Good morning, everybody, and welcome to National Retail Properties 2022 Year-End Earnings Call. At this time, all participants are in a listen-only mode. A question answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your phone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Mr. Steve Horn, President and CEO of National Retail Properties. Sir, over to you.
Thank you, Jenny. Good morning, welcome to National Retail Properties Fourth Quarter 2022 Earnings Call. Joining me on the call is Chief Financial Officer Kevin Habicht. As this morning's press release reflects, NNN's performance in 2022 produced 9.8% FFO growth, along with an all-time high in acquisitions of nearly $850 million. The year concluded with high occupancy of 99.4% and an impressive rent collection of 99.7%, all driven by our best-in-class team here at NNN. The end of the year surge positions the company well headed into the uncertainty of 2023. A few highlights of 2022 that I'm proud of what NNN accomplished. One, three third consecutive annual dividend increase. Released its inaugural corporate responsibilities and sustainability report. Position the board of directors for the foreseeable future.
One of only 13 REITs included in the 2023 Bloomberg Gender Equality Index. While there was a change at the helm in 2022, the building blocks to realize long-term value at below average risk for our shareholders remain in the most simplistic form. Continue to execute our strategy using a bottom-up approach. Continue to increase our annual dividend, maintaining top-tier payout ratio. Focus on growing FFO per share in the mid-single digits over multiple years. We do this by setting our acquisition disposition activity and our balance sheet management to achieve that objective. As I stated earlier, NNN is in solid footing as we're a month into 2023. First, at year-end, NNN had $166 million drawn on our $1.1 billion line of credit after facing change the year at all-time high acquisitions.
We have the option, keeping leverage neutral, to use a reasonable amount of availability of the credit facility, the roughly $180 million of free cash flow, plus $110 million of dispositions to execute our 2023 strategy. Using those three sources, as I mentioned, leaves NNN with a manageable equity requirements for the year. Secondly, NNN's long-standing strategy of being selective while deploying capital and opportunistically raising capital over the years will not change for 2023. The sizable fourth quarter, which I'll cover shortly, allows NNN to continue being opportunistic with acquisitions as the price discovery continues. The cap rates have been out that slowly increasing, evidenced by our fourth quarter initial cap rate 30 to 40 basis points higher than our third quarter, and we're still seeing further expansion in the first quarter of 2023.
Shifting to the highlights of the fourth quarter financial results, our portfolio of 3,411 freestanding single-tenant properties continued to perform exceedingly well, and we expect that trend to continue. Maintained high occupancy levels of 99.4 for two consecutive quarters, which remains above our long-term average of 98% ± a fraction. We also collected 99.6 rents for the fourth quarter. The recent headlines of certain retailers, Bed Bath, Party City, Regal, Red Lobster, et cetera, that are assumed or have filed bankruptcy in the near term have minimal effect on NNN. NNN's exposure is limited, if not zero in some cases. Turning to acquisitions.
During the quarter, we invested just north of $260 million in 69 new properties at an initial cash cap rate of 6.6 and with an average lease duration of 16 years. A term you typically don't associate with NNN is deviate. Well, we deviated from our historical trend this past quarter. Typically, we source the majority of our deals from our relationships and don't target investment grade deals. During the quarter, NNN was in position to be opportunistic. As you noticed in the press release, our exposure to drugstores increased from 1.3% to 2.6% year-over-year. Over the years, NNN passed on drugstore portfolios because we viewed the opportunities as not the best risk-adjusted return to deploy capital at that given time. Market pricing real estate metrics lease form.
This particular portfolio was in line with our underwriting standards, the real estate and the lease form. More importantly, the transaction is an excellent real estate play, well-performing assets, excellent locations for the long run. Currently, we are well into the price discovery period of the bid-ask spread has continued to adjust, and we continue to maintain our thoughtful and disciplined underwriting approach. NNN continues to emphasize acquisition buying through sale leaseback transaction. Our 2022 average lease duration was slightly over 16 years with our stable relationship tenants, with our long duration net lease and more landlord-friendly than a 1031 market. During the quarter, we sold five properties at 5.9 cap plus two vacant assets, raising $16 million of proceeds.
