NNN REIT Inc (NNN) 2007 Q3 法說會逐字稿

Greetings, ladies and gentlemen. Welcome to the National Retail Properties Inc. third quarter 2007 earnings conference call. At this time all participants are in a listen-only mode. A brief question and answer session will follow the presentation. (OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Mr. Craig Macnab, Chief Executive Officer for National Retail Properties Inc. Mr. Macnab, you may begin.

Andrea, thank you very much. Good afternoon and welcome to our third quarter 2007 earnings release call. On this call with me is Kevin Habicht, our Chief Financial Officer, who will provide information and an update on our guidance and review details of our third quarter financial results after brief opening comments from me. We're extremely pleased with our financial performance in the third quarter, which positions us well for the balance of this year and, most importantly, sets us up for 2008. Our portfolio continues to be in great shape with over 98% of our properties occupied with very limited lease rollover in the the next 15 months. A high level of occupancy is attributable to the quality of our fully diversified net lease retail portfolio. We currently own as of the end of the third quarter 876 properties leased to approximately 200 different national or regional tenants doing business in 43 states. These tenants operate in over 30 different segments of the retail industry which provides us with broad diversification.

In the last 90 days we've completed a variety of transactions which are significant as we strive to build value for our shareholders. These transactions include firstly our joint venture with Crow Holdings Real Estate Fund. We anticipate acquiring somewhere between $200 million and $220 million of convenience stores in this joint venture with national retail properties investing $15 million of equity in the joint venture that we will manage and from which we will earn recurring fees. Strategically this joint venture, focused exclusive on convenience stores, is significant to NNN for a variety of reasons. A, the joint venture is a new source of capital for us, which is obviously important in this current liquidity and credit environment. B, we will moderate our direct exposure to convenience stores as we acquire properties in the joint venture that might otherwise have gone directly into our portfolio of real estate.

And three, this joint venture allows us to leverage the experience, knowledge and relationships that we have in the convenience store industry as we continue acquiring properties from our existing relationship tenants and other convenience store operators that we are currently talking to. At the end of the third quarter the joint venture made its initial acquisition closing on approximately $30 million of convenience stores and we're currently working on a couple of other acquisition opportunities that are destined for the joint venture. Secondly, we were very pleased to complete our equity offering of 4 million shares in early October, which means that today our balance sheet is in extremely good shape with zero outstanding on our recently expanded $400 million line of credit. As a reminder, we are now back to a more normal sale leaseback environment, where a cash buyer such as NNN has an inherent advantage over a leverage buyer of real estate.

Thirdly, in the third quarter we completed our first acquisition of theater properties from a privately held theater operator that is one of the ten largest screen operators in the U.S. This transaction strengthens the diversification of our portfolio and we hope to complete modest additional transactions with this theater operator in the future. Let me provide a couple of brief comments on our sense of the current acquisition environment. There continues to be plenty of net lease retail product on the market. And based on the deals that we're currently evaluating, we expect the deal flow arising from corporate transactions to perhaps be better in 2008 than it has been in the recent past. With the dislocation in credit markets leading to a higher cost of debt financing, a sale leaseback transaction is again a more attractive financing vehicle than other forms of debt capital.

Also it is important to point out that companies are currently being purchased at lower EBIT multiples with more cash equity in transactions, which means that the credit behind a potential sale leaseback transaction is stronger today than it was in the recent past. Cap rates have really not altered since the advent of the liquidity crunch in the market. Let me give you a couple of examples of this. We're currently selling a Walgreens property that we developed and it is under contract in the low 6% range. Also a couple of weeks ago, we closed on the sale of a high-quality restaurant property in the Dallas Metroplex area, again in the low 6% range. Having said that, we do think that cap rates will slightly increase at the margin and as a result we're in the process of attempting to move cap rates and yields higher on acquisitions that we're looking at. Remember, we're already obtaining better than market yields for the properties that we're acquiring as evidenced by our average yield on acquisitions this year of 8.34%.

In summary, National Retail Properties had a solid third quarter. Importantly, our capital markets activities over the past 60 days have positioned us very well for the opportunities that we anticipate in the months ahead. Our balance sheet is in great shape, our diversified portfolio is performing well and our pipeline of acquisition opportunities is promising. I will now hand over to Kevin.

