As of September 30, 2023, our portfolio included 1,080 properties of which we owned 1,042 properties and leased 38 properties from third-party landlords. These 1,080 properties are located in 40 states across the United States and Washington, D.C. Substantially

all of our properties are leased on a triple-net basis to convenience store retailers, petroleum distributors, car wash operators and other automotive-related and retail tenants. Our tenants either operate their businesses at our properties directly or, in the case of certain convenience stores and gasoline and repair stations, sublet our properties and supply fuel to third parties who operate the businesses. Our triple-net lease tenants are responsible for the payment of all taxes, maintenance, repairs, insurance and other operating expenses relating to our properties, and are also responsible for environmental contamination occurring during the terms of their leases and in certain cases also for environmental contamination that existed before their leases commenced. For additional information regarding environmental obligations, see Note 6 – Environmental Obligations.

The majority of our tenants’ financial results depend on convenience store sales, the sale of refined petroleum products and/or the sale of automotive services and parts. As a result, our tenants’ financial results can be dependent on the performance of the convenience retail, petroleum marketing, and automobile maintenance industries, each of which are highly competitive and can be subject to variability. During the terms of our leases, we monitor the credit quality of our triple-net lease tenants by reviewing their published credit rating, if available, reviewing publicly available financial statements, or reviewing financial or other operating statements which are delivered to us pursuant to applicable lease agreements, monitoring news reports regarding our tenants and their respective businesses, and monitoring the timeliness of lease payments and the performance of other financial covenants under their leases.

Pursuant to lease accounting standards, which we adopted on January 1, 2019, for leases in which we are the lessor, we (i) retained the classification of our historical leases as we were not required to reassess classification upon adoption of the new standard, (ii) expense indirect leasing costs in connection with new or extended tenant leases, the recognition of which would have been deferred under prior accounting guidance and (iii) aggregate revenue from our lease components and non-lease components (comprised of tenant reimbursements) into revenue from rental properties.

Revenues from rental properties were $48,848,000 and $134,873,000 for the three and nine months ended September 30, 2023, respectively, and $41,533,000 and $121,330,000 for the three and nine months ended September 30, 2022, respectively. Rental income included in revenues from rental properties, which includes base rental income and additional income, if any, based on the aggregate volume of fuel sold at certain properties, was $41,244,000 and $120,206,000 for the three and nine months ended September 30, 2023, respectively, and $37,396,000 and $110,995,000 for the three and nine months ended September 30, 2022, respectively.

In accordance with GAAP, we recognize rental revenue in amounts that vary from the base rental amount contractually due from tenants during the periods presented. Revenues from rental properties include (i) non-cash adjustments recorded for deferred rental revenue due to the recognition of rental income on a straight-line basis over the current lease term, (ii) the net amortization of above-market and below-market leases, (iii) rental income recorded under direct financing leases using the effective interest method which produces a constant periodic rate of return on the net investments in the leased properties and (iv) the amortization of deferred lease incentives (collectively, “Revenue Recognition Adjustments”). Revenue Recognition Adjustments included in revenues from rental properties resulted in an increase in revenue for the three months ended September 30, 2023 of $66,000, a reduction in revenue of $380,000 for the nine months ended September 30, 2023, and reductions in revenue of $505,000 and $1,530,000 for the three and nine months ended September 30, 2022, respectively.

Tenant reimbursements, which are also included in revenues from rental properties and which consist of real estate taxes and other municipal charges paid by us and reimbursed by our tenants pursuant to the terms of triple-net lease agreements, were $7,538,000 and $15,047,000 for the three and nine months ended September 30, 2023, respectively, and $4,642,000 and $11,865,000 for the three and nine months ended September 30, 2022, respectively.

The components of investment in direct financing leases, net as of September 30, 2023 and December 31, 2022 are as follows (in thousands):


	September 30, 2023			December 31, 2022
Lease payments receivable	$	75,123		$	85,336
Unguaranteed residual value		13,928			13,928
Unearned Income		(26,724	)		(32,184	)
Allowance for credit losses		(895	)		(895	)
Total	$	61,432		$	66,185

In accordance with ASU 2016-13, as of September 30, 2023 and December 31, 2022, we had recorded an allowance for credit losses of $895,000 on investment in direct financing leases.

As of September 30, 2023, future contractual annual rentals receivable from our tenants, which have terms in excess of one year are as follows (in thousands):


	Operating Leases		Direct Financing Leases
2023	$	38,828	$	13,213
2024		155,021		13,290
2025		155,776		11,089
2026		147,718		10,131
2027		140,788		10,057
Thereafter		957,453		17,343
Total	$	1,595,584	$	75,123

For leases in which we are the lessee, lease accounting standards require leases with durations greater than twelve months to be recognized on our consolidated balance sheets. We elected the package of transition provisions available for expired or existing contracts, which allowed us to carry forward our historical assessments of (i) whether contracts are or contain leases, (ii) lease classification and (iii) initial direct costs.

