false--12-31Q12020truefalse00009159121.521.590.010.012800000001406439621407333401406439621407333400.00430.0090.00850000004687500012227600025250.010.0150000000000000.1550.1110.01620.0145 0000915912 2020-01-01 2020-03-31 0000915912 2020-04-30 0000915912 2020-03-31 0000915912 2019-12-31 0000915912 2019-01-01 2019-03-31 0000915912 2019-03-31 0000915912 2018-12-31 0000915912 us-gaap:RestrictedStockMember 2019-01-01 2019-03-31 0000915912 avb:NewOfficeLeasesMember 2020-03-31 0000915912 us-gaap:RestrictedStockMember 2020-01-01 2020-03-31 0000915912 us-gaap:RetainedEarningsMember 2020-01-01 2020-03-31 0000915912 avb:RestrictedStockandRestrictedStockConvertedFromPerformanceSharesMember 2020-01-01 2020-03-31 0000915912 us-gaap:CommonStockMember 2019-03-31 0000915912 avb:RestrictedStockConvertedFromPerformanceSharesMember 2019-01-01 2019-03-31 0000915912 us-gaap:RetainedEarningsMember 2019-01-01 2019-03-31 0000915912 avb:RestrictedStockandRestrictedStockConvertedFromPerformanceSharesMember 2019-01-01 2019-03-31 0000915912 us-gaap:AccountingStandardsUpdate201602Member 2019-01-01 0000915912 us-gaap:CommonStockMember 2020-03-31 0000915912 avb:RestrictedStockConvertedFromPerformanceSharesMember 2020-01-01 2020-03-31 0000915912 us-gaap:CorporateNonSegmentMember us-gaap:SegmentContinuingOperationsMember 2020-01-01 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:RentalAndNonRentalMember avb:DevelopmentRedevelopmentCommunitiesMember us-gaap:SegmentContinuingOperationsMember 2020-01-01 2020-03-31 0000915912 us-gaap:CorporateNonSegmentMember avb:ManagementDevelopmentAndOtherMember us-gaap:SegmentContinuingOperationsMember 2020-01-01 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:EstablishedCommunitiesMember us-gaap:SegmentContinuingOperationsMember 2019-01-01 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:RentalAndNonRentalMember avb:EstablishedCommunitiesMember us-gaap:SegmentContinuingOperationsMember 2019-01-01 2019-03-31 0000915912 us-gaap:CorporateNonSegmentMember avb:RentalAndNonRentalMember us-gaap:SegmentContinuingOperationsMember 2020-01-01 2020-03-31 0000915912 us-gaap:CorporateNonSegmentMember us-gaap:SegmentContinuingOperationsMember 2019-01-01 2019-03-31 0000915912 us-gaap:SegmentContinuingOperationsMember 2020-01-01 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:OtherStabilizedCommunitiesMember us-gaap:SegmentContinuingOperationsMember 2019-01-01 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:ManagementDevelopmentAndOtherMember avb:OtherStabilizedCommunitiesMember us-gaap:SegmentContinuingOperationsMember 2020-01-01 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:DevelopmentRedevelopmentCommunitiesMember us-gaap:SegmentContinuingOperationsMember 2019-01-01 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:ManagementDevelopmentAndOtherMember avb:DevelopmentRedevelopmentCommunitiesMember us-gaap:SegmentContinuingOperationsMember 2019-01-01 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:DevelopmentRedevelopmentCommunitiesMember us-gaap:SegmentContinuingOperationsMember 2020-01-01 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:ManagementDevelopmentAndOtherMember avb:EstablishedCommunitiesMember us-gaap:SegmentContinuingOperationsMember 2019-01-01 2019-03-31 0000915912 us-gaap:CorporateNonSegmentMember avb:ManagementDevelopmentAndOtherMember us-gaap:SegmentContinuingOperationsMember 2019-01-01 2019-03-31 0000915912 avb:RentalAndNonRentalMember us-gaap:SegmentContinuingOperationsMember 2020-01-01 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:RentalAndNonRentalMember avb:EstablishedCommunitiesMember us-gaap:SegmentContinuingOperationsMember 2020-01-01 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:RentalAndNonRentalMember avb:DevelopmentRedevelopmentCommunitiesMember us-gaap:SegmentContinuingOperationsMember 2019-01-01 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:RentalAndNonRentalMember avb:OtherStabilizedCommunitiesMember us-gaap:SegmentContinuingOperationsMember 2019-01-01 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:ManagementDevelopmentAndOtherMember avb:EstablishedCommunitiesMember us-gaap:SegmentContinuingOperationsMember 2020-01-01 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:EstablishedCommunitiesMember us-gaap:SegmentContinuingOperationsMember 2020-01-01 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:OtherStabilizedCommunitiesMember us-gaap:SegmentContinuingOperationsMember 2020-01-01 2020-03-31 0000915912 us-gaap:SegmentContinuingOperationsMember 2019-01-01 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:ManagementDevelopmentAndOtherMember avb:DevelopmentRedevelopmentCommunitiesMember us-gaap:SegmentContinuingOperationsMember 2020-01-01 2020-03-31 0000915912 avb:ManagementDevelopmentAndOtherMember us-gaap:SegmentContinuingOperationsMember 2020-01-01 2020-03-31 0000915912 avb:ManagementDevelopmentAndOtherMember us-gaap:SegmentContinuingOperationsMember 2019-01-01 2019-03-31 0000915912 us-gaap:CorporateNonSegmentMember avb:RentalAndNonRentalMember us-gaap:SegmentContinuingOperationsMember 2019-01-01 2019-03-31 0000915912 avb:RentalAndNonRentalMember us-gaap:SegmentContinuingOperationsMember 2019-01-01 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:RentalAndNonRentalMember avb:OtherStabilizedCommunitiesMember us-gaap:SegmentContinuingOperationsMember 2020-01-01 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:ManagementDevelopmentAndOtherMember avb:OtherStabilizedCommunitiesMember us-gaap:SegmentContinuingOperationsMember 2019-01-01 2019-03-31 0000915912 avb:TheParkLoggiaMember 2020-03-31 0000915912 avb:FixedRateMortgageNotesPayableMember 2020-03-31 0000915912 avb:UnsecuredNotes2.30PercentMember us-gaap:UnsecuredDebtMember 2020-03-31 0000915912 avb:OtherLetterofCreditMember 2020-03-31 0000915912 avb:VariableRateMortgageNotesPayableUnsecuredTermLoanAndCreditFacilityMember 2020-03-31 0000915912 avb:NotesPayable3.625Maturities2020Member us-gaap:UnsecuredDebtMember 2020-01-01 2020-03-31 0000915912 us-gaap:SecuredDebtMember 2020-03-31 0000915912 avb:NotesPayableMaturities2021Member us-gaap:UnsecuredDebtMember 2020-01-01 2020-03-31 0000915912 us-gaap:UnsecuredDebtMember 2020-03-31 0000915912 us-gaap:UnsecuredDebtMember 2019-12-31 0000915912 avb:NotesPayable3.625Maturities2020Member us-gaap:UnsecuredDebtMember 2020-03-31 0000915912 avb:NotesPayable3.625Maturities2020and2021Member us-gaap:UnsecuredDebtMember 2020-01-01 2020-03-31 0000915912 us-gaap:LineOfCreditMember us-gaap:LondonInterbankOfferedRateLIBORMember 2020-03-31 0000915912 avb:AvalonSanBrunoIIIMember avb:NotesPayableMaturities2027Member us-gaap:SecuredDebtMember 2020-03-31 0000915912 us-gaap:LineOfCreditMember 2020-03-31 0000915912 us-gaap:SecuredDebtMember 2019-12-31 0000915912 us-gaap:LineOfCreditMember 2019-12-31 0000915912 avb:VariableRateMortgageNotesPayableUnsecuredTermLoanAndCreditFacilityMember 2019-12-31 0000915912 us-gaap:LineOfCreditMember us-gaap:LondonInterbankOfferedRateLIBORMember 2020-01-01 2020-03-31 0000915912 us-gaap:LineOfCreditMember 2020-01-01 2020-03-31 0000915912 avb:NotesPayableMaturities2021Member us-gaap:UnsecuredDebtMember 2020-03-31 0000915912 avb:UnsecuredNotes2.30PercentMember 2020-03-31 0000915912 avb:NotesPayableMaturities2020Member 2020-03-31 0000915912 avb:NotesPayableMaturities2027Member 2020-03-31 0000915912 avb:FixedRateMortgageNotesPayableMember 2019-12-31 0000915912 avb:UnsecuredNotes2.30PercentMember 2020-01-01 2020-03-31 0000915912 avb:NotesPayableMaturities2023Member us-gaap:SecuredDebtMember 2020-03-31 0000915912 avb:NotesPayable2.850Maturities2023Member us-gaap:UnsecuredDebtMember 2020-03-31 0000915912 avb:NotesPayableMaturities2022Member us-gaap:UnsecuredDebtMember 2020-03-31 0000915912 avb:NotesPayableMaturities2027Member us-gaap:SecuredDebtMember 2020-03-31 0000915912 avb:NotesPayableMaturitiesThereafterMember us-gaap:SecuredDebtMember 2020-03-31 0000915912 avb:FloatingRateUnsecuredNotes300MillionMember us-gaap:UnsecuredDebtMember 2020-03-31 0000915912 avb:NotesPayableMaturities2020Member us-gaap:SecuredDebtMember 2020-03-31 0000915912 avb:NotesPayable4.200Maturities2023Member us-gaap:UnsecuredDebtMember 2020-03-31 0000915912 avb:NotesPayableMaturities2022Member us-gaap:SecuredDebtMember 2020-03-31 0000915912 avb:NotesPayableMaturities2047Member us-gaap:UnsecuredDebtMember 2020-03-31 0000915912 avb:NotesPayableMaturities2021Member us-gaap:SecuredDebtMember 2020-03-31 0000915912 avb:NotesPayableMaturities2027Member us-gaap:UnsecuredDebtMember 2020-03-31 0000915912 avb:NotesPayable2.900Maturities2026Member us-gaap:UnsecuredDebtMember 2020-03-31 0000915912 avb:NotesPayableMaturities2026Member us-gaap:SecuredDebtMember 2020-03-31 0000915912 avb:VariableRateUnsecuredTermLoan150MillionMember us-gaap:UnsecuredDebtMember 2020-03-31 0000915912 avb:NotesPayableMaturities2024Member us-gaap:SecuredDebtMember 2020-03-31 0000915912 avb:NotesPayable2.950Maturities2026Member us-gaap:UnsecuredDebtMember 2020-03-31 0000915912 avb:NotesPayableMaturities2048Member us-gaap:UnsecuredDebtMember 2020-03-31 0000915912 avb:NotesPayableMaturities2028Member us-gaap:UnsecuredDebtMember 2020-03-31 0000915912 avb:NotesPayable3.450Maturities2025Member us-gaap:UnsecuredDebtMember 2020-03-31 0000915912 avb:NotesPayableMaturities2046Member us-gaap:UnsecuredDebtMember 2020-03-31 0000915912 avb:NotesPayable3.500Maturities2025Member us-gaap:UnsecuredDebtMember 2020-03-31 0000915912 avb:NotesPayableMaturities2028Member us-gaap:SecuredDebtMember 2020-03-31 0000915912 avb:NotesPayableMaturities2029Member us-gaap:UnsecuredDebtMember 2020-03-31 0000915912 avb:NotesPayableMaturities2030Member us-gaap:UnsecuredDebtMember 2020-03-31 0000915912 avb:NotesPayableMaturities2029Member us-gaap:SecuredDebtMember 2020-03-31 0000915912 avb:NotesPayableMaturities2025Member us-gaap:SecuredDebtMember 2020-03-31 0000915912 avb:NotesPayableMaturities2024Member us-gaap:UnsecuredDebtMember 2020-03-31 0000915912 avb:VariableRateUnsecuredTermLoan100MillionMember us-gaap:UnsecuredDebtMember 2020-03-31 0000915912 avb:VariableRateUnsecuredTermLoanMember 2019-12-31 0000915912 avb:VariableRateUnsecuredTermLoanMember 2020-03-31 0000915912 avb:VariableRateUnsecuredTermLoan100MillionMember us-gaap:UnsecuredDebtMember us-gaap:LondonInterbankOfferedRateLIBORMember 2020-01-01 2020-03-31 0000915912 avb:VariableRateUnsecuredTermLoan150MillionMember us-gaap:UnsecuredDebtMember us-gaap:LondonInterbankOfferedRateLIBORMember 2020-01-01 2020-03-31 0000915912 avb:FloatingRateUnsecuredNotes300MillionMember us-gaap:UnsecuredDebtMember us-gaap:LondonInterbankOfferedRateLIBORMember 2020-01-01 2020-03-31 0000915912 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-03-31 0000915912 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-03-31 0000915912 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0000915912 us-gaap:CommonStockMember 2018-12-31 0000915912 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-03-31 0000915912 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0000915912 us-gaap:RetainedEarningsMember 2019-03-31 0000915912 us-gaap:RetainedEarningsMember 2018-12-31 0000915912 us-gaap:CommonStockMember 2019-01-01 2019-03-31 0000915912 us-gaap:AdditionalPaidInCapitalMember 2019-03-31 0000915912 avb:ContinuousEquityProgramCEPVMember 2020-03-31 0000915912 srt:MaximumMember avb:ContinuousEquityProgramCEPVMember 2020-01-01 2020-03-31 0000915912 