Second Quarter 2017 Operating Results and Increased 2017 Guidance Announced By National Retail Properties, Inc.

PR Newswire

ORLANDO, Fla., Aug. 1, 2017

ORLANDO, Fla., Aug. 1, 2017 /PRNewswire/ -- 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, 2017. 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,
	2017		2016		2017		2016
	(in thousands, except per share data)
Revenues	$	145,550	$	130,926	$	286,981	$	257,907

Net earnings available to common stockholders	$	49,447	$	43,084	$	101,068	$	104,908
Net earnings per common share	$	0.33	$	0.30	$	0.68	$	0.73

FFO available to common stockholders	$	87,884	$	80,503	$	166,151	$	160,601
FFO per common share	$	0.59	$	0.56	$	1.12	$	1.13

Core FFO available to common stockholders	$	95,425	$	84,404	$	183,547	$	164,722
Core FFO per common share	$	0.64	$	0.59	$	1.24	$	1.15

AFFO available to common stockholders	$	96,412	$	86,531	$	185,457	$	168,280
AFFO per common share	$	0.65	$	0.60	$	1.25	$	1.18

Second Quarter 2017 Highlights:

FFO per share increased 5.4% over prior year results
Core FFO per common share increased 8.5% over prior year results
AFFO per common share increased 8.3% over prior year results
Portfolio occupancy was 99.3% at June 30, 2017 as compared to 99.1% at March 31, 2017 and 99.0% at December 31, 2016
Invested $299.5 million in property investments, including the acquisition of 140 properties with an aggregate 832,000 square feet of gross leasable area at an initial cash yield of 6.9%
Sold eight properties for $9.3 million producing $2.7 million of gains on sales, net of noncontrolling interests
Raised $25.1 million net proceeds from the issuance of 583,946 common shares

First Half 2017 Highlights:

Core FFO per share increased 7.8% over prior year results
AFFO per share increased 5.9% over prior year results
Invested $407.4 million in 164 properties with an aggregate 1,082,000 square feet of gross leasable area at an initial cash yield of 6.9%
Sold 25 properties for $48.3 million producing $17.3 million of gains on sales, net of noncontrolling interests
Raised $73.6 million in net proceeds from the issuance of 1,687,621 common shares

Core FFO guidance for 2017 was increased from a range of $2.44 to $2.48 to a range of $2.46 to $2.50 per share. The 2017 AFFO is estimated to be $2.50 to $2.54 per share. The Core FFO guidance equates to net earnings of $1.36 to $1.40 per share, plus $1.10 per share of expected real estate depreciation and amortization and excludes any gains from the sale of real estate and any charges for impairments, retirement severance costs, or preferred stock redemption charges. 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.

Jay Whitehurst, Chief Executive Officer, commented: "National Retail Properties enjoyed another impressive quarter, driven by our healthy portfolio, our selectively underwritten acquisitions, and our flexible, low leverage balance sheet, all of which has positioned us to raise our guidance and, as previously announced, to raise our common dividend for the 28^th consecutive year, a record matched by only three other REITs and less than 90 public companies in the United States."

National Retail Properties invests primarily in high-quality retail properties subject generally to long-term, net leases. As of June 30, 2017, the company owned 2,675 properties in 48 states with a gross leasable area of approximately 28.1 million square feet and with a weighted average remaining lease term of 11.5 years. For more information on the company, visit www.nnnreit.com.

Management will hold a conference call on August 1, 2017, 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, and, risks related to the company's status as a REIT. 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 (the "Commission") 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 Commission. 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 Commission for the quarter and six months ended June 30, 2017. 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.

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.

