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National Retail Properties (NYSE:NNN) announced the offering of $250MM (upsized from $125MM) series D cumulative redeemable perpetual preferred stock. From the net proceeds of this offering, National Retail intends to use the net proceeds of this offering for general corporate purposes, which may include redeeming their preferred securities and repaying the outstanding indebtedness under their credit facility.

As of February 13, 2012, 3,680,000 depositary shares each representing a 1/100th interest in a share of the Series C Preferred Stock were outstanding. As of October 12, 2011, the Series C Preferred Stock became redeemable at any time at NNN's option at a redemption price of $25.00, plus all dividends accrued and unpaid, whether or not declared, on the Series C Preferred Stock up to, but not including, the redemption date.

As of February 13, 2012, the price to redeem all outstanding shares of Series C Preferred Stock was $92,000,000. Borrowings outstanding under the credit facility were $87.2 million as of February 13, 2012, and currently accrue interest at a rate of 1.76%. The credit facility expires on May 24, 2015, unless the company exercises their option to extend the termination date by one year.

Some of the essential details of the offering are (note that dates are omitted as this is from the preliminary prospectus - I have filled in the yield as it has now been set):

  • Investors will be entitled to receive cumulative cash dividends at a rate of 6.625% per annum of the $25.00 per share liquidation preference. Dividends on the Series D Preferred Stock will be payable quarterly in arrears on or about March 15, June 15, September 15 and December 15 of each year.
  • The Class F preferred stock is not redeemable prior to , 2017. On and after 2017, the company may, at their option, redeem the Class D preferred stock, in whole or from time to time in part, for cash at a redemption price equal to $25.00 per share.
  • Upon the occurrence of a change of control, NNN may, at their option, redeem the Series D Preferred Stock underlying the depositary shares, in whole or in part and within 120 days after the first date on which such Change of Control occurred, by paying $2,500.00 per share (equivalent to $25.00 per depositary share), plus any accrued and unpaid dividends to, but not including, the date of redemption.
  • Upon the occurrence of a Change of Control, each holder of depositary shares representing interests in the Series D Preferred Stock will have the right (unless, prior to the change of control conversion date, NNN has provided or provide notice of their election to redeem the Series D Preferred Stock) to direct the depositary, on such holder's behalf, to convert some or all of the Series D Preferred Stock underlying the depositary shares held by such holder on the change of control conversion date into a number of shares of our common stock.
  • Holders of the depositary shares representing interests in the Series D Preferred Stock will generally have no voting rights. However, if the company does not pay dividends on any outstanding Series D Preferred Stock for six or more quarterly periods, whether or not declared or consecutive, holders of depositary shares representing interests in the Series D Preferred Stock will be entitled to vote for the election of two additional directors.

The issuance raises the question: Will the new issuance be used to redeem the NNN-Cs and does the new issue represent value?

The answer to the first question is that I believe the company will redeem the outstanding series C preferreds as the coupon on the Cs is 7.375% and by redeeming them at 6.625%, the company shaves 75bps off the cost of the preferreds.

The answer to the second part of the question is somewhat mixed. The new issue will have approximately the same yield as their best comparison, Realty Income (NYSE:O). It will, however, have a better yield than the new issues of REG and PSB.

Comps for the new issue:

Realty Income (O) (O-F) 6.625% (Baa2/BB+): Stripped yield 6.64%
Regency Centers (NYSE:REG) (REGPP) 6.625% (Baa3/BB+): Stripped yield 6.61%
PS Business (NYSE:PSB) 6.45% (Baa3/BBB-): Stripped yield 6.44%

I used stripped yield to remove the effect of accrued dividends to facilitate a more apples to apples comparison.

I personally like National Retail's business profile, financial profile and management. A good (and recent) article on the company written by SA Contributor Brad Thomas can be found here: National Retail Properties 22 years of consistent dividend increases.

As a result of my thoughts on NNN (like the company and the capital structure) and the probability that my NNN-Cs will be called, I am a buyer of the NNN-Ds.

Source: National Retail: New Preferred Is Attractive

Additional disclosure: Long NNN-C preferreds, and O-E preferreds