ESSENTIAL PROPERTIES REALTY TRUST, INC. 10-K

Item 8. Financial Statements and Supplementary Data. Index to Consolidated Financial Statements Financial Statements and Supplemental Data Reports of Independent Registered Public Accounting Firm (PCAOB ID: Number 248 ) 65 Consolidated Balance Sheets as of December 31, 2023 and 2022 68 Consolidated Statements of Operations for the Years Ended December 31, 2023, 2022, and 2021 69 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2023, 2022, and 2021 70 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2023, 2022, and 2021 71 Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022, and 2021 72 Notes to Consolidated Financial Statements 74 64 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Essential Properties Realty Trust, Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of Essential Properties Realty Trust, Inc. (a Maryland corporation) and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedules included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 14, 2024, expressed an unqualified opinion. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Evaluation of the measurement of the fair values used in the purchase price allocation of real estate acquisitions As described further in Notes 2 and 3 to the consolidated financial statements, the acquisition of real estate for investment purposes is typically accounted for as an asset acquisition in which the Company allocates the purchase price of acquired properties to land, buildings, site improvements and other identified tangible and intangible assets and liabilities on a relative fair value basis. The Company acquired approximately $1.0 billion of real estate investments during the year ended December 31, 2023. We identified fair value measurements used to allocate the purchase price to the assets acquired and liabilities assumed in the real estate acquisitions as a critical audit matter. The principal consideration for our determination that the fair value measurements used to allocate the purchase price to the assets acquired and liabilities assumed in the real estate acquisitions is a critical audit matter is the 65 higher risk of estimation uncertainty in determining fair value estimates. Specifically, fair value measurements were sensitive to establishing a range of market assumptions for land values, building replacement values, and rental rates. Establishing the market assumptions for land, building, site improvements and rent included identifying the relevant properties in the established range most comparable to the acquired property. There was a high degree of subjective and complex auditor judgment in evaluating these key inputs assumptions. Our audit procedures related to the fair value measurements used to allocate the purchase price to assets acquired and liabilities assumed in the real estate acquisitions included the following, among others. We obtained an understanding, evaluated the design, and tested the operating effectiveness of relevant controls relating to the process to allocate the purchase price of real estate acquisitions, including internal controls over the selection and review of the inputs and assumptions to estimate fair value, including those used by third-party valuation professionals. For a selection of real estate acquisitions, we involved our real estate valuation professionals with specialized skills and knowledge who assisted in evaluating the valuation techniques and assumptions to the fair value measurements used in the purchase price allocations. We read the purchase agreements and tested the completeness and accuracy of underlying data used that was contractual in nature, including rental data where applicable. The evaluation included comparison of the Company’s assumptions to independently developed ranges using market data from industry transaction databases and published industry reports. We analyzed where the Company’s market rental rates fell within our real estate valuation professionals’ independently developed ranges to evaluate if management bias was present. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2021. New York, New York February 14, 2024 66 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Essential Properties Realty Trust, Inc. Opinion on internal control over financial reporting We have audited the internal control over financial reporting of Essential Properties Realty Trust, Inc. (a Maryland corporation) and subsidiaries (the “Company”) as of December 31, 2023, based on criteria established in the 2013 Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2023, and our report dated February 14, 2024, expressed an unqualified opinion on those financial statements. Basis for opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and limitations of internal control over financial reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ GRANT THORNTON LLP New York, New York February 14, 2024 67 ESSENTIAL PROPERTIES REALTY TRUST, INC. CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets December 31, (In thousands, except share and per share data) 2023 2022 ASSETS Investments: Real estate investments, at cost: Land and improvements $ 1,542,302 $ 1,228,687 Building and improvements 2,938,012 2,440,630 Lease incentives 17,890 18,352 Construction in progress 96,524 34,537 Intangible lease assets 89,209 88,364 Total real estate investments, at cost 4,683,937 3,810,570 Less: accumulated depreciation and amortization ( 367,133 ) ( 276,307 ) Total real estate investments, net 4,316,804 3,534,263 Loans and direct financing lease receivables, net 223,854 240,035 Real estate investments held for sale, net 7,455 4,780 Net investments 4,548,113 3,779,078 Cash and cash equivalents 39,807 62,345 Restricted cash 9,156 9,155 Straight-line rent receivable, net 107,545 78,587 Derivative assets 30,980 47,877 Rent receivables, prepaid expenses and other assets, net 32,660 22,991 Total assets (1) $ 4,768,261 $ 4,000,033 LIABILITIES AND EQUITY Unsecured term loans, net of deferred financing costs $ 1,272,772 $ 1,025,492 Senior unsecured notes, net 395,846 395,286 Revolving credit facility — — Intangible lease liabilities, net 11,206 11,551 Dividend payable 47,182 39,398 Derivative liabilities 23,005 2,274 Accrued liabilities and other payables 31,248 29,261 Total liabilities (1) 1,781,259 1,503,262 Commitments and contingencies (see Note 11) — — Stockholders' equity: Preferred stock, $ 0.01 par value; 150,000,000 authorized; none issued and outstanding as of December 31, 2023 and 2022 — — Common stock, $ 0.01 par value; 500,000,000 authorized; 164,635,150 and 142,379,655 issued and outstanding as of December 31, 2023 and 2022, respectively 1,646 1,424 Additional paid-in capital 3,078,459 2,563,305 Distributions in excess of cumulative earnings ( 105,545 ) ( 117,187 ) Accumulated other comprehensive income 4,019 40,719 Total stockholders' equity 2,978,579 2,488,261 Non-controlling interests 8,423 8,510 Total equity 2,987,002 2,496,771 Total liabilities and equity $ 4,768,261 $ 4,000,033 _____________________________________ (1) The Company's consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs"). See Note 2 — Summary of Significant Accounting Policies. As of December 31, 2023 and 2022, all of the assets and liabilities of the Company were held by its operating partnership, a consolidated VIE, with the exception of $ 47.0 million and $ 39.2 million, respectively, of dividends payable. The accompanying notes are an integral part of these consolidated financial statements. 68 ESSENTIAL PROPERTIES REALTY TRUST, INC. CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Operations Year ended December 31, (In thousands, except share and per share data) 2023 2022 2021 Revenues: Rental revenue $ 339,897 $ 269,827 $ 213,327 Interest on loans and direct financing lease receivables 18,128 15,499 15,710 Other revenue, net 1,570 1,180 1,197 Total revenues 359,595 286,506 230,234 Expenses: General and administrative 30,678 29,464 24,329 Property expenses 4,663 3,452 5,762 Depreciation and amortization 102,219 88,562 69,146 Provision for impairment of real estate 3,548 20,164 6,120 Change in provision for credit losses ( 99 ) 88 ( 204 ) Total expenses 141,009 141,730 105,153 Other operating income: Gain on dispositions of real estate, net 24,167 30,647 9,338 Income from operations 242,753 175,423 134,419 Other (expense)/income: Loss on debt extinguishment ( 116 ) ( 2,138 ) ( 4,461 ) Interest expense ( 52,597 ) ( 40,370 ) ( 33,614 ) Interest income 2,011 2,825 94 Income before income tax expense 192,051 135,740 96,438 Income tax expense 636 998 227 Net income 191,415 134,742 96,211 Net income attributable to non-controlling interests ( 708 ) ( 612 ) ( 486 ) Net income attributable to stockholders $ 190,707 $ 134,130 $ 95,725 Basic weighted average shares outstanding 152,140,735 134,941,188 116,358,059 Basic net income per share $ 1.25 $ 0.99 $ 0.82 Diluted weighted average shares outstanding 153,521,854 135,855,916 117,466,338 Diluted net income per share $ 1.24 $ 0.99 $ 0.82 The accompanying notes are an integral part of these consolidated financial statements. 69 ESSENTIAL PROPERTIES REALTY TRUST, INC. CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Comprehensive Income Year ended December 31, (In thousands) 2023 2022 2021 Net income $ 191,415 $ 134,742 $ 96,211 Other comprehensive income: Deferred loss on cash flow hedges — — ( 4,824 ) Unrealized (loss) gain on cash flow hedges ( 9,187 ) 56,736 17,273 Cash flow hedge loss reclassified to interest expense ( 27,687 ) 26 10,059 Total other comprehensive (loss) income ( 36,874 ) 56,762 22,508 Comprehensive income 154,541 191,504 118,719 Net income attributable to non-controlling interests ( 708 ) ( 612 ) ( 486 ) Adjustment for other comprehensive income (loss) attributable to non-controlling interests 174 ( 1,257 ) ( 113 ) Comprehensive income attributable to stockholders $ 154,007 $ 189,635 $ 118,120 The accompanying notes are an integral part of these consolidated financial statements. 70 ESSENTIAL PROPERTIES REALTY TRUST, INC. CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Stockholders' Equity Common Stock (In thousands, except share data) Number of Shares Par Value Additional Paid-In Capital Distributions in Excess of Cumulative Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity Non- Controlling Interests Total Equity Balance at December 31, 2020 106,361,524 $ 1,064 $ 1,688,540 $ ( 77,665 ) $ ( 37,181 ) $ 1,574,758 $ 7,190 $ 1,581,948 Common stock issuance 18,230,721 182 469,018 — — 469,200 — 469,200 Common stock withheld related to net share settlement of equity awards — — — ( 353 ) — ( 353 ) — ( 353 ) Costs related to issuance of common stock — — ( 12,153 ) — — ( 12,153 ) — ( 12,153 ) Other comprehensive income — — — — 22,395 22,395 113 22,508 Equity based compensation expense 56,808 — 5,683 — — 5,683 — 5,683 Dividends declared on common stock and OP Units — — — ( 118,689 ) — ( 118,689 ) ( 552 ) ( 119,241 ) Net income — — — 95,725 — 95,725 486 96,211 Balance at December 31, 2021 124,649,053 1,246 2,151,088 ( 100,982 ) ( 14,786 ) 2,036,566 7,237 2,043,803 Common stock issuance 17,576,684 178 413,667 — — 413,845 — 413,845 Common stock withheld related to net share settlement of equity awards — — — ( 2,452 ) — ( 2,452 ) — ( 2,452 ) Costs related to issuance of common stock — — ( 10,939 ) — — ( 10,939 ) — ( 10,939 ) Other comprehensive income — — — — 55,505 55,505 1,257 56,762 Equity based compensation expense 153,918 — 9,489 — — 9,489 — 9,489 Dividends declared on common stock and OP Units — — — ( 147,883 ) — ( 147,883 ) ( 596 ) ( 148,479 ) Net income — — — 134,130 — 134,130 612 134,742 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 21,971,744 219 507,161 — — 507,380 — 507,380 Common stock withheld related to net share settlement of equity awards — — — ( 3,671 ) — ( 3,671 ) — ( 3,671 ) Costs related to issuance of common stock — — ( 1,010 ) — — ( 1,010 ) — ( 1,010 ) Other comprehensive loss — — — — ( 36,700 ) ( 36,700 ) ( 174 ) ( 36,874 ) Equity based compensation expense 283,751 3 9,003 — — 9,006 — 9,006 Dividends declared on common stock and OP Units — — — ( 175,394 ) — ( 175,394 ) ( 621 ) ( 176,015 ) Net income — — — 190,707 — 190,707 708 191,415 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 The accompanying notes are an integral part of these consolidated financial statements. 