Greetings, and welcome to the NNN REIT second quarter 2023 earnings conference call. At this time, all participants are on a listen-only mode, and a question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Steve Horn. Sir, you may begin.
Thanks, Ollie. Good morning. 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 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 a 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 15th, thus making 2023 our 34th consecutive year of annual dividend increases. NNN is in select company of under 75 U.S. public companies, including two 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-$3.22 per share. Our long-standing strategy is designed to deliver consistent per share growth on a multi-year 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 continued to perform exceptionally well, maintained high occupancy levels of 99.4 for four 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's effort, working the non-performing properties and creating value for NNN. In addition, nearly 90% of the leases that were up for renewal during the quarter exercised 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, 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-$700 million for the year. Almost all of our acquisitions this year are long-term lease deals, defined 15-20 years, and that is a result of the calling effort of NNN's acquisition team. NNN prides itself on maintaining the 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's lease form as a tool to mitigate risk within the portfolio, which is easier to obtain if you have the sale leaseback model, can sometimes be overlooked. With regards to the acquisition pricing environment, as I mentioned in the May call, we are seeing that cap rate increases starting to plateau and stabilize. That played out in the second quarter as expected, with a 20 basis point increase over Q1 versus the 40 basis point pickup in the quarter before. The first six 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 10-20 basis points.
During the quarter, we also sold seven properties, two 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 five vacant. Job one is to release vacancies, and year-to-date, NNN has had a 97% rent recapture with minimal TI dollars reinvested. We will continue to sell non-performing assets if we cannot see a clear path to generate rental income within a reasonable timeframe. The current banking conditions, along with the higher interest rates, are creating a softer 1031 market, but NNN is navigating the water 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 in position to finish 2023 strong, 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.
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 law. The company's actual future results may differ significantly from the matters discussed in these forward-looking statements, and 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. 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 a year ago, results of $0.79 per share.
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 2023 was $1.62 per share, and that's a 1.3% increase over prior year results. As we footnoted on page one 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 2022 and 2023, Core FFO per share would have increased 3.2% for the first half of 2023. Separately, I'll note too, that in the second quarter of 2023, results included $290,000 of lease termination income, that compared with $1.7 million in the first quarter. Overall, 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%, 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 in our dividend that gets paid in a couple of weeks on August 15th. 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-$3.22 per share. AFFO guidance was increased to a range of $3.20-$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, of value to our customer. We're doing more of that this year than typical. In a typical year, probably 20%-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. Overall, in terms of per share growth, you know, the more modest growth in 2023 reflects really a couple of things in my mind.
The high bar from last year's 2022's 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 2023 guidance and key supporting assumptions are on page 7 of today's press release, which really the only notable change being a $100 million increase in our 2023 acquisition volume guidance, which is now $600 million-$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. It's part of the plan to navigate this rockier interest rate and capital market environment.
Our weighted average debt maturity is over 12 years. 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. A couple numbers. Net debt to gross book assets was 40.8% as of June 30th. Net debt to EBITDA was 5.5x at June 30th. Interest coverage and fixed charge coverage was 4.6 x for the second quarter. All properties owned by NNN are unencumbered by mortgages. Yeah, 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, Ollie.
Thank you. At this time, we will be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Thank you. Our first question is coming from Brad Heffern with RBC. You may proceed.
Hey, good morning, guys. Kevin, a couple for you. 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. 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, that's backed out. Correct me if I'm wrong on that.
Yeah. You're talking about the Core FFO guidance or AFFO or both? Yeah.
The, just the AFFO.
AFFO. Yeah. Really, what's dragging 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 in calculating AFFO. 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. You know, our AFFO, $0.80. I mean, I think we were like $0.0007 from rounding to $0.81. So just on rounding, it went to $0.80. So we, 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.
Okay, got it. As you mentioned, the line of credit is obviously being used more. I think the cost on that, you know, 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, a term loan. What's your desire to continue to let that float versus terming it out?
Yeah, a fair question. Yeah, you're right. The bank line cost is right at about 6% now, which is, you know, not, I, I think we're comfortable getting, the bank line up to about 50% of our capacity. That's probably a line in that we prefer not to cross. I think in, in some, time period, yeah, we, we would obviously be thinking about looking to take that out with longer-term debt, which, as you know, is priced-... as well, if not a little better than, than, the bank line currently is. Yeah, we, we don't give guidance on our capital markets activities, but, but yes, share comment that, over time, we'll look to take that out with, longer term capital, whether it be debt and/or equity.
