Investor Update. August 2016

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Candice Barton
6 years ago
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1 Investor Update August 2016

2 Safe Harbor This presentation contains certain statements that are the Company s and Management s hopes, intentions, beliefs, expectations, or projections of the future and might be considered to be forward-looking statements under Federal Securities laws. Prospective investors are cautioned that any such forwardlooking statements are not guarantees of future performance, and involve risks and uncertainties. The company s actual future results may differ significantly from the matters discussed in these forward-looking statements, and we may not release revisions to these forward-looking statements to reflect changes after we ve made the statements. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company s filings with the SEC including, but not limited to, the Company s report on Form 10-K, as well as company press releases. 2

3 Low Risk Strategy Generates Consistent Growth Strong Investment Grade Balance Sheet Q Highlights and Portfolio Long-Term Track Record of Success 3

5 Consistent and Simple Strategy Focus on single-tenant net lease retail properties Sustain high occupancy and maximize value of existing real estate assets Maintain fully diversified portfolio Grow through internal portfolio growth and well underwritten acquisitions Utilize asset sales to manage risk, enhance value and partially finance acquisitions Preserve conservative balance sheet and financial flexibility through access to multiple sources of capital and unsecured debt Produce safe and growing dividends Maintaining this strategy has resulted in: 27 consecutive annual dividend increases Total shareholder returns exceeding REIT and general equity averages over 10-, 15-, 20- and 25-year periods 5

6 Core Competency Focus: Single Tenant Retail Properties Why Retail? (vs. multiple property types) Higher lease renewal probability better risk-adjusted returns Retail tenants are more particular location driven than non-retail Retail tenants are not likely to risk disrupting established customer base to save moderate amounts of rent in new location Particular location less meaningful to office / industrial tenants (more commodity space, same zip code may work fine) Higher renewal rates result in lower vacancy and lower tenant improvements = higher and more consistent returns Good retail locations provide deeper market for replacement tenants Core competency of management and deep market penetration Why Selective Non-Investment Grade Tenants (vs. investment grade focus) Better pricing higher cap rate, lower investment Better rent growth over lease term Durability of tenant credit can be fleeting Opportunity for tenant credit improvement 6

7 NNN s Long-Term Retail Net Lease Strategy Creates a Solid Foundation of Highly Predictable Operating Income NNN s Disciplined Acquisition Approach Generates Steady Earnings Growth Through Higher Yields With Less Risk Than Development and Other Acquisition Approaches Strategy Generated on Average Annual 9% Recurring FFO Per Share Growth Since

8 Retail Net Lease Strategy Generates a Reliable Income Stream with Low Volatility Well-selected retail tenants provide stronger performance through various economic cycles than office, industrial or other tenant types. Main street locations provide strong market for replacement tenants and rent growth Lower earnings volatility from higher occupancy (12-year low of 96.4%) Retail properties more likely to renew lease at end of initial term year initial lease terms; 11.4-year weighted average remaining lease term Only 2.6% of leases expire through YE 2017 Tenants responsible for operating expenses, taxes and capital expenditures no CAM leakage No anchor or co-tenancy issues for tenants to leverage into reduced rent High Quality, Well-Diversified Portfolio $6.4 billion total assets (gross book basis) 2,452 properties (26.3 million SF) in 48 states 400+ national and regional retail tenants Top 25 tenants (59% of rent) average 1,113 stores each 8

3% 98.2% 97.9% 96.9% 97.4% 96.7% 96.4% 98.6% 99.1% 99.1% 97.8% Avg. 95% 92.1% 93.0% 93.5% 93.5% 92.8% 92.0% 92.0% 92.7% 92.5% *92.

9 NNN s Strategy Results in Higher Occupancy and Less Volatility From 2003 Q2 2016, NNN s occupancy never fell below 96.4% while the REIT industry average never rose above 93.5%. NNN 100% REIT Industry (Ex Hotels & Health Care) 97.0% 97.4% 98.3% 98.2% 98.3% 98.2% 97.9% 96.9% 97.4% 96.7% 96.4% 98.6% 99.1% 99.1% 97.8% Avg. 95% 92.1% 93.0% 93.5% 93.5% 92.8% 92.0% 92.0% 92.7% 92.5% *92.6% 90% 90.5% 90.1% 90.8% 90.7% 85% Q *REIT Industry Average as of Q Source: SNL Financial 9

10 NNN s Acquisition Approach is Unique Because It s More Difficult Acquisition quality over quantity requires selectivity, discipline and patience: Small transactions in areas of historical expertise (retail) rather than large portfolio transactions provides higher risk adjusted returns Retail NNN s historical expertise generates higher and more consistent operating results vs. other net lease and non-net lease sectors Approximately 25 relationships with managements of strong growing retail concepts Underwriting focuses on alternative uses upon future rollover and current tenant strength Multiple credit upgrades after NNN s acquisition 7-Eleven, Sunoco, Bloomin Brands, Lowes, Susser, Wanda Group (AMC), Advance Auto, Couche-Tard / Circle K (Pantry) Lease terms and conditions negotiated based on unique aspects of location and tenant s business and credit. Tenant self selection - unlikely to sign a long-term lease on questionable store 10

