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•

As described in Note 4, "Equity," 164,526 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 68,209 shares valued at $15,150,000 were issued in connection with new stock grants; 1,183 shares valued at $217,000 were issued through the Company's dividend reinvestment plan; 73,089 shares valued at $14,750,000 were withheld to satisfy employees' tax withholding and other liabilities; and 4,050 restricted shares with an aggregate value of $685,000 previously issued in connection with employee compensation were canceled upon forfeiture.

•	Common stock dividends declared but not paid totaled $224,482,000.

•	The Company recorded a decrease of $325,000 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 $98,000, an increase in prepaid expenses and other assets of $178,000 and a corresponding adjustment to accumulated other comprehensive loss, and reclassified $4,250,000 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.

•

The Company issued 150,359 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 77,287 shares valued at $15,145,000 were issued in connection with new stock grants; 1,092 shares valued at $208,000 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 1,438 restricted shares with an aggregate value of $250,000 previously issued in connection with employee compensation were canceled upon forfeiture.

•	Common stock dividends declared but not paid totaled $212,822,000.

•	The Company recorded an increase of $269,000 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 accrued expenses and other liabilities of $4,198,000, an increase in prepaid expenses and other assets of $18,000 and a corresponding adjustment to accumulated other comprehensive loss, and reclassified $3,079,000 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.

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•	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.

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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 June 30, 2020, the Company owned or held a direct or indirect ownership interest in 276 operating apartment communities containing 80,182 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 52 have been sold as of June 30, 2020, and 67,000 square feet of retail space, of which 64% has been leased as of June 30, 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 9,786 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 and six months ended June 30, 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):

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	For the three months ended								For the six months ended
	6/30/2020				6/30/2019				6/30/2020				6/30/2019
Basic and diluted shares outstanding
Weighted average common shares - basic	140,450,744				139,113,390				140,413,857				138,724,479
Weighted average DownREIT units outstanding	7,500				7,500				7,500				7,500
Effect of dilutive securities	279,916				497,341				330,974				495,397
Weighted average common shares - diluted	140,738,160				139,618,231				140,752,331				139,227,376
Calculation of Earnings per Share - basic
Net income attributable to common stockholders	$	170,828			$	168,281			$	338,799			$	338,647
Net income allocated to unvested restricted shares	(390		)		(435		)		(817		)		(935		)
Net income attributable to common stockholders, adjusted	$	170,438			$	167,846			$	337,982			$	337,712
Weighted average common shares - basic	140,450,744				139,113,390				140,413,857				138,724,479
Earnings per common share - basic	$	1.21			$	1.21			$	2.41			$	2.43
Calculation of Earnings per Share - diluted
Net income attributable to common stockholders	$	170,828			$	168,281			$	338,799			$	338,647
Add: noncontrolling interests of DownREIT unitholders in consolidated partnerships	12				12				24				23
Adjusted net income attributable to common stockholders	$	170,840			$	168,293			$	338,823			$	338,670
Weighted average common shares - diluted	140,738,160				139,618,231				140,752,331				139,227,376
Earnings per common share - diluted	$	1.21			$	1.21			$	2.41			$	2.43

 

All options to purchase shares of common stock outstanding as of June 30, 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.

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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 condominium inventory 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.

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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 and six months ended June 30, 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 June 30, 2020, or otherwise qualify as held for sale as of June 30, 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 June 30, 2020
Management, development and other fees		$	—			$	—			$	—			$	926			$	926
Rental and non-rental related income (3)		1,870				317				295				—				2,482
Total non-lease revenue (4)		1,870				317				295				926				3,408
Lease income (5)		521,558				34,360				16,397				—				572,315
Business interruption insurance proceeds		103				—				—				—				103
Total revenue		$	523,531			$	34,677			$	16,692			$	926			$	575,826
For the period ended June 30, 2019
Management, development and other fees		$	—			$	—			$	—			$	1,114			$	1,114
Rental and non-rental related income (3)		2,154				153				51				—				2,358
Total non-lease revenue (4)		2,154				153				51				1,114				3,472
Lease income (5)		536,916				25,369				2,359				—				564,644
Business interruption insurance proceeds		435				—				—				—				435
Total revenue		$	539,505			$	25,522			$	2,410			$	1,114			$	568,551

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		For the six months ended
		Established Communities				Other Stabilized Communities				Development/ Redevelopment Communities (1)				Non- allocated (2)				Total
For the period ended June 30, 2020
Management, development and other fees		$	—			$	—			$	—			$	1,933			$	1,933
Rental and non-rental related income (3)		3,478				793				527				—				4,798
Total non-lease revenue (4)		3,478				793				527				1,933				6,731
Lease income (5)		1,067,906				69,374				31,938				—				1,169,218
Business interruption insurance proceeds		103				—				—				—				103
Total revenue		$	1,071,487			$	70,167			$	32,465			$	1,933			$	1,176,052
For the period ended June 30, 2019
Management, development and other fees		$	—			$	—			$	—			$	2,252			$	2,252
Rental and non-rental related income (3)		3,986				634				67				—				4,687
Total non-lease revenue (4)		3,986				634				67				2,252				6,939
Lease income (5)		1,066,742				46,914				2,892				—				1,116,548
Business interruption insurance proceeds		607				—				—				—				607
Total revenue		$	1,071,335			$	47,548			$	2,959			$	2,252			$	1,124,094

__________________________________

(1)	The Company had no Redevelopment Communities for the three and six months ended June 30, 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.

