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 |
For the quarterly period ended September 30, 20222023
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 number: 1-12672
AVALONBAY COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
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Maryland | | 77-0404318 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
4040 Wilson Blvd., Suite 1000
Arlington, Virginia 22203
(Address of principal executive 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 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
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 | ☐ | |
| | | | Emerging growth company | ☐ | |
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date:
139,897,351142,015,112 shares of common stock, par value $0.01 per share, were outstanding as of October 31, 2022.2023.
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)
| | | 9/30/2022 | | 12/31/2021 | | September 30, 2023 | | December 31, 2022 |
| | (unaudited) | | | | (unaudited) | | |
ASSETS | ASSETS | | | | ASSETS | | | |
Real estate: | Real estate: | | | | Real estate: | | | |
Land and improvements | Land and improvements | $ | 4,625,920 | | | $ | 4,564,723 | | Land and improvements | $ | 4,671,252 | | | $ | 4,640,971 | |
Buildings and improvements | Buildings and improvements | 18,587,869 | | | 18,198,584 | | Buildings and improvements | 19,043,489 | | | 18,804,510 | |
Furniture, fixtures and equipment | Furniture, fixtures and equipment | 1,130,525 | | | 1,036,640 | | Furniture, fixtures and equipment | 1,252,247 | | | 1,174,135 | |
| | 24,344,314 | | | 23,799,947 | | | 24,966,988 | | | 24,619,616 | |
Less accumulated depreciation | Less accumulated depreciation | (6,671,984) | | | (6,208,610) | | Less accumulated depreciation | (7,349,202) | | | (6,878,556) | |
Net operating real estate | Net operating real estate | 17,672,330 | | | 17,591,337 | | Net operating real estate | 17,617,786 | | | 17,741,060 | |
Construction in progress, including land | Construction in progress, including land | 1,014,252 | | | 807,101 | | Construction in progress, including land | 1,317,350 | | | 1,072,543 | |
Land held for development | Land held for development | 167,277 | | | 147,546 | | Land held for development | 183,158 | | | 179,204 | |
For-sale condominium inventory | 38,509 | | | 146,535 | | |
Real estate assets held for sale, net | Real estate assets held for sale, net | 56,275 | | | 17,065 | | Real estate assets held for sale, net | 24,731 | | | — | |
Total real estate, net | Total real estate, net | 18,948,643 | | | 18,709,584 | | Total real estate, net | 19,143,025 | | | 18,992,807 | |
| Cash and cash equivalents | Cash and cash equivalents | 200,999 | | | 420,251 | | Cash and cash equivalents | 508,571 | | | 613,189 | |
Cash in escrow | 286,127 | | | 123,537 | | |
Resident security deposits | 36,958 | | | 33,757 | | |
Investments in unconsolidated entities | 217,265 | | | 216,390 | | |
Restricted cash | | Restricted cash | 271,535 | | | 121,056 | |
Unconsolidated investments | | Unconsolidated investments | 217,449 | | | 212,084 | |
Deferred development costs | Deferred development costs | 54,806 | | | 40,414 | | Deferred development costs | 64,147 | | | 58,489 | |
Prepaid expenses and other assets | Prepaid expenses and other assets | 274,272 | | | 211,484 | | Prepaid expenses and other assets | 362,332 | | | 316,808 | |
Right of use lease assets | Right of use lease assets | 145,700 | | | 146,599 | | Right of use lease assets | 135,779 | | | 143,331 | |
Total assets | Total assets | $ | 20,164,770 | | | $ | 19,902,016 | | Total assets | $ | 20,702,838 | | | $ | 20,457,764 | |
| LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | | | | LIABILITIES AND EQUITY | | | |
Unsecured notes, net | Unsecured notes, net | $ | 7,254,365 | | | $ | 7,349,394 | | Unsecured notes, net | $ | 7,207,793 | | | $ | 7,602,305 | |
Variable rate unsecured credit facility and commercial paper | 49,985 | | | — | | |
Variable rate unsecured credit facility and commercial paper, net | | Variable rate unsecured credit facility and commercial paper, net | 69,989 | | | — | |
Mortgage notes payable, net | Mortgage notes payable, net | 713,609 | | | 754,153 | | Mortgage notes payable, net | 669,212 | | | 713,740 | |
Dividends payable | Dividends payable | 225,437 | | | 225,392 | | Dividends payable | 237,599 | | | 226,022 | |
Payables for construction | Payables for construction | 72,585 | | | 63,722 | | Payables for construction | 95,758 | | | 72,802 | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | 338,661 | | | 296,006 | | Accrued expenses and other liabilities | 355,676 | | | 306,186 | |
Lease liabilities | Lease liabilities | 165,051 | | | 166,497 | | Lease liabilities | 154,451 | | | 162,671 | |
Accrued interest payable | Accrued interest payable | 67,061 | | | 50,300 | | Accrued interest payable | 69,174 | | | 54,100 | |
Resident security deposits | Resident security deposits | 63,506 | | | 59,787 | | Resident security deposits | 63,856 | | | 63,700 | |
Liabilities related to real estate assets held for sale | 1,067 | | | 304 | | |
Total liabilities | Total liabilities | 8,951,327 | | | 8,965,555 | | Total liabilities | 8,923,508 | | | 9,201,526 | |
| Commitments and contingencies | Commitments and contingencies | | Commitments and contingencies | |
| Redeemable noncontrolling interests | Redeemable noncontrolling interests | 2,855 | | | 3,368 | | Redeemable noncontrolling interests | 1,729 | | | 2,685 | |
| Equity: | Equity: | | | | Equity: | | | |
Preferred stock, $0.01 par value; $25 liquidation preference; 50,000,000 shares authorized at September 30, 2022 and December 31, 2021; zero shares issued and outstanding at September 30, 2022 and December 31, 2021 | — | | | — | | |
Common stock, $0.01 par value; 280,000,000 shares authorized at September 30, 2022 and December 31, 2021; 139,828,342 and 139,751,926 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively | 1,399 | | | 1,398 | | |
Preferred stock, $0.01 par value; $25 liquidation preference; 50,000,000 shares authorized at September 30, 2023 and December 31, 2022; zero shares issued and outstanding at September 30, 2023 and December 31, 2022 | | Preferred stock, $0.01 par value; $25 liquidation preference; 50,000,000 shares authorized at September 30, 2023 and December 31, 2022; zero shares issued and outstanding at September 30, 2023 and December 31, 2022 | — | | | — | |
Common stock, $0.01 par value; 280,000,000 shares authorized at September 30, 2023 and December 31, 2022; 142,013,995 and 139,916,864 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively | | Common stock, $0.01 par value; 280,000,000 shares authorized at September 30, 2023 and December 31, 2022; 142,013,995 and 139,916,864 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively | 1,420 | | | 1,400 | |
Additional paid-in capital | Additional paid-in capital | 10,738,715 | | | 10,716,414 | | Additional paid-in capital | 11,278,650 | | | 10,765,431 | |
Accumulated earnings less dividends | Accumulated earnings less dividends | 466,888 | | | 240,821 | | Accumulated earnings less dividends | 470,980 | | | 485,221 | |
Accumulated other comprehensive income (loss) | 3,035 | | | (26,106) | | |
Accumulated other comprehensive income | | Accumulated other comprehensive income | 26,474 | | | 1,424 | |
Total stockholders' equity | Total stockholders' equity | 11,210,037 | | | 10,932,527 | | Total stockholders' equity | 11,777,524 | | | 11,253,476 | |
Noncontrolling interests | Noncontrolling interests | 551 | | | 566 | | Noncontrolling interests | 77 | | | 77 | |
Total equity | Total equity | 11,210,588 | | | 10,933,093 | | Total equity | 11,777,601 | | | 11,253,553 | |
Total liabilities and equity | Total liabilities and equity | $ | 20,164,770 | | | $ | 19,902,016 | | Total liabilities and equity | $ | 20,702,838 | | | $ | 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 | | For the nine months ended | | For the three months ended September 30, | | For the nine months ended September 30, |
| | 9/30/2022 | | 9/30/2021 | | 9/30/2022 | | 9/30/2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Revenue: | Revenue: | | | | | | | | Revenue: | | | | | | | |
Rental and other income | Rental and other income | $ | 663,889 | | | $ | 580,079 | | | $ | 1,920,721 | | | $ | 1,691,273 | | Rental and other income | $ | 695,701 | | | $ | 663,889 | | | $ | 2,057,492 | | | $ | 1,920,721 | |
Management, development and other fees | Management, development and other fees | 1,399 | | | 695 | | | 3,054 | | | 2,380 | | Management, development and other fees | 1,934 | | | 1,399 | | | 5,712 | | | 3,054 | |
Total revenue | Total revenue | 665,288 | | | 580,774 | | | 1,923,775 | | | 1,693,653 | | Total revenue | 697,635 | | | 665,288 | | | 2,063,204 | | | 1,923,775 | |
| Expenses: | Expenses: | | | | | Expenses: | | | | |
Operating expenses, excluding property taxes | Operating expenses, excluding property taxes | 165,580 | | | 148,704 | | | 473,281 | | | 430,377 | | Operating expenses, excluding property taxes | 175,191 | | | 165,580 | | | 509,871 | | | 473,281 | |
Property taxes | Property taxes | 75,091 | | | 72,332 | | | 216,695 | | | 212,518 | | Property taxes | 78,399 | | | 75,091 | | | 227,882 | | | 216,695 | |
Expensed transaction, development and other pursuit costs, net of recoveries | Expensed transaction, development and other pursuit costs, net of recoveries | 6,514 | | | 417 | | | 9,865 | | | 1,900 | | Expensed transaction, development and other pursuit costs, net of recoveries | 18,959 | | | 6,514 | | | 23,212 | | | 9,865 | |
Interest expense, net | Interest expense, net | 57,290 | | | 55,987 | | | 172,613 | | | 164,704 | | Interest expense, net | 48,115 | | | 57,290 | | | 156,521 | | | 172,613 | |
Loss on extinguishment of debt, net | Loss on extinguishment of debt, net | 1,646 | | | 17,890 | | | 1,646 | | | 17,768 | | Loss on extinguishment of debt, net | 150 | | | 1,646 | | | 150 | | | 1,646 | |
Depreciation expense | Depreciation expense | 206,658 | | | 193,791 | | | 607,746 | | | 561,560 | | Depreciation expense | 200,982 | | | 206,658 | | | 606,271 | | | 607,746 | |
General and administrative expense | General and administrative expense | 14,611 | | | 17,313 | | | 53,323 | | | 53,130 | | General and administrative expense | 20,466 | | | 14,611 | | | 58,542 | | | 53,323 | |
Casualty and impairment loss | — | | | 1,940 | | | — | | | 3,117 | | |
Casualty loss | | Casualty loss | 3,499 | | | — | | | 8,550 | | | — | |
Total expenses | Total expenses | 527,390 | | | 508,374 | | | 1,535,169 | | | 1,445,074 | | Total expenses | 545,761 | | | 527,390 | | | 1,590,999 | | | 1,535,169 | |
| Income from investments in unconsolidated entities | 43,777 | | | 6,867 | | | 46,574 | | | 32,959 | | |
Income from unconsolidated investments | | Income from unconsolidated investments | 1,930 | | | 43,777 | | | 11,745 | | | 46,574 | |
Gain on sale of communities | Gain on sale of communities | 318,289 | | | 58 | | | 467,493 | | | 388,354 | | Gain on sale of communities | 22,121 | | | 318,289 | | | 209,430 | | | 467,493 | |
Gain on other real estate transactions, net | 15 | | | 1,543 | | | 95 | | | 2,002 | | |
Net for-sale condominium activity | 304 | | | 158 | | | 469 | | | (1,402) | | |
Other real estate activity | | Other real estate activity | 237 | | | 319 | | | 707 | | | 564 | |
| Income before income taxes | Income before income taxes | 500,283 | | | 81,026 | | | 903,237 | | | 670,492 | | Income before income taxes | 176,162 | | | 500,283 | | | 694,087 | | | 903,237 | |
Income tax expense | Income tax expense | (5,651) | | | (2,179) | | | (7,963) | | | (1,434) | | Income tax expense | (4,372) | | | (5,651) | | | (7,715) | | | (7,963) | |
| Net income | Net income | 494,632 | | | 78,847 | | | 895,274 | | | 669,058 | | Net income | 171,790 | | | 494,632 | | | 686,372 | | | 895,274 | |
Net loss attributable to noncontrolling interests | Net loss attributable to noncontrolling interests | 115 | | | 67 | | | 208 | | | 32 | | Net loss attributable to noncontrolling interests | 241 | | | 115 | | | 484 | | | 208 | |
| Net income attributable to common stockholders | Net income attributable to common stockholders | $ | 494,747 | | | $ | 78,914 | | | $ | 895,482 | | | $ | 669,090 | | Net income attributable to common stockholders | $ | 172,031 | | | $ | 494,747 | | | $ | 686,856 | | | $ | 895,482 | |
| Other comprehensive income: | Other comprehensive income: | | | | | Other comprehensive income: | | | | |
Gain on cash flow hedges | Gain on cash flow hedges | 8,188 | | | 2,010 | | | 26,102 | | | 1,188 | | Gain on cash flow hedges | 15,502 | | | 8,188 | | | 23,988 | | | 26,102 | |
Cash flow hedge losses reclassified to earnings | Cash flow hedge losses reclassified to earnings | 1,013 | | | 7,405 | | | 3,039 | | | 12,138 | | Cash flow hedge losses reclassified to earnings | 354 | | | 1,013 | | | 1,062 | | | 3,039 | |
Comprehensive income | Comprehensive income | $ | 503,948 | | | $ | 88,329 | | | $ | 924,623 | | | $ | 682,416 | | Comprehensive income | $ | 187,887 | | | $ | 503,948 | | | $ | 711,906 | | | $ | 924,623 | |
| Earnings per common share - basic: | Earnings per common share - basic: | | | | | Earnings per common share - basic: | | | | |
Net income attributable to common stockholders | Net income attributable to common stockholders | $ | 3.54 | | | $ | 0.57 | | | $ | 6.40 | | | $ | 4.79 | | Net income attributable to common stockholders | $ | 1.21 | | | $ | 3.54 | | | $ | 4.86 | | | $ | 6.40 | |
| Earnings per common share - diluted: | Earnings per common share - diluted: | | | | | Earnings per common share - diluted: | | | | |
Net income attributable to common stockholders | Net income attributable to common stockholders | $ | 3.53 | | | $ | 0.56 | | | $ | 6.40 | | | $ | 4.79 | | Net income attributable to common stockholders | $ | 1.21 | | | $ | 3.53 | | | $ | 4.86 | | | $ | 6.40 | |
See accompanying notes to Condensed Consolidated Financial Statements.
AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Dollars in thousands)
| | | For the nine months ended | | For the nine months ended September 30, |
| | 9/30/2022 | | 9/30/2021 | | 2023 | | 2022 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
Net income | Net income | $ | 895,274 | | | $ | 669,058 | | Net income | $ | 686,372 | | | $ | 895,274 | |
Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
Depreciation expense | Depreciation expense | 607,746 | | | 561,560 | | Depreciation expense | 606,271 | | | 607,746 | |
Amortization of deferred financing costs | 6,022 | | | 5,519 | | |
Amortization of debt discount | 2,080 | | | 1,998 | | |
Amortization of deferred financing costs and debt discount | | Amortization of deferred financing costs and debt discount | 9,450 | | | 8,102 | |
Loss on extinguishment of debt, net | Loss on extinguishment of debt, net | 1,646 | | | 17,768 | | Loss on extinguishment of debt, net | 150 | | | 1,646 | |
Amortization of stock-based compensation | Amortization of stock-based compensation | 26,774 | | | 20,660 | | Amortization of stock-based compensation | 21,849 | | | 26,774 | |
Equity in (income) loss of, and return on, unconsolidated entities and noncontrolling interests, net of eliminations | (4,180) | | | 4,290 | | |
Real estate casualty loss | — | | | 2,802 | | |
Equity in loss (income) of, and return on, unconsolidated investments and noncontrolling interests, net of eliminations | | Equity in loss (income) of, and return on, unconsolidated investments and noncontrolling interests, net of eliminations | 2,895 | | | (4,180) | |
Casualty loss | | Casualty loss | 4,173 | | | — | |
Abandonment of development pursuits | Abandonment of development pursuits | 4,069 | | | 685 | | Abandonment of development pursuits | 23,212 | | | 4,069 | |
Unrealized gain on terminated cash flow hedges | — | | | (2,654) | | |
Cash flow hedge losses reclassified to earnings | Cash flow hedge losses reclassified to earnings | 3,039 | | | 6,874 | | Cash flow hedge losses reclassified to earnings | 1,062 | | | 3,039 | |
Gain on sale of real estate assets | Gain on sale of real estate assets | (505,650) | | | (413,661) | | Gain on sale of real estate assets | (210,409) | | | (507,763) | |
Gain on sale of for-sale condominiums | (2,113) | | | (2,051) | | |
Decrease in resident security deposits, prepaid expenses and other assets | (22,511) | | | (20,555) | | |
Decrease in prepaid expenses and other assets | | Decrease in prepaid expenses and other assets | (3,206) | | | (22,511) | |
Increase in accrued expenses, other liabilities and accrued interest payable | Increase in accrued expenses, other liabilities and accrued interest payable | 68,244 | | | 59,449 | | Increase in accrued expenses, other liabilities and accrued interest payable | 72,023 | | | 68,244 | |
Net cash provided by operating activities | Net cash provided by operating activities | 1,080,440 | | | 911,742 | | Net cash provided by operating activities | 1,213,842 | | | 1,080,440 | |
| Cash flows from investing activities: | Cash flows from investing activities: | | Cash flows from investing activities: | |
Development/redevelopment of real estate assets including land acquisitions and deferred development costs | Development/redevelopment of real estate assets including land acquisitions and deferred development costs | (681,937) | | | (476,307) | | Development/redevelopment of real estate assets including land acquisitions and deferred development costs | (691,543) | | | (681,937) | |
Acquisition of real estate assets, including partnership interest | (459,695) | | | (392,746) | | |
Acquisition of real estate assets | | Acquisition of real estate assets | (83,348) | | | (459,695) | |
Capital expenditures - existing real estate assets | Capital expenditures - existing real estate assets | (117,812) | | | (105,621) | | Capital expenditures - existing real estate assets | (121,644) | | | (117,812) | |
Capital expenditures - non-real estate assets | Capital expenditures - non-real estate assets | (5,667) | | | (4,689) | | Capital expenditures - non-real estate assets | (13,116) | | | (5,667) | |
Increase (decrease) in payables for construction | 8,863 | | | (35,639) | | |
Proceeds from sale of real estate, net of selling costs | 768,781 | | | 576,973 | | |
Proceeds from the sale of for-sale condominiums, net of selling costs | 111,047 | | | 98,752 | | |
Increase in payables for construction | | Increase in payables for construction | 22,956 | | | 8,863 | |
Proceeds from sale of real estate and for-sale condominiums, net of selling costs | | Proceeds from sale of real estate and for-sale condominiums, net of selling costs | 359,477 | | | 879,828 | |
Note receivable lending | Note receivable lending | (15,584) | | | (118) | | Note receivable lending | (47,616) | | | (15,584) | |
Note receivable payments | Note receivable payments | 4,021 | | | 1,556 | | Note receivable payments | 230 | | | 4,021 | |
Distributions from unconsolidated entities | Distributions from unconsolidated entities | 50,990 | | | 62,157 | | Distributions from unconsolidated entities | 5,385 | | | 50,990 | |
Investments in unconsolidated entities | (11,496) | | | (40,071) | | |
Unconsolidated investments | | Unconsolidated investments | (13,645) | | | (11,496) | |
Net cash used in investing activities | Net cash used in investing activities | (348,489) | | | (315,753) | | Net cash used in investing activities | (582,864) | | | (348,489) | |
| Cash flows from financing activities: | Cash flows from financing activities: | | Cash flows from financing activities: | |
Issuance of common stock, net | Issuance of common stock, net | 1,962 | | | 7,011 | | Issuance of common stock, net | 494,810 | | | 1,962 | |
Repurchase of common stock, net | | Repurchase of common stock, net | (1,911) | | | — | |
Dividends paid | Dividends paid | (667,393) | | | (666,420) | | Dividends paid | (688,486) | | | (667,393) | |
Net borrowings under unsecured credit facility and commercial paper | Net borrowings under unsecured credit facility and commercial paper | 49,985 | | | — | | Net borrowings under unsecured credit facility and commercial paper | 69,989 | | | 49,985 | |
Repayments of mortgage notes payable, including prepayment penalties | Repayments of mortgage notes payable, including prepayment penalties | (43,131) | | | (35,688) | | Repayments of mortgage notes payable, including prepayment penalties | (45,700) | | | (43,131) | |
Issuance of unsecured notes | — | | | 699,167 | | |
Repayment of unsecured notes | Repayment of unsecured notes | (100,000) | | | (462,147) | | Repayment of unsecured notes | (400,000) | | | (100,000) | |
Payment of deferred financing costs | Payment of deferred financing costs | (11,953) | | | (5,281) | | Payment of deferred financing costs | (662) | | | (11,953) | |
Receipt for termination of forward interest rate swaps | — | | | 4,751 | | |
Payment to noncontrolling interest | (38) | | | (45) | | |
Redemption of noncontrolling interest and units for cash by minority partners | | Redemption of noncontrolling interest and units for cash by minority partners | (1,355) | | | — | |
Payments to noncontrolling interest | | Payments to noncontrolling interest | — | | | (38) | |
Payments related to tax withholding for share-based compensation | Payments related to tax withholding for share-based compensation | (16,872) | | | (13,409) | | Payments related to tax withholding for share-based compensation | (10,529) | | | (16,872) | |
Distributions to DownREIT partnership unitholders | Distributions to DownREIT partnership unitholders | (36) | | | (36) | | Distributions to DownREIT partnership unitholders | (25) | | | (36) | |
Distributions to joint venture and profit-sharing partners | Distributions to joint venture and profit-sharing partners | (277) | | | (234) | | Distributions to joint venture and profit-sharing partners | (308) | | | (277) | |
Preferred interest obligation redemption and dividends | Preferred interest obligation redemption and dividends | (860) | | | (1,340) | | Preferred interest obligation redemption and dividends | (940) | | | (860) | |
Net cash used in financing activities | Net cash used in financing activities | (788,613) | | | (473,671) | | Net cash used in financing activities | (585,117) | | | (788,613) | |
| Net (decrease) increase in cash, cash equivalents and cash in escrow | (56,662) | | | 122,318 | | |
Net increase (decrease) in cash, cash equivalents and restricted cash | | Net increase (decrease) in cash, cash equivalents and restricted cash | 45,861 | | | (56,662) | |
| Cash, cash equivalents and cash in escrow, beginning of period | 543,788 | | | 313,532 | | |
Cash, cash equivalents and cash in escrow, end of period | $ | 487,126 | | | $ | 435,850 | | |
Cash, cash equivalents and restricted cash, beginning of period | | Cash, cash equivalents and restricted cash, beginning of period | 734,245 | | | 543,788 | |
Cash, cash equivalents and restricted cash, end of period | | Cash, cash equivalents and restricted cash, end of period | $ | 780,106 | | | $ | 487,126 | |
| Cash paid during the period for interest, net of amount capitalized | Cash paid during the period for interest, net of amount capitalized | $ | 144,833 | | | $ | 127,575 | | Cash paid during the period for interest, net of amount capitalized | $ | 130,680 | | | $ | 144,833 | |
See accompanying notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
The following table provides a reconciliation of cash, cash equivalents and restricted cash in escrow reported in the Condensed Consolidated Statements of Cash Flows (dollars in thousands):
| | | | | | | | | | | | | | |
| | For the nine months ended |
| | 9/30/2022 | | 9/30/2021 |
Cash and cash equivalents | | $ | 200,999 | | | $ | 322,294 | |
Cash in escrow | | 286,127 | | | 113,556 | |
Cash, cash equivalents and cash in escrow reported in the Condensed Consolidated Statements of Cash Flows | | $ | 487,126 | | | $ | 435,850 | |
| | | | | | | | | | | | | | |
| | September 30, 2023 | | September 30, 2022 |
Cash and cash equivalents | | $ | 508,571 | | | $ | 200,999 | |
Restricted cash | | 271,535 | | | 286,127 | |
Cash, cash equivalents and restricted cash reported in the Condensed Consolidated Statements of Cash Flows | | $ | 780,106 | | | $ | 487,126 | |
Supplemental disclosures of non-cash investing and financing activities:
During the nine months ended September 30, 2022:2023:
•As described in Note 4, "Equity," the Company issued 152,894 shares of common stock as part of the Company's stock-based compensation plans, of which 60,016 shares related to the conversion of performance awards to shares of common stock, and the remaining 92,878 shares valued at $16,507,000 were issued in connection with new stock grants; 2,577 shares valued at $463,000 were issued through the Company's dividend reinvestment plan; 62,482 shares valued at $10,559,000 were withheld to satisfy employees' tax withholding and other liabilities; and 2,119 forfeited restricted shares with an aggregate value of $413,000.
•Common stock dividends declared but not paid totaled $235,659,000.
•The Company recorded (i) an increase to prepaid expenses and other assets of $23,988,000 and a corresponding adjustment to accumulated other comprehensive income; and (ii) reclassified $1,062,000 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 nine months ended September 30, 2022:
•The Company issued 136,115 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 82,062 shares valued at $19,286,000 were issued in connection with new stock grants; 2,057 shares valued at $461,000 were issued through the Company's dividend reinvestment plan; 72,132 shares valued at $16,872,000 were withheld to satisfy employees' tax withholding and other liabilities; and 3,235 forfeited restricted shares with an aggregate value of $689,000 previously issued in connection with employee compensation were canceled upon forfeiture.$689,000.
•Common stock dividends declared but not paid totaled $223,638,000.
•The Company recorded an increase of $33,000 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 (i) an increase to prepaid expenses and other assets of $26,102,000 and a corresponding adjustment to accumulated other comprehensive lossincome and (ii) reclassified $3,039,000 of cash flow hedge losses from other comprehensive income (loss) to interest expense, net, to record the impact of the Company's derivative and hedge accounting activity.
During the nine months ended September 30, 2021:
•The Company issued 153,379 shares of common stock as part of the Company's stock-based compensation plans, of which 56,545 shares related to the conversion of performance awards to shares of common stock, and the remaining 96,834 shares valued at $17,187,000 were issued in connection with new stock grants; 2,223 shares valued at $423,000 were issued through the Company's dividend reinvestment plan; 75,542 shares valued at $13,409,000 were withheld to satisfy employees' tax withholding and other liabilities; and 3,077 restricted shares with an aggregate value of $595,000 previously issued in connection with employee compensation were canceled upon forfeiture.
•Common stock dividends declared but not paid totaled $223,380,000.
•The Company recorded an increase of $789,000 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 an increase to prepaid expense and other assets of $3,399,000 and a corresponding adjustment to accumulated other comprehensive loss, and reclassified $6,874,000 and $5,264,000 of cash flow hedge losses from other comprehensive income (loss) to interest expense, net, and loss on extinguishment of debt, net, respectively, to record the impact of the Company's derivative and hedge accountinghedging activity.
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 in New England, the New York/New Jersey metro area, the Mid-Atlantic, the Pacific Northwest, and Northern and Southern California, as well as in the Company's expansion marketsregions of Raleigh-Durham and Charlotte, North Carolina, Southeast Florida, Dallas and Austin, Texas, and Denver, Colorado.
