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 and loans receivable. Operating leases are not included in finance receivables as such amounts are not recognized as an asset in the consolidated financial statements. Our loans receivable are included in Accounts receivable and other assets, net in the consolidated financial statements. Earnings from our loans receivable are included in Other interest income in the consolidated financial statements.

At June 30, 2018 and December 31, 2017, we had five loans receivable with outstanding balances of $104.8 million and $110.5 million, respectively, which are included in Accounts receivable and other assets, net in the consolidated financial statements. The adoption of ASU 2017-05 impacted our outstanding loan receivable balance at June 30, 2018. See Note 2 for more details.

On January 8, 2015, we provided a mezzanine loan of $30.0 million to a subsidiary of 1185 Broadway LLC for the development of a hotel on a parcel of land in New York, New York. The mezzanine loan is collateralized by an equity interest in a subsidiary of 1185 Broadway LLC. On July 2, 2018, we received full repayment of this $30.0 million mezzanine loan (Note 15).

In January 2018, The New York Times Company, a tenant at one of our properties, exercised its bargain purchase option to acquire the property for $250.0 million in 2019. There can be no assurance that such repurchase will be completed.

Credit Quality of Finance Receivables

We generally invest in facilities that we believe are critical to a tenant’s business and therefore have a lower risk of tenant default. At June 30, 2018 and December 31, 2017, we had $1.9 million and $1.1 million, respectively, of finance receivable balances that were past due, of which we established allowances for credit losses of $1.5 million and $0.7 million, respectively.

During both the three and six months ended June 30, 2018, we recognized an allowance for credit losses totaling $6.2 million on two of our net-lease properties that are classified as direct financing leases due to the tenant informing us they will be going out of business and vacating the properties (Note 8). 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 is updated quarterly.

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



	Number of Tenants / Obligors at		Carrying Value at
Internal Credit Quality Indicator	June 30, 2018	December 31, 2017	June 30, 2018		December 31, 2017
1	—	—	$	—	$	—
2	2	2	63,102		62,744
3	10	8	390,957		379,621
4	5	8	127,111		165,413
5	2	1	25,188		11,950
			$	606,358	$	619,728