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Organization And Summary Of Significant Accounting Policies | 6 Months Ended
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Jun. 30, 2013
Accounting Policies [Abstract] |
Organization And Summary Of Significant Accounting Policies | Organization and Summary of Significant Accounting Policies: Organization and Nature of Business – National Retail Properties, Inc., a Maryland corporation, is a fully integrated real estate investment trust (“REIT”) formed in 1984. The terms “NNN” and the “Company” refer to National Retail Properties, Inc. and all of its consolidated subsidiaries. NNN has elected to treat certain subsidiaries as taxable REIT subsidiaries. These taxable subsidiaries and their majority owned and controlled subsidiaries are collectively referred to as the “TRS.” NNN's assets include: real estate, mortgages and notes receivable, and commercial mortgage residual interests. NNN acquires, owns, invests in and develops properties that are leased primarily to retail tenants under long-term net leases and primarily held for investment (“Properties” or “Property Portfolio”).
| June 30, 2013
Property Portfolio: |
Total properties | 1,838 |
Gross leasable area (square feet) | 20,218,000 |
States | 47 |
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by U.S. generally accepted accounting principles ("GAAP"). The unaudited condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Operating results for the quarter and six months ended June 30, 2013, may not be indicative of the results that may be expected for the year ending December 31, 2013. Amounts as of December 31, 2012, included in the condensed consolidated financial statements have been derived from the audited consolidated financial statements as of that date. The unaudited condensed consolidated financial statements, included herein, should be read in conjunction with the consolidated financial statements and notes thereto as well as Management's Discussion and Analysis of Financial Condition and Results of Operations in NNN's Form 10-K for the year ended December 31, 2012. Principles of Consolidation – NNN’s condensed consolidated financial statements include the accounts of each of the respective majority owned and controlled affiliates, including transactions whereby NNN has been determined to be the primary beneficiary in accordance with the Financial Accounting Standards Board (“FASB”) guidance included in Consolidation. All significant intercompany account balances and transactions have been eliminated. NNN applies the equity method of accounting to investments in partnerships and joint ventures that are not subject to control by NNN due to the significance of rights held by other parties. Real Estate Portfolio – NNN records the acquisition of real estate which is not subject to a lease at cost, including acquisition and closing costs. The cost of properties developed by NNN includes direct and indirect costs of construction, property taxes, interest and other miscellaneous costs incurred during the development period until the project is substantially complete and available for occupancy. During the quarter and six months ended June 30, 2013, NNN recorded $321,000 and $540,000, respectively, in capitalized interest and recorded $436,000 and $868,000 in capitalized interest during the same periods in 2012, respectively. Purchase Accounting for Acquisition of Real Estate Subject to a Lease – In accordance with the FASB guidance on business combinations, the fair value of the real estate acquired with in-place leases is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, value of in-place leases and value of tenant relationships, based in each case on their relative fair values. Acquisition costs incurred in connection with a business combination are expensed when incurred. The fair value of the tangible assets of an acquired leased property is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land, building and tenant improvements based on the determination of the fair values of these assets. The as-if-vacant fair value of a property is provided to management by a qualified appraiser. In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded as other assets or liabilities based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases, and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining term of the lease, including the probability of renewal periods. The capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases. The capitalized below-market lease values are amortized as an increase to rental income over the initial term unless the Company believes that it is likely that the tenant would renew the option whereby the Company would amortize the value attributable to the renewal over the renewal period. The aggregate value of other acquired intangible assets, consisting of in-place leases, is measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates over (ii) the estimated fair value of the property as-if-vacant, determined as set forth above. The value of in-place leases exclusive of the value of above-market and below-market in-place leases is amortized to expense over the remaining non-cancelable periods of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be written off. The value of tenant relationships is reviewed on individual transactions to determine if future value was derived from the acquisition. Intangible assets and liabilities consisted of the following as of (in thousands):
