Prologis (PLD), a logistics and fulfillment firm, is riding the ecommerce boom and the prioritization of supply chain resiliency over efficiency. The future was less certain at the height of the pandemic though as companies requested rent concessions after businesses were forced to close.

In its 2020 10-K, Prologis revealed it still recognized as revenue the deferred rental payments it granted during the pandemic:

“The deferral of rental payments did not impact revenue recognized from those leases.”

The Financial Accountability Standards Board (FASB) issued guidance giving lessors broad discretion in how they account for deferred rent. In situations where deferrals affect the timing of rental payments, but not the total lease amount agreed upon in the original contract, FASB offered two ways to account for deferrals:

Account for the concessions as if no changes to the lease contract were made. Under that accounting, a lessor would increase its lease receivable, and a lessee would increase its accounts payable as receivables/payments accrue. In its income statement, a lessor would continue to recognize income, and a lessee would continue to recognize expense during the deferral period.
Account for the deferred payments as variable lease payments.

In the footnotes, Prologis disclosed it will account for modifications differently if a lease modification is significant:

“If we grant concessions to a customer that modify the terms and significantly change the underlying cash flows of the original lease for the remaining term, we will account for these changes as a lease modification in accordance with U.S. GAAP.”

It’s clear FASB has blessed Prologis’ treatment of deferred rental payments. What’s not immediately clear is why a discrepancy exists in the amounts of deferred rent Prologis reports. In management’s summary, Prologis disclosed the following:

“During 2020, on an O&M (owned and managed) basis we deferred $45 million of rental payments…”

In the footnotes, Prologis discloses a smaller number:

“During 2020, we deferred approximately $23 million of rental payments…”

It may be that the $45 million figure is annualized and the $23 million is the actual deferral made in the 8-9 months following forced business closures. Either way, Prologis says the deferrals are less than 1% of revenue. In management’s summary, Prologis disclosed that as of January 25, 2021:

“...we had collected $33 million, or 98%, of the deferred payments due at December 31st, with the remainder due in 2021.”

In the footnotes, Prologis provides a different number:

“...we had collected approximately $16 million, or 98%, of the deferred payments due at December 31st, with the remainder due in 2021.”