71 ESSENTIAL PROPERTIES REALTY TRUST, INC. CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Cash Flows Year ended December 31, (In thousands) 2023 2022 2021 Cash flows from operating activities: Net income $ 191,415 $ 134,742 $ 96,211 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 102,219 88,562 69,146 Amortization of lease incentives 1,782 3,480 3,074 Amortization of above/below market leases and right of use assets, net ( 275 ) ( 217 ) 749 Amortization of deferred financing costs and other non-cash interest expense 3,863 3,099 2,738 Loss on debt extinguishment 116 2,138 4,461 Provision for impairment of real estate 3,548 20,164 6,120 Change in provision for credit losses ( 99 ) 88 ( 204 ) Gain on dispositions of real estate, net ( 24,167 ) ( 30,647 ) ( 9,338 ) Straight-line rent receivable, net ( 28,285 ) ( 20,811 ) ( 20,160 ) Equity based compensation expense 9,006 9,489 5,683 Adjustment to rental revenue for tenant credit 640 371 ( 2,900 ) Payments made in settlement of cash flow hedges — — ( 4,836 ) Changes in other assets and liabilities: Rent receivables, prepaid expenses and other assets, net ( 5,956 ) 4,507 2,216 Accrued liabilities and other payables 767 ( 3,943 ) 14,433 Net cash provided by operating activities 254,574 211,022 167,393 Cash flows from investing activities: Proceeds from sales of investments, net 128,598 126,610 58,381 Principal collections on loans and direct financing lease receivables 27,908 70,439 100,488 Investments in loans receivable ( 13,091 ) ( 115,016 ) ( 136,391 ) Deposits for prospective real estate investments 189 ( 26 ) ( 590 ) Investment in real estate, including capital expenditures ( 894,550 ) ( 728,727 ) ( 840,027 ) Investment in construction in progress ( 105,075 ) ( 51,870 ) ( 9,348 ) Lease incentives paid ( 1,104 ) ( 7,488 ) ( 2,197 ) Net cash used in investing activities ( 857,125 ) ( 706,078 ) ( 829,684 ) Cash flows from financing activities: Repayment of secured borrowings — — ( 175,781 ) Borrowings under term loans 247,972 397,523 — Borrowings under revolving credit facility 70,000 299,000 393,000 Repayments under revolving credit facility ( 70,000 ) ( 443,000 ) ( 267,000 ) Proceeds from issuance of senior unsecured notes — — 396,600 Proceeds from issuance of common stock, net 507,318 403,884 458,267 Payments for taxes related to net settlement of equity awards ( 3,671 ) ( 2,452 ) ( 353 ) Payment of debt extinguishment costs — ( 467 ) — Deferred financing costs ( 2,426 ) ( 4,991 ) ( 2,120 ) Offering costs ( 948 ) ( 1,008 ) ( 1,220 ) Dividends paid ( 168,231 ) ( 141,691 ) ( 112,334 ) Net cash provided by financing activities 580,014 506,798 689,059 Net (decrease) increase in cash and cash equivalents and restricted cash ( 22,537 ) 11,742 26,768 Cash and cash equivalents and restricted cash, beginning of period 71,500 59,758 32,990 Cash and cash equivalents and restricted cash, end of period $ 48,963 $ 71,500 $ 59,758 Reconciliation of cash and cash equivalents and restricted cash: Cash and cash equivalents $ 39,807 $ 62,345 $ 59,758 Restricted cash 9,156 9,155 — Cash and cash equivalents and restricted cash, end of period $ 48,963 $ 71,500 $ 59,758 The accompanying notes are an integral part of these consolidated financial statements. 72 ESSENTIAL PROPERTIES REALTY TRUST, INC. CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Cash Flows (continued) Year ended December 31, (In thousands) 2023 2022 2021 Supplemental disclosure of cash flow information: Cash paid for interest, net of amounts capitalized $ 49,587 $ 36,832 $ 24,162 Cash paid for income taxes 1,486 1,214 637 Non-cash investing and financing activities: Reclassification from construction in progress upon project completion $ 45,518 $ 26,948 $ 4,478 Non-cash repayment of term loan facility 200,000 — — Non-cash borrowing under term loan facility ( 202,028 ) — — Non-cash debt issuance costs 2,028 — — Net settlement of proceeds on the sale of investments ( 4,625 ) ( 28,938 ) ( 960 ) Non-cash investments in real estate and loan receivable activity — 22,679 1,227 Unrealized losses on cash flow hedges ( 9,187 ) ( 56,615 ) ( 27,890 ) Payable and accrued offering costs 24 30 — Discounts and fees on capital raised through issuance of common stock 38 9,931 10,933 Discounts and fees on issuance of debt — 2,477 3,400 Dividends declared and unpaid 47,182 39,398 32,610 The accompanying notes are an integral part of these consolidated financial statements. 73 Notes to Consolidated Financial Statements December 31, 2023 1. Organization Description of Business Essential Properties Realty Trust, Inc. (the “Company”) is an internally managed real estate company that acquires, owns and manages primarily single-tenant properties that are net leased on a long-term basis to middle-market companies operating service-oriented or experience-based businesses. The Company generally invests in and leases freestanding, single-tenant commercial real estate facilities where a tenant services its customers and conducts activities that are essential to the generation of the tenant’s sales and profits. The Company was organized on January 12, 2018 as a Maryland corporation. It elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes beginning with the year ended December 31, 2018, and it believes that its current organizational and operational status and intended distributions will allow it to continue to so qualify. Substantially all of the Company’s business is conducted directly and indirectly through its operating partnership, Essential Properties, L.P. (the “Operating Partnership”). The common stock of the Company is listed on the New York Stock Exchange under the ticker symbol “EPRT”. 2. Summary of Significant Accounting Policies Basis of Accounting The accompanying 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 December 31, 2023 and 2022, the Company, directly and indirectly, held a 99.7 % and 99.6 % ownership interest in the Operating Partnership, respectively, 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. 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 74 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. 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 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 fair value of the tangible assets of an acquired property with an in-place operating lease is determined by valuing the property as if it were vacant, and the "as-if-vacant" value is then allocated to the tangible assets based on the fair value of the tangible assets. The fair value of in-place leases is determined by considering estimates of carrying costs during the expected lease-up periods, current market conditions, as well as costs to execute similar leases based on the specific characteristics of each tenant's lease. The Company estimates the cost to execute leases with terms similar to the remaining lease terms of the in-place leases, including leasing commissions, legal and other related expenses. Factors the Company considers in this analysis include an estimate of the carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses, and estimates of lost rentals at market rates during the expected lease-up periods, which primarily range from six to 12 months. The fair value of above- or below-market leases is recorded based on the net present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between the contractual amount to be paid pursuant to the in-place lease and the Company's estimate of the fair market lease rate for the corresponding in-place lease, measured over the remaining non-cancelable term of the lease including any below-market fixed rate renewal options for below-market leases. In making estimates of fair values for purposes of allocating purchase price, the Company uses a number of sources, including real estate valuations prepared by independent valuation firms. The Company also considers information and other factors including market conditions, the industry that the tenant operates in, characteristics of the real estate (e.g., location, size, demographics, value and comparative rental rates), tenant credit profile and the importance of the location of the real estate to the operations of the tenant's business. Additionally, the Company considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired. The Company uses the information obtained as a result of its pre-acquisition due diligence as part of its consideration of the accounting standard governing asset retirement obligations and, when necessary, will record an asset retirement obligation as part of the purchase price allocation. Real estate investments that are intended to be sold are designated as "held for sale" on the consolidated balance sheets at the lesser of carrying amount and fair value less estimated selling costs. Real estate investments are no longer depreciated when they are classified as held for sale. If the disposal, or intended disposal, of certain 75 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: Year ended December 31, (in thousands) 2023 2022 2021 Depreciation on real estate investments $ 95,527 $ 80,647 $ 61,171 Lease incentives are amortized on a straight-line basis as a reduction of rental income over the remaining non-cancellable terms of the respective leases. If a tenant terminates its lease, the unamortized portion of the lease incentive is charged to rental revenue. Construction in progress is not depreciated until the development has reached substantial completion. Tenant improvements are depreciated over the non-cancellable term of the related lease or their estimated useful life, whichever is shorter. Capitalized above-market lease intangibles are amortized on a straight-line basis as a reduction of rental revenue over the remaining non-cancellable terms of the respective leases. Capitalized below-market lease intangibles are accreted on a straight-line basis as an increase to rental revenue over the remaining non-cancellable terms of the respective leases including any below-market fixed rate renewal option periods. Capitalized above-market ground lease values are accreted as a reduction of property expenses over the remaining terms of the respective leases. Capitalized below-market ground lease values are amortized as an increase to property expenses over the remaining terms of the respective leases and any expected below-market renewal option periods where renewal is considered probable. The value of in-place leases, exclusive of the value of above-market and below-market lease intangibles, is amortized to depreciation and amortization expense on a straight-line basis over the remaining periods of the respective leases. If a tenant terminates its lease, the unamortized portion of each intangible, including in-place lease values, is charged to depreciation and amortization expense, while above- and below-market lease adjustments are recorded within rental revenue in the consolidated statements of operations. Loans Receivable The Company holds its loans receivable for long-term investment. Loans receivable are carried at amortized cost, including related unamortized discounts or premiums, if any, less the Company's estimated allowance for credit losses. The Company recognizes interest income on loans receivable using the effective-interest method applied on a loan-by-loan basis. Direct costs associated with originating loans are offset against any related fees received and the balance, along with any premium or discount, is deferred and amortized as an adjustment to interest income over the term of the related loan receivable using the effective-interest method. Direct Financing Lease Receivables Certain of the Company’s real estate investment transactions are accounted for as direct financing leases. The Company records the direct financing lease receivables at their net investment, determined as the aggregate minimum lease payments and the estimated non-guaranteed residual value of the leased property less unearned income. The unearned income is recognized over the term of the related lease so as to produce a constant rate of return on the net investment in the asset. The Company’s investment in direct financing lease receivables is reduced over the applicable lease term to its non-guaranteed residual value by the portion of rent allocated to the direct financing lease receivables. 