Real Estate:

Real Estate – Portfolio

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



	June 30, 2016
Lease classification:
Operating	2,485
Direct financing	10
Building portion – direct financing/land portion – operating	2
Weighted average remaining lease term (years)	11.4

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):



	June 30, 2016			December 31, 2015
Land and improvements	$	2,041,642		$	1,921,657
Buildings and improvements	4,237,019			3,888,656
Leasehold interests	4,565			1,290
	6,283,226			5,811,603
Less accumulated depreciation and amortization	(677,671		)	(619,446		)
	5,605,555			5,192,157
Work in progress	24,562			61,354
	$	5,630,117		$	5,253,511

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 June 30, 2016, NNN had four 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, 2015, included nine Properties, five of which were sold in 2016. Real estate held for sale consisted of the following as of (dollars in thousands):



	June 30, 2016			December 31, 2015
Land and improvements	$	1,597		$	10,342
Building and improvements	2,583			30,464
	4,180			40,806
Less accumulated depreciation and amortization	(778		)	(5,161		)
Less impairment	(340		)	(216		)
	$	3,062		$	35,429

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 June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
	# of Sold Properties	Gain		# of Sold Properties	Gain		# of Sold Properties	Gain		# of Sold Properties	Gain
Gain on disposition of real estate	7	$	1,178	3	$	30	17	$	18,053	9	$	7,260
Income tax expense		—			—			—			(30		)
		$	1,178		$	30		$	18,053		$	7,230

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 June 30, 2016, are outlined in the table below (dollars in thousands):



Number of properties	21
Total commitment⁽¹⁾	$	80,825
Amount funded	$	44,205
Remaining commitment	$	36,620

⁽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 $2,762,000 and $3,714,000 for the six months ended June 30, 2016 and 2015, respectively, of which $2,190,000 and $2,686,000 was recorded during the quarters ended June 30, 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.