Welcome to the National Retail Properties Inc. third quarter2007 earnings conference call. (Operator Instructions) It is now my pleasure tointroduce your host, Mr. Craig Macnab, Chief Executive Officer for NationalRetail Properties Inc. Mr. Macnab, you may begin.

Andrea, thank you very much. Good afternoon and welcome toour third quarter 2007 earnings release call. On this call with me is KevinHabicht, our Chief Financial Officer, who will provide information and anupdate on our guidance and review details of our third quarter financialresults after brief opening comments from me. We're extremely pleased with our financial performance inthe third quarter, which positions us well for the balance of this year and,most importantly, sets us up for 2008. Our portfolio continues to be in greatshape with over 98% of our properties occupied with very limited lease rolloverin the next 15 months. A high level of occupancy is attributable to the qualityof our fully diversified net lease retail portfolio. We currently own as of the end of the third quarter 876properties leased to approximately 200 different national or regional tenantsdoing business in 43 states. These tenants operate in over 30 differentsegments of the retail industry which provides us with broad diversification. In the last 90 days, we've completed a variety of transactionswhich are significant as we strive to build value for our shareholders. Thesetransactions include firstly our joint venture with Crow Holdings Real EstateFund. We anticipate acquiring somewhere between $200 million and $220 millionof convenience stores in this joint venture with National Retail Propertiesinvesting $15 million of equity in the joint venture that we will manage andfrom which we will earn recurring fees. Strategically this joint venture, focused exclusively onconvenience stores, is significant to NNN for a variety of reasons: At the end of the third quarter, the joint venture made itsinitial acquisition closing on approximately $30 million of convenience storesand we're currently working on a couple of other acquisition opportunities thatare destined for the joint venture. Secondly, we were very pleased to complete our equityoffering of 4 million shares in early…

Thanks, Craig. Let me start with the normal cautionarystatement that we will make certain statements that may be considered to beforward-looking statements under federal security laws and the company's actualfuture results may differ significantly from the matters discussed in anyforward-looking statements, and we may not release revisions to thoseforward-looking statements to reflect changes after the statements are made. Factors and risks that could cause actual results to differmaterially from expectations are disclosed from time to time in greater detailin the company's filings with the SEC and in this morning's press release. With that, let me as indicated in the press release, wereported third quarter 2007 FFO results totaling $30.9 million or $0.46 pershare, which represented a 21% increase over 2006's $0.38 per share. Strippingout unusual items for both quarters, impairments and lease termination fee income,per share results increased by 6.8% in the third quarter over a year ago; thatwould be $0.47 versus $0.44. For the first nine months of '07, FFO per share was $1.42per share, up 17.4% from $1.21 per share in the first nine months of '06.Again, stripping out the unusual items for both year-to-date amounts,impairments, restructuring charges, lease termination fees, et cetera, pershare results increased by 6.9% in the first nine months year over year. Thatwould be $1.40 versus $1.31. We're very pleased with these improved results. Accretiveacquisitions, capital recycling and improved operating expense margins arecontributing to yet another successful year here. With regard to 2007 FFO per share guidance, we're increasingthe bottom end of the range slightly to $1.84 to $1.87 per share. This willrepresent a range of 10% to 12% FFO per share growth over 2006's $1.67 pershare. As a reminder, our initial 2007 guidance was $1.74 to $1.80. We've beenable to increase guidance throughout the year. Today we are introducing 2008 FFO per share…

Your first question comes from Ambika Goel - Citigroup.

I just wanted to get an overview of what you are seeing therobust deal flow for 2008, what kind of deals are they? One of your peers hadcommented that they're actually seeing transaction volume potentially slowbecause M&A activity has slowed in the back half of the year.

Well for sure the amount of capital rushing into deals isless than it was. Having said that, there continues to be plenty of capital onthe sidelines and deal flow ebbs and flows. The fact of the matter, really oneof the strengths of our business model, is that we are only acquiring a smallpercentage of the deals that we take a look at. There are more than enoughdeals out there in the market and we're going to get our share of them. In 2008, as Kevin mentioned, we're looking at acquisitionvolume of $300 million to $400 million. That's considerably less than we willacquire this year. Looking at the deal flow we're currently seeing, it'spromising.