76 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 it's 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 the Company's consolidated statements of operations. The Company recorded the following provisions for impairment of long lived assets during the periods presented: Year ended December 31, (in thousands) 2023 2022 2021 Provision for impairment of real estate $ 3,548 $ 20,164 $ 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 December 31, 2023 and 2022, the Company had cash and cash equivalents of $ 39.8 million and $ 62.3 million, respectively, of which $ 39.6 million and $ 62.1 million, respectively, were not insured by the FDIC. Although the Company bears risk with respect to amounts not insured by the FDIC, it has not experienced and does not anticipate any losses as a result due to the high quality of the financial institutions where balances are held. 77 Restricted Cash Restricted cash primarily consists of cash proceeds from the sale of assets held by a qualified intermediary to facilitate tax-deferred exchange transactions under Section 1031 of the Internal Revenue Code of 1986, as amended (the "Code"). Forward Equity Sales The Company has and may continue to enter into forward sale agreements relating to shares of its common stock, either through its 2022 ATM Program (as defined herein) or through underwritten public offerings. These agreements may be physically settled in stock, settled in cash or net share settled at the Company’s election. The Company evaluated its forward sale agreements and concluded they meet the conditions to be classified within stockholders’ equity. Prior to settlement, a forward sale agreement will be reflected in the diluted earnings per share calculations using the treasury stock method. Under this method, the number of shares of the Company’s common stock used in calculating diluted earnings per share is deemed to be increased by the excess, if any, of the number of shares of the Company’s common stock that would be issued upon full physical settlement of such forward sale agreement over the number of shares of the Company’s common stock that could be purchased by the Company in the market (based on the average market price during the reporting period) using the proceeds receivable upon full physical settlement (based on the adjusted forward sale price at the end of the reporting period). Consequently, prior to settlement of a forward sale agreement, there will be no dilutive effect on the Company’s earnings per share except during periods when the average market price of the Company’s common stock is above the adjusted forward sale price. However, upon settlement of a forward sales agreement, if the Company elects to physically settle or net share settle such forward sale agreement, delivery of the Company’s shares will result in dilution to the Company’s earnings per share. Deferred Financing Costs Financing costs related to establishing the Company’s Revolving Credit Facility (as defined below) were deferred and are being amortized as an increase to interest expense in the consolidated statements of operations over the term of the facility and are reported as a component of rent receivables, prepaid expenses and other assets, net on the consolidated balance sheets. Financing costs related to the incurrence of borrowings under the Company's unsecured term loans and the issuance of senior unsecured notes were deferred and are being amortized as an increase to interest expense in the consolidated statements of operations over the term of the related debt instrument and are reported as a reduction of the related debt balance on the consolidated balance sheets. Derivative Instruments In the normal course of business, the Company uses derivative financial instruments, which may include interest rate swaps, caps, options, floors and other interest rate derivative contracts, to protect the Company against adverse fluctuations in interest rates by reducing its exposure to variability in cash flows on a portion of the Company’s floating-rate debt. Instruments that meet these hedging criteria are formally designated as hedges at the inception of the derivative contract. The Company records all derivatives on the consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting 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 designated 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 78 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. 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: Year ended December 31, (in thousands) 2023 2022 2021 Contingent rent $ 743 $ 682 $ 721 79 Adjustment to Rental Revenue for Tenant Credit The Company continually reviews receivables related to rent and unbilled rent receivables and determines collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. If the assessment of the collectability of substantially all payments due under a lease changes from probable to not probable, any difference between the rental revenue recognized to date and the lease payments that have been collected is recognized as a current period reduction of rental revenue in the consolidated statements of operations. The Company recorded the following adjustments as increases or decreases to rental revenue for tenant credit during the periods presented: Year ended December 31, (in thousands) 2023 2022 2021 Adjustment to (decrease) increase rental revenue for tenant credit $ ( 640 ) $ ( 371 ) $ 2,900 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 December 31, 2023 and 2022, the Company capitalized a total of $ 91.3 million and $ 90.3 million, respectively, of such costs, which are presented as a reduction of additional paid-in capital in the Company's consolidated balance sheets. Income Taxes The Company elected and qualified to be taxed as a REIT under sections 856 through 860 of the Code commencing with its taxable year ended December 31, 2018. REITs are subject to a number of organizational and operational requirements, including a requirement that 90% of ordinary “REIT taxable income” (as determined without regard to the dividends paid deduction or net capital gains) be distributed. As a REIT, the Company will generally not be subject to U.S. federal income tax to the extent that it meets the organizational and operational requirements and its distributions equal or exceed REIT taxable income. For the period subsequent to the effective date of its REIT election, the Company continues to meet the organizational and operational requirements and expects distributions to exceed REIT taxable income. Accordingly, no provision has been made for U.S. federal income taxes. Even though the Company has elected and qualifies for taxation as a REIT, it may be subject to state and local income and franchise taxes, and to federal income and excise tax on its undistributed income. Franchise taxes and federal excise taxes on the Company’s undistributed income, if any, are included in general and administrative expenses on the accompanying consolidated statements of operations. Additionally, taxable income from non-REIT activities managed through the Company's taxable REIT subsidiary is subject to federal, state, and local taxes. The Company analyzes its tax filing positions in all of the U.S. federal, state and local tax jurisdictions where it is required to file income tax returns, as well as for all open tax years in such jurisdictions. The Company follows a two-step process to evaluate uncertain tax positions. Step one, recognition, occurs when an entity concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon 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 December 31, 2023 and 2022, the Company had no accruals recorded for uncertain tax positions. The Company’s policy is to classify interest expense and penalties relating to taxes in general and administrative expense in the consolidated statements of operations. During the years ended December 31, 2023, 2022 and 2021, the Company recorded de minimis interest or penalties relating to taxes, and there were no interest or penalties with 80 respect to taxes accrued as of December 31, 2023 or 2022. 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 subjective performance conditions and which vest over a multi-year period, subject to the recipient’s continued service. The Company accounts for RSAs and RSUs in accordance with ASC 718, Compensation – Stock Compensation, which requires that such compensation be recognized in the financial statements based on its estimated grant-date fair value. The value of such awards is recognized as compensation expense in general and administrative expenses in the accompanying consolidated statements of operations over the applicable service periods. The Company recognizes compensation expense for equity-based compensation using the straight-line method based on the fair value of the award on the grant date. Forfeitures of equity-based compensation awards, if any, are recognized when they occur. Variable Interest Entities The Financial Accounting Standards Board (“FASB”) provides guidance for determining whether an entity is a VIE. VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. A VIE is required to be consolidated by its primary beneficiary, which is the party that (i) has the power to control the activities that most significantly impact the VIE’s economic performance and (ii) has the obligation to absorb losses, or the right to receive benefits, of the VIE that could potentially be significant to the VIE. The Company has concluded that the Operating Partnership is a VIE of which the Company is the primary beneficiary, as the Company has the power to direct the activities that most significantly impact the economic performance of the Operating Partnership. Substantially all of the Company’s assets and liabilities are held by the Operating Partnership. The assets and liabilities of the Operating Partnership are consolidated and reported as assets and liabilities on the Company’s consolidated balance sheets as of December 31, 2023 and 2022. Additionally, the Company has concluded that certain entities to which it has provided mortgage loans are VIEs because the entities' equity was not sufficient to finance their activities without additional subordinated financial support. The following table presents information about the Company’s mortgage loan-related VIEs as of the dates presented: December 31, (Dollars in thousands) 2023 2022 Number of VIEs 21 21 Aggregate carrying value $ 219,449 $ 233,351 The Company was not the primary beneficiary of any of these entities, because the Company did not have the power to direct the activities that most significantly impact the entities’ economic performance as of December 31, 2023 and 2022. 