National Retail Properties, Inc. (in thousands, except per share data) (unaudited)
	Quarter Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Income Statement Summary

Revenues:
Rental and earned income	$	141,742	$	126,929	$	279,039	$	249,404
Real estate expense reimbursement from tenants	3,700		3,248		7,560		6,838
Interest and other income from real estate transactions	28		301		217		764
Interest income on commercial mortgage residual interests	80		448		165		901
	145,550		130,926		286,981		257,907

Operating expenses:
General and administrative	8,820		8,735		17,739		17,984
Real estate	5,424		4,567		11,087		9,355
Depreciation and amortization	41,326		36,489		81,469		71,144
Impairment – commercial mortgage residual interests valuation	—		632		—		852
Impairment losses – real estate and other charges, net of recoveries	(39)		5,459		1,167		6,031
Retirement severance costs	7,428		—		7,428		—
	62,959		55,882		118,890		105,366

Other expenses (revenues):
Interest and other income	(37)		(72)		(175)		(91)
Interest expense	27,274		24,081		53,888		47,667
Real estate acquisition costs	—		280		—		409
	27,237		24,289		53,713		47,985

Earnings before gain on disposition of real estate	55,354		50,755		114,378		104,556

Gain on disposition of real estate	3,055		1,178		17,679		18,053

Earnings including noncontrolling interests	58,409		51,933		132,057		122,609

Loss (earnings) attributable to noncontrolling interests	(381)		9		(372)		16

Net earnings attributable to NNN	58,028		51,942		131,685		122,625
Series D preferred stock dividends	—		(4,762)		(3,598)		(9,523)
Series E preferred stock dividends	(4,096)		(4,096)		(8,194)		(8,194)
Series F preferred stock dividends	(4,485)		—		(8,970)		—
Excess of redemption value over carrying value of Series D preferred shares redeemed	—		—		(9,855)		—
Net earnings available to common stockholders	$	49,447	$	43,084	$	101,068	$	104,908

Weighted average common shares outstanding:
Basic	148,373		143,443		147,655		142,142
Diluted	148,719		143,977		148,024		142,694

Net earnings per share available to common stockholders:
Basic	$	0.33	$	0.30	$	0.68	$	0.74
Diluted	$	0.33	$	0.30	$	0.68	$	0.73

National Retail Properties, Inc. (in thousands, except per share data) (unaudited)
	Quarter Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Funds From Operations (FFO) Reconciliation:
Net earnings available to common stockholders	$	49,447	$	43,084	$	101,068	$	104,908
Real estate depreciation and amortization	41,247		36,407		81,311		70,984

Gain on disposition of real estate, net of noncontrolling interest	(2,658)		(1,178)		(17,282)		(18,053)
Impairment losses – depreciable real estate, net of recoveries	(152)		2,190		1,054		2,762
Total FFO adjustments	38,437		37,419		65,083		55,693
FFO available to common stockholders	$	87,884	$	80,503	$	166,151	$	160,601

FFO per common share:
Basic	$	0.59	$	0.56	$	1.13	$	1.13
Diluted	$	0.59	$	0.56	$	1.12	$	1.13

Core Funds From Operations Reconciliation:
Net earnings available to common stockholders	$	49,447	$	43,084	$	101,068	$	104,908
Total FFO adjustments	38,437		37,419		65,083		55,693
FFO available to common stockholders	87,884		80,503		166,151		160,601

Excess of redemption value over carrying value of preferred share redemption	—		—		9,855		—
Impairment – commercial mortgage residual interests valuation	—		632		—		852
Impairment losses – non-depreciable real estate	113		—		113		—
Retirement severance costs	7,428		—		7,428		—
Bad debt expense – loans	—		3,269		—		3,269
Total Core FFO adjustments	7,541		3,901		17,396		4,121
Core FFO available to common stockholders	$	95,425	$	84,404	$	183,547	$	164,722

Core FFO per common share:
Basic	$	0.64	$	0.59	$	1.24	$	1.16
Diluted	$	0.64	$	0.59	$	1.24	$	1.15

	Quarter Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Adjusted Funds From Operations (AFFO) Reconciliation:
Net earnings available to common stockholders	$	49,447	$	43,084	$	101,068	$	104,908
Total FFO adjustments	38,437		37,419		65,083		55,693
Total Core FFO adjustments	7,541		3,901		17,396		4,121
Core FFO available to common stockholders	95,425		84,404		183,547		164,722

Straight line accrued rent	(229)		84		(904)		(157)
Net capital lease rent adjustment	213		353		443		692
Below market rent amortization	(682)		(661)		(1,341)		(1,520)
Stock based compensation expense	2,245		2,667		4,825		5,370
Capitalized interest expense	(560)		(316)		(1,113)		(827)
Total AFFO adjustments	987		2,127		1,910		3,558
AFFO available to common stockholders	$	96,412	$	86,531	$	185,457	$	168,280

