Real Estate:

Real Estate – Portfolio

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



	March 31, 2016
Lease classification:
Operating	2,330
Direct financing	10
Building portion – direct financing/land portion – operating	2
Weighted average remaining lease term (years)	11.3

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, 2016			December 31, 2015
Land and improvements	$	1,944,175		$	1,922,579
Buildings and improvements	4,020,538			3,891,239
Leasehold interests	4,565			1,290
	5,969,278			5,815,108
Less accumulated depreciation and amortization	(650,377		)	(620,188		)
	5,318,901			5,194,920
Work in progress	24,532			61,354
	$	5,343,433		$	5,256,274

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 sell the asset. As of March 31, 2016, NNN had one Property categorized as held for sale. NNN anticipates the disposition of this Property to occur within 12 months. NNN's real estate held for sale at December 31, 2015, included six properties, five of which were sold in the first quarter of 2016. Real estate held for sale consisted of the following as of (dollars in thousands):



	March 31, 2016		December 31, 2015
Land and improvements	$	627	$	9,419
Building and improvements	—		27,881
	627		37,300
Less accumulated depreciation and amortization	—		(4,419		)
Less impairment	—		(215		)
	$	627	$	32,666

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,
	2016			2015
	# of Sold Properties	Gain		# of Sold Properties	Gain
Gain on disposition of real estate	10	$	16,875	6	$	7,230
Income tax expense		—			(30		)
		$	16,875		$	7,200

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, 2016, are outlined in the table below (dollars in thousands):



Number of properties	19
Total commitment⁽¹⁾	$	63,465
Amount funded	$	40,147
Remaining commitment	$	23,318

⁽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 real estate impairments, net of recoveries of $572,000 and $1,028,000 for the quarters ended March 31, 2016 and 2015, respectively.

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.