National Retail Properties, Inc (NYSE: NNN) Q2 2025 Earnings Call dated Aug. 05, 2025
Corporate Participants:
Stephen A. Horn — President & Chief Executive Officer
Vincent H. Chao — Executive Vice President & Chief Financial Officer
Analysts:
Jeff Spector — Analyst
Spenser Glimcher — Analyst
Jenny — Analyst
Nick Joseph — Analyst
John Kilichowski — Analyst
Michael Goldsmith — Analyst
Rich Hightower — Analyst
Wes Golladay — Analyst
Omotayo Okusanya — Analyst
John Massocca — Analyst
Linda Tsai — Analyst
Presentation:
Operator
Good day, everyone, and welcome to the NNN REIT Inc. Second quarter 2025 Earnings. At this time, all participants are on a listen-only mode and we will open the floor for your questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host, Stephen Horn, Chief Executive Officer of NNN REIT Inc. Sir, the floor is yours.
Stephen A. Horn — President & Chief Executive Officer
Thank you, Matthew. Good morning and welcome to NNN’s second quarter 2025 earnings call. Joining me today on the call is Chief Financial Officer, Vin Chao. As outlined in the morning’s press release, NNN continued to deliver strong performance in the first half of 2025. Notably, we improved our balance sheet flexibility following capital markets activity with a sector leading average debt maturity of 11 years, solid acquisitions driven by our tenant relationships, and we published the third Annual Corporate Sustainability Report. These results and actions position us well to continue enhancing shareholder value as we enter the second half of the year and beyond. Also, as usual, we always have to mention the dividend. In July, we announced a 3.4% increase in our common stock dividend payable August 15. This marks our 36th consecutive year of annual dividend increases, a milestone that places us among very few, less than 80, U.S. public companies and only two other REITs have achieved such a track record.
Before we get into the operational performance and market conditions, I like to touch on a few key recent events. First, I’m thrilled to welcome Mr. Josh Lewis to the executive leadership team as our new Chief Investment Officer. Josh has been with the company since 2008 and has played a pivotal role from day one. Known for his prolific deal-making ability and deep market relationships, Josh ensures that shareholder capital is deployed towards the most compelling risk-adjusted opportunities. I’m fully confident we have the right person focused every day on driving long-term value for our shareholders. On the capital markets front, we successfully completed $500 million five-year unsecured bond offerings with a 4.6% coupon. In true NNN fashion, the execution and timing of the deal in today’s market environment were exceptional. More importantly, the transaction positions us strongly to continue executing our strategy moving forward.
Given our continued strong performance, we are also pleased to announce an increase in our 2025 guidance for core FFO per share, now expecting a range between $3.34 and $3.39. This update reflects the consistency of our multiyear growth strategy and the discipline with which we pursue long-term shareholder value. Turning to the highlights of NNN’s second quarter financial results. Our portfolio consisting of approximately 3,663 freestanding single tenant properties including 410 tenants across all 50 states is performing well. Our leasing and asset management teams are operating at a high level. During the quarter, we renewed 17 of 20 leases. Those renewals align with our long-term historical trend of 85% give or take while achieving rental rates 108% above prior rent. Additionally, the team successfully leased seven properties to new tenants at rates 105% above prior rents reflecting strong execution and ongoing demand for our assets.
As we sit here today, I feel good about the overall health of the portfolio. There isn’t a single tenant that currently gives me concerns keeping me up at night. We’ve had ongoing discussions with analysts and investors over many quarters regarding At Home, which finally officially filed for bankruptcy this past June. Regarding our exposure, none of our 11 properties were included on the initial closure list. Additionally, At Home remains current on all rent for all 11 locations post filing. We feel positive about the long-term prospects for these assets as the company works through the restructuring. Acquisitions during the quarter: we invested just over $230 million in 45 new properties achieving an initial cap rate of 7.4% and an average lease term of more than 17 years. Notably, eight of the 11 closings this quarter were with existing relationships, partners with whom we do repeat business.
