Leases

9 Months Ended

Sep. 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 September 30, 2023		Nine Months Ended September 30, 2023		From Inception through September 30, 2022
Base rent(1)	$	37,608	$	110,407	$	4,588
Straight-line rental revenue, net(2)	5,021		13,539		527
Variable lease payments(3)	5,385		14,994		495
Amortization of below market lease intangibles	57		126		3
Rental revenue	$	48,071	$	139,066	$	5,613

__________________

(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, and amortization of tenant inducements.

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 September 30, 2023.

Year	Future Minimum Rents
2023 (remaining)	$	38,638
2024	163,940
2025	166,305
2026	169,078
2027	171,560
2028	174,142
Thereafter	1,993,107
Total	$	2,876,770

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 nine months ended September 30, 2023, and the period from Inception through September 30, 2022, the Company recognized interest income of $15,044, $42,673, and $943, 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 $57,846 and $733 during the nine months ended September 30, 2023 and the period from Inception through September 30, 2022.

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 September 30, 2023, the future minimum payments of sales-type lease receivables were as follows:

Year	Future Minimum Payments
2023 (remaining)	$	12,298
2024	49,723
2025	50,588
2026	51,483
2027	52,544
2028	55,046
Thereafter	7,747,526
Total lease payment receivable	8,019,208
Less deferred interest income	7,442,529
Less allowance for credit losses	18,949
Total Investment in leases - Financing receivables	$	557,730

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

	Nine Months Ended September 30, 2023
Balance as of December 31, 2022	$	—
Initial allowance upon adoption	7,157
Current period change in credit allowance	11,792
Ending Balance as of September 30, 2023	$	18,949

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 September 30, 2023 and January 1, 2023:

	September 30, 2023
	B1		Ba1		Ba2		Baa2		Ba3		B2		Caa2		Total
Investment in leases - Financing Receivable	$	203,696	$	—	$	—	$	51,922	$	—	$	111,220	$	209,841	$	576,679

	January 1, 2023
	B1		Ba1		Ba2		Baa2		Ba3		B2		Caa2		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.

Lessee - DST Program Master Lease

During the three months ended September 30, 2023, the Company contributed two industrial assets to the DST as part of the initial DST Program offering. The assets are leased back to the Company by a wholly-owned subsidiary of the Company under the master lease agreement. The following table presents the undiscounted future minimum rent payment obligation of the wholly-owned subsidiary:

Year	Future Minimum Payments
2023 (remaining)	$	1,120
2024	4,478
2025	4,478
2026	4,478
2027	4,478
2028	4,637
Thereafter	78,196
Total	$	101,865

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 September 30, 2023		Nine Months Ended September 30, 2023		From Inception through September 30, 2022
Base rent(1)	$	37,608	$	110,407	$	4,588
Straight-line rental revenue, net(2)	5,021		13,539		527
Variable lease payments(3)	5,385		14,994		495
Amortization of below market lease intangibles	57		126		3
Rental revenue	$	48,071	$	139,066	$	5,613

__________________

(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, and amortization of tenant inducements.

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 September 30, 2023.

Year	Future Minimum Rents
2023 (remaining)	$	38,638
2024	163,940
2025	166,305
2026	169,078
2027	171,560
2028	174,142
Thereafter	1,993,107
Total	$	2,876,770

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 nine months ended September 30, 2023, and the period from Inception through September 30, 2022, the Company recognized interest income of $15,044, $42,673, and $943, 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 $57,846 and $733 during the nine months ended September 30, 2023 and the period from Inception through September 30, 2022.

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 September 30, 2023, the future minimum payments of sales-type lease receivables were as follows:

Year	Future Minimum Payments
2023 (remaining)	$	12,298
2024	49,723
2025	50,588
2026	51,483
2027	52,544
2028	55,046
Thereafter	7,747,526
Total lease payment receivable	8,019,208
Less deferred interest income	7,442,529
Less allowance for credit losses	18,949
Total Investment in leases - Financing receivables	$	557,730

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

	Nine Months Ended September 30, 2023
Balance as of December 31, 2022	$	—
Initial allowance upon adoption	7,157
Current period change in credit allowance	11,792
Ending Balance as of September 30, 2023	$	18,949

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 September 30, 2023 and January 1, 2023:

	September 30, 2023
	B1		Ba1		Ba2		Baa2		Ba3		B2		Caa2		Total
Investment in leases - Financing Receivable	$	203,696	$	—	$	—	$	51,922	$	—	$	111,220	$	209,841	$	576,679

	January 1, 2023
	B1		Ba1		Ba2		Baa2		Ba3		B2		Caa2		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.

Lessee - DST Program Master Lease

During the three months ended September 30, 2023, the Company contributed two industrial assets to the DST as part of the initial DST Program offering. The assets are leased back to the Company by a wholly-owned subsidiary of the Company under the master lease agreement. The following table presents the undiscounted future minimum rent payment obligation of the wholly-owned subsidiary:

Year	Future Minimum Payments
2023 (remaining)	$	1,120
2024	4,478
2025	4,478
2026	4,478
2027	4,478
2028	4,637
Thereafter	78,196
Total	$	101,865