Courtesy NNN REIT
Nearly every property in NNN REIT’s portfolio had a tenant at the end of September, and the retail landlord kept buying.
NNN reported 99.2% occupancy and $221.7 million of investments in the third quarter, according to its earnings release. It owned 3,817 properties across all 50 states, the District of Columbia and Puerto Rico at September 30.
For investors who buy real estate for rental income, the appeal is easy to understand: few empty properties and long leases. But full buildings do not remove the risks of tenant trouble, borrowing costs or paying too much for the next acquisition.
Occupancy climbs as the portfolio grows
The 99.2% occupancy rate was up from 99.1% at the end of June and 97.5% a year earlier. The portfolio’s weighted average remaining lease term was 10.1 years.
NNN’s business centers on long-term net leases to retail tenants. Those arrangements shift property costs to tenants under the lease terms, giving the landlord a different cost structure from an owner that directly runs stores or pays all building expenses itself.
The company said annual base rent reached $974.0 million, up 6.8% from a year earlier. That is an annualized rent measure, not revenue collected during the three-month quarter.
New quarterly investments carried an initial cash capitalization rate of 7.3% and a weighted average lease term of 19.6 years. The capitalization rate describes the property’s initial income relative to its investment cost; it is not a guaranteed total return to shareholders.
Earnings rise, but the full-year forecast holds
Net earnings were $109.9 million, or 57 cents per diluted share, compared with $96.8 million, or 51 cents per share, a year earlier.
Core funds from operations increased 5.9% per share to 90 cents. Adjusted funds from operations rose 5.8% per share to 91 cents. These are non-GAAP measures used to assess property-company performance and are separate from net earnings.
NNN kept its full-year core FFO guidance at $3.50 to $3.54 per share and AFFO guidance at $3.55 to $3.59. It raised expected property dispositions to $160 million to $180 million, from $120 million to $160 million.
During the quarter, it sold 32 properties for $50.7 million. Investment volume for the first nine months reached $658.1 million.
The financing side still matters
NNN ended September with $5.1 billion of gross debt, a weighted average interest rate of 4.2% and a weighted average debt maturity of 9.8 years.
The company reported $1.4 billion of total available liquidity, but that was not $1.4 billion of cash in the bank. It included $1.2 billion of unused credit-line capacity, $204.0 million of outstanding forward equity and $2.7 million of cash.
The quarter presents a landlord with high occupancy and growing rental income. The next test is keeping that income dependable while financing new purchases and selling properties it no longer wants.
JBizNews Desk | Orlando
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