Retail Properties, Inc. changed its name to NNN REIT, Inc.
Forward-Looking Statements
Statements contained in this Annual Report on Form 10-K, including the documents that are incorporated by reference, that
are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Also, when NNN uses any of the words “anticipate,”
“assume,” “believe,” “estimate,” “expect,” “intend,” or similar expressions, NNN is making forward-looking statements.
Although management believes that the expectations reflected in such forward-looking statements are based upon present
expectations and reasonable assumptions, NNN's actual results could differ materially from those set forth in the forward-
looking statements. Further, forward-looking statements speak only as of the date they are made, and NNN undertakes no
obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated
events or changes to future operating results over time, unless required by law. NNN describes risks and uncertainties that
could cause actual results and events to differ materially in "Item 1A. Risk Factors," "Item 7A. Quantitative and Qualitative
Disclosures About Market Risk,” and "Item 7. Management's Discussion and Analysis of Financial Conditions and Results of
Operations” of this Annual Report on Form 10-K.
1
Item 1. Business
The Company
NNN, a Maryland corporation, is a fully integrated real estate investment trust ("REIT") formed in 1984. NNN's assets are
primarily real estate assets. NNN's consolidated financial statements are included in "Item 8. Financial Statements and
Supplementary Data" of this Annual Report on Form 10-K.
The common shares of NNN REIT, Inc. are traded on the New York Stock Exchange (the "NYSE") under the ticker symbol
"NNN."
Real Estate Assets
NNN acquires, owns, invests in and develops properties that are leased primarily to retail tenants under long-term net leases
and are primarily held for investment ("Properties" or "Property Portfolio," or individually a "Property"). NNN owned 3,532
Properties with an aggregate gross leasable area of approximately 35,966,000 square feet, located in 49 states, with a
weighted average remaining lease term of 10.1 years as of December 31, 2023. Approximately 99 percent of the Properties
were leased as of December 31, 2023.
Competition
NNN faces active competition from many sources, both domestically and internationally, for net-lease investment
opportunities in commercial real estate. Competitors may be willing to accept rates of return, prices, lease terms, other
transaction terms, or levels of risk that NNN finds unacceptable.
Qualification as a REIT
NNN has made an election to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as
amended (the "Code"), and related regulations and intends to continue to operate so as to remain qualified as a REIT for
federal income tax purposes. NNN generally will not be subject to federal income taxes on taxable income it distributes to
stockholders, provided that it meets certain other requirements for qualifying as a REIT. If NNN fails to qualify as a REIT in any
taxable year, it will be subject to federal income tax on its taxable income at regular corporate rates and will not be permitted
to qualify for treatment as a REIT for federal income tax purposes for the four years following the year during which
qualification is lost. Such an event could materially adversely affect NNN's income and ability to pay dividends. NNN believes
it has been structured as, and its past and present operations qualify NNN as, a REIT.
Business Strategies and Policies
The following is a discussion of NNN's operating strategy and certain of its investment, financing and other policies. These
strategies and policies have been set by management and the Board of Directors and, in general, may be amended or revised
from time to time by management and the Board of Directors without a vote of NNN's stockholders.
Operating Strategies
NNN's strategy is to invest primarily in retail real estate that is typically well located within each local market for its tenants'
retail lines of trade. Management believes that these types of properties, generally leased pursuant to triple-net leases,
provide attractive opportunities for stable current returns and the potential for increased returns and capital appreciation.
Triple-net leases typically require the tenant to pay all utilities and real estate taxes and assessments, to maintain the interior
and exterior of the property, and to carry property and liability insurance coverage. Initial lease terms are generally 10 to 20
years.
2
NNN holds each Property until it determines that the sale of such Property is advantageous in view of NNN's investment
objectives. In deciding whether to sell a Property, factors NNN may consider include, but are not limited to, potential capital
appreciation, net cash flow, tenant credit quality, tenant's line of trade, tenant's lease renewal probability, the composition of
the Property Portfolio, market lease rates, local market conditions, future uses of the Property, potential use of sale proceeds
and federal income tax considerations.
NNN's management team focuses on certain key indicators to evaluate the financial condition and operating performance of
NNN. These key indicators for NNN include items such as: the composition of the Property Portfolio (such as tenant,
geographic and line of trade diversification), the occupancy rate of the Property Portfolio, certain financial performance
metrics and profitability measures, industry trends and industry performance compared to that of NNN.
NNN evaluates the creditworthiness of its significant current and prospective tenants. This evaluation may include reviewing
available financial statements, store level financial performance, press releases, public credit ratings from major credit rating
agencies, industry news publications and financial market data (debt and equity pricing). NNN may also evaluate the business
and operations of its significant tenants, including past payment history and periodically meeting with senior management of
certain tenants.
The operating strategies employed by NNN have allowed NNN to increase the annual dividend (paid quarterly) per common
share for 34 consecutive years. NNN has the third longest record of consecutive annual dividend increases of all publicly
traded REITs.
Investment in Real Estate or Interests in Real Estate
NNN's management believes that single tenant, freestanding net lease retail properties will continue to provide attractive
investment opportunities and that NNN is well suited to take advantage of these opportunities because of its experience in
accessing capital markets, and its ability to source, underwrite and acquire such properties.
In evaluating a particular acquisition, management may consider a variety of factors, including but not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the location, visibility, accessibility, zoning and use restrictions of the property,
the geographic area and demographic characteristics of the community,
the local real estate market conditions, including potential for growth, redevelopment, market rents and existing or
potential competing properties or retailers,
the size and age of the improvements on the property and title status of the property,
the quality of construction and design of the improvements on the property and the current physical condition of the
property,
the potential for, and current extent of, any environmental issues on or around the property,
the purchase price,
the non-financial lease terms of the proposed acquisition,
the availability of funds or other consideration for the proposed acquisition and the cost thereof,
the compatibility of the property with NNN's existing Property Portfolio,
the property-level operating history,
the financial and other characteristics of the existing tenant,
the tenant's business plan, operating history and management team,
the tenant's industry,
the terms of any lease,
the rent to be paid by the tenant,
any existing debt encumbering the property which may be assumed in connection with acquiring or refinancing
these investments, and
the merits relative to other opportunities.
3
NNN intends to engage in future investment activities in a manner that is consistent with the maintenance of its status as a
REIT for federal income tax purposes. Additionally, NNN does not intend to engage in activities that will make NNN an
investment company under the Investment Company Act of 1940, as amended.
Investments in Real Estate Mortgages and Securities of or Interests in Entities Engaged in Real Estate Activities
While NNN's primary business objectives emphasize retail properties, NNN may invest in (i) a wide variety of property and
tenant types, (ii) leases, mortgages and other types of real estate interests, (iii) loans secured by personal property, (iv) loans
secured by partnership or membership interests in partnerships or limited liability companies, respectively, or (v) securities of
other REITs, or other issuers, including for the purpose of exercising control over such entities.
Financing Strategy
NNN's financing objective is to manage its capital structure effectively in order to provide sufficient capital to execute its
operating strategy while servicing its debt requirements, maintaining its investment grade credit ratings, staggering debt
maturities and providing value to NNN's stockholders. NNN's capital resources have and will continue to include, if available,
(i) proceeds from issuing debt or equity in the capital markets; (ii) secured or unsecured borrowings from banks or other
lenders; (iii) proceeds from the sale of Properties; and (iv) to a lesser extent, by internally generated funds as well as
undistributed funds from operations. However, there can be no assurance that additional financing or capital will be available,
or that the terms will be acceptable or advantageous to NNN.
NNN typically expects to fund both its short-term and long-term liquidity requirements, including investments in additional
properties, with cash and cash equivalents, cash provided from operations, borrowings from its unsecured revolving credit
facility ("Credit Facility"), or proceeds from the sale of Properties. As of December 31, 2023, NNN had $5,155,000 of cash,
cash equivalents and restricted cash and $968,000,000 available for future borrowings under the Credit Facility. NNN may
also fund liquidity requirements with new debt or equity issuances, although newly issued debt may be at higher interest
rates than the rates on NNN's existing outstanding debt. NNN has the ability to limit future property acquisitions and
strategically increase property dispositions. NNN expects these sources of liquidity and the discretionary nature of its
property acquisition funding needs will allow NNN to meet its financial obligations over the long term.
As of December 31, 2023, NNN's ratio of total debt, none of which was secured debt, to total gross assets (before
accumulated depreciation and amortization) was approximately 42 percent. The ratio of total debt to total market
capitalization was approximately 36 percent. Certain financial agreements to which NNN is a party contain covenants that
limit NNN's ability to incur additional debt under certain circumstances. The organizational documents of NNN do not limit
the absolute amount or percentage of debt that NNN may incur.
Strategies and Policy Changes
Any of NNN's strategies or policies described above may be changed at any time by NNN without notice to or a vote of NNN's
stockholders.
Corporate Responsibility and Environmental, Social and Governance Matters (“ESG”)
NNN is focused on achieving success for its stockholders, providing a world-class working environment for NNN associates,
enriching the community and preserving environmental resources. NNN operates its business in accordance with the highest
ethical standards and strives to have class-leading corporate governance standards. Holding NNN to such standards is critical
to the long-term success of NNN's stockholders, associates, and community.
4
Sustainability Team. In 2022, NNN created a Sustainability Team, which reports directly to the Executive Vice President,
General Counsel and Secretary, with direct oversight by the Governance and Nominating Committee of the Board of
Directors. The Sustainability Team is comprised of a group of associates from a broad spectrum of seniority levels and
departments of the Company, including but not limited to human resources, legal, asset management, lease administration,
accounting, underwriting and acquisitions. The team has both internal and external projects, including, but not limited to
engaging with NNN's tenants on environmental data collection and property level sustainability.
Human Capital Development. As of January 31, 2024, the Company employed 82 associates, all of which are full-time. NNN's
success is dependent upon the dedication and hard work of NNN's talented associates. NNN encourages continued
professional and personal development of all associates by providing hundreds of hours of in-person and online training
opportunities that touch all aspects of NNN's business. NNN also has associate mentoring and training programs and
formalized talent development programs at all levels of the Company. The success of NNN's commitment to its associates is
shown in the long tenure of NNN's associates. The executive team, department heads and senior managers average over 19
years of experience with NNN. In addition 46% of NNN's associates have been with NNN for 10 years or longer. The
institutional knowledge and long tenure of NNN's associates is a true competitive advantage of the Company. In addition, the
Company's gender composition is 58% female and 42% male. NNN has adopted a Human Capital Policy which is available on
the Company's website at www.nnnreit.com.
Total Rewards, Benefits & Work-Life Balance. NNN also focuses on additional benefits for its associates in an effort to make
sure the associates are not only well compensated, but also engaged, developed and satisfied with their work-life balance.
There are six key elements to NNN's total rewards system: Compensation, Benefits, Wellness, Work-Life Balance, Professional
Development and Recognition. NNN's programs include, but are not limited to, a 401(k) plan with a company match, flexible
work schedules, college saving plans, an educational assistance program, adoption benefits, flexible spending and health
savings accounts, health and wellness events, and access to a state of the art online wellness platform.
Community Service and Partnerships. NNN cares about the communities in which its associates live and work. NNN stands
behind a commitment to improving education, strengthening neighborhoods and encouraging volunteer service. NNN actively
promotes volunteering by its associates by organizing and sponsoring specific volunteer days throughout the year at various
charities, including Ronald McDonald House of Central Florida. Associates are encouraged to volunteer on work days during
work hours for these events. In addition to NNN's donation of time, NNN is also a meaningful financial investor to numerous
charities in the Central Florida community, including the Boys and Girls Clubs of Central Florida and Elevate Orlando (a
teacher mentor program for high risk urban youth that help young women and men graduate high school with a plan for the
future).
Environmental Practices and Impact. As an owner of a large number of properties throughout the United States, it is
important that NNN be a good steward of the environment. NNN demonstrates its commitment in a variety of ways both at
NNN's headquarters and at NNN's Properties across the country. Many of NNN's tenants have programs that address
environmental stewardship of the Properties they occupy and control.
NNN Corporate Headquarters. NNN's corporate headquarters is located in a building that meets the Environmental
Protection Agency's (“EPA”) strict energy performance standards to achieve ENERGY STAR® certification. As stated by the
EPA, on average, ENERGY STAR certified buildings use 35 percent less energy and generate 35 percent fewer greenhouse gas
emissions than typical buildings.
5
Property Portfolio. NNN's Properties are generally leased to tenants under long-term triple net leases with typical lease terms
of 30 to 40 years including base and option terms which gives NNN's tenants exclusive control over the ability to institute
energy conservation and environmental management programs at the Properties. The majority of NNN's tenants are large
companies with sophisticated conservation and sustainability programs designed to conserve environmental resources and
limit the impact of the use of NNN's Properties on the environment through, among other initiatives, the implementation of
green building and lighting standards, emission reduction programs and recycling programs. NNN's leases generally require
the tenants to fully comply with all environmental laws, rules and regulations, including any remediation requirements. NNN's
risk management associates actively monitor any environmental conditions on NNN's Properties to make sure that the
tenants are meeting their obligations to remediate and/or mitigate any open environmental matters. NNN's acquisition
process includes obtaining an environmental assessment from a licensed environmental consultant to understand any
environmental risks and liabilities associated with a Property and to ensure that the tenant will address any environmental
issues. Furthermore, NNN maintains a portfolio environmental insurance policy that covers substantially all of NNN's
Properties for certain environmental risks.
NNN's form leases contain "green lease clauses" which NNN encourages tenants to accept during negotiations to require the
tenants to report energy usage and emissions.
Climate Preparedness. NNN regularly monitors the status of impending natural disasters and the impact of such disasters on
the Property Portfolio. In the substantial majority of leases, NNN's tenants are required to carry full replacement cost
coverage on all improvements located on the Properties. For those Properties located in a nationally designated flood zone,
NNN typically requires the tenants to carry flood insurance pursuant to the federal flood insurance program. For those
Properties located in an area of high earthquake risk, NNN aims to require its tenants carry earthquake insurance above what
is generally covered in an extended coverage policy. In addition, NNN also carries a contingent extended coverage policy on
the Property Portfolio, which also provides coverage for certain casualty events, including fire and windstorm. In cases where
NNN's tenants do not provide coverage, or if a Property is vacant, NNN carries the necessary direct insurance coverage.
Property Portfolio
As of December 31, 2023, NNN owned 3,532 Properties in 49 states with an aggregate gross leasable area of approximately
35,966,000 square feet, and a weighted average remaining lease term of 10.1 years. Approximately 99 percent of total
Properties were leased as of December 31, 2023.
The following table summarizes the Property Portfolio as of December 31, 2023 (in thousands):
Land
Building
Size(1)
Low
High
3,913
179
Total Dollars Invested(2)
Average
High
Low
Average
5
1
$
101
11
$
10,571
45,286
$
5
30
826
2,160
(1)
(2)
Approximate square feet.
Costs vary depending upon size, improvements, local market conditions and other factors.
6
Leases
The following is a summary of the typical structure of the leases in the Property Portfolio, although the specific terms of each
lease can vary significantly. Typically, the Property leases provide for initial terms of 10 to 20 years. As of December 31, 2023,
the weighted average remaining lease term of the Property Portfolio was approximately 10.1 years. The Properties are
generally leased under triple-net leases, which require the tenant to pay all utilities and real estate taxes and assessments, to
maintain the interior and exterior of the Property, and to carry property and liability insurance coverage. NNN's leases
provide for annual base rental payments (generally payable in monthly installments) ranging from $7,000 to $4,085,000
(average of $235,000), and generally provide for limited increases in rent as a result of increases in the Consumer Price Index
or fixed increases.
Generally, NNN's leases provide the tenant with one or more multi-year renewal options subject to generally the same terms
and conditions provided under the initial lease term. Some of the leases also provide that in the event NNN wishes to sell the
Property subject to that lease, NNN first must offer the lessee the right to purchase the Property on the same terms and
conditions as any offer which NNN intends to accept for the sale of the Property. See "Results of Operations – Property
Analysis."
Governmental Regulations Affecting Properties
Property Environmental Considerations
Subject to a determination of the level of risk and potential cost of remediation, NNN may acquire a property with some level
of environmental contamination. Investments in real property create a potential for substantial environmental liability for the
owner of such property from the presence or discharge of hazardous materials on the property or the improper disposal of
hazardous materials emanating from the property, regardless of fault. In order to mitigate exposure to environmental liability,
NNN maintains an environmental insurance policy which provides some environmental liability coverage for substantially all
of its Properties. As a part of its acquisition due diligence process, NNN obtains an environmental site assessment for each
property. In such cases where NNN intends to acquire a property where some level of contamination may exist, NNN
generally requires the seller or tenant to (i) remediate the problem, (ii) indemnify NNN for environmental liabilities, and/or
(iii) agree to other arrangements deemed appropriate by NNN, including, under certain circumstances, the purchase of
environmental insurance to address environmental conditions at the property. NNN may incur costs if the seller or tenant
does not comply with these requirements.
As of January 31, 2024, NNN had 68 Properties currently under some level of environmental remediation and/or monitoring.
In general, the responsible party (which may include the seller, a previous owner, the tenant or an adjacent or former land
owner) is liable for the cost of the environmental remediation for each of these Properties.
Americans with Disabilities Act of 1990 and Similar Local and State Laws
The Properties, as commercial facilities, are required to comply with Title III of the Americans with Disabilities Act of 1990 and
similar state and local laws and regulations (collectively, the "ADA"). NNN's tenants will typically have primary responsibility
for complying with the ADA, but NNN may incur costs if the tenant does not comply. As of January 31, 2024, NNN had not
been notified by any governmental authority of, nor is NNN's management aware of, any non-compliance with the ADA that
NNN's management believes would have a material adverse effect on its business, financial position or results of operations.
7
Other Regulations, Rules and Laws
State and local governmental entities regulate the use of the Properties. NNN's leases generally require each tenant to
undertake primary responsibility for complying with all regulations, rules and laws, but failure to comply could result in fines
by governmental authorities, awards of damages to private litigants, or restrictions on the ability to conduct business on such
Properties.
Additional Information
NNN's corporate headquarters are located at 450 South Orange Avenue, Suite 900, Orlando, Florida 32801, and its telephone
number is (407) 265–7348.
NNN's website is located at www.nnnreit.com. NNN intends to comply with the requirements of Item 5.05 of Form 8-K
regarding amendments to and waivers under the code of business conduct and ethics applicable to its Chief Executive Officer,
Principal Financial Officer and Principal Accounting Officer by providing such information on its website within four days after
effecting any amendment to, or granting any waiver under, that code, and NNN will maintain such information on its website
for at least twelve months. The information contained on NNN's website does not constitute part of this Form 10-K.
On NNN's website you can also obtain, free of charge, a copy of this Annual Report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of
the Exchange Act, as amended, as soon as reasonably practicable, after NNN files such material electronically with, or furnish
it to, the Securities and Exchange Commission ("Commission" or "SEC"). The public may read and obtain a copy of any
materials NNN files electronically with the Commission at www.sec.gov.
Additional information on NNN's website includes the guiding policies adopted by NNN, which include NNN's Corporate
Governance Guidelines, Code of Business Conduct Policy and Whistleblower Policy, as well as NNN's position on corporate
governance and risk management, social responsibility and environmental practices and their impact in the Corporate
Responsibility and Sustainability Report.
8
Item 1A. Risk Factors
Carefully consider the following risks and all of the other information set forth in this Annual Report on Form 10-K, including
the consolidated financial statements and the notes thereto. If any of the events or developments described below were
actually to occur, NNN's business, financial condition or results of operations could be adversely affected.
This “Risk Factors” section contains references to NNN's “stockholders.” Unless expressly stated otherwise, the references
represent NNN's common stock and any class or series of preferred stock which may be outstanding from time to time.
Risks Related to NNN's Business and Operations
Changes in financial and economic conditions, including inflation, may have an adverse impact on NNN, its tenants, and
commercial real estate in general.
Financial and economic conditions can be challenging and volatile and any worsening of such conditions, including any
disruption in the capital markets, or an inflationary economic environment, both real or anticipated, could adversely affect
NNN's business and results of operations. Such conditions could also affect the financial condition of NNN's tenants,
developers, borrowers, lenders or the institutions that hold NNN's cash balances and short-term investments, which may
expose NNN to increased risks of default by these parties.
There can be no assurance that actions of the United States Government, the Federal Reserve or other government and
regulatory bodies attempting to stabilize the economy or financial markets will achieve their intended effect. Additionally,
some of these actions may adversely affect financial institutions, capital providers, retailers, consumers, NNN's financial
condition, NNN's results of operations or the trading price of NNN's shares.
Potential consequences of challenging and volatile financial and economic conditions include:
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the financial condition of NNN's tenants may be adversely affected, which may result in tenant defaults under the
leases due to bankruptcy, lack of liquidity, operational failures or for other reasons,
the ability to raise equity capital or borrow on terms and conditions that NNN finds acceptable may be limited or
unavailable, which could reduce NNN's ability to pursue acquisition and development opportunities and refinance
existing debt, reduce NNN's returns from acquisition and development activities, reduce NNN's ability to make cash
distributions to its stockholders and increase NNN's future interest expense,
the recognition of impairment charges on or reduced values of the Properties or tenant receivables, may adversely
affect NNN's results of operations,
reduced values of the Properties may limit NNN's ability to dispose of assets at attractive prices and reduce the
availability of buyer financing, and
the value and liquidity of NNN's short-term investments and cash deposits could be reduced as a result of (i) a
deterioration of the financial condition of the institutions that hold NNN's cash deposits or the institutions or assets
in which NNN has made short-term investments, (ii) the dislocation of the markets for NNN's short-term
investments, (iii) increased volatility in market rates for such investments or (iv) other factors.
9
Loss of rent from tenants would reduce NNN's cash flow.
NNN's tenants encounter significant macroeconomic, governmental and competitive forces. Adverse changes in consumer
spending or consumer preferences for particular goods, services or store-based retailing could severely impact their ability to
pay rent. Shifts from in-store to online shopping could increase due to changing consumer shopping patterns as well as the
increase in consumer adoption and use of mobile electronic devices. This expansion of e-commerce could have an adverse
impact on NNN's tenants' ongoing viability and the size, type and location of space tenants lease in the future. NNN cannot
predict with certainty what tenants will want or what the impact will be on market rents. The default, financial distress,
bankruptcy or liquidation of one or more of NNN's tenants could cause substantial vacancies in the Property Portfolio.
Vacancies reduce NNN's revenues, increase property expenses and could decrease the value of each vacant Property. Upon
the expiration of a lease, the tenant may choose not to renew the lease and NNN may not be able to re-lease the vacant
Property at a comparable lease rate. Furthermore, NNN may incur additional expenditures in connection with such renewal or
re-leasing.
A significant portion of the source of the Property Portfolio annual base rent is concentrated in specific industry
classifications, tenants and geographic locations.
As of December 31, 2023, approximately,
•
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55.6% of the Property Portfolio annual base rent is generated from tenants in five retail lines of trade: full-service
and limited-service restaurants (17.2%), convenience stores (16.4%), automotive service (15.6%) and family
entertainment centers (6.4%),
19.0% of the Property Portfolio annual base rent is generated from five tenants: 7-Eleven (4.4%), Mister Car Wash
(4.2%), Camping World (3.8%), Dave & Buster's (3.5%) and LA Fitness (3.1%), and
41.0% of the Property Portfolio annual base rent is generated from properties located in five states: Texas (16.8%),
Florida (9.4%), Illinois (5.2%), Ohio (4.9%) and Georgia (4.7%).
Any financial hardship and/or economic changes in these lines of trade, tenants or states could have an adverse effect on
NNN's results of operations.
NNN may not be able to successfully execute its acquisition or development strategies.
NNN may not be able to implement its investment strategies successfully. Additionally, NNN cannot ensure that its Property
Portfolio will expand at all, or if it will expand at any specified rate or to any specified size. In addition, investment in
additional real estate assets is subject to a number of risks. Because NNN expects to invest in markets other than the ones in
which its current Properties are located or properties which may be leased to tenants other than those to which NNN has
historically leased properties, NNN will also be subject to the risks associated with investment in new markets, new lines of
trade or with new tenants that may be relatively unfamiliar to NNN's management team.
NNN's development activities are subject to, without limitation, risks relating to the availability and timely receipt of zoning
and other regulatory approvals, the cost and timely completion of construction (including risks from factors beyond NNN's
control, such as weather, labor conditions or material shortages), the risk of finding tenants for the properties and the ability
to obtain both construction and permanent financing on favorable terms. These risks could result in substantial unanticipated
delays or expenses and, under certain circumstances, could prevent completion of development activities once undertaken or
provide a tenant the opportunity to delay rent commencement, reduce rent or terminate a lease. Any of these situations may
delay or eliminate proceeds or cash flows NNN expects from these projects, which could have an adverse effect on NNN's
financial condition.
10
NNN may not be able to dispose of Properties consistent with its operating strategy.
NNN may be unable to sell Properties targeted for disposition under favorable terms due to adverse market conditions or
possible prohibitive tax liability. This may adversely affect, among other things, NNN's ability to sell under favorable terms,
execute its operating strategy, achieve target earnings or returns, retire or repay debt or pay dividends.
Certain provisions of NNN's leases or loan agreements may be unenforceable.
NNN's rights and obligations with respect to its leases and loans are governed by written agreements. A court could
determine that one or more provisions of such an agreement are unenforceable, such as a particular remedy, a master lease
covenant, a loan prepayment provision or a provision governing NNN's security interest in the underlying collateral of a
borrower or lessee. NNN could be adversely impacted if this were to happen with respect to an asset or group of assets.
Competition from numerous other REITs, commercial developers, real estate limited partnerships and other investors or a
lack of properties for sale may impede NNN's ability to grow.
NNN may not complete suitable property acquisitions or developments on advantageous terms, if at all, due to competition
for such properties with others engaged in real estate investment activities or a lack of properties for sale on terms deemed
acceptable to NNN. NNN's inability to successfully acquire or develop new properties may affect NNN's ability to achieve
anticipated return on investment or realize its investment strategy, which could have an adverse effect on its results of
operations.
