Commitments and Contingencies

9 Months Ended

Sep. 30, 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 September 30, 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 taxes, 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				For the Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Operating Lease Cost
Fixed lease cost	$	8,015	$	7,937	$	23,161	$	23,045
Variable lease cost		3,130		4,183		10,217		12,513
Sublease income		(187)		(208)		(560)		(542)
Total operating lease cost	$	10,958	$	11,912	$	32,818	$	35,016

	For the Nine Months Ended
	September 30,
	2020		2019
Other Information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	33,301	$	36,268
Weighted-average remaining lease term - operating leases		34.6 years		35.8 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		914,286
	$	1,078,270
Impact of discounting		(560,816)
Operating lease liabilities	$	517,454

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 September 30, 2020 and December 31, 2019, the Operating Partnership guaranteed joint venture related mortgage indebtedness of $201.0 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 experienced property damage and business interruption as a result of Hurricane Maria.  Since the date of the loss, we have received $80.2 million of insurance proceeds from third-party carriers related to the two properties located in Puerto Rico, of which $47.2 million was used for property restoration and remediation and reduced the insurance recovery receivable.  During the three and nine months ended September 30, 2020, we recorded $1.9 million and $4.6 million, respectively, as business interruption income. During the three and nine months ended September 30, 2019, we recorded $1.6 million and $9.2 million, respectively, as business interruption income.  These amounts were recorded in other income in the accompanying consolidated statements of operations and comprehensive income.

During the third quarter of 2020, one of our properties located in Texas experienced property damage and business interruption as a result of Hurricane Hanna.  We wrote-off assets of approximately $9.6 million, and recorded an insurance recovery receivable, and have received $7.0 million of insurance proceeds from third-party carriers.  The proceeds were used for property restoration and remediation and reduced the insurance recovery receivable.

During the third quarter of 2020, one of our properties located in Louisiana experienced property damage and business interruption as a result of Hurricane Laura.   We wrote-off assets of approximately $11.1 million and recorded an insurance recovery receivable.

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 has already had a significant impact on economic and market conditions around the world in the first three quarters of 2020 and continues to adversely impact economic activity in retail real estate. The impact of the COVID-19 pandemic continues to evolve and 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. Governments and other authorities are in varying stages of lifting or modifying some of these measures, however certain governments and other authorities have already been forced to, and others may in the future, reinstate these measures or impose new, more restrictive measures, if the risks, or the tenants’ and consumers’ perception of the risks, related to the COVID-19 pandemic worsen at any time. Given the differing consumer demographics and responses to the pandemic and the characteristics and layout of certain properties, the impact of COVID-19 and these measures has been, and will continue to be, greater on some properties than others. As a result of the COVID-19 pandemic and these measures, the Company may experience material impacts including changes in the ability to recognize revenue due to changes in our assessment of the probability of collection of lease income and asset impairment charges as a result of changing cash flows generated by our properties.  

As of September 30, 2020, 203 of our domestic properties and certain of our retailer investments had reopened.  As of October 7^th, all of our domestic properties were reopened.  

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 and has repaid certain amounts outstanding as discussed in note 7.