NNN REIT, INC. [NNN] Filings

10-Q 1 nnn-20240930.htm 10-Q 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from to

Commission file number 001-11290

NNN REIT, INC.

(Exact name of registrant as specified in its charter)

    Maryland

    56-1431377

    (State or other jurisdiction of
incorporation or organization)

    (I.R.S. Employer Identification No.)

450 South Orange Avenue, Suite 900

Orlando, Florida 32801

(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code: (407) 265-7348

Securities registered pursuant to Section 12(b) of the Act:


Title of each class:	Trading Symbol(s):	Name of exchange on which registered:
Common Stock, $0.01 par value	NNN	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐	Smaller reporting company	☐	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 28, 2024, the registrant had 187,526,191 shares of common stock, $0.01 par value, outstanding.

TABLE OF CONTENTS


		PAGE
Part I – Financial Information
Item 1.	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Income and Comprehensive Income	2
	Condensed Consolidated Statements of Equity	3
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	34
Part II – Other Information
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	35
Item 4.	Mine Safety Disclosures	35
Item 5.	Other Information	35
Item 6.	Exhibits	35
Signatures		36

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NNN REIT, INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)


	September 30, 2024			December 31, 2023
	(unaudited)
ASSETS
Real estate portfolio, net of accumulated depreciation and amortization	$	8,625,489		$	8,535,851
Cash and cash equivalents		173,526			1,189
Restricted cash and cash held in escrow		4,986			3,966
Receivables, net of allowance of $592 and $669, respectively		2,224			3,649
Accrued rental income, net of allowance of $4,117 and $4,168, respectively		33,849			34,611
Debt costs, net of accumulated amortization of $26,280 and $23,952, respectively		9,656			3,243
Other assets		73,913			79,459
Total assets	$	8,923,643		$	8,661,968
LIABILITIES AND EQUITY
Liabilities:
Line of credit payable	$	—		$	132,000
Notes payable, net of unamortized discount and unamortized debt costs		4,372,293			4,228,544
Accrued interest payable		75,399			34,374
Other liabilities		107,025			109,593
Total liabilities		4,554,717			4,504,511

Equity:
Stockholders' equity:
Common stock, $0.01 par value. Authorized 375,000,000 shares; 187,525,891 and 182,474,770 shares issued and outstanding, respectively		1,877			1,826
Capital in excess of par value		5,194,330			4,971,625
Accumulated deficit		(818,862	)		(805,883	)
Accumulated other comprehensive income (loss)		(8,419	)		(10,111	)
Total equity		4,368,926			4,157,457
Total liabilities and equity	$	8,923,643		$	8,661,968

See accompanying notes to condensed consolidated financial statements.

NNN REIT, INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(dollars in thousands, except per share data)

(unaudited)


	Quarter Ended September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023
Revenues:
Rental income	$	218,155		$	204,856		$	649,120		$	610,912
Interest and other income from real estate transactions		409			276			1,664			968
		218,564			205,132			650,784			611,880
Operating expenses:
General and administrative		11,209			10,225			35,582			33,216
Real estate		7,263			6,459			21,175			20,141
Depreciation and amortization		63,369			59,523			186,487			178,546
Leasing transaction costs		22			96			75			223
Impairment losses – real estate, net of recoveries		760			1,001			2,908			3,675
Executive retirement costs		156			153			626			885
		82,779			77,457			246,853			236,686
Gain on disposition of real estate		7,765			19,992			30,207			40,222
Earnings from operations		143,550			147,667			434,138			415,416
Other expenses (revenues):
Interest and other income		(845	)		(644	)		(1,940	)		(751	)
Interest expense		46,491			41,524			137,137			120,509
		45,646			40,880			135,197			119,758
Net earnings	$	97,904		$	106,787		$	298,941		$	295,658
Net earnings per share:
Basic	$	0.53		$	0.59		$	1.63		$	1.63
Diluted	$	0.53		$	0.59		$	1.63		$	1.63
Weighted average shares outstanding:
Basic		184,007,176			181,398,273			182,757,097			181,120,963
Diluted		184,561,431			181,721,467			183,301,570			181,460,622
Other comprehensive income:
Net earnings	$	97,904		$	106,787		$	298,941		$	295,658
Amortization of interest rate hedges		450			620			1,692			1,843
Total comprehensive income	$	98,354		$	107,407		$	300,633		$	297,501

See accompanying notes to condensed consolidated financial statements.