A natural disaster or impacts of weather or other event resulting in an uninsured loss may adversely affect the operations
of NNN's tenants and therefore the ability of NNN's tenants to pay rent, NNN's operating results and asset values of NNN's
Property Portfolio.
The impacts of a natural disaster or weather event on NNN's Property Portfolio are highly uncertain. Such impacts may result
from natural disasters, including floods, droughts, wind and fire. The Properties are generally covered by comprehensive
liability, fire and extended insurance coverage. NNN believes that the insurance carried on its Properties is adequate and in
accordance with industry standards. There are, however, types of losses (such as from hurricanes, floods, earthquakes or
other types of natural disasters or wars, terrorism or other acts of violence) which may be uninsurable, self-insured by
tenants, or the cost of insuring against these losses may not be economically justifiable in the opinion of tenants or NNN. If an
uninsured loss occurs or a loss exceeds policy limits, NNN could lose both its invested capital and anticipated revenues from
the Property, thereby reducing NNN's cash flow and asset value.
NNN's ability to fully control the management of its net-leased Properties may be limited.
The tenants of net-leased Properties are responsible for maintenance and other day-to-day management of the Properties. If
a Property is not adequately maintained in accordance with the terms of the applicable lease, NNN may incur expenses for
deferred maintenance expenditures or other liabilities when the lease expires. While NNN's leases generally provide for
recourse against the tenant in these instances, a bankrupt or financially troubled tenant may be more likely to defer
maintenance and it may be more difficult to enforce remedies against such a tenant. Although NNN endeavors to monitor
compliance by tenants with their lease obligations, NNN may not always be able to ascertain or forestall deterioration in the
condition of a property or the financial circumstances of a tenant.
11
Bankrupt tenants or vacant Properties could adversely affect NNN's business or financial condition.
The occurrence of a tenant bankruptcy or insolvency could diminish or eliminate the income NNN receives from its tenant. A
bankruptcy court might authorize a tenant to terminate one or more of its leases with NNN. If that happens, NNN's claim
against the bankrupt tenant for unpaid future rent would be subject to statutory limitations that most likely would result in
rent payments that would be substantially less than the remaining rent NNN is owed under the lease(s) or NNN may elect not
to pursue claims against a tenant for a terminated lease(s). Any claims NNN has for unpaid past rent, may not be paid in full,
or at all. Moreover, in the case of a tenant’s lease(s) that are not terminated as the result of its bankruptcy, NNN may be
required or elect to reduce the rent payable under those leases or provide other concessions, reducing amounts NNN
receives under such lease(s).
As a result, tenant bankruptcies may have a material adverse effect on NNN's results of operations and financial condition.
Any of these events could adversely affect NNN's cash flow from operations.
As of January 31, 2024, less than one percent of total Properties, and less than one percent of aggregate gross leasable area
held in the Property Portfolio, was leased to one tenant that is currently in bankruptcy under Chapter 11 of the U.S.
Bankruptcy Code. As a result, this tenant has the right to reject or affirm their leases with NNN.
As of December 31, 2023, NNN owned 18 vacant, un-leased Properties, which accounted for less than one percent of total
Properties, and less than one percent of aggregate gross leasable area held in the Property Portfolio. NNN is actively
marketing these Properties for sale or lease but may not be able to sell or lease these Properties on favorable terms or at all.
Cybersecurity risks and cyber incidents as well as other significant disruptions of NNN's information technology networks
and related systems and resources, or those of NNN's vendors or other third-parties, could adversely affect NNN's business,
disrupt operations and expose NNN to liabilities to tenants, associates, capital providers, governmental regulators and
other third parties.
NNN uses information technology and other computer resources to carry out important operational activities and to maintain
its business records. This includes the use of third-party software, technologies, tools and a broad array of services and
functions. As part of NNN's normal business activities, NNN (i) maintains operational and financial information related to
NNN's business, (ii) collects, processes, stores and transmits certain personal identifying and confidential information relating
to its tenants, associates and vendors, within NNN's systems and utilizing those of third-party providers, and (iii) allows
associates to perform some or all of their business activities remotely.
NNN faces risks associated with security breaches through cyber-attacks or cyber-intrusions, malware, computer viruses and
malicious codes, ransomware, attachments to e-mail, unauthorized access attempts, denial of service attacks, phishing, social
engineering, persons with access to systems inside NNN's organization, and other significant disruptions of NNN's information
technology networks and related systems. The risk of a security breach has generally increased as the frequency, intensity and
sophistication of attempted attacks and intrusions from around the world have increased. Even the most well protected
information, networks, systems and facilities remain potentially vulnerable because the techniques, tools and tactics used in
such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases
are designed to not be detected and, in fact, may not be detected. Accordingly, NNN may be unable to anticipate these
techniques or to implement adequate security barriers, disaster recovery or other preventative or corrective measures, and
thus it is impossible for NNN to entirely counteract this risk or fully mitigate the harms after such an attack.
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NNN has implemented systems and processes intended to address ongoing and evolving cybersecurity risks, secure its
information technology, applications and computer systems, and prevent unauthorized access to or loss of sensitive,
confidential and personal data. Although NNN and its service providers employ what NNN believes are adequate security,
disaster recovery and other preventative and corrective measures, NNN's security measures, taken as a whole, may not be
sufficient for all possible situations and may be vulnerable to, among other things, fraud, hacking, associate error, system
error, vendors' use of generative artificial intelligence technologies, and faulty password management.
NNN's ability to conduct its business may be impaired if its information technology networks, systems or resources, including
its websites or e-mail systems, are compromised, degraded, damaged or fail, whether due to a virus or other harmful
circumstance, fraud, intentional penetration or disruption of its information technology resources by:
•
•
•
•
•
•
•
•
•
•
a third party,
natural disaster,
a failure of hardware or software due to a design or programmatic flaw,
a failure of hardware or software security controls,
telecommunications system failure,
service provider error or failure,
fraudulent transactions,
intentional or unintentional personnel actions,
lost connectivity to NNN's networked resources, or
a failure of disaster recovery system.
A significant and extended disruption or other material cyber incident could damage NNN's business or reputation and cause:
•
•
•
loss of revenues or tenant relationships,
unintended and/or unauthorized public disclosure or the misappropriation of proprietary, personal identifying and
confidential information, and
NNN to incur significant expenses to address and remediate or otherwise resolve these kinds of issues.
The release of confidential information may also lead to litigation or other proceedings against NNN by affected individuals,
business partners and/or regulators, and the outcome of such proceedings, which could include losses, penalties, fines,
injunctions, expenses and charges recorded against NNN's earnings and cause NNN reputational harm, could have a material
and adverse effect on NNN's business, financial position or results of operations.
In addition, the costs of maintaining adequate protection against data security threats, based on considerations of their
evolution, increasing sophistication, pervasiveness and frequency and/or government-mandated standards or obligations
regarding protective efforts, could be material to NNN's financial position, results of operations, cash flows, and the market
price of NNN's common stock in a particular period or over various periods.
13
NNN relies upon cloud computing services to operate certain aspects of its business and any disruption could have an
adverse effect on its financial condition and results of operations.
NNN's business depends upon cloud computing services provided by third-parties to provide a distributed computing
infrastructure platform for certain NNN business operations, including data processing, storage capabilities, communications,
disaster recovery and other services. Such third-party cloud computing services are vulnerable to damage or interruption
from infrastructure changes, natural disasters, cybersecurity attacks, power outages, terrorist attacks and other events or
acts. NNN expects that in the future it will experience interruptions, delays and outages in service and availability from its
third-party cloud computing providers from time to time due to a variety of factors, including, but not limited to,
infrastructure changes, human or software errors, website hosting disruptions and capacity constraints. Because NNN cannot
easily switch its cloud computing operations to other third-party providers without significant costs, any disruption of or
interference with its use of third-party cloud computing service providers could have a materially negative impact on NNN's
business and results of operations.
Future investment in international markets could subject NNN to additional risks.
If NNN expands its operating strategy to include investment in international markets, NNN could face additional risks,
including foreign currency exchange rate fluctuations, operational risks due to local economic and political conditions and
laws and policies of the United States affecting foreign investment.
NNN may suffer a loss in the event of a default or bankruptcy of a borrower.
As of December 31, 2023, NNN held mortgages receivable of $1,002,000, which represented less than one percent of total
assets. If a borrower defaults on a mortgage or other loan made by NNN, and does not have sufficient assets to satisfy the
loan, NNN may suffer a loss of principal and interest. In the event of the bankruptcy of a borrower, NNN may not be able to
recover against all or any of the assets of the borrower, or the collateral may not be sufficient to satisfy the balance due on
the loan. In addition, certain of NNN's loans may be subordinate to other debt of a borrower. These investments are typically
loans secured by a borrower's pledge of its ownership interests in the entity that owns the real estate or other assets and are
typically subordinated to senior loans encumbering the underlying real estate or assets. Subordinated positions are generally
subject to a higher risk of nonpayment of principal and interest than the more senior loans. If a borrower defaults on the debt
senior to NNN's loan, or in the event of the bankruptcy of a borrower, NNN's loan will be satisfied only after the borrower's
senior creditors' claims are satisfied. Where debt senior to NNN's loans exists, the presence of intercreditor arrangements
may limit NNN's ability to amend loan documents, assign the loans, accept prepayments, exercise remedies and control
decisions made in bankruptcy proceedings relating to borrowers. Bankruptcy proceedings and litigation can significantly
increase the time needed for NNN to acquire underlying collateral, if any, in the event of a default, during which time the
collateral may decline in value. In addition, there are significant costs and delays associated with the foreclosure process.
Property ownership through joint ventures and partnerships could limit NNN's control of those investments.
Joint ventures or partnerships involve risks not otherwise present for direct investments by NNN. It is possible that NNN's co-
venturers or partners may have different interests or goals than NNN at any time and they may take actions contrary to
NNN's requests, policies or objectives, including NNN's policy with respect to maintaining its qualification as a REIT. Other
risks of joint venture or partnership investments include impasses on decisions because in some instances no single co-
venturer or partner has full control over the joint venture or partnership, respectively, or the co-venturer or partner may
become insolvent, bankrupt or otherwise unable to contribute to the joint venture or partnership, respectively. Further,
disputes may develop with a co-venturer or partner over decisions affecting the property, joint venture or partnership that
may result in litigation, arbitration or some other form of dispute resolution.
14
Risks Related to Financing NNN's Business
NNN may be unable to obtain debt or equity capital on favorable terms, if at all.
NNN may be unable to obtain capital on favorable terms, if at all, to further its business objectives or meet its existing
obligations. Nearly all of NNN's debt, including the Credit Facility, is subject to balloon principal payments due at maturity.
These maturities range from 2024 to 2052. NNN's ability to make these scheduled principal payments may be adversely
impacted by NNN's inability to extend or refinance the Credit Facility, the inability to dispose of assets at an attractive price or
the inability to obtain additional debt or equity capital. Capital that may be available may be materially more expensive or
available under terms that are materially more restrictive which would have an adverse impact on NNN's business, financial
condition and results of operations.
The amount of debt NNN has and the restrictions imposed by that debt could adversely affect NNN's business and financial
condition.
As of December 31, 2023, NNN had outstanding debt, including total unsecured notes payable of $4,228,544,000 and
$132,000,000 outstanding on the Credit Facility. NNN's organizational documents do not limit the level or amount of debt
that it may incur. If NNN incurs additional debt and permits a higher degree of leverage, debt service requirements would
increase and could adversely affect NNN's financial condition and results of operations, as well as NNN's ability to pay
principal and interest on the outstanding debt or cash dividends to its stockholders. In addition, increased leverage could
increase the risk that NNN may default on its debt obligations.
The amount of outstanding debt at any time could have important consequences to NNN's stockholders. For example, it
could:
•
require NNN to dedicate a substantial portion of its cash flow from operations to payments on its debt, thereby
reducing funds available for operations, real estate investments and other business opportunities that may arise in
the future,
increase NNN's vulnerability to general adverse economic and industry conditions,
limit NNN's ability to obtain any additional financing it may need in the future for working capital, debt refinancing,
capital expenditures, real estate investments, development or other general corporate purposes,
•
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• make it difficult to satisfy NNN's debt service requirements,
•
•
limit NNN's ability to pay dividends in cash on its outstanding stock,
limit NNN's flexibility in planning for, or reacting to, changes in its business and the factors that affect the
profitability of its business, and
limit NNN's flexibility in conducting its business, which may place NNN at a disadvantage compared to competitors
with less debt or debt with less restrictive terms.
•
NNN's ability to make scheduled payments of principal or interest on its debt, or to retire or refinance such debt will depend
primarily on its future performance, which to a certain extent is subject to the creditworthiness of its tenants, competition,
and economic, financial, and other factors beyond its control. There can be no assurance that NNN's business will continue to
generate sufficient cash flow from operations in the future to service its debt or meet its other cash needs. If NNN is unable to
generate sufficient cash flow from its business, it may be required to refinance all or a portion of its existing debt, sell assets
or obtain additional financing to meet its debt obligations and other cash needs.
NNN cannot assure stockholders that any such refinancing, sale of assets or additional financing would be possible or, if
possible, on terms and conditions, including but not limited to the interest rate, which NNN would find acceptable or would
not result in a material decline in earnings.
15
NNN is obligated to comply with financial and other covenants in its debt instruments that could restrict its operating
activities, and the failure to comply with such covenants could result in defaults that accelerate the payment of such debt.
As of December 31, 2023, NNN had approximately $4,360,544,000 of outstanding debt, none of which was secured debt.
NNN's unsecured debt instruments contain various restrictive covenants which include, among others, provisions restricting
NNN's ability to:
incur or guarantee additional debt,
•
• make certain distributions, investments and other restricted payments,
•
•
•
•
enter into transactions with certain affiliates,
create certain liens,
consolidate, merge or sell NNN's assets, and
prepay debt.
Secured debt instruments generally contain customary covenants, including, among others, provisions:
•
•
•
•
•
•
requiring the maintenance of the property securing the debt,
restricting its ability to sell, assign or further encumber the properties securing the debt,
restricting its ability to incur additional debt on the property securing the debt,
restricting modifications to property improvements,
restricting its ability to amend or modify existing leases on the property securing the debt, and
establishing certain prepayment restrictions.
In addition, NNN's debt instruments may contain cross-default provisions, in which case a default of NNN under one debt
instrument will be a default of NNN under multiple or all debt instruments of NNN.
NNN's ability to meet some of its debt covenants, including covenants related to the condition of the property or payment of
real estate taxes, may be dependent on the performance by NNN's tenants under their leases.
In addition, certain covenants in NNN's debt instruments, including its Credit Facility, require NNN, among other things, to:
limit certain leverage ratios,
•
• maintain certain minimum interest and debt service coverage ratios, and
•
limit investments in certain types of assets.
NNN's failure to comply with certain of its debt covenants could result in defaults that accelerate the payment under such
debt and limit the dividends paid to NNN's stockholders which would likely have a material adverse impact on NNN's financial
condition and results of operations. In addition, these defaults could impair its access to the debt and equity markets.
NNN's ability to pay dividends in the future is subject to many factors.
NNN's ability to pay dividends may be impaired if any of the risks described in this section were to occur. In addition, payment
of NNN's dividends depends upon NNN's earnings, financial condition, maintenance of NNN's REIT status and other factors as
NNN's Board of Directors may deem relevant from time to time.
Future issuances of NNN's equity securities could dilute the interest of NNN's common stockholders.
Raising additional capital through the issuance of common or preferred equity securities can dilute or otherwise adversely
affect the interests of holders of NNN's common stock and in the case of certain series of preferred equity securities, create a
priority interest for holders of such series of preferred equity securities. The interests of NNN's common stockholders could
also be diluted by the issuance of shares of common stock pursuant to NNN's performance incentive plan.
16
Risks Related to – Real Estate Ownership
Owning real estate and indirect interests in real estate carries inherent risks.
NNN's financial performance and the value of its real estate assets are subject to the risk that if the Properties do not
generate revenues sufficient to meet its operating expenses, and debt service, NNN's cash flow and ability to pay distributions
to its stockholders will be adversely affected. NNN is susceptible to the following real estate industry risks, which are beyond
its control:
•
•
changes in national, regional and local economic conditions and outlook,
decreases in consumer spending and retail sales or adverse changes in consumer preferences for particular goods,
services or store-based retailing,
economic downturns in the areas where the Properties are located,
adverse changes in local real estate market conditions, such as an oversupply of space, reduction in demand for
space, loss of a large employer, intense competition for tenants, or a demographic change,
changes in tenant or consumer preferences that reduce the attractiveness of the Properties to tenants,
a decrease in demand for fossil fuels,
changes in zoning, regulatory restrictions, or tax laws, and
changes in interest rates or availability of financing.
•
•
•
•
•
•
All of these factors could result in decreases in market rental rates and increases in vacancy rates, which could adversely
affect NNN's results of operations.
NNN's real estate investments are illiquid.
Because real estate investments are relatively illiquid, NNN's ability to adjust the Property Portfolio promptly in response to
economic or other conditions is limited. Certain significant expenditures generally do not change in response to economic or
other conditions, including: (i) debt service, (ii) real estate taxes, and (iii) operating and maintenance costs. This combination
of variable revenue and relatively fixed expenditures may result, under certain market conditions, in reduced earnings and
could have an adverse effect on NNN's financial condition.
NNN may be subject to known or unknown environmental liabilities and risks, including but not limited to liabilities and
risks resulting from the existence of hazardous materials on or under Properties owned by NNN.
There may be known or unknown environmental liabilities associated with Properties owned or acquired in the future by
NNN. Certain particular uses of some Properties may also have a heightened risk of environmental liability because of the
hazardous materials used in performing services on those Properties, such as convenience stores with underground
petroleum storage tanks or auto parts and auto service businesses using petroleum products, paint and machine solvents.
Some of the Properties may contain asbestos or asbestos-containing materials, or may contain or may develop mold or other
bio-contaminants.
Asbestos-containing materials must be handled, managed and removed in accordance with applicable governmental laws,
rules and regulations. Mold and other bio-contaminants can produce airborne toxins, may cause a variety of health issues in
individuals and must be remediated in accordance with applicable governmental laws, rules and regulations.
17
As part of its due diligence process, NNN generally obtains an environmental site assessment for each property it acquires. In
cases where NNN intends to acquire real estate where evidence of some level of known contamination may exist, NNN
generally requires the seller or tenant to (i) remediate the contamination in accordance with applicable laws, rules and
regulations, (ii) indemnify NNN for environmental liabilities, and/or (iii) agree to other arrangements deemed appropriate by
NNN, including, under certain circumstances, the purchase of environmental insurance. Although sellers or tenants may be
contractually responsible for remediating hazardous materials on a property and may be responsible for indemnifying NNN
for any liability resulting from the use of a Property and for any failure to comply with any applicable environmental laws,
rules or regulations, NNN has no assurance that sellers, tenants or any other responsible party shall be able to meet their
remediation and indemnity obligations to NNN. A tenant, seller or any other responsible party may not have the financial
ability to meet its remediation and indemnity obligations to NNN when required. Furthermore, NNN may have strict liability
to governmental agencies or third parties as a result of the existence of hazardous materials on Properties, whether or not
NNN knew about or caused such hazardous materials to exist.
As of January 31, 2024, NNN had 68 Properties currently under some level of environmental remediation and/or monitoring.
In general, the responsible party (which may include the seller, a previous owner, the tenant or an adjacent or former land
owner) is liable for the cost of the environmental remediation for each of these Properties.
If NNN is responsible for hazardous materials located on its Properties, NNN's liability may include investigation and
remediation costs, property damage to third parties, personal injury to third parties, and governmental fines and penalties.
Furthermore, the presence of hazardous materials on a Property may adversely impact the Property value or NNN's ability to
sell the Property. Significant environmental liability could impact NNN's results of operations, ability to make distributions to
stockholders, and its ability to meet its debt obligations.
In order to mitigate exposure to environmental liability, NNN maintains an environmental insurance policy which provides
environmental insurance coverage for substantially all of its Properties. However, the policy is subject to exclusions and
limitations and does not cover all of the Properties owned by NNN. For those Properties covered under the policy, insurance
may not fully compensate NNN for any environmental liability. NNN has no assurance that the insurer on its environmental
insurance policy will be able to meet its obligations under the policy. NNN may not desire to renew the environmental
insurance policy in place upon expiration or a replacement policy may not be available at a reasonable cost, if at all.
Risks Related to – Tax Matters
NNN's failure to qualify as a REIT for federal income tax purposes could result in significant tax liability.
NNN intends to operate in a manner that will allow NNN to continue to qualify as a REIT. NNN believes it has been organized
as, and its past and present operations qualify NNN as a REIT. However, the Internal Revenue Service (“IRS”) could
successfully assert that NNN is not qualified as such. In addition, NNN may not remain qualified as a REIT in the future.
Qualification as a REIT involves the application of highly technical and complex provisions of the Code for which there are only
limited judicial or administrative interpretations and involves the determination of various factual matters and circumstances
not entirely within NNN's control. Furthermore, new tax legislation, administrative guidance or court decisions, in each
instance potentially with retroactive effect, could make it more difficult or impossible for NNN to qualify as a REIT or avoid
significant tax liability.
If NNN fails to qualify as a REIT, it would not be allowed a deduction for dividends paid to stockholders in computing taxable
income and would become subject to federal income tax at regular corporate rates. In this event, NNN could be subject to
potentially significant tax liabilities and penalties. Unless entitled to relief under certain statutory provisions, NNN would also
be disqualified from treatment as a REIT for the four taxable years following the year during which the qualification was lost.
18
Compliance with REIT requirements, including distribution requirements, may limit NNN's flexibility and may negatively
affect NNN's operating decisions.
To maintain its status as a REIT for United States federal income tax purposes, NNN must meet certain requirements on an
on-going basis, including requirements regarding its sources of income, the nature and diversification of its assets, the
amounts NNN distributes to its stockholders and the ownership of its shares. NNN may also be required to make distributions
to its stockholders when it does not have funds readily available for distribution or at times when NNN's funds are otherwise
needed to fund expenditures or debt service requirements. NNN generally will not be subject to federal income taxes on
taxable income it distributes to stockholders, providing it meets certain other requirements for qualifying as a REIT. For each
of the years in the three-year period ended December 31, 2023, NNN believes it has qualified as a REIT. Notwithstanding
NNN's qualification for taxation as a REIT, NNN is subject to certain state and local income, franchise and excise taxes.
The share ownership restrictions of the Code for REITs and the 9.8% share ownership limit in NNN's charter may inhibit
market activity in NNN's shares of stock and restrict NNN's business combination opportunities.
In order to qualify as a REIT, five or fewer individuals, as defined in the Code, may not own, actually or constructively, more
than 50% in value of NNN's issued and outstanding shares of stock at any time during the last half of each taxable year, other
than the first year for which a REIT election is made. Attribution rules in the Code determine if any individual or entity actually
or constructively owns NNN's shares of stock under this requirement. Additionally, at least 100 persons must beneficially own
NNN's shares of stock during at least 335 days of a taxable year for each taxable year, other than the first year for which a
REIT election is made. To help ensure that NNN meets these tests, among other purposes, NNN's charter restricts the
acquisition and ownership of NNN's shares of stock.
NNN's charter, with certain exceptions, authorizes NNN's Board of Directors to take such actions as are necessary and
desirable to preserve NNN's qualification as a REIT while NNN so qualifies. Unless exempted by the Board of Directors, for so
long as NNN qualifies as a REIT, NNN's charter prohibits, among other limitations on ownership and transfer of shares of
NNN's stock, any person from beneficially or constructively owning (applying certain attribution rules under the Code) more
than 9.8% in value of the aggregate of NNN's outstanding shares of stock and more than 9.8% (in value or in number of
shares, whichever is more restrictive) of any class or series of NNN's shares of stock. The Board of Directors, in its sole
discretion and upon receipt of certain representations and undertakings, may exempt a person (prospectively or
retrospectively) from the ownership limits. However, the Board of Directors may not, among other limitations, grant an
exemption from these ownership restrictions to any proposed transferee whose ownership, direct or indirect, in excess of the
9.8% ownership limit would result in the termination of NNN's qualification as a REIT. These restrictions on transferability and
ownership will not apply, however, if the Board of Directors determines that it is no longer in NNN's best interest to continue
to qualify as a REIT or that compliance with the restrictions is no longer required in order for NNN to continue to so qualify as
a REIT. These ownership limits could delay or prevent a transaction or a change in control that might involve a premium price
for NNN's common stock or otherwise be in the best interest of NNN's stockholders.
Risks Related to – Governmental Laws and Regulations
Costs of complying with changes in governmental laws and regulations may adversely affect NNN's results of operations.
NNN cannot predict what laws or regulations will be enacted in the future, how future laws or regulations will be
administered or interpreted, or how future laws or regulations will affect NNN, its Properties or its tenants, including, but not
limited to environmental laws and regulations. Compliance with new laws or regulations, or stricter interpretation of existing
laws, may require NNN, its tenants, or consumers to incur significant expenditures, impose significant liability, restrict or
prohibit business activities and could cause a material adverse effect on NNN's results of operation.
19
Non-compliance with Title III of the Americans with Disabilities Act of 1990 and similar state and local laws could have an
adverse effect on NNN's business and operating results.
The Properties, as commercial facilities, are required to comply with the ADA. NNN's tenants will typically have primary
responsibility for complying with the ADA, but NNN may incur costs if the tenant does not comply. As of January 31, 2024,
NNN had not been notified by any governmental authority of, nor is NNN's management aware of, any non-compliance with
the ADA that NNN's management believes would have a material adverse effect on its business, financial position or results of
operations.
General Risks
NNN's loss of key management personnel could adversely affect performance and the value of its securities.
NNN is dependent on the efforts of its key management. As of January 31, 2024, the executive team, department heads and
senior managers average over 19 years of experience with NNN. Competition for senior management personnel can be
intense and NNN may not be able to retain its key management. Although NNN believes qualified replacements could be
found for any departures of key management, the loss of their services could adversely affect NNN's performance and the
value of its securities.
NNN's failure to maintain effective internal control over financial reporting could have a material adverse effect on its
business, operating results and the market value of NNN's securities.