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 December 31, 2023 and 2022. Recent Accounting Developments In July 2021, the FASB issued ASU 2021-05, Lease (Topic 842): Lessors - Certain Leases with Variable Lease Payments ("ASU 2021-05"). The guidance in ASU 2021-05 amends the lease classification requirements for the lessors under certain leases containing variable payments to align with practice under ASC 840. The lessor should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if both of the following criteria are met: 1) the lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria in ASC 842-10-25-2 through 25-3; and 2) the lessor would have otherwise recognized a day-one loss. The amendments in ASU 2021-05 are 81 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. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. 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 the guidance on the Company's 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: December 31, 2023 2022 Owned properties (1) 1,726 1,489 Properties securing investments in mortgage loans (2) 136 153 Ground lease interests 11 11 Total number of investments 1,873 1,653 _____________________________________ (1) Includes six and eight properties which are subject to leases accounted for as direct financing leases or loans as of December 31, 2023 and 2022, respectively. (2) Properties secure 20 mortgage loans receivable as of December 31, 2023 and 2022. The following table presents information about the gross investment value of the Company's real estate investment portfolio as of each date presented: December 31, (in thousands) 2023 2022 Real estate investments, at cost $ 4,683,937 $ 3,810,570 Loans and direct financing lease receivables, net 223,854 240,035 Real estate investments held for sale, net 7,455 4,780 Total gross investments $ 4,915,246 $ 4,055,385 82 Investments in 2023 and 2022 The following table presents information about the Company’s investment activity during the years ended December 31, 2023 and 2022: Year ended December 31, (Dollars in thousands) 2023 2022 Ownership type (1) (2) Number of properties 291 224 Purchase price allocation: Land and improvements $ 354,331 $ 270,049 Building and improvements 539,062 481,560 Construction in progress (3) 105,075 51,870 Intangible lease assets 2,553 3,366 Total purchase price 1,001,021 806,845 Intangible lease liabilities ( 181 ) — Purchase price (including acquisition costs) $ 1,000,840 $ 806,845 _____________________________________ (1) During the year ended December 31, 2023, the Company acquired fee interests in 289 properties and acquired two properties subject to ground leases. (2) During the year ended December 31, 2022, the Company acquired fee interests in 223 properties and acquired one property subject to a ground lease. (3) Represents amounts incurred at and subsequent to initial investment and includes $ 2.4 million and $ 0.8 million, respectively, of capitalized interest expense during the years ended December 31, 2023 and 2022. During the years ended December 31, 2023 and 2022, the Company did not make any new investments that individually represented more than 5% of the Company’s total real estate investment portfolio. 83 Gross Investment Activity During the years ended December 31, 2023, 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, December 31, 2020 1,181 $ 2,528,673 Acquisitions of and additions to real estate investments 297 853,798 Sales of investments in real estate ( 38 ) ( 57,154 ) Provisions for impairment of real estate (1) — ( 6,120 ) Investments in loans receivable 49 137,351 Principal collections on and settlements of loans and direct financing lease receivables ( 38 ) ( 100,488 ) Other — ( 499 ) Gross investments, December 31, 2021 1,451 3,355,561 Acquisitions of and additions to real estate investments 224 810,661 Sales of investments in real estate ( 54 ) ( 138,515 ) Provisions for impairment of real estate (2) — ( 20,164 ) Investments in loans receivable 75 143,954 Principal collections on and settlements of loans and direct financing lease receivables ( 43 ) ( 93,118 ) Other — ( 2,994 ) Gross investments, December 31, 2022 1,653 4,055,385 Acquisitions of and additions to real estate investments 291 1,004,075 Sales of investments in real estate ( 51 ) ( 120,809 ) Relinquishment of properties at end of ground lease term ( 2 ) ( 1,543 ) Provisions for impairment of real estate (3) — ( 3,548 ) Investments in loans receivable 2 13,091 Principal collections on and settlements of loans and direct financing lease receivables ( 20 ) ( 27,908 ) Other — ( 3,497 ) Gross investments, December 31, 2023 1,873 4,915,246 Less: Accumulated depreciation and amortization (4) — ( 367,133 ) Net investments, December 31, 2023 1,873 $ 4,548,113 _____________________________________________ (1) During the year ended December 31, 2021, the Company identified and recorded provisions for impairment at two vacant and 16 tenanted properties. (2) During the year ended December 31, 2022, the Company identified and recorded provisions for impairment at four vacant and nine tenanted properties. (3) During the year ended December 31, 2023, the Company identified and recorded provisions for impairment at two vacant and six tenanted properties. (4) Includes $ 321.9 million of accumulated depreciation as of December 31, 2023. 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 December 31, 2023 and 2022, the Company had 20 and 23 mortgage loans receivable outstanding, respectively. As of December 31, 2023 and 2022, the Company had two and three leases accounted for as loans, respectively, with an aggregate carrying amount of $ 223.1 million and $ 238.7 million, respectively. The maximum amount of loss due to credit risk is the Company's current principal balance of $ 223.1 million as of December 31, 2023. 84 The Company's loans receivable portfolio as of December 31, 2023 and 2022 is summarized below (dollars in thousands): Loan Type Monthly Payment (1) Number of Secured Properties Effective Interest Rate Stated Interest Rate Maturity Date Principal Balance Outstanding December 31, 2023 December 31, 2022 Mortgage (2)(3) I/O 2 8.80 % 8.00 % 2039 $ 12,000 $ 12,000 Mortgage (2) I/O 2 8.53 % 7.75 % 2039 7,300 7,300 Mortgage (2) I/O 69 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) I/O 2 8.54 % 8.50 % 2024 1,785 2,324 Mortgage (2) I/O 1 7.00 % 7.00 % 2024 500 600 Mortgage (2) I/O 2 8.30 % 8.25 % 2024 994 3,146 Mortgage (2) I/O 2 6.87 % 6.40 % 2036 2,520 2,520 Mortgage (2) I/O — 7.51 % 7.00 % 2036 — 2,673 Mortgage (2) I/O 2 8.29 % 8.25 % 2024 2,389 2,389 Mortgage (2) I/O 1 8.96 % 8.06 % 2051 24,100 24,100 Mortgage (2) I/O — 7.44 % 7.10 % 2036 — 9,808 Mortgage (2) I/O 7 7.30 % 6.80 % 2036 35,474 35,474 Mortgage (2) I/O 1 7.73 % 7.20 % 2036 2,470 2,470 Mortgage (2) I/O 1 8.00 % 8.00 % 2024 1,754 1,754 Mortgage (2) I/O 26 7.00 % 7.00 % 2027 17,494 26,307 Mortgage (2) I/O 1 7.73 % 7.20 % 2037 3,600 3,600 Mortgage (2) I/O 1 8.30 % 8.25 % 2024 760 760 Mortgage (2) I/O 4 8.64 % 8.05 % 2037 12,250 12,250 Mortgage (2) I/O 9 8.85 % 8.25 % 2037 25,993 28,938 Mortgage (2) I/O 1 8.83 % 8.25 % 2038 10,200 — Mortgage (2) I/O 1 8.10 % 8.10 % 2025 2,891 — Leasehold interest P+I 1 2.25 % (4) 2034 929 992 Leasehold interest P+I 1 2.41 % (4) 2034 1,382 1,473 Leasehold interest P+I — 4.97 % (4) 2038 — 1,517 Net investment $ 223,085 $ 238,695 ________________________________________________ (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. 85 Scheduled principal payments due to be received under the Company's loans receivable as of December 31, 2023 were as follows: (in thousands) Loans Receivable 2024 $ 8,346 2025 3,063 2026 181 2027 17,684 2028 199 Thereafter 193,612 Total $ 223,085 As of December 31, 2023 and 2022, the Company had $ 1.4 million and $ 2.1 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: December 31, (in thousands) 2023 2022 Minimum lease payments receivable $ 1,709 $ 2,812 Estimated unguaranteed residual value of leased assets 251 251 Unearned income from leased assets ( 525 ) ( 957 ) Net investment $ 1,435 $ 2,106 Scheduled future minimum non-cancelable base rental payments due to be received under the direct financing lease receivables as of December 31, 2023 were as follows: (in thousands) Future Minimum Base Rental Payments 2024 $ 210 2025 178 2026 167 2027 143 2028 145 Thereafter 866 Total $ 1,709 Allowance for Credit Losses The Company utilizes a real estate loss estimate model (i.e. a RELEM) which estimates losses on loans and direct financing lease receivables for purposes of calculating an allowance for credit losses. As of December 31, 2023 and 2022, the Company recorded an allowance for credit losses of $ 0.7 million and $ 0.8 million, respectively, which is recorded within loans and direct financing receivables on the Company's consolidated balance sheets. 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. 86 For the years ended December 31, 2023, 2022 and 2021, the changes to the Company's allowance for credit losses were as follows: (in thousands) Loans and Direct Financing Lease Receivables Balance at December 31, 2020 $ 1,018 Current period provision for expected credit losses (1) ( 204 ) Write-offs charged — Recoveries — Balance at December 31, 2021 814 Current period provision for expected credit losses (2) 88 Write-offs charged ( 137 ) Recoveries — Balance at December 31, 2022 765 Current period provision for expected credit losses (2) ( 99 ) Write-offs charged — Recoveries — Balance at December 31, 2023 $ 666 _____________________________________ (1) The decrease in expected credit losses was due to assumptions regarding current macroeconomic factors returning to pre-pandemic values due to the reduction of the adverse impact of the COVID-19 pandemic. (2) The change in expected credit loss was primarily due to an overall increase or decrease in the size of our loans and direct financing lease receivables portfolio. 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 as of December 31, 2023: Amortized Cost Basis by Origination Year Total Amortized Cost Basis (in thousands) 2023 2022 2021 2020 Prior to 2020 LTV <60% $ — $ 23,000 $ — $ — $ 28,986 $ 51,986 LTV 60%-70% — — 28,734 — — 28,734 LTV >70% 13,091 71,611 29,953 8,466 20,679 143,800 $ 13,091 $ 94,611 $ 58,687 $ 8,466 $ 49,665 $ 224,520 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. 87 The following table shows the activity in real estate investments held for sale and intangible lease liabilities held for sale during the years ended December 31, 2023 and 2022: (Dollar amounts in thousands) Number of Properties Real Estate Investments Intangible Lease Liabilities Net Carrying Value Held for sale balance, December 31, 2021 9 $ 15,434 $ — $ 15,434 Transfers to held for sale classification 11 28,393 — 28,393 Sales ( 16 ) ( 39,047 ) — ( 39,047 ) Transfers to held and used classification — — — — Held for sale balance, December 31, 2022 4 4,780 — 4,780 Transfers to held for sale classification 10 19,311 — 19,311 Sales ( 9 ) ( 16,067 ) — ( 16,067 ) Transfers to held and used classification ( 1 ) ( 569 ) — ( 569 ) Held for sale balance, December 31, 2023 4 $ 7,455 $ — $ 7,455 Significant Concentrations The Company did not have any tenants (including for this purpose, all affiliates of such tenants) whose rental revenue for the years ended December 31, 2023, 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: Year ended December 31, State 2023 2022 2021 Texas 13.3 % 13.5 % 13.1 % Intangible Assets and Liabilities Intangible assets and liabilities consisted of the following as of the dates presented: December 31, 2023 December 31, 2022 (in thousands) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Intangible assets: In-place leases $ 78,080 $ 35,896 $ 42,184 $ 77,096 $ 30,217 $ 46,879 Intangible market lease assets 11,129 5,456 5,673 11,268 4,917 6,351 Total intangible assets $ 89,209 $ 41,352 $ 47,857 $ 88,364 $ 35,134 $ 53,230 Intangible market lease liabilities $ 15,505 $ 4,299 $ 11,206 $ 15,325 $ 3,774 $ 11,551 The remaining weighted average amortization period for the Company's intangible assets and liabilities as of December 31, 2023, by category and in total, were as follows: Years Remaining In-place leases 8.5 Intangible market lease assets 10.4 Total intangible assets 8.7 Intangible market lease liabilities 8.7 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 88 liabilities, net and the amortization and accretion of above- and below-market ground leases for the periods presented: Year ended December 31, (in thousands) 2023 2022 2021 Amortization of in-place leases (1) $ 6,408 $ 7,575 $ 7,544 Amortization (accretion) of market lease intangibles, net (2) 11 ( 217 ) ( 47 ) Amortization (accretion) of above- and below-market ground lease intangibles, net (3) ( 286 ) ( 350 ) ( 353 ) ______________________________________________________ (1) Reflected within depreciation and amortization expense. (2) Reflected within rental revenue. (3) Reflected within property expenses. 