Greetings, and welcome to the National Retail Properties Second Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. An interactive question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jay Whitehurst. Thank you. You may begin.

Thank you, Matt. Good morning and welcome to the National Retail Properties second quarter 2017 earnings release call. I'm joined on this call by our CFO, Kevin Habicht. After some opening remarks, I'll turn the call over to Kevin to discuss our financial results in more detail. We're pleased to report another consistent productive quarter for National Retail Properties, driven by our healthy portfolio, our selectively underwritten acquisitions and our low leverage balance sheet, all of which has contributed to core FFO per share growth of 8.5% over the second quarter of 2016 and has positioned us to raise our guidance for 2017 core FFO per share to a range of $2.46 to $2.50 per share. As previously announced in July, we raised our quarterly dividend by $0.02 per share to $0.475 per share, which reflects a 4.4% increase in our annualized dividend. With 28 consecutive years of annual dividend increases, National Retail Properties is in an exclusive club of only four REITs and less than 90 US public companies. The confidence to increase our guidance and raise our dividend was driven in large part by the fact that our portfolio remains extremely healthy. Our broadly diversified pool of over 2,650 primarily small-box single-tenant properties remains over 99% occupied. Our tenants typically operate large regional and national businesses that focus on customer services, customer experiences and e-commerce resistant consumer necessities. We have very little exposure to apparel or other retail concepts that are getting negative headlines these days. With regard to our 12 Gander Mountain properties, we're actively working with potential new tenants including our longstanding relationship tenant Camping World to re-lease those properties after the conclusion of the ongoing Gander Mountain bankruptcy. Our leasing team is working hard, but it's too early to provide any update on our re-leasing…

Thanks Jay and let me start with my usual cautionary statement that we will make certain statements that may be considered to be forward-looking statements under federal security 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. With that, headlines from this morning's press release include announcing second quarter results of $0.64 per share of core FFO operating results which represent an 8.5% growth over second quarter 2016. These results coupled with early 2017 acquisitions success and a strong and liquid balance sheet positions us very well for another good year of accretive growth in 2017 and has allowed to increase 2017 guidance again this morning. We maintained our AFFO dividend payout ratio at 72.5% during the first half, which helped position us to announce a 4.4% increase in the common dividend a couple of weeks ago, putting 2018 on track to be the 28th consecutive year of annual dividend increases. Occupancy ticked up 20 basis points to 99.3% at June 30. We continue to drive additional operating efficiencies with G&A expense decreasing to 6.1% of revenues for the second quarter and 6.2% of revenues for the first half and that's down 80 basis points from the first half of 2016. For purposes of modeling 2017 results, the annual base rent for all leases in place as of June 30 was $573 million. As I mentioned, we increased our 2017 core FFO per share guidance by $0.02 per share to a…

[Operator Instructions] Our first question comes from Joshua Dennerlein from Bank of America Merrill Lynch. Please go ahead.

Is there any update on the re-leasing of the 31 SunTrust assets that are going to vacant in April of 2018.

We don't have anything to update folks on yet, it's too early to talk about any results there. But I will say that of course the leasing team is working hard on it. And about a third of those properties were having productive dialog with potential tenants or buyers. So we feel like it's off to a very good start, just too early to report anything material.

And then with 7-Eleven’s acquisition of Sunoco, what are your thoughts on dispositions there and what kind of pricing could you give?

First off, just a reminder, 7-Eleven has announced that they're acquiring a number of assets from Sunoco that include a fair amount of ours. That deal has not closed yet and I think scheduled to close near the end of this year. And it does appear right now that Sunoco is going to retain some of our properties and so 7-Eleven, right now it would appear 7-Eleven is going to be kind of a 6.5% to 7% tenant, somewhere in that range for us. We're somewhat agnostic as to whether those units are sold from Sunoco to 7-Eleven or not. Our credit on either of those leases would be an investment grade credit, so we're very happy with the real estate and happy with the credit in either situation. But to get to the meat of your question, these are very good potential properties for capital recycling, pools of 7-Elevens have sold in the mid to high 5s cap rate and individual 7-Eleven sell at lower cap rates than that. And if you look at our acquisition performance this year of around a 7% initial cash cap rate, it would be very good potential properties to sell and recycle capital. So it's something that we're looking at, but right now the transaction hasn’t closed.

Our next question is from Rob Stevenson from Janney Montgomery Scott. Please go ahead.

Jay, given that comment about potentially selling some convenience stores, is the move up to sort of yield from a year ago from just under 17% to over 18% in convenience stores just opportunistic situation where that's where the deal flow came to you over the last 12 months or are you seeing something in that space that's causing you to shift from one provider to another or to increase your exposure there longer term.