For the year, we raised $65 million of proceeds from the sale of 17 properties at a 5.9 cap plus 16 vacant assets. Although job one is always to re-lease vacancies. We will continue to sell non-performing assets if we do not see a clear path to generating rental income within a reasonable time frame. With that, let me turn the call over to Kevin for more color and detail on our quarterly numbers and updated guidance.
Thanks, Steve. As usual, I'll start with the cautionary statement that we will make certain statements that may be considered to be forward-looking statements under federal security laws. The company's actual future results may differ significantly from the matters discussed in these forward-looking statements. We may not 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. With that out of the way, yeah, headlines from this morning's press release report quarterly core FFO results of $0.80 per share for the fourth quarter of 2022. That's up $0.05 or 6.7% over year-ago results of $0.75 per share.
Full year of 2022 core FFO results were $3.14 per share, which is a strong 9.8% increase over year-ago results. Today, we also reported that AFFO per share was $0.81 per share for the fourth quarter, and that's up $0.04 per share or 5.2% over 4Q 2021 results. As usual, we did footnote fourth quarter AFFO included $681,000 of deferred rent repayment in our accrued rental income adjustment for the fourth quarter, without which would have produced AFFO of $0.80 per share for the quarter.
Likewise, the full year of 2022 AFFO included $5.4 million of deferred rent repayments in our accrued rental income adjustment, without which would have produced AFFO of $3.18 per share for the full year. That represents an 8.9% increase over the similarly adjusted $2.92 cents per share results in 2021. These scheduled deferred rent repayments, and they continue to taper off materially in 2023, as you can see in the details that we provided on page 13 of the press release. The headline growth of 9.8% core FFO per share in 2022 is a very good result for us, and notably above our historic mid-single-digit growth rate.
Admittedly, we did have some tailwinds in 2022, which added something probably in the $0.09-$0.10 per share range for the annual results. These tailwinds, which we've talked about in prior calls, included some of the refinancing we did in 2021, most notably, you know, redeeming our 5.2% preferred, which probably added $0.03 a share. We also, there was a $3.3 million increase in our cash basis deferred rent repayment in 2022. We did resume full rent from Chuck E. Cheese in 2022. That added about $3.3 million of rent at the beginning of the year. We did have 1 less executive position, which generated some G&A savings in 2022.
Of course, layered on top of all that, we entered 2022 with $171 million of cash on the balance sheet, which created some notable accretion once that got invested. A good year. Let me move on. Our AFFO dividend payout ratio for the full year 2022 was approximately 67%, that created about $188 million of free cash flow after the payment of all expenses and dividends for the full year. As we think about it, this free cash flow funded over 40% of the equity needed to fund our 2022 acquisitions. Occupancy was 99.4% at quarter end. That's flat with the prior quarter and up 40 basis points for the year.
G&A expense came in at $10.8 million for the quarter. That's up from $9.9 million year-ago levels. More importantly, probably for the full year, G&A expense was $41.7 million. That's down 6.6% from 2021. It represented approximately 5.4% of total revenues, side note, 5.6% of NOI. We ended the quarter and in the year with $772 million of annual base rent in place for all leases as of December 21, 2022.
Today, we also introduced, 2023 guidance with a core FFO per share guidance range of $3.14 to $3.20 per share, and an AFFO guidance range of $3.19 to $3.25 per share. Core FFO guidance suggests about 1% growth to the midpoint in 2023. The more modest growth in 2023 guidance reflects the high bar of last year's 9.8% growth that was created, and the lack of tailwinds that were helpful in 2022 that I just outlined, and one particular headwind in 2023 I'll mention in a moment. You know, all this is coupled with the slow repricing of cap rates on new acquisitions that we're all dealing with, but it's coming along.
