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

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

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


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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,
2022
December 31,
2021
(Unaudited)
ASSETS
Investments:
Real estate investments, at cost:
Land and improvements$1,163,660 $1,004,154 
Building and improvements2,305,254 2,035,919 
Lease incentives12,496 13,950 
Construction in progress29,973 8,858 
Intangible lease assets89,393 87,959 
Total real estate investments, at cost3,600,776 3,150,840 
Less: accumulated depreciation and amortization(259,092)(200,152)
Total real estate investments, net3,341,684 2,950,688 
Loans and direct financing lease receivables, net204,742 189,287 
Real estate investments held for sale, net11,907 15,434 
Net investments3,558,333 3,155,409 
Cash and cash equivalents136,303 59,758 
Restricted cash7,925 — 
Straight-line rent receivable, net74,583 57,990 
Derivative assets50,670 — 
Rent receivables, prepaid expenses and other assets, net25,731 25,638 
Total assets (1)
$3,853,545 $3,298,795 
LIABILITIES AND EQUITY
Unsecured term loans, net of deferred financing costs$875,239 $626,983 
Senior unsecured notes, net395,145 394,723 
Revolving credit facility— 144,000 
Intangible lease liabilities, net11,909 12,693 
Dividend payable38,682 32,610 
Derivative liabilities13 11,838 
Accrued liabilities and other payables 28,855 32,145 
Total liabilities (1)
1,349,843 1,254,992 
Commitments and contingencies (see Note 11)— — 
Stockholders' equity:
Preferred stock, $0.01 par value; 150,000,000 authorized; none issued and outstanding as of September 30, 2022 and December 31, 2021
— — 
Common stock, $0.01 par value; 500,000,000 authorized; 142,377,215 and 124,649,053 issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
1,424 1,246 
Additional paid-in capital2,561,124 2,151,088 
Distributions in excess of cumulative earnings(113,275)(100,982)
Accumulated other comprehensive income (loss)46,870 (14,786)
Total stockholders' equity2,496,143 2,036,566 
Non-controlling interests7,559 7,237 
Total equity2,503,702 2,043,803 
Total liabilities and equity$3,853,545 $3,298,795 
__________________________________________________
(1)The Company’s consolidated balance sheets include assets and liabilities of consolidated variable interest entities (“VIEs”). See Note 2Summary of Significant Accounting Policies. As of September 30, 2022 and December 31, 2021, all of the assets and liabilities of the Company were held by its operating partnership, Essential Properties, L.P., a consolidated VIE, with the exception of $38.5 million and $32.5 million, respectively, of dividends payable.
The accompanying notes are an integral part of these consolidated financial statements.
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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,
2022202120222021
Revenues:
Rental revenue$66,525 $54,929 $199,726 $153,511 
Interest on loans and direct financing lease receivables3,719 4,574 11,490 11,558 
Other revenue, net419 98 1,014 150 
Total revenues70,663 59,601 212,230 165,219 
Expenses:
General and administrative7,868 5,596 22,956 18,497 
Property expenses830 1,358 2,668 3,946 
Depreciation and amortization22,054 17,355 64,441 50,185 
Provision for impairment of real estate349 — 10,541 6,120 
Change in provision for loan losses(30)16 136 (112)
Total expenses31,071 24,325 100,742 78,636 
Other operating income:
Gain on dispositions of real estate, net6,329 1,343 18,082 8,841 
Income from operations45,921 36,619 129,570 95,424 
Other (expense)/income:
Loss on debt extinguishment— — (2,138)(4,461)
Interest expense(9,892)(8,955)(28,242)(24,444)
Interest income752 37 800 74 
Income before income tax expense 36,781 27,701 99,990 66,593 
Income tax expense 190 55 769 172 
Net income36,591 27,646 99,221 66,421 
Net income attributable to non-controlling interests(163)(139)(441)(335)
Net income attributable to stockholders$36,428 $27,507 $98,780 $66,086 
Basic weighted average shares outstanding139,068,188 119,230,645 132,438,157 114,223,586 
Basic net income per share$0.26 $0.23 $0.74 $0.58 
Diluted weighted average shares outstanding139,890,693 120,298,680 133,321,987 115,339,656 
Diluted net income per share$0.26 $0.23 $0.74 $0.57 
The accompanying notes are an integral part of these consolidated financial statements.
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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,
2022202120222021
Net income$36,591 $27,646 $99,221 $66,421 
Other comprehensive income:
Deferred loss on cash flow hedges— — — (4,824)
Unrealized income on cash flow hedges23,577 110 58,676 10,881 
Cash flow hedge (gains) losses reclassified to interest expense(741)2,669 3,305 7,638 
Total other comprehensive income22,836 2,779 61,981 13,695 
Comprehensive income59,427 30,425 161,202 80,116 
Net income attributable to non-controlling interests(163)(139)(441)(335)
Adjustment for other comprehensive income attributable to non-controlling interests(100)(13)(325)(75)
Comprehensive income attributable to stockholders$59,164 $30,273 $160,436 $79,706 
The accompanying notes are an integral part of these consolidated financial statements.
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ESSENTIAL PROPERTIES REALTY TRUST, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Stockholders’ Equity
(Unaudited, in thousands, except share data)
Common StockAdditional Paid In CapitalDistributions in Excess of Cumulative EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders' EquityNon-controlling InterestsTotal Equity
Number of SharesPar Value
Balance at December 31, 2021124,649,053 $1,246 $2,151,088 $(100,982)$(14,786)$2,036,566 $7,237 $2,043,803 
Common stock issuance6,382,994 66 159,577 — — 159,643 — 159,643 
Common stock withheld related to net share settlement of equity awards— — — (2,235)— (2,235)— (2,235)
Costs related to issuance of common stock— — (1,582)— — (1,582)— (1,582)
Other comprehensive income — — — — 28,780 28,780 181 28,961 
Equity based compensation expense119,646 — 2,835 — — 2,835 — 2,835 
Dividends declared on common stock and OP Units— — — (34,188)— (34,188)(145)(34,333)
Net income— — — 26,699 — 26,699 119 26,818 
Balance at March 31, 2022131,151,693 1,312 2,311,918 (110,706)13,994 2,216,518 7,392 2,223,910 
Common stock issuance1,501,489 15 32,632 — — 32,647 — 32,647 
Costs related to issuance of common stock— — (701)— — (701)— (701)
Other comprehensive income— — — — 10,140 10,140 44 10,184 
Share-based compensation expense16,765 — 2,188 — — 2,188 — 2,188 
Dividends declared on common stock and OP Units— — — (35,916)— (35,916)(150)(36,066)
Net income— — — 35,653 — 35,653 159 35,812 
Balance at June 30, 2022132,669,947 1,327 2,346,037 (110,969)24,134 2,260,529 7,445 2,267,974 
Common stock issuance9,692,201 97 221,458 — — 221,555 — 221,555 
Common stock withheld related to net share settlement of equity awards— — — (201)— (201)— (201)
Costs related to issuance of common stock— — (8,604)— — (8,604)— (8,604)
Other comprehensive income— — — — 22,736 22,736 100 22,836 
Equity based compensation expense15,067 — 2,233 — — 2,233 — 2,233 
Dividends declared on common stock and OP Units— — — (38,533)— (38,533)(149)(38,682)
Net income— — — 36,428 — 36,428 163 36,591 
Balance at September 30, 2022142,377,215 $1,424 $2,561,124 $(113,275)$46,870 $2,496,143 $7,559 $2,503,702 
The accompanying notes are an integral part of these consolidated financial statements.
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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 StockAdditional Paid-In CapitalDistributions in Excess of Cumulative EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders' EquityNon-controlling InterestsTotal Equity
Number of SharesPar Value
Balance at December 31, 2020106,361,524 $1,064 $1,688,540 $(77,665)$(37,181)$1,574,758 $7,190 $1,581,948 
Common stock issuance2,796,805 28 64,900 — — 64,928 — 64,928 
Costs related to issuance of common stock— — (1,188)— — (1,188)— (1,188)
Other comprehensive income — — — — 17,933 17,933 90 18,023 
Equity based compensation expense13,310 — 1,595 — — 1,595 — 1,595 
Dividends declared on common stock and OP Units— — — (26,265)— (26,265)(133)(26,398)
Net income— — — 15,295 — 15,295 80 15,375 
Balance at March 31, 2021109,171,639 1,092 1,753,847 (88,635)(19,248)1,647,056 7,227 1,654,283 
Common stock issuance8,784,537 89 208,133 — — 208,222 — 208,222 
Costs related to issuance of common stock— — (8,386)— — (8,386)— (8,386)
Other comprehensive income— — — — (7,079)(7,079)(28)(7,107)
Equity based compensation expense26,817 — 1,856 — — 1,856 — 1,856 
Dividends declared on common stock and OP Units— — — (29,560)— (29,560)(138)(29,698)
Net income— — — 23,284 — 23,284 116 23,400 
Balance at June 30, 2021117,982,993 1,181 1,955,450 (94,911)(26,327)1,835,393 7,177 1,842,570 
Common stock issuance3,362,712 33 102,556 — — 102,589 — 102,589 
Common stock withheld related to net share settlement of equity awards— — — (329)— (329)— (329)
Costs related to issuance of common stock— — (1,435)— — (1,435)— (1,435)
Other comprehensive income— — — — 2,766 2,766 13 2,779 
Share-based compensation expense16,657 — 1,103 — — 1,103 — 1,103 
Dividends declared on common stock and OP Units— — — (30,396)— (30,396)(138)(30,534)
Net income— — — 27,507 — 27,507 139 27,646 
Balance at September 30, 2021121,362,362 $1,214 $2,057,674 $(98,129)$(23,561)$1,937,198 $7,191 $1,944,389 
The accompanying notes are an integral part of these consolidated financial statements
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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,
20222021
Cash flows from operating activities:
Net income$99,221 $66,421 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization64,441 50,185 
Amortization of lease incentive2,653 2,800 
Amortization of above/below market leases and right of use assets, net555 563 
Amortization of deferred financing costs and other non-cash interest expense3,788 2,005 
Loss on debt extinguishment2,138 4,461 
Provision for impairment of real estate10,541 6,120 
Change in provision for loan losses136 (112)
Gain on dispositions of real estate, net(18,082)(8,841)
Straight-line rent receivable, net(16,097)(14,995)
Share-based compensation expense7,257 4,554 
Adjustment to rental revenue for tenant credit(451)(3,020)
Payments made in settlement of cash flow hedges— (4,836)
Changes in other assets and liabilities:
Rent receivables, prepaid expenses and other assets(217)1,453 
Accrued liabilities and other payables(1,306)8,752 
Net cash provided by operating activities154,577 115,510 
Cash flows from investing activities:
Proceeds from sales of real estate, net80,027 53,908 
Principal collections on loans and direct financing lease receivables58,636 2,468 
Investments in loans receivable(96,907)(86,293)
Deposits for prospective real estate investments(1,105)(553)
Investment in real estate, including capital expenditures(471,000)(568,145)
Investment in construction in progress(34,967)(3,313)
Lease incentives paid(708)(2,366)
Net cash used in investing activities(466,024)(604,294)
Cash flows from financing activities:
Repayments of secured borrowings— (175,780)
Borrowings under term loan facilities250,000 — 
Borrowings under revolving credit facility299,000 179,000 
Repayments under revolving credit facility(443,000)(197,000)
Proceeds from issuance of Senior Unsecured Notes— 396,600 
Proceeds from issuance of common stock, net403,914 365,820 
Payments for taxes related to net settlement of equity awards(2,436)(328)
Payment of debt extinguishment costs(467)— 
Deferred financing costs(7,333)(2,120)
Offering costs(752)(1,090)
Dividends paid(103,009)(81,799)
Net cash provided by financing activities395,917 483,303 
Net increase (decrease) in cash and cash equivalents and restricted cash84,470 (5,481)
Cash and cash equivalents and restricted cash, beginning of period59,758 32,990 
Cash and cash equivalents and restricted cash, end of period$144,228 $27,509 
Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents$136,303 $27,509 
Restricted cash7,925 — 
Cash and cash equivalents and restricted cash, end of period$144,228 $27,509 
The accompanying notes are an integral part of these consolidated financial statements.
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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,
20222021
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized$19,525 $19,294 
Cash paid for income taxes1,050 419 
Non-cash operating, investing and financing activities:
Reclassification from construction in progress upon project completion$14,254 $4,478 
Non-cash investments in real estate and loan receivable activity22,679 960 
Unrealized gains on cash flow hedges(58,676)(34,027)
Payable and accrued offering costs204 — 
Discounts and fees on capital raised through issuance of common stock9,931 9,919 
Discounts and fees on issuance of senior unsecured notes— 3,400 
Dividends declared and unpaid38,682 30,534 
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
ESSENTIAL PROPERTIES REALTY TRUST, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements
September 30, 2022
1. Organization
Description of Business
Essential Properties Realty Trust, Inc. (the “Company”) is an internally managed real estate company that acquires, owns and manages primarily single-tenant properties that are net leased on a long-term basis to middle-market companies operating service-oriented or experience-based businesses. The Company generally invests in and leases freestanding, single-tenant commercial real estate facilities where a tenant services its customers and conducts activities that are essential to the generation of the tenant’s sales and profits.
The Company was organized on January 12, 2018 as a Maryland corporation. It elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes beginning with the year ended December 31, 2018, and it believes that its current organizational and operational status and intended distributions will allow it to continue to so qualify. Substantially all of the Company’s business is conducted directly and indirectly through its operating partnership, Essential Properties, L.P. (the “Operating Partnership”).
On June 25, 2018, the Company completed the initial public offering (“IPO”) of its common stock. The common stock of the Company is listed on the New York Stock Exchange under the ticker symbol “EPRT”.
COVID-19 Pandemic
For much of 2020, the COVID-19 pandemic (“COVID-19”) created significant uncertainty and economic disruption that adversely affected the Company and its tenants. The adverse impact of the pandemic moderated during 2021 and has significantly diminished during 2022. However, the continuing impact of the COVID-19 pandemic and its duration are unclear, and various factors could erode the progress that has been made against the virus to date. If conditions similar to those experienced in 2020, at the height of the pandemic, were to reoccur, they would adversely impact the Company and its tenants. The Company continues to closely monitor the impact of COVID-19 on all aspects of its business. For further information regarding the impact of COVID-19 on the Company, see Part I, Item 1A titled "Risk Factors" of the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
2. Summary of Significant Accounting Policies
Basis of Accounting
The accompanying unaudited consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and subsidiaries in which the Company has a controlling financial interest. All intercompany accounts and transactions have been eliminated in consolidation. As of September 30, 2022 and December 31, 2021, the Company, directly and indirectly, held a 99.6% ownership interest in the Operating Partnership and the consolidated financial statements include the financial statements of the Operating Partnership as of these dates. See Note 7—Equity for changes in the ownership interest in the Operating Partnership.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
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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)2022202120222021
Depreciation on real estate investments$20,178 $15,489 $58,997 $43,982 
Lease incentives are amortized on a straight-line basis as a reduction of rental income over the remaining non-cancellable terms of the respective leases. If a tenant terminates its lease, the unamortized portion of the lease incentive is charged to rental revenue. Construction in progress is not depreciated until the development has reached substantial completion. Tenant improvements are depreciated over the non-cancellable term of the related lease or their estimated useful life, whichever is shorter.
Capitalized above-market lease intangibles are amortized on a straight-line basis as a reduction of rental revenue over the remaining non-cancellable terms of the respective leases. Capitalized below-market lease intangibles are accreted on a straight-line basis as an increase to rental revenue over the remaining non-cancellable terms of the respective leases including any below-market fixed rate renewal option periods.
Capitalized above-market ground lease values are accreted as a reduction of property expenses over the remaining terms of the respective leases. Capitalized below-market ground lease values are amortized as an increase to property expenses over the remaining terms of the respective leases and any expected below-market renewal option periods where renewal is considered probable.
The value of in-place leases, exclusive of the value of above-market and below-market lease intangibles, is amortized to depreciation and amortization expense on a straight-line basis over the remaining periods of the respective leases.
If a tenant terminates its lease, the unamortized portion of each intangible, including in-place lease values, is charged to depreciation and amortization expense, while above- and below-market lease adjustments are recorded within rental revenue in the consolidated statements of operations.
Loans Receivable
The Company holds its loans receivable for long-term investment. Loans receivable are carried at amortized cost, including related unamortized discounts or premiums, if any, less the Company's estimated allowance for loan losses calculated in accordance with ASC 326. The Company recognizes interest income on loans receivable using the effective-interest method applied on a loan-by-loan basis. Direct costs associated with originating loans are offset against any related fees received and the balance, along with any premium or discount,
11


is deferred and amortized as an adjustment to interest income over the term of the related loan receivable using the effective-interest method.
Direct Financing Lease Receivables
Certain of the Company’s real estate investment transactions are accounted for as direct financing leases. The Company records the direct financing lease receivables at their net investment, determined as the aggregate minimum lease payments and the estimated non-guaranteed residual value of the leased property less unearned income and less the estimated allowance for loan losses calculated in accordance with ASC 326. The unearned income is recognized over the term of the related lease so as to produce a constant rate of return on the net investment in the asset. The Company’s investment in direct financing lease receivables is reduced over the applicable lease term to its non-guaranteed residual value by the portion of rent allocated to the direct financing lease receivables. Subsequent to the adoption of ASC 842, Leases (“ASC 842”) in January 2019, the Company's existing direct financing lease receivables have been accounted for in the same manner, unless the underlying contracts have been modified.
Impairment of Long-Lived Assets
If circumstances indicate that the carrying value of a property may not be recoverable, the Company reviews the property for impairment. This review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends, and residual value, as well as the effects of leasing demand, competition and other factors. If impairment exists due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used. For properties held for sale, the impairment loss is the adjustment to fair value less estimated cost to dispose of the asset. Impairment losses, if any, are recorded directly within the Company's consolidated statement of operations.
The Company recorded the following provisions for impairment of long lived assets during the periods presented:
Three months ended September 30,Nine months ended September 30,
(in thousands)2022202120222021
Provision for impairment of real estate$349 $— $10,541 $6,120 
Cash and Cash Equivalents
Cash and cash equivalents includes cash in the Company’s bank accounts. The Company considers all cash balances and highly liquid investments with original maturities of three months or less to be cash and cash equivalents. The Company deposits cash with high quality financial institutions. These deposits are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to an insurance limit.
As of September 30, 2022 and December 31, 2021, the Company had deposits of $136.3 million and $59.8 million, respectively, of which $136.1 million and $59.5 million, respectively, were in excess of the amount insured by the FDIC. Although the Company bears risk with respect to amounts in excess of those insured by the FDIC, it does not anticipate any losses as a result.
Restricted Cash
Restricted cash primarily consists of cash proceeds from the sale of assets held by a qualified intermediary to facilitate tax-deferred exchange transactions under Section 1031 of the Internal Revenue Code.
Forward Equity Sales
The Company has and may continue to enter into forward sale agreements for the sale and issuance of shares of its common stock, either through its 2022 ATM Program (as defined herein) or through an underwritten
12


public offering. These agreements may be physically settled in stock, settled in cash or net share settled at the Company’s election.
The Company evaluated its forward sale agreements and concluded they meet the conditions to be classified within stockholders’ equity. Prior to settlement, a forward sale agreement will be reflected in the diluted earnings per share calculations using the treasury stock method. Under this method, the number of shares of the Company’s common stock used in diluted earnings per share is deemed to be increased by the excess, if any, of the number of shares of the Company’s common stock that would be issued upon full physical settlement of such forward sale agreement over the number of shares of the Company’s common stock that could be purchased by the Company in the market (based on the average market price during the period) using the proceeds receivable upon full physical settlement (based on the adjusted forward sale price at the end of the reporting period). Consequently, prior to settlement of a forward sale agreement, there will be no dilutive effect on the Company’s earnings per share except during periods when the average market price of the Company’s common stock is above the adjusted forward sale price. However, upon settlement of a forward sales agreement, if the Company elects to physically settle or net share settle such forward sale agreement, delivery of the Company’s shares will result in dilution to the Company’s earnings per share.
Deferred Financing Costs
Financing costs related to establishing the Company’s 2018 Credit Facility and Revolving Credit Facility (as defined below) were deferred and are being amortized as an increase to interest expense in the consolidated statements of operations over the term of the facility and are reported as a component of rent receivables, prepaid expenses and other assets, net on the consolidated balance sheets.
Financing costs related to the issuance of the Company’s 2024 Term Loan, 2027 Term Loan, 2028 Term Loan and 2031 Notes (each as defined below) were deferred and are being amortized as an increase to interest expense in the consolidated statements of operations over the term of the related debt instrument and are reported as a reduction of the related debt balance on the consolidated balance sheets.
Derivative Instruments
In the normal course of business, the Company uses derivative financial instruments, which may include interest rate swaps, caps, options, floors and other interest rate derivative contracts, to protect the Company against adverse fluctuations in interest rates by reducing its exposure to variability in cash flows on a portion of the Company’s floating-rate debt. Instruments that meet these hedging criteria are formally designated as hedges at the inception of the derivative contract. The Company records all derivatives on the consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may also enter into derivative contracts that are intended to economically hedge certain risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
The accounting for subsequent changes in the fair value of these derivatives depends on whether each has been designed and qualifies for hedge accounting treatment. If a derivative is designated and qualifies for cash flow hedge accounting treatment, the change in the estimated fair value of the derivative is recorded in other comprehensive income in the consolidated statements of comprehensive income to the extent that it is effective. Any ineffective portion of a change in derivative fair value is immediately recorded in earnings. If the Company elects not to apply hedge accounting treatment (or for derivatives that do not qualify as hedges), any change in the fair value of such derivative instruments would be recognized immediately as a gain or loss on derivative instruments in the consolidated statements of operations.
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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.
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)2022202120222021
Contingent rent$210 $233 $526 $464 
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.
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If the assessment of the collectability of substantially all payments due under a lease changes from probable to not probable, any difference between the rental revenue recognized to date and the lease payments that have been collected is recognized as a current period reduction of rental revenue in the consolidated statements of operations.
The Company recorded the following adjustments as increases to or reductions of rental revenue for tenant credit during the periods presented:
Three months ended September 30,Nine months ended September 30,
(in thousands)2022202120222021
Adjustment to increase rental revenue for tenant credit$36 $— $451 $3,020 
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, 2022 and December 31, 2021, the Company capitalized a total of $90.2 million and $79.3 million, respectively, of such costs, which are presented as a reduction of additional paid-in capital in the Company’s consolidated balance sheets.
Income Taxes
The Company elected and qualified to be taxed as a REIT under sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with its taxable year ended December 31, 2018. REITs are subject to a number of organizational and operational requirements, including a requirement that 90% of ordinary “REIT taxable income” (as determined without regard to the dividends paid deduction or net capital gains) be distributed. As a REIT, the Company will generally not be subject to U.S. federal income tax to the extent that it meets the organizational and operational requirements and its distributions equal or exceed REIT taxable income. For the period subsequent to the effective date of its REIT election, the Company continues to meet the organizational and operational requirements and expects distributions to exceed REIT taxable income. Accordingly, no provision has been made for U.S. federal income taxes. Even though the Company has elected and qualifies for taxation as a REIT, it may be subject to state and local income and franchise taxes, and to federal income and excise tax on its undistributed income. Franchise taxes and federal excise taxes on the Company’s undistributed income, if any, are included in general and administrative expenses on the accompanying consolidated statements of operations. Additionally, taxable income from non-REIT activities managed through the Company's taxable REIT subsidiary is subject to federal, state, and local taxes.
The Company analyzes its tax filing positions in all of the U.S. federal, state and local tax jurisdictions where it is required to file income tax returns, as well as for all open tax years in such jurisdictions. The Company follows a two-step process to evaluate uncertain tax positions. Step one, recognition, occurs when an entity concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Step two, measurement, determines the amount of benefit that is more-likely-than-not to be realized upon settlement. Derecognition of a tax position that was previously recognized would occur when the Company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. The use of a valuation allowance as a substitute for derecognition of tax positions is prohibited.
As of September 30, 2022 and December 31, 2021, the Company had no accruals recorded for uncertain tax positions. The Company’s policy is to classify interest expense and penalties relating to taxes in general and administrative expense in the consolidated statements of operations. During the three and nine months ended September 30, 2022 and 2021, the Company recorded de minimis interest or penalties relating to taxes, and there were no interest or penalties with respect to taxes accrued as of September 30, 2022 or December 31, 2021. The 2021, 2020, 2019 and 2018 taxable years remain open to examination by federal and/or state taxing jurisdictions to which the Company is subject.
Equity-Based Compensation
The Company grants shares of restricted common stock and restricted share units (“RSUs”) to its directors, executive officers and other employees that vest over specified time periods, subject to the recipient’s continued
15


service. The Company also grants performance-based RSUs to members of its senior management team, the final number of which is determined based on objective and subjective performance conditions and which vest over a multi-year period, subject to the recipient’s continued service. The Company accounts for the restricted common stock and RSUs in accordance with ASC 718, Compensation – Stock Compensation, which requires that such compensation be recognized in the financial statements based on its estimated grant-date fair value. The value of such awards is recognized as compensation expense in general and administrative expenses in the accompanying consolidated statements of operations over the applicable service periods.
The Company recognizes compensation expense for equity-based compensation using the straight-line method based on the terms of the individual grant. Forfeitures of equity-based compensation awards, if any, are recognized when they occur.
Variable Interest Entities
The Financial Accounting Standards Board (“FASB”) provides guidance for determining whether an entity is a variable interest entity (a “VIE”). VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. A VIE is required to be consolidated by its primary beneficiary, which is the party that (i) has the power to control the activities that most significantly impact the VIE’s economic performance; and (ii) has the obligation to absorb losses, or the right to receive benefits, of the VIE that could potentially be significant to the VIE.
The Company has concluded that the Operating Partnership is a VIE of which the Company is the primary beneficiary, as the Company has the power to direct the activities that most significantly impact the economic performance of the Operating Partnership. Substantially all of the Company’s assets and liabilities are held by the Operating Partnership. The assets and liabilities of the Operating Partnership are consolidated and reported as assets and liabilities on the Company’s consolidated balance sheets as of September 30, 2022 and December 31, 2021.
Additionally, the Company has concluded that certain entities to which it has provided mortgage loans are VIEs because the entities' equity was not sufficient to finance their activities without additional subordinated financial support. The following table presents information about the Company’s mortgage loan-related VIEs as of the dates presented:
(dollar amounts in thousands)September 30,
2022
December 31,
2021
Number of VIEs2523
Aggregate carrying value
$198,035 $140,851 
The Company was not the primary beneficiary of any of these entities because the Company did not have the power to direct the activities that most significantly impact the entities’ economic performance as of September 30, 2022 and December 31, 2021. The Company’s maximum exposure to loss in these entities is limited to the carrying amount of its investment. The Company had no liabilities associated with these VIEs as of September 30, 2022 and December 31, 2021.
Recent Accounting Developments
In July 2021, the FASB issued ASU 2021-05, Lease (Topic 842): Lessors - Certain Leases with Variable Lease Payments ("ASU 2021-05"). The guidance in ASU 2021-05 amends the lease classification requirements for the lessors under certain leases containing variable payments to align with practice under ASC 840. The lessor should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if both of the following criteria are met: 1) the lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria in ASC 842-10-25-2 through 25-3; and 2) the lessor would have otherwise recognized a day-one loss. The amendments in ASU 2021-05 are 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.
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3. Investments
The following table presents information about the number of properties or investments in the Company’s real estate investment portfolio as of each date presented:
September 30,
2022
December 31,
2021
Owned properties (1)
1,4151,315
Properties securing investments in mortgage loans (2)
146126
Ground lease interests (3)
1110
Total number of investments1,5721,451
_____________________________________
(1)Includes 8 and 11 properties which are subject to leases accounted for as direct financing leases or loans as of September 30, 2022 and December 31, 2021, respectively.
(2)Properties secure 18 and 17 mortgage loans receivable as of September 30, 2022 and December 31, 2021, respectively.
(3)Includes one building which is subject to a lease accounted for as a direct financing lease as of December 31, 2021.
The following table presents information about the gross investment value of the Company’s real estate investment portfolio as of each date presented:
(in thousands)September 30,
2022
December 31,
2021
Real estate investments, at cost$3,600,776 $3,150,840 
Loans and direct financing lease receivables, net204,742 189,287 
Real estate investments held for sale, net11,907 15,434 
Total gross investments$3,817,425 $3,355,561 
Investments in 2022 and 2021
The following table presents information about the Company’s investment activity during the nine months ended September 30, 2022 and 2021:
Nine months ended September 30,
(in thousands)20222021
Ownership type
(1)
Fee Interest
Number of properties 124209
Purchase price allocation
Land and improvements $183,270 $196,161 
Building and improvements311,651 356,732 
Construction in progress (2)
34,967 3,313 
Intangible lease assets2,836 9,721 
Total purchase price 532,724 565,927 
Intangible lease liabilities— (3,296)
Purchase price (including acquisition costs) $532,724 $562,631 
_____________________________________
(1)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.
(2)Represents amounts incurred at and subsequent to acquisition and includes $0.4 million and approximately $0.1 million of capitalized interest expense for the nine months ended September 30, 2022 and 2021, respectively.

During the nine months ended September 30, 2022 and 2021, 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, 2022 and 2021, the Company had the following gross investment activity:
(Dollar amounts in thousands)Number of
Investment
Locations
Dollar
Amount of
Investments
Gross investments, January 1, 20211,181$2,528,673 
Acquisitions of and additions to real estate investments209573,514 
Sales of investments in real estate(36)(52,948)
Provisions for impairment of real estate (1)
(6,120)
Investments in loans receivable4687,253 
Principal collections on and settlements of loans and direct financing lease receivables(3)(2,468)
Other1,184 
Gross investments, September 30, 20213,129,088 
Less: Accumulated depreciation and amortization (2)
(182,567)
Net investments, September 30, 20211,397$2,946,521 
Gross investments, January 1, 20221,451$3,355,561 
Acquisitions of and additions to real estate investments124529,278 
Sales of investments in real estate(28)(69,147)
Provisions for impairment of real estate (3)
(10,541)
Investments in loans receivable6096,907 
Principal collections on and settlements of loans and direct financing lease receivables(35)(81,315)
Other(3,318)
Gross investments, September 30, 20223,817,425 
Less: Accumulated depreciation and amortization (2)
(259,092)
Net investments, September 30, 20221,572$3,558,333 
_____________________________________
(1)During the nine months ended September 30, 2021, the Company identified and recorded provisions for impairment at two vacant properties and 16 tenanted properties.
(2)Includes $225.3 million and $155.1 million of accumulated depreciation as of September 30, 2022 and 2021, respectively.
(3)During the nine months ended September 30, 2022, the Company identified and recorded provisions for impairment at seven 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, 2022 and December 31, 2021, the Company had 21 loans receivable outstanding with an aggregate carrying amount of $203.4 million and $187.8 million, respectively. The maximum amount of loss due to credit risk is our current principal balance of $203.4 million as of September 30, 2022.
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The Company’s loans receivable portfolio as of September 30, 2022 and December 31, 2021 is summarized below (dollars in thousands): 
Principal Balance Outstanding
Loan Type
Monthly
Payment (1)
Number of Secured PropertiesEffective Interest RateStated Interest RateMaturity DateSeptember 30,
2022
December 31,
2021
Mortgage (2)(3)
I/O28.80%8.10%2039$12,000 $12,000 
Mortgage (3)
P+I8.10%8.10%2059— 6,096 
Mortgage (2)
I/O28.53%7.80%20397,300 7,300 
Mortgage (2)
I/O697.79%7.33%203451,000 28,000 
Mortgage (2)
I/O18.42%7.70%20405,300 5,300 
Mortgage (2)
I/O38.30%8.25%20222,324 2,324 
Mortgage (2)
I/O17.00%7.00%2023600 600 
Mortgage (2)
I/O6.89%6.75%2026— 14,165 
Mortgage (2)
I/O38.30%8.25%20233,146 3,146 
Mortgage (2)
I/O26.87%6.40%20362,520 2,520 
Mortgage (2)
I/O87.51%7.00%203612,070 30,806 
Mortgage (2)
I/O7.51%7.00%2036— 9,679 
Mortgage (2)
I/O7.85%7.50%2031— 13,000 
Mortgage (2)
I/O28.29%8.25%20232,389 2,389 
Mortgage (2)
I/O18.91%8.00%205223,004 6,864 
Mortgage (2)
I/O27.44%7.10%20369,808 9,808 
Mortgage (2)
I/O67.30%6.80%203630,674 25,714 
Mortgage (2)
I/O17.73%7.20%20362,470 2,470 
Mortgage (2)
I/O18.00%8.00%20231,754 — 
Mortgage (2)
I/O406.80%7.00%202728,663 — 
Mortgage (2)
I/O16.99%7.20%20373,600 — 
Mortgage (2)
I/O18.40%8.25%2024760 — 
Leasehold interestP+I10.69%
(4)
2039— 1,435 
Leasehold interestP+I12.25%
(5)
20341,007 1,055 
Leasehold interestP+I12.41%
(5)
20341,496 1,560 
Leasehold interestP+I14.97%
(5)
20381,528 1,562 
Net investment$203,413 $187,793 
_____________________________________
(1)I/O: Interest Only; P+I: Principal and Interest
(2)Loan requires monthly payments of interest only with a balloon payment due at maturity.
(3)Loan allows for prepayments in whole or in part without penalty.
(4)This leasehold interest was accounted for as a loan receivable, as the lease for two land parcels contained an option for the lessee to repurchase the leased parcels in 2024 or 2025.
(5)These leasehold interests are accounted for as loans receivable, as the leases for each property contain an option for the relevant lessee to repurchase the leased property in the future.
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Scheduled principal payments due to be received under the Company’s loans receivable as of September 30, 2022 were as follows:
(in thousands)Future Principal Payments Due
October 1 - December 31, 2022$2,373 
20238,096 
2024981 
2025234 
2026248 
Thereafter191,481 
Total$203,413 
As of September 30, 2022 and December 31, 2021, the Company had $2.1 million and $2.3 million, respectively, 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)September 30,
2022
December 31,
2021
Minimum lease payments receivable$2,892 $3,189 
Estimated unguaranteed residual value of leased assets250 270 
Unearned income from leased assets(1,000)(1,150)
Net investment$2,142 $2,309 
Scheduled future minimum non-cancelable base rental payments due to be received under the Company's direct financing lease receivables as of September 30, 2022 were as follows:
(in thousands)Future Minimum
Base Rental
Payments
October 1 - December 31, 2022$80 
2023321 
2024283 
2025254 
2026243 
Thereafter1,711 
Total$2,892 
Allowance for Loan 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 loan losses in accordance with ASC 326. As of September 30, 2022 and December 31, 2021, the balance of the Company's allowance for loan losses was $0.8 million. Changes in the Company’s allowance for loan losses are presented within provision for loan losses in the Company’s consolidated statements of operations.
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For the nine months ended September 30, 2022 and 2021, the changes to the Company's allowance for loan losses were as follows:
(in thousands)Loans and Direct Financing Lease Receivables
Balance at January 1, 2021$1,018 
Current period provision for expected credit losses(112)
Write-offs charged— 
Recoveries— 
Balance at September 30, 2021$906 
Balance at January 1, 2022$814 
Current period provision for expected credit losses138 
Write-offs charged(137)
Recoveries— 
Balance at September 30, 2022$815 
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 September 30, 2022:
Amortized Cost Basis by Origination YearTotal Amortized Cost Basis
(in thousands)20222021202020192018Prior
LTV <60%$23,000 $— $— $28,000 $— $1,666 $52,666 
LTV 60%-70%— 28,234 — — — — 28,234 
LTV >70%44,737 48,487 10,647 20,307 — 477 124,656 
$67,737 $76,722 $10,647 $48,307 $— $2,143 $205,556 
Real Estate Investments Held for Sale
The Company continually evaluates its portfolio of real estate investments and may elect to dispose of investments considering criteria including, but not limited to, tenant concentration, tenant credit quality, tenant operation type (e.g., industry, sector or concept), unit-level financial performance, local market conditions and lease rates, associated indebtedness and asset location. Real estate investments held for sale are expected to be sold within twelve months.
The following table shows the activity in real estate investments held for sale and intangible lease liabilities held for sale during the nine months ended September 30, 2022 and 2021.
(Dollar amounts in thousands)Number of PropertiesReal Estate InvestmentsIntangible Lease LiabilitiesNet Carrying Value
Held for sale balance, January 1, 20218$17,058 $— $17,058 
Transfers to held for sale classification1110,333 — 10,333 
Sales(13)(9,517)— (9,517)
Transfers to held and used classification(4)(13,890)— (13,890)
Held for sale balance, September 30, 20212$3,984 $— $3,984 
Held for sale balance, January 1, 20229$15,434 $— $15,434 
Transfers to held for sale classification723,613 — 23,613 
Sales(11)(27,140)— (27,140)
Transfers to held and used classification— — — 
Held for sale balance, September 30, 20225$11,907 $— $11,907 
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Significant Concentrations
The Company did not have any tenants (including for this purpose, all affiliates of such tenants) whose rental revenue for the nine months ended September 30, 2022 or 2021 represented 10% or more of total rental revenue in the Company’s consolidated statements of operations.
The following table lists the state where the rental revenue from the properties in that state during the periods presented represented 10% or more of total rental revenue in the Company’s consolidated statements of operations:
Three months ended September 30,Nine months ended September 30,
State2022202120222021
Texas13.9%13.0%13.5%13.0%
Intangible Assets and Liabilities
Intangible assets and liabilities consisted of the following as of the dates presented:
September 30, 2022December 31, 2021
(in thousands)Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Intangible assets:
In-place leases$78,248 $29,067 $49,181 $76,255 $24,540 $51,715 
Intangible market lease assets11,145 4,737 6,408 11,704 4,409 7,295 
Total intangible assets$89,393 $33,804 $55,589 $87,959 $28,949 $59,010 
Intangible market lease liabilities$15,615 $3,706 $11,909 $15,948 $3,255 $12,693 
The remaining weighted average amortization period for the Company’s intangible assets and liabilities as of September 30, 2022, by category and in total, were as follows:
Years Remaining
In-place leases9.0
Intangible market lease assets11.2
Total intangible assets9.3
Intangible market lease liabilities8.6
The following table discloses amounts recognized within the consolidated statements of operations related to amortization of in-place leases, amortization and accretion of above- and below-market lease assets and liabilities, net and the amortization and accretion of above- and below-market ground leases for the periods presented:
Three months ended September 30,Nine months ended September 30,
(in thousands)2022202120222021
Amortization of in-place leases (1)
$1,735 $1,810 $5,184 $5,828 
Amortization (accretion) of market lease intangibles, net (2)
(214)(115)(213)(48)
Amortization (accretion) of above- and below-market ground lease intangibles, net (3)
(88)(88)(263)(265)
_____________________________________
(1)Reflected within depreciation and amortization expense.
(2)Reflected within rental revenue.
(3)Reflected within property expenses.
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The following table provides the estimated amortization of in-place lease assets to be recognized as a component of depreciation and amortization expense for the next five years and thereafter:
(in thousands)In-Place Lease Assets
October 1 - December 31, 2022$1,652 
20236,271 
20245,604 
20254,356 
20264,051 
Thereafter27,247 
Total$49,181 
The following table provides the estimated net amortization of above- and below-market lease intangibles to be recognized as a component of rental revenue for the next five years and thereafter:
(in thousands)Above Market Lease AssetBelow Market Lease Liabilities Net Adjustment to Rental Revenue
October 1 - December 31, 2022$(179)$185 $
2023(692)701 
2024(659)698 39 
2025(651)700 49 
2026(641)704 63 
Thereafter(3,586)8,921 5,335 
Total$(6,408)$11,909 $5,501 
4. Leases
As Lessor
The Company’s investment properties are leased to tenants under long-term operating leases that typically include one or more tenant renewal options. The Company’s leases provide for annual base rental payments (generally payable in monthly installments) and generally provide for increases in rent based on fixed contractual terms or as a result of increases in the Consumer Price Index.
Substantially all of the Company's leases are triple-net, which means that the lessees are responsible for paying all property operating expenses, including maintenance, insurance, utilities, property taxes and, if applicable, ground rent expense; therefore, the Company is generally not responsible for repairs or other capital expenditures related to the properties while the triple-net leases are in effect and, at the end of the lease term, the lessees are responsible for returning the property to the Company in a substantially similar condition as when they took possession. Some of the Company’s leases provide that in the event the Company wishes to sell the property subject to that lease, it first must offer the lessee the right to purchase the property on the same terms and conditions as any offer which it intends to accept for the sale of the property.
Scheduled future minimum base rental payments due to be received under the remaining non-cancelable term of the operating leases in place as of September 30, 2022 were as follows:
(in thousands)
Future Minimum Base Rental Receipts
October 1 - December 31, 2022$69,504 
2023280,157 
2024282,126 
2025281,990 
2026284,210 
Thereafter
3,093,923 
Total$4,291,910 
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Since lease renewal periods are exercisable at the option of the lessee, the preceding table presents future minimum base rental payments to be received during the initial non-cancelable lease term only. In addition, the future minimum lease payments exclude contingent rent payments, as applicable, that may be collected from certain tenants based on provisions related to performance thresholds and exclude increases in annual rent based on future changes in the Consumer Price Index, among other items.
The fixed and variable components of lease revenues for the three and nine months ended September 30, 2022 and 2021 were as follows:
Three months ended September 30,Nine months ended September 30,
(in thousands)2022202120222021
Fixed lease revenues$67,628 $54,468 $198,615 $151,544 
Variable lease revenues (1)
705 616 1,988 1,700 
Total lease revenues (2)
$68,333 $55,084 $200,603 $153,244 
_____________________________________
(1)Includes contingent rent based on a percentage of the tenant’s gross sales and costs paid by the Company for which it is reimbursed by its tenants.
(2)Excludes the amortization and accretion of above- and below-market lease intangible assets and liabilities and lease incentives and the Company's adjustment to rental revenue for tenant credit.
As Lessee
The Company has a number of ground leases, an office lease and other equipment leases which are classified as operating leases. As of September 30, 2022, the Company’s right of use ("ROU") assets and lease liabilities were $7.5 million and $9.2 million, respectively. As of December 31, 2021, the Company’s ROU assets and lease liabilities were $7.4 million and $9.4 million, respectively. These amounts are included in rent receivables, prepaid expenses and other assets, net and accrued liabilities and other payables on the Company's consolidated balance sheets.
