First Quarter 2010 Operating Results Announced By National Retail Properties, Inc.

News provided by

National Retail Properties, Inc.

May 04, 2010, 08:30 ET

ORLANDO, Fla., May 4 /PRNewswire-FirstCall/ -- National Retail Properties, Inc. (NYSE: NNN), a real estate investment trust, today announced operating results for the quarter ended March 31, 2010.  Highlights include:

Operating Results:

  • Revenues, net earnings, FFO and AFFO available to common stockholders:


Quarter Ended

March 31,


2010

2009


(in thousands, except per share data)

Revenues

$

56,626

$

58,190








Net earnings available to common stockholders

$

14,669

$

25,108

Net earnings per common share (diluted)

$

0.18

$

0.32








FFO available to common stockholders

$

25,259

$

34,510

FFO per common share (diluted)

$

0.31

$

0.44








AFFO available to common stockholders

$

31,444

$

36,827

AFFO per common share (diluted)

$

0.38

$

0.47









  • NNN paid cash dividends to its common stockholders of $0.375 per share during the quarter ended March 31, 2010.
  • Investment Portfolio occupancy was 96.4% at March 31, 2010, as compared to 96.4% at December 31, 2009, and 96.7% at March 31, 2009.

Investments and Dispositions for the quarter ended March 31, 2010:

  • Investments:
    • $12.4 million in the Investment Portfolio, including acquiring four properties with an aggregate 64,000 square feet of gross leasable area
  • Dispositions:
    • Five Investment properties with an aggregate 14,000 square feet of gross leasable area, with net proceeds of $6.8 million, resulting in a gain of $22,000
    • One Inventory property with net proceeds of $775,000

Capital transactions for the quarter ended March 31, 2010:

  • Issued 502,892 shares of common stock generating $10,460,000 of net proceeds pursuant to the Dividend Reinvestment and Stock Purchase Plan

National Retail Properties also announced revised 2010 FFO guidance of $1.47 to $1.52 per share before any impairment expense and estimated AFFO to be $1.62 to $1.67 per share.  The change in guidance is primarily related to projected timing of property acquisitions and an increase in projected property dispositions.

This guidance equates to net earnings before any gains or losses from the sale of real estate of $0.93 to $0.98 per share plus $0.50 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.

Craig Macnab, Chief Executive Officer, commented: "Our portfolio and balance sheet remain in very good condition and visibility on potential acquisitions is improving.   We believe our business model of owning and acquiring net lease retail properties and prudent risk management will continue to produce relatively high returns and less volatility in the long run.  Excluding the non-cash impairment charge taken on our mortgage residual portfolio this quarter, we would have earned FFO of approximately 35 cents and AFFO of approximately 38 cents which is in line with our internal expectations.  Our revised guidance for 2010 takes into account the sale of a large multi-tenant retail shopping center in our taxable REIT subsidiary. If this property sale closes, it will be dilutive to FFO this year, however as we invest the approximately $41 million of proceeds in higher yielding net lease retail properties our shareholders will reap the benefit of this capital recycling transaction for years to come."

National Retail Properties invests primarily in high-quality retail properties subject generally to long-term, net leases.  As of March 31, 2010, the company owned 1,014 Investment Properties in 43 states with a gross leasable area of approximately 11.4 million square feet.  For more information on the company, visit www.nnnreit.com.

Management will hold a conference call on May 4, 2010, 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.  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 availability of capital, 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 those 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.  Consequently, 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 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 for the quarter ended March 31, 2010.  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) on the disposition of real estate held for investment, and the company's share of these items from the company's unconsolidated partnerships.

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.  

Adjusted Funds From Operations ("AFFO") is a non-GAAP financial measure of operating performance used by many companies in the REIT industry. AFFO further adjusts FFO for certain non-cash items that reduce or increase net income in accordance with GAAP.  Management considers AFFO a useful supplemental measure of the company's performance.   The company's computation of AFFO may differ from the calculation used by other equity REITs and therefore may not be comparable to such other REITs.  A reconciliation of net earnings to AFFO is included in this release.

The company has determined that there are earnings from discontinued operations in each of its segments, real estate held for investment and real estate held for sale.  All property dispositions from the company's held for investment segment are classified as discontinued operations.  In addition, certain properties in the company's held for sale segment that have generated revenues before disposition are classified as discontinued operations.  The results of operations for prior periods for these properties now classified as discontinued operations have been restated to reflect the results in earnings from discontinued operations for comparability purposes.  These adjustments resulted in a decrease in the company's reported total revenues and total and per share earnings from continuing operations and an increase in the company's earnings from discontinued operations.  However, the company's total and per share FFO and net earnings available to common stockholders are not affected.


