UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 20172018
 
Commission file number 1-12672
 
AVALONBAY COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
 
Maryland 77-0404318
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
 
Ballston Tower
671 N. Glebe Rd, Suite 800
Arlington, Virginia  22203
(Address of principal executive offices, including zip code)
 
(703) 329-6300
(Registrant's telephone number, including area code) 
 
(Former name, if changed since last report) 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days.
Yes ý                    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ý                    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer o
Non-accelerated filer (Do not check if a smaller reporting company) o
Smaller reporting company o
Emerging growth company o
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o                    No ý


APPLICABLE ONLY TO CORPORATE ISSUERS
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date:

137,786,073138,208,815 shares of common stock, par value $0.01 per share, were outstanding as of April 28, 2017.30, 2018.

AVALONBAY COMMUNITIES, INC.
FORM 10-Q
INDEX
 
 PAGE
PART I - FINANCIAL INFORMATION 
  
ITEM 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
   
 
   
 
   
 
   
 
  
  
  
  
 
  
  
  
  
  
  
  
  




AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
3/31/2017 12/31/20163/31/2018 12/31/2017
(unaudited)  (unaudited)  
ASSETS 
  
 
  
Real estate: 
  
 
  
Land and improvements$3,981,847
 $3,941,250
$4,226,043
 $4,237,318
Buildings and improvements14,496,026
 14,314,981
15,733,783
 15,708,666
Furniture, fixtures and equipment546,523
 532,994
636,793
 615,288
19,024,396
 18,789,225
20,596,619
 20,561,272
Less accumulated depreciation(3,852,593) (3,743,632)(4,345,596) (4,218,379)
Net operating real estate15,171,803
 15,045,593
16,251,023
 16,342,893
Construction in progress, including land1,791,134
 1,882,262
1,375,366
 1,306,300
Land held for development103,954
 84,293
136,771
 68,364
Real estate assets held for sale, net
 20,846
121,387
 
Total real estate, net17,066,891
 17,032,994
17,884,547
 17,717,557
      
Cash and cash equivalents121,705
 214,994
137,244
 67,088
Cash in escrow247,015
 114,983
134,163
 134,818
Resident security deposits32,167
 32,071
33,130
 32,686
Investments in unconsolidated real estate entities183,403
 175,116
164,344
 163,475
Deferred development costs40,110
 40,179
39,369
 45,819
Prepaid expenses and other assets287,130
 256,934
253,650
 253,378
Total assets$17,978,421
 $17,867,271
$18,646,447
 $18,414,821
      
LIABILITIES AND EQUITY 
  
 
  
Unsecured notes, net$4,464,546
 $4,463,302
$6,150,633
 $5,852,764
Variable rate unsecured credit facility
 

 
Mortgage notes payable, net2,541,183
 2,567,578
1,448,822
 1,476,706
Dividends payable195,657
 185,397
203,166
 196,094
Payables for construction96,672
 100,998
83,209
 85,377
Accrued expenses and other liabilities293,637
 274,676
299,426
 308,189
Accrued interest payable54,143
 38,307
60,111
 43,116
Resident security deposits57,183
 57,023
58,760
 58,473
Liabilities related to real estate assets held for sale
 808
1,244
 
Total liabilities7,703,021
 7,688,089
8,305,371
 8,020,719
      
Commitments and contingencies

 



 

      
Redeemable noncontrolling interests8,778
 7,766
5,952
 6,056
      
Equity: 
  
 
  
Preferred stock, $0.01 par value; $25 liquidation preference; 50,000,000 shares authorized at March 31, 2017 and December 31, 2016; zero shares issued and outstanding at March 31, 2017 and December 31, 2016
 
Common stock, $0.01 par value; 280,000,000 shares authorized at March 31, 2017 and December 31, 2016; 137,786,600 and 137,330,904 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively1,378
 1,373
Preferred stock, $0.01 par value; $25 liquidation preference; 50,000,000 shares authorized at March 31, 2018 and December 31, 2017; zero shares issued and outstanding at March 31, 2018 and December 31, 2017
 
Common stock, $0.01 par value; 280,000,000 shares authorized at March 31, 2018 and December 31, 2017; 138,208,280 and 138,094,154 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively1,382
 1,381
Additional paid-in capital10,160,183
 10,105,654
10,229,738
 10,235,475
Accumulated earnings less dividends133,674
 94,899
128,166
 188,609
Accumulated other comprehensive loss(28,613) (30,510)(24,162) (37,419)
Total equity10,266,622
 10,171,416
10,335,124
 10,388,046
Total liabilities and equity$17,978,421
 $17,867,271
$18,646,447
 $18,414,821
 
See accompanying notes to Condensed Consolidated Financial Statements.

AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(Dollars in thousands, except per share data)
For the three months endedFor the three months ended
3/31/2017 3/31/20163/31/2018 3/31/2017
Revenue: 
  
 
  
Rental and other income$521,126
 $506,974
$559,906
 $521,126
Management, development and other fees1,200
 1,524
886
 1,200
Total revenue522,326
 508,498
560,792
 522,326
      
Expenses: 
  
 
  
Operating expenses, excluding property taxes123,044
 116,626
132,024
 123,044
Property taxes52,930
 50,067
59,896
 52,930
Interest expense, net49,295
 43,410
55,113
 49,295
Loss on extinguishment of debt, net397
 
Depreciation expense140,621
 127,216
159,059
 140,621
General and administrative expense13,206
 11,404
13,664
 13,206
Expensed acquisition, development and other pursuit costs, net of recoveries728
 3,462
800
 728
Casualty and impairment loss (gain), net11,688
 (2,202)
Casualty and impairment (gain) loss, net(58) 11,688
Total expenses391,512
 349,983
420,895
 391,512
      
Income before equity in income of unconsolidated real estate entities, gain on sale of communities and other real estate, and income taxes130,814
 158,515
Income before equity in income of unconsolidated real estate entities, gain (loss) on sale of communities and other real estate, and income taxes139,897
 130,814
      
Equity in income of unconsolidated real estate entities16,672
 27,969
1,740
 16,672
Gain on sale of communities87,949
 51,430

 87,949
Gain on sale of other real estate366
 
(Loss) gain on other real estate transactions(47) 366
      
Income before income taxes235,801
 237,914
141,590
 235,801
Income tax expense20
 37

 20
      
Net income235,781
 237,877
141,590
 235,781
Net loss attributable to noncontrolling interests94
 54
53
 94
      
Net income attributable to common stockholders$235,875
 $237,931
$141,643
 $235,875
      
Other comprehensive income (loss): 
  
(Loss) income on cash flow hedges145
 (47,757)
Other comprehensive income: 
  
Gain on cash flow hedges11,501
 145
Cash flow hedge losses reclassified to earnings1,752
 1,374
1,756
 1,752
Comprehensive income$237,772
 $191,548
$154,900
 $237,772
      
Earnings per common share - basic: 
  
 
  
Net income attributable to common stockholders$1.72
 $1.73
$1.03
 $1.72
      
Earnings per common share - diluted: 
  
 
  
Net income attributable to common stockholders$1.72
 $1.73
$1.03
 $1.72
      
Dividends per common share$1.42
 $1.35
$1.47
 $1.42

See accompanying notes to Condensed Consolidated Financial Statements.

AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Dollars in thousands)
For the three months endedFor the three months ended
3/31/2017 3/31/20163/31/2018 3/31/2017
Cash flows from operating activities:      
Net income$235,781
 $237,877
$141,590
 $235,781
Adjustments to reconcile net income to cash provided by operating activities:      
Depreciation expense140,621
 127,216
159,059
 140,621
Amortization of deferred financing costs1,826
 1,936
2,007
 1,826
Amortization of debt premium(4,621) (4,779)
Amortization of debt discount (premium)419
 (4,621)
Loss on extinguishment of debt, net397
 
Amortization of stock-based compensation4,319
 3,835
4,029
 4,319
Equity in (income) loss of, and return on, unconsolidated real estate entities and noncontrolling interests, net of eliminations(5,768) 6,438
Casualty and impairment loss (gain), net11,688
 (2,202)
Equity in loss of (income), and return on, unconsolidated real estate entities and noncontrolling interests, net of eliminations1,486
 (5,768)
Casualty and impairment (gain) loss, net(58) 11,688
Abandonment of development pursuits265
 
112
 265
Cash flow hedge losses reclassified to earnings1,752
 1,374
1,756
 1,752
Gain on sale of real estate assets(97,012) (81,055)
(Increase) decrease in cash in operating escrows(6,433) 3,009
Loss (gain) on sale of real estate assets47
 (97,012)
Increase in resident security deposits, prepaid expenses and other assets(10,630) (8,559)(6,608) (10,630)
Increase (decrease) in accrued expenses, other liabilities and accrued interest payable21,674
 (7,308)
Increase in accrued expenses, other liabilities and accrued interest payable11,677
 21,674
Net cash provided by operating activities293,462
 277,782
315,913
 299,895
      
Cash flows from investing activities:      
Development/redevelopment of real estate assets including land acquisitions and deferred development costs(259,573) (266,588)(301,299) (259,573)
Acquisition of real estate assets, including partnership interest
 (170,022)
Capital expenditures - existing real estate assets(8,015) (11,618)(15,240) (8,015)
Capital expenditures - non-real estate assets(2,429) (3,264)(1,735) (2,429)
Proceeds from sale of real estate, net of selling costs159,985
 68,709
603
 159,985
Increase in cash in deposit escrows(126,467) (69,227)
Insurance proceeds for property damage claims4,095
 8,702
58
 4,095
Mortgage note receivable lending(4,795) 
(2,006) (4,795)
(Decrease) increase in payables for construction(4,326) 842
Mortgage note receivable payment4,862
 
Decrease in payables for construction(2,168) (4,326)
Distributions from unconsolidated real estate entities11,952
 58,652
2,013
 11,952
Investments in unconsolidated real estate entities(5,774) (913)(4,368) (5,774)
Net cash used in investing activities(235,347) (384,727)(319,280) (108,880)
      
Cash flows from financing activities:      
Issuance of common stock, net56,817
 1,102

 56,817
Dividends paid(185,192) (171,151)(195,999) (185,192)
Repayments of mortgage notes payable, including prepayment penalties(21,037) (19,682)(28,584) (21,905)
Issuance of unsecured notes299,442
 
Payment of deferred financing costs(2,315) (6,176)(3,244) (2,315)
Payment of capital lease obligation(267) 
Receipts for termination of forward interest rate swaps12,598
 
Payments related to tax withholding for share-based compensation(10,483) 
Distributions to DownREIT partnership unitholders(11) (10)(11) (11)
Contributions from joint venture and profit-sharing partners1,038
 

 1,038
Distributions to joint venture and profit-sharing partners(104) (104)(104) (104)
Preferred interest obligation redemption and dividends(600) 
(480) (600)
Net cash used in financing activities(151,404) (196,021)
Net cash provided by (used in) financing activities72,868
 (152,272)
      
Net decrease in cash and cash equivalents(93,289) (302,966)
Net increase in cash and cash equivalents69,501
 38,743
      
Cash and cash equivalents, beginning of period214,994
 400,507
Cash and cash equivalents, end of period$121,705
 $97,541
Cash and cash equivalents and restricted cash, beginning of period201,906
 329,977
Cash and cash equivalents and restricted cash, end of period$271,407
 $368,720
      
Cash paid during the period for interest, net of amount capitalized$34,503
 $46,011
$33,936
 $34,503
See accompanying notes to Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Condensed Consolidated Statements of Cash Flows (dollars in thousands):
  For the three months ended
  3/31/2018 3/31/2017
Cash and cash equivalents $137,244
 $121,705
Cash in escrow 134,163
 247,015
Cash, cash equivalents and restricted cash reported in the Consolidated Statements of Cash Flows $271,407
 $368,720

Supplemental disclosures of non-cash investing and financing activities:

During the three months ended March 31, 2017:2018:

As described in Note 4, "Equity," 198,502182,998 shares of common stock were issued as part of the Company's stock-based compensation plans, of which 88,297 shares related to the conversion of performance awards to restricted shares, and the remaining 94,701 shares valued at $15,277,000 were issued in connection with new stock grants; 566 shares valued at $96,000 were issued through the Company's dividend reinvestment plan; 67,609 shares valued at $10,483,000 were withheld to satisfy employees' tax withholding and other liabilities; and 1,829 restricted shares with an aggregate value of $234,000 previously issued in connection with employee compensation were canceled upon forfeiture.

Common stock dividends declared but not paid totaled $203,166,000.

The Company recorded an increase of $63,000 in redeemable noncontrolling interest with a corresponding decrease to accumulated earnings less dividends to adjust the redemption value associated with the put options held by joint venture partners and DownREIT partnership units.  For further discussion of the nature and valuation of these items, see Note 10, "Fair Value."

The Company reclassified $1,756,000 of cash flow hedge losses from other comprehensive income to interest expense, net, to record the impact of the Company's derivative and hedge accounting activity.

During the three months ended March 31, 2017:

The Company issued 198,502 shares of common stock as part of the Company's stock-based compensation plans, of which 128,482 shares related to the conversion of performance awards to restricted shares, and the remaining 70,020 shares valued at $12,538,000 were issued in connection with new stock grants; 1,165 shares valued at $205,000 were issued through the Company's dividend reinvestment plan; 57,172 shares valued at $10,149,000 were withheld to satisfy employees' tax withholding and other liabilities; and 236 restricted shares with an aggregate value of $41,000 previously issued in connection with employee compensation were canceled upon forfeiture.

Common stock dividends declared but not paid totaled $195,657,000.

The Company recorded an increase of $183,000 in redeemable noncontrolling interest with a corresponding decrease to accumulated earnings less dividends to adjust the redemption value associated with the put options held by joint venture partners and DownREIT partnership units.  For further discussion of the nature and valuation of these items, see Note 10, "Fair Value."

The Company recorded an increase in prepaid expenses and other assets of $180,000 and an increase in accrued expenses and other liabilities of $102,000, and a corresponding adjustment to other comprehensive income, and reclassified $1,752,000 of cash flow hedge losses from other comprehensive income to interest expense, net, to record the impact of the Company's derivative and hedge accounting activity.

As discussed in Note 5, "Investments in Real Estate Entities," the Company recognized a non-cash charge of $16,361,000 to write-off the net book value of the fixed assets destroyed by the fire that occurred in February 2017 at the Company's Avalon Maplewood Development Community ("Maplewood"), and a corresponding recovery of loss of $12,598,000 for expected property damage insurance proceeds for the Maplewood casualty loss not received during the period.

During the three months ended March 31, 2016:

The Company issued 193,171 shares of common stock as part of the Company's stock-based compensation plans, of which 115,618 shares related to the conversion of performance awards to restricted shares, and the remaining 77,553 shares valued at $12,529,000 were issued in connection with new stock grants; 576 shares valued at $101,000 were issued through the Company's dividend reinvestment plan; 48,189 shares valued at $8,164,000 were withheld to satisfy employees' tax withholding and other liabilities; and 499 restricted shares with an aggregate value of $76,000 previously issued in connection with employee compensation were canceled upon forfeiture.

Common stock dividends declared but not paid totaled $185,173,000.

The Company recorded an increase of $299,000 in redeemable noncontrolling interest with a corresponding decrease to accumulated earnings less dividends to adjust the redemption value associated with the put options held by joint venture partners and DownREIT partnership units.

The Company recorded a decrease in prepaid expenses and other assets of $5,422,000 and an increase in accrued expenses and other liabilities of $42,335,000, and a corresponding loss to other comprehensive income of $47,757,000, and reclassified $1,374,000 of cash flow hedge losses from other comprehensive income to interest expense, net, to record the impact of the Company's derivative and hedge accounting activity.

The Company assumed fixed rate indebtedness with a principal amount of $67,904,000 in conjunction with the acquisition of Avalon Hoboken.


AVALONBAY COMMUNITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)  

1.  Organization, Basis of Presentation and Significant Accounting Policies

Organization and Basis of Presentation

AvalonBay Communities, Inc. (the "Company," which term, unless the context otherwise requires, refers to AvalonBay Communities, Inc. together with its subsidiaries), is a Maryland corporation that has elected to be treated as a real estate investment trust ("REIT") for federal income tax purposes under the Internal Revenue Code of 1986 (the "Code"). The Company focuses on the development, redevelopment, acquisition, ownership and operation of multifamily communities primarily in New England, the New York/New Jersey metro area, the Mid-Atlantic, the Pacific Northwest, and Northern and Southern California.

At March 31, 2017,2018, the Company owned or held a direct or indirect ownership interest in 260270 operating apartment communities containing 74,95278,388 apartment homes in 1012 states and the District of Columbia, of which nine15 communities containing 4,0756,260 apartment homes were under redevelopment. In addition, the Company owned or held a direct or indirect ownership interest in 2418 communities under development that are expected to contain an aggregate of 7,5815,774 apartment homes when completed. The Company also owned or held a direct or indirect ownership interest in land or rights to land on which the Company expects to develop an additional 28 communities that, if developed as expected, will contain an estimated 9,3049,268 apartment homes.

The interim unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements required by GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited financial statements should be read in conjunction with the financial statements and notes included in the Company's 20162017 Annual Report on Form 10-K. The results of operations for the three months ended March 31, 20172018 are not necessarily indicative of the operating results for the full year. Management believes the disclosures are adequate to ensure the information presented is not misleading.  In the opinion of management, all adjustments and eliminations, consisting only of normal, recurring adjustments necessary for a fair presentation of the financial statements for the interim periods, have been included.

Capitalized terms used without definition have meanings provided elsewhere in this Form 10-Q.

Earnings per Common Share

Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted average number of shares outstanding during the period. All outstanding unvested restricted share awards contain rights to non-forfeitable dividends and participate in undistributed earnings with common shareholders and, accordingly, are considered participating securities that are included in the two-class method of computing basic earnings per share ("EPS"). Both the unvested restricted shares and other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis. The Company's earnings per common share are determined as follows (dollars in thousands, except per share data):

For the three months endedFor the three months ended
3/31/2017 3/31/20163/31/2018 3/31/2017
Basic and diluted shares outstanding 
  
 
  
Weighted average common shares - basic137,068,874
 136,785,880
137,764,468
 137,068,874
Weighted average DownREIT units outstanding7,500
 7,500
7,500
 7,500
Effect of dilutive securities454,868
 589,664
381,202
 454,868
Weighted average common shares - diluted137,531,242
 137,383,044
138,153,170
 137,531,242
      
Calculation of Earnings per Share - basic 
  
 
  
Net income attributable to common stockholders$235,875
 $237,931
$141,643
 $235,875
Net income allocated to unvested restricted shares(652) (632)(430) (652)
Net income attributable to common stockholders, adjusted$235,223
 $237,299
$141,213
 $235,223
      
Weighted average common shares - basic137,068,874
 136,785,880
137,764,468
 137,068,874
      
Earnings per common share - basic$1.72
 $1.73
$1.03
 $1.72
      
Calculation of Earnings per Share - diluted 
  
 
  
Net income attributable to common stockholders$235,875
 $237,931
$141,643
 $235,875
Add: noncontrolling interests of DownREIT unitholders in consolidated partnerships11
 10
11
 11
Adjusted net income attributable to common stockholders$235,886
 $237,941
$141,654
 $235,886
      
Weighted average common shares - diluted137,531,242
 137,383,044
138,153,170
 137,531,242
      
Earnings per common share - diluted$1.72
 $1.73
$1.03
 $1.72
 

Certain options to purchase shares of common stock in the amount of 6,995 were outstanding as of March 31, 2018, but were not included in the computation of diluted earnings per share because such options were anti-dilutive for the period. All options to purchase shares of common stock outstanding as of March 31, 2017 and 2016 are included in the computation of diluted earnings per share.

As discussed under "Recently Issued and Adopted Accounting Standards," as of January 1, 2017, the Company adopted the provision of ASU 2016-09 using the modified retrospective approach to recognize forfeitures as they occur. Prior to the adoption of this standard, the Company was required to estimate the forfeiture of stock options and recognized compensation cost net of the estimated forfeitures. The estimated forfeitures included in compensation cost were adjusted to reflect actual forfeitures at the end of the vesting period. The change in accounting principle had an immaterial effect on the Company's financial position and no adjustment to retained earnings or the Company's diluted shares outstanding, as prescribed under the modified retrospective approach, was required in the prior year period.

Derivative Instruments and Hedging Activities

The Company enters into interest rate swap and interest rate cap agreements (collectively, "Hedging Derivatives") for interest rate risk management purposes and in conjunction with certain variable rate secured debt to satisfy lender requirements. The Company does not enter into Hedging Derivative transactions for trading or other speculative purposes. The Company assesses the effectiveness of qualifying cash flow and fair value hedges, both at inception and on an on-going basis. Hedge ineffectiveness is reported as a component of general and administrative expenses. The fair values of Hedging Derivatives that are in an asset position are recorded in prepaid expenses and other assets. The fair value of Hedging Derivatives that are in a liability position are included in accrued expenses and other liabilities. The Company does not present or disclose the fair value of Hedging Derivatives on a net basis. Fair value changes for derivatives that are not in qualifying hedge relationships are reported as a component of interest expense, net.  For the Hedging Derivative positions that the Company has determined qualify as effective cash flow hedges, the Company has recorded the effective portion of cumulative changes in the fair value of Hedging Derivatives in other comprehensive income (loss).loss.  Amounts recorded in accumulated other comprehensive income (loss)loss will be reclassified into earnings in the periods in which earnings are affected by the hedged cash flow. The effective portion of the change in fair value of the Hedging Derivatives that the Company has determined qualified as effective fair value hedges is reported as an adjustment to the carrying amount of the corresponding debt being hedged. See Note 10, "Fair Value," for further discussion of derivative financial instruments.

Legal and Other Contingencies

Maplewood Casualty Loss

In February 2017, a fire occurred at the Company's Avalon Maplewood Development Community, located in Maplewood, NJ, which was under construction and not yet occupied. The Company believes that liabilities to third parties resulting from the fire will not be material and will, in any event, be substantially covered by insurance subject to a deductible. The Company has commenced reconstruction of the damaged and destroyed portions of the community. See Note 5, "Investments in Real Estate Entities," for further discussion of the casualty gains and losses associated with the Maplewood casualty loss.

Edgewater Casualty Loss

In January 2015, a fire occurred at the Company's Avalon at Edgewater apartment community located in Edgewater, New Jersey ("Edgewater"). Edgewater consisted of two residential buildings. One building, containing 240 apartment homes, was destroyed. The second building, containing 168 apartment homes, suffered minimal damage and has been repaired.

The
In conjunction with legal matters associated with the Edgewater casualty loss, the Company has established protocols for processing claims from third parties who suffered losses as a result of the fire, and many third parties have contacted the Company's insurance carrier and settled their claims. See Part II, Item 1, "Legal Proceedings," for further discussion of the lawsuits associated with the Edgewater casualty loss.

Three class action lawsuits have been filed against the Company on behalf of occupants of the destroyed building and consolidated in the United States District Court for the District of New Jersey. The Company has agreed with class counsel to the terms of a proposed settlement which would provideprovides a claims process (with agreed upon protocols for instructing the adjuster as to how to evaluate claims) and, if needed, an arbitration process to determine damage amounts to be paid to individual claimants covered by the class settlement. In MarchJuly 2017 the District Court granted preliminaryfinal approval of the settlement and all claims have been submitted to the independent claims adjuster. A total of 66 units (consisting of residents who did not previously settle their claims and who did not opt out of the class settlement) are included in the class action settlement and in July 2017bound by its terms. However, only 44 units submitted claims. The independent claims adjuster is currently reviewing the claims submitted; the submitted claims total approximately $6,900,000 but, based on the Company's review of the initial determinations made by the adjuster on a fairness hearingnumber of claims, the Company believes that the total amount actually awarded will be held to determine whethersignificantly less. To date, the settlement will receive final approval.claims adjuster has completed his evaluation of 17 of these claims and it is expected that the evaluation of the remaining claims should be completed within the next month. A fourth class action, being heard in the same federal court, was filed against the Company on behalf of residents of the second Edgewater building that suffered minimal damage. Recently, a fifth class action lawsuit was filed against the Company seeking to certify a class on behalf of both buildings and other third parties. That action is currently stayed pending the decision by those plaintiffs either to be included in the class settlement or to formally opt-out. In addition to the class action lawsuits described above, 18 of the 19 lawsuits representing approximately 146143 individual plaintiffs have been filed and are currently pending in the Superior Court of New Jersey Bergen County - Law Division. AllDivision were previously scheduled for trial on January 2, 2018. In advance of this date, the Company was able to resolve all of these state court cases have been consolidated by the court. These plaintiffs, if eligible to be class members under the class settlement that has been preliminarily approved as described above, must formally opt-out of that class action settlement by May 17, 2017 if they want to continue their individual actions.claims in principle which included approximately 50 units. The Company previously resolved litigated claims with another 10 units. There is currently one remaining lawsuit which was recently filed in the Superior Court of New Jersey, Bergen County - Law Division on behalf of one apartment unit. The Company believes that it has meritorious defenses to the extent of damages claimed in all of the suits.that suit. There are also fiveseven subrogation lawsuits that have been filed against the Company by insurers of Edgewater residents who obtained renters insurance; it is the Company's position that in the majority of the applicable leases the residents waived subrogation rights. One of these lawsuits has been dismissed on that basis, one is pending in the Superior Court of New Jersey, Bergen County - Law Division, one has been amicably resolved in principle and the other four have been consolidated and are currently pending in the United States District Court for the District of New Jersey. The District Court recently denied the Company's motions seeking dismissal on this basis. The Company will reassess the viability of this defense after conducting additional discovery.

