National Retail Properties (NNN) 8-K Second Quarter 2016 Operating Results

NEWS RELEASE

For information contact:

Kevin B. Habicht

Chief Financial Officer

(407) 265-7348    FOR IMMEDIATE RELEASE

August 2, 2016

SECOND QUARTER 2016 OPERATING RESULTS

ANNOUNCED BY NATIONAL RETAIL PROPERTIES, INC.

Orlando, Florida, August 2, 2016 – National Retail Properties, Inc. (NYSE: NNN), a real estate investment trust, today announced its operating results for the quarter and six months ended June 30, 2016. Highlights include:

Operating Results:

• Revenues and net earnings, FFO, Core FFO and AFFO available to common stockholders and diluted per share amounts:

	Quarter Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
	(in thousands, except per share data)
Revenues	$	130,926	$	117,208	$	257,907	$	233,394
Net earnings available to common stockholders	$	43,084	$	37,330	$	104,908	$	82,450
Net earnings per common share	$	0.30	$	0.28	$	0.73	$	0.62
FFO available to common stockholders	$	80,503	$	73,090	$	160,601	$	143,933
FFO per common share	$	0.56	$	0.55	$	1.13	$	1.08
Core FFO available to common stockholders	$	84,404	$	73,518	$	164,722	$	144,517
Core FFO per common share	$	0.59	$	0.55	$	1.15	$	1.09
AFFO available to common stockholders	$	86,531	$	75,181	$	168,280	$	147,304
AFFO per common share	$	0.60	$	0.56	$	1.18	$	1.11

Second Quarter 2016 Highlights:

• FFO per share increased 1.8% over prior year results

• Core FFO per share increased 7.3% over prior year results

• AFFO per share increased 7.1% over prior year results

• Portfolio occupancy was 99.1% at June 30, 2016 consistent with March 31, 2016 and December 31, 2015

• Invested $343.6 million in property investments, including the acquisition of 165 properties with an aggregate 1,095,000 square feet of gross leasable area at an initial cash yield of 6.9%

• Sold seven properties for $19.7 million producing $1.2 million of gains on sales

• Raised $128.3 million net proceeds from the issuance of 2,763,555 common shares

First Half 2016 Highlights:

• FFO per share increased 4.6% over prior year results

• Core FFO per share increased 5.5% over prior year results

• AFFO per share increased 6.3% over prior year results

• Invested $468.7 million in 211 properties with an aggregate 1,686,000 square feet of gross leasable area at an initial cash yield of 6.9%

• Sold 17 properties for $72.5 million producing $18.1 million of gains on sales

• Raised $216.3 million in net proceeds from the issuance of 4,762,965 common shares

Craig Macnab, Chief Executive Officer, commented: "2016 is off to a terrific start with better than expected acquisitions. Our balance sheet remains very strong and our portfolio occupancy continues to be exceptional. Also, we are pleased to have recently announced a 4.6% increase in our third quarter dividend which will make 2016 our 27^th consecutive year of increased annual dividends per share."

National Retail Properties invests primarily in high-quality retail properties subject generally to long-term, net leases. As of June 30, 2016, the company owned 2,452 properties in 48 states with a gross leasable area of approximately 26.3 million square feet and with a weighted average remaining lease term of 11.4 years. For more information on the company, visit www.nnnreit.com.

Management will hold a conference call on August 2, 2016, at 10:30 a.m. ET to review these results. The call can be accessed on the National Retail Properties web site live at http://www.nnnreit.com. For those unable to listen to the live broadcast, a replay will be available on the company’s web site. In addition, a summary of any earnings guidance given on the call will be posted to the company’s web site.

Statements in this press release that are not strictly historical are “forward-looking” statements. These statements generally are characterized by the use of terms such as "believe," "expect," "intend," "may," "estimated," or other similar words or expressions. Forward-looking statements involve known and unknown risks, which may cause the company’s actual future results to differ materially from expected results. These risks include, among others, general economic conditions, local real estate conditions, changes in interest rates, increases in operating costs, the preferences and financial condition of the company's tenants, the availability of capital, risks related to the company's status as a REIT and the profitability of the company’s taxable subsidiary. Additional information concerning these and other factors that could cause actual results to differ materially from these forward-looking statements is contained from time to time in the company’s Securities and Exchange Commission (“SEC”) filings, including, but not limited to, the company’s Annual Report on Form 10-K. Copies of each filing may be obtained from the company or the SEC. Such forward-looking statements should be regarded solely as reflections of the company’s current operating plans and estimates. Actual operating results may differ materially from what is expressed or forecast in this press release. National Retail Properties, Inc. undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date these statements were made.

