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LEASES | 12 Months Ended
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Dec. 31, 2022
LEASES |
LEASES | NOTE 3—LEASES Lessor Accounting The Company owns rental properties which are leased to tenants under operating leases with current expirations ranging from 2023 to 2055, with options to extend or terminate the lease. Revenues from such leases are reported as Rental income, net, and are comprised of (i) lease components, which includes fixed and variable lease payments and (ii) non-lease components which includes reimbursements of property level operating expenses. The Company does not separate non-lease components from the related lease components, as the timing and pattern of transfer are the same, and account for the combined component in accordance with ASC 842. Fixed lease revenues represent the base rent that each tenant is required to pay in accordance with the terms of their respective leases, and any lease incentives paid or payable to the lessee, reported on a straight-line basis over the non-cancelable term of the lease. Variable lease revenues typically include payments based on (i) tenant reimbursements, (ii) changes in the index or market-based indices after the inception of the lease, (iii) percentage rents and (iv) the operating performance of the property. Variable lease revenues are not recognized until the specific events that trigger the variable payments have occurred. The components of lease revenues are as follows (amounts in thousands):
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​ | ​ | ​ | Year Ended December 31,
​ |  |  | 2022 |  | 2021 |  | 2020
Fixed lease revenues | ​ | ​ | $ | 74,101 | ​ | $ | 70,387 | ​ | $ | 69,823
Variable lease revenues | ​ | ​ |  | 17,259 | (a) |  | 11,008 | ​ |  | 11,285
Lease revenues (b) | ​ |  | $ | 91,360 | ​ | $ | 81,395 | ​ | $ | 81,108
(a) | Includes, for 2022, $4,626 of additional rent accrued from a ground lease tenant – see Note 6.
(b) | Excludes $831, $785 and $780 of amortization related to lease intangible assets and liabilities for 2022, 2021 and 2020, respectively.
In many of the Company’s leases, the tenant is obligated to pay the real estate taxes, insurance, and certain other expenses directly to the vendor. These obligations, which have been assumed by the tenants, are not reflected in our consolidated financial statements. To the extent any such tenant defaults on its lease or if it is deemed probable that the tenant will fail to pay for such obligations, a liability for such obligations would be recorded. On a quarterly basis, the Company assesses the collectability of substantially all lease payments due by reviewing the tenant’s payment history or financial condition. Changes to collectability are recognized as a current period adjustment to rental revenue. As of December 31, 2022, the Company has assessed the collectability of all recorded lease revenues as probable. Impact of COVID-19 During 2020, in response to requests for rent relief from tenants impacted by the COVID-19 pandemic and the governmental and non-governmental responses thereto, the Company deferred and accrued $3,360,000 of rent payments, excluding amounts related to Regal Cinemas as described below. Through December 31, 2022, the Company collected $3,330,000, or 99.1%, of such deferred rents and wrote off $18,000. The $12,000 balance of deferred rents was collected in January 2023. In September 2022, Regal Cinemas’, a tenant at two properties (excluding a property owned by an unconsolidated joint venture) parent company, Cineworld Group plc., filed for Chapter 11 bankruptcy protection. As of December 31, 2022, the only amounts Regal Cinemas did not pay was their September (i) base rent of $158,000 and (ii) COVID-19 deferral repayments of $81,000. Of an aggregate of $1,449,000 of COVID-19-related deferred rent, the tenant owes $563,000 as of December 31, 2022. Such deferred rents are to be collected in equal monthly installments through June 2023. No base or deferred rents have been accrued as collections NOTE 3—LEASES (CONTINUED) were deemed less than probable. Through March 6, 2023, the Company collected an aggregate of (i) $718,000 representing 100% of the base rent and deferred rent due through March 2023 and (ii) $63,000 representing base rent and deferred rents due from 2022. The Company prepared an impairment analysis on the properties tenanted by Regal Cinemas and determined no impairment charge was required as of December 31, 2022. Minimum Future Rents As of December 31, 2022, the minimum future contractual rents to be received on non-cancellable operating leases are included in the table below (amounts in thousands). The minimum future contractual rents include $22,924,000 of rent related to Regal Cinemas (two leases which expire in 2032 and 2035) and does not include (i) straight-line rent or amortization of intangibles, (ii) $563,000 of COVID-19 lease deferral repayments due from Regal Cinemas which were not accrued to rental income and (iii) variable lease payments as described above.