Thank you, Craig. Let me start with the normal cautionary statement that we will make certain statements that may be considered to be forward-looking statements under federal security laws and the Company's actual future results may differ significantly from the matters discussed in any forward-looking statements, and we may not release revisions to those forward-looking statements to reflect changes after the statements are made. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the Company's filings with the SEC and in this morning's press release. With that, let me as indicated in the press release, we reported third quarter 2007 FFO results totaling $30.9 million or $0.46 per share, which represented a 21% increase over 2006's $0.38 per share. Stripping out unusual items for both quarters, impairments and lease termination fee income, per share results increased by 6.8% in the third quarter over a year ago. That would be $0.47 versus $0.44.

For the first nine months of '07, FFO per share was up -- was $1.42 per share, up 17.4% from $1.21 per share in the first nine months of '06. Again, stripping out the unusual items for both year-to-date amounts, impairments, restructuring charges, lease term fee, et cetera, per share results increased by 6.9% in the first nine months year-over-year. That would be $1.40 versus $1.31. We're very pleased with these improved results. Accretive acquisitions, capital recycling and improved operating expense margins are contributing to yet another successful year here. With regard to 2007 FFO per share guidance, we're increasing the bottom end of the range slightly to $1.84 to $1.87 per share. This will represent a range of 10% to 12% FFO per share growth over 2006's $1.67 per share. As a reminder, our initial 2007 guidance was $1.74 to $1.80. We've been able to increase guidance throughout the year.

Today we are introducing 2008 FFO per share guidance of $1.95 to $1.99 per share. This represents an FFO per share growth range of 4% to 8%. At the moment we see the results slightly weighted towards the second half of the year versus the first half. The primary assumptions in the 2008 guidance are $300 million to $400 million of acquisitions, $80 million of core portfolio dispositions, G&A expense of $24 million, mortgage residual income of $4.5 million before any minority interest, net property expenses net of tenant reimbursements of $3.1 million, and pre-tax pre-overhead gains on sale from our TRS properties of $10 million to $10.5 million. We believe the visibility is fairly good on this guidance, but as always, the projections are based on a number of factors and uncertainties discussed in our public filings and can have some choppiness from quarter to quarter. Let me go quickly through some of the details in the third quarter and then we'll take questions.

Looking at the income statement, total revenues for the third quarter increased to $47.8 million. That was driven by additional rent from net new investments that we made over the past year, as well as accretive capital recycling from dispositions. The acquisitions in the core portfolio totaled $140.2 million in the third quarter. Occupancy at quarter end was 98.2%. That was down 20 basis points from the immediately prior quarter and flat with year ago numbers. We'll point out on page five of the press release includes some additional disclosure regarding contingent percentage rents, straight line rents and capital lease earned income for your information. Looking at the line item, interest and other income from real estate transactions, that consists primarily of mortgage and mezzanine loan income and some miscellaneous items both of which increased for the quarter but were flat on a year-to-date basis. At the end of the third quarter we had $21.8 million outstanding in our structured mezzanine loans.

Mortgage receivables were about $45.8 million at quarter end. The interest income from mortgage residual assets was $1.1 million for the third quarter. That was flat with the prior quarter and down from $1.7 million last year. The decrease is a result of normal amortization of the underlying loans in the mortgage securitization pool. We are estimating a total of $4.5 million of income for 2007 on this line item. In the third quarter we did take a $638,000 impairment charge related to the mortgage residuals we own. Given the turmoil in the credit markets, the third party evaluation firm felt it was needed to increase the discount rate assumption on the securitization projections and even though the residuals continue to perform well in terms of default performance and prepayments fees. This adjustment is a noncash adjustment and the projected cash flow from the residuals really are not changed.

It is really just an accounting adjustment, noncash accounting adjustment which actually will result in us reporting more income from these residuals in the future, so today's impairment essentially gets recouped in the future. G&A expense was $5.2 million for the third quarter. That's up from $4.4 million last year, down from $5.9 million in the second quarter of '07. These changes are largely due to some seasonality in the numbers. Notably our G&A for the first nine months of 2007 was $17.5 million, which is down from nearly $18 million for the same nine months of '06, which represents a 2.7% decrease on an absolute basis. Our guidance for 2007 and 2008 for G&A is $24 million. We are seeing meaningful operational leverage efficiencies as G&A for the first nine months of '07 was 12.1% of revenues as compared to 14.2% in first nine months of '06, and that's based on using all revenues excluding any kind of gains less property expenses.

