National Retail Properties Annual Report 2010

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FY2010 Annual Report · National Retail Properties

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Strength In Diversification

Reduced Risk, Consistent Dividends

2 0 1 0 a n n u a l r e p o r t

NNN has generated consistent returns for more than two decades supported by its

strong dividend yield and 21 consecutive annual dividend increases. NNN’s annual

total shareholder return for the past 15 years has been 13.6% per year.

Table of Contents

2 Shareholders’ Letter
7 Historical Financial Highlights

16 Our Outlook

Inside Back Cover:

Officers & Directors

Shareholder Information

Craig Macnab
Chairman and Chief Executive Officer

Dear Fellow NNN Shareholders:

I am delighted to report that 2010 marked the twenty first consecutive year of

increasing our annual dividend. Our long-term dividend growth track record places

us in an elite group of 114 public companies that have achieved this milestone. This

accomplishment also speaks to the stability and consistency of our business.

Despite the global economic challenges of the past 24 months, our strategy to build

long-term value for our shareholders has not altered, namely:

•

to generate steady and consistent annual FFO and AFFO per share growth;

to pay a safe and growing dividend; and,

to achieve these dual objectives while assuming below average balance sheet risk.

In 2010, we had Funds from Operations (FFO) of $1.45 per share before taking impair-

ment charges. Importantly this result is without any benefit from one time items or

non-recurring income which in the previous five years has ranged between $9 million

and $14 million per year. Our Adjusted Funds from Operations (AFFO) was $1.59 per

share, more than adequately covering our dividend.

The total return realized by our shareholders in 2010 was 33% as

investors recognized the strength of our balance sheet and the merits of our

business model. More importantly, the annual total return to NNN share-

holders has been 13.6% over the past 15 years.

Annual Total Return Comparison (for periods ending December 31, 2010)

1 Year

3 Years

5 Years

10 Years

15 Years

National Retail Properties (NNN)

33.0%

11.9%

12.6%

18.2%

13.6%

S&P 500 Index (SPX)

Nasdaq (CCMP)

S&P 600 Index (SML)

15.0%

(2.9)%

18.1%

26.3%

1.0%

3.0%

2.3%

4.7%

4.6%

1.4%

7.6%

6.8%

7.0%

9.6%

Total return is comprised of share price appreciation plus dividends paid.

OUR LONG-TERM STRATEGY AND FOCUS

Our strategy is built around the following goals:

• Maintain a diversified and well-occupied net-leased retail portfolio.

•

Acquire carefully underwritten net-leased retail properties to further diversify our portfolio.

Sell select locations and reinvest the proceeds into newer, higher yielding properties to improve the

quality and growth prospects of our core portfolio.

• Maintain a strong balance sheet with prudent leverage.

• Continue developing our talented team of associates.

NNN OCCUPANCY

100%

96.7%

97.0%

97.7%

98.2%

98.3%

96.7%

96.4%

96.9%

50%

’03

’04

’05

’06

’07

’08

’09

’10

NNNN OCCUPANCY PAGE 5

OUR 2010 PERFORMANCE

We’ve remained true to our discipline of being selective in our acquisition process and that has borne

fruit in the form of a well-performing portfolio.

In 2010, National Retail Properties accomplished the following:

• Acquired $256 million of new properties leased to 19 retailers.

• Through these acquisitions we added 7 new retailers.

•

Maintained a very strong balance sheet. At the end of the year, our total liabilities to total gross book

100
90
80
70
60
50
40
30
20
10
0

•

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’93

•

assets was 40% which is well below the level of the average REIT.

Issued $18 million of common equity.

Increased our annual dividend to $1.51 per share, which represents the 21st consecutive year of divi-

dend increases. We are very proud to be one of only 114 public companies who have raised their

dividend for 21 or more consecutive years.

’94

’95

’96

’97

’98

’99

’00

’01

’02

’03

’04

’05

’06

’07

’08

’09

’10

Leased 23 vacant properties, ending the year with 96.9% portfolio occupancy which is well above

the average REIT’s occupancy.

•

Renewed 31 leases for properties that were coming to the end of their lease term at almost 101% of

the expiring rate.

•

Sold 18 properties generating $58.8 million of net proceeds.

OUR DIVERSE CORE PORTFOLIO

National Retail Properties owns a fully diversified portfolio of retail properties that on average cost

$2.4 million. Our properties are located in 46 states and are leased to more than 285 national and

regional tenants operating in 36 different retail industry classifications.

As of December 31, 2010, we owned 1,195 properties with only 37 vacancies. The average remaining

lease term of our net-lease retail assets is 12 years. Also, we have modest re-leasing risk with a combined

93 leases, representing only 9% of our base rent expiring during the next three years.

These statistics are the hallmark of a stable portfolio.

HISTORICAL FINANCIAL HIGHLIGHTS

(dollars in thousands, except per share data)

2010

2009

2008

2007

2006

Gross revenues(1)
Earnings from continuing operations

Earnings including noncontrolling interests

Net earnings attributable to NNN

Total assets

Total debt

Total stockholders’ equity

Cash dividends declared to:

Common stockholders

Series A preferred stockholders

Series B convertible preferred stockholders

Series C preferred stockholders

Weighted average common shares:

Basic

Diluted

Per share information:

Earnings from continuing operations:

Basic

Diluted

Net earnings:

Basic

Diluted

Cash dividends declared to:

Common stockholders

Series A preferred stockholders

Series B convertible preferred stockholders

Series C preferred depositary stockholders

Other data:

Cash flows provided by (used in):

Operating activities
Investing activities

Financing activities

Funds from operations—diluted (2)

$ 237,062

$ 243,932

$ 247,352

$ 208,629

$ 180,877

71,202

73,353

72,997

56,129

56,399

54,810

97,858

119,971

117,153

76,642

155,743

154,599

58,739

184,422

181,800

2,713,575

2,590,962

2,649,471

2,539,673

1,917,516

1,133,685

987,346

1,027,391

1,049,154

890,127

1,527,483

1,564,240

1,566,860

1,417,647

1,109,479

125,391

120,256

110,107

92,989

—

6,785

76,035

4,376

419

923

82,715,645

79,846,258

74,249,137

66,152,437

57,428,063

82,849,362

79,953,499

74,344,231

66,263,980

57,965,508

0.77

0.80

1.51

—

0.60

1.50

—

1.22

1.48

—

1.05

2.23

2.22

1.40

—

0.88

3.05

3.03

1.32

2.45625

41.875

1.84375

0.250955

$ 187,914
(220,260)

$ 149,502
(28,063)

$ 237,459
(256,304)

$ 130,147
(536,717)

1,676
(90,099)

19,169

108,328

(108,840)

(6,028)

89,506

132,996

432,394

110,589

81,864

86,749

(1) Gross revenues include revenues from NNN’s continuing and discontinued operations. In accordance with FASB guidance on Accounting for the Impairment or Disposal of Long-Lived

Assets, NNN has classified the revenues related to (i) all Investment Properties that were sold and leasehold interest which expired, (ii) all Inventory Properties which generated revenues

prior to disposition, and (iii) all Investment and Inventory Properties which generated revenue and were held for sale at December 31, 2010, as discontinued operations.

(2) The National Association of Real Estate Investment Trusts (“NAREIT”) developed Funds from Operations (“FFO”) as a relative non-GAAP financial measure of performance of a REIT in

order to recognize that income-producing real estate historically has not depreciated on the basis determined under generally accepted accounting principles (“GAAP”). FFO is defined

by NAREIT and is used by NNN as follows: net earnings (computed in accordance with GAAP) plus depreciation and amortization of assets unique to the real estate industry, excluding

gains (or including losses) on the disposition of certain assets and NNN’s share of these items from NNN’s unconsolidated partnerships and joint ventures.

NNN owns properties in states shaded blue

A DIVERSE NATIONAL PORTFOLIO
NNN has reduced its portfolio risk by maintaining a conservatively managed portfolio with

properties subject to long-term net leases. Its 1,195 properties in 46 states are leased to more

than 285 tenants occupying approximately 13 million square feet of gross leaseable area.

LEASE EXPIRATIONS (as a percentage of annual base rent as of December 31, 2010)

40%

35%

30%

25%

20%

15%

10%

’10

’11

’12

’13

’14

’15

’16

’17

’18

’19

’20

’21

’22

’23

’24

’25

Thereafter

OUR NET-LEASE RETAIL REAL ESTATE

We believe that National Retail Properties remains a compelling long-term investment opportunity for

the following reasons:

•

Our niche of smaller, freestanding retail properties is very large yet our segment lacks significant

institutional competition which allows us to earn higher initial risk-adjusted returns than those that

are achieved in many other real estate sectors.

•

The ratio of land value to the total cost of each property is high when compared to other real estate

categories such as offices, apartments and large regional malls. The land value of our well-located,

corners at busy intersections is typically in the range of 40–45% of the total value for most of our

properties at the time of purchase. With economic growth, inflation and the difficulty of replacing

these well-located sites, the land value at the end of the lease can reasonably approximate the price

that we paid for both the land and the building upon acquisition.

•

The quality of the rental revenue that we receive from our triple net leases is remarkably high. Our

tenants are responsible for property taxes, insurance and maintenance. As a result, our operating

cash flow is more secure and consistent than many other types of real estate because we are not

negatively impacted by increases in these costs.

•

Our leases are long-term and our average tenant is contractually obligated to pay rent for the next

12 years.

’90

40
35
30
25
20
15
10
5
0

OUR CAPITAL STRUCTURE (based on total gross book assets as of December 31, 2010)

Secured Debt 0.8%

Common Equity 56.7%

Unsecured Debt 39.4%

Preferred Equity 3.1%

OUR STRONG BALANCE SHEET

Our balance sheet remains in very good condition. Our total debt to assets on a gross book basis was

40%. The vast majority of our debt (98%) is unsecured which provides us significant flexibility as we

manage our property portfolio. Our fixed-charge coverage ratio was 2.9 in 2010, which was measurably

better than the average REIT ratio of approximately 2.5.

Importantly, our maturing debt liabilities are staggered which reduces the refinancing risk of any maturing

debt obligations. Finally, we operate with little floating rate debt which will insulate us from the inevitable

rise in interest rates.

We have nearly $240 million available on our bank credit facility as of year end. We continue to maintain

very strong credit metrics and have access to capital that should allow us to handle macroeconomic

weaknesses as well as take advantage of attractive property acquisition opportunities as they arise.

21 CONSECUTIVE ANNUAL DIVIDEND INCREASES (per share)

$1.03

$1.06

$1.08

$1.10

$1.14

$1.16

$1.18

$1.20

$1.23

$1.24

$1.245

$1.26

$1.27

$1.28

$1.29

$1.30

$1.32

$1.48

$1.50

$1.51

$1.40

’90

’91

’92

’93

’94

’95

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’97

’98

’99

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’01

’02

’03

’04

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’07

’08

’09

’10

OUR SAFE AND GROWING DIVIDEND

We are very proud of our record of 21 consecutive years of increased annual dividend payments to NNN

stockholders. Continuing that track record is a high priority for us.

It is our view that dividends will continue to be important for investors as:

•

the demand for income will inevitably increase along with our aging population;

dividends will likely continue to comprise a large share of the total return from equities in the future;

from 1900 through 2007, dividends comprised 47% of the stock market’s total return and from 1986

to 2008, nearly 70% of REITs’ total return came from dividends.

OUR OUTLOOK

Since our letter of last year, the economic environment has improved, helped enormously by a very

accommodating fiscal and monetary policy. However, structural challenges have not disappeared, including

elevated levels of consumer debt, high unemployment and uncertainty in energy prices and supply.

Clouds remain on the horizon; hence we will continue to manage the company conservatively remaining

selective on acquisitions and maintaining a balance sheet that will endure economic cycles.

On behalf of the associates and directors of NNN, we thank you, our loyal shareholders, for your continued

support. We appreciate your investment in NNN and are committed to working hard to maintain your

respect and confidence in 2011 and beyond.

Sincerely,

Craig Macnab
Chairman and Chief Executive Officer

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K

(Mark One)

È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 2010
OR
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from

Commission file number 001-11290
NATIONAL RETAIL PROPERTIES, INC.
(Exact name of registrant as specified in its charter)

Maryland
(State or other jurisdiction of
incorporation or organization)

56-1431377
(I.R.S. Employer Identification No.)

450 South Orange Avenue, Suite 900
Orlando, Florida 32801
(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (407) 265-7348

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:
Common Stock, $0.01 par value
7.375% Series C Preferred Stock, $0.01 par value

Name of exchange on which registered:
New York Stock Exchange
New York Stock Exchange

Securities registered pursuant to section 12(g) of the Act:
None
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes È No ‘

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act Yes ‘ No È

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes È No ‘

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes È No ‘

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. È

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer È

Smaller reporting company ‘

Non-accelerated filer ‘

Accelerated filer ‘

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No È

The aggregate market value of voting common stock held by non-affiliates of the registrant as of June 30, 2010 was $1,766,742,768.

The number of shares of common stock outstanding as of February 15, 2011 was 83,759,282.

DOCUMENTS INCORPORATED BY REFERENCE:

Registrant incorporates by reference into Part III (Items 10, 11, 12, 13 and 14) of this Annual Report on Form 10-K portions of National
Retail Properties, Inc.’s definitive Proxy Statement for the 2011 Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission (the “Commission”) pursuant to Regulation 14A. The definitive Proxy Statement will be filed with the Commission not later
than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

TABLE OF CONTENTS

PAGE
REFERENCE

Part I

Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
[Removed and Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4.

Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and

Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results

of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . .
Item 8.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9. Changes in and Disagreements with Accountants on Accounting and

Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part III

Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12. Security Ownership of Certain Beneficial Owners and Management and

Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 13. Certain Relationships and Related Transactions, and Director

Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part IV

Item 15. Exhibits and Financial Statement Schedules

. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Signatures

1
8
18
18
18
18

19
21

23
43
44

82
82
84

85
85

86
92

PART I

Unless the context otherwise requires, references in this Annual Report on Form 10-K to the terms
“registrant” or “NNN” or the “Company” refer to National Retail Properties, Inc. and all of its
consolidated subsidiaries. NNN has elected to treat certain subsidiaries as taxable real estate investment
trust subsidiaries. These subsidiaries and their majority owned and controlled subsidiaries are collectively
referred to as the “TRS.”

Statements contained in this annual report on Form 10-K, including the documents that are incorporated by
reference, that are not historical facts are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”).
Also, when NNN uses any of the words “anticipate,” “assume,” “believe,” “estimate,” “expect,” “intend,”
or similar expressions, NNN is making forward-looking statements. Although management believes that the
expectations reflected in such forward-looking statements are based upon present expectations and
reasonable assumptions, NNN’s actual results could differ materially from those set forth in the forward-
looking statements. Certain factors that could cause actual results or events to differ materially from those
NNN anticipates or projects are described in “Item 1A. Risk Factors” of this Annual Report on Form 10-K.

Given these uncertainties, readers are cautioned not to place undue reliance on such statements, which
speak only as of the date of this Annual Report on Form 10-K or any document incorporated herein by
reference. NNN undertakes no obligation to publicly release any revisions to these forward-looking
statements that may be made to reflect events or circumstances after the date of this Annual Report on
Form 10-K.

Item 1. Business

The Company

Real Estate 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”).
As of December 31, 2010, NNN owned 1,195 Investment Properties (including 11 properties with retail
operations that NNN operates), with an aggregate leasable area of 12,972,000 square feet, located in 46
states. Approximately 97 percent of total properties in NNN’s Investment Portfolio were leased or operated
as of December 31, 2010.

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”). As of December 31, 2010, NNN owned 17 Inventory Properties.

Competition

NNN generally competes with numerous other REITs, commercial developers, real estate limited
partnerships and other investors, including but not limited to, insurance companies, pension funds and
financial institutions, that own, manage, finance or develop retail and net leased properties.

Employees

As of January 31, 2011, NNN employed 58 full-time associates including executive and administrative
personnel.

Other Information

NNN’s executive offices are located at 450 S. Orange Avenue, Suite 900, Orlando, Florida 32801, and its
telephone number is (407) 265-7348. NNN has an Internet website at www.nnnreit.com where NNN’s
filings with the Securities and Exchange Commission (the “Commission”) can be downloaded free of
charge.

The common shares of National Retail Properties, Inc. are traded on the New York Stock Exchange (the
“NYSE”) under the ticker symbol “NNN.” The depositary shares, each representing 1/100th of a share of
7.375% Series C Cumulative Redeemable Preferred Stock, par value $0.01 per share (“Series C Preferred
Stock”), of NNN are traded on the NYSE under the ticker symbol “NNNPRC.”

Business Strategies and Policies

The following is a discussion of NNN’s operating strategy and certain of its investment, financing and other
policies. These strategies and policies have been set by management and/or the Board of Directors and, in
general, may be amended or revised from time to time by management and/or the Board of Directors
without a vote of NNN’s stockholders.

Operating Strategies

NNN’s strategy is to invest primarily in retail real estate that is typically well located for its tenants’ lines of
trade within each local market. Management believes that these types of properties, generally pursuant to
triple-net leases, provide attractive opportunities for a stable current return and the potential for increased
returns and capital appreciation. Triple-net leases typically require the tenant to pay property operating
expenses such as real estate taxes, assessments and other government charges, insurance, utilities, repairs
and maintenance and capital expenditures. Initial lease terms are generally 15 to 20 years.

In some cases, NNN’s investment in real estate is in the form of mortgages, structured finance investments
or other loans which may be secured by real estate, a borrower’s pledge of ownership interests in the entity
that owns the real estate or other assets. These investments may be subordinated to senior loans
encumbering the underlying real estate or assets. Subordinated positions are generally subject to a higher
risk of nonpayment of principal and interest than the more senior loans.

NNN holds investment real estate assets until it determines that the sale of such a property is advantageous
in view of NNN’s investment objectives. In deciding whether to sell a real estate investment asset, NNN
may consider factors such as potential capital appreciation, net cash flow, tenant credit quality, market lease
rates, potential use of sale proceeds and federal income tax considerations.

NNN acquires and/or develops inventory real estate assets primarily for the purpose of resale.

NNN’s management team considers certain key indicators to evaluate the financial condition and operating
performance of NNN. The key indicators for NNN may include items such as: the composition of NNN’s
Investment Portfolio (including but not limited to tenant, geographic and line of trade diversification), the
occupancy rate of NNN’s Investment Portfolio, certain financial performance ratios, profitability measures,
industry trends and performance of competitors compared to that of NNN.

The operating strategies employed by NNN have allowed it to increase the annual dividend (paid quarterly)
per common share for 21 consecutive years.

Investment in Real Estate or Interests in Real Estate

NNN’s management believes that single tenant, freestanding net lease retail properties will continue to be
attractive investment opportunities and that NNN is well suited to take advantage of these opportunities
because of its experience in accessing capital markets, ability to underwrite and acquire properties, and
because of management’s experience in seeking out, identifying and evaluating potential acquisitions.

In evaluating a particular acquisition, management may consider a variety of factors, including:

•

the location, visibility and accessibility of the property,

the geographic area and demographic characteristics of the community, as well as the local real
estate market, including potential for growth, market rents, and existing or potential competing
properties or retailers,

the size of the property,

the purchase price,

the non-financial terms of the proposed acquisition,

the availability of funds or other consideration for the proposed acquisition and the cost thereof,

the compatibility of the property with NNN’s existing portfolio,

the potential for, and current extent of, any environmental problems,

the quality of construction and design and the current physical condition of the property,

the property level operating history,

the financial and other characteristics of the existing tenant,

the tenant’s business plan, operating history and management team,

the tenant’s industry,

the terms of any existing leases, and

the rent to be paid by the tenant.

NNN intends to engage in future investment activities in a manner that is consistent with the maintenance
of its status as a REIT for federal income tax purposes and that will not make NNN an investment company
under the Investment Company Act of 1940, as amended. Equity investments in acquired properties may be
subject to existing mortgage financings and other indebtedness or to new indebtedness which may be
incurred in connection with acquiring or refinancing these investments.

Investments in Real Estate Mortgages, Commercial Mortgage Residual Interests, and Securities of or
Interests in Persons Engaged in Real Estate Activities

While NNN’s primary business objectives and Investment Properties emphasize retail properties, NNN may
invest in (i) a wide variety of property and tenant types, (ii) leases, mortgages, commercial mortgage
residual interests and other types of real estate interests, (iii) loans secured by personal property, (iv) loans
secured by membership interests, or (v) securities of other REITs, other entities engaged in real estate
activities or securities of other issuers, including for the purpose of exercising control over such entities. For
example, NNN from time to time has made investments in mortgage loans or held mortgages on properties
that NNN has sold and has made structured finance investments and other loans related to properties
acquired or sold.

Financing Strategy

NNN’s financing objective is to manage its capital structure effectively in order to provide sufficient capital
to execute its operating strategies while servicing its debt requirements and providing value to its
stockholders. NNN generally utilizes debt and equity security offerings, bank borrowings, the sale of
properties, and to a lesser extent, internally generated funds to meet its capital needs.

NNN typically funds its short-term liquidity requirements including investments in additional retail
properties with cash from its $400,000,000 unsecured revolving credit facility (“Credit Facility”). As of
December 31, 2010, $161,000,000 was outstanding and $239,000,000 was available for future borrowings
under the Credit Facility, excluding undrawn letters of credit totaling $647,000.

For the year ended December 31, 2010, NNN’s ratio of total liabilities to total gross assets (before
accumulated depreciation) was approximately 40 percent and the secured indebtedness to total gross assets
was approximately two percent. The total debt to total market capitalization was approximately 34 percent.
Certain financial agreements to which NNN is a party contain covenants that limit NNN’s ability to incur
debt under certain circumstances.

NNN anticipates it will be able to obtain additional financing for short-term and long-term liquidity
requirements as further described in “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Liquidity.” However, there can be no assurance that additional
financing or capital will be available, or that the terms will be acceptable or advantageous to NNN.

The organizational documents of NNN do not limit the absolute amount or percentage of indebtedness that
NNN may incur. Additionally, NNN may change its financing strategy at any time. NNN has not engaged
in trading, underwriting or agency distribution or sale of securities of other issuers and does not intend to do
so.

Strategies and Policy Changes

Any of NNN’s strategies or policies described above may be changed at any time by NNN without notice to
or a vote of NNN’s stockholders.

Investment Portfolio

As of December 31, 2010, NNN owned 1,195 Investment Properties with an aggregate gross leasable area
of 12,972,000 square feet, located in 46 states. Approximately 97 percent of total properties in the
Investment Portfolio were leased or operated by NNN as of December 31, 2010.

The following table summarizes NNN’s Investment Properties as of December 31, 2010 (in thousands):

Land
Building

High

2,223
135

Size(1)
Low

Average

High

Acquisition Cost(2)
Low

Average

5
1

101
11

$ 8,882
19,917

5
44

974
1,435

(1) Approximate square feet.
(2) Costs vary depending upon size and local demographic factors.

In connection with the development of 28 Investment Properties, NNN has agreed to fund construction
commitments (including construction, land costs and tenant improvements) of $68,746,000. As of
December 31, 2010, NNN had funded $50,196,000 of these commitments, with $18,550,000 remaining to
be funded.

As of December 31, 2010, NNN did not have any tenant that accounted for ten percent or more of its rental
income.

Leases

Although there are variations in the specific terms of the leases, the following is a summary of the general
structure of NNN’s leases. Generally, the leases of the Investment Properties provide for initial terms of 15
to 20 years. As of December 31, 2010, the weighted average remaining lease term was approximately 12
years. The Investment Properties are generally leased under net leases pursuant to which the tenant typically
will bear responsibility for substantially all property costs and expenses associated with ongoing
maintenance and operation, including utilities, property taxes and insurance. In addition, the majority of
NNN’s leases provide that the tenant is responsible for roof and structural repairs. The leases of the
Investment Properties provide for annual base rental payments (payable in monthly installments) ranging
from $6,000 to $1,876,000 (average of $199,000). Tenant leases generally provide for limited increases in
rent as a result of fixed increases, increases in the Consumer Price Index (“CPI”), and/or, to a lesser extent,
increases in the tenant’s sales volume.

Generally, the Investment Property leases provide the tenant with one or more multi-year renewal options
subject to generally the same terms and conditions provided under the initial lease. Some of the leases also
provide that in the event NNN wishes to sell the Investment Property subject to that lease, NNN first must
offer the lessee the right to purchase the Investment Property on the same terms and conditions as any offer
which NNN intends to accept for the sale of the Investment Property.

The following table summarizes the lease expirations, assuming none of the tenants exercise renewal
options, of NNN’s Investment Portfolio for each of the next 10 years and then thereafter in the aggregate as
of December 31, 2010:

% of
Annual
Base
Rent(1)

1.5%
3.1%
4.4%
4.4%
4.5%
2.2%

# of
Properties

18
35
40
42
72
19

Gross
Leasable
Area(2)

260,000
520,000
839,000
577,000
1,011,000
407,000

2017
2018
2019
2020
Thereafter

% of
Annual
Base
Rent(1)

3.9%
2.6%
4.0%
4.0%
65.4%

# of
Properties

28
24
41
83
745

Gross
Leasable
Area(2)

682,000
345,000
618,000
694,000
6,167,000

2011
2012
2013
2014
2015
2016

(1) Based on annualized base rent for all leases in place as of December 31, 2010.
(2) Approximate square feet.

The following table summarizes the diversification of NNN’s Investment Portfolio based on the top 10 lines
of trade:

Top 10 Lines of Trade

Convenience Stores
Restaurants – Full Service
Automotive Parts
Theaters
Automotive Service
Sporting Goods
Restaurants – Limited Service
Drug Stores
Books
Grocery
Other

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

% of Annual Base Rent(1)
2009

2010

2008

23.7%
10.1%
7.8%
5.7%
5.3%
4.5%
4.1%
4.0%
3.8%
2.7%
28.3%

26.7%
9.2%
6.8%
6.3%
5.7%
3.2%
3.5%
4.1%
4.1%
2.9%
27.5%

25.7%
8.7%
5.1%
6.1%
8.9%
3.3%
3.3%
4.0%
4.0%
2.6%
28.3%

100.0%

(1)

Based on annualized base rent for all leases in place as of December 31 of the
respective year.

The following table shows the top 10 states in which NNN’s Investment Properties are located as of
December 31, 2010:

State

Texas
Florida
Illinois
North Carolina
Georgia
Indiana
Ohio
Pennsylvania
Tennessee

1.
2.
3.
4.
5.
6.
7.
8.
9.
10. Missouri

Other

# of
Properties

% of
Annual
Base Rent(1)

220
93
47
73
60
39
38
84
33
28
480

18.7%
10.0%
6.7%
6.2%
5.0%
4.4%
4.1%
3.9%
2.9%
2.9%
35.2%

1,195

100.0%

(1)

Based on annualized base rent for all leases in place as of
December 31, 2010.

