Real Estate:

Real Estate – Portfolio

Leases – The following outlines key information for NNN’s leases:



	September 30, 2013
Lease classification:
Operating	1,861
Direct financing	13
Building portion – direct financing / land portion – operating	4
Weighted average remaining lease term	12 Years

The leases generally provide for periodic 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 property and carry property and liability insurance coverage. Certain of NNN’s Properties are subject to leases under which NNN retains responsibility for specific costs and expenses of the property. Generally, the leases of the Properties provide the tenant with one or more multi-year renewal options, and the terms and conditions of the lease for the renewal options remain the same as for the initial term, except for increases in rent in the renewal options.

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



	September 30, 2013			December 31, 2012
Land and improvements	$	1,637,830		$	1,473,671
Buildings and improvements	2,904,914			2,563,729
Leasehold interests	1,290			1,290
	4,544,034			4,038,690
Less accumulated depreciation and amortization	(393,339		)	(331,781		)
	4,150,695			3,706,909
Work in progress	71,197			86,507
	$	4,221,892		$	3,793,416

Real Estate – Held For Sale

As of September 30, 2013 and December 31, 2012, NNN categorized 10 of its Properties as held for sale. Real estate held for sale consisted of the following as of (dollars in thousands):



	September 30, 2013			December 31, 2012
Property held for sale:
Land and improvements	$	10,591		$	10,445
Building and improvements	17,935			17,773
Accounted for using the direct financing method	464			525
Work in process	—			72
	28,990			28,815
Less accumulated depreciation and amortization	(2,033		)	(1,997		)
Less impairment	(10,165		)	(8,119		)
	$	16,792		$	18,699

In March 2013, NNN completed a strategic review of its Properties held for sale and reclassified 15 Properties that were previously held for sale to held for investment, included in Real Estate – Portfolio.

Real Estate – Dispositions

The following table summarizes the number of Properties sold and the corresponding gain recognized on the disposition of Properties included in discontinued operations (dollars in thousands):



	Quarter Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	# of Sold Properties	Gain		# of Sold Properties	Gain		# of Sold Properties	Gain		# of Sold Properties	Gain
Discontinued operations ⁽¹⁾	22	$	1,228	8	$	1,694	31	$	4,249	18	$	4,446
Noncontrolling interests		—			—			153			—
		$	1,228		$	1,694		$	4,402		$	4,446

⁽¹⁾ None of the gains from property sales for the period were reported in continuing operations.

Real Estate – Commitments

In connection with improvements to leased Properties, NNN has the following funding commitments (dollars in thousands):



	September 30, 2013
	# of Properties	Total Commitment⁽¹⁾		Amount Funded		Remaining Commitment
Real estate – portfolio	51	$	147,084	$	109,852	$	37,232

⁽¹⁾ Includes land, construction costs and tenant improvements.

Real Estate – Impairments

Management periodically assesses the Company's real estate for possible impairment whenever 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. If an impairment is indicated, it is recognized to the extent the current book value of the respective asset exceeds the 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 (dollars in thousands):



	Quarter Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013		2012
Continuing operations	$	—		$	3,223	$	1,957	$	3,258
Discontinued operations	727			5,440		2,046		5,785
Impairment recoveries – discontinued operations	(728		)	—		—		—
	$	(1	)	$	8,663	$	4,003	$	9,043

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, which are level 3 inputs. NNN may consider a single valuation technique or multiple valuation techniques, as appropriate, when measuring the fair value of its real estate.