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Net Investment in Sales-type Leases and Ground Lease Receivables

9 Months Ended

Sep. 30, 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. 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. 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. 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 8 and Note 15).

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


	September 30, 2025		December 31, 2024
Total undiscounted cash flows⁽¹⁾	$	33,945,980	$	32,934,705
Unguaranteed estimated residual value⁽¹⁾		3,090,615		3,039,649
Present value discount		(33,500,354)		(32,512,580)
Allowance for credit losses		(8,966)		(6,821)
Net investment in sales-type leases	$	3,527,275	$	3,454,953

(1)

As of September 30, 2025, total discounted cash flows were approximately $3,503 million and the discounted unguaranteed estimated residual value was $33.4 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 nine months ended September 30, 2025 and 2024 ($ in thousands):


	Net Investment in		Ground Lease
	Sales-type Leases		Receivables		Total
Nine Months Ended September 30, 2025
Beginning balance	$	3,454,953	$	1,833,398	$	5,288,351
Origination/acquisition/fundings⁽¹⁾		25,770		103,303		129,073
Accretion		48,697		26,646		75,343
(Provision for) recovery of credit losses		(2,145)		(2,328)		(4,473)
Ending balance⁽²⁾	$	3,527,275	$	1,961,019	$	5,488,294


	Net Investment in		Ground Lease
	Sales-type Leases		Receivables		Total
Nine Months Ended September 30, 2024
Beginning balance	$	3,255,195	$	1,622,298	$	4,877,493
Origination/acquisition/fundings⁽¹⁾		145,144		137,490		282,634
Accretion		45,285		22,374		67,659
(Provision for) recovery of credit losses		(5,582)		(3,015)		(8,597)
Ending balance⁽²⁾	$	3,440,042	$	1,779,147	$	5,219,189

(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 September 30, 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 September 30, 2025, the Company’s weighted average accrual rate for its net investment in sales-type leases and Ground Lease receivables was 5.3% and 5.7%, respectively. As of September 30, 2025, the weighted average remaining life of the Company’s 47 Ground Lease receivables was 96.6 years.

Allowance for Credit Losses—Changes in the Company’s allowance for credit losses on net investment in sales-type leases for the three and nine months ended September 30, 2025 and 2024 were as follows ($ in thousands):


	Net investment in sales-type leases
	Stabilized		Development		Unfunded
Three Months Ended September 30, 2025	Properties		Properties		Commitments		Total
Allowance for credit losses at beginning of period	$	7,833	$	497	$	30	$	8,360
Provision for (recovery of) credit losses⁽¹⁾		607		29		—		636
Allowance for credit losses at end of period⁽²⁾	$	8,440	$	526	$	30	$	8,996

Three Months Ended September 30, 2024
Allowance for credit losses at beginning of period	$	1,431	$	91	$	1	$	1,523
Provision for (recovery of) credit losses⁽¹⁾		4,226		299		—		4,525
Allowance for credit losses at end of period⁽²⁾	$	5,657	$	390	$	1	$	6,048

Nine Months Ended September 30, 2025
Allowance for credit losses at beginning of period	$	6,385	$	436	$	—	$	6,821
Provision for (recovery of) credit losses⁽¹⁾		2,055		90		30		2,175
Allowance for credit losses at end of period⁽²⁾	$	8,440	$	526	$	30	$	8,996

Nine Months Ended September 30, 2024
Allowance for credit losses at beginning of period	$	387	$	78	$	—	$	465
Provision for (recovery of) credit losses⁽¹⁾		5,270		312		1		5,583
Allowance for credit losses at end of period⁽²⁾	$	5,657	$	390	$	1	$	6,048

(1)

During the three months ended September 30, 2025 and 2024, the Company recorded a provision for credit losses on net investment in sales-type leases of $0.6 million and $4.5 million, respectively. The provision for credit losses for the three months ended September 30, 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 June 30, 2025, and growth in the carrying value of the portfolio during the period. The provision for credit losses for the three months ended September 30, 2024 was due primarily to enhancements to the Company’s general provision for credit loss methodology, current market conditions and growth in the portfolio during the period. During the nine months ended September 30, 2025 and 2024, the Company recorded a provision for credit losses on net investment in sales-type leases of $2.2 million and $5.6 million, respectively. The provision for credit losses for the nine months ended September 30, 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. The provision for credit losses for the nine months ended September 30, 2024 was due primarily to enhancements to the Company’s general provision for credit loss methodology, current market conditions and growth in the portfolio during the period.

