ESSENTIAL PROPERTIES REALTY TRUST, INC. [EPRT] Filings

10-Q 1 eprt-20230930.htm 10-Q eprt-20230930

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, 2023


☐			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

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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 25, 2023, the registrant had 156,024,222 shares of common stock, $0.01 par value per share, outstanding.

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PART I.	FINANCIAL INFORMATION	Page
Item 1.	Financial Statements
	Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022	2
	Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022 (unaudited)	3
	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023 and 2022 (unaudited)	4
	Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2023 and 2022 (unaudited)	5
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (unaudited)	7
	Notes to Consolidated Financial Statements (unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	67
Item 4.	Controls and Procedures	68

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	69
Item 1A.	Risk Factors	69
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69
Item 3.	Defaults Upon Senior Securities	69
Item 4.	Mine Safety Disclosures	69
Item 5.	Other Information	69
Item 6.	Exhibits	70

Signatures		71

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ESSENTIAL PROPERTIES REALTY TRUST, INC.

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets

(In thousands, except share and per share data)


	September 30, 2023		December 31, 2022
	(Unaudited)
ASSETS
Investments:
Real estate investments, at cost:
Land and improvements	$	1,431,441	$	1,228,687
Building and improvements	2,798,181		2,440,630
Lease incentives	16,894		18,352
Construction in progress	69,113		34,537
Intangible lease assets	87,849		88,364
Total real estate investments, at cost	4,403,478		3,810,570
Less: accumulated depreciation and amortization	(343,637)		(276,307)
Total real estate investments, net	4,059,841		3,534,263
Loans and direct financing lease receivables, net	227,114		240,035
Real estate investments held for sale, net	3,539		4,780
Net investments	4,290,494		3,779,078
Cash and cash equivalents	36,106		62,345
Restricted cash	5,912		9,155
Straight-line rent receivable, net	98,620		78,587
Derivative assets	54,314		47,877
Rent receivables, prepaid expenses and other assets, net	26,735		22,991
Total assets (1)	$	4,512,181	$	4,000,033

LIABILITIES AND EQUITY

Unsecured term loans, net of deferred financing costs	$	1,197,155	$	1,025,492
Senior unsecured notes, net	395,706		395,286
Revolving credit facility	—		—
Intangible lease liabilities, net	11,230		11,551
Dividend payable	43,943		39,398
Derivative liabilities	660		2,274
Accrued liabilities and other payables	25,697		29,261
Total liabilities (1)	1,674,391		1,503,262
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, 2023 and December 31, 2022	—		—
Common stock, $0.01 par value; 500,000,000 authorized; 156,024,222 and 142,379,655 issued and outstanding as of September 30, 2023 and December 31, 2022, respectively	1,560		1,424
Additional paid-in capital	2,885,825		2,563,305
Distributions in excess of cumulative earnings	(107,592)		(117,187)
Accumulated other comprehensive income	49,422		40,719
Total stockholders' equity	2,829,215		2,488,261
Non-controlling interests	8,575		8,510
Total equity	2,837,790		2,496,771
Total liabilities and equity	$	4,512,181	$	4,000,033

__________________________________________________

(1)The Company’s consolidated balance sheets include assets and liabilities of consolidated variable interest entities (“VIEs”). See Note 2—Summary of Significant Accounting Policies. As of September 30, 2023 and December 31, 2022, 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 $43.8 million and $39.2 million, respectively, of dividends payable.

The accompanying notes are an integral part of these consolidated financial statements.

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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,
	2023		2022		2023		2022
Revenues:
Rental revenue	$	86,969	$	66,525	$	246,960	$	199,726
Interest on loans and direct financing lease receivables	4,568		3,719		13,548		11,490
Other revenue, net	120		419		1,353		1,014
Total revenues	91,657		70,663		261,861		212,230

