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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended September 30, 2021
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

 
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date:

139,740,922 shares of common stock, par value $0.01 per share, were outstanding as of October 29, 2021.


AVALONBAY COMMUNITIES, INC.
FORM 10-Q
INDEX
 
  PAGE
PART I - FINANCIAL INFORMATION  
   
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  
     
 
1
     
 
2
     
 
3
     
 
5
   
   
   
   
 
   
   
   
   
   
   
   
   






AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
  9/30/2021 12/31/2020
  (unaudited)  
ASSETS    
Real estate:    
Land and improvements $ 4,510,361  $ 4,394,298 
Buildings and improvements 17,839,750  17,231,275 
Furniture, fixtures and equipment 1,000,756  924,583 
  23,350,867  22,550,156 
Less accumulated depreciation (6,056,727) (5,700,179)
Net operating real estate 17,294,140  16,849,977 
Construction in progress, including land 787,561  989,765 
Land held for development 66,769  110,142 
For-sale condominium inventory 171,113  267,219 
Real estate assets held for sale, net 46,438  16,678 
Total real estate, net 18,366,021  18,233,781 
Cash and cash equivalents 322,294  216,976 
Cash in escrow 113,556  96,556 
Resident security deposits 33,440  30,811 
Investments in unconsolidated real estate entities 199,541  202,612 
Deferred development costs 55,451  55,427 
Prepaid expenses and other assets 236,348  207,715 
Right of use lease assets 152,316  155,266 
Total assets $ 19,478,967  $ 19,199,144 
LIABILITIES AND EQUITY    
Unsecured notes, net $ 6,951,637  $ 6,702,005 
Variable rate unsecured credit facility —  — 
Mortgage notes payable, net 827,667  862,332 
Dividends payable 224,760  224,897 
Payables for construction 57,970  93,609 
Accrued expenses and other liabilities 328,082  274,699 
Lease liabilities 174,922  181,479 
Accrued interest payable 62,176  49,033 
Resident security deposits 59,189  55,928 
Liabilities related to real estate assets held for sale 1,198  311 
Total liabilities 8,687,601  8,444,293 
Commitments and contingencies
Redeemable noncontrolling interests 3,136  2,677 
Equity:    
Preferred stock, $0.01 par value; $25 liquidation preference; 50,000,000 shares authorized at September 30, 2021 and December 31, 2020; zero shares issued and outstanding at September 30, 2021 and December 31, 2020
—  — 
Common stock, $0.01 par value; 280,000,000 shares authorized at September 30, 2021 and December 31, 2020; 139,638,925 and 139,526,671 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively
1,396  1,395 
Additional paid-in capital 10,684,639  10,664,416 
Accumulated earnings less dividends 128,549  126,022 
Accumulated other comprehensive loss (26,924) (40,250)
Total stockholders' equity 10,787,660  10,751,583 
Noncontrolling interests 570  591 
Total equity 10,788,230  10,752,174 
Total liabilities and equity $ 19,478,967  $ 19,199,144 
 
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 For the nine months ended
  9/30/2021 9/30/2020 9/30/2021 9/30/2020
Revenue:    
Rental and other income $ 580,079  $ 566,387  $ 1,691,273  $ 1,742,509 
Management, development and other fees 695  1,017  2,380  2,950 
Total revenue 580,774  567,404  1,693,653  1,745,459 
Expenses:    
Operating expenses, excluding property taxes 148,704  143,909  430,377  406,991 
Property taxes 72,332  68,934  212,518  202,973 
Expensed transaction, development and other pursuit costs, net of recoveries 417  567  1,900  4,289 
Interest expense, net 55,987  53,249  164,704  162,562 
Loss (gain) on extinguishment of debt, net 17,890  (105) 17,768  9,333 
Depreciation expense 193,791  175,348  561,560  529,508 
General and administrative expense 17,313  13,985  53,130  46,878 
Casualty and impairment loss 1,940  —  3,117  — 
Total expenses 508,374  455,887  1,445,074  1,362,534 
Income from investments in unconsolidated entities 6,867  5,083  32,959  6,770 
Gain on sale of communities 58  31,607  388,354  91,338 
Gain on other real estate transactions, net 1,543  129  2,002  328 
Net for-sale condominium activity 158  (646) (1,402) 4,162 
Income before income taxes 81,026  147,690  670,492  485,523 
Income tax (expense) benefit (2,179) 27  (1,434) 1,069 
Net income 78,847  147,717  669,058  486,592 
Net loss (income) attributable to noncontrolling interests 67  (14) 32  (90)
Net income attributable to common stockholders $ 78,914  $ 147,703  $ 669,090  $ 486,502 
Other comprehensive income (loss):    
Gain (loss) on cash flow hedges 2,010  1,333  1,188  (17,731)
Cash flow hedge losses reclassified to earnings 7,405  2,367  12,138  6,617 
Comprehensive income $ 88,329  $ 151,403  $ 682,416  $ 475,388 
Earnings per common share - basic:    
Net income attributable to common stockholders $ 0.57  $ 1.05  $ 4.79  $ 3.46 
Earnings per common share - diluted:    
Net income attributable to common stockholders $ 0.56  $ 1.05  $ 4.79  $ 3.46 

See accompanying notes to Condensed Consolidated Financial Statements.
2

AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Dollars in thousands)
  For the nine months ended
  9/30/2021 9/30/2020
Cash flows from operating activities:
Net income $ 669,058  $ 486,592 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense 561,560  529,508 
Amortization of deferred financing costs 5,519  5,617 
Amortization of debt discount 1,998  1,321 
Loss on extinguishment of debt, net 17,768  9,333 
Amortization of stock-based compensation 20,660  17,753 
Equity in loss of, and return on, unconsolidated real estate entities and noncontrolling interests, net of eliminations 4,290  5,204 
Real estate casualty loss 2,802  — 
Abandonment of development pursuits 685  2,095 
Unrealized gain on terminated cash flow hedges (2,654) — 
Cash flow hedge losses reclassified to earnings 6,874  6,617 
Gain on sale of real estate assets (413,661) (96,823)
Gain on for-sale condominiums (2,051) (8,174)
Increase in resident security deposits, prepaid expenses and other assets (20,555) (36,332)
Increase in accrued expenses, other liabilities and accrued interest payable 59,449  39,363 
Net cash provided by operating activities 911,742  962,074 
Cash flows from investing activities:
Development/redevelopment of real estate assets including land acquisitions and deferred development costs (476,307) (562,334)
Acquisition of real estate assets, including partnership interest (392,746) — 
Capital expenditures - existing real estate assets (105,621) (76,860)
Capital expenditures - non-real estate assets (4,689) (24,720)
Decrease in payables for construction (35,639) (4,095)
Proceeds from sale of real estate, net of selling costs 576,973  186,090 
Proceeds from the sale of for-sale condominiums, net of selling costs 98,752  170,604 
Mortgage note receivable lending (118) (260)
Mortgage note receivable payments 1,556  3,419 
Distributions from unconsolidated real estate entities 62,157  9,877 
Investments in unconsolidated real estate entities (40,071) (23,044)
Net cash used in investing activities (315,753) (321,323)
Cash flows from financing activities:
Issuance of common stock, net 7,011  1,599 
Repurchase of common stock, net —  (137,458)
Dividends paid (666,420) (661,000)
Issuance of mortgage notes payable —  51,000 
Repayments of mortgage notes payable, including prepayment penalties (35,688) (125,427)
Issuance of unsecured notes 699,167  1,296,581 
Repayment of unsecured notes, including prepayment penalties (462,147) (958,681)
Payment of deferred financing costs (5,281) (11,278)
Receipt (payment) for termination of forward interest rate swaps 4,751  (25,135)
Payment to noncontrolling interest (45) (59)
Payments related to tax withholding for share-based compensation (13,409) (14,752)
Distributions to DownREIT partnership unitholders (36) (36)
Distributions to joint venture and profit-sharing partners (234) (319)
Preferred interest obligation redemption and dividends (1,340) (1,000)
Net cash used in financing activities (473,671) (585,965)
Net increase in cash, cash equivalents and cash in escrow 122,318  54,786 
Cash, cash equivalents and cash in escrow, beginning of period 313,532  127,614 
Cash, cash equivalents and cash in escrow, end of period $ 435,850  $ 182,400 
Cash paid during the period for interest, net of amount capitalized $ 127,575  $ 133,913 
3

See accompanying notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

The following table provides a reconciliation of cash, cash equivalents and cash in escrow reported in the Condensed Consolidated Statements of Cash Flows (dollars in thousands):
For the nine months ended
9/30/2021 9/30/2020
Cash and cash equivalents $ 322,294  $ 87,530 
Cash in escrow 113,556  94,870 
Cash, cash equivalents and cash in escrow reported in the Condensed Consolidated Statements of Cash Flows $ 435,850  $ 182,400 

Supplemental disclosures of non-cash investing and financing activities:

During the nine months ended September 30, 2021:

As described in Note 4, "Equity," the Company issued 153,379 shares of common stock as part of the Company's stock-based compensation plans, of which 56,545 shares related to the conversion of performance awards to shares of common stock, and the remaining 96,834 shares valued at $17,187,000 were issued in connection with new stock grants; 2,223 shares valued at $423,000 were issued through the Company's dividend reinvestment plan; 75,542 shares valued at $13,409,000 were withheld to satisfy employees' tax withholding and other liabilities; and 3,077 restricted shares with an aggregate value of $595,000 previously issued in connection with employee compensation were canceled upon forfeiture.

Common stock dividends declared but not paid totaled $223,380,000.

The Company recorded an increase of $789,000 in redeemable noncontrolling interest with a corresponding decrease to accumulated earnings less dividends to adjust the redemption value associated with the put options held by joint venture partners and DownREIT partnership units.

The Company recorded an increase to prepaid expenses and other assets of $3,399,000 and a corresponding adjustment to accumulated other comprehensive loss, and reclassified $6,874,000 and $5,264,000 of cash flow hedge losses from other comprehensive income (loss) to interest expense, net, and loss (gain) on extinguishment of debt, net, respectively, to record the impact of the Company's derivative and hedge accounting activity.

During the nine months ended September 30, 2020:

The Company issued 165,426 shares of common stock 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 of common stock, and the remaining 69,109 shares valued at $15,285,000 were issued in connection with new stock grants; 1,967 shares valued at $339,000 were issued through the Company's dividend reinvestment plan; 73,103 shares valued at $14,752,000 were withheld to satisfy employees' tax withholding and other liabilities; and 7,421 restricted shares with an aggregate value of $1,187,000 previously issued in connection with employee compensation were canceled upon forfeiture.

Common stock dividends declared but not paid totaled $223,391,000.

The Company recorded a decrease of $387,000 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.

The Company recorded an increase in prepaid expenses and other assets of $1,413,000 and a corresponding adjustment to accumulated other comprehensive loss, and reclassified $6,617,000 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.
4

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

1.  Organization, Basis of Presentation and Significant Accounting Policies

Organization and Basis of Presentation

AvalonBay Communities, Inc. (the "Company," which term, unless the context otherwise requires, refers to AvalonBay Communities, Inc. together with its subsidiaries) is a Maryland corporation that has elected to be treated as a real estate investment trust ("REIT") for federal income tax purposes under the Internal Revenue Code of 1986, as amended (the "Code"). The Company focuses on the development, redevelopment, acquisition, ownership and operation of multifamily communities in New England, the New York/New Jersey metro area, the Mid-Atlantic, the Pacific Northwest, and Northern and Southern California, as well as in the Company's expansion markets of Raleigh-Durham and Charlotte, North Carolina, Southeast Florida, Dallas and Austin, Texas, and Denver, Colorado.

At September 30, 2021, the Company owned or held a direct or indirect ownership interest in 276 operating apartment communities containing 81,968 apartment homes in 13 states and the District of Columbia. In addition, the Company owned or held a direct or indirect ownership interest in 17 communities under development that are expected to contain an aggregate of 5,448 apartment homes when completed, as well as The Park Loggia, which contains 172 for-sale residential condominiums, of which 113 have been sold as of September 30, 2021, and 66,000 square feet of commercial space, of which 87% has been leased as of September 30, 2021. 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 22 communities that, if developed as expected, will contain an estimated 7,376 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 2020 Annual Report on Form 10-K. The results of operations for the three and nine months ended September 30, 2021 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):
5

  For the three months ended For the nine months ended
  9/30/2021 9/30/2020 9/30/2021 9/30/2020
Basic and diluted shares outstanding    
Weighted average common shares - basic 139,386,413  140,271,574  139,338,800  140,366,438 
Weighted average DownREIT units outstanding 7,500  7,500  7,500  7,500 
Effect of dilutive securities 343,812  324,648  298,769  328,865 
Weighted average common shares - diluted 139,737,725  140,603,722  139,645,069  140,702,803 
Calculation of Earnings per Share - basic    
Net income attributable to common stockholders $ 78,914  $ 147,703  $ 669,090  $ 486,502 
Net income allocated to unvested restricted shares (160) (342) (1,443) (1,158)
Net income attributable to common stockholders, adjusted $ 78,754  $ 147,361  $ 667,647  $ 485,344 
Weighted average common shares - basic 139,386,413  140,271,574  139,338,800  140,366,438 
Earnings per common share - basic $ 0.57  $ 1.05  $ 4.79  $ 3.46 
Calculation of Earnings per Share - diluted    
Net income attributable to common stockholders $ 78,914  $ 147,703  $ 669,090  $ 486,502 
Add: noncontrolling interests of DownREIT unitholders in consolidated partnerships 12  12  36  36 
Adjusted net income attributable to common stockholders $ 78,926  $ 147,715  $ 669,126  $ 486,538 
Weighted average common shares - diluted 139,737,725  140,603,722  139,645,069  140,702,803 
Earnings per common share - diluted $ 0.56  $ 1.05  $ 4.79  $ 3.46 
 
All options to purchase shares of common stock outstanding as of September 30, 2021 and 2020 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 accumulated 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.

6

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 commercial space within its apartment communities; and
lessee under (i) ground leases for land underlying current operating or development communities and certain commercial and parking facilities and (ii) office leases for its corporate headquarters and regional offices.

Lessee Considerations

The Company assesses whether a contract is or contains a lease based on whether the contract conveys the right to control the use of an identified asset, including specified portions of larger assets, for a period of time in exchange for consideration. The Company’s leases include both fixed and variable lease payments, 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 fixed lease payments including fixed amounts 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.

7

Lessor Considerations

The Company evaluates leases in which it is the lessor, which are composed of residential and commercial 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 commercial 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.

Additionally, for the Company’s residential and commercial leases, which are comprised of the lease component and common area maintenance as a non-lease component, the Company determined that (i) the leases are operating leases, (ii) the lease component is the predominant component and (iii) all components of its operating leases share the same timing and pattern of transfer.

Revenue and Gain Recognition

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 commercial 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 and nine months ended September 30, 2021 and 2020. Segment information for total revenue has been adjusted to exclude the real estate assets that were sold from January 1, 2020 through September 30, 2021, or otherwise qualify as held for sale as of September 30, 2021, as described in Note 6, "Real Estate Disposition Activities" (dollars in thousands):
  For the three months ended
Same Store Other
Stabilized
Development/
Redevelopment
Non-
allocated (1)
Total
For the period ended September 30, 2021
Management, development and other fees and other ancillary items $ —  $ —  $ —  $ 695  $ 695 
Rental and non-rental related income (2) 1,883  369  171  —  2,423 
Total non-lease revenue (3) 1,883  369  171  695  3,118 
Lease income (4) 517,914  27,539  28,372  —  573,825 
Business interruption insurance proceeds —  —  —  —  — 
Total revenue $ 519,797  $ 27,908  $ 28,543  $ 695  $ 576,943 
For the period ended September 30, 2020
Management, development and other fees and other ancillary items $ —  $ —  $ —  $ 419  $ 419 
Rental and non-rental related income (2) 1,965  598  112  —  2,675 
Total non-lease revenue (3) 1,965  598  112  419  3,094 
Lease income (4) 511,171  21,718  6,831  —  539,720 
Business interruption insurance proceeds 282  —  —  —  282 
Total revenue $ 513,418  $ 22,316  $ 6,943  $ 419  $ 543,096 

8

  For the nine months ended
Same Store Other
Stabilized
Development/
Redevelopment
Non-
allocated (1)
Total
For the period ended September 30, 2021
Management, development and other fees and other ancillary items $ —  $ —  $ —  $ 2,380  $ 2,380 
Rental and non-rental related income (2) 5,469  1,148  483  —  7,100 
Total non-lease revenue (3) 5,469  1,148  483  2,380  9,480 
Lease income (4) 1,514,951  75,886  65,060  —  1,655,897 
Business interruption insurance proceeds —  —  —  —  — 
Total revenue $ 1,520,420  $ 77,034  $ 65,543  $ 2,380  $ 1,665,377 
For the period ended September 30, 2020
Management, development and other fees and other ancillary items $ —  $ —  $ —  $ 1,109  $ 1,109 
Rental and non-rental related income (2) 5,447  1,637  230  —  7,314 
Total non-lease revenue (3) 5,447  1,637  230  1,109  8,423 
Lease income (4) 1,580,580  63,325  16,889  —  1,660,794 
Business interruption insurance proceeds 378  —  —  —  378 
Total revenue $ 1,586,405  $ 64,962  $ 17,119  $ 1,109  $ 1,669,595 
__________________________________
(1)Revenue represents third-party management, asset management and developer fees and miscellaneous income and other ancillary items which are not allocated to a reportable segment.
(2)Amounts include revenue streams related to leasing activities that are not considered components of a lease, including but not limited to, apartment hold fees and application fees, as well as revenue streams not related to leasing activities, including but not limited to, vendor revenue sharing, building advertising, vending and dry cleaning revenue.
(3)Represents all revenue accounted for under ASC 606, Revenue from Contracts with Customers.
(4)Amounts include all revenue streams derived from residential and commercial rental income and other lease income, which are accounted for under ASC 842.

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 September 30, 2021.

Lease Revenue Reserves

The Company assesses the collectability of its lease revenue and receivables on an on-going basis. Under ASC 842, Leases, the Company assesses the probability of receiving all remaining lease amounts due on a lease by lease basis, reserving for revenue and the related receivables for those leases where collection of substantially all of the remaining lease payments is not probable. Subsequently, the Company will only recognize revenue to the extent cash is received. If the Company determines that collection of the remaining lease payments becomes probable at a future date, the Company will recognize the cumulative revenue that would have been recorded under the original lease agreement.

In addition to the specific reserves recognized under ASC 842, the Company also evaluates its lease receivables for collectability at a portfolio level under ASC 450, Contingencies – Loss Contingencies. The Company recognizes a reserve under ASC 450 when the uncollectible revenue is probable and reasonably estimable. The Company applies this reserve to the population of the Company’s revenue and receivables not specifically addressed as part of the specific ASC 842 reserve.

9

COVID-19 Pandemic

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 ultimate impact on its consolidated results of operations, cash flows, financial condition and liquidity will depend on, among other factors, (i) the effect on the multifamily industry and the general economy of measures taken by businesses and the government to prevent the spread of the novel coronavirus and relieve economic distress of consumers, such as governmental limitations on the ability of multifamily owners to evict residents who are delinquent in the payment of their rent and (ii) the preferences of consumers and businesses for living and working arrangements both during and after the pandemic.

As of September 30, 2021, the Company assessed the collectibility of the outstanding lease income receivables as a result of the impact of the COVID-19 pandemic on its residential and commercial lease portfolios. The Company recorded an aggregate offset to income for uncollectible lease revenue for its residential and commercial portfolios of $8,586,000 and $18,755,000 for the three months ended September 30, 2021 and 2020, respectively, and $42,295,000 and $43,034,000 for the nine months ended September 30, 2021 and 2020, respectively, under ASC 842 and ASC 450.

2.  Interest Capitalized

The Company capitalizes interest during the development and redevelopment of real estate assets. Capitalized interest associated with the Company's development or redevelopment activities totaled $7,862,000 and $11,221,000 for the three months ended September 30, 2021 and 2020, respectively, and $25,023,000 and $33,738,000 for the nine months ended September 30, 2021 and 2020, respectively.

3.  Mortgage Notes Payable, Unsecured Notes, Term Loans 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 September 30, 2021 and December 31, 2020 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 September 30, 2021 and December 31, 2020, as shown in the accompanying Condensed Consolidated Balance Sheets (dollars in thousands) (see Note 6, "Real Estate Disposition Activities").
  9/30/2021 12/31/2020
Fixed rate unsecured notes (1) $ 6,750,000  $ 6,500,000 
Term Loans (1) 250,000  250,000 
Fixed rate mortgage notes payable - conventional and tax-exempt (2) 379,636  408,964 
Variable rate mortgage notes payable - conventional and tax-exempt (2) 464,650  470,850 
Total mortgage notes payable and unsecured notes and Term Loans 7,844,286  7,629,814 
Credit Facility —  — 
Total mortgage notes payable, unsecured notes, Term Loans and Credit Facility $ 7,844,286  $ 7,629,814 
_____________________________________
(1)Balances at September 30, 2021 and December 31, 2020 exclude $9,915 and $10,380, respectively, of debt discount, and $38,448 and $37,615, respectively, of deferred financing costs, as reflected in unsecured notes, net on the accompanying Condensed Consolidated Balance Sheets.
(2)Balances at September 30, 2021 and December 31, 2020 exclude $13,806 and $14,478, respectively, of debt discount, and $2,813 and $3,004, 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 nine months ended September 30, 2021:

In January 2021, the Company repaid $27,795,000 principal amount of 5.37% fixed rate debt secured by Avalon San Bruno II at par in advance of its April 2021 maturity date.

In September 2021, the Company repaid $450,000,000 principal amount of its 2.95% unsecured notes in advance of the September 2022 scheduled maturity, recognizing a loss on debt extinguishment of $17,890,000, composed of a prepayment penalty of $12,147,000, and the non-cash write off of unamortized deferred hedging losses and unamortized deferred financing costs of $5,743,000.
10


In September 2021, the Company issued $700,000,000 principal amount of unsecured notes in a public offering under its existing shelf registration statement for proceeds net of underwriting fees of approximately $694,617,000, before considering the impact of other offering costs. The notes mature in January 2032 and were issued at a 2.050% interest rate. The notes were issued under the Company's green bond framework, and the Company has allocated or will allocate the net proceeds, in whole or in part, to one or more new or existing eligible green projects.

At September 30, 2021, 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 (0.86% at September 30, 2021), assuming a one month borrowing rate. The annual facility fee for the Credit Facility remained 0.125%, resulting in a fee of $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 no borrowings outstanding under the Credit Facility and had $2,599,000 and $2,900,000 outstanding in letters of credit that reduced the borrowing capacity as of September 30, 2021 and December 31, 2020, respectively. In addition, the Company had $37,596,000 and $32,079,000 outstanding in additional letters of credit unrelated to the Credit Facility as of September 30, 2021 and December 31, 2020, respectively.

In the aggregate, secured notes payable mature at various dates from March 2027 through July 2066, and are secured by certain apartment communities (with a net carrying value of $1,365,559,000, excluding communities classified as held for sale, as of September 30, 2021).

The weighted average interest rate of the Company's fixed rate secured notes payable (conventional and tax-exempt) was 3.8% at both September 30, 2021 and December 31, 2020. 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 1.6% and 1.7% at September 30, 2021 and December 31, 2020, respectively.

Scheduled payments and maturities of secured notes payable and unsecured notes outstanding at September 30, 2021 are as follows (dollars in thousands):
Year Secured notes
principal payments
Secured notes maturities Unsecured notes and Term Loans maturities Stated interest rate of unsecured notes and Term Loans
2021 $ 1,460  $ —  $ —  N/A
2022 9,918  —  —  N/A
100,000 
LIBOR + 0.90%
2023 10,739  —  350,000  4.200  %
250,000  2.850  %
2024 11,677  —  300,000  3.500  %
150,000 
LIBOR + 0.85%
2025 12,408  —  525,000  3.450  %
300,000  3.500  %
2026 13,445  —  475,000  2.950  %
300,000  2.900  %
2027 15,880  236,100  400,000  3.350  %
2028 20,707  —  450,000  3.200  %
2029 11,742  66,250  450,000  3.300  %
2030 12,384  —  700,000  2.300  %
Thereafter 176,078  245,498  600,000  2.450  %
700,000  2.050  %
350,000  3.900  %
300,000  4.150  %
300,000  4.350  %
  $ 296,438  $ 547,848  $ 7,000,000   

11

The Company was in compliance at September 30, 2021 with customary financial covenants under the Credit Facility, the Term Loans and the Company's fixed rate unsecured notes.

4.  Equity

The following summarizes the changes in equity for the nine months ended September 30, 2021 (dollars in thousands):
Common
stock
Additional
paid-in
capital
Accumulated
earnings
less
dividends
Accumulated
other
comprehensive
loss
Total stockholder's equity Noncontrolling interests Total
equity
Balance at December 31, 2020 $ 1,395  $ 10,664,416  $ 126,022  $ (40,250) $ 10,751,583  $ 591  $ 10,752,174 
Net income attributable to common stockholders —  —  142,223  —  142,223  —  142,223 
Cash flow hedge losses reclassified to earnings —  —  —  2,367  2,367  —  2,367 
Change in redemption value of redeemable noncontrolling interest —  —  (273) —  (273) —  (273)
Noncontrolling interest distribution and income allocation —  —  —  —  —  (16) (16)
Dividends declared to common stockholders ($1.59 per share)
—  —  (221,779) —  (221,779) —  (221,779)
Issuance of common stock, net of withholdings (14,037) 958  —  (13,078) —  (13,078)
Amortization of deferred compensation —  7,286  —  —  7,286  —  7,286 
Balance at March 31, 2021 $ 1,396  $ 10,657,665  $ 47,151  $ (37,883) $ 10,668,329  $ 575  $ 10,668,904 
Net income attributable to common stockholders —  —  447,953  —  447,953  —  447,953 
Loss on cash flow hedges, net —  —  —  (822) (822) —  (822)
Cash flow hedge losses reclassified to earnings —  —  —  2,366  2,366  —  2,366 
Change in redemption value of redeemable noncontrolling interest —  —  (255) —  (255) —  (255)
Noncontrolling interest distribution and income allocation —  —  —  —  —  (7) (7)
Dividends declared to common stockholders ($1.59 per share)
—  —  (222,451) —  (222,451) —  (222,451)
Issuance of common stock, net of withholdings —  2,496  —  —  2,496  —  2,496 
Amortization of deferred compensation —  10,403  —  —  10,403  —  10,403 
Balance at June 30, 2021 $ 1,396  $ 10,670,564  $ 272,398  $ (36,339) $ 10,908,019  $ 568  $ 10,908,587 
Net income attributable to common stockholders —  —  78,914  —  78,914  —  78,914 
Gain on cash flow hedges, net —  —  —  2,010  2,010  —  2,010 
Cash flow hedge losses reclassified to earnings —  —  —  7,405  7,405  —  7,405 
Change in redemption value of redeemable noncontrolling interest —  —  (261) —  (261) —  (261)
Noncontrolling interest distribution and income allocation —  —  —  —  — 
Dividends declared to common stockholders ($1.59 per share)
—  —  (222,475) —  (222,475) —  (222,475)
Issuance of common stock, net of withholdings —  4,633  (27) —  4,606  —  4,606 
Amortization of deferred compensation —  9,442  —  —  9,442  —  9,442 
Balance at September 30, 2021 $ 1,396  $ 10,684,639  $ 128,549  $ (26,924) $ 10,787,660  $ 570  $ 10,788,230 

12

The following summarizes the changes in equity for the nine months ended September 30, 2020 (dollars in thousands):
Common
stock
Additional
paid-in
capital
Accumulated
earnings
less
dividends
Accumulated
other
comprehensive
loss
Total stockholder's equity Noncontrolling interests Total
equity
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 (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 
Net income attributable to common stockholders —  —  170,828  —  170,828  —  170,828 
Loss on cash flow hedges, net —  —  —  (1,461) (1,461) —  (1,461)
Cash flow hedge losses reclassified to earnings —  —  —  2,301  2,301  —  2,301 
Change in redemption value of redeemable noncontrolling interest —  —  (146) —  (146) —  (146)
Noncontrolling interests income allocation —  —  —  —  — 
Dividends declared to common stockholders ($1.59 per share)
—  —  (224,172) —  (224,172) —  (224,172)
Issuance of common stock, net of withholdings —  1,050  138  —  1,188  —  1,188 
Amortization of deferred compensation —  9,724  —  —  9,724  —  9,724 
Balance at June 30, 2020 $ 1,407  $ 10,742,796  $ 172,304  $ (46,317) $ 10,870,190  $ 615  $ 10,870,805 
Net income attributable to common stockholders —  —  147,703  —  147,703  —  147,703 
Gain on cash flow hedges, net —  —  —  1,333  1,333  —  1,333 
Cash flow hedge losses reclassified to earnings —  —  —  2,367  2,367  —  2,367 
Change in redemption value of redeemable noncontrolling interest —  —  62  —  62  —  62 
Noncontrolling interest distribution and income allocation —  —  —  —  —  (17) (17)
Dividends declared to common stockholders ($1.59 per share)
—  —  (222,694) —  (222,694) —  (222,694)
Issuance of common stock, net of withholdings —  105  —  —  105  —  105 
Repurchase of common stock, including repurchase costs (9) (69,779) (67,670) —  (137,458) —  (137,458)
Amortization of deferred compensation —  8,036  —  —  8,036  —  8,036 
Balance at September 30, 2020 $ 1,398  $ 10,681,158  $ 29,705  $ (42,617) $ 10,669,644  $ 598  $ 10,670,242 

As of September 30, 2021 and December 31, 2020, 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.

13

During the nine months ended September 30, 2021, the Company:

i.issued 2,126 shares of common stock in connection with stock options exercised;
ii.issued 2,223 shares of common stock through the Company's dividend reinvestment plan;
iii.issued 153,379 shares of common stock in connection with restricted stock grants and the conversion of performance awards to shares of common stock;
iv.sold 21,000 shares of common stock under CEP V, as discussed below;
v.withheld 75,542 shares of common stock to satisfy employees' tax withholding and other liabilities;
vi.issued 12,145 shares of common stock through the Employee Stock Purchase Plan; and
vii.canceled 3,077 shares of restricted common stock upon forfeiture.

Any deferred compensation related to the Company's stock option, restricted stock and performance award grants as of September 30, 2021 is not reflected on the accompanying Condensed Consolidated Balance Sheets as of September 30, 2021, and will not be reflected until recognized as compensation cost.

In July 2020, the Company’s Board of Directors voted to terminate the Company’s prior $500,000,000 Stock Repurchase Program (the "Amended 2005 Stock Repurchase Program") and approved a new stock repurchase program under which the Company may acquire shares of its common stock in open market or negotiated transactions up to an aggregate purchase price of $500,000,000 (the "2020 Stock Repurchase Program"). Purchases of common stock under the 2020 Stock Repurchase Program may be exercised from time to time in the Company’s discretion and in such amounts as market conditions warrant. The timing and actual number of shares repurchased will depend on a variety of factors, including price, corporate and regulatory requirements, market conditions and other corporate liquidity requirements and priorities. The 2020 Stock Repurchase Program does not have an expiration date and may be suspended or terminated at any time without prior notice. During the nine months ended September 30, 2021, the Company had no repurchases of shares under this program. As of September 30, 2021, the Company had $316,148,000 remaining authorized for purchase under this program.

In May 2019, the Company commenced a fifth continuous equity program ("CEP V") under which the Company may sell (and/or enter into forward sale agreements for the sale of) up to $1,000,000,000 of its common stock from time to time. Actual sales will depend on a variety of factors to be determined by the Company, including market conditions, the trading price of the Company's common stock and 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 and nine months ended September 30, 2021, the Company sold 21,000 shares of common stock at an average sales price of $227.60 per share, for net proceeds of $4,708,000 under the program. As of September 30, 2021, the Company had $748,099,000 remaining authorized for issuance under CEP V.

14

5.  Investments in Real Estate Entities

Investments in Unconsolidated Real Estate Entities

As of September 30, 2021, the Company had investments in eight unconsolidated real estate entities with ownership interest percentages ranging from 20.0% to 50.0% and other unconsolidated investments. The Company accounts for its investments in unconsolidated real estate entities under the equity method of accounting or under the measurement alternative with the carrying amount of the investment adjusted to fair value when there is an observable transaction for the same or similar investment of the same issuer indicating a change in fair value. The significant accounting policies of the Company's unconsolidated real estate entities are consistent with those of the Company in all material respects.

During the nine months ended September 30, 2021, Archstone Multifamily Partners AC JV LP (the "AC JV") sold its final two communities, Avalon North Point and Avalon North Point Lofts, located in Cambridge, MA, containing an aggregate of 529 apartment homes, for $325,000,000. The Company's share of the gain was $23,305,000. In conjunction with the disposition of Avalon North Point, the AC JV repaid a $111,653,000 loan to the equity investors in the venture at par.

The following is a combined summary of the financial position of the entities accounted for using the equity method or the measurement alternative discussed above as of the dates presented, including development joint ventures started and unconsolidated communities sold during the respective periods (dollars in thousands):
  9/30/2021 12/31/2020
  (unaudited)
Assets:    
Real estate, net $ 1,171,955  $ 1,249,730 
Other assets 326,339  255,606 
Total assets $ 1,498,294  $ 1,505,336 
Liabilities and partners' capital:    
Mortgage notes payable, net (1) $ 636,796  $ 751,257 
Other liabilities 172,660  163,808 
Partners' capital 688,838  590,271 
Total liabilities and partners' capital $ 1,498,294  $ 1,505,336 
_________________________________
(1)    Includes the variable rate construction loan secured by AVA Arts District, of which $1,032,000 has been drawn as of September 30, 2021. The Company has guaranteed the construction loan on behalf of the venture, and any obligations the Company may incur under the guarantee, except for those due to misconduct by the Company, are required capital contributions of the partners based on ownership interest. The Company has not guaranteed any other outstanding 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):
For the three months ended For the nine months ended
  9/30/2021 9/30/2020 9/30/2021 9/30/2020
(unaudited) (unaudited)
Rental and other income (1) $ 44,819  $ 28,800  $ 111,562  $ 92,299 
Operating and other expenses (10,698) (12,782) (34,992) (37,034)
Gain on sale of communities —  18,408  164,317  18,448 
Interest expense, net (6,137) (8,024) (21,386) (24,133)
Depreciation expense (6,912) (8,704) (22,831) (26,106)
Net income $ 21,072  $ 17,698  $ 196,670  $ 23,474 
Company's share of net income from investments in unconsolidated entities $ 7,287  $ 5,611  $ 34,435  $ 8,357 
Amortization of excess investment and other (420) (528) (1,476) (1,587)
Income from investments in unconsolidated entities $ 6,867  $ 5,083  $ 32,959  $ 6,770 
_________________________________
15

(1)    Includes unrealized gains on property technology investments during the three and nine months ended September 30, 2021.

Investments in Consolidated Real Estate Entities

During the nine months ended September 30, 2021, the Company acquired four consolidated communities:

Avalon Arundel Crossing East, located in Linthicum Heights, MD, which contains 384 apartment homes and was acquired for a purchase price of $119,000,000.

The Nexus Lakeside, located in Flower Mound, TX, which contains 425 apartment homes and 18,000 square feet of commercial space and was acquired for a purchase price of $117,000,000.

Hub South End, located in Charlotte, NC, which contains 265 apartment homes and 23,000 square feet of commercial space and was acquired for a purchase price of $104,350,000.

Three30Five, located in Charlotte, NC, which contains 164 apartment homes and was acquired for a purchase price of $52,650,000.

The Company accounted for these purchases as asset acquisitions and recorded the acquired assets and assumed liabilities, including identifiable intangibles, at their relative fair values based on the purchase price and acquisition costs incurred. The Company used third party pricing or internal models for the value of the land, a valuation model for the value of the building, and an internal model to determine the fair value of the remaining real estate assets and in-place leases. Given the heterogeneous nature of multifamily real estate, the fair values for the land, debt, real estate assets and in-place leases incorporated significant unobservable inputs and therefore are considered to be Level 3 prices within the fair value hierarchy.

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. The amounts for the three and nine months ended September 30, 2021 and 2020, were $417,000 and $1,900,000 and $567,000 and $4,289,000, 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 and nine months ended September 30, 2021 and 2020, other than those related to casualty losses from property damage. During the three and nine months ended September 30, 2021, the Company recognized a charge of $1,971,000 for the property and casualty damages across several communities in its East Coast markets related to severe storms, reported as casualty and impairment loss on the accompanying Condensed Consolidated Statements of Comprehensive Income. In addition, during the nine months ended September 30, 2021, the Company recognized a charge of $1,146,000 for
16

the property and casualty damages resulting from a fire at an operating community, reported as casualty and impairment loss on the accompanying Condensed Consolidated Statements of Comprehensive Income.

The Company evaluates its for-sale condominium inventory for potential indicators of impairment, considering whether the fair value of the individual for-sale condominium units exceeds the carrying value of those units. For-sale condominium inventory is stated at 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 and nine months ended September 30, 2021 and 2020, the Company did not recognize any impairment losses on its for-sale condominium inventory.

The Company assesses its portfolio of land held for both development and investment for impairment if the intent of the Company changes with respect to either the development of, or the expected holding period for, the land. During the three and nine months ended September 30, 2021 and 2020, the Company did not recognize any impairment charges on its investment in land.

The Company evaluates its unconsolidated investments for other than temporary impairment, considering both the extent and amount by which the carrying value of the investment exceeds the fair value, and the Company's intent and ability to hold the investment to recover its carrying value. The Company also evaluates its proportionate share of any impairment of assets held by unconsolidated investments. There were no other than temporary impairment losses recognized for any of the Company's investments in unconsolidated real estate entities during the three and nine months ended September 30, 2021 and 2020.

6.  Real Estate Disposition Activities

The following real estate sales occurred during the nine months ended September 30, 2021:

Community name Location Period of sale Apartment homes Gross sales price Gain on
 disposition (1)
eaves Stamford Stamford, CT Q121 238 $ 72,000  $ 53,775 
Avalon Norwalk Norwalk, CT Q221 311 $ 103,000  $ 48,912 
AVA Cortez Hill San Diego, CA Q221 299 $ 96,500  $ 75,716 
Avalon Redmond Place Redmond, WA Q221 222 $ 97,700  $ 72,929 
Avalon Bronxville Bronxville, NY Q221 110 $ 89,000  $ 71,773 
Avalon Glen Cove & Avalon Glen Cove North Glen Cove, NY Q221 367 $ 126,000  $ 65,242 
_________________________________
(1)    Gain on disposition was reported in gain on sale of communities on the accompanying Condensed Consolidated Statements of Comprehensive Income.

At September 30, 2021, the Company had one real estate asset that qualified as held for sale.

The Park Loggia

The Park Loggia, located in New York, NY, contains 172 for-sale residential condominiums and 66,000 square feet of commercial space. During the three and nine months ended September 30, 2021, the Company sold 17 and 43 residential condominiums at The Park Loggia, for gross proceeds of $54,277,000 and $107,278,000, respectively, resulting in a gain in accordance with GAAP of $1,345,000 and $2,051,000, respectively. As of September 30, 2021, the Company had sold 113 residential condominiums and there were 59 residential condominiums remaining to be sold. The Company incurred $1,187,000 and $1,373,000 during the three months ended September 30, 2021 and 2020, respectively, and $3,453,000 and $4,012,000 during the nine months ended September 30, 2021 and 2020, respectively, in marketing, operating and administrative costs. All amounts are included in net for-sale condominium activity, on the accompanying Condensed Consolidated Statements of Comprehensive Income. As of September 30, 2021 and December 31, 2020, the unsold for-sale residential condominiums at The Park Loggia had an aggregate carrying value of $171,113,000 and $267,219,000, respectively, presented as for-sale condominium inventory on the accompanying Condensed Consolidated Balance Sheets.

17

7. Commitments and Contingencies

Lease Obligations

The Company owns eight apartment communities and two commercial properties, located on land subject to ground leases expiring between July 2046 and March 2142. The Company has purchase options for all ground leases expiring prior to 2060. The ground leases for seven of the eight apartment communities and the rest of the ground leases are operating leases, with rental expense recognized on a straight-line basis over the lease term. In addition, the Company is party to 13 leases for its corporate and regional offices with varying terms through 2031, all of which are operating leases. During the three and nine months ended September 30, 2021, the Company exercised its purchase option under an operating lease, acquiring the land encumbered by the ground lease for Avalon Hackensack at Riverside for $10,336,000.

As of September 30, 2021 and December 31, 2020, the Company had total operating lease assets of $126,699,000 and $133,581,000, respectively, and lease obligations of $154,790,000 and $161,313,000, 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 $3,905,000 and $3,958,000 for the three months ended September 30, 2021 and 2020, respectively, and $11,628,000 and $12,115,000 for the nine months ended September 30, 2021 and 2020, respectively, related to operating leases.

The Company has one apartment community located on land subject to a ground lease and three leases for portions of parking garages, adjacent to apartment communities, that are finance leases. As of September 30, 2021 and December 31, 2020, the Company had total finance lease assets of $25,616,000 and $21,685,000, respectively, and total finance lease obligations of $20,131,000 and $20,166,000, respectively, reported as components of right of use lease assets and lease liabilities, respectively, on the accompanying Condensed Consolidated Balance Sheets.

8.  Segment Reporting

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

The Company's segment disclosures present the measure(s) used by the chief operating decision maker ("CODM") for purposes of assessing each segment's performance. The Company's CODM is comprised of several members of its executive management team who use net operating income ("NOI") as the primary financial measure for Same Store communities and Other Stabilized communities. NOI is defined by the Company as total property revenue less direct property operating expenses (including property taxes), and excluding corporate-level income (including management, development and other fees), corporate-level property management and other indirect operating expenses, expensed transaction, development and other pursuit costs, net of recoveries, interest expense, net, loss (gain) on extinguishment of debt, net, general and administrative expense, income from investments in unconsolidated entities, depreciation expense, corporate income tax expense (benefit), casualty and impairment loss, gain on sale of communities, gain on other real estate transactions, net, net for-sale condominium activity and net operating income from real estate assets sold or held for sale. The CODM evaluates the Company's financial performance on a consolidated residential and commercial basis, as the Company's commercial results attributable to the non-apartment components of the Company's mixed-use communities and other nonresidential operations represents 1.8% and 1.2% of total NOI for the three months ended September 30, 2021 and 2020, respectively, and 1.6% and 1.1% for the nine months ended September 30, 2021 and 2020, respectively. Although the Company considers NOI a useful measure of a community's or communities' operating performance, NOI should not be considered an alternative to net income or net cash flow from operating activities, as determined in accordance with GAAP. NOI excludes a number of income and expense categories as detailed in the reconciliation of NOI to net income.

A reconciliation of NOI to net income for the three and nine months ended September 30, 2021 and 2020 is as follows (dollars in thousands):
18

  For the three months ended For the nine months ended
  9/30/2021 9/30/2020 9/30/2021 9/30/2020
Net income $ 78,847  $ 147,717  $ 669,058  $ 486,592 
Property management and other indirect operating expenses, net of corporate income 25,322  23,837  74,110  70,043 
Expensed transaction, development and other pursuit costs, net of recoveries 417  567  1,900  4,289 
Interest expense, net 55,987  53,249  164,704  162,562 
Loss (gain) on extinguishment of debt, net 17,890  (105) 17,768  9,333 
General and administrative expense 17,313  13,985  53,130  46,878 
Income from investments in unconsolidated entities (6,867) (5,083) (32,959) (6,770)
Depreciation expense 193,791  175,348  561,560  529,508 
Income tax expense (benefit) 2,179  (27) 1,434  (1,069)
Casualty and impairment loss 1,940  —  3,117  — 
Gain on sale of communities (58) (31,607) (388,354) (91,338)
Gain on other real estate transactions, net (1,543) (129) (2,002) (328)
Net for-sale condominium activity (158) 646  1,402  (4,162)
Net operating income from real estate assets sold or held for sale (2,373) (14,686) (17,393) (47,798)
        Net operating income $ 382,687  $ 363,712  $ 1,107,475  $ 1,157,740 

The following is a summary of NOI from real estate assets sold or held for sale for the periods presented (dollars in thousands):
For the three months ended For the nine months ended
9/30/2021 9/30/2020 9/30/2021 9/30/2020
Rental income from real estate assets sold or held for sale $ 3,831  $ 24,308  $ 28,276  $ 75,864 
Operating expenses from real estate assets sold or held for sale (1,458) (9,622) (10,883) (28,066)
Net operating income from real estate assets sold or held for sale $ 2,373  $ 14,686  $ 17,393  $ 47,798 

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

The following table provides details of the Company's segment information as of the dates specified (dollars in thousands). The segments are classified based on the individual community's status at January 1, 2021. Segment information for the three and nine months ended September 30, 2021 and 2020 has been adjusted to exclude the real estate assets that were sold from January 1, 2020 through September 30, 2021, or otherwise qualify as held for sale as of September 30, 2021, as described in Note 6, "Real Estate Disposition Activities."
19


  For the three months ended For the nine months ended
  Total
revenue
NOI Total
revenue
NOI Gross real estate (1)
For the period ended September 30, 2021  
Same Store      
New England $ 77,037  $ 48,115  $ 224,614  $ 142,278  $ 2,781,806 
Metro NY/NJ 108,776  72,564  319,079  215,147  4,129,121 
Mid-Atlantic 85,328  56,103  252,271  168,359  3,575,978 
Southeast Florida 8,152  5,026  23,099  13,772  395,594 
Denver, CO 6,070  4,011  17,576  11,965  320,214 
Pacific Northwest 28,092  19,197  81,640  55,389  1,057,166 
Northern California 90,127  63,088  270,124  190,658  3,458,280 
Southern California 116,215  79,590  332,017  225,489  4,382,656 
Total Same Store 519,797  347,694  1,520,420  1,023,057  20,100,815 
Other Stabilized 27,908  18,217  77,034  49,796  1,528,196 
Development / Redevelopment 28,543  16,776  65,543  34,622  2,401,751 
Land Held for Development N/A N/A N/A N/A 66,769 
Non-allocated (2) 695  N/A 2,380  N/A 278,779 
Total $ 576,943  $ 382,687  $ 1,665,377  $ 1,107,475  $ 24,376,310 
For the period ended September 30, 2020  
Same Store      
New England $ 75,394  $ 48,290  $ 231,478  $ 152,589  $ 2,756,835 
Metro NY/NJ 106,542  72,283  325,807  225,793  4,102,402 
Mid-Atlantic 84,974  56,721  261,932  182,503  3,550,373 
Southeast Florida 6,950  3,331  21,818  11,755  393,594 
Denver, CO 5,422  3,418  15,758  10,084  319,038 
Pacific Northwest 27,545  18,913  84,808  59,977  1,051,451 
Northern California 97,777  71,207  308,522  232,470  3,430,831 
Southern California 108,814  72,995  336,282  233,666  4,349,770 
Total Same Store 513,418  347,158  1,586,405  1,108,837  19,954,294 
Other Stabilized 22,316  14,238  64,962  42,251  1,125,829 
Development / Redevelopment 6,943  2,316  17,119  6,652  1,698,823 
Land Held for Development N/A N/A N/A N/A 43,494 
Non-allocated (2) 419  N/A 1,109  N/A 399,048 
Total $ 543,096  $ 363,712  $ 1,669,595  $ 1,157,740  $ 23,221,488 
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(1)Does not include gross real estate assets held for sale of $89,529 as of September 30, 2021 and gross real estate assets either sold or classified as held for sale subsequent to September 30, 2020 of $720,432.
(2)Revenue represents third-party management, accounting, and developer fees and miscellaneous income and other ancillary items which are not allocated to a reportable segment. Gross real estate includes the for-sale residential condominiums at The Park Loggia, as discussed in Note 6, "Real Estate Disposition Activities."

9.  Stock-Based Compensation Plans

As part of its long-term compensation plans, the Company has granted stock options, performance awards and restricted stock. 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 and nine months ended September 30, 2021, is as follows:
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2009 Plan
shares
Weighted average
exercise price
per share
Options Outstanding, December 31, 2020 12,506  $ 129.35 
Exercised (2,126) 121.78 
Granted (1) 294,115  180.32 
Forfeited (4,713) 180.32 
Options Outstanding, September 30, 2021 299,782  $ 178.61 
Options Exercisable, September 30, 2021 10,380  $ 130.90 
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(1)Includes 4,847 options resulting from recipient elections to receive a portion of earned restricted stock awards in the form of stock options.

The Company granted stock options in 2021 with the exercise price equal to the closing stock price on the date of grant. The stock options awarded in 2021 will cliff vest in two years on March 1, 2023 and they have a ten-year term. The Company used the Black-Scholes Option Pricing model to determine the grant date fair value of options. The assumptions used are as follows:
2021
Dividend yield 3.5%
Estimated volatility 27.1%
Risk free rate 0.81%
Expected life of options
5 years
Estimated fair value $28.64

Information with respect to performance awards granted is as follows:
Performance awards Weighted average grant date fair value per award
Outstanding at December 31, 2020 241,921  $ 195.13 
  Granted (1) 138,033  191.12 
  Change in awards based on performance (2) (37,469) 156.00 
  Converted to shares of common stock (56,545) 156.00 
  Forfeited (1,418) 207.65 
Outstanding at September 30, 2021 284,522  $ 206.05 
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(1)The amount of shares of common stock that ultimately may be earned is based on the total shareholder return metrics related to the Company's common stock for 69,064 performance awards and financial metrics related to operating performance, net asset value and leverage metrics of the Company for 68,969 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 2021 for which achievement will be determined by using total shareholder return measures. The assumptions used are as follows:
2021
Dividend yield 3.5%
Estimated volatility over the life of the plan (1)
22.0% - 49.0%
Risk free rate
0.06% - 0.38%
Estimated performance award value based on total shareholder return measure $213.16
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(1)Estimated volatility over the life of the plan is using 50% historical volatility and 50% implied volatility.

For the portion of the performance awards granted in 2021 for which achievement will be determined by using financial metrics, the compensation cost was based on a weighted average grant date value of $178.38, and the Company's estimate of corporate achievement for the financial metrics.
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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, 2020 131,724  $ 203.28  146,319 
  Granted - restricted stock shares 96,834  177.49  — 
  Vested - restricted stock shares (68,702) 192.07  (71,692)
  Forfeited (3,077) 193.47  — 
Outstanding at September 30, 2021 156,779  $ 192.45  74,627 

Total employee stock-based compensation cost recognized in income was $19,965,000 and $17,385,000 for the nine months ended September 30, 2021 and 2020, respectively, and total capitalized stock-based compensation cost was $6,899,000 and $8,291,000 for the nine months ended September 30, 2021 and 2020, respectively. At September 30, 2021, there was a total unrecognized compensation cost of $46,683,000 for unvested restricted stock, stock options and performance awards, which does not include forfeitures, and is expected to be recognized over a weighted average period of 1.9 years. Forfeitures are included in compensation cost as they occur.

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 $695,000 and $1,017,000 for the three months ended September 30, 2021 and 2020, respectively, and $2,380,000 and $2,950,000 for the nine months ended September 30, 2021 and 2020, respectively. In addition, the Company had outstanding receivables associated with its property and construction management roles of $3,374,000 and $5,408,000 as of September 30, 2021 and December 31, 2020, respectively.

Director Compensation

The Company recorded non-employee director compensation expense relating to restricted stock grants and deferred stock units in the amount of $516,000 and $459,000 in the three months ended September 30, 2021 and 2020, respectively, and $1,457,000 and $1,360,000 in the nine months ended September 30, 2021 and 2020, respectively, as a component of general and administrative expense. Deferred compensation relating to these restricted stock grants and deferred stock units to non-employee directors was $1,119,000 and $614,000 on September 30, 2021 and December 31, 2020, respectively, reported as a component of prepaid expenses and other assets on the accompanying Condensed Consolidated Balance Sheets.

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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 September 30, 2021, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined it is not significant. As a result, the Company has determined that its derivative valuations are classified in Level 2 of the fair value hierarchy.

The following table summarizes the consolidated derivative positions at September 30, 2021 (dollars in thousands):
Non-designated Hedges Cash Flow Hedges
Interest Rate Caps Interest Rate Swaps
Notional balance $ 410,950 $ 150,000
Weighted average interest rate (1) 1.6  % N/A
Weighted average swapped/capped interest rate 6.1  % 1.4  %
Earliest maturity date November 2021 March 2022
Latest maturity date July 2026 March 2022
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(1)For debt hedged by interest rate caps, represents the weighted average interest rate on the hedged debt prior to any impact of the associated interest rate caps.

The following derivative activity occurred during the nine months ended September 30, 2021:

The Company terminated $150,000,000 of forward interest rate swap agreements for which hedge accounting was ceased in 2020, receiving a payment of $6,962,000. The Company recognized $2,894,000 of these proceeds as a gain in 2020, and $2,654,000 of these proceeds as a gain during the nine months ended September 30, 2021 included in interest expense, net on the accompanying Condensed Consolidated Statements of Comprehensive Income.

In conjunction with the issuance of the Company's $700,000,000 2.050% unsecured notes due 2032 in September 2021, the Company settled $200,000,000 of forward interest rate swap agreements, entered into in 2021, designated as cash flow hedges of the interest rate variability on the issuance of the unsecured notes, making a net payment of $2,211,000. The Company has deferred these amounts in accumulated other comprehensive loss on the accompanying Condensed Consolidated Balance Sheets, and is recognizing the impact as a component of interest expense, net, over the term of the respective hedged debt.

The Company entered into an additional $150,000,000 of new forward interest rate swap agreements executed to reduce the impact of variability in interes