Real Estate Leases

3 Months Ended

Mar. 31, 2024

REAL ESTATE LEASES

Lessor Accounting

The Company’s properties are generally leased pursuant to non-cancelable, fixed-term operating leases with expiration dates through 2039. The Company’s leases generally require the lessee to pay minimum rent, with fixed rent renewal terms or increases based on a Consumer Price Index and may also include additional rent, which may include the reimbursement of taxes (including property taxes), insurance, maintenance and other operating costs associated with the leased property.

Some leases provide the lessee, during the term of the lease, with an option or right of first refusal to purchase the leased property. Some leases also allow the lessee to renew or extend their lease term or in some cases terminate their lease, based on conditions provided in the lease.

Future minimum lease payments under the non-cancelable operating leases due to the Company for the years ending December 31, as of March 31, 2024, are as follows (in thousands):


2024 (nine months ended December 31)	$	74,362
2025	93,815
2026	84,865
2027	77,227
2028	71,052
2029 and thereafter	381,758
	$	783,079

Rental income is recognized as earned over the life of the lease agreement on a straight-line basis when collection of rental payments over the term of the lease is probable. Straight-line rent included in rental income was approximately $0.8 million and $0.9 million, respectively, for the three months ended March 31, 2024 and 2023.

Purchase Option Provisions

Certain of the Company's leases provide the lessee with a purchase option or a right of first refusal to purchase the leased property. The purchase option provisions generally allow the lessee to purchase the leased property at fair value or at an amount greater than the Company's gross investment in the leased property at the time of the purchase. At March 31, 2024, the Company had an aggregate gross investment of approximately $37.2 million in 10 real estate properties with purchase options exercisable at March 31, 2024 that had not been exercised.

Sales-type Lease

The Company has a portion of one property accounted for as a sales-type lease with a gross amount totaling approximately $3.0 million included in other assets, net on the Company's Condensed Consolidated Balance Sheets. Future lease payments due to the Company under this lease for the years ending December 31, as of March 31, 2024, are as follows (in thousands):


2024 (nine months ended December 31)	$	261
2025	356
2026	367
2027	378
2028	389
2029 and thereafter	4,821
Total undiscounted lease receivable	6,572
Discount	(3,547)
Lease receivable	$	3,025

The Company recognized interest income of approximately $0.1 million during each of the three months ended March 31, 2024 and 2023 related to this lease which is included in other operating interest on the Company's Condensed Consolidated Statements of Income.

Lessee Accounting

At March 31, 2024, the Company was obligated, as the lessee, under four non-prepaid ground leases accounted for as operating leases with expiration dates, including renewal options, through 2076, and two non-prepaid ground leases accounted for as financing leases with expiration dates through 2109, including renewal options. Any rental increases related to the Company's ground leases are generally either stated or based on the Consumer Price Index. The Company's future lease payments under these non-prepaid ground leases were as follows (in thousands):


	Operating		Financing
2024 (nine months ended December 31)	$	32	$	115
2025	44		154
2026	44		154
2027	45		154
2028	46		154
2029 and thereafter	$	1,102	$	6,802
Total undiscounted lease payments	1,313		7,533
Discount	(541)		(4,260)
Lease liabilities	$	772	$	3,273

The following table discloses other information regarding the ground leases.


	Three Months Ended March 31,
	2024		2023
Operating leases:
Weighted-average remaining lease term in years (including renewal options)	34.8		36.0
Weighted-average discount rate	4.0	%	4.0	%

Financing leases:
Weighted-average remaining lease term in years (including renewal options)	39.6		40.6
Weighted-average discount rate	4.2	%	4.2	%