Title

Presentation

National Retail Properties, Inc. misses on earnings expectations. Reported EPS is $0.79 EPS, expectations were $0.81.

Operator: Greetings, and welcome to the NNN REIT Second Quarter 2023 Earnings Conference Call. [Operator Instructions]. I will now turn the conference over to your host, Mr. Steve Horn. Sir, you may begin.

Stephen Horn: Thanks, Ali. Good morning, and welcome to NNN’s Second Quarter 2023 Earnings Call. Joining me on the call is Chief Financial Officer, Kevin Habicht. As this morning’s press release, it reflects NNN’s performance in the second quarter produced 1.3% core FFO per share growth over prior year’s results, along with investments of slightly over $180 million with a 7.2% initial cash yield. The solid acquisitions for the quarter are driven by our tenant relationships. In addition, our portfolio continued with the high occupancy of 99.4% and strong lease renewals for the quarter that have been trending above historical levels year-to-date. These results have NNN in position to create shareholder value as we transition into the second half of 2023 and beyond.

In July, we announced an increase in our common stock dividend to be paid August 15, thus, making 2023 our 34th consecutive year of annual dividend increases. NNN is in select company under 75 U.S. public companies, including 2 other REITs, which have achieved this impressive record of accomplishment. Based on our first 6 months performance, we announced an increase of our 2023 core FFO guidance to a range of $3.17 to $3.22 per share. Our long-standing strategy is designed to deliver consistent per share growth on a multiyear basis. This discipline of this long-term approach is reflected in the guidance increase during the current challenging economic backdrop. Turning to the highlights of the quarter. Our portfolio of 3,479 freestanding single-tenant properties continue to perform exceptionally well.

Maintained high occupancy levels of 99.4% for 4 consecutive quarters, which remains above our long-term 98% average. At quarter end, NNN only had 22 vacant assets, which is the result of our leasing department effort working the nonperforming properties and creating value for NNN. In addition, nearly 90% of the leases that were up for renewal during the quarter exercise an extension at 105% of the prior rent. Moving to acquisitions. During the quarter, we invested just north of $180 million in 36 new properties with an initial cash cap rate of 7.2% with an average lease duration of 19.7%. We closed on 19 transactions in the quarter, and 17 were from our relationship tenants that we do repeat business. The first half of the year, we invested over $337 million in 79 new properties with an initial cash cap rate of 7.1% and an average lease duration of 19.4. Given that NNN closed on roughly 60% of the original midpoint acquisition guidance, coupled with the visibility of our acquisition pipeline, NNN has bumped up acquisition buying guidance to $600 million to $700 million for the year.

Almost all of our acquisitions this year are long-term lease deals, defined 15 to 20 years. And that is a result of the calling effort of NNN’s acquisition team. NNN prides itself on maintaining relationship business model and targeting sale-leaseback transactions. There is a lot that goes into deploying capital at the right risk-adjusted returns, and the value of NNN lease form is a tool to mitigate risk within the portfolio, which is easier to obtain if you have the sale-leaseback model. It can sometimes be overlooked. With regard to the acquisition pricing environment, as I mentioned in the May call, we are seeing that cap rate increases started to plateau and stabilize. That played out in the second quarter as expected with a 20 basis point increase over Q1 versus a 40 basis point pickup in the quarter before.

The first 6 months cash cap rate was 7.1%, which is 90 basis points higher year-over-year. As far as the second half of the year, I’m seeing NNN’s initial cap rates slightly higher than the second quarter in the range of 10 to 20 basis points. During the quarter, we also sold 7 properties, 2 which were vacant, raised $28 million of proceeds at a 5.1% cap rate to be easily reinvested into accretive acquisitions. Year-to-date, we have now raised $40 million of proceeds at a 5.6% cap rate from the sale of 13 properties, including 5 vacant. Although Job 1 is released vacancies, and year-to-date, NNN has had a 97% rent recapture with minimal TI dollars reinvested. We will continue to sell nonperforming assets if we do not see a clear path to generate rental income within a reasonable time frame.