The reported results are preliminary and not final and there can be no assurance that the results will not vary from the final information filed on Form 10-Q with the SEC for the quarter and six months ended June 30, 2016. In the opinion of management, all adjustments considered necessary for a fair presentation of these reported results have been made.

Funds From Operations, commonly referred to as FFO, is a relative non-GAAP financial measure of operating performance of an equity REIT in order to recognize that income-producing real estate historically has not depreciated on the basis determined under GAAP. FFO is defined by the National Association of Real Estate Investment Trusts (“NAREIT”) and is used by the company as follows: net earnings (computed in accordance with GAAP) plus depreciation and amortization of assets unique to the real estate industry, excluding gains (or including losses), any applicable taxes and noncontrolling interests on the disposition of certain assets, the company’s share of these items from the company’s unconsolidated partnerships and any impairment charges on a depreciable real estate asset.

FFO is generally considered by industry analysts to be the most appropriate measure of performance of real estate companies. FFO does not necessarily represent cash provided by operating activities in accordance with GAAP and should not be considered an alternative to net earnings as an indication of the company’s performance or to cash flow as a measure of liquidity or ability to make distributions. Management considers FFO an appropriate measure of performance of an equity REIT because it primarily excludes the assumption that the value of the real estate assets diminishes predictably over time, and because industry analysts have accepted it as a performance measure. The company’s computation of FFO may differ from the methodology for calculating FFO used by other equity REITs, and therefore, may not be comparable to such other REITs. A reconciliation of net earnings (computed in accordance with GAAP) to FFO, as defined by NAREIT, is included in the financial information accompanying this release.

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Core Funds From Operations (“Core FFO”) is a non-GAAP measure of operating performance that adjusts FFO to eliminate the impact of certain GAAP income and expense amounts that the company believes are infrequent and unusual in nature and/or not related to its core real estate operations. Exclusion of these items from similar FFO-type metrics is common within the REIT industry, and management believes that presentation of Core FFO provides investors with a potential metric to assist in their evaluation of the company’s operating performance across multiple periods and in comparison to the operating performance of its peers because it removes the effect of unusual items that are not expected to impact the company’s operating performance on an ongoing basis. Core FFO is used by management in evaluating the performance of the company’s core business operations and is a factor in determining management compensation. Items included in calculating FFO that may be excluded in calculating Core FFO may include items like transaction related gains, income or expense, impairments on land or commercial mortgage residual interests, preferred stock redemption costs or other non-core amounts as they occur. The company’s computation of Core FFO may differ from the methodology for calculating Core FFO used by other equity REITs, and therefore, may not be comparable to such other REITs. A reconciliation of net earnings (computed in accordance with GAAP) to Core FFO is included in the financial information accompanying this release.

Adjusted Funds From Operations (“AFFO”) is a non-GAAP financial measure of operating performance used by many companies in the REIT industry. AFFO adjusts FFO for certain non-cash items that reduce or increase net income in accordance with GAAP. AFFO should not be considered an alternative to net earnings, as an indication of the company's performance or to cash flow as a measure of liquidity or ability to make distributions. Management considers AFFO a useful supplemental measure of the company’s performance. The company’s computation of AFFO may differ from the methodology for calculating AFFO used by other equity REITs, and therefore, may not be comparable to such other REITs. A reconciliation of net earnings (computed in accordance with GAAP) to AFFO is included in the financial information accompanying this release.

