Leases

9 Months Ended

Sep. 30, 2023

Note 6 – Leases

Lessor Accounting

All of the Company's leases are classified as operating leases. The Company's rental income is comprised of both fixed and variable income. Fixed and in-substance fixed lease income includes stated amounts per the lease contract, which are primarily related to base rent. The Company’s leases are also provided for reimbursement from recoverable costs. A portion of our operating cost reimbursement revenue is estimated each period and is recognized as rental income in the period the recoverable costs are incurred and accrued. Income for these sources is recognized on a straight-line basis. Variable lease income includes the tenants' contractual obligations to reimburse the Company for their portion of recoverable costs incurred.

The following table provides a disaggregation of lease income recognized as either fixed or variable lease income during the three months ended September 30, 2023 and 2022:


	2023			2022
Rental income
Fixed and in-substance fixed lease income	$	1,431,546		$	1,018,406
Variable lease income		415,435			304,365
Other related lease income, net:
Amortization of above- and below-market leases		(20,581	)		26,114
Straight line rent revenue		14,644			124,904
Total rental income	$	1,841,044		$	1,473,789

The following table provides a disaggregation of lease income recognized as either fixed or variable lease income during the nine months ended September 30, 2023 and 2022:


	2023		2022
Rental income
Fixed and in-substance fixed lease income	$	3,784,640	$	3,340,179
Variable lease income		575,078		461,719
Other related lease income, net:
Amortization of above- and below-market leases		81,408		76,069
Straight line rent revenue		45,375		156,319
Total rental income	$	4,486,501	$	4,034,286

As of September 30, 2023, we had four tenants that each account for more than 10% of our annual rental revenue as indicated below:


	2023			2022
General Services Administration		23	%		21	%
Kohl's Corporation		14	%		16	%
PRA Holdings, Inc.		13	%		15	%
Pratt & Whitney Automation, Inc.		12	%		14	%

The following table presents future minimum rental cash payments due to the Company over the next five calendar years and thereafter as of December 31:


	As of September 30,
	2023
2023 (3 months remaining)	$	2,394,505
2024		8,092,847
2025		7,842,853
2026		7,480,808
2027		5,817,420
Thereafter		13,038,988
	$	44,667,421

Lessee Accounting

The Company acquired one property on March 9, 2022 that is subject to a non-cancelable, long-term ground lease where a third party owns the underlying land and has leased the land to the Company. Accordingly, the Company owns only a long-term leasehold in this property. This ground lease expires in 2084 including those options the Company deems probable of exercising. The ground lease expense is recognized on a straight-line basis over the term of the lease, including management's estimate of expected option renewal periods. Operating lease expense was $93,762 and $93,762 for the three months ended September 30, 2023 and 2022, respectively, and $281,285 and $218,777 for the nine months ended September 30, 2023 and 2022, respectively. There are no variable lease expenses required to be paid by the Company as lessee per the lease terms. Cash paid for amounts included in the measurement of the lease liability, net was $58,175 and $58,175 during the three months ended September 30, 2023 and 2022, respectively, and $174,525 and $130,738 for the nine months ended September 30, 2023 and 2022, respectively.

The following table summarizes the undiscounted future cash flows for subsequent years ending December 31 attributable to the lease liability as of September 30, 2023 and provides a reconciliation to the lease liability included in the accompanying Consolidated Balance Sheet as of September 30, 2023.


	As of September 30,
	2023
2023 (3 months remaining)	$	58,175
2024		244,077
2025		245,111
2026		245,111
2027		245,111
Thereafter		21,820,644
Total undiscounted liability	$	22,858,229
Present value discount		(16,477,521	)
Lease liability	$	6,380,708
Discount rate		4.58	%
Term Remaining	60 years