Mortgages and Notes Receivable

Mortgages are secured by real estate, real estate securities or other assets and include structured finance
investments which are secured by the borrowers’ pledge of their respective membership interests in the
entities which own the respective real estate. Mortgages and notes receivable consisted of the following at
December 31 (dollars in thousands):

Mortgages and notes receivable
Accrued interest receivables, net of

reserves

Unamortized discount

2010

2009

$ 29,750

$ 41,707

644
(63)

269
-

$ 30,331

$ 41,976

Commercial Mortgage Residual Interests

Orange Avenue Mortgage Investments, Inc. (“OAMI”), a wholly owned and consolidated subsidiary of
NNN, holds the residual interests (“Residuals”) from seven commercial real estate loan securitizations.
Each of the Residuals is reported at fair value based upon an independent valuation; unrealized gains or
losses are reported as other comprehensive income in stockholders’ equity, and other than temporary losses
as a result of a change in timing or amount of estimated cash flows are recorded as an other than temporary
valuation impairment. The Residuals had an estimated fair value of $15,915,000 and $20,153,000 at
December 31, 2010 and 2009, respectively.

For more information regarding NNN’s Investment Portfolio, see Note 23 of NNN’s Consolidated Financial
Statements.

Inventory Portfolio

NNN’s Inventory Portfolio, which is owned by the TRS, is held with the intent to sell the properties to
purchasers who are looking for replacement like-kind exchange property or to other purchasers with
different investment objectives. As of December 31, 2010, the Inventory Portfolio consisted of 10
completed development projects and seven land parcels.

The following table summarizes the completed Inventory Portfolio as of December 31, 2010 (in thousands):

Land
Building

High

527
42

Size(1)
Low

17
4

Average

High

Acquisition Cost(2)
Low

Average

106
12

$ 2,248
7,159

108
341

953
1,849

(1) Approximate square feet.
(2) Costs vary depending upon size and local demographic factors.

For more information regarding NNN’s Inventory Portfolio, see Note 23 of NNN’s Consolidated Financial
Statements.

Governmental Regulations Affecting Properties

Property Environmental Considerations. Subject to a determination of the level of risk and potential cost
of remediation, NNN may acquire a property where some level of contamination may exist. Investments in
real property create a potential for substantial environmental liability on the part of the owner of such
property from the presence or discharge of hazardous substances on the property or the improper disposal of
hazardous substances emanating from the property, regardless of fault. As a part of its acquisition due
diligence process, NNN generally obtains an environmental site assessment for each property. In such cases
where NNN intends to acquire real estate where some level of contamination may exist, NNN generally
requires the seller or tenant to (i) remediate the problem, (ii) indemnify NNN for environmental liabilities,
and/or (iii) agree to other arrangements deemed appropriate by NNN, including, under certain
circumstances, the purchase of environmental insurance to address environmental conditions at the
property.

As of February 15, 2011, NNN has 59 Investment Properties currently under some level of environmental
remediation. In general, the seller, the tenant or an adjacent land owner is responsible for the cost of the
environmental remediation for each of these Investment Properties.

Americans with Disabilities Act of 1990. The Investment and Inventory Properties, as commercial
facilities, are required to comply with Title III of the Americans with Disabilities Act of 1990 and similar
state and local laws and regulations (collectively, the “ADA”). Investigation of a property may reveal
non-compliance with the ADA. The tenants will typically have primary responsibility for complying with
the ADA, but NNN may incur costs if the tenant does not comply. As of February 15, 2011, NNN has not

been notified by any governmental authority of, nor is NNN’s management aware of, any non-compliance
with the ADA that NNN’s management believes would have a material adverse effect on its business,
financial position or results of operations.

Other Regulations. State and local fire, life-safety and similar requirements regulate the use of NNN’s
Investment and Inventory Properties. NNN’s leases generally require each tenant to undertake primary
responsibility for complying with regulations, but failure to comply could result in fines by governmental
authorities, awards of damages to private litigants, or restrictions on the ability to conduct business on such
properties.

Item 1A. Risk Factors

Carefully consider the following risks and all of the other information set forth in this Annual Report on
Form 10-K, including the consolidated financial statements and the notes thereto. If any of the events or
developments described below were actually to occur, NNN’s business, financial condition or results of
operations could be adversely affected.

Current financial and economic conditions may have an adverse impact on NNN, its tenants, and
commercial real estate in general.

Current financial and economic conditions continue to be challenging and volatile and any worsening of
such conditions, including any disruption in the capital markets, could adversely affect NNN’s business and
results of operations and the financial condition of NNN’s tenants, developers, borrowers, lenders or the
institutions that hold NNN’s cash balances and short-term investments, which may expose NNN to
increased risks of default by these parties.

There can be no assurance that actions of the United States Government, Federal Reserve or other
government and regulatory bodies intended to stabilize the economy or financial markets will achieve their
intended effect. Additionally, some of these actions may adversely affect financial institutions, capital
providers, retailers, consumers or NNN’s financial condition, results of operations or the trading price of
NNN’s shares.

Potential consequences of the current financial and economic conditions include:

•

the financial condition of NNN’s tenants operating in the retail industry may be adversely
affected, which may result in tenant defaults under the leases due to bankruptcy, lack of
liquidity, operational failures or for other reasons;

the ability to borrow on terms and conditions that NNN finds acceptable may be limited or
unavailable, which could reduce NNN’s ability to pursue acquisition and development
opportunities and refinance existing debt, reduce NNN’s returns from acquisition and
development activities, reduce NNN’s ability to make cash distributions to its shareholders and
increase NNN’s future interest expense;

reduced values of NNN’s properties which may limit NNN’s ability to dispose of assets at
attractive prices and may reduce the availability of buyer financing;

the value and liquidity of NNN’s short-term investments and cash deposits could be reduced as
a result of a deterioration of the financial condition of the institutions that hold NNN’s cash
deposits or the institutions or assets in which NNN has made short-term investments, the
dislocation of the markets for NNN’s short-term investments, increased volatility in market
rates for such investments or other factors; and

one or more lenders under the Credit Facility could fail and NNN may not be able to replace the
financing commitment of any such lenders on favorable terms, or at all.

NNN may be unable to obtain debt or equity capital on favorable terms, if at all.

NNN may be unable to obtain capital on favorable terms, if at all, to further its business objectives or meet
its existing obligations. Nearly all of NNN’s debt, including the Credit Facility, is subject to balloon
principal payments due at maturity. These maturities range between 2011 and 2017. The ability of NNN to
make these scheduled principal payments may be adversely impacted by NNN’s inability to extend or
refinance the Credit Facility, the inability to dispose of assets at an attractive price or the inability to obtain
additional debt or equity capital. Capital that may be available may be materially more expensive or
available under terms that are materially more restrictive than NNN’s existing capital which would have an
adverse impact on NNN’s business, financial condition or results of operations.

Loss of revenues from tenants would reduce NNN’s cash flow.

NNN’s five largest tenants accounted for an aggregate of approximately 29 percent of NNN’s annual base
rent as of December 31, 2010. The default, financial distress, bankruptcy or liquidation of one or more of
NNN’s tenants could cause substantial vacancies among NNN’s Investment Portfolio. Vacancies reduce
NNN’s revenues, increase property expenses and could decrease the ultimate sale value of each such vacant
property. Upon the expiration of the leases that are currently in place, the tenant may choose not to renew
the lease and/or NNN may not be able to re-lease the vacant property at a comparable lease rate or without
incurring additional expenditures in connection with such renewal or re-leasing.

A significant portion of the source of NNN’s Investment Portfolio annual base rent is heavily concentrated
in specific industry classifications, tenants and in specific geographic locations.

As of December 31, 2010, approximately,

•

53 percent of NNN’s Investment Portfolio annual base rent is generated from five retail lines of
trade, including convenience stores (24 percent) and full-service restaurants (10 percent),

29 percent of NNN’s Investment Portfolio annual base rent is generated from five tenants,
including The Pantry, Inc. (eight percent) and Susser Holdings Corp. (eight percent),

47 percent of NNN’s Investment Portfolio annual base rent is generated from five states,
including Texas (19 percent) and Florida (10 percent).

Any financial hardship and/or economic changes in these lines of trade, tenants or states could have an
adverse effect on NNN’s results of operations.

Owning real estate and indirect interests in real estate carries inherent risks.

NNN’s economic performance and the value of its real estate assets are subject to the risk that if NNN’s
properties do not generate revenues sufficient to meet its operating expenses, including debt service, NNN’s
cash flow and ability to pay distributions to its shareholders will be adversely affected. As a real estate
company, NNN is susceptible to the following real estate industry risks, which are beyond its control:

•

changes in national, regional and local economic conditions and outlook,

decreases in consumer spending and retail sales,

economic downturns in the areas where NNN’s properties are located,

adverse changes in local real estate market conditions, such as an oversupply of space,
reduction in demand for space, intense competition for tenants, or a geographic shift in the
market away from NNN’s properties,

changes in tenant preferences that reduce the attractiveness of NNN’s properties to tenants,

changes in zoning, regulatory restrictions, or tax laws, and

changes in interest rates or availability of financing.

All of these factors could result in decreases in market rental rates and increases in vacancy rates, which
could adversely affect NNN’s results of operations.

NNN’s real estate investments are illiquid.

Because real estate investments are relatively illiquid, NNN’s ability to adjust the portfolio promptly in
response to economic or other conditions is limited. Certain significant expenditures generally do not
change in response to economic or other conditions, including: (i) debt service (if any), (ii) real estate taxes,
and (iii) operating and maintenance costs. This combination of variable revenue and relatively fixed
expenditures may result, under certain market conditions, in reduced earnings and could have an adverse
effect on NNN’s financial condition.

Costs of complying with changes in governmental laws and regulations may adversely affect NNN’s results
of operations.

NNN cannot predict what other laws or regulations will be enacted in the future, how future laws or
regulations will be administered or interpreted, or how future laws or regulations will affect NNN’s
properties, including, but not limited to environmental laws and regulations. Compliance with new laws or
regulations, or stricter interpretation of existing laws, may require NNN, its retail tenants, or consumers to
incur significant expenditures or impose significant liability and could cause a material adverse effect on
NNN’s results of operation.

NNN may be subject to known or unknown environmental liabilities and hazardous materials on properties
owned by NNN.

There may be known or unknown environmental liabilities associated with properties owned or acquired in
the future by NNN. Certain particular uses of some properties may also have a heightened risk of
environmental liability because of the hazardous materials used in performing services on those properties,
such as convenience stores with underground petroleum storage tanks or auto parts and auto service
businesses using lube, paint and machine solvents. Some of NNN’s properties may contain asbestos or
asbestos-containing materials, or may contain or may develop mold or other bio-contaminants. Asbestos-
containing materials must be handled, managed and removed in accordance with applicable governmental
laws, rules and regulations. Mold and other bio-contaminants can produce airborne toxins, may cause a
variety of health issues in individuals and must be remediated in accordance with applicable governmental
laws, rules and regulations.

As part of its due diligence process, NNN generally obtains an environmental site assessment for each
property it acquires. In cases where NNN intends to acquire real estate where some level of contamination
may exist, NNN generally requires the seller or tenant to (i) remediate the contamination in accordance with
applicable laws, rules and regulations, (ii) indemnify NNN for environmental liabilities, and/or (iii) agree to
other arrangements deemed appropriate by NNN, including, under certain circumstances, the purchase of
environmental insurance. Although sellers or tenants may be contractually responsible for
remediating hazardous materials on a property and may be responsible for indemnifying NNN for
any liability resulting from the use of a property and for any failure to comply with any applicable
environmental laws, rules or regulations, NNN has no assurance that sellers or tenants shall be able to meet
their remediation and indemnity obligations to NNN. A tenant or seller may not have the financial ability to
meet its remediation and indemnity obligations to NNN when needed. Furthermore, NNN may have strict
liability to governmental agencies or third parties as a result of the existence of hazardous materials on
properties, whether or not NNN knew about or caused such hazardous materials to exist.

As of February 15, 2011 NNN has 59 Investment Properties currently under some level of environmental
remediation. In general, the seller, the tenant or an adjacent land owner is responsible for the cost of the
environmental remediation for each of these Investment Properties.

If NNN is responsible for hazardous materials located on its properties, NNN’s liability may include
investigation and remediation costs, property damage to third parties, personal injury to third parties, and
governmental fines and penalties. Furthermore, the presence of hazardous materials on a property may
adversely impact the property value or NNN’s ability to sell the property. Significant environmental
liability could impact NNN’s results of operations, ability to make distributions to shareholders, and its
ability to meet its debt obligations.

In order to mitigate exposure to environmental liability, NNN has an environmental insurance policy on
certain of its convenience store and travel plaza properties which expires in August 2013. However, the
policy is subject to exclusions and limitations and does not cover all of the properties owned by NNN, and
for those properties covered under the policy, insurance may not fully compensate NNN for any
environmental liability. NNN has no assurance that the insurer on its environmental insurance policy will be
able to meet its obligations under the policy. NNN may not desire to renew the environmental insurance
policy in place upon expiration or a replacement policy may not be available at a reasonable cost, if at all.

NNN may not be able to successfully execute its acquisition or development strategies.

NNN may not be able to implement its investment strategies successfully. Additionally, NNN cannot assure
that its property portfolio will expand at all, or if it will expand at any specified rate or to any specified size.
In addition, investment in additional real estate assets is subject to a number of risks. Because NNN expects
to invest in markets other than the ones in which its current properties are located or properties which may
be leased to tenants other than those to which NNN has historically leased properties, NNN will also be
subject to the risks associated with investment in new markets or with new tenants that may be relatively
unfamiliar to NNN’s management team.

NNN’s development activities are subject to, without limitation, risks relating to the availability and timely
receipt of zoning and other regulatory approvals, the cost and timely completion of construction (including
risks from factors beyond NNN’s control, such as weather or labor conditions or material shortages), the
risk of finding tenants for the properties and the ability to obtain both construction and permanent financing
on favorable terms. These risks could result in substantial unanticipated delays or expenses and, under
certain circumstances, could prevent completion of development activities once undertaken or provide a
tenant the opportunity to terminate a lease. Any of these situations may delay or eliminate proceeds or cash
flows NNN expects from these projects, which could have an adverse effect on NNN’s financial condition.

NNN may not be able to dispose of properties consistent with its operating strategy.

NNN may be unable to sell properties targeted for disposition (including its Inventory Properties) due to
adverse market conditions. This may adversely affect, among other things, NNN’s ability to sell under
favorable terms, execute its operating strategy, achieve target earnings or returns, retire or repay debt or pay
dividends.

A change in the assumptions used to determine the value of commercial mortgage residual interests could
adversely affect NNN’s financial position.

As of December 31, 2010, the Residuals had a carrying value of $15,915,000. The value of these Residuals
is based on assumptions made by NNN to determine their value. These assumptions include discount rate,
loan loss, prepayment speed and interest rate assumptions made by NNN to determine their value. If actual
experience differs materially from these assumptions, the actual future cash flow could be less than
expected and the value of the Residuals, as well as NNN’s earnings, could decline.

NNN may suffer a loss in the event of a default or bankruptcy of a borrower.

If a borrower defaults on a mortgage, structured finance loan or other loan made by NNN, and does not
have sufficient assets to satisfy the loan, NNN may suffer a loss of principal and interest. In the event of the
bankruptcy of a borrower, NNN may not be able to recover against all or any of the assets of the borrower,
or the assets of the borrower may not be sufficient to satisfy the balance due on the loan. In addition, certain
of NNN’s loans may be subordinate to other debt of a borrower. These investments are typically loans
secured by a borrower’s pledge of its ownership interests in the entity that owns the real estate or other
assets. These agreements are typically subordinated to senior loans secured by other loans encumbering the
underlying real estate or assets. Subordinated positions are generally subject to a higher risk of nonpayment
of principal and interest than the more senior loans. As of December 31, 2010, mortgages and notes
receivables had an outstanding principal balance of $29,750,000. If a borrower defaults on the debt senior
to NNN’s loan, or in the event of the bankruptcy of a borrower, NNN’s loan will be satisfied only after the
borrower’s senior creditors’ claims are satisfied. Where debt senior to NNN’s loans exists, the presence of
intercreditor arrangements may limit NNN’s ability to amend loan documents, assign the loans, accept
prepayments, exercise remedies and control decisions made in bankruptcy proceedings relating to
borrowers. Bankruptcy proceedings and litigation can significantly increase the time needed for NNN to
acquire underlying collateral, if any, in the event of a default, during which time the collateral may decline
in value. In addition, there are significant costs and delays associated with the foreclosure process.

Certain provisions of NNN’s leases or loan agreements may be unenforceable.

NNN’s rights and obligations with respect to its leases, structured finance loans, mortgage loans or other
loans are governed by written agreements. A court could determine that one or more provisions of such an
agreement are unenforceable, such as a particular remedy, a loan prepayment provision or a provision
governing NNN’s security interest in the underlying collateral of a borrower or lessee. NNN could be
adversely impacted if this were to happen with respect to an asset or group of assets.

Property ownership through joint ventures and partnerships could limit NNN’s control of those
investments.

Joint ventures or partnerships involve risks not otherwise present for direct investments by NNN. It is
possible that NNN’s co-venturers or partners may have different interests or goals than NNN at any time
and they may take actions contrary to NNN’s requests, policies or objectives, including NNN’s policy with
respect to maintaining its qualification as a REIT. Other risks of joint venture or partnership investments
include impasses on decisions because in some instances no single co-venturer or partner has full control
over the joint venture or partnership, respectively, or the co-venturer or partner may become insolvent,
bankrupt or otherwise unable to contribute to the joint venture or partnership, respectively. Further, disputes
may develop with a co-venturer or partner over decisions affecting the property, joint venture or partnership
that may result in litigation, arbitration or some other form of dispute resolution.

Competition with numerous other REITs, commercial developers, real estate limited partnerships and other
investors may impede NNN’s ability to grow.

NNN may not be in a position or have the opportunity in the future to complete suitable property
acquisitions or developments on advantageous terms due to competition for such properties with others
engaged in real estate investment activities. NNN’s inability to successfully acquire or develop new
properties may affect NNN’s ability to achieve anticipated return on investment or realize its investment
strategy, which could have an adverse effect on its results of operations.

Operating losses from retail operations on certain Investment Properties may adversely impact NNN’s
results of operations.

In June 2009, NNN acquired the operations of the auto service business which was operated on certain
Investment Properties. A third party manages and staffs these operations on behalf of NNN. The results of
business operations from these properties are subject to the typical execution risks inherent with many retail
operations including: merchandising, pricing, customer service, competition, consumer preferences and
behavior, safety, compliance with various federal, state and local laws, ordinances and regulations,
environmental contamination, unfavorable weather conditions, or other trends in the markets they serve.
These factors could negatively impact NNN’s results of operations from these certain Investment
Properties.

Uninsured losses may adversely affect NNN’s ability to pay outstanding indebtedness.

NNN’s properties are generally covered by comprehensive liability, fire, and extended insurance coverage.
NNN believes that the insurance carried on its properties is adequate in accordance with industry standards.
There are, however, types of losses (such as from hurricanes, wars or earthquakes) which may be
uninsurable, or the cost of insuring against these losses may not be economically justifiable. If an uninsured
loss occurs or a loss exceeds policy limits, NNN could lose both its invested capital and anticipated
revenues from the property, thereby reducing NNN’s cash flow.

Acts of violence, terrorist attacks or war may affect the markets in which NNN operates and NNN’s results
of operations.

Terrorist attacks or other acts of violence may negatively affect NNN’s operations. There can be no
assurance that there will not be terrorist attacks against businesses within the United States. These attacks
may directly impact NNN’s physical facilities or the businesses or the financial condition of its tenants,
developers, borrowers, lenders or financial institutions with which NNN has a relationship. The United
States is engaged in armed conflict, which could have an impact on these parties. The consequences of
armed conflict are unpredictable, and NNN may not be able to foresee events that could have an adverse
effect on its business.

More generally, any of these events or threats of these events could cause consumer confidence and
spending to decrease or result in increased volatility in the United States and worldwide financial markets
and economies. They also could result in, or cause a deepening of, economic recession in the United States
or abroad. Any of these occurrences could have an adverse impact on NNN’s financial condition or results
of operations.

Vacant properties or bankrupt tenants could adversely affect NNN’s business or financial condition.

As of December 31, 2010, NNN owned 37 vacant, un-leased Investment Properties, which accounted for
approximately three percent of total Investment Properties held in NNN’s Investment Portfolio. NNN is
actively marketing these properties for sale or lease but may not be able to sell or lease these properties on
favorable terms or at all. The lost revenues and increased property expenses resulting from the rejection by
any bankrupt tenant of any of their respective leases with NNN could have a material adverse effect on the
liquidity and results of operations of NNN if NNN is unable to re-lease the Investment Properties at
comparable rental rates and in a timely manner. As of January 31, 2011, approximately one percent of the
total gross leasable area of NNN’s Investment Portfolio was leased to four tenants that have filed a
voluntary petition for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code and have the right to reject
or affirm their lease with NNN.

The amount of debt NNN has and the restrictions imposed by that debt could adversely affect NNN’s
business and financial condition.

As of December 31, 2010, NNN had total mortgage debt outstanding of approximately $24,269,000, total
unsecured notes payable of $948,416,000 and $161,000,000 outstanding on the unsecured Credit Facility.
NNN’s organizational documents do not limit the level or amount of debt that it may incur. If NNN incurs
additional indebtedness and permits a higher degree of leverage, debt service requirements would increase
and could adversely affect NNN’s financial condition and results of operations, as well as NNN’s ability to
pay principal and interest on the outstanding indebtedness or cash dividends to its stockholders. In addition,
increased leverage could increase the risk that NNN may default on its debt obligations.

The amount of debt outstanding at any time could have important consequences to NNN’s stockholders. For
example, it could:

•

require NNN to dedicate a substantial portion of its cash flow from operations to payments on
its debt, thereby reducing funds available for operations, real estate investments and other
appropriate business opportunities that may arise in the future,

increase NNN’s vulnerability to general adverse economic and industry conditions,

limit NNN’s ability to obtain any additional financing it may need in the future for working
capital, debt refinancing, capital expenditures, real estate investments, development or other
general corporate purposes,

• make it difficult to satisfy NNN’s debt service requirements,

•

limit NNN’s ability to pay dividends in cash on its outstanding common and preferred stock,

limit NNN’s flexibility in planning for, or reacting to, changes in its business and the factors
that affect the profitability of its business, and

limit NNN’s flexibility in conducting its business, which may place NNN at a disadvantage
compared to competitors with less debt or debt with less restrictive terms.

NNN’s ability to make scheduled payments of principal or interest on its debt, or to retire or refinance such
debt will depend primarily on its future performance, which to a certain extent is subject to the
creditworthiness of its tenants, competition, and economic, financial, and other factors beyond its control.
There can be no assurance that NNN’s business will continue to generate sufficient cash flow from
operations in the future to service its debt or meet its other cash needs. If NNN is unable to generate
sufficient cash flow from its business, it may be required to refinance all or a portion of its existing debt,
sell assets or obtain additional financing to meet its debt obligations and other cash needs.

NNN cannot assure stockholders that any such refinancing, sale of assets or additional financing would be
possible or, if possible, on terms and conditions, including but not limited to the interest rate, which NNN
would find acceptable or would not result in a material decline in earnings.

NNN is obligated to comply with financial and other covenants in its debt that could restrict its operating
activities, and the failure to comply with such covenants could result in defaults that accelerate the payment
under such debt.

As of December 31, 2010, NNN had approximately $1,133, 685,000 of outstanding indebtedness, of which
approximately $24,269,000 was secured indebtedness. NNN’s unsecured debt contains various restrictive
covenants which include, among others, provisions restricting NNN’s ability to:

•

incur or guarantee additional debt,

• make certain distributions, investments and other restricted payments,

•

enter into transactions with certain affiliates,

create certain liens,

consolidate, merge or sell NNN’s assets, and

pre-pay debt.

NNN’s secured debt generally contains customary covenants, including, among others, provisions:

•

relating to the maintenance of the property securing the debt,

restricting its ability to sell, assign or further encumber the properties securing the debt,

restricting its ability to incur additional debt,

restricting its ability to amend or modify existing leases, and

relating to certain prepayment restrictions.

NNN’s ability to meet some of its debt covenants, including covenants related to the condition of the
property or payment of real estate taxes, may be dependent on the performance by NNN’s tenants under
their leases.

In addition, certain covenants in NNN’s debt, including its Credit Facility, require NNN, among other
things, to:

•

limit certain leverage ratios,

• maintain certain minimum interest and debt service coverage ratios, and

•

limit investments in certain types of assets.

NNN’s failure to comply with certain of its debt covenants could result in defaults that accelerate the
payment under such debt and limit the dividends paid to NNN’s common and preferred stockholders which
would likely have a material adverse impact on NNN’s financial condition and results of operations. In
addition, these defaults could impair its access to the debt and equity markets.

The market value of NNN’s equity and debt securities is subject to various factors that may cause
significant fluctuations or volatility.

As with other publicly traded securities, the market price of NNN’s equity and debt securities depends on
various factors, which may change from time-to-time and/or may be unrelated to NNN’s financial
condition, operating performance or prospects that may cause significant fluctuations or volatility in such
prices. These factors, among others, include:

•

general economic and financial market conditions including the weak economic environment,

level and trend of interest rates,

• NNN’s ability to access the capital markets to raise additional capital,

•

the issuance of additional equity or debt securities,

changes in NNN’s funds from operations or earnings estimates,

changes in NNN’s debt ratings or analyst ratings,

• NNN’s financial condition and performance,

• market perception of NNN compared to other REITs, and

• market perception of REITs compared to other investment sectors.

NNN’s failure to qualify as a real estate investment trust for federal income tax purposes could result in
significant tax liability.

NNN intends to operate in a manner that will allow NNN to continue to qualify as a REIT. NNN believes it
has been organized as, and its past and present operations qualify NNN as a REIT. However, the Internal
Revenue Service (“IRS”) could successfully assert that NNN is not qualified as such. In addition, NNN may
not remain qualified as a REIT in the future. Qualification as a REIT involves the application of highly
technical and complex provisions of the Internal Revenue Code of 1986, as amended (the “Code”) for
which there are only limited judicial or administrative interpretations and involves the determination of
various factual matters and circumstances not entirely within NNN’s control. Furthermore, new tax
legislation, administrative guidance or court decisions, in each instance potentially with retroactive effect,
could make it more difficult or impossible for NNN to qualify as a REIT or avoid significant tax liability.

If NNN fails to qualify as a REIT, it would not be allowed a deduction for dividends paid to stockholders in
computing taxable income and would become subject to federal income tax at regular corporate rates. In
this event, NNN could be subject to potentially significant tax liabilities and penalties. Unless entitled to
relief under certain statutory provisions, NNN would also be disqualified from treatment as a REIT for the
four taxable years following the year during which the qualification was lost.

Even if NNN remains qualified as a REIT, NNN may face other tax liabilities that reduce operating results
and cash flow.

Even if NNN remains qualified for taxation as a REIT, NNN may be subject to certain federal, state and
local taxes on its income and assets, including taxes on any undistributed income, tax on income from some
activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes, such
as mortgage recording taxes. Any of these taxes would decrease earnings and cash available for distribution
to stockholders. In addition, in order to meet the REIT qualification requirements, NNN holds some of its
assets through the TRS.

Adverse legislative or regulatory tax changes could reduce NNN’s earnings, cash flow and market price of
NNN’s common stock.

At any time, the federal and state income tax laws governing REITs or the administrative interpretations of
those laws may change. Any such changes may have retroactive effect, and could adversely affect NNN or
its stockholders. For example, legislation enacted in 2003 and extended in 2006 generally reduced the
federal income tax rate on most dividends paid by corporations to individual investors to a maximum of 15
percent (through 2012). REIT dividends, with limited exceptions, will not benefit from the rate reduction,
because a REIT’s income generally is not subject to corporate level tax. As such, this legislation could
cause shares in non-REIT corporations to be a more attractive investment to individual investors than shares
in REITs, and could have an adverse effect on the value of NNN’s common stock.