The current banking conditions along with the higher interest rates are trading a softer 10/31 market, but NNN is navigating the waters successfully. Our balance sheet remains one of the strongest in our sector. Our credit facility has plenty of capacity, no material debt maturities until mid-2024, strong free cash flow and a viable disposition strategy. NNN is well positioned to fund our 2023 acquisition guidance. In closing, I want to thank our associates for their dedication and hard work for putting NNN in position to finish 2023 strong and set us up for 2024 and beyond. With that, let me turn the call over to Kevin for some more color and detail on our quarterly numbers and updated guidance.

Kevin Habicht: Thanks, Steve. As usual, I’ll start with a cautionary statement. We will make certain statements that may be considered to be forward-looking statements under federal securities laws. The company’s actual future results may differ significantly from the matters discussed in these forward-looking statements, and we may not for release revisions to these forward-looking statements to reflect changes after the statements were made. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company’s filings with the SEC and in this morning’s press release. Okay. With that, headlines from this morning’s press release report quarterly core FFO results of $0.80 per share for the second quarter of 2023.

That’s up $0.03 or 1.3% over year ago results of $0.79 per share. And first half 2023 results were $1.60 per share, which represents an increase of 2.6% over the prior year results. AFFO for the first half of ’23 was $1.62 per share, and that’s a 1.3% increase over prior year results. As we footnoted on Page 1 of the press release, absent the accrual basis deferred rent repayments in both 2022 and 2023, this AFFO per share growth would have been 2.5% for the first half of 2023. Similarly, the scheduled cash basis deferred rent repayments continue to taper off as anticipated in 2023 and can be seen in the details provided on Page 13 of the press release. Absent these cash basis deferred rent repayments in both ’22 and ’23, core FFO per share would have increased 3.2% for the first half of 2023.

Separately, I get — I’ll note, too, that in the second quarter of 2023, results included $290,000 of lease termination income, and that compared with $1.7 million in the first quarter. But overall, a good quarter, which was in line with our expectations. Moving on. Our AFFO dividend payout ratio for the first half of 2023 was approximately 68%, and that created approximately $95 million of free cash flow. That’s after the payment of all expenses and dividends for the first half. As Steve mentioned, after quarter end, we announced that we — what will be our 34th consecutive annual increase and our dividend that gets paid in a couple of weeks on August 15. Occupancy was 99.4% at quarter end. That’s flat with the prior quarter and flat with year-end 2022.

G&A expense was $10.7 million for the quarter. That represents 5.3% of total revenues, and it was 5.7% for the first half of 2023. Notably, our midpoint guidance for this line item is still $44 million for the full year 2023, and that should put us closer to about 5.5% of revenues for the year. Lastly, we ended the quarter with $794.5 million of annual base rent in place for all leases as of June 30, 2023. Steve mentioned we did increase our 2023 core FFO guidance, increasing the bottom end by $0.03 and the top end by $0.02 to a range of $3.17 to $3.22 per share. AFFO guidance was increased to a range of $3.20 to $3.25 per share. The smaller increase in the AFFO guidance range is primarily a result of projected capitalized interest expense from increased investment of what we call split funded acquisitions.

These are acquisitions that are funded over time as the property is constructed, which we think is of value to our customer. We’re doing more of that this year than typical. In typical year, probably 20% to 25% of our acquisition dollars are in that type of program where construction gets funded this year. We’re probably pushing closer to 35% in terms of total dollars invested in that sort of mode. But overall, in terms of per share growth, the more modest growth in 2023 reflects really a couple of things in my mind. A, the high bar from last year’s 2022 is 9.8% growth created and the lack of tailwinds that were helpful in 2022, coupled with the slowdown in our scheduled deferred rent repayments in 2023 as noted on Page 13. The ’23 guidance and key supporting assumptions are on Page 7 of today’s press release.

