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Leases

6 Months Ended

Jun. 30, 2019

8. Leases

Leases as a Lessee:

The Company entered into a noncancelable contract with a third party to obtain office space that commenced on September 1, 2010. The contract was amended on October 25, 2016 to extend the contract through September 30, 2024. The Company adopted ASU 2016-02 on January 1, 2019 and applied the package of practical expedients that allows an entity to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases and (iii) initial direct costs for any expired or existing leases. As of June 30, 2019, the Company’s right-to-use asset was $1,975,000, which is included in prepaid and other assets on the consolidated balance sheet as of June 30, 2019.

The Company has an option to extend the terms of its office space lease with one 5-year extension. As of June 30, 2019, the exercise of the extension option was not reasonably certain. Therefore, the extension option is not recognized as part of the Company’s right-of-use asset and lease liability.

A discount rate equal to the Company’s incremental borrowing rate applied to the future monthly contractual lease payments remaining as of June 30, 2019 to compute the lease liability. The incremental borrowing rate is the rate equal to the closest borrowing under the BAML Revolver at the time of the Company’s adoption of ASU 2016-02.

The Company has elected to apply the practical expedient to not separate non-lease components from the related lease component of its real estate lease, therefore the accounting for the lease remains largely unchanged from the previous standard.


Lease Costs	For the
	Six Months Ended
(in thousands)	June 30, 2019
Operating lease cost	$	209
	$	209

Other information
Cash paid for amounts included in the measurement of lease liabilities	$	205
Weighted average remaining lease terms in years - operating leases		5.25
Weighted average discount rate - operating leases		3.86%

Maturity analysis for liabilities	Total
	Undiscounted
(in thousands)	Cash Flows
Discount rate at commencement		3.86%
Remainder of 2019	$	207
2020		421
2021		429
2022		438
2023		447
2024 and thereafter		340
	$	2,282

Present value lease liability	$	2,059

Difference between undiscounted cash flows and discounted cash flows	$	223

Leases as a Lessor:

The Company is a lessor of commercial real estate with operations that include the leasing of office and industrial properties. Many of the leases with customers contain options to extend leases at a fair market rate and may also include options to terminate leases. The Company considers several inputs when evaluating the amount it expects to derive from its leased assets at the end of the lease terms, such as the remaining useful life, expected market conditions, fair value of lease payments, expected fair values of underlying assets, and expected deployment of the underlying assets. The Company’s strategy to address its risk for the residual value in its commercial real estate is to re-lease the commercial space.

The Company has elected to apply the practical expedient to not separate non-lease components from the related lease component of real estate leases. This combined component is primarily comprised of fixed lease payments, early termination fees, common area maintenance cost reimbursements, and parking lease payments. The Company applies ASC 842-Leases to the combined lease and non-lease components.

A minority of the Company’s leases are subject to annual changes in the Consumer Price Index (“CPI”). Although increases in the CPI are not estimated as part of the Company’s measurement of straight-line rent revenue, to the extent that the actual CPI is greater or less than the CPI at lease commencement, there could be changes to realized income or loss.

For the six months ended June 30, 2019, the Company recognized the following amounts of income relating to lease payments:


Income relating to lease payments:	For the
	Six Months Ended
(in thousands)	June 30, 2019
Income from leases (1)	$	123,821
	$	123,821

Undiscounted Cash Flows	Year ending
(in thousands)	December 31,
Remainder of 2019	$	85,662
2020		170,226
2021		159,589
2022		133,796
2023		117,753
2024 and thereafter		376,076
	$	1,043,102

(1) Amount from variable lease payments $32,085