NNN REIT, INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Quarter Ended September 30, 2024

(dollars in thousands, except per share data)

(unaudited)


	Common Stock		Capital in Excess of Par Value			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Equity
Balances at June 30, 2024	$	1,838	$	5,012,642		$	(810,689	)	$	(8,869	)	$	4,194,922
Net earnings		—		—			97,904			—			97,904
Dividends declared and paid:
$0.5800 per share of common stock		—		635			(106,077	)		—			(105,442	)
Issuance of common stock:
8,614 shares – director compensation		—		320			—			—			320
1,074 shares – stock purchase plan		—		49			—			—			49
3,848,657 shares – ATM equity program		39		181,095			—			—			181,134
Stock issuance costs		—		(2,909	)		—			—			(2,909	)
Amortization of deferred compensation		—		2,498			—			—			2,498
Amortization of interest rate hedges		—		—			—			450			450
Balances at September 30, 2024	$	1,877	$	5,194,330		$	(818,862	)	$	(8,419	)	$	4,368,926

See accompanying notes to condensed consolidated financial statements.

NNN REIT, INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY – CONTINUED

Quarter Ended September 30, 2023

(dollars in thousands, except per share data)

(unaudited)


	Common Stock		Capital in Excess of Par Value			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Equity
Balances at June 30, 2023	$	1,825	$	4,963,808		$	(804,040	)	$	(11,359	)	$	4,150,234
Net earnings		—		—			106,787			—			106,787
Dividends declared and paid:
$0.5650 per share of common stock		—		700			(102,647	)		—			(101,947	)
Issuance of common stock:
8,291 shares – director compensation		—		294			—			—			294
1,575 shares – stock purchase plan		—		62			—			—			62
9,800 restricted shares – net of forfeitures		—		—			—			—			—
Stock issuance costs		—		(375	)		—			—			(375	)
Amortization of deferred compensation		—		2,383			—			—			2,383
Amortization of interest rate hedges		—		—			—			620			620
Balances at September 30, 2023	$	1,825	$	4,966,872		$	(799,900	)	$	(10,739	)	$	4,158,058

See accompanying notes to condensed consolidated financial statements.

NNN REIT, INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY – CONTINUED

Nine Months Ended September 30, 2024

(dollars in thousands, except per share data)

(unaudited)


	Common Stock		Capital in Excess of Par Value			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Equity
Balances at December 31, 2023	$	1,826	$	4,971,625		$	(805,883	)	$	(10,111	)	$	4,157,457
Net earnings		—		—			298,941			—			298,941
Dividends declared and paid:
$1.7100 per share of common stock		—		1,941			(311,920	)		—			(309,979	)
Issuance of common stock:
27,838 shares – director compensation		—		959			—			—			959
3,061 shares – stock purchase plan		—		132			—			—			132
4,652,100 shares – ATM equity program		47		214,814			—			—			214,861
344,525 restricted shares – net of forfeitures		4		(4	)		—			—			—
Stock issuance costs		—		(3,219	)		—			—			(3,219	)
Amortization of deferred compensation		—		8,082			—			—			8,082
Amortization of interest rate hedges		—		—			—			1,692			1,692
Balances at September 30, 2024	$	1,877	$	5,194,330		$	(818,862	)	$	(8,419	)	$	4,368,926

See accompanying notes to condensed consolidated financial statements.

NNN REIT, INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY – CONTINUED

Nine Months Ended September 30, 2023

(dollars in thousands, except per share data)

(unaudited)


	Common Stock		Capital in Excess of Par Value			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Equity
Balances at December 31, 2022	$	1,815	$	4,928,034		$	(793,765	)	$	(12,582	)	$	4,123,502
Net earnings		—		—			295,658			—			295,658
Dividends declared and paid:
$1.6650 per share of common stock		—		2,155			(301,793	)		—			(299,638	)
Issuance of common stock:
24,097 shares – director compensation		—		833			—			—			833
5,151 shares – stock purchase plan		—		222			—			—			222
650,135 shares – ATM equity program		7		29,143			—			—			29,150
265,467 restricted shares – net of forfeitures		3		(3	)		—			—			—
Stock issuance costs		—		(933	)		—			—			(933	)
Amortization of deferred compensation		—		7,421			—			—			7,421
Amortization of interest rate hedges		—		—			—			1,843			1,843
Balances at September 30, 2023	$	1,825	$	4,966,872		$	(799,900	)	$	(10,739	)	$	4,158,058

See accompanying notes to condensed consolidated financial statements.

NNN REIT, INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)


	Nine Months Ended September 30,
	2024			2023
Cash flows from operating activities:
Net earnings	$	298,941		$	295,658
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		186,487			178,546
Impairment losses – real estate, net of recoveries		2,908			3,675
Amortization of notes payable discount		2,149			1,416
Amortization of debt costs		4,538			3,648
Amortization of mortgages payable premium		—			(21	)
Amortization of interest rate hedges		1,692			1,843
Gain on disposition of real estate		(30,207	)		(40,222	)
Performance incentive plan expense		9,976			8,997
Performance incentive plan payment		(1,274	)		(916	)
Change in operating assets and liabilities, net of assets acquired and liabilities assumed:
Decrease in receivables		1,425			654
Decrease (increase) in accrued rental income		8			(1,496	)
Increase in other assets		(1,057	)		(500	)
Increase in accrued interest payable		41,025			36,939
Increase in other liabilities		1,353			2,478
Other		(138	)		114
Net cash provided by operating activities		517,826			490,813
Cash flows from investing activities:
Proceeds from the disposition of real estate		106,764			89,542
Additions to real estate		(351,149	)		(524,719	)
Principal payments received on mortgages and notes receivable		470			440
Other		(1,099	)		(1,534	)
Net cash used in investing activities		(245,014	)		(436,271	)

See accompanying notes to condensed consolidated financial statements.

NNN REIT, INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED

(dollars in thousands)

(unaudited)


	Nine Months Ended September 30,
	2024			2023
Cash flows from financing activities:
Proceeds from line of credit payable	$	449,000		$	646,000
Repayment of line of credit payable		(581,000	)		(812,200	)
Repayment of mortgages payable		—			(9,947	)
Proceeds from notes payable		493,840			488,380
Repayment of notes payable		(350,000	)		—
Payment of debt issuance costs		(13,103	)		(4,248	)
Proceeds from issuance of common stock		216,934			31,528
Stock issuance costs		(3,206	)		(777	)
Payment of common stock dividends		(311,920	)		(301,793	)
Net cash provided by (used in) financing activities		(99,455	)		36,943
Net increase in cash, cash equivalents and restricted cash(1)		173,357			91,485
Cash, cash equivalents and restricted cash at beginning of period(1)		5,155			6,778
Cash, cash equivalents and restricted cash at end of period(1)	$	178,512		$	98,263
Supplemental disclosure of cash flow information:
Interest paid, net of amount capitalized	$	92,477		$	79,058
Supplemental disclosure of noncash investing and financing activities:
Change in other comprehensive income	$	1,692		$	1,843
Right-of-use asset recorded in connection with lease liability	$	—		$	6,401
Change in work in progress accrual	$	(2,539	)	$	24,498


(1)	Cash, cash equivalents and restricted cash is the aggregate of cash and cash equivalents and restricted cash and cash held in escrow from the Condensed Consolidated Balance Sheets. As of September 30, 2024, December 31, 2023 and September 30, 2023, NNN had restricted cash of $4,986, $3,966 and $21,126, respectively.

See accompanying notes to condensed consolidated financial statements.

NNN REIT, INC.

and SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2024

(Unaudited)

Note 1 – Organization and Summary of Significant Accounting Policies:

Organization and Nature of Business. NNN REIT, Inc., a Maryland corporation, is a fully integrated real estate investment trust (“REIT”) formed in 1984. The term "NNN" or the "Company" refers to NNN REIT, Inc. and all of its consolidated subsidiaries. NNN may elect to treat certain of its subsidiaries as taxable REIT subsidiaries.

NNN's assets primarily include real estate assets. NNN acquires, owns, invests in and develops properties that are leased primarily to retail tenants under long-term net leases and are primarily held for investment ("Properties" or "Property Portfolio", or individually a "Property").