Expenses:
General and administrative	7,174		7,868		23,343		22,956
Property expenses	1,359		830		3,346		2,668
Depreciation and amortization	26,212		22,054		74,779		64,441
Provision for impairment of real estate	165		349		1,645		10,541
Change in provision for credit losses	(63)		(30)		(85)		136
Total expenses	34,847		31,071		103,028		100,742
Other operating income:
Gain on dispositions of real estate, net	1,859		6,329		19,320		18,082
Income from operations	58,669		45,921		178,153		129,570
Other (expense)/income:
Loss on debt extinguishment	(116)		—		(116)		(2,138)
Interest expense	(12,633)		(9,892)		(36,837)		(28,242)
Interest income	330		752		1,416		800
Income before income tax expense	46,250		36,781		142,616		99,990
Income tax expense	162		190		472		769
Net income	46,088		36,591		142,144		99,221
Net income attributable to non-controlling interests	(174)		(163)		(532)		(441)
Net income attributable to stockholders	$	45,914	$	36,428	$	141,612	$	98,780

Basic weighted average shares outstanding	155,917,176		139,068,188		150,314,073		132,438,157
Basic net income per share	$	0.29	$	0.26	$	0.94	$	0.74

Diluted weighted average shares outstanding	157,182,984		139,890,693		151,609,426		133,321,987
Diluted net income per share	$	0.29	$	0.26	$	0.94	$	0.74

The accompanying notes are an integral part of these consolidated financial statements.

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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,
	2023		2022		2023		2022
Net income	$	46,088	$	36,591	$	142,144	$	99,221
Other comprehensive income:

Unrealized gain on cash flow hedges	14,152		23,577		28,152		58,676
Cash flow hedge (gain) loss reclassified to interest expense	(7,491)		(741)		(19,453)		3,305
Total other comprehensive income	6,661		22,836		8,699		61,981
Comprehensive income	52,749		59,427		150,843		161,202
Net income attributable to non-controlling interests	(174)		(163)		(532)		(441)
Adjustment for other comprehensive (loss) income attributable to non-controlling interests	(24)		(100)		5		(325)
Comprehensive income attributable to stockholders	$	52,551	$	59,164	$	150,316	$	160,436

The accompanying notes are an integral part of these consolidated financial statements.

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ESSENTIAL PROPERTIES REALTY TRUST, INC.

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Stockholders’ Equity

(Unaudited, in thousands, except share data)


	Common Stock			Additional Paid In Capital		Distributions in Excess of Cumulative Earnings		Accumulated Other Comprehensive Income		Total Stockholders' Equity		Non-controlling Interests		Total Equity
	Number of Shares	Par Value
Balance at December 31, 2022	142,379,655	$	1,424	$	2,563,305	$	(117,187)	$	40,719	$	2,488,261	$	8,510	$	2,496,771
Common stock issuance	6,248,695	62		147,217		—		—		147,279		—		147,279
Common stock withheld related to net share settlement of equity awards	—	—		—		(2,745)		—		(2,745)		—		(2,745)
Costs related to issuance of common stock	—	—		(444)		—		—		(444)		—		(444)
Other comprehensive loss	—	—		—		—		(14,737)		(14,737)		(91)		(14,828)
Equity based compensation expense	209,767	2		2,719		—		—		2,721		—		2,721
Dividends declared on common stock and OP Units	—	—		—		(41,030)		—		(41,030)		(153)		(41,183)
Net income	—	—		—		42,896		—		42,896		160		43,056
Balance at March 31, 2023	148,838,117	1,488		2,712,797		(118,066)		25,982		2,622,201		8,426		2,630,627
Common stock issuance	6,278,287	63		149,263		—		—		149,326		—		149,326
Common stock withheld related to net share settlement of equity awards	—	—		—		(651)		—		(651)		—		(651)
Costs related to issuance of common stock	—	—		(173)		—		—		(173)		—		(173)
Other comprehensive income	—	—		—		—		16,803		16,803		62		16,865
Equity based compensation expense	56,097	1		1,970		—		—		1,971		—		1,971
Dividends declared on common stock and OP Units	—	—		—		(43,551)		—		(43,551)		(154)		(43,705)
Net income	—	—		—		52,802		—		52,802		198		53,000
Balance at June 30, 2023	155,172,501	1,552		2,863,857		(109,466)		42,785		2,798,728		8,532		2,807,260
Common stock issuance	836,050	8		20,143		—		—		20,151		—		20,151
Common stock withheld related to net share settlement of equity awards	—	—		—		(252)		—		(252)		—		(252)
Costs related to issuance of common stock	—	—		(319)		—		—		(319)		—		(319)
Other comprehensive income	—	—		—		—		6,637		6,637		24		6,661
Equity based compensation expense	15,671	—		2,144		—		—		2,144		—		2,144
Dividends declared on common stock and OP Units	—	—		—		(43,788)		—		(43,788)		(155)		(43,943)
Net income	—	—		—		45,914		—		45,914		174		46,088
Balance at September 30, 2023	156,024,222	$	1,560	$	2,885,825	$	(107,592)	$	49,422	$	2,829,215	$	8,575	$	2,837,790

