Leases

3 Months Ended

Mar. 31, 2020

Leases [Abstract]

Leases

11. Leases

As Lessor

The Company is engaged in the operation of shopping centers and other retail properties that are either owned or, with respect to certain shopping centers, operated under long-term ground leases (see below) that expire at various dates through June 20, 2066, with renewal options (see below). Space in the shopping centers is leased to tenants pursuant to agreements that provide for terms ranging generally from one month to sixty years and generally provide for additional rents based on certain operating expenses as well as tenants’ sales volumes. During the three months ended March 31, 2020 and 2019, the Company earned $14.6 million and $13.3 million, respectively, in variable lease revenues, primarily for real estate taxes and common area maintenance charges, which are included in lease revenues in the consolidated statements of income.

As Lessee

During the three months ended March 31, 2020, the Company did not enter into any new leases as lessee.

During the year ended December 31, 2019, the Company:

• recorded right-of-use assets and corresponding lease liabilities as lessee of $11.9 million and $12.8 million, respectively, for nine existing operating leases (for ground, office and equipment leases) and $82.6 million and $76.6 million, respectively, for four finance leases related to ground rentals including an existing capital lease which represented $77.0 million and $71.1 million, respectively, upon implementation of ASC Topic 842;

• recorded three new finance leases effective January 1, 2019 upon the implementation of ASC 842. An assessment of triggering events whereby the Company’s cumulative leasehold investment made it reasonably certain that the Company would exercise its purchase options;

• entered into a prepaid master lease on December 9, 2019 comprised of an operating lease component related to the land and a finance lease component related to the building. The property is referred to as “565 Broadway” within the Core Portfolio. The Company recorded a Right-of-use-asset-operating-lease of $4.9 million and a Right-of-use-asset-finance lease of $19.4 million; and

• entered into a ground lease on May 1, 2019 which is an operating lease. The property is referred to as “110 University Place” and is within the Fund IV portfolio. The Company recorded a Right of use asset–operating lease and a corresponding Lease liability–operating-lease of $45.3 million.

The Company recorded the following assets and liabilities in connection with acquisitions of leasehold interests:

	Three Months Ended March 31, 2020		Year Ended December 31, 2019
Amounts recorded upon acquisition of leasehold interests:
Right of use asset - operating lease	$	—	$	50,147
Right of use asset - finance lease		—		19,422
Leasehold improvements		—		13,354
Lease intangibles (Note 6)		—		1,760
Lease liability - operating lease		—		(45,293	)
Acquisition-related intangible liabilities (Note 6)		—		(359	)
Cash paid upon acquisition of leasehold interests	$	—	$	39,031

	Three Months Ended March 31,
	2020			2019
Lease Cost
Finance lease cost:
Amortization of right-of-use assets	$	657		$	496
Interest on lease liabilities		850			843
Subtotal		1,507			1,339
Operating lease cost		1,394			536
Short-term lease cost		—			—
Variable lease cost		16			32
Less: sublease income		—			—
Total lease cost	$	2,917		$	1,907
Other Information
Weighted-average remaining lease term - finance leases (years)		42.3			47.4
Weighted-average remaining lease term - operating leases (years)		34.1			8.4
Weighted-average discount rate - finance leases		4.4	%		4.4	%
Weighted-average discount rate - operating leases		5.8	%		5.0	%

Right-of-use assets are included in Operating real estate (Note 2) in the consolidated balance sheet. Lease liabilities are included in Accounts payable and other liabilities in the consolidated balance sheet (Note 5). Operating lease cost comprises amortization of right-of-use assets for operating properties (related to ground rents) or amortization of right-of-use assets for office and corporate assets and is included in Property operating expense or General and administrative expense, respectively, in the consolidated statements of income. Finance lease cost comprises amortization of right-of-use assets for certain ground leases, which is included in Property operating expense, as well as interest on lease liabilities, which is included in Interest expense in the consolidated statements of operations.

Lease Obligations

The scheduled future minimum (i) rental revenues from rental properties under the terms of non-cancelable tenant leases greater than one year (assuming no new or renegotiated leases or option extensions for such premises) and (ii) rental payments under the terms of all non-cancelable operating and finance leases in which the Company is the lessee, principally for office space, land and equipment, as of March 31, 2020, are summarized as follows (in thousands):

Year Ending December 31,	Minimum Rental Revenues (a)		Minimum Rental Payments (b)
2020 (Remainder)	$	151,850	$	5,251
2021		201,955		6,823
2022		182,397		6,832
2023		161,665		6,825
2024		139,995		7,008
Thereafter		575,373		312,421
Total	$	1,413,235	$	345,160

(a) Amount represents contractual lease maturities at March 31, 2020. During the end of March, numerous tenants were forced to suspend operations by government mandate as a result of the COVID-19 Pandemic. The Company is currently in negotiation with many tenants which may result in rent concessions or deferral of rents billed during April and May 2020 (Note 15).  

(b) Minimum rental payments include $211.2 million of interest related to leases.

During the three months ended March 31, 2020 and 2019, no single tenant or property collectively comprised more than 10% of the Company’s consolidated total revenues.

During the three months ended March 31, 2020, business closures in response to the COVID-19 Pandemic in the United States caused numerous tenants to close their businesses in response to government mandates. The Company reassessed its reserves for credit losses with respect to its straight-line rents receivable and recorded a charge of $2.5 million related to estimated future credit losses associated with the effects of the COVID-19 Pandemic (Note 15).