|  | June 30, 2013 |  | December 31, 2012
Intangible lease assets (included in Other assets): |  |  |  |
Value of above market in-place leases, net |  | $ | 13,344 |  |  | $ | 6,679 |
Value of in-place leases, net |  | 62,620 |  |  | 37,889 |
Intangible lease liabilities (included in Other liabilities): |  |  |  |
Value of below market in-place leases, net |  | 31,616 |  |  | 23,708 |
Investment in an Unconsolidated Affiliate – NNN accounts for its investment in an unconsolidated affiliate under the equity method of accounting. In September 2007, NNN entered into a joint venture, NNN Retail Properties Fund I LLC (“NNN Crow JV”), with an affiliate of Crow Holdings Realty Partners IV, L.P., which is accounted for under the equity method of accounting. During the quarter ended September 30, 2012, NNN Crow JV sold all of its assets and paid off its bank term loan. In April 2013, NNN Crow JV was dissolved. Cash and Cash Equivalents - NNN considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents consist of demand deposits and money market accounts and are stated at cost plus accrued interest, which approximates fair value. Cash accounts maintained on behalf of NNN in demand deposits at commercial banks and money market funds may exceed federally insured levels. However, NNN has not experienced any losses in such accounts. Valuation of Receivables – NNN estimates the collectability of its accounts receivable related to rents, expense reimbursements and other revenues. NNN analyzes accounts receivable and historical bad debt levels, customer credit-worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. In addition, tenants in bankruptcy are analyzed and estimates are made in connection with the expected recovery of pre-petition and post-petition claims. Earnings Per Share – Earnings per share have been computed pursuant to the FASB guidance included in Earnings Per Share. Effective January 1, 2009, the guidance requires classification of the Company’s unvested restricted share units, which contain rights to receive nonforfeitable dividends, as participating securities requiring the two-class method of computing earnings per share. Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings to common stockholders and undistributed earnings allocated to common stockholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the weighted average shares outstanding during the period. The following table is a reconciliation of the numerator and denominator used in the computation of basic and diluted earnings per common share using the two-class method (dollars in thousands):
| Quarter Ended June 30, |  | Six Months Ended June 30,
| 2013 |  | 2012 |  | 2013 |  | 2012
Basic and Diluted Earnings: |  |  |  |  |  |  |
Net earnings attributable to NNN | $ | 37,486 |  |  | $ | 33,505 |  |  | $ | 71,552 |  |  | $ | 63,337 |
Less: Series C preferred stock dividends | — |  |  | — |  |  | — |  |  | (1,979 | )
Less: Series D preferred stock dividends | (4,762 | ) |  | (5,926 | ) |  | (9,523 | ) |  | (5,926 | )
Less: Excess of redemption value over carrying value of Series C preferred shares redeemed | — |  |  | — |  |  | — |  |  | (3,098 | )
Net earnings available to NNN’s common stockholders | 32,724 |  |  | 27,579 |  |  | 62,029 |  |  | 52,334 |
Less: Earnings attributable to unvested restricted shares | (130 | ) |  | (180 | ) |  | (231 | ) |  | (312 | )
Net earnings used in basic earnings per share | 32,594 |  |  | 27,399 |  |  | 61,798 |  |  | 52,022 |
Reallocated undistributed loss | — |  |  | — |  |  | — |  |  | — |
Net earnings used in diluted earnings per share | $ | 32,594 |  |  | $ | 27,399 |  |  | $ | 61,798 |  |  | $ | 52,022 |
Basic and Diluted Weighted Average Shares Outstanding: |  |  |  |  |  |  |
Weighted average number of shares outstanding | 118,620,837 |  |  | 107,006,399 |  |  | 116,386,249 |  |  | 106,321,014 |
Less: Unvested restricted stock | (469,370 | ) |  | (696,804 | ) |  | (427,465 | ) |  | (631,329 | )
Less: Contingent shares | (338,816 | ) |  | (317,581 | ) |  | (294,889 | ) |  | (272,090 | )
Weighted average number of shares outstanding used in basic earnings per share | 117,812,651 |  |  | 105,992,014 |  |  | 115,663,895 |  |  | 105,417,595 |
Effects of dilutive securities: |  |  |  |  |  |  |
Contingent shares | — |  |  | — |  |  | — |  |  | 12,735 |
Convertible notes payable | 2,882,355 |  |  | 1,310,445 |  |  | 2,570,706 |  |  | 1,259,319 |
Common stock options | — |  |  | 1,419 |  |  | — |  |  | 1,855 |
Directors’ deferred fee plan | 170,519 |  |  | 155,115 |  |  | 169,088 |  |  | 152,576 |
Weighted average number of shares outstanding used in diluted earnings per share | 120,865,525 |  |  | 107,458,993 |  |  | 118,403,689 |  |  | 106,844,080 |
Fair Value Measurement – NNN’s estimates of fair value of financial and non-financial assets and liabilities are based on the framework established in the fair value accounting guidance. The framework specifies a hierarchy of valuation inputs which was established to increase consistency, clarity and comparability in fair value measurements and related disclosures. The guidance describes a fair value hierarchy based upon three levels of inputs that may be used to measure fair value, two of which are considered observable and one that is considered unobservable. The following describes the three levels:
• | Level 1 – Valuation is based upon quoted prices in active markets for identical assets or liabilities.
