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Leases | 12 Months Ended
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Dec. 31, 2020
Leases [Abstract] |
Leases |
8. | Leases
Lessor Accounting The Company is the lessor for its residential and non-residential leases and these leases will continue to be accounted for as operating leases under the lease standard as described in Note 2. For the years ended December 31, 2020 and 2019, approximately 98% and 97%, respectively, of the Company’s total lease revenue is generated from residential apartment leases that are generally twelve months or less in length. The residential apartment leases may include lease income related to such items as utility recoveries, parking, storage and pet rent that the Company treats as a single lease component because the amenities cannot be leased on their own and the timing and pattern of revenue recognition are the same. The collection of lease payments at lease commencement is probable and therefore the Company subsequently recognizes lease income over the lease term on a straight-line basis. Residential leases are renewable upon consent of both parties on an annual or monthly basis. For the years ended December 31, 2020 and 2019, approximately 2% and 3%, respectively, of the Company’s total lease revenue is generated by non-residential leases that are generally for terms ranging between five to ten years. The non-residential leases generally consist of ground floor retail spaces and master-leased parking garages that serve as additional amenities for our residents. The non-residential leases may include lease income related to such items as utility recoveries, parking rent and storage rent that the Company treats as a single lease component because the amenities cannot be leased on their own and the timing and pattern of revenue recognition are the same. The collection of lease payments at lease commencement is probable and therefore the Company subsequently recognizes lease income over the lease term on a straight-line basis. Non-residential leases are renewable with market-based renewal options. The Company elected the practical expedient to account for both its lease and non-lease components (specifically common area maintenance charges) as a single lease component under the lease standard. The following table presents the lease income types relating to lease payments for residential and non-residential leases along with the total other rental income for the years ended December 31, 2020 and 2019 (amounts in thousands):
|  | Year Ended December 31, 2020 |  |  | Year Ended December 31, 2019 |
Income Type |  | Residential Leases |  |  | Non-Residential Leases |  |  | Total |  |  | Residential Leases |  |  | Non-Residential Leases |  |  | Total |
Residential and non-residential rent |  | $ | 2,336,778 |  |  | $ | 51,663 |  |  | $ | 2,388,441 |  |  | $ | 2,414,201 |  |  | $ | 71,988 |  |  | $ | 2,486,189 |
Utility recoveries (RUBS income) (1) |  |  | 70,699 |  |  |  | 677 |  |  |  | 71,376 |  |  |  | 67,659 |  |  |  | 917 |  |  |  | 68,576 |
Parking rent |  |  | 38,743 |  |  |  | 412 |  |  |  | 39,155 |  |  |  | 37,557 |  |  |  | 348 |  |  |  | 37,905 |
Storage rent |  |  | 3,674 |  |  |  | 84 |  |  |  | 3,758 |  |  |  | 3,745 |  |  |  | 71 |  |  |  | 3,816 |
Pet rent |  |  | 11,457 |  |  |  | — |  |  |  | 11,457 |  |  |  | 11,617 |  |  |  | — |  |  |  | 11,617 |
Total lease revenue |  | $ | 2,461,351 |  |  | $ | 52,836 |  |  |  | 2,514,187 |  |  | $ | 2,534,779 |  |  | $ | 73,324 |  |  |  | 2,608,103 |
Parking revenue |  |  |  |  |  |  |  |  |  |  | 22,210 |  |  |  |  |  |  |  |  |  |  |  | 28,272 |
Other revenue |  |  |  |  |  |  |  |  |  |  | 35,308 |  |  |  |  |  |  |  |  |  |  |  | 64,316 |
Total other rental income (2) |  |  |  |  |  |  |  |  |  |  | 57,518 |  |  |  |  |  |  |  |  |  |  |  | 92,588 |
Rental income |  |  |  |  |  |  |  |  |  | $ | 2,571,705 |  |  |  |  |  |  |  |  |  |  | $ | 2,700,691 |
(1) | RUBS income primarily consists of variable payments representing the recovery of utility costs from residents.
(2) | Other rental income is accounted for under the revenue recognition standard.
