false--12-31Q2201900007513641842000P10Y2224340141180001484600022730005060000.4750.9500.501.0000.010.013750000003750000001615035851635134741615035851635134740.00875147000269320000.0570.0520.3562500.325000.7125000.6500000.3562500.325000.7125000.65000025002500250025000.010.011500000015000000115000138000115000138000115000138000115000138000296955061832415613036226336962149693037464303746414955481495548222684259650 0000751364 2019-01-01 2019-06-30 0000751364 2019-07-30 0000751364 us-gaap:SeriesFPreferredStockMember 2019-01-01 2019-06-30 0000751364 us-gaap:CommonStockMember 2019-01-01 2019-06-30 0000751364 us-gaap:SeriesEPreferredStockMember 2019-01-01 2019-06-30 0000751364 2019-06-30 0000751364 us-gaap:SeriesFPreferredStockMember 2018-12-31 0000751364 us-gaap:SeriesFPreferredStockMember 2019-06-30 0000751364 2018-12-31 0000751364 us-gaap:SeriesEPreferredStockMember 2019-06-30 0000751364 us-gaap:SeriesEPreferredStockMember 2018-12-31 0000751364 us-gaap:SeriesFPreferredStockMember 2018-01-01 2018-12-31 0000751364 us-gaap:SeriesEPreferredStockMember 2018-01-01 2018-12-31 0000751364 2019-04-01 2019-06-30 0000751364 2018-04-01 2018-06-30 0000751364 us-gaap:SeriesFPreferredStockMember 2018-01-01 2018-06-30 0000751364 2018-01-01 2018-06-30 0000751364 us-gaap:SeriesEPreferredStockMember 2018-01-01 2018-06-30 0000751364 us-gaap:SeriesEPreferredStockMember 2018-04-01 2018-06-30 0000751364 us-gaap:SeriesEPreferredStockMember 2019-04-01 2019-06-30 0000751364 us-gaap:SeriesFPreferredStockMember 2019-04-01 2019-06-30 0000751364 us-gaap:SeriesFPreferredStockMember 2018-04-01 2018-06-30 0000751364 us-gaap:CommonStockMember 2019-04-01 2019-06-30 0000751364 us-gaap:NoncontrollingInterestMember 2019-03-31 0000751364 us-gaap:AdditionalPaidInCapitalMember 2019-04-01 2019-06-30 0000751364 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-04-01 2019-06-30 0000751364 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-06-30 0000751364 us-gaap:CommonStockMember 2019-06-30 0000751364 us-gaap:RetainedEarningsMember 2019-03-31 0000751364 us-gaap:SeriesEPreferredStockMember us-gaap:ParentMember 2019-04-01 2019-06-30 0000751364 us-gaap:ParentMember 2019-03-31 0000751364 us-gaap:ParentMember 2019-06-30 0000751364 us-gaap:AdditionalPaidInCapitalMember 2019-03-31 0000751364 us-gaap:RetainedEarningsMember 2019-04-01 2019-06-30 0000751364 us-gaap:SeriesFPreferredStockMember us-gaap:PreferredStockMember 2019-06-30 0000751364 us-gaap:ParentMember 2019-04-01 2019-06-30 0000751364 us-gaap:RetainedEarningsMember 2019-06-30 0000751364 us-gaap:AdditionalPaidInCapitalMember 2019-06-30 0000751364 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-03-31 0000751364 us-gaap:SeriesEPreferredStockMember us-gaap:PreferredStockMember 2019-03-31 0000751364 us-gaap:SeriesFPreferredStockMember us-gaap:RetainedEarningsMember 2019-04-01 2019-06-30 0000751364 us-gaap:NoncontrollingInterestMember 2019-06-30 0000751364 us-gaap:SeriesEPreferredStockMember us-gaap:RetainedEarningsMember 2019-04-01 2019-06-30 0000751364 us-gaap:NoncontrollingInterestMember 2019-04-01 2019-06-30 0000751364 us-gaap:SeriesFPreferredStockMember us-gaap:ParentMember 2019-04-01 2019-06-30 0000751364 us-gaap:CommonStockMember 2019-03-31 0000751364 us-gaap:SeriesFPreferredStockMember us-gaap:PreferredStockMember 2019-03-31 0000751364 us-gaap:SeriesEPreferredStockMember us-gaap:PreferredStockMember 2019-06-30 0000751364 2019-03-31 0000751364 us-gaap:AdditionalPaidInCapitalMember 2018-04-01 2018-06-30 0000751364 us-gaap:ParentMember 2018-04-01 2018-06-30 0000751364 us-gaap:AdditionalPaidInCapitalMember 2018-03-31 0000751364 us-gaap:CommonStockMember 2018-03-31 0000751364 us-gaap:NoncontrollingInterestMember 2018-04-01 2018-06-30 0000751364 