Greetings, ladies and gentlemen, and welcome to the National Retail Properties Incorporated first quarter 2008 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Craig Macnab, Chief Executive Officer for National Retail Properties Incorporated. Thank you, Mr. Macnab, you may begin.

Thanks, Manny. Good afternoon, and welcome to our first quarter 2008 earnings release call. On this call with me today is Kevin Habicht, our Chief Financial Officer, who will review details on our first quarter financial results, after brief opening comments from me. We are extremely pleased with our record financial performance in the first quarter, which obviously positions us well for the balance of 2008. Also we are delighted to be raising guidance in this economic environment. Our portfolio continues to be in great shape with occupancy around 98%, plus we have very little lease turnover in the remaining eight months of 2008. These are challenging times for both the consumer and retailers. However, in this environment the defensive attributes of our portfolio are clearly a strength of NNN. With over 930 investment properties, we own a fully diversified portfolio. Also the average lease duration of our portfolio is 13 years. And as I mentioned a moment ago, we have a modest number of leases coming due later this year. In the first quarter, we acquired 33 properties for $150 million for our investment portfolio, at an average cap rate of just over 8.9%. These properties were acquired from 11 different tenants and I should point out that we previously completed sale-leaseback transactions with eight of these tenants. It's worth highlighting a couple of additional details regarding our acquisition activity and the environment in which we operate. As evidenced by the high level of activity, our acquisition team continues to look at a large volume of transactions that allow us to selectively acquire carefully underwritten net lease retail real estate. Most importantly, we are now participating in what I like to characterize as a more normalized environment where cash is king and portfolio purchasers who are using large amounts…

Thanks, Craig. I'll start with the cautionary statement that we’ll make certain statements that may be considered to be forward-looking statements under federal securities laws. 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 the statements were made. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in our company's filings with the SEC and in this morning's press release. With that, as indicated in the press release, we reported first quarter 2008 FFO results totaling $37 million or $0.51 per share, representing 4.1% increase from $0.49 per share in the first quarter of 2007, which will be our toughest comp this year. We are pleased with these improved results and have raised our 2008 FFO guidance by $0.02 to $1.97 to $1. – I'm sorry, from $1.97 to $2.02 per share. And that represents 5% to 8% growth over 2007's $1.87 per share. Our business plan continues to produce good results and we’ve good visibility on '08's guidance. The balance sheet is in good shape and our property portfolio continues to produce the rent we anticipated, even in this tough environment. We’re not changing any of our primary assumptions with our new guidance. As a reminder, for 2008, we were projecting $300 million to $400 million of acquisitions, $80 million of core portfolio dispositions, G&A expense now $24 million to $24.5 million, mortgage residual interest income of $4.5 million to $5 million before minority interest, net property expenses net of tenant reimbursement of $3.1 million, and pre-tax pre-overhead gains on sale from our TRS Properties of $10 million to $10.5 million, which is a little…

Manny, if you will please poll the audience to see if we have any questions.

(Operator instructions) Our first question comes from Michael Bilerman with Citigroup, please proceed with your question. Michael Bilerman – Citigroup: Yes, good afternoon, Ambika Goel is here with me. Kevin, can you talk just a little bit more about your TRS portfolio? You have about $205 million. I think you mentioned you had $50 million on the market right now. What's the current yield on cost of the portfolio, both what you have for sale and the totality of the $205 million?

A lot what we buy, obviously and developing that NV is no different than what we would buy or develop for our own portfolio. So, the yields that we acquire and develop property that typically is close to what we would be acquiring for our own portfolio. So, that's generally the case. As you look at the balance of $205 million in that inventory portfolio it’s held for sale. About half of that is related to development properties, two-thirds of which is completed and we are just marketing for sale, and the other half what we call 1031 Exchange properties. In total, of that $205 million, like I said, we have north of $50 million of properties under contract or LOI for sale. But there's a variety of reasons why properties are in the TRS, some obviously we make some money doing it. We also view it as a way for us to mitigate a tenant and line of trade concentration as we acquire large portfolios and so gain on sale is a piece of the equation, but it is not the sole motivation for us selling properties either in the TRS or obviously in their core portfolio. Michael Bilerman – Citigroup: And you said half of it is development. It's all completed development at this point?

Two-thirds of that half is completed. Michael Bilerman – Citigroup: And so you still have funding for the remaining?

