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No. of Recommendations: 11
National Retail Properties (NNN) finally reported 2Q numbers.

My concern with NNN and its property portfolio is the number of 'virus sensitive' retailers it holds. June Rents were just over half of normal, although July increased to 69% of 'normal' with 21% of those not collected being deferred.

Cash Flows as expected did dip. (all numbers are rolling 4Q)

Rev/Sh CFFO/Share....Div-CFFO POR...CFFO/Rev.....Interest Exp
4Q19 1.02.....$0.71.........71%...........75%...........19.3%
1Q20 1.02.....$0.69.........74%...........71%...........20.3%
2Q20 1.00.....$0.64.........81%...........67%...........21.7%

Revenue per share shows a small change although CFFO saw a much larger decline. This is likely because $15.8 negative adjustment for a decrease in recievables which is much larger than 'normal' and a $31MM negative adjustment in accrued rentals, or about 28% of reported revenues. This is not good, but neither is it substantial. Managerial Efficiency (CFFO/Rev) shows a similar decline suggesting management is not trying to reduce overhead with decreasing cash flows. However, debt seems to be managed for decreasing revenues as its % change as the amount of CFFO consumed by it, increased only moderately.

The dividend was increased to $.52, or about a 2% increase for 2020 over 2019 assuming the 4Q20 dividend remains at %.52. This small increase is likely a managerial signal of their commitment to it...and that's fine. But experience has taught me that any shareholder report that begins with how long management has been paying a growing dividend is often a cause for concern.

Up to the first part of 1Q20, NNN was a showcase of a well run REIT with a steady, consistent and almost boring quarterly increase in CF metrics. Let's hope management can make this adjustment and continue applying their acumen to this new set of rules.

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