Real Estate:

Real Estate – Portfolio

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



	March 31, 2015
Lease classification:
Operating	2,140
Direct financing	11
Building portion – direct financing/land portion – operating	1
Weighted average remaining lease term (years)	11.5

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 Property and carry property and liability insurance coverage. Certain of the Properties are subject to leases under which NNN retains responsibility for specific costs and expenses of the Property. Generally, the leases provide the tenant with one or more multi-year renewal options subject to generally the same terms and conditions of the base term of the lease, including rent increases.

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



	March 31, 2015			December 31, 2014
Land and improvements	$	1,816,363		$	1,783,822
Buildings and improvements	3,515,904			3,414,570
Leasehold interests	1,290			1,290
	5,333,557			5,199,682
Less accumulated depreciation and amortization	(538,435		)	(511,667		)
	4,795,122			4,688,015
Work in progress	28,033			28,908
	$	4,823,155		$	4,716,923

Real Estate – Held For Sale

On a quarterly basis, the Company evaluates its Properties for held for sale classification based on specific criteria as outlined in ASC 360, Property, Plant & Equipment, including management’s intent to commit to a plan to sell the asset. In January 2014, NNN completed a strategic review of its Properties held for sale and reclassified one Property that was previously held for sale to held for investment, included in Real Estate – Portfolio. As of March 31, 2015, NNN had six Properties categorized as held for sale. NNN anticipates the disposition of these Properties to occur within 12 months. NNN's real estate held for sale at December 31, 2014, includes eight properties, two of which were subsequently sold in 2015. Real estate held for sale consisted of the following as of (dollars in thousands):



	March 31, 2015			December 31, 2014
Land and improvements	$	3,592		$	3,918
Building and improvements	2,461			4,765
	6,053			8,683
Less accumulated depreciation and amortization	(757		)	(1,509		)
Less impairment	(565		)	(1,022		)
	$	4,731		$	6,152

Real Estate – Dispositions

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



	Quarter Ended March 31,
	2015				2014
	# of Sold Properties	Gain			# of Sold Properties	Gain
Gain on disposition of real estate	6	$	7,230		2	$	1,954
Income tax expense		(30		)		(198		)
		7,200				1,756
Gain on disposition of real estate included in discontinued operations	—	—			2	9			⁽¹⁾
		$	7,200			$	1,765

⁽¹⁾ Amount includes deferred gain on previously sold properties.

Real Estate – Commitments

NNN has agreed to fund construction commitments on leased Properties. The improvements are estimated to be completed within 12 months. These construction commitments, as of March 31, 2015, are outlined in the table below (dollars in thousands):



Number of properties	30
Total commitment⁽¹⁾	$	119,818
Amount funded	$	57,027
Remaining commitment	$	62,791

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

Real Estate – Impairments

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 in a reasonable period of time. 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 (dollars in thousands):



	Quarter Ended March 31,
	2015		2014
Continuing operations	$	1,028	$	396
Discontinued operations	—		63
	$	1,028	$	459

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 estimating the fair value of its real estate.