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NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings assigns a credit rating of 'BB+' to the $250 million 6.625% series D cumulative redeemable preferred stock issued by National Retail Properties, Inc. (NYSE: NNN). Net proceeds from the offering are expected to be used to redeem $92 million of series C preferred stock and for general corporate purposes, which may include repayment of outstanding balances on the company's revolving credit facility.

Fitch currently rates the company as follows:

--Issuer Default Rating (IDR) at 'BBB';

--Unsecured revolving credit facility at 'BBB';

--Senior unsecured notes at 'BBB';

--Senior unsecured convertible notes at 'BBB';

--Preferred stock at 'BB+'.

The Rating Outlook is Stable.

The 'BBB' IDR takes into account NNN's solid credit metrics, which are appropriate for the rating, as well as the company's diverse portfolio of net lease retail properties that have generated stable cash flows throughout cycles.

NNN's fixed-charge coverage ratio (defined as recurring operating EBITDA less recurring capital expenditures and straight-line rents, divided by total interest incurred and preferred stock distributions) was solid at 2.8 times (x) for the year ended Dec. 31, 2011, down slightly from 2.9x for full year 2010. Fitch expects fixed charge coverage to remain stable in the high 2x range through 2013 due to recent acquisitions at attractive spreads, solid occupancy, and long average remaining lease terms, partially offset by increased preferred dividends.

NNN's free-standing retail property portfolio is highly granular and includes 1,422 properties spread throughout 47 states, with the largest concentrations in Texas, Florida and Illinois. Moreover, NNN's portfolio is comprised of over 300 tenants, thus limiting individual tenant credit risk.

NNN's leverage is strong for the 'BBB' rating category. Net debt to last 12-months recurring operating EBITDA was 5.9x as of Dec. 31, 2011, up from 5.7x as of Dec. 31, 2010, and 4.8x as of Dec. 31, 2009. Acquisitions during these years that did not fully contribute to EBITDA on a full-year basis had a negative impact on leverage. Fitch expects leverage to decline and stabilize just below 5.0x over the next 12-24 months.

The company has a solid liquidity profile. Base-case liquidity coverage (unrestricted cash, availability under the company's unsecured revolving credit facility and expected retained cash flow after dividends divided by debt maturities and expected recurring capital expenditures) is 1.6x for the period Jan. 1, 2012 through Dec. 31, 2013. pro forma for the preferred stock offering, liquidity coverage rises to 1.9x. NNN's $450 million unsecured revolving line of credit and well-laddered debt maturity schedule are main drivers of NNN's liquidity surplus. In addition, the financial covenants in the company's unsecured debt agreements do not limit NNN's financial flexibility.

NNN's unencumbered asset coverage of unsecured debt (based on a 9% cap rate on fourth quarter 2011 annualized unencumbered net operating income) was 2.4x as of Dec. 31, 2011. Pro forma for preferred stock issuance, this level would improve to 2.5x. This level is adequate for the rating category and provides ample contingent liquidity for NNN.

Fitch's credit concerns include NNN's moderate geographical concentration. Texas represents 23% of annualized base rents (ABR), with the next largest concentration in Florida (9.2% of ABR), indicating vulnerability to regional demand drivers.

NNN's portfolio also includes non-necessity-based retailers (e.g. full-service restaurants, movie theatres, sporting goods) that may be adversely affected through retail demand cycles. The convenience store industry represented 24.6% of ABR as of Dec. 31, 2011, although this is mitigated by the stable performance of this tenant segment. The next largest industry concentration was full-service restaurants at 9.4% of ABR, which exposes the company to industry-specific volatility.

The two-notch differential between NNN's IDR and its preferred stock rating is consistent with Fitch's criteria for corporate entities with a 'BBB' IDR. Based on Fitch's report 'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis', available on Fitch's web site at [ www.fitchratings.com ], these preferred securities are deeply subordinated and have loss absorption elements that would likely result in poor recoveries in the event of a corporate default.

The Stable Outlook centers on Fitch's expectation that NNN's credit metrics will remain consistent with a 'BBB' rating over the next 12-24 months. NNN's long-term triple net leases (typically 15-20 years in term) and manageable lease expiration schedule contribute to the stable cash flows of the portfolio. The Stable Outlook also takes into account NNN's strong financial flexibility.

The following factors may have a positive impact on NNN's ratings and/or Outlook:

--Broader tenant and geographic diversity;

--Fixed charge coverage sustaining above 3.0x (fixed charge coverage was 2.8x for the 12 months ended Dec. 31, 2011);

--Net debt to recurring EBITDA sustaining below 5.0x (leverage was 5.9x as of Dec. 31, 2011);

--Unencumbered assets to unsecured debt based on a stressed 9% capitalization rate, sustaining above 3.0x (this ratio was 2.4x as of Dec. 31, 2011).

The following factors may have a negative impact on NNN's ratings and/or Outlook:

--Fixed charge coverage sustaining below 2.5x;

--Net debt to recurring EBITDA sustaining above 6.0x;

--Unencumbered asset to unsecured debt ratio sustaining below 2.2x;

--A liquidity coverage ratio sustaining below 1.0x.

Additional information is available at '[ www.fitchratings.com ]'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis', Dec. 15, 2011;

--'Corporate Rating Methodology', Aug. 12, 2011;

--'Recovery Rating and Notching Criteria for REITs', May 12, 2011;

--'Criteria for Rating U.S. Equity REITs and REOCs', March 15, 2011.

Applicable Criteria and Related Research:

Criteria for Rating U.S. Equity REITs and REOCs
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=610687 ]

Recovery Rating and Notching Criteria for Equity REITs
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=628490 ]

Corporate Rating Methodology
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229 ]

Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656516 ]

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