If you could give some color on that deal flow, is thatM&A activity that you expect to happen early next year or is that justcompanies looking to get real estate off their books?

Ambika, it is abalance of both. As you know, we've worked hard over the last couple of yearsto build preferred relationships with a variety of growing retailers that usesale and leasebacks to finance their growth, so we've got a portion of that. Secondly,there is some M&A activity that right now we're participating in.

Could you give the cap rates on the theaters that youacquired?

We are not giving outinformation on properties individually.

Were the cap rates on the theaters in line with theportfolio average?

Absolutely.

What should we expect for the cap rates for the acquisitionsand dispositions in 2008 guidance?

I think next year weare indicating that acquisitions we're penciling in somewhere in the 8.5 range,again trying to move those higher, and we think the dispositions will be 100basis points south of that number, so the spread's still attractive for capitalrecycling.

Our next questioncomes from Charles Place -Ferris Baker Watts.

Is there any feel or thought about the [green shoe] as itrelates to the deal that you did in October? Do you think that's going to beexercised?

I don't believe so,given the market turmoil of recent weeks. We're not banking on that.

With the stockselling below where the equity offering was done, we're not anticipating theshoe being exercised.

What was the cap rateon your third quarter acquisitions, the $140 million?

In the third quarterI think it was 8.18%.

Did I understand your guidance, Kevin, as far as it relatesto '07 now, are you just pegging it at $1.87? There is no range any more?

No, all we did wasour old range was $1.83 to $1.87. We moved the bottom end up slightly from$1.84 to $1.87 so not much change there, but it is in that ZIP code. We feelvery good about the visibility obviously, for '07, but frankly feel pretty goodabout '08 as well.

One of the thingsthat you mentioned, Craig, is that you said that the 2008 could be shaping upto be a stronger year relative to years past. We note that you're doing around$600 plus million of acquisitions in '07 here and then your guidance was between$300 million and $400 million. Is there potential that that number couldincrease substantially based on what you're seeing out there?

I think that whatwe're commenting on is that we feel at this point in time we've got a highdegree of visibility on achieving the metrics that we need to execute on togenerate the FFO per share in the guidance that Kevin mentioned. Now, just as a reminder what will impact 2008 is not onlythe absolute amount of acquisition activity and we're sticking to our $300million to $400 million, but the timing of when that comes due. So right nowwe're working on a couple of transactions which are not done yet, I may add,but if they close, we will start off 2008 in the first half of the year with pretty goodacquisition activity, which means we'll get the rents for the entire year. Sothat helps give us comfort that we're going to achieve our numbers in 2008, butwe still have got to close those deals.

One last thing here on some balance sheet information. What'syour percentage of fixed rate versus total debt and what's your averageinterest rate on total debt?

Total debt averageinterest rate is around 6.15% and as a percentage of our total liability,floating rate debt is only 3.8%.

That was at the end of the quarter and obviously in thebeginning of the fourth quarter we did an equity offering, so that is evenlower today. Also LIBOR is pretty low.

Your next question comes from David Fick - Stifel Nicolaus.

Speaking of average interest rates, what forward assumptionsare you making about both the direction of rates and your cost of capital?

From where we are now we're assuming that we are able toborrow at rates close to where they are today. And we recently did a ten-yeardeal and we have LIBOR probably a little higher than where it is today in ourassumptions, but not a material increase but certainly no decrease.

Craig, you mentioned that you guys haven't seen much move incap rates yet, and we're hearing from other property types across the board,most CEOs this quarter saying they are seeing some adjustments and that they'reseeing some hesitancy from their institutional partners to approve deals. I am just wondering, I hate generic cap rate questions, butyou have a 10-31 business, so you're seeing flow there. Can you comment on the10-31 business? How confident you are in the presumption that you won't be ableto buy the real estate cheaper later?

