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Leases | 12 Months Ended
--- | ---
Dec. 31, 2024
Leases [Abstract] |
Leases | Leases Lessor Operating Leases. The Company’s lease portfolio as a lessor primarily includes general purpose, single-tenant net-leased real estate assets. Most of the Company’s leases require tenants to pay fixed annual rental payments that escalate on an annual basis and variable payments for other operating expenses, such as real estate taxes, insurance, common area maintenance (“CAM”), and utilities, that are based on the actual expenses incurred. Certain leases allow for the tenant to renew the lease term upon expiration or earlier. Periods covered by a renewal option are included within the lease term only when renewals are deemed to be reasonably certain. Certain leases allow for the tenant to terminate the lease before the expiration of the lease term and certain leases provide the tenant with the right to purchase the leased property at fair market value or a stipulated price upon expiration of the lease term or before. Accounting guidance under ASC 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease and determining the lease term when the contract has renewal, purchase or early termination provisions. The Company analyzes its accounts receivable, customer creditworthiness and current economic trends when evaluating the adequacy of the collectability of the lessee's total accounts receivable balance on a lease by lease basis. In addition, tenants in bankruptcy are analyzed and considerations are made in connection with the expected pre-petition and post-petition claims. If a lessee's accounts receivable balance is considered uncollectible, the Company will write-off the receivable balances associated with the lease to rental revenue and cease to recognize lease income, including straight-line rent, unless cash is received. If the Company subsequently determines that it is probable it will collect substantially all of the lessee's remaining lease payments under the lease term, the Company will reinstate the straight-line balance adjusting for the amount related to the period when the lease was accounted for on a cash basis. For the years ended December 31, 2024 and 2023, no accounts receivable were written off and for the year ended December 31, 2022, the Company wrote off an aggregate of $417 of accounts receivable, net, relating to tenant defaults. The Company elected that the lease and non-lease components in its leases are a single lease component, which is, therefore, being recognized as rental revenue in its consolidated statements of operations. The primary non-lease service included within rental revenue is CAM services provided as part of the Company’s real estate leases. ASC 842 requires that the Company capitalize, as initial direct costs, only those costs that are incurred due to the execution of a lease. For each of the three years ended December 31, 2024, 2023 and 2022, the Company incurred nominal or no costs that were not incremental to the execution of leases. The Company manages the risk associated with the residual value of its leased properties by including contract clauses that make tenants responsible for surrendering the space in good condition upon lease termination, holding a diversified portfolio, and other activities. The Company does not have residual value guarantees on any of its properties. Sales-Type Leases. As of December 31, 2024, the Company had no leases that qualify as a sales-type lease. As of December 31, 2022, the Company entered into one ground lease for an industrial development land parcel located in the Phoenix, Arizona market that was classified as a sales-type lease. At the commencement date of the lease, the Company evaluated the lease classification and classified the lease as a sales-type lease. The lease contained a purchase option starting on the second anniversary date of the lease and ending on the third anniversary date which was determined not reasonably certain to be exercised at lease inception. The Company recognized $36,875 in selling profit from sales-type leases and $4,119 of direct costs to enter into the lease within transaction costs on the consolidated statements of operations. During 2024, the tenant executed the purchase option within their lease and purchased the property for $86,522, which qualified as a lease modification. The Company recognized $14,991 of additional income from a sales-type lease as part of rental revenue in its 2024 consolidated statement of operations, which included $5,604 of estimated development obligations that will be substantially completed subsequent to the execution of the purchase option. In 2022, the Company had two tenants that exercised the purchase option within their lease and purchased the assets for an aggregate price of $34,841. The purchase options were not reasonably certain to be exercised at the commencement date of each lease, resulting in modifications of the operating leases. As a result of these modifications to the leases, the Company re-evaluated the lease classifications and classified both leases as sales-type leases. The Company recognized an aggregate of $10,184 in selling profit from sales-type leases in its consolidated statements of operations related to these transactions for the year ended December 31, 2022. Rental Revenue Classification. The following table presents the Company’s classification of rental revenue for its operating and sales-type leases for the years ended December 31, 2024, 2023 and 2022:
