Leases – At December 31, 2021, NNN's real estate portfolio has a weighted average remaining lease term of 10.6 years and consisted of 3,229 leases classified as operating leases and an additional six leases accounted for as direct financing leases.

The following is a summary of the general structure of the leases in the Property Portfolio, although the specific terms of each lease can vary significantly. Generally, the Property leases provide for initial terms of 10 to 20 years. The Properties are generally leased under net leases, pursuant to which the tenant typically bears responsibility for substantially all property costs and expenses associated with ongoing maintenance, repair, replacement and operation of the property, including utilities, property taxes and property and liability insurance. Certain Properties are subject to leases under which NNN retains responsibility for specific costs and expenses of the Property. NNN's leases provide for annual base rental payments (generally payable in monthly installments), and generally provide for limited increases in rent as a result of (i) increases in the Consumer Price Index ("CPI"), (ii) fixed increases, or, to a lesser extent, (iii) increases in the tenant’s sales volume.

Generally, NNN's leases provide the tenant with one or more multi-year renewal options, subject to generally the same terms and conditions provided under the initial lease term, including rent increases. 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 renewal options. Some of the leases also provide that in the event NNN wishes to sell the Property subject to that lease, NNN first must offer the lessee the right to purchase the Property on the same terms and conditions as any offer which NNN intends to accept for the sale of the Property.

As of December 31, 2021, NNN has entered into rent deferral lease amendments with certain tenants, for an aggregate $4,758,000 and $52,019,000 of rent originally due for the years ending December 31, 2021 and 2020, respectively. The rent deferral lease amendments require the deferred rents to be repaid at a later time during the lease term. Approximately $31,776,000 and $3,259,000 of the deferred rent was repaid in 2021 and 2020, respectively. Deferred rents of $14,526,000 are due to be repaid during the year ending December 31, 2022, with the remaining deferred rent coming due periodically by December 31, 2025.

Historical rent collections and rent relief requests may not be indicative of collections and requests in the future. Depending on macroeconomic conditions and their impact on tenant's business and operations, deferred rents may be difficult to collect.

Real Estate Portfolio – NNN's real estate consisted of the following at December 31 (dollars in thousands):


	2021			2020
Land and improvements (1)	$	2,527,483		$	2,489,243
Buildings and improvements		6,375,583			6,009,797
Leasehold interests		355			355
		8,903,421			8,499,395
Less accumulated depreciation and amortization		(1,470,062	)		(1,317,407	)
		7,433,359			7,181,988
Work in progress – improvements		7,277			26,673
Accounted for using the operating method		7,440,636			7,208,661
Accounted for using the direct financing method		3,653			3,994
	$	7,444,289		$	7,212,655

(1)

Includes $8,979 and $8,421 in land for Properties under construction as of December 31, 2021 and 2020, respectively.

NNN recognized the following revenues in rental income for the years ended December 31 (dollars in thousands):


	2021		2020		2019
Rental income from operating leases	$	703,865	$	639,265	$	650,112
Earned income from direct financing leases		623		647		798
Percentage rent		706		842		1,310
Real estate expense reimbursement from tenants		18,665		18,039		16,789
	$	723,859	$	658,793	$	669,009

Some leases provide for a free rent period or scheduled rent increases throughout the lease term. Such amounts are recognized on a straight-line basis over the terms of the leases.

For the years ended December 31, 2021, 2020 and 2019, NNN recognized ($21,588,000), $25,449,000 and $1,872,000, respectively, of accrued rental income, net of reserves. Included in accrued rental income is the impact of the rent deferral lease amendments NNN entered into as a result of the COVID-19 pandemic. During the years ended December 31, 2021 and 2020, NNN recorded ($24,945,000) and $30,473,000, respectively, of net accrued rental income related to such amendments.

Additionally, as a result of reclassifying certain tenants as cash basis for accounting purposes during the year ended December 31, 2020, NNN wrote-off approximately $16,367,000 of accrued rental income for the year ended December 31, 2020.

At December 31, 2021 and 2020, the balance of accrued rental income was $31,942,000 and $53,958,000, respectively, net of allowance of $4,587,000 and $6,947,000, respectively.

The following is a schedule of undiscounted cash flows to be received on noncancellable operating leases as of December 31, 2021 (dollars in thousands):


2022	$	654,927
2023		632,473
2024		613,371
2025		586,751
2026		543,893
Thereafter		3,895,027
	$	6,926,442

Since lease renewal periods are exercisable at the option of the tenant, the above table only presents undiscounted cash flows due during the current lease terms. In addition, this table does not include amounts for potential variable rent increases that are

based on the CPI or future contingent rents which may be received on the leases based on a percentage of the tenant’s sales volume.

