Investments
 9 Months Ended
Sep. 30, 2023
Real Estate [Abstract]  
Investments

NOTE 3. INVESTMENTS

Owned Properties

As of September 30, 2023, the Company's gross investment in owned real estate properties totaled $9.4 billion. The gross investment, as adjusted for any impairment, is comprised of land, buildings, lease intangible assets, lease intangible liabilities, real estate assets held under direct financing leases and real estate assets held for sale. The portfolio is geographically dispersed throughout 49 states with Texas, at 15.7%, as the only state with a gross investment greater than 10.0% of the total gross investment of the Company's entire portfolio.

During the nine months ended September 30, 2023, the Company had the following real estate activity (dollars in thousands):

 

 

Number of Properties

 

 

Dollar Amount of Investments

 

 

 

Held in Use

 

 

Held for Sale

 

 

Total

 

 

Held in Use

 

 

Held for Sale

 

 

Total

 

Gross balance, December 31, 2022

 

 

2,098

 

 

 

17

 

 

 

2,115

 

 

$

9,122,163

 

 

$

61,581

 

 

$

9,183,744

 

Acquisitions/improvements (1)

 

 

30

 

 

 

—

 

 

 

30

 

 

 

497,876

 

 

 

—

 

 

 

497,876

 

Dispositions of real estate (2)

 

 

(63

)

 

 

(45

)

 

 

(108

)

 

 

(138,326

)

 

 

(112,526

)

 

 

(250,852

)

Transfers to Held for Sale

 

 

(69

)

 

 

69

 

 

 

—

 

 

 

(146,491

)

 

 

146,491

 

 

 

—

 

Transfers from Held for Sale

 

 

2

 

 

 

(2

)

 

 

—

 

 

 

3,675

 

 

 

(3,675

)

 

 

—

 

Impairments (3)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(10,738

)

 

 

(8,593

)

 

 

(19,331

)

Reset of gross balances (4)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(21,595

)

 

 

(4,748

)

 

 

(26,343

)

Gross balance, September 30, 2023

 

 

1,998

 

 

 

39

 

 

 

2,037

 

 

 

9,306,564

 

 

 

78,530

 

 

 

9,385,094

 

Accumulated depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

(1,548,231

)

 

 

(16,985

)

 

 

(1,565,216

)

Net balance, September 30, 2023 (5)

 

 

 

 

 

 

 

 

 

 

$

7,758,333

 

 

$

61,545

 

 

$

7,819,878

 

(1) Includes investments of $66.2 million in revenue producing capitalized expenditures and $4.0 million of non-revenue producing capitalized expenditures during the nine months ended September 30, 2023.

(2) For the nine months ended September 30, 2023, the net gains on disposal of properties held in use and held for sale were $39.4 million and $27.1 million, respectively.

(3) Impairments on owned real estate is comprised of real estate and intangible asset/liability impairment.

(4) Represents write-off of gross investment balances against the related accumulated depreciation and amortization balances as a result of basis reset due to impairment or intangibles and tenant improvements which have been fully amortized.

(5) Reconciliation of total owned investments to the accompanying consolidated balance sheet at September 30, 2023 is as follows:

Real estate assets held for investment, net

 

$

7,468,643

 

Intangible lease assets, net

 

 

 

 

389,100

 

Real estate assets under direct financing leases, net

 

 

 

 

7,404

 

Real estate assets held for sale, net

 

 

 

 

61,545

 

Intangible lease liabilities, net

 

 

 

 

(106,814

)

Net balance

 

 

 

$

7,819,878

 

Operating Leases

As of September 30, 2023 and 2022, the Company held 2,028 and 2,113 properties under operating leases, respectively. The following table summarizes the components of rental income recognized on these operating leases in the consolidated statements of operations (in thousands):

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Base Cash Rent (1)

 

$

173,569

 

 

$

162,467

 

 

$

516,486

 

 

$

471,052

 

Variable cash rent (including reimbursables)

 

 

6,331

 

 

 

6,479

 

 

 

18,385

 

 

 

19,713

 

Straight-line rent, net of uncollectible reserve (2)

 

 

8,227

 

 

 

10,875

 

 

 

26,127

 

 

 

28,465

 

Amortization of above- and below- market lease intangibles, net (3)

 

 

78

 

 

 

475

 

 

 

767

 

 

 

1,700

 

Total rental income

 

$

188,205

 

 

$

180,296

 

 

$

561,765

 

 

$

520,930

 

(1) Includes net impact of amounts (reserved) of $(0.3) million and $(0.4) million for the three and nine months ended September 30, 2023, and $(0.6) million and $(0.5) million for the three and nine months ended September 30, 2022, respectively.