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National Retail Properties, Inc. (in thousands, except per share data) (unaudited)
	Quarter Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Income Statement Summary
Revenues:
Rental and earned income	$	126,929		$	113,224		$	249,404		$	225,288
Real estate expense reimbursement from tenants	3,248			3,324			6,838			6,838
Interest and other income from real estate transactions	301			213			764			376
Interest income on commercial mortgage residual interests	448			447			901			892
	130,926			117,208			257,907			233,394
Operating expenses:
General and administrative	8,735			7,830			17,984			16,435
Real estate	4,567			4,658			9,355			9,417
Depreciation and amortization	36,489			34,202			71,144			66,343
Impairment – commercial mortgage residual interests valuation	632			428			852			428
Impairment losses – real estate and other charges, net of recoveries	5,459			2,686			6,031			3,714
	55,882			49,804			105,366			96,337
Other expenses (revenues):
Interest and other income	(72		)	(35		)	(91		)	(47		)
Interest expense	24,081			21,678			47,667			43,464
Real estate acquisition costs	280			96			409			695
	24,289			21,739			47,985			44,112
Income tax benefit	—			495			—			54
Earnings before gain on disposition of real estate, net of income tax expense	50,755			46,160			104,556			92,999
Gain on disposition of real estate, net of income tax expense	1,178			30			18,053			7,230
Earnings including noncontrolling interests	51,933			46,190			122,609			100,229
Loss (earnings) attributable to noncontrolling interests	9			(2		)	16			(62		)
Net earnings attributable to NNN	51,942			46,188			122,625			100,167
Series D preferred stock dividends	(4,762		)	(4,762		)	(9,523		)	(9,523		)
Series E preferred stock dividends	(4,096		)	(4,096		)	(8,194		)	(8,194		)
Net earnings available to common stockholders	$	43,084		$	37,330		$	104,908		$	82,450

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National Retail Properties, Inc. (in thousands, except per share data) (unaudited)
	Quarter Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Weighted average common shares outstanding:
Basic	143,443		133,267		142,142		132,471
Diluted	143,977		133,601		142,694		132,825
Net earnings per share available to common stockholders:
Basic	$	0.30	$	0.28	$	0.74	$	0.62
Diluted	$	0.30	$	0.28	$	0.73	$	0.62

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National Retail Properties, Inc. (in thousands, except per share data) (unaudited)
	Quarter Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Funds From Operations (FFO) Reconciliation:
Net earnings available to common stockholders	$	43,084		$	37,330		$	104,908		$	82,450
Real estate depreciation and amortization	36,407			34,086			70,984			66,113
Gain on disposition of real estate, net of income tax and noncontrolling interest	(1,178		)	(30		)	(18,053		)	(7,178		)
Impairment losses – depreciable real estate, net of recoveries and income tax	2,190			1,704			2,762			2,548
Total FFO adjustments	37,419			35,760			55,693			61,483
FFO available to common stockholders	$	80,503		$	73,090		$	160,601		$	143,933
FFO per common share:
Basic	$	0.56		$	0.55		$	1.13		$	1.09
Diluted	$	0.56		$	0.55		$	1.13		$	1.08
Core Funds from Operations Reconciliation:
Net earnings available to common stockholders	$	43,084		$	37,330		$	104,908		$	82,450
Total FFO adjustments	37,419			35,760			55,693			61,483
FFO available to common stockholders	80,503			73,090			160,601			143,933
Impairment – commercial mortgage residual interests valuation	632			428			852			428
Impairment losses – non-depreciable real estate and other charges	3,269			—			3,269			156
Total Core FFO adjustments	3,901			428			4,121			584
Core FFO available to common stockholders	$	84,404		$	73,518		$	164,722		$	144,517
Core FFO per common share:
Basic	$	0.59		$	0.55		$	1.16		$	1.09
Diluted	$	0.59		$	0.55		$	1.15		$	1.09

