Welcome to the National Retail Properties First Quarter 2016 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over the to your host, Mr. Craig Macnab. Thank you. You may begin.

Darren, thank you very much. Good afternoon and welcome to our first quarter 2016 earnings release call. On this call with me are Jay Whitehurst, our President and Kevin Habicht, our Chief Financial Officer, who will review details of our first quarter financial results, following my opening comments. National Retail Properties had a most productive and active first quarter, generating consistent results, while maintaining our fortress-like balance sheet. In the first quarter, we acquired 46 retail properties, investing $125 million, at an initial cash yield of 7%. In the first quarter, we had 11 different closings, purchasing properties at an average cost of $2.7 million which is in line with our entire portfolio average. Our deal flow has been solid so far this year and we've closed on a mix of individual acquisitions, as well as a number of smaller portfolios. Our team continues to travel extensively, visiting our relationship tenants, as well as evaluating all the retail deals that are offered in the market. On the disposition side, we sold 10 properties for $52.8 million, at a 6.1% average cap rate. As discussed in prior calls, we're selling a number of small assets that have taken up disproportionate amounts of time for our portfolio management team. In addition, in the quarter, we sold a couple of properties for offensive purposes at really attractive prices. By far, the most significant asset sale in the quarter was the sale of a large BJ's asset which our in-house team sold for over $42 million, generating most of the gain in the quarter. This asset closed at a cap rate in the high 5% range and as mentioned earlier, no broker represented us in this excellent outcome. Our portfolio of almost 2,300 properties continues to be very well-leased, with occupancy just over 99%.…

Thanks, Craig. Let me start out with the language customary. We'll make certain statements that may be considered to be forward-looking statements under federal securities law. 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 the Company's filings with the SEC and in this morning's press release. Okay, with that, headlines from this morning's press release, announcing first quarter results include reporting a 5.5% increase in per-share operating results, completing $125 million of new investments, increasing our 2016 guidance slightly, while maintaining a low leverage profile and full availability on our bank credit facility. We believe the results and the metrics compare favorably within the REIT industry and is an important part of supporting our strong total shareholder return over the years. Getting into some of the details, we reported first quarter recurring FFO of $0.57 per share, that represents a 5.6% increase over prior-year results. As we've noted in the past, we've not achieved this by using more leverage, nor short term debt or variable rate debt. Despite 26 consecutive years of increased dividends per share, our AFFO payout ratio continues to drift slightly lower, to 75.0% in the first quarter. Occupancy continues to hold up well and ended the quarter at 99.1%. As of March 31, 2016, the annual base rent for all the leases in place at quarter-end was $496.1 million. So strong acquisition volume in the early months of 2016 has allowed us to increase our 2016 FFO guidance by $0.02 on the low end of the range…

[Operator Instructions]. Our first question comes from Nick Joseph with Citigroup. Please state your question.

I'm wondering if you can talk about the recent Bob Evans sale leaseback transaction and the tenant quality there, please?

In the second quarter we acquired 117 Bob Evans restaurants, for $161 million. So we'll talk about that more in the next call, but I think there are two strategic take-aways from that transaction, that I'd like to point out, in an answer to your question. First, it was a spectacular real estate deal. Our average price per property was around $1.35 million and for that, on average, we obtained a 5,000 square foot building, on about an acre of land. Rent is only about $75,000 per property on average which is very safe, for both the tenant and the landlord. And the second take-away I'd really like to point out is that this Bob Evans transaction is an example of our relationship-focused business model. We've been calling on Bob Evans for over two years. We thought highly of their Company and we wanted to be in the right position when they decided to undertake some kind of a sale leaseback and that positioning paid off for us when they decided to move forward and it's a really time consuming business model, that involves a lot of travel by our team and by senior management. But the Bob Evans transaction points out that it's worth it, when we can acquire properties of that quality at that price. We'll have a lot more color on it in the next call.

What was the cap rate on the transaction?

It's consistent with our guidance, in the high 6s.

