The Company owns a portfolio of SFR homes that it operates as rental properties. The Company is party to an agreement with a third-party investment firm to identify, acquire and manage investments in SFR properties on behalf of the Company. Under the terms of the agreement, the Company has committed to fund up to $55,000 of capital to fund the acquisition of SFR properties. The Company is obligated to pay the third-party firm a minimum fee plus an incentive fee equal to a percentage of the total investment return in excess of a hurdle rate of return. If the Company were to terminate the commitment, the Company would incur a termination fee equal to a fixed amount less inception to date minimum fees paid to the third-party firm.

The Company’s investments in SFR properties are initially recognized on the settlement date of their acquisition at cost. The Company allocates the initial acquisition cost of each property to land and building on the basis of their relative fair values at the time of acquisition. To determine the relative fair value of land and building at the time of acquisition, the Company uses available market data, such as property specific county tax assessment records.

Subsequent to the acquisition of a property, expenditures which improve or extend the life of the property are capitalized as a component of the property’s cost basis. Expenditures for ordinary maintenance and repairs are recognized as an expense as incurred and are reported as a component of “single-family property operating expenses” in the Company’s consolidated statements of comprehensive income.

The Company subsequently recognizes depreciation of each property’s buildings and capitalized improvements over the expected useful lives of those assets. The Company calculates depreciation on a straight-line basis over a useful life of 27.5 years for buildings and useful lives ranging from five to 27.5 years for capitalized improvements. The Company reports depreciation expense as a component of “single-family property operating expenses” in the Company’s consolidated statements of comprehensive income.

Pursuant to its SFR investment strategy, the Company leases its SFR properties to tenants who occupy the properties. The leases generally have terms of one year or more and are classified as operating leases. Rental revenue, net of any concessions, is recognized over the term of each lease on a straight-line basis. If the Company determines that collectability of lease payments is not probable, any lease receivables previously recognized are reversed and rental revenue is limited to cash received.

Costs directly associated with the origination of a lease, such as a commission paid to a property manager when a lease agreement is obtained, are deferred at the commencement of the lease and subsequently recognized ratably as an expense over the lease term, consistent with the recognition of rental revenue from the lease. The ratable expense recognition of lease direct costs is reported as a component of “single-family property operating expenses” in the Company’s consolidated statements of comprehensive income. In addition to the expense items previously mentioned, “single-family property operating expenses” also include accruals for, but not limited to, third-party property management fees, local real estate tax assessments, utilities, homeowners’ association dues and insurance.

The Company evaluates its SFR properties for impairment whenever circumstances indicate that their carrying amounts may not be recoverable. Significant indicators of potential impairment include, but are not limited to, declines in home values, adverse changes in rental or occupancy rates and relevant unfavorable changes in the broader economy. If indicators of potential impairment exist, the Company performs a recoverability test by comparing the property’s net carrying amount to its estimate of the undiscounted future net cash flows expected to be obtained from the use and eventual disposition of the property. If the property’s carrying amount exceeds the Company’s estimate of the undiscounted future net cash flows expected to be obtained from the property, the Company recognizes an impairment loss equal to the amount that the property’s net carrying amount exceeds the property’s estimated fair value. As of September 30, 2022 and December 31, 2021, the Company had not recognized any impairment losses for its investments in SFR properties.

From time to time, the Company may identify SFR properties to be sold. At the time that any such properties are identified, the Company performs an evaluation to determine whether or not such properties should be classified as held for sale. Factors considered as part of the Company's held for sale evaluation process include whether the following conditions have been met: (i) the Company has committed to a plan to sell a property; (ii) the property is immediately available for sale in its present condition; (iii) an active program to locate a buyer and other actions required to complete the plan to sell a property have been initiated; (iv) the sale of a property is probable within one year (generally determined based upon listing for sale); (v) the property is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (vi) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. To the extent that these factors are all present, the Company ceases depreciating the property, measures the property at the lower of its carrying amount or its fair value less estimated costs to sell, and presents the property separately on its consolidated balance sheets.

On August 19, 2022, the Company completed a sale of 371 SFR properties for a gross sale price of $130,026 for a gain of $14,407 that is net of accrued incentive fees to the Company's third-party investment firm. On May 1, 2022, the Company classified the 371 SFR properties as held for sale.

As of September 30, 2022 and December 31, 2021, the Company had investments in 246 and 214 SFR properties, respectively, for a total cost of $82,219 and $61,188, respectively. During the three and nine months ended September 30, 2022, the Company recognized $632 and $1,951, respectively, of depreciation expense related to its SFR properties. During the three and nine months ended September 30, 2021, the Company recognized $12 of depreciation expense related to its SFR properties. The following table summarizes the Company’s net carrying amount of its SFR properties by component as of the dates indicated:


	September 30, 2022			December 31, 2021
Investments in single-family residential real estate:
Land	$	13,646		$	10,128
Buildings and improvements		68,573			51,060
Investments in single-family residential real estate, at cost		82,219			61,188
Less: accumulated depreciation		(977	)		(299	)
Investments in single-family residential real estate, net	$	81,242		$	60,889

As of September 30, 2022, the Company had commitments to acquire five SFR properties for an aggregate purchase price of $1,523.

The Company conducts its SFR investment strategy through a wholly-owned subsidiary, McLean SFR Investment, LLC. On November 11, 2022, the Company entered into an agreement to sell McLean SFR Investment, LLC, which includes all of the

Company's remaining investments in SFR properties and its long-term debt facility secured by SFR properties, for $87,330 including the assumption of the debt liability. The settlement of the sale is contingent upon lender approval as well as other customary settlement conditions. If ultimately consummated, the sale is expected to settle in the fourth quarter.