XML 76 R19.htm IDEA: XBRL DOCUMENT

Leases

12 Months Ended

Dec. 31, 2019

Lessor

Lexington’s lease portfolio as a lessor primarily includes general purpose, single-tenant net-leased real estate assets. Most of the Company’s leases require tenants to pay fixed annual rental payments that escalate on an annual basis and variable payments for other operating expenses, such as real estate taxes, insurance, common area maintenance ("CAM"), and utilities, that are based on the actual expenses incurred.

Certain leases allow for the tenant to renew the lease term upon expiration or earlier. Periods covered by a renewal option are included within the lease term only when renewals are deemed to be reasonably certain. Certain leases allow for the tenant to terminate the lease before the expiration of lease term and certain leases provide the tenant with the right to purchase the leased property at fair market value or a stipulated price upon expiration of the lease term or before.

Accounting guidance under Topic 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease and determining the lease term when the contract has renewal, purchase or early termination provisions.

The Company analyzes its accounts receivable, customer creditworthiness and current economic trends when evaluating the adequacy of the collectability of the lessee's total accounts receivable balance on a lease by lease basis. In addition, tenants in bankruptcy are analyzed and considerations are made in connection with the expected pre-petition and post-petition claims. If a lessee's accounts receivable balance is considered uncollectable, the Company will write-off the receivable balances associated with the lease to rental revenue and cease to recognize lease income, including straight-line rent, unless cash is received. If the Company subsequently determines that it is probable it will collect substantially all of the lessee's remaining lease payments under the lease term; the Company will reinstate the straight-line balance adjusting for the amount related to the period when the lease payments were considered not probable. During 2019, rental revenue was reduced by $352 for accounts receivable deemed uncollectable primarily related to the tenant in Thompson, Georgia filing for bankruptcy.

In August 2019, the tenant of the Columbus, Indiana property began paying rent into a court administered account. See note 17. The litigation was in an early stage and discovery was ongoing. Due to the inherent uncertainty of, and the early stage of this, litigation, the Company did not recognize rental revenue of $1,100, representing rental revenue for August and September 2019.

On December 19, 2019, the Company sold its interest in the Columbus, Indiana property to the tenant for a gross purchase price of $46,915 and terminated the tenant's lease as part of the settlement of the litigation. At closing of the sale, the tenant paid rent for the period from August 1, 2019 to December 18, 2019 in the amount of $1,885 and reimbursed the Company for $700 in expenses under the indemnity provision in the lease.

The Company determined that the lease and non-lease components in its leases are a single lease component and is, therefore, being recognized as rental revenue in its consolidated statements of operations. The primary non-lease services that are included within rental revenue are CAM services provided as part of the Company’s real estate leases. Topic 842 requires that the Company capitalize, as initial direct costs, only those costs that are incurred due to the execution of a lease. As of December 31, 2019, the Company incurred $191 of costs that were not incremental to the execution of leases, which are included in property operating expenses on its consolidated statements of operations.

The Company manages the risk associated with the residual value of its leased properties by including contract clauses that make tenants responsible for surrendering the space in good condition upon lease termination, holding a diversified portfolio, and other activities. The Company does not have residual value guarantees on specific properties.

The following table presents the Company’s classification of rental revenue for its operating leases for the year ended December 31, 2019:



Classification	Fixed		Variable⁽¹⁾		Total
Rental revenue	$	291,892	$	28,730	$	320,622


(1)	Primarily comprised of tenant reimbursements.

Future fixed rental receipts for leases, assuming no new or re-negotiated leases as of December 31, 2019 were as follows:




2020	$	269,701
2021	258,937
2022	245,527
2023	242,009
2024	210,765
Thereafter	1,399,068
Total	$	2,626,007

The above minimum lease payments do not include reimbursements to be received from tenants for certain operating expenses and real estate taxes and do not include early termination payments provided for in certain leases, if not reasonably assured.