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National Retail Properties, Inc. (in thousands, except per share data) (unaudited)
	Quarter Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Adjusted Funds From Operations (AFFO) Reconciliation:
Net earnings available to common stockholders	$	43,084		$	37,330		$	104,908		$	82,450
Total FFO adjustments	37,419			35,760			55,693			61,483
Total Core FFO adjustments	3,901			428			4,121			584
Core FFO available to common stockholders	84,404			73,518			164,722			144,517
Straight line accrued rent	84			187			(157		)	(18		)
Net capital lease rent adjustment	353			342			692			676
Below market rent amortization	(661		)	(676		)	(1,520		)	(1,700		)
Stock based compensation expense	2,667			2,368			5,370			4,777
Capitalized interest expense	(316		)	(558		)	(827		)	(948		)
Total AFFO adjustments	2,127			1,663			3,558			2,787
AFFO available to common stockholders	$	86,531		$	75,181		$	168,280		$	147,304
AFFO per common share:
Basic	$	0.60		$	0.56		$	1.18		$	1.11
Diluted	$	0.60		$	0.56		$	1.18		$	1.11
Other Information:
Percentage rent	$	164		$	112		$	638		$	297
Amortization of debt costs	$	757		$	714		$	1,513		$	1,423
Scheduled debt principal amortization (excluding maturities)	$	133		$	410		$	392		$	819
Non-real estate depreciation expense	$	84		$	122		$	165		$	240
2016 Earnings Guidance:
FFO guidance for 2016 is $2.31 to $2.36 per share before any impairment expense. The 2016 AFFO is estimated to be $2.36 to $2.41 per share. The FFO guidance equates to net earnings before any impairments or gains or losses from the sale of real estate of $1.30 to $1.35 per share, plus $1.01 per share of expected real estate depreciation and amortization. The guidance is based on current plans and assumptions and subject to risks and uncertainties more fully described in this press release and the company's reports filed with the Securities and Exchange Commission.
	2016 Guidance
Net earnings per common share before any impairment charges or gains (losses) on sale of real estate	$1.30 - $1.35 per share
Real estate depreciation and amortization per share	$1.01 per share
FFO per share (Core)	$2.31 - $2.36 per share
AFFO per share	$2.36 - $2.41 per share
G&A expenses	$35.5 - $36.0 Million
Real estate expenses, net of tenant reimbursements	$5.5 Million
Acquisition volume	$650 - $750 Million
Disposition volume	$85 - $100 Million

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National Retail Properties, Inc. (in thousands) (unaudited)
	June 30, 2016		December 31, 2015
Balance Sheet Summary
Assets:
Cash and cash equivalents	$	2,371	$	13,659
Restricted cash and cash held in escrow	242		601
Receivables, net of allowance	2,205		3,344
Mortgages, notes and accrued interest receivable, net of allowance	5,271		8,688
Real estate portfolio:
Accounted for using the operating method, net of accumulated depreciation and amortization	5,630,117		5,253,511
Accounted for using the direct financing method	13,826		14,518
Real estate held for sale	3,062		35,429
Commercial mortgage residual interests	10,580		11,115
Accrued rental income, net of allowance	25,221		25,529
Debt costs, net of accumulated amortization	3,396		4,003
Other assets	88,999		89,647
Total assets	$	5,785,290	$	5,460,044
Liabilities:
Line of credit payable	$	147,300	$	—
Mortgages payable, including unamortized premium and net of unamortized debt costs	16,900		23,964
Notes payable, net of unamortized discount and unamortized debt costs	1,953,479		1,951,980
Accrued interest payable	19,138		20,113
Other liabilities	100,977		121,594
Total liabilities	2,237,794		2,117,651
Stockholders' equity of NNN	3,547,253		3,342,134
Noncontrolling interests	243		259
Total equity	3,547,496		3,342,393
Total liabilities and equity	$	5,785,290	$	5,460,044
Common shares outstanding	146,002		141,008
Gross leasable area, Property Portfolio (square feet)	26,326		24,964

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National Retail Properties, Inc. Debt Summary As of June 30, 2016 (in thousands) (unaudited)
Unsecured Debt	Principal		Principal, Net of Unamortized Discount			Stated Rate		Effective Rate		Maturity Date
Line of credit payable	$	147,300	$	147,300		L + 92.5 bps		1.385	%	January 2019
Unsecured notes payable:
2017	250,000		249,851			6.875	%	6.924	%	October 2017
2021	300,000		297,551			5.500	%	5.689	%	July 2021
2022	325,000		321,682			3.800	%	3.985	%	October 2022
2023	350,000		348,146			3.300	%	3.388	%	April 2023
2024	350,000		349,420			3.900	%	3.924	%	June 2024
2025	400,000		399,090			4.000	%	4.029	%	November 2025
Total	1,975,000		1,965,740
Total unsecured debt (1)	$	1,975,000	$	1,965,740
Debt costs			(17,782		)
Accumulated amortization			5,521
Debt costs, net of accumulated amortization			(12,261)
Notes payable, net of unamortized discount and unamortized debt costs			$	1,953,479

⁽¹⁾ Unsecured notes payable have a weighted average interest rate of 4.5% and a weighted maturity of 6.5 years

Mortgages Payable	Principal Balance		Interest Rate		Maturity Date
Mortgage(1)	$	14,274	5.230	%	July 2023
Mortgage(1)	2,744		6.400	%	February 2017
	$	17,018	(2)
Debt costs	(226)
Accumulated amortization	108
Debt costs, net of accumulated amortization	(118)
Mortgages payable, including unamortized premium and net of unamortized debt costs	$	16,900
(1) Includes unamortized premium
(2) Mortgages payable have a weighted average interest rate of 5.4% and a weighted average maturity of 6.0 years

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National Retail Properties, Inc.

