Leases

9 Months Ended

Sep. 30, 2020

Lease Income

Our leases generally include scheduled rent increases, but do not include variable payments based on indexes. Our rental revenue is primarily based on fixed, non-cancelable leases. Our variable rental revenue primarily consists of amounts recovered from lessees for property tax, insurance and common area maintenance ("CAM").

If we conclude that collection of lease payments are not probable, any difference between the revenue that would have been recognized under the straight-line method and the lease payments that have been collected is recognized as a current period adjustment to rental revenues. Any other changes in collectability reserves for leases not subject to the collectability constraint are also recorded as a current period adjustment to rental revenues.

All revenues related to lease and lease-related services are included in, and comprise substantially all of, the caption "Rental and Related Revenue" on the Consolidated Statements of Operations and Comprehensive Income. The components of Rental and Related Revenue are as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Rental revenue - fixed payments	$	176,085	$	163,516	$	507,309	$	481,674
Rental revenue - variable payments (1)	59,306		51,858		173,211		156,772
Rental and related revenue	$	235,391	$	215,374	$	680,520	$	638,446

(1) Primarily includes tenant recoveries for real estate taxes, insurance and CAM.

Accounting for Lease Concessions Granted in Connection with the COVID-19 Outbreak

On April 8, 2020, the Financial Accounting Standard Board ("FASB") held a public meeting and shortly afterwards issued a question-and-answer ("Q&A") document which was intended to provide accounting relief for lease concessions related to the COVID-19 pandemic. The accounting relief permits an entity to choose to forgo the evaluation of the enforceable rights and obligations of a lease contract, which is a requirement of Accounting Standards Codification Topic 842, Leases ("ASC 842"), as long as the total rent payments after the lease concessions are substantially the same, or less than, the total payments previously required by the lease. An entity may account for COVID-19 related lease concessions either (i) as if they were part of the enforceable rights and obligations of the parties under the existing lease contract; or (ii) as a lease modification. To the extent that a rent concession is granted as a deferral of payments, but the total lease payments are substantially the same, lessors are allowed to account for the concession as if no change had been made to the original lease contract.

Based on the Q&A, an entity is not required to account for all lease concessions related to the effects of the COVID-19 pandemic under one elected option; however, the entity is required to apply the elected option consistently to leases with similar characteristics and in similar circumstances. As of September 30, 2020, we have executed agreements with certain tenants allowing for the deferral of rental payments totaling $8.1 million. The substantial majority of these agreements required repayment of deferred amounts within twelve months of their execution. The tenants with whom we have executed agreements allowing for deferral of rental payments have paid all amounts due under their revised billing schedules through September 30, 2020.

The rental deferral agreements that we have executed, where the revised payment terms require repayment of deferred amounts within twelve months of their execution, are eligible for the alternate accounting treatment allowed through the Q&A. We have elected to account for these deferred rental agreements as if the deferral of rental payments was an enforceable right in the original lease agreements. This accounting election resulted in us not modifying the pattern of revenue recognition for these leases, to the extent they are collectable, and all deferred amounts related to leases to which we are applying this accounting treatment are classified within Accounts Receivable on the September 30, 2020 Consolidated Balance Sheets.

For deferred rental agreements where the revised terms do not require repayment of the full amount of deferred amounts within twelve months of their execution, even if such revised payment terms fall within the scope of the relief offered by the Q&A, we have continued to apply lease modification accounting as stipulated by ASC 842.

Lessee Accounting

As of September 30, 2020, our lease arrangements, where we are the lessee, primarily consisted of office and ground leases. All of our office leases are classified as operating leases under ASC 842. Ground leases that were classified as operating leases prior to adoption of ASC 842 continue to be accounted for as operating leases by electing the practical expedient under ASC 842. In July 2020, we entered into a new ground lease which met the criteria to be classified as a finance lease. As of September 30, 2020, right-of-use ("ROU") assets related to our operating leases and finance lease were $40.2 million and $34.4 million, respectively, which are included within Other Escrow Deposits and Other Assets on our Consolidated Balance Sheets as of September 30, 2020. The corresponding lease liabilities related to these operating leases and finance lease of $43.5 million and $34.3 million, respectively, are included in Other Liabilities on our Consolidated Balance Sheets as of September 30, 2020, and represent the discounted value of the future lease payments required under our lease agreements. As of December 31, 2019, total ROU assets and liabilities for operating leases were $40.5 million and $46.9 million, respectively. In determining these amounts, we elected an available practical expedient that allows us, as a lessee, to not separate lease and non-lease components.