us-gaap:NoncontrollingInterestMember 2018-06-30 0000751364 us-gaap:RetainedEarningsMember 2018-06-30 0000751364 us-gaap:ParentMember 2018-06-30 0000751364 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-04-01 2018-06-30 0000751364 us-gaap:RetainedEarningsMember 2018-04-01 2018-06-30 0000751364 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-06-30 0000751364 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-03-31 0000751364 us-gaap:AdditionalPaidInCapitalMember 2018-06-30 0000751364 us-gaap:SeriesEPreferredStockMember us-gaap:ParentMember 2018-04-01 2018-06-30 0000751364 us-gaap:CommonStockMember 2018-04-01 2018-06-30 0000751364 us-gaap:SeriesEPreferredStockMember us-gaap:PreferredStockMember 2018-06-30 0000751364 2018-06-30 0000751364 us-gaap:SeriesFPreferredStockMember us-gaap:PreferredStockMember 2018-03-31 0000751364 us-gaap:SeriesFPreferredStockMember us-gaap:PreferredStockMember 2018-06-30 0000751364 2018-03-31 0000751364 us-gaap:SeriesEPreferredStockMember us-gaap:PreferredStockMember 2018-03-31 0000751364 us-gaap:SeriesFPreferredStockMember us-gaap:ParentMember 2018-04-01 2018-06-30 0000751364 us-gaap:CommonStockMember 2018-06-30 0000751364 us-gaap:RetainedEarningsMember 2018-03-31 0000751364 us-gaap:SeriesEPreferredStockMember us-gaap:RetainedEarningsMember 2018-04-01 2018-06-30 0000751364 us-gaap:ParentMember 2018-03-31 0000751364 us-gaap:SeriesFPreferredStockMember us-gaap:RetainedEarningsMember 2018-04-01 2018-06-30 0000751364 us-gaap:NoncontrollingInterestMember 2018-03-31 0000751364 us-gaap:ParentMember 2018-01-01 2018-06-30 0000751364 us-gaap:CommonStockMember 2018-01-01 2018-06-30 0000751364 us-gaap:SeriesFPreferredStockMember us-gaap:ParentMember 2018-01-01 2018-06-30 0000751364 us-gaap:RetainedEarningsMember 2018-01-01 2018-06-30 0000751364 us-gaap:AdditionalPaidInCapitalMember 2018-01-01 2018-06-30 0000751364 2017-12-31 0000751364 us-gaap:SeriesEPreferredStockMember us-gaap:PreferredStockMember 2017-12-31 0000751364 us-gaap:ParentMember 2017-12-31 0000751364 us-gaap:NoncontrollingInterestMember 2017-12-31 0000751364 us-gaap:NoncontrollingInterestMember 2018-01-01 2018-06-30 0000751364 us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0000751364 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-12-31 0000751364 us-gaap:CommonStockMember 2017-12-31 0000751364 us-gaap:SeriesFPreferredStockMember us-gaap:PreferredStockMember 2017-12-31 0000751364 us-gaap:SeriesEPreferredStockMember us-gaap:ParentMember 2018-01-01 2018-06-30 0000751364 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-06-30 0000751364 us-gaap:SeriesEPreferredStockMember us-gaap:RetainedEarningsMember 2018-01-01 2018-06-30 0000751364 us-gaap:RetainedEarningsMember 2017-12-31 0000751364 us-gaap:SeriesFPreferredStockMember us-gaap:RetainedEarningsMember 2018-01-01 2018-06-30 0000751364 us-gaap:SeriesEPreferredStockMember us-gaap:RetainedEarningsMember 2019-01-01 2019-06-30 0000751364 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0000751364 us-gaap:RetainedEarningsMember 2018-12-31 0000751364 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-06-30 0000751364 us-gaap:ParentMember 2019-01-01 2019-06-30 0000751364 us-gaap:ParentMember 2018-12-31 0000751364 us-gaap:SeriesEPreferredStockMember us-gaap:ParentMember 2019-01-01 2019-06-30 0000751364 us-gaap:CommonStockMember 2019-01-01 2019-06-30 0000751364 us-gaap:NoncontrollingInterestMember 2019-01-01 2019-06-30 0000751364 us-gaap:RetainedEarningsMember 2019-01-01 2019-06-30 0000751364 us-gaap:SeriesFPreferredStockMember us-gaap:ParentMember 2019-01-01 2019-06-30 0000751364 us-gaap:SeriesFPreferredStockMember us-gaap:PreferredStockMember 2018-12-31 0000751364 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-06-30 0000751364 