Leases

12 Months Ended

Dec. 31, 2022

Leases, Operating [Abstract]

Leases

Leases

Lessor Accounting

As of December 31, 2022, the Company's properties were leased primarily to the USPS, with leases expiring at various dates through May 31, 2031. Certain leases had expired and were in holdover status as of December 31, 2022 as discussed below. Certain leases contain renewal, termination and/or purchase options exercisable at the lessee’s election. Therefore, such options are only recognized once they are deemed reasonably certain, typically at the time the option is exercised. All of the Company’s leases are operating leases with the exception of two that are direct financing leases. The Company’s operating leases and direct financing leases are described below.

Rental income related to the Company’s leases is recognized on a straight-line basis over the remaining lease term. The Company’s total revenue includes fixed base rental payments provided under the lease and variable payments which principally consist of tenant expense reimbursements for certain property operating expenses, including real estate taxes. The Company elected the practical expedient to account for its lease and non-lease components as a single combined operating lease component under Topic 842. As a result, rental income and tenant reimbursements were aggregated into a single line within rental income in the Consolidated Statements of Operations and Comprehensive Income.

The following table represents rental revenue that the Company recognized related to its operating leases (in thousands):

	Years Ended December 31,
	2022		2021
Fixed payments	$	43,808	$	32,769
Variable payments	7,068		5,507
	$	50,876	$	38,276

Future minimum lease payments to be received as of December 31, 2022 under non-cancellable operating leases for the next five years and thereafter are as follows (in thousands):(1)

Year Ending December 31,	Amount
2023(2)	$	41,181
2024	36,545
2025	30,777
2026	22,732
2027	12,452
Thereafter	14,091
Total	$	157,778

Explanatory Notes:

(1)The above minimum lease payments to be received do not include reimbursements from tenants for real estate taxes and other reimbursed expenses.

(2)As of December 31, 2022, the leases at 81 of the Company's properties were expired, and the USPS was occupying such properties as a holdover tenant. As such, the above minimum lease payments to be received do not include payments under these holdover leases. Holdover rent is typically paid as the greater of estimated market rent or the rent amount due under the expired lease.

Purchase Option Provisions

As of December 31, 2022, operating leases for 60 of the Company’s properties provided the USPS with the option to purchase the underlying property either at fair market value or at fixed prices, in each case as of dates set forth in the lease

agreement. As of December 31, 2022, 57 of these properties acquired for an aggregate purchase price of approximately $44.8 million had an aggregate purchase option price of approximately $53.5 million and the remaining three properties acquired for an aggregate purchase price of approximately $2.6 million had purchase options exercisable at fair market value.

Investment in Financing Leases, Net

As of December 31, 2022, financing leases for two of the Company’s properties provide the USPS with the option to purchase the underlying property at fixed prices as of dates set forth in the lease agreement. The components of the Company’s net investment in financing leases as of December 31, 2022 and 2021 are summarized in the table below (in thousands):

	As of December 31,
	2022		2021
Total minimum lease payment receivable	$	33,215	$	34,352
Less: unearned income	(17,085)		(18,139)
Investment in financing leases, net	$	16,130	$	16,213

Revenue earned under direct financing leases for the years ended December 31, 2022 and 2021 were $1.1 million and $0.2 million, respectively, which is recorded in "Fee and other" in the Consolidated Statements of Operations and Comprehensive Income.

Future lease payments to be received under the Company’s direct financing leases as of December 31, 2022 for the next five years and thereafter are as follows (in thousands):

Year Ending December 31,	Amount
2023	$	1,137
2024	1,137
2025	1,137
2026	1,137
2027	1,137
Thereafter	27,530
Total	$	33,215

Lessee Accounting

As a lessee, the Company has ground and office leases which were classified as operating leases. On January 1, 2021 the Company adopted Topic 842 and recognized ROU assets of $1.2 million and lease liabilities of $1.2 million.

As of December 31, 2022, these leases had remaining terms, including renewal options, of one to 56 years and a weighted average remaining lease term of 22.6 years. Operating ROU assets and lease liabilities are included in “Prepaid expenses and other assets, net” and “Accounts payable, accrued expense and other” on the Consolidated Balance Sheets as follows (in thousands):

	As of December 31, 2022
ROU asset – operating leases	$	1,010
Lease liability – operating leases	$	1,014

The difference between the recorded ROU assets and lease liabilities is mainly due to the reclassification of the below market ground lease intangible asset which was included within the ROU assets recognized upon transition.

Operating lease assets and liabilities are measured at the commencement date based on the present value of future lease payments. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing

rate based on the information available at the commencement date in determining the present value of future payments. The Company used a discount rate ranging from 4.25% to 6.37% based on the yield of its current borrowings in determining its lease liabilities.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The lease terms may include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option.

Operating lease expense for each of the twelve months ended December 31, 2022 and 2021 was $0.2 million.

