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Leases

6 Months Ended

Jun. 30, 2019

Lessor

The Company is the lessor for its 3,951 retail, restaurant, office and industrial properties. The Company’s operating and direct financing leases have non-cancelable lease terms of 0.04 years to 25.6 years. Certain leases with tenants include options to extend or terminate the lease agreements or to purchase the underlying asset. Lease agreements may also contain rent increases that are based on an index or rate (e.g., the consumer price index (“CPI”) or LIBOR). The Company believes the residual value risk is not a primary risk because of the long-lived nature of the assets.

The components of rental revenue from the Company’s operating and direct financing leases were as follows (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Fixed:
Cash rent	$	277,324		$	279,662		$	559,899		$	560,550
Straight-line rent	8,043			11,422			15,455			22,387
Lease intangible amortization	(611		)	(688		)	(1,342		)	(2,175		)
Sub-lease ⁽¹⁾	5,282			4,080			10,771			8,009
Total fixed	290,038			294,476			584,783			588,771

Variable ⁽²⁾	21,794			20,943			43,675			41,457
Income from direct financing leases	211			245			428			510
Total rental revenue	$	312,043		$	315,664		$	628,886		$	630,738

____________________________________


(1)	The Company’s tenants are generally sub-tenants under certain ground leases and are responsible for paying the rent under these leases.


(2)	Includes costs reimbursed related to property operating expenses, common area maintenance and percentage rent, including these costs reimbursed by ground lease sub-tenants.

The following table presents future minimum operating lease payments due to the Company over the next five years and thereafter (in thousands). These amounts exclude contingent rent payments, as applicable, that may be collected from certain tenants based on provisions related to sales thresholds and increases in annual rent based on exceeding certain economic indexes.



	Future Minimum Operating Lease Payments		Future Minimum Direct Financing Lease Payments ⁽¹⁾
July 1, 2019 - December 31, 2019	$	517,007	$	1,209
2020	1,067,012		2,215
2021	1,031,450		2,095
2022	961,627		2,006
2023	881,681		1,622
Thereafter	5,320,409		788
Total	$	9,779,186	$	9,935

____________________________________


(1)	Related to 24 properties which are subject to direct financing leases and, therefore, revenue is recognized as rental income on the discounted cash flows of the lease payments. Amounts reflect undiscounted cash flows to be received by the Company under the lease agreements on these respective properties.

Lessee

The Company is the lessee under ground lease arrangements and corporate office leases. All leases for which the Company is the lessee meet the criteria of an operating lease. The Company’s leases have remaining lease terms of 0.5 years to 80.1 years, some of which include options to extend. The weighted average remaining lease term for the Company’s operating leases was 16.6 years as of June 30, 2019. Under certain ground lease arrangements, the Company pays variable costs, including property operating expenses and common area maintenance, which are generally reimbursed by the ground lease sub-tenants. The weighted average discount rate for the Company’s operating leases was 4.92% as of June 30, 2019. As the Company’s leases do not provide an implicit rate, the Company used an estimated incremental borrowing rate based on the information available at the adoption date in determining the present value of lease payments.

The Company incorporated renewal periods in the calculation of the majority of ground lease right-of-use assets and lease liabilities. Pursuant to certain leases, the Company is required to execute renewal options available under the ground lease through the building lease term. No renewals were incorporated in the calculation of the corporate lease right-of-use assets and liabilities, as it is not reasonably certain that the Company will exercise the options. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The following table presents the lease expense components for the three and six months ended June 30, 2019 (in thousands):



	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Operating lease cost ⁽¹⁾	$	5,418		$	12,396
Sublease income ⁽²⁾	$	(5,282	)	$	(10,771	)

___________________________________


(1)	No cash paid for operating lease liabilities was capitalized.


(2)	The Company’s tenants are generally sub-tenants under certain ground leases and are responsible for paying the rent under these leases.

Subsequent to initial measurement of $233.3 million and $236.3 million, respectively, the Company reduced the right-of-use assets by $2.8 million and operating lease liabilities by $3.1 million, for non-cash activity related to dispositions and lease modifications during the six months ended June 30, 2019.

The following table reflects the future minimum lease payments due from the Company over the next five years and thereafter for ground lease obligations, which are substantially reimbursable by our tenants, and office lease obligations as of June 30, 2019 (in thousands).



	Future Minimum Lease Payments
July 1, 2019 - December 31, 2019	$	11,031
2020	23,022
2021	22,708
2022	22,541
2023	21,280
Thereafter	244,406
Total	344,988
Less: imputed interest	119,016
Total	$	225,972

The following table reflects the future minimum lease payments due from the Company over the five years subsequent to December 31, 2018, as disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 (in thousands), which excluded certain ground leases under which the Company's sub-tenants are responsible for paying the rent under these leases directly to the ground lessor.



	Future Minimum Lease Payments
2019	$	18,479
2020	18,191
2021	17,929
2022	18,118
2023	17,772
Thereafter	196,670
Total	$	287,159

Leases

Lessor

The components of rental revenue from the Company’s operating and direct financing leases were as follows (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Fixed:
Cash rent	$	277,324		$	279,662		$	559,899		$	560,550
Straight-line rent	8,043			11,422			15,455			22,387
Lease intangible amortization	(611		)	(688		)	(1,342		)	(2,175		)
Sub-lease ⁽¹⁾	5,282			4,080			10,771			8,009
Total fixed	290,038			294,476			584,783			588,771

Variable ⁽²⁾	21,794			20,943			43,675			41,457
Income from direct financing leases	211			245			428			510
Total rental revenue	$	312,043		$	315,664		$	628,886		$	630,738

____________________________________


(1)	The Company’s tenants are generally sub-tenants under certain ground leases and are responsible for paying the rent under these leases.


(2)	Includes costs reimbursed related to property operating expenses, common area maintenance and percentage rent, including these costs reimbursed by ground lease sub-tenants.



	Future Minimum Operating Lease Payments		Future Minimum Direct Financing Lease Payments ⁽¹⁾
July 1, 2019 - December 31, 2019	$	517,007	$	1,209
2020	1,067,012		2,215
2021	1,031,450		2,095
2022	961,627		2,006
2023	881,681		1,622
Thereafter	5,320,409		788
Total	$	9,779,186	$	9,935

____________________________________


(1)	Related to 24 properties which are subject to direct financing leases and, therefore, revenue is recognized as rental income on the discounted cash flows of the lease payments. Amounts reflect undiscounted cash flows to be received by the Company under the lease agreements on these respective properties.

Lessee

The following table presents the lease expense components for the three and six months ended June 30, 2019 (in thousands):



	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Operating lease cost ⁽¹⁾	$	5,418		$	12,396
Sublease income ⁽²⁾	$	(5,282	)	$	(10,771	)

___________________________________


(1)	No cash paid for operating lease liabilities was capitalized.


(2)	The Company’s tenants are generally sub-tenants under certain ground leases and are responsible for paying the rent under these leases.



	Future Minimum Lease Payments
July 1, 2019 - December 31, 2019	$	11,031
2020	23,022
2021	22,708
2022	22,541
2023	21,280
Thereafter	244,406
Total	344,988
Less: imputed interest	119,016
Total	$	225,972



	Future Minimum Lease Payments
2019	$	18,479
2020	18,191
2021	17,929
2022	18,118
2023	17,772
Thereafter	196,670
Total	$	287,159

Leases

Lessor

The components of rental revenue from the Company’s operating and direct financing leases were as follows (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Fixed:
Cash rent	$	277,324		$	279,662		$	559,899		$	560,550
Straight-line rent	8,043			11,422			15,455			22,387
Lease intangible amortization	(611		)	(688		)	(1,342		)	(2,175		)
Sub-lease ⁽¹⁾	5,282			4,080			10,771			8,009
Total fixed	290,038			294,476			584,783			588,771

Variable ⁽²⁾	21,794			20,943			43,675			41,457
Income from direct financing leases	211			245			428			510
Total rental revenue	$	312,043		$	315,664		$	628,886		$	630,738

____________________________________


(1)	The Company’s tenants are generally sub-tenants under certain ground leases and are responsible for paying the rent under these leases.


(2)	Includes costs reimbursed related to property operating expenses, common area maintenance and percentage rent, including these costs reimbursed by ground lease sub-tenants.



	Future Minimum Operating Lease Payments		Future Minimum Direct Financing Lease Payments ⁽¹⁾
July 1, 2019 - December 31, 2019	$	517,007	$	1,209
2020	1,067,012		2,215
2021	1,031,450		2,095
2022	961,627		2,006
2023	881,681		1,622
Thereafter	5,320,409		788
Total	$	9,779,186	$	9,935

____________________________________


(1)	Related to 24 properties which are subject to direct financing leases and, therefore, revenue is recognized as rental income on the discounted cash flows of the lease payments. Amounts reflect undiscounted cash flows to be received by the Company under the lease agreements on these respective properties.

Lessee

The following table presents the lease expense components for the three and six months ended June 30, 2019 (in thousands):



	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Operating lease cost ⁽¹⁾	$	5,418		$	12,396
Sublease income ⁽²⁾	$	(5,282	)	$	(10,771	)

___________________________________


(1)	No cash paid for operating lease liabilities was capitalized.


(2)	The Company’s tenants are generally sub-tenants under certain ground leases and are responsible for paying the rent under these leases.



	Future Minimum Lease Payments
July 1, 2019 - December 31, 2019	$	11,031
2020	23,022
2021	22,708
2022	22,541
2023	21,280
Thereafter	244,406
Total	344,988
Less: imputed interest	119,016
Total	$	225,972



	Future Minimum Lease Payments
2019	$	18,479
2020	18,191
2021	17,929
2022	18,118
2023	17,772
Thereafter	196,670
Total	$	287,159