As of March 31, 2021, we owned 902 properties and leased 58 properties from third-party landlords. These 960 properties are located in 35 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 and other automotive-related and retail tenants. Our tenants either operate their businesses at our properties directly or sublet our properties and supply fuel to third parties who operate the convenience store and gasoline station 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.

A majority of our tenants’ financial results depend on convenience store sales, the sale of refined petroleum products, and/or rental income from their subtenants. As a result, our tenants’ financial results are highly dependent on the performance of the petroleum marketing industry, which is highly competitive and subject to volatility. 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 (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 $36,951,000 and $34,650,000 for the three months ended March 31, 2021 and 2020, respectively. Rental income contractually due from our tenants included in revenues from rental properties was $33,539,000 and $31,393,000 for the three months ended March 31, 2021 and 2020, 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 deferred rental revenue due to the recognition of rental income on a straight-line basis over the current lease term, the net amortization of above-market and below-market leases, 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 the amortization of deferred lease incentives (collectively, “Revenue Recognition Adjustments”). Revenue Recognition Adjustments included in revenues from rental properties resulted in a reduction in revenue of $343,000 and $69,000 for the three months ended March 31, 2021 and 2020, respectively.

Tenant reimbursements, which are included in revenues from rental properties and which consist of real estate taxes and other municipal charges paid by us which were reimbursable by our tenants pursuant to the terms of triple-net lease agreements, were $3,756,000 and $3,326,000 for the three months ended March 31, 2021 and 2020, respectively .

The components of the $76,094,000 investment in direct financing leases as of March 31, 2021, are lease payments receivable of $109,946,000 plus unguaranteed estimated residual value of $13,928,000 less unearned income of $46,862,000 and $918,000 allowance for credit losses. The components of the $77,238,000 investment in direct financing leases as of December 31, 2020, are lease payments receivable of $113,256,000 plus unguaranteed estimated residual value of $13,928,000 less unearned income of $49,028,000 and $918,000 allowance for credit losses. Of the $918,000 aggregate credit loss reserve related to these direct financing leases, $578,000 was recognized as a cumulative adjustment to retained earnings and as a reduction of the investment in direct financing leases balance on our consolidated balance sheets on January 1, 2020.

As of March 31, 2021, 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
2021	$	91,352	$	10,028
2022		122,150		13,420
2023		121,556		13,467
2024		119,798		13,611
2025		118,990		13,512
Thereafter		640,932		45,907
Total	$	1,214,778	$	109,945

For leases in which we are the lessee, ASU 2016-02 requires 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 carryforward 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, 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.

	March 31, 2021
Assets
Right-of-use assets – operating	$	23,462
Right-of-use assets – finance		707
Total lease assets	$	24,169
Liabilities
Lease liability – operating	$	24,391
Lease liability – finance		3,367
Total lease liabilities	$	27,758

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

Weighted-average remaining lease term (years)
Operating leases	9.1
Finance leases	10.3
Weighted-average discount rate
Operating leases ^(a)		4.80	%
Finance leases		17.30	%

	Three Months Ended March 31, 2021
Operating lease cost	$	1,157
Finance lease cost
Amortization of leased assets		174
Interest on lease liabilities		163
Short-term lease cost		-
Total lease cost	$	1,494

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

	Three Months Ended March 31, 2021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases	$	753
Operating cash flows for finance leases		163
Financing cash flows for finance leases	$	174

As of March 31, 2021, scheduled lease liabilities mature as follows (in thousands):

	Operating Leases			Direct Financing Leases
2021	$	2,522		$	1,209
2022		3,780			1,042
2023		3,680			831
2024		3,532			732
2025		3,155			444
Thereafter		13,874			1,433
Total lease payments		30,543			5,691
Less: amount representing interest		(6,152	)		(2,324	)
Present value of lease payments	$	24,391		$	3,367

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, 2021, 350 of the properties we own or lease were previously leased to Marketing, of which 317 properties are subject to long-term triple-net leases with petroleum distributors across 14 separate portfolios and 26 properties are leased as single unit triple-net leases. The portfolio 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. 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 March 31, 2021, we have a remaining commitment to fund up to $6,772,000 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 March 31, 2021, we 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 $1,264,000 (net of accumulated amortization of $1,741,000) 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.