At September 30, 2022,2023, the Company owned or held a direct or indirect ownership interest in 293296 operating apartment communities containing 88,40589,240 apartment homes in 12 states and the District of Columbia, of which 1817 communities were under development and one was under redevelopment. The Company also has an ownership interest in The Park Loggia. The Park Loggia contains 172 for-sale residential condominiums and 66,000 square feet of commercial space, of which 161 condominiums have been sold and the leasing of the commercial space has been completed as of September 30, 2022. 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 3438 communities that, if developed as expected, will contain an estimated 11,45113,449 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 Annual Report on Form 10-K for the year ended December 31, 2021.2022. The results of operations for the three and nine months ended September 30, 20222023 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 Restricted 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 escrowRestricted cash 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.activity and resident security deposits. The majority of the Company's cash, cash equivalents and restricted 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 September 30, | | For the nine months ended September 30, |
| | 9/30/2022 | | 9/30/2021 | | 9/30/2022 | | 9/30/2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Basic and diluted shares outstanding | Basic and diluted shares outstanding | | | | | | | | Basic and diluted shares outstanding | | | | | | | |
Weighted average common shares - basic | Weighted average common shares - basic | 139,640,421 | | | 139,386,413 | | | 139,610,205 | | | 139,338,800 | | Weighted average common shares - basic | 141,838,841 | | | 139,640,421 | | | 141,128,506 | | | 139,610,205 | |
Weighted average DownREIT units outstanding | Weighted average DownREIT units outstanding | 7,500 | | | 7,500 | | | 7,500 | | | 7,500 | | Weighted average DownREIT units outstanding | — | | | 7,500 | | | 4,670 | | | 7,500 | |
Effect of dilutive securities | Effect of dilutive securities | 334,038 | | | 343,812 | | | 346,467 | | | 298,769 | | Effect of dilutive securities | 359,258 | | | 334,038 | | | 315,499 | | | 346,467 | |
Weighted average common shares - diluted | Weighted average common shares - diluted | 139,981,959 | | | 139,737,725 | | | 139,964,172 | | | 139,645,069 | | Weighted average common shares - diluted | 142,198,099 | | | 139,981,959 | | | 141,448,675 | | | 139,964,172 | |
| Calculation of Earnings per Share - basic | Calculation of Earnings per Share - basic | | | | | Calculation of Earnings per Share - basic | | | | |
Net income attributable to common stockholders | Net income attributable to common stockholders | $ | 494,747 | | | $ | 78,914 | | | $ | 895,482 | | | $ | 669,090 | | Net income attributable to common stockholders | $ | 172,031 | | | $ | 494,747 | | | $ | 686,856 | | | $ | 895,482 | |
Net income allocated to unvested restricted shares | Net income allocated to unvested restricted shares | (888) | | | (160) | | | (1,662) | | | (1,443) | | Net income allocated to unvested restricted shares | (309) | | | (888) | | | (1,229) | | | (1,662) | |
Net income attributable to common stockholders, adjusted | $ | 493,859 | | | $ | 78,754 | | | $ | 893,820 | | | $ | 667,647 | | |
Net income attributable to common stockholders - basic | | Net income attributable to common stockholders - basic | $ | 171,722 | | | $ | 493,859 | | | $ | 685,627 | | | $ | 893,820 | |
| Weighted average common shares - basic | Weighted average common shares - basic | 139,640,421 | | | 139,386,413 | | | 139,610,205 | | | 139,338,800 | | Weighted average common shares - basic | 141,838,841 | | | 139,640,421 | | | 141,128,506 | | | 139,610,205 | |
| Earnings per common share - basic | Earnings per common share - basic | $ | 3.54 | | | $ | 0.57 | | | $ | 6.40 | | | $ | 4.79 | | Earnings per common share - basic | $ | 1.21 | | | $ | 3.54 | | | $ | 4.86 | | | $ | 6.40 | |
| Calculation of Earnings per Share - diluted | Calculation of Earnings per Share - diluted | | | | | Calculation of Earnings per Share - diluted | | | | |
Net income attributable to common stockholders | Net income attributable to common stockholders | $ | 494,747 | | | $ | 78,914 | | | $ | 895,482 | | | $ | 669,090 | | Net income attributable to common stockholders | $ | 172,031 | | | $ | 494,747 | | | $ | 686,856 | | | $ | 895,482 | |
Add: noncontrolling interests of DownREIT unitholders in consolidated partnerships, including discontinued operations | Add: noncontrolling interests of DownREIT unitholders in consolidated partnerships, including discontinued operations | 12 | | | 12 | | | 36 | | | 36 | | Add: noncontrolling interests of DownREIT unitholders in consolidated partnerships, including discontinued operations | — | | | 12 | | | 25 | | | 36 | |
Adjusted net income attributable to common stockholders | $ | 494,759 | | | $ | 78,926 | | | $ | 895,518 | | | $ | 669,126 | | |
Net income attributable to common stockholders - diluted | | Net income attributable to common stockholders - diluted | $ | 172,031 | | | $ | 494,759 | | | $ | 686,881 | | | $ | 895,518 | |
| Weighted average common shares - diluted | Weighted average common shares - diluted | 139,981,959 | | | 139,737,725 | | | 139,964,172 | | | 139,645,069 | | Weighted average common shares - diluted | 142,198,099 | | | 139,981,959 | | | 141,448,675 | | | 139,964,172 | |
| Earnings per common share - diluted | Earnings per common share - diluted | $ | 3.53 | | | $ | 0.56 | | | $ | 6.40 | | | $ | 4.79 | | Earnings per common share - diluted | $ | 1.21 | | | $ | 3.53 | | | $ | 4.86 | | | $ | 6.40 | |
Certain options to purchase shares of common stock in the amountamounts of 25,537 and 9,793 were outstanding as of September 30, 2023 and 2022, respectively, but were not included in the computation of diluted earnings per share because such options were anti-dilutive for the period. All options to purchase shares of common stock outstanding as of September 30, 2021 are included in the computation of diluted earnings per share.
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 Derivatives 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 interest expense, net. The fair values of Hedging Derivatives that are in an asset position are recorded in prepaid expenses and other assets. The fair values 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 Derivatives that qualify as effective cash flow hedges, the Company has recorded the cumulative changes in the fair value of Hedging Derivatives in accumulated other comprehensive loss.income. Amounts recorded in accumulated other comprehensive lossincome 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 qualify as effective fair value hedges is reported as an adjustment to the carrying amount of the corresponding hedged item. See Note 11, “Fair Value,” for further discussion of derivative financial instruments.
Legal and Other Contingencies
TheAs of September 30, 2023, the Company iswas involved in various claims and/or administrative proceedings 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 outstanding litigationsuch matters, individually or in the aggregate, will have a material adverse effect on its financial condition or results of operations. See Note 12, "Subsequent Events," for further discussion of legal and other contingencies.
Acquisitions of Investments in Real Estate
The Company accounts for acquisitions of 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 assumed 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. The Company expects that acquisitions of individual operating communities will generally be 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 segment classification.
For-Sale Condominium Inventory
The Company presentsclassification of for-sale condominium inventory at historical cost and evaluates the condominiums for impairment when potential indicators exist, as further discussed in Note 5, "Investments."activity.
Income Taxes
DuringThe Company recognized income tax expense of $4,372,000 and $7,715,000 for the three and nine months ended September 30, 2023, respectively, and $5,651,000 and $7,963,000 for the three and nine months ended September 30, 2022, the Company recognized income tax expense of $5,651,000 and $7,963,000, respectively, primarily related to the condominium dispositions at The Park Loggia and other taxable REIT subsidiary ("TRS") activity.Loggia.
Leases
The Company is party to leases as both a lessor and a lessee, primarily as follows:
•lessor of residential and commercial space within its apartment communities; and
•lessee under (i) ground leases for land underlying current operating or development communities and certain commercial and parking facilities and (ii) office leases for its corporate headquarters and regional offices.
Lessee Considerations
The Company assesses whether a contract is or contains a lease based on whether the contract 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 variable lease payments. Lease payments 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, include only fixedbut will be recognized as variable lease payments. expense in the period in which they are incurred.
For leases that have options to extend the term or terminate the lease early, the Company only factored the impact of such options into the 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 leaselease-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 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 Accounting Standards Codification ("ASC")ASC 606, Revenue from Contracts with Customers, the Company recognizes revenue for the transfer of goods and services to customers for consideration that the Company expects to receive. The majority of the Company’s revenue is derived from residential and commercial rental and other lease income, which are accounted for as discussed above, under "Leases". The Company's revenue streams that are not accounted for under ASC 842, Leases, include (i) management, development and other fees, (ii) rental and non-rentalnon-lease related incomerevenue 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 in Note 8, “Segment Reporting,” for the three and nine months ended September 30, 20222023 and 2021.2022. Segment information for total revenue excludes real estate assets that were sold from January 1, 20212022 through September 30, 2022,2023, or otherwise qualify as held for sale as of September 30, 2022,2023, 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 September 30, 2022 | | | | | | | | | | |
Management, development and other fees and other ancillary items | | $ | — | | | $ | — | | | $ | — | | | $ | 1,399 | | | $ | 1,399 | |
Rental and non-rental related income (2) | | 2,201 | | | 1,048 | | | 92 | | | — | | | 3,341 | |
Total non-lease revenue (3) | | 2,201 | | | 1,048 | | | 92 | | | 1,399 | | | 4,740 | |
| | | | | | | | | | |
Lease income (4) | | 572,581 | | | 55,840 | | | 24,812 | | | — | | | 653,233 | |
| | | | | | | | | | |
Total revenue | | $ | 574,782 | | | $ | 56,888 | | | $ | 24,904 | | | $ | 1,399 | | | $ | 657,973 | |
| | | | | | | | | | |
For the three months ended September 30, 2021 | | | | | | | | | | |
Management, development and other fees and other ancillary items | | $ | — | | | $ | — | | | $ | — | | | $ | 695 | | | $ | 695 | |
Rental and non-rental related income (2) | | 1,883 | | | 425 | | | 69 | | | — | | | 2,377 | |
Total non-lease revenue (3) | | 1,883 | | | 425 | | | 69 | | | 695 | | | 3,072 | |
| | | | | | | | | | |
Lease income (4) | | 511,898 | | | 32,176 | | | 11,992 | | | — | | | 556,066 | |
| | | | | | | | | | |
Total revenue | | $ | 513,781 | | | $ | 32,601 | | | $ | 12,061 | | | $ | 695 | | | $ | 559,138 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Same Store | | Other Stabilized | | Development/ Redevelopment | | Non- allocated (1) | | Total |
For the three months ended September 30, 2023 | | | | | | | | | | |
Management, development and other fees and other ancillary items | | $ | — | | | $ | — | | | $ | — | | | $ | 1,934 | | | $ | 1,934 | |
Non-lease related revenue (2) | | 2,917 | | | 1,430 | | | 80 | | | — | | | 4,427 | |
Total non-lease revenue (3) | | 2,917 | | | 1,430 | | | 80 | | | 1,934 | | | 6,361 | |
| | | | | | | | | | |
Lease income (4) | | 639,176 | | | 31,811 | | | 17,229 | | | — | | | 688,216 | |
| | | | | | | | | | |
Total revenue | | $ | 642,093 | | | $ | 33,241 | | | $ | 17,309 | | | $ | 1,934 | | | $ | 694,577 | |
| | | | | | | | | | |
For the three months ended September 30, 2022 | | | | | | | | | | |
Management, development and other fees and other ancillary items | | $ | — | | | $ | — | | | $ | — | | | $ | 1,399 | | | $ | 1,399 | |
Non-lease related revenue (2) | | 2,477 | | | 811 | | | 32 | | | — | | | 3,320 | |
Total non-lease revenue (3) | | 2,477 | | | 811 | | | 32 | | | 1,399 | | | 4,719 | |
| | | | | | | | | | |
Lease income (4) | | 609,311 | | | 27,335 | | | 7,681 | | | — | | | 644,327 | |
| | | | | | | | | | |
Total revenue | | $ | 611,788 | | | $ | 28,146 | | | $ | 7,713 | | | $ | 1,399 | | | $ | 649,046 | |
| | | | | | Same Store | | Other Stabilized | | Development/ Redevelopment | | Non- allocated (1) | | Total |
| Same Store | | Other Stabilized | | Development/ Redevelopment | | Non- allocated (1) | | Total | |
For the nine months ended September 30, 2022 | | | | | | | | | | | |
For the nine months ended September 30, 2023 | | For the nine months ended September 30, 2023 | | | | | | | | | | |
Management, development and other fees and other ancillary items | Management, development and other fees and other ancillary items | | $ | — | | | $ | — | | | $ | — | | | $ | 3,054 | | | $ | 3,054 | | Management, development and other fees and other ancillary items | | $ | — | | | $ | — | | | $ | — | | | $ | 5,712 | | | $ | 5,712 | |
Rental and non-rental related income (2) | | 6,763 | | | 2,396 | | | 237 | | | — | | | 9,396 | | |
Non-lease related revenue (2) | | Non-lease related revenue (2) | | 8,121 | | | 3,830 | | | 195 | | | — | | | 12,146 | |
Total non-lease revenue (3) | Total non-lease revenue (3) | | 6,763 | | | 2,396 | | | 237 | | | 3,054 | | | 12,450 | | Total non-lease revenue (3) | | 8,121 | | | 3,830 | | | 195 | | | 5,712 | | | 17,858 | |
| Lease income (4) | Lease income (4) | | 1,665,157 | | | 148,802 | | | 63,256 | | | — | | | 1,877,215 | | Lease income (4) | | 1,890,920 | | | 93,380 | | | 40,644 | | | — | | | 2,024,944 | |
| Total revenue | Total revenue | | $ | 1,671,920 | | | $ | 151,198 | | | $ | 63,493 | | | $ | 3,054 | | | $ | 1,889,665 | | Total revenue | | $ | 1,899,041 | | | $ | 97,210 | | | $ | 40,839 | | | $ | 5,712 | | | $ | 2,042,802 | |
| For the nine months ended September 30, 2021 | | |
For the nine months ended September 30, 2022 | | For the nine months ended September 30, 2022 | |
Management, development and other fees and other ancillary items | Management, development and other fees and other ancillary items | | $ | — | | | $ | — | | | $ | — | | | $ | 2,380 | | | $ | 2,380 | | Management, development and other fees and other ancillary items | | $ | — | | | $ | — | | | $ | — | | | $ | 3,054 | | | $ | 3,054 | |
Rental and non-rental related income (2) | | 5,483 | | | 1,300 | | | 181 | | | — | | | 6,964 | | |
Non-lease related revenue (2) | | Non-lease related revenue (2) | | 7,493 | | | 1,777 | | | 78 | | | — | | | 9,348 | |
Total non-lease revenue (3) | Total non-lease revenue (3) | | 5,483 | | | 1,300 | | | 181 | | | 2,380 | | | 9,344 | | Total non-lease revenue (3) | | 7,493 | | | 1,777 | | | 78 | | | 3,054 | | | 12,402 | |
| Lease income (4) | Lease income (4) | | 1,497,270 | | | 79,147 | | | 27,903 | | | — | | | 1,604,320 | | Lease income (4) | | 1,770,815 | | | 60,702 | | | 20,193 | | | — | | | 1,851,710 | |
| Total revenue | Total revenue | | $ | 1,502,753 | | | $ | 80,447 | | | $ | 28,084 | | | $ | 2,380 | | | $ | 1,613,664 | | Total revenue | | $ | 1,778,308 | | | $ | 62,479 | | | $ | 20,271 | | | $ | 3,054 | | | $ | 1,864,112 | |
__________________________________(1)Revenue representsRepresents 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 related to leasing activities that are not considered components of a lease, including but not limited to, apartment hold fees and application fees, as well as revenue streams not related to leasing activities including, but not limited to, application fees, renters insurance fees and vendor revenue sharing, building advertising, vending and dry cleaning revenue.sharing.
(3)Represents revenue accounted for under ASC 606.
(4)Represents residential and commercial rental and other lease income, accounted for under ASC 842.
Due to the nature and timing of the Company’s identified revenue streams, there were no material amounts of outstanding or unsatisfied performance obligations as of September 30, 2022.2023.
Uncollectible Lease Revenue Reserves
The Company assesses the collectability of its lease revenue and receivables on an on-goingongoing basis by (i) assessing the probability of receiving all lease amounts due on a lease by leaselease-by-lease basis, (ii) reserving all amounts for those leases where collection of substantially all of the remaining lease payments is not probable and (iii) subsequently, will only recognize revenue to the extent cash is received. If the Company determines 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 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 part of the specific ASC 842 reserve.
The Company recorded an aggregate offset to income for uncollectible lease revenue, net of amounts received from government rent relief programs, for its residential and commercial portfolios of $10,607,000$13,363,000 and $8,586,000$10,607,000 for the three months ended September 30, 20222023 and 2021,2022, respectively, and $31,267,000$43,667,000 and $42,295,000$31,267,000 for the nine months ended September 30, 20222023 and 2021,2022, 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 $9,131,000$12,170,000 and $7,862,000$9,131,000 for the three months ended September 30, 20222023 and 2021,2022, respectively, and $24,424,000$34,794,000 and $25,023,000$24,424,000 for the nine months ended September 30, 20222023 and 2021,2022, respectively.
3. Debt
The Company's debt, which consists of unsecured notes, the variable rate unsecured term loansloan (the "Term Loans"Loan"), mortgage notes payable, the Credit Facility and the Commercial Paper Program, each as defined below, as of September 30, 20222023 and December 31, 2021 are2022 is 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 September 30, 20222023 and December 31, 2021,2022, 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.
| | | 9/30/2022 | | 12/31/2021 | | September 30, 2023 | | December 31, 2022 |
| Fixed rate unsecured notes (1) | Fixed rate unsecured notes (1) | $ | 7,150,000 | | | $ | 7,150,000 | | Fixed rate unsecured notes (1) | $ | 7,250,000 | | | 3.3 | % | | $ | 7,500,000 | | | 3.3 | % |
Term Loans (1) | 150,000 | | | 250,000 | | |
Term Loan | | Term Loan | — | | | — | % | | 150,000 | | | 5.4 | % |
Fixed rate mortgage notes payable - conventional and tax-exempt (2) | Fixed rate mortgage notes payable - conventional and tax-exempt (2) | 270,677 | | | 306,281 | | Fixed rate mortgage notes payable - conventional and tax-exempt (2) | 270,851 | | | 3.4 | % | | 270,677 | | | 3.4 | % |
Variable rate mortgage notes payable - conventional and tax-exempt (2) | Variable rate mortgage notes payable - conventional and tax-exempt (2) | 457,350 | | | 464,150 | | Variable rate mortgage notes payable - conventional and tax-exempt (2) | 411,450 | | | 5.6 | % | | 457,150 | | | 5.3 | % |
Total mortgage notes payable and unsecured notes and Term Loans | 8,028,027 | | | 8,170,431 | | |
Total mortgage notes payable and unsecured notes and Term Loan | | Total mortgage notes payable and unsecured notes and Term Loan | 7,932,301 | | | 3.4 | % | | 8,377,827 | | | 3.4 | % |
Credit Facility | Credit Facility | — | | | — | | Credit Facility | — | | | — | % | | — | | | — | % |
Commercial paper | Commercial paper | 49,985 | | | — | | Commercial paper | 70,000 | | | 5.9 | % | | — | | | — | % |
Total principal outstanding | | Total principal outstanding | 8,002,301 | | | 3.4 | % | | 8,377,827 | | | 3.4 | % |
Less deferred financing costs and debt discount (1) | | Less deferred financing costs and debt discount (1) | (55,296) | | | (61,782) | | |
Total | Total | $ | 8,078,012 | | | $ | 8,170,431 | | Total | $ | 7,947,005 | | | $ | 8,316,045 | | |
(1)Balances at September 30, 2022 and December 31, 2021 exclude $8,784 and $10,033, respectively, of debt discount, and $36,851 and $40,573, respectively, ofExcludes deferred financing costs as reflected in unsecured notes, net on the accompanying Condensed Consolidated Balance Sheets.
(2)Balances at September 30, 2022 and December 31, 2021 exclude $12,696 and $13,528, respectively, of debt discount associated with the Credit Facility and $1,722the Commercial Paper Program which are included in prepaid expenses and $2,750, respectively, of deferred financing costs, as reflected in mortgage notes payable, netother assets on the accompanying Condensed Consolidated Balance Sheets.
The following debt activity occurred during the nine months ended September 30, 2022:
•In February 2022, the Company repaid its $100,000,000has a $2,250,000,000 revolving variable rate unsecured term loan at par upon maturity.
•In March 2022, the Company established an unsecured commercial paper note program (the “Commercial Paper Program”). Under the terms of the Commercial Paper Program, the Company may issue, from time to time, unsecured commercial paper notes with varying maturities of less than one year. Amounts available under the Commercial Paper Program may be issued, repaid and re-issued from time to time, 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 in an amount equal to actual borrowings under the Commercial Paper Program. The Company had $49,985,000 outstanding under the Commercial Paper Program as of September 30, 2022.
•In September 2022, the Company repaid $35,276,000 principal amount of its secured fixed rate debt with an effective rate of 6.16% in advance of the October 2047 scheduled maturity, recognizing a loss on debt extinguishment of $1,399,000, composed of prepayment penalties and the non-cash write off of unamortized deferred financing costs.
•In September 2022, the Company entered into the Sixth Amended and Restated Revolving Loan Agreement (the “Credit Facility”)credit facility with a syndicate of banks (the "Credit Facility") which replaces its prior credit facility dated as of February 28, 2019. The amended and restated Credit Facility (i) increased the borrowing capacity from $1,750,000,000 to $2,250,000,000, (ii) extended the term of the Credit Facility from February 28, 2024 tomatures in September 27, 2026, with two six-month extension options available to the Company, provided the Company is not in default and upon payment of a $1,406,000 extension fee, (iii) amended certain provisions, notably to reduce the capitalization rate used to derive certain financial
covenants from 6.0% to 5.75% and (iv) transitioned the benchmark rate from the London Interbank Offered Rate ("LIBOR") to the Secured Overnight Financing Rate ("SOFR"). The Company may elect to expand the Credit Facility to $3,000,000,000, provided that one or more banks (from the syndicate or otherwise) voluntarily agree to provide the additional commitment. No member of the syndicate of banks can prohibit the increase, which will only be effective to the extent banks (from the syndicate or otherwise) choose to commit to lend additional funds.
2026. The interest rate that would be applicable to borrowings under the Credit Facility is 3.81%was 6.12% at September 30, 20222023 and iswas composed of (i) SOFR, applicable to the period of borrowing for a particular draw of funds from the facility (e.g., one month to maturity, three months to maturity, etc.Secured Overnight Financing Rate ("SOFR"), plus (ii) the current borrowing spread to SOFR of 0.825%0.805% per annum, which consistsconsisted of a 0.10% SOFR adjustment plus 0.725%0.705% per annum, assuming a one month termdaily SOFR borrowing rate. The borrowing spread to SOFR can vary from SOFR plus 0.65%0.63% to SOFR plus 1.40%1.38% 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%0.12% of the borrowing capacity under the facility, which can vary from 0.10%0.095% to 0.30%0.295% based upon the rating of the Company's 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 beginningannually. The first determination under the sustainability-linked pricing component occurred in July 2023. The Credit Facility also contains a competitive bid option that is available for borrowings2023, resulting in reductions of upapproximately 0.02% to 65%the interest rate margin and 0.005% to the commitment fee due to our achievement of the Credit Facility amount. This option allows banks that are part of the lender consortium to bid to provide the Company loans at a rate that is lower than the stated pricing provided by the Credit Facility. The competitive bid option may result in lower pricing than the stated rate if market conditions allow.sustainability targets.
Prior to the amended and restated Credit Facility, the Company's cost
The Company had no borrowings outstanding underavailability on the Credit Facility and had $6,914,000 and $11,969,000 outstanding in letters of credit that reduced the borrowing capacity as of September 30, 2022 and December 31, 2021, respectively. After taking into account its Commercial Paper Program and letters of credit, the Company had $2,193,101,000 available under theCompany's Credit Facility as of September 30, 2022. 2023 and December 31, 2022, respectively, was as follows (dollars in thousands):
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
| | | |
Credit Facility commitment | $ | 2,250,000 | | | $ | 2,250,000 | |
Credit Facility outstanding | — | | | — | |
Commercial paper outstanding | (70,000) | | | — | |
Letters of credit outstanding (1) | (1,914) | | | (1,914) | |
Total Credit Facility available | $ | 2,178,086 | | | $ | 2,248,086 | |
(1)In addition, the Company had $45,182,000$50,418 and $39,581,000$48,740 outstanding in additional letters of credit unrelated to the Credit Facility as of September 30, 20222023 and December 31, 2021,2022, 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 in an amount equal to actual borrowings under the Commercial Paper Program.
The following debt activity occurred during the nine months ended September 30, 2023:
•In March 2023, the Company repaid $250,000,000 principal amount of its 2.85% unsecured notes at its maturity.
•In September 2023, the Company repaid its $150,000,000 Term Loan at par in advance of its February 2024 scheduled maturity.
•In September 2023, the Company utilized $37,600,000 of restricted cash held in a principal reserve fund to repay a portion of the outstanding secured variable rate indebtedness of Avalon Clinton North and Avalon Clinton South.
In the aggregate, secured notes payable mature at various dates from March 2027 through July 2066, and are secured by certain apartment communities (with a net carrying value of $1,189,325,000,$1,159,639,000, excluding communities classified as held for sale, as of September 30, 2022)2023).
The weighted average interest rate of the Company's fixed rate secured notes payable (conventional and tax-exempt) was 3.4% and 3.7% at September 30, 2022 and December 31, 2021, respectively. The weighted average interest rate of the Company's variable rate secured notes payable (conventional and tax-exempt), including the effect of certain financing related fees, was 4.1% and 1.7% at September 30, 2022 and December 31, 2021, respectively.
In addition to the Commercial Paper Program, scheduledScheduled payments and maturities of secured notes payable and unsecured notes outstanding at September 30, 20222023 were as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | |
Year | | Secured notes principal payments and maturities | | Unsecured notes maturities | | Stated interest rate of unsecured notes |
2023 | | $ | 200 | | | $ | 350,000 | | | 4.20 | % |
2024 | | 9,100 | | | 300,000 | | | 3.50 | % |
2025 | | 9,700 | | | 525,000 | | | 3.45 | % |
| | | | 300,000 | | | 3.50 | % |
2026 | | 10,600 | | | 475,000 | | | 2.95 | % |
| | | | 300,000 | | | 2.90 | % |
2027 | | 249,000 | | | 400,000 | | | 3.35 | % |
2028 | | 17,600 | | | 450,000 | | | 3.20 | % |
| | | | 400,000 | | | 1.90 | % |
2029 | | 74,750 | | | 450,000 | | | 3.30 | % |
2030 | | 9,000 | | | 700,000 | | | 2.30 | % |
2031 | | 9,600 | | | 600,000 | | | 2.45 | % |
2032 | | 10,300 | | | 700,000 | | | 2.05 | % |
Thereafter | | 282,451 | | | 350,000 | | | 5.00 | % |
| | | | 350,000 | | | 3.90 | % |
| | | | 300,000 | | | 4.15 | % |
| | | | 300,000 | | | 4.35 | % |
| | $ | 682,301 | | | $ | 7,250,000 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Year | | Secured notes principal payments | | Secured notes maturities | | Unsecured notes and Term Loan maturities | | Stated interest rate of unsecured notes and Term Loan |
2022 | | $ | 800 | | | $ | — | | | $ | — | | | — | |
2023 | | 8,300 | | | — | | | 350,000 | | | 4.200 | % |
| | | | | | 250,000 | | | 2.850 | % |
2024 | | 9,100 | | | — | | | 300,000 | | | 3.500 | % |
| | | | | | 150,000 | | | LIBOR + 0.85% |
2025 | | 9,700 | | | — | | | 525,000 | | | 3.450 | % |
| | | | | | 300,000 | | | 3.500 | % |
2026 | | 10,600 | | | — | | | 475,000 | | | 2.950 | % |
| | | | | | 300,000 | | | 2.900 | % |
2027 | | 12,900 | | | 236,100 | | | 400,000 | | | 3.350 | % |
2028 | | 17,600 | | | — | | | 450,000 | | | 3.200 | % |
| | | | | | 400,000 | | | 1.900 | % |
2029 | | 8,500 | | | 66,250 | | | 450,000 | | | 3.300 | % |
2030 | | 9,000 | | | — | | | 700,000 | | | 2.300 | % |
2031 | | 9,600 | | | — | | | 600,000 | | | 2.450 | % |
Thereafter | | 84,288 | | | 245,289 | | | 700,000 | | | 2.050 | % |
| | | | | | 350,000 | | | 3.900 | % |
| | | | | | 300,000 | | | 4.150 | % |
| | | | | | 300,000 | | | 4.350 | % |
| | $ | 180,388 | | | $ | 547,639 | | | $ | 7,300,000 | | | |
The Company was in compliance at September 30, 20222023 with customary covenants under the Credit Facility and the Commercial Paper Program the Term Loan and the indentures under which the Company's unsecured notes were issued.