For the first half of 2025, we invested $460 million across 127 properties achieving an initial cap rate of 7.4% and an average lease term of over 18 years. Based on our strong transaction volume year to date, the robust pipeline of assets currently under LOI or in contract, the high level of activity across our acquisition team, we have raised the midpoint for our full-year acquisition volume to $650 million. As one of the original net lease companies in the public markets, we have successfully operated through a wide range of economic and competitive cycles. While private capital has increasingly entered the space raising competition particularly for large portfolio transactions, we have consistently demonstrated our ability to execute in a highly competitive environment. We remain committed to a disciplined and thoughtful underwriting approach while continuing to emphasize acquisition volume through sale-leaseback transactions with our long-standing relationships.
During the second quarter, we sold 23 properties generating over $50 million in proceeds to be redeployed into new acquisitions. Year-to-date, dispositions have reached 33 properties including 14 vacant assets raising over $65 million in proceeds. Importantly, the income-producing properties sold were not considered the gems of our portfolio and we sold approximately at 170 basis points below our investing cash cap rate of 7.4%. This reinforces the strength of our underwriting and our ability to extract value from the underperforming holdings. While the primary focus remains on re-leasing vacancies where our leasing team continues to deliver strong performance, we will continue to dispose of underperforming assets when there is no clear path to generating stable rental income within a reasonable timeframe. This disciplined approach supports portfolio optimization and enhances long-term shareholder value.
Our balance sheet remains one of the strongest in the sector supported by the average debt maturity of over 11 years I mentioned earlier. With nearly $1.5 billion in available liquidity, we are well-positioned to fully fund our 2025 acquisition targets and maintain flexibility for additional opportunities. The financial strength provides us with a significant competitive advantage as we continue our growth strategy without the immediate need for external capital.
With that, I’ll turn the call over to Vin. He’ll walk through our quarterly results and provide more detail on the updated guidance.
Vincent H. Chao — Executive Vice President & Chief Financial Officer
Thank you, Steve. Let’s start with our customary cautionary statements. During this call, we will make certain statements that may be considered forward-looking statements under federal securities laws. The company’s actual or 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 are made. Factors and risks that could cause actual results to differ from expectations are disclosed in greater detail in the company’s filings with the SEC and in this morning’s press release.
Now on to results. This morning we reported core FFO of $0.84 per share and AFFO of $0.85 per share for the second quarter of 2025, each up 1.2% over the prior year period. Annualized base rent was $894 million at the end of the quarter, an increase of almost 7% year-over-year. Our NOI margin was 98% for the quarter while G&A as a percentage of total revenues and as a percentage of NOI was about 5%. Cash G&A was 3.7% of total revenues. AFFO per share for the quarter was slightly ahead of our expectations driven primarily by lower than planned bad debt. Free cash flow after the dividend was about $50 million in the second quarter. Lease termination fees, as footnoted on Page 8 of the release, totaled $2.2 million in the quarter or about $0.01 per share. This quarter’s fees were in line with our expectations and were primarily driven by the termination of an auto parts store and a full-service restaurant.
The auto parts store is under contract for sale, and the restaurant has already been re-leased and rent commenced to another restaurant concept, highlighting our proactive portfolio management strategy. From a watch list perspective, At Home is the major news for the quarter. We have been flagging At Home as a risk for some time and, as we discussed on last quarter’s call, we believe we have appropriately accounted for them in our outlook and expect the final resolution to be within our budget for the year. To reiterate what Steve said, none of our 11 stores were on the initial store closure list and given the quality of our locations, we’ve already received inbound interest from high credit retailers. Outside of At Home, there have been no notable changes to the watch list.
Turning to the balance sheet. Just after the quarter-end, we significantly bolstered our liquidity and de-risked our capital requirements for the rest of the year by closing on NNN’s inaugural five-year $500 million unsecured notes offering at an attractive 4.6% coupon. While this offering was earlier and larger than we were originally planning, given the positive market backdrop and strong investor demand, we decided to move forward with the deal. Pro forma for the offering which closed on July 1, we had close to $1.5 billion of liquidity, no floating rate debt, and no secured debt. Our debt duration remained a sector-leading 11 years even after accounting for the new issuance. Our balance sheet is a source of strength and we will continue to look for ways to utilize this competitive advantage to support growth while protecting downside risk.