The accompanying notes are an integral part of these consolidated financial statements.

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ESSENTIAL PROPERTIES REALTY TRUST, INC.

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Stockholders’ Equity (continued)

(Unaudited, in thousands, except share data)


	Common Stock			Additional Paid-In Capital		Distributions in Excess of Cumulative Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity		Non-controlling Interests		Total Equity
	Number of Shares	Par Value
Balance at December 31, 2021	124,649,053	$	1,246	$	2,151,088	$	(100,982)	$	(14,786)	$	2,036,566	$	7,237	$	2,043,803
Common stock issuance	6,382,994	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 expense	119,646	—		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, 2022	131,151,693	1,312		2,311,918		(110,706)		13,994		2,216,518		7,392		2,223,910
Common stock issuance	1,501,489	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
Equity based compensation expense	16,765	—		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, 2022	132,669,947	1,327		2,346,037		(110,969)		24,134		2,260,529		7,445		2,267,974
Common stock issuance	9,692,201	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 expense	15,067	—		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, 2022	142,377,215	$	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

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ESSENTIAL PROPERTIES REALTY TRUST, INC.

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Cash Flows

(Unaudited, in thousands)


	Nine months ended September 30,
	2023		2022
Cash flows from operating activities:
Net income	$	142,144	$	99,221
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	74,779		64,441
Amortization of lease incentives	1,455		2,653
Amortization of above/below market leases and right of use assets, net	(211)		555
Amortization of deferred financing costs and other non-cash interest expense	4,486		3,788
Loss on debt extinguishment	116		2,138
Provision for impairment of real estate	1,645		10,541
Change in provision for credit losses	(85)		136
Gain on dispositions of real estate, net	(19,320)		(18,082)
Straight-line rent receivable, net	(20,034)		(16,097)
Equity-based compensation expense	6,836		7,257
Adjustment to rental revenue for tenant credit	501		(451)

Changes in other assets and liabilities:
Rent receivables, prepaid expenses and other assets	(4,968)		(217)
Accrued liabilities and other payables	(5,362)		(1,306)
Net cash provided by operating activities	181,982		154,577
Cash flows from investing activities:
Proceeds from sales of real estate, net	107,459		80,027
Principal collections on loans and direct financing lease receivables	23,206		58,636
Investments in loans receivable	(10,200)		(96,907)
Deposits for prospective real estate investments	(601)		(1,105)
Investment in real estate, including capital expenditures	(628,305)		(471,000)
Investment in construction in progress	(61,776)		(34,967)
Lease incentives paid	—		(708)
Net cash used in investing activities	(570,217)		(466,024)
Cash flows from financing activities:

Borrowings under term loan facilities	172,972		250,000

Borrowings under revolving credit facility	70,000		299,000
Repayments under revolving credit facility	(70,000)		(443,000)

Proceeds from issuance of common stock, net	316,718		403,914
Payments for taxes related to net settlement of equity awards	(3,649)		(2,436)
Payment of debt extinguishment costs	—		(467)
Deferred financing costs	(2,301)		(7,333)
Offering costs	(701)		(752)
Dividends paid	(124,286)		(103,009)
Net cash provided by financing activities	358,753		395,917
Net decrease in cash and cash equivalents and restricted cash	(29,482)		84,470
Cash and cash equivalents and restricted cash, beginning of period	71,500		59,758
Cash and cash equivalents and restricted cash, end of period	$	42,018	$	144,228
Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents	$	36,106	$	136,303
Restricted cash	5,912		7,925
Cash and cash equivalents and restricted cash, end of period	$	42,018	$	144,228

The accompanying notes are an integral part of these consolidated financial statements.

