Net Investment in Sales-type Leases and Ground Lease Receivables (Tables)

3 Months Ended

Mar. 31, 2024

Leases [Abstract]

Net Investment in Sales Type Leases

The Company’s net investment in sales-type leases were comprised of the following ($ in thousands):

	March 31, 2024		December 31, 2023
Total undiscounted cash flows(1)	$	31,878,760	$	30,586,189
Unguaranteed estimated residual value(1)		2,982,536		2,946,928
Present value discount		(31,518,731)		(30,277,457)
Allowance for credit losses		(907)		(465)
Net investment in sales-type leases(2)	$	3,341,658	$	3,255,195

(1) As of March 31, 2024, total discounted cash flows were approximately $3,312 million and the discounted unguaranteed estimated residual value was $30.8 million. As of December 31, 2023, total discounted cash flows were approximately $3,225 million and the discounted unguaranteed estimated residual value was $30.4 million.

(2) As of March 31, 2024 and December 31, 2023, $16.5 million and $16.4 million, respectively, was attributable to noncontrolling interests.

Schedule of rollforward of net investment in sales-type leases and Ground Lease receivables

The following table presents a rollforward of the Company’s net investment in sales-type leases and Ground Lease receivables for the three months ended March 31, 2024 and 2023 ($ in thousands):

	Net Investment in		Ground Lease
	Sales-type Leases		Receivables		Total
Three Months Ended March 31, 2024
Beginning balance	$	3,255,195	$	1,622,298	$	4,877,493
Origination/acquisition/fundings(1)		71,978		32,158		104,136
Accretion		14,927		6,930		21,857
Provision for credit losses		(442)		(323)		(765)
Ending balance(2)	$	3,341,658	$	1,661,063	$	5,002,721

	Net Investment in		Ground Lease
	Sales-type Leases		Receivables		Total
Three Months Ended March 31, 2023
Beginning balance	$	3,106,599	$	1,374,716	$	4,481,315
Impact from adoption of new accounting standard		(351)		(199)		(550)
Origination/acquisition/fundings(1)		19,331		50,803		70,134
Accretion		14,226		6,154		20,380
Recovery of credit losses		26		4		30
Ending balance(2)	$	3,139,831	$	1,431,478	$	4,571,309

(1) The net investment in sales-type leases is initially measured at the present value of the fixed and determinable lease payments, including any guaranteed or unguaranteed estimated residual value of the asset at the end of the lease, discounted at the rate implicit in the lease. For newly originated or acquired Ground Leases, the Company’s estimate of residual value equals the fair value of the land at lease commencement.

(2) As of March 31, 2024 and December 31, 2023, all of the Company’s net investment in sales-type leases and Ground Lease receivables were current in their payment status. As of March 31, 2024, the Company’s weighted average accrual rate for its net investment in sales-type leases and Ground Lease receivables was 5.2% and 5.4%, respectively. As of March 31, 2024, the weighted average remaining life of the Company’s 34 Ground Lease receivables was 97.9 years.

Schedule of changes in allowance for credit losses on net investment in sales-type leases and Ground Lease receivables

Allowance for Credit Losses—Changes in the Company’s allowance for credit losses on net investment in sales-type leases and Ground Lease receivables for the three months ended March 31, 2024 and 2023 were as follows ($ in thousands):

	Net investment in sales-type leases
	Stabilized		Development		Unfunded
Three Months Ended March 31, 2024	Properties		Properties		Commitments		Total
Allowance for credit losses at beginning of period	$	387	$	78	$	—	$	465
Provision for credit losses(1)		325		117		11		453
Allowance for credit losses at end of period(2)	$	712	$	195	$	11	$	918

	Ground Lease receivables
	Stabilized		Development		Unfunded
Three Months Ended March 31, 2024	Properties		Properties		Commitments		Total
Allowance for credit losses at beginning of period	$	123	$	246	$	37	$	406
Provision for credit losses(1)		111		212		1		324
Allowance for credit losses at end of period(2)	$	234	$	458	$	38	$	730

	Net investment in sales-type leases
	Stabilized		Development		Unfunded
Three Months Ended March 31, 2023	Properties		Properties		Commitments		Total
Allowance for credit losses at beginning of period	$	—	$	—	$	—	$	—
Impact from adoption of new accounting standard(3)		280		71		6		357
Recovery of credit losses(1)		(25)		(1)		(5)		(31)
Allowance for credit losses at end of period(2)	$	255	$	70	$	1	$	326