National Retail Properties, Inc.

(in thousands, except per share data)

(unaudited)

Quarter Ended March 31,

2010

2009

Income Statement Summary










Revenues:




Rental and earned income

$

52,856

$

53,662

Real estate expense reimbursement from tenants

1,772

2,342

Interest and other income from real estate transactions

949

1,132

Interest income on commercial mortgage residual interests

1,049

1,054


56,626

58,190






Retail operations:




Revenues

6,536

-

Operating expenses

(6,669)

-

Net

(133)

-






Operating expenses:




General and administrative

5,611

5,306

Real estate

3,530

3,420

Depreciation and amortization

11,855

11,692

Impairment - commercial mortgage residual interests valuation adjustment

3,683

-

Restructuring costs

-

731


24,679

21,149






Other expenses (revenues):




Interest and other income

(252)

(347)

Interest expense

15,989

15,431


15,737

15,084






Income tax (expense) benefit

(92)

425

Equity in earnings of unconsolidated affiliate


105

103

Gain on note receivable and property foreclosure

16

-

Gain on extinguishment of debt

-

2,418






Earnings from continuing operations

16,106

24,903






Earnings from discontinued operations:




Real estate, Investment Portfolio

61

1,820

Real estate, Inventory Portfolio, net of income tax expense

131

51


192

1,871






Earnings including noncontrolling interests

16,298

26,774






Loss (earnings) attributable to noncontrolling interests:




Continuing operations

119

(179)

Discontinued operations

(52)

209


67

30






Net earnings attributable to NNN

16,365

26,804

Series C preferred stock dividends

(1,696)

(1,696)

Net earnings available to common stockholders

$

14,669

$

25,108






National Retail Properties, Inc.

(in thousands, except per share data)

(unaudited)

Quarter Ended March 31,

2010

2009

Weighted average common shares outstanding:




Basic

82,321

78,166

Diluted

82,446

78,254






Net earnings per share available to common stockholders:




Basic:




Continuing operations

$

0.18

$

0.29

Discontinued operations

0.00

0.03

Net earnings

$

0.18

$

0.32






Diluted:




Continuing operations

$

0.18

$

0.29

Discontinued operations

0.00

0.03

Net earnings

$

0.18

$

0.32














National Retail Properties, Inc.

(in thousands, except per share data)

(unaudited)







Quarter Ended March 31,

2010

2009

Funds From Operations (FFO) Reconciliation:




Net earnings available to common stockholders

$

14,669

$

25,108

Real estate depreciation and amortization:




Continuing operations

10,583

10,777

Discontinued operations

30

159

Joint venture real estate depreciation

44

44

Gain on disposition of real estate - Investment Portfolio

(22)

(1,032)

Gain on disposition of real estate - Inventory Portfolio (TRS)

(45)

(546)

Total FFO adjustments

10,590

9,402

FFO available to common stockholders

$

25,259

$

34,510






FFO per share:




Basic

$

0.31

$

0.44

Diluted

$

0.31

$

0.44






Adjusted Funds From Operations (AFFO) Reconciliation:




Net earnings available to common stockholders

$

14,669

$

25,108

Total FFO adjustments

10,590

9,402

FFO available to common stockholders

25,259

34,510






Straight-line accrued rent


(319)

91

Net capital lease rent adjustment

372

330

Below market rent amortization

(96)

(153)

Stock based compensation expense

1,113

1,119

Capitalized interest expense

(53)

(518)

Convertible debt interest expense

1,501

1,448

Impairment - commercial mortgage residual interests valuation adjustment

3,683

-

Gain on note receivable and property foreclosures

(16)

-

Total AFFO adjustments

6,185

2,317

AFFO available to common stockholders

$

31,444

$

36,827






AFFO per share:




Basic

$

0.38

$

0.47

Diluted

$

0.38

$

0.47






Other Information:










Percentage rent

$

54

$

147






Amortization of debt costs

$

1,133

$

837






Scheduled debt principal amortization (excluding maturities)

$

253

$

248






Non-real estate depreciation expense

$

145

$

78








National Retail Properties, Inc.

(in thousands)

(unaudited)


Earnings from Discontinued Operations: The company has classified its investment assets sold and leasehold interests expired as discontinued operations.  In addition, the company has classified any investment asset or revenue generating inventory asset that was held for sale at March 31, 2010, as discontinued operations.  The following is a summary of earnings from discontinued operations.

