Leases

9 Months Ended

Sep. 30, 2020

Leases [Abstract]

Leases

Leases

Lessor Arrangements

We lease real estate properties, comprised primarily of office properties and data center shells, to third parties. As of September 30, 2020, these leases, which may encompass all, or a portion of, a property, had remaining terms spanning from one month to 18 years and averaging approximately 5.3 years.

Our lease revenue is comprised of: fixed lease revenue, including contractual rent billings under leases recognized on a straight-line basis over lease terms and amortization of lease incentives and above- and below- market lease intangibles; and variable lease revenue, including tenant expense recoveries, lease termination revenue and other revenue from tenants that is not fixed under the lease. The table below sets forth our allocation of lease revenue recognized between fixed and variable lease revenue (in thousands):

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Lease revenue	2020		2019		2020		2019
Fixed	$	106,743	$	102,389	$	314,845	$	311,226
Variable	27,132		27,072		82,189		80,553
	$	133,875	$	129,461	$	397,034	$	391,779

Fixed contractual payments due under our property leases were as follows (in thousands):

Year Ending December 31,	September 30, 2020		December 31, 2019
2020 (1)	$	107,972	$	388,310
2021	410,966		336,482
2022	362,892		299,356
2023	307,346		245,661
2024	258,059		195,246
Thereafter	773,582		474,741
	$	2,220,817	$	1,939,796

(1)As of September 30, 2020, represents the three months ending December 31, 2020.

Lessee arrangements

As of September 30, 2020, our balance sheet included $76.9 million in right-of-use assets associated primarily with land leased from third parties underlying certain properties that we are operating or developing. The land leases have long durations

with remaining terms ranging from 28 years (excluding extension options) to 96 years. As of September 30, 2020, our right-of-use assets included:

•$37.8 million for land on which we are developing an office property in Washington, DC through our Stevens Investors, LLC joint venture, virtually all of the rent on which was previously paid. This lease has a 96-year remaining term, and we possess a bargain purchase option that we expect to exercise in 2021;

•$10.1 million for land underlying operating office properties in Washington, DC under two leases with remaining terms of approximately 80 years;

•$9.3 million for land in a business park in Huntsville, Alabama under 12 leases through our LW Redstone Company, LLC joint venture, with remaining terms ranging from 43 to 50 years and options to renew for an additional 25 years that were not included in the term used in determining the asset balance;

•$6.6 million for land in a research park in College Park, Maryland under four leases through our M Square Associates, LLC joint venture, all of the rent on which was previously paid. These leases had remaining terms ranging from 62 to 74 years;

•$6.4 million for land underlying a parking garage in Baltimore, Maryland under a lease with a remaining term of 28 years and an option to renew for an additional 49 years that was included in the term used in determining the asset balance;

•$4.3 million for data center space in Phoenix, Arizona with a remaining term of four years and an option to renew for an additional five years; and

•$2.2 million for other land underlying operating properties in our Fort Meade/BW Corridor sub-segment under two leases with remaining terms of approximately 48 years, all of the rent on which was previously paid.

Our property right-of-use assets consisted of the following (in thousands):

Leases	Balance Sheet Location	September 30, 2020		December 31, 2019
Right-of-use assets
Operating leases - Property	Property - operating right-of-use assets	$	36,442	$	27,864
Finance leases - Property	Property - finance right-of-use assets	40,432		40,458
Total right-of-use assets		$	76,874	$	68,322

Property lease liabilities consisted of the following (in thousands):

Leases	Balance Sheet Location	September 30, 2020		December 31, 2019
Lease liabilities
Operating leases - Property	Property - operating lease liabilities	$	26,382	$	17,317
Finance leases - Property	Other liabilities	28		702
Total lease liabilities		$	26,410	$	18,019

The table below sets forth the weighted average terms and discount rates of our property leases as of September 30, 2020:

Weighted average remaining lease term
Operating leases	54 years
Finance leases	< 1 year
Weighted average discount rate
Operating leases	7.19	%
Finance leases	3.62	%

The table below presents our total property lease cost (in thousands):

	Statement of Operations Location	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Lease cost		2020		2019		2020		2019
Operating lease cost
Property leases - fixed	Property operating expenses	$	600	$	413	$	1,474	$	1,239
Property leases - variable	Property operating expenses	105		—		107		—
Finance lease cost
Amortization of property right-of-use assets	Property operating expenses	9		9		27		21
		$	714	$	422	$	1,608	$	1,260

The table below presents the effect of property lease payments on our consolidated statements of cash flows (in thousands):

	For the Nine Months Ended September 30,
Supplemental cash flow information	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	987	$	804
Financing cash flows for financing leases	$	674	$	14

Payments on property leases were due as follows (in thousands):

	As of September 30, 2020						As of December 31, 2019
Year Ending December 31,	Operating leases		Finance leases		Total		Operating leases		Finance leases		Total
2020 (1)	$	615	$	—	$	615	$	1,092	$	674	$	1,766
2021	2,513		14		2,527		1,138		14		1,152
2022	2,566		14		2,580		1,162		14		1,176
2023	2,601		—		2,601		1,167		—		1,167
2024	2,636		—		2,636		1,173		—		1,173
Thereafter	118,295		—		118,295		100,609		—		100,609
Total lease payments	129,226		28		129,254		106,341		702		107,043
Less: Amount representing interest	(102,844)		—		(102,844)		(89,024)		—		(89,024)
Lease liability	$	26,382	$	28	$	26,410	$	17,317	$	702	$	18,019

(1)As of September 30, 2020, represents the three months ending December 31, 2020.

Leases

Leases

Lessor Arrangements

We lease real estate properties, comprised primarily of office properties and data center shells, to third parties. As of September 30, 2020, these leases, which may encompass all, or a portion of, a property, had remaining terms spanning from one month to 18 years and averaging approximately 5.3 years.

Our lease revenue is comprised of: fixed lease revenue, including contractual rent billings under leases recognized on a straight-line basis over lease terms and amortization of lease incentives and above- and below- market lease intangibles; and variable lease revenue, including tenant expense recoveries, lease termination revenue and other revenue from tenants that is not fixed under the lease. The table below sets forth our allocation of lease revenue recognized between fixed and variable lease revenue (in thousands):

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Lease revenue	2020		2019		2020		2019
Fixed	$	106,743	$	102,389	$	314,845	$	311,226
Variable	27,132		27,072		82,189		80,553
	$	133,875	$	129,461	$	397,034	$	391,779

Fixed contractual payments due under our property leases were as follows (in thousands):

Year Ending December 31,	September 30, 2020		December 31, 2019
2020 (1)	$	107,972	$	388,310
2021	410,966		336,482
2022	362,892		299,356
2023	307,346		245,661
2024	258,059		195,246
Thereafter	773,582		474,741
	$	2,220,817	$	1,939,796

(1)As of September 30, 2020, represents the three months ending December 31, 2020.

Lessee arrangements

As of September 30, 2020, our balance sheet included $76.9 million in right-of-use assets associated primarily with land leased from third parties underlying certain properties that we are operating or developing. The land leases have long durations

with remaining terms ranging from 28 years (excluding extension options) to 96 years. As of September 30, 2020, our right-of-use assets included:

•$37.8 million for land on which we are developing an office property in Washington, DC through our Stevens Investors, LLC joint venture, virtually all of the rent on which was previously paid. This lease has a 96-year remaining term, and we possess a bargain purchase option that we expect to exercise in 2021;

•$10.1 million for land underlying operating office properties in Washington, DC under two leases with remaining terms of approximately 80 years;

•$9.3 million for land in a business park in Huntsville, Alabama under 12 leases through our LW Redstone Company, LLC joint venture, with remaining terms ranging from 43 to 50 years and options to renew for an additional 25 years that were not included in the term used in determining the asset balance;

•$6.6 million for land in a research park in College Park, Maryland under four leases through our M Square Associates, LLC joint venture, all of the rent on which was previously paid. These leases had remaining terms ranging from 62 to 74 years;

•$6.4 million for land underlying a parking garage in Baltimore, Maryland under a lease with a remaining term of 28 years and an option to renew for an additional 49 years that was included in the term used in determining the asset balance;

•$4.3 million for data center space in Phoenix, Arizona with a remaining term of four years and an option to renew for an additional five years; and

•$2.2 million for other land underlying operating properties in our Fort Meade/BW Corridor sub-segment under two leases with remaining terms of approximately 48 years, all of the rent on which was previously paid.