Also, given the positive momentum in the stock that we experienced at the end of the quarter, we issued 254,000 shares at an average price of just over $43 per share primarily through our ATM program raising roughly $11 million in gross proceeds. We will remain opportunistic in the equity markets and issue if and when we believe we can achieve an appropriate cost of equity relative to our deployment opportunities. On July 15, we increased our quarterly dividend to $0.60 per share, up from $0.58 per share previously, which equates to an attractive 5.6% annualized dividend yield and a healthy 71% AFFO payout ratio. As Steve mentioned, NNN has now raised its annual dividend for 36 consecutive years. The ability to grow the dividend through various economic cycles and Black Swan events is a true testament to the strength of NNN’s platform and its strategy.
I will conclude my opening remarks with some additional comments regarding our updated outlook. We are raising core FFO per share guidance to a new range of $3.34 to $3.39 and AFFO per share to $3.40 to $3.45, each up $0.01 at the midpoint. This reflects our outperformance versus plan year-to-date as well as updated assumptions over the balance of the year. We now expect to complete $600 million to $700 million of acquisitions, up $100 million from our initial expectation. We’re also increasing our disposition outlook by $35 million to a new range of $120 million to $150 million.
And lastly, you will notice that we increased our net real estate expense forecast, which is the result of delays in the expected timing of the release of certain properties as we balance the impacts on near and long-term earnings. Despite this headwind, we’re still in a position to raise overall earnings guidance for the year.
From a bad debt perspective, we continue to embed 60 basis points of bad debt for the full year into our outlook, which includes about 15 basis points booked through the second quarter. As you update your models, there are a few other items to point out. As noted earlier, we booked $2.2 million of lease termination fees in the second quarter, which is well below the first quarter level of $8.2 million, but still above what I would consider a typical quarterly amount. Also this quarter we took some non-cash write-offs of accrued rent and below market rent related to At Home that in total added about $660,000 of income to core FFO, which should be excluded from the forward run rates. These non-cash items had no impact on reported AFFO.
With that, I’ll turn the call back over to Matthew for questions.
Questions and Answers:
Operator
Certainly. Everyone at this time, we will be conducting a question and answer session. [Operator Instructions] Your first question is coming from Jeff Spector from Bank of America. Your line is live.
Jeff Spector
Great. Thank you. Just first on the investment guidance. I know you raised it. It does suggest a slower pace in the second half. So I just wanted to confirm what’s driving that implied deceleration; whether it’s market opportunities, which it sounds like are robust. There is you mentioned increased competition, capital allocation, or is it just some conservatism in the outlook? Thank you.
Stephen A. Horn
Yeah. I mean given what we did in the first half, I see where it suggests a slower activity. We don’t have any visibility to the fourth quarter so we don’t want to get over our skis. Third quarter is feeling pretty good right now. But everything you mentioned, the heightened competition overall, the market seems fairly robust, but it is more probably being conservative.
Jeff Spector
Okay. Thank you. And then if I heard correctly, it sounded that in terms of the acquisitions, eight out of the 11 were existing relationships. Can you talk about the new relationships and maybe the opportunity set there?
Stephen A. Horn
Yeah. We aren’t going to disclose the few that we did not that were not relationships. But they were just our acquisition guys have calling efforts that have been going on for many years and deal flow happened. They were in the auto service sector. And we only consider a relationship as a repeat business. So we have to close one or two transactions with you before you become quote, a relationship.
Vincent H. Chao
But just to add to that to your point, I mean I think in any business you want to have a good mix of existing deal volume as well as new volume. And so the new relationships do open up additional opportunities in the future. So we’re hopeful that that can continue.
Jeff Spector
Great. Thank you.
Operator
Your next question is coming from Spenser Glimcher from Green Street. Your line is live.
