REAL ESTATE OWNED (UNITED DOMINION REALTY, L.P.)

3 Months Ended

Mar. 31, 2020

Entity information

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 March 31, 2020, the Company owned and consolidated 150 communities in 13 states plus the District of Columbia totaling 47,579 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of March 31, 2020 and December 31, 2019 (dollars in thousands):

	March 31,		December 31,
	2020		2019
Land	$	2,163,055	$	2,164,032
Depreciable property — held and used:
Land improvements		225,850		224,964
Building, improvements, and furniture, fixtures and equipment		10,178,547		10,102,758
Real estate intangible assets		40,570		40,570
Under development:
Land and land improvements		29,226		29,226
Building, improvements, and furniture, fixtures and equipment		66,100		40,551
Real estate held for disposition:
Land and land improvements		16,245		—
Building, improvements, and furniture, fixtures and equipment		98,405		—
Real estate owned		12,817,998		12,602,101
Accumulated depreciation		(4,272,471)		(4,131,353)
Real estate owned, net	$	8,545,527	$	8,470,748

Acquisitions

In January 2020, the Company acquired a 294 apartment home operating community located in Tampa, Florida for approximately $85.2 million. The Company increased its real estate assets owned by approximately $83.1 million and recorded approximately $2.1 million of in-place lease intangibles.

In January 2020, the Company increased its ownership interest from 49% to 100% in a 276 apartment home operating community located in Hillsboro, Oregon, for a cash purchase price of approximately $21.6 million. In connection with the acquisition, the Company repaid approximately $35.6 million of joint venture construction financing. As a result, the Company consolidated the operating community. The Company had previously accounted for its 49% ownership interest as a preferred equity investment in an unconsolidated joint venture (see Note 5, Joint Ventures and Partnerships). The Company accounted for the consolidation as an asset acquisition resulting in no gain or loss upon consolidation and increased its real estate assets owned by approximately $67.8 million and recorded approximately $1.7 million of in-place lease intangibles.

Dispositions

In March 2020, the Company received a nonrefundable deposit on the pending sale of an operating community located in Seattle, Washington. The asset is included in Real estate held for disposition on the Consolidated Balance

Sheet as of March 31, 2020. The sale is expected to close in the second quarter of 2020 at a gross sales price of $49.7 million.

In May 2020, the Company sold an operating community in Seattle, Washington with a total of 196 apartment homes for gross proceeds of $92.9 million, resulting in a gain of approximately $31.7 million. The asset is included in Real estate held for disposition on the Consolidated Balance Sheet as of March 31, 2020.

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 March 31, 2020 and 2019, were $6.9 million and $3.3 million, respectively. Total interest capitalized was $1.4 million and $1.1 million for the three months ended March 31, 2020 and 2019, 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.

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.

United Dominion Realty L.P.

Entity information

REAL ESTATE OWNED

3. REAL ESTATE OWNED

Real estate assets owned by the Operating Partnership consist of income producing operating properties, properties under development, land held for future development, and sold or held for disposition properties. At March 31, 2020, the Operating Partnership owned and consolidated 52 communities in nine states plus the District of Columbia totaling 16,434 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of March 31, 2020 and December 31, 2019 (dollars in thousands):

	March 31,		December 31,
	2020		2019
Land	$	711,256	$	711,256
Depreciable property — held and used:
Land improvements		97,807		96,864
Buildings, improvements, and furniture, fixtures and equipment		3,077,550		3,067,040
Real estate owned		3,886,613		3,875,160
Accumulated depreciation		(1,831,814)		(1,796,568)
Real estate owned, net	$	2,054,799	$	2,078,592

Acquisitions

The Operating Partnership did not have any acquisitions of real estate during the three months ended March 31, 2020.

Dispositions

The Operating Partnership did not have any dispositions of real estate during the three months ended March 31, 2020.

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 Operating Partnership 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, were $0.4 million and less than $0.1 million for the three months ended March 31, 2020 and 2019, respectively. During both of the three months ended March 31, 2020 and 2019, total interest capitalized was less than $0.1 million and less than $0.1 million, respectively. As each apartment home in a capital project is completed and becomes available for lease-up, the Operating Partnership ceases capitalization on the related portion of the costs and depreciation commences over the estimated useful life.

In connection with the acquisition of certain properties, the Operating Partnership agreed to pay certain of the tax liabilities of certain contributors if the Operating Partnership 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 Operating Partnership 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 Operating Partnership has agreed to maintain certain debt that may be guaranteed by certain contributors for specified periods of time following the acquisition. The Operating Partnership, 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.