Good morning, Rob. I got to say we -- the attributes, let's start with the attributes of convenience store properties. We think those are some of the best properties that we can acquire. There are great regional and national operators out there doing business on these sites. The locations are typically very good corner locations with good access and visibility and are very fungible for other users. So we really like convenience store properties. We've ticked up over prior quarters based on an acquisition with one of our long standing relationship tenants, GPM Investments and they've now shown up in our top tenant list as well, but that's a group that we've known for a long time, think very highly of the management, think highly of the real estate. And when those properties became available, we were very happy to do that deal with GPM. So it is, Rob, much more of a bottom-up approach is looking at where are -- what's the good real estate, is it, do we have good operators, do we like the risk adjusted return? And that's really what's led us to this level of concentration right now.

Okay. And then out of the convenience stores, how big a percentage of that is just convenient stores with no gas component.

Very little, Rob. I don't have that -- I don't think we have that number in front of us, but almost all of our convenience stores have gas pumps. In fact, a lot of our stores have large format buildings of 3000, 4000, 5000 square foot buildings with anywhere from 6 to 18 gas pumps on site.

And just another macro reminder on that, Rob, and this is Kevin. About two-thirds of the operating income on a C-store is driven by the merchandise in those buildings and so that's very important to us. The gas is clearly a component, but it's only one-third of their operating income.

Okay. And then a question on the auto parts guys, I mean, the stocks have bounced back a little bit, but those guys had gotten crushed earlier this year. I mean, from your standpoint, anything to worry about from an operation standpoint or is that just basically a stock market flavor of the day and worry about Amazon or is there really something that we should be thinking about longer term with auto parts guys from a competitive standpoint and ability to cover leases going forward?

Rob, not to be cavalier about any of this, but we do feel like a lot of it is flavor of the day for a lot of different lines of trade that are out there. With respect to our auto parts portfolio, we are in those properties at very low rents across the vast majority of that group of properties. And so we're not sweating our tenants’ business on our properties at all.

Okay. And then just one last one for Kevin. When you think about the capital stack, I mean, where is pricing today for you for 10-year debt and also preferred if you wanted to go that route rather than common?

Yeah. 10-year unsecured is probably in the mid to upper 3s, maybe closer to mid-3% range and preferred would be in the low-5s.

Our next question is from David Corak from FBR Capital Markets. Please go ahead.

Just, Kevin. I appreciate your comments on the focus on per share growth in your prepared remarks, but just thinking about the growth over the next 18 months or 24 months, obviously your spot cost of equity has gone up a bit over the quarter, but taking into consideration that along with your kind of longer term view of cost of capital, how should we be thinking about growth over the next two years, assuming your cost of capital for whatever reason remains where it is today. You mentioned your capacity, but maybe just a broad roadmap of how you're thinking about growth from here? Maybe another way to look at it, just hypothetically if you had to buy $1 billion of assets today, how do you finance that or don't you?

Yeah. So, the good news is we don’t have to buy $1 billion to achieve the growth that we would like to achieve in per share results. So that’s important note. So, yeah, I think over -- in recent years, we've been, I think, prudent in managing the balance sheet and creating a low leverage position and some optionality, but even at today’s share price, accretive acquisitions can be made and we don't see any reason to believe we can’t achieve what's generally our longstanding view that we're - we want to try to grow per share results around 5% a year, some years are a little better than that, maybe some years a little maybe not quite as good. But generally if we can get mid-single digit per share growth on a relatively leveraged neutral basis without stressing the balance sheet that consistency of results over time we think ends up winning the race. And so even in today's capital market environment and even if interest rates move up to some degree, I don't see that changing over the time period that you laid out there. We are still fairly confident that we'll be able to post those kinds of numbers.

And then one just quick one, it looks like you added a couple of Camping Worlds this quarter. So maybe just some thoughts on what kind of exposure you're comfortable with there, given all the different scenarios that get play out with Gander.

David, I'm trying to recall which Camping Worlds we added, I'm drawing a blank right now, but just to give you the high level picture, we're very happy with our Camping World concentration right now and our exposure to them. Again that's a management team that we've known for a long time and it’s a business that we've watched a long time. We think very highly of the management team and the properties that we've got. And we're hopeful that they'll have some success within the Gander Mountain bankruptcy and we may pick up some more stores then. At some point we may recycle some capital out of Camping World, but right now it's not high on our list at all.

Our next question is from Michael Carroll from RBC Capital Markets. Please go ahead.