The economic impact of the pandemic on a subset of our residents and tenants has led to elevated levels of bad debt. We continue to work with our residents and tenants on payment plans and collections and our bad debt allowance policies remain consistent. The following table presents residential and non-residential accounts receivable and straight-line receivable balances for the Company’s properties as of December 31, 2020 and 2019 (amounts in thousands):
|  | Residential |  |  | Non-Residential |
Balance Sheet (Other assets): |  | December 31, 2020 |  |  | December 31, 2019 |  |  | December 31, 2020 |  |  | December 31, 2019 |
Resident/tenant accounts receivable balances |  | $ | 30,856 |  |  | $ | 4,040 |  |  | $ | 7,598 |  |  | $ | 1,766 |
Allowance for doubtful accounts |  |  | (24,021 | ) |  |  | (1,190 | ) |  |  | (6,527 | ) |  |  | (1,412 | )
Net receivable balances |  | $ | 6,835 |  | (1) | $ | 2,850 |  |  | $ | 1,071 |  |  | $ | 354 |
Straight-line receivable balances |  | $ | 19,992 |  |  | $ | 1,841 |  |  | $ | 13,413 |  |  | $ | 26,450 |
(1) | The Company held residential security deposits approximating 31.6% of the net receivable balance at December 31, 2020.
The following table presents residential bad debt for the Company’s properties for the years ended December 31, 2020 and 2019 (amounts in thousands):
|  | Year Ended December 31, |
Income Statement (Rental income): |  |  | 2020 |  |  |  | 2019 |
Bad debt, net |  | $ | 42,505 |  |  | $ | 12,067 |
% of rental income |  |  | 1.7 | % |  |  | 0.5 | %
Due to the impact of COVID-19 and the resulting economic impact on our non-residential tenants, rental revenues declined as a result of a non-cash write-off of non-residential straight-line lease receivables of $13.2 million during the year ended December 31, 2020. In addition, rental revenues declined by $7.3 million during the year ended December 31, 2020 as a result of rent payment deferrals/abatements granted to our non-residential tenants. Lessee Accounting The Company is the lessee under various corporate office and ground leases for which the Company recognized ROU assets and related lease liabilities effective January 1, 2019. The following table presents the Company’s ROU assets and related lease liabilities as of December 31, 2020 and 2019 (amounts in thousands):
|  | 2020 |  |  | 2019 |
Right-of-use assets: |  |  |  |  |  |  |  |
Corporate office leases (operating) |  | $ | 39,203 |  |  | $ | 41,596 |
Ground leases (finance) |  |  | 57,584 |  |  |  | 57,982 |
Ground leases (operating) |  |  | 402,500 |  |  |  | 413,196 |
Right-of-use assets |  | $ | 499,287 |  |  | $ | 512,774 |
Lease liabilities: |  |  |  |  |  |  |  |
Corporate office leases (operating) |  | $ | 40,470 |  |  | $ | 43,105 |
Ground leases (finance) |  |  | 23,350 |  |  |  | 23,239 |
Ground leases (operating) |  |  | 265,310 |  |  |  | 264,990 |
Lease liabilities |  | $ | 329,130 |  |  | $ | 331,334 |
As the standard requires the recognition of a liability for the lease obligation, discount rates are used to determine the net present value of the lease payments. The discount rate for the lease is the rate implicit in the lease or, if that rate cannot be readily determined, the incremental borrowing rate. As the Company does not know the amount of the lessors’ initial direct costs, it cannot readily determine the rate implicit in the lease and instead must apply the incremental borrowing rate. The Company has estimated the discount rate ranges of 3.3% to 3.9% for corporate office leases and 4.4% to 5.5% for ground leases at adoption. Since the Company’s credit backs the corporate office lease obligations and the lease terms are generally ten years or less, the discount rate range was estimated by using the Company’s borrowing rates for actual pricing data. The discount rate range for ground leases takes into account various factors, including the longer life of the ground leases, and was estimated by using the Company’s borrowing rates for actual pricing data through 30 years and other long-term market rates. Corporate office leases The Company leases nine corporate offices with lease expiration dates ranging from 2021 through 2042 (inclusive of applicable extension options). See Note 15 for details on a corporate office lease with a related party. Ground leases The Company maintains long-term ground leases for 14 operating properties and two projects under development with lease expiration dates ranging from 2042 through 2118 (inclusive of applicable purchase options). The Company owns the building and improvements. Additional disclosures The following tables illustrate the quantitative disclosures for lessees as of and for the years ended December 31, 2020 and 2019 (amounts in thousands):
