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REAL ESTATE OWNED

6 Months Ended

Jun. 30, 2021

REAL ESTATE OWNED

REAL ESTATE OWNED

3. REAL ESTATE OWNED

Real estate assets owned by the Company consist of income producing operating properties, properties under development, land held for future development, and held for disposition properties. As of June 30, 2021, the Company owned and consolidated 153 communities in 13 states plus the District of Columbia totaling 50,413 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of June 30, 2021 and December 31, 2020 (dollars in thousands):


		June 30,			December 31,
		2021			2020
Land		$	2,232,760		$	2,139,765
Depreciable property — held and used:
Land improvements			237,093			233,823
Building, improvements, and furniture, fixtures and equipment			10,815,176			10,292,782
Real estate intangible assets			40,570			40,570
Under development:
Land and land improvements			74,399			73,702
Building, improvements, and furniture, fixtures and equipment			212,526			174,175
Real estate held for disposition:
Land and land improvements			—			15,184
Building, improvements, and furniture, fixtures and equipment			—			101,471
Real estate owned			13,612,524			13,071,472
Accumulated depreciation (a)			(4,871,506)			(4,605,366)
Real estate owned, net		$	8,741,018		$	8,466,106

(a)

Accumulated depreciation is inclusive of $7.2 million and $5.8 million of accumulated amortization related to real estate intangible assets as of June 30, 2021 and December 31, 2020, respectively.

Acquisitions

In January 2021, the Company acquired a 300 apartment home operating community located in Franklin, Massachusetts for approximately $77.4 million. In connection with the acquisition, the Company assumed an above-market mortgage note payable secured by the community with an outstanding balance of approximately $51.8 million. The Company increased its real estate assets owned by approximately $82.0 million, recorded $2.0 million of in-place lease intangibles, and recorded a $6.6 million debt premium in connection with the above-market debt assumed.

In April 2021, the Company acquired a 636 apartment home operating community located in Farmers Branch, Texas for approximately $110.2 million. In connection with the acquisition, the Company assumed an above-market mortgage note payable secured by the community with an outstanding balance of approximately $42.0 million. The

Company increased its real estate assets owned by approximately $111.5 million, recorded $3.0 million of in-place lease intangibles, and recorded a $4.3 million debt premium in connection with the above-market debt assumed.

The Company previously had a secured note with an unaffiliated third party with an aggregate commitment of $20.0 million. The note was secured by a parcel of land and related land improvements located in Alameda, California. In September 2020, the developer defaulted on the loan. As a result of the default, in April 2021, the Company took title to the property pursuant to a deed in lieu of foreclosure. The Company increased its real estate assets owned by approximately $25.0 million, the fair market value of the property on the date of the title transfer, and recorded a $0.1 million gain on extinguishment of the secured note to Interest income and other income/(expense), net on the Consolidated Statements of Operations. (See Note 2, Significant Accounting Policies for further discussion.)

In May 2021, the Company acquired a to-be-developed parcel of land located in Tampa, Florida for approximately $6.6 million.

In May 2021, the Company acquired a 945 apartment home operating community located in Frisco, Texas for approximately $166.9 million. In connection with the acquisition, the Company assumed an above-market mortgage note payable secured by the community with an outstanding balance of approximately $89.5 million. The Company increased its real estate assets owned by approximately $169.9 million, recorded $4.1 million of in-place lease intangibles, and recorded a $7.1 million debt premium in connection with the above-market debt assumed.

In June 2021, the Company acquired a 468 apartment home operating community located in Germantown, Maryland for approximately $121.9 million. The Company increased its real estate assets owned by approximately $119.3 million and recorded $2.6 million of in-place lease intangibles.

In July 2021, the Company acquired a 259 apartment home operating community located in Bellevue, Washington for approximately $170.0 million. The Company previously had a $115.0 million secured note receivable associated with this operating community. In connection with the acquisition of this community, the note and the unpaid accrued interest were paid in full. (See Note 2, Significant Accounting Policies for further discussion.)

Dispositions

In February 2021, the Company sold an operating community located in Anaheim, California with a total of 386 apartment homes for gross proceeds of $156.0 million, resulting in a gain of approximately $50.8 million.

In July 2021, the purchaser under a purchase and sale agreement with the Company made its escrow deposit on the pending sale of an operating community located in Anaheim, California. The sale is expected to close in 2021 at a gross sales price of $124.0 million.

Other Activity

Predevelopment, development, and redevelopment projects and related costs are capitalized and reported on the Consolidated Balance Sheets as Total real estate owned, net of accumulated depreciation. The Company capitalizes costs directly related to the predevelopment, development, and redevelopment of a capital project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. These costs, excluding the direct costs of development and redevelopment and capitalized interest, for the three months ended June 30, 2021 and 2020, were $2.2 million and $1.8 million, respectively, and $6.8 million and $8.7 million for the six months ended June 30, 2021 and 2020, respectively. Total capitalized interest was $2.2 million and $1.7 million for the three months ended June 30, 2021 and 2020, respectively, and $4.4 million and $3.0 million for the six months ended June 30, 2021 and 2020, respectively. As each apartment home in a capital project is completed and becomes available for lease-up, the

Company ceases capitalization on the related portion of the costs and depreciation commences over the estimated useful life.

We record impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by the future operation and disposition of those assets are less than the net book value of those assets. Our cash flow estimates are based upon historical results adjusted to reflect our best estimate of future market and operating conditions and our estimated holding periods. The net book value of impaired assets is reduced to fair value. Our estimates of fair value represent our best estimate based upon Level 3 inputs such as industry trends and reference to market rates and transactions. The Company did not recognize any impairments in the value of its long-lived assets during the three and six months ended June 30, 2021 and 2020.

In connection with the acquisition of certain properties, the Company agreed to pay certain of the tax liabilities of certain contributors if the Company sells one or more of the properties contributed in a taxable transaction prior to the expiration of specified periods of time following the acquisition. The Company may, however, sell, without being required to pay any tax liabilities, any of such properties in a non-taxable transaction, including, but not limited to, a tax-deferred Section 1031 exchange.

Further, the Company has agreed to maintain certain debt that may be guaranteed by certain contributors for specified periods of time following the acquisition. The Company, however, has the ability to refinance or repay guaranteed debt or to substitute new debt if the debt and the guaranty continue to satisfy certain conditions.