And then just quickly on dispositions, you mentioned the offensive sales. Can you talk about how those come about, versus your more traditional dispositions?

Nick, one of the strengths of our business model is we have an in-house disposition team, that we've frankly had for many years and have sustained them through the economic cycle. Two terrific professionals, that are in the market every day. We have a large portfolio which attracts a lot of interest from different people, who are looking to consummate transactions. And frankly, these guys just do a terrific job for us and create a lot of value over a long period of time.

Our next question comes from Juan Sanabria with Bank of America. Please state your question.

Just hoping you could speak, just strategically, how you think about your restaurant exposure, both casual dining, quick service? It looks like you did a Taco Bell deal this quarter and then the Bob Evans transaction, just is there a ceiling? Looks like you're over 20% of rents. How should we think about that and what gives you comfort at this point in the cycle?

We have had a long term interest in the restaurant category and as you point out, it's currently around 20% and that's mixed between the full service and the quicker service. One of the strengths of our portfolio, especially in small box retail and for us, small box retail includes both convenience stores and restaurants and auto service and the like, is that our risk is dispersed amongst a large number of properties over a very wide geographic territory. For sure, the restaurant category is no longer growing as fast as it was three or four years ago. However, it continues to be very solid, with chain stores continuing to take market share from mom and pop restaurant operators that we don't do business with anyway. But I think going forward, we've been pretty consistent, Juan, that we're going to continue to invest in small box retail. In addition to that, I think the health and fitness category is probably something that we're looking at going forward. We've got some work to do to consummate deals in all of those categories.

And then I was just hoping you could help us compare and contrast your Bob Evans transaction and how you thought of that versus the Bloomin' portfolio deals I think one of your peers got and how do you think about the real estate and maybe the price per restaurant or the rent? Thank you.

Well, we didn't do that deal. We did look at it, Juan and I would observe that our price per unit, I think, is considerably less than what has been disclosed out there. In addition, our yield is higher. So in both metrics, we're very comfortable with the assets we purchased. I do want to be clear, we own a good number of Bloomin brands properties already. It's an extremely well-run Company. It's a decent brand across all of their concepts and it's a very good Company that over time I'm sure we'll do more business with.

Our next question comes from Vikram Malhotra with Morgan Stanley. Please state your question.

I just want to just extend on the Bloomin' question. There are obviously a bunch of other assets out there which I think the Company's planning to transact by early 2017. Can you maybe give us any color you have on that process or is that going to be done in a bunch of three or four smaller lumps? How that's folding out?

Bloomin' Brands is located about 90 miles west of us. We have a good relationship with them. In terms of how they plan to effect reducing their own real estate, you really need to ask them. But to the extent it includes a smaller portfolio transaction and there I'm differentiating between selling and the one-off market, you can rest assured we're going to take a good look at it.

Okay. And then, I guess we've heard now for several years and you've elaborated how you position the balance sheet and the portfolio for a more volatile environment. We look at your debt metrics, your payout ratio, they're all near lows versus 2009. If we were to look out -- I'm not just talking about a quarter or two, if we were to look out, say, over the next two years, given what you're seeing, what can we expect to see with the payout ratio? Is this where you'd want the Company to be for a while?

I think we have reached the level that we're fairly comfortable with, meaning for the last few years, we've been increasing the dividend, but driving the payout ratio lower which are at one level conflicting objectives, but we've now reached what we think is a good, comfortable level for a payout ratio. So going forward, you should see dividend increases that are more proportional to growth in per-share results.

Okay. And then just last one, just to clarify, the rent you mention on the Bob stores, I believe you said the cap rate was in the low 6s or mid-6s. Is that more like a $90,000 rent? I think you mentioned $75,000.

Vikram, thank you, this is Jay, thanks for the opportunity to correct that. It was $90,000 on average property. It's a mid to high 6s cap rate.

Our next question comes from RJ Milligan with Robert W. Baird. Please state your question.

Jay, I just wanted to follow up on the Bob Evans transaction. You cited the amount of time that you put into the relationship. Was that portfolio not a fully marketed deal?