Spenser Glimcher
Thank you. I’m just curious if you could provide an update on the available assets either being marketed for sale or trying to re-tenant. I know last quarter you mentioned there was significant interest for these properties from strong national and regional tenants. So just curious how that process has been going. Yeah. I mean, as you could guess, Spenser, primarily it was the former furniture store Badcocks and a fair amount of restaurants from the Frisch’s assets and Frisch’s was in business for 60 plus years so they had a lot of infill locations and that’s where the strong demand is coming from. As a result, kind of convenience stores, car washes, collision repair. So, there’s still a lot of demand for those assets. And just to kind of give you an idea, call it 64 assets at the beginning, 28 of them we are working with a tenant on re-leasing. And then the remaining 36, four of them have been sold and/or leased. 24 of those assets we are in active negotiations and there’s different levels or stages of those negotiations and then eight of the 36 is just limited activity. So we’re seeing encouraging signs across those assets specifically with the 36 and we’re kind of expecting the rent recovery to eclipse historical averages, which would be 70%. And then as far as the Badcock furniture assets, we’re kind of we are outperforming our expectations on those. Just recall for everybody, there was 35 of those assets. 19 of them have been resolved at greater than a 100% rent recovery, 12 are currently pending and are tracking to greater than a 100% recovery, and then there’s four that there’s work to be done. But the reality is if you took a downside scenario of just the four, our total recovery for the furniture is expected to be greater than 100%. Thank you. That’s very helpful. And then just last one. Cap rates were online with 1Q. Can you just talk about what you are seeing thus far into 3Q?
Stephen A. Horn
Yeah. In the 1Q call, I kind of said second Q was going to be pretty flat and we were right there. Third quarter I’m really not seeing any movement either way. It depends on the mix of closings in the quarter. However, I think give or take 5 basis points, 10 basis points either side could happen.
Spenser Glimcher
Great. Thank you.
Operator
Thank you. Your next question is coming from Ronald Kamdem from Morgan Stanley. Your line is live.
Jenny
Hey. This is Jenny on for Ron. Thanks for taking my question. First is regarding your November 2025 debt maturity approaching like can you talk a little bit more about your specific, like, refinancing strategies and so forth? Thank you.
Vincent H. Chao
Hey, Jenny. This is Vin. Yeah. So we looked at that and really we did the $500 million deal on July 1 and that kind of prefunded that refinancing and so we are sitting on a bit of cash right now as we work through acquisitions, but ultimately, those funds will partially be used to repay the $400 million financing. And then we may be back in the market later in the year. If you just think about our normal of acquisitions, based on the new $650 million of acquisition volume at the midpoint at 40% debt; that’s call it $250 million-ish of net new debt we would need. So we funded some of that with the $500 million so we may be back in the market for a smaller amount later this fall.
Jenny
Perfect. Second one regarding the average time from, like, a vacant property to be released. Like maybe talk a little bit more about how does this timeline compare with your historical average of nine to 12 months. Thanks.
Stephen A. Horn
Yeah. I mean the nine to 12 months is when rent starts coming in. But we’ll have activity within kind of 30, 40 days of marketing that asset. But to sell it or release it, there are usually contingencies in the contract before they start paying rent and if it’s a redevelopment, that is really when the nine to 12 months comes into play. But we are seeing I mean, kind of why I said we were outperforming our expectations with the furniture assets because it all moved pretty quick compared to historical averages. And the restaurants are good locations, really good dirt. So that nine to 12 months is still going to be the majority because there is redevelopment with the large regional operators.
Jenny
Okay. Perfect. Thanks so much.
Operator
Thank you. Your next question is coming from Smedes Rose from Citi. Your line is live.
Nick Joseph
Thanks. It is Nick Joseph here with Smedes. Maybe just starting on the bad debt. You talked about 60 basis points bad debt embedded in guidance still, but only 15 basis points booked thus far. You also mentioned that there are no tenants keeping you up at night. So just trying to kind of understand the kind of keeping the 60 basis points for now.
