Investments In Direct Financing Lease

6 Months Ended

Jun. 30, 2017

Capital Leases, Net Investment in Direct Financing Leases [Abstract]

Investments in a Direct Financing Lease

Investment in a Direct Financing Lease

The Company’s investment in a direct financing lease relates to the Company’s master lease of 12 public charter school properties as of June 30, 2017 and December 31, 2016, with affiliates of Imagine Schools, Inc. (Imagine). Investment in a direct financing lease, net represents estimated unguaranteed residual values of leased assets and net unpaid rentals, less related deferred income. The following table summarizes the carrying amounts of investment in a direct financing lease, net as of June 30, 2017 and December 31, 2016 (in thousands):

	June 30, 2017			December 31, 2016
Total minimum lease payments receivable	$	210,375		$	215,753
Estimated unguaranteed residual value of leased assets	82,350			85,247
Less deferred income (1)	(192,120		)	(198,302		)
Less allowance for lease losses	(7,298		)	—
Investment in a direct financing lease, net	$	93,307		$	102,698

⁽¹⁾ Deferred income is net of $1.3 million of initial direct costs at June 30, 2017 and December 31, 2016.

During the three months ended June 30, 2017, the Company entered into negotiations with Imagine to reduce future rental payments and/or the term of the leases on six properties. As a result of the revised lease terms, the Company anticipates the lease agreements on these six properties will be classified as operating leases effective in the third quarter of 2017. Management evaluated whether it could recover its investment in these leases taking into account the revised lease terms and independent appraisals prepared as of June 30, 2017, and determined  the carrying value of the investment in the direct financing leases exceeded the expected lease payments to be received and residual values for these six leases. Accordingly, the Company recorded an impairment charge of $9.6 million during the three months ended June 30, 2017, which included an allowance for lease loss of $7.3 million and a charge of $2.3 million related to estimated unguaranteed residual value. The Company determined that no allowance for losses was necessary at December 31, 2016.

Additionally, during the three months ended June 30, 2017, the Company performed its annual review of the estimated unguaranteed residual value on its other properties leased to Imagine and determined that the residual value on one of these properties was impaired. As such, the Company recorded an impairment charge of the unguaranteed residual value of $0.6 million during the three months ended June 30, 2017.

The Company’s direct financing lease has expiration dates ranging from approximately 15 to 18 years. Future minimum rentals receivable on this direct financing lease at June 30, 2017 are as follows (in thousands):

	Amount
Year:
2017	$	5,479
2018	11,182
2019	11,517
2020	11,863
2021	12,219
Thereafter	158,115
Total	$	210,375