LEASES

6 Months Ended

Jun. 30, 2023

Leases [Abstract]

LEASES

LEASES

Leases as Lessor

The Retail Properties are leased pursuant to a single retail master lease (as amended, modified or supplemented from time to time, the “Retail Master Lease”) and the Warehouses were leased pursuant to a single distribution center master lease (as amended, modified or supplemented from time to time, the “DC Master Lease”; together with the Retail Master Lease, the “Master Leases” and individually, each a “Master Lease”). On the Effective Date, Penney Intermediate Holdings LLC assigned all of its right, title and interest as lessor under the Master Leases to the applicable PropCo. Each of the Master Leases has an initial term of 20 years that commenced on December 7, 2020 and is classified as an operating lease. The Trust receives monthly base rent pursuant to the Master Leases, which was 50% abated through December 31, 2021 for each of the Retail Properties. At the beginning of the third lease year, base rent under the Retail Master Lease increases based on changes in the consumer price index (subject to a maximum 2% increase per year) and the increase is not included in fixed lease payments or the future undiscounted lease payments schedule. Upon the sale of the Warehouses in December 2021, the Trust assigned all of its right, title and interest as lessor in the DC Master Lease to the purchaser.

The Master Lease requires direct payment of all operating expenses, real estate taxes, ground lease payments (where applicable), capital expenditures and common area maintenance costs by Penney Intermediate Holdings LLC and allows for lessor reimbursement if amounts are not directly paid. Expenses paid directly by Penney Intermediate Holdings LLC are not included in the accompanying consolidated statement of operations, except for ground lease payments made by Penney Intermediate Holdings LLC, since recording cash payments made by Penney Intermediate Holdings LLC is necessary to relieve amounts due to the ground lessor included in the ground lease liabilities. Ground lease payments made by Penney Intermediate Holdings LLC of $2,016 and $2,007 for the six

months ended June 30, 2023 and 2022, respectively, were paid directly to the ground lessor by Penney Intermediate Holdings LLC and were included in “Lease income” in the accompanying consolidated statements of operations.

In certain municipalities, the Trust is required to remit sales and use taxes to governmental authorities based upon the rental income received from Properties. These taxes are required to be reimbursed by Penney Intermediate Holdings LLC to the Trust in accordance with the terms of the Master Lease, and are presented net of reimbursement from Penney Intermediate Holdings LLC on the consolidated statements of operations. During the six months ended June 30, 2023 and 2022, the Trust remitted sales and use taxes of $373 and $340, which were fully reimbursed by Penney Intermediate Holdings LLC as of the end of each corresponding Reporting Period.

From time to time the Trust may have leasing activity with replacement tenants other than Penney Intermediate Holdings LLC, but has had none to date.

Lease income related to the Trust’s operating leases during the three and six months ended June 30, 2023 and 2022 is comprised of the following:

Lease income related to fixed lease payments	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Contractual base rent	$	25,555	$	27,655	$	51,209	$	55,326
Straight-line rental income, net (a)	(588)		(636)		(1,179)		(1,273)
Lease income related to variable lease payments
Ground lease reimbursement income (b)	1,004		1,003		2,016		2,007
Other
Amortization of above and below market lease intangibles (c)	(569)		(332)		(1,120)		(664)
Lease income	$	25,402	$	27,690	$	50,926	$	55,396

(a)Represents the impact of straight-line rent (contractual rent exceeds straight line rent).

(b)Ground lease reimbursement income consists of lease payments due from the tenant for land leased under non-cancellable operating leases.

(c)Represents above and below market lease amortization recognized straight line over the lease term.

As of June 30, 2023, undiscounted lease payments to be received under operating leases, for the next five years and thereafter are as follows:

	Lease Payments
Period from July 1 to December 31, 2023	$	51,111
2024	102,222
2025	102,222
2026	102,222
2027	102,222
Thereafter	1,328,885
Total	$	1,788,884

The weighted average remaining lease terms range was approximately 17.5 years as of June 30, 2023.

Leases as Lessee

The Trust leases land under operating ground leases at certain of its Properties, which expire in various years from 2038 to 2096, including any available option periods that are reasonably certain to be exercised. All option terms were considered to be reasonably certain of being exercised through the initial term of the Master Lease.

The components of ground lease rent expense, which are included within “Operating expenses” in the accompanying consolidated statements of operations for the three and six months ended June 30, 2023 and 2022, were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Amortization of:
Above market ground lease intangibles	$	(160)	$	(160)	$	(320)	$	(320)
Below market ground lease intangibles	365		424		730		849
Amortization of right-of-use assets	253		257		508		514
Interest expense	1,037		1,034		2,073		2,067
Ground lease rent expense	$	1,495	$	1,555	$	2,991	$	3,110

There were no cash payments for ground lease rent expense as these payments are made by the tenant.

As of June 30, 2023, undiscounted future rental obligations to be paid under the long-term ground leases by Penney Intermediate Holdings LLC under the terms of the Master Lease on behalf of the Trust, including fixed rental increases, for the next five years and thereafter, are as follows:

	Lease Obligations
Period from July 1 to December 31, 2023	$	2,046
2024	4,124
2025	4,116
2026	4,138
2027	4,197
Thereafter	220,159
Less imputed interest	(201,046)
Lease liabilities as of June 30, 2023	$	37,734

The Trust’s long-term ground leases had a weighted average remaining lease term of 43.9 years and a weighted average discount rate of 11.0% as of June 30, 2023.

