Allowance for Credit Losses

6 Months Ended

Jun. 30, 2024

Credit Loss [Abstract]

Allowance for Credit Losses

Allowance for Credit Losses

Under ASC 326, we are required to estimate and record non-cash credit losses related to our historical and any future investments in sales-type leases, lease financing receivables, loans and securities classified as held-to-maturity.

The following tables detail the allowance for credit losses as of June 30, 2024 and December 31, 2023:

	June 30, 2024
($ In thousands)	Amortized Cost		Allowance (1)		Net Investment		Allowance as a % of Amortized Cost
Investments in leases – sales-type	$	23,952,241	$	(762,675)	$	23,189,566	3.18	%
Investments in leases – financing receivables	19,044,531		(706,650)		18,337,881		3.71	%
Investments in loans and securities	1,487,667		(26,469)		1,461,198		1.78	%
Other assets – sales-type sub-leases	865,886		(20,020)		845,866		2.31	%
Totals	$	45,350,325	$	(1,515,814)	$	43,834,511	3.34	%

	December 31, 2023
($ In thousands)	Amortized Cost		Allowance (1)		Net Investment		Allowance as a % of Amortized Cost
Investments in leases – sales-type	$	23,717,060	$	(701,129)	$	23,015,931	2.96	%
Investments in leases – financing receivables	18,914,734		(703,632)		18,211,102		3.72	%
Investments in loans and securities	1,173,949		(29,772)		1,144,177		2.54	%
Other assets – sales-type sub-leases	866,052		(18,722)		847,330		2.16	%
Totals	$	44,671,795	$	(1,453,255)	$	43,218,540	3.25	%

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(1) The total allowance excludes the CECL allowance for unfunded commitments of our loans and for unfunded commitments made to our tenants to fund the development and construction of improvements at our properties. As of June 30, 2024 and December 31, 2023, such allowance is $18.7 million and $19.1 million, respectively, and is recorded in Other liabilities.

The following chart reflects the roll-forward of the allowance for credit losses on our real estate portfolio for the three and six months ended June 30, 2024 and 2023:

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2024		2023		2024		2023
Beginning Balance	$	1,578,088	$	1,480,109	$	1,472,386	$	1,368,819
Initial allowance from current period investments	2,231		—		2,914		234,064
Current period change in credit allowance	(45,804)		(40,941)		59,215		(163,715)
Charge-offs	—		—		—		—
Recoveries	—		—		—		—
Ending Balance	$	1,534,515	$	1,439,168	$	1,534,515	$	1,439,168

During the three months ended June 30, 2024, we recognized a $43.0 million decrease in our allowance for credit losses primarily driven by positive changes in the macroeconomic forecast during the current quarter and equity market performance of our tenants, both of which impact the reasonable and supportable period, or R&S Period, probability of default, or PD. This decrease was partially offset by adjustments made to the assumptions used to project future cash flows for one of our investments.

During the six months ended June 30, 2024, we recognized a $63.9 million increase in our allowance for credit losses primarily driven by the market performance of our tenants and negative changes in the macroeconomic forecast during the period, both of which impact the R&S Period PD, as well as adjustments made to the assumptions used to project future cash flows for one of our investments.

During the three months ended June 30, 2023, we recognized a $41.4 million decrease in our allowance for credit losses primarily driven by the market performance of our tenants and positive changes in the macroeconomic forecast during the current quarter.

During the six months ended June 30, 2023, we recognized a $70.1 million increase in our allowance for credit losses primarily driven by initial CECL allowances of $229.6 million on our $5.7 billion of property acquisition activity and $4.5 million on our $85.0 million of loan origination activity during such period, partially offset by the market performance of our tenants and positive changes in the macroeconomic forecast.

As of June 30, 2024 and December 31, 2023, and since our formation on October 6, 2017, all of our lease agreements and loan and security investments are current in payment of their obligations to us and no investments are on non-accrual status.

Credit Quality Indicators

We assess the credit quality of our investments through the credit ratings of the senior secured debt of the guarantors of our leases, as we believe that our lease agreements have a similar credit profile to a senior secured debt instrument. The credit quality indicators are reviewed by us on a quarterly basis as of quarter-end. In instances where the guarantor of one of our lease agreements does not have senior secured debt with a 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 Long-Term Period PD when estimating credit losses for each investment.

The following tables detail the amortized cost basis of our investments by the credit quality indicator we assigned to each lease or loan guarantor as of June 30, 2024 and 2023:

	June 30, 2024
(In thousands)	Ba2		Ba3		B1		B2		B3		N/A (2)		Total
Investments in leases – sales-type and financing receivable, Investments in loans and securities and Other assets (1)	$	4,452,810	$	33,172,338	$	3,708,359	$	884,715	$	1,320,293	$	1,811,810	$	45,350,325

	June 30, 2023
(In thousands)	Ba2		Ba3		B1		B2		B3		N/A (2)		Total
Investments in leases – sales-type and financing receivable, Investments in loans and securities and Other assets (1)	$	4,281,667	$	32,778,498	$	3,217,992	$	878,810	$	891,024	$	558,272	$	42,606,263

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(1)Excludes the CECL allowance for unfunded commitments recorded in Other liabilities as such commitments are not currently reflected on our Balance Sheet, rather the CECL allowance is based on our current best estimate of future funding commitments.

(2)We estimate the CECL allowance for our loan investments using a traditional commercial real estate model based on standardized credit metrics to estimate potential losses.