Leases

9 Months Ended

Sep. 30, 2020

Leases [Abstract]

Leases

Leases

Lessor Leases

The Company has operating leases in which it is the lessor for its rental property. Certain leases contain variable lease payments based upon changes in the Consumer Price Index (“CPI”). Certain leases contain options to renew or terminate the lease, and options for the lessee to purchase the rental property, all of which are predominately at the sole discretion of the lessee.

The following table summarizes the components of rental income recognized during the three and nine months ended September 30, 2020 and 2019 included in the accompanying Consolidated Statements of Operations.

	Three months ended September 30,				Nine months ended September 30,
Rental Income (in thousands)	2020		2019		2020		2019
Fixed lease payments	$	92,120	$	80,262	$	273,750	$	227,337
Variable lease payments	23,757		20,189		74,351		61,628
Straight-line rental income	2,852		3,091		8,602		8,667
Net decrease to rental income related to above and below market lease amortization	(1,482)		(1,248)		(3,646)		(3,361)
Total rental income	$	117,247	$	102,294	$	353,057	$	294,271

During the nine months ended September 30, 2020 and 2019 the Company evaluated its operating leases and determined that the future collectability for 10 tenants under 11 leases was not reasonably assured. As a result the Company converted to the cash basis of accounting for these leases which resulted in a reduction of rental income of approximately $0.8 million, $1.7 million, $0, and $0 for three and nine months ended September 30, 2020 and 2019, respectively, due to the reversal of accrued rent. Additionally, there was $0.9 million, $1.5 million, $0, and $0 of contractual rental income that was not recognized for payments that were not received from these tenants for the three and nine months ended September 30, 2020 and 2019, respectively.

As of September 30, 2020 and December 31, 2019, the Company had accrued rental income of approximately $54.6 million and $44.3 million, respectively, included in tenant accounts receivable on the accompanying Consolidated Balance Sheets.

As of September 30, 2020 and December 31, 2019, the Company had approximately $28.4 million and $22.6 million, respectively, of total lease security deposits available in the form of existing letters of credit, which are not reflected on the accompanying Consolidated Balance Sheets. As of September 30, 2020 and December 31, 2019, the Company had approximately $0.7 million and $0.7 million, respectively, of lease security deposits available in cash, which are included in restricted cash on the accompanying Consolidated Balance Sheets. The Company’s remaining lease security deposits are commingled in cash and cash equivalents. These funds may be used to settle tenant accounts receivables in the event of a default under the related lease. As of September 30, 2020 and December 31, 2019, the Company’s total liability associated with these lease security deposits was approximately $10.1 million and $9.8 million, respectively, and is included in tenant prepaid rent and security deposits on the accompanying Consolidated Balance Sheets.

The Company estimates that billings for real estate taxes, which are the responsibility of certain tenants under the terms of their leases and are not reflected on the Company’s consolidated financial statements, was approximately $5.0 million, $14.7 million, $5.1 million and $13.1 million for the three and nine months ended September 30, 2020 and 2019, respectively. These amounts would have been the maximum real estate tax expense of the Company, excluding any penalties or interest, had the tenants not met their contractual obligations for these periods.

The following table summarizes the maturity of fixed lease payments under the Company’s leases as of September 30, 2020.

Year	Maturity of Fixed Lease Payments (in thousands)
Remainder of 2020	$	92,565
2021	$	362,825
2022	$	327,365
2023	$	284,041
2024	$	240,067
Thereafter	$	911,977

Lessee Leases

The Company has operating leases in which it is the lessee for ground leases and its corporate office lease. These leases have remaining lease terms of approximately 5.8 years to 49.1 years. Certain ground leases contain options to extend the leases for ten years to 20 years, all of which are reasonably certain to be exercised, and are included in the computation of the Company’s right-of-use assets and operating lease liabilities.

The following table summarizes supplemental information related to operating lease right-of-use assets and operating lease liabilities recognized in the Company’s Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019.

Operating Lease Term and Discount Rate	September 30, 2020		December 31, 2019
Weighted average remaining lease term (years)	28.9		36.0
Weighted average discount rate	6.8	%	7.1	%

The following table summarizes the operating lease cost recognized during the three and nine months ended September 30, 2020 and 2019 included in the Company’s Consolidated Statements of Operations.

	Three months ended September 30,				Nine months ended September 30,
Operating Lease Cost (in thousands)	2020		2019		2020		2019
Operating lease cost included in property expense attributable to ground leases	$	345	$	331	$	1,007	$	993
Operating lease cost included in general and administrative expense attributable to corporate office lease	424		266		1,165		799
Total operating lease cost	$	769	$	597	$	2,172	$	1,792

The following table summarizes supplemental cash flow information related to operating leases recognized during the nine months ended September 30, 2020 and 2019 in the Company’s Consolidated Statements of Cash Flows.

	Nine months ended September 30,
Operating Leases (in thousands)	2020		2019
Cash paid for amounts included in the measurement of lease liabilities (operating cash flows)	$	1,728	$	1,711
Right-of-use assets obtained in exchange for new lease liabilities	$	7,718	$	—

The following table summarizes the maturity of operating lease liabilities under the Company’s ground leases and corporate office lease as of September 30, 2020.

Year	Maturity of Operating Lease Liabilities(1) (in thousands)
Remainder of 2020	$	606
2021	2,222
2022	3,100
2023	3,153
2024	3,196
Thereafter	59,245
Total lease payments	71,522
Less: Imputed interest	(45,108)
Present value of operating lease liabilities	$	26,414

(1)Operating lease liabilities do not include estimates of CPI rent changes required by certain ground lease agreements. Therefore, actual payments may differ than those presented.

Leases

Leases

Lessor Leases

The Company has operating leases in which it is the lessor for its rental property. Certain leases contain variable lease payments based upon changes in the Consumer Price Index (“CPI”). Certain leases contain options to renew or terminate the lease, and options for the lessee to purchase the rental property, all of which are predominately at the sole discretion of the lessee.

The following table summarizes the components of rental income recognized during the three and nine months ended September 30, 2020 and 2019 included in the accompanying Consolidated Statements of Operations.

	Three months ended September 30,				Nine months ended September 30,
Rental Income (in thousands)	2020		2019		2020		2019
Fixed lease payments	$	92,120	$	80,262	$	273,750	$	227,337
Variable lease payments	23,757		20,189		74,351		61,628
Straight-line rental income	2,852		3,091		8,602		8,667
Net decrease to rental income related to above and below market lease amortization	(1,482)		(1,248)		(3,646)		(3,361)
Total rental income	$	117,247	$	102,294	$	353,057	$	294,271

During the nine months ended September 30, 2020 and 2019 the Company evaluated its operating leases and determined that the future collectability for 10 tenants under 11 leases was not reasonably assured. As a result the Company converted to the cash basis of accounting for these leases which resulted in a reduction of rental income of approximately $0.8 million, $1.7 million, $0, and $0 for three and nine months ended September 30, 2020 and 2019, respectively, due to the reversal of accrued rent. Additionally, there was $0.9 million, $1.5 million, $0, and $0 of contractual rental income that was not recognized for payments that were not received from these tenants for the three and nine months ended September 30, 2020 and 2019, respectively.

As of September 30, 2020 and December 31, 2019, the Company had accrued rental income of approximately $54.6 million and $44.3 million, respectively, included in tenant accounts receivable on the accompanying Consolidated Balance Sheets.

As of September 30, 2020 and December 31, 2019, the Company had approximately $28.4 million and $22.6 million, respectively, of total lease security deposits available in the form of existing letters of credit, which are not reflected on the accompanying Consolidated Balance Sheets. As of September 30, 2020 and December 31, 2019, the Company had approximately $0.7 million and $0.7 million, respectively, of lease security deposits available in cash, which are included in restricted cash on the accompanying Consolidated Balance Sheets. The Company’s remaining lease security deposits are commingled in cash and cash equivalents. These funds may be used to settle tenant accounts receivables in the event of a default under the related lease. As of September 30, 2020 and December 31, 2019, the Company’s total liability associated with these lease security deposits was approximately $10.1 million and $9.8 million, respectively, and is included in tenant prepaid rent and security deposits on the accompanying Consolidated Balance Sheets.

The Company estimates that billings for real estate taxes, which are the responsibility of certain tenants under the terms of their leases and are not reflected on the Company’s consolidated financial statements, was approximately $5.0 million, $14.7 million, $5.1 million and $13.1 million for the three and nine months ended September 30, 2020 and 2019, respectively. These amounts would have been the maximum real estate tax expense of the Company, excluding any penalties or interest, had the tenants not met their contractual obligations for these periods.

The following table summarizes the maturity of fixed lease payments under the Company’s leases as of September 30, 2020.

Year	Maturity of Fixed Lease Payments (in thousands)
Remainder of 2020	$	92,565
2021	$	362,825
2022	$	327,365
2023	$	284,041
2024	$	240,067
Thereafter	$	911,977

Lessee Leases

The Company has operating leases in which it is the lessee for ground leases and its corporate office lease. These leases have remaining lease terms of approximately 5.8 years to 49.1 years. Certain ground leases contain options to extend the leases for ten years to 20 years, all of which are reasonably certain to be exercised, and are included in the computation of the Company’s right-of-use assets and operating lease liabilities.

The following table summarizes supplemental information related to operating lease right-of-use assets and operating lease liabilities recognized in the Company’s Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019.

Operating Lease Term and Discount Rate	September 30, 2020		December 31, 2019
Weighted average remaining lease term (years)	28.9		36.0
Weighted average discount rate	6.8	%	7.1	%

The following table summarizes the operating lease cost recognized during the three and nine months ended September 30, 2020 and 2019 included in the Company’s Consolidated Statements of Operations.

	Three months ended September 30,				Nine months ended September 30,
Operating Lease Cost (in thousands)	2020		2019		2020		2019
Operating lease cost included in property expense attributable to ground leases	$	345	$	331	$	1,007	$	993
Operating lease cost included in general and administrative expense attributable to corporate office lease	424		266		1,165		799
Total operating lease cost	$	769	$	597	$	2,172	$	1,792

The following table summarizes supplemental cash flow information related to operating leases recognized during the nine months ended September 30, 2020 and 2019 in the Company’s Consolidated Statements of Cash Flows.

	Nine months ended September 30,
Operating Leases (in thousands)	2020		2019
Cash paid for amounts included in the measurement of lease liabilities (operating cash flows)	$	1,728	$	1,711
Right-of-use assets obtained in exchange for new lease liabilities	$	7,718	$	—

The following table summarizes the maturity of operating lease liabilities under the Company’s ground leases and corporate office lease as of September 30, 2020.

Year	Maturity of Operating Lease Liabilities(1) (in thousands)
Remainder of 2020	$	606
2021	2,222
2022	3,100
2023	3,153
2024	3,196
Thereafter	59,245
Total lease payments	71,522
Less: Imputed interest	(45,108)
Present value of operating lease liabilities	$	26,414

(1)Operating lease liabilities do not include estimates of CPI rent changes required by certain ground lease agreements. Therefore, actual payments may differ than those presented.