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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 March 31, 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 April 26, 2022, the registrant had 131,151,693 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)
March 31,
2022
December 31,
2021
(Unaudited)
ASSETS
Investments:
Real estate investments, at cost:
Land and improvements$1,083,007 $1,004,154 
Building and improvements2,130,595 2,035,919 
Lease incentives14,049 13,950 
Construction in progress9,318 8,858 
Intangible lease assets88,137 87,959 
Total real estate investments, at cost3,325,106 3,150,840 
Less: accumulated depreciation and amortization(220,711)(200,152)
Total real estate investments, net3,104,395 2,950,688 
Loans and direct financing lease receivables, net223,168 189,287 
Real estate investments held for sale, net14,488 15,434 
Net investments3,342,051 3,155,409 
Cash and cash equivalents14,255 59,758 
Straight-line rent receivable, net64,720 57,990 
Derivative assets17,582  
Rent receivables, prepaid expenses and other assets, net27,271 25,638 
Total assets (1)
$3,465,879 $3,298,795 
LIABILITIES AND EQUITY
Unsecured term loans, net of deferred financing costs$628,055 $626,983 
Senior unsecured notes, net394,864 394,723 
Revolving credit facility147,000 144,000 
Intangible lease liabilities, net12,507 12,693 
Dividend payable34,333 32,610 
Derivative liabilities495 11,838 
Accrued liabilities and other payables 24,715 32,145 
Total liabilities (1)
1,241,969 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 March 31, 2022 and December 31, 2021
  
Common stock, $0.01 par value; 500,000,000 authorized; 131,151,693 and 124,649,053 issued and outstanding as of March 31, 2022 and December 31, 2021, respectively
1,312 1,246 
Additional paid-in capital2,311,918 2,151,088 
Distributions in excess of cumulative earnings(110,706)(100,982)
Accumulated other comprehensive loss13,994 (14,786)
Total stockholders' equity2,216,518 2,036,566 
Non-controlling interests7,392 7,237 
Total equity2,223,910 2,043,803 
Total liabilities and equity$3,465,879 $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 March 31, 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 $34.2 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 March 31,
20222021
Revenues:
Rental revenue$66,112 $45,432 
Interest on loans and direct financing lease receivables3,822 3,105 
Other revenue, net187 15 
Total revenues70,121 48,552 
Expenses:
General and administrative8,063 6,431 
Property expenses1,009 1,414 
Depreciation and amortization20,313 15,646 
Provision for impairment of real estate3,935 5,722 
Change in provision for loan losses60 38 
Total expenses33,380 29,251 
Other operating income:
Gain on dispositions of real estate, net1,658 3,788 
Income from operations38,399 23,089 
Other (expense)/income:
Loss on debt extinguishment(2,138) 
Interest expense(9,160)(7,678)
Interest income18 20 
Income before income tax expense 27,119 15,431 
Income tax expense 301 56 
Net income26,818 15,375 
Net income attributable to non-controlling interests(119)(80)
Net income attributable to stockholders$26,699 $15,295 
Basic weighted average shares outstanding126,839,258 106,986,308 
Basic net income per share$0.21 $0.14 
Diluted weighted average shares outstanding127,923,499 108,055,741 
Diluted net income per share$0.21 $0.14 
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 March 31,
20222021
Net income$26,818 $15,375 
Other comprehensive income:
Unrealized income on cash flow hedges26,462 15,576 
Cash flow hedge losses reclassified to interest expense2,499 2,447 
Total other comprehensive income28,961 18,023 
Comprehensive income55,779 33,398 
Net income attributable to non-controlling interests(119)(80)
Adjustment for comprehensive income attributable to non-controlling interests(181)90 
Comprehensive income attributable to stockholders$55,479 $33,408 
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 
Share-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 
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 
Share-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 
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)
Three months ended March 31,
20222021
Cash flows from operating activities:
Net income$26,818 $15,375 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization20,313 15,646 