Section 404 of the Sarbanes-Oxley Act of 2002 requires annual management assessments of the effectiveness of the
Company's internal control over financial reporting. If NNN fails to maintain the adequacy of its internal control over financial
reporting, as such standards may be modified, supplemented or amended from time to time, NNN may not be able to ensure
that it can conclude on an ongoing basis that it has effective internal control over financial reporting in accordance with
Section 404 of the Sarbanes-Oxley Act of 2002. Moreover, effective internal control over financial reporting, particularly those
related to revenue recognition, are necessary for NNN to produce reliable financial reports and to maintain its qualification as
a REIT and are important in helping to prevent financial fraud. If NNN cannot provide reliable financial reports or prevent
fraud, its business and operating results could be harmed, REIT qualification could be jeopardized, investors could lose
confidence in the Company's reported financial information, the company's access to capital could be impaired, and the
trading price of NNN's shares could drop significantly.
An epidemic or pandemic (such as the outbreak and worldwide spread of a novel strain of coronavirus, and its variants
("COVID-19")), and the measures that international, federal, state and local governments, agencies, law enforcement
and/or health authorities implement to address it, may precipitate or materially exacerbate one or more of the other risks,
and may significantly disrupt NNN's tenants' ability to operate their businesses and/or pay rent to NNN or prevent NNN
from operating its business in the ordinary course for an extended period.
An epidemic or pandemic could have a material and adverse effect on or cause disruption to NNN's business or financial
condition, results of operations, cash flows and the market value and trading price of NNN's securities due to, among other
factors:
•
A complete or partial closure of, or other operational issues with, NNN's Property Portfolio as a result of government
or tenant action;
The declines in or instability of the economy or financial markets may result in a recession or negatively impact
consumer discretionary spending, which could adversely affect retailers and consumers;
The reduction of economic activity may severely impact NNN's tenants' business operations, financial condition,
liquidity and access to capital resources and may cause one or more of NNN's tenants to be unable to meet their
obligations to NNN in full, or at all, to default on their lease, or to otherwise seek modifications of such obligations;
•
•
20
•
•
•
•
•
The inability to access debt and equity capital on favorable terms, if at all, or a severe disruption and instability in the
global financial markets or deteriorations in credit and financing conditions may affect NNN's access to capital
necessary to fund business operations, pursue acquisition and development opportunities, refinance existing debt,
reduce NNN's ability to make cash distributions to its stockholders and increase NNN's future interest expense;
A general decline in business activity and demand for real estate transactions would adversely affect NNN's ability to
successfully execute investment strategies or expand the Property Portfolio;
A significant reduction in NNN's cash flows could impact NNN's ability to continue paying cash dividends to NNN
stockholders at expected levels or at all;
The financial impact could negatively affect NNN's future compliance with financial and other covenants of NNN's
Credit Facility and other debt instruments, and the failure to comply with such covenants could result in a default
that accelerates the payment of such debt; and
The potential negative impact on the health of NNN's associates or Board of Directors, particularly if a significant
number are impacted, or the impact of government actions or restrictions, including stay-at-home orders, restricting
access to NNN's headquarters located in Orlando, Florida, could result in a deterioration in NNN's ability to ensure
business continuity during a disruption.
A prolonged continuation of or repeated temporary business closures, reduced capacity at businesses or other social-
distancing practices, and quarantine orders may adversely impact NNN's tenants' ability to generate sufficient revenues to
meet financial obligations, and could force tenants to default on their leases, or result in the bankruptcy of tenants, which
would diminish the rental revenue NNN receives under its leases. Additionally, an increase in the number of vacant properties
would increase NNN's real estate expenses, including expenses associated with ongoing maintenance and repairs, utilities,
real estate taxes and assessments, and property and liability insurance.
The rapid development and fluidity of an epidemic or pandemic precludes any prediction as to the ultimate adverse impact
on NNN. Nevertheless, an epidemic or pandemic would present a material uncertainty and risk with respect to NNN's
performance, business or financial condition, results of operations and cash flows. While NNN's leases generally do not allow
tenants to withhold rent if the tenants are not operating on its Properties, some tenants may pay rent under protest, not pay
rent at all, request rent deferrals, and assert legal or equitable claims in the courts that such tenants are not obligated to pay
rent while closed or while operating at reduced capacity, because of an epidemic or pandemic. While NNN believes such
claims would be without merit it has no assurances on how courts would rule on such claims, if any.
Acts of violence, terrorist attacks or war may affect NNN's Properties, the markets in which NNN operates and NNN's
results of operations.
Terrorist attacks or other domestic acts of violence may negatively affect NNN's operations. There can be no assurance that
there will not be attacks against businesses within the United States. These attacks may directly or indirectly impact NNN's
physical facilities or the businesses or the financial condition of its tenants, developers, borrowers, lenders or financial
institutions with which NNN has a relationship. The United States is engaged in armed conflict, which could have an impact on
these parties. The consequences of armed conflict are unpredictable, and NNN may not be able to foresee events that could
have an adverse effect on its business or be insured for such.
More generally, any of these events or threats of these events could cause consumer confidence and spending to decrease or
result in increased volatility in the United States and worldwide financial markets and economies. They also could result in, or
cause a deepening of, economic recession in the United States or abroad. Any of these occurrences could have an adverse
impact on NNN's financial condition or results of operations.
21
Changes in accounting pronouncements could adversely impact NNN's or NNN's tenants' reported financial performance.
Accounting policies and methods are fundamental to how NNN records and reports its financial condition and results of
operations. From time to time the Financial Accounting Standards Board (“FASB”) and the Commission, who create and
interpret appropriate accounting standards, may change the financial accounting and reporting standards or their
interpretation and application of these standards that govern the preparation of NNN's financial statements. These changes
could have a material impact on NNN's reported financial condition and results of operations. In some cases, NNN could be
required to apply a new or revised standard retroactively, resulting in restating prior period financial statements. Similarly,
these changes could have a material impact on NNN's tenants' reported financial condition or results of operations and affect
their preferences regarding leasing real estate.
The market value of NNN's equity and debt securities is subject to various factors that may cause significant fluctuations or
volatility.
As with other publicly traded securities, the market price of NNN's equity and debt securities depends on various factors,
which may change from time-to-time and/or may be unrelated to NNN's financial condition, operating performance or
prospects that may cause significant fluctuations or volatility in such prices. These factors, among others, include:
general economic and financial market conditions,
level and trend of interest rates,
changes in government fiscal, monetary, regulatory, or taxation policies,
NNN's ability to access the capital markets to raise additional capital,
the issuance of additional equity or debt securities,
changes in NNN's funds from operations or earnings estimates,
changes in NNN's debt ratings or analyst ratings,
NNN's financial condition and performance,
•
•
•
•
•
•
•
•
• market perception of NNN compared to other REITs, and
• market perception of REITs compared to other investment sectors.
Even if NNN remains qualified as a REIT, NNN faces other tax liabilities that reduce operating results and cash flow.
Even if NNN remains qualified for taxation as a REIT, NNN is subject to certain federal, state and local taxes on its income and
assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a
foreclosure, and state or local income, franchise, property and transfer taxes. Any increase of these taxes would decrease
earnings and cash available for distribution to stockholders. In addition, in order to meet certain REIT qualification
requirements, NNN may elect to own some of its assets in a TRS.
Adverse legislative or regulatory tax changes could reduce NNN's earnings and cash flow and the market value of NNN's
securities.
At any time, the federal and state tax laws or the administrative interpretations of those laws may change. Any such changes
may have current and retroactive effects, and could adversely affect NNN or its stockholders. Legislation could cause shares in
non-REIT entities to be a more attractive investment to individual investors than shares in REITs, and could have an adverse
effect on the value of NNN's securities.
22
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
With oversight from the Board of Directors, NNN's management is responsible for managing all cyber risks and overseeing
NNN's security programs. Primary cybersecurity risk oversight has been delegated to the Audit Committee. The Senior Vice
President of Information Technology ("SVP of IT") oversees NNN's security programs and its Incident Response Policy and
Plan. The SVP of IT reports to the Chief Accounting and Technology Officer, and together, they have a combined industry
knowledge for technology and information systems of over 40 years.
The Audit Committee cybersecurity risk oversight role includes: (i) reviewing and approving technology security policies and
internal cybersecurity controls, (ii) monitoring cybersecurity and information security exposures, and (iii) confirming
management has adequate procedures in place to not only control and limit these exposures but also to timely respond to
any cyber incident. NNN's cybersecurity risk profile and cyber security program status, including results of any third-party
evaluations are reported to the Audit Committee by the Chief Accounting and Technology Officer.
NNN's information systems process and store critical and sensitive NNN data. Management and the Board of Directors are
committed to protecting NNN systems and data through layered perimeter, interrogation and access controls, as well as
following a constant process of researching, assessing, patching and remediating. Processes to assess, identify, isolate,
remediate and manage cybersecurity risks have been integrated into NNN's overall risk management system. Below are
examples of actions NNN takes to protect NNN's information systems and data from cybersecurity risk:
•
•
•
•
•
•
•
•
•
•
Align systems and processes with best practices for securing NNN information systems and data;
Perform continuous systems monitoring and tactical measures for impending viruses, malware, tampering,
exploits and other cyber threats;
Deploy systems tools to detect, prevent and neutralize cyber threats;
Engage independent third-party consultants to assist in evaluating cybersecurity risks and response profile and
plans;
Identify, oversee and evaluate the risks associated with third-party service providers and consultants;
Continuously educate and provide procedural training to all associates and the Board of Directors regarding
cybersecurity awareness and risks such as enterprise security, malware, data protection best practices, anti-
phishing exercises and updates with respect to other implemented information security measures;
Periodically measure the effectiveness of associate training;
Cybersecurity risk management is periodically reviewed with the Enterprise Risk Management Team;
Perform ongoing internal and external penetration testing and vulnerability assessments with a high priority for
timely remediation; and
Establish reporting deadlines and hierarchies so that data regarding an incident or possible incident is
communicated in a timely manner to NNN's management, to the Audit Committee of the Board of Directors, and
if, appropriate or required by law, to the Commission.
Management is aware that preventive measures cannot prevent all cyber incidents. The SVP of IT has direct oversight over
the Company's security programs on a daily basis. When a cyber incident occurs, NNN's actions are guided by an incident
response plan decision tree to (i) detect, contain and eradicate any threats, (ii) assess materiality, (iii) notify internal parties
and the Audit Committee Chairperson, (iv) recover any compromised NNN data and information systems, (v) limit impacts of
any such incident on NNN's operations, and (vi) report any such incident as require by law or as otherwise necessary. For a
detailed discussion of risks from cybersecurity threats, please see “Item 1A. Risk Factors.”
23
Item 2. Properties
Please refer to Item 1. “Business" and Item 7. "Management's Discussion and Analysis of Financial Conditions and Results of
Operations."
Item 3. Legal Proceedings
In the ordinary course of its business, NNN is a party to various legal actions that management believes are routine in nature
and incidental to the operation of the business of NNN. Management does not believe that any of these proceedings are
material.
Item 4. Mine Safety Disclosures
None.
24
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
The common stock of NNN currently is traded on the NYSE under the symbol “NNN.”
Performance Graphs
Set forth below is a line graph comparing the cumulative total stockholder return on NNN's common stock, based on the
market price of the common stock and assuming reinvestment of dividends, with the FTSE National Association of Real Estate
Investment Trusts Equity Index (“FNER”) and the S&P 500 Index (“S&P 500”) for the five-year period commencing December
31, 2018 and ending December 31, 2023. The graph assumes an investment of $100 on December 31, 2018.
Comparison to Five-Year Cumulative Total Return
25
Set forth below is a line graph comparing the cumulative total stockholder return on NNN's common stock, based on the
market price of the common stock and assuming reinvestment of dividends, with the FNER and the S&P 500 for the fifteen-
year period commencing December 31, 2008 and ending December 31, 2023. The graph assumes an investment of $100 on
December 31, 2008.
Comparison to Fifteen-Year Cumulative Total Return
Dividends
NNN intends to pay regular quarterly dividends to its stockholders, although all future distributions will be declared and paid
at the discretion of the Board of Directors and will depend upon cash generated by operating activities, NNN's financial
condition, capital requirements, annual distribution requirements under the REIT provisions of the Internal Revenue Code of
1986, as amended, and such other factors as the Board of Directors deems relevant.
In January 2024, NNN declared dividends payable to its stockholders of $102,683,000, or $0.5650 per share, of common
stock.
Holders
On January 31, 2024, there were 1,509 registered holders of record of NNN's common stock. Many of NNN's shares of
common stock are held by brokers and institutions on behalf of stockholders, NNN is unable to estimate the total number of
stockholders represented by these record holders.
26
Securities Authorized for Issuance Under Equity Compensation Plans
None.
Sale of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.
Item 6. [Reserved]
27
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
This section generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of
2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this annual report on Form 10-K
can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of
the Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission
("Commission" or "SEC") on February 9, 2023.
The term "NNN" or the "Company" refers to NNN REIT, Inc. and all of its consolidated subsidiaries. NNN may elect to treat
certain of its subsidiaries as taxable real estate investment trust subsidiaries ("TRS"). Effective May 1, 2023, National Retail
Properties, Inc. changed its name to NNN REIT, Inc.
Forward-Looking Statements
The following discussion and analysis should be read in conjunction with the consolidated financial statements and related
notes included elsewhere in this Annual Report on Form 10-K. NNN makes statements in this section that are forward-looking
statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see
the section in this report entitled “Forward-Looking Statements.” Certain risks may cause NNN's actual results, performance
or achievements to differ materially from those expressed or implied by the following discussion. For a discussion of such risk
factors, see “Item 1A. Risk Factors.”
Overview
NNN, a Maryland corporation, is a fully integrated real estate investment trust ("REIT") formed in 1984. NNN's assets are
primarily real estate assets. NNN acquires, owns, invests in and develops properties that are leased primarily to retail tenants
under long-term net leases and are primarily held for investment ("Properties," or "Property Portfolio," or individually a
"Property").
As of December 31, 2023, NNN owned 3,532 Properties in 49 states, with an aggregate gross leasable area of approximately
35,966,000 square feet, and a weighted average remaining lease term of 10.1 years. Approximately 99 percent of the
Properties were leased as of December 31, 2023.
NNN's management team focuses on certain key indicators to evaluate the financial condition and operating performance of
NNN. The key indicators for NNN include items such as: the composition of the Property Portfolio (such as tenant, geographic
and line of trade diversification), the occupancy rate of the Property Portfolio, certain financial performance metrics and
profitability measures, industry trends and industry performance compared to that of NNN.
NNN evaluates the creditworthiness of its significant current and prospective tenants. This evaluation may include reviewing
available financial statements, store level financial performance, press releases, public credit ratings from major credit rating
agencies, industry news publications and financial market data (debt and equity pricing). NNN may also evaluate the business
and operations of its significant tenants, including past payment history and periodically meeting with senior management of
certain tenants.
NNN continues to maintain its diversification by tenant, geography and tenant's line of trade. NNN's largest lines of trade
concentrations are the restaurant (17.2%) (including full and limited service), convenience store (16.4%), automotive service
(15.6%) and family entertainment centers (6.4%) sectors. These sectors represent a large part of the freestanding retail
property marketplace and NNN's management believes these sectors present attractive investment opportunities. The
Property Portfolio is geographically concentrated in the southeast (26.4%) and south (22.9%) United States, which are regions
of historically above-average population growth. Given these concentrations, any financial hardship within these sectors or
geographic regions could have a material adverse effect on the financial condition and operating performance of NNN.
28
As of December 31, 2023, 2022 and 2021, the Property Portfolio remained approximately 99 percent leased and had a
weighted average remaining lease term of approximately 10 years. High occupancy levels coupled with a net lease structure,
provides enhanced probability of maintaining operating earnings.
Impact of COVID-19 on NNN's Business
Beginning March 2020, the COVID-19 pandemic and the government reaction to it negatively affected almost every industry
directly or indirectly. See "Item 1A. Risk Factors." A number of NNN's tenants experienced temporary closures of their
operations which resulted in the loss of revenue and challenged their ability to pay rent. Certain of these NNN tenants
requested adjustments to their lease terms during this pandemic. As a result, these economic hardships increased uncertainty
with respect to the collectability of lease payments and had a negative effect on NNN's financial results, including increased
accounts receivables and related allowances and recognizing revenue on a cash basis from certain of its tenants.
NNN entered into rent deferral lease amendments with certain tenants, for an aggregate $4,722,000 and $51,723,000 of rent
originally due for the years ending December 31, 2021 and 2020, respectively, which require the deferred rents to be repaid
at a later time during the lease term. As of December 31, 2023, an aggregate of approximately $52,637,000 or 93 percent of
the deferred rent has been repaid to NNN. The remaining deferred rents are expected to be repaid as due periodically by
December 31, 2025.
The following table outlines the rent deferred and corresponding scheduled repayment of the rent deferral lease
amendments executed as of December 31, 2023 (dollars in thousands):
Deferred
Scheduled Repayment
Accrual
Basis
$ 33,594
Cash
Basis
$ 18,129
Total
$ 51,723
% of
Total
Accrual
Basis
Cash
Basis
Total
% of
Total
Cumulative
Total
91.6%
$
3,239
$
20
$
3,259
5.8%
5.8%
990
3,732
4,722
8.4%
25,935
5,841
31,776
56.3%
62.1%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,391
9,087
14,478
25.7%
87.8%
19
—
—
3,105
3,124
1,904
1,904
1,904
1,904
5.5%
3.3%
3.4%
93.3%
96.6%
100.0%
2020
2021
2022
2023
2024
2025
$ 34,584
$ 21,861
$ 56,445
100.0%
$ 34,584
$ 21,861
$ 56,445
100.0%
While NNN's rent collections have returned to pre-pandemic levels, NNN's operation and those of NNN's tenants will depend
on future developments, which are highly uncertain and cannot be predicted with high confidence.
Historical rent collections and rent relief requests may not be indicative of rent collections and requests in the future.
Depending on macroeconomic conditions and their impact on a tenant's business and operations, the remaining $3,808,000
of deferred rents may be difficult to collect.
29
Critical Accounting Estimates
The preparation of NNN's consolidated financial statements in conformance with accounting principles generally accepted in
the United States of America requires management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses as well as other disclosures in the financial statements. Estimates are sensitive to
evaluations by management about current and future expectations of market and economic conditions. On an ongoing basis,
management evaluates its estimates and assumptions; however, actual results may differ from these estimates and
assumptions, which in turn could have a material impact on NNN's consolidated financial statements. A summary of NNN's
accounting policies and procedures is included in Note 1 of the December 31, 2023, Consolidated Financial Statements.
Management believes the following critical accounting policies, among others, affect its more significant estimates and
assumptions used in the preparation of NNN's consolidated financial statements.
Real Estate Portfolio. NNN records the acquisition of real estate at cost, including acquisition and closing costs. The cost of
properties developed or funded by NNN includes direct and indirect costs of construction, property taxes, interest, third-party
costs and other miscellaneous costs incurred during the development period until the project is substantially complete and
available for occupancy.
Purchase Accounting for Acquisition of Real Estate. In accordance with the Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") guidance on business combinations, consideration for the real estate acquired is
allocated to the acquired tangible assets, consisting of land, building and tenant improvements and, if applicable, to identified
intangible assets and liabilities, consisting of the value of above-market and below-market leases and value of in-place leases,
as applicable, based on their respective fair values.
The fair value estimate is sensitive to significant assumptions, such as establishing a range of relevant market assumptions for
land, building and rent and where the acquired property falls within that range. These market assumptions for land, building
and rent use the most relevant comparable properties for an acquisition. The final value relies upon ranking comparable
properties' attributes from most to least similar.
Lease Accounting. NNN records its leases on the Property Portfolio in accordance with FASB ASC Topic 842, Leases ("ASC
842"). In addition, NNN records right-of-use assets and operating lease liabilities as lessee under operating leases in
accordance with ASC 842.
NNN's real estate is generally leased to tenants on a net lease basis, whereby the tenant is responsible for all operating
expenses relating to the Property, including property taxes, insurance, maintenance, repairs and capital expenditures.
NNN's Property Portfolio primarily consists of leases accounted for using the operating method. Under the operating method,
revenue is recognized as rentals are earned and expenses (including depreciation) are charged to operations as incurred.
When scheduled rentals vary during the lease term, income is recognized on a straight-line basis so as to produce a constant
periodic rent over the term of the lease. Accrued rental income is the aggregate difference between the scheduled rents
which vary during the lease term and the income recognized on a straight-line basis.
In April 2020, the FASB issued interpretive guidance relating to the accounting for lease concessions provided as a result of
COVID-19. In this guidance, entities can elect not to apply lease modification accounting with respect to such lease
concessions and instead, treat the concession as if it was a part of the existing contract. This guidance is only applicable to
COVID-19 related lease concessions that do not result in a substantial increase in the rights of the lessor or the obligations of
the lessee. NNN elected to make this policy election for COVID-19 lease concessions, provided in the rent deferral lease
amendments effective during the years ended December 31, 2021 and 2020.
30
Collectability. In accordance with ASC 842, NNN reviews the collectability of its lease payments on an ongoing basis. NNN
considers collectability indicators when analyzing accounts receivable (and accrued rent) and historical bad debt levels, tenant
credit-worthiness and current economic trends, all of which assists in evaluating the probability of outstanding and future
rental income collections and the adequacy of the allowance for doubtful accounts. In addition, tenants in bankruptcy are
analyzed and considerations are made in connection with the expected recovery of pre-petition and post-petition bankruptcy
claims.
When NNN deems the collection of rental income from a tenant not probable, uncollected previously recognized rental
revenue and any related accrued rent are reversed as a reduction to rental income and, subsequently, any rental income is
only recognized when cash receipts are received. At this point, a tenant is deemed cash basis for accounting purposes. If NNN
subsequently deems the collection of rental income is probable, any related accrued rental income or expense is restored.
NNN includes an allowance for doubtful accounts in rental income on the Consolidated Statements of Income and
Comprehensive Income.
Real Estate – Held For Sale. Real estate held for sale is not depreciated and is recorded at the lower of cost or fair value, less
cost to sell. On a quarterly basis, the Company evaluates its Properties for held for sale classification based on specific criteria
as outlined in FASB ASC Topic 360, Property, Plant and Equipment, including management's intent to commit to a plan to sell
the asset. NNN anticipates the disposition of Properties classified as held for sale to occur within 12 months.
Impairment – Real Estate. NNN periodically assesses its long-lived real estate assets for possible impairment whenever
certain events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. These
indicators include, but are not limited to: changes in real estate market conditions, the ability of NNN to re-lease properties
that are currently vacant or become vacant, properties reclassified as held for sale, persistent vacancies greater than one
year, and properties leased to tenants in bankruptcy. Management evaluates whether an impairment in carrying value has
occurred by comparing the estimated future cash flows (undiscounted and without interest charges), and the residual value
of the real estate, with the carrying value of the individual asset. The future undiscounted cash flows are primarily driven by
estimated future market rents. Future cash flow estimates are sensitive to the assumptions made by management regarding
future market rents, which are affected by expectations about future market and economic conditions. If an impairment is
indicated, a loss will be recorded for the amount by which the carrying value of the asset exceeds its estimated fair value.
NNN's Properties are leased primarily to retail tenants under long-term net leases and primarily held for investment.
Generally, NNN's Property leases provide for initial terms of 10 to 20 years, with cash flows provided over the entire term.
Revenue Recognition. Rental revenues for properties under construction commence upon completion of construction of the
leased asset and delivery of the leased asset to the tenant. Rental revenues for non-development real estate assets are
recognized when earned in accordance with ASC 842, based on the terms of the lease of the leased asset. Lease termination
fees are recognized when collected subsequent to the related lease that is cancelled and NNN no longer has continuing
involvement with the former tenant with respect to that property.
FASB ASC Topic 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets ("ASC 610-20"), provides guidance for
recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. An entity that transfers
a nonfinancial asset in the scope of ASC 610-20 follows a two-step derecognition model to determine whether (and when) to
derecognize the asset. NNN determined the key revenue stream impacted by ASC 610-20 is gain on disposition of real estate
reported on the Consolidated Statements of Income and Comprehensive Income. In accordance with ASC 610-20, NNN
evaluates any separate contracts or performance obligations to determine proper timing and/or amount of revenue
recognition, as well as, transfer of control and transaction price allocation in determining the amount of gain or loss to record.
31
New Accounting Pronouncements. Refer to Note 1 of the December 31, 2023, Consolidated Financial Statements for a
summary and the anticipated impact of each accounting pronouncement on NNN's financial position and results of
operations.
Results of Operations
Property Analysis
General. The following table summarizes the Property Portfolio as of December 31:
Properties Owned:
Number
Total gross leasable area (square feet)
Properties:
2023
2022
2021
3,532
35,966,000
3,411
35,010,000
3,223
32,753,000
Leased and unimproved land
Percent of Properties – leased and unimproved land
Weighted average remaining lease term (years)
Total gross leasable area (square feet) – leased
Total annualized base rent
3,514
99%
3,390
99%
3,191
99%
10.1
35,683,000
$ 818,749,000
10.4
34,829,000
$ 771,984,000
10.6
32,395,000
$ 713,169,000
The following table summarizes the lease expirations, assuming none of the tenants exercise renewal options, of the Property
Portfolio for each of the next 10 years and then thereafter in the aggregate as of December 31, 2023:
% of
Annual
Base
Rent(1)
1.7%
5.1%
4.8%
8.2%
5.7%
4.0%
2024
2025
2026
2027
2028
2029
# of
Properties
54
185
212
235
229
119
Gross
Leasable
Area(2)
803,000
1,941,000
2,127,000
3,591,000
2,172,000
1,744,000
% of
Annual
Base
Rent(1)
3.3%
7.3%
5.9%
4.9%
49.1%
2030
2031
2032
2033
Thereafter
# of
Properties
109
185
215
138
1,831
Gross
Leasable
Area(2)
1,221,000
2,697,000
2,328,000
1,467,000
15,592,000
(1)
(2)
Based on the annualized base rent for all leases in place as of December 31, 2023.
Square feet.