Price discovery, like I said, continues to move along. Supporting assumptions for our 2023 guidance are on page seven of today's press release and include $500 million-$600 million of acquisitions, I'm sorry, $100 million-$120 million of dispositions, and G&A expense of $43 million-$45 million. We modeled acquisitions at running at 30% in the first half of 2023 and 70% in the second half of 2023. A little more back-end weighted than our more typical, kind of 40-60 assumption. As we typically do, we have assumed 100 basis points of rent loss in our guidance, and that's a general assumption, despite the fact that we usually experience less than half of that amount of rent loss.
The one I'm sorry, headwind of note in 2023 is the scheduled $5.8 million slowdown in the cash basis deferred rent repayment. Again, that's detailed on page 13 of the press release. Tenants continue to repay these rent deferrals on time, but what is owed is slowing notably. As usual, we don't give guidance on any of our capital markets assumptions regarding our capital markets activity, except for the general assumption, is that we intend to behave in a fairly leverage neutral manner over the long run. We're hopeful we can move our guidance higher through 2023 as we've done in most years, but for now this is where we feel comfortable. A quick side note on our AFFO guidance.
Page 13 details of the slowdown we faced on the accrual basis deferred rent repayment, which has weighed on our headline AFFO growth in recent quarters. With these repayments largely completed, our 2023 AFFO per share guidance is back to its usual relationship with our core FFO, meaning the annual AFFO is normally a few pennies more than core FFO, and that's reflected in our guidance today. Let me switch over to the balance sheet. We maintain a good leverage and liquidity profile with over $900 million of bank line availability. Fourth quarter was fairly quiet in terms of capital market activity. We did issue $121 million of equity in the fourth quarter, executing trades in the $45+ per share level.
If you think about our funding of last year's $848 million of acquisitions, equity issuance funded $250 million of that, operating cash flow after dividends funded $188 million, and property dispositions funded $65 million. The sum of those three being $504 million, that's about 60% of our total acquisitions funded with those equity sources. After a few years of nearly no usage, we did begin to use our bank line a bit in 2022, largely because we can. Our weighted average debt maturity is now a little over 13 years, which seems to be among the longest in the industry.
Our next debt maturity is $350 million with a 3.9% coupon in mid-2024, and all of our debt outstanding is fixed rate, with the exception of the $166 million on our bank line, which represents about 4% of our total debt outstanding. A couple stats. Sorry, net debt to gross book assets was 40.4%. Net debt to EBITDA was 5.4 times. Interest coverage and fixed charge coverage for us is 4.7 times. We're in very good shape to navigate the elevated capital market uncertainties and continue to grow per share results, which in our minds is the primary measure of success.
The sector's acquisition volume growth focus over the past two years has downshifted in recent months as the marketplace seeks to adjust to the new environment and appears to be getting a little more disciplined on price, which we think is a better environment. I've gone on long enough. Let, Jenny, with that, we will open it up to any question.
No problem at all. At this time, we are conducting a question and answer session. If you would like to ask a question, please press star one on your phone keypad. A confirmation tone will indicate your line is in the question queue, and you may press star two if you wish to remove your question from the queue. For anyone using speaker equipment, it may be necessary to pick up your handset before pressing the keys. One moment whilst we poll for questions. Thank you. Your first question is coming from Brad Heffern of RBC Capital Markets. Brad, your line is live.
Yeah. Thank you. Morning, everyone. You spoke a bit about the drugstore deal. I'm curious if you're seeing a narrower spread between investment grade and sub-investment grade deals that might push you up the credit quality spectrum, or if that deal was just a one-off.
Yeah, our strategy isn't gonna change in 2023. It was a one-off deal. We were in great position, balance sheet, and a lot of our competitors already had significant exposure to the drugstore sector, where NNN, since we kinda laid low for, you know, a decade essentially, of the drugstore. This deal really because it was above average lease term that the company was willing to do is that's why we jumped in, and the economics were good. Yeah, we don't get into specific economics on deals, the drugstore deal was above our average, or average 6.6 cap rate for the quarter.