Property Portfolio

Top 20 Lines of Trade

		As of June 30,
	Line of Trade	2016(1)		2015(2)
1.	Convenience stores	16.7	%	17.5	%
2.	Restaurants – full service	12.6	%	8.9	%
3.	Restaurants – limited service	7.7	%	7.1	%
4.	Automotive service	6.7	%	7.1	%
5.	Family entertainment centers	5.7	%	5.6	%
6.	Theaters	5.1	%	5.1	%
7.	Health and fitness	4.2	%	3.8	%
8.	Automotive parts	4.0	%	4.5	%
9.	Recreational vehicle dealers, parts and accessories	3.4	%	3.6	%
10.	Banks	3.3	%	3.6	%
11.	Sporting goods	2.8	%	3.4	%
12.	Wholesale clubs	2.5	%	2.8	%
13.	Medical service providers	2.2	%	2.0	%
14.	Drug stores	2.2	%	2.4	%
15.	Consumer electronics	2.1	%	2.3	%
16.	Travel plazas	2.0	%	2.2	%
17.	Home improvement	1.9	%	1.9	%
18.	General merchandise	1.8	%	2.1	%
19.	Home furnishings	1.8	%	2.0	%
20.	Grocery	1.6	%	1.6	%
	Other	9.7	%	10.5	%
	Total	100.0	%	100.0	%

Top 10 States

	State	% of Total(1)			State	% of Total(1)
1.	Texas	18.9	%	6.	Indiana	4.3	%
2.	Florida	9.3	%	7.	Georgia	4.3	%
3.	Ohio	5.8	%	8.	Virginia	3.6	%
4.	Illinois	5.1	%	9.	Alabama	3.1	%
5.	North Carolina	4.9	%	10.	Tennessee	2.9	%

⁽¹⁾  Based on the annualized base rent for all leases in place as of June 30, 2016.

⁽²⁾  Based on the annualized base rent for all leases in place as of June 30, 2015.

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National Retail Properties, Inc.

Property Portfolio

Top Tenants (> 2.0%)

	Properties	% of Total (1)
Sunoco	125	5.6	%
Mister Car Wash	90	4.1	%
LA Fitness	26	3.6	%
Couche-Tard (Pantry)	86	3.4	%
Camping World	32	3.4	%
7-Eleven	77	3.3	%
SunTrust	121	3.1	%
AMC Theatre	17	2.9	%
Bell American (Taco Bell)	115	2.9	%
Chuck E. Cheese's	53	2.6	%
BJ's Wholesale Club	8	2.5	%
Frisch's Restaurant	74	2.3	%
Gander Mountain	12	2.2	%
Bob Evans	117	2.1	%
Best Buy	19	2.0	%

Lease Expirations⁽²⁾ 

	% of Total(1)		# of Properties	Gross Leasable Area (3)		% of Total(1)		# of Properties	Gross Leasable Area (3)
2016	0.3	%	9	130,000	2022	5.5	%	99	1,182,000
2017	2.3	%	44	852,000	2023	2.3	%	56	930,000
2018	5.9	%	183	1,645,000	2024	2.7	%	50	885,000
2019	3.2	%	79	1,116,000	2025	5.3	%	133	1,118,000
2020	4.0	%	136	1,549,000	2026	5.9	%	167	1,738,000
2021	4.6	%	120	1,343,000	Thereafter	58.0	%	1,348	13,419,000

⁽¹⁾  Based on the annual base rent of $517,010,000, which is the annualized base rent for all leases in place as of June 30, 2016.

⁽²⁾  As of June 30, 2016, the weighted average remaining lease term is 11.4 years.

⁽³⁾  Square feet.

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