us-gaap:SeriesEPreferredStockMember us-gaap:PreferredStockMember 2018-12-31 0000751364 us-gaap:NoncontrollingInterestMember 2018-12-31 0000751364 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0000751364 us-gaap:CommonStockMember 2018-12-31 0000751364 us-gaap:SeriesFPreferredStockMember us-gaap:RetainedEarningsMember 2019-01-01 2019-06-30 0000751364 us-gaap:AboveMarketLeasesMember 2018-12-31 0000751364 us-gaap:LeasesAcquiredInPlaceMember 2018-12-31 0000751364 us-gaap:AboveMarketLeasesMember 2019-06-30 0000751364 us-gaap:LeasesAcquiredInPlaceMember 2019-06-30 0000751364 us-gaap:LeasesAcquiredInPlaceMember 2019-04-01 2019-06-30 0000751364 us-gaap:LeasesAcquiredInPlaceMember 2018-04-01 2018-06-30 0000751364 us-gaap:LeasesAcquiredInPlaceMember 2019-01-01 2019-06-30 0000751364 us-gaap:NotesPayableToBanksMember 2019-06-30 0000751364 us-gaap:AccountingStandardsUpdate201602Member 2019-01-01 0000751364 us-gaap:MortgagesMember 2018-12-31 0000751364 us-gaap:LeasesAcquiredInPlaceMember 2018-01-01 2018-06-30 0000751364 us-gaap:MortgagesMember 2019-06-30 0000751364 us-gaap:NotesPayableToBanksMember 2018-12-31 0000751364 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-01-01 2019-06-30 0000751364 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-06-30 0000751364 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2019-06-30 0000751364 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2019-01-01 2019-06-30 0000751364 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-12-31 0000751364 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2018-12-31 0000751364 us-gaap:DisposalGroupHeldforsaleNotDiscontinuedOperationsMember 2019-04-01 2019-06-30 0000751364 us-gaap:DisposalGroupHeldforsaleNotDiscontinuedOperationsMember 2018-01-01 2018-06-30 0000751364 us-gaap:DisposalGroupHeldforsaleNotDiscontinuedOperationsMember 2018-04-01 2018-06-30 0000751364 us-gaap:DisposalGroupHeldforsaleNotDiscontinuedOperationsMember 2019-01-01 2019-06-30 0000751364 srt:MaximumMember 2019-01-01 2019-06-30 0000751364 us-gaap:AssetUnderConstructionMember 2019-06-30 0000751364 us-gaap:AssetUnderConstructionMember 2018-12-31 0000751364 srt:MinimumMember 2019-01-01 2019-06-30 0000751364 nnn:HeadquartersOfficeLeaseMember 2019-06-30 0000751364 nnn:GroundLeasesMember 2019-06-30 0000751364 us-gaap:LineOfCreditMember 2019-06-30 0000751364 us-gaap:LineOfCreditMember 2019-01-01 2019-06-30 0000751364 us-gaap:LineOfCreditMember us-gaap:LondonInterbankOfferedRateLIBORMember 2019-01-01 2019-06-30 0000751364 nnn:ATMEquityProgramMember 2019-01-01 2019-06-30 0000751364 nnn:ATMEquityProgramMember 2018-01-01 2018-06-30 0000751364 nnn:DripMember 2019-04-01 2019-06-30 0000751364 nnn:DripMember 2018-04-01 2018-06-30 0000751364 nnn:ATMEquityProgramMember 2019-06-30 0000751364 nnn:DripMember 2018-02-28 0000751364 us-gaap:SubsequentEventMember 2019-07-01 2019-07-31 0000751364 nnn:ForwardSwapMember 2019-04-01 2019-06-30 0000751364 us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-06-30 0000751364 us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-06-30 0000751364 nnn:ForwardSwapMember 2019-06-30 0000751364 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2019-06-30 0000751364 nnn:ForwardSwapMember 2018-09-30 0000751364 nnn:ForwardSwapMember 2017-09-30 0000751364 nnn:ForwardSwapMember 2015-10-31 0000751364 nnn:ForwardSwapMember 2013-04-30 0000751364 nnn:ForwardSwapMember 2016-12-31 0000751364 nnn:ForwardSwapMember 2014-05-31 0000751364 nnn:ForwardSwapMember us-gaap:SubsequentEventMember 2019-07-31 0000751364 nnn:ForwardSwapMember us-gaap:SubsequentEventMember 2019-07-01 2019-07-31 nnn:state nnn:property iso4217:USD iso4217:USD xbrli:shares xbrli:pure xbrli:shares utreg:sqft nnn:instrument nnn:lease


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from                      to                     
Commission file number 001-11290
NATIONAL RETAIL PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
 
Maryland
56-1431377
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
450 South Orange Avenue, Suite 900
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (407265-7348
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of exchange on which registered
Common Stock, $0.01 par value
NNN
New York Stock Exchange
5.700% Series E Preferred Stock, $0.01 par value
NNN/PE
New York Stock Exchange
5.200% Series F Preferred Stock, $0.01 par value
NNN/PF
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer  
 
Non-accelerated filer
 
Smaller reporting company 
Emerging growth company
 


 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes    No  
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.
163,513,941 shares of common stock, $0.01 par value, outstanding as of July 30, 2019.




TABLE OF CONTENTS
 
 
 
PAGE      
REFERENCE
Part I - Financial Information
 
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
Part II - Other Information
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements
NATIONAL RETAIL PROPERTIES, INC.
and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
 
June 30, 2019

December 31, 2018
ASSETS
(unaudited)
 
 
Real estate portfolio:
 
 
 
Accounted for using the operating method, net of accumulated depreciation and amortization
$
7,110,598

 
$
6,851,216

Accounted for using the direct financing method
7,052

 
8,069

Real estate held for sale
288

 
16,147

Cash and cash equivalents
2,209

 
114,267

Receivables, net of allowance of $506 and $2,273, respectively
2,507

 
3,797

Accrued rental income, net of allowance of $1,842
28,198

 
25,387

Debt costs, net of accumulated amortization of $14,846 and $14,118, respectively
3,468

 
4,081

Other assets
98,481

 
80,474

Total assets
$
7,252,801

 
$
7,103,438

LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Line of credit payable
$
63,200

 
$

Mortgages payable, including unamortized premium and net of unamortized debt costs
12,379

 
12,694

Notes payable, net of unamortized discount and unamortized debt costs
2,840,674

 
2,838,701

Accrued interest payable
17,984

 
19,519

Other liabilities
96,113

 
77,919

Total liabilities
3,030,350

 
2,948,833

 


 


Equity:
 
 
 
Stockholders’ equity:
 
 
 
Preferred stock, $0.01 par value. Authorized 15,000,000 shares
 
 
 
5.700% Series E, 115,000 shares issued and outstanding, at stated liquidation value of $2,500 per share
287,500

 
287,500

5.200% Series F, 138,000 shares issued and outstanding, at stated liquidation value of $2,500 per share
345,000

 
345,000

Common stock, $0.01 par value. Authorized 375,000,000 shares; 163,513,474 and 161,503,585 shares issued and outstanding, respectively
1,636

 
1,616

Capital in excess of par value
4,042,318

 
3,950,055

Accumulated deficit
(443,822
)
 
(424,225
)
Accumulated other comprehensive income (loss)
(10,183
)
 
(5,696
)
Total stockholders’ equity of NNN
4,222,449

 
4,154,250

Noncontrolling interests
2

 
355

Total equity
4,222,451

 
4,154,605

Total liabilities and equity
$
7,252,801

 
$
7,103,438

See accompanying notes to condensed consolidated financial statements.

3


NATIONAL RETAIL PROPERTIES, INC.
and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(dollars in thousands, except per share data)
(Unaudited)

 
Quarter Ended June 30,
 
Six Months Ended June 30,
  
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
Rental income
$
164,596

 
$
155,153

 
$
327,622

 
$
307,915

Interest and other income from real estate transactions
196

 
365

 
882

 
438

 
164,792

 
155,518

 
328,504

 
308,353

Operating expenses:
 
 
 
 
 
 
 
General and administrative
9,276

 
8,741

 
18,798

 
17,437

Real estate
6,600

 
5,828

 
13,692

 
11,690

Depreciation and amortization
46,241

 
43,304

 
92,421

 
87,802

Impairment losses – real estate, net of recoveries
7,187

 
3,835

 
10,432

 
6,083

Retirement severance costs

 
260

 

 
521

 
69,304

 
61,968

 
135,343

 
123,533

Gain on disposition of real estate
13,002

 
4,106

 
23,447

 
42,702

Earnings from operations
108,490

 
97,656

 
216,608

 
227,522

Other expenses (revenues):
 
 
 
 
 
 
 
Interest and other income
(487
)
 
(37
)
 
(2,411
)
 
(63
)
Interest expense
29,811

 
27,110

 
59,768

 
53,712

Leasing transaction costs
75

 

 
127

 

 
29,399

 
27,073

 
57,484

 
53,649

Net earnings
79,091

 
70,583

 
159,124

 
173,873

Earnings attributable to noncontrolling interests
(413
)
 
(10
)
 
(423
)
 
(19
)
Net earnings attributable to NNN
78,678

 
70,573

 
158,701

 
173,854

Series E preferred stock dividends
(4,096
)
 
(4,096
)
 
(8,194
)
 
(8,194
)
Series F preferred stock dividends
(4,485
)
 
(4,485
)
 
(8,970
)
 
(8,970
)
Net earnings attributable to common stockholders
$
70,097

 
$
61,992

 
$
141,537

 
$
156,690

Net earnings per share of common stock:
 
 
 
 
 
 
 
Basic
$
0.43

 
$
0.40

 
$
0.87

 
$
1.02

Diluted
$
0.43

 
$
0.40

 
$
0.87

 
$
1.02

Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
161,893,442

 
153,810,692

 
161,501,555

 
153,428,365

Diluted
162,351,901

 
154,203,938

 
161,995,334

 
153,840,219

Other comprehensive income:
 
 
 
 
 
 
 
Net earnings attributable to NNN
$
78,678

 
$
70,573

 
$
158,701

 
$
173,854

Amortization of interest rate hedges
325

 
531

 
648

 
1,056

Fair value of forward starting swaps
(3,920
)
 
3,259

 
(3,920
)
 
1,095

Valuation adjustments – available-for-sale securities

 
184

 
116

 
52

Realized gain – available-for-sale securities

 

 
(1,331
)
 

Comprehensive income attributable to NNN
$
75,083

 
$
74,547

 
$
154,214

 
$
176,057


See accompanying notes to condensed consolidated financial statements.