4. Equity
The following summarizes the changes in equity for the nine months ended September 30, 2023 and 2022 (dollars in thousands):
| | | Common stock | | Additional paid-in capital | | Accumulated earnings less dividends | | Accumulated other comprehensive loss | | Total stockholder's equity | | Noncontrolling interests | | Total equity | | 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 | | |
Balance at December 31, 2022 | | 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 | | Net income attributable to common stockholders | — | | | — | | | 146,902 | | | — | | | 146,902 | | | — | | | 146,902 | |
Loss on cash flow hedges, net | | Loss on cash flow hedges, net | — | | | — | | | — | | | (340) | | | (340) | | | — | | | (340) | |
Cash flow hedge losses reclassified to earnings | | Cash flow hedge losses reclassified to earnings | — | | | — | | | — | | | 354 | | | 354 | | | — | | | 354 | |
Change in redemption value of redeemable noncontrolling interest | | Change in redemption value of redeemable noncontrolling interest | — | | | — | | | (286) | | | — | | | (286) | | | — | | | (286) | |
Dividends declared to common stockholders ($1.65 per share) | | Dividends declared to common stockholders ($1.65 per share) | — | | | — | | | (230,958) | | | — | | | (230,958) | | | — | | | (230,958) | |
Issuance of common stock, net of withholdings | | Issuance of common stock, net of withholdings | 1 | | | (11,554) | | | 1,590 | | | — | | | (9,963) | | | — | | | (9,963) | |
Repurchase of common stock, including repurchase costs | | Repurchase of common stock, including repurchase costs | — | | | (539) | | | (590) | | | — | | | (1,129) | | | — | | | (1,129) | |
Amortization of deferred compensation | | Amortization of deferred compensation | — | | | 11,123 | | | — | | | — | | | 11,123 | | | — | | | 11,123 | |
Balance at March 31, 2023 | | 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 | Net income attributable to common stockholders | — | | | — | | | 262,044 | | | — | | | 262,044 | | | — | | | 262,044 | | Net income attributable to common stockholders | — | | | — | | | 367,923 | | | — | | | 367,923 | | | — | | | 367,923 | |
Gain on cash flow hedges, net | Gain on cash flow hedges, net | — | | | — | | | — | | | 10,155 | | | 10,155 | | | — | | | 10,155 | | Gain on cash flow hedges, net | — | | | — | | | — | | | 8,826 | | | 8,826 | | | — | | | 8,826 | |
Cash flow hedge losses reclassified to earnings | Cash flow hedge losses reclassified to earnings | — | | | — | | | — | | | 1,013 | | | 1,013 | | | — | | | 1,013 | | Cash flow hedge losses reclassified to earnings | — | | | — | | | — | | | 354 | | | 354 | | | — | | | 354 | |
Change in redemption value of redeemable noncontrolling interest | Change in redemption value of redeemable noncontrolling interest | — | | | — | | | (43) | | | — | | | (43) | | | — | | | (43) | | Change in redemption value of redeemable noncontrolling interest | — | | | — | | | (367) | | | — | | | (367) | | | — | | | (367) | |
Noncontrolling interest distribution and income allocation | — | | | — | | | — | | | — | | | — | | | (10) | | | (10) | | |
Dividends declared to common stockholders ($1.59 per share) | — | | | — | | | (222,373) | | | — | | | (222,373) | | | — | | | (222,373) | | |
Dividends declared to common stockholders ($1.65 per share) | | Dividends declared to common stockholders ($1.65 per share) | — | | | — | | | (234,774) | | | — | | | (234,774) | | | — | | | (234,774) | |
Issuance of common stock, net of withholdings | Issuance of common stock, net of withholdings | 1 | | | (14,263) | | | (1,501) | | | — | | | (15,763) | | | — | | | (15,763) | | Issuance of common stock, net of withholdings | 19 | | | 494,643 | | | 43 | | | — | | | 494,705 | | | — | | | 494,705 | |
Repurchase of common stock, including repurchase costs | | Repurchase of common stock, including repurchase costs | — | | | (369) | | | (413) | | | — | | | (782) | | | — | | | (782) | |
Amortization of deferred compensation | Amortization of deferred compensation | — | | | 9,176 | | | — | | | — | | | 9,176 | | | — | | | 9,176 | | Amortization of deferred compensation | — | | | 10,424 | | | — | | | — | | | 10,424 | | | — | | | 10,424 | |
Balance at March 31, 2022 | $ | 1,399 | | | $ | 10,711,327 | | | $ | 278,948 | | | $ | (14,938) | | | $ | 10,976,736 | | | $ | 556 | | | $ | 10,977,292 | | |
Balance at June 30, 2023 | | Balance at June 30, 2023 | $ | 1,420 | | | $ | 11,269,159 | | | $ | 534,291 | | | $ | 10,618 | | | $ | 11,815,488 | | | $ | 77 | | | $ | 11,815,565 | |
Net income attributable to common stockholders | Net income attributable to common stockholders | — | | | — | | | 138,691 | | | — | | | 138,691 | | | — | | | 138,691 | | Net income attributable to common stockholders | — | | | — | | | 172,031 | | | — | | | 172,031 | | | — | | | 172,031 | |
Gain on cash flow hedges, net | Gain on cash flow hedges, net | — | | | — | | | — | | | 7,759 | | | 7,759 | | | — | | | 7,759 | | Gain on cash flow hedges, net | — | | | — | | | — | | | 15,502 | | | 15,502 | | | — | | | 15,502 | |
Cash flow hedge losses reclassified to earnings | Cash flow hedge losses reclassified to earnings | — | | | — | | | — | | | 1,013 | | | 1,013 | | | — | | | 1,013 | | Cash flow hedge losses reclassified to earnings | — | | | — | | | — | | | 354 | | | 354 | | | — | | | 354 | |
Change in redemption value of redeemable noncontrolling interest | Change in redemption value of redeemable noncontrolling interest | — | | | — | | | 168 | | | — | | | 168 | | | — | | | 168 | | Change in redemption value of redeemable noncontrolling interest | — | | | — | | | (564) | | | — | | | (564) | | | — | | | (564) | |
Noncontrolling interest distribution and income allocation | — | | | — | | | — | | | — | | | — | | | (6) | | | (6) | | |
Dividends declared to common stockholders ($1.59 per share) | — | | | — | | | (222,772) | | | — | | | (222,772) | | | — | | | (222,772) | | |
Dividends declared to common stockholders ($1.65 per share) | | Dividends declared to common stockholders ($1.65 per share) | — | | | — | | | (234,777) | | | — | | | (234,777) | | | — | | | (234,777) | |
Issuance of common stock, net of withholdings | Issuance of common stock, net of withholdings | — | | | 1,683 | | | — | | | — | | | 1,683 | | | — | | | 1,683 | | Issuance of common stock, net of withholdings | — | | | (28) | | | (1) | | | — | | | (29) | | | — | | | (29) | |
Amortization of deferred compensation | Amortization of deferred compensation | — | | | 14,183 | | | — | | | — | | | 14,183 | | | — | | | 14,183 | | Amortization of deferred compensation | — | | | 9,519 | | | — | | | — | | | 9,519 | | | — | | | 9,519 | |
Balance at June 30, 2022 | $ | 1,399 | | | $ | 10,727,193 | | | $ | 195,035 | | | $ | (6,166) | | | $ | 10,917,461 | | | $ | 550 | | | $ | 10,918,011 | | |
Net income attributable to common stockholders | — | | | — | | | 494,747 | | | — | | | 494,747 | | | — | | | 494,747 | | |
Gain on cash flow hedges, net | — | | | — | | | — | | | 8,188 | | | 8,188 | | | — | | | 8,188 | | |
Cash flow hedge losses reclassified to earnings | — | | | — | | | — | | | 1,013 | | | 1,013 | | | — | | | 1,013 | | |
Change in redemption value of redeemable noncontrolling interest | — | | | — | | | (158) | | | — | | | (158) | | | — | | | (158) | | |
Noncontrolling interest distribution and income allocation | — | | | — | | | — | | | — | | | — | | | 1 | | | 1 | | |
Dividends declared to common stockholders ($1.59 per share) | — | | | — | | | (222,753) | | | — | | | (222,753) | | | — | | | (222,753) | | |
Issuance of common stock, net of withholdings | — | | | (384) | | | 17 | | | — | | | (367) | | | — | | | (367) | | |
Amortization of deferred compensation | — | | | 11,906 | | | — | | | — | | | 11,906 | | | — | | | 11,906 | | |
Balance at September 30, 2022 | $ | 1,399 | | | $ | 10,738,715 | | | $ | 466,888 | | | $ | 3,035 | | | $ | 11,210,037 | | | $ | 551 | | | $ | 11,210,588 | | |
Balance at September 30, 2023 | | Balance at September 30, 2023 | $ | 1,420 | | | $ | 11,278,650 | | | $ | 470,980 | | | $ | 26,474 | | | $ | 11,777,524 | | | $ | 77 | | | $ | 11,777,601 | |
The following summarizes the changes in equity for the nine months ended September 30, 2021 (dollars in thousands):
| | | Common stock | | Additional paid-in capital | | Accumulated earnings less dividends | | Accumulated other comprehensive loss | | Total stockholder's equity | | Noncontrolling interests | | Total equity | | 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, 2020 | $ | 1,395 | | | $ | 10,664,416 | | | $ | 126,022 | | | $ | (40,250) | | | $ | 10,751,583 | | | $ | 591 | | | $ | 10,752,174 | | |
Net income attributable to common stockholders | — | | | — | | | 142,223 | | | — | | | 142,223 | | | — | | | 142,223 | | |
Cash flow hedge losses reclassified to earnings | — | | | — | | | — | | | 2,367 | | | 2,367 | | | — | | | 2,367 | | |
Change in redemption value of redeemable noncontrolling interest | — | | | — | | | (273) | | | — | | | (273) | | | — | | | (273) | | |
Noncontrolling interest distribution and income allocation | — | | | — | | | — | | | — | | | — | | | (16) | | | (16) | | |
Dividends declared to common stockholders ($1.59 per share) | — | | | — | | | (221,779) | | | — | | | (221,779) | | | — | | | (221,779) | | |
Issuance of common stock, net of withholdings | 1 | | | (14,037) | | | 958 | | | — | | | (13,078) | | | — | | | (13,078) | | |
Amortization of deferred compensation | — | | | 7,286 | | | — | | | — | | | 7,286 | | | — | | | 7,286 | | |
Balance at March 31, 2021 | $ | 1,396 | | | $ | 10,657,665 | | | $ | 47,151 | | | $ | (37,883) | | | $ | 10,668,329 | | | $ | 575 | | | $ | 10,668,904 | | |
Net income attributable to common stockholders | — | | | — | | | 447,953 | | | — | | | 447,953 | | | — | | | 447,953 | | |
Loss on cash flow hedges, net | — | | | — | | | — | | | (822) | | | (822) | | | — | | | (822) | | |
Cash flow hedge losses reclassified to earnings | — | | | — | | | — | | | 2,366 | | | 2,366 | | | — | | | 2,366 | | |
Change in redemption value of redeemable noncontrolling interest | — | | | — | | | (255) | | | — | | | (255) | | | — | | | (255) | | |
Noncontrolling interest distribution and income allocation | — | | | — | | | — | | | — | | | — | | | (7) | | | (7) | | |
Dividends declared to common stockholders ($1.59 per share) | — | | | — | | | (222,451) | | | — | | | (222,451) | | | — | | | (222,451) | | |
Issuance of common stock, net of withholdings | — | | | 2,496 | | | — | | | — | | | 2,496 | | | — | | | 2,496 | | |
Amortization of deferred compensation | — | | | 10,403 | | | — | | | — | | | 10,403 | | | — | | | 10,403 | | |
Balance at June 30, 2021 | $ | 1,396 | | | $ | 10,670,564 | | | $ | 272,398 | | | $ | (36,339) | | | $ | 10,908,019 | | | $ | 568 | | | $ | 10,908,587 | | |
Balance at December 31, 2021 | | 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 | Net income attributable to common stockholders | — | | | — | | | 78,914 | | | — | | | 78,914 | | | — | | | 78,914 | | Net income attributable to common stockholders | — | | | — | | | 262,044 | | | — | | | 262,044 | | | — | | | 262,044 | |
Gain on cash flow hedges, net | Gain on cash flow hedges, net | — | | | — | | | — | | | 2,010 | | | 2,010 | | | — | | | 2,010 | | Gain on cash flow hedges, net | — | | | — | | | — | | | 10,155 | | | 10,155 | | | — | | | 10,155 | |
Cash flow hedge losses reclassified to earnings | Cash flow hedge losses reclassified to earnings | — | | | — | | | — | | | 7,405 | | | 7,405 | | | — | | | 7,405 | | Cash flow hedge losses reclassified to earnings | — | | | — | | | — | | | 1,013 | | | 1,013 | | | — | | | 1,013 | |
Change in redemption value of redeemable noncontrolling interest | Change in redemption value of redeemable noncontrolling interest | — | | | — | | | (261) | | | — | | | (261) | | | — | | | (261) | | Change in redemption value of redeemable noncontrolling interest | — | | | — | | | (43) | | | — | | | (43) | | | — | | | (43) | |
Noncontrolling interest distribution and income allocation | Noncontrolling interest distribution and income allocation | — | | | — | | | — | | | — | | | — | | | 2 | | | 2 | | Noncontrolling interest distribution and income allocation | — | | | — | | | — | | | — | | | — | | | (10) | | | (10) | |
Dividends declared to common stockholders ($1.59 per share) | Dividends declared to common stockholders ($1.59 per share) | — | | | — | | | (222,475) | | | — | | | (222,475) | | | — | | | (222,475) | | Dividends declared to common stockholders ($1.59 per share) | — | | | — | | | (222,373) | | | — | | | (222,373) | | | — | | | (222,373) | |
Issuance of common stock, net of withholdings | Issuance of common stock, net of withholdings | — | | | 4,633 | | | (27) | | | — | | | 4,606 | | | — | | | 4,606 | | Issuance of common stock, net of withholdings | 1 | | | (14,263) | | | (1,501) | | | — | | | (15,763) | | | — | | | (15,763) | |
Amortization of deferred compensation | Amortization of deferred compensation | — | | | 9,442 | | | — | | | — | | | 9,442 | | | — | | | 9,442 | | Amortization of deferred compensation | — | | | 9,176 | | | — | | | — | | | 9,176 | | | — | | | 9,176 | |
Balance at September 30, 2021 | $ | 1,396 | | | $ | 10,684,639 | | | $ | 128,549 | | | $ | (26,924) | | | $ | 10,787,660 | | | $ | 570 | | | $ | 10,788,230 | | |
Balance at March 31, 2022 | | 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 | | Net income attributable to common stockholders | — | | | — | | | 138,691 | | | — | | | 138,691 | | | — | | | 138,691 | |
Gain on cash flow hedges, net | | Gain on cash flow hedges, net | — | | | — | | | — | | | 7,759 | | | 7,759 | | | — | | | 7,759 | |
Cash flow hedge losses reclassified to earnings | | Cash flow hedge losses reclassified to earnings | — | | | — | | | — | | | 1,013 | | | 1,013 | | | — | | | 1,013 | |
Change in redemption value of redeemable noncontrolling interest | | Change in redemption value of redeemable noncontrolling interest | — | | | — | | | 168 | | | — | | | 168 | | | — | | | 168 | |
Noncontrolling interest distribution and income allocation | | Noncontrolling interest distribution and income allocation | — | | | — | | | — | | | — | | | — | | | (6) | | | (6) | |
Dividends declared to common stockholders ($1.59 per share) | | Dividends declared to common stockholders ($1.59 per share) | — | | | — | | | (222,772) | | | — | | | (222,772) | | | — | | | (222,772) | |
Issuance of common stock, net of withholdings | | Issuance of common stock, net of withholdings | — | | | 1,683 | | | — | | | — | | | 1,683 | | | — | | | 1,683 | |
Amortization of deferred compensation | | Amortization of deferred compensation | — | | | 14,183 | | | — | | | — | | | 14,183 | | | — | | | 14,183 | |
Balance at June 30, 2022 | | Balance at June 30, 2022 | $ | 1,399 | | | $ | 10,727,193 | | | $ | 195,035 | | | $ | (6,166) | | | $ | 10,917,461 | | | $ | 550 | | | $ | 10,918,011 | |
Net income attributable to common stockholders | | Net income attributable to common stockholders | — | | | — | | | 494,747 | | | — | | | 494,747 | | | — | | | 494,747 | |
Gain on cash flow hedges, net | | Gain on cash flow hedges, net | — | | | — | | | — | | | 8,188 | | | 8,188 | | | — | | | 8,188 | |
Cash flow hedge losses reclassified to earnings | | Cash flow hedge losses reclassified to earnings | — | | | — | | | — | | | 1,013 | | | 1,013 | | | — | | | 1,013 | |
Change in redemption value of redeemable noncontrolling interest | | Change in redemption value of redeemable noncontrolling interest | — | | | — | | | (158) | | | — | | | (158) | | | — | | | (158) | |
Noncontrolling interest distribution and income allocation | | Noncontrolling interest distribution and income allocation | — | | | — | | | — | | | — | | | — | | | 1 | | | 1 | |
Dividends declared to common stockholders ($1.59 per share) | | Dividends declared to common stockholders ($1.59 per share) | — | | | — | | | (222,753) | | | — | | | (222,753) | | | — | | | (222,753) | |
Issuance of common stock, net of withholdings | | Issuance of common stock, net of withholdings | — | | | (384) | | | 17 | | | — | | | (367) | | | — | | | (367) | |
Amortization of deferred compensation | | Amortization of deferred compensation | — | | | 11,906 | | | — | | | — | | | 11,906 | | | — | | | 11,906 | |
Balance at September 30, 2022 | | Balance at September 30, 2022 | $ | 1,399 | | | $ | 10,738,715 | | | $ | 466,888 | | | $ | 3,035 | | | $ | 11,210,037 | | | $ | 551 | | | $ | 11,210,588 | |
As of September 30, 20222023 and December 31, 2021,2022, 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.
During the nine months ended September 30, 2022,2023, the Company:
i.issued 4,3045,773 shares of common stock in connection with stock options exercised;
ii.issued 2,0572,577 shares of common stock through the Company's dividend reinvestment plan;
iii.issued 136,115152,894 shares of common stock in connection with restricted stock grants and the conversion of performance awards to shares of common stock;
iv.issued 2,000,000 shares of common stock in the settlement of the forward contracts, as discussed below;
v.issued 12,288 shares of common stock through the Employee Stock Purchase Plan;
vi.withheld 72,13262,482 shares of common stock to satisfy employees' tax withholding and other liabilities;
v.vii.issued 9,307canceled 2,119 shares of restricted common stock upon forfeiture; and
viii.repurchased 11,800 shares of common stock through the Employee Stock Purchase Plan; and
vi.canceled 3,235 shares of restricted common stock upon forfeiture.Repurchase Program (as defined below).
Deferred compensation granted under the Company's Second Amended and Restated 2009 Equity Incentive Plan (the "2009 Plan") duringfor the nine months ended September 30, 20222023 does not impact the Company's Condensed Consolidated Financial Statements until recognized as compensation cost.
The Company has a continuous equity program ("CEP") under which the Company may sell (and/or enter into forward sale agreements for the sale of) up to $1,000,000,000 of its common stock from time to time. During the three and nine months ended September 30, 2023, the Company had no sales under this program. As of September 30, 2023, the Company had $705,961,000 remaining authorized for issuance under the CEP.
In July 2020,addition to the Company’s BoardCEP, during the nine months ended September 30, 2023, the Company settled the outstanding forward contracts entered into in April 2022 (the "Equity Forward"), issuing 2,000,000 shares of Directors approvedcommon 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 "2020 Stock"Stock Repurchase Program"). Purchases of common stock under the 2020 Stock Repurchase Program may be exercised at the Company’s discretion with the timing and number of shares repurchased depending on a variety of factors, including price, corporate and regulatory requirements 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. During the nine months ended September 30, 2022,2023, the Company had no repurchasesrepurchased 11,800 shares of shares under this program.common stock at an average price of $161.96 per share. As of September 30, 2022,2023, the Company had $316,148,000$314,237,000 remaining authorized for purchase under this program.
In May 2019, the Company commenced a fifth continuous equity program ("CEP V") under which the Company may sell (and/or enter into forward sale agreements for the sale of) up to $1,000,000,000 of its common stock from time to time. Actual sales will depend on a variety of factors to be determined by the Company, including market conditions, the trading price of the Company's common stock and the Company's determinations of the appropriate funding sources. The Company engaged sales agents for CEP V who receive compensation of up to 1.5% 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 receive aggregate net cash proceeds at settlement equal to the number of shares underlying the particular forward agreement multiplied by the 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 forward seller, in the form of a reduced initial forward sale price, a commission of up to 1.5% of the sales prices of all borrowed shares of common stock sold. During the three and nine months ended September 30, 2022, the Company had no sales under this program. In December 2021, the Company entered into forward contracts under CEP V to sell 68,577 shares of common stock for approximate proceeds of $16,000,000 net of offering fees and discounts and based on the initial forward price (see Note 12, "Subsequent Events"). The final proceeds will be determined on the date(s) of settlement after adjustments for the Company's dividends and a daily interest factor. As of September 30, 2022, the Company had $705,961,000 remaining authorized for issuance under CEP V, after consideration of the forward contracts.
In addition to CEP V, during the nine months ended September 30, 2022, the Company completed an underwritten public offering of 2,000,000 shares of its common stock in connection with forward contracts entered into with certain financial institutions acting as forward purchasers. Assuming full physical settlement of the forward contracts, which the Company expects to occur no later than December 31, 2023, the Company will receive approximate proceeds of $494,200,000 net of offering fees and discounts and based on the initial forward price. The final proceeds will be determined on the date(s) of settlement and are subject to certain customary adjustments for the Company's dividends and a daily interest factor during the term of the forward contracts.
5. Investments
Unconsolidated Investments
As of September 30, 2022,2023, the Company had investments in sevenfive unconsolidated entities with real estate entities holdings, with ownership interest percentages ranging from 20.0% to 50.0% and, coupled with other unconsolidated investments including property technology and environmentally focused companies and investment management funds. For one of the investments which is under development and in 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 $127,803,000 as of September 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 entitiesinvestments under the equity method of 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 investments are consistent with those of the Company in all material respects. Certain of these investments 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 Company's interest or acquire the interest from the Company's partner.
DuringThe Company also has an equity interest of 28.6% in the nine months ended September 30, 2022, Archstone Multifamily Partners AC LP (the "U.S. Fund") sold its final three communities:
•Avalon Grosvenor Tower, located in Bethesda, MD, which contains 237 apartment homes and was sold for $95,250,000. The Company's shareupon achievement of the gain in accordance with GAAP was $9,187,000. In conjunction with the disposition of Avalon Grosvenor Tower, the U.S. Fund repaid a $39,060,000 secured note at par.
•Avalon Studio 4121, located in Studio City, CA, which contains 149 apartment homes and was sold for $76,000,000. The Company's share of the gain in accordance with GAAP was $9,236,000. In conjunction with the disposition of Avalon Studio 4121, the U.S. Fund repaid a $25,768,000 secured note at par.
•Avalon Station 250, located in Dedham, MA, which contains 285 apartment homes and was sold for $142,250,000. The Company's share of the gain in accordance with GAAP was $19,639,000. In advance of the disposition of Avalon Station 250, the U.S. Fund repaid a $50,385,000 secured note at par.
The Company has an equity interest of 28.6% in the U.S. Fund, and during the three months ended September 30, 2022, in conjunction with the final dispositions, achieved a threshold return, resulting in anwhich has been met, the Company has a right to incentive distributiondistributions for theits promoted interest based on the returns earned by the U.S. Fund. DuringThe Company recognized income of $424,000 and $1,496,000 for the three and nine months ended September 30, 2023, respectively, and $4,690,000 for the three and nine months ended September 30, 2022 the Company recognized income of $4,690,000 for theits promoted interest which is reported as a component ofincluded in income from investments in unconsolidated entitiesinvestments on the accompanying Condensed Consolidated Statements of Comprehensive Income. The U.S. Fund sold its final three communities in 2022 and is in the process of being dissolved.
Investments in Consolidated Real Estate Entities
DuringThe following real estate acquisition occurred during the ninethree months ended September 30, 2022, the Company acquired three wholly-owned communities:2023 (dollars in thousands):
•Avalon Flatirons, located in Lafayette, CO, which contains 207 apartment homes and 16,000 square feet of commercial space, was acquired for $95,000,000.
•Waterford Court, located in Addison, TX, which contains 196 apartment homes, was acquired for $69,500,000.
•Avalon Miramar Park Place, located in Miramar, FL, which contains 650 apartment homes, was acquired for $295,000,000. | | | | | | | | | | | | | | | | | | | | | | | | | | |
Community name | | Location | | Period | | Apartment homes | | Purchase Price |
Avalon Frisco at Main | | Frisco, TX | | Q3 2023 | | 360 | | $ | 83,100 | |
The Company accounted for these purchasesthis purchase as an asset acquisitionsacquisition 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 value of the land, a valuation model for the value of the building, and an internal model to determine the fair value of the remaining real estate assets and in-place leases. Given the heterogeneous nature 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.
Structured Investment Program
In April 2022, theThe Company established itsoperates a Structured Investment Program (the “SIP”), a newan investment platform through which the Company provides mezzanine loans or preferred equity to third-party multifamily developers.developers in the Company's existing markets. During the three and nine months ended September 30, 2022,2023, the Company entered into two additional commitments, for three mezzanine loansagreeing to provide an aggregate investment of up to $92,375,000$51,660,000 in the aggregate. These commitments are to fund multifamily development projects in North Carolina and Florida. As of September 30, 2023, the Company had five commitments to fund up to $144,035,000 in the aggregate. The Company's existing markets.investment commitments have a weighted average rate of return of 10.9% and have initial maturity dates between September 2025 and August 2027. At September 30, 2022,2023, the Company had funded $15,514,000$76,274,000 of these commitments.
The Company evaluates each SIP commitment under the SIP to determine the classification as a loan or an investment in a real estate development project. As of September 30, 2022,2023, all of the SIP commitments under the SIP are classified as loans. The Company includes amounts outstanding under the SIP as a component of prepaid expenses and other assets on the accompanying Condensed Consolidated Balance Sheets. The Company evaluates the credit risk for each loancommitment 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-specificcommitment-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 threefive existing loans,commitments, 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 interest expense, net,income from unconsolidated investments, on the accompanying Condensed Consolidated Statements of Comprehensive Income.
Expensed Transaction, Development and Other Pursuit Costs
The Company capitalizes pre-development costs incurred in pursuit of newassociated with its development opportunitiesactivities 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. Costs 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 non-recoverable capitalized pre-development costs are expensed.necessary expense to write down its basis in the Development Right. The Company expensed $6,514,000 and $417,000 for the three months ended September 30, 2022 and 2021, respectively, and $9,865,000 and $1,900,000 for the nine months ended September 30, 2022 and 2021, respectively, for 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.occur, in the amounts of $18,959,000 and $6,514,000 for the three months ended September 30, 2023 and 2022, respectively, and $23,212,000 and $9,865,000 for the nine months ended September 30, 2023 and 2022, respectively. These costs are included in expensed transaction, development and other pursuit costs, net of recoveries on the accompanying Condensed Consolidated Statements of Comprehensive Income. The amountamounts for 2023 include write-offs of $17,111,000 related to three Development Rights in Northern and Southern California and the Mid-Atlantic that the Company determined are no longer probable. The amounts for 2022 includesinclude the write-off of $5,335,000 related to a Development Right in the Pacific Northwest that the Company determined is no longer probable. These 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 an asset may not be recoverable, the Company assesses its recoverability by comparing the carrying amount of the 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 asset. Based on periodic tests of recoverability of long-lived assets, the Company did not recognize any impairment losses for the three and nine months ended September 30, 2023 and 2022, and 2021. Duringthe Company did not recognize any material impairment losses. For the three and nine months ended September 30, 2021,2023, the Company recognized a charge of $1,971,000$3,499,000 and $8,550,000, respectively, for the property and casualty damages across severalcertain communities in its East Coast marketsNortheast and California regions related to severe storms,weather and other casualty events, reported as casualty and impairment loss on the accompanying Condensed Consolidated Statements of Comprehensive Income. In addition, during the nine months ended September 30, 2021, the Company recognized a charge of $1,146,000 for the property and casualty damages resulting from a fire at an operating community, reported as casualty and impairment 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 nine months ended September 30, 20222023 and 2021,2022, the Company did not recognize any impairment losses 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 three and nine months ended September 30, 20222023 and 2021,2022, the Company did not recognize any impairment charges on its investment in 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 for any of the Company's unconsolidated investments in unconsolidated real estate entities duringfor the three and nine months ended September 30, 20222023 and 2021.2022.
