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Section 1: 10-Q (10-Q)

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false--12-31Q220190000828916WEINGARTEN REALTY INVESTORS /TX/68550000000.3950.3950.3950.3950.030.032750000002750000001283330001286700001283330001286700000.01250.0090.01250.0096000000000.0700.0330.040P30D100000010000000.900.205000000310300062040000.00100.00150.00100.00150.000500.0005212000006000003100000060900000181500000P6M2291Consolidated variable interest entities' assets and debt included in the above balances (see Note 15) at June 30, 2019 and December 31, 2018 are Property, net of $198,884 and $198,466; Accrued Rent, Accrued Contract Receivables and Accounts Receivable, net of $9,217 and $12,220; Cash and Cash Equivalents of $9,193 and $8,243; Debt, net of $45,388 and $45,774. 0000828916 2019-01-01 2019-06-30 0000828916 2019-07-29 0000828916 2018-01-01 2018-06-30 0000828916 2018-04-01 2018-06-30 0000828916 2019-04-01 2019-06-30 0000828916 2018-12-31 0000828916 2019-06-30 0000828916 2017-12-31 0000828916 2018-06-30 0000828916 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from [                    ] to [                    ]
Commission file number 1-9876
Weingarten Realty Investors
(Exact name of registrant as specified in its charter)
Texas
74-1464203
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
 
2600 Citadel Plaza Drive
 
P.O. Box 924133
 
Houston,
Texas
77292-4133
(Address of principal executive offices)
(Zip Code)
(713)
866-6000
(Registrant's telephone number, including area code)
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol(s)
 
Name of Each Exchange on Which Registered
Common Shares of Beneficial Interest, $.03 par value
 
WRI
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesNo
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YesNo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
Accelerated filer
 
Non-accelerated filer
 
Smaller reporting company
 
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     YesNo
As of July 29, 2019, there were 128,670,372 common shares of beneficial interest of Weingarten Realty Investors, $.03 par value, outstanding.


Table of Contents

TABLE OF CONTENTS
PART I.
 
Financial Information:
Page Number
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
PART II.
 
Other Information:
 
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
Item 5.
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 
 
 
 
 
 

2


Table of Contents

PART I-FINANCIAL INFORMATION
ITEM 1. Financial Statements
WEINGARTEN REALTY INVESTORS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
Rentals, net
$
119,462

 
$
138,737

 
$
239,288

 
$
267,885

Other
3,198

 
3,349

 
6,510

 
6,653

Total Revenues
122,660

 
142,086

 
245,798

 
274,538

Operating Expenses:
 
 
 
 
 
 
 
Depreciation and amortization
34,967

 
50,421

 
68,939

 
88,516

Operating
22,767

 
24,104

 
47,015

 
47,374

Real estate taxes, net
15,736

 
17,466

 
31,867

 
35,105

Impairment loss

 

 
74

 

General and administrative
8,880

 
6,149

 
18,461

 
11,744

Total Operating Expenses
82,350

 
98,140

 
166,356

 
182,739

Other Income (Expense):


 


 


 


Interest expense, net
(14,953
)
 
(17,017
)
 
(30,242
)
 
(31,689
)
Interest and other income (expense)
1,921

 
1,355

 
6,305

 
2,888

Gain on sale of property
52,061

 
46,953

 
69,848

 
155,998

Total Other Income
39,029

 
31,291

 
45,911

 
127,197

Income Before Income Taxes and Equity in Earnings of Real Estate Joint Ventures and Partnerships
79,339

 
75,237

 
125,353

 
218,996

Provision for Income Taxes
(484
)
 
(684
)
 
(661
)
 
(1,467
)
Equity in Earnings of Real Estate Joint Ventures and Partnerships, net
6,665

 
5,318

 
12,082

 
11,311

Net Income
85,520

 
79,871

 
136,774

 
228,840

Less: Net Income Attributable to Noncontrolling Interests
(1,711
)
 
(1,582
)
 
(3,299
)
 
(3,727
)
Net Income Attributable to Common Shareholders
$
83,809

 
$
78,289

 
$
133,475

 
$
225,113

Earnings Per Common Share - Basic:
 
 
 
 
 
 
 
Net income attributable to common shareholders
$
.66

 
$
.61

 
$
1.04

 
$
1.76

Earnings Per Common Share - Diluted:
 
 
 
 
 
 
 
Net income attributable to common shareholders
$
.65

 
$
.61

 
$
1.03

 
$
1.74

See Notes to Condensed Consolidated Financial Statements.

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Table of Contents

WEINGARTEN REALTY INVESTORS
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Net Income
$
85,520

 
$
79,871

 
$
136,774

 
$
228,840

Cumulative effect adjustment of new accounting standards

 

 

 
(1,541
)
Other Comprehensive Income (Loss):
 
 
 
 
 
 
 
Net unrealized gain on derivatives

 

 

 
1,379

Reclassification adjustment of derivatives and designated hedges into net income
(221
)
 
(221
)
 
(440
)
 
(3,854
)
Retirement liability adjustment
299

 
307

 
587

 
578

Total
78

 
86

 
147

 
(1,897
)
Comprehensive Income
85,598

 
79,957

 
136,921

 
225,402

Comprehensive Income Attributable to Noncontrolling Interests
(1,711
)
 
(1,582
)
 
(3,299
)
 
(3,727
)
Comprehensive Income Adjusted for Noncontrolling Interests
$
83,887

 
$
78,375

 
$
133,622

 
$
221,675

See Notes to Condensed Consolidated Financial Statements.