I know you guys mentioned this in your prepared remarks, but can you kind of give us a quick update on the Gander Mountain bankruptcy. I guess I'm more looking for is the timing of how you’re negotiates are going right now, when do you expect them to come out and when do you think you'll have a few leases signed or when you can give us more information on that?

To get to your last question there, we are hopeful that by the next call we’ll be able to give folks some details on how that has played itself out. Right now in the Gander Mountain bankruptcy, the liquidators are carrying out the - going out of business inventory sales. And slowly the stores are closing as the inventory sales are completed. And at that point, Camping World has a period of time in which to decide what they want to do with the stores that they want to take and otherwise just like - I suspect all the other landlords were out. We're marketing our properties while we're in productive dialog with Camping World. But it will a few more months.

And then with the uncertainty - sorry go ahead.

No, go ahead.

With the uncertainty impacting the retail sector I guess today, I mean, have you changed your underwriting standards at all or is anything particular you're going after today that you wouldn't have gone after or vice versa?

Michael, I'd say the short answer to that question is no. We've always been primarily real estate focus. And so the first thing we look for is what are good corners, what are good out parcels, what's the price for those out parcels and what's the level of rent that tenants going to be - that is going to paying on those parcels compared to market rent. And then after that it's when we look at what the particular uses are. And we're going to continue to be bottom up real estate focused on those acquisitions. I do want to - let we take a little bit of a step back though and again just talk for a moment about the health of our portfolio, we've been applying that the theory that I just described to all of our acquisitions through the years and if you look at our portfolio, not only are we 99 -- over 99% occupied, at the moment, our long-term average is around 98% occupied, which takes into account the great recession. When you look at our lines of trade that are the primary businesses of our tenants, you see, as I mentioned in the prepared remarks, you don't see apparel, you don't see -- we have very limited exposure to other lines of trade that are being disrupted by e-commerce and by Amazon. And when you look at our top tenant list, what you see are really some very strong industry leaders in their sectors and when you put all of that together with strong tenants in lines of trade that are less susceptible to being disrupted and then apply the focus of looking for good real estate and keeping rents reasonable so that you create a margin of safety, both for the tenant in the event of any kind of disruption in their business and you create a margin of safety for the landlord in terms of being able to re-lease that property at close to what you were getting before, you end up with a very healthy portfolio that I think just right now we're not getting as much recognition for the health of that portfolio as we should. Thanks for listening to my speech.

Our next question is from Nick Joseph from Citigroup. Please go ahead.

Guidance, you did $1.24 in core FFO in the first half of the year and so implied in the back half of the year is also $1.24. Just wondering what the offset is, especially after doing $0.64 this quarter and getting some benefit from the acquisitions that you did this quarter, the additional acquisitions for the year and then you mentioned the likely accretive refinancing of debt in October, recognizing you don't get the full benefit this year, but I would think that the run rates in the back half of the year would be above the first half of the year.

Yeah. Nick, hey, it’s Kevin. Yeah. I kind of see the logic path you’re getting there and maybe that will suggest we might be closer to the top end of the guidance range rather than the lower end of the range. I think the one key variable, and this is nothing new, is that we don't give guidance as it relates to the assumptions around our capital raising and so in terms of equity or debt and even to the extent we may indicate that we're going to do a debt offering or what have you, the timing matters a lot and so doing a debt offering tomorrow or doing one in next October or November, it makes a big difference. And so if you've got a couple of months’ difference in kind of carrying some cash or et cetera. So that can influence the numbers in any given quarter to some degree and so that may be part of the puzzle in terms of trying to figure out exactly how we get to our guidance, but we've not, as I said consistent with the past, we have not given any guidance on our assumptions in our capital raising. So that’s a piece of the puzzle that’s difficult for you to kind of factor in.

Thanks. Is there anything on the acquisition timing or is it pretty much across both the third quarter and the fourth quarter?

Yeah. And that too sometimes is hard to pin down precisely when things, we think we have a good visibility on, will close and to be honest, that piece of second quarter was we had some higher volume in the earlier part of the quarter, so that helped second quarter maybe more than it might have on average over past quarters, but, no, the future quarters don't look notably lumpy or concentrated in terms of acquisition volumes and timing.

And just on G&A, you talked about bringing it down about 80 bps from the first half of 2016 in terms of percentage of revenue, what’s the opportunity to drive additional efficiencies even from here?

