Note 3 – Leases

Tenant Leases

The Company is primarily focused on the ownership, acquisition, development and management of retail properties leased to industry leading tenants. As of March 31, 2019, our portfolio was approximately 99.7% leased and had a weighted average remaining lease term (excluding extension options) of approximately 10.2 years. A significant majority of our properties are leased to national tenants and approximately 52.4% of our annualized base rent was derived from tenants, or parent entities thereof, with an investment grade credit rating from S&P Global Ratings, Moody’s Investors Service, Fitch Ratings or the National Association of Insurance Commissioners.

Substantially all of our tenants are subject to net lease agreements. A net lease typically requires the tenant to be responsible for minimum monthly rent and actual property operating expenses incurred, including property taxes, insurance and maintenance. In addition, our tenants are typically subject to future rent increases based on fixed amounts or increases in the consumer price index and certain leases provide for additional rent calculated as a percentage of the tenants’ gross sales above a specified level. Certain of our properties are subject to leases under which we retain responsibility for specific costs and expenses of the property.

Our leases typically provide the tenant one or more multi-year renewal options to extend their leases, subject to generally the same terms and conditions, including rent increases, consistent with the initial lease term. Additionally, some of our tenant leases provide the tenant options to terminate, usually upon certain conditions or events occurring, such as a sales threshold not being met.

The Company attempts to maximize the amount it expects to derive from the underlying real estate property following the end of the lease, to the extent it is not extended. We maintain a proactive leasing and capital improvement program that, combined with the quality and locations of our properties, has made our properties attractive to tenants. We intend to continue to hold our properties for long-term investment and, accordingly, place a strong emphasis on the quality of construction and an on-going program of regular and preventative maintenance. However, the residual value of a real estate property is still subject to various market-specific, asset-specific, and tenant-specific risks and characteristics. As the classification of a lease is dependent on the fair value of its cash flows at lease commencement, the residual value of a property represents a significant assumption in our accounting for tenant leases. Similarly, the exercise of options is also subject to these same risks, making a tenant’s lease term another significant variable in a lease’s cash flows.

The Company has elected the practical expedient in ASC Topic 842 on not separating non-lease components from associated lease components. The lease and non-lease components combined as a result of this election largely include tenant rentals and maintenance charges, respectively. The Company applies the accounting requirements of ASC Topic 842 to the combined component.

The following table includes information regarding the Company’s operating leases for which it is the lessor, for the three months ended March 31, 2019 and as of period end. (presented in thousands)


	Three months ended
	March 31, 2019
Total Lease Payments	$	44,361
Less: Variable Lease Payments		5,587
Total Non-Variable Lease Payments	$	38,774


	2019
Year Ending December 31,	(remaining)		2020		2021		2022		2023		Thereafter		Total
Lease Payments Receivable	$	121,564	$	161,339	$	158,423	$	154,964	$	150,561	$	998,473	$	1,745,324

Land Lease Obligations

The Company is the lessee under land lease agreements for certain of its properties, all of which qualify as operating leases as of March 31, 2019. Our land leases are net lease agreements and do not include variable leasing payments. These leases typically provide multi-year renewal options to extend term as lessee at the Company’s option. Option periods are included in the calculation of the lease obligation liability only when options are reasonably certain to be exercised.

In calculating the Company’s lease obligations under the ground leases, the Company uses discount rates estimated to be equal to what the Company would have to pay to borrow on a collateralized basis over a similar term, for an amount equal to the lease payments, in a similar economic environment.

The following tables include information on the Company’s land leases for which it is the lessee, for the three months ended March 31, 2019 and as of period end. (presented in thousands)


	Three months ended
	March 31, 2019
Operating Lease Costs	$	202
Variable Lease Costs		—
Total Non-Variable Lease Costs	$	202

Supplemental Disclosure
Cash paid for amounts included in the measurement of lease liabilities	$	-

Operating cash flows from operating leases	$	198

Right-of-use assets obtained in exchange for new operating lease liabilities	$	19,672

Weighted-average remaining lease term - operating leases (years)		37.1

Weighted-average discount rate - operating leases		4.13	%

Maturity Analysis of Lease Liabilities (presented in thousands)


	2019
Year Ending December 31,	(remaining)		2020		2021		2022		2023		Thereafter		Total
Lease Payments	$	934	$	1,245	$	1,191	$	965	$	965	$	35,883	$	41,183
Less: Imputed Interest		(601)		(785)		(766)		(753)		(744)		(17,983)		(21,632)
Total Lease Liabilities	$	333	$	460	$	425	$	212	$	221	$	17,900	$	19,551