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Note 12 - Leases

12 Months Ended

Dec. 31, 2021

12. Leases

Lessor Leases

The Company’s primary source of revenues is derived from lease agreements, which includes rental income and expense reimbursement. The Company’s lease income is comprised of minimum base rent, expense reimbursements, percentage rent, lease termination fee income, ancillary income, amortization of above-market and below-market rent adjustments and straight-line rent adjustments.

The disaggregation of the Company’s lease income, which is included in Revenue from rental properties, net on the Company’s Consolidated Statements of Operations, as either fixed or variable lease income based on the criteria specified in ASC 842, for the years ended December 31, 2021 and 2020, is as follows (in thousands):

	Year Ended December 31,
	2021		2020			2019
Lease income:
Fixed lease income (1)	$	1,045,888	$	871,151		$	880,694
Variable lease income (2)		264,040		232,272			246,226
Above-market and below-market leases amortization, net		14,843		22,515			20,010
Adjustments for potentially uncollectible revenues and disputed amounts (3)		24,931		(81,050	)		(4,596	)
Total lease income	$	1,349,702	$	1,044,888		$	1,142,334

(1)

Includes minimum base rents, expense reimbursements, ancillary income and straight-line rent adjustments.

(2)

Includes minimum base rents, expense reimbursements, percentage rent, lease termination fee income and ancillary income.

(3)

The amounts represent adjustments associated with potentially uncollectible revenues and disputed amounts primarily due to the COVID-19 pandemic.

Base rental revenues from rental properties are recognized on a straight-line basis over the terms of the related leases. The difference between the amount of rental income contracted through leases and rental income recognized on a straight-line basis for the years ended December 31, 2021, 2020 and 2019 was $20.8 million, ($6.9) million and $17.2 million, respectively.

The Company is primarily engaged in the operation of shopping centers that are either owned or held under long-term leases that expire at various dates through 2120. The Company, in turn, leases premises in these centers to tenants pursuant to lease agreements which provide for terms ranging generally from five to 25 years and for annual minimum rentals plus incremental rents based on operating expense levels and tenants' sales volumes. Annual minimum rentals plus incremental rents based on operating expense levels and percentage rents comprised 98% of total revenues from rental properties for each of the three years ended December 31, 2021, 2020 and 2019.

The minimum revenues expected to be received by the Company from rental properties under the terms of all non-cancelable tenant leases for future years, assuming no new or renegotiated leases are executed for such premises, are as follows (in millions):

		2022				2023				2024				2025				2026				Thereafter
Minimum revenues		$	1,186.1			$	1,066.7			$	922.6			$	780.2			$	636.4			$	2,779.2

Lessee Leases

The Company currently leases real estate space under non-cancelable operating lease agreements for ground leases and administrative office leases. The Company’s operating leases have remaining lease terms ranging from one to 64 years, some of which include options to extend the terms for up to an additional 75 years.

In connection with the Merger, the Company obtained $32.6 million of operating right-of-use assets in exchange for new operating lease liabilities related to six properties under operating lease agreements for ground leases. In addition, the Company acquired two properties under finance leasing arrangements that consists of variable lease payments with a bargain purchase option. As a result, the Company obtained finance right-of-use assets of $23.0 million (which are included in Other assets on the Company’s Consolidated Balance Sheets) in exchange for new finance lease liabilities (which are included in Other liabilities on the Company’s Consolidated Balance Sheets).

The weighted-average remaining non-cancelable lease term and weighted-average discount rates for the Company’s operating and finance leases as of December 31, 2021 were as follows:

	Operating Leases			Finance Leases
Weighted-average remaining lease term (in years)		25.6			2.0
Weighted-average discount rate		6.62	%		4.44	%

The components of the Company’s lease expense, which are included in interest expense, rent expense and general and administrative expense on the Company’s Consolidated Statements of Operations for the years ended December 31, 2021 and 2020, were as follows (in thousands):

	Year Ended December 31,
	2021		2020			2019
Lease cost:
Finance lease cost	$	569	$	-	$	-
Operating lease cost		11,637		10,371		12,630
Variable lease cost		3,972		2,852		2,038
Total lease cost	$	16,178	$	13,223	$	14,668

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating and financing lease liabilities (in thousands):

Year Ending December 31,
	Operating Leases			Financing Leases (1)
2022	$	12,688		$	1,709
2023		12,716			22,987
2024		11,894			-
2025		11,395			-
2026		10,742			-
Thereafter		215,413			-
Total minimum lease payments	$	274,848		$	24,696

Less imputed interest		(151,069	)		(1,956	)
Total lease liabilities (2)	$	123,779		$	22,740

(1)

Includes bargain purchase options exercisable in 2023 related to two properties.

(2)

Operating lease liabilities are included in Operating lease liabilities and financing lease liabilities are included in Other liabilities on the Company’s Consolidated Balance Sheets.