Vincent H. Chao
Yeah. Hey, Nick. It is Vin. I’ll start and let Steve jump in if he has anything to add. But really as we think about the bad debt, we booked 15 basis points so we’ve got 45 basis points to kind of play with, if you will. We are still dealing with At Home. It’s in bankruptcy so we don’t exactly know where that is all going to shake out. We’re pretty happy with the progress so far and we do not have anything on the initial closure list. And as we have talked on past calls, we feel pretty good about the real estate and the rents that are embedded there, which are only $6.50 per square foot. So we feel good about our position, but they are in bankruptcy and so we have to keep some dry powder in case something goes against us on that front. I think typically we do have between 30 basis points and 40 basis points of bad debt in any given year. And so we have still got two quarters left to go and so we just do not want to again, just similar to our investment thesis, we’re not trying to get ahead of ourselves in terms of bad debt Just knowing that there is At Home out there plus there’s always normal turnover.
Stephen A. Horn
Yeah. That is the tenants are keeping me up at night meaning any substantial tenants. But just to reiterate what Vin said, we do deal with retailers and 60 days from now something might shift. So it is prudent to leave some of the bad debt in there.
Nick Joseph
That is very helpful. Thank you. And then maybe just back to cap rates. I mean you had mentioned kind of capital coming in chasing larger volumes. How is portfolio pricing relative to individual assets right now? Are you seeing that spread widen a bit?
Stephen A. Horn
I would say I have seen the spread widen. I think with the new money coming into the sector, again we have been doing this a long time and we have seen competitors come and go, that I still think there is a pretty good portfolio premium on certain deals in that kind of that $100 million to $200 million range, which is a nice bite but there is a lot of capital chasing it. We saw a handful of portfolios go off in the $6.5 $6.75 range and that is probably the retail levels on the individual assets.
Nick Joseph
Thank you very much.
Operator
Your next question is coming from John Kilichowski from Wells Fargo. Your line is live.
John Kilichowski
Good morning. Thank you. Maybe just on the composition of the guidance raise, how much of that was driven by the actual increase in acquisitions versus then you noted that termination fees kind of came back slightly more normalized, but still above what you all were expecting? I know you have not given specific number, but maybe if you could size that for us.
Vincent H. Chao
Yeah, sure. Hey, John. It is Vincent. Just to clarify my prepared remarks, the $2.2 million that we booked in the quarter we were expecting that. That was part of the plan so it was embedded in our guidance last quarter. My comment about $2.2 million being above — it’s above historical levels but down from the first quarter. So that was the point I was trying to make on that $2.2 million. But as far as the upside in the guidance, there’s a couple moving parts there. You have got about a $0.005 of upside on AFFO, just a little less than that through the first half. But then you do have net expenses going up by about just over $1. So that is a headwind to the guidance.
And then I think the balance of it really is investment-related and as well as the bond offering that we did. So we are seeing a little bit of downside, call it, $0.005 or so from the bond offering relative to our initial guidance and so we are sitting on a bit of cash right now. We’re earning a pretty good rate on it, but not the same as what we are paying on the interest side of things. So there is a little bit of headwind there. And then offsetting all that is acquisitions, which one is timing of acquisition. So we’ve definitely been a bit ahead of our plan in terms of timing. And then on the flip side, on the disposition side, typically when we give guidance on dispositions, we’re assuming income-producing. If you look at it year-to-date, about half of our dispositions have been vacant and so we are picking up a little bit from that as well.
John Kilichowski
Got it. That is helpful. And then maybe just from a composition standpoint, can you talk about the sectors that you are targeting on both the acquisition and the disposition side?
Stephen A. Horn
Yeah. I mean, the disposition side, it is more communicating with individual tenants. Just for example you saw that our Camping World exposure dropped by a couple because that is you have some assets that weren’t performing for Camping World. They weren’t in the long-term plan. So we sold some assets back to them. So that is good for NNN and good for the tenant relationship. As far as acquisitions, I think going forward the auto service sector still seems to be the most robust activity if it’s M&A or growth. And I think also we are starting to see some activity in the QSR restaurants.
John Kilichowski
Very helpful. Thank you.
Operator
Thank you. Your next question is coming from Michael Goldsmith from UBS. Your line is live.