Amortization of lease incentive281 1,177 
Amortization of above/below market leases and right of use assets, net187 18 
Amortization of deferred financing costs and other non-cash interest expense744 625 
Loss on debt extinguishment2,138  
Provision for impairment of real estate3,935 5,722 
Change in provision for loan losses60 38 
Gain on dispositions of real estate, net(1,658)(3,788)
Straight-line rent receivable(6,216)(3,645)
Share-based compensation expense2,835 1,595 
Adjustment to rental revenue for tenant credit(568)85 
Changes in other assets and liabilities:
Rent receivables, prepaid expenses and other assets(1,584)(2,466)
Accrued liabilities and other payables(3,177)(247)
Net cash provided by operating activities44,108 30,135 
Cash flows from investing activities:
Proceeds from sales of real estate, net18,531 24,257 
Principal collections on loans and direct financing lease receivables10,657 942 
Investments in loans receivable(54,277)(23,825)
Deposits for prospective real estate investments(365)(600)
Investment in real estate, including capital expenditures(180,316)(174,685)
Investment in construction in progress(5,687)(121)
Lease incentives paid(108)(1,312)
Net cash used in investing activities(211,565)(175,344)
Cash flows from financing activities:
Repayments of secured borrowings (1,002)
Borrowings under revolving credit facility148,000 120,000 
Repayments under revolving credit facility(145,000) 
Proceeds from issuance of common stock, net158,338 64,928 
Payments for taxes related to net settlement of equity awards(2,235) 
Payment of debt extinguishment costs(467) 
Deferred financing costs(4,045) 
Offering costs(27)(1,188)
Dividends paid(32,610)(25,703)
Net cash provided by financing activities121,954 157,035 
Net (decrease) increase in cash and cash equivalents and restricted cash(45,503)11,826 
Cash and cash equivalents and restricted cash, beginning of period59,758 32,990 
Cash and cash equivalents and restricted cash, end of period$14,255 $44,816 
Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents$14,255 $42,842 
Restricted cash 1,974 
Cash and cash equivalents and restricted cash, end of period$14,255 $44,816 
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)
Three months ended March 31,
20222021
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized$4,430 $6,350 
Cash paid for income taxes100 242 
Non-cash operating, investing and financing activities:
Reclassification from construction in progress upon project completion$5,332 $ 
Non-cash investments in real estate and loan receivable activity9,679 960 
Unrealized gains on cash flow hedges(1,427)(29,344)
Accrued deferred debt restructuring costs191  
Discounts and fees on capital raised through issuance of common stock1,305 1,188 
Dividends declared34,333 26,398 
The accompanying notes are an integral part of these consolidated financial statements.
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ESSENTIAL PROPERTIES REALTY TRUST, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements
March 31, 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
On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus (“COVID-19”) a pandemic. For much of 2020, the global spread of COVID-19 created significant uncertainty and economic disruption, which appears to have moderated over the course of 2021 and into 2022. However, the continuing impact of the COVID-19 pandemic and its duration are unclear, and variants of the virus, such as Delta and Omicron, and vaccine hesitancy in certain areas could erode the progress that has been made against the virus, or exacerbate or prolong the impact of the pandemic. Conditions similar to those experienced in 2020, at the height of the pandemic, could return should the vaccines prove ineffective against future variants of the virus. Should the impact of a variant of the virus cause conditions to occur that are similar to those experienced in 2020, increased uncertainty and instability in the macro-economic environment could occur and government restrictions could force the Company’s tenants' businesses to shut-down or limit their operations, which would adversely impact the Company’s operations, its financial condition, liquidity, and prospects. Further, the extent and duration of any such conditions cannot be predicted with any reasonable certainty.
