NNN’s failure to qualify as a real estate investment trust for federal income tax purposes could result in significant tax liability. Even if NNN remains qualified as a REIT, NNN faces other tax liabilities that reduce operating results and cash flow. Adverse legislative or regulatory tax changes could reduce NNN’s earnings, cash flow and market price of NNN’s common  stock. Compliance with REIT requirements, including distribution requirements, may limit NNN’s flexibility and negatively affect  NNN’s operating decisions. Changes in accounting pronouncements could adversely impact NNN’s or NNN’s tenants’ reported financial performance. NNN intends to operate in a manner that will allow NNN to continue to qualify as a REIT. NNN believes it has been organized  as, and its past and present operations qualify NNN as a REIT. However, the Internal Revenue Service (“IRS”) could  successfully assert that NNN is not qualified as such. In addition, NNN may not remain qualified as a REIT in the future.  Qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code of  1986, as amended (the “Code”) for which there are only limited judicial or administrative interpretations and involves the  determination of various factual matters and circumstances not entirely within NNN’s control. Furthermore, new tax  legislation, administrative guidance or court decisions, in each instance potentially with retroactive effect, could make it more  difficult or impossible for NNN to qualify as a REIT or avoid significant tax liability. If NNN fails to qualify as a REIT, it would not be allowed a deduction for dividends paid to stockholders in computing taxable  income and would become subject to federal income tax at regular corporate rates. In this event, NNN could be subject to  potentially significant tax liabilities and penalties. Unless entitled to relief under certain statutory provisions, NNN would also  be disqualified from treatment as a REIT for the four taxable years following the year during which the qualification was lost. Even if NNN remains qualified for taxation as a REIT, NNN is subject to certain federal, state and local taxes on its income and  assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure,  and state or local income, property and transfer taxes, such as mortgage recording taxes. Any of these taxes would decrease  earnings and cash available for distribution to stockholders. In addition, in order to meet the REIT qualification requirements,  NNN holds some of its assets through the TRS. At any time, the federal and state income tax laws governing REITs or the administrative interpretations of those laws may  change. Any such changes may have retroactive effect, and could adversely affect NNN or its stockholders. Legislation could  cause shares in non-REIT corporations to be a more attractive investment to individual investors than shares in REITs, and  could have an adverse effect on the value of NNN’s common stock. To maintain its status as a REIT for U.S. federal income tax purposes, NNN must meet certain requirements on an on-going  basis, including requirements regarding its sources of income, the nature and diversification of its assets, the amounts NNN  distributes to its stockholders and the ownership of its shares. NNN may also be required to make distributions to its  stockholders when it does not have funds readily available for distribution or at times when NNN’s funds are otherwise needed  to fund expenditures or debt service requirements. NNN generally will not be subject to federal income taxes on amounts  distributed to stockholders, providing it distributes 100 percent of its REIT taxable income and meets certain other  requirements for qualifying as a REIT. For each of the years in the three-year period ended December 31, 2013, NNN believes  it has qualified as a REIT. Notwithstanding NNN’s qualification for taxation as a REIT, NNN is subject to certain state taxes on  its income and real estate. Accounting policies and methods are fundamental to how NNN records and reports its financial condition and results of  operations. From time to time the Financial Accounting Standards Board (“FASB”) and the Commission, who create and  interpret appropriate accounting standards, may change the financial accounting and reporting standards or their interpretation  and application of these standards that govern the preparation of NNN’s financial statements. These changes could have a  material impact on NNN’s reported financial condition and results of operations. In some cases, NNN could be required to  apply a new or revised standard retroactively, resulting in restating prior period financial statements. Similarly, these changes  could have a material impact on NNN’s tenants’ reported financial condition or results of operations and affect their preferences  regarding leasing real estate.  13