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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended March 31, 2024

OR
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)

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:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareAVBNew 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 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.
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:

142,185,893 shares of common stock, par value $0.01 per share, were outstanding as of April 30, 2024.


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






AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
 March 31, 2024December 31, 2023
 (unaudited) 
ASSETS  
Real estate:  
Land and improvements$4,742,140 $4,720,331 
Buildings and improvements19,643,649 19,438,195 
Furniture, fixtures and equipment1,275,563 1,238,330 
 25,661,352 25,396,856 
Less accumulated depreciation(7,720,513)(7,521,962)
Net operating real estate17,940,839 17,874,894 
Construction in progress, including land1,210,773 1,268,915 
Land held for development211,546 199,062 
Real estate assets held for sale, net9,629  
Total real estate, net19,372,787 19,342,871 
Cash and cash equivalents287,892 397,890 
Restricted cash135,658 133,070 
Unconsolidated investments220,384 220,145 
Deferred development costs54,038 53,122 
Prepaid expenses and other assets437,664 396,442 
Right of use lease assets132,474 134,674 
Total assets$20,640,897 $20,678,214 
LIABILITIES AND EQUITY  
Unsecured notes, net$7,257,806 $7,256,152 
Variable rate unsecured credit facility and commercial paper, net  
Mortgage notes payable, net725,465 725,670 
Dividends payable243,604 238,072 
Payables for construction87,167 87,703 
Accrued expenses and other liabilities323,819 310,868 
Lease liabilities150,926 153,232 
Accrued interest payable71,966 57,911 
Resident security deposits64,437 63,815 
Total liabilities8,925,190 8,893,423 
Commitments and contingencies
Redeemable noncontrolling interests1,473 1,473 
Equity:  
Preferred stock, $0.01 par value; $25 liquidation preference; 50,000,000 shares authorized at March 31, 2024 and December 31, 2023; zero shares issued and outstanding at March 31, 2024 and December 31, 2023
  
Common stock, $0.01 par value; 280,000,000 shares authorized at March 31, 2024 and December 31, 2023; 142,184,758 and 142,025,456 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively
1,422 1,420 
Additional paid-in capital11,279,840 11,287,626 
Accumulated earnings less dividends409,371 478,156 
Accumulated other comprehensive income23,601 16,116 
Total equity11,714,234 11,783,318 
Total liabilities and equity$20,640,897 $20,678,214 
 
See accompanying notes to Condensed Consolidated Financial Statements.
1

AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(Dollars in thousands, except per share data)
 For the three months ended March 31,
 20242023
Revenue:  
   Rental and other income $711,064 $673,642 
   Management, development and other fees 1,795 1,066 
            Total revenue712,859 674,708 
Expenses:  
   Operating expenses, excluding property taxes175,916 164,832 
   Property taxes79,780 74,495 
   Expensed transaction, development and other pursuit costs, net of recoveries4,245 2,992 
   Interest expense, net54,766 56,821 
   Depreciation expense212,269 204,743 
   General and administrative expense 20,331 20,400 
   Casualty and impairment loss2,935 5,051 
            Total expenses550,242 529,334 
Income from unconsolidated investments10,847 4,845 
Other real estate activity71 116 
Income before income taxes173,535 150,335 
Income tax benefit (expense)22 (3,560)
Net income173,557 146,775 
Net (income) loss attributable to noncontrolling interests(108)127 
Net income attributable to common stockholders$173,449 $146,902 
Other comprehensive income:  
   Gain (loss) on cash flow hedges 7,339 (340)
   Cash flow hedge losses reclassified to earnings146 354 
Comprehensive income$180,934 $146,916 
Earnings per common share - basic:  
          Net income attributable to common stockholders$1.22 $1.05 
Earnings per common share - diluted:  
          Net income attributable to common stockholders$1.22 $1.05 

See accompanying notes to Condensed Consolidated Financial Statements.
2

AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
(Dollars in thousands)

Common
stock
Additional
paid-in
capital
Accumulated
earnings
less
dividends
Accumulated
other
comprehensive
income (loss)
Total
equity
Balance at December 31, 2023$1,420 $11,287,626 $478,156 $16,116 $11,783,318 
Net income attributable to common stockholders— — 173,449 — 173,449 
Gain on cash flow hedges, net— — — 7,339 7,339 
Cash flow hedge losses reclassified to earnings— — — 146 146 
Dividends declared to common stockholders ($1.70 per share)
— — (242,701)— (242,701)
Issuance of common stock, net of withholdings2 (16,226)467 — (15,757)
Amortization of deferred compensation— 8,440 — — 8,440 
Balance at March 31, 2024$1,422 $11,279,840 $409,371 $23,601 $11,714,234 


Common
stock
Additional
paid-in
capital
Accumulated
earnings
less
dividends
Accumulated
other
comprehensive
income (loss)
Total
equity
Balance at December 31, 2022$1,400 $10,765,508 $485,221 $1,424 $11,253,553 
Net income attributable to common stockholders— — 146,902 — 146,902 
Loss on cash flow hedges, net— — — (340)(340)
Cash flow hedge losses reclassified to earnings— — — 354 354 
Noncontrolling interest activity— — (286)— (286)
Dividends declared to common stockholders ($1.65 per share)
— — (230,958)— (230,958)
Issuance of common stock, net of withholdings1 (11,554)1,590 — (9,963)
Repurchase of common stock, including repurchase costs— (539)(590)— (1,129)
Amortization of deferred compensation— 11,123 — — 11,123 
Balance at March 31, 2023$1,401 $10,764,538 $401,879 $1,438 $11,169,256 