The Company continues to closely monitor the impact of COVID-19 on all aspects of its business, including its portfolio and the creditworthiness of its tenants. In 2020, the Company entered into deferral agreements with certain of its tenants and recognized contractual base rent pursuant to these agreements as a component of rental revenue in its consolidated statements of operations for 2020. These rent deferrals were negotiated on a tenant-by-tenant basis, and, in general, allowed a tenant to defer all or a portion of their rent for a portion of 2020, with all of the deferred rent to be paid to the Company pursuant to a schedule that generally extends up to 24 months from the original due date of the deferred rent. While the Company’s tenants' businesses and operations have largely returned to pre-pandemic levels, any new developments that cause a deterioration, or further deterioration, in the Company's tenants’ ability to operate their businesses, or delays in the supply of products or services to the Company's tenants from vendors required to operate their businesses, may cause the Company's tenants to be unable or unwilling to meet their contractual obligations to the Company, including the payment of rent (including deferred rent), or to request further rent deferrals or other concessions. The likelihood of this would increase if variants of COVID-19, such as the Delta variant, intensify or persist for a prolonged period. Additionally, the Company does not yet know whether COVID-19 has caused a material secular change in consumer behavior that may reduce patronage of service-based and/or experience-based businesses, but should changes occur that are material, many of the Company's tenants would be adversely affected and their ability to meet their obligations to the Company could be further impaired. During the deferral period, these agreements reduced the Company's cash flow from operations, reduced its cash available for distribution and adversely affected its ability to make cash distributions to common stockholders. Furthermore, if tenants are unable to repay their deferred rent, the Company will not receive cash in the future in accordance with its expectations.
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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 March 31, 2022 and December 31, 2021, the Company, directly and indirectly, held a 99.6% and 99.5% 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.
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
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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.
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 March 31,
(in thousands)20222021
Depreciation on real estate investments$18,555 $13,739 
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
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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. 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, 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. 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.
If and when an investment in direct financing lease receivables is identified for impairment evaluation, the Company will apply the guidance in both ASC 310, Receivables (“ASC 310”) and ASC 842. Under ASC 310, the lease receivable portion of the net investment in a direct financing lease receivable is evaluated for impairment when it becomes probable the Company, as the lessor, will be unable to collect all rental payments associated with the Company’s investment in the direct financing lease receivable. Under ASC 842, the Company reviews the estimated non-guaranteed residual value of a leased property at least annually. If the review results in a lower estimate than had been previously established, the Company determines whether the decline in estimated non-guaranteed residual value is other than temporary. If a decline is judged to be other than temporary, the accounting for the transaction is revised using the changed estimate and the resulting reduction in the net investment in direct financing lease receivables is recognized by the Company as a loss in the period in which the estimate is changed. As of March 31, 2022 and December 31, 2021, the Company determined that none of its direct financing lease receivables were impaired.
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
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impairment loss is the adjustment to fair value less estimated cost to dispose of the asset. Impairment losses, if any, are recorded directly within our consolidated statement of operations.
The Company recorded the following provisions for impairment of long lived assets during the periods presented:
Three months ended March 31,
(in thousands)20222021
Provision for impairment of real estate$3,935 $5,722 
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 March 31, 2022 and December 31, 2021, the Company had deposits of $14.3 million and $59.8 million, respectively, of which $14.0 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.
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, the 2027 Term Loan and the 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
In the normal course of business, the Company uses derivative financial instruments, which may include interest rate swaps, caps, options, floors and other interest rate derivative contracts, to protect the Company against adverse fluctuations in interest rates by reducing its exposure to variability in cash flows on a portion of the Company’s floating-rate debt. Instruments that meet these hedging criteria are formally designated as hedges at the inception of the derivative contract. The Company records all derivatives on the consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may also enter into derivative contracts that are intended to economically hedge certain risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
The accounting for subsequent changes in the fair value of these derivatives depends on whether each has been designed and qualifies for hedge accounting treatment. If a derivative is designated and qualifies for cash flow
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hedge accounting treatment, the change in the estimated fair value of the derivative is recorded in other comprehensive income in the consolidated statements of comprehensive income to the extent that it is effective. Any ineffective portion of a change in derivative fair value is immediately recorded in earnings. If the Company elects not to apply hedge accounting treatment (or for derivatives that do not qualify as hedges), any change in the fair value of such derivative instruments would be recognized immediately as a gain or loss on derivative instruments in the consolidated statements of operations.