Compliance with REIT requirements, including distribution requirements, may limit NNN’s flexibility and
negatively affect NNN’s operating decisions.

To maintain its status as a REIT for U.S. federal income tax purposes, NNN must meet certain requirements
on an on-going basis, including requirements regarding its sources of income, the nature and diversification
of its assets, the amounts NNN distributes to its stockholders and the ownership of its shares. NNN may
also be required to make distributions to its stockholders when it does not have funds readily available for
distribution or at times when NNN’s funds are otherwise needed to fund capital expenditures or debt service
requirements. NNN generally will not be subject to federal income taxes on amounts distributed to
stockholders, providing it distributes 100 percent of its REIT taxable income and meets certain other
requirements for qualifying as a REIT. For each of the years in the three-year period ended December 31,
2010, NNN believes it has qualified as a REIT. Notwithstanding NNN’s qualification for taxation as a
REIT, NNN is subject to certain state taxes on its income and real estate.

Changes in accounting pronouncements could adversely impact NNN’s or NNN’s tenants’ reported
financial performance.

Accounting policies and methods are fundamental to how NNN records and reports its financial condition
and results of operations. From time to time the Financial Accounting Standards Board (“FASB”) and the
Commission, who create and interpret appropriate accounting standards, may change the financial
accounting and reporting standards or their interpretation and application of these standards that govern the
preparation of NNN’s financial statements. These changes could have a material impact on NNN’s reported
financial condition and results of operations. In some cases, NNN could be required to apply a new or
revised standard retroactively, resulting in restating prior period financial statements. Similarly, these
changes could have a material impact on NNN’s tenants’ reported financial condition or results of
operations and affect their preferences regarding leasing real estate.

NNN’s failure to maintain effective internal control over financial reporting could have a material adverse
effect on its business, operating results and share price.

Section 404 of the Sarbanes-Oxley Act of 2002 requires annual management assessments of the
effectiveness of the Company’s internal control over financial reporting. If NNN fails to maintain the
adequacy of its internal control over financial reporting, as such standards may be modified, supplemented
or amended from time to time, NNN may not be able to ensure that it can conclude on an ongoing basis that
it has effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-
Oxley Act of 2002. Moreover, effective internal control over financial reporting, particularly those related
to revenue recognition, are necessary for NNN to produce reliable financial reports and to maintain its
qualification as a REIT and are important in helping to prevent financial fraud. If NNN cannot provide
reliable financial reports or prevent fraud, its business and operating results could be harmed, REIT
qualification could be jeopardized, investors could lose confidence in the Company’s reported financial
information, and the trading price of NNN’s shares could drop significantly.

NNN’s ability to pay dividends in the future is subject to many factors.

NNN’s ability to pay dividends may be impaired if any of the risks described in this section were to occur.
In addition, payment of NNN’s dividends depends upon NNN’s earnings, financial condition, maintenance
of NNN’s REIT status and other factors as NNN’s Board of Directors may deem relevant from time to time.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Please refer to Item 1. “Business.”

Item 3. Legal Proceedings

In the ordinary course of its business, NNN is a party to various legal actions that management believes are
routine in nature and incidental to the operation of the business of NNN. Management believes that the
outcome of these proceedings will not have a material adverse effect upon its operations, financial condition
or liquidity.

Item 4. [Removed and Reserved]

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities

The common stock of NNN currently is traded on the NYSE under the symbol “NNN.” Set forth below is a
line graph comparing the cumulative total stockholder return on NNN’s common stock, based on the market
price of the common stock and assuming reinvestment of dividends, with the FTSE National Association of
Real Estate Investment Trusts Equity Index (“NAREIT”) and the S&P 500 Index (“S&P 500”) for the five
year period commencing December 31, 2005 and ending December 31, 2010. The graph assumes an
investment of $100 on December 31, 2005.

Comparison to Five-Year Cumulative Total Return

Indexed Total Annual Return
(As of December 31, 2010)

e
u
l
a
V
x
e
d
n
I

200

180

160

140

120

100

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Dec-10

S&P 500

NAREIT

NNN

For each calendar quarter indicated, the following table reflects respective high, low and closing sales
prices for the common stock as quoted by the NYSE and the dividends paid per share in each such period.

2010

High
Low
Close

Dividends paid per share

2009

High
Low
Close

Dividends paid per share

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

Year

23.73
19.19
22.83

0.375

17.52
12.26
15.84

0.375

24.59
20.50
21.44

0.375

19.48
14.95
17.35

0.375

25.94
20.82
25.11

0.380

22.80
15.85
21.47

0.375

28.11
24.85
26.50

0.380

21.59
18.87
21.22

0.375

28.11
19.19
26.50

1.510

22.80
12.26
21.22

1.500

The following presents the characterizations for tax purposes of such common stock dividends for the years
ended December 31:

Ordinary dividends
Qualified dividends
Capital gain
Unrecaptured Section 1250 gain
Nontaxable distributions

2010

2009

1.072446
0.081661
0.000861
0.000498
0.354534

71.0229%
5.4080%
0.0570%
0.0330%
23.4791%

1.495182
-
0.003051
0.001767
-

99.6788%
-
0.2034%
0.1178%
-

1.510000

100.0000%

1.500000

100.0000%

NNN intends to pay regular quarterly dividends to its stockholders, although all future distributions will be
declared and paid at the discretion of the Board of Directors and will depend upon cash generated by
operating activities, NNN’s financial condition, capital requirements, annual distribution requirements
under the REIT provisions of the Code and such other factors as the Board of Directors deems relevant.

In February 2011, NNN paid dividends to its stockholders of $31,678,000 or $0.38 per share of common
stock.

On January 31, 2011, there were 1,848 stockholders of record of common stock.

Item 6. Selected Financial Data

Historical Financial Highlights
(dollars in thousands, except per share data)

Gross revenues(1)
Earnings from continuing operations
Earnings including noncontrolling interests
Net earnings attributable to NNN
Total assets
Total debt
Total stockholders’ equity
Cash dividends declared to:
Common stockholders
Series A preferred stockholders
Series B convertible preferred stockholders
Series C preferred stockholders
Weighted average common shares:

Basic
Diluted

Per share information:

Earnings from continuing operations:

Basic
Diluted
Net earnings:

Basic
Diluted

Cash dividends declared to:
Common stockholders
Series A preferred stockholders
Series B convertible preferred stockholders
Series C preferred depositary stockholders

Other data:

Cash flows provided by (used in):

Operating activities
Investing activities
Financing activities

Funds from operations – diluted(2)

2010

2009

2008

2007

2006

237,062 $
71,202
73,353
72,997
2,713,575
1,133,685
1,527,483

243,932 $
56,129
56,399
54,810
2,590,962
987,346
1,564,240

247,352 $
97,858
119,971
117,153
2,649,471
1,027,391
1,566,860

208,629 $
76,642
155,743
154,599
2,539,673
1,049,154
1,417,647

180,877
58,739
184,422
181,800
1,917,516
890,127
1,109,479

125,391
-
-
6,785

120,256
-
-
6,785

110,107
-
-
6,785

92,989
-
-
6,785

76,035
4,376
419
923

82,715,645
82,849,362

79,846,258
79,953,499

74,249,137
74,344,231

66,152,437
66,263,980

57,428,063
57,965,508

0.77 $
0.77

0.60 $
0.60

1.22 $
1.22

1.05 $
1.05

0.80
0.80

1.51
-
-
1.84375

0.60
0.60

1.50
-
-
1.84375

1.48
1.48

1.48
-
-
1.84375

2.23
2.22

1.40
-
-
1.84375

0.88
0.88

3.05
3.03

1.32
2.45625
41.875
0.250955

187,914 $
(220,260)
19,169
108,328

149,502 $
(28,063)
(108,840)
89,506

237,459 $
(256,304)
(6,028)
132,996

130,147 $
(536,717)
432,394
110,589

1,676
(90,099)
81,864
86,749

(1) Gross revenues include revenues from NNN’s continuing and discontinued operations. In accordance with FASB

guidance on Accounting for the Impairment or Disposal of Long-Lived Assets, NNN has classified the revenues related to
(i) all Investment Properties that were sold and leasehold interest which expired, (ii) all Inventory Properties which
generated revenues prior to disposition, and (iii) all Investment and Inventory Properties which generated revenue and
were held for sale at December 31, 2010, as discontinued operations.

(2) The National Association of Real Estate Investment Trusts (“NAREIT”) developed Funds from Operations (“FFO”) as a
relative non-GAAP financial measure of performance of a REIT in order to recognize that income-producing real estate
historically has not depreciated on the basis determined under generally accepted accounting principles (“GAAP”). FFO
is defined by NAREIT and is used by NNN as follows: net earnings (computed in accordance with GAAP) plus
depreciation and amortization of assets unique to the real estate industry, excluding gains (or including losses) on the
disposition of certain assets and NNN’s share of these items from NNN’s unconsolidated partnerships and joint ventures.

FFO is generally considered by industry analysts to be the most appropriate measure of operating
performance of real estate companies. FFO does not necessarily represent cash provided by operating
activities in accordance with GAAP and should not be considered an alternative to net income as an
indication of NNN’s operating performance or to cash flow as a measure of liquidity or ability to make
distributions. Management considers FFO an appropriate measure of operating performance of an equity
REIT because it primarily excludes the assumption that the value of the real estate assets diminishes

predictably over time, and because industry analysts have accepted it as an operating performance measure.
NNN’s computation of FFO may differ from the methodology for calculating FFO used by other equity
REITs, and therefore, may not be comparable to such other REITs.

NNN has earnings from discontinued operations in both of its financial segments; investment assets and
inventory assets. All property dispositions from NNN’s investment segment are classified as discontinued
operations. In addition, certain properties in NNN’s inventory segment that have generated revenues before
disposition are classified as discontinued operations. These inventory properties have not historically been
classified as discontinued operations, therefore, prior period comparable consolidated financial statements
have been restated to include these properties in its earnings from discontinued operations. These
adjustments resulted in a decrease in NNN’s reported total revenues and total and per share earnings from
continuing operations and an increase in NNN’s earnings from discontinued operations. However, NNN’s
total and per share net earnings available to common stockholders is not affected.

The following table reconciles FFO to their most directly comparable GAAP measure, net earnings for the
years ended December 31:

Reconciliation of funds from operations:

Net earnings attributable to NNN’s stockholders
Real estate depreciation and amortization:

Continuing operations
Discontinued operations

Partnership/joint venture real estate depreciation
Partnership gain on sale of asset
Gain on disposition of equity investment
Gain on disposition of investment assets
Gain on disposition of inventory assets

FFO
Series A preferred stock dividends(1)
Series B convertible preferred stock dividends(1)
Series C preferred stock dividends

FFO available to common stockholders – basic
Series B convertible preferred stock dividends, if dilutive

2010

2009

2008

2007

2006

$ 72,997 $ 54,810 $117,153 $154,599 $181,800

43,464
186
178
-
-
(1,134)
(578)

115,113
-
-
(6,785)

108,328
-

42,838
1,438
178
-
-
(2,392)
(581)

96,291
-
-
(6,785)

89,506
-

40,336
1,454
177
-
-
(9,980)
(9,359)

139,781
-
-
(6,785)

28,632
1,750
31
-
-
(56,625)
(11,013)

117,374
-
-
(6,785)

132,996
-

110,589
-

19,099
3,320
463
(262)
(11,373)
(91,332)
(9,667)

92,048
(4,376)
(419)
(923)

86,330
419

FFO available to common stockholders – diluted

$108,328 $ 89,506 $132,996 $110,589 $ 86,749

(1)

The Series A and Series B preferred stock are no longer outstanding.

For a discussion of material events affecting the comparability of the information reflected in the selected
financial data, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations.”

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with “Item 6. Selected Financial
Data,” and the consolidated financial statements and related notes included elsewhere in this Annual Report
on Form 10-K, and the forward-looking disclaimer language in italics before “Item 1. Business.”

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 real estate investment trust
subsidiaries. These subsidiaries and their majority owned and controlled subsidiaries are collectively
referred to as the “TRS.”

Overview

NNN, a Maryland corporation, is a fully integrated real estate investment trust (“REIT”) formed in 1984.
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”). 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”).

As of December 31, 2010, NNN owned 1,195 Investment Properties (including 11 properties with retail
operations that NNN operates), with an aggregate gross leasable area of approximately 12,972,000 square
feet, located in 46 states. Approximately 97 percent of total properties in NNN’s Investment Portfolio was
leased or operated as of December 31, 2010. As of December 31, 2010, NNN owned 17 Inventory
Properties.

NNN’s management team focuses on certain key indicators to evaluate the financial condition and
operating performance of NNN. The key indicators for NNN include items such as: the composition of
NNN’s Investment Portfolio (such as tenant, geographic and line of trade diversification), the occupancy
rate of NNN’s Investment Portfolio, certain financial performance ratios and profitability measures, and
industry trends and performance compared to that of NNN.

NNN continues to maintain its diversification by tenant, geography and tenant’s line of trade. NNN’s
highest lines of trade concentrations are the convenience store and restaurant (including full and limited
service) sectors. These sectors represent a large part of the freestanding retail property marketplace and
NNN’s management believes these sectors present attractive investment opportunities. NNN’s Investment
Portfolio is geographically concentrated in the south and southeast United States, which are regions of
historically above-average population growth. Given these concentrations, any financial hardship within
these sectors or geographic locations, respectively, could have a material adverse effect on the financial
condition and operating performance of NNN.

As of year end December 31, 2010, 2009 and 2008, Investment Properties have remained at least 96 percent
leased. The Investment Portfolio’s average remaining lease term of 12 years has remained fairly constant
over the past three years which, coupled with its net lease structure, provides enhanced probability of
maintaining occupancy and operating earnings.

The weak economic environment during the past three years has made it more difficult and more expensive
to obtain debt and equity capital, and has reduced the pace of investments in new acquisitions or
developments as well as the volume of dispositions. Additionally, the weak economic and retail
environment has resulted in more retailers filing for bankruptcy and has made it more difficult to lease
properties, which may have an adverse impact on NNN’s occupancy.

Critical Accounting Policies and Estimates

The preparation of NNN’s consolidated financial statements in conformance with accounting principles
generally accepted in the United States of America requires management to make estimates and judgments
on assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as other
disclosures in the financial statements. On an ongoing basis, management evaluates its estimates and
judgments; however, actual results may differ from these estimates and assumptions, which in turn could
have a material impact on NNN’s financial statements. A summary of NNN’s accounting policies and
procedures are included in Note 1 of NNN’s consolidated financial statements. Management believes the
following critical accounting policies, among others, affect its more significant judgments and estimates
used in the preparation of NNN’s consolidated financial statements.

Real Estate – Investment 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.

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.

Real estate is generally leased to tenants on a net lease basis, whereby the tenant is responsible for all
operating expenses relating to the property, generally including property taxes, insurance, maintenance and
repairs. The leases are accounted for using either the operating or the direct financing method. Such
methods are described below:

Operating method – Leases accounted for using the operating method are recorded at the cost of
the real estate. Revenue is recognized as rentals are earned and expenses (including depreciation)
are charged to operations as incurred. Buildings are depreciated on the straight-line method over
their estimated useful lives. Leasehold interests are amortized on the straight-line method over the
terms of their respective leases. When scheduled rental revenue varies during the lease term, income
is recognized on a straight-line basis so as to produce a constant periodic rent over the term of the
lease. Accrued rental income is the aggregate difference between the scheduled rents which vary
during the lease term and the income recognized on a straight-line basis.

Direct financing method – Leases accounted for using the direct financing method are recorded at
their net investment (which at the inception of the lease generally represents the cost of the
property). Unearned income is deferred and amortized into income over the lease terms so as to
produce a constant periodic rate of return on NNN’s net investment in the leases.

Real Estate – Inventory Portfolio. The TRS acquires and/or develops and owns properties primarily for
the purpose of selling the real estate. The properties that are classified as held for sale at any given time
may consist of properties that have been acquired in the marketplace with the intent to sell and properties
that have been, or are currently being, constructed by the TRS. The TRS records the acquisition of the real
estate at cost, including the acquisition and closing costs. The cost of the real estate developed by the TRS
also includes direct and indirect costs of construction, interest and other miscellaneous costs incurred during
the development period until the project is substantially complete and available for occupancy. Real estate
held for sale is not depreciated and is recorded at the lower of cost or fair value.

Impairment – Real Estate. Based upon the events or changes in certain circumstances, management
periodically assesses its Investment Properties for possible impairment indicating that the carrying value

of the asset, including accrued rental income, may not be recoverable through operations. Events or
circumstances that may occur include significant changes in real estate market condition or the ability of
NNN to re-lease or sell properties that are vacant or become vacant. Management determines whether an
impairment in value has occurred by comparing the estimated future cash flows (undiscounted and without
interest charges), including the residual value of the real estate, with the carrying cost of the individual
asset. If an impairment is indicated, a loss will be recorded for the amount by which the carrying value of
the asset exceeds its fair value.

Commercial Mortgage Residual Interests, at Fair Value. Commercial mortgage residual interests,
classified as available for sale, are reported at their market values with unrealized gains and losses reported
as other comprehensive income in stockholders’ equity. The commercial mortgage residual interests were
acquired in connection with the acquisition of Orange Avenue Mortgage Investments, Inc. (“OAMI”). NNN
recognizes the excess of all cash flows attributable to the commercial mortgage residual interests estimated
at the acquisition/transaction date over the initial investment (the accretable yield) as interest income over
the life of the beneficial interest using the effective yield method. Losses are considered other than
temporary valuation impairments if and when there has been a change in the timing or amount of estimated
cash flows, exclusive of changes in interest rates, that leads to a loss in value. In 2010, NNN acquired the
21.1% non-controlling interest in its majority owned and controlled subsidiary, OAMI, for $1,603,000
pursuant to which OAMI became a wholly owned subsidiary of NNN. NNN accounted for the transaction
as an equity transaction in accordance with the FASB guidance on consolidation.

Revenue Recognition. Rental revenues for non-development real estate assets are recognized when earned
in accordance with the FASB guidance on accounting for leases, based on the terms of the lease at the time
of acquisition of the leased asset. Rental revenues for properties under construction commence upon
completion of construction of the leased asset and delivery of the leased asset to the tenant.

New Accounting Pronouncements. Refer to Note 1 to the December 31, 2010, Consolidated Financial
Statements.

Use of Estimates. Additional critical accounting policies of NNN include management’s estimates and
assumptions relating to the reporting of assets and liabilities, revenues and expenses and the disclosure of
contingent assets and liabilities to prepare the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America. Additional critical accounting
policies include management’s estimates of the useful lives used in calculating depreciation expense
relating to real estate assets, the recoverability of the carrying value of long-lived assets, including the
commercial mortgage residual interests, the recoverability of the income tax benefit, the collectibility of
receivables from tenants, including accrued rental income and capitalized overhead relating to development
projects. Actual results could differ from those estimates.

Results of Operations

Property Analysis – Investment Portfolio

General. The following table summarizes NNN’s Investment Portfolio as of December 31:

Investment Properties Owned:

Number
Total gross leasable area (square feet)

Investment Properties:

2010

2009

2008

1,195
12,972,000

1,015
11,373,000

1,005
11,251,000

Leased
Operated
Percent of Investment Properties – leased and operated
Weighted average remaining lease term (years)
Total gross leasable area (square feet) – leased and operated

1,147
11
97%
12
12,215,000

966
12
96%
12
10,508,000

972
-
97%
13
10,728,000

% of
Annual
Base Rent(1)

# of
Properties

2011
2012
2013
2014
2015
2016

1.5%
3.1%
4.4%
4.4%
4.5%
2.2%

18
35
40
42
72
19

Gross
Leasable
Area(2)

260,000
520,000
839,000
577,000
1,011,000
407,000

2017
2018
2019
2020
Thereafter

% of
Annual
Base
Rent(1)

3.9%
2.6%
4.0%
4.0%
65.4%

# of
Properties

28
24
41
83
745

Gross
Leasable
Area(2)

682,000
345,000
618,000
694,000
6,167,000

(1) Based on the annualized base rent for all leases in place as of December 31, 2010.
(2) Approximate square feet.

The following table summarizes the diversification of NNN’s Investment Portfolio based on the top 10 lines
of trade:

Lines of Trade

2010

2009

2008

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Convenience Stores
Restaurants – Full Service
Automotive Parts
Theaters
Automotive Service
Sporting Goods
Restaurants – Limited Service
Drug Stores
Books
Grocery
Other

23.7%
10.1%
7.8%
5.7%
5.3%
4.5%
4.1%
4.0%
3.8%
2.7%
28.3%

26.7%
9.2%
6.8%
6.3%
5.7%
3.2%
3.5%
4.1%
4.1%
2.9%
27.5%

25.7%
8.7%
5.1%
6.1%
8.9%
3.3%
3.3%
4.0%
4.0%
2.6%
28.3%

100.0%

(1) Based on annualized base rent for all leases in place as of December 31 of the respective year.

The following table shows the top 10 states in which NNN’s Investment Properties are located in as of
December 31, 2010:

State

1. Texas
2. Florida
3.
Illinois
4. North Carolina
5. Georgia
6.
Indiana
7. Ohio
8. Pennsylvania
9. Tennessee
10. Missouri

Other

# of
Properties

%
of Annual
Base Rent(1)

220
93
47
73
60
39
38
84
33
28
480

18.7%
10.0%
6.7%
6.2%
5.0%
4.4%
4.1%
3.9%
2.9%
2.9%
35.2%

1,195

100.0%

(1) Based on annualized base rent for all leases in

place as of December 31, 2010.

Property Acquisitions. The following table summarizes the Investment Property acquisitions for each of
the years ended December 31 (dollars in thousands):

Acquisitions:

Number of Investment Properties
Gross leasable area (square feet)

2010

2009

2008

194
1,700,000

8
290,000

109
868,000

Total dollars invested(1)

256,077

36,335

355,107

(1)

Includes dollars invested on projects under construction for each respective year.

Property Dispositions. The following table summarizes the Investment Properties sold by NNN for each of
the years ended December 31 (dollars in thousands):

Number of properties
Gross leasable area (square feet)
Net sales proceeds
Net gain

2010

14
100,000
15,980
1,134

$
$

2009

9
234,000
15,621
2,392

$
$

2008

19
290,000
59,796
9,980

$
$

NNN typically uses the proceeds from property sales either to pay down the outstanding indebtedness of
NNN’s revolving credit facility (the “Credit Facility”) or reinvest in real estate.

Property Analysis – Inventory Portfolio

General. The following table summarizes the number of properties held for sale in NNN’s Inventory
Portfolio as of December 31:

Completed Inventory Properties
Properties under construction
Land parcels

Total Inventory Properties

2010

2009

2008

10
-
7

13
-
6

24
1
7

NNN transferred 11 properties from the Inventory Portfolio to the Investment Portfolio in December 2009.

Property Acquisitions. The following table summarizes the property acquisitions and dollars invested in the
Inventory Portfolio for each of the years ended December 31 (dollars in thousands):

Number of properties acquired
Total dollars invested(1)

2010
-
493

2009
2
2,633

2008

7
29,539

(1)

Includes dollars invested in projects under construction or tenant improvements for each
respective year.

Property Dispositions. The following table summarizes the number of Inventory Properties sold and the
corresponding gain recognized from the disposition of real estate held for sale included in earnings from
continuing and discontinued operations for each of the years ended December 31 (dollars in thousands):

Continuing operations
Noncontrolling interest

Total continuing operations attributable to NNN

Discontinued operations
Noncontrolling interest

Total discontinued operations attributable to NNN

Revenue from Continuing Operations Analysis

2010

2009

2008

# of
Properties

Gain

# of
Properties

Gain

# of
Properties

Gain

641
(320)

321

300
(43)

257

37
(14)

558
-

558

21
(10)

12,644
(3,297)

9,347

578

581

$ 9,358

General. During the year ended December 31, 2010, NNN’s rental income increased primarily due to the
acquisition of Investment Properties (See “Results of Operations – Property Analysis – Investment Portfolio
– Property Acquisitions”). NNN anticipates increases in rental income will continue to come from
additional property acquisitions and increases in rents pursuant to lease terms.

The following summarizes NNN’s revenues from continuing operations (dollars in thousands):

2010

2009

2008

2010

Percent of Total
2009

2008

2010
Versus
2009
Percent
Increase
(Decrease)

2009
Versus
2008
Percent
Increase
(Decrease)

$ 215,132 $ 213,666 $ 209,541

93.9%

92.6%

92.3%

0.7%

2.0%

7,438

8,361

6,980

3.3%

3.6%

3.1%

(11.0)% 19.8%

3,026

4,535

5,807

1.3%

2.0%

2.6%

(33.3)%

(21.9)%

3,460

4,252

4,636

1.5%

1.8%

2.0%

(18.6)%

(8.3)%

Rental Income(1)
Real estate expense

reimbursement from
tenants

Interest and other income

from real estate
transactions
Interest income on

commercial mortgage
residual interests

Total revenues from

continuing operations

$ 229,056 $ 230,814 $ 226,964

100.0%

(0.8)%

1.7%

(1)

Includes rental income from operating leases, earned income from direct financing leases and percentage rent from continuing
operations (“Rental Income”).

Revenue from Operations by Source of Income. NNN has identified two primary operating segments, and
thus, sources of revenue: (i) earnings from NNN’s Investment Assets, and (ii) earnings from NNN’s
Inventory Assets. NNN revenues from continuing operations come primarily from Investment Assets. The
revenues generated from NNN’s Inventory Assets are typically classified as discontinued operations.

Comparison of Year Ended December 31, 2010 to Year Ended December 31, 2009.

Rental Income. Rental Income remained relatively stable in amount and as a percent of the total revenues
from continuing operations for the year ended December 31, 2010 as compared to 2009.

Real Estate Expense Reimbursement from Tenants. Real estate expense reimbursements from tenants
decreased for the year ended December 31, 2010, as compared to 2009 but remained fairly consistent as a
percentage of total revenues from continuing operations. The decrease is primarily attributable to the
increase in reimbursed tax assessments in 2009 as compared to 2010.

Interest and Other Income from Real Estate Transactions. Interest and other income from real estate
transactions decreased for the year ended December 31, 2010, as compared to 2009, primarily due to a lower
weighted average principal balance and a lower weighted average interest rate on NNN’s mortgages
receivable and structured finance investments during the year ended December 31, 2010. For the years ended
December 31, 2010 and 2009, the weighted average outstanding principal balance and interest rates on NNN’s
mortgages receivable and structured finance investments was $31,925,000 at 9.04% and $38,968,000 at
9.50%, respectively. The decrease was also due to two defaulted loans at December 31, 2010.

Interest Income on Commercial Mortgage Residual Interests. Interest income on commercial mortgage
residual interests (“Residuals”) decreased for the year ended December 31, 2010, as compared to
December 31, 2009, but remained fairly stable as a percent of total revenue from continuing operations. The
decrease in interest income on Residuals is primarily the result of declining loan balances from
prepayments and scheduled loan amortization.

Comparison of Year Ended December 31, 2009 to Year Ended December 31, 2008.