Our property right-of-use assets consisted of the following (in thousands):

Leases	Balance Sheet Location	September 30, 2020		December 31, 2019
Right-of-use assets
Operating leases - Property	Property - operating right-of-use assets	$	36,442	$	27,864
Finance leases - Property	Property - finance right-of-use assets	40,432		40,458
Total right-of-use assets		$	76,874	$	68,322

Property lease liabilities consisted of the following (in thousands):

Leases	Balance Sheet Location	September 30, 2020		December 31, 2019
Lease liabilities
Operating leases - Property	Property - operating lease liabilities	$	26,382	$	17,317
Finance leases - Property	Other liabilities	28		702
Total lease liabilities		$	26,410	$	18,019

The table below sets forth the weighted average terms and discount rates of our property leases as of September 30, 2020:

Weighted average remaining lease term
Operating leases	54 years
Finance leases	< 1 year
Weighted average discount rate
Operating leases	7.19	%
Finance leases	3.62	%

The table below presents our total property lease cost (in thousands):

	Statement of Operations Location	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Lease cost		2020		2019		2020		2019
Operating lease cost
Property leases - fixed	Property operating expenses	$	600	$	413	$	1,474	$	1,239
Property leases - variable	Property operating expenses	105		—		107		—
Finance lease cost
Amortization of property right-of-use assets	Property operating expenses	9		9		27		21
		$	714	$	422	$	1,608	$	1,260

The table below presents the effect of property lease payments on our consolidated statements of cash flows (in thousands):

	For the Nine Months Ended September 30,
Supplemental cash flow information	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	987	$	804
Financing cash flows for financing leases	$	674	$	14

Payments on property leases were due as follows (in thousands):

	As of September 30, 2020						As of December 31, 2019
Year Ending December 31,	Operating leases		Finance leases		Total		Operating leases		Finance leases		Total
2020 (1)	$	615	$	—	$	615	$	1,092	$	674	$	1,766
2021	2,513		14		2,527		1,138		14		1,152
2022	2,566		14		2,580		1,162		14		1,176
2023	2,601		—		2,601		1,167		—		1,167
2024	2,636		—		2,636		1,173		—		1,173
Thereafter	118,295		—		118,295		100,609		—		100,609
Total lease payments	129,226		28		129,254		106,341		702		107,043
Less: Amount representing interest	(102,844)		—		(102,844)		(89,024)		—		(89,024)
Lease liability	$	26,382	$	28	$	26,410	$	17,317	$	702	$	18,019

(1)As of September 30, 2020, represents the three months ending December 31, 2020.

Leases

Leases

Lessor Arrangements

We lease real estate properties, comprised primarily of office properties and data center shells, to third parties. As of September 30, 2020, these leases, which may encompass all, or a portion of, a property, had remaining terms spanning from one month to 18 years and averaging approximately 5.3 years.

Our lease revenue is comprised of: fixed lease revenue, including contractual rent billings under leases recognized on a straight-line basis over lease terms and amortization of lease incentives and above- and below- market lease intangibles; and variable lease revenue, including tenant expense recoveries, lease termination revenue and other revenue from tenants that is not fixed under the lease. The table below sets forth our allocation of lease revenue recognized between fixed and variable lease revenue (in thousands):

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Lease revenue	2020		2019		2020		2019
Fixed	$	106,743	$	102,389	$	314,845	$	311,226
Variable	27,132		27,072		82,189		80,553
	$	133,875	$	129,461	$	397,034	$	391,779

Fixed contractual payments due under our property leases were as follows (in thousands):

Year Ending December 31,	September 30, 2020		December 31, 2019
2020 (1)	$	107,972	$	388,310
2021	410,966		336,482
2022	362,892		299,356
2023	307,346		245,661
2024	258,059		195,246
Thereafter	773,582		474,741
	$	2,220,817	$	1,939,796

(1)As of September 30, 2020, represents the three months ending December 31, 2020.

