Leases

9 Months Ended

Sep. 30, 2022

The Company acquires, owns and manages commercial single-tenant lease properties, with the majority being long-term triple-net leases where the tenant is generally responsible for all improvements and contractually obligated to pay all operating costs (such as real estate taxes, utilities and repairs and maintenance costs). As of September 30, 2022, the Company had 406 single-tenant retail net leases spanning 42 states, with 77 different tenants represented across 24 retail sectors. As of September 30, 2022, the remaining terms of leases range from 1-21 years, with weighted average lease term of 9.6 years.

The Company’s property leases have been classified as operating leases and some have scheduled rent increases throughout the lease term. The Company’s leases typically provide the tenant one or more multi-year renewal options to extend their leases, subject to generally the same terms and conditions, including rent increases, consistent with the initial lease term.

All lease-related income is reported as a single line item, rental revenue (including reimbursable), in the condensed consolidated statements of operations and comprehensive income and is presented net of any reserves for uncollectible amounts. There were no material reserves for uncollectible amounts during the three and nine months ended September 30, 2022 and 2021.

The following table provides a disaggregation of lease income recognized under ASC 842 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Rental revenue
Fixed lease income (1)	$	21,940	$	14,010	$	59,661	$	37,460
Variable lease income (2)	2,086		1,434		7,004		3,290
Other rental revenue:
Above/below market lease amortization, net	444		182		1,021		609
Lease incentives	(131)		(23)		(377)		(26)
Rental revenue (including reimbursable)	$	24,339	$	15,603	$	67,309	$	41,333

(1) Fixed lease income includes contractual rents under lease agreements with tenants recognized on a straight-line basis over the lease term.

(2) Variable lease income primarily includes tenant reimbursements for real estate taxes, insurance, common area maintenance, and lease termination fees, and the write-off of uncollectible amounts.

Scheduled future minimum base rental payments (excluding base rental payments from properties classified as held for sale and straight-line rent adjustments for all properties) due to be received under the remaining non-cancelable term of the operating leases in place as of September 30, 2022 are as follows (in thousands):


	Future Minimum Base Rental Receipts
Remainder of 2022	$	22,429
2023	90,548
2024	91,527
2025	90,798
2026	87,941
Thereafter	503,378
Total	$	886,621

Future minimum rentals exclude amounts that may be received from tenants for reimbursements of operating costs and property taxes. In addition, the future minimum rents do not include any contingent rents based on a percentage of the lessees' gross sales or lease escalations based on future changes in the Consumer Price Index (“CPI”) or other stipulated reference rate.

Corporate Office Lease

In August 2021, the Company entered into a lease agreement on a new corporate office space, which commenced in October 2021 and is classified as an operating lease. The Company began operating out of the new office in February 2022. The lease has a remaining noncancellable lease term of 9.8 years that expires on July 31, 2032, with a one-time option to terminate in 2029 exercisable by the Company. The lease is also renewable at the Company’s option for two additional periods of five years. No renewals were incorporated in the calculation of the corporate lease right-of-use asset and liability as it is not reasonably certain that the Company will exercise the options. Further, the lease agreement does not contain any material residual value guarantees or material restrictive covenants. The corporate office lease contains variable lease costs related to the lease of parking spaces and non-lease components related to the reimbursement of property operating expenses and certain common area maintenance expenses, all of which are recognized as incurred. The Company elected to use the component practical expedient, which permits the Company to not separate non-lease components from lease components if timing and pattern of transfer is the same.

The following table presents the lease expense components for the three and nine months ended September 30, 2022 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Operating lease cost	$	135	$	—	$	406	$	—
Variable lease cost	$	33	$	—	$	42	$	—

The Company recorded a right-of-use asset and operating lease liability of approximately $4.5 million at lease commencement. As of September 30, 2022, the right-of-use asset and operating lease liability were $4.3 million and $5.5 million, respectively. The right-of-use asset is included in other assets, net and the operating lease liability is included in accounts payable, accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets.

The following table reflects the maturity analysis of payments due from the Company over the next five years and thereafter for the corporate office lease obligation as of September 30, 2022 (in thousands):


	Future Minimum Lease Payments
Remainder of 2022	$	111
2023	533
2024	617
2025	636
2026	653
Thereafter	3,982
Total lease payments	6,532
Less: amount representing interest (1)	(1,001)
Present value of operating lease liabilities	$	5,531

(1) Imputed interest was calculated using a discount rate of 3.25%. The discount rate is based on the estimated incremental borrowing rate, calculated as the treasury rate for the same period as the underlying lease term, plus a spread determined using factors including REIT industry performance.