Property expenses net of tenant reimbursements were flat with prior year amounts for the quarter. During the third quarter we did report $262,000 of lease termination fees, and that's compared to $1.545 million in the third quarter of '06. Other expenses and revenues, interest and other income was $793,000, that's flat with prior year amounts. Interest expense for the third quarter increased slightly to $11.9 million. That's up from $11.8 in the third quarter of '06 due to somewhat higher average debt balances offset by slightly lower average interest rates. At quarter end we had $40.2 million or 3.8% of our total $1.061 billion of total liabilities as floating rate debt. If you look at floating rate debt as a percent of our total gross book assets, which I think is a more meaningful metric, that was 1.6%.

We also reported the sale of 13 properties from our core investment portfolio during the third quarter, which are reflected in the investment portfolio and disk ops on page seven. The sales generated net proceeds of $53.6 million and produced a gain of $22.5 million. Total core portfolio dispositions for the first nine months totaled $114.6 million in net proceeds and produced a gain of $46.9 million. We think this activity helps us improve the quality of our portfolio. I think that it demonstrates the embedded value of our core portfolio and supplies capital for accretive acquisitions as we sell at retail prices and buy wholesale. Looking at disk ops, the inventory properties, or TRS properties, we sold a total of 27 properties from our taxable subsidiary with net proceeds of $51.9 million. Two of those 27 properties were from our development unit and 25 were from our 1031 exchange unit.

For the quarter total pre-tax pre-overhead gain on sale from our TRS was $2.8 million. That compares with $507,000 for the third quarter of '06. Pre-tax pre-overhead TRS gains for year-to-date '07 was $9.2 million compared to $7.2 million year-to-date 2006. For the year we expect total pre-tax gains of approximately $10 million to $11 million. We have reduced our TRS inventory at quarter end and have a number of -- but still have a number of properties under contract or letter of intent for sale. This is a line item, obviously, that creates some choppiness in our reported results on the gain on sale depending on the timing of the sale. Taking a quick look at the balance sheet, we finished the third quarter with total liabilities of $1.061 billion. Of that amount only $50.3 million was secured debt. 96.8% of our assets are unencumbered. During the third quarter we generated $10.9 million of net proceeds from the issuance of around 480,000 common shares from our stock purchase DRIP program.

Additionally we issued 250 million of 6.875 unsecured notes in early September. As of quarter end September 30th, we total debt to total assets was 43.2% on a gross book basis. That's down from 45.4% the prior year. On a market cap basis leverage was 37.8% just after the end of the third quarter and therefore not included in these stats. We completed a 4 million share common equity offering Craig alluded to, which generated $99.2 million of net proceeds. The value of the remaining -- the value of maintaining balance sheet flexibility, we believe, pays off in the long run and given the state of the capital markets at the moment we believe we're in a very good position, which will enhance our competitiveness at the margin. Interest coverage for the third quarter was 3.6 times as well as for the nine months was 3.6. Fixed charge coverage for the quarter and the nine months was 3.1. The coverages have improved over recent years due to lower borrowing costs and accretive impact of our capital recycling efforts.

In closing, with expected FFO growth this year of 10% to 12% and with a 6% dividend increase made earlier in the year, which marked our 18th consecutive year of annual dividend increases, we are very pleased with the results for 2007 and believe we're in good position to deliver solid growth in '08. We believe the portfolio and balance sheet are in very good shape and optimistic we're going to be able to continue delivering incremental per share results as we create value through targeted acquisitions, developments, and dispositions. With that, I think we'll take some questions.

(OPERATOR INSTRUCTIONS) Our first question comes from Jonathan Litt with Citigroup.

This Ambika with John.

Hi, Ambika.

I just wanted to get an overview of what you are seeing the robust deal flow for 2008. What kind of deals it is. One of your peers had commented that they're actually seeing transaction volume potentially slow because M&A activity has slowed in the back half of the year.

For sure there is the amount of capital rushing into deals is less than it was. Having said that, there continues to be plenty of capital on the sidelines and deal flow ebbs and flows. The fact of the matter or really one of the strengths of our business model is that we are only acquiring a small percentage of the deals that we take a look at. There are more than enough deals out there in the market and we're going to get our share of them, but the 2008, as Kevin mentioned, we're looking at acquisition volume of $300 million to $400 million. That's considerably less than we will acquire this year. And looking at the deal flow we're currently seeing, it's promising.