Certain leases allow for the tenant to terminate the lease if the property is deemed obsolete, as defined, and upon payment of a termination fee to the landlord, as stipulated in the lease. In addition, certain leases provide the tenant with the right to purchase the leased property at fair market value or a stipulated price.

Minimum future lease payments under the non-cancellable portion of tenant leases, assuming no new or re-negotiated leases, for the next five years and thereafter in accordance with ASC Topic 840 as of December 31, 2018 were as follows:



Year ending December 31,	Total
2019	$	270,557
2020	253,660
2021	233,192
2022	212,893
2023	211,387
Thereafter	1,619,848
	$	2,801,537

Lessee

The Company has ground leases, corporate leases for office space, and office equipment leases. All leases were classified as operating leases as of December 31, 2019. The leases have remaining lease terms of up to 43 years, some of which include options to extend the leases in 5 to 10-year increments for up to 53 years. Renewal periods are included in the lease term only when renewal is deemed to be reasonably certain. The lease term also includes periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise the termination option. The Company measures its lease payments by including fixed rental payments and variable rental payments that tie to an index or a rate, such as CPI. Minimum lease payments for leases that commenced before the date of adoption of ASC 842 were determined based on previous leases guidance under ASC 840. The Company recognizes lease expense for its operating leases on a straight-line basis over the lease term and variable lease expense not included in the lease payment measurement as incurred.

The accounting guidance under Topic 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease, determining the term of a lease when the contract has renewal or termination provisions and determining the discount rate.

The Company determines whether an arrangement is or includes a lease at contract inception by evaluating whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. If the Company has the right to obtain substantially all of the economic benefits from and can direct the use of, the identified asset for a period of time, the Company accounts for the contract as a lease.

As the Company does not know the rate implicit in the respective leases, the Company used its incremental borrowing rate based on the information available at the transition date for such existing leases. The Company uses the information available at the lease commencement date to determine the discount rate for any new leases. The Company used a portfolio approach to determine its incremental borrowing rate. Lease contracts were grouped based on similar lease terms and economic environments in a manner in which the Company reasonably expects that the outcome from applying a portfolio approach does not differ materially from an individual lease approach. The Company estimated a collateralized discount rate for each portfolio of leases.

Supplemental information related to operating leases as of December 31, 2019 is as follows:



Weighted-average remaining lease term
Operating leases (years)	12.3
Weighted-average discount rate
Operating leases	4.1	%

The components of lease expense for the year ended December 31, 2019 were as follows:



Income Statement Classification	Fixed		Variable		Total
Property operating	$	3,982	$	—	$	3,982
General and administrative	1,343		112		1,455
Total	$	5,325	$	112	$	5,437

The Company recognized sublease income of $3,764 in 2019.

The following table shows the Company's maturity analysis of its operating lease liabilities as of December 31, 2019:



	Operating Leases
2020	$	5,236
2021	5,060
2022	5,135
2023	5,279
2024	5,301
Thereafter	25,621
Total lease payments	$	51,632
Less: Imputed interest	(12,190		)
Present value of lease liabilities	$	39,442

The Company leases its corporate headquarters. The lease expires March 2026. The Company is responsible for its proportionate share of operating expenses and real estate taxes above a base year. In addition, the Company leases office space for its regional offices. The minimum rent payments for the Company's offices are $1,296 for 2020, $1,325 for 2021, $1,335 for 2022, $1,305 for 2023 and $1,305 for 2024 and $1,631 thereafter, which are included in the table above. Rent expense for 2019, 2018 and 2017 was $1,312, $1,274 and $1,256, respectively.

The following table shows the Company's future minimum lease rental payments under non-cancellable leasehold interests in accordance with ASC Topic 840 as of December 31, 2018:



Year ending December 31,	Total
2019	$	3,826
2020	3,827
2021	3,769
2022	3,834
2023	4,008
Thereafter	28,326
	$	47,590

Rent expense for the leasehold interests was $597 and $690 in 2018 and 2017, respectively.

Leases