Commitments and Contingencies
Ground Leases
We are obligated as lessee under four ground leases. Future minimum rental payments due under the terms of these leases as of December 31, 2025, are as follows (dollars in thousands):
| | | | | | | | |
| Year | | Future Lease Payments Due Under Operating Leases |
| 2026 | | $ | 460 | |
| 2027 | | 467 | |
| 2028 | | 470 | |
| 2029 | | 470 | |
| 2030 | | 385 | |
| Thereafter | | 2,974 | |
| Total anticipated lease payments | | $ | 5,226 | |
| Less: amount representing interest | | (1,410) | |
| Present value of lease payments | | $ | 3,816 | |
| | | | | | | | |
| Year | | Future Lease Payments Due Under Finance Leases |
| 2026 | | 172 | |
| 2027 | | 178 | |
| 2028 | | 178 | |
| 2029 | | 178 | |
| 2030 | | 178 | |
| Thereafter | | 7,098 | |
| Total anticipated lease payments | | $ | 7,982 | |
| Less: amount representing interest | | (5,018) | |
| Present value of lease payments | | $ | 2,964 | |
Rental expense incurred for properties with ground lease obligations was $0.5 million, $0.3 million, and $0.3 million for the years ended December 31, 2025, 2024 and 2023, respectively. Three of our ground leases are treated as operating leases and rental expenses are reflected in property operating expenses on the consolidated statements of operations and comprehensive income. One of our ground leases is treated as a finance lease and rental expense is reflected in interest expenses on the consolidated statements of operations and comprehensive income. Our ground leases have a weighted average remaining lease term of 22.6 years and weighted average discount rate of 5.80%.
Letters of Credit
As of December 31, 2025, there were $2.1 million outstanding letters of credit.
About Commitments Disclosures
Commitments and contingencies disclosures catalog a company's off-balance-sheet obligations and legal exposures — purchase commitments, guarantee arrangements, pending litigation, and regulatory proceedings. These items represent potential future cash outflows that may not appear as liabilities on the balance sheet until they become probable and estimable.
Key signals: litigation reserves and disclosed loss ranges quantify management's estimate of legal exposure, but unquantified "reasonably possible" losses often represent the larger risk. Watch for changes in language around pending cases — shifts from "remote" to "reasonably possible" or increases in estimated loss ranges signal deteriorating outcomes. Unconditional purchase obligations and take-or-pay contracts create fixed cost structures that reduce operational flexibility. Guarantee arrangements for subsidiaries or joint ventures can create cascading obligations. Compare the total commitment schedule against projected free cash flow to assess whether the company can meet its obligations without additional financing.