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WEINGARTEN REALTY INVESTORS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share amounts)
 
June 30,
2019
 
December 31,
2018
ASSETS
 
 
 
Property
$
4,084,476

 
$
4,105,068

Accumulated Depreciation
(1,119,866
)
 
(1,108,188
)
Property, net *
2,964,610

 
2,996,880

Investment in Real Estate Joint Ventures and Partnerships, net
377,590

 
353,828

Total
3,342,200

 
3,350,708

Unamortized Lease Costs, net
136,960

 
142,014

Accrued Rent, Accrued Contract Receivables and Accounts Receivable (net of allowance for doubtful accounts of $6,855 in 2018) *
74,784

 
97,924

Cash and Cash Equivalents *
118,222

 
65,865

Restricted Deposits and Mortgage Escrows
14,854

 
10,272

Other, net
200,634

 
160,178

Total Assets
$
3,887,654

 
$
3,826,961

LIABILITIES AND EQUITY
 
 
 
Debt, net *
$
1,787,400

 
$
1,794,684

Accounts Payable and Accrued Expenses
95,296

 
113,175

Other, net
210,108

 
168,403

Total Liabilities
2,092,804

 
2,076,262

Commitments and Contingencies (see Note 14)

 

Equity:
 
 
 
Shareholders’ Equity:
 
 
 
Common Shares of Beneficial Interest - par value, $.03 per share;
shares authorized: 275,000; shares issued and outstanding:
128,670 in 2019 and 128,333 in 2018
3,904

 
3,893

Additional Paid-In Capital
1,778,320

 
1,766,993

Net Income Less Than Accumulated Dividends
(154,597
)
 
(186,431
)
Accumulated Other Comprehensive Loss
(10,402
)
 
(10,549
)
Total Shareholders’ Equity
1,617,225

 
1,573,906

Noncontrolling Interests
177,625

 
176,793

Total Equity
1,794,850

 
1,750,699

Total Liabilities and Equity
$
3,887,654

 
$
3,826,961

* Consolidated variable interest entities' assets and debt included in the above balances (see Note 15):
Property, net
$
198,884

 
$
198,466

Accrued Rent, Accrued Contract Receivables and Accounts Receivable, net
9,217

 
12,220

Cash and Cash Equivalents
9,193

 
8,243

Debt, net
45,388

 
45,774

See Notes to Condensed Consolidated Financial Statements.

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WEINGARTEN REALTY INVESTORS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
Six Months Ended
June 30,
 
2019
 
2018
Cash Flows from Operating Activities:
 
 
 
Net Income
$
136,774

 
$
228,840

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
68,939

 
88,516

Amortization of debt deferred costs and intangibles, net
1,627

 
1,565

Non-cash lease expense
602

 

Impairment loss
74

 

Equity in earnings of real estate joint ventures and partnerships, net
(12,082
)
 
(11,311
)
Gain on sale of property
(69,848
)
 
(155,998
)
Distributions of income from real estate joint ventures and partnerships
9,508

 
8,676

Changes in accrued rent, accrued contract receivables and accounts receivable, net
20,361

 
10,286

Changes in unamortized lease costs and other assets, net
(11,791
)
 
(8,282
)
Changes in accounts payable, accrued expenses and other liabilities, net
(11,882
)
 
(11,695
)
Other, net
2,404

 
(10,835
)
Net cash provided by operating activities
134,686

 
139,762

Cash Flows from Investing Activities:
 
 
 
Acquisition of real estate and land, net
(52,659
)
 
(1,265
)
Development and capital improvements
(95,895
)
 
(70,015
)
Proceeds from sale of property and real estate equity investments, net
194,394

 
326,319

Real estate joint ventures and partnerships - Investments
(24,355
)
 
(15,369
)
Real estate joint ventures and partnerships - Distribution of capital
2,340

 
3,155

Proceeds from investments
9,125

 
1,500

Other, net
3,019

 
4,454

Net cash provided by investing activities
35,969

 
248,779

Cash Flows from Financing Activities:
 
 
 
Proceeds from issuance of debt

 
638

Principal payments of debt
(3,173
)
 
(253,955
)
Changes in unsecured credit facilities
(5,000
)
 

Proceeds from issuance of common shares of beneficial interest, net
764

 
1,603

Repurchase of common shares of beneficial interest, net

 
(18,564
)
Common share dividends paid
(101,641
)
 
(101,423
)
Debt issuance and extinguishment costs paid
(310
)
 
(1,183
)
Distributions to noncontrolling interests
(3,161
)
 
(4,593
)
Contributions from noncontrolling interests
326

 
389

Other, net
(1,521
)
 
912

Net cash used in financing activities
(113,716
)
 
(376,176
)
Net increase in cash, cash equivalents and restricted cash equivalents
56,939

 
12,365

Cash, cash equivalents and restricted cash equivalents at January 1
76,137

 
21,334

Cash, cash equivalents and restricted cash equivalents at June 30
$
133,076

 
$
33,699

Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest (net of amount capitalized of $6,204 and $3,103, respectively)
$
28,995

 
$
35,018

Cash paid for income taxes
$
1,456

 
$
1,515

Cash paid for amounts included in lease liabilities
$
1,565

 
$

See Notes to Condensed Consolidated Financial Statements.

