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Net Investment in Sales-type Leases and Ground Lease Receivables

3 Months Ended

Mar. 31, 2025

Net Investment in Sales-type Leases and Ground Lease Receivables

Note 4—Net Investment in Sales-type Leases and Ground Lease Receivables

The Company classifies certain of its Ground Leases as sales-type leases and records the leases within “Net investment in sales-type leases” on the Company’s consolidated balance sheets and records interest income in “Interest income from sales-type leases” in the Company’s consolidated statements of operations. In addition, the Company may enter into transactions whereby it acquires land and enters into Ground Leases directly with the seller. These Ground Leases qualify as sales-type leases and, as such, do not qualify for sale leaseback accounting and are accounted for as financing receivables in accordance with ASC 310 - Receivables and are included in “Ground Lease receivables” on the Company’s consolidated balance sheets. The Company records interest income from Ground Lease receivables in “Interest income from sales-type leases” in the Company’s consolidated statements of operations.

In May 2023, the Company entered into a joint venture with a sovereign wealth fund, which is also an existing shareholder, focused on new acquisitions for certain Ground Lease investments. The Company committed approximately $275 million for a 55% controlling interest in the joint venture and the sovereign wealth fund committed approximately $225 million for a 45% noncontrolling interest in the joint venture. Each party’s commitment is discretionary. The joint venture is a voting interest entity and the Company consolidates the joint venture in its financial statements due to its controlling interest. The Company receives a management fee, measured on an asset-by-asset basis, equal to 25 basis points on invested equity for such asset for the first five years following its acquisition, and 15 basis points on invested equity thereafter. The Company will also receive a promote of 15% over a 9% internal rate of return, subject to a 1.275x multiple on invested capital. On August 30, 2024, the Company acquired its partners’ share of the outstanding commitment for all existing Ground Leases in the venture for $48.3 million. The excess of the purchase price and related transaction costs over the carrying value of $46.0 million was recorded as a reduction to additional paid-in capital in the Company’s consolidated statement of changes in equity. Since formation through August 30, 2024, the joint venture acquired nine Ground Leases for an aggregate purchase price of $170.4 million, of which $101.2 million had been funded as of August 30, 2024. The venture remains in place, and the partner's participation right in certain qualifying Ground Lease investment opportunities expired on September 30, 2024.

In January 2024, the Company acquired a Ground Lease from the Ground Lease Plus Fund for $38.3 million, excluding amounts funded by the Company pursuant to a leasehold improvement allowance (refer to Note 7 and Note 14).

The Company’s net investment in sales-type leases were comprised of the following ($ in thousands):


	March 31, 2025		December 31, 2024
Total undiscounted cash flows⁽¹⁾	$	32,956,740	$	32,934,705
Unguaranteed estimated residual value⁽¹⁾		3,039,649		3,039,649
Present value discount		(32,516,739)		(32,512,580)
Allowance for credit losses		(7,697)		(6,821)
Net investment in sales-type leases	$	3,471,953	$	3,454,953

(1)

As of March 31, 2025, total discounted cash flows were approximately $3,447 million and the discounted unguaranteed estimated residual value was $32.3 million. As of December 31, 2024, total discounted cash flows were approximately $3,430 million and the discounted unguaranteed estimated residual value was $32.0 million.

The following table presents a rollforward of the Company’s net investment in sales-type leases and Ground Lease receivables for the three months ended March 31, 2025 and 2024 ($ in thousands):


	Net Investment in		Ground Lease
	Sales-type Leases		Receivables		Total
Three Months Ended March 31, 2025
Beginning balance	$	3,454,953	$	1,833,398	$	5,288,351
Origination/acquisition/fundings⁽¹⁾		2,060		13,972		16,032
Accretion		15,815		8,574		24,389
(Provision for) recovery of credit losses		(875)		(1,549)		(2,424)
Ending balance⁽²⁾	$	3,471,953	$	1,854,395	$	5,326,348


