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Real Estate | 3 Months Ended
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Mar. 31, 2021
Real Estate [Abstract] |
Real Estate | Real Estate Construction In Progress Construction in progress includes land, preconstruction and development costs of active projects. Preconstruction costs include legal, zoning and permitting costs and other project carrying costs incurred prior to the commencement of construction. Development costs include direct construction costs and indirect costs incurred subsequent to the start of construction such as architectural, engineering, construction management and carrying costs consisting of interest, real estate taxes and insurance. During the three months ended March 31, 2021, assets totaling $8.7 million were placed in service in conjunction with the substantial completion of The Waycroft and Ashbrook Marketplace. Construction in progress as of March 31, 2021 and December 31, 2020, is composed of the following:
(In thousands) |  | March 31, 2021 |  | December 31, 2020
Twinbrook Quarter |  | $ | 89,280 |  |  | $ | — |
Hampden House (formerly 7316 Wisconsin Avenue) | 51,927 |  |  | 50,723 |
The Waycroft |  | — |  |  | 8,651 |
Ashbrook Marketplace |  | — |  |  | 153 |
Other |  | 10,492 |  |  | 9,950 |
Total |  | $ | 151,699 |  |  | $ | 69,477 |
Leases We lease Shopping Centers and Mixed-Use Properties to lessees in exchange for monthly payments that cover rent, and, where applicable, reimbursement for property taxes, insurance, and certain property operating expenses. Our leases have been determined to be operating leases and generally range in term from one to 15 years. Some of our leases have termination options and/or extension options. Termination options allow the lessee and/or lessor to terminate the lease prior to the end of the lease term, provided certain conditions are met. Termination options generally require advance notification from the lessee and/or lessor and payment of a termination fee. Termination fees are recognized as revenue over the modified lease term. Extension options are subject to terms and conditions stated in the lease. On January 1, 2019, an operating lease right of use asset and corresponding lease liability related to our headquarters lease were recorded in other assets and other liabilities, respectively. The lease expires on February 28, 2022, with one option to renew for an additional five years. The right of use asset and corresponding lease liability totaled $701,200 and $724,100, respectively, at March 31, 2021. Due to the business disruptions and challenges severely affecting the global economy caused by the novel strain of coronavirus (“COVID-19”) pandemic, many lessees have requested rent relief, including rent deferrals and other lease concessions. The lease modification guidance in ASU 2016-02 does not contemplate the rapid execution of concessions for multiple tenants in response to sudden liquidity constraints of lessees. In April 2020, the FASB staff issued a question and answer document that provided guidance allowing the Company to elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. The Company has elected to apply such relief, which, in the case of rent deferrals, results in the accrual of rent due from tenants and defers the payment of that rent to a future date, and will monitor the collectability of rent receivables. Deferred Leasing Costs Deferred leasing costs consist of commissions paid to third-party and internal leasing agents, internal costs such as payroll-related fringe benefits that are direct and incremental to successful commercial leases, amounts attributed to in-place leases associated with acquired properties and lease inducement costs. Effective with the adoption of ASU 2016-02 on January 1, 2019, all costs incurred prior to the execution of a lease are charged to expense and not capitalized. Unamortized deferred leasing costs are charged to expense if the applicable lease is terminated prior to expiration of the initial lease term. Deferred leasing costs are amortized over the term of the lease or remaining term of acquired leases. Collectively, deferred leasing costs totaled $26.2 million and $26.9 million, net of accumulated amortization of $45.6 million and $44.5 million, as of March 31, 2021 and December 31, 2020, respectively. Amortization expense, included in depreciation and amortization of lease costs in the Consolidated Statements of Operations, totaled $1.2 million and $1.3 million for the three months ended March 31, 2021 and 2020, respectively. Real Estate Investment Properties Depreciation is calculated using the straight-line method and estimated useful lives of generally between 35 and 50 years for base buildings, or a shorter period if management determines that the building has a shorter useful life, and up to 20 years for certain other improvements that extend the useful lives. Leasehold improvement expenditures are