See accompanying notes to Condensed Consolidated Financial Statements.
3

AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Dollars in thousands)
 For the three months ended March 31,
 20242023
Cash flows from operating activities:
Net income$173,557 $146,775 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense212,269 204,743 
Amortization of deferred financing costs and debt discount3,283 3,231 
Amortization of stock-based compensation5,870 7,921 
Equity in income of, and return on, unconsolidated investments and noncontrolling interests, net of eliminations(5,742)(1,457)
Impairment loss1,415 2,407 
Abandonment of development pursuits4,245 2,992 
Cash flow hedge losses reclassified to earnings146 354 
Gain (loss) on sale of real estate assets62 (318)
Decrease in prepaid expenses and other assets(3,753)(1,439)
Increase in accrued expenses, other liabilities and accrued interest payable21,553 30,909 
Net cash provided by operating activities412,905 396,118 
Cash flows from investing activities:
Development/redevelopment of real estate assets including land acquisitions and deferred development costs(207,568)(229,361)
Capital expenditures - existing real estate assets(37,490)(31,281)
Capital expenditures - non-real estate assets(1,200)(3,201)
(Decrease) increase in payables for construction(536)12,176 
Proceeds from sale of real estate and for-sale condominiums, net of selling costs3,865 3,964 
Note receivable lending(20,861)(14,034)
Note receivable payments57  
Unconsolidated investments(2,085)(5,602)
Net cash used in investing activities(265,818)(267,339)
Cash flows from financing activities:
Issuance of common stock, net365 135 
Repurchase of common stock, net (1,129)
Dividends paid(237,005)(223,465)
Repayments of mortgage notes payable, including prepayment penalties(800)(899)
Repayment of unsecured notes (250,000)
Payment of deferred financing costs(218)(662)
Payments related to tax withholding for share-based compensation(16,291)(10,310)
Noncontrolling interests, joint venture and preferred equity transactions(548)(630)
Net cash used in financing activities(254,497)(486,960)
Net decrease in cash, cash equivalents and restricted cash(107,410)(358,181)
Cash, cash equivalents and restricted cash, beginning of period530,960 734,245 
Cash, cash equivalents and restricted cash, end of period$423,550 $376,064 
Cash paid during the period for interest, net of amount capitalized$37,242 $33,814 
See accompanying notes to Condensed Consolidated Financial Statements.
4

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Condensed Consolidated Statements of Cash Flows (dollars in thousands):
March 31, 2024March 31, 2023
Cash and cash equivalents$287,892 $254,466 
Restricted cash135,658 121,598 
Cash, cash equivalents and restricted cash reported in the Condensed Consolidated Statements of Cash Flows$423,550 $376,064 

Supplemental disclosures of non-cash investing and financing activities:

During the three months ended March 31, 2024:

As described in Note 4, "Equity," the Company issued 248,420 shares of common stock as part of the Company's stock-based compensation plans, of which 146,725 shares related to the conversion of performance awards to shares of common stock, and the remaining 101,695 shares valued at $17,505,000 were issued in connection with new stock grants; 939 shares valued at $169,000 were issued through the Company's dividend reinvestment plan; 91,446 shares valued at $16,291,000 were withheld to satisfy employees' tax withholding and other liabilities; and 1,753 forfeited restricted shares with an aggregate value of $336,000.

Common stock dividends declared but not paid totaled $242,116,000.

The Company recorded (i) an increase to prepaid expenses and other assets of $7,339,000 and a corresponding adjustment to accumulated other comprehensive income; and (ii) reclassified $146,000 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 three months ended March 31, 2023:

The Company issued 151,053 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 91,037 shares valued at $16,182,000 were issued in connection with new stock grants; 847 shares valued at $144,000 were issued through the Company's dividend reinvestment plan; 60,693 shares valued at $10,242,000 were withheld to satisfy employees' tax withholding and other liabilities; and 147 forfeited restricted shares with an aggregate value of $29,000.

Common stock dividends declared but not paid totaled $231,438,000.

The Company recorded an increase of $286,000 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 accrued expenses and other liabilities of $650,000, an increase to prepaid expenses and other assets of $310,000 and a corresponding adjustment of $340,000 to accumulated other comprehensive income; and (ii) reclassified $354,000 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.
5

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 develops, redevelops, acquires, owns and operates 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 regions of Raleigh-Durham and Charlotte, North Carolina, Southeast Florida, Dallas and Austin, Texas, and Denver, Colorado.

At March 31, 2024, the Company owned or held a direct or indirect ownership interest in 299 operating apartment communities containing 90,673 apartment homes in 12 states and the District of Columbia, of which 17 communities were under development. 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 32 communities that, if developed as expected, will contain an estimated 11,167 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, 2023. The results of operations for the three months ended March 31, 2024 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

Cash and cash equivalents includes all cash and liquid investments with an original maturity of three months or less from the date acquired. Restricted cash includes principal reserve funds that are restricted for the repayment of specified secured financing, amounts the Company has designated for planned 1031 exchange activity and resident security deposits. The majority of the Company's cash, cash equivalents and restricted cash are held at major commercial banks.