4



NATIONAL RETAIL PROPERTIES, INC.
and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Quarter Ended June 30, 2019
(dollars in thousands, except per share data)

 
Series E
Preferred
Stock
 
Series F
Preferred
Stock
 
Common
Stock
 
Capital in
  Excess of  
Par Value
 
Retained
Earnings (Loss)
 
Accumulated
Other
Comprehensive  
Income (Loss)
 
Total
 Stockholders’  
Equity
 
  Noncontrolling  
Interests
 
Total
Equity
Balances at March 31, 2019
$
287,500

 
$
345,000

 
$
1,620

 
$
3,957,835

 
$
(432,845
)
 
$
(6,588
)
 
$
4,152,522

 
$
365

 
$
4,152,887

Net earnings

 

 

 

 
78,678

 

 
78,678

 
413

 
79,091

Dividends declared and paid:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$0.356250 per depositary share of Series E preferred stock

 

 

 

 
(4,096
)
 

 
(4,096
)
 

 
(4,096
)
$0.32500 per depositary share of Series F preferred stock

 

 

 

 
(4,485
)
 

 
(4,485
)
 

 
(4,485
)
$0.50 per share of common stock

 

 
1

 
1,790

 
(81,074
)
 

 
(79,283
)
 

 
(79,283
)
Issuance of common stock:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6,962 shares – director compensation

 

 

 
321

 

 

 
321

 

 
321

1,832 shares – stock purchase plan

 

 

 
97

 

 

 
97

 

 
97

1,495,548 shares – ATM equity program

 

 
15

 
80,797

 

 

 
80,812

 

 
80,812

Stock issuance costs

 

 


 
(724
)
 

 

 
(724
)
 

 
(724
)
Amortization of deferred compensation

 

 

 
2,202

 

 

 
2,202

 

 
2,202

Amortization of interest rate hedges

 

 

 

 

 
325

 
325

 

 
325

Fair value of forward starting swaps

 

 

 

 

 
(3,920
)
 
(3,920
)
 

 
(3,920
)
Distributions to noncontrolling interests

 

 

 

 

 

 

 
(776
)
 
(776
)
Balances at June 30, 2019
$
287,500

 
$
345,000

 
$
1,636

 
$
4,042,318

 
$
(443,822
)
 
$
(10,183
)
 
$
4,222,449

 
$
2

 
$
4,222,451


5



NATIONAL RETAIL PROPERTIES, INC.
and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Quarter Ended June 30, 2018
(dollars in thousands, except per share data)

 
Series E
Preferred
Stock
 
Series F
Preferred
Stock
 
Common
Stock
 
Capital in
  Excess of  
Par Value
 
Retained
Earnings (Loss)
 
Accumulated
Other
Comprehensive  
Income (Loss)
 
Total
 Stockholders’  
Equity
 
  Noncontrolling  
Interests
 
Total
Equity
Balances at March 31, 2018
$
287,500

 
$
345,000

 
$
1,540

 
$
3,602,865

 
$
(357,216
)
 
$
(15,509
)
 
$
3,864,180

 
$
326

 
$
3,864,506

Net earnings

 

 

 

 
70,573

 

 
70,573

 
10

 
70,583

Dividends declared and paid:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$0.356250 per depositary share of Series E preferred stock

 

 

 

 
(4,096
)
 

 
(4,096
)
 

 
(4,096
)
$0.32500 per depositary share of Series F preferred stock

 

 

 

 
(4,485
)
 

 
(4,485
)
 

 
(4,485
)
$0.475 per share of common stock

 

 
1

 
3,830

 
(72,850
)
 

 
(69,019
)
 

 
(69,019
)
Issuance of common stock:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13,036 shares – director compensation

 

 

 
422

 

 

 
422

 

 
422

2,969 shares – stock purchase plan

 

 

 
119

 

 

 
119

 

 
119

3,037,464 shares – ATM equity program

 

 
30

 
126,655

 

 

 
126,685

 

 
126,685

Stock issuance costs

 

 

 
(1,448
)
 

 

 
(1,448
)
 

 
(1,448
)
Amortization of deferred compensation

 

 

 
1,870

 

 

 
1,870

 

 
1,870

Amortization of interest rate hedges

 

 

 

 

 
531

 
531

 

 
531

Fair value of forward starting swaps

 

 

 

 

 
3,259

 
3,259

 

 
3,259

Valuation adjustments – available-for-sale securities

 

 

 

 

 
184

 
184

 

 
184

Balances at June 30, 2018
$
287,500

 
$
345,000

 
$
1,571

 
$
3,734,313

 
$
(368,074
)
 
$
(11,535
)
 
$
3,988,775

 
$
336

 
$
3,989,111


6



NATIONAL RETAIL PROPERTIES, INC.
and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Six Months Ended June 30, 2019
(dollars in thousands, except per share data)

