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LEASES

12 Months Ended

Dec. 31, 2023

NOTE 3 — LEASES

Lessor Accounting

The Company owns rental properties which are leased to tenants under operating leases with current expirations ranging from 2024 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 its respective lease, 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):



	Year Ended December 31,
	2023		2022			2021
Fixed lease revenues	$	75,935	$	74,101		$	70,387
Variable lease revenues		13,759		17,259	(a)		11,008
Lease revenues (b)	$	89,694	$	91,360		$	81,395

(a)	Includes, for 2022, $4,626 of additional rent accrued from a ground lease tenant – see Note 6.

(b)	Excludes $952, $831 and $785 of amortization related to lease intangible assets and liabilities for 2023, 2022 and 2021, 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 the Company’s 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, 2023, the Company has assessed the collectability of all recorded lease revenues as probable.

NOTE 3 — LEASES (CONTINUED)

Minimum Future Rents

As of December 31, 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.


For the year ending December 31,
2024	$	70,906
2025		65,473
2026		61,286
2027		51,983
2028		41,028
Thereafter		127,437
Total	$	418,113

Lease Incentives

At December 31, 2023 and 2022, the Company’s unamortized lease incentives aggregating $1,095,000 and $1,300,000, respectively, are recorded in other assets and receivables on the consolidated balance sheets. During 2023 and 2022, the Company amortized $121,000 and $44,000, respectively, of such incentives as a reduction to rental income. During 2023, the Company wrote-off $84,000 of a tenant’s unamortized lease incentive balance as the related property was sold during such year, which reduced the gain on sale reported on the consolidated statement of income. The lease incentives will be amortized against rental income over the term of the leases during the next 10 years.

Unbilled Straight-Line Rent

At December 31, 2023 and 2022, the Company’s unbilled rent receivables aggregating $16,661,000 and $16,079,000, 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 19 years.

During 2023, 2022 and 2021, the Company wrote-off $1,048,000, $519,000 and $1,438,000, 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, 2023 and 2022, the Company’s unearned rental income aggregating $579,000 and $756,000, respectively, represent rent reported on a straight-line basis less than rental payments required under the respective leases. Such amounts are recorded in other liabilities on the consolidated balance sheets. The unearned rental income is to be recognized into revenue over the term of the leases during the next eight years.

During 2023, the Company wrote-off $43,000 of a tenant’s unearned rental income as the related property sold was sold during such year, which increased the gain on sale reported on the consolidated statement of income. No such amounts were written off during 2022 or 2021.

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, 2023. During 2023, the Company wrote-off, as a reduction of rental income, net, $133,000 of unbilled rent receivables due from Bed Bath & Beyond as the tenant filed for Chapter 11 bankruptcy protection and rejected its lease in April 2023.

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, five-year renewal options and one seven-month renewal option. At December 31, 2023 and 2022, the Company recorded a liability of $2,827,000 and $6,366,000, respectively, for the obligation to make payments under the lease and an asset of $2,246,000 and $5,864,000, 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. During 2023, as a result of an amendment to the operating lease at this property, the Company determined it was no longer reasonably certain that the second ground lease extension option would be exercised. As such, the Company reassessed the right of use asset and adjusted the lease liability to reflect the shortened lease term. As of December 31, 2023, the remaining lease term, including renewal options deemed exercised, is 6.2 years. The Company applied a discount rate of 6.91%, 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, 2023, 2022 and 2021, the Company recognized $544,000, $599,000 and $599,000, 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, 2023 and 2022, the Company recorded a liability of $536,000 and $558,000, respectively, for the obligation to make payments under the lease and an asset of $505,000 and $535,000, 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, 2023, the remaining lease term, including the renewal option deemed exercised, is 13.0 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, 2023, 2022 and 2021, the Company recognized $56,000, $56,000 and $55,000, 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, 2023, the minimum future lease payments related to the operating ground and office leases are as follows (amounts in thousands):


For the year ending December 31,
2024	$	557
2025		626
2026		627
2027		629
2028		630
Thereafter		1,229
Total undiscounted cash flows	$	4,298
Present value discount		(935)
Lease liability	$	3,363