6. Real Estate Disposition Activities
The following real estate sales occurred during the nine months ended September 30, 20222023 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Community name | | Location | | Period of sale | | Apartment homes | | Gross sales price | | Gain on disposition (1) |
Avalon West Long Branch | | West Long Branch, NJ | | Q122 | | 180 | | $ | 75,000 | | | $ | 56,434 | |
Avalon Ossining | | Ossining, NY | | Q122 | | 168 | | $ | 70,000 | | | $ | 40,512 | |
Avalon East Norwalk | | Norwalk, CT | | Q122 | | 240 | | $ | 90,000 | | | $ | 51,762 | |
Avalon Green I/Avalon Green II/Avalon Green III | | Elmsford, NY | | Q322 | | 617 | | $ | 306,000 | | | $ | 196,466 | |
Avalon Del Mar Station | | Pasadena, CA | | Q322 | | 347 | | $ | 172,300 | | | $ | 77,141 | |
Avalon Sharon | | Sharon, MA | | Q322 | | 156 | | $ | 65,650 | | | $ | 44,355 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Community name | | Location | | Period of sale | | Apartment homes | | Gross sales price | | Gain on disposition (1) | | Commercial square feet |
eaves Daly City | | Daly City, CA | | Q2 2023 | | 195 | | $ | 67,000 | | | $ | 54,618 | | | — | |
Avalon at Newton Highlands | | Newton, MA | | Q2 2023 | | 294 | | $ | 170,000 | | | $ | 132,723 | | | — | |
Avalon Columbia Pike | | Arlington, VA | | Q3 2023 | | 269 | | $ | 105,000 | | | $ | 22,345 | | | 27,000 |
(1) Gain on disposition was reported in gain on sale of communities on the accompanying Condensed Consolidated Statements of Comprehensive Income.
At September 30, 2022,2023, 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 nine months ended September 30, 2023, the Company sold four residential condominiums at The Park Loggia for gross proceeds of $19,397,000, resulting in a gain in accordance with GAAP of $461,000. During the three and nine months ended September 30, 2022, the Company sold 10 and 38 residential condominiums at The Park Loggia for gross proceeds of $38,991,000 and $120,328,000, respectively, resulting in a gain in accordance with GAAP of $644,000 and $2,113,000, respectively. As of September 30, 2022, there were 11 residential condominiums remaining to be sold. The Company recognized net marketing, operating and administrative recoveries of $27,000 and incurred marketing, operating and administrative costs of $340,000 and $1,187,000 duringfor the three months ended September 30, 20222023 and 2021,2022, respectively, and incurred marketing, operating and administrative costs of $272,000 and $1,644,000 and $3,453,000 duringfor the nine months ended September 30, 2023 and 2022, and 2021, respectively, in marketing, operating and administrative costs.respectively. All amounts are included in net for-sale condominiumother real estate activity on the accompanying Condensed Consolidated Statements of Comprehensive Income. As of September 30, 20222023, there were four residential condominiums remaining to be sold. As of September 30, 2023 and December 31, 2021,2022, the unsold for-sale residential condominiums at The Park Loggia had an aggregate carrying value of $38,509,000$12,657,000 and $146,535,000,$32,532,000, respectively, presented as for-sale condominium inventoryin prepaid expenses and other assets on the accompanying Condensed Consolidated Balance Sheets.
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 1213 leases for its corporate and regional offices with varying terms through 2031, all of which are operating leases.
As of September 30, 20222023 and December 31, 2021,2022, the Company had total operating lease assets of $117,181,000$107,144,000 and $118,370,000,$114,977,000, respectively, and lease obligations of $144,969,000$134,425,000 and $146,377,000,$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 $3,987,000$4,081,000 and $3,905,000$3,987,000 for the three months ended September 30, 2023 and 2022, respectively, and 2021,$12,167,000 and $11,657,000 and $11,628,000 for the nine months ended September 30, 20222023 and 2021,2022, 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 are finance leases. As of September 30, 20222023 and December 31, 2021,2022, the Company had total finance lease assets of $28,519,000$28,635,000 and $28,229,000,$28,354,000, respectively, and total finance lease obligations of $20,082,000$20,026,000 and $20,120,000,$20,069,000, respectively, reported as components of right of use lease assets and lease liabilities on the accompanying Condensed Consolidated Balance Sheets.
8. Segment Reporting
The Company's reportable operating segments include Same Store, Other Stabilized and Development/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 assessing each segment's performance. The Company's CODM is comprised of several members of its executive management team who use net operating income ("NOI") as the primary financial measure for Same Store communities and Other Stabilized communities. NOI is defined by the Company as total property revenue less direct property operating expenses (including property taxes), and excluding corporate-level income (including management, development and other fees), corporate-level property management and other indirect operating expenses, expensed transaction, development and other pursuit costs, net of recoveries, interest expense, net, loss on extinguishment of debt, net, general and administrative expense, income from investments in unconsolidated entities,investments, depreciation expense, income tax expense, casualty and impairment loss, gain on sale of communities, gain on other real estate transactions, net, net for-sale condominium activity 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 2.5%1.7% and 1.8%2.4% of total NOI for the three months ended September 30, 20222023 and 2021,2022, respectively, and 2.1%1.8% and 1.6%2.1% for the nine months ended September 30, 20222023 and 2021,2022, 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 nine months ended September 30, 20222023 and 20212022 is as follows (dollars in thousands):
| | | For the three months ended | | For the nine months ended | | For the three months ended September 30, | | For the nine months ended September 30, |
| | 9/30/2022 | | 9/30/2021 | | 9/30/2022 | | 9/30/2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Net income | Net income | $ | 494,632 | | | $ | 78,847 | | | $ | 895,274 | | | $ | 669,058 | | Net income | $ | 171,790 | | | $ | 494,632 | | | $ | 686,372 | | | $ | 895,274 | |
Property management and other indirect operating expenses, net of corporate income | Property management and other indirect operating expenses, net of corporate income | 29,374 | | | 25,322 | | | 88,119 | | | 74,110 | | Property management and other indirect operating expenses, net of corporate income | 30,421 | | | 29,374 | | | 90,177 | | | 88,119 | |
Expensed transaction, development and other pursuit costs, net of recoveries | Expensed transaction, development and other pursuit costs, net of recoveries | 6,514 | | | 417 | | | 9,865 | | | 1,900 | | Expensed transaction, development and other pursuit costs, net of recoveries | 18,959 | | | 6,514 | | | 23,212 | | | 9,865 | |
Interest expense, net | Interest expense, net | 57,290 | | | 55,987 | | | 172,613 | | | 164,704 | | Interest expense, net | 48,115 | | | 57,290 | | | 156,521 | | | 172,613 | |
Loss on extinguishment of debt, net | Loss on extinguishment of debt, net | 1,646 | | | 17,890 | | | 1,646 | | | 17,768 | | Loss on extinguishment of debt, net | 150 | | | 1,646 | | | 150 | | | 1,646 | |
General and administrative expense | General and administrative expense | 14,611 | | | 17,313 | | | 53,323 | | | 53,130 | | General and administrative expense | 20,466 | | | 14,611 | | | 58,542 | | | 53,323 | |
Income from investments in unconsolidated entities | (43,777) | | | (6,867) | | | (46,574) | | | (32,959) | | |
Income from unconsolidated investments | | Income from unconsolidated investments | (1,930) | | | (43,777) | | | (11,745) | | | (46,574) | |
Depreciation expense | Depreciation expense | 206,658 | | | 193,791 | | | 607,746 | | | 561,560 | | Depreciation expense | 200,982 | | | 206,658 | | | 606,271 | | | 607,746 | |
Income tax expense | Income tax expense | 5,651 | | | 2,179 | | | 7,963 | | | 1,434 | | Income tax expense | 4,372 | | | 5,651 | | | 7,715 | | | 7,963 | |
Casualty and impairment loss | — | | | 1,940 | | | — | | | 3,117 | | |
Casualty loss | | Casualty loss | 3,499 | | | — | | | 8,550 | | | — | |
Gain on sale of communities | Gain on sale of communities | (318,289) | | | (58) | | | (467,493) | | | (388,354) | | Gain on sale of communities | (22,121) | | | (318,289) | | | (209,430) | | | (467,493) | |
Gain on other real estate transactions, net | (15) | | | (1,543) | | | (95) | | | (2,002) | | |
Net for-sale condominium activity | (304) | | | (158) | | | (469) | | | 1,402 | | |
Other real estate activity | | Other real estate activity | (237) | | | (319) | | | (707) | | | (564) | |
Net operating income from real estate assets sold or held for sale | Net operating income from real estate assets sold or held for sale | (4,839) | | | (13,147) | | | (21,847) | | | (48,913) | | Net operating income from real estate assets sold or held for sale | (2,089) | | | (10,994) | | | (14,212) | | | (39,583) | |
Net operating income | Net operating income | $ | 449,152 | | | $ | 371,913 | | | $ | 1,300,071 | | | $ | 1,075,955 | | Net operating income | $ | 472,377 | | | $ | 442,997 | | | $ | 1,401,416 | | | $ | 1,282,335 | |
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 | | For the nine months ended | | For the three months ended September 30, | | For the nine months ended September 30, |
| | 9/30/2022 | | 9/30/2021 | | 9/30/2022 | | 9/30/2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Rental income from real estate assets sold or held for sale | Rental income from real estate assets sold or held for sale | $ | 7,315 | | | $ | 21,636 | | | $ | 34,110 | | | $ | 79,989 | | Rental income from real estate assets sold or held for sale | $ | 3,058 | | | $ | 16,242 | | | $ | 20,402 | | | $ | 59,663 | |
Operating expenses from real estate assets sold or held for sale | Operating expenses from real estate assets sold or held for sale | (2,476) | | | (8,489) | | | (12,263) | | | (31,076) | | Operating expenses from real estate assets sold or held for sale | (969) | | | (5,248) | | | (6,190) | | | (20,080) | |
Net operating income from real estate assets sold or held for sale | Net operating income from real estate assets sold or held for sale | $ | 4,839 | | | $ | 13,147 | | | $ | 21,847 | | | $ | 48,913 | | Net operating income from real estate assets sold or held for sale | $ | 2,089 | | | $ | 10,994 | | | $ | 14,212 | | | $ | 39,583 | |
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 details 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 January 1, 2022.2023. Segment information for the three and nine months ended September 30, 20222023 and 20212022 has been adjusted to exclude the real estate assets that were sold from January 1, 20212022 through September 30, 2022,2023, or otherwise qualify as held for sale as of September 30, 2022,2023, as described in Note 6, "Real Estate Disposition Activities."
| | | For the three months ended | | For the nine months ended | | | For the three months ended | | For the nine months ended | |
| | | Total revenue | | NOI | | Total revenue | | NOI | | Gross real estate (1) |
For the period ended September 30, 2023 | | For the period ended September 30, 2023 | | | | | | |
Same Store | | Same Store | | | | | |
New England | | New England | $ | 92,967 | | | $ | 61,146 | | | $ | 273,699 | | | $ | 182,121 | | | $ | 2,915,561 | |
Metro NY/NJ | | Metro NY/NJ | 133,727 | | | 90,056 | | | 395,319 | | | 270,617 | | | 4,422,604 | |
Mid-Atlantic | | Mid-Atlantic | 93,507 | | | 63,573 | | | 275,873 | | | 190,587 | | | 3,429,203 | |
Southeast Florida | | Southeast Florida | 18,789 | | | 12,260 | | | 56,908 | | | 37,535 | | | 801,062 | |
Denver, CO | | Denver, CO | 7,167 | | | 5,061 | | | 21,049 | | | 14,827 | | | 322,024 | |
Pacific Northwest | | Pacific Northwest | 42,969 | | | 29,998 | | | 128,758 | | | 91,028 | | | 1,542,199 | |
Northern California | | Northern California | 106,728 | | | 75,921 | | | 318,833 | | | 227,387 | | | 3,781,910 | |
Southern California | | Southern California | 140,117 | | | 96,248 | | | 410,657 | | | 282,195 | | | 4,799,299 | |
Other Expansion Regions | | Other Expansion Regions | 6,122 | | | 4,004 | | | 17,945 | | | 12,107 | | | 327,635 | |
Total Same Store | | Total Same Store | 642,093 | | | 438,267 | | | 1,899,041 | | | 1,308,404 | | | 22,341,497 | |
| Other Stabilized | | Other Stabilized | 33,241 | | | 23,437 | | | 97,210 | | | 68,104 | | | 1,608,094 | |
Development / Redevelopment | | Development / Redevelopment | 17,309 | | | 10,673 | | | 40,839 | | | 24,908 | | | 2,204,049 | |
Land Held for Development | | Land Held for Development | N/A | | N/A | | N/A | | N/A | | 183,158 | |
Non-allocated (2) | | Non-allocated (2) | 1,934 | | | N/A | | 5,712 | | | N/A | | 130,698 | |
| Total | | Total | $ | 694,577 | | | $ | 472,377 | | | $ | 2,042,802 | | | $ | 1,401,416 | | | $ | 26,467,496 | |
| | Total revenue | | NOI | | Total revenue | | NOI | | Gross real estate (1) | | | | | | | | | | |
For the period ended September 30, 2022 | For the period ended September 30, 2022 | | | | | | | For the period ended September 30, 2022 | | |
Same Store | Same Store | | | | | | Same Store | | | | | |
New England | New England | $ | 89,107 | | | $ | 59,271 | | | $ | 254,661 | | | $ | 168,041 | | | $ | 2,874,594 | | New England | $ | 88,399 | | | $ | 58,953 | | | $ | 252,814 | | | $ | 167,090 | | | $ | 2,886,605 | |
Metro NY/NJ | Metro NY/NJ | 120,111 | | | 81,824 | | | 344,785 | | | 237,804 | | | 4,108,778 | | Metro NY/NJ | 127,713 | | | 86,387 | | | 365,811 | | | 250,687 | | | 4,392,552 | |
Mid-Atlantic | Mid-Atlantic | 85,255 | | | 56,583 | | | 247,977 | | | 167,338 | | | 3,196,309 | | Mid-Atlantic | 88,964 | | | 59,554 | | | 258,952 | | | 176,267 | | | 3,389,133 | |
Southeast Florida | Southeast Florida | 9,661 | | | 6,374 | | | 28,171 | | | 18,522 | | | 398,306 | | Southeast Florida | 17,798 | | | 11,683 | | | 51,292 | | | 32,964 | | | 796,120 | |
Denver, CO | Denver, CO | 6,891 | | | 4,905 | | | 19,869 | | | 14,531 | | | 321,354 | | Denver, CO | 6,891 | | | 4,905 | | | 19,869 | | | 14,531 | | | 321,354 | |
Pacific Northwest | Pacific Northwest | 37,379 | | | 26,273 | | | 107,987 | | | 76,596 | | | 1,295,468 | | Pacific Northwest | 42,628 | | | 30,077 | | | 122,668 | | | 87,147 | | | 1,531,682 | |
Northern California | Northern California | 102,955 | | | 73,498 | | | 300,171 | | | 214,269 | | | 3,674,996 | | Northern California | 103,374 | | | 73,607 | | | 301,367 | | | 214,527 | | | 3,752,632 | |
Southern California | Southern California | 123,423 | | | 85,311 | | | 368,299 | | | 258,552 | | | 4,304,711 | | Southern California | 130,453 | | | 88,886 | | | 389,341 | | | 270,804 | | | 4,746,147 | |
Other Expansion Regions | | Other Expansion Regions | 5,568 | | | 3,703 | | | 16,194 | | | 11,069 | | | 323,333 | |
Total Same Store | Total Same Store | 574,782 | | | 394,039 | | | 1,671,920 | | | 1,155,653 | | | 20,174,516 | | Total Same Store | 611,788 | | | 417,755 | | | 1,778,308 | | | 1,225,086 | | | 22,139,558 | |
| Other Stabilized | Other Stabilized | 56,888 | | | 38,364 | | | 151,198 | | | 101,175 | | | 2,890,645 | | Other Stabilized | 28,146 | | | 20,515 | | | 62,479 | | | 44,622 | | | 1,435,965 | |
Development / Redevelopment | Development / Redevelopment | 24,904 | | | 16,749 | | | 63,493 | | | 43,243 | | | 2,177,648 | | Development / Redevelopment | 7,713 | | | 4,727 | | | 20,271 | | | 12,627 | | | 1,386,757 | |
Land Held for Development | Land Held for Development | N/A | | N/A | | N/A | | N/A | | 167,277 | | Land Held for Development | N/A | | N/A | | N/A | | N/A | | 167,277 | |
Non-allocated (2) | Non-allocated (2) | 1,399 | | | N/A | | 3,054 | | | N/A | | 154,266 | | Non-allocated (2) | 1,399 | | | N/A | | 3,054 | | | N/A | | 115,757 | |
| Total | Total | $ | 657,973 | | | $ | 449,152 | | | $ | 1,889,665 | | | $ | 1,300,071 | | | $ | 25,564,352 | | Total | $ | 649,046 | | | $ | 442,997 | | | $ | 1,864,112 | | | $ | 1,282,335 | | | $ | 25,245,314 | |
| For the period ended September 30, 2021 | | | |
Same Store | | | | | | |
New England | $ | 77,754 | | | $ | 48,696 | | | $ | 226,516 | | | $ | 144,116 | | | $ | 2,840,108 | | |
Metro NY/NJ | 104,940 | | | 70,459 | | | 308,252 | | | 209,265 | | | 4,079,405 | | |
Mid-Atlantic | 78,284 | | | 51,391 | | | 231,341 | | | 154,252 | | | 3,167,632 | | |
Southeast Florida | 8,152 | | | 5,026 | | | 23,099 | | | 13,772 | | | 395,594 | | |
Denver, CO | 6,070 | | | 4,011 | | | 17,576 | | | 11,965 | | | 320,214 | | |
Pacific Northwest | 32,344 | | | 22,079 | | | 93,911 | | | 63,493 | | | 1,286,674 | | |
Northern California | 92,636 | | | 64,562 | | | 277,571 | | | 195,136 | | | 3,629,269 | | |
Southern California | 113,601 | | | 77,831 | | | 324,487 | | | 220,527 | | | 4,250,958 | | |
Total Same Store | 513,781 | | | 344,055 | | | 1,502,753 | | | 1,012,526 | | | 19,969,854 | | |
| Other Stabilized | 32,601 | | | 20,612 | | | 80,447 | | | 47,909 | | | 2,092,971 | | |
Development / Redevelopment | 12,061 | | | 7,246 | | | 28,084 | | | 15,520 | | | 1,411,995 | | |
Land Held for Development | N/A | | N/A | | N/A | | N/A | | 66,769 | | |
Non-allocated (2) | 695 | | | N/A | | 2,380 | | | N/A | | 278,779 | | |
| Total | $ | 559,138 | | | $ | 371,913 | | | $ | 1,613,664 | | | $ | 1,075,955 | | | $ | 23,820,368 | | |
(1)Does not include gross real estate assets held for sale of $78,662$63,754 as of September 30, 20222023 and gross real estate either sold or classified as held for sale subsequent to September 30, 20212022 of $555,942.$280,529.
(2)Revenue represents third-party property management, developer fees and miscellaneous income and other ancillary items which are not allocated to a reportable segment. Gross real estate includes the for-sale residential condominiums at The Park Loggia, as discussed in Note 6, "Real Estate Disposition Activities."
9. Stock-Based Compensation Plans
As part of its long-term compensation plans, the Company has granted stock options, performance awards and restricted stock under the 2009 Plan. Details of the outstanding awards and activity under the 2009 Plan for the nine months ended September 30, 20222023 are presented below.
Stock Options:
| | | 2009 Plan options | | Weighted average exercise price per option | | Options | | Weighted average exercise price per option |
Options Outstanding at December 31, 2021 | | 299,149 | | | $ | 178.71 | | |
Options Outstanding at December 31, 2022 | | Options Outstanding at December 31, 2022 | | 293,813 | | | $ | 181.85 | |
Granted (1) | Granted (1) | | 9,793 | | | 236.14 | | Granted (1) | | 15,744 | | | 177.83 | |
Exercised | Exercised | | (4,304) | | | 141.41 | | Exercised | | (5,773) | | | 163.56 | |
Forfeited | Forfeited | | (6,459) | | | 180.32 | | Forfeited | | — | | | — | |
Options Outstanding at September 30, 2022 | | 298,179 | | | $ | 181.10 | | |
Options Exercisable at September 30, 2022 | | 10,899 | | | $ | 151.38 | | |
Options Outstanding at September 30, 2023 | | Options Outstanding at September 30, 2023 | | 303,784 | | | $ | 181.99 | |
Options Exercisable at September 30, 2023 | | Options Exercisable at September 30, 2023 | | 279,894 | | | $ | 180.97 | |
(1)Grants are from recipient elections to receive a portion of earned restricted stock awards in the form of stock options.
Performance Awards:
| | | Performance awards | | Weighted average grant date fair value per award (1) | | Performance awards | | Weighted average grant date fair value per award (1) |
Outstanding at December 31, 2021 | | 284,522 | | | $ | 214.73 | | |
Outstanding at December 31, 2022 | | Outstanding at December 31, 2022 | | 279,067 | | | $ | 225.46 | |
Granted (2) | Granted (2) | | 72,783 | | | 254.75 | | Granted (2) | | 89,977 | | | 193.88 | |
Change in awards based on performance (3) | Change in awards based on performance (3) | | (20,356) | | | 200.92 | | Change in awards based on performance (3) | | (31,345) | | | 241.49 | |
Converted to shares of common stock | Converted to shares of common stock | | (54,053) | | | 217.33 | | Converted to shares of common stock | | (60,016) | | | 238.71 | |
Forfeited | Forfeited | | (3,829) | | | 230.36 | | Forfeited | | (2,719) | | | 212.05 | |
Outstanding at September 30, 2022 | | 279,067 | | | $ | 225.46 | | |
Outstanding at September 30, 2023 | | Outstanding at September 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 common stock for 39,97249,480 performance awards and financial metrics related to operating performance and leverage metrics of the Company for 32,81140,497 performance awards.
(3)Represents the change in the number of performance awards earned based on performance achievement.
The Company used a Monte Carlo model to assess the compensation cost associated with the portion of the performance awards granted for which achievement will be determined by using total shareholder return measures. For the awards granted in 2022,2023, the assumptions used are as follows:
| | | | | | | | |
| | 20222023 |
Dividend yield | | 2.7%3.7% |
Estimated volatility over the life of the plan (1) | | 16.1%22.9% - 36.8%26.1% |
Risk free rate | | 0.72%4.35% - 1.68%4.61% |
Estimated performance award value based on total shareholder return measure | | $271.98206.97 |
__________________________________(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 20222023 for which achievement will be determined by using financial metrics, the compensation cost was based on an average grant date value of $233.94,$177.85, and the Company's estimate of corporate achievement for the financial metrics.
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, 2021 | | 157,066 | | | $ | 192.90 | | | 74,627 | |
Granted - restricted stock shares | | 82,062 | | | 235.02 | | | — | |
Vested - restricted stock shares | | (75,880) | | | 197.03 | | | (48,031) | |
Forfeited | | (3,149) | | | 218.12 | | | (86) | |
Outstanding at September 30, 2022 | | 160,099 | | | $ | 212.03 | | | 26,510 | |
| | | | | | | | | | | | | | | | | | | | |
| | 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 | | 92,878 | | | 177.72 | | | — | |
Vested | | (77,674) | | | 208.48 | | | (26,370) | |
Forfeited | | (2,119) | | | 194.78 | | | — | |
Outstanding at September 30, 2023 | | 174,799 | | | $ | 194.61 | | | — | |
Total employee stock-based compensation cost recognized in income was $26,958,000$22,112,000 and $19,965,000$26,958,000 for the nine months ended September 30, 20222023 and 2021,2022, respectively, and total capitalized stock-based compensation cost was $8,434,000$9,269,000 and $6,899,000$8,434,000 for the nine months ended September 30, 20222023 and 2021,2022, respectively. At September 30, 2022,2023, there was a total unrecognized compensation cost of $40,221,000$34,689,000 for unvested restricted stock, stock options and performance awards, which is expected to be recognized over a weighted average period of 1.81.9 years. Forfeitures are included in compensation cost as they occur.
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 $1,399,000$1,934,000 and $695,000$1,399,000 for the three months ended September 30, 20222023 and 2021,2022, respectively, and $5,712,000 and $3,054,000 and $2,380,000for thenine months ended September 30, 20222023 and 2021,2022, respectively. In addition, the Company had outstanding receivables associated with its property and construction management roles of $5,337,000$3,471,000 and $3,964,000$2,855,000 as of September 30, 20222023 and December 31, 2021,2022, respectively.
Director Compensation
The Company recorded non-employee director compensation expense relating to restricted stock grants and deferred stock units in the amount of $599,000 and $553,000 and $516,000 infor the three months ended September 30, 20222023 and 2021,2022, respectively, and $1,845,000 and $1,642,000 and $1,457,000for thenine months ended September 30, 20222023 and 2021,2022, respectively, as a component of general and administrative expense. Deferred compensation relating to these restricted stock grants and deferred stock units to non-employee directors was $1,150,000$1,283,000 and $696,000$794,000 on September 30, 20222023 and December 31, 2021,2022, respectively, reported as a component of prepaid expenses and other assets on the accompanying Condensed Consolidated Balance Sheets.
11. Fair Value
Financial Instruments Carried at Fair Value
Derivative Financial Instruments
The Company uses Hedging Derivatives to manage its interest rate risk. These instruments are carried at fair value in the Company's financial statements. 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, and monitors the credit ratings of counterparties and the exposure of the Company to any single 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 September 30, 2022,which 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 isconcluded are not significant. As a result, the Company has determined that its derivative valuations are classified in Level 2 of the fair value hierarchy.
The following table summarizes the consolidated derivative positions at September 30, 20222023 (dollars in thousands):
| | | Non-designated Hedges | Cash Flow Hedges | | Non-designated Hedges | | Cash Flow Hedges | |
| | Interest Rate Caps | Interest Rate Swaps | | Interest Rate Caps | | Interest Rate Swaps | |
Notional balance | Notional balance | $ | 402,670 | $ | 150,000 | Notional balance | $ | 402,670 | | $ | 250,000 | |
Weighted average interest rate (1) | Weighted average interest rate (1) | 4.1 | % | N/A | Weighted average interest rate (1) | 5.6 | % | | N/A | |
Weighted average swapped/capped interest rate | 6.1 | % | 1.4 | % | |
Weighted average capped/swapped interest rate | | Weighted average capped/swapped interest rate | 6.1 | % | | 3.1 | % | |
Earliest maturity date | Earliest maturity date | January 2024 | November 2022 | Earliest maturity date | January 2024 | | December 2023 | |
Latest maturity date | Latest maturity date | November 2026 | November 2022 | 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.
As ofDuring the nine months ended September 30, 2022,2023, the Company had $150,000,000 in aggregate outstanding pay fixedentered into $250,000,000 of new forward interest rate swap agreements that were entered into as hedgesto reduce the impact of changesvariability in interest rates for ouron a portion of the Company's anticipated future debt issuance activity.activity in 2023 and 2024. The Company expects to cash settle the swaps 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.
The Company had five derivatives not designated as hedges at September 30, 20222023 for which the fair value changes for the three and nine months ended September 30, 20222023 and 20212022 were not material. The Company did not have any derivatives designated as fair value hedges as of September 30, 2022 and 2021.
The following table summarizes the deferredCash flow hedge losses reclassified from accumulated other comprehensive lossincome into earnings (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended | | For the nine months ended |
| 9/30/2022 | | 9/30/2021 | | 9/30/2022 | | 9/30/2021 |
| | | | | | | |
Cash flow hedge losses reclassified to earnings | $ | 1,013 | | | $ | 7,405 | | | $ | 3,039 | | | $ | 12,138 | |
were $354,000 and $1,013,000 for the three months ended September 30, 2023 and 2022, respectively, and $1,062,000 and $3,039,000 for the nine months ended September 30, 2023 and 2022, respectively.
The Company anticipates reclassifying approximately $4,051,000$1,415,000 of net hedging losses from accumulated other comprehensive lossincome into earnings within the next 12 months as an offset to the hedged item during this period.
