Note 1 – 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 term "NNN" or the "Company" refers 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 operations are divided into two primary business segments: (i) investment assets, including real estate assets, mortgages and notes receivable and commercial mortgage residual interests (collectively, "Investment Assets"), and (ii) inventory real estate assets ("Inventory Assets"). 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 ("Investment Properties" or "Investment Portfolio"). NNN's Investment Portfolio consisted of the following:


	June 30, 2011
Investment Portfolio:
Total properties (including retail operations)		1,248
Gross leasable area (square feet)		13,623
States		46

The Inventory Assets typically represent direct and indirect investment interests in real estate assets acquired or developed primarily for the purpose of selling the real estate ("Inventory Properties" or "Inventory Portfolio"). NNN owned 16 Inventory Properties at June 30, 2011.

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 accounting principles generally accepted in the United States of America. 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, 2011, may not be indicative of the results that may be expected for the year ending December 31, 2011. Amounts as of December 31, 2010, 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, 2010.

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.

Investment in an Unconsolidated Affiliate – NNN accounts for its investment in an unconsolidated affiliate under the equity method of accounting.

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 and cash equivalents consist of cash and money market accounts. Cash equivalents 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.

Goodwill – Goodwill arises from business combinations and represents the excess of the cost of an acquired entity over the net fair value amounts that were assigned to the assets acquired and the liabilities assumed. In accordance with the FASB guidance included in Goodwill, NNN performs impairment testing on goodwill by comparing fair value to carrying amount annually.

Other Comprehensive Income – The components for the change in other comprehensive income (loss) consisted of the following (dollars in thousands):


	Six Months Ended June 30, 2011
Balance at beginning of period	$	1,661
Amortization of interest rate hedges		(85	)
Fair value treasury locks		(5,218	)
Unrealized gain – commercial mortgage residual interests		599
Stock value adjustment		(26	)

Balance at end of period	$	(3,069	)

NNN's total comprehensive income consisted of the following (dollars in thousands):


	Quarter Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Net earnings	$	21,303		$	21,206		$	42,123		$	37,571
Other comprehensive income (loss)		(6,391	)		(18	)		(4,730	)		32

Comprehensive income including noncontrolling interests		14,912			21,188			37,393			37,603
Comprehensive (income) loss attributable to noncontrolling interests		—			(73	)		—			26

Comprehensive income attributable to NNN	$	14,912		$	21,115		$	37,393		$	37,629

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,
	2011			2010			2011			2010
Basic and Diluted Earnings:
Net earnings attributable to NNN	$	21,303		$	21,206		$	42,123		$	37,571
Less: Series C preferred stock dividends		(1,696	)		(1,696	)		(3,392	)		(3,392	)

Net earnings available to NNN's common stockholders		19,607			19,510			38,731			34,179
Less: Earnings attributable to unvested restricted shares		(152	)		(92	)		(286	)		(144	)

Net earnings used in basic earnings per share		19,455			19,418			38,445			34,035
Reallocated undistributed income		—			—			—			—

Net earnings used in diluted earnings per share	$	19,455		$	19,418		$	38,445		$	34,035


Basic and Diluted Weighted Average Shares Outstanding:
Weighted average number of shares outstanding		85,309,082			83,344,447			84,635,929			83,149,908
Less: contingent shares		(251,826	)		—			(251,826	)		—
Less: unvested restricted stock		(647,468	)		(649,823	)		(612,375	)		(559,991	)

Weighted average number of shares outstanding used in basic earnings per share		84,409,788			82,694,624			83,771,728			82,589,917
Effects of dilutive securities:
Common stock options		3,162			3,866			3,305			4,151
Convertible debt		160,006			—			346,699			—
Directors' deferred fee plan		153,012			126,933			149,620			123,907

Weighted average number of shares outstanding used in diluted earnings per share		84,725,968			82,825,423			84,271,352			82,717,975

The potential dilutive shares related to certain convertible notes payable were not included in computing earnings per common share for the quarter and six months ended June 30, 2011 and 2010 because their effects would be antidilutive.

Fair Value Measurement – NNN's estimates of fair value of certain 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.

New Accounting Pronouncements – In May 2011, the FASB amended its guidance on Fair Value Measurements, providing a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. GAAP and International Financial Reporting Standards. The new guidance changes certain fair value measurement principles, clarifies the application of existing fair value measurement and expands the disclosure requirements, particularly for Level 3 fair value measurements. The new guidance will be effective for fiscal years beginning after December 1, 2011. The adoption of this guidance is not expected to have a material effect on the Company's condensed consolidated financial statements, but may require certain additional disclosures.

In June 2011, the FASB amended its guidance on the presentation of comprehensive income in financial statements. The new guidance requires that all nonowner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The provisions of this new guidance are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. NNN is currently evaluating the provisions to determine the potential impact, if any, the adoption will have on its 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 condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Significant estimates include provision for impairment and allowances for certain assets, accruals, useful lives of assets and capitalization of costs. Actual results could differ from these 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 2011 presentation.