11 NNN s Unique Acquisition Approach Generates Strong FFO Growth Retail Net Lease market is very large yet has less buyer competition than other property types because properties are smaller NNN s more focused relationship-based acquisition approach is more difficult and time consuming further resulting in less buyer competition Less buyer competition results in higher initial cap rates and built in rent growth Careful targeting and underwriting of management and the future prospects of our retail tenants is supported by: Consistently high portfolio occupancy; and Multiple credit upgrades realized by relationship tenants Consistently high portfolio occupancy results in less earnings volatility All of the above generate greater per share accretion from lower acquisition volumes and allows NNN to continue to acquire accretively, despite cap rate compression and increased interest rates 11

NNN Has Consistently Generated Strong Acquisition Volumes at Significantly Higher Cap Rates than Other REIT Property Types Historical Acquisition Volume at Weighted Average Initial Cash Cap Rates*

12 NNN Has Consistently Generated Strong Acquisition Volumes at Significantly Higher Cap Rates than Other REIT Property Types Historical Acquisition Volume at Weighted Average Initial Cash Cap Rates* $800 $700 $ % 8.4% 8.3% 7.8% 7.5% 7.2% [Guidance] $ % (Millions) $400 $ % 8.8% 9.0% 9.5% Q1&2 Actual $200 $100 $0 9.4% * Plus approximately 1.5 % annual rent growth 12

13 Low Risk Strategy Generates Consistent Growth Strong Investment Grade Balance Sheet Q Highlights and Portfolio Long-Term Track Record of Success 13

14 Durable Capital Structure Long-Term Balance Sheet Management Objectives Avoid financing risk (never need capital) Reduce cost of capital competitive advantage Maintain access to capital & flexibility to take advantage of market opportunities and weather economic storms Longer duration capital is better than shorter duration capital Unencumbered properties maximizes flexibility (leasing, selling, expanding, etc.) and lowers debt service burden Maintain strong investment grade debt ratings Stagger debt maturities Maintain line capacity to fund near term debt maturities and acquisitions Asset dispositions are a source of capital sector leading expertise 14

15 Strong Investment Grade Balance Sheet Risk Management is a Core Competency Investment-grade debt rating (BBB+ / Baa1 / BBB+) supported by industry leading leverage ratios 99% of assets unencumbered - only $16.9 million of secured debt Well-laddered debt maturities $650 million unsecured bank credit line (accordion to $1.0 billion) Outstanding balance of $147.3 million as of 6/30/16 Matures January 2019, plus one-year extension at NNN s option Priced at LIBOR bps Raised $216 million of common equity and generated $73 million of property disposition proceeds in

16 Conservative Balance Sheet Management (As of June 30, total gross book assets) Unsecured Debt 33.1% Secured Debt 0.3% Secured debt - $16.9 million Unsecured debt - $2,100.8 million (wtd. avg. maturity 6.5 yrs; wtd. avg. interest rate 4.5%) Preferred equity - $575.0 million Common equity - $3,661.0 million Preferred Equity 9.0% Common Equity 57.6% Total Capitalization: $6,353.7 million (gross book) Interest coverage ratio: 4.7x Fixed-Charge coverage ratio: 3.4x 16

17 Acquisition Funding ( ) 17

18 Well-Laddered Debt Maturities (As of June 30, 2016) NNN s Low Leverage Balance Sheet Strategy is Enhanced by it s Well Laddered Debt Maturities $450,000,000 $400,000,000 $350,000,000 $300,000,000 Weighted average debt maturity of 6.5 years 5.5% 3.8% 3.3% 3.9% 4.0% $250,000, % $200,000,000 $150,000,000 $100,000,000 $50,000,000 $- 5.4% 5.2% 5.2% 5.2%

19 NNN in a Rising Interest Rate Environment NNN is better positioned to successfully execute its strategy than its triple-net and non-triple net peers in a rising interest rate environment NNN s historically higher acquisition cap rates (8.1% since 2010; 6.9% recent acquisitions) create much more room for spread compression before acquisitions cease being accretive Less exposure to refinancing risk from low leverage balance sheet and long duration maturities Little floating rate debt - NNN $650 million bank credit facility has an outstanding balance of $147.3 million at 6/30/16 Less than $256 million of debt maturing through 2020 which can currently be refinanced at lower interest rates Well laddered debt maturities limits a particular year s exposure to rate spikes 19

20 Low Risk Strategy Generates Consistent Growth Strong Investment Grade Balance Sheet Q Highlights and Portfolio Long-Term Track Record of Success 20