Rental Income. Rental Income increased for the year ended December 31, 2009, as compared to 2008, due
to a full year of Rental Income from the 109 Investment Properties with an aggregate gross leasable area of
868,000 square feet which were acquired during 2008. Additionally, eight Investment Properties were
acquired in 2009 with an aggregate gross leasable area of 290,000 square feet. In addition, NNN recorded
$5,072,000 as compared to $2,671,000 in lease termination fees and rent settlement fees during the years
ended December 31, 2009 and 2008, respectively.

Real Estate Expense Reimbursement from Tenants. Real estate expense reimbursements from tenants
increased for the year ended December 31, 2009, as compared to 2008. The increase is attributable to the
reimbursements from certain properties acquired in 2008 as well as reimbursements resulting from the
re-leasing of existing vacancies.

Interest and Other Income from Real Estate Transactions. Interest and other income from real estate
transactions decreased for the year ended December 31, 2009, as compared to 2008, primarily due to a
lower weighted average principal balance on NNN’s mortgages receivable and structured finance
investments during the year ended December 31, 2009. For the years ended December 31, 2009 and 2008,
the weighted average outstanding principal balance on NNN’s mortgages receivable and structured finance
investments was $38,968,000 and $57,475,000, respectively.

Interest Income on Commercial Mortgage Residual Interests. Interest income on Residuals decreased for
the year ended December 31, 2009, as compared to December 31, 2008 but remained stable as a percent of
total revenue from continuing operations. The decrease in interest income on Residuals is primarily the

result of the increase in the loan delinquencies and asset amortization, which is partially offset by a decrease
in loan prepayments.

Analysis of Expenses from Continuing Operations

General. During 2010, operating expenses from continuing operations decreased primarily due to lower
impairment losses and other charges recorded during the year ended December 31, 2010, as compared to
the same period in 2009. The following summarizes NNN’s expenses from continuing operations (dollars in
thousands):

General and administrative
Real estate
Depreciation and amortization
Impairment losses and other charges
Impairment – commercial mortgage residual interests valuation
Restructuring costs

Total operating expenses

Interest and other income
Interest expense
Loss on interest rate hedge

Total other expenses (revenues)

Percentage of Total
Operating Expenses
2009

2008

2010

2009

2008

22,778
13,534
48,328
7,458
3,995
-

21,773
13,642
46,539
36,080
498
731

96,093

$ 119,263

(1,513)
65,179
-

(1,371)
62,151
-

24,875
10,152
43,668
1,234
758
-

80,687

(3,748)
63,964
804

63,666

60,780

61,020

Percentage of
Revenues from
Continuing Operations
2008
2009
2010

2010
Versus
2009
Percent
Increase
(Decrease)

2009
Versus
2008
Percent
Increase
(Decrease)

General and administrative
Real estate
Depreciation and amortization
Impairment losses and other charges
Impairment – commercial mortgage residual

interests valuation adjustment

Restructuring costs

23.7% 18.3% 30.8% 9.9% 9.4% 11.0%
14.1% 11.4% 12.6% 5.9% 5.9% 4.5%
50.2% 39.0% 54.1% 21.1% 20.2% 19.2%
1.5% 3.3% 15.6% 0.5%
7.8% 30.3%

4.6%
(0.8)%
3.8%

(12.5)%
34.4%
6.6%
(79.3)% 2,823.8%

4.2%
-

0.4%
0.6%

1.0% 1.7% 0.2% 0.3%
-

0.3%

702.2%
(100.0)%

(34.3)%

N/C (1)

Total operating expenses

100.0% 100.0% 100.0% 41.9% 51.6% 35.5%

(19.4)%

47.8%

Interest and other income
Interest expense
Loss on interest rate hedge

(2.4)% (2.3)% (6.1)% (0.7)% (0.6)% (1.7)%
102.4% 102.3% 104.8% 28.5% 26.9% 28.2%
0.4%

1.3%

Total other expenses (revenues)

100.0% 100.0% 100.0% 27.8% 26.3% 26.9%

(1) Not calculable (“N/C”)

10.4%
4.9%
-

4.7%

(63.4)%
(2.8)%
(100.0)%

(0.4)%

Comparison of Year Ended December 31, 2010 to Year Ended December 31, 2009.

General and Administrative Expenses. General and administrative expenses increased for the year ended
December 31, 2010, as compared to the same period in 2009 and increased both as a percentage of total
operating expenses and as a percentage of revenues from continuing operations. The increase in general and
administrative expenses for the year ended December 31, 2010, is primarily attributable to an increase in
noncash long-term incentive compensation. This increase is partially offset by a decrease in lost pursuit
costs and capitalized overhead.

Real Estate. Real estate expenses increased as a percentage of total operating expenses, but remained stable
as a percentage of revenues from continuing operations for the year ended December 31, 2010, as compared
to the same period in 2009.

Depreciation and Amortization. Depreciation and amortization expenses increased as a percentage of total
operating expenses but remained fairly stable as a percentage of revenues from continuing operations for
the year ended December 31, 2010, as compared to the year ended December 31, 2009. The dollar increase
is primarily a result of an increase in the amortization of loan costs associated with a credit agreement NNN
entered into in November 2009.

Impairment Losses and Other Charges. Based upon the events or changes in certain circumstances,
management periodically assesses its Investment Properties for possible impairment indicating that the
carrying value of the asset, including accrued rental income, may not be recoverable through operations.
Events or circumstances that may occur include changes in real estate market conditions, the ability of
NNN to re-lease properties that are currently vacant or become vacant, and the ability to sell properties at
an attractive return. Generally, NNN determines a possible impairment by comparing the estimated future
cash flows to the current net book value. Impairments are measured as the amount by which the current
book value of the asset exceeds the fair value of the asset. The decrease in impairment losses and other
charges is primarily due to real estate impairments of $28,884,000 recorded in 2009, as compared to zero in
2010.

Impairment – Commercial Mortgage Residual Interests Valuation. In connection with the independent
valuations of the Residuals’ fair value, during the years ended December 31, 2010 and 2009, NNN recorded
an other than temporary valuation adjustment of $3,995,000 and $498,000, respectively, as a reduction of
earnings from operations.

Restructuring Costs. During the year ended December 31, 2009, NNN recorded restructuring costs of
$731,000 in connection with a workforce reduction. No such costs were incurred during 2010.

Interest Expense. Interest expense increased for the year ended December 31, 2010, as compared to the
same period in 2009, and increased as a percentage of revenues from continuing operations but remained
relatively stable as a percentage of total operating expenses.

The following represents the primary changes in debt that have impacted interest expense:

(i)

(ii)

the repurchase of $11,000,000 of convertible notes payable due June 2028 with an effective
interest rate of 7.192% in 2009,

the repurchase of $8,800,000 of convertible notes payable due September 2026 with an
effective interest rate of 5.840% in 2009,

(iii)

the payoff of the $20,000,000 8.5% notes payable in September 2010,

(iv)

(v)

(vi)

the increase of $7,037,000 in the weighted average debt outstanding on the Credit Facility for
year ended December 31, 2010, as compared to the same period in 2009,

the increase in the weighted average interest rate on the Credit Facility from 1.19% during the
year ended December 31, 2009, to 3.80% during the year ended December 31, 2010,

the decrease of $626,000 in capitalized interest expense for the year ended December 31, 2010,
as compared to the same period in 2009, and

(vii)

the increase of $850,000 in amortization of loan commitment fees related to the Credit Facility
entered into November 2009.

Comparison of Year End December 31, 2009 to Year Ended December 31, 2008.

General and Administrative Expenses. General and administrative expenses decreased for the year ended
December 31, 2009, as compared to the same period in 2008 and decreased both as a percentage of total
operating expenses and as a percentage of revenues from continuing operations. The decrease in general
and administrative expenses for the year ended December 31, 2009, is primarily attributable to a decrease in
compensation of personnel and a decrease in lost pursuit costs.

Real Estate. Real estate expenses remained fairly stable as a percentage of total operating expenses, but
increased as a percentage of revenues from continuing operations for the year ended December 31, 2009, as
compared to the same period in 2008. The increase in real estate expenses for the year ended December 31,
2009, is primarily attributable to an increase in tenant reimbursable real estate expenses from 2008
acquisitions as well as an increase in expenses related to un-leased properties.

Depreciation and Amortization. Depreciation and amortization expenses decreased as a percentage of total
operating expenses and increased as a percentage of revenues from continuing operations for the year ended
December 31, 2009, as compared to the year ended December 31, 2008. The dollar increase is primarily a
result of depreciation recognized on the 109 Investment Properties with an aggregate gross leasable area of
868,000 square feet acquired in 2008. This increase is partially offset by the additional amortization in
connection with the termination of certain leases during 2008.

Impairment Losses and Other Charges. Based upon the events or changes in certain circumstances,
management periodically assesses its Investment Properties for possible impairment indicating that the
carrying value of the asset, including accrued rental income, may not be recoverable through operations.
Events or circumstances that may occur include changes in real estate market conditions, the ability of
NNN to re-lease properties that are currently vacant or become vacant, and the ability to sell properties at
an attractive return. Generally, NNN calculates a possible impairment by comparing the estimated future
cash flows to the current net book value. Impairments are measured as the amount by which the current
book value of the asset exceeds the fair value of the asset. As a result of the Company’s review of long-
lived assets for impairments, for the years ended December 31, 2009, and 2008, NNN recorded real estate
impairments totaling $28,884,000 and $1,234,000, respectively. In addition, during the year ended
December 31, 2009, NNN recognized a loss on a note receivable foreclosure of $7,196,000.

Impairment – Commercial Mortgage Residual Interests Valuation. In connection with the independent
valuations of the Residuals’ fair value, during the years ended December 31, 2009 and 2008, NNN recorded
an other than temporary valuation adjustment of $498,000 and $758,000 respectively, as a reduction of
earnings from operations.

Restructuring Costs. During the year ended December 31, 2009, NNN recorded restructuring costs of
$731,000 in connection with a workforce reduction. No such costs were incurred during 2008.

Interest Expense. Interest expense decreased for the year ended December 31, 2009, as compared to the
same period in 2008, and decreased as a percentage of total operating expenses and as a percentage of
revenues from continuing operations. The decrease in interest expense is primarily attributable to a decrease
of $99,907,000 in weighted average long-term debt outstanding.

The following represents the primary changes in debt that have impacted interest expense:

(i)

(ii)

(iii)

repurchase of $11,000,000 of convertible notes payable due June 2028 with an effective
interest rate of 7.192% in 2009,

repurchase of $8,800,000 of convertible notes payable due September 2026 with an effective
interest rate of 5.840% in 2009,

issuance of $234,035,000 of convertible notes payable due June 2028, with an effective interest
rate of 7.192% in March 2008,

(iv)

payoff of the $100,000,000 7.125% notes payable in March 2008,

(v)

payoff of the $12,000,000 10.00% secured note payable in February 2008,

(vi)

(vii)

the decrease of $78,860,000 in the weighted average debt outstanding on the Credit Facility for
year ended December 31, 2009, as compared to 2008, and

the decrease in weighted average interest rate on the Credit Facility from 3.83% during the year
ended December 31, 2008, to 1.19% during the year ended December 31, 2009.

Discontinued Operations

Earnings (Loss)

NNN classified as discontinued operations the revenues and expenses related to its Investment Properties
that were sold, its leasehold interests that expired or were terminated and any Investment Properties that
were held for sale at December 31, 2010. NNN also classified as discontinued operations the revenues and
expenses of its Inventory Properties that generated rental revenues. NNN records discontinued operations
by NNN’s identified segments: (i) Investment Assets, and (ii) Inventory Assets. The following table
summarizes the earnings from discontinued operations for the years ended December 31 (dollars in
thousands):

# of Sold
Properties

2010

Gain

Earnings/
(Loss)

# of Sold
Properties

2009

Gain

Earnings/
(Loss)

# of Sold
Properties

2008

Gain

Earnings/
(Loss)

Investment Assets
Inventory Assets
Noncontrolling interests

14 $ 1,134 $ 1,859
292
300
2
11
-
-

9 $ 2,392 $ 1,776
(1,506)
558
2
(166)
-
-

19 $
24
-

9,980 $ 12,914
9,199
(2,722)

12,644
-

16 $ 1,434 $ 2,162

11 $ 2,950 $

104

43 $ 22,624 $ 19,391

NNN periodically sells Investment Properties and may reinvest the sales proceeds to purchase additional
properties. NNN evaluates its ability to pay dividends to stockholders by considering the combined effect of
income from continuing and discontinued operations.

Impairment Losses and Other Charges. NNN periodically assesses its real estate for possible impairment
whenever certain events or changes in circumstances indicate that the carrying amount of the asset,
including accrued rental income, may not be recoverable through operations. Events or circumstances that
may occur include significant changes in real estate market conditions and the ability of NNN to re-lease or
sell properties that are vacant or become vacant. Generally, NNN calculates a possible impairment by
comparing the estimated future cash flows to the current net book value. Impairments are measured as the
amount by which the current book value of the asset exceeds the fair value of the asset. During the years
ended December 31, 2009, and 2008, NNN recognized real estate impairments on discontinued operations
of $5,630,000, and $4,426,000, respectively. During the year ended December 31, 2010, NNN did not
recognize any real estate impairments on discontinued operations.

Impact of Inflation

NNN’s leases typically contain provisions to mitigate the adverse impact of inflation on NNN’s results of
operations. Tenant leases generally provide for limited increases in rent as a result of fixed increases,
increases in the consumer price index, and/or, to a lesser extent, increases in the tenant’s sales volume.
During times when inflation is greater than increases in rent, rent increases may not keep up with the rate of
inflation.

The Investment Properties are leased to tenants under long-term, net leases which typically require the
tenant to pay certain operating expenses of a property, thus, NNN’s exposure to inflation is reduced.
Inflation may have an adverse impact on NNN’s tenants.

Liquidity

General. NNN’s demand for funds has been and will continue to be primarily for (i) payment of operating
expenses and cash dividends; (ii) property acquisitions and development; (iii) origination of mortgages and
notes receivable; (iv) capital expenditures; (v) payment of principal and interest on its outstanding
indebtedness; and (vi) other investments.

NNN expects to meet these requirements (other than amounts required for additional property investments,
mortgages and notes receivable) through cash provided from operations and NNN’s Credit Facility. NNN
utilizes the Credit Facility to meet its short-term working capital requirements. As of December 31, 2010,
$161,000,000 was outstanding and $239,000,000 was available for future borrowings under the Credit
Facility, excluding undrawn letters of credit totaling $647,000. NNN anticipates that any additional
investments in properties, mortgages and notes receivables during the next 12 months will be funded by the
Credit Facility, cash provided from operations, the issuance of long-term debt or the issuance of common or
preferred equity or other instruments convertible into or exchangeable for common or preferred equity.
However, there can be no assurance that additional financing or capital will be available, or that the terms
will be acceptable or advantageous to NNN.

Cash and Cash Equivalents. The table below summarizes NNN’s cash flows for each of the years ended
December 31 (in thousands):

Cash and cash equivalents:

Provided by operating activities
Used in investing activities
Provided by (used in) financing activities

Increase (decrease)
Net cash at beginning of period

Net cash at end of period

2010

2009

2008

187,914
(220,260)
19,169

149,502
(28,063)
(108,840)

237,459
(256,304)
(6,028)

(13,177)
15,225

12,599
2,626

(24,873)
27,499

2,048

15,225

2,626

Cash provided by operating activities represents cash received primarily from rental income from tenants,
proceeds from the disposition of Inventory Properties and interest income less cash used for general and
administrative expenses, interest expense and acquisition of its Inventory Properties. NNN’s cash flow from
operating activities, net of cash used in and provided by the acquisition and disposition of its Inventory
Properties, has been sufficient to pay the distributions for each period presented. NNN uses proceeds from
its Credit Facility to fund the acquisition of its Inventory Properties. The change in cash provided by
operations for the years ended December 31, 2010, 2009 and 2008, is primarily the result of changes in
revenues and expenses as discussed in “Results of Operations.” Cash generated from operations is expected
to fluctuate in the future.

Changes in cash for investing activities are primarily attributable to the acquisitions and dispositions of
Investment Properties.

NNN’s financing activities for the year ended December 31, 2010, included the following significant
transactions:

•

$125,391,000 in dividends paid to common stockholders,

$6,785,000 in dividends paid to holders of the depositary shares of NNN’s Series C Preferred
Stock,

•

$17,631,000 in net proceeds from the issuance of 793,759 shares of common stock in
connection with the Dividend Reinvestment and Stock Purchase Plan (“DRIP”), and

$161,000,000 in net proceeds from NNN’s Credit Facility,

$6,453,000 in repayments of mortgages, and

$20,000,000 in repayment of notes payable.

Financing Strategy. NNN’s financing objective is to manage its capital structure effectively in order to
provide sufficient capital to execute its operating strategy while servicing its debt requirements and
providing value to NNN’s stockholders. NNN generally utilizes debt and equity security offerings, bank
borrowings, the sale of properties, and to a lesser extent, internally generated funds to meet its capital
needs.

NNN typically funds its short-term liquidity requirements including investments in additional Investment
Properties with cash from its Credit Facility. As of December 31, 2010, $161,000,000 was outstanding and
$239,000,000 was available for future borrowings under the Credit Facility, excluding undrawn letters of
credit totaling $647,000.

Contractual Obligations and Commercial Commitments. The information in the following table
summarizes NNN’s contractual obligations and commercial commitments outstanding as of December 31,
2010. The table presents principal cash flows by year-end of the expected maturity for debt obligations and
commercial commitments outstanding as of December 31, 2010.

Total

2011

Expected Maturity Date (dollars in thousands)
2013

2014

2012

2015

Thereafter

Long-term debt(1)
Credit Facility
Operating lease

Total contractual cash

obligations(2)

$ 986,004
161,000
3,666

$ 139,798(3) $

-
917

69,290
161,000
945

$ 223,898(3) $ 150,881
-
831

-
973

$ 150,917
-
-

$ 251,220
-
-

$ 1,150,670

$ 140,715

$ 231,235

$ 224,871

$ 151,712

$ 150,917

$ 251,220

(1)

(2)

Includes amounts outstanding under the mortgages payable, convertible notes payable and notes payable and excludes
unamortized note discounts.
Excludes $7,342 of accrued interest payable.

(3) Maturity dates are based on put option dates under NNN’s convertible notes.

In addition to the contractual obligations outlined above, in connection with the development of 28
Investment Properties, NNN has agreed to fund construction commitments (including construction, land
costs and tenant improvements) of $68,746,000. As of December 31, 2010, NNN had funded $50,196,000
of this commitment, with $18,550,000 remaining to be funded. As of December 31, 2010, NNN did not
have any funding commitments relating to the development of Inventory Properties.

As of December 31, 2010, NNN had outstanding letters of credit totaling $647,000 under its Credit Facility.

As of December 31, 2010, NNN did not have any other material contractual cash obligations, such as
purchase obligations, financing lease obligations or other long-term liabilities other than those reflected in
the table. In addition to items reflected in the table, NNN has issued preferred stock with cumulative
preferential cash distributions, as described below under “Dividends.”

Management anticipates satisfying these obligations with a combination of NNN’s cash provided from
operations, current capital resources on hand, its Credit Facility, debt or equity financings and asset
dispositions.

Generally the Investment Properties are leased under long-term net leases. Therefore, management
anticipates that capital demands to meet obligations with respect to these Investment Properties will be
modest for the foreseeable future and can be met with funds from operations and working capital. Certain of
NNN’s Investment Properties are subject to leases under which NNN retains responsibility for certain costs
and expenses associated with the Investment Property. Management anticipates the costs associated with
NNN’s vacant Investment Properties or those Investment Properties that become vacant will also be met
with funds from operations and working capital. NNN may be required to borrow under its Credit Facility
or use other sources of capital in the event of unforeseen significant capital expenditures.

The lost revenues and increased property expenses resulting from vacant properties or uncollectibility of
lease revenues could have a material adverse effect on the liquidity and results of operations if NNN is
unable to release the Investment Properties at comparable rental rates and in a timely manner. As of
December 31, 2010, NNN owned 37 vacant, un-leased Investment Properties which accounted for
approximately three percent of total Investment Properties held in NNN’s Investment Portfolio.
Additionally, as of January 31, 2011, approximately one percent of the total gross leasable area of NNN’s
Investment Portfolio was leased to four tenants that filed a voluntary petition for bankruptcy under Chapter
11 of the U.S. Bankruptcy Code. As a result, these tenants have the right to reject or affirm their leases with
NNN.

In February 2011, one of NNN’s tenants, Borders Group, Inc. (“Borders”), which leased five Investment
Properties from NNN, filed a petition of reorganization under Chapter 11 of the U.S. Bankruptcy Code. In
February 2011, Borders moved to reject three leases with NNN and retains the right to reject the remaining
two leases with NNN.

In February 2011, one of NNN’s tenants, Robb & Stucky, LTD, which leases 1 Investment Property from
NNN, filed a petition of reorganization under Chapter 11 of the U.S. Bankruptcy Code and retains the right
to reject its lease with NNN.

On April 20, 2009, one of NNN’s tenants, Titlemax Holdings, LLC and its affiliated companies
(“Titlemax”), which leased 30 Investment Properties from NNN, filed a petition of reorganization under
Chapter 11 of the U.S. Bankruptcy Code. In January 2010, Titlemax assumed all of its leases with NNN. In
April 2010, Titlemax’s plan of reorganization was approved by the U.S. Bankruptcy Court and Titlemax
exited bankruptcy. Titlemax’s Chapter 11 filing did not have an effect on NNN’s operations or financial
position.

In June 2010, one of NNN’s tenants, Majestic Liquor Stores, Inc. (“Majestic”), which leased 13 Investment
Properties from NNN, filed a petition of reorganization under Chapter 11 of the U.S. Bankruptcy Code. In
addition, in June 2010, the principals of Majestic, (the “Majestic Principals”), which are the borrowers on a
loan from NNN secured by one Majestic property, filed a petition of reorganization under Chapter 11 of the
U.S. Bankruptcy Code. In June 2010, Majestic elected to reject the leases of four properties owned by NNN
and the one property securing the loan to the Majestic Principals. In November 2010 NNN foreclosed on
the property securing the loan to the Majestic Principals. In addition, during the year ended December 31,
2010, NNN recorded a $5,625,000 charge in connection with the loan to the Majestic Principals. In
December 2010, Majestic assumed all 9 of the remaining leases with NNN. Also in December 2010

Majestic and Majestic Principals plan of reorganization was approved by the U.S. Bankruptcy court and
Majestic and the Majestic Principals exited bankruptcy.

Dividends. NNN has made an election to be taxed as a REIT under Sections 856 through 860 of the Code,
as amended, and related regulations and intends to continue to operate so as to remain qualified as a REIT
for federal income tax purposes. NNN generally will not be subject to federal income tax on income that it
distributes to its stockholders, provided that it distributes 100 percent of its REIT taxable income and meets
certain other requirements for qualifying as a REIT. If NNN fails to qualify as a REIT in any taxable year, it
will be subject to federal income tax on its taxable income at regular corporate rates and will not be
permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the
year during which qualification is lost. Such an event could materially adversely affect NNN’s income and
ability to pay dividends.

One of NNN’s primary objectives, consistent with its policy of retaining sufficient cash for reserves and
working capital purposes and maintaining its status as a REIT, is to distribute a substantial portion of its
funds available from operations to its stockholders in the form of dividends. During the years ended
December 31, 2010, 2009 and 2008, NNN declared and paid dividends to its common stockholders of
$125,391,000, $120,256,000 and $110,107,000, respectively, or $1.51, $1.50 and $1.48 per share,
respectively, of common stock.

The following presents the characterizations for tax purposes of such common stock dividends for the years
ended December 31:

2010

2009

2008

Ordinary dividends
Qualified dividends
Capital gain
Unrecaptured Section 1250

Gain

Nontaxable distributions

1.072446
0.081661
0.000861

0.000498
0.354534

71.0229% $
5.4080%
0.0570%

0.0330%
23.4791%

1.495182
-
0.003051

0.001767
-

99.6788% $

-
0.2034%

1.480000
-
-

100.0000%
-
-

0.1178%
-

-
-

1.510000

100.0000% $

1.500000

100.0000% $

1.480000

100.0000%

In February 2011, NNN paid dividends to its common stockholders of $31,678,000, or $0.38 per share of
common stock.

Holders of NNN’s preferred stock issuance are entitled to receive, when and as authorized by the Board of
Directors, cumulative preferential cash distributions based on the stated rate and liquidation preference per
annum.

NNN declared and paid dividends to its Series C Preferred stockholders of $6,785,000 or $1.84375 per
depository share during each of the years ended December 31, 2010, 2009 and 2008. The Series C Preferred
Stock has no maturity date and will remain outstanding unless redeemed.

The following presents the characterizations for tax purposes of such preferred stock dividends for the years
ended December 31:

2010

2009

2008

Ordinary dividends
Qualified dividends
Capital gain
Unrecaptured Section 1250

Gain

1.703170
0.140580
-

92.3753% $
7.6247%
-

1.837828
-
0.003750

99.6788% $

-
0.2034%

1.843750
-
-

100.0000%
-
-

0.002172

0.1178%

1.843750

100.0000% $

1.843750

100.0000% $

1.843750

100.0000%

Capital Resources

Generally, cash needs for property acquisitions, mortgages and notes receivable investments, debt
payments, dividends, capital expenditures, development and other investments have been funded by equity
and debt offerings, bank borrowings, the sale of properties and, to a lesser extent, by internally generated
funds. Cash needs for other items have been met from operations. If available, future sources of capital
include proceeds from the public or private offering of NNN’s debt or equity securities, secured or
unsecured borrowings from banks or other lenders, proceeds from the sale of properties, as well as
undistributed funds from operations.

Debt

The following is a summary of NNN’s total outstanding debt as of December 31 (dollars in thousands):

Line of credit payable
Mortgages payable
Notes payable – convertible
Notes payable

2010

161,000
24,269
349,534
598,882

Percentage of
Total

14.2%
2.2%
30.8%
52.8%

2009

-
25,290
343,380
618,676

Percentage of
Total

-
2.6%
34.8%
62.6%

Total outstanding debt

1,133,685

100.0%

987,346

100.0%

Indebtedness. NNN expects to use indebtedness primarily for property acquisitions and development of
single-tenant retail properties, either directly or through investment interests, and mortgages and notes
receivable.

Line of Credit Payable. NNN’s $400,000,000 revolving Credit Facility had a weighted average
outstanding balance of $17,861,000 and a weighted average interest rate of 3.8% during the year ended
December 31, 2010. In November 2009, NNN entered into a credit agreement for a new $400,000,000
credit facility, replacing the former revolving credit facility (as the context requires, the previous and new
revolving credit facility, the “Credit Facility”). The Credit Facility matures November 2012, with an option
to extend maturity to November 2013. The Credit Facility bears interest at LIBOR plus 280 basis points
with a 1.0% LIBOR floor; however, such interest rate may change pursuant to a tiered interest rate structure
based on NNN’s debt credit rating. The Credit Facility also includes an accordion feature for NNN to
increase, at its option, the facility size up to $500,000,000. As of December 31, 2010, $161,000,000 was
outstanding, and $239,000,000 was available for future borrowings under the Credit Facility, excluding
undrawn letters of credit totaling $647,000.