We’ve come a long way in recent years. And so I mean just back to 20 - so five years ago, it was 93 just for some context and last year it was 68. This year we think we get probably for the full year close to sub 6, we’ll be in the high fives I think. And so, we still are able to find some incremental efficiencies there despite the fact the company has grown in size, we've become more efficient and there are some economies of scale. But a lot of that has been wrung out, but we've got a little ways to go yet. I think next year will be another opportunity to produce somewhat lower G&A as a percent of revenues. The question becomes how much more beyond 2019 and 2020 is there and I don't have an answer for that.

Our next question is from Dan Donlan from Ladenburg Thalmann. Please go ahead.

Just was curious about cap rates, you've been at 6.9 the last two quarters. You talked how the retail malice is really not impacting your portfolio, but any thoughts behind it originally impacting cap rates for the property that you're looking. Just kind of curious if the sentiment is actually worse than what's going on in terms of the cap rates.

The cap rates continue, from our perspective cap rates remain flat. We haven't seen any material drifting upward at all of cap rates. And in particular for that kind of good quality real estate that we're looking for with a good operator, we just aren’t seeing a drift upward. They don't seem to be tightening anymore but they are not headed north yet either.

And just curious on going back to the SunTrust question, are most of the tenants that you're talking to there, are they existing banks and then kind of, you talked about maybe a third in discussions whether it's lease or for sale. Should we expect maybe a pickup in CapEx if there's some type of conversion that maybe needs to go on or how should we look at that as we kind of head into next year?

Our first priority with every vacant property or to be vacant property is to re-lease it. And our strong preference is to re-lease properties as it is. We are always hesitant to put more dollars into properties and we're typically happy to trade not by rent, by putting in additional dollars. With respect to the SunTrust portfolio, I think what we're going to see across this 31 property is just the broad spectrum of possible outcomes. We're in conversations with some local users that would use some of these properties for that professional office or something like that, if some of these buildings are good for that kind of office use, we've got dialog going on regarding scraping and redevelop and ground leasing the land to potential users of other types and then we've got some conversations going on with local banks. So it is going to be kind of all over the ballpark. Our first priority is to try to lease them and we're only going to sell as kind of a last resort.

And then just curious on the - I would assume most of these branches have drive throughs. We've been hearing from some of the other owners of fast food concepts that drive throughs are very hard to come by these days in terms of permitting. So I’m just curious, is there an ability for you to, you know, is that something that you're factoring in, is that something that's helping know release these - potentially release these properties just kind of curious.

Dan, I wouldn't put too much stock in that being materially helpful or detrimental. You're right, you're absolutely right; the drive through facilities for any restaurant user is something that they're all finding a way, they're all working on and they're finding a way to try to maximize sales through the drive through. But I think a bank branch that has a drive through is really just a potential piece of real estate for all kinds of different users. I wouldn't attribute much of a net positive to that for other -- for restaurant users.

Our next question is from Jason Belcher from Wells Fargo. Please go ahead.

Sorry if I missed this, but can you give us a little more detail on the Q2 dispositions and maybe touch on what kinds of properties those were as well as the branch or caps rates and the remaining lease terms on those?

Yeah. We don't disclose too much around that. It's a variety of things, it was a total of eight properties in the second quarter, $9.3 million of proceeds. It included a couple convenience stores and one other kind of smaller shop space, included three vacant properties and just a quick comment on that. So we've sold seven vacant properties this year total. 2016, we sold three vacant properties total full year and then 2015, we've sold six vacant properties. To Jay's point just earlier, we're not inclined to sell vacancy, I know a lot of that's been going on lately in other parts of our world, but we don't think that probably optimizes value. So it really wasn't a lot in the number and size of the proceeds indicate. We always, we sell them for a variety of reasons and more defensive sales going to create a higher cap rate possibly, in a more offensive sale, it creates a lower cap rate. If you look year-to-date, first half, the cap rates are below where we're acquiring properties. And so it’s an accretive redeployment of capital on our part, but it's just been a very quarter-to-quarter and it's one reason why we've not chosen to give a lot of detail on a quarterly basis, a, because the sample sizes are small like this quarter and the results in any given quarter move around. So we give more detail around that on an annual basis where we think the sample sizes sufficiently -- begins to become sufficiently large to be somewhat representative, but year-to-date, cap rates on dispositions are below our acquisition cap rates.

And then you all mentioned that most of your C-stores are relatively large footprint gas stations. Can you guys just remind me how you all distinguish or differentiate between those large gas stations and what you, I guess, otherwise sort of separately classify as travel plazas?

Jason, yes. Travel plazas, we should think of truck stops. And so that's where we define the line there is really, we look at how much diesel fuel is being sold and whether the use of the property is more geared toward longer haul trucking than a typical convenience store.

Our next question is from Vikram Malhotra from Morgan Stanley. Please go ahead.

