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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________________________________________________________
FORM 10-Q
_____________________________________________________________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from               to          
Commission File Number 001-38530
______________________________________________________________________________________________________
Essential Properties Realty Trust, Inc.

(Exact name of Registrant as specified in its Charter)
______________________________________________________________________________________________________
Maryland
82-4005693
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
902 Carnegie Center Blvd., Suite 520

Princeton, New Jersey
08540
(Address of Principal Executive Offices)(Zip Code)
Registrant’s telephone number, including area code: (609) 436-0619
______________________________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)Name of Each Exchange on Which Registered
Common Stock, $0.01 par value
EPRT
New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
o
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No x 
As of October 26, 2022, the registrant had 142,377,215 shares of common stock, $0.01 par value per share, outstanding.


Table of Contents
Page
i

ESSENTIAL PROPERTIES REALTY TRUST, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
(In thousands, except share and per share data)
September 30,
2022
December 31,
2021
(Unaudited)
ASSETS
Investments:
Real estate investments, at cost:
Land and improvements$1,163,660 $1,004,154 
Building and improvements2,305,254 2,035,919 
Lease incentives12,496 13,950 
Construction in progress29,973 8,858 
Intangible lease assets89,393 87,959 
Total real estate investments, at cost3,600,776 3,150,840 
Less: accumulated depreciation and amortization(259,092)(200,152)
Total real estate investments, net3,341,684 2,950,688 
Loans and direct financing lease receivables, net204,742 189,287 
Real estate investments held for sale, net11,907 15,434 
Net investments3,558,333 3,155,409 
Cash and cash equivalents136,303 59,758 
Restricted cash7,925  
Straight-line rent receivable, net74,583 57,990 
Derivative assets50,670  
Rent receivables, prepaid expenses and other assets, net25,731 25,638 
Total assets (1)
$3,853,545 $3,298,795 
LIABILITIES AND EQUITY
Unsecured term loans, net of deferred financing costs$875,239 $626,983 
Senior unsecured notes, net395,145 394,723 
Revolving credit facility 144,000 
Intangible lease liabilities, net11,909 12,693 
Dividend payable38,682 32,610 
Derivative liabilities13 11,838 
Accrued liabilities and other payables 28,855 32,145 
Total liabilities (1)
1,349,843 1,254,992 
Commitments and contingencies (see Note 11)  
Stockholders' equity:
Preferred stock, $0.01 par value; 150,000,000 authorized; none issued and outstanding as of September 30, 2022 and December 31, 2021
  
Common stock, $0.01 par value; 500,000,000 authorized; 142,377,215 and 124,649,053 issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
1,424 1,246 
Additional paid-in capital2,561,124 2,151,088 
Distributions in excess of cumulative earnings(113,275)(100,982)
Accumulated other comprehensive income (loss)46,870 (14,786)
Total stockholders' equity2,496,143 2,036,566 
Non-controlling interests7,559 7,237 
Total equity2,503,702 2,043,803 
Total liabilities and equity$3,853,545 $3,298,795 
__________________________________________________
(1)The Company’s consolidated balance sheets include assets and liabilities of consolidated variable interest entities (“VIEs”). See Note 2Summary of Significant Accounting Policies. As of September 30, 2022 and December 31, 2021, all of the assets and liabilities of the Company were held by its operating partnership, Essential Properties, L.P., a consolidated VIE, with the exception of $38.5 million and $32.5 million, respectively, of dividends payable.
The accompanying notes are an integral part of these consolidated financial statements.
2

ESSENTIAL PROPERTIES REALTY TRUST, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Operations
(Unaudited, in thousands, except share and per share data)