And then, I guess, if you could give some color on that deal flow, is that M&A activity that you expect to happen early next year or is that just companies looking to get real estate off their books?

Ambika, it is a balance of both. As you know, we've worked hard over the last couple of years to build preferred relationships with a variety of growing retailers that use sale leaseback to finance their growth, so we've got a portion of that. And then secondly, there is some M&A activity that's right now we're participating in.

Okay. Could you give the cap rates on the theaters that you acquired?

We are not giving out information on properties as individually.

Okay. I guess were the cap rates on the theaters in line with, I guess, the portfolio average?

Absolutely.

Okay. And then my last question, what should we expect for the cap rates for the acquisitions and dispositions in 2008 guidance?

I think next year we're indicating that acquisitions we're penciling in somewhere in the 8.5 range, again trying to move those higher, and we think the dispositions will be 100 basis points south of that number, so the spread's still attractive for capital recycling.

Our next question comes from Dustin Pizzo with Banc of America. Excuse me, Mr Pizzo, your line is now open.

Dustin, good afternoon. Andrea, let's see if there is somebody else there.

Our next question comes from Charles Place with Ferris, Baker Watts.

Good afternoon.

Hi, Charlie.

Is there any feel or thought about the green shoe as it relates to the deal that you did in October? Do you think that's going to be exercised?

I don't believe so given the market turmoil of recent weeks. We're not banking on that.

Okay.

With the stock selling below where the equity offering was done, we're not anticipating the shoe being exercised.

What was the cap rate on your third quarter acquisitions, the $140 million?

In the third quarter I think it was 8.18%.

Okay. Did I understand your guidance, Kevin, as far as it relates to '07 now, are you just pegging it at $1.87? There is no range any more?

No, all we did was our old range was $1.83 to $1.87. We moved the bottom end up slightly from $1.84 to $1.87, not much change there, but it is in that ZIP code. We feel very good about the visibility, obviously, for '07, but frankly feel pretty good about '08 as well.

One of the things that you mentioned, Craig, is that you said that the 2008 could be shaping up to be a stronger year relative to years past. And we note that you're doing around $600 plus million of acquisitions in '07 here and then your guidances were between 3 and 4. Is there potential that that number could increase substantially based on what you're seeing out there?

I think that what we're commenting on is that we feel at this point in time we've got a high degree of visibility on achieving the metrics that we need to execute on to generate the FFO per share in the guidance that Kevin mentioned. Now, just as a reminder what drives -- what will impact 2008 is not only the absolute amount of acquisition activity and we're sticking to our $300 million to $400 million, but the timing of when that comes due. So right now we're working on a couple of transactions which are not done yet, I may add, but if they close, we will start off 2008 in the first half of the year with pretty good acquisition activity, which means we'll get the rents for the entire year. So that helps give us comfort that we're going to achieve our numbers in 2008, but we still have got to close those deals.

Okay. And then just one last thing here on some balance sheet information. What's the -- what's your percentage of fixed rate versus total debt and what's your average interest rate on total debt?

Total debt average interest rate is around 615, 615, and as a percentage of our total liability, floating rate debt is only 3.8%.

And that was at the end of the quarter and obviously in the beginning of the fourth quarter we did an equity offering, so that was even lower today.

Okay.

Also LIBOR is pretty low.

Great. Thank you very much.

Thank you. Our next question comes from David Fick with Stifel Nicolaus.

Good afternoon. Speaking of average interest rates, what forward assumptions are you making about both the direction of rates and your cost of capital?

I mean from where we are now we're assuming that we were able to borrow at rates close to where they are today. And we recently did a ten-year deal and we have LIBOR probably a little higher than where it is today in our assumptions, but not a material increase but certainly no decrease.

Craig, you mentioned that you guys haven't seen much move in cap rates yet, and we're hearing from other property types across the board, most CEOs this quarter saying they are seeing some adjustments and that they're seeing some hesitancy from their institutional partners to approve deals. And I am just wondering, I hate generic cap rate questions, but you have a 1031 business, so you're seeing flow there. Can you comment on the 1031 business, number one, and number two, how confident you are in the presumption that you won't be able to buy the real estate cheaper later?

