ESSENTIAL PROPERTIES REALTY TRUST, INC. [EPRT] Filings

10-Q 1 eprt-20240630.htm 10-Q eprt-20240630

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 June 30, 2024


☐			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 July 24, 2024, the registrant had 175,330,314 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 June 3 0 , 202 4 (unaudited) and December 31, 202 3	2
	Consolidated Statements of Operations for the three and six months ended June 3 0 , 202 4 and 202 3 (unaudited)	3
	Consolidated Statements of Comprehensive Income for the three and six months ended June 3 0 , 202 4 and 202 3 (unaudited)	4
	Consolidated Statements of Stockholders’ Equity for the three and six months ended June 3 0 , 202 4 and 202 3 (unaudited)	5
	Consolidated Statements of Cash Flows for the six months ended June 3 0 , 202 4 and 202 3 (unaudited)	7
	Notes to Consolidated Financial Statements (unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	68
Item 4.	Controls and Procedures	69

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	71
Item 1A.	Risk Factors	71
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	71
Item 3.	Defaults Upon Senior Securities	71
Item 4.	Mine Safety Disclosures	71
Item 5.	Other Information	71
Item 6.	Exhibits	72

Signatures		73

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ESSENTIAL PROPERTIES REALTY TRUST, INC.

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets

(In thousands, except share and per share data)


	June 30, 2024		December 31, 2023
	(Unaudited)
ASSETS
Investments:
Real estate investments, at cost:
Land and improvements	$	1,730,117	$	1,542,302
Building and improvements	3,162,052		2,938,012
Lease incentives	17,918		17,890
Construction in progress	169,844		96,524
Intangible lease assets	87,734		89,209
Total real estate investments, at cost	5,167,665		4,683,937
Less: accumulated depreciation and amortization	(421,486)		(367,133)
Total real estate investments, net	4,746,179		4,316,804
Loans and direct financing lease receivables, net	294,982		223,854
Real estate investments held for sale, net	8,677		7,455
Net investments	5,049,838		4,548,113
Cash and cash equivalents	23,557		39,807
Restricted cash	935		9,156
Straight-line rent receivable, net	127,210		107,545
Derivative assets	36,049		30,980
Rent receivables, prepaid expenses and other assets, net	29,608		32,660
Total assets (1)	$	5,267,197	$	4,768,261

LIABILITIES AND EQUITY

Unsecured term loans, net of deferred financing costs	$	1,273,958	$	1,272,772
Senior unsecured notes, net	396,125		395,846
Revolving credit facility	245,000		—
Intangible lease liabilities, net	10,762		11,206

Dividend payable	51,124		47,182
Derivative liabilities	7,018		23,005
Accrued liabilities and other payables	30,939		31,248
Total liabilities (1)	2,014,926		1,781,259
Commitments and contingencies (see Note 11)	—		—
Stockholders' equity:
Preferred stock, $0.01 par value; 150,000,000 authorized; none issued and outstanding as of June 30, 2024 and December 31, 2023	—		—
Common stock, $0.01 par value; 500,000,000 authorized; 175,330,314 and 164,635,150 issued and outstanding as of June 30, 2024 and December 31, 2023, respectively	1,753		1,646
Additional paid-in capital	3,328,082		3,078,459
Distributions in excess of cumulative earnings	(111,373)		(105,545)
Accumulated other comprehensive income	25,336		4,019
Total stockholders' equity	3,243,798		2,978,579
Non-controlling interests	8,473		8,423
Total equity	3,252,271		2,987,002
Total liabilities and equity	$	5,267,197	$	4,768,261

__________________________________________________

(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 June 30, 2024 and December 31, 2023, 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 $51.0 million and $47.0 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 June 30,				Six months ended June 30,
	2024		2023		2024		2023
Revenues:
Rental revenue	$	104,369	$	81,819	$	202,880	$	159,991
Interest on loans and direct financing lease receivables	4,858		4,534		9,598		8,981
Other revenue, net	41		163		292		1,232
Total revenues	109,268		86,516		212,770		170,204

Expenses:
General and administrative	8,710		7,585		18,068		16,169
Property expenses	1,155		1,144		2,148		1,987
Depreciation and amortization	29,927		24,742		58,453		48,567
Provision for impairment of real estate	2,812		802		6,564		1,479
Change in provision for credit losses	1		8		3		(22)
Total expenses	42,605		34,281		85,236		68,180
Other operating income:
Gain on dispositions of real estate, net	134		12,547		1,645		17,461
Income from operations	66,797		64,782		129,179		119,485
Other (expense)/income:

Interest expense	(17,361)		(12,071)		(32,958)		(24,204)
Interest income	847		448		1,340		1,086
Other income	1,548		—		1,548		—
Income before income tax expense	51,831		53,159		99,109		96,367
Income tax expense	155		159		311		311
Net income	51,676		53,000		98,798		96,056
Net income attributable to non-controlling interests	(159)		(198)		(307)		(358)
Net income attributable to stockholders	$	51,517	$	52,802	$	98,491	$	95,698

Basic weighted average shares outstanding	175,319,270		150,492,454		171,304,986		147,466,087
Basic net income per share	$	0.29	$	0.35	$	0.57	$	0.65

Diluted weighted average shares outstanding	177,583,989		151,522,350		173,219,295		148,776,458
Diluted net income per share	$	0.29	$	0.35	$	0.57	$	0.64

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 June 30,				Six months ended June 30,
	2024		2023		2024		2023
Net income	$	51,676	$	53,000	$	98,798	$	96,056
Other comprehensive income:

Unrealized gain on cash flow hedges	8,774		23,484		36,607		14,000
Cash flow hedge gain reclassified to interest expense	(7,028)		(6,619)		(15,228)		(11,962)
Total other comprehensive income	1,746		16,865		21,379		2,038
Comprehensive income	53,422		69,865		120,177		98,094
Net income attributable to non-controlling interests	(159)		(198)		(307)		(358)
Other comprehensive income attributable to non-controlling interests	(4)		(62)		(60)		29
Comprehensive income attributable to stockholders	$	53,259	$	69,605	$	119,810	$	97,765

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, 2023	164,635,150	$	1,646	$	3,078,459	$	(105,545)	$	4,019	$	2,978,579	$	8,423	$	2,987,002
Common stock issuance	10,508,096	105		244,630		—		—		244,735		—		244,735
Common stock withheld related to net share settlement of equity awards	—	—		—		(3,277)		—		(3,277)		—		(3,277)
Costs related to issuance of common stock	—	—		(366)		—		—		(366)		—		(366)
Other comprehensive income	—	—		—		—		19,575		19,575		56		19,631
Equity based compensation expense	163,140	2		2,945		—		—		2,947		—		2,947
Dividends declared on common stock and OP Units	—	—		—		(50,079)		—		(50,079)		(157)		(50,236)
Net income	—	—		—		46,975		—		46,975		148		47,123
Balance at March 31, 2024	175,306,386	1,753		3,325,668		(111,926)		23,594		3,239,089		8,470		3,247,559
Common stock issuance	23,928	—		—		—		—		—		—		—

Costs related to issuance of common stock	—	—		(228)		—		—		(228)		—		(228)
Other comprehensive income	—	—		—		—		1,742		1,742		4		1,746
Equity based compensation expense	—	—		2,642		—		—		2,642		—		2,642
Dividends declared on common stock and OP Units	—	—		—		(50,964)		—		(50,964)		(160)		(51,124)
Net income	—	—		—		51,517		—		51,517		159		51,676
Balance at June 30, 2024	175,330,314	$	1,753	$	3,328,082	$	(111,373)	$	25,336	$	3,243,798	$	8,473	$	3,252,271

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		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
Share-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

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)


	Six months ended June 30,
	2024		2023
Cash flows from operating activities:
Net income	$	98,798	$	96,056
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	58,453		48,567
Amortization of lease incentives	611		684
Amortization of above/below market leases and right of use assets, net	(136)		(149)
Amortization of deferred financing costs and other non-cash interest expense	2,320		2,864

Provision for impairment of real estate	6,564		1,479
Change in provision for credit losses	3		(22)
Gain on dispositions of real estate, net	(1,645)		(17,461)
Straight-line rent receivable, net	(20,160)		(14,269)
Equity based compensation expense	5,587		4,692
Adjustment to rental revenue for tenant credit	(436)		533

Changes in other assets and liabilities:
Rent receivables, prepaid expenses and other assets, net	(1,811)		(1,540)
Accrued liabilities and other payables	(260)		(2,348)
Net cash provided by operating activities	147,888		119,086
Cash flows from investing activities:
Proceeds from sales of investments, net	20,119		78,897
Principal collections on loans and direct financing lease receivables	4,900		19,452
Investments in loans receivable	(74,731)		(6,800)
Deposits for prospective real estate investments	(1,338)		(576)
Investment in real estate, including capital expenditures	(408,823)		(447,244)
Investment in construction in progress	(100,983)		(32,555)
Lease incentives paid	(50)		—
Net cash used in investing activities	(560,906)		(388,826)
Cash flows from financing activities:


Borrowings under revolving credit facility	255,000		50,000
Repayments under revolving credit facility	(10,000)		(50,000)

Payments for taxes related to net settlement of equity awards	(3,277)		(3,397)


Proceeds from issuance of common stock, net	244,735		296,567
Offering costs	(493)		(241)
Dividends paid	(97,418)		(80,581)
Net cash provided by financing activities	388,547		212,348
Net increase (decrease) in cash and cash equivalents and restricted cash	(24,471)		(57,392)
Cash and cash equivalents and restricted cash, beginning of period	48,963		71,500
Cash and cash equivalents and restricted cash, end of period	$	24,492	$	14,108
Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents	$	23,557	$	14,108
Restricted cash	935		—
Cash and cash equivalents and restricted cash, end of period	$	24,492	$	14,108

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)


	Six months ended June 30,
	2024		2023
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized	$	30,684	$	17,523
Cash paid for income taxes	759		1,221

Non-cash investing and financing activities:
Adjustment upon adoption of ASC 326	$	—	$	—
Reclassification from construction in progress upon project completion	$	27,203	$	8,537
Net settlement of proceeds on the sale of investments	(1,300)		—
Non-cash investments in real estate and loan receivable activity	1,300		—

Unrealized gain (loss) on cash flow hedges	8,774		14,000



Payable and accrued offering costs	100		337
Discounts and fees on capital raised through issuance of common stock	—		38


Dividends declared	51,124		43,705

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

June 30, 2024

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”.

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 six months ended June 30, 2024 and 2023 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, 2023.

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 June 30, 2024 and December 31, 2023, the Company, directly and indirectly, held a 99.7% 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 8—Non-controlling Interests 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.

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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 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. 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 Company allocates the purchase price of acquired properties accounted for as asset acquisitions to tangible assets and liabilities and identifiable intangible assets or liabilities, if any, 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 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

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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 June 30,				Six months ended June 30,
(in thousands)	2024		2023		2024		2023
Depreciation on real estate investments	$	28,002	$	23,072	$	54,868	$	45,201

Lease incentives are amortized on a straight-line basis as a reduction of rental revenue 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 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

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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 June 30,				Six months ended June 30,
(in thousands)	2024		2023		2024		2023
Provision for impairment of real estate	$	2,812	$	802	$	6,564	$	1,479

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 June 30, 2024 and December 31, 2023, the Company had cash and cash equivalents of $23.6 million and $39.8 million, respectively, of which $23.1 million and $39.6 million, respectively, were not insured by the FDIC.

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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 ATM Programs (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 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.

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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.

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.

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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 June 30,				Six months ended June 30,
(in thousands)	2024		2023		2024		2023
Contingent rent	$	96	$	144	$	334	$	320

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. Conversely, if the assessment of the collectability changes from not probably to probable, any difference is recognized as a current period increase 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 June 30,				Six months ended June 30,
(in thousands)	2024		2023		2024		2023
Adjustment to increase (decrease) rental revenue for tenant credit	$	437	$	(693)	$	436	$	(533)

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 June 30, 2024 and December 31, 2023, the Company capitalized a total of $91.9 million and $91.3 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 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

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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 June 30, 2024 and December 31, 2023, 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 six months ended June 30, 2024 and 2023, 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 June 30, 2024 or December 31, 2023. The 2022, 2021 and 2020 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, with respect to performance-based RSUs issued prior to 2024, subjective performance conditions 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 June 30, 2024 and December 31, 2023.

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)	June 30, 2024		December 31, 2023
Number of VIEs	41		21
Aggregate carrying value	$	290,956	$	219,449

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 June 30, 2024 and December 31, 2023. 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 June 30, 2024 and December 31, 2023.

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Recent Accounting Developments

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"). The guidance in ASU 2023-07 improves reportable segment disclosure requirements through enhanced disclosures about significant segment expenses. ASU 2023-07 includes requirements to disclose the title and position of the Chief Operating Decision Maker ("CODM") along with disclosure of the significant segment expenses regularly provided to the CODM, the extension of certain annual disclosures to interim periods, requirements that entities that have a single reportable segment must apply ASC 280 in its entirety, and requirements that permit more than one measure of segment profit or loss to be reported under certain conditions. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires annual disclosure of specific categories in the rate reconciliation and the provision of additional information for reconciling items that meet a quantitative threshold within the rate reconciliation. In addition, ASU 2023-09 requires annual disclosure of income taxes paid disaggregated by federal, state and foreign jurisdictions as well as individual jurisdictions in which income taxes paid is equal to or greater than 5 percent of total income taxes paid. ASU 2023-09 is effective for annual periods beginning after December 15, 2024 on a prospective basis, however early adoption and retrospective application is permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements and related disclosures.

