Finance Receivables

12 Months Ended

Dec. 31, 2023

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 finance leases and loans receivable (net of allowance for credit losses). Operating leases are not included in finance receivables. See Note 2 and Note 6 for information on ROU operating lease assets recognized in our consolidated balance sheets.

Finance Receivables

Net investments in finance leases and loans receivable are summarized as follows (in thousands):


	Maturity Date	December 31,
		2023		2022
Net investments in sales-type leases (a)	2024 – 2034	$	835,734	$	—
Net investments in direct financing leases (b)	2024 – 2036	431,328		498,313
Sale-leaseback transactions accounted for as loans receivable (c)	2038 – 2052	236,611		234,198
Secured loans receivable (d)	2024	11,250		39,250
		$	1,514,923	$	771,761

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(a)These investments are assessed for credit loss allowances but no such allowances were recorded as of December 31, 2023 or 2022.

(b)Amounts are net of allowance for credit losses, as disclosed below under Net Investments in Direct Financing Leases.

(c)These investments are accounted for as loans receivable in accordance with ASC 310, Receivables and ASC 842, Leases. Maturity dates reflect the current lease maturity dates. Amounts are net of allowance for credit losses of $0.8 million as of December 31, 2023. No such allowance was recorded as of December 31, 2022.

(d)Amounts are net of allowance for credit losses of $2.1 million as of both December 31, 2023 and 2022.

During the year ended December 31, 2023, the U.S. dollar weakened against the euro, resulting in a $27.7 million increase in the carrying value of Net investments in finance leases and loans receivable from December 31, 2022 to December 31, 2023.

Net Investments in Direct Financing Leases

Net investments in direct financing leases is summarized as follows (in thousands):


	December 31,
	2023		2022
Lease payments receivable	$	285,512	$	332,618
Unguaranteed residual value	434,234		470,839
	719,746		803,457
Less: unearned income	(251,441)		(296,411)
Less: allowance for credit losses (a)	(36,977)		(8,733)
	$	431,328	$	498,313

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(a)During the years ended December 31, 2023 and 2022, we recorded a net allowance for credit losses of $28.2 million and a net release of allowance for credit losses of $3.9 million, respectively, on our net investments in direct financing leases due to (i) the declining financial position of one of our top ten tenants during the year ended December 31, 2023 and (ii) changes in credit quality for certain other tenants, which was included within Other gains and (losses) in our consolidated statements of income.

2023 — Income from direct financing leases, which is included in Income from finance leases and loans receivable in the consolidated financial statements, was $49.9 million for the year ended December 31, 2023.

During the year ended December 31, 2023, we reclassified five properties with a carrying value of $25.4 million from Net investments in finance leases and loans receivable to Real estate in connection with changes in lease classifications due to extensions of the underlying leases (Note 6).

2022 — Income from direct financing leases, which is included in Income from finance leases and loans receivable in the consolidated financial statements, was $53.0 million for the year ended December 31, 2022.

As discussed in Note 4, we acquired one consolidated property subject to a direct financing lease in the CPA:18 Merger, which increased the carrying value of our Net investments in finance leases and loans receivable by $10.5 million during the year ended December 31, 2022.

2021 — Income from direct financing leases, which was included in Income from finance leases and loans receivable in the consolidated financial statements, was $63.2 million for the year ended December 31, 2021.

Net Investments in Sales-Type Leases

On February 28, 2023, the tenant occupying our portfolio of 78 net-lease self-storage properties located in the United States provided notice of its intention to exercise its option to repurchase the properties. The purchase price will be calculated using the U.S. CPI as of the closing date. In accordance with ASC 842, Leases, we reclassified these net-lease assets to net investments in sales-type leases totaling $451.4 million on our consolidated balance sheets (based on the present value of remaining rents and estimated purchase price, using the CPI rates as of the exercise notice date), since the tenant provided notice of its intention to exercise its purchase option. In connection with this transaction, we reclassified the following amounts to Net investments in finance leases and loans receivable: (i) $393.7 million from Land, buildings and improvements — net lease and other, (ii) $36.6 million from In-place lease intangible assets and other, (iii) $22.4 million from Above-market rent intangible assets, (iv) $18.5 million from Below-market rent and other intangible liabilities, net, and (v) $159.0 million from Accumulated depreciation and amortization. We recognized an aggregate Gain on sale of real estate, net, of $176.2 million during the year ended December 31, 2023 related to this transaction. We sold a portion of this portfolio in February 2024 (Note 19).