	Net Investment in		Ground Lease
	Sales-type Leases		Receivables		Total
Three Months Ended March 31, 2024
Beginning balance	$	3,255,195	$	1,622,298	$	4,877,493
Origination/acquisition/fundings⁽¹⁾		71,978		32,158		104,136
Accretion		14,927		6,930		21,857
(Provision for) recovery of credit losses		(442)		(323)		(765)
Ending balance⁽²⁾	$	3,341,658	$	1,661,063	$	5,002,721

(1)

The net investment in sales-type leases is initially measured at the present value of the fixed and determinable lease payments, including any guaranteed or unguaranteed estimated residual value of the asset at the end of the lease, discounted at the rate implicit in the lease. For newly originated or acquired Ground Leases, the Company’s estimate of residual value equals the fair value of the land at lease commencement.

(2)

As of March 31, 2025 and December 31, 2024, all of the Company’s net investment in sales-type leases and Ground Lease receivables were current in their payment status. As of March 31, 2025, the Company’s weighted average accrual rate for its net investment in sales-type leases and Ground Lease receivables was 5.3% and 5.6%, respectively. As of March 31, 2025, the weighted average remaining life of the Company’s 41 Ground Lease receivables was 97.0 years.

Allowance for Credit Losses—Changes in the Company’s allowance for credit losses on net investment in sales-type leases for the three months ended March 31, 2025 and 2024 were as follows ($ in thousands):


	Net investment in sales-type leases
	Stabilized		Development		Unfunded
Three Months Ended March 31, 2025	Properties		Properties		Commitments		Total
Allowance for credit losses at beginning of period	$	6,385	$	436	$	—	$	6,821
Provision for (recovery of) credit losses⁽¹⁾		843		33		—		876
Allowance for credit losses at end of period⁽²⁾	$	7,228	$	469	$	—	$	7,697

Three Months Ended March 31, 2024
Allowance for credit losses at beginning of period	$	387	$	78	$	—	$	465
Provision for (recovery of) credit losses⁽¹⁾		325		117		11		453
Allowance for credit losses at end of period⁽²⁾	$	712	$	195	$	11	$	918

(1)

During the three months ended March 31, 2025, the Company recorded a provision for credit losses on net investment in sales-type leases of $0.9 million. The provision for credit losses for the three months ended March 31, 2025 was due primarily to current market conditions, including an increase in the Ground Lease cost to value ratio on the Company’s portfolio of Ground Leases since December 31, 2024, and growth in the carrying value of the portfolio during the period. During the three months ended March 31, 2024, the Company recorded a provision for credit losses on net investment in sales-type leases of $0.5 million. The provision for credit losses was due primarily to current market conditions, including an increase in the Ground Lease cost to value ratio on the Company’s portfolio of Ground Leases since December 31, 2023.

(2)	Allowance for credit losses on unfunded commitments is recorded in “Accounts payable and accrued expenses” on the Company’s consolidated balance sheets.

Changes in the Company’s allowance for credit losses on Ground Lease receivables for the three months ended March 31, 2025 and 2024 were as follows ($ in thousands):


	Ground Lease receivables
	Stabilized		Development		Unfunded
Three Months Ended March 31, 2025	Properties		Properties		Commitments		Total
Allowance for credit losses at beginning of period	$	2,652	$	1,012	$	37	$	3,701
Provision for (recovery of) credit losses⁽¹⁾		1,464		85		(11)		1,538
Allowance for credit losses at end of period⁽²⁾	$	4,116	$	1,097	$	26	$	5,239

Three Months Ended March 31, 2024
Allowance for credit losses at beginning of period	$	123	$	246	$	37	$	406
Provision for (recovery of) credit losses⁽¹⁾		111		212		1		324
Allowance for credit losses at end of period⁽²⁾	$	234	$	458	$	38	$	730

(1)

During the three months ended March 31, 2025, the Company recorded a provision for credit losses on Ground Lease receivables of $1.5 million. The provision for credit losses for the three months ended March 31, 2025 was due primarily to current market conditions, including an increase in the Ground Lease cost to value ratio on the Company’s portfolio of Ground Leases since December 31, 2024, and growth in the carrying value of the portfolio during the period. During the three months ended March 31, 2024, the Company recorded a provision for credit losses on Ground Lease receivables of $0.3 million. The provision for credit losses was due primarily to current market conditions, including an increase in the Ground Lease cost to value ratio on the Company’s portfolio of Ground Leases since December 31, 2023.