Okay, thank you.
Thank you. Our next question is coming from Joshua Dennerlein with Bank of America. You may proceed.
Hi, this is Farrell Granath on behalf of Josh Dennerlein. 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.
Yeah. Our typical bad debt assumption, we, we assume we're gonna lose 100 basis points of rent or 1% of our rent every year. That's, that's in, I would think, virtually every year for the last number of years. We don't have any expectation of it being elevated currently. What we're seeing in terms of our tenants' behavior and their, and their position, we don't think we needed to do anything besides what we normally do. We just, over the years, we've decided it was prudent to assume not everything will work out perfectly. 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. So far this year, I would say we're gonna be, yeah, still in that kind of normal zone, the way things look like they're shaping up.
Okay, thank you. Also, I wanted to touch on, tenant health or maybe tenant watch list. I think I saw on the news about Walgreens, some Walgreens stores closing, as well as, last quarter, we had touched on, Bed Bath & Beyond. I'm curious if you can give an update.
Yeah. Yeah, I, I, overall, I guess globally, I would just note that, you know, it, the, the, 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 three stores with them. It was 0.2% of our annual base rent. We will be getting or getting back those three stores, and so that, that is, those leases, leases are rejected. As it relates to... What was the other one you asked about? Sorry.
Walgreens.
Yeah, yeah, Walgreens, you know, 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, that list, so don't have any concerns at all on that front. Just a reminder, even to folks, investors, you know, even if a tenant closes a store, the rent's due on the first, it doesn't change their obligation to pay us rent for those properties. So, in this, in this particular case, Walgreens, we don't have any closed stores on their closure list.
Just to really follow up on, on the Walgreens. You know, that was a transaction we primarily did in the fourth quarter last year. There was a self-selection process that Walgreens went through to sign, you know, 15-year leases.
Great. Also, if you have a few comments on, Regal Cinemas.
Yeah. Regal actually just exited, I guess, bankruptcy yesterday, maybe, very recently. We only had one property with them. We're gonna come out fine there. We, we offered up a small rent reduction, but in exchange, got the ability to develop an out parcel on that property. I think when the dust settles down the road, we think we'll be pretty much even in terms of where we were. It was a very small exposure, under 0.1% of rent, and, and, A, and B, it was a very modest rent reduction offered up in exchange for this ability to develop an out parcel on the property, which is reasonably well located.
We, we, we kinda like our odds on all that, but yeah, won't have any impact on our bottom line of note.
Great. Thanks so much for the color.
Thank you. Our next question is coming from Eric Wolfe with Citi. You may proceed.
Hey, thanks. If I look at your cap rate, in the quarter, 7.2%, how wide was the, the cap rate range around that? Was there anything done, say, at north of an 8%, in the quarter?
Can you say that last part again? It kind of broke up on me.
Well, just how, like, if I think about the top end of where your, your buying is, was there anything done at north of an 8%? Like, you know, I'm just trying to understand how wide the cap rate range was with the quarter.
The bandwidth on our cap rates of that 7.2%, is, is fairly tight. You know, as I, kind of just looking at the overall list, it's probably, we, you know, we had a, a couple legacy deals that we, split funded deals that we priced, midway through last year, that kinda dragged their feet, were in the high 6s. The highest cap rate deal we did was kind of mid-7s. It's pretty tight bandwidth.
Got it. Yeah, I mean, the reason why I asked the question was, I was just curious if you're, you're seeing any pockets of the market that are seeing a little bit more stress, maybe a little bit less access to capital, you know, causing sort of acquisition yields to, to rise there in spite of a, a similar risk profile. Then you talked about the, I think you called it split-level acquisitions. I mean, I guess I'd be curious how you underwrite those relative to, you know, a more normal type of acquisition, where you're getting all the income, you know, immediately.
Yeah, as far as the underwriting, we've been doing split funded, for, you know, 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. You know, 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 interests are aligned to keep rent low. That's one part we like. Historically, we always had kind of a 50, 75 basis point spread over the market. In recent times, that spread compressed. We're still seeing, you know, kind of a 20, 30 basis point spread doing split funded.
Again, the rent's 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.
Yeah, just a side note on that, you know, these are relatively simple, small- smaller projects in the scheme of things. So these projects don't go on for years. These are measured in months, typically, so they get developed pretty quickly. So the pricing that we set on that, we're very comfortable kind of holding that during the construction period, if you will, yeah.