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WEINGARTEN REALTY INVESTORS
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands, except per share amounts)
 
Six Months Ended June 30, 2019
 
Common
Shares of
Beneficial
Interest
 
Additional
Paid-In
Capital
 
Net Income
Less Than
Accumulated
Dividends
 
Accumulated 
Other
Comprehensive
Loss
 
Noncontrolling
Interests
 
Total
Balance, January 1, 2019
$
3,893

 
$
1,766,993

 
$
(186,431
)
 
$
(10,549
)
 
$
176,793

 
$
1,750,699

Net income
 
 
 
 
49,666

 
 
 
1,588

 
51,254

Shares issued under benefit plans, net
10

 
8,141

 
 
 
 
 
 
 
8,151

Dividends paid – common shares ($.395 per share)
 
 
 
 
(50,816
)
 
 
 
 
 
(50,816
)
Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
(1,572
)
 
(1,572
)
Contributions from noncontrolling interests
 
 
 
 
 
 
 
 
326

 
326

Other comprehensive income
 
 
 
 
 
 
69

 
 
 
69

Other, net
 
 
1,955

 
 
 
 
 
368

 
2,323

Balance, March 31, 2019
3,903

 
1,777,089

 
(187,581
)
 
(10,480
)
 
177,503

 
1,760,434

Net income
 
 
 
 
83,809

 
 
 
1,711

 
85,520

Shares issued under benefit plans, net
1

 
1,231

 
 
 
 
 
 
 
1,232

Dividends paid – common shares ($.395 per share)
 
 
 
 
(50,825
)
 
 
 
 
 
(50,825
)
Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
(1,589
)
 
(1,589
)
Other comprehensive income
 
 
 
 
 
 
78

 
 
 
78

Balance, June 30, 2019
$
3,904

 
$
1,778,320

 
$
(154,597
)
 
$
(10,402
)
 
$
177,625

 
$
1,794,850

See Notes to Condensed Consolidated Financial Statements.


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Six Months Ended June 30, 2018
 
Common
Shares of
Beneficial
Interest
 
Additional
Paid-In
Capital
 
Net Income
Less Than
Accumulated
Dividends
 
Accumulated 
Other
Comprehensive
Loss
 
Noncontrolling
Interests
 
Total
Balance, January 1, 2018
$
3,897

 
$
1,772,066

 
$
(137,065
)
 
$
(6,170
)
 
$
177,114

 
$
1,809,842

Net income
 
 
 
 
146,824

 
 
 
2,145

 
148,969

Shares repurchased and cancelled
(9
)
 
(8,099
)
 
 
 
 
 
 
 
(8,108
)
Shares issued under benefit plans, net
7

 
5,339

 
 
 
 
 
 
 
5,346

Cumulative effect adjustment of new accounting standards
 
 
 
 
5,497

 
(1,541
)
 
 
 
3,956

Dividends paid – common shares ($.395 per share)
 
 
 
 
(50,836
)
 
 
 
 
 
(50,836
)
Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
(884
)
 
(884
)
Contributions from noncontrolling interests
 
 
 
 
 
 
 
 
41

 
41

Other comprehensive loss
 
 
 
 
 
 
(1,983
)
 
 
 
(1,983
)
Balance, March 31, 2018
3,895

 
1,769,306

 
(35,580
)
 
(9,694
)
 
178,416

 
1,906,343

Net income
 
 
 
 
78,289

 
 
 
1,582

 
79,871

Shares repurchased and cancelled
(11
)
 
(10,445
)
 
 
 
 
 
 
 
(10,456
)
Shares issued under benefit plans, net
2

 
2,096

 
 
 
 
 
 
 
2,098

Dividends paid – common shares ($.395 per share)
 
 
 
 
(50,587
)
 
 
 
 
 
(50,587
)
Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
(3,709
)
 
(3,709
)
Contributions from noncontrolling interests
 
 
 
 
 
 
 
 
348

 
348

Other comprehensive income
 
 
 
 
 
 
86

 
 
 
86

Balance, June 30, 2018
$
3,886

 
$
1,760,957

 
$
(7,878
)
 
$
(9,608
)
 
$
176,637

 
$
1,923,994


See Notes to Condensed Consolidated Financial Statements.

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Table of Contents

WEINGARTEN REALTY INVESTORS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Summary of Significant Accounting Policies
Business
Weingarten Realty Investors is a real estate investment trust (“REIT”) organized under the Texas Business Organizations Code. We currently operate, and intend to operate in the future, as a REIT.
We, and our predecessor entity, began the ownership of shopping centers and other commercial real estate in 1948. Our primary business is leasing space to tenants in the shopping centers we own or lease. We also provide property management services for which we charge fees to either joint ventures where we are partners or other outside owners.
We operate a portfolio of neighborhood and community shopping centers, totaling approximately 33.9 million square feet of gross leaseable area that is either owned by us or others. We have a diversified tenant base, with our largest tenant comprising only 2.5% of base minimum rental revenues during the first six months of 2019. Total revenues generated by our centers located in Houston and its surrounding areas was 19.7% of total revenue for the six months ended June 30, 2019, and an additional 9.1% of total revenue was generated during this period from centers that are located in other parts of Texas. Also, in Florida and California, an additional 19.5% and 18.6%, respectively, of total revenue was generated during the first six months of 2019.
Basis of Presentation
Our condensed consolidated financial statements include the accounts of our subsidiaries, certain partially owned real estate joint ventures or partnerships and variable interest entities (“VIEs”) which meet the guidelines for consolidation. All intercompany balances and transactions have been eliminated.
The condensed consolidated financial statements included in this report are unaudited; however, amounts presented in the condensed consolidated balance sheet as of December 31, 2018 are derived from our audited financial statements at that date. In our opinion, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted of normal recurring items. Interim results are not necessarily indicative of results for a full year.
The condensed consolidated financial statements and notes are presented as permitted by Form 10-Q and certain information included in our annual financial statements and notes thereto has been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and related notes for the year ended December 31, 2018.
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Such statements require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. We have evaluated subsequent events for recognition or disclosure in our condensed consolidated financial statements.
Leases
As part of our operations, we are primarily a lessor of commercial retail space. In certain instances, we are also a lessee, primarily of ground leases associated with our operations. Our contracts are reviewed to determine if they qualify as a lease. A contract is determined to be a lease when the right to obtain substantially all of the economic benefits and to direct the use of an identified asset is transferred to a customer over a defined period of time for consideration. During this review, we evaluate among other items, asset specification, substitution rights, purchase options, operating rights and control over the asset during the contract period.
We have elected accounting policy practical expedients, both as a lessor and a lessee, to not separate any nonlease components (primarily common area maintenance) within a lease contract for all classes of underlying assets (primarily real estate assets). We have determined to account for both the lease and nonlease components as a single component when the lease component is the predominate component of a contract. As a lessor, we have further determined that this policy will be effective only on a lease that has been classified as an operating lease and the revenue recognition pattern and timing is the same for both types of components. Therefore, Accounting Standards Codification ("ASC") No. 842, “Leases” will be applied to these lease contracts for both types of components. Additionally, for lessee leases, we have also elected not to apply the overall balance sheet recognition requirements to short-term leases.