|  | Year Ended December 31, 2020 |  |  | Year Ended December 31, 2019 |
Lease cost: |  |  |  |  |  |  |  |
Finance lease cost: |  |  |  |  |  |  |  |
Amortization of right-of-use assets |  | $ | — |  |  | $ | — |
Interest on lease liabilities (capitalized) |  |  | 1,029 |  |  |  | 225 |
Operating lease cost: |  |  |  |  |  |  |  |
Corporate office leases |  |  | 3,747 |  |  |  | 3,937 |
Ground leases |  |  | 22,102 |  |  |  | 22,198 |
Variable lease cost: |  |  |  |  |  |  |  |
Corporate office leases |  |  | 1,307 |  |  |  | 1,489 |
Ground leases |  |  | 3,304 |  |  |  | 3,700 |
Total lease cost |  | $ | 31,489 |  |  | $ | 31,549 |
|  | December 31, 2020 |  |  | December 31, 2019 |
Other information: |  |  |  |  |  |  |  |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |  |  |  |  |
Investing cash flows from finance leases (capitalized) |  | $ | 567 |  |  | $ | 34,922 |
Operating cash flows from operating leases: |  |  |  |  |  |  |  |
Corporate office leases |  | $ | 5,296 |  |  | $ | 5,494 |
Ground leases |  | $ | 16,552 |  |  | $ | 16,837 |
ROU assets obtained in exchange for new finance lease liabilities |  | $ | — |  |  | $ | 23,201 |
ROU assets obtained in exchange for new operating lease liabilities: |  |  |  |  |  |  |  |
Corporate office leases |  | $ | — |  |  | $ | 44,298 |
Ground leases |  | $ | — |  |  | $ | 422,018 |
Weighted-average remaining lease term – finance leases (1) |  | 18.7 years |  |  | 19.7 years |
Weighted-average remaining lease term – operating leases: |  |  |  |  |  |  |  |
Corporate office leases |  | 17.4 years |  |  | 18.1 years |
Ground leases |  | 55.3 years |  |  | 56.2 years |
Weighted-average discount rate – finance leases |  |  | 3.0 | % |  |  | 3.0 | %
Weighted-average discount rate – operating leases: |  |  |  |  |  |  |  |
Corporate office leases |  |  | 3.2 | % |  |  | 3.2 | %
Ground leases |  |  | 5.0 | % |  |  | 5.0 | %
(1) | The weighted-average remaining lease term – finance leases does not include the remaining term of a fully prepaid finance lease entered into during the year ended December 31, 2019.
The following table summarizes the Company’s undiscounted cash flows for contractual obligations for minimum rent payments/receipts under operating and financing leases for the next five years and thereafter as of December 31, 2020:
(Payments)/Receipts Due by Year (in thousands) |
|  | 2021 |  |  | 2022 |  |  | 2023 |  |  | 2024 |  |  | 2025 |  |  | Thereafter |  |  | Total |
Finance Leases: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Minimum Rent Payments (a) |  | $ | (578 | ) |  | $ | (590 | ) |  | $ | (601 | ) |  | $ | (614 | ) |  | $ | (626 | ) |  | $ | (33,224 | ) |  | $ | (36,233 | )
Operating Leases: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Minimum Rent Payments (a) |  | $ | (17,160 | ) |  | $ | (16,906 | ) |  | $ | (16,997 | ) |  | $ | (17,329 | ) |  | $ | (17,375 | ) |  | $ | (954,108 | ) |  | $ | (1,039,875 | )
Minimum Rent Receipts (b) |  | $ | 59,430 |  |  | $ | 54,656 |  |  | $ | 51,091 |  |  | $ | 45,166 |  |  | $ | 38,847 |  |  | $ | 126,732 |  |  | $ | 375,922 |
(a) | Minimum basic rent due for corporate office leases and base rent due on ground leases where the Company is the lessee.
(b) | Minimum basic rent receipts due for various non-residential space where the Company is the lessor. Excludes residential leases due to their short-term nature.
The following table provides a reconciliation of lease liabilities from our undiscounted cash flows for minimum rent payments as of December 31, 2020 (amounts in thousands):
|  | 2020 |
Total minimum rent payments |  | $ | 1,076,108 |
Less: Lease discount |  |  | 746,978 |
Lease liabilities |  | $ | 329,130 |

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