Investments In Direct Financing Lease

9 Months Ended

Sep. 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 six public charter school properties as of September 30, 2017 and 12 public charter school properties as of 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 September 30, 2017 and December 31, 2016 (in thousands):

	September 30, 2017			December 31, 2016
Total minimum lease payments receivable	$	113,956		$	215,753
Estimated unguaranteed residual value of leased assets	47,000			85,247
Less deferred income (1)	(103,258		)	(198,302		)
Less allowance for lease losses	—			—
Investment in a direct financing lease, net	$	57,698		$	102,698

⁽¹⁾ Deferred income is net of $0.8 million and $1.3 million of initial direct costs at September 30, 2017 and December 31, 2016, respectively.

During the three months ended September 30, 2017, the Company entered into revised lease terms with Imagine which reduced the rental payments and term on six properties. As a result of the revised lease terms, these six properties were classified as operating leases during the three months ended September 30, 2017. Due to lease negotiations during the three months ended June 30, 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 nine months ended September 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 nine months ended September 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 nine months ended September 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 September 30, 2017 are as follows (in thousands):

	Amount
Year:
2017	$	1,545
2018	6,301
2019	6,490
2020	6,685
2021	6,885
Thereafter	86,050
Total	$	113,956