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Table of Contents

Significant judgments and assumptions are inherent in not only determining if a contract contains a lease but also the lease classification, terms, payments, and, if needed, discount rates. Judgments include the nature of any options with the determination if they will be exercised, evaluation of implicit discount rates, assessment and consideration of “fixed” payments for straight-line rent revenue calculations and the evaluation of asset identification and substitution rights.
The determination of the discount rate used in a lease should be the incremental borrowing rate of the lease contract. For lessee leases, this rate is often not readily determinable as the lessor’s initial direct costs and expected residual value are at the end of the lease term and unknown. Therefore, as the lessee, our incremental borrowing rate will be used. Selected discount rates reflect rates that we would have to pay to borrow on a fully collateralized basis over a term similar to the lease. Additionally, we obtain lender quotes with similar terms and if not available, the asset type, risk free rates and financing spreads to account for creditworthiness and collateral.
Our lessor leases are principally related to our shopping centers. We believe risk of an inadequate residual value of the leased asset upon the termination of these leases is low due to our ability to re-lease the space, the long-lived nature of our real estate assets and the propensity of real estate assets to hold their value over a long period of time.
Revenue Recognition
At the inception of a revenue producing contract, we determine if a contract qualifies as a lease and if not, then as a customer contract. Based on this determination, the appropriate GAAP is applied to the contract, including its revenue recognition.
Rentals, net
Rental revenue is primarily derived from operating leases and, therefore, is generally recognized on a straight-line basis over the term of the lease, which typically begins the date the tenant takes control of the space. Variable rental revenue consists primarily of tenant reimbursements of taxes, maintenance expenses and insurance, is subject to our interpretation of lease provisions and is recognized over the term of a lease as services are provided. Additionally, variable rental revenue based on a percentage of tenants’ sales is recognized only after the tenant exceeds its sales breakpoint. In circumstances where we provide a tenant improvement allowance for improvements that are owned by the tenant, we recognize the allowance as a reduction of rental revenue on a straight-line basis over the term of the lease. Further, at the lease commencement date, we consider the collectability of a lease when determining revenue to be recognized. Prior to the adoption of ASC No. 842, rental revenues were recognized under ASC No. 840, “Leases.”
Other
Other revenue consists of both customer contract revenue and income from contractual agreements with third parties or partially owned real estate joint ventures or partnerships, which do not meet the definition of a lease or a customer contract. Revenues which do not meet the definition of a lease or customer contract are recognized as the related services are performed under the applicable agreement.

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Table of Contents

We have identified primarily three types of customer contract revenue: (1) management contracts with partially-owned real estate joint ventures or partnerships or third parties, (2) licensing and occupancy agreements and (3) certain non-tenant contracts. At contract inception, we assess the services provided in these contracts and identify any performance obligations that are distinct. To identify the performance obligation, we consider all services, whether explicitly stated or implied by customary business practices. We have identified the following substantive services, which may or may not be included in each contract type, that represent performance obligations:
Contract Type
 
Performance Obligation Description
 
Elements of Performance Obligations
 
Payment Timing
Management Agreements
 
• Management and asset management services
• Construction and development services
• Marketing services
 
• Over time
• Right to invoice
• Long-term contracts
 
Typically monthly or quarterly
 
 
• Leasing and legal preparation services
• Sales commissions
 
• Point in time
• Long-term contracts
 
 
Licensing and Occupancy Agreements
 
• Rent of non-specific space
 
• Over time
• Right to invoice
• Short-term contracts
 
Typically monthly
 
 
• Set-up services
 
• Point in time
• Right to invoice
 
 
Non-tenant Contracts
 
• Placement of miscellaneous items at our centers that do not qualify as a lease, i.e. advertisements, trash bins, etc.
 
• Point in time
• Long-term contracts
 
Typically monthly
 
 
• Set-up services
 
• Point in time
• Right to invoice
 
 