		September 30, 2024
Property Portfolio:
Total Properties		3,549
Gross leasable area (square feet)		36,550,000
States		49
Weighted average remaining lease term (years)		10.0

NNN's operations are reported within one reportable segment in the unaudited condensed consolidated financial statements and all properties are considered part of the Properties or Property Portfolio. As such, property counts and calculations involving property counts reflect all NNN Properties.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by U.S. generally accepted accounting principles. The unaudited condensed consolidated financial statements reflect all adjustments (including normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Operating results for the quarter and nine months ended September 30, 2024, may not be indicative of the results that may be expected for the year ending December 31, 2024. Amounts as of December 31, 2023, included in the condensed consolidated financial statements have been derived from the audited consolidated financial statements as of that date. The unaudited condensed consolidated financial statements, included herein, should be read in conjunction with the consolidated financial statements and notes thereto as well as Management's Discussion and Analysis of Financial Condition and Results of Operations in NNN's Form 10-K for the year ended December 31, 2023.

Principles of Consolidation. NNN's unaudited condensed consolidated financial statements include the accounts of each of the respective majority owned and controlled affiliates, including transactions whereby NNN has been determined to be the primary beneficiary in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification ("ASC") guidance included in Topic 810, Consolidation. All significant intercompany account balances and transactions have been eliminated.

Real Estate Portfolio. NNN records the acquisition of real estate at cost, including acquisition and closing costs. The cost of Properties developed or funded by NNN includes direct and indirect costs of construction, property taxes, interest, third-party costs and other miscellaneous costs incurred during the development period until the project is substantially complete and available for occupancy. NNN recorded $4,744,000 and $2,374,000 in capitalized interest during the development period for the nine months ended September 30, 2024 and 2023, respectively, of which $1,268,000 and $1,248,000 was recorded during the quarters ended September 30, 2024 and 2023, respectively.

Purchase Accounting for Acquisition of Real Estate. In accordance with the FASB ASC guidance on business combinations, consideration for the real estate acquired is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and, if applicable, to identified intangible assets and liabilities, consisting of the value of above-market and below-market leases and the value of in-place leases, as applicable, based on their respective fair values.

The fair value estimate is sensitive to significant assumptions, such as establishing a range of relevant market assumptions for land, building and rent and where the acquired property falls within that range. These market assumptions for land, building and rent use the most relevant comparable properties for an acquisition. The final value relies upon ranking comparable properties' attributes from most to least similar.

The fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant, and the "as-if-vacant" value is then allocated to land, building and tenant improvements based on the determination of their fair values.

In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded as other assets or liabilities based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases, and (ii) management's estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining term of the lease and the renewal option terms if it is probable that the tenant will exercise options. The capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases. The capitalized below-market lease values are amortized as an increase to rental income over the initial term unless the Company believes that it is likely that the tenant will renew the lease for an option term whereby the Company amortizes the value attributable to the renewal over the renewal period.

The aggregate value of other acquired intangible assets, consisting of in-place leases, is valued by comparing the purchase price paid for a property after adjusting for existing in-place leases to the estimated fair value of the property as-if-vacant, determined as set forth above. This intangible asset is amortized to expense over the remaining non-cancelable periods of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be written off in that period. The value of tenant relationships is reviewed on individual transactions to determine if future value was derived from the acquisition.

Lease Accounting. NNN records its leases on the Property Portfolio in accordance with FASB ASC Topic 842, Leases ("ASC 842"). In addition, NNN records right-of-use assets and operating lease liabilities as lessee under operating leases in accordance with ASC 842.

NNN's real estate is typically leased to tenants under triple-net leases, whereby the tenant is responsible for all operating expenses relating to the Property, including utilities, real estate taxes and assessments, property and liability insurance, maintenance, repairs and capital expenditures. The leases on the Property Portfolio are predominantly classified as operating leases and are accounted for as follows:

Operating method – Properties with leases accounted for using the operating method are recorded at the cost of the real estate and depreciated on the straight-line method over their estimated remaining useful lives, which generally range from 20 to 40 years for buildings and improvements and 15 years for land improvements. Leasehold interests are amortized on the straight-line method over the terms of their respective leases. Revenue is recognized as rentals are earned and expenses (including depreciation) are charged to operations as incurred. When scheduled rentals vary during the lease term, income is recognized on a straight-line basis so as to produce a constant periodic rent over the term of the lease. Accrued rental income is the aggregate difference between the scheduled rents which vary during the lease term and the income recognized on a straight-line basis.