It was really the only notable change being a $100 million increase in our 2023 acquisition volume guidance, which is now $600 million to $700 million. Switching over to the balance sheet. We maintain a good leverage and liquidity profile with over $750 million of liquidity. The second quarter was quiet in terms of capital markets activity. We issued $13 million of equity in the second quarter and $30 million of equity for the first half of 2023. This fairly modest equity raise of $30 million in the first half, plus $95 million of free cash flow in the first half and $40 million of property disposition proceeds totals $165 million, which allowed us to fund nearly all of the equity portion of our $337 million of first half acquisitions on a leverage-neutral basis.

Consistent with our plan and prior comments, we have begun to use our bank line a little more after a few years of virtually nearly no usage, part of the plan to navigate this rockier interest rate and capital market environment. Our weighted average debt maturity is over 12 years, and that includes the bank line. which is among the longest in the industry. Our debt outstanding is all fixed rate with the exception of the bank line, which represents about 8% of our total debt. Couple of numbers. Net debt to gross book assets was 40.8% as of June 30. Net debt to EBITDA was 5.5x at June 30. Interest coverage and fixed charge coverage was 4.6x for the second quarter. All properties owned by NNN are unencumbered by mortgages. So yes, in closing, we’re in good shape to navigate the — what seems to be elevated economic and capital market uncertainties and to be able to continue to grow per share results, which we view as the primary measure of success.

The fundamentals, as Steve mentioned, of our business remain in good shape, occupancy, re-leasing, renewals, acquisition and disposition volumes and cap rates. We feel like we’re on a pretty good track for this year. With that, we’ll open it up to any questions, Ali.

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Operator: [Operator Instructions]. Our first question is coming from Brad Heffern with RBC.

Bradley Heffern: Kevin, a couple for you. So on the new AFFO guidance, last quarter, I think you mentioned things were trending towards the high end of guide, and obviously the acquisition total went up. So can you talk about what the offset was that kept the high end of guidance from moving higher? I know in the prepared remarks, you mentioned the capitalized interest, but I think that’s backed out. Correct me if I’m wrong on that.

Kevin Habicht: Yes. So you’re talking about the core FFO guidance or AFFO or both?

Bradley Heffern: Just the AFFO.

Kevin Habicht: AFFO, yes. Really what’s driving that back a little bit is two things this year is the scheduled accrual basis deferred repayments, which is a piece of the equation, but that’s been out there for a while. So that’s not changing much. It’s really the capitalized interest piece because we’re — more of our acquisition investments are being done in what we call split-funded program, that creates more capitalized interest. We back out capitalized interest and calculating AFFO. So that’s a bit of a drag on our AFFO for this year relative to prior years. I would say, generally, if you go back pre-pandemic, you would see our AFFO — on a quarterly basis, our AFFO is normally $0.01 more than our core FFO, generally, round numbers.

And so $0.01 a quarter, $0.04 a year, maybe $0.05 a year. That’s typical kind of pre-pandemic kind of levels. We’re working our way back there. We came hand-grenade close this quarter. Our AFFO, $0.80. I mean, I think we were like 700s of $0.01 from rounding to $0.81. So just one rounding, it went to $0.80. And so we think it’s still largely in line with our expectations. But because of the incremental capitalized interest expense currently, it’s a little bit of a weight on our AFFO number in the short term.

Bradley Heffern: Okay. Got it. And then as you mentioned the line of credit is obviously being used more, I think the cost on that 6% plus with the latest Fed hike, it seems like that would be wide of what you could get by issuing bonds or doing a term loan. So what’s your desire to continue to let that float versus terming it out?

Kevin Habicht: Yes, a fair question. Yes, you’re right. It’s — the bank line cost is right at about 6% now, which is not — which I think we’re comfortable getting the bank line up to about 50% of our capacity. That’s probably a line that we prefer not to cross. So I think in some time period, we would obviously be thinking about looking to take that out with longer-term debt, which, as you know, it’s priced as well, if not a little better than the bank line currently is. So yes, we don’t give guidance on our capital markets activities. But yes, fair comment that, over time, we’ll look to take that out with longer-term capital whether it be debt and/or equity.