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:


	June 30, 2024	December 31, 2023
Owned properties (1)	1,854	1,726
Properties securing investments in mortgage loans (2)	147	136
Ground lease interests	8	11
Total number of investments	2,009	1,873

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(1)Includes five and six properties which are subject to leases accounted for as direct financing leases or loans as of June 30, 2024 and December 31, 2023, respectively.

(2)Properties secure 23 and 20 mortgage loans receivable as of June 30, 2024 and December 31, 2023.

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)	June 30, 2024		December 31, 2023
Real estate investments, at cost	$	5,167,665	$	4,683,937
Loans and direct financing lease receivables, net	294,982		223,854
Real estate investments held for sale, net	8,677		7,455
Total gross investments	$	5,471,324	$	4,915,246

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Investments in 2024 and 2023

The following table presents information about the Company’s acquisition activity during the six months ended June 30, 2024 and 2023:


	Six months ended June 30,
(Dollar amounts in thousands)	2024		2023
Ownership type	Fee Interest		(1)
Number of properties	141		134

Purchase price allocation
Land and improvements	$	191,583	$	164,995
Building and improvements	214,291		278,737
Construction in progress(2)	100,983		33,570
Intangible lease assets	—		903
Total purchase price	506,857		478,205

Intangible lease liabilities	—		(32)
Purchase price (including acquisition costs)	$	506,857	$	478,173

_____________________________________

(1)During the six months ended June 30, 2023, the Company acquired fee interests in 133 properties and acquired one property subject to a ground lease.

(2)Represents amounts incurred at and subsequent to acquisition and includes $2.2 million and $1.0 million of capitalized interest expense during the six months ended June 30, 2024 and 2023, respectively.

During the six months ended June 30, 2024 and 2023, 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 six months ended June 30, 2024 and 2023, the Company had the following gross investment activity:


(Dollar amounts in thousands)	Number of Investment Locations	Dollar Amount of Investments
Gross investments, January 1, 2023	1,653	$	4,055,385
Acquisitions of and additions to real estate investments	134	480,022
Sales of investments in real estate	(32)	(65,950)
Relinquishment of properties at end of ground lease term	(1)	(837)
Provision for impairment of real estate (1)		(1,479)
Investments in loans receivable	1	6,800
Principal collections on and settlements of loans and direct financing lease receivables	(13)	(19,452)
Other		(2,394)
Gross investments, June 30, 2023		4,452,095
Less: Accumulated depreciation and amortization (2)		(318,862)
Net investments, June 30, 2023	1,742	$	4,133,233

Gross investments, January 1, 2024	1,873	$	4,915,246
Acquisitions of and additions to real estate investments	141	511,218
Sales of investments in real estate	(13)	(16,706)
Relinquishment of property at end of ground lease term	(3)	(1,471)
Provision for impairment of real estate (3)		(6,564)
Investments in loans and direct financing lease receivables	21	76,031
Principal collections on and settlements of loans and direct financing lease receivables	(10)	(4,900)
Other		(1,531)
Gross investments, June 30, 2024		5,471,324
Less: Accumulated depreciation and amortization (2)		(421,486)
Net investments, June 30, 2024	2,009	$	5,049,838

_____________________________________

(1)During the six months ended June 30, 2023, the Company identified and recorded provisions for impairment at two tenanted properties and two vacant properties.

(2)Includes $373.3 million and $280.5 million of accumulated depreciation as of June 30, 2024 and 2023, respectively.

(3)During the six months ended June 30, 2024, the Company identified and recorded provisions for impairment at seven tenanted properties and three vacant properties.

Loans and Direct Financing Lease Receivables

As of June 30, 2024 and December 31, 2023, the Company had 23 and 20 loans receivable outstanding, respectively, and two leases accounted for as loans, with an aggregate carrying amount of $294.3 million and $223.1 million, respectively. The maximum amount of loss due to credit risk is the Company's current principal balance of $294.3 million as of June 30, 2024.