We also assess collectability of the customer contract revenue prior to recognition. None of these customer contracts include a significant financing component.
Unamortized Lease Costs, net
Lease costs represent the initial direct costs incurred in origination, negotiation and processing of a lease agreement. Such costs include outside broker commissions and other independent third party costs, as well as internal leasing commissions paid directly related to completing a lease and are amortized over the life of the lease on a straight-line basis. Costs related to salaries and benefits, supervision, administration, unsuccessful origination efforts and other activities are charged to expense as incurred. Also included are in place lease costs which are amortized over the life of the applicable lease term on a straight-line basis.
Accrued Rent, Accrued Contract Receivables and Accounts Receivable, net
Receivables include rental revenue, amounts billed and currently due from customer contracts and receivables attributable to straight-line rental commitments. Accrued contract receivables includes amounts due from customers for contracts that do not qualify as a lease in which we earned the right to the consideration through the satisfaction of the performance obligation, but before the customer pays consideration or before payment is due. Upon the adoption of ASC No. 842, individual leases are assessed for collectability and upon the determination that the collection of rents is not probable, accrued rent and accounts receivables are reduced as an adjustment to rental revenues. Revenue from leases where collection is deemed to be less than probable is recorded on a cash basis until collectability is determined to be probable. Further, we assess whether operating lease receivables, at a portfolio level, are appropriately valued based upon an analysis of balances outstanding, historical bad debt levels and current economic trends. An allowance for the uncollectible portion of the portfolio is recorded as an adjustment to rental revenues. Prior to the adoption of ASC No. 842, an allowance for the uncollectible portion of accrued rents and accounts receivable was determined based upon an analysis of balances outstanding, historical bad debt levels, tenant creditworthiness and current economic trends. Additionally, estimates of the expected recovery of pre-petition and post-petition claims with respect to tenants in bankruptcy are considered in assessing the collectability of the related receivables. Management’s estimate of the collectability of accrued rents and accounts receivable is based on the best information available to management at the time of evaluation.
Restricted Deposits and Mortgage Escrows
Restricted deposits and mortgage escrows consist of escrow deposits held by lenders primarily for property taxes, insurance and replacement reserves and restricted deposits that are held for a specific use or in a qualified escrow account for the purposes of completing like-kind exchange transactions.

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Table of Contents

Our restricted deposits and mortgage escrows consist of the following (in thousands):
 
June 30,
2019
 
December 31,
2018
Restricted deposits
$
13,349

 
$
8,150

Mortgage escrows
1,505

 
2,122

Total
$
14,854

 
$
10,272


Other Assets, net
Other assets include an asset related to the debt service guaranty (see Note 5 for further information), tax increment revenue bonds, right-of-use assets, investments, investments held in a grantor trust, deferred tax assets, prepaid expenses, the net value of above-market leases, deferred debt costs associated with our revolving credit facilities and other miscellaneous receivables. Right-of-use assets are amortized to achieve the recognition of rent expense on a straight-line basis after adjusting for the corresponding lease liabilities’ interest over the lives of the leases. Investments held in a grantor trust and investments in mutual funds are adjusted to fair value at each period with changes included in our Condensed Consolidated Statements of Operations. Investments held to maturity are carried at amortized cost and are adjusted using the interest method for amortization of premiums and accretion of discounts. Our tax increment revenue bonds have been classified as held to maturity and are recorded at amortized cost offset by a recognized credit loss (see Note 16 for further information). Above-market leases are amortized as adjustments to rental revenues over terms of the acquired leases. Deferred debt costs, including those classified in debt, are amortized primarily on a straight-line basis, which approximates the effective interest rate method, over the terms of the debt. Other miscellaneous receivables have a reserve applied to the carrying amount when it becomes apparent that conditions exist that may lead to our inability to fully collect on outstanding amounts due. Such conditions include delinquent or late payments on receivables, deterioration in the ongoing relationship with the borrower and other relevant factors. We establish a reserve when expected loss conditions exist by reviewing the borrower’s ability to generate revenues to meet debt service requirements and assessing the fair value of any collateral.
Other Liabilities, net
Other liabilities include non-qualified benefit plan liabilities, deferred revenue, lease liabilities, the net value of below-market leases and other miscellaneous liabilities. Lease liabilities are amortized to rent expense using the effective interest rate method, over the lease life. Below-market leases are amortized as adjustments to rental revenues over terms of the acquired leases.

12


Table of Contents

Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss by component consists of the following (in thousands):
 
Gain
on
Investments
 
Gain
on
Cash Flow
Hedges
 
Defined Benefit Pension Plan-Actuarial Loss
 
Total
Balance, January 1, 2019
$

 
$
(4,501
)
 
$
15,050

 
$
10,549

Amounts reclassified from accumulated other comprehensive loss
 
 
219

 
(288
)
(1) 
(69
)
Net other comprehensive loss (income)

 
219

 
(288
)
 
(69
)
Balance, March 31, 2019

 
(4,282
)
 
14,762

 
10,480

Amounts reclassified from accumulated other comprehensive loss
 
 
221

 
(299
)
(1) 
(78
)
Net other comprehensive loss (income)

 
221

 
(299
)
 
(78
)
Balance, June 30, 2019
$

 
$
(4,061
)
 
$
14,463

 
$
10,402

 
 
 
 
 
 
 
 
 
Gain
on
Investments
 
Gain
on
Cash Flow
Hedges
 
Defined Benefit Pension Plan-Actuarial Loss
 
Total
Balance, January 1, 2018
$
(1,541
)
 
$
(7,424
)
 
$
15,135

 
$
6,170

Cumulative effect adjustment of accounting standards
1,541

 
 
 
 
 
1,541

Change excluding amounts reclassified from accumulated other comprehensive loss


 
(1,379
)
 
 
 
(1,379
)
Amounts reclassified from accumulated other comprehensive loss


 
3,633

(2) 
(271
)
(1) 
3,362

Net other comprehensive loss (income)

 
2,254

 
(271
)
 
1,983

Balance, March 31, 2018

 
(5,170
)
 
14,864

 
9,694

Amounts reclassified from accumulated other comprehensive loss
 
 
221


(307
)
(1) 
(86
)
Net other comprehensive loss (income)

 
221

 
(307
)
 
(86
)
Balance, June 30, 2018
$

 
$
(4,949
)
 
$
14,557

 
$
9,608

_______________
(1)This reclassification component is included in the computation of net periodic benefit cost (see Note 12 for additional information).
(2)This reclassification component is included in interest expense (see Note 5 for additional information)
Additionally, as of June 30, 2019 and December 31, 2018, the net gain balance in accumulated other comprehensive loss relating to previously terminated cash flow interest rate swap contracts was $4.1 million and $4.5 million, respectively, which will be reclassified to net interest expense as interest payments are made on the originally hedged debt. Within the next 12 months, approximately $.9 million in accumulated other comprehensive loss is expected to be reclassified as a reduction to interest expense related to our interest rate contracts.
Reclassifications
We have reclassified prior years’ miscellaneous lease-related revenues identified during our implementation of Accounting Standard Update ("ASU") No. 2016-02, "Leases" of $.2 million and $.6 million for the three and six months ended June 30, 2018 to Rentals, net from Other revenue in our Condensed Consolidated Statements of Operations to conform to the current year presentation (see Note 2 for further information).