32
The following table summarizes the diversification of the Property Portfolio based on the top 20 lines of trade:
% of Annual Base Rent(1)
Lines of Trade
1. Convenience stores
2. Automotive service
3. Restaurants – full service
4. Restaurants – limited service
5. Family entertainment centers
6. Recreational vehicle dealers, parts and accessories
7. Health and fitness
8. Theaters
9. Equipment rental
10. Wholesale clubs
11. Automotive parts
12. Drug stores
13. Home improvement
14. Furniture
15. Medical service providers
16. General merchandise
17. Consumer electronics
18. Home furnishings
19. Travel plazas
20. Automobile auctions, wholesale
Other
2023
16.4%
15.6%
8.7%
8.5%
6.4%
4.6%
4.5%
4.1%
3.0%
2.5%
2.5%
2.4%
2.2%
2.0%
1.7%
1.4%
1.4%
1.3%
1.3%
1.1%
8.4%
2022
16.5%
13.7%
9.1%
8.9%
5.9%
4.1%
4.9%
4.3%
3.1%
2.6%
2.6%
2.6%
2.3%
2.3%
1.9%
1.6%
1.4%
1.4%
1.4%
1.3%
8.1%
2021
17.9%
12.3%
9.8%
9.4%
5.9%
3.9%
5.2%
4.5%
3.2%
2.5%
3.0%
1.3%
2.5%
1.7%
2.0%
1.7%
1.5%
1.5%
1.5%
1.3%
7.4%
(1)
Based on annualized base rent for all leases in place as of December 31 of the respective year.
The following table summarizes the diversification of the Property Portfolio by state as of December 31, 2023:
100.0%
100.0%
100.0%
State
1. Texas
2. Florida
3.
Illinois
4. Ohio
5. Georgia
6. North Carolina
7. Tennessee
8.
Indiana
9. California
10. Virginia
Other
# of
Properties
% of Annual Base
Rent(1)
549
278
169
195
172
160
153
149
76
118
1,513
3,532
16.8%
9.4%
5.2%
4.9%
4.7%
3.9%
3.8%
3.7%
3.3%
3.3%
41.0%
100.0%
(1)
Based on annualized base rent for all leases in place as of
December 31, 2023.
33
Property Acquisitions. The following table summarizes the Property acquisitions for each of the years ended December 31
(dollars in thousands):
Acquisitions:
Number of Properties
Gross leasable area (square feet)(1)
Cap rate(2)
2023
2022
2021
165
1,281,000
223
2,629,000
156
1,341,000
7.3%
6.4%
6.5%
Total dollars invested(3)
$
819,710
$
847,747
$
555,415
(1)
(2)
(3)
Includes additional square footage from completed construction on existing Properties.
The cap rate is a weighted average, calculated as the initial cash annual base rent divided by the total
purchase price of the Properties.
Includes dollars invested in projects under construction or tenant improvements for each respective year.
NNN typically funds Property acquisitions either through borrowings under NNN's unsecured revolving credit facility (the
"Credit Facility"), by issuing its debt or equity securities in the capital markets, with undistributed funds from operations or
with proceeds from the sale of Properties.
Property Dispositions. The following table summarizes the properties sold by NNN for each of the years ended December 31
(dollars in thousands):
Number of properties
Gross leasable area (square feet)
Net sales proceeds
Net gain on disposition of real estate
Cap rate(1)
2023
2022
45
293,000
115,716
47,485
$
$
33
311,000
65,216
17,443
$
$
$
$
2021
74
1,015,000
122,018
23,094
5.9%
5.9%
7.4%
(1)
The cap rate is a weighted average of properties occupied at disposition, calculated as the cash annual base
rent dividend by the total sales price of the properties.
NNN typically uses the disposition proceeds to either pay down the Credit Facility or reinvest in real estate.
Analysis of Revenues
The following summarizes NNN's revenues for each of the years ended December 31 (dollars in thousands):
Rental Revenues(1)
Real estate expense reimbursement from tenants
$
Rental income
Interest and other income from real estate
transactions
Total revenues
2023
2022
2021
$
807,327
18,763
826,090
$
753,816
17,802
771,618
705,194
18,665
723,859
2,021
1,435
2,548
$
828,111
$
773,053
$
726,407
2023
Versus
2022
2022
Versus
2021
7.1%
5.4%
7.1%
40.8%
7.1%
6.9%
(4.6)%
6.6%
(43.7)%
6.4%
(1)
Includes rental income from operating leases, earned income from direct financing leases and percentage rent ("Rental Revenues").
Rental Income. Rental income increased for the year ended December 31, 2023, as compared to the same period in 2022. The
increase is primarily due to the Rental Revenues from NNN's recent Property acquisitions (see "Results of Operations –
Property Analysis – Property Acquisitions").
34
Analysis of Expenses
The following summarizes NNN's expenses for the year ended December 31 (dollars in thousands):
General and administrative
Real estate
Depreciation and amortization
Leasing transaction costs
Impairment losses – real estate, net of recoveries
Executive retirement costs
Total operating expenses
Interest and other income
Interest expense
Loss on early extinguishment of debt
$
$
$
2023
2022
2021
43,746
28,378
238,625
299
5,990
3,454
320,492
(1,134)
163,898
—
$
$
$
41,695
26,281
223,834
320
8,309
7,520
307,959
(149)
148,065
—
$
$
$
44,640
28,385
205,220
203
21,957
—
300,405
(216)
137,874
21,328
Total other expenses
$
162,764
$
147,916
$
158,986
As a percentage of total revenues:
General and administrative
Real estate
5.3%
3.4%
5.4%
3.4%
6.1%
3.9%
2023
Versus
2022
2022
Versus
2021
4.9%
8.0%
6.6%
(6.6)%
(27.9)%
(54.1)%
4.1%
661.1%
10.7%
—%
10.0%
(6.6)%
(7.4)%
9.1%
57.6%
(62.2)%
N/C
2.5%
(31.0)%
7.4%
(100.0)%
(7.0)%
General and Administrative Expenses. General and administrative expenses increased in amount and remained consistent as
a percentage of total revenues for the year ended December 31, 2023, as compared to the same period in 2022. The increase
is primarily attributable to personnel compensation costs.
Real Estate. Real estate expenses increased in amount and remained consistent as a percentage of revenues for the year
ended December 31, 2023, as compared to the same period in 2022. NNN focuses on real estate expenses, net of
reimbursements from tenants. NNN's net real estate expenses for the years ended December 31, 2023 and 2022 were
$9,615,000 and $8,479,000, respectively. The increase is primarily attributable to non-reimbursable real estate expenses and
certain properties that became vacant.
Depreciation and Amortization. Depreciation and amortization expenses increased in amount for the year ended
December 31, 2023, as compared to the same period in 2022. The increase is primarily attributable to the increase in NNN's
Property Portfolio from recent acquisitions (see "Results of Operations – Property Analysis – Property Acquisitions").
Impairment Losses – Real Estate, Net of Recoveries. As a result of NNN's review of long-lived real estate assets, including
identifiable intangible assets, NNN recognized real estate impairments, net of recoveries for the years ended December 31,
2023 and 2022, which were less than one percent of NNN's total assets for the respective years as reported on the
Consolidated Balance Sheets. Due to NNN's core business of investing in real estate leased primarily to retail tenants under
long-term net leases, the inherent risks of owning commercial real estate, and unknown potential changes in financial and
economic conditions that may impact NNN's tenants, NNN believes it is reasonably possible to incur real estate impairment
charges in the future.
Executive Retirement Costs. In April 2022, the former President and Chief Executive Officer retired from employment, as
contemplated under the Company's long-term executive succession planning process and as previously announced in January
2022. During the years ended December 31, 2023 and 2022, NNN recorded executive retirement costs in connection with the
long-term incentive compensation related to the retirement and transition agreement.
35
In addition, in November 2023, NNN announced that Christopher P. Tessitore will retire from employment with the Company
as Executive Vice President, General Counsel and Secretary effective January 1, 2024. During the year ended December 31,
2023, NNN recorded executive retirement costs as a result of the accounting treatment for long-term incentive compensation
related to Mr. Tessitore's retirement and transition agreement.
Interest Expense. Interest expense increased for the year ended December 31, 2023, compared to the same period in 2022.
The increase is primarily due to:
•
•
the issuance of $500,000,000 aggregate principal amount of 5.600% notes due October 2033 (see "Note 5 – Notes
Payable and Derivatives"), and
the Credit Facility having a weighted average outstanding balance of $169,620,000 with a weighted average
interest rate of 5.86% for the year ended December 31, 2023 compared to a weighted average outstanding
balance of $39,220,000 with a weighted average interest rate of 4.13% for the year ended December 31, 2022.
Impact of Inflation
NNN's leases typically contain provisions to mitigate the adverse impact of inflation on NNN's results of operations. Tenant
leases generally provide for limited increases in rent as a result of fixed increases, capped increases in the Consumer Price
Index, and/or, to a lesser extent, increases in the tenant's sales volume. As a result of limitations on rent increases, during
times when inflation is high, rent increases may not meet or exceed the rate of inflation.
Properties are leased to tenants under long-term, net leases which typically require the tenant to pay certain operating
expenses for a Property, thus, NNN's exposure to inflation is reduced with respect to these expenses. Inflation may have an
adverse impact on NNN's tenants and challenge their ability to meet lease obligations, including to pay rent. See "Item 1A.
Risk Factors."
Liquidity and Capital Resources
NNN's demand for funds has been and will continue to be primarily for (i) payment of operating expenses and cash dividends,
(ii) property acquisitions and construction commitments, (iii) capital expenditures, (iv) payment of principal and interest on its
outstanding debt, and (v) other investments.
Financing Strategy. NNN's financing objective is to manage its capital structure effectively in order to provide sufficient
capital to execute its operating strategy while servicing its debt requirements, maintaining its investment grade credit rating,
staggering debt maturities and providing value to NNN's stockholders. NNN's capital resources have and will continue to
include, if available (i) proceeds from issuing debt or equity in the capital markets; (ii) secured or unsecured borrowings from
banks or other lenders; (iii) proceeds from the sale of Properties; and (iv) to a lesser extent, by internally generated funds as
well as undistributed funds from operations. However, there can be no assurance that additional financing or capital will be
available, or that the terms will be acceptable or advantageous to NNN.
NNN typically expects to fund both its short-term and long-term liquidity requirements, including investments in additional
properties, with cash and cash equivalents, cash provided from operations, borrowings from NNN's Credit Facility or proceeds
from the sale of Properties. As of December 31, 2023, NNN had $5,155,000 of cash, cash equivalents and restricted cash and
$968,000,000 available for future borrowings under the Credit Facility. NNN may also fund liquidity requirements with new
debt or equity issuances, although newly issued debt may be at higher interest rates than the rates on NNN's existing
outstanding debt. NNN has the ability to limit future property acquisitions and strategically increase property dispositions.
NNN expects these sources of liquidity and the discretionary nature of its property acquisition funding needs will allow NNN
to meet its financial obligations over the long term.
36
As of December 31, 2023, NNN's ratio of total debt, none of which was secured debt, to total gross assets (before
accumulated depreciation and amortization) was approximately 42 percent. The ratio of total debt to total market
capitalization was approximately 36 percent. Certain financial agreements to which NNN is a party contain covenants that
limit NNN's ability to incur additional debt under certain circumstances. The organizational documents of NNN do not limit
the absolute amount or percentage of debt that NNN may incur.
Cash Flows. NNN had $5,155,000 in cash and cash equivalents, of which $3,966,000 was restricted cash or cash held in
escrow at December 31, 2023. The table below summarizes NNN's cash flows for each of the years ended December 31
(dollars in thousands):
Cash, cash equivalents and restricted cash:
Provided by operating activities
Used in investing activities
Provided by (used in) financing activities
Decrease in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at the beginning of the year
2023
2022
2021
$
612,410
$
578,355
$
568,425
(680,660)
66,627
(1,623)
6,778
(777,631)
34,732
(164,544)
171,322
(432,177)
(232,162)
(95,914)
267,236
171,322
Cash, cash equivalents and restricted cash at the end of the year
$
5,155
$
6,778
$
Cash flow activities include:
Operating Activities. Cash provided by operating activities represents cash received primarily from rental income and
interest income less cash used for general and administrative expenses. NNN's cash flow from operating activities has
been sufficient to pay the distributions for each year presented. The change in cash provided by operations for the
years ended December 31, 2023, 2022 and 2021, is primarily the result of changes in revenues and expenses as
discussed in “Results of Operations.” Cash generated from operations is expected to fluctuate in the future.
Investing Activities. Changes in cash for investing activities are primarily attributable to acquisitions and dispositions of
Properties as discussed in "Results of Operations - Property Analysis." NNN typically uses cash on hand, borrowings
from its Credit Facility or proceeds from the sale of Properties to fund the acquisition of its Properties.
Financing Activities. NNN's financing activities for the year ended December 31, 2023, included the following significant
transactions:
•
•
•
•
•
•
$34,200,000 in net repayments of NNN's Credit Facility,
$483,930,000 in net proceeds from the issuance of the 5.600% notes payable due in October 2033,
$28,292,000 from the issuance of 650,135 shares of common stock in connection with the at-the-market
equity program ("ATM"),
$3,082,000 from the issuance of 76,229 shares of common stock in connection with the Dividend
Reinvestment and Stock Purchase Plan (“DRIP”),
$404,458,000 in dividends paid to common stockholders, and
$9,774,000 payment in April for the repayment of the remaining mortgages payable principal.
37
Material Cash Requirements
NNN's material cash requirements include (i) long-term debt maturities; (ii) interest on long-term debt; (iii) common stock
dividends (although all future distributions will be declared and paid at the discretion of the Board of Directors); and (iv) to a
lesser extent, Property construction and other Property related costs that may arise.
The table presents material cash requirements related to NNN's long-term obligations outstanding as of December 31, 2023
(see "Capital Structure") (dollars in thousands):
Long-term debt(1)
Long-term debt – interest(2)
Credit Facility
Headquarters office lease
Total
2024
2025
2026
2027
2028
Thereafter
$ 4,300,000
1,959,408
132,000
10,103
$ 350,000
157,006
—
837
$ 400,000
148,750
132,000
210
$ 350,000
134,225
—
981
$ 400,000
119,233
—
1,005
$ 400,000
104,567
—
1,030
$ 2,400,000
1,295,627
—
6,040
Total contractual cash obligations
$ 6,401,511
$ 507,843
$ 680,960
$ 485,206
$ 520,238
$ 505,597
$ 3,701,667
Date of Obligation
(1)
(2)
Includes only principal amounts outstanding under notes payable and excludes unamortized note discounts and debt costs.
Interest calculation on notes payable based on stated rate of the principal amount.
Property Construction. NNN has committed to fund construction of 53 Properties. The improvements of such Properties are
estimated to be completed within 12 to 18 months. These construction commitments, at December 31, 2023, are outlined in
the table below (dollars in thousands):
Total commitment(1)
Less amount funded
Remaining commitment
$
$
379,674
(240,532)
139,142
(1)
Includes land, construction costs, tenant improvements, lease costs, capitalized
interest and third-party costs.
Management anticipates satisfying these obligations with a combination of NNN's cash provided from operations, current
capital resources on hand, its Credit Facility, debt or equity financings and asset dispositions.
Properties. Typically, the Properties are leased under long-term triple net leases, which require the tenant to pay all real
estate taxes and assessments, utilities, to maintain the interior and exterior of the Property, and to carry property and liability
insurance coverage. Therefore, management anticipates that capital demands to meet obligations with respect to these
Properties will be modest for the foreseeable future and can be met with funds from operations and working capital. Certain
Properties are subject to leases under which NNN retains responsibility for specific costs and expenses associated with the
Property. Management anticipates the costs associated with these Properties, NNN's vacant Properties or those Properties
that become vacant will also be met with funds from operations and working capital. NNN may be required to borrow under
its Credit Facility or use other sources of capital in the event of significant capital expenditures or major repairs.
The lost revenues and increased property expenses resulting from vacant Properties or the inability to collect lease revenues
could have a material adverse effect on the liquidity and results of operations if NNN is unable to re-lease the Properties at
comparable rental rates and in a timely manner.
As of December 31, 2023, NNN owned 18 vacant, un-leased Properties which accounted for less than one percent of total
Properties and less than one percent of aggregate gross leasable area held in the Property Portfolio.
38
Additionally, as of January 31, 2024, less than one percent of total Properties, and less than one percent of aggregate gross
leasable area held in the Property Portfolio, was leased to one tenant currently in bankruptcy under Chapter 11 of the U.S.
Bankruptcy Code. As a result, this tenant has the right to reject or affirm their leases with NNN.
NNN generally monitors the financial performance of its significant tenants on an ongoing basis.
Common Stock Dividends. One of NNN's primary objectives is to distribute a substantial portion of its funds available from
operations to its stockholders in the form of dividends, while retaining sufficient cash for reserves and working capital
purposes and maintaining its status as a REIT.
The following table outlines the dividends declared and paid for NNN's common stock for the years ended December 31
(dollars in thousands, except per share data):
Dividends
Per share
2023
2022
2021
$
404,458
2.230
$
380,538
2.160
$
367,291
2.100
The following table presents the characterizations for tax purposes of NNN's common stock dividends for the years ended
December 31:
Ordinary dividends(1)
Nontaxable distributions
$
$
2.192636
0.037364
2.230000
98.3245% $
1.6755%
2.156330
0.003670
99.8301% $
0.1699%
1.615753
0.484247
76.9406%
23.0594%
100.0000% $
2.160000
100.0000% $
2.100000
100.0000%
2023
2022
2021
(1)
Eligible for the 20% qualified business income deduction under section 199A of the Internal Revenue Code of 1986, as amended (the
"Code").
On January 16, 2024, NNN declared a dividend of $0.5650 per share, payable February 15, 2024, to its common stockholders
of record as of January 31, 2024.
Preferred Stock Distributions. Holders of NNN's preferred stock issuances are entitled to receive, when and as authorized by
the Board of Directors, cumulative preferential cash distributions based on the stated rate and liquidation preference per
annum. NNN declared and paid $1.086944 per share ($14,999,000) to stockholders for NNN's 5.200% Cumulative
Redeemable Preferred Stock (the "Series F Preferred Stock") during the year ended December 31, 2021, all of which was
eligible for the 20% qualified business income deduction under section 199A of the Code.
NNN's Series F Preferred Stock was redeemed in October 2021. (See "Capital Structure – Preferred Stock"). As of December
31, 2023, NNN had no outstanding shares of preferred stock.
39
Capital Structure
NNN has used, and expects to use in the future, various forms of debt and equity securities primarily to fund property
acquisitions and construction on its Properties and to pay down or refinance its outstanding debt.
The following is a summary of NNN's total outstanding debt as of December 31 (dollars in thousands):
Line of credit payable
Mortgages payable(1)
Notes payable
$
2023
132,000
—
4,228,544
Percentage
of Total
3.0% $
—%
97.0%
2022
166,200
9,964
3,739,890
Total outstanding debt
$
4,360,544
100.0% $
3,916,054
(1)
In April 2023, NNN repaid the remaining mortgages payable principal balance of $9,774.
Percentage
of Total
4.2%
0.3%
95.5%
100.0%
Line of Credit Payable. NNN's $1,100,000,000 Credit Facility had a weighted average outstanding balance of $169,620,000
and a weighted average interest rate of 5.86% during the year ended December 31, 2023. In December 2022, NNN entered
into an amendment to the Credit Facility, to change the base interest rate from London Interbank Offered Rate ("LIBOR") to
the Secured Overnight Financing Rate ("SOFR") plus a SOFR adjustment of 10 basis points ("Adjusted SOFR"). The Credit
Facility bears interest at Adjusted SOFR plus 77.5 basis points; however, such interest rate may change pursuant to a tiered
interest rate structure based on NNN's debt rating. Additionally, as part of NNN's environmental, social and governance
("ESG") initiative, pricing may be reduced if specified ESG metrics are achieved. The Credit Facility matures in June 2025,
unless the Company exercises its options to extend maturity to June 2026. The Credit Facility also includes an accordion
feature which permits NNN to increase the facility size up to $2,000,000,000, subject to lender approval. In connection with
the Credit Facility, loan costs are classified as debt costs on the Consolidated Balance Sheet. As of December 31, 2023, there
was $132,000,000 outstanding and $968,000,000 available for future borrowings under the Credit Facility.
In accordance with the terms of the Credit Facility, NNN is required to meet certain restrictive financial covenants, which,
among other things, require NNN to maintain certain (i) leverage ratios, (ii) debt service coverage, (iii) cash flow coverage, and
(iv) investment limitations. At December 31, 2023, NNN was in compliance with those covenants. In the event that NNN
violates any of these restrictive financial covenants, it could cause the debt under the Credit Facility to be accelerated and
may impair NNN's access to the debt and equity markets and limit NNN's ability to pay dividends to its stockholders, each of
which would likely have a material adverse impact on NNN's financial condition and results of operations.
Mortgages Payable. As of December 31, 2022, NNN had mortgages payable, including unamortized premium and net of
unamortized debt costs, of $9,964,000. The mortgages payable had an interest rate of 5.23% and matured July 2023. The loan
was secured by a first lien on five of the Properties and the carrying value of the assets was $18,485,000 as of December 31,
2022. In April 2023, NNN repaid the remaining mortgages payable principal balance of $9,774,000.
Universal Shelf Registration Statement. In August 2023, NNN filed a shelf registration statement with the Commission which
became automatically effective (“Universal Shelf”). The Universal Shelf permits the issuance by NNN of an indeterminate
amount of debt and equity securities, including preferred stock, depositary shares, common stock, stock purchase contracts,
rights, warrants and units. NNN may periodically offer one of more of these securities in amounts, prices and on terms to be
announced when and if these securities are offered. The specifics of any future offerings along with the use of proceeds of
any securities offered, will be described in detail in a prospectus supplements, or other offering materials, at the time of any
offering.
40
Debt Securities – Notes Payable. Each of NNN's outstanding series of unsecured notes is summarized in the table below
(dollars in thousands):
Notes(1)
Issue Date
Principal
Discount(2)
2024
2025
2026
2027
2028
2030
2033
2048
2050
2051
2052
May 2014
October 2015
December 2016
September 2017
September 2018
March 2020
August 2023
September 2018
March 2020
March 2021
September 2021
$
$
350,000
400,000
350,000
400,000
400,000
400,000
500,000
300,000
300,000
450,000
450,000
707
964
3,860
1,628
2,848
1,288
11,620
4,239
6,066
8,406
10,422
$
Net
Price
349,293
399,036
346,140
398,372
397,152
398,712
488,380
295,761
293,934
441,594
439,578
Stated
Rate
3.900%
4.000%
3.600%
3.500%
4.300%
2.500%
5.600%
4.800%
3.100%
3.500%
3.000%
Effective
Rate(3)
3.924%
4.029%
3.733%
3.548%
4.388%
2.536%
5.905%
4.890%
3.205%
3.602%
3.118%
Maturity Date
June 2024(4)(5)
November 2025(4)
December 2026(4)
October 2027(4)
October 2028(4)
April 2030
October 2033
October 2048
April 2050
April 2051
April 2052
(1)
(2)
(3)
(4)
The proceeds from each note issuance were used to (i) pay down the outstanding balance on NNN's Credit Facility, (ii) redeem notes
payable prior to maturity, (iii) redeem outstanding preferred stock, (iv) fund future property acquisitions, and/or (v) for general
corporate purposes.
The note discounts are amortized to interest expense over the respective term of each debt obligation using the effective interest
method.
Includes the effects of the discount at issuance.
The aggregate principal balance of the unsecured note maturities for the next five years is $1,900,000.
(5) NNN plans to use proceeds from the Credit Facility and/or potential debt or equity offerings to repay the outstanding debt.
NNN entered into forward starting swaps which hedged the risk of changes in forecasted interest payments on the forecasted
issuance of long-term debt. Upon the issuance of a series of unsecured notes, NNN terminated such derivatives as outlined in
the following table (dollars in thousands):
Notes
Terminated
Description
2024
2025
2026
2027
2028
2030
2052
May 2014
October 2015
December 2016
September 2017
September 2018
March 2020
September 2021
Three forward starting swaps
Four forward starting swaps
Two forward starting swaps
Two forward starting swaps
Two forward starting swaps
Three forward starting swaps
Two forward starting swaps
Liability (Asset)
Fair Value
When
Terminated (1)
Fair Value
Deferred In
Other
Comprehensive
Income(2)
Aggregate
Notional
Amount
$
$
225,000
300,000
180,000
250,000
250,000
200,000
120,000
$
6,312
13,369
(13,352)
7,690
(4,080)
13,141
1,584
6,312
13,369
(13,345)
7,688
(4,080)
13,141
1,584
(1)
(2)
The deferred liability (asset) is being amortized over the term of the respective notes using the effective interest method.
The amount reported in accumulated other comprehensive income will be reclassified to interest expense as interest payments are
made on the related notes payable.
Each series of the notes represents senior, unsecured obligations of NNN and is subordinated to all secured debt of NNN.
NNN may redeem each series of notes, in whole or in part, at any time prior to the par call date for the notes at the
redemption price as set forth in the applicable supplemental indenture relating to the notes; provided, however, that if NNN
redeems the notes on or after the par call date, the redemption price will equal 100 percent of the principal amount of the
notes to be redeemed, plus accrued and unpaid interest thereon to, but not including, the redemption date.
41
In connection with the outstanding note offerings, NNN incurred debt issuance costs totaling $42,595,000 consisting primarily
of underwriting discounts and commissions, legal and accounting fees, rating agency fees and printing expenses. Debt
issuance costs for all note issuances have been deferred and presented as a reduction to notes payable and are being
amortized over the term of the respective notes using the effective interest method.
In accordance with the terms of the indentures pursuant to which NNN's notes have been issued, NNN is required to meet
certain restrictive financial covenants, which, among other things, require NNN to maintain (i) certain leverage ratios, and (ii)
certain interest coverage. At December 31, 2023, NNN was in compliance with those covenants. NNN's failure to comply with
certain of its debt covenants could result in defaults that accelerate the payment under such debt and limit the dividends paid
to NNN's stockholders which would likely have a material adverse impact on NNN's financial condition and results of
operations. In addition, these defaults could impair its access to the debt and equity markets.