Three months ended September 30,Nine months ended September 30,
2022202120222021
Revenues:
Rental revenue$66,525 $54,929 $199,726 $153,511 
Interest on loans and direct financing lease receivables3,719 4,574 11,490 11,558 
Other revenue, net419 98 1,014 150 
Total revenues70,663 59,601 212,230 165,219 
Expenses:
General and administrative7,868 5,596 22,956 18,497 
Property expenses830 1,358 2,668 3,946 
Depreciation and amortization22,054 17,355 64,441 50,185 
Provision for impairment of real estate349  10,541 6,120 
Change in provision for loan losses(30)16 136 (112)
Total expenses31,071 24,325 100,742 78,636 
Other operating income:
Gain on dispositions of real estate, net6,329 1,343 18,082 8,841 
Income from operations45,921 36,619 129,570 95,424 
Other (expense)/income:
Loss on debt extinguishment  (2,138)(4,461)
Interest expense(9,892)(8,955)(28,242)(24,444)
Interest income752 37 800 74 
Income before income tax expense 36,781 27,701 99,990 66,593 
Income tax expense 190 55 769 172 
Net income36,591 27,646 99,221 66,421 
Net income attributable to non-controlling interests(163)(139)(441)(335)
Net income attributable to stockholders$36,428 $27,507 $98,780 $66,086 
Basic weighted average shares outstanding139,068,188 119,230,645 132,438,157 114,223,586 
Basic net income per share$0.26 $0.23 $0.74 $0.58 
Diluted weighted average shares outstanding139,890,693 120,298,680 133,321,987 115,339,656 
Diluted net income per share$0.26 $0.23 $0.74 $0.57 
The accompanying notes are an integral part of these consolidated financial statements.
3

ESSENTIAL PROPERTIES REALTY TRUST, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Comprehensive Income
(Unaudited, in thousands)

Three months ended September 30,Nine months ended September 30,
2022202120222021
Net income$36,591 $27,646 $99,221 $66,421 
Other comprehensive income:
Deferred loss on cash flow hedges   (4,824)
Unrealized income on cash flow hedges23,577 110 58,676 10,881 
Cash flow hedge (gains) losses reclassified to interest expense(741)2,669 3,305 7,638 
Total other comprehensive income22,836 2,779 61,981 13,695 
Comprehensive income59,427 30,425 161,202 80,116 
Net income attributable to non-controlling interests(163)(139)(441)(335)
Adjustment for other comprehensive income attributable to non-controlling interests(100)(13)(325)(75)
Comprehensive income attributable to stockholders$59,164 $30,273 $160,436 $79,706 
The accompanying notes are an integral part of these consolidated financial statements.
4

ESSENTIAL PROPERTIES REALTY TRUST, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Stockholders’ Equity
(Unaudited, in thousands, except share data)
Common StockAdditional Paid In CapitalDistributions in Excess of Cumulative EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders' EquityNon-controlling InterestsTotal Equity
Number of SharesPar Value
Balance at December 31, 2021124,649,053 $1,246 $2,151,088 $(100,982)$(14,786)$2,036,566 $7,237 $2,043,803 
Common stock issuance6,382,994 66 159,577 — — 159,643 — 159,643 
Common stock withheld related to net share settlement of equity awards— — — (2,235)— (2,235)— (2,235)
Costs related to issuance of common stock— — (1,582)— — (1,582)— (1,582)
Other comprehensive income — — — — 28,780 28,780 181 28,961 
Equity based compensation expense119,646 — 2,835 — — 2,835 — 2,835 
Dividends declared on common stock and OP Units— — — (34,188)— (34,188)(145)(34,333)
Net income— — — 26,699 — 26,699 119 26,818 
Balance at March 31, 2022131,151,693 1,312 2,311,918 (110,706)13,994 2,216,518 7,392 2,223,910 
Common stock issuance1,501,489 15 32,632 — — 32,647 — 32,647 
Costs related to issuance of common stock— — (701)— — (701)— (701)
Other comprehensive income— — — — 10,140 10,140 44 10,184 
Share-based compensation expense16,765 — 2,188 — — 2,188 — 2,188 
Dividends declared on common stock and OP Units— — — (35,916)— (35,916)(150)(36,066)
Net income— — — 35,653 — 35,653 159 35,812 
Balance at June 30, 2022132,669,947 1,327 2,346,037 (110,969)24,134 2,260,529 7,445 2,267,974 
Common stock issuance9,692,201 97 221,458 — — 221,555 — 221,555 
Common stock withheld related to net share settlement of equity awards— — — (201)— (201)— (201)
Costs related to issuance of common stock— — (8,604)— — (8,604)— (8,604)
Other comprehensive income— — — — 22,736 22,736 100 22,836 
Equity based compensation expense15,067 — 2,233 — — 2,233 — 2,233 
Dividends declared on common stock and OP Units— — — (38,533)— (38,533)(149)(38,682)
Net income— — — 36,428 — 36,428 163 36,591 
Balance at September 30, 2022142,377,215 $1,424 $2,561,124 $(113,275)$46,870 $2,496,143 $7,559 $2,503,702 
The accompanying notes are an integral part of these consolidated financial statements.
5

