Leases

12 Months Ended

Dec. 31, 2024

Leases

Leases

9. Leases

 
The Company acquired ATHI on July 1, 2021, ATHI’s wholly owned subsidiary had entered into an operating lease agreement for certain real property located at 950 Evernia Street, West Palm Beach, Florida, with effect from February 1, 2019 for a period of three years, expiring on 1 February 2022. Under the terms of the lease agreement, the lease was extended during October 2021 for a further 5-year period until February 1, 2027.

On October 3, 2022 the Company entered into a purchase and sale agreement with Evernia Station Limited Partnership for the purchase of 950 Evernia Street, West Palm Beach, Florida, the property in which it operates its treatment center, for gross proceeds of $5,500,000. On August 3, 2023, after 6 addendums to the agreement, the Company closed on the acquisition of the property. This resulted in the termination of the lease with Evernia station, resulting in the reversal of the remaining right-of-use asset of $1,226,080 and the associated operating lease liability of $1,328,803, which liability included $102,723 of accrued rental, which was offset against the rental expense.

On August 4, 2023, the Company entered into a long-term lease for 950 Evernia Street, West Palm Beach, Florida with an initial term of twenty years, and two ten-year extension options. The lessor is Pontus EHC Palm Beach, LLC, a Delaware limited liability company and a portfolio company of Pontus Net Lease Advisors, LLC. The lease is absolutely net and the lease cost for the initial year is $748,000 paid monthly. The lease increases at a rate of 2.75% per year for a total term lease obligation of $19,595,653 over the initial twenty-year term. The Lease is personally guaranteed by the Company President and the guarantee may be released after 5 years based on certain financial and performance metrics being met. Due to the initial lease term of twenty years, the Company is not certain that the extension periods will be exercised at this point in time and accordingly, these have been excluded from the present value of the minimum future lease payments.

To determine the present value of minimum future lease payments for operating leases at August 4, 2023, the Company was required to estimate a rate of interest that it would have to pay to borrow on a collateralized basis over a similar term in a similar economic environment (the "incremental borrowing rate" or "IBR").

The Company determined the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options and certain lease-specific circumstances. For the reference rate, the Company used the Fannie Mae, in excess of $3,000,000 rate based on an 80% value to loan ratio, averaging the 15- and 30-year indicative rates, resulting in a rate of 7.70%. The Company determined that 7.70% per annum was an appropriate incremental borrowing rate to apply to its real estate operating lease.

The present value of the future minimum lease payments was valued at $9,333,953 on August 4, 2023. 

On May 1, 2024 the Company, through its subsidiary Evernia Health Center LLC, entered into a Definitive Agreement whereby the Company would assume the lease for suites 100, 101, 201, 202 and 203 located at 899 Meadows Road, Boca Raton, Florida (the “Leased Premises”) and the furniture, fixtures and equipment located therein, upon the assignment of the lease from the property owner. The lease was assigned on June 10, 2024 and the Company entered into a Bill of Sale to give effect to the Definitive Agreement.

The assigned lease has a remaining term of 3 years, expiring on June 30, 2027, with an initial monthly lease cost of $21,843 from July 1, 2024 to December 31, 2024, escalating by 2.9% per annum, each annual period being a calendar year.

To determine the present value of minimum future lease payments for operating leases at June 10, 2024, the Company was required to estimate a rate of interest that it would have to pay to borrow on a collateralized basis over a similar term in a similar economic environment (the "incremental borrowing rate" or "IBR").

The Company determined the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options and certain lease-specific circumstances. For the reference rate, the Company used the Bank rate 3/1 adjustable-rate mortgage which represents the average rate for several mortgage lenders in the market of 6.36%. The Company determined that 6.36% per annum was an appropriate incremental borrowing rate to apply to its real estate operating lease.

The present value of the future minimum lease payments was valued at $744,256 on June 10, 2024.

Right of use assets are included in the consolidated balance sheet are as follows:

	December 31, 2024		December 31, 2023
Non-current assets
Right-of-use assets – finance leases, net of depreciation, included in Property and equipment	$	15,699	$	26,889
Right-of-use assets - operating leases, net of amortization	$	9,920,592	$	9,323,723

Lease costs consists of the following: 

	Year ended December 31,
	2024		2023
Finance lease cost:
Amortization of right-of-use assets	$	11,190	$	11,190
Interest expense on finance lease liabilities		1,402		1,938
		12,592		13,128
Operating lease cost	$	1,304,127	$	598,336
Lease cost	$	1,316,719	$	611,464

Other lease information: 

	Year ended December 31,
	2024			2023
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases	$	(1,402	)	$	(1,938	)
Operating cash flows from operating leases		(999,883	)		(600,299	)
Financing cash flows from finance leases		(8,478	)		(7,943	)
	$	(1,009,763	)	$	(610,180	)
Weighted average lease term – finance leases		1 years and ten months			2 years and ten months
Weighted average remaining lease term – operating leases		17 years and 8 months			19 years and 8 months
Discount rate – finance leases		6.60	%		6.60	%
Discount rate – operating leases		7.61	%		7.70	%

Maturity of Leases

Finance lease liability

The amount of future minimum lease payments under finance leases as of December 31, 2023 is as follows:

	Amount
2025	$	9,829
2026		6,195
2027		1,707
		17,731
Imputed interest		(1,309	)
Total finance lease liability	$	16,422
Disclosed as:
Current portion	$	9,829
Non-Current portion		6,593
Lease liability	$	16,422

Operating lease liability

The amount of future minimum lease payments under operating leases are as follows:

	Amount
2025	$	1,045,192
2026		1,074,288
2027		961,526
2028		841,379
2029 and thereafter		15,358,663
Total undiscounted minimum future lease payments		19,281,048
Imputed interest		(9,032,492	)
Total operating lease liability	$	10,248,556
Disclosed as:
Current portion	$	299,102
Non-Current portion		9,949,454
	$	10,248,556