Yes, modest. We've got about $13 million under construction, which will take another $4 million to complete. So, in terms of dollars committed to complete development, it's a very nominal number. Michael Bilerman – Citigroup: And so would you say the yield on cost right now is 9%?

I think in total its closer to where we acquire, what we have in our core portfolio. Michael Bilerman – Citigroup: Which is?

From mid-eights to high eights. Michael Bilerman – Citigroup: Okay. And then is there any concentration sector-wise or tenant-wise within that $205 million?

Not materially. Michael Bilerman – Citigroup: And then do you feel really comfortable with potential to continue to have at least gains on the $205 million?

We think we will comfortably meet our guidance of $10 million to $10.5 million of gains on that entity this year. We think the first quarter obviously was half of that. So we have good visibility on meeting that guidance. We think the marketplace remains reasonably attractive to sell properties. We sold $72 million worth of properties out of that entity. We've, as I mentioned, got another $50 million with good line-of-sight. So we are very comfortable with the inventory that we hold there and our ability to sell that in the coming quarters. Michael Bilerman – Citigroup: I think Ambika has some questions, also. Ambika Goel – Citigroup: Hi, on your tenant exposure, you mentioned that there are four tenants in bankruptcy and one you're still waiting to here from on the lease rejection. Just in general, for the rest of your portfolio, could you consider what tenants would you say are at risk and what percentage of the portfolio does that represent, either because of their corporate credits or on a cash flow coverage basis?

Right. Now, let me just clarify one thing. There's four properties that were in bankruptcy. Two different tenants, four representing a total of four properties. Three of the four properties have post-petition have been affirmed by the tenant, so we are left with one property that's still at risk of being rejected. And so, that's less than 0.1% of our base rent. So, it's a very, all I could say it's a very small number. Internally, I mean, we do create what we call a credit watch list. We don't publish it. It's a report that we produce regularly and monitor on a quarterly basis, including with our Board. The composition of that credit watch list is not materially different than it was a year ago and the size of that list. Historically, it's all or as to what tenant gets on that list and how soon one decides to put it on that list. My inclination is always better to put it on there sooner rather than later. If you look at that over time, historically we've had 4% to 6% of our base rent generally on that list as a tenant that we’re just going to pay extra close attention to and try to deal with and right now that list falls within that range of normal credit watch profile. Ambika Goel – Citigroup: And what has been like the historical loss rate of that 4% to 6%?

It's been nil. I mean, tenants either get better over time and so they can get off the list. Just for an example, OfficeMax was on that list a few years ago. It's not on there today. But what we do is when it's on the list, obviously, we have a heightened portfolio management urgency around that, evaluating the real estate and so we will proactively, some of the properties we will actually sell and so the Good Guys as an example, four or five years ago was a 5% tenants of ours. It was on our credit watch list, and we proactively sought to reduce that exposure and sold properties and a couple of occasions we actually terminated the lease and put in new tenants. And for the properties we had left over we just loved the real estate and had no fear of the tenant vacating. And so that's the kind of attention that it would get and we try to proactively deal with that.

Another example would be Linens 'n Things where we had some exposure but in the last three to four years we sold those properties. We now have zero exposure to Linens 'n Things.

And there's a number of examples like that as we've talked about over the –- Steak & Ale was in our portfolio we bought in 2001 and the Cab Tech [ph] merger and we own one property today, down from, where we owned several of those before. And so we try to proactively deal with it. We try to put it on this list early so maybe we can sell properties before the marketplace has a good sense that maybe there is trouble with a particular tenant. Ambika Goel – Citigroup: Thanks. And then your theater exposure has grown in the past year and also I think about 2% in the last quarter. Can you talk about the tenant of these properties and also what the coverages are and cap rate?

Ambika, we have purchased theaters in two different transactions in the past 12 months. The operator is one of the top ten largest operators in the U.S. The cap rate is very consistent with what we've been acquiring properties at. Last year, our weighted-average was 8.4%. This year our first quarter was just over 8.9%. The cap rates in both of those transactions were similar to our averages for the year. The tenant that we purchased properties from in the current quarter, in the first quarter, is a company that we are very pleased to see likes operating with no debt. Obviously, that gives us a lot of comfort. They've been around a long time. They are a particularly good operator and range coverages are in the 2.0 range. Ambika Goel – Citigroup: Okay. Thank you.