Operator: Our next question is coming from Joshua Dennerlein with Bank of America.

Farrell Granath: This is Farrell Granath on behalf of Josh Dennerlein. So I had a quick question about bad debt assumptions in your guidance and maybe what’s already been incurred year-to-date, especially with the increase.

Kevin Habicht: Yes. So our typical bad debt assumption, we assume we’re going to lose 100 basis points — or sorry, or 1% of our rent every year. And we — that’s I would think virtually every year for the last number of years. And so it’s not — we don’t have any expectation of it being elevated. Currently, what we’re seeing in terms of our tenants’ behavior and their position, we don’t think we needed to do anything besides what we normally do. We just — over the years, we decided it was prudent to assume now everything will work out perfectly, and so we’ve assumed 100 basis points. We’ve not used very much of that at all. I would say, even though we assume in our guidance 100 basis points, typical is probably closer to half of that, meaning about 50 basis points of rent loss. And so far this year, I would say we’re going to be still in that kind of normal zone the way things look like they’re shaping up.

Farrell Granath: And also, I wanted to touch on tenant health or maybe tenant watch list, I think I saw in the news about Walgreens. Some Walgreens stores closing as well as last quarter, we had touched on Bed Bath & Beyond. So I’m curious if you can give an update.

Kevin Habicht: So yes, overall, I guess, globally, I would note that the size and the shape of our credit watch list, I view as largely unchanged from recent quarters. The specific tenants you mentioned, as you know, Bed Bath & Beyond, filed for bankruptcy. We had 3 stores with them. It was 0.2% of our annual base rent. We will be getting back 3 — those 3 stores. And so that — those leases are projected. And then as it relates to — what was the other one you asked about, sorry?

Farrell Granath: Walgreens?

Kevin Habicht: Yes, yes. Walgreens, I’m not worried at all about their ability to pay rent. I guess that’s the most important thing. They did announce store closures, none of ours are in that list. And so we don’t have any concerns at all on that front. And just a reminder, even to folks, investors, even if a tenant closes a store, the rents did — the first. It doesn’t change their obligation to pay us rent for those properties. And so — but — and this particular case, Walgreens, we don’t have any closed stores on their closure list.

Stephen Horn: Just really a follow-up on the Walgreens. That was a transaction we primarily did in the fourth quarter last year. So there was a self-selection process that Walgreens went through to sign 15-year leases.

Farrell Granath: Great. And also, if you have a few comments on Regal Cinemas.

Kevin Habicht: Yes. So Regal actually just exited, I guess, bankruptcy yesterday maybe, very recently. And so we only had one property with them. We’re going to come out fine there. We offered up a small rent reduction, but in exchange, got the ability to develop an outparcel on that property. So I think when the dust settles down the road, we think we’ll be pretty much even in terms of where we were. But it was a very small exposure, under 0.1% of rent, and A. And B, it was a very modest rent reduction offered up in exchange for this ability to develop an outparcel on the property, which is reasonably well located. So we kind of like our odds and all that. But yes, it won’t have any impact on our bottom line of note.

Operator: Our next question is coming from Eric Wolfe with Citi.

Eric Wolfe: If I look at your cap rate in the quarter of 7.2%, how wide was the CapEx range around that? And was there anything done, say, north of in the quarter?

Stephen Horn: Can you say that last part again? You kind of broke up on me.

Eric Wolfe: Well, just how — like if I think about the top end of where you’re buying is, was there anything done north of an 8? Like I’m just trying to understand how wide the cap rate range was with the quarter?

