Annual report pursuant to Section 13 and 15(d)

Deferred Rents Receivable

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Deferred Rents Receivable
 12 Months Ended
Dec. 31, 2018
Revenue Recognition and Deferred Revenue [Abstract]  
Deferred Rents Receivable

NOTE 5 – DEFERRED RENTS RECEIVABLE

 

The Company leases its regulatory-compliant legal cannabis facilities to its cannabis-licensed clients generally under 20-year non-cancelable lease agreements which contain rent holidays, escalating rents over time, options to renew, and the requirement to pay property taxes, insurance and/or maintenance costs. These leases also contain contingent rental payments that are based on a percentage of monthly tenant revenues.

 

The Company recognizes fixed rental receipts from such lease agreements on a straight-line basis over the expected lease term. Differences between amounts received and amounts recognized are recorded under Deferred Rents Receivable on the balance sheet. Contingent rentals are recognized only after tenants’ revenues are finalized and if such revenues exceed certain minimum levels.

 

The Company leases the following owned properties: 

 

  ● Delaware – a 45,000 square foot facility purchased in September 2016 and built into a cannabis cultivation, processing, and dispensary facility which is leased to a cannabis-licensed client occupying 100% of the space under a 20-year triple net lease expiring in 2035.
     
  ● Illinois – two 3,400 square foot free-standing retail dispensaries in the cities of Anna and Harrisburg and leased to two licensed cannabis dispensary clients each under a 20-year lease expiring in 2036.
     
  ● Maryland – a 180,000 square foot former manufacturing facility purchased January 2017 and rehabilitated by the Company into a cultivation and processing facility which is leased to a licensed cannabis client under a 20-year triple net lease that started in January 2018.

 

The Company subleases the following properties:

 

  ● Delaware – 4,000 square feet of retail space in a multi-use building space which the Company developed into a cannabis dispensary which is subleased to its cannabis-licensed client under a under a five-year triple net lease with a five-year option to extend.
     
  ● Nevada – 10,000 square feet of an industrial building that the Company built-out into a cannabis cultivation facility and is subleased to the Company’s cannabis-licensed client under a sublease for 10 years expiring in 2024.

 

As of December 31, 2018 and 2017, cumulative fixed rental receipts under such leases approximated $5.4 million and $2.8 million, respectively, compared to revenue recognized on a straight-line basis of approximately $7.5 million and $3.4 million. Accordingly, the deferred rents receivable balances at December 31, 2018 and 2017 approximated $2.1 million and $611,000, respectively.

 

Future minimum rental receipts for non-cancelable leases and subleases as of December 31, 2018 were: 

 

2019   $ 1,261,181  
2020     1,287,257  
2021     1,315,686  
2022     1,193,990  
2023     1,179,641  
Thereafter     14,571,268  
Total   $ 20,809,023