Real Estate Leases

9 Months Ended

Sep. 30, 2023

Leases [Abstract]

Real Estate Leases

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 September 30, 2023, are as follows (in thousands):

2023 (three months ended December 31)	$	24,203
2024	93,601
2025	85,888
2026	76,764
2027	69,814
2028 and thereafter	404,637
	$	754,907

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 $0.4 million and $0.9 million, respectively, for the three months ended September 30, 2023 and 2022, and was approximately $2.2 million and $2.6 million, respectively, for the nine months ended September 30, 2023 and 2022.

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 September 30, 2023, the Company had an aggregate gross investment of approximately $40.4 million in 11 real estate properties with purchase options exercisable at September 30, 2023 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 September 30, 2023, are as follows (in thousands):

2023 (three months ended December 31)	$	85
2024	346
2025	356
2026	367
2027	378
2028 and thereafter	5,210
Total undiscounted lease receivable	6,742
Discount	(3,710)
Lease receivable	$	3,032

The Company recognized interest income of approximately $0.1 million during each of the three months ended September 30, 2023 and 2022 and approximately $0.2 million during each of the nine months ended September 30, 2023 and 2022 related to this lease which is included in other operating interest on the Company's Condensed Consolidated Statements of Income.

Lessee Accounting

At September 30, 2023, 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
2023 (three months ended December 31)	$	11	$	35
2024	43		154
2025	44		154
2026	44		154
2027	45		154
2028 and thereafter	1,148		6,956
Total undiscounted lease payments	1,335		7,607
Discount	(558)		(4,330)
Lease liabilities	$	777	$	3,277

The following table discloses other information regarding the ground leases.

	Three Months Ended September 30,
	2023		2022
Operating leases:
Weighted-average remaining lease term in years (including renewal options)	35.4		36.1
Weighted-average discount rate	4.0	%	4.0	%
Financing leases:
Weighted-average remaining lease term in years (including renewal options)	40.1		41.0
Weighted-average discount rate	4.3	%	4.2	%