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Leases | 9 Months Ended
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Sep. 30, 2019
Leases [Abstract] |
Leases | Leases Lessor arrangements We lease real estate properties, comprised primarily of office properties and data center shells, to third parties. As of September 30, 2019, these leases, which may encompass all, or a portion of, a property, had remaining terms spanning from one month to 15 years and averaging approximately five years. These leases usually include options under which the tenant may renew its lease based on market rates at the time of renewal, which are then typically subject to further negotiation. These leases occasionally provide the tenant with an option to terminate its lease early usually for a defined termination fee. While a significant portion of our portfolio is leased to the United States Government, and the majority of those leases consist of a series of one-year renewal options, or provide for early termination rights, we have concluded that exercise of existing renewal options, or continuation of such leases without exercising early termination rights, is reasonably assured for virtually all of these leases. Most of our lease revenue is from fixed contractual payments defined under the lease that, in most cases, escalate annually over the term of the lease. Our lease revenue also includes variable lease payments predominantly for tenant reimbursements of property operating expenses and lease termination fees. Property operating expense reimbursement structures vary, with some tenants responsible for all of a property’s expenses, while others are responsible for their share of a property’s expense only to the extent such expenses exceed amounts defined in the lease (which are derived from the property’s historical expense levels). Lease termination fees in most cases result from a tenant’s exercise of an existing right under a lease, and are usually equal to a defined percentage of the remaining rents due under the lease and/or the remaining unamortized lease origination costs (including tenant improvements and lease commissions). The table below sets forth our allocation of lease revenue recognized between fixed contractual payments and variable lease payments (in thousands):
Lease revenue |  | For the Three Months Ended September 30, 2019 |  | For the Nine Months Ended September 30, 2019
Fixed contractual payments |  | $ | 102,389 |  |  | $ | 311,226 |
Variable lease payments |  | 27,072 |  |  | 80,553 |
|  | $ | 129,461 |  |  | $ | 391,779 |
Fixed contractual payments due under our property leases were as follows (in thousands):
Year Ending December 31, |  | September 30, 2019 |  | December 31, 2018
2019 (1) |  | $ | 102,289 |  |  | $ | 400,617 |
2020 |  | 378,897 |  |  | 337,646 |
2021 |  | 322,194 |  |  | 280,369 |
2022 |  | 284,935 |  |  | 246,329 |
2023 |  | 231,613 |  |  | 194,888 |
Thereafter |  | 605,681 |  |  | 523,932 |
|  | $ | 1,925,609 |  |  | $ | 1,983,781 |
(1) As of September 30, 2019, represents the three months ending December 31, 2019. Lessee arrangements We lease from third parties land underlying certain properties that we are operating or developing. These ground leases have long durations with remaining terms ranging from 30 years (excluding extension options) to 97 years. As of September 30, 2019, our balance sheet included $67.8 million in right-of-use assets associated with ground leases that included:
• | $37.8 million for land on which we are developing an office property in Washington, DC through our Stevens Investors, LLC joint venture, virtually all of the rent on which was previously paid. This lease has a 97-year remaining term, and we possess a bargain purchase option that we expect to exercise in 2020;
• | $10.3 million for land underlying office properties in Washington, DC under two leases with remaining terms of approximately 80 years;
• | $6.5 million for land underlying a parking garage in Baltimore, Maryland under a lease with a remaining term of 29 years and an option to renew for an additional 49 years that was included in the term used in determining the asset balance;
• | $6.7 million for land in a research park in College Park, Maryland under four leases through our M Square Associates, LLC joint venture all of the rent on which was previously paid. These leases had remaining terms ranging from 63 to 75 years;
• | $4.2 million for land in a business park in Huntsville, Alabama under nine leases through our LW Redstone Company, LLC joint venture, with remaining terms ranging from 44 to 50 years and options to renew for an additional 25 years that were not included in the term used in determining the asset balance; and
• | $2.3 million for other land in our Fort Meade/BW Corridor sub-segment under two leases with remaining terms of approximately 49 years all of the rent on which was previously paid.
