Finance Receivables |
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| Finance Receivables | Finance Receivables Assets representing rights to receive money on demand or at fixed or determinable dates are referred to as finance receivables. Our finance receivables portfolio consists of our Net investments in direct financing leases and loans receivable. Operating leases are not included in finance receivables as such amounts are not recognized as an asset in the consolidated financial statements. Our loans receivable are included in Other assets, net in the consolidated financial statements. Earnings from our loans receivable are included in Other interest income in the consolidated financial statements. Net Investments in Direct Financing Leases Net investments in direct financing leases is summarized as follows (in thousands):
The carrying value of our net investment in direct financing leases decreased by $4.7 million from December 31, 2015 to December 31, 2016, due to the strengthening of the U.S. dollar relative to foreign currencies, particularly the euro, during the period. On February 10, 2016, we entered into a net lease financing transaction for an industrial facility in Houston, Texas for $4.2 million. In connection with this business combination, we expensed acquisition-related costs and fees of $0.3 million, which are included in Acquisition expenses in the consolidated financial statements. On April 8, 2016, we entered into a net lease financing transaction for six newspaper printing facilities in Ohio, North Carolina, Pennsylvania, and Missouri for $12.0 million, including capitalized acquisition-related costs and fees of $0.5 million. On June 26, 2015, we entered into a net lease financing transaction for two retail facilities in Joliet, Illinois and Greendale, Wisconsin for $18.6 million, including capitalized acquisition-related costs and fees of $1.2 million. Scheduled Future Minimum Rents Scheduled future minimum rents, exclusive of renewals, expenses paid by tenants, and future CPI-based adjustments, under non-cancelable direct financing leases at December 31, 2016 are as follows (in thousands):
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Loans Receivable 127 West 23rd Manager, LLC — On February 3, 2015, we provided financing of $12.6 million to a subsidiary of 127 West 23rd Manager, LLC for the acquisition of a building in New York, New York intended to be developed as a hotel. The loan had an interest rate of 7% and an original maturity date of February 3, 2016, subject to extension options. In connection with this transaction; we expensed acquisition-related costs and fees of $0.1 million during 2015, which are included in Acquisition expenses in the consolidated financial statements. During 2016, the borrower exercised multiple extension options until we received full repayment of the $12.6 million balance of this loan receivable on November 4, 2016. 1185 Broadway LLC — On January 8, 2015, we provided a mezzanine loan of $30.0 million to a subsidiary of 1185 Broadway LLC for the development of a hotel on a parcel of land in New York, New York. The mezzanine loan is collateralized by an equity interest in a subsidiary of 1185 Broadway LLC. It has an interest rate of 10% and was originally scheduled to mature on January 8, 2017. Subsequent to December 31, 2016, the loan was extended to July 7, 2017. In connection with this transaction, during 2015 we expensed acquisition-related costs and fees of $0.3 million, which are included in Acquisition expenses in the consolidated financial statements. The agreement also contains rights to certain fees upon maturity and an equity interest in the underlying entity that has been recorded in Other assets, net in the consolidated financial statements. At December 31, 2016, the balance of the loan receivable including interest thereon was $31.5 million. China Alliance Properties Limited — On December 14, 2010, we provided financing of $40.0 million to China Alliance Properties Limited, a subsidiary of Shanghai Forte Land Co., Ltd. The financing was provided through a collateralized loan that was guaranteed by Shanghai Forte Land Co., Ltd.’s parent company, Fosun International Limited. It had an interest rate of 11% and was repaid in full to us on December 11, 2015. Credit Quality of Finance Receivables We generally seek investments in facilities that we believe are critical to a tenant’s business and that we believe have a low risk of tenant default. At both December 31, 2016 and 2015, we had no significant finance receivable balances that were past due and we had not established any allowances for credit losses. Additionally, there were no modifications of finance receivables during the years ended December 31, 2016 and 2015. We evaluate the credit quality of our finance receivables utilizing an internal five-point credit rating scale, with one representing the highest credit quality and five representing the lowest. The credit quality evaluation of our finance receivables was last updated in the fourth quarter of 2016. A summary of our finance receivables by internal credit quality rating is as follows (dollars in thousands):
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