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 June 30, 2020.

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 (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. Because of 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 June 30, 2020, 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 retail lease portfolios. The Company recorded an aggregate offset to income for uncollectible lease revenue for its residential and retail portfolios of $20,099,000 and $24,279,000 for the three and six months ended June 30, 2020, respectively, under ASC 842 and ASC 450, Contingencies.

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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.

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 $11,019,000 and $17,127,000 for the three months ended June 30, 2020 and 2019, respectively, and $22,517,000 and $34,716,000 for the six months ended June 30, 2020 and 2019, respectively.

The Company's mortgage notes payable, unsecured notes, variable rate unsecured term loans (the "Term Loans") and Credit Facility, as defined below, as of June 30, 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 June 30, 2020 and December 31, 2019, as shown in the accompanying Condensed Consolidated Balance Sheets (dollars in thousands) (see Note 6, "Real Estate Disposition Activities").

	6/30/2020				12/31/2019
Fixed rate unsecured notes (1)	$	6,500,000			$	5,850,000
Variable rate unsecured notes (1)	—				300,000
Term Loans (1)	250,000				250,000
Fixed rate mortgage notes payable - conventional and tax-exempt (2)	478,070				479,221
Variable rate mortgage notes payable - conventional and tax-exempt (2)	471,450				476,150
Total mortgage notes payable and unsecured notes and Term Loans	7,699,520				7,355,371
Credit Facility	—				—
Total mortgage notes payable, unsecured notes, Term Loans and Credit Facility	$	7,699,520			$	7,355,371

_____________________________________

(1)	Balances at June 30, 2020 and December 31, 2019 exclude $11,183 and $8,610, respectively, of debt discount, and $40,379 and $32,742, respectively, of deferred financing costs, as reflected in unsecured notes, net on the accompanying Condensed Consolidated Balance Sheets.

(2)	Balances at June 30, 2020 and December 31, 2019 exclude $14,618 and $14,464, respectively, of debt discount, and $3,130 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 six months ended June 30, 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.

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•

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.

•	In May 2020, the Company issued $600,000,000 principal amount of unsecured notes in a public offering under its existing shelf registration statement for net proceeds of approximately $593,430,000. The notes mature in January 2031 and were issued at a 2.45% interest rate.

•	In May 2020, the Company repaid $300,000,000 principal amount of its variable rate unsecured notes in advance of the January 2021 scheduled maturity, recognizing a charge of $268,000 for the non-cash write-off of deferred financing costs.

At June 30, 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 (0.94% at June 30, 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 no borrowings outstanding under the Credit Facility as of June 30, 2020 and December 31, 2019. The Company had $4,952,000 and $11,488,000 outstanding in letters of credit that reduced the borrowing capacity as of June 30, 2020 and December 31, 2019, respectively. In addition, the Company had $32,322,000 and $24,939,000 outstanding in additional letters of credit on a separate facility unrelated to the Credit Facility as of June 30, 2020 and December 31, 2019, respectively.

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 $1,576,478,000, excluding communities classified as held for sale, as of June 30, 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 June 30, 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 1.7% and 3.2% at June 30, 2020 and December 31, 2019, respectively.

Scheduled payments and maturities of secured notes payable and unsecured notes outstanding at June 30, 2020 are as follows (dollars in thousands):

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Year		Secured notes principal payments				Secured notes maturities				Unsecured notes and Term Loans maturities				Stated interest rate of unsecured notes and Term Loans
2020		$	2,756			$	67,904			$	—			N/A
2021		9,304				27,844				—				N/A
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	%
										600,000				2.450	%
										350,000				3.900	%
										300,000				4.150	%
										300,000				4.350	%
		$	306,838			$	642,682			$	6,750,000

 

The Company was in compliance at June 30, 2020 with customary financial covenants under the Credit Facility, the Term Loans and the Company's fixed rate unsecured notes.

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The following summarizes the changes in equity for the six months ended June 30, 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
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	—				—				—				—				—				1				1
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

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The following summarizes the changes in equity for the six months ended June 30, 2019 (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, 2018	$	1,385			$	10,306,588			$	350,777			$	(26,144	)		$	10,632,606			$	—			$	10,632,606
Net income attributable to common stockholders	—				—				170,366				—				170,366				—				170,366
Loss on cash flow hedges, net	—				—				—				(7,231		)		(7,231		)		—				(7,231		)
Cash flow hedge losses reclassified to earnings	—				—				—				1,468				1,468				—				1,468
Change in redemption value of redeemable noncontrolling interest	—				—				(224		)		—				(224		)		—				(224		)
Dividends declared to common stockholders ($1.52 per share)	—				—				(212,166		)		—				(212,166		)		—				(212,166		)
Issuance of common stock, net of withholdings	9				143,202				(1,892		)		—				141,319				—				141,319
Amortization of deferred compensation	—				7,861				—				—				7,861				—				7,861
Balance at March 31, 2019	$	1,394			$	10,457,651			$	306,861			$	(31,907	)		$	10,733,999			$	—			$	10,733,999
Net income attributable to common stockholders	—				—				168,281				—				168,281				—				168,281
Loss on cash flow hedges, net	—				—				—				(2,888		)		(2,888		)		—				(2,888		)
Cash flow hedge losses reclassified to earnings	—				—				—				1,611				1,611				—				1,611
Change in redemption value of redeemable noncontrolling interest	—				—				(45		)		—				(45		)		—				(45		)
Noncontrolling interests income allocation	—				—				—				—				—				530				530
Dividends declared to common stockholders ($1.52 per share)	—				—				(212,549		)		—				(212,549		)		—				(212,549		)
Issuance of common stock, net of withholdings	3				50,803				—				—				50,806				—				50,806
Amortization of deferred compensation	—				10,785				—				—				10,785				—				10,785
Balance at June 30, 2019	$	1,397			$	10,519,239			$	262,548			$	(33,184	)		$	10,750,000			$	530			$	10,750,530