ESSENTIAL PROPERTIES REALTY TRUST, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Stockholders’ Equity (continued)
(Unaudited, in thousands, except share data)
Common StockAdditional Paid-In CapitalDistributions in Excess of Cumulative EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders' EquityNon-controlling InterestsTotal Equity
Number of SharesPar Value
Balance at December 31, 2020106,361,524 $1,064 $1,688,540 $(77,665)$(37,181)$1,574,758 $7,190 $1,581,948 
Common stock issuance2,796,805 28 64,900 — — 64,928 — 64,928 
Costs related to issuance of common stock— — (1,188)— — (1,188)— (1,188)
Other comprehensive income — — — — 17,933 17,933 90 18,023 
Equity based compensation expense13,310 — 1,595 — — 1,595 — 1,595 
Dividends declared on common stock and OP Units— — — (26,265)— (26,265)(133)(26,398)
Net income— — — 15,295 — 15,295 80 15,375 
Balance at March 31, 2021109,171,639 1,092 1,753,847 (88,635)(19,248)1,647,056 7,227 1,654,283 
Common stock issuance8,784,537 89 208,133 — — 208,222 — 208,222 
Costs related to issuance of common stock— — (8,386)— — (8,386)— (8,386)
Other comprehensive income— — — — (7,079)(7,079)(28)(7,107)
Equity based compensation expense26,817 — 1,856 — — 1,856 — 1,856 
Dividends declared on common stock and OP Units— — — (29,560)— (29,560)(138)(29,698)
Net income— — — 23,284 — 23,284 116 23,400 
Balance at June 30, 2021117,982,993 1,181 1,955,450 (94,911)(26,327)1,835,393 7,177 1,842,570 
Common stock issuance3,362,712 33 102,556 — — 102,589 — 102,589 
Common stock withheld related to net share settlement of equity awards— — — (329)— (329)— (329)
Costs related to issuance of common stock— — (1,435)— — (1,435)— (1,435)
Other comprehensive income— — — — 2,766 2,766 13 2,779 
Share-based compensation expense16,657 — 1,103 — — 1,103 — 1,103 
Dividends declared on common stock and OP Units— — — (30,396)— (30,396)(138)(30,534)
Net income— — — 27,507 — 27,507 139 27,646 
Balance at September 30, 2021121,362,362 $1,214 $2,057,674 $(98,129)$(23,561)$1,937,198 $7,191 $1,944,389 
The accompanying notes are an integral part of these consolidated financial statements
6