In accordance with the terms of the Credit Facility, NNN is required to meet certain restrictive financial
covenants, which, among other things, require NNN to maintain certain (i) leverage ratios, (ii) debt service
coverage, (iii) cash flow coverage, and (iv) investment limitations. At December 31, 2010, NNN was in
compliance with those covenants. In the event that NNN violates any of these restrictive financial
covenants, it could cause the indebtedness under the Credit Facility to be accelerated and may impair
NNN’s access to the debt and equity markets and limit NNN’s ability to pay dividends to its common and
preferred stockholders, each of which would likely have a material adverse impact on NNN’s financial
condition and results of operations.

Mortgages Payable. The following table outlines the mortgages payable included in NNN’s consolidated
financial statements (dollars in thousands):

Entered

Balance

Interest
Rate

Maturity(3)

Carrying
Value of
Encumbered
Asset(s)(1)

Outstanding Principal
Balance at December 31,

2010

2009

December 2001(2)
December 2001(2)
December 2001(2)
June 2002
February 2004(2)
March 2005(2)

623
698
485
21,000
6,952
1,015

9.00% April 2014
9.00% April 2019
9.00% April 2019
6.90% July 2012
6.90% January 2017
8.14% September 2016

734
1,186
1,152
24,051
11,522
1,322

215
364
187
18,841
4,038
624

39,967

24,269

267
392
201
19,170
4,554
706

25,290

(1)

Each loan is secured by a first mortgage lien on certain of NNN’s properties. The carrying values of the assets are as of December 31,
2010.

(2) Date entered represents the date that NNN acquired real estate subject to a mortgage securing a loan. The corresponding original

principal balance represents the outstanding principal balance at the time of acquisition.
(3) Monthly payments include interest and principal, if any; the balance is due at maturity.

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
Net Proceeds
Stated Interest Rate(8)
Debt Issuance Costs
Earliest Conversion Date
Earliest Put Option Date
Maturity Date

Original Principal
Repurchases

Outstanding principal balance at December 31, 2010

September 2006
168,650
3.950%

3,850(3) $

September 2025
September 2011
September 2026

172,500
(33,800)

138,700

March 2008
228,576
5.125%

5,459(7)

June 2027
June 2013
June 2028

234,035
(11,000)

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.
Includes $463 of note costs which were written off in connection with the repurchase of $33,800 of the 2026 Notes.
The conversion rate per $1 principal amount was 41.9803 shares of NNN’s common stock, which is equivalent to a
conversion price of $23.8207 per share of common stock.
The conversion rate per $1 principal amount was 39.3620 shares of NNN’s common stock, which is equivalent to a
conversion price of $25.4052 per share of common stock.

(3)

(4)

(5)

(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 new accounting guidance on convertible debt securities, the effective interest rate for the

2026 Notes and the 2028 Notes are 5.840% and 7.192%, respectively.

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 debt and equity balances are summarized in the table below as of
December 31, (dollars in thousands):

2010

2009

Carrying value of equity component
Principal amount of convertible debt
Remaining unamortized debt discount
Net carrying value of convertible debt

(33,873) $
361,735
(12,201)
315,661

(33,873)
361,735
(18,355)
309,507

As of December 31, 2010, the remaining amortization periods for the debt discount were approximately
nine months and 18 months for the 2026 Notes and the 2028 Notes, respectively.

The adjusted effective interest rates for the liability components of the 2026 Notes and the 2028 Notes were
5.840% and 7.192%, respectively. The Company recorded noncash interest-related charges of $6,154,000,
$5,809,000 and $5,481,000 for the years ended December 31, 2010, 2009 and 2008, respectively. The
Company recorded contractual interest expense of $16,909,000, $17,046,000 and $16,548,000 for the years
ended December 31, 2010, 2009 and 2008, respectively, relating to the 2026 Notes and 2028 Notes.

The if-converted values that exceed the principal amount as of December 31, 2010, are $15,601,000 and
$9,611,000 for the 2026 Notes and the 2028 Notes, respectively. As of December 31, 2009, the if-converted
amount did not exceed the value of the principal amount.

Notes Payable. Each of NNN’s outstanding series of non-convertible notes are summarized in the table
below (dollars in thousands):

Notes

2012(1)
2014(1)(2)(5)
2015(1)
2017(1)(6)

Issue Date

June 2002
June 2004
November 2005
September 2007

Principal Discount(3)
287
$ 50,000
440
150,000
390
150,000
877
250,000

Net
Price
$ 49,713
149,560
149,610
249,123

Stated
Rate
7.750%
6.250%
6.150%
6.875%

Maturity
Effective
Rate(4)
Date
7.833% June 2012
5.910% June 2014
6.185% December 2015
6.924% October 2017

(1) The proceeds from the note issuance were used to pay down outstanding indebtedness of NNN’s Credit Facility.
(2) The proceeds from the note issuance were used to repay the obligation of the 2004 Notes.
(3) The note discounts are amortized to interest expense over the respective term of each debt obligation using the effective interest

method.
Includes the effects of the discount, treasury lock gain and swap gain (as applicable).

(4)
(5) NNN entered into a forward starting interest rate swap agreement which fixed a swap rate of 4.61% on a notional amount of

$94,000. Upon issuance of the 2014 Notes, NNN terminated the forward starting interest rate swap agreement resulting in a gain of
$4,148. The gain has been deferred and is being amortized as an adjustment to interest expense over the term of the 2014 Notes
using the effective interest method.

(6) NNN entered into an interest rate hedge with a notional amount of $100,000. Upon issuance of the 2017 Notes, NNN terminated the
interest rate hedge agreement resulting in a liability of $3,260, of which $3,228 was recorded to other comprehensive income. The
liability has been deferred and is being amortized as an adjustment to interest expense over the term of the 2017 Notes using the
effective interest method.

Each series of notes represent senior, unsecured obligations of NNN and are subordinated to all secured
indebtedness of NNN. The notes are 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 the redemption date, and (ii) the make-whole amount, if any, as defined in the
applicable supplemental indenture relating to the notes.

In connection with the note and convertible note offerings, NNN incurred debt issuance costs totaling
$5,226,000 consisting primarily of underwriting discounts and commissions, legal and accounting fees,
rating agency fees and printing expenses. Debt issuance costs for all note issuances have been deferred and
are being amortized over the term of the respective notes using the effective interest method.

In accordance with the terms of the indentures, pursuant to which NNN’s notes and convertible notes have
been issued, NNN is required to meet certain restrictive financial covenants, which, among other things,
require NNN to maintain (i) certain leverage ratios, and (ii) certain interest coverage. At December 31,
2010, NNN was in compliance with those covenants.

In September 2010, NNN repaid the 8.500% $20,000,000 notes that were due in September 2010.

Debt and Equity Securities

NNN has used, and expects to use in the future, issuances of debt and equity securities primarily to pay
down its outstanding indebtedness and to finance investment acquisitions. NNN has maintained investment
grade debt ratings from Standard and Poor’s, Moody’s Investor Service and Fitch Ratings on its senior,
unsecured debt since 1998. In June 2008, NNN’s debt rating was upgraded by Moody’s Investor Service. In
February 2009, NNN filed a shelf registration statement with the Securities and Exchange Commission (the
“Commission”) which was automatically effective and permits the issuance by NNN of an indeterminate
amount of debt and equity securities.

A description of NNN’s outstanding series of publicly held notes is found under “Debt – Notes Payable –
Convertible” and “Debt – Notes Payable” above.

7.375% Series C Cumulative Redeemable Preferred Stock. In October 2006, NNN issued 3,680,000
depositary shares, each representing 1/100th of a share of 7.375% Series C Cumulative Redeemable
Preferred Stock (“Series C Preferred Stock”), and received gross proceeds of $92,000,000. In connection
with this offering, NNN incurred stock issuance costs of approximately $3,098,000, consisting primarily of
underwriting commissions and fees, legal and accounting fees and printing expenses.

Holders of the depositary shares are entitled to receive, when and as authorized by the Board of Directors,
cumulative preferential cash dividends at the rate of 7.375% of the $25.00 liquidation preference per
depositary share per annum (equivalent to a fixed annual amount of $1.84375 per depositary share). The
Series C Preferred Stock underlying the depositary shares ranks senior to NNN’s common stock with
respect to dividend rights and rights upon liquidation, dissolution or winding up of NNN. The Series C
Preferred Stock has no maturity date and will remain outstanding unless redeemed. NNN may redeem the
Series C Preferred Stock underlying the depositary shares on or after October 12, 2011, for cash, at a
redemption price of $2,500.00 per share (or $25.00 per depositary share), plus all accumulated, accrued and
unpaid dividends.

Common Stock Issuances. In October 2008, NNN issued 3,450,000 shares of common stock in a registered,
underwritten public offering at a price of $23.05 per share and received net proceeds of $75,958,000. In
connection with this offering, NNN incurred stock issuance costs totaling approximately $3,565,000
consisting primarily of underwriters’ fees and commissions, legal and accounting fees. NNN used the net
proceeds to repay borrowings under the Credit Facility and to acquire Investment Properties.

Dividend Reinvestment and Stock Purchase Plan. In June 2009, NNN filed a shelf registration statement
which was automatically effective, with the Commission for its DRIP, which permits the issuance by NNN
of 16,000,000 shares of common stock. NNN’s DRIP provides an economical and convenient way for
current stockholders and other interested new investors to invest in NNN’s common stock. The following
outlines the common stock issuances pursuant to NNN’s DRIP for each of the years ended December 31:

2010

2009

2008

Shares of common stock
Net proceeds

793,759
$ 17,623,000

3,766,452
$ 67,354,000

2,146,640
$ 47,372,000

The proceeds from the issuances were used to pay down outstanding indebtedness under NNN’s Credit
Facility.

Mortgages and Notes Receivable.

Mortgages are secured by real estate, real estate securities or other assets. Mortgages and notes receivable
consisted of the following at December 31 (dollars in thousands):

Mortgages and notes receivable
Accrued interest receivable, net of

reserves

Unamortized discount

2010

2009

29,750

41,707

644
(63)
30,331

269
-
41,976

Commercial Mortgage Residual Interests.

In connection with the independent valuations of the Residuals’ fair value, NNN adjusted the carrying value
of the Residuals to reflect such fair value as of December 31, 2010. Due to changes in market conditions
relating to residual assets, the independent valuation changed several valuation assumptions. The following
table summarizes the changes to the key assumptions used in determining the value of the Residuals as of
December 31:

Discount rate

Average life equivalent CPR speeds

range
Foreclosures:

2010

2009

25%

4.35% to 20.37% CPR

14.5% to 20.7% CPR

Frequency curve default model
Loss severity of loans in foreclosure

0.1% - 15.0% range
20%

6% average rate
20%

Yield:

LIBOR
Prime

Forward 3-month curve Forward 3-month curve
Forward curve

Forward curve

The following table summarizes the recognition of unrealized gains and/or losses recorded as other
comprehensive income as well as other than temporary valuation impairment as of December 31 (dollars in
thousands):

Unrealized gains
Unrealized losses
Other than temporary valuation impairment

1,273
-
3,995

-
1,640
498

2,009
-
758

2010

2009

2008

Business Combination.

In connection with the default of a note receivable and certain lease agreements between NNN and one of
its tenants, in June 2009, NNN acquired the operations of the auto service business which was operated on
12 Investment Properties. The note foreclosure resulted in a loss of $7,816,000. NNN recorded the value of
the assets received at fair value. No liabilities were assumed. The fair value of the assets resulted in
goodwill of $3,400,000. In connection with the review of goodwill for impairment, NNN recognized a
noncash impairment charge of $1,900,000.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

NNN is exposed to interest rate risk primarily as a result of its variable rate Credit Facility and its fixed rate
debt which is used to finance NNN’s development and acquisition activities, as well as for general
corporate purposes. NNN’s interest rate risk management objective is to limit the impact of interest rate
changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objectives,
NNN borrows at both fixed and variable rates on its long-term debt. As of December 31, 2010, NNN had no
outstanding derivatives.

The information in the table below summarizes NNN’s market risks associated with its debt obligations
outstanding as of December 31, 2010 and 2009. The table presents principal payments and related interest
rates by year for debt obligations outstanding as of December 31, 2010. The variable interest rates shown
represent weighted average rate for the Credit Facility for the year ended December 31, 2010. The table
incorporates only those debt obligations that existed as of December 31, 2010, and it does not consider
those debt obligations or positions which could arise after this date. Moreover, because firm commitments
are not presented in the table below, the information presented therein has limited predictive value. As a
result, NNN’s ultimate realized gain or loss with respect to interest rate fluctuations will depend on the
exposures that arise during the period, NNN’s hedging strategies at that time and interest rates. If interest
rates on NNN’s variable rate debt increased by one percent, NNN’s interest expense would have increased
by less than one percent for the year ended December 31, 2010.

Debt Obligations (dollars in thousands)

Variable Rate Debt
Credit Facility

Fixed Rate Debt

Mortgages

Unsecured Debt(1)

Debt
Obligation

-
161,000
-
-
-
-

Weighted
Average
Interest Rate

-
3.80%
-
-
-
-

Debt
Obligation

1,098
19,290
863
881
917
1,220

Weighted
Average
Interest Rate

Debt
Obligation

Effective
Interest
Rate

7.20% $ 136,857
49,945
6.92%
212,677
7.35%
149,817
7.27%
149,777
7.22%
249,343
7.47%

5.84%
7.83%
7.19%
5.91%
6.19%
6.92%

6.60%

$ 161,000

3.80% $ 24,269

7.00% $ 948,416

2011
2012
2013
2014
2015
Thereafter

Total

Fair Value:

December 31, 2010

$ 161,000

December 31, 2009

$ 24,269

$ 25,290

$1,044,621

$ 987,275

(1)

Includes NNN’s notes payable and convertible notes payable, each net of unamortized discounts. NNN
uses Bloomberg to determine the fair value.

NNN is also exposed to market risks related to NNN’s Residuals. Factors that may impact the market value
of the Residuals include delinquencies, loan losses, prepayment speeds and interest rates. The Residuals,
which are reported at market value based upon an independent valuation, had a carrying value of
$15,915,000 and $20,153,000 as of December 31, 2010 and 2009, respectively. Unrealized gains and losses
are reported as other comprehensive income in stockholders’ equity. Losses are considered other than
temporary and reported as a valuation impairment in earnings from operations if and when there has been a
change in the timing or amount of estimated cash flows that leads to a loss in value.

Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of National Retail Properties, Inc. and Subsidiaries

We have audited National Retail Properties, Inc. and Subsidiaries’ internal control over financial reporting
as of December 31, 2010, based on criteria established in Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). National
Retail Properties, Inc. and Subsidiaries’ management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management’s Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the company’s internal control over financial
reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the
financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

In our opinion, National Retail Properties, Inc. and Subsidiaries maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2010, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of National Retail Properties, Inc. and Subsidiaries
as of December 31, 2010 and 2009, and the related consolidated statements of earnings, stockholders’
equity, and cash flows for each of the three years in the period ended December 31, 2010 and our report
dated February 24, 2011 expressed an unqualified opinion thereon.

Miami, Florida
February 24, 2011

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of National Retail Properties, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of National Retail Properties, Inc. and
Subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of earnings,
stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010.
Our audits also included the financial statement schedules listed in the index at Item 15(a). These financial
statements and schedules are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements and schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of National Retail Properties, Inc. and Subsidiaries at December 31, 2010
and 2009, and the consolidated results of their operations and their cash flows for each of the three years in
the period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles.
Also, in our opinion, the related financial statements schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), National Retail Property Inc.’s internal control over financial reporting as of
December 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24,
2011 expressed an unqualified opinion thereon.

Miami, Florida
February 24, 2011

NATIONAL RETAIL PROPERTIES, INC.
and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)

ASSETS

December 31,
2010

December 31,
2009

Real estate, Investment Portfolio:

Accounted for using the operating method, net of accumulated depreciation and

amortization

Accounted for using the direct financing method

Real estate, Inventory Portfolio, held for sale
Investment in unconsolidated affiliate
Mortgages, notes and accrued interest receivable, net of allowance
Commercial mortgage residual interests
Cash and cash equivalents
Receivables, net of allowance of $1,750 and $583, respectively
Accrued rental income, net of allowance of $3,609 and $2,875, respectively
Debt costs, net of accumulated amortization of $11,198 and $6,870, respectively
Other assets

Total assets

Liabilities:

LIABILITIES AND EQUITY

Line of credit payable
Mortgages payable
Notes payable – convertible, net of unamortized discount of $12,201 and $18,355,

respectively

Notes payable, net of unamortized discount of $1,118 and $1,324, respectively
Accrued interest payable
Other liabilities

Total liabilities

Commitments and contingencies (Note 26)

Equity:

Stockholders’ equity:

Preferred stock, $0.01 par value. Authorized 15,000,000 shares
Series C, 3,680,000 depositary shares issued and outstanding, at stated liquidation value

of $25 per share

Common stock, $0.01 par value. Authorized 190,000,000 shares; 83,613,289 and

82,427,560 shares issued and outstanding, respectively

Excess stock, $0.01 par value. Authorized 205,000,000 shares; none issued or

outstanding

Capital in excess of par value
Retained earnings
Accumulated other comprehensive income

Total stockholders’ equity of NNN

Noncontrolling interests

Total equity

Total liabilities and equity

2,519,950
29,773
32,076
4,515
30,331
15,915
2,048
3,403
25,535
9,366
40,663

2,328,576
31,317
72,423
4,703
41,976
20,153
15,225
1,946
25,745
13,884
35,014

2,713,575

2,590,962

161,000
24,269

349,534
598,882
7,342
43,774

-
25,290

343,380
618,676
7,471
29,283

1,184,801

1,024,100

92,000

838

825

-
1,429,750
3,234
1,661

1,527,483
1,291

1,528,774

-
1,408,491
62,413
511

1,564,240
2,622

1,566,862

2,713,575

2,590,962

See accompanying notes to consolidated financial statements.

NATIONAL RETAIL PROPERTIES, INC.
and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands, except per share data)

Revenues:

Rental income from operating leases
Earned income from direct financing leases
Percentage rent
Real estate expense reimbursement from tenants
Interest and other income from real estate transactions
Interest income on commercial mortgage residual interests

Disposition of real estate, Inventory Portfolio:

Gross proceeds
Costs

Gain

Retail operations:
Revenues
Operating expenses

Net

Operating expenses:

General and administrative
Real estate
Depreciation and amortization
Impairment losses and other charges
Impairment – commercial mortgage residual interests valuation adjustment
Restructuring costs

Earnings from operations

Other expenses (revenues):

Interest and other income
Interest expense
Loss on interest rate hedge

Earnings from continuing operations before income tax benefit (expense), equity in
earnings of unconsolidated affiliate and gain on extinguishment of debt

Income tax benefit (expense)
Equity in earnings of unconsolidated affiliate
Gain on extinguishment of debt

Earnings from continuing operations

Earnings (loss) from discontinued operations (Note 18):

Real estate, Investment Portfolio, net of income tax expense
Real estate, Inventory Portfolio, net of income tax expense

Year Ended December 31,
2009

2010

2008

211,172
3,001
959
7,438
3,026
3,460
229,056

5,600
(4,959)

641

32,958
(31,647)

1,311

22,778
13,534
48,328
7,458
3,995
-

96,093

134,915

(1,513)
65,179
-

63,666

71,249
(475)
428
-

71,202

1,859
292

2,151

209,256
3,070
1,340
8,361
4,535
4,252
230,814

953
(916)

15,595
(15,176)

419

21,773
13,642
46,539
36,080
498
731

119,263

112,007

(1,371)
62,151
-

60,780

51,227
1,049
421
3,432

56,129

1,776
(1,506)

270

205,334
3,103
1,104
6,980
5,807
4,636
226,964

4,900
(4,879)

-
-

24,875
10,152
43,668
1,234
758
-

80,687

146,298

(3,748)
63,964
804

61,020

85,278
7,255
364
4,961

97,858

12,914
9,199

22,113

See accompanying notes to consolidated financial statements.

NATIONAL RETAIL PROPERTIES, INC.
and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS – CONTINUED
(dollars in thousands, except per share data)

Earnings including noncontrolling interests
Loss (earnings) attributable to noncontrolling interests:

Continuing operations
Discontinued operations

Net earnings attributable to NNN
Other comprehensive income (loss)

Total comprehensive income

Net earnings attributable to NNN
Series C preferred stock dividends

Net earnings attributable to common stockholders

Net earnings per share of common stock:

Basic:

Continuing operations
Discontinued operations

Net earnings

Diluted:

Continuing operations
Discontinued operations

Net earnings

Weighted average number of common shares outstanding:

Basic

Diluted

Year Ended December 31,
2009

2010

2008

73,353

56,399

119,971

(367)
11

(356)

72,997
1,150

74,147

72,997
(6,785)

66,212

0.77
0.03

0.80

0.77
0.03

0.80

(1,423)
(166)

(1,589)

54,810
(1,903)

52,907

54,810
(6,785)

48,025

0.60
-

0.60

0.60
-

0.60

(96)
(2,722)

(2,818)

117,153
1,688

118,841

117,153
(6,785)

110,368

1.22
0.26

1.48

1.22
0.26

1.48

82,715,645

79,846,258

74,249,137

82,849,362

79,953,499

74,344,231

See accompanying notes to consolidated financial statements.

NATIONAL RETAIL PROPERTIES, INC.
and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY
Years Ended December 31, 2010, 2009 and 2008
(dollars in thousands, except per share data)

Series C
Preferred
Stock

Common
Stock

Capital in
Excess of
Par Value

Retained
Earnings

Accumulated
Other
Comprehensive
Income

Total
Stockholders’
Equity

Noncontrolling
Interests

Total
Equity

Balances at December 31, 2007

92,000 $

725 $

1,189,564 $

134,383 $

975 $

1,417,647 $

2,956 $

1,420,603

4
9

Net earnings
Dividends declared and paid:

$1.84375 per depositary share of Series C

preferred stock

$1.48 per share of common stock

Issuance of common stock:

3,523,285 shares
1,753,201 shares – discounted stock

purchase program

Issuance of 217,397 shares of restricted

common stock
Stock issuance costs
Equity component of convertible debt
Amortization of deferred compensation
Interest rate hedge termination
Amortization of interest rate hedges
Unrealized gain – commercial mortgage

residual interests
Stock value adjustment
Contributions from noncontrolling interests
Distributions to noncontrolling interests
Other

-
-

-
-
-
-
-
-

-
-
-
-
-

-
4

2
-
-
-
-
-

-
-
-
-
-

117,153

-
8,472

80,633

38,878

(2)
(3,582)
20,467
2,588
-
-

-
-
-
-
-

(6,785)
(110,107)

-
-
-
-
-
-

-
-
-
-
-

-
-

-
-
-
-
(162)
(109)

1,760
(50)
-

117,153

2,818

119,971

(6,785)
(101,631)

80,668

38,896

-
(3,582)
20,467
2,588
(162)
(109)

1,760
(50)
-
-
-

-
-

-
-
-
-
-
-

249
-
41
(5,483)
1,505

(6,785)
(101,631)

80,668

38,896

-
(3,582)
20,467
2,588
(162)
(109)

2,009
(50)
41
(5,483)
1,505

Balances at December 31, 2008

92,000 $

784 $

1,337,018 $

134,644 $

2,414 $

1,566,860 $

2,086 $

1,568,946

See accompanying notes to consolidated financial statements.

NATIONAL RETAIL PROPERTIES, INC.
and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY – CONTINUED
Years Ended December 31, 2010, 2009 and 2008
(dollars in thousands, except per share data)

Series C
Preferred
Stock

Common
Stock

Capital in
Excess of
Par Value

Retained
Earnings

Accumulated
Other
Comprehensive
Income

Total
Stockholders’
Equity

Noncontrolling
Interests

Total
Equity

Balances at December 31, 2008

92,000 $

784 $

1,337,018 $

134,644 $

2,414 $

1,566,860 $

2,086 $

1,568,946

5
0

Net earnings
Dividends declared and paid:

$1.84375 per depositary share of Series C

preferred stock

$1.50 per share of common stock

Issuance of common stock:

99,738 shares
3,664,182 shares – discounted stock

purchase program

Issuance of 262,546 shares of restricted

common stock
Stock issuance costs
Equity component of extinguishment of

convertible debt

Amortization of deferred compensation
Amortization of interest rate hedges
Unrealized loss – commercial mortgage

residual interests

Contributions from noncontrolling interests
Distributions to noncontrolling interests
Other

-
-

-
-
-

-
-
-
-

54,810

-
1

-
1,797

1,435

65,519

3
-

-
-
-

-
-
-
-

(3)
(113)

(795)
3,443
-

-
-
-
190

(6,785)
(120,256)

-
-

-
-
-

-
-
-
-

-
-

-
-
(159)

(1,744)
-
-
-

54,810

1,589

56,399

(6,785)
(118,458)

1,436

65,555

-
(113)

(795)
3,443
(159)

(1,744)
-
-
190

-
-

-
-
-

104
152
(552)
(757)

(6,785)
(118,458)

1,436

65,555

-
(113)

(795)
3,443
(159)

(1,640)
152
(552)
(567)

Balances at December 31, 2009

92,000 $

825 $

1,408,491 $

62,413 $

511 $

1,564,240 $

2,622 $

1,566,862

See accompanying notes to consolidated financial statements.

NATIONAL RETAIL PROPERTIES, INC.
and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY – CONTINUED
Years Ended December 31, 2010, 2009 and 2008
(dollars in thousands, except per share data)

Balances at December 31, 2009

92,000 $

825 $

1,408,491 $

62,413 $

511 $

1,564,240 $

2,622 $ 1,566,862

Series C
Preferred
Stock

Common
Stock

Capital in
Excess of
Par Value

Retained
Earnings

Accumulated Other
Comprehensive
Income

Total
Stockholders’
Equity

Noncontrolling
Interests

Total
Equity

5
1

Net earnings
Dividends declared and paid:

$1.84375 per depositary share of Series C

preferred stock

$1.51 per share of common stock

Issuance of common stock:

39,872 shares
491,705 shares – discounted stock purchase

program

Issuance of 377,164 shares of restricted common

stock

Stock issuance costs
Performance incentive plan
Amortization of deferred compensation
Amortization of interest rate hedges
Unrealized gain – commercial mortgage residual

interests

Contributions from noncontrolling interests
Distributions to noncontrolling interests
Purchase of noncontrolling interest
Other

-
-

-
-
-
-
-

-
3

4
-
-
-
-

-
-
-
-
-

72,997

-
7,350

697

10,272

(4)
(1)
(1,634)
5,119
-

-
-
-
(404)
(136)

(6,785)
(125,391)

-
-
-
-
-

-
-
-
-

-
-
-
-
(165)

1,272
-
-
-
43

72,997

356

73,353

(6,785)
(118,038)

698

10,277

-
(1)
(1,634)
5,119
(165)

1,272
-
-
(404)
(93)

-
-

-
-
-
-
-

(26)
43
(861)
(1,199)
356

(6,785)
(118,038)

698

10,277

-
(1)
(1,634)
5,119
(165)

1,246
43
(861)
(1,603)
263

Balances at December 31, 2010

92,000 $

838 $

1,429,750 $

3,234 $

1,661 $

1,527,483 $

1,291 $ 1,528,774

See accompanying notes to consolidated financial statements.