Stephen Horn: So the bandwidth in our cap rates on that 7.2% is fairly tight. As I kind of just looking at the overall list, it’s probably — we had a couple of legacy deals that we split funded deals that we priced midway through last year that kind of dragged their fee. We’re in the high 6s. And the highest cap rate deal we did was kind of mid-7s. So it’s pretty tight bandwidth.

Eric Wolfe: Got it. Yes. I mean the reason why I asked the question was I was just curious if you’re seeing any pockets of the market that are seeing a little bit more stressed, maybe a little bit less access to capital causing sort of acquisition yields to rise there in spite of a similar risk profile. And then you talked about the — I think you call it the split level acquisitions. I mean, I guess, I’d be curious how you underwrite those relative to a more normal type of acquisition where you’re getting all the income immediately.

Stephen Horn: Yes. As far as the underwriting, we’ve been doing split funded for a decade. We were one of the first movers in the REIT industry to do it where we use the current relationship, primarily our tenants that they’ll identify the site. And NNN essentially acts like a bank. We’re not taking the risk of development. We like the split-funded deals because there’s no developer profit in them. So the tenants and NNN’s interest are aligned to keep rent low. So that’s one part we’d like. Historically, we always had kind of a 50, 75 basis point spread over the market. And then in recent times, that spread compressed. But we’re still seeing kind of a 20, 30 basis point spread due to split funded. Again, the rent is typically lower because there’s no profit baked in. It’s not a developer lease. It’s an NNN form lease. So there’s a lot of risk mitigation that goes into those deals.

Kevin Habicht: Yes. And just a side note on that, these are relatively simple, smaller projects in the scheme of things. And so these are — these projects don’t go on for years. These are measured in months typically. And so they get developed pretty quickly. And so the pricing that we said on that, we’re very comfortable kind of holding that during the construction period, if you will.

Stephen Horn: And one of the mitigants we do in those leases, if they do drag on for some unknown reason, we have — as we say, we’ve got to close the window and rent has to commence if the building is complete or not.

Kevin Habicht: Yes. And related to your question because — and I’m going to — I want to broaden back the lens a little bit, just because I think the thought was that the more stressed tenants get under, the higher the cap rate. It might be an opportunity for higher cap rates for acquisitions. And while there’s an element of that is true, for us, raising the cap rate is not a great way to solve a risk problem in our opinion. That tends to only make the risk greater, meaning the cap rate is higher, which means the rent is higher, which means the tenant is less likely to succeed at that location. And so we’ve not, over the years, found increasing the cap rate is a good way to address risk. And for us, what would be a better approach and what we prefer and push to do is to reduce the proceeds invested in a property and not increase the cap rate materially.

And so that’s the way we go at it. We think that way, you end up with a safer investment. Less proceeds in the property means lower rent. Tenant more likely to succeed. To the extent the tenant doesn’t succeed, more easy — that rent can be replaced more easily by the next tenant, whoever that might be. And so we just go at it a little differently. So when we see risk out there, we don’t run to raise cap rate as a mitigant, if you will. We don’t think — that works in the short run, I’m sure, but we don’t think that’s a great long-term approach.

Operator: Thank you. Our next question is coming from Spenser Allaway with Green Street.

Spenser Allaway: Maybe just following up on those cap rate questions. Just curious now that we’ve moved into 3Q, has anything changed in terms of pricing either by credit or retail industry now that we’re somewhat through this quarter?

Stephen Horn: So kind of what I mentioned in the prepared remarks, we’re kind of seeing that 10 to 20 basis point pricing increase in the third quarter. I’m not expecting it any higher just given the resistance. And primarily, the deal flows for us is coming from the C-store category, auto service primarily. So yes, we’re not seeing any significant increase. But just given the recent Fed rate hike, we deal with sophisticated tenants and they understand the cost of capital is increasing. So we’re able to pass through some of that.

Spenser Allaway: Yes. Okay. That makes sense. And then again, sorry if I missed this in your prepared remarks, but can you just provide a little bit more color on that disposition you guys disclosed, the 5.1% cap rate I believe? And again, sorry if I missed it.

