6. Investment in Rental Property and Lease Arrangements

The Company generally leases its investment rental property to established tenants. At December 31, 2017, the Company had 513 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, four 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, 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 multiple 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 December 31, 2017 and 2016:

	December 31,
(in thousands)	2017			2016
Land	$	348,940		$	288,276
Land improvements		211,674			162,341
Buildings		1,754,796			1,283,322
Tenant improvements		11,425			8,665
Equipment		7,689			799
		2,334,524			1,743,403
Less accumulated depreciation		(148,383	)		(105,703	)
	$	2,186,141		$	1,637,700

Depreciation expense on investment in rental property was $50,360, $37,976 and $25,038 for the years ended December 31, 2017, 2016, and 2015, respectively.

Estimated minimum future rental receipts required under non-cancelable operating leases with tenants at December 31, 2017 are as follows:

(in thousands)
2018	$	188,519
2019		192,387
2020		195,455
2021		198,379
2022		200,765
Thereafter		1,848,237
	$	2,823,742

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 as of December 31:

	December 31,
(in thousands)	2017			2016
Minimum lease payments to be received	$	77,889		$	90,447
Estimated unguaranteed residual values		19,758			22,335
Less unearned revenue		(56,030	)		(65,511	)
Net investment in direct financing leases	$	41,617		$	47,271

Minimum future rental receipts required under non-cancelable direct financing leases with tenants at December 31, 2017 are as follows:

(in thousands)
2018	$	3,857
2019		3,931
2020		4,037
2021		4,126
2022		4,211
Thereafter		57,727
	$	77,889

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.