Annual report pursuant to Section 13 and 15(d)

Leasing Agreements

v3.22.2.2
Leasing Agreements
 12 Months Ended
Dec. 31, 2021
Leases [Abstract]  
Lease Agreements Lease Agreements
Lessor

As a lessor, substantially all of our revenues are earned from arrangements that are within the scope of ASC 842. We account for lease and non-lease components as a single component which resulted in all of our revenues associated with leases being recorded as rental revenues in the consolidated statements of operations. For the years ended December 31, 2021, 2020 and 2019 we recorded a straight-line rent adjustment of $1.9 million, $4.4 million and $6.4 million, respectively, as an increase to rental revenues in our consolidated statements of operations to record revenues from executory costs on a straight-line basis. In addition, direct internal leasing costs are capitalized; however, indirect internal leasing costs are expensed. We only capitalize the portion of these types of costs incurred that are a direct result of an executed lease.

As of December 31, 2021, we were the lessor to over 2,200 stores in our 30 consolidated outlet centers, under operating leases with initial terms that expire from 2022 to 2035, with certain agreements containing extension options. We also have certain agreements which require tenants to pay their portion of reimbursable expenses such as common area expenses, utilities, insurance and real estate taxes.

For the years ended December 31, 2021, 2020 and 2019, the components of rental revenues are as follows (in thousands):
2021 2020 2019
Rental revenues - fixed $ 298,095  $ 289,676  $ 360,513 
Rental revenues - variable (1)
109,671  88,256  103,433 
Rental revenues $ 407,766  $ 377,932  $ 463,946 
(1)Primarily includes rents based on a percentage of tenant sales volume and reimbursable expenses such as common area expenses, utilities, insurance and real estate taxes.

Future minimum lease receipts under non-cancelable operating leases as of December 31, 2021, excluding the effect of straight-line rent and variable rentals, are as follows (in thousands) :
2022 $ 247,030 
2023 214,861 
2024 177,553 
2025 136,911 
2026 97,990 
Thereafter 167,935 
$ 1,042,280 

Lessee

As of December 31, 2021 and 2020 we have operating lease right-of-use assets $79.8 million and $81.5 million and operating lease liabilities of $88.9 million, and $90.1 million respectively. In March 2019, we sold our Ocean City outlet center, which had an operating lease right-of-use asset and operating lease liability of approximately $2.5 million. In 2020, we recorded impairment charges of $64.8 million in our consolidated statement of operations which equaled the excess of the carrying value of our Foxwoods outlet center over its estimated fair value of which $4.0 million of the impairment charge was allocated to the right-of-use asset. In 2021, we recorded an impairment charge of $7.0 million in our consolidated statement of operations which equaled the excess of the carrying value of our Foxwoods outlet center over its estimated fair value of which $563,000 of the impairment charge was allocated to the right-of-use asset.
Our non-cancelable operating leases, with terms in excess of one year, have terms, including certain extension options, that expire from 2028 to 2101. Certain extension options, which are reasonably certain at inception, are used in the calculation of our operating lease right-of-use assets based on the economic life of the asset. Leases with an initial term of 12 months or less (short-term leases) are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. The majority of our operating lease expense is related to ground leases at the following outlet centers: Myrtle Beach Hwy 17, Atlantic City, Sevierville, Riverhead, Foxwoods and Rehoboth Beach and the lease of our corporate office in Greensboro, North Carolina.

For the years ended December 31, 2021, 2020 and 2019, the components of lease costs are as follows (in thousands):
2021 2020 2019
Operating lease costs $ 5,511  $ 5,531  $ 5,519 
Short-term lease costs 1,465  2,511  2,297 
Variable lease costs (1)
276  295  231 
Total lease costs $ 7,252  $ 8,337  $ 8,047 
(1)Our variable lease costs relate to our ground leases where increases in payments are based on center financial performance.

The discount rate applied to measure each operating lease right-of-use asset and operating 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 based on the intended use of the underlying lease. The lease term and discount rates are as follows:
2021
Weighted - average remaining lease term (years) 48.81
Weighted - average discount rate 5.0  %

Cash flow information related to leases for the years ended December 31, 2021, 2020 and 2019 was as follows (in thousands):
December 31, 2021 December 31, 2020 December 31, 2019
Operating cash outflows related to operating leases $ 5,613  $ 5,568  $ 5,569 

Maturities of lease liabilities as of December 31, 2021 for the next five years and thereafter are as follows (in thousands):
2022 $ 5,669 
2023 5,709 
2024 5,765 
2025 5,816 
2026 5,854 
Thereafter 215,205 
Total lease payments $ 244,018 
Less imputed interest 155,144 
Present value of lease liabilities $ 88,874