21 Q Highlights Core FFO per share increased 7.3% to $0.59 AFFO per share increased 7.1% to $0.60 Dividend yield at June 30, 2016 of 3.4% Maintained high level of occupancy at 99.1% Invested $343.6 million in 165 average 6.9% cap rate (initial cash yield) Sold seven properties for $19.7 million (producing $1.2 million gain) Generated 15.8% total return annually for the past 25 years Maintained dividend payout ratio of 75% of AFFO Raised $128.3 million net proceeds from issuance of 2.76 million common shares Maintained significant balance sheet capacity for future acquisitions 21

22 Diversification Reduces Risk (As a percentage of base rent June 30, 2016) 2,452 Properties 400+ Tenants 48 States Northeast 14.5% Southeast 26.3% Midwest 26.3% West 4.0% South 22.9% Rocky Mountain 6.0% 22

23 Lease Expirations 70% (As a percentage of base rent June 30, 2016) 60% 50% Weighted average remaining lease term of 11.4 years Only 2.6% of leases expire through % 30% 20% 10% 0% Thereafter 23

24 Top 20 Lines of Trade (As of June 30, 2016) Line of Trade Percentage of Base Rent Number of Properties Number of Tenants Number of States 1. Convenience stores 16.7% Restaurants - full service 12.6% Restaurants - limited service 7.7% Automotive service 6.7% Family entertainment centers 5.7% Theaters 5.1% Health and fitness 4.2% Automotive parts 4.0% RV dealers, parts and accessories 3.4% Banks 3.3% Sporting goods 2.8% Wholesale clubs 2.5% Medical service providers 2.2% Drug stores 2.2% Consumer electronics 2.1% Travel plazas 2.0% Home improvement 1.9% General merchandise 1.8% Home furnishings 1.8% Grocery 1.6% Other 9.7% Total 100.0% 2,452 24

25 Top Tenants Rent Coverage Range 1.1x x Average 3.7x Weighted Average 4.0x Fixed Charge Coverage Range 0.9x x Average 2.6x Weighted Average 2.7x Properties % Base Rent Sunoco % Mister Car Wash % LA Fitness % Couche-Tard (Pantry) % Camping World % 7-Eleven % SunTrust % AMC Theatre % Bell American (Taco Bell) % Chuck E. Cheese's % BJ's Wholesale Club 8 2.5% Frisch's Restaurant % Gander Mountain % Bob Evans % Best Buy % 25

26 Low Risk Strategy Generates Consistent Growth Strong Investment Grade Balance Sheet Q Highlights and Portfolio Long-Term Track Record of Success 26

27 NNN Consistently Outperforms the REIT Industry and the Major Indices NNN Outperforms 1 Year 3 Years 5 Years 10 Years 15 Years 20 Years 25 Years (NNN = $51.72 at 06/30/16) National Retail Properties (NNN) 53.7% 19.7% 21.7% 16.4% 16.0% 14.6% 15.8% Indices * NAREIT Equity REIT Index (FNERTR) 23.6% 13.3% 12.5% 7.5% 11.3% 11.2% 11.7% * Morgan Stanley REIT Index (RMS G) 24.0% 13.5% 12.5% 7.4% 11.2% 11.1% n/a S&P 500 Index (SPX) 2.1% 11.6% 12.1% 7.4% 5.7% 7.8% 9.4% Nasdaq (CCMP) -3.3% 13.9% 13.3% 9.6% 6.6% 8.2% 9.7% * S&P 400 Index (MID) -0.7% 10.5% 10.5% 8.5% 8.8% 11.1% 10.6% S&P 600 Index (SML) -0.1% 10.2% 11.2% 7.8% 8.9% 9.8% n/a * Russell 1000 Index (RIY) 2.9% 11.4% 11.8% 7.5% 6.0% 8.0% 7.4% * Russell 1000 Value Index (RLV) 2.8% 9.8% 11.3% 6.1% 6.4% 8.4% n/a Russell 2000 Index (RTY) -6.7% 7.1% 8.3% 6.2% 6.9% 7.6% 8.0% Russell 2000 Value Index (RUJ) -2.6% 6.3% 8.1% 5.1% 7.7% n/a n/a 27

28 Long-Term Dividend History 27 consecutive years of annual dividend increases Fourth longest of all public REITs and 99% of all public companies $1.80 $1.70 Dividends Per Share $1.60 $1.50 $1.40 $1.30 $1.20 $1.10 $

29 National Retail Properties, Inc. (NYSE: NNN) 800-NNN-REIT

1Q 2017 RETAIL INVESTOR PRESENTATION

1Q 2017 RETAIL INVESTOR PRESENTATION Contents Company Overview & Historical Risk/Reward 2 Dependable Dividends 6 Portfolio Diversification 10 Asset and Portfolio Management 16 Investment Strategy 19 Capital