Okay. Got it. Thanks for that. Kevin, on the watch list, you mentioned a few tenants where you have small or no exposure, but I'm interested to get your thoughts on AMC, given the debt's obviously yielding 30% or so.
Yeah, I mean, that's been perpetually on our list for the last couple of years as Well, a lot of folks, I guess, at this point. Yeah, still current on rent. You know, they liquidity to pay rent, feels like they have a little bit more runway left. We'll see if they have the ability to continue to raise some more capital here in the coming quarters. Don't have a lot of news to share on that front. They represent 2.8% of our total rent at ABR.
Okay. Thank you.
Thank you very much. Your next question is coming from Spenser Allaway of Green Street. Spencer, your line is live.
Thank you. Just going back to the acquisition guidance. I know you guys mentioned you're waiting to see how that bid-ask spread continues to adjust, but just curious how much of that conservatism on guidance is reflective of your current tenant base not wanting to grow right now versus maybe conservatism on new prospective tenants?
Yeah, you know, Spencer, yes, we're always conservative in, you know, what we see in the pipeline. You know, that being said, our pipeline is fairly robust as we sit here, you know, early February for 2023. Comfortable with our first quarter numbers, if everybody behaves appropriately and deals close. Our development pipeline for 2023, to answer your question, it feels like, you know, our current relationships are growing, but our development pipeline is as robust as it's been in five years, so very comfortable with that.
Where we're seeing the slowdown, there hasn't been as much M&A with our relationships of picking up three to five unit operators across the board. No, we feel comfortable that they're still growing and our acquisition guidance, as you always know, we pick it up through the year as time goes. We don't wanna get above our skis at this time.
Okay, great. Then can you provide some color on cap rate assumptions embedded in your guidance?
Yeah. We don't disclose, you know, cap rates in our guidance. Given that we picked up 30, 40 basis points in the fourth quarter, I'm seeing expansion as we sit here today for the first quarter and projecting that for the first half of the year. The second half of the year, your guess is as good as mine at this point.
Okay. That's really helpful. Thank you.
Thank you very much. Your next question is coming from Joshua Dennerlein of Bank of America. Josh, your line is live.
Hey, hey, guys. I just wanted to follow up on the drugstore deal. Just curious. I think in the past you might have strayed away from drugstores just 'cause they didn't really have much rent bumps built in. Just curious if this kind of was different where there were rent bumps, was it a marketed or sale leaseback deal?
Hey, Josh. Yeah, the drugstore deal, as I mentioned, was north of our average cap rate deal for the fourth quarter. It was a real estate play. It was a sale leaseback, therefore, it wasn't the developer rent per square foot numbers. It was very comfortable that the tenants set the rents. They're very, you know, market rent deals. More importantly, 85% of the properties were on hard corners. I think 90% had drive-throughs, it was really a real estate play. You know, 1.6 acres was the average. Yeah, we got the above average lease term that you see in the market for the drugstore deals, and more of a landlord-friendly lease than you typically would see. That's why we jumped on this one.
Okay. Appreciate that. Then, just looking at your, top 20 lines of trade, just kinda saw some themes. It looks like other increased year-over-year. Could you remind us what's in that other category?
Sorry, I'm catching up to you. In other income, what are you looking at?
No. On page 15 of the sup, your top 20 lines of trade. Looks like you list other at 8.1% of the portfolio. Looks like it was up over the course of the year. Just kinda curious what's kinda in that other bucket, and if there's any kind of themes of what you're increasing in there.
Yeah, I mean, nothing notable. I mean, I can circle back to you and maybe give you a little more color on that.
Okay. Fair enough. I'll circle up with you, Kevin. Thank you.
Thank you very much. Your next question is coming from Ronald Kamdem of Morgan Stanley. Ronald, your line is live.
Hey, just going back to the 100 basis points assumptions on the bad debt. Obviously appreciate that historically you've come in way below that. Just trying to get a sense of is this year is your expectation that just based on the watch list, based on what you're hearing, could we be closer to that 100 basis points this year versus last year? Just trying to figure out how conservative that assumption is based on what you're already seeing in the portfolio. Thanks.
