Commitments and Contingencies

3 Months Ended

Mar. 31, 2020

Commitments and Contingencies.

Commitments and Contingencies

10. Commitments and Contingencies

Litigation

We are involved from time-to-time in various legal and regulatory proceedings that arise in the ordinary course of our business, including, but not limited to, commercial disputes, environmental matters, and litigation in connection with transactions such as acquisitions and divestitures. We believe that current proceedings will not have a material adverse effect on our financial condition, liquidity, or results of operations. We record a liability when a loss is considered probable and the amount can be reasonably estimated.

During the first quarter of 2019, we settled a lawsuit with our former insurance broker, Aon Risk Services Central Inc., related to the significant flood damage sustained at Opry Mills in May 2010. In accordance with a previous agreement with the prior co-investor in Opry Mills, a portion of the settlement was remitted to the co-investor. Our share of the settlement was approximately $68.0 million, which was recorded as other income in the accompanying consolidated statement of operations and comprehensive income.

Lease Commitments

As of March 31, 2020, a total of 23 of our consolidated properties are subject to ground leases.  The termination dates of these ground leases range from 2021 to 2090, including periods for which exercising an extension option is reasonably assured.  These ground leases generally require us to make fixed annual rental payments, or a fixed annual rental payment plus a percentage rent component based upon the revenues or total sales of the property.  In addition, we have several regional office locations that are subject to leases with termination dates ranging from 2020 to 2028.  These office leases generally require us to make fixed annual rental payments plus pay our share of common area, real estate, and utility expenses.  Some of our ground and office leases include escalation clauses.  All of our lease arrangements are classified as operating leases.  We incurred ground lease expense and office lease expense, which are included in other expense and home office and regional expense, respectively, as follows:

	For the Three Months Ended
	March 31, 2020		March 31, 2019
Operating Lease Cost
Fixed lease cost	$	8,009	$	7,165
Variable lease cost		3,940		4,144
Sublease income		(186)		(167)
Total operating lease cost	$	11,763	$	11,142

	For the Three Months Ended
	March 31, 2020		March 31, 2019
Other Information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	11,923	$	12,068
Weighted-average remaining lease term - operating leases		35.1 years		36.2 years
Weighted-average discount rate - operating leases		4.86%		4.87%

Minimum lease payments due under these leases for years ending December 31, excluding applicable extension options and renewal options unless reasonably certain of exercise and any sublease income, are as follows:

2020	$	32,706
2021		32,697
2022		32,721
2023		32,863
2024		32,997
Thereafter		923,246
	$	1,087,230
Impact of discounting		(565,852)
Operating lease liabilities	$	521,378

Guarantees of Indebtedness

Joint venture debt is the liability of the joint venture and is typically secured by the joint venture property, which is non-recourse to us. As of March 31, 2020 and December 31, 2019, the Operating Partnership guaranteed joint venture related mortgage indebtedness of $180.0 million and $214.8 million, respectively.  Mortgages guaranteed by the Operating Partnership are secured by the property of the joint venture which could be sold in order to satisfy the outstanding obligation and which has an estimated fair value in excess of the guaranteed amount.

Concentration of Credit Risk

Our U.S. Malls, Premium Outlets, and The Mills rely upon anchor tenants to attract customers; however, anchors do not contribute materially to our financial results as many anchors own their spaces. All material operations are within the United States and no customer or tenant accounts for 5% or more of our consolidated revenues.

Hurricane Impacts

During the third quarter of 2017, our two wholly-owned properties located in Puerto Rico sustained significant damage as a result of Hurricane Maria. Since the date of the loss, we have received $75.4 million of insurance proceeds from third-party carriers related to the two properties located in Puerto Rico, of which $45.9 million was used for property restoration and remediation and to reduce the insurance recovery receivable.  During the three months ended March 31, 2020 and 2019, we

recorded $1.1 million and $4.4 million, respectively, as business interruption income, which was recorded in other income in the accompanying consolidated statements of operations and comprehensive income.

COVID-19

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus, or COVID-19, a global pandemic and recommended containment and mitigation measures worldwide.  The COVID-19 pandemic continues to adversely impact economic activity in retail real estate and has contributed to significant volatility and downward pressure on a significant number of our tenants in many communities where our properties are located. The impact of the pandemic has been rapidly evolving and, as cases of the virus have continued to be identified, governments and other authorities, including where we own or hold interests in properties, have imposed measures intended to control its spread, including restrictions on freedom of movement, group gatherings and business operations such as travel bans, border closings, business closures, quarantines, stay-at-home, shelter-in-place orders, density limitations and social distancing measures.  As a result, the Company may experience material impacts including, but not limited to, changes in the ability to recognize revenue due to changes in the probability of collection, reductions in lease income associated with the write-off of operating lease receivables, and asset impairment charges as a result of changing cash flows generated by our properties.  Given the differing consumer demographics and responses to the pandemic and the characteristics and layout of certain properties, these measures are impacting, and will continue to impact, some properties more than others.  The impacts of the COVID-19 pandemic on our operations and financial condition cannot be reasonably estimated at this time.

As of March 31, 2020, all of our domestic properties, certain of our retailer investments, and certain international properties were temporarily closed.  As of the date of this filing, many of our properties remained temporarily closed.  We are reopening retail properties in markets where local and state closure orders have been lifted and retail restrictions have been eased.  As of May 11, the Company has reopened 77 of its retail properties in the United States.    

In March, as a precautionary measure to maximize liquidity and to increase available cash on hand, the Company drew $3.75 billion on its Facilities.  The proceeds are available to be used to repay Commercial Paper borrowings if deemed necessary, fund working capital, as well as general corporate or other purposes.

In April 2020, the FASB staff released guidance focused on treatment of concessions related to the effects of COVID-19 on the application of lease modification guidance in Accounting Standards Codification (ASC) 842.  The guidance provides a practical expedient to forgo the associated reassessments required by ASC 842 when changes to a lease result in similar or lower future consideration. The accounting for payment deferrals will not be affected; however, rent abatements may be accounted for as negative variable lease consideration in the period granted.  We are continuing to evaluate the impact of this guidance in light of ongoing discussions about the impact of COVID-19 with our tenants.