On October 16, 2023, the tenant occupying an industrial/office facility located in Nagold, Germany, provided notice of its intention to exercise its option to repurchase the property. In accordance with ASC 842, Leases, we reclassified this net-lease asset to net investments in sales-type leases totaling $20.6 million on our consolidated balance sheets (based on the estimated purchase price and the foreign currency exchange rate of the euro on the date of notice), since the tenant provided notice of its intention to exercise its purchase option. In connection with this transaction, we reclassified $20.6 million from net investments in direct financing leases to net investments in sales-type leases (both are included within Net investments in finance leases and loans receivable on our consolidated balance sheets). No gain or loss on sale of real estate was recognized related to this transaction.

On October 31, 2023, we entered into an agreement to sell our portfolio of 70 office properties located in Spain to the tenant occupying the properties. In accordance with ASC 842, Leases, we reclassified these net-lease assets to net investments in sales-type leases totaling $348.6 million on our consolidated balance sheets (based on the estimated purchase price and the foreign currency exchange rate of the euro on the agreement date), since this agreement resulted in a lease modification. In connection with this transaction, we reclassified the following amounts to Net investments in finance leases and loans receivable: (i) $269.0 million from Land, buildings and improvements — net lease and other, (ii) $57.4 million from In-place lease intangible assets and other, (iii) $21.7 million from Other assets, net, and (iv) $76.4 million from Accumulated depreciation and amortization. We recognized an aggregate Gain on sale of real estate, net, of $59.1 million during the year ended December 31, 2023 related to this transaction, reflecting balances of $14.6 million within Deferred income taxes and $3.2 million within Accounts payable, accrued expenses and other liabilities for this investment. This investment was sold in January 2024 (Note 19).

Earnings from our net investments in sales-type leases are included in Income from finance leases and loans receivable in the consolidated financial statements, and totaled $38.1 million for the year ended December 31, 2023. Prior to this reclassification to net investments in sales-type leases, earnings from this investment were recognized in Lease revenues in the consolidated financial statements.

Net investments in sales-type leases is summarized as follows (in thousands):


	December 31,
	2023		2022
Lease payments receivable (a)	$	849,881	$	—

	849,881		—
Less: unearned income	(14,147)		—

	$	835,734	$	—

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(a)Includes estimated purchase price and total rents owed.

Scheduled Future Lease Payments to be Received

Scheduled future lease payments to be received (exclusive of expenses paid by tenants, percentage of sales rents, and future CPI-based adjustments) under non-cancelable direct financing leases and sales-type leases at December 31, 2023 are as follows (in thousands):


Years Ending December 31,	Total
2024 (a)	$	896,949
2025	44,102
2026	42,939
2027	41,713
2028	34,737
Thereafter	74,953
Total	$	1,135,393

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(a)Includes $849.9 million for the net investments in sales-type leases described above, representing the estimated purchase prices of the investments plus remaining rents. One investment was sold in January 2024 for gross proceeds of approximately $359 million (Note 19).

See Note 6 for scheduled future lease payments to be received under non-cancelable operating leases.

Loans Receivable

In August 2023, one of our secured loans receivable was repaid to us for $28.0 million. In connection with this repayment, we received an $0.6 million prepayment penalty from the borrower, which was included in Income from finance leases and loans receivable in the consolidated financial statements for the year ended December 31, 2023. This secured loan receivable was initially acquired in the CPA:18 Merger (Note 4).

During the year ended December 31, 2023, we recorded an allowance for credit losses of $0.8 million on our sale-leaseback transactions accounted for as loans receivable due to changes in economic conditions.

In September 2022, one of our secured loans receivable was repaid to us for $34.0 million. In connection with this repayment, we recorded a release of allowance for credit losses of $10.5 million since the loan principal was fully repaid.

During the year ended December 31, 2022, we entered into one sale-leaseback, which was deemed to be a loan receivable, at a cost of $19.8 million

During the year ended December 31, 2021, we entered into three sale-leasebacks, which were deemed to be loans receivable, at a total cost of $217.0 million.

Earnings from our loans receivable are included in Income from finance leases and loans receivable in the consolidated financial statements, and totaled $19.1 million, $21.2 million, and $4.3 million for the years ended December 31, 2023, 2022, and 2021, respectively.

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. During the year ended December 31, 2023, we reclassified certain assets to net investments in sales-type leases (which are considered finance receivables), as described above under Net Investments in Sales-Type Leases. At both December 31, 2023 and 2022, no material balances of our finance receivables were past due. Other than the lease extensions noted above under Net Investments in Direct Financing Leases, there were no material modifications of finance receivables during the year ended December 31, 2023.

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. A credit quality of one through three indicates a range of investment grade to stable. A credit quality of four through five indicates a range of inclusion on the watch list to risk of default. The credit quality evaluation of our finance receivables is updated quarterly.

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


	Number of Tenants / Obligors at December 31,		Carrying Value at December 31,
Internal Credit Quality Indicator	2023	2022	2023		2022
1 – 3	18	19	$	1,338,877	$	664,761
4	8	8	215,953		117,833
5	—	—	—		—
			$	1,554,830	$	782,594