David, your comment is absolutely on point about making generic comments, but let me attack it a couple of different things. On our 1031 business, where you have a well-located property in a bigger MSA and it doesn't have to be this [mystique] with east Coast/west Coast, it just got to be in a decent sized community more than 100,000 people with the recognized tenant on the one-off basis we are still seeing and getting very good pricing on selling our properties. Having said that, with interest rates -- with buyers unable to get or borrowers unable to get interest-only mortgages with the dislocations in the CMBS market, it is inevitable to us that cap rates are going up, yields are going up on properties. It hasn't occurred yet and I am, frankly, a little mystified why that is in our property type. We are trying to get slightly higher pricing. And I may add we are running -- if it was easy we would have already done it, I can assure you.

I think just by way of analogy, if people think about some of the houses for sale on this street, how many of those are the buyers still thinking that their house is unique and deserves a higher price? I think we're seeing a little bit of that in the commercial real estate market, where sellers are a little slow to adapt to the new environment. But I do think that there is lots of capital on the side line. We are already getting very, very good pricing on our acquisitions. As Kevin just mentioned, our guidance for next year assumes a weighted average cap rate in the mid-8% range and we think that's already better than market and we're proving that in the properties that we're reselling. So we're not expecting a whole lot of improvement there, but we are trying to get slightly better yields.

I think that's important. The context I think is important. I don't think our acquisition cap rates over recent years compressed nearly as much as you saw in many other real estate sectors, so that may be a part of maybe not springing back as quickly or as high in these early innings, but we clearly think there is room to drift higher.

Okay. On the theater acquisition, without getting too specific on cap rates, you have a lot of competition out there. There is a company that you compete with who that's their only business. And then there is a couple of other of your peers that have been historically theater buyers. What kind of cap rate generally do you think is appropriate for a theater portfolio today for a state of the art stadium seating asset?

Obviously that question depends on what's -- how the property is doing, what the rent coverage is, where it is located, what its competition is, the credit of the tenant and so forth. But having said that, in the current environment, assuming that you have a credit tenant with a new stadium theater facility, mid-8s to us is the right kind of number. And we think in small dollar amounts that is attainable and that's in our budget for 2008.

Okay, thanks.

Thank you. Our next -- .

Andrea, just staying with that question for a minute, in all of these different categories, there are plenty of competitors all the time looking to buy and sell properties, and it is our opportunity to be in the right place at the right time, and make the right deal. Thanks, Andrea.

Thank you. Our next question comes from the Ken Avalos with Raymond James.

Thanks. Do you guys plan on selling down any trade lines or selling down or moving away from any particular states outside of sea stores, of course?

Ken, we have been active in the capital recycling business, and a couple of times a year we take a look at our entire portfolio and we identify specific individual properties that we think somebody else is a better owner of than we are. It depends on a number of different factors, what the unit level trends are, our exposure to that category, who the tenant is, our perception of that category and so forth. And having said that, if you're looking for a broad-brush statement at the present time, we're just selling a small number of individual properties where we think over the next 10 to 15 years somebody else is better off owning that individual property than us. We're selling a couple of grocery properties right now and I think so far this year we've done a very good job of getting rid of our 1031 inventory at extremely good prices. The beginning of this year we went into the year with over $100 million of inventory reflecting some deals we completed at the end of 2006. Today we've significantly depleted that inventory. And then at the margin we're selling a couple of restaurant properties right now.

Okay. Thanks. Kevin, anybody new on the watch list this quarter?

No, not really, hasn't changed that much. We continue to maintain -- have very little exposure to any kind of bankruptcy issues with tenants and so still feel okay about that.

Continuing along my very pessimistic line of questioning, Craig, cap rates haven't moved. Arguably the cost of debt, given what the ten-year is doing, hasn't really budged that much, but I think the risk picture has clearly increased the back drop. How do you -- as you think about buying assets, how do you know or feel and get comfortable with the fact that you're getting compensated for the risk picture when absolute returns it sounds like for '08 are getting modeled down at 8.5 versus 8.75?

That depends on the quality of the real estate at the end of the day, doesn't it and who the tenant is. We are doing a very disciplined and comprehensive job underwriting the real estate and the ability of the tenant to pay the rent over the 15 to 20 years we're entering into a new lease. We do -- I do think that the consumer is or retail sales are going to moderate in 2008. For what it's worth, I think in every one of the last 50 years, every one, retail sales have gone up, but they are not going to go up in 2008 at record pace. If they remain dead even, in other words no growth, our retailers will be easily able to pay our rent.

