Finance Receivables

Assets representing rights to receive money on demand or at fixed or determinable dates are referred to as finance receivables. Our finance receivable portfolios consist of our Net investments in direct financing leases and deferred acquisition fees. Operating leases are not included in finance receivables as such amounts are not recognized as an asset in the consolidated balance sheets.

Net Investment in Direct Financing Leases

Net investment in direct financing leases is summarized as follows (in thousands):



	December 31,
	2013			2012
Minimum lease payments receivable	$	466,182		$	430,514
Unguaranteed residual value	363,903			375,706
	830,085			806,220
Less: unearned income	(466,665		)	(430,215		)
	$	363,420		$	376,005

2013 — During 2013, we reclassified $14.0 million of properties from Net investment in direct financing leases to Real estate (Note 5) in connection with the restructuring of six leases. Additionally, during 2013, we sold our net investment in a direct financing lease, which we acquired in the CPA^®:15 Merger, for $5.5 million, net of selling costs, and recognized a loss on the sale of $0.3 million. We also recognized an impairment charge of $0.1 million on a property accounted for as Net investments in direct financing leases in connection with an other-than-temporary decline in the estimated fair value of the property’s residual value.

2012 — During 2012, we sold our net investment in a direct financing lease for $2.0 million, net of selling costs, and recognized a net loss on sale of $0.2 million. In connection with the CPA^®:15 Merger in September 2012, we acquired 15 direct financing leases with a total fair value of $315.8 million (Note 3).

2011 — During 2011, we reclassified $17.7 million out of Net investments in direct financing leases in connection with an out-of-period adjustment (Note 2). We also reversed impairment charges of $1.6 million in connection with the out-of-period adjustment.

Scheduled Future Minimum Rents

Scheduled future minimum rents, exclusive of renewals and expenses paid by tenants, percentage of sales rents and future CPI-based adjustments, under non-cancelable direct financing leases at December 31, 2013 are as follows (in thousands):



Years Ending December 31,	Total
2014	$	35,865
2015	35,885
2016	34,273
2017	34,106
2018	34,125
Thereafter	291,928
Total	$	466,182

Deferred Acquisition Fees Receivable

As described in Note 4, we earn revenue in connection with structuring and negotiating investments and related mortgage financing for the Managed REITs. A portion of this revenue is due in equal annual installments ranging from three to eight years, provided the Managed REITs meet their respective performance criteria. Unpaid deferred installments, including accrued interest, from all of the Managed REITs were included in Due from affiliates in the consolidated financial statements.

Credit Quality of Finance Receivables

We generally seek investments in facilities that we believe are critical to a tenant’s business and that we believe have a low risk of tenant defaults. At both December 31, 2013 and 2012, none of our finance receivables were past due and we had not established any allowances for credit losses. There were no modifications of finance receivables for either of the years ended December 31, 2013 and 2012. We evaluate the credit quality of our finance receivables utilizing an internal five-point credit rating scale, with one representing the highest credit quality and five representing the lowest. The credit quality evaluation of our finance receivables was last updated in the fourth quarter of 2013. We believe the credit quality of our deferred acquisition fees receivable falls under category one, as the CPA^® REITs are expected to have the available cash to make such payments.

A summary of our finance receivables by internal credit quality rating is as follows (dollars in thousands):



	Number of Tenants at December 31,		Net Investments in Direct Financing Leases at December 31,
Internal Credit Quality Indicator	2013	2012	2013		2012
1	3	3	$	42,812	$	46,398
2	3	4	27,869		49,764
3	8	8	284,968		257,281
4	1	4	7,771		22,562
5	—	—	—		—
			$	363,420	$	376,005