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Note 2. Newly Issued Accounting Pronouncements
Adopted
In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-02, "Leases." This ASU was further updated by ASU No. 2018-01, "Land Easement Practical Expedient for Transition for Topic 842," ASU No. 2018-10, "Codification Improvements to Topic 842," ASU No. 2018-11, "Targeted Improvements for Topic 842," ASU No. 2018-20, "Narrow-Scope Improvements for Lessors" and ASU No. 2019-01, "Codification Improvements to Topic 842." These ASUs set out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The ASUs require lessees to adopt a right-of-use asset approach that will bring substantially all leases onto the balance sheet, with the exception of short-term leases. The subsequent accounting for this right-of-use asset will be based on a dual-model approach, under which the lease will be classified as either a finance or an operating lease. The lessor accounting model under these ASUs is similar to current guidance, but certain underlying principles in the lessor model have been aligned with the new revenue recognition standard. A practical expedient was added for lessors to elect, by class of underlying assets, to account for lease and nonlease components as a single lease component if certain criteria are met. The provisions of these ASUs were effective for us as of January 1, 2019. We adopted this guidance as of January 1, 2019 and applied it on a modified retrospective approach.
Upon adoption, we applied the following practical expedients:
The transition method in which the application date of January 1, 2019 is the beginning of the reporting period that we first applied the new guidance.
The practical expedient package which allows an entity not to reassess (1) whether any expired or existing contracts are or contain leases; (2) the lease classification for expired or existing leases; and (3) initial direct costs for any existing leases.
The practical expedient which allows an entity not to reassess whether any existing or expired land easements that were not previously accounted for as a lease or if the contract contains a lease.
As an accounting policy election, a lessor may choose not to separate the nonlease components, by class of underlying assets, from the lease components and instead account for both types of components as a single component under certain conditions.
As an accounting policy election, a lessee may choose not to separate the nonlease components, by class of underlying assets, from the lease components and instead account for both types of components as a single component.
As an accounting policy election, a lessee may choose by class of the underlying asset, not to apply the recognition requirements to short-term leases.
The adoption resulted in the following changes as of January 1, 2019:
From the Lessor Perspective:
Our existing leases will continue to be classified as operating leases, however, leases entered into or modified after January 1, 2019 may be classified as either operating or sales-type leases, based on specific classification criteria. We believe the majority of our leases will continue to be classified as operating leases, and all operating leases will continue to have a similar pattern of recognition as under current GAAP.
Capitalization of leasing costs has been limited under the new ASU which no longer allows indirect costs to be capitalized. Therefore, indirect, internally-generated leasing and legal costs are no longer capitalized and are recorded in General and administrative expenses in our Condensed Consolidated Statement of Operations in the period of adoption prospectively. We continue to capitalize direct costs as defined within the ASU.
We are entitled to receive tenant reimbursements for operating expenses for common area maintenance (“CAM”). These ASUs have defined CAM reimbursement revenue as a nonlease component, which would need to be accounted for in accordance with Topic 606. However, we have applied the practical expedient for all of our real estate related leases, to account for the lease and nonlease components as a single, combined operating lease component as long as the nonlease component is not the predominate component of the combined components within a contract.

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We previously accounted for real estate taxes that are paid directly by the tenant on a gross basis in our consolidated financial statements. These ASUs have indicated that a lessor should exclude from variable payments, lessor costs paid by a lessee directly to a third party. Therefore, we have excluded any costs paid directly by the tenant from our revenues and expenses and will only include as variable payments those which are reimbursed to us by our tenants. Real estate taxes paid directly by our tenants was $1.0 million and $2.2 million for the three and six months ended June 30, 2018, respectively.
From the Lessee Perspective:
On January 1, 2019, we were the lessee under ground lease agreements for land underneath all or a portion of 12 centers and under four administrative office leases that we accounted for as operating leases. Also, we had one finance lease in which we were the lessee of two centers with a $21.9 million lease obligation.
We recognized right-of-use assets for our operating leases in Other Assets, along with corresponding lease liabilities in Other Liabilities on January 1, 2019 in the amounts of $44.2 million and $42.9 million, respectively, in the Condensed Consolidated Balance Sheet. The difference between the right-of-use assets and the lease liabilities is primarily associated with intangibles related to ground leases. For these existing operating leases, we continue to recognize a single lease expense for both our ground and office leases, currently included in Operating expenses and General and administrative expenses, respectively, in the Condensed Consolidated Statements of Operations.
We continue to recognize our finance lease asset balance in Property and our finance lease liability in Debt in our Condensed Consolidated Balance Sheets. The finance lease charges a portion of the payment to both asset amortization and interest expense.
In June 2018, the FASB issued ASU No. 2018-07, "Improvements to Nonemployee Share-Based Payment Accounting." This ASU amends prior employee share-based payment guidance to include nonemployee share-based payment transactions for acquiring services or property. This ASU now aligns the determination of the measurement date, the accounting for performance conditions, and the accounting for share-based payments after vesting in addition to other items. The provisions of ASU No. 2018-07 were effective for us as of January 1, 2019 using a modified transition method upon adoption. The adoption of this ASU did not have a material impact to our consolidated financial statements.
Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, "Measurement of Credit Losses on Financial Instruments." This ASU was further updated by ASU No. 2018-19, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses," ASU No. 2019-04, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses" and ASU No. 2019-05, "Targeted Transition Relief." These ASUs amend prior guidance on the impairment of financial instruments, and adds an impairment model that is based on expected losses rather than incurred losses with the recognition of an allowance based on an estimate of expected credit losses. The provisions of ASU No. 2016-13, as amended in subsequently issued amendments, are effective for us as of January 1, 2020, and early adoption is permitted for fiscal years beginning after December 15, 2018.
We are in the process of evaluating the impact that the adoption of ASU 2016-13, as amended, will have on our consolidated financial statements and related disclosures. In identifying all of our financial instruments covered under this guidance, the majority of our instruments result from operating leasing transactions, which are not within the scope of the new standard and are to remain governed by the recently issued leasing guidance and other previously issued guidance. Excluding these instruments, the adoption of this standard may impact our financial instruments, which include tax increment revenue bonds, debt securities and cash equivalents recorded at amortized cost, a debt service guaranty asset, and other financial instruments.

