Spenser Allaway • Green Street

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SVP & CFO Thomas Boyle attributed the stronger non-same-store outlook to faster-than-expected lease-ups in development properties and the impact of new acquisitions. CEO Joseph Russell stated that while they monitor legislative risk closely, a recent effort was successfully steered from price controls to a disclosure-based compromise, which does not change their long-term view of the California market.

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CEO Joseph Russell responded that the transaction market now includes a combination of traditional smaller deals and larger portfolios that are beginning to surface. Executive H. Boyle confirmed that the contribution from ECRIs was better in Q3 but emphasized this was driven by the growing pool of newer tenants becoming eligible for increases, not a change in the rate strategy itself.

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CEO Christopher Marr noted that Texas markets like Austin are showing signs of recovery, while Dallas faces challenges from both supply and competitor pricing. He expressed overall optimism about stabilization. CFO Timothy Martin confirmed there have been no significant surprises or setbacks on the development projects, as they were timed fortunately to avoid recent volatility in raw material costs.

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President and CEO Christopher Marr clarified that the year-over-year negative gap on move-in rents improved from an average of -10.3% in Q4 to around -7.4% recently. CFO Tim Martin addressed the transaction market, stating it's still in a 'price discovery' phase with mixed signals from brokers. He noted that activity is seasonally slow and many potential sellers are waiting for more clarity on the interest rate environment.

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CFO Timothy Martin explained that the acquisition environment is more constructive due to an increase in the quality of available assets and a narrowing of the bid-ask spread between buyers and sellers. He noted that while the environment feels much better compared to the lack of activity over the last 18 months, he declined to quantify the exact spread, emphasizing that the focus is on finding high-quality opportunities where the spread is zero.

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CEO Stephen Horn reported that while tenants are re-evaluating growth plans, the Q2 deal pipeline remains solid, and he shared positive anecdotes from the car wash and auto service sectors. CFO Vincent Chao added that with 85% of ABR from service and non-discretionary tenants, the portfolio is relatively insulated from tariff impacts and that rent coverages have remained stable.

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CEO Stephen Horn stated that large-scale portfolios have been scarce, with 80% of Q4 deal flow coming from relationship-based transactions. CFO Kevin Habicht added that the 2025 credit loss assumption is 60 basis points, lower than the historical 100 basis points, as the major issues with Badcock and Frisch's are already accounted for separately and no other tenants pose an immediate, significant risk.

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Executive Stephen Horn noted that sellers are returning to the market, increasing the average transaction size. He described the market as highly competitive, with some private money entering, but affirmed that it doesn't significantly impact NNN's focus on smaller deals. Regarding dispositions, he explained the sales, which included five vacant properties, were primarily to clean up the portfolio, involving some urgent care and auto auction assets, with the occupied properties selling at a 4.4% cap rate.

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CEO Joseph Margolis responded that while there has been a long-term increase in institutional capital interest, he hasn't seen a recent acceleration. He noted that activity with joint venture partners was busier in 2021-2022 than it is currently, but substantial capital remains interested in the sector.

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CEO Joseph Margolis provided yields on deals approved year-to-date, including low 5% first-year yields for wholly-owned assets and 10% for JV deals. He stated that rebranding costs to-date are modest, with a total expected cost of around $117 million. Executive P. Stubbs added that the original merger underwriting had assumed $90 million for these costs.

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Head of Asset Management Brooks Gordon confirmed there is minimal risk on capital projects, as most are under guaranteed maximum price contracts, and they have seen no labor disruptions. CEO Jason Fox described the U.S. net lease market as consistently competitive, though WPC's all-cash buying capability is an advantage. He noted that Europe remains a less competitive environment.

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CEO Jason Fox stated that the assets are in a 'pre-marketing' phase to determine the optimal sales strategy, whether as a single portfolio or multiple smaller ones. While acknowledging the storage sector is not as robust as in the past, he expressed confidence in achieving the company's target of a ~100 basis point positive spread between the asset sales and new investments.

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Head of Asset Management Brooks Gordon clarified that the disposition guidance change was minor, reflecting only a timing shift of one asset into 2024, and that potential Hellweg sales are being considered for 2025. CEO Jason Fox specified that increased competition is mainly in the U.S. industrial market from private equity funds, while competition in Europe remains thinner.

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CEO Peter Mavoides stated that tariffs are expected to have a minimal, tangential impact due to the portfolio's 93% service and experience-based tenancy. He also clarified that competition is more pronounced for larger transactions and well-known credits, while the company's focus on smaller, granular deals with mid-sized operators faces less competitive pressure.

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Executive Max Jenkins responded that pipeline activity, including new unit growth and M&A, is ratably spread across industries and consistent with historical trends. CEO Peter Mavoides clarified that dispositions are not ad hoc responses to inbound calls but are driven by a deliberate risk management process where they identify assets whose risk profile they no longer like. They then typically run a competitive process to sell those assets rather than responding to unsolicited offers.

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CEO Peter Mavoides explained that sourcing new relationships is a core part of the business model, aiming for an 80/20 mix of recurring to new business to fuel growth. He confirmed that the company is constantly hiring, training, and investing in its infrastructure to manage a larger portfolio, a dynamic process reflected in the G&A guidance.

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CEO Joey Agree explained that the Q2 pipeline is effectively built and priced, and the company's hedged capital position provides consistency, insulating them from recent market volatility. He noted that the seller pool remains highly fragmented and disparate—ranging from institutions to family offices—making it difficult to identify a single trend in seller expectations, though he did mention seeing more institutions looking to dispose of assets.

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CEO Joey Agree explained that the Q2 pipeline is effectively built and that the company's hedged capital position allows them to be consistent with yield hurdles despite recent volatility in the 10-year Treasury. He noted that they haven't seen significant changes in seller pricing expectations, though some larger institutions are looking to sell assets. He emphasized that the seller pool remains highly fragmented, ranging from institutions to family offices, making it difficult to draw broad conclusions on pricing trends.

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CEO Joey Agree described the current desire for retailer expansion as the strongest since before the GFC, driven by the store's role as an omnichannel hub. He noted that while labor shortages have not been a major topic in discussions, the primary challenges for development remain liquidity constraints and high construction costs.

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CEO Joey Agree reported that retailer demand for new stores is the highest it's been since before the GFC, as the physical store is now viewed as the hub of omnichannel strategy. He noted that labor shortages have not been a major topic of discussion, with the primary development challenges being construction costs and financing constraints.

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CEO John Moragne said the disposition guidance includes remaining clinical healthcare assets, potential office pruning, and other opportunistic sales. The buyer pool varies from 1031 investors to large institutions depending on asset size. He confirmed BNL is open to providing CapEx for re-tenanting, evaluating each case on its economics. For rent coverage, he noted it has been consistent, with the restaurant portfolio stable at 3.3x, and the watch list has not materially changed.

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CEO John Moragne explained the disposition guidance includes remaining clinical assets, potential office pruning, and other opportunistic sales, with a buyer pool that varies from 1031 investors to institutions. He confirmed BNL is open to funding TIs and CapEx based on deal economics. For tenant health, he noted the restaurant rent coverage remains consistent at 3.3x and the overall watchlist has not materially changed.

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CEO Sumit Roy stated that the fund will leverage the company's existing scale and platform, requiring very little incremental personnel. He noted the 465-person team, including investment, asset management, and legal, is fully staffed to handle the additional business, with new costs limited to a fund manager and a specialized IR function. Regarding competition, he described the U.S. market as crowded, while Europe is less intense but seeing more competition from private capital.

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