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Leases | 3 Months Ended
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Mar. 31, 2019
Leases [Abstract] |
Leases | Leases Adoption of ASU 2016-02, and all related subsequent amendments The Company adopted ASC 842 (which includes ASU 2016-02 and all related subsequent amendments) on January 1, 2019 and applied the guidance to leases that commenced on or after January 1, 2019. Historical amounts for prior periods were not adjusted and will continue to be reported using the guidance in ASC 840, Leases. To determine whether a contract contains a lease, the Company evaluated its contracts and verified that there was an identified asset and that the Company, or the tenant, has the right to obtain substantially all the economic benefits from the use of the asset throughout the contract term. If a contract is determined to contain a lease, the lease is evaluated to determine whether it is an operating or financing lease, if the Company is the lessee, or the lease is evaluated to determine whether it is an operating, direct financing or sales-type lease, if the Company is the lessor. After determining that the contract contains a lease, the Company identified the lease component and any nonlease components associated with that lease component, and through the Company’s election to combine lease and nonlease components for all asset classes, combined the components into a single lease component within each applicable lease where the Company is the lessor. The discount rate to be used for each lease was determined by assessing the Company’s debt information, assessing the credit rating of the Company and the Company’s debt, estimating a synthetic “secured” credit rating for the Company and estimating an appropriate incremental borrowing rate. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term. See Note 2 for additional information about these accounting standards. Lessor Rental Revenues The majority of the Company’s revenues are earned through the lease of space at its properties. All of the Company's leases with tenants for the use of space at our properties are classified as operating leases. Rental revenues include minimum rent, percentage rent, other rents and reimbursements from tenants for real estate taxes, insurance, common area maintenance ("CAM") and other operating expenses as provided in the lease agreements. The option to extend or terminate our leases is specific to each underlying tenant agreement. Typically, the Company's leases contain penalties for early termination. The Company doesn't have any leases that convey the right for the lessee to purchase the leased asset. Minimum rental revenue from operating leases is recognized on a straight-line basis over the initial terms of the related leases. Certain tenants are required to pay percentage rent if their sales volumes exceed thresholds specified in their lease agreements. Percentage rent is recognized as revenue when the thresholds are achieved and the amounts become determinable. The Company receives reimbursements from tenants for real estate taxes, insurance, CAM and other recoverable operating expenses as provided in the lease agreements. Any tenant reimbursements that require fixed payments are recognized on a straight-line basis over the initial terms of the related leases, whereas any variable payments are recognized when earned in accordance with the tenant lease agreements. Tenant reimbursements related to certain capital expenditures are billed to tenants over periods of 5 to 15 years. Additionally, ASU 2018-19 clarifies that operating lease receivables are within the scope of ASC 842. Therefore, in conjunction with our adoption of ASC 842 on January 1, 2019, the Company began recognizing changes in the collectability assessment of its operating lease receivables as a reduction of rental revenues, rather than as a property operating expense. As a result, the Company recognized $1,540 of uncollectable operating lease receivables as a reduction of rental revenues for the three months ended March 31, 2019, and recognized $2,041 of uncollectable operating lease receivables as a property operating expense for the three months ended March 31, 2018. The components of rental revenues are as follows:
|  | Three Months Ended March 31, 2019
Fixed lease payments |  | $ | 159,278 |
Variable lease payments |  | 31,702 |
Total rental revenues |  | $ | 190,980 |
The undiscounted future fixed lease payments to be received under the Company's operating leases as of March 31, 2019, are as follows:
Years Ending December 31, |  | Operating Leases
2019 (1) |  | $ | 423,830 |
2020 |  | 516,103 |
2021 |  | 450,880 |
2022 |  | 370,764 |
2023 |  | 304,864 |
2024 |  | 236,102 |
Thereafter |  | 640,986 |
Total undiscounted lease payments |  | $ | 2,943,529 |
(1) | Reflects rental payments for the fiscal period April 1, 2019 through December 31, 2019.
As required by the Comparative Under ASC 840 Option, which is a transitional amendment that allows for the presentation of comparative periods in the year of adoption under ASC 840 (the former leasing guidance), the Company's future minimum rental income from lessees under non-cancellable operating leases where the Company is the lessor as of December 31, 2018 is also presented below:
Years Ending December 31, |  | Operating Leases
2019 |  | $ | 497,014 |
2020 |  | 426,228 |
2021 |  | 363,482 |
2022 |  | 294,441 |
2023 |  | 234,191 |
Thereafter |  | 531,792 |
Total |  | $ | 2,347,148 |
Lessee The Company has eight ground leases and one office lease in which it is a lessee. The maturities of these leases range from 2021 to 2089 and generally provide for renewal options ranging from five to ten years. We included the renewal options in our lease terms for purposes of calculating our lease liability and ROU asset because we have no plans to cease operating our assets associated with each ground lease. The ground leases relate to properties where the Company owns the buildings and improvements, but leases the underlying land. The lease payments on the majority of the ground leases are fixed, but in the instances where they are variable they are either based on the CPI index or a percentage of sales. The one office lease is subleased as of March 2019. As of March 31, 2019, these leases have a weighted-average remaining lease term of 38.8 years and a weighted-average discount rate of 8.1%. The Company's ROU asset and lease liability are presented in the condensed consolidated balance sheets within intangible lease assets and other assets and accounts payable and accrued liabilities, respectively. A summary of the Company's ROU asset and lease liability activity during the three months ended March 31, 2019 is presented below:
|  | ROU Asset |  | Lease Liability
Balance as of January 1, 2019 |  | $ | 4,160 |  |  | $ | 4,074 |
Cash reduction |  | (120 | ) |  | (120 | )
Noncash increase |  | 7 |  |  | 70 |
Balance as of March 31, 2019 |  | $ | 4,047 |  |  | $ | 4,024 |
The components of lease expense are presented below:
|  | Three Months Ended March 31, 2019
Lease expense: |  |
Operating lease expense |  | $ | 218 |
Variable lease expense |  | 32 |
Rent Expense |  | $ | 250 |
The undiscounted future lease payments to be paid under the Company's operating leases as of March 31, 2019, are as follows:
Year Ending December 31, |  | Operating Leases
2019 (1) |  | $ | 433 |
2020 |  | 560 |
2021 |  | 608 |
2022 |  | 331 |
2023 |  | 284 |
2024 |  | 263 |
Thereafter |  | 12,019 |
Total undiscounted lease payments |  | $ | 14,498 |
Less imputed interest |  | (10,474 | )
Lease Liability |  | $ | 4,024 |
(1) | Reflects rental payments for the fiscal period April 1, 2019 through December 31, 2019.
As required by the Comparative Under ASC 840 Option, which is a transitional amendment that allows for the presentation of comparative periods in the year of adoption under ASC 840 (the former leasing guidance), the Company's future obligations to be paid under the Company's operating leases where the Company is the lessee as of December 31, 2018 is also presented below:
2019 |  | $ | 504 |
2020 |  | 610 |
2021 |  | 517 |
2022 |  | 321 |
2023 |  | 281 |
Thereafter |  | 12,297 |
|  | $ | 14,530 |
Practical Expedients In regard to leases that commenced before January 1, 2019, the Company elected to use a package of practical expedients to not reassess whether any expired or existing contracts are or contain a lease, to not reassess lease classification for any expired or existing leases, and to not reassess initial direct costs for any existing leases. The Company also elected a practical expedient to not assess whether existing or expired land easements that were not previously accounted for as leases under ASC 840 are or contain a lease under ASC 842. Additionally, the Company elected a practical expedient by class of underlying asset applied to all leases to elect not to separate lease and nonlease components as long as the lease and at least one nonlease component have the same timing and pattern of transfer and the lease is classified as an operating lease. The combined component is being accounted for under ASC 842. The Company made an accounting policy election to exclude sales and other similar taxes from revenues, and instead account for them as costs of the lessee. Lastly, the Company has elected not to apply the recognition requirements of ASC 842 to short-term leases. See Note 2 for additional information about these accounting standards.
Leases | Leases Adoption of ASU 2016-02, and all related subsequent amendments The Company adopted ASC 842 (which includes ASU 2016-02 and all related subsequent amendments) on January 1, 2019 and applied the guidance to leases that commenced on or after January 1, 2019. Historical amounts for prior periods were not adjusted and will continue to be reported using the guidance in ASC 840, Leases. To determine whether a contract contains a lease, the Company evaluated its contracts and verified that there was an identified asset and that the Company, or the tenant, has the right to obtain substantially all the economic benefits from the use of the asset throughout the contract term. If a contract is determined to contain a lease, the lease is evaluated to determine whether it is an operating or financing lease, if the Company is the lessee, or the lease is evaluated to determine whether it is an operating, direct financing or sales-type lease, if the Company is the lessor. After determining that the contract contains a lease, the Company identified the lease component and any nonlease components associated with that lease component, and through the Company’s election to combine lease and nonlease components for all asset classes, combined the components into a single lease component within each applicable lease where the Company is the lessor. The discount rate to be used for each lease was determined by assessing the Company’s debt information, assessing the credit rating of the Company and the Company’s debt, estimating a synthetic “secured” credit rating for the Company and estimating an appropriate incremental borrowing rate. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term. See Note 2 for additional information about these accounting standards. Lessor Rental Revenues The majority of the Company’s revenues are earned through the lease of space at its properties. All of the Company's leases with tenants for the use of space at our properties are classified as operating leases. Rental revenues include minimum rent, percentage rent, other rents and reimbursements from tenants for real estate taxes, insurance, common area maintenance ("CAM") and other operating expenses as provided in the lease agreements. The option to extend or terminate our leases is specific to each underlying tenant agreement. Typically, the Company's leases contain penalties for early termination. The Company doesn't have any leases that convey the right for the lessee to purchase the leased asset. Minimum rental revenue from operating leases is recognized on a straight-line basis over the initial terms of the related leases. Certain tenants are required to pay percentage rent if their sales volumes exceed thresholds specified in their lease agreements. Percentage rent is recognized as revenue when the thresholds are achieved and the amounts become determinable. The Company receives reimbursements from tenants for real estate taxes, insurance, CAM and other recoverable operating expenses as provided in the lease agreements. Any tenant reimbursements that require fixed payments are recognized on a straight-line basis over the initial terms of the related leases, whereas any variable payments are recognized when earned in accordance with the tenant lease agreements. Tenant reimbursements related to certain capital expenditures are billed to tenants over periods of 5 to 15 years. Additionally, ASU 2018-19 clarifies that operating lease receivables are within the scope of ASC 842. Therefore, in conjunction with our adoption of ASC 842 on January 1, 2019, the Company began recognizing changes in the collectability assessment of its operating lease receivables as a reduction of rental revenues, rather than as a property operating expense. As a result, the Company recognized $1,540 of uncollectable operating lease receivables as a reduction of rental revenues for the three months ended March 31, 2019, and recognized $2,041 of uncollectable operating lease receivables as a property operating expense for the three months ended March 31, 2018. The components of rental revenues are as follows:
|  | Three Months Ended March 31, 2019
Fixed lease payments |  | $ | 159,278 |
Variable lease payments |  | 31,702 |
Total rental revenues |  | $ | 190,980 |
The undiscounted future fixed lease payments to be received under the Company's operating leases as of March 31, 2019, are as follows:
Years Ending December 31, |  | Operating Leases
2019 (1) |  | $ | 423,830 |
2020 |  | 516,103 |
2021 |  | 450,880 |
2022 |  | 370,764 |
2023 |  | 304,864 |
2024 |  | 236,102 |
Thereafter |  | 640,986 |
Total undiscounted lease payments |  | $ | 2,943,529 |
(1) | Reflects rental payments for the fiscal period April 1, 2019 through December 31, 2019.
