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LEASES

9 Months Ended

Sep. 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				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Fixed lease revenues	$	18,872	$	18,339	$	57,159	$	55,085
Variable lease revenues		3,431		2,914		10,048		8,774
Lease revenues (a)	$	22,303	$	21,253	$	67,207	$	63,859

(a)	Excludes $243 and $698 of amortization related to lease intangible assets and liabilities for the three and nine months ended September 30, 2023, respectively, and $220 and $617 for the three and nine months ended September 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 September 30, 2023, the Company has assessed the collectability of all recorded lease revenues as probable.

During the nine months ended September 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 September 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 do not include (i) straight-line rent or amortization of lease intangibles or incentives and (ii) variable lease payments as described above.


From October 1 – December 31, 2023	$	18,195
For the year ending December 31,
2024		69,767
2025		65,185
2026		61,088
2027		52,581
2028		41,900
Thereafter		133,228
Total	$	441,944

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 September 30, 2023, the remaining lease term, including a five-year renewal option deemed exercised, is 6.4 years. The Company recognized lease expense related to this ground lease of $122,000 and $422,000 for the three and nine months ended September 30, 2023, respectively, and $150,000 and $449,000 for the three and nine months ended September 30, 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 September 30, 2023, the remaining lease term, including the renewal option deemed exercised, is 13.3 years. The Company recognized lease expense related to this office lease of $14,000 and $42,000 for each of the three and nine months ended September 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 September 30, 2023, the minimum future lease payments related to these operating leases are as follows (amounts in thousands):


From October 1 – December 31, 2023	$	127
For the year ending December 31,
2024		557
2025		626
2026		627
2027		629
2028		630
Thereafter		1,229
Total undiscounted cash flows	$	4,425
Present value discount		(1,039)
Lease liability	$	3,386

The lease liability is included in other liabilities on the consolidated balance sheet.