Right-of-Use Assets and Operating Lease Liabilities

12 Months Ended

Dec. 31, 2019

Right-of-Use Assets and Operating Lease Liabilities

Right-Of-Use Assets and Operating Lease Liabilities:

NNN is a lessee for three ground lease arrangements and for its headquarters office lease. NNN recognized a ROU asset (recorded in other assets on the Consolidated Balance Sheets) and an operating lease liability (recorded in other liabilities on the Consolidated Balance Sheets) for the present value of the minimum lease payments. ROU assets represent NNN’s right to use an underlying asset for the lease term and lease liabilities represent NNN’s obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at the lease commencement date based on the estimated present value of the lease payments over the lease term. NNN’s lease term is based on the non-cancellable base term unless economic incentives make it reasonably certain that an option period to extend the lease will be exercised, in which event NNN includes the options.

NNN estimates an incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of the lease payments. NNN gives consideration to the Company's debt issuances, as well as, publicly available data for secured instruments with similar characteristics when calculating its incremental borrowing rates. A 50 basis point increase or decrease in the estimate of the incremental borrowing rate at January 1, 2019 (the date of adoption of ASC 842) would not have a material impact on NNN’s financial position. On an annual basis, NNN will evaluate its lessee portfolio and determine if its incremental borrowing rate should be reassessed.

NNN's lease agreements do not contain any residual value guarantees.

As of December 31, 2019, NNN has recorded the following (dollars in thousands):



	Ground Leases			Headquarters Office Lease
Operating lease – ROU assets⁽¹⁾	$	4,481		$	2,991
Operating lease – lease liabilities	(6,175		)	(3,629		)

Weighted average remaining lease term (years)	14.3			5.3
Weighted average discount rate	4.1		%	3.5		%


⁽¹⁾	ROU assets are shown net of accrued lease payments of $1,694 and $638, respectively.

The following is a schedule of the undiscounted cash flows to be paid as of December 31, 2019 (dollars in thousands):



	Ground Leases		Headquarters Office Lease
2020	$	564	$	773
2021	573		788
2022	582		804
2023	582		821
2024	601		837
Thereafter	5,544		210
	$	8,446	$	4,233