Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

May 5, 2021

Documents

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended March 31, 2021
Commission file number 1-12672
AVALONBAY COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
 
Maryland   77-