David, your commentis absolutely on point about making generic comments, but let me attack it; acouple of different things. On our 10-31 business, where you have awell-located property in a bigger MSA and it doesn't have to be this mystiquewith East Coast/West Coast, it just got to be in a decent-sized community of morethan 100,000 people with recognized tenants. On a one-off basis, we are stillseeing and getting very good pricing on selling our properties. Having said that, with borrowers unable to get interest-onlymortgages with the dislocations in the CMBS market, it is inevitable to us thatcap rates are going up, yields are going up on properties. It hasn't occurredyet and I am, frankly, a little mystified why that is in our property type. Weare trying to get slightly higher pricing and I may add we are running, if itwas easy we would have already done it, I can assure you. I think just by way of analogy, if people think about someof the houses for sale on their street, how many of those are the buyers stillthinking that their house is unique and deserves a higher price? I think we'reseeing a little bit of that in the commercial real estate market, where sellersare a little slow to adapt to the new environment. But I do think that there islots of capital on the side line. We are already getting very, very good pricing on ouracquisitions. As Kevin just mentioned, our guidance for next year assumes aweighted average cap rate in the mid-8% range and we think that's alreadybetter than market and we're proving that in the properties that we'rereselling. So we're not expecting a whole lot of improvement there, but we aretrying to get slightly better yields.

I think it is important. The context I think is important. Idon't think our acquisition cap rates over recent years compressed nearly asmuch as you saw in many other real estate sectors, so that may be a part ofmaybe not springing back as quickly or as high in these early innings, but weclearly think there is room to drift higher.

On the theater acquisition, without getting too specific oncap rates, you have a lot of competition out there. There is a company that youcompete with and that's their only business and then there is a couple of otherof your peers that have been historically theater buyers. What kind of cap rategenerally do you think is appropriate for a theater portfolio today for a stateof the art stadium seating asset?

Obviously thatquestion depends how the property is doing, what the rent coverage is, where itis located, what its competition is, the credit of the tenants and so forth.But having said that, in the current environment, assuming that you have acredit tenant with a new stadium theater facility, mid-8s to us is the rightkind of number. We think in small dollar amounts that is attainable and that'sin our budget for 2008. J:

Our next question comes from the Ken Avalos - Raymond James.

Do you guys plan on selling down any trade lines or sellingdown or moving away from any particular states?

Ken, we have been active in the capital recycling businessand a couple of times a year we take a look at our entire portfolio and weidentify specific, individual properties that we think somebody else is a betterowner of than we are. It depends on a number of different factors, what theunit level trends are, our exposure to that category, who the tenant is, ourperception of that category and so forth. Having said that, if you're looking for a broad-brush statementat the present time, we're just selling a small number of individual propertieswhere we think over the next ten to 15 years somebody else is better off owningthat individual property than us. We're selling a couple of grocery propertiesright now and I think so far this year we've done a very good job of gettingrid of our 10-31 inventory at extremely good prices. The beginning of this year we went into the year with over$100 million of inventory reflecting some deals we completed at the end of2006. Today we've significantly depleted that inventory. At the margin, we'reselling a couple of restaurant properties right now.

Kevin, anybody new on the watch list this quarter?

No, not really,hasn't changed that much. We continue to have very little exposure to any kindof bankruptcy issues with tenants and so still feel okay about that.

Continuing along myvery pessimistic line of questioning, Craig, cap rates haven't moved. Arguablythe cost of debt, given what the ten-year is doing hasn't really budged thatmuch, but I think the risk picture has clearly increased the backlog. As youthink about buying assets, how do you know or feel and get comfortable with thefact that you're getting compensated for the risk picture when absolute returnsit sounds like for '08 are getting modeled down at 8.5% versus 8.75%?

That depends on thequality of the real estate at the end of the day, doesn't it, and who thetenant is. We are doing a very disciplined and comprehensive job underwritingthe real estate and the ability of the tenant to pay the rent over the 15 to 20years we're entering into a new lease. I do think that the consumer or retailsales are going to moderate in 2008. For what it's worth, I think in every oneof the last 50 years, every one, retail sales have gone up, but they are notgoing to go up in 2008 at record pace. If they remain dead even -- in otherwords no growth -- our retailers will be easily able to pay our rent.

As you go through your underwritings, you think at themargin, the quality, maybe not so much quality of the tenants, but the metricsare at the margin moving in any noticeable direction for you?

As we're looking atnew properties, new acquisitions, we're very, very focused on how thatcategory, that company, these properties will change, will be affected by aweaker economic environment. I heard what you said about your concern. If youtake a look at our capital market's activity in the past two months, you willsee that we have been very cautious and conservative. Firstly, we went out and termed out to all of our debt inthe first couple of days in September and then the first couple of days inOctober we went ahead and took advantage of the capital markets at that timeand sold 4 million shares. So right now we have cash on our balance sheet andby nature we're cautious and conservative people. We've recently taken a lookat a number of different deals which are going to get done at cap rates thatare consistent with what we're looking at and we just passed on those deals.There are lots of opportunities. We don't have to date every girl at the party.

I think that's thekey is that, again, guidance for next year on acquisitions is $300 million to$400 million. I think that's achievable, that's not a big number in ouruniverse and we have the capital available today to fund that. We are in a goodposition to be relatively selective.

Our next question comes from Dustin Pizzo - Banc of America.

Craig, following up on Kevin's questions there, what's theaverage rent coverage ratio right now in the portfolio? Do you guys disclosethat?

We don't, Dustin, andobviously in our portfolio there are a couple of different categories oftenants. First one is if you start outwith some of our bigger categories, such as drug stores, not only do we haveexcellent rent coverage at the unit level, but companies like CVS have verygood rent coverage. We have, in round numbers, about one half of our rent iscoming from publicly traded or investment grade rated type of companies, andthat includes say a company like Circuit City, that I don't think hasinvestment grade debt but with no debt outstanding it is a pretty good companyand we're confident that they're going to pay our rent. As you move down into some of the other more regionaltenants, we obviously as we underwrite these properties take a very close lookat the rent coverage, and not all of those properties report their rent, by theway, to us, but if you take a look at what we're looking at underwriting rightnow in the recent past some of these transactions have been in a rent coverageratio of 1.75 to as much as 3 times.

The leases with some of the bigger box guys, like Circuit City that you mentioned, those arecross-collateralized, right?

No, sir.

Typically no.

Typically no they'renot?

No.

Kevin, just looking at your decision to execute theaccordion feature, how much of that was a function of the level activity thatyou're seeing in the market and how much of it was due to the attractive priceof that debt relative to what's going on in the unsecured market?

I just think thereprobably wasn't any specific reason beyond that obviously capital is more deartoday and so having more availability is a better position to be in and at themargin I think that enhances our competitive position; and that capital ispretty reasonably priced. All of those things made a lot of sense just to pullthe trigger on that feature that was already embedded in our existing creditfacility.

Dustin, just if youstep back, we have access to capital in a variety of different buckets.Obviously, this new joint venture is a new addition, but if you take back onour line of credit specifically, which is your question, at the time we put inplace this existing credit facility, we were a company 50% to 60% the size thatwe are today in terms of total assets. So an addition of another $100 million when we've acquiredover $1 billion of properties in the last three years or so, $100 million isnot a lot in the scheme of things.

Looking at the dividend, based on where the payout ratio ishere, should we expect to see you guys potentially bump that up in concert with FFO growth over the next fewyears?

You should expect tosee, yes. This year, 2007, we were able to increase the dividend 6%. We havereached a point in terms of our payout ratio both on an FFO basis as well as amore tax-oriented taxable income basis, where we need to start growing ourdividend more in line with FFO per share growth. I think you'll see that take place in '08 aswell which will mark our 19th consecutive year of increased dividend.

There are no further questions. I would like to now turn thefloor back over to Craig Macnab for closing comments.

Andrea, thanks verymuch. We wish you all happy holidays. I guess we'll see some of you in Las Vegas for the NAREIT convention. We wish you all avery happy Thanksgiving and we'll be talking to you early in 2008. Thanks for your interest in National Retail Properties. Goodafternoon.