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LEASES | 9 Months Ended
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Sep. 30, 2022
LEASES |
LEASES | 6. LEASES Lessee - Ground Leases UDR has six communities that are subject to ground leases, under which UDR is the lessee, that expire 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 and nine months ended September 30, 2022 and 2021. As of September 30, 2022 and December 31, 2021, the Operating lease right-of-use assets were $194.9 million and $197.5 million, respectively, and the Operating lease liabilities were $190.1 million and $192.5 million, respectively, 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 42.8 years and 43.2 years at September 30, 2022 and December 31, 2021, respectively, and the weighted average discount rate was 5.0% at both September 30, 2022 and December 31, 2021. Future minimum lease payments and total operating lease liabilities from our ground leases as of September 30, 2022 are as follows (dollars in thousands):
​ | ​ | ​ | ​
​ | ​ | Ground Leases
2022 | ​ | $ | 3,110
2023 | ​ | ​ | 12,442
2024 | ​ | ​ | 12,442
2025 | ​ | ​ | 12,442
2026 | ​ | ​ | 12,442
Thereafter | ​ | ​ | 430,337
Total future minimum lease payments (undiscounted) | ​ | ​ | 483,215
Difference between future undiscounted cash flows and discounted cash flows | ​ | ​ | (293,151)
Total operating lease liabilities (discounted) | ​ | $ | 190,064
​ 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 September 30, | ​ | Nine Months Ended September 30,
​ | ​ | 2022 | ​ | 2021 | ​ | 2022 | ​ | 2021
Lease expense: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Contractual lease expense | ​ | $ | 3,226 | ​ | $ | 3,231 | ​ | $ | 9,760 | ​ | $ | 9,691
Variable lease expense (a) | ​ | ​ | 28 | ​ | ​ | 25 | ​ | ​ | 81 | ​ | ​ | 54
Total operating lease expense (b)(c) | ​ | $ | 3,254 | ​ | $ | 3,256 | ​ | $ | 9,841 | ​ | $ | 9,745
| (a) | Variable lease expense includes adjustments such as changes in the consumer price index and payments based on a percentage of a community’s revenue.
| (b) | Lease expense is reported within the line item Other operating expenses on the Consolidated Statements of Operations.
| (c) | For the nine months ended September 30, 2022, Operating lease right-of-use assets and Operating lease liabilities amortized by $2.5 million and $2.4 million, respectively. For the nine months ended September 30, 2021, Operating lease right-of-use assets and Operating lease liabilities amortized by $2.6 million and $2.3 million, respectively. Due to the net impact of the amortization, the Company recorded $0.1 million and $0.1 million of total operating lease expense during the three months ended September 30, 2022 and 2021, respectively, and $0.3 million and $0.3 million of total operating lease expense during the nine months ended September 30, 2022 and 2021, respectively.
​ 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 September 30, 2022, our apartment home leases generally have initial terms of 12 months or less. As of September 30, 2022, our retail and commercial space leases generally have initial terms of between 5 and 15 years and represent approximately 1% to 2% of our total lease revenue. Our apartment home leases are generally renewable at the end of the lease term, subject to potential changes 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 September 30, 2022 are as follows (dollars in thousands):
​ | ​ | ​ | ​
​ | ​ | Retail and Commercial Leases
2022 | ​ | $ | 6,127
2023 | ​ | ​ | 26,566
2024 | ​ | ​ | 24,703
2025 | ​ | ​ | 21,424
2026 | ​ | ​ | 18,638
Thereafter | ​ | ​ | 80,908
Total future minimum lease payments (a) | ​ | $ | 178,366
(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 $0.2 million for the three months ended September 30, 2022 and 2021, respectively, and $0.5 million and $0.3 million during the nine months ended September 30, 2022 and 2021, respectively.

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