Redeemable Noncontrolling Interests
The Company issued and has outstandingDuring the nine months ended September 30, 2023, 7,500 DownREIT units of limited partnership interest in a DownREIT which can be presentedwere redeemed for cash redemption as determined by the partnership agreement.Company in conjunction with the sale of Avalon at Newton Highlands. Under the DownREIT agreement, for each limited partnership unit, the limited partner iswas 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 DownREIT arewere 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 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 Loans,Loan, and any outstanding amounts under the Credit Facility and Commercial 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 LoansLoan and any outstanding amounts under the Credit Facility and Commercial 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):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 9/30/2022 |
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) |
| | | |
Non Designated Hedges | | | | | | | | |
Interest Rate Caps | | $ | 722 | | | $ | — | | | $ | 722 | | | $ | — | |
Interest Rate Swaps - Assets | | 29,324 | | | — | | | 29,324 | | | — | |
DownREIT units | | (1,382) | | | (1,382) | | | — | | | — | |
Indebtedness | | | | | | | | |
Fixed rate unsecured notes | | (6,280,228) | | | (6,280,228) | | | — | | | — | |
Mortgage notes payable, Commercial Paper Program and variable rate unsecured note | | (655,522) | | | — | | | (655,522) | | | — | |
Total | | $ | (6,907,086) | | | $ | (6,281,610) | | | $ | (625,476) | | | $ | — | |
| | | 12/31/2021 | | September 30, 2023 |
Description | 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) | 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 | | Assets | | | | | | | | |
Investments | | Investments | |
Equity Securities | | Equity Securities | | $ | 29,236 | | | $ | — | | | $ | 29,236 | | | $ | — | |
Notes Receivable, net | | Notes Receivable, net | | 81,150 | | | — | | | 81,150 | | | — | |
Non Designated Hedges | Non Designated Hedges | | | | | | | | | Non Designated Hedges | |
Interest Rate Caps | Interest Rate Caps | | $ | 225 | | | $ | — | | | $ | 225 | | | $ | — | | Interest Rate Caps | | 199 | | | — | | | 199 | | | — | |
Interest Rate Swaps - Assets | Interest Rate Swaps - Assets | | 3,204 | | | — | | | 3,204 | | | — | | Interest Rate Swaps - Assets | | 23,988 | | | — | | | 23,988 | | | — | |
DownREIT units | | (1,895) | | | (1,895) | | | — | | | — | | |
Total Assets | | Total Assets | | $ | 134,573 | | | $ | — | | | $ | 134,573 | | | $ | — | |
| Liabilities | | Liabilities | |
Indebtedness | Indebtedness | | Indebtedness | |
Fixed rate unsecured notes | Fixed rate unsecured notes | | (7,624,560) | | | (7,624,560) | | | — | | | — | | Fixed rate unsecured notes | | $ | 6,313,990 | | | $ | 6,313,990 | | | $ | — | | | $ | — | |
Mortgage notes payable and variable rate unsecured notes | | (940,779) | | | — | | | (940,779) | | | — | | |
Total | | $ | (8,563,805) | | | $ | (7,626,455) | | | $ | (937,350) | | | $ | — | | |
Mortgage notes payable and Commercial Paper Program | | Mortgage notes payable and Commercial Paper Program | | 653,860 | | | — | | | 653,860 | | | — | |
Total Liabilities | | Total Liabilities | | $ | 6,967,850 | | | $ | 6,313,990 | | | $ | 653,860 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 note | | 768,984 | | | — | | | 768,984 | | | — | |
Total Liabilities | | $ | 7,423,876 | | | $ | 6,654,892 | | | $ | 768,984 | | | $ | — | |
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 2022,and November 2023, the Company had the following activity:
•The Company acquired Avalon Highland Creek,Mooresville, located in Mooresville, NC, containing 203 apartment homes for a 260 apartment home community in Charlotte, NC, for $76,700,000.purchase price of $52,100,000.
•The Company acquired Avalon West Plano, located in Carrollton, TX, containing 568 apartment homes for a purchase price of $142,000,000, which includes the assumption of a $63,041,000 fixed rate mortgage loan, with a contractual interest rate of 4.18%, maturing in May 2029.
•The Company sold Avalon Mamaroneck, located in Mamaroneck, NY. Avalon Mamaroneck contains 229 apartment homes and was sold for $104,000,000 and was classified as held for sale as of September 30, 2023.
•In October 2022 and early 2023, the Company settledwas named as a defendant in cases brought by private litigants alleging antitrust violations by RealPage, Inc. and owners and/or operators of multifamily housing which utilize revenue management systems provided by RealPage, Inc. The Company engaged with the outstanding forward contracts entered intoplaintiffs' counsel to explain why it believed that these cases were without merit as they pertained to the Company. Following these discussions, the plaintiffs filed a notice of voluntary dismissal in December 2021 under CEP V, selling 68,577 sharesJuly 2023, which resulted in the Company being dismissed without prejudice from these cases. On November 1, 2023, the District of common stock for $229.34 per share, for net proceedsColumbia filed a lawsuit in the Superior Court of $15,727,000.the District of Columbia against RealPage, Inc. and 14 owners and/or operators of multifamily housing in the District of Columbia, including the Company, alleging that the defendants violated the District of Columbia Antitrust Act by unlawfully agreeing to use RealPage, Inc. revenue management systems and sharing sensitive data. The Company intends to vigorously defend against this lawsuit. Given the early stage of the District of Columbia’s lawsuit, the Company is unable to predict the outcome or estimate the amount of loss, if any, that may result from the lawsuit.
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, 20212022 (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 in New England, the New York/New Jersey metro area, the Mid-Atlantic, the Pacific Northwest, and Northern and Southern California, as well as in our expansion marketsregions 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 historically have beenare characterized by growing employment in high wage sectors of the economy, higher cost of home ownership cost and a diverse and vibrant quality of life. We believe these market characteristics have offered, and will continue to offer, the opportunity for superior long-term risk-adjusted returns over the long-term on apartment community investments relative to other markets that do not have these characteristics. We seek to create long-term shareholder value by accessing cost effective capital; deploying that capital to develop, redevelop and acquire apartment communities in our markets; leveraging our strong operating organization, culture, scale and 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 U.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 with disciplined 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 current market value and share of total revenue and NOI, as well as relative asset value and submarket positioning.
Third Quarter 20222023 Operating Highlights
•Net income attributable to common stockholders for the three months ended September 30, 20222023 was $494,747,000, an increase$172,031,000, a decrease of $415,833,000,$322,716,000, or 526.9%65.2%, from the prior year period. The increasedecrease is primarily dueattributable to an increasedecreases in real estate sales and related gains, andpartially offset by an increase in NOI from communities, over the prior year period.
•Same Store NOI attributable to our apartment rental operations, including parking and other ancillary residential revenue ("Residential"), for the three months ended September 30, 20222023 was $388,397,000,$432,922,000, an increase of $48,991,000,$21,609,000, or 14.4%5.3%, over the prior year period. The increase over the prior year period was due to an increase in Residential rental revenuesrevenue of $60,008,000,$31,361,000, or 11.8%5.2%, partially offset by an increase in Residential property operating expenses of $10,990,000,$9,736,000, or 6.5%5.0%.
Third Quarter 20222023 Development Highlights
At September 30, 2022,2023, we owned or held a direct or indirect interest in:
•1716 wholly-owned communities under construction, which are expected to contain 5,4275,402 apartment homes with a projected total capitalized cost of $2,277,000,000,$2,257,000,000, and one unconsolidated community under construction, which is expected to contain 475 apartment homes with a projected total capitalized cost of $276,000,000.
$288,000,000.
•Land or rights to land on which we expect to develop an additional 3438 apartment communities that, if developed as expected, will contain 11,45113,449 apartment homes and will be developed for an aggregate projected total capitalized cost of $5,115,000,000.$6,012,000,000.
Third Quarter 20222023 Real Estate Transaction Highlights
During the three months ended September 30, 2022,2023, we sold fiveAvalon Columbia Pike, a wholly-owned communitiescommunity, containing 1,120269 apartment homes and 27,000 square feet of commercial space for $543,950,000$105,000,000 for a gain in accordance with GAAP of $317,962,000.$22,345,000.
During the three months ended September 30, 2022,2023, we acquired Avalon Miramar Park Place,Frisco at Main, located in Miramar, FL,Frisco, TX, which contains 650360 apartment homes for a purchase price of $295,000,000.$83,100,000.
In addition, in October 2022,2023, we had the following activity:
•We acquired Avalon Highland Creek,Mooresville, located in Charlotte,Mooresville, NC, containing 260203 apartment homes for a purchase price of $76,700,000.$52,100,000.
•We acquired Avalon West Plano, located in Carrollton, TX, containing 568 apartment homes for a purchase price of $142,000,000, which includes the assumption of a $63,041,000 fixed rate mortgage loan, with a contractual interest rate of 4.18%, maturing in May 2029.
•We sold Avalon Mamaroneck, located in Mamaroneck, NY. Avalon Mamaroneck contains 229 apartment homes and was sold for $104,000,000 and was classified as held for sale as of September 30, 2023.
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 and "Unconsolidated Development" communities) and Development Rights (as defined below). Our Current Communities are further classified as Same Store communities, Other Stabilized communities, Lease-Up communities, Redevelopment communities and Unconsolidated communities. While we generally establish the classification of communities on an annual basis, we 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. The following is a description of each category:
Current Communities are categorized as Same Store, Other Stabilized, Lease-Up, Redevelopment, or Unconsolidated according to the following attributes:
•Same Store 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 nine month periods ended September 30, 20222023 and 2021,2022, Same Store communities are consolidated for financial reporting purposes, had stabilized occupancy as of January 1, 2021,2022, are not conducting or are not probable to conduct substantial redevelopment activities and are not held for sale as of September 30, 20222023 or probable 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 90% physical occupancy or (ii) the one-year anniversary of completion of development or redevelopment.
•Other Stabilized is composed of completed consolidated communities that we own and that are not Same Store but that hadwhich have stabilized occupancy, as defined above, as of January 1, 2022,2023, or which were acquired subsequent to January 1, 2021.2022. Other Stabilized includes stabilized wholly-owned communities in Charlotte, North Carolina and Dallas, Texas, the two new expansion markets we entered in 2021, but excludes communities that are conducting or are probable to conduct substantial redevelopment activities within the current year, as defined below.
•Lease-Up is composed of consolidated communities where construction has been complete for less than one year and that do not have stabilized occupancy.
•Redevelopment is composed of consolidated communities where substantial redevelopment is in progress or is probable 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 be below 90% during, or as a result of, the redevelopment activity.
•Unconsolidated is composed of communities that we have an indirect ownership interest in through our investment interest in an unconsolidated joint venture.
Development is composed of consolidated communities that are either currently under construction, or were under construction and were completed during the current year.year or where construction has been complete for less than one year and that did not have stabilized occupancy as of 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 September 30, 2022,2023, communities that we owned or held a direct or indirect interest in were classified as follows:
| | | Number of communities | | Number of apartment homes | | Number of communities | | Number of apartment homes |
Current Communities | Current Communities | | | | | Current Communities | | | | |
| Same Store: | Same Store: | | | | | Same Store: | | | | |
New England | New England | | 37 | | | 9,618 | | New England | | 39 | | | 9,577 | |
Metro NY/NJ | Metro NY/NJ | | 39 | | | 11,641 | | Metro NY/NJ | | 41 | | | 12,766 | |
Mid-Atlantic | Mid-Atlantic | | 37 | | | 12,577 | | Mid-Atlantic | | 39 | | | 13,301 | |
Southeast Florida | Southeast Florida | | 4 | | | 1,214 | | Southeast Florida | | 7 | | | 2,187 | |
Denver, CO | Denver, CO | | 4 | | | 1,086 | | Denver, CO | | 4 | | | 1,086 | |
Pacific Northwest | Pacific Northwest | | 18 | | | 4,807 | | Pacific Northwest | | 20 | | | 5,474 | |
Northern California | Northern California | | 40 | | | 12,126 | | Northern California | | 40 | | | 12,133 | |
Southern California | Southern California | | 56 | | | 16,422 | | Southern California | | 58 | | | 17,277 | |
Other Expansion Regions | | Other Expansion Regions | | 4 | | | 925 | |
Total Same Store | Total Same Store | | 235 | | | 69,491 | | Total Same Store | | 252 | | | 74,726 | |
| Other Stabilized: | Other Stabilized: | | | | | Other Stabilized: | | | | |
New England | New England | | 3 | | | 253 | | New England | | 1 | | | 350 | |
Metro NY/NJ | Metro NY/NJ | | 3 | | | 1,354 | | Metro NY/NJ | | 1 | | | 229 | |
Mid-Atlantic | Mid-Atlantic | | 5 | | | 1,691 | | Mid-Atlantic | | 3 | | | 1,181 | |
North Carolina | | 3 | | | 500 | | |
Southeast Florida | Southeast Florida | | 4 | | | 1,623 | | Southeast Florida | | 1 | | | 650 | |
Texas | | 2 | | | 621 | | |
Denver, CO | Denver, CO | | 1 | | | 207 | | Denver, CO | | 2 | | | 453 | |
Pacific Northwest | Pacific Northwest | | 2 | | | 667 | | Pacific Northwest | | — | | | — | |
Northern California | Northern California | | 1 | | | 200 | | Northern California | | — | | | — | |
Southern California | Southern California | | 2 | | | 849 | | Southern California | | 1 | | | 653 | |
Other Expansion Regions | | Other Expansion Regions | | 3 | | | 816 | |
Total Other Stabilized | Total Other Stabilized | | 26 | | | 7,965 | | Total Other Stabilized | | 12 | | | 4,332 | |
| Lease-Up | | 5 | | | 2,086 | | |
| Redevelopment | Redevelopment | | 1 | | | 714 | | Redevelopment | | 1 | | | 714 | |
| Unconsolidated | Unconsolidated | | 8 | | | 2,247 | | Unconsolidated | | 8 | | | 2,247 | |
| Total Current | Total Current | | 275 | | | 82,503 | | Total Current | | 273 | | | 82,019 | |
| Development | Development | | 17 | | | 5,427 | | Development | | 22 | | | 6,746 | |
| Unconsolidated Development | Unconsolidated Development | | 1 | | | 475 | | Unconsolidated Development | | 1 | | | 475 | |
| Total Communities | Total Communities | | 293 | | | 88,405 | | Total Communities | | 296 | | | 89,240 | |
| Development Rights | Development Rights | | 34 | | | 11,451 | | Development Rights | | 38 | | | 13,449 | |
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 Same Store NOI; NOI derived from acquisitions, development completions and development under construction and in lease-up; loss of NOI related to disposed communities; and capital market and financing activity. See also Part II, Item 1A. “Risk Factors.” A comparison of our operating results for the three and nine months ended September 30, 20222023 and 20212022 is as follows (unaudited, dollars in thousands).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended | | For the nine months ended |
| 9/30/2022 | | 9/30/2021 | | $ Change | | % Change | | 9/30/2022 | | 9/30/2021 | | $ Change | | % Change |
| | | | | | | | | | | | | | | |
Revenue: | | | | | | | | | | | | | | | |
Rental and other income | $ | 663,889 | | | $ | 580,079 | | | $ | 83,810 | | | 14.4 | % | | $ | 1,920,721 | | | $ | 1,691,273 | | | $ | 229,448 | | | 13.6 | % |
Management, development and other fees | 1,399 | | | 695 | | | 704 | | | 101.3 | % | | 3,054 | | | 2,380 | | | 674 | | | 28.3 | % |
Total revenue | 665,288 | | | 580,774 | | | 84,514 | | | 14.6 | % | | 1,923,775 | | | 1,693,653 | | | 230,122 | | | 13.6 | % |
| | | | | | | | | | | | | | | |
Expenses: | | | | | | | | | | | | | | | |
Direct property operating expenses, excluding property taxes | 134,810 | | | 122,691 | | | 12,119 | | | 9.9 | % | | 382,119 | | | 353,905 | | | 28,214 | | | 8.0 | % |
Property taxes | 75,091 | | | 72,332 | | | 2,759 | | | 3.8 | % | | 216,695 | | | 212,518 | | | 4,177 | | | 2.0 | % |
Total community operating expenses | 209,901 | | | 195,023 | | | 14,878 | | | 7.6 | % | | 598,814 | | | 566,423 | | | 32,391 | | | 5.7 | % |
| | | | | | | | | | | | | | | |
Corporate-level property management and other indirect operating expenses | (30,770) | | | (26,013) | | | (4,757) | | | 18.3 | % | | (91,162) | | | (76,472) | | | (14,690) | | | 19.2 | % |
Expensed transaction, development and other pursuit costs, net of recoveries | (6,514) | | | (417) | | | (6,097) | | | N/A (1) | | (9,865) | | | (1,900) | | | (7,965) | | | 419.2 | % |
Interest expense, net | (57,290) | | | (55,987) | | | (1,303) | | | 2.3 | % | | (172,613) | | | (164,704) | | | (7,909) | | | 4.8 | % |
Loss on extinguishment of debt, net | (1,646) | | | (17,890) | | | 16,244 | | | (90.8) | % | | (1,646) | | | (17,768) | | | 16,122 | | | (90.7) | % |
Depreciation expense | (206,658) | | | (193,791) | | | (12,867) | | | 6.6 | % | | (607,746) | | | (561,560) | | | (46,186) | | | 8.2 | % |
General and administrative expense | (14,611) | | | (17,313) | | | 2,702 | | | (15.6) | % | | (53,323) | | | (53,130) | | | (193) | | | 0.4 | % |
Casualty and impairment loss | — | | | (1,940) | | | 1,940 | | | 100.0 | % | | — | | | (3,117) | | | 3,117 | | | 100.0 | % |
Income from investments in unconsolidated entities | 43,777 | | | 6,867 | | | 36,910 | | | 537.5 | % | | 46,574 | | | 32,959 | | | 13,615 | | | 41.3 | % |
Gain on sale of communities | 318,289 | | | 58 | | | 318,231 | | | N/A (1) | | 467,493 | | | 388,354 | | | 79,139 | | | 20.4 | % |
Gain on other real estate transactions, net | 15 | | | 1,543 | | | (1,528) | | | (99.0) | % | | 95 | | | 2,002 | | | (1,907) | | | (95.3) | % |
Net for-sale condominium activity | 304 | | | 158 | | | 146 | | | 92.4 | % | | 469 | | | (1,402) | | | 1,871 | | | N/A (1) |
Income before income taxes | 500,283 | | | 81,026 | | | 419,257 | | | 517.4 | % | | 903,237 | | | 670,492 | | | 232,745 | | | 34.7 | % |
Income tax expense | (5,651) | | | (2,179) | | | (3,472) | | | 159.3 | % | | (7,963) | | | (1,434) | | | (6,529) | | | 455.3 | % |
Net income | 494,632 | | | 78,847 | | | 415,785 | | | 527.3 | % | | 895,274 | | | 669,058 | | | 226,216 | | | 33.8 | % |
| | | | | | | | | | | | | | | |
Net loss attributable to noncontrolling interests | 115 | | | 67 | | | 48 | | | 71.6 | % | | 208 | | | 32 | | | 176 | | | 550.0 | % |
| | | | | | | | | | | | | | | |
Net income attributable to common stockholders | $ | 494,747 | | | $ | 78,914 | | | $ | 415,833 | | | 526.9 | % | | $ | 895,482 | | | $ | 669,090 | | | $ | 226,392 | | | 33.8 | % |
_________________________
(1)Percent change is not meaningful. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended September 30, | | September 30, 2023 vs. 2022 | | For the nine months ended September 30, | | September 30, 2023 vs. 2022 |
| 2023 | | 2022 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change |
| | | | | | | | | | | | | | | |
Revenue: | | | | | | | | | | | | | | | |
Rental and other income | $ | 695,701 | | | $ | 663,889 | | | $ | 31,812 | | | 4.8 | % | | $ | 2,057,492 | | | $ | 1,920,721 | | | $ | 136,771 | | | 7.1 | % |
Management, development and other fees | 1,934 | | | 1,399 | | | 535 | | | 38.2 | % | | 5,712 | | | 3,054 | | | 2,658 | | | 87.0 | % |
Total revenue | 697,635 | | | 665,288 | | | 32,347 | | | 4.9 | % | | 2,063,204 | | | 1,923,775 | | | 139,429 | | | 7.2 | % |
| | | | | | | | | | | | | | | |
Expenses: | | | | | | | | | | | | | | | |
Direct property operating expenses, excluding property taxes | 142,832 | | | 134,810 | | | 8,022 | | | 6.0 | % | | 413,977 | | | 382,119 | | | 31,858 | | | 8.3 | % |
Property taxes | 78,399 | | | 75,091 | | | 3,308 | | | 4.4 | % | | 227,882 | | | 216,695 | | | 11,187 | | | 5.2 | % |
Total community operating expenses | 221,231 | | | 209,901 | | | 11,330 | | | 5.4 | % | | 641,859 | | | 598,814 | | | 43,045 | | | 7.2 | % |
| | | | | | | | | | | | | | | |
Corporate-level property management and other indirect operating expenses | (32,359) | | | (30,770) | | | (1,589) | | | (5.2) | % | | (95,894) | | | (91,162) | | | (4,732) | | | (5.2) | % |
Expensed transaction, development and other pursuit costs, net of recoveries | (18,959) | | | (6,514) | | | (12,445) | | | (191.1) | % | | (23,212) | | | (9,865) | | | (13,347) | | | (135.3) | % |
Interest expense, net | (48,115) | | | (57,290) | | | 9,175 | | | 16.0 | % | | (156,521) | | | (172,613) | | | 16,092 | | | 9.3 | % |
Loss on extinguishment of debt, net | (150) | | | (1,646) | | | 1,496 | | | 90.9 | % | | (150) | | | (1,646) | | | 1,496 | | | 90.9 | % |
Depreciation expense | (200,982) | | | (206,658) | | | 5,676 | | | 2.7 | % | | (606,271) | | | (607,746) | | | 1,475 | | | 0.2 | % |
General and administrative expense | (20,466) | | | (14,611) | | | (5,855) | | | (40.1) | % | | (58,542) | | | (53,323) | | | (5,219) | | | (9.8) | % |
Casualty loss | (3,499) | | | — | | | (3,499) | | | (100.0) | % | | (8,550) | | | — | | | (8,550) | | | (100.0) | % |
Income from unconsolidated investments | 1,930 | | | 43,777 | | | (41,847) | | | (95.6) | % | | 11,745 | | | 46,574 | | | (34,829) | | | (74.8) | % |
Gain on sale of communities | 22,121 | | | 318,289 | | | (296,168) | | | (93.1) | % | | 209,430 | | | 467,493 | | | (258,063) | | | (55.2) | % |
Other real estate activity | 237 | | | 319 | | | (82) | | | (25.7) | % | | 707 | | | 564 | | | 143 | | | 25.4 | % |
Income before income taxes | 176,162 | | | 500,283 | | | (324,121) | | | (64.8) | % | | 694,087 | | | 903,237 | | | (209,150) | | | (23.2) | % |
Income tax expense | (4,372) | | | (5,651) | | | 1,279 | | | 22.6 | % | | (7,715) | | | (7,963) | | | 248 | | | 3.1 | % |
Net income | 171,790 | | | 494,632 | | | (322,842) | | | (65.3) | % | | 686,372 | | | 895,274 | | | (208,902) | | | (23.3) | % |
| | | | | | | | | | | | | | | |
Net loss attributable to noncontrolling interests | 241 | | | 115 | | | 126 | | | 109.6 | % | | 484 | | | 208 | | | 276 | | | 132.7 | % |
| | | | | | | | | | | | | | | |
Net income attributable to common stockholders | $ | 172,031 | | | $ | 494,747 | | | $ | (322,716) | | | (65.2) | % | | $ | 686,856 | | | $ | 895,482 | | | $ | (208,626) | | | (23.3) | % |
Net income attributable to common stockholders increased $415,833,000,decreased $322,716,000, or 526.9%65.2%, to $494,747,000$172,031,000 and $226,392,000,$208,626,000, or 33.8%23.3%, to $895,482,000$686,856,000 for the three and nine months ended September 30, 2022,2023, respectively, as compared to the prior year periods. The increases for the three and nine months ended September 30, 2022 areperiods, primarily due to increasesdecreases in real estate sales and related gains, andpartially offset by increases in NOI from communities, over the prior year periods.
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, expensed transaction, development and other pursuit costs, net of recoveries, interest expense, net, loss on extinguishment of debt, net, general and administrative expense, income from investments in unconsolidated entities,investments, depreciation expense, income tax expense, casualty and impairment loss, gain on sale of communities, gain on other real estate transactions, net, net for-sale condominium activity 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 nine months ended September 30, 20222023 and 20212022 to net income for each period are as follows (unaudited, dollars in thousands):
| | | For the three months ended | | For the nine months ended | | For the three months ended September 30, | | For the nine months ended September 30, |
| | 9/30/2022 | | 9/30/2021 | | 9/30/2022 | | 9/30/2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| Net income | Net income | $ | 494,632 | | | $ | 78,847 | | | $ | 895,274 | | | $ | 669,058 | | Net income | $ | 171,790 | | | $ | 494,632 | | | $ | 686,372 | | | $ | 895,274 | |
Property management and other indirect operating expenses, net of corporate income | Property management and other indirect operating expenses, net of corporate income | 29,374 | | | 25,322 | | | 88,119 | | | 74,110 | | Property management and other indirect operating expenses, net of corporate income | 30,421 | | | 29,374 | | | 90,177 | | | 88,119 | |
Expensed transaction, development and other pursuit costs, net of recoveries | Expensed transaction, development and other pursuit costs, net of recoveries | 6,514 | | | 417 | | | 9,865 | | | 1,900 | | Expensed transaction, development and other pursuit costs, net of recoveries | 18,959 | | | 6,514 | | | 23,212 | | | 9,865 | |
Interest expense, net | Interest expense, net | 57,290 | | | 55,987 | | | 172,613 | | | 164,704 | | Interest expense, net | 48,115 | | | 57,290 | | | 156,521 | | | 172,613 | |
Loss on extinguishment of debt, net | Loss on extinguishment of debt, net | 1,646 | | | 17,890 | | | 1,646 | | | 17,768 | | Loss on extinguishment of debt, net | 150 | | | 1,646 | | | 150 | | | 1,646 | |
General and administrative expense | General and administrative expense | 14,611 | | | 17,313 | | | 53,323 | | | 53,130 | | General and administrative expense | 20,466 | | | 14,611 | | | 58,542 | | | 53,323 | |
Income from investments in unconsolidated entities | (43,777) | | | (6,867) | | | (46,574) | | | (32,959) | | |
Income from unconsolidated investments | | Income from unconsolidated investments | (1,930) | | | (43,777) | | | (11,745) | | | (46,574) | |
Depreciation expense | Depreciation expense | 206,658 | | | 193,791 | | | 607,746 | | | 561,560 | | Depreciation expense | 200,982 | | | 206,658 | | | 606,271 | | | 607,746 | |
Income tax expense | Income tax expense | 5,651 | | | 2,179 | | | 7,963 | | | 1,434 | | Income tax expense | 4,372 | | | 5,651 | | | 7,715 | | | 7,963 | |
Casualty and impairment loss | — | | | 1,940 | | | — | | | 3,117 | | |
Casualty loss | | Casualty loss | 3,499 | | | — | | | 8,550 | | | — | |
Gain on sale of communities | Gain on sale of communities | (318,289) | | | (58) | | | (467,493) | | | (388,354) | | Gain on sale of communities | (22,121) | | | (318,289) | | | (209,430) | | | (467,493) | |
Gain on other real estate transactions, net | (15) | | | (1,543) | | | (95) | | | (2,002) | | |
Net for-sale condominium activity | (304) | | | (158) | | | (469) | | | 1,402 | | |
Other real estate activity | | Other real estate activity | (237) | | | (319) | | | (707) | | | (564) | |
Net operating income from real estate assets sold or held for sale | Net operating income from real estate assets sold or held for sale | (4,839) | | | (13,147) | | | (21,847) | | | (48,913) | | Net operating income from real estate assets sold or held for sale | (2,089) | | | (10,994) | | | (14,212) | | | (39,583) | |
NOI | NOI | 449,152 | | | 371,913 | | | 1,300,071 | | | 1,075,955 | | NOI | 472,377 | | | 442,997 | | | 1,401,416 | | | 1,282,335 | |
| Commercial NOI (1) | Commercial NOI (1) | (11,005) | | | (6,672) | | | (26,902) | | | (17,381) | | Commercial NOI (1) | (8,098) | | | (10,801) | | | (25,192) | | | (26,494) | |
Residential NOI | Residential NOI | $ | 438,147 | | | $ | 365,241 | | | $ | 1,273,169 | | | $ | 1,058,574 | | Residential NOI | $ | 464,279 | | | $ | 432,196 | | | $ | 1,376,224 | | | $ | 1,255,841 | |
_________________________
(1)Represents results attributable to the commercial and other non-residential operations at our communities ("Commercial").