RJ, this was a transaction where we've been talking to the management for a long period of time. They considered doing a full marketing process and in the end, elected not to do that. So hanging around the hoop and being in front of them for years did pay significant dividends for us.

And Craig, you mentioned on the dispositions, obviously the big BJ's sale in the quarter. But looking to dispose of assets that take up a disproportionate amount of time, is that fair to assume that then the bulk of those assets are either difficult to lease or vacant?

Not true at all. As a general principle, we're not selling vacant properties. I think in the quarter that just ended, to be clear, there was one parcel of land that we have held for a long period of time, that had no tenants on it. The rest of the properties had tenants in them.

And so when you say they take up a disproportionate amount of time, what is the time drain from those types of assets that you're looking to dispose of?

The short answer is that very small properties, $400,000 to $600,000, $700,000, $800,000 take about the same amount of time as our portfolio average, in the mid $2.5 million range. So, getting rid of smaller properties, especially at some of the cap rates that we achieved, is a very good outcome.

Our next question comes from Rob Stevenson with Janney. Please state your question.

Can you talk a little bit about the average square footage of the four Sports Authority assets and whether or not you need to break them down or anything to re-lease them? Any CapEx involved there?

Rob, we haven't got them back yet, but I think just looking at it right now, the way we see it is that two of them and I emphasize think -- we're going to re-lease as is. One of them is an open question and the other one is a terrific piece of real estate that we have a lot of options on, some of which you discussed. It's a four acre site, pretty big building, extremely well-located. So we'll have to play that out. It's too early to answer the question.

Okay. And then Kevin, did I miss it, did you hit the same-store numbers in the re-leasing spread?

No, we've disclosed that on an annual basis. We've not been doing that on a quarterly basis.

Our next question comes from Dan Donlan with Ladenburg Thalmann. Please state your question.

Kevin, just wanted to thank you on the guidance disclosure you provided. Now, we don't have to go through the transcript to find it. I appreciate that, just wanted to maybe push ahead on the 2017 preferred. I can't remember if you covered this on prior calls, but as it stands today, if you could retire that now, are you looking to potentially do that? Is it going to continue to be preferred? What's your thought process there? Is there a certain amount of prep that you always like to have on the balance sheet or what's the best source at the time is what you use?

We think preferred makes sense when it's priced well, as a part of our capital stack. We're comfortable at the levels we're currently, very comfortable. Next year in 2017, there's really two potential refinancing opportunities, if you will. One is the preferred which you mentioned which becomes redeemable in February of next year and then we have some debt maturing later in the year. So there are a couple of opportunities out there for some accretive refinance next year, if the capital pricing holds up where we're today.

And then as far as the non-renewal you did on the casual dining or you plant on doing, are you spending that money yourself or is the two new tenants, are they going to be paying it?

This would be a redevelopment by us. It's not something that we typically do and certainly, when we're at a typical lease renewal period, on average, 80% to 90% of our tenants renew and in those instances, we do not put in money. This is a different situation, where we saw real value in this underlying real estate and scraped the building and we'll put in a few tenants in the new property and that will be with our money.

Okay. So that makes complete sense. Sounds like you're getting a really good return. I doubt anybody's going to care out about any CapEx spend. But is this something you think that can happen every year or do you have identified sites where, as they come due this year, maybe next year, the following year, that you have the same type of plans? How forward-looking was this decision and what's the opportunity going forward to do something similar?

So Dan, in the context of our entire portfolio, it's a fairly small asset. And then of course, you're thinking to yourself, well, if that's the case, why the heck did you bring it up, Craig? The short answer is, I think what I'm trying to do is show you two things, one, that we have the internal capability, exactly the same as any of the terrific shopping center REITs that are out there, to do these types of deals. As Jay mentioned, we evaluated the opportunity. We scraped the building. We're under construction right now. We've got some leases in place and it's going to be a multi-tenant retail building in a terrific location. We have done a couple of these deals in the past and I have every expectation that we're going to continue to do them in the future. How often do they happen? We don't have a lot of lease renewals where this occurs, but it's an excellent example of how we work every asset and try to enhance value. So it gets back to the question that RJ asked. Why are you selling these small assets and why do they take more time? Well, the reason is because we have meetings to talk about them and we have people who go and visit them.