Earnings per Common Share

Basic earnings per common 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 common share. Both the unvested restricted shares and other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per common share on a diluted basis. Diluted earnings per common share was computed using the treasury stock method for performance awards, options and participating securities. The Company's earnings per common share are determined as follows (dollars in thousands, except per share data):
6

 For the three months ended March 31,
 20242023
Basic and diluted shares outstanding  
Weighted average common shares - basic141,902,066 139,766,727 
Weighted average DownREIT units outstanding 7,500 
Effect of dilutive securities320,689 249,583 
Weighted average common shares - diluted142,222,755 140,023,810 
Calculation of Earnings per Common Share - basic  
Net income attributable to common stockholders$173,449 $146,902 
Net income allocated to unvested restricted shares(338)(267)
Net income attributable to common stockholders - basic$173,111 $146,635 
Weighted average common shares - basic141,902,066 139,766,727 
Earnings per common share - basic$1.22 $1.05 
Calculation of Earnings per Common Share - diluted  
Net income attributable to common stockholders$173,449 $146,902 
Add: noncontrolling interests of DownREIT unitholders in consolidated partnerships, including discontinued operations 12 
Net income attributable to common stockholders - diluted$173,449 $146,914 
Weighted average common shares - diluted142,222,755 140,023,810 
Earnings per common share - diluted$1.22 $1.05 
 
Certain options to purchase shares of common stock in the amounts of 309,339 and 307,625 were outstanding as of March 31, 2024 and 2023, respectively, but were not included in the computation of diluted earnings per common share because such options were anti-dilutive for the period.

Derivative Instruments and Hedging Activities

The Company enters into interest rate swap and interest rate cap agreements (collectively, "Hedging Derivatives") for interest rate risk management purposes and in conjunction with certain variable rate secured debt to satisfy lender requirements. The Company does not enter into Hedging 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 ongoing basis. 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. 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 income. Amounts recorded in accumulated other comprehensive income 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. Receipts or payments associated with the gains and losses on the Company’s cash flow hedges are presented as a component of cash flows from financing activities in the period the hedges are terminated and the payments for the Company’s derivatives that are not qualifying for hedging relationships are presented as a component of cash flows from operating activities. See Note 11, “Fair Value,” for further discussion of derivative financial instruments.

7

Acquisitions of Investments in Real Estate

The Company accounts for real estate acquisitions as either an asset acquisition or a business combination. Under either model, the Company identifies and determines 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. The 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 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 and segment classification.

Income Taxes

The Company recognized income tax benefit of $22,000 and income tax expense of $3,560,000 for the three months ended March 31, 2024 and 2023, respectively. The income tax expense for the three months ended March 31, 2023 is primarily related to The Park 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 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 are generally not included in the lease liability, but recognized as variable lease 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-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 elected the practical expedient to recognize the lease payments on a straight line basis.

8

Lessor Considerations

The Company's 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") 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) non-lease related revenue and (iii) gains or losses on the sale of real estate.

The following table details the Company’s revenue disaggregated by reportable operating segment, further discussed in Note 8, “Segment Reporting,” for the three months ended March 31, 2024 and 2023. Segment information for total revenue excludes real estate assets that were sold from January 1, 2023 through March 31, 2024, or otherwise qualify as held for sale as of March 31, 2024, as described in Note 6, "Real Estate Disposition Activities" (dollars in thousands):

Same StoreOther
Stabilized
Development/
Redevelopment
Non-
allocated (1)
Total
For the three months ended March 31, 2024
Management, development and other fees and other ancillary items$ $ $ $1,795 $1,795 
Non-lease related revenue (2)2,439 1,300 101  3,840 
Total non-lease revenue (3)2,439 1,300 101 1,795 5,635 
Lease income (4)674,806 23,768 7,960  706,534 
Total revenue$677,245 $25,068 $8,061 $1,795 $712,169 
For the three months ended March 31, 2023
Management, development and other fees and other ancillary items$ $ $ $1,066 $1,066 
Non-lease related revenue (2)2,693 1,032 1  3,726 
Total non-lease revenue (3)2,693 1,032 1 1,066 4,792 
Lease income (4)646,547 13,657 3  660,207 
Total revenue$649,240 $14,689 $4 $1,066 $664,999 
__________________________________
(1)Represents third-party property management, developer fees and miscellaneous income and other ancillary items which are not allocated to a reportable segment.
(2)Amounts include revenue streams related to leasing activities that are not considered components of a lease, and revenue streams not related to leasing activities including, but not limited to, application fees, renters insurance fees and vendor revenue sharing.
(3)Represents revenue accounted for under ASC 606.
(4)Represents residential and commercial rental and other lease income, 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 March 31, 2024.

9

Uncollectible Lease Revenue Reserves

The Company assesses the collectability of its lease revenue and receivables on an ongoing basis by (i) assessing the probability of receiving all lease amounts due on a lease-by-lease basis, (ii) reserving all amounts for those leases where collection of substantially all of the 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 $11,482,000 and $16,971,000 for the three months ended March 31, 2024 and 2023, respectively, under ASC 842 and ASC 450.