us-gaap:ParentMember 2020-01-01 2020-03-31 0000915912 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-01-01 2020-03-31 0000915912 us-gaap:RetainedEarningsMember 2019-12-31 0000915912 us-gaap:CommonStockMember 2020-01-01 2020-03-31 0000915912 us-gaap:NoncontrollingInterestMember 2020-01-01 2020-03-31 0000915912 us-gaap:NoncontrollingInterestMember 2019-12-31 0000915912 us-gaap:RetainedEarningsMember 2020-03-31 0000915912 us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0000915912 us-gaap:CommonStockMember 2019-12-31 0000915912 us-gaap:ParentMember 2019-12-31 0000915912 us-gaap:NoncontrollingInterestMember 2020-03-31 0000915912 us-gaap:ParentMember 2020-03-31 0000915912 us-gaap:AdditionalPaidInCapitalMember 2020-01-01 2020-03-31 0000915912 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-03-31 0000915912 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-12-31 0000915912 us-gaap:AdditionalPaidInCapitalMember 2020-03-31 0000915912 avb:ContinuousEquityProgramCEPVMember 2020-01-01 2020-03-31 0000915912 avb:UnconsolidatedRealEstateEntitiesMember 2020-03-31 0000915912 srt:MinimumMember avb:UnconsolidatedRealEstateEntitiesMember 2020-03-31 0000915912 srt:MaximumMember avb:UnconsolidatedRealEstateEntitiesMember 2020-03-31 0000915912 avb:LandParcelMember 2019-01-01 2019-03-31 0000915912 avb:TheParkLoggiaMember avb:DevelopmentCommunitiesMember 2020-01-01 2020-03-31 0000915912 avb:LandParcelMember 2020-01-01 2020-03-31 0000915912 avb:AvalonSheltonMember 2020-01-01 2020-03-31 0000915912 avb:TheParkLoggiaMember 2020-01-01 2020-03-31 0000915912 avb:AssetsHeldunderFinanceLeasesMember 2020-03-31 0000915912 avb:AssetsHeldunderOperatingLeasesMember 2020-03-31 0000915912 avb:PropertiesOnLandSubjectToLandLeasesMember 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:DisposalsMember 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:ExpansionMarketsMember avb:EstablishedCommunitiesMember 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:SouthernCaliforniaMember avb:EstablishedCommunitiesMember 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:PacificNorthwestMember avb:EstablishedCommunitiesMember 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:PacificNorthwestMember avb:EstablishedCommunitiesMember 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:OtherStabilizedCommunitiesMember 2020-01-01 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:NorthernCaliforniaMember avb:EstablishedCommunitiesMember 2020-01-01 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:EstablishedCommunitiesMember 2020-01-01 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:NorthernCaliforniaMember avb:EstablishedCommunitiesMember 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:NewEnglandMember avb:EstablishedCommunitiesMember 2020-01-01 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:DevelopmentRedevelopmentMember 2019-01-01 2019-03-31 0000915912 us-gaap:CorporateNonSegmentMember 2020-01-01 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:SouthernCaliforniaMember avb:EstablishedCommunitiesMember 2020-01-01 2020-03-31 0000915912 us-gaap:CorporateNonSegmentMember 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:ExpansionMarketsMember avb:EstablishedCommunitiesMember 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:OtherStabilizedCommunitiesMember 2019-01-01 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:NorthernCaliforniaMember avb:EstablishedCommunitiesMember 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:MidAtlanticMember avb:EstablishedCommunitiesMember 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:MetroNYNJMember avb:EstablishedCommunitiesMember 2019-01-01 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:ExpansionMarketsMember avb:EstablishedCommunitiesMember 2019-01-01 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:MetroNYNJMember avb:EstablishedCommunitiesMember 2020-01-01 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:DevelopmentRedevelopmentMember 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:DevelopmentRedevelopmentMember 2020-01-01 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:NorthernCaliforniaMember avb:EstablishedCommunitiesMember 2019-01-01 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:EstablishedCommunitiesMember 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:SouthernCaliforniaMember avb:EstablishedCommunitiesMember 2019-01-01 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:OtherStabilizedCommunitiesMember 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:PacificNorthwestMember avb:EstablishedCommunitiesMember 2020-01-01 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:ExpansionMarketsMember avb:EstablishedCommunitiesMember 2020-01-01 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:MidAtlanticMember avb:EstablishedCommunitiesMember 2019-03-31 0000915912 us-gaap:CorporateNonSegmentMember 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:DevelopmentRedevelopmentMember 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:NewEnglandMember avb:EstablishedCommunitiesMember 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:MetroNYNJMember avb:EstablishedCommunitiesMember 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:MidAtlanticMember avb:EstablishedCommunitiesMember 2020-01-01 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:NewEnglandMember avb:EstablishedCommunitiesMember 2019-01-01 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:EstablishedCommunitiesMember 2019-01-01 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:PacificNorthwestMember avb:EstablishedCommunitiesMember 2019-01-01 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:MidAtlanticMember avb:EstablishedCommunitiesMember 2019-01-01 2019-03-31 0000915912 us-gaap:MaterialReconcilingItemsMember 2020-03-31 0000915912 us-gaap:CorporateNonSegmentMember 2019-01-01 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:OtherStabilizedCommunitiesMember 2019-03-31 0000915912 us-gaap:MaterialReconcilingItemsMember 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:SouthernCaliforniaMember avb:EstablishedCommunitiesMember 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:EstablishedCommunitiesMember 2020-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:NewEnglandMember avb:EstablishedCommunitiesMember 2019-03-31 0000915912 us-gaap:OperatingSegmentsMember avb:MetroNYNJMember avb:EstablishedCommunitiesMember 2020-03-31 0000915912 avb:RestrictedStockAndRestrictedStockUnitsMember 2020-03-31 0000915912 us-gaap:PerformanceSharesMember 2020-01-01 2020-03-31 0000915912 avb:RestrictedStockAndRestrictedStockUnitsMember 2020-01-01 2020-03-31 0000915912 us-gaap:PerformanceSharesMember 2020-03-31 0000915912 us-gaap:RestrictedStockMember 2020-03-31 0000915912 us-gaap:RestrictedStockMember 2019-12-31 0000915912 avb:RestrictedStockConvertedFromPerformanceSharesMember 2020-03-31 0000915912 avb:RestrictedStockConvertedFromPerformanceSharesMember 2019-12-31 0000915912 avb:EmployeeAndDirectorsStockOptionsMember avb:StockOptionAndIncentivePlan2009Member 2020-01-01 2020-03-31 0000915912 avb:EmployeeAndDirectorsStockOptionsMember avb:StockOptionAndIncentivePlan2009Member 2019-12-31 0000915912 avb:EmployeeAndDirectorsStockOptionsMember avb:StockOptionAndIncentivePlan2009Member 2020-03-31 0000915912 us-gaap:PerformanceSharesMember 2019-12-31 0000915912 us-gaap:DeferredCompensationShareBasedPaymentsMember avb:NonEmployeeDirectorMember 2019-01-01 2019-03-31 0000915912 avb:UnconsolidatedRealEstateEntitiesMember 2019-12-31 0000915912 us-gaap:DeferredCompensationShareBasedPaymentsMember avb:NonEmployeeDirectorMember 2019-12-31 0000915912 us-gaap:DeferredCompensationShareBasedPaymentsMember avb:NonEmployeeDirectorMember 2020-03-31 0000915912 avb:UnconsolidatedRealEstateEntitiesMember 2020-03-31 0000915912 us-gaap:DeferredCompensationShareBasedPaymentsMember avb:NonEmployeeDirectorMember 2020-01-01 2020-03-31 0000915912 us-gaap:InterestRateCapMember us-gaap:NondesignatedMember 2020-03-31 0000915912 us-gaap:InterestRateSwapMember us-gaap:CashFlowHedgingMember 2020-03-31 0000915912 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember avb:SecuredDebtandVariableRateUnsecuredIndebtednessMember 2020-03-31 0000915912 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000915912 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000915912 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueMeasurementsRecurringMember us-gaap:UnsecuredDebtMember 2020-03-31 0000915912 us-gaap:InterestRateSwapMember us-gaap:CashFlowHedgingMember us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000915912 us-gaap:InterestRateSwapMember us-gaap:CashFlowHedgingMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000915912 us-gaap:PutOptionMember us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000915912 us-gaap:InterestRateCapMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:NondesignatedMember 2020-03-31 0000915912 us-gaap:PutOptionMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000915912 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueMeasurementsRecurringMember avb:SecuredDebtandVariableRateUnsecuredIndebtednessMember 2020-03-31 0000915912 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000915912 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000915912 us-gaap:InterestRateCapMember us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueMeasurementsRecurringMember us-gaap:NondesignatedMember 2020-03-31 0000915912 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:UnsecuredDebtMember 2020-03-31 0000915912 us-gaap:CashFlowHedgingMember 2020-03-31 0000915912 us-gaap:PutOptionMember 2020-01-01 2020-03-31 0000915912 us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember 2020-01-01 2020-03-31 0000915912 us-gaap:NondesignatedMember 2020-03-31 0000915912 us-gaap:InterestRateSwapMember us-gaap:CashFlowHedgingMember 2020-01-01 2020-03-31 0000915912 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000915912 us-gaap:InterestRateSwapMember us-gaap:CashFlowHedgingMember us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000915912 us-gaap:InterestRateSwapMember us-gaap:CashFlowHedgingMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000915912 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueMeasurementsRecurringMember avb:SecuredDebtandVariableRateUnsecuredIndebtednessMember 2019-12-31 0000915912 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000915912 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember avb:SecuredDebtandVariableRateUnsecuredIndebtednessMember 2019-12-31 0000915912 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000915912 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000915912 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:UnsecuredDebtMember 2019-12-31 0000915912 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueMeasurementsRecurringMember us-gaap:UnsecuredDebtMember 2019-12-31 0000915912 us-gaap:PutOptionMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000915912 us-gaap:PutOptionMember us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000915912 us-gaap:LineOfCreditMember us-gaap:SubsequentEventMember 2020-05-07 avb:state avb:community avb:property xbrli:pure avb:Lease avb:entity iso4217:USD xbrli:shares avb:home xbrli:shares avb:residential_condominium iso4217:USD utreg:sqft avb:venture avb:derivative

