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LEASES (UNITED DOMINION REALTY, L.P.) | 12 Months Ended
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Dec. 31, 2019
Entity information |
LEASES | 6. LEASES Lessee - Ground and Office Leases UDR owns six communities that are subject to ground leases, under which UDR is the lessee, expiring between 2043 and 2103, inclusive of extension options we are reasonably certain will be exercised. All of these leases existed as of the adoption of the new lease accounting guidance on January 1, 2019 and we did not reassess lease classification per the practical expedient provided by the standard. As such, these leases will continue to be classified as operating leases through the lease term expiration. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the remaining lease term. We currently do not hold any finance leases. As of December 31, 2019, the Operating lease right-of-use assets was $204.2 million and the Operating lease liabilities was $198.6 million on our Consolidated Balance Sheets related to our ground leases. The value of the Operating lease right-of-use assets exceeds the value of the Operating lease liabilities due to prepaid lease payments and intangible assets for ground leases acquired in the purchase of real estate. The calculation of these amounts includes minimum lease payments over the remaining lease term (described further in the table below). Variable lease payments are excluded from the right-of-use assets and lease liabilities and are recognized in earnings in the period in which the obligation for those payments is incurred. As the discount rate implicit in the leases was not readily determinable, we determined the discount rate for these leases utilizing the Company’s incremental borrowing rate at a portfolio level, adjusted for the remaining lease term, and the form of underlying collateral. The weighted average remaining lease term for these leases was 44.7 years at December 31, 2019 and the weighted average discount rate was 5.0% at December 31, 2019. Future minimum lease payments and total operating lease liabilities from our ground leases as of December 31, 2019 are as follows (dollars in thousands):
​ | ​ | ​ | ​
​ | ​ | Ground Leases
2020 | ​ | $ | 12,442
2021 | ​ | ​ | 12,442
2022 | ​ | ​ | 12,442
2023 | ​ | ​ | 12,442
2024 | ​ | ​ | 12,442
Thereafter | ​ | ​ | 455,221
Total future minimum lease payments (undiscounted) | ​ | ​ | 517,431
Difference between future undiscounted cash flows and discounted cash flows | ​ | ​ | (318,873)
Total operating lease liabilities (discounted) | ​ | $ | 198,558
​ For purposes of recognizing our ground lease contracts, the Company uses the minimum lease payments, if stated in the agreement. For ground lease agreements where there is a rent reset provision based on a change in an index or a rate (i.e., changes in fair market rental rates or changes in the consumer price index) but that does not include a specified minimum lease payment, the Company uses the current rent over the remainder of the lease term. If there is a contingency upon which some or all of the variable lease payments that will be paid over the remainder of the lease term are based, which is resolved such that those payments now meet the definition of lease payments, the Company will remeasure the right-of-use asset and lease liability on the reset date. For the year ended December 31, 2019, Operating lease right-of-use assets and Operating lease liabilities increased by $111.1 million due to future minimum payments on two of our ground leases becoming fixed for the remainder of their terms. The components of operating lease expenses from our ground leases and office space were as follows (dollars in thousands):
​ | ​ | ​ | ​
​ | ​ | Year Ended
​ | ​ | December 31, 2019
Ground lease expense: | ​ | ​ | ​
Contractual ground lease rent expense | ​ | $ | 8,272
Variable ground lease expense (a) | ​ | ​ | 664
Total ground lease expense (b) | ​ | ​ | 8,936
Contractual office space lease expense (b) | ​ | ​ | 70
Total operating lease expense (c) (d) | ​ | $ | 9,006
| (a) | Variable ground lease expense includes adjustments such as changes in the consumer price index and payments based on a percentage of income of the lessee.
| (b) | Ground lease and office space lease expense is reported within the line item Other operating expenses and office space expense is recorded in General and administrative on the Consolidated Statements of Operations.
| (c) | For the year ended December 31, 2019, Operating lease right-of-use assets and Operating lease liabilities amortized by $1.2 million and $0.8 million, respectively. The Company recorded $0.4 million of total operating lease expense during the year ended December 31, 2019, due to the net impact of the amortization.
| (d) | No leases qualified for the short-term lease exception during the year ended December 31, 2019. As such, short-term lease expense was zero for the year ended December 31, 2019.