The discount rate applied to measure each ROU asset and lease liability is based on the Company’s incremental borrowing rate ("IBR"). The Company considers the general economic environment and its historical borrowing activity and factors in various financing and asset specific adjustments to ensure the IBR is appropriate to the intended use of the underlying lease. As the Company did not elect to apply hindsight, lease term assumptions determined under ASC 840 were carried forward and applied in calculating the lease liabilities recorded under ASC 842. Certain of the Company’s ground leases offer renewal options which it assesses against relevant economic factors to determine whether it is reasonably certain of exercising or not exercising the option. Lease payments associated with renewal periods that the Company is reasonably certain will be exercised, if any, are included in the measurement of the corresponding lease liability and ROU asset.
The following table sets forth information related to the measurement of the Company’s lease liabilities as of the dates presented:
September 30, 2022December 31, 2021
Weighted average remaining lease term (in years)22.621.5
Weighted average discount rate6.10%6.08%
Upon adoption of ASC 842 (see Note 2—Summary of Significant Accounting Policies), ground lease rents are no longer presented on a net basis and instead are reflected on a gross basis in the Company’s consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021.
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The following table sets forth the details of rent expense for the three and nine months ended September 30, 2022 and 2021:
Three months ended September 30,Nine months ended September 30,
(in thousands)2022202120222021
Fixed rent expense - ground leases$245 $239 $725 $718 
Fixed rent expense - office and equipment leases128 168 384 423 
Variable rent expense— — — — 
Total rent expense$373 $407 $1,109 $1,141 
As of September 30, 2022, future lease payments due over the next five years and thereafter from the Company under the ground, office and equipment leases where the Company is directly responsible for payment and under the ground leases where the Company’s tenants are directly responsible for payment were as follows:
(in thousands)Office and Equipment LeasesGround Leases to be Paid by the CompanyGround Leases to be Paid Directly by the Company’s TenantsTotal Future Minimum Base Rental Payments
October 1 - December 31, 2022$129 $39 $208 $376 
2023525 131 733 1,389 
2024531 24 688 1,243 
2025538 — 613 1,151 
2026— — 618 618 
Thereafter— — 15,104 15,104 
Total$1,723 $194 $17,964 19,881 
Present value discount(10,644)
Lease liabilities$9,237 
The Company has adopted the short-term lease policy election and accordingly, the table above excludes future minimum base cash rental payments by the Company or its tenants on leases that have a term of less than 12 months at lease inception. The total of such future obligations is not material.
5. Long-Term Debt
The following table summarizes the Company's outstanding indebtedness as of September 30, 2022 and December 31, 2021:
Principal Outstanding
Weighted Average Interest Rate (1)
(in thousands)Maturity DateSeptember 30,
2022
December 31,
2021
September 30,
2022
December 31,
2021
Unsecured term loans:
2024 Term Loan April 2024$200,000 $200,000 3.3%1.3%
2027 Term Loan February 2027430,000 430,000 4.0%1.6%
    2028 Term LoanJanuary 2028250,000 — 3.3%—%
Senior unsecured notesJuly 2031400,000 400,000 3.0%3.0%
Revolving Credit Facility February 2026— 144,000 —%1.3%
Total principal outstanding $1,280,000 $1,174,000 3.4%2.0%
______________________
(1)Interest rates are presented as stated in debt agreements and do not reflect the impact of the Company's interest rate swap and lock agreements, where applicable (see Note 6—Derivative and Hedging Activities).
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The following table summarizes the scheduled principal payments on the Company’s outstanding indebtedness as of September 30, 2022:
(in thousands)
2024 Term Loan2027 Term Loan2028 Term LoanSenior Unsecured NotesRevolving Credit FacilityTotal
October 1 - December 31, 2022$— $— $— $— $— $— 
2023— — — — — — 
2024200,000 — — — — 200,000 
2025— — — — — — 
2026— — — — — — 
Thereafter— 430,000 250,000 400,000 — 1,080,000 
Total$200,000 $430,000 $250,000 $400,000 $— $1,280,000 
The Company was in compliance with all financial covenants and was not in default of any provisions under any of its outstanding indebtedness as of September 30, 2022 or December 31, 2021.
Revolving Credit Facility, 2024 Term Loan and 2028 Term Loan
In April 2019, the Company, through the Operating Partnership, entered into an amended and restated credit agreement (the “Amended Credit Agreement”) with a group of lenders, amending and restating the terms of the Company’s previous $300.0 million revolving credit facility (the “2018 Credit Facility”) to increase the maximum aggregate initial original principal amount of the revolving loans available thereunder up to $400.0 million (the “Revolving Credit Facility”) and to permit the incurrence of an additional $200.0 million in term loans thereunder (the “2024 Term Loan”). The full amount available under the 2024 Term Loan was borrowed in May 2019.
In February 2022, the Company entered into an amendment to the Amended Credit Agreement (as so amended, the "Credit Agreement") and, pursuant to such amendment, among other things, the availability of extensions of credit under the Revolving Credit Facility was increased to $600.0 million, the accordion feature was increased to $600.0 million, the borrowing base limitation on borrowings thereunder was removed, the leverage-based margin applicable to borrowings under the Revolving Credit Facility was reduced, the LIBOR reference rate was replaced with reference to the Adjusted Term SOFR rate, consistent with market practice, and the composition and extent of lender participation under the Revolving Credit Facility was changed. During the nine months ended September 30, 2022, in connection with this amendment, the Company recorded a $0.1 million loss on debt extinguishment related to the write-off of certain deferred financing costs on the Revolving Credit Facility.
Prior to the February 2022 amendment, the Revolving Credit Facility had a term of four years beginning on April 12, 2019, with an extension option of up to six months exercisable by the Operating Partnership, subject to certain conditions, and the 2024 Term Loan was set to mature on April 12, 2024. The loans under each of the Revolving Credit Facility and the 2024 Term Loan initially bore interest at an annual rate of applicable LIBOR plus the applicable margin (which applicable margin varied between the Revolving Credit Facility and the 2024 Term Loan). The applicable LIBOR was the rate with a term equivalent to the interest period applicable to the relevant borrowing. The applicable margin was initially a spread set according to a leverage-based pricing grid.
The Revolving Credit Facility matures on February 10, 2026, with two extension options of six months each, exercisable by the Operating Partnership subject to the satisfaction of certain conditions. The 2024 Term Loan matures on April 12, 2024. The loans under each of the Revolving Credit Facility and the 2024 Term Loan initially bear interest at an annual rate of applicable Adjusted Term SOFR (as defined in the Credit Agreement) plus an applicable margin (which applicable margin varies between the Revolving Credit Facility and the 2024 Term Loan). The Adjusted Term SOFR is a rate with a term equivalent to the interest period applicable to the relevant borrowing. In addition, the Operating Partnership is required to pay a revolving facility fee throughout the term of the Revolving Credit Facility. The applicable margin and the revolving facility fee rate are initially a spread and rate, as applicable, set according to a leverage-based pricing grid. At the Operating Partnership's election, on and after receipt of an investment grade corporate credit rating from S&P, Moody's or Fitch, the applicable margin and the revolving facility fee rate will be a spread and rate, as applicable, set according to the credit ratings provided by S&P, Moody's and/or Fitch.
