Strawberry Fields REIT, Inc. Revenue Disclosure

Revenue Recognition

 

Rental income from operating leases is generally recognized on a straight-line basis over the terms of the leases. Substantially all of the Company’s leases contain provisions for specified annual increases over the rents of the prior year and are generally computed in one of three methods depending on specific provisions of each lease as follows:

 

	(i)	a specified annual increase over the prior year’s rent, generally between 1.0% and 3.0%;
	(ii)	a calculation based on the Consumer Price Index; or
	(iii)	specific dollar increases.

 

Contingent revenue is not recognized until all possible contingencies have been eliminated. The Company considers the operating history of the lessee and the general condition of the industry when evaluating whether all possible contingencies have been eliminated and have historically, and expect in the future, to not include contingent rents as income until received. The Company follows a policy related to rental income whereby the Company considers a lease to be non-performing after 60 days of non-payment of past due amounts and does not recognize unpaid rental income from that lease until the amounts have been received.

 

Rental revenues relating to non-contingent leases that contain specified rental increases over the life of the lease are recognized on the straight-line basis. Recognizing income on a straight-line basis requires us to calculate the total non-contingent rent containing specified rental increases over the life of the lease and to recognize the revenue evenly over that life. This method results in rental income in the early years of a lease being higher than actual cash received, creating a straight-line rent receivable asset included in our accompanying consolidated balance sheets. At some point during the lease, depending on its terms, the cash rent payments eventually exceed the straight-line rent which results in the straight-line rent receivable asset decreasing to zero over the remainder of the lease term. The Company assesses the collectability of straight-line rent in accordance with the applicable accounting standards and reserve policy. If the lessee becomes delinquent in rent owed under the terms of the lease, the Company may provide a reserve against the recognized straight-line rent receivable asset for a portion, up to its full value, that the Company estimates may not be recoverable.

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2. Summary of Significant Accounting Policies (Cont.)

 

Revenue Recognition (cont.)

 

Capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases. Capitalized below-market leases are accreted to rental income over the remaining terms of the respective leases and expected below-market renewal option periods.

 

The Company reports revenues and expenses within our triple-net leased properties for real estate taxes that are escrowed and obligations of the tenants in accordance with their respective lease with us.

 

Gain from sale of real estate investments was recognized when control of the property is transferred, and it is probable that substantially all consideration will be collected.