Fair Value Measurement
The Company estimates fair value of financial and non-financial assets and liabilities based on the framework established in fair value accounting guidance. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The hierarchy described below prioritizes inputs to the valuation techniques used in measuring the fair value of assets and liabilities. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring the most observable inputs to be used when available. The hierarchy is broken down into three levels based on the reliability of inputs as follows:
Level 1—Quoted prices in active markets for identical assets and liabilities that the Company has the ability to access at the measurement date.
Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.
Level 3—Unobservable inputs that reflect the Company’s own assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.
Revenue Recognition
The Company’s rental revenue is primarily rent received from tenants. Rent from tenants is recorded in accordance with the terms of each lease on a straight-line basis over the non-cancellable initial term of the lease from the later of the date of the commencement of the lease and the date of acquisition of the property subject to the lease. Rental revenue recognition begins when the tenant controls the space and continues through the term of the related lease. Because substantially all of the leases provide for rental increases at specified intervals, the Company records a straight-line rent receivable and recognizes revenue on a straight-line basis through the expiration of the non-cancelable term of the lease. The Company considers whether the collectability of rents is reasonably assured in determining the amount of straight-line rent to record.
Generally, the Company’s leases provide the tenant with one or more multi-year renewal options, subject to generally the same terms and conditions provided under the initial lease term, including rent increases. If economic incentives make it reasonably certain that an option period to extend the lease will be exercised, the Company will include these options in determining the non-cancelable term of the lease.
The Company defers rental revenue related to lease payments received from tenants in advance of their due dates. These amounts are presented within accrued liabilities and other payables on the Company’s consolidated balance sheets.
Certain properties in the Company’s investment portfolio are subject to leases that provide for contingent rent based on a percentage of the tenant’s gross sales. For these leases, the Company recognizes contingent rental revenue when the threshold upon which the contingent lease payment is based is actually reached.
The Company recorded the following amounts as contingent rent, which are included as a component of rental revenue in the Company's consolidated statements of operations, during the periods presented:
Three months ended March 31,
(in thousands)20222021
Contingent rent$156 $169 
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Adjustment to Rental Revenue for Tenant Credit
The Company continually reviews receivables related to rent and unbilled rent receivables and determines collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located.
If the assessment of the collectability of substantially all payments due under a lease changes from probable to not probable, any difference between the rental revenue recognized to date and the lease payments that have been collected is recognized as a current period reduction of rental revenue in the consolidated statements of operations.
The Company recorded the following adjustments as increases to or reductions of rental revenue for tenant credit during the periods presented:
Three months ended March 31,
(in thousands)20222021
Adjustment to rental revenue for tenant credit$568 $(85)
Offering Costs
In connection with the completion of equity offerings, the Company incurs legal, accounting and other offering-related costs. Such costs are deducted from the gross proceeds of each equity offering when the offering is completed. As of March 31, 2022 and December 31, 2021, the Company capitalized a total of $80.9 million and $79.3 million, respectively, of such costs, which are presented as a reduction of additional paid-in capital in the Company’s consolidated balance sheets.
