Operating Leases

12 Months Ended

Dec. 31, 2019

The following table summarizes the weighted-average remaining lease term and the weighted-average discount rate as of December 31, 2019:



	As of
	December 31, 2019
Weighted-average remaining lease term in years
Operating ground leases	16.0
Operating office lease	6.8

Weighted-average discount rate
Operating ground leases	4.96	%
Operating office lease	4.62	%

Lessee, Operating Lease, Disclosure [Table Text Block]

Operating Leases

The Company’s real estate investments are leased under operating leases with remaining terms ranging from one year to 30 years. As described in Note 2, the Company adopted Topic 842 on January 1, 2019 and elected to not reassess its prior conclusions about lease classification. Accordingly, these lease arrangements continue to be classified as operating leases.

The following table summarizes the future minimum rentals on the Company's lessor and sub-lessor arrangements at December 31, 2019 and 2018 (in thousands):



	December 31, 2019							December 31, 2018 ⁽²⁾
	Operating leases		Sub-lessor operating ground leases					Operating leases
	Amount ⁽¹⁾		Amount ⁽¹⁾		Total			Amount ⁽¹⁾
Year:							Year:
2020	$	525,809	$	23,468	$	549,277	2019	$	520,139
2021	518,590		23,863		542,453		2020	503,344
2022	504,119		23,291		527,410		2021	492,165
2023	474,889		22,609		497,498		2022	477,671
2024	453,043		22,196		475,239		2023	449,686
Thereafter	3,707,326		226,150		3,933,476		Thereafter	3,953,717
Total	$	6,183,776	$	341,577	$	6,525,353	Total	$	6,396,722

⁽¹⁾ Included in rental revenue.

⁽²⁾ Balances as of December 31, 2018 are prior to the adoption of Topic 842.

In addition to its lessor arrangements on its real estate investments, as of December 31, 2019 and 2018, the Company was lessee in 58 and 57 operating ground leases, respectively, as well as lessee in an operating lease of its executive office. The Company's tenants, who are generally sub-tenants under these ground leases, are responsible for paying the rent under these ground leases. In the event the tenant fails to pay the ground lease rent, the Company would be primarily responsible for the payment, assuming the Company does not sell or re-tenant the property. As of December 31, 2019, the ground lease arrangements have remaining terms ranging from one year to 47 years. Most of these leases include one or more options to renew. The Company assesses these options using a threshold of reasonably certain, which also includes an assessment of the term of the Company's tenants' leases. For leases where renewal is reasonably certain, those option periods are included within the lease term and also the measurement of the operating lease right-of-use asset and liability. The ground lease arrangements do not contain any residual value guarantees or any material restrictions. As of December 31, 2019, the Company does not have any leases that have not commenced but that create significant rights and obligations.

The Company determines whether an arrangement is or includes a lease at contract inception. Operating lease right-of-use assets and liabilities are recognized at commencement date and initially measured based on the present value of lease payments over the defined lease term. As the Company's leases do not provide an implicit rate, the Company used its incremental borrowing rate in determining the present value of lease payments. The incremental borrowing rate was adjusted for collateral based on the information available at adoption or the commencement date. Inputs to the calculation of the Company's incremental borrowing rate include its senior notes and their option adjusted credit spreads over comparable U.S. Treasury rates, adjusted to a collateralized basis by estimating the credit spread improvement that would result from an upgrade of one ratings classification.

The following table summarizes the future minimum lease payments under the ground lease obligations and the office lease at December 31, 2019 and 2018, excluding contingent rent due under leases where the ground lease payment, or a portion thereof, is based on the level of the tenant's sales (in thousands):



	December 31, 2019					December 31, 2018 ⁽³⁾
	Ground Leases ⁽¹⁾		Office lease ⁽²⁾			Ground Leases		Office lease ⁽²⁾
Year:					Year:
2020	$	24,085	$	856	2019	$	22,867	$	856
2021	24,529		884		2020	23,236		856
2022	23,961		967		2021	23,600		884
2023	23,283		967		2022	22,996		967
2024	22,871		967		2023	22,303		967
Thereafter	243,411		1,691		Thereafter	257,446		2,658
Total lease payments	$	362,140	$	6,332		$	372,448	$	7,188
Less: imputed interest	131,901		921
Present value of lease liabilities	$	230,239	$	5,411

⁽¹⁾Included in property operating expense.

⁽²⁾Included in general and administrative expense.

⁽³⁾Balances as of December 31, 2018 are prior to the adoption of Topic 842.

The following table summarizes the carrying amounts of the operating lease right-of-use assets and liabilities as of December 31, 2019 (in thousands):



		As of
	Classification	December 31, 2019
Assets:
Operating ground lease assets	Operating lease right-of-use assets	$	205,997
Office lease asset	Operating lease right-of-use assets	5,190
Total operating lease right-of-use assets		$	211,187

Sub-lessor straight-line rent receivable	Accounts receivable	24,569
Total leased assets		$	235,756

Liabilities:
Operating ground lease liabilities	Operating lease liabilities	$	230,239
Office lease liability	Operating lease liabilities	5,411
Total lease liabilities		$	235,650

The following table summarizes the lease costs and sublease income for the year ended December 31, 2019 (in thousands):



	Classification	Year ended December 31, 2019
Lease Cost
Operating ground lease cost	Property operating expense	$	24,656
Operating office lease cost	General and administrative expense	909

Sublease income	Rental revenue	(23,492		)
Net lease cost		$	2,073

The following table summarizes the weighted-average remaining lease term and the weighted-average discount rate as of December 31, 2019:



	As of
	December 31, 2019
Weighted-average remaining lease term in years
Operating ground leases	16.0
Operating office lease	6.8

Weighted-average discount rate
Operating ground leases	4.96	%
Operating office lease	4.62	%