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LEASES

6 Months Ended

Jun. 30, 2023

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):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Fixed lease revenues	$	18,929	$	18,405	$	38,287	$	36,746
Variable lease revenues		3,248		2,860		6,618		5,861
Lease revenues (a)	$	22,177	$	21,265	$	44,905	$	42,607

(a)	Excludes $230 and $454 of amortization related to lease intangible assets and liabilities for the three and six months ended June 30, 2023, respectively, and $207 and $396 for the three and six months ended June 30, 2022, 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 June 30, 2023, the Company has assessed the collectability of all recorded lease revenues as probable.

During the three and six months ended June 30, 2023, the Company wrote-off, as a reduction to rental income, net, $133,000 of unbilled rent receivable related to its tenant, Bed Bath & Beyond at its Kennesaw, Georgia property, as the tenant filed for Chapter 11 bankruptcy protection and rejected its lease in April 2023.

NOTE 3 – LEASES (CONTINUED)

Minimum Future Rents

As of June 30, 2023, 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 $8,248,000 of rent related to Regal Cinemas (based on modified leases that became effective July 31, 2023) and does not include (i) straight-line rent or amortization of lease intangibles or incentives and (ii) variable lease payments as described above.


From July 1 – December 31, 2023	$	36,149
For the year ending December 31,
2024		67,157
2025		63,027
2026		58,967
2027		50,584
2028		40,517
Thereafter		129,304
Total	$	445,705

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. As of June 30, 2023, the remaining lease term, including renewal options deemed exercised, is 11.7 years. The Company recognized lease expense related to this ground lease of $150,000 and $300,000 for both the three and six months ended June 30, 2023 and 2022, respectively, 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 for a five-year renewal option. As of June 30, 2023, the remaining lease term, including the renewal option deemed exercised, is 13.5 years. The Company recognized lease expense related to this office lease of $14,000 and $28,000 for both the three and six months ended June 30, 2023 and 2022, respectively, which is included in General and administrative expenses on the consolidated statements of income.

Minimum Future Lease Payments

As of June 30, 2023, the minimum future lease payments related to these operating leases are as follows (amounts in thousands):


From July 1 – December 31, 2023	$	254
For the year ending December 31,
2024		557
2025		626
2026		627
2027		629
2028		630
Thereafter		4,960
Total undiscounted cash flows	$	8,283
Present value discount		(1,508)
Lease liability	$	6,775