As of January 1, 2019, we recognized operating lease right-of-use assets of $25,561,000 (net of deferred rent expense) and operating lease liabilities of $26,087,000, both of which were presented on our consolidated financial statements. The right-of-use assets and lease liabilities are carried at the present value of the remaining expected future lease payments. When available, we use the rate implicit in the lease to discount lease payments to present value; however, our current leases did not provide a readily determinable implicit rate. Therefore, we estimated our incremental borrowing rate to discount the lease payments based on information available and considered factors such as interest rates available to us on a fully collateralized basis and terms of the leases. ASU 2016-02 did not have a material impact on our consolidated balance sheets or on our consolidated statements of operations. The most significant impact was the recognition of right-of-use assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged.

The following presents the lease-related assets and liabilities (in thousands):


	September 30, 2023
Assets
Right-of-use assets - operating	$	15,135
Right-of-use assets - finance		200
Total lease assets	$	15,335
Liabilities
Lease liability - operating	$	16,665
Lease liability - finance		649
Total lease liabilities	$	17,314

The following presents the weighted average lease terms and discount rates of our leases:


Weighted-average remaining lease term (years)
Operating leases	7.8
Finance leases	4.7
Weighted-average discount rate
Operating leases (a)		4.70	%
Finance leases		15.10	%

(a)

Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2019.

The following presents our total lease costs (in thousands):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
Operating lease cost	$	800	$	905	$	2,383	$	2,756
Finance lease cost
Amortization of leased assets		79		125		243		355
Interest on lease liabilities		33		85		176		273
Short-term lease cost		—		—		—		—
Total lease cost	$	912	$	1,115	$	2,802	$	3,384

The following presents supplemental cash flow information related to our leases (in thousands):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	847	$	949	$	2,619	$	2,839
Operating cash flows for finance leases		33		85		176		273
Financing cash flows for finance leases		79		125		243		355

As of September 30, 2023, scheduled lease liabilities mature as follows (in thousands):


	Operating Leases			Direct Financing Leases
2023	$	806		$	340
2024		3,195			228
2025		2,810			146
2026		2,661			74
2027		2,241			-
Thereafter		8,452			-
Total lease payments		20,165			788
Less: amount representing interest		(3,500	)		(139	)
Present value of lease payments	$	16,665		$	649

As of September 30, 2023 and 2022, we had three significant tenants by revenue:


	September 30, 2023					September 30, 2022
	Number of Properties		% of Total Revenues			Number of Properties		% of Total Revenues
ARKO Corp. (NASDAQ: ARKO)		150		15.0	%		128		14.0	%
Global Partners LP (NYSE: GLP)		150		15.0	%		150		16.0	%
APRO, LLC (d/b/a United Oil)		77		10.0	%		78		11.0	%

Getty Petroleum Marketing Inc. (“Marketing”) was our largest tenant from 1997 until 2012 under a unitary triple-net master lease that was terminated in April 2012 as a consequence of Marketing’s bankruptcy, at which time we either sold or re-leased these properties. As of September 30, 2023, 325 of the properties we own or lease were previously leased to Marketing, of which 300 properties are subject to long-term triple-net leases with petroleum distributors across 12 separate portfolios and 22 properties are leased as single unit triple-net leases (an additional two properties are under redevelopment and one is vacant). The portfolio leases covering properties previously leased to Marketing are unitary triple-net lease agreements with an average remaining lease term of approximately 5.0 years and multiple renewal terms. Rent is scheduled to increase at varying intervals during both the initial and renewal terms of these leases. Several of the leases provide for additional rent based on the aggregate volume of fuel sold. In addition, the majority of the portfolio leases require the tenants to invest capital in our properties, substantially all of which is related to the replacement of USTs that are owned by our tenants. As of September 30, 2023, we have a remaining commitment to fund up to $6,523,000 in the aggregate with our tenants for our portion of such capital improvements. Our commitment provides us with the option to either reimburse our tenants or to offset rent when these capital expenditures are made. This deferred expense is recognized on a straight-line basis as a reduction of rental revenue in our consolidated statements of operations over the life of the various leases.

As part of the triple-net leases for properties previously leased to Marketing, we transferred title of the USTs to our tenants, and the obligation to pay for the retirement and decommissioning or removal of USTs at the end of their useful lives, or earlier if circumstances warranted, was fully or partially transferred to our new tenants. We remain contingently liable for this obligation in the event that our tenants do not satisfy their responsibilities. Accordingly, through September 30, 2023, we have removed $13,813,000 of asset retirement obligations and $10,808,000 of net asset retirement costs related to USTs from our balance sheet. The cumulative change of $726,000 (net of accumulated amortization of $2,279,000) is recorded as deferred rental revenue and will be recognized on a straight-line basis as additional revenues from rental properties over the terms of the various leases.