Leases

3 Months Ended

Mar. 31, 2021

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 March 31, 2021 and 2020, the Company earned $14.8 million and $14.6 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.

The activity for the reserves related to billed rents and straight-line rents is as follows:

	Three Months Ended March 31, 2021
	Balance at Beginning of Period		Charged to Expenses		Adjustments to Valuation Accounts		Deductions			Balance at End of Period

Allowance for credit loss - billed rents	$	30,366	$	3,065	$	—	$	(1,162	)	$	32,269
Straight-line rent reserves		15,042		817		—		(175	)		15,684
Total - rents receivable	$	45,408	$	3,882	$	—	$	(1,337	)	$	47,953

As Lessee

During the three months ended March 31, 2021, the Company:

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modified its Rye corporate office lease. As a result, of the modification, the lease was remeasured and the lease liability and right-of-use asset were each reduced by $0.4 million.

During the year ended December 31, 2020, the Company:

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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;

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

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recorded an impairment charge of $12.3 million on a right-of-use asset for a Fund IV property, 110 University Place (Note 8)

•

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

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modified its 1238 Wisconsin lease agreement for a reduced purchase price from $14.5 million to $11.5 million. As a result, remeasured and reduced its right-of-use asset and lease liability by $1.9 million in the fourth quarter of 2020.

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

	Three Months Ended March 31,
	2021			2020
Lease Cost
Finance lease cost:
Amortization of right-of-use assets	$	226		$	657
Interest on lease liabilities		95			850
Subtotal		321			1,507
Operating lease cost		2,286			1,394
Variable lease cost		101			16
Total lease cost	$	2,708		$	2,917

Other Information
Weighted-average remaining lease term - finance leases (years)		33.2			42.3
Weighted-average remaining lease term - operating leases (years)		24.5			34.1
Weighted-average discount rate - finance leases		6.3	%		4.4	%
Weighted-average discount rate - operating leases		5.6	%		5.8	%

Right-of-use assets – finance leases are included in Operating real estate (Note 2) in the consolidated balance sheets. Lease liabilities – finance leases 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 March 31, 2021, are summarized as follows (in thousands):

			Minimum Rental Payments
Year Ending December 31,	Minimum Rental Revenues ^(a)		Operating Leases ^(b)			Finance Leases^(b)
2021 (Remainder)	$	149,226	$	6,465		$	69
2022		198,269		7,768			28
2023		177,885		7,789			—
2024		152,363		7,974			—
2025		122,715		7,969			—
Thereafter		503,880		150,446			12,289
		1,304,338		188,411			12,386
Interest		—		(100,587	)		(6,230	)
Total	$	1,304,338	$	87,824		$	6,156

(a)

Amount represents contractual lease maturities at March 31, 2021 including any extension options that management determined were reasonably certain of exercise. During 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 exclude options or renewals not reasonably certain of exercise.

During the three months ended March 31, 2021 and 2020, 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 had a material adverse impact on economic and market conditions, and consumer activity, and triggered a period of global and domestic economic slowdown. 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. 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 have been significantly reduced 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 such government mandated closures are reinstated, 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 – At March 31, 2021 92.4% and 94.8% of the Core Portfolio and Fund, respectively, consolidated and unconsolidated annualized base rents (“ABR”) were derived from stores that were open or partially open for business at that date.

Rent Collections – The Company collected or negotiated payment agreements through March 31, 2021 for approximately 91.8% and 84.3% of its first quarter pre-COVID billings (original contract rents without regard to deferral or abatement agreements) for its Core Portfolio and the Funds, respectively.

Earnings Impact – The Company was impacted as follows by the COVID-19 Pandemic during the periods presented:

	Three Months Ended March 31, 2021												Three Months Ended March 31, 2020
	Consolidated			Non-Controlling Interests			Unconsolidated			Attributable to Acadia			Consolidated		Non-Controlling Interests			Unconsolidated		Attributable to Acadia
Credit Loss - Billed Rents
Core	$	1,883		$	17		$	386		$	2,286		$	832	$	—		$	268	$	1,100
Funds		1,182			(979	)		37			240			526		(498	)		110		138
Total		3,065			(962	)		423			2,526			1,358		(498	)		378		1,238

Straight - Line Rent Reserves
Core		(8	)		(1	)		(29	)		(38	)		2,744		—			220		2,964
Funds		825			(645	)		10			190			223		(220	)		62		65
Total		817			(646	)		(19	)		152			2,967		(220	)		282		3,029

Rent Abatements
Core		756			—			87			843			—		—			—		—
Funds		783			(611	)		7			179			—		—			—		—
Total		1,539			(611	)		94			1,022			—		—			—		—

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

COVID Earnings Impact
Core		2,631			16			444			3,091			3,576		—			488		4,064
Funds		2,790			(2,235	)		54			609			52,298		(39,867	)		172		12,603
Total	$	5,421		$	(2,219	)	$	498		$	3,700		$	55,874	$	(39,867	)	$	660	$	16,667

Other Impacts

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Rent Concession Agreements – During the three months ended March 31, 2021, the Company executed 47 rent concession arrangements with tenants comprised of 12 agreements for rent deferral and 35 agreements for rent abatements. Of these deferral agreements, 11 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 $8.9 million of deferred receivables are included in Rents receivable in the consolidated balance sheet at March 31, 2021. Consolidated rent abatements in the table above represent $1.5 million for the three months ended March 31, 2021, of which $1.2 million had been negotiated and reserved in prior periods.

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Occupancy – At March 31, 2021, the Company’s pro rata Core and Fund leased occupancy rates were 91.0% and 89.0%, respectively, compared to 93.9% and 93.2%, respectively, at March 31, 2020 reflecting primarily leases terminated as a result of the COVID-19 Pandemic.

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Bankruptcy Risk – Through March 31, 2021 there have been continued bankruptcies of national retailers, some of which are tenants of the Company. Of these bankruptcies, the Core Portfolio has three operating stores, with ABR attributable to Acadia totaling $0.7 million, or 0.6% of Core ABR, and the Fund Portfolio has five operating stores, with ABR attributable to Acadia totaling $0.6 million, or 2.7% of Fund ABR, for which it is possible that these leases may be rejected in the future. During the three months ended March 31, 2021, one operating store in the Core Portfolio rejected its lease with ABR attributable to Acadia of $0.1 million or 0.1% of Core ABR, and two operating stores in the Fund Portfolio assumed their locations with ABR attributable to Acadia of $0.1 million or 0.1% of Fund ABR.