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ESSENTIAL PROPERTIES REALTY TRUST, INC.

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Cash Flows (continued)

(Unaudited, in thousands)


	Nine months ended September 30,
	2023		2022
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized	$	38,045	$	19,525
Cash paid for income taxes	1,366		1,050

Non-cash investing and financing activities:

Reclassification from construction in progress upon project completion	$	28,964	$	14,254

Non-cash repayment of term loan facility	200,000		—
Non-cash debt issuance costs	2,028		—
Non-cash investments in real estate and loan receivable activity	—		22,679

Unrealized gains on cash flow hedges	28,152		58,676
Accrued debt issuance costs	100		—
Payable and accrued offering costs	197		204
Discounts and fees on capital raised through issuance of common stock	38		9,931


Dividends declared and unpaid	43,943		38,682

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

September 30, 2023

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”).

The common stock of the Company is listed on the New York Stock Exchange under the ticker symbol “EPRT”.

COVID-19 Pandemic

The adverse impact of the COVID-19 pandemic ("COVID-19") significantly diminished during 2022. If there were a reemergence of COVID-19 that caused the reoccurrence of conditions experienced in 2020 and 2021, such conditions could have an adverse impact on the Company and its tenants.

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”). In the opinion of management, all adjustments of a normal recurring nature necessary for a fair presentation have been included. The results of operations for the three and nine months ended September 30, 2023 and 2022 are not necessarily indicative of the results for the full year. These unaudited financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as filed with the SEC in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

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, 2023 and December 31, 2022, 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.

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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.

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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)	2023		2022		2023		2022
Depreciation on real estate investments	$	24,534	$	20,178	$	69,735	$	58,997

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 credit 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

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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.

Allowance for Credit Losses

Under ASC Topic 326, Financial Instruments – Credit Losses, the Company uses a real estate loss estimate model (“RELEM”) which estimates losses on its loans and direct financing lease receivable portfolio, for purposes of calculating allowances for credit losses. The RELEM allows the Company to refine (on an ongoing basis) the expected loss estimate by incorporating asset-specific assumptions as necessary, such as anticipated funding, interest payments, estimated extensions and estimated loan repayment/refinancing at maturity to estimate cash flows over the life of the loan or direct financing lease receivable. The model also incorporates assumptions related to underlying collateral values, various loss scenarios, and predicted losses to estimate expected losses. The Company's specific asset-level inputs include loan-to-stabilized-value (“LTV”), principal balance, property type, location, coupon, origination year, term, subordination, expected repayment date and future funding. The Company categorizes the results by LTV range, which it considers the most significant indicator of credit quality for its loans and direct financing lease receivables. A lower LTV ratio typically indicates a lower credit loss risk.

The Company also evaluates each loan and direct financing lease receivable measured at amortized cost for credit deterioration at least quarterly. Credit deterioration occurs when it is deemed probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan or direct financing lease receivable.

The Company's allowance for credit losses is adjusted to reflect its estimation of the current and future economic conditions that impact the performance of the real estate assets securing its loans. These estimations include various macroeconomic factors impacting the likelihood and magnitude of potential credit losses for the Company's loans and direct financing lease receivables during their anticipated term. Changes in the Company's allowance for credit losses are presented within change in provision for credit losses in its consolidated statements of operations.

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 our consolidated statements 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)	2023		2022		2023		2022
Provision for impairment of real estate	$	165	$	349	$	1,645	$	10,541

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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, 2023 and December 31, 2022, the Company had cash and cash equivalents of $36.1 million and $62.3 million, respectively, of which $35.9 million and $62.1 million, respectively, were not insured by the FDIC. Although the Company bears risk with respect to amounts not insured by the FDIC, it has not experienced and does not anticipate any losses as a result due to the high quality of the financial institutions where balances are held.

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 of 1986, as amended (the "Code").

Forward Equity Sales

The Company has and may continue to enter into forward sale agreements relating to shares of its common stock, either through its 2022 ATM Program (as defined herein) or through underwritten public offerings. 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 calculating 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 reporting 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 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 incurrence of borrowings under the Company’s unsecured term loans and the issuance of senior unsecured notes 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

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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 hedge accounting treatment, the change in the estimated fair value of the derivative is recorded in other comprehensive income (loss) 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 the 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.