One of the mitigants we do in those leases, if they do drag on for some unknown reason, we have, as we say, we got to close the window and rent has to commence if the building is complete or not.
Yeah. Related to your question, because I'm gonna, I want to broaden back the lens a little bit, just, you know, because I think the thought was, is that, you know, the more stressed tenants get under, the higher the cap rate, and it might be an opportunity for higher cap rates to, for acquisitions. 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. Is that tends to only make the risk greater, meaning the cap rate's higher, which means the rent's higher, which means the tenant's less likely to succeed at that location. So we've not, over the years, found, you know, increasing the cap rate is a good way to address risk.
For us, what would be a better approach, and what we prefer and, and push to do, is to, is to reduce the proceeds, invested in a property and, and, and not increase the, cap rate materially. 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. So we just go at it a little differently. 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, that works in the short run, I'm sure, but we don't think that's a great long-term approach.
Got it. Makes sense. Thank you.
Thank you. Our next question is coming from Spenser Allaway with Green Street. You may proceed.
Yeah, thank you. Maybe just following up on the, those cap rate questions. Just curious, now that we've moved into to 3Q, has anything changed in terms of pricing, either by credit or retail industry, now that we're, we're somewhat through this quarter?
Kind of what I mentioned in the prepared remarks, you know, considering that 10 to 20 basis point pricing increase in the third quarter, I'm not expecting it any higher, just given the resistance. Primarily, you know, the deal flows for us is coming from the C-store category, auto service, primarily. Yeah, we're not seeing any significant increase, but just, you know, given the, the recent Fed rate hike, you know, we, we deal with sophisticated tenants, and they understand the cost of capital is increasing, so we're able to pass through some of that.
Yep. Okay, that makes sense. 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. Again, sorry if I missed it.
Yeah, no. The, the 5.1% was the overall weighted average of the seven assets or five assets, because two of them were vacant, so they were not counted in that. 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 an extremely low cap rate. There's a barbell approach in there, you know, it's the weighted average cap rate. You know, we did some defensive sales in there that were, you know, 7.5-8 cap, but then we had a couple in the 4s to bring that down to a 5.1%.
Okay. Okay, great. Thank you, guys.
Thanks.
Thank you. Our next question is coming from Linda Tsai with Jefferies. You may proceed.
Hi, good morning. you talked about headwinds in 2023 to earnings growth, you know, the nearly 10% growth last year, slowdown in scheduled rent repayments, and capitalized interest being backed out of AFFO. You know, how are you thinking about 2024? you know, the 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?
Yeah, we haven't, you know, put out any guidance on 2024 yet, but it feels like, at this point, and I know it's, it's really early, and the world's changing fast, it feels like. You know, we'll get back to what we think of as a more normal cadence. Still some headwinds out there in the capital markets would be my presumption for 2024, and I think cap rates will need to adjust some more, in my opinion. Yeah, we, we should have worked our way through a lot of the one-time items, both good and bad, in 2024. You know, 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, that two-year period, you know, 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 2023. If you look at the average of the two years, it's kind of at what we think of as kind of our sweet spot of a goal of long-term per share growth rate. 2024, at the moment, feels like, you know, the deferrals will be pretty much all behind us. The capitalized interest may continue because we're still doing more split funded deals than historically.
Like I said, normal, a normal year for us is 20%-25% of our investments is in this split funded approach. This year just happens to be closer to 35%, probably. I think that'll probably normalize with time, but, you know, we'll see. We don't have any visibility on that, so it's really hard for me to, you know, be very definitive with my thoughts on that.
Thanks. Then in terms of the balance of the year for acquisition volumes, do you expect volumes to be evenly distributed between 3Q and 4Q?
You know, we're a very lumpy business. You know, as I sit here today, yeah, I would guess, you know, a little more even than historically, just given the visibility I have on the third Q.
Thanks.
Thank you. Once again, if you have any remaining questions or comments, please press star one on your phone at this time. Our next question is coming from Alec Feygin with Baird. You may proceed.
Hi, thanks for taking my question. The first one is, are you seeing any acceleration in either new retailer or developer relationships now that the lending conditions are more difficult?
We're always in the market talking to developers, but our split funded program is usually with a tenant. What we find is we, we can talk about a lot of the capitalized interest, and, you know, we're a little bit above our historical averages. That's a result of there's not as much M&A in the market, and our retailers still wanna grow organically, so they're finding good opportunities, redeveloping existing sites. That's why we've kind of leaned into it a little bit more than historically. 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.
