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Leases

9 Months Ended

Sep. 30, 2019

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

Lessor

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.



	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 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.



	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



	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 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.



	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 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.



	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



	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