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In August 2018, the FASB issued ASU No. 2018-13, "Changes to the Disclosure Requirements for Fair Value Measurement." This ASU amends and removes several disclosure requirements including the valuation processes for Level 3 fair value measurements. The ASU also modifies some disclosure requirements and requires additional disclosures for changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements and requires the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The provisions of ASU No. 2018-13 are effective for us as of January 1, 2020 using a prospective transition method for amendments effecting changes in unrealized gains and losses, significant unobservable inputs used to develop Level 3 fair value measurements and narrative description on uncertainty of measurements. The remaining provisions of the ASU are to be applied retrospectively, and early adoption is permitted. Although we are still assessing the impact of this ASU's adoption, we do not believe this ASU will have a material impact to our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-14, "Changes to the Disclosure Requirements for Defined Benefit Plans." This ASU clarifies current disclosures and removes several disclosures requirements including accumulated other comprehensive income expected to be recognized over the next fiscal year and amount and timing of plan assets expected to be returned to the employer. The ASU also requires additional disclosures for the weighted-average interest crediting rates for cash balance plans and explanations for significant gains and losses related to changes in the benefit plan obligation. The provisions of ASU No. 2018-14 are effective for us as of December 31, 2020 using a retrospective basis for all periods presented, and early adoption is permitted. Although we are still assessing the impact of this ASU's adoption, we do not believe this ASU will have a material impact to our consolidated financial statements.
Note 3. Property
Our property consists of the following (in thousands):
 
June 30,
2019
 
December 31,
2018
Land
$
885,144

 
$
919,237

Land held for development
41,608

 
45,673

Land under development
56,595

 
55,793

Buildings and improvements
2,887,563

 
2,927,954

Construction in-progress
213,566

 
156,411

Total
$
4,084,476

 
$
4,105,068


During the six months ended June 30, 2019, we sold eight centers and other property. Aggregate gross sales proceeds from these transactions approximated $201.4 million and generated gains of approximately $69.8 million. Also, during the six months ended June 30, 2019, we acquired two grocery-anchored shopping centers with an aggregate gross purchase price of approximately $53.7 million, and we invested $52.6 million in new development projects.

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Note 4. Investment in Real Estate Joint Ventures and Partnerships
We own interests in real estate joint ventures or limited partnerships and have tenancy-in-common interests in which we exercise significant influence, but do not have financial and operating control. We account for these investments using the equity method, and our interests ranged for the periods presented from 20% to 90% in both 2019 and 2018. Combined condensed financial information of these ventures (at 100%) is summarized as follows (in thousands):
 
June 30,
2019
 
December 31,
2018
Combined Condensed Balance Sheets
 
 
 
ASSETS
 
 
 
Property
$
1,305,687

 
$
1,268,557

Accumulated depreciation
(318,421
)
 
(305,327
)
Property, net
987,266

 
963,230

Other assets, net
100,815

 
104,267

Total Assets
$
1,088,081

 
$
1,067,497

LIABILITIES AND EQUITY
 
 
 
Debt, net (primarily mortgages payable)
$
264,965

 
$
269,113

Amounts payable to Weingarten Realty Investors and Affiliates
11,626

 
11,732

Other liabilities, net
30,108

 
24,717

Total Liabilities
306,699

 
305,562

Equity
781,382

 
761,935

Total Liabilities and Equity
$
1,088,081

 
$
1,067,497


 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Combined Condensed Statements of Operations
 
 
 
 
 
 
 
Revenues, net
$
32,877

 
$
32,810

 
$
65,392

 
$
66,696

Expenses:
 
 
 
 
 
 
 
Depreciation and amortization
7,646

 
8,196

 
15,495

 
16,239

Interest, net
2,491

 
2,980

 
4,950

 
6,504

Operating
5,685

 
5,645

 
11,785

 
12,073

Real estate taxes, net
4,522

 
5,191

 
9,057

 
10,133

General and administrative
243

 
95

 
312

 
320

Provision for income taxes
36

 
37

 
69

 
73

Total
20,623

 
22,144

 
41,668

 
45,342

Gain on dispositions
1,474

 
1,906

 
2,009

 
5,439

Net income
$
13,728

 
$
12,572

 
$
25,733

 
$
26,793


Our investment in real estate joint ventures and partnerships, as reported in our Condensed Consolidated Balance Sheets, differs from our proportionate share of the entities' underlying net assets due to basis differences, which arose upon the transfer of assets to the joint ventures. The net positive basis differences, which totaled $6.8 million and $5.2 million at June 30, 2019 and December 31, 2018, respectively, are generally amortized over the useful lives of the related assets.
During 2019, a parcel of land was sold with gross sales proceeds of approximately $2.3 million, of which our share of the gain, included in equity earnings in real estate joint ventures and partnerships, totaled $1.1 million.