Income Taxes
The Company elected and qualified to be taxed as a REIT under sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with its taxable year ended December 31, 2018. REITs are subject to a number of organizational and operational requirements, including a requirement that 90% of ordinary “REIT taxable income” (as determined without regard to the dividends paid deduction or net capital gains) be distributed. As a REIT, the Company will generally not be subject to U.S. federal income tax to the extent that it meets the organizational and operational requirements and its distributions equal or exceed REIT taxable income. For the period subsequent to the effective date of its REIT election, the Company continues to meet the organizational and operational requirements and expects distributions to exceed REIT taxable income. Accordingly, no provision has been made for U.S. federal income taxes. Even though the Company has elected and qualifies for taxation as a REIT, it may be subject to state and local income and franchise taxes, and to federal income and excise tax on its undistributed income. Franchise taxes and federal excise taxes on the Company’s undistributed income, if any, are included in general and administrative expenses on the accompanying consolidated statements of operations. Additionally, taxable income from non-REIT activities managed through the Company's taxable REIT subsidiary is subject to federal, state, and local taxes.
The Company analyzes its tax filing positions in all of the U.S. federal, state and local tax jurisdictions where it is required to file income tax returns, as well as for all open tax years in such jurisdictions. The Company follows a two-step process to evaluate uncertain tax positions. Step one, recognition, occurs when an entity concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Step two, measurement, determines the amount of benefit that is more-likely-than-not to be realized upon settlement. Derecognition of a tax position that was previously recognized would occur when the Company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. The use of a valuation allowance as a substitute for derecognition of tax positions is prohibited.
As of March 31, 2022 and December 31, 2021, the Company had no accruals recorded for uncertain tax positions. The Company’s policy is to classify interest expense and penalties relating to taxes in general and administrative expense in the consolidated statements of operations. During the three months ended March 31, 2022 and 2021, the Company recorded de minimis interest or penalties relating to taxes, and there were no interest or penalties with respect to taxes accrued as of March 31, 2022 or December 31, 2021. The 2021, 2020, 2019 and 2018 taxable years remain open to examination by federal and/or state taxing jurisdictions to which the Company is subject.
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Equity-Based Compensation
The Company grants shares of restricted common stock and restricted share units (“RSUs”) to its directors, executive officers and other employees that vest over specified time periods, subject to the recipient’s continued service. The Company also grants performance-based RSUs to its executive officers, the final number of which is determined based on objective and subjective performance conditions and which vest over a multi-year period, subject to the recipient’s continued service. The Company accounts for the restricted common stock and RSUs in accordance with ASC 718, Compensation – Stock Compensation, which requires that such compensation be recognized in the financial statements based on its estimated grant-date fair value. The value of such awards is recognized as compensation expense in general and administrative expenses in the accompanying consolidated statements of operations over the applicable service periods.
The Company recognizes compensation expense for equity-based compensation using the straight-line method based on the terms of the individual grant. Forfeitures of equity-based compensation awards, if any, are recognized when they occur.
Variable Interest Entities
The Financial Accounting Standards Board (“FASB”) provides guidance for determining whether an entity is a variable interest entity (a “VIE”). VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. A VIE is required to be consolidated by its primary beneficiary, which is the party that (i) has the power to control the activities that most significantly impact the VIE’s economic performance and (ii) has the obligation to absorb losses, or the right to receive benefits, of the VIE that could potentially be significant to the VIE.
The Company has concluded that the Operating Partnership is a VIE of which the Company is the primary beneficiary, as the Company has the power to direct the activities that most significantly impact the economic performance of the Operating Partnership. Substantially all of the Company’s assets and liabilities are held by the Operating Partnership. The assets and liabilities of the Operating Partnership are consolidated and reported as assets and liabilities on the Company’s consolidated balance sheets as of March 31, 2022 and December 31, 2021.
Additionally, the Company has concluded that certain entities to which it has provided mortgage loans are VIEs because the entities' equity was not sufficient to finance their activities without additional subordinated financial support. The following table presents information about the Company’s mortgage loan-related VIEs as of the dates presented:
(dollar amounts in thousands)March 31,
2022
December 31,
2021
Number of VIEs2423
Aggregate carrying value
$177,025 $140,851 
The Company was not the primary beneficiary of any of these entities because the Company did not have the power to direct the activities that most significantly impact the entities’ economic performance as of March 31, 2022 and December 31, 2021. The Company’s maximum exposure to loss in these entities is limited to the carrying amount of its investment. The Company had no liabilities associated with these VIEs as of March 31, 2022 and December 31, 2021.