 
Series E
Preferred
Stock
 
Series F
Preferred
Stock
 
Common
Stock
 
Capital in
  Excess of  
Par Value
 
Retained
Earnings (Loss)
 
Accumulated
Other
Comprehensive  
Income (Loss)
 
Total
 Stockholders’  
Equity
 
  Noncontrolling  
Interests
 
Total
Equity
Balances at December 31, 2018
$
287,500

 
$
345,000

 
$
1,616

 
$
3,950,055

 
$
(424,225
)
 
$
(5,696
)
 
$
4,154,250

 
$
355

 
$
4,154,605

Net earnings

 

 

 

 
158,701

 

 
158,701

 
423

 
159,124

Dividends declared and paid:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$0.712500 per depositary share of Series E preferred stock

 

 

 

 
(8,194
)
 

 
(8,194
)
 

 
(8,194
)
$0.650000 per depositary share of Series F preferred stock

 

 

 

 
(8,970
)
 

 
(8,970
)
 

 
(8,970
)
$1.000 per share of common stock

 

 
2

 
6,949

 
(161,639
)
 

 
(154,688
)
 

 
(154,688
)
Issuance of common stock:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
14,969 shares – director compensation

 

 

 
643

 

 

 
643

 

 
643

4,156 shares – stock purchase plan

 

 

 
216

 

 

 
216

 

 
216

1,495,548 shares – ATM equity program

 

 
15

 
80,797

 

 

 
80,812

 

 
80,812

Issuance of 259,650 shares of restricted common stock

 

 
3

 
(3
)
 

 

 

 

 

Stock issuance costs

 

 

 
(766
)
 

 

 
(766
)
 

 
(766
)
Amortization of deferred compensation

 

 

 
4,427

 

 

 
4,427

 

 
4,427

Amortization of interest rate hedges

 

 

 

 

 
648

 
648

 

 
648

Fair value of forward starting swaps

 

 

 

 

 
(3,920
)
 
(3,920
)
 

 
(3,920
)
Valuation adjustments – available-for-sale securities

 

 

 

 

 
116

 
116

 

 
116

Realized gain – available-for-sale securities

 

 

 

 

 
(1,331
)
 
(1,331
)
 

 
(1,331
)
Other

 

 

 

 
505

 

 
505

 

 
505

Distributions to noncontrolling interests

 

 

 

 

 

 

 
(776
)
 
(776
)
Balances at June 30, 2019
$
287,500

 
$
345,000

 
$
1,636

 
$
4,042,318

 
$
(443,822
)
 
$
(10,183
)
 
$
4,222,449

 
$
2

 
$
4,222,451


7



NATIONAL RETAIL PROPERTIES, INC.
and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Six Months Ended June 30, 2018
(dollars in thousands, except per share data)

 
Series E
Preferred
Stock
 
Series F
Preferred
Stock
 
Common
Stock
 
Capital in
  Excess of  
Par Value
 
Retained
Earnings (Loss)
 
Accumulated
Other
Comprehensive  
Income (Loss)
 
Total
 Stockholders’  
Equity
 
  Noncontrolling  
Interests
 
Total
Equity
Balances at December 31, 2017
$
287,500

 
$
345,000

 
$
1,537

 
$
3,599,475

 
$
(379,181
)
 
$
(13,738
)
 
$
3,840,593

 
$
317

 
$
3,840,910

Net earnings

 

 

 

 
173,854

 

 
173,854

 
19

 
173,873

Dividends declared and paid:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$0.712500 per depositary share of Series E preferred stock

 

 

 

 
(8,194
)
 

 
(8,194
)
 

 
(8,194
)
$0.650000 per depositary share of Series F preferred stock

 

 

 

 
(8,970
)
 

 
(8,970
)
 

 
(8,970
)
$0.950 per share of common stock

 

 
2

 
5,374

 
(145,583
)
 

 
(140,207
)
 

 
(140,207
)
Issuance of common stock:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
22,633 shares – director compensation

 

 

 
718

 

 

 
718

 

 
718

5,506 shares – stock purchase plan

 

 

 
217

 

 

 
217

 

 
217

3,037,464 shares – ATM equity program

 

 
30

 
126,655

 

 

 
126,685

 

 
126,685

Issuance of 222,684 shares of restricted common stock

 

 
2

 
(91
)
 

 

 
(89
)
 

 
(89
)
Stock issuance costs

 

 

 
(1,754
)
 

 

 
(1,754
)
 

 
(1,754
)
Amortization of deferred compensation

 

 

 
3,719

 

 

 
3,719

 

 
3,719

Amortization of interest rate hedges

 

 

 

 

 
1,056

 
1,056

 

 
1,056

Fair value of forward starting swaps

 

 

 

 

 
1,095

 
1,095

 

 
1,095

Valuation adjustments – available-for-sale securities

 

 

 

 

 
52

 
52

 

 
52

Balances at June 30, 2018
$
287,500

 
$
345,000

 
$
1,571

 
$
3,734,313

 
$
(368,074
)
 
$
(11,535
)
 