Okay. And maybe just lastly from me, the SunTrust deal, I think that's coming due in 2018. Can you just remind us when they have to let you know if they're going to renew and how that whole process works?

We're in the early stages of talking to them and I am overwhelmingly confident that in the next couple of years, we will have resolved a new transaction with them. But, we're only in the early stages, Dan.

Our next question comes from Chris Lucas with Capital One. Please state your question.

Craig, just a quick detail question, want to make sure I heard you correctly. You sold the BJ's in the first quarter and you said you bought two new BJ's; is that correct?

Yes sir, one closed in the first quarter and a second one has already closed in the second quarter.

And then Kevin, I guess just a general question about where the tenant health is. Are you seeing anything as it relates to changes in your either accruals or late pays?

No, nothing on that front which has been typical with us. We generally don't have any really slow pay, if you will. Like Sports Authority, everybody pays the rent right up until they file bankruptcy and even after they file, they continue to pay rent, as rent's a pretty high claim, post-petition rent is a very high claim. We generally don't are have any pre-petition balances of any size outstanding. We don't have anybody late now. Having said that, as we've said on I think most calls and most meetings with folks, is that there's constantly retailers that are going up and down the credit ladder, if you will and so we're watching those. Sports Authority was on our list for some time. We talked about Barnes & Noble in the past. We talked about Logan's Restaurant, Gander Mountain, to an extent. We watch them all, but they're all current on the rent which is good news.

Following up on that last comment, begin the weakness that we've seen in selected sporting goods retailers, I guess if you could give us an update on your thoughts and prospects on Gander Mountain as a tenant?

Yes, I mean, it's a private Company so I won't say too much. But sporting goods sector has been under some pressure. They had some tailwinds for a couple of years there with gun sales, et cetera which helped the numbers quite a bit. That's probably waned a bit. So we're watching that carefully now, but not different than much of the sporting goods sector at the moment.

Our next question comes from Jason Belcher with Wells Fargo. Please state your question.

Sorry if I missed this, Kevin, but could you please remind me how much availability you have left on the current ATM program?

Yes. So we just refiled one, a new ATM, a month or so ago. That was a 12 million share authorization, so a little less than that. But I think one way to -- at least for us, to think about that is, we'll likely have an ATM program in place almost all the time. Whether we're using it or active, that's a whole another question, but we like, again, we like optionality. We like that capacity to use it if we so choose. So you should think of it, one being available, whether there's 2 million shares left or 12 million shares left, we tend to want to have capacity in place.

And then, can you give us an idea of what to expect in terms of timing for the dispositions you are anticipating this year?

I think from here on out, it's a pretty small number. Our guidance has been $75 million to $100 million and one of the reasons I spoke a little more extensively about that BJ's, is it was a large percentage of the $75 million to $100 million. So the rest are just going to occur ratably over the year, if you want to think about it that way.

Next question comes from Ross Nussbaum with UBS. Please state your question.

My Gander question was asked. I guess the related question is, can you give us some sense of how Camping World is doing? I don't know what the sort of crossover of their business, as we relate it to what's going on in the sporting goods business today?

The good news is that their businesses are very different. One of the things that's happened on the sporting goods category a little bit, getting back to the Gander Mountain, is they've prospered in two areas, one was the entire gun and ammo area and then secondly, on footwear. And footwear became a very, very high margin category for them, but when you think about it, it's hardly a differentiated category. So sporting goods has been a difficult segment. One of the things that's really strange and it's an emphasis of ours at our Company is that, 10 years ago, Sports Authority was the dominant company in that segment, today it's gone or going. Camping World, again, is the dominant retailer of new and used RVs, as well as servicing for them. They have a national footprint. Their percentage of the market is high, in a very fragmented category. We're very close to the management of that Company. And I only wish that every retailer in our portfolio cranked out the same excellent numbers that they are putting up today.