The Residential NOI changes for the three and nine months ended September 30, 20222023 as compared to the three and nine months ended September 30, 20212022 consist of changes in the following categories (unaudited, dollars in thousands):
| | | For the three months ended | | For the nine months ended | | For the three months ended September 30, | | For the nine months ended September 30, |
| | 9/30/2022 | | 9/30/2022 | | 2023 | | 2023 |
| | | | | | | | |
Same Store | Same Store | $ | 48,991 | | | $ | 139,367 | | Same Store | $ | 21,609 | | | $ | 84,535 | |
Other Stabilized | Other Stabilized | 14,648 | | | 47,941 | | Other Stabilized | 4,385 | | | 23,360 | |
Development / Redevelopment | Development / Redevelopment | 9,267 | | | 27,287 | | Development / Redevelopment | 6,089 | | | 12,488 | |
Total | Total | $ | 72,906 | | | $ | 214,595 | | Total | $ | 32,083 | | | $ | 120,383 | |
The increase in our Same Store Residential NOI for the three and nine months ended September 30, 20222023 is due to increasesan increase in Residential rental revenue of $60,008,000,$31,361,000, or 11.8%5.2%, and $165,244,000,$121,808,000 or 11.1%6.9%, respectively, partially offset by increasesan increase in Residential property operating expenses of $10,990,000,$9,736,000, or 6.5%5.0%, and $25,987,000,$37,261,000, or 5.3%6.8%, over the three and nine months ended September 30, 2021,2023, respectively.
Our results of operations in future periods may be impacted directly or indirectly by uncertainties such as the lingering effects of the COVID-19 pandemic (the "Pandemic") and the recent increases in inflation. If the financial condition of our residents and commercial tenants deteriorates, and/or regulations that limit our ability to evict residents and tenants continue or are adopted in response to future developments related to the Pandemic, that may result in higher than normal uncollectible lease revenue. The Pandemic may also depress consumer demand for our apartments for a variety of reasons, including (i) if consumers decide to live in markets that are less costly than ours for one or more reasons, such as a decline in their income or remote working arrangements; (ii) that consumers who would otherwise rent may seek home ownership; and (iii) ongoing downward pressures on demand for certain types of housing (e.g., corporate apartment homes) or by certain consumers (e.g., students or consumers who require seasonal job-related demand such as in the entertainment industry).
Increases in inflation can result in an increase in our operating costs, including utilities and payroll, both at our communities and at the corporate level. 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 reduce our risk from the adverse effect of inflation, although these leases also permit residents to leave at the end of the lease term. In addition, inflation could cause our construction and cost of other capitalized expenditures to increase, impacting the expected economic return of, and expected operating results for, current and planned development activity.
Rental and other income increased $83,810,000,$31,812,000, or 14.4%4.8%, and $229,448,000,$136,771,000, or 13.6%7.1%, for the three and nine months ended September 30, 2022,2023, respectively, compared to the prior year periods, primarily due to the increased rental revenue from our stabilized wholly-ownedSame Store communities, discussed below.
Consolidated Communities — The weighted average number of occupied apartment homes for consolidated communities increased to 77,36977,439 apartment homes for the nine months ended September 30, 2022,2023, compared to 75,35477,369 homes for the prior year period. The weighted average monthly rental revenue per occupied apartment home increased to $2,754$2,945 for the nine months ended September 30, 20222023 compared to $2,491$2,754 in the prior year period.
The increase in Same Store rental revenue is due to (i) an increase in Same Store Residential rental revenue of $60,008,000, or 11.8%, and $165,244,000, or 11.1%, for the three and nine months ended September 30, 2022, respectively, compared to the prior year periods, and (ii) an increase in Same Store Commercial rental revenue of $1,018,000, or 18.6%, and $3,811,000, or 26.2%, for the three and nine months ended September 30, 2022, respectively, compared to the prior year periods.
Communities — The following table presents the change in Same Store Residential rental revenue, including the attribution of the change between average rental revenue per occupied home and Economic Occupancy (as defined below) for the nine months ended September 30, 20222023 (unaudited, dollars in thousands).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the nine months ended September 30, 2022 |
| Residential rental revenue | | Average rental revenue per occupied home | | Economic Occupancy (1) |
| | | | $ Change | % Change | | | | | % Change | | | % Change |
| 2022 | | 2021 | | 2022 to 2021 | | 2022 to 2021 | | 2022 | | 2021 | | 2022 to 2021 | | 2022 | | 2021 | | 2022 to 2021 |
New England | $ | 253,700 | | | $ | 226,073 | | | $ | 27,627 | | | 12.2 | % | | $ | 3,017 | | | $ | 2,716 | | | 11.1 | % | | 97.1 | % | | 96.0 | % | | 1.1 | % |
Metro NY/NJ | 340,309 | | | 304,461 | | | 35,848 | | | 11.8 | % | | 3,370 | | | 3,018 | | | 11.7 | % | | 96.4 | % | | 96.3 | % | | 0.1 | % |
Mid-Atlantic | 245,571 | | | 229,366 | | | 16,205 | | | 7.1 | % | | 2,275 | | | 2,131 | | | 6.8 | % | | 95.4 | % | | 95.1 | % | | 0.3 | % |
Southeast Florida | 28,124 | | | 23,055 | | | 5,069 | | | 22.0 | % | | 2,692 | | | 2,194 | | | 22.7 | % | | 95.6 | % | | 96.3 | % | | (0.7) | % |
Denver, CO | 19,867 | | | 17,573 | | | 2,294 | | | 13.1 | % | | 2,119 | | | 1,863 | | | 13.7 | % | | 95.9 | % | | 96.5 | % | | (0.6) | % |
Pacific Northwest | 104,431 | | | 90,303 | | | 14,128 | | | 15.6 | % | | 2,528 | | | 2,190 | | | 15.4 | % | | 95.5 | % | | 95.3 | % | | 0.2 | % |
Northern California | 296,828 | | | 275,155 | | | 21,673 | | | 7.9 | % | | 2,835 | | | 2,628 | | | 7.9 | % | | 95.9 | % | | 95.9 | % | | — | % |
Southern California | 363,467 | | | 321,067 | | | 42,400 | | | 13.2 | % | | 2,547 | | | 2,250 | | | 13.2 | % | | 96.6 | % | | 96.6 | % | | — | % |
Total Same Store | $ | 1,652,297 | | | $ | 1,487,053 | | | $ | 165,244 | | | 11.1 | % | | $ | 2,745 | | | $ | 2,476 | | | 10.9 | % | | 96.2 | % | | 96.0 | % | | 0.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Residential rental revenue | | Average rental revenue per occupied home | | Economic Occupancy (1) |
| | | | $ Change | % Change | | | | | % Change | | | % Change |
| For the nine months ended September 30, |
| 2023 | | 2022 | | 2023 to 2022 | | 2023 to 2022 | | 2023 | | 2022 | | 2023 to 2022 | | 2023 | | 2022 | | 2023 to 2022 |
New England | $ | 273,305 | | | $ | 251,856 | | | $ | 21,449 | | | 8.5 | % | | $ | 3,285 | | | $ | 3,007 | | | 9.2 | % | | 96.5 | % | | 97.2 | % | | (0.7) | % |
Metro NY/NJ | 391,076 | | | 361,305 | | | 29,771 | | | 8.2 | % | | 3,555 | | | 3,269 | | | 8.7 | % | | 95.7 | % | | 96.2 | % | | (0.5) | % |
Mid-Atlantic | 274,320 | | | 257,078 | | | 17,242 | | | 6.7 | % | | 2,403 | | | 2,254 | | | 6.6 | % | | 95.4 | % | | 95.3 | % | | 0.1 | % |
Southeast Florida | 55,111 | | | 49,341 | | | 5,770 | | | 11.7 | % | | 2,896 | | | 2,619 | | | 10.6 | % | | 96.7 | % | | 95.6 | % | | 1.1 | % |
Denver, CO | 21,048 | | | 19,867 | | | 1,181 | | | 5.9 | % | | 2,246 | | | 2,120 | | | 5.9 | % | | 95.9 | % | | 95.9 | % | | — | % |
Pacific Northwest | 125,278 | | | 119,021 | | | 6,257 | | | 5.3 | % | | 2,673 | | | 2,525 | | | 5.9 | % | | 95.1 | % | | 95.7 | % | | (0.6) | % |
Northern California | 315,744 | | | 297,997 | | | 17,747 | | | 6.0 | % | | 3,008 | | | 2,844 | | | 5.8 | % | | 96.1 | % | | 95.9 | % | | 0.2 | % |
Southern California | 404,915 | | | 384,156 | | | 20,759 | | | 5.4 | % | | 2,713 | | | 2,564 | | | 5.8 | % | | 96.0 | % | | 96.4 | % | | (0.4) | % |
Other Expansion Regions | 17,220 | | | 15,588 | | | 1,632 | | | 10.5 | % | | 2,171 | | | 1,968 | | | 10.3 | % | | 95.3 | % | | 95.1 | % | | 0.2 | % |
Total Same Store | $ | 1,878,017 | | | $ | 1,756,209 | | | $ | 121,808 | | | 6.9 | % | | $ | 2,912 | | | $ | 2,718 | | | 7.1 | % | | 95.9 | % | | 96.1 | % | | (0.2) | % |
(1) Economic Occupancy takes into account the factconsiders that apartment homes of different sizes and locations within a community have different economic impacts on a community's gross revenue. Economic Occupancy is defined as gross potential revenue less vacancy loss, as a percentage of gross potential revenue. Gross potential revenue is determined by valuing occupied homes at leased rates and vacant homes at market rents. Vacancy loss is determined by valuing vacant units at current market rents.
The following table details the increase in Same Store Residential rental revenue by component, for the three and nine months ended September 30, 2022,2023, compared to the prior year periods (unaudited):
| | | For the three months ended | | For the nine months ended | | For the three months ended September 30, | | For the nine months ended September 30, |
| | 9/30/2022 | | 9/30/2022 | | 2023 | | 2023 |
Residential rental revenue | Residential rental revenue | | | | Residential rental revenue | | | |
Lease rates | Lease rates | 9.5 | % | | 7.3 | % | Lease rates | 4.2 | % | | 6.1 | % |
Concessions and other discounts | Concessions and other discounts | 2.4 | % | | 2.0 | % | Concessions and other discounts | — | % | | 0.6 | % |
Economic Occupancy | Economic Occupancy | (0.2) | % | | 0.2 | % | Economic Occupancy | (0.2) | % | | (0.2) | % |
Other rental revenue | Other rental revenue | 0.9 | % | | 0.9 | % | Other rental revenue | 1.0 | % | | 0.9 | % |
Uncollectible lease revenue (excluding rent relief) | Uncollectible lease revenue (excluding rent relief) | 0.6 | % | | (0.5) | % | Uncollectible lease revenue (excluding rent relief) | 1.0 | % | | 1.2 | % |
Rent relief | Rent relief | (1.4) | % | | 1.2 | % | Rent relief | (0.8) | % | | (1.7) | % |
Total Residential rental revenue | Total Residential rental revenue | 11.8 | % | | 11.1 | % | Total Residential rental revenue | 5.2 | % | | 6.9 | % |
The increase for Same Store Residential rental revenue for the three and nine months ended September 30, 2022, respectively,2023, compared to the prior year periods, was impacted by (i) uncollectible lease revenue, net of amounts received from government rent relief programs and (ii) concessions.
•programs. Same Store uncollectible lease revenue increaseddecreased for the three months ended September 30, 20222023 by $4,041,000$990,000 and decreasedincreased for the nine months ended September 30, 20222023 by $9,701,000. The change$8,510,000. Uncollectible lease revenue was impacted by a decrease in uncollectible lease revenuegovernment rent relief of $4,974,000 and $29,397,000 for the three and nine months ended September 30, 2022 was impacted by amounts received2023, respectively, from government rent relief programs.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 2.90%2.1% in the three months ended September 30, 20222023 from 3.84%3.2% in the three months ended September 30, 2021.2022. Adjusting to remove the impact of rent relief, uncollectible lease revenue as a percentage of Same Store Residential rental revenue increaseddecreased to 3.56%2.5% in the nine months ended September 30, 20222023 from 3.42%3.8% in the nine months ended September 30, 2021. We recognized $5,673,0002022.
Management, development and $12,663,000 from government rent relief programs during the three months ended September 30, 2022 and 2021, respectively. We recognized $33,718,000 and $16,371,000 from government rent relief programs duringother fees increased $2,658,000, or 87.0%, for the nine months ended September 30, 2022 and 2021, respectively.
•During the Pandemic, we increased our use of residential concessions relative to concessions granted prior to 2020. While concessions granted remained slightly elevated relative to periods prior to 2020, concessions for our Same Store communities granted in the three and nine months ended September 30, 2022 decreased from the prior year periods by $6,412,000 to $1,932,000 and $31,776,000 to $5,926,000, respectively. We amortize concessions on a straight-line basis over the life of the respective leases (generally one year), reducing the income recognized over the lease term. With the decreased amount of concessions granted, the amortization of residential concessions for our Same Store communities also decreased. For the three and nine months ended September 30, 2022, amortized concessions decreased by $12,502,000 and $30,732,000, respectively, contributing to the increase in revenue as2023, compared to the prior year periods. The remaining net unamortized balanceperiod, primarily due to development fees for work performed on previously disposed land adjacent to one of Same Store residential concessions at September 30, 2022 was $3,713,000.our Development Communities and revenue from a third-party servicing agreement we entered into for our centralized service center to provide comprehensive back-office, financial administrative support services in the current year period.
Direct property operating expenses, excluding property taxes, increased $12,119,000,$8,022,000, or 9.9%6.0%, and $28,214,000,$31,858,000 or 8.0%8.3%, for the three and nine months ended September 30, 2022,2023, respectively, compared to the prior year periods. The increases for the three and nine months ended September 30, 2022 areperiods, primarily due to the addition of newly developed and acquired apartment communities as well as increased Residential 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 operating expenses for the three and nine months ended September 30, 2022. Same Store Residential direct property operating expenses, excluding property taxes, increased $9,693,000,$6,506,000, or 9.0%5.2%, and $22,920,000,$27,744,000, or 7.4%7.9%, for the three and nine months ended September 30, 2022,2023, respectively, compared to the prior year periods. The increases for the three and nine months ended September 30, 2022 areperiods, primarily due to increased utilities, and maintenance costs, as well as bad debt associated with resident expense reimbursements.
reimbursements and legal and eviction costs as restrictions on managing delinquent accounts are eased or expire.
Property taxes increased $2,759,000,$3,308,000, or 3.8%4.4%, and $4,177,000,$11,187,000, or 2.0%5.2%, for the three and nine months ended September 30, 2022,2023, respectively, compared to the prior year periods. The increases for the three and nine months ended September 30, 2022 areperiods, primarily due to the addition of newly developed and acquired apartment communities and increased assessmentsincreases for our stabilizedSame Store Residential portfolio, partially offset by decreased property taxes from dispositions.
Same Store Residential property taxes represents substantially all of total Same Store property taxes for the three and nine months ended September 30, 2022. Same Store Residential property taxes increased $1,297,000,$3,230,000, or 2.1%4.7%, and $3,067,000,$9,517,000, or 1.7%4.8%, for the three and nine months ended September 30, 2022,2023, respectively, compared to the prior year periods. The increases for the three and nine months ended September 30, 2022 areperiods, due to increased assessments across the portfolio, successful appeals in the respective prior year periods and the expiration of property tax incentive programs primarily at certain of our properties in New York City, partially offset by successful appeals in the current year period in excess of the prior year periods.City.
Corporate-level property management and other indirect operating expenses increased $4,757,000,$1,589,000, or 18.3%5.2%, and $14,690,000,$4,732,000, or 19.2%5.2%, for the three and nine months ended September 30, 2022,2023, respectively, compared to the prior year periods, primarily due to increased compensation related costs as well as costs related to increased investment in technology initiatives in the current year periods to improve future efficiency in services for residents and prospects.prospects and investments in technology as well as increased compensation related costs.
Expensed transaction, development and other pursuit costs, net of recoveries primarily reflect costs incurred for development pursuits not yet considered probable for development, as well as thewrite downs and abandonment of Development Rights and costs related to abandoned acquisition and disposition pursuits, andoffset by any recoveries of costs incurred. These costs can be volatile, particularly inIn periods of increased acquisition pursuit activity, periods of economic downturn or when there is limited access to capital, these costs can be volatile and therefore may vary significantly from year to year. 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, increased $6,097,000$12,445,000 and $7,965,000$13,347,000 for the three and nine months ended September 30, 2022,2023, respectively, compared to the prior year periods. The amounts for 2023 include write-offs of $17,111,000 related to three Development Rights in Northern and Southern California and the three and nine months ended September 30,Mid-Atlantic that we determined are no longer probable. The amounts for 2022 include the write-off of $5,335,000 related to a Development Right in the Pacific Northwest that we determined is no longer probable.
Interest expense, net increased $1,303,000,decreased $9,175,000, or 2.3%16.0%, and $7,909,000,$16,092,000, or 4.8%9.3%, for the three and nine months ended September 30, 2022,2023, 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 any mark to marketmark-to-market impact from derivatives not in qualifying hedge relationships and the recognition of the GAAP required estimate of future credit losses for the SIP.relationships. The increase for the nine months ended September 30, 2022 is primarily due to the GAAP required estimate of future credit losses from our SIP and an increase in variable rates on secured indebtedness. The increase for the three months ended September 30, 2022 is partially offset by an increase in capitalized interest.
Loss on extinguishment of debt, net reflects prepayment penalties, the write-off of unamortized deferred financing costs and premiums/discounts from our debt repurchase and retirement activity, or payments to acquire our outstanding debt at amounts above or below the carrying basis of the debt acquired. The loss of $1,646,000decrease for the three and nine months ended September 30, 20222023 is due primarily to the repayment of secured debt. The losses of $17,890,000 and $17,768,000 for the three and nine months ended September 30, 2021, respectively, were due to an increase in interest income from an increase in both cash amounts invested and
the repayments of unsecured debt.return on investments and increased capitalized interest, partially offset by the increase in rates on variable rate indebtedness.
Depreciation expense increased $12,867,000,decreased $5,676,000, or 6.6%2.7%, and $46,186,000,$1,475,000, or 8.2%0.2%, for the three and nine months ended September 30, 2022,2023, respectively, compared to the prior year periods, primarily due to the timing of acquisitions and dispositions, partially offset by the addition of newly developed and acquired apartment communities, partially offset by dispositions.communities.
General and administrative expense decreased $2,702,000,increased $5,855,000, or 15.6%40.1%, for the three months ended September 30, 2022, as compared to the prior year period, primarily due to legal settlements recognized in the current year periods, partially offset by an increase in compensation related expenses.
Casualty and impairment loss $5,219,000, or 9.8%, for the three and nine months ended September 30, 2021 of $1,940,000 and$3,117,000, consists of2023, respectively, as compared to the prior year periods, primarily due to proceeds from legal settlements we received in the prior year periods, partially offset by a $1,971,000 charge recognized fordecrease in executive transition compensation costs in the damages across several communities in our East Coast markets related to severe storms. The loss for the nine months ended September 30, 2021, also consists of a $1,146,000 charge recognized for the property and casualty damages resulting from a fire at an operating community.current year periods.
Income from investments in unconsolidated entities increased $36,910,000$3,499,000 and $13,615,000$8,550,000 for the three and nine months ended September 30, 2022,2023, respectively, were primarily due to charges recognized for the damages across certain of our communities in our Northeast and California regions related to severe weather and other casualty events.
Income from unconsolidated investments decreased $41,847,000 and $34,829,000 for the three and nine months ended September 30, 2023, respectively, compared to the prior year periods, primarily due to the gain from the sale of the final three communities in the U.S. Fund and includes the recognition of $4,690,000 for therelated promoted interest associated with the final U.S. Fund dispositions. The increase for the nine months ended September 30, 2022 was partially offset by the gain from the sale of the final two communities in the Multifamily Partners AC JV LP (the “AC JV”)recognition in the prior year period.periods, partially offset by unrealized gains on property technology investments recognized in the current year periods.
Gain on sale of communities increased $318,231,000decreased $296,168,000 and $79,139,000$258,063,000 for the three and nine months ended September 30, 2022,2023, respectively, 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. TheFor the three and nine months ended September 30, 2023, we sold one and three wholly-owned communities and recognized gains of $22,121,000 and $209,430,000, respectively. For the three and nine months ended September 30, 2022, we sold five and eight wholly-owned communities and recognized gains of $318,289,000 and $467,493,000, respectively.
Income tax expense of $4,372,000 and $7,715,000 for the three and nine months ended September 30, 2023, respectively, and $5,651,000 and $7,963,000 for the three and nine months ended September 30, 2022, respectively, were primarily due to the sale of five and eight wholly-owned communities, respectively. The gain of $388,354,000 for the nine months ended September 30, 2021 was primarily due to the sale of seven wholly-owned communities.
Net for-sale condominium activity is a net gain of $304,000 and $469,000 for the three and nine months ended September 30, 2022 and a net gain of $158,000 and net expense of $1,402,000 for the three and nine months ended September 30, 2021, respectively, and is comprised of the net gain before taxes on the sale of condominiums at The Park Loggia and associated marketing, operating and administrative costs. During the three and nine months ended September 30, 2022, we sold 10 and 38 residential condominiums at The Park Loggia, for gross proceeds of $38,991,000 and $120,328,000, respectively, resulting in a gain in accordance with GAAP of $644,000 and $2,113,000, respectively. During the three and nine months ended September 30, 2021, we sold 17 and 43 residential condominiums at The Park Loggia for gross proceeds of $54,277,000 and $107,278,000, respectively, resulting in a gain in accordance with GAAP of $1,345,000 and $2,051,000, respectively. In addition, we incurred $340,000 and $1,187,000 for the three months ended September 30, 2022 and 2021, respectively, and $1,644,000 and $3,453,000 for the nine months ended September 30, 2022 and 2021, respectively, in marketing, operating and administrative costs.
Income tax expense for the three and nine months ended September 30, 2022 is an expense of $5,651,000 and $7,963,000, respectively, primarily related to the condominium dispositions at The Park Loggia and other TRS activity.Loggia.
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"), 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, 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 measures of our operating and financial performance. In calculating FFO, we exclude gains or losses related to dispositions of previously depreciated property and exclude real estate depreciation, which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates. FFO can help with the comparison of the operating and financial performance of a real estate company between periods or as compared to different companies.companies because the adjustments such as (i) excluding gains or losses on sales of previously depreciated property or (ii) real estate depreciation may 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. By further adjusting for items that arewe do not considered by us to beconsider part of our core business operations, Core FFO can help with the comparison of theour core operating performance year over year. We believe that, in order to understand our operating results, FFO and Core FFO should be considered 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 from partnerships;
•casualty and impairment losses or gains, net on non-depreciable real estate;estate or other investments;
•gains or losses from early extinguishment of consolidated borrowings;
•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 settlement activity;
•gains or losses on sales of assets not subject to depreciation and other investment gains or losses;
•advocacy contributions, representing payments to promote our business interests;
•hedge ineffectiveness or gains or losses from derivatives not designated as hedges for accounting purposes;
•changes to expected credit losses associated with the lending commitments under the SIP;
•severance related costs;
•executive transition compensation costs;
•net for-sale condominium activity, including gains, marketing, operating and administrative costs and imputed carry cost; and
•income taxes; and
•other non-core items.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 | | For the nine months ended |
| 9/30/2022 | | 9/30/2021 | | 9/30/2022 | | 9/30/2021 |
| | | | | | | |
Net income attributable to common stockholders | $ | 494,747 | | | $ | 78,914 | | | $ | 895,482 | | | $ | 669,090 | |
Depreciation - real estate assets, including joint venture adjustments | 205,489 | | | 192,435 | | | 604,634 | | | 558,006 | |
Distributions to noncontrolling interests | 12 | | | 12 | | | 36 | | | 36 | |
Gain on sale of unconsolidated entities holding previously depreciated real estate | (38,062) | | | — | | | (38,062) | | | (23,305) | |
Gain on sale of previously depreciated real estate | (318,289) | | | (58) | | | (467,493) | | | (388,354) | |
Casualty and impairment loss on real estate | — | | | 1,940 | | | — | | | 3,117 | |
FFO attributable to common stockholders | 343,897 | | | 273,243 | | | 994,597 | | | 818,590 | |
| | | | | | | |
Adjusting items: | | | | | | | |
Unconsolidated entity losses (gains), net (1) | 307 | | | (6,924) | | | (1,988) | | | (9,056) | |
Joint venture promote (2) | (4,690) | | | — | | | (4,690) | | | — | |
Structured Investment Program loan reserve (3) | 45 | | | — | | | 1,653 | | | — | |
Loss on extinguishment of consolidated debt | 1,646 | | | 17,890 | | | 1,646 | | | 17,768 | |
Gain on interest rate contract | (64) | | | — | | | (496) | | | (2,654) | |
Advocacy contributions | — | | | — | | | 534 | | | — | |
Executive transition compensation costs | 411 | | | 411 | | | 1,220 | | | 2,599 | |
Severance related costs | 574 | | | 284 | | | 639 | | | 386 | |
Expensed transaction, development and other pursuit costs, net of recoveries (4) | 5,783 | | | 273 | | | 7,781 | | | 575 | |
Gain on for-sale condominiums (5) | (644) | | | (1,345) | | | (2,113) | | | (2,051) | |
For-sale condominium marketing, operating and administrative costs (5) | 340 | | | 1,187 | | | 1,644 | | | 3,453 | |
For-sale condominium imputed carry cost (6) | 400 | | | 1,648 | | | 2,035 | | | 5,779 | |
Gain on other real estate transactions, net | (15) | | | (1,543) | | | (95) | | | (2,002) | |
Legal settlements | (3,677) | | | 22 | | | (3,418) | | | 1,100 | |
Income tax expense (7) | 5,651 | | | 2,179 | | | 7,963 | | | 1,434 | |
Core FFO attributable to common stockholders | $ | 349,964 | | | $ | 287,325 | | | $ | 1,006,912 | | | $ | 835,921 | |
| | | | | | | |
Weighted average common shares outstanding - diluted | 139,981,959 | | | 139,737,725 | | | 139,964,172 | | | 139,645,069 | |
| | | | | | | |
EPS per common share - diluted | $ | 3.53 | | | $ | 0.56 | | | $ | 6.40 | | | $ | 4.79 | |
FFO per common share - diluted | $ | 2.46 | | | $ | 1.96 | | | $ | 7.11 | | | $ | 5.86 | |
Core FFO per common share - diluted | $ | 2.50 | | | $ | 2.06 | | | $ | 7.19 | | | $ | 5.99 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended September 30, | | For the nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | |
Net income attributable to common stockholders | $ | 172,031 | | | $ | 494,747 | | | $ | 686,856 | | | $ | 895,482 | |
Depreciation - real estate assets, including joint venture adjustments | 199,546 | | | 205,489 | | | 602,023 | | | 604,634 | |
Distributions to noncontrolling interests | — | | | 12 | | | 25 | | | 36 | |
Gain on sale of unconsolidated entities holding previously depreciated real estate | — | | | (38,062) | | | — | | | (38,062) | |
Gain on sale of previously depreciated real estate | (22,121) | | | (318,289) | | | (209,430) | | | (467,493) | |
Casualty loss on real estate | 3,499 | | | — | | | 8,550 | | | — | |
FFO attributable to common stockholders | 352,955 | | | 343,897 | | | 1,088,024 | | | 994,597 | |
| | | | | | | |
Adjusting items: | | | | | | | |
Unconsolidated entity losses (gains), net (1) | 827 | | | 307 | | | (4,024) | | | (1,988) | |
Joint venture promote (2) | (424) | | | (4,690) | | | (1,496) | | | (4,690) | |
Structured Investment Program loan reserve (3) | 539 | | | 45 | | | 415 | | | 1,653 | |
Loss on extinguishment of consolidated debt | 150 | | | 1,646 | | | 150 | | | 1,646 | |
Hedge accounting activity | 65 | | | (64) | | | 256 | | | (496) | |
Advocacy contributions | — | | | — | | | 200 | | | 534 | |
Executive transition compensation costs | 300 | | | 411 | | | 944 | | | 1,220 | |
Severance related costs | 993 | | | 574 | | | 2,493 | | | 639 | |
Expensed transaction, development and other pursuit costs, net of recoveries (4) | 18,070 | | | 5,783 | | | 21,318 | | | 7,781 | |
Other real estate activity | (237) | | | (319) | | | (707) | | | (564) | |
For-sale condominium imputed carry cost (5) | 110 | | | 400 | | | 534 | | | 2,035 | |
Legal settlements (6) | 14 | | | (3,677) | | | 64 | | | (3,418) | |
Income tax expense (7) | 4,372 | | | 5,651 | | | 7,715 | | | 7,963 | |
Core FFO attributable to common stockholders | $ | 377,734 | | | $ | 349,964 | | | $ | 1,115,886 | | | $ | 1,006,912 | |
| | | | | | | |
Weighted average common shares outstanding - diluted | 142,198,099 | | | 139,981,959 | | | 141,448,675 | | | 139,964,172 | |
| | | | | | | |
EPS per common share - diluted | $ | 1.21 | | | $ | 3.53 | | | $ | 4.86 | | | $ | 6.40 | |
FFO per common share - diluted | $ | 2.48 | | | $ | 2.46 | | | $ | 7.69 | | | $ | 7.11 | |
Core FFO per common share - diluted | $ | 2.66 | | | $ | 2.50 | | | $ | 7.89 | | | $ | 7.19 | |
_________________________
(1)Amount for the nine months ended September 30, 2022 includesAmounts consist primarily of net unrealized gains on property technology investments of $1,948. Amounts for the three and nine months September 30, 2021 include unrealized gains on property technology investments of $6,924 and $10,094, respectively. Amount for nine months ended September 30, 2021 was partially offset by the write-off of asset management fee intangibles associated with the disposition of the final two AC JV communities.investments.
(2)Amount for the three and nine months ended September 30, 2022 isAmounts are for our recognition of our promoted interest in the U.S. Fund.
(3)Amounts representare the change in 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)AmountAmounts for 2023 include write-offs of $17,111 for three Development Rights in Northern and Southern California and the Mid-Atlantic that we determined are no longer probable. Amounts for 2022 includesinclude the write-off of $5,335 related tofor a Development Right in the Pacific Northwest that we determined is no longer probable.
(5)The aggregate impact of (i) gain on for-sale condominiums and (ii) for-sale condominium marketing, operating and administrative costs is a net gain of $304 and $469 for the three and nine months ended September 30, 2022, respectively, and a net gain of $158 and a net expense of $1,402 for the three and nine months ended September 30, 2021, respectively.
(6)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.
(6)In 2022, we received $6,000 of legal settlement proceeds, of which $3,684 is adjusted for Core FFO.
(7)Amounts are primarily for the recognition of taxes primarily associated with The Park Loggia and other TRS activity.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.
| | | | | | | | | | | |
| For the nine months ended |
| 9/30/2022 | | 9/30/2021 |
Net cash provided by operating activities | $ | 1,080,440 | | | $ | 911,742 | |
Net cash used in investing activities | $ | (348,489) | | | $ | (315,753) | |
Net cash used in financing activities | $ | (788,613) | | | $ | (473,671) | |
Contents
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 available and our desire to maintain a balance sheet that provides us with flexibility. Our principal focus on near-term and intermediate-term liquidity is to ensure we have adequate capital to fund:
•development and redevelopment activity in which we are currently 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;
•funding requests for borrowers under our SIP;
•normal recurring operating expenses and corporate overhead 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. Cash flows from operations are determined 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 (v) operating expenses with respect to apartment homes. The timing and type of capital markets activity in which we engage is 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 frequently 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 cash, cash equivalents and restricted cash in escrow of $487,126,000$780,106,000 at September 30, 2022, a decrease2023, an increase of $56,662,000$45,861,000 from $543,788,000$734,245,000 at December 31, 2021.2022. The following discussion relates to changes in cash, cash equivalents and restricted cash due to operating, investing and financing activities.
A presentation of GAAP based cash flow metrics is as follows (unaudited, dollars in escrowthousands):
| | | | | | | | | | | |
| For the nine months ended September 30, |
| 2023 | | 2022 |
Net cash provided by operating activities | $ | 1,213,842 | | | $ | 1,080,440 | |
Net cash used in investing activities | $ | (582,864) | | | $ | (348,489) | |
Net cash used in financing activities | $ | (585,117) | | | $ | (788,613) | |
•Net cash provided by operating activities increased primarily due to increases in NOI.
•Net cash used in investing activities was primarily due to (i) investment of $691,543,000 in the development and redevelopment of communities, (ii) capital expenditures of $134,760,000 for our wholly-owned communities and non-real estate assets and (iii) acquisition of one wholly-owned community for $83,348,000. These amounts were partially offset by net proceeds from the disposition of three operating communities and the sale of for-sale residential condominiums of $359,477,000.
•Net cash used in financing activities was primarily due to (i) payment of cash dividends in the amount of $688,486,000, (ii) the repayment of the $250,000,000 fixed rate unsecured notes and (iii) the repayment of the $150,000,000 Term Loan. These amounts were partially offset by the settlement of the Equity Forward for $491,912,000.
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 6.16% at October 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 due to operating, investing and financing activities, which are presented in our Condensed Consolidated Statementsachievement of Cash Flows included elsewhere in this report.sustainability targets.
Operating Activities — Net cash provided by operating activities increasedThe availability on the Credit Facility as of October 31, 2023 is as follows (dollars in thousands):
| | | | | |
| October 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 $55,932 outstanding in additional letters of credit unrelated to $1,080,440,000 for the nine months ended September 30, 2022 from $911,742,000 for the nine months ended September 30, 2021, primarily due to increases in rental income, including the impactCredit Facility as of uncollectible lease revenue.
October 31, 2023.
Investing Activities — Net cash used in investing activities totaled $348,489,000 for the nine months ended September 30, 2022. The net cash used was primarily due to:
•investment of $681,937,000 in the development and redevelopment of communities;
•acquisition of three wholly-owned communities for $459,695,000; and
•capital expenditures of $123,479,000 for our wholly-owned communities and non-real estate assets.
These amounts were partially offset by:
•net proceeds from the disposition of eight wholly-owned communities and ancillary real estate of $768,781,000; and
•net proceeds from the sale of for-sale residential condominiums of $111,047,000.
Financing Activities — Net cash used in financing activities totaled $788,613,000 for the nine months ended September 30, 2022. The net cash used was primarily due to:
•payment of cash dividends in the amount of $667,393,000;
•the repayment of the $100,000,000 variable rate unsecured term loan; and
•the mortgage note repayment and principal amortization payments in the amount of $43,131,000.
These amounts were partially offset by borrowings under the Commercial Paper Program of $49,985,000.
Commercial Paper Program
In March 2022, we established theWe have a Commercial Paper Program. Under the terms of the Commercial Paper Program we may issue, from time to time, unsecured commercial paper notes with varying maturities of less than one year. Amounts available under the Commercial Paper Program may be issued, repaid and re-issued from time to time, 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 our commitment to maintain available borrowing capacity under the Credit Facility in an amount equal to actual borrowings under the Commercial Paper Program. As of October 31, 2022, we did not have any amounts outstanding under the Commercial Paper Program.
Variable Rate Unsecured Credit Facility
In September 2022, we entered into the Sixth Amended and Restated Revolving Loan Agreement (the “Credit Facility”) with a syndicate of banks, which replaces our prior credit facility dated as of February 28, 2019. The amended and restated Credit Facility (i) increased the borrowing capacity from $1,750,000,000 to $2,250,000,000, (ii) extended the term of the Credit Facility from February 28, 2024 to September 27, 2026, with two six-month extension options available to us, provided we are not in default and upon payment of a $1,406,000 extension fee, (iii) amended certain provisions, notably to reduce the capitalization rate used to derive certain financial covenants from 6.0% to 5.75% and (iv) transitioned the benchmark rate from the London Interbank Offered Rate ("LIBOR") to the Secured Overnight Financing Rate ("SOFR"). We may elect to expand the Credit Facility to $3,000,000,000, provided that one or more banks (from the syndicate or otherwise) voluntarily agree to provide the additional commitment. No member of the syndicate of banks can prohibit the increase, which will only be effective to the extent banks (from the syndicate or otherwise) choose to commit to lend additional funds.
The interest rate applicable to borrowings under the Credit Facility is 3.88% at October 31, 2022 and is composed of (i) SOFR, applicable to the period of borrowing for a particular draw of funds from the facility (e.g., one month to maturity, three months to maturity, etc.), plus (ii) the current borrowing spread to SOFR of 0.825% per annum, which consists of a 0.10% SOFR adjustment plus 0.725% per annum, assuming a one month term 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 our 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 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 beginning in July 2023. The Credit Facility also contains a competitive bid option that is available for borrowings of up to 65% of the Credit Facility amount. This option allows banks that are part of the lender consortium to bid to provide us loans at a rate that is lower than the stated pricing provided by the Credit Facility. The competitive bid option may result in lower pricing than the stated rate if market conditions allow.
Prior to the amended and restated Credit Facility, our cost of borrowing was comprised of LIBOR plus 0.775% and an annual facility fee at 0.125%, both as determined by our credit ratings.
We had $162,000,000 in borrowings outstanding under the Credit Facility and had $1,914,000 outstanding in letters of credit that reduced our borrowing capacity as of October 31, 2022. After taking into account the Commercial Paper Program and letters of credit, we had $2,086,086,000 available under the Credit Facility as of October 31, 2022. We had $48,640,000 outstanding in additional letters of credit unrelated to the Credit Facility as of October 31, 2022. In addition, as discussed below, we maintain capacity under the Credit Facility for outstanding commercial paper.
Financial Covenants
We are subject to financial covenants contained in the Credit Facility and the Commercial 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 September 30, 2022.2023.
In addition, some of our secured borrowings 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 May 2019, we commencedUnder the CEP, V under which we may sell (and/or enter into forward sale agreements for the sale of) up to $1,000,000,000 of our common stock from time to time. Actual sales will depend on a variety of factors to be determined, including market conditions, the trading price of our common stock and our determinations of the appropriate funding sources. We engaged sales agents for CEP V who receive compensation of up to 1.5% 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 and to receive aggregate net cash proceeds at settlement equal to the number of shares underlying the particular forward agreement multiplied by the 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 forward seller, in the form of a reduced initial forward sale price, a commission of up to 1.5% of the sales prices of all borrowed shares of common stock sold. During the three and nine months ended September 30, 2022,2023 and through October 31, 2023, we had nodid not have any sales under this program. In October 2022, we settled the outstanding forward contracts entered into in December 2021 under CEP V, selling 68,577 shares of common stock for $229.34 per share and net proceeds of $15,727,000. As of October 31, 2022,2023, we had $690,234,000$705,961,000 remaining authorized for issuance under this program, after consideration of the forward contracts.program.
Forward Equity Offering
In addition to the CEP, V, during the nine months ended September 30, 2022,2023, we completed an underwritten public offering ofsettled the Equity Forward issuing 2,000,000 shares of common stock, offered in connection with forward contracts entered into with certain financial institutions acting as forward purchasers. Assuming full physical settlement of the forward contracts, which we expect to occur no later than December 31, 2023, we will receive approximate proceeds of $494,200,000 net of offering fees and discounts, and based on the initial forward price. The final proceeds will be determined on the date(s) of settlement and are subject to certain customary adjustments for our dividends and a daily interest factor during the term of the forward contracts.$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 nine months ended September 30, 2023, we repurchased 11,800 shares of common stock, at an average price of $161.96 per share. In October 2023 through October 31, 2023, we had no repurchases of shares under this program. As of October 31, 2023, we had $314,237,000 remaining authorized for purchase under this program.
Interest Rate Swap Agreements
As ofDuring the nine months ended September 30, 2022,2023, we had $150,000,000 in aggregate outstanding pay fixedentered into $250,000,000 of new forward interest rate swap agreements that were entered into as hedgesto reduce the impact of changesvariability in interest rates foron a portion of our anticipated future debt issuance activity.activity in 2023 and 2024. We expect to cash settle the swaps 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.
Stock Repurchase Program
In July 2020, our Board of Directors approved the 2020 Stock Repurchase Program. Purchases of common stock under the 2020 Stock Repurchase Program may be exercised at our discretion with the timing and number of shares repurchased depending on a variety of factors including price, corporate and regulatory requirements 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. During the three and nine months ended September 30, 2022 and through October 31, 2022, we had no repurchases of shares under this program. As of October 31, 2022, we had $316,148,000 remaining authorized for purchase under this program.
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 during the nine months ended September 30, 2022:2023:
•In February 2022,March 2023, we repaid $250,000,000 principal amount of our $100,000,000 variable rate2.85% unsecured term loan at parnotes upon maturity.
•In September 2022,2023, we repaid $35,276,000 principal amount of secured fixed rate debt with an effective rate of 6.16%our $150,000,000 Term Loan at par in advance of its February 2024 scheduled maturity.
•In September 2023, we utilized $37,600,000 of restricted cash held in a principal reserve fund to repay a portion of the outstanding secured variable rate indebtedness of Avalon Clinton North and Avalon Clinton South.
In October 2047 scheduled maturity, recognizing2023, in conjunction with the acquisition of Avalon West Plano, we assumed a loss on debt extinguishment$63,041,000 fixed rate mortgage loan, with a contractual interest rate of $1,399,000, composed of prepayment penalties and the non-cash write off of unamortized deferred financing costs.4.18%, maturing in May 2029.
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 September 30, 20222023 and December 31, 20212022 (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 other than as disclosed related to the AVA Arts District construction loan.loan (see "Unconsolidated Investments - Development Communities" for further discussion of the construction loan).
| | | | All-In interest rate (1) | | Principal maturity date | | Balance Outstanding (2) | | Scheduled Maturities | | | All-In interest rate (1) | | Principal maturity date | | Balance Outstanding (2) | | Scheduled Maturities |
Community | | 12/31/2021 | | 9/30/2022 | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter | |
| | | | All-In interest rate (1) | | Principal maturity date | | 12/31/2022 | | 9/30/2023 | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | Thereafter |
Tax-exempt bonds | Tax-exempt bonds | | | | | | | | | | | | | | | | | | | | | Tax-exempt bonds | | | | | | | | | | | | | | | | |
Fixed rate | | | | | | | | | | | | | | | | | | | | | |
Avalon at Chestnut Hill | | — | % | | Oct-2047 | (3) | $ | 35,770 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | |
| | | | | | 35,770 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
Variable rate | Variable rate | | | | | | | | | | | | | | | | | | | | | Variable rate | | | | | | | | | | | | | | | | | | | | |
Avalon Acton | Avalon Acton | | 3.50 | % | | Jul-2040 | (4) | 45,000 | | | 45,000 | | | — | | | — | | | — | | | — | | | — | | | 45,000 | | Avalon Acton | | 5.02 | % | | Jul-2040 | (3) | $ | 45,000 | | | $ | 45,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 45,000 | |
Avalon Clinton North | Avalon Clinton North | | 4.15 | % | | Nov-2038 | (4) | 147,000 | | | 147,000 | | | — | | | — | | | — | | | — | | | — | | | 147,000 | | Avalon Clinton North | | 5.67 | % | | Nov-2038 | (3) | 147,000 | | | 126,400 | | | — | | | — | | | — | | | — | | | 700 | | | 125,700 | |
Avalon Clinton South | Avalon Clinton South | | 4.15 | % | | Nov-2038 | (4) | 121,500 | | | 121,500 | | | — | | | — | | | — | | | — | | | — | | | 121,500 | | Avalon Clinton South | | 5.67 | % | | Nov-2038 | (3) | 121,500 | | | 104,500 | | | — | | | — | | | — | | | — | | | 600 | | | 103,900 | |
Avalon Midtown West | Avalon Midtown West | | 4.09 | % | | May-2029 | (4) | 88,300 | | | 82,700 | | | — | | | 6,100 | | | 6,800 | | | 7,300 | | | 8,100 | | | 54,400 | | Avalon Midtown West | | 5.62 | % | | May-2029 | (3) | 82,700 | | | 76,600 | | | — | | | 6,800 | | | 7,300 | | | 8,100 | | | 8,800 | | | 45,600 | |
Avalon San Bruno I | Avalon San Bruno I | | 4.04 | % | | Dec-2037 | (4) | 62,350 | | | 61,150 | | | 800 | | | 2,200 | | | 2,300 | | | 2,400 | | | 2,500 | | | 50,950 | | Avalon San Bruno I | | 5.56 | % | | Dec-2037 | (3) | 60,950 | | | 58,950 | | | 200 | | | 2,300 | | | 2,400 | | | 2,500 | | | 2,800 | | | 48,750 | |
| | 464,150 | | | 457,350 | | | 800 | | | 8,300 | | | 9,100 | | | 9,700 | | | 10,600 | | | 418,850 | | | 457,150 | | | 411,450 | | | 200 | | | 9,100 | | | 9,700 | | | 10,600 | | | 12,900 | | | 368,950 | |
Conventional loans | Conventional loans | | | | | | | | | | | | | | | | | | | | | Conventional loans | | | | | | | | | | | | | | | | | | | | |
Fixed rate | Fixed rate | | | | | | | | �� | | | | | | | | | | | | | Fixed rate | | | | | | | | | | | | | | | | | | | | |
$250 million unsecured notes | $250 million unsecured notes | | 3.00 | % | | Mar-2023 | | 250,000 | | | 250,000 | | | — | | | 250,000 | | | — | | | — | | | — | | | — | | $250 million unsecured notes | | — | % | | Mar-2023 | (4) | 250,000 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
$350 million unsecured notes | $350 million unsecured notes | | 4.30 | % | | Dec-2023 | | 350,000 | | | 350,000 | | | — | | | 350,000 | | | — | | | — | | | — | | | — | | $350 million unsecured notes | | 4.30 | % | | Dec-2023 | | 350,000 | | | 350,000 | | | 350,000 | | | — | | | — | | | — | | | — | | | — | |
$300 million unsecured notes | $300 million unsecured notes | | 3.66 | % | | Nov-2024 | | 300,000 | | | 300,000 | | | — | | | — | | | 300,000 | | | — | | | — | | | — | | $300 million unsecured notes | | 3.66 | % | | Nov-2024 | | 300,000 | | | 300,000 | | | — | | | 300,000 | | | — | | | — | | | — | | | — | |
$525 million unsecured notes | $525 million unsecured notes | | 3.55 | % | | Jun-2025 | | 525,000 | | | 525,000 | | | — | | | — | | | — | | | 525,000 | | | — | | | — | | $525 million unsecured notes | | 3.55 | % | | Jun-2025 | | 525,000 | | | 525,000 | | | — | | | — | | | 525,000 | | | — | | | — | | | — | |
$300 million unsecured notes | $300 million unsecured notes | | 3.62 | % | | Nov-2025 | | 300,000 | | | 300,000 | | | — | | | — | | | — | | | 300,000 | | | — | | | — | | $300 million unsecured notes | | 3.62 | % | | Nov-2025 | | 300,000 | | | 300,000 | | | — | | | — | | | 300,000 | | | — | | | — | | | — | |
$475 million unsecured notes | $475 million unsecured notes | | 3.35 | % | | May-2026 | | 475,000 | | | 475,000 | | | — | | | — | | | — | | | — | | | 475,000 | | | — | | $475 million unsecured notes | | 3.35 | % | | May-2026 | | 475,000 | | | 475,000 | | | — | | | — | | | — | | | 475,000 | | | — | | | — | |
$300 million unsecured notes | $300 million unsecured notes | | 3.01 | % | | Oct-2026 | | 300,000 | | | 300,000 | | | — | | | — | | | — | | | — | | | 300,000 | | | — | | $300 million unsecured notes | | 3.01 | % | | Oct-2026 | | 300,000 | | | 300,000 | | | — | | | — | | | — | | | 300,000 | | | — | | | — | |
$350 million unsecured notes | $350 million unsecured notes | | 3.95 | % | | Oct-2046 | | 350,000 | | | 350,000 | | | — | | | — | | | — | | | — | | | — | | | 350,000 | | $350 million unsecured notes | | 3.95 | % | | Oct-2046 | | 350,000 | | | 350,000 | | | — | | | — | | | — | | | — | | | — | | | 350,000 | |
$400 million unsecured notes | $400 million unsecured notes | | 3.50 | % | | May-2027 | | 400,000 | | | 400,000 | | | — | | | — | | | — | | | — | | | — | | | 400,000 | | $400 million unsecured notes | | 3.50 | % | | May-2027 | | 400,000 | | | 400,000 | | | — | | | — | | | — | | | — | | | 400,000 | | | — | |
$300 million unsecured notes | $300 million unsecured notes | | 4.09 | % | | Jul-2047 | | 300,000 | | | 300,000 | | | — | | | — | | | — | | | — | | | — | | | 300,000 | | $300 million unsecured notes | | 4.09 | % | | Jul-2047 | | 300,000 | | | 300,000 | | | — | | | — | | | — | | | — | | | — | | | 300,000 | |
$450 million unsecured notes | $450 million unsecured notes | | 3.32 | % | | Jan-2028 | | 450,000 | | | 450,000 | | | — | | | — | | | — | | | — | | | — | | | 450,000 | | $450 million unsecured notes | | 3.32 | % | | Jan-2028 | | 450,000 | | | 450,000 | | | — | | | — | | | — | | | — | | | — | | | 450,000 | |
$300 million unsecured notes | $300 million unsecured notes | | 3.97 | % | | Apr-2048 | | 300,000 | | | 300,000 | | | — | | | — | | | — | | | — | | | — | | | 300,000 | | $300 million unsecured notes | | 3.97 | % | | Apr-2048 | | 300,000 | | | 300,000 | | | — | | | — | | | — | | | — | | | — | | | 300,000 | |
$450 million unsecured notes | $450 million unsecured notes | | 3.66 | % | | Jun-2029 | | 450,000 | | | 450,000 | | | — | | | — | | | — | | | — | | | — | | | 450,000 | | $450 million unsecured notes | | 3.66 | % | | Jun-2029 | | 450,000 | | | 450,000 | | | — | | | — | | | — | | | — | | | — | | | 450,000 | |
$700 million unsecured notes | $700 million unsecured notes | | 2.69 | % | | Mar-2030 | | 700,000 | | | 700,000 | | | — | | | — | | | — | | | — | | | — | | | 700,000 | | $700 million unsecured notes | | 2.69 | % | | Mar-2030 | | 700,000 | | | 700,000 | | | — | | | — | | | — | | | — | | | — | | | 700,000 | |
$600 million unsecured notes | $600 million unsecured notes | | 2.65 | % | | Jan-2031 | | 600,000 | | | 600,000 | | | — | | | — | | | — | | | — | | | — | | | 600,000 | | $600 million unsecured notes | | 2.65 | % | | Jan-2031 | | 600,000 | | | 600,000 | | | — | | | — | | | — | | | — | | | — | | | 600,000 | |
$700 million unsecured notes | $700 million unsecured notes | | 2.16 | % | | Jan-2032 | | 700,000 | | | 700,000 | | | — | | | — | | | — | | | — | | | — | | | 700,000 | | $700 million unsecured notes | | 2.16 | % | | Jan-2032 | | 700,000 | | | 700,000 | | | — | | | — | | | — | | | — | | | — | | | 700,000 | |
$400 million unsecured notes | $400 million unsecured notes | | 2.03 | % | | Dec-2028 | | 400,000 | | | 400,000 | | | — | | | — | | | — | | | — | | | — | | | 400,000 | | $400 million unsecured notes | | 2.03 | % | | Dec-2028 | | 400,000 | | | 400,000 | | | — | | | — | | | — | | | — | | | — | | | 400,000 | |
$350 million unsecured notes | | $350 million unsecured notes | | 4.38 | % | | Feb-2033 | | 350,000 | | | 350,000 | | | — | | | — | | | — | | | — | | | — | | | 350,000 | |
Avalon Walnut Creek | Avalon Walnut Creek | | 4.00 | % | | Jul-2066 | | 4,161 | | | 4,327 | | | — | | | — | | | — | | | — | | | — | | | 4,327 | | Avalon Walnut Creek | | 4.00 | % | | Jul-2066 | | 4,327 | | | 4,501 | | | — | | | — | | | — | | | — | | | — | | | 4,501 | |
eaves Los Feliz | eaves Los Feliz | | 3.68 | % | | Jun-2027 | | 41,400 | | | 41,400 | | | — | | | — | | | — | | | — | | | — | | | 41,400 | | eaves Los Feliz | | 3.68 | % | | Jun-2027 | | 41,400 | | | 41,400 | | | — | | | — | | | — | | | — | | | 41,400 | | | — | |
eaves Woodland Hills | eaves Woodland Hills | | 3.67 | % | | Jun-2027 | | 111,500 | | | 111,500 | | | — | | | — | | | — | | | — | | | — | | | 111,500 | | eaves Woodland Hills | | 3.67 | % | | Jun-2027 | | 111,500 | | | 111,500 | | | — | | | — | | | — | | | — | | | 111,500 | | | — | |
Avalon Russett | Avalon Russett | | 3.77 | % | | Jun-2027 | | 32,200 | | | 32,200 | | | — | | | — | | | — | | | — | | | — | | | 32,200 | | Avalon Russett | | 3.77 | % | | Jun-2027 | | 32,200 | | | 32,200 | | | — | | | — | | | — | | | — | | | 32,200 | | | — | |
Avalon San Bruno III | Avalon San Bruno III | | 2.38 | % | | Mar-2027 | | 51,000 | | | 51,000 | | | — | | | — | | | — | | | — | | | — | | | 51,000 | | Avalon San Bruno III | | 2.38 | % | | Mar-2027 | | 51,000 | | | 51,000 | | | — | | | — | | | — | | | — | | | 51,000 | | | — | |
Avalon Cerritos | Avalon Cerritos | | 3.35 | % | | Aug-2029 | | 30,250 | | | 30,250 | | | — | | | — | | | — | | | — | | | — | | | 30,250 | | Avalon Cerritos | | 3.35 | % | | Aug-2029 | | 30,250 | | | 30,250 | | | — | | | — | | | — | | | — | | | — | | | 30,250 | |
| | | | | | | 7,420,511 | | | 7,420,677 | | | — | | | 600,000 | | | 300,000 | | | 825,000 | | | 775,000 | | | 4,920,677 | | | | | | | | 7,770,677 | | | 7,520,851 | | | 350,000 | | | 300,000 | | | 825,000 | | | 775,000 | | | 636,100 | | | 4,634,751 | |
| Variable rate | Variable rate | | | | | | | | | | | | | | | | | | | | | Variable rate | | | | | | | | | | | | | | | | | | | | |
Term Loan - $100 million | | — | % | | Feb-2022 | (5) | 100,000 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
Term Loan - $150 million | Term Loan - $150 million | | 3.51 | % | | Feb-2024 | | 150,000 | | | 150,000 | | | — | | | — | | | 150,000 | | | — | | | — | | | — | | Term Loan - $150 million | | — | % | | Feb-2024 | (5) | 150,000 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | 250,000 | | | 150,000 | | | — | | | — | | | 150,000 | | | — | | | — | | | — | | |
| Total indebtedness - excluding Credit Facility and Commercial Paper | Total indebtedness - excluding Credit Facility and Commercial Paper | | | | | | $ | 8,170,431 | | | $ | 8,028,027 | | | $ | 800 | | | $ | 608,300 | | | $ | 459,100 | | | $ | 834,700 | | | $ | 785,600 | | | $ | 5,339,527 | | Total indebtedness - excluding Credit Facility and Commercial Paper | | | | | | $ | 8,377,827 | | | $ | 7,932,301 | | | $ | 350,200 | | | $ | 309,100 | | | $ | 834,700 | | | $ | 785,600 | | | $ | 649,000 | | | $ | 5,003,701 | |
_________________________
(1)Rates are given as of September 30, 20222023 and include credit enhancement fees, facility fees, trustees' fees, the impact of interest rate hedges, offering costs, mark to marketmark-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 $45,635$42,207 and $50,606$47,695 as of September 30, 20222023 and December 31, 2021,2022, respectively, and deferred financing costs and debt discount associated with secured notes of $14,418$13,089 and $16,278$14,087 as of September 30, 20222023 and December 31, 2021,2022, respectively, as reflected on our Condensed Consolidated Balance Sheets included elsewhere in this report.
(3)During 2022, we repaid this borrowing in advance of its scheduled maturity date.
(4)Financed by variable rate debt, but interest rate is capped through an interest rate protection agreement.
(5)(4)During 2022,2023, we repaid this borrowing at its scheduled maturity date.
(5)During 2023, we repaid this borrowing in advance of 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 September 30, 2022,2023, 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
We invest in various real estate and real estate related investments, which include (i) the acquisition, development and redevelopment of 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 and (iii) other indirect investments in real estate through the SIP, all as further discussed below.funds.
In 2022,2023, 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 the Credit Facility, (iv) issuancesborrowings under the Commercial Paper Program and (v) secured and unsecured debt financings. Additional sources of liquidity in 20222023 may include the issuance of common and preferred equity, including the issuance of shares of our common stock under CEP V.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 plan to source 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 abandon Development Rights, write-off associated pre-development costs that were capitalized and/or forego reconstruction activity. In such instances, we will not realize the increased revenues and earnings that we expected from such Development Rights or reconstruction activity and significant losses could be incurred.