Recently Issued Accounting Standards

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting - Improvements to Reportable Segment Disclosures, which requires reportable segments disclosures of significant segment expenses provided to the chief operating decision maker (“CODM”) and will be effective for fiscal years beginning after December 15, 2023. The Company is assessing the standard and does not expect the standard to have a material effect on the Company’s financial position or results of operations.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires (i) a tabular rate reconciliation of the reported income tax expense (benefit) from continuing operations into specific categories, (ii) separate disclosure for any reconciling items within certain categories above a quantitative threshold, (iii) disclosure of income taxes paid disaggregated by federal, state and material jurisdictions and (iv) disclosure of income tax expense from continuing operations disaggregated by federal and state. The new standard will be effective for fiscal years beginning after December 15, 2024. The Company is assessing the standard and does not expect the standard to have a material effect on the Company’s financial position or results of operations.


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 $11,591,000 and $11,018,000 for the three months ended March 31, 2024 and 2023, respectively.

10

3.  Debt

The Company's debt, which consists of unsecured notes, mortgage notes payable, the Credit Facility and the Commercial Paper Program, each as defined below, as of March 31, 2024 and December 31, 2023 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 March 31, 2024 and December 31, 2023, 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.
 March 31, 2024December 31, 2023
Fixed rate unsecured notes$7,300,000 3.3 %$7,300,000 3.3 %
Fixed rate mortgage notes payable - conventional and tax-exempt333,892 3.9 %333,892 3.9 %
Variable rate mortgage notes payable - conventional and tax-exempt409,350 5.2 %410,150 5.5 %
Total mortgage notes payable and unsecured notes8,043,242 3.4 %8,044,042 3.5 %
Credit Facility  %  %
Commercial paper  %  %
Total principal outstanding8,043,242 3.4 %8,044,042 3.5 %
Less deferred financing costs and debt discount (1)(59,971)(62,220)
Total$7,983,271 $7,981,822 
_____________________________________
(1)Excludes deferred financing costs and debt discount associated with the Credit Facility and Commercial Paper Program which are included in prepaid expenses and other assets on the accompanying Condensed Consolidated Balance Sheets.

The Company has a $2,250,000,000 revolving variable rate unsecured credit facility with a syndicate of banks (the "Credit Facility") which matures in September 2026. The interest rate that would be applicable to borrowings under the Credit Facility was 6.15% at March 31, 2024 and was composed of (i) the Secured Overnight Financing Rate ("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 0.805% per annum, which consisted 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 the Company's unsecured senior notes. 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 the Company's unsecured senior notes. 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 our achievement of sustainability targets.

The availability on the Company's Credit Facility as of March 31, 2024 and December 31, 2023, respectively, was as follows (dollars in thousands):
 March 31, 2024December 31, 2023
Credit Facility commitment$2,250,000 $2,250,000 
Credit Facility outstanding  
Commercial paper outstanding  
Letters of credit outstanding (1)(1,914)(1,914)
Total Credit Facility available$2,248,086 $2,248,086 
_____________________________________
(1)In addition, the Company had $68,770 and $58,116 outstanding in additional letters of credit unrelated to the Credit Facility as of March 31, 2024 and December 31, 2023, 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. 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
11

than one year. 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.

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 $1,271,040,000, excluding communities classified as held for sale, as of March 31, 2024).

Scheduled payments and maturities of secured notes payable and unsecured notes outstanding at March 31, 2024 were as follows (dollars in thousands):

YearSecured notes principal
payments and maturities
Unsecured notes maturitiesStated interest rate of
 unsecured notes
2024$8,793 $300,000 3.50 %
202510,765 525,000 3.45 %
300,000 3.50 %
202611,811 475,000 2.95 %
300,000 2.90 %
2027250,159 400,000 3.35 %
202818,902 450,000 3.20 %
400,000 1.90 %
2029132,661 450,000 3.30 %
20309,100 700,000 2.30 %
20319,700 600,000 2.45 %
203210,400 700,000 2.05 %
203312,000 350,000 5.00 %
400,000 5.30 %
Thereafter268,951 350,000 3.90 %
300,000 4.15 %
300,000 4.35 %
 $743,242 $7,300,000  

The Company was in compliance at March 31, 2024 with customary covenants under the Credit Facility and the indentures under which the unsecured notes were issued.

4.  Equity

As of March 31, 2024 and December 31, 2023, 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 three months ended March 31, 2024, the Company:

i.issued 3,142 shares of common stock in connection with stock options exercised;
ii.issued 939 shares of common stock through the Company's dividend reinvestment plan;
iii.issued 248,420 shares of common stock in connection with restricted stock grants and the conversion of performance awards to shares of common stock;
iv.withheld 91,446 shares of common stock to satisfy employees' tax withholding and other liabilities; and
v.canceled 1,753 shares of restricted common stock upon forfeiture.

Deferred compensation granted under the Company's Second Amended and Restated 2009 Equity Incentive Plan (the "Plan") does not impact the Company's Condensed Consolidated Financial Statements until recognized as compensation cost.

