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Leases
 9 Months Ended
Sep. 30, 2019
Leases [Abstract]  
Leases Leases
Lessor
The Company is the lessor for its 3,926 retail, restaurant, office and industrial properties. The Company’s operating and direct financing leases have non-cancelable lease terms of 0.06 years to 25.3 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 September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Fixed:
 
 
 
 
 
 
 
 
Cash rent
 
$
272,032

 
$
281,079

 
$
831,931

 
$
841,629

Straight-line rent
 
5,470

 
8,780

 
20,925

 
31,167

Lease intangible amortization
 
(692
)
 
(1,058
)
 
(2,034
)
 
(3,233
)
Sub-lease (1)
 
5,328

 
4,090

 
16,099

 
12,099

Total fixed
 
282,138


292,891


866,921


881,662

 
 
 
 
 
 
 
 
 
Variable (2)
 
20,637


20,743


64,312


62,200

Income from direct financing leases
 
210

 
232

 
638

 
742

Total rental revenue
 
$
302,985


$
313,866


$
931,871


$
944,604

____________________________________
(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)
October 1, 2019 - December 31, 2019
 
$
238,289

 
$
586

2020
 
1,064,654

 
2,215

2021
 
1,029,745

 
2,095

2022
 
959,964

 
2,006

2023
 
882,138

 
1,622

Thereafter
 
5,298,715

 
788

Total
 
$
9,473,505

 
$
9,312

____________________________________
(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 0.3 years to 79.9 years, some of which include options to extend. The weighted average remaining lease term for the Company’s operating leases was 16.5 years as of September 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 4.91% as of September 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 nine months ended September 30, 2019 (in thousands):
 
 
Three Months Ended September 30, 2019
 
Nine Months Ended September 30, 2019
Operating lease cost (1)
 
$
5,794

 
$
18,190

Sublease income (2)
 
$
(5,328
)
 
$
(16,099
)
___________________________________

(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 $2.5 million and operating lease liabilities by $3.0 million, for non-cash activity related to additions, dispositions and lease modifications during the nine months ended September 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 September 30, 2019 (in thousands).
 
 
Future Minimum Lease Payments
October 1, 2019 - December 31, 2019
 
$
5,357

2020
 
22,286

2021
 
22,283

2022
 
22,121

2023
 
21,679

Thereafter
 
246,051

Total

339,777

Less: imputed interest
 
116,489

Total

$
223,288


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 Leases
Lessor
The Company is the lessor for its 3,926 retail, restaurant, office and industrial properties. The Company’s operating and direct financing leases have non-cancelable lease terms of 0.06 years to 25.3 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 September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Fixed:
 
 
 
 
 
 
 
 
Cash rent
 
$
272,032

 
$
281,079

 
$
831,931

 
$
841,629

Straight-line rent
 
5,470

 
8,780

 
20,925

 
31,167

Lease intangible amortization
 
(692
)
 
(1,058
)
 
(2,034
)
 
(3,233
)
Sub-lease (1)
 
5,328

 
4,090

 
16,099

 
12,099

Total fixed
 
282,138


292,891


866,921


881,662

 
 
 
 
 
 
 
 
 
Variable (2)
 
20,637


20,743


64,312


62,200

Income from direct financing leases
 
210

 
232

 
638

 
742

Total rental revenue
 
$
302,985


$
313,866


$
931,871


$
944,604

____________________________________
(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)
October 1, 2019 - December 31, 2019
 
$
238,289

 
$
586

2020
 
1,064,654

 
2,215

2021
 
1,029,745

 
2,095

2022
 
959,964

 
2,006

2023
 
882,138

 
1,622

Thereafter
 
5,298,715

 
788

Total
 
$
9,473,505

 
$
9,312

____________________________________
(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 0.3 years to 79.9 years, some of which include options to extend. The weighted average remaining lease term for the Company’s operating leases was 16.5 years as of September 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 4.91% as of September 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 nine months ended September 30, 2019 (in thousands):
 
 
Three Months Ended September 30, 2019
 
Nine Months Ended September 30, 2019
Operating lease cost (1)
 
$
5,794

 
$
18,190

Sublease income (2)
 
$
(5,328
)
 
$
(16,099
)
___________________________________

(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 $2.5 million and operating lease liabilities by $3.0 million, for non-cash activity related to additions, dispositions and lease modifications during the nine months ended September 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 September 30, 2019 (in thousands).
 
 
Future Minimum Lease Payments
October 1, 2019 - December 31, 2019
 
$
5,357

2020
 
22,286

2021
 
22,283

2022
 
22,121

2023
 
21,679

Thereafter
 
246,051

Total

339,777

Less: imputed interest
 
116,489

Total

$
223,288


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 Leases
Lessor
The Company is the lessor for its 3,926 retail, restaurant, office and industrial properties. The Company’s operating and direct financing leases have non-cancelable lease terms of 0.06 years to 25.3 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 September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Fixed:
 
 
 
 
 
 
 
 
Cash rent
 
$
272,032

 
$
281,079

 
$
831,931

 
$
841,629

Straight-line rent
 
5,470

 
8,780

 
20,925

 
31,167

Lease intangible amortization
 
(692
)
 
(1,058
)
 
(2,034
)
 
(3,233
)
Sub-lease (1)
 
5,328

 
4,090

 
16,099

 
12,099

Total fixed
 
282,138


292,891


866,921


881,662

 
 
 
 
 
 
 
 
 
Variable (2)
 
20,637


20,743


64,312


62,200

Income from direct financing leases
 
210

 
232

 
638

 
742

Total rental revenue
 
$
302,985


$
313,866


$
931,871


$
944,604

____________________________________
(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)
October 1, 2019 - December 31, 2019
 
$
238,289

 
$
586

2020
 
1,064,654

 
2,215

2021
 
1,029,745

 
2,095

2022
 
959,964

 
2,006

2023
 
882,138

 
1,622

Thereafter
 
5,298,715

 
788

Total
 
$
9,473,505

 
$
9,312

____________________________________
(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 0.3 years to 79.9 years, some of which include options to extend. The weighted average remaining lease term for the Company’s operating leases was 16.5 years as of September 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 4.91% as of September 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 nine months ended September 30, 2019 (in thousands):
 
 
Three Months Ended September 30, 2019
 
Nine Months Ended September 30, 2019
Operating lease cost (1)
 
$
5,794

 
$
18,190

Sublease income (2)
 
$
(5,328
)
 
$
(16,099
)
___________________________________

(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 $2.5 million and operating lease liabilities by $3.0 million, for non-cash activity related to additions, dispositions and lease modifications during the nine months ended September 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 September 30, 2019 (in thousands).
 
 
Future Minimum Lease Payments
October 1, 2019 - December 31, 2019
 
$
5,357

2020
 
22,286

2021
 
22,283

2022
 
22,121

2023
 
21,679

Thereafter
 
246,051

Total

339,777

Less: imputed interest
 
116,489

Total

$
223,288


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