​ As of December 31, 2018, in accordance with previously applicable lease accounting guidance, ASC 840, Leases, the future minimum lease payments from our ground leases and office space were as follows (dollars in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Ground |  | ​ | ​
​ | ​ | Leases | ​ | Office Space
2019 | ​ | $ | 4,901 | ​ | $ | 76
2020 | ​ |  | 4,901 | ​ |  | 76
2021 | ​ |  | 4,901 | ​ |  | 32
2022 | ​ |  | 4,901 | ​ |  | —
2023 | ​ |  | 4,901 | ​ |  | —
Thereafter | ​ |  | 313,918 | ​ |  | —
Total | ​ | $ | 338,423 | ​ | $ | 184
​ UDR incurred $7.3 million and $6.2 million of ground rent expense for the years ended December 31, 2018 and 2017, respectively. These costs are reported within the line item Other Operating Expenses on the Consolidated Statements of Operations. The Company incurred $0.2 million and $0.2 million of rent expense related to office space for the years ended December 31, 2018 and 2017, respectively. These costs are included in General and Administrative on the Consolidated Statements of Operations. Lessor - Apartment Home, Retail and Commercial Space Leases ​ UDR’s communities and retail and commercial space are leased to tenants under operating leases. As of December 31, 2019, our apartment home leases generally have initial terms of 12 months or less and represent approximately 98.1% of our total lease revenue. As of December 31, 2019, our retail and commercial space leases generally have initial terms of between 5 and 15 years and represent approximately 1.9% of our total lease revenue. Our apartment home leases are generally renewable at the end of the lease term, subject to potential increases in rental rates, and our retail and commercial space leases generally have renewal options, subject to associated increases in rental rates due to market-based or fixed-price renewal options and certain other conditions. (See Note 16, Reportable Segments for further discussion around our major revenue streams and disaggregation of our revenue.) ​ We previously owned a parcel of land subject to a ground lease under which UDR was the lessor, expiring in 2065. The ground lease included a purchase option for the lessee to acquire the land during specific periods of the ground lease term. In June 2019, the lessee exercised the purchase option and acquired the parcel of land for $38.0 million. (See Note 3, Real Estate Owned for further discussion.) ​ Future minimum lease payments from our retail and commercial leases as of December 31, 2019 are as follows (dollars in thousands):
​ | ​ | ​ | ​
​ | ​ | Retail and Commercial Leases
2020 | ​ | $ | 22,568
2021 | ​ | ​ | 22,055
2022 | ​ | ​ | 20,443
2023 | ​ | ​ | 19,057
2024 | ​ | ​ | 17,304
Thereafter | ​ | ​ | 78,818
Total future minimum lease payments (a) | ​ | $ | 180,245
| (a) | We have excluded our apartment home leases from this table as our apartment home leases generally have initial terms of 12 months or less.
Certain of our leases with retail and commercial tenants provide for the payment by the lessee of additional variable rent based on a percentage of the tenant’s revenue. The amounts shown in the table above do not include these variable percentage rents. The Company recorded variable percentage rents of $0.4 million during the year ended December 31, 2019.
United Dominion Realty L.P. |
Entity information |
LEASES | 5. LEASES Lessee - Ground and Equipment Leases The Operating Partnership owns six communities that are subject to ground leases, under which the Operating Partnership is the lessee, expiring between 2043 and 2103, inclusive of extension options we are reasonably certain will be exercised. All of these leases existed as of the adoption of the new lease accounting guidance on January 1, 2019 and we did not reassess lease classification per the practical expedient provided by the standard. As such, these leases will continue to be classified as operating leases through the lease term expiration. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the remaining lease term. In addition, the Operating Partnership leases equipment at six communities from the General Partner, which expire in 2029. We currently do not hold any finance leases. As of December 31, 2019, the Operating lease right-of-use assets was $205.7 million and the Operating lease liabilities was $200.0 million on our Consolidated Balance Sheets related to our ground and equipment leases. The value of the Operating lease right-of-use assets exceeds the value of the Operating lease liabilities due to prepaid lease payments and intangible assets for ground leases acquired in the purchase of real estate. The calculation of these amounts includes minimum lease payments over the remaining lease term (described further in the table below). Variable lease payments are excluded from the right-of-use assets and lease liabilities and are recognized in earnings in the period in which the obligation for those payments is incurred. As the discount rate implicit in the leases was not readily determinable, we determined the discount rate for these leases utilizing the Operating Partnership’s incremental borrowing rate at a portfolio level, adjusted for the remaining lease term, and the form of underlying collateral. The weighted average remaining lease term for these leases was 44.4 years at December 31, 2019 and the weighted average discount rate was 5.0% at December 31, 2019. Future minimum lease payments and total operating lease liabilities from our ground and equipment leases as of December 31, 2019 are as follows (dollars in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Ground Leases | ​ | Equipment Leases | ​ | Total
2020 | ​ | $ | 12,442 | ​ | $ | 152 | ​ | $ | 12,594