(2)	Allowance for credit losses on unfunded commitments is recorded in “Accounts payable and accrued expenses” on the Company’s consolidated balance sheets.

The Company’s amortized cost basis in net investment in sales-type leases and Ground Lease receivables, presented by year of origination and by stabilized or development status, was as follows as of March 31, 2025 ($ in thousands):


	Year of Origination
	2025		2024		2023		2022		2021		Prior to 2021		Total
Net investment in sales-type leases
Stabilized properties	$	—	$	35,917	$	50,453	$	656,569	$	1,103,117	$	1,310,588	$	3,156,644
Development properties		—		112,050		22,168		38,663		121,977		28,148		323,006
Total	$	—	$	147,967	$	72,621	$	695,232	$	1,225,094	$	1,338,736	$	3,479,650


	Year of Origination
	2025		2024		2023		2022		2021		Prior to 2021		Total
Ground Lease receivables
Stabilized properties	$	—	$	—	$	19,629	$	156,672	$	201,735	$	646,113	$	1,024,149
Development properties		—		101,132		24,533		630,802		78,992		—		835,459
Total	$	—	$	101,132	$	44,162	$	787,474	$	280,727	$	646,113	$	1,859,608


	Year of Origination
	2024		2023		2022		2021		2020		Prior to 2020		Total
Net investment in sales-type leases
Stabilized properties	$	35,730	$	50,191	$	653,702	$	1,096,444	$	214,396	$	1,089,992	$	3,140,455
Development properties		111,329		22,062		38,488		121,412		—		28,028		321,319
Total	$	147,059	$	72,253	$	692,190	$	1,217,856	$	214,396	$	1,118,020	$	3,461,774


	Year of Origination
	2024		2023		2022		2021		2020		Prior to 2020		Total
Ground Lease receivables
Stabilized properties	$	—	$	19,524	$	155,921	$	200,819	$	184,071	$	458,982	$	1,019,317
Development properties		87,601		23,487		628,029		78,628		—		—		817,745
Total	$	87,601	$	43,011	$	783,950	$	279,447	$	184,071	$	458,982	$	1,837,062

Future Minimum Lease Payments under Sales-type Leases—Future minimum lease payments to be collected under sales-type leases accounted for under ASC 842 - Leases, excluding lease payments that are not fixed and determinable, in effect as of March 31, 2025, are as follows by year ($ in thousands):


					Fixed Bumps
	Fixed Bumps				with
	with Inflation		Fixed		Percentage
	Adjustments		Bumps		Rent		Total
2025 (remaining nine months)	$	89,535	$	3,899	$	439	$	93,873
2026		112,523		5,696		586		118,805
2027		114,558		6,378		586		121,522
2028		116,594		6,595		637		123,826
2029		119,189		6,724		644		126,557
Thereafter		30,161,729		2,112,039		98,389		32,372,157
Total undiscounted cash flows	$	30,714,128	$	2,141,331	$	101,281	$	32,956,740

During the three months ended March 31, 2025 and 2024, the Company recognized interest income from sales-type leases in its consolidated statements of operations as follows ($ in thousands):


	Net Investment		Ground
	in Sales-type		Lease
Three Months Ended March 31, 2025	Leases		Receivables		Total
Cash	$	28,903	$	16,372	$	45,275
Non-cash		15,815		8,574		24,389
Total interest income from sales-type leases	$	44,718	$	24,946	$	69,664


	Net Investment		Ground
	in Sales-type		Lease
Three Months Ended March 31, 2024	Leases		Receivables		Total
Cash	$	27,270	$	14,091	$	41,361
Non-cash		14,927		6,930		21,857
Total interest income from sales-type leases	$	42,197	$	21,021	$	63,218