As of June 30, 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 six months ended June 30, 2020, the Company:

i.	issued 1,902 shares of common stock in connection with stock options exercised;

ii.	issued 1,183 common shares through the Company's dividend reinvestment plan;

iii.	issued 164,526 common shares in connection with restricted stock grants and the conversion of performance awards to restricted shares;

iv.	withheld 73,089 common shares to satisfy employees' tax withholding and other liabilities;

v.	issued 8,686 common shares through the Employee Stock Purchase Plan; and

vi.	canceled 4,050 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 six months ended June 30, 2020 is not reflected on the accompanying Condensed Consolidated Balance Sheets as of June 30, 2020, and will not be reflected until recognized as compensation cost.

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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 six months ended June 30, 2020, the Company had no sales under the program. As of June 30, 2020, the Company had $752,878,000 remaining authorized for issuance under this program.

Investments in Unconsolidated Real Estate Entities

As of June 30, 2020, the Company had investments in seven unconsolidated real estate entities with ownership interest percentages ranging from 20.0% to 50.0%. 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):

	6/30/2020				12/31/2019
	(unaudited)
Assets:
Real estate, net	$	1,203,277			$	1,204,470
Other assets	198,997				196,488
Total assets	$	1,402,274			$	1,400,958
Liabilities and partners' capital:
Mortgage notes payable, net (1)	$	780,217			$	782,257
Other liabilities	154,881				157,379
Partners' capital	467,176				461,322
Total liabilities and partners' capital	$	1,402,274			$	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):

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	For the three months ended								For the six months ended
	6/30/2020				6/30/2019				6/30/2020				6/30/2019
	(unaudited)								(unaudited)
Rental and other income	$	30,427			$	35,998			$	63,499			$	71,253
Operating and other expenses	(11,732		)		(13,885		)		(23,912		)		(28,089		)
Gain on sale of communities	40				—				40				—
Interest expense, net	(8,053		)		(8,543		)		(16,109		)		(17,096		)
Depreciation expense	(8,713		)		(18,346		)		(17,402		)		(40,042		)
Net income (loss)	$	1,969			$	(4,776	)		$	6,116			$	(13,974	)
Company's share of net income (loss)	$	1,041			$	730			$	2,746			$	202
Amortization of excess investment and other	(529		)		(533		)		(1,059		)		(1,065		)
Equity in income (loss) from unconsolidated real estate investments	$	512			$	197			$	1,687			$	(863	)

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 $388,000 and $1,766,000 for the three months ended June 30, 2020 and 2019, respectively, and $3,722,000 and $2,388,000 for the six months ended June 30, 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 and six months ended June 30, 2020 and 2019.

The Company evaluates its for-sale condominium inventory for potential indicators of impairment, considering whether the fair value of the for-sale condominium units exceeds the carrying value. For-sale condominium inventory is stated at cost, unless the carrying amount of the inventory is not recoverable when compared to the fair value. The Company determines the fair value of its for-sale condominium inventory as the estimated sales price less direct costs to sell. For the three and six months ended June 30, 2020, 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 and six months ended June 30, 2020 and 2019, the Company did not recognize any impairment charges on its investment in land.

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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, or impairments recognized by those entities, during the three and six months ended June 30, 2020 and 2019.

The following real estate sales occurred during the six months ended June 30, 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.

•	In May 2020, the Company sold Avalon Tinton Falls, located in Tinton Falls, NJ, containing 216 apartment homes for $64,900,000. The Company's gain on disposition was $35,297,000, reported in gain on sale of communities on the accompanying Condensed Consolidated Statements of Comprehensive Income.

At June 30, 2020, the Company had no real estate assets 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 and six months ended June 30, 2020, the Company sold 16 and 52 residential condominiums at The Park Loggia, for gross proceeds of $61,207,000 and $166,814,000, respectively, resulting in a gain in accordance with GAAP of $2,544,000 and $7,447,000, respectively, included in gain on for-sale condominiums, net of marketing and administrative costs, on the accompanying Condensed Consolidated Statements of Comprehensive Income. The Company incurred $1,196,000 and $945,000 during the three months ended June 30, 2020 and 2019, respectively, and $2,639,000 and $1,418,000 during the six months ended June 30, 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 Condensed Consolidated Statements of Comprehensive Income. As of June 30, 2020, the for-sale residential condominiums have an aggregate carrying value of $311,236,000, presented as for-sale condominium inventory on the accompanying Condensed Consolidated Balance Sheets.

