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" or the "Company" refer to National Retail Properties, Inc. and all of its consolidated subsidiaries.

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 (including normal recurring accruals) 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, 2018, may not be indicative of the results that may be expected for the year ending December 31, 2018. Amounts as of December 31, 2017, 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, 2017.

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.

Real Estate Portfolio – NNN records the acquisition of real estate 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. NNN recorded $1,904,000 and $1,113,000 in capitalized interest during the development period for the six months ended June 30, 2018 and 2017, respectively, of which $1,076,000 and $560,000 was recorded during the quarter ended June 30, 2018 and 2017, 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 and the value of in-place leases, as applicable, based on their respective fair values.

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 and the applicable option terms if it is probable that the tenant will

exercise options. 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 will renew the lease for an option term whereby the Company amortizes 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 in that period. The value of tenant relationships is reviewed on individual transactions to determine if future value was derived from the acquisition.



	June 30, 2018			December 31, 2017
Intangible lease assets (included in Other assets):
Above-market in-place leases	$	15,329		$	16,583
Less: accumulated amortization	(9,197		)	(9,299		)
Above-market in-place leases, net	$	6,132		$	7,284

In-place leases	$	101,887		$	104,592
Less: accumulated amortization	(60,070		)	(61,004		)
In-place leases, net	$	41,817		$	43,588

Intangible lease liabilities (included in Other liabilities):
Below-market in-place leases	$	41,912		$	44,468
Less: accumulated amortization	(25,151		)	(26,055		)
Below-market in-place leases, net	$	16,761		$	18,413

The amounts amortized as a net increase to rental income for capitalized above-market and below-market leases were $2,115,000 and $1,341,000 for the six months ended June 30, 2018 and 2017, respectively, of which $1,417,000 and $682,000 were recorded for the quarter ended June 30, 2018 and 2017, respectively. The value of in-place leases amortized to expense were $5,516,000 and $6,608,000 for the six months ended June 30, 2018 and 2017, respectively, of which $2,370,000 and $3,281,000 were recorded for the quarter ended June 30, 2018 and 2017, respectively.

Debt Costs – Line of Credit Payable – Debt costs incurred in connection with NNN’s $900,000,000 line of credit have been deferred and are being amortized to interest expense over the term of the loan commitment using the straight-line method, which approximates the effective interest method. NNN has recorded debt costs associated with the line of credit as an asset, in Debt costs on the Condensed Consolidated Balance Sheets.

Debt Costs – Mortgages Payable – Debt costs incurred in connection with NNN’s mortgages payable have been deferred and are being amortized over the term of the respective loan commitment using the straight-line method, which approximates the effective interest method. These costs of $147,000 at June 30, 2018 and December 31, 2017, are included in Mortgages payable on the Condensed Consolidated Balance Sheets net of accumulated amortization of $64,000 and $55,000, respectively.

Debt Costs – Notes Payable – Debt costs incurred in connection with the issuance of NNN’s notes payable have been deferred and are being amortized to interest expense over the term of the respective debt obligation using the effective interest method. These costs of $22,682,000 at June 30, 2018 and December 31, 2017, are included in Notes payable on the Condensed Consolidated Balance Sheets net of accumulated amortization of $7,399,000 and $6,337,000, respectively.

Revenue Recognition – In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606). The core principle of ASU 2014-09, is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Certain contracts are excluded from ASU 2014-09, including lease contracts within the scope of the FASB guidance included in Leases (Topic 842). NNN adopted ASU 2014-09 on January 1, 2018, and applied the cumulative catch-up transition method. Through the evaluation and implementation process, NNN determined the key revenue stream

impacted by ASU 2014-09 is Gain on disposition of real estate reported on the Condensed Consolidated Statements of Income and Comprehensive Income. Prior to the adoption of ASU 2014-09, NNN recognized revenue at the time of closing (i.e., transfer of asset). Following the adoption of ASU 2014-09, NNN evaluates any separate contracts or performance obligations to determine proper timing of revenue recognition, as well as, transaction price allocation. The adoption of ASU 2014-09 did not have a material impact on NNN's financial position and results of operations.

Earnings Per Share – Earnings per share have been computed pursuant to the FASB guidance included in Earnings Per Share. The guidance requires classification of the Company’s unvested restricted share units, which carry 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.



	Quarter Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Basic and Diluted Earnings:
Net earnings attributable to NNN	$	70,573		$	58,028		$	173,854		$	131,685
Less: Series D preferred stock dividends	—			—			—			(3,598		)
Less: Series E preferred stock dividends	(4,096		)	(4,096		)	(8,194		)	(8,194		)
Less: Series F preferred stock dividends	(4,485		)	(4,485		)	(8,970		)	(8,970		)
Less: Excess of redemption value over carrying value of Series D preferred shares redeemed	—			—			—			(9,855		)
Net earnings available to NNN’s common stockholders	61,992			49,447			156,690			101,068
Less: Earnings allocated to unvested restricted shares	(141		)	(137		)	(273		)	(267		)
Net earnings used in basic and diluted earnings per share	$	61,851		$	49,310		$	156,417		$	100,801

Basic and Diluted Weighted Average Shares Outstanding:
Weighted average number of shares outstanding	154,593,456			149,119,191			154,138,711			148,354,604
Less: Unvested restricted stock	(295,444		)	(301,206		)	(266,690		)	(293,588		)
Less: Unvested contingent restricted shares	(487,320		)	(445,484		)	(443,656		)	(405,940		)
Weighted average number of shares outstanding used in basic earnings per share	153,810,692			148,372,501			153,428,365			147,655,076
Other dilutive securities	393,246			346,969			411,854			368,592
Weighted average number of shares outstanding used in diluted earnings per share	154,203,938			148,719,470			153,840,219			148,023,668

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:



	Gains or (Losses) on Cash Flow Hedges ⁽¹⁾				Gains on Available-for-Sale Securities		Total
Beginning balance, December 31, 2017	$	(14,655	)		$	917	$	(13,738	)

Other comprehensive income	1,095				52		1,147
Reclassifications from accumulated other comprehensive income to net earnings	1,056			⁽²⁾	—		1,056
Net current period other comprehensive income	2,151				52		2,203
Ending balance, June 30, 2018	$	(12,504	)		$	969	$	(11,535	)

New Accounting Pronouncements – In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The FASB issued final guidance that requires lessees to put most leases on their balance sheets but recognize expenses in the income statement in a manner similar to today’s accounting. The guidance also eliminates today’s real estate-specific provisions and changes the guidance on sale-leaseback transactions, initial direct costs and lease executory costs for all entities. For lessors, the standard modifies the classification criteria and the accounting for sales-type and direct financing leases. NNN is currently evaluating to determine the potential impact the adoption of ASU 2016-02 will have on its financial position or 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 condensed 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.