Stephen Horn: So the 5.1% was the overall weighted average of the 7 assets or 5 assets because 2 of them were vacant. So we’re not counted in that. So we were opportunistic. Somebody saw some land that they thought was a lot more valuable than NNN thought it was. So we were willing to depart at extremely low cap rate. But there’s a barbell approach in there, it’s the weighted average cap rate. We did some defensive sales in there that were 7.5% cap, but then we had a couple in the 4s to bring that down to a 5.1%.

Operator: Our next question is coming from Linda Tsai with Jefferies.

Linda Tsai: You talked about headwinds in ’23 to earnings growth, the nearly 10% growth last year, slowdown in scheduled rent repayments and capitalized interest being backed out of AFFO. How are you thinking about ’24? Comparison will be easier. The rent repayment isn’t as much of a headwind. Do you think capitalized interest remains a headwind? Or are there other items to consider?

Kevin Habicht: Yes., we haven’t put out any guidance on ’24 yet, but I — it feels like at this point, and I know it’s really early and the world is changing fast, it feels like, we’ll get back to what we think of as a more normal cadence. Still some headwinds out there, and the capital markets would be my presumption for ’24. And I think cap rates will need to adjust some more, in my opinion. But yes, we should have worked our way through a lot of the onetime items, both good and bad in 2024. And so hopefully, we can get back to what we think of as a more normal cadence of kind of mid-single digit kind of per share growth. It is interesting. If you look at 2022 and 2023 in combination to that 2-year period, we’re right at our kind of mid-single-digit growth rate.

It just happened to be that a lot of it came in 2022 and not so much in ’23. But if you look at the average of the 2 years, it’s kind of what we think of as kind of our sweet spot of a goal of long-term per share growth rate. And so 2024 at the moment feels like the deferrals will be pretty much all behind us. The capitalized interest may continue because we’re still doing more elevate — more split-funded deals than historically. Like I said, a normal year for us is 20%, 25% of our investments is split-funded approach. This year just happens to be closer to 35%, probably. And so I think that will probably normalize with time. But we’ll see. We don’t have any visibility on that, so it’s really hard for me to be very definitive with my thoughts on that.

Linda Tsai: And then in terms of the balance of the year for acquisition volumes, do you expect volumes to be evenly distributed between 3Q and 4Q?

Stephen Horn: We’re a very lumpy business. But as I sit here today, yes, I would guess a little more even than historically, just given the visibility I have on the third Q.

Operator: [Operator Instructions]. Our next question is coming from Alec Feygin with Baird.

Alec Feygin: The first one is, are you seeing any acceleration in either new retailer or developer relationships now that the lending conditions are more difficult?

Stephen Horn: So we’re always in the market talking to developers, but our split-funded program is usually with a tenant. And what we find is we can talk about a lot of capitalized interest, and we’re a little bit above our historical averages. And that’s a result of there’s not as much M&A in the market, and our retailers still want to grow organically. So they’re finding good opportunities redeveloping existing sites. So that’s why we’ve kind of leaned into it a little bit more than historically. But no, as far as new developer because they can get — now we typically shied away from the developer because there’s a lot of risks when you’re doing those deals because the developer is negotiating the lease, and they don’t look to hold it long term. So there’s a lot of unknown risks that are very difficult to underwrite within that lease. So we’d like to go back to our tenant relationships and find a lot of good opportunities there.

Alec Feygin: Outside of the capitalized interest being a drag on FFO. Is there any other onetime items in the quarter we should be aware of or going forward?

Kevin Habicht: No, nothing beyond that. I mean, I mentioned the lease termination income amount, which can be lumpy, and it was elevated in the first quarter and was not in the second. That was kind of — but that’s kind of an ongoing thing. And then the — like I said, the deferred rent repayments, which are detailed on Page 13 of the press release, give you kind of all the numbers fit the print on that topic. And so those are really the elements. But I think the broad answer to your question is no, we don’t see any onetime pluses or minuses going forward.