Having settled many third party claims through the insurance claims process, the Company currently believes that any potential remaining liability to third parties (including any potential liability to third parties determined in accordance with the class settlement described above, if approved)above) will not be material to the Company and will in any event be substantially covered by the Company's insurance policies. However, the Company can give no assurances in this regard and continues to evaluate this matter. See Note 5, "Investments in Real Estate Entities," and Part II, Item 1, "Legal Proceedings," for further discussion of the casualty gains and losses and lawsuits associated with the Edgewater casualty loss.

Other Matters

The Company is involved in various other claims and/or administrative proceedings unrelated to the Edgewater casualty loss that arise in the ordinary course of its business. While no assurances can be given, the Company does not currently believe that any of these other outstanding litigation matters, individually or in the aggregate, will have a material adverse effect on its financial condition or results of operations.


Acquisitions of Investments in Real Estate

The Company accounts for acquisitions of investments in real estate in accordance with the authoritative guidance for the initial measurement, which first requires that the identifiableCompany determine if the real estate investment is the acquisition of an asset or a business combination. Under either model, the Company must identify and determine the fair value of any assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree to be recognized at fair value.acquiree. Typical assets acquired and liabilities acquiredassumed include land, building, furniture, fixtures and equipment, debt and identified intangible assets and liabilities, consisting of the value of above or below market leases and in-place leases. In making estimates of fair values for purposes of allocating purchase price, the Company utilizes various sources, including its own analysis of recently acquired and existing comparable properties in its portfolio and other market data. Consideration for acquisitions is typically in the form of cash unless otherwise disclosed. For an acquisition of a business combination, the allocation ofCompany records the purchase price isassets acquired and liabilities assumed based on the fair value of the net assets, and foreach respective item. For an asset acquisition, the allocation of the purchase price is based on the relative fair value of the net assets. Subsequent to the adoption of ASU 2017-01 on October 1, 2016, theThe Company expenses all applicable acquisition costs for a business combination and capitalizes all applicable acquisition costs for an asset acquisition. The Company expects that acquisitions of individual operating communities will generally be viewed as asset acquisitions.


Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods.  Actual results could differ from those estimates.

Reclassifications

Certain reclassifications have been made to amounts in prior years' notes to financial statements to conform to current year presentations as a result of changes in held for sale classification and disposition activity.

Revenue and Gain Recognition

As of January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers, using the modified retrospective approach, which applies the new standard to contracts that are not completed as of the date of adoption. Under the new standard, revenue is recognized in accordance with the transfer of goods and services to customers at an amount that reflects the consideration the Company expects to be entitled for those goods and services. The majority of the Company’s revenue is derived from residential and retail rental income and other lease income, which are scoped out from this standard and included in the current lease accounting framework, and will be accounted for under ASU 2016-02, Leases, discussed under Recently Issued Accounting Standards below. Revenue streams that are scoped into ASU 2014-09 include:

Management fees - The Company has investment interests in real estate joint ventures, for which the Company may manage (i) the venture, (ii) the associated operating communities owned by the ventures and/or (iii) the development or redevelopment of those operating communities. For these activities, the Company receives asset management, property management, development and/or redevelopment fee revenue. The performance obligation is the management of the venture, community or other defined task such as the development or redevelopment of the community. While the individual activities that comprise the performance obligation of the management fees can vary day to day, the nature of the overall performance obligation to provide management service is the same and considered by the Company to be a series of services that have the same pattern of transfer to the customer and the same method to measure progress toward satisfaction of the performance obligation. The Company recognizes revenue for fees as earned on a monthly basis and has concluded this is appropriate under the new standard.

Rental and non-rental related income - The Company recognizes revenue for new rental related income not included as components of a lease, such as reservation and application fees, as well as for non-rental related income, as earned, and has concluded this is appropriate under the new standard.

Gains or losses on sales of real estate - The Company accounts for the sale of real estate assets and any related gain recognition in accordance with the accounting guidance applicable to sales of real estate, which establishes standards for recognition of profit on all real estate sales transactions, other than retail land sales. The Company recognizes the sale, and associated gain or loss from the disposition, provided that the earnings process is complete and the Company does not have significant continuing involvement. Subsequent to the adoption of the new standard, a gain or loss is recognized when the criteria for an asset to be derecognized are met, which include when (i) a contract exists and (ii) the buyer obtained control of the nonfinancial asset that was sold. As a result, the Company may recognize a gain on a real estate disposition transaction that previously did not qualify as a sale or for full profit recognition due to the timing of the transfer of control or certain forms of continuing involvement. In addition, subsequent to the adoption of the new standard, a gain or loss recognized on the sale of a nonfinancial asset to an unconsolidated entity will be recognized at 100%, and not the Company’s proportionate ownership percentage.

The Company concluded that the adoption of the new standard did not require an adjustment to the opening balance of retained earnings.

The following table provides details of the Company’s revenue streams disaggregated by the Company’s reportable operating segments, further discussed in Note 7, “Segment Reporting,” for the three months ended March 31, 2018 and 2017. Segment information for total revenue has been adjusted to exclude the real estate assets that were sold from January 1, 2017 through March 31, 2018, or otherwise qualify as held for sale as of March 31, 2018, as described in Note 6, "Real Estate Disposition Activities," (dollars in thousands):

  For the three months ended
  Established
Communities
 Other
Stabilized
Communities
 Development/
Redevelopment
Communities
 Non-
allocated (1)
 Total
For the period ended March 31, 2018          
Management, development and other fees $
 $
 $
 $886
 $886
Rental and non-rental related income (2) 2,399
 1,817
 405
 
 4,621
Total non-lease revenue (3) 2,399
 1,817
 405
 886
 5,507
           
Lease income (4) 415,145
 69,386
 67,529
 
 552,060
  

        
Total revenue $417,544
 $71,203
 $67,934
 $886
 $557,567
           
For the period ended March 31, 2017          
Management, development and other fees $
 $
 $
 $1,200
 $1,200
Rental and non-rental related income (2) 2,224
 1,687
 405
 
 4,316
Total non-lease revenue (3) 2,224
 1,687
 405
 1,200
 5,516
           
Lease income (4) 380,533
 68,429
 55,142
 
 504,104
           
Total revenue $382,757
 $70,116
 $55,547
 $1,200
 509,620


(1)Revenue represents third-party management, asset management and developer fees and miscellaneous income which are not allocated to a reportable segment.
(2)Amounts include revenue streams related to leasing activities that are not considered components of a lease, including but not limited to, apartment hold fees and application fees, as well as revenue streams not related to leasing activities, including but not limited to, vendor revenue sharing, building advertising, vending and dry cleaning revenue.
(3)Represents all revenue accounted for under ASC 2014-09.
(4)Amounts include all revenue streams derived from residential and retail rental income and other lease income, which are scoped out from ASC 2014-09 and accounted for under the lease accounting framework.

Due to the nature and timing of the Company’s identified revenue streams, there are no material amounts of outstanding or unsatisfied performance obligations as of March 31, 2018.

Recently Issued Accounting Standards

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU expands hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. This update also simplifies the application of hedge accounting guidance and eases the administrative burden of hedge documentation requirements and assessing hedge effectiveness. The Company adopted the guidance as of January 1, 2018 and it did not have a material effect on the Company’s financial position or results of operations.

In February 2017, the Financial Accounting Standards Board ("FASB")FASB issued Accounting Standards Update ("ASU")ASU 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. This ASU (i) clarifies the scope of the nonfinancial asset guidance and the derecognition of allcertain businesses and nonprofit activities, (except those related to conveyances of oil and gas mineral rights or contracts with customers). In addition, the amendments eliminate(ii) eliminates the exception in the financial asset guidance for transfers of investments (including equity method investments) in real estate entities and supersedesupersedes the guidance in the Exchanges of a Nonfinancial Asset for a Noncontrolling Ownership Interest. The amendments also provideInterest and (iii) provides guidance on the accounting of partial sales of nonfinancial assets and contributions of nonfinancial assets to a joint venture or other noncontrolled investee. The new standard allows for either a retrospective or modified retrospective approach. The guidance will be effective in the first quarter of 2018 and allows for early adoption. The Company is assessing whetheradopted the new standard will have a material effect on its financial position or results of operations.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses eight specific cash flow issues including debt prepayment or debt extinguishment costs, proceeds from the settlement of insurance claims, distributions received from equity method investees and separately identifiable cash flows and application of the predominance principle. The new standard requires a retrospective approach. The guidance will be effective in the first quarter of 2018 and allows for early adoption. The Company adopted this guidance as of January 1, 2017. The new standard did not have a material effect on the Company's Condensed Consolidated Statements of Cash Flows.

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of share-based payment transactions, including income tax consequences, classification of awards as equity or liability, statement of cash flows classification and policy election options for forfeitures. Upon adoption of the standard, the Company elected to account for forfeitures when they occur instead of estimating the forfeitures. The Company adopted this guidance as of January 1, 2017,2018 using the modified retrospective approach. The new standard did not have a material effect onapproach, applying the Company's financial position, resultsprovisions to open contracts as of operations or earnings per share as discussed in "Earnings per Common Share."the date of adoption. See "Revenue and Gain Recognition" above for additional discussion of the impact of adopting the guidance.


In February 2016, the FASB issued ASU 2016-02, Leases, amending the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The guidance will be effective in the first quarter of 2019 and allows for early adoption. The new standard requires a modified retrospective transition approach for all leases existing at or entered into after, the date of initial application, with an option to use certain transition relief.


ASU 2016-02 provides for transition relief, which includes not electing to (i) reassess whether any expired or existing contract is a lease or contains a lease, (ii) reassess the lease classification of any expired or existing leases and (iii) expense any capitalized initial direct costs for any existing leases. Subsequently, the FASB issued ASU 2018-01 which provides further transition relief by including an option to not evaluate land easements that exist or have expired prior to the date of adoption under ASC 842. The Company anticipates adoption of the standard to have a material impact on its financial position and results of operations resulting from the recognition of the right to use asset and corresponding lease obligation for its long-term ground leases, currently accounted for as operating leases. The Company will continue to assess the impact of the new standard.

In May 2014,Change in Accounting Principle

As of October 1, 2017, the FASB issuedCompany adopted ASU 2014-09, Revenue from Contracts with Customers2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The guidance requires statements of cash flows to explain the change during the period in the total of cash, cash equivalents, and in August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers-Deferral of the Effective Date, which defers the effective date ofamounts generally described as restricted cash or restricted cash equivalents, and was adopted retrospectively. The prior period amounts that have been impacted by the new revenue recognition standard untilguidance and retrospectively adjusted include (i) an increase in cash in operating escrows (cash provided by operating activities), (ii) an increase in cash in deposit escrows (cash provided by investing activities) and (iii) repayments of mortgage notes payable, including prepayment penalties (cash used in financing activities), located on the first quarterConsolidated Statements of 2018. Subsequently, the FASB has issued multiple ASUs clarifying ASU 2014-09 and ASU 2015-14.Cash Flows.

Under the new standard, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. Revenue is generally recognized net of allowances and any taxes collected from customers and subsequently remitted to governmental authorities. The majority of the Company's revenue is derived from rental income, which is scoped out from this standard and will be accounted for under ASU 2016-02, Leases, discussed above. The Company's other revenue streams, which are being evaluated under this ASU, include but are not limited to management fees, other income from residents determined not to be within the scope of ASU 2016-02 and gains and losses from real estate dispositions. The Company will continue to assessfollowing tables present the impact of the new standard and anticipates adoption aschange in accounting principle to the Condensed Consolidated Statement of January 1, 2018 usingCash Flows for the modified retrospective approach.three months ended March 31, 2017 (dollars in thousands):
 
3/31/2017
(as previously reported)
 Impact of ASU 2016-18 
3/31/2017
(as adjusted and currently reported)
   
Net cash provided by operating activities$293,462
 $6,433
 $299,895
Net cash used in investing activities(235,347) 126,467
 (108,880)
Net cash used in financing activities(151,404) (868) (152,272)
      
Net (decrease) increase in cash, cash equivalents(93,289) 93,289
 
Net increase in cash, cash equivalents and restricted cash
 38,743
 38,743
      
Cash, cash equivalents, beginning of period214,994
 (214,994) 
Cash, cash equivalents and restricted cash, beginning of period
 329,977
 329,977
Cash, cash equivalents, end of period$121,705
 
 
Cash, cash equivalents and restricted cash, end of period  $247,015
 $368,720

2.  Interest Capitalized

The Company capitalizes interest during the development and redevelopment of real estate assets. Capitalized interest associated with the Company's development or redevelopment activities totaled $17,821,000$13,164,000 and $20,609,000$17,821,000 for the three months ended March 31, 20172018 and 2016,2017, respectively.

3.  Mortgage Notes Payable, Unsecured Notes and Credit Facility

The Company's mortgage notes payable, unsecured notes, variable rate unsecured term loans ("Term Loans") and Credit Facility, as defined below, as of March 31, 20172018 and December 31, 20162017 are summarized below.  The following amounts and discussion do not include the mortgage notes related to the communities classified as held for sale, if any, as of March 31, 20172018 and December 31, 2016,2017, as shown in the accompanying Condensed Consolidated Balance Sheets (dollars in thousands) (see Note 6, "Real Estate Disposition Activities").

3/31/2017 12/31/20163/31/2018 12/31/2017
      
Fixed rate unsecured notes (1)$4,200,000
 $4,200,000
$5,650,000
 $5,350,000
Variable rate unsecured notes (1)300,000
 300,000
Term Loans (1)300,000
 300,000
250,000
 250,000
Fixed rate mortgage notes payable - conventional and tax-exempt (2)1,664,650
 1,668,496
566,091
 593,987
Variable rate mortgage notes payable - conventional and tax-exempt (2)890,202
 908,262
909,788
 910,326
Total mortgage notes payable and unsecured notes7,054,852
 7,076,758
Total mortgage notes payable, unsecured notes and Term Loans7,675,879
 7,404,313
Credit Facility
 

 
Total mortgage notes payable, unsecured notes and Credit Facility$7,054,852
 $7,076,758
Total mortgage notes payable, unsecured notes, Term Loans and Credit Facility$7,675,879
 $7,404,313


(1)Balances at March 31, 20172018 and December 31, 20162017 exclude $8,640$11,039 and $8,930,$10,850, respectively, of debt discount, and $26,814$38,328 and $27,768,$36,386, respectively, of deferred financing costs, as reflected in unsecured notes, net on the accompanying Condensed Consolidated Balance Sheets.
(2)Balances at March 31, 20172018 and December 31, 20162017 exclude $3,044$16,328 and $16,351, respectively, of debt discount, and $1,866 of debt premium, respectively,$10,729 and $10,625 and $11,046,$11,256, respectively, of deferred financing costs, as reflected in mortgage notes payable on the accompanying Condensed Consolidated Balance Sheets.

The following debt activity occurred during the three months ended March 31, 2017:2018:

In February 2017,2018, the Company repaid $17,300,000$15,174,000 of variablefixed rate debt secured by Avalon Mountain ViewOaks West in advance of its scheduled maturity date, incurring a charge of $426,000, consisting of a prepayment penalty of $152,000 and the non-cash write-off of unamortized deferred financing costs of $274,000.

In February 2018, the Company repaid $11,038,000 of fixed rate debt secured by AVA Pasadena at par atin advance of its scheduled maturity date.


In February 2017,March 2018, the Company entered intoissued $300,000,000 principal amount of unsecured notes in a $250,000,000 variablepublic offering under its existing shelf registration statement for net proceeds of approximately $296,210,000. The notes mature in April 2048 and were issued at a 4.35% interest rate. The effective interest rate unsecured term loan (the "$250 million Term Loan"), of which $100,000,000 matures in February 2022 with stated pricing of LIBOR plus 0.90%, and $150,000,000 matures in February 2024 with stated pricing of LIBOR plus 1.50%. As of March 31, 2017, the Company had not drawn any of the available $250,000,000 undernotes for the variablefirst 10 years is 3.97%, including the impact of an interest rate unsecuredhedge and offering costs, and for the remainder of the term loan. See Note 11, "Subsequent Events," for further discussion.the effective interest rate will be 4.39%.

At March 31, 2017,2018, the Company has a $1,500,000,000 revolving variable rate unsecured credit facility with a syndicate of banks (the "Credit Facility") which matures in April 2020. The Company may extend the maturity for up to nine months, provided the Company is not in default and upon payment of a $1,500,000 extension fee. The Credit Facility bears interest at varying levels based on the London Interbank Offered Rate ("LIBOR"), rating levels achieved on the Company's unsecured notes and on a maturity schedule selected by the Company. The current stated pricing is LIBOR plus 0.825% per annum (1.81%(2.71% at March 31, 2017)2018), assuming a one month borrowing rate. The annual facility fee is 0.125% (or approximately $1,875,000 annually based on the $1,500,000,000 facility size and based on the Company's current credit rating).

The Company had no borrowings outstanding under the Credit Facility and had $45,084,000$43,352,000 and $46,711,000$47,315,000 outstanding in letters of credit that reduced the borrowing capacity as of March 31, 20172018 and December 31, 2016,2017, respectively.

In the aggregate, secured notes payable mature at various dates from November 2017April 2018 through July 2066, and are secured by certain apartment communities (with a net carrying value of $3,405,173,000,$2,252,748,000, excluding communities classified as held for sale, as of March 31, 2017)2018).

As of March 31, 2017,2018, the Company has guaranteed a $100,000,000 mortgagesecured note payable held by a wholly-owned subsidiary; such mortgagesecured note payable is consolidated for financial reporting purposes. The weighted average interest rate of the Company's fixed rate mortgagesecured notes payable (conventional and tax-exempt) was 4.4%3.9% and 4.0% at both March 31, 20172018 and December 31, 2016.2017, respectively. The weighted average interest rate of the Company's variable rate mortgagesecured notes payable (conventional and tax-exempt), the Term Loan and its Credit Facility, including the effect of certain financing related fees, was 2.5%3.3% and 2.3%3.2% at March 31, 20172018 and December 31, 2016,2017, respectively.


Scheduled payments and maturities of mortgagesecured notes payable and unsecured notes outstanding at March 31, 20172018 are as follows (dollars in thousands):
Year Secured notes payments Secured notes maturities Unsecured notes maturities Stated interest rate of unsecured notes Secured notes payments Secured notes maturities Unsecured notes maturities Stated interest rate of unsecured notes
2017 13,954
 692,191
 
 N/A
2018 17,789
 76,667
 
 N/A
 5,273
 65,183
 
 N/A
2019 4,696
 655,514
 
 N/A
 4,443
 114,721
 
 N/A
2020 3,624
 118,729
 250,000
 6.100% 3,345
 140,429
 250,000
 6.100%

 

 

 400,000
 3.625% 

 

 400,000
 3.625%
2021 3,551
 27,844
 250,000
 3.950% 3,259
 27,844
 250,000
 3.950%

 

 

 300,000
 LIBOR + 1.450%
 

 

 300,000
 LIBOR + 0.43%
2022 3,795
 
 450,000
 2.950% 3,483
 
 450,000
 2.950%
     100,000
 LIBOR + .90%
2023 4,040
 
 350,000
 4.200% 3,713
 
 350,000
 4.200%

 

 

 250,000
 2.850% 

 

 250,000
 2.850%
2024 4,310
 
 300,000
 3.500% 3,950
 
 300,000
 3.500%
     150,000
 LIBOR + 1.50%
2025 4,585
 84,835
 525,000
 3.450% 4,202
 84,835
 525,000
 3.450%
     300,000
 3.500%     300,000
 3.500%
2026 4,894
 
 475,000
 2.950% 4,486
 
 475,000
 2.950%
     300,000
 2.900%     300,000
 2.900%
2027 4,048
 185,100
 400,000
 3.350%
Thereafter 213,754
 620,080
 350,000
 3.900% 135,148
 682,417
 350,000
 3.900%
 $278,992
 $2,275,860
 $4,500,000
  
     300,000
 4.150%
     450,000
 3.200%
     300,000
 4.350%
 $175,350
 $1,300,529
 $6,200,000
  
 

The Company was in compliance at March 31, 20172018 with customary financial and other covenants under the Credit Facility, the Term Loans and the Company's fixed rate unsecured notes.

4.  Equity

The following summarizes the changes in equity for the three months ended March 31, 20172018 (dollars in thousands):
Common
stock
 
Additional
paid-in
capital
 
Accumulated
earnings
less
dividends
 
Accumulated
other
comprehensive
loss
 
Total
equity
Common
stock
 
Additional
paid-in
capital
 
Accumulated
earnings
less
dividends
 
Accumulated
other
comprehensive
loss
 
Total
equity
                  
Balance at December 31, 2016$1,373
 $10,105,654
 $94,899
 $(30,510) $10,171,416
Balance at December 31, 2017$1,381
 $10,235,475
 $188,609
 $(37,419) $10,388,046
Net income attributable to common stockholders
 
 235,875
 
 235,875

 
 141,643
 
 141,643
Gain on cash flow hedges, net
 
 
 145
 145

 
 
 11,501
 11,501
Cash flow hedge loss reclassified to earnings
 
 
 1,752
 1,752
Cash flow hedge losses reclassified to earnings
 
 
 1,756
 1,756
Change in redemption value of redeemable noncontrolling interest
 
 (183) 
 (183)
 
 (63) 
 (63)
Dividends declared to common stockholders
 
 (195,657) 
 (195,657)
 
 (203,166) 
 (203,166)
Issuance of common stock, net of withholdings5
 47,962
 (1,260) 
 46,707
1
 (12,286) 1,143
 
 (11,142)
Amortization of deferred compensation
 6,567
 
 
 6,567

 6,549
 
 
 6,549
Balance at March 31, 2017$1,378
 $10,160,183
 $133,674
 $(28,613) $10,266,622
Balance at March 31, 2018$1,382
 $10,229,738
 $128,166
 $(24,162) $10,335,124

As of March 31, 20172018 and December 31, 2016,2017, the Company's charter had authorized for issuance a total of 280,000,000 shares of common stock and 50,000,000 shares of preferred stock for issuance.stock.


During the three months ended March 31, 2017,2018, the Company:

i.issued 7,266 shares of common stock in connection with stock options exercised;
ii.issued 1,165566 common shares through the Company's dividend reinvestment plan;
iii.ii.issued 198,502182,998 common shares in connection with restricted stock grants and the conversion of performance awards to restricted shares;
iv.issued 306,177 shares under CEP IV as discussed below;
v.iii.withheld 57,17267,609 common shares to satisfy employees' tax withholding and other liabilities; and
vi.iv.
canceled 2361,829 common shares of restricted stock upon forfeiture.

Any deferred compensation related to the Company's stock option, restricted stock and performance award grants during the three months ended March 31, 20172018 is not reflected on the accompanying Condensed Consolidated Balance Sheet as of March 31, 2017,2018, and will not be reflected until recognized as compensation cost.

In December 2015, the Company commenced a fourth continuous equity program ("CEP IV") under which the Company may sell (and/or enter into forward sale agreements for the sale of) up to $1,000,000,000 of its common stock from time to time. Actual sales will depend on a variety of factors to be determined by the Company, including market conditions, the trading price of the Company's common stock and determinations by the Company of the appropriate sources of funding for the Company. In conjunction with CEP IV, the Company engaged sales agents who will receive compensation of up to 2.0% of the gross sales price for shares sold. CEP IV also allows the Company to enter into forward sale agreements up to $1,000,000,000 in aggregate sales price of its common stock. The Company expects that, if entered into, it will physically settle each forward sale agreement on one or more dates specified by the Company on or prior to the maturity date of that particular forward sale agreement, in which case the Company will expect to receive aggregate net cash proceeds at settlement equal to the number of shares underlying the particular forward agreement multiplied by the relevant forward sale price. However, the Company may also elect to cash settle or net share settle a forward sale agreement. In connection with each forward sale agreement, the Company will pay the relevant forward seller, in the form of a reduced initial forward sale price, a commission of up to 2.0% of the sales prices of all borrowed shares of common stock sold. As of March 31, 2018, there are no outstanding forward sales agreements. During the three months ended March 31, 2017,2018, the Company sold 306,177 shares at an averagehad no sales price of $186.44 per share, for net proceeds of $56,228,000.under the program. As of March 31, 2017,2018, the Company had $942,915,000$892,915,000 of shares remaining authorized for issuance under this program.