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, 2020
Commission file number 1-12672
AVALONBAY COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
 
 
 
Maryland
 
 
77-0404318
 
 
(State or other jurisdiction of
 
(I.R.S. Employer
 
 
incorporation or organization)
 
Identification No.)
 
 
4040 Wilson Blvd, Suite 1000
Arlington, Virginia  22203
(Address of principal executive offices, including zip code)
(703) 329-6300
(Registrant's telephone number, including area code)  
(Former name, if changed since last report) 

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
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) months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days.
Yes                     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 (Section 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, 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 Act).
Yes                     No

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

140,731,342 shares of common stock, par value $0.01 per share, were outstanding as of April 30, 2020.



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







AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
 
3/31/2020
 
12/31/2019
 
(unaudited)
 
 
ASSETS
 

 
 

Real estate:
 

 
 

Land and improvements
$
4,336,662

 
$
4,299,162

Buildings and improvements
16,818,729

 
16,668,496

Furniture, fixtures and equipment
875,453

 
829,242

 
22,030,844

 
21,796,900

Less accumulated depreciation
(5,327,725
)
 
(5,164,398
)
Net operating real estate
16,703,119

 
16,632,502

Construction in progress, including land
1,273,989

 
1,303,751

Land held for development
38,115

 

For-sale condominium inventory
365,120

 
457,809

Real estate assets held for sale, net
28,296

 
38,927

Total real estate, net
18,408,639

 
18,432,989

 
 
 
 
Cash and cash equivalents
777,995

 
39,687

Cash in escrow
90,426

 
87,927

Resident security deposits
34,904

 
34,224

Investments in unconsolidated real estate entities
173,734

 
165,806

Deferred development costs
74,553

 
70,486

Prepaid expenses and other assets
168,741

 
164,971

Right of use lease assets
162,344

 
124,961

Total assets
$
19,891,336

 
$
19,121,051

 
 
 
 
LIABILITIES AND EQUITY
 

 
 

Unsecured notes, net
$
6,404,432

 
$
6,358,648

Variable rate unsecured credit facility
750,000

 

Mortgage notes payable, net
937,025

 
937,642

Dividends payable
225,714

 
215,414

Payables for construction
92,597

 
92,135

Accrued expenses and other liabilities
257,293

 
274,013

Lease liabilities
185,025

 
140,468

Accrued interest payable
61,931

 
47,154

Resident security deposits
61,717

 
61,752

Liabilities related to real estate assets held for sale
360

 
375

Total liabilities
8,976,094

 
8,127,601

 
 
 
 
Commitments and contingencies


 


 
 
 
 
Redeemable noncontrolling interests
2,700

 
3,252

 
 
 
 
Equity:
 

 
 

Preferred stock, $0.01 par value; $25 liquidation preference; 50,000,000 shares authorized at March 31, 2020 and December 31, 2019; zero shares issued and outstanding at March 31, 2020 and December 31, 2019

 

Common stock, $0.01 par value; 280,000,000 shares authorized at March 31, 2020 and December 31, 2019; 140,733,340 and 140,643,962 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively
1,407

 
1,406

Additional paid-in capital
10,732,022

 
10,736,733

Accumulated earnings less dividends
225,656

 
282,913

Accumulated other comprehensive loss
(47,157
)
 
(31,503
)
Total stockholders' equity
10,911,928

 
10,989,549

Noncontrolling interests
614

 
649

Total equity
10,912,542

 
10,990,198

Total liabilities and equity
$
19,891,336

 
$
19,121,051

 
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
 
3/31/2020
 
3/31/2019
Revenue:
 

 
 

Rental and other income
$
600,644

 
$
565,045

Management, development and other fees
1,007

 
1,139

Total revenue
601,651

 
566,184

 
 
 
 
Expenses:
 

 
 

Operating expenses, excluding property taxes
131,993

 
123,455

Property taxes
67,026

 
61,329

Interest expense, net
55,914

 
47,892

Loss on extinguishment of debt, net
9,170

 
280

Depreciation expense
177,911

 
162,057

General and administrative expense
17,320

 
13,706

Expensed transaction, development and other pursuit costs, net of recoveries
3,334

 
622

Total expenses
462,668

 
409,341

 
 
 
 
Equity in income (loss) of unconsolidated real estate entities
1,175

 
(1,060
)
Gain on sale of communities
24,436

 
14,835

Gain on other real estate transactions, net
43

 
267

Gain on for-sale condominiums, net of marketing and administrative costs
3,460

 
(473
)
 
 
 
 
Income before income taxes
168,097

 
170,412

Income tax expense (benefit)
91

 
(6
)
 
 
 
 
Net income
168,006

 
170,418

Net income attributable to noncontrolling interests
(35
)
 
(52
)
 
 
 
 
Net income attributable to common stockholders
$
167,971

 
$
170,366

 
 
 
 
Other comprehensive income (loss):
 

 
 

Loss on cash flow hedges
(17,603
)
 
(7,231
)
Cash flow hedge losses reclassified to earnings
1,949

 
1,468

Comprehensive income
$
152,317

 
$
164,603

 
 
 
 
Earnings per common share - basic:
 

 
 

Net income attributable to common stockholders
$
1.19

 
$
1.23

 
 
 
 
Earnings per common share - diluted:
 

 
 

Net income attributable to common stockholders
$
1.19

 
$
1.23


See accompanying notes to Condensed Consolidated Financial Statements.

2


AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Dollars in thousands)
 
For the three months ended
 
3/31/2020
 
3/31/2019
Cash flows from operating activities:
 
 
 
Net income
$
168,006

 
$
170,418

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation expense
177,911

 
162,057

Amortization of deferred financing costs
1,882

 
1,692

Amortization of debt discount
411

 
394

Loss on extinguishment of debt, net
9,170

 
280

Amortization of stock-based compensation
5,338

 
5,621

Equity in loss of, and return on, unconsolidated real estate entities and noncontrolling interests, net of eliminations
1,871

 
5,517

Abandonment of development pursuits
1,988

 
208

Cash flow hedge losses reclassified to earnings
1,949

 
1,468

Gain on sale of real estate assets
(24,479
)
 
(15,102
)
Gain on for-sale condominiums
(4,903
)
 

Increase in resident security deposits, prepaid expenses and other assets
(1,239
)
 
(3,087
)
Increase in accrued expenses, other liabilities and accrued interest payable
3,799

 
32,320

Net cash provided by operating activities
341,704

 
361,786

 
 
 
 
Cash flows from investing activities:
 
 
 
Development/redevelopment of real estate assets including land acquisitions and deferred development costs
(245,789
)
 
(278,075
)
Acquisition of real estate assets, including partnership interest

 
(91,548
)
Capital expenditures - existing real estate assets
(32,922
)
 
(20,069
)
Capital expenditures - non-real estate assets
(10,663
)
 
(488
)
Increase in payables for construction
462

 
5,444

Proceeds from sale of real estate, net of selling costs
63,073

 
71,455

Proceeds from the sale of for-sale condominiums, net of selling costs
98,790

 

Mortgage note receivable lending
(179
)
 
(159
)
Mortgage note receivable payments
960

 
978

Investments in unconsolidated real estate entities
(9,799
)
 
(724
)
Net cash used in investing activities
(136,067
)
 
(313,186
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Issuance of common stock, net
125

 
155,561

Dividends paid
(213,671
)
 
(203,499
)
Net borrowings under unsecured credit facility
750,000

 

Issuance of mortgage notes payable
51,000

 

Repayments of mortgage notes payable, including prepayment penalties
(51,484
)
 
(1,668
)
Issuance of unsecured notes
699,252

 

Repayment of unsecured notes, including prepayment penalties
(658,655
)
 

Payment of deferred financing costs
(5,988
)
 
(6,841
)
Payment for termination of forward interest rate swaps
(20,314
)
 

Payment to noncontrolling interest
(35
)
 

Payments related to tax withholding for share-based compensation
(14,346
)
 
(14,206
)
Distributions to DownREIT partnership unitholders
(12
)
 
(11
)
Distributions to joint venture and profit-sharing partners
(102
)
 
(113
)
Preferred interest obligation redemption and dividends
(600
)
 
(480
)
Net cash provided by (used in) financing activities
535,170

 
(71,257
)
 
 
 
 
Net increase (decrease) in cash and cash equivalents
740,807

 
(22,657
)
 
 
 
 
Cash and cash equivalents and restricted cash, beginning of period
127,614

 
217,864

Cash and cash equivalents and restricted cash, end of period
$
868,421

 
$
195,207

 
 
 
 
Cash paid during the period for interest, net of amount capitalized
$
36,895

 
$
25,513

See accompanying notes to Condensed Consolidated Financial Statements.