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For the year ending December 31, | ​ | ​ | ​
2023 | ​ | $ | 73,407
2024 | ​ | ​ | 67,323
2025 | ​ | ​ | 63,036
2026 | ​ | ​ | 58,802
2027 | ​ | ​ | 49,843
Thereafter | ​ | ​ | 176,710
Total | ​ | $ | 489,121
​ Lease Incentives During 2022, the Company recognized $1,345,000 in lease incentives in connection with lease amendments with three of its tenants. As a result, during the year ended December 31, 2022, the Company amortized $44,000 of such incentives against rental income. Lease Termination Fees During 2022, 2021 and 2020, the Company received $25,000, $487,000, and $88,000, respectively, as lease termination fees from four tenants (three retail and one industrial). Unbilled Straight-Line Rent At December 31, 2022 and 2021, the Company’s unbilled rent receivables aggregating $16,079,000 and $14,330,000, respectively, represent rent reported on a straight-line basis in excess of rental payments required under the respective leases. The unbilled rent receivable is to be billed and received pursuant to the lease terms during the next 20 years. During 2022, 2021 and 2020, the Company wrote-off $519,000, $1,438,000 and $365,000, respectively, of unbilled straight-line rent receivable related to the properties sold during such years, which reduced the gain on sale reported on the consolidated statements of income. At December 31, 2022 and 2021, the Company’s unearned rental income aggregating $756,000 and $897,000, respectively, represent rent reported on a straight-line basis less than rental payments required under the respective leases. The unearned rental income is to be recognized into revenue over the term of the lease during the next 10 years. On a quarterly basis, the Company assesses the collectability of unbilled rent receivable balances by reviewing the tenant’s payment history and financial condition. The Company has assessed the collectability of all unbilled rent receivable balances as probable as of December 31, 2022. During 2020, the Company wrote-off, as a reduction to rental income, $1,094,000 of unbilled rent receivables due from Regal Cinemas as the collection of such amounts was deemed less than probable as described above. NOTE 3—LEASES (CONTINUED) ​ Lessee Accounting ​ Ground Lease ​ The Company is a lessee under a ground lease in Greensboro, North Carolina, which is classified as an operating lease. The ground lease expires March 3, 2025 and provides for up to four, 5-year renewal options and one seven-month renewal option. At December 31, 2022 and 2021, the Company recorded a liability of $6,366,000 and $6,634,000, respectively, for the obligation to make payments under the lease and an asset of $5,864,000 and $6,267,000, respectively, for the right to use the underlying asset during the lease term which are included in other liabilities and other assets, respectively, on the consolidated balance sheets. Lease payments associated with renewal option periods that the Company determined were reasonably certain to be exercised are included in the measurement of the lease liability and right of use asset. As of December 31, 2022, the remaining lease term, including renewal options deemed exercised, is 12.2 years. The Company applied a discount rate of 2.95%, based on its incremental borrowing rate given the term of the lease, as the rate implicit in the lease is not known. During the years ended December 31, 2022, 2021 and 2020, the Company recognized $599,000, $599,000 and $533,000, respectively, of lease expense related to this ground lease which is included in Real estate expenses on the consolidated statements of income. ​ Office Lease ​ The Company is a lessee under a corporate office lease in Great Neck, New York, which is classified as an operating lease. The lease expires on December 31, 2031 and provides a 5-year renewal option. At December 31, 2022 and 2021, the Company recorded a liability of $558,000 and $578,000, respectively, for the obligation to make payments under the lease and an asset of $535,000 and $564,000, respectively, for the right to use the underlying asset during the lease term which are included in other liability and other assets, respectively, on the consolidated balance sheets. Lease payments associated with the renewal option period, which was determined to be reasonably certain to be exercised, are included in the measurement of the lease liability and right of use asset. As of December 31, 2022, the remaining lease term, including renewal options deemed exercised, is 14.0 years. The Company applied a discount rate of 3.81%, based on its incremental borrowing rate given the term of the lease, as the rate implicit in the lease is not known. During the years ended December 31, 2022, 2021 and 2020, the Company recognized $56,000, $55,000 and $57,000, respectively, of lease expense related to this office lease which is included in General and administrative expenses on the consolidated statements of income. ​ Minimum Future Lease Payments ​ As of December 31, 2022, the minimum future lease payments related to the operating ground and office leases are as follows (amounts in thousands): ​
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For the year ended December 31, |  | ​ | ​
2023 | ​ | $ | 507
2024 | ​ |  | 557
2025 | ​ |  | 626
2026 | ​ |  | 627
2027 | ​ |  | 629
Thereafter | ​ |  | 5,591
Total undiscounted cash flows | ​ | $ | 8,537
Present value discount | ​ |  | (1,613)
Lease liability | ​ | $ | 6,924
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