Hi. This is Kevin on for Vikram. I had a quick question. So it appears according to the earnings release that you acquired some properties from GPM Investments. And I was just curious, is there any details around that acquisition in terms of coverage or cap rate?

Kevin, we don't give individual cap rates for our acquisitions, but I guess we could say that if -- that was a relatively large acquisitions, it was $140 million for 66 properties I believe in that range and the cap rate was pretty consistent with what we were, what our average for all of our acquisitions year-to-date. So it was right in that ballpark.

And then in terms of coverage, any details around that?

The rent is well covered. The rent on those properties was relative -- dollars invested per property were relatively low, it was just a little over $2 million per property, very safe rent, it’s well covered.

Okay. And then just one additional, so in terms of cap rates, you mentioned they are flattening out. I just want to make sure that just across the portfolio, in terms of upward pressure there's been no subsector or anything specific even to seeing where upper pressure at all?

Not really in the types of properties that we've been looking at. We evaluated - we don't track this like some of our peers do, but we evaluate it, we think around $4 billion or so of acquisitions so far this year. And there were some deals that were trading at higher cap rates that we were - that we passed on for real estate quality or risk adjusted return issues. But in the types of properties that we're looking for, small box retail properties with good operators. I can't really say there's a sector that’s where cap rates are moving differently than anywhere else.

[Operator Instructions] Our next question comes from Chris Lucas from Capital One Securities. Please go ahead.

Just a couple of nets and then I wanted to talk about the capital choices. One the SunTrust, it looks like number of units went down from 111 to 109 sequentially. I know it's just two units just curious as to whether or not those were dispositions or re-tenants?

Chris, you have an eagle eye. Those were re-leased properties.

Just going back to Gander Mountain quickly, I think the original sort of general guidance that was given is they had an intention to sort of be done with their liquidations or the inventory by the end of August. Just curious if there are any stores that had completed their liquidation early and closed as of the end of July in your portfolio.

Kevin, I believe that maybe a couple of stores in our portfolio may have closed at the end of July?

We got rent for July for all of our properties. I think a couple meaning two or three will close in August as a result of liquidation being done but we’ve not concluded any of that yet.

Meaning you expect to get an August rent for those stores or you don't expect to get August rent for those stores?

For those two or three, I probably don’t to the extent liquidation is done and they are going to reject them. But for all of the properties, we got them for all of July. Today is only August 1, so it’s a little early to know.

And then just in terms of the - on the unsecured notes that are coming due in October, when can you redeem those without penalty?

Consistent really with all the other REIT unsecured debt out of that vintage, meaning ten-year old, they did not have a hard call option like they do now. So most refund issued today have a on a ten-year deal would have a three month call option with no penalty. So you could call three months prior to maturity. Ten years ago state-of-the-art rate bond issuance didn't provide for that, so there really is, there’d be a treasury makehold penalty to the extent we want to call those early. And obviously you write a check. At this point, it’s not much time left. So maybe the penalty is not that big. There's other ways of hedging and risk as it relates to rates between now and October et cetera. And so we've disclosed that we've entered into some of those kind of forward starting slopes that hedged the rate risk as it relates to a bond offering and which we've done over the years for other note offerings. But that ten-year vintage bonds that are maturing now don't have a far call option.

And then I think there was a earlier conversation about sort of your cost of debt and preferred, you did issue some equity in the ATM as you think about the 250 million of the unsecured debt. That's due plus what's on your line as of the end of the second quarter. How do you think about your choices if you had to make one today in terms of what mix you would be thinking about there in terms of capital?

Yeah, I think generally we're not looking to change our mix notably. So our leverage profile, our balance sheet won't change materially. Obviously in any given quarter defending on what's going on in our capital market activity, it may influence things somewhat. But again we're trying to think about things on a multi-year basis. So for years we've been thinking about making sure we've had more than enough equity for example. Last year we had no intention of issuing a preferred and we issued 354 million last October at a 5.2% coupon, which we just thought was very attractive but it wasn't planned a year in advance, it was just - we tried to maintain a flexible balance sheet, so we can react to what's available and well priced. And we are inclined to get capital early. Having said that, like I said we've disclosed in our Qs that we have put in place some forward starting swaps as it relates to the future issuance of debt. So, near term, ten-year long term fixed rate debt might be a good option for us in the near term.

Thank you. This concludes the question and answer session. I’d like to turn the floor back over to management for any closing comments. All right thank you very much and we wish you all a good end to your summer and we'll see many of you in September during the upcoming conferences. Thank you.

This concludes today’s teleconference, thank you for your participation. You may disconnect your lines at this time.