Leases

6 Months Ended

Jun. 30, 2023

Leases [Abstract]

Leases

Leases

Lessor – Operating leases

The Company’s rental revenue primarily consists of rent earned from operating leases at the Company’s net lease properties which consists of fixed annual rent that escalates annually throughout the term of the applicable leases, and the tenant is generally responsible for all property-related expenses, including taxes, insurance, and maintenance. The Company's net lease properties are each leased to a single tenant.

The following table details the components of operating lease income from leases in which the Company is the lessor.

	Three Months Ended June 30, 2023		Six Months Ended June 30, 2023
Base rent(1)	$	37,901	$	72,799
Straight-line rental revenue, net(2)	4,356		8,518
Variable lease payments(3)	2,663		9,609
Amortization of below market lease intangibles	34		69
Rental revenue	$	44,954	$	90,995

__________________

(1)Base rent consists of fixed lease payments.

(2)Represents lease income related to the excess (deficit) of straight-line rental revenue over fixed lease payments.

(3)Consists of reimbursement of common area maintenance (“CAM”) and real estate taxes.

The following table presents the undiscounted future minimum rents the Company expects to receive for its net lease properties classified as operating leases as of June 30, 2023.

Year	Future Minimum Rents
2023 (remaining)	$	75,973
2024	153,707
2025	155,889
2026	158,476
2027	160,770
2028	163,167
Thereafter	1,737,126
Total	$	2,605,108

Lessor – Financing receivables

In accordance with ASC 842, certain of the Company’s sales-type lease contracts are accounted for as failed-sale leaseback transactions and were recorded as an Investment in leases - Financing receivables. During the three and six months ended June 30, 2023, the Company recognized interest income of $13,960 and $27,629 respectively, on an effective interest basis at a constant rate of return over the term of the applicable leases. Cash received from the sales-type leasing agreements was $22,700 during the six months ended June 30, 2023.

All of the lease payments are triple net basis to the tenant and the Company has rights in accordance with the individual lease agreements to protect the value of our leased properties. As of June 30, 2023, the future minimum payments of sales-type lease receivables were as follows:

Year	Future Minimum Payments
2023 (remaining)	$	24,218
2024	49,135
2025	49,986
2026	50,866
2027	51,911
2028	54,398
Thereafter	7,680,116
Total lease payment receivable	7,960,630
Less deferred interest income	7,393,867
Less allowance for credit losses	$	7,973
Total Investment in leases - Financing receivables	$	558,790

The following table reflects the roll-forward of the allowance for credit losses on our real estate portfolio for the six months ended June 30, 2023:

	Six Months Ended June 30, 2023
Balance as of December 31, 2022	$	—
Initial allowance upon adoption	7,157
Current period change in credit allowance	816
Ending Balance as of June 30, 2023	$	7,973

We assess the credit quality of our investments through the credit ratings of the lessee. The credit quality indicators are reviewed by us on a quarterly basis as of quarter-end. In instances where the lessee does not have a public credit rating, we use either a comparable proxy company or the overall corporate credit rating, as applicable. We also use this credit rating to determine the probability of default (“PD”) when estimating credit losses for each investment.

The following tables detail the amortized cost basis of our investments by the credit quality indicator as of June 30, 2023, and January 1, 2023:    

	June 30, 2023
	Ba1		Ba2		Ba3		B2		Total
Investment in leases - Financing Receivable	$	202,866	$	51,597	$	201,643	$	110,657	$	566,763

	January 1, 2023
	Ba1		Ba2		Ba3		B2		Total
Investment in leases - Financing Receivable	$	201,265	$	50,973	$	159,217	$	109,578	$	521,033

Purchase Option Provisions

Certain of the Company’s leases include purchase option provisions. The provisions vary by agreement but generally allow the lessee to purchase the property during a specified period for the Company’s gross investment plus a specified proportion of appreciation. The Company expects that the purchase price will be greater than its net investment in the property at the time of potential exercise by the lessee.

