Real Estate:

Real Estate – Portfolio

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



	September 30, 2016
Lease classification:
Operating	2,531
Direct financing	10
Building portion – direct financing/land portion – operating	2
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):



	September 30, 2016			December 31, 2015
Land and improvements	$	2,049,072		$	1,904,646
Buildings and improvements	4,304,319			3,871,920
Leasehold interests	4,565			1,290
	6,357,956			5,777,856
Less accumulated depreciation and amortization	(705,812		)	(615,121		)
	5,652,144			5,162,735
Work in progress	25,737			61,354
	$	5,677,881		$	5,224,089

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 September 30, 2016, NNN had 20 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 25 Properties, five of which were sold in 2016. Real estate held for sale consisted of the following as of (dollars in thousands):



	September 30, 2016			December 31, 2015
Land and improvements	$	19,201		$	27,946
Building and improvements	20,512			48,394
	39,713			76,340
Less accumulated depreciation and amortization	(5,703		)	(9,486		)
Less impairment	(4,776		)	(2,003		)
	$	29,234		$	64,851

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 September 30,							Nine Months Ended September 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	$	4,505	5	$	1,970		24	$	22,558	14	$	9,231
Income tax expense		—			(56		)		—			(86		)
		$	4,505		$	1,914			$	22,558		$	9,145

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



Number of properties	25
Total commitment⁽¹⁾	$	85,350
Amount funded	$	51,021
Remaining commitment	$	34,329

⁽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 $7,680,000 and $3,711,000 for the nine months ended September 30, 2016 and 2015, respectively, of which $4,917,000 and $(3,000) was recorded during the quarters ended September 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.