I'm shocked that Marcus hasn't put you on the profit yet, don't tell him I said so.

He's a good man. He he's a terrific entrepreneur.

Before I go, what's the square footage of your average Gander store? I'm just trying to back into the rent per square foot they're paying you or just if you have the rent per square foot number?

I don't have that in front of me. I'll circle back to you on that, Ross.

I assume 75,000 foot, 100,000 foot boxes, is that what we're looking at or are they smaller than that?

I think that's too big.

Our next question comes from Collin Mings with Raymond James. Please state your question.

I guess my first question, Craig or Jay, just maybe touch a little bit more on what you're seeing in terms of cap rates, particularly going back to the -- really your rising restaurant exposure and just the competition for those assets across the different categories there?

I think for cap rates and competition both, you could really say there's nothing new right now. The same players are out in the marketplace. We're seeing all the deals and cap rates are flat or maybe even trending down slightly, for quality investments. The one-off cap rate in the 1031 exchange market remains very, very low. Even on the deals we're seeing, you should really just think of it as pretty much flat.

Okay. And then, you touched on this in February. Obviously, oil prices are moving in the right direction. But just going back to the Texas exposure, have you seen any fallout, as it relates to your exposure in that market, anything you're hearing from your tenants?

The operators that are our retailers in Texas are still doing very well. Our properties in Texas are very well-diversified, spread all over the state. Our concentration of convenience stores in Texas, 40% of our investment in Texas is convenience stores which are well-located properties that have proven to be very recession-resistant and are doing very well. So we're not getting any particular bad news from our operators. It obviously is something that we're watching, but so far so good.

[Operator Instructions]. Our next question comes from Rich Moore with RBC Capital Markets. Please state your question.

There have been a number of tenants and retailers that have announced or are pretty close to announcing bankruptcies. It sounds like the only exposure you have to this group is the four Sports Authorities. Is that right?

Yes. I mean, I've talked about the ones that are on our watch list, if you will. And so Barnes & Noble's been on the list forever, but I think they're probably fine. Logan's is under some stress and carries some expensive debt, so that's going to be a challenge for them. That might be a near term item. We've talked about Gander a little bit and just that whole sporting goods sector, but those would be the ones I guess I would underline today.

I think Rich at a higher level, it is clear to us that retail is a market share game today. There's very little rising tide lifting all the boats. Consumer is, if anything, paying down debt, rather than continuing to spend lots of money. Having said all of that, it's still a good environment to operate in and fortunately, we have avoided a lot of the bigger train wrecks out there, whether that's Kmart, Sears, etcetera. I think in the apparel area, we have limited exposure. Obviously somebody like Gander Mountain's in that. But we have zero exposure to any of the teen retailers, et cetera, that are the mall tenants. So in the aggregate, if you think about a multi-year cycle, our portfolio credit is in good shape.

And then on the four Sports Authorities, I mean, I'm assuming that they haven't -- I'm guessing, indicated that they're going to give those back to you, that somehow you're going to get those back. Those leases could still be bought as part of the bankruptcy process by another retailer?

Unfortunately, we're in a pregnant pause right here, Rich, in the month of May, looks like all of us are going to get a lot more information. The first date is May 11 and then there's a later date in the month, but we're taking the position that we're going to get them back.

Okay. And then where are those exactly? Are those standalone type things or are those part of a center or part of a retail corridor?

It's all of the above. One of them is extremely well-located in Tampa. One is in Memphis and then there are two in the Northeast.

Okay. So I assume, Craig, you could sell those as well possibly to another retail landlord who owns in the center.

I wouldn't make that assumption. Our day job is to lease properties and collect rent.

They're free standing for sure.

There are no further questions at this time. I'd like to turn the floor back over to management for closing remarks.

Darren, thanks very much. We appreciate all of you listening in this Monday afternoon. If you have any questions, all of us, Jay, Kevin and myself, will be manning our posts this afternoon. Thanks very much for your interest in National Retail Properties.

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.