As of March 31, 2024, we owned 1,071 properties and leased 37 properties from third-party landlords. These 1,108 properties are located in 42 states across the United States and Washington, D.C. Substantially all of our properties are leased on a triple-net basis to convenience store operators, petroleum distributors, express tunnel car wash operators and other automotive-related and retail tenants. Our tenants either operate their business 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 that operate the business. 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. Substantially all of our tenants are also responsible for pre-existing environmental contamination that is discovered during their lease term, except contamination that was known at lease commencement, as to which we have established reserves. For additional information regarding our environmental obligations, see Note 7 – 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 consumer

retail, petroleum marketing, automobile manufacturing, and automobile aftermarket 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 ASU 2016-02, for leases in which we are the lessor, we are (i) retaining classification of our historical leases as we were not required to reassess classification upon adoption of the new standard, (ii) expensing 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) aggregating revenue from our lease components and non-lease components (comprised of tenant reimbursements) into revenue from rental properties.

Revenues from rental properties for the three months ended March 31, 2024 and 2023, were $47.2 million and $42.4 million, respectively, including base rental income of $43.9 million and $38.8 million, respectively.

In accordance with GAAP, we recognize rental revenue in amounts which vary from the amount of rent contractually due during the periods presented. As a result, revenues from rental properties include non-cash adjustments recorded for (i) 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. Non-cash adjustments included in revenues from rental properties were $0.3 million and ($0.3) million for the three months ended March 31, 2024 and 2023, respectively.

Tenant reimbursements, 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 $2.8 million and $3.6 million for the three months ended March 31, 2024 and 2023, respectively.

The components of investment in direct financing leases, net as of March 31, 2024 and December 31, 2023 are as follows (in thousands):


	March 31, 2024			December 31, 2023
Lease payments receivable	$	68,542		$	71,834
Unguaranteed residual value		13,928			13,928
Unearned Income		(23,309	)		(24,995	)
Allowance for credit losses		(803	)		(803	)
Total	$	58,358		$	59,964

In accordance with ASU 2016-13, as of March 31, 2024 and December 31, 2023, we had recorded an allowance for credit losses of $0.8 million on investment in direct financing leases.

We evaluate the credit quality of our investment in direct financing leases utilizing internal underwriting and credit analysis. Substantially all of our tenants under direct financing leases are required to provide us with specified unit-level and/or corporate-level financial information. As of March 31, 2024 and December 31, 2023, no material balances of our investments in direct financing leases were past due.

As of March 31, 2024, 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
2024	$	125,308	$	9,976
2025		168,817		13,293
2026		162,725		10,262
2027		155,543		10,188
2028		138,018		9,902
Thereafter		1,028,465		14,921
Total	$	1,778,876	$	68,542

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 $25.6 million (net of deferred rent expense) and operating lease liabilities of $26.1 million, 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):


	March 31, 2024
Assets
Right-of-use assets - operating	$	14,000
Right-of-use assets - finance		149
Total lease assets	$	14,149
Liabilities
Lease liability - operating	$	15,424
Lease liability - finance		536
Total lease liabilities	$	15,960

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


Weighted-average remaining lease term (years)
Operating leases	7.5
Finance leases	4.1
Weighted-average discount rate
Operating leases (a)		4.70	%
Finance leases		14.85	%

(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 March 31,
	2024		2023
Operating lease cost	$	761	$	858
Finance lease cost
Amortization of leased assets		59		79
Interest on lease liabilities		26		74
Short-term lease cost		—		—
Total lease cost	$	846	$	1,011

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


	For the Three Months Ended March 31,
	2024		2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	818	$	915
Operating cash flows for finance leases		26		74
Financing cash flows for finance leases		59		79

As of March 31, 2024, scheduled lease liabilities mature as follows (in thousands):


	Operating Leases			Direct Financing Leases
2024	$	2,382		$	326
2025		2,810			146
2026		2,661			148
2027		2,241			-
2028		2,024			-
Thereafter		6,428			-
Total lease payments		18,546			620
Less: amount representing interest		(3,122	)		(84	)
Present value of lease payments	$	15,424		$	536

As of March 31, 2024 and 2023, we had three significant tenants by revenue:


	March 31, 2024					March 31, 2023
	Number of Properties		% of Total Revenues			Number of Properties		% of Total Revenues
Global Partners LP (NYSE: GLP)		150		15.0	%		150		15.0	%
ARKO Corp. (NASDAQ: ARKO)		150		14.0	%		150		16.0	%
APRO, LLC (d/b/a United Oil)		77		9.3	%		77		10.0	%

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 March 31, 2024, 324 of the properties we own or lease were previously leased to Marketing, of which 300 properties are subject to long-term triple-net leases across 12 separate portfolios, and 22 properties are leased as single unit triple-net leases (in addition, one property is under redevelopment and one property is vacant). The leases covering properties previously leased to Marketing are unitary triple-net lease agreements generally with an initial term of 15 years and options for successive renewal terms of up to 20 years. As of March 31, 2024, our weighted average remaining lease term, excluding renewal options, for the properties previously leased to Marketing was 5.0 years. Rent is scheduled to increase at varying intervals during both the initial and renewal terms of the leases. Certain of the leases provide for additional rent based on the aggregate volume of fuel sold. In addition, the majority of the leases require the tenants to invest capital in our properties, substantially all of which are related to the replacement of USTs that are owned by our tenants. As of March 31, 2024, we have a remaining commitment to fund up to $4.5 million 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. Accordingly, through March 31, 2024, we have removed $13.8 million of asset retirement obligations and $10.8 million of net asset retirement costs related to USTs from our balance sheet. The cumulative change of $0.7 million (net of accumulated amortization of $2.3 million) 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. We remain contingently liable for this obligation in the event that our tenants do not satisfy their responsibilities.