Recent Accounting Developments
In July 2021, the FASB issued ASU 2021-05, Lease (Topic 842): Lessors - Certain Leases with Variable Lease Payments ("ASU 2021-05"). The guidance in ASU 2021-05 amends the lease classification requirements for the lessors under certain leases containing variable payments to align with practice under ASC 840. The lessor should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if both of the following criteria are met: 1) the lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria in ASC 842-10-25-2 through 25-3; and 2) the lessor would have otherwise recognized a day-one loss. The amendments in ASU 2021-05 are
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effective for fiscal years beginning after December 15, 2021, with early adoption permitted. The adoption of ASU 2020-05 is not expected to have a material impact on the Company's consolidated financial statements.
3. Investments
The following table presents information about the number of properties or investments in the Company’s real estate investment portfolio as of each date presented:
March 31,
2022
December 31,
2021
Owned properties (1)
1,3611,315
Properties securing investments in mortgage loans (2)
174126
Ground lease interests (3)
1010
Total number of investments1,5451,451
_____________________________________
(1)Includes 11 properties which are subject to leases accounted for as direct financing leases or loans as of March 31, 2022 and December 31, 2021.
(2)Properties secure 20 and 17 mortgage loans receivable as of March 31, 2022 and December 31, 2021, respectively.
(3)Includes one building which is subject to a lease accounted for as a direct financing lease as of March 31, 2022 and December 31, 2021.
The following table presents information about the gross investment value of the Company’s real estate investment portfolio as of each date presented:
(in thousands)March 31,
2022
December 31,
2021
Real estate investments, at cost$3,325,106 $3,150,840 
Loans and direct financing lease receivables, net223,168 189,287 
Real estate investments held for sale, net14,488 15,434 
Total gross investments$3,562,762 $3,355,561 
Investments in 2022 and 2021
The following table presents information about the Company’s investment activity during the three months ended March 31, 2022 and 2021:
Three months ended March 31,
(in thousands)20222021
Ownership typeFee InterestFee Interest
Number of properties 4763
Purchase price allocation
Land and improvements $83,342 $52,126 
Building and improvements97,178 115,904 
Construction in progress (1)
5,687 121 
Intangible lease assets 3,510 
Total purchase price 186,207 171,661 
Intangible lease liabilities (41)
Purchase price (including acquisition costs) $186,207 $171,620 
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(1)Represents amounts incurred at and subsequent to acquisition and includes $0.1 million and $20,000 of capitalized interest expense for the three months ended March 31, 2022 and 2021, respectively.

During the three months ended March 31, 2022 and 2021, the Company did not have any investments that individually represented more than 5% of the Company’s total investment activity.
17

Gross Investment Activity
During the three months ended March 31, 2022 and 2021, the Company had the following gross investment activity:
(Dollar amounts in thousands)Number of
Investment
Locations
Dollar
Amount of
Investments
Gross investments, January 1, 20211,181$2,528,673 
Acquisitions of and additions to real estate investments63177,023 
Sales of investments in real estate(16)(23,297)
Relinquishment of properties at end of ground lease term 
Provisions for impairment of real estate (1)
(5,722)
Investments in loans receivable1323,825 
Principal collections on and settlements of loans and direct financing lease receivables(1)(942)
Other(126)
Gross investments, March 31, 20212,699,434 
Less: Accumulated depreciation and amortization (2)
(150,835)
Net investments, March 31, 20211,240$2,548,599 
Gross investments, January 1, 20221,451$3,355,561 
Acquisitions of and additions to real estate investments47195,790 
Sales of investments in real estate(6)(18,531)
Provisions for impairment of real estate (3)
(3,935)
Investments in loans receivable5854,277 
Principal collections on and settlements of loans and direct financing lease receivables(5)(20,336)
Other(64)
Gross investments, March 31, 20223,562,762 
Less: Accumulated depreciation and amortization (2)
(220,711)
Net investments, March 31, 20221,545$3,342,051 
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(1)During the three months ended March 31, 2021, the Company identified and recorded provisions for impairment at two vacant properties and seven tenanted properties.
