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Allowance for Credit Losses
 6 Months Ended
Jun. 30, 2022
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 and loans.
During the three and six months ended June 30, 2022, we recognized a $551.9 million and $632.7 million increase, respectively, in our allowance for credit losses primarily driven by initial CECL allowances on our acquisition activity during such periods in the amount of $439.7 million and $515.7 million, respectively, representing 79.9% and 81.5% of the total allowance for three and six months ended June 30, 2022, respectively. The initial CECL allowances were in relation to (i) the closing of the MGP Transactions on April 29, 2022, which included the (a) classification of the MGM Master Lease as a lease financing receivable and (b) the sales-type sub-lease agreements we assumed in connection with the closing of the MGP Transactions and are required to present gross, (ii) the closing of the Venetian Acquisition on February 23, 2022, which included (a) the classification of the Venetian Lease as a sales-type lease, (b) the estimated future funding commitments under the Venetian PGF and (c) the sales-type sub-lease agreements we assumed in connection with the closing of the Venetian Acquisition and are required to present gross, (iii) the future funding commitments upon entry into the BigShots Loan on April 7, 2022, and entry into Cabot Citrus Farms Loan on June 6, 2022. Additional increases were attributable to the increase in the reasonable and supportable period, or R&S Period, probability of default, or PD, of our tenants and their parent guarantors as a result of market volatility during the first and second quarters of 2022. This was partially offset by a decrease in the Long-Term Period PD as a result of standard annual updates that were made to the Long-Term PD default study we utilize to estimate our CECL allowance.
During the three and six months ended June 30, 2021, we recognized a $29.1 million and $33.5 million decrease, respectively, in our allowance for credit losses primarily driven by (i) the decrease in the R&S Period PD of our tenants and their parent guarantors as a result of an improvement in their economic outlook due to the reopening of all of their gaming operations and relative performance of such operations during the first and second quarters of 2021, (ii) the decrease in the Long-Term Period PD due to a credit rating upgrade of the senior secured debt used to determine the Long-Term Period PD for two of our tenants during the second quarter of 2021, and (iii) the decrease in the R&S Period PD and loss given default, or LGD, as a result of standard annual updates that were made to the inputs and assumptions in the model that we utilize to estimate our CECL allowance.
As of June 30, 2022 and December 31, 2021, and since our formation date on October 6, 2017, all of our Lease Agreements and loan investments are current in payment of their obligations to us and no investments are on non-accrual status.
The following tables detail the allowance for credit losses as of June 30, 2022 and December 31, 2021:
June 30, 2022
($ In thousands)Amortized Cost
Allowance (1)
Net InvestmentAllowance as a % of Amortized Cost
Investments in leases - sales-type$17,658,038 $(582,181)$17,075,857 3.30 %
Investments in leases - financing receivables17,034,801 (548,279)16,486,522 3.22 %
Investments in loans546,017 (855)545,162 0.16 %
Other assets - sales-type sub-leases788,572 (17,597)770,975 2.23 %
Totals$36,027,428 $(1,148,912)$34,878,516 3.19 %
December 31, 2021
($ In thousands)Amortized Cost
Allowance (1)
Net InvestmentAllowance as a % of Amortized Cost
Investments in leases - sales-type$13,571,516 $(434,852)$13,136,664 3.20 %
Investments in leases - financing receivables2,735,948 (91,124)2,644,824 3.33 %
Investments in loans498,775 (773)498,002 0.15 %
Other assets - sales-type sub-leases280,510 (6,540)273,970 2.33 %
Totals$17,086,749 $(533,289)$16,553,460 3.12 %
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(1) The total allowance excludes the CECL allowance for unfunded commitments, primarily related to the Venetian PGF, the BigShots Loan and the Cabot Citrus Farms Loan. As of June 30, 2022 and December 31, 2021, such allowance is $18.1 million and $1.0 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 six months ended June 30, 2022 and 2021:
Six Months Ended June 30,
(In thousands)20222021
Beginning Balance December 31,$534,326 $553,879 
Initial allowance from current period investments515,697 1,725 
Current period change in credit allowance116,999 (35,209)
Charge-offs— — 
Recoveries— — 
Ending Balance June 30,
$1,167,022 $520,395 
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, 2022 and 2021:
June 30, 2022
(In thousands)Ba2Ba3B1B2B3
N/A(2)
Total
Investments in leases - sales-type and financing receivable, Investments in loans and Other assets (1)
$4,214,233 $15,566,631 $14,948,277 $872,396 $279,906 $145,986 $36,027,428 
June 30, 2021
(In thousands)Ba2Ba3B1B2B3
N/A(2)
Total
Investments in leases - sales-type and financing receivable, Investments in loans and Other assets (1)
$— $954,181 $15,743,112 $— $281,657 $65,011 $17,043,962 
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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 the Chelsea Piers Mortgage Loan, Great Wolf Maryland Loan, BigShots Loan and Cabot Citrus Farms Loan using a traditional commercial real estate model based on standardized credit metrics to estimate potential losses.