The Company has a continuous equity program (the "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 months ended March 31, 2024 and 2023, the Company had no sales under this program. As of March 31, 2024, the Company had $705,961,000 remaining authorized for issuance under the CEP.
12


The Company has a stock repurchase program under which the Company may acquire shares of its common stock in open market or negotiated transactions up to an aggregate purchase price of $500,000,000 (the "Stock Repurchase Program"). During the three months ended March 31, 2024, the Company had no repurchases of shares under this program. As of March 31, 2024, the Company had $314,237,000 remaining authorized for purchase under this program. During the three months ended March 31, 2023, the Company repurchased 7,000 shares of common stock at an average price of $161.29 per share.

5.  Investments

Structured Investment Program

The Company operates a Structured Investment Program (the “SIP”), an investment platform through which the Company provides mezzanine loans or preferred equity to third-party multifamily developers. As of March 31, 2024, the Company had seven commitments to fund up to $191,585,000 in the aggregate. The Company's investment commitments have a weighted average rate of return of 11.5% and a weighted average initial maturity date of December 2026. At March 31, 2024, the Company had funded $117,321,000 of these commitments. The Company recognized interest income of $3,176,000 and $872,000 from its SIP for the three months ended March 31, 2024 and 2023, respectively. Interest income and any change in the expected credit loss are included as a component of income from unconsolidated investments, on the accompanying Condensed Consolidated Statements of Comprehensive Income.

The Company evaluates each SIP commitment to determine the classification as a loan or an investment in a real estate development project. As of March 31, 2024, all of the SIP commitments 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 commitment 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 commitment-specific risk characteristics, such as the amount of equity capital provided by a borrower, nature of the real estate being developed or other factors.

Unconsolidated Investments

As of March 31, 2024, the Company had investments in five unconsolidated entities with real estate entities holdings, with ownership interest percentages ranging from 20.0% to 50.0%, coupled with other unconsolidated investments including property technology and environmentally focused companies and investment management funds. For the Arts District joint venture, which owns an apartment community that completed development during the three months ended March 31, 2024 and in which the Company has an ownership interest of 25.0%, the Company has provided the lender a payment guarantee for 30% of the venture's construction loan maximum borrowing capacity, on behalf of the venture. At March 31, 2024, the construction loan had an outstanding balance of $142,348,000 and maximum borrowing capacity of $167,147,000. Any amounts payable under the 30% construction loan guarantee by the Company are obligations of the venture partners in proportion to their ownership interest, and in the event the Company is obligated to perform under its construction loan guarantee, its joint venture partner is obligated to reimburse the Company for 75% of amounts paid. The Company accounts for its unconsolidated investments 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 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.
13


Expensed Transaction, Development and Other Pursuit Costs

The Company capitalizes costs associated with its development activities to the basis of land held when future development is probable ("Development Rights"), 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. If the Company determines a Development Right is no longer probable, the Company recognizes any necessary expense to write down its basis in the Development Right. The Company assesses its portfolio of land held for development as well as for 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. The Company expensed costs related to development pursuits not yet considered probable for development and other development related activity, in the amounts of $4,245,000 and $2,992,000 for the three months ended March 31, 2024 and 2023, 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. These costs can vary greatly, and the costs incurred in any given period may be significantly different in future periods.

Casualty and Impairment of Long-Lived Assets

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, for the three months ended March 31, 2024 and 2023, the Company did not recognize any material impairment losses. For the three months ended March 31, 2024 and 2023, the Company recognized charges of $2,935,000 and $5,051,000, respectively, for the property and casualty damage to certain of the Company's communities, reported as casualty and impairment loss on the accompanying Condensed Consolidated Statements of Comprehensive Income. The charge for the three months ended March 31, 2024, relates to damage at communities in California from extensive rainfall and a fire at a community in New Jersey. The charge for the three months ended March 31, 2023, relates to damage to certain communities in the Northeast and California regions from severe weather.

The Company evaluates its unconsolidated investments for other than temporary impairment, considering both whether 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. The Company did not recognize any other than temporary impairment losses during the three months ended March 31, 2024 and 2023.

6.  Real Estate Disposition Activities

At March 31, 2024, the Company had one real estate asset that qualified as held for sale.


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7. Commitments and Contingencies

Legal Contingencies

The Company recognizes a loss associated with contingent legal matters when the loss is probable and estimable.

In 2022 and early 2023, the Company was 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 plaintiffs' 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 July 2023, which resulted in the Company being dismissed without prejudice from these cases. Subsequently, on November 1, 2023, the District of Columbia filed a lawsuit in the Superior Court of 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.

The Company is involved in various other 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 other outstanding litigation matters, individually or in the aggregate, will have a material adverse effect on its financial condition or results of operations.

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 14 leases for its corporate and regional offices with varying terms through 2031, all of which are operating leases.

As of March 31, 2024 and December 31, 2023, the Company had total operating lease assets of $104,053,000 and $106,146,000, respectively, and lease obligations of $130,929,000 and $133,220,000, respectively, reported as components of right of use lease assets and lease liabilities, respectively, on the accompanying Condensed Consolidated Balance Sheets. The Company incurred costs of $4,171,000 and $4,005,000 for the three months ended March 31, 2024 and 2023, 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 March 31, 2024 and December 31, 2023, the Company had total finance lease assets of $28,421,000 and $28,528,000, respectively, and total finance lease obligations of $19,997,000 and $20,012,000, respectively, reported as components of right of use lease assets and lease liabilities on the accompanying Condensed Consolidated Balance Sheets.

