v3.24.3

Investment in Rental Property and Lease Arrangements | 6 Months Ended
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Jun. 30, 2024
Leases [Abstract] |
Investment in Rental Property and Lease Arrangements | 5. Investment in Rental Property and Lease Arrangements The Company generally leases its investment rental property to established tenants in the industrial, restaurant, retail, healthcare, and office property types. At September 30, 2024, the Company had 773 real estate properties, 760 of which were leased under leases that have been classified as operating leases, nine that have been classified as direct financing leases, one that has been classified as a sales-type lease, and three that were vacant. Of the nine leases classified as direct financing leases, three include land portions which are accounted for as operating leases. The sales-type lease includes a land portion which is accounted for as an operating lease. Most leases have initial terms of 10 to 20 years. The Company’s leases generally provide for limited increases in rent as a result of fixed increases, increases in the Consumer Price Index (“CPI”), or increases in the tenant’s sales volume. Generally, tenants are 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 for one or more multiple-year renewal options, at the election of the tenant, and are subject to generally the same terms and conditions as the initial lease. Investment in Rental Property – Accounted for Using the Operating Method Depreciation expense on investment in rental property was as follows:
|  | For the Three Months Ended September 30, |  |  | For the Nine Months Ended September 30, |
(in thousands) |  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Depreciation |  | $ | 30,006 |  |  | $ | 30,630 |  |  | $ | 89,480 |  |  | $ | 92,776 |
Estimated lease payments to be received under non-cancelable operating leases with tenants at September 30, 2024 are as follows:
(in thousands) |  |  |
Remainder of 2024 |  | $ | 99,220 |
2025 |  |  | 401,191 |
2026 |  |  | 400,767 |
2027 |  |  | 387,320 |
2028 |  |  | 370,705 |
Thereafter |  |  | 3,040,111 |
|  | $ | 4,699,314 |
Since lease renewal periods are exercisable at the option of the tenant, the above amounts only include future lease payments due during the initial lease terms. Such amounts exclude any potential variable rent increases that are based on changes in the CPI or future variable rents which may be received under the leases based on a percentage of the tenant’s gross sales. Additionally, certain of our leases provide tenants with the option to terminate their leases in exchange for termination penalties, or that are contingent upon the occurrence of a future event. Future lease payments within the table above have not been adjusted for these termination rights. Investment in Rental Property – Direct Financing Leases The Company’s net investment in direct financing leases was comprised of the following:
(in thousands) |  | September 30, 2024 |  |  | December 31, 2023 |
Undiscounted estimated lease payments to be received |  | $ | 32,776 |  |  | $ | 35,155 |
Estimated unguaranteed residual values |  |  | 14,547 |  |  |  | 14,547 |
Unearned revenue |  |  | (20,940 | ) |  |  | (22,944 | )
Reserve for credit losses |  |  | (98 | ) |  |  | (115 | )
Net investment in direct financing leases |  | $ | 26,285 |  |  | $ | 26,643 |
Undiscounted estimated lease payments to be received under non-cancelable direct financing leases with tenants at September 30, 2024 are as follows:
(in thousands) |  |  |
Remainder of 2024 |  | $ | 793 |
2025 |  |  | 3,285 |
2026 |  |  | 3,357 |
2027 |  |  | 3,426 |
2028 |  |  | 3,496 |
Thereafter |  |  | 18,419 |
|  | $ | 32,776 |
The above rental receipts do not include future lease payments for renewal periods, potential variable CPI rent increases, or variable percentage rent payments that may become due in future periods. The following table summarizes amounts reported as Lease revenues, net in the Condensed Consolidated Statements of Income and Comprehensive Income:
|  | For the Three Months Ended September 30, |  |  | For the Nine Months Ended September 30, |  |
(in thousands) |  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |  |
Contractual rental amounts billed for operating leases |  | $ | 96,596 |  |  | $ | 96,333 |  |  | $ | 289,881 |  |  | $ | 290,891 |  |
Adjustment to recognize contractual operating lease billings on a straight-line basis |  |  | 5,438 |  |  |  | 6,891 |  |  |  | 15,720 |  |  |  | 21,641 |  |
Net write-offs of accrued rental income |  |  | — |  |  |  | — |  |  |  | (2,556 | ) |  |  | (105 | ) |
Variable rental amounts earned |  |  | 644 |  |  |  | 513 |  |  |  | 1,901 |  |  |  | 1,306 |  |
Earned income from direct financing leases |  |  | 691 |  |  |  | 687 |  |  |  | 2,063 |  |  |  | 2,067 |  |
Interest income from sales-type leases |  |  | 14 |  |  |  | 14 |  |  |  | 43 |  |  |  | 43 |  |
Operating expenses billed to tenants |  |  | 5,537 |  |  |  | 5,181 |  |  |  | 15,292 |  |  |  | 14,850 |  |
Other income from real estate transactions |  |  | 907 |  |  |  | 19 |  |  |  | 985 |  |  |  | 7,414 |  | (a)
Adjustment to revenue recognized for uncollectible rental amounts billed, net |  |  | (1,430 | ) |  |  | (95 | ) |  |  | (3,659 | ) |  |  | (220 | ) |
Total lease revenues, net |  | $ | 108,397 |  |  | $ | 109,543 |  |  | $ | 319,670 |  |  | $ | 337,887 |  |
(a) The nine months ended September 30, 2023, includes $7.5 million of lease termination fee income recognized in connection with the simultaneous lease termination and sale of an underlying office property for an additional $32.0 million in proceeds.

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