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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 September 30,				Nine months ended September 30,
(in thousands)	2023		2022		2023		2022
Contingent rent	$	198	$	210	$	518	$	526

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 or decreases to rental revenue for tenant credit during the periods presented:


	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2023		2022		2023		2022
Adjustment to increase (decrease) rental revenue for tenant credit	$	32	$	36	$	(501)	$	451

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 September 30, 2023 and December 31, 2022, the Company capitalized a total of $91.2 million and $90.3 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 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

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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 September 30, 2023 and December 31, 2022, 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 and nine months ended September 30, 2023 and 2022, 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 September 30, 2023 or December 31, 2022. The 2022, 2021, 2020 and 2019 taxable years remain open to examination by federal and/or state taxing jurisdictions to which the Company is subject.

Equity-Based Compensation

The Company grants shares of restricted common stock ("RSAs") and restricted stock 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 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 RSAs 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 fair value of the award on the grant date. 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 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 September 30, 2023 and December 31, 2022.

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:


(dollars in thousands)	September 30, 2023		December 31, 2022
Number of VIEs	20		21
Aggregate carrying value	$	221,185	$	233,351

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 September 30, 2023 and December 31, 2022. The Company’s maximum exposure to loss in these entities is limited

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to the carrying amount of its investment. The Company had no liabilities associated with these VIEs as of September 30, 2023 and December 31, 2022.

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 effective for fiscal years beginning after December 15, 2021, with early adoption permitted. The adoption of ASU 2021-05 did not have a material impact on the Company's consolidated financial statements.

3. Investments

The following table presents information about the number of investments in the Company’s real estate investment portfolio as of each date presented:


	September 30, 2023	December 31, 2022
Owned properties (1)	1,644	1,489
Properties securing investments in mortgage loans (2)	138	153
Ground lease interests	11	11
Total number of investments	1,793	1,653

_____________________________________

(1)Includes seven and eight properties which are subject to leases accounted for as direct financing leases or loans as of September 30, 2023 and December 31, 2022, respectively.

(2)Properties secure 19 and 20 mortgage loans receivable as of September 30, 2023 and December 31, 2022, respectively.

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)	September 30, 2023		December 31, 2022
Real estate investments, at cost	$	4,403,478	$	3,810,570
Loans and direct financing lease receivables, net	227,114		240,035
Real estate investments held for sale, net	3,539		4,780
Total gross investments	$	4,634,131	$	4,055,385

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Investments in 2023 and 2022

The following table presents information about the Company’s acquisition activity during the nine months ended September 30, 2023 and 2022:


	Nine months ended September 30,
(in thousands)	2023		2022
Ownership type	(1)		(2)
Number of properties	199		124

Purchase price allocation
Land and improvements	$	234,260	$	183,270
Building and improvements	392,777		311,651
Construction in progress(3)	63,541		34,967
Intangible lease assets	903		2,836
Total purchase price	691,481		532,724

Intangible lease liabilities	(32)		—
Purchase price (including acquisition costs)	$	691,449	$	532,724

_____________________________________

(1)During the nine months ended September 30, 2023, the Company acquired fee interests in 198 properties and acquired one property subject to a ground lease.

(2)During the nine months ended September 30, 2022, the Company acquired fee interests in 123 properties and acquired one property subject to a ground lease.

(3)Represents amounts incurred at and subsequent to acquisition and includes $1.8 million and $0.4 million of capitalized interest expense during the nine months ended September 30, 2023 and 2022, respectively.

During the nine months ended September 30, 2023 and 2022, the Company did not make any new investments that individually represented more than 5% of the Company’s total real estate investment portfolio.

