Operating Leases

3 Months Ended

Mar. 31, 2020

Leases [Abstract]

Lessor Operating Leases

Operating Leases

Lessor

We lease industrial space to tenants primarily under non-cancelable operating leases that generally contain provisions for minimum base rents plus reimbursement for certain operating expenses. Total minimum lease payments are recognized in rental income on a straight-line basis over the term of the related lease and estimated reimbursements from tenants for real estate taxes, insurance, common area maintenance and other recoverable operating expenses are recognized in rental income in the period that the expenses are incurred.

We recognized $75.1 million of rental income related to operating lease payments of which $62.9 million are for fixed lease payments and $12.2 million are for variable lease payments for the three months ended March 31, 2020, respectively. For the comparable three month-period ended March 31, 2019, we recognized $57.9 million of rental income related to operating lease payments of which $48.5 million was for fixed lease payments and $9.3 million was for variable lease payments.

The following table sets forth the undiscounted cash flows for future minimum base rents to be received under operating leases as of March 31, 2020 (in thousands):

Twelve Months Ended March 31,
2021	$	247,146
2022	212,374
2023	172,010
2024	132,910
2025	93,438
Thereafter	298,695
Total	$	1,156,573

The future minimum base rents in the table above excludes tenant reimbursements of operating expenses, amortization of adjustments for deferred rent receivables and the amortization of above/below-market lease intangibles.

Lessee    

We lease office space as part of conducting our day-to-day business. As of March 31, 2020, our office space leases have remaining lease terms ranging from approximately 1 month to 5 years and some include options to renew. These renewal terms can extend the lease term from 3 to 5 years and are included in the lease term when it is reasonably certain that we will exercise the option.

As of March 31, 2020, total ROU assets and lease liabilities were approximately $4.3 million and $5.0 million, respectively. As of December 31, 2019, total ROU assets and lease liabilities were approximately $3.5 million and $3.8 million, respectively. All operating lease expense is recognized on a straight-line basis over the lease term.

The tables below present financial information associated with our leases for the three months ended March 31, 2020 and 2019, and as of March 31, 2020 and December 31, 2019.

	Three Months Ended March 31,
Lease Cost (in thousands)	2020		2019
Operating lease cost(1)	$	305	$	260
Variable lease cost(1)	12		13
Sublease income(2)	—		(79		)
Total lease cost	$	317	$	194

(1) Amounts are included in “General and administrative” and “Property expenses” in the accompanying consolidated statements of operations.

(2) Amount is included in “Rental income” in the accompanying consolidated statements of operations.

	Three Months Ended March 31,
Other Information (in thousands)	2020		2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	180	$	239
Right-of-use assets obtained in exchange for new operating lease liabilities(1)	$	1,014	$	6,720

(1) For the three months ended March 31, 2019, the reported amount includes $3.3 million for operating leases existing on January 1, 2019, the date we adopted ASC 842.

Lease Term and Discount Rate	March 31, 2020		December 31, 2019
Weighted-average remaining lease term	4.6 years		4.7 years
Weighted-average discount rate(1)	3.68	%	3.92	%

(1) Because the rate implicit in each of our leases was not readily determinable, we used our incremental borrowing rate. In determining our incremental borrowing rate for each lease, we considered recent rates on secured borrowings, observable risk-free interest rates and credit spreads correlating to our creditworthiness, the impact of collateralization and the term of

each of our lease agreements.

Maturities of lease liabilities as of March 31, 2020 were as follows (in thousands):

April 1, 2020 - December 31, 2020	$	872
2021	1,091
2022	1,093
2023	1,131
2024	1,161
Thereafter	97
Total undiscounted lease payments	$	5,445
Less imputed interest	(468		)
Total lease liabilities	$	4,977

We have one operating lease for office space of $1.9 million which has not commenced as March 31, 2020, and as such, has not been recognized on our consolidated balance sheets. This operating lease is expected to commence in 2020 and has a 5-year lease term.

Lessee Operating Leases

Operating Leases

Lessor

We lease industrial space to tenants primarily under non-cancelable operating leases that generally contain provisions for minimum base rents plus reimbursement for certain operating expenses. Total minimum lease payments are recognized in rental income on a straight-line basis over the term of the related lease and estimated reimbursements from tenants for real estate taxes, insurance, common area maintenance and other recoverable operating expenses are recognized in rental income in the period that the expenses are incurred.

We recognized $75.1 million of rental income related to operating lease payments of which $62.9 million are for fixed lease payments and $12.2 million are for variable lease payments for the three months ended March 31, 2020, respectively. For the comparable three month-period ended March 31, 2019, we recognized $57.9 million of rental income related to operating lease payments of which $48.5 million was for fixed lease payments and $9.3 million was for variable lease payments.

The following table sets forth the undiscounted cash flows for future minimum base rents to be received under operating leases as of March 31, 2020 (in thousands):

Twelve Months Ended March 31,
2021	$	247,146
2022	212,374
2023	172,010
2024	132,910
2025	93,438
Thereafter	298,695
Total	$	1,156,573

The future minimum base rents in the table above excludes tenant reimbursements of operating expenses, amortization of adjustments for deferred rent receivables and the amortization of above/below-market lease intangibles.

Lessee    

We lease office space as part of conducting our day-to-day business. As of March 31, 2020, our office space leases have remaining lease terms ranging from approximately 1 month to 5 years and some include options to renew. These renewal terms can extend the lease term from 3 to 5 years and are included in the lease term when it is reasonably certain that we will exercise the option.

As of March 31, 2020, total ROU assets and lease liabilities were approximately $4.3 million and $5.0 million, respectively. As of December 31, 2019, total ROU assets and lease liabilities were approximately $3.5 million and $3.8 million, respectively. All operating lease expense is recognized on a straight-line basis over the lease term.

The tables below present financial information associated with our leases for the three months ended March 31, 2020 and 2019, and as of March 31, 2020 and December 31, 2019.

	Three Months Ended March 31,
Lease Cost (in thousands)	2020		2019
Operating lease cost(1)	$	305	$	260
Variable lease cost(1)	12		13
Sublease income(2)	—		(79		)
Total lease cost	$	317	$	194

(1) Amounts are included in “General and administrative” and “Property expenses” in the accompanying consolidated statements of operations.

(2) Amount is included in “Rental income” in the accompanying consolidated statements of operations.

	Three Months Ended March 31,
Other Information (in thousands)	2020		2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	180	$	239
Right-of-use assets obtained in exchange for new operating lease liabilities(1)	$	1,014	$	6,720

(1) For the three months ended March 31, 2019, the reported amount includes $3.3 million for operating leases existing on January 1, 2019, the date we adopted ASC 842.

Lease Term and Discount Rate	March 31, 2020		December 31, 2019
Weighted-average remaining lease term	4.6 years		4.7 years
Weighted-average discount rate(1)	3.68	%	3.92	%

(1) Because the rate implicit in each of our leases was not readily determinable, we used our incremental borrowing rate. In determining our incremental borrowing rate for each lease, we considered recent rates on secured borrowings, observable risk-free interest rates and credit spreads correlating to our creditworthiness, the impact of collateralization and the term of

each of our lease agreements.

Maturities of lease liabilities as of March 31, 2020 were as follows (in thousands):

April 1, 2020 - December 31, 2020	$	872
2021	1,091
2022	1,093
2023	1,131
2024	1,161
Thereafter	97
Total undiscounted lease payments	$	5,445
Less imputed interest	(468		)
Total lease liabilities	$	4,977

We have one operating lease for office space of $1.9 million which has not commenced as March 31, 2020, and as such, has not been recognized on our consolidated balance sheets. This operating lease is expected to commence in 2020 and has a 5-year lease term.