Michael Goldsmith
Good morning. Thanks a lot for taking my question. The leverage ratio ticked up a little bit during the quarter and is that a function of just kind of the temporary to pay down the line of credit? Or just trying to get — and then now that now that you are running as the CFO, like, how are you thinking about just like a target leverage ratio or where you want the leverage to be for the business? Thanks.
Vincent H. Chao
Yeah. Hey, Michael. Thanks for the question. Yeah. I think from a quarterly leverage level of 5.7%, so it ticked up a little bit from the first quarter. That really has to do more with timing of acquisitions, dispositions. We did a little bit of equity in the quarter, but it is really the earlier acquisition timing. And so part of our initial plan includes the benefits of free cash flow. But because we are buying ahead of plan, that’s causing us to have a little bit of a bump up in leverage here in the near term. In terms of longer term, how do I think about leverage? I mean lower is better obviously. We’d love to be operating I would say targeting less than 5.5 times, to put exact ranges is hard to say. But certainly if we are in the 5-ish range, that would give us a little bit more capacity to kind of lean in when opportunities arise. And so I would love to get it down below 5.5 times here shortly.
Michael Goldsmith
Got it. And just while I got you, Vincent, you have done a five-year bond issuance here so a little bit more shorter term than you have done in the past. Can you just talk a little bit about the benefits of that and how you plan to use that kind of –use shorter-term debt going forward?
Vincent H. Chao
Yeah. I think it really goes down to asset and liability management. So if you look at our debt duration, it’s around 11 years. Prior to this deal last quarter, it was 11.6 years. If you look at our average lease duration, it is just under 10 so 9.8 years. And so from my perspective, that means we have a little bit of flexibility on doing a little bit of short-term debt in the near term just to balance out those assets and liabilities. And I think the other part of it is we look at our maturity ladder, we look at where we have holes. And so we did have a hole in that five — call it 5.5 year period really. And so, it is a combination of where do we have holes in the maturity ladder and how are we managing our assets and liabilities.
Michael Goldsmith
Thank you very much. Good luck in the back half.
Operator
Thank you. Your next question is coming from Rich Hightower from Barclays. Your line is live.
Rich Hightower
Hey. Good morning, guys. Just a quick one for me. We just noticed I think quarter over quarter, the ABR that is on sort of a cash basis payment ticked up from the first quarter. Not so much year-over-year, but quite a sequential jump and then likewise, kind of a big jump in terms of the GLA on cash. And so my question there is is that just related to At Home or is there anything else kind of in the moving parts there that we should be aware of?
Vincent H. Chao
Yeah. Hey, Rich. It’s Vin. That is almost all of that is At Home. Okay. You recall that was up — we are up about a little over 1% quarter over quarter in cash basis ABR and At Home’s percent of our ABR and then obviously a bigger percentage of our GLA given the size of the box.
Rich Hightower
Exactly. And that was that is a difference from the first quarter just to be clear. Is that just based on timing around the bankruptcy filing?
Vincent H. Chao
Correct. Correct.
Rich Hightower
Okay. Got it. That is all I got. Thank you, guys.
Operator
Thank you. Your next question is coming from Wes Golladay from Baird. Your line is live.
Wes Golladay
Hey, good morning, guys. Just a quick question on the deal flow. Are you starting to see your partners get more active on their business now that they have visibility on taxes and potentially more visibility on tariffs?
Stephen A. Horn
Yeah. I think it is a good question. I think there is better visibility on the tariffs in the conversations that we have with our tenants. But I don’t think they are quite there yet that they are ready to ramp up the pre, levels going back to 2018, 2019. But we are starting to see inquiries come in about funding new builds, kind of a one-off here and there. However, we do see some M&A activity picking up where the buyers are able to underwrite the cash flow and the quality of earnings.
Vincent H. Chao
Okay. And Wes, it’s Vin, just to add to that. I mean Steve mentioned earlier that auto services is pretty robust right now and I can’t say with certainty that is because of tariffs, but to the extent that it costs a lot more to buy a new car. We should think it is logical to assume that is going to help our auto services business on the repair side as well as auto parts or is more of a self-help kind of thing. DIY.