NATIONAL RETAIL PROPERTIES, INC.
and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)

Year Ended December 31,
2009

2010

2008

Cash flows from operating activities:

Earnings including noncontrolling interests
Adjustments to reconcile net earnings to net cash provided by operating activities:

$ 73,353

$ 56,399

$ 119,971

Performance incentive plan expense
Stock options expense – tax effect
Depreciation and amortization
Impairment losses and other charges
Impairment – commercial mortgage residual interests valuation
Amortization of notes payable discount
Amortization of deferred interest rate hedges
Equity in earnings of unconsolidated affiliates
Distributions received from unconsolidated affiliates
Gain on disposition of real estate, Investment Portfolio
Gain on extinguishment of debt
Gain on disposition of real estate, Inventory Portfolio
Deferred income taxes
Income tax valuation allowance

Change in operating assets and liabilities, net of assets acquired and liabilities assumed in

business combinations:

Additions to real estate, Inventory Portfolio
Proceeds from disposition of real estate, Inventory Portfolio
Decrease in real estate leased to others using the direct financing method
Decrease (increase) in work in process
Increase in mortgages, notes and accrued interest receivable
Decrease (increase) in receivables
Decrease (increase) in commercial mortgage residual interests
Decrease (increase) in accrued rental income
Decrease (increase) in other assets
Decrease in accrued interest payable
Decrease in other liabilities
Increase (decrease) in current tax liability

5,756
122
49,084
7,458
3,995
6,360
(166)
(428)
578
(1,134)
-
(941)
(2,544)
3,121

(478)
42,817
1,544
(755)
(467)
(219)
1,516
124
(53)
(129)
(431)
(169)

4,172
190
48,485
41,710
498
6,006
(159)
(421)
607
(2,392)
(3,432)
(595)
(16,649)
14,900

(2,457)
6,276
1,378
(786)
(10)
941
(291)
(2,061)
(172)
(137)
(2,930)
432

3,299
-
45,347
5,660
758
5,670
(162)
(364)
439
(9,980)
(4,961)
(12,665)
(5,593)
-

(33,745)
128,785
1,195
47
(217)
243
-
(978)
951
(3,635)
(1,463)
(1,143)

Net cash provided by operating activities

187,914

149,502

237,459

Cash flows from investing activities:

Proceeds from the disposition of real estate, Investment Portfolio
Additions to real estate, Investment Portfolio:
Accounted for using the operating method

Investment in unconsolidated affiliate
Increase in mortgages and notes receivable
Principal payments on mortgages and notes receivable
Cash received from commercial mortgage residual interests
Payment of lease costs
Other

Net cash used in investing activities

10,312

14,588

60,027

(230,928)
-
(8,564)
13,818
-
(1,324)
(3,574)

(44,433)
-
(959)
4,009
-
(451)
(817)

(352,618)
(901)
(29,934)
64,589
3,591
(922)
(136)

(220,260)

(28,063)

(256,304)

See accompanying notes to consolidated financial statements.

NATIONAL RETAIL PROPERTIES, INC.
and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(dollars in thousands)

Cash flows from financing activities:

Proceeds from line of credit payable
Repayment of line of credit payable
Repayment of mortgages payable
Proceeds from notes payable – convertible
Repurchase of notes payable – convertible – debt component
Repurchase of notes payable – convertible – equity component
Repayment of notes payable – secured
Repayment of notes payable
Payment of debt costs
Proceeds from issuance of common stock
Payment of Series C preferred stock dividends
Payment of common stock dividends
Noncontrolling interest distributions
Noncontrolling interest contributions
Stock issuance costs

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Supplemental disclosure of cash flow information:

Interest paid, net of amount capitalized

Taxes paid (received)

Supplemental disclosure of noncash investing and financing activities:

Issued 392,474, 262,546 and 225,517 shares of restricted and unrestricted common stock
in 2010, 2009 and 2008, respectively, pursuant to NNN’s performance incentive plan

Issued 10,092, 6,594 and 12,766 shares of common stock in 2010, 2009 and 2008,

respectively, to directors pursuant to NNN’s performance incentive plan

Issued 25,066, 41,604 and 26,879 shares of common stock in 2010, 2009 and 2008,

respectively, pursuant to NNN’s Deferred Director Fee Plan

Surrender of 2,520 shares of restricted common stock in 2008

Change in other comprehensive income

Change in lease classification (direct financing lease to operating lease)

Transfer of real estate from Inventory Portfolio to Investment Portfolio

Note and mortgage receivable accepted in connection with real estate transactions

Mortgages payable assumed in connection with real estate transactions

Real estate acquired in connection with mortgage receivable foreclosure

Assets received in note receivable foreclosure

Note receivable foreclosures

Year Ended December 31,
2009

2010

2008

$ 278,900
(117,900)
(6,453)
-
-
-
-
(20,000)
(75)
17,692
(6,785)
(125,391)
(861)
43
(1)

$ 132,400
(158,900)
(1,000)
-
(14,785)
(795)
-
-
(6,275)
68,060
(6,785)
(120,256)
(552)
152
(104)

$ 516,000
(619,300)
(1,190)
234,035
(18,420)
(768)
(12,000)
(100,000)
(5,813)
127,328
(6,785)
(110,107)
(5,483)
41
(3,566)

19,169

(108,840)

(6,028)

(13,177)
15,225

12,599
2,626

(24,873)
27,499

2,048

$ 15,225

2,626

$ 62,386

$ 61,475

$ 69,395

472

(63) $

3,441

6,889

236

401

1,150

5,950

5,432

6,250

4,290

118

611

3,796

262

449

(1,903) $

1,439

300

$ 16,058

$ 29,948

1,550

$ 24,245

4,240

5,527

$ (17,013) $

2,497

See accompanying notes to consolidated financial statements.

NATIONAL RETAIL PROPERTIES, INC.
and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2010, 2009 and 2008

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, manages 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”).

Investment Portfolio:

Total properties (including retail operations)
Gross leasable area (square feet)
States

December 31, 2010

1,195
12,972,000
46

Principles of Consolidation – NNN’s 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.

The TRS develops real estate through various joint venture development affiliate agreements. NNN
consolidates the joint venture development entities listed in the table below based upon either NNN
being the primary beneficiary of the respective variable interest entity or NNN having a controlling
interest over the respective entity. NNN eliminates significant intercompany

balances and transactions and records a noncontrolling interest for its other partners’ ownership
percentage. The following table summarizes each of the investments as of December 31, 2010:

Date of Agreement

Entity Name

November 2002

February 2003

February 2006

September 2006

WG Grand Prairie TX, LLC

Gator Pearson, LLC

CNLRS BEP, L.P.

NNN Harrison Crossing, L.P.

TRS’
Ownership %

60%

50%

In September 2007, NNN entered into a joint venture, NNN Retail Properties Fund I LLC (the
“NNN Crow JV”) with an affiliate of Crow Holdings Realty Partners IV, LP.

Real Estate – Investment 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.

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.

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 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 capitalized below-market lease values are
amortized as an increase to rental income over the initial term.

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.

Real estate is generally leased to tenants on a net lease basis, whereby the tenant is responsible for
all operating expenses relating to the property, including property taxes, insurance, maintenance and
repairs. The leases are accounted for using either the operating or the direct financing method. Such
methods are described below:

Operating method – Leases accounted for using the operating method are recorded at the
cost of the real estate. Revenue is recognized as rentals are earned and expenses (including
depreciation) are charged to operations as incurred. Buildings are depreciated on the straight-
line method over their estimated useful lives. Leasehold interests are amortized on the
straight-line method over the terms of their respective leases. When scheduled rentals vary
during the lease term, income is recognized on a straight-line basis so as to produce a
constant periodic rent over the term of the lease. Accrued rental income is the aggregate
difference between the scheduled rents which vary during the lease term and the income
recognized on a straight-line basis.

Direct financing method – Leases accounted for using the direct financing method are
recorded at their net investment (which at the inception of the lease generally represents the
cost of the property). Unearned income is deferred and amortized into income over the lease
terms so as to produce a constant periodic rate of return on NNN’s net investment in the
leases.

Real Estate – Inventory Portfolio – The TRS acquires and/or develops and owns properties primarily
for the purpose of selling the real estate. The properties that are classified as held for sale at any
given time may consist of properties that have been acquired in the marketplace with the intent to
sell and properties that have been, or are currently being, constructed by the TRS. The TRS records
the acquisition of the real estate at cost, including the acquisition and closing costs. The cost of the
real estate developed by the TRS includes direct and indirect costs of construction, interest and other
miscellaneous costs incurred during the development period until the project is substantially
complete and available for occupancy. Real estate held for sale is not depreciated and is recorded at
the lower of cost or fair value. In accordance with the FASB guidance included in Real Estate, the
TRS classifies its real estate held for sale as discontinued operations for each property in which
rental revenues are generated.

Impairment – Real Estate – Based upon events or changes in certain circumstances, management
periodically assesses its Investment Properties for possible impairment indicating that the carrying
value of the asset, including accrued rental income, may not be recoverable through operations.
Events or circumstances that may occur include significant changes in real estate market condition
and the ability of NNN to re-lease or sell properties that are currently vacant or become vacant.
Management determines whether an impairment in value has occurred by comparing the estimated
future cash flows (undiscounted and without interest charges), including the residual value of the
real estate, with the carrying cost of the individual asset. If an impairment is indicated, a loss will be
recorded for the amount by which the carrying value of the asset exceeds its fair value.

Real Estate Dispositions – When real estate is disposed of, the related cost, accumulated
depreciation or amortization and any accrued rental income for operating leases and the net
investment for direct financing leases are removed from the accounts and gains and losses from the
dispositions are reflected in income. Gains from the disposition of real estate are generally
recognized using the full accrual method in accordance with the FASB guidance included in Real
Estate Sales, provided that various criteria relating to the terms of the sale and any subsequent
involvement by NNN with the real estate sold are met. Lease termination fees are recognized when
the related leases are cancelled and NNN no longer has a continuing obligation to provide services
to the former tenants.

Valuation of Mortgages, Notes and Accrued Interest – The allowance related to the mortgages, notes
and accrued interest is NNN’s best estimate of the amount of probable credit losses. The allowance
is determined on an individual note basis in reviewing any payment past due for over 90 days. Any
outstanding amounts are written off against the allowance when all possible means of collection
have been exhausted.

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

Commercial Mortgage Residual Interests, at Fair Value – Commercial mortgage residual interests,
classified as available for sale, are reported at their market values with unrealized gains and losses
reported as other comprehensive income in stockholders’ equity. The commercial mortgage residual
interests were acquired in connection with the acquisition of Orange Avenue Mortgage Investments,
Inc. (“OAMI”). NNN recognizes the excess of all cash flows attributable to the commercial
mortgage residual interests estimated at the acquisition/transaction date over the initial investment
(the accretable yield) as interest income over the life of the beneficial interest using the effective
yield method. Losses are considered other than temporary valuation impairments if and when there
has been a change in the timing or amount of estimated cash flows, exclusive of changes in interest
rates, that leads to a loss in value.

In 2010, NNN acquired the 21.1% non-controlling interest in its majority owned and controlled
subsidiary, OAMI, for $1,603,000, pursuant to which OAMI became a wholly owned subsidiary of
NNN. NNN accounted for the transaction as an equity transaction in accordance with the FASB
guidance on consolidation.

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 of the collectibility 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.

Debt Costs – Debt costs incurred in connection with NNN’s $400,000,000 line of credit and
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. Debt
costs incurred in connection with the issuance of NNN’s notes payable have been deferred and are
being amortized over the term of the respective debt obligation using the effective interest method.

Revenue Recognition – Rental revenues for non-development real estate assets are recognized when
earned in accordance with the FASB guidance included in Leases, based on the terms of the lease at
the time of acquisition of the leased asset. Rental revenues for properties under construction
commence upon completion of construction of the leased asset and delivery of the leased asset to the
tenant.

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 for the years ended
December 31 (dollars in thousands):

2010

2009

2008

Basic and Diluted Earnings:

Net earnings attributable to NNN

Less: Series C preferred stock dividends

Net earnings available to NNN’s common stockholders

Less: Earnings attributable to unvested restricted shares

Net earnings used in basic earnings per share
Reallocated undistributed income (loss)

72,997
(6,785)

66,212
(299)

65,913
-

54,810
(6,785)

48,025
(290)

47,735
(1)

117,153
(6,785)

110,368
(485)

109,883
-

Net earnings used in diluted earnings per share

65,913

47,734

109,883

Basic and Diluted Weighted Average Shares Outstanding:

Weighted average number of shares outstanding
Less: Unvested restricted stock

Weighted average number of shares outstanding used in

basic earnings per share
Effects of dilutive securities:
Common stock options
Directors’ deferred fee plan

83,320,921
(605,276)

80,486,215
(639,957)

74,732,844
(483,707)

82,715,645

79,846,258

74,249,137

3,814
129,903

9,037
98,204

35,900
59,194

Weighted average number of shares outstanding used in

diluted earnings per share

82,849,362

79,953,499

74,344,231

The potential dilutive shares related to convertible notes payable were not included in computing
earnings per common share because their effects would be antidilutive.

Stock-Based Compensation – On January 1, 2006, NNN adopted the FASB guidance included in
Equity – Based Payments to Non-Employees, under the modified prospective method. Under the
modified prospective method, compensation cost is recognized for all awards granted after the
adoption of this standard and for the unvested portion of previously granted awards that are
outstanding as of that date. In accordance with the FASB guidance, NNN estimates the fair value of
restricted stock and stock option grants at the date of grant and amortizes those amounts into
expense on a straight line basis or amount vested, if greater, over the appropriate vesting period.

Income Taxes – NNN has made an election to be taxed as a REIT under Sections 856 through 860
of the Internal Revenue Code of 1986, as amended (the “Code”), and related regulations. NNN
generally will not be subject to federal income taxes on amounts distributed to stockholders,

providing it distributes 100 percent of its REIT taxable income and meets certain other requirements
for qualifying as a REIT. For each of the years in the three-year period ended December 31, 2010,
NNN believes it has qualified as a REIT. Notwithstanding NNN’s qualification for taxation as a
REIT, NNN is subject to certain state taxes on its income and real estate.

NNN and its taxable REIT subsidiaries have made timely TRS elections pursuant to the provisions
of the REIT Modernization Act. A taxable REIT subsidiary is able to engage in activities resulting
in income that previously would have been disqualified from being eligible REIT income under the
federal income tax regulations. As a result, certain activities of NNN which occur within its TRS
entities are subject to federal and state income taxes (See Note 17). All provisions for federal
income taxes in the accompanying consolidated financial statements are attributable to NNN’s
taxable REIT subsidiaries and to OAMI’s built-in-gain tax liability.

Income taxes are accounted for under the asset and liability method as required by the FASB
guidance included in Income Taxes. Deferred tax assets and liabilities are recognized for the
temporary differences based on estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes the enactment date.

Fair Value Measurement – NNN’s estimates of fair value of financial and non-financial assets and
liabilities 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 June 2009, FASB issued revised guidance on the accounting
for variable interest entities. The revised guidance reflects the elimination of the concept of a
qualifying special-purpose entity. The guidance also replaces the quantitative-based risks and
rewards calculation of the previous guidance for determining which company, if any, has a
controlling financial interest in a variable interest entity with an approach that is primarily
qualitative. The new guidance requires ongoing assessments of whether an enterprise is the primary
beneficiary of the variable interest entity as well as additional disclosures. The guidance is effective
for financial statements issued for fiscal years beginning after November 15, 2009.

The adoption of the standard did not have a significant impact on NNN’s financial position or
results of operations.

In January 2010, the FASB issued Fair Value Measurements and Disclosures, Improving
Disclosures about Fair Value Measurements. This update requires new disclosures for transfers in
and out of Level 1 and 2, as well as disclosure about the valuation techniques and inputs used to
measure fair value for Level 1 and 2. In addition, activity in Level 3 should present separately
information about purchases, sales, issuances and settlements on a gross basis (rather than as one net
number). A reporting entity should provide fair value measurements disclosures for each class of
assets and liabilities. The new disclosures and clarifications of existing disclosures are effective for
interim and annual reporting periods beginning after December 15, 2009, except for the disclosures
about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value
measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010,
and for interim periods within those fiscal years. The adoption of the standard did not have a
significant impact on NNN’s financial position or results of operations.

In February 2010, the FASB issued Subsequent Events, Amendments to Certain Recognition and
Disclosure Requirements. An entity that files Exchange Act reports with the Securities and
Exchange Commission (“Commission”) is required to evaluate subsequent events through the date
that the financial statements are issued. An entity that is an SEC filer is not required to disclose the
date through which subsequent events have been evaluated. This change alleviates potential
conflicts between Subtopic 855-10 and requirements of the Commission. The scope of the
reissuance disclosure requirements is refined to include revised financial statements only. Revised
financial statements include financial statements revised either as a result of correction of an error or
retrospective application of accounting principles generally accepted in the United States of
America. All of the amendments in this are effective upon issuance of the final update, except for
the use of the issued date for conduit debt obligors. That amendment is effective for interim or
annual periods ending after June 15, 2010. The adoption of the standard did not have an impact on
NNN’s 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 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 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 2010 presentation.

Note 2 – Real Estate – Investment Portfolio:

Leases – The following outlines key information for NNN’s Investment Property leases at
December 31, 2010:

Lease classification:

Operating
Direct financing
Building portion – direct financing / land portion – operating

Weighted average remaining lease term

1,159
16
7
12 Years

The leases generally provide for limited increases in rent as a result of fixed increases, increases in
the consumer price index, and/or increases in the tenant’s sales volume. Generally, the tenant is also
required to pay all property taxes and assessments, substantially maintain the interior and exterior of
the building and carry property and liability insurance coverage. Certain of NNN’s

Investment Properties are subject to leases under which NNN retains responsibility for certain costs
and expenses of the property. Generally, the leases of the Investment Properties provide the tenant
with one or more multi-year renewal options subject to generally the same terms and conditions,
including rent increases, consistent with the initial lease term.

Investment Portfolio – Accounted for Using the Operating Method – Real estate subject to operating
leases consisted of the following as of December 31 (dollars in thousands):

Land and improvements
Buildings and improvements
Leasehold interests

Less accumulated depreciation and amortization

Work in progress

2010

2009

1,122,243
1,592,752
1,290

2,716,285
(222,921)

1,054,889
1,450,348
1,290

2,506,527
(183,948)

2,493,364
26,586

2,322,579
5,997

2,519,950

2,328,576

Some leases provide for scheduled rent increases throughout the lease term. Such amounts are
recognized on a straight-line basis over the terms of the leases. For the years ended December 31,
2010, 2009 and 2008, NNN recognized collectively in continuing and discontinued operations,
$(93,000), $2,102,000 and $1,020,000, respectively, of such income, net of reserves. At
December 31, 2010 and 2009, the balance of accrued rental income, net of allowances of $3,609,000
and $2,875,000, respectively, was $25,535,000 and $25,745,000, respectively.

As of December 31, 2010, in connection with the development of Investment Properties, NNN has
the following funding commitments (dollars in thousands):

Investment Portfolio

68,746

50,196

18,550

# of
Properties

Total
Commitment(1)

Amount
Funded

Remaining
Commitment

(1)

Includes land and construction costs.

The following is a schedule of future minimum lease payments to be received on noncancellable
operating leases at December 31, 2010 (dollars in thousands):

2011
2012
2013
2014
2015
Thereafter

225,328
222,547
214,526
204,970
196,748
1,641,387

2,705,506

Since lease renewal periods are exercisable at the option of the tenant, the above table only presents
future minimum lease payments due during the initial lease terms. In addition, this table does not
include amounts for potential variable rent increases that are based on the CPI or future contingent
rents which may be received on the leases based on a percentage of the tenant’s gross sales.

Investment Portfolio – Accounted for Using the Direct Financing Method – The following lists the
components of net investment in direct financing leases at December 31 (dollars in thousands):

Minimum lease payments to be received
Estimated unguaranteed residual values
Less unearned income

Net investment in direct financing leases

2010

2009

37,699
12,297
(20,223)

42,244
12,297
(23,224)

29,773

31,317

The following is a schedule of future minimum lease payments to be received on direct financing
leases held for investment at December 31, 2010 (dollars in thousands):

2011
2012
2013
2014
2015
Thereafter

4,531
4,558
4,508
3,750
3,457
16,895

37,699

The above table does not include future minimum lease payments for renewal periods, potential
variable CPI rent increases or contingent rental payments that may become due in future periods
(see Real Estate – Investment Portfolio – Accounted for Using the Operating Method).

Note 3 – Real Estate – Inventory Portfolio:

As of December 31, 2010, the TRS owned 17 Inventory Properties: 10 completed inventory and
seven land parcels. As of December 31, 2009, the TRS owned 19 Inventory Properties: 13
completed inventory and six land parcels. The real estate Inventory Portfolio consisted of the
following at December 31 (dollars in thousands):

Inventory:
Land
Building

Less impairment

2010

2009

19,734
18,487

38,221
(6,145)

37,088
47,684

84,772
(12,349)

32,076

72,423

The following table summarizes the number of Inventory Properties sold and the corresponding gain
recognized on the disposition of Inventory Properties included in continuing and discontinued
operations for the years ended December 31 (dollars in thousands):

Continuing operations
Noncontrolling interest

Total continuing operations

attributable to NNN

Discontinued operations
Noncontrolling interest

Total discontinued operations

attributable to NNN

2010

2009

2008

# of
Properties

Gain

641
(320)

321

300
(43)

257

578

# of
Properties

Gain

37
(14)

558
-

558

# of
Properties

Gain

21
(10)

12,644
(3,297)

9,347

$ 581

9,358

Note 4 – Impairments – Real Estate:

Management periodically assesses its real estate for possible impairment whenever certain events or
changes in circumstances indicate that the carrying amount of the asset, including accrued rental
income, may not be recoverable through operations. Events or circumstances that may occur include
significant changes in real estate market conditions and the ability of NNN to re-lease or sell
properties that are vacant or become vacant. Impairments are measured as the amount by which the
current book value of the asset exceeds the estimated fair value of the asset. As a result of the
Company’s review of long lived assets, including identifiable intangible assets, NNN recognized the
following real estate impairments for the years ended December 31 (dollars in thousands):

Continuing operations
Discontinued operations

2010

2009
28,884
5,630
34,514

2008

1,234
4,426
5,660

-
-
-

The valuation of impaired assets is determined using widely accepted valuation techniques including
discounted cash flow analysis, income capitalization, analysis of recent comparable sales
transactions, actual sales negotiations and bona fide purchase offers received from third parties.
NNN may consider a single valuation technique or multiple valuation techniques, as appropriate,
when measuring the fair value of its real estate.

Note 5 – Business Combinations:

In connection with the default of a note receivable and certain lease agreements between NNN and
one of its tenants, in June 2009, NNN acquired the operations of the auto service business which
was operated on 12 Investment Properties. The note foreclosure resulted in a loss of $7,816,000.
NNN recorded the value of the assets received at fair value. No liabilities were assumed. The fair
value of the assets resulted in goodwill of $3,400,000. In connection with the annual review of
goodwill for impairment, NNN recognized a noncash impairment charge of $1,900,000 included in
Impairment losses and other charges in the Consolidated Statement of Earnings during the year
ended December 31, 2010.

Note 6 – Mortgages, Notes and Accrued Interest Receivable:

Mortgages are secured by real estate, real estate securities or other assets. Structured finance
investments are secured by the borrowers’ pledge of their respective membership interests in the
entities which own the respective real estate. Mortgages and notes receivable consisted of the
following at December 31 (dollars in thousands):

Mortgages and notes receivable
Accrued interest receivables, net of reserves
Unamortized discount

2010

2009

29,750
644
(63)
30,331

41,707
269
-
41,976

In connection with the evaluation of the collectibility of its mortgages and notes receivable, during
the year ended December 31, 2010, NNN recorded a valuation reserve of $5,625,000.

Note 7 – Commercial Mortgage Residual Interests:

OAMI holds the commercial mortgage residual interests (“Residuals”) from seven securitizations.
The following table summarizes the investment interests in each of the transactions:

Securitization

Company (1) OAMI (2)

3rd Party

Investment Interest

BYL 99-1
CCMH I, LLC
CCMH II, LLC
CCMH III, LLC
CCMH IV, LLC
CCMH V, LLC
CCMH VI, LLC

-
42.7%
44.0%
36.7%
38.3%
38.4%
-

59.0%
57.3%
56.0%
63.3%
61.7%
61.6%
100.0%

41.0%
-
-
-
-
-
-

(1) NNN owned these investment interests prior to its acquisition of the

(2)

equity interest in OAMI.
Effective July 1, 2010, NNN owns 100 percent of OAMI’s investment
interest.

Each of the Residuals is recorded at fair value based upon an independent valuation. Unrealized
gains and losses are reported as other comprehensive income in stockholders’ equity and other than
temporary losses as a result of a change in the timing or amount of estimated cash flows are
recorded as an other than temporary valuation impairment. Due to changes in market conditions
relating to residual assets, the independent valuation adjusted several valuation assumptions related
to prepayment speeds and default curves during 2010.

Unrealized gains
Unrealized losses
Other than temporary valuation impairment

2010

2009

2008

1,272
-
3,995

-
1,640
498

2,009
-
758

The following table summarizes the changes to the key assumptions used in determining the value
of the Residuals as of December 31:

Discount rate
Average life equivalent CPR speeds range
Foreclosures:

Frequency curve default model
Loss severity of loans in foreclosure

Yield:

LIBOR
Prime

2010

2009

25%
4.35% to 20.37% CPR

25%
14.5% to 20.7% CPR

0.1% - 15.0% range
20%

6% average rate
20%

Forward 3-month curve
Forward curve

The following table shows the effects on the key assumptions affecting the fair value of the
Residuals at December 31, 2010 (dollars in thousands):

Carrying amount of retained interests

Discount rate assumption:

Fair value at 27% discount rate
Fair value at 30% discount rate

Prepayment speed assumption:

Fair value of 1% increases above the CPR Index
Fair value of 2% increases above the CPR Index

Expected credit losses:

Fair value 2% adverse change
Fair value 3% adverse change

Yield Assumptions:

Fair value of Prime/LIBOR spread contracting 25 basis points
Fair value of Prime/LIBOR spread contracting 50 basis points

Residuals

15,915

$
$

15,261
14,357

15,910
15,909

15,658
15,503

16,262
16,623

These sensitivities are hypothetical and should be used with caution. As the figures indicate,
changes in fair value based on variations in assumptions generally cannot be extrapolated because
the relationship of the change in assumption to the change in fair value may not be linear. Also, in
this table, the effect of a variation of a particular assumption on the fair value of the retained interest
is calculated without changing any other assumptions; in reality, changes in one factor may result in
changes in another, which might magnify or counteract the sensitivities.

Note 8 – Line of Credit Payable:

NNN’s $400,000,000 revolving credit facility had a weighted average outstanding balance of
$17,861,000 and a weighted average interest rate of 3.8% during the year ended December 31, 2010.
In November 2009, NNN entered into a credit agreement for a new $400,000,000 revolving credit
facility, replacing the existing revolving credit facility (as the context requires, the previous and new
revolving credit facility, the “Credit Facility”). The Credit Facility matures November 2012, with an
option to extend maturity to November 2013. The Credit Facility bears interest at LIBOR plus 280
basis points with a 1.0% LIBOR floor; however, such interest rate may change pursuant to a tiered
interest rate structure based on NNN’s debt rating. The Credit Facility also includes an accordion
feature for NNN to increase, at its option, the facility size up to $500,000,000. As of December 31,
2010, $161,000,000 was outstanding, and $239,000,000 was available for future borrowings under
the Credit Facility, excluding undrawn letters of credit totaling $647,000.