NNN does not use derivatives for trading or speculative purposes or currently have any derivatives that are not designated as
hedges. NNN had no derivative financial instruments outstanding at December 31, 2023.
Equity Securities
Preferred Stock. In October 2021, NNN redeemed all outstanding depositary shares (13,800,000) representing interests in its
Series F Preferred Stock. The Series F Preferred Stock was redeemed at $25.00 per depositary share ($345,000,000), plus all
accrued and unpaid dividends through, but not including, the redemption date, for an aggregate redemption price of
$25.111944 per depositary share. The excess carrying amount of the Series F Preferred Stock redeemed over the cash paid to
redeem the Series F Preferred Stock was $10,897,000, representing issuance costs which is reflected as a reduction to
earnings attributable to common stockholders.
As of December 31, 2023, NNN had no outstanding shares of preferred stock.
At-The-Market Offerings. NNN has established an ATM which allows NNN to sell shares of common stock from time to time.
The following table outlines NNN's ATM:
Shelf registration statement:
Effective date
Termination date
Total allowable shares
Total shares issued as of December 31, 2023
2023 ATM
2020 ATM
August 2023
August 2026
17,500,000
—
August 2020
August 2023
17,500,000
7,722,511
The following table outlines the common stock issuances pursuant to NNN's ATM for the years ended December 31 (dollars in
thousands, except per share data):
Shares of common stock
Average price per share (net)
Net proceeds
Stock issuance costs(1)
2023
650,135
43.52
28,292
858
$
$
$
2022
5,473,072
45.15
247,129
3,761
$
$
$
2021
30,000
33.65
1,009
224
$
$
$
(1)
Stock issuance costs consist primarily of underwriters' and agent's fees and commissions, and
legal and accounting fees.
42
Dividend Reinvestment and Stock Purchase Plan. In February 2021, NNN filed a shelf registration statement that was
automatically effective with the Commission for a term of three years, for its DRIP, which permits NNN to issue up to
6,000,000 shares of common stock. NNN's DRIP provides an economical and convenient way for current stockholders and
other interested new investors to invest in NNN's common stock. The following outlines the common stock issuances
pursuant to NNN's DRIP for the years ended December 31 (dollars in thousands):
Shares of common stock
Net proceeds
2023
2022
2021
76,229
3,082
$
70,342
3,082
$
62,577
2,744
$
NNN's DRIP shelf registration statement expires in February 2024; however, NNN intends to file a new registration statement
in order to continue providing current stockholders and other interested new investors an economical and convenient way to
invest in NNN's common stock.
43
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
NNN is exposed to interest rate risk primarily as a result of its variable rate Credit Facility and its fixed rate long-term debt
which is used to finance NNN's Property acquisitions and development activities, as well as for general corporate purposes.
NNN's interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and
to lower its overall borrowing costs. To achieve its objectives, NNN borrows at both fixed and variable rates on its long-term
debt and periodically uses derivatives to hedge the interest rate risk of future borrowings. As of December 31, 2023, NNN had
no outstanding derivatives.
As of December 31, 2023, NNN's variable rate Credit Facility had $132,000,000 outstanding. For the year ended December 31,
2023, the Credit Facility had a weighted average outstanding balance of $169,620,000 and a weighted average interest rate of
5.86% compared to a weighted average outstanding balance of $39,220,000 and a weighted average interest rate of 4.13%
for the same period in 2022.
The information in the table below summarizes NNN's market risks associated with its outstanding debt obligations. The table
presents, by year of expected maturity, principal payments and related interest rates for debt obligations outstanding as of
December 31, 2023. The table incorporates only those debt obligations that existed as of December 31, 2023, and it does not
consider those debt obligations or positions which could arise after this date and therefore has limited predictive value. As a
result, NNN's ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise
during the period, NNN's hedging strategies at that time and interest rates. If interest rates on NNN's variable rate debt
increased by one percent, NNN's interest expense would have increased by approximately one percent for the year ended
December 31, 2023.
Debt Obligations(1) (dollars in thousands)
Variable Rate Debt
Credit Facility
Fixed Rate Debt
Unsecured Debt(2)
Debt
Obligation
Weighted
Average
Interest Rate
Principal
Debt
Obligation
Effective
Interest
Rate
$
$
$
$
—
132,000
—
—
—
—
132,000
132,000
166,200
$
—
5.86%
—
—
—
—
5.86% $
350,000
400,000
350,000
400,000
400,000
2,400,000
4,300,000
$
$
3,801,367
3,140,774
3.92%
4.03%
3.73%
3.55%
4.39%
3.92% (3)
3.93%
2024
2025
2026
2027
2028
Thereafter
Total
Fair Value:
December 31, 2023
December 31, 2022
(1) NNN's unsecured debt obligations have a weighted average interest rate of 4.0% and a weighted average maturity of 12.0 years.
(2)
Includes NNN's notes payable, each exclude unamortized discounts and debt costs. The fair value is based upon quoted market prices
as of the close of the year, which is a Level 1 valuation since NNN's notes payable are publicly traded on the over-the-counter market.
(3) Weighted average effective interest rate for years after 2028.
44
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of NNN REIT, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited NNN REIT, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2023, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, NNN REIT, Inc. and subsidiaries (the Company)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated
statements of income and comprehensive income, equity and cash flows for each of the three years in the period ended
December 31, 2023, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively
referred to as the “financial statements”) and our report dated February 8, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in
all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
45
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Orlando, Florida
February 8, 2024
46
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of NNN REIT, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of NNN REIT, Inc. and subsidiaries (the Company) as of
December 31, 2023 and 2022, the related consolidated statements of income and comprehensive income, equity and cash
flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement
schedules listed in the Index at Item 15 (collectively referred to as the “consolidated financial statements”). In our opinion,
the consolidated financial statements present fairly, in all material respects, the financial position of the Company at
December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework), and our report dated February 8, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements
that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex
judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions
on the critical audit matters or on the accounts or disclosures to which they relate.
47
Description of the Matter
How We Addressed the
Matter in Our Audit
Valuation of Real Estate Acquisitions
As discussed in Note 1 of the consolidated financial statements, real estate asset
acquisitions require allocation of consideration to the acquired tangible assets, consisting
of land, building and tenant improvements and, if applicable, to identified intangible
assets and liabilities, based on their respective fair values. For the year ended December
31, 2023, the Company completed $599 million of real estate acquisitions accounted for
as asset acquisitions.
Auditing management’s measurement of fair values and allocation of consideration to
the acquired tangible assets was complex and involved subjectivity. In particular, the fair
value estimates are sensitive to significant assumptions, such as establishing a range of
relevant market assumptions for land, building and rent, and estimating where within
that range the acquired property falls. Establishing the market assumptions for land,
building and rent include identifying the relevant properties in the established range
most comparable to the acquired property. The position within the range is a judgmental
assumption that relies upon ranking comparable properties’ attributes from most similar
to least similar.
We obtained an understanding, evaluated the design and tested the operating
effectiveness of controls over the Company’s valuation of real estate acquisitions
process. For example, we tested controls over the review and selection of inputs and
assumptions used in the valuation estimates and the review of the final allocation of
value among the tangible assets acquired.
To test the estimated fair values of the Company’s acquired tangible assets, we
performed audit procedures that included, among others, reading the purchase
agreements, assessing management’s valuation techniques and testing the completeness
and accuracy of the underlying data used by the Company in its analysis. For certain
acquisitions, we involved our real estate valuation specialists to evaluate management’s
concluded ranges of values by benchmarking against comparable properties. We also
compared certain of management’s assumptions to current and comparable industry
information for land, building, building improvements and market rents.
48
Impairment of Held and Used Real Estate Assets
Description of the Matter At December 31, 2023, held and used real estate assets were $8,536 million. As discussed
in Notes 1 and 2 of the consolidated financial statements, the Company assesses held and
used real estate assets for impairment when certain events or changes in circumstances
indicate the carrying amount of the asset may not be recoverable through operations.
When impairment indicators are determined to be present, the Company first performs a
recoverability test by comparing the undiscounted future cash flows of the real estate
asset to the net carrying value. If the undiscounted cash flows used in the test for
recoverability are less than the carrying amount of the asset, the Company determines the
fair value of the real estate asset and recognizes an impairment loss if the carrying
amount of the asset exceeds its fair value.
How We Addressed the
Matter in Our Audit
Auditing management’s evaluation of held and used real estate assets for impairment was
complex and involved subjectivity due to the significant estimation required to determine
the undiscounted future cash flows of held and used assets where impairment indicators
were determined to be present and the fair value for those properties in which the net
carrying value of the asset exceeds its undiscounted cash flows. In particular, future cash
flow estimates were sensitive to the assumptions made by management regarding future
market rents, which are affected by expectations about future market and economic
conditions.
We obtained an understanding, evaluated the design and tested the operating
effectiveness of controls over the Company’s impairment of held and used real estate
assets process. For example, we tested controls over management’s review of the market
rent assumption.
To test the Company’s impairment assessment over held and used real estate assets, our
audit procedures included, among others, assessing the methodologies used by
management, testing the market rent assumption used to develop the estimates of future
cash flows, and testing the completeness and accuracy of the underlying data used by the
Company in its analysis. We evaluated the historical accuracy of the Company’s estimates
by performing a historical look back on market rent assumptions.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2006.
Orlando, Florida
February 8, 2024
49
NNN REIT, INC.
and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
ASSETS
December 31,
2023
December 31,
2022
Real estate portfolio, net of accumulated depreciation and amortization
$
8,535,851
$
8,020,814
Cash and cash equivalents
Restricted cash and cash held in escrow
Receivables, net of allowance of $669 and $708, respectively
Accrued rental income, net of allowance of $4,168 and $3,836, respectively
Debt costs, net of accumulated amortization of $23,952 and $21,663, respectively
Other assets
Total assets
LIABILITIES AND EQUITY
Liabilities:
Line of credit payable
Mortgages payable, including unamortized premium and net of unamortized debt costs
Notes payable, net of unamortized discount and unamortized debt costs
Accrued interest payable
Other liabilities
Total liabilities
Commitments and contingencies (Note 13)
Equity:
Stockholders' equity:
Common stock, $0.01 par value. Authorized 375,000,000 shares; 182,474,770 and
181,424,670 shares issued and outstanding, respectively
Capital in excess of par value
Accumulated deficit
Accumulated other comprehensive income (loss)
Total stockholders' equity of NNN
Total liabilities and equity
1,189
3,966
3,649
34,611
3,243
79,459
2,505
4,273
3,612
27,795
5,352
81,694
$
$
8,661,968
$
8,146,045
132,000
$
—
4,228,544
34,374
109,593
4,504,511
166,200
9,964
3,739,890
23,826
82,663
4,022,543
1,826
4,971,625
(805,883)
(10,111)
4,157,457
$
8,661,968
$
1,815
4,928,034
(793,765)
(12,582)
4,123,502
8,146,045
See accompanying notes to consolidated financial statements.
50
NNN REIT, INC.
and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(dollars in thousands, except per share data)
Revenues:
Rental income
Interest and other income from real estate transactions
Operating expenses:
General and administrative
Real estate
Depreciation and amortization
Leasing transaction costs
Impairment losses – real estate, net of recoveries
Executive retirement costs
Gain on disposition of real estate
Earnings from operations
Other expenses (revenues):
Interest and other income
Interest expense
Loss on early extinguishment of debt
Net earnings
Loss attributable to noncontrolling interests
Net earnings attributable to NNN
Year Ended December 31,
2023
2022
2021
$
826,090
$
771,618
$
723,859
2,021
828,111
43,746
28,378
238,625
299
5,990
3,454
320,492
47,485
555,104
(1,134)
163,898
—
162,764
392,340
—
1,435
773,053
41,695
26,281
223,834
320
8,309
7,520
307,959
17,443
482,537
(149)
148,065
—
147,916
334,621
5
2,548
726,407
44,640
28,385
205,220
203
21,957
—
300,405
23,094
449,096
(216)
137,874
21,328
158,986
290,110
3
$
392,340
$
334,626
$
290,113
See accompanying notes to consolidated financial statements.
51
NNN REIT, INC.
and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME – CONTINUED
(dollars in thousands, except per share data)
Net earnings attributable to NNN
Series F preferred stock dividends
Excess of redemption value over carrying value of preferred shares redeemed
Net earnings attributable to common stockholders
Net earnings per share of common stock:
Basic
Diluted
Weighted average number of common shares outstanding:
Basic
Diluted
Other comprehensive income:
Net earnings attributable to NNN
Amortization of interest rate hedges
Fair value of forward starting swaps
Comprehensive income attributable to NNN
Comprehensive loss attributable to noncontrolling interests
Year Ended December 31,
2023
2022
2021
392,340
$
334,626
$
290,113
—
—
392,340
2.16
2.16
$
$
$
—
—
334,626
1.89
1.89
$
$
$
(14,999)
(10,897)
264,217
1.51
1.51
$
$
$
$
181,200,040
176,403,656
174,710,921
181,689,723
177,067,865
174,818,899
$
392,340
$
334,626
$
290,113
2,471
—
394,811
—
2,374
—
3,073
(1,584)
337,000
291,602
(5)
(3)
Total comprehensive income
$
394,811
$
336,995
$
291,599
See accompanying notes to consolidated financial statements.
52
NNN REIT, INC.
and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
Years Ended December 31, 2023, 2022 and 2021
(dollars in thousands, except per share data)
Series F
Preferred
Stock
Common
Stock
Capital in
Excess of
Par Value
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders'
Equity of NNN
Noncontrolling
Interests
Total
Equity
Balances at December 31, 2020
$
345,000
$
1,753
$
4,633,771
$
(644,779)
$
(16,445)
$
4,319,300
$
Net earnings
Dividends declared and paid:
$1.086944 per depositary share of
Series F preferred stock
$2.100 per share of common stock
Redemption of 13,800,000 depository
shares of Series F preferred stock
Issuance of common stock:
30,539 shares – director compensation
7,062 shares – stock purchase plan
30,000 shares – ATM equity program
287,207 restricted shares – net of forfeitures
Stock issuance costs
Amortization of deferred compensation
Amortization of interest rate hedges
Fair value of forward starting swaps
Balances at December 31, 2021
—
—
—
(345,000)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
3
—
—
—
—
—
—
2,499
290,113
(14,999)
(367,291)
10,897
(10,897)
1,145
320
1,233
(3)
(299)
13,151
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,073
(1,584)
290,113
(14,999)
(364,792)
(345,000)
1,145
320
1,234
—
(299)
13,151
3,073
(1,584)
$
— $
1,757
$
4,662,714
$
(747,853)
$
(14,956)
$
3,901,662
$
See accompanying notes to consolidated financial statements.
4
(3)
$
4,319,304
290,110
—
—
—
—
—
—
—
—
—
—
—
1
(14,999)
(364,792)
(345,000)
1,145
320
1,234
—
(299)
13,151
3,073
(1,584)
$
3,901,663
5
3
NNN REIT, INC.
and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY – CONTINUED
Years Ended December 31, 2023, 2022 and 2021
(dollars in thousands, except per share data)
Common
Stock
Capital in
Excess of
Par Value
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders'
Equity of NNN
Balances at December 31, 2021
$
1,757
$
4,662,714
$
(747,853)
$
(14,956)
$
3,901,662
$
Net earnings
Dividends declared and paid:
$2.160 per share of common stock
Issuance of common stock:
33,013 shares – director compensation
7,235 shares – stock purchase plan
5,473,072 shares – ATM equity program
232,551 restricted shares – net of forfeitures
Stock issuance costs
Amortization of deferred compensation
Amortization of interest rate hedges
Distributions to noncontrolling interests
Other
Balances at December 31, 2022
5
4
—
—
—
—
55
3
—
—
—
—
—
—
334,626
2,765
(380,538)
1,244
317
250,835
(3)
(3,761)
14,205
—
—
(282)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,374
—
—
334,626
(377,773)
1,244
317
250,890
—
(3,761)
14,205
2,374
—
(282)
Noncontrolling
Interests
Total
Equity
1
(5)
$
3,901,663
334,621
—
—
—
—
—
—
—
—
(278)
282
(377,773)
1,244
317
250,890
—
(3,761)
14,205
2,374
(278)
—
$
1,815
$
4,928,034
$
(793,765)
$
(12,582)
$
4,123,502
$
— $
4,123,502
See accompanying notes to consolidated financial statements.
NNN REIT, INC.
and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY – CONTINUED
Years Ended December 31, 2023, 2022 and 2021
(dollars in thousands, except per share data)
Common
Stock
Capital in
Excess of
Par Value
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders'
Equity of NNN
$
1,815
$
4,928,034
$
(793,765)
$
(12,582)
$
—
1
—
—
7
3
—
—
—
—
2,897
1,128
280
29,143
(3)
(954)
11,100
—
392,340
(404,458)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,471
4,123,502
392,340
(401,560)
1,128
280
29,150
—
(954)
11,100
2,471
$
1,826
$
4,971,625
$
(805,883)
$
(10,111)
$
4,157,457
See accompanying notes to consolidated financial statements.
Balances at December 31, 2022
Net earnings
Dividends declared and paid:
$2.230 per share of common stock
Issuance of common stock:
5
5
34,254 shares – director compensation
6,651 shares – stock purchase plan
650,135 shares – ATM equity program
275,317 restricted shares – net of forfeitures
Stock issuance costs
Amortization of deferred compensation
Amortization of interest rate hedges
Balances at December 31, 2023
NNN REIT, INC.
and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Cash flows from operating activities:
Net earnings
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization
Impairment losses – real estate, net of recoveries
Loss on early extinguishment of debt
Amortization of notes payable discount
Amortization of debt costs
Amortization of mortgages payable premium
Amortization of interest rate hedges
Settlement of forward starting swaps
Gain on disposition of real estate
Performance incentive plan expense
Performance incentive plan payment
Change in operating assets and liabilities, net of assets acquired
and liabilities assumed:
Decrease (increase) in receivables
Decrease (increase) in accrued rental income
Decrease in other assets
Increase (decrease) in accrued interest payable
Increase (decrease) in other liabilities
Other
Year Ended December 31,
2023
2022
2021
$
392,340
$
334,621
$
290,110
238,625
223,834
205,220
5,990
—
2,074
4,943
(21)
2,471
—
(47,485)
13,375
(916)
(853)
(7,453)
243
10,548
(1,550)
79
8,309
—
1,691
4,734
(87)
2,374
—
(17,443)
17,330
(103)
358
3,559
424
(97)
(1,217)
68
21,957
21,328
2,130
5,186
(85)
3,073
(1,584)
(23,094)
14,491
(721)
1,184
21,137
1,589
4,522
2,279
(297)
Net cash provided by operating activities
612,410
578,355
568,425
Cash flows from investing activities:
Proceeds from the disposition of real estate
Additions to real estate
Principal payments received on mortgages and notes receivable
Other
116,334
(795,791)
559
(1,762)
66,962
(842,872)
521
(2,242)
123,052
(553,322)
486
(2,393)
Net cash used in investing activities
(680,660)
(777,631)
(432,177)
See accompanying notes to consolidated financial statements.
56
NNN REIT, INC.
and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED
(dollars in thousands)
Cash flows from financing activities:
Proceeds from line of credit payable
Repayment of line of credit payable
Repayment of mortgages payable
Proceeds from notes payable
Repayment of notes payable
Payment for early extinguishment of debt
Payment of debt issuance costs
Proceeds from issuance of common stock
Stock issuance costs
Redemption of Series F preferred stock
Payment of Series F preferred stock dividends
Payment of common stock dividends
Noncontrolling interest distributions
Net cash provided by (used in) financing activities
Net decrease in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of year(1)
Cash, cash equivalents and restricted cash at end of year(1)
Supplemental disclosure of cash flow information:
Interest paid, net of amount capitalized
Supplemental disclosure of noncash investing and financing activities:
Change in other comprehensive income
Right-of-use asset recorded in connection with lease liability
Change in work in progress accrual
Year Ended December 31,
2023
2022
2021
$
872,500
$
688,000
$
(906,700)
(9,947)
488,380
—
—
(4,510)
32,328
(966)
—
—
(521,800)
(664)
—
—
—
(199)
253,972
(3,761)
—
—
(404,458)
(380,538)
—
66,627
(1,623)
6,778
5,155
148,169
2,471
6,401
23,103
$
$
$
$
$
(278)
34,732
(164,544)
171,322
6,778
140,331
2,374
$
$
$
— $
4,468
$
$
$
$
$
$
—
—
(630)
881,172
(350,000)
(21,328)
(17,814)
4,053
(325)
(345,000)
(14,999)
(367,291)
—
(232,162)
(95,914)
267,236
171,322
123,376
1,489
—
2,093
(1)
Cash, cash equivalents and restricted cash is the aggregate of cash and cash equivalents and restricted cash and cash held in escrow from the
Consolidated Balance Sheets. As of December 31, 2023 and 2022, NNN had restricted cash of $3,966,000 and $4,273,000, respectively. NNN did not
have restricted cash, including cash held in escrow as of December 31, 2021.
See accompanying notes to consolidated financial statements.
57
NNN REIT, INC.
and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2023, 2022 and 2021
Note 1 – Organization and Summary of Significant Accounting Policies:
Organization and Nature of Business. NNN REIT, Inc., a Maryland corporation, formerly known as National Retail Properties,
Inc., is a fully integrated real estate investment trust ("REIT") formed in 1984. The term "NNN" or the "Company" refers to
NNN REIT, Inc. and all of its consolidated subsidiaries. NNN may elect to treat certain of its subsidiaries as taxable REIT
subsidiaries ("TRS"). On May 1, 2023, National Retail Properties, Inc. changed its name to NNN REIT, Inc.
NNN's assets primarily include real estate assets. NNN acquires, owns, invests in and develops properties that are leased
primarily to retail tenants under long-term net leases and are primarily held for investment ("Properties" or "Property
Portfolio," or individually a "Property").
Property Portfolio:
Total Properties
Gross leasable area (square feet)
States
Weighted average remaining lease term (years)
December 31,
2023
3,532
35,966,000
49
10.1
NNN's operations are reported within one reportable segment in the consolidated financial statements and all properties are
considered part of the Properties or Property Portfolio. As such, property counts and calculations involving property counts
reflect all NNN properties.
Principles of Consolidation. NNN's consolidated financial statements include the accounts of each of the respective majority
owned and controlled affiliates, including transactions whereby NNN has been determined to be the primary beneficiary in
accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") guidance
included in Topic 810, Consolidation. All significant intercompany account balances and transactions have been eliminated.
NNN consolidates certain joint venture development entities based upon either NNN being the primary beneficiary of the
respective variable interest entity or NNN having a controlling interest over the respective entity. NNN records a
noncontrolling interest for its non-NNN ownership of consolidated entities.
Real Estate Portfolio. NNN records the acquisition of real estate at cost, including acquisition and closing costs. The cost of
Properties developed or funded by NNN includes direct and indirect costs of construction, property taxes, interest, third-party
costs and other miscellaneous costs incurred during the development period until the project is substantially complete and
available for occupancy. For the years ended December 31, 2023, 2022 and 2021, NNN recorded $4,286,000, $881,000 and
$328,000, respectively, in capitalized interest during development.
58
Purchase Accounting for Acquisition of Real Estate. In accordance with the FASB ASC guidance on business combinations,
consideration for the real estate acquired is allocated to the acquired tangible assets, consisting of land, building and tenant
improvements and, if applicable, to identified intangible assets and liabilities, consisting of the value of above-market and
below-market leases and the value of in-place leases, as applicable, based on their respective fair values.
The fair value estimate is sensitive to significant assumptions, such as establishing a range of relevant market assumptions for
land, building and rent and where the acquired property falls within that range. These market assumptions for land, building
and rent use the most relevant comparable properties for an acquisition. The final value relies upon ranking comparable
properties' attributes from most to least similar.
The fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant, and the
"as-if-vacant" value is then allocated to land, building and tenant improvements based on the determination of their fair
values.
In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-
market in-place lease values are recorded as other assets or liabilities based on the present value (using an interest rate which
reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid
pursuant to the in-place leases, and (ii) management's estimate of fair market lease rates for the corresponding in-place
leases, measured over a period equal to the remaining term of the lease and the renewal option terms if it is probable that
the tenant will exercise options. The capitalized above-market lease values are amortized as a reduction of rental income over
the remaining terms of the respective leases. The capitalized below-market lease values are amortized as an increase to
rental income over the initial term unless the Company believes that it is likely that the tenant will renew the lease for an
option term whereby the Company amortizes the value attributable to the renewal over the renewal period.
The aggregate value of other acquired intangible assets, consisting of in-place leases, is valued by comparing the purchase
price paid for a property after adjusting for existing in-place leases to the estimated fair value of the property as-if-vacant,
determined as set forth above. This intangible asset is amortized to expense over the remaining non-cancelable periods of the
respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that
lease would be written off in that period. The value of tenant relationships is reviewed on individual transactions to
determine if future value was derived from the acquisition.
NNN completed $599,480,000 and $784,165,000 of real estate acquisitions during the year ended December 31, 2023 and
2022, respectively. Additionally, NNN invested $220,230,000 and $63,582,000 of work in progress and improvements during
the year ended December 31, 2023 and 2022, respectively.
59
Lease Accounting. NNN records its leases on the Property Portfolio in accordance with FASB ASC Topic 842, Leases ("ASC
842"). In addition, NNN records right-of-use assets and operating lease liabilities as lessee under operating leases in
accordance with ASC 842.
NNN's real estate is generally leased to tenants on a net lease basis, whereby the tenant is responsible for all operating
expenses relating to the Property, including property taxes, insurance, maintenance, repairs and capital expenditures. The
leases are accounted for using either the operating or the direct financing method. Such methods are described below:
Operating method – Properties with leases accounted for using the operating method are recorded at the cost of the
real estate and depreciated on the straight-line method over their estimated remaining useful lives, which generally
range from 20 to 40 years for buildings and improvements and 15 years for land improvements. Leasehold interests
are amortized on the straight-line method over the terms of their respective leases. Revenue is recognized as rentals
are earned and expenses (including depreciation) are charged to operations as incurred. When scheduled rentals
vary during the lease term, income is recognized on a straight-line basis so as to produce a constant periodic rent
over the term of the lease. Accrued rental income is the aggregate difference between the scheduled rents which
vary during the lease term and the income recognized on a straight-line basis.