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 2024 $ 5,854 2025 4,564 2026 4,260 2027 3,731 2028 3,192 Thereafter 20,583 Total $ 42,184 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 Asset Below Market Lease Liabilities Net Adjustment to Rental Revenue 2024 $ ( 667 ) $ 699 $ 32 2025 ( 659 ) 701 42 2026 ( 649 ) 705 56 2027 ( 627 ) 729 102 2028 ( 385 ) 684 299 Thereafter ( 2,686 ) 7,688 5,002 Total $ ( 5,673 ) $ 11,206 $ 5,533 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 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. 89 Scheduled future minimum base rental payments due to be received under the remaining non-cancelable term of the operating leases in place as of December 31, 2023 were as follows: (in thousands) Future Minimum Base Rental Receipts 2024 $ 367,658 2025 372,511 2026 375,862 2027 377,320 2028 378,407 Thereafter 4,031,616 Total $ 5,903,374 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 years ended December 31, 2023, 2022, and 2021 were as follows: Year ended December 31, (in thousands) 2023 2022 2021 Fixed lease revenues $ 338,720 $ 270,694 $ 210,441 Variable lease revenues (1) 3,610 1,632 1,708 Total lease revenues (2) $ 342,330 $ 272,326 $ 212,149 _____________________________________ (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 adjustment to rental revenue for tenant credit. As Lessee The Company has a number of ground leases, office leases and other equipment leases which are classified as operating leases. As of December 31, 2023, the Company's ROU assets and lease liabilities were $ 8.9 million and $ 9.8 million, respectively. As of December 31, 2022, the Company's ROU assets and lease liabilities were $ 7.3 million and $ 9.0 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: December 31, 2023 December 31, 2022 Weighted average remaining lease term (in years) 22.8 22.9 Weighted average discount rate 6.75 % 6.09 % 90 The following table sets forth the details of rent expense for the years ended December 31, 2023, 2022 and 2021: Year ended December 31, (in thousands) 2023 2022 2021 Fixed rent expense - Ground Rent $ 970 $ 981 $ 957 Fixed rent expense - Office Rent 606 511 510 Variable rent expense — — — Total rent expense $ 1,576 $ 1,492 $ 1,467 As of December 31, 2023, future lease payments due from the Company under the ground, office and equipment operating leases where the Company is directly responsible for payment and the future lease payments due under the ground operating leases where the Company's tenants are directly responsible for payment over the next five years and thereafter were as follows: (in thousands) Office and Equipment Leases Ground Leases to be Paid by the Company Ground Leases to be Paid Directly by the Company’s Tenants Total Future Minimum Base Rental Payments 2024 $ 704 $ 28 $ 909 $ 1,641 2025 733 — 834 1,567 2026 217 — 840 1,057 2027 219 — 854 1,073 2028 224 — 738 962 Thereafter 57 — 18,002 18,059 Total $ 2,154 $ 28 $ 22,177 24,359 Present value discount ( 14,582 ) Lease liabilities $ 9,777 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 December 31, 2023 and 2022: Principal Outstanding Weighted Average Interest Rate (1) (in thousands) Maturity Date December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022 Unsecured term loans: 2024 Term Loan April 2024 $ — $ 200,000 — % 5.3 % 2027 Term Loan February 2027 430,000 430,000 6.3 % 5.3 % 2028 Term Loan January 2028 400,000 400,000 6.3 % 5.3 % 2029 Term Loan February 2029 (2) 450,000 — 6.4 % — % Senior unsecured notes July 2031 400,000 400,000 3.0 % 3.0 % Revolving Credit Facility February 2026 — — — % — % Total principal outstanding $ 1,680,000 $ 1,430,000 5.5 % 4.6 % ______________________________________________________ (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). (2) After giving effect to extension options exercisable at the Operating Partnership's election. 91 The following table summarizes the scheduled principal payments on the Company’s outstanding indebtedness as of December 31, 2023: (in thousands) 2027 Term Loan 2028 Term Loan 2029 Term Loan (1) Senior Unsecured Notes Revolving Credit Facility (2) Total 2024 $ — $ — $ — $ — $ — $ — 2025 — — — — — — 2026 — — — — — — 2027 430,000 — — — — 430,000 2028 — 400,000 — — — 400,000 Thereafter — — 450,000 400,000 — 850,000 Total $ 430,000 $ 400,000 $ 450,000 $ 400,000 $ — $ 1,680,000 ______________________ (1) After giving effect to extension options exercisable at the Operating Partnership's election. (2) Any amounts drawn will be due in February 2026. The Company was not in default of any provisions under any of its outstanding indebtedness as of December 31, 2023 or 2022. Revolving Credit Facility, 2024 Term Loan, 2028 Term Loan and 2029 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 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 year ended December 31, 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 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. 92 In July 2022, the Credit Agreement was further amended to provide for an additional $ 400.0 million of second tranche term loans (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. In August 2023, the Credit Agreement was further amended to provide for an additional $ 450.0 million of term loans (the "2029 Term Loan"). Concurrently with the closing of such amendment, loans under the 2029 Term Loan in an aggregate principal amount of $ 250.0 million were drawn, a portion of which was used to pay off the 2024 Term Loan in full. Additional loans under the 2029 Term Loan were drawn in an aggregate principal amount of $ 125.0 million in September 2023 and $ 75.0 million in October 2023. The 2029 Term Loan has an original maturity of three years, which may be extended, at the Operating Partnership's election, to February 2029 by exercising two one-year extension options and a six-month extension option. The 2029 Term Loan will initially bear interest at an annual rate of applicable Adjusted Term SOFR plus an applicable margin. Amounts previously borrowed and repaid under the 2024 Term Loan cannot be reborrowed. The Company accounted for the repayment of the 2024 Term Loan as a debt extinguishment and recorded a $ 0.1 million loss on debt extinguishment during the year ended December 31, 2023. Each of the Revolving Credit Facility, the 2028 Term Loan and the 2029 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 2028 Term Loan and 2029 Term Loan cannot be reborrowed. The Operating Partnership is the borrower under the Credit Agreement, and the Company and certain of its subsidiaries that own direct or indirect interests in an eligible real property assets 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 and secured borrowing ratios. The Company was in compliance with all financial covenants and was not in default on any provisions under the Credit Agreement as of December 31, 2023 and 2022. The following table presents information about the Revolving Credit Facility for the periods presented: (in thousands) 2023 2022 2021 Balance on January 1, $ — $ 144,000 $ 18,000 Borrowings 70,000 299,000 393,000 Repayments ( 70,000 ) ( 443,000 ) ( 267,000 ) Balance on December 31, $ — $ — $ 144,000 93 The following table presents information about interest expense related to the Revolving Credit Facility for the periods presented: Year ended December 31, (in thousands) 2023 2022 2021 Interest expense and fees $ 1,038 $ 2,807 $ 1,552 Amortization of deferred financing costs 1,203 1,217 1,165 Total $ 2,241 $ 4,024 $ 2,717 Total deferred financing costs, net, of $ 2.5 million and $ 3.7 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 December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, the Company had $ 600.0 million 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 $ 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. 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 year ended December 31, 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 certain of its subsidiaries that own direct or indirect interests in eligible real property assets 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 and secured borrowing ratios and a minimum level of tangible net worth. The Company was in compliance with all financial covenants and was not in default of any provisions under the 2027 Term Loan as of December 31, 2023 and 2022. 94 The following table presents information about aggregate interest expense related to the 2024 Term Loan, 2027 Term Loan, 2028 Term Loan and 2029 Term Loan: Year ended December 31, (in thousands) 2023 2022 2021 Interest expense $ 66,582 $ 23,967 $ 9,819 Amortization of deferred financing costs 1,617 836 736 Total $ 68,199 $ 24,803 $ 10,555 As of December 31, 2023 and 2022, total deferred financing costs, net, of $ 7.2 million and $ 4.5 million, respectively, 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. 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. The following is a summary of the senior unsecured notes outstanding as of December 31, 2023 and 2022: (dollars in thousands) Maturity Date Interest Payment Dates Stated Interest Rate Principal Outstanding 2031 Notes July 15, 2031 January 15 and July 15 2.95 % $ 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. In addition, if any of the 2031 Notes are redeemed on or after April 15, 2031 (three months prior to the stated maturity date of such notes), the redemption price will equal 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, without any make-whole premium. The following table presents information about interest expense related to the Company's senior unsecured notes for the periods presented: Year ended December 31, (in thousands) 2023 2022 2021 Interest expense $ 11,713 $ 11,711 $ 5,952 Amortization of deferred financing costs and original issue discount 560 562 295 Total $ 12,273 $ 12,273 $ 6,247 Total deferred financing costs, net, of $ 3.6 million and $ 4.0 million related to the Company's senior unsecured notes were included within senior unsecured notes, net on the Company's consolidated balance sheets as of December 31, 2023 and 2022, respectively. The Company was in compliance with all financial covenants and was not in default of any provisions under the 2031 Notes as of December 31, 2023 and 2022. 