Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. TAUBMAN CENTERS INC (890319) 10-Q published on May 01, 2019 at 2:20 pm
Reporting Period: Mar 30, 2019
We implemented ASC Topic 842 using certain practical expedients. As a result of these elections, we did not reassess whether any existing contracts contained a lease, the lease classification of existing leases, or the initial direct costs of existing leases. In addition, in instances where we are the lessor, we elected to not separate non-lease components, most significantly certain common area maintenance recoveries, from the associated lease components. Due to this election, minimum rents and expense recoveries were combined into a single revenue line item, Rental Revenues, on our Consolidated Statement of Operations and Comprehensive Income (Loss). We also elected the optional transition method to apply the provisions of ASC Topic 842 as of the adoption date, rather than the earliest period presented. As such, the requirements of ASC Topic 842 were not applied in the comparative periods presented in our consolidated financial statements.
In order to determine the operating lease liabilities and related right-of-use assets for ground and office leases under which we are the lessee, we utilized a synthetic corporate yield curve to determine an incremental borrowing rate for each of our leases. Significant judgment was required to develop the yield curve, which utilized certain peer and market observations. As of March 31, 2019, the weighted average discount rate for operating leases reported on our Consolidated Balance Sheet was 6.2%. In instances where variable consideration not dependent upon an index or rate existed, such future payments were excluded from the determination of the related operating lease liability and right-of-use asset.
In connection with the adoption of ASC Topic 842, we now review the collectibility of both billed and accrued charges under our tenant leases each quarter taking into consideration the tenant’s historical payment status, credit profile, and known issues related to tenant operations. For any tenant receivable balances thought to be uncollectible, we now record an offset for uncollectible tenant revenues directly to Rental Revenues on the Consolidated Statement of Operations and Comprehensive Income (Loss). Uncollectible tenant revenues were previously reported as bad debt expense in Other Operating expense on our Consolidated Statement of Operations and Comprehensive Income (Loss). Our allowance for doubtful accounts as of December 31, 2018 was $10.4 million.
In April 2019, we acquired a 48.5% interest in The Gardens Mall in Palm Beach Gardens, Florida in exchange for 1.5 million units of limited partnership in TRG (TRG Units). We assumed our $94.6 million share of the existing debt at the center, which bears interest at 6.8% and matures in July 2025. The debt assumed will be adjusted for our beneficial share of $27.6 million of purchase accounting adjustments, which will have the effect of reducing the stated rate on the debt of 6.8% to an average effective rate of 4.2% over the remaining term of the loan. The Forbes Company, our partner in The Mall at Millenia and Waterside Shops, also owns a 48.5% interest and manages and leases the center. Our ownership interest in the center will be accounted for as an Unconsolidated Joint Venture under the equity method.
We now recognize operating lease liabilities and related right-of-use assets for ground and office leases under which we are the lessee on our Consolidated Balance Sheet. These lease liabilities and related right-of-use assets will amortize over the remaining life of the respective leases. In order to determine the operating lease liabilities and related right-of-use assets for ground and office leases under which we are the lessee, we utilized a synthetic corporate yield curve to determine an incremental borrowing rate for each of our leases. Significant judgment was required to develop the yield curve, which utilized certain peer and market observations. As of March 31, 2019, the weighted average discount rate for operating leases reported on our Consolidated Balance Sheet was 6.2%. In instances where variable consideration not dependent upon an index or rate existed, such future payments were excluded from the determination of the related operating lease liability and right-of-use asset.