|  | Years Ended December 31,
Classification |  | 2024 |  | 2023 |  | 2022
Fixed |  | $ | 280,433 |  |  | $ | 275,186 |  |  | $ | 267,644 |
Sales-type lease income |  | 22,027 |  |  | 7,427 |  |  | 1,936 |
Variable(1) |  | 51,893 |  |  | 51,607 |  |  | 44,412 |
Total |  | $ | 354,353 |  |  | $ | 334,220 |  |  | $ | 313,992 |
(1) Primarily comprised of tenant reimbursements. Future fixed rental receipts for operating leases, assuming no new or re-negotiated leases as of December 31, 2024 were as follows:
Year ending December 31, | Operating |
2025 | $ | 282,180 |  |
2026 | 271,036 |  |
2027 | 236,526 |  |
2028 | 199,846 |  |
2029 | 172,801 |  |
Thereafter | 532,790 |  |
Total | $ | 1,695,179 |  |
The above minimum lease payments do not include reimbursements to be received from tenants for certain operating expenses and real estate taxes and do not include early termination payments provided for in certain leases, if not reasonably certain. Certain leases allow for the tenant to terminate the lease if the property is deemed obsolete, as defined, and upon payment of a termination fee to the landlord, as stipulated in the lease. In addition, certain leases provide the tenant with the right to purchase the leased property at fair market value or a stipulated price. Lessee The Company, as lessee, has ground leases, corporate leases for office space, and office equipment leases. All leases were classified as operating leases as of December 31, 2024. The leases have remaining lease terms of up to 32 years. Renewal periods are included in the lease term only when renewal is deemed to be reasonably certain. The lease term also includes periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise the termination option. The Company measures its lease payments by including fixed rental payments and variable rental payments that tie to an index or a rate, such as CPI. The Company recognizes lease expense for its operating leases on a straight-line basis over the lease term and variable lease expense not included in the lease payment measurement as incurred. The accounting guidance under ASC 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease, determining the term of a lease when the contract has renewal or termination provisions and determining the discount rate. The Company determines whether an arrangement is or includes a lease at contract inception by evaluating whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. If the Company has the right to obtain substantially all of the economic benefits from and can direct the use of, the identified asset for a period of time, the Company accounts for the contract as a lease. The Company uses the information available at the lease commencement date to determine the discount rate for any new leases. The Company used a portfolio approach to determine its incremental borrowing rate. Lease contracts were grouped based on similar lease terms and economic environments in a manner in which the Company reasonably expects that the outcome from applying a portfolio approach does not differ materially from an individual lease approach. The Company estimated a collateralized discount rate for each portfolio of leases. Supplemental information related to operating leases is as follows:
|  | Years Ended December 31,
|  | 2024 |  | 2023
Weighted-average remaining lease term (years) |  |  |
Operating leases | 8.7 |  | 8.7
Weighted-average discount rate |  |  |
Operating leases | 4.2 | % |  | 4.0 | %
The components of lease expense for the years ended December 31, 2024, 2023 and 2022 were as follows:
Income Statement Classification | Fixed |  | Variable |  | Total
2024: |  |  |  |  |
Property operating | $ | 3,487 |  |  | $ | 15 |  |  | $ | 3,502 |
General and administrative (1) | 1,642 |  |  | 262 |  |  | 1,904 |
Total | $ | 5,129 |  |  | $ | 277 |  |  | $ | 5,406 |
2023: |  |  |  |  |
Property operating | $ | 3,539 |  |  | $ | 7 |  |  | $ | 3,546 |
General and administrative | 1,521 |  |  | 280 |  |  | 1,801 |
Total | $ | 5,060 |  |  | $ | 287 |  |  | $ | 5,347 |
2022: |  |  |  |  |
Property operating | $ | 3,543 |  |  | $ | — |  |  | $ | 3,543 |
General and administrative | 1,520 |  |  | 122 |  |  | 1,642 |
Total | $ | 5,063 |  |  | $ | 122 |  |  | $ | 5,185 |
(1) The general and administrative lease expense excludes a reduction of $718 to lease expense for the sublease of the Company's office space in New York, New York. The Company recognized sublease income related to its ground leases in rental revenue of $3,295 in 2024 and $3,320 in each of the years ended December 31, 2023 and 2022. The following table shows the Company's maturity analysis of its operating lease liabilities as of December 31, 2024:
Year ending December 31, |  | Operating Leases
2025 |  | $ | 5,424 |
2026 |  | 4,451 |
2027 |  | 3,968 |
2028 |  | 1,356 |
2029 |  | 508 |
Thereafter |  | 5,288 |
Total lease payments |  | 20,995 |
Less: Imputed interest |  | (3,881) |