AFFO per common share:
Basic	$	0.65	$	0.60	$	1.26	$	1.18
Diluted	$	0.65	$	0.60	$	1.25	$	1.18

Other Information:
Percentage rent	$	198	$	164	$	746	$	638
Amortization of debt costs	$	868	$	757	$	1,727	$	1,513
Scheduled debt principal amortization (excluding maturities)	$	125	$	133	$	253	$	392
Non-real estate depreciation expense	$	81	$	84	$	164	$	165

2017 Earnings Guidance:
Core FFO guidance for 2017 is $2.46 to $2.50 per share. The 2017 AFFO is estimated to be $2.50 to $2.54 per share. The FFO guidance equates to net earnings of $1.36 to $1.40 per share, plus $1.10 per share of expected real estate depreciation and amortization and excludes any gains from the sale of real estate and any charges for impairments, retirement severance costs, or preferred stock redemption charges. 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.

		2017 Guidance
Net earnings per common share excluding any gains on sale of real estate, impairment charges, retirement severance costs or charges in connection with preferred stock redemption		$1.36 - $1.40 per share
Real estate depreciation and amortization per share		$1.10 per share
Core FFO per share		$2.46 - $2.50 per share
AFFO per share		$2.50 - $2.54 per share
G&A expenses (excluding retirement severance costs)		$33 - $34 Million
Real estate expenses, net of tenant reimbursements		$7 - $8 Million
Acquisition volume		$550 - $650 Million
Disposition volume		$80 - $120 Million

National Retail Properties, Inc. (in thousands) (unaudited)
	June 30, 2017		December 31, 2016
Balance Sheet Summary

Assets:
Real estate:
Accounted for using the operating method, net of accumulated depreciation and amortization	$	6,198,346	$	5,881,652
Accounted for using the direct financing method	10,091		11,230
Real estate held for sale	2,341		23,478
Cash and cash equivalents	4,450		294,540
Receivables, net of allowance	2,208		3,418
Accrued rental income, net of allowance	25,688		25,101
Debt costs, net of accumulated amortization	2,124		2,715
Other assets	91,880		92,017
Total assets	$	6,337,128	$	6,334,151

Liabilities:
Line of credit payable	$	215,500	$	—
Mortgages payable, including unamortized premium and net of unamortized debt costs	13,591		13,878
Notes payable, net of unamortized discount and unamortized debt costs	2,299,710		2,297,811
Accrued interest payable	19,921		19,665
Other liabilities	99,720		85,869
Total liabilities	2,648,442		2,417,223

Stockholders' equity of NNN	3,688,185		3,916,799
Noncontrolling interests	501		129
Total equity	3,688,686		3,916,928

Total liabilities and equity	$	6,337,128	$	6,334,151




Common shares outstanding	149,206		147,150

Gross leasable area, Property Portfolio (square feet)	28,102		27,204

National Retail Properties, Inc. Debt Summary As of June 30, 2017 (in thousands) (unaudited)


Unsecured Debt	Principal		Principal, Net of Unamortized Discount		Stated Rate	Effective Rate	Maturity Date
Line of credit payable	$	215,500	$	215,500	L + 92.5 bps	2.019%	January 2019

Unsecured notes payable:
2017	250,000		249,965		6.875%	6.924%	October 2017
2021	300,000		297,983		5.500%	5.689%	July 2021
2022	325,000		322,156		3.800%	3.985%	October 2022
2023	350,000		348,393		3.300%	3.388%	April 2023
2024	350,000		349,484		3.900%	3.924%	June 2024
2025	400,000		399,172		4.000%	4.029%	November 2025
2026	350,000		346,317		3.600%	3.733%	December 2026
Total	2,325,000		2,313,470

Total unsecured debt⁽¹⁾	$	2,540,500	$	2,528,970

Debt costs			(21,157)
Accumulated amortization			7,397
Debt costs, net of accumulated amortization			(13,760)
Notes payable, net of unamortized discount and unamortized debt costs			$	2,515,210


⁽¹⁾ Unsecured notes payable have a weighted average interest rate of 4.4% and a weighted average maturity of 6.1 years