ESSENTIAL PROPERTIES REALTY TRUST, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Cash Flows
(Unaudited, in thousands)
Nine months ended September 30,
20222021
Cash flows from operating activities:
Net income$99,221 $66,421 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization64,441 50,185 
Amortization of lease incentive2,653 2,800 
Amortization of above/below market leases and right of use assets, net555 563 
Amortization of deferred financing costs and other non-cash interest expense3,788 2,005 
Loss on debt extinguishment2,138 4,461 
Provision for impairment of real estate10,541 6,120 
Change in provision for loan losses136 (112)
Gain on dispositions of real estate, net(18,082)(8,841)
Straight-line rent receivable, net(16,097)(14,995)
Share-based compensation expense7,257 4,554 
Adjustment to rental revenue for tenant credit(451)(3,020)
Payments made in settlement of cash flow hedges (4,836)
Changes in other assets and liabilities:
Rent receivables, prepaid expenses and other assets(217)1,453 
Accrued liabilities and other payables(1,306)8,752 
Net cash provided by operating activities154,577 115,510 
Cash flows from investing activities:
Proceeds from sales of real estate, net80,027 53,908 
Principal collections on loans and direct financing lease receivables58,636 2,468 
Investments in loans receivable(96,907)(86,293)
Deposits for prospective real estate investments(1,105)(553)
Investment in real estate, including capital expenditures(471,000)(568,145)
Investment in construction in progress(34,967)(3,313)
Lease incentives paid(708)(2,366)
Net cash used in investing activities(466,024)(604,294)
Cash flows from financing activities:
Repayments of secured borrowings (175,780)
Borrowings under term loan facilities250,000  
Borrowings under revolving credit facility299,000 179,000 
Repayments under revolving credit facility(443,000)(197,000)
Proceeds from issuance of Senior Unsecured Notes 396,600 
Proceeds from issuance of common stock, net403,914 365,820 
Payments for taxes related to net settlement of equity awards(2,436)(328)
Payment of debt extinguishment costs(467) 
Deferred financing costs(7,333)(2,120)
Offering costs(752)(1,090)
Dividends paid(103,009)(81,799)
Net cash provided by financing activities395,917 483,303 
Net increase (decrease) in cash and cash equivalents and restricted cash84,470 (5,481)
Cash and cash equivalents and restricted cash, beginning of period59,758 32,990 
Cash and cash equivalents and restricted cash, end of period$144,228 $27,509 
Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents$136,303 $27,509 
Restricted cash7,925  
Cash and cash equivalents and restricted cash, end of period$144,228 $27,509 
The accompanying notes are an integral part of these consolidated financial statements.
7

ESSENTIAL PROPERTIES REALTY TRUST, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Cash Flows (continued)
(Unaudited, in thousands)
Nine months ended September 30,
20222021
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized$19,525 $19,294 
Cash paid for income taxes1,050 419 
Non-cash operating, investing and financing activities:
Reclassification from construction in progress upon project completion$14,254 $4,478 
Non-cash investments in real estate and loan receivable activity22,679 960 
Unrealized gains on cash flow hedges(58,676)(34,027)
Payable and accrued offering costs204  
Discounts and fees on capital raised through issuance of common stock9,931 9,919 
Discounts and fees on issuance of senior unsecured notes 3,400 
Dividends declared and unpaid38,682 30,534 
The accompanying notes are an integral part of these consolidated financial statements.
8