There's a lot of, you know, unknown risks that are very difficult to underwrite within that lease. We'd like to go back to our tenant relationships, and find a lot of good opportunities there.
Thank you for that. Outside of the capitalized interest being a drag on the AFFO, is there any other one-time items in the quarter we should be aware of or going forward?
No, nothing beyond that. I mean, I mentioned the lease termination income, you know, amounts, which can be lumpy, and it was elevated in the first quarter and was not in the second. You know, that was but that's a, you know, kind of an ongoing thing. Then the, like I said, the deferred rent repayments, which are, are detailed, and page 13 of the press release, give you kind of all the, the numbers, fit to print on that, that topic. So those are really the elements, but I think the, the broad answer to your question is no, there are- we don't see any one time pluses or minuses going forward.
Thank you for, for that. Have a good rest of your day.
Thank you. We do have a question from Ronald Kamdem with Morgan Stanley. You may proceed.
Hey, sorry, I jumped on a little late. Can you, just taking a big step back, 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? Any, you know, any sort of particular, whether it's Bed Bath or any other sort of exposures you haven't touched already, would be great.
Yeah. Yeah, I think, as you know, our assumption at the beginning of the year, in terms of guidance, is we, 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 realized that level. Normally, it's probably half a percent, 50 basis points, or less. I would say this year is trending to be normal, meaning, probably over the scope of the year, you know, it'll be closer to that 50 basis points. Nothing unusual in that regard.
I would say nothing changed of, in terms of the quantity and the quality of the credit watch list, if you will. Doesn't feel like there's any big changes brewing there. We've alluded to already, you know, two tenants that were bankrupt have exited bankruptcy or, or not exited, but that bankruptcy is closed. Bed Bath & Beyond is, is gone, so we had three stores there, and that was 0.2% of our rent. Those are new vacancies, if you will, that we'll re-lease. I think I've mentioned in prior calls, the rent on those properties were $12-$13 a square foot, so that's something, you know, that we think won't create a big challenge to replace. We had one Regal Cinema property.
Regal did exit bankruptcy, I believe yesterday. You know, that, that won't create any notable impact on our, on our revenue or bottom line. You know, the list, you know, still has AMC on it, it's question mark. You know, it still has, you know, some Frisch's restaurants on there, question mark, Rite Aid Drug and then... Those, those have not changed, in my opinion, notably in recent quarters. You know, we'll just keep watching those and deal with them if, if whatever comes up. It's interesting, as we look back over the years, for tenants that file bankruptcy, on average, they end up assuming 85% of our leases. 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. Even then, if we get the property back and we re-lease it, we're able to recoup, you know, the vast majority of that rent with the next tenant. Again, we try to do that with little to, little to no incremental TI dollars or CapEx. All in all, we think we're still in pretty good shape on the, on the credit watch, rent loss kind of arena.
Great. Just last one, just get a pulse on the acquisition market, which is obviously, you know, $324 million in the quarter and so forth. Just compared to three to six months ago, right, is the pipeline building, unchanged? You know, are, is there more distress, right? Is there more sort of sale leaseback activities for, for people needing capital? Then obviously, some cap rate commentary would be helpful, but just trying to get a sense of how things are evolving today versus, you know, if we were doing this call three to six months ago. Thanks.
Yeah, based on, you know, us bumping guidance on acquisition volume, yeah, our, our pipeline's a little stronger today than it was three to six months ago. The sale leaseback market is still fairly robust. You know, we're not seeing the distressed sale leasebacks just because, you know, we, we don't wanna do business with the companies being distressed and has to do it. As far as the cap rates, you know, we picked up 20 basis points, 2nd quarter over the 1st quarter, and we're kind of in the range of 10-20 basis points in the 3rd quarter over the 2nd quarter. Definitely starting to stabilize, not accelerating at the rate they were in the 2nd half of last year. No, we, we feel good about our pipeline. We're, we're getting our fair share of deals.
NNN is in good shape as far as hitting its results on the acquisitions going forward.
Great. Thanks so much.
Thanks, Ron.
Thank you. We have no further questions in queue at this time. I will hand it back to Mr. Horn for any closing comments.
No, as I stated, you know, NNN, we're in good shape to deliver, the remainder of 2023 and position ourselves well in 2024. Thanks for joining us this morning, as summer winds down, we look forward to seeing many of you, in person at the fall conference season. Enjoy the day.
Thank you. This concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.