capitalized when certain criteria are met, including when the Company supervises construction and will own the improvements. Tenant improvements are amortized, over the shorter of the lives of the related leases or the useful life of the improvements, using the straight-line method. Depreciation expense in the Consolidated Statements of Operations totaled $11.5 million and $10.0 million for the three months ended March 31, 2021 and 2020, respectively. Repairs and maintenance expense totaled $3.9 million and $2.8 million for the three months ended March 31, 2021 and 2020, respectively, and is included in property operating expenses in the Consolidated Statements of Operations. As of March 31, 2021, we have not identified any impairment triggering events, including the impact of COVID-19 and corresponding tenant requests for rent relief. Therefore, under applicable GAAP guidance, no impairment charges were recorded. Acquisitions On November 5, 2019, the Company entered into an agreement (the “Contribution Agreement”) to acquire from the B. F. Saul Real Estate Investment Trust (the “Trust”) approximately 6.8 acres of land and its leasehold interest in approximately 1.3 acres of contiguous land, together in each case with the improvements located thereon, located at the Twinbrook Metro Station in Rockville, Maryland (the “Contributed Property”). The Contributed Property is immediately adjacent to approximately 10.3 acres owned by the Company. In exchange for the Contributed Property, the Company will issue to the Trust 1,416,071 limited partnership units in the Operating Partnership, representing an aggregate value of $79.3 million for the Contributed Property. Title to the Contributed Property and the units were placed in escrow until certain conditions of the Contribution Agreement were satisfied. On March 5, 2021, the Company entered into an amendment to the Contribution Agreement in which it and the Trust agreed to release to the Company from escrow the deed and assignment of the leasehold interest of the Contributed Property, as of that date, and reimbursed the Trust for certain expenses pursuant to the Contribution Agreement totaling $7.4 million. Acquisition costs totaled $1.2 million. The Company recorded a right-of-use asset of $19.4 million and corresponding lease liability of $19.4 million related to the leasehold interest assumed in the transaction. The remaining term of the lease is 61 years, rent increases by 1.5% annually and the incremental borrowing rate used to calculate the lease liability is 5.63%. The leasehold interest is classified as a finance lease and the components are presented within the Finance lease right-of-use asset and Finance lease liability line items on the Consolidated Balance Sheet. Amortization expense and interest expense related to the lease totaled $26,500 and $36,800, respectively, for the three months ended March 31, 2021. The units will remain in escrow until the conditions of the Contribution Agreement, as amended, are satisfied. Half of the units held in escrow will be released on the "Second Escrow Release" date which is defined as the later of (a) October 18, 2021, or (b) ten (10) days following the date on which there is a final, non-appealable resolution, in a manner favorable to the Company, of certain proceedings relating to the site plan (or, if such proceedings are resolved in a manner favorable to the appellant, ten (10) days following the date on which a substitute site plan relating to the Contributed Property has been approved by the Planning Commission of the City of Rockville and such approval has become final and non-appealable). The remaining units held in escrow will be released two years after the Second Escrow Release. Future contractual payments under the finance lease for years ended December 31, are as follows:
(in thousands) |
April 1 through December 31, 2021 | $ | 563 |
2022 | 863 |
2023 | 910 |
2024 | 924 |
2025 | 938 |
2026 | 952 |
Thereafter | 82,195 |
Subtotal | 87,345 |
Less: Imputed interest | (67,920) |
Finance lease liability | $ | 19,425 |

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- Definition The entire disclosure for certain real estate investment financial statements, real estate investment trust operating support agreements, real estate owned, retail land sales, time share transactions, as well as other real estate related disclosures. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 970 -URI http://asc.fasb.org/topic&trid=2156125 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 978 -URI http://asc.fasb.org/topic&trid=2134977 Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 976 -URI http://asc.fasb.org/topic&trid=2134846 Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 974 -URI http://asc.fasb.org/topic&trid=2156429 Reference 5: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 972 -URI http://asc.fasb.org/topic&trid=2134617 + Details
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