Leases

12 Months Ended

Dec. 31, 2020

As lessor

We lease space to tenants under operating leases. Most of the leases provide for the payment of fixed base rent payable monthly in advance. Office building leases generally require tenants to reimburse us for operating costs and real estate taxes above their base year costs. Certain leases provide for pass-through to tenants for their share of real estate taxes, insurance and common area maintenance. Certain leases also require additional variable rent payments based on a percentage of the tenants’ sales.

As of December 31, 2020, future undiscounted cash flows under non-cancelable operating leases were as follows:


(Amounts in thousands)	As of December 31, 2020
For the year ended December 31,
2021	$	1,230,675
2022	1,227,742
2023	1,161,730
2024	995,588
2025	876,497
Thereafter	5,090,824

As lessee

We have a number of ground leases which are classified as operating leases. As of December 31, 2020, our ROU assets and lease liabilities were $367,365,000 and $401,008,000, respectively. As of December 31, 2019, our ROU assets and lease liabilities were $379,546,000 and $498,254,000, respectively.

The discount rate applied to measure each ROU asset and lease liability is based on our incremental borrowing rate ("IBR"). We consider the general economic environment and our credit rating and factor in various financing and asset specific adjustments to ensure the IBR is appropriate to the intended use of the underlying lease. Certain of our ground leases offer renewal options which we assess against relevant economic factors to determine whether we are reasonably certain of exercising or not exercising the option. Lease payments associated with renewal periods that we are reasonably certain will be exercised are included in the measurement of the lease liability and corresponding ROU asset.

Certain of our ground leases are subject to fair market rent resets based on a percentage of the appraised value of the underlying assets at specified future dates. Fair market rent resets do not give rise to remeasurement of the related ROU assets and lease liabilities. Fair market rent resets, which may be material, will be recognized in the periods in which they are incurred.

The following table sets forth information related to the measurement of our lease liabilities as of December 31, 2020 and 2019:


(Amounts in thousands)	For the Year Ended December 31,
	2020			2019
Weighted average remaining lease term (in years)	44.8			40.2
Weighted average discount rate	4.91		%	4.84		%
Cash paid for operating leases	$	23,932		$	27,817

We recognize rent expense as a component of "operating" expenses on our consolidated statements of income. Rent expense is comprised of fixed and variable lease payments. Variable lease payments include percentage rent and rent resets based on an index or rate. The following table sets forth the details of rent expense for the years ended December 31, 2020 and 2019:


(Amounts in thousands)	For the Year Ended December 31,
	2020		2019
Fixed rent expense	$	28,503	$	33,738
Variable rent expense	1,178		1,978
Rent expense	$	29,681	$	35,716

As of December 31, 2020, future lease payments under operating ground leases were as follows:


(Amounts in thousands)	As of December 31, 2020
For the year ended December 31,
2021	$	22,010
2022	23,669
2023	24,002
2024	24,354
2025	24,722
Thereafter	926,139
Total undiscounted cash flows	1,044,896
Present value discount	(643,888)
Lease liabilities	$	401,008

20. Leases - continued

As lessee - continued

Farley Office and Retail

The future lease payments detailed on the previous page exclude the ground and building lease at Farley Office and Retail. Our 95% consolidated joint venture which is developing Farley Office and Retail has a 99-year triple-net lease with Empire State Development ("ESD") for 844,000 rentable square feet of commercial space, comprised of approximately 730,000 square feet of office space and approximately 114,000 square feet of restaurant and retail space. The joint venture entered into a development agreement with ESD to build the adjacent Moynihan Train Hall and entered into a design-build contract with Skanska Moynihan Train Hall Builders ("Skanska"), pursuant to which they built Moynihan Train Hall. Skanska substantially completed construction on December 31, 2020, thereby fulfilling this obligation to ESD. The joint venture leased the entire property during the construction period and pursuant to ASC 842-40-55, was required to recognize all development expenditures for Moynihan Train Hall. Accordingly, the development expenditures paid for by governmental agencies were presented as “Moynihan Train Hall development expenditures” with a corresponding obligation recorded to “Moynihan Train Hall Obligation” on our consolidated balance sheets. On December 31, 2020, upon substantial completion of Moynihan Train Hall, the portions of the property not pertaining to our commercial space were severed from the joint venture's lease with ESD and we removed the "Moynihan Train Hall development expenditures" and the offsetting “Moynihan Train Hall obligation” from our consolidated balance sheets.

Our lease of the commercial space at the property is accounted for as a “failed sale-leaseback” as a result of the lease meeting "finance lease" classification pursuant to ASC 842-40-25. The lease calls for annual rent payments of $5,000,000 plus fixed payments in lieu of real estate taxes ("PILOT") through June 2030. Following the fixed PILOT payment period, the PILOT is calculated in a manner consistent with buildings subject to New York City real estate taxes and assessments. As of December 31, 2020, future rent and fixed PILOT payments are $549,861,000.