5.  Investments in Real Estate Entities

InvestmentInvestments in Unconsolidated Real Estate Entities

As of March 31, 2017,2018, the Company had investments in five unconsolidated real estate entities with ownership interest percentages ranging from 20.0% to 31.3%, excluding development joint ventures and joint ventures formed with Equity Residential as part of the Archstone acquisition. The Company accounts for its investments in unconsolidated real estate entities under the equity method of accounting. The significant accounting policies of the Company's unconsolidated real estate entities are consistent with those of the Company in all material respects.

During the three months ended March 31, 2017,The Company has an equity interest of 31.3% in AvalonBay Value Added Fund II, L.P. ("Fund II") sold Eaves Gaithersburg, located in Gaithersburg, MD, containing 684 apartment homes, for $117,000,000. The Company's share of the gain in accordance with GAAP for the disposition was $8,697,000, which is reported as a component of equity in income of unconsolidated real estate entities on the accompanying Condensed Consolidated Statements of Comprehensive Income. In conjunction with the disposition of this community during the three months ended March 31, 2017, Fund II repaid $63,200,000 of secured indebtedness at par in advance of its scheduled maturity date.

The Company has an equity interest of 31.3% in Fund II,, and upon achievement of a threshold return, the Company has a right to incentive distributions for its promoted interest based on the current returns earned by Fund II, which currently represents 20.0%40.0% of further Fund II distributions, which is in addition to its proportionate share of the remaining 80.0%60.0% of distributions. During 2017, Fund II sold its final apartment communities. During the three months ended March 31, 2017,2018, the Company recognized income of $6,765,000$925,000 for its promoted interest, which is reported as a component of equity in income of unconsolidated real estate entities on the accompanying Condensed Consolidated Statements of Comprehensive Income.

The following is a combined summary of the financial position of the entities accounted for using the equity method discussed above as of the dates presented (dollars in thousands):

3/31/2017 12/31/20163/31/2018 12/31/2017
(unaudited) (unaudited)(unaudited) (unaudited)
Assets: 
  
 
  
Real estate, net$862,612
 $954,493
$689,612
 $695,077
Other assets76,208
 49,519
38,084
 39,976
Total assets$938,820
 $1,004,012
$727,696
 $735,053
      
Liabilities and partners' capital: 
  
 
  
Mortgage notes payable, net and credit facility$625,256
 $689,573
$523,008
 $523,815
Other liabilities15,861
 16,537
13,406
 10,540
Partners' capital297,703
 297,902
191,282
 200,698
Total liabilities and partners' capital$938,820
 $1,004,012
$727,696
 $735,053
 

The following is a combined summary of the operating results of the entities accounted for using the equity method discussed above for the periods presented (dollars in thousands):
For the three months endedFor the three months ended
3/31/2017 3/31/20163/31/2018 3/31/2017
(unaudited)(unaudited)
Rental and other income$28,642
 $36,955
$21,801
 $28,642
Operating and other expenses(11,094) (14,170)(8,305) (11,094)
Gain on sale of communities29,447
 103,321

 29,447
Interest expense, net (1)(6,948) (20,001)(5,618) (6,948)
Depreciation expense(7,327) (9,240)(5,880) (7,327)
Net income$32,720
 $96,865
$1,998
 $32,720


(1)Amount for the three months ended March 31, 2016 includes charges for prepayment penalties and write-offs of deferred financing costs of $10,864.

In conjunction with the formation of Fund II and North Point II JV, LP ("AVA North Point"), and the acquisition of Archstone Multifamily Partners AC LP (the "U.S. Fund"), Multifamily Partners AC JV LP (the "AC JV") and Brandywine Apartments of Maryland, LLC ("Brandywine"), the Company incurred costs in excess of its equity in the underlying net assets of the respective investments. These costs represent $37,148,000$35,052,000 and $38,015,000$35,402,000 at March 31, 20172018 and December 31, 2016,2017, respectively, of the Company's respective investment balances. These amounts are being amortized over the lives of the underlying assets as a component of equity in income of unconsolidated real estate entities on the accompanying Condensed Consolidated Statements of Comprehensive Income.

Investments in Consolidated Real Estate Entities

In conjunction with the development of Avalon Brooklyn Bay, the Company entered into a joint venture agreement to construct a mixed-use building that will containcontains rental apartments, for-sale residential condominium units and related common elements. The Company owns a 70.0% interest in the venture, and will have all of the rights and obligations associated withwhich represents a 100% interest in the rental apartments, and the venture partner owns the remaining 30.0% interest, and will have all of the rights and obligations associated withwhich represents a 100% interest in the for-sale residential condominium units. The Company is responsible for the development and construction of the structure, and is providingprovided a loan to the venture partner for the venture partner's share of costs. The development of Avalon Brooklyn Bay was completed during the three months ended March 31, 2018. As of March 31, 2017,2018, the Company has a receivable from the venture partner in the form of a variable rate mortgage note, secured by the for-sale residential condominium units, in the amount of $32,036,000$41,976,000 for outstanding principal and interest, net of repayments, reported as a component of prepaid expenses and other assets on the accompanying Condensed Consolidated Balance Sheets. The Company recognizes interest income on the accrual basis. The loan will beBeginning in 2018, the mortgage note is being repaid by the venture partner with the proceeds the venture partner receives from the sales of the residential condominium units which are expected to occur during 2017 and 2018.units. The venture is considered a VIE, and the Company consolidates its interest in the rental apartments and common areas.


Expensed Acquisition, Development and Other Pursuit Costs and Impairment of Long-Lived Assets

The Company capitalizes pre-development costs incurred in pursuit of new development opportunities for which the Company currently believes future development is probable ("Development Rights"). Future development of these Development Rights is dependent upon various factors, including zoning and regulatory approval, rental market conditions, construction costs and the availability of capital. Initial pre-development costs incurred for pursuits for which future development is not yet considered probable are expensed as incurred. In addition, if the status of a Development Right changes, making future development by the Company no longer probable, any capitalized pre-development costs are expensed. The Company expensed costs related to the abandonment of Development Rights, as well as costs incurred in pursuing the acquisition of assets or costs incurred pursuing the disposition of assets for which such acquisition and disposition activity did not occur, in the amounts of $728,000$800,000 and $746,000$728,000 for the three months ended March 31, 20172018 and 2016,2017, respectively. These costs are included in expensed acquisition, development and other pursuit costs, net of recoveries on the accompanying Condensed Consolidated Statements of Comprehensive Income. Abandoned pursuit costs can vary greatly, and the costs incurred in any given period may be significantly different in future periods.

The Company evaluates its real estate and other long-lived assets for impairment when potential indicators of impairment exist. Such assets are stated at cost, less accumulated depreciation and amortization, unless the carrying amount of the asset is not recoverable. If events or circumstances indicate that the carrying amount of a property or long-lived asset may not be recoverable, the Company assesses its recoverability by comparing the carrying amount of the property or long-lived asset to its estimated undiscounted future cash flows. If the carrying amount exceeds the aggregate undiscounted future cash flows, the Company recognizes an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property or long-lived asset. Based on periodic tests of recoverability of long-lived assets for the three months ended March 31, 20172018 and 2016,2017, the Company did not recognize any impairment losses for wholly-owned operating real estate assets.assets, and did not record any impairment losses other than those related to the impairment on land held for investment and casualty gains and losses from property damage, as discussed below.

The Company assesses its portfolio of land held for both development and investment for impairment if the intent of the Company changes with respect to either the development of, or the expected holding period for, the land. During the three months ended March 31, 2017, the Company recognized an impairment charge of $9,350,000 relating to a land parcel which the Company had acquired for development in 2004 and no longer intends to develop. During the three months ended March 31, 2016, the Company recognized an aggregate impairmentsold during 2017. This charge of $6,500,000 relating to two undeveloped land parcels. These charges werewas determined as the excess of the Company's carrying basis over the expected salessale price for eachthe parcel, and these charges areis included in casualty and impairment (gain) loss, (gain), net on the accompanying Condensed Consolidated Statements of Comprehensive Income.


The Company evaluates its unconsolidated investments for other than temporary impairment, considering both the extent and amount by which the carrying value of the investment exceeds the fair value, and the Company's intent and ability to hold the investment to recover its carrying value. The Company also evaluates its proportionate share of any impairment of assets held by unconsolidated investments. There were no other than temporary impairment losses recognized by any of the Company's investments in unconsolidated real estate entities during the three months ended March 31, 20172018 and 2016.2017.

Casualty Gains and Losses

During the three months ended March 31, 2017, the Company recorded a casualty loss of $19,481,000 composed of a charge of $16,361,000 to write-off the net book value of the fixed assets destroyed in the Maplewood casualty loss, and an accrual for demolition and additional incident expenses of $3,120,000. The casualty loss was partially offset by $17,143,000 of expected property damage insurance proceeds, of which $4,545,000 was received during the three months ended March 31, 2017. The receivable for the remaining $12,598,000 of expected property damage insurance proceeds is included in prepaid expenses and other assets on the accompanying Condensed Consolidated Balance Sheets. The net casualty loss of $2,338,000 for the three months ended March 31, 2017 is included in casualty and impairment (gain) loss, (gain), net on the accompanying Condensed Consolidated Statements of Comprehensive Income. See discussion in Note 1, "Organization, Basis of Presentation and Significant Accounting Policies, Legal and Other Contingencies," for further discussion of the Maplewood casualty loss.

During the three months ended March 31, 2016, the Company reached a final insurance settlement for the property damage and lost income for the Edgewater casualty loss. In 2015 and 2016, the Company received aggregate insurance proceeds for Edgewater of $73,150,000, after self-insurance and deductibles. During the three months ended March 31, 2016, the Company received the final $29,008,000 of insurance proceeds, of which $8,702,000 was recognized as casualty and impairment loss (gain), net on the accompanying Condensed Consolidated Statements of Comprehensive Income, and $20,306,000 as business interruption insurance proceeds, which is recorded as a component of rental and other income on the accompanying Condensed Consolidated Statements of Comprehensive Income. See discussion in Note 1, "Organization, Basis of Presentation and Significant Accounting Policies, Legal and Other Contingencies," and Part II, Item 1, "Legal Proceedings," for further discussion of the Edgewater casualty loss.

6.  Real Estate Disposition Activities

During the three months ended March 31, 2017, the Company sold the following real estate assets.

Avalon Pines, located in Coram, NY, containing 450 homes, and the adjacent golf course were sold for $140,000,000. The Company's gain in accordance with GAAP on the disposition was $87,949,000, reported in gain on sale of communities on the accompanying Condensed Consolidated Statements of Comprehensive Income. The sale of Avalon Pines is expected to be part of a tax deferred exchange under which the Company has restricted the cash proceeds in an escrow account, classified as cash in escrow on the accompanying Condensed Consolidated Balance Sheet.

Two undeveloped land parcels, located in Newcastle, WA, that are adjacent to one of the Company's Development Communities, and 421-a tax certificates, representing the right to qualify for certain property tax exemptions in New York City, were sold for an aggregate sales price of $22,286,000. The Company's gain in accordance with GAAP on the dispositions was $366,000, reported in gain on sale of other real estate on the accompanying Condensed Consolidated Statements of Comprehensive Income.

At March 31, 2017,2018, the Company had no real estate assetstwo communities that qualified as held for sale.


7.  Segment Reporting

The Company's reportable operating segments include Established Communities, Other Stabilized Communities, and Development/Redevelopment Communities.  Annually as of January 1, the Company determines which of its communities fall into each of these categories and generally maintains that classification throughout the year for the purpose of reporting segment operations, unless disposition or redevelopment plans regarding a community change.

In addition, the Company owns land for future development and has other corporate assets that are not allocated to an operating segment.

The Company's segment disclosures present the measure(s) used by the chief operating decision maker for purposes of assessing each segment's performance. The Company's chief operating decision maker is comprised of several members of its executive management team who use net operating income ("NOI") as the primary financial measure for Established Communities and Other Stabilized Communities. NOI is defined by the Company as total property revenue less direct property operating expenses (including property taxes), and excluding corporate-level income (including management, development and other fees), corporate-level property management and other indirect operating expenses, investments and investment management expenses, expensed acquisition, development and other pursuit costs, net of recoveries, interest expense, net, loss (gain) on extinguishment of debt, net, general and administrative expense, equity in (loss) income of unconsolidated real estate entities, depreciation expense, corporate income tax expense, casualty and impairment loss (gain), net, gain on sale of communities, loss (gain) on other real estate assetstransactions and net operating income from real estate assets sold or held for sale. Although the Company considers NOI a useful measure of a community's or communities' operating performance, NOI should not be considered an alternative to net income or net cash flow from operating activities, as determined in accordance with GAAP. NOI excludes a number of income and expense categories as detailed in the reconciliation of NOI to net income.

A reconciliation of NOI to net income for the three months ended March 31, 20172018 and 20162017 is as follows (dollars in thousands):
For the three months endedFor the three months ended
3/31/2017 3/31/20163/31/2018 3/31/2017
Net income$235,781
 $237,877
$141,590
 $235,781
Indirect operating expenses, net of corporate income16,297
 16,537
18,082
 16,297
Investments and investment management expense1,321
 1,145
1,643
 1,321
Expensed acquisition, development and other pursuit costs, net of recoveries728
 3,462
800
 728
Interest expense, net49,295
 43,410
55,113
 49,295
Loss on extinguishment of debt, net397
 
General and administrative expense13,206
 11,404
13,664
 13,206
Equity in income of unconsolidated real estate entities(16,672) (27,969)(1,740) (16,672)
Depreciation expense140,621
 127,216
159,059
 140,621
Income tax expense20
 37

 20
Casualty and impairment loss (gain), net11,688
 (2,202)(58) 11,688
Gain on sale of real estate(88,315) (51,430)
Gain on sale of communities
 (87,949)
Loss (gain) on other real estate transactions47
 (366)
Net operating income from real estate assets sold or held for sale(1,387) (8,606)(2,144) (8,101)
Net operating income$362,583
 $350,881
$386,453
 $355,869

The following is a summary of NOI from real estate assets sold or held for sale for the periods presented (dollars in thousands):
For the three months endedFor the three months ended
3/31/2017 3/31/20163/31/2018 3/31/2017
Rental income from real estate assets sold or held for sale$2,650
 $13,916
$3,225
 $12,706
Operating expenses from real estate assets sold or held for sale(1,263) (5,310)(1,081) (4,605)
Net operating income from real estate assets sold or held for sale$1,387
 $8,606
$2,144
 $8,101

The primary performance measure for communities under development or redevelopment depends on the stage of completion.  While under development, management monitors actual construction costs against budgeted costs as well as lease-up pace and rent levels compared to budget.


The following table provides details of the Company's segment information as of the dates specified (dollars in thousands). The segments are classified based on the individual community's status at the beginning of the given calendar year. Therefore, each year the composition of communities within each business segment is adjusted. Accordingly, the amounts between years are not directly comparable. Segment information for total revenue and NOI for the three months ended March 31, 20172018 and 20162017 has been adjusted to exclude the real estate assets that were sold from January 1, 20162017 through March 31, 2017,2018, or otherwise qualify as held for sale as of March 31, 2017,2018, as described in Note 6, "Real Estate Disposition Activities." Segment information for gross real estate as of March 31, 20172018 and 20162017 has not been adjusted to exclude real estate assets that were sold or otherwise qualified as held for sale subsequent to the respective balance sheet dates.
For the three months ended  For the three months ended  
Total
revenue
 NOI % NOI  change from  prior year Gross real estate (1)Total
revenue
 NOI % NOI  change from  prior year Gross real estate (1)
For the three months ended March 31, 2017  
  
For the period ended March 31, 2018For the period ended March 31, 2018  
  
Established 
  
  
  
 
  
  
  
New England$58,607
 $37,816
 3.3% $1,875,024
$57,909
 $37,643
 1.8 % $1,973,203
Metro NY/NJ87,544
 60,060
 3.8% 2,903,317
104,096
 71,921
 0.9 % 3,722,387
Mid-Atlantic55,755
 39,147
 3.7% 2,062,311
59,159
 41,067
 0.2 % 2,233,711
Pacific Northwest20,454
 14,815
 5.2% 731,537
21,242
 14,838
 (0.6)% 725,487
Northern California83,323
 63,717
 2.0% 2,815,589
92,197
 70,494
 1.8 % 3,017,863
Southern California83,225
 60,551
 6.2% 3,005,810
82,941
 59,394
 1.9 % 2,842,685
Total Established388,908
 276,106
 3.9% 13,393,588
417,544
 295,357
 1.2 % 14,515,336
              
Other Stabilized74,021
 51,571
 N/A
 3,032,689
71,203
 47,265
 N/A
 3,036,815
Development / Redevelopment55,547
 34,906
 N/A
 4,276,266
67,934
 43,831
 N/A
 4,321,466
Land Held for DevelopmentN/A
 N/A
 N/A
 103,954
N/A
 N/A
 N/A
 136,771
Non-allocated (3)(2)1,200
 N/A
 N/A
 112,987
886
 N/A
 N/A
 98,368
              
Total$519,676
 $362,583
 3.3% $20,919,484
$557,567
 $386,453
 8.6 % $22,108,756
              
For the three months ended March 31, 2016  
  
For the period ended March 31, 2017For the period ended March 31, 2017  
  
Established 
  
  
  
 
  
  
  
New England$57,196
 $36,508
 15.9% $1,860,863
$56,154
 $36,180
 1.0 % $1,875,024
Metro NY/NJ83,079
 56,702
 3.2% 2,883,958
85,760
 58,938
 2.9 % 2,903,317
Mid-Atlantic57,530
 40,063
 1.3% 2,330,106
55,755
 39,147
 3.7 % 2,062,311
Pacific Northwest19,289
 14,078
 5.8% 795,228
20,454
 14,815
 5.2 % 731,537
Northern California78,452
 60,248
 11.5% 2,651,741
83,323
 63,717
 2.0 % 2,815,589
Southern California71,257
 51,041
 9.8% 2,633,553
81,311
 59,223
 5.0 % 3,005,810
Total Established366,803
 258,640
 7.9% 13,155,449
382,757
 272,020
 3.1 % 13,393,588
              
Other Stabilized (2)73,004
 56,914
 N/A
 2,196,700
70,116
 48,943
 N/A
 3,032,689
Development / Redevelopment53,251
 35,327
 N/A
 3,802,952
55,547
 34,906
 N/A
 4,276,266
Land Held for DevelopmentN/A
 N/A
 N/A
 477,072
N/A
 N/A
 N/A
 103,954
Non-allocated (3)(2)1,524
 N/A
 N/A
 89,056
1,200
 N/A
 N/A
 112,987
              
Total$494,582
 $350,881
 21.7% $19,721,229
$509,620
 $355,869
 3.4 % $20,919,484


(1)Does not include gross real estate assets held for sale of $20,341$153,151 as of March 31, 2016.2018.
(2)Total revenue and NOI for the three months ended March 31, 2016 includes $20,306 in business interruption insurance proceeds related to the Edgewater casualty loss.
(3)Revenue represents third-party management, asset management and developer fees and miscellaneous income which are not allocated to a reportable segment.


8.  Stock-Based Compensation Plans

As part of its long term compensation plans, the Company has granted stock options, performance awards and restricted stock. Detail of the outstanding awards and activity is presented below.

Information with respect to stock options granted under the Company's 1994 Stock Option and Incentive Plan (the "1994 Plan") and its Second Amended and Restated 2009 Stock Option andEquity Incentive Plan (the "2009 Plan") for the three months ended March 31, 2018, is as follows:
 
2009 Plan
shares
 
Weighted average
exercise price
per share
 
1994 Plan
shares
 
Weighted average
exercise price
per share
 
2009 Plan
shares
 
Weighted average
exercise price
per share
 
1994 Plan
shares
 
Weighted average
exercise price
per share
Options Outstanding, December 31, 2016 177,333
 $124.25
 22,541
 $77.91
Options Outstanding, December 31, 2017 149,973
 $126.77
 7,778
 $48.60
Exercised (3,085) 120.74
 (4,181) 129.72
 
 
 
 
Granted (1) 6,995
 161.10
 
 
Forfeited 
 
 
 
 
 
 
 
Options Outstanding, March 31, 2017 (1) 174,248
 $124.31
 18,360
 $66.11
Options Outstanding, March 31, 2018 156,968
 $128.30
 7,778
 $48.60
Options Exercisable, March 31, 2018 149,973
 $126.77
 7,778
 $48.60


(1)All options outstanding are exercisable as ofOptions granted during the three months ended March 31, 2017.2018, are a result of recipient elections to receive a portion of earned performance awards and time-vesting restricted stock in the form of stock options.

Information with respect to performance awards granted is as follows:
 Performance awards Weighted average grant date fair value per award Performance awards Weighted average grant date fair value per award
Outstanding at December 31, 2016 251,163
 $136.74
Outstanding at December 31, 2017 251,770
 $155.25
Granted (1) 81,708
 176.59
 100,501
 155.31
Change in awards based on performance (2) 49,323
 119.26
 5,990
 148.79
Converted to restricted stock (128,482) 118.75
Converted to restricted stock or options (88,477) 148.79
Forfeited (792) 160.39
 (1,271) 157.06
Outstanding at March 31, 2017 252,920
 $155.27
Outstanding at March 31, 2018 268,513
 $157.25


(1)The amount of restricted stock that ultimately may be earned is based on the total shareholder return metrics related to the Company's common stock for 49,37461,746 performance awards and financial metrics related to operating performance and leverage metrics of the Company for 32,33438,755 performance awards.
(2)Represents the change in the number of performance awards earned based on actual performance achievement.achievement for the performance period.

The Company used a Monte Carlo model to assess the compensation cost associated with the portion of the performance awards granted in 2018 for which achievement will be determined by using total shareholder return measures. The assumptions used are as follows:
  20172018
Dividend yield 3.2%3.7%
Estimated volatility over the life of the plan (1) 15.3%11.8% - 19.7%18.7%
Risk free rate 0.69%1.86% - 1.61%2.46%
Estimated performance award value based on total shareholder return measure $175.86151.67


(1)Estimated volatility over the life of the plan is using 50% historical volatility and 50% implied volatility.

For the portion of the performance awards granted in 2017,2018 for which achievement will be determined by using financial metrics, the compensation cost was based on a weighted averagethe grant date fair value of $179.07,$161.10, and the Company's estimate of corporate achievement for the financial metrics.


Information with respect to restricted stock granted is as follows:
 Restricted stock shares Restricted stock shares weighted average grant date fair value per share Restricted stock shares converted from performance awards Restricted stock shares Restricted stock shares weighted average grant date fair value per share Restricted stock shares converted from performance awards
Outstanding at December 31, 2016 136,705
 $158.51
 176,698
Outstanding at December 31, 2017 133,633
 $172.33
 233,928
Granted - restricted stock shares 70,020
 179.07
 128,482
 94,701
 161.32
 88,297
Vested - restricted stock shares (65,702) 153.05
 (69,149) (64,224) 171.20
 (112,076)
Forfeited (236) 173.73
 
 (1,257) 168.68
 (572)
Outstanding at March 31, 2017 140,787
 $171.25
 236,031
Outstanding at March 31, 2018 162,853
 $166.40
 209,577

Total employee stock-based compensation cost recognized in income was $3,986,000$3,846,000 and $3,742,000$3,986,000 for the three months ended March 31, 20172018 and 2016,2017, respectively, and total capitalized stock-based compensation cost was $2,078,000$2,086,000 and $3,048,000$2,078,000 for the three months ended March 31, 20172018 and 2016,2017, respectively. At March 31, 2017,2018, there was a total unrecognized compensation cost of $45,637,000$50,913,000 for unvested restricted stock and performance awards and $69,000 for unvested stock options, which does not include forfeitures, and is expected to be recognized over a weighted average period of 3.9 years.3.1 years and 0.4 years, respectively.

