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Leases
 12 Months Ended
Dec. 31, 2023
Leases [Abstract]  
Leases of Lessor Disclosure [Text Block]
4. Leases
The Company estimates the collectability of its accrued rent and accounts receivable balances related to lease revenue. When evaluating the collectability of these accrued rent and accounts receivable balances, management considers tenant creditworthiness, current economic trends and changes in tenants’ payment patterns, on a lease-by-lease basis. If the Company determines that the accrued rent and/or accounts receivable balances are no longer probable of collection then the balances are written-off and the lease is recognized on a cash basis.
If applicable, information related to write-offs of accrued rent, net balances and accounts receivable, net
balances and reinstatements of accrued rent balances for the Company’s unconsolidated joint ventures can be
found in Note 6.
Lessor
Operating Leases
The following table summarizes the components of lease revenue recognized during the years ended December 31, 2023, 2022 and 2021 included within the Company's Consolidated Statements of Operations (in thousands):
Year ended December 31,
Lease Revenue202320222021
Fixed contractual payments$2,503,106 $2,426,007 $2,319,362 
Variable lease payments550,641 492,361 433,652 
Sales-type lease926 — — 
$3,054,673 $2,918,368 $2,753,014 
The future contractual lease payments to be received (excluding operating expense reimbursements and percentage rent) by the Company as of December 31, 2023, under non-cancelable operating leases which expire on various dates through 2049 (in thousands): 
Years Ending December 31,
2024$2,420,047 
20252,444,826 
20262,379,371 
20272,281,437 
20282,140,919 
Thereafter15,592,965 
No single tenant represented more than 10.0% of the Company’s total lease revenue for the years ended December 31, 2023, 2022 and 2021.
On November 6, 2023, WeWork Inc. and certain of its direct and indirect subsidiaries (collectively, “WeWork”) filed voluntary petitions to commence proceedings under Chapter 11 of title 11 of the United States Code in the United States Bankruptcy Court for the District of New Jersey. At December 31, 2023, WeWork is a tenant at four of the Company’s premier workplaces and leases an aggregate of approximately 367,338 square feet, representing approximately 0.87% of the Company’s share of its in-service portfolio square footage. There can be no assurance that WeWork will not reject one or more of the four leases.
Sales-type Lease
For the years ended December 31, 2023 and 2022, the Company had one non-cancelable ground lease obligation, as lessor, that is classified as a sales-type lease with an expiration date through 2119. Upon commencement of this lease, the Company recognized a gain on sale of approximately $10.1 million associated with the derecognition of the asset. The Company recognized approximately $0.9 million of interest income that is recorded in lease revenue on its Consolidated Statement of Operations for the year ended December 31, 2023. The Company did not recognize any interest income during the year ended December 31, 2022.
The following table provides the future contractual payments to be received as of December 31, 2023 (in thousands):
December 31, 2023
2024$31 
2025124 
2026372 
2027756 
2028775 
Thereafter 267,474 
Total lease payments to be received269,532 
Less:
Interest portion255,579 
Sales-type lease receivable13,953 
Unguaranteed residual asset18 
Current expected credit loss adjustment(267)
Sales-type lease receivable, net$13,704 
The following table provides the future contractual payments to be received as of December 31, 2022 (in thousands):
December 31, 2022
2023$— 
202431 
2025124 
2026372 
2027756 
Thereafter 268,249 
Total lease payments to be received269,532 
Less:
Interest portion256,504 
Sales-type lease receivable13,028 
Unguaranteed residual asset17 
Current expected credit loss adjustment(234)
Sales-type lease receivable, net$12,811 
Lessee, Operating Leases
Lessee
For the year ended December 31, 2023, the Company had one cancelable and four non-cancelable ground lease obligations, as lessee, which were classified as operating leases, with various initial term expiration dates through 2125. For the years ended December 31, 2022 and 2021, the Company had four non-cancelable ground lease obligations, as lessee, which were classified as operating leases, with various initial term expiration dates through 2114. The Company recognizes ground rent expense on a straight-line basis over the terms of the respective ground lease agreements. As of December 31, 2023, the amounts disclosed below include a ground lease that is subject to variable payments and extension options. At December 31, 2022 and December 31, 2021, no ground leases were subject to variable payments and extension options. As of December 31, 2023, December 31, 2022 and December 31, 2021, none of the amounts disclosed below contains residual value guarantees.
For the year ended December 31, 2023, the Company had five finance lease obligations with various initial term expiration dates through 2094. For the years ended December 31, 2022 and 2021, the Company had four finance lease obligations with various initial term expiration dates through 2094.