We don't have any visibility on any, you know, near term concerns. The 100 basis points still feels fine. You know, share your sentiment that this seems like a year where retailers may struggle a little bit more, and so it might get more utilized. That reserve might get more utilized than it has in the past. You know, time will tell. We like the fact that we're contemplating more than what typically occurs. Like I said, this feels like an environment that might be prudent, but there's nothing on the near-term radar that's got us worried about that not being sufficient at the moment, but we'll see how the year unfolds.
Right. Then just looking at the cash flow statement in the K. You know, I think it looks like at least in 2022, there was close to $200 million of excess cash after the dividend, basically. I think you mentioned a similar number earlier in your opening comments. Is that sort of a fair, sort of range for 2023 as well, given the FFO guide? Just make sure we're not missing anything.
Yeah. Good question. Yeah, and the way we think about it is, it was about $188 million, which is close to the number you're talking about. It'd probably be a touch lower in 2023 as the rent deferral repayments slow down. That will take a little bit out of that number. The number in our mind is, and we would suggest others, you know, think about, is about $180 million of free cash flow after all expenses, all dividends being available to fund acquisitions.
Got it. My last one, if I could sneak it in. Just on cap rates, I guess I'm surprised they're not rising faster, sooner, more quickly. You know, you guys are well capitalized, can be opportunistic. You know, you had a little bit of a bump in Q4, again, maybe asking the question before is, you know, why shouldn't we expect cap rate to be up 25, 50 basis points higher, in a hurry here?
The deals that we started pricing near the end of the fourth quarter that are gonna close in the first quarter is where we're seeing that, you know, 30 to 40 basis points again. We're starting to see, you know, the deals that we're pricing today, which most likely would close in the second quarter. We're seeing the market accept the higher cap rate. Now, when I say the market, that's the sale leaseback market, where they seem to be a little bit more sophisticated, and they have access, or they know a debt cost, I should say, which they may or may not be able to get, but they're also seeing the pricing significantly higher.
Now the 1031 market is still fairly robust, that we're not seeing the increase in that market unless you're, you know, willing to do five, six years or 10-year leases, then you can get the bump. Yeah, 1031 market's still holding a little sticky. For the sale leaseback market, they're understanding our cost of debt's increased and they're accepting the cap rate increase.
Great. Thank you.
Thank you very much. Your next question is coming from Nick Joseph of Citi. Nick, your line is live.
Thanks. Maybe just on that last comment, but, you know, what result kind of thaws the 1031 market there and maybe compresses some of that bid-ask spread that we're currently seeing?
Can you say that first part again, Nick? You kind of broke up on me.
Yeah, no, it's really kind of the bid-ask spread, particularly on the 1031 market. you know, how do you see that playing out? What could actually make that start to close and see some more deals come through, you know, that channel versus the sale leaseback?
You know, Nick, I mean, we're always looking through the 1031 market, it's such a small portion of our deal flow comes from the 1031 market, that I'm not really dialed in of what it's gonna take to close that gap. If I had to speculate, you know, the assets that are $15 million-$25 million in the 1031 market, you're gonna see the bid-ask spread close on those because you might require debt to buy them, where the $2 million-$5 million, there's so much cash out there still that don't require financing. I don't see those cap rates moving all that much because people are willing to take the 4.5%, 5% returns.
Yeah. No, that makes sense. Then just on your disposition guidance here at $100 million-$120 million this year, you know, how are you thinking about pricing for those, you know, particularly maybe relative to where you're thinking acquisition cap rates trend going forward?
When we look at dispositions, you know, it's kind of you got the offensive dispositions that, you know, somebody offers us a cap rate that they just love the real estate a lot more. They will trade significantly below what we're deploying capital at. Then you have some defensive sales because of our relationships that we'll sell because we know they're not gonna renew in five , seven years from now. We'll sell those. Those cap rates typically will be where we're deploying money at the time into new 15, 20-year leases. No, the comp overall, just like this past year, we are kind of 5.9% exit cap, and we are at, you know, 6.4% acquisition cap.