ESSENTIAL PROPERTIES REALTY TRUST, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements
September 30, 2022
1. Organization
Description of Business
Essential Properties Realty Trust, Inc. (the “Company”) is an internally managed real estate company that acquires, owns and manages primarily single-tenant properties that are net leased on a long-term basis to middle-market companies operating service-oriented or experience-based businesses. The Company generally invests in and leases freestanding, single-tenant commercial real estate facilities where a tenant services its customers and conducts activities that are essential to the generation of the tenant’s sales and profits.
The Company was organized on January 12, 2018 as a Maryland corporation. It elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes beginning with the year ended December 31, 2018, and it believes that its current organizational and operational status and intended distributions will allow it to continue to so qualify. Substantially all of the Company’s business is conducted directly and indirectly through its operating partnership, Essential Properties, L.P. (the “Operating Partnership”).
On June 25, 2018, the Company completed the initial public offering (“IPO”) of its common stock. The common stock of the Company is listed on the New York Stock Exchange under the ticker symbol “EPRT”.
COVID-19 Pandemic
For much of 2020, the COVID-19 pandemic (“COVID-19”) created significant uncertainty and economic disruption that adversely affected the Company and its tenants. The adverse impact of the pandemic moderated during 2021 and has significantly diminished during 2022. However, the continuing impact of the COVID-19 pandemic and its duration are unclear, and various factors could erode the progress that has been made against the virus to date. If conditions similar to those experienced in 2020, at the height of the pandemic, were to reoccur, they would adversely impact the Company and its tenants. The Company continues to closely monitor the impact of COVID-19 on all aspects of its business. For further information regarding the impact of COVID-19 on the Company, see Part I, Item 1A titled "Risk Factors" of the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
2. Summary of Significant Accounting Policies
Basis of Accounting
The accompanying unaudited consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and subsidiaries in which the Company has a controlling financial interest. All intercompany accounts and transactions have been eliminated in consolidation. As of September 30, 2022 and December 31, 2021, the Company, directly and indirectly, held a 99.6% ownership interest in the Operating Partnership and the consolidated financial statements include the financial statements of the Operating Partnership as of these dates. See Note 7—Equity for changes in the ownership interest in the Operating Partnership.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
9

Reportable Segments
ASC Topic 280, Segment Reporting, establishes standards for the manner in which enterprises report information about operating segments. Substantially all of the Company’s investments, at acquisition, are comprised of real estate owned that is leased to tenants on a long-term basis or real estate that secures the Company's investment in loans and direct financing lease receivables. Therefore, the Company aggregates these investments for reporting purposes and operates in one reportable segment.
Real Estate Investments
Investments in real estate are carried at cost less accumulated depreciation and impairment losses. The cost of investments in real estate reflects their purchase price or development cost. The Company evaluates each acquisition transaction to determine whether the acquired asset meets the definition of a business. Under Accounting Standards Update (“ASU”) 2017-1, Business Combinations (Topic 805): Clarifying the Definition of a Business, an acquisition does not qualify as a business when there is no substantive process acquired or substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets or the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay. Transaction costs related to acquisitions that are asset acquisitions are capitalized as part of the cost basis of the acquired assets, while transaction costs for acquisitions that are deemed to be acquisitions of a business are expensed as incurred. Improvements and replacements are capitalized when they extend the useful life or improve the productive capacity of the asset. Costs of repairs and maintenance are expensed as incurred.
The Company allocates the purchase price of acquired properties accounted for as asset acquisitions to tangible and identifiable intangible assets or liabilities based on their relative fair values. Tangible assets may include land, site improvements and buildings. Intangible assets may include the value of in-place leases and above- and below-market leases and other identifiable intangible assets or liabilities based on lease or property specific characteristics.
The Company incurs various costs in the leasing and development of its properties. Amounts paid to tenants that incentivize them to extend or otherwise amend an existing lease or to sign a new lease agreement are capitalized to lease incentives on the Company’s consolidated balance sheets. Tenant improvements are capitalized to building and improvements within the Company’s consolidated balance sheets. Costs incurred which are directly related to properties under development, which include pre-construction costs essential to the development of the property, development costs, construction costs, interest costs and real estate taxes and insurance, are capitalized during the period of development as construction in progress. After the determination is made to capitalize a cost, it is allocated to the specific component of a project that benefited. Determination of when a development project commences, and capitalization begins, and when a development project has reached substantial completion, and is available for occupancy and capitalization must cease, involves a degree of judgment. The Company does not engage in speculative real estate development. The Company does, however, opportunistically agree to reimburse certain of its tenants for development costs at its properties in exchange for contractually specified rent that generally increases proportionally with its funding.
The fair value of the tangible assets of an acquired property with an in-place operating lease is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to the tangible assets based on the fair value of the tangible assets. The fair value of in-place leases is determined by considering estimates of carrying costs during the expected lease-up periods, current market conditions, as well as costs to execute similar leases based on the specific characteristics of each tenant’s lease. The Company estimates the cost to execute leases with terms similar to the remaining lease terms of the in-place leases, including leasing commissions, legal and other related expenses. Factors the Company considers in this analysis include an estimate of the carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses, and estimates of lost rentals at market rates during the expected lease-up periods, which primarily range from six to 12 months. The fair value of above- or below-market leases is recorded based on the net present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between the contractual amount to be paid pursuant to the in-place lease and the Company’s estimate of the fair market lease rate for the corresponding in-place lease, measured over the remaining non-cancelable term of the lease including any below-market fixed rate renewal options for below-market leases.
10