Direct financing method – Properties with leases accounted for using the direct financing method are recorded at
their net investment (which at the inception of the lease generally represents the cost of the Property). Unearned
income is deferred and amortized into income over the lease terms so as to produce a constant periodic rate of
return on NNN's net investment in the leases.
In April 2020, the FASB issued interpretive guidance relating to the accounting for lease concessions provided as a result of
the novel strain of coronavirus and its variants ("COVID-19"). In this guidance, entities can elect not to apply lease
modification accounting with respect to such lease concessions and instead, treat the concession as if it was a part of the
existing contract. This guidance is only applicable to COVID-19 related lease concessions that do not result in a substantial
increase in the rights of the lessor or the obligations of the lessee. NNN elected to make this policy election for COVID-19
lease concessions, provided in the rent deferral lease amendments effective during the years ended December 31, 2021 and
2020.
Collectability. In accordance with ASC 842, NNN reviews the collectability of its lease payments on an ongoing basis. NNN
considers collectability indicators when analyzing accounts receivable (and accrued rent) and historical bad debt levels, tenant
credit-worthiness and current economic trends, all of which assists in evaluating the probability of outstanding and future
rental income collections and the adequacy of the allowance for doubtful accounts. In addition, tenants in bankruptcy are
analyzed and considerations are made in connection with the expected recovery of pre-petition and post-petition bankruptcy
claims.
When NNN deems the collection of rental income from a tenant not probable, uncollected previously recognized rental
revenue and any related accrued rent are reversed as a reduction to rental income and, subsequently, any rental income is
only recognized when cash receipts are received. At this point, a tenant is deemed cash basis for accounting purposes. If NNN
subsequently deems the collection of rental income is probable, any related accrued rental income or expense is restored.
60
As a result of the review of lease payments collectability, NNN recorded a write-off of $204,000 of outstanding receivables
and related accrued rent during the year ended December 31, 2023, and reclassified certain tenants as cash basis for
accounting purposes. During the years ended December 31, 2022 and 2021, no additional tenants were deemed as cash basis
for accounting purposes.
The following table summarizes those tenants classified as cash basis for accounting purposes as of December 31:
Number of tenants
Cash basis tenants as a percent of:
Total Properties
Total annual base rent(1)
Total gross leasable area
2023
2022
2021
9
3.5%
5.0%
4.8%
8
5.0%
7.0%
6.6%
11
5.5%
7.0%
7.3%
(1)
Based on annualized base rent for all leases in place for each respective year.
During the years ended December 31, 2023, 2022 and 2021, NNN recognized $56,229,000, $62,454,000 and $52,129,000,
respectively, of rental income from certain tenants for periods following their classification to cash basis for accounting
purposes.
During the year ended December 31, 2023, one tenant was reclassified to accrual basis for accounting purposes due to their
improved qualitative and/or quantitative credit factors (see "Note 2 – Real Estate").
During the year ended December 31, 2022, three tenants were reclassified to accrual basis for accounting purposes due to
their improved qualitative and/or quantitative credit factors. The impact of the reclassification was immaterial.
NNN includes an allowance for doubtful accounts in rental income on the Consolidated Statements of Income and
Comprehensive Income.
Right-Of-Use ("ROU") Assets and Operating Lease Liabilities. In accordance with ASC 842, NNN recorded ROU assets and
operating lease liabilities as lessee under operating lease.
NNN is a lessee for three ground lease arrangements and for its headquarters office lease. NNN recognized a ROU asset
(recorded in other assets on the Consolidated Balance Sheets) and an operating lease liability (recorded in other liabilities on
the Consolidated Balance Sheets) for the present value of the minimum lease payments. ROU assets represent NNN's right to
use an underlying asset for the lease term and lease liabilities represent NNN's obligation to make lease payments arising
from the lease. ROU assets and operating lease liabilities are recognized at the lease commencement date based on the
estimated present value of the lease payments over the lease term. NNN's lease term is based on the non-cancellable base
term unless economic incentives make it reasonably certain that an option period to extend the lease will be exercised, in
which event NNN includes the options.
NNN estimates an incremental borrowing rate, which is derived from information available at the lease commencement date,
in determining the present value of the lease payments. NNN gives consideration to the Company's debt issuances, as well as,
publicly available data for secured instruments with similar characteristics when calculating its incremental borrowing rates.
On an annual basis, NNN will evaluate its lessee portfolio and determine if its incremental borrowing rate should be
reassessed.
NNN's lease agreements do not contain any residual value guarantees.
In January 2023, NNN amended its headquarters office lease and extended the lease term until March 31, 2034. The
amendment resulted in an increase in the ROU asset and operating lease liability of approximately $6,401,000.
61
Real Estate – Held For Sale. Real estate held for sale is not depreciated and is recorded at the lower of cost or fair value, less
cost to sell. On a quarterly basis, the Company evaluates its Properties for held for sale classification based on specific criteria
as outlined in FASB ASC Topic 360, Property, Plant and Equipment, including management's intent to commit to a plan to sell
the asset. NNN anticipates the disposition of Properties classified as held for sale to occur within 12 months. At December 31,
2023 and 2022, NNN had recorded real estate held for sale of $4,573,000 (one property) and $786,000 (two properties),
respectively, in real estate portfolio on the Consolidated Balance Sheets. The two properties classified as held for sale as of
December 31, 2022 were sold during the year ended December 31, 2023.
Real Estate Dispositions. When real estate is disposed, the related cost, accumulated depreciation or amortization and any
accrued rental income for operating leases and the net investment for direct financing leases are removed from the accounts,
and gains and losses from the dispositions are reflected in income. FASB ASC Topic 610-20, Gains and Losses from the
Derecognition of Nonfinancial Assets ("ASC 610-20"), provides guidance for recognizing gains and losses from the transfer of
nonfinancial assets in contracts with noncustomers. An entity that transfers a nonfinancial asset in the scope of ASC 610-20
follows a two-step derecognition model to determine whether (and when) to derecognize the asset. NNN determined the
key revenue stream impacted by ASC 610-20 is gain on disposition of real estate reported on the Consolidated Statements of
Income and Comprehensive Income. In accordance with ASC 610-20, NNN evaluates any separate contracts or performance
obligations to determine proper timing and/or amount of revenue recognition, as well as, transfer of control and transaction
price allocation in determining the amount of gain or loss to record.
Impairment – Real Estate. NNN periodically assesses its long-lived real estate assets for possible impairment whenever
certain events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. These
indicators include, but are not limited to: changes in real estate market conditions, the ability of NNN to re-lease properties
that are currently vacant or become vacant, properties reclassified as held for sale, persistent vacancies greater than one
year, and properties leased to tenants in bankruptcy. Management evaluates whether an impairment in carrying value has
occurred by comparing the estimated future cash flows (undiscounted and without interest charges), and the residual value
of the real estate, with the carrying value of the individual asset. The future undiscounted cash flows are primarily driven by
estimated future market rents. Future cash flow estimates are sensitive to the assumptions made by management regarding
future market rents, which are affected by expectations about future market and economic conditions. If an impairment is
indicated, a loss will be recorded for the amount by which the carrying value of the asset exceeds its estimated fair value.
NNN's Properties are leased primarily to retail tenants under long-term net leases and primarily held for investment.
Generally, NNN's Property leases provide for initial terms of 10 to 20 years, with cash flows provided over the entire term.
Credit Losses on Financial Instruments. FASB ASC Topic 326, Financial Instruments - Credit Losses requires entities to estimate
an expected lifetime credit loss on financial assets ranging from short-term trade accounts receivable to long-term financings.
The guidance requires a lifetime credit loss expected at inception and requires pooling of assets, which share similar risk
characteristics. NNN is required to evaluate current economic conditions, as well as, make future expectations of economic
conditions. In addition, the measurement of the expected credit loss is over the asset's contractual term.
NNN held mortgages receivable, including accrued interest, of $1,002,000 and $1,530,000 included in other assets on the
Consolidated Balance Sheets as of December 31, 2023 and 2022, respectively, net of $64,000 and $98,000 allowance for
credit loss, respectively. NNN measures the allowance for credit loss based on the fair value of the collateral and the historical
collectability trend analysis over 15 years.
62
Cash and Cash Equivalents. NNN considers all highly liquid investments with a maturity of three months or less when
purchased to be cash equivalents. Cash and cash equivalents consist of cash and money market accounts. Cash equivalents
are stated at cost plus accrued interest, which approximates fair value. Cash accounts maintained on behalf of NNN in
demand deposits at commercial banks and money market funds may exceed federally insured levels or may be held in
accounts without any federal insurance or any other insurance or guarantee. However, NNN has not experienced any losses in
such accounts.
Restricted Cash and Cash Held in Escrow. Restricted cash and cash held in escrow include (i) cash proceeds from the sale of
assets held by qualified intermediaries in anticipation of the acquisition of replacement properties in tax-free exchanges
under Section 1031 of the Internal Revenue Code of 1986, as amended (the "Code"), (ii) cash that has been placed in escrow
for the future funding of construction commitments, or (iii) cash that is not immediately available to NNN. As of December 31,
2023 and 2022, NNN held $3,966,000 and $4,273,000, respectively, in restricted cash and cash held in escrow.
Debt Costs – Line of Credit Payable. Debt costs incurred in connection with NNN's $1,100,000,000 unsecured revolving line of
credit have been deferred and are being amortized to interest expense over the term of the loan commitment using the
straight-line method, which approximates the effective interest method. NNN has recorded debt costs associated with the
Credit Facility (as defined below) as an asset, in debt costs on the Consolidated Balance Sheets.
Debt Costs – Mortgages Payable. Debt costs incurred in connection with NNN's mortgages were deferred and amortized over
the term of the respective loan commitment using the straight-line method, which approximates the effective interest
method. These costs of $147,000 at December 31, 2022, are included in mortgages payable on the Consolidated Balance
Sheets net of accumulated amortization of $142,000. There were no such costs at December 31, 2023.
Debt Costs – Notes Payable. Debt costs incurred in connection with the issuance of NNN's unsecured notes have been
deferred and are being amortized to interest expense over the term of the respective debt obligation using the effective
interest method. NNN had debt costs of $42,595,000 and $38,145,000 included in notes payable on the Consolidated Balance
Sheets as of December 31, 2023 and 2022, respectively, net of accumulated amortization of $14,343,000 and $11,693,000,
respectively.
Revenue Recognition. Rental revenues for properties under construction commence upon completion of construction of the
leased asset and delivery of the leased asset to the tenant. Rental revenues for non-development real estate assets are
recognized when earned in accordance with ASC 842, based on the terms of the lease of the leased asset. Lease termination
fees are recognized when collected subsequent to the related lease that is cancelled and NNN no longer has continuing
involvement with the former tenant with respect to that property.
FASB ASC Topic 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets ("ASC 610-20"), provides guidance for
recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. An entity that transfers
a nonfinancial asset in the scope of ASC 610-20 follows a two-step derecognition model to determine whether (and when) to
derecognize the asset. NNN determined the key revenue stream impacted by ASC 610-20 is gain on disposition of real estate
reported on the Consolidated Statements of Income and Comprehensive Income. In accordance with ASC 610-20, NNN
evaluates any separate contracts or performance obligations to determine proper timing and/or amount of revenue
recognition, as well as, transfer of control and transaction price allocation in determining the amount of gain or loss to record.
COVID-19 Pandemic. During the years ended December 31, 2021 and 2020, NNN and its tenants were impacted by the
COVID-19 pandemic which resulted in the loss of revenue for certain tenants and challenged their ability to pay rent. As a
result, NNN entered into rent deferral lease amendments with certain tenants (see "Note 2 – Real Estate").
63
Earnings Per Share. Earnings per share have been computed pursuant to the FASB guidance included in FASB ASC Topic 260,
Earnings Per Share. The guidance requires classification of the Company's unvested restricted share units which contain rights
to receive nonforfeitable dividends, as participating securities requiring the two-class method of computing earnings per
share. Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings to
common stockholders and undistributed earnings allocated to common stockholders by the weighted average number of
common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both
common shares and participating securities based on the weighted average shares outstanding during the period.
The following table is a reconciliation of the numerator and denominator used in the computation of basic and diluted
earnings per common share using the two-class method for the years ended December 31 (dollars in thousands):
Basic and Diluted Earnings:
Net earnings attributable to NNN
Less: Series F preferred stock dividends
Less: Excess of redemption value over carrying value
of preferred shares redeemed
Net earnings available to common stockholders
Less: Earnings allocated to unvested restricted shares
2023
2022
2021
$
392,340
$
334,626
$
290,113
—
—
—
—
392,340
(609)
334,626
(514)
(14,999)
(10,897)
264,217
(689)
Net earnings used in basic and diluted earnings per share
$
391,731
$
334,112
$
263,528
Basic and Diluted Weighted Average Shares Outstanding:
Weighted average number of shares outstanding
182,184,038
177,332,094
175,554,961
Less: Unvested restricted shares
Less: Unvested contingent restricted shares
Weighted average number of shares outstanding used in basic
earnings per share
Other dilutive securities
Weighted average number of shares outstanding used in diluted
earnings per share
(273,077)
(710,921)
(237,918)
(690,520)
(328,070)
(515,970)
181,200,040
176,403,656
174,710,921
489,683
664,209
107,978
181,689,723
177,067,865
174,818,899
Income Taxes. NNN has made an election to be taxed as a REIT under Sections 856 through 860 of the Code, and related
regulations. NNN generally will not be subject to federal income taxes on taxable income it distributes to stockholders,
provided it meets certain other requirements for qualifying as a REIT. For each of the years in the three-year period ended
December 31, 2023, NNN believes it has qualified as a REIT. Notwithstanding NNN's qualification for taxation as a REIT, NNN is
subject to certain state and local income, franchise and excise taxes.
NNN may elect to treat certain subsidiaries as TRS pursuant to the provisions of the REIT Modernization Act. A TRS is able to
engage in activities resulting in income that previously would have been disqualified from being eligible REIT income under
the federal income tax regulations. As a result, certain activities of NNN which occur within its TRS entities are subject to
federal and state or local income taxes. All provisions for federal income taxes in the accompanying consolidated financial
statements are attributable to NNN's former TRS. The deferred tax asset consists only of net operating loss carryforwards of
$3,899,000 from the former TRS that begin to expire in 2026. Management believes it is unlikely that NNN will realize any of
the benefits of these deductible differences and has taken a valuation allowance against them. There was no change to the
valuation allowance. NNN currently has no TRS entities.
64
Income taxes are accounted for under the asset and liability method as required by FASB ASC Topic 740, Income Taxes ("ASC
740"). Deferred tax assets and liabilities are recognized for the temporary differences based on estimated future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the applicable period.
In accordance with ASC 740, NNN has analyzed its various federal and state filing positions. NNN believes that its income tax
filing positions and deductions are well documented and supported. Additionally, NNN believes that its accruals for tax
liabilities are adequate. Therefore, no reserves for uncertain income tax positions have been recorded.
NNN has had no unrecognized tax benefits during any of the years presented. Further, no interest or penalties have been
included since no reserves were recorded and no significant increases or decreases are expected to occur within the next 12
months. When applicable, such interest and penalties will be recorded in non-operating expenses. The periods that remain
open under federal statute are 2020 through 2023. NNN also files in many states and localities with varying open years under
statute.
Fair Value Measurement. NNN's estimates of fair value of financial and non-financial assets and liabilities are based on the
framework established in FASB ASC Topic 820, Fair Value Measurement. The framework specifies a hierarchy of valuation
inputs which was established to increase consistency, clarity and comparability in fair value measurements and related
disclosures. The guidance describes a fair value hierarchy based upon three levels of inputs that may be used to measure fair
value, two of which are considered observable and one that is considered unobservable. The following describes the three
levels:
•
•
Level 1 – Valuation is based upon quoted prices in active markets for identical assets or liabilities.
Level 2 – Valuation is based upon inputs other than Level 1 that are observable, either directly or indirectly, such as
quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are
observable or can be corroborated by observable market data for substantially the full term of the assets or
liabilities.
Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not
observable in the market. These unobservable assumptions reflect estimates of assumptions that market
participants would use in pricing the asset or liability. Valuation techniques include option pricing models, discounted
cash flow models and similar techniques.
•
65
Accumulated Other Comprehensive Income (Loss). The following table outlines the changes in accumulated other
comprehensive income (loss) for the years ended December 31, 2023 and 2022 (dollars in thousands):
Beginning balance, December 31, 2021
Reclassifications from accumulated other comprehensive income to net earnings
Ending balance, December 31, 2022
Reclassifications from accumulated other comprehensive income to net earnings
Ending balance, December 31, 2023
Gain or Loss on
Cash Flow
Hedges(1)
$
(14,956)
2,374 (2)
(12,582)
2,471 (2)
$
(10,111)
(1)
(2)
Additional disclosure is included in Note 5 – Notes Payable and Derivatives.
Recorded in interest expense on the Consolidated Statements of Income and Comprehensive Income. There is no income tax expense
(benefit) resulting from this reclassification.
New Accounting Pronouncements. ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”) contains practical
expedients for reference rate reform-related activities, including the transition away from the London Interbank Offered Rate
("LIBOR"), that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be
elected over time as reference rate reform activities occur. In 2021, NNN elected to apply the hedge accounting expedients
related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index
upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of
these expedients preserves the presentation of derivatives consistent with past presentation. NNN continues to evaluate the
impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
NNN had no derivative financial instruments outstanding as of December 31, 2023.
In December 2022, the FASB issued ASU 2022-06, Deferral of the Sunset Date of Topic 848 (“ASU 2022-06”) which was issued
to defer the sunset date of ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate
Reform to December 31, 2024. ASU 2022-06 is effective immediately for all companies. For the year ended December 31,
2023, ASU 2022-06 had no impact on NNN's financial position or results of operations.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment
Disclosures ("ASU 2023-07"), effective for fiscal years, beginning after December 15, 2023 and interim periods within fiscal
years beginning after December 15, 2024. The amendments in this update require public entities to provide enhanced
disclosures primarily around segment expenses. On an annual and interim basis entities will disclose significant segment
expenses that are regularly provided to the chief operating decision maker and included with each measure of segment profit
or loss, an amount for “other segment items” by reportable segment accompanied by a description of its composition, and all
annual disclosures about segment profit and loss currently required by Topic 280 to be disclosed in interim periods. While
NNN only has one reportable segment, NNN is currently evaluating the potential impact the adoption of ASU 2023-07 will
have on its future disclosures.
66
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU
2023-09"), effective for annual periods beginning after December 15, 2024. The amendments in the update require public
business entities on an annual basis to disclose specific categories in the rate reconciliation and provide additional
information for reconciling items that meet a quantitative threshold of equal to or greater than five percent of the amount
computed by multiplying pretax income by the statutory income tax rate. The amendments also require that entities disclose
on an annual basis information about the amount of income taxes paid disaggregated by federal, state, and foreign taxes and
the amount of income taxes paid disaggregated by individual jurisdictions in which income taxes paid is equal to or greater
than five percent of total income taxes paid. The amendments eliminate some of the previous required disclosures for all
entities relating to estimates of the change in unrecognized tax benefits reasonably possible within 12 months. NNN is
currently evaluating the potential impact the adoption of ASU 2023-09 will have on its future disclosures.
Use of Estimates. Additional critical accounting policies of NNN include management's estimates and assumptions relating to
the reporting of assets and liabilities, revenues and expenses and the disclosure of contingent assets and liabilities which are
required to prepare the consolidated financial statements in conformity with accounting principles generally accepted in the
United States of America. Significant accounting policies include management's estimates of the purchase accounting for
acquisition of real estate, the recoverability of the carrying value of long-lived assets and management's evaluation of the
probability of outstanding and future lease payment collections. Estimates are sensitive to evaluations by management about
current and future expectations of market and economic conditions. Actual results could differ from those estimates.
Note 2 – Real Estate:
Real Estate – Portfolio
Leases. At December 31, 2023, NNN's real estate portfolio has a weighted average remaining lease term of 10.1 years and
consisted of 3,551 leases classified as operating leases and an additional four leases accounted for as direct financing leases.
The following is a summary of the general structure of the leases in the Property Portfolio, although the specific terms of each
lease can vary significantly. Typically, the Property leases provide for initial terms of 10 to 20 years. The Properties are
generally leased under net leases, pursuant to which the tenant typically bears responsibility for substantially all property
costs and expenses associated with ongoing maintenance, repair, replacement and operation of the Property, including
utilities, real estate taxes and assessments and property and liability insurance. Certain Properties are subject to leases under
which NNN retains responsibility for specific costs and expenses of the Property. NNN's leases provide for annual base rental
payments (generally payable in monthly installments), and generally provide for limited increases in rent as a result of
increases in the Consumer Price Index or fixed increases.
Generally, NNN's leases provide the tenant with one or more multi-year renewal options, subject to generally the same terms
and conditions provided under the initial lease term, including rent increases. NNN's lease term is based on the non-
cancellable base term unless economic incentives make it reasonably certain that an option period to extend the lease will be
exercised, in which event NNN includes the renewal options. Some of the leases also provide that in the event NNN wishes to
sell the Property subject to that lease, NNN first must offer the lessee the right to purchase the Property on the same terms
and conditions as any offer which NNN intends to accept for the sale of the Property.
67
Real Estate Portfolio. NNN's real estate consisted of the following at December 31 (dollars in thousands):
Land and improvements (1)
Buildings and improvements
Leasehold interests
Less accumulated depreciation and amortization
Work in progress and improvements
Accounted for using the operating method
Accounted for using the direct financing method
Classified as held for sale(2)
$
$
2023
2,878,400
7,368,873
355
10,247,628
(1,863,451)
8,384,177
144,068
8,528,245
3,033
4,573
2022
2,669,498
6,985,394
355
9,655,247
(1,660,308)
7,994,939
21,737
8,016,676
3,352
786
$
8,535,851
$
8,020,814
(1)
(2)
Includes $96,464 and $22,356 in land for Properties under construction as of December 31,
2023 and 2022, respectively.
As of December 31, 2023, one Property was classified as held for sale. The two properties
classified as held for sale as of December 31, 2022 were sold during the year ended
December 31, 2023.
NNN recognized the following revenues in rental income for the years ended December 31 (dollars in thousands):
Rental income from operating leases
Earned income from direct financing leases
Percentage rent
Rental revenues
Real estate expense reimbursement from tenants
2023
2022
2021
$
$
805,136
560
1,631
807,327
18,763
$
751,680
595
1,541
753,816
17,802
$
826,090
$
771,618
$
703,865
623
706
705,194
18,665
723,859
Some leases provide for a free rent period or scheduled rent increases throughout the lease term. Such amounts are
recognized on a straight-line basis over the terms of the leases.
During 2021 and 2020, as a result of the COVID-19 pandemic, NNN entered into rent deferral lease amendments with certain
tenants in the Property Portfolio, for an aggregate $4,722,000 and $51,723,000 of rent originally due for the years ended
December 31, 2021 and 2020, respectively. The rent deferral lease amendments require the deferred rents to be repaid at a
later time during the lease term. As of December 31, 2023, an aggregate of approximately 93 percent of deferred rent has
been repaid, with $3,124,000, $14,478,000 and $31,776,000 of deferred rent repaid during the years ended December 31,
2023, 2022 and 2021, respectively.
For the years ended December 31, 2023, 2022 and 2021, NNN recognized $7,453,000, ($3,559,000) and ($21,137,000),
respectively, of net-straight-line accrued rental income, net of reserves. During the year ended December 31, 2023, one
tenant was reclassified to accrual basis for accounting purposes due to their improved qualitative and/or quantitative credit
factors, which resulted in an increase of accrued rental income in the amount of $5,573,000.
68
The following is a schedule of undiscounted cash flows to be received on noncancellable operating leases as of December 31,
2023 (dollars in thousands):
2024
2025
2026
2027
2028
Thereafter
$
$
765,337
744,061
701,437
655,268
604,084
4,286,914
7,757,101
Since lease renewal periods are exercisable at the option of the tenant, the above table only presents undiscounted cash
flows due during the current lease terms. In addition, this table does not include amounts for potential variable rent increases
that are based on the Consumer Price Index or future contingent rents which may be received on the leases based on a
percentage of the tenant's sales volume.
Real Estate – Intangibles
In accordance with purchase accounting for the acquisition of real estate subject to a lease, NNN has recorded intangible
assets and lease liabilities that consisted of the following at December 31 (dollars in thousands):
Intangible lease assets (included in other assets):
Above-market in-place leases
Less: accumulated amortization
Above-market in-place leases, net
In-place leases
Less: accumulated amortization
In-place leases, net
Intangible lease liabilities (included in other liabilities):
Below-market in-place leases
Less: accumulated amortization
Below-market in-place leases, net
2023
2022
$
$
$
$
$
$
15,297
(12,080)
3,217
122,802
(85,332)
37,470
41,244
(29,117)
12,127
$
$
$
$
$
$
15,356
(11,477)
3,879
124,198
(79,675)
44,523
41,371
(28,121)
13,250
The amounts amortized as a net increase to rental income for capitalized above-market and below-market leases for the
years ended December 31, 2023, 2022 and 2021 were $430,000, $510,000 and $710,000, respectively. The value of in-place
leases amortized to expense for the years ended December 31, 2023, 2022 and 2021 was $6,793,000, $7,132,000 and
$7,687,000, respectively.
69
The following is a schedule of the amortization of acquired above-market and below-market in-place lease intangibles and the
amortization of the in-place lease intangibles as of December 31, 2023 (dollars in thousands):
2024
2025
2026
2027
2028
Thereafter
Weighted average amortization period (years)
Above-Market
and Below-
Market
In-Place
Lease
Intangibles(1)
In-Place Lease
Intangibles(2)
$
$
$
$
451
437
448
468
642
6,464
8,910
16.3
6,139
5,421
4,835
4,010
3,566
13,499
37,470
8.5
(1)
(2)
Recorded as a net increase to rental income over the life of the lease.
