Real Estate Leases

12 Months Ended

Dec. 31, 2022

Leases [Abstract]

Real Estate Leases

REAL ESTATE LEASES

Lessor Accounting

The Company’s properties are generally leased pursuant to non-cancelable, fixed-term operating leases with expiration dates through 2039. The Company’s leases generally require the lessee to pay minimum rent, with fixed rent renewal terms or increases based on a Consumer Price Index and may also include additional rent, which may include taxes (including property taxes), insurance, maintenance and other operating costs associated with the leased property. The real estate properties were 91.7% leased at December 31, 2022 with a weighted average remaining lease term of approximately 7.6 years.

Future Minimum Lease Payments

Future minimum lease payments under the non-cancelable operating leases due the Company for the years ending December 31, as of December 31, 2022, are as follows (in thousands):

2023	$	87,196
2024	82,225
2025	76,255
2026	68,583
2027	63,253
2028 and thereafter	361,797
	$	739,309

Customer Concentrations

The Company's real estate portfolio is leased to a diverse tenant base. See Note 2 – Real Estate Investments. For the years ended December 31, 2022, 2021 and 2020, the Company had no customers that accounted for more than 10% of its consolidated revenues.

Geographic Concentrations

The Company's portfolio was located in 34 states at December 31, 2022. For the year ended December 31, 2022, 42.0% of our consolidated rental income was derived from properties located in Texas (16.4%), Ohio (12.9%), and Illinois (12.7%). For the year ended December 31, 2021, 29.5% of our consolidated rental income was derived from properties located in Texas (16.1%) and Illinois (13.4%). For the year ended December 31, 2020, 29.6% of our consolidated rental income was derived from properties located in Texas (15.9%) and Illinois (13.7%).

Purchase Option Provisions

Certain of the Company's leases provide the lessee with a purchase option or a right of first refusal to purchase the leased property. The purchase option provisions generally allow the lessee to purchase the leased property at fair value or at an amount greater than the Company's gross investment in the leased property at the time of the purchase. Since the Company's initial public offering, two of the Company's tenants have exercised their purchase option. These two properties were sold in 2018 and 2021.

The Company had approximately $28.1 million in five real estate properties as of December 31, 2022 that were subject to exercisable purchase options.

Straight-line rental income

Rental income is recognized as earned over the life of the lease agreement on a straight-line basis when collection of rental payments over the term of the lease is probable. Straight-line rent included in rental income was approximately $3.4 million, $3.6 million, and $3.2 million, respectively, for the years ended December 31, 2022, 2021 and 2020.

Prepaid rent

Income received but not yet earned is deferred until such time it is earned. Prepaid rent, included in other liabilities on the Consolidated Balance Sheets, was approximately $3.9 million and $3.8 million, respectively, at December 31, 2022 and 2021.

Sales-type lease

The Company has a portion of one property accounted for as a sales-type lease with a gross amount totaling approximately $3.0 million included in other assets, net on the Company's Consolidated Balance Sheet. Future lease payments due to the Company under this lease for the years ending December 31, as of December 31, 2022, are as follows (in thousands):

2023	$	336
2024	346
2025	356
2026	367
2027	378
2028 and thereafter	5,210
Total undiscounted lease receivable	6,993
Discount	(3,958)
Lease receivable	$	3,035

During the year ending December 31, 2022, the Company recognized interest income of approximately $0.3 million related to this lease which is included in other operating interest on the Company's Consolidated Statement of Income.

Lessee Accounting

At December 31, 2022, the Company was obligated, as the lessee, under four non-prepaid ground leases accounted for as operating leases with expiration dates through 2076, including renewal options, and two non-prepaid ground lease accounted for as a financing lease with an expiration date through 2109, including renewal options. Any rental increases related to the Company's ground leases are generally either stated or based on the Consumer Price Index. The Company's future lease payments under these non-prepaid ground leases were as follows (in thousands):

	Operating		Financing
2023	$	42	$	141
2024	43		154
2025	44		154
2026	44		154
2027	45		154
2028 and thereafter	1,148		6,956
Total undiscounted lease payments	1,366		7,713
Discount	(580)		(4,434)
Lease liabilities	$	786	$	3,279

The following table discloses other information regarding the ground leases.

		Year Ended December 31,
		2022		2021
Operating leases:
	Weighted-average remaining lease term in years (including renewal options)	36.3		37.0
	Weighted-average discount rate	4.0	%	4.0	%
Financing leases:
	Weighted-average remaining lease term in years (including renewal options)	40.8		37.0
	Weighted-average discount rate	4.2	%	4.1	%