95 6. Derivative and Hedging Activities The Company does not enter into derivative financial instruments for speculative or trading purposes. The Company's objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. These derivatives are considered cash flow hedges and are recorded on a gross basis at fair value. Subsequent to the adoption of ASU 2017-12, assessments of hedge effectiveness are performed quarterly using either a qualitative or quantitative approach. The Company recognizes the entire change in the fair value in accumulated other comprehensive income (loss) and the change is reflected as derivative changes in fair value in the supplemental disclosures of non-cash financing activities in the consolidated statements of cash flows. The amounts recorded in accumulated other comprehensive income (loss) will subsequently be reclassified to interest expense as interest payments are made on the Company's borrowings under its variable-rate term loan facilities. During the next twelve months, the Company estimates that $ 22.4 million will be reclassified from accumulated other comprehensive income as a decrease to interest expense. The Company does not have netting arrangements related to its derivatives. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which the Company and its affiliates may also have other financial relationships. The Company does not anticipate that any of the counterparties will fail to meet their obligations. As of December 31, 2023 and 2022, there were no events of default related to the Company's derivative financial instruments. 96 The following table summarizes the notional amount at inception and fair value of these instruments on the Company's balance sheets as of December 31, 2023 and 2022 (dollar amounts in thousands): Fair Value of Asset/(Liability) (2) Derivatives Designated as Hedging Instruments Fixed Rate Paid by Company Effective Date Maturity Date Notional Value (1) December 31, 2023 December 31, 2022 Interest Rate Swap (3) 1.96 % 5/14/2019 4/12/2024 $ 100,000 $ 981 $ 3,545 Interest Rate Swap (3) 1.95 % 5/14/2019 4/12/2024 50,000 492 1,781 Interest Rate Swap (3) 1.94 % 5/14/2019 4/12/2024 50,000 492 1,777 Interest Rate Swap (3) 1.52 % 12/9/2019 11/26/2026 175,000 10,654 14,685 Interest Rate Swap (3) 1.51 % 12/9/2019 11/26/2026 50,000 3,077 4,248 Interest Rate Swap (3) 1.49 % 12/9/2019 11/26/2026 25,000 1,542 2,120 Interest Rate Swap (3) 1.26 % 7/9/2020 11/26/2026 100,000 6,810 9,324 Interest Rate Swap (3) 1.28 % 7/9/2020 11/26/2026 80,000 5,406 7,418 Interest Rate Swap 3.19 % 9/26/2022 1/25/2028 50,000 688 1,166 Interest Rate Swap 3.35 % 9/26/2022 1/25/2028 50,000 383 804 Interest Rate Swap 3.36 % 9/26/2022 1/25/2028 25,000 180 387 Interest Rate Swap 3.43 % 9/26/2022 1/25/2028 50,000 226 612 Interest Rate Swap 3.71 % 9/26/2022 1/25/2028 50,000 ( 290 ) ( 12 ) Interest Rate Swap 3.70 % 9/26/2022 1/25/2028 25,000 ( 144 ) ( 15 ) Interest Rate Swap 4.00 % 10/26/2022 1/25/2028 50,000 ( 851 ) ( 693 ) Interest Rate Swap 3.95 % 11/28/2022 1/25/2028 25,000 ( 378 ) ( 293 ) Interest Rate Swap 4.03 % 11/28/2022 1/25/2028 25,000 ( 459 ) ( 396 ) Interest Rate Swap 4.06 % 11/28/2022 1/25/2028 25,000 ( 485 ) ( 427 ) Interest Rate Swap 4.07 % 11/28/2022 1/25/2028 25,000 ( 492 ) ( 428 ) Interest Rate Swap 4.15 % 8/24/2023 2/28/2029 50,000 ( 1,550 ) — Interest Rate Swap 4.38 % 9/29/2023 2/28/2029 75,000 ( 3,193 ) — Interest Rate Swap 4.39 % 9/29/2023 2/28/2029 50,000 ( 2,114 ) — Interest Rate Swap 4.32 % 10/11/2023 2/28/2029 25,000 ( 981 ) — Interest Rate Swap 4.32 % 10/11/2023 2/28/2029 25,000 ( 980 ) — Interest Rate Swap 4.51 % 10/31/2023 2/28/2029 25,000 ( 1,207 ) — Interest Rate Swap (4) 4.48 % 4/12/2024 2/28/2029 100,000 ( 4,919 ) — Interest Rate Swap (4) 4.48 % 4/12/2024 2/28/2029 100,000 ( 4,913 ) — $ 1,480,000 $ 7,975 $ 45,603 _____________________________________ (1) Notional value indicates the extent of the Company’s involvement in these instruments, but does not represent exposure to credit, interest rate or market risks. (2) Derivatives in an asset position are included within derivative assets and derivatives in a liability position are included within derivative liabilities in the Company's consolidated balance sheets. (3) In June 2022, the Company converted the reference rate used in these interest rate swaps from 1-month LIBOR to 1-month Adjusted Term SOFR. (4) The Company entered into two forward swap contracts during the year ended December 31, 2023. The Company has agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations. The following table presents amounts recorded to accumulated other comprehensive income related to derivative and hedging activities for the periods presented: Year ended December 31, (in thousands) 2023 2022 2021 Other comprehensive (loss) income $ ( 36,874 ) $ 56,762 $ 22,508 97 As of December 31, 2023, the fair value of derivatives in a net asset position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $ 31.1 million and the fair value of derivatives in a net liability position, including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $ 23.4 million. As of December 31, 2022, the fair value of derivatives in a net asset position, including accrued interest but excluding any adjustment for nonperformance risk related to these agreements, was $ 48.2 million and the fair value of derivatives in a net liability position, including accrued interest but excluding an adjustment for nonperformance risk related to these agreements, was $ 2.4 million. During the year ended December 31, 2023, the Company realized a gain on the change in fair value of its interest rate swaps of $ 27.7 million, which was included as a reduction of interest expense in the Company's consolidated statements of operations. During the years ended December 31, 2022 and 2021, the Company realized a loss on the change in fair value of its interest rate swaps of approximately $ 26,000 and $ 10.1 million, respectively, which are included in interest expense in the Company's consolidated statements of operations. As of December 31, 2023 and December 31, 2022, the Company had not posted any collateral related to these agreements and was not in breach of any provisions of such agreements. If the Company had breached any of these provisions, it could have been required to settle its obligations under the agreements at their aggregate termination value, which were a $ 7.7 million net asset and a $ 45.9 million net asset as of December 31, 2023 and 2022, respectively. 7. Equity Stockholders' Equity In April 2021, the Company completed a follow-on primary offering of 8,222,500 shares of its common stock, including 1,072,500 shares of common stock purchased by the underwriters pursuant to an option to purchase additional shares, at a public offering price of $ 23.50 per share. Net proceeds from this follow-on offering, after deducting underwriting discounts and commissions and other expenses, were $ 185.1 million. In August 2022, the Company completed a follow-on primary offering of 8,740,000 shares of its common stock, including the full exercise of the underwriters' option to purchase 1,140,000 additional shares of common stock, at a public offering price of $ 23.00 per share. Net proceeds from this follow-on offering, after deducting underwriting discounts and commissions and other expenses, were $ 192.6 million. In February 2023, the Company completed a follow-on primary offering of 8,855,000 shares of its common stock, including the full exercise of the underwriters' option to purchase 1,155,000 additional shares of common stock, at a public offering price of $ 24.60 per share, and entered into forward sale agreements relating to all such shares. All shares were physically settled as of May 2023 and the Company realized net proceeds from this offering, after deducting underwriting discounts and commissions and other expenses, of $ 209.3 million. In September 2023, the Company completed a follow-on primary offering of 12,006,000 shares of its common stock, including the full exercise of the underwriters' option to purchase up to 1,566,000 additional shares of common stock, at a public offering price of $ 23.00 per share, and entered into forward sale agreements relating to all such shares. Through December 31, 2023, the Company physically settled 8,165,087 shares under the forward sale agreements relating to this offering, realizing net proceeds of $ 180.0 million. Assuming full physical settlement of the remaining forward sale agreements, net proceeds from this offering, after deducting underwriting discounts and commissions and other expenses and making certain other adjustments as provided in the forward sale agreements, are expected to be $ 263.4 million. The Company is required to settle the balance of the forward sale agreements by September 2024. At the Market Program In May 2022, the Company established a new at the market common equity offering program, pursuant to which it can publicly offer and sell, from time to time, shares of its common stock with an aggregate gross sales price of up to $ 500 million (the "2022 ATM Program") through the identified sales agents, as its sales agents or, if applicable, as forward sellers, or directly to such agents as principals. In addition to the issuance and sale by the Company of shares to or through the agents, the 2022 ATM Program also permits the Company to enter into 98 separate forward sale agreements with the identified forward purchasers. References to the Company's "ATM Program" are to the 2022 ATM Program or the 2022 ATM Program and its prior ATM programs as the context requires. The following table presents information about the 2022 ATM Program and the Company's prior ATM Programs: Program Name Date Established Date Terminated Maximum Sales Authorization Gross Sales through December 31, 2023 2019 ATM Program August 2019 June 2020 $ 200,000 $ 184,400 2020 ATM Program June 2020 July 2021 $ 250,000 $ 166,800 2021 ATM Program July 2021 May 2022 $ 350,000 $ 348,140 2022 ATM Program (1) May 2022 $ 500,000 $ 220,643 _____________________________________ (1) Includes 1,937,450 shares that the Company sold on a forward basis and were not physically settled as of December 31, 2023. The following table details information related to activity under the ATM Program for each period presented: Year ended December 31, (in thousands, except share and per share data) 2023 2022 2021 Shares of common stock sold (1)(2) 5,931,654 9,794,137 10,005,890 Weighted average sale price per share $ 24.48 $ 24.00 $ 27.58 Gross proceeds $ 145,224 $ 235,060 $ 275,972 Net proceeds $ 142,922 $ 232,478 $ 271,949 _____________________________________ (1) Includes 1,937,450 shares that the Company sold on a forward basis and were not physically settled as of December 31, 2023. (2) During the year ended December 31, 2023, the Company issued an additional 957,453 shares of common stock which were previously sold on a forward basis under the ATM Program and were unsettled as of December 31, 2022. Dividends on Common Stock During the years ended December 31, 2023, 2022 and 2021, the Company's board of directors declared the following quarterly cash dividends on common stock: Date Declared Record Date Date Paid Dividend per Share of Common Stock Total Dividend (dollars in thousands) December 1, 2023 December 29, 2023 January 12, 2024 $ 0.285 $ 47,024 September 7, 2023 September 29, 2023 October 13, 2023 $ 0.28 $ 43,788 June 9, 2023 June 30, 2023 July 14, 2023 $ 0.28 $ 43,551 March 7, 2023 March 31, 2023 April 14, 2023 $ 0.275 $ 41,031 November 30, 2022 December 30, 2022 January 13, 2023 $ 0.275 $ 39,246 September 2, 2022 September 30, 2022 October 14, 2022 $ 0.27 $ 38,533 June 2, 2022 June 30, 2022 July 14, 2022 $ 0.27 $ 35,916 March 14, 2022 March 31, 2022 April 13, 2022 $ 0.26 $ 34,188 December 3, 2021 December 31, 2021 January 13, 2022 $ 0.26 $ 32,466 September 2, 2021 September 30, 2021 October 14, 2021 $ 0.25 $ 30,397 May 27, 2021 June 30, 2021 July 15, 2021 $ 0.25 $ 29,559 March 5, 2021 March 31, 2021 April 15, 2021 $ 0.24 $ 26,265 The Company has determined that, during the years ended December 31, 2023, 2022 and 2021, approximately 86.0 %, 79.7 % and 69.4 %, respectively, of the distributions it paid represented taxable income and 14.0 %, 20.3 % and 30.6 %, respectively, of the distributions it paid represented return of capital for federal income tax purposes. 