9.  Related Party Arrangements

Unconsolidated Entities

The Company manages unconsolidated real estate entities for which it receives asset management, property management, development and redevelopment fee revenue. From these entities, the Company earned fees of $1,200,000$886,000 and $1,524,000$1,200,000 during the three months ended March 31, 2018 and 2017, and 2016, respectively. These fees are recognized on an accrual basis when earned in accordance with the accounting guidance applicable to revenue recognition, and are included in management, development and other fees on the accompanying Condensed Consolidated Statements of Comprehensive Income. In addition, the Company has outstanding receivables associated with its property and construction management role of $3,846,000$4,265,000 and $5,239,000$2,449,000 as of March 31, 20172018 and December 31, 2016,2017, respectively.

Director Compensation

The Company recorded non-employee director compensation expense relating to restricted stock grants and deferred stock awards in the amount of $371,000$389,000 and $341,000$371,000 in the three months ended March 31, 20172018 and 2016,2017, respectively, as a component of general and administrative expense. Deferred compensation relating to these restricted stock grants and deferred stock awards to non-employee directors was $212,000$189,000 and $531,000$525,000 on March 31, 20172018 and December 31, 2016, respectively.2017, respectively, reported as a component of prepaid expenses and other assets on the accompanying Condensed Consolidated Balance Sheets.

10.  Fair Value

Financial Instruments Carried at Fair Value

Derivative Financial Instruments

Currently, theThe Company uses interest rate swap and interest rate cap agreements to manage its interest rate risk. These instruments are carried at fair value in the Company's financial statements. In adjusting the fair value of its derivative contracts for the effect of counterparty nonperformance risk, the Company has considered the impact of its net position with a given counterparty, as well as any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. The Company minimizes its credit risk on these transactions by dealing with major, creditworthy financial institutions which have an A or better credit rating by the Standard & Poor's Ratings Group. As part of its on-going control procedures, the Company monitors the credit ratings of counterparties and the exposure of the Company to any single entity, thus reducing credit risk concentration. The Company believes the likelihood of realizing losses from counterparty nonperformance is remote. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, such as interest rate, term to maturity and volatility, the credit valuation adjustments associated with its derivatives use Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by itself and its counterparties. As of March 31, 2017,2018, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined it is not significant.  As a result, the Company has determined that its derivative valuations are classified in Level 2 of the fair value hierarchy.

Hedge ineffectiveness did not have a material impact on earnings of the Company for the three months ended March 31, 2017, or any prior period, and the Company does not anticipate that it will have a material effect in the future.

The following table summarizes the consolidated derivative positions at March 31, 20172018 (dollars in thousands):
Non-designated
Hedges
Interest Rate Caps
 
Cash Flow
Hedges
Interest Rate Caps
 
Cash Flow
Hedges
Interest Rate Swaps
Non-designated
Hedges
Interest Rate Caps
 
Cash Flow
Hedges
Interest Rate Caps
        
Notional balance$696,591
 $35,685
 $900,000
$688,044
 $34,820
Weighted average interest rate (1)2.6% 2.8% N/A
3.2% 3.5%
Weighted average swapped/capped interest rate6.1% 5.9% 2.3%6.5% 5.9%
Earliest maturity dateAug 2017
 Apr 2019
 Nov 2017
Aug 2018
 Apr 2019
Latest maturity dateNov 2021
 Apr 2019
 May 2018
Sep 2022
 Apr 2019


(1)For interest rate caps, represents the weighted average interest rate on the hedged debt.

During the three months ended March 31, 2017,2018, in conjunction with the Company's March 2018 unsecured note issuance, the Company entered into $100,000,000settled $300,000,000 of forward interest rate swap agreements executed to reducedesignated as cash flow hedges of the impactinterest rate variability on the forecasted issuance of variability in interest rates onthe unsecured notes, receiving a payment of $12,598,000. The Company has deferred the effective portion of the Company's expected debt issuance activityfair value change of these swaps in 2018.accumulated other comprehensive loss on the accompanying Condensed Consolidated Balance Sheets, and will recognize the impact as a component of interest expense, net, over the next 10 years. As of March 31, 2017,2018, the Company has $900,000,000 in aggregateno outstanding forward interest rate swap agreements. At maturity of the outstanding swap agreements, the Company expects to cash settle the contracts and either pay or receive cash for the then current fair value. Assuming that the Company issues the debt as expected, the hedging impact from these positions will then be recognized over the life of the issued debt as a yield adjustment.

Excluding derivatives executed to hedge secured debt on communities classified as held for sale, the Company had 13 derivativesone derivative designated as a cash flow hedgeshedge and 14 derivatives not designated as hedges at March 31, 2017.2018. Fair value changes for derivatives not in qualifying hedge relationships for the three months ended March 31, 20172018 and 20162017 were not material. During the three months ended March 31, 2017,2018, the Company deferred $145,000$11,501,000 of gains for cash flow hedges reported as a component of accumulated other comprehensive income (loss).loss.

The following table summarizes the deferred losses reclassified from accumulated other comprehensive incomeloss as a component of interest expense, net (dollars in thousands):
 For the three months ended
 3/31/2017 3/31/2016
    
Cash flow hedge losses reclassified to earnings$1,752
 $1,374
 For the three months ended
 3/31/2018 3/31/2017
    
Cash flow hedge losses reclassified to earnings$1,756
 $1,752

The Company anticipates reclassifying approximately $6,975,000$5,752,000 of net hedging losses from accumulated other comprehensive loss into earnings within the next 12 months to offset the variability of cash flows of the hedged item during this period. The Company did not have any derivatives designated as fair value hedges as of March 31, 20172018 and 2016.2017.

Redeemable Noncontrolling Interests

The Company provided redemption options (the "Puts") that allow joint venture partners of the Company to require the Company to purchase their interests in the investment at a guaranteed minimum amount related to three ventures. The Puts are payable in cash. The Company determines the fair value of the Puts based on unobservable inputs considering the assumptions that market participants would make in pricing the obligations, applying a guaranteed rate of return to the joint venture partners' net capital contribution balances as of period end. Given the significance of the unobservable inputs, the valuations are classified in Level 3 of the fair value hierarchy.

The Company issued units of limited partnership interest in DownREITs which provide the DownREIT limited partners the ability to present all or some of their units for redemption for cash as determined by the partnership agreement. Under the DownREIT agreements, for each limited partnership unit, the limited partner is entitled to receive cash in the amount equal to the fair value of the Company's common stock on or about the date of redemption.  In lieu of cash redemption, the Company may elect to exchange such units for an equal number of shares of the Company's common stock. The limited partnership units in the DownREITs are valued using the market price of the Company's common stock, a Level 1 price under the fair value hierarchy.


Financial Instruments Not Carried at Fair Value

Cash and Cash Equivalents

Cash and cash equivalent balances are held with various financial institutions within principal protected accounts. The Company monitors credit ratings of these financial institutions and the concentration of cash and cash equivalent balances with any one financial institution and believes the likelihood of realizing material losses related to cash and cash equivalent balances is remote.  Cash and cash equivalents are carried at their face amounts, which reasonably approximate their fair values and are Level 1 within the fair value hierarchy.

Other Financial Instruments

Rents and other receivables and prepaids,prepaid expenses, accounts and construction payable and accrued expenses and other liabilities are carried at their face amounts, which reasonably approximate their fair values.

The Company values its unsecured notes using quoted market prices, a Level 1 price within the fair value hierarchy. The Company values its notes payable and outstanding amounts under the Credit Facility and Term LoanLoans using a discounted cash flow analysis on the expected cash flows of each instrument. This analysis reflects the contractual terms of the instrument, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The process also considers credit valuation adjustments to appropriately reflect the Company's nonperformance risk. The Company has concluded that the value of its notes payable and amounts outstanding under its Credit Facility and Term LoanLoans are Level 2 prices as the majority of the inputs used to value its positions fall within Level 2 of the fair value hierarchy.

Financial Instruments Measured/Disclosed at Fair Value on a Recurring Basis

The following tables summarize the classification between the three levels of the fair value hierarchy of the Company's financial instruments measured/disclosed at fair value on a recurring basis (dollars in thousands):
 3/31/2018
Description Total Fair Value 
Quoted Prices
in Active
Markets for Identical Asset
(Level 1)
 
Significant
Other
Observable Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
 Total Fair Value 
Quoted Prices
in Active
Markets for Identical Asset
(Level 1)
 
Significant
Other
Observable Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
   
 3/31/2017
Non-Designated Hedges                
Interest Rate Caps $30
 $
 $30
 $
 $18
 $
 $18
 $
Cash Flow Hedges        
Interest Rate Swaps - Assets 14,955
 
 14,955
 
Interest Rate Swaps - Liabilities (102) 
 (102) 
Puts (5,928) 
 
 (5,928) (3,245) 
 
 (3,245)
DownREIT units (1,377) (1,377) 
 
 (1,234) (1,234) 
 
Indebtedness                
Unsecured notes (4,226,278) (4,226,278) 
 
 (5,585,598) (5,585,598) 
 
Mortgage notes payable and unsecured term loan (2,743,794) 
 (2,743,794) 
Secured notes payable and variable rate unsecured indebtedness (1,817,732) 
 (1,817,732) 
Total $(6,962,494) $(4,227,655) $(2,728,911) $(5,928) $(7,407,791) $(5,586,832) $(1,817,714) $(3,245)

 12/31/2017
Description Total Fair Value 
Quoted Prices
in Active
Markets for Identical Asset
(Level 1)
 
Significant
Other
Observable Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
 Total Fair Value 
Quoted Prices
in Active
Markets for Identical Asset
(Level 1)
 
Significant
Other
Observable Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
   
 12/31/2016
Non-Designated Hedges                
Interest Rate Caps $79
 $
 $79
 $
 $2
 $
 $2
 $
Cash Flow Hedges                
Interest Rate Caps 2
 
 2
 
Interest Rate Swaps - Assets 14,775
 
 14,775
 
 2,270
 
 2,270
 
Interest Rate Swaps - Liabilities (1,171) 
 (1,171) 
Puts (6,002) 
 
 (6,002) (3,245) 
 
 (3,245)
DownREIT units (1,329) (1,329) 
 
 (1,338) (1,338) 
 
Indebtedness                
Unsecured notes (4,218,627) (4,218,627) 
 
 (5,446,604) (5,446,604) 
 
Mortgage notes payable and unsecured term loan (2,744,462) 
 (2,744,462) 
Secured notes payable and variable rate unsecured indebtedness (1,849,851) 
 (1,849,851) 
Total $(6,955,564) $(4,219,956) $(2,729,606) $(6,002) $(7,299,937) $(5,447,942) $(1,848,750) $(3,245)

11.  Subsequent Events

The Company has evaluated subsequent events through the date on which this Form 10-Q was filed, the date on which these financial statements were issued, and identified the items below for discussion.

In April 2017,2018, the Company borrowed the $250,000,000 available under the $250 million Term Loan discussed in Note 3, "Mortgage Notes Payable, Unsecured Notes and Credit Facility."Company:

In May 2017, the Company repaid $498,357,000$13,380,000 of 3.06% fixed rate mortgage notes with an effective interest rate of 3.36%,debt secured by eight communitiesAvalon Andover at par in advance of their November 2017at its maturity dates.date; and

As
entered into an agreement to sell two operating communities containing an aggregate of May 2, 2017,472 apartment homes and net real estate of $72,081,000 as of March 31, 2018, resulting in the communities qualifying as held for sale. The Company has $395,000,000 outstanding underexpects to complete the Credit Facility.sales in the second quarter of 2018.



ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help provide an understanding of our business, financial condition and results of operations. This MD&A should be read in conjunction with our Condensed Consolidated Financial Statements and the accompanying Notes to Condensed Consolidated Financial Statements included elsewhere in this report. This report, including the following MD&A, contains forward-looking statements regarding future events or trends that should be read in conjunction with the factors described under "Forward-Looking Statements" included in this report.  Actual results or developments could differ materially from those projected in such statements as a result of the factors described under "Forward-Looking Statements" as well as the risk factors described in Item 1A. "Risk Factors" of our Form 10-K for the year ended December 31, 20162017 (the "Form 10-K").

Capitalized terms used without definition have the meanings provided elsewhere in this Form 10-Q.

Executive Overview

Business Description

We develop, redevelop, acquire, own and operate multifamily apartment communities primarily in New England, the New York/New Jersey metro area, the Mid-Atlantic, the Pacific Northwest, and Northern and Southern California. We focus on leading metropolitan areas that we believe are characterized by growing employment in high wage sectors of the economy, lower housing affordability and a diverse and vibrant quality of life. We believe these market characteristics offer the opportunity for superior risk-adjusted returns on apartment community investments relative to other markets that do not have these characteristics. We believe that the Denver, Colorado, and Southeast Florida markets share these characteristics, and we are pursuing opportunities to invest in these markets through acquisitions and developments. We seek to create long-term shareholder value by accessing capital on cost effective terms; deploying that capital to develop, redevelop and acquire apartment communities in our selected markets; operating apartment communities; and selling communities when they no longer meet our long-term investment strategy or when pricing is attractive.

Our strategic vision is to be the leading apartment company in select USU.S. markets, providing a range of distinctive living experiences that customers value. We pursue this vision by targeting what we believe are among the best markets and submarkets, leveraging our strategic capabilities in market research and consumer insight and being disciplined in our capital allocation and balance sheet management. Our communities are predominately upscale and generally command among the highest rents in their markets. However, we also pursue the ownership and operation of apartment communities that target a variety of customer segments and price points, consistent with our goal of offering a broad range of products and services. We regularly evaluate the allocation of our investments by the amount of invested capital and by product type within our individual markets.

First Quarter 20172018 Highlights

Net income attributable to common stockholders for the three months ended March 31, 20172018 was $235,875,000,$141,643,000, a decrease of $2,056,000,$94,232,000, or 0.9%39.9%, as compared to the prior year period. The decrease is primarily due to a decrease in real estate sales and related gains, coupled with increases in depreciation and interest expense, partially offset by an increase in NOI and a net casualty and impairment loss in the current year period as compared to a net gain in the prior year period, as well as increases in depreciation and interest expense. The decrease was partially offset by an increase in real estate sales and related gains and an increase in NOI from existing, acquired and newly developed operating communities.period.

Established Communities NOI for the three months ended March 31, 20172018 was $276,106,000,$295,357,000, an increase of $10,316,000,$3,645,000, or 3.9%1.2%, over the prior year period. This increase was driven by an increase in rental revenue of 3.2%2.4%, partially offset by an increase in operating expenses of 1.5%5.3% compared to the prior year period.

During the three months ended March 31, 2017,2018, we completed the construction of three communities, one of which is dual-branded, containing an aggregate of 1,548770 apartment homes for an aggregate total capitalized cost of $648,800,000.$287,000,000. At March 31, 2017,2018, we owned or held a direct or indirect interest in 2418 communities under construction, which are expected to contain 7,5815,774 apartment homes with a projected total capitalized cost of $3,399,600,000,$2,697,000,000, including the total projected capitalized cost for one community being developed within an unconsolidated joint venture in which we own a 55.0% interest. In addition, as of March 31, 2017,2018, we held a direct or indirect ownership interest in land or rights to land on which we expect to develop an additional 28 apartment communities that, if developed as expected, will contain 9,3049,268 apartment homes, and will be developed for an aggregate total capitalized cost of $3,373,000,000, an increase of $345,000,000 from our position as of December 31, 2016.$3,724,000,000.


During the three months ended March 31, 2017, we sold one wholly-owned operating community. Avalon Pines, located in Coram, NY, containing 450 homes, and the adjacent golf course were sold for $140,000,000. Our gain in accordance with GAAP on the disposition was $87,949,000.

We expect to be able to meet our reasonably foreseeable liquidity needs, as they arise, through a combination of one or more of the following sources: existing cash on hand; operating cash flows; borrowings under our Credit Facility and the $250 million Term Loan;Facility; secured debt; the issuance of corporate securities (which could include unsecured debt, preferred equity and/or common equity); the sale of apartment communities; or through the formation of joint ventures. See the discussion under "Liquidity and Capital Resources".

Maplewood Casualty Loss

In February 2017, a fire occurred at our Avalon Maplewood Development Community ("Maplewood"). See Note 1, "Organization, Basis and Presentation and Significant Accounting Policies - Legal and Other Contingencies," and Note 5, "Investments in Real Estate Entities - Casualty Gains and Losses," in the accompanying Condensed Consolidated Financial Statements for additional discussions related to the Maplewood casualty loss.

Communities Overview

Our real estate investments consist primarily of current operating apartment communities, communities in various stages of development ("Development Communities") and Development Rights (as defined below).  Our current operating communities are further distinguished as Established Communities, Other Stabilized Communities, Lease-Up Communities, Redevelopment Communities and Unconsolidated Communities. While we generally establish the classification of communities on an annual basis, we intend to update the classification of communities during the calendar year to the extent that our plans with regard to the disposition or redevelopment of a community change during the year. The following is a description of each category:

Current Communities are categorized as Established, Other Stabilized, Lease-Up, Redevelopment, or Unconsolidated according to the following attributes:

Established Communities (also known as Same Store Communities) are consolidated communities where a comparison of operating results from the prior year to the current year is meaningful, as these communities were owned and had stabilized occupancy as of the beginning of the respective prior year period. For the three month periods ended March 31, 20172018 and 2016,2017, the Established Communities are communities that are consolidated for financial reporting purposes, had stabilized occupancy as of January 1, 2016,2017, are not conducting or planning to conduct substantial redevelopment activities and are not held for sale or planned for disposition within the current year. A community is considered to have stabilized occupancy at the earlier of (i) attainment of 95% physical occupancy or (ii) the one-year anniversary of completion of development or redevelopment.

Other Stabilized Communities are all other completed consolidated communities that have stabilized occupancy, as defined above, as of the beginning of the current calendar year. Other Stabilized Communities do not include communities that are conducting or planning to conduct substantial redevelopment activities within the current year. 

Lease-Up Communities are consolidated communities where construction has been complete for less than one year and where physical occupancy has not reached 95%.

Redevelopment Communities are consolidated communities where substantial redevelopment is in progress or is planned to begin during the current year.  Redevelopment is considered substantial when capital invested during the reconstruction effort is expected to exceed the lesser of $5,000,000 or 10% of the community's pre-redevelopment basis and is expected to have a material impact on the operations of the community, including occupancy levels and future rental rates.

Unconsolidated Communities are communities that we have an indirect ownership interest in through our investment interest in an unconsolidated joint venture.

Development Communities are communities that are under construction and for which a certificate or certificates of occupancy for the entire community have not been received.  These communities may be partially complete and operating.


Development Rights are development opportunities in the early phase of the development process where we either have an option to acquire land or enter into a leasehold interest, where we are the buyer under a long-term conditional contract to purchase land, where we control the land through a ground lease or own land to develop a new community, or where we are the designated developer in a public-private partnership. We capitalize related pre-development costs incurred in pursuit of new developments for which we currently believe future development is probable.

We currently lease our corporate headquarters located in Arlington, Virginia, as well as our other regional and administrative offices under operating leases.


As of March 31, 2017,2018, communities that we owned or held a direct or indirect interest in were classified as follows:
 
Number of
communities
 
Number of
apartment homes
 
Number of
communities
 
Number of
apartment homes
        
Current Communities  
  
  
  
        
Established Communities:  
  
  
  
New England 38
 8,631
 34
 8,145
Metro NY/NJ 35
 10,388
 40
 11,690
Mid-Atlantic 26
 9,123
 27
 9,465
Pacific Northwest 13
 3,305
 14
 3,256
Northern California 35
 10,321
 37
 11,033
Southern California 45
 13,330
 46
 12,697
Total Established 192
 55,098
 198
 56,286
        
Other Stabilized Communities:  
  
  
  
New England 7
 1,868
 8
 1,837
Metro NY/NJ 11
 2,882
 6
 1,303
Mid-Atlantic 7
 2,443
 7
 2,666
Pacific Northwest 3
 656
 2
 860
Northern California 3
 1,068
 2
 516
Southern California 8
 1,310
 10
 2,680
Expansion Markets 2
 622
Non Core 3
 1,014
 3
 1,014
Total Other Stabilized 42
 11,241
 40
 11,498
        
Lease-Up Communities 3
 1,048
 6
 1,728
        
Redevelopment Communities 9
 4,075
Redevelopment Communities (1) 15
 6,260
        
Unconsolidated Communities 14
 3,490
 11
 2,616
        
Total Current Communities 260
 74,952
 270
 78,388
        
Development Communities (1) 24
 7,581
Development Communities (2) 18
 5,774
        
Total Communities 284
 82,533
 288
 84,162
        
Development Rights 28
 9,304
 28
 9,268
_________________________

(1)Redevelopment Communities includes the reconstruction of the building destroyed in the Edgewater casualty loss. Due to the nature of this reconstruction, the 240 apartment homes we expect the new building to contain upon completion are not included in the apartment home count presented, and will be included upon completion.
(2)Development Communities includes AVA North Point, expected to contain 265 apartment homes, which is being developed within an unconsolidated joint venture.


Results of Operations

Our year-over-year operating performance is primarily affected by both overall and individual geographic market conditions and apartment fundamentals and is reflected in changes in NOI of our Established Communities; NOI derived from acquisitions and development completions; the loss of NOI related to disposed communities; and capital market and financing activity.  A comparison of our operating results for the three months ended March 31, 20172018 and 20162017 follows (unaudited, dollars in thousands):
For the three months endedFor the three months ended
3/31/2017 3/31/2016 $ Change % Change3/31/2018 3/31/2017 $ Change % Change
              
Revenue: 
  
  
  
 
  
  
  
Rental and other income$521,126
 $506,974
 $14,152
 2.8 %$559,906
 $521,126
 $38,780
 7.4 %
Management, development and other fees1,200
 1,524
 (324) (21.3)%886
 1,200
 (314) (26.2)%
Total revenue522,326
 508,498
 13,828
 2.7 %560,792
 522,326
 38,466
 7.4 %
              
Expenses: 
  
  
  
 
  
  
  
Direct property operating expenses, excluding property taxes104,233
 97,387
 6,846
 7.0 %111,405
 104,233
 7,172
 6.9 %
Property taxes52,930
 50,067
 2,863
 5.7 %59,896
 52,930
 6,966
 13.2 %
Total community operating expenses157,163
 147,454
 9,709
 6.6 %171,301
 157,163
 14,138
 9.0 %
              
Corporate-level property management and other indirect operating expenses17,490
 18,094
 (604) (3.3)%18,976
 17,490
 1,486
 8.5 %
Investments and investment management expense1,321
 1,145
 176
 15.4 %1,643
 1,321
 322
 24.4 %
Expensed acquisition, development and other pursuit costs, net of recoveries728
 3,462
 (2,734) (79.0)%800
 728
 72
 9.9 %
Interest expense, net49,295
 43,410
 5,885
 13.6 %55,113
 49,295
 5,818
 11.8 %
Loss on extinguishment of debt, net397
 
 397
 100.0 %
Depreciation expense140,621
 127,216
 13,405
 10.5 %159,059
 140,621
 18,438
 13.1 %
General and administrative expense13,206
 11,404
 1,802
 15.8 %13,664
 13,206
 458
 3.5 %
Casualty and impairment loss (gain), net11,688
 (2,202) 13,890
 N/A (1)
Casualty and impairment (gain) loss, net(58) 11,688
 (11,746) N/A (1)
Total other expenses234,349
 202,529
 31,820
 15.7 %249,594
 234,349
 15,245
 6.5 %
              
Equity in income of unconsolidated real estate entities16,672
 27,969
 (11,297) (40.4)%1,740
 16,672
 (14,932) (89.6)%
Gain on sale of communities87,949
 51,430
 36,519
 71.0 %
 87,949
 (87,949) (100.0)%
Gain on sale of other real estate366
 
 366
 100.0 %
(Loss) gain on other real estate transactions(47) 366
 (413) N/A (1)
Income before income taxes235,801
 237,914
 (2,113) (0.9)%141,590
 235,801
 (94,211) (40.0)%
Income tax expense20
 37
 (17) (45.9)%
 20
 (20) (100.0)%
Net income235,781
 237,877
 (2,096) (0.9)%141,590
 235,781
 (94,191) (39.9)%
              
Net loss attributable to noncontrolling interests94
 54
 40
 74.1 %53
 94
 (41) (43.6)%
              
Net income attributable to common stockholders$235,875
 $237,931
 $(2,056) (0.9)%$141,643
 $235,875
 $(94,232) (39.9)%
_________________________

(1)Percent change is not meaningful.

Net income attributable to common stockholders decreased $2,056,000,$94,232,000, or 0.9%39.9%, to $235,875,000$141,643,000 for the three months ended March 31, 20172018 as compared to the prior year period. The decrease for the three months ended March 31, 20172018 is primarily due to a casualty and impairment loss in the current year period as compared to a gain in the prior year period, as well as increases in depreciation and interest expense. The decrease was partially offset by an increase in real estate sales and related gains, coupled with increases in depreciation and interest expense, partially offset by an increase in NOI from existing, acquired and newly developed operating communities.a net casualty and impairment loss in the prior year period.

NOI is considered by management to be an important and appropriate supplemental performance measure to net income because it helps both investors and management to understand the core operations of a community or communities prior to the allocation of any corporate-level or financing-related costs.  NOI reflects the operating performance of a community and allows for an easier comparison of the operating performance of individual assets or groups of assets. In addition, because prospective buyers of real estate have different financing and overhead structures, with varying marginal impact to overhead as a result of acquiring real estate, NOI is considered by many in the real estate industry to be a useful measure for determining the value of a real estate asset or group of assets. We define NOI as total property revenue less direct property operating expenses (including property taxes), and excluding corporate-level income (including management, development and other fees), corporate-level property management and other indirect operating expenses, investments and investment management expenses, expensed acquisition, development and other pursuit costs, net of recoveries, interest expense, net, loss (gain) on extinguishment of debt, net, general and administrative expense, equity in (loss) income of unconsolidated real estate entities, depreciation expense, corporate income tax expense, casualty and impairment loss (gain), net, gain on sale of communities, loss (gain) on other real estate assetstransactions and net operating income from real estate assets sold or held for sale.

NOI does not represent cash generated from operating activities in accordance with GAAP, and NOI should not be considered an alternative to net income as an indication of our performance. NOI should also not be considered an alternative to net cash flow from operating activities, as determined by GAAP, as a measure of liquidity, nor is NOI indicative of cash available to fund cash needs.  Reconciliations of NOI for the three months ended March 31, 20172018 and 20162017 to net income for each period are as follows (unaudited, dollars in thousands):
For the three months endedFor the three months ended
3/31/2017 3/31/20163/31/2018 3/31/2017
      
Net income$235,781
 $237,877
$141,590
 $235,781
Indirect operating expenses, net of corporate income16,297
 16,537
18,082
 16,297
Investments and investment management expense1,321
 1,145
1,643
 1,321
Expensed acquisition, development and other pursuit costs, net of recoveries728
 3,462
800
 728
Interest expense, net49,295
 43,410
55,113
 49,295
Loss on extinguishment of debt, net397
 
General and administrative expense13,206
 11,404
13,664
 13,206
Equity in income of unconsolidated real estate entities(16,672) (27,969)(1,740) (16,672)
Depreciation expense140,621
 127,216
159,059
 140,621
Income tax expense20
 37

 20
Casualty and impairment loss (gain), net11,688
 (2,202)(58) 11,688
Gain on sale of real estate assets(88,315) (51,430)
 (87,949)
Loss (gain) on other real estate transactions47
 (366)
Net operating income from real estate assets sold or held for sale(1,387) (8,606)(2,144) (8,101)
Net operating income$362,583
 $350,881
$386,453
 $355,869


The NOI changes for the three months ended March 31, 2017,2018, compared to the prior year period, consist of changes in the following categories (unaudited, dollars in thousands):
For the three months endedFor the three months ended
3/31/20173/31/2018
 
 
Established Communities$10,316
$3,645
Other Stabilized Communities (1)(3,020)17,573
Development and Redevelopment Communities4,406
9,366
Total$11,702
$30,584
____________________________

(1)NOI for the three months ended March 31, 2016 includes $20,306 in business interruption insurance proceeds related to the Edgewater casualty loss.

Rental and other income increased in the three months ended March 31, 20172018 compared to the prior year periodperiods due to additional rental income generated from newly developed, acquired and existing operating communities and an increase in rental rates at our Established Communities, discussed below.

Consolidated Communities — The weighted average number of occupied apartment homes increased to 69,06972,562 apartment homes for the three months ended March 31, 2017,2018, compared to 67,15669,069 homes for the prior year period. The weighted average monthly revenue per occupied apartment home increased to $2,512$2,569 for the three months ended March 31, 20172018 compared to $2,412$2,512 in the prior year period.

Established Communities — Rental revenue increased $11,932,000,$9,769,000, or 3.2%2.4%, for the three months ended March 31, 20172018 compared to the prior year period due to an increase in average rental rates of 3.1%2.5% to $2,4562,570 per apartment home, and an increasepartially offset by a decrease in economic occupancy of 0.1% to 95.7%96.2%. Economic occupancy takes into account the fact that apartment homes of different sizes and locations within a community have different economic impacts on a community's gross revenue.  Economic occupancy is defined as gross potential revenue less vacancy loss, as a percentage of gross potential revenue. Gross potential revenue is determined by valuing occupied homes at leased rates and vacant homes at market rents.

The Metro New York/New Jersey region accounted for approximately 22.5%24.9% of Established Community rental revenue for the three months ended March 31, 2017,2018, and experienced an increase in rental revenue of 3.0%1.7% compared to the prior year period. Average rental rates increased 2.8%1.7% to $2,938$3,088 per apartment home, and economic occupancy increased 0.2% to 95.6%remained consistent at 96.1% for the three months ended March 31, 2017,2018, compared to the prior year period. While New York City is absorbing a larger pipeline of new apartment deliveries, suburban markets surrounding the city are more insulated from this new competition, and weWe expect to see continued growth over the prior yearoperating conditions in the Metro New York/New Jersey region to remain bifurcated between New York City and surrounding suburban submarkets in 2017.2018. We believe elevated levels of new apartment deliveries in New York City are limiting our ability to increase rental rates, while surrounding suburban submarkets are more insulated from this new competition.

The Northern California region accounted for approximately 21.4%22.1% of Established Community rental revenue for the three months ended March 31, 2017,2018, and experienced an increase in rental revenue of 2.3% compared to the prior year period. Average rental rates increased 2.2%2.1% to $2,809$2,876 per apartment home, and economic occupancy increased 0.1%0.2% to 95.7%96.8% for the three months ended March 31, 2017,2018, compared to the prior year period. We expect operating conditions to remain challenged in the Northern California region in 2018 due to slower job growth and elevated levels ofan increase in competition from new apartment deliveries will temper growth in 2017 relative to prior years.deliveries.

The Southern California region accounted for approximately 21.4%19.9% of Established Community rental revenue for the three months ended March 31, 2017,2018, and experienced an increase in rental revenue of 4.0% compared to the prior year period. Average rental rates increased 4.5%4.3% to $2,170$2,264 per apartment home, and were partially offset by a 0.5%0.3% decrease in economic occupancy to 95.8%96.1% for the three months ended March 31, 2017,2018, compared to the prior year period. We expect an increase in new apartment deliveries in Southern California has seen steadyin 2018 but believe strengthening job growth and limited new apartment supply, which we expectincome growth will continue to support a favorable operating results in 2017.environment.

The New EnglandMid-Atlantic region accounted for approximately 15.1%14.1% of Established Community rental revenue for the three months ended March 31, 2017,2018, and experienced an increase in rental revenue of 3.0%0.7% compared to the prior year period.  Average rental rates increased 2.5%0.9% to $2,363$2,171 per apartment home, and were partially offset by a 0.2% decrease in economic occupancy increased 0.5% to 95.8%95.9% for the three months ended March 31, 2017,2018, compared to the prior year period. Stable job growthWe believe elevated levels of new apartment deliveries in the Boston metro area is expectedMid-Atlantic region will limit our ability to support apartment demandincrease rental rates in 2017. The Fairfield market continues to experience moderate economic growth due to the area's greater exposure to the financial services sector, which has experienced slower job growth during this recovery than other industries.select submarkets in 2018.

The Mid-AtlanticNew England region accounted for approximately 14.3%13.9% of Established Community rental revenue for the three months ended March 31, 2017,2018, and experienced an increase in rental revenue of 2.8% compared to the prior year period. Average rental rates increased 2.3%3.1% to $2,127$2,482 per apartment home, and were partially offset by a 0.3% decrease in economic occupancy increased 0.5% to 95.7% for the three months ended March 31, 2017,2018, compared to the prior year period. AlthoughWe expect the operating environment in New England in 2018 to be more favorable in the suburban submarkets than in the urban submarkets due to higher levels of new apartment supply will remain elevated, accelerating job growth is expected to support modest growthdeliveries in 2017.the urban submarkets.

The Pacific Northwest region accounted for approximately 5.3%5.1% of Established Community rental revenue for the three months ended March 31, 2017,2018, and experienced an increase in rental revenue of 6.1%3.6% compared to the prior year period. Average rental rates increased 6.1%3.7% to $2,150$2,252 per apartment home, and were partially offset by a 0.1% decrease in economic occupancy remained consistent at 95.9%to 96.3% for the three months ended March 31, 2017,2018, compared to the prior year period. We believe healthyexpect strong job and income growth in 2018 in the Pacific Northwest region will continue to support a favorable operating results in 2017.environment.
 
Management, development and other fees decreased $324,000,$314,000, or 21.3%26.2%, for the three months ended March 31, 20172018 as compared to the prior year period. The decrease for the three months ended March 31, 20172018 is primarily due to lower property and asset management fees earned as a result of dispositions from AvalonBay Value Added Fund II L.P. ("Fund II") and the Archstone Multifamily Partners AC LP (the "U.S. Fund").U.S. Fund during the prior year.

Direct property operating expenses, excluding property taxes increased $6,846,000,$7,172,000, or 7.0%6.9%, for the three months ended March 31, 2017,2018 compared to the prior year period. The increase for the three months ended March 31, 20172018 is primarily due to the addition of newly developed and acquired apartment communities.

For Established Communities, direct property operating expenses, excluding property taxes, increased $1,430,000,$3,251,000, or 2.0%4.2%, for the three months ended March 31, 20172018 compared to the prior year period. The increase for the three months ended March 31, 20172018 is primarily due to increased maintenance costs, compensation expense, and bad debt expense, partially offset by a decrease in property insurance and utility costs.

Property taxes increased $2,863,000,$6,966,000, or 5.7%13.2%, for the three months ended March 31, 20172018 compared to the prior year period. The increase for the three months ended March 31, 20172018 is primarily due to the addition of newly developed and acquired apartment communities, coupled with increased assessments across our portfolio.portfolio and successful appeals in the prior year period.

For Established Communities, property taxes increased $190,000,$2,922,000, or 0.5%,7.5% for the three months ended March 31, 20172018 compared to the prior year period. The increase for the three months ended March 31, 20172018 is primarily due to increased assessments partially offset byin the current year period and successful appeals in the currentprior year period. For communities in California, property tax changes are determined by the change in the California Consumer Price Index, with increases limited by law (Proposition 13). Massachusetts also has laws in place to limit property tax increases. We evaluate property tax increases internally and also engage third-party consultants to assist in our evaluations. We appeal property tax increases when appropriate.

Corporate-level property management and other indirect operating expenses decreased $604,000,increased $1,486,000, or 3.3%8.5%, for the three months ended March 31, 20172018 compared to the prior year period, primarily due to decreased compensation related costs, including severance costs inperiod. The increase for the prior year period not present in three months ended March 31, 2017.2018 is primarily due to advocacy contributions, spending on technology based solutions and increased compensation related costs in the current year period.

Investments and investment management expense increased by $322,000 or 24.4% due primarily to an increase in compensation expense.
Expensed acquisition, development and other pursuit costs, net of recoveries primarily reflect abandoned pursuit costs, as well as acquisition costs related to business acquisitions that occurred prior to the adoption of ASU 2017-01 as of October 1, 2016. Subsequent to the adoption of ASU 2017-01, we expect that acquisitions of individual operating communities will generally be viewed as asset acquisitions, and result in acquisition costs being capitalized instead of expensed. Abandoned pursuit costswhich include costs incurred for development pursuits not yet considered probable for development, as well as the abandonment of Development Rights and disposition pursuits, and also includes costs related to abandoned acquisition pursuits. These costs can be volatile, particularly in periods of increased acquisition pursuit activity, periods of economic downturn or when there is limited access to capital, and the costs may vary significantly from period to period. These costs decreased $2,734,000,

Interest expense, net increased $5,818,000, or 79.0%11.8%, for the three months ended March 31, 2017 compared to the prior year period. The decrease for the three months ended March 31, 2017 is primarily due to the non-cash write-off of asset management fee intangibles associated with the disposition of communities in the U.S. Fund in the prior year period, as well as acquisition costs related to two communities acquired during the three months ended March 31, 2016.


Interest expense, net increased $5,885,000, or 13.6%, for the three months ended March 31, 20172018 compared to the prior year period. This category includes interest costs offset by capitalized interest pertaining to development and redevelopment activity, amortization of premium/discount on debt, and interest income. The increase for the three months ended March 31, 20172018 is primarily due to a decrease in amounts of interest capitalized and an increase in outstanding unsecured indebtedness, as well aspartially offset by a decrease in secured indebtedness.


Loss on extinguishment of debt, net reflects prepayment penalties, the write-off of unamortized deferred financing costs and premiums from our debt repurchase and retirement activity, and payments to acquire our outstanding debt at amounts above or below the carrying basis of interest capitalized.the debt acquired, excluding costs related to debt secured by assets sold or held for sale.

Depreciation expense increased $13,405,000,$18,438,000, or 10.5%13.1%, for the three months ended March 31, 20172018 compared to the prior year period, primarily due to the addition of newly developed and acquired apartment communities.

General and administrative expense ("G&A") increased $1,802,000,$458,000, or 15.8%3.5%, for the three months ended March 31, 20172018, compared to the prior year period. The increase for the three months ended March 31, 20172018 is primarily due to an increase in compensationlegal settlement costs and related expenses, legal and professional fees, andpartially offset by decreased sales and use tax expense.

Casualty and impairment (gain) loss, (gain), net for the three months ended March 31, 2017 consists of an impairment charge recognized for a land parcel we had acquired for development in 2004 and no longer intend to develop,sold in July 2017, as well as the Maplewood casualty loss, which was partially offset by expected insurance proceeds, a portion of which was received during the three months ended March 31, 2017. Casualty and impairment loss (gain), net for the three months ended March 31, 2016, consists of property damage insurance proceeds from the final insurance settlement for the Edgewater casualty loss, partially offset by impairment charges recognized for two ancillary land parcels.proceeds.

Equity in income of unconsolidated real estate entities decreased $11,297,000, or 40.4%,$14,932,000 for the three months ended March 31, 20172018, compared to the prior year period. The decrease for the three months ended March 31, 20172018 is primarily due to the timing of gains on the sale of communities in various ventures, compared toas well as recognition of income for the Company's promoted interest from Fund II, in the prior year period, as well asand the resulting decreased NOI from the ventures in the current year period, due to disposition activity in 2016 and 2017.

Gain on sale of communities increaseddecreased for the three months ended March 31, 20172018 compared to the prior year period. The amount of gain realized in a given period depends on many factors, including the number of communities sold, the size and carrying value of the communities sold and the market conditions in the local area.


Reconciliation of Non-GAAP Financial Measures

Consistent with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts® ("NAREIT"), we calculate Funds from Operations Attributable to Common Stockholders ("FFO") as net income or loss attributable to common stockholders computed in accordance with GAAP, adjusted for:

gains or losses on sales of previously depreciated operating communities;
cumulative effect of change in accounting principle;
impairment write-downs of depreciable real estate assets;
write-downs of investments in affiliates due to a decrease in the value of depreciable real estate assets held by those affiliates;
depreciation of real estate assets; and
adjustments for unconsolidated partnerships and joint ventures.

FFO and FFO adjusted for non-core items, or "Core FFO," as defined below, are generally considered by management to be appropriate supplemental measures of our operating and financial performance. In calculating FFO, we exclude gains or losses related to dispositions of previously depreciated property and exclude real estate depreciation, which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates. FFO can help one compare the operating performance of a real estate company between periods or as compared to different companies. By further adjusting for items that are not considered part of our core business operations, Core FFO allows one to compare the core operating performance of the Company between periods. We believe that in order to understand our operating results, FFO and Core FFO should be examined with net income as presented in our Condensed Consolidated Financial Statements included elsewhere in this report.

We calculate Core FFO as FFO, adjusted for:

joint venture gains, costs, and promoted interests;
casualty and impairment losses or gains, net;
gains or losses from early extinguishment of consolidated borrowings;
abandoned pursuits;
business interruption insurance proceeds and the related lost NOI that is covered by the business interruption insurance proceeds;
property and casualty insurance proceeds and legal settlements;
gains or losses on sales of assets not subject to depreciation;
advocacy contributions, representing payments to promote our business interests;
hedge ineffectiveness;

severance related costs;
expensed acquisition costs related to business acquisitions that occurred prior to the adoption of ASU 2017-01 as of October 1, 2016;combinations; and
other non-core items.

FFO and Core FFO do not represent net income in accordance with GAAP, and therefore should not be considered an alternative to net income, which remains the primary measure, as an indication of our performance. In addition, FFO and Core FFO as calculated by other REITs may not be comparable to our calculations of FFO and Core FFO.

The following is a reconciliation of net income attributable to common stockholders to FFO attributable to common stockholders and to Core FFO attributable to common stockholders (unaudited, dollars in thousands, except per share amounts):

For the three months endedFor the three months ended
3/31/2017 3/31/20163/31/2018 3/31/2017
      
Net income attributable to common stockholders$235,875
 $237,931
$141,643
 $235,875
Depreciation - real estate assets, including joint venture adjustments140,957
 127,701
158,483
 140,957
Distributions to noncontrolling interests11
 10
11
 11
Gain on sale of unconsolidated entities holding previously depreciated real estate(8,697) (29,625)
 (8,697)
Gain on sale of previously depreciated real estate(87,949) (51,430)
 (87,949)
FFO attributable to common stockholders280,197
 284,587
300,137
 280,197
      
Adjusting items:      
Joint venture losses (1)266
 4,994

 266
Joint venture promote (2)(1)(6,765) 
(925) (6,765)
Impairment loss on real estate (5)(2)9,350
 6,500

 9,350
Casualty loss (gain), net on real estate (4)(5)2,338
 (8,702)
Business interruption insurance proceeds (6)
 (20,334)
Lost NOI from casualty losses covered by business interruption insurance (7)1,805
 1,870
Casualty (gain) loss, net on real estate (3)(58) 2,338
Lost NOI from casualty losses covered by business interruption insurance (4)898
 1,805
Loss on extinguishment of consolidated debt397
 
Advocacy contributions303
 
Severance related costs124
 585
370
 124
Development pursuit and other write-offs423
 433
327
 423
Gain on sale of other real estate(366) 
Acquisition costs
 1,101
Loss (gain) on sale of other real estate transactions47
 (366)
Legal settlements300
 
Core FFO attributable to common stockholders$287,372
 $271,034
$301,796
 $287,372
      
Weighted average common shares outstanding - diluted137,531,242
 137,383,044
138,153,170
 137,531,242
      
EPS per common share - diluted$1.72
 $1.73
$1.03
 $1.72
FFO per common share - diluted$2.04
 $2.07
$2.17
 $2.04
Core FFO per common share - diluted$2.09
 $1.97
$2.18
 $2.09
_________________________

(1)Amount for the three months ended March 31, 2016 is primarily composed ofAmounts represent our proportionate share of yield maintenance charges incurred for the early repayment of debt associated with joint venture disposition activity and the write-off of asset management fee intangibles primarily associated with the disposition of communitiespromoted interest in the U.S. Fund.Fund II.
(2)Amount for the three months ended March 31, 2017 is composed of an impairment charge for the recognition of our promoted interesta land parcel we had acquired for development in Fund II.2004 and sold in July 2017.
(3)Amount for the three months ended March 31, 2017 includes an impairment charge for a land parcel we had acquired for development and no longer intend to develop. Amountis composed of $19,481 for the three months ended March 31, 2016 includes impairment charges relating to ancillary land parcels.Maplewood casualty loss, partially offset by $17,143 of property damage insurance proceeds.
(4)Amount for the three months ended March 31, 2017 includes $19,481 for2018 relates to the Maplewood casualty loss partially offset by $17,143 of expected property damagein Q1 2017, for which the Company recognized $3,495 in business interruption insurance proceeds a portion of which was received during the period.in Q3 2017. Amount for the three months ended March 31, 2016 includes $8,702 in property damage insurance proceeds for the Edgewater casualty loss.
(5)The aggregate impact of (i) impairment loss on real estate and (ii) casualty loss (gain), net on real estate for the three months ended March 31, 2017 and 2016 is a loss of $11,688 and a gain of $2,202, respectively.
(6)Amount for the three months ended March 31, 2016 is primarily composed of business interruption insurance proceeds resulting from the final insurance settlement of the Edgewater casualty loss.
(7)Amounts relaterelates to lost NOI resulting from the Edgewater casualty loss, for which we received $20,306 in business interruption insurance proceeds in the first quarter ofQ1 2016.

FFO and Core FFO also do not represent cash generated from operating activities in accordance with GAAP, and therefore should not be considered an alternative to net cash flows from operating activities, as determined by GAAP, as a measure of liquidity. Additionally, it is not necessarily indicative of cash available to fund cash needs.


A presentation of GAAP based cash flow metrics is as follows (unaudited, dollars in thousands) and a discussion of "Liquidity and Capital Resources" can be found later in this report:

For the three months endedFor the three months ended
3/31/2017 3/31/20163/31/2018 3/31/2017 (1)
Net cash provided by operating activities$293,462
 $277,782
$315,913
 $299,895
Net cash used in investing activities$(235,347) $(384,727)$(319,280) $(108,880)
Net cash used in financing activities$(151,404) $(196,021)
Net cash provided by (used in) financing activities$72,868
 $(152,272)
_________________________

(1)Amounts for 2017 reflect retrospective adjustments to the Condensed Consolidated Statements of Cash Flows discussed in Note 1, "Organization, Basis of Presentation and Significant Accounting Policies, Change in Accounting Principle," of the Condensed Consolidated Financial Statements included elsewhere in this report.

Liquidity and Capital Resources

We employ a disciplined approach to our liquidity and capital management. When we source capital, we take into account both our view of the most cost effective alternative then available and our desire to maintain a balance sheet that provides us with flexibility. Our principal short-term liquidity needs are to fund:

development and redevelopment activity in which we are currently engaged;
the minimum dividend payments on our common stock required to maintain our REIT qualification under the Code;
debt service and principal payments either at maturity or opportunistically before maturity; and
normal recurring operating expenses and corporate overhead expenses.

Factors affecting our liquidity and capital resources are our cash flows from operations, financing activities and investing activities (including dispositions) as well as general economic and market conditions. Operating cash flow has historically been determined by: (i) the number of apartment homes currently owned, (ii) rental rates, (iii) occupancy levels and (iv) operating expenses with respect to apartment homes. The timing and type of capital markets activity in which we engage, as well as our plans for development, redevelopment, acquisition and disposition activity, are affected by changes in the capital markets environment, such as changes in interest rates or the availability of cost-effective capital. We regularly review our liquidity needs, the adequacy of cash flows from operations and other expected liquidity sources to meet these needs.

We had unrestricted cash and cash equivalents and restricted cash of $121,705,000$271,407,000 at March 31, 2017, a decrease2018, an increase of $93,289,000$69,501,000 from $214,994,000$201,906,000 at December 31, 2016.2017. As presented in our Condensed Consolidated Statements of Cash Flows included elsewhere in this report, the following discussion relates to changes in cash due to operating, investing and financing activities.

Operating Activities — Net cash provided by operating activities increased to $293,462,000$315,913,000 for the three months ended March 31, 20172018 from $277,782,000$299,895,000 for the three months ended March 31, 2016.2017. The change was driven primarily by increased NOI from existing, acquired and newly developed communities.

Investing Activities — Net cash used in investing activities totaled $235,347,000$319,280,000 for the three months ended March 31, 2017.2018. The net cash used was primarily due to:

investment of $259,573,000$301,299,000 in the development and redevelopment of communities; and
capital expenditures of $10,444,000$16,975,000 for our operating communities and non-real estate assets.

These amounts are partially offset by:

proceeds from dispositions, net of amounts held in escrow related to a planned tax deferred exchange, of $33,518,000; and
net distributions from unconsolidated real estate entities of $6,178,000.

Financing Activities — Net cash used inprovided by financing activities totaled $151,404,000$72,868,000 for the three months ended March 31, 2017.2018.  The net cash usedprovided by was primarily due to:

proceeds from the issuance of unsecured notes in the amount of $299,442,000, less deferred financing costs for the issuance activity of $3,244,000.

This amount is partially offset by:

payment of cash dividends in the amount of $185,192,000;$195,999,000; and

the repayment of secured notes in the amount of $21,037,000.

These amounts are partially offset by the issuance of common stock in the amount of $56,817,000, primarily through CEP IV.

$28,584,000.

Variable Rate Unsecured Credit Facility

We have a $1,500,000,000 revolving variable rate unsecured credit facility with a syndicate of banks (the "Credit Facility") which matures in April 2020. We may extend the maturity for up to nine months, provided we are not in default and upon payment of a $1,500,000 extension fee. The Credit Facility bears interest at varying levels based on the London Interbank Offered Rate ("LIBOR"), rating levels achieved on our unsecured notes and on a maturity schedule selected by us. The current stated pricing is LIBOR plus 0.825% per annum (1.82%(2.73% at April 28, 2017)30, 2018), assuming a one month borrowing rate. The annual facility fee is 0.125% (or approximately $1,875,000 annually based on the $1,500,000,000 facility size and based on our current credit rating).

We had $395,000,000$138,000,000 outstanding under the Credit Facility and had $45,084,000$42,352,000 outstanding in letters of credit that reduced our borrowing capacity as of April 28, 2017.30, 2018.

Financial Covenants

We are subject to financial and other covenants contained in the Credit Facility, the Term Loans and the indentureindentures under which our unsecured notes were issued. The principal financial covenants include the following:

limitations on the amount of total and secured debt in relation to our overall capital structure;
limitations on the amount of our unsecured debt relative to the undepreciated basis of real estate assets that are not encumbered by property-specific financing; and
minimum levels of debt service coverage.

We were in compliance with these covenants at March 31, 2017.2018.

In addition, our secured borrowings may include yield maintenance, defeasance, or prepayment penalty provisions, which would result in us incurring an additional charge in the event of a full or partial prepayment of outstanding principal before the scheduled maturity. These provisions in our secured borrowings are generally consistent with other similar types of debt instruments issued during the same time period in which our borrowings were secured.

Continuous Equity Offering Program

In December 2015, we commenced a fourth continuous equity program ("CEP IV") under which we may sell (and/or enter into forward sale agreements for the sale of) up to $1,000,000,000 of our common stock from time to time. Actual sales will depend on a variety of factors to be determined, including market conditions, the trading price of our common stock and determinations of the appropriate sources of funding. In conjunction with CEP IV, we engaged sales agents who will receive compensation of up to 2.0% of the gross sales price for shares sold. CEP IV also allows us to enter into forward sale agreements up to $1,000,000,000 in aggregate sales price of our common stock. We expect that, if entered into, we will physically settle each forward sale agreement on one or more dates prior to the maturity date of that particular forward sale agreement, in which case we will expect to receive aggregate net cash proceeds at settlement equal to the number of shares underlying the particular forward agreement multiplied by the relevant forward sale price. However, we may also elect to cash settle or net share settle a forward sale agreement. In connection with each forward sale agreement, we will pay the relevant forward seller, in the form of a reduced initial forward sale price, a commission of up to 2.0% of the sales prices of all borrowed shares of common stock sold. During the three months ended March 31, 2017, we sold 306,177 shares at an average sales price of $186.44 per share, for net proceeds of $56,228,000. As of April 28, 2017,30, 2018, there are no outstanding forward sales agreements. As of April 30, 2018, we had $942,915,000$892,915,000 of shares remaining authorized for issuance under this program.

Forward Interest Rate Swap Agreements

During the three months ended March 31, 2017,2018, in conjunction with our March 2018 unsecured note issuance, we entered into $100,000,000settled $300,000,000 of forward interest rate swap agreements executed to reducedesignated as cash flow hedges of the impactinterest rate variability on the forecasted issuance of variability in interest rates onthe unsecured notes, receiving a portionpayment of our expected debt issuance activity in 2018.$12,598,000. As of March 31, 2017,2018, we had $900,000,000 in aggregatehave no outstanding forward interest rate swap agreements. At maturity of the outstanding swap agreements, we expect to cash settle the contracts and either pay or receive cash for the then current fair value. Assuming that we issue the debt as expected, the hedging impact from these positions will then be recognized over the life of the issued debt as a yield adjustment.

In April 2017, we entered into an additional $100,000,000 of forward interest rate swap agreements executed to reduce the impact of variability in interest rates on a portion of our expected debt issuance activity in 2018. In addition, in April 2017 we settled $185,100,000 of forward interest rate swap agreements, making a payment of $2,326,000.


Future Financing and Capital Needs — Debt Maturities

One of our principal long-term liquidity needs is the repayment of long-term debt at maturity.  For both our unsecured and secured notes, a portion of the principal of these notes may be repaid prior to maturity. Early retirement of our unsecured or secured notes could result in gains or losses on extinguishment. If we do not have funds on hand sufficient to repay our indebtedness as it becomes due, it will be necessary for us to refinance or otherwise provide liquidity to satisfy the debt at maturity. This refinancing may be accomplished by uncollateralized private or public debt offerings, equity issuances, additional debt financing that is secured by mortgages on individual communities or groups of communities or borrowings under our Credit Facility. Although we believe we will have the capacity to meet our currently anticipated liquidity needs, we cannot assure you that additional debt financing or debt or equity offerings will be available or, if available, that they will be on terms we consider satisfactory.

The following debt activity occurred during the three months ended March 31, 2017:2018:

In February 2017,2018, we repaid $17,300,000$15,174,000 of variablefixed rate debt secured by Avalon Mountain ViewOaks West in advance of its scheduled maturity date, incurring a charge of $426,000, consisting of a prepayment penalty of $152,000 and the non-cash write-off of unamortized deferred financing costs of $274,000.

In February 2018, we repaid $11,038,000 of fixed rate debt secured by AVA Pasadena at par atin advance of its scheduled maturity date.

In February 2017,March 2018, we entered intoissued $300,000,000 principal amount of unsecured notes in a $250,000,000 variablepublic offering under our existing shelf registration statement for net proceeds of approximately $296,210,000. The notes mature in April 2048 and were issued at a 4.35% interest rate. The effective interest rate unsecured term loan (the "$250 million Term Loan"), of which $100,000,000 matures in February 2022 with stated pricing of LIBOR plus 0.90%, and $150,000,000 matures in February 2024 with stated pricing of LIBOR plus 1.50%. As of March 31, 2017, we had not drawn any of the available $250,000,000 undernotes for the variablefirst 10 years is 3.97%, including the impact of an interest rate unsecuredhedge and offering costs, and for the remainder of the term loan. the effective interest rate will be 4.39%.

In addition, in April 2017,2018, we drew the $250,000,000 available balance.repaid $13,380,000 of fixed rate debt secured by Avalon Andover at par at its maturity date.

The following table details our consolidated debt maturities for the next five years, excluding our Credit Facility and amounts outstanding related to communities classified as held for sale, for debt outstanding at March 31, 20172018 and December 31, 20162017 (dollars in thousands). We are not directly or indirectly (as borrower or guarantor) obligated in any material respect to pay principal or interest on the indebtedness of any unconsolidated entities in which we have an equity or other interest.

 All-In
interest
rate (1)
 Principal
maturity
date
 Balance Outstanding Scheduled Maturities All-In
interest
rate (1)
 Principal
maturity
date
 Balance Outstanding (2) Scheduled Maturities
Community 12/31/2016 3/31/2017 2017 2018 2019 2020 2021 Thereafter 12/31/2017 3/31/2018 2018 2019 2020 2021 2022 Thereafter
Tax-exempt bonds (2)  
    
  
  
  
  
  
  
  
  
    
  
  
  
  
  
  
  
Fixed rate  
    
  
  
  
  
  
  
  
  
    
  
  
  
  
  
  
  
Avalon Oaks West 7.55% Apr-2043
15,420
 15,384
 170
 241
 257
 275
 293
 14,148
 7.55% Apr-2043(3)$15,213
 $
 $
 $
 $
 $
 $
 $
Avalon at Chestnut Hill 6.16% Oct-2047
38,564
 38,482
 384
 536
 566
 596
 629
 35,771
 6.16% Oct-2047
38,097
 37,966
 405
 566
 596
 629
 663
 35,107
Avalon Westbury 3.81% Nov-2036(3)62,200
 62,200
 
 
 
 
 
 62,200
 3.81% Nov-2036(4)62,200
 62,200
 
 
 
 
 
 62,200
  
   116,184
 116,066
 554
 777
 823
 871
 922
 112,119
  
   115,510
 100,166
 405
 566
 596
 629
 663
 97,307
                                    
Variable rate (4)  
    
  
  
  
  
  
  
  
  
    
  
  
  
  
  
  
  
Avalon Mountain View 1.42% Feb-2017(5)17,300
 
 
 
 
 
 
 
Eaves Mission Viejo 1.87% Jun-2025(6)7,635
 7,635
 
 
 
 
 
 7,635
 2.40% Jun-2025(5)7,635
 7,635
 
 
 
 
 
 7,635
AVA Nob Hill 1.78% Jun-2025(6)20,800
 20,800
 
 
 
 
 
 20,800
 2.39% Jun-2025(5)20,800
 20,800
 
 
 
 
 
 20,800
Avalon Campbell 2.10% Jun-2025(6)38,800
 38,800
 
 
 
 
 
 38,800
 2.72% Jun-2025(5)38,800
 38,800
 
 
 
 
 
 38,800
Eaves Pacifica 2.12% Jun-2025(6)17,600
 17,600
 
 
 
 
 
 17,600
 2.74% Jun-2025(5)17,600
 17,600
 
 
 
 
 
 17,600
Avalon Bowery Place I 3.69% Nov-2037(6)93,800
 93,800
 
 
 
 
 
 93,800
 4.27% Nov-2037(5)93,800
 93,800
 
 
 
 
 
 93,800
Avalon Acton 2.45% Jul-2040(6)45,000
 45,000
 
 
 
 
 
 45,000
 3.18% Jul-2040(5)45,000
 45,000
 
 
 
 
 
 45,000
Avalon Morningside Park 1.98% May-2046(3)100,000
 100,000
 
 
 
 
 345
 99,655
 4.02% May-2046(4)100,000
 100,000
 
 
 
 345
 405
 99,250
Avalon Clinton North 2.60% Nov-2038(6)147,000
 147,000
 
 
 
 
 
 147,000
 3.27% Nov-2038(5)147,000
 147,000
 
 
 
 
 
 147,000
Avalon Clinton South 2.60% Nov-2038(6)121,500
 121,500
 
 
 
 
 
 121,500
 3.27% Nov-2038(5)121,500
 121,500
 
 
 
 
 
 121,500
Avalon Midtown West 2.51% May-2029(6)100,500
 100,500
 
 
 
 
 
 100,500
 3.18% May-2029(5)100,500
 100,500
 
 
 
 
 
 100,500
Avalon San Bruno I 2.49% Dec-2037(6)64,450
 64,450
 
 
 
 
 
 64,450
 3.16% Dec-2037(5)64,450
 64,450
 
 
 
 
 
 64,450
Avalon Calabasas 2.33% Apr-2028(6)44,410
 44,410
 
 
 
 
 
 44,410
 2.90% Apr-2028(5)44,410
 44,410
 
 
 
 
 
 44,410
   818,795
 801,495
 
 
 
 
 345
 801,150
   801,495
 801,495
 
 
 
 345
 405
 800,745
Conventional loans (2)  
    
  
  
  
  
  
  
  
Conventional loans  
    
  
  
  
  
  
  
  
Fixed rate  
    
  
  
  
  
  
  
  
  
    
  
  
  
  
  
  
  
$250 million unsecured notes 6.19% Mar-2020
250,000
 250,000
 
 
 
 250,000
 
 
 6.19% Mar-2020
250,000
 250,000
 
 
 250,000
 
 
 
$250 million unsecured notes 4.04% Jan-2021
250,000
 250,000
 
 
 
 
 250,000
 
 4.04% Jan-2021
250,000
 250,000
 
 
 
 250,000
 
 
$450 million unsecured notes 4.30% Sep-2022
450,000
 450,000
 
 
 
 
 
 450,000
 4.30% Sep-2022
450,000
 450,000
 
 
 
 
 450,000
 
$250 million unsecured notes 3.00% Mar-2023
250,000
 250,000
 
 
 
 
 
 250,000
 3.00% Mar-2023
250,000
 250,000
 
 
 
 
 
 250,000
$400 million unsecured notes 3.78% Oct-2020
400,000
 400,000
 
 
 
 400,000
 
 
 3.78% Oct-2020
400,000
 400,000
 
 
 400,000
 
 
 
$350 million unsecured notes 4.30% Dec-2023
350,000
 350,000
 
 
 
 
 
 350,000
 4.30% Dec-2023
350,000
 350,000
 
 
 
 
 
 350,000
$300 million unsecured notes 3.66% Nov-2024
300,000
 300,000
 
 
 
 
 
 300,000
 3.66% Nov-2024
300,000
 300,000
 
 
 
 
 
 300,000
$525 million unsecured notes 3.55% Jun-2025 525,000
 525,000
  
 
 
 
 
 525,000
 3.55% Jun-2025
525,000
 525,000
  
 
 
 
 
 525,000
$300 million unsecured notes 3.62% Nov-2025
300,000
 300,000
 
 
 
 
 
 300,000
 3.62% Nov-2025
300,000
 300,000
 
 
 
 
 
 300,000
$475 million unsecured notes 3.35% May-2026
475,000
 475,000
 
 
 
 
 
 475,000
 3.35% May-2026
475,000
 475,000
 
 
 
 
 
 475,000
$300 million unsecured notes 3.01% Oct-2026 300,000
 300,000
 
 
 
 
 
 300,000
 3.01% Oct-2026
300,000
 300,000
 
 
 
 
 
 300,000
$350 million unsecured notes 3.95% Oct-2046 350,000
 350,000
 
 
 
 
 
 350,000
 3.95% Oct-2046
350,000
 350,000
 
 
 
 
 
 350,000
$400 million unsecured notes 3.50% May-2027
400,000
 400,000
 
 
 
 
 
 400,000
$300 million unsecured notes 4.09% Jul-2047
300,000
 300,000
 
 
 
 
 
 300,000
$450 million unsecured notes 3.32% Jan-2028
450,000
 450,000
 
 
 
 
 
 450,000
$300 million unsecured notes 3.97% Apr-2048

 300,000
 
 
 
 
 
 300,000
Avalon Orchards 7.80% Jul-2033
16,075
 15,988
 408
 577
 619
 663
 710
 13,011
 7.80% Jul-2033
15,579
 15,439
 437
 619
 663
 710
 760
 12,250
Avalon Walnut Creek 4.00% Jul-2066
3,420
 3,420
 
 
 
 
 
 3,420
 4.00% Jul-2066
3,557
 3,557
 
 
 
 
 
 3,557
Avalon Mission Oaks 6.04% May-2019
19,545
 19,456
 258
 367
 18,831
 
 
 
Avalon Stratford 6.02% May-2019
38,221
 38,048
 503
 717
 36,828
 
 
 
AVA Belltown 6.00% May-2019
60,766
 60,491
 800
 1,140
 58,551
 
 
 
Avalon Encino 6.06% May-2019
33,882
 33,729
 446
 636
 32,647
 
 
 
Avalon Run East 5.95% May-2019
36,305
 36,141
 478
 681
 34,982
 
 
 
Avalon Wilshire 6.18% May-2019
61,268
 60,990
 805
 1,150
 59,035
 
 
 
Avalon at Foxhall 6.06% May-2019
54,583
 54,336
 718
 1,024
 52,594
 
 
 
Avalon at Gallery Place 6.06% May-2019
42,410
 42,218
 558
 796
 40,864
 
 
 
Avalon at Traville 5.91% May-2019
71,871
 71,545
 945
 1,348
 69,252
 
 
 
Avalon Bellevue 5.92% May-2019
24,695
 24,583
 325
 463
 23,795
 
 
 
Avalon on the Alameda 5.91% May-2019
49,930
 49,704
 657
 937
 48,110
 
 
 
Avalon at Mission Bay I 5.90% May-2019
67,772
 67,465
 891
 1,272
 65,302
 
 
 
AVA Pasadena 4.06% Jun-2018
11,287
 11,232
 158
 11,074
 
 
 
 
 4.06% Jun-2018(3)11,073
 
 
 
 
 
 
 
Avalon La Jolla Colony 3.36% Nov-2017(7)26,682
 26,682
 26,682
 
 
 
 
 
Eaves Old Town Pasadena 3.36% Nov-2017(7)14,120
 14,120
 14,120
 
 
 
 
 
Eaves Thousand Oaks 3.36% Nov-2017(7)26,392
 26,392
 26,392
 
 
 
 
 
Archstone Lexington 3.36% Nov-2017
21,601
 21,601
 21,601
 
 
 
 
 
Eaves Los Feliz 3.36% Nov-2017
41,302
 41,302
 41,302
 
 
 
 
 
 3.68% Jun-2027
41,400
 41,400
 
 
 
 
 
 41,400
Eaves Woodland Hills 3.67% Jun-2027
111,500
 111,500
 
 
 
 
 
 111,500
Avalon Russett 3.77% Jun-2027
32,200
 32,200
 
 
 
 
 
 32,200
Avalon San Bruno II 3.85% Apr-2021
29,533
 29,397
 398
 564
 591
 27,844
 
 
Avalon Westbury 4.88% Nov-2036(4)16,450
 16,120
 1,025
 1,430
 1,495
 1,575
 1,655
 8,940
Avalon San Bruno III 3.18% Jun-2020
53,315
 53,007
 918
 1,264
 50,825
 
 
 
Avalon Andover 3.28% Apr-2018(6)13,498
 13,410
 13,410
 
 
 
 
 
Avalon Natick 3.14% Apr-2019
13,831
 13,745
 263
 13,482
 
 
 
 
Avalon Hoboken 3.55% Dec-2020
67,904
 67,904
 
 
 67,904
 
 
 
Avalon Columbia Pike 3.24% Nov-2019
68,637
 68,246
 1,162
 67,084
 
 
 
 
  
   5,828,477
 6,115,925
 17,613
 84,443
 771,478
 280,129
 452,415
 4,509,847
                  

Avalon Oak Creek 3.36% Nov-2017(7)69,696
 69,696
 69,696
 
 
 
 
 
Avalon Del Mar Station 3.36% Nov-2017(7)70,854
 70,854
 70,854
 
 
 
 
 
Avalon Courthouse Place 3.36% Nov-2017(7)118,112
 118,112
 118,112
 
 
 
 
 
Avalon Pasadena 3.36% Nov-2017(7)25,805
 25,805
 25,805
 
 
 
 
 
Eaves West Valley 3.36% Nov-2017(7)146,696
 146,696
 146,696
 
 
 
 
 
Eaves Woodland Hills 3.36% Nov-2017
98,732
 98,732
 98,732
 
 
 
 
 
Avalon Russett 3.36% Nov-2017
32,199
 32,199
 32,199
 
 
 
 
 
Avalon San Bruno II 3.85% Apr-2021
30,001
 29,910
 377
 534
 564
 591
 27,844
 
Avalon Westbury 4.88% Nov-2036(3)17,745
 17,426
 976
 1,358
 1,426
 1,499
 1,574
 10,593
Avalon San Bruno III 3.18% Jun-2020
54,408
 54,204
 889
 1,226
 1,264
 50,825
 
 
Avalon Andover 3.28% Apr-2018
13,844
 13,758
 261
 13,497
 
 
 
 
Avalon Natick 3.14% Apr-2019
14,170
 14,086
 255
 349
 13,482
 
 
 
Avalon Hoboken 3.55% Dec-2020
67,904
 67,904
 
 
 
 67,904
 
 
Avalon Columbia Pike 3.24% Nov-2019
70,019
 69,759
 1,121
 1,553
 67,085
 
 
 
   
   5,752,312
 5,748,584
 704,020
 40,699
 625,231
 771,482
 280,128
 3,327,024
                     
Variable rate (4)  
    
  
  
  
  
  
  
  
Avalon Calabasas 2.41% Aug-2018(6)53,570
 53,022
 926
 52,096
 
 
 
 
Avalon Natick 2.75% Apr-2019(6)35,897
 35,685
 645
 884
 34,156
 
 
 
Term Loan - $300 million 2.32% Mar-2021
300,000
 300,000
 
 
 
 
 300,000
 
Term Loan - $100 million N/A
 Feb-2022(8)
 
 
 
 
 
 
 
Term Loan - $150 million N/A
 Feb-2024(8)
 
 
 
 
 
 
 
   
   389,467
 388,707
 1,571
 52,980
 34,156
 
 300,000
 
                     
Total indebtedness - excluding Credit Facility  
   $7,076,758
 $7,054,852
 $706,145
 $94,456
 $660,210
 $772,353
 $581,395
 $4,240,293
  All-In
interest
rate (1)
 Principal
maturity
date
 Balance Outstanding (2) Scheduled Maturities
Community   12/31/2017 3/31/2018 2018 2019 2020 2021 2022 Thereafter
Variable rate  
    
  
  
  
  
  
  
  
Avalon Calabasas 2.41% Aug-2018(5)52,092
 51,773
 51,773
 
 
 
 
 
Avalon Natick 3.50% Apr-2019(5)35,039
 34,820
 665
 34,155
 
 
 
 
Archstone Lexington 3.49% Oct-2020
21,700
 21,700
 
 
 21,700
 
 
 
Term Loan - $100 million 2.74% Feb-2022
100,000
 100,000
 
 
 
 
 100,000
 
Term Loan - $150 million 3.28% Feb-2024
150,000
 150,000
 
 
 
 
 
 150,000
$300 million unsecured notes 2.03% Jan-2021
300,000
 300,000
 
 
 
 300,000
 
 
   
   658,831
 658,293
 52,438
 34,155
 21,700
 300,000
 100,000
 150,000
                     
Total indebtedness - excluding Credit Facility  
   $7,404,313
 $7,675,879
 $70,456
 $119,164
 $793,774
 $581,103
 $553,483
 $5,557,899
_________________________

(1)IncludesRates are given as of March 31, 2018 and include credit enhancement fees, facility fees, trustees' fees, the impact of interest rate hedges, offering costs, mark to market amortization and other fees.
(2)
Balances outstanding represent total amounts due at maturity, and exclude deferred financing costs and debt discount for the unsecured notes of $35,454$49,367 and $36,698$47,236 as of March 31, 20172018 and December 31, 2016,2017, respectively, and deferred financing costs and debt discount associated with secured notes of $13,669$27,057 and $27,607 as of March 31, 2017,2018 and deferred financing costs net of premium of $9,180 as of December 31, 2016,2017, respectively, as reflected on our Condensed Consolidated Balance Sheets included elsewhere in this report.
(3)In February 2018, we repaid this borrowing in advance of its scheduled maturity date.
(4)Maturity date reflects the contractual maturity of the underlying bond. There is also an associated earlier credit enhancement maturity date.
(4)Variable rates are given as of March 31, 2017.
(5)In February 2017, we repaid this borrowing at par at its scheduled maturity date.
(6)Financed by variable rate debt, but interest rate is capped through an interest rate protection agreement.
(7)In May 2017, we repaid $498,357 of fixed rate mortgage notes secured by eight communities at par in advance of their maturity dates.
(8)(6)In April 2017,2018, we drew the available $250,000 balance on the $250 million Term Loan of which $100,000 was borrowedrepaid this borrowing at 1.89% and matures in February 2022, and $150,000 was borrowedpar at 2.49% and matures in February 2024.its scheduled maturity date.

Future Financing and Capital Needs — Portfolio and Capital Markets Activity

During the remainder of 2017,2018, we expect to meet our liquidity needs from a variety of internal and external sources, including (i) real estate dispositions, (ii) cash balances on hand as well as cash generated from our operating activities, (iii) borrowing capacity under our Credit Facility and (iv) secured and unsecured debt financings. Additional sources of liquidity in 20172018 may include the issuance of common and preferred equity. Our ability to obtain additional financing will depend on a variety of factors, such as market conditions, the general availability of credit, the overall availability of credit to the real estate industry, our credit ratings and credit capacity, as well as the perception of lenders regarding our long or short-term financial prospects.

Before beginning new construction or reconstruction activity, including activity related to communities owned by unconsolidated joint ventures, we intend to plan adequate financing to complete these undertakings, although we cannot assure you that we will be able to obtain such financing. In the event that financing cannot be obtained, we may have to abandon Development Rights, write off associated pre-development costs that were capitalized and/or forego reconstruction activity. In such instances, we will not realize the increased revenues and earnings that we expected from such Development Rights or reconstruction activity and significant losses could be incurred.

From time to time we use joint ventures to hold or develop individual real estate assets. We generally employ joint ventures primarily to mitigate asset concentration or market risk and secondarily as a source of liquidity. We may also use joint ventures related to mixed-use land development opportunities and new markets where our partners bring development and operational expertise and/or experience to the venture. Each joint venture or partnership agreement has been individually negotiated, and our ability to operate and/or dispose of a community in our sole discretion may be limited to varying degrees depending on the terms of the joint venture or partnership agreement. We cannot assure you that we will achieve our objectives through joint ventures.

In evaluating our allocation of capital within our markets, we sell assets that do not meet our long-term investment criteria or when capital and real estate markets allow us to realize a portion of the value created over the past business cycleour ownership periods and redeploy the proceeds from those sales to develop and redevelop communities. Because the proceeds from the sale of communities may not be immediately redeployed into revenue generating assets that we develop, redevelop or acquire, the immediate effect of a sale of a community for a gain is to increase net income, but reduce future total revenues, total expenses and NOI until such time as the proceeds have been redeployed into revenue generating assets. We believe that the temporary absence of future cash flows from communities sold will not have a material impact on our ability to fund future liquidity and capital resource needs.


Unconsolidated Real Estate Investments and Off-Balance Sheet Arrangements

Unconsolidated Investments

Fund II was established to engage in a real estate acquisition program through a discretionary investment fund. We believe this investment format provides the following attributes: (i) third-party joint venture equity as an additional source of financing to expand and diversify our portfolio; (ii) additional sources of income in the form of property management and asset management fees and, potentially, incentive distributions if the performance exceeds certain thresholds; and (iii) additional visibility into the transactions occurring in multifamily assets that helps us with other investment decisions related to our wholly-owned portfolio.

Fund II has six institutional investors, including us. One of our wholly-owned subsidiaries is the general partner of Fund II and, excluding costs incurred in excess of our equity in the underlying net assets of Fund II, we have an equity investment of $24,038,000 (net of distributions), representing a 31.3% combined general partner and limited partner equity interest. Upon achievement of a threshold return, we have a right to incentive distributions for our promoted interest based on the current returns earned by Fund II, which represents the first 20.0% of further Fund II distributions, which are in addition to our share of the remaining 80.0% of distributions. During the three months ended March 31, 2017, we recognized income of $6,765,000 for our promoted interest. Fund II served as the exclusive vehicle for acquiring apartment communities from its formation in 2008 through the close of its investment period in August 2011. Fund II has a term that expires in August 2020, assuming the exercise of two, one-year extension options.

During the three months ended March 31, 2017, Fund II sold one community containing 684 apartment homes for a sales price of $117,000,000. Our share of the gain in accordance with GAAP was $8,697,000. In conjunction with the disposition of this community, Fund II repaid $63,200,000 of secured indebtedness at par in advance of the scheduled maturity date.

The U.S. Fund has six institutional investors, including us. We are the general partner of the U.S. Fund and, excluding costs incurred in excess of our equity in the underlying net assets of the U.S. Fund, we have an equity investment of $49,401,000 (net of distributions), representing a 28.6% combined equity interest. The U.S. Fund was formed in July 2011 and is fully invested. The U.S. Fund has a term that expires in July 2023, assuming the exercise of two, one-year extension options.

The AC JV has four institutional investors, including us. Excluding costs incurred in excess of our equity in the underlying net assets of the AC JV, we have an equity investment of $50,366,000 (net of distributions), representing a 20.0% equity interest. The AC JV was formed in 2011.

As of March 31, 2017,2018, we had investments in unconsolidated real estate accounted for under the equity method of accounting shown in the following table, excluding development joint ventures.ventures, Fund II, which sold its final apartment community in 2017, and joint ventures formed with Equity Residential as part of the Archstone acquisition. Refer to Note 5, "Investments in Real Estate Entities," of the Condensed Consolidated Financial Statements included elsewhere in this report, which includes information on the aggregate assets, liabilities and equity, as well as operating results, and our proportionate share of their operating results. For ventures holding operating apartment communities as of March 31, 2017,2018, detail of the real estate and associated funding underlying our unconsolidated investments is presented in the following table (dollars in thousands).


  
Company
 ownership percentage
 # of Apartment homes Total capitalized cost (1) Debt (2)
         Interest rate (3) Maturity date
Unconsolidated Real Estate Investments    Amount Type  
               
Fund II  
  
  
  
    
  
1. Briarwood Apartments - Owings Mills, MD  
 348
 $46,100
 $25,144
 Fixed 3.64% Nov 2017
2. Avalon Watchung - Watchung, NJ  
 334
 66,700
 39,425
 Fixed 3.37% Apr 2019
Total Fund II 31.3% 682
 112,800
 64,569
   3.48%  
U.S. Fund  
  
  
  
    
  
1. Eaves Sunnyvale - Sunnyvale, CA (4)  
 192
 67,289
 32,747
 Fixed 5.33% Nov 2019
2. Avalon Studio 4121 - Studio City, CA  
 149
 56,921
 29,370
 Fixed 3.34% Nov 2022
3. Avalon Marina Bay - Marina del Rey, CA (5)  
 205
 77,146
 51,300
 Fixed 1.56% Dec 2020
4. Avalon Venice on Rose - Venice, CA  
 70
 57,238
 29,614
 Fixed 3.28% Jun 2020
5. Avalon Station 250 - Dedham, MA  
 285
 96,383
 57,230
 Fixed 3.73% Sep 2022
6. Avalon Grosvenor Tower - Bethesda, MD  
 237
 79,748
 44,357
 Fixed 3.74% Sep 2022
7. Avalon Kirkland at Carillon - Kirkland, WA  
 131
 60,686
 28,855
 Fixed 3.75% Feb 2019
Total U.S. Fund 28.6% 1,269
 495,411
 273,473
   3.43%  
               
AC JV  
  
  
  
    
  
1. Avalon North Point - Cambridge, MA (6)  
 426
 187,294
 111,653
 Fixed 6.00% Aug 2021
2. Avalon Woodland Park - Herndon, VA (6)  
 392
 85,744
 50,647
 Fixed 6.00% Aug 2021
3. Avalon North Point Lofts - Cambridge, MA   103
 26,805
 
 N/A N/A
 N/A
Total AC JV 20.0% 921
 299,843
 162,300
   6.00%  
               
Other Operating Joint Ventures  
  
  
  
    
  
1. MVP I, LLC 25.0% 313
 124,955
 103,000
 Fixed 3.24% Jul 2025
2. Brandywine Apartments of Maryland, LLC 28.7% 305
 19,309
 23,172
 Fixed 3.40% Jun 2028
Total Other Joint Ventures   618
 144,264
 126,172
   3.27%  
             
  
Total Unconsolidated Investments   3,490
 $1,052,318
 $626,514
   4.07%  
  
Company
 ownership percentage
 # of Apartment homes Total capitalized cost (1) Debt (2)
         Interest rate (3) Maturity date
Unconsolidated Real Estate Investments    Amount Type  
               
U.S. Fund  
  
  
  
    
  
1. Avalon Studio 4121 - Studio City, CA  
 149
 $57,080
 $28,763
 Fixed 3.34% Nov 2022
2. Avalon Marina Bay - Marina del Rey, CA (4)  
 205
 77,186
 51,300
 Fixed 1.56% Dec 2020
3. Avalon Venice on Rose - Venice, CA  
 70
 57,364
 28,911
 Fixed 3.28% Jun 2020
4. Avalon Station 250 - Dedham, MA  
 285
 97,117
 56,048
 Fixed 3.73% Sep 2022
5. Avalon Grosvenor Tower - Bethesda, MD  
 237
 80,098
 43,442
 Fixed 3.74% Sep 2022
6. Avalon Kirkland at Carillon - Kirkland, WA  
 131
 60,716
 28,240
 Fixed 3.75% Feb 2019
Total U.S. Fund 28.6% 1,077
 429,561
 236,704
   3.16%  
               
AC JV  
  
  
  
    
  
1. Avalon North Point - Cambridge, MA (5)  
 426
 188,153
 111,653
 Fixed 6.00% Aug 2021
2. Avalon Woodland Park - Herndon, VA (5)  
 392
 86,376
 50,647
 Fixed 6.00% Aug 2021
3. Avalon North Point Lofts - Cambridge, MA   103
 26,805
 
 N/A N/A
 N/A
Total AC JV 20.0% 921
 301,334
 162,300
   6.00%  
               
Other Operating Joint Ventures  
  
  
  
    
  
1. MVP I, LLC 25.0% 313
 125,246
 103,000
 Fixed 3.24% Jul 2025
2. Brandywine Apartments of Maryland, LLC 28.7% 305
 19,384
 22,621
 Fixed 3.40% Jun 2028
Total Other Joint Ventures   618
 144,630
 125,621
   3.27%  
             
  
Total Unconsolidated Investments   2,616
 $875,525
 $524,625
   4.06%  
_____________________________

(1)Represents total capitalized cost as of March 31, 2017.2018.
(2)We have not guaranteed the debt of unconsolidated investees and bear no responsibility for the repayment.
(3)Represents weighted average rate on outstanding debt as of March 31, 2017.2018.
(4)Borrowing on this community is comprised of two mortgage loans.
(5)Borrowing on this community is a variable rate loan which has been converted to a fixed rate borrowing with an interest rate swap.
(6)(5)Borrowing is comprised of four mortgage loans made by the equity investors in the venture in proportion to their equity interests.

Off-Balance Sheet Arrangements

In addition to our investment interests in consolidated and unconsolidated real estate entities, we have certain off-balance sheet arrangements with the entities in which we invest.  Additional discussion of these entities can be found in Note 5, "Investments in Real Estate Entities," of our Condensed Consolidated Financial Statements included elsewhere in this report.


We have not guaranteed the debt of our unconsolidated real estate entities, as referenced in the table above, nor do we have any obligation to fund this debt should the unconsolidated real estate entities be unable to do so. In the future, in the event the unconsolidated real estate entities were unable to meet their obligations under a loan, we cannot predict at this time whether we would provide any voluntary support, or take any other action, as any such action would depend on a variety of factors, including the amount of support required and the possibility that such support could enhance the return of the unconsolidated real estate entities and/or our returns by providing time for performance to improve.


With respect to Fund II, each individual mortgage loan was made to a special purpose, single asset subsidiary of Fund II. Each mortgage loan provides that it is the obligation of the respective subsidiary only, except under exceptional circumstances (such as fraud or misapplication of funds) in which case Fund II could also have obligations with respect to the mortgage loan. In no event do the mortgage loans provide for recourse against investors in Fund II, including against us or our wholly-owned subsidiaries that invest in Fund II. A default by Fund II or a Fund II subsidiary on any loan to it would not constitute a default under any of our loans or any loans of our other non-Fund subsidiaries or affiliates. If Fund II or a subsidiary of Fund II were unable to meet its obligations under a loan, the value of our investment in Fund II would likely decline.  If a Fund II subsidiary or Fund II were unable to meet its obligations under a loan, we and/or the other investors might evaluate whether it was in our respective interests to voluntarily support Fund II through additional equity contributions and/or take other actions to avoid a default under a loan or the consequences of a default (such as foreclosure of a Fund II asset).

There are no other material lines of credit, side agreements, financial guarantees or any other derivative financial instruments related to or between our unconsolidated real estate entities and us. In evaluating our capital structure and overall leverage, management takes into consideration our proportionate share of the indebtedness of unconsolidated entities in which we have an interest.

Contractual Obligations

We currently have contractual obligations consisting primarily of long-term debt obligations and lease obligations for certain land parcels and regional and administrative office space. As of March 31, 2017,2018, other than as discussed in this Form 10-Q, there have been no other material changes in our scheduled contractual obligations as disclosed in our Form 10-K.

Development Communities

As of March 31, 2017,2018, we owned or held a direct or indirect interest in 2418 Development Communities under construction. We expect these Development Communities, when completed, to add a total of 7,5815,774 apartment homes to our portfolio for a total capitalized cost, including land acquisition costs, of approximately $3,399,600,000,$2,697,000,000, including the total projected capitalized cost for one community being developed within an unconsolidated joint venture in which we own a 55.0% interest. We cannot assure you that we will meet our schedule for construction completion or that we will meet our budgeted costs, either individually or in the aggregate. You should carefully review Item 1A. "Risk Factors" of our Form 10-K for a discussion of the risks associated with development activity.

The following table presents a summary of the Development Communities. We hold a fee simple ownership interest in these communities (directly or through a wholly-owned subsidiary) unless otherwise noted in the table.

Number of
apartment
homes
 
Projected total
capitalized cost (1)
($ millions)
 
Construction
start
 Initial  projected occupancy (2) 
Estimated
completion
 
Estimated
stabilized operations (3)
Number of
apartment
homes
 
Projected total
capitalized cost (1)
($ millions)
 
Construction
start
 Initial  projected occupancy (2) 
Estimated
completion
 
Estimated
stabilized operations (3)
1. 
Avalon West Hollywood (4)
West Hollywood, CA
294
 $153.6
 Q2 2014 Q1 2017 Q4 2017 Q2 2018 
Avalon Maplewood (4)
Maplewood, NJ
235
 66
 Q4 2015 Q4 2017 Q2 2018 Q4 2018
2. 
Avalon North Station
Boston, MA
503
 271.2
 Q3 2014 Q4 2016 Q1 2018 Q3 2018 
AVA Wheaton
Wheaton, MD
319
 77
 Q4 2015 Q3 2017 Q2 2018 Q4 2018
3. 
Avalon Esterra Park (4)
Redmond, WA
482
 137.8
 Q3 2014 Q1 2016 Q2 2017 Q4 2017 
Avalon Dogpatch
San Francisco, CA
326
 203
 Q4 2015 Q3 2017 Q2 2018 Q4 2018
4. 
Avalon Princeton
Princeton, NJ
280
 95.5
 Q4 2014 Q3 2016 Q3 2017 Q1 2018 
AVA North Point (5)
Cambridge, MA
265
 114
 Q2 2016 Q1 2018 Q3 2018 Q1 2019
5. 
Avalon Hunt Valley
Hunt Valley, MD
332
 74.0
 Q1 2015 Q3 2016 Q3 2017 Q1 2018 
Avalon Boonton
Boonton, NJ
350
 91
 Q3 2016 Q2 2019 Q1 2020 Q3 2020
6. 
AVA NoMa
Washington, D.C.
438
 148.3
 Q2 2015 Q1 2017 Q1 2018 Q3 2018 
11 West 61st Street (6)
New York, NY
172
 604
 Q4 2016 Q2 2019 Q4 2019 Q2 2020
7. 
Avalon Quincy
Quincy, MA
395
 94.9
 Q2 2015 Q2 2016 Q3 2017 Q1 2018 
Avalon Belltown Towers (6)
Seattle, WA
275
 147
 Q4 2016 Q3 2019 Q4 2019 Q2 2020
8. 
Avalon Great Neck
Great Neck, NY
191
 79.6
 Q2 2015 Q2 2017 Q4 2017 Q2 2018 
Avalon Public Market
Emeryville, CA
289
 149
 Q4 2016 Q4 2018 Q2 2019 Q4 2019
9. 
Avalon Brooklyn Bay (5)
Brooklyn, NY
180
 89.7
 Q3 2015 Q3 2017 Q4 2017 Q2 2018 
Avalon Teaneck
Teaneck, NJ
248
 73
 Q4 2016 Q2 2019 Q1 2020 Q3 2020
10. 
Avalon Newcastle Commons I (4)
Newcastle, WA
378
 116.3
 Q3 2015 Q4 2016 Q4 2017 Q2 2018 
AVA Hollywood (6)
Hollywood, CA
695
 365
 Q4 2016 Q2 2019 Q2 2020 Q4 2020
11. 
Avalon Chino Hills
Chino Hills, CA
331
 96.6
 Q3 2015 Q4 2016 Q4 2017 Q1 2018 
AVA Esterra Park
Redmond, WA
323
 91
 Q2 2017 Q4 2018 Q3 2019 Q1 2020
12. 
Avalon Maplewood (6)
Maplewood, NJ
235
 65.4
 Q4 2015 Q1 2018 Q4 2018 Q2 2019 
Avalon at the Hingham Shipyard II
Hingham, MA
190
 64
 Q2 2017 Q4 2018 Q2 2019 Q4 2019
13. 
Avalon Rockville Centre II
Rockville Centre, NY
165
 57.8
 Q4 2015 Q3 2017 Q1 2018 Q3 2018 
Avalon Piscataway
Piscataway, NJ
360
 89
 Q2 2017 Q3 2018 Q2 2019 Q4 2019
14. 
AVA Wheaton
Wheaton, MD
319
 75.6
 Q4 2015 Q3 2017 Q2 2018 Q4 2018 
Avalon Sudbury
Sudbury, MA
250
 85
 Q3 2017 Q2 2018 Q1 2019 Q3 2019
15. 
Avalon Dogpatch
San Francisco, CA
326
 203.4
 Q4 2015 Q4 2017 Q3 2018 Q1 2019 
Avalon Towson
Towson, MD
371
 114
 Q4 2017 Q1 2020 Q4 2020 Q2 2021
16. 
Avalon Easton
Easton, MA
290
 64.0
 Q1 2016 Q1 2017 Q1 2018 Q3 2018 
Avalon Yonkers
Yonkers, NY
590
 188
 Q4 2017 Q4 2019 Q2 2021 Q3 2021
17 
Avalon Somers
Somers, NY
152
 45.1
 Q2 2016 Q3 2017 Q1 2018 Q3 2018 
Avalon Walnut Creek II
Walnut Creek, CA
200
 93
 Q4 2017 Q3 2019 Q1 2020 Q2 2020
18. 
AVA North Point (7)
Cambridge, MA
265
 113.9
 Q2 2016 Q1 2018 Q4 2018 Q2 2019 
Avalon North Creek
Bothell, WA
316
 84
 Q4 2017 Q2 2019 Q1 2020 Q3 2020
19. 
Avalon Boonton
Boonton, NJ
350
 91.2
 Q3 2016 Q2 2019 Q1 2020 Q3 2020
20. 
11 West 61st Street (4)
New York, NY
172
 603.7
 Q4 2016 Q2 2019 Q4 2019 Q2 2020
21. 
Avalon Belltown Towers (4)
Seattle, WA
275
 146.9
 Q4 2016 Q3 2019 Q4 2019 Q2 2020
22. 
Avalon Public Market
Emeryville, CA
285
 139.6
 Q4 2016 Q3 2018 Q1 2019 Q3 2019
23. 
Avalon Teaneck
Teaneck, NJ
248
 70.4
 Q4 2016 Q4 2018 Q2 2019 Q4 2019
24. 
AVA Hollywood (4)
Hollywood, CA
695
 365.1
 Q4 2016 Q2 2019 Q2 2020 Q4 2020
 Total7,581
 $3,399.6
  Total5,774
 $2,697
 


(1)Projected total capitalized cost includes all capitalized costs projected to be or actually incurred to develop the respective Development Community, determined in accordance with GAAP, including land acquisition costs, construction costs, real estate taxes, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees.  Projected total capitalized cost for communities identified as having joint venture ownership, either during construction or upon construction completion, represents the total projected joint venture contribution amount.
(2)Initial projected occupancy dates are estimates. There can be no assurance that we will pursue to completion any or all of these proposed developments.
(3)Stabilized operations is defined as the earlier of (i) attainment of 95% or greater physical occupancy or (ii) the one-year anniversary of completion of development.

(4)Development communities containing at least 10,000 square feet of retail space include Avalon West Hollywood (32,000 square feet), Avalon Esterra Park (17,000 square feet), Avalon Newcastle Commons I (15,000 square feet), 11 West 61st Street (67,000 square feet), Avalon Belltown Towers (11,000 square feet) and AVA Hollywood (19,000 square feet).
(5)We are developing this project with a private development partner. We will own the rental portion of the development on floors 3 through19 and the partner will own the for-sale condominium portion of the development on floors 20 through 30. The information above represents only our portion of the project. We are providing a construction loan to the development partner, expected to be $48,800,000, which together with the partner's contributed equity is expected to fund the condominium portion of the project.
(6)In February 2017, a fire occurred at Maplewood. See Note 1, "Organization, Basis and Presentation and Significant Accounting Policies - Legal and Other Contingencies," and Note 5, "Investments in Real Estate Entities - Casualty Gains and Losses," in the accompanying Condensed Consolidated Financial Statements for additional discussionsdiscussion related to the Maplewood casualty loss.
(7)(5)We are developing this project within an unconsolidated joint venture that was formed in July 2016, in which we own a 55.0% interest. The projected total capitalized cost above represents the total cost for the venture.
(6)Development communities containing at least 10,000 square feet of retail space include 11 West 61st Street (67,000 square feet), Avalon Belltown Towers (11,000 square feet) and AVA Hollywood (19,000 square feet).

During the three months ended March 31, 2017,2018, we completed the development of the following communities:

Number of
apartment
homes
 
Total capitalized 
cost (1)
($ millions)
 
Approximate rentable area
(sq. ft.)
 Total capitalized cost per sq. ft. Number of
apartment
homes
 
Total capitalized 
cost (1)
($ millions)
 
Approximate rentable area
(sq. ft.)
 Total capitalized cost per sq. ft.
1. 
Avalon Willoughby Square/AVA DoBro
Brooklyn, NY
826
 $456.3
 606,579
 $752
 
AVA NoMa
Washington, D.C.
438
 $144
 373,828
 $385
2. 
Avalon Huntington Beach (2)
Huntington Beach, CA
378
 120.1
 322,073
 $373
 
Avalon Brooklyn Bay (2)
Brooklyn, NY
180
 97
 149,881
 $647
3. 
Avalon Laurel
Laurel, MD
344
 72.4
 378,688
 $191
 
Avalon Somers
Somers, NY
152
 46
 179,401
 $256
 Total1,548
 $648.8
    
 Total770
 $287
    


(1)Total capitalized cost is as of March 31, 2017.2018. We generally anticipate incurring additional costs associated with these communities that are customary for new developments.
(2)Avalon Huntington Beach contains 10,000 square feetWe developed this project with a private development partner. We own the rental portion of retail space.the development on floors 3 through 19 and the partner owns the for-sale condominium portion of the development on floors 20 through 30. The information above represents only our portion of the project. We provided a construction loan to the development partner in the amount of $41,976,000 for outstanding principal and interest, net of repayments, as of March 31, 2018. The loan is being repaid with proceeds the venture partner receives from the sale of the condominium portion of the project.

We anticipate commencing the construction of 10seven apartment communities during the balance of 2017,2018, which, if completed as expected, will contain 3,1062,185 apartment homes and be constructed for a total capitalized cost of $920,900,000.$767,000,000.

Redevelopment Communities

As of March 31, 2017,2018, there were nine15 communities under active redevelopment. We expect the total capitalized cost to redevelop these communities to be $164,100,000,$330,000,000, excluding costs incurred prior to redevelopment. We have found that the cost to redevelop an existing apartment community is more difficult to budget and estimate than the cost to develop a new community. Accordingly, we expect that actual costs may vary from our budget by a wider range than for a new development community.Development Community. We cannot assure you that we will meet our schedule for reconstruction completion or for attaining restabilized operations, or that we will meet our budgeted costs, either individually or in the aggregate. We anticipate maintaining or increasing our current level of redevelopment activity related to communities in our current operating portfolio for the remainder of 2017.2018. You should carefully review Item 1A. "Risk Factors" of our Form 10-K for a discussion of the risks associated with redevelopment activity.


The following presents a summary of these Redevelopment Communities:
 
Number of
apartment
homes
 
Projected total
capitalized cost (1)
($ millions)
 
Reconstruction
start
 
Estimated
reconstruction
completion
 
Estimated
restabilized
operations (2)
 
Number of
apartment
homes
 
Projected total
capitalized cost (1)
($ millions)
 
Reconstruction
start
 
Estimated
reconstruction
completion
 
Estimated
restabilized
operations (2)
1. 
Avalon at Arlington Square
Arlington, VA
 842
 $32.8
 Q4 2014 Q2 2017 Q4 2017 
AVA Toluca Hills
Los Angeles, CA
 1,151
 $79
 Q1 2017 Q1 2019 Q3 2019
2. 
AVA Studio City I
Studio City, CA
 450
 28.4
 Q1 2016 Q2 2017 Q4 2017 
Avalon Prudential Center II
Boston, MA
 266
 19
 Q1 2017 Q3 2019 Q1 2020
3. 
Avalon Towers on the Peninsula
Mountain View, CA
 211
 13.5
 Q2 2016 Q2 2017 Q4 2017 
Avalon Midtown West
New York, NY
 550
 30
 Q1 2017 Q2 2019 Q4 2019
4. 
Toluca Hills Apartments by Avalon
Los Angeles, CA
 1,151
 40.0
 Q1 2017 Q1 2020 Q3 2020 
Avalon at Edgewater II (3)
Edgewater, NJ
 240
 60
 Q2 2017 Q4 2018 Q2 2019
5. 
Eaves Old Town Pasadena
Pasadena, CA
 96
 5.7
 Q1 2017 Q3 2017 Q1 2018 
Avalon at Florham Park
Florham Park, NJ
 270
 13
 Q3 2017 Q3 2018 Q1 2019
6. 
Avalon on the Alameda
San Jose, CA
 305
 6.2
 Q1 2017 Q1 2018 Q3 2018 
AVA Van Ness
Washington, D.C.
 269
 20
 Q3 2017 Q1 2019 Q3 2019
7. 
Avalon Prudential Center II
Boston, MA
 266
 18.7
 Q1 2017 Q3 2019 Q1 2020 
Avalon Ballston Square
Arlington, VA
 714
 25
 Q4 2017 Q1 2019 Q3 2019
8. 
Avalon at Chestnut Hill
Chestnut Hill, MA
 204
 9.2
 Q1 2017 Q4 2017 Q2 2018 
Eaves Los Feliz
Los Angeles, CA.
 263
 6
 Q1 2018 Q4 2018 Q2 2019
9. 
Avalon Midtown West
New York, NY
 550
 9.6
 Q1 2017 Q4 2017 Q2 2018 
Eaves Seal Beach
Seal Beach, CA
 549
 10
 Q1 2018 Q4 2018 Q2 2019
10. 
Avalon Walnut Ridge II
Walnut Creek, CA
 360
 7
 Q1 2018 Q4 2018 Q2 2019
11. 
Eaves Redmond Campus
Redmond, WA
 422
 17
 Q1 2018 Q4 2018 Q2 2019
12. 
Eaves Fairfax Towers
Falls Church, VA
 415
 6
 Q1 2018 Q2 2019 Q4 2019
13. 
Avalon at Newton Highlands
Newton, MA
 294
 12
 Q1 2018 Q4 2018 Q2 2019
14. 
Avalon Prudential Center I
Boston, MA
 243
 18
 Q1 2018 Q2 2020 Q4 2020
15. 
Avalon Court
Melville, NY
 494
 8
 Q1 2018 Q3 2018 Q1 2019
 Total 4,075
 $164.1
  Total 6,500
 $330
 


(1)Projected total capitalized cost does not include capitalized costs incurred prior to redevelopment.
(2)RestabilizedEstimated restabilized operations is defined as the earlier of (i) attainment of 95% or greater physical occupancy or (ii) the one-year anniversary of completion of redevelopment.
(3)Redevelopment Communities includes the reconstruction of the building destroyed in the Edgewater casualty loss. Due to the nature of this reconstruction, the 240 apartment homes that we expect the new building to contain upon completion are not included in the apartment home count presented elsewhere in this Form 10-Q, and will be included upon completion.

Development Rights

At March 31, 2017,2018, we had $103,954,000$136,771,000 in acquisition and related capitalized costs for direct interests in land parcels we own, and $40,110,000$39,369,000 in capitalized costs (including legal fees, design fees and related overhead costs) related to Development Rights for which we control the land parcel, typically through a conditional agreement or option to purchase or lease the land, as well as land associated with the building destroyed in the Edgewater casualty loss not considered a Development Right.land. Collectively, the land held for development and associated costs for deferred development rights relate to 28 Development Rights for which we expect to develop new apartment communities in the future. The cumulative capitalized costs for land held for development as of March 31, 20172018 includes $78,980,000$105,526,000 in original land acquisition costs. The Development Rights range from those beginning design and architectural planning to those that have completed site plans and drawings and can begin construction almost immediately. We estimate that the successful completion of all of these communities would ultimately add approximately 9,3049,268 apartment homes to our portfolio. Substantially all of these apartment homes will offer features like those offered by the communities we currently own.


For 1920 Development Rights, we control the land through a conditional agreement or option to purchase or lease the parcel. While we generally prefer to hold Development Rights through conditional agreements or options to acquire land, for sevensix Development Rights we either currently own the land, have an ownership interest in a joint venture that owns the land or have executed a long term land lease for the parcel of land on which a community would be built if we proceeded with development. During the next 12 months we expect to commence construction of apartment communities on five of the Development Rights for which we currently own the land, with a carrying basis of $122,152,000. In addition, two Development Rights are additional development phases of existing stabilized operating communities we own, and will be constructed on land currently associated with those operating communities. During the next 12 months we expect to commence construction of apartment communities on six of the Development Rights for which we currently own the land, with a carrying basis of $88,041,000.


The properties comprising the Development Rights are in different stages of the due diligence and regulatory approval process.  The decisions as to which of the Development Rights to invest in, if any, or to continue to pursue once an investment in a Development Right is made, are business judgments that we make after we perform financial, demographic and other analyses.  In the event that we do not proceed with a Development Right, we generally would not recover any of the capitalized costs incurred in the pursuit of those communities, unless we were to recover amounts in connection with the sale of land; however, we cannot guarantee a recovery.  Pre-development costs incurred in the pursuit of Development Rights for which future development is not yet considered probable are expensed as incurred.  In addition, if the status of a Development Right changes, making future development no longer probable, any capitalized pre-development costs are charged to expense. During the three months ended March 31, 2017,2018, we incurred a charge of approximately $728,000$800,000 for development pursuits that were not yet probable of future development at the time incurred, or for pursuits that we determined would not likelywere no longer probable to be developed.

You should carefully review Item 1A. "Risk Factors" of our Form 10-K for a discussion of the risks associated with Development Rights.

The following presents a summary of the Development Rights as of March 31, 2017:2018:
Market Number of rights 
Estimated
number of homes
 
Projected total
capitalized cost ($ millions) (1)
 Number of rights 
Estimated
number of homes
 
Projected total
capitalized cost ($ millions) (1)
            
New England 6
 1,388
 $474
 6
 1,380
 $508
Metro NY/NJ 11
 4,628
 1,644
 10
 3,770
 1,488
Mid-Atlantic 3
 998
 314
 3
 1,058
 305
Pacific Northwest 3
 911
 238
 1
 272
 80
Northern California 4
 904
 458
 5
 1,507
 762
Southern California 1
 475
 245
 3
 1,281
 581
Total 28
 9,304
 $3,373
 28
 9,268
 $3,724


(1)Projected total capitalized cost includes all capitalized costs incurred to date (if any) and projected to be incurred to develop the respective community, determined in accordance with GAAP, including land acquisition costs, construction costs, real estate taxes, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees.

Land Acquisitions

We acquired two land parcels for future development during the three months ended March 31, 20172018 for an aggregate investment of $21,488,000$57,080,000 and have or anticipate starting construction on these parcels during the next twelve months.

Other LandFederal Income Tax Law Changes and Real Estate AssetsUpdates

We own land parcelsThe following discussion updates the disclosures under “Federal Income Tax Considerations and Consequences of Your Investment” in the prospectus dated February 23, 2018 contained in our Registration Statement on Form S-3 filed with the SEC on February 23, 2018.

On March 23, 2018, President Donald J. Trump signed into law the Consolidated Appropriations Act, 2018 (the “CAA”), which amended various provisions of the Code and implicate certain tax-related disclosures contained in the prospectus. As a carryingresult, the discussion under “Federal Income Tax Considerations and Consequences of Your Investment-U.S. Taxation of Non-U.S. Stockholders-Special FIRPTA Rules” on p. 68 of the prospectus is replaced with the following paragraphs:

Special FIRPTA Rules. To the extent our stock is held directly (or indirectly through one or more partnerships) by a "qualified shareholder," it will not be treated as a U.S. real property interest for such qualified shareholder. Further, to the extent such treatment applies, any distribution to such shareholder will not be treated as gain recognized from the sale or exchange of a U.S. real property interest. For these purposes, a qualified shareholder is generally a non-U.S. stockholder that (i)(A) is eligible for treaty benefits under an income tax treaty with the United States that includes an exchange of information program, and the principal class of interests of which is listed and regularly traded on one or more stock exchanges as defined by the treaty, or (B) is a foreign limited partnership organized in a jurisdiction with an exchange of information agreement with the United States and that has a class of regularly traded limited partnership units (having a value greater than 50% of the value of $28,738,000,all partnership units) on which we do not currently plan to developthe New York Stock Exchange or Nasdaq, (ii) is a “qualified collective investment vehicle” (within the meaning of Section 897(k)(3)(B) of the Code) and operate an apartment community. These parcels consist(iii) maintains records of both ancillary parcels acquiredpersons holding 5% or more of the class of interests described in connection with Development Rights that we had not planned to develop and land parcels which we acquired for development and now intend to sell. During the three months ended March 31, 2017, we recognized an impairment charge of $9,350,000 for a land parcel included in the population of land we do not currently plan to develop, resulting from our decision to no longer develop the land parcel. We believe that the current carrying value for all other land parcels is such that there is no indication of impaired value,clauses (i)(A) or further need to record a charge for impairment(i)(B) above. However, in the case of a qualified shareholder having one or more “applicable investors,” the exception described in the first sentence of this paragraph will not apply to the applicable percentage of the qualified shareholder's stock (with “applicable percentage” generally meaning the percentage of the value of the interests in the qualified shareholder held by applicable investors after applying certain constructive ownership rules). The applicable percentage of the amount realized by a qualified shareholder on the disposition of our stock or with respect to a distribution from us attributable to gain from the sale or exchange of a U.S. real property interest will be treated as amounts realized from the disposition of U.S. real property interest. Such treatment shall also apply to applicable investors in respect of distributions treated as a sale or exchange of stock with respect to a qualified shareholder. For these purposes, an "applicable investor" is a person (other than a qualified shareholder) who generally holds an interest in the qualified shareholder and holds more than 10% of our stock applying certain constructive ownership rules.

For FIRPTA purposes, a "qualified foreign pension fund" shall not be treated as a non-U.S. stockholder, and any entity all of the interests of which are held by an qualified foreign pension fund shall be treated as such a fund. A "qualified foreign pension fund" is an organization or arrangement (i) created or organized in a foreign country, (ii) established to provide retirement or pension benefits to current or former employees (including self-employed individuals) or their designees by either (A) a foreign country as a result of services rendered by such employees to their employers, or (B) one or more employers in consideration for services rendered by such employees to such employers, (iii) which does not have a single participant or beneficiary that has a right to more than 5% of its assets previously impaired. However, we mayor income, (iv) which is subject to government regulation and with respect to which annual information about its beneficiaries is provided, or is otherwise available, to relevant local tax authorities and (v) with respect to which, under its local laws, (A) contributions that would otherwise be subject to tax are deductible or excluded from its gross income or taxed at a reduced rate, or (B) taxation of its investment income is deferred, or such income is excluded from its gross income or taxed at a reduced rate.

In addition, the recognitionCAA clarified that for purposes of further charges for impairmentdetermining if a REIT is a “domestically controlled qualified investment entity” under FIRPTA, the presumption that generally a person holding less than 5% of a REIT’s class of stock that is regularly traded on an established securities market in the eventUnited States for five years has been, and will be, treated as a U.S. person applies for testing periods ending on or after December 18, 2015 (e.g., if a testing period ends on June 1, 2018, then the presumption applies for the entire five-year period starting on June 1, 2013).

The CAA also amended numerous Code provisions relating to the new rules applicable to federal income tax audits of partnerships effective for taxable years beginning after December 31, 2017 to provide that there are indicatorsa broader range of such impairmentpartnership-related items may be adjusted on audit or in other tax proceedings.

Finally, the discussion under “Federal Income Tax Considerations and we determineConsequences of Your Investment-U.S. Taxation of Non-U.S. Stockholders-Distributions by AvalonBay” on p. 66 and p. 67 of the prospectus is clarified to explain that the carrying value ofexception to FIPRTA for 10% or smaller holders may apply only if our common stock is regularly traded an established securities market located in the assets is greater than the current fair value, less costs to dispose.

United States.

Inflation and Deflation

Substantially all of our apartment leases are for a term of one year or less. In an inflationary environment, this may allow us to realize increased rents upon renewal of existing leases or the beginning of new leases. Short-term leases generally minimize our risk from the adverse effects of inflation, although these leases generally permit residents to leave at the end of the lease term and therefore expose us to the effect of a decline in market rents. Similarly, in a deflationary rent environment, we may be exposed to declining rents more quickly under these shorter-term leases.


Forward-Looking Statements

This Form 10-Q contains "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995.  You can identify forward-looking statements by our use of the words "believe," "expect," "anticipate," "intend," "estimate," "assume," "project," "plan," "may," "shall," "will" and other similar expressions in this Form 10-Q, that predict or indicate future events and trends and that do not report historical matters.  These statements include, among other things, statements regarding our intent, belief or expectations with respect to:

our potential development, redevelopment, acquisition or disposition of communities;

the timing and cost of completion of apartment communities under construction, reconstruction, development or redevelopment;

the timing of lease-up, occupancy and stabilization of apartment communities;

the pursuit of land on which we are considering future development;

the anticipated operating performance of our communities;

cost, yield, revenue, NOI and earnings estimates;

our declaration or payment of distributions;dividends;

our joint venture and discretionary fund activities;

our policies regarding investments, indebtedness, acquisitions, dispositions, financings and other matters;

our qualification as a REIT under the Internal Revenue Code;

the real estate markets in Northern and Southern California and markets in selected states in the Mid-Atlantic, New England, Metro New York/New Jersey and Pacific Northwest regions of the United States and in general;

the availability of debt and equity financing;

interest rates;

general economic conditions including the potential impacts from current economic conditions;

trends affecting our financial condition or results of operations; and

the impact of legal proceedings relating to the Edgewater casualty loss and related matters, including liability to third parties resulting therefrom.

We cannot assure the future results or outcome of the matters described in these statements; rather, these statements merely reflect our current expectations of the approximate outcomes of the matters discussed. We do not undertake a duty to update these forward-looking statements, and therefore they may not represent our estimates and assumptions after the date of this report. You should not rely on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, some of which are beyond our control.  These risks, uncertainties and other factors may cause our actual results, performance or achievements to differ materially from the anticipated future results, performance or achievements expressed or implied by these forward-looking statements. You should carefully review the discussion under Item 1A. "Risk Factors" in this report, for afurther discussion of risks associated with forward-looking statements.

Some of the factors that could cause our actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements include, but are not limited to, the following:

we may fail to secure development opportunities due to an inability to reach agreements with third-parties to obtain land at attractive prices or to obtain desired zoning and other local approvals;


we may abandon or defer development opportunities for a number of reasons, including changes in local market conditions which make development less desirable, increases in costs of development, increases in the cost of capital or lack of capital availability, resulting in losses;

construction costs of a community may exceed our original estimates;

we may not complete construction and lease-up of communities under development or redevelopment on schedule, resulting in increased interest costs and construction costs and a decrease in our expected rental revenues;

occupancy rates and market rents may be adversely affected by competition and local economic and market conditions which are beyond our control;

financing may not be available on favorable terms or at all, and our cash flows from operations and access to cost effective capital may be insufficient for the development of our pipeline which could limit our pursuit of opportunities;

our cash flows may be insufficient to meet required payments of principal and interest, and we may be unable to refinance existing indebtedness or the terms of such refinancing may not be as favorable as the terms of existing indebtedness;

we may be unsuccessful in our management of Fund II, the U.S. Fund, the AC JV or the REIT vehicles that are used with each respective joint venture;

we may be unsuccessful in managing changes in our portfolio composition; and

our expectations, estimates and assumptions as of the date of this filing regarding the outcome of investigations and/or legal proceedings resulting from the Edgewater casualty loss are subject to change.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, or different assumptions were made, it is possible that different accounting policies would have been applied, resulting in different financial results or a different presentation of our financial statements.  Our critical accounting policies consist primarily of the following: (i) principles of consolidation, (ii) cost capitalization, (iii) abandoned pursuit costs and asset impairment, (iv) REIT status and (v) acquisition of investments in real estate. Additionally, as discussed in this Form 10-Q in Note 1, "Organization, Basis and Presentation and Significant Accounting Policies - Revenue and Gain Recognition," to the accompanying Condensed Consolidated Financial Statements, as of January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers. There were no material changes to our critical accounting policies resulting from the adoption of this new standard. Our critical accounting policies and estimates have not changed materially from the discussion of our significant accounting policies found in Management's Discussion and Analysis and Results of Operations in our Form 10-K.


ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to our exposures to market risk since December 31, 2016.2017.

ITEM 4.CONTROL AND PROCEDURES

(a)Evaluation of disclosure controls and procedures. 

The Company carried out an evaluation under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of March 31, 2017.2018. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms.

We continue to review and document our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

(b)Changes in internal controls over financial reporting.

During the first quarterAs of 2017,January 1, 2018, the Company commencedadopted ASU 2014-09, Revenue from Contracts with Customers. The Company implemented internal controls related to the implementation of a new construction and development management system that will improve the efficiency and effectiveness of the Company’s operational and financial accounting processes for construction and development related activity. This implementation is expectedrevenue recognition process, but there were no significant changes to continue through the end of 2017. Consistent with any process change that we implement, the design of the internal controls has and will continue to be evaluated for effectiveness as part of our overall assessment of the effectiveness of our disclosure controls and procedures. We expect that the implementation of this system will improve our internal controlscontrol over financial reporting as relateddue to construction and development related operational and financial accounting functions.the adoption of this new standard.

PART II.OTHER INFORMATION
 
ITEM 1.LEGAL PROCEEDINGS

As discussed in this Form 10-Q in Note 1, "Organization, Basis and Presentation and Significant Accounting Policies - Legal and Other Contingencies," to the accompanying Condensed Consolidated Financial Statements, in January 2015, a fire occurred at the Company's Avalon at Edgewater apartment community in Edgewater, NJ. The Company believes that the fire was caused by sparks from a torch used during repairs being performed by a Company employee who was not a licensed plumber. The Company has since revised its maintenance policies to require that non-flame tools be used for plumbing repairs where possible or, where not possible inside the building envelope, that a qualified third party vendor perform the work in accordance with AvalonBaythe Company's policies.

The Company has established protocols for processing claims from third parties who suffered losses as a result of the fire, and many third parties have contacted the Company's insurance carrier and settled their claims. Through the date of this Form 10-Q, of the 229 occupied apartments destroyed in the fire, the residents of approximately 10195 units have settled claims with the Company's insurer. Due to the preliminary approval of the class settlement (referenced below),insurer through this claims process is currently suspended.process.

Three class action lawsuits have been filed against the Company on behalf of occupants of the destroyed building and consolidated in the United States District Court for the District of New Jersey. The Company has agreed with class counsel to the terms of a proposed settlement which would provideprovides a claims process (with agreed upon protocols for instructing the adjuster as to how to evaluate claims) and, if needed, an arbitration process to determine damage amounts to be paid to individual claimants covered by the class settlement. In MarchJuly 2017 the District Court granted preliminaryfinal approval of the class action settlement and all claims have been submitted to the independent claims adjuster. A total of 66 units (consisting of residents who did not previously settle their claims and who did not opt out of the class settlement) are included in July 2017the class action settlement and bound by its terms. However, only 44 units submitted claims. The independent claims adjuster is currently reviewing the claims submitted; the submitted claims total approximately $6,900,000 but, based on the Company's review of initial determinations made by the adjuster on a fairness hearingnumber of claims, the Company believes that the total amount actually awarded will be held to determine whethersignificantly less. To date, the settlement will receive final approval.claims adjuster completed his evaluation of 17 of these claims and it is expected that the evaluation of the remaining claims should be completed within the next month. A fourth class action, being heard

being heard in the same federal court, was filed against the Company on behalf of residents of the second Edgewater building that suffered minimal damage. Recently, a fifth class action lawsuit was filed against the Company seeking to certify a class on behalf of both buildings and other third parties. That action is currently stayed pending the decision by those plaintiffs either to be included in the class settlement or to formally opt-out. In addition to the class action lawsuits described above, 18 of the 19 lawsuits representing approximately 146143 individual plaintiffs have been filed in the Superior Court of New Jersey Bergen County - Law Division and are currently pending. Allwere previously scheduled for trial on January 2, 2018. In advance of this date, the Company was able to resolve all of these state court cases have been consolidated by the court. These plaintiffs, if eligible to be class members under the class settlement that has been preliminarily approved as described above, must formally opt-out of that class action settlement by May 17, 2017 if they want to continue their individual actions.claims in principle which included approximately 50 units. The Company previously resolved litigated claims with another 10 units. There is currently one remaining lawsuit which was recently filed in the Superior Court of New Jersey, Bergen County - Law Division on behalf of one apartment unit. The Company believes that it has meritorious defenses to the extent of damages claimed in all of the suits.that suit. There are also fiveseven subrogation lawsuits that have been filed against the Company by insurers of Edgewater residents who obtained renters insurance; it is the Company's position that in the majority of the applicable leases the residents waived subrogation rights. One of these lawsuits has been dismissed on that basis, one is pending in the Superior Court of New Jersey, Bergen County - Law Division, one has been amicably resolved in principle and the other four have been consolidated and are currently pending in the United States District Court for the District of New Jersey. The District Court recently denied the Company's motions seeking dismissal on this basis. The Company will reassess the viability of this defense after conducting additional discovery.

Having settled many third party claims through the insurance claims process, the Company currently believes that any potential remaining liability to third parties (including any potential liability to third parties determined in accordance with the class settlement described above, if approved)above) will not be material to the Company and will in any event be substantially covered by the Company's insurance policies. However, the Company can give no assurances in this regard and continues to evaluate this matter.

The Company is involved in various other claims and/or administrative proceedings unrelated to the Edgewater casualty loss that arise in the ordinary course of its business. While no assurances can be given, the Company does not currently believe that any of these other outstanding litigation matters, individually or in the aggregate, will have a material adverse effect on its financial condition or results of operations.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the risk factors which could materially affect our business, financial condition or future results discussed in our Form 10-K in Part I, Item 1A. "Risk Factors." The risks described in our Form 10-K are not the only risks that could affect the Company.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition and/or operating results in the future.  There have been no material changes to our risk factors since December 31, 2016.2017.


ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

Issuer Purchases of Equity Securities
Period 
(a)
Total Number of Shares
Purchased (1)
 
(b)
Average Price Paid 
Per Share
 
(c)
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
 
(d)
Maximum Dollar
Amount that May Yet
be Purchased Under
the Plans or Programs
(in thousands) (2)
January 1 - January 31, 2017 1,075
 $177.15
 
 $200,000
February 1 - February 28, 2017 
 $
 
 $200,000
March 1 - March 31, 2017 56,097
 $183.31
 
 $200,000
Period 
(a)
Total Number of Shares
Purchased (1)
 
(b)
Average Price Paid 
Per Share
 
(c)
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
 
(d)
Maximum Dollar
Amount that May Yet
be Purchased Under
the Plans or Programs
(in thousands) (2)
January 1 - January 31, 2018 
 $
 
 $200,000
February 1 - February 28, 2018 126
 $161.10
 
 $200,000
March 1 - March 31, 2018 67,483
 $155.05
 
 $200,000


(1)Reflects shares surrendered to the Company in connection with exercise of stock options as payment of exercise price, as well as for taxes associated with the vesting of restricted share grants.
(2)As disclosed in our Form 10-Q for the quarter ended March 31, 2008, represents amounts outstanding under the Company's $500,000,000 Stock Repurchase Program. There is no scheduled expiration date to this program.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.        MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.        OTHER INFORMATION

None.


ITEM 6.        EXHIBITS
Exhibit No.   Description
     
3(i).1  
3(i).2  
3(i).3  
3(ii).1  
3(ii).2  
3(ii).3
4.1  
4.2  
4.3  
4.4  
4.5  
4.6  
4.7  
4.8
4.9
4.810.1  Amendment to the Company's Dividend Reinvestment
4.9Amendment to the Company's Dividend Reinvestment and Stock Purchase PlanCompany filed March 26, 2004. (Incorporated by reference to the Prospectus Supplement filed pursuant to Rule 424(b)(3) of the Securities Act of 1933 on March 26, 2004.February 22, 2018.)
4.10Amendment to the Company's Dividend Reinvestment and Stock Purchase Plan filed May 15, 2006. (Incorporated by reference to the Prospectus Supplement filed pursuant to Rule 424(b)(3) of the Securities Act of 1933 on May 15, 2006.)

10.110.2  Term Loan
10.210.3  
10.4
10.5
10.6
12.1  
31.1  
31.2  
32  
101  XBRL (Extensible Business Reporting Language). The following materials from AvalonBay Communities, Inc.'s Quarterly Report on Form 10-Q for the period ended March 31, 2017,2018, formatted in XBRL: (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of comprehensive income, (iii) condensed consolidated statements of cash flows and (iv) notes to condensed consolidated financial statements.


SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 AVALONBAY COMMUNITIES, INC.
   
   
Date:May 2, 20174, 2018/s/ Timothy J. Naughton
  Timothy J. Naughton
  Chairman, Chief Executive Officer and President
  (Principal Executive Officer)
   
Date:May 2, 20174, 2018/s/ Kevin P. O'Shea
  Kevin P. O'Shea
  Chief Financial Officer
  (Principal Financial Officer)


51