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Leases

12 Months Ended

Dec. 31, 2019

11. Leases

Operating Leases

As Lessor

The Company implemented ASC Topic 842, Leases, effective January 1, 2019 (Note 1). As lessor, there were no accounting adjustments required, however, the presentation of the Company’s lease revenues in 2019 includes amounts previously reported as reimbursed expenses. There was no cumulative effect adjustment to retained earnings required upon adoption of the new standard. In addition, the Company began expensing internal leasing costs, which have historically been capitalized.

The Company is engaged in the operation of shopping centers and other retail properties that are either owned or, with respect to certain shopping centers, operated under long-term ground leases (see below) that expire at various dates through June 20, 2066, with renewal options. Space in the shopping centers is leased to tenants pursuant to agreements that provide for terms ranging generally from one month to sixty years and generally provide for additional rents based on certain operating expenses as well as tenants’ sales volumes. During the year ended December 31, 2019, the Company earned $56.4 million in variable lease revenues, primarily for real estate taxes and common area maintenance charges, which are included in lease revenues in the consolidated statements of income.

As Lessee

During the year ended December 31, 2019, the Company:

•

recorded right-of-use assets and corresponding lease liabilities as lessee of $11.9 million and $12.8 million, respectively, for nine existing operating leases (for ground, office and equipment leases) and $82.6 million and $76.6 million, respectively, for four finance leases related to ground rentals including an existing capital lease which represented $77.0 million and $71.1 million, respectively, upon implementation of ASC Topic 842;

•

recorded three new finance leases effective January 1, 2019 upon the implementation of ASC 842. An assessment of triggering events whereby the Company’s cumulative leasehold investment made it reasonably certain that the Company would exercise its purchase options;

•

entered into a prepaid master lease on December 9, 2019 comprised of an operating lease component related to the land and a finance lease component related to the building. The property is referred to as “565 Broadway” within the Core Portfolio. The Company recorded a Right-of-use-asset-operating-lease of $4.9 million and a Right-of-use-asset-finance lease of $19.4 million; and

•

entered into a ground lease on May 1, 2019 which is an operating lease. The property is referred to as “110 University Place” and is within the Fund IV portfolio. The Company recorded a Right of use asset–operating lease of $45.3 million and a corresponding Lease liability–operating-lease of $45.3 million.

The Company recorded the following assets and liabilities in connection with acquisitions of leasehold interests:

	Year Ended December 31, 2019			Year Ended December 31, 2018
Amounts recorded upon acquisition of leasehold interests:				(Not applicable)
Right of use asset - operating lease	$	50,147
Right of use asset - finance lease		19,422
Leasehold improvements		13,354
Lease intangibles (Note 6)		1,760
Lease liability - operating lease		(45,293	)
Acquisition-related intangible liabilities (Note 6)		(359	)
Cash paid upon acquisition of leasehold interests	$	39,031

Additional disclosures regarding the Company’s leases as lessee are as follows:

	Year Ended December 31,
	2019			2018	2017
Lease Cost				(Not applicable)	(Not applicable)
Finance lease cost:
Amortization of right-of-use assets	$	2,168
Interest on lease liabilities		3,737
Subtotal		5,905
Operating lease cost		4,430
Variable lease cost		164
Total lease cost	$	10,499

Other Information
Weighted-average remaining lease term - finance leases (years)		42.5
Weighted-average remaining lease term - operating leases (years)		34.1
Weighted-average discount rate - finance leases		4.5	%
Weighted-average discount rate - operating leases		5.8	%

Right-of-use assets are included in Operating real estate (Note 2) in the consolidated balance sheet. Lease liabilities are included in Accounts payable and other liabilities in the consolidated balance sheet (Note 5). Operating lease cost comprises amortization of right-of-use assets for

operating properties (related to ground rents) or amortization of right-of-use assets for office and corporate assets and is included in Property operating expense or General and administrative expense, respectively, in the consolidated statements of income. Finance lease cost comprises amortization of right-of-use assets for certain ground leases, which is included in Property operating expense, as well as interest on lease liabilities, which is included in Interest expense in the consolidated statements of income.

Lease Disclosures Related to Prior Periods

The Company leased land at six of its shopping centers, which were accounted for as operating leases through December 31, 2018 and generally provided the Company with renewal options. Ground rent expense was $1.7 million and $1.4 million (including capitalized ground rent at a property under development of $0 and $0.1 million) for the years ended December 31, 2018 and 2017, respectively. The leases terminate at various dates between 2020 and 2066. These leases provide the Company with options to renew for additional terms aggregating up to 25 to 71 years. The Company also leases space for its corporate office. Office rent expense under these leases was $1.0 million for each of the years ended December 31, 2018 and 2017, respectively.

During 2016, the Company entered into a 49-year master lease, which was accounted for as a capital lease through December 31, 2018. During the years ended December 31, 2018 and 2017, payments for this lease totaled $2.5 million. The property under the capital lease is included in Note 2.

Lease Obligations

The scheduled future minimum (i) rental revenues from rental properties under the terms of non-cancelable tenant leases greater than one year (assuming no new or renegotiated leases or option extensions for such premises) and (ii) rental payments under the terms of all non-cancelable operating and finance leases in which the Company is the lessee, principally for office space, land and equipment, as of December 31, 2019, are summarized as follows (in thousands):

Year Ending December 31,	Minimum Rental Revenues		Minimum Rental Payments ^(a)
2020	$	212,871	$	7,040
2021		203,077		6,823
2022		181,731		6,832
2023		160,237		6,825
2024		137,451		7,008
Thereafter		563,124		312,421
Total	$	1,458,491	$	346,949

(a)

Minimum rental payments include $219.0 million of interest related to leases.

During the years ended December 31, 2019, 2018 and 2017, no single tenant or property collectively comprised more than 10% of the Company’s consolidated total revenues.