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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 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), property management and other indirect operating expenses, net of corporate income, 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 unconsolidated investments, depreciation expense, income tax expense, casualty and impairment loss, gain on sale of communities, other real estate 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 1.7% and 1.8% of total NOI for the three months ended March 31, 2024 and 2023, 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 and consistent with how the Company's CODM evaluates total NOI.

In conjunction with the Company’s continued centralization of operating activities into a shared services model, the Company changed its presentation for centralized shared service costs to reflect these platform costs in property management and other indirect operating expenses, net of corporate income for all periods presented. Total property management and other indirect operating expenses, net of corporate income for the three months ended March 31, 2023 as presented in the following table includes $3,152,000 of shared services costs for this change.

A reconciliation of NOI to net income for the three months ended March 31, 2024 and 2023 is as follows (dollars in thousands):
 For the three months ended March 31,
 20242023
Net income$173,557 $146,775 
Property management and other indirect operating expenses, net of corporate income35,204 33,936 
Expensed transaction, development and other pursuit costs, net of recoveries4,245 2,992 
Interest expense, net54,766 56,821 
General and administrative expense20,331 20,400 
Income from unconsolidated investments(10,847)(4,845)
Depreciation expense212,269 204,743 
Income tax (benefit) expense(22)3,560 
Casualty and impairment loss2,935 5,051 
Other real estate activity(71)(116)
Net operating income from real estate assets sold or held for sale(426)(6,950)
        Net operating income$491,941 $462,367 

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 March 31,
20242023
Rental income from real estate assets sold or held for sale$690 $9,709 
Operating expenses from real estate assets sold or held for sale(264)(2,759)
Net operating income from real estate assets sold or held for sale$426 $6,950 

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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, 2024. Segment information for the three months ended March 31, 2024 and 2023 has been adjusted to exclude the real estate assets that were sold from January 1, 2023 through March 31, 2024, or otherwise qualify as held for sale as of March 31, 2024, as described in Note 6, "Real Estate Disposition Activities."
 For the three months ended
 Total
revenue
NOIGross real estate (1)
For the period ended March 31, 2024 
Same Store   
New England$96,751 $65,446 $3,051,656 
Metro NY/NJ135,746 93,172 4,415,604 
Mid-Atlantic101,839 71,212 3,744,801 
Southeast Florida24,439 15,867 1,099,114 
Denver, CO10,129 7,398 505,411 
Pacific Northwest43,217 30,983 1,526,666 
Northern California107,226 76,042 3,799,061 
Southern California149,423 105,061 5,124,742 
Other Expansion Regions8,475 5,547 476,617 
Total Same Store677,245 470,728 23,743,672 
Other Stabilized25,068 16,818 1,272,905 
Development / Redevelopment8,061 4,395 1,785,038 
Land Held for DevelopmentN/AN/A211,546 
Non-allocated (2)1,795 N/A70,510 
Total$712,169 $491,941 $27,083,671 
For the period ended March 31, 2023 
Same Store   
New England$92,374 $61,900 $3,021,096 
Metro NY/NJ130,153 90,876 4,407,248 
Mid-Atlantic98,111 69,697 3,702,562 
Southeast Florida24,413 16,273 1,093,779 
Denver, CO9,843 7,282 504,164 
Pacific Northwest41,955 30,207 1,515,510 
Northern California105,145 75,254 3,771,728 
Southern California138,928 95,927 5,063,271 
Other Expansion Regions8,318 5,562 473,286 
Total Same Store649,240 452,978 23,552,644 
Other Stabilized14,689 9,679 962,630 
Development / Redevelopment4 (290)1,004,656 
Land Held for DevelopmentN/AN/A177,889 
Non-allocated (2)1,066 N/A69,564 
Total$664,999 $462,367 $25,767,383 
__________________________________
(1)Does not include gross real estate assets held for sale of $20,953 as of March 31, 2024 and gross real estate either sold or classified as held for sale subsequent to March 31, 2023 of $266,346.
(2)Revenue represents third-party property management, developer fees and miscellaneous income and other ancillary items which are not allocated to a reportable segment.

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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 Plan. Details of the outstanding awards and activity under the Plan for the three months ended March 31, 2024 are presented below.



Stock Options:
OptionsWeighted average
exercise price
per option
Options Outstanding at December 31, 2023303,784 $181.99 
Granted (1)13,759 172.11 
Exercised(3,142)180.32 
Forfeited  
Expired(5,062)180.32 
Options Outstanding at March 31, 2024309,339 $181.60 
Options Exercisable at March 31, 2024281,817 $181.57 
__________________________________
(1)All options are from recipient elections to receive a portion of earned restricted stock awards in the form of stock options.

