LEASES

12 Months Ended

Dec. 31, 2020


17. Leases

Leases (Topic 842) increases transparency and comparability among organizations by requiring the recognition of right-of-use assets and lease liabilities on the balance sheet. The Company determines whether an arrangement is a lease at inception. Operating leases are included in Operating lease right-of-use assets, net and Operating lease obligations on the Consolidated Balance Sheets. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of future minimum lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses an estimate of the incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. The Operating lease right-of-use asset also includes any lease payments made, less any lease incentives and initial direct costs incurred. The Company elected the practical expedient to not separate lease components from non-lease components of its lease agreements for all classes of underlying assets including ground leases, office leases and other leases. Certain of the Company’s lease agreements include non-lease components such as fixed common area maintenance charges. The Company applies Leases (Topic 842) to the single combined lease component. The Company does not have any finance leases as of December 31, 2020.

The Company’s lessee agreements consist of operating leases primarily for ground leases and other real estate. The Company’s leases have remaining lease terms of less than one year to 52 years. Most leases include one or more options to renew, with renewal terms that can extend the lease term from two to 41 years, and some of which may include options to terminate the leases within one year. The Company considers its strategic plan and the life of associated agreements in determining when options to extend or terminate lease terms are reasonably certain of being exercised. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Certain of the Company’s lease agreements include variable lease payments based on a percentage of income generated through subleases, changes in price indices and market rates, and other costs arising from operating, maintenance and taxes. The Company’s lease agreements do not contain residual value guarantees or restrictive covenants. The Company leases certain buildings and office space constructed on its ground leases to third parties.

In response to the COVID-19 pandemic the Company granted rent deferrals to certain tenants. Under the accounting elections provided by the FASB in response to the COVID-19 pandemic, the Company has elected to not assess whether COVID-19 related deferrals are lease modifications and will account for the deferrals as if contemplated in the original lease. Rent deferrals are treated as variable lease payments resulting in a decrease in straight-line rent revenue during the deferral period and additional revenue upon payment in subsequent periods. COVID-19 related rent deferrals were $4.8 million as of 12/31/2020, net of subsequent collections.


thousands	2020		2019
Assets
Operating lease right-of-use assets	$	66,490	$	69,398
Riverwalk impairment	(10,235)		—
Total leased assets	$	56,255	$	69,398

Liabilities
Operating lease liabilities	$	68,929	$	70,413
Total leased liabilities	$	68,929	$	70,413

The components of lease expense are as follows:


	Year ended December 31,
thousands	2020		2019
Operating lease cost	$	8,720	$	9,082
Variable lease costs	958		1,682

Net lease cost	$	9,678	$	10,764

Future minimum lease payments as of December 31, 2020, are as follows:


thousands	Operating Leases
2021	$	6,853
2022	6,507
2023	6,464
2024	6,432
2025	5,047
Thereafter	261,805
Total lease payments	293,108
Less: imputed interest	(224,179)
Present value of lease liabilities	$	68,929

Other information related to the Company’s lessee agreements is as follows:


thousands	Year ended December 31,
Supplemental Consolidated Statements of Cash Flows Information	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows on operating leases	$	7,235	$	6,980


Other Information	2020		2019
Weighted-average remaining lease term (years)
Operating leases	37.1		37.0
Weighted-average discount rate
Operating leases	7.8	%	7.8	%

The Company receives rental income from the leasing of retail, office, multi-family and other space under operating leases, as well as certain variable tenant recoveries. Such operating leases are with a variety of tenants and have a remaining average term of approximately five years. Lease terms generally vary among tenants and may include early

termination options, extension options and fixed rental rate increases or rental rate increases based on an index. The minimum rentals based on operating leases of the consolidated properties held as of December 31, 2020, are as follows:


	Year ended December 31,
thousands	2020		2019
Total Minimum Rent Payments	$	213,072	$	218,740

Total future minimum rents associated with operating leases are as follows:


thousands	Total Minimum Rent
2021	$	221,374
2022	220,296
2023	199,858
2024	187,942
2025	158,817
Thereafter	778,057
Total	$	1,766,344

Minimum rent revenues are recognized on a straight‑line basis over the terms of the related leases when collectability is reasonably assured and the tenant has taken possession of, or controls, the physical use of the leased asset. Percentage rent in lieu of fixed minimum rent is recognized as sales are reported from tenants. Minimum rent revenues reported on the Consolidated Statements of Operations also include amortization related to above and below‑market tenant leases on acquired properties.

A sales-type lease is defined as a lease that meets one or more of the following: transfers ownership at the end of the lease term, grants the lessee an option to purchase that is reasonably expected to be exercised, covers the major part of the asset’s economic life, the net present value of the lease payments equals or exceeds the fair value of the asset, or the asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease. During the year ended December 31, 2020, the Company sold 100 Fellowship Drive, one of its sales-type leases. The Net investment in lease receivable, interest income and future minimum rents for the remaining sales-type lease are not significant.