From time to time we use joint ventures to hold or develop individual real estate assets. We generally employ joint ventures 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 our 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
As of September 30, 2022,2023, we had investments in the following unconsolidated real estate entities 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 report. For joint ventures holding operating apartment communities as of September 30, 2022,2023, detail of the real estate and associated indebtedness underlying our unconsolidated investments is presented in the following table (dollars in thousands).
| | | | Company ownership percentage | | # of apartment homes | | Total capitalized cost | | Debt (1) | | | Company ownership percentage | | # of apartment homes | | Total capitalized cost | | Debt (1) |
| | | | | | | Interest rate | | Maturity date | | | Principal Amount | | | | Interest rate | | Maturity date |
Unconsolidated Real Estate Investments | Unconsolidated Real Estate Investments | | Amount | | Type | | Unconsolidated Real Estate Investments | | Type | |
| NYTA MF Investors LLC | | |
NYTA MF Investors, LLC | | NYTA MF Investors, LLC | |
1. Avalon Bowery Place I - New York, NY | 1. Avalon Bowery Place I - New York, NY | | 206 | | $ | 213,874 | | | $ | 93,800 | | | Fixed | | 4.01 | % | | Jan 2029 | 1. Avalon Bowery Place I - New York, NY | | 206 | | $ | 215,289 | | | $ | 93,800 | | | Fixed | | 4.01 | % | | Jan 2029 |
2. Avalon Bowery Place II - New York, NY | 2. Avalon Bowery Place II - New York, NY | | 90 | | 91,155 | | | 39,639 | | | Fixed | | 4.01 | % | | Jan 2029 | 2. Avalon Bowery Place II - New York, NY | | 90 | | 91,354 | | | 39,639 | | | Fixed | | 4.01 | % | | Jan 2029 |
3. Avalon Morningside - New York, NY (2) | 3. Avalon Morningside - New York, NY (2) | | 295 | | 211,416 | | | 111,960 | | | Fixed | | 3.55 | % | | Jan 2029/May 2046 | 3. Avalon Morningside - New York, NY (2) | | 295 | | 212,313 | | | 111,530 | | | Fixed | | 3.55 | % | | Jan 2029/May 2046 |
4. Avalon West Chelsea - New York, NY (3) | 4. Avalon West Chelsea - New York, NY (3) | | 305 | | 128,822 | | | 66,000 | | | Fixed | | 4.01 | % | | Jan 2029 | 4. Avalon West Chelsea - New York, NY (3) | | 305 | | 129,147 | | | 66,000 | | | Fixed | | 4.01 | % | | Jan 2029 |
5. AVA High Line - New York, NY (3) | 5. AVA High Line - New York, NY (3) | | 405 | | 122,075 | | | 84,000 | | | Fixed | | 4.01 | % | | Jan 2029 | 5. AVA High Line - New York, NY (3) | | 405 | | 122,364 | | | 84,000 | | | Fixed | | 4.01 | % | | Jan 2029 |
Total NYTA MF Investors LLC | | 20.0 | % | | 1,301 | | | 767,342 | | | 395,399 | | | 3.88 | % | | |
Total NYTA MF Investors, LLC | | Total NYTA MF Investors, LLC | | 20.0 | % | | 1,301 | | | 770,467 | | | 394,969 | | | 3.88 | % | |
| Other Operating Joint Ventures | Other Operating Joint Ventures | | | | | | | | | | | | | | | Other Operating Joint Ventures | | | | | | | | | | | | | | |
1. MVP I, LLC - Avalon at Mission Bay II - San Francisco, CA | 1. MVP I, LLC - Avalon at Mission Bay II - San Francisco, CA | | 25.0 | % | | 313 | | | 129,280 | | | 103,000 | | | Fixed | | 3.24 | % | | Jul 2025 | 1. MVP I, LLC - Avalon at Mission Bay II - San Francisco, CA | | 25.0 | % | | 313 | | | 129,571 | | | 103,000 | | | Fixed | | 3.24 | % | | Jul 2025 |
2. Brandywine Apartments of Maryland, LLC - Brandywine - Washington, D.C. | 2. Brandywine Apartments of Maryland, LLC - Brandywine - Washington, D.C. | | 28.7 | % | | 305 | | | 19,383 | | | 19,895 | | | Fixed | | 3.40 | % | | Jun 2028 | 2. Brandywine Apartments of Maryland, LLC - Brandywine - Washington, D.C. | | 28.7 | % | | 305 | | | 19,670 | | | 19,231 | | | Fixed | | 3.40 | % | | Jun 2028 |
3. Avalon Alderwood MF Member, LLC - Avalon Alderwood Place - Lynnwood, WA (4) | 3. Avalon Alderwood MF Member, LLC - Avalon Alderwood Place - Lynnwood, WA (4) | | 50.0 | % | | 328 | | | 108,472 | | | — | | | N/A | | N/A | | N/A | 3. Avalon Alderwood MF Member, LLC - Avalon Alderwood Place - Lynnwood, WA (4) | | 50.0 | % | | 328 | | | 108,846 | | | — | | | N/A | | N/A | | N/A |
Total Other Joint Ventures | Total Other Joint Ventures | | 946 | | | 257,135 | | | 122,895 | | | 3.27 | % | | Total Other Joint Ventures | | 946 | | | 258,087 | | | 122,231 | | | 3.27 | % | |
| | | | | | | | | | | | | | | | | | | | |
Total Unconsolidated Investments | | 2,247 | | | $ | 1,024,477 | | | $ | 518,294 | | | 3.73 | % | | |
Total Unconsolidated Real Estate Investments (4) | | Total Unconsolidated Real Estate Investments (4) | | 2,247 | | | $ | 1,028,554 | | | $ | 517,200 | | | 3.73 | % | |
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(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 of September 30, 2022.2023.
(3)Borrowing on this dual-branded community is comprised of a single mortgage loan. This dual-branded community is subject to a leasehold interest which is not included in the total capitalized cost.
(4)DevelopmentIn addition to leasehold assets, there were net other assets of this community, which contains 284,000 square feet$32,189 as of rentable space, was completed during the nine months ended September 30, 2022.2023 associated with our unconsolidated real estate investments which are primarily cash and cash equivalents.
During the three and nine months ended September 30, 2022, the U.S. Fund sold its final three communities containing 671 apartment homes for a sales price of $313,500,000. Our share of the gain in accordance with GAAP was $38,062,000. The U.S. Fund repaid the $115,213,000 of outstanding secured indebtedness at par in advance of the scheduled maturity dates. We have an equity interest of 28.6% in the U.S. Fund and during the three months ended September 30, 2022 in conjunction with the final dispositions, achievedupon achievement of a threshold return, resulting in anwe have a right to incentive distributiondistributions for our promoted interest based on the returns earned by the U.S. Fund. During the three and nine months ended September 30, 2022,2023, we recognized income of $4,690,000$424,000 and $1,496,000 for our promoted interest included in income from investments in unconsolidated entitiesinvestments on the accompanying Condensed Consolidated Statements of Comprehensive Income. The U.S. Fund sold its final three communities in 2022 and is in the process of being dissolved.
Unconsolidated Investments - Development Communities
The following table presents a summary of the Unconsolidated Development Communities.
| Unconsolidated Development Community | Unconsolidated Development Community | | Company ownership percentage | # of apartment homes | | Projected total capitalized cost (1) ($ millions) | | Construction start | | Initial projected occupancy | | Estimated completion | Unconsolidated Development Community | | Company ownership percentage | # of apartment homes | | Projected total capitalized cost (1) ($ millions) | | Construction start | | Initial occupancy | | Estimated completion | | Estimated stabilized operations (4) |
1. | 1. | | AVA Arts District (2)(3) Los Angeles, CA | | 25.0 | % | 475 | | $ | 276 | | | Q3 2020 | | Q3 2023 | | Q4 2023 | 1. | | AVA Arts District (2)(3) Los Angeles, CA | | 25.0 | % | 475 | | $ | 288 | | | Q3 2020 | | Q3 2023 | | Q4 2023 | | Q2 2024 |
_____________________________
(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 loan fees, permits, professional fees and other regulatory fees, as well as costs incurred for 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 commercial space.
(3)As of September 30, 2022,2023, we havehad contributed our totalan equity investment in AVA Arts District of $28,660.$31,942. The venture has secured aremaining development costs are primarily expected to be funded by the venture's variable rate construction loan with aloan. The venture had drawn $127,803 of the $167,147 maximum borrowing of $167,147 to fund approximately 60%capacity of the development of AVA Arts District, of which $56,408 has been drawnconstruction loan as of September 30, 2022. The venture commenced draws under the loan subsequent to required equity contributions by the venture partners. We2023. While we guarantee the construction loan on behalf of the venture, and any obligations we may incuramounts under the guarantee except for those due to our misconduct, are required capital contributionsobligations of the venture partners based onin proportion to ownership interest.
(4)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.
Development Communities
As of September 30, 2022,2023, we owned or held a direct interest in 1716 Development Communities under construction. We expect these Development Communities, when completed, to add a total of 5,4275,402 apartment homes and 56,00059,000 square feet of commercial space to our portfolio for a total capitalized cost, including land acquisition costs, of approximately $2,277,000,000.$2,257,000,000. We cannot assure you that we will meet our schedule for construction completion or that we will meet our budgeted costs, either individually, or in the aggregate.
The following table presents a summary of the Development Communities.
| | | Number of apartment homes | | Projected total capitalized cost (1) ($ millions) | | Construction start | | Initial projected or actual occupancy | | Estimated completion | | Estimated stabilized operations (2) | | Number of apartment homes | | Projected total capitalized cost (1) ($ millions) | | Construction start | | Initial projected or actual occupancy | | Estimated completion | | Estimated stabilized operations (2) |
1. | 1. | | Avalon Harrison (3) Harrison, NY | 143 | | | $ | 94 | | | Q4 2018 | | Q3 2021 | | Q1 2023 | | Q3 2023 | 1. | | Avalon Amityville Amityville, NY | 338 | | | $ | 135 | | | Q2 2021 | | Q3 2023 | | Q2 2024 | | Q4 2024 |
2. | 2. | | Avalon Harbor Isle Island Park, NY | 172 | | | 92 | | | Q4 2020 | | Q2 2022 | | Q4 2022 | | Q2 2023 | 2. | | Avalon Bothell Commons I Bothell, WA | 467 | | | 236 | | | Q2 2021 | | Q3 2023 | | Q3 2024 | | Q2 2025 |
3. | 3. | | Avalon Somerville Station Somerville, NJ | 374 | | | 118 | | | Q4 2020 | | Q2 2022 | | Q3 2023 | | Q1 2024 | 3. | | Avalon Westminster Promenade Westminster, CO | 312 | | | 110 | | | Q3 2021 | | Q2 2024 | | Q3 2024 | | Q2 2025 |
4. | 4. | | Avalon North Andover North Andover, MA | 221 | | | 78 | | | Q2 2021 | | Q4 2022 | | Q3 2023 | | Q4 2023 | 4. | | Avalon West Dublin Dublin, CA | 499 | | | 270 | | | Q3 2021 | | Q4 2023 | | Q4 2024 | | Q2 2025 |
5. | 5. | | Avalon Brighton Boston, MA | 180 | | | 89 | | | Q2 2021 | | Q1 2023 | | Q2 2023 | | Q4 2023 | 5. | | Avalon Princeton Circle Princeton, NJ | 221 | | | 88 | | | Q4 2021 | | Q2 2023 | | Q4 2023 | | Q2 2024 |
6. | 6. | | Avalon Merrick Park Miami, FL | 254 | | | 101 | | | Q2 2021 | | Q1 2023 | | Q2 2023 | | Q4 2023 | 6. | | Avalon Montville Montville, NJ | 349 | | | 127 | | | Q4 2021 | | Q4 2023 | | Q3 2024 | | Q4 2024 |
7. | 7. | | Avalon Amityville I Amityville, NY | 338 | | | 131 | | | Q2 2021 | | Q3 2023 | | Q2 2024 | | Q1 2025 | 7. | | Avalon Redmond Campus (3) Redmond, WA | 214 | | | 85 | | | Q4 2021 | | Q4 2023 | | Q2 2024 | | Q4 2024 |
8. | 8. | | Avalon Bothell Commons I Bothell, WA | 467 | | | 236 | | | Q2 2021 | | Q3 2023 | | Q3 2024 | | Q2 2025 | 8. | | Avalon Governor's Park Denver, CO | 304 | | | 135 | | | Q1 2022 | | Q3 2024 | | Q4 2024 | | Q2 2025 |
9. | 9. | | Avalon Westminster Promenade Westminster, CO | 312 | | | 110 | | | Q3 2021 | | Q4 2023 | | Q1 2024 | | Q3 2024 | 9. | | Avalon West Windsor (4) West Windsor, NJ | 535 | | | 201 | | | Q2 2022 | | Q2 2025 | | Q3 2026 | | Q1 2027 |
10. | 10. | | Avalon West Dublin Dublin, CA | 499 | | | 270 | | | Q3 2021 | | Q4 2023 | | Q1 2025 | | Q2 2025 | 10. | | Avalon Durham (5) Durham, NC | 336 | | | 125 | | | Q2 2022 | | Q2 2024 | | Q3 2024 | | Q2 2025 |
11. | 11. | | Avalon Princeton Circle Princeton, NJ | 221 | | | 88 | | | Q4 2021 | | Q2 2023 | | Q1 2024 | | Q3 2024 | 11. | | Avalon Annapolis Annapolis, MD | 508 | | | 202 | | | Q3 2022 | | Q3 2024 | | Q3 2025 | | Q2 2026 |
12. | 12. | | Avalon Montville Montville, NJ | 349 | | | 127 | | | Q4 2021 | | Q3 2023 | | Q3 2024 | | Q4 2024 | 12. | | Kanso Milford Milford, MA | 162 | | | 65 | | | Q4 2022 | | Q1 2024 | | Q3 2024 | | Q1 2025 |
13. | 13. | | Avalon Redmond Campus (4) Redmond, WA | 214 | | | 80 | | | Q4 2021 | | Q3 2023 | | Q1 2024 | | Q2 2024 | 13. | | Avalon Lake Norman (5) Mooresville, NC | 345 | | | 101 | | | Q1 2023 | | Q4 2024 | | Q4 2025 | | Q2 2026 |
14. | 14. | | Avalon Governor's Park Denver, CO | 304 | | | 135 | | | Q1 2022 | | Q2 2024 | | Q3 2024 | | Q1 2025 | 14. | | Avalon Hunt Valley West Hunt Valley, MD | 322 | | | 109 | | | Q2 2023 | | Q1 2025 | | Q1 2026 | | Q3 2026 |
15. | 15. | | Avalon West Windsor (3) West Windsor, NJ | 535 | | | 201 | | | Q2 2022 | | Q3 2024 | | Q4 2025 | | Q2 2026 | 15. | | Avalon South Miami (4) South Miami, FL | 290 | | | 186 | | | Q3 2023 | | Q3 2025 | | Q1 2026 | | Q3 2026 |
16. | 16. | | Avalon Durham Durham, NC | 336 | | | 125 | | | Q2 2022 | | Q2 2024 | | Q3 2024 | | Q2 2025 | 16. | | Avalon Princeton Shopping Center Princeton, NJ | 200 | | | 82 | | | Q3 2023 | | Q1 2025 | | Q2 2025 | | Q4 2025 |
17. | | Avalon Annapolis Annapolis, MD | 508 | | | 202 | | | Q3 2022 | | Q2 2024 | | Q3 2025 | | Q4 2025 | |
| | | Total | 5,427 | | | $ | 2,277 | | | | | Total | 5,402 | | | $ | 2,257 | | |
(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.
(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.
(3)Development Communities containing at least 10,000 square feet of commercial space include Avalon Harrison (27,000 square feet) and Avalon West Windsor (19,000 square feet).
(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.
(4)Development Communities containing at least 10,000 square feet of commercial space include Avalon West Windsor (19,000 square feet) and Avalon South Miami (32,000 square feet).
(5)Communities being developed through our Developer Funding Program ("DFP"). The DFP utilizes third-party multifamily developers to source and construct communities which we own and operate.
During the three months ended September 30, 2022,2023, we did not complete anycompleted the development of the following wholly-owned communities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of apartment homes | | Total capitalized cost (1) ($ millions) | | Approximate rentable area (sq. ft.) | | Total capitalized cost per sq. ft. |
1. | | Avalon Somerville Station Somerville, NJ | 374 | | | $ | 121 | | | 368,396 | | | $ | 328 | |
2. | | Avalon North Andover North Andover, MA | 221 | | | 77 | | | 216,545 | | | $ | 356 | |
3. | | Avalon Merrick Park (2) Miami, FL | 254 | | | 104 | | | 218,742 | | | $ | 475 | |
| | Total | 849 | | | $ | 302 | | | | | |
(1)Total capitalized cost is as of September 30, 2023. We generally anticipate incurring additional costs associated with these communities that are customary for new developments.
(2)Community was developed through our DFP.
Development Rights
At September 30, 2022,2023, we had $167,277,000$183,158,000 in acquisition and related capitalized costs for direct interests in seven land parcels we own. In addition, we had $54,806,000$64,147,000 in capitalized costs (including legal fees, design fees and related overhead costs) related to (i) 2327 Development Rights for which we control the land parcel, typically through a conditional agreement or option to purchase or lease the land, as well as (ii) costs incurred for four Development Rights that arewe expect to construct as additional development phases of our existing stabilized operating communities we own and which will be constructed on land currently adjacent to or directly associated with those operating communities for which we own the land.own. Collectively, the land held for development and associated costs for deferred development rights relate to 3438 Development Rights for which we expect to develop new apartment communities in the future. 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 11,45113,449 apartment homes to our portfolio. Substantially all of these apartment homes will offer features like those offered by the communities we currently own.
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 three and nine months ended September 30, 2022,2023, we incurred a charge of $6,514,000$18,959,000 and $9,865,000,$23,212,000, 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 were no longer probable of being developed. This charge includes the write-offThe amounts for 2023 include write-offs of $5,335,000$17,111,000 related to athree Development RightRights in Northern and Southern California and the Pacific NorthwestMid-Atlantic that we determined isare no longer probable.
Structured Investment Program
During the three and nine months ended September 30, 2022,2023, we entered into two additional commitments, agreeing to provide an aggregate investment of up to $51,660,000 in multifamily development projects in North Carolina and Florida. As of October 31, 2023, we had five commitments to fund up to $144,035,000 in the aggregate under the SIP for three mezzanine loans of up to $92,375,000 in the aggregate. These commitments are to fund multifamily development projects in our existing markets. As of October 31, 2022,2023, our investment commitments had a weighted average rate of return of 10.9% and have initial maturity dates between September 2025 and August 2027. As of October 31, 2023, we havehad funded $18,530,000$82,604,000 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 our investment activity.
Insurance and Risk of Uninsured Losses
We maintain commercial general liability insurance and property insurance with respect to all of our communities, with insurance policies issued by a combination of third party insurers as well as a wholly-owned captive insurance company. 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. We utilize a wholly-owned captive insurance company to insure certain types and amounts of risks, which include property damage and resulting business interruption losses, general liability insurance and other construction related liability risks. The captive is utilized to insure other limited levels of risk, which may be in part reinsured by third party insurance. There are, however, certain types of losses (including, but not limited to, losses arising from nuclear liability, pandemic 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 review the discussion under Part I, Item 1A. “Risk Factors” of our Form 10-K for a discussion of risks associated with an uninsured property or casualty loss.
Our communities are insured for certain property damage and business interruption losses through a combination of community specific insurance policies and/or a master property insurance program which covers the majority of our communities. This master property program provides a $400,000,000 limit for any single occurrence and annually in the aggregate, subject to certain sub-limits and exclusions. Under the master property program, we are subject to various deductibles per occurrence, as well as additional self-insured retentions. In addition to our potential liability for the various policy self-insured retentions and deductibles, our captive insurance company is directly responsible for 100% of the first $25,000,000 of losses (per occurrence) and 10% of the second $25,000,000 of losses (per occurrence) incurred by the master property insurance policy. Our master property insurance program includes coverage for losses resulting from customary perils, including but not limited to wildfires and windstorms. Limits, deductibles, self-insured retentions and coverages may increase or decrease annually during the insurance renewal process, which occurs on different dates throughout the calendar year.
Many of our West Coast communities are located within the general vicinity of active earthquake faults. Many of our communities are near, and thus susceptible to, the major fault lines in California, including the San Andreas Fault, the Hayward Fault 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 procure property damage and resulting business interruption insurance coverage with a loss limit of $175,000,000 for any single occurrence and in the annual aggregate for losses resulting from earthquakes subject to deductibles and self-insured retentions. However, for any losses resulting from earthquakes at communities located in California or Washington, the loss limit is $200,000,000 for any single occurrence and in the annual aggregate subject to deductibles and self-insured retentions.
Our Southeast Florida communities could be impacted by significant storm events like hurricanes. We include coverage for losses arising from these types of weather events within our master property insurance program. We cannot assure you that a significant storm event would not cause damage or losses greater than our current insured levels.
Our communities and construction sites 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 program. The master commercial general liability and umbrella/excess insurance policies cover the majority of our communities and construction sites and are subject to certain coverage limitations and exclusions, which the Company believes are commercially reasonable. After applicable self-insured retentions borne by us, our captive insurance company is directly responsible for the first $2,000,000 of losses (per occurrence) covered by the master general liability insurance policy.
Just as with office buildings, transportation systems and government buildings, apartment communities could become targets of terrorism. Our communities are insured for terrorism related losses through the Terrorism Risk Insurance Program Reauthorization Act (“TRIPRA”) program. This coverage extends to most of our casualty exposures (subject to deductibles and insured limits) and certain property insurance policies. 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.
An additional consideration for insurance coverage and potential uninsured losses is mold growth or other environmental contamination. Mold growth may occur when excessive moisture accumulates in buildings or on building materials, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. If a significant mold problem arises at one of our communities, we could be required to undertake a costly remediation program to contain or remove the mold from the affected community and could be exposed to other liabilities. For further discussion of the risks and our related prevention and remediation activities, please refer to the discussion under Part I, Item 1A. “Risk Factors - We may incur costs due to environmental contamination or non-compliance” of our Form 10-K. We cannot provide assurance that we will have coverage under our existing policies for property damage or liability to third parties arising as a result of exposure to mold or a claim of exposure to mold at one of our communities.
We also maintain other insurance programs that provide coverage for events including but not limited to employee dishonesty, loss of data, and liability associated with management of certain employee benefit plans. These policies are subject to maximum loss limits and include coverage limitations or exclusion that may preclude us from fully recovering.
The amount or types of insurance we maintain may not be sufficient to cover all losses and we may change our policy limits, coverages, and self-insured retentions or deductibles at any time.
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," "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:
•the impact of the Pandemic on our business, results of operations and financial condition;
•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 timing and net sales proceeds of condominium sales;
•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 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 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 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, including rising interest rates and general price inflation, and the Pandemic;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.
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 further discussion of risks associated with forward-looking statements.
Risks and uncertainties that might cause such differences include those related to the Pandemic, including, among other factors, (i) the Pandemic's effect on the multifamily industry and the general economy, including from measures taken by businesses and the government, such as governmental limitations on the ability of multifamily owners to evict residents who are delinquent in the payment of their rent and (ii) the preferences of consumers and businesses for living and working arrangements both during and after the Pandemic. In addition, the effects of the Pandemic are likely to heighten the following risks, which we routinely face in our business.
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;
•the timing and net proceeds of condominium sales at The Park Loggia may not equal our current expectations;
•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 joint ventures and the REIT vehicles that are used with certain joint ventures;
•laws and regulations implementing rent control or rent stabilization, or otherwise limiting our ability to increase rents, charge fees or evict tenants, may impact our revenue or increase our costs;
•our expectations, estimates and assumptions as of the date of this filing regarding legal proceedings are subject to 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
PreparingThe 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 of the following: (i) cost capitalization and (ii) abandoned pursuit costs and asset impairment. Our critical accounting policies and estimates have not changed materially from the discussion of our significant accounting policies found in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to our exposures to market risk as 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, 2021.2022.
ITEM 4. 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 September 30, 2022.2023. 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.
(b)Changes in internal controls over financial reporting.
None.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The CompanyAs disclosed in Note 1, "Organization, Basis of Presentation and Significant Accounting Policies" and Note 12, "Subsequent Events" of the Condensed Consolidated Financial Statements in Part I, Item 1 of this report, we are engaged in certain legal proceedings, and the disclosure set forth in Note 1, "Organization, Basis of Presentation and Significant Accounting Policies" and Note 12, "Subsequent Events" relating to legal and other contingencies is involved in various claims and/or administrative proceedings that arise in the ordinary course of its business. While no assurances can be given, the Company does not currently believe that any of these outstanding litigation matters, individually or in the aggregate, will have a material adverse effect on its financial condition or results of operations.incorporated herein by reference.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the risk factors that 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, 20212022 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, 2021.2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, AND USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
(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 Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs (in thousands) (2) |
July 1 - July 31, 2022 | | 28 | | | $ | 196.25 | | | — | | | $ | 316,148 | |
August 1 - August 31, 2022 | | 2,270 | | | $ | 210.13 | | | — | | | $ | 316,148 | |
September 1 - September 30, 2022 | | — | | | $ | — | | | — | | | $ | 316,148 | |
Total | | 2,298 | | | $ | 209.96 | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
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) |
July 1 - July 31, 2023 | | 71 | | | $ | 189.27 | | | — | | | $ | 314,237 | |
August 1 - August 31, 2023 | | 91 | | | $ | 184.39 | | | — | | | $ | 314,237 | |
September 1 - September 30, 2023 | | 105 | | | $ | 183.82 | | | — | | | $ | 314,237 | |
Total | | 267 | | | $ | 185.46 | | | — | | | |
(1)Consists of (i) 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.grants and the conversion of performance awards to shares of common stock and (ii) activity under the Stock Repurchase Program, if any, as indicated under Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs.
(2)In July 2020, theThe Board of Directors approved the 2020 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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.During the three months ended September 30, 2023, none of the Company's directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended) 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
| | | | | | | | | | | | | | |
Exhibit No. | | | | Description |
| | | | |
3(i).1 | | — | | |
3(i).2 | | — | | |
3(i).3 | | — | | |
3(i).4 | | — | | |
3(i).5 | | — | | Composite restatement of Articles of Amendment and Restatement of Articles of Incorporation of the Company, dated as of June 4, 1998, as amended by the Articles of Amendment, dated as of October 2, 1998, the Articles of Amendment, dated as of May 22, 2013, and the Articles of Amendment, dated as of May 14, 2020. (Filed herewith.) |
3(ii).1 | | — | | Amended and Restated Bylaws of the Company, as adopted by the Board of Directors on November 12, 2015, and as further amended on February 16, 2017, November 9, 2017, and May 6, 2019.October 30, 2023. (Incorporated by reference to Exhibit 3(ii).1 to Form 10-Q of the Company filed August 6, 2019.) |
10.1 | | — | | Sixth Amended and Restated Revolving Loan Agreement, dated as of September 27, 2022, among the Company, as Borrower, Bank of America, N.A., as administrative agent, an issuing bank and a bank, JPMorgan Chase Bank, N.A., as an issuing bank, a bank and a syndication agent, Wells Fargo Bank, N.A., as an issuing bank, a bank and a syndication agent, the co-documentation agents named therein, JPMorgan Chase Bank, N.A., BofA Securities, Inc., and Wells Fargo Securities, LLC as joint bookrunners and joint lead arrangers, and the other bank parties signatory thereto. (Incorporated by reference to Exhibit 10.13.1 to Form 8-K of the Company filed September 29, 2022.October 30, 2023.) |
31.1 | | — | | |
31.2 | | — | | |
32 | | — | | |
101 | | — | | The following financialFinancial materials from AvalonBay Communities, Inc.'s Quarterly Report on Form 10-Q for the period ended September 30, 20222023 formatted in Inline XBRL (Extensible Business Reporting Language) includes:including: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Statements of Cash Flows and (iv) Notes to 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.
| | | | | | | | |
| AVALONBAY COMMUNITIES, INC. |
| | |
| | |
Date: | November 8, 20223, 2023 | /s/ Benjamin W. Schall |
| | Benjamin W. Schall |
| | Chief Executive Officer and President |
| | (Principal Executive Officer) |
| | |
Date: | November 8, 20223, 2023 | /s/ Kevin P. O'Shea |
| | Kevin P. O'Shea |
| | Chief Financial Officer |
| | (Principal Financial Officer) |