In accordance with the terms of the Credit Facility, NNN is required to meet certain restrictive
financial covenants which, among other things, require NNN to maintain certain (i) maximum
leverage ratios, (ii) debt service coverage, (iii) cash flow coverage and (iv) investment and dividend
limitations. At December 31, 2010, NNN was in compliance with those covenants.

Note 9 – Mortgages Payable:

The following table outlines the mortgages payable included in NNN’s consolidated financial
statements (dollars in thousands):

Entered
December 2001 (2)
December 2001 (2)
December 2001 (2)
June 2002
February 2004 (2)
March 2005 (2)

Initial
Balance
623
$
698
485
21,000
6,952
1,015

Interest
Rate
9.00%
9.00%
9.00%
6.90%
6.90%
8.14%

Maturity (3)

April 2014
April 2019
April 2019
July 2012
January 2017
September 2016

Carrying
Value of
Encumbered
Asset(s) (1)
734
$
1,186
1,152
24,051
11,522
1,322

Outstanding Principal
Balance at December
2009

31, 2010
215
$
364
187
18,841
4,038
624

267
392
201
19,170
4,554
706

39,967

24,269

$25,290

(1) Each loan is secured by a first mortgage lien on certain of NNN’s properties. The carrying values of the assets are as of

December 31, 2010.

(2) Date entered represents the date that NNN acquired real estate subject to a mortgage securing a loan. The

corresponding original principal balance represents the outstanding principal balance at the time of acquisition.

(3) Monthly payments include interest and principal, if any; the balance is due at maturity.

The following is a schedule of the annual maturities of NNN’s mortgages payable at December 31,
2010 (dollars in thousands):

2011
2012
2013
2014
2015
Thereafter

$ 1,098
19,290
863
881
917
1,220

$24,269

Note 10 – 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
Net Proceeds
Stated Interest Rate
Debt Issuance Costs
Earliest Conversion Date
Earliest Put Option Date
Maturity Date

Original Principal
Repurchases

Outstanding principal balance at December 31, 2010

September 2006 March 2008
228,576
5.125%

168,650
3.950%

3,850(3) $

5,457(7)

September 2025
September 2011
September 2026

June 2027
June 2013
June 2028

172,500
(33,800)

138,700

234,035
(11,000)

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 41.9803 shares of NNN’s common stock, which is equivalent to a

conversion price of $23.8207 per share of common stock.

(5) The conversion rate per $1 principal amount was 39.3620 shares of NNN’s common stock, which is equivalent to a

conversion price of $25.4052 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 new accounting guidance on convertible debt securities, the effective interest rate for the

2026 Notes and the 2028 Notes are 5.840% and 7.192%, respectively.

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 debt and equity balances are summarized in the table below
as of December 31 (dollars in thousands):

2010

2009

Carrying value of equity component
Principal amount of convertible debt
Remaining unamortized debt discount

(33,873) $
361,735
(12,201)

(33,873)
361,735
(18,355)

Net carrying value of convertible debt

315,661

309,507

As of December 31, 2010, the remaining amortization periods for the debt discount were
approximately nine months and 18 months for the 2026 Notes and the 2028 Notes, respectively.

The adjusted effective interest rates for the liability components of the 2026 Notes and the 2028
Notes were 5.840% and 7.192%, respectively. The Company recorded noncash interest charges of
$6,154,000, $5,809,000 and $5,481,000 for the years ended December 31, 2010, 2009 and 2008,
respectively. The Company recorded contractual interest expense of $16,909,000,

$17,046,000 and $16,548,000 for the years ended December 31, 2010, 2009 and 2008, respectively,
relating to the 2026 Notes and 2028 Notes.

The if-converted values which exceed the principal amount as of December 31, 2010, are
$15,601,000 and $9,611,000 for the 2026 Notes and the 2028 Notes, respectively. As of
December 31, 2009, the if-converted amount did not exceed the value of the principal amount.

Note 11 – Notes Payable:

Each of NNN’s outstanding series of non-convertible notes are summarized in the table below
(dollars in thousands):

Notes

Issue Date

Principal

Discount(3)

Net
Price

Stated
Rate

Effective
Rate(4)

Maturity
Date

2012(1)
2014(1)(2)(5)
2015(1)
2017(1)(6)

June 2002
June 2004
November 2005
September 2007

50,000
150,000
150,000
250,000

287
440
390
877

49,713
149,560
149,610
249,123

7.750%
6.250%
6.150%
6.875%

7.833% June 2012
5.910% June 2014
6.185% December 2015
6.924% October 2017

interest method.

(4) Includes the effects of the discount, treasury lock gain and swap gain (as applicable).
(5) NNN entered into a forward starting interest rate swap agreement which fixed a swap rate of 4.61% on a notional
amount of $94,000. Upon issuance of the 2014 Notes, NNN terminated the forward starting interest rate swap
agreement resulting in a gain of $4,148. The gain has been deferred and is being amortized as an adjustment to interest
expense over the term of the 2014 Notes using the effective interest method.

(6) NNN entered into an interest rate hedge with a notional amount of $100,000. Upon issuance of the 2017 Notes, NNN
terminated the interest rate hedge agreement resulting in a liability of $3,260, of which $3,228 was recorded to other
comprehensive income. The liability has been deferred and is being amortized as an adjustment to interest expense over
the term of the 2017 Notes using the effective interest method.

Each series of the notes represent senior, unsecured obligations of NNN and are subordinated to all
secured indebtedness of NNN. Each of the notes are 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 the redemption date and (ii) the make-
whole amount, if any, as defined in the applicable supplemental indenture relating to the notes.

In connection with the debt offerings, NNN incurred debt issuance costs totaling $5,226,000
consisting primarily of underwriting discounts and commissions, legal and accounting fees, rating
agency fees and printing expenses. Debt issuance costs for all note issuances have been deferred and
are being amortized over the term of the respective notes using the effective interest method.

In September 2010, NNN repaid the $20,000,000 8.5% notes payable that were due in September
2010.

In accordance with the terms of the indenture, pursuant to which NNN’s notes have been issued,
NNN is required to meet certain restrictive financial covenants, which, among other things, require
NNN to maintain (i) certain leverage ratios and (ii) certain interest coverage. At December 31, 2010,
NNN was in compliance with those covenants.

Note 12 – Preferred Stock:

7.375% Series C Cumulative Redeemable Preferred Stock. In October 2006, NNN filed a prospectus
supplement to the prospectus contained in its February 2006 shelf registration statement and issued
3,680,000 depositary shares, each representing 1/100th of a share of 7.375% Series C Cumulative
Redeemable Preferred Stock (“Series C Preferred Stock”), and received gross proceeds of
$92,000,000. In connection with this offering, NNN incurred stock issuance costs of approximately
$3,098,000, consisting primarily of underwriting commissions and fees, legal and accounting fees
and printing expenses.

Holders of the depositary shares are entitled to receive, when and as authorized by the Board of
Directors, cumulative preferential cash dividends at the rate of 7.375% of the $25.00 liquidation
preference per depositary share per annum (equivalent to a fixed annual amount of $1.84375 per
depositary share). The Series C Preferred Stock underlying the depositary shares ranks senior to
NNN’s common stock with respect to dividend rights and rights upon liquidation, dissolution or
winding up of NNN. The Series C Preferred Stock has no maturity date and will remain outstanding
unless redeemed. NNN may redeem the Series C Preferred Stock underlying the depositary shares
on or after October 12, 2011, for cash, at a redemption price of $2,500.00 per share (or $25.00 per
depositary share), plus all accumulated, accrued and unpaid dividends.

Note 13 – Common Stock:

In October 2008, NNN filed a prospectus supplement to the prospectus contained in its February
2006 shelf registration statement and issued 3,450,000 shares (including 450,000 shares in
connection with the underwriters’ over allotment) of common stock at a price of $23.05 per share
and received net proceeds of $75,958,000. In connection with this offering, NNN incurred stock
issuance costs totaling approximately $3,565,000, consisting primarily of underwriters’ fees and
commissions, and legal and accounting fees and printing expenses.

In February 2009, NNN filed a shelf registration statement with the Commission which permits the
issuance by NNN of an indeterminate amount of debt and equity securities.

Dividend Reinvestment and Stock Purchase Plan. In June 2009, NNN filed a shelf registration
statement with the Commission for its Dividend Reinvestment and Stock Purchase Plan (“DRIP”)
which permits the issuance by NNN of 16,000,000 shares of common stock. The following outlines
the common stock issuances pursuant to the DRIP for the years ended December 31:

2010

2009

2008

Shares of common stock
Net proceeds

793,759
17,623,000

3,766,452
67,354,000

2,146,640
47,372,000

Note 14 – Employee Benefit Plan:

Effective January 1, 1998, NNN adopted a defined contribution retirement plan (the “Retirement
Plan”) covering substantially all of the employees of NNN. The Retirement Plan permits
participants to defer up to a maximum of 60 percent of their compensation, as defined in the
Retirement Plan, subject to limits established by the Code. NNN matches 60 percent of the
participants’ contributions up to a maximum of eight percent of a participant’s annual compensation.
NNN’s contributions to the Retirement Plan for the years ended December 31, 2010, 2009 and 2008
totaled $297,000, $302,000 and $385,000, respectively.

Note 15 – Dividends:

The following presents the characterization for tax purposes of common stock dividends paid to
stockholders for the years ended December 31:

Ordinary dividends
Qualified dividends
Capital gain
Unrecaptured Section 1250 Gain
Nontaxable distributions

2010

2009

2008

1.072446 $
0.081661
0.000861
0.000498
0.354534

1.495182 $

-
0.003051
0.001767
-

1.480000
-
-
-
-

1.510000 $

1.500000 $

1.480000

During the years ended December 31, 2010, 2009 and 2008, NNN declared and paid dividends to its
common shareholders of $125,391,000, $120,256,000 and $110,107,000, respectively, or $1.51,
$1.50 and $1.48 per share, respectively, of common stock.

On January 14, 2011, NNN declared a dividend of $0.38 per share, which is payable February 15,
2011 to its common stockholders of record as of January 31, 2011.

The following presents the characterization for tax purposes of preferred stock dividends per share
paid to stockholders for the year ended December 31:

Ordinary dividends
Qualified dividends
Capital gain
Unrecaptured Section 1250 Gain

2010

2009

2008

$1.703170 $1.837828 $1.843750
-
0.140580
-
-
-
-

-
0.003750
0.002172

$1.843750 $1.843750 $1.843750

NNN declared and paid dividends to its Series C Preferred stockholders of $6,785,000 or $1.84375
per depository share during each of the years ended December 31, 2010, 2009 and 2008. The Series
C Preferred Stock has no maturity date and will remain outstanding unless redeemed.

Note 16 – Restructuring Costs:

During the year ended December 31, 2009, NNN recorded restructuring costs of $731,000, related
to the reduction of its workforce in January 2009.

Note 17 – Income Taxes:

NNN treats some depreciation expense and certain other items differently for tax than for financial
reporting purposes. The principal differences between NNN’s effective tax rates for the years ended
December 31, 2010, 2009 and 2008, and the statutory rates relate to state taxes and nondeductible
expenses.

For income tax purposes, NNN has taxable REIT subsidiaries in which certain real estate activities
are conducted. In 2010, NNN acquired the 21.1% non-controlling interest in its majority owned and
controlled subsidiary, OAMI, pursuant to which OAMI became a wholly owned subsidiary of NNN.
OAMI has remaining tax liabilities relating to the built-in gain of its assets.

In June 2009, NNN incurred a new deferred income tax item as a result of NNN acquiring the
operations of 12 auto service businesses. See Note 5 – Business Combinations. The new deferred
tax item is goodwill. The amount of the tax deductible goodwill is approximately $11,216,000. It is

amortized for tax purposes using a straight-line method, over 15 years, beginning with the month
incurred.

The components of the net income tax asset consist of the following at December 31 (dollars in
thousands):

Temporary differences:

Built-in gain
Depreciation
Cost basis
Deferred income
Other
Reserves
Goodwill
Excess interest expense carryforward
Net operating loss carryforward

Net deferred income tax asset

Valuation allowance

2010

2009

$ (4,068) $ (4,731)
(385)
1,796
464
(268)
10,892
2,801
5,678
4,484

(772)
256
230
56
13,160
3,239
5,678
5,398

23,177
(18,021)

20,731
(14,900)

Total deferred income tax asset

$ 5,156

$ 5,831

In assessing the ability to realize a deferred tax asset, management considers whether it is more
likely than not that some portion or the entire deferred tax asset will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income during
the periods in which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. The net operating loss carryforwards were generated by
NNN’s taxable REIT subsidiaries. The net operating loss carryforwards begin to expire in 2027.
Based upon the level of historical taxable income, projections for future taxable income, and tax
strategies available to NNN over the periods in which the deferred tax assets are deductible,
management believes, with the exception of certain impairments and losses, it is more likely than
not that NNN will realize all of the benefits of these deductible differences that existed as of
December 31, 2010. NNN believes it is more likely than not that the benefit from certain
impairment charges and losses will not be realized. In recognition of this risk, NNN has provided a
valuation allowance of $18,021,000 on the deferred tax assets relating to the impairments and
losses. The income tax benefit consists of the following components for the years ended
December 31 (as adjusted) (dollars in thousands):

Net earnings before income taxes
Provision for income tax benefit (expense):

Current:

Federal
State and local

Deferred:
Federal
State and local

Total benefit (expense) for income taxes

2010

2009

2008

74,097

53,930

113,859

(254)
(48)

(744)
(54)

(1,100)

(419)
(79)

1,110
268

880

(1,936)
(364)

4,539
1,055

3,294

Net earnings attributable to NNN’s stockholders

72,997

54,810

117,153

In June 2006, the FASB issued additional guidance, which clarifies the accounting for uncertainty in
income taxes recognized in a company’s financial statements included in Income Taxes. The
interpretation prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax

return. The interpretation also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition.

NNN, in accordance with FASB guidance included in Income Taxes, has analyzed its various
federal and state filing positions. NNN believes that its income tax filing positions and deductions
are well documented and supported. Additionally, NNN believes that its accruals for tax liabilities
are adequate. Therefore, no reserves for uncertain income tax positions have been recorded pursuant
to the FASB guidance. In addition, NNN did not record a cumulative effect adjustment related to the
adoption of the FASB guidance.

NNN has had no increases or decreases in unrecognized tax benefits for current or prior years since
the date of adoption. Further, no interest or penalties have been included since no reserves were
recorded and no significant increases or decreases are expected to occur within the next 12 months.
When applicable, such interest and penalties will be recorded in non-operating expenses. The
periods that remain open under federal statute are 2007 through 2010. NNN also files in many states
with varying open years under statute.

Note 18 – Earnings from Discontinued Operations:

Real Estate – Investment Portfolio – NNN classified the revenues and expenses related to (i) all
Investment Properties that were sold and leasehold interests which expired, and (ii) all Investment
Properties that were held for sale as of December 31, 2010, as discontinued operations. The
following is a summary of the earnings from discontinued operations from the Investment Portfolio
for each of the years ended December 31 (dollars in thousands):

Revenues:

Operating expenses:

General and administrative
Real estate
Depreciation and amortization
Impairment losses and other charges

Earnings (loss) before gain on disposition of real estate and income tax

benefit (expense)

Gain on disposition of real estate
Income tax benefit (expense)

2010

2009

2008

1,181
-
-
48
21
-

1,250

16
309
186
-

511

4,786
-
-
208
118
5

5,117

7
784
1,438
3,536

5,765

739
1,134
(14)

(648)
2,392
32

5,655
100
25
208
429
2

6,419

(71)
374
1,454
1,730

3,487

2,932
9,980
2

Earnings from discontinued operations attributable to NNN

1,859

1,776

$ 12,914

Real Estate – Inventory Portfolio – NNN has classified as discontinued operations the revenues and
expenses related to (i) Inventory Properties which generated rental revenues prior to disposition, and
(ii) Inventory Properties which generated rental revenues and were held for sale as of December 31,
2010. The following is a summary of the earnings from discontinued operations from the Inventory
Portfolio for each of the years ended December 31 (dollars in thousands):

Revenues:

Rental income from operating leases
Percentage rent
Real estate expense reimbursement from tenants
Interest and other from real estate transactions

Disposition of real estate:

Gross proceeds
Costs

Gain

Operating expenses:

General and administrative
Real estate
Depreciation and amortization
Impairment losses and other charges

Other expenses (revenues):
Interest and other income
Interest expense

Earnings (loss) before income tax expense
Income tax expense

Earnings (loss) from discontinued operations including

noncontrolling interests

Loss (earnings) attributable to noncontrolling interests

Earnings (loss) from discontinued operations attributable to NNN

Note 19 – Derivatives:

2010

2009

2008

3,369
-
1,358
513

5,240

4,975
-
1,513
141

6,629

8,646
139
867
561

10,213

37,470
(37,170)

300

5,402
(4,844)

151,713
(139,069)

558

12,644

71
1,755
159
-

1,985

(3)
2,655

2,652

903
(611)

292
11

303

116
2,169
323
2,094

4,702

-
3,790

3,790

(1,305)
(201)

(1,506)
(166)

22
1,468
226
2,696

4,412

(8)
5,291

5,283

13,162
(3,963)

9,199
(2,722)

(1,672) $

6,477

In accordance with the guidance on derivatives and hedging, NNN records all derivatives on the
balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on
the intended use of the derivative and the resulting designation. Derivatives used to hedge the
exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a
particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge
the exposure to variability in expected future cash flows, or other types of forecasted transactions,
are considered cash flow hedges.

NNN’s objective in using derivatives is to add stability to interest expense and to manage its
exposure to interest rate movements or other identified risks. To accomplish this objective, NNN
primarily uses treasury locks, forward swaps (“forward hedges”) and interest rate swaps as part of
its cash flow hedging strategy. Treasury locks and forward starting swaps are used to hedge
forecasted debt issuances. Treasury locks designated as cash flow hedges lock in the yield/price of a
treasury security. Forward swaps also lock the associated swap spread. Interest rate swaps

designated as cash flow hedges hedging the variable cash flows associated with floating rate debt
involve the receipt of variable rate amounts in exchange for fixed-rate payments over the life of the
agreements without exchange of the underlying principal amount.

For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of
the derivative is initially reported in other comprehensive income (outside of earnings) and
subsequently reclassified to earnings when the hedged transaction affects earnings, and the
ineffective portion of changes in the fair value of the derivative is recognized directly in earnings.

NNN discontinues hedge accounting prospectively when it is determined that the derivative is no
longer effective in offsetting changes in the cash flows of the hedged item, the derivative expires or
is sold, terminated, or exercised, the derivative is re-designated as a hedging instrument or
management determines that designation of the derivative as a hedging instrument is no longer
appropriate.

When hedge accounting is discontinued, NNN continues to carry the derivative at its fair value on
the balance sheet, and recognizes any changes in its fair value in earnings or may choose to cash
settle the derivative at that time.

In February 2008, NNN terminated its interest rate hedge with a notional amount of $100,000,000
that was hedging the risk of changes in forecasted interest payments on a forecasted issuance of
long-term debt. The fair value of the interest rate hedge when terminated was a liability of $804,000,
which NNN recorded as a loss on interest rate hedge.

In September 2007, NNN terminated two interest rate hedges with a combined notional amount of
$100,000,000 that were hedging the risk of changes in forecasted interest payments on a forecasted
issuance of long-term debt. The fair value of the interest rate hedges when terminated was a liability
of $3,260,000, of which $3,228,000 was deferred in other comprehensive income.

In June 2004, NNN terminated its forward-starting interest rate swaps with a notional amount of
$94,000,000 that was hedging the risk of changes in forecasted interest payments on a forecasted
issuance of long-term debt. The fair value of the interest rate swaps when terminated was an asset of
$4,148,000, which was deferred in other comprehensive income.

As of December 31, 2010, $715,000 remains in other comprehensive income related to the effective
portion of NNN’s previous interest rate hedges. During the year ended December 31, 2010, 2009
and 2008, NNN reclassed $165,000, $159,000 and $162,000, respectively, out of other
comprehensive income as a reduction to interest expense. Over the next 12 months, NNN estimates
that an additional $172,000 will be reclassified as a reduction in interest expense. Amounts reported
in accumulated other comprehensive income related to derivatives will be reclassified to interest
expense as interest payments are made on NNN’s long-term debt.

NNN does not use derivatives for trading or speculative purposes or currently have any derivatives
that are not designated as hedges. NNN had no derivative financial instruments outstanding at
December 31, 2010.

Note 20 – Performance Incentive Plan:

In June 2007, NNN filed a registration statement on Form S-8 with the Commission which permits
the issuance of up to 5,900,000 shares of common stock pursuant to NNN’s 2007 Performance
Incentive Plan (the “2007 Plan”). The 2007 Plan replaced NNN’s previous Performance Incentive
Plan. The 2007 Plan allows NNN to award or grant to key employees, directors and persons
performing consulting or advisory services for NNN or its affiliates, stock options, stock awards,
stock appreciation rights, Phantom Stock Awards, Performance Awards and Leveraged Stock
Purchase Awards, each as defined in the 2007 Plan.

The following summarizes NNN’s stock-based compensation activity for each of the years ended
December 31:

Number of Shares
2009

2010

2008

Outstanding, January 1
Options granted
Options exercised
Options surrendered

Outstanding, December 31

Exercisable, December 31

12,154
-
(4,654)
-

77,004
-
(51,500)
(13,350)

118,804
-
(28,000)
(13,800)

7,500

12,154

77,004

7,500

12,154

77,004

The following represents the weighted average option exercise price information for each of the
years ended December 31:

Outstanding, January 1
Granted during the year
Exercised during the year
Outstanding, December 31
Exercisable, December 31

2010

2009

2008

13.72
-
13.08
14.11
14.11

14.00
-
13.72
13.72
13.72

13.64
-
11.17
14.00
14.00

The following summarizes the outstanding options and the exercisable options at December 31,
2010:

Outstanding options:

Number of shares
Weighted-average exercise price
Weighted-average remaining contractual life in years

Exercisable options:

Number of shares
Weighted-average exercise price

Total

7,500
14.11
1.8

7,500
14.11

One-third of the option grant to each individual becomes exercisable at the end of each of the first
three years of service following the date of the grant and the options’ maximum term is 10 years. At
December 31, 2010, the intrinsic value of options outstanding was $93,000. All options outstanding
at December 31, 2010, were exercisable. During the years ended December 31, 2010, 2009 and
2008, NNN received proceeds totaling $61,000, $707,000 and $313,000, respectively, in connection
with the exercise of options. NNN issued new common stock to satisfy share option exercises. The
total intrinsic value of options exercised during the years ended December 31, 2010, 2009 and 2008,
was $43,000, $240,000 and $327,000, respectively.

Pursuant to the 2007 Plan, NNN has granted and issued shares of restricted stock to certain officers,
directors and key associates of NNN. The following summarizes the activity for the year ended
December 31, 2010, of such grants.

Non-vested restricted shares, January 1
Restricted shares granted
Restricted shares vested
Restricted shares forfeited

Non-vested restricted shares, December 31

Number
of
Shares
668,010
392,474
(142,637)
(15,310)

Weighted
Average
Share Price
16.95
$
21.38
19.80
11.23

902,537

18.52

During the year ended December 31, 2010 and 2008, a total of 15,310 and 2,520, respectively, of
restricted shares were forfeited. No shares were forfeited in 2009.

Compensation expense for the restricted stock which is not contingent upon NNN’s performance
goals is determined based upon the fair value at the date of grant, assuming a 1.3% forfeiture rate,
and is recognized as the greater of the amount amortized over a straight lined basis or the amount
vested over the vesting periods. Vesting periods for officers and key associates of NNN range from
four to seven years and generally vest yearly on a straight line basis.

During the year ended December 31, 2008, NNN granted 81,330 performance based shares with a
weighted average grant price of $8.00 to certain executive officers of NNN. The compensation
expense for the grant is based upon fair market value of the grant calculated by a third party using a
lattice model with the following assumptions: (i) risk free rate of 3.48%, (ii) a dividend rate of
6.50%, (iii) a term of five years, and (iv) a volatility of 19.89%. Volatility is based upon the
historical volatility of NNN’s stock and other factors. The vesting of these shares is contingent upon
the achievement of certain performance goals by January 1, 2013.

During the year ended December 31, 2010, NNN granted 91,000 performance based shares subject
to its earnings based growth after a three year period relative to its peers. The shares were granted to
certain executive officers and had weighted average grant price of $23.12 per share. Once the
performance criteria are met and the actual number of shares earned is determined, the shares vest
immediately. NNN considers the likelihood of meeting the performance criteria based upon
management’s estimates and analysis of future earnings based growth relative to its peers from
which it determines the amounts to be recognized. Compensation expense is recognized over the
requisite service period.

The following summarizes other grants made during the year ended December 31, 2010, pursuant to
the 2007 Plan.

Other share grants under the 2007 Plan:

Directors’ fees
Deferred Directors’ fees

Weighted
Average
Share Price

10,092
25,066
35,158

23.38
23.54
23.50

Shares available under the 2007 Plan for grant, end of period

4,860,190

The total compensation cost for share-based payments for the years ended December 31, 2010, 2009
and 2008, totaled $5,310,000, $4,172,000 and $3,341,000, respectively, of such compensation
expense. At December 31, 2010, NNN had $9,366,000 of unrecognized compensation cost related to
non-vested share-based compensation arrangements under the 2007 Plan. This cost is expected to be
recognized over a weighted average period of 2.5 years.

Note 21 – Fair Value of Financial Instruments:

NNN believes the carrying value of its Credit Facility approximates fair value based upon its nature,
terms and variable interest rate. NNN believes that the carrying value of its cash and cash
equivalents, mortgages, notes and other receivables, mortgages payable and other liabilities at
December 31, 2010 and 2009, approximate fair value based upon current market prices of similar
issues. At December 31, 2010 and 2009, the carrying value and fair value of NNN’s notes payable
and convertible notes payable, collectively, was $1,044,621,000 and $987,275,000, respectively,
based upon the quoted market price.

Note 22 – Quarterly Financial Data (unaudited):

The following table outlines NNN’s quarterly financial data (dollars in thousands, except per share
data):

2010

Revenues as originally reported
Reclassified to discontinued operations

Adjusted revenue

Net earnings attributable to NNN’s stockholders

Net earnings per share (1):

Basic
Diluted

2009

Revenues as originally reported
Reclassified to discontinued operations

Adjusted revenue

Net earnings (loss) attributable to NNN’s

stockholders

Net earnings (loss) per share (1):

Basic
Diluted

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

56,626 $
(101)

56,496 $
(54)

56,656
(7)

56,525 $

56,442 $

56,649

16,365 $

21,207 $

21,210

0.18 $
0.18

0.23 $
0.23

0.23
0.23

57,963 $
114

58,681 $
(546)

57,035
59

58,077 $

58,135 $

57,094

59,440
-

59,440

14,215

0.15
0.15

57,750
(242)

57,508

26,804 $

18,090 $

22,443

$ (12,527)

0.32 $
0.32

0.21 $
0.20

0.26
0.26

(0.18)
(0.17)

(1) Calculated independently for each period and consequently, the sum of the quarters may differ

from the annual amount.

