Leases

6 Months Ended

Jun. 30, 2019

Lessor Accounting Under ASC 842

The Company’s properties generally are leased pursuant to non-cancelable, fixed-term operating leases with expiration dates through 2036. Some leases provide for fixed rent renewal terms in addition to market rent renewal terms. Some leases provide the lessee, during the term of the lease, with an option or right of first refusal to purchase the leased property.

The Company's leases typically have escalators that are either based on a stated percentage or an index such as CPI (consumer price index). In addition, most of the Company's leases include nonlease components such as reimbursement of operating expenses as additional rent or include the reimbursement of expected operating expenses as part of the lease payment. The Company adopted an accounting policy to combine lease and nonlease components. Rent escalators based on indices and reimbursements of operating expenses that are not included in the lease rate are considered variable lease payments. Variable payments are recognized in the periods when the information is known. As of June 30, 2019, the Company had one ground lease that is associated with a property under construction where rent has not yet commenced. Lease income for the Company's operating leases recognized for the three and six months ended June 30, 2019 was $114.4 million and $225.0 million, respectively.

Future lease payments under the non-cancelable operating leases, excluding any reimbursements, as of June 30, 2019 were as follows (in thousands):



2019	$	172,488
2020	313,354
2021	267,340
2022	229,297
2023	188,965
2024 and thereafter	524,957
	$	1,696,401

Lessor Accounting Under ASC 840

The Company’s properties are generally leased pursuant to non-cancelable, fixed-term operating leases with expiration dates through 2036. Some leases and financial arrangements provide for fixed rent renewal terms in addition to market rent renewal terms. Some leases provide the lessee, during the term of the lease and for a short period thereafter, with an option or a right of first refusal to purchase the leased property. The Company’s portfolio of single-tenant net leases generally requires the lessee to pay minimum rent and all taxes (including property tax), insurance, maintenance and other operating costs associated with the leased property.

Future minimum lease payments under the non-cancelable operating leases, excluding any reimbursements, as of December 31, 2018 were as follows (in thousands):



2019	$	326,441
2020	279,211
2021	235,660
2022	201,072
2023	163,978
2024 and thereafter	476,673
	$	1,683,035

Lessee Accounting Under ASC 842

As of June 30, 2019, the Company was obligated, as the lessee, under operating lease agreements consisting primarily of the Company’s ground leases. As of June 30, 2019, the Company had 108 properties, excluding one property classified as held for sale, totaling 9.0 million square feet that were held under ground leases with a remaining weighted average term of 54.8 years, excluding renewal options. Including renewal options, the remaining weighted average term would be 70.5 years. Some lease renewal terms are based on fixed rent renewal terms in addition to market rent renewal terms. These ground leases typically have initial terms of 40 to 99 years with expiration dates through 2117. Any rental increases related to the Company’s ground leases are generally either stated or based on the Consumer Price Index. The Company had 46 prepaid ground leases as of June 30, 2019. The amortization of the prepaid rent, included in the operating lease right-of-use asset represented approximately $0.2 million and $0.1 million of the Company’s rental expense for the three months ended June 30, 2019 and 2018, respectively and $0.3 million for the six months ended June 30, 2019 and 2018, respectively.

The Company’s future lease payments (primarily for its 62 non-prepaid ground leases) as of June 30, 2019 were as follows (in thousands):



	Operating			Financing
2019	$	1,912		$	214
2020	4,833			611
2021	4,862			619
2022	4,893			628
2023	4,931			637
2024 and thereafter	314,198			74,767
Total undiscounted lease payments	335,629			77,476
Discount	(244,573		)	(63,260		)
Lease liabilities	$	91,056		$	14,216

The following table provides a detail of the Company's total lease expense for the three and six months ended June 30, 2019 (in thousands):



	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost
Operating lease expense	$	1,163	$	2,279
Variable lease expense	795		1,535
Finance lease cost
Amortization of right-of-use assets	51		51
Interest on lease liabilities	196		196
Total lease expense	$	2,205	$	4,061

Other information
Operating cash flows outflows related to operating leases	$	1,402	$	4,173
Financing cash flows outflows related to financing leases	$	142	$	142
Right-of-use assets obtained in exchange for new finance lease liabilities	$	—	$	14,294

Weighted-average remaining lease term (excluding renewal options) - operating leases	54.5
Weighted-average remaining lease term (excluding renewal options) -finance leases	70.3
Weighted-average discount rate - operating leases	5.5%
Weighted-average discount rate - finance leases	5.9%

Lessee Accounting Under ASC 840

As of December 31, 2018, the Company was obligated under operating lease agreements consisting primarily of the Company’s ground leases. At December 31, 2018, the Company had 107 properties totaling 8.8 million square feet that were held under ground leases with a remaining weighted average term of 53.9 years, excluding renewal options. These ground leases typically have initial terms of 50 to 75 years with one or more renewal options extending the terms to 75 to 100 years, with expiration dates through 2117. Any rental increases related to the Company’s ground leases are generally either stated or based on the Consumer Price Index.

The Company’s future minimum lease payments (primarily for its 60 non-prepaid ground leases) as of December 31, 2018 were as follows (in thousands):



2019	$	5,288
2020	5,260
2021	5,238
2022	5,207
2023	5,224
2024 and thereafter	323,533
	$	349,750