(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 and nine months ended September 30, 2025 and 2024 were as follows ($ in thousands):


	Ground Lease receivables
	Stabilized		Development		Unfunded
Three Months Ended September 30, 2025	Properties		Properties		Commitments		Total
Allowance for credit losses at beginning of period	$	4,423	$	1,167	$	44	$	5,634
Provision for (recovery of) credit losses⁽¹⁾		297		105		(12)		390
Allowance for credit losses at end of period⁽²⁾	$	4,720	$	1,272	$	32	$	6,024

Three Months Ended September 30, 2024
Allowance for credit losses at beginning of period	$	471	$	302	$	13	$	786
Provision for (recovery of) credit losses⁽¹⁾		2,016		595		42		2,653
Allowance for credit losses at end of period⁽²⁾	$	2,487	$	897	$	55	$	3,439


Nine Months Ended September 30, 2025
Allowance for credit losses at beginning of period	$	2,652	$	1,012	$	37	$	3,701
Provision for (recovery of) credit losses⁽¹⁾		2,068		260		(5)		2,323
Allowance for credit losses at end of period⁽²⁾	$	4,720	$	1,272	$	32	$	6,024

Nine Months Ended September 30, 2024
Allowance for credit losses at beginning of period	$	123	$	246	$	37	$	406
Provision for (recovery of) credit losses⁽¹⁾		2,364		651		18		3,033
Allowance for credit losses at end of period⁽²⁾	$	2,487	$	897	$	55	$	3,439

(1)

During the three months ended September 30, 2025 and 2024, the Company recorded a provision for credit losses on Ground Lease receivables of $0.4 million and $2.7 million, respectively. The provision for credit losses for the three months ended September 30, 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 June 30, 2025, and growth in the carrying value of the portfolio during the period. The provision for credit losses for the three months ended September 30, 2024 was due primarily to enhancements to the Company’s general provision for credit loss methodology, current market conditions and growth in the portfolio during the period. During the nine months ended September 30, 2025 and 2024, the Company recorded a provision for credit losses on Ground Lease receivables of $2.3 million and $3.0 million, respectively. The provision for credit losses for the nine months ended September 30, 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. The provision for credit losses for the nine months ended September 30, 2024 was due primarily to enhancements to the Company’s general provision for credit loss methodology, current market conditions and growth in the portfolio during the period.

(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 September 30, 2025 ($ in thousands):


	Year of Origination
	2025		2024		2023		2022		2021		Prior to 2021		Total
Net investment in sales-type leases
Stabilized properties	$	22,831	$	36,300	$	50,987	$	662,244	$	1,114,314	$	1,322,996	$	3,209,672
Development properties		113		113,558		22,387		39,015		123,101		28,395		326,569
Total	$	22,944	$	149,858	$	73,374	$	701,259	$	1,237,415	$	1,351,391	$	3,536,241


	Year of Origination
	2025		2024		2023		2022		2021		Prior to 2021		Total
Ground Lease receivables
Stabilized properties	$	37,891	$	—	$	19,845	$	158,176	$	203,591	$	652,314	$	1,071,817
Development properties		33,588		120,514		24,770		636,592		79,730		—		895,194
Total	$	71,479	$	120,514	$	44,615	$	794,768	$	283,321	$	652,314	$	1,967,011


	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 September 30, 2025, are as follows by year ($ in thousands):


					Fixed Bumps
	Fixed Bumps				with
	with Inflation		Fixed		Percentage
	Adjustments		Bumps		Rent		Total
2025 (remaining three months)	$	26,796	$	2,022	$	349	$	29,167
2026		109,757		8,580		1,545		119,882
2027		112,379		9,320		1,695		123,394
2028		114,371		9,595		1,746		125,712
2029		116,922		9,785		1,753		128,460
Thereafter		29,608,690		3,524,762		285,913		33,419,365
Total undiscounted cash flows	$	30,088,915	$	3,564,064	$	293,001	$	33,945,980

During the three and nine months ended September 30, 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 September 30, 2025	Leases		Receivables		Total
Cash	$	29,000	$	17,592	$	46,592
Non-cash		16,655		9,182		25,837
Total interest income from sales-type leases	$	45,655	$	26,774	$	72,429


	Net Investment		Ground
	in Sales-type		Lease
Three Months Ended September 30, 2024	Leases		Receivables		Total
Cash	$	28,203	$	15,678	$	43,881
Non-cash		15,332		7,907		23,239
Total interest income from sales-type leases	$	43,535	$	23,585	$	67,120


	Net Investment		Ground
	in Sales-type		Lease
Nine Months Ended September 30, 2025	Leases		Receivables		Total
Cash	$	86,627	$	50,765	$	137,392
Non-cash		48,697		26,646		75,343
Total interest income from sales-type leases	$	135,324	$	77,411	$	212,735


	Net Investment		Ground
	in Sales-type		Lease
Nine Months Ended September 30, 2024	Leases		Receivables		Total
Cash	$	83,318	$	44,596	$	127,914
Non-cash		45,284		22,375		67,659
Total interest income from sales-type leases	$	128,602	$	66,971	$	195,573