Wes Golladay
Yeah. That makes sense. Even while I got you, when we look at your call it nearly $900 million of ABR, some of the Badcock’s and the Frisch’s that you resolved. How should we think about timing of commencement for some of that? I guess, we call it, sign out open pipeline.
Vincent H. Chao
That is a good question. It is definitely not something that we track as closely as we did in the shopping center space. But for the most part, most of the ABR is commenced. We do not have a ton of sign that open per se. Off the top of my head, I cannot think of any major tenants that have not yet commenced that are not in that ABR number we gave you.
Wes Golladay
Great. Thank you.
Operator
Thank you. Your next question is coming from Omotayo Okusanya from Deutsche Bank. Your line is live.
Omotayo Okusanya
Yes. Good morning, everyone. Steve, I was hoping you could just kind of walk us through again. I know you kind of mentioned no tenants are kind of keeping you up at night. Quote unquote. But I was hoping you could kind of talk to again some of the retail categories that are still kind of seeing pressure, whether it is competition, whether it is just concepts dying, whether it is tariffs, what have you. Just to get a couple of thoughts around restaurants and drugstores and even furniture and consumer electronics that may get hit by tariffs. Just how are you thinking about that? How do you kind of think about 60 basis points of debt maybe covering any of that risk?
Vincent H. Chao
Yeah. Hey, Tayo, it’s Vin. Good to hear from you. I will start maybe just with lot specific type of commentary. It is a little easier than to talk a lot by lot. But I mean there are some areas that are probably more impacted by tariffs and some of that uncertainty than others. I mean thankfully, most of our tenant base is either necessity or service-based. It’s about 85% of our ABR. So maybe a little bit less direct impact on tariffs and more of an indirect economic impact if there is any. But as far as restaurants go, I mean just like most retail, there are winners and losers all the time. And so you look at the Chili’s that is just absolutely crushing it right now and then you have others, Texas Roadhouse and others that are not doing quite as well. But I think it really is do you have a compelling product offering that gets people back in the door? And that is across not just restaurants, but there’s definitely winners and losers throughout. And I think as pressure builds on some of the weaker players, that does open up an opportunity for the better players to take share.
So we are seeing that. And I will give you another example. Camping World is one that obviously it is a big tenant of ours. We did reduce exposure this quarter, but if you look at their earnings releases and calls, I mean they are seeing pressure on their ASPs. They are seeing pressure on certain parts of their business, particularly new business, but they have a very strong used business. Right? So they are leaning into the parts of the investor or the customer base that are active and so on net they are still able to drive EBITDA and topline growth. And so it is just can you adjust to the changing market conditions or not? So I think it’s not as simple as just saying, hey, tariffs are going to impact tenants negatively until on net an entire line of trade is good or bad. Having said that, if we can get some more clarity on the economy and tariffs, job growth, etc. and people can feel more confident in making decisions, then I think that is just net good for all lines of trade.
Omotayo Okusanya
Thank you.
Operator
Thank you. Your next question has come from John Massocca B. Riley. Your line is live.
John Massocca
Good morning. Vin’s already kind of addressed, but was there something specific that drove the increase in non-reimbursed real estate expenses? I mean was that tied to maybe some of the former Frisch’s properties and the timing you’re thinking about with resolving those vacancies or even just baking in some conservatism given At Home’s situation? Just kind of curious why that ticked up related to a specific tenant. I know you kind of called it out a little bit prepared remarks.
Vincent H. Chao
Hey, John. I think without calling out specific tenants, I think you are spot on. I mean it is definitely a little bit slower resolution of certain vacant properties that we are dealing with. And I think part of it is we are seeing a lot of good demand and so we have some options and decide okay. Do we want to release it immediately or there may be a higher credit or a better long-term value play that we can take that maybe takes a little longer to lease up, but ultimately ends up better for us and for shareholders? And so we have made some decisions to delay certain openings to again try to come up with a better long-term solution.
John Massocca
Does that indicate maybe in terms of resolving these vacancies, there is more of a leasing kind of angle you’re taking or vice versa, maybe more of a disposition angle and that is kind of what is driving the differentiated timing versus what you were expecting at 1Q?