Amortized as an increase to amortization expense.
Real Estate – Dispositions
The following table summarizes the properties sold and the corresponding gain recognized on the disposition of properties
for the years ended December 31 (dollars in thousands):
2023
2022
2021
# of Sold
Properties
Gain
# of Sold
Properties
Gain
# of Sold
Properties
Gain
Gain on disposition of real estate
45
$
47,485
33
$
17,443
74
$
23,094
Real Estate – Commitments
As of December 31, 2023, NNN has committed to fund construction of 53 Properties. The improvements of such Properties
are estimated to be completed within 12 to 18 months. These construction commitments, at December 31, 2023, are outlined
in the table below (dollars in thousands):
Total commitment(1)
Less amount funded
Remaining commitment
$
$
379,674
(240,532)
139,142
(1)
Includes land, construction costs, tenant improvements, lease costs, capitalized
interest and third-party costs.
70
Real Estate – Impairments
NNN periodically assesses its long-lived real estate assets for possible impairment whenever certain events or changes in
circumstances indicate that the carrying value of the asset may not be recoverable.
As a result of NNN's review of long-lived real estate assets, including identifiable intangible assets, NNN recognized real estate
impairments, net of recoveries as summarized in the table below (dollars in thousands):
Total real estate impairments, net of recoveries
Number of Properties:
Vacant
Occupied
2023
2022
2021
$
5,990
$
8,309
$
21,957
11
3
9
7
30
12
The valuation of impaired assets is determined using widely accepted valuation techniques including discounted cash flow
analysis, income capitalization, analysis of recent comparable sales transactions, actual sales negotiations and bona fide
purchase offers received from third parties, which are Level 3 inputs. NNN may consider a single valuation technique or
multiple valuation techniques, as appropriate, when estimating the fair value of its real estate.
Note 3 – Line of Credit Payable:
NNN's $1,100,000,000 revolving credit facility (the "Credit Facility") had a weighted average outstanding balance of
$169,620,000 and a weighted average interest rate of 5.86% during the year ended December 31, 2023. In December 2022,
NNN entered into an amendment to the Credit Facility, to change the base interest rate from the London Interbank Offer Rate
("LIBOR") to the Secured Overnight Financing Rate ("SOFR") plus a SOFR adjustment of 10 basis points ("Adjusted SOFR"). The
Credit Facility bears interest at Adjusted SOFR plus 77.5 basis points; however, such interest rate may change pursuant to a
tiered interest rate structure based on NNN's debt rating. Additionally, as part of NNN's environmental, social and governance
("ESG") initiative, pricing may be reduced if specified ESG metrics are achieved. The Credit Facility matures in June 2025,
unless the Company exercises its options to extend maturity to June 2026. The Credit Facility also includes an accordion
feature which permits NNN to increase the facility size up to $2,000,000,000, subject to lender approval. In connection with
the Credit Facility, loan costs are classified as debt costs on the Consolidated Balance Sheet. As of December 31, 2023, there
was $132,000,000 outstanding and $968,000,000 available for future borrowings under the Credit Facility.
In accordance with the terms of the Credit Facility, NNN is required to meet certain restrictive financial covenants which,
among other things, require NNN to maintain certain (i) leverage ratios, (ii) debt service coverage, (iii) cash flow coverage, and
(iv) investment and dividend limitations. At December 31, 2023, NNN was in compliance with each of the Credit Facility
financial covenants.
Note 4 – Mortgages Payable:
As of December 31, 2022, NNN had mortgages payable, including unamortized premium and net of unamortized debt costs,
of $9,964,000. The mortgages payable had an interest rate of 5.23% and matured July 2023. The loan was secured by a first
lien on five of the Properties and the carrying value of the assets was $18,485,000 as of December 31, 2022. In April 2023,
NNN repaid the remaining mortgages payable principal balance of $9,774,000.
71
Note 5 – Notes Payable and Derivatives:
Each of NNN's outstanding series of unsecured notes is summarized in the table below (dollars in thousands):
Notes
2024(3)
2025(3)
2026(3)
2027(3)
2028(3)
2030(3)
2033
2048
2050
2051
2052(3)
Issue Date
Principal
Discount(1)
May 2014
October 2015
December 2016
September 2017
September 2018
March 2020
August 2023
September 2018
March 2020
March 2021
September 2021
$
$
350,000
400,000
350,000
400,000
400,000
400,000
500,000
300,000
300,000
450,000
450,000
707
964
3,860
1,628
2,848
1,288
11,620
4,239
6,066
8,406
10,422
$
Net
Price
349,293
399,036
346,140
398,372
397,152
398,712
488,380
295,761
293,934
441,594
439,578
Stated
Rate
3.900%
4.000%
3.600%
3.500%
4.300%
2.500%
5.600%
4.800%
3.100%
3.500%
3.000%
Effective
Rate(2)
3.924%
4.029%
3.733%
3.548%
4.388%
2.536%
5.905%
4.890%
3.205%
3.602%
3.118%
Maturity Date
June 2024(4)(5)
November 2025(4)
December 2026(4)
October 2027(4)
October 2028(4)
April 2030
October 2033
October 2048
April 2050
April 2051
April 2052
(1)
(2)
The note discounts are amortized to interest expense over the respective term of each debt obligation using the effective interest
method.
Includes the effects of the discount at issuance.
(3) NNN entered into forward starting swaps which were hedging the risk of changes in forecasted interest payments on forecasted
issuance of long-term debt. Upon the issuance of a series of unsecured notes, NNN terminated such derivatives, and the resulting fair
value was deferred in other comprehensive income. The deferred liability (asset) is being amortized over the term of the respective
notes using the effective interest method.
The aggregate principal balance of the unsecured note maturities for the next five years is $1,900,000.
(4)
(5) NNN plans to use proceeds from the Credit Facility and/or potential debt or equity offerings to repay the outstanding debt.
Each series of the notes represents senior, unsecured obligations of NNN and is subordinated to all secured debt of NNN.
NNN may redeem each series of notes in whole or in part at any time prior to the par call date for the notes at the
redemption price as set forth in the applicable supplemental indenture relating to the notes; provided, however, that if NNN
redeems the notes on or after the par call date, the redemption price will equal 100 percent of the principal amount of the
notes to be redeemed, plus accrued and unpaid interest thereon to, but not including, the redemption date.
In connection with the outstanding debt offerings, NNN incurred debt issuance costs totaling $42,595,000 consisting primarily
of underwriting discounts and commissions, legal and accounting fees, rating agency fees and printing expenses. Debt
issuance costs for all note issuances have been deferred and presented as a reduction to notes payable and are being
amortized over the term of the respective notes using the effective interest method.
In March 2021, NNN redeemed the $350,000,000 3.300% notes payable that were due in April 2023. The notes were
redeemed at a price equal to 100 percent of the principal amount, plus (i) a make-whole amount of $21,328,000, and (ii) all
accrued and unpaid interest.
In accordance with the terms of the indentures, pursuant to which NNN's notes have been issued, NNN is required to meet
certain restrictive financial covenants, which, among other things, require NNN to maintain (i) certain leverage ratios and (ii)
certain interest coverage. At December 31, 2023, NNN was in compliance with each of the financial covenants.
In accordance with the guidance on derivatives and hedging, NNN records all derivatives on the balance sheet at fair value.
The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting
designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment
attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the
exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow
hedges.
72
NNN's objective in using derivatives is to add stability to interest expense and to manage its exposure to interest rate
movements or other identified risks. To accomplish this objective, NNN primarily uses treasury locks, forward starting swaps
and interest rate swaps as part of its cash flow hedging strategy. Treasury locks and forward starting swaps are used to hedge
forecasted debt issuances. Treasury locks designated as cash flow hedges lock in the yield/price of a treasury security.
Forward starting swaps also lock the associated swap spread. Interest rate swaps designated as cash flow hedges are used to
hedge the variable cash flows associated with floating rate debt and involve the receipt or payment of variable rate amounts
in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying principal amount.
For derivatives designated as cash flow hedges, the change in the fair value of the derivative is initially reported in other
comprehensive income (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects
earnings.
NNN discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting
changes in the cash flows of the hedged item, the derivative expires or is sold, terminated, or exercised, the derivative is re-
designated as a hedging instrument or management determines that designation of the derivative as a hedging instrument is
no longer appropriate. When hedge accounting is discontinued, NNN recognizes any changes in its fair value in earnings and
continues to carry the derivative on the balance sheet or may choose to settle the derivative at that time with a cash payment
or receipt. NNN records a cash settlement of forward starting swaps in the statement of cash flows as an operating activity.
The following table outlines NNN's terminated derivatives which were hedging the risk of changes in forecasted interest
payments on forecasted issuance of long-term debt (dollars in thousands):
Notes
Payable
Terminated
Description
May 2014
October 2015
December 2016
September 2017
September 2018
March 2020
September 2021
Three forward starting swaps
Four forward starting swaps
Two forward starting swaps
Two forward starting swaps
Two forward starting swaps
Three forward starting swaps
Two forward starting swaps
2024
2025
2026
2027
2028
2030
2052
(1)
Liability (Asset)
Fair Value
When
Terminated
Fair Value
Deferred
In Other
Comprehensive
Income(1)
Aggregate
Notional
Amount
$
$
225,000
300,000
180,000
250,000
250,000
200,000
120,000
$
6,312
13,369
(13,352)
7,690
(4,080)
13,141
1,584
6,312
13,369
(13,345)
7,688
(4,080)
13,141
1,584
The amount reported in accumulated other comprehensive income (loss) will be reclassified to interest expense as interest payments
are made on the related notes payable.
As of December 31, 2023, $10,111,000 remains in accumulated other comprehensive income (loss) related to NNN's
previously terminated interest rate hedges. During the years ended December 31, 2023, 2022 and 2021, NNN reclassified
$2,471,000, $2,374,000 and $3,073,000, respectively, out of accumulated other comprehensive income (loss) as an increase
to interest expense. Over the next 12 months, NNN estimates that an additional $2,152,000 will be reclassified as an increase
in interest expense. Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be
reclassified to interest expense as interest payments are made on NNN's long-term debt.
NNN does not use derivatives for trading or speculative purposes. NNN had no derivative financial instruments outstanding at
December 31, 2023.
73
Note 6 – Preferred Stock:
In October 2021, NNN redeemed all outstanding depositary shares (13,800,000) representing interests in its 5.200%
Cumulative Redeemable Series F Preferred Stock ("Series F Preferred Stock"). The Series F Preferred Stock was redeemed at
$25.00 per depositary share ($345,000,000), plus all accrued and unpaid dividends through, but not including, the redemption
date, for an aggregate redemption price of $25.111944 per depositary share. The excess carrying amount of the Series F
Preferred Stock redeemed over the cash paid to redeem the Series F Preferred Stock was $10,897,000, representing issuance
costs which is reflected as a reduction to earnings attributable to common stockholders.
NNN declared and paid $1.086944 per share ($14,999,000) to stockholders for NNN's Series F Preferred Stock during the year
ended December 31, 2021.
NNN's authorized capital stock includes 15,000,000 shares of preferred stock, par value $0.01 per share. As of December 31,
2023 and 2022, NNN had no shares of preferred stock issued and outstanding.
Note 7 – Common Stock:
Universal Shelf Registration Statement. In August 2023, NNN filed a shelf registration statement with the Securities and
Exchange Commission (the "Commission") which became automatically effective (“Universal Shelf”). The Universal Shelf
permits the issuance by NNN of an indeterminate amount of debt and equity securities, including preferred stock, depositary
shares, common stock, stock purchase contracts, rights, warrants and units. NNN may periodically offer one or more of these
securities in amounts, prices and on terms to be announced when and if these securities are offered. The specifics of any
future offerings along with the use of proceeds of any securities offered, will be described in detail in a prospectus
supplements, or other offering materials, at the time of any offering.
At-The-Market Offerings. NNN has established an at-the-market equity program ("ATM") which allows NNN to sell shares of
common stock from time to time. The following table outlines NNN's ATM:
Shelf registration statement:
Effective date
Termination date
Total allowable shares
Total shares issued as of December 31, 2023
2023 ATM
2020 ATM
August 2023
August 2026
17,500,000
—
August 2020
August 2023
17,500,000
7,722,511
The following table outlines the common stock issuances pursuant to NNN's ATM for the years ended December 31 (dollars in
thousands, except per share data):
Shares of common stock
Average price per share (net)
Net proceeds
Stock issuance costs(1)
2023
650,135
43.52
28,292
858
$
$
$
2022
5,473,072
45.15
247,129
3,761
$
$
$
2021
30,000
33.65
1,009
224
$
$
$
(1)
Stock issuance costs consist primarily of underwriters' and agent's fees and commissions, and legal
and accounting fees.
74
Dividend Reinvestment and Stock Purchase Plan. In February 2021, NNN filed a shelf registration statement with the
Commission, which is effective for a term of three years, for its Dividend Reinvestment and Stock Purchase Plan ("DRIP")
which permits the issuance by NNN of up to 6,000,000 shares of common stock. The following outlines the common stock
issuances pursuant to NNN's DRIP for the years ended December 31 (dollars in thousands):
Shares of common stock
Net proceeds
2023
2022
2021
76,229
3,082
$
70,342
3,082
$
62,577
2,744
$
Dividends. The following table outlines the dividends declared and paid for NNN's common stock for the years ended
December 31 (in thousands, except per share data):
Dividends
Per share
2023
2022
2021
$
404,458
2.230
$
380,538
2.160
$
367,291
2.100
On January 16, 2024, NNN declared a dividend of $0.5650 per share, payable February 15, 2024, to its common stockholders
of record as of January 31, 2024.
Note 8 – Employee Benefit Plan:
Effective January 1, 1998, NNN adopted a defined contribution retirement plan (the “Retirement Plan”) covering all of the
eligible associates of NNN. The Retirement Plan permits participants to defer a portion of their compensation, as defined in
the Retirement Plan, subject to limits established by the Code. NNN generally matches 75 percent of the first four percent
and 50 percent of the next five percent of a participant's contributions. Additionally, NNN may make discretionary
contributions. NNN recorded contributions to the Retirement Plan of $734,000, $590,000 and $576,000, for the years ended
December 31, 2023, 2022 and 2021 respectively.
Note 9 – Performance Incentive Plan:
In August 2023, NNN filed a registration statement on Form S-8 with the Commission which amended NNN's 2017
Performance Incentive Plan to increase the maximum aggregate share issuance from 1,800,000 to 4,800,000 shares of
common stock and certain other limits under the plan (the plan as amended, the “2017 Plan”). The 2017 Plan allows NNN to
award or grant to key associates, directors and persons performing consulting or advisory services for NNN or its affiliates,
stock options, phantom stock awards, Stock Awards, Restricted Stock Awards, Stock Appreciation Rights and Performance
Awards, each as defined in the 2017 Plan.
There were no stock options outstanding or exercisable at December 31, 2023.
Pursuant to the 2017 Plan, NNN has granted and issued shares of restricted stock to certain officers and key associates of
NNN. The following summarizes the restricted stock activity for the year ended December 31, 2023:
Non-vested restricted shares, January 1
Restricted shares granted
Restricted shares vested
Restricted shares forfeited
Non-vested restricted shares, December 31
75
Number of
Shares
Weighted
Average
Share Price
$
991,201
335,278
(228,394)
(59,961)
1,038,124
46.06
46.29
52.09
56.20
44.23
Compensation expense for the restricted stock which is not contingent upon NNN's performance goals is determined based
upon the fair value at the date of grant and is recognized as the greater of the amount amortized over a straight-lined basis or
the amount vested over the vesting periods. Vesting periods for officers and key associates of NNN range from three to five
years and generally vest annually. NNN recognizes compensation expense on a straight-line basis for awards with only service
conditions.
During the year ended December 31, 2023, NNN granted 204,094 performance-based shares subject to its total stockholder
return after a three-year period relative to its peers. In accordance with FASB ASC Topic 718, Compensation - Stock
Compensation ("ASC 718"), the fair value of these shares was determined using a Monte Carlo simulation model at the grant
date (for a weighted average fair value share price of $29.65). The performance-based shares were granted to certain
executive officers and had a weighted average grant price of $46.70 per share. Once the respective performance criteria are
met and the number of shares earned is determined, the shares vest immediately. Compensation expense is recognized over
the requisite service period.
The following summarizes other grants made during the year ended December 31, 2023, pursuant to the 2017 Plan.
Other share grants under the 2017 Plan:
Directors’ fees
Deferred directors’ fees
Number of
Shares
Weighted
Average
Share Price
$
12,344
21,056
33,400
41.42
41.51
41.48
Shares available under the 2017 Plan for grant, end of period
4,761,552
The total compensation expense for share-based payments for the years ended December 31, 2023, 2022 and 2021 totaled
$12,228,000, $15,449,000 and $14,296,000, respectively. At December 31, 2023, NNN had $12,150,000 of unrecognized
compensation cost related to non-vested share-based compensation arrangements under the 2017 Plan. This cost is expected
to be recognized over a weighted average period of 2.2 years.
Note 10 – Fair Value of Financial Instruments:
NNN believes the carrying value of its Credit Facility approximates fair value based upon its nature, terms and variable
interest rate. NNN believed that the carrying value of its mortgages payable at December 31, 2022, approximate fair value
based upon current market prices of comparable instruments (Level 3). NNN had no mortgages payable outstanding at
December 31, 2023. At December 31, 2023 and 2022, the fair value of NNN's notes payable excluding unamortized discount
and debt costs, were $3,801,367,000 and $3,140,774,000, respectively, based upon quoted market prices as of the close of
the year, which is a Level 1 valuation since NNN's notes payable are publicly traded.
Note 11 – Segment Information:
For the years ended December 31, 2023, 2022 and 2021, NNN's operations are reported within one reportable segment in the
consolidated financial statements and all properties are part of the Properties or Property Portfolio.
Note 12 – Major Tenants:
As of December 31, 2023, NNN had no tenants that accounted for ten percent or more of its rental income.
76
Note 13 – Commitments and Contingencies:
A summary of NNN's commitments are included in Note 2 – Real Estate.
In the ordinary course of its business, NNN is a party to various other legal actions which management believes are routine in
nature and incidental to the operation of the business of NNN. Management does not believe that any of these proceedings
are material to NNN's consolidated financial statements.
77
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Process for Assessment and Evaluation of Disclosure Controls and Procedures and Internal Control over Financing
Reporting
NNN carried out an assessment as of December 31, 2023, of the effectiveness of the design and operation of its disclosure
controls and procedures and its internal control over financial reporting. This assessment was done under the supervision and
with the participation of management, including NNN's Chief Executive Officer, Chief Financial Officer and Chief Accounting
Officer ("NNN's Chief Officers"). Rules adopted by the Commission require NNN to present the conclusions of NNN's Chief
Officers about the effectiveness of NNN's disclosure controls and procedures and the conclusions of NNN's management
about the effectiveness of NNN's internal control over financial reporting as of the end of the period covered by this annual
report.
CEO and CFO Certifications. Included as Exhibits 31.1 and 31.2 to this Annual Report on Form 10-K are forms of “Certification”
of NNN's Chief Executive Officer and Chief Financial Officer. The forms of Certification are required in accordance with Section
302 of the Sarbanes-Oxley Act of 2002. This section of the Annual Report on Form 10-K that stockholders are currently
reading is the information concerning the assessment referred to in the Section 302 certifications and this information should
be read in conjunction with the Section 302 certifications for a more complete understanding of the topics presented.
Disclosure Controls and Procedures and Internal Control over Financial Reporting. Disclosure controls and procedures are
designed with the objective of providing reasonable assurance that information required to be disclosed in NNN's reports
filed or submitted under the Exchange Act, such as this Annual Report on Form 10-K, is recorded, processed, summarized and
reported within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures are also
designed with the objective of providing reasonable assurance that such information is accumulated and communicated to
NNN's management, including NNN's Chief Officers, as appropriate, to allow timely decisions regarding required disclosure.
Internal control over financial reporting is a process designed by, or under the supervision of, NNN's Chief Officers, and
affected by NNN's Board of Directors, management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles (“GAAP”) and includes those policies and procedures that:
•
•
•
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of NNN's assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that NNN's receipts and expenditures
are being made in accordance with authorizations of management or the Board of Directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of NNN's assets that could have a material adverse effect on NNN's financial statements.
Scope of the Assessments. The assessment by NNN's Chief Officers of NNN's disclosure controls and procedures and the
assessment by NNN's management, including NNN's Chief Officers, of NNN's internal control over financial reporting included
a review of procedures and discussions with NNN's management and others at NNN. In the course of the assessments, NNN
sought to identify data errors, control problems or acts of fraud and to confirm that appropriate corrective action, including
process improvements, were being undertaken.
78
NNN's internal control over financial reporting is also assessed on an ongoing basis by personnel in NNN's Accounting
department and by NNN's internal auditors in connection with their internal audit activities. The overall goals of these various
assessment activities are to monitor NNN's disclosure controls and procedures and NNN's internal control over financial
reporting and to make modifications as necessary. NNN's intent in this regard is that the disclosure controls and procedures
and the internal control over financial reporting will be maintained and updated (including with improvements and
corrections) as conditions warrant. Management also sought to deal with other control matters in the assessment, and in
each case if a problem was identified, management considered what revision, improvement and/or correction was necessary
to be made in accordance with NNN's on-going procedures. The assessments of NNN's disclosure controls and procedures
and NNN's internal control over financial reporting is done on a quarterly basis so that the conclusions concerning
effectiveness of those controls can be reported in NNN's Quarterly Reports on Form 10-Q and Annual Report on Form 10-K.
Assessment of Effectiveness of Disclosure Controls and Procedures
Based upon the assessments, NNN's Chief Officers have concluded that, as of December 31, 2023, NNN's disclosure controls
and procedures were effective.
Management's Report on Internal Control over Financial Reporting
Management, including NNN's Chief Officers, are responsible for establishing and maintaining adequate internal control over
financial reporting for NNN. Management used the criteria issued by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control – 2013 Integrated Framework to assess the effectiveness of NNN's internal control
over financial reporting. Based upon the assessments, NNN's Chief Executive Officer and Chief Financial Officer have
concluded that, as of December 31, 2023, NNN's internal control over financial reporting was effective.
Attestation Report of the Registered Public Accounting Firm
Ernst & Young LLP, NNN's independent registered public accounting firm, audited the financial statements included in this
Annual Report on Form 10-K and in connection therewith has issued an attestation report on NNN's effectiveness of internal
control over financial reporting as of December 31, 2023, which appears in this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
During the three months ended December 31, 2023, there were no changes in NNN's internal control over financial reporting
that materially affected, or are reasonably likely to materially affect, NNN's internal control over financial reporting.
79
Limitations on the Effectiveness of Controls
Management, including NNN's Chief Officers, do not expect that NNN's disclosure controls and procedures or NNN's internal
control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the
design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if any, within NNN have been detected. These
inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management's override of the control. The design of any system of controls also is
based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate
because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of
the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be
detected.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Reference is made to the Registrant's definitive proxy statement to be filed with the Commission pursuant to Regulation
14(a); information responsive to this Item is included in the Registrant's proxy statement including the information, without
limitation, contained in the sections thereof captioned “Proposal I: Election of Directors – Nominees,” “Proposal I: Election of
Directors – Executive Officers,” “Proposal I: Election of Directors – Code of Business Conduct, Insider Trading Policy and Anti-
Corruption Policy” and “Security Ownership,” and such information in such sections is incorporated herein by reference.
Item 11. Executive Compensation
Reference is made to the Registrant's definitive proxy statement to be filed with the Commission pursuant to Regulation
14(a); information responsive to this Item is included in the Registrant's proxy statement including the information, without
limitation, contained in the sections thereof captioned “Proposal I: Election of Directors – Director Compensation,” “Executive
Compensation” and “Compensation Committee Report,” and such information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Reference is made to the Registrant's definitive proxy statement to be filed with the Commission pursuant to Regulation
14(a); information responsive to this Item is included in the Registrant's proxy statement including the information, without
limitation, contained in the sections thereof captioned "Executive Compensation – Long-Term Incentive Compensation" and
“Security Ownership,” and such information is incorporated herein by reference.
80
Item 13. Certain Relationships and Related Transactions, and Director Independence
Reference is made to the Registrant's definitive proxy statement to be filed with the Commission pursuant to Regulation
14(a); information responsive to this Item is included in the Registrant's proxy statement including the information, without
limitation, contained in the section thereof captioned “Certain Relationships and Related Transactions” and such information
is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Reference is made to the Registrant's definitive proxy statement to be filed with the Commission pursuant to Regulation
14(a); information responsive to this Item is included in the Registrant's proxy statement including the information, without
limitation, contained in the section thereof captioned “Audit Committee Report” and “Proposal III: Ratification of Ernst &
Young LLP as the Independent Registered Public Accounting Firm,” and such information is incorporated herein by reference.
81
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)
The following documents are filed with the Securities and Exchange Commission ("Commission") as
part of this report.
(1)
Financial Statements
Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42)
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Income and Comprehensive Income for the years ended December 31,
2023, 2022, and 2021
Consolidated Statements of Equity for the years ended December 31, 2023, 2022, and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022, and 2021
Notes to Consolidated Financial Statements
(2)
Financial Statement Schedules
Schedule III – Real Estate and Accumulated Depreciation and Amortization and Notes as of
December 31, 2023
Schedule IV – Mortgage Loans on Real Estate as of December 31, 2023
All other schedules are omitted because they are not applicable or because the required
information is shown in the financial statements or the notes thereto.
45
50
51
53
56
58
F-1
F-4
(3)
Exhibits
The following exhibits are filed with the Commission as a part of this report, unless otherwise noted, each
exhibit was previously filed with the Commission and is incorporated by reference below.
3
Articles of Incorporation and Bylaws
3.1
3.2
First Amended and Restated Articles of Incorporation of the Registrant, as amended through the
Second Amendment, dated May 1, 2023 (filed on April 27, 2023 as Exhibit 3.1 to the Registrant's
Current Report on Form 8-K).
Third Amended and Restated Bylaws of the Registrant, as amended through the Fifth Amendment to
Bylaws, dated May 1, 2023 (filed on April 27, 2023 as Exhibit 3.2 to the Registrant's Current Report on
Form 8-K).