99 8. Non-controlling Interests Essential Properties OP G.P., LLC, a wholly owned subsidiary of the Company, is the sole general partner of the Operating Partnership and holds a 1.0 % general partner interest in the Operating Partnership. The Company contributes the net proceeds from issuing shares of common stock to the Operating Partnership in exchange for a number of OP Units equal to the number of shares of common stock issued. OP Units ("OP Units") are limited partnership interests in the Operating Partnership. As of December 31, 2023, the Company held 164,635,150 OP Units, representing a 99.7 % limited partner interest in the Operating Partnership. As of the same date, certain members of management and external parties (the "Non-controlling OP Unit Holders") held 553,847 OP Units in the aggregate, representing a 0.3 % limited partner interest in the Operating Partnership. As of December 31, 2022, the Company held 142,379,655 OP Units, representing a 99.6 % limited partner interest in the Operating Partnership and the Non-controlling OP Unit Holders held 553,847 OP Units in the aggregate, representing a 0.4 % limited partner interest in the Operating Partnership. The OP Units held by the Non-controlling OP Unit Holders are presented as non-controlling interests in the Company's consolidated financial statements. A holder of OP Units has the right to distributions per unit equal to dividends per share paid on the Company's common stock and has the right to redeem OP Units for cash or, at the Company's election, shares of the Company's common stock on a one -for-one basis, provided, however, that such OP Units must have been outstanding for at least one year . Distributions to OP Unit holders are declared and paid concurrently with the Company's cash dividends to common stockholders. See Note 7—Equity for details. 9. Equity Based Compensation Equity Incentive Plan In May 2023, the Company’s stockholders approved the Essential Properties Realty Trust, Inc. 2023 Incentive Plan (the “2023 Equity Incentive Plan”), which replaced the Essential Properties Realty Trust, Inc. 2018 Incentive Plan (the “2018 Equity Incentive Plan” and, collectively with the 2023 Equity Incentive Plan, the “Equity Incentive Plans”). The 2023 Equity Incentive Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, RSAs, RSUs, other stock awards, performance awards and LTIP units up to an aggregate of 4,300,808 shares of the Company’s common stock, subject to certain conditions. Officers, employees, non-employee directors, consultants, independent contractors and agents who provide services to the Company or to any subsidiary of the Company are eligible to receive such awards. All subsequent awards of equity will be granted under the 2023 Equity Incentive Plan, and no further awards will be made under the 2018 Equity Incentive Plan. 100 The following table presents information about the Company's RSAs and RSUs during the years ended December 31, 2023, 2022 and 2021: Restricted Stock Awards Restricted Stock Units Shares Wtd. Avg. Grant Date Fair Value Units Wtd. Avg. Grant Date Fair Value Unvested, January 1, 2021 240,598 $ 13.73 321,602 $ 25.27 Granted — — 213,686 31.78 Vested ( 221,694 ) 13.70 ( 72,879 ) 18.83 Forfeited — — ( 7,717 ) 23.52 Unvested, December 31, 2021 18,904 $ 14.12 454,692 $ 29.39 Unvested, January 1, 2022 18,904 $ 14.12 454,692 $ 29.39 Granted — — 607,347 29.08 Vested ( 9,865 ) 14.12 ( 243,640 ) 25.70 Forfeited — — ( 1,019 ) 27.25 Unvested, December 31, 2022 9,039 $ 14.12 817,380 $ 30.26 Unvested, January 1, 2023 9,039 $ 14.12 817,380 $ 30.26 Granted — — 457,859 31.39 Vested ( 9,039 ) 14.12 ( 436,967 ) 26.98 Forfeited — — ( 94,419 ) 32.79 Unvested, December 31, 2023 — $ 14.12 743,853 $ 32.56 Restricted Stock Awards In June 2018, an aggregate of 691,290 shares of RSAs were issued to the Company's directors, executive officers and other employees under the Equity Incentive Plans. These RSAs vested over periods ranging from one year to three years from the date of grant, subject to the individual recipient's continued provision of service to the Company through the applicable vesting dates. In January 2019, RSAs relating to an aggregate of 46,368 shares of unvested restricted common stock were granted to the Company's executive officers, other employees and an external consultant under the Equity Incentive Plans. These RSAs vested over periods ranging from one year to four years from the date of grant, subject to the individual recipient's continued provision of service to the Company through the applicable vesting dates. The Company estimates the grant date fair value of RSAs granted under the Equity Incentive Plans using the average market price of the Company's common stock on the date of grant. The following table presents information about the Company's RSAs for the periods presented: Year ended December 31, (in thousands) 2023 2022 2021 Compensation cost recognized in general and administrative expense $ 2 $ 128 $ 1,548 Dividends declared on unvested RSAs and charged directly to distributions in excess of cumulative earnings — 8 70 Fair value of shares vested during the period 128 139 3,037 101 The following table presents information about the Company's RSAs as of the dates presented: December 31, (Dollars in thousands) 2023 2022 2021 Total unrecognized compensation cost $ — $ 2 $ 130 Weighted average period over which compensation cost will be recognized (in years) — 0.1 1.0 Restricted Stock Units In 2019, 2020, 2021, 2022 and 2023 the Company issued target grants of 119,085 , 84,684 , 126,353 , 149,699 and 147,587 performance-based RSUs, respectively, to the Company's senior management team under the Equity Incentive Plans. Of these awards, 75 % are non-vested RSUs for which vesting percentages and the ultimate number of units vesting is calculated based on the total stockholder return ("TSR") of the Company's common stock as compared to the TSR of peer companies identified in the grant agreements. The payout schedule can produce vesting percentages ranging from 0 % to 250 % of target. TSR is calculated over the performance period for each award based upon the average closing price for the 20 -trading day period ending December 31st of the year prior to grant divided by the average closing price for the 20 -trading day period ending December 31st of the third year following the grant. The target number of units is based on achieving a TSR equal to the 50 th percentile of the peer group. The Company records expense on these TSR RSUs based on achieving the target. The grant date fair value of the TSR RSUs was measured using a Monte Carlo simulation model based on the following assumptions: Grant Year 2023 2022 2021 Volatility 37 % 54 % 55 % Risk free rate 4.36 % 1.68 % 0.20 % The remaining 25 % of these performance-based RSUs vest based on the Compensation Committee's subjective evaluation of the individual recipient's achievement of certain strategic objectives over the performance period of the award. In January 2022 and February 2023, the Compensation Committee identified specific performance targets and completed its subjective evaluation in relation to the performance-based RSUs granted in 2019 and 2020 and concluded that 78,801 and 50,598 RSUs, respectively, should be awarded. 50 % of these RSUs vested immediately upon the Compensation Committee's certification and the remaining 50 % vested on December 31, 2022 and December 31, 2023. The Company began recording compensation expense with respect to these subjective performance-based RSUs granted in 2019 and 2020 after the completion of the Compensation Committee's subjective evaluation. In April 2023, the Compensation Committee evaluated and awarded 11,334 subjective performance-based RSUs to a former member of the Company's senior management team, which vested immediately. During the year ended December 31, 2023, the Company recorded $ 0.3 million of compensation expense related to the subjective RSUs awarded to this former employee. As of December 31, 2023, the Compensation Committee had not identified specific performance targets relating to the individual recipients' achievement of strategic objectives for the remainder of the subjective awards granted in 2021, 2022 and 2023. As such, these awards do not have either a service inception or a grant date for GAAP accounting purposes and the Company recorded no compensation expense with respect to this portion of the performance-based RSUs during the years ended December 31, 2023, 2022 and 2021. In 2020, 2021, 2022 and 2023, the Company issued an aggregate of 184,760 , 135,686 , 199,793 and 210,406 RSUs, respectively, to the Company’s executive officers, other employees and directors under the Equity Incentive Plan. These awards vest over a period of up to five years from the date of grant, subject to the individual recipient’s continued provision of service to the Company through the applicable vesting dates. In January 2022, the Company issued 69,372 performance-based RSUs (at target) to an executive officer under the Equity Incentive Plans. These RSUs vest based on the compound annual growth rate of the Company's adjusted funds from operations ("AFFO CAGR") over a five year performance period, and the payout schedule can produce vesting percentages ranging from 0 % to 200 % of target. To the extent the performance goal is achieved, these performance-based RSUs will vest in 50 % increments on each of the four-year and five-year anniversary of 102 the grant date, subject to the recipient's continued provision of service to the Company through the applicable vesting dates. As of December 31, 2023 and 2022, based on its AFFO CAGR forecasts, the Company believes it is probable that the maximum performance level will be achieved and recorded compensation expense based off of this estimate during the years ended December 31, 2023 and 2022. A portion of the RSUs that vested in 2023, 2022, and 2021 were net share settled such that the Company withheld shares with a value equal to the relevant employee's income and employment tax obligations with respect to the vesting and remitted a cash payment to the appropriate taxing authority. The following table presents information about the Company's RSUs for the periods presented: Year ended December 31, (in thousands) 2023 2022 2021 Compensation cost recognized in general and administrative expense $ 9,002 $ 9,361 $ 4,135 Dividend equivalents declared and charged directly to distributions in excess of cumulative earnings 407 366 241 Fair value of units vested during the period 11,791 6,262 1,372 The following table presents information about the Company's RSUs as of the dates presented: December 31, (Dollars in thousands) 2023 2022 Total unrecognized compensation cost $ 13,131 $ 13,761 Weighted average period over which compensation cost will be recognized (in years) 2.2 2.8 10. Net Income Per Share The Company computes net income per share pursuant to the guidance in FASB ASC Topic 260, Earnings Per Share . The guidance requires the classification of the Company’s unvested restricted common stock and units, which contain rights to receive non-forfeitable dividends or dividend equivalents, as participating securities requiring the two-class method of computing net income per share. Diluted net income per share of common stock further considers the effect of potentially dilutive shares of common stock outstanding during the period, including the assumed vesting of RSUs with market-, performance- or service-based vesting conditions, where dilutive. The OP Units held by non-controlling interests represent potentially dilutive securities as the OP Units may be redeemed for cash or, at the Company’s election, exchanged for shares of the Company’s common stock on a one -for-one basis. 