|FOREST CITY REALTY TRUST, INC. filed this Form 10-Q on 10/30/2018|
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
In July, 2018, the FASB approved targeted improvements to the Leases standard that provides lessors with a practical expedient by class of underlying assets to not separate non-lease components from the lease component. Such practical expedient is limited to circumstances in which (i) the timing and pattern of transfer for the non-lease component and the related lease component are the same and (ii) the stand-alone lease component would be classified as an operating lease if accounted for separately. The Company will elect the practical expedient which will allow the Company the ability to account for the combined component based on its predominant characteristic if the underlying asset meets the two criteria defined above.
In June 2016, the FASB issued an amendment on measurement of credit losses on financial assets held by a reporting entity at each reporting date. The guidance requires the use of a new current expected credit loss ("CECL") model in estimating allowances for doubtful accounts with respect to accounts receivable, straight-line rents receivable and notes receivable. The CECL model requires that the Company estimate its lifetime expected credit loss with respect to these receivables and record allowances that, when deducted from the balance of the receivables, represent the estimated net amounts expected to be collected. In August, 2018, the FASB issued a proposed amendment to clarify that operating lease receivables recorded by lessors (including straight-line rent) are explicitly excluded from the scope of this guidance. This guidance is effective for fiscal years, and for interim reporting periods within those fiscal years, beginning after December 15, 2019. The Company is in the process of evaluating the impact of this guidance.
Recognition of Revenues
The Company adopted new accounting guidance for revenue from contracts with customers on January 1, 2018. The adoption of this guidance did not result in a material impact on the Company’s consolidated financial statements at adoption and for the nine months ended September 30, 2018. The following is disclosure of the Company’s revenue recognition policies.
Rental – Lease terms in office buildings, retail centers and certain parking facilities generally range from 1 to 30 years, excluding leases with certain anchor tenants, which typically are longer. Minimum rents are recognized on a straight-line basis over the non-cancelable term of the lease, which include the effects of applicable rent steps and rent abatements. Overage rents are recognized after sales thresholds have been achieved. Apartment lease terms are generally one year.
Tenant Recoveries – Reimbursements from office, apartments and retail tenants for common area maintenance, taxes, insurance, utilities and other property operating expenses as defined in the lease agreements are recognized in the period the applicable costs are incurred.
Service and Management Fees – Management fee revenue in the Office, Apartment and Retail segments is a series of distinct services required to operate a property’s day to day activities with the same pattern of transfer to the customer satisfied over time. Management fee revenue is billed to the customer and recognized as revenue on a monthly basis as management services are rendered. Service fee revenue in the Office, Apartment and Retail segments primarily from leasing, financing, and other real estate services are distinct services billed and recognized in the period the Company’s performance obligation is satisfied. Development fee revenue on long-term fixed-price contracts or cost plus fee contracts are recognized as the Company’s performance obligation is satisfied. The Company applies the practical expedient and, as a result, does not disclose variable consideration attributable to wholly or partially unsatisfied performance obligations as of the end of the reporting period.
Parking and Other – Revenues derived from monthly and transient tenant parking and other revenue relates primarily to the Office and Apartment segment and is recognized in the period the Company’s performance obligation is satisfied.
Land Sales – Sales of land to residential, commercial and industrial customers, primarily at the Company’s Stapleton project in the Development segment, and sales of commercial outlots adjacent to the Company’s operating property portfolio primarily in the Retail segment are recognized at closing or upon completion of all conditions precedent to the sales contract (whichever is later).
Historic, New Market and Low Income Housing Tax Credit Entities
The Company invests in properties that have received, or the Company believes are entitled to receive, historic preservation tax credits on qualifying expenditures under Internal Revenue Code (“IRC”) section 47, low income housing tax credits on new construction and rehabilitation of existing buildings as low income rental housing under IRC section 42, and new market tax credits on qualifying investments in designated community development entities (“CDEs”) under IRC section 45D, as well as various state credit programs, which entitles the members to tax credits based on qualified expenditures at the time those qualified expenditures are placed in service (collectively “Tax Credits”). The Company typically enters into these investments with sophisticated financial investors. In exchange for the financial investors’ initial contribution into the investment, the financial investor is entitled to substantially all of the benefits derived from the tax credit. Typically, these arrangements have put/call provisions whereby the Company may be obligated (or entitled) to repurchase the financial investors’ interest. The Company has consolidated each of these entities in its consolidated financial statements and has included these investor contributions in accounts payable, accrued expenses and other liabilities.