Impairment – Real Estate. Based upon the events or changes in certain circumstances, management periodically assesses its  Properties for possible impairment indicating that the carrying value 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 or the ability of NNN to re-lease or sell properties that are vacant or become vacant. Management determines  whether an impairment in value has occurred by comparing the estimated future cash flows (undiscounted and without interest  charges), including the residual value of the real estate, with the carrying cost of the individual asset. If an impairment is  indicated, a loss will be recorded for the amount by which the carrying value of the asset exceeds its fair value. Real estate held  for sale is not depreciated and is recorded at the lower of cost or fair value, less costs to sell. Commercial Mortgage Residual Interests, at Fair Value . Commercial mortgage residual interests, classified as available for  sale, are reported at their market values with unrealized gains and losses reported as other comprehensive income in  stockholders’ equity. NNN recognizes the excess of all cash flows attributable to the commercial mortgage residual interests  estimated at the acquisition/transaction date over the initial investment (the accretable yield) as interest income over the life of  the beneficial interest using the effective yield method. Losses are considered other than temporary valuation impairments if  and when there has been a change in the timing or amount of estimated cash flows, exclusive of changes in interest rates, that  leads to a loss in value. Revenue Recognition . Rental revenues for non-development real estate assets are recognized when earned in accordance with  the FASB guidance on accounting for leases, based on the terms of the lease of the leased asset. Rental revenues for properties  under construction commence upon completion of construction of the leased asset and delivery of the leased asset to the tenant. NNN's real estate is generally leased to tenants on a net lease basis, whereby the tenant is responsible for all operating expenses  relating to the property, generally including property taxes, insurance, maintenance, repairs and capital expenditures. The leases  are accounted for using either the operating or the direct financing method. Such methods are described below: Operating method – Properties with leases accounted for using the operating method are recorded at the cost of the  real estate. Revenue is recognized as rentals are earned and expenses (including depreciation) are charged to  operations as incurred. Buildings are depreciated on the straight-line method over their estimated useful lives.  Leasehold interests are amortized on the straight-line method over the terms of their respective leases. When  scheduled rental revenue varies during the lease term, income is recognized on a straight-line basis so as to produce  a constant periodic rent over the term of the lease. Accrued rental income is the aggregate difference between the  scheduled rents which vary during the lease term and the income recognized on a straight-line basis. Direct financing method – Properties with leases accounted for using the direct financing method are recorded at  their net investment (which at the inception of the lease generally represents the cost of the property). Unearned  income is deferred and amortized into income over the lease terms so as to produce a constant periodic rate of return  on NNN’s net investment in the leases. Use of Estimates. Additional critical accounting policies of NNN include management’s estimates and assumptions relating to  the reporting of assets and liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare the  consolidated financial statements in conformity with accounting principles generally accepted in the United States of America.  Additional critical accounting policies include management’s estimates of the useful lives used in calculating depreciation  expense relating to real estate assets, the recoverability of the carrying value of long-lived assets, including the commercial  mortgage residual interests, the recoverability of the income tax benefit, and the collectibility of receivables from tenants,  including accrued rental income. Actual results could differ from those estimates. Correction of Immaterial Errors. During the year ended December 31, 2012, NNN identified certain immaterial errors related  to deferred tax assets and the related valuation allowance. In 2009, NNN incurred a loss on foreclosure and impairment charges  associated with acquiring the operations of one of its lessees. The properties and operations were transferred to taxable REIT  subsidiaries upon foreclosure. Certain charges associated with the acquisition and impaired properties should have been  recorded in NNN’s qualified REIT subsidiaries prior to the properties’ transfer to the taxable REIT subsidiary group. Deferred  tax assets associated with the book charges of $10,350,000 in that year were inappropriately recorded in the taxable REIT  subsidiary group. A valuation allowance for the full amount of the deferred tax assets was also recorded in 2009. In the year  ended December 31, 2012, NNN decreased deferred tax assets and the related valuation allowance by $10,350,000 each to  correct the error.  21 New Accounting Pronouncements. Refer to Note 1 of the December 31, 2013, Consolidated Financial Statements.