I would see the same spread going forward or expect the same spread.
Thanks. That's helpful.
Thank you very much. The next question is coming from Linda Tsai of Jefferies. Linda, your line is live.
Yes. Hi. In terms of credit loss staying relatively contained, what are you assuming for occupancy at year-end?
We're assuming fairly flat occupancy. I mean, you know, if the 1% gets fully utilized, I guess you would suggest maybe there's a 100 basis point loss there potentially. Assuming that doesn't happen, you know, we're assuming, like I say, fairly flat occupancy.
Thanks. Then beyond the drugstores, can you talk about some of the other tenants you invested in during the quarter?
During the quarter. Yeah, it's kinda representative of what we did all year. Auto service sector for the year was kind of roughly 35% of our deployment of capital. Within the auto service, it was, you know, the car wash is a big year. Then we did some, you know, child daycare services as well.
How does the pipeline compare to what you invested in 2022 in terms of makeup?
The makeup, again, with the vast majority of our deals coming from our relationships, I think it's fair to say, we tend to represent what our current portfolio looks like going forward. That being said, our acquisition officers, that team is continuously looking for the next opportunity. We'll throw in one or two lines of trade in there historically that we haven't done, but the vast majority, Linda, will look like our current portfolio mix up.
Thank you.
Thank you. The next question is coming from John Massocca of Ladenburg. John, your line is live.
Maybe going back to the acquisition guidance. What's driving the 30/70 split you're seeing in 1H versus 2H? Just trying to understand the kind of broad positivity on the pipeline, a call for kinda less acquisitions in quarters where you theoretically should have more visibility into transaction flow.
Yeah. The 30/70 split is the approach that we're taking this year. You know, we had a robust fourth quarter, and we made the conscious decision to let the price discovery close the gap. We're planning to do a little bit less the first half of the year as opposed to that 40% we typically would guide to. Just being, you know, a little bit more selective. No need to put the pedal down and go.
Yeah, I mean, as, you know, others, and I think the market is, you know, trying to get real estate cap rate world caught up with capital market interest rate world. That process has been going on for, you know, a few quarters now, and it's probably got a little ways to go. It doesn't seem a real compelling need to wanna push the volume pedal very hard.
Okay. On the disposition side of things, how should we think about the timing split on those? I also remember from the prior earnings call, you mentioned there was a notable transaction that might slip to this year. Is there a potential for dispositions to maybe be front-end loaded in 2023?
No. I mean, for modeling purposes, John, I would just, you know, the $110 midpoint, just spread that over evenly throughout the year.
Okay. Then, one quick one on the balance sheet. How should we think about how you're feeling about longer term debt, just given where, you know, the interest rate curve is today and kind of the attractiveness of stuff in more of a 10-year range versus, you know, shorter term debt and availability in the markets?
Yeah. We don't have any real plans to be issuing long-term debt near term, in no small part because, as I noted, we really have not used our bank line. We have the luxury of being able to lean on that in this environment where the rate market is a little rockier. We'll see how that plays out as the year progresses. We don't have any need. We did, like I said, chopped a lot of wood in 2021 on long-term debt. We've pushed our debt maturities, weighted average debt maturity north of 13 years, which like I said, is among the longest out there.
We have the flexibility to not need to issue long-term debt at this point, and see where things might normalize a bit and if possibly even, you know, maybe a year from now where rates might start to tail off a little bit. We'll see, but no near-term plans to need to make that decision. You know, the 10-year part of the curve probably makes a lot of sense today for folks, I'm guessing, where rates have kind of backed up here recently in recent weeks. You know, we're unlikely issuers, in the near term of long-term debt.
Okay. That's it for me. Thank you very much.
Thanks.
Thanks, John.
Thank you. Your next question is coming from Wes Golladay of Baird. Wes, your line is live.
Hi, everyone. I just wanna go to the comments about the development pipeline being the most robust in five years. It looks like you have about $22 million under construction. I'm curious to know what is the commitment for these projects and how big could this pipeline get?
Well, historically, pre-COVID, we've had about a $100 million run rate of a pipeline. You know, that'd be a good ballpark figure to think about. You know, we don't do long-term commitments. It's more once they're ready to buy the land, you know, we'll purchase the land. You know, it's kind of a three-month window.
Okay. Going back to your comments about the tenants you named. We did see that you lost just one Regal, and then you mentioned, I think Bed Bath & Red Lobster. At one point, you did have just a few Bed Bath & Beyonds. Were any of these part of your, I guess, defensive dispositions over the last few years, or do you still have them?
No, we still have. It's three Bed Baths, and we still have them because they're fabulous real estate. They were not on the initial list of Bed Bath closures. You know, they may be in the future, but they're good real estate, so we'll be able to replace that rent. We're very comfortable with that. You're right. The one Regal we had in Chicago land, yep, we're getting good interest with that asset as well.
Got it. Got one. Just for Kevin, since you nailed the bottom on rates by issuing a lot of long-term debt, now that you're having a big, I guess, willingness to have more floating rate debt, I guess your call for rates to go lower.
Yeah. I wouldn't probably underline Kevin's call for rates to go lower. 'Cause boy, that's kind of edgy for me. Yeah, no, like I say, we have the luxury of being able to pivot to shorter term variable rate debt until the market sorts themselves out and reprice a bit. That's the way we're gonna zig in this environment. You know, we'll see if rates go lower. They don't have to for our model to work just fine, to be quite honest. We don't feel any real pressure to be issuing bonds in this market. We have the luxury of not needing to, so.
Okay. Got it. Thanks, everyone.
Thanks. Thanks, Wes.
Thank you very much. Your next question is coming from Tayo Okusanya from Credit Suisse. Tayo, your line is live.
Yes. Good morning. Just kinda given some of the conversations around kind of retailer credit and, you know, credit losses and things of that nature, are you guys doing anything different from an underwriting perspective or even just from a credit monitoring perspective to kind of ensure that, if, you know, if this worst case scenario happens, you guys at least kind of make it out okay? Anything changing?
No. I mean, the beautiful thing about NNN's business model is we're real estate first. While we understand credit's important, who our tenant is, at the end of the day, if you're near market rent, your downside, if you buy highly desirable real estate at market rent, you can replace that cash flow. In essence, that's our underwriting. Then you do the relationships. This is kinda where the, our business model, it gets a little difficult to understand. There's a self-selection process when we do a sale-leaseback. A tenant doesn't wanna sign a 15, 20-year lease with high rent. They want low rent to ensure they can pay that rent for 15, 20 years. There's a self-selection process. We're very comfortable with our underwriting.
As you saw kind of during the Great Financial Crisis or during the pandemic, you know, we've maintained the rent paying ability of the tenants. Yeah, we're not, we're not shifting yet.
Gotcha. Then just a quick follow-up on that. I know most of you guys, you know, all track your rent coverage ratios and things of that nature, even if it's not published. Can you just kinda talk about trend-wise, what's happening there with rent coverage ratios, especially along the different trade lines? Any, you know, is there any kind of real pressure on coverage in one particular trade line versus another?
There's nothing notable changing there yet. Recognizing that we get the data on a lag, meaning we don't get real time data, and so some of it comes quarterly, some of it actually comes annually, so there's always that lag factor. So far we've not seen any stress levels that are keeping us up at night in any particular line.
Thank you.
Thank you very much. Just as a reminder, if anyone does still have any questions, please press star one on your phone keypad. Okay. We appear to have no more questions in the queue. That's the end of our question and answer session. I'll now hand back over to Steve for any closing remarks.
Thank you, Jenny. I appreciate everybody joining the call this morning. We look forward to seeing many of you in person in the upcoming conference season. We'll catch up then. Thank you.
Thank you, everybody. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.