82
4
Instruments Defining the Rights of Security Holders, Including Indentures
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
Description of Registrant's Securities (filed on February 11, 2020 as Exhibit 4.22 to the Registrant's
Annual Report on Form 10-K).
Specimen Certificate of Common Stock, par value $0.01 per share, of the Registrant (filed as Exhibit
3.4 to the Registrant's Registration Statement No. 1-11290 on Form 8-B filed).
Indenture, dated as of March 25, 1998, between the Registrant and First Union National Bank, as
trustee (filed on February 28, 2006 as Exhibit 4.4 to the Registrant's Registration Statement on Form
S-3 (Registration No. 333-132095)).
Form of Thirteenth Supplemental Indenture between the Registrant and U.S. Bank National
Association relating to 3.900% Notes due 2024 (filed on May 14, 2014 as Exhibit 4.1 to Registrant's
Current Report on Form 8-K).
Form of 3.900% Notes due 2024 (filed on May 14, 2014 as Exhibit 4.2 to Registrant's Current Report
on Form 8-K).
Form of Fourteenth Supplemental Indenture between the Registrant, Inc. and U.S. Bank National
Association relating to 4.000% Notes due 2025 (filed on October 26, 2015 as Exhibit 4.1 to Registrant's
Current Report on Form 8-K).
Form of 4.000% Notes due 2025 (filed on October 26, 2015 as Exhibit 4.2 to Registrant's Current
Report on Form 8-K).
Deposit Agreement, among the Registrant, American Stock Transfer & Trust Company, as Depositary,
and the holders of depositary receipts (filed on October 11, 2016 as Exhibit 4.1 to the Registrant's
Registration Statement on Form 8-A).
Form of Fifteenth Supplemental Indenture between the Registrant, Inc. and U.S. Bank National
Association relating to 3.60% Notes due 2026 (filed on December 12, 2016 as Exhibit 4.1 to
Registrant's Current Report on Form 8-K).
Form of 3.60% Notes due 2026 (filed on December 12, 2016 as Exhibit 4.2 to Registrant's Current
Report on Form 8-K).
Form of Sixteenth Supplemental Indenture between the Registrant, Inc. and U.S. Bank National
Association relating to 3.50% Notes due 2027 (filed on September 19, 2017 as Exhibit 4.1 to
Registrant's Current Report on Form 8-K).
Form of 3.50% Notes due 2027 (filed on September 19, 2017 as Exhibit 4.2 to Registrant's Current
Report on Form 8-K).
Form of Seventeenth Supplemental Indenture between the Registrant, Inc. and U.S. Bank National
Association relating to 4.300% Notes due 2028 and 4.800% Notes due 2048 (filed on September 27,
2018 as Exhibit 4.1 to Registrant's Current Report on Form 8-K).
Form of 4.300% Notes due 2028 (filed on September 27, 2018 Exhibit 4.2 to Registrant's Current
Report on Form 8-K).
Form of 4.800% Notes due 2048 (filed on September 27, 2018 as Exhibit 4.3 to Registrant's Current
Report on Form 8-K).
83
4.16
4.17
4.18
4.19
4.20
4.21
4.22
4.23
Form of Eighteenth Supplemental Indenture between the Registrant, Inc. and U.S. Bank National
Association relating to 2.500% Notes due 2030 and 3.100% Notes due 2050 (filed on March 3, 2020 as
Exhibit 4.1 to Registrant's Current Report on Form 8-K).
Form of 2.500% Notes due 2030 (filed on March 3, 2020 as Exhibit 4.2 to Registrant's Current Report
on Form 8-K).
Form of 3.100% Notes due 2050 (filed on March 3, 2020 as Exhibit 4.3 on March 3, 2020 to
Registrant's Current Report on Form 8-K).
Form of Nineteenth Supplemental Indenture between the Registrant, Inc. and U.S. Bank National
Association relating to 3.500% Notes due 2051 (filed on March 10, 2021 as Exhibit 4.1 to Registrant's
Current Report on Form 8-K).
Form of 3.500% Notes due 2051 (filed on March 10, 2021 as Exhibit 4.2 to Registrant's Current Report
on Form 8-K).
Form of Twentieth Supplemental Indenture between the Registrant, Inc. and U.S. Bank National
Association relating 3.000% Notes due 2052 (filed on September 24, 2021 as Exhibit 4.1 to Registrant's
Current Report on Form 8-K).
Form of 3.000% Notes due 2052 (filed on September 24, 2021 as Exhibit 4.2 to Registrant's Current
Report on Form 8-K).
Form of Twenty-first Supplemental Indenture between the Registrant and U.S. Bank Trust Company,
National Association relating to 5.600% Notes due 2033 (filed on August 15, 2023 as Exhibit 4.1 to
Registrant's Current Report on Form 8-K).
4.24
Form of 5.600% Notes due 2033 (filed on August 15, 2023 as Exhibit 4.2 to Registrant's Current
Report on Form 8-K).
10 Material Contracts
10.1* Amended and Restated Employment Agreement, dated as of September 29, 2016, between the
Registrant and Julian Whitehurst (filed on September 30, 2016 as Exhibit 10.2 to the Registrant's
Current Report on Form 8-K).
10.2* Retirement and Transition Agreement, dated January 19, 2022, between the Registrant and Julian E.
Whitehurst (filed on January 21, 2022 as Exhibit 10.1 to the Registrant's Current Report on Form 8-K).
10.3* Employment Agreement dated as of December 1, 2008, between the Registrant and Kevin B. Habicht
(filed on December 3, 2008 as Exhibit 10.3 to the Registrant's Current Report on Form 8-K).
10.4* Amendment to Employment Agreement dated as of November 8, 2010, between the Registrant and
Kevin B. Habicht (filed on February 24, 2011 as Exhibit 10.12 to the Registrant's Annual Report on
Form 10-K).
10.5* Employment Agreement dated as of December 1, 2008, between the Registrant and Christopher P.
Tessitore (filed on December 3, 2008 as Exhibit 10.4 to the Registrant's Current Report on Form 8-K).
10.6* Amendment to Employment Agreement dated as of November 8, 2010, between the Registrant and
Christopher P. Tessitore (filed on February 24, 2011 as Exhibit 10.14 to the Registrant's Annual Report
on Form 10-K).
10.7* Retirement and Transition Agreement, dated November 21, 2023, between Registrant and
Christopher P. Tessitore (filed on November 21, 2023 as Exhibit 10.1 to the Registrant's Current
Report on Form 8-K).
84
10.8* Employment Agreement dated as of January 2, 2014, between the Registrant and Stephen A. Horn, Jr.
(filed on February 19, 2014 as Exhibit 10.19 to the Registrant's Annual Report on Form 10-K).
10.9* Employment Letter, dated as of January 19, 2022, between the Registrant and Stephen A. Horn, Jr.
(filed on January 21, 2022 as Exhibit 10.2 to the Registrant's Current Report on Form 8-K).
10.10* Employment Agreement dated as of February 15, 2018 between the Registrant and Michelle L. Miller
(filed on February 9, 2023 as Exhibit 10.9 to the Registrant's Annual Report on Form 10-K).
10.11* Employment Letter, dated August 14, 2023, between the Registrant and Jonathan A. Adamo (filed on
November 1, 2023 as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q).
10.12* Employment Letter, dated November 30, 2023, between the Registrant and Gina M. Steffens Lubno
(filed herewith).
10.13* Form of Indemnification Agreement (as entered into between the Registrant and each of its directors
and executive officers) (filed on June 12, 2009 as Exhibit 10.1 to the Registrant's Current Report on
Form 8-K dated).
10.14* 2017 Performance Incentive Plan (filed on March 29, 2017 as Annex A to the Registrant's 2017 Annual
Proxy Statement on Schedule 14A).
10.15* Amendment No. 1 to the Registrant's 2017 Performance Incentive Plan (filed on March 23, 2023 as
Annex A to the Registrant's 2023 Annual Proxy Statement on Schedule 14A).
10.16* Amended and Restated Deferred Fee Plan for Directors, dated as of August 16, 2018 (filed on
November 1, 2018 as exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q).
10.17* Form of Restricted Award Agreement - Performance between Registrant and the Participant of
Registrant (filed on May 4, 2012 as Exhibit 10.15 to the Registrant's Quarterly Report on Form 10-Q).
10.18* Form of Restricted Award Agreement - Service between Registrant and the Participant of Registrant
(filed on May 4, 2012 as Exhibit 10.16 to the Registrant's Quarterly Report on Form 10-Q).
10.19* Form of Restricted Award Agreement - Special Grant between Registrant and the Participant of
Registrant (filed on May 4, 2012 as Exhibit 10.17 to the Registrant's Quarterly Report on Form 10-Q).
10.20* Form of Restricted Award Agreement - Performance between Registrant and the Participant of
Registrant (filed on May 2, 2016 as exhibit 10.21 to the Registrant's Quarterly Report on Form 10-Q).
10.21* Form of Restricted Award Agreement - Service - Non-Executives between Registrant and the
Participant of Registrant (filed on May 2, 2016 as exhibit 10.22 to the Registrant's Quarterly Report on
Form 10-Q).
10.22* Form of Restricted Award Agreement - Service between Registrant and the Participant of Registrant
(filed on May 2, 2016 as exhibit 10.23 to the Registrant's Quarterly Report on Form 10-Q).
10.23 Second Amended and Restated Credit Agreement, dated June 23, 2021, by and among the Registrant,
Wells Fargo Bank, National Association, as Administrative Agent, and a syndicate of lenders named
therein (filed on June 25, 2021 as Exhibit 10.1 to the Registrant's Current Report on Form 8-K).
10.24 First Amendment to Second Amended and Restated Credit Agreement, dated December 16, 2022, by
and among the Registrant, Wells Fargo Bank, National Association, as Administrative Agent, and a
syndicate of lenders named therein (filed on December 19, 2022 as Exhibit 10.1 to the Registrant's
Current Report on Form 8-K).
10.25 NNN REIT, Inc. Executive Severance and Change of Control Plan (filed on January 21, 2022 as Exhibit
10.3 to the Registrant's Current Report on Form 8-K).
85
21
23
Subsidiaries of the Registrant (filed herewith).
Consent of Independent Registered Public Accounting Firm
23.1
Ernst & Young LLP dated February 8, 2024 (filed herewith).
24
Power of Attorney (included on signature page).
31
Section 302 Certifications**
31.1
31.2
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32
Section 906 Certifications**
32.1
32.2
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
97
Policy Relating to Recovery of Erroneously Awarded Compensation
97.1
Incentive-based Compensation Recoupment Policy (filed herewith).
99
Additional Exhibits
99.1
Certification of Chief Executive Officer pursuant to Section 303A.12(a) of the New York Stock
Exchange Listed Company Manual (filed herewith).
101 Interactive Data File
101.1 The following materials from NNN REIT, Inc. Annual Report on Form 10-K for the year ended
December 31, 2023, are formatted in Inline Extensible Business Reporting Language ("Inline XBRL"): (i)
consolidated balance sheets, (ii) consolidated statements of income and comprehensive income, (iii)
consolidated statements of equity (iv) consolidated statements of cash flows, and (v) notes to
consolidated financial statements.
104 Cover Page Interactive Data File
104.1 The cover page XBRL tags are embedded within the Inline XBRL document and included in Exhibit 101.
*
**
Management contract or compensatory plan or arrangement.
In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section
18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be
deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the
extent that the registrant specifically incorporates it by reference.
Item 16. Form 10-K Summary
None.
86
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 8th day of February 2024.
SIGNATURES
NNN REIT, INC.
By:
/s/ Stephen A. Horn, Jr.
Stephen A. Horn, Jr.
Chief Executive Officer, President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
87
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints each of Stephen A. Horn Jr., Kevin B. Habicht
and Michelle L. Miller as his or her attorney-in-fact and agent, with full power of substitution and resubstitution for him or her
in any and all capacities, to sign any or all amendments to this report and to file same, with exhibits thereto and other
documents in connection therewith, granting unto such attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary in connection with such matters and hereby ratifying and
confirming all that such attorney-in-fact and agent or his or her substitutes may do or cause to be done by virtue hereof.
Chief Executive Officer, President and Director
February 8, 2024
Title
Date
Chairman of the Board
February 8, 2024
Signature
/s/ Stephen A. Horn, Jr.
Stephen A. Horn, Jr.
/s/ Steven D. Cosler
Steven D. Cosler
/s/ Pamela K. M. Beall
Pamela K. M. Beall
/s/ David M. Fick
David M. Fick
/s/ Edward J. Fritsch
Edward J. Fritsch
/s/ Elizabeth C. Gulacsy
Elizabeth C. Gulacsy
/s/ Betsy D. Holden
Betsy D. Holden
Director
Director
Director
Director
Director
February 8, 2024
February 8, 2024
February 8, 2024
February 8, 2024
February 8, 2024
February 8, 2024
/s/ Kamau O. Witherspoon
Director
Kamau O. Witherspoon
/s/ Kevin B. Habicht
Kevin B. Habicht
/s/ Michelle L. Miller
Michelle L. Miller
Director, Chief Financial Officer (Principal Financial Officer),
Executive Vice President, Assistant Secretary and Treasurer
February 8, 2024
Chief Accounting and Technology Officer (Principal Accounting
Officer) and Executive Vice President
February 8, 2024
88
NNN REIT, INC. AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION
December 31, 2023
(dollars in thousands)
Initial Costs to
Company
Costs Capitalized
Subsequent to
Acquisition
Gross Amount at Which
Carried at Close of Period (a) (c)
F
-
1
State
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of
Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
$
# of
Properties
151
5
80
72
76
44
11
1
1
278
172
1
11
169
149
28
39
59
52
16
50
23
98
30
63
106
26
7
16
10
32
32
46
160
Encumbrances
Land
Building,
Improvements &
Leasehold
Interests
Improvements
Carrying
Costs
Land
Building,
Improvements &
Leasehold
Interests
$
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
74,306
1,943
114,307
34,550
146,790
70,215
9,068
2,994
624
308,199
139,622
775
7,593
137,917
99,199
22,527
19,541
41,426
36,107
4,939
62,149
32,790
63,762
22,436
29,466
66,992
4,102
6,055
12,041
11,299
51,974
21,857
34,852
123,282
$
169,770
3,694
136,021
100,158
221,594
93,429
32,950
6,062
578
480,716
293,455
1,308
10,197
311,801
202,241
37,962
53,896
100,341
92,862
21,594
125,927
92,506
222,563
40,002
100,855
131,180
11,865
3,920
27,181
39,056
203,062
76,847
69,703
258,620
48,355
140
110,806
20,297
37,580
38,902
601
516
—
148,694
68,359
—
8,331
69,061
82,008
26,585
9,776
13,235
37,942
—
3,006
—
56,376
4,143
12,422
71,973
2,654
5,033
3,585
—
3,079
21,795
27,581
34,535
$
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
74,019
1,943
114,307
34,550
145,773
70,215
9,068
2,994
624
308,199
139,622
775
7,593
137,917
99,199
22,527
19,541
41,426
36,107
4,939
62,149
32,790
63,762
22,436
29,466
66,992
4,102
6,055
12,041
11,299
51,974
21,857
34,852
123,282
$
218,125
3,834
246,827
120,454
251,337
132,331
33,551
6,578
578
629,410
361,813
1,308
18,529
380,683
284,249
64,547
63,672
113,576
130,803
21,594
128,933
92,506
278,586
44,145
113,277
203,153
14,518
8,953
30,766
39,056
206,142
98,642
93,941
293,155
Accumulated
Depreciation &
Amortization (b)
56,866
$
1,954
42,727
21,215
66,134
31,851
11,405
4,436
Year of
Construction (e)
1960 - 2023
1971 - 2003
1974 - 2024
1969 - 2023
1945 - 2018
1969 - 2024
1929 - 2003
1994 - 1994
Year Acquired
2001 - 2023
1996 - 2014
1998 - 2023
1998 - 2023
1997 - 2022
1994 - 2023
2006 - 2022
1994 - 1994
Life on Which
Depreciation &
Amortization in
Latest Income
Statement is
Computed
(Years)
15 - 40
20 - 40
10 - 40
20 - 40
20 - 40
20 - 40
20 - 30
40 - 40
272
139,675
87,153
38
5,431
102,942
80,989
18,585
11,900
31,137
26,248
5,181
42,509
20,034
42,877
14,291
15,064
45,734
5,335
2,076
5,545
9,040
54,729
17,481
18,775
82,843
1983 - 1983
1939 - 2024
1964 - 2024
1971 - 1971
1979 - 2017
1924 - 2024
1965 - 2023
1964 - 2023
1946 - 2019
1974 - 2022
1970 - 2023
1915 - 2002
1946 - 2017
1956 - 2017
1963 - 2024
1950 - 2023
1959 - 2017
1920 - 2023
1937 - 2016
1973 - 2016
1961 - 2023
1980 - 2004
1948 - 2020
1955 - 2019
1925 - 2020
1906 - 2023
2005 - 2005
1985 - 2023
1996 - 2023
2023 - 2023
2006 - 2022
1995 - 2023
2001 - 2023
2005 - 2022
1997 - 2023
2005 - 2023
1996 - 2023
1996 - 2023
1996 - 2019
2006 - 2023
1996 - 2023
2005 - 2023
2006 - 2023
1992 - 2023
2010 - 2016
2005 - 2023
2012 - 2023
2011 - 2022
1996 - 2023
2001 - 2022
1997 - 2023
2004 - 2023
40 - 40
5 - 40
10 - 40
30 - 30
20 - 40
15 - 40
15 - 40
10 - 40
15 - 40
25 - 40
15 - 40
10 - 40
20 - 40
20 - 40
20 - 40
10 - 40
15 - 40
15 - 40
20 - 40
20 - 40
25 - 40
25 - 30
25 - 40
25 - 40
20 - 40
5 - 40
Total
292,144
5,777
361,134
155,004
397,110
202,546
42,619
9,572
1,202
937,609
501,435
2,083
26,122
518,600
383,448
87,074
83,213
155,002
166,910
26,533
191,082
125,296
342,348
66,581
142,743
270,145
18,620
15,008
42,807
50,355
258,116
120,499
128,793
416,437
NNN REIT, INC. AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION (CONTINUED)
December 31, 2023
(dollars in thousands)
Initial Costs to
Company
Costs Capitalized
Subsequent to
Acquisition
Gross Amount at Which
Carried at Close of Period (a) (c)
State
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Puerto Rico
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
Washington
West Virginia
Wisconsin
Wyoming
# of
Properties
4
195
88
9
88
1
6
78
3
153
549
14
118
27
24
55
6
3,532
$
F
-
2
Encumbrances
Land
Building,
Improvements &
Leasehold
Interests
Improvements
Carrying
Costs
Land
Building,
Improvements &
Leasehold
Interests
411
—
126,843
—
43,185
—
6,606
—
70,977
—
1,729
—
3,497
—
59,725
—
1,942
—
100,796
—
459,861
—
13,108
—
103,159
—
22,568
—
14,442
—
36,359
—
—
1,150
— $ 2,882,057
$
1,606
306,911
107,069
10,216
130,067
—
10,325
117,568
4,447
228,388
987,841
19,681
179,224
34,547
28,027
77,233
3,815
6,020,881
$
—
75,926
26,775
1,000
48,434
2,732
—
14,730
1,033
59,501
214,096
13,239
47,340
15,894
1,385
22,611
—
1,512,066
$
411
—
126,843
—
43,185
—
6,606
—
70,792
—
1,729
—
3,497
—
59,725
—
1,942
—
100,796
—
459,861
—
13,108
—
102,049
—
22,568
—
14,442
—
36,359
—
—
1,150
— $ 2,879,458
$
1,606
382,644
133,844
11,216
177,453
2,131
10,325
132,297
5,479
287,890
1,201,477
32,921
225,606
50,441
29,413
99,844
3,815
7,517,974
$
Accumulated
Depreciation &
Amortization (b)
901
107,518
31,169
3,583
46,607
912
2,120
33,790
1,691
64,345
326,132
7,670
65,704
17,435
7,312
23,562
1,691
1,864,614
$
Total
2,017
509,487
177,029
17,822
248,245
3,860
13,822
192,022
7,421
388,686
1,661,338
46,029
327,655
73,009
43,855
136,203
4,965
10,397,432
Year of
Construction (e)
1974 - 1999
1910 - 2024
1964 - 2018
1968 - 2008
1953 - 2023
1998 - 1998
1938 - 2004
1921 - 2024
1985 - 2024
1958 - 2024
1890 - 2024
1951 - 2016
1964 - 2024
1955 - 2017
1970 - 2021
1940 - 2024
1949 - 2001
Year Acquired
1997 - 2011
1992 - 2023
1996 - 2023
1998 - 2023
1997 - 2023
2007 - 2007
2016 - 2023
2005 - 2023
2012 - 2023
1996 - 2023
1993 - 2023
2006 - 2022
1995 - 2023
1997 - 2019
2006 - 2023
2006 - 2023
2010 - 2012
Life on Which
Depreciation &
Amortization in
Latest Income
Statement is
Computed
(Years)
25 - 40
15 - 40
15 - 40
20 - 40
15 - 40
33 - 33
25 - 30
10 - 40
30 - 35
5 - 40
15 - 40
20 - 40
5 - 40
20 - 40
25 - 40
20 - 40
20 - 30
NNN REIT, INC. AND SUBSIDIARIES
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION
December 31, 2023
(dollars in thousands)
(a) The following is a reconciliation of the real estate portfolio accounted for using the operating method, including real estate held for sale for the years ended December 31:
2023
2022
2021
Beginning balance, January 1
Acquisitions and dollars invested in projects under construction or tenant improvements
Dispositions
Impairment losses
Ending balance, December 31
$
$
9,678,127
820,238
(94,943)
(5,990)
10,397,432
(b) The following is a reconciliation of accumulated depreciation and amortization for the years ended December 31:
Beginning balance, January 1
Dispositions
Depreciation and amortization expense
Ending balance, December 31
2023
1,660,665
(26,236)
230,185
1,864,614
$
$
$
$
$
$
8,917,586
846,331
(77,481)
(8,309)
9,678,127
2022
1,471,393
(25,757)
215,029
1,660,665
$
$
$
$
8,534,275
551,287
(146,019)
(21,957)
8,917,586
2021
1,319,943
(44,509)
195,959
1,471,393
F
-
3
(c) For financial reporting purposes, leases recorded as a direct financing lease are excluded from the real estate gross amounts at the close of the period and depreciation is not
applicable. As of December 31, 2023, the net investment in real estate accounted for under the direct financing method was $3,033.
(d) As of December 31, 2023, the aggregate cost of the properties owned by NNN for federal tax purposes was approximately $10,277,935 (unaudited).
(e) As of December 31, 2023, NNN has committed to fund the construction of certain properties, which is estimated to be completed within 12 to 18 months. The year of
construction represents the anticipated completion date.
See accompanying report of independent registered public accounting firm.
NNN REIT, INC. AND SUBSIDIARIES
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 2023
(dollars in thousands)
Description
First mortgages on properties:
Interest
Rate
Maturity
Date
Periodic
Payment
Terms
Prior
Liens
Face
Amount of
Mortgages
Carrying
Amount of
Mortgages(c)
Principal
Amount
of Loans Subject
to Delinquent
Principal or
Interest
2 properties in VA
7.000%
3/1/2025
(b)
— $
$
3,000 (d) $
$
3,000
996
$
996 (a) $
—
—
(a) The following shows the changes in the carrying amounts of mortgage loans during the years ended December 31:
Beginning balance, January 1
New mortgage loans
Deductions during the year:
Collections of principal
Other: credit (losses) recoveries(e)
Foreclosures
Ending balance, December 31
2023
2022
2021
$
$
1,521
—
(559)
34
—
996
$
$
2,011
—
(521)
31
—
1,521
$
$
2,468
—
(486)
29
—
2,011
(b) Principal and interest is payable at varying amounts over the life of the loan.
(c) Mortgages held by NNN and its subsidiaries for federal income tax purposes for the year ended December 31, 2023, 2022
and 2021 were $1,002, $1,530 and $2,011, respectively.
(d) Mortgages totaling $3,000 were accepted in connection with real estate transactions for the year ended December 31,
(e)
2020.
In accordance with FASB ASC Topic 326, Financial Instruments - Credit Losses, NNN recorded an allowance for an
estimated expected lifetime credit loss on its mortgage receivables based on the fair value of the collateral and the
historical collectability trend analysis over 15 years.
See accompanying report of independent registered public accounting firm.
F-4
Shareholder Information
GENERAL INFORMATION
Equiniti Trust Company, LLC (“EQ”)
55 Challenger Road, Floor 2
Ridgefield Park, NJ 07660
(866) 627-2644
SHAREHOLDER TOLL-FREE LINE
(866) 627-2644
Worldwide: (718) 921-8124
DIVIDEND REINVESTMENT
Equiniti Trust Company, LLC
Wall Street Station P.O. Box 922
New York, NY 10269
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
CORPORATE OFFICE
NNN REIT, Inc.
450 S. Orange Avenue, Suite 900
Orlando, FL 32801
(800) NNN-REIT
(407) 265-7348
www.nnnreit.com
34 CONSECUTIVE ANNUAL DIVIDEND INCREASES
FORM 10-K
A copy of the Company’s Form 10-K, as filed with the Securities and Exchange Commission (SEC) for
fiscal 2023, which includes as Exhibits the Chief Executive Officer and Chief Financial Officer certifications
required to be filed with the SEC pursuant to Section 302 of the Sarbanes Oxley Act, has been filed with
the SEC and may also be obtained by shareholders without charge upon written request to the Company’s
Secretary at the above address, or by visiting www.nnnreit.com. During fiscal 2023, the Company filed
with the New York Stock Exchange (NYSE) the Certification of its Chief Executive Officer confirming that
the Chief Executive Officer was not aware of any violations by the Company of the NYSE’s corporate
governance listing standards.
For more information and to access
our website, scan here.
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450 S. Orange Avenue, Suite 900 | Orlando, FL 32801
(800) NNN-REIT | www.nnnreit.com