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LEASES (UNITED DOMINION REALTY, L.P.) | 3 Months Ended
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Mar. 31, 2020
Entity information |
LEASES | 6. LEASES Lessee - Ground 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 are classified as operating leases through the lease term expiration based on our election of the practical expedient provided by the leasing standard. 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. The Company also elected the short-term lease exception provided by the leasing standard and therefore only recognizes right-of-use assets and lease liabilities for leases with a term greater than one year. No leases qualified for the short-term lease exception during the three months ended March 31, 2020 and 2019. As of March 31, 2020, the Operating lease right-of-use assets was $203.4 million and the Operating lease liabilities was $197.8 million on our Consolidated Balance Sheet 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 44.5 years at March 31, 2020 and the weighted average discount rate was 5.0% at March 31, 2020. Future minimum lease payments and total operating lease liabilities from our ground leases as of March 31, 2020 are as follows (dollars in thousands):
​ | ​ | ​ | ​
​ | ​ | Ground Leases
2020 | ​ | $ | 9,330
2021 | ​ | ​ | 12,442
2022 | ​ | ​ | 12,442
2023 | ​ | ​ | 12,442
2024 | ​ | ​ | 12,442
Thereafter | ​ | ​ | 455,221
Total future minimum lease payments (undiscounted) | ​ | ​ | 514,319
Difference between future undiscounted cash flows and discounted cash flows | ​ | ​ | (316,490)
Total operating lease liabilities (discounted) | ​ | $ | 197,829
​ 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. The components of operating lease expenses were as follows (dollars in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended March 31,
​ | ​ | 2020 | ​ | 2019
Lease expense: | ​ | ​ | ​ | ​ | ​ | ​
Contractual lease expense | ​ | $ | 3,170 | ​ | $ | 2,159
Variable lease expense (a) | ​ | ​ | 43 | ​ | ​ | 139
Total operating lease expense (b)(c) | ​ | $ | 3,213 | ​ | $ | 2,298
| (a) | Variable lease expense includes adjustments such as changes in the consumer price index and payments based on a percentage of income of the lessee.
| (b) | Lease expense is reported within the line item Other operating expenses on the Consolidated Statements of Operations.
| (c) | For the three months ended March 31, 2020, Operating lease right-of-use assets and Operating lease liabilities amortized by $0.8 million and $0.7 million, respectively, and for the three months ended March 31, 2019 Operating lease right-of-use assets and Operating lease liabilities amortized by $0.2 million and $0.1 million, respectively. The Company recorded $0.1 million and $0.1 million of total operating lease expense during the three months ended March 31, 2020 and 2019, respectively, due to the net impact of the amortization.
​ 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 March 31, 2020, our apartment home leases generally have initial terms of 12 months or less and represent approximately 98.4% of our total lease revenue. As of March 31, 2020, our retail and commercial space leases generally have initial terms of 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 14, 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 March 31, 2020 are as follows (dollars in thousands):
​ | ​ | ​ | ​
​ | ​ | Retail and Commercial Leases
2020 | ​ | $ | 16,849
2021 | ​ | ​ | 22,487
2022 | ​ | ​ | 20,781
2023 | ​ | ​ | 19,317
2024 | ​ | ​ | 17,594
Thereafter | ​ | ​ | 81,662
Total future minimum lease payments (a) | ​ | $ | 178,690
| (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 $0.1 million and less than $0.2 million during the three months ended March 31, 2020 and 2019, respectively.
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 are classified as operating leases through the lease term expiration based on our election of the practical expedient provided by the leasing standard. 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, pursuant to leases that expire in 2029. We currently do not hold any finance leases. The Operating Partnership also elected the short-term lease exception provided by the leasing standard and therefore only recognizes right-of-use assets and lease liabilities for leases with a term greater than one year. No leases qualified for the short-term lease exception during the three months ended March 31, 2020 and 2019. As of March 31, 2020, the Operating lease right-of-use assets was $204.7 million and the Operating lease liabilities was $199.1 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 44.5 years at March 31, 2020 and the weighted average discount rate was 5.0% at March 31, 2020. Future minimum lease payments and total operating lease liabilities from our ground and equipment leases as of March 31, 2020 are as follows (dollars in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Ground Leases | ​ | Equipment Leases | ​ | Total
2020 | ​ | $ | 9,330 | ​ | $ | 108 | ​ | $ | 9,438
2021 | ​ | ​ | 12,442 | ​ | ​ | 147 | ​ | ​ | 12,589
2022 | ​ | ​ | 12,442 | ​ | ​ | 150 | ​ | ​ | 12,592
2023 | ​ | ​ | 12,442 | ​ | ​ | 153 | ​ | ​ | 12,595
2024 | ​ | ​ | 12,442 | ​ | ​ | 156 | ​ | ​ | 12,598
Thereafter | ​ | ​ | 455,221 | ​ | ​ | 795 | ​ | ​ | 456,016
Total future minimum lease payments (undiscounted) | ​ | ​ | 514,319 | ​ | ​ | 1,509 | ​ | ​ | 515,828
Difference between future undiscounted cash flows and discounted cash flows | ​ | ​ | (316,490) | ​ | ​ | (189) | ​ | ​ | (316,679)
Total operating lease liabilities (discounted) | ​ | $ | 197,829 | ​ | $ | 1,320 | ​ | $ | 199,149
​ 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. The components of operating lease expenses from our ground and equipment leases were as follows (dollars in thousands): ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended
​ | ​ | March 31,
​ | ​ | 2020 | ​ | 2019
Ground lease expense: | ​ | ​ | ​ | ​ | ​ | ​
Contractual ground lease rent expense | ​ | $ | 3,170 | ​ | $ | 2,140
Variable ground lease expense (a) | ​ | ​ | 43 | ​ | ​ | 139
Total ground lease expense (b) | ​ | ​ | 3,213 | ​ | ​ | 2,279
Contractual equipment lease expense (b) | ​ | ​ | 36 | ​ | ​ | -
Total operating lease expense (c) | ​ | $ | 3,249 | ​ | $ | 2,279
| (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 are reported within the line item Other operating expenses on the Consolidated Statements of Operations.
| (c) | For the three months ended March 31, 2020, Operating lease right-of-use assets and Operating lease liabilities amortized by $0.9 million and $0.9 million, respectively. The Operating Partnership recorded $0.1 million and $0.1 million of total operating lease expense during the three months ended March 31, 2020 and 2019, respectively, due to the net impact of the amortization.
​ Lessor - Apartment Home and Retail and Commercial Leases ​ The Operating Partnership’s communities and retail and commercial space are leased to tenants under operating leases. As of March 31, 2020, our apartment home leases generally have initial terms of 12 months or less and represent 98.4% of our total lease revenue. As of March 31, 2020, 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 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 March 31, 2020 are as follows (dollars in thousands):
​ | ​ | ​ | ​
​ | ​ | Retail and Commercial Leases
2020 | ​ | $ | 5,678
2021 | ​ | ​ | 7,311
2022 | ​ | ​ | 6,688
2023 | ​ | ​ | 6,361
2024 | ​ | ​ | 5,693
Thereafter | ​ | ​ | 14,807
Total future minimum lease payments (a) | ​ | $ | 46,538
| (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 less than $0.1 million and less than $0.1 million during the three months ended March 31, 2020 and 2019, respectively.

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