3


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Condensed Consolidated Statements of Cash Flows (dollars in thousands):
 
 
For the three months ended
 
 
3/31/2020
 
3/31/2019
Cash and cash equivalents
 
$
777,995

 
$
62,999

Cash in escrow
 
90,426

 
132,208

Cash, cash equivalents and restricted cash reported in the Condensed Consolidated Statements of Cash Flows
 
$
868,421

 
$
195,207


Supplemental disclosures of non-cash investing and financing activities:

During the three months ended March 31, 2020:

As described in Note 4, "Equity," 161,229 shares of common stock were issued as part of the Company's stock-based compensation plans, of which 96,317 shares related to the conversion of performance awards to restricted shares, and the remaining 64,912 shares valued at $14,640,000 were issued in connection with new stock grants; 529 shares valued at $112,000 were issued through the Company's dividend reinvestment plan; 70,351 shares valued at $14,346,000 were withheld to satisfy employees' tax withholding and other liabilities; and 3,931 restricted shares with an aggregate value of $660,000 previously issued in connection with employee compensation were canceled upon forfeiture.

Common stock dividends declared but not paid totaled $224,079,000.

The Company recorded a decrease of $471,000 in redeemable noncontrolling interest with a corresponding increase to accumulated earnings less dividends to adjust the redemption value associated with the put options held by joint venture partners and DownREIT partnership units. For further discussion of the nature and valuation of these items, see Note 11, "Fair Value."

The Company recorded an increase to accrued expenses and other liabilities of $3,302,000, an increase in prepaid expenses and other assets of $22,000 and a corresponding adjustment to accumulated other comprehensive loss, and reclassified $1,949,000 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.

The Company recorded $46,875,000 of lease liabilities and offsetting right of use lease assets related to the execution of two new office leases.

During the three months ended March 31, 2019:

The Company issued 148,004 shares of common stock as part of the Company's stock-based compensation plans, of which 73,072 shares related to the conversion of performance awards to restricted shares, and the remaining 74,932 shares valued at $14,666,000 were issued in connection with new stock grants; 602 shares valued at $108,000 were issued through the Company's dividend reinvestment plan; 75,195 shares valued at $14,206,000 were withheld to satisfy employees' tax withholding and other liabilities; and 616 restricted shares with an aggregate value of $102,000 previously issued in connection with employee compensation were canceled upon forfeiture.

Common stock dividends declared but not paid totaled $212,166,000.

The Company recorded an increase of $224,000 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 other liabilities of $7,231,000, and a corresponding adjustment to accumulated other comprehensive loss, and reclassified $1,468,000 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.

4



The Company recorded $122,276,000 of lease liabilities and offsetting right of use lease assets for its ground and office leases, upon the adoption of ASU 2016-02, Leases, as of January 1, 2019.




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 (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 markets in Southeast Florida and Denver, Colorado (the "Expansion Markets").

At March 31, 2020, the Company owned or held a direct or indirect ownership interest in 277 operating apartment communities containing 80,398 apartment homes in 11 states and the District of Columbia. In addition, the Company owned or held a direct or indirect ownership interest in 19 communities under development that are expected to contain an aggregate of 6,198 apartment homes when completed, as well as The Park Loggia, which contains 172 for-sale residential condominiums, of which 36 have been sold as of March 31, 2020, and 67,000 square feet of retail space, of which 64% has been leased as of March 31, 2020. The Company also owned or held a direct or indirect ownership interest in land or rights to land on which the Company expects to develop an additional 28 communities that, if developed as expected, will contain an estimated 9,720 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 2019 Annual Report on Form 10-K. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the operating results for the full year. Management believes the disclosures are adequate to ensure the information presented is not misleading.  In the opinion of management, all adjustments and eliminations, consisting only of normal, recurring adjustments necessary for a fair presentation of the financial statements for the interim periods, have been included.

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

Earnings per Common Share

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

6


 
For the three months ended
 
3/31/2020
 
3/31/2019
Basic and diluted shares outstanding
 

 
 

Weighted average common shares - basic
140,376,996

 
138,331,248

Weighted average DownREIT units outstanding
7,500

 
7,500

Effect of dilutive securities
393,377

 
493,453

Weighted average common shares - diluted
140,777,873

 
138,832,201

 
 
 
 
Calculation of Earnings per Share - basic
 

 
 

Net income attributable to common stockholders
$
167,971

 
$
170,366

Net income allocated to unvested restricted shares
(427
)
 
(501
)
Net income attributable to common stockholders, adjusted
$
167,544

 
$
169,865

 
 
 
 
Weighted average common shares - basic
140,376,996

 
138,331,248

 
 
 
 
Earnings per common share - basic
$
1.19

 
$
1.23

 
 
 
 
Calculation of Earnings per Share - diluted
 

 
 

Net income attributable to common stockholders
$
167,971

 
$
170,366

Add: noncontrolling interests of DownREIT unitholders in consolidated partnerships, including discontinued operations
12

 
11

Adjusted net income attributable to common stockholders
$
167,983

 
$
170,377

 
 
 
 
Weighted average common shares - diluted
140,777,873

 
138,832,201

 
 
 
 
Earnings per common share - diluted
$
1.19

 
$
1.23

 

All options to purchase shares of common stock outstanding as of March 31, 2020 and 2019 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 Derivative transactions for trading or other speculative purposes. The Company assesses the effectiveness of qualifying cash flow and fair value hedges, both at inception and on an on-going basis. Hedge ineffectiveness is reported as a component of 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 value of Hedging Derivatives that are in a liability position are included in accrued expenses and other liabilities. The Company does not present or disclose the fair value of Hedging Derivatives on a net basis. Fair value changes for derivatives that are not in qualifying hedge relationships are reported as a component of interest expense, net.  For the Hedging Derivative positions that the Company has determined qualify as effective cash flow hedges, the Company has recorded the cumulative changes in the fair value of Hedging Derivatives in other comprehensive loss.  Amounts recorded in accumulated other comprehensive loss will be reclassified into earnings in the periods in which earnings are affected by the hedged cash flow. The effective portion of the change in fair value of the Hedging Derivatives that the Company has determined qualified as effective fair value hedges is reported as an adjustment to the carrying amount of the corresponding debt being hedged. See Note 11, "Fair Value," for further discussion of derivative financial instruments.

Legal and Other Contingencies

The Company 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.


7


Acquisitions of Investments in Real Estate

The Company accounts for acquisitions of investments in real estate in accordance with the authoritative guidance for the initial measurement, which first requires that the Company determine if the real estate investment is the acquisition of an asset or a business combination. Under either model, the Company must identify and determine the fair value of any assets acquired, 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, the Company utilizes various sources, including its own analysis of recently acquired and existing comparable properties in its portfolio and other market data. Consideration for acquisitions is typically in the form of cash unless otherwise disclosed. For 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 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 viewed as asset acquisitions.

Use of Estimates

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

Reclassifications

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

For-Sale Condominium Inventory

The Company presents for-sale condominium inventory at historical cost and evaluates the condominiums for impairment when potential indicators exist, as further discussed in Note 6, "Real Estate Disposition Activities." 

Leases

The Company is party to leases as both a lessor and a lessee, primarily as follows:

lessor of residential and retail space within its apartment communities; and
lessee under (i) ground leases for land underlying current operating or development communities 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, which are based on an index or rate such as the consumer price index (CPI) or percentage rents based on total sales. Lease payments included in the lease liability include only payments that depend on an index or rate. 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 each of the lease agreements.


8


Lessor Considerations

The Company evaluates leases in which it is the lessor, which are composed of residential and retail leases at its apartment communities, and determined these leases to be operating leases. For lease agreements that provide for rent concessions and/or scheduled 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 retail leases have fixed-price renewal options, and the lessee may be able to exercise its renewal option at an amount less than the fair value of the rent at such time. The Company only includes renewal options in the lease term, if at the commencement of the lease, it is reasonably certain that the lessee will exercise this option.

Revenue and Gain Recognition

Revenue from contracts with customers is recognized in accordance with the transfer of goods and services to customers at an amount that reflects the consideration that the Company expects to be entitled to for those goods and services. The majority of the Company’s revenue is derived from residential and retail rental income and other lease income, which are accounted for under ASC 842, Leases, discussed above. The Company's revenue streams that are not accounted for under ASC 842 include (i) management fees, (ii) rental and non-rental related income and (iii) gains or losses on the sale of real estate.