2021 | ​ | ​ | 12,442 | ​ | ​ | 156 | ​ | ​ | 12,598
2022 | ​ | ​ | 12,442 | ​ | ​ | 159 | ​ | ​ | 12,601
2023 | ​ | ​ | 12,442 | ​ | ​ | 163 | ​ | ​ | 12,605
2024 | ​ | ​ | 12,442 | ​ | ​ | 166 | ​ | ​ | 12,608
Thereafter | ​ | ​ | 455,221 | ​ | ​ | 869 | ​ | ​ | 456,090
Total future minimum lease payments (undiscounted) | ​ | ​ | 517,431 | ​ | ​ | 1,665 | ​ | ​ | 519,096
Difference between future undiscounted cash flows and discounted cash flows | ​ | ​ | (318,873) | ​ | ​ | (222) | ​ | ​ | (319,095)
Total operating lease liabilities (discounted) | ​ | $ | 198,558 | ​ | $ | 1,443 | ​ | $ | 200,001
​ For purposes of recognizing our ground lease contracts, the Operating Partnership uses the minimum lease payments, if stated in the agreement. For ground lease agreements where there is a rent reset provision based on a change in an index or a rate (i.e., changes in fair market rental rates or changes in the consumer price index) but that does not include a specified minimum lease payment, the Operating Partnership uses the current rent over the remainder of the lease term. If there is a contingency, upon which some or all of the variable lease payments that will be paid over the remainder of the lease term are based, which is resolved such that those payments now meet the definition of lease payments, the Operating Partnership will remeasure the right-of-use asset and lease liability on the reset date. For the year ended December 31, 2019, Operating lease right-of-use assets and Operating lease liabilities increased by $111.1 million due to future minimum payments on two of our ground leases becoming fixed for the remainder of their terms. For the year ended December 31, 2019, Operating lease right-of-use assets and Operating lease liabilities increased by $1.4 million due to the Operating Partnership entering into new equipment leases. The components of operating lease expenses from our ground and equipment leases were as follows (dollars in thousands): ​
​ | ​ | ​ | ​
​ | ​ | Year Ended
​ | ​ | December 31, 2019
Ground lease expense: | ​ | ​ | ​
Contractual ground lease rent expense | ​ | $ | 8,272
Variable ground lease expense (a) | ​ | ​ | 664
Total ground lease expense (b) | ​ | ​ | 8,936
Contractual equipment lease expense (b) | ​ | ​ | 19
Total operating lease expense (c) (d) | ​ | $ | 8,955
| (a) | Variable ground lease expense includes adjustments such as changes in the consumer price index and payments based on a percentage of income of the lessee.
| (b) | Ground lease and equipment lease expense is reported within the line item Other operating expenses on the Consolidated Statements of Operations.
| (c) | For the year ended December 31, 2019, Operating lease right-of-use assets and Operating lease liabilities amortized by $1.0 million and $0.7 million, respectively. The Operating Partnership recorded $0.3 million of total operating lease expense during the year ended December 31, 2019, due to the net impact of the amortization.
| (d) | No leases qualified for the short-term lease exception during the year ended December 31, 2019. As such, short-term lease expense was zero for the year ended December 31, 2019.
​ As of December 31, 2018, in accordance with previously applicable lease accounting guidance, ASC 840, Leases, the future minimum lease payments from our ground leases were as follows; Future minimum lease payments as of December 31, 2018 were $4.9 million for each of the years ending December 31, 2019 to 2023 and a total of $313.9 million for years thereafter. The Operating Partnership incurred $7.3 million and $6.2 million of ground rent expense for the years ended December 31, 2018 and 2017, respectively. These costs are reported within the line item Other Operating Expenses on the Consolidated Statements of Operations. Lessor - Apartment Home, Retail and Commercial Leases ​ The Operating Partnership’s communities and retail and commercial space are leased to tenants under operating leases. As of December 31, 2019, our apartment home leases generally have initial terms of 12 months or less and represent 98.4% of our total lease revenue. As of December 31, 2019, our retail and commercial space leases generally have initial terms between 5 and 15 years and represent approximately 1.6% of our total lease revenue. Our apartment home leases are generally renewable at the end of the lease term, subject to potential increases in rental rates, and our retail and commercial space leases generally have renewal options, subject to associated increases in rental rates due to market-based or fixed-price renewal options and certain other conditions. (See Note 12, Reportable Segments for further discussion around our major revenue streams and disaggregation of our revenue.) ​ Future minimum lease payments from our retail and commercial leases as of December 31, 2019 are as follows (dollars in thousands):
​ | ​ | ​ | ​
​ | ​ | Retail and Commercial Leases
2020 | ​ | $ | 7,733
2021 | ​ | ​ | 7,395
2022 | ​ | ​ | 6,791
2023 | ​ | ​ | 6,466
2024 | ​ | ​ | 5,801
Thereafter | ​ | ​ | 13,826
Total future minimum lease payments (a) | ​ | $ | 48,012
| (a) | We have excluded our apartment home leases from this table as our apartment home leases generally have initial terms of 12 months of less.
Certain of our leases with retail and commercial tenants provide for the payment by the lessee of additional variable rent based on a percentage of the tenant’s revenue. The amounts shown in the table above do not include these variable percentage rents. The Operating Partnership recorded variable percentage rents of $0.1 million during the year ended December 31, 2019.

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