Operator: We do have a question from Ronald Kamdem with Morgan Stanley.

Ronald Kamdem: Sorry, I jumped on a little late. Just — can you just take a big step back, just give us an update on maybe the watch list, the bad debt that’s baked into the guidance and how that’s trended year-to-date? And any sort of particular, whether it’s Bed Bath or any other sort of exposures you haven’t touched already would be great?

Kevin Habicht: So yes, I think our — as you know, our assumption at the beginning of the year in terms of guidance is we assume we’ll lose 100 basis points of rent, 1% of our rent will be lost for some reason or the other related to tenant issues. That’s our typical rent loss assumption in our guidance. Historically, we’ve not realize that level. Normally, it’s probably 0.5%, 50 basis points or less. I would say this year is trending to be normal, meaning probably over the scope of the year, it will be closer to that 50 basis points. And so nothing unusual in that regard. And I would say nothing changed in terms of the quantity and the quality of the credit watch list, if you will. It doesn’t feel like there’s any big changes brewing there.

We’ve alluded to already, 2 tenants that were bankrupt have exited bankruptcy — or not exited, but that bankruptcy is close. So Bed Bath and Beyond is gone. So we had 3 stores there, and that was 0.2% of our rent. So those are new vacancies, if you will, that will release. I think I’ve mentioned in prior calls, the rent on those properties were $12, $13 a square foot. So that’s something that we think will create a big challenge to replace. And then we have one, Regal Cinema property. Regal did exit bankruptcy, I believe, yesterday. And that won’t create any notable impact on our revenue or bottom line. There’s — but the list still has AMC on its question mark. It still has some fridges, restaurants on their question mark, Rite Aid drug. But those have not changed in my opinion, notably in recent quarters.

And so we’ll just keep watching those and deal with them whatever comes up. It’s interesting, as we look back over the years, for tenants that filed bankruptcy on average, they end up assuming 85% of our leases. So the bankruptcy is not the end of the world necessarily. It’s the rejection of the lease that creates the potential for some lost revenue in the short term. But even then, if we get the property back and we re-lease it, we’re able to recoup the vast majority of that rent with the next tenant. And again, we try to do that with little to no incremental TI dollars or CapEx. And so all in all, we think we’re still in pretty good shape on the credit watch rent loss kind of arena.

Ronald Kamdem: And then just last one, just get a pause on the acquisition market, which obviously $324 million in the quarter and so forth. But — so just compared to 3 to 6 months ago, right, is the pipeline building unchanged? Is there more distress, right? Is there more sort of sale-leaseback activities for people needing capital? And then obviously, some cap rate commentary would be helpful. But just trying to get a sense of how things are evolving today versus who were doing this call 3 to 6 months ago.

Stephen Horn: Yes. Based on bump in guidance on acquisition volume, our pipelines are a little stronger today than it was 3 to 6 months ago. The sale-leaseback market is still fairly robust. We’re not seeing the distressed sale leasebacks just because — we don’t want to do business with the company as being distressed and has to do it. As far as the cap rates, we picked up 20 basis points second quarter over the first quarter, and we’re kind of in the range of 10 to 20 basis points third quarter over the second quarter. But definitely, it’s starting to stabilize, not accelerating at the rate they were in the second half of last year. But no, we feel good about our pipeline. We’re getting our fair share of deals. NNN in good shape as far as hitting its results on the acquisitions going forward.

Operator: Thank you. We have no further questions in queue at this time. So I will hand it back to Mr. Horn for any closing comments.

Stephen Horn: As I stated, NNN, we’re in good shape to deliver the remainder of 2023 and position ourselves well in 2024. So thanks for joining us this morning. And as summer winds down, we look forward to seeing many of you in person at the fall conference season. Enjoy the day.

Operator: Thank you. This concludes today’s conference, and you may disconnect your lines at this time. We thank you for your participation.