Future minimum lease payments to be paid by the Company as a lessee for operating leases as of December 31, 2022 for the next five years and thereafter are as follows (in thousands):

2023	$	245
2024	121
2025	46
2026	43
2027	43
Thereafter	1,388
Total future minimum lease payments	$	1,886
Interest discount	(872)
Total	$	1,014

Leases

Leases

Lessor Accounting

As of December 31, 2022, the Company's properties were leased primarily to the USPS, with leases expiring at various dates through May 31, 2031. Certain leases had expired and were in holdover status as of December 31, 2022 as discussed below. Certain leases contain renewal, termination and/or purchase options exercisable at the lessee’s election. Therefore, such options are only recognized once they are deemed reasonably certain, typically at the time the option is exercised. All of the Company’s leases are operating leases with the exception of two that are direct financing leases. The Company’s operating leases and direct financing leases are described below.

Rental income related to the Company’s leases is recognized on a straight-line basis over the remaining lease term. The Company’s total revenue includes fixed base rental payments provided under the lease and variable payments which principally consist of tenant expense reimbursements for certain property operating expenses, including real estate taxes. The Company elected the practical expedient to account for its lease and non-lease components as a single combined operating lease component under Topic 842. As a result, rental income and tenant reimbursements were aggregated into a single line within rental income in the Consolidated Statements of Operations and Comprehensive Income.

The following table represents rental revenue that the Company recognized related to its operating leases (in thousands):

	Years Ended December 31,
	2022		2021
Fixed payments	$	43,808	$	32,769
Variable payments	7,068		5,507
	$	50,876	$	38,276

Future minimum lease payments to be received as of December 31, 2022 under non-cancellable operating leases for the next five years and thereafter are as follows (in thousands):(1)

Year Ending December 31,	Amount
2023(2)	$	41,181
2024	36,545
2025	30,777
2026	22,732
2027	12,452
Thereafter	14,091
Total	$	157,778

Explanatory Notes:

(1)The above minimum lease payments to be received do not include reimbursements from tenants for real estate taxes and other reimbursed expenses.

(2)As of December 31, 2022, the leases at 81 of the Company's properties were expired, and the USPS was occupying such properties as a holdover tenant. As such, the above minimum lease payments to be received do not include payments under these holdover leases. Holdover rent is typically paid as the greater of estimated market rent or the rent amount due under the expired lease.

Purchase Option Provisions

As of December 31, 2022, operating leases for 60 of the Company’s properties provided the USPS with the option to purchase the underlying property either at fair market value or at fixed prices, in each case as of dates set forth in the lease

agreement. As of December 31, 2022, 57 of these properties acquired for an aggregate purchase price of approximately $44.8 million had an aggregate purchase option price of approximately $53.5 million and the remaining three properties acquired for an aggregate purchase price of approximately $2.6 million had purchase options exercisable at fair market value.

Investment in Financing Leases, Net

As of December 31, 2022, financing leases for two of the Company’s properties provide the USPS with the option to purchase the underlying property at fixed prices as of dates set forth in the lease agreement. The components of the Company’s net investment in financing leases as of December 31, 2022 and 2021 are summarized in the table below (in thousands):

	As of December 31,
	2022		2021
Total minimum lease payment receivable	$	33,215	$	34,352
Less: unearned income	(17,085)		(18,139)
Investment in financing leases, net	$	16,130	$	16,213

Revenue earned under direct financing leases for the years ended December 31, 2022 and 2021 were $1.1 million and $0.2 million, respectively, which is recorded in "Fee and other" in the Consolidated Statements of Operations and Comprehensive Income.

Future lease payments to be received under the Company’s direct financing leases as of December 31, 2022 for the next five years and thereafter are as follows (in thousands):

Year Ending December 31,	Amount
2023	$	1,137
2024	1,137
2025	1,137
2026	1,137
2027	1,137
Thereafter	27,530
Total	$	33,215

Lessee Accounting

As a lessee, the Company has ground and office leases which were classified as operating leases. On January 1, 2021 the Company adopted Topic 842 and recognized ROU assets of $1.2 million and lease liabilities of $1.2 million.

As of December 31, 2022, these leases had remaining terms, including renewal options, of one to 56 years and a weighted average remaining lease term of 22.6 years. Operating ROU assets and lease liabilities are included in “Prepaid expenses and other assets, net” and “Accounts payable, accrued expense and other” on the Consolidated Balance Sheets as follows (in thousands):

	As of December 31, 2022
ROU asset – operating leases	$	1,010
Lease liability – operating leases	$	1,014

The difference between the recorded ROU assets and lease liabilities is mainly due to the reclassification of the below market ground lease intangible asset which was included within the ROU assets recognized upon transition.

Operating lease assets and liabilities are measured at the commencement date based on the present value of future lease payments. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing

rate based on the information available at the commencement date in determining the present value of future payments. The Company used a discount rate ranging from 4.25% to 6.37% based on the yield of its current borrowings in determining its lease liabilities.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The lease terms may include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option.

Operating lease expense for each of the twelve months ended December 31, 2022 and 2021 was $0.2 million.