The following table provides details of the Company’s revenue streams disaggregated by the Company’s reportable operating segments, further discussed in Note 8, “Segment Reporting,” for the three months ended March 31, 2020 and 2019. Segment information for total revenue has been adjusted to exclude the real estate assets that were sold from January 1, 2019 through March 31, 2020, or otherwise qualify as held for sale as of March 31, 2020, as described in Note 6, "Real Estate Disposition Activities" (dollars in thousands):
 
 
For the three months ended
 
 
Established
Communities
 
Other
Stabilized
Communities
 
Development/
Redevelopment
Communities (1)
 
Non-
allocated (2)
 
Total
For the period ended March 31, 2020
 
 
 
 
 
 
 
 
 
 
Management, development and other fees
 
$

 
$

 
$

 
$
1,007

 
$
1,007

Rental and non-rental related income (3)
 
1,609

 
476

 
232

 

 
2,317

Total non-lease revenue (4)
 
1,609

 
476

 
232

 
1,007

 
3,324

 
 
 
 
 
 
 
 
 
 
 
Lease income (5)
 
546,347

 
35,015

 
15,541

 

 
596,903

Business interruption insurance proceeds
 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
Total revenue
 
$
547,956

 
$
35,491


$
15,773


$
1,007


$
600,227

 
 
 
 
 
 
 
 
 
 
 
For the period ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
Management, development and other fees
 
$

 
$

 
$

 
$
1,139

 
$
1,139

Rental and non-rental related income (3)
 
1,833

 
481

 
16

 

 
2,330

Total non-lease revenue (4)
 
1,833

 
481

 
16

 
1,139

 
3,469

 
 
 
 
 
 
 
 
 
 
 
Lease income (5)
 
529,824

 
21,546

 
533

 

 
551,903

Business interruption insurance proceeds
 
172

 

 

 

 
172

 
 
 
 
 
 
 
 
 
 
 
Total revenue
 
$
531,829

 
$
22,027

 
$
549

 
$
1,139

 
$
555,544

__________________________________

(1)
The Company had no Redevelopment Communities for the three months ended March 31, 2020 and 2019.
(2)
Revenue represents third-party management, asset management and developer fees and miscellaneous income which are not allocated to a reportable segment.
(3)
Amounts include revenue streams related to leasing activities that are not considered components of a lease, including but not limited to, apartment hold fees and application fees, as well as revenue streams not related to leasing activities, including but not limited to, vendor revenue sharing, building advertising, vending and dry cleaning revenue.
(4)
Represents all revenue accounted for under ASU 2014-09.
(5)
Amounts include all revenue streams derived from residential and retail rental income and other lease income, which are accounted for under ASC 842.


9


Due to the nature and timing of the Company’s identified revenue streams, there are no material amounts of outstanding or unsatisfied performance obligations as of March 31, 2020.

Recently Issued and Adopted Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This ASU requires entities to estimate a lifetime expected credit loss for most financial assets, including (i) trade and other receivables, (ii) other long term financings including available for sale and held-to-maturity debt securities and (iii) loans. Subsequently, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which amends the scope of ASU 2016-13 and clarified that receivables arising from operating leases are not within the scope of the standard and should continue to be accounted for in accordance with the leases standard (Topic 842). The new standard was adopted on January 1, 2020 and does not 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 $11,498,000 and $17,589,000 for the three months ended March 31, 2020 and 2019, respectively.

3.  Mortgage Notes Payable, Unsecured Notes and Credit Facility

The Company's mortgage notes payable, unsecured notes, variable rate unsecured term loans (the "Term Loans") and Credit Facility, as defined below, as of March 31, 2020 and December 31, 2019 are summarized below. The following amounts and discussion do not include the mortgage notes related to the communities classified as held for sale, if any, as of March 31, 2020 and December 31, 2019, as shown in the accompanying Condensed Consolidated Balance Sheets (dollars in thousands) (see Note 6, "Real Estate Disposition Activities").
 
3/31/2020
 
12/31/2019
 
 
 
 
Fixed rate unsecured notes (1)
$
5,900,000

 
$
5,850,000

Variable rate unsecured notes (1)
300,000

 
300,000

Term Loans (1)
250,000

 
250,000

Fixed rate mortgage notes payable - conventional and tax-exempt (2)
478,738

 
479,221

Variable rate mortgage notes payable - conventional and tax-exempt (2)
476,150

 
476,150

Total mortgage notes payable and unsecured notes and Term Loans
7,404,888

 
7,355,371

Credit Facility
750,000

 

Total mortgage notes payable, unsecured notes, Term Loans and Credit Facility
$
8,154,888

 
$
7,355,371

_____________________________________

(1)
Balances at March 31, 2020 and December 31, 2019 exclude $8,880 and $8,610, respectively, of debt discount, and $36,688 and $32,742, respectively, of deferred financing costs, as reflected in unsecured notes, net on the accompanying Condensed Consolidated Balance Sheets.
(2)
Balances at March 31, 2020 and December 31, 2019 exclude $14,671 and $14,464, respectively, of debt discount, and $3,192 and $3,265, respectively, of deferred financing costs, as reflected in mortgage notes payable, net on the accompanying Condensed Consolidated Balance Sheets.

The following debt activity occurred during the three months ended March 31, 2020:

In February 2020, the Company issued $700,000,000 principal amount of unsecured notes in a public offering under its existing shelf registration statement for net proceeds of approximately $694,701,000. The notes mature in March 2030 and were issued at a 2.30% interest rate.

In February 2020, the Company refinanced the secured borrowing for Avalon San Bruno III. The secured borrowing had a fixed interest rate of 3.08% and was refinanced for a principal balance of $51,000,000, with a fixed interest rate of 2.38% and maturity date of March 2027.


10


In March 2020, the Company repaid (i) $400,000,000 principal amount of its 3.625% unsecured notes in advance of the October 2020 scheduled maturity and (ii) $250,000,000 principal amount of its 3.95% unsecured notes in advance of the January 2021 scheduled maturity. In conjunction with these repayments, the Company recognized a loss on debt extinguishment of $9,170,000 for prepayment penalties and the non-cash write-off of unamortized deferred financing costs.

At March 31, 2020, the Company had a $1,750,000,000 revolving variable rate unsecured credit facility with a syndicate of banks (the “Credit Facility”) which matures in February 2024. The Credit Facility bears interest at varying levels based on (i) the London Interbank Offered Rate (“LIBOR”) 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.) and (ii) the rating levels issued for our unsecured notes. The current stated pricing for drawn borrowings is LIBOR plus 0.775% per annum (1.77% at March 31, 2020), assuming a one month borrowing rate. The annual facility fee is 0.125% (or approximately $2,188,000 annually based on the $1,750,000,000 facility size and based on the Company's current credit rating).

The Company had $750,000,000 outstanding under the Credit Facility as of March 31, 2020 and no borrowings outstanding as of December 31, 2019. The Company had $5,032,000 and $11,488,000 outstanding in letters of credit that reduced the borrowing capacity as of March 31, 2020 and December 31, 2019, respectively. In addition, the Company had $29,867,000 outstanding in additional letters of credit on a separate facility unrelated to the Credit Facility as of March 31, 2020.

In the aggregate, secured notes payable mature at various dates from December 2020 through July 2066, and are secured by certain apartment communities (with a net carrying value of $1,584,911,000, excluding communities classified as held for sale, as of March 31, 2020).

The weighted average interest rate of the Company's fixed rate secured notes payable (conventional and tax-exempt) was 3.8% and 3.9% at March 31, 2020 and December 31, 2019, 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 3.4% and 3.2% at March 31, 2020 and December 31, 2019, respectively.

Scheduled payments and maturities of secured notes payable and unsecured notes outstanding at March 31, 2020 are as follows (dollars in thousands):
Year
 
Secured notes
payments
 
Secured notes maturities
 
Unsecured notes maturities
 
Stated interest rate of unsecured notes
2020
 
$
8,124

 
$
67,904

 
$

 
N/A

2021
 
9,304

 
27,844

 

 
N/A

 
 
 
 
 
 
300,000

 
LIBOR + 0.43%

2022
 
9,918

 

 
450,000

 
2.950
%
 
 
 
 
 
 
100,000

 
LIBOR + 0.90%

2023
 
10,739

 

 
350,000

 
4.200
%
 
 
 
 
 
 
250,000

 
2.850
%
2024
 
11,577

 

 
300,000

 
3.500
%
 
 
 
 
 
 
150,000

 
LIBOR + 0.85%

2025
 
12,508

 

 
525,000

 
3.450
%
 
 
 
 
 
 
300,000

 
3.500
%
2026
 
13,545

 

 
475,000

 
2.950
%
 
 
 
 
 
 
300,000

 
2.900
%
2027
 
14,980

 
236,100

 
400,000

 
3.350
%
2028
 
20,607

 

 
450,000

 
3.200
%
2029
 
11,742

 
66,250

 
450,000

 
3.300
%
Thereafter
 
189,162

 
244,584

 
700,000

 
2.300
%
 
 
 
 
 
 
350,000

 
3.900
%
 
 
 
 
 
 
300,000

 
4.150
%
 
 
 
 
 
 
300,000

 
4.350
%
 
 
$
312,206

 
$
642,682

 
$
6,450,000

 
 

 

The Company was in compliance at March 31, 2020 with customary financial covenants under the Credit Facility, the Term Loans and the Company's fixed rate unsecured notes.

11


4.  Equity

The following summarizes the changes in equity for the three months ended March 31, 2020 (dollars in thousands):
 
Common
stock
 
Additional
paid-in
capital
 
Accumulated
earnings
less
dividends
 
Accumulated
other
comprehensive
loss
 
Total AvalonBay stockholder's equity
 
Noncontrolling interests
 
Total
equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2019
$
1,406

 
$
10,736,733

 
$
282,913

 
$
(31,503
)
 
$
10,989,549

 
$
649

 
$
10,990,198

Net income attributable to common stockholders

 

 
167,971

 

 
167,971

 

 
167,971

Loss on cash flow hedges, net

 

 

 
(17,603
)
 
(17,603
)
 

 
(17,603
)
Cash flow hedge losses reclassified to earnings

 

 

 
1,949

 
1,949

 

 
1,949

Change in redemption value of redeemable noncontrolling interest

 

 
471

 

 
471

 

 
471

Noncontrolling interests income allocation

 

 

 

 

 
(35
)
 
(35
)
Dividends declared to common stockholders ($1.59 per share)

 

 
(224,083
)
 

 
(224,083
)
 

 
(224,083
)
Issuance of common stock, net of withholdings
1

 
(12,492
)
 
(1,616
)
 

 
(14,107
)
 

 
(14,107
)
Amortization of deferred compensation

 
7,781

 

 

 
7,781

 

 
7,781

Balance at March 31, 2020
$
1,407

 
$
10,732,022

 
$
225,656

 
$
(47,157
)
 
$
10,911,928

 
$
614

 
$
10,912,542



The following summarizes the changes in equity for the three months ended March 31, 2019 (dollars in thousands):
 
Common
stock
 
Additional
paid-in
capital
 
Accumulated
earnings
less
dividends
 
Accumulated
other
comprehensive
loss
 
Total
equity
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
$
1,385

 
$
10,306,588

 
$
350,777

 
$
(26,144
)
 
$
10,632,606

Net income attributable to common stockholders

 

 
170,366

 

 
170,366

Loss on cash flow hedges, net

 

 

 
(7,231
)
 
(7,231
)
Cash flow hedge losses reclassified to earnings

 

 

 
1,468

 
1,468

Change in redemption value of redeemable noncontrolling interest

 

 
(224
)
 

 
(224
)
Dividends declared to common stockholders ($1.52 per share)

 

 
(212,166
)
 

 
(212,166
)
Issuance of common stock, net of withholdings
9

 
143,202

 
(1,892
)
 

 
141,319

Amortization of deferred compensation

 
7,861

 

 

 
7,861

Balance at March 31, 2019
$
1,394

 
$
10,457,651

 
$
306,861

 
$
(31,907
)
 
$
10,733,999



As of March 31, 2020 and December 31, 2019, 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, 2020, the Company:

i.
issued 1,902 shares of common stock in connection with stock options exercised;
ii.
issued 529 common shares through the Company's dividend reinvestment plan;
iii.
issued 161,229 common shares in connection with restricted stock grants and the conversion of performance awards to restricted shares;
iv.
withheld 70,351 common shares to satisfy employees' tax withholding and other liabilities; and
v.
canceled 3,931 common shares of restricted stock upon forfeiture.

Any deferred compensation related to the Company's stock option, restricted stock and performance award grants during the three months ended March 31, 2020 is not reflected on the accompanying Condensed Consolidated Balance Sheets as of March 31, 2020, and will not be reflected until recognized as compensation cost.


12


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 determinations by the Company of the appropriate sources of funding for the Company. In conjunction with CEP V, the Company engaged sales agents who will 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 expect to receive aggregate net cash proceeds at settlement equal to the number of shares underlying the particular forward agreement multiplied by the relevant forward sale price. However, the Company may also elect to cash settle or net share settle a forward sale agreement. In connection with each forward sale agreement, the Company will pay the relevant forward seller, in the form of a reduced initial forward sale price, a commission of up to 1.5% of the sales prices of all borrowed shares of common stock sold. During the three months ended March 31, 2020, the Company had no sales under the program. As of March 31, 2020, the Company had $752,878,000 remaining authorized for issuance under this program.

5.  Investments in Real Estate Entities

Investments in Unconsolidated Real Estate Entities

As of March 31, 2020, the Company had investments in seven unconsolidated real estate entities with ownership interest percentages ranging from 20.0% to 50.0%, excluding joint ventures formed with Equity Residential as part of the Archstone acquisition. The Company accounts for its investments in unconsolidated real estate entities under the equity method of accounting. The significant accounting policies of the Company's unconsolidated real estate entities are consistent with those of the Company in all material respects.

The following is a combined summary of the financial position of the entities accounted for using the equity method discussed above as of the dates presented (dollars in thousands):
 
3/31/2020
 
12/31/2019
 
(unaudited)
 
 
Assets:
 

 
 

Real estate, net
$
1,205,970

 
$
1,204,470

Other assets
199,312

 
196,488

Total assets
$
1,405,282

 
$
1,400,958

 
 
 
 
Liabilities and partners' capital:
 

 
 

Mortgage notes payable, net (1)
$
781,234

 
$
782,257

Other liabilities
158,988

 
157,379

Partners' capital
465,060

 
461,322

Total liabilities and partners' capital
$
1,405,282

 
$
1,400,958

 
_________________________________
(1)
The Company has not guaranteed the debt, nor does the Company have any obligation to fund this debt should the unconsolidated entity be unable to do so.

The following is a combined summary of the operating results of the entities accounted for using the equity method discussed above for the periods presented (dollars in thousands):

13


 
For the three months ended
 
3/31/2020
 
3/31/2019
 
(unaudited)
Rental and other income
$
33,072

 
$
35,255

Operating and other expenses
(12,181
)
 
(14,204
)
Interest expense, net
(8,056
)
 
(8,554
)
Depreciation expense
(8,689
)
 
(21,696
)
Net income (loss)
$
4,146

 
$
(9,199
)
 
 
 
 
Company's share of net income (loss)
$
1,705

 
$
(528
)
Amortization of excess investment and other
(530
)
 
(532
)
Equity in income (loss) from unconsolidated real estate investments
$
1,175

 
$
(1,060
)


Expensed Transaction, Development and Other Pursuit Costs

The Company capitalizes pre-development costs incurred in pursuit of new development opportunities for which the Company currently believes future development is probable ("Development Rights"). Future development of these Development Rights is dependent upon various factors, including zoning and regulatory approval, rental market conditions, construction costs and the availability of capital. Initial pre-development costs incurred for pursuits for which future development is not yet considered probable are expensed as incurred. In addition, if the status of a Development Right changes, making future development by the Company no longer probable, any non-recoverable capitalized pre-development costs are expensed. The Company expensed costs related to development pursuits not yet considered probable for development and the abandonment of Development Rights, as well as costs incurred in pursuing the acquisition or disposition of assets for which such acquisition and disposition activity did not occur, in the amounts of $3,334,000 and $622,000 for the three months ended March 31, 2020 and 2019, 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. Abandoned pursuit 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

In the Company's evaluation of its real estate portfolio for impairment, as discussed below, it considered the impact of the COVID-19 pandemic and did not identify any indicators of impairment as a result.

The Company evaluates its real estate and other long-lived assets for impairment when potential indicators of impairment exist. Such assets are stated at cost, less accumulated depreciation and amortization, unless the carrying amount of the asset is not recoverable. If events or circumstances indicate that the carrying amount of a property or long-lived asset may not be recoverable, the Company assesses its recoverability by comparing the carrying amount of the property or long-lived asset to its estimated undiscounted future cash flows. If the carrying amount exceeds the aggregate undiscounted future cash flows, the Company recognizes an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property or long-lived asset. Based on periodic tests of recoverability of long-lived assets, the Company did not recognize any impairment losses for the three months ended March 31, 2020 and 2019.

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 cost, unless the carrying amount of the inventory is not recoverable when compared to the fair value of each unit. 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 months ended March 31, 2020 and 2019, the Company did not identify any indicators of impairment for 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. During the three months ended March 31, 2020 and 2019, the Company did not recognize any impairment charges on its investment in land.


14


The Company evaluates its unconsolidated investments for other than temporary impairment, considering both the extent and amount by which the carrying value of the investment exceeds the fair value, and the Company's intent and ability to hold the investment to recover its carrying value. The Company also evaluates its proportionate share of any impairment of assets held by unconsolidated investments. There were no other than temporary impairment losses recognized by any of the Company's investments in unconsolidated real estate entities during the three months ended March 31, 2020 and 2019.

6.  Real Estate Disposition Activities

The following real estate sale occurred during the three months ended March 31, 2020:

In January 2020, the Company sold Avalon Shelton, located in Shelton, CT, containing 250 apartment homes for $64,750,000. The Company's gain on disposition was $24,413,000, reported in gain on sale of communities on the accompanying Condensed Consolidated Statements of Comprehensive Income.

At March 31, 2020, 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 67,000 square feet of retail space. During the three months ended March 31, 2020, the Company sold 36 residential condominiums at The Park Loggia, for gross proceeds of $105,607,000, resulting in a gain in accordance with GAAP of $4,903,000 included in gain on for-sale condominiums, net of marketing and administrative costs, on the accompanying Consolidated Statements of Comprehensive Income. The Company incurred $1,443,000 and $473,000 during the three months ended March 31, 2020 and 2019, respectively, in marketing and administrative costs associated with The Park Loggia, included in gain on for-sale condominiums, net of marketing and administrative costs, on the accompanying Consolidated Statements of Comprehensive Income. As of March 31, 2020, the for-sale residential condominiums have an aggregate carrying value of $365,120,000, presented as for-sale condominium inventory on the accompanying Consolidated Balance Sheets.

7. Commitments and Contingencies

Lease Obligations

The Company owns 11 apartment communities, one community under development and two commercial properties, located on land subject to ground leases expiring between October 2026 and March 2142. The ground leases for 10 of 11 of the apartment communities and the rest of the ground leases are accounted for as operating leases, with rental expense recognized on a straight-line basis over the lease term. In addition, the Company is party to 16 leases for its corporate and regional offices with varying terms through 2031, all of which are accounted for as operating leases.

As of March 31, 2020 and December 31, 2019, the Company has total operating lease assets of $140,499,000 and $103,063,000, respectively, and total operating lease obligations of $164,829,000 and $120,261,000, 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 $3,917,000 and $3,537,000 for the three months ended March 31, 2020 and 2019, respectively, related to operating leases.

The Company has one apartment community located on land subject to a ground lease as well as two leases for portions of parking garages, one adjacent to an apartment community and one adjacent to a community under development, that are accounted for as finance leases. As of March 31, 2020 and December 31, 2019, the Company has total finance lease assets of $21,845,000 and $21,898,000, respectively, and total finance lease obligations of $20,197,000 and $20,207,000, respectively, reported as components of right of use lease assets and lease liabilities, respectively, on the accompanying Condensed Consolidated Balance Sheets.


15


8.  Segment Reporting

The Company's reportable operating segments include Established Communities, Other Stabilized Communities, and Development/Redevelopment Communities.  Annually as of January 1, the Company determines which of its communities fall into each of these categories and generally maintains that classification throughout the year for the purpose of reporting segment operations, unless disposition or redevelopment plans regarding a community change. In addition, the Company owns land for future development and has other corporate assets that are not allocated to an operating segment.

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

A reconciliation of NOI to net income for the three months ended March 31, 2020 and 2019 is as follows (dollars in thousands):
 
For the three months ended
 
3/31/2020
 
3/31/2019
Net income
$
168,006

 
$
170,418

Indirect operating expenses, net of corporate income
22,799

 
19,722

Expensed transaction, development and other pursuit costs, net of recoveries
3,334

 
622

Interest expense, net
55,914

 
47,892

Loss on extinguishment of debt, net
9,170

 
280

General and administrative expense
17,320

 
13,706

Equity in (income) loss of unconsolidated real estate entities
(1,175
)
 
1,060

Depreciation expense
177,911

 
162,057

Income tax expense (benefit)
91

 
(6
)
Gain on sale of communities
(24,436
)
 
(14,835
)
Gain on other real estate transactions, net
(43
)
 
(267
)
Gain on for-sale condominiums, net of marketing and administrative costs
(3,460
)
 
473

Net operating income from real estate assets sold or held for sale
(896
)
 
(6,205
)
        Net operating income
$
424,535

 
$
394,917



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
 
3/31/2020
 
3/31/2019
Rental income from real estate assets sold or held for sale
$
1,424

 
$
10,640

Operating expenses from real estate assets sold or held for sale
(528
)
 
(4,435
)
Net operating income from real estate assets sold or held for sale
$
896

 
$
6,205



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.


16


The following table provides details of the Company's segment information as of the dates specified (dollars in thousands). The segments are classified based on the individual community's status at January 1, 2020. Segment information for the three months ended March 31, 2020 and 2019 has been adjusted to exclude the real estate assets that were sold from January 1, 2019 through March 31, 2020, or otherwise qualify as held for sale as of March 31, 2020, as described in Note 6, "Real Estate Disposition Activities."

 
For the three months ended
 
 
 
Total
revenue
 
NOI
 
Gross real estate (1)
For the period ended March 31, 2020
 
 

Established
 

 
 

 
 

New England
$
81,669

 
$
53,680

 
$
2,765,270

Metro NY/NJ
120,731

 
84,484

 
4,343,033

Mid-Atlantic
91,717

 
66,309

 
3,545,582

Pacific Northwest
28,736

 
20,838

 
991,802

Northern California
104,360

 
80,451

 
3,268,787

Southern California
114,810

 
82,455

 
4,142,235

Expansion Markets
5,933

 
3,428

 
320,415

Total Established
547,956

 
391,645

 
19,377,124

 
 
 
 
 
 
Other Stabilized
35,491

 
23,496

 
1,591,348

Development / Redevelopment (2)
15,773

 
9,394

 
2,220,386

Land Held for Development
N/A

 
N/A

 
38,115

Non-allocated (3)
1,007

 
N/A

 
481,095

 
 
 
 
 
 
Total
$
600,227

 
$
424,535

 
$
23,708,068

 
 
 
 
 
 
For the period ended March 31, 2019
 
 

Established
 

 
 

 
 

New England
$
78,688

 
$
52,083

 
$
2,717,130

Metro NY/NJ
118,377

 
82,984

 
4,311,202

Mid-Atlantic
88,370

 
62,916

 
3,507,734

Pacific Northwest
27,802

 
20,210

 
986,190

Northern California
101,261

 
78,715

 
3,248,903

Southern California
111,466

 
79,916

 
4,092,527

Expansion Markets
5,865

 
3,513

 
319,558

Total Established
531,829

 
380,337

 
19,183,244

 
 
 
 
 
 
Other Stabilized
22,027

 
14,729

 
1,171,127

Development / Redevelopment (2)
549

 
(149
)
 
1,130,302

Land Held for Development
N/A

 
N/A

 
104,963

Non-allocated (3)
1,139

 
N/A

 
672,727

 
 
 
 
 
 
Total
$
555,544

 
$
394,917

 
$
22,262,363

__________________________________

(1)
Does not include gross real estate held for sale of $41,866 as of March 31, 2020 and gross real estate either sold or classified as held for sale subsequent to March 31, 2019 of $285,943.
(2)
The Company had no Redevelopment Communities for the three months ended March 31, 2020 and 2019.
(3)
Revenue represents third-party management, accounting, and developer fees and miscellaneous income 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."


17


9.  Stock-Based Compensation Plans

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

Information with respect to stock options granted under the Company's Second Amended and Restated 2009 Equity Incentive Plan (the "2009 Plan") for the three months ended March 31, 2020, is as follows:
 
 
2009 Plan
shares
 
Weighted average
exercise price
per share
Options Outstanding, December 31, 2019
 
14,408

 
$
124.05

Exercised
 
(1,902
)
 
89.17

Granted
 

 

Forfeited
 

 

Options Outstanding, March 31, 2020
 
12,506

 
$
129.35

Options Exercisable, March 31, 2020
 
12,506

 
$
129.35



Information with respect to performance awards granted is as follows:
 
 
Performance awards
 
Weighted average grant date fair value per award
Outstanding at December 31, 2019
 
253,432

 
$
176.27

  Granted (1)
 
76,164

 
238.86

  Change in awards based on performance (2)
 
18,112

 
177.26

  Converted to restricted stock
 
(96,317
)
 
177.26

  Forfeited
 
(8,004
)
 
183.45

Outstanding at March 31, 2020
 
243,387

 
$
195.31

__________________________________

(1)
The amount of restricted stock that ultimately may be earned is based on the total shareholder return metrics related to the Company's common stock for 38,314 performance awards and financial metrics related to operating performance and leverage metrics of the Company for 37,850 performance awards.
(2)
Represents the change in the number of performance awards earned based on performance achievement for the performance period.

The Company used a Monte Carlo model to assess the compensation cost associated with the portion of the performance awards granted in 2020 for which achievement will be determined by using total shareholder return measures. The assumptions used are as follows:
 
 
2020
Dividend yield
 
2.8%
Estimated volatility over the life of the plan (1)
 
11.1% - 15.5%
Risk free rate
 
1.45% - 1.62%
Estimated performance award value based on total shareholder return measure
 
$254.72
__________________________________

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

For the portion of the performance awards granted in 2020 for which achievement will be determined by using financial metrics, the compensation cost was based on a grant date value of $225.59, and the Company's estimate of corporate achievement for the financial metrics.


18


Information with respect to restricted stock granted is as follows:
 
 
Restricted stock shares
 
Restricted stock shares weighted average grant date fair value per share
 
Restricted stock shares converted from performance awards
Outstanding at December 31, 2019
 
148,326

 
$
181.29

 
163,111

  Granted - restricted stock shares
 
64,912

 
225.54

 
96,317

  Vested - restricted stock shares
 
(76,012
)
 
178.29

 
(109,758
)
  Forfeited
 
(3,337
)
 
191.25

 
(594
)
Outstanding at March 31, 2020
 
133,889

 
$
204.20

 
149,076



Total employee stock-based compensation cost recognized in income was $5,039,000 and $5,471,000 for the three months ended March 31, 2020 and 2019, respectively, and total capitalized stock-based compensation cost was $3,178,000 and $2,096,000 for the three months ended March 31, 2020 and 2019, respectively. At March 31, 2020, there was a total unrecognized compensation cost of $49,041,000 for unvested restricted stock and performance awards, which does not include forfeitures, and is expected to be recognized over a weighted average period of 2.4 years.

10.  Related Party Arrangements

Unconsolidated Entities

The Company manages unconsolidated real estate entities for which it receives asset management, property management, development and redevelopment fee revenue. From these entities, the Company earned fees of $1,007,000 and $1,139,000 for the three months ended March 31, 2020 and 2019, respectively. In addition, the Company had outstanding receivables associated with its property and construction management role of $3,841,000 and $3,924,000 as of March 31, 2020 and December 31, 2019, respectively.

Director Compensation

The Company recorded non-employee director compensation expense relating to restricted stock grants and deferred stock units in the amount of $455,000 and $426,000 in the three months ended March 31, 2020 and 2019, 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 $216,000 and $594,000 on March 31, 2020 and December 31, 2019, 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 interest rate swap and interest rate cap agreements to manage its interest rate risk. These instruments are carried at fair value in the Company's financial statements. In adjusting the fair value of its derivative contracts for the effect of counterparty nonperformance risk, the Company has considered the impact of its net position with a given counterparty, as well as any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. The Company minimizes its credit risk on these transactions by dealing with major, creditworthy financial institutions which have an A or better credit rating by the Standard & Poor's Ratings Group. As part of its on-going control procedures, the Company monitors the credit ratings of counterparties and the exposure of the Company to any single entity, thus reducing credit risk concentration. The Company believes the likelihood of realizing losses from counterparty nonperformance is remote. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, such as interest rate, term to maturity and volatility, the credit valuation adjustments associated with its derivatives use Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by itself and its counterparties. As of March 31, 2020, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined it is not significant.  As a result, the Company has determined that its derivative valuations are classified in Level 2 of the fair value hierarchy.


19


The following table summarizes the consolidated derivative positions at March 31, 2020 (dollars in thousands):
 
Non-designated
Hedges
Interest Rate Caps
 
Cash Flow
Hedges
Interest Rate Swaps
 
 
 
 
Notional balance
$
442,611

 
$
150,000

Weighted average interest rate (1)
3.4
%
 
N/A

Weighted average swapped/capped interest rate
6.5
%
 
0.9
%
Earliest maturity date
January 2021

 
September 2020

Latest maturity date
November 2021

 
September 2020

____________________________________

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

During the three months ended March 31, 2020, in conjunction with the issuance of the Company's 2.30% unsecured notes due 2030 in February 2020, the Company settled $350,000,000 of forward interest rate swap agreements designated as cash flow hedges of the interest rate variability on the forecasted issuance of the unsecured notes, making a payment of $20,314,000. The Company has deferred this amount in accumulated other comprehensive loss on the accompanying Condensed Consolidated Balance Sheets, and will recognize the impact as a component of interest expense, net, over the term of the debt of ten years.

In addition, during the three months ended March 31, 2020, the Company entered into $150,000,000 of new forward interest rate swap agreements executed to reduce the impact of variability in interest rates on a portion of the Company's expected debt issuance activity in 2020, which were outstanding as of March 31, 2020. At the maturity of the remaining outstanding swap agreements, the Company expects to cash settle the contracts and either pay or receive cash for the then current fair value. Assuming that the Company issues the debt as expected, the hedging impact from these positions will then be recognized over the life of the issued debt as a yield adjustment.

The Company had two derivatives designated as cash flow hedges and five derivatives not designated as hedges at March 31, 2020. Fair value changes for derivatives not in qualifying hedge relationships for the three months ended March 31, 2020 and 2019 were not material. During the three months ended March 31, 2020, the Company deferred $17,603,000 of losses for cash flow hedges reported as a component of accumulated other comprehensive loss.

The following table summarizes the deferred losses reclassified from accumulated other comprehensive loss as a component of interest expense, net (dollars in thousands):
 
For the three months ended
 
3/31/2020
 
3/31/2019
 
 
 
 
Cash flow hedge losses reclassified to earnings
$
1,949

 
$
1,468



The Company anticipates reclassifying approximately $9,015,000 of net hedging losses from accumulated other comprehensive loss into earnings within the next 12 months as an offset to the hedged item during this period. The Company did not have any derivatives designated as fair value hedges as of March 31, 2020 and 2019.

