Notes Payable – Convertible:

Each of NNN’s outstanding series of convertible notes are summarized in the table below (dollars in thousands, except conversion price):



Terms	2026 Notes^(1)(2)(4)				2028 Notes^(2)(5)(6)
Issue Date	September 2006				March 2008
Net Proceeds	$	168,650			$	228,576
Stated Interest Rate	3.950		%		5.125		%
Effective Interest Rate ⁽⁸⁾	5.840		%		7.192		%
Debt Issuance Costs	$	3,850		⁽³⁾	$	5,459		⁽⁷⁾
Earliest Conversion Date ⁽⁹⁾	—				June 2027
Earliest Put Option Date	—				June 2013
Maturity Date	—				June 2028
Original Principal	$	172,500			$	234,035
Repurchases	(33,800		)		(11,000		)
Converted	(123,163		)		—
Outstanding principal balance at December 31, 2012	$	15,537		⁽¹⁰⁾	$	223,035


⁽¹⁾	NNN repurchased $8,800 and $25,000 in 2009 and 2008, respectively, for a purchase price of $6,994 and $19,188, respectively, resulting in a gain of $1,565 and $4,961, respectively.


⁽²⁾	Debt issuance costs include underwriting discounts and commissions, legal and accounting fees, rating agency fees and printing expenses. These costs have been deferred and are being amortized over the period to the earliest put option date of the holders using the effective interest method.


⁽³⁾	Includes $463 of note costs which were written off in connection with the repurchase of $33,800 of the 2026 Notes.


⁽⁴⁾	The conversion rate per $1 principal amount was 42.6237 shares of NNN’s common stock, which is equivalent to a conversion price of $23.4611 per share of common stock.


⁽⁵⁾	The conversion rate per $1 principal amount was 39.4902 shares of NNN’s common stock, which is equivalent to a conversion price of $25.3228 per share of common stock.


⁽⁶⁾	NNN repurchased $11,000 in 2009 for a purchase price of $8,588 resulting in a gain of $1,867.


⁽⁷⁾	Includes $219 of note costs which were written off in connection with the repurchase of $11,000 of the 2028 Notes, respectively.


⁽⁸⁾	With the adoption of the accounting guidance on convertible debt securities in 2009, the effective interest rates for the 2026 Notes and the 2028 Notes are 5.840% and 7.192%, respectively.


⁽⁹⁾	Prior to the earliest respective conversion date, the notes are only convertible in limited circumstances pursuant to the terms of the notes.


⁽¹⁰⁾	In January 2013, NNN converted the remaining principal balance.

Each series of convertible notes represents senior, unsecured obligations of NNN and are subordinated to all secured indebtedness of the Company. Each note is redeemable at the option of NNN, in whole or in part, at a redemption price equal to the sum of (i) the principal amount of the notes being redeemed plus accrued and unpaid interest thereon through but not including the redemption date and (ii) the make whole amount, if any, as defined in the applicable supplemental indenture relating to the notes.

The carrying amounts of the Company’s convertible debt and equity balances are summarized in the table below as of December 31 (dollars in thousands):



	2012			2011
Carrying value of equity component	$	(22,193	)	$	(33,873	)
Principal amount of convertible debt	238,572			361,735
Remaining unamortized debt discount	(2,072		)	(6,363		)
Net carrying value of convertible debt	$	214,307		$	321,499

As of December 31, 2012, the remaining amortization period for the 2028 Notes debt discount was approximately 6 months. The 2026 Notes debt discount has been fully amortized.

NNN recorded the following relating to the 2026 Notes and the 2028 Notes as of December 31 (dollars in thousands):



	2012		2011		2010
Noncash interest charges	$	4,291	$	5,837	$	6,154
Contractual interest expense	15,744		16,909		17,046
	$	20,035	$	22,746	$	23,200

The if-converted values which exceed the principal amount as of December 31, 2012, are $5,125,000 and $51,764,000 for the 2026 Notes and the 2028 Notes, respectively. As of December 31, 2011, the if-converted values which exceed the principal amount are $16,057,000 and $8,831,000 for the 2026 Notes and the 2028 Notes, respectively.

On September 28, 2012, NNN announced that the market price condition on its 2026 Notes has been satisfied, and that the 2026 Notes will be convertible during the calendar quarter beginning October 1, 2012. Pursuant to the terms of the indenture, the conversion rate is subject to certain adjustments during the period in which the 2026 Notes are convertible.

As of November 6, 2012, approximately $38,100,000 aggregate principal amount of Notes remained outstanding. On November 7, 2012, NNN notified the remaining holders of the 2026 Notes that the Company will redeem all outstanding Notes on December 10, 2012. The Company also announced that holders may elect to convert all or a portion of the 2026 Notes into cash and, if applicable, shares of the Company's common stock.

All note holders elected to exercise the conversion feature of the 2026 Notes prior to redemption. Pursuant to the terms of the 2026 Notes, the Company elected to pay the full conversion value in cash. The conversion value of a note was based on an average of the daily closing price of the Company's common stock over an averaging period that commenced after the Company received a conversion notice from a note holder. The Company paid approximately $164,649,000 in aggregate conversion value for the $123,163,000 converted notes at the end of the applicable averaging periods. The difference between the amount paid and the principal amount of the converted notes of $41,486,000 was recognized as a decrease to additional paid-in capital. As of December 31, 2012, $15,537,000 of the principal amount of 2026 Notes were outstanding, and were converted in January 2013.