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Leases

9 Months Ended

Sep. 30, 2024

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				Nine Months Ended
	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
Base rent(1)	$	41,977	$	37,608	$	121,750	$	110,407
Straight-line rental revenue, net (2)	4,899		5,021		14,017		13,539
Variable lease payments (3)	5,693		5,385		16,350		14,994
Amortization of above/below market lease intangibles	115		57		238		126
Total Rental revenue	$	52,684	$	48,071	$	152,355	$	139,066

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(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, 2024.


Year	Future Minimum Rents
2024 (remaining)	$	47,471
2025	177,753
2026	180,751
2027	183,418
2028	186,234
2029	187,489
Thereafter	1,852,306
Total	$	2,815,422

Lessor – Financing receivables

In accordance with ASC 842, certain of the Company’s sales-type lease contracts are primarily accounted for as failed-sale leaseback transactions and were recorded as an Investment in leases - Financing receivables. During the nine months ended September 30, 2024, the Company purchased five properties through sale-leaseback transactions that were accounted for as failed sale-leasebacks for $147,266. During the nine months ended September 30, 2023, the Company purchased three properties through sale-leaseback transactions that were accounted for as failed-sale leasebacks for $47,855. During the three and nine months ended September 30, 2024, the Company recognized interest income of $17,133 and $46,704, respectively. During the three and nine months ended September 30, 2023, the Company recognized interest income of $15,044 and $42,673, respectively. Interest income is recognized on an effective interest basis at a constant rate of return over the term of the applicable leases. Cash received under these contracts was $37,179 and $57,846 during the nine months ended September 30, 2024 and 2023, respectively.

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, 2024, the future minimum

payments of sales-type lease receivables were as follows:


Year	Future Minimum Payments
2024 (remaining)	$	12,031
2025	48,764
2026	49,965
2027	51,195
2028	52,457
2029	53,751
Thereafter	3,691,447
Total lease payment receivable	$	3,959,610
Less deferred interest income	3,425,954
Less allowance for credit losses	19,694
Total Investment in leases - Financing receivables	$	513,962

The following table reflects the change to the allowance for credit losses on our real estate portfolio for the nine months ended September 30, 2024 and 2023:


	Nine Months Ended
	September 30, 2024		September 30, 2023
Balance, beginning of period	$	16,638	$	—
Initial allowance upon adoption	—		7,157
Current period change in credit allowance	3,056		11,792
Balance, end of period	$	19,694	$	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 may 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, 2024 and December 31, 2023:


	September 30, 2024
		Ba1		Baa2		B2		Caa2		Total
Investment in leases - Financing Receivables		$	—	$	58,802	$	260,586	$	214,268	$	533,656


	December 31, 2023
		Ba1		Baa2		B2		Caa2		Total
Investment in leases - Financing Receivables		$	204,364	$	52,247	$	111,803	$	210,914	$	579,328

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 year ended December 31, 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
2024 (remaining)	$	1,120
2025	4,478
2026	4,478
2027	4,478
2028	4,636
2029	4,885
Thereafter	73,312
Total	$	97,387

Dispositions

During the three and nine months ended September 30, 2024, the Company disposed of one land property accounted for as an Investment in lease - Financing receivable for total net proceeds of $248,459 and recognized a net gain on the disposition of $42,423.

Leases