LEASES

LEASES

Leases as Lessor

The Retail Properties are leased pursuant to a single retail master lease (as amended, modified or supplemented from time to time, the “Retail Master Lease”) and the Warehouses were leased pursuant to a single distribution center master lease (as amended, modified or supplemented from time to time, the “DC Master Lease”; together with the Retail Master Lease, the “Master Leases” and individually, each a “Master Lease”). On the Effective Date, Penney Intermediate Holdings LLC assigned all of its right, title and interest as lessor under the Master Leases to the applicable PropCo. Each of the Master Leases has an initial term of 20 years that commenced on December 7, 2020 and is classified as an operating lease. The Trust receives monthly base rent pursuant to the Master Leases, which was 50% abated through December 31, 2021 for each of the Retail Properties. At the beginning of the third lease year, base rent under the Retail Master Lease increases based on changes in the consumer price index (subject to a maximum 2% increase per year) and the increase is not included in fixed lease payments or the future undiscounted lease payments schedule. Upon the sale of the Warehouses in December 2021, the Trust assigned all of its right, title and interest as lessor in the DC Master Lease to the purchaser.

The Master Lease requires direct payment of all operating expenses, real estate taxes, ground lease payments (where applicable), capital expenditures and common area maintenance costs by Penney Intermediate Holdings LLC and allows for lessor reimbursement if amounts are not directly paid. Expenses paid directly by Penney Intermediate Holdings LLC are not included in the accompanying consolidated statement of operations, except for ground lease payments made by Penney Intermediate Holdings LLC, since recording cash payments made by Penney Intermediate Holdings LLC is necessary to relieve amounts due to the ground lessor included in the ground lease liabilities. Ground lease payments made by Penney Intermediate Holdings LLC of $2,016 and $2,007 for the six

months ended June 30, 2023 and 2022, respectively, were paid directly to the ground lessor by Penney Intermediate Holdings LLC and were included in “Lease income” in the accompanying consolidated statements of operations.

In certain municipalities, the Trust is required to remit sales and use taxes to governmental authorities based upon the rental income received from Properties. These taxes are required to be reimbursed by Penney Intermediate Holdings LLC to the Trust in accordance with the terms of the Master Lease, and are presented net of reimbursement from Penney Intermediate Holdings LLC on the consolidated statements of operations. During the six months ended June 30, 2023 and 2022, the Trust remitted sales and use taxes of $373 and $340, which were fully reimbursed by Penney Intermediate Holdings LLC as of the end of each corresponding Reporting Period.

From time to time the Trust may have leasing activity with replacement tenants other than Penney Intermediate Holdings LLC, but has had none to date.

Lease income related to the Trust’s operating leases during the three and six months ended June 30, 2023 and 2022 is comprised of the following:

Lease income related to fixed lease payments	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Contractual base rent	$	25,555	$	27,655	$	51,209	$	55,326
Straight-line rental income, net (a)	(588)		(636)		(1,179)		(1,273)
Lease income related to variable lease payments
Ground lease reimbursement income (b)	1,004		1,003		2,016		2,007
Other
Amortization of above and below market lease intangibles (c)	(569)		(332)		(1,120)		(664)
Lease income	$	25,402	$	27,690	$	50,926	$	55,396

(a)Represents the impact of straight-line rent (contractual rent exceeds straight line rent).

(b)Ground lease reimbursement income consists of lease payments due from the tenant for land leased under non-cancellable operating leases.

(c)Represents above and below market lease amortization recognized straight line over the lease term.

As of June 30, 2023, undiscounted lease payments to be received under operating leases, for the next five years and thereafter are as follows:

	Lease Payments
Period from July 1 to December 31, 2023	$	51,111
2024	102,222
2025	102,222
2026	102,222
2027	102,222
Thereafter	1,328,885
Total	$	1,788,884

The weighted average remaining lease terms range was approximately 17.5 years as of June 30, 2023.

Leases as Lessee

The Trust leases land under operating ground leases at certain of its Properties, which expire in various years from 2038 to 2096, including any available option periods that are reasonably certain to be exercised. All option terms were considered to be reasonably certain of being exercised through the initial term of the Master Lease.

The components of ground lease rent expense, which are included within “Operating expenses” in the accompanying consolidated statements of operations for the three and six months ended June 30, 2023 and 2022, were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Amortization of:
Above market ground lease intangibles	$	(160)	$	(160)	$	(320)	$	(320)
Below market ground lease intangibles	365		424		730		849
Amortization of right-of-use assets	253		257		508		514
Interest expense	1,037		1,034		2,073		2,067
Ground lease rent expense	$	1,495	$	1,555	$	2,991	$	3,110

There were no cash payments for ground lease rent expense as these payments are made by the tenant.

As of June 30, 2023, undiscounted future rental obligations to be paid under the long-term ground leases by Penney Intermediate Holdings LLC under the terms of the Master Lease on behalf of the Trust, including fixed rental increases, for the next five years and thereafter, are as follows:

	Lease Obligations
Period from July 1 to December 31, 2023	$	2,046
2024	4,124
2025	4,116
2026	4,138
2027	4,197
Thereafter	220,159
Less imputed interest	(201,046)
Lease liabilities as of June 30, 2023	$	37,734

The Trust’s long-term ground leases had a weighted average remaining lease term of 43.9 years and a weighted average discount rate of 11.0% as of June 30, 2023.