Thank you. Our next question is from Sameer Pareek with Banc of America Securities. Please proceed with your question. Dustin Pizzo – Banc of America Securities: Good afternoon, guys, it is actually Dustin here with Sameer. Just a follow up on Ambika's question on the tenants. What's the average coverage right now of the companies that are on that watch list? The average rent coverage, that is.

Dustin, to stay with it for a second, as Kevin mentioned some of the names of these tenants but if it's a company like, for example, Pier 1. Pier 1 doesn't disclose its store level financial performance to anybody, including National Retail Properties. So that data is not available. We have a four or five different Blockbusters that are on that list. And by the way, Blockbuster has been on this credit watch list since I've been with the company, which is over four years.

And just maybe reiterate or make sure it's clear, the composition of this list, like I said, is consistent with, frankly, where it was two and three years ago when everybody thought everything was great. And so, I guess what I'm trying to communicate, at the moment, we don't have any particular tenants where we feel particularly exposed at the moment. I understand, we obviously understand the world can change and performance of tenants can change quickly. We understand that. But at the moment it's in relatively good shape overall. Dustin Pizzo – Banc of America Securities: Okay. And I guess, I guess if you're not getting the store level financials from a number of these tenants, I mean, how do you then really get comfortable with where they stand, either on ongoing viability type of basis or just from a coverage perspective?

Well, two things, I guess. One, and your first line of defense in credit underwriting is tenant entity level underwriting, which obviously for example in the case of Pier 1, there's lots of that data and so you can do your analysis like any credit analysis in which you're evaluating that credit profile for that company. And so, some of our top ten large tenants fall in that category. A Best Buy, a Barnes & Noble, a CVS, where we are not getting store level data and as Craig mentioned, no one else is. And so you're looking at tenant level credit underwriting, which gives you some level of comfort. And frankly if the tenant never files for bankruptcy, it’ll just be clear, you never get the store level credit. And so, that's an important level of credit underwriting you do. Secondly, you are also reevaluating the quality of the real estate you have, and you are looking at what the marketplace and what market rents might be. And so that's the other way you would evaluate your risk as it relates to a particular property. Dustin Pizzo – Banc of America Securities: Okay. And then just looking at the transaction markets, when you're looking at new deals that may come to committee, obviously it's going to vary on a deal by deal basis, but what sort of threshold, yield threshold are you looking at now on new deals and are there any industries as well that you just won't even consider at this point?

Dustin, our threshold in this environment is the quality of the deal. Just as a reminder, we are in the real estate business. We are not a bank that's focused on financial parameters. We are paying a lot of attention to the specific real estate attributes of the property; what's the access, what's the visibility? How does rent compare with comparable rents in that marketplace? Who might we re-lease that store to if we ever have to do it? Now, that's the first thing. And in this environment where there are more transactions than there is money to buy them, we are focused on selectively underwriting properties that make sense for us to hold for the long duration of the lease. In addition to acquiring good real estate, we want to be adequately compensated for it. Our yield in the first quarter was very high, 8.9% on average. I think we’ll be hard-pressed to accomplish that going forward. But we are obviously trying to get the best yields we can. Even with tenants that we've done deals with for the last couple of years, we are pushing yields higher. Our cost of capital has gone up. There are less people in the marketplace so we can get better yields. But a high yield doesn't compensate you adequately for weak real estate. Dustin Pizzo – Banc of America Securities: Okay. So, then I guess just following up on that more generally, where would you say cap rates generally are in the marketplace today, since it sounds like you don't think you are necessarily going to be able to reach that 8.9 again as we look out through the rest of this year? Would you say that they are in the low eight range or have they continued to move higher, or lower, frankly?

Well, it depends on the specific attributes of the properties. But just as a reminder, we are buying these properties at wholesale in structured transactions and then frequently turning around and reselling properties at very low cap rate. Thus far this year we've been selling properties at an average cap rate of around 6.25%. So to be sure there is pressure on cap rates, but we are still getting excellent pricing when we are selling our properties one by one. On the acquisition side, we have been pushing yields up and I think illustrative cap rates depending on the quality of the tenants, the quality of the real estate are in the mid 8% range. Just as a reminder, a very high cap rate doesn't make poor real estate a good deal.

Our next question comes from Charlie Place with Ferris Baker Watts. Please proceed with your question. Charlie Place – Ferris Baker Watts: Thank you. Craig and Kevin, could you comment a little bit on your C Store JV with Trammell? It looked like you didn't really have much activity in the first quarter on that? Can you just give a little bit more color on the activity there and what we should think about when we are looking at ramping up that?