In making estimates of fair values for purposes of allocating purchase price, the Company uses a number of sources, including real estate valuations prepared by independent valuation firms. The Company also considers information and other factors including market conditions, the industry that the tenant operates in, characteristics of the real estate (e.g., location, size, demographics, value and comparative rental rates), tenant credit profile and the importance of the location of the real estate to the operations of the tenant’s business. Additionally, the Company considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired. The Company uses the information obtained as a result of its pre-acquisition due diligence as part of its consideration of the accounting standard governing asset retirement obligations and, when necessary, will record an asset retirement obligation as part of the purchase price allocation.
Real estate investments that are intended to be sold are designated as “held for sale” on the consolidated balance sheets at the lesser of carrying amount and fair value less estimated selling costs. Real estate investments are no longer depreciated when they are classified as held for sale. If the disposal, or intended disposal, of certain real estate investments represents a strategic shift that has had or will have a major effect on the Company’s operations and financial results, the operations of such real estate investments would be presented as discontinued operations in the consolidated statements of operations for all applicable periods.
Depreciation and Amortization
Depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings and 15 years for site improvements. The Company recorded the following amounts of depreciation expense on its real estate investments during the periods presented:
Three months ended September 30,Nine months ended September 30,
(in thousands)2022202120222021
Depreciation on real estate investments$20,178 $15,489 $58,997 $43,982 
Lease incentives are amortized on a straight-line basis as a reduction of rental income over the remaining non-cancellable terms of the respective leases. If a tenant terminates its lease, the unamortized portion of the lease incentive is charged to rental revenue. Construction in progress is not depreciated until the development has reached substantial completion. Tenant improvements are depreciated over the non-cancellable term of the related lease or their estimated useful life, whichever is shorter.
Capitalized above-market lease intangibles are amortized on a straight-line basis as a reduction of rental revenue over the remaining non-cancellable terms of the respective leases. Capitalized below-market lease intangibles are accreted on a straight-line basis as an increase to rental revenue over the remaining non-cancellable terms of the respective leases including any below-market fixed rate renewal option periods.
Capitalized above-market ground lease values are accreted as a reduction of property expenses over the remaining terms of the respective leases. Capitalized below-market ground lease values are amortized as an increase to property expenses over the remaining terms of the respective leases and any expected below-market renewal option periods where renewal is considered probable.
The value of in-place leases, exclusive of the value of above-market and below-market lease intangibles, is amortized to depreciation and amortization expense on a straight-line basis over the remaining periods of the respective leases.
If a tenant terminates its lease, the unamortized portion of each intangible, including in-place lease values, is charged to depreciation and amortization expense, while above- and below-market lease adjustments are recorded within rental revenue in the consolidated statements of operations.
Loans Receivable
The Company holds its loans receivable for long-term investment. Loans receivable are carried at amortized cost, including related unamortized discounts or premiums, if any, less the Company's estimated allowance for loan losses calculated in accordance with ASC 326. The Company recognizes interest income on loans receivable using the effective-interest method applied on a loan-by-loan basis. Direct costs associated with originating loans are offset against any related fees received and the balance, along with any premium or discount,
11

