Macy's, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Properties and Leases

Properties and Leases

12 Months Ended

Feb. 01, 2020

Property Plant and Equipment and Leases of Lessee [Abstract]

Properties and Leases

Property and Equipment, net

The major classes of property and equipment, net as of February 1, 2020 and February 2, 2019 are as follows:



	February 1, 2020		February 2, 2019
	(millions)
Land	$	1,436	$	1,454
Buildings on owned land	3,822		4,019
Buildings on leased land and leasehold improvements	1,365		1,404
Fixtures and equipment	4,402		4,230
Leased properties under capitalized leases (a)	—		25
	11,025		11,132
Less accumulated depreciation and amortization (a)	4,392		4,495
	$	6,633	$	6,637

(a) As a result of the adoption of ASU 2016-02 on February 3, 2019, capital, or finance, lease assets were reclassed to the ROU assets on the Consolidated Balance Sheet. See Note 4 for information on leases.

In connection with various shopping center agreements, the Company is obligated to operate certain stores within the centers for periods of up to fifteen years. Some of these agreements require that the stores be operated under a particular name.

Leases

The Company leases a portion of the real estate and personal property used in its operations. Most leases require the Company to pay real estate taxes, maintenance, insurance and other similar costs; some also require additional payments based on percentages of sales and some contain purchase options. Certain of the Company's leases contain covenants that restrict the ability of the tenant (typically a subsidiary of the Company) to take specified actions (including the payment of dividends or other amounts on account of its capital stock) unless the tenant satisfies certain financial tests.

ROU assets and lease liabilities consist of:



		February 1, 2020
	Classification	(millions)
Assets
Finance lease assets (a)	Right of Use Assets	$	13
Operating lease assets (b)	Right of Use Assets	2,655
Total lease assets		$	2,668

Liabilities
Current
Finance (a)	Accounts payable and accrued liabilities	$	2
Operating (b)	Accounts payable and accrued liabilities	331

Noncurrent
Finance (a)	Long-Term Lease Liabilities	21
Operating (b)	Long-Term Lease Liabilities	2,897
Total lease liabilities		$	3,251

(a) Finance lease assets are recorded net of accumulated amortization of $12 million as of February 1, 2020. As of February 1, 2020, finance lease assets and noncurrent lease liabilities each included $2 million of non-lease components.

(b) As of February 1, 2020, operating lease assets included $403 million of non-lease components and current and noncurrent lease liabilities included $36 million and $397 million, respectively, of non-lease components.

The components of net lease expense, recognized primarily within selling, general and administrative expenses are disclosed below. For 2019, lease expense included $83 million related to non-lease components.



	2019			2018			2017
	(millions)
Real estate
Operating leases (c) –
Minimum rents	$	364		$	317		$	317
Variable rents	54			11			11
	418			328			328
Less income from subleases –
Operating leases	(2		)	(1		)	(3		)
	$	416		$	327		$	325
Personal property – Operating leases	$	8		$	9		$	10

As of February 1, 2020, the maturity of lease liabilities is as follows:



	Finance Leases (d)		Operating Leases (e and f)		Total
	(millions)
Fiscal year
2020	$	3	$	362	$	365
2021	3		345		348
2022	3		322		325
2023	3		317		320
2024	3		300		303
After 2024	19		5,265		5,284
Total undiscounted lease payments	34		6,911		6,945
Less amount representing interest	11		3,683		3,694
Total lease liabilities	$	23	$	3,228	$	3,251

(d) Finance lease payments include $3 million related to non-lease component payments.

(e) Operating lease payments include $3,240 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $706 million of legally binding minimum lease payments for leases signed but not yet commenced.

(f) Operating lease payments include $1,203 million related to non-lease component payments, with $876 million of such payments related to options to extend lease terms that are reasonably certain of being exercised.

Additional supplemental information regarding assumptions and cash flows for operating and finance leases is as follows:



	February 1, 2020
Lease Term and Discount Rate	(millions)
Weighted-average remaining lease term (years)
Finance leases	12.7
Operating leases	23.3
Weighted-average discount rate
Finance leases	6.69	%
Operating leases	6.53	%



	52 Weeks Ended
	February 1, 2020
Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used from operating leases	$	363
Financing cash flows used from financing leases	2
Leased assets obtained in exchange for new operating lease liabilities	216

The Company is a guarantor with respect to certain lease obligations associated with The May Department Stores Company and previously disposed subsidiaries or businesses. The leases, one of which includes potential extensions to 2070, have future minimum lease payments aggregating $225 million and are offset by payments from existing tenants and subtenants. In addition, the Company is contingently liable for other expenses related to the above leases, such as property taxes and common area maintenance, which are also payable by existing tenants and subtenants. Potential liabilities related to these guarantees are subject to certain defenses by the Company. The Company believes that the risk of significant loss from the guarantees of these lease obligations is remote.