(2)Includes $189.7 million and $126.5 million of accumulated depreciation as of March 31, 2022 and 2021, respectively.
(3)During the three months ended March 31, 2022, the Company identified and recorded provisions for impairment on four tenanted properties.

Real Estate Investments
The Company’s investment properties are leased to tenants under long-term operating leases that typically include one or more renewal options. See Note 4—Leases for more information about the Company’s leases.
Loans and Direct Financing Lease Receivables
As of March 31, 2022 and December 31, 2021, the Company had 24 and 22 loans receivable outstanding with an aggregate carrying amount of $221.8 million and $187.8 million, respectively. The maximum amount of loss due to credit risk is our current principal balance of $221.8 million as of March 31, 2022.
18

The Company’s loans receivable portfolio as of March 31, 2022 and December 31, 2021 are summarized below (dollars in thousands): 
Principal Balance Outstanding
Loan Type
Monthly
Payment (1)
Number of Secured PropertiesEffective Interest RateStated Interest RateMaturity DateMarch 31,
2022
December 31,
2021
Mortgage (2)(3)
I/O28.80%8.10%2039$12,000 $12,000 
Mortgage (3)
P+I28.10%8.10%20596,096 6,096 
Mortgage (2)
I/O28.53%7.80%20397,300 7,300 
Mortgage (2)
I/O698.16%7.70%203428,000 28,000 
Mortgage (2)
I/O18.42%7.70%20405,300 5,300 
Mortgage (2)
I/O38.30%8.25%20222,324 2,324 
Mortgage (2)
I/O17.00%7.00%2023600 600 
Mortgage (2)
I/O56.89%6.75%20268,820 14,165 
Mortgage (2)
I/O38.30%8.25%20233,146 3,146 
Mortgage (2)
I/O26.87%6.40%20362,520 2,520 
Mortgage (2)
I/O157.51%7.00%203625,541 30,806 
Mortgage (2)
I/O7.51%7.00%2036 9,679 
Mortgage (2)
I/O27.85%7.50%203113,000 13,000 
Mortgage (2)
I/O28.29%8.25%20232,389 2,389 
Mortgage (2)
I/O15.72%8.00%20529,096 6,864 
Mortgage (2)
I/O27.44%0.07120369,808 9,808 
Mortgage (2)
I/O57.30%0.068203625,714 25,714 
Mortgage (2)
I/O17.73%0.07220362,470 2,470 
Mortgage (2)
I/O18.00%8.00%20231,754  
Mortgage (2)
I/O566.80%7.00%202746,721  
Mortgage (2)
I/O16.99%7.20%20373,600  
Leasehold interestP+I210.69%
(4)
20391,435 1,435 
Leasehold interestP+I12.25%
(5)
20341,037 1,055 
Leasehold interestP+I12.41%
(5)
20341,539 1,560 
Leasehold interestP+I14.97%
(5)
20381,552 1,562 
Net investment$221,762 $187,793 
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(1)I/O: Interest Only; P+I: Principal and Interest
(2)Loan requires monthly payments of interest only with a balloon payment due at maturity.
(3)Loan allows for prepayments in whole or in part without penalty.
(4)This leasehold interest is accounted for as a loan receivable, as the lease for two land parcels contains an option for the lessee to repurchase the leased parcels in 2024 or 2025.
(5)These leasehold interests are accounted for as loans receivable, as the leases for each property contain an option for the relevant lessee to repurchase the leased property in the future.
Scheduled principal payments due to be received under the Company’s loans receivable as of March 31, 2022 were as follows:
(in thousands)Future Principal Payments Due
April 1 - December 31, 2022$