	Ground Lease receivables
	Stabilized		Development		Unfunded
Three Months Ended March 31, 2023	Properties		Properties		Commitments		Total
Allowance for credit losses at beginning of period	$	—	$	—	$	—	$	—
Impact from adoption of new accounting standard(3)		102		97		84		283
Provision for (recovery of) credit losses(1)		(9)		5		(21)		(25)
Allowance for credit losses at end of period(2)	$	93	$	102	$	63	$	258

(1) During the three months ended March 31, 2024, the Company recorded a provision for credit losses on net investment in sales-type leases and Ground Lease receivables of $0.5 million and $0.3 million, respectively. The provision for credit losses was due primarily to current market conditions, including an increase in the Ground Lease cost to value ratio on the Company’s portfolio of Ground Leases since December 31, 2023. During the three months ended March 31, 2023, the Company recorded a recovery of credit losses on net investment in sales-type leases and Ground Lease receivables of $31 thousand and $25 thousand, respectively. The recovery of credit losses on net investment in sales-type leases and Ground Lease receivables was due primarily to an improving macroeconomic forecast since December 31, 2023.

(2) Allowance for credit losses on unfunded commitments is recorded in “Accounts payable and accrued expenses” on the Company’s consolidated balance sheets.

(3) On January 1, 2023, the Company recorded an allowance for credit losses on net investment in sales-type leases of $0.4 million and an allowance for credit losses on Ground Lease receivables of $0.2 million upon the adoption of ASU 2016-13, of which an aggregate of $0.1 million related to expected credit losses for unfunded commitments and was recorded in "Accounts payable, accrued expenses and other liabilities."

Amortized Cost Basis in Ground Lease Receivables

The Company’s amortized cost basis in Ground Lease receivables, presented by year of origination and by stabilized or development status, was as follows as of March 31, 2024 ($ in thousands):

	Year of Origination
	2024		2023		2022		2021		2020		Prior to 2020		Total
Ground Lease receivables
Stabilized properties	$	—	$	19,209	$	153,704	$	198,044	$	181,567	$	452,303	$	1,004,827
Development properties		—		142		579,251		77,535		—		—		656,928
Total	$	—	$	19,351	$	732,955	$	275,579	$	181,567	$	452,303	$	1,661,755

The Company’s amortized cost basis in Ground Lease receivables, presented by year of origination and by stabilized or development status, was as follows as of December 31, 2023 ($ in thousands):

	Year of Origination
	2023		2022		2021		2020		2019		Prior to 2019		Total
Ground Lease receivables
Stabilized properties	$	19,106	$	152,966	$	171,664	$	180,739	$	450,123	$	—	$	974,598
Development properties		139		545,509		102,421		—		—		—		648,069
Total	$	19,245	$	698,475	$	274,085	$	180,739	$	450,123	$	—	$	1,622,667

Future Minimum Lease Payments Under Sales-type Leases

Future Minimum Lease Payments under Sales-type Leases—Future minimum lease payments to be collected under sales-type leases accounted for under ASC 842 - Leases, excluding lease payments that are not fixed and determinable, in effect as of March 31, 2024, are as follows by year ($ in thousands):

					Fixed Bumps
	Fixed Bumps				with
	with Inflation		Fixed		Percentage
	Adjustments		Bumps		Rent		Total
2024 (remaining nine months)	$	86,556	$	2,955	$	440	$	89,951
2025		108,927		4,001		586		113,514
2026		111,308		4,067		586		115,961
2027		113,331		4,135		586		118,052
2028		115,355		4,294		637		120,286
Thereafter		30,059,026		1,162,938		99,032		31,320,996
Total undiscounted cash flows	$	30,594,503	$	1,182,390	$	101,867	$	31,878,760

Recognized Interest Income from Sales type Leases

During the three months ended March 31, 2024 and 2023, the Company recognized interest income from sales-type leases in its consolidated statements of operations as follows ($ in thousands):

	Net Investment		Ground
	in Sales-type		Lease
Three Months Ended March 31, 2024	Leases		Receivables		Total
Cash	$	27,270	$	14,091	$	41,361
Non-cash		14,927		6,930		21,857
Total interest income from sales-type leases	$	42,197	$	21,021	$	63,218

	Net Investment		Ground
	in Sales-type		Lease
Three Months Ended March 31, 2023	Leases		Receivables		Total
Cash	$	24,882	$	11,804	$	36,686
Non-cash		14,222		6,154		20,376
Total interest income from sales-type leases	$	39,104	$	17,958	$	57,062