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Gross Investment Activity

During the nine months ended September 30, 2023 and 2022, the Company had the following gross investment activity:


(Dollar amounts in thousands)	Number of Investment Locations	Dollar Amount of Investments
Gross investments, January 1, 2022	1,451	$	3,355,561
Acquisitions of and additions to real estate investments	124	529,278
Sales of investments in real estate	(28)	(69,147)

Provision for impairment of real estate (1)		(10,541)
Investments in loans receivable	60	96,907
Principal collections on and settlements of loans and direct financing lease receivables	(35)	(81,315)
Other		(3,318)
Gross investments, September 30, 2022		3,817,425
Less: Accumulated depreciation and amortization (2)		(259,092)
Net investments, September 30, 2022	1,572	$	3,558,333

Gross investments, January 1, 2023	1,653	$	4,055,385
Acquisitions of and additions to real estate investments	199	691,079
Sales of investments in real estate	(42)	(93,326)
Relinquishment of property at end of ground lease term	(1)	(837)
Provision for impairment of real estate (3)		(1,645)
Investments in loans and direct financing lease receivables	1	10,200
Principal collections on and settlements of loans and direct financing lease receivables	(17)	(23,206)
Other		(3,519)
Gross investments, September 30, 2023		4,634,131
Less: Accumulated depreciation and amortization (2)		(343,637)
Net investments, September 30, 2023	1,793	$	4,290,494

_____________________________________

(1)During the nine months ended September 30, 2022, the Company identified and recorded provisions for impairment at seven tenanted properties and two vacant properties.

(2)Includes $303.6 million and $225.3 million of accumulated depreciation as of September 30, 2023 and 2022, respectively.

(3)During the nine months ended September 30, 2023, the Company identified and recorded provisions for impairment at three tenanted properties and two vacant 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 September 30, 2023 and December 31, 2022, the Company had 19 and 23 loans receivable outstanding, respectively, and three leases accounted for as loans, with an aggregate carrying amount of $226.3 million and $238.7 million, respectively. The maximum amount of loss due to credit risk is the Company's current principal balance of $226.3 million as of September 30, 2023.

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The Company’s loans receivable portfolio as of September 30, 2023 and December 31, 2022 is summarized below (dollars in thousands):


						Principal Balance Outstanding
Loan Type	Monthly Payment (1)	Number of Secured Properties	Effective Interest Rate	Stated Interest Rate	Maturity Date	September 30, 2023		December 31, 2022
Mortgage (2)(3)	I/O	2	8.80%	8.00%	2039	$	12,000	$	12,000
Mortgage (2)	I/O	2	8.53%	7.75%	2039	7,300		7,300
Mortgage (2)	I/O	69	8.16%	7.70%	2034	51,000		51,000
Mortgage (2)	I/O	1	8.42%	7.65%	2040	5,300		5,300
Mortgage (2)	I/O	2	8.54%	8.50%	2024	1,785		2,324
Mortgage (2)	I/O	1	7.00%	7.00%	2023	500		600
Mortgage (2)	I/O	2	8.30%	8.25%	2024	994		3,146
Mortgage (2)	I/O	2	6.87%	6.40%	2036	2,520		2,520
Mortgage (2)	I/O	—	7.51%	7.00%	2036	—		2,673
Mortgage (2)	I/O	2	8.29%	8.25%	2024	2,389		2,389
Mortgage (2)	I/O	1	8.96%	8.06%	2051	24,100		24,100
Mortgage (2)	I/O	—	7.44%	7.10%	2036	—		9,808
Mortgage (2)	I/O	7	7.32%	6.80%	2036	35,474		35,474
Mortgage (2)	I/O	1	7.73%	7.20%	2036	2,470		2,470
Mortgage (2)	I/O	1	8.00%	8.00%	2023	1,754		1,754
Mortgage (2)	I/O	28	7.00%	7.00%	2027	19,160		26,307
Mortgage (2)	I/O	1	7.73%	7.20%	2037	3,600		3,600
Mortgage (2)	I/O	1	8.30%	8.25%	2024	760		760
Mortgage (2)	I/O	4	8.64%	8.05%	2037	12,250		12,250
Mortgage (2)	I/O	10	8.85%	8.25%	2037	28,938		28,938
Mortgage (2)	I/O	1	8.83%	8.25%	2038	10,200		—
Leasehold interest	P+I	1	2.25%	(4)	2034	945		992
Leasehold interest	P+I	1	2.41%	(4)	2034	1,404		1,473
Leasehold interest	P+I	1	4.97%	(4)	2038	1,478		1,517
Net investment						$	226,321	$	238,695