• | Level 2 – Valuation is based upon inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
• | Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include option pricing models, discounted cash flow models and similar techniques.
Other Comprehensive Income (Loss) – The following table outlines the changes in accumulated other comprehensive income (dollars in thousands):
| Gain or Loss on Cash Flow Hedges (1) |  | Unrealized Gains and Losses on Commercial Mortgage Residual Interests (2) |  | Unrealized Gains and Losses on Available-for-Sale Securities |  | Total |
Beginning balance, December 31, 2012 | $ | (5,693 | ) |  | $ | 3,244 |  |  | $ | 67 |  |  | $ | (2,382 | ) |
Other comprehensive income (loss) | (3,141 | ) |  | 2,168 |  |  | 89 |  |  | (884 | ) |
Reclassifications from accumulated other comprehensive income to net earnings | 178 |  |  | — |  |  | — |  |  | 178 |  | (3)
Net current period other comprehensive income (loss) | (2,963 | ) |  | 2,168 |  |  | 89 |  |  | (706 | ) |
Ending balance, June 30, 2013 | $ | (8,656 | ) |  | $ | 5,412 |  |  | $ | 156 |  |  | $ | (3,088 | ) |
1) Additional disclosure is included in Note 12 - Derivatives. 2) Additional disclosure is included in Note 6 - Commercial Mortgage Residual Interests. 3) Reclassifications out of other comprehensive income are recorded in Interest Expense on the Condensed Consolidated Statements of Comprehensive Income. There is no income tax expense (benefit) resulting from this reclassification. New Accounting Pronouncements – In December 2011, the FASB issued Accounting Standards Update ("ASU") 2011-11 amending its guidance on offsetting assets and liabilities in financial statements. The objective of this update will require disclosure to facilitate comparison between those entities that prepare their financial statements on the basis of GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards ("IFRS"). The amendments in this update are effective for annual reporting periods beginning on or after January 1, 2013. The adoption of the standard did not have a significant impact on NNN's financial position or results of operations. In February 2013, the FASB issued ASU 2013-02. The objective of this update is to improve the reporting of reclassifications out of accumulated other comprehensive income. The update requires reporting significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income or cross-reference other required disclosures that provide additional detail about amounts that are not. The amendments in this update are effective prospectively for reporting periods beginning after December 15, 2012. The adoption of the standard in the quarter ended March 31, 2013, did not have a significant impact on NNN's financial position or results of operations. In February 2013, the FASB issued ASU 2013-04. The objective of this update is to provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. NNN is currently evaluating ASU 2013-04 to determine the potential impact, if any, its adoption will have on NNN's financial position and results of operations. Use of Estimates – Management of NNN has made a number of estimates and assumptions relating to the reporting of assets and liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with GAAP. Significant estimates include provisions for impairment and allowances for certain assets, accruals, useful lives of assets and purchase price allocation. Actual results could differ from those estimates. Reclassification – Certain items in the prior year’s consolidated financial statements and notes to consolidated financial statements have been reclassified to conform to the 2013 presentation.

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