XML 31 R20.htm IDEA: XBRL DOCUMENT

Leases

9 Months Ended

Sep. 30, 2020

11. Leases

As Lessor

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 (see below). 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 three months ended September 30, 2020 and 2019, the Company earned $14.5 million and $14.7 million, respectively, and during the nine months ended September 30, 2020 and 2019, the Company earned $41.8 million and $41.2 million, respectively in variable lease revenues, primarily for real estate taxes and common area maintenance charges, which are included in rental income in the consolidated statements of operations.

As Lessee

During the nine months ended September 30, 2020, the Company:

•

entered into one new office lease as lessee for which the lease commenced in the third quarter of 2020. The Company recorded a right-of-use asset and corresponding lease liability of $1.7 million;

•

modified its 991 Madison master lease by converting the 49-year fixed term to a 15-year term. As a result of the modification, the lease was reclassified from a finance lease to an operating lease during the second quarter of 2020;

•

consolidated one property within the BSP II portfolio, 102 E. Broughton, (Note 2, Note 4), which was subject to a ground lease classified as an operating lease, during the second quarter of 2020; and

•

renewed one ground lease for Branch Plaza, an operating lease, for 22 years.

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 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:

	Nine Months Ended September 30, 2020		Year Ended December 31, 2019

Amounts recorded upon acquisition of leasehold interests:
Right of use asset - operating lease	$	—	$	50,147
Right of use asset - finance lease		—		19,422
Other Assets		—		—
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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020			2019
Lease Cost
Finance lease cost:
Amortization of right-of-use assets	$	226		565	$	1,370		$	1,603
Interest on lease liabilities		92		978		1,541			2,755
Subtotal		318		1,543		2,911			4,358
Operating lease cost		2,258		1,394		5,377			3,037
Variable lease cost		5		62		27			119
Total lease cost	$	2,581	$	2,999	$	8,315		$	7,514

Other Information
Weighted-average remaining lease term - finance leases (years)						33.5			42.9
Weighted-average remaining lease term - operating leases (years)						26.5			33.7
Weighted-average discount rate - finance leases						6.2	%		4.5	%
Weighted-average discount rate - operating leases						5.4	%		5.8	%

Right-of-use assets are included in Operating real estate (Note 2) in the consolidated balance sheets. Lease liabilities are included in Accounts payable and other liabilities in the consolidated balance sheets (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 operations. 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 operations.

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 September 30, 2020, are summarized as follows (in thousands):

Year Ending December 31,	Minimum Rental Revenues ^(a)		Minimum Rental Payments ^(b)
2020 (Remainder)	$	48,803	$	1,877
2021		208,058		8,665
2022		190,266		7,874
2023		166,701		7,869
2024		142,019		8,029
Thereafter		563,493		170,745
Total	$	1,319,340	$	205,059

(a)

Amount represents contractual lease maturities at September 30, 2020. During the end of March 2020, numerous tenants were forced to suspend operations by government mandate as a result of the COVID-19 Pandemic. The Company has negotiated payment agreements with selected tenants which resulted in rent concessions or deferral of rents as discussed further below.

(b)	Minimum rental payments include $109.5 million of interest related to leases.

During the three and nine months ended September 30, 2020 and 2019, no single tenant or property collectively comprised more than 10% of the Company’s consolidated total revenues.

COVID-19 Pandemic Impacts

Beginning in March 2020, the COVID-19 Pandemic has adversely affected economic activity and significantly decreased consumer activity, both on a global and domestic level. The COVID-19 Pandemic and government responses created disruption in global supply chains and adversely impacting many industries, including the domestic retail sectors in which the Company’s tenants operate. The COVID-19 Pandemic could continue to have a material adverse impact on economic and market conditions and trigger a period of global economic slowdown. Under governmental restrictions and guidance, certain retailers were considered “essential businesses” and were permitted to remain fully operating during the COVID-19 Pandemic, while other “non-essential businesses” were ordered to decrease or close operations for an indeterminate period of time to protect their employees and customers from the spread of the virus. These disruptions, which continue to a lesser extent as of the date of this Report, have impacted the collectability of rent from the Company’s affected tenants. The Company cannot estimate with reasonable certainty which currently operating tenants will remain open or if and when non-operating retailers will re-open for business as the COVID-19 Pandemic progresses. While the Company considers disruptions related to the COVID-19 Pandemic to be temporary, if the disruptions are protracted or escalate, they may have a material, adverse effect on the Company’s revenues, results of operations, financial condition, and liquidity in future periods.