Present value of lease liabilities |  | $ | 17,114 |
Leases | Leases Lessor Operating Leases. The Company’s lease portfolio as a lessor primarily includes general purpose, single-tenant net-leased real estate assets. Most of the Company’s leases require tenants to pay fixed annual rental payments that escalate on an annual basis and variable payments for other operating expenses, such as real estate taxes, insurance, common area maintenance (“CAM”), and utilities, that are based on the actual expenses incurred. Certain leases allow for the tenant to renew the lease term upon expiration or earlier. Periods covered by a renewal option are included within the lease term only when renewals are deemed to be reasonably certain. Certain leases allow for the tenant to terminate the lease before the expiration of the lease term and certain leases provide the tenant with the right to purchase the leased property at fair market value or a stipulated price upon expiration of the lease term or before. Accounting guidance under ASC 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease and determining the lease term when the contract has renewal, purchase or early termination provisions. The Company analyzes its accounts receivable, customer creditworthiness and current economic trends when evaluating the adequacy of the collectability of the lessee's total accounts receivable balance on a lease by lease basis. In addition, tenants in bankruptcy are analyzed and considerations are made in connection with the expected pre-petition and post-petition claims. If a lessee's accounts receivable balance is considered uncollectible, the Company will write-off the receivable balances associated with the lease to rental revenue and cease to recognize lease income, including straight-line rent, unless cash is received. If the Company subsequently determines that it is probable it will collect substantially all of the lessee's remaining lease payments under the lease term, the Company will reinstate the straight-line balance adjusting for the amount related to the period when the lease was accounted for on a cash basis. For the years ended December 31, 2024 and 2023, no accounts receivable were written off and for the year ended December 31, 2022, the Company wrote off an aggregate of $417 of accounts receivable, net, relating to tenant defaults. The Company elected that the lease and non-lease components in its leases are a single lease component, which is, therefore, being recognized as rental revenue in its consolidated statements of operations. The primary non-lease service included within rental revenue is CAM services provided as part of the Company’s real estate leases. ASC 842 requires that the Company capitalize, as initial direct costs, only those costs that are incurred due to the execution of a lease. For each of the three years ended December 31, 2024, 2023 and 2022, the Company incurred nominal or no costs that were not incremental to the execution of leases. The Company manages the risk associated with the residual value of its leased properties by including contract clauses that make tenants responsible for surrendering the space in good condition upon lease termination, holding a diversified portfolio, and other activities. The Company does not have residual value guarantees on any of its properties. Sales-Type Leases. As of December 31, 2024, the Company had no leases that qualify as a sales-type lease. As of December 31, 2022, the Company entered into one ground lease for an industrial development land parcel located in the Phoenix, Arizona market that was classified as a sales-type lease. At the commencement date of the lease, the Company evaluated the lease classification and classified the lease as a sales-type lease. The lease contained a purchase option starting on the second anniversary date of the lease and ending on the third anniversary date which was determined not reasonably certain to be exercised at lease inception. The Company recognized $36,875 in selling profit from sales-type leases and $4,119 of direct costs to enter into the lease within transaction costs on the consolidated statements of operations. During 2024, the tenant executed the purchase option within their lease and purchased the property for $86,522, which qualified as a lease modification. The Company recognized $14,991 of additional income from a sales-type lease as part of rental revenue in its 2024 consolidated statement of operations, which included $5,604 of estimated development obligations that will be substantially completed subsequent to the execution of the purchase option. In 2022, the Company had two tenants that exercised the purchase option within their lease and purchased the assets for an aggregate price of $34,841. The purchase options were not reasonably certain to be exercised at the commencement date of each lease, resulting in modifications of the operating leases. As a result of these modifications to the leases, the Company re-evaluated the lease classifications and classified both leases as sales-type leases. The Company recognized an aggregate of $10,184 in selling profit from sales-type leases in its consolidated statements of operations related to these transactions for the year ended December 31, 2022. Rental Revenue Classification. The following table presents the Company’s classification of rental revenue for its operating and sales-type leases for the years ended December 31, 2024, 2023 and 2022:
|  | Years Ended December 31,
Classification |  | 2024 |  | 2023 |  | 2022
Fixed |  | $ | 280,433 |  |  | $ | 275,186 |  |  | $ | 267,644 |
Sales-type lease income |  | 22,027 |  |  | 7,427 |  |  | 1,936 |
Variable(1) |  | 51,893 |  |  | 51,607 |  |  | 44,412 |
Total |  | $ | 354,353 |  |  | $ | 334,220 |  |  | $ | 313,992 |
(1) Primarily comprised of tenant reimbursements. Future fixed rental receipts for operating leases, assuming no new or re-negotiated leases as of December 31, 2024 were as follows:
Year ending December 31, | Operating |
2025 | $ | 282,180 |  |
2026 | 271,036 |  |
2027 | 236,526 |  |
2028 | 199,846 |  |
2029 | 172,801 |  |
Thereafter | 532,790 |  |
Total | $ | 1,695,179 |  |
The above minimum lease payments do not include reimbursements to be received from tenants for certain operating expenses and real estate taxes and do not include early termination payments provided for in certain leases, if not reasonably certain. Certain leases allow for the tenant to terminate the lease if the property is deemed obsolete, as defined, and upon payment of a termination fee to the landlord, as stipulated in the lease. In addition, certain leases provide the tenant with the right to purchase the leased property at fair market value or a stipulated price. Lessee The Company, as lessee, has ground leases, corporate leases for office space, and office equipment leases. All leases were classified as operating leases as of December 31, 2024. The leases have remaining lease terms of up to 32 years. Renewal periods are included in the lease term only when renewal is deemed to be reasonably certain. The lease term also includes periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise the termination option. The Company measures its lease payments by including fixed rental payments and variable rental payments that tie to an index or a rate, such as CPI. The Company recognizes lease expense for its operating leases on a straight-line basis over the lease term and variable lease expense not included in the lease payment measurement as incurred. The accounting guidance under ASC 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease, determining the term of a lease when the contract has renewal or termination provisions and determining the discount rate. The Company determines whether an arrangement is or includes a lease at contract inception by evaluating whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. If the Company has the right to obtain substantially all of the economic benefits from and can direct the use of, the identified asset for a period of time, the Company accounts for the contract as a lease. The Company uses the information available at the lease commencement date to determine the discount rate for any new leases. The Company used a portfolio approach to determine its incremental borrowing rate. Lease contracts were grouped based on similar lease terms and economic environments in a manner in which the Company reasonably expects that the outcome from applying a portfolio approach does not differ materially from an individual lease approach. The Company estimated a collateralized discount rate for each portfolio of leases. Supplemental information related to operating leases is as follows:
|  | Years Ended December 31,
|  | 2024 |  | 2023
Weighted-average remaining lease term (years) |  |  |
Operating leases | 8.7 |  | 8.7
Weighted-average discount rate |  |  |
Operating leases | 4.2 | % |  | 4.0 | %
The components of lease expense for the years ended December 31, 2024, 2023 and 2022 were as follows:
Income Statement Classification | Fixed |  | Variable |  | Total
2024: |  |  |  |  |
Property operating | $ | 3,487 |  |  | $ | 15 |  |  | $ | 3,502 |
General and administrative (1) | 1,642 |  |  | 262 |  |  | 1,904 |
Total | $ | 5,129 |  |  | $ | 277 |  |  | $ | 5,406 |
2023: |  |  |  |  |
Property operating | $ | 3,539 |  |  | $ | 7 |  |  | $ | 3,546 |
General and administrative | 1,521 |  |  | 280 |  |  | 1,801 |
Total | $ | 5,060 |  |  | $ | 287 |  |  | $ | 5,347 |
2022: |  |  |  |  |
Property operating | $ | 3,543 |  |  | $ | — |  |  | $ | 3,543 |
General and administrative | 1,520 |  |  | 122 |  |  | 1,642 |
Total | $ | 5,063 |  |  | $ | 122 |  |  | $ | 5,185 |
(1) The general and administrative lease expense excludes a reduction of $718 to lease expense for the sublease of the Company's office space in New York, New York. The Company recognized sublease income related to its ground leases in rental revenue of $3,295 in 2024 and $3,320 in each of the years ended December 31, 2023 and 2022. The following table shows the Company's maturity analysis of its operating lease liabilities as of December 31, 2024:
Year ending December 31, |  | Operating Leases
2025 |  | $ | 5,424 |
2026 |  | 4,451 |
2027 |  | 3,968 |
2028 |  | 1,356 |
2029 |  | 508 |
Thereafter |  | 5,288 |
Total lease payments |  | 20,995 |
Less: Imputed interest |  | (3,881) |
Present value of lease liabilities |  | $ | 17,114 |

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