Leases – At September 30, 2022, NNN’s real estate portfolio had a weighted average remaining lease term of 10.4 years and consisted of 3,370 leases classified as operating leases and an additional five 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, (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.

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


	September 30, 2022			December 31, 2021
Land and improvements(1)	$	2,616,920		$	2,527,483
Buildings and improvements		6,779,242			6,375,583
Leasehold interests		355			355
		9,396,517			8,903,421
Less accumulated depreciation and amortization		(1,610,018	)		(1,470,062	)
		7,786,499			7,433,359
Work in progress for buildings and improvements		32,183			7,277
Accounted for using the operating method		7,818,682			7,440,636
Accounted for using the direct financing method		3,429			3,653
Classified as held for sale		4,181			5,557
	$	7,826,292		$	7,449,846


(1)	Includes $21,543 and $8,979 in land for Properties under construction at September 30, 2022 and December 31, 2021, respectively.

NNN recognized the following revenues in rental income (dollars in thousands):


	Quarter Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Rental income from operating leases	$	188,840	$	175,833	$	558,942	$	522,787
Earned income from direct financing leases		148		154		449		469
Percentage rent		235		195		1,231		530
Real estate expense reimbursement from tenants		3,879		3,842		12,779		13,440
	$	193,102	$	180,024	$	573,401	$	537,226

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 nine months ended September 30, 2022 and 2021, NNN recognized ($3,298,000) and ($19,091,000), respectively, of net straight-line accrued rental income, net of reserves, of which ($655,000) and ($3,400,000) of such income, net of reserves was recorded during the quarters ended September 30, 2022 and 2021.

Included in accrued rental income are the net impacts of the rent deferred and corresponding scheduled repayments from the lease amendments NNN entered into as a result of the COVID-19 pandemic. During the nine months ended September 30, 2022 and 2021, NNN recorded ($4,710,000) and ($21,996,000), respectively, of net straight-line accrued rental income related to such amendments, of which ($1,201,000) and ($4,294,000) was recorded during the quarters ended September 30, 2022 and 2021.

Real Estate – Intangibles

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 (dollars in thousands):


	September 30, 2022			December 31, 2021
Intangible lease assets (included in other assets):
Above-market in-place leases	$	15,410		$	15,335
Less: accumulated amortization		(11,339	)		(10,821	)
Above-market in-place leases, net	$	4,071		$	4,514

In-place leases	$	124,310		$	122,069
Less: accumulated amortization		(77,992	)		(73,345	)
In-place leases, net	$	46,318		$	48,724

Intangible lease liabilities (included in other liabilities):
Below-market in-place leases	$	41,371		$	41,705
Less: accumulated amortization		(27,830	)		(27,447	)
Below-market in-place leases, net	$	13,541		$	14,258

The amounts amortized as a net increase to rental income for above-market and below-market in-place leases for the nine months ended September 30, 2022 and 2021, were $410,000 and $430,000, respectively, of which $130,000 and $156,000 was recorded for the quarters ended September 30, 2022 and 2021, respectively. The value of in-place leases amortized to expense for the nine months ended September 30, 2022 and 2021, was $5,337,000 and $5,451,000, respectively, of which $1,793,000 and $1,840,000 was recorded for the quarters ended September 30, 2022 and 2021, respectively.

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


	Quarter Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
	# of Sold Properties	Net Gain		# of Sold Properties	Net Gain		# of Sold Properties	Net Gain		# of Sold Properties	Net Gain
Gain on disposition of real estate	8	$	5,889	27	$	9,473	26	$	10,656	53	$	17,935

NNN has committed to fund construction on 19 Properties. The improvements on such Properties are estimated to be completed within 12 months. These construction commitments, as of September 30, 2022, 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, with cash flows provided over the entire term.

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):


	Quarter Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Total real estate impairments, net of recoveries	$	971	$	4,781	$	7,221	$	14,647

Number of Properties:
Vacant		2		5		8		19
Occupied		1		2		6		10

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.