Tenant Operating Status – The following table illustrates the percentage of the Company’s consolidated and unconsolidated annualized base rents (“ABR”) derived from stores which were open or partially open for business as of the dates indicated:

	Percentage of Tenants Open for Business as of
	June 30, 2020			September 30, 2020

Core		74	%		86	%
Fund		74	%		88	%

Rent Collections – The following table depicts collections of pre-COVID billings (original contract rents without regard to deferral or abatement agreements) and excludes the impact of any security deposits applied against tenant accounts as of the dates shown:

	Collections as of:
	June 30, 2020 for			September 30, 2020 for
	Second Quarter 2020			Second Quarter 2020			Third Quarter 2020

Core		71	%		74	%		85	%
Fund		62	%		65	%		77	%

Earnings Impact – During the three and nine months ended September 30, 2020, the Company reassessed its reserves for collection losses with respect to its billed receivables and straight-line rents receivable which were negatively impacted by the COVID-19 Pandemic. The Company also entered into agreements with selected tenants for rent forgiveness related to the COVID-19 Pandemic which were recorded in the period the rent was forgiven. In addition, the Company determined that several properties were impaired at March 31, 2020 (Note 8). These collection losses, and rent abatements were recorded as a reduction of rental income in the consolidated statements of operations. The rental income reductions and impairment charges impacted net earnings and segment performance as follows for the periods presented:

	Three Months Ended September 30, 2020									Nine Months Ended September 30, 2020
	Consolidated		Non-Controlling Interests			Unconsolidated		Attributable to Acadia		Consolidated		Non-Controlling Interests			Unconsolidated		Attributable to Acadia

Credit Loss - Billed Rents
Core	$	5,158	$	35		$	661	$	5,854	$	10,980	$	(20	)	$	1,335	$	12,295
Funds		5,678		(4,544	)		297		1,431		9,190		(7,620	)		685		2,255
Total		10,836		(4,509	)		958		7,285		20,170		(7,640	)		2,020		14,550

Straight - Line Rent Reserves
Core		2,113		(52	)		48		2,109		6,969		(86	)		498		7,381
Funds		11,072		(8,789	)		769		3,052		12,743		(10,183	)		889		3,449
Total		13,185		(8,841	)		817		5,161		19,712		(10,269	)		1,387		10,830

Rent Abatements
Core		687		—			75		762		803		—			684		1,487
Funds		244		(240	)		56		60		244		(240	)		56		60
Total		931		(240	)		131		822		1,047		(240	)		740		1,547

Impairment charges
Core		—		—			—		—		—		—			—		—
Funds		—		—			—		—		51,549		(39,149	)		—		12,400
Total		—		—			—		—		51,549		(39,149	)		—		12,400

COVID Earnings Impact
Core		7,958		(17	)		784		8,725		18,752		(106	)		2,517		21,163
Funds		16,994		(13,573	)		1,122		4,543		73,726		(57,192	)		1,630		18,164
Total	$	24,952	$	(13,590	)	$	1,906	$	13,268	$	92,478	$	(57,298	)	$	4,147	$	39,327

Other Impacts

•

Rent Concession Agreements – During the nine months ended September 30, 2020, the Company executed 237 rent concession arrangements with tenants comprised of 210 agreements for rent deferral and 27 agreements for rent abatements. Of these deferral agreements, 203 were accounted for as if no changes to the contract were made and therefore there were no changes to the current or future recognition of revenue and $7.5 million of deferred receivables are included in Rents receivable in the consolidated balance sheet at September 30, 2020. The impact of the rent abatements is depicted in the table above. In addition, as lessee, the Company has deferred lease payments on certain office space aggregating $0.1 million through December 2021, which has been recorded in accounts payable and accrued expenses in the consolidated balance sheet at September 30, 2020.

•

Occupancy – At September 30, 2020, the Company’s pro rata Core and Fund leased occupancy rates were 91.1% and 89.8%, respectively, compared to 93.3% and 91.1%, respectively, at June 30, 2020 reflecting primarily leases terminated under bankruptcy proceedings.

•

Bankruptcy Risk – Through September 30, 2020 there have been numerous bankruptcies of national retailers, some of which are tenants of the Company. Of these bankruptcies, the Core Portfolio has 6 operating stores, with ABR attributable to Acadia totaling $2.6 million, or 1.9% of Core ABR, and the Fund Portfolio has 17 operating stores, with ABR attributable to Acadia totaling $1.1 million, or 5.2% of Fund ABR, for which it is possible that these leases may be rejected in the future.

•

On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES

Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. It also appropriated funds for the SBA Paycheck Protection Program loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by the COVID-19 Pandemic. Management has not yet determined the impact that the CARES Act will have on the Company and ultimately on its financial condition, results of operations, or liquidity for 2020.

See Note 15 for updates to some of these results through October 31, 2020.