Performance Awards:
Performance awardsWeighted average grant date fair value per award
Outstanding at December 31, 2023275,202 $210.52 
  Granted (1)87,748 178.68 
  Change in awards based on performance (2)30,375 216.50 
  Converted to shares of common stock(146,725)201.07 
  Forfeited(1,663)213.27 
Outstanding at March 31, 2024244,937 $205.49 
__________________________________
(1)The shares of common stock that may be earned is based on the total shareholder return metrics for the Company's common stock for 48,264 performance awards and financial metrics related to operating performance and leverage metrics of the Company for 39,484 performance awards.
(2)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 2024, the assumptions used are as follows:
2024
Dividend yield4.0%
Estimated volatility over the life of the plan (1)
20.5% - 22.8%
Risk free rate
4.39% - 4.59%
Estimated performance award value based on total shareholder return measure$183.72
__________________________________
(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 2024 for which achievement will be determined by using financial metrics, the compensation cost was based on an average grant date value of $172.11.

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Restricted Stock:
Restricted stock sharesWeighted average grant date fair value per share
Outstanding at December 31, 2023173,291 $194.68 
  Granted101,695 172.13 
  Vested(80,632)193.98 
  Forfeited(1,753)191.88 
Outstanding at March 31, 2024192,601 $183.09 

Total employee stock-based compensation cost recognized in income was $5,910,000 and $8,018,000 for the three months ended March 31, 2024 and 2023, respectively, and total capitalized stock-based compensation cost was $2,570,000 and $3,284,000 for the three months ended March 31, 2024 and 2023, respectively. At March 31, 2024, there was a total unrecognized compensation cost of $52,764,000 for unvested restricted stock, stock options and performance awards, which is expected to be recognized over a weighted average period of 2.3 years. Forfeitures are included in compensation cost as they occur.

10.  Related Party Arrangements

Unconsolidated Entities

The Company manages unconsolidated real estate entities and provides 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 $1,795,000 and $1,066,000 for the three months ended March 31, 2024 and 2023, respectively. In addition, the Company had outstanding receivables associated with its property and construction management roles of $9,240,000 and $7,946,000 as of March 31, 2024 and December 31, 2023, respectively.

Director Compensation

The Company recorded non-employee director compensation expense relating to restricted stock grants and deferred stock units in the amount of $596,000 and $615,000 for the three months ended March 31, 2024 and 2023, 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 $321,000 and $799,000 on March 31, 2024 and December 31, 2023, 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 or equivalent, 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, which the Company concluded are not significant. As a result, the Company has determined that its derivative valuations are classified in Level 2 of the fair value hierarchy.

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The following table summarizes the consolidated derivative positions at March 31, 2024 (dollars in thousands):
Non-designated HedgesCash Flow Hedges
Interest Rate CapsInterest Rate Swaps
Notional balance$391,846$250,000
Weighted average interest rate (1)5.2 %N/A
Weighted average capped/swapped interest rate6.7 %3.2 %
Earliest maturity dateFebruary 2026June 2024
Latest maturity dateJanuary 2027February 2025
____________________________________
(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.

During the three months ended March 31, 2024, the Company entered into $50,000,000 of new forward interest rate swap agreements to reduce the impact of variability in interest rates on a portion of the Company's anticipated future debt issuance activity. As of March 31, 2024, the Company had $250,000,000 in aggregate outstanding pay fixed interest rate swap agreements that were entered into as hedges of changes in interest rates for our anticipated future debt issuance activity. 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 certain derivatives not designated as hedges during the three months ended March 31, 2024 and 2023, for which fair value changes during each of the respective periods were not material.

Cash flow hedge losses reclassified from accumulated other comprehensive income into earnings were $146,000 and $354,000 for the three months ended March 31, 2024 and 2023, respectively.

The Company anticipates reclassifying approximately $582,000 of net hedging losses from accumulated other comprehensive income into earnings within the next 12 months as an offset to the hedged item during this period.

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.

Financial Instruments Not Carried at Fair Value

Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalent and restricted cash 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, cash equivalents and restricted cash balances with any one financial institution and believes the likelihood of realizing material losses related to cash, cash equivalent and restricted cash balances is remote. Cash, cash equivalents and restricted cash are carried at their face amounts, which reasonably approximate their fair values and are Level 1 within the fair value hierarchy.

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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 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 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):
March 31, 2024
DescriptionTotal Fair ValueQuoted Prices
in Active
Markets for Identical Assets
(Level 1)
Significant
Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Assets
Investments
Notes Receivable, net$141,239 $— $141,239 $— 
Non Designated Hedges
Interest Rate Caps46 — 46 — 
Interest Rate Swaps - Assets12,340 — 12,340 — 
Total Assets$153,625 $ $153,625 $ 
Liabilities
Indebtedness
Fixed rate unsecured notes$6,651,672 $6,651,672 $— $— 
Mortgage notes payable and Commercial Paper Program
654,860 — 654,860 — 
Total Liabilities$7,306,532 $6,651,672 $654,860 $ 
21

December 31, 2023
DescriptionTotal Fair ValueQuoted Prices
in Active
Markets for Identical Asset
(Level 1)
Significant
Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Assets
Investments
Notes Receivable, net$118,127 $— $118,127 $— 
Non Designated Hedges
Interest Rate Caps85 — 85 — 
Interest Rate Swaps - Assets5,163 — 5,163 — 
Total Assets$123,375 $ $123,375 $ 
Liabilities
Interest Rate Swaps - Liabilities$162 $— $162 $— 
Indebtedness
Fixed rate unsecured notes6,716,631 6,716,631 — — 
Mortgage notes payable and Commercial Paper Program
644,313 — 644,313 — 
Total Liabilities$7,361,106 $6,716,631 $644,475 $ 
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 April 2024, the Company entered into agreements to sell two wholly-owned communities containing an aggregate of 554 apartment homes and net operating real estate of $188,752,000 as of March 31, 2024, resulting in the communities qualifying as held for sale subsequent to March 31, 2024. The Company expects to complete the sales in the second and third quarter of 2024.

