UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20172023
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______ to ______
Commission file numbernumber: 1-12672
AVALONBAY COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)charter)
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Maryland | | 77-0404318 |
(State or other jurisdiction of | | (I.R.S. Employer |
incorporation or organization) | | (I.R.S. Employer Identification No.) |
Ballston Tower
671 N. Glebe Rd,4040 Wilson Blvd., Suite 8001000
Arlington, Virginia 22203
(Address of principal executive offices, including zip code)
offices) (Zip Code)
(703) 329-6300
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.01 per share | | AVB | | New York Stock Exchange |
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)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)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, a 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.
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| Large accelerated filer | ☒ | | Accelerated filer | ☐ | |
| Non-accelerated filer | ☐ | | Smaller reporting company | ☐ | |
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Large accelerated filer x
| Accelerated filer o
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Non-accelerated filer (Do not check if a smaller reporting company) o
| Smaller reporting company o
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Emerging growth companyo | ☐ | |
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 Exchange 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:
138,087,866142,015,558 shares of common stock, par value $0.01 per share, were outstanding as of OctoberJuly 31, 2017.2023.
AVALONBAY COMMUNITIES, INC.
FORM 10-Q
INDEX
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PART I - FINANCIAL INFORMATION | |
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ITEM 1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
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AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
| | | 9/30/2017 | | 12/31/2016 | | June 30, 2023 | | December 31, 2022 |
| (unaudited) | | | | (unaudited) | | |
ASSETS | |
| | |
| ASSETS | | | |
Real estate: | |
| | |
| Real estate: | | | |
Land and improvements | $ | 4,074,105 |
| | $ | 3,941,250 |
| Land and improvements | $ | 4,647,879 | | | $ | 4,640,971 | |
Buildings and improvements | 15,180,825 |
| | 14,314,981 |
| Buildings and improvements | 18,906,003 | | | 18,804,510 | |
Furniture, fixtures and equipment | 592,776 |
| | 532,994 |
| Furniture, fixtures and equipment | 1,221,610 | | | 1,174,135 | |
| 19,847,706 |
| | 18,789,225 |
| | 24,775,492 | | | 24,619,616 | |
Less accumulated depreciation | (4,079,946 | ) | | (3,743,632 | ) | Less accumulated depreciation | (7,193,053) | | | (6,878,556) | |
Net operating real estate | 15,767,760 |
| | 15,045,593 |
| Net operating real estate | 17,582,439 | | | 17,741,060 | |
Construction in progress, including land | 1,559,357 |
| | 1,882,262 |
| Construction in progress, including land | 1,202,977 | | | 1,072,543 | |
Land held for development | 85,863 |
| | 84,293 |
| Land held for development | 195,115 | | | 179,204 | |
Real estate assets held for sale, net | 33,173 |
| | 20,846 |
| Real estate assets held for sale, net | 81,047 | | | — | |
Total real estate, net | 17,446,153 |
| | 17,032,994 |
| Total real estate, net | 19,061,578 | | | 18,992,807 | |
| | | | |
Cash and cash equivalents | 36,042 |
| | 214,994 |
| Cash and cash equivalents | 769,622 | | | 613,189 | |
Cash in escrow | 181,069 |
| | 114,983 |
| Cash in escrow | 177,376 | | | 121,056 | |
Resident security deposits | 33,477 |
| | 32,071 |
| Resident security deposits | 39,027 | | | 36,815 | |
Investments in unconsolidated real estate entities | 155,428 |
| | 175,116 |
| |
Unconsolidated investments | | Unconsolidated investments | 216,533 | | | 212,084 | |
Deferred development costs | 48,546 |
| | 40,179 |
| Deferred development costs | 71,421 | | | 58,489 | |
Prepaid expenses and other assets | 277,122 |
| | 256,934 |
| Prepaid expenses and other assets | 334,460 | | | 279,993 | |
Right of use lease assets | | Right of use lease assets | 136,180 | | | 143,331 | |
Total assets | $ | 18,177,837 |
| | $ | 17,867,271 |
| Total assets | $ | 20,806,197 | | | $ | 20,457,764 | |
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LIABILITIES AND EQUITY | |
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| LIABILITIES AND EQUITY | | | |
Unsecured notes, net | $ | 5,407,091 |
| | $ | 4,463,302 |
| Unsecured notes, net | $ | 7,355,693 | | | $ | 7,602,305 | |
Variable rate unsecured credit facility | 242,000 |
| | — |
| |
Variable rate unsecured credit facility and commercial paper | | Variable rate unsecured credit facility and commercial paper | — | | | — | |
Mortgage notes payable, net | 1,478,939 |
| | 2,567,578 |
| Mortgage notes payable, net | 707,006 | | | 713,740 | |
Dividends payable | 196,079 |
| | 185,397 |
| Dividends payable | 237,147 | | | 226,022 | |
Payables for construction | 84,338 |
| | 100,998 |
| Payables for construction | 88,961 | | | 72,802 | |
Accrued expenses and other liabilities | 310,633 |
| | 274,676 |
| Accrued expenses and other liabilities | 319,271 | | | 306,186 | |
Lease liabilities | | Lease liabilities | 154,957 | | | 162,671 | |
Accrued interest payable | 56,837 |
| | 38,307 |
| Accrued interest payable | 61,014 | | | 54,100 | |
Resident security deposits | 58,768 |
| | 57,023 |
| Resident security deposits | 65,070 | | | 63,700 | |
Liabilities related to real estate assets held for sale | 600 |
| | 808 |
| |
Total liabilities | 7,835,285 |
| | 7,688,089 |
| Total liabilities | 8,989,119 | | | 9,201,526 | |
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Commitments and contingencies |
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| Commitments and contingencies | |
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Redeemable noncontrolling interests | 8,739 |
| | 7,766 |
| Redeemable noncontrolling interests | 1,513 | | | 2,685 | |
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Equity: | |
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| Equity: | | | |
Preferred stock, $0.01 par value; $25 liquidation preference; 50,000,000 shares authorized at September 30, 2017 and December 31, 2016; zero shares issued and outstanding at September 30, 2017 and December 31, 2016 | — |
| | — |
| |
Common stock, $0.01 par value; 280,000,000 shares authorized at September 30, 2017 and December 31, 2016; 138,086,893 and 137,330,904 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively | 1,381 |
| | 1,373 |
| |
Preferred stock, $0.01 par value; $25 liquidation preference; 50,000,000 shares authorized at June 30, 2023 and December 31, 2022; zero shares issued and outstanding at June 30, 2023 and December 31, 2022 | | Preferred stock, $0.01 par value; $25 liquidation preference; 50,000,000 shares authorized at June 30, 2023 and December 31, 2022; zero shares issued and outstanding at June 30, 2023 and December 31, 2022 | — | | | — | |
Common stock, $0.01 par value; 280,000,000 shares authorized at June 30, 2023 and December 31, 2022; 142,014,755 and 139,916,864 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively | | Common stock, $0.01 par value; 280,000,000 shares authorized at June 30, 2023 and December 31, 2022; 142,014,755 and 139,916,864 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively | 1,420 | | | 1,400 | |
Additional paid-in capital | 10,228,648 |
| | 10,105,654 |
| Additional paid-in capital | 11,269,159 | | | 10,765,431 | |
Accumulated earnings less dividends | 144,647 |
| | 94,899 |
| Accumulated earnings less dividends | 534,291 | | | 485,221 | |
Accumulated other comprehensive loss | (40,863 | ) | | (30,510 | ) | |
Accumulated other comprehensive income | | Accumulated other comprehensive income | 10,618 | | | 1,424 | |
Total stockholders' equity | | Total stockholders' equity | 11,815,488 | | | 11,253,476 | |
Noncontrolling interests | | Noncontrolling interests | 77 | | | 77 | |
Total equity | 10,333,813 |
| | 10,171,416 |
| Total equity | 11,815,565 | | | 11,253,553 | |
Total liabilities and equity | $ | 18,177,837 |
| | $ | 17,867,271 |
| Total liabilities and equity | $ | 20,806,197 | | | $ | 20,457,764 | |
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 ended June 30, | | For the six months ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Revenue: | | | | | | | |
Rental and other income | $ | 688,148 | | | $ | 643,655 | | | $ | 1,361,791 | | | $ | 1,256,830 | |
Management, development and other fees | 2,712 | | | 904 | | | 3,778 | | | 1,656 | |
Total revenue | 690,860 | | | 644,559 | | | 1,365,569 | | | 1,258,486 | |
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Expenses: | | | | | | | |
Operating expenses, excluding property taxes | 169,848 | | | 156,389 | | | 334,680 | | | 307,701 | |
Property taxes | 74,987 | | | 70,865 | | | 149,483 | | | 141,603 | |
Expensed transaction, development and other pursuit costs, net of recoveries | 1,261 | | | 2,364 | | | 4,253 | | | 3,351 | |
Interest expense, net | 51,585 | | | 58,797 | | | 108,406 | | | 115,323 | |
Depreciation expense | 200,546 | | | 199,302 | | | 405,289 | | | 401,088 | |
General and administrative expense | 17,676 | | | 21,291 | | | 38,076 | | | 38,712 | |
Casualty loss | — | | | — | | | 5,051 | | | — | |
Total expenses | 515,903 | | | 509,008 | | | 1,045,238 | | | 1,007,778 | |
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Income from unconsolidated investments | 4,970 | | | 2,480 | | | 9,815 | | | 2,797 | |
Gain on sale of communities | 187,322 | | | 404 | | | 187,309 | | | 149,204 | |
Other real estate activity | 341 | | | (28) | | | 470 | | | 245 | |
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Income before income taxes | 367,590 | | | 138,407 | | | 517,925 | | | 402,954 | |
Income tax benefit (expense) | 217 | | | 159 | | | (3,343) | | | (2,312) | |
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Net income | 367,807 | | | 138,566 | | | 514,582 | | | 400,642 | |
Net loss attributable to noncontrolling interests | 116 | | | 125 | | | 243 | | | 93 | |
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Net income attributable to common stockholders | $ | 367,923 | | | $ | 138,691 | | | $ | 514,825 | | | $ | 400,735 | |
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Other comprehensive income: | | | | | | | |
Gain on cash flow hedges | 8,826 | | | 7,759 | | | 8,486 | | | 17,914 | |
Cash flow hedge losses reclassified to earnings | 354 | | | 1,013 | | | 708 | | | 2,026 | |
Comprehensive income | $ | 377,103 | | | $ | 147,463 | | | $ | 524,019 | | | $ | 420,675 | |
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Earnings per common share - basic: | | | | | | | |
Net income attributable to common stockholders | $ | 2.59 | | | $ | 0.99 | | | $ | 3.65 | | | $ | 2.87 | |
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Earnings per common share - diluted: | | | | | | | |
Net income attributable to common stockholders | $ | 2.59 | | | $ | 0.99 | | | $ | 3.65 | | | $ | 2.86 | |
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| For the three months ended | | For the nine months ended |
| 9/30/2017 | | 9/30/2016 | | 9/30/2017 | | 9/30/2016 |
Revenue: | |
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Rental and other income | $ | 549,507 |
| | $ | 514,891 |
| | $ | 1,600,047 |
| | $ | 1,522,705 |
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Management, development and other fees | 993 |
| | 1,320 |
| | 3,290 |
| | 4,310 |
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Total revenue | 550,500 |
| | 516,211 |
| | 1,603,337 |
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| 1,527,015 |
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Expenses: | |
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Operating expenses, excluding property taxes | 129,590 |
| | 124,789 |
| | 379,319 |
| | 360,318 |
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Property taxes | 57,698 |
| | 52,338 |
| | 164,195 |
| | 153,512 |
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Interest expense, net | 47,741 |
| | 47,871 |
| | 147,138 |
| | 137,862 |
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Loss on extinguishment of debt, net | — |
| | — |
| | 24,162 |
| | 2,461 |
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Depreciation expense | 144,990 |
| | 131,729 |
| | 427,050 |
| | 391,414 |
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General and administrative expense | 11,655 |
| | 11,928 |
| | 38,808 |
| | 35,343 |
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Expensed acquisition, development and other pursuit costs, net of recoveries | 789 |
| | 3,804 |
| | 2,087 |
| | 8,702 |
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Casualty and impairment loss (gain), net | — |
| | — |
| | 11,688 |
| | (3,935 | ) |
Total expenses | 392,463 |
| | 372,459 |
| | 1,194,447 |
| | 1,085,677 |
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Income before equity in income of unconsolidated real estate entities, gain on sale of communities and other real estate, and income taxes | 158,037 |
| | 143,752 |
| | 408,890 |
| | 441,338 |
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Equity in income (loss) of unconsolidated real estate entities | 52,568 |
| | (342 | ) | | 70,386 |
| | 54,779 |
|
Gain on sale of communities | 27,738 |
| | 202,163 |
| | 159,754 |
| | 284,582 |
|
(Loss) gain on sale of other real estate | (120 | ) | | 10,778 |
| | 246 |
| | 10,921 |
|
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Income before income taxes | 238,223 |
| | 356,351 |
| | 639,276 |
| | 791,620 |
|
Income tax expense | 24 |
| | 22 |
| | 102 |
| | 95 |
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Net income | 238,199 |
| | 356,329 |
| | 639,174 |
| | 791,525 |
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Net loss attributable to noncontrolling interests | 49 |
| | 63 |
| | 174 |
| | 242 |
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Net income attributable to common stockholders | $ | 238,248 |
| | $ | 356,392 |
| | $ | 639,348 |
| | $ | 791,767 |
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Other comprehensive income (loss): | |
| | |
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Income (loss) on cash flow hedges | 359 |
| | 719 |
| | (15,654 | ) | | (73,826 | ) |
Cash flow hedge losses reclassified to earnings | 1,767 |
| | 1,748 |
| | 5,301 |
| | 4,682 |
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Comprehensive income | $ | 240,374 |
| | $ | 358,859 |
| | $ | 628,995 |
| | $ | 722,623 |
|
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Earnings per common share - basic: | |
| | |
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Net income attributable to common stockholders | $ | 1.73 |
| | $ | 2.60 |
| | $ | 4.64 |
| | $ | 5.77 |
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Earnings per common share - diluted: | |
| | |
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Net income attributable to common stockholders | $ | 1.72 |
| | $ | 2.59 |
| | $ | 4.63 |
| | $ | 5.76 |
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Dividends per common share | $ | 1.42 |
| | $ | 1.35 |
| | $ | 4.26 |
| | $ | 4.05 |
|
See accompanying notes to Condensed Consolidated Financial Statements.
AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Dollars in thousands)
|
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| For the nine months ended |
| 9/30/2017 | | 9/30/2016 |
Cash flows from operating activities: | | | |
Net income | $ | 639,174 |
| | $ | 791,525 |
|
Adjustments to reconcile net income to cash provided by operating activities: | | | |
Depreciation expense | 427,050 |
| | 391,414 |
|
Amortization of deferred financing costs | 5,729 |
| | 5,664 |
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Amortization of debt premium | (6,254 | ) | | (14,146 | ) |
Loss on extinguishment of debt, net | 24,162 |
| | 2,461 |
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Amortization of stock-based compensation | 13,979 |
| | 12,103 |
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Equity in (income) loss of, and return on, unconsolidated real estate entities and noncontrolling interests, net of eliminations | (21,627 | ) | | 11,756 |
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Casualty and impairment loss (gain), net | 8,568 |
| | (3,935 | ) |
Abandonment of development pursuits | 388 |
| | 1,598 |
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Cash flow hedge losses reclassified to earnings | 5,301 |
| | 4,682 |
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Gain on sale of real estate assets | (200,110 | ) | | (348,675 | ) |
Increase in cash in operating escrows | (16,205 | ) | | (4,563 | ) |
Increase in resident security deposits, prepaid expenses and other assets | (27,384 | ) | | (16,127 | ) |
Increase in accrued expenses, other liabilities and accrued interest payable | 64,802 |
| | 26,970 |
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Net cash provided by operating activities | 917,573 |
| | 860,727 |
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Cash flows from investing activities: | | | |
Development/redevelopment of real estate assets including land acquisitions and deferred development costs | (743,275 | ) | | (869,342 | ) |
Acquisition of real estate assets, including partnership interest | (228,011 | ) | | (393,916 | ) |
Capital expenditures - existing real estate assets | (41,809 | ) | | (43,020 | ) |
Capital expenditures - non-real estate assets | (5,308 | ) | | (5,513 | ) |
Proceeds from sale of real estate, net of selling costs | 336,542 |
| | 404,731 |
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Increase in cash in deposit escrows | (51,479 | ) | | (59,263 | ) |
Insurance proceeds for property damage claims | 13,268 |
| | 17,196 |
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Mortgage note receivable lending | (14,244 | ) | | (11,074 | ) |
(Decrease) increase in payables for construction | (16,660 | ) | | 1,311 |
|
Distributions from unconsolidated real estate entities | 89,305 |
| | 94,748 |
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Investments in unconsolidated real estate entities | (14,560 | ) | | (2,449 | ) |
Net cash used in investing activities | (676,231 | ) | | (866,591 | ) |
| | | |
Cash flows from financing activities: | | | |
Issuance of common stock, net | 110,117 |
| | 14,147 |
|
Dividends paid | (576,685 | ) | | (541,485 | ) |
Net borrowings under unsecured credit facility | 242,000 |
| | 170,000 |
|
Issuance of mortgage notes payable | 185,100 |
| | — |
|
Repayment of unsecured notes, including prepayment penalties | — |
| | (250,000 | ) |
Repayments of mortgage notes payable, including prepayment penalties | (1,287,636 | ) | | (161,095 | ) |
Issuance of unsecured notes | 948,616 |
| | 474,838 |
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Payment of deferred financing costs | (11,743 | ) | | (10,910 | ) |
Payment of capital lease obligation | (18,683 | ) | | — |
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Receipts (payments) for termination of forward interest rate swaps | 391 |
| | (14,847 | ) |
Payments related to tax withholding for share-based compensation | (10,460 | ) | | (7,659 | ) |
Distributions to DownREIT partnership unitholders | (32 | ) | | (30 | ) |
Contributions from joint venture and profit-sharing partners | 1,038 |
| | — |
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Distributions to joint venture and profit-sharing partners | (317 | ) | | (303 | ) |
Preferred interest obligation redemption and dividends | (2,000 | ) | | (1,400 | ) |
Net cash used in financing activities | (420,294 | ) | | (328,744 | ) |
| | | |
Net decrease in cash and cash equivalents | (178,952 | ) | | (334,608 | ) |
| | | |
Cash and cash equivalents, beginning of period | 214,994 |
| | 400,507 |
|
Cash and cash equivalents, end of period | $ | 36,042 |
| | $ | 65,899 |
|
| | | |
Cash paid during the period for interest, net of amount capitalized | $ | 124,585 |
| | $ | 137,720 |
|
| | | | | | | | | | | |
| For the six months ended June 30, |
| 2023 | | 2022 |
Cash flows from operating activities: | | | |
Net income | $ | 514,582 | | | $ | 400,642 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation expense | 405,289 | | | 401,088 | |
Amortization of deferred financing costs and debt discount | 6,352 | | | 5,337 | |
Amortization of stock-based compensation | 15,115 | | | 17,681 | |
Equity in loss (income) of, and return on, unconsolidated investments and noncontrolling interests, net of eliminations | 622 | | | (1) | |
Casualty loss | 2,407 | | | — | |
Abandonment of development pursuits | 4,253 | | | 738 | |
Cash flow hedge losses reclassified to earnings | 708 | | | 2,026 | |
Gain on sale of real estate assets | (188,078) | | | (150,753) | |
Decrease in resident security deposits, prepaid expenses and other assets | (28,456) | | | (31,336) | |
Increase (decrease) in accrued expenses, other liabilities and accrued interest payable | 9,785 | | | (5,374) | |
Net cash provided by operating activities | 742,579 | | | 640,048 | |
| | | |
Cash flows from investing activities: | | | |
Development/redevelopment of real estate assets including land acquisitions and deferred development costs | (453,139) | | | (414,107) | |
Acquisition of real estate assets | — | | | (165,117) | |
Capital expenditures - existing real estate assets | (73,746) | | | (64,356) | |
Capital expenditures - non-real estate assets | (8,106) | | | (5,665) | |
Increase (decrease) in payables for construction | 16,159 | | | (5,024) | |
Proceeds from sale of real estate and for-sale condominiums, net of selling costs | 252,904 | | | 305,842 | |
Note receivable lending | (27,108) | | | (6,055) | |
Note receivable payments | 230 | | | 4,021 | |
Distributions from unconsolidated entities | 3,859 | | | 2,000 | |
Unconsolidated investments | (8,930) | | | (8,047) | |
Net cash used in investing activities | (297,877) | | | (356,508) | |
| | | |
Cash flows from financing activities: | | | |
Issuance of common stock, net | 494,959 | | | 2,010 | |
Repurchase of common stock, net | (1,911) | | | — | |
Dividends paid | (454,323) | | | (445,226) | |
Repayments of mortgage notes payable, including prepayment penalties | (7,401) | | | (6,427) | |
Repayment of unsecured notes | (250,000) | | | (100,000) | |
Payment of deferred financing costs | (662) | | | (421) | |
Redemption of noncontrolling interest and units for cash by minority partners | (1,355) | | | — | |
Payments to noncontrolling interest | — | | | (29) | |
Payments related to tax withholding for share-based compensation | (10,509) | | | (16,379) | |
Distributions to DownREIT partnership unitholders | (25) | | | (24) | |
Distributions to joint venture and profit-sharing partners | (202) | | | (181) | |
Preferred interest obligation redemption and dividends | (520) | | | (460) | |
Net cash used in financing activities | (231,949) | | | (567,137) | |
| | | |
Net increase (decrease) in cash, cash equivalents and cash in escrow | 212,753 | | | (283,597) | |
| | | |
Cash, cash equivalents and cash in escrow, beginning of period | 734,245 | | | 543,788 | |
Cash, cash equivalents and cash in escrow, end of period | $ | 946,998 | | | $ | 260,191 | |
| | | |
Cash paid during the period for interest, net of amount capitalized | $ | 94,241 | | | $ | 106,443 | |
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 cash in escrow reported in the Condensed Consolidated Statements of Cash Flows (dollars in thousands):
| | | | | | | | | | | | | | |
| | June 30, 2023 | | June 30, 2022 |
Cash and cash equivalents | | $ | 769,622 | | | $ | 152,522 | |
Cash in escrow | | 177,376 | | | 107,669 | |
Cash, cash equivalents and cash in escrow reported in the Condensed Consolidated Statements of Cash Flows | | $ | 946,998 | | | $ | 260,191 | |
Supplemental disclosures of non-cash investing and financing activities:
During the ninesix months ended SeptemberJune 30, 2017:2023:
•As described in Note 4, "Equity," 201,314the Company issued 152,708 shares of common stock were issued as part of the Company's stock-based compensation plans, of which 128,48260,016 shares related to the conversion of performance awards to restricted shares of common stock, and the remaining 72,83292,692 shares valued at $13,079,000$16,472,000 were issued in connection with new stock grants; 2,4661,703 shares valued at $452,000$293,000 were issued through the Company's dividend reinvestment plan; 60,16562,215 shares valued at $10,514,000$10,509,000 were withheld to satisfy employees' tax withholding and other liabilities; and 3,045566 restricted shares with an aggregate value of $528,000$108,000 previously issued in connection with employee compensation were canceled upon forfeiture.
•Common stock dividends declared but not paid totaled $196,079,000.$235,206,000.
•The Company recorded (i) an increase to prepaid expenses and other assets of $458,000$8,486,000 and a corresponding adjustment to accumulated other comprehensive income; and (ii) reclassified $708,000 of cash flow hedge losses from other comprehensive income to interest expense, net, to record the impact of the Company's derivative and hedging activity.
During the six months ended June 30, 2022:
•The Company issued 135,860 shares of common stock as part of the Company's stock-based compensation plans, of which 54,053 shares related to the conversion of performance awards to shares of common stock, and the remaining 81,807 shares valued at $19,236,000 were issued in connection with new stock grants; 1,211 shares valued at $298,000 were issued through the Company's dividend reinvestment plan; 69,834 shares valued at $16,389,000 were withheld to satisfy employees' tax withholding and other liabilities; and 2,878 restricted shares with an aggregate value of $610,000 previously issued in connection with employee compensation were canceled upon forfeiture.
•Common stock dividends declared but not paid totaled $223,215,000.
•The Company recorded a decrease of $125,000 in redeemable noncontrolling interest with a corresponding decreaseincrease 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 (i) an increase into prepaid expenses and other assets of $1,422,000 and an increase in accrued expenses and other liabilities of $1,998,000,$17,914,000 and a corresponding adjustment to accumulated other comprehensive income and (ii) reclassified $5,301,000$2,026,000 of cash flow hedge losses from other comprehensive income to interest expense, net, to record the impact of the Company's derivative and hedge accountinghedging activity.
As discussed in Note 5, "Investments in Real Estate Entities," the Company recognized a non-cash charge
During the nine months ended September 30, 2016:
The Company issued 196,491 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 80,873 shares valued at $13,129,000 were issued in connection with new stock grants; 44,327 shares valued at $3,894,000 were issued in conjunction with the conversion of deferred stock awards; 1,689 shares valued at $304,000 were issued through the Company's dividend reinvestment plan; 53,214 shares valued at $8,316,000 were withheld to satisfy employees' tax withholding and other liabilities; and 3,848 restricted shares with an aggregate value of $627,000 previously issued in connection with employee compensation were canceled upon forfeiture.
Common stock dividends declared but not paid totaled $185,384,000.
The Company recorded an increase of $529,000 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 $2,689,000 and an increase in accrued expenses and other liabilities of $53,591,000, and a corresponding loss to other comprehensive income of $56,280,000, and reclassified $4,682,000 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.
The Company assumed fixed rate indebtedness with a principal amount of $70,507,000 in conjunction with the acquisition of Avalon Columbia Pike.
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, as amended (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.California, as well as in the Company's expansion regions of Raleigh-Durham and Charlotte, North Carolina, Southeast Florida, Dallas and Austin, Texas, and Denver, Colorado.
At SeptemberJune 30, 2017,2023, the Company owned or held a direct or indirect ownership interest in 263294 operating apartment communities containing 76,07688,659 apartment homes in 1112 states and the District of Columbia, of which ten18 communities containing 3,343 apartment homes were under redevelopment. In addition, the Company owned or held a direct or indirect ownership interest in 23 communitiesdevelopment and one was under development that are expected to contain an aggregate of 6,888 apartment homes when completed.redevelopment. 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 2543 communities that, if developed as expected, will contain an estimated 8,39214,993 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 2016 Annual Report on Form 10-K.10-K for the year ended December 31, 2022. The results of operations for the three and ninesix months ended SeptemberJune 30, 20172023 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.
Cash, Cash Equivalents and Cash in Escrow
Cash and cash equivalents includes all cash and liquid investments with an original maturity of three months or less from the date acquired. Cash in escrow includes principal reserve funds that are restricted for the repayment of specified secured financing and amounts the Company has designated for planned 1031 exchange activity. The majority of the Company's cash, cash equivalents and cash in escrow are held at major commercial banks.
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 ended | | For the nine months ended | | For the three months ended June 30, | | For the six months ended June 30, |
| 9/30/2017 | | 9/30/2016 | | 9/30/2017 | | 9/30/2016 | | 2023 | | 2022 | | 2023 | | 2022 |
Basic and diluted shares outstanding | |
| | |
| | | | | Basic and diluted shares outstanding | | | | | | | |
Weighted average common shares - basic | 137,715,192 |
| | 136,997,756 |
| | 137,457,293 |
| | 136,901,164 |
| Weighted average common shares - basic | 141,779,951 | | | 139,630,291 | | | 140,773,339 | | | 139,595,098 | |
Weighted average DownREIT units outstanding | 7,500 |
| | 7,500 |
| | 7,500 |
| | 7,500 |
| Weighted average DownREIT units outstanding | 6,511 | | | 7,500 | | | 7,005 | | | 7,500 | |
Effect of dilutive securities | 584,354 |
| | 499,798 |
| | 541,399 |
| | 533,642 |
| Effect of dilutive securities | 337,655 | | | 296,687 | | | 293,620 | | | 352,682 | |
Weighted average common shares - diluted | 138,307,046 |
| | 137,505,054 |
| | 138,006,192 |
| | 137,442,306 |
| Weighted average common shares - diluted | 142,124,117 | | | 139,934,478 | | | 141,073,964 | | | 139,955,280 | |
| | | | | | | | | | | | | | | |
Calculation of Earnings per Share - basic | |
| | |
| | | | | Calculation of Earnings per Share - basic | | | | |
Net income attributable to common stockholders | $ | 238,248 |
| | $ | 356,392 |
| | $ | 639,348 |
| | $ | 791,767 |
| Net income attributable to common stockholders | $ | 367,923 | | | $ | 138,691 | | | $ | 514,825 | | | $ | 400,735 | |
Net income allocated to unvested restricted shares | (672 | ) | | (872 | ) | | (1,794 | ) | | (2,036 | ) | Net income allocated to unvested restricted shares | (645) | | | (247) | | | (919) | | | (756) | |
Net income attributable to common stockholders, adjusted | $ | 237,576 |
| | $ | 355,520 |
| | $ | 637,554 |
| | $ | 789,731 |
| |
Net income attributable to common stockholders - basic | | Net income attributable to common stockholders - basic | $ | 367,278 | | | $ | 138,444 | | | $ | 513,906 | | | $ | 399,979 | |
| | | | | | | | | | | | | | | |
Weighted average common shares - basic | 137,715,192 |
| | 136,997,756 |
| | 137,457,293 |
| | 136,901,164 |
| Weighted average common shares - basic | 141,779,951 | | | 139,630,291 | | | 140,773,339 | | | 139,595,098 | |
| | | | | | | | | | | | | | | |
Earnings per common share - basic | $ | 1.73 |
| | $ | 2.60 |
| | $ | 4.64 |
| | $ | 5.77 |
| Earnings per common share - basic | $ | 2.59 | | | $ | 0.99 | | | $ | 3.65 | | | $ | 2.87 | |
| | | | | | | | | | | | | | | |
Calculation of Earnings per Share - diluted | |
| | |
| | | | | Calculation of Earnings per Share - diluted | | | | |
Net income attributable to common stockholders | $ | 238,248 |
| | $ | 356,392 |
| | $ | 639,348 |
| | $ | 791,767 |
| Net income attributable to common stockholders | $ | 367,923 | | | $ | 138,691 | | | $ | 514,825 | | | $ | 400,735 | |
Add: noncontrolling interests of DownREIT unitholders in consolidated partnerships | 11 |
| | 10 |
| | 32 |
| | 30 |
| |
Adjusted net income attributable to common stockholders | $ | 238,259 |
| | $ | 356,402 |
| | $ | 639,380 |
| | $ | 791,797 |
| |
Add: noncontrolling interests of DownREIT unitholders in consolidated partnerships, including discontinued operations | | Add: noncontrolling interests of DownREIT unitholders in consolidated partnerships, including discontinued operations | 13 | | | 12 | | | 25 | | | 24 | |
Net income attributable to common stockholders - diluted | | Net income attributable to common stockholders - diluted | $ | 367,936 | | | $ | 138,703 | | | $ | 514,850 | | | $ | 400,759 | |
| | | | | | | | | | | | | | | |
Weighted average common shares - diluted | 138,307,046 |
| | 137,505,054 |
| | 138,006,192 |
| | 137,442,306 |
| Weighted average common shares - diluted | 142,124,117 | | | 139,934,478 | | | 141,073,964 | | | 139,955,280 | |
| | | | | | | | | | | | | | | |
Earnings per common share - diluted | $ | 1.72 |
| | $ | 2.59 |
| | $ | 4.63 |
| | $ | 5.76 |
| Earnings per common share - diluted | $ | 2.59 | | | $ | 0.99 | | | $ | 3.65 | | | $ | 2.86 | |
AllCertain options to purchase shares of common stock in the amounts of 303,784 and 8,222 were outstanding as of SeptemberJune 30, 20172023 and 2016 are2022, respectively, but were not included in the computation of diluted earnings per share.share because such options were anti-dilutive for the period.
As discussed under "Recently Issued and Adopted Accounting Standards," as of January 1, 2017, the Company adopted the provisions 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. This 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. Refer to "Change in Accounting Principle" for discussion of the impact to the accompanying Condensed Consolidated Statements of Cash Flows.
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 transactionsDerivatives 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-goingongoing 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 valuevalues 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 positionsDerivatives 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 accumulated other comprehensive income (loss).income. Amounts recorded in accumulated other comprehensive income (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 qualifiedqualify as effective fair value hedges is reported as an adjustment to the carrying amount of the corresponding debt being hedged.hedged item. See Note 10, "Fair11, “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 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 settlement which provides 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 July 2017 the District Court granted final approval of the settlement and all claims were submitted to the independent claims adjuster by September 11, 2017. 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 bound by its terms. However, only 42 units submitted claims. The independent claims adjuster is currently reviewing the claims submitted, which total approximately $6,800,000, and it is expected that awards should be issued within the next two months. 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. In addition to the class action lawsuits described above, 19 lawsuits representing approximately 143 individual plaintiffs have been filed and are currently pending in the Superior Court of New Jersey Bergen County - Law Division. All of these state court cases, except for one that was recently filed, have been consolidated by the court. All of these plaintiffs, except for two, formally opted out of the class action settlement described above and have decided to continue their individual actions. The Company believes that it has meritorious defenses to the extent of damages claimed in all of the suits. The 18 consolidated lawsuits currently have a trial date of January 2, 2018. There are also six 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 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 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) 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. The Company recognizes a loss associated with contingent legal matters when the loss is probable and estimable. 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, whichacquisitions by first requires that the Company determinedetermining if the real estate investment is the acquisition of an asset or a business combination. Under either model, the Company must identifyidentifies and determinedetermines the fair value of any assets acquired, liabilities assumed and any noncontrolling interest in the 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, theThe Company utilizes various sources to determine fair value, 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 a business combination, the Company records the assets acquired and liabilities assumed based on the fair value of each respective item. For an asset acquisition, the allocation of the purchase price is allocated based on the relative fair value of the net assets. The Company expenses all applicable acquisition costs for a business combination and capitalizes all applicable acquisition costs for an asset acquisition. Subsequent to the adoption of ASU 2017-01 on October 1, 2016, theThe 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' financial statements and notes to the financial statements to conform to current year presentations as a result of changes in held for sale classification, disposition activity, segment classification and dispositionclassification of for-sale condominium inventory and activity.
Recently Issued Accounting StandardsIncome Taxes
In August 2017,During the FASB issued ASU 2017-12, Derivativessix months ended June 30, 2023 and Hedging (Topic 815): Targeted Improvements2022, the Company recognized income tax expense of $3,343,000 and $2,312,000, respectively, primarily related 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 guidance will be effective in the first quarter of 2019, allows for early adoption, and will be applied prospectively at adoption. Park Loggia.
Leases
The Company is assessing whether the new standard will haveparty to leases as both a material effect onlessor and a lessee, primarily as follows:
•lessor of residential and commercial space within its financial positionapartment communities; and
•lessee under (i) ground leases for land underlying current operating or results of operations.development communities and certain commercial and parking facilities and (ii) office leases for its corporate headquarters and regional offices.
In February 2017, the FASB issued 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 clarifies the scope of the nonfinancial asset guidance and the derecognition of all businesses and nonprofit activities (except those related to conveyances of oil and gas mineral rights or contracts with customers). In addition, the amendments eliminate the exception in the financial asset guidance for transfers of investments (including equity method investments) in real estate entities and supersedes the guidance in the Exchanges of a Nonfinancial Asset for a Noncontrolling Ownership Interest. The amendments also provide 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 whether the new standard will have a material effect on its financial position or results of operations.Lessee Considerations
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, using the modified retrospective approach. The new standard did not haveassesses whether a material effect on the Company's financial position, results of operations or earnings per share as discussed in "Earnings per Common Share."
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 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) reassessbased on whether the lease classification of any expired or existing leases and (iii) expense any capitalized initial direct costs for any existing leases. The Company anticipates adoption of the standard to have a material impact on its financial position resulting from the recognition ofcontract conveys the right to control the use of an identified asset, including specified portions of larger assets, for a period of time in exchange for consideration.
The Company’s leases include both fixed and correspondingvariable lease obligation for its long-term groundpayments that are based on an index or rate such as the consumer price index (CPI) or percentage rents based on total sales. Variable lease payments that are not based on an index or rate are not included in the measurement of the lease liability, but will be recognized as variable lease expense in the period in which they are incurred.
For leases currently accounted for as operating leases. Thethat have options to extend the term or terminate the lease early, the Company will continue to assessonly factored the impact of such options into the new standard.lease term if the option was considered reasonably certain to be exercised. The Company determined the discount rate associated with its ground and office leases on a lease-by-lease basis using the Company’s actual borrowing rates as well as indicative market pricing for longer term rates and taking into consideration the remaining term of the lease agreements. For leases that are 12 months or less, the Company has elected the practical expedient to not assess these leases under Accounting Standards Codification ("ASC") 842, Leases, and recognize the lease payments on a straight line basis.
Lessor Considerations
The Company has determined that the FASB issued ASU 2014-09,residential and commercial leases at its apartment communities are operating leases. For leases that include rent concessions and/or fixed and determinable rent increases, rental income is recognized on a straight-line basis over the noncancellable term of the lease, which, for residential leases, is generally one year. Some of the Company’s commercial leases have renewal options which the Company will only include in the lease term if, at the commencement of the lease, it is reasonably certain that the lessee will exercise this option.
For the Company’s leases, which are comprised of a lease component and common area maintenance as a non-lease component, the Company determined that (i) the leases are operating leases, (ii) the lease component is the predominant component and (iii) all components of its operating leases share the same timing and pattern of transfer.
Revenue and Gain Recognition
Under ASC 606, Revenue from Contracts with Customers, the Company recognizes revenue for the transfer of goods and in August 2015,services to customers for consideration that the FASB issued ASU 2015-14, Revenue from Contracts with Customers-Deferral of the Effective Date, which defers the effective date of the new revenue recognition standard until the first quarter of 2018. Subsequently, the FASB has issued multiple ASUs clarifying ASU 2014-09 and ASU 2015-14. 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 remittedCompany expects to governmental authorities.receive. The majority of the Company'sCompany’s revenue is derived from residential and commercial rental and other lease income, which is scoped out from this standard and will beare accounted for as discussed above, under "Leases". The Company's revenue streams that are not accounted for under ASU 2016-02,ASC 842, Leases, include (i) management, development and other fees, (ii) non-lease related revenue and (iii) gains or losses on the sale of real estate.
The following table details the Company’s revenue disaggregated by reportable operating segment, further discussed above. The Company'sin Note 8, “Segment Reporting,” for the three and six months ended June 30, 2023 and 2022. Segment information for total revenue excludes real estate assets that were sold from January 1, 2022 through June 30, 2023, or otherwise qualify as held for sale as of June 30, 2023, as described in Note 6, "Real Estate Disposition Activities" (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Same Store | | Other Stabilized | | Development/ Redevelopment | | Non- allocated (1) | | Total |
For the three months ended June 30, 2023 | | | | | | | | | | |
Management, development and other fees and other ancillary items | | $ | — | | | $ | — | | | $ | — | | | $ | 2,712 | | | $ | 2,712 | |
Non-lease related revenue (2) | | 2,639 | | | 1,258 | | | 79 | | | — | | | 3,976 | |
Total non-lease revenue (3) | | 2,639 | | | 1,258 | | | 79 | | | 2,712 | | | 6,688 | |
| | | | | | | | | | |
Lease income (4) | | 634,251 | | | 30,982 | | | 12,950 | | | — | | | 678,183 | |
| | | | | | | | | | |
Total revenue | | $ | 636,890 | | | $ | 32,240 | | | $ | 13,029 | | | $ | 2,712 | | | $ | 684,871 | |
| | | | | | | | | | |
For the three months ended June 30, 2022 | | | | | | | | | | |
Management, development and other fees and other ancillary items | | $ | — | | | $ | — | | | $ | — | | | $ | 904 | | | $ | 904 | |
Non-lease related revenue (2) | | 2,767 | | | 556 | | | 32 | | | — | | | 3,355 | |
Total non-lease revenue (3) | | 2,767 | | | 556 | | | 32 | | | 904 | | | 4,259 | |
| | | | | | | | | | |
Lease income (4) | | 597,061 | | | 18,522 | | | 6,514 | | | — | | | 622,097 | |
| | | | | | | | | | |
Total revenue | | $ | 599,828 | | | $ | 19,078 | | | $ | 6,546 | | | $ | 904 | | | $ | 626,356 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Same Store | | Other Stabilized | | Development/ Redevelopment | | Non- allocated (1) | | Total |
For the six months ended June 30, 2023 | | | | | | | | | | |
Management, development and other fees and other ancillary items | | $ | — | | | $ | — | | | $ | — | | | $ | 3,778 | | | $ | 3,778 | |
Non-lease related revenue (2) | | 5,211 | | | 2,400 | | | 115 | | | — | | | 7,726 | |
Total non-lease revenue (3) | | 5,211 | | | 2,400 | | | 115 | | | 3,778 | | | 11,504 | |
| | | | | | | | | | |
Lease income (4) | | 1,256,430 | | | 61,572 | | | 23,414 | | | — | | | 1,341,416 | |
| | | | | | | | | | |
Total revenue | | $ | 1,261,641 | | | $ | 63,972 | | | $ | 23,529 | | | $ | 3,778 | | | $ | 1,352,920 | |
| | | | | | | | | | |
For the six months ended June 30, 2022 | | | | | | | | | | |
Management, development and other fees and other ancillary items | | $ | — | | | $ | — | | | $ | — | | | $ | 1,656 | | | $ | 1,656 | |
Non-lease related revenue (2) | | 5,020 | | | 966 | | | 45 | | | — | | | 6,031 | |
Total non-lease revenue (3) | | 5,020 | | | 966 | | | 45 | | | 1,656 | | | 7,687 | |
| | | | | | | | | | |
Lease income (4) | | 1,165,899 | | | 33,325 | | | 12,552 | | | — | | | 1,211,776 | |
| | | | | | | | | | |
Total revenue | | $ | 1,170,919 | | | $ | 34,291 | | | $ | 12,597 | | | $ | 1,656 | | | $ | 1,219,463 | |
__________________________________(1)Represents third-party property management, developer fees and miscellaneous income and other ancillary items which are not allocated to a reportable segment.
(2)Amounts include revenue streams whichrelated to leasing activities that are being evaluated under this ASU, includenot considered components of a lease, and revenue streams not related to leasing activities including, but are not limited to, managementapplication fees, renters insurance fees and vendor revenue sharing.
(3)Represents revenue accounted for under ASC 606.
(4)Represents residential and commercial rental and other lease income, from residents determined notaccounted for under ASC 842.
Due to be within the scopenature and timing of ASU 2016-02 and gains and losses from real estate dispositions. the Company’s identified revenue streams, there were no material amounts of outstanding or unsatisfied performance obligations as of June 30, 2023.
Uncollectible Lease Revenue Reserves
The Company will continue to assessassesses the impactcollectability of its lease revenue and receivables on an ongoing basis by (i) assessing the probability of receiving all lease amounts due on a lease-by-lease basis, (ii) reserving all amounts for those leases where collection of substantially all of the new standardremaining lease payments is not probable and (iii) subsequently, will adopt it as of January 1, 2018 usingonly recognize revenue to the modified retrospective approach.
Change in Accounting Principle
As of January 1, 2017,extent cash is received. If the Company adopted ASU 2016-09, Compensation-Stock Compensation: Improvementsdetermines that collection of the remaining lease payments becomes probable at a future date, the Company will recognize the cumulative revenue that would have been recorded under the original lease agreement.
In addition to Employee Share-Based Payment Accounting,the specific reserves recognized under ASC 842, the Company also evaluates its lease receivables for collectability at a portfolio level under ASC 450, Contingencies – Loss Contingencies. The Company recognizes a reserve under ASC 450 when the uncollectible revenue is probable and reasonably estimable. The Company applies this reserve to the population of the Company’s revenue and receivables not specifically addressed as discussed above. The guidance requires payments related to tax withholding for share-based compensation to be presented separately as a financing activity onpart of the Condensed Consolidated Statements of Cash Flows, and was adopted retrospectively.specific ASC 842 reserve.
The impactCompany recorded an aggregate offset to income for uncollectible lease revenue, net of the change in accounting principleamounts received from government rent relief programs, for its residential and commercial portfolios of $13,333,000 and $7,061,000 for the ninethree months ended SeptemberJune 30, 2016 on2023 and 2022, respectively, and $30,304,000 and $20,660,000 for the accompanying Condensed Consolidated Statements of Cash Flows is (i) an increase in the increased accrued expenses, other liabilities and accrued interest payable of $7,659,000, and (ii) an associated increase in net cash provided by operating activities, as well as (iii) an increase in payments related to tax withholding for share-based compensation of $7,659,000, and (iv) an associated increase in net cash used in financing activities. For the ninesix months ended SeptemberJune 30, 2017, payments related to tax withholding for share-based compensation were $10,460,000.2023 and 2022, respectively, under ASC 842 and ASC 450.
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 $16,223,000$11,606,000 and $19,889,000$8,193,000 for the three months ended SeptemberJune 30, 20172023 and 2016,2022, respectively, and $51,323,000$22,624,000 and $60,522,000$15,293,000 for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, respectively.
3. Mortgage Notes Payable, Unsecured Notes and Credit FacilityDebt
The Company's mortgagedebt, which consists of unsecured notes, payable, unsecured notes,the variable rate unsecured term loans ("Term Loans"loan (the "Term Loan"), mortgage notes payable, the Credit Facility and Credit Facility,the Commercial Paper Program, each as defined below, as of SeptemberJune 30, 20172023 and December 31, 20162022 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 SeptemberJune 30, 20172023 and December 31, 2016,2022, as shown in the accompanying Condensed Consolidated Balance Sheets (dollars in thousands) (see Note 6, "Real Estate Disposition Activities"). The weighted average interest rates in the following table for secured and unsecured notes include costs of financing such as credit enhancement fees, trustees' fees, the impact of interest rate hedges and mark-to-market adjustments.
|
| | | | | | | |
| 9/30/2017 | | 12/31/2016 |
| | | |
Fixed rate unsecured notes (1) | $ | 4,900,000 |
| | $ | 4,200,000 |
|
Term Loans (1) | 550,000 |
| | 300,000 |
|
Fixed rate mortgage notes payable - conventional and tax-exempt (2) | 617,285 |
| | 1,668,496 |
|
Variable rate mortgage notes payable - conventional and tax-exempt (2) | 889,158 |
| | 908,262 |
|
Total mortgage notes payable, unsecured notes and Term Loans | 6,956,443 |
| | 7,076,758 |
|
Credit Facility | 242,000 |
| | — |
|
Total mortgage notes payable, unsecured notes, Term Loans and Credit Facility | $ | 7,198,443 |
| | $ | 7,076,758 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
| | | | | | | |
Fixed rate unsecured notes | $ | 7,250,000 | | | 3.3 | % | | $ | 7,500,000 | | | 3.3 | % |
Term Loan | 150,000 | | | 6.2 | % | | 150,000 | | | 5.4 | % |
Fixed rate mortgage notes payable - conventional and tax-exempt | 270,677 | | | 3.4 | % | | 270,677 | | | 3.4 | % |
Variable rate mortgage notes payable - conventional and tax-exempt | 449,750 | | | 5.6 | % | | 457,150 | | | 5.3 | % |
Total mortgage notes payable and unsecured notes and Term Loan | 8,120,427 | | | 3.5 | % | | 8,377,827 | | | 3.4 | % |
Credit Facility | — | | | — | % | | — | | | — | % |
Commercial paper | — | | | — | % | | — | | | — | % |
Total principal outstanding | 8,120,427 | | | 3.5 | % | | 8,377,827 | | | 3.4 | % |
Less deferred financing costs and debt discount (1) | (57,728) | | | | | (61,782) | | | |
Total | $ | 8,062,699 | | | | | $ | 8,316,045 | | | |
| |
(1) | Balances at September 30, 2017 and December 31, 2016 exclude $9,392 and $8,930, respectively, of debt discount, and $33,517 and $27,768, respectively, of deferred financing costs, as reflected in unsecured notes, net on the accompanying Condensed Consolidated Balance Sheets. |
| |
(2) | Balances at September 30, 2017 and December 31, 2016 exclude $16,280 of debt discount and $1,866 of debt premium, respectively, and $11,224 and $11,046, 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 nine months ended September 30, 2017:
In February 2017, the Company repaid $17,300,000 of variable rate debt secured by Avalon Mountain View at par at its scheduled maturity date.
In February 2017, the Company entered into a $250,000,000 variable 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%. In April 2017, the Company borrowed the $250,000,000 available under the $250 million Term Loan.
In May 2017, the Company repaid $670,590,000 aggregate principal amount of 6.26% fixed rate secured notes secured by 11 communities, representing the majority of the Fannie Mae pool 2 secured indebtedness assumed as part of the Archstone acquisition, which had a contractual maturity date of November 2017 but opened for prepayment at par on April 30, 2017. In conjunction with the repayment, the Company recognized a gain of $10,839,000, primarily composed of the write-off of unamortized premium. The Company refinanced the secured borrowings for three of these communities for an aggregate principal amount of $185,100,000, with a contractual fixed interest rate of 3.61% and maturity dates of June 2027.
In May 2017, the Company issued $400,000,000 principal amount of unsecured notes in a public offering under its existing shelf registration statement for net proceeds of approximately $396,016,000. The notes mature in May 2027 and were issued at a 3.35% interest rate.
In June 2017, the Company issued $300,000,000 principal amount of unsecured notes in a public offering under its existing shelf registration statement for net proceeds of approximately $297,372,000. The notes mature in July 2047 and were issued at a 4.15% interest rate.
In June 2017, the Company repaid $556,313,000 aggregate principal amount of 5.86% fixed rate secured notes secured by 12 wholly-owned operating communities, representing the remaining debt in the Company's Freddie Mac cross-collateralized pool financing originated in 2009, in advance of their May 2019 maturity date. In conjunction with the repayment, the Company recognized a charge of $34,965,000, consisting of prepayment penalties of $33,515,000 and the non-cash write-off of(1)Excludes deferred financing costs of $1,450,000.and debt discount associated with the Credit Facility and the Commercial Paper Program which are included in prepaid expenses and other assets on the accompanying Condensed Consolidated Balance Sheets.
At September 30, 2017, theThe Company has a $1,500,000,000$2,250,000,000 revolving variable rate unsecured credit facility with a syndicate of banks (the "Credit Facility") which matures in April 2020.September 2026. The Company may extendinterest rate that would be applicable to borrowings under the maturity for upCredit Facility was 5.92% at June 30, 2023 and was composed of (i) the Secured Overnight Financing Rate ("SOFR") plus (ii) the current borrowing spread to nine months, provided the Company is not in default and upon paymentSOFR of 0.825% per annum, which consisted of a $1,500,000 extension fee.0.10% SOFR adjustment plus 0.725% per annum, assuming a daily SOFR borrowing rate. The borrowing spread to SOFR can vary from SOFR plus 0.65% to SOFR plus 1.40% based upon the rating of the Company's unsecured and unsubordinated long-term indebtedness. There is also an annual facility commitment fee of 0.125% of the borrowing capacity under the facility, which can vary from 0.10% to 0.30% based upon the rating of the Company's unsecured and unsubordinated long-term indebtedness. The Credit Facility bearscontains a sustainability-linked pricing component which provides for interest at varying levels based onrate margin and commitment fee reductions or increases by meeting or missing targets related to environmental sustainability, specifically greenhouse gas emission reductions, with the London Interbank Offered Rate ("LIBOR"), rating levels achievedadjustment determined annually beginning in July 2023.
The availability on the Company's unsecured notesCredit Facility as of June 30, 2023 and on a maturity schedule selected byDecember 31, 2022, respectively, was as follows (dollars in thousands):
| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
| | | |
Credit Facility commitment | $ | 2,250,000 | | | $ | 2,250,000 | |
Credit Facility outstanding | — | | | — | |
Commercial paper outstanding | — | | | — | |
Letters of credit outstanding (1) | (1,914) | | | (1,914) | |
Total Credit Facility available | $ | 2,248,086 | | | $ | 2,248,086 | |
(1)In addition, the Company. The current stated pricing is LIBOR plus 0.825% per annum (2.06% at September 30, 2017), 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 $242,000,000$51,832 and $48,740 outstanding underin additional letters of credit unrelated to the Credit Facility as of SeptemberJune 30, 20172023 and no borrowingsDecember 31, 2022, respectively.
The Company has an unsecured commercial paper note program (the “Commercial Paper Program”) with the maximum aggregate face or principal amount outstanding at any one time not to exceed $500,000,000. The Commercial Paper Program is backstopped by the Company's commitment to maintain available borrowing capacity under the Credit Facility asin an amount equal to actual borrowings under the Commercial Paper Program.
During the six months ended June 30, 2023, the Company repaid $250,000,000 principal amount of December 31, 2016. The Company had $44,282,000 and $46,711,000 outstanding in letters of credit that reduced the borrowing capacity as of September 30, 2017 and December 31, 2016, respectively.its 2.85% unsecured notes at its maturity.
In the aggregate, secured notes payable mature at various dates from November 2017March 2027 through July 2066, and are secured by certain apartment communities (with a net carrying value of $2,204,341,000,$1,166,698,000, excluding communities classified as held for sale, as of SeptemberJune 30, 2017)2023). As of September 30, 2017, the Company has guaranteed a $100,000,000 secured note payable held by a wholly-owned subsidiary; such secured note payable is consolidated for financial reporting purposes. The weighted average interest rate of the Company's fixed rate secured notes payable (conventional and tax-exempt) was 4.0% and 4.4% at September 30, 2017 and December 31, 2016, respectively. The weighted average interest rate of the Company's variable rate secured notes payable (conventional and tax-exempt), the Term Loans and its Credit Facility, including the effect of certain financing related fees, was 2.6% and 2.3% at September 30, 2017 and December 31, 2016, respectively.
Scheduled payments and maturities of secured notes payable and unsecured notes outstanding at SeptemberJune 30, 2017 are2023 were as follows (dollars in thousands):
| | Year | | Secured notes payments | | Secured notes maturities | | Unsecured notes maturities | | Stated interest rate of unsecured notes | Year | | Secured notes principal payments and maturities | | Unsecured notes and Term Loan maturities | | Stated interest rate of unsecured notes and Term Loan |
2017 | | 2,223 |
| | 21,601 |
| (1) | — |
| | N/A |
| |
2018 | | 7,258 |
| | 76,667 |
| | — |
| | N/A |
| |
2019 | | 4,696 |
| | 114,723 |
| | — |
| | N/A |
| |
2020 | | 3,624 |
| | 118,729 |
| | 250,000 |
| | 6.100 | % | |
| |
|
| |
|
| | 400,000 |
| | 3.625 | % | |
2021 | | 3,551 |
| | 27,844 |
| | 250,000 |
| | 3.950 | % | |
| |
|
| |
|
| | 300,000 |
| | LIBOR + 1.450% |
| |
2022 | | 3,795 |
| | — |
| | 450,000 |
| | 2.950 | % | |
| | | | | | 100,000 |
| | LIBOR + 0.90% |
| |
2023 | | 4,040 |
| | — |
| | 350,000 |
| | 4.200 | % | 2023 | | $ | 900 | | | $ | 350,000 | | | 4.200 | % |
| |
|
| |
|
| | 250,000 |
| | 2.850 | % | |
2024 | | 4,310 |
| | — |
| | 300,000 |
| | 3.500 | % | 2024 | | 9,100 | | | 300,000 | | | 3.500 | % |
| | | | | | 150,000 |
| | LIBOR + 1.50% |
| | 150,000 | | (1) | | SOFR + 0.95% |
2025 | | 4,585 |
| | 84,835 |
| | 525,000 |
| | 3.450 | % | 2025 | | 9,700 | | | 525,000 | | | 3.450 | % |
| | | | | | 300,000 |
| | 3.500 | % | | 300,000 | | | 3.500 | % |
2026 | | 4,894 |
| | — |
| | 475,000 |
| | 2.950 | % | 2026 | | 10,600 | | | 475,000 | | | 2.950 | % |
| | | | | | 300,000 |
| | 2.900 | % | | 300,000 | | | 2.900 | % |
2027 | | 2027 | | 249,000 | | | 400,000 | | | 3.350 | % |
2028 | | 2028 | | 17,600 | | | 450,000 | | | 3.200 | % |
| | | 400,000 | | | 1.900 | % |
2029 | | 2029 | | 74,750 | | | 450,000 | | | 3.300 | % |
2030 | | 2030 | | 9,000 | | | 700,000 | | | 2.300 | % |
2031 | | 2031 | | 9,600 | | | 600,000 | | | 2.450 | % |
2032 | | 2032 | | 10,300 | | | 700,000 | | | 2.050 | % |
Thereafter | | 213,751 |
| | 805,317 |
| | 350,000 |
| | 3.900 | % | Thereafter | | 319,877 | | | 350,000 | | | 5.000 | % |
| | | | | | 400,000 |
| | 3.350 | % | | 350,000 | | | 3.900 | % |
| | | | | | 300,000 |
| | 4.150 | % | | 300,000 | | | 4.150 | % |
| | $ | 256,727 |
| | $ | 1,249,716 |
| | $ | 5,450,000 |
| | |
| | 300,000 | | | 4.350 | % |
| | | | $ | 720,427 | | | $ | 7,400,000 | | | |
(1) The borrowing spread to SOFR of 0.95% per annum, consists of a 0.10% SOFR adjustment plus 0.85% per annum.
| |
(1) | See Note 11, "Subsequent Events," for further discussion. |
The Company was in compliance at SeptemberJune 30, 20172023 with customary financial and other covenants under the Credit Facility and the Commercial Paper Program, the Term LoansLoan and the indentures under which the Company's fixed rate unsecured notes.notes were issued.
4. Equity
The following summarizes the changes in equity for the ninesix months ended SeptemberJune 30, 20172023 and 2022 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock | | Additional paid-in capital | | Accumulated earnings less dividends | | Accumulated other comprehensive income (loss) | | Total stockholder's equity | | Noncontrolling interests | | Total equity |
| | | | | | | | | | | | | |
Balance at December 31, 2022 | $ | 1,400 | | | $ | 10,765,431 | | | $ | 485,221 | | | $ | 1,424 | | | $ | 11,253,476 | | | $ | 77 | | | $ | 11,253,553 | |
Net income attributable to common stockholders | — | | | — | | | 146,902 | | | — | | | 146,902 | | | — | | | 146,902 | |
Loss on cash flow hedges, net | — | | | — | | | — | | | (340) | | | (340) | | | — | | | (340) | |
Cash flow hedge losses reclassified to earnings | — | | | — | | | — | | | 354 | | | 354 | | | — | | | 354 | |
Change in redemption value of redeemable noncontrolling interest | — | | | — | | | (286) | | | — | | | (286) | | | — | | | (286) | |
Dividends declared to common stockholders ($1.65 per share) | — | | | — | | | (230,958) | | | — | | | (230,958) | | | — | | | (230,958) | |
Issuance of common stock, net of withholdings | 1 | | | (11,554) | | | 1,590 | | | — | | | (9,963) | | | — | | | (9,963) | |
Repurchase of common stock, including repurchase costs | — | | | (539) | | | (590) | | | — | | | (1,129) | | | — | | | (1,129) | |
Amortization of deferred compensation | — | | | 11,123 | | | — | | | — | | | 11,123 | | | — | | | 11,123 | |
Balance at March 31, 2023 | $ | 1,401 | | | $ | 10,764,461 | | | $ | 401,879 | | | $ | 1,438 | | | $ | 11,169,179 | | | $ | 77 | | | $ | 11,169,256 | |
Net income attributable to common stockholders | — | | | — | | | 367,923 | | | — | | | 367,923 | | | — | | | 367,923 | |
Gain on cash flow hedges, net | — | | | — | | | — | | | 8,826 | | | 8,826 | | | — | | | 8,826 | |
Cash flow hedge losses reclassified to earnings | — | | | — | | | — | | | 354 | | | 354 | | | — | | | 354 | |
Change in redemption value of redeemable noncontrolling interest | — | | | — | | | (367) | | | — | | | (367) | | | — | | | (367) | |
Dividends declared to common stockholders ($1.65 per share) | — | | | — | | | (234,774) | | | — | | | (234,774) | | | — | | | (234,774) | |
Issuance of common stock, net of withholdings | 19 | | | 494,643 | | | 43 | | | — | | | 494,705 | | | — | | | 494,705 | |
Repurchase of common stock, including repurchase costs | — | | | (369) | | | (413) | | | — | | | (782) | | | — | | | (782) | |
Amortization of deferred compensation | — | | | 10,424 | | | — | | | — | | | 10,424 | | | — | | | 10,424 | |
Balance at June 30, 2023 | $ | 1,420 | | | $ | 11,269,159 | | | $ | 534,291 | | | $ | 10,618 | | | $ | 11,815,488 | | | $ | 77 | | | $ | 11,815,565 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| 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 |
|
Net income attributable to common stockholders | — |
| | — |
| | 639,348 |
| | — |
| | 639,348 |
|
Loss on cash flow hedges, net | — |
| | — |
| | — |
| | (15,654 | ) | | (15,654 | ) |
Cash flow hedge loss reclassified to earnings | — |
| | — |
| | — |
| | 5,301 |
| | 5,301 |
|
Change in redemption value of redeemable noncontrolling interest | — |
| | — |
| | (458 | ) | | — |
| | (458 | ) |
Dividends declared to common stockholders | — |
| | — |
| | (587,819 | ) | | — |
| | (587,819 | ) |
Issuance of common stock, net of withholdings | 8 |
| | 100,625 |
| | (1,323 | ) | | — |
| | 99,310 |
|
Amortization of deferred compensation | — |
| | 22,369 |
| | — |
| | — |
| | 22,369 |
|
Balance at September 30, 2017 | $ | 1,381 |
| | $ | 10,228,648 |
| | $ | 144,647 |
| | $ | (40,863 | ) | | $ | 10,333,813 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock | | Additional paid-in capital | | Accumulated earnings less dividends | | Accumulated other comprehensive income (loss) | | Total stockholder's equity | | Noncontrolling interests | | Total equity |
| | | | | | | | | | | | | |
Balance at December 31, 2021 | $ | 1,398 | | | $ | 10,716,414 | | | $ | 240,821 | | | $ | (26,106) | | | $ | 10,932,527 | | | $ | 566 | | | $ | 10,933,093 | |
Net income attributable to common stockholders | — | | | — | | | 262,044 | | | — | | | 262,044 | | | — | | | 262,044 | |
Gain on cash flow hedges, net | — | | | — | | | — | | | 10,155 | | | 10,155 | | | — | | | 10,155 | |
Cash flow hedge losses reclassified to earnings | — | | | — | | | — | | | 1,013 | | | 1,013 | | | — | | | 1,013 | |
Change in redemption value of redeemable noncontrolling interest | — | | | — | | | (43) | | | — | | | (43) | | | — | | | (43) | |
Noncontrolling interest distribution and income allocation | — | | | — | | | — | | | — | | | — | | | (10) | | | (10) | |
Dividends declared to common stockholders ($1.59 per share) | — | | | — | | | (222,373) | | | — | | | (222,373) | | | — | | | (222,373) | |
Issuance of common stock, net of withholdings | 1 | | | (14,263) | | | (1,501) | | | — | | | (15,763) | | | — | | | (15,763) | |
Amortization of deferred compensation | — | | | 9,176 | | | — | | | — | | | 9,176 | | | — | | | 9,176 | |
Balance at March 31, 2022 | $ | 1,399 | | | $ | 10,711,327 | | | $ | 278,948 | | | $ | (14,938) | | | $ | 10,976,736 | | | $ | 556 | | | $ | 10,977,292 | |
Net income attributable to common stockholders | — | | | — | | | 138,691 | | | — | | | 138,691 | | | — | | | 138,691 | |
Gain on cash flow hedges, net | — | | | — | | | — | | | 7,759 | | | 7,759 | | | — | | | 7,759 | |
Cash flow hedge losses reclassified to earnings | — | | | — | | | — | | | 1,013 | | | 1,013 | | | — | | | 1,013 | |
Change in redemption value of redeemable noncontrolling interest | — | | | — | | | 168 | | | — | | | 168 | | | — | | | 168 | |
Noncontrolling interest distribution and income allocation | — | | | — | | | — | | | — | | | — | | | (6) | | | (6) | |
Dividends declared to common stockholders ($1.59 per share) | — | | | — | | | (222,772) | | | — | | | (222,772) | | | — | | | (222,772) | |
Issuance of common stock, net of withholdings | — | | | 1,683 | | | — | | | — | | | 1,683 | | | — | | | 1,683 | |
Amortization of deferred compensation | — | | | 14,183 | | | — | | | — | | | 14,183 | | | — | | | 14,183 | |
Balance at June 30, 2022 | $ | 1,399 | | | $ | 10,727,193 | | | $ | 195,035 | | | $ | (6,166) | | | $ | 10,917,461 | | | $ | 550 | | | $ | 10,918,011 | |
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As of SeptemberJune 30, 20172023 and December 31, 2016,2022, 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 ninesix months ended SeptemberJune 30, 2017,2023, the Company:
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i. | issued 41,123 shares of common stock in connection with stock options exercised; |
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ii. | issued 2,466 common shares through the Company's dividend reinvestment plan; |
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iii. | issued 201,314 common shares in connection with restricted stock grants and the conversion of performance awards to restricted shares; |
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iv. | issued 568,424 shares under CEP IV as discussed below; |
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v. | withheld 60,165 common shares to satisfy employees' tax withholding and other liabilities; |
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vi. | issued 5,872 common shares through the Employee Stock Purchase Plan; and |
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vii. | canceled 3,045 common shares of restricted stock upon forfeiture.
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Any deferred compensation related toi.issued 5,773 shares of common stock in connection with stock options exercised;
ii.issued 1,703 shares of common stock through the Company's dividend reinvestment plan;
iii.issued 152,708 shares of common stock option,in connection with restricted stock grants and the conversion of performance award grants duringawards to shares of common stock;
iv.issued 2,000,000 shares of common stock in the ninesettlement of the forward contracts, as discussed below;
v.issued 12,288 shares of common stock through the Employee Stock Purchase Plan;
vi.withheld 62,215 shares of common stock to satisfy employees' tax withholding and other liabilities;
vii.canceled 566 shares of restricted common stock upon forfeiture; and
viii.repurchased 11,800 common shares through the Stock Repurchase Program (as defined below).
Deferred compensation granted under the Company's Second Amended and Restated 2009 Equity Incentive Plan (the "2009 Plan") for the six months ended SeptemberJune 30, 2017 is2023 does not reflected onimpact the accompanyingCompany's Condensed Consolidated Balance Sheet as of September 30, 2017, and will not be reflectedFinancial Statements until recognized as compensation cost.
In December 2015, theThe Company commencedhas a fourth continuous equity program ("CEP IV"CEP") under which the Company may sell (and/or enter into forward sale agreements for)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. 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 September 30, 2017, there are no outstanding forward sales agreements. During the ninethree and six months ended SeptemberJune 30, 2017, the Company sold 568,424 shares at an average sales price of $188.39 per share, for net proceeds of $105,478,000. As of September 30, 2017,2023, the Company had $892,915,000no sales under this program. As of sharesJune 30, 2023, the Company had $705,961,000 remaining authorized for issuance under the CEP.
In addition to the CEP, during the three months ended June 30, 2023, the Company settled the outstanding forward contracts entered into in April 2022 (the "Equity Forward"), issuing 2,000,000 shares of common stock, net of offering fees and discounts for $491,912,000 or $245.96 per share.
The Company has a stock repurchase program under which the Company may acquire shares of its common stock in open market or negotiated transactions up to an aggregate purchase price of $500,000,000 (the "Stock Repurchase Program"). During the three and six months ended June 30, 2023, the Company repurchased 4,800 and 11,800 shares of common stock, respectively, at an average price of $162.93 per share and $161.96 per share, respectively. As of June 30, 2023, the Company had $314,237,000 remaining authorized for purchase under this program.
5. Investments in Real Estate Entities
Investment in Unconsolidated Real Estate EntitiesInvestments
As of SeptemberJune 30, 2017,2023, the Company had investments in five unconsolidated entities with real estate entities holdings, with ownership interest percentages ranging from 20.0% to 31.3%50.0%, excluding development joint venturescoupled with other unconsolidated investments including property technology and joint ventures formed with Equity Residential as partenvironmentally focused companies and investment management funds. For one of the Archstone acquisition.investments which is under development of which the Company has an investment of 25.0%, the Company has guaranteed a construction loan on behalf of the venture, which had an outstanding balance of $111,662,000 as of June 30, 2023. Any amounts under the guarantee of this construction loan are obligations of the venture partners in proportion to their ownership interest. The Company accounts for its investments in unconsolidated real estate entitiesinvestments under the equity method of accounting.accounting or under the measurement alternative with the carrying amount of the investment adjusted to fair value when there is an observable transaction for the same or similar investment of the same issuer indicating a change in fair value. The significant accounting policies of the Company's unconsolidated real estate entitiesinvestments are consistent with those of the Company in all material respects.
During the nine months ended September 30, 2017, AvalonBay Value Added Fund II, L.P. ("Fund II") sold its final three communities:
Eaves Gaithersburg, located in Gaithersburg, MD, containing 684 apartment homes, was sold for $117,000,000. The Company's share of the gain was $8,697,000.
Briarwood Apartments, located in Owings Mills, MD, containing 348 apartment homes, was sold for $64,750,000. The Company's share of the gain was $7,873,000.
Avalon Watchung, located in Watchung, NJ, containing 334 apartment homes, was sold for $90,300,000. The Company's share of the gain was $9,752,000.
In conjunction with the disposition Certain of these communities duringinvestments are subject to various buy‑sell provisions or other rights which are customary in real estate joint venture agreements. The Company and its partners in these entities may initiate these provisions to either sell the nine months ended September 30, 2017, Fund II repaidCompany's interest or acquire the remaining $127,179,000 of secured indebtedness at par in advance of its scheduled maturity date.interest from the Company's partner.
The Company also has an equity interest of 31.3%28.6% in Fund II,the Archstone Multifamily Partners AC LP (the "U.S. Fund") and upon achievement of a threshold return, which has been met, the Company has a right to incentive distributions for its promoted interest based on the current returns earned by Fund II, which currently represents 40.0% of further Fund II distributions, which is in addition to its proportionate share of the remaining 60.0% of distributions.U.S. Fund. During the three and nine months ended SeptemberJune 30, 2017,2023, the Company recognized income of $19,977,000 and $26,742,000, respectively,$1,072,000 for its promoted interest which is reported as a component of equityincluded in income (loss) offrom unconsolidated real estate entitiesinvestments on the accompanying Condensed Consolidated Statements of Comprehensive Income.
During the nine months ended September 30, 2017, Archstone Multifamily Partners AC LP (the "U.S. Fund") sold Eaves Sunnyvale, located in Sunnyvale, CA, containing 192 apartment homes, for $107,000,000. The Company's share of the gain was $13,788,000. In conjunction with the disposition of this community, during the nine months ended September 30, 2017, the U.S. Fund repaid $32,542,000sold its final three communities in 2022 and is in the process of secured indebtedness in advance of its scheduled maturity date. This resulted in a charge for a prepayment penalty and the write-off of deferred financing costs, of which the Company's portion was $406,000, which is reported as a reduction of equity in income (loss) of unconsolidated real estate entities on the accompanying Condensed Consolidated Statements of Comprehensive Income.being dissolved.
Structured Investment Program
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):
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| 9/30/2017 | | 12/31/2016 |
| (unaudited) | | (unaudited) |
Assets: | |
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Real estate, net | $ | 699,440 |
| | $ | 954,493 |
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Other assets | 46,168 |
| | 49,519 |
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Total assets | $ | 745,608 |
| | $ | 1,004,012 |
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Liabilities and partners' capital: | |
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Mortgage notes payable, net and credit facility | $ | 525,170 |
| | $ | 689,573 |
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Other liabilities | 13,446 |
| | 16,537 |
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Partners' capital | 206,992 |
| | 297,902 |
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Total liabilities and partners' capital | $ | 745,608 |
| | $ | 1,004,012 |
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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):
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| For the three months ended | | For the nine months ended |
| 9/30/2017 | | 9/30/2016 | | 9/30/2017 | | 9/30/2016 |
| (unaudited) | | (unaudited) |
Rental and other income | $ | 24,568 |
| | $ | 30,771 |
| | $ | 79,999 |
| | $ | 101,534 |
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Operating and other expenses | (9,378 | ) | | (12,069 | ) | | (30,386 | ) | | (39,206 | ) |
Gain on sale of communities | 107,067 |
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| | 136,514 |
| | 180,256 |
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Interest expense, net (1) | (7,867 | ) | | (7,919 | ) | | (21,415 | ) | | (37,857 | ) |
Depreciation expense | (5,938 | ) | | (8,081 | ) | | (20,059 | ) | | (26,027 | ) |
Net income | $ | 108,452 |
| | $ | 2,702 |
| | $ | 144,653 |
| | $ | 178,700 |
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(1) | Amounts for the three and nine months ended September 30, 2017 include charges for prepayment penalties and write-offs of deferred financing costs of $1,601 and $1,591, respectively. Amount for the nine months ended September 30, 2016 includes charges for prepayment penalties and write-offs of deferred financing costs of $12,321. |
In conjunction with the formation of Fund II and North Point II JV, LP ("AVA North Point"Company has its Structured Investment Program (the “SIP”), and the acquisition of 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 $35,752,000 and $38,015,000 at September 30, 2017 and December 31, 2016, 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 (loss) in income of unconsolidated entities on the accompanying Condensed Consolidated Statements of Comprehensive Income.
During the nine months ended September 30, 2017, the Company acquired a parcel of land for an investment of $19,200,000 from Sudbury Development, LLC (“Sudbury”), a joint venture inplatform through which the Company has a 60.0% ownership interest. The Company has a continuing involvement with Sudbury, formedprovides mezzanine loans or preferred equity to pursue entitlements and conduct pre-development activity for a mixed-used development project, whilethird-party multifamily developers in the venture completes the planned infrastructure and site work.
Investments in Consolidated Real Estate Entities
In September 2017,Company's existing markets. As of June 30, 2023, the Company acquired two consolidated communities:had commitments to fund three mezzanine loans of up to $92,375,000 in the aggregate. The mezzanine loans have a weighted average rate of return of 9.8% and mature at various dates on or before June 2026. At June 30, 2023, the Company had funded $55,869,000 of these commitments.
The Lodge Denver West, located in Lakewood, CO, contains 252 apartment homes and was acquired for a purchase price of $76,750,000.
Avalon Dunn Loring, located in Vienna, VA, contains 440 apartment homes and 27,000 square feet of retail space was acquired for $151,000,000.
The Company accounted for these as asset acquisitions and recorded the acquired assets and assumed liabilities, including identifiable intangibles, at their relative fair values based on the purchase price and acquisition costs incurred. The Company used third party pricing or internal models for the values of the land, a valuation model for the values of the buildings and debt, and an internal modelevaluates each SIP commitment to determine the fair values of the remainingclassification as a loan or an investment in a real estate assets and in-place leases. Given the heterogeneous naturedevelopment project. As of multifamily real estate, the fair values for the land, debt, real estate assets and in-place leases incorporated significant unobservable inputs and therefore are considered to be Level 3 prices within the fair value hierarchy.
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 contain rental apartments, for-sale residential condominium units and related common elements. The Company owns a 70.0% interest in the venture and will haveJune 30, 2023, all of the rights and obligations associated with the rental apartments, and the venture partner owns the remaining 30.0% interest and will have all of the rights and obligations associated with the for-sale residential condominium units.SIP commitments are classified as loans. The Company is responsible forincludes amounts outstanding under the development and construction of the structure, and is providing a loan to the venture partner for the venture partner's share of costs. As of September 30, 2017, 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 under construction, in the amount of $41,485,000 for outstanding principal and interest, reportedSIP as a component of prepaid expenses and other assets on the accompanying Condensed Consolidated Balance Sheets. The Company recognizesevaluates the credit risk for each loan on an ongoing basis, estimating the reserve for credit losses using relevant available information from internal and external sources. Market-based historical credit loss data provides the basis for the estimation of expected credit losses, with adjustments, if necessary, for differences in current loan-specific risk characteristics, such as the amount of equity capital provided by a borrower, nature of the real estate being developed or other factors.
For the three existing loans, interest is recognized as earned as interest income, and interest income and any change in the expected credit loss are included as a component of income from unconsolidated investments, on the accrual basis. The loan will be repaid by the venture partner with the proceeds the partner receives from the salesaccompanying Condensed Consolidated Statements of theComprehensive Income.
residential condominium units which are expected to occur during 2018. The venture is considered a VIE, and the Company consolidates its interest in the rental apartments and common areas.
Expensed Acquisition,Transaction, Development and Other Pursuit Costs and Impairment of Long-Lived Assets
The Company capitalizes pre-development costs incurred in pursuit of newassociated with its development opportunities for which the Company currently believesactivities when future development is probable ("Development Rights"). to the basis of land held, or if the Company has either not yet acquired the land or if the project is subject to a leasehold interest, the costs are capitalized as deferred development costs. 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 costsCosts incurred for pursuits for which future development is not yet considered probable are expensed as incurred. In addition, if the status ofCompany determines a Development Right changes, making future development by the Companyis no longer probable, the Company recognizes any capitalized pre-development costs are expensed.necessary expense to write down its basis in the Development Right. The Company expensed costs related to development pursuits not yet considered probable for development and the abandonment of Development Rights, as well as costs incurred in pursuing the acquisition or disposition of assets for which such acquisition and disposition activity did not occur, in the amounts of $789,000$1,261,000 and $2,170,000$2,364,000 for the three months ended SeptemberJune 30, 20172023 and 2016,2022, respectively, and $2,087,000$4,253,000 and $3,522,000$3,351,000 for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, respectively. These costs are included in expensed acquisition,transaction, development and other pursuit costs, net of recoveries on the accompanying Condensed Consolidated Statements of Comprehensive Income. Abandoned pursuitThese costs can vary greatly, and the costs incurred in any given period may be significantly different in future periods.
Impairment of Long-Lived Assets and Casualty Loss
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-livedan 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 and ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, the Company did not recognize any material impairment losses. For the six months ended June 30, 2023, the Company recognized a charge of $5,051,000 for the property and casualty damages across certain communities in its Northeast and California regions related to severe weather, reported as casualty loss on the accompanying Condensed Consolidated Statements of Comprehensive Income.
The Company evaluates its for-sale condominium inventory for potential indicators of impairment, considering whether the fair value of the individual for-sale condominium units exceeds the carrying value of those units. For-sale condominium inventory is stated at the lower of cost or fair value. The Company determines the fair value of its for-sale condominium inventory as the estimated sales price less direct costs to sell. For the three and six months ended June 30, 2023 and 2022, the Company did not recognize any impairment losses for wholly-owned operating real estate assets.on its for-sale condominium inventory.
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. DuringFor the ninethree and six months ended SeptemberJune 30, 2017,2023 and 2022, the Company recognized an impairment charge of $9,350,000 relating to a land parcel which the Company had acquired for development in 2004, which was sold during the three months ended September 30, 2017. During the nine months ended September 30, 2016, the Company recognized $10,500,000 of aggregatedid not recognize any impairment charges related to three ancillary land parcels. These charges were determined as the excess of the Company's carrying basis over the expected sales price for each parcel, and these charges are includedon its investment in casualty and impairment (gain) loss, net on the accompanying Condensed Consolidated Statements of Comprehensive Income.land.
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 byfor any of the Company's unconsolidated investments in unconsolidated real estate entities duringfor the three and ninesix months ended SeptemberJune 30, 20172023 and 2016.2022.
Casualty Gains and Losses
During the nine months ended September 30, 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 third-party property damage insurance proceeds. The net casualty loss of $2,338,000 for the nine months ended September 30, 2017 is included in casualty and impairment (gain) loss, 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 September 30, 2017, the Company reached a final insurance settlement for the property damage and lost income for the Maplewood casualty loss of $19,696,000, after self-insurance and deductibles. Of this amount, $7,076,000 and $13,268,000 were received during the three and nine months ended September 30, 2017, respectively. As part of the settlement, the Company recognized $3,495,000 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.
During the nine months ended September 30, 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 nine months ended September 30, 2016, the Company received the final $29,008,000 of insurance proceeds, of which $8,702,000 was recognized as casualty and impairment (gain) loss, 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.
During the nine months ended September 30, 2016, the Company recorded a net casualty gain of $5,732,000 related to the severe winter storms that occurred in the Company’s Northeast markets in 2015, which is comprised of $8,493,000 in third-party insurance proceeds received, partially offset by incremental costs of $2,761,000. These amounts are included in casualty and impairment (gain) loss, net on the accompanying Condensed Consolidated Statements of Comprehensive Income.
6. Real Estate Disposition Activities
The following real estate sales occurred during the ninesix months ended SeptemberJune 30, 2017:2023 (dollars in thousands):
In January 2017, the Company sold 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, for an aggregate sales price of $22,286,000. The Company's gain | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Community name | | Location | | Period of sale | | Apartment homes | | Gross sales price | | Gain on disposition (1) |
eaves Daly City | | Daly City, CA | | Q223 | | 195 | | $ | 67,000 | | | $ | 54,618 | |
Avalon at Newton Highlands | | Newton, MA | | Q223 | | 294 | | $ | 170,000 | | | $ | 132,723 | |
(1) Gain on the dispositions was $366,000, reported in (loss) gain on sale of other real estate on the accompanying Condensed Consolidated Statements of Comprehensive Income.
In March 2017, the Company sold Avalon Pines, located in Coram, NY, containing 450 homes, and the adjacent golf course for $140,000,000. The Company's gain on the disposition was $87,949,000, reported in gain on sale of communities on the accompanying Condensed Consolidated Statements of Comprehensive Income.
InAt June 2017,30, 2023, the Company had one real estate asset that qualified as held for sale.
The Park Loggia
The Park Loggia, located in New York, NY, contains 172 for-sale residential condominiums and 66,000 square feet of commercial space. During the three and six months ended June 30, 2023, the Company sold AVA University District, locatedthree and four residential condominiums at The Park Loggia for gross proceeds of $15,435,000 and $19,342,000, respectively, resulting in Seattle, WA, containing 283 homes,a gain in accordance with GAAP of $382,000 and $410,000, respectively. During the three and six months ended June 30, 2022, the Company sold 13 and 28 residential condominiums at The Park Loggia for $112,500,000.gross proceeds of $41,002,000 and $81,338,000, respectively, resulting in a gain in accordance with GAAP of $467,000 and $1,469,000, respectively. The Company's gain onCompany incurred marketing, operating and administrative costs of $97,000 and $538,000 for the disposition was $42,596,000, reportedthree months ended June 30, 2023 and 2022, respectively, and $299,000 and $1,304,000 for the six months ended June 30, 2023 and 2022, respectively. All amounts are included in gain on sale of communitiesother real estate activity on the accompanying Condensed Consolidated Statements of Comprehensive Income.
In July 2017, the Company sold an undeveloped land parcel, located in Vienna, VA, for $15,500,000. The Company recognized a loss on the disposition As of $120,000, reported in (loss) gain on sale of other real estate on the accompanying Condensed Consolidated Statements of Comprehensive Income.
In September 2017, the Company sold Avalon Danbury, located in Danbury, CT, containing 234 homes, for $52,000,000. The Company's gain on the disposition was $27,829,000, reported in gain on sale of communities on the accompanying Condensed Consolidated Statements of Comprehensive Income. The sale of Avalon Danbury is expectedJune 30, 2023, there were five residential condominiums remaining to be partsold. As of a tax deferred exchange under whichJune 30, 2023 and December 31, 2022, the Company has restricted the cash proceedsunsold for-sale residential condominiums at The Park Loggia had an aggregate carrying value of $15,336,000 and $32,532,000, respectively, presented in an escrow account, classified as cash in escrowprepaid expenses and other assets on the accompanying Condensed Consolidated Balance Sheet.
Sheets.
At September
7. Commitments and Contingencies
Lease Obligations
The Company owns seven apartment communities and two commercial properties, located on land subject to ground leases expiring between July 2046 and April 2106. The Company has purchase options for all ground leases expiring prior to 2062. The ground leases for six of the seven apartment communities and the two commercial properties are operating leases, with rental expense recognized on a straight-line basis over the lease term. In addition, the Company is party to 13 leases for its corporate and regional offices with varying terms through 2031, all of which are operating leases.
As of June 30, 2017,2023 and December 31, 2022, the Company had total operating lease assets of $107,765,000 and $114,977,000, respectively, and lease obligations of $134,916,000 and $142,602,000, respectively, reported as components of right of use lease assets and lease liabilities, respectively, on the accompanying Condensed Consolidated Balance Sheets. The Company incurred costs of $4,081,000 and $3,964,000 for the three months ended June 30, 2023 and 2022, respectively, and $8,086,000 and $7,670,000 for the six months ended June 30, 2023 and 2022, respectively, related to operating leases.
The Company has one apartment community located on land subject to a ground lease and four leases for portions of parking garages adjacent to apartment communities, that qualifiedare finance leases. As of June 30, 2023 and December 31, 2022, the Company had total finance lease assets of $28,415,000 and $28,354,000, respectively, and total finance lease obligations of $20,041,000 and $20,069,000, respectively, reported as held for sale.components of right of use lease assets and lease liabilities on the accompanying Condensed Consolidated Balance Sheets.
7.
8. Segment Reporting
The Company's reportable operating segments include Established Communities,Same Store, Other Stabilized Communities, and Development/Redevelopment Communities.Redevelopment. 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 ("CODM") for purposes of assessing each segment's performance. The Company's chief operating decision makerCODM is comprised of several members of its executive management team who use net operating income ("NOI") as the primary financial measure for Established CommunitiesSame Store communities and Other Stabilized Communities.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,transaction, development and other pursuit costs, net of recoveries, interest expense, net, loss on extinguishment of debt, net, general and administrative expense, equity in (income) loss ofincome from unconsolidated real estate entities, investments,depreciation expense, corporate income tax (benefit) expense, casualty and impairment loss, (gain), net, (loss) gain on sale of communities, other real estate assetsactivity and net operating income from real estate assets sold or held for sale. The CODM evaluates the Company's financial performance on a consolidated residential and commercial basis. The commercial results attributable to the non-apartment components of the Company's mixed-use communities and other nonresidential operations represent 1.8% and 1.7% of total NOI for the three months ended June 30, 2023 and 2022, respectively, and 1.8% and 1.9% for the six months ended June 30, 2023 and 2022, respectively. 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 and ninesix months ended SeptemberJune 30, 20172023 and 20162022 is as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended June 30, | | For the six months ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net income | $ | 367,807 | | | $ | 138,566 | | | $ | 514,582 | | | $ | 400,642 | |
Property management and other indirect operating expenses, net of corporate income | 28,972 | | | 30,632 | | | 59,756 | | | 58,745 | |
Expensed transaction, development and other pursuit costs, net of recoveries | 1,261 | | | 2,364 | | | 4,253 | | | 3,351 | |
Interest expense, net | 51,585 | | | 58,797 | | | 108,406 | | | 115,323 | |
General and administrative expense | 17,676 | | | 21,291 | | | 38,076 | | | 38,712 | |
Income from unconsolidated investments | (4,970) | | | (2,480) | | | (9,815) | | | (2,797) | |
Depreciation expense | 200,546 | | | 199,302 | | | 405,289 | | | 401,088 | |
Income tax (benefit) expense | (217) | | | (159) | | | 3,343 | | | 2,312 | |
Casualty loss | — | | | — | | | 5,051 | | | — | |
Gain on sale of communities | (187,322) | | | (404) | | | (187,309) | | | (149,204) | |
Other real estate activity | (341) | | | 28 | | | (470) | | | (245) | |
Net operating income from real estate assets sold or held for sale | (3,977) | | | (12,252) | | | (8,781) | | | (25,521) | |
Net operating income | $ | 471,020 | | | $ | 435,685 | | | $ | 932,381 | | | $ | 842,406 | |
|
| | | | | | | | | | | | | | | |
| For the three months ended | | For the nine months ended |
| 9/30/2017 | | 9/30/2016 | | 9/30/2017 | | 9/30/2016 |
Net income | $ | 238,199 |
| | $ | 356,329 |
| | $ | 639,174 |
| | $ | 791,525 |
|
Indirect operating expenses, net of corporate income | 15,752 |
| | 14,946 |
| | 48,472 |
| | 46,960 |
|
Investments and investment management expense | 1,501 |
| | 1,205 |
| | 4,277 |
| | 3,545 |
|
Expensed acquisition, development and other pursuit costs, net of recoveries | 789 |
| | 3,804 |
| | 2,087 |
| | 8,702 |
|
Interest expense, net | 47,741 |
| | 47,871 |
| | 147,138 |
| | 137,862 |
|
Loss on extinguishment of debt, net | — |
| | — |
| | 24,162 |
| | 2,461 |
|
General and administrative expense | 11,655 |
| | 11,928 |
| | 38,808 |
| | 35,343 |
|
Equity in (income) loss of unconsolidated real estate entities | (52,568 | ) | | 342 |
| | (70,386 | ) | | (54,779 | ) |
Depreciation expense | 144,990 |
| | 131,729 |
| | 427,050 |
| | 391,414 |
|
Income tax expense | 24 |
| | 22 |
| | 102 |
| | 95 |
|
Casualty and impairment loss (gain), net | — |
| | — |
| | 11,688 |
| | (3,935 | ) |
Gain on sale of real estate | (27,618 | ) | | (212,941 | ) | | (160,000 | ) | | (295,503 | ) |
Net operating income from real estate assets sold or held for sale | (1,874 | ) | | (10,039 | ) | | (9,633 | ) | | (33,175 | ) |
Net operating income | $ | 378,591 |
| | $ | 345,196 |
| | $ | 1,102,939 |
| | $ | 1,030,515 |
|
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 ended June 30, | | For the six months ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Rental income from real estate assets sold or held for sale | $ | 5,989 | | | $ | 18,203 | | | $ | 12,649 | | | $ | 39,023 | |
Operating expenses from real estate assets sold or held for sale | (2,012) | | | (5,951) | | | (3,868) | | | (13,502) | |
Net operating income from real estate assets sold or held for sale | $ | 3,977 | | | $ | 12,252 | | | $ | 8,781 | | | $ | 25,521 | |
|
| | | | | | | | | | | | | | | |
| For the three months ended | | For the nine months ended |
| 9/30/2017 | | 9/30/2016 | | 9/30/2017 | | 9/30/2016 |
Rental income from real estate assets sold or held for sale | $ | 3,044 |
| | $ | 16,388 |
| | $ | 15,582 |
| | $ | 53,582 |
|
Operating expenses from real estate assets sold or held for sale | (1,170 | ) | | (6,349 | ) | | (5,949 | ) | | (20,407 | ) |
Net operating income from real estate assets sold or held for sale | $ | 1,874 |
| | $ | 10,039 |
| | $ | 9,633 |
| | $ | 33,175 |
|
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.January 1, 2023. Segment information for total revenue and NOI for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 has been adjusted to exclude the real estate assets that were sold from January 1, 20162022 through SeptemberJune 30, 2017,2023, or otherwise qualify as held for sale as of SeptemberJune 30, 2017,2023, as described in Note 6, "Real Estate Disposition Activities." Segment information for
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended | | For the six months ended | | |
| Total revenue | | NOI | | Total revenue | | NOI | | Gross real estate (1) |
For the period ended June 30, 2023 | | | | | | |
Same Store | | | | | | | | | |
New England | $ | 91,269 | | | $ | 61,570 | | | $ | 180,732 | | | $ | 120,976 | | | $ | 2,906,134 | |
Metro NY/NJ | 133,790 | | | 91,850 | | | 266,285 | | | 183,903 | | | 4,477,824 | |
Mid-Atlantic | 92,494 | | | 63,849 | | | 182,367 | | | 127,015 | | | 3,417,578 | |
Southeast Florida | 18,809 | | | 12,342 | | | 38,119 | | | 25,274 | | | 800,150 | |
Denver, CO | 7,036 | | | 4,821 | | | 13,882 | | | 9,765 | | | 321,900 | |
Pacific Northwest | 43,128 | | | 30,601 | | | 85,789 | | | 61,030 | | | 1,538,635 | |
Northern California | 106,960 | | | 76,678 | | | 212,104 | | | 151,466 | | | 3,777,499 | |
Southern California | 137,441 | | | 94,965 | | | 270,540 | | | 185,947 | | | 4,784,990 | |
Other Expansion Regions | 5,963 | | | 4,027 | | | 11,823 | | | 8,103 | | | 327,216 | |
Total Same Store | 636,890 | | | 440,703 | | | 1,261,641 | | | 873,479 | | | 22,351,926 | |
| | | | | | | | | |
Other Stabilized | 32,240 | | | 22,319 | | | 63,972 | | | 44,667 | | | 1,522,042 | |
Development / Redevelopment | 13,029 | | | 7,998 | | | 23,529 | | | 14,235 | | | 1,973,380 | |
Land Held for Development | N/A | | N/A | | N/A | | N/A | | 195,115 | |
Non-allocated (2) | 2,712 | | | N/A | | 3,778 | | | N/A | | 131,121 | |
| | | | | | | | | |
Total | $ | 684,871 | | | $ | 471,020 | | | $ | 1,352,920 | | | $ | 932,381 | | | $ | 26,173,584 | |
| | | | | | | | | |
For the period ended June 30, 2022 | | | | | | |
Same Store | | | | | | | | | |
New England | $ | 84,243 | | | $ | 56,444 | | | $ | 164,414 | | | $ | 108,137 | | | $ | 2,873,720 | |
Metro NY/NJ | 123,855 | | | 85,874 | | | 242,497 | | | 167,369 | | | 4,443,758 | |
Mid-Atlantic | 86,609 | | | 59,453 | | | 169,988 | | | 116,712 | | | 3,378,869 | |
Southeast Florida | 17,034 | | | 10,799 | | | 33,493 | | | 21,281 | | | 794,486 | |
Denver, CO | 6,663 | | | 4,900 | | | 12,978 | | | 9,627 | | | 321,043 | |
Pacific Northwest | 41,189 | | | 29,594 | | | 80,040 | | | 57,071 | | | 1,528,734 | |
Northern California | 100,888 | | | 72,166 | | | 197,993 | | | 140,919 | | | 3,738,969 | |
Southern California | 133,920 | | | 95,471 | | | 258,890 | | | 181,918 | | | 4,729,905 | |
Other Expansion Regions | 5,427 | | | 3,763 | | | 10,626 | | | 7,366 | | | 322,069 | |
Total Same Store | 599,828 | | | 418,464 | | | 1,170,919 | | | 810,400 | | | 22,131,553 | |
| | | | | | | | | |
Other Stabilized | 19,078 | | | 13,326 | | | 34,291 | | | 24,063 | | | 1,129,359 | |
Development / Redevelopment | 6,546 | | | 3,895 | | | 12,597 | | | 7,943 | | | 1,125,990 | |
Land Held for Development | N/A | | N/A | | N/A | | N/A | | 194,458 | |
Non-allocated (2) | 904 | | | N/A | | 1,656 | | | N/A | | 116,678 | |
| | | | | | | | | |
Total | $ | 626,356 | | | $ | 435,685 | | | $ | 1,219,463 | | | $ | 842,406 | | | $ | 24,698,038 | |
(1)Does not include gross real estate assets held for sale of $106,098 as of SeptemberJune 30, 20172023 and 2016 has not been adjusted to excludegross real estate assets that wereeither sold or otherwise qualifiedclassified as held for sale subsequent to the respective balance sheet dates.June 30, 2022 of $462,673.
(2)Revenue represents third-party property management, developer fees and miscellaneous income and other ancillary items which are not allocated to a reportable segment.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended | | For the nine months ended | | |
| Total revenue | | NOI | | % NOI change from prior year | | Total revenue | | NOI | | % NOI change from prior year | | Gross real estate (1) |
For the period ended September 30, 2017 | | |
| | | | | | | | |
|
Established | |
| | |
| | |
| | | | | | | | |
|
New England | $ | 58,941 |
| | $ | 38,055 |
| | 3.0 | % | | $ | 174,348 |
| | $ | 111,931 |
| | 2.6 | % | | $ | 1,846,937 |
|
Metro NY/NJ | 91,699 |
| | 61,932 |
| | 1.6 | % | | 271,262 |
| | 184,434 |
| | 2.0 | % | | 2,969,873 |
|
Mid-Atlantic | 56,321 |
| | 38,782 |
| | 1.8 | % | | 168,098 |
| | 116,272 |
| | 1.8 | % | | 2,069,486 |
|
Pacific Northwest | 21,528 |
| | 15,687 |
| | 5.1 | % | | 62,773 |
| | 45,519 |
| | 5.4 | % | | 734,407 |
|
Northern California | 84,634 |
| | 64,557 |
| | 1.3 | % | | 251,985 |
| | 192,861 |
| | 1.9 | % | | 2,824,608 |
|
Southern California | 85,226 |
| | 60,024 |
| | 2.3 | % | | 252,229 |
| | 180,383 |
| | 4.3 | % | | 3,013,215 |
|
Total Established | 398,349 |
| | 279,037 |
| | 2.1 | % | | 1,180,695 |
| | 831,400 |
| | 2.7 | % | | 13,458,526 |
|
| | | | | | | | | | | | | |
Other Stabilized (2) | 71,150 |
| | 49,177 |
| | N/A |
| | 208,729 |
| | 146,242 |
| | N/A |
| | 3,086,022 |
|
Development / Redevelopment | 76,964 |
| | 50,377 |
| | N/A |
| | 195,041 |
| | 125,297 |
| | N/A |
| | 4,766,894 |
|
Land Held for Development | N/A |
| | N/A |
| | N/A |
| | N/A |
| | N/A |
| | N/A |
| | 85,863 |
|
Non-allocated (3) | 993 |
| | N/A |
| | N/A |
| | 3,290 |
| | N/A |
| | N/A |
| | 95,621 |
|
| | | | | | | | | | | | | |
Total | $ | 547,456 |
| | $ | 378,591 |
| | 9.7 | % | | $ | 1,587,755 |
| | $ | 1,102,939 |
| | 7.0 | % | | $ | 21,492,926 |
|
| | | | | | | | | | | | | |
For the period ended September 30, 2016 | | |
| | | | | | | | |
|
Established | |
| | |
| | |
| | | | | | | | |
|
New England | $ | 59,321 |
| | $ | 37,657 |
| | 0.6 | % | | $ | 174,731 |
| | $ | 111,497 |
| | 5.9 | % | | $ | 1,845,679 |
|
Metro NY/NJ | 91,181 |
| | 61,905 |
| | 1.2 | % | | 268,781 |
| | 183,155 |
| | 1.8 | % | | 3,206,696 |
|
Mid-Atlantic | 58,928 |
| | 40,029 |
| | 0.4 | % | | 174,922 |
| | 120,623 |
| | 1.4 | % | | 2,335,116 |
|
Pacific Northwest | 18,627 |
| | 13,541 |
| | 12.1 | % | | 54,085 |
| | 39,165 |
| | 8.1 | % | | 736,377 |
|
Northern California | 80,783 |
| | 61,560 |
| | 5.9 | % | | 238,867 |
| | 182,658 |
| | 8.0 | % | | 2,657,020 |
|
Southern California | 73,570 |
| | 52,527 |
| | 11.1 | % | | 217,686 |
| | 155,242 |
| | 10.3 | % | | 2,667,875 |
|
Total Established | 382,410 |
| | 267,219 |
| | 4.4 | % | | 1,129,072 |
| | 792,340 |
| | 4.4 | % | | 13,448,763 |
|
| | | | | | | | | | | | | |
Other Stabilized (4) | 52,971 |
| | 34,653 |
| | N/A |
| | 175,186 |
| | 125,027 |
| | N/A |
| | 2,325,539 |
|
Development / Redevelopment | 63,122 |
| | 43,324 |
| | N/A |
| | 164,865 |
| | 113,148 |
| | N/A |
| | 3,994,361 |
|
Land Held for Development | N/A |
| | N/A |
| | N/A |
| | N/A |
| | N/A |
| | N/A |
| | 519,626 |
|
Non-allocated (3) | 1,320 |
| | N/A |
| | N/A |
| | 4,310 |
| | N/A |
| | N/A |
| | 74,374 |
|
| | | | | | | | | | | | | |
Total | $ | 499,823 |
| | $ | 345,196 |
| | 20.2 | % | | $ | 1,473,433 |
| | $ | 1,030,515 |
| | 37.3 | % | | $ | 20,362,663 |
|
18
| |
(1) | Does not include gross real estate assets held for sale of $53,723 and $135,054 as of September 30, 2017 and 2016, respectively. |
| |
(2) | Total revenue and NOI for the three and nine months ended September 30, 2017 includes $3,495 in business interruption insurance proceeds related to the Maplewood casualty loss. |
| |
(3) | Revenue represents third-party management, asset management and developer fees and miscellaneous income which are not allocated to a reportable segment. |
| |
(4) | Total revenue and NOI for the nine months ended September 30, 2016 includes $20,306 in business interruption insurance proceeds related to the Edgewater casualty loss. |
8. 9. Stock-Based Compensation Plans
As part of its long termlong-term compensation plans, the Company has granted stock options, performance awards and restricted stock. Detailstock under the 2009 Plan. Details of the outstanding awards and activity isunder the 2009 Plan for the six months ended June 30, 2023 are presented below.
Information with respectStock Options:
| | | | | | | | | | | | | | |
| | Options | | Weighted average exercise price per option |
Options Outstanding at December 31, 2022 | | 293,813 | | | $ | 181.85 | |
Granted (1) | | 15,744 | | | 177.83 | |
Exercised | | (5,773) | | | 163.56 | |
Forfeited | | — | | | — | |
Options Outstanding at June 30, 2023 | | 303,784 | | | $ | 181.99 | |
Options Exercisable at June 30, 2023 | | 279,894 | | | $ | 180.97 | |
(1)Grants are from recipient elections to receive a portion of earned restricted stock options granted underawards in the form of stock options.
Performance Awards:
| | | | | | | | | | | | | | |
| | Performance awards | | Weighted average grant date fair value per award (1) |
Outstanding at December 31, 2022 | | 279,067 | | | $ | 225.46 | |
Granted (2) | | 89,977 | | | 193.88 | |
Change in awards based on performance (3) | | (31,345) | | | 241.49 | |
Converted to shares of common stock | | (60,016) | | | 238.71 | |
Forfeited | | (2,719) | | | 212.05 | |
Outstanding at June 30, 2023 | | 274,964 | | | $ | 210.54 | |
(1)Weighted average grant date fair value per award includes the impact of post grant modifications.
(2)The shares of common stock that may be earned is based on the total shareholder return metrics for the Company's 1994 Stock Option and Incentive Plan (the "1994 Plan") and its Second Amended and Restated 2009 Equity Incentive Plan (the "2009 Plan")common stock for the nine months ended September 30, 2017, is as follows:
|
| | | | | | | | | | | | | | |
| | 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 |
|
Exercised | | (27,360 | ) | | 110.47 |
| | (13,763 | ) | | 96.61 |
|
Forfeited | | — |
| | — |
| | — |
| | — |
|
Options Outstanding, September 30, 2017 (1) | | 149,973 |
| | $ | 126.77 |
| | 8,778 |
| | $ | 48.60 |
|
| |
(1) | All options outstanding are exercisable as of September 30, 2017. |
Information with respect to49,480 performance awards granted is as follows:and financial metrics related to operating performance and leverage metrics of the Company for 40,497 performance awards.
|
| | | | | | | |
| | Performance awards | | Weighted average grant date fair value per award |
Outstanding at December 31, 2016 | | 251,163 |
| | $ | 136.74 |
|
Granted (1) | | 81,708 |
| | 176.59 |
|
Change in awards based on performance (2) | | 49,323 |
| | 119.26 |
|
Converted to restricted stock | | (128,482 | ) | | 118.75 |
|
Forfeited | | (1,942 | ) | | 159.39 |
|
Outstanding at September 30, 2017 | | 251,770 |
| | $ | 155.25 |
|
(3)Represents the change in the number of performance awards earned based on performance achievement.
| |
(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 49,374 performance awards and financial metrics related to operating performance and leverage metrics of the Company for 32,334 performance awards. |
| |
(2) | Represents the change in the number of performance awards earned based on actual performance 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 2017 for which achievement will be determined by using total shareholder return measures. TheFor the awards granted in 2023, the assumptions used are as follows:
| | | | | | | | |
| | 2023 |
Dividend yield | | 20173.7% |
Dividend yield | | 3.2% |
Estimated volatility over the life of the plan (1) | | 15.3%22.9% - 19.7%26.1% |
Risk free rate | | 0.69%4.35% - 1.61%4.61% |
Estimated performance award value based on total shareholder return measure | | $175.86206.97 |
__________________________________
(1)Estimated volatility over the life of the plan is using 50% historical volatility and 50% implied volatility.
| |
(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 2017,2023 for which achievement will be determined by using financial metrics, the compensation cost was based on thean average grant date fair value of $179.07,$177.85, 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 |
Outstanding at December 31, 2016 | | 136,705 |
| | $ | 158.51 |
| | 176,698 |
|
Granted - restricted stock shares | | 72,832 |
| | 179.58 |
| | 128,482 |
|
Vested - restricted stock shares | | (72,345 | ) | | 153.35 |
| | (70,595 | ) |
Forfeited | | (2,388 | ) | | 173.29 |
| | (657 | ) |
Outstanding at September 30, 2017 | | 134,804 |
| | $ | 172.39 |
| | 233,928 |
|
Restricted Stock: | | | | | | | | | | | | | | | | | | | | |
| | 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, 2022 | | 161,714 | | | $ | 210.97 | | | 26,370 | |
Granted | | 92,692 | | | 177.70 | | | — | |
Vested | | (76,870) | | | 208.78 | | | (26,370) | |
Forfeited | | (566) | | | 190.09 | | | — | |
Outstanding at June 30, 2023 | | 176,970 | | | $ | 194.57 | | | — | |
Total employee stock-based compensation cost recognized in income was $13,245,000$15,192,000 and $11,555,000$17,751,000 for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, respectively, and total capitalized stock-based compensation cost was $7,644,000$6,483,000 and $7,790,000$5,614,000 for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, respectively. At SeptemberJune 30, 2017,2023, there was a total unrecognized compensation cost of $31,278,000$44,587,000 for unvested restricted stock, stock options and performance awards, which does not include forfeitures, and is expected to be recognized over a weighted average period of 3.72.1 years. Forfeitures are included in compensation cost as they occur.
9. 10. Related Party Arrangements
Unconsolidated Entities
The Company manages unconsolidated real estate entities and may provide other real estate related services to third parties, for which it receives asset management, property management, construction, development and redevelopment fee revenue. From these entities, the Company earned fees of $993,000$2,712,000 and $1,320,000 during$904,000 for the three months ended SeptemberJune 30, 20172023 and 2016,2022, respectively, and $3,290,000$3,778,000 and $4,310,000$1,656,000 for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, 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 hashad outstanding receivables associated with its property and construction management roleroles of $2,663,000$3,387,000 and $5,239,000$2,855,000 as of SeptemberJune 30, 20172023 and December 31, 2016,2022, respectively.
Director Compensation
The Company recorded non-employee director compensation expense relating to restricted stock grants and deferred stock awardsunits in the amount of $368,000$631,000 and $260,000 in$575,000 for the three months ended SeptemberJune 30, 20172023 and 2016,2022, respectively, and $1,127,000$1,246,000 and $877,000 in$1,090,000 for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, respectively, as a component of general and administrative expense. Deferred compensation relating to these restricted stock grants and deferred stock awardsunits to non-employee directors was $782,000$1,766,000 and $531,000$794,000 on SeptemberJune 30, 20172023 and December 31, 2016, respectively.2022, respectively, reported as a component of prepaid expenses and other assets on the accompanying Condensed Consolidated Balance Sheets.
10. 11. Fair Value
Financial Instruments Carried at Fair Value
Derivative Financial Instruments
Currently, theThe Company uses interest rate swap and interest rate cap agreementsHedging Derivatives 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 CompanyGroup, and monitors the credit ratings of counterparties and the exposure of the Company to any single entity, thus reducing credit risk concentration.entity. 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 SeptemberJune 30, 2017,2023, 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.
The Company recognized a gain
The following table summarizes the consolidated derivative positions at SeptemberJune 30, 20172023 (dollars in thousands):
| | | Non-designated Hedges Interest Rate Caps | | Cash Flow Hedges Interest Rate Caps | | Cash Flow Hedges Interest Rate Swaps | | Non-designated Hedges | | Cash Flow Hedges | |
| | | | | | | Interest Rate Caps | | Interest Rate Swaps | |
Notional balance | $ | 690,053 |
| | $ | 35,256 |
| | $ | 300,000 |
| Notional balance | $ | 402,670 | | $ | 250,000 | |
Weighted average interest rate (1) | 2.7 | % | | 3.6 | % | | N/A |
| Weighted average interest rate (1) | 5.6 | % | | N/A | |
Weighted average swapped/capped interest rate | 6.1 | % | | 5.9 | % | | 2.4 | % | |
Weighted average capped/swapped interest rate | | Weighted average capped/swapped interest rate | 6.1 | % | | 3.1 | % | |
Earliest maturity date | Jan 2018 |
| | Apr 2019 |
| | May 2018 |
| Earliest maturity date | January 2024 | | December 2023 | |
Latest maturity date | Sep 2022 |
| | Apr 2019 |
| | May 2018 |
| Latest maturity date | November 2026 | | February 2024 | |
(1)For debt hedged by interest rate caps, represents the weighted average interest rate on the hedged debt prior to any impact of the associated interest rate caps.
| |
(1) | For interest rate caps, represents the weighted average interest rate on the hedged debt. |
During the three and ninesix months ended SeptemberJune 30, 2017,2023, the Company entered into $50,000,000 and $300,000,000,$250,000,000, respectively, of new forward interest rate swap agreements executed to reduce the impact of variability in interest rates on a portion of the Company's expectedanticipated future debt issuance activity in 2018. As of September 30, 2017, the Company has $300,000,000 in aggregate outstanding forward interest rate swap agreements. At maturity of the remaining outstanding swap agreements, the2023 and 2024. The Company expects to cash settle the contractsswaps 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.
As described in this paragraph, during the nine months ended September 30, 2017, the Company settled an aggregate of $800,000,000 of forward interest rate swap agreements, receiving net aggregate payments of $391,000. In conjunction with the refinancing of three secured borrowings in May 2017, in April 2017, the Company settled $185,100,000 of forward interest rate swap agreements designated as cash flow hedges of the interest rate variability of the secured notes, making a payment of $2,326,000. In conjunction with the Company's May 2017 unsecured note issuance, the Company settled $400,000,000 of forward interest rate swap agreements designated as cash flow hedges of the interest rate variability on the forecasted issuance of the unsecured notes, making a payment of $1,361,000. In conjunction with the Company's June 2017 unsecured note issuance, the Company settled $214,900,000 of forward interest rate swap agreements designated as cash flow hedges of the interest rate variability on the forecasted issuance of the unsecured notes, receiving a payment of $4,078,000. The Company has deferred $376,000, the effective portion of the fair value change of these swaps, in 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 10 year period of interest payments hedged.
Excluding derivatives executed to hedge secured debt on communities classified as held for sale, the Company had seven derivatives designated as cash flow hedges and 14five derivatives not designated as hedges at SeptemberJune 30, 2017. Fair2023 for which the fair value changes for derivatives not in qualifying hedge relationships for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 were not material. During the nine months ended September 30, 2017, the Company deferred $15,654,000 of losses for cash
Cash flow hedges reported as a component of other comprehensive loss.
The following table summarizes the deferredhedge losses reclassified from accumulated other comprehensive income as a component of interest expense, net (dollars in thousands):into earnings were $354,000 and $1,013,000 for the three months ended June 30, 2023 and 2022, respectively, and $708,000 and $2,026,000 for the six months ended June 30, 2023 and 2022, respectively.
|
| | | | | | | | | | | | | | | |
| For the three months ended | | For the nine months ended |
| 9/30/2017 | | 9/30/2016 | | 9/30/2017 | | 9/30/2016 |
| | | | | | | |
Cash flow hedge losses reclassified to earnings | $ | 1,767 |
| | $ | 1,748 |
| | $ | 5,301 |
| | $ | 4,682 |
|
The Company anticipates reclassifying approximately $7,012,000$1,415,000 of net hedging losses from accumulated other comprehensive lossincome into earnings within the next 12 months toas an offset the variability of cash flows ofto the hedged item during this period. The Company did not have any derivatives designated as fair value hedges as of September 30, 2017 and 2016.
Redeemable Noncontrolling Interests
The Company provided redemption options (the "Puts") that allow joint venture partnersDuring the three and six months ended June 30, 2023, 7,500 DownREIT units were redeemed with cash in conjunction with the sale of the Company to require the Company to purchase their interests in the investmentAvalon 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.Newton Highlands. Under the DownREIT agreements,agreement, 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 DownREITsDownREIT are valued using the market price of the Company's common stock, a Level 1 price under the fair value hierarchy.
Equity Securities
The Company has direct equity investments in property technology and environmentally focused companies. These investments are accounted for using the measurement alternative and are valued at the market price of observable transactions, a Level 2 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.accounts designed to preserve principal. 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 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 determined that its notes receivables approximate fair value, because interest rates, yields and other terms are consistent with interest rates, yields and other terms currently available for similar instruments and are considered to be a Level 2 price within the fair value hierarchy.
Indebtedness
The Company values its fixed rate unsecured notes using quoted market prices, a Level 1 price within the fair value hierarchy. The Company values its mortgage notes payable, variable rate unsecured notes, including the Term Loan, and any outstanding amounts under the Credit Facility and Term LoansCommercial Paper Program 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 mortgage notes payable, variable rate unsecured notes, Term Loan and any outstanding amounts outstanding under itsthe Credit Facility and Term LoansCommercial Paper Program 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):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2023 |
Description | | Total Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| | | |
Assets | | | | | | | | |
Investments | | | | | | | | |
Equity Securities | | $ | 28,926 | | | $ | — | | | $ | 28,926 | | | $ | — | |
Notes Receivable, net | | 59,071 | | | — | | | 59,071 | | | — | |
Non Designated Hedges | | | | | | | | |
Interest Rate Caps | | 264 | | | — | | | 264 | | | — | |
Interest Rate Swaps - Assets | | 8,486 | | | — | | | 8,486 | | | — | |
Total Assets | | $ | 96,747 | | | $ | — | | | $ | 96,747 | | | $ | — | |
| | | | | | | | |
Liabilities | | | | | | | | |
Indebtedness | | | | | | | | |
Fixed rate unsecured notes | | $ | 6,474,043 | | | $ | 6,474,043 | | | $ | — | | | $ | — | |
Mortgage notes payable, Commercial Paper Program and variable rate unsecured notes | | 763,708 | | | — | | | 763,708 | | | — | |
Total Liabilities | | $ | 7,237,751 | | | $ | 6,474,043 | | | $ | 763,708 | | | $ | — | |
|
| | | | | | | | | | | | | | | | |
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) |
| | | |
| | 9/30/2017 |
Non-Designated Hedges | | | | | | | | |
Interest Rate Caps | | $ | 14 |
| | $ | — |
| | $ | 14 |
| | $ | — |
|
Cash Flow Hedges | | | | | | | | |
Interest Rate Swaps - Assets | | 1,422 |
| | — |
| | 1,422 |
| | — |
|
Interest Rate Swaps - Liabilities | | (1,998 | ) | | — |
| | (1,998 | ) | | — |
|
Puts | | (5,928 | ) | | — |
| | — |
| | (5,928 | ) |
DownREIT units | | (1,338 | ) | | (1,338 | ) | | — |
| | — |
|
Indebtedness | | | | | | | | |
Unsecured notes | | (4,999,985 | ) | | (4,999,985 | ) | | — |
| | — |
|
Secured notes payable and unsecured term loan | | (2,098,870 | ) | | — |
| | (2,098,870 | ) | | — |
|
Total | | $ | (7,106,683 | ) | | $ | (5,001,323 | ) | | $ | (2,099,432 | ) | | $ | (5,928 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
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) |
| | | |
Assets | | | | | | | | |
Investments | | | | | | | | |
Equity Securities | | $ | 27,027 | | | $ | — | | | $ | 27,027 | | | $ | — | |
Notes Receivable, net | | 28,860 | | | — | | | 28,860 | | | — | |
Non Designated Hedges | | | | | | | | |
Interest Rate Caps | | 455 | | | — | | | 455 | | | — | |
Total Assets | | $ | 56,342 | | | — | | | 56,342 | | | — | |
| | | | | | | | |
Liabilities | | | | | | | | |
DownREIT units | | $ | 1,211 | | | $ | 1,211 | | | $ | — | | | $ | — | |
Indebtedness | | | | | | | | |
Fixed rate unsecured notes | | 6,653,681 | | | 6,653,681 | | | — | | | — | |
Mortgage notes payable, Commercial Paper Program and variable rate unsecured notes | | 768,984 | | | — | | | 768,984 | | | — | |
Total Liabilities | | $ | 7,423,876 | | | $ | 6,654,892 | | | $ | 768,984 | | | $ | — | |
|
| | | | | | | | | | | | | | | | |
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) |
| | | |
| | 12/31/2016 |
Non-Designated Hedges | | | | | | | | |
Interest Rate Caps | | $ | 79 |
| | $ | — |
| | $ | 79 |
| | $ | — |
|
Cash Flow Hedges | | | | | | | | |
Interest Rate Caps | | 2 |
| | — |
| | 2 |
| | — |
|
Interest Rate Swaps - Assets | | 14,775 |
| | — |
| | 14,775 |
| | — |
|
Puts | | (6,002 | ) | | — |
| | — |
| | (6,002 | ) |
DownREIT units | | (1,329 | ) | | (1,329 | ) | | — |
| | — |
|
Indebtedness | | | | | | | | |
Unsecured notes | | (4,218,627 | ) | | (4,218,627 | ) | | — |
| | — |
|
Secured notes payable and unsecured term loan | | (2,744,462 | ) | | — |
| | (2,744,462 | ) | | — |
|
Total | | $ | (6,955,564 | ) | | $ | (4,219,956 | ) | | $ | (2,729,606 | ) | | $ | (6,002 | ) |
11. 12. 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 October 2017,July 2023, the Company:
entered into an agreement to sell an operating community containing 99Company sold Avalon Columbia Pike, located in Arlington, VA. Avalon Columbia Pike contains 269 apartment homes and net real estate27,000 square feet of $19,243,000 as of September 30, 2017, resulting in the community qualifyingcommercial space and was sold for $105,000,000 and was classified as held for sale. The Company expects to complete the sale in the fourth quarteras of 2017;June 30, 2023.
obtained a variable rate secured note in the amount
sold Avalon Run East, a wholly-owned operating community located in Lawrenceville, NJ, containing 312 apartment homes, for a sale price of $87,500,000.
| |
ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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 Part I, Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 20162022 (the "Form 10-K"). and in Part II, Item 1A. "Risk Factors" in this report.
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.California, as well as in our expansion regions of Raleigh-Durham and Charlotte, North Carolina, Southeast Florida, Dallas and Austin, Texas, and Denver, Colorado. We focus on leading metropolitan areas that we believe are characterized by growing employment in high wage sectors of the economy, lower housing affordabilityhigher cost of home ownership and a diverse and vibrant quality of life. We believe these market characteristics have offered, and will continue to offer, the opportunity for superior risk-adjusted returns over the long-term 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;capital; deploying that capital to develop, redevelop and acquire apartment communities in our selected markets; leveraging our strong operating organization, our culture, our scale and our competencies in technology and data science, to operate 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 beingwith 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 market allocation of our investments by the amountcurrent market value and share of invested capitaltotal revenue and by product type within our individual markets.NOI, as well as relative asset value and submarket positioning.
ThirdSecond Quarter 20172023 Operating Highlights
•Net income attributable to common stockholders for the three months ended SeptemberJune 30, 20172023 was $238,248,000, a decrease$367,923,000, an increase of $118,144,000,$229,232,000, or 33.2%165.3%, as compared tofrom the prior year period. The decreaseincrease is primarily dueattributable to a decreaseincreases in gains on the sale of consolidated real estate and an increase in depreciation, partially offset by an increase in joint venture real estate sales and related gains including our promoted interest,and NOI from communities over the prior year period.
Established Communities•Same Store NOI attributable to our apartment rental operations, including parking and other ancillary residential revenue ("Residential"), for the three months ended SeptemberJune 30, 20172023 was $279,037,000,$435,057,000, an increase of $5,741,000,$22,207,000, or 2.1%5.4%, over the prior year period. ThisThe increase over the prior year period was driven bydue to an increase in Residential rental revenue of 2.2%$37,080,000, or 6.3%, partially offset by an increase in Residential property operating expenses of 2.4% compared to the prior year period.$14,769,000, or 8.2%.
During the three months ended SeptemberSecond Quarter 2023 Development Highlights
At June 30, 2017, we completed the construction of one community, containing 331 apartment homes for an aggregate total capitalized cost of $96,600,000. At September 30, 2017,2023, we owned or held a direct or indirect interest in 23in:
•17 wholly-owned communities under construction, which are expected to contain 6,8885,761 apartment homes with a projected total capitalized cost of $3,247,000,000, including the$2,293,000,000, and one unconsolidated community under construction, which is expected to contain 475 apartment homes with a projected 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 September 30, 2017, we held a direct or indirect ownership interest in land$288,000,000.
•Land or rights to land on which we expect to develop an additional 2543 apartment communities that, if developed as expected, will contain 8,39214,993 apartment homes and will be developed for an aggregate projected total capitalized cost of $3,206,000,000.$6,795,000,000.
Second Quarter 2023 Real Estate Transaction Highlights
During the three months ended SeptemberJune 30, 2017,2023, we sold two wholly-owned communities containing 489 apartment homes for $237,000,000 for a gain in accordance with GAAP of $187,341,000.
In addition, in July 2023, we sold Avalon Danbury, a wholly-owned operating communityColumbia Pike, located in Danbury, CT, containing 234 apartment homes.Arlington, VA. Avalon Danbury was sold for $52,000,000 and our gain on the disposition was $27,829,000.
In September 2017, we acquired two wholly-owned operating communities:
The Lodge Denver West, located in Lakewood, CO,Columbia Pike contains 252 apartment homes and was acquired for a purchase price of $76,750,000. The acquisition marked our entry in to the Denver metropolitan area.
Avalon Dunn Loring, located in Vienna, VA, contains 440269 apartment homes and 27,000 square feet of retailcommercial space and was acquiredsold for $151,000,000.$105,000,000.
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; 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".
Communities Overview
Our real estate investments consist primarily of current operating apartment communities ("Current Communities"), consolidated and unconsolidated communities in various stages of development ("Development Communities")Development" communities and "Unconsolidated Development" communities) and Development Rights (as defined below). Our current operating communitiesCurrent Communities are further distinguishedclassified as Established Communities,Same Store communities, Other Stabilized Communities, Lease-Up Communities,communities, Redevelopment Communitiescommunities and Unconsolidated Communities.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.change. The following is a description of each category:
Current Communities are categorized as Established,Same Store, Other Stabilized, Lease-Up, Redevelopment, or Unconsolidated according to the following attributes:
Established Communities (also known as •Same Store Communities) are is composed of 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 ninesix month periods ended SeptemberJune 30, 20172023 and 2016, the Established Communities are2022, Same Store communities that are consolidated for financial reporting purposes, had stabilized occupancy as of January 1, 2016,2022, are not conducting or planningare not probable to conduct substantial redevelopment activities and are not held for sale as of June 30, 2023 or plannedprobable for disposition to unrelated third parties within the current year. A community is considered to have stabilized occupancy at the earlier of (i) attainment of 95%90% physical occupancy or (ii) the one-year anniversary of completion of development or redevelopment.
•Other Stabilized Communities are all otheris composed of completed consolidated communities that we own and that are not Same Store but which have stabilized occupancy, as defined above, as of the beginning of the current calendar year.January 1, 2023, or which were acquired subsequent to January 1, 2022. Other Stabilized Communities do not includeexcludes communities that are conducting or planningare probable to conduct substantial redevelopment activities within the current year.
year, as defined below.
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 areis composed of consolidated communities where substantial redevelopment is in progress or is plannedprobable to begin during the current year. Redevelopment is considered substantial when (i) 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 (ii) physical occupancy is below or is expected to havebe below 90% during, or as a material impact on the operationsresult of, the community, including occupancy levels and future rental rates.
redevelopment activity.
•Unconsolidated Communities areis composed of communities that we have an indirect ownership interest in through our investment interest in an unconsolidated joint venture.
Development Communities are is composed of consolidated communities that are either currently under construction, were under construction and were completed during the current year or where construction has been complete for which a certificate or certificatesless than one year and that did not have stabilized occupancy as of occupancy for the entire community have not been received.January 1, 2023. These communities may be partially or fully complete and operating.
Unconsolidated Development is composed of communities that are either currently under construction, or were under construction and were completed during the current year, in which we have an indirect ownership interest through our investment interest in an unconsolidated joint venture. These communities may be partially or fully 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 SeptemberJune 30, 2017,2023, communities that we owned or held a direct or indirect interest in were classified as follows:
| | | | | | | | | | | | | | |
| | Number of communities | | Number of apartment homes |
Current Communities | | | | |
| | | | |
Same Store: | | | | |
New England | | 39 | | | 9,577 | |
Metro NY/NJ | | 42 | | | 12,995 | |
Mid-Atlantic | | 39 | | | 13,301 | |
Southeast Florida | | 7 | | | 2,187 | |
Denver, CO | | 4 | | | 1,086 | |
Pacific Northwest | | 20 | | | 5,474 | |
Northern California | | 40 | | | 12,133 | |
Southern California | | 58 | | | 17,277 | |
Other Expansion Regions | | 4 | | | 925 | |
Total Same Store | | 253 | | | 74,955 | |
| | | | |
Other Stabilized: | | | | |
New England | | 1 | | | 350 | |
Metro NY/NJ | | — | | | — | |
Mid-Atlantic | | 4 | | | 1,450 | |
Southeast Florida | | 1 | | | 650 | |
Denver, CO | | 2 | | | 453 | |
Pacific Northwest | | — | | | — | |
Northern California | | — | | | — | |
Southern California | | 1 | | | 653 | |
Other Expansion Regions | | 2 | | | 456 | |
Total Other Stabilized | | 11 | | | 4,012 | |
| | | | |
Redevelopment | | 1 | | | 714 | |
| | | | |
Unconsolidated | | 8 | | | 2,247 | |
| | | | |
Total Current | | 273 | | | 81,928 | |
| | | | |
Development | | 20 | | | 6,256 | |
| | | | |
Unconsolidated Development | | 1 | | | 475 | |
| | | | |
Total Communities | | 294 | | | 88,659 | |
| | | | |
Development Rights | | 43 | | | 14,993 | |
|
| | | | | | |
| | Number of communities | | Number of apartment homes |
| | | | |
Current Communities | | |
| | |
|
| | | | |
Established Communities: | | |
| | |
|
New England | | 37 |
| | 8,397 |
|
Metro NY/NJ | | 35 |
| | 10,371 |
|
Mid-Atlantic | | 26 |
| | 9,126 |
|
Pacific Northwest | | 13 |
| | 3,305 |
|
Northern California | | 35 |
| | 10,321 |
|
Southern California | | 45 |
| | 13,330 |
|
Total Established | | 191 |
| | 54,850 |
|
| | | | |
Other Stabilized Communities: | | |
| | |
|
New England | | 7 |
| | 1,868 |
|
Metro NY/NJ | | 9 |
| | 2,402 |
|
Mid-Atlantic | | 8 |
| | 3,456 |
|
Pacific Northwest | | 2 |
| | 373 |
|
Northern California | | 4 |
| | 1,279 |
|
Southern California | | 9 |
| | 1,755 |
|
Non Core | | 4 |
| | 1,266 |
|
Total Other Stabilized | | 43 |
| | 12,399 |
|
| | | | |
Lease-Up Communities | | 8 |
| | 2,868 |
|
| | | | |
Redevelopment Communities (1) | | 10 |
| | 3,343 |
|
| | | | |
Unconsolidated Communities | | 11 |
| | 2,616 |
|
| | | | |
Total Current Communities | | 263 |
| | 76,076 |
|
| | | | |
Development Communities (2) | | 23 |
| | 6,888 |
|
| | | | |
Total Communities | | 286 |
| | 82,964 |
|
| | | | |
Development Rights | | 25 |
| | 8,392 |
|
_________________________
| |
(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;Same Store NOI; NOI derived from acquisitions, development completions and development completions; theunder construction and in lease-up; loss of NOI related to disposed communities; and capital market and financing activity. A comparison of our operating results for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 is as follows (unaudited, dollars in thousands):.
| | | For the three months ended | | For the nine months ended | | For the three months ended June 30, | | June 30, 2023 vs. 2022 | | For the six months ended June 30, | | June 30, 2023 vs. 2022 |
| 9/30/2017 | | 9/30/2016 | | $ Change | | % Change | | 9/30/2017 | | 9/30/2016 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenue: | |
| | |
| | |
| | |
| | | | | | | | | Revenue: | | | | | | | | |
Rental and other income | $ | 549,507 |
| | $ | 514,891 |
| | $ | 34,616 |
| | 6.7 | % | | $ | 1,600,047 |
| | $ | 1,522,705 |
| | $ | 77,342 |
| | 5.1 | % | Rental and other income | $ | 688,148 | | | $ | 643,655 | | | $ | 44,493 | | | 6.9 | % | | $ | 1,361,791 | | | $ | 1,256,830 | | | $ | 104,961 | | | 8.4 | % |
Management, development and other fees | 993 |
| | 1,320 |
| | (327 | ) | | (24.8 | )% | | 3,290 |
| | 4,310 |
| | (1,020 | ) | | (23.7 | )% | Management, development and other fees | 2,712 | | | 904 | | | 1,808 | | | 200.0 | % | | 3,778 | | | 1,656 | | | 2,122 | | | 128.1 | % |
Total revenue | 550,500 |
| | 516,211 |
| | 34,289 |
| | 6.6 | % | | 1,603,337 |
| | 1,527,015 |
| | 76,322 |
| | 5.0 | % | Total revenue | 690,860 | | | 644,559 | | | 46,301 | | | 7.2 | % | | 1,365,569 | | | 1,258,486 | | | 107,083 | | | 8.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses: | |
| | |
| | |
| | |
| | | | | | | | | Expenses: | | | | | | | | |
Direct property operating expenses, excluding property taxes | 111,330 |
| | 107,298 |
| | 4,032 |
| | 3.8 | % | | 323,263 |
| | 305,423 |
| | 17,840 |
| | 5.8 | % | Direct property operating expenses, excluding property taxes | 138,163 | | | 124,848 | | | 13,315 | | | 10.7 | % | | 271,144 | | | 247,309 | | | 23,835 | | | 9.6 | % |
Property taxes | 57,698 |
| | 52,338 |
| | 5,360 |
| | 10.2 | % | | 164,195 |
| | 153,512 |
| | 10,683 |
| | 7.0 | % | Property taxes | 74,987 | | | 70,865 | | | 4,122 | | | 5.8 | % | | 149,483 | | | 141,603 | | | 7,880 | | | 5.6 | % |
Total community operating expenses | 169,028 |
| | 159,636 |
| | 9,392 |
| | 5.9 | % | | 487,458 |
| | 458,935 |
| | 28,523 |
| | 6.2 | % | Total community operating expenses | 213,150 | | | 195,713 | | | 17,437 | | | 8.9 | % | | 420,627 | | | 388,912 | | | 31,715 | | | 8.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate-level property management and other indirect operating expenses | 16,759 |
| | 16,286 |
| | 473 |
| | 2.9 | % | | 51,779 |
| | 51,350 |
| | 429 |
| | 0.8 | % | Corporate-level property management and other indirect operating expenses | (31,685) | | | (31,541) | | | (144) | | | 0.5 | % | | (63,536) | | | (60,392) | | | (3,144) | | | 5.2 | % |
Investments and investment management expense | 1,501 |
| | 1,205 |
| | 296 |
| | 24.6 | % | | 4,277 |
| | 3,545 |
| | 732 |
| | 20.6 | % | |
Expensed acquisition, development and other pursuit costs, net of recoveries | 789 |
| | 3,804 |
| | (3,015 | ) | | (79.3 | )% | | 2,087 |
| | 8,702 |
| | (6,615 | ) | | (76.0 | )% | |
Expensed transaction, development and other pursuit costs, net of recoveries | | Expensed transaction, development and other pursuit costs, net of recoveries | (1,261) | | | (2,364) | | | 1,103 | | | (46.7) | % | | (4,253) | | | (3,351) | | | (902) | | | 26.9 | % |
Interest expense, net | 47,741 |
| | 47,871 |
| | (130 | ) | | (0.3 | )% | | 147,138 |
| | 137,862 |
| | 9,276 |
| | 6.7 | % | Interest expense, net | (51,585) | | | (58,797) | | | 7,212 | | | (12.3) | % | | (108,406) | | | (115,323) | | | 6,917 | | | (6.0) | % |
Loss on extinguishment of debt, net | — |
| | — |
| | — |
| | — | % | | 24,162 |
| | 2,461 |
| | 21,701 |
| | 881.8 | % | |
Depreciation expense | 144,990 |
| | 131,729 |
| | 13,261 |
| | 10.1 | % | | 427,050 |
| | 391,414 |
| | 35,636 |
| | 9.1 | % | Depreciation expense | (200,546) | | | (199,302) | | | (1,244) | | | 0.6 | % | | (405,289) | | | (401,088) | | | (4,201) | | | 1.0 | % |
General and administrative expense | 11,655 |
| | 11,928 |
| | (273 | ) | | (2.3 | )% | | 38,808 |
| | 35,343 |
| | 3,465 |
| | 9.8 | % | General and administrative expense | (17,676) | | | (21,291) | | | 3,615 | | | (17.0) | % | | (38,076) | | | (38,712) | | | 636 | | | (1.6) | % |
Casualty and impairment loss (gain), net | — |
| | — |
| | — |
| | — | % | | 11,688 |
| | (3,935 | ) | | 15,623 |
| | N/A (1) |
| |
Total other expenses | 223,435 |
| | 212,823 |
| | 10,612 |
| | 5.0 | % | | 706,989 |
| | 626,742 |
| | 80,247 |
| | 12.8 | % | |
| | | | | | | | | | | | | | | | |
Equity in income (loss) of unconsolidated real estate entities | 52,568 |
| | (342 | ) | | 52,910 |
| | N/A (1) |
| | 70,386 |
| | 54,779 |
| | 15,607 |
| | 28.5 | % | |
Casualty loss | | Casualty loss | — | | | — | | | — | | | — | % | | (5,051) | | | — | | | (5,051) | | | (100.0) | % |
Income from unconsolidated investments | | Income from unconsolidated investments | 4,970 | | | 2,480 | | | 2,490 | | | 100.4 | % | | 9,815 | | | 2,797 | | | 7,018 | | | 250.9 | % |
Gain on sale of communities | 27,738 |
| | 202,163 |
| | (174,425 | ) | | (86.3 | )% | | 159,754 |
| | 284,582 |
| | (124,828 | ) | | (43.9 | )% | Gain on sale of communities | 187,322 | | | 404 | | | 186,918 | | | N/A (1) | | 187,309 | | | 149,204 | | | 38,105 | | | 25.5 | % |
(Loss) gain on sale of other real estate | (120 | ) | | 10,778 |
| | (10,898 | ) | | N/A (1) |
| | 246 |
| | 10,921 |
| | (10,675 | ) | | (97.7 | )% | |
Other real estate activity | | Other real estate activity | 341 | | | (28) | | | 369 | | | N/A (1) | | 470 | | | 245 | | | 225 | | | 91.8 | % |
Income before income taxes | 238,223 |
| | 356,351 |
| | (118,128 | ) | | (33.1 | )% | | 639,276 |
| | 791,620 |
| | (152,344 | ) | | (19.2 | )% | Income before income taxes | 367,590 | | | 138,407 | | | 229,183 | | | 165.6 | % | | 517,925 | | | 402,954 | | | 114,971 | | | 28.5 | % |
Income tax expense | 24 |
| | 22 |
| | 2 |
| | 9.1 | % | | 102 |
| | 95 |
| | 7 |
| | 7.4 | % | |
Income tax benefit (expense) | | Income tax benefit (expense) | 217 | | | 159 | | | 58 | | | 36.5 | % | | (3,343) | | | (2,312) | | | (1,031) | | | 44.6 | % |
Net income | 238,199 |
| | 356,329 |
| | (118,130 | ) | | (33.2 | )% | | 639,174 |
| | 791,525 |
| | (152,351 | ) | | (19.2 | )% | Net income | 367,807 | | | 138,566 | | | 229,241 | | | 165.4 | % | | 514,582 | | | 400,642 | | | 113,940 | | | 28.4 | % |
| | | | | | | | | | | | | | | | |
Net loss attributable to noncontrolling interests | 49 |
| | 63 |
| | (14 | ) | | (22.2 | )% | | 174 |
| | 242 |
| | (68 | ) | | (28.1 | )% | Net loss attributable to noncontrolling interests | 116 | | | 125 | | | (9) | | | (7.2) | % | | 243 | | | 93 | | | 150 | | | 161.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income attributable to common stockholders | $ | 238,248 |
| | $ | 356,392 |
| | $ | (118,144 | ) | | (33.2 | )% | | $ | 639,348 |
| | $ | 791,767 |
| | $ | (152,419 | ) | | (19.3 | )% | Net income attributable to common stockholders | $ | 367,923 | | | $ | 138,691 | | | $ | 229,232 | | | 165.3 | % | | $ | 514,825 | | | $ | 400,735 | | | $ | 114,090 | | | 28.5 | % |
_________________________
| |
(1) | Percent change is not meaningful. |
(1)Percent change is not meaningful.
Net income attributable to common stockholders decreased $118,144,000, increased $229,232,000, or 33.2%165.3%, to $238,248,000$367,923,000 and $114,090,000, or 28.5%, to $514,825,000 for the three and six months ended SeptemberJune 30, 2017 and $152,419,000, or 19.3%, to $639,348,000 for the nine months ended September 30, 20172023, respectively, as compared to the respective prior year periods. The decreases for the three and nine months ended September 30, 2017 areperiods, primarily due to decreases in gains on the sale of consolidated real estate and increases in depreciation, partially offset by increases in NOI, joint venture real estate sales and related gains including our promoted interest,and NOI from communities over the prior year periods. The decrease for the nine months ended September 30, 2017 is also due to an increase in debt extinguishment losses and a casualty and impairment loss in the current year period as compared to a gain 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,transaction, development and other pursuit costs, net of recoveries, interest expense, net, loss on extinguishment of debt, net, general and administrative expense, equity in income (loss) offrom unconsolidated real estate entities, investments,depreciation expense, corporate income tax (benefit) expense, casualty and impairment loss, (gain), net, (loss) gain on sale of communities, other real estate assetsactivity 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. Residential NOI represents results attributable to our apartment rental operations, including parking and other ancillary residential revenue. Reconciliations of NOI and Residential NOI for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 to net income for each period are as follows (unaudited, dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended June 30, | | For the six months ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | |
Net income | $ | 367,807 | | | $ | 138,566 | | | $ | 514,582 | | | $ | 400,642 | |
Property management and other indirect operating expenses, net of corporate income | 28,972 | | | 30,632 | | | 59,756 | | | 58,745 | |
Expensed transaction, development and other pursuit costs, net of recoveries | 1,261 | | | 2,364 | | | 4,253 | | | 3,351 | |
Interest expense, net | 51,585 | | | 58,797 | | | 108,406 | | | 115,323 | |
General and administrative expense | 17,676 | | | 21,291 | | | 38,076 | | | 38,712 | |
Income from unconsolidated investments | (4,970) | | | (2,480) | | | (9,815) | | | (2,797) | |
Depreciation expense | 200,546 | | | 199,302 | | | 405,289 | | | 401,088 | |
Income tax (benefit) expense | (217) | | | (159) | | | 3,343 | | | 2,312 | |
Casualty loss | — | | | — | | | 5,051 | | | — | |
Gain on sale of communities | (187,322) | | | (404) | | | (187,309) | | | (149,204) | |
Other real estate activity | (341) | | | 28 | | | (470) | | | (245) | |
Net operating income from real estate assets sold or held for sale | (3,977) | | | (12,252) | | | (8,781) | | | (25,521) | |
NOI | 471,020 | | | 435,685 | | | 932,381 | | | 842,406 | |
| | | | | | | |
Commercial NOI (1) | (8,529) | | | (7,545) | | | (17,094) | | | (15,693) | |
Residential NOI | $ | 462,491 | | | $ | 428,140 | | | $ | 915,287 | | | $ | 826,713 | |
|
| | | | | | | | | | | | | | | |
| For the three months ended | | For the nine months ended |
| 9/30/2017 | | 9/30/2016 | | 9/30/2017 | | 9/30/2016 |
| | | | | | | |
Net income | $ | 238,199 |
| | $ | 356,329 |
| | $ | 639,174 |
| | $ | 791,525 |
|
Indirect operating expenses, net of corporate income | 15,752 |
| | 14,946 |
| | 48,472 |
| | 46,960 |
|
Investments and investment management expense | 1,501 |
| | 1,205 |
| | 4,277 |
| | 3,545 |
|
Expensed acquisition, development and other pursuit costs, net of recoveries | 789 |
| | 3,804 |
| | 2,087 |
| | 8,702 |
|
Interest expense, net | 47,741 |
| | 47,871 |
| | 147,138 |
| | 137,862 |
|
Loss on extinguishment of debt, net | — |
| | — |
| | 24,162 |
| | 2,461 |
|
General and administrative expense | 11,655 |
| | 11,928 |
| | 38,808 |
| | 35,343 |
|
Equity in (income) loss of unconsolidated real estate entities | (52,568 | ) | | 342 |
| | (70,386 | ) | | (54,779 | ) |
Depreciation expense | 144,990 |
| | 131,729 |
| | 427,050 |
| | 391,414 |
|
Income tax expense | 24 |
| | 22 |
| | 102 |
| | 95 |
|
Casualty and impairment loss (gain), net | — |
| | — |
| | 11,688 |
| | (3,935 | ) |
Gain on sale of real estate assets | (27,618 | ) | | (212,941 | ) | | (160,000 | ) | | (295,503 | ) |
Net operating income from real estate assets sold or held for sale | (1,874 | ) | | (10,039 | ) | | (9,633 | ) | | (33,175 | ) |
Net operating income | $ | 378,591 |
| | $ | 345,196 |
| | $ | 1,102,939 |
| | $ | 1,030,515 |
|
_________________________
(1)Represents results attributable to the commercial and other non-residential operations at our communities ("Commercial").
The Residential NOI changes for the three and ninesix months ended SeptemberJune 30, 2017,2023 as compared to the prior year periods,three and six months ended June 30, 2022 consist of changes in the following categories (unaudited, dollars in thousands):
| | | | | | | | | | | |
| For the three months ended June 30, | | For the six months ended June 30, |
| 2023 | | 2023 |
| | | |
Same Store | $ | 22,207 | | | $ | 63,200 | |
Other Stabilized | 8,083 | | | 18,978 | |
Development / Redevelopment | 4,061 | | | 6,396 | |
Total | $ | 34,351 | | | $ | 88,574 | |
|
| | | | | | | |
| For the three months ended | | For the nine months ended |
| 9/30/2017 | | 9/30/2017 |
| |
| | |
Established Communities | $ | 5,741 |
| | $ | 21,744 |
|
Other Stabilized Communities (1) | 7,047 |
| | 35,750 |
|
Development and Redevelopment Communities (2) | 20,607 |
| | 14,930 |
|
Total | $ | 33,395 |
| | $ | 72,424 |
|
The increase in our Same Store Residential NOI for the three and six months ended June 30, 2023 is due to an increase in Residential rental revenue of $37,080,000, or 6.3%, and $90,737,000 or 7.8%, respectively, partially offset by an increase in Residential property operating expenses of $14,769,000, or 8.2%, and $27,547,000, or 7.7%, over the three and six months ended June 30, 2023, respectively.____________________________
| |
(1) | NOI for the nine months ended September 30, 2016 includes $20,306 in business interruption insurance proceeds related to the Edgewater casualty loss. |
| |
(2) | NOI for the three and nine months ended September 30, 2017 includes $3,495 in business interruption insurance proceeds related to the Maplewood casualty loss. |
Rental and other income increased in$44,493,000, or 6.9%, and $104,961,000, or 8.4%, for the three and ninesix months ended SeptemberJune 30, 20172023, respectively, compared to the prior year periods, primarily due to additionalthe increased rental income generatedrevenue from newly developed, acquired and existing operatingour stabilized wholly-owned communities, and an increase in rental rates at our Established Communities, discussed below.
Consolidated Communities — The weighted average number of occupied apartment homes for consolidated communities increased to 69,28477,507 apartment homes for the ninesix months ended SeptemberJune 30, 2017,2023, compared to 67,62877,225 homes for the prior year period. The weighted average monthly rental revenue per occupied apartment home increased to $2,557$2,922 for the ninesix months ended SeptemberJune 30, 20172023 compared to $2,464$2,709 in the prior year period.
Established Communities — RentalThe following table presents the change in Same Store Residential rental revenue, increased $30,208,000, or 2.6%,including the attribution of the change between average rental revenue per occupied home and Economic Occupancy (as defined below) for the ninesix months ended SeptemberJune 30, 2017 compared to the prior year period due to an increase2023 (unaudited, dollars in average rental rates of 2.5% to $2,503 per apartment home and an increase in economic occupancy of 0.1% to 95.5%thousands).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Residential rental revenue | | Average rental revenue per occupied home | | Economic Occupancy (1) |
| | | | $ Change | % Change | | | | | % Change | | | % Change |
| For the six months ended June 30, |
| 2023 | | 2022 | | 2023 to 2022 | | 2023 to 2022 | | 2023 | | 2022 | | 2023 to 2022 | | 2023 | | 2022 | | 2023 to 2022 |
New England | $ | 180,559 | | | $ | 164,074 | | | $ | 16,485 | | | 10.0 | % | | $ | 3,256 | | | $ | 2,938 | | | 10.8 | % | | 96.5 | % | | 97.3 | % | | (0.8) | % |
Metro NY/NJ | 263,316 | | | 239,186 | | | 24,130 | | | 10.1 | % | | 3,522 | | | 3,184 | | | 10.6 | % | | 95.9 | % | | 96.4 | % | | (0.5) | % |
Mid-Atlantic | 181,394 | | | 168,763 | | | 12,631 | | | 7.5 | % | | 2,380 | | | 2,217 | | | 7.4 | % | | 95.5 | % | | 95.4 | % | | 0.1 | % |
Southeast Florida | 36,792 | | | 32,288 | | | 4,504 | | | 13.9 | % | | 2,897 | | | 2,567 | | | 12.9 | % | | 96.8 | % | | 95.8 | % | | 1.0 | % |
Denver, CO | 13,881 | | | 12,975 | | | 906 | | | 7.0 | % | | 2,228 | | | 2,074 | | | 7.4 | % | | 95.6 | % | | 96.0 | % | | (0.4) | % |
Pacific Northwest | 83,400 | | | 77,586 | | | 5,814 | | | 7.5 | % | | 2,667 | | | 2,464 | | | 8.2 | % | | 95.2 | % | | 95.9 | % | | (0.7) | % |
Northern California | 209,996 | | | 195,945 | | | 14,051 | | | 7.2 | % | | 2,995 | | | 2,802 | | | 6.9 | % | | 96.3 | % | | 96.0 | % | | 0.3 | % |
Southern California | 266,631 | | | 255,605 | | | 11,026 | | | 4.3 | % | | 2,677 | | | 2,556 | | | 4.7 | % | | 96.1 | % | | 96.5 | % | | (0.4) | % |
Other Expansion Regions | 11,417 | | | 10,227 | | | 1,190 | | | 11.6 | % | | 2,160 | | | 1,943 | | | 11.2 | % | | 95.2 | % | | 94.8 | % | | 0.4 | % |
Total Same Store | $ | 1,247,386 | | | $ | 1,156,649 | | | $ | 90,737 | | | 7.8 | % | | $ | 2,889 | | | $ | 2,672 | | | 8.1 | % | | 96.0 | % | | 96.3 | % | | (0.3) | % |
(1) Economic occupancy takes into account the factOccupancy considers that apartment homes of different sizes and locations within a community have different economic impacts on a community's gross revenue. Economic occupancyOccupancy 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. Vacancy loss is determined by valuing vacant units at current market rents.
The Metro New York/New Jersey region accounted for approximately 23.0% of Established Communityfollowing table details the increase in Same Store Residential rental revenue by component, for the ninethree and six months ended SeptemberJune 30, 2017, and experienced an increase in rental revenue of 2.3%2023, compared to the prior year period. Averageperiods (unaudited):
| | | | | | | | | | | |
| For the three months ended June 30, | | For the six months ended June 30, |
| 2023 | | 2023 |
Residential rental revenue | | | |
Lease rates | 6.4 | % | | 7.1 | % |
Concessions and other discounts | 0.5 | % | | 0.9 | % |
Economic Occupancy | (0.4) | % | | (0.3) | % |
Other rental revenue | 0.9 | % | | 0.9 | % |
Uncollectible lease revenue (excluding rent relief) | 1.1 | % | | 1.3 | % |
Rent relief | (2.2) | % | | (2.1) | % |
Total Residential rental revenue | 6.3 | % | | 7.8 | % |
The increase for Same Store Residential rental rates increased 2.3% to $3,035 per apartment home, and economic occupancy remained consistent at 95.7%revenue for the ninethree and six months ended SeptemberJune 30, 2017,2023, compared to the prior year period. We expect operating conditionsperiods, was impacted by uncollectible lease revenue, net of amounts received from government rent relief programs. Same Store uncollectible lease revenue increased for the three months ended June 30, 2023 by $6,609,000 and increased for the six months ended June 30, 2023 by $9,442,000. The increase in uncollectible lease revenue was due to a decrease in government rent relief of $13,242,000 and $24,377,000 for the three and six months ended June 30, 2023, respectively, from the prior year periods. Adjusting to remove the impact of rent relief, uncollectible lease revenue as a percentage of Same Store Residential rental revenue decreased to 2.3% in the Metro New York/New Jersey regionthree months ended June 30, 2023 from 3.6% in the three months ended June 30, 2022. Adjusting to remain bifurcated between New York City and surrounding suburban submarkets. Elevated levelsremove the impact 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 21.3%rent relief, uncollectible lease revenue as a percentage of Established CommunitySame Store Residential rental revenue decreased to 2.6% in the six months ended June 30, 2023 from 4.1% in the six months ended June 30, 2022.
In 2022 and early 2023, we were named as a defendant in cases alleging antitrust violations by RealPage, Inc. and owners and/or operators of multifamily housing which utilize revenue management systems provided by RealPage, Inc. We engaged with the plaintiffs' counsel to explain why we believe that these cases are without merit as they pertain to us. Following these discussions, the plaintiffs filed a notice of voluntary dismissal in July 2023, which resulted in us being dismissed without prejudice from these cases. We are not currently a defendant of any other cases with similar allegations.
Management, development and other fees increased $1,808,000, or 200.0%, and $2,122,000, or 128.1%, for the ninethree and six months ended SeptemberJune 30, 2017, and experienced an increase in rental revenue of 1.5%2023, respectively, compared to the prior year period. Average rental rates increased 1.0% to $2,834 per apartment home, and economic occupancy increased 0.5% to 95.7% for the nine months ended September 30, 2017, compared to the prior year period. We expect operating conditions to remain challenged in the Northern California region due to slowing job growth and an increase in competition from new apartment deliveries.
The Southern California region accounted for approximately 21.4% of Established Community rental revenue for the nine months ended September 30, 2017, and experienced an increase in rental revenue of 3.9% compared to the prior year period. Average rental rates increased 4.1% to $2,203 per apartment home, and were partially offset by a 0.2% decrease in economic occupancy to 95.4% for the nine months ended September 30, 2017, compared to the prior year period. We believe stable job and income growth, combined with a modest level of new apartment deliveries, will continue to support a favorable operating environment in the Southern California region.
The New England region accounted for approximately 14.8% of Established Community rental revenue for the nine months ended September 30, 2017, and experienced an increase in rental revenue of 2.7% compared to the prior year period. Average rental rates increased 2.4% to $2,411 per apartment home, and economic occupancy increased 0.3% to 95.7% for the nine months ended September 30, 2017, compared to the prior year period. We expect the operating environment to be more favorable in the suburban submarkets than in the urban submarkets due to higher levels of new apartment deliveries in the urban submarkets.
The Mid-Atlantic region accounted for approximately 14.2% of Established Community rental revenue for the nine months ended September 30, 2017, and experienced an increase in rental revenue of 1.9% compared to the prior year period. Average rental rates increased 2.0% to $2,151 per apartment home, and were partially offset by a 0.1% decrease in economic occupancy to 95.1% for the nine months ended September 30, 2017, compared to the prior year period. Operating conditions in the Mid-Atlantic region are improving, but we believe elevated levels of new apartment deliveries will continue to affect our ability to increase rental rates in select submarkets.
The Pacific Northwest region accounted for approximately 5.3% of Established Community rental revenue for the nine months ended September 30, 2017, and experienced an increase in rental revenue of 5.4% compared to the prior year period. Average rental rates increased 5.1% to $2,212 per apartment home, and economic occupancy increased 0.3% to 95.3% for the nine months ended September 30, 2017, compared to the prior year period. We expect strong job and income growth in the Pacific Northwest region will continue to produce healthy apartment demand.
Management, development and other fees decreased $327,000, or 24.8%, and $1,020,000, or 23.7%, for the three and nine months ended September 30, 2017, respectively, as compared to the prior year periods. The decreases for the three and nine months ended September 30, 2017 areperiods, primarily due to lower propertydevelopment fees for work performed on previously disposed land adjacent to one of our Development Communities and asset management fees earned asrevenue from a result of dispositions from Fund II andthird-party servicing agreement we entered into for our centralized service center to provide comprehensive back-office, financial administrative support services in the U.S. Fund.current year periods.
Direct property operating expenses, excluding property taxes, increased $4,032,000,$13,315,000, or 3.8%10.7%, and $17,840,000,$23,835,000 or 5.8%9.6%, for the three and ninesix months ended SeptemberJune 30, 2017,2023, respectively, compared to the prior year periods. The increases for the three and nine months ended September 30, 2017 areperiods, primarily due to the addition of newly developed apartment communities as well as increased operating expenses at our Same Store communities as discussed below.
Same Store Residential direct property operating expenses, excluding property taxes, represents substantially all of total Same Store direct operating expenses, excluding property taxes, for the three and acquired apartment communities.
For Established Communities,six months ended June 30, 2023. Same Store Residential direct property operating expenses, excluding property taxes, increased $545,000,$11,466,000, or 0.7%9.9%, and $5,056,000,$21,274,000, or 2.2%9.3%, for the three and ninesix months ended SeptemberJune 30, 2017,2023, respectively, compared to the prior year periods. The increase for the three months ended September 30, 2017 isperiods, primarily due to increased utilities, maintenance costs, bad debt associated with resident expense reimbursements and compensation expense, partially offset by decreased turnover, maintenancelegal and utility costs. The increase for the nine months ended September 30, 2017 is primarily due to increased compensation expense, bad debt and turnover and maintenanceeviction costs partially offset by decreased property insurance costs.as restrictions on managing delinquent accounts are eased or expire.
Property taxes increased $5,360,000,$4,122,000, or 10.2%5.8%, and $10,683,000,$7,880,000, or 7.0%5.6%, for the three and ninesix months ended SeptemberJune 30, 2017,2023, respectively, compared to the prior year periods. The increases for the three and nine months ended September 30, 2017 areperiods, primarily due to the addition of newly developed and acquired apartment communities, coupled with increased assessments acrossfor our portfolio.stabilized portfolio and the expiration of property tax incentive programs primarily at certain of our properties in New York City, partially offset by decreased property taxes from dispositions.
For Established Communities,Same Store Residential property taxes represents substantially all of total Same Store property taxes for the three and six months ended June 30, 2023. Same Store Residential property taxes increased $2,293,000,$3,303,000, or 6.0%5.1%, and $3,330,000,$6,273,000, or 2.9%4.8%, for the three and ninesix months ended SeptemberJune 30, 2017,2023, respectively, compared to the prior year periods. The increases for the three and nine months ended September 30, 2017 are primarilyperiods, due to increased assessments as well asacross the portfolio, successful appeals in the respective prior year periods in excessand the expiration of the current year periods. For communities in California, property tax changes are determined by the changeincentive programs primarily at certain of our properties 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.New York City.
Corporate-level property management and other indirect operating expenses increased $473,000,$3,144,000, or 2.9%, and $429,000, or 0.8%5.2%, for the three and ninesix months ended SeptemberJune 30, 2017, respectively,2023 compared to the prior year periods. The increases for the three and nine months ended September 30, 2017 areperiod, primarily due to increased costs related to initiatives to improve future efficiency in services for residents and prospects and investments in technology as well as increased compensation related costs in the current year periods, partially offset by severance costs in the prior year period not present in current year period.costs.
Investments and investment management expense increased by $296,000 or 24.6% and $732,000 or 20.6% due primarily to increases in compensation expense.
Expensed acquisition,transaction, 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. During the three months ended September 30, 2017, we acquired two operating communities, both of which were accounted for as asset acquisitions. Abandoned pursuit costs include costs incurred for development pursuits not yet considered probable for development, as well as thewrite downs and abandonment of Development Rights and disposition pursuits, and also includes costs related to abandoned acquisition pursuits. Theseand disposition pursuits, offset by any recoveries of costs can be volatile, particularly inincurred. In periods of increased acquisition pursuit activity, periods of economic downturn or when there is limited access to capital, these costs can be volatile and the costs may vary significantly from periodyear to period. Theseyear. In addition, the timing for potential recoveries will not always align with the timing for expensing an abandoned pursuit. Expensed transaction, development and other pursuit costs, net of recoveries, decreased $3,015,000, or 79.3%,$1,103,000 and $6,615,000, or 76.0%,increased $902,000 for the three and ninesix months ended SeptemberJune 30, 2017,2023, respectively, compared to the prior year periods. The decreases for the three and nine months ended September
30 2017 are primarily due to acquisition costs related to communities acquired during the prior year periods that were expensed prior to the adoption
Interest expense, netdecreased $130,000,$7,212,000, or 0.3%12.3%, and increased $9,276,000,$6,917,000, or 6.7%6.0%, for the three and ninesix months ended SeptemberJune 30, 2017,2023, respectively, compared to the prior year periods. This category includes interest costs offset by capitalized interest pertaining to development and redevelopment activity, amortization of premium/discount on debt, interest income and interest income.any mark-to-market impact from derivatives not in qualifying hedge relationships. The decrease for the three and six months ended SeptemberJune 30, 20172023 is primarily due to a decrease in amounts of secured debt outstanding. The increase for the nine months ended September 30, 2017 is due to an increase in outstanding indebtedness, as well as a decreaseinterest income from an increase in both cash amounts of interest capitalized.
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 the debt acquired, excluding costs related to debt secured by assets sold or held for sale. The loss of $24,162,000 for the nine months ended September 30, 2017 was due to prepayment penalties of $33,515,000invested and the non-cash write-off of deferred financing costs of $1,450,000 associated with the repayment of $556,313,000 aggregate principal amount of fixed rate mortgage notes secured by 12 wholly-owned operating communities in advance of their May 2019 maturity dates. This wasreturn on investments and capitalized interest, partially offset by a gain of $10,839,000, primarily composed of the write-off of unamortized premiumincrease in variable rates on the repayment of $670,590,000 principal amount of fixed rate mortgage notesunsecured and secured by 11 wholly-owned operating communities in advance of their November 2017 maturity dates.indebtedness.
Depreciation expense increased $13,261,000,$1,244,000, or 10.1%0.6%, and $35,636,000,$4,201,000, or 9.1%1.0%, for the three and ninesix months ended SeptemberJune 30, 2017,2023, respectively, compared to the prior year periods, primarily due to the addition of newly developed and acquired apartment communities.communities, partially offset by dispositions.
General and administrative expense ("G&A") decreased $273,000,$3,615,000, or 2.3%, and increased $3,465,000, or 9.8%17.0%, for the three and nine months ended SeptemberJune 30, 2017,2023, as compared to the prior year period, primarily due to a decrease in compensation related expenses including expenses related to executive transition compensation costs in the current year period.
Casualty loss of $5,051,000 for the six months ended June 30, 2023 is due to charges recognized for the damages across certain of our communities in our Northeast and California regions related to severe weather.
Income from unconsolidated investments increased $2,490,000 and $7,018,000 for the three and six months ended June 30, 2023, respectively, compared to the prior year periods. The decrease for the three months ended September 30, 2017 isperiods, primarily due to decreased legalunrealized gains on property technology investments recognized in the current year periods and professional fees, partially offset bythe recognition of $1,072,000 for our promoted interest associated with the achievement of a threshold return with the U.S. Fund in the current year periods.
Gain on sale of communities increased compensation related expenses. The increase for the nine months ended September 30, 2017 is primarily due to an increase in compensation related expenses, legal$186,918,000 and professional fees, and sales and use tax expense.
Casualty and impairment loss (gain), net for the nine months ended September 30, 2017consists of an impairment charge recognized for a land parcel we had acquired for development and sold in July 2017, as well as the Maplewood casualty loss, which was partially offset by expected insurance proceeds, a portion of which were received during the three and nine months ended September 30, 2017. Casualty and impairment (gain) loss, net$38,105,000 for the three and ninesix months ended SeptemberJune 30, 2016, consists of net third-party insurance proceeds related to severe winter storms that occurred in 2015 in our Northeast markets, partially offset by impairment charges recognized for ancillary land parcels. For the nine months ended September 30, 2016, casualty and impairment (gain) loss, net also includes property damage insurance proceeds from the final insurance settlement for the Edgewater casualty loss.
Equity in income (loss) of unconsolidated real estate entities increased $52,910,000 and $15,607,000 for the three and nine months ended September 30, 2017,2023, respectively, compared to the prior year periods. The increases for the three and nine months ended September 30, 2017 are primarily due to gains on the sale of communities in various ventures in the current year year periods, as well as recognition of income for the Company's promoted interest, partially offset by decreased NOI from the ventures due to disposition activity in 2016 and 2017.
Gain on sale of communities decreased for the three and nine months ended September 30, 2017 compared to the prior year periods. 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.
Gain on sale The gains of other real estate decreased$187,322,000 for the three and ninesix months ended SeptemberJune 30, 2017 compared2023 were primarily due to the prior year periods.sale of two wholly-owned communities. The gainsgain of $10,778,000 and $10,921,000$149,204,000 for the six months ended June 30, 2022 was primarily due to the sale of three wholly-owned communities.
Income tax benefit (expense) for the six months ended June 30, 2023 and nine ended September 30, 2016 are2022 is an expense of $3,343,000 and $2,312,000, respectively, primarily composed of the gain on the land we soldrelated to an unconsolidated joint venture.The Park Loggia.
Reconciliation of Non-GAAP Financial Measures - Reconciliation of FFO and Core FFO
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.
Consistent with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts® ("NAREIT"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
•similar adjustments for unconsolidated partnerships and joint ventures.ventures, including those from a change in control.
FFO and FFO adjusted for non-core items, or "Core FFO," as defined below, are generally considered by management to be appropriate supplemental measurescan help with the comparison of ourthe operating and financial performance. In calculating FFO, we excludeperformance of a real estate company between periods or as compared to different companies because the adjustments such as (i) excluding gains or losses related to dispositionson sales of previously depreciated property and excludeor (ii) real estate depreciation whichmay impact comparability as the amount and timing of these or similar items 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 arewe do not consideredconsider part of our core business operations, Core FFO allows one to comparecan help with the comparison of our core operating performance of the Company between periods.year over year. We believe that, in order to understand our operating results, FFO and Core FFO should be examinedconsidered in conjunction with net income as presented in ourthe Condensed Consolidated Financial Statements of Comprehensive Income included elsewhere in this report.
We calculate Core FFO as FFO, adjusted for:
•joint venture gains (if not adjusted through FFO), non-core costs and promoted interests;interests from partnerships;
•casualty and impairment losses or gains, net;net on non-depreciable real estate or other investments;
•gains or losses from early extinguishment of consolidated borrowings;
abandoned pursuits;•expensed transaction, development and other pursuit costs, net of recoveries;
•third-party business interruption insurance proceeds and the related lost NOI that is covered by the expected third party business interruption insurance proceeds;
•property and casualty insurance proceeds and legal settlements;settlement activity;
•gains or losses on sales of assets not subject to depreciation;depreciation and other investment gains or losses;
•advocacy contributions, representing payments to promote our business interests;
•hedge ineffectiveness;ineffectiveness or gains or losses from derivatives not designated as hedges for accounting purposes;
•expected credit losses associated with the lending commitments under the SIP;
•severance related costs;
expensed acquisition•executive transition compensation costs;
•net for-sale condominium activity, including gains, marketing, operating and administrative costs related to business acquisitions that occurred prior to the adoption of ASU 2017-01 as of October 1, 2016; and imputed carry cost; and
other non-core items.•income taxes.
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 ended June 30, | | For the six months ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | |
Net income attributable to common stockholders | $ | 367,923 | | | $ | 138,691 | | | $ | 514,825 | | | $ | 400,735 | |
Depreciation - real estate assets, including joint venture adjustments | 199,197 | | | 198,493 | | | 402,477 | | | 399,145 | |
Distributions to noncontrolling interests | 13 | | | 12 | | | 25 | | | 24 | |
Loss (gain) on sale of previously depreciated real estate | (187,322) | | | (404) | | | (187,309) | | | (149,204) | |
Casualty loss on real estate | — | | | — | | | 5,051 | | | — | |
FFO attributable to common stockholders | 379,811 | | | 336,792 | | | 735,069 | | | 650,700 | |
| | | | | | | |
Adjusting items: | | | | | | | |
Unconsolidated entity gains, net (1) | (1,795) | | | (2,040) | | | (4,851) | | | (2,295) | |
Joint venture promote (2) | (1,072) | | | — | | | (1,072) | | | — | |
Structured Investment Program loan reserve (3) | (105) | | | 1,608 | | | (124) | | | 1,608 | |
Hedge accounting activity | (37) | | | 297 | | | 191 | | | (432) | |
Advocacy contributions | 200 | | | 384 | | | 200 | | | 534 | |
Executive transition compensation costs | 297 | | | 407 | | | 644 | | | 809 | |
Severance related costs | 327 | | | 24 | | | 1,500 | | | 65 | |
Expensed transaction, development and other pursuit costs, net of recoveries | 797 | | | 1,839 | | | 3,248 | | | 1,998 | |
Other real estate activity | (341) | | | 28 | | | (470) | | | (245) | |
For-sale condominium imputed carry cost (4) | 169 | | | 716 | | | 424 | | | 1,635 | |
Legal settlements | 148 | | | 129 | | | 50 | | | 259 | |
Income tax (benefit) expense (5) | (217) | | | (159) | | | 3,343 | | | 2,312 | |
Core FFO attributable to common stockholders | $ | 378,182 | | | $ | 340,025 | | | $ | 738,152 | | | $ | 656,948 | |
| | | | | | | |
Weighted average common shares outstanding - diluted | 142,124,117 | | | 139,934,478 | | | 141,073,964 | | | 139,955,280 | |
| | | | | | | |
EPS per common share - diluted | $ | 2.59 | | | $ | 0.99 | | | $ | 3.65 | | | $ | 2.86 | |
FFO per common share - diluted | $ | 2.67 | | | $ | 2.41 | | | $ | 5.21 | | | $ | 4.65 | |
Core FFO per common share - diluted | $ | 2.66 | | | $ | 2.43 | | | $ | 5.23 | | | $ | 4.69 | |
|
| | | | | | | | | | | | | | | |
| For the three months ended | | For the nine months ended |
| 9/30/2017 | | 9/30/2016 | | 9/30/2017 | | 9/30/2016 |
| | | | | | | |
Net income attributable to common stockholders | $ | 238,248 |
| | $ | 356,392 |
| | $ | 639,348 |
| | $ | 791,767 |
|
Depreciation - real estate assets, including joint venture adjustments | 144,409 |
| | 135,275 |
| | 426,494 |
| | 397,834 |
|
Distributions to noncontrolling interests | 11 |
| | 10 |
| | 32 |
| | 30 |
|
Gain on sale of unconsolidated entities holding previously depreciated real estate | (31,413 | ) | | — |
| | (40,110 | ) | | (53,172 | ) |
Gain on sale of previously depreciated real estate | (27,738 | ) | | (202,163 | ) | | (159,754 | ) | | (284,582 | ) |
Casualty and impairment (recovery) loss, net on real estate (1)(6) | — |
| | — |
| | — |
| | (4,195 | ) |
FFO attributable to common stockholders | 323,517 |
| | 289,514 |
| | 866,010 |
| | 847,682 |
|
| | | | | | | |
Adjusting items: | | | | | | | |
Joint venture losses (2) | 430 |
| | 195 |
| | 811 |
| | 5,763 |
|
Joint venture promote (3) | (19,977 | ) | | — |
| | (26,742 | ) | | (3,447 | ) |
Impairment loss on real estate (4)(6) | — |
| | — |
| | 9,350 |
| | 10,500 |
|
Casualty loss (gain), net on real estate (5)(6) | — |
| | — |
| | 2,338 |
| | (10,239 | ) |
Business interruption insurance proceeds (7) | (3,495 | ) | | (78 | ) | | (3,495 | ) | | (20,422 | ) |
Lost NOI from casualty losses covered by business interruption insurance (8) | 2,375 |
| | 1,877 |
| | 6,242 |
| | 5,580 |
|
Loss on extinguishment of consolidated debt | — |
| | — |
| | 24,162 |
| | 2,461 |
|
Hedge ineffectiveness | — |
| | — |
| | (753 | ) | | — |
|
Severance related costs | 18 |
| | 346 |
| | 153 |
| | 907 |
|
Development pursuit and other write-offs | 339 |
| | 2,998 |
| | 1,174 |
| | 3,769 |
|
Loss (gain) on sale of other real estate | 120 |
| | (10,778 | ) | | (246 | ) | | (10,921 | ) |
Acquisition costs | — |
| | 635 |
| | — |
| | 2,564 |
|
Legal settlements | 7 |
| | — |
| | 91 |
| | — |
|
Core FFO attributable to common stockholders | $ | 303,334 |
| | $ | 284,709 |
| | $ | 879,095 |
| | $ | 834,197 |
|
| | | | | | | |
Weighted average common shares outstanding - diluted | 138,307,046 |
| | 137,505,054 |
| | 138,006,192 |
| | 137,442,306 |
|
| | | | | | | |
EPS per common share - diluted | $ | 1.72 |
| | $ | 2.59 |
| | $ | 4.63 |
| | $ | 5.76 |
|
FFO per common share - diluted | $ | 2.34 |
| | $ | 2.11 |
| | $ | 6.28 |
| | $ | 6.17 |
|
Core FFO per common share - diluted | $ | 2.19 |
| | $ | 2.07 |
| | $ | 6.37 |
| | $ | 6.07 |
|
_________________________
(1)Amounts consist primarily of net unrealized gains on technology investments.
| |
(1) | During the nine months ended September 30, 2016, we received insurance proceeds, net of additional costs incurred, of $5,732 related to the severe winter storms that occurred in our Northeast markets in 2015. For the nine months ended September 30, 2016, we recognized $4,195 of this recovery as an offset to the impairment on depreciable real estate of $4,195 recognized in the prior year period. The balance of the net insurance proceeds received in 2016 of $1,537 is recognized as a casualty gain and is included in the reconciliation of FFO to Core FFO. |
| |
(2) | Amounts for the three and nine months ended September 30, 2017 and 2016, are primarily composed of (i) our proportionate share of yield maintenance charges incurred for the early repayment of debt associated with joint venture disposition activity, (ii) the write-off of asset management fee intangibles primarily associated with the disposition of communities in the U.S. Fund and (iii) our proportionate share of operating results for joint ventures formed with Equity Residential as part of the Archstone acquisition. |
| |
(3) | Amounts are composed of our recognition of our promoted interest in Fund II. |
| |
(4) | Amount for the nine months ended September 30, 2017 includes an impairment charge for a land parcel we had acquired for development and sold in July 2017. Amount for the nine months ended September 30, 2016 includes impairment charges relating to ancillary land parcels. |
| |
(5) | Amount for the nine months ended September 30, 2017 includes $19,481 for the Maplewood casualty loss, partially offset by $17,143 of expected property damage insurance proceeds, a portion of which was received during the period. Amount for the nine months ended September 30, 2016 includes $8,702 in property damage insurance proceeds for the Edgewater casualty loss, and $1,537 in insurance proceeds in excess of the total recognized loss related to severe winter storms in our Northeast markets that occurred in 2015. |
(2)Amount is for our recognition of our promoted interest in the U.S. Fund.
| |
(6) | The aggregate impact of (i) casualty and impairment (recovery) loss, net on real estate, (ii) impairment loss on real estate and (iii) casualty loss (gain), net on real estate, is a loss of $11,688 for the nine months ended September 30, 2017 and a gain of $3,935 for the nine months ended September 30, 2016. |
| |
(7) | Amounts for the three and nine months ended September 30, 2017 are composed of business interruption insurance proceeds resulting from the final insurance settlement of the Maplewood casualty loss. Amount for the nine months ended September 30, 2016 is primarily composed of business interruption insurance proceeds resulting from the final insurance settlement of the Edgewater casualty loss. |
| |
(8) | Amounts primarily relate to lost NOI resulting from the Edgewater casualty loss, for which we received $20,306 in business interruption insurance proceeds in the first quarter of 2016. Amounts for the three and nine months ended September 30, 2017 also include amounts related to the Maplewood casualty loss in Q1 2017, for which the Company recognized $3,495 in business interruption insurance proceeds in Q3 2017. |
(3)Amounts are the expected credit losses associated with the lending commitments under our SIP. The timing and amount of actual losses that will be incurred, if any, is to be determined.
(4)Represents the imputed carry cost of for-sale residential condominiums at The Park Loggia. We computed this adjustment by multiplying the total capitalized cost of completed and unsold for-sale residential condominiums by our weighted average unsecured debt rate.
(5)Amounts are primarily for the recognition of taxes associated with The Park Loggia.
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 ended | | For the nine months ended |
| 9/30/2017 | | 9/30/2016 | | 9/30/2017 | | 9/30/2016 |
Net cash provided by operating activities (1) | $ | 355,213 |
| | $ | 307,549 |
| | $ | 917,573 |
| | $ | 860,727 |
|
Net cash used in investing activities | $ | (309,617 | ) | | $ | (154,100 | ) | | $ | (676,231 | ) | | $ | (866,591 | ) |
Net cash used in financing activities (1) | $ | (63,031 | ) | | $ | (269,856 | ) | | $ | (420,294 | ) | | $ | (328,744 | ) |
_________________________
| |
(1) | 2016 amounts reflect certain reclassifications as a result of the retrospective adjustment of the presentation of payments related to tax withholding for share-based compensation. Refer to 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-termfocus on near-term and intermediate-term liquidity needs areis to ensure we have adequate capital to fund:
•development and redevelopment activity in which we are currently engaged;engaged or in which we plan to engage;
•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.expenses; and
•investment in our operating platform, including strategic investments.
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 beenCash flows from operations are determined by:by operating activities and factors including but not limited to (i) the number of apartment homes currently owned, (ii) rental rates, (iii) occupancy levels, (iv) uncollectible lease revenue levels or interruptions in collections caused by market conditions and (iv)(v) 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, areis affected by changes in the capital markets environment, such as changes in interest rates or the availability of cost-effective capital. Our plans for development, redevelopment, non-routine capital expenditure, acquisition and disposition activity are affected by market conditions and capital availability. We regularlyfrequently review our liquidity needs, especially in periods with volatile market conditions, as well as the adequacy of cash flows from operations and other expected liquidity sources to meet these needs.
We had unrestricted cash, cash equivalents and cash equivalentsin escrow of $36,042,000$946,998,000 at SeptemberJune 30, 2017, a decrease2023, an increase of $178,952,000$212,753,000 from $214,994,000$734,245,000 at December 31, 2016. As presented in our Condensed Consolidated Statements of Cash Flows included elsewhere in this report, the2022. The following discussion relates to changes in cash, cash equivalents and cash in escrow due to operating, investing and financing activities.
Operating Activities — A presentation of GAAP based cash flow metrics is as follows (unaudited, dollars in thousands):
| | | | | | | | | | | |
| For the six months ended June 30, |
| 2023 | | 2022 |
Net cash provided by operating activities | $ | 742,579 | | | $ | 640,048 | |
Net cash used in investing activities | $ | (297,877) | | | $ | (356,508) | |
Net cash used in financing activities | $ | (231,949) | | | $ | (567,137) | |
•Net cash provided by operating activities increased primarily due to $917,573,000 for the nine months ended September 30, 2017 from $860,727,000 for the nine months ended September 30, 2016. The change was driven primarily by increased NOI from existing, acquired and newly developed communities.increases in NOI.
Investing Activities — •Net cash used in investing activities totaled $676,231,000 for the nine months ended September 30, 2017. The net cash used was primarily due to:
to (i) investment of $743,275,000$453,139,000 in the development and redevelopment of communities;
acquisitioncommunities and (ii) capital expenditures of $81,852,000 for our wholly-owned communities and non-real estate assets. These amounts were partially offset by net proceeds from the disposition of two operating communities for $228,011,000; and the sale of for-sale residential condominiums of $252,904,000.
capital expenditures
These amounts are partially offset by:
proceeds from dispositions, net of amounts held in escrow related to a planned tax deferred exchange, of $285,063,000; and
net distributions from unconsolidated real estate entities of $74,745,000.
Financing Activities — •Net cash used in financing activities totaled $420,294,000 for the nine months ended September 30, 2017. The net cash used was primarily due to:
the repayment of secured notes in the amount of $1,287,636,000; and
to (i) payment of cash dividends in the amount of $576,685,000.
$454,323,000 and (ii) the repayment of the $250,000,000 fixed rate unsecured notes. These amounts arewere partially offset by:by the settlement of the Equity Forward for $491,912,000.
proceeds from the issuance of unsecured notes and borrowing under the $250 million Term Loan in the aggregate amount of $948,616,000;
borrowings under the Credit Facility of $242,000,000;
the issuance of secured notes in the amount of $185,100,000; and
the issuance of common stock in the amount of $110,117,000, primarily through CEP IV.
Variable Rate Unsecured Credit Facility
The $2,250,000,000 Credit Facility matures in September 2026. The interest rate that would be applicable to borrowings under the Credit Facility is 6.12% at July 31, 2023 and is composed of (i) SOFR plus (ii) the current borrowing spread to SOFR of 0.805% per annum, which consists of a 0.10% SOFR adjustment plus 0.705% per annum, assuming a daily SOFR borrowing rate. The borrowing spread to SOFR can vary from SOFR plus 0.63% to SOFR plus 1.38% based upon the rating of our unsecured and unsubordinated long-term indebtedness. There is also an annual facility commitment fee of 0.12% of the borrowing capacity under the facility, which can vary from 0.095% to 0.295% based upon the rating of our unsecured and unsubordinated long-term indebtedness. The Credit Facility contains a sustainability-linked pricing component which provides for interest rate margin and commitment fee reductions or increases by meeting or missing targets related to environmental sustainability, specifically greenhouse gas emission reductions, with the adjustment determined annually. The first determination under the sustainability-linked pricing component occurred in July 2023, resulting in reductions of approximately 0.02% to the interest rate margin and 0.005% to the commitment fee, until the next determination that is expected to occur in the third quarter of 2024, due to our achievement of sustainability targets.
The availability on the Credit Facility as of July 31, 2023 is as follows (dollars in thousands):
| | | | | |
| July 31, 2023 |
| |
Credit Facility commitment | $ | 2,250,000 | |
Credit Facility outstanding | — | |
Commercial paper outstanding | — | |
Letters of credit outstanding (1) | (1,914) | |
Total Credit Facility available | $ | 2,248,086 | |
(1)In addition, we had $52,682 outstanding in additional letters of credit unrelated to the Credit Facility as of July 31, 2023.
Commercial Paper Program
We have a $1,500,000,000 revolving variable rate unsecured credit facilityCommercial Paper Program with a syndicate of banks (the "Credit Facility") which matures in April 2020. We may extend the maturity for upmaximum aggregate face or principal amount outstanding at any one time not to nine months, provided we are not in default and upon payment of a $1,500,000 extension fee.exceed $500,000,000. The Credit Facility bears interest at varying levels based on the London Interbank Offered Rate ("LIBOR"), rating levels achieved onCommercial Paper Program is backstopped by our unsecured notes and on a maturity schedule selected by us. The current stated pricing is LIBOR plus 0.825% per annum (2.07% at October 31, 2017), assuming a one monthcommitment to maintain available 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 borrowings of $434,000,000 outstandingcapacity under the Credit Facility and had $44,937,000in an amount equal to actual borrowings under the Commercial Paper Program. As of July 31, 2023, we did not have any amounts outstanding in letters of credit that reduced our borrowing capacity as of October 31, 2017.under the Commercial Paper Program.
Financial Covenants
We are subject to financial and other covenants contained in the Credit Facility the Term Loans and the indentureCommercial Paper Program, Term Loan and the indentures 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 SeptemberJune 30, 2017.2023.
In addition, some of 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 ("Under the CEP, IV") under which we may sell (and/or enter into forward sale agreements for)for the sale of) up to $1,000,000,000 of our common stock from time to time. ActualDuring the three and six months ended June 30, 2023 and through July 31, 2023, we did not have any 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. 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.under this program. As of OctoberJuly 31, 2017, there are no outstanding forward sales agreements. During the nine months ended September 30, 2017, we sold 568,424 shares at an average sales price of $188.39 per share, for net proceeds of $105,478,000. As of October 31, 2017,2023, we had $892,915,000 of shares$705,961,000 remaining authorized for issuance under this program.
Forward Equity Offering
In addition to the CEP, during the three months ended June 30, 2023, we settled the Equity Forward issuing 2,000,000 shares of common stock, net of offering fees and discounts, for $491,912,000 or $245.96 per share.
Stock Repurchase Program
Under the Stock Repurchase Program, we may acquire shares of our common stock in open market or negotiated transactions up to an aggregate purchase price of $500,000,000. During the three and six months ended June 30, 2023, we repurchased 4,800 and 11,800 shares of common stock, respectively, at an average price of $162.93 per share and $161.96 per share, respectively. In July 2023 through July 31, 2023, we had no repurchases of shares under this program. As of July 31, 2023, we had $314,237,000 remaining authorized for purchase under this program.
Interest Rate Swap Agreements
During the three and ninesix months ended SeptemberJune 30, 2017,2023, we entered into $50,000,000 and $300,000,000,$250,000,000, respectively, of new forward interest rate swap agreements executed to reduce the impact of variability in interest rates on a portion of our expectedanticipated future debt issuance activity in 2018.
As described in this paragraph, during the nine months ended September 30, 2017, we settled an aggregate of $800,000,000 of forward interest rate swap agreements, receiving net aggregate payments of $391,000. In conjunction with the refinancing of three secured borrowings in May 2017, in April 2017, we settled $185,100,000 of forward interest rate swap agreements designated as cash flow hedges of the interest rate variability of the secured notes, making a payment of $2,326,000. In conjunction with our May 2017 unsecured note issuance, we settled $400,000,000 of forward interest rate swap agreements designated as cash flow hedges of the interest rate variability on the forecasted issuance of the unsecured notes, making a payment of $1,361,000. In conjunction with our June 2017 unsecured note issuance, we settled $214,900,000 of forward interest rate swap agreements designated as cash flow hedges of the interest rate variability on the forecasted issuance of the unsecured notes, receiving $4,078,000.
As of September 30, 2017, we have $300,000,000 in aggregate outstanding forward interest rate swap agreements. At maturity of the remaining outstanding swap agreements, we2023 and 2024. We expect to cash settle the contractsswaps 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.
Future Financing and Capital Needs — Debt Maturities and Material Obligations
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 or Commercial Paper Program. In addition, to the extent we have amounts outstanding under the Commercial Paper Program, we are obligated to repay the short-term indebtedness at maturity through either current cash on hand or by incurring other indebtedness, including by way of borrowing under our Credit Facility. Although we believe we will have the capacity to meet our currently anticipated liquidity needs, we cannot assure you that capital from 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 duringDuring the ninesix months ended SeptemberJune 30, 2017:
In February 2017,2023, we repaid $17,300,000 of variable rate debt secured by Avalon Mountain View at par at its scheduled maturity date.
In February 2017, we entered into a $250,000,000 variable 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%. In April 2017, we drew the $250,000,000 available balance.
In May 2017, we repaid $670,590,000 aggregate principal amount of 6.26% fixed rate secured notes, secured by 11 communities, representing the majority of the Fannie Mae pool 2 secured indebtedness assumed as part of the Archstone acquisition, which had a contractual maturity date of November 2017 but opened for prepayment at par on April 30, 2017. In conjunction with the repayment, we recognized a gain of $10,839,000, primarily composed of the write-off of unamortized premium. We refinanced the secured borrowings for three of these communities for an aggregate principal amount of $185,100,000, with a contractual fixed interest rate of 3.61% and maturity dates of June 2027.
In May 2017, we issued $400,000,000 principal amount ofour 2.85% unsecured notes in a public offering under our existing shelf registration statement for net proceeds of approximately $396,016,000. The notes mature in May 2027 and were issued at a 3.35% interest rate.upon maturity.
In June 2017, we issued $300,000,000 principal amount of unsecured notes in a public offering under our existing shelf registration statement for net proceeds of approximately $297,372,000. The notes mature in July 2047 and were issued at a 4.15% interest rate.
In June 2017, we repaid $556,313,000 aggregate principal amount of 5.86% fixed rate secured notes, secured by 12 wholly-owned operating communities, representing the remaining debt in the Company's Freddie Mac cross-collateralized pool financing originated in 2009, in advance of their May 2019 maturity dates. In conjunction with the repayment, we recognized a charge of $34,965,000, consisting of prepayment penalties of $33,515,000 and the non-cash write-off of deferred financing costs of $1,450,000.
The following table details our consolidated debt obligations, including the effective interest rate and contractual maturity dates, and principal payments for periodic amortization and maturities for the next five years, excluding our Credit Facility and Commercial Paper Program and amounts outstanding related to communities classified as held for sale, for debt outstanding at SeptemberJune 30, 20172023 and December 31, 20162022 (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.
interest other than as disclosed related to the AVA Arts District construction loan (see "Unconsolidated Investments - Development Communities" for further discussion of the construction loan).
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| | All-In interest rate (1) | | Principal maturity date | | Balance Outstanding | | Scheduled Maturities |
Community | | | | 12/31/2016 | | 9/30/2017 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter |
Tax-exempt bonds (2) | | |
| | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Fixed rate | | |
| | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Avalon Oaks West | | 7.55 | % | | Apr-2043 |
| $ | 15,420 |
| | $ | 15,270 |
| | $ | 58 |
| | $ | 241 |
| | $ | 257 |
| | $ | 275 |
| | $ | 293 |
| | $ | 14,146 |
|
Avalon at Chestnut Hill | | 6.16 | % | | Oct-2047 |
| 38,564 |
| | 38,227 |
| | 130 |
| | 536 |
| | 566 |
| | 596 |
| | 629 |
| | 35,770 |
|
Avalon Westbury | | 3.81 | % | | Nov-2036 | (3) | 62,200 |
| | 62,200 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 62,200 |
|
| | |
| | | | 116,184 |
| | 115,697 |
| | 188 |
| | 777 |
| | 823 |
| | 871 |
| | 922 |
| | 112,116 |
|
| | | | | | | | | | | | | | | | | | | | |
Variable rate | | |
| | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Avalon Mountain View | | 1.42 | % | | Feb-2017 | (4) | 17,300 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Eaves Mission Viejo | | 1.97 | % | | Jun-2025 | (5) | 7,635 |
| | 7,635 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 7,635 |
|
AVA Nob Hill | | 1.98 | % | | Jun-2025 | (5) | 20,800 |
| | 20,800 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 20,800 |
|
Avalon Campbell | | 2.30 | % | | Jun-2025 | (5) | 38,800 |
| | 38,800 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 38,800 |
|
Eaves Pacifica | | 2.32 | % | | Jun-2025 | (5) | 17,600 |
| | 17,600 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 17,600 |
|
Avalon Bowery Place I | | 3.78 | % | | Nov-2037 | (5) | 93,800 |
| | 93,800 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 93,800 |
|
Avalon Acton | | 2.59 | % | | Jul-2040 | (5) | 45,000 |
| | 45,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 45,000 |
|
Avalon Morningside Park | | 2.10 | % | | May-2046 | (3) | 100,000 |
| | 100,000 |
| | — |
| | — |
| | — |
| | — |
| | 345 |
| | 99,655 |
|
Avalon Clinton North | | 2.63 | % | | Nov-2038 | (5) | 147,000 |
| | 147,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 147,000 |
|
Avalon Clinton South | | 2.63 | % | | Nov-2038 | (5) | 121,500 |
| | 121,500 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 121,500 |
|
Avalon Midtown West | | 2.54 | % | | May-2029 | (5) | 100,500 |
| | 100,500 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 100,500 |
|
Avalon San Bruno I | | 2.52 | % | | Dec-2037 | (5) | 64,450 |
| | 64,450 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 64,450 |
|
Avalon Calabasas | | 2.47 | % | | Apr-2028 | (5) | 44,410 |
| | 44,410 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 44,410 |
|
| | | | | | 818,795 |
| | 801,495 |
| | — |
| | — |
| | — |
| | — |
| | 345 |
| | 801,150 |
|
Conventional loans (2) | | |
| | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Fixed rate | | |
| | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
$250 million unsecured notes | | 6.19 | % | | Mar-2020 |
| 250,000 |
| | 250,000 |
| | — |
| | — |
| | — |
| | 250,000 |
| | — |
| | — |
|
$250 million unsecured notes | | 4.04 | % | | Jan-2021 |
| 250,000 |
| | 250,000 |
| | — |
| | — |
| | — |
| | — |
| | 250,000 |
| | — |
|
$450 million unsecured notes | | 4.30 | % | | Sep-2022 |
| 450,000 |
| | 450,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 450,000 |
|
$250 million unsecured notes | | 3.00 | % | | Mar-2023 |
| 250,000 |
| | 250,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 250,000 |
|
$400 million unsecured notes | | 3.78 | % | | Oct-2020 |
| 400,000 |
| | 400,000 |
| | — |
| | — |
| | — |
| | 400,000 |
| | — |
| | — |
|
$350 million unsecured notes | | 4.30 | % | | Dec-2023 |
| 350,000 |
| | 350,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 350,000 |
|
$300 million unsecured notes | | 3.66 | % | | Nov-2024 |
| 300,000 |
| | 300,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 300,000 |
|
$525 million unsecured notes | | 3.55 | % | | Jun-2025 |
| 525,000 |
| | 525,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 525,000 |
|
$300 million unsecured notes | | 3.62 | % | | Nov-2025 |
| 300,000 |
| | 300,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 300,000 |
|
$475 million unsecured notes | | 3.35 | % | | May-2026 |
| 475,000 |
| | 475,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 475,000 |
|
$300 million unsecured notes | | 3.01 | % | | Oct-2026 |
| 300,000 |
| | 300,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 300,000 |
|
$350 million unsecured notes | | 3.95 | % | | Oct-2046 |
| 350,000 |
| | 350,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 350,000 |
|
$400 million unsecured notes | | 3.50 | % | | May-2027 |
| — |
| | 400,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 400,000 |
|
$300 million unsecured notes | | 4.09 | % | | Jul-2047 |
| — |
| | 300,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 300,000 |
|
Avalon Orchards | | 7.80 | % | | Jul-2033 |
| 16,075 |
| | 15,717 |
| | 138 |
| | 577 |
| | 619 |
| | 663 |
| | 710 |
| | 13,010 |
|
Avalon Walnut Creek | | 4.00 | % | | Jul-2066 |
| 3,420 |
| | 3,557 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3,557 |
|
Avalon Mission Oaks | | 6.04 | % | | May-2019 | (6) | 19,545 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Avalon Stratford | | 6.02 | % | | May-2019 | (6) | 38,221 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
AVA Belltown | | 6.00 | % | | May-2019 | (6) | 60,766 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Avalon Encino | | 6.06 | % | | May-2019 | (6) | 33,882 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Avalon Run East | | 5.95 | % | | May-2019 | (6) | 36,305 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Avalon Wilshire | | 6.18 | % | | May-2019 | (6) | 61,268 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Avalon at Foxhall | | 6.06 | % | | May-2019 | (6) | 54,583 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Avalon at Gallery Place | | 6.06 | % | | May-2019 | (6) | 42,410 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Avalon at Traville | | 5.91 | % | | May-2019 | (6) | 71,871 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Avalon Bellevue | | 5.92 | % | | May-2019 | (6) | 24,695 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Avalon on the Alameda | | 5.91 | % | | May-2019 | (6) | 49,930 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Avalon at Mission Bay I | | 5.90 | % | | May-2019 | (6) | 67,772 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
AVA Pasadena | | 4.06 | % | | Jun-2018 |
| 11,287 |
| | 11,128 |
| | 54 |
| | 11,074 |
| | — |
| | — |
| | — |
| | — |
|
Avalon La Jolla Colony | | 3.36 | % | | Nov-2017 | (6) | 26,682 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Eaves Old Town Pasadena | | 3.36 | % | | Nov-2017 | (6) | 14,120 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Eaves Thousand Oaks | | 3.36 | % | | Nov-2017 | (6) | 26,392 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Archstone Lexington | | 3.36 | % | | Nov-2017 | (7) | 21,601 |
| | 21,601 |
| | 21,601 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Eaves Los Feliz | | 3.36 | % | | Nov-2017 | (6) | 41,302 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Avalon Oak Creek | | 3.36 | % | | Nov-2017 | (6) | 69,696 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Avalon Del Mar Station | | 3.36 | % | | Nov-2017 | (6) | 70,854 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Avalon Courthouse Place | | 3.36 | % | | Nov-2017 | (6) | 118,112 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Avalon Pasadena | | 3.36 | % | | Nov-2017 | (6) | 25,805 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Eaves West Valley | | 3.36 | % | | Nov-2017 | (6) | 146,696 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Eaves Woodland Hills | | 3.36 | % | | Nov-2017 | (6) | 98,732 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Avalon Russett | | 3.36 | % | | Nov-2017 | (6) | 32,199 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Eaves Los Feliz | | 3.68 | % | | Jun-2027 | (8) | — |
| | 41,400 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 41,400 |
|
Eaves Woodland Hills | | 3.66 | % | | Jun-2027 | (8) | — |
| | 111,500 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 111,500 |
|
Avalon Russett | | 3.62 | % | | Jun-2027 | (8) | — |
| | 32,200 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 32,200 |
|
Avalon San Bruno II | | 3.85 | % | | Apr-2021 |
| 30,001 |
| | 29,663 |
| | 130 |
| | 534 |
| | 564 |
| | 591 |
| | 27,844 |
| | — |
|
Avalon Westbury | | 4.88 | % | | Nov-2036 | (3) | 17,745 |
| | 16,780 |
| | 329 |
| | 1,358 |
| | 1,426 |
| | 1,499 |
| | 1,574 |
| | 10,594 |
|
Avalon San Bruno III | | 3.18 | % | | Jun-2020 |
| 54,408 |
| | 53,617 |
| | 302 |
| | 1,226 |
| | 1,264 |
| | 50,825 |
| | — |
| | — |
|
Avalon Andover | | 3.29 | % | | Apr-2018 |
| 13,844 |
| | 13,585 |
| | 88 |
| | 13,497 |
| | — |
| | — |
| | — |
| | — |
|
Avalon Natick | | 3.14 | % | | Apr-2019 |
| 14,170 |
| | 13,917 |
| | 86 |
| | 349 |
| | 13,482 |
| | — |
| | — |
| | — |
|
Avalon Hoboken | | 3.55 | % | | Dec-2020 |
| 67,904 |
| | 67,904 |
| | — |
| | — |
| | — |
| | 67,904 |
| | — |
| | — |
|
Avalon Columbia Pike | | 3.24 | % | | Nov-2019 |
| 70,019 |
| | 69,019 |
| | 381 |
| | 1,553 |
| | 67,085 |
| | — |
| | — |
| | — |
|
| | |
| | | | 5,752,312 |
| | 5,401,588 |
| | 23,109 |
| | 30,168 |
| | 84,440 |
| | 771,482 |
| | 280,128 |
| | 4,212,261 |
|
| | | | | | | | | | | | | | | | | | | | |
Variable rate | | |
| | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Avalon Calabasas | | 2.41 | % | | Aug-2018 | (5) | 53,570 |
| | 52,407 |
| | 311 |
| | 52,096 |
| | — |
| | — |
| | — |
| | — |
|
Avalon Natick | | 3.56 | % | | Apr-2019 | (5) | 35,897 |
| | 35,256 |
| | 216 |
| | 884 |
| | 34,156 |
| | — |
| | — |
| | — |
|
Term Loan - $300 million | | 2.78 | % | | Mar-2021 |
| 300,000 |
| | 300,000 |
| | — |
| | — |
| | — |
| | — |
| | 300,000 |
| | — |
|
Term Loan - $100 million | | 2.33 | % | | Feb-2022 |
| — |
| | 100,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 100,000 |
|
Term Loan - $150 million | | 2.87 | % | | Feb-2024 |
| — |
| | 150,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 150,000 |
|
| | |
| | | | 389,467 |
| | 637,663 |
| | 527 |
| | 52,980 |
| | 34,156 |
| | — |
| | 300,000 |
| | 250,000 |
|
| | | | | | | | | | | | | | | | | | | | |
Total indebtedness - excluding Credit Facility | | |
| | | | $ | 7,076,758 |
| | $ | 6,956,443 |
| | $ | 23,824 |
| | $ | 83,925 |
| | $ | 119,419 |
| | $ | 772,353 |
| | $ | 581,395 |
| | $ | 5,375,527 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | All-In interest rate (1) | | Principal maturity date | | Balance Outstanding (2) | | Scheduled Maturities |
| | | | 12/31/2022 | | 6/30/2023 | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | Thereafter |
Tax-exempt bonds | | | | | | | | | | | | | | | | | | | | |
Variable rate | | | | | | | | | | | | | | | | | | | | |
Avalon Acton | | 5.05 | % | | Jul-2040 | (3) | $ | 45,000 | | | $ | 45,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 45,000 | |
Avalon Clinton North | | 5.70 | % | | Nov-2038 | (3) | 147,000 | | | 147,000 | | | — | | | — | | | — | | | — | | | 700 | | | 146,300 | |
Avalon Clinton South | | 5.70 | % | | Nov-2038 | (3) | 121,500 | | | 121,500 | | | — | | | — | | | — | | | — | | | 600 | | | 120,900 | |
Avalon Midtown West | | 5.65 | % | | May-2029 | (3) | 82,700 | | | 76,600 | | | — | | | 6,800 | | | 7,300 | | | 8,100 | | | 8,800 | | | 45,600 | |
Avalon San Bruno I | | 5.59 | % | | Dec-2037 | (3) | 60,950 | | | 59,650 | | | 900 | | | 2,300 | | | 2,400 | | | 2,500 | | | 2,800 | | | 48,750 | |
| | | | | | 457,150 | | | 449,750 | | | 900 | | | 9,100 | | | 9,700 | | | 10,600 | | | 12,900 | | | 406,550 | |
Conventional loans | | | | | | | | | | | | | | | | | | | | |
Fixed rate | | | | | | | | | | | | | | | | | | | | |
$250 million unsecured notes | | — | % | | Mar-2023 | (4) | 250,000 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
$350 million unsecured notes | | 4.30 | % | | Dec-2023 | | 350,000 | | | 350,000 | | | 350,000 | | | — | | | — | | | — | | | — | | | — | |
$300 million unsecured notes | | 3.66 | % | | Nov-2024 | | 300,000 | | | 300,000 | | | — | | | 300,000 | | | — | | | — | | | — | | | — | |
$525 million unsecured notes | | 3.55 | % | | Jun-2025 | | 525,000 | | | 525,000 | | | — | | | — | | | 525,000 | | | — | | | — | | | — | |
$300 million unsecured notes | | 3.62 | % | | Nov-2025 | | 300,000 | | | 300,000 | | | — | | | — | | | 300,000 | | | — | | | — | | | — | |
$475 million unsecured notes | | 3.35 | % | | May-2026 | | 475,000 | | | 475,000 | | | — | | | — | | | — | | | 475,000 | | | — | | | — | |
$300 million unsecured notes | | 3.01 | % | | Oct-2026 | | 300,000 | | | 300,000 | | | — | | | — | | | — | | | 300,000 | | | — | | | — | |
$350 million unsecured notes | | 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 | | | — | | | — | | | — | | | — | | | — | | | 300,000 | |
$450 million unsecured notes | | 3.66 | % | | Jun-2029 | | 450,000 | | | 450,000 | | | — | | | — | | | — | | | — | | | — | | | 450,000 | |
$700 million unsecured notes | | 2.69 | % | | Mar-2030 | | 700,000 | | | 700,000 | | | — | | | — | | | — | | | — | | | — | | | 700,000 | |
$600 million unsecured notes | | 2.65 | % | | Jan-2031 | | 600,000 | | | 600,000 | | | — | | | — | | | — | | | — | | | — | | | 600,000 | |
$700 million unsecured notes | | 2.16 | % | | Jan-2032 | | 700,000 | | | 700,000 | | | — | | | — | | | — | | | — | | | — | | | 700,000 | |
$400 million unsecured notes | | 2.03 | % | | Dec-2028 | | 400,000 | | | 400,000 | | | — | | | — | | | — | | | — | | | — | | | 400,000 | |
$350 million unsecured notes | | 4.38 | % | | Feb-2033 | | 350,000 | | | 350,000 | | | — | | | — | | | — | | | — | | | — | | | 350,000 | |
Avalon Walnut Creek | | 4.00 | % | | Jul-2066 | | 4,327 | | | 4,327 | | | — | | | — | | | — | | | — | | | — | | | 4,327 | |
eaves Los Feliz | | 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 III | | 2.38 | % | | Mar-2027 | | 51,000 | | | 51,000 | | | — | | | — | | | — | | | — | | | 51,000 | | | — | |
Avalon Cerritos | | 3.35 | % | | Aug-2029 | | 30,250 | | | 30,250 | | | — | | | — | | | — | | | — | | | — | | | 30,250 | |
| | | | | | 7,770,677 | | | 7,520,677 | | | 350,000 | | | 300,000 | | | 825,000 | | | 775,000 | | | 636,100 | | | 4,634,577 | |
| | | | | | | | | | | | | | | | | | | | |
Variable rate | | | | | | | | | | | | | | | | | | | | |
Term Loan - $150 million | | 6.16 | % | | Feb-2024 | | 150,000 | | | 150,000 | | | — | | | 150,000 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total indebtedness - excluding Credit Facility and Commercial Paper | | | | | | $ | 8,377,827 | | | $ | 8,120,427 | | | $ | 350,900 | | | $ | 459,100 | | | $ | 834,700 | | | $ | 785,600 | | | $ | 649,000 | | | $ | 5,041,127 | |
_________________________
(1)Rates are as of June 30, 2023 and include credit enhancement fees, facility fees, trustees' fees, the impact of interest rate hedges, offering costs, mark-to-market amortization and other fees.
| |
(1) | Rates are given as of September 30, 2017. Includes 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 $42,909 and $36,698 as of September 30, 2017 and December 31, 2016, respectively, and deferred financing costs and debt discount associated with secured notes of $27,504 as of September 30, 2017, and deferred financing costs net of premium of $9,180 as of December 31, 2016, as reflected on our Condensed Consolidated Balance Sheets included elsewhere in this report. |
| |
(3) | Maturity date reflects the contractual maturity of the underlying bond. There is also an associated earlier credit enhancement maturity date. |
| |
(4) | In February 2017, we repaid this borrowing at par at its scheduled maturity date. |
| |
(5) | Financed by variable rate debt, but interest rate is capped through an interest rate protection agreement. |
| |
(6) | During the nine months ended September 30, 2017, we repaid this borrowing in advance of its scheduled maturity date. |
| |
(7) | In October 2017, we obtained a variable rate secured note in the amount of $21,700,000 that matures in October 2020, in association with the refinancing of this borrowing. |
| |
(8) | In May 2017, we repaid a borrowing secured by this community and subsequently refinanced the secured borrowing. |
(2)Balances outstanding represent total amounts due at maturity, and exclude deferred financing costs and debt discount for the unsecured notes of $44,307 and $47,695 as of June 30, 2023 and December 31, 2022, respectively, and deferred financing costs and debt discount associated with secured notes of $13,421 and $14,087 as of June 30, 2023 and December 31, 2022, respectively, as reflected on our Condensed Consolidated Balance Sheets included elsewhere in this report.
(3)Financed by variable rate debt, but interest rate is capped through an interest rate protection agreement.
(4)During 2023, we repaid this borrowing at its scheduled maturity date.
In addition to consolidated debt, we have scheduled contractual obligations associated with (i) ground leases for land underlying current operating or development communities and commercial and parking facilities and (ii) office leases for our corporate headquarters and regional offices. As of June 30, 2023, 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.
Future Financing and Capital Needs — Portfolio and Capital Markets Activity
DuringWe invest in various real estate and real estate related investments, which include (i) the remainderacquisition, development and redevelopment of 2017,communities both wholly-owned and through the formation of joint ventures, (ii) other indirect investments in real estate through the SIP, all as discussed further below and (iii) investments in other real estate-related ventures through direct and indirect investments in property technology and environmentally focused companies and investment management funds.
In 2023, we expect to continue to meet our liquidity needs from one or more of a variety of internal and external sources, which may include (i) real estate dispositions, (ii) cash balances on hand as well as cash generated from our operating activities, (iii) borrowing capacity under ourthe Credit Facility, (iv) borrowings under the Commercial Paper Program and (iv)(v) secured and unsecured debt financings. Additional sources of liquidity in 20172023 may include the issuance of common and preferred equity.equity, including the issuance of shares of our common stock under the CEP. 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 intendplan to plan adequate financingsource sufficient capital 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 offwrite-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 addition, we may invest, through mezzanine loans or other preferred equity investments, in multifamily development projects being undertaken by third parties. In these cases, we do not expect to acquire the underlying real estate but rather to earn a return on our investment (through interest or fixed rate preferred equity returns) and a return of the invested capital generally following completion of construction either on or before a set due date.
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 - Operating Communities
Fund II was established to engageAs of June 30, 2023, we had investments in athe following unconsolidated real estate acquisition program through a discretionary investment fund. We believeentities accounted for under the equity method of accounting, excluding development joint ventures. See Note 5, "Investments," of the Condensed Consolidated Financial Statements included elsewhere in this investment format providesreport. For joint ventures holding operating apartment communities as of June 30, 2023, detail of the real estate and associated indebtedness underlying our unconsolidated investments is presented in the following attributes: (i) third-party joint venture equitytable (dollars in thousands).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Company ownership percentage | | # of apartment homes | | Total capitalized cost | | Debt (1) |
| | | | | Principal Amount | | | | Interest rate | | Maturity date |
Unconsolidated Real Estate Investments | | | | | | Type | | |
| | | | | | | | | | | | | | |
NYTA MF Investors, LLC | | | | | | | | | | | | | | |
1. Avalon Bowery Place I - New York, NY | | | | 206 | | $ | 214,791 | | | $ | 93,800 | | | Fixed | | 4.01 | % | | Jan 2029 |
2. Avalon Bowery Place II - New York, NY | | | | 90 | | 91,326 | | | 39,639 | | | Fixed | | 4.01 | % | | Jan 2029 |
3. Avalon Morningside - New York, NY (2) | | | | 295 | | 211,763 | | | 111,530 | | | Fixed | | 3.55 | % | | Jan 2029/May 2046 |
4. Avalon West Chelsea - New York, NY (3) | | | | 305 | | 129,086 | | | 66,000 | | | Fixed | | 4.01 | % | | Jan 2029 |
5. AVA High Line - New York, NY (3) | | | | 405 | | 122,256 | | | 84,000 | | | Fixed | | 4.01 | % | | Jan 2029 |
Total NYTA MF Investors, LLC | | 20.0 | % | | 1,301 | | | 769,222 | | | 394,969 | | | | | 3.88 | % | | |
| | | | | | | | | | | | | | |
Other Operating Joint Ventures | | | | | | | | | | | | | | |
1. MVP I, LLC - Avalon at Mission Bay II - San Francisco, CA | | 25.0 | % | | 313 | | | 129,466 | | | 103,000 | | | Fixed | | 3.24 | % | | Jul 2025 |
2. Brandywine Apartments of Maryland, LLC - Brandywine - Washington, D.C. | | 28.7 | % | | 305 | | | 19,670 | | | 19,399 | | | Fixed | | 3.40 | % | | Jun 2028 |
3. Avalon Alderwood MF Member, LLC - Avalon Alderwood Place - Lynnwood, WA | | 50.0 | % | | 328 | | | 108,786 | | | — | | | N/A | | N/A | | N/A |
Total Other Joint Ventures | | | | 946 | | | 257,922 | | | 122,399 | | | | | 3.27 | % | | |
| | | | | | | | | | | | | | |
Total Unconsolidated Real Estate Investments (4) | | | | 2,247 | | | $ | 1,027,144 | | | $ | 517,368 | | | | | 3.73 | % | | |
_____________________________
(1)We have not guaranteed the debt of these unconsolidated investees and bear no responsibility for the repayment unless otherwise disclosed.
(2)Borrowing on this community is comprised of two mortgage loans. The interest rate is the weighted average interest rate as an additional source of financingJune 30, 2023.
(3)Borrowing on this dual-branded community is comprised of a single mortgage loan. This dual-branded community is subject to expand and diversify our portfolio; (ii) additional sources of incomea leasehold interest which is not included in the formtotal capitalized cost.
(4)In addition to leasehold assets, there were net other assets of property management$37,641 as of June 30, 2023 associated with our unconsolidated real estate investments which are primarily cash 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.cash equivalents.
Fund II has six institutional investors, including us. One of our wholly-owned subsidiaries is the general partner of Fund II and weWe have an equity investmentinterest of $2,657,000 (net of distributions), representing a 31.3% combined general partner28.6% in the U.S. Fund and limited partner equity interest. Uponupon 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 currently represents the first 40.0% of further Fund II distributions, which are in addition to our share of the remaining 60.0% of distributions. 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. In September 2017, Fund II sold its final apartment community.
U.S. Fund. During the ninethree months ended SeptemberJune 30, 2017,2023, we recognized income of $1,072,000 for our promoted interest included in income from unconsolidated investments on the accompanying Condensed Consolidated Statements of Comprehensive Income. The U.S. Fund II sold its final three communities containing 1,366 apartment homes forin 2022 and is in the process of being dissolved.
Unconsolidated Investments - Development Communities
The following table presents a sales price of $272,050,000. Our sharesummary of the gain was $26,322,000,Unconsolidated Development Communities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Unconsolidated Development Community | | Company ownership percentage | # of apartment homes | | Projected total capitalized cost (1) ($ millions) | | Construction start | | Initial projected occupancy | | Estimated completion |
1. | | AVA Arts District (2)(3) Los Angeles, CA | | 25.0 | % | 475 | | $ | 288 | | | Q3 2020 | | Q3 2023 | | Q4 2023 |
_____________________________
(1)Projected total capitalized cost includes all capitalized costs projected to be incurred to develop the respective Unconsolidated Development Community, determined in accordance with GAAP, including land acquisition costs, construction costs, real estate taxes, capitalized interest and in addition we recognized income for our promoted interest of $26,742,000. In conjunction with the disposition of these communities, Fund II repaid the remaining $127,179,000 of secured indebtedness at par in advance of the scheduled maturity dates.
The U.S. Fund has six institutional investors, including us. We are the general partner of the U.S. Fundloan fees, permits, professional fees and excludingother regulatory fees, as well as costs incurred in excessfor first generation commercial tenants such as tenant improvements and leasing commissions. Projected total capitalized cost is the total projected joint venture amount.
(2)AVA Arts District is expected to contain 56,000 square feet of our equity in the underlying net assetscommercial space.
(3)As of the U.S. Fund,June 30, 2023, we havehad contributed an equity investment in AVA Arts District of $40,788,000 (net of distributions), representing a 28.6% combined equity interest.$31,776. The U.S. Fund was formed in July 2011 and is fully invested.remaining development costs are primarily expected to be funded by the venture's variable rate construction loan. The U.S. Fund has a term that expires in July 2023, assuming the exercise of two, one-year extension options.
During the nine months ended September 30, 2017, the U.S. Fund sold one community containing 192 apartment homes for a sales price of $107,000,000. Our shareventure had drawn $111,662 of the gain was $13,788,000. In conjunction with the disposition of this community, the U.S. Fund repaid $32,542,000 of secured indebtedness in advance of its scheduled maturity date. This resulted in a charge for a prepayment penalty and the write-off of deferred financing costs, of which our portion was $406,000.
The AC JV has four institutional investors, including us. Excluding costs incurred in excess of our equity in the underlying net assets$167,147 maximum borrowing capacity of the AC JV,construction loan as of June 30, 2023. While we have an equity investmentguarantee the construction loan on behalf of $49,936,000 (net of distributions), representing a 20.0% equity interest. The AC JV was formed in 2011.
As of September 30, 2017, we had investments in unconsolidated real estate accounted forthe venture, any amounts under the equity method of accounting shown in the following table, excluding development joint ventures and Fund II, which sold its final apartment community in September 2017. Refer to Note 5, "Investments in Real Estate Entities,"guarantee are obligations of the Condensed Consolidated Financial Statements included elsewhereventure partners in this report, which includes information on the aggregate assets, liabilities and equity, as well as operating results, and our proportionate shareproportion to ownership interest.
|
| | | | | | | | | | | | | | | | | | | | | |
| | 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 |
| | $ | 57,073 |
| | $ | 29,073 |
| | Fixed | | 3.34 | % | | Nov 2022 |
2. Avalon Marina Bay - Marina del Rey, CA (4) | | |
| | 205 |
| | 77,149 |
| | 51,300 |
| | Fixed | | 1.56 | % | | Dec 2020 |
3. Avalon Venice on Rose - Venice, CA | | |
| | 70 |
| | 57,241 |
| | 29,269 |
| | Fixed | | 3.28 | % | | Jun 2020 |
4. Avalon Station 250 - Dedham, MA | | |
| | 285 |
| | 96,662 |
| | 56,653 |
| | Fixed | | 3.73 | % | | Sep 2022 |
5. Avalon Grosvenor Tower - Bethesda, MD | | |
| | 237 |
| | 79,973 |
| | 43,911 |
| | Fixed | | 3.74 | % | | Sep 2022 |
6. Avalon Kirkland at Carillon - Kirkland, WA | | |
| | 131 |
| | 60,725 |
| | 28,555 |
| | Fixed | | 3.75 | % | | Feb 2019 |
Total U.S. Fund | | 28.6 | % | | 1,077 |
| | 428,823 |
| | 238,761 |
| | | | 3.17 | % | | |
| | | | | | | | | | | | | | |
AC JV | | |
| | |
| | |
| | |
| | | | |
| | |
1. Avalon North Point - Cambridge, MA (5) | | |
| | 426 |
| | 187,539 |
| | 111,653 |
| | Fixed | | 6.00 | % | | Aug 2021 |
2. Avalon Woodland Park - Herndon, VA (5) | | |
| | 392 |
| | 85,924 |
| | 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 |
| | 300,268 |
| | 162,300 |
| | | | 6.00 | % | | |
| | | | | | | | | | | | | | |
Other Operating Joint Ventures | | |
| | |
| | |
| | |
| | | | |
| | |
1. MVP I, LLC | | 25.0 | % | | 313 |
| | 125,204 |
| | 103,000 |
| | Fixed | | 3.24 | % | | Jul 2025 |
2. Brandywine Apartments of Maryland, LLC | | 28.7 | % | | 305 |
| | 19,328 |
| | 22,899 |
| | Fixed | | 3.40 | % | | Jun 2028 |
Total Other Joint Ventures | | | | 618 |
| | 144,532 |
| | 125,899 |
| | | | 3.27 | % | | |
| | | | | | | | | | | | |
| | |
Total Unconsolidated Investments | | | | 2,616 |
| | $ | 873,623 |
| | $ | 526,960 |
| | | | 4.06 | % | | |
_____________________________
| |
(1) | Represents total capitalized cost as of September 30, 2017. |
| |
(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 September 30, 2017. |
| |
(4) | Borrowing on this community is a variable rate loan which has been converted to a fixed rate borrowing with an interest rate swap. |
| |
(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.
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 September 30, 2017, 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 SeptemberJune 30, 2017,2023, we owned or held a direct or indirect interest in 2317 Development Communities under construction. We expect these Development Communities, when completed, to add a total of 6,8885,761 apartment homes and 29,000 square feet of commercial space to our portfolio for a total capitalized cost, including land acquisition costs, of approximately $3,247,000,000, including the total projected capitalized cost for one community being developed within an unconsolidated joint venture in which we own a 55.0% interest.$2,293,000,000. We cannot assure you that we will meet our schedule for construction completion or that we will meet our budgeted costs, either individually, or in the aggregate. You should carefully review Item 1A. "Risk Factors" of our Form 10-K for a discussion of the risks associated with development activity.
The following table presents a summary of the Development Communities. We hold a fee simple ownership interest in these communities (directly or through a wholly-owned subsidiary) unless otherwise noted in the table.
| | | | Number of apartment homes | | Projected total capitalized cost (1) ($ 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 or actual occupancy | | Estimated completion | | Estimated stabilized operations (2) |
1. | | Avalon West Hollywood (4) West Hollywood, CA | 294 |
| | $ | 153.6 |
| | Q2 2014 | | Q1 2017 | | Q4 2017 | | Q1 2018 | 1. | | Avalon Somerville Station Somerville, NJ | 374 | | | $ | 123 | | | Q4 2020 | | Q2 2022 | | Q3 2023 | | Q4 2023 |
2. | | Avalon North Station Boston, MA | 503 |
| | 271.5 |
| | Q3 2014 | | Q4 2016 | | Q4 2017 | | Q3 2018 | 2. | | Avalon North Andover North Andover, MA | 221 | | | 78 | | | Q2 2021 | | Q4 2022 | | Q3 2023 | | Q4 2023 |
3. | | AVA NoMa Washington, D.C. | 438 |
| | 148.3 |
| | Q2 2015 | | Q1 2017 | | Q1 2018 | | Q3 2018 | 3. | | Avalon Merrick Park (3) Miami, FL | 254 | | | 103 | | | Q2 2021 | | Q2 2023 | | Q3 2023 | | Q2 2024 |
4. | | Avalon Great Neck Great Neck, NY | 191 |
| | 80.7 |
| | Q2 2015 | | Q2 2017 | | Q4 2017 | | Q2 2018 | 4. | | Avalon Amityville Amityville, NY | 338 | | | 135 | | | Q2 2021 | | Q3 2023 | | Q2 2024 | | Q4 2024 |
5. | | Avalon Brooklyn Bay (5) Brooklyn, NY | 180 |
| | 89.7 |
| | Q3 2015 | | Q3 2017 | | Q1 2018 | | Q3 2018 | 5. | | Avalon Bothell Commons I Bothell, WA | 467 | | | 236 | | | Q2 2021 | | Q3 2023 | | Q3 2024 | | Q2 2025 |
6. | | Avalon Newcastle Commons I (4) Newcastle, WA | 378 |
| | 122.8 |
| | Q3 2015 | | Q4 2016 | | Q4 2017 | | Q3 2018 | 6. | | Avalon Westminster Promenade Westminster, CO | 312 | | | 110 | | | Q3 2021 | | Q1 2024 | | Q2 2024 | | Q1 2025 |
7. | | Avalon Maplewood (6) Maplewood, NJ | 235 |
| | 65.4 |
| | Q4 2015 | | Q4 2017 | | Q3 2018 | | Q1 2019 | 7. | | Avalon West Dublin Dublin, CA | 499 | | | 270 | | | Q3 2021 | | Q4 2023 | | Q4 2024 | | Q2 2025 |
8. | | Avalon Rockville Centre II Rockville Centre, NY | 165 |
| | 57.8 |
| | Q4 2015 | | Q4 2017 | | Q4 2017 | | Q3 2018 | 8. | | Avalon Princeton Circle Princeton, NJ | 221 | | | 88 | | | Q4 2021 | | Q2 2023 | | Q1 2024 | | Q3 2024 |
9. | | AVA Wheaton Wheaton, MD | 319 |
| | 75.6 |
| | Q4 2015 | | Q3 2017 | | Q2 2018 | | Q4 2018 | 9. | | Avalon Montville Montville, NJ | 349 | | | 127 | | | Q4 2021 | | Q4 2023 | | Q3 2024 | | Q4 2024 |
10. | | Avalon Dogpatch San Francisco, CA | 326 |
| | 203.4 |
| | Q4 2015 | | Q3 2017 | | Q3 2018 | | Q1 2019 | 10. | | Avalon Redmond Campus (4) Redmond, WA | 214 | | | 85 | | | Q4 2021 | | Q4 2023 | | Q2 2024 | | Q4 2024 |
11. | | Avalon Easton Easton, MA | 290 |
| | 64.0 |
| | Q1 2016 | | Q1 2017 | | Q1 2018 | | Q3 2018 | 11. | | Avalon Governor's Park Denver, CO | 304 | | | 135 | | | Q1 2022 | | Q2 2024 | | Q3 2024 | | Q2 2025 |
12. | | Avalon Somers Somers, NY | 152 |
| | 45.1 |
| | Q2 2016 | | Q2 2017 | | Q1 2018 | | Q3 2018 | 12. | | Avalon West Windsor (5) West Windsor, NJ | 535 | | | 201 | | | Q2 2022 | | Q2 2025 | | Q3 2026 | | Q1 2027 |
13. | | AVA North Point (7) Cambridge, MA | 265 |
| | 113.9 |
| | Q2 2016 | | Q1 2018 | | Q4 2018 | | Q2 2019 | 13. | | Avalon Durham (3) Durham, NC | 336 | | | 125 | | | Q2 2022 | | Q2 2024 | | Q3 2024 | | Q2 2025 |
14. | | Avalon Boonton Boonton, NJ | 350 |
| | 91.2 |
| | Q3 2016 | | Q2 2019 | | Q1 2020 | | Q3 2020 | 14. | | Avalon Annapolis Annapolis, MD | 508 | | | 202 | | | Q3 2022 | | Q3 2024 | | Q3 2025 | | Q2 2026 |
15. | | 11 West 61st Street (4) New York, NY | 172 |
| | 603.7 |
| | Q4 2016 | | Q2 2019 | | Q4 2019 | | Q2 2020 | 15. | | Kanso Milford Milford, MA | 162 | | | 65 | | | Q4 2022 | | Q1 2024 | | Q3 2024 | | Q1 2025 |
16. | | Avalon Belltown Towers (4) Seattle, WA | 275 |
| | 146.9 |
| | Q4 2016 | | Q3 2019 | | Q4 2019 | | Q2 2020 | 16. | | Avalon Lake Norman (3) Mooresville, NC | 345 | | | 101 | | | Q1 2023 | | Q4 2024 | | Q4 2025 | | Q2 2026 |
17 | | Avalon Public Market Emeryville, CA | 289 |
| | 148.6 |
| | Q4 2016 | | Q3 2018 | | Q1 2019 | | Q3 2019 | |
18. | | Avalon Teaneck Teaneck, NJ | 248 |
| | 70.4 |
| | Q4 2016 | | Q4 2018 | | Q2 2019 | | Q4 2019 | |
19. | | AVA Hollywood (4) Hollywood, CA | 695 |
| | 365.1 |
| | Q4 2016 | | Q2 2019 | | Q2 2020 | | Q4 2020 | |
20. | | AVA Esterra Park Redmond, WA | 323 |
| | 90.9 |
| | Q2 2017 | | Q4 2018 | | Q3 2019 | | Q1 2020 | |
21. | | Avalon at the Hingham Shipyard II Hingham, MA | 190 |
| | 64.2 |
| | Q2 2017 | | Q4 2018 | | Q2 2019 | | Q4 2019 | |
22. | | Avalon Piscataway Piscataway, NJ | 360 |
| | 89.2 |
| | Q2 2017 | | Q3 2018 | | Q2 2019 | | Q4 2019 | |
23. | | Avalon Sudbury Sudbury, MA | 250 |
| | 85.0 |
| | Q3 2017 | | Q2 2018 | | Q1 2019 | | Q3 2019 | |
17. | | 17. | | Avalon Hunt Valley West Hunt Valley, MD | 322 | | | 109 | | | Q2 2023 | | Q1 2025 | | Q1 2026 | | Q3 2026 |
| | Total | 6,888 |
| | $ | 3,247.0 |
| | | | Total | 5,761 | | | $ | 2,293 | | |
(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, as well as costs incurred for first generation commercial tenants such as tenant improvements and leasing commissions.
| |
(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 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). |
(2)Stabilized operations is defined as the earlier of (i) attainment of 90% or greater physical occupancy or (ii) the one-year anniversary of completion of development.
| |
(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 $48,800,000, which together with the partner's contributed equity is expected to fund the condominium portion of the project. |
| |
(6) | In February 2017, a fire occurred at Maplewood. See Note 1, "Organization, Basis and Presentation and Significant Accounting Policies - Legal and Other Contingencies," and Note 5, "Investments in Real Estate Entities - Casualty Gains and Losses," in the accompanying Condensed Consolidated Financial Statements for additional discussions related to the Maplewood casualty loss. |
| |
(7) | We are developing this project within an unconsolidated joint venture that was formed in July 2016, in which we own a 55.0% interest. The projected total capitalized cost above represents the total cost for the venture. |
(3)Communities being developed through our Developer Funding Program. We use the DFP to accelerate wholly-owned development in our expansion regions, by utilizing third-party multifamily developers to source and construct communities which we own and operate.
(4)Avalon Redmond Campus is a densification of the existing eaves Redmond Campus wholly-owned community, replacing 48 existing older apartment homes that were demolished.
(5)Development Communities containing at least 10,000 square feet of commercial space include Avalon West Windsor (19,000 square feet).
During the three months ended SeptemberJune 30, 2017,2023, we completed the development of the following wholly-owned communities:
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| | | | | | | | | | | | | | | |
| Number of apartment homes | | Total capitalized cost (1) ($ millions) | | Approximate rentable area (sq. ft.) | | Total capitalized cost per sq. ft. |
1. | | Avalon Chino Hills Chino Hills, CA | 331 |
| | $ | 96.6 |
| | 327,890 |
| | $ | 295 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of apartment homes | | Total capitalized cost (1) ($ millions) | | Approximate rentable area (sq. ft.) | | Total capitalized cost per sq. ft. |
1. | | Avalon Harrison (2) Harrison, NY | 143 | | | $ | 94 | | | 171,036 | | | $ | 550 | |
2. | | Avalon Brighton Boston, MA | 180 | | | 90 | | | 167,230 | | | $ | 538 | |
| | Total | 323 | | | $ | 184 | | | | | |
| |
(1) | (1)Total capitalized cost is as of September 30, 2017. We generally anticipate incurring additional costs associated with these communities that are customary for new developments. |
We anticipate commencing the construction of four apartment communities during the balance of 2017, which, if completed as expected, will contain 1,495 apartment homes and be constructed for a total capitalized cost is as of $471,600,000.
Redevelopment Communities
As of SeptemberJune 30, 2017, there were ten communities under active redevelopment.2023. We expect the total capitalized cost to redevelopgenerally anticipate incurring additional costs associated with these communities to be $213,200,000, excluding costs incurred prior to redevelopment. We have found that the cost to redevelop an existing apartment community is more difficult to budget and estimate than the cost to develop aare customary for new community. Accordingly, we expect that actual costs may vary from our budget by a wider range than for a new development community. We cannot assure you that we will meet our schedule for reconstruction completion or for attaining restabilized operations, or that we will meet our budgeted costs, either individually or in the aggregate. We anticipate maintaining or increasing our current leveldevelopments.
(2)Avalon Harrison contains 27,000 square feet of redevelopment activity related to communities in our current operating portfolio for the remainder of 2017. You should carefully review Item 1A. "Risk Factors" of our Form 10-K for a discussion of the risks associated with redevelopment activity.commercial space.
The following presents a summary of these Redevelopment Communities:
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| | | | | | | | | | | | | | | |
| | | | Number of apartment homes | | Projected total capitalized cost (1) ($ millions) | | Reconstruction start | | Estimated reconstruction completion | | Estimated restabilized operations (2) |
1. | | Avalon on the Alameda San Jose, CA | | 305 |
| | $ | 10.2 |
| | Q1 2017 | | Q1 2018 | | Q3 2018 |
2. | | Toluca Hills Apartments by Avalon Los Angeles, CA | | 1,151 |
| | 40.0 |
| | Q1 2017 | | Q1 2020 | | Q3 2020 |
3. | | Avalon at Chestnut Hill Chestnut Hill, MA | | 204 |
| | 9.2 |
| | Q1 2017 | | Q4 2017 | | Q2 2018 |
4. | | Avalon Prudential Center II Boston, MA | | 266 |
| | 18.7 |
| | Q1 2017 | | Q3 2019 | | Q1 2020 |
5. | | Avalon Midtown West New York, NY | | 550 |
| | 30.0 |
| | Q1 2017 | | Q2 2019 | | Q4 2019 |
6. | | Avalon Willow Mamaroneck, NY | | 227 |
| | 13.1 |
| | Q2 2017 | | Q1 2018 | | Q3 2018 |
7. | | Avalon at Edgewater II (3) Edgewater, NJ | | 240 |
| | 60.0 |
| | Q2 2017 | | Q1 2019 | | Q3 2019 |
8. | | AVA Studio City II Studio City, CA | | 101 |
| | 5.8 |
| | Q2 2017 | | Q4 2017 | | Q2 2018 |
9. | | Avalon at Florham Park Florham Park, NJ | | 270 |
| | 12.9 |
| | Q3 2017 | | Q3 2018 | | Q1 2019 |
10. | | AVA Van Ness Washington, D.C. | | 269 |
| | 13.3 |
| | Q3 2017 | | Q1 2019 | | Q3 2019 |
| | Total | | 3,583 |
| | $ | 213.2 |
| | | | | | |
| |
(1) | Projected total capitalized cost does not include capitalized costs incurred prior to redevelopment. |
| |
(2) | 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 SeptemberJune 30, 2017,2023, we had $85,863,000$195,115,000 in acquisition and related capitalized costs for direct interests in eight land parcels we own, and $48,546,000own. In addition, we had $71,421,000 in capitalized costs (including legal fees, design fees and related overhead costs) related to (i) 31 Development Rights for which we control the land parcel, typically through a conditional agreement or option to purchase or lease the land.land, as well as (ii) costs incurred for four Development Rights that we expect to construct as additional phases of our existing stabilized operating communities on land we own. Collectively, the land held for development and associated costs for deferred development rights relate to 2543 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 September 30, 2017 includes $62,246,000 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 8,39214,993 apartment homes to our portfolio. Substantially all of these apartment homes will offer features like those offered by the communities we currently own.
For 18 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 five 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. 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 five of the Development Rights for which we currently own the land, with a carrying basis of $85,863,000.
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 unrecoverable capitalized pre-development costs are charged to expense. DuringFor the ninethree and six months ended SeptemberJune 30, 2017,2023, we incurred a charge of approximately $2,087,000$1,261,000 and $4,253,000, respectively, for expensed transaction, development and other pursuit costs, net of recoveries, which include development pursuits that were not yet probable of future development at the time incurred, or for pursuits that we determined would not likely bewere no longer probable of being developed.
Structured Investment Program
In July 2023, we entered into an additional mezzanine loan commitment, agreeing to fund up to $20,900,000 of a multifamily development project in North Carolina. As of July 31, 2023, we had commitments to fund four mezzanine loans of up to $113,275,000 in the aggregate under the SIP in our existing markets. As of July 31, 2023, the mezzanine loans have a weighted average rate of return of 10.4% and mature at various dates on or before July 2027. As of July 31, 2023, we had funded $63,553,000 of these commitments. See Note 5, "Investments," of the Condensed Consolidated Financial Statements included elsewhere in this report.
You should carefully review Part I, Item 1A. "Risk Factors" of our Form 10-K, as well as the discussion under Part II, Item 1A. "Risk Factors" in this report, for a discussion of the risks associated with Development Rights.our investment activity.
Supplemental U.S. Federal Income Tax Considerations
The following presents a summarydiscussion supplements and updates the disclosures under “Certain U.S. Federal Income Tax Considerations and Consequences of the Development Rights as of September 30, 2017:
|
| | | | | | | | | | |
Market | | Number of rights | | Estimated number of homes | | Projected total capitalized cost ($ millions) (1) |
| | | | | | |
New England | | 4 |
| | 908 |
| | $ | 336 |
|
Metro NY/NJ | | 11 |
| | 4,434 |
| | 1,643 |
|
Mid-Atlantic | | 3 |
| | 996 |
| | 312 |
|
Pacific Northwest | | 2 |
| | 588 |
| | 158 |
|
Northern California | | 4 |
| | 991 |
| | 512 |
|
Southern California | | 1 |
| | 475 |
| | 245 |
|
Total | | 25 |
| | 8,392 |
| | $ | 3,206 |
|
| |
(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. |
Other Land and Real Estate Assets
We own land parcels with a carrying value of $13,636,000, on which we do not currently plan to develop and operate an apartment community. These parcels consist of both ancillary parcels acquired 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 nine months ended September 30, 2017, we recognized an impairment charge of $9,350,000 for one land parcel that we did not plan to develop and sold in July 2017. We believe that the current carrying value for all other land parcels is such that there is no indication of impaired value, or further need to record a charge for impairmentYour Investment” in the case of assets previously impaired. However, we may be subject toprospectus dated February 25, 2021 (the “Base Prospectus”) contained in our Registration Statement on Form S-3 filed with the recognition of further charges for impairment in the event that there are indicators of such impairment and we determine that the carrying value of the assets is greater than the current fair value, less costs to dispose.
Insurance and Risk of Uninsured Losses
We maintain commercial general liability insurance and property insurance with respect to all of our communities. These policies, along with other insurance policies we maintain, have policy specifications, insured and self-insured limits, exclusions and deductibles that we consider commercially reasonable. In addition,SEC on February 25, 2021 (the “Registration Statement”), as described further below, we self-insure a portion of our exposure for commercial general liability and property losses through a wholly-owned captive insurance company. There are, however, certain types of losses (such as losses arising from nuclear liability or acts of war) that are not insured, in full or in part, because they are either uninsurable or the cost of insurance makes it, in management’s view, economically impractical. You should carefully reviewsupplemented by the discussion under Item 1A. “Risk Factors” of ourthe heading “Supplemental U.S. Federal Income Tax Considerations” in the Company’s Annual Report on Form 10-K for a discussionthe year ended December 31, 2022, as filed with the SEC on February 24, 2023.
The second paragraph under the heading “—U.S. Taxation of Non-U.S. Stockholders-Distributions Attributable to Sale or liability loss.
ManyExchange of our West Coast communities are locatedReal Property” in the general vicinity of active earthquake faults. Many of our communities are near,Base Prospectus is hereby deleted and thus susceptiblereplaced with the following:
Subject to the major fault lines in California,following paragraph, we will be required to withhold and remit to the IRS 21% (or the then applicable highest corporate rate of U.S. federal income tax) of any distributions to non-U.S. stockholders attributable to gain from our sale or exchange of U.S. real property interests. Under long-standing regulations, we also may be required to withhold on any distributions to non-U.S. stockholders that we designate as capital gain dividends, including any distributions that could have been designated as capital gain dividends. Amounts so withheld are creditable against the San Andreas Fault, the Hayward Faultnon-U.S. stockholder’s U.S. federal income tax liability. A non-U.S. stockholder who receives distributions attributable to gain from a sale or other
geological faults that are known or unknown. We cannot assure you that an earthquake would not cause damage or losses greater than our current insured levels. We procureexchange by us of U.S. real property damage and resulting business interruption insurance coverage with limits of $175,000,000 for any single occurrence and in the annual aggregate for losses resulting from earthquakes. However for communities located in California or Washington, the limit is $150,000,000 for any single occurrence and in the annual aggregate for losses resulting from earthquakes. The deductible applicableinterests will be required to losses resulting from earthquakes occurring in California is five percent of the insured value of each damaged building subject tofile a minimum of $100,000 and a maximum of $25,000,000 per loss.
Our communities are insured for property damage and business interruption losses through a combination of community specific insurance policies and/or coverage provided under a master property insurance policy covering the majority of our communities. The master policy provides a $400,000,000 limit for any single occurrence, subject to certain sublimits and exclusions. Under the master policy we are subject to a $100,000 deductible per occurrence, as well as additional self-insured retentionU.S. federal income tax return for the next $350,000 of loss, per occurrence, until the aggregate incurred self-insured retention exceeds $1,500,000 for the policytaxable year.
Our communities are insured for third-party liability losses through a combination of community specific insurance policies and/or coverage provided under a master commercial general liability and umbrella/excess insurance policies. The master commercial general liability and umbrella/excess insurance policies cover the majority of our communities and are subject to certain coverage limitations and exclusions, and include a self-insured retention of $500,000 per occurrence.
We utilize a wholly-owned captive insurance company to insure certain types and amounts of risks, which includes property damage and resulting business interruption losses, general liability insurance and other construction related liability risks. In addition to our potential liability for the various policy self-insured retentions and deductibles, our captive insurance company is directly responsible for (i) 25% of the first $50,000,000 of losses (per occurrence) incurred by the master property insurance policy and (ii) covered liability claims arising out of our commercial general liability policy, subject to a $2,000,000 per occurrence loss limit.
Just as with office buildings, transportation systems and government buildings, there have been reports that apartment communities could become targets of terrorism. In January 2015, the President signed the Terrorism Risk Insurance Program Reauthorization Act (“TRIPRA”) which extended a program that is designed to make terrorism insurance available through a federal back-stop program. Certain communities are insured for terrorism related losses through this federal program. We have also purchased private-market insurance for property damage due to terrorism with limits of $600,000,000 per occurrence and in the annual aggregate that includes certain coverages (not covered under TRIPRA) such as domestic-based terrorism. This insurance, often referred to as “non-certified” terrorism insurance, is subject to deductibles, limits and exclusions. Our general liability policy provides terrorism coverage through TRIPRA (subject to deductibles and insured limits) for liability to third parties that result from terrorist acts at our communities.
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""will," "pursue" 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;
•the impact of landlord-tenant laws and rent regulations;
•our expansion into new markets;
•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 Metro New York/New Jersey, Northern and Southern California, Denver, Colorado, Southeast Florida, Dallas and Austin, Texas and Charlotte and Raleigh-Durham, North Carolina, 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;conditions, including rising interest rates and general price inflation;
•trends affecting our financial condition or results of operations;
•regulatory changes that may affect us;
•the impact of a pandemic or other public health event on our business, results of operations and financial condition; and
•the impact of legal proceedings relating to the Edgewater casualty loss and related matters, including liability to third parties resulting therefrom.proceedings.
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 Part I, Item 1A. "Risk Factors" of our Form 10-K and Part II, 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-partiesthird 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;
•the impact of new landlord-tenant laws and rent regulations may be greater than we expect;
•an outbreak of disease or other public health event may affect the multifamily industry and general economy, including from measures taken by businesses and the government and the preferences of consumers and businesses for living and working arrangements both during and after such an event;
•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 orjoint ventures and the REIT vehicles that are used with each respectivecertain joint venture;ventures;
we•laws and regulations implementing rent control or rent stabilization, or otherwise limiting our ability to increase rents, charge fees or evict tenants, may be unsuccessful in managing changes inimpact our portfolio composition; andrevenue or increase our costs;
•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.change;
•the possibility that we may choose to pay dividends in our stock instead of cash, which may result in stockholders having to pay taxes with respect to such dividends in excess of the cash received, if any; and
•investments made under the SIP in either mezzanine debt or preferred equity of third-party multifamily development may not be repaid as expected or the development may not be completed on schedule, which could require us to engage in litigation, foreclosure actions, and/or first party project completion to recover our investment, which may not be recovered in full or at all in such event.
Critical Accounting Policies and Estimates
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)and (ii) abandoned pursuit costs and asset impairment, (iv) REIT status and (v) acquisition of investments in real estate.impairment. Our critical accounting policies and estimates have not changed materially from the discussion of our significant accounting policies found in Management'sPart II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of OperationsOperations" in our Form 10-K.
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to our exposures to market risk sinceas disclosed in Part II, Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the year ended December 31, 2016.2022.
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ITEM 4. | CONTROL AND PROCEDURES |
ITEM 4. CONTROLS AND PROCEDURES
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(a) | Evaluation of disclosure controls 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 SeptemberJune 30, 2017.2023. 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 Securities Exchange Act of 1934 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.
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(b) | (b)Changes in internal controls over financial reporting. |
During the first quarter of 2017, the Company commenced 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 expected 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 controls over financial reporting as related to construction and development related operational and financial accounting functions.reporting.
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PART II. | OTHER INFORMATION |
PART II.OTHER INFORMATION
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ITEM 1. | 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 AvalonBay 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 105 units have settled claims with the Company's insurer. Due to the final approval of the class settlement (referenced below), this claims process has been suspended.
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 settlement which provides 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 July 2017 the District Court granted final approval of the class action settlement and all claims were submitted to the independent claims adjuster by September 11, 2017. 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 bound by its terms. However, only 42 units submitted claims. The independent claims adjuster is currently reviewing the claims submitted, which total approximately $6,800,000, and it is expected that awards should be issued within the next two months. 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. In addition to the class action lawsuits described above, 19 lawsuits representing approximately 143 individual plaintiffs have been filed in the Superior Court of New Jersey Bergen County - Law Division and are currently pending. All of these state court cases, except for one that was recently filed, have been consolidated by the court. All of these plaintiffs, except for two, formally opted out of the class action settlement described above and have decided to continue their individual actions. The Company believes that it has meritorious defenses to the extent of damages claimed in all of the suits. The 18 consolidated lawsuits currently have a trial date of January 2, 2018. There are also six 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 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 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) 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 administrativelegal proceedings unrelated to the Edgewater casualty loss that arise in the ordinary course of its business. While no assurances canthe resolutions of these matters cannot be given,predicted with certainty, 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 whichthat could materially affect our business, financial condition or future results discussed in our Annual Report on Form 10-K for the year ended December 31, 2022 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, 2016.2022.
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ITEM 2. | ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
(a) None.
(b) Not applicable.
(c) 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) |
July 1 - July 31, 2017 | | 48 |
| | $ | 187.84 |
| | — |
| | $ | 200,000 |
|
August 1 - August 31, 2017 | | 1,046 |
| | $ | 191.08 |
| | — |
| | $ | 200,000 |
|
September 1 - September 30, 2017 | | 52 |
| | $ | 187.73 |
| | — |
| | $ | 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 Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs (in thousands) (2) |
April 1- April 30, 2023 | | 5,363 | | | $ | 163.47 | | | 4,800 | | | $ | 314,237 | |
May 1- May 31, 2023 | | 959 | | | $ | 179.63 | | | — | | | $ | 314,237 | |
June 1- June 30, 2023 | | — | | | $ | — | | | — | | | $ | 314,237 | |
Total | | 6,322 | | | $ | 165.92 | | | 4,800 | | | |
| |
(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. |
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(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. |
(1)Consists of shares surrendered to the Company in connection with exercise of stock options as payment of exercise price and activity under the Stock Repurchase Program, as well as for taxes associated with the vesting of restricted share grants and the conversion of performance awards to shares of common stock. (2)The Board of Directors approved the Stock Repurchase Program in July 2020, under which the Company may acquire shares of its common stock in open market or negotiated transactions up to an aggregate purchase price of $500,000,000. Purchases of common stock under the 2020 Stock Repurchase Program may be exercised from time to time in the Company’s discretion and in such amounts as market conditions warrant. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions and other corporate liquidity requirements and priorities. The 2020 Stock Repurchase Program does not have an expiration date and may be suspended or terminated at any time without prior notice.
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ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.During the three months ended June 30, 2023, none of the Company's directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K).
ITEM 6. EXHIBITS
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| | | | | | | | | | | | | |
Exhibit No. | | | | Description |
| | | | |
3(i).1 | | — | | |
3(i).2 | | — | | |
3(i).3 | | — | | |
3(ii).13(i).4 | | — | | |
3(ii).1 | | — | | Amended and Restated Bylaws of the Company, as adopted by the Board of Directors on November 12, 2015.2015, and as further amended on February 16, 2017, November 9, 2017, and May 6, 2019. (Incorporated by reference to Exhibit 3(ii).1 to Form 10-K10-Q of the Company filed February 26, 2016.August 6, 2019.) |
3(ii).2 | | — | | |
4.1 | | — | | |
4.2 | | — | | |
4.3 | | — | | |
4.4 | | — | | |
4.5 | | — | | |
4.6 | | — | | |
4.731.1 | | — | | |
4.8 | | — | | |
4.9 | | — | | |
4.10 | | — | | |
12.1 | | — | | |
|
| | | | |
31.1 | | — | | |
31.2 | | — | | |
32 | | — | | |
101 | | — | | XBRL (Extensible Business Reporting Language). The following financial materials from AvalonBay Communities, Inc.'s Quarterly Report on Form 10-Q for the period ended SeptemberJune 30, 2017,2023 formatted in XBRL:Inline XBRL (Extensible Business Reporting Language) includes: (i) condensed consolidated balance sheets,the Condensed Consolidated Balance Sheets, (ii) condensed consolidated statementsthe Condensed Consolidated Statements of comprehensive income,Comprehensive Income, (iii) condensed consolidated statementsthe Condensed Consolidated Statements of cash flowsCash Flows and (iv) notesNotes to condensed consolidated financial statements.the Condensed Consolidated Financial Statements. (Filed herewith.) |
104 | | — | | Cover Page Interactive Data File (embedded within the Inline XBRL document). (Filed herewith.) |
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.
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| | | | | | | |
| AVALONBAY COMMUNITIES, INC. |
| | |
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Date: | November 3, 2017August 4, 2023 | /s/ Timothy J. NaughtonBenjamin W. Schall |
| | Timothy J. NaughtonBenjamin W. Schall |
| | Chairman, Chief Executive Officer and President |
| | (Principal Executive Officer) |
| | |
Date: | November 3, 2017August 4, 2023 | /s/ Kevin P. O'Shea |
| | Kevin P. O'Shea |
| | Chief Financial Officer |
| | (Principal Financial Officer) |