Collectability. In accordance with ASC 842, NNN reviews the collectability of its rental income on an ongoing basis. NNN considers collectability indicators when analyzing accounts receivable (and accrued rent), historical bad debt levels, tenant credit-worthiness and current economic trends, all of which assists in evaluating the probability of outstanding and future rental income collections and the adequacy of the allowance for doubtful accounts. In addition, tenants in bankruptcy are analyzed and considerations are made in connection with the expected recovery of pre-petition and post-petition bankruptcy claims.

When NNN deems the collection of rental income from a tenant not probable, uncollected and previously recognized rental revenue and any related accrued rent are reversed as a reduction to rental income and, subsequently, rental income is only recognized when cash receipts are received. At this point, a tenant is deemed cash basis for accounting purposes. If NNN subsequently deems the collection of rental income is probable, any related accrued rental income or expense is restored.

As a result of the review of collectability, NNN recorded a write-off of $709,000 and $348,000 of outstanding receivables and related accrued rent for certain tenants reclassified to cash basis for accounting purposes during the nine months ended September 30, 2024 and 2023, respectively.

The following table summarizes those tenants classified as cash basis for accounting purposes as of September 30:


	2024				2023
Number of tenants		11				8
Cash basis tenants as a percent of:
Total Properties		4.3	%			4.8	%
Total annual base rent		5.6	%	(1)		6.9	%	(2)
Total gross leasable area		6.5	%			6.4	%


Based on annualized base rent for all leases in place on each respective date.
	(1)	$850,976,000 as of September 30, 2024.
	(2)	$800,194,000 as of September 30, 2023.

During the nine months ended September 30, 2024 and 2023, NNN recognized $31,330,000 and $44,368,000, respectively, of rental income from certain tenants for periods following their classification to cash basis for accounting purposes, of which $10,446,000 and $14,281,000 was recognized during the quarters ended September 30, 2024 and 2023, respectively.

NNN includes an allowance for doubtful accounts in rental income on the Condensed Consolidated Statements of Income and Comprehensive Income.

Real Estate – Held for Sale. Real estate held for sale is not depreciated and is recorded at the lower of cost or fair value, less cost to sell. On a quarterly basis, the Company evaluates its Properties for held for sale classification based on specific criteria as outlined in FASB ASC Topic 360, Property, Plant and Equipment, including management's intent to commit to a plan to sell the asset. NNN anticipates the disposition of Properties classified as held for sale to occur within 12 months. At September 30, 2024 and December 31, 2023, NNN had recorded real estate held for sale of $3,564,000 (two properties) and $4,573,000 (one property), respectively, in real estate portfolio on the Condensed Consolidated Balance Sheets. The property classified as held for sale as of December 31, 2023 was sold during the nine months ended September 30, 2024.

Real Estate Dispositions. When real estate is disposed, the related cost, accumulated depreciation or amortization and any accrued rental income from operating leases and the net investment from direct financing leases are removed from the accounts, and gains and losses from the dispositions are reflected in income. FASB ASC Topic 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets ("ASC 610-20"), provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. An entity that transfers a nonfinancial asset in the scope of ASC 610-20 follows a two-step derecognition model to determine whether (and when) to derecognize the asset. NNN determined the key transactions impacted by ASC 610-20 are recorded in gain on disposition of real estate reported on the Condensed Consolidated Statements of Income and Comprehensive Income. In accordance with ASC 610-20, NNN evaluates any separate contracts or performance obligations to determine proper timing and/or amount of revenue recognition, as well as, transfer of control and transaction price allocation in determining the amount of gain or loss to record.

Impairment – Real Estate. NNN periodically assesses its long-lived real estate assets for possible impairment whenever certain events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. These indicators include, but are not limited to: changes in real estate market conditions, the ability of NNN to re-lease properties that are currently vacant or become vacant, properties reclassified as held for sale, persistent vacancies greater than one year, and properties leased to tenants in bankruptcy. Management evaluates whether an impairment in carrying value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), and the residual value of the real estate, with the carrying value of the individual asset. The future undiscounted cash flows are primarily driven by estimated future market rents. Future cash flow estimates are sensitive to the assumptions made by management regarding future market rents, which are affected by expectations about future market and economic conditions. If an impairment is indicated, a loss will be recorded for the amount by which the carrying value of the asset exceeds its estimated fair value. NNN's Properties are leased primarily to retail tenants under long-term net leases and primarily held for investment. Generally, NNN's Property leases provide for initial terms of 10 to 20 years, with cash flows provided over the entire term.

