NOTE 3 – LEASES

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Lessor Accounting

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The Company owns rental properties which are leased to tenants under operating leases with current expirations ranging from 2026 to 2042, with options to extend or terminate the lease. Revenues from such leases are reported as Rental income, net, and are comprised of (i) lease components, which includes fixed and variable lease payments and (ii) non-lease components which includes reimbursements of property level operating expenses. The Company does not separate non-lease components from the related lease components, as the timing and pattern of transfer are the same, and account for the combined component in accordance with ASC 842.

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Fixed lease revenues represent the base rent that each tenant is required to pay in accordance with the terms of its respective leases, and any lease incentives paid or payable to the lessee, reported on a straight-line basis over the non-cancelable term of the lease. Variable lease revenues typically include payments based on (i) tenant reimbursements, (ii) changes in the index or market-based indices after the inception of the lease and (iii) percentage rents. Variable lease revenues are not recognized until the specific events that trigger the variable payments have occurred.

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NOTE 3 – LEASES (CONTINUED)

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The components of lease revenues are as follows (amounts in thousands):

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In many of the Company’s leases, the tenant is obligated to pay the real estate taxes, insurance, and certain other expenses directly to the vendor. These obligations, which have been assumed by the tenants, are not reflected in the Company’s consolidated financial statements. To the extent any such tenant defaults on its lease or if it is deemed probable that the tenant will fail to pay for such obligations, a liability for such obligations would be recorded.

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On a quarterly basis, the Company assesses the collectability of substantially all lease payments due by, among other things, reviewing the tenant’s payment history or financial condition. Changes to collectability are recognized as a current period adjustment to rental revenue. As of March 31, 2026, the Company has assessed the collectability of all recorded lease revenues as probable.

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Minimum Future Rents

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As of March 31, 2026, the minimum future contractual rents to be received on non-cancellable operating leases are included in the table below (amounts in thousands). The minimum future contractual rents do not include (i) straight-line rent or amortization of lease intangibles or incentives and (ii) variable lease payments as described above.

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Lease Termination Fees

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In March 2026, the Company recognized an aggregate of $1,327,000 from two industrial tenants in lease buy-out transactions. In connection with these transactions, the Company also wrote-off the tenants’ aggregate unbilled rent receivable balances of $119,000, as a decrease to Rental income, net.

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NOTE 3 – LEASES (CONTINUED)

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Lessee Accounting

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Ground Lease

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The Company is a lessee under a ground lease in Greensboro, North Carolina, which is classified as an operating lease. The ground lease expires March 3, 2030 and provides for up to three, five-year renewal options and one seven-month renewal option. As of March 31, 2026, the remaining lease term is 3.9 years. The Company recognized lease expense related to this ground lease of $122,000 for each of the three months ended March 31, 2026 and 2025, respectively, which is included in Real estate expenses on the consolidated statements of income.

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Office Lease

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The Company is a lessee under a corporate office lease in Great Neck, New York, which is classified as an operating lease. The lease expires December 31, 2031 and provides for a five-year renewal option. As of March 31, 2026, the remaining lease term, including the renewal option deemed exercised, is 10.8 years. The Company recognized lease expense related to this office lease of $14,000 for each of the three months ended March 31, 2026 and 2025, respectively, which is included in General and administrative expenses on the consolidated statements of income.

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Minimum Future Lease Payments

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As of March 31, 2026, the minimum future lease payments related to these operating leases are as follows (amounts in thousands):

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The lease liability is included in Accrued expenses and other liabilities on the consolidated balance sheet.