In accordance with purchase accounting for the acquisition of real estate subject to a lease, NNN has recorded intangible assets and lease liabilities that consisted of the following at December 31 (dollars in thousands):


	2021			2020
Intangible lease assets (included in other assets):
Above-market in-place leases	$	15,335		$	15,474
Less: accumulated amortization		(10,821	)		(10,271	)
Above-market in-place leases, net	$	4,514		$	5,203

In-place leases	$	122,069		$	118,416
Less: accumulated amortization		(73,345	)		(68,695	)
In-place leases, net	$	48,724		$	49,721

Intangible lease liabilities (included in other liabilities):
Below-market in-place leases	$	41,705		$	41,101
Less: accumulated amortization		(27,447	)		(26,486	)
Below-market in-place leases, net	$	14,258		$	14,615

The amounts amortized as a net increase to rental income for capitalized above-market and below-market leases for the years ended December 31, 2021, 2020 and 2019 were $710,000, $887,000 and $768,000, respectively. The value of in-place leases amortized to expense for the years ended December 31, 2021, 2020 and 2019 was $7,687,000, $8,304,000 and $7,900,000, respectively.

The following is a schedule of the amortization of acquired above-market and below-market in-place lease intangibles and the amortization of the in-place lease intangibles as of December 31, 2021 (dollars in thousands):


	Above-Market and Below- Market In-Place Lease Intangibles(1)		In-Place Lease Intangibles(2)
2022	$	524	$	7,021
2023		443		6,547
2024		440		5,859
2025		426		5,140
2026		435		4,553
Thereafter		7,476		19,604
	$	9,744	$	48,724

Weighted average amortization period (years)		17.7		9.7

(1)

Recorded as a net increase to rental income over the life of the lease.

(2)

Amortized as an increase to amortization expense.

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. NNN anticipates the disposition of Properties classified as held for sale to occur within 12 months. As of December 31, 2021, NNN had two of its Properties categorized as held for sale. NNN's real estate held for sale at December 31, 2020, included five properties, all of which were sold in 2021. Real estate held for sale consisted of the following as of December 31 (dollars in thousands):


	2021			2020
Land and improvements	$	6,440		$	3,841
Building and improvements		4,313			4,971
		10,753			8,812
Less accumulated depreciation and amortization		(1,331	)		(2,536	)
Less impairment		(3,865	)		(605	)
	$	5,557		$	5,671

The following table summarizes the Properties sold and the corresponding gain recognized on the disposition of Properties for the years ended December 31 (dollars in thousands):


	2021			2020			2019
	# of Sold Properties	Gain		# of Sold Properties	Gain		# of Sold Properties	Gain
Gain on disposition of real estate	74	$	23,094	38	$	16,238	59	$	32,463

As of December 31, 2021, NNN has committed to fund construction of 13 Properties. The improvements of such Properties are estimated to be completed within 12 months. These construction commitments, at December 31, 2021, are outlined in the table below (dollars in thousands):

NNN periodically assesses its long-lived real estate assets for possible impairment whenever certain events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. These indicators include, but are not limited to: changes in real estate market conditions, the ability of NNN to re-lease properties that are currently vacant or become vacant, properties reclassified as held for sale, persistent vacancies greater than one year, and properties leased to tenants in bankruptcy. Management evaluates whether an impairment in carrying value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), and the residual value of the real estate, with the carrying value of the individual asset. The future undiscounted cash flows are primarily driven by estimated future market rents. Future cash flow estimates are sensitive to the assumptions made by management regarding future market rents, which are affected by expectations about future market and economic conditions. If an impairment is indicated, a loss will be recorded for the amount by which the carrying value of the asset exceeds its estimated fair value. NNN's Properties are leased primarily to retail tenants under long-term net leases and primarily held for investment. Generally, NNN’s Property leases provide for initial terms of 10 to 20 years, which provide for cash flows over this term. NNN generally intends to hold these assets for the long-term, therefore, a temporary change in cash flows due to the COVID-19 pandemic alone was determined not to be an indicator of impairment.

As a result of NNN's review of long-lived assets, including identifiable intangible assets, NNN recognized real estate impairments, net of recoveries as summarized in the table below (dollars in thousands):


	2021		2020		2019
Total real estate impairments, net of recoveries	$	21,957	$	37,442	$	31,992

Number of Properties:
Vacant		30		14		27
Occupied		12		17		12

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.