Credit Losses on Financial Instruments. FASB ASC Topic 326, Financial Instruments – Credit Losses, requires entities to estimate an expected lifetime credit loss on financial assets ranging from short-term trade accounts receivable to long-term financings. The guidance requires a lifetime credit loss expected at inception and requires pooling of assets, which share similar risk characteristics. NNN is required to evaluate current economic conditions, as well as make future expectations of economic conditions. In addition, the measurement of the expected credit loss is over the asset's contractual term.

NNN held mortgages receivable, including accrued interest, of $581,000 and $1,002,000 included in other assets on the Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023, respectively, net of $12,000 and $64,000 allowance for credit loss, respectively. NNN periodically evaluates the allowance for credit loss based on the fair value of the collateral and a 15-year historical collectability trend analysis.

Cash and Cash Equivalents. NNN considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents consist of cash and money market accounts. Cash equivalents are stated at cost plus accrued interest, which approximates fair value. Cash accounts maintained on behalf of NNN in demand deposits at commercial banks and money market funds may exceed federally insured levels or may be held in accounts without any federal insurance or any other insurance or guarantee. However, NNN has not experienced any losses in such accounts.

Restricted Cash and Cash Held in Escrow. Restricted cash and cash held in escrow may include (i) cash proceeds from the sale of assets held by qualified intermediaries in anticipation of the acquisition of replacement properties in tax-deferred exchanges under Section 1031 of the Internal Revenue Code of 1986, as amended (the "Code"), (ii) cash that has been placed in escrow for the future funding of construction commitments, or (iii) cash that is not immediately available to NNN. NNN held $4,986,000 and $3,966,000 in restricted cash and cash held in escrow as of September 30, 2024 and December 31, 2023, respectively.

Debt Costs – Line of Credit Payable. Debt costs incurred in connection with NNN's $1,200,000,000 unsecured revolving line of credit have been deferred and are being amortized to interest expense over the term of the loan commitment using the straight-line method, which approximates the effective interest method. NNN has recorded debt costs associated with the Credit Facility (as defined in "Note 3 – Line of Credit Payable") as an asset, in debt costs on the Condensed Consolidated Balance Sheets.

Debt Costs – Notes Payable. Debt costs incurred in connection with the issuance of NNN's unsecured notes have been deferred and are being amortized to interest expense over the term of the respective debt obligation using the effective interest method. NNN had debt costs of $43,820,000 and $42,595,000, included in notes payable on the Condensed Consolidated Balance Sheets, as of September 30, 2024 and December 31, 2023, respectively, net of accumulated amortization of $13,327,000 and $14,343,000, respectively.

Revenue Recognition. Rental revenues for properties under construction commence upon completion of construction of the leased asset and delivery of the leased asset to the tenant. Rental revenues for non-development real estate assets are recognized when earned in accordance with ASC 842, based on the terms of the lease of the leased asset. Leasehold interests are amortized on the straight-line method over the terms of their respective leases. When scheduled rentals vary during the lease term, income is recognized on a straight-line basis so as to produce a constant periodic rent over the term of the lease. Lease termination fees are recognized when collected subsequent to the related lease that is cancelled and NNN no longer has continuing involvement with the former tenant with respect to that property.

Earnings Per Share. Earnings per share have been computed pursuant to the FASB guidance included in FASB ASC Topic 260, Earnings Per Share. The guidance requires classification of the Company's unvested restricted share units, which carry rights to receive nonforfeitable dividends, as participating securities requiring the two-class method of computing earnings per share. Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings to common stockholders and undistributed earnings allocated to common stockholders by the weighted average common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the weighted average shares outstanding during the period.

The following table is a reconciliation of the numerator and denominator used in the computation of basic and diluted earnings per share using the two-class method (dollars in thousands):


	Quarter Ended September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023
Basic and Diluted Earnings:
Net earnings	$	97,904		$	106,787		$	298,941		$	295,658
Less: Earnings allocated to unvested restricted shares		(185	)		(171	)		(511	)		(448	)
Net earnings used in basic and diluted earnings per share	$	97,719		$