Leases

3 Months Ended

Mar. 31, 2020

Leases

Leases

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, 2020, the Company’s portfolio was approximately 99.3% leased and had a weighted average remaining lease term (excluding extension options) of approximately 9.8 years. A significant majority of its properties are leased to national tenants and approximately 59.6% of its 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 the Company’s 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, the Company’s 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 the Company’s properties are subject to leases under which it retains responsibility for specific costs and expenses of the property.

The Company’s 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.

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.  The Company maintains a proactive leasing program that, combined with the quality and locations of its properties, has made its properties attractive to tenants. The Company intends to continue to hold its 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 its accounting for tenant leases.

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, 2020 and March 31, 2019. (presented in thousands)

	Three Months Ended
	March 31, 2020		March 31, 2019
Total Lease Payments	$	58,096	$	44,361
Less: Variable Lease Payments		6,893		5,587
Total Non-Variable Lease Payments	$	51,203	$	38,774

	2020
Year Ending December 31,	(remaining)		2021		2022		2023		2024		Thereafter		Total
Future Lease Payments	$	156,517	$	207,101	$	204,054	$	199,560	$	190,660	$	1,168,190	$	2,126,082

Deferred Revenue

As of March 31, 2020, and December 31, 2019, there was $2.1 million and $4.1 million, respectively, in deferred revenues resulting from rents paid in advance.

Land Lease Obligations

The Company is the lessee under land lease agreements for certain of its properties, all of which qualified as operating leases as of March 31, 2020. The Company’s land leases are net lease agreements and do not include variable lease payments. These leases typically provide multi-year renewal options to extend their 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.  Land lease expense was $0.3 million and $0.2 million for the three months ended March 31, 2020 and 2019, respectively.

In calculating its lease obligations under the ground leases, the Company uses discount rates estimated to be equal to what it 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, 2020 and March 31, 2019. (presented in thousands)

	Three Months Ended
	March 31, 2020			March 31, 2019
Operating Lease Costs	$	324		$	202
Variable Lease Costs		—			—
Total Non-Variable Lease Costs	$	324		$	202
Supplemental Disclosure
Right-of-use assets obtained in exchange for new operating lease liabilities	$	—		$	19,672
Right-of-use assets removed in exchange for real property		—			—
Right-of-use assets net change	$	—		$	19,672
Operating cash outflows on operating leases	$	267		$	198
Weighted-average remaining lease term - operating leases (years)		38.2			37.1
Weighted-average discount rate - operating leases		4.13	%		4.13	%

Maturity Analysis of Lease Liabilities (presented in thousands)

	2020
Year Ending December 31,	(remaining)		2021		2022		2023		2024		Thereafter		Total
Lease Payments	$	802	$	1,015	$	789	$	789	$	789	$	30,583	$	34,767
Imputed Interest		(495)		(645)		(634)		(628)		(621)		(15,634)		(18,657)
Total Lease Liabilities	$	307	$	370	$	155	$	161	$	168	$	14,949	$	16,110