New Accounting Pronouncements (Notes)

9 Months Ended

Sep. 30, 2019

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

New Accounting Pronouncements, Policy [Policy Text Block]

New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Leases

On January 1, 2019, we adopted Accounting Standards Codification ("ASC") 842, Leases ("ASC 842"), utilizing the available election to adopt on a prospective basis. ASC 842 has superseded all previous GAAP guidance for accounting for leases.

As part of adoption, we elected the package of practical expedients available for implementation, which included: (i) relief from re-assessing whether an expired or existing contract meets the definition of a lease, (ii) relief from re-assessing the classification of expired or existing leases at the adoption date and (iii) allowing previously capitalized initial direct leasing costs to continue to be amortized. Due in large part to electing these practical expedients, the adoption of ASC 842 did not result in recording a cumulative adjustment to the opening balance of distributions in excess of net income.

Lessor Accounting

Our primary business is the development, acquisition, and operation of industrial real estate properties that are held for investment and leased to tenants. Due to electing the package of practical expedients that allow for relief from re-assessing the classification of existing leases at the adoption date, as well as based on the characteristics of our underlying assets and leases, all of our leases are classified as operating leases. We manage residual risk through investing in properties that we believe will appreciate in value over time. We also perform a credit analysis for tenants prior to leases being executed, and on an ongoing basis, to ensure collectability is probable prior to recognizing lease revenues on an accrual basis. For lessors, the accounting under ASC 842 remains largely unchanged with the notable exception that ASC 842 requires that lessors expense certain initial direct costs, which were capitalizable under prior leasing standards, as incurred. Under the new standard, only the incremental costs of signing a lease are capitalizable. As the result of this change, we recognized $1.1 million and $6.7 million of expense for internal costs related to successful leases for the three and nine months ended September 30, 2019, respectively, presented separately in the line item "Non-Incremental Costs Related to Successful Leases" on the Consolidated Statements of Operations and Comprehensive Income, which previously would have been capitalized. For the three and nine months ended September 30, 2018, we capitalized $852,000 and $9.2 million, respectively, of internal lease related costs which would have been expensed had ASC 842 been effective.

ASC 842 also requires lessors to exclude certain lessor costs, such as real estate taxes and insurance, that are paid directly by lessees to third parties from rental revenue and the associated rental expense. Lessor costs that are paid by the lessor and reimbursed by the lessee continue to be recorded through rental revenue and the associated rental expense.

ASC 842 provides lessors an additional practical expedient to not separate rental recovery revenue related to lease-related services from the associated rental revenue related to the lease when certain criteria are met. The lease-related services provided to our tenants include property management, common area maintenance ("CAM") and utilities. We assessed the applicable criteria, concluding that the timing and straight-line pattern of transfer to the lessees for rental recovery revenue from our lease-related services and revenue from the underlying leases are the same and that lease classification does not change, and elected to apply this additional practical expedient.

Our leases generally include scheduled rent increases, but do not include variable payments based on indexes. Our rental revenue is primarily based on fixed, non-cancelable leases. Our variable rental revenue primarily consists of amounts recovered from lessees for property tax, insurance and CAM.

All revenues related to lease and lease-related services are included in, and comprise substantially all of, the caption "Rental and Related Revenue" on the Consolidated Statements of Operations and Comprehensive Income. The components of Rental and Related Revenue are as follows (in thousands):

	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Rental revenue - fixed payments	$	163,516	$	481,674
Rental revenue - variable payments (1)	51,858		156,772
Rental and related revenue	$	215,374	$	638,446

(1) Primarily includes tenant recoveries for real estate taxes, insurance and CAM.

The future minimum rents due to us under non-cancelable operating leases are as follows (in thousands):

Year	September 30, 2019		December 31, 2018
2019	$	153,301	$	600,385
2020	623,291		586,609
2021	600,850		529,961
2022	537,556		463,462
2023	466,514		397,150
Thereafter	2,058,372		1,582,598
	$	4,439,884	$	4,160,165

Lessee Accounting

ASC 842 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification determines whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use ("ROU") asset and a lease liability for all leases with a term of greater than 12 months regardless of classification.

As of September 30, 2019, our lease arrangements primarily consisted of office and ground leases. Adoption of the practical expedients resulted in the continued classification of our leases as operating leases. Expense recognized on these leases for the nine months ended September 30, 2019 was not material.

For these arrangements, we recognized a ROU asset and a corresponding lease liability at the January 1, 2019 adoption date of ASC 842, representing the discounted value of future lease payments required under our lease arrangements. A $38.8 million ROU asset, net of pre-existing lease related accruals, was included in Other Escrow Deposits and Other Assets, and a corresponding lease liability of $45.0 million was included in Other Liabilities on our Consolidated Balance Sheets as of September 30, 2019. In determining these amounts we elected an available practical expedient that allows us, as a lessee, to not separate lease and non-lease components.

The following table summarizes the future operating lease payments (in thousands) to be made under our non-cancellable lease arrangements:

Year	September 30, 2019			December 31, 2018
2019	$	1,521		$	6,487
2020	8,037			7,594
2021	3,595			2,987
2022	2,877			2,255
2023	2,585			1,949
Thereafter	86,040			85,523
Total undiscounted operating lease payments	$	104,655		$	106,795
Less: imputed interest	(59,634		)
Present value of operating lease payments	$	45,021

The weighted average remaining lease term for our lease arrangements, on a combined basis as of September 30, 2019, was 32.5 years. The weighted average discount rate for our lease arrangements as of September 30, 2019 was 4.55%. As the discount rates implied in our lease arrangements are not readily determinable, we utilized our current credit ratings and credit yields observed from market traded securities with similar credit ratings to form a reasonable basis to establish secured borrowing rates when determining the present value of future lease payments.