As required by the Comparative Under ASC 840 Option, which is a transitional amendment that allows for the presentation of comparative periods in the year of adoption under ASC 840 (the former leasing guidance), the Company's future minimum rental income from lessees under non-cancellable operating leases where the Company is the lessor as of December 31, 2018 is also presented below:
Years Ending December 31, |  | Operating Leases
2019 |  | $ | 497,014 |
2020 |  | 426,228 |
2021 |  | 363,482 |
2022 |  | 294,441 |
2023 |  | 234,191 |
Thereafter |  | 531,792 |
Total |  | $ | 2,347,148 |
Lessee The Company has eight ground leases and one office lease in which it is a lessee. The maturities of these leases range from 2021 to 2089 and generally provide for renewal options ranging from five to ten years. We included the renewal options in our lease terms for purposes of calculating our lease liability and ROU asset because we have no plans to cease operating our assets associated with each ground lease. The ground leases relate to properties where the Company owns the buildings and improvements, but leases the underlying land. The lease payments on the majority of the ground leases are fixed, but in the instances where they are variable they are either based on the CPI index or a percentage of sales. The one office lease is subleased as of March 2019. As of March 31, 2019, these leases have a weighted-average remaining lease term of 38.8 years and a weighted-average discount rate of 8.1%. The Company's ROU asset and lease liability are presented in the condensed consolidated balance sheets within intangible lease assets and other assets and accounts payable and accrued liabilities, respectively. A summary of the Company's ROU asset and lease liability activity during the three months ended March 31, 2019 is presented below:
|  | ROU Asset |  | Lease Liability
Balance as of January 1, 2019 |  | $ | 4,160 |  |  | $ | 4,074 |
Cash reduction |  | (120 | ) |  | (120 | )
Noncash increase |  | 7 |  |  | 70 |
Balance as of March 31, 2019 |  | $ | 4,047 |  |  | $ | 4,024 |
The components of lease expense are presented below:
|  | Three Months Ended March 31, 2019
Lease expense: |  |
Operating lease expense |  | $ | 218 |
Variable lease expense |  | 32 |
Rent Expense |  | $ | 250 |
The undiscounted future lease payments to be paid under the Company's operating leases as of March 31, 2019, are as follows:
Year Ending December 31, |  | Operating Leases
2019 (1) |  | $ | 433 |
2020 |  | 560 |
2021 |  | 608 |
2022 |  | 331 |
2023 |  | 284 |
2024 |  | 263 |
Thereafter |  | 12,019 |
Total undiscounted lease payments |  | $ | 14,498 |
Less imputed interest |  | (10,474 | )
Lease Liability |  | $ | 4,024 |
(1) | Reflects rental payments for the fiscal period April 1, 2019 through December 31, 2019.
As required by the Comparative Under ASC 840 Option, which is a transitional amendment that allows for the presentation of comparative periods in the year of adoption under ASC 840 (the former leasing guidance), the Company's future obligations to be paid under the Company's operating leases where the Company is the lessee as of December 31, 2018 is also presented below:
2019 |  | $ | 504 |
2020 |  | 610 |
2021 |  | 517 |
2022 |  | 321 |
2023 |  | 281 |
Thereafter |  | 12,297 |
|  | $ | 14,530 |
Practical Expedients In regard to leases that commenced before January 1, 2019, the Company elected to use a package of practical expedients to not reassess whether any expired or existing contracts are or contain a lease, to not reassess lease classification for any expired or existing leases, and to not reassess initial direct costs for any existing leases. The Company also elected a practical expedient to not assess whether existing or expired land easements that were not previously accounted for as leases under ASC 840 are or contain a lease under ASC 842. Additionally, the Company elected a practical expedient by class of underlying asset applied to all leases to elect not to separate lease and nonlease components as long as the lease and at least one nonlease component have the same timing and pattern of transfer and the lease is classified as an operating lease. The combined component is being accounted for under ASC 842. The Company made an accounting policy election to exclude sales and other similar taxes from revenues, and instead account for them as costs of the lessee. Lastly, the Company has elected not to apply the recognition requirements of ASC 842 to short-term leases. See Note 2 for additional information about these accounting standards.

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