Future minimum lease payments to be paid by the Company as a lessee for operating leases as of December 31, 2022 for the next five years and thereafter are as follows (in thousands):

2023	$	245
2024	121
2025	46
2026	43
2027	43
Thereafter	1,388
Total future minimum lease payments	$	1,886
Interest discount	(872)
Total	$	1,014

Leases

Leases

Lessor Accounting

As of December 31, 2022, the Company's properties were leased primarily to the USPS, with leases expiring at various dates through May 31, 2031. Certain leases had expired and were in holdover status as of December 31, 2022 as discussed below. Certain leases contain renewal, termination and/or purchase options exercisable at the lessee’s election. Therefore, such options are only recognized once they are deemed reasonably certain, typically at the time the option is exercised. All of the Company’s leases are operating leases with the exception of two that are direct financing leases. The Company’s operating leases and direct financing leases are described below.

Rental income related to the Company’s leases is recognized on a straight-line basis over the remaining lease term. The Company’s total revenue includes fixed base rental payments provided under the lease and variable payments which principally consist of tenant expense reimbursements for certain property operating expenses, including real estate taxes. The Company elected the practical expedient to account for its lease and non-lease components as a single combined operating lease component under Topic 842. As a result, rental income and tenant reimbursements were aggregated into a single line within rental income in the Consolidated Statements of Operations and Comprehensive Income.

The following table represents rental revenue that the Company recognized related to its operating leases (in thousands):

	Years Ended December 31,
	2022		2021
Fixed payments	$	43,808	$	32,769
Variable payments	7,068		5,507
	$	50,876	$	38,276

Future minimum lease payments to be received as of December 31, 2022 under non-cancellable operating leases for the next five years and thereafter are as follows (in thousands):(1)

Year Ending December 31,	Amount
2023(2)	$	41,181
2024	36,545
2025	30,777
2026	22,732
2027	12,452
Thereafter	14,091
Total	$	157,778

Explanatory Notes:

(1)The above minimum lease payments to be received do not include reimbursements from tenants for real estate taxes and other reimbursed expenses.

(2)As of December 31, 2022, the leases at 81 of the Company's properties were expired, and the USPS was occupying such properties as a holdover tenant. As such, the above minimum lease payments to be received do not include payments under these holdover leases. Holdover rent is typically paid as the greater of estimated market rent or the rent amount due under the expired lease.

Purchase Option Provisions

As of December 31, 2022, operating leases for 60 of the Company’s properties provided the USPS with the option to purchase the underlying property either at fair market value or at fixed prices, in each case as of dates set forth in the lease

agreement. As of December 31, 2022, 57 of these properties acquired for an aggregate purchase price of approximately $44.8 million had an aggregate purchase option price of approximately $53.5 million and the remaining three properties acquired for an aggregate purchase price of approximately $2.6 million had purchase options exercisable at fair market value.

Investment in Financing Leases, Net

As of December 31, 2022, financing leases for two of the Company’s properties provide the USPS with the option to purchase the underlying property at fixed prices as of dates set forth in the lease agreement. The components of the Company’s net investment in financing leases as of December 31, 2022 and 2021 are summarized in the table below (in thousands):

	As of December 31,
	2022		2021
Total minimum lease payment receivable	$	33,215	$	34,352
Less: unearned income	(17,085)		(18,139)
Investment in financing leases, net	$	16,130	$	16,213

Revenue earned under direct financing leases for the years ended December 31, 2022 and 2021 were $1.1 million and $0.2 million, respectively, which is recorded in "Fee and other" in the Consolidated Statements of Operations and Comprehensive Income.

Future lease payments to be received under the Company’s direct financing leases as of December 31, 2022 for the next five years and thereafter are as follows (in thousands):

Year Ending December 31,	Amount
2023	$	1,137
2024	1,137
2025	1,137
2026	1,137
2027	1,137
Thereafter	27,530
Total	$	33,215

Lessee Accounting

As a lessee, the Company has ground and office leases which were classified as operating leases. On January 1, 2021 the Company adopted Topic 842 and recognized ROU assets of $1.2 million and lease liabilities of $1.2 million.

As of December 31, 2022, these leases had remaining terms, including renewal options, of one to 56 years and a weighted average remaining lease term of 22.6 years. Operating ROU assets and lease liabilities are included in “Prepaid expenses and other assets, net” and “Accounts payable, accrued expense and other” on the Consolidated Balance Sheets as follows (in thousands):

	As of December 31, 2022
ROU asset – operating leases	$	1,010
Lease liability – operating leases	$	1,014

The difference between the recorded ROU assets and lease liabilities is mainly due to the reclassification of the below market ground lease intangible asset which was included within the ROU assets recognized upon transition.

Operating lease assets and liabilities are measured at the commencement date based on the present value of future lease payments. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing

rate based on the information available at the commencement date in determining the present value of future payments. The Company used a discount rate ranging from 4.25% to 6.37% based on the yield of its current borrowings in determining its lease liabilities.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The lease terms may include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option.

Operating lease expense for each of the twelve months ended December 31, 2022 and 2021 was $0.2 million.

Future minimum lease payments to be paid by the Company as a lessee for operating leases as of December 31, 2022 for the next five years and thereafter are as follows (in thousands):

2023	$	245
2024	121
2025	46
2026	43
2027	43
Thereafter	1,388
Total future minimum lease payments	$	1,886
Interest discount	(872)
Total	$	1,014