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During 2018, a center was sold through a series of partial sales with gross sales proceeds of approximately $33.9 million, of which our share of the gain, included in equity earnings in real estate joint ventures and partnerships, totaled $6.3 million.
Note 5. Debt
Our debt consists of the following (in thousands):
 
June 30,
2019
 
December 31,
2018
Debt payable, net to 2038 (1)
$
1,704,649

 
$
1,706,886

Unsecured notes payable under credit facilities

 
5,000

Debt service guaranty liability
60,900

 
60,900

Finance lease obligation
21,851

 
21,898

Total
$
1,787,400

 
$
1,794,684


_______________
(1)
At both June 30, 2019 and December 31, 2018, interest rates ranged from 3.3% to 7.0% at a weighted average rate of 4.0%.
The allocation of total debt between fixed and variable-rate as well as between secured and unsecured is summarized below (in thousands):
 
June 30,
2019
 
December 31,
2018
As to interest rate (including the effects of interest rate contracts):
 
 
 
Fixed-rate debt
$
1,769,843

 
$
1,771,999

Variable-rate debt
17,557

 
22,685

Total
$
1,787,400

 
$
1,794,684

As to collateralization:
 
 
 
Unsecured debt
$
1,453,354

 
$
1,457,432

Secured debt
334,046

 
337,252

Total
$
1,787,400

 
$
1,794,684


We maintain a $500 million unsecured revolving credit facility, which was amended and extended on March 30, 2016. This facility expires in March 2020, provides for two consecutive six-month extensions upon our request, and borrowing rates that float at a margin over LIBOR plus a facility fee. At both June 30, 2019 and December 31, 2018, the borrowing margin and facility fee, which are priced off a grid that is tied to our senior unsecured credit ratings, were 90 and 15 basis points, respectively. The facility also contains a competitive bid feature that allows us to request bids for up to $250 million. Additionally, an accordion feature allows us to increase the facility amount up to $850 million.
Additionally, we have a $10 million unsecured short-term facility, which was amended and extended on March 27, 2019, that we maintain for cash management purposes, which matures in March 2020. At both June 30, 2019 and December 31, 2018, the facility provided for fixed interest rate loans at a 30-day LIBOR rate plus a borrowing margin, facility fee and an unused facility fee of 125, 10, and 5 basis points, respectively.

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The following table discloses certain information regarding our unsecured notes payable under our credit facilities (in thousands, except percentages):
 
June 30,
2019
 
December 31,
2018
Unsecured revolving credit facility:
 
 
 
Balance outstanding
$

 
$
5,000

Available balance
497,946

 
492,946

Letters of credit outstanding under facility
2,054

 
2,054

Variable interest rate (excluding facility fee)
3.3
%
 
3.3
%
Unsecured short-term facility:
 
 
 
Balance outstanding
$

 
$

Variable interest rate (excluding facility fee)
%
 
%
Both facilities:
 
 
 
Maximum balance outstanding during the period
$
5,000

 
$
26,500

Weighted average balance
249

 
1,096

Year-to-date weighted average interest rate (excluding facility fee)
3.3
%
 
2.9
%

Related to a development project in Sheridan, Colorado, we have provided a guaranty for the payment of any debt service shortfalls until a coverage rate of 1.4x is met on tax increment revenue bonds issued in connection with the project. The bonds are to be repaid with incremental sales and property taxes and a public improvement fee (“PIF”) to be assessed on current and future retail sales and, to the extent necessary, any amounts we may have to provide under a guaranty. The incremental taxes and PIF are to remain intact until the earlier of the date the bond liability has been paid in full or 2040. Therefore, a debt service guaranty liability equal to the fair value of the amounts funded under the bonds was recorded. As of both June 30, 2019 and December 31, 2018, we had $60.9 million outstanding for the debt service guaranty liability.
During the year ended December 31, 2018, we prepaid, without penalty, our $200 million unsecured variable-rate term loan, swapped to a fixed rate of 2.5%, and terminated three interest rate swap contracts that had an aggregate notional amount of $200 million, and we recognized a $3.4 million gain due to the probability that the related hedged forecasted transactions would no longer occur. Additionally, during the year ended December 31, 2018, we paid at par $51.0 million of outstanding debt. These transactions resulted in a net gain upon their extinguishment of $.4 million, excluding the effect of the swap termination.
Various leases and properties, and current and future rentals from those leases and properties, collateralize certain debt. At both June 30, 2019 and December 31, 2018, the carrying value of such assets aggregated $.6 billion. Additionally, at June 30, 2019 and December 31, 2018, investments of $5.3 million and $5.2 million, respectively, are held as collateral for letters of credit totaling $5.0 million.

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Scheduled principal payments on our debt (excluding $21.9 million of a finance lease obligation, $(4.3) million net premium/(discount) on debt, $(6.1) million of deferred debt costs, $1.6 million of non-cash debt-related items, and $60.9 million debt service guaranty liability) are due during the following years (in thousands): 
2019 remaining
$
69,831

2020
5,296

2021
18,434

2022
307,922

2023
347,815

2024
252,153

2025
293,807

2026
277,291

2027
38,288

2028
92,159

Thereafter