Mortgages Payable	Principal Balance	Interest Rate	Maturity Date
Mortgage⁽¹⁾	13,692	5.230%	July 2023

Debt costs	(147)
Accumulated amortization	46
Debt costs, net of accumulated amortization	(101)
Mortgages payable, including unamortized premium and net of unamortized debt costs	$ 13,591

⁽¹⁾ Includes unamortized premium

National Retail Properties, Inc. Property Portfolio

Top 20 Lines of Trade

		As of June 30,
	Line of Trade	2017⁽¹⁾	2016⁽²⁾
1.	Convenience stores	18.1%	16.7%
2.	Restaurants – full service	11.7%	12.6%
3.	Restaurants – limited service	7.8%	7.7%
4.	Automotive service	6.9%	6.7%
5.	Family entertainment centers	6.1%	5.7%
6.	Health and fitness	5.6%	4.2%
7.	Theaters	4.7%	5.1%
8.	Automotive parts	3.7%	4.0%
9.	Recreational vehicle dealers, parts and accessories	3.4%	3.4%
10.	Banks	2.6%	3.3%
11.	Sporting goods	2.4%	2.8%
12.	Medical service providers	2.4%	2.2%
13.	Wholesale clubs	2.2%	2.5%
14.	Drug stores	2.0%	2.2%
15.	Furniture	1.9%	1.4%
16.	Travel plazas	1.9%	2.0%
17.	General merchandise	1.9%	1.8%
18.	Consumer electronics	1.8%	2.1%
19.	Home improvement	1.8%	1.9%
20.	Home furnishings	1.6%	1.8%
	Other	9.5%	9.9%
	Total	100.0%	100.0%

Top 10 States

	State	% of Total⁽¹⁾		State	% of Total⁽¹⁾
1.	Texas	18.1%	6.	Georgia	4.3%
2.	Florida	8.6%	7.	Tennessee	4.0%
3.	Illinois	5.5%	8.	Virginia	3.9%
4.	Ohio	5.4%	9.	Indiana	3.9%
5.	North Carolina	4.8%	10.	Alabama	3.2%

⁽¹⁾Based on the annualized base rent for all leases in place as of June 30, 2017. ⁽²⁾Based on the annualized base rent for all leases in place as of June 30, 2016.

National Retail Properties, Inc. Property Portfolio

Top Tenants ( ≥ 2.0%)

		Properties	% of Total⁽¹⁾
	Sunoco	125	5.2%
	Mister Car Wash	96	4.2%
	LA Fitness	29	3.8%
	Camping world	34	3.4%
	AMC Theatre	20	3.3%
	Couche-Tard (Pantry)	86	3.3%
	7-Eleven	77	3.2%
	GPM Investments	96	2.7%
	Bell American (Taco Bell)	115	2.6%
	SunTrust	109	2.5%
	Chuck E. Cheese's	53	2.4%
	BJ's Wholesale Club	8	2.2%
	Frisch's Restaurant	74	2.1%
	Gander Mountain	12	2.1%

Lease Expirations⁽²⁾
	% of Total⁽¹⁾	# of Properties	Gross Leasable Area⁽³⁾		% of Total⁽¹⁾	# of Properties	Gross Leasable Area⁽³⁾
2017	0.3%	11	213,000	2023	2.5%	87	1,052,000
2018	2.9%	85	1,063,000	2024	2.4%	50	883,000
2019	2.8%	76	1,134,000	2025	4.9%	132	1,145,000
2020	3.6%	129	1,562,000	2026	5.9%	184	1,910,000
2021	4.2%	121	1,316,000	2027	8.6%	194	2,816,000
2022	6.5%	122	1,716,000	Thereafter	55.4%	1,459	12,924,000

⁽¹⁾ Based on the annual base rent of $573,024,000, which is the annualized base rent for all leases in place as of June 30, 2017. ⁽²⁾ As of June 30, 2017, the weighted average remaining lease term is 11.5 years. ⁽³⁾ Square feet.

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Second Quarter 2017 Operating Results and Increased 2017 Guidance Announced By National Retail Properties, Inc.

Second Quarter 2017 Operating Results and Increased 2017 Guidance Announced By National Retail Properties, Inc.