Quarter Ended March 31,

2010

2009

Earnings from Discontinued Operations - Investment Portfolio:




Revenues:




Rental and earned income

$

66

$

1,154

Real estate expense reimbursement from tenants

1

44

Interest and other income from real estate transactions

28

-


95

1,198

Expenses:




General and administrative

-

3

Real estate

26

248

Depreciation and amortization

30

159


56

410






Gain on disposition of real estate

22

1,032






Earnings from discontinued operations attributable to NNN

$

61

$

1,820












Earnings from Discontinued Operations – Inventory Portfolio:




Revenues:




Rental income

$

1,152

$

1,096

Real estate expense reimbursement from tenants

987

941

Interest and other income from real estate transactions

36

39


2,175

2,076






Disposition of real estate:




Gross proceeds

802

4,900

Costs

(715)

(4,354)

Gain

87

546






Expenses:




General and administrative

38

45

Real estate

1,041

1,298

Depreciation and amortization

61

139

Interest

943

930


2,083

2,412






Income tax expense

(48)

(159)






Earnings from discontinued operations including noncontrolling interests

131

51

Loss (earnings) attributable to noncontrolling interests

(52)

209






Earnings from discontinued operations attributable to NNN

$

79

$

260








National Retail Properties, Inc.

(in thousands)

(unaudited)



Quarter Ended March 31,

2010

2009

# of

Properties

Gain

# of

Properties

Gain

Real Estate Disposition Summary:








Reconciliation of gain on disposition between continuing and discontinued operations:








Continuing operations

-

$

-

-

$

-

Discontinued operations:








Investment Portfolio

5

22

3

1,032

Inventory Portfolio

1

87

1

546

Noncontrolling interests, Inventory Portfolio

-

(42)

-

-

6

$

67

4

$

1,578




















Reconciliation of gain on disposition by type:








Inventory Portfolio:








Development

1

$

87

1

$

546

Noncontrolling interests, Development

-

(42)

-

-

     Total Inventory gain (TRS)

1

45

1

546










Investment Portfolio

5

22

3

1,032











6

$

67

4

$

1,578












National Retail Properties, Inc.

(in thousands)

(unaudited)

March 31,

2010

December 31,

2009

Balance Sheet Summary








Assets:




Cash and cash equivalents

$

31,243

$

15,225

Receivables, net of allowance

1,189

1,946

Investment in unconsolidated affiliate

4,656

4,703

Mortgages, notes and accrued interest receivable

47,338

41,976

Real estate, Investment Portfolio:




Accounted for using the operating method, net of accumulated depreciation and amortization

2,323,515

2,328,576

Accounted for using the direct financing method

30,945

31,317

Real estate, Inventory Portfolio, held for sale

71,778

72,423

Commercial mortgage residual interests

16,577

20,153

Accrued rental income, net of allowance

25,945

25,745

Other assets

48,615

48,898






Total assets

$

2,601,801

$

2,590,962






Liabilities:




Mortgages payable

$

30,469

$

25,290

Notes payable - convertible

344,880

343,380

Notes payable, net of unamortized discount

618,728

618,676

Other liabilities

47,654

36,754

Total liabilities

1,041,731

1,024,100






Stockholders' equity of NNN

1,557,624

1,564,240

Noncontrolling interests

2,446

2,622

Total equity

1,560,070

1,566,862






Total liabilities and equity

$

2,601,801

$

2,590,962






Common shares outstanding

83,311

82,428






Gross leasable area, Investment Portfolio (square feet)

11,423

11,373








Orange Avenue Mortgage Investments, Inc.

(in thousands)

(unaudited)

In May 2005, the company acquired a 78.9 percent equity investment of OAMI for $9.4 million.  The company's 78.9 percent share of OAMI's net cash flow has totaled over $29.3 million since May 2005.  The following summary represents the balances related to OAMI included in the company's Balance Sheet and Income Statement Summary:

March 31,

2010

December 31,

2009

Assets:




Cash and cash equivalents

$

1,632

$

1,088

Receivables and other assets

16

43

Commercial mortgage residual interests

16,577

20,153

$

18,225

$

21,284






Liabilities:




Income tax liability

$

4,638

$

4,732

Other liabilities

49

49

$

4,687

$

4,781






Noncontrolling interests

$

1,377

$

1,579



















Quarter Ended March 31,

2010

2009






Revenues:




Interest income on commercial mortgage residual interests

$

1,049

$

1,054


1,049

1,054






Expenses:




General and administrative

94

61

Impairment – commercial mortgage residual interests valuation adjustment

3,683

-


3,777

61






Income tax benefit

94

128






Earnings (loss) including noncontrolling interests

(2,634)

1,121

Loss (earnings) attributable to noncontrolling interests

92

(110)






Net earnings (loss) attributable to NNN

$

(2,542)

$

1,011








NNN Retail Properties Fund I LLC

(in thousands)

(unaudited)


In September 2007, the company entered into a joint venture, NNN Retail Properties Fund I LLC, with an affiliate of Crow Holdings Realty Partners IV, L.P.  The company owns a 15 percent equity interest, and the following summary represents the Balance Sheet and Income Statement Summary for the joint venture.  The company's investment in the joint venture is included in the company's Balance Sheet Summary under "Investment in unconsolidated affiliate."





March 31,

2010

December 31,

2009

Assets:




Cash and cash equivalents

$

871

$

829

Receivables

200

200

Real estate

72,983

73,279

Other assets

761

838

$

74,815

$

75,146






Liabilities:




Notes payable

$

43,600

$

43,600

Other liabilities

1,474

1,427

Total liabilities

45,074

45,027












Members' equity

29,741

30,119






 Total liabilities and equity

$

74,815

$

75,146









Quarter Ended March 31,

2010

2009

Revenues:




 Rental income

$

1,565

$

1,565






Expenses:




 General and administrative

107

104

Real estate

5

5

 Depreciation and amortization

369

371

Interest

447

462


928

942






Net earnings

$

637

$

623







National Retail Properties, Inc.

Investment Portfolio


Top 20 Lines of Trade




As of March 31,


Line of Trade

2010 (1)

2009 (2)

1.

Convenience stores

26.5%

25.4%

2.

Restaurants - full service

9.2%

8.8%

3.

Automotive parts

6.7%

6.0%

4.

Theaters

6.2%

6.0%

5.

Automotive service

5.6%

8.9%

6.

Drug stores

4.4%

4.0%

7.

Books


4.1%

3.9%

8.

Restaurants - limited service

3.2%

3.3%

9.

Sporting goods

3.1%

3.3%

10.

Grocery


2.9%

2.9%

11.

Consumer electronics

2.7%

2.6%

12.

Furniture

2.6%

2.5%

13.

Office supplies

2.5%

2.5%

14.

Travel plazas

2.5%

2.4%

15.

Beer, wine and liquor


2.0%

1.7%

16.

Health and fitness

1.6%

0.5%

17.

Equipment rental

1.4%

1.2%

18.

General merchandise


1.3%

1.1%

19.

Auto dealerships

1.3%

1.3%

20.

Financial services


1.2%

1.2%


Other

9.0%

10.5%


Total

100.0%

100.0%

Top 10 States


State

% of

Total(1)

State

% of

Total(1)

1.

Texas

20.2%

6.

Indiana

4.3%

2.

Florida

9.6%

7.

Pennsylvania

4.2%

3.

Illinois


6.9%

8.

Ohio

3.8%

4.

North Carolina

6.3%

9.

Tennessee

3.1%

5.

Georgia

5.4%

10.

Missouri

2.8%

(1) Based on the annualized base rent for all leases in place as of March 31, 2010.


(2) Based on the annualized base rent for all leases in place as of March 31, 2009.

National Retail Properties, Inc.

Investment Portfolio


Top Tenants



Properties

% of Total(1)

Pantry

96

9.0%

Susser

86

8.7%

Kerasotes Theatres

16

6.2%

Road Ranger

34

3.9%

Mister Car Wash

40

3.6%

Pull-A-Part

20

3.5%

Pep Boys

16

3.1%

Best Buy

7

2.6%

Barnes & Noble

9

2.5%

Logans Roadhouse

17

2.3%

CVS

16

2.0%







Lease Expirations


% of Total(1)

# of

Properties

Gross Leasable

Area(2)

% of Total(1)

# of

Properties

Gross Leasable

Area(2)

2010

1.7%

28

326,000

2016

1.7%

13

240,000

2011

2.1%

22

404,000

2017

4.2%

27

676,000

2012

3.3%

35

511,000

2018

2.9%

24

345,000

2013

4.7%

38

822,000

2019

4.4%

42

632,000

2014

4.9%

44

617,000

2020

3.1%

41

345,000

2015

3.5%

27

591,000

Thereafter

63.5%

624

4,943,000

(1) Based on annual base rent of $214,254,000, which is the annualized base rent for all leases in place as of March 31, 2010.


(2) Square feet.

SOURCE National Retail Properties, Inc.

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