Leases

3 Months Ended

Mar. 31, 2021


15. Leases

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 Condensed 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 does not have any finance leases as of March 31, 2021.

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 40 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 Financial Accounting Standards Board (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 $4.3 million as of March 31, 2021, net of subsequent collections.

The Company’s leased assets and liabilities are as follows:


thousands	March 31, 2021		December 31, 2020
Assets
Operating lease right-of-use assets, net	$	55,412	$	56,255
Liabilities
Operating lease obligations	68,460		68,929

The components of lease expense are as follows:


	Three Months Ended March 31,
thousands		2021		2020
Operating lease cost		$	2,181	$	2,179
Variable lease costs		114		158

Net lease cost		$	2,295	$	2,337

Future minimum lease payments as of March 31, 2021, are as follows:


thousands	Operating Leases
Remainder of 2021	$	5,055
2022	6,507
2023	6,464
2024	6,432
2025	5,047
Thereafter	261,806
Total lease payments	291,311
Less: imputed interest	(222,851)
Present value of lease liabilities	$	68,460

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


Supplemental Condensed Consolidated Statements of Cash Flows Information	Three Months Ended March 31,
thousands	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows on operating leases	$	1,807	$	1,796


Other Information	March 31, 2021		March 31, 2020
Weighted-average remaining lease term (years)
Operating leases	37.2		37.1
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 decrease in total minimum rent payments below is due to slowing of new lease activity due to the COVID-19 pandemic coupled with the natural attrition of lease payments as leases move toward expiration. The minimum rentals based on operating leases of the consolidated properties held as of March 31, 2021, are as follows:


	Three Months Ended March 31,
thousands		2021		2020
Total minimum rent payments		$	53,342	$	59,099

Total future minimum rents associated with operating leases are as follows as of March 31, 2021:


thousands	Total Minimum Rent
Remainder of 2021	$	168,234
2022	221,619
2023	200,619
2024	188,806
2025	160,742
Thereafter	779,593
Total	$	1,719,613

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 Condensed 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. In 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.