Redeemable Noncontrolling Interests

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


20


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

Financial Instruments Not Carried at Fair Value

Cash and Cash Equivalents

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

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

The following tables summarize the classification between the three levels of the fair value hierarchy of the Company's financial instruments measured/disclosed at fair value on a recurring basis (dollars in thousands):
 
 
3/31/2020
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)
 
 
 
 
Cash Flow Hedges
 
 
 
 
 
 
 
 
Interest Rate Caps
 
$
9

 
$

 
$
9

 
$

Interest Rate Swaps - Assets
 
22

 

 
22

 

Interest Rate Swaps - Liabilities
 
(3,302
)
 

 
(3,302
)
 

Puts
 
(123
)
 

 

 
(123
)
DownREIT units
 
(1,104
)
 
(1,104
)
 

 

Indebtedness
 
 
 
 
 
 
 
 
Fixed rate unsecured notes
 
(6,030,476
)
 
(6,030,476
)
 

 

Secured notes and variable rate unsecured indebtedness
 
(2,162,216
)
 

 
(2,162,216
)
 

Total
 
$
(8,197,190
)
 
$
(6,031,580
)
 
$
(2,165,487
)
 
$
(123
)


21


 
 
12/31/2019
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)
 
 
 
 
Cash Flow Hedges
 
 
 
 
 
 
 
 
Interest Rate Swaps - Assets
 
$
388

 
$

 
$
388

 
$

Interest Rate Swaps - Liabilities
 
(6,379
)
 

 
(6,379
)
 

Puts
 
(206
)
 

 

 
(206
)
DownREIT units
 
(1,573
)
 
(1,573
)
 

 

Indebtedness
 
 
 
 
 
 
 
 
Fixed rate unsecured notes
 
(6,197,771
)
 
(6,197,771
)
 

 

Secured notes and variable rate unsecured indebtedness
 
(1,398,147
)
 

 
(1,398,147
)
 

Total
 
$
(7,603,688
)
 
$
(6,199,344
)
 
$
(1,404,138
)
 
$
(206
)

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 March 2020, the World Health Organization designated COVID-19 as a pandemic. While the Company has taken various actions in response to the COVID-19 pandemic, the impact on its consolidated results of operations, cash flows, financial condition and liquidity will depend on (i) the duration and severity of the pandemic, (ii) the duration and nature of governmental responses to contain the spread of the disease and assist consumers and businesses and (iii) how quickly and to what extent normal economic and operating conditions can resume. Given this uncertainty, the Company is not able to estimate the expected impact of the COVID-19 pandemic on its results of operations, cash flows, financial condition, or liquidity for the year ending December 31, 2020 at this time.

As of May 7, 2020, the Company has $148,000,000 outstanding under the Credit Facility.



22


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

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help provide an understanding of our business, financial condition and results of operations. This MD&A should be read in conjunction with our Condensed Consolidated Financial Statements and the accompanying Notes to Condensed Consolidated Financial Statements included elsewhere in this report. This report, including the following MD&A, contains forward-looking statements regarding future events or trends that should be read in conjunction with the factors described under "Forward-Looking Statements" included in this report.  Actual results or developments could differ materially from those projected in such statements as a result of the factors described under "Forward-Looking Statements" as well as the risk factors described in Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2019 (the "Form 10-K").

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

Executive Overview

Business Description

We develop, redevelop, acquire, own and operate multifamily apartment communities 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 markets in Southeast Florida and Denver, Colorado (the "Expansion Markets"). We focus on leading metropolitan areas that we believe historically have been 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 in the future to offer the opportunity for superior risk-adjusted returns over the long-term on apartment community investments relative to other markets that do not have these characteristics. We seek to create long-term shareholder value by accessing capital on cost effective terms; deploying that capital to develop, redevelop and acquire apartment communities in our selected markets; operating apartment communities; and selling communities when they no longer meet our long-term investment strategy or when pricing is attractive.

Our strategic vision is to be the leading apartment company in select 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 and being disciplined in our capital allocation and balance sheet management. Our communities are predominately upscale and generally command among the highest rents in their markets. However, we also pursue the ownership and operation of apartment communities that target a variety of customer segments and price points, consistent with our goal of offering a broad range of products and services. We regularly evaluate the allocation of our investments by the amount of invested capital and by product type within our individual markets.

First Quarter 2020 Highlights

Net income attributable to common stockholders for the three months ended March 31, 2020 was $167,971,000, a decrease of $2,395,000, or 1.4%, from the prior year period. The decrease is primarily due to increases in depreciation expense, loss on extinguishment of debt and interest expense in the current year period. These amounts were partially offset by an increase in NOI from communities across the portfolio, as well as increases in gains on real estate dispositions in the current year period.

Established Communities NOI for the three months ended March 31, 2020 was $391,645,000, an increase of $11,308,000, or 3.0%, over the prior year period.

COVID-19 Pandemic

The Company has taken various actions in response to the COVID-19 pandemic to adjust our business operations and to address the needs of our residents and associates. We are committed to the health and safety of our associates and residents and have adopted certain measures to help mitigate the financial impact arising from the national emergency on our residents, including providing flexible lease renewal options at no rent increase for leases expiring through June 30, 2020, creating payment plans for residents who are unable to pay their rent because they are impacted by this national emergency and waiving late fees and certain other customary fees associated with apartment rentals.


23


The impact on our consolidated results of operations from COVID-19 will depend on the duration and severity of the pandemic, the duration and nature of governmental responses to contain the spread of the disease and cushion the impact on consumers, and how quickly and to what extent normal economic and operating conditions can resume. The current and potential future impacts of the COVID-19 pandemic on our business, particularly on (i) rent levels, collectibility of rents, occupancy and the extent to which we waive certain other customary fees associated with our apartment rental business and (ii) development timing and volume mean that our historical results of operations and financial condition are not necessarily indicative of future results of operations and financial condition. Because those factors are beyond our control and knowledge, the adverse impact of the pandemic on our results of operations cannot be reasonably estimated, and could be material.

Our rental operations are being and will likely continue to be impacted by the COVID-19 pandemic. Through April 30, 2020, we have collected approximately 94% of our Established Communities’ April 2020 billed residential rents from market rate, affordable and corporate apartments, representing 96% of our average collections rate at month end (which was 98% for the twelve months ended March 31, 2020). These amounts exclude certain fees waived during the month of April 2020, such as amenity fees for closed amenities, late fees and credit card fees, which in the aggregate have averaged $1,400,000 per month over the twelve months ended March 31, 2020. While our collections rates early in the month vary from month to month depending on where weekends fall during the month and other factors, in early May 2020, Established Communities’ residential rent collections as a percentage of billed rents (consistent with the description above) are trending approximately 1.5% below the 96% relative collections rate that we achieved for the full month April 2020. Retail revenue accounted for 1.4% of our Established Communities’ revenue during 2019, and collections from retail tenants were 44% for the month of April 2020 at month end. The collection rates above are based on individual resident and retail tenant activity as reflected in our property management systems, and are presented to provide information about collections trends during the COVID-19 pandemic. The collections information provided above is not routinely produced for internal use by senior management or publicly disclosed by the Company and is a result of analysis that was not subject to internal controls over financial reporting. This information is not prepared in accordance with GAAP, does not reflect GAAP revenue or cash flow metrics, may be subject to adjustment in preparing GAAP revenue and cash flow metrics at the end of the three months ended June 30, 2020, and is not and should not be interpreted as predicting the Company’s financial performance, results of operations or liquidity for any period.

At March 31, 2020, we owned or held a direct or indirect interest in:

19 communities under construction, which are expected to contain 6,198 apartment homes with a projected total capitalized cost of $2,378,000,000.

As of March 31, 2020, construction at six of these Development Communities has been temporarily suspended after considering state and local regulations and/or advisories and the construction at many of the remaining Development Communities has been slowed due to the impact of safety precautions on labor availability and inspection constraints. As of May 4, 2020, we are in the process of restarting construction at four of these six communities after changes in state and local advisories in Washington state and Northern California. We may be required to, or may in our discretion, temporarily suspend ongoing construction at one or more of these remaining Development Communities as a result of either governmental actions or social or economic conditions arising as a result of the COVID-19 pandemic.

Land or rights to land on which we expect to develop an additional 28 apartment communities that, if developed as expected, will contain 9,720 apartment homes, and will be developed for an aggregate total capitalized cost of $4,087,000,000.

In response to the COVID-19 pandemic, we have not started the construction of any new development communities in 2020, and we will evaluate future starts on an individual basis, based on evolving economic and market conditions. In addition, we have begun taking action to substantially reduce redevelopment and other non-essential capex investment. We expect to be able to meet our reasonably foreseeable liquidity needs, as they arise, through a combination of one or more of the following sources: existing cash on hand; operating cash flows; borrowings under our Credit Facility; secured debt; the issuance of corporate securities which could include unsecured debt, preferred equity and/or common equity; the sale of apartment communities; or through the formation of joint ventures. See the discussion under "Liquidity and Capital Resources."

During the three months ended March 31, 2020, we sold one wholly-owned operating community containing 250 apartment homes for $64,750,000, and our gain in accordance with GAAP was $24,413,000. In addition, we sold 36 residential condominiums at The Park Loggia, for gross proceeds of $105,607,000, resulting in a gain in accordance with GAAP of $4,903,000.


24


Communities Overview

Our real estate investments consist primarily of current operating apartment communities, communities in various stages of development ("Development Communities") and Development Rights (as defined below). Our current operating communities are further classified as Established Communities, Other Stabilized Communities, Lease-Up Communities, Redevelopment Communities and Unconsolidated Communities. While we generally establish the classification of communities on an annual basis, we 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 Established, Other Stabilized, Lease-Up, Redevelopment, or Unconsolidated according to the following attributes:

Established Communities (also known as Same Store Communities) are consolidated communities in the markets where we have a significant presence (New England, New York/New Jersey, Mid-Atlantic, Pacific Northwest, Northern and Southern California and our expansion markets of Southeast Florida and Denver, Colorado), and where a comparison of operating results from the prior year to the current year is meaningful, as these communities were owned and had stabilized occupancy as of the beginning of the respective prior year period. For the three month periods ended March 31, 2020 and 2019, Established Communities are communities that are consolidated for financial reporting purposes, had stabilized occupancy as of January 1, 2019, are not conducting or are not probable to conduct substantial redevelopment activities and are not held for sale as of March 31, 2020 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 Communities are all other completed consolidated communities that have stabilized occupancy, as defined above, as of January 1, 2020, or which were acquired subsequent to January 1, 2019. Other Stabilized Communities excludes communities that are conducting or are probable to conduct substantial redevelopment activities within the current year, as defined below.