Leases

Leases

Lessor – Operating leases

The Company’s rental revenue primarily consists of rent earned from operating leases at the Company’s net lease properties which consists of fixed annual rent that escalates annually throughout the term of the applicable leases, and the tenant is generally responsible for all property-related expenses, including taxes, insurance, and maintenance. The Company's net lease properties are each leased to a single tenant.

The following table details the components of operating lease income from leases in which the Company is the lessor.

	Three Months Ended June 30, 2023		Six Months Ended June 30, 2023
Base rent(1)	$	37,901	$	72,799
Straight-line rental revenue, net(2)	4,356		8,518
Variable lease payments(3)	2,663		9,609
Amortization of below market lease intangibles	34		69
Rental revenue	$	44,954	$	90,995

__________________

(1)Base rent consists of fixed lease payments.

(2)Represents lease income related to the excess (deficit) of straight-line rental revenue over fixed lease payments.

(3)Consists of reimbursement of common area maintenance (“CAM”) and real estate taxes.

The following table presents the undiscounted future minimum rents the Company expects to receive for its net lease properties classified as operating leases as of June 30, 2023.

Year	Future Minimum Rents
2023 (remaining)	$	75,973
2024	153,707
2025	155,889
2026	158,476
2027	160,770
2028	163,167
Thereafter	1,737,126
Total	$	2,605,108

Lessor – Financing receivables

In accordance with ASC 842, certain of the Company’s sales-type lease contracts are accounted for as failed-sale leaseback transactions and were recorded as an Investment in leases - Financing receivables. During the three and six months ended June 30, 2023, the Company recognized interest income of $13,960 and $27,629 respectively, on an effective interest basis at a constant rate of return over the term of the applicable leases. Cash received from the sales-type leasing agreements was $22,700 during the six months ended June 30, 2023.

All of the lease payments are triple net basis to the tenant and the Company has rights in accordance with the individual lease agreements to protect the value of our leased properties. As of June 30, 2023, the future minimum payments of sales-type lease receivables were as follows:

Year	Future Minimum Payments
2023 (remaining)	$	24,218
2024	49,135
2025	49,986
2026	50,866
2027	51,911
2028	54,398
Thereafter	7,680,116
Total lease payment receivable	7,960,630
Less deferred interest income	7,393,867
Less allowance for credit losses	$	7,973
Total Investment in leases - Financing receivables	$	558,790

The following table reflects the roll-forward of the allowance for credit losses on our real estate portfolio for the six months ended June 30, 2023:

	Six Months Ended June 30, 2023
Balance as of December 31, 2022	$	—
Initial allowance upon adoption	7,157
Current period change in credit allowance	816
Ending Balance as of June 30, 2023	$	7,973

We assess the credit quality of our investments through the credit ratings of the lessee. The credit quality indicators are reviewed by us on a quarterly basis as of quarter-end. In instances where the lessee does not have a public credit rating, we use either a comparable proxy company or the overall corporate credit rating, as applicable. We also use this credit rating to determine the probability of default (“PD”) when estimating credit losses for each investment.

The following tables detail the amortized cost basis of our investments by the credit quality indicator as of June 30, 2023, and January 1, 2023:    

	June 30, 2023
	Ba1		Ba2		Ba3		B2		Total
Investment in leases - Financing Receivable	$	202,866	$	51,597	$	201,643	$	110,657	$	566,763

	January 1, 2023
	Ba1		Ba2		Ba3		B2		Total
Investment in leases - Financing Receivable	$	201,265	$	50,973	$	159,217	$	109,578	$	521,033

Purchase Option Provisions

Certain of the Company’s leases include purchase option provisions. The provisions vary by agreement but generally allow the lessee to purchase the property during a specified period for the Company’s gross investment plus a specified proportion of appreciation. The Company expects that the purchase price will be greater than its net investment in the property at the time of potential exercise by the lessee.