Lessee arrangements

As of September 30, 2020, our balance sheet included $76.9 million in right-of-use assets associated primarily with land leased from third parties underlying certain properties that we are operating or developing. The land leases have long durations

with remaining terms ranging from 28 years (excluding extension options) to 96 years. As of September 30, 2020, our right-of-use assets included:

•$37.8 million for land on which we are developing an office property in Washington, DC through our Stevens Investors, LLC joint venture, virtually all of the rent on which was previously paid. This lease has a 96-year remaining term, and we possess a bargain purchase option that we expect to exercise in 2021;

•$10.1 million for land underlying operating office properties in Washington, DC under two leases with remaining terms of approximately 80 years;

•$9.3 million for land in a business park in Huntsville, Alabama under 12 leases through our LW Redstone Company, LLC joint venture, with remaining terms ranging from 43 to 50 years and options to renew for an additional 25 years that were not included in the term used in determining the asset balance;

•$6.6 million for land in a research park in College Park, Maryland under four leases through our M Square Associates, LLC joint venture, all of the rent on which was previously paid. These leases had remaining terms ranging from 62 to 74 years;

•$6.4 million for land underlying a parking garage in Baltimore, Maryland under a lease with a remaining term of 28 years and an option to renew for an additional 49 years that was included in the term used in determining the asset balance;

•$4.3 million for data center space in Phoenix, Arizona with a remaining term of four years and an option to renew for an additional five years; and

•$2.2 million for other land underlying operating properties in our Fort Meade/BW Corridor sub-segment under two leases with remaining terms of approximately 48 years, all of the rent on which was previously paid.

Our property right-of-use assets consisted of the following (in thousands):

Leases	Balance Sheet Location	September 30, 2020		December 31, 2019
Right-of-use assets
Operating leases - Property	Property - operating right-of-use assets	$	36,442	$	27,864
Finance leases - Property	Property - finance right-of-use assets	40,432		40,458
Total right-of-use assets		$	76,874	$	68,322

Property lease liabilities consisted of the following (in thousands):

Leases	Balance Sheet Location	September 30, 2020		December 31, 2019
Lease liabilities
Operating leases - Property	Property - operating lease liabilities	$	26,382	$	17,317
Finance leases - Property	Other liabilities	28		702
Total lease liabilities		$	26,410	$	18,019

The table below sets forth the weighted average terms and discount rates of our property leases as of September 30, 2020:

Weighted average remaining lease term
Operating leases	54 years
Finance leases	< 1 year
Weighted average discount rate
Operating leases	7.19	%
Finance leases	3.62	%

The table below presents our total property lease cost (in thousands):

	Statement of Operations Location	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Lease cost		2020		2019		2020		2019
Operating lease cost
Property leases - fixed	Property operating expenses	$	600	$	413	$	1,474	$	1,239
Property leases - variable	Property operating expenses	105		—		107		—
Finance lease cost
Amortization of property right-of-use assets	Property operating expenses	9		9		27		21
		$	714	$	422	$	1,608	$	1,260

The table below presents the effect of property lease payments on our consolidated statements of cash flows (in thousands):

	For the Nine Months Ended September 30,
Supplemental cash flow information	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	987	$	804
Financing cash flows for financing leases	$	674	$	14

Payments on property leases were due as follows (in thousands):

	As of September 30, 2020						As of December 31, 2019
Year Ending December 31,	Operating leases		Finance leases		Total		Operating leases		Finance leases		Total
2020 (1)	$	615	$	—	$	615	$	1,092	$	674	$	1,766
2021	2,513		14		2,527		1,138		14		1,152
2022	2,566		14		2,580		1,162		14		1,176
2023	2,601		—		2,601		1,167		—		1,167
2024	2,636		—		2,636		1,173		—		1,173
Thereafter	118,295		—		118,295		100,609		—		100,609
Total lease payments	129,226		28		129,254		106,341		702		107,043
Less: Amount representing interest	(102,844)		—		(102,844)		(89,024)		—		(89,024)
Lease liability	$	26,382	$	28	$	26,410	$	17,317	$	702	$	18,019

(1)As of September 30, 2020, represents the three months ending December 31, 2020.