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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, 2023 (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

AvalonBay Communities, Inc. (the “Company,” “we,” “our” and “us” which terms, unless the context otherwise requires, refer 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. 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 regions of Raleigh-Durham and Charlotte, North Carolina, Southeast Florida, Dallas and Austin, Texas, and Denver, Colorado. We focus on leading metropolitan areas that we believe are generally characterized by growing employment in high wage sectors of the economy, higher cost of home ownership and a diverse and vibrant quality of life. We believe these market characteristics have offered, and will continue to offer, the opportunity for superior risk-adjusted returns over the long-term on apartment community investments relative to other markets that do not have these characteristics.

Our principal financial goal is to increase long-term shareholder value through the development, redevelopment, acquisition, ownership, operation and asset management and, when appropriate, disposition of apartment communities in our markets. To help meet this goal, we regularly (i) monitor our investment allocation by geographic market and product type, (ii) develop, redevelop and acquire interests in apartment communities in our selected markets, (iii) efficiently operate our communities to maximize resident satisfaction and shareholder return, (iv) selectively sell apartment communities that no longer meet our long term strategy or when opportunities are presented to realize a portion of the value created through our investment and redeploy the proceeds from those sales and (v) maintain a capital structure that we believe is aligned with our business risks and allows us to maintain continuous access to cost-effective capital. We pursue our development, redevelopment, investment and operating activities with the purpose of “Creating a Better Way to Live.”

First Quarter 2024 Operating Highlights

Net income attributable to common stockholders for the three months ended March 31, 2024 was $173,449,000, an increase of $26,547,000, or 18.1%, from the prior year period. The increase is primarily attributable to 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 March 31, 2024 was $463,741,000, an increase of $16,671,000, or 3.7%, over the prior year period. The increase over the prior year period was due to an increase in Residential revenue of $26,845,000, or 4.2%, partially offset by an increase in Residential property operating expenses of $10,174,000, or 5.2%.

First Quarter 2024 Development Highlights

At March 31, 2024, we owned or held a direct or indirect interest in:

17 wholly-owned communities under construction, which are expected to contain 6,064 apartment homes with a projected total capitalized cost of $2,500,000,000.

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Land or rights to land on which we expect to develop an additional 32 apartment communities that, if developed as expected, will contain 11,167 apartment homes.

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, 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, or if something occurs that materially impacts the operations of a community such as a casualty loss. The following is a description of each category:

Current Communities are categorized as Same Store, Other Stabilized, 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 prior year period. For the three month periods ended March 31, 2024 and 2023, Same Store communities are consolidated for financial reporting purposes, had stabilized occupancy as of January 1, 2023, are not conducting or are not probable to conduct substantial redevelopment activities and are not held for sale as of March 31, 2024 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 which have stabilized occupancy, as defined above, as of January 1, 2024, or which were acquired subsequent to January 1, 2023. Other Stabilized excludes communities that are conducting or are probable to conduct substantial redevelopment activities within the current year, as defined below.

Redevelopment is composed of consolidated communities where substantial redevelopment occurred or is in progress. Redevelopment is considered substantial when (i) capital invested 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, were under construction and were completed during the current year or where construction has been complete for less than one year and that do not have stabilized occupancy. 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.

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As of March 31, 2024, communities that we owned or held a direct or indirect interest in were classified as follows:
Number of
communities
Number of
apartment homes
Current Communities  
Same Store:  
New England40 9,927 
Metro NY/NJ41 12,766 
Mid-Atlantic42 14,482 
Southeast Florida2,837 
Denver, CO1,539 
Pacific Northwest19 5,374 
Northern California40 12,137 
Southern California59 17,934 
Other Expansion Regions1,381 
Total Same Store261 78,377 
Other Stabilized:  
New England401 
Metro NY/NJ689 
Mid-Atlantic714 
Southeast Florida— — 
Denver, CO— — 
Pacific Northwest100 
Northern California— — 
Southern California— — 
Other Expansion Regions1,131 
Total Other Stabilized10 3,035 
Redevelopment— — 
Unconsolidated2,722 
Total Current 280 84,134 
Development 19 6,539 
Unconsolidated Development — — 
Total Communities299 90,673 
Development Rights32 11,167 

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Results of Operations

Our results of operations are driven by our operating platform and are 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. A comparison of our operating results for the three months ended March 31, 2024 and 2023 is as follows (unaudited, dollars in thousands).

 For the three months ended March 31,March 31, 2024 vs. 2023
 20242023$ Change% Change
Revenue:    
Rental and other income$711,064 $673,642 $37,422 5.6 %
Management, development and other fees1,795 1,066 729 68.4 %
Total revenue712,859 674,708 38,151 5.7 %
Expenses:    
Direct property operating expenses, excluding property taxes