Finance Receivables

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

Net Investments in Direct Financing Leases

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



	September 30, 2014			December 31, 2013
Minimum lease payments receivable	$	953,074		$	466,182
Unguaranteed residual value	840,096			363,903
	1,793,170			830,085
Less: unearned income	(954,695		)	(466,665		)
	$	838,475		$	363,420

Interest income from direct financing leases, which was included in Lease revenues in the consolidated financial statements, was $20.8 million and $9.2 million for the three months ended September 30, 2014 and 2013, respectively, and $59.3 million and $28.1 million for the nine months ended September 30, 2014 and 2013, respectively. In connection with the CPA^®:16 Merger in January 2014, we acquired 98 properties subject to direct financing leases with a total fair value of $538.2 million (Note 3), of which one was sold during the nine months ended September 30, 2014 (Note 15). During the nine months ended September 30, 2014, the U.S. dollar strengthened against the euro, as the end-of-period rate for the U.S. dollar in relation to the euro at September 30, 2014 decreased by 7.9% to $1.2687 from $1.3768 at December 31, 2013. The impact of this strengthening was a $32.6 million decrease in the carrying value of Net investments in direct financing leases from December 31, 2013 to September 30, 2014. During the nine months ended September 30, 2014, we reclassified properties with a carrying value of $13.7 million from Net investments in direct financing leases to Real estate (Note 5), in connection with the restructuring of the underlying leases. We also recognized impairment charges totaling $0.8 million on six properties accounted for as Net investments in direct financing leases in connection with an other-than-temporary decline in the estimated fair values of the properties’ residual values (Note 9).

At September 30, 2014 and December 31, 2013, Other assets, net included $1.7 million and $0.1 million, respectively, of accounts receivable related to amounts billed under these direct financing leases.

Notes Receivable

At September 30, 2014, our notes receivable, which were included in Other assets, net in the consolidated financial statements, consisted of the following:


•	A note we acquired in the CPA^®:16 Merger with a carrying value of $11.1 million on the date of acquisition, representing the expected future payments under a sales type lease; and


•	A B-note we acquired in the CPA^®:16 Merger with a carrying value of $9.9 million on the date of acquisition. This note has a fixed annual interest rate of 6.3% and a maturity date of February 11, 2015.

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 CPA^® REITs. A portion of this revenue is due in equal annual installments over three years, provided the CPA^® REITs meet their respective performance criteria. Unpaid deferred installments, including accrued interest, from the CPA^® 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 default. At both September 30, 2014 and December 31, 2013, none of the balances of our finance receivables were past due and we had not established any allowances for credit losses. Other than the lease restructurings discussed above, there were no modifications of finance receivables during the nine months ended September 30, 2014 or the year ended December 31, 2013. 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 third quarter of 2014. 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		Net Investments in Direct Financing Leases at
Internal Credit Quality Indicator	September 30, 2014	December 31, 2013	September 30, 2014		December 31, 2013
1	3	3	$	79,388	$	42,812
2	3	3	27,496		27,869
3	21	8	594,344		284,968
4	7	1	137,247		7,771
5	—	—	—		—
			$	838,475	$	363,420

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



	Number of Obligors at		Notes Receivable at
Internal Credit Quality Indicator	September 30, 2014	December 31, 2013	September 30, 2014		December 31, 2013
1	—	—	$	—	$	—
2	1	—	10,026		—
3	1	—	10,957		—
4	—	—	—		—
5	—	—	—		—
			$	20,983	$	—