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

As of June 30, 2020 and December 31, 2019, the Company has total operating lease assets of $138,113,000 and $103,063,000, respectively, and total operating lease obligations of $163,321,000 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 $4,240,000 and $3,568,000 for the three months ended June 30, 2020 and 2019, respectively, and $8,157,000 and $7,105,000 for the six months ended June 30, 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 June 30, 2020 and December 31, 2019, the Company has total finance lease assets of $21,791,000 and $21,898,000, respectively, and total finance lease obligations of $20,186,000 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.

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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 and six months ended June 30, 2020 and 2019 is as follows (dollars in thousands):

	For the three months ended								For the six months ended
	6/30/2020				6/30/2019				6/30/2020				6/30/2019
Net income	$	170,869			$	168,305			$	338,875			$	338,723
Indirect operating expenses, net of corporate income	23,407				23,018				46,206				42,740
Expensed transaction, development and other pursuit costs, net of recoveries	388				1,766				3,722				2,388
Interest expense, net	53,399				50,010				109,313				97,902
Loss on extinguishment of debt, net	268				229				9,438				509
General and administrative expense	15,573				18,965				32,893				32,671
Equity in (income) loss of unconsolidated real estate entities	(512		)		(197		)		(1,687		)		863
Depreciation expense	176,249				162,693				354,160				324,749
Income tax benefit	(1,133		)		—				(1,042		)		(6		)
Gain on sale of communities	(35,295		)		(20,530		)		(59,731		)		(35,365		)
Gain on other real estate transactions, net	(156		)		(34		)		(199		)		(300		)
Gain on for-sale condominiums, net of marketing and administrative costs	(1,348		)		945				(4,808		)		1,418
Net operating income from real estate assets sold or held for sale	(336		)		(5,075		)		(1,232		)		(11,281		)
Net operating income	$	401,373			$	400,095			$	825,908			$	795,011

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 six months ended
	6/30/2020				6/30/2019				6/30/2020				6/30/2019
Rental income from real estate assets sold or held for sale	$	579			$	8,712			$	2,004			$	19,352
Operating expenses from real estate assets sold or held for sale	(243		)		(3,637		)		(772		)		(8,071		)
Net operating income from real estate assets sold or held for sale	$	336			$	5,075			$	1,232			$	11,281

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.

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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 and six months ended June 30, 2020 and 2019 has been adjusted to exclude the real estate assets that were sold from January 1, 2019 through June 30, 2020, or otherwise qualify as held for sale as of June 30, 2020, as described in Note 6, "Real Estate Disposition Activities."

	For the three months ended								For the six months ended
	Total revenue				NOI				Total revenue				NOI				Gross real estate (1)
For the period ended June 30, 2020
Established
New England	$	79,729			$	52,835			$	161,398			$	106,515			$	2,768,509
Metro NY/NJ	113,942				78,080				234,673				162,564				4,339,998
Mid-Atlantic	87,970				61,644				179,687				127,953				3,552,832
Pacific Northwest	27,678				19,626				56,414				40,464				992,976
Northern California	101,263				77,844				205,623				158,295				3,271,293
Southern California	107,091				74,601				221,901				157,056				4,147,828
Expansion Markets	5,858				3,561				11,791				6,989				320,683
Total Established	523,531				368,191				1,071,487				759,836				19,394,119
Other Stabilized	34,677				23,108				70,167				46,604				1,593,551
Development / Redevelopment (2)	16,692				10,074				32,465				19,468				2,346,168
Land Held for Development	N/A				N/A				N/A				N/A				39,829
Non-allocated (3)	926				N/A				1,933				N/A				416,134
Total	$	575,826			$	401,373			$	1,176,052			$	825,908			$	23,789,801
For the period ended June 30, 2019
Established
New England	$	79,566			$	52,474			$	158,254			$	104,557			$	2,728,480
Metro NY/NJ	120,427				84,420				238,804				167,404				4,316,859
Mid-Atlantic	90,115				63,241				178,486				126,157				3,517,332
Pacific Northwest	28,224				20,605				56,026				40,815				987,121
Northern California	102,435				78,093				203,695				156,808				3,252,502
Southern California	112,821				80,180				224,287				160,096				4,106,419
Expansion Markets	5,917				3,403				11,783				6,916				319,695
Total Established	539,505				382,416				1,071,335				762,753				19,228,408
Other Stabilized	25,522				17,237				47,548				31,966				1,257,613
Development / Redevelopment (2)	2,410				442				2,959				292				1,589,009
Land Held for Development	N/A				N/A				N/A				N/A				18,606
Non-allocated (3)	1,114				N/A				2,252				N/A				539,073
Total	$	568,551			$	400,095			$	1,124,094			$	795,011			$	22,632,709

__________________________________

(1)	Does not include gross real estate either sold or classified as held for sale subsequent to June 30, 2019 of $209,170.

(2)	The Company had no Redevelopment Communities for the three and six months ended June 30, 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."

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As part of its long-term compensation plans, the Company has granted stock options, performance awards and restricted stock.

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 June 30, 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.

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		68,209			222.12				96,317
Vested - restricted stock shares		(76,893	)		178.57				(109,758	)
Forfeited		(3,456	)		191.73				(594	)
Outstanding at June 30, 2020		136,186			$	203.00			149,076

Total employee stock-based compensation cost recognized in income was $11,624,000 and $13,129,000 for the six months ended June 30, 2020 and 2019, respectively, and total capitalized stock-based compensation cost was $6,174,000 and $5,374,000 for the six months ended June 30, 2020 and 2019, respectively. At June 30, 2020, there was a total unrecognized compensation cost of $39,406,000 for unvested restricted stock and performance awards, which does not include forfeitures, and is expected to be recognized over a weighted average period of 2.1 years.

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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 $926,000 and $1,114,000 for the three months ended June 30, 2020 and 2019, respectively and $1,933,000 and $2,252,000 for the six months ended June 30, 2020 and 2019, respectively. In addition, the Company had outstanding receivables associated with its property and construction management role of $1,795,000 and $3,924,000 as of June 30, 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 $446,000 and $405,000 in the three months ended June 30, 2020 and 2019, respectively, and $901,000 and $830,000 in the six months ended June 30, 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 $1,389,000 and $594,000 on June 30, 2020 and December 31, 2019, respectively, reported as a component of prepaid expenses and other assets on the accompanying Condensed Consolidated Balance Sheets.

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 June 30, 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.

The following table summarizes the consolidated derivative positions at June 30, 2020 (dollars in thousands):

	Non-designated Hedges Interest Rate Caps				Cash Flow Hedges Interest Rate Swaps
Notional balance	$	441,368			$	100,000
Weighted average interest rate (1)	1.7		%		N/A
Weighted average swapped/capped interest rate	6.5		%		0.7		%
Earliest maturity date	January 2021				May 2021
Latest maturity date	November 2021				May 2021

____________________________________

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

The following activity occurred during the six months ended June 30, 2020:

•	The Company settled an aggregate of $600,000,000 of forward interest rate swap agreements, making aggregate payments of $25,135,000. Of the positions settled by the Company, $250,000,000 were forward interest swaps that the Company had entered into during 2020.

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◦	In conjunction with the issuance of the Company's $700,000,000 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 issuance of the unsecured notes, making a payment of $20,314,000.

◦	In conjunction with the issuance of the Company's $600,000,000 unsecured notes due 2031 in May 2020, the Company settled $250,000,000 of forward interest rate swap agreements designated as cash flow hedges of the interest rate variability on the issuance of the unsecured notes, making a payment of $4,821,000.

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 $100,000,000 of new forward interest rate swap agreements executed to reduce the impact of variability of interest rates on a portion of the Company's expected debt issuance activity in 2021.

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 June 30, 2020. Fair value changes for derivatives not in qualifying hedge relationships for the three and six months ended June 30, 2020 and 2019 were not material. During the six months ended June 30, 2020, the Company deferred $19,064,000 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								For the six months ended
	6/30/2020				6/30/2019				6/30/2020				6/30/2019
Cash flow hedge losses reclassified to earnings	$	2,301			$	1,611			$	4,250			$	3,079

The Company anticipates reclassifying approximately $9,467,000 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 June 30, 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.

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.

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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):

		6/30/2020
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		$	5			$	—			$	5			$	—
Interest Rate Swaps - Assets		178				—				178				—
Interest Rate Swaps - Liabilities		(98		)		—				(98		)		—
Puts		(121		)		—				—				(121		)
DownREIT units		(1,160		)		(1,160		)		—				—
Indebtedness
Fixed rate unsecured notes		(7,247,946		)		(7,247,946		)		—				—
Secured notes and variable rate unsecured indebtedness		(1,128,029		)		—				(1,128,029		)		—
Total		$	(8,377,171	)		$	(7,249,106	)		$	(1,127,944	)		$	(121	)

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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 July 2020, the Company entered into a joint venture which will develop, own and operate AVA Arts District. AVA Arts District is expected to be a 475 apartment home community in Los Angeles, CA, that will be developed for a projected total capitalized cost to the joint venture of $279,000,000. The Company owns a 25.0% interest in the venture, and the venture partner owns the remaining 75.0% interest. The venture expects to obtain a $167,000,000 construction loan to fund the development of AVA Arts District. The Company's total expected equity investment is approximately $28,000,000, of which $13,000,000 has already been spent.

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

•

Net income attributable to common stockholders for the three months ended June 30, 2020 was $170,828,000, an increase of $2,547,000, or 1.5%, as compared to the prior year period. The increase is primarily due to an increase in NOI from Development and Other Stabilized Communities, as well as increases in gains on real estate dispositions in the current year period. These amounts were partially offset by a decrease in NOI from Established Communities, and increases in depreciation expense, property taxes and interest expense in the current year period.

•	Established Communities NOI for the three months ended June 30, 2020 was $368,191,000, a decrease of $14,225,000, or 3.7%, from the prior year period, due primarily to a reduction in revenues from uncollectible lease revenue, which increased $14,214,000 over the prior year period.

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(1)	Excludes retail revenue, which was 1.4% of our 2019 Established Communities' total revenue. As of June 30, 2020, we collected 56.5% of billed retail revenue for the three months ended June 30, 2020.

(2)	The percentage of Collected Residential Revenue as of the last calendar day for each month.

(3)	The percentage of Collected Residential Revenue as of July 31, 2020 for each month.

•	19 communities under construction, which are expected to contain 6,198 apartment homes with a projected total capitalized cost of $2,399,000,000.

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•	Land or rights to land on which we expect to develop an additional 28 apartment communities that, if developed as expected, will contain 9,786 apartment homes, and will be developed for an aggregate total capitalized cost of $4,202,000,000.

•

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 six month periods ended June 30, 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 June 30, 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.

•	Lease-Up Communities are consolidated communities where construction has been complete for less than one year and that do not have stabilized occupancy.

•

Redevelopment Communities are consolidated communities where substantial redevelopment is in progress or is probable to begin during the current year. Redevelopment is considered substantial when (i) capital invested during the reconstruction effort is expected to exceed the lesser of $5,000,000 or 10% of the community's pre-redevelopment gross cost basis and (ii) physical occupancy is below or is expected to be below 90% during, or as a result of, the redevelopment activity. We had no Redevelopment Communities at June 30, 2020.

•	Unconsolidated Communities are communities that we have an indirect ownership interest in through our investment interest in an unconsolidated joint venture.

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(1)	Development Communities includes Avalon Alderwood Mall, expected to contain 328 apartment homes, which is being developed within an unconsolidated joint venture.

(2)	Development Rights includes AVA Arts District, expected to contain 475 apartments homes, which will be developed within an unconsolidated joint venture.

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(1)	Percent change is not meaningful.

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(1)	We had no Redevelopment Communities at June 30, 2020.

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(1)

Economic occupancy takes into account the fact that apartment homes of different sizes and locations within a community have different economic impacts on a community's gross revenue. Economic occupancy is defined as gross potential revenue less vacancy loss, as a percentage of gross potential revenue. Gross potential revenue is determined by valuing occupied homes at leased rates and vacant homes at market rents. Vacancy loss is determined by valuing vacant units at current market rents.

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(1)	Consists primarily of the impact of uncollectible retail lease revenue.

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•	gains or losses on sales of previously depreciated operating communities;

•	cumulative effect of change in accounting principle;

•	impairment write-downs of depreciable real estate assets;

•	write-downs of investments in affiliates due to a decrease in the value of depreciable real estate assets held by those affiliates;

•	depreciation of real estate assets; and

•	similar adjustments for unconsolidated partnerships and joint ventures, including those from a change in control.

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•	joint venture gains (if not adjusted through FFO), non-core costs and promoted interests;

•	casualty and impairment losses or gains, net on non-depreciable real estate;

•	gains or losses from early extinguishment of consolidated borrowings;

•	abandoned pursuits;

•	business interruption insurance proceeds and the related lost NOI that is covered by the expected business interruption insurance proceeds;

•	property and casualty insurance proceeds and legal settlements;

•	gains or losses on sales of assets not subject to depreciation;

•	advocacy contributions, representing payments to promote our business interests;

•	hedge ineffectiveness;

•	severance related costs;

•	expensed transaction costs;

•	for-sale condominium activity, including gains, marketing and administrative costs and imputed carry cost;

•	income taxes; and

•	other non-core items.

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(1)	Amount for the three and six months ended June 30, 2020 includes the sale of 16 and 52 residential condominiums, respectively, at The Park Loggia.

(2)	The aggregate impact of (i) gain on for-sale condominiums and (ii) for-sale condominium marketing and administrative costs for the three and six months ended June 30, 2020 are gains of $1,348 and $4,808, respectively, and for the three and six months ended June 30, 2019 are losses of $945 and $1,418, respectively.

(3)	Represents the imputed carry cost of for-sale residential condominiums at The Park Loggia. We compute this adjustment by multiplying the total capitalized cost of completed and unsold for-sale residential condominiums by our weighted average unsecured debt rate.

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•	development and redevelopment activity in which we are currently engaged or in which we plan to engage;

•	the minimum dividend payments on our common stock required to maintain our REIT qualification under the Code;

•	debt service and principal payments either at maturity or opportunistically before maturity; and

•	normal recurring operating expenses and corporate overhead expenses.

•	investment of $383,139,000 in the development and redevelopment of communities; and

•	capital expenditures of $66,319,000 for our operating communities and non-real estate assets.

•	repayments of unsecured notes in the amount of $958,680,000;

•	payment of cash dividends in the amount of $437,326,000; and

•	repayment of a mortgage note payable in the amount of $56,852,000 that was subsequently refinanced, as discussed below.

•	proceeds from the issuance of unsecured notes in the amount of $1,296,581,000; and

•	the issuance of a secured note that was part of a refinancing, as discussed above, in the amount of $51,000,000.

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•	limitations on the amount of total and secured debt in relation to our overall capital structure;

•	limitations on the amount of our unsecured debt relative to the undepreciated basis of real estate assets that are not encumbered by property-specific financing; and

•	minimum levels of debt service coverage.

•	We settled an aggregate of $600,000,000 of forward interest rate swap agreements, making aggregate payments of $25,135,000. Of the positions settled, $250,000,000 were forward interest swaps that we had entered into during 2020.

◦	In conjunction with the issuance of our $700,000,000 unsecured notes due 2030 in February 2020, we settled $350,000,000 of forward interest rate swap agreements designated as cash flow hedges of the interest rate variability on the issuance of the unsecured notes, making a payment of $20,314,000.

◦	In conjunction with the issuance of our $600,000,000 unsecured notes due 2031 in May 2020, we settled $250,000,000 of forward interest rate swap agreements designated as cash flow hedges of the interest rate variability on the issuance of the unsecured notes, making a payment of $4,821,000.

•	We entered into an additional $100,000,000 of new forward interest rate swap agreements executed to reduce the impact of variability of interest rates on a portion of our expected debt issuance activity in 2021.

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•	In February 2020, we issued $700,000,000 principal amount of unsecured notes in a public offering under our 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, we 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.

•

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

•	In May 2020, we issued $600,000,000 principal amount of unsecured notes in a public offering under our existing shelf registration statement for net proceeds of approximately $593,430,000. The notes mature in January 2031 and were issued at a 2.45% interest rate.

•	In May 2020, we repaid $300,000,000 principal amount of variable rate unsecured notes in advance of the January 2021 scheduled maturity, recognizing a charge of $268,000 for the non-cash write-off of deferred financing costs.

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(1)	Rates are given as of June 30, 2020 and include credit enhancement fees, facility fees, trustees' fees, the impact of interest rate hedges, offering costs, mark to market amortization and other fees.

(2)	Balances outstanding represent total amounts due at maturity, and exclude deferred financing costs and debt discount for the unsecured notes of $51,562 and $41,352 as of June 30, 2020 and December 31, 2019, respectively, and deferred financing costs and debt discount

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(3)	Maturity date reflects the contractual maturity of the underlying bond. There is also an associated earlier credit enhancement maturity date.

(4)	Financed by variable rate debt, but interest rate is capped through an interest rate protection agreement.

(5)	In March 2020, we repaid these borrowings in advance of their scheduled maturity date.

(6)	In February 2020, we repaid a borrowing secured by this community and subsequently refinanced the secured borrowing.

(7)	In May 2020, we repaid this borrowing in advance of the scheduled maturity date.

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(1)	Represents total capitalized cost as of June 30, 2020.

(2)	We have not guaranteed the debt of unconsolidated investees and bear no responsibility for the repayment.

(3)	Represents weighted average rate on outstanding debt as of June 30, 2020.

(4)	Borrowing on this community is comprised of two mortgage loans.

(5)	Borrowing on this dual-branded community is comprised of a single mortgage loan.

(6)	The original maturity date of the borrowing was July 2020, which was extended to September 2020 through a forbearance agreement.

(7)	Borrowing is comprised of loans made by the equity investors in the venture in proportion to their equity interests.

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(1)

Projected total capitalized cost includes all capitalized costs projected to be or actually incurred to develop the respective Development Community, determined in accordance with GAAP, including land acquisition costs, construction costs, real estate taxes, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees, as well as costs incurred for first generation retail tenants such as tenant improvements and leasing commissions. Projected total capitalized cost for communities identified as having joint venture ownership, either during construction or upon construction completion, represents the total projected joint venture contribution amount unless otherwise noted.

(2)	Initial projected occupancy dates are estimates. There can be no assurance that we will pursue to completion any or all of these proposed developments.

(3)	Stabilized operations is defined as the earlier of (i) attainment of 90% or greater physical occupancy or (ii) the one-year anniversary of completion of development.

(4)	Development Communities containing at least 10,000 square feet of retail space include AVA Hollywood (19,000 square feet) and Avalon Harrison (27,000 square feet).

(5)	We are developing this project within an unconsolidated joint venture that was formed in December 2019, in which we own a 50.0% interest. The information above represents the total cost for the venture.

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(1)

Projected total capitalized cost includes all capitalized costs incurred to date (if any) and projected to be incurred to develop the respective community, determined in accordance with GAAP, including land acquisition costs, construction costs, real estate taxes, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees, as well as costs incurred for first generation retail tenants such as tenant improvements and leasing commissions.

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•	our potential development, redevelopment, acquisition or disposition of communities;

•	the timing and cost of completion of apartment communities under construction, reconstruction, development or redevelopment;

•	the timing of lease-up, occupancy and stabilization of apartment communities;

•	the timing and net sales proceeds of condominium sales;

•	the pursuit of land on which we are considering future development;

•	the anticipated operating performance of our communities;

•	cost, yield, revenue, NOI and earnings estimates;

•	the impact of landlord-tenant laws and rent regulations;

•	our declaration or payment of dividends;

•	our joint venture and discretionary fund activities;

•	our policies regarding investments, indebtedness, acquisitions, dispositions, financings and other matters;

•	our qualification as a REIT under the Internal Revenue Code;

•	the real estate markets in Northern and Southern California, Denver, Colorado, and Southeast Florida, and markets in selected states in the Mid-Atlantic, New England, Metro New York/New Jersey and Pacific Northwest regions of the United States and in general;

•	the availability of debt and equity financing;

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•	interest rates;

•	general economic conditions including the potential impacts from current economic conditions and the COVID-19 pandemic;

•	trends affecting our financial condition or results of operations; and

•	the impact of outstanding legal proceedings.

•	we may fail to secure development opportunities due to an inability to reach agreements with third-parties to obtain land at attractive prices or to obtain desired zoning and other local approvals;

•	we may abandon or defer development opportunities for a number of reasons, including changes in local market conditions which make development less desirable, increases in costs of development, increases in the cost of capital or lack of capital availability, resulting in losses;

•	construction costs of a community may exceed our original estimates;

•	we may not complete construction and lease-up of communities under development or redevelopment on schedule, resulting in increased interest costs and construction costs and a decrease in our expected rental revenues;

•	the timing and net proceeds of condominium sales may not equal our current expectations;

•	occupancy rates and market rents may be adversely affected by competition and local economic and market conditions which are beyond our control;

•	financing may not be available on favorable terms or at all, and our cash flows from operations and access to cost effective capital may be insufficient for the development of our pipeline which could limit our pursuit of opportunities;

•	the impact of new landlord-tenant laws and rent regulations may be greater than we expected;

•	our cash flows may be insufficient to meet required payments of principal and interest, and we may be unable to refinance existing indebtedness or the terms of such refinancing may not be as favorable as the terms of existing indebtedness;

•	we may be unsuccessful in our management of joint ventures and the REIT vehicles that are used with certain joint ventures;

•	we may be unsuccessful in managing changes in our portfolio composition;

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•	laws and regulations implementing rent control or rent stabilization, or otherwise limiting our ability to increase rents, charge fees or evict tenants, may impact our revenue or increase our costs;

•	our expectations, estimates and assumptions as of the date of this filing regarding outstanding legal proceedings are subject to change; and

•	the likelihood that we may choose to pay dividends in our stock instead of cash, which may result in stockholders having to pay taxes with respect to such dividends in excess of the cash received, if any.

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ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4.	CONTROL AND PROCEDURES

(a)	Evaluation of disclosure controls and procedures.

(b)	Changes in internal controls over financial reporting.

PART II.	OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS

ITEM 1A.	RISK FACTORS

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•

The spread of the COVID-19 virus and related government actions could result in further increases in unemployment, and residents that experience deteriorating financial conditions as a result of the pandemic may be unwilling or unable to pay rent in full on a timely basis. In some cases, we may have to restructure tenants’ rent obligations and may not be able to do so on terms as favorable to us as those currently in place. In response to the COVID-19 pandemic, numerous state, local, and federal efforts have also imposed restrictions, for varying times and to varying degrees, on our ability to enforce residents’ contractual lease obligations, and this will affect our ability (until a restriction is lifted or expires) to collect rent or enforce all our remedies (such as eviction) for the failure to pay rent. In addition to these regulatory limits on evictions, in practical terms many of the housing courts and sheriff’s offices on which we rely to enforce our rights are not operating at the same level of volume or effectiveness as before the pandemic.

•

In the event of resident nonpayment, default or bankruptcy, the uncollectibility of rent could increase and we may not be able to re-lease apartment homes at current or projected rents. Our occupancy levels and pricing across our portfolio may decline due to changes in demand or logistical challenges in showing or leasing apartment homes to prospective residents, including restrictions inhibiting our employees’ ability to meet with existing or potential residents.

•

Various state, local and federal rules have required us, in some jurisdictions or for some properties, to waive late fees and certain other customary fees associated with our apartment rental business, and may do so in the future. We have elected at times to also waive these fees even where or when not required, and may do so in the future. These requirements or practices have resulted, and to the extent implemented or continued, may in the future result in foregone revenue.

•	Our properties may also incur significant costs or losses related to shelter-in-place or stay-at-home orders, quarantines, infection, clean-up costs or other related factors.

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•

The pandemic may depress demand among consumers for our apartments for a variety of reasons. Consumers whose income has declined, who are working remotely or who cannot freely access neighborhood amenities like restaurants, gyms and entertainment venues, may decide during the pandemic to live somewhere other than our markets. Low interest rates that are caused by the pandemic and government responses may encourage consumers who would otherwise rent to seek out single family ownership. Additionally, during the pandemic we expect that demand from students and corporate apartment homes may remain below pre-pandemic levels if institutions of higher learning turn to online education or business activity and travel remain at lower levels than before the pandemic.

•

Social distancing and other measures in response to the pandemic have caused us to revise the manner in which we meet with prospective residents and serve current residents. For example, many prospective residents are visiting apartments virtually or on a self-tour rather than being accompanied by a leasing consultant. In addition, in many communities various common area amenities are closed. These factors may affect resident satisfaction and leasing velocity.

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ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(1)	Reflects shares surrendered to the Company in connection with exercise of stock options as payment of exercise price, as well as for taxes associated with the vesting of restricted share grants.

(2)	As of July 31, 2020, the maximum dollar amount that may yet be purchased under the plans or programs was $500,000,000.

(3)

As disclosed in our Form 10-Q for the quarter ended March 31, 2008, represents remaining repurchase authority as of the indicated month end under the Amended 2005 Stock Repurchase Program. In July 2020, the Board of Directors voted to terminate the Amended 2005 Stock Repurchase Program and approve the 2020 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. Purchases of common stock under the 2020 Stock Repurchase Program may be exercised from time to time in the Company’s discretion and in such amounts as market conditions warrant. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions and other corporate liquidity requirements and priorities. The 2020 Stock Repurchase Program does not have an expiration date and may be suspended or terminated at any time without prior notice.

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

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