103 The following is a reconciliation of the numerator and denominator used in the computation of basic and diluted net income per share (dollars in thousands): Year ended December 31, (dollar amounts in thousands) 2023 2022 2021 Numerator for basic and diluted earnings per share: Net income $ 191,415 $ 134,742 $ 96,211 Less: net income attributable to non-controlling interests ( 708 ) ( 612 ) ( 486 ) Less: net income allocated to unvested RSAs and RSUs ( 407 ) ( 374 ) ( 311 ) Net income available for common stockholders: basic 190,300 133,756 95,414 Net income attributable to non-controlling interests 708 612 486 Net income available for common stockholders: diluted $ 191,008 $ 134,368 $ 95,900 Denominator for basic and diluted earnings per share: Weighted average common shares outstanding 152,140,896 134,950,418 116,479,322 Less: weighted average number of shares of unvested RSAs ( 161 ) ( 9,230 ) ( 121,263 ) Weighted average shares outstanding used in basic net income per share 152,140,735 134,941,188 116,358,059 Effects of dilutive securities: (1) OP Units 553,847 553,847 553,847 Unvested RSAs and RSUs 421,292 356,044 554,432 Forward sales 405,980 4,837 — Weighted average shares outstanding used in diluted net income per share 153,521,854 135,855,916 117,466,338 _____________________________________ (1) Excludes the impact of 179,807 and 171,059 unvested RSUs and unsettled forward equity sales for the years ended December 31, 2023 and 2022, respectively, as the effect would have been antidilutive. 11. Commitments and Contingencies As of December 31, 2023, the Company had remaining future commitments, under mortgage notes, reimbursement obligations or similar arrangements, to fund $ 180.6 million to its tenants for development, construction and renovation costs related to properties leased from the Company. Litigation and Regulatory Matters In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. As of December 31, 2023, there are no material legal or regulatory proceedings pending or known to be contemplated against the Company or its properties. Environmental Matters In connection with the ownership of real estate, the Company may be liable for costs and damages related to environmental matters. As of December 31, 2023, the Company had not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition that it believes will have a material adverse effect on the Company's business, financial condition, results of operations or liquidity. Defined Contribution Retirement Plan The Company has a defined contribution retirement savings plan qualified under Section 401(a) of the Code (the "401(k) Plan"). The 401(k) Plan is available to all of the Company's full-time employees. The Company provides a matching contribution in cash equal to 100 % of the first 6 % of eligible compensation contributed by participants, which vests immediately. 104 The following table presents the matching contributions made by the Company for the years ended December 31, 2023, 2022 and 2021: Year ended December 31, (in thousands) 2023 2022 2021 401(k) matching contributions $ 331 $ 318 $ 205 Employment Agreements The Company has employment agreements with certain of its executive officers. These employment agreements have an initial term of four years , with automatic one year extensions unless notice of non-renewal is provided by either party. These agreements provide for initial annual base salaries and an annual performance bonus. If an executive officer's employment terminates under certain circumstances, the Company would be liable for any annual performance bonus awarded for the year prior to termination, to the extent unpaid, continued payments equal to 12 months of base salary, monthly reimbursement for 12 months of COBRA premiums, and under certain situations, a pro rata bonus for the year of termination. 12. Fair Value Measurements GAAP establishes a hierarchy of valuation techniques based on the observability of inputs used in measuring financial instruments at fair value. GAAP establishes market-based or observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs. The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures regularly and, depending on various factors, it is possible that an asset or liability may be classified differently from period to period. However, the Company expects that changes in classifications between levels will be rare. In addition to the disclosures for assets and liabilities required to be measured at fair value at the balance sheet date, companies are required to disclose the estimated fair values of all financial instruments, even if they are not presented at their fair value on the consolidated balance sheet.The fair values of financial instruments are estimates based upon market conditions and perceived risks at December 31, 2023 and 2022. These estimates require management's judgment and may not be indicative of the future fair values of the assets and liabilities. Financial assets and liabilities for which the carrying values approximate their fair values include cash and cash equivalents, restricted cash, accounts receivable included within rent receivables, prepaid expenses and other assets, net, dividends payable and accrued liabilities and other payables. Generally, these assets and liabilities are short term in duration and their carrying value approximates fair value on the consolidated balance sheets. The estimated fair values of the Company’s fixed-rate loans receivable have been derived based on primarily unobservable market inputs such as interest rates and discounted cash flow analyses using estimates of the amount and timing of future cash flows, market rates and credit spreads. These measurements are classified as Level 3 within the fair value hierarchy. The Company believes the carrying value of its fixed-rate loans receivable approximates fair value as of December 31, 2023 and 2022. The estimated fair values of the Company’s borrowings under the Revolving Credit Facility, the 2024 Term Loan, the 2027 Term Loan, the 2028 Term Loan and the 2029 Term Loan have been derived based on primarily unobservable market inputs such as interest rates and discounted cash flow analyses using estimates of the amount and timing of future cash flows, market rates and credit spreads. These measurements are classified as Level 3 within the fair value hierarchy. The Company believes the carrying value of its borrowings under the Revolving Credit Facility, the 2024 Term Loan, the 2027 Term Loan, the 2028 Term Loan, and the 2029 Term Loan as of December 31, 2023 and 2022 approximate fair value. 105 The Company measures the fair value of its senior unsecured notes and derivative financial instruments on a recurring basis. The fair values of these financial assets and liabilities were determined using the following input levels as of the dates presented: Net Carrying Value Fair Value Measurements Using Fair Value Hierarchy (in thousands) Fair Value Level 1 Level 2 Level 3 December 31, 2023 Financial assets: Senior unsecured notes (1) $ 395,846 $ 315,336 $ 315,336 $ — $ — Interest rate swaps 7,975 7,975 — 7,975 — December 31, 2022 Financial assets: Senior unsecured notes (1) $ 395,286 $ 292,120 $ 292,120 $ — $ — Interest rate swaps 45,603 45,603 — 45,603 — _____________________________________ (1) Carrying value is net of $ 3.6 million and $ 4.0 million of net deferred financing costs and $ 0.6 million and $ 0.7 million of net discount as of December 31, 2023 and 2022, respectively. The Company measures its real estate investments at fair value on a nonrecurring basis. The fair values of real estate investments that were impaired as of the dates presented were determined using the following input levels: Net Carrying Value Fair Value Measurements Using Fair Value Hierarchy (in thousands) Fair Value Level 1 Level 2 Level 3 December 31, 2023 Non-financial assets: Long-lived assets $ 4,510 $ 4,510 $ — $ — $ 4,510 December 31, 2022 Non-financial assets: Long-lived assets $ 12,144 $ 12,144 $ — $ — $ 12,144 Long-Lived Assets The Company reviews its investments in real estate when events or circumstances change indicating that the carrying amount of an asset may not be recoverable. In the evaluation of an investment in real estate for impairment, many factors are considered, including estimated current and expected operating cash flows from the asset during the projected holding period, costs necessary to extend the life or improve the asset, expected capitalization rates, projected stabilized net operating income, selling costs, and the ability to hold and dispose of the asset in the ordinary course of business. Quantitative information about Level 3 fair value measurements as of December 31, 2023 is as follows: (dollar amounts in thousands) Fair Value Valuation Techniques Significant Unobservable Inputs Non-financial assets: Long-lived assets Convenience store $ 1,500 Sales comparison approach Non-binding sales agreement $ 1,500 Pet care services 2,139 Sales comparison approach Binding sales agreement 2,139 Quick service restaurant 871 Discounted cash flow approach Terminal value: 8.0 % Discount rate: 8.5 % 871 The fair values of impaired real estate were determined by using the following information, depending on availability, in order of preference: (i) signed purchase and sale agreements or letters of intent; (ii) recently quoted 106 bid or ask prices; (iii) estimates of future cash flows, which consider, among other things, contractual and forecasted rental revenues, leasing assumptions, terminal capitalization rates, discount rates and expenses based upon market conditions; or (iv) expectations for the use of the real estate. Based on these inputs, the Company determined that its valuation of the impaired real estate falls within Level 3 of the fair value hierarchy. 13. Subsequent Events The Company has evaluated all events and transactions that occurred after December 31, 2023 through the filing of this Annual Report on Form 10-K and determined that there have been no events that have occurred that would require adjustment to disclosures in the consolidated financial statements except as disclosed below. Equity Awards In January 2024, the Company issued an aggregate of 51,158 shares of unvested RSUs to certain of the Company’s employees under the Equity Incentive Plan. These awards vest over a period of up to four years from the date of grant, subject to the individual recipient’s continued provision of service to the Company through the applicable vesting dates. Subsequent Acquisition and Disposition Activity Subsequent to December 31, 2023, the Company invested in 12 real estate properties for an aggregate investment amount (including acquisition-related costs) of $ 16.8 million and invested $ 10.1 million in new and ongoing construction in progress and reimbursements to tenants for development, construction and renovation costs related to properties leased from the Company. In addition, the Company invested $ 14.0 million in mortgage loans receivable subsequent to December 31, 2023. Subsequent to December 31, 2023, the Company sold its investment in four real estate properties for an aggregate gross sales price of $ 9.1 million and incurred $ 0.3 million of disposition costs related to these transactions. 2022 ATM Program Activity In January 2024, the Company sold 34,000 shares of its common stock on a forward basis under the 2022 ATM Program for gross proceeds of $ 0.9 million. Forward Equity Settlement In January 2024, the Company physically settled 1,374,363 shares of its common stock sold on a forward basis under the September 2023 follow-on primary offering for net proceeds of $ 30.0 million. All settled shares were sold on a forward basis during the year ended December 31, 2023. 107 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.