Leases

6 Months Ended

Jun. 30, 2023

Leases

Leases

Note 3 – Leases

Tenant Leases

The Company is primarily focused on the ownership, acquisition, development and management of retail properties leased to industry leading tenants.  As of June 30, 2023, the Company’s portfolio was approximately 99.7% leased and had a weighted average remaining lease term (excluding extension options) of approximately 8.6 years. A significant majority of its properties are leased to national tenants and approximately 67.9% of its annualized base rent was derived from tenants, or parent entities thereof, with an investment grade credit rating from S&P Global Ratings, Moody’s Investors Service, Fitch Ratings or the National Association of Insurance Commissioners.

Substantially all of the Company’s tenants are subject to net lease agreements. A net lease typically requires the tenant to be responsible for minimum monthly rent and actual property operating expenses incurred, including property taxes, insurance and maintenance. In addition, the Company’s tenants are typically subject to future rent increases based on fixed amounts or increases in the consumer price index and certain leases provide for additional rent calculated as a percentage of the tenants’ gross sales above a specified level.  Certain of the Company’s properties are subject to leases under which it retains responsibility for specific costs and expenses of the property.

The Company’s leases typically provide the tenant one or more multi-year renewal options to extend their leases, subject to generally the same terms and conditions, including rent increases, consistent with the initial lease term.

The Company attempts to maximize the amount it expects to derive from the underlying real estate property following the end of the lease, to the extent it is not extended.  The Company maintains a proactive leasing program that, combined with the quality and locations of its properties, has made its properties attractive to tenants. The Company intends to continue to hold its properties for long-term investment and, accordingly, places a strong emphasis on the quality of construction and an on-going program of regular and preventative maintenance.

The Company has elected the practical expedient in ASC 842 on not separating non-lease components from associated lease components.  The lease and non-lease components combined as a result of this election largely include tenant rentals and maintenance charges, respectively. The Company applies the accounting requirements of ASC 842 to the combined component.

The following table includes information regarding contractual lease payments for the Company’s operating leases for which it is the lessor, for the three and six months ended June 30, 2023 and 2022 (presented in thousands):

	Three Months Ended				Six Months Ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Total lease payments	$	135,691	$	110,062	$	267,842	$	213,424
Less: Operating cost reimbursements and percentage rents		14,731		11,770		31,122		23,684
Total non-variable lease payments	$	120,960	$	98,292	$	236,720	$	189,740

At June 30, 2023, future non-variable lease payments to be received from the Company’s operating leases for the remainder of 2023, the following four years, and thereafter are as follows (presented in thousands):

	2023
Year Ending December 31,	(remaining)		2024		2025		2026		2027		Thereafter		Total
Future non-variable lease payments	$	256,759	$	510,508	$	500,458	$	481,143	$	455,808	$	2,449,906	$	4,654,582

Deferred Revenue

As of June 30, 2023 and December 31, 2022, there was $20.8 million and $18.1 million, respectively, in deferred revenues resulting from rents paid in advance. Deferred revenues are recognized within accounts payable, accrued expenses, and other liabilities on the Condensed Consolidated Balance Sheets as of these dates.

Land Lease Obligations

The Company is the lessee under land lease agreements for certain of its properties. ASC 842 requires a lessee to recognize right of use assets and lease obligation liabilities that arise from leases, whether qualifying as operating or finance.  As of June 30, 2023 and December 31, 2022, the Company had $60.5 million and $60.9 million, respectively, of right of use assets, net, recognized within other assets in the Condensed Consolidated Balance Sheets, while the corresponding lease obligations, net, of $23.3 million and $23.6 million, respectively, were recognized within accounts payable, accrued expenses, and other liabilities on the Condensed Consolidated Balance Sheets as of these dates.  

The Company’s land leases do not include any variable lease payments. These leases typically provide multi-year renewal options to extend their term as lessee at the Company’s option. Option periods are included in the calculation of the lease obligation liability only when options are reasonably certain to be exercised. Certain of the Company’s land leases qualify as finance leases as a result of purchase options that are reasonably certain of being exercised or automatic transfer of title to the Company at the end of the lease term.

Amortization of right of use assets for operating land leases is classified as land lease expense and was $0.4 million for the three months ended June 30, 2023 and 2022 and $0.8 million for the six months ended June 30, 2023 and 2022. There was no amortization of right of use assets for finance land leases, as the underlying leased asset (land) has an infinite life.  Interest expense on finance land leases was less than $0.1 million during the three months ended June 30, 2023 and 2022 and $0.1 million for the six months ended June 30, 2023 and 2022.

In calculating its lease obligations under ground leases, the Company uses discount rates estimated to be equal to what it would have to pay to borrow on a collateralized basis over a similar term, for an amount equal to the lease payments, in a similar economic environment.

The following tables include information on the Company’s land leases for which it is the lessee, for the three and six months ended June 30, 2023 and 2022. (presented in thousands)

	Three Months Ended				Six Months Ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Operating leases:
Operating cash outflows	$	299	$	301	$	598	$	598
Weighted-average remaining lease term - operating leases (years)		33.4		33.7		33.4		33.7
Finance leases:
Operating cash outflows	$	63	$	64	$	126	$	128
Financing cash outflows	$	21	$	20	$	42	$	40
Weighted-average remaining lease term - finance leases (years)		1.3		2.3		1.3		2.3

The weighted-average discount rate used in computing operating and finance lease obligations approximated 4% at June 30, 2023 and 2022.

The following is a maturity analysis of lease liabilities for operating land leases as of June 30, 2023 for the remainder of 2023 and the following four years. (presented in thousands)

	2023
Year Ending December 31,	(remaining)		2024		2025		2026		2027		Thereafter		Total
Lease payments	$	598	$	1,197	$	1,197	$	1,195	$	1,042	$	28,809	$	34,038
Imputed interest		(353)		(690)		(669)		(647)		(627)		(13,864)		(16,850)
Total lease liabilities	$	245	$	507	$	528	$	548	$	415	$	14,945	$	17,188

The following is a maturity analysis of lease liabilities for finance land leases as of June 30, 2023 for the remainder of 2023 and the following four years. (presented in thousands)

	2023
Year Ending December 31,	(remaining)		2024		2025		2026		2027		Thereafter		Total
Lease payments	$	168	$	6,252	$	—	$	—	$	—	$	—	$	6,420
Imputed interest		(125)		(207)		—		—		—		—		(332)
Total lease liabilities	$	43	$	6,045	$	—	$	—	$	—	$	—	$	6,088