5. LEASES
Lessor Accounting
The Company leases properties to tenants under operating leases with various expiration dates. Future contractual lease payments under operating leases at December 31, 2025 are as follows (in thousands):
| | | | | | | | |
| Year | | |
| 2026 | | $ | 345,355 | |
| 2027 | | 333,718 | |
| 2028 | | 309,126 | |
| 2029 | | 257,589 | |
| 2030 | | 217,902 | |
| Thereafter | | 829,666 | |
Lessee Accounting
As of December 31, 2025, the Company is the lessee under six long-term ground leases classified as “operating leases” in the consolidated balance sheets. Certain of the Company’s ground leases contain extension options and the Company considered all relevant factors in determining if it was reasonably certain that it would exercise such extension options. The Company concluded that it was not reasonably certain that it would exercise the extension options and, therefore, has not included the extension period in the remaining lease terms. With the exception of certain ground leases that are subject to rent increases periodically based on the CPI index, all lease payments under the ground lease are fixed.
The table below summarizes the Company’s operating lease cost recognized through “Property operating expenses” on the consolidated statements of operations (in thousands):
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| Lease Cost | | 2025 | | 2024 |
| Fixed lease cost | | $ | 2,100 | | | $ | 2,100 | |
| Variable lease cost | | 45 | | | 42 | |
| Total | | $ | 2,145 | | | $ | 2,142 | |
| | | | |
| Weighted-average remaining lease term (years) | | 52.7 | | 53.30 |
| Weighted-average discount rate | | 6.3 | % | | 6.3 | % |
Lease payments by the Company under the terms of all noncancellable ground leases of land are expensed on a straight-line basis regardless of when payments are due. The Company’s ground leases, excluding prepaid ground leases, have remaining lease terms ranging from 4 to 59 years. Lease payments on noncancellable leases at December 31, 2025 are as follows (in thousands):
| | | | | | | | |
| Year | | Minimum Rent |
| 2026 | | $ | 1,338 | |
| 2027 | | 1,355 | |
| 2028 | | 1,373 | |
| 2029 | | 1,418 | |
| 2030 | | 1,221 | |
| Thereafter | | 102,426 | |
| Total lease payments | | $ | 109,131 | |
| Less: Imputed interest | | 85,411 | |
| Present value of operating lease liabilities | | $ | 23,720 | |
The Company obtained ground tenancy rights related to three properties in Philadelphia, Pennsylvania, which provide for contingent rent participation by the lessor in certain capital transactions and net operating cash flows of the properties after certain returns are achieved by the Company. Such amounts, if any, will be reflected as contingent rent when incurred. The ground leases also provide for payment by the Company of certain operating costs relating to the land, primarily real estate taxes. The above schedule of future minimum rental payments does not include any contingent rent amounts or any reimbursed expenses.
About Leases Disclosures
Lease disclosures under ASC 842 provide a comprehensive view of a company's leased asset portfolio, including the split between operating and finance leases, discount rates used to present-value future payments, and the maturity schedule of lease obligations. This section reveals a significant source of off-balance-sheet commitments that were largely hidden before the current standard.
Key signals: the weighted-average discount rate affects the size of recorded lease liabilities — a higher rate reduces the reported obligation, so compare the chosen rate against the company's incremental borrowing rate. The operating versus finance lease mix affects both EBITDA and operating income presentation. Watch the maturity table for concentration risk: large payment cliffs in specific years may create cash flow pressure. Variable lease payments excluded from the liability measurement represent real obligations that do not appear on the balance sheet. Compare total lease costs against prior-year operating lease expense to assess the true economic burden.