Finance Receivables

9 Months Ended

Sep. 30, 2023

Accounts, Notes, Loans and Financing Receivable

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 direct finance leases. Operating leases are not included in finance receivables.

Net Investments in Direct Financing Leases

One investment was classified as a direct financing lease as of December 31, 2022. During the nine months ended September 30, 2023, we reclassified this investment (comprised of four properties) with an aggregate carrying value of $14.6 million from Net investments in direct finance leases to Land, buildings and improvements in connection with a change in lease classification due to an extension of the underlying lease. Net investments in direct financing leases is summarized in the table below (in thousands):


	September 30, 2023		December 31, 2022
Lease payments receivable	$	—	$	11,423
Unguaranteed residual value	—		14,558
	—		25,981
Less: unearned income	—		(11,253)
	$	—	$	14,728

At December 31, 2022, there was no reserve or estimate of credit loss on the financing leases.

Income from direct financing leases was $0.3 million and $0.4 million for the three months ended September 30, 2023 and 2022, respectively, and $1.2 million and $1.3 million for the nine months ended September 30, 2023 and 2022.

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. At both September 30, 2023 and December 31, 2022, no material balances of our finance receivables were past due.

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.

Our finance receivable internal credit quality rating was three as of December 31, 2022.