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 our Note receivable. 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):



	December 31,
	2014			2013
Minimum lease payments receivable	$	86,338		$	50,006
Unguaranteed residual value	45,473			22,064
	131,811			72,070
Less: unearned income	(86,229		)	(50,006		)
	$	45,582		$	22,064

At December 31, 2014, Other assets, net included $0.2 million of accounts receivable related to amounts billed under our direct financing leases. We did not have any outstanding account receivables related to our direct financing lease at December 31, 2013.

AT&T — As discussed in Note 4, on May 19, 2014, we entered into a domestic net lease financing transaction in which we acquired an industrial warehouse located in Chicago, Illinois that is leased to AT&T. The total cost of the building was $8.6 million.

Janus — On May 16, 2014, we acquired an office building and two manufacturing facilities from Janus. One property, located in Houston, Texas, was considered to be a domestic net lease financing transaction with a total cost of $1.6 million and the other two properties were considered to be real estate asset acquisitions (Note 4).

Swift Spinning Inc. — On April 21, 2014, we acquired two industrial facilities from Swift Spinning Inc. One property, located in Columbus, Georgia, was considered to be a domestic net lease financing transaction, with a total cost of $3.4 million, and the other property was considered to be a real estate asset acquisition (Note 4).

Crowne Group Inc.— On March 7, 2014, we entered into a domestic net lease financing transaction with a subsidiary of Crowne Group Inc. from which we acquired two industrial facilities located in Michigan. The total cost was $8.0 million, including land of $1.0 million, building of $6.8 million, and transaction costs of $0.2 million that were capitalized. This is a follow-on transaction to the acquisition that we completed with Crowne Group Inc. in December 2013. We amended the existing lease with Crowne Group Inc. to include the two new properties in Michigan. The amended lease now encompasses a total of five properties, all of which are leased for a 25-year term. Crowne Group Inc. will continue to serve as the guarantor under the lease.

Scheduled Future Minimum Rents

Scheduled future minimum rents, exclusive of renewals and expenses paid by tenants and future CPI-based adjustments, under non-cancelable direct financing leases at December 31, 2014 were as follows (in thousands):



Years Ending December 31,	Total
2015	$	3,856
2016	3,885
2017	3,915
2018	3,945
2019	3,977
Thereafter	66,760
Total	$	86,338

Note Receivable

On July 21, 2014, we acquired a $28.0 million mezzanine tranche of 10-year commercial mortgage-backed securities originated by Cantor Fitzgerald on the Cipriani banquet halls in New York, New York. The mezzanine tranche is subordinated to a $60.0 million senior loan on the properties. We will receive interest-only payments at a rate of 10% per annum. The collateral for the loan is comprised of the banquet halls as well as certain other cash flows. In connection with this transaction, we expensed acquisition costs of $1.3 million. Earnings related to this investment are reported in Other interest income 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 December 31, 2014 and 2013, none of the balances of our finance receivables were past due and we had not established any allowances for credit losses. Additionally, there were no modifications of finance receivables during either of the years ended December 31, 2014 or 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 fourth quarter of 2014.

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



	Number of Tenants/Obligors at December 31,		Carrying Value at December 31,
Internal Credit Quality Indicator	2014	2013	2014		2013
1	—	—	$	—	$	—
2	1	—	8,962		—
3	4	1	64,620		22,064
4	—	—	—		—
5	—	—	—		—
			$	73,582	$	22,064