Leasing Agreements

12 Months Ended

Dec. 31, 2022

Lessor

As a lessor, substantially all of our revenues are earned from arrangements that are within the scope of ASC 842. We account for lease and non-lease components as a single component which resulted in all of our revenues associated with leases being recorded as rental revenues in the consolidated statements of operations. For the years ended December 31, 2022, 2021 and 2020 we recorded a straight-line rent adjustment of $1.7 million, $1.9 million and $4.4 million, respectively, as an increase to rental revenues in our consolidated statements of operations to record revenues from executory costs on a straight-line basis. In addition, direct internal leasing costs are capitalized; however, indirect internal leasing costs are expensed. We only capitalize the portion of these types of costs incurred that are a direct result of an executed lease.

As of December 31, 2022, we were the lessor to over 2,200 stores in our 29 consolidated outlet centers, under operating leases with initial terms that expire from 2023 to 2039, with certain agreements containing extension options. We also have certain agreements which require tenants to pay their portion of reimbursable expenses such as common area expenses, utilities, insurance and real estate taxes.

For the years ended December 31, 2022, 2021 and 2020, the components of rental revenues are as follows (in thousands):


	2022		2021		2020
Rental revenues - fixed	$	319,219	$	298,095	$	289,676
Rental revenues - variable (1)	102,200		109,671		88,256
Rental revenues	$	421,419	$	407,766	$	377,932

(1)Primarily includes rents based on a percentage of tenant sales volume and reimbursable expenses such as common area expenses, utilities, insurance and real estate taxes.

Future minimum lease receipts under non-cancelable operating leases as of December 31, 2022, excluding the effect of straight-line rent and variable rentals, are as follows (in thousands) :


2023	$	238,442
2024	196,263
2025	152,185
2026	117,491
2027	87,086
Thereafter	199,689
	$	991,156

Lessee

As of December 31, 2022 and 2021 we have operating lease right-of-use assets $78.6 million and $79.8 million and operating lease liabilities of $87.5 million, and $88.9 million respectively. In 2020, we recorded impairment charges of $64.8 million in our consolidated statement of operations which equaled the excess of the carrying value of our Foxwoods outlet center over its estimated fair value of which $4.0 million of the impairment charge was allocated to the right-of-use asset. In 2021, we recorded an impairment charge of $7.0 million in our consolidated statement of operations which equaled the excess of the carrying value of our Foxwoods outlet center over its estimated fair value of which $563,000 of the impairment charge was allocated to the right-of-use asset.

Our non-cancelable operating leases, with terms in excess of one year, have terms, including certain extension options, that expire from 2028 to 2101. Certain extension options, which are reasonably certain at inception, are used in the calculation of our operating lease right-of-use assets based on the economic life of the asset. Leases with an initial term of 12 months or less (short-term leases) are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. The majority of our operating lease expense is related to ground leases at the following outlet centers: Myrtle Beach Hwy 17, Atlantic City, Sevierville, Riverhead, Foxwoods and Rehoboth Beach and the lease of our corporate office in Greensboro, North Carolina.

For the years ended December 31, 2022, 2021 and 2020, the components of lease costs are as follows (in thousands):


	2022		2021		2020
Operating lease costs	$	5,495	$	5,511	$	5,531
Short-term lease costs	1,330		1,465		2,511
Variable lease costs (1)	948		276		295
Total lease costs	$	7,773	$	7,252	$	8,337

(1)Our variable lease costs relate to our ground leases where increases in payments are based on center financial performance.

The discount rate applied to measure each operating lease right-of-use asset and operating lease liability is based on our incremental borrowing rate (“IBR”). We consider the general economic environment and our credit rating and factor in various financing and asset specific adjustments to ensure the IBR is appropriate based on the intended use of the underlying lease. The lease term and discount rates are as follows:


	2022
Weighted - average remaining lease term (years)	48.29
Weighted - average discount rate	5.0	%

Cash flow information related to leases for the years ended December 31, 2022, 2021 and 2020 was as follows (in thousands):


	December 31, 2022		December 31, 2021		December 31, 2020
Operating cash outflows related to operating leases	$	5,669	$	5,613	$	5,568

Maturities of lease liabilities as of December 31, 2022 for the next five years and thereafter are as follows (in thousands):


2023	$	5,709
2024	5,765
2025	5,816
2026	5,854
2027	5,893

Thereafter	209,270
Total lease payments	$	238,307
Less imputed interest	150,779
Present value of lease liabilities	$	87,528