$
3,988,775

 
$
336

 
$
3,989,111



8


NATIONAL RETAIL PROPERTIES, INC.
and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)


 
Six Months Ended June 30,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net earnings
$
159,124

 
$
173,873

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation and amortization
92,421

 
87,802

Impairment losses – real estate, net of recoveries
10,432

 
6,083

Amortization of notes payable discount
859

 
922

Amortization of debt costs
1,851

 
1,781

Amortization of mortgages payable premium
(43
)
 
(43
)
Amortization of interest rate hedges
648

 
1,056

Gain on disposition of real estate
(23,447
)
 
(42,702
)
Performance incentive plan expense
5,580

 
4,843

Performance incentive plan payment
(775
)
 
(432
)
Change in operating assets and liabilities, net of assets acquired and liabilities assumed:
 
 
 
Decrease in real estate leased to others using the direct financing method
338

 
462

Decrease in receivables
1,290

 
1,229

Increase in accrued rental income
(1,160
)
 
(930
)
Increase in other assets
(1,227
)
 
(894
)
Decrease in accrued interest payable
(1,535
)
 
(910
)
Decrease in other liabilities
(8,847
)
 
(3,944
)
Other
(168
)
 
35

Net cash provided by operating activities
235,341

 
228,231

Cash flows from investing activities:
 
 
 
Proceeds from the disposition of real estate
59,026

 
83,711

Additions to real estate:
 
 
 
Accounted for using the operating method
(378,713
)
 
(325,069
)
Other
1,851

 
122

Net cash used in investing activities
(317,836
)
 
(241,236
)
 
See accompanying notes to condensed consolidated financial statements.


9


NATIONAL RETAIL PROPERTIES, INC.
and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(dollars in thousands)
(Unaudited)


 
Six Months Ended June 30,
 
2019
 
2018
Cash flows from financing activities:
 
 
 
Proceeds from line of credit payable
$
202,000

 
$
1,167,500

Repayment of line of credit payable
(138,800
)
 
(1,121,300
)
Repayment of mortgages payable
(281
)
 
(266
)
Payment of debt issuance costs
(115
)
 
(112
)
Proceeds from issuance of common stock
87,978

 
132,191

Stock issuance costs
(766
)
 
(1,740
)
Payment of Series E preferred stock dividends
(8,194
)
 
(8,194
)
Payment of Series F preferred stock dividends
(8,970
)
 
(8,970
)
Payment of common stock dividends
(161,639
)
 
(145,583
)
Noncontrolling interest distributions
(776
)
 

Net cash provided by (used in) financing activities
(29,563
)
 
13,526

Net increase (decrease) in cash, cash equivalents and restricted cash
(112,058
)
 
521

Cash, cash equivalents and restricted cash at beginning of period(1)
114,267

 
1,364

Cash, cash equivalents and restricted cash at end of period(1)
$
2,209

 
$
1,885

Supplemental disclosure of cash flow information:
 
 
 
Interest paid, net of amount capitalized
$
58,459

 
$
52,810

Supplemental disclosure of noncash investing and financing activities:
 
 
 
Increase (decrease) in other comprehensive income
$
4,487

 
$
(2,203
)
Right-of-use assets recorded in connection with lease liabilities
$
8,224

 
$

Mortgage receivable accepted in connection with real estate transactions
$
3,100

 
$

  (1) Cash, cash equivalents and restricted cash is the aggregate of cash and cash equivalents and restricted cash and cash held in escrow from the Condensed Consolidated Balance Sheets. NNN had no restricted cash and cash held in escrow at June 30, 2019 and 2018.

 
See accompanying notes to condensed consolidated financial statements.

10



NATIONAL RETAIL PROPERTIES, INC.
and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019
(Unaudited)

Note 1 – Organization and Summary of Significant Accounting Policies:
Organization and Nature of Business – National Retail Properties, Inc., a Maryland corporation, is a fully integrated real estate investment trust (“REIT”) formed in 1984. The terms "NNN" or the "Company" refer to National Retail Properties, Inc. and all of its consolidated subsidiaries.
NNN's assets primarily include real estate assets. NNN acquires, owns, invests in and develops properties that are leased primarily to retail tenants under long-term net leases and primarily held for investment ("Properties", "Property Portfolio", or individually a "Property").
 
June 30, 2019
Property Portfolio:
 
