Leases

3 Months Ended

Mar. 31, 2020

Leases [Abstract]

Leases

Leases

Lessor Accounting

The Company’s properties generally are leased pursuant to non-cancelable, fixed-term operating leases with expiration dates through 2035. 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 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.

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 period earned. Lease income for the Company's operating leases recognized for the three months ended March 31, 2020 was $122.6 million.

Future lease payments under the non-cancelable operating leases, excluding any reimbursements, as of March 31, 2020 were as follows:

In thousands
2020	$	280,413
2021	335,188
2022	294,771
2023	250,284
2024	193,772
2025 and thereafter	514,144
	$	1,868,572

Lessee Accounting

As of March 31, 2020, the Company was obligated, as the lessee, under operating lease agreements consisting primarily of the Company’s ground leases. As of March 31, 2020, the Company had 104 properties totaling 8.7 million square feet that were held under ground leases. Some of the ground leases' renewal terms are based on fixed rent renewal terms and others have 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 CPI. The Company had 42 prepaid ground leases as of March 31, 2020. 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 March 31, 2020 and March 31, 2019, respectively.

The Company’s future lease payments (primarily for its 62 non-prepaid ground leases) as of March 31, 2020 were as follows:

In thousands	OPERATING			FINANCING
2020	$	3,113		$	429
2021	4,844			754
2022	4,875			763
2023	4,913			774
2024	4,969			795
2025 and thereafter	307,665			83,404
Total undiscounted lease payments	330,379			86,919
Discount	(239,286		)	(68,966		)
Lease liabilities	$	91,093		$	17,953

The following table provides details of the Company's total lease expense for the three months ended March 31, 2020 and 2019:

	THREE MONTHS ENDED MARCH 31,
In thousands	2020			2019
Operating lease cost
Operating lease expense	$	1,174		$	1,116
Variable lease expense	800			740
Finance lease cost
Amortization of right-of-use assets	70			—
Interest on lease liabilities	237			—
Total lease expense	$	2,281		$	1,856
Other information
Operating cash flows outflows related to operating leases	$	2,550		$	2,771
Financing cash flows outflows related to financing leases	$	321		$	—
Right-of-use assets obtained in exchange for new finance lease liabilities	$	—		$	—
Weighted-average remaining lease term (excluding renewal options) - operating leases	49.4			54.0
Weighted-average remaining lease term (excluding renewal options) -finance leases	64.9			—
Weighted-average discount rate - operating leases	5.7		%	5.5		%
Weighted-average discount rate - finance leases	5.4		%	—		%

Leases

Leases

Lessor Accounting

The Company’s properties generally are leased pursuant to non-cancelable, fixed-term operating leases with expiration dates through 2035. 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 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.

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 period earned. Lease income for the Company's operating leases recognized for the three months ended March 31, 2020 was $122.6 million.

Future lease payments under the non-cancelable operating leases, excluding any reimbursements, as of March 31, 2020 were as follows:

In thousands
2020	$	280,413
2021	335,188
2022	294,771
2023	250,284
2024	193,772
2025 and thereafter	514,144
	$	1,868,572

Lessee Accounting

As of March 31, 2020, the Company was obligated, as the lessee, under operating lease agreements consisting primarily of the Company’s ground leases. As of March 31, 2020, the Company had 104 properties totaling 8.7 million square feet that were held under ground leases. Some of the ground leases' renewal terms are based on fixed rent renewal terms and others have 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 CPI. The Company had 42 prepaid ground leases as of March 31, 2020. 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 March 31, 2020 and March 31, 2019, respectively.

The Company’s future lease payments (primarily for its 62 non-prepaid ground leases) as of March 31, 2020 were as follows:

In thousands	OPERATING			FINANCING
2020	$	3,113		$	429
2021	4,844			754
2022	4,875			763
2023	4,913			774
2024	4,969			795
2025 and thereafter	307,665			83,404
Total undiscounted lease payments	330,379			86,919
Discount	(239,286		)	(68,966		)
Lease liabilities	$	91,093		$	17,953

The following table provides details of the Company's total lease expense for the three months ended March 31, 2020 and 2019:

	THREE MONTHS ENDED MARCH 31,
In thousands	2020			2019
Operating lease cost
Operating lease expense	$	1,174		$	1,116
Variable lease expense	800			740
Finance lease cost
Amortization of right-of-use assets	70			—
Interest on lease liabilities	237			—
Total lease expense	$	2,281		$	1,856
Other information
Operating cash flows outflows related to operating leases	$	2,550		$	2,771
Financing cash flows outflows related to financing leases	$	321		$	—
Right-of-use assets obtained in exchange for new finance lease liabilities	$	—		$	—
Weighted-average remaining lease term (excluding renewal options) - operating leases	49.4			54.0
Weighted-average remaining lease term (excluding renewal options) -finance leases	64.9			—
Weighted-average discount rate - operating leases	5.7		%	5.5		%
Weighted-average discount rate - finance leases	5.4		%	—		%