As of September 30, 2019, our balance sheet also included right-of-use lease assets totaling $1.2 million in connection with vehicles and office equipment that we lease from third parties. In determining operating right-of-use assets and lease liabilities for our existing operating leases upon our adoption of the new lease guidance discussed further in Note 2, as well as for new operating leases in the current period, we were required to estimate an appropriate incremental borrowing rate on a fully-collateralized basis for the terms of the leases. Since the terms under our ground leases are significantly longer than the terms of borrowings available to us on a fully-collateralized basis, our estimate of this rate required significant judgment, and considered factors such as interest rates available to us on a fully-collateralized basis for shorter-termed debt and U.S. Treasury rates. Our right-of-use assets consisted of the following (in thousands):
Leases |  | Balance Sheet Location |  | September 30, 2019
Right-of-use assets |  |  |  |
Operating leases - Property |  | Property - operating right-of-use assets |  | $ | 27,325 |
Finance leases |  |  |  |
Property |  | Property - finance right-of-use assets |  | 40,467 |
Vehicles and office equipment |  | Prepaid expenses and other assets, net |  | 1,193 |
Total finance lease right-of-use assets |  |  |  | 41,660 |
Total right-of-use assets |  |  |  | $ | 68,985 |
Lease liabilities consisted of the following (in thousands):
Leases |  | Balance Sheet Location |  | September 30, 2019
Lease liabilities |  |  |  |
Operating leases - Property |  | Property - operating lease liabilities |  | $ | 16,686 |
Finance leases |  | Other liabilities |  | 1,165 |
Total lease liabilities |  |  |  | $ | 17,851 |
The table below sets forth the weighted average terms and discount rates of our leases as of September 30, 2019:
Weighted average remaining lease term |  |
Operating leases |  | 69 years |
Finance leases |  | 1 year |
Weighted average discount rate |  |
Operating leases |  | 7.35 | %
Finance leases |  | 3.11 | %
The table below presents our total lease cost (in thousands):
Lease cost |  | Statement of Operations Location |  | For the Three Months Ended September 30, 2019 |  | For the Nine Months Ended September 30, 2019
Operating lease cost |  |  |  |  |  |
Property leases |  | Property operating expenses |  | $ | 413 |  |  | $ | 1,239 |
Vehicles and office equipment |  | General, administrative and leasing expenses |  | 18 |  |  | 53 |
Finance lease cost |  |  |  |  |  |
Amortization of vehicles and office equipment right-of-use assets |  | General, administrative and leasing expenses |  | 114 |  |  | 343 |
Amortization of property right-of-use assets |  | Property operating expenses |  | 9 |  |  | 21 |
Interest on lease liabilities |  | Interest expense |  | 3 |  |  | 10 |
|  |  |  | $ | 557 |  |  | $ | 1,666 |
The table below presents the effect of lease payments on our consolidated statement of cash flows (in thousands):
Supplemental cash flow information |  | For the Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities: |  |
Operating cash flows for operating leases |  | $ | 804 |
Operating cash flows for financing leases |  | $ | 10 |
Financing cash flows for financing leases |  | $ | 173 |
Payments on leases as of September 30, 2019 were due as follows (in thousands):
Year Ending December 31, |  | Operating leases |  | Finance leases |  | Total
2019 (1) |  | $ | 279 |  |  | $ | 52 |  |  | $ | 331 |
2020 |  | 1,126 |  |  | 862 |  |  | 1,988 |
2021 |  | 1,111 |  |  | 202 |  |  | 1,313 |
2022 |  | 1,129 |  |  | 64 |  |  | 1,193 |
2023 |  | 1,134 |  |  | — |  |  | 1,134 |
Thereafter |  | 99,187 |  |  | — |  |  | 99,187 |
Total lease payments |  | 103,966 |  |  | 1,180 |  |  | 105,146 |
Less: Amount representing interest |  | (87,280 | ) |  | (15 | ) |  | (87,295 | )
Lease liability |  | $ | 16,686 |  |  | $ | 1,165 |  |  | $ | 17,851 |
(1) Represents the three months ending December 31, 2019. Future minimum rental payments on leases as of December 31, 2018 were due as follows (in thousands):
Year Ending December 31, |  | Operating leases |  | Finance leases |  | Total
2019 |  | $ | 1,101 |  |  | $ | 219 |  |  | $ | 1,320 |
2020 |  | 1,110 |  |  | 844 |  |  | 1,954 |
2021 |  | 1,094 |  |  | 184 |  |  | 1,278 |
2022 |  | 1,115 |  |  | 49 |  |  | 1,164 |
2023 |  | 1,119 |  |  | — |  |  | 1,119 |
Thereafter |  | 83,373 |  |  | — |  |  | 83,373 |
Total lease payments |  | $ | 88,912 |  |  | 1,296 |  |  | 90,208 |
Less: Amount representing interest |  | N/A |  |  | (24 | ) |  | (24 | )
Total |  | N/A |  |  | $ | 1,272 |  |  | $ | 90,184 |

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- Definition The entire disclosure for lessee entity's leasing arrangements including, but not limited to, all of the following: (a.) The basis on which contingent rental payments are determined, (b.) The existence and terms of renewal or purchase options and escalation clauses, (c.) Restrictions imposed by lease agreements, such as those concerning dividends, additional debt, and further leasing. + References Reference 1: http://fasb.org/us-gaap/role/ref/otherTransitionRef -Publisher FASB -Name Accounting Standards Codification -Topic 840 -URI http://asc.fasb.org/topic&trid=2208923 + Details
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