(2) Includes net impact of amounts (reserved)/recovered of $(2.1) million and $(4.1) million for the three and nine months ended September 30, 2023, respectively, and $1.2 million and $1.1 million for the three and nine months ended September 30, 2022, respectively.

(3) Excludes amortization of in-place leases of $10.7 million and $32.7 million for the three and nine months ended September 30, 2023, respectively, and $11.3 million and $32.6 million for the three and nine months ended September 30, 2022, respectively, which is included in depreciation and amortization expense in the consolidated statements of operations.

Lease renewal periods are exercisable at the lessees’ option and, as such, minimum future rent only includes the remaining initial non-cancellable term of our operating leases. In addition, minimum future rent includes fixed rent escalations occurring on or after October 1, 2023, but does not include variable rent escalations, such as those based on CPI, or contingent rents.

Minimum future rent at September 30, 2023 is as follows (in thousands):

 

 

September 30, 2023

 

Remainder of 2023

 

$

171,402

 

2024

 

 

686,874

 

2025

 

 

677,829

 

2026

 

 

653,584

 

2027

 

 

615,008

 

Thereafter

 

 

5,110,923

 

Total future minimum rentals

 

$

7,915,620

 

The following table details lease intangible assets and liabilities, net of accumulated amortization (in thousands):

 

 

September 30,
2023

 

 

December 31,
2022

 

In-place leases

 

$

536,730

 

 

$

559,962

 

Above-market leases

 

 

104,204

 

 

 

101,594

 

Less: accumulated amortization

 

 

(251,834

)

 

 

(237,686

)

Intangible lease assets, net

 

$

389,100

 

 

$

423,870

 

 

 

 

 

 

 

 

Below-market leases

 

$

165,224

 

 

$

179,187

 

Less: accumulated amortization

 

 

(58,410

)

 

 

(61,110

)

Intangible lease liabilities, net

 

$

106,814

 

 

$

118,077

 

Direct Financing Leases

As of September 30, 2023, the Company held one property under a direct financing lease, which was held in use. As of September 30, 2023, this property had $2.1 million in scheduled minimum future payments to be received under its remaining non-cancellable lease term. As of September 30, 2023, the Company had a reserve of $0.1 million against the investment balance of $7.5 million, which was initially recorded in 2020 as a result of the initial term of the direct financing lease extending until 2027.

Loans Receivable

During the first quarter of 2023, the Company provided fixed-rate seller financing in conjunction with the sale of four single-tenant properties for $33.0 million, for which the properties serve as collateral. The Company also provided additional funding for an existing construction loan, for which we issued $12.7 million during 2022 and increased the principal amount of the loan by $0.8 million during the three months ended March 31, 2023. The Company evaluated the collectability of these amounts receivable and recorded an allowance for loan losses of $0.5 million during the three months ended March 31, 2023 due to the borrowers' financials and performance metrics.

During the second quarter of 2023, the Company issued a fixed-rate, uncollateralized loan for $5.0 million. Additionally, the Company purchased $10.0 million of term loans for $7.9 million, with $2.1 million being recorded to allowance for loan losses at time of purchase. The Company evaluated the collectability of these amounts receivable and recorded an additional allowance for loan losses of $0.8 million for the three months ended June 30, 2023. The Company also recorded an additional allowance for loan losses of $0.1 million during the three months ended June 30, 2023 on an existing loan due to changes in the borrower's macroeconomic environment.

During the third quarter of 2023, the Company recorded an additional allowance for loan losses of $15.3 million on existing loans due to changes in the borrower's financial position.

The following table details our loans receivable activity (in thousands):

 

 

Principal Balance

 

 

Allowance for Credit Loss

 

 

Total

 

December 31, 2022

 

$

23,700

 

 

$

(677

)

 

$

23,023

 

Loans issued

 

 

48,750

 

 

 

(18,799

)

 

 

29,951

 

Loan payments received

 

 

(25

)

 

 

—

 

 

 

(25

)

September 30, 2023

 

$

72,425

 

 

$

(19,476

)

 

$

52,949

 

 

Impairments and Allowance for Credit Losses

The following table summarizes impairments and allowance for credit losses recognized in the consolidated statements of operations (in thousands):

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Real estate asset impairment

 

$

3,951

 

 

$

1,632

 

 

$

18,754

 

 

$

10,535

 

Intangible net (liability)/asset impairment

 

 

(27

)

 

 

(61

)

 

 

577

 

 

 

434

 

Allowance for credit losses on loans receivable

 

 

15,334

 

 

 

—

 

 

 

16,721

 

 

 

127

 

Total impairment loss

 

$

19,258

 

 

$

1,571

 

 

$

36,052

 

 

$

11,096