6. Investment in Rental Property and Lease Arrangements

The Company generally leases its investment rental property to established tenants. At June 30, 2017, the Company had 444 real estate properties which were leased under leases that have been classified as operating leases and 15 that have been classified as direct financing leases. Of the 15 leases classified as direct financing leases, five include land portions which are accounted for as operating leases (see Revenue Recognition within Note 2). Substantially all leases have initial terms of 10 to 20 years and provide for minimum rentals as defined in ASC 840, Leases. In addition, the leases generally provide for limited increases in rent as a result of fixed increases, increases in the consumer price index, and/or increases in the tenant’s sales volume. Generally, the tenant is also required to pay all property taxes and assessments, substantially maintain the interior and exterior of the building, and maintain property and liability insurance coverage. The leases also typically provide one or more multi-year renewal options subject to generally the same terms and conditions as the initial lease.

Investment in Rental Property – Accounted for Using the Operating Method

Rental property subject to non-cancelable operating leases with tenants are as follows at June 30, 2017 and December 31, 2016:

(in thousands)	June 30, 2017			December 31, 2016
Land	$	296,873		$	288,276
Land improvements		176,383			162,341
Buildings		1,419,241			1,283,322
Tenant improvements		8,656			8,665
Equipment		772			799
		1,901,925			1,743,403
Less accumulated depreciation		(126,632	)		(105,703	)
	$	1,775,293		$	1,637,700

Depreciation expense on investment in rental property was $11,924 and $9,230 for the three months ended June 30, 2017 and 2016, respectively and $23,855 and $17,528 for the six months ended June 30, 2017 and 2016, respectively.

Estimated minimum future rental receipts required under non-cancelable operating leases with tenants at June 30, 2017 are as follows:

(in thousands)
Remainder of 2017	$	151,428
2018		154,538
2019		157,708
2020		160,199
2021		162,270
Thereafter		1,655,872
	$	2,442,015

Since lease renewal periods are exercisable at the option of the tenant, the above amounts only include future minimum lease payments due during the initial lease terms. In addition, such amounts exclude any potential variable rent increases that are based on the consumer price index or future contingent rents which may be received under the leases based on a percentage of the tenant’s gross sales.

Investment in Rental Property – Accounted for Using the Direct Financing Method

The Company’s net investment in direct financing leases is as follows at June 30, 2017 and December 31, 2016:

(in thousands)	June 30, 2017		December 31, 2016
Minimum lease payments to be received	$	79,784	$	90,447
Estimated unguaranteed residual values		19,758		22,335
Less unearned revenue		57,935		65,511
Net investment in direct financing leases	$	41,607	$	47,271

Minimum future rental receipts required under non-cancelable direct financing leases with tenants at June 30, 2017 are as follows:

(in thousands)
Remainder of 2017	$	1,894
2018		3,857
2019		3,931
2020		4,037
2021		4,126
Thereafter		61,939
	$	79,784

The above rental receipts do not include future minimum lease payments for renewal periods, potential variable consumer price index rent increases or contingent rental payments that may become due in future periods.