Note 23 – Segment Information:

NNN has identified two primary financial segments: (i) Investment Assets, and (ii) Inventory
Assets. The following tables represent the segment data and reconciliation to NNN’s consolidated
totals for the years ended December 31, 2010, 2009 and 2008 (as adjusted) (dollars in thousands):

2010

External revenues
Intersegment revenues
Interest revenue
Interest revenue on Residuals
Gain on the disposition of real estate,

Inventory Portfolio
Retail operations, net
Interest expense
Depreciation and amortization
Operating expenses
Impairment losses and other charges
Impairment – commercial mortgage residual

interests valuation adjustment
Equity in earnings of unconsolidated

affiliate

Income tax benefit (expense)

Earnings (loss) from continuing operations
Earnings from discontinued operations, net

of income tax expense

Earnings (loss) including noncontrolling

interests

Earnings attributable to noncontrolling
interests from continuing operations
Earnings attributable to noncontrolling

interests from discontinued operations

Net earnings (loss) attributable to NNN

Assets

Additions to long-lived assets:

Real estate

Investment
Assets

Inventory
Assets

Eliminations
(Intercompany)

Consolidated
Totals

223,830
-
3,279
3,460

641
1,311
65,179
48,328
36,312
7,458

3,995

428
(475)

71,202

2,151

73,353

(367)

72,997

2,713,575

231,406

223,870
671
3,231
3,460

(40) $
534
48
-

-
1,311
67,834
48,320
31,983
7,458

3,995

(372)
(1,434)

71,147

1,859

73,006

(9)

426
-
(1,450)
8
4,329
260

-
959

(1,220)

292

(928)

(358)

-
(1,205)
-
-

215
-
(1,205)
-
-
(260)

800
-

1,275

72,997

2,846,036

230,928

(1,275) $

1,275

38,997

478

(171,458)

2009

External revenues
Intersegment revenues
Interest revenue
Interest revenue Residuals
Gain on the disposition of real estate, Inventory

Portfolio

Retail operations, net
Interest expense
Depreciation and amortization
Operating expenses
Impairment losses and other charges
Impairments – commercial mortgage residual

interests valuation adjustment

Restructuring costs
Equity in earnings of

unconsolidated affiliates
Gain on extinguishment of debt
Income tax benefit

Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations, net of

income tax expense

Earnings (loss) including noncontrolling interests
Loss (earnings) attributable to noncontrolling interests

from continuing operations

Earnings attributable to noncontrolling interests from

discontinued operations

Net earnings (loss) attributable to NNN

Assets

Additions to long-lived assets:

Real estate

Investment
Assets

Inventory
Assets

Eliminations
(Intercompany)

Consolidated
Totals

223,262
3,035
4,447
4,252

223,456
-
4,477
4,252

194
1,042
30
-

5
-
188
10
5,080
6,713

-
-

-
-
587

(10,133)

(1,506)

(11,639)

(906)

(166)

-
(4,077)
-
-

32
-
(4,055)
-
-
-

-
-

12,701
-
-

12,711

37
419
62,151
46,539
35,415
36,080

498
731

421
3,432
1,049

56,129

270

56,399

(1,423)

(166)

54,810

(12,711) $

12,711

237,715

2,457

(235,161) $

2,590,962

46,890

-
419
66,018
46,529
30,335
29,367

498
731

(12,280)
3,432
462

53,551

1,776

55,327

(517)

54,810

2,588,408

44,433

2008

External revenues
Intersegment revenues
Interest revenue
Interest revenue on Residuals
Gain on the disposition of real estate,

Inventory Portfolio

Interest expense
Depreciation and amortization
Operating expenses
Impairment losses and other charges
Impairments – commercial mortgage residual

interests valuation adjustment

Equity in earnings of unconsolidated affiliates
Loss on derivative instrument
Gain on extinguishment of debt
Income tax benefit

Earnings (loss) from continuing operations
Earnings from discontinued operations, net of

income tax expense

Earnings including noncontrolling interests
Loss (earnings) attributable to noncontrolling

interests from continuing operations
Earnings attributable to noncontrolling

interests from discontinued operations

Net earnings (loss) attributable to NNN

Assets

Additions to long-lived assets:

Real estate

Investment
Assets

Inventory
Assets

Eliminations
(Intercompany)

Consolidated
Totals

217,682
12,727
8,190
4,636

204
606
-
-

-
69,763
43,626
25,489
1,234

758
(2,785)
(804)
4,961
1,329

(308)
7,442
42
9,538
-

-
-
-
-
5,926

105,066

(10,594)

12,914

117,980

(827)

9,199

(1,395)

731

(2,722)

-
(13,333)
-
-

329
(13,241)
-
-
-

-
3,149
-
-
-

3,386

217,886
-
8,190
4,636

21
63,964
43,668
35,027
1,234

758
364
(804)
4,961
7,255

97,858

22,113

119,971

(96)

(2,722)

117,153

2,650,040

352,618

(3,386) $

3,386

117,153

128,916

33,745

(129,485) $

2,649,471

386,363

Note 24 – Fair Value Measurements:

NNN currently values its Residuals based upon an independent valuation which provides a
discounted cash flow analysis based upon prepayment speeds, expected loan losses and yield curves.
These valuation inputs are generally considered unobservable; therefore, the Residuals are
considered Level 3 financial assets. The table below presents a reconciliation of the Residuals
during the year ended December 31, 2010 (dollars in thousands):

Balance at beginning of period

Total gains (losses) – realized/unrealized:

Included in earnings
Included in other comprehensive income

Interest income on Residuals
Cash received from Residuals
Purchases, sales, issuances and settlements, net
Transfers in and/or out of Level 3

Balance at end of period

Changes in gains (losses) included in earnings attributable to a

change in unrealized gains (losses) relating to assets still held at
the end of period

20,153

(3,995)
1,272
3,460
(4,975)
-
-

15,915

(133)

Note 25 – Major Tenants:

As of December 31, 2010, NNN did not have any tenant that accounted for ten percent or more of
its rental and earned income.

Note 26 – Commitments and Contingencies:

As of December 31, 2010, NNN had letters of credit totaling $647,000 outstanding under its Credit
Facility.

In the ordinary course of its business, NNN is a party to various other legal actions which
management believes are routine in nature and incidental to the operation of the business of NNN.
Management believes that the outcome of the proceedings will not have a material adverse effect
upon its operations, financial condition or liquidity.

Note 27 – Subsequent Events:

NNN reviewed all subsequent events and transactions that have occurred after December 31, 2010,
the date of the consolidated balance sheet. There were no subsequent events or transactions.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Process for Assessment and Evaluation of Disclosure Controls and Procedures and Internal Control over
Financing Reporting.

NNN carried out an assessment as of December 31, 2010, of the effectiveness of the design and operation
of its disclosure controls and procedures and its internal control over financial reporting. This assessment
was done under the supervision and with the participation of management, including NNN’s Chief
Executive Officer and Chief Financial Officer. Rules adopted by the Securities and Exchange Commission
(the “Commission”) require NNN to present the conclusions of the Chief Executive Officer and Chief
Financial Officer about the effectiveness of NNN’s disclosure controls and procedures and the conclusions
of NNN’s management about the effectiveness of NNN’s internal control over financial reporting as of the
end of the period covered by this annual report.

CEO and CFO Certifications. Included as Exhibits 31.1 and 31.2 to this Annual Report on Form 10-K are
forms of “Certification” of NNN’s Chief Executive Officer and Chief Financial Officer. The forms of
Certification are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002. This section
of the Annual Report on Form 10-K that stockholders are currently reading is the information concerning
the assessment referred to in the Section 302 certifications and this information should be read in
conjunction with the Section 302 certifications for a more complete understanding of the topics presented.

Disclosure Controls and Procedures and Internal Control over Financial Reporting. Disclosure controls
and procedures are designed with the objective of providing reasonable assurance that information required
to be disclosed in NNN’s reports filed or submitted under the Exchange Act, such as this Annual Report on
Form 10-K, is recorded, processed, summarized and reported within the time periods specified in the
Commission’s rules and forms. Disclosure controls and procedures are also designed with the objective of
providing reasonable assurance that such information is accumulated and communicated to NNN’s
management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure.

Internal control over financial reporting is a process designed by, or under the supervision of, NNN’s Chief
Executive Officer and Chief Financial Officer, and affected by NNN’s Board of Directors, management and
other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting
principles (“GAAP”) and includes those policies and procedures that:

•

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of NNN’s assets;

provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that
NNN’s receipts and expenditures are being made in accordance with authorizations of
management or the Board of Directors; and

provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of NNN’s assets that could have a material adverse effect on
NNN’s financial statements.

Scope of the Assessments. The assessment by NNN’s Chief Executive Officer and Chief Financial Officer
of NNN’s disclosure controls and procedures and the assessment by NNN’s management, including NNN’s
Chief Executive Officer and Chief Financial Officer, of NNN’s internal control over financial reporting
included a review of procedures and discussions with NNN’s management and others at NNN. In the course
of the assessments, NNN sought to identify data errors, control problems or acts of fraud and to confirm
that appropriate corrective action, including process improvements, were being undertaken.

NNN’s internal control over financial reporting is also assessed on an ongoing basis by personnel in NNN’s
Accounting department and by NNN’s internal auditors in connection with their internal audit activities.
The overall goals of these various assessment activities are to monitor NNN’s disclosure controls and
procedures and NNN’s internal control over financial reporting and to make modifications as necessary.
NNN’s intent in this regard is that the disclosure controls and procedures and the internal control over
financial reporting will be maintained and updated (including with improvements and corrections) as
conditions warrant. Management also sought to deal with other control matters in the assessment, and in
each case if a problem was identified, management considered what revision, improvement and/or
correction was necessary to be made in accordance with NNN’s on-going procedures. The assessments of
NNN’s disclosure controls and procedures and NNN’s internal control over financial reporting is done on a
quarterly basis so that the conclusions concerning effectiveness of those controls can be reported in NNN’s
Quarterly Reports on Form 10-Q and Annual Report on Form 10-K.

Assessment of Effectiveness of Disclosure Controls and Procedures.

Based upon the assessments, NNN’s Chief Executive Officer and Chief Financial Officer have concluded
that, as of December 31, 2010, NNN’s disclosure controls and procedures were effective.

Management’s Report on Internal Control over Financial Reporting.

Management, including NNN’s Chief Executive Officer and Chief Financial Officer, are responsible for
establishing and maintaining adequate internal control over financial reporting for NNN. Management used
the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission in Internal
Control – Integrated Framework to assess the effectiveness of NNN’s internal control over financial
reporting. Based upon the assessments, NNN’s Chief Executive Officer and Chief Financial Officer have
concluded that, as of December 31, 2010, NNN’s internal control over financial reporting was effective.

Attestation Report of the Registered Public Accounting Firm.

Ernst & Young LLP, NNN’s independent registered public accounting firm, audited the financial statements
included in this Annual Report on Form 10-K and has issued an attestation report on NNN’s effectiveness
of internal control over financial reporting, which appears in this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting.

During the three months ended December 31, 2010, there were no changes in NNN’s internal control over
financial reporting that has materially affected, or are reasonably likely to materially affect, NNN’s internal
control for financial reporting.

Limitations on the Effectiveness of Controls.

Management, including NNN’s Chief Executive Officer and Chief Financial Officer, do not expect that
NNN’s disclosure controls and procedures or NNN’s internal control over financial reporting will prevent
all errors and all fraud. A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of

controls can provide absolute assurance that all control issues and instances of fraud, if any, within NNN
have been detected. These inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more people, or by
management’s override of the control. The design of any system of controls also is based in part upon
certain assumptions about the likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions; over time, controls may become
inadequate because of changes in conditions, or the degree of compliance with the policies or procedures
may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Reference is made to the Registrant’s definitive proxy statement to be filed with the Commission pursuant
to Regulation 14(a); information responsive to this Item is contained in the sections thereof captioned
“Proposal I: Election of Directors – Nominees,” “Proposal I: Election of Directors – Executive Officers,”
“Proposal I: Election of Directors – Code of Business Conduct” and “Security Ownership,” and the
information in such sections is incorporated herein by reference.

Item 11. Executive Compensation

Reference is made to the Registrant’s definitive proxy statement to be filed with the Commission pursuant
to Regulation 14(a); information responsive to this Item is contained in the sections thereof captioned
“Proposal I: Election of Directors – Compensation of Directors,” “Executive Compensation” and
“Compensation Committee Report,” and the information in such sections are incorporated herein by
reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters

Reference is made to the Registrant’s definitive proxy statement to be filed with the Commission pursuant
to Regulation 14(a); information responsive to this Item is contained in the section thereof captioned
“Executive Compensation – Equity Compensation Plan Information,” and “Security Ownership,” and the
information in such sections are incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Reference is made to the Registrant’s definitive proxy statement to be filed with the Commission pursuant
to Regulation 14(a); information responsive to this Item is contained in the section thereof captioned
“Certain Relationships and Related Transactions” and the information in such section is incorporated herein
by reference.

Item 14. Principal Accountant Fees and Services

Reference is made to the Registrant’s definitive proxy statement to be filed with the Commission pursuant
to Regulation 14(a); information responsive to this Item is contained in the section thereof captioned “Audit
Committee Report” and “Proposal II: Proposal to Ratify Independent Registered Public Accounting Firm,”
and the information in such sections are incorporated herein by reference.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this report.

(1) Financial Statements

Reports of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2010 and 2009

Consolidated Statements of Earnings for the years ended December 31, 2010, 2009 and
2008

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2010,
2009 and 2008

Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and
2008

Notes to Consolidated Financial Statements

(2) Financial Statement Schedules

Schedule III – Real Estate and Accumulated Depreciation and Amortization and Notes as of
December 31, 2010

Schedule IV – Mortgage Loans on Real Estate and Notes as of December 31, 2010

All other schedules are omitted because they are not applicable or because the required
information is shown in the financial statements or the notes thereto.

(3) Exhibits

The following exhibits are filed as a part of this report.

Articles of Incorporation and Bylaws

3.1

3.2

First Amended and Restated Articles of Incorporation of the Registrant, as
amended (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K
dated and filed with the Securities and Exchange Commission on May 1, 2006,
and incorporated herein by reference).

Articles Supplementary Establishing and Fixing the Rights and Preferences of
7.375% Series C Cumulative Preferred Stock, par value $0.01 per share, dated
October 11, 2006 (filed as Exhibit 3.2 to the Registrant’s Registration Statement
on Form 8-A dated October 11, 2006 and filed with the Securities and Exchange
Commission on October 12, 2006, and incorporated herein by reference).

3.3

Third Amended and Restated Bylaws of the Registrant, as amended (filed as
Exhibit 3.2 to the Registrant’s Current Report on Form 8-K dated and filed with
the Securities and Exchange Commission on May 1, 2006, and incorporated
herein by reference; second amendment filed as Exhibit 3.1 to the Registrant’s
Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 14, 2007, and incorporated herein by reference).

Instruments Defining the Rights of Security Holders, Including Indentures

4.1

4.2

4.3

4.4

4.5

4.6

4.7

Specimen Certificate of Common Stock, par value $0.01 per share, of the
Registrant (filed as Exhibit 3.4 to the Registrant’s Registration Statement No. 1-
11290 on Form 8-B filed with the Securities and Exchange Commission and
incorporated herein by reference).

Indenture, dated as of March 25, 1998, between the Registrant and First Union
National Bank, as trustee (filed as Exhibit 4.4 to the Registrant’s Registration
Statement on Form S-3 (Registration No. 333-132095) filed with the Securities
and Exchange Commission on February 28, 2006, and incorporated herein by
reference).

Form of Supplemental Indenture No. 3 dated September 20, 2000, by and among
Registrant and First Union National Bank, Trustee, relating to $20,000,000 of
8.5% Notes due 2010 (filed as Exhibit 4.2 to the Registrant’s Current Report on
Form 8-K dated and filed with the Securities and Exchange Commission on
September 20, 2000, and incorporated herein by reference).

Form of 8.5% Notes due 2010 (filed as Exhibit 4.3 to the Registrant’s Current
Report on Form 8-K dated and filed with the Securities and Exchange
Commission on September 20, 2000, and incorporated herein by reference).

Form of Supplemental Indenture No. 4 dated as of May 30, 2002, by and among
Registrant and Wachovia Bank, National Association, Trustee, relating to
$50,000,000 of 7.75% Notes due 2012 (filed as Exhibit 4.2 to the Registrant’s
Current Report on Form 8-K dated and filed with the Securities and Exchange
Commission on June 4, 2002, and incorporated herein by reference).

Form of 7.75% Notes due 2012 (filed as Exhibit 4.3 to the Registrant’s Current
Report on Form 8-K dated and filed with the Securities and Exchange
Commission on June 4, 2002, and incorporated herein by reference).

Form of Supplemental Indenture No. 5 dated as of June 18, 2004, by and among
Registrant and Wachovia Bank, National Association, Trustee, relating to
$150,000,000 of 6.25% Notes due 2014 (filed as Exhibit 4.1 to the Registrant’s
Current Report on Form 8-K dated June 15, 2004 and filed with the Securities
and Exchange Commission on June 18, 2004, and incorporated herein by
reference).

4.8

4.9

4.10

4.11

4.12

4.13

4.14

4.15

4.16

Form of 6.25% Notes due 2014 (filed as Exhibit 4.2 to the Registrant’s Current
Report on Form 8-K dated June 15, 2004 and filed with the Securities and
Exchange Commission on June 18, 2004, and incorporated herein by reference).

Form of Supplemental Indenture No. 6 dated as of November 17, 2005, by and
among Registrant and Wachovia Bank, National Association, Trustee, relating
to $150,000,000 of 6.15% Notes due 2015 (filed as Exhibit 4.1 to the
Registrant’s Current Report on Form 8-K dated November 14, 2005 and filed
with the Securities and Exchange Commission on November 17, 2005, and
incorporated herein by reference).

Form of 6.15% Notes due 2015 (filed as Exhibit 4.2 to the Registrant’s Current
Report on Form 8-K dated November 14, 2005 and filed with the Securities and
Exchange Commission on November 17, 2005, and incorporated herein by
reference).

Seventh Supplemental Indenture, dated as of September 13, 2006, between
National Retail Properties, Inc. and U.S. Bank National Association relating to
3.95% Convertible Senior Notes due 2026 (filed as Exhibit 4.1 to the
Registrant’s Current Report on Form 8-K dated September 7, 2006 and filed
with the Securities and Exchange Commission on September 13, 2006, and
incorporated herein by reference).

Form of 3.95% Convertible Senior Notes due 2026 (filed as Exhibit 4.2 to the
Registrant’s Current Report on Form 8-K dated September 7, 2006 and filed
with the Securities and Exchange Commission on September 13, 2006, and
incorporated herein by reference).

Specimen certificate representing the 7.375% Series C Cumulative Redeemable
Preferred Stock, par value $.01 per share, of the Registrant (filed as Exhibit 4.4
to the Registrant’s Registration Statement on Form 8-A dated October 11, 2006
and filed with the Securities and Exchange Commission on October 12, 2006,
and incorporated herein by reference).

Deposit Agreement, among the Registrant, American Stock Transfer & Trust
Company, as Depositary, and the holders of depositary receipts (filed as Exhibit
4.18 to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities
and Exchange Commission on November 6, 2006, and incorporated herein by
reference).

Form of Supplemental Indenture No. 8 between National Retail Properties, Inc.
and U.S. Bank National Association relating to 6.875% Notes due 2017 (filed as
Exhibit 4.1 to Registrant’s Current Report on Form 8-K dated and filed with the
Securities and Exchange Commission on September 4, 2007, and incorporated
herein by reference).

Form of 6.875% Notes due 2017 (filed as Exhibit 4.2 to the Registrant’s Current
Report on Form 8-K dated and filed with the Securities and Exchange
Commission on September 4, 2007, and incorporated herein by reference).

4.17

4.18

Form of Ninth Supplemental Indenture between National Retail Properties, Inc.
and U.S. Bank National Association relating to 5.125% Convertible Senior
Notes due 2028 (filed as Exhibit 4.1 to Registrants’ Current Report on Form 8-K
dated February 27, 2008 and filed with the Securities and Exchange Commission
on March 4, 2008, and incorporated herein by reference).

Form of 5.125% Convertible Senior Notes due 2028 (filed as Exhibit 4.2 to the
Registrant’s Current Report on Form 8-K dated February 27, 2008 and filed with
the Securities and Exchange Commission on March 4, 2008, and incorporated
herein by reference).

10. Material Contracts

10.1

10.2

10.3

10.4

10.5

10.6

10.7

2007 Performance Incentive Plan (filed as Annex A to the Registrant’s 2007
Annual Proxy Statement on Schedule 14A filed with the Securities and
Exchange Commission on April 3, 2007, and incorporated herein by reference).

Form of Restricted Stock Agreement between NNN and the Participant of NNN
(filed as Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K filed with
the Securities and Exchange Commission on March 15, 2005, and incorporated
herein by reference).

Employment Agreement dated as of December 1, 2008, between the Registrant
and Craig Macnab (filed as Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K filed with the Securities and Exchange Commission on December 3,
2008, and incorporated herein by reference).

Employment Agreement dated as of December 1, 2008, between the Registrant
and Julian E. Whitehurst (filed as Exhibit 10.2 to the Registrant’s Current Report
on Form 8-K filed with the Securities and Exchange Commission on December
3, 2008, and incorporated herein by reference).

Employment Agreement dated as of December 1, 2008, between the Registrant
and Kevin B. Habicht (filed as Exhibit 10.3 to the Registrant’s Current Report
on Form 8-K filed with the Securities and Exchange Commission on December
3, 2008, and incorporated herein by reference).

Employment Agreement dated as of December 1, 2008, between the Registrant
and Paul E. Bayer (filed as Exhibit 10.5 to the Registrant’s Current Report on
Form 8-K filed with the Securities and Exchange Commission on December 3,
2008, and incorporated herein by reference).

Employment Agreement dated as of December 1, 2008, between the Registrant
and Christopher P. Tessitore (filed as Exhibit 10.4 to the Registrant’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on
December 3, 2008, and incorporated herein by reference).

10.8

10.9

Form of Indemnification Agreement (as entered into between the Registrant and
each of its directors and executive officers) (filed as Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K dated and filed with the Securities and
Exchange Commission on June 12, 2009, and incorporated herein by reference).

Credit Agreement, dated as of November 3, 2009, by and among the Registrant,
certain lenders and Wells Fargo Bank, National Association, as the
Administrative Agent (filed as Exhibit 10.9 to the Registrant’s Quarterly Report
on Form 10-Q filed with the Securities and Exchange Commission on November
5, 2010, and incorporated herein by reference).

10.10

Amendment to Employment Agreement dated as of November 8, 2010, between
the Registrant and Craig Macnab (filed herewith).

10.11

Amendment to Employment Agreement dated as of November 8, 2010, between
the Registrant and Julian E. Whitehurst (filed herewith).

10.12

Amendment to Employment Agreement dated as of November 8, 2010, between
the Registrant and Kevin B. Habicht (filed herewith).

10.13

Amendment to Employment Agreement dated as of November 8, 2010, between
the Registrant and Paul E. Bayer (filed herewith).

10.14

Amendment to Employment Agreement dated as of November 8, 2010, between
the Registrant and Christopher P. Tessitore (filed herewith).

12.

Statement of Computation of Ratios of Earnings to Fixed Charges (filed herewith).

21.

Subsidiaries of the Registrant (filed herewith).

23.

Consent of Independent Accountants

23.1

Ernst & Young LLP dated February 24, 2011 (filed herewith).

24.

Power of Attorney (included on signature page).

31.

Section 302 Certifications

31.1

31.2

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).

32.

Section 906 Certifications

32.1

32.2

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).

99.

Additional Exhibits

99.1

Certification of Chief Executive Officer pursuant to Section 303A.12(a) of the
New York Stock Exchange Listed Company Manual (filed herewith).

101.

Interactive Data File

101.1

The following materials from National Retail Properties, Inc. Annual Report on
Form 10-K for the period ended December 31, 2010, formatted in Extensible
Business Reporting Language: (i) condensed consolidated balance sheets, (ii)
condensed consolidated statements of earnings, (iii) condensed consolidated
statements of cash flows, and (iv) notes to condensed consolidated financial
statements. As provided in Rule 406T of Regulation S-T, this information is
furnished and not filed for purposes of Sections 11 and 12 of the Securities Act
of 1933 and Section 18 of the Securities Exchange Act of 1934 (filed herewith).

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the
24th day of February, 2011.

NATIONAL RETAIL PROPERTIES, INC.

By:

/s/ Craig Macnab
Craig Macnab
Chairman of the Board and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Left to right: (seated)
Craig Macnab, Julian E. Whitehurst

Left to right: (standing)
Paul E. Bayer, Kevin B. Habicht,
Christopher P. Tessitore

Paul E. Bayer
Executive Vice President and
Chief Investment Officer

Christopher P. Tessitore
Executive Vice President and
General Counsel

Kevin B. Habicht
Executive Vice President and
Chief Financial Officer
National Retail Properties, Inc.
Richard B. Jennings†
President
Realty Capital International LLC

Robert C. Legler
Retired Chairman
First Marketing Corporation
Robert Martinez†
Fortieth Governor of Florida and
Senior Policy Advisor
Holland & Knight

Executive Officers

Craig Macnab
Chairman and Chief Executive Officer

Julian E. Whitehurst
President and Chief Operating Officer

Kevin B. Habicht
Executive Vice President and
Chief Financial Officer

Directors

Craig Macnab
Chairman
Ted B. Lanier†
Lead Director

Don DeFosset
Retired Chairman, President and
Chief Executive Officer
Walter Industries, Inc.
David M. Fick†
Professional Faculty Member,
Johns Hopkins University Carey Business School and
President of Nandua Oyster Company

Dennis E. Gershenson
President, Chief Executive Officer and
Chairman
Ramco-Gershenson Properties Trust

Shareholder Information

For General Information:
American Stock Transfer & Trust Company
Operations Center, 6201 15th Avenue
Brooklyn, NY 11219
www.amstock.com

Shareholder Toll-free Line:
1-866-627-2644
Worldwide: 718-921-8346
Fax: 718-236-2641

For Dividend Reinvestment:
American Stock Transfer & Trust Company
P.O. Box 922, Wall Street Station
New York, NY 10269

Independent Registered Public Accounting Firm:
Ernst & Young LLP
Miami, FL

† Member audit committee (Committees as of February 17, 2011)

Corporate Office:
National Retail Properties, Inc.
450 S. Orange Avenue, Suite 900
Orlando, FL 32801
(800) NNN-REIT
(407) 265-7348
www.nnnreit.com

FORM 10-K
A copy of the Company’s Form 10-K, as filed with the
Securities and Exchange Commission (SEC) for fiscal
2010, which includes as Exhibits the Chief Executive
Officer and Chief Financial Officer certifications required
to be filed with the SEC pursuant to Section 302 of the
Sarbanes-Oxley Act, has been filed with the SEC and
may also be obtained by shareholders without charge
upon written request to the Company’s Secretary at the
above address, or on our website. During fiscal 2010,
the Company filed with the New York Stock Exchange
(NYSE) the Certifi cation of its Chief Executive Officer
confirming that the Chief Executive Officer was not
aware of any violations by the Company of the NYSE’s
corporate governance listing standards.

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450 S. Orange Avenue, Suite 900
Orlando, FL 32801
(800) NNN-REIT
www.nnnreit.com