is deferred and amortized as an adjustment to interest income over the term of the related loan receivable using the effective-interest method.
Direct Financing Lease Receivables
Certain of the Company’s real estate investment transactions are accounted for as direct financing leases. The Company records the direct financing lease receivables at their net investment, determined as the aggregate minimum lease payments and the estimated non-guaranteed residual value of the leased property less unearned income and less the estimated allowance for loan losses calculated in accordance with ASC 326. The unearned income is recognized over the term of the related lease so as to produce a constant rate of return on the net investment in the asset. The Company’s investment in direct financing lease receivables is reduced over the applicable lease term to its non-guaranteed residual value by the portion of rent allocated to the direct financing lease receivables. Subsequent to the adoption of ASC 842, Leases (“ASC 842”) in January 2019, the Company's existing direct financing lease receivables have been accounted for in the same manner, unless the underlying contracts have been modified.
Impairment of Long-Lived Assets
If circumstances indicate that the carrying value of a property may not be recoverable, the Company reviews the property for impairment. This review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends, and residual value, as well as the effects of leasing demand, competition and other factors. If impairment exists due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used. For properties held for sale, the impairment loss is the adjustment to fair value less estimated cost to dispose of the asset. Impairment losses, if any, are recorded directly within the Company's consolidated statement of operations.
The Company recorded the following provisions for impairment of long lived assets during the periods presented:
Three months ended September 30,Nine months ended September 30,
(in thousands)2022202120222021
Provision for impairment of real estate$349 $ $10,541 $6,120 
Cash and Cash Equivalents
Cash and cash equivalents includes cash in the Company’s bank accounts. The Company considers all cash balances and highly liquid investments with original maturities of three months or less to be cash and cash equivalents. The Company deposits cash with high quality financial institutions. These deposits are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to an insurance limit.
As of September 30, 2022 and December 31, 2021, the Company had deposits of $136.3 million and $59.8 million, respectively, of which $136.1 million and $59.5 million, respectively, were in excess of the amount insured by the FDIC. Although the Company bears risk with respect to amounts in excess of those insured by the FDIC, it does not anticipate any losses as a result.
Restricted Cash
Restricted cash primarily consists of cash proceeds from the sale of assets held by a qualified intermediary to facilitate tax-deferred exchange transactions under Section 1031 of the Internal Revenue Code.
Forward Equity Sales
The Company has and may continue to enter into forward sale agreements for the sale and issuance of shares of its common stock, either through its 2022 ATM Program (as defined herein) or through an underwritten
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public offering. These agreements may be physically settled in stock, settled in cash or net share settled at the Company’s election.
The Company evaluated its forward sale agreements and concluded they meet the conditions to be classified within stockholders’ equity. Prior to settlement, a forward sale agreement will be reflected in the diluted earnings per share calculations using the treasury stock method. Under this method, the number of shares of the Company’s common stock used in diluted earnings per share is deemed to be increased by the excess, if any, of the number of shares of the Company’s common stock that would be issued upon full physical settlement of such forward sale agreement over the number of shares of the Company’s common stock that could be purchased by the Company in the market (based on the average market price during the period) using the proceeds receivable upon full physical settlement (based on the adjusted forward sale price at the end of the reporting period). Consequently, prior to settlement of a forward sale agreement, there will be no dilutive effect on the Company’s earnings per share except during periods when the average market price of the Company’s common stock is above the adjusted forward sale price. However, upon settlement of a forward sales agreement, if the Company elects to physically settle or net share settle such forward sale agreement, delivery of the Company’s shares will result in dilution to the Company’s earnings per share.
Deferred Financing Costs
Financing costs related to establishing the Company’s 2018 Credit Facility and Revolving Credit Facility (as defined below) were deferred and are being amortized as an increase to interest expense in the consolidated statements of operations over the term of the facility and are reported as a component of rent receivables, prepaid expenses and other assets, net on the consolidated balance sheets.
Financing costs related to the issuance of the Company’s 2024 Term Loan, 2027 Term Loan, 2028 Term Loan and 2031 Notes (each as defined below) were deferred and are being amortized as an increase to interest expense in the consolidated statements of operations over the term of the related debt instrument and are reported as a reduction of the related debt balance on the consolidated balance sheets.
Derivative Instruments