Thanks, that's helpful. Maybe I will just ask you one last question. As you go through your underwritings, you think at the margin, the quality, maybe not so much quality of the tenants, but the metrics are at the margin moving in any noticeable direction for you?

As we're looking at new properties, we're very focused -- new acquisitions, we're very, very focused on how that category, that Company, these properties will change, will be affected by a weaker economic environment. I heard what you said about your concern. If you take a look at our capital market's activity in the past two months, you will see that we have been very cautious and conservative. Firstly, we went out and termed out to all of our debt in the first couple of days in September and then the first couple of days in October we went ahead and took advantage of the capital markets at that time and sold 4 million shares. So right now we have cash on our balance sheet and by nature we're cautious and conservative people. We've recently taken a look at a number of different deals, which are going to get done at cap rates that are consistent with what we're looking at and we just passed on those deals. There are lots of opportunities. We don't have to date every girl at the party.

I think that's the key is that, again, guidance for next year on acquisitions is $300 million to $400 million. I think that's achievable, that's not a big number in our universe and we have the capital available today to fund that. And so we are in a good position to be relatively selective.

Thanks. That's really helpful and congratulations. It has been a good year for you.

Ken, thank you very much.

Thank you. Our next question comes from Dustin Pizzo with Banc of America.

Thank you. Hi, guys, sorry about that before.

Okay.

Craig, can you just followup, I guess following up on Kevin's questions there, what's the average rent coverage ratio right now in the portfolio? Do you guys disclose that?

We don't, Dustin, and obviously there are, in our portfolio there are a couple of different categories of tenants.

Sure.

First one is if you start out with some of our bigger categories, such as drug stores, not only do we have excellent rent coverage at the unit level, but companies like CVS have very good rent coverage. We have a, in round numbers, about one half of our rent is coming from publicly traded or investment grade rated type of companies, and that includes say a company like Circuit City, that I don't think has investment grade debt but with no debt outstanding. It is a pretty good company. We're confident that they're going to pay our rent. And then as you move down into some of the other more regional tenants, we obviously as we underwrite these properties take a very close look at the rent coverage, and I think if -- I don't -- not all of those properties report their rent, by the way, to us, but if you take a look at what we're looking at underwriting right now in the recent past some of these transactions have been in a rent coverage ratio of 1.75 to as much as 3 times.

Okay. The leases with some of the bigger box guys, like Circuit City that you mentioned, those are cross-collateralized, right?

No, sir.

Typically no.

Typically no they're not?

No.

I guess, Kevin, just looking at your decision to execute the accordion feature, how much of that was a function of the level activity that you're seeing in the market and how much of it was due to the attractive price of that debt relative to what's going on in the unsecured market?

I just think there probably wasn't any specific reason beyond that obviously capital is more dear today and so having more availability is a better position to be in and at the margin think that enhances our competitive position and that capital is pretty reasonably priced. All of those things made a lot of sense just to pull the trigger on that feature that was already embedded in our existing credit facility.

Dustin, just if you step back, we have access to capital in a variety of different buckets. Obviously, this new joint venture is a new addition, but if you take back on our line of credit specifically, which is your question, at the time we put in place this existing credit facility, we were a Company 50% to 60% the size that we are today in terms of total assets.

Sure.

So an addition of another $100 million when we've pretty much -- we've acquired over $1 billion of properties in the last three years or so, $100 million is not a lot in the scheme of things.

Okay. And then I guess just lastly, looking at the dividend, based on where the payout ratio is here, should we suspect to see you guys potentially bump that up as, I guess, in concert with FFO growth over the next few years?

You should suspect to see, yes. This year, 2007, we were able to increase the dividend 6%. We have reached a point in terms of our payout ratio both on an FFO basis as well as a more tax oriented taxable income basis, where we need to start growing our dividend more in line with FFO per share growth. And so I think you'll see that take place in '08 as well and which will mark our 19th consecutive year of increased dividend.

Great. Thanks, guys.

Thanks.

Thank you. (OPERATOR INSTRUCTIONS) There are no further questions. I would like to now turn the floor back over to Craig Macnab for closing comments.

Andrea, thanks very much. We wish you all happy holidays. I guess we'll see some of you in Las Vegas for the NAREIT convention. We wish you all a very happy Thanksgiving and we'll be talking to you early in 2008. Thanks for your interest in National Retail Properties. Good afternoon.

Ladies and gentlemen, that concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.