Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2020

The Company commences recognition of lease income on its leases based on a number of factors. In most cases, revenue recognition under a lease begins when the lessee takes possession or controls the physical use of the leased asset. Generally, this occurs on the lease commencement date. At lease commencement, the Company expects that collectibility is probable for all leases due to the creditworthiness analysis performed before entering into a new lease. Lease income, for leases that have fixed and measurable rent escalations, is recognized on a straight-line basis over the term of each lease. The difference between such lease income earned and the cash rent due under the provisions of a lease is recorded as deferred rent receivable and is included as a component of “Accounts and notes receivable, net” in the accompanying condensed consolidated balance sheets.

Throughout the lease term, individual leases are assessed for collectibility and upon the determination that the collection of rents over the remaining lease life is not probable, lease income is adjusted such that it is recognized on the cash basis of accounting. The Company will remove the cash basis designation and resume recording lease income from such tenants during the period earned at such time it believes that the collection of rent over the remaining lease term is probable and, generally, based upon a demonstrated payment history.

As a result of ongoing discussions with tenants regarding lease concession requests as a result of the COVID-19 pandemic, the Company reserves for lease concessions that have been agreed in principle with the tenant for which a reduction in lease income is anticipated under the accounting for lease concessions once executed. In addition, a general portfolio reserve is established based

upon an analysis of balances outstanding, historical bad debt levels and current economic trends. An allowance for the uncollectible portion of uncollected receivables is recorded as an adjustment to lease income.

The Company reviews current economic considerations each reporting period, including the effects of tenant bankruptcies. Additionally, with the uncertainties regarding COVID-19 as well as ongoing discussions with tenants regarding lease concession requests, the Company’s assessment also takes into consideration items such as tenant type, local restrictions regarding tenant operations, the current status of lease concession requests, as well as recent rent collection experience. Evaluating and estimating uncollectible lease payments and related receivables requires a significant amount of judgment by management and is based on the best information available to the Company at the time of evaluation.

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements

In April 2020, the FASB staff issued a question-and-answer (Q&A) document focusing on the application of the lease guidance in ASC 842, Leases, for lease concessions provided as a result of the COVID-19 pandemic. Prior to the Q&A, changes to lease

payments that are not stipulated in the original lease contract are generally accounted for as lease modifications under ASC 842. Within the Q&A, the FASB staff provides relief for lease concessions offered as a result of the effects of the COVID-19 pandemic and does not require these concessions to be accounted for in accordance with the lease modification guidance in ASC 842.

Under existing lease guidance, a company determines, on a lease-by-lease basis, if a lease concession is the result of a new arrangement with the tenant or if it is under the enforceable rights and obligations within the lease agreement. Under the relief guidance, a company can account for certain concessions (i) as if no changes to the existing lease contract were made or (ii) as a negative variable lease adjustment to lease income. This optionality is offered in circumstances when the total future payments required by the modified contract are substantially the same as the total payments required by the existing contract. Also, under the relief guidance, a company can account for certain other concessions only as a variable lease adjustment. This singular relief option is offered in circumstances including when the total future payments required by the modified contract are less than the total payments required by the existing contract (i.e., abatement) or when the total payments required are the same, but extend over a longer period of time as compared to the existing contract.

Application of the relief guidance is optional, however it is required to be applied consistently to leases with similar characteristics and similar circumstances. The Company has elected to apply the relief guidance where lease concessions are (i) granted as relief due to the COVID-19 pandemic and (ii) result in the cash flows remaining to be substantially the same or less than the existing contract.

Based on the policy elections made under the relief guidance as well as modifications that do not qualify for the relief guidance, the Company has accounted for lease concessions as follows:



Lease Concession		Accounting Treatment of Concession

(i) Deferral of payment to a future period, with no change in lease term.		Treated as if there are no changes to the existing lease contract; no change to lease income recognized, including straight-line rental income.

(ii) Deferral of payment to a future period, with a modest extension of lease term (iii) Abatement (iv) Combination of abatement and deferral		Treated as a variable lease adjustment; reduction in lease income for the abated and deferred amounts; however, no change in straight-line rental income. Any deferred amounts will be recognized as lease income when payment is received.

(v) Significant lease extension resulting in an increase in cash flows		Existing lease modification guidance under ASC 842 is followed.

See a discussion regarding lease concessions agreed with tenants as a result of the COVID-19 pandemic and related impact in Note 6 to the condensed consolidated financial statements.