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Leases
12 Months Ended
Dec. 31, 2022
Leases [Abstract]  
Leases

11. Leases

Lessor

We lease commercial space to the U.S. Government through the GSA or other federal agencies or nongovernmental tenants. These leases may contain extension options that are predominately at the sole discretion of the tenant. Certain of our leases contain a “soft-term” period of the lease, meaning that the U.S. Government tenant agency has the right to terminate the lease prior to its stated lease end date. While certain of our leases are contractually subject to early termination, we do not believe that our tenant agencies are likely to terminate these leases early given the build-to-suit features at the properties subject to the leases, the weighted average age of these properties based on the date the property was built or renovated-to-suit, where applicable (approximately 18.7 years as of December 31, 2022), the mission-critical focus of the properties subject to the leases and the current level of operations at such properties. Certain lease agreements include variable lease payments that, in the future, will vary based on changes in inflationary measures, real estate tax rates, usage, or share of expenditures of the leased premises.

On September 25, 2020, the FDA – Lenexa development project was substantially completed and a 20-year lease commenced with the GSA for the beneficial use of the FDA. Upon completion and their acceptance of work, the U.S. Government was obligated to pay a $41.7 million lump sum reimbursement to us for landlord improvements in excess of the U.S. Government’s tenant improvement allowance. We recorded the payment as Deferred revenue on the Consolidated Balance Sheet and began amortizing the amount over the life of the lease through Rental income.

The following table summarizes the maturity of fixed lease payments under our leases as of December 31, 2022 (amounts in thousands):

 

 

Payments due by period

 

 

 

Total

 

 

2023

 

 

2024

 

 

2025

 

 

2026

 

 

2027

 

 

Thereafter

 

Fixed lease payments

 

$

2,005,456

 

 

 

213,102

 

 

 

198,071

 

 

 

187,050

 

 

 

180,241

 

 

 

168,724

 

 

 

1,058,268

 

The table below sets forth our composition of lease revenue recognized between fixed and variable components (amounts in thousands):

 

 

Years Ended December 31,

 

 

 

2022

 

 

2021

 

 

2019

 

Fixed

 

$

265,126

 

 

$

248,399

 

 

$

221,305

 

Variable

 

 

19,362

 

 

 

18,990

 

 

 

16,826

 

Property rental revenue

 

 

284,488

 

 

 

267,389

 

 

 

238,131

 

Information about our leases for our development property as of December 31, 2022 is set forth in the table below:

Property Name

 

Location

 

Tenant

 

Property

Type (1)

 

Lease Term

 

Estimated Leased

Square

Feet

 

FDA - Atlanta

 

Atlanta, GA

 

 Food and Drug Administration

 

L

 

20-year

 

 

 

162,000

 

Total

 

 

 

 

 

 

 

 

 

 

 

162,000

 

(1)
L=Laboratory

Lessee

We lease corporate office space under operating lease arrangements in Washington, D.C. and San Diego, CA. The San Diego, CA operating lease terminated on October 31, 2022. In April 2022, we entered into a lease agreement for new office space in San Diego, CA. This lease has a seven year term and a commencement date of October 26, 2022.

The leases include variable lease payments that, in the future, will vary based on changes in real estate tax rates, usage, or share of expenditures of the leased premises. We have elected not to separate lease and non-lease components for its corporate office leases.

As of December 31, 2022, the unamortized balances associated with our right-of-use operating lease asset and operating lease liability were $3.5 million and $3.5 million, respectively. As of December 31, 2021, the unamortized balance associated with our right-of-use operating lease asset and operating lease liability for our two commenced office leases was $1.5 million and $1.6 million, respectively. Our right-of-use operating lease asset and operating lease liability were included in “Prepaid expenses and other assets” and “Accounts payable, accrued expenses and other liabilities” on the Consolidated Balance Sheets, respectively as of December 31, 2022, and 2021. We used our incremental borrowing rate, which was arrived at utilizing prevailing market rates and the spread on our revolving credit facility, in order to determine the net present value of the minimum lease payments.

The following table provides quantitative information for our commenced operating leases for the year ended December 31, 2022 and 2021 (amounts in thousands):

 

 

Years Ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

Cash flows from operating lease costs

 

$

624

 

 

$

421

 

 

$

458

 

 

 

 

 

 

 

 

 

 

 

Other Information

 

 

 

 

 

 

 

 

 

Weighted average remaining lease term (in years)

 

 

5.62

 

 

 

4.51

 

 

1.01

 

Weighted average discount rate

 

 

3.15

%

 

 

2.36

%

 

 

3.83

%

In addition, the maturity of future minimum lease payments under our commenced corporate office leases as of December 31, 2022 is summarized in the table below (amounts in thousands):

Year ending December 31,

 

Payments due by period

 

2023

 

 

586

 

2024

 

 

768

 

2025

 

 

793

 

2026

 

 

661

 

2027

 

 

368

 

Thereafter

 

 

718

 

Total future minimum lease payments

 

$

3,894

 

Imputed interest

 

 

(418

)

Total

 

$

3,476