Total properties
3,043

Gross leasable area (square feet)
32,053,000

States
48

Weighted average remaining lease term (years)
11.4


The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by U.S. generally accepted accounting principles ("GAAP"). The unaudited condensed consolidated financial statements reflect all adjustments (including normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Operating results for the quarter and six months ended June 30, 2019, may not be indicative of the results that may be expected for the year ending December 31, 2019. Amounts as of December 31, 2018 included in the condensed consolidated financial statements have been derived from the audited consolidated financial statements as of that date. The unaudited condensed consolidated financial statements, included herein, should be read in conjunction with the consolidated financial statements and notes thereto as well as Management's Discussion and Analysis of Financial Condition and Results of Operations in NNN's Form 10-K for the year ended December 31, 2018.
Principles of Consolidation – NNN’s condensed consolidated financial statements include the accounts of each of the respective majority owned and controlled affiliates, including transactions whereby NNN has been determined to be the primary beneficiary in accordance with the Financial Accounting Standards Board (“FASB”) guidance included in Consolidation. All significant intercompany account balances and transactions have been eliminated.
Real Estate Portfolio – NNN records the acquisition of real estate at cost, including acquisition and closing costs. The cost of properties developed by NNN includes costs of construction, property taxes, interest and other miscellaneous costs incurred during the development period until the project is substantially complete and available for occupancy. NNN recorded $471,000 and $1,904,000 in capitalized interest during the development period for the six months ended June 30, 2019 and 2018, respectively, of which $345,000 and $1,076,000 was recorded during the quarters ended June 30, 2019 and 2018, respectively.
Purchase Accounting for Acquisition of Real Estate Subject to a Lease – In accordance with the FASB guidance on business combinations, the fair value of the real estate acquired with in-place leases is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases and the value of in-place leases, as applicable, based on their respective fair values.
The fair value estimate is sensitive to significant assumptions, such as establishing a range of relevant market assumptions for land, building and rent and where the acquired property falls within that range. These market assumptions for land, building and rent use the most relevant comparable properties for an acquisition. The final range relies upon ranking comparable properties' attributes from most similar to least similar.
The fair value of the tangible assets of an acquired leased property is determined by valuing the property as if it were vacant, and the "as-if-vacant" value is then allocated to land, building and tenant improvements based on the determination of their fair values.
In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded as other assets or liabilities based on the present value (using an interest rate which

11



reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases, and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining term of the lease and the applicable option terms if it is probable that the tenant will exercise options. The capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases. The capitalized below-market lease values are amortized as an increase to rental income over the initial term unless the Company believes that it is likely that the tenant will renew the lease for an option term whereby the Company amortizes the value attributable to the renewal over the renewal period.
The aggregate value of other acquired intangible assets, consisting of in-place leases, is measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates over (ii) the estimated fair value of the property as-if-vacant, determined as set forth above. The value of in-place leases exclusive of the value of above-market and below-market in-place leases is amortized to expense over the remaining non-cancelable periods of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be written off in that period. The value of tenant relationships is reviewed on individual transactions to determine if future value was derived from the acquisition.
Intangible assets and liabilities consisted of the following as of (dollars in thousands):
 
 
June 30, 2019
 
December 31, 2018
Intangible lease assets (included in other assets):
 
 
 
 
Above-market in-place leases
 
$
15,717

 
$
15,175

Less: accumulated amortization
 
(9,604
)
 
(9,239
)
Above-market in-place leases, net
 
$
6,113

 
$
5,936

 
 
 
 
 
In-place leases
 
$
115,642

 
$
104,871

Less: accumulated amortization
 
(62,400
)
 
(60,797
)
In-place leases, net
 
$
53,242

 
$
44,074

 
 
 
 
 
Intangible lease liabilities (included in other liabilities):
 
 
 
 
Below-market in-place leases
 
$
41,737

 
$
41,554

Less: accumulated amortization
 
(25,595
)
 
(25,258
)
Below-market in-place leases, net
 
$
16,142

 
$
16,296



The amounts amortized as a net increase to rental income for above-market and below-market in-place leases for the six months ended June 30, 2019 and 2018, were $401,000 and $2,115,000, respectively, of which $173,000 and $1,417,000 were recorded for the quarters ended June 30, 2019 and 2018, respectively. The value of in-place leases amortized to expense for the six months ended June 30, 2019 and 2018, were $4,042,000 and $5,516,000, respectively, of which $1,798,000 and $2,370,000 were recorded for the quarters ended June 30, 2019 and 2018, respectively.
Lease Accounting – In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," ("ASC 842"), effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The FASB issued final guidance that requires lessees to record a right-of-use ("ROU") asset and lease liability on its balance sheets but recognize expenses in the income statement in a manner similar to previous accounting. The guidance also eliminated certain real estate-specific provisions and changed the guidance on sale-leaseback transactions, initial direct costs and lease executory costs for all entities. For lessors, the standard modified the classification criteria and the accounting for sales-type and direct financing leases.
Effective January 1, 2019, NNN adopted the lease guidance using the modified retrospective approach in which the cumulative effect of applying the new standard was recognized at the date of initial application with a positive adjustment to NNN’s opening balance of accumulated deficit. The modified retrospective approach provides a method for recording existing leases upon adoption which in comparative periods approximates the results of a full retrospective approach. NNN elected the package of practical expedients permitted under the transition guidance (which included: (i) an entity need not reassess whether any expired or existing contracts are or contain leases, (ii) an entity need not reassess the lease classification for any expired or existing leases, and (iii) an entity need not reassess initial direct costs for any existing leases), the land easement practical expedient to carry forward existing accounting treatment on existing land easements, and the lease and non-lease component combined practical expedient.

12