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The Company’s loans receivable portfolio as of June 30, 2024 and December 31, 2023 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	June 30, 2024		December 31, 2023
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)(3)	I/O	69	7.79%	7.33%	2034	51,000		51,000
Mortgage (2)	I/O	1	8.42%	7.65%	2040	5,300		5,300
Mortgage (2)(3)	I/O	1	8.54%	8.50%	2024	1,525		1,785
Mortgage	I/O	—	7.00%	7.00%	2024	—		500
Mortgage (2)(3)	I/O	2	8.30%	8.25%	2024	994		994
Mortgage (2)	I/O	2	6.87%	6.40%	2036	2,520		2,520
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	7.30%	6.80%	2036	35,474		35,474
Mortgage (2)	I/O	1	7.73%	7.20%	2036	2,470		2,470
Mortgage (2)(3)	I/O	1	8.00%	8.00%	2024	1,754		1,754
Mortgage (2)	I/O	18	7.00%	7.00%	2027	13,513		17,494
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)(3)	I/O	4	8.64%	8.05%	2037	12,250		12,250
Mortgage (2)(3)	I/O	9	8.85%	8.25%	2037	25,993		25,993
Mortgage (2)	I/O	1	8.84%	8.25%	2038	10,200		10,200
Mortgage (2)	I/O	1	8.10%	8.10%	2025	7,025		2,891
Mortgage (2)	I/O	5	10.19%	9.50%	2039	13,144		—
Mortgage (2)	I/O	14	10.00%	8.65%	2044	57,454		—
Mortgage (2)(3)	I/O	1	9.00%	9.00%	2024	1,050		—
Mortgage (2)(3)	I/O	1	9.00%	9.00%	2024	250		—
Leasehold interest	P+I	1	2.25%	(4)	2034	895		929
Leasehold interest	P+I	1	2.41%	(4)	2034	1,332		1,382


Net investment						$	294,292	$	223,085

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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)These leasehold interests are accounted for as loans receivable, as the lease for each property contains an option for the lessee to repurchase the leased property in the future.

Scheduled principal payments due to be received under the Company’s loans receivable as of June 30, 2024 were as follows:


(in thousands)	Future Principal Payments Due
July 1 - December 31, 2024	$	7,051
2025	7,197
2026	181
2027	13,703
2028	199
Thereafter	265,961
Total	$	294,292

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As of June 30, 2024 and December 31, 2023, the Company had $1.4 million of net investments accounted for as direct financing lease receivables. The components of the investments accounted for as direct financing lease receivables were as follows:


(in thousands)	June 30, 2024		December 31, 2023
Minimum lease payments receivable	$	1,587	$	1,709
Estimated unguaranteed residual value of leased assets	251		251
Unearned income from leased assets	(479)		(525)
Net investment	$	1,359	$	1,435

Scheduled future minimum non-cancelable base rental payments due to be received under the direct financing lease receivables as of June 30, 2024 were as follows:


(in thousands)	Future Minimum Base Rental Payments
July 1 - December 31, 2024	$	88
2025	178
2026	167
2027	143
2028	145
Thereafter	866
Total	$	1,587

Allowance for Credit Losses

The Company utilizes a real estate loss estimate model (i.e., a RELEM model) which estimates losses on loans and direct financing lease receivables for purposes of calculating an allowance for credit losses. As of June 30, 2024 and December 31, 2023, the Company recorded an allowance for credit losses of $0.7 million. Changes in the Company’s allowance for credit losses are presented within change in provision for credit losses in the Company’s consolidated statements of operations.

For the six months ended June 30, 2024 and 2023, the changes to the Company's allowance for credit losses were as follows:


(in thousands)	Allowance for Credit Losses
Balance at January 1, 2023	$	765

Current period provision for expected credit losses(1)	(22)
Write-offs charged	—
Recoveries	—
Balance at June 30, 2023	$	743

Balance at January 1, 2024	$	666

Current period provision for expected credit losses(1)	3
Write-offs charged	—
Recoveries	—
Balance at June 30, 2024	$	669

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(1)The change in expected credit loss was primarily due to overall changes in the size of our loans and direct financing lease receivables portfolio.

Table of Contents

The Company considers the ratio of loan to value ("LTV") to be a significant credit quality indicator for its loans and direct financing lease portfolio. The following table presents information about the LTV of the Company's loans and direct financing lease receivables measured at amortized cost as of June 30, 2024:


	Amortized Cost Basis by Origination Year										Total Amortized Cost Basis
(in thousands)	2024		2023		2022		2021		Prior
LTV <60%	$	—	$	—	$	23,000	$	—	$	28,922	$	51,922
LTV 60%-70%	—		—		—		28,234		—		28,234
LTV >70%	71,897		17,225		67,630		29,953		28,790		215,495
	$	71,897	$	17,225	$	90,630	$	58,187	$	57,712