The following table provides lease cost information for the Company’s operating and finance leases for the years ended December 31, 2023, 2022 and 2021 (in thousands):
Year ended December 31,
Lease costs202320222021
Operating lease costs (1)$14,451 $12,700 $13,151 
Finance lease costs
Amortization of right of use asset (2)$2,821 $697 $547 
Interest on lease liabilities (3)$13,747 $3,236 $2,471 
_______________
(1)One of the operating leases relate to assets under development for a portion of the year ended December 31, 2023 and as such, the operating lease costs were capitalized. For December 31, 2022 and 2021, no operating leases related to assets under development.
(2)The finance leases relate to either land, buildings or assets that remain in development. For land leases classified as finance leases because of a purchase option that the Company views as an economic incentive, the Company follows its existing policy and does not depreciate land because it is assumed to have an indefinite life. For all other finance leases, the Company would amortize the right of use asset over the shorter of the useful life of the asset or the lease term. If the finance lease relates to a property under development, the amortization of the right of use asset may be eligible for capitalization. For assets under development, depreciation may commence once the asset is placed in-service and depreciation would be recognized in accordance with the Company’s policy.
(3)One, one and two of the finance leases relate to assets under development for all or a portion of the years ended December 31, 2023, December 31, 2022 and December 31, 2021, respectively, and as such, a portion of the interest amount was capitalized.
The following table provides other quantitative information for the Company’s operating and finance leases as of December 31, 2023 and December 31, 2022:
December 31, 2023December 31, 2022
Other information
Weighted-average remaining lease term (in years)
Operating leases7049
Finance leases6068
Weighted-average discount rate
Operating leases6.6 %5.7 %
Finance leases6.1 %6.2 %
The following table provides a maturity analysis for the Company’s lease liabilities related to its operating and finance leases as of December 31, 2023 (in thousands):
Operating Finance
2024 (1)$29,989 $70,370 
202535,733 32,232 
202610,100 31,972 
20279,885 32,170 
2028 (1)14,637 118,232 
Thereafter 3,546,537 1,342,174 
Total lease payments3,646,881 1,627,150 
Less:
Interest portion3,296,490 1,209,189 
Present value of lease payments$350,391 $417,961 
_______________
(1)Finance lease payments in 2024 and 2028 include approximately $38.7 million and $105.3 million, respectively, related to purchase options that the Company was reasonably certain it would exercise upon execution of the ground leases. There can be no assurance that the Company will ultimately exercise the purchase options on the schedule currently contemplated or at all.
The following table provides a maturity analysis for the Company’s lease liabilities related to its operating and finance leases as of December 31, 2022 (in thousands):
Operating Finance
2023$22,415 $9,306 
2024 (1)22,274 49,343 
202510,308 9,971 
202610,100 10,166 
20279,885 10,364 
Thereafter528,915 1,352,647 
Total lease payments603,897 1,441,797 
Less:
Interest portion399,211 1,192,462 
Present value of lease payments$204,686 $249,335 
_______________
(1)Finance lease payments in 2024 include approximately $38.7 million related to a purchase option that the Company was reasonably certain it would exercise upon execution of the ground lease. There can be no assurance that the Company will ultimately exercise the purchase options on the schedule currently contemplated.
On August 1, 2023, a consolidated joint venture in which the Company has a 55% interest executed an up to 99-year ground lease with the Metropolitan Transportation Authority for an approximately 25,000 square foot site, the 343 Madison Avenue project in New York City (see Note 10). The 343 Madison Avenue project contemplates the construction of (1) a direct entrance to the Long Island Railroad’s new east side access project (Grand Central Madison) (“Phase 1”) and (2) an approximately 900,000 square foot premier workplace building with ground floor retail (“Phase 2”). The joint venture has the option until July 31, 2025 to terminate the ground lease prior to construction of the new building and receive reimbursement of up to $117.0 million for the cost of the construction of Phase 1. The Company is reasonably certain that it will not exercise this termination option as the Company completed a long-term competitive process to obtain the right to ground lease this site. There can be no assurance that Phase 1 will be completed on the terms currently contemplated or that Phase 2 of the development project will commence on the terms currently contemplated or at all.
There is no rent due under the ground lease for the period from August 1, 2023 through July 31, 2028, with the exception of a payment of approximately $21.8 million that is due on July 31, 2025. Beginning August 1, 2028, the lease requires rent of approximately $10.9 million per year with adjustments every five years, with a minimum increase of 110% of the ground rent from the prior year. The incremental borrowing rate for this lease is 8.14% per annum. The net present value of the ground lease payments is approximately $141.1 million. The lease required the joint venture to pay a non-refundable deposit totaling $25.0 million, of which $15.0 million was placed in escrow in 2022 with the signing of a pre-lease agreement and $10.0 million was paid in 2023 as a requirement of entering into the ground lease. The consolidated joint venture classifies this ground lease as an operating lease. As a result, the consolidated joint venture recorded a Right of Use Assets – Operating Leases and Lease Liabilities – Operating Leases of approximately $166.8 million and $141.1 million, respectively, on its Consolidated Balance Sheets as of December 31, 2023. The 343 Madison Avenue ground lease had operating lease costs of approximately $12.6 million, that was all capitalized, for the year ended December 31, 2023.
On December 14, 2023, the Company completed the acquisition of its joint venture partner’s 45% interest in the joint venture entity that owns Santa Monica Business Park located in Santa Monica, California (See Note 3). Approximately 70% of Santa Monica Business Park’s rentable square footage is subject to a ground lease. The ground lease has an expiration date of February 4, 2054 with the option to renew the term for four additional periods of 11 years each, subject to certain conditions. The ground lease requires monthly rental payments with increases every five years, starting in 2028. The ground lease provides the right to purchase the land underlying the properties in 2028 with subsequent purchase rights every 15 years. The option to purchase the land is considered a bargain purchase option and as a result, the ground lease is accounted for as a finance lease. The Company’s incremental borrowing rate for this ground lease is 5.79% per annum. The net present value of the total ground lease payments is approximately $163.1 million. The Company recorded a Right of Use Assets – Finance lease and Lease liabilities – Finance Lease of approximately $164.1 million and $163.1 million, respectively, on its Consolidated Balance Sheets for the year ended December 31, 2023. In accordance with Accounting Standards Codification 805 “Business Combinations” the Company was required to fair value the ground lease. The ground lease was determined to be above fair value and as a result the Company recognized approximately $46.7 million
within Other Liabilities on its Consolidated Balance Sheets for the year ended December 31, 2023. The Santa Monica Business Park ground lease had interest expense of approximately $0.4 million for the year ended December 31, 2023.
Lessor, Operating Leases [Text Block]
Lessor
Operating Leases
The following table summarizes the components of lease revenue recognized during the years ended December 31, 2023, 2022 and 2021 included within the Company's Consolidated Statements of Operations (in thousands):
Year ended December 31,
Lease Revenue202320222021
Fixed contractual payments$2,503,106 $2,426,007 $2,319,362 
Variable lease payments550,641 492,361 433,652 
Sales-type lease926 — — 
$3,054,673 $2,918,368 $2,753,014 
The future contractual lease payments to be received (excluding operating expense reimbursements and percentage rent) by the Company as of December 31, 2023, under non-cancelable operating leases which expire on various dates through 2049 (in thousands): 
Years Ending December 31,
2024$2,420,047 
20252,444,826 
20262,379,371 
20272,281,437 
20282,140,919 
Thereafter15,592,965 
No single tenant represented more than 10.0% of the Company’s total lease revenue for the years ended December 31, 2023, 2022 and 2021.
On November 6, 2023, WeWork Inc. and certain of its direct and indirect subsidiaries (collectively, “WeWork”) filed voluntary petitions to commence proceedings under Chapter 11 of title 11 of the United States Code in the United States Bankruptcy Court for the District of New Jersey. At December 31, 2023, WeWork is a tenant at four of the Company’s premier workplaces and leases an aggregate of approximately 367,338 square feet, representing approximately 0.87% of the Company’s share of its in-service portfolio square footage. There can be no assurance that WeWork will not reject one or more of the four leases.
Lessor, Sales-type Leases
Sales-type Lease
For the years ended December 31, 2023 and 2022, the Company had one non-cancelable ground lease obligation, as lessor, that is classified as a sales-type lease with an expiration date through 2119. Upon commencement of this lease, the Company recognized a gain on sale of approximately $10.1 million associated with the derecognition of the asset. The Company recognized approximately $0.9 million of interest income that is recorded in lease revenue on its Consolidated Statement of Operations for the year ended December 31, 2023. The Company did not recognize any interest income during the year ended December 31, 2022.
The following table provides the future contractual payments to be received as of December 31, 2023 (in thousands):
December 31, 2023
2024$31 
2025124 
2026372 
2027756 
2028775 
Thereafter 267,474 
Total lease payments to be received269,532 
Less:
Interest portion255,579 
Sales-type lease receivable13,953 
Unguaranteed residual asset18 
Current expected credit loss adjustment(267)
Sales-type lease receivable, net$13,704 
The following table provides the future contractual payments to be received as of December 31, 2022 (in thousands):
December 31, 2022
2023$— 
202431 
2025124 
2026372 
2027756 
Thereafter 268,249 
Total lease payments to be received269,532 
Less:
Interest portion256,504 
Sales-type lease receivable13,028 
Unguaranteed residual asset17 
Current expected credit loss adjustment(234)
Sales-type lease receivable, net$12,811