Stephen A. Horn
Yes. I mean, I think things are moving a little slower on a handful of the assets than you would like. That is just real estate if it is permitting process. But yeah, I think you are probably right as far as timing leasing route on some of the assets that’s creating a little bit more carry cost than they originally thought. But again in the big picture, it is a pretty small number as far as the impact on our financials. But in the long run, it will create the most shareholder value.
John Massocca
Okay. And then you addressed this a little bit earlier in the call with regards to kind of your philosophy. But when you think about maybe issuing debt on a five-year basis versus 10-year, is that something you are comfortable doing again given what you are seeing today in the maturity window? Obviously it is pretty attractive from a pricing perspective. So just curious given there’s potentially some additional financing needed if not later this year than next year.
Vincent H. Chao
Yeah. Look. I think the guidepost here is not we want to have short-term debt or we are trying to get the lowest cost of debt. I mean it is cheaper on the shorter end of the scale so that is a benefit. But I go back to just trying to balance our assets and liabilities. So we’ve got 11 years of duration on the debt and we have got under 10 years of duration on the leases. There is a bit of a mismatch there and so to some degree, I think that gives us flexibility to opt for shorter-term debt if it makes sense with regard to all the other decisions we have to make and all the other factors we have to consider. But ideally, I would love to be issuing longer-term debt on a consistent basis, but we do have a bit of a mismatch between assets and liabilities. And so again that gives me some opportunity to do some short-term debt here.
John Massocca
I appreciate the color. That is it for me. Thank you.
Operator
Thank you. [Operator Instructions] Your next question is coming from Linda Tsai from Jefferies. Your line is live. And once again, Linda, your line is live.
Linda Tsai
Hi. Sorry. Maybe you alluded to this somewhat in your response to the earlier question. In terms of line items running slightly above the historical average, lease term fees and net real estate expenses, is your expectation these trends conclude by year-end or could it continue potentially next year?
Vincent H. Chao
Yeah. On lease termination fees, Linda, I mean I think historically we have talked about $2 million to $3 million, but it’s certainly been higher than that over the last, call it, two years or so. Part of that is we have been actively managing the portfolio and trying to look for opportunities to address problems before they come to a head. And so the DARPA paying and the sublease tenant list, those are the ones that we kind of fish around for these lease terminations to try to address them. And as we talked about on this call, the two biggest deals that we did this quarter, we had resolution for both of them by the time we did the lease termination fee and that’s the kind of outcome that we are looking for. So it might be elevated for the next year or so, but I don’t think it will be the same as the last two years, but it could be higher than the $2 million to $3 million in the next year or so.
And then in terms of the net real estate expenses, yes, I think we would hope to by the end of the year be back to a bit more of a normal level of real estate expense net, which is, call it, $13 million to $14 million on an average year. And then obviously that grows every year just from an inflationary perspective, but that is our hope.
Linda Tsai
And that is related to releasing some boxes?
Stephen A. Horn
No. Exactly. It is just with the tenants that we are working with, just holding the assets a little bit longer trying to maximize value of rent.
Linda Tsai
Makes sense. And then in terms of your ability to extract value from underperforming holdings, could you just give us some more color on how you achieve this?
Stephen A. Horn
Right. I think it is discussions with our tenants understanding as lease term is burning off that they may not renew that lease at the end of the term. So sell whether there is some term and value to a potential investor opposed to letting it go vacant where you are getting a percentage of a recovery. But if there is some lease term in the income-producing asset, you can maximize value by selling it into the 10-31 market. And at the same time, actively manage our portfolio, strengthen it in the long run.
Linda Tsai
Thank you.
Operator
Thank you. That does conclude our Q&A session. I will now hand the conference back to Steve Horn, Chief Executive Officer, for closing remarks. Please go ahead.
Stephen A. Horn
Thanks for joining us this morning. NNN, we are in great shape for the remainder of the year, opportunistic, hopefully. And we look forward to seeing many of you guys in person in the fall conference season. Take care. Talk to you.
Operator
[Operator Closing Remarks]