Commercial Mortgage Residual Interests:

NNN holds the commercial mortgage residual interests (“Residuals”) from seven securitizations.

Each of the Residuals is recorded at fair value based upon an independent valuation. Unrealized gains and losses are reported as other comprehensive income in stockholders’ equity and other than temporary losses as a result of a change in the timing or amount of estimated cash flows are recorded as an other than temporary valuation impairment. Due to changes in market conditions relating to residual assets, the independent valuation adjusted several valuation assumptions related to prepayment speeds and default curves during 2011.

The following table summarizes the recognition of unrealized gains and/or losses recorded as other comprehensive income as well as other than temporary valuation impairment as of December 31 (dollars in thousands):



	2011		2010		2009
Unrealized gains	$	—	$	1,272	$	—
Unrealized losses	246		—		1,744
Other than temporary valuation impairment	1,024		3,995		498

The following table summarizes the changes to the key assumptions used in determining the value of the Residuals as of December 31:



	2011		2010
Discount rate	25	%	25	%
Average life equivalent CPR speeds range	2.18% to 18.57% CPR		4.35% to 20.37% CPR
Foreclosures:
Frequency curve default model	0.2% - 4.7% range		0.1% - 15.0% range
Loss severity of loans in foreclosure	20	%	20	%
Yield:
LIBOR	Forward 3-month curve		Forward 3-month curve
Prime	Forward curve		Forward curve

The following table shows the effects on the key assumptions affecting the fair value of the Residuals at December 31, 2011 (dollars in thousands):



	Residuals
Carrying amount of retained interests	$	15,299

Discount rate assumption:
Fair value at 27% discount rate	$	14,735
Fair value at 30% discount rate	$	13,942

Prepayment speed assumption:
Fair value of 1% increases above the CPR Index	$	15,293
Fair value of 2% increases above the CPR Index	$	15,291

Expected credit losses:
Fair value 2% adverse change	$	15,068
Fair value 3% adverse change	$	14,928

Yield Assumptions:
Fair value of Prime/LIBOR spread contracting 25 basis points	$	15,447
Fair value of Prime/LIBOR spread contracting 50 basis points	$	15,633

These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation of a particular assumption on the fair value of the retained interest is calculated without changing any other assumptions; in reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities.