Summary Of Significant Accounting Policies

6 Months Ended

Jun. 30, 2021

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying consolidated balance sheet as of December 31, 2020, which has been derived from audited financial statements, and unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in our latest Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting of normal, recurring adjustments) necessary for a fair presentation for the periods presented have been included. The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the full year.

Principles of Consolidation

Our consolidated financial statements include the accounts of the Trust, its corporate subsidiaries, and all entities in which the Trust has a controlling interest or has been determined to be the primary beneficiary of a variable interest entity (“VIE”). The equity interests of other investors are reflected as noncontrolling interests or redeemable noncontrolling interests. All significant intercompany transactions and balances are eliminated in consolidation. We account for our interests in joint ventures, which we do not control, using the equity method of accounting.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, referred to as “GAAP,” requires management to make estimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and revenues and expenses. These estimates are prepared using management’s best judgment, after considering past, current and expected events and economic conditions. Actual results could differ from these estimates.

Impacts of COVID-19 Pandemic

Since March 2020, we have been, and continue to be, impacted by the novel coronavirus ("COVID-19") pandemic. While we currently expect the impact to our properties to be temporary in nature, the extent of the future effects of COVID-19 on our business, results of operations, cash flows, and growth prospects is highly uncertain and will ultimately depend on future developments, none of which can be predicted with any certainty.

Federal, state, and local governments have taken various actions since the onset of the pandemic to mitigate the spread of COVID-19. These actions range from closure of nonessential businesses and ordering residents to generally stay at home at the onset of the pandemic to phased re-openings and capacity limitations and now to generally lifted restrictions as COVID-19 vaccination rates increase. These closures and restrictions, along with general concern over the spread of COVID-19, required a significant number of tenants to close their operations or to significantly limit the amount of business they were able to conduct,

which impacted their ability to timely pay rent as required under our leases and also caused many tenants to close their businesses permanently. While recent results are improving, we continued to see elevated levels of collectibility related impacts and accordingly, during the three and six months ended June 30, 2021, we recognized collectibility related adjustments of $6.4 million and $21.2 million, respectively. This includes not only the impact of tenants recognized on a cash basis but also changes in our collectibility assessments from probable to not probable, disputed rents, and any rent abatements directly related to COVID-19. As of June 30, 2021, the revenue from approximately 35% of our tenants (based on total commercial leases) is being recognized on a cash basis.

For more information, see Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Outlook.

Mortgage Notes Receivable

On May 11, 2021, two of our outstanding mortgage notes receivable were repaid. Including interest, the net proceeds were $33.8 million. As a result of the transaction, our mortgage notes receivable, net of valuation allowance, decreased $30.3 million.

Forward Equity Sales

On February 24, 2021, we replaced our existing at-the-market (“ATM”) equity program with a new ATM equity program in which we may from time to time offer and sell common shares having an aggregate offering price of up to $500.0 million. The new ATM equity program also allows shares to be sold through forward sales contracts. Our forward sales contracts currently meet all the conditions for equity classification; and therefore, we record common stock on the settlement date at the purchase price contemplated by the contract. Furthermore, we consider the potential dilution resulting from forward sales contracts in our earnings per share calculations. We use the treasury method to determine the dilution, if any, from the forward sales contracts during the period of time prior to settlement. As of June 30, 2021, no forward sales contracts have settled.

Recently Issued Accounting Pronouncements

Standard

Description

Effect on the financial statements or significant matters

ASU 2020-04, March 2020, Reference Rate Reform (Topic 848)

This ASU provides companies with optional practical expedients to ease the accounting burden for contract modifications associated with transitioning away from LIBOR and other interbank offered rates that are expected to be discontinued as part of reference rate reform. For hedges, the guidance generally allows changes to the reference rate and other critical terms without having to de-designate the hedging relationship, as well as allows the shortcut method to continue to be applied. For contract modifications, changes in the reference rate or other critical terms will be treated as a continuation of the prior contract.

This guidance can be applied immediately, however, is generally only available through December 31, 2022.

We are still evaluating the impact of reference rate reform and whether we will apply any of these practical expedients.

ASU 2021-05, July 2021, Lessors - Certain Leases with Variable Lease Payments (Topic 842)

This ASU amends the lessor lease classification in ASC 842 for leases that include variable lease payments that are not based on an index or rate. Under the amended guidance, lessors will classify a lease with variable payments that do not depend on an index or rate as an operating lease if the lease would have been classified as a sales-type lease or a direct financing lease under the previous ASU 842 classification criteria, and sales-type or direct financing lease classification would result in a Day 1 loss.

This guidance is effective for annual periods beginning after December 15, 2021, and interim periods therein.

The adoption of this standard does not have an impact to our consolidated financial statements.

Consolidated Statements of Cash Flows—Supplemental Disclosures

The following tables provide supplemental disclosures related to the Consolidated Statements of Cash Flows:


	Six Months Ended
	June 30,
	2021		2020
	(In thousands)
SUPPLEMENTAL DISCLOSURES:
Total interest costs incurred	$	76,284	$	73,942
Interest capitalized	(13,022)		(11,424)
Interest expense	$	63,262	$	62,518
Cash paid for interest, net of amounts capitalized	$	60,782	$	52,715
Cash paid for income taxes	$	320	$	428
NON-CASH INVESTING AND FINANCING TRANSACTIONS:

DownREIT operating partnership units issued with acquisition	$	—	$	18,920
Mortgage loans assumed with acquisition	$	—	$	8,903


DownREIT operating partnership units redeemed for common shares	$	5,121	$	—
Shares issued under dividend reinvestment plan	$	866	$	860


	June 30,		December 31,
	2021		2020
	(In thousands)
RECONCILIATION OF CASH, CASH EQUIVALENTS, AND RESTRICTED CASH:
Cash and cash equivalents	$	304,268	$	798,329
Restricted cash (1)	12,668		18,567
Total cash, cash equivalents, and restricted cash	$	316,936	$	816,896

(1)Restricted cash balances are included in "prepaid expenses and other assets" on our consolidated balance sheets.