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In July 2022, the Credit Agreement was further amended to provide for an additional $400.0 million of second tranche term loans, which may be borrowed on a delayed draw basis (the “2028 Term Loan”). Loans under the 2028 Term Loan in an aggregate principal amount of $250.0 million were drawn in July 2022, concurrently with the closing of such amendment, and the remaining $150 million was drawn in October 2022. Such amendment also amended the applicable margin grid such that the applicable pricing for all borrowings under the Credit Agreement is based on the credit rating of the Company’s long-term senior unsecured non-credit enhanced debt for borrowed money (subject to a single step-down in the applicable pricing if the Company achieves a consolidated leverage ratio that is less than 0.35 to 1:00 while maintaining a credit rating of BBB/Baa2 from S&P, Moody's and/or Fitch), and reset the accordion feature to maintain the $600.0 million availability thereunder.
Each of the Revolving Credit Facility, the 2024 Term Loan and the 2028 Term Loan is freely pre-payable at any time. Outstanding credit extensions under the Revolving Credit Facility are mandatorily payable if the amount of such credit extensions exceeds the revolving facility limit. The Operating Partnership may re-borrow amounts paid down on the Revolving Credit Facility prior to its maturity. Loans repaid under the 2024 Term Loan and 2028 Term Loan cannot be reborrowed. The Credit Agreement has an accordion feature to increase, subject to certain conditions, the maximum availability of credit (either through increased revolving commitments or additional term loans) by up to $600.0 million.
The Operating Partnership is the borrower under the Credit Agreement, and the Company and each of its subsidiaries that owns a direct or indirect interest in an eligible real property asset are guarantors under the Credit Agreement.
Under the terms of the Credit Agreement, the Company is subject to various restrictive financial and nonfinancial covenants which, among other things, require the Company to maintain certain leverage ratios, cash flow and debt service coverage ratios, secured borrowing ratios and a minimum level of tangible net worth.
The following table presents information about the Revolving Credit Facility for the periods presented:
Nine months ended September 30,
(in thousands)20222021
Balance on January 1,$144,000 $18,000 
Borrowings299,000 179,000 
Repayments(443,000)(197,000)
Balance on September 30,$— $— 
The following table presents information about interest expense related to the Revolving Credit Facility for the periods presented:
Three months ended September 30,Nine months ended September 30,
(in thousands)2022202120222021
Interest expense$676 $264 $2,577 $1,035 
Amortization of deferred financing costs295 291 923 874 
Total$971 $555 $3,500 $1,909 
Total deferred financing costs, net, of $4.0 million and $1.4 million related to the Revolving Credit Facility are included within rent receivables, prepaid expenses and other assets, net on the Company’s consolidated balance sheets as of September 30, 2022 and December 31, 2021, respectively.
As of September 30, 2022 and December 31, 2021, the Company had $600.0 million and $256.0 million, respectively, of unused borrowing capacity under the Revolving Credit Facility.
2027 Term Loan
On November 26, 2019, the Company, through the Operating Partnership, entered into a new $430 million term loan (the “2027 Term Loan”) with a group of lenders. The 2027 Term Loan provides for term loans to be drawn up to an aggregate amount of $430 million with an initial maturity of November 26, 2026. The Company borrowed the entire $430.0 million available under the 2027 Term Loan in separate draws in December 2019 and March 2020.
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In February 2022, the Company entered into an amendment to the 2027 Term Loan to, among other things, reduce the leverage-based margin applicable to borrowings, extend the maturity date of the 2027 Term Loan to February 18, 2027, replace the LIBOR reference rate with reference to the Adjusted Term SOFR rate, consistent with market practice, and change the composition and extent of lender participation under the 2027 Term Loan. During the nine months ended September 30, 2022, in connection with this amendment, the Company recorded a $2.1 million loss on debt extinguishment related to fees and the write-off of certain deferred financing costs on the 2027 Term Loan.
In August 2022, The Company entered into an amendment to the 2027 Term Loan to make certain changes to provisions relating to the rates and other matters to reflect changes in market standards.
Prior to its amendment in February 2022, borrowings under the 2027 Term Loan bore interest at an annual rate of applicable LIBOR plus the applicable margin. Following this amendment, the 2027 Term Loan bears interest at an annual rate of applicable Adjusted Term SOFR plus the applicable margin. The applicable LIBOR/Adjusted Term SOFR is the rate with a term equivalent to the interest period applicable to the relevant borrowing. The applicable margin was initially a spread set according to a leverage-based pricing grid. In May 2022, the Operating Partnership made an irrevocable election to have the applicable margin be a spread set according to the Company’s corporate credit ratings provided by S&P, Moody’s and/or Fitch.
The 2027 Term Loan is pre-payable at any time by the Operating Partnership (as borrower) without penalty. The Operating Partnership may not re-borrow amounts paid down on the 2027 Term Loan. The 2027 Term Loan has an accordion feature to increase, subject to certain conditions, the maximum availability of the facility up to an aggregate of $500 million.
The Operating Partnership is the borrower under the 2027 Term Loan, and the Company and each of its subsidiaries that owns a direct or indirect interest in an eligible real property asset are guarantors under the facility. Under the terms of the 2027 Term Loan, the Company is subject to various restrictive financial and nonfinancial covenants which, among other things, require the Company to maintain certain leverage ratios, cash flow and debt service coverage ratios, secured borrowing ratios and a minimum level of tangible net worth.
The following table presents information about aggregate interest expense related to the 2024 Term Loan, 2027 Term Loan and 2028 Term Loan:
Three months ended September 30,Nine months ended September 30,
(in thousands)2022202120222021
Interest expense$6,594 $2,503 $12,038 $7,378 
Amortization of deferred financing costs236 178 557 534 
Total$6,830 $2,681 $12,595 $7,912 
Total deferred financing costs, net, of $4.8 million and $3.0 million related to the term loan facilities are included as a component of unsecured term loans, net of deferred financing costs on the Company’s consolidated balance sheets as of September 30, 2022 and December 31, 2021, respectively.
The Company fixed the interest rates on its variable-rate term loan debt through the use of interest rate swap agreements. See Note 6—Derivative and Hedging Activities for additional information.
Senior Unsecured Notes
In June 2021, through its Operating Partnership, the Company completed a public offering of $400.0 million aggregate principal amount of 2.950% Senior Notes due 2031 (the "2031 Notes"), resulting in net proceeds of $396.6 million. The 2031 Notes were issued by the Operating Partnership, and the obligations of the Operating Partnership under the 2031 Notes are fully and unconditionally guaranteed on a senior basis by the Company. The 2031 Notes were issued at 99.8% of their principal amount. In connection with the offering of the 2031 Notes, the Operating Partnership incurred $4.7 million in deferred financing costs and an offering discount of $0.8 million.
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The following is a summary of the senior unsecured notes outstanding as of September 30, 2022 and December 31, 2021:
(dollars in thousands)Maturity DateInterest Payment DatesStated Interest RatePrincipal Outstanding
2031 NotesJuly 15, 2031January 15 and July 152.95%$400,000 
The Company's senior unsecured notes are redeemable in whole at any time or in part from time to time, at the Operating Partnership's option, at a redemption price equal to the sum of:
100% of the principal amount of the notes to be redeemed plus accrued and unpaid interest, if any, up to, but not including, the redemption date; and
a make-whole premium calculated in accordance with the indenture governing the notes.
The following table presents information about interest expense related to the senior unsecured notes: