Lease Accounting

6 Months Ended

Jun. 30, 2025

Leases [Abstract]

Lease Accounting

Lease Accounting

Lessor

Operating Leases. The Company’s lease portfolio as a lessor primarily includes general purpose, single-tenant net-leased real estate assets. Most of the Company’s leases require tenants to pay fixed annual rental payments that escalate on an annual basis and variable payments for other operating expenses, such as real estate taxes, insurance, common area maintenance ("CAM"), and utilities, that are based on the actual expenses incurred.

Certain leases allow for the tenant to renew the lease term upon expiration or earlier. Periods covered by a renewal option are included within the lease term only when renewals are deemed to be reasonably certain. Certain leases allow for the tenant to terminate the lease before the expiration of the lease term and certain leases provide the tenant with the right to purchase the leased property at fair market value or a stipulated price upon expiration of the lease term or before.

Accounting guidance under ASC 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease and determining the lease term when the contract has renewal, purchase or early termination provisions.

The Company analyzes its accounts receivable, customer creditworthiness and current economic trends when evaluating the adequacy of the collectability of the lessee's total accounts receivable balance on a lease by lease basis. In addition, tenants in bankruptcy are analyzed and considerations are made in connection with the expected pre-petition and post-petition claims. If a lessee's accounts receivable balance is considered uncollectible, the Company will write-off the receivable balances associated with the lease to rental revenue and cease to recognize lease income, including straight-line rent, unless cash is received. If the Company subsequently determines that it is probable it will collect substantially all of the lessee's remaining lease payments under the lease term; the Company will reinstate the straight-line balance adjusting for the amount related to the period when the lease was accounted for on a cash basis.

The Company elected that the lease and non-lease components in its leases are a single lease component, which is, therefore, being recognized as rental revenue in its unaudited Condensed Consolidated Statements of Operations. The primary non-lease service included within rental revenue is common area maintenance services provided as part of the Company’s real estate leases. ASC 842 requires that the Company capitalize, as initial direct costs, only those costs that are incurred due to the execution of a lease. For the six months ended June 30, 2025, the Company incurred $60 of costs that were incremental to the execution of leases.

The Company manages the risk associated with the residual value of its leased properties by including contract clauses that make tenants responsible for surrendering the space in good condition upon lease termination, holding a diversified portfolio, and other activities. The Company does not have residual value guarantees on specific properties.

Rental Revenue Classification. The following table presents the Company’s classification of rental revenue for its operating leases and sales-type lease for the three and six months ended June 30, 2025 and 2024:

	Three Months Ended June 30,				Six Months Ended June 30,
Classification	2025		2024		2025		2024
Fixed	$	72,285	$	69,748	$	145,175	$	139,760
Sales-type lease income	—		1,917		—		3,816
Variable(1)	14,459		13,103		29,462		26,399
Total	$	86,744	$	84,768	$	174,637	$	169,975

(1) Primarily comprised of tenant reimbursements.

Future fixed rental receipts for operating leases assuming no new or re-negotiated leases as of June 30, 2025 were as follows:

	Operating
2025 - remainder	$	141,742
2026	278,808
2027	242,688
2028	207,663
2029	181,346
2030	138,990
Thereafter	395,809
Total	$	1,587,046

The minimum lease payments above do not include reimbursements to be received from tenants for certain operating expenses and real estate taxes and do not include early termination payments provided for in certain leases, unless such payments are reasonably certain to be received.

Certain leases allow for the tenant to terminate the lease if the property is deemed obsolete, as defined, and upon payment of a termination fee to the landlord, as stipulated in the lease.

Lessee

The Company, as lessee, has ground leases, corporate leases for office space, and office equipment leases. All leases were classified as operating leases as of June 30, 2025. The leases have remaining lease terms of up to 32 years. Renewal periods are included in the lease term only when renewal is deemed to be reasonably certain. The lease term also includes periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise the termination option. The Company measures its lease payments by including fixed rental payments and variable rental payments that tie to an index or a rate, such as CPI. The Company recognizes lease expense for its operating leases on a straight-line basis over the lease term and variable lease expense not included in the lease payment measurement as incurred.

The accounting guidance under ASC 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease, determining the term of a lease when the contract has renewal or termination provisions and determining the discount rate.

The Company determines whether an arrangement is or includes a lease at contract inception by evaluating whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. If the Company has the right to obtain substantially all of the economic benefits from and can direct the use of, the identified asset for a period of time, the Company accounts for the contract as a lease.

The Company uses the information available at the lease commencement date to determine the discount rate for any new leases. The Company used a portfolio approach to determine its incremental borrowing rate. Lease contracts were grouped based on similar lease terms and economic environments in a manner in which the Company reasonably expects that the outcome from applying a portfolio approach does not differ materially from an individual lease approach. The Company estimated a collateralized discount rate for each portfolio of leases.

Supplemental information related to operating leases is as follows:

	Six Months Ended
	June 30, 2025		June 30, 2024
Weighted-average remaining lease term
Operating leases (years)	9.0		8.6
Weighted-average discount rate
Operating leases	4.2	%	4.1	%

The components of lease expense for the six months ended June 30, 2025 and 2024 were as follows:

Income Statement Classification	Fixed		Variable		Total
2025:
Property operating	$	1,718	$	15	$	1,733
General and administrative(1)	954		169		1,123
Total	$	2,672	$	184	$	2,856
2024:
Property operating	$	1,756	$	15	$	1,771
General and administrative	788		124		912
Total	$	2,544	$	139	$	2,683

(1) For the six months ended June 30, 2025 and 2024, the general and administrative lease expense excludes a reduction of $451 and $267, respectively, to lease expense for the sublease of the Company's office space in New York, New York.

The Company recognized sublease income related to its ground leases in rental revenue of $1,622 and $1,660 for the six months ended June 30, 2025 and 2024, respectively.

The following table shows the Company's maturity analysis of its operating lease liabilities as of June 30, 2025:

	Operating Leases
2025 - remainder	$	2,616
2026	4,451
2027	3,968
2028	1,356
2029	518
2030	301
Thereafter	5,095
Total lease payments	$	18,305
Less: Imputed interest	(3,575)
Present value of lease liabilities	$	14,730

Lease Accounting

Lease Accounting

Lessor

Operating Leases. The Company’s lease portfolio as a lessor primarily includes general purpose, single-tenant net-leased real estate assets. Most of the Company’s leases require tenants to pay fixed annual rental payments that escalate on an annual basis and variable payments for other operating expenses, such as real estate taxes, insurance, common area maintenance ("CAM"), and utilities, that are based on the actual expenses incurred.

Certain leases allow for the tenant to renew the lease term upon expiration or earlier. Periods covered by a renewal option are included within the lease term only when renewals are deemed to be reasonably certain. Certain leases allow for the tenant to terminate the lease before the expiration of the lease term and certain leases provide the tenant with the right to purchase the leased property at fair market value or a stipulated price upon expiration of the lease term or before.

Accounting guidance under ASC 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease and determining the lease term when the contract has renewal, purchase or early termination provisions.

The Company analyzes its accounts receivable, customer creditworthiness and current economic trends when evaluating the adequacy of the collectability of the lessee's total accounts receivable balance on a lease by lease basis. In addition, tenants in bankruptcy are analyzed and considerations are made in connection with the expected pre-petition and post-petition claims. If a lessee's accounts receivable balance is considered uncollectible, the Company will write-off the receivable balances associated with the lease to rental revenue and cease to recognize lease income, including straight-line rent, unless cash is received. If the Company subsequently determines that it is probable it will collect substantially all of the lessee's remaining lease payments under the lease term; the Company will reinstate the straight-line balance adjusting for the amount related to the period when the lease was accounted for on a cash basis.

The Company elected that the lease and non-lease components in its leases are a single lease component, which is, therefore, being recognized as rental revenue in its unaudited Condensed Consolidated Statements of Operations. The primary non-lease service included within rental revenue is common area maintenance services provided as part of the Company’s real estate leases. ASC 842 requires that the Company capitalize, as initial direct costs, only those costs that are incurred due to the execution of a lease. For the six months ended June 30, 2025, the Company incurred $60 of costs that were incremental to the execution of leases.

The Company manages the risk associated with the residual value of its leased properties by including contract clauses that make tenants responsible for surrendering the space in good condition upon lease termination, holding a diversified portfolio, and other activities. The Company does not have residual value guarantees on specific properties.

Rental Revenue Classification. The following table presents the Company’s classification of rental revenue for its operating leases and sales-type lease for the three and six months ended June 30, 2025 and 2024:

	Three Months Ended June 30,				Six Months Ended June 30,
Classification	2025		2024		2025		2024
Fixed	$	72,285	$	69,748	$	145,175	$	139,760
Sales-type lease income	—		1,917		—		3,816
Variable(1)	14,459		13,103		29,462		26,399
Total	$	86,744	$	84,768	$	174,637	$	169,975

(1) Primarily comprised of tenant reimbursements.

Future fixed rental receipts for operating leases assuming no new or re-negotiated leases as of June 30, 2025 were as follows:

	Operating
2025 - remainder	$	141,742
2026	278,808
2027	242,688
2028	207,663
2029	181,346
2030	138,990
Thereafter	395,809
Total	$	1,587,046

The minimum lease payments above do not include reimbursements to be received from tenants for certain operating expenses and real estate taxes and do not include early termination payments provided for in certain leases, unless such payments are reasonably certain to be received.

Certain leases allow for the tenant to terminate the lease if the property is deemed obsolete, as defined, and upon payment of a termination fee to the landlord, as stipulated in the lease.

Lessee

The Company, as lessee, has ground leases, corporate leases for office space, and office equipment leases. All leases were classified as operating leases as of June 30, 2025. The leases have remaining lease terms of up to 32 years. Renewal periods are included in the lease term only when renewal is deemed to be reasonably certain. The lease term also includes periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise the termination option. The Company measures its lease payments by including fixed rental payments and variable rental payments that tie to an index or a rate, such as CPI. The Company recognizes lease expense for its operating leases on a straight-line basis over the lease term and variable lease expense not included in the lease payment measurement as incurred.

The accounting guidance under ASC 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease, determining the term of a lease when the contract has renewal or termination provisions and determining the discount rate.

The Company determines whether an arrangement is or includes a lease at contract inception by evaluating whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. If the Company has the right to obtain substantially all of the economic benefits from and can direct the use of, the identified asset for a period of time, the Company accounts for the contract as a lease.

The Company uses the information available at the lease commencement date to determine the discount rate for any new leases. The Company used a portfolio approach to determine its incremental borrowing rate. Lease contracts were grouped based on similar lease terms and economic environments in a manner in which the Company reasonably expects that the outcome from applying a portfolio approach does not differ materially from an individual lease approach. The Company estimated a collateralized discount rate for each portfolio of leases.

Supplemental information related to operating leases is as follows:

	Six Months Ended
	June 30, 2025		June 30, 2024
Weighted-average remaining lease term
Operating leases (years)	9.0		8.6
Weighted-average discount rate
Operating leases	4.2	%	4.1	%

The components of lease expense for the six months ended June 30, 2025 and 2024 were as follows:

Income Statement Classification	Fixed		Variable		Total
2025:
Property operating	$	1,718	$	15	$	1,733
General and administrative(1)	954		169		1,123
Total	$	2,672	$	184	$	2,856
2024:
Property operating	$	1,756	$	15	$	1,771
General and administrative	788		124		912
Total	$	2,544	$	139	$	2,683

(1) For the six months ended June 30, 2025 and 2024, the general and administrative lease expense excludes a reduction of $451 and $267, respectively, to lease expense for the sublease of the Company's office space in New York, New York.

The Company recognized sublease income related to its ground leases in rental revenue of $1,622 and $1,660 for the six months ended June 30, 2025 and 2024, respectively.

The following table shows the Company's maturity analysis of its operating lease liabilities as of June 30, 2025:

	Operating Leases
2025 - remainder	$	2,616
2026	4,451
2027	3,968
2028	1,356
2029	518
2030	301
Thereafter	5,095
Total lease payments	$	18,305
Less: Imputed interest	(3,575)
Present value of lease liabilities	$	14,730