Yes, I think in the first quarter we did participate in a number of transactions outside the convenience store sector. I think there are going to be convenience store transactions, some of which will go into our own portfolio, some of which will be presented to our joint venture with Crow. The joint venture is going well. It's from a financial standpoint, it is a small part of our business. Charlie Place – Ferris Baker Watts: Yes. Well, and I guess a related question is what type of properties did you buy in the first quarter? Where was the – what kind of retail segment were you involved in?

Yes. Just staying with that for a second, Charlie, there is some information in the back of our press release and we'll talk about it in a moment. But getting back to a question that I know you've asked off-line and Dustin asked a moment ago, restaurants are a category that we’ve been cautious about for the last period of time. The restaurant sector, both casual dining and fast food is a huge category in net lease. And there are always plenty of those transactions in the market. In that particular area our underwriting has been very rigorous for the last period of time and as a result many of these deals haven't paused muster internally. We did in the first quarter do some theater deals, which we just talked about a moment ago. We did some deals in the broad automotive parts section. And then there are always lots of little deals. Charlie Place – Ferris Baker Watts: Okay. Thank you.

Our next question is from David Fick with Stifel Nicolaus. Please proceed with your question. David Fick – Stifel Nicolaus: Good afternoon. You've answered most of my questions so I guess I will ask a generic analyst question. Restaurants, where are you considering the ongoing weakness in their numbers? Would you be in or out, same for gas stations, convenience stores? And then geographically speaking with 30% of your rents coming out of Florida and Texas, are you worried about any of your geography?

Just staying with that last question. First, our biggest concentrations are in the broadly the Sunbelt states where the population continues to grow. We do have a big exposure in Texas and fortunately the commodities boom is benefiting Texas. Retail sales in Texas is still very good. The price of oil is high. And also agriculture is doing well in that state. So Texas is fine. Florida is clearly adversely impacted by the glut of housing and retailers in Florida are not doing as well in 2008 as they did the past several years. That is not going to turn in the next couple of months. But ultimately, retail sales in Florida are going to continue to grow faster than the nation. Like everybody else, we are doing what we can to avoid states like Michigan. On the restaurant side, we are being very, very cautious, Dave. It's hard to underwrite where sales will stabilize for a restaurant operator when they are having declining same store sales. In addition, the increases in commodity pricing is putting terrific pressure on the cost structure of restaurants and they are having a hard time passing that through to their guests. So, restaurants for us are a difficult transaction to underwrite and our activity in that sector reflects our caution. Convenience stores, we've got a vast deal flow, enormous presence in that category. Some of the big oil companies have announced that they are going to be selling convenience stores. So, there's more deal flow to follow. And I think we are going to get our share of that. To be sure for the last two quarters C. store operators have struggled to pass through the high price or the increase in the price of oil at the pump. In the event the price of oil stabilizes, or low and behold it should even turnover and the price of oil moderate a little bit, C store operator's margins on gas will improve. Just as a point of reference on that, most people know that our two biggest tenants are Pantry and Sasa [ph], both of them have pre-released the first quarter. Sasa, in particular, pre-released very, very strong numbers, Texas is doing very well. Their comp store sales were excellent. David Fick – Stifel Nicolaus: Thank you.

(Operator instructions) Our next question is from Jeff Donnelly with Wachovia. Please proceed with your question. Jeff Donnelly – Wachovia: Good afternoon, guys. Just a few questions. Kevin, if I could just ask one last one on that credit watch list you're discussing. I'm curious, do you tend to watch by location as an individual stores or do you just watch by overall credit of the tenant itself?

That one is directed totally at the tenant credit and so all stores related to that tenant are on our list, if you will, and so, yes, it's tenant specific. And then, like I say, part of our portfolio management would be to sort through that and say, look, we have got these stores that are exceptional locations and rents that are excellent and these two over here are marginal and so let's sell the two that are marginal or approach the tenant and work something out. Any way, it's by tenant.

It's cost at that level. But then we have to get to the store level real estate fundamentals. What's the rent the tenant’s paying in that space and how does it compare with market. Jeff Donnelly – Wachovia: And then, Craig, I guess, a question for you. I think you're – I suspect you are a big fan of the convenience store business given its fragmentation. Where do you think you might, looking forward, take your concentration in that business as a percentage of your portfolio or do you think where we are at today is where it would be in the future?

Jeff, it certainly has run up considerably in the last four years. And one of the criteria which we as management and our Board of Directors pay a lot of attention to is risk adjusted returns. We continue to feel that the convenience store category provides us very good risk adjusted returns. We are buying corner locations that could be re-leased to any of a number of tenants, where the land as a percentage of the value of the land and building is in the 45% type range. So our down side is very protected. The real estate is high quality. And the good news is we've established relationships with some of the leading operators in the C-store business. And I do think that slowly it might grow a little bit from our current level. In fact, in this second quarter we are in the process of reviewing a number of C-store transactions. In the first quarter, we did review several and I think in general we've passed on them.

And again, for context a little bit as it relates to C-stores in concentration and lines of trade, those of you out there who have followed the company for a long periods of time recall that we were very heavy in restaurants at one point in time and we were very heavy in drug stores at one point in time. At one point in time I think book stores were 18%, 19% of our portfolio and they are 4% today, drug stores are 4% today. And Craig's point about risk adjusted return, at times there's up seasons of opportunity to get attractive risk adjusted returns in particular sectors and those seasons pass and so it might not be as clairvoyant as we might like to be on precisely where convenience stores will be in the future. We are focused on risk adjusted returns and quality of that return and that's really what's going to drive a good chunk of the equation. Over the time, we've seen all these different categories that have spiked in concentration moderate as the opportunities have diminished. Jeff Donnelly – Wachovia: If I could stay with your portfolio, I guess, Craig, it seems that a lot of the assets you've been selling, I guess, have been more tertiary market locations and that you have been buying consistently. I guess my sense is that you've been sort of slowly repositioning your portfolio, I don't want [ph] to urban meaning downtown locations, but just call it more close in markets, if you will. Is that true and I guess is there a way that to measure that or to quantify that shift in your portfolio that you guys maybe would monitor?

Jeff, let's just make sure we all understand the context. Our average lease is 13 years. So even if we have a great urban location, we are not going to get the opportunity to re-lease that space until the primary term 13 years is over and the option periods are over. But the virtues of good real estate locations are important. And when we are underwriting properties to keep in the investment portfolio, we are paying a lot of attention to whether this individual property is at or close to the retail hub in that community. And we've done a great job in selling real estate, and we have in many instances, when we purchase a portfolio we are carving out some of the weaker properties from that portfolio. For example, we bought ten properties in one particular transaction, we calibrate and rank these, we took the bottom three under a variety of different metrics and we are marketing and we've marketed those in our 1031 platform. So what we have done, Jeff, is we have done a very good job of qualitatively improving the portfolio. Jeff Donnelly – Wachovia: Yes, just to be clear, I guess I wasn't implying that I thought you guys would wait until the lease is over and then redevelop the site to something else, it's more that – it feels like you're getting away from the drug stores that are $20, $34 a square foot in rent in Kentucky, whatever pick a state, and moving more towards the major MSA's where, I guess, I'm thinking about it more from a standpoint of security of or consistency of tenancy or occupancy. Just one last question if I could and maybe I'm asking you to look too far into your crystal ball, but as you look out to 2009, do you guys have a sense, or do you have a sense, Craig, about how you think about where pricing on assets will be by that time, I mean in terms of – I'm sure you might have a view on kind of where credit markets are going and you know what sort of supply and demand like is, I guess, in the investor market. Do you think cap rates in '09 are going to be stable with where they are today, do you think you will see continued expansion? Do you – give a sense?

No, I think that it's yet early in the cycle for what the appetite of credit markets are going to be to advancing credit to real estate. But I think the worse is behind us. Those markets are slowly beginning to stabilize. And 12 months from today I think you are going to see a little bit more lending to real estate, which is going to mean that the number of participants in the market is going to increase and leverage yields will still be more than satisfactory, which means that cap rates are not going to be higher in 12 months time. I think that right now is a very unusual window of opportunity and our activity in the first quarter reflects how we took advantage of it. I think cap rates 12 months from today are going to be at or lower than this level, 8.5%. Jeff Donnelly – Wachovia: Thanks, guys.

(Operator instructions)

Manny, thanks very much. Just to repeat, folks, we are very, very pleased with the way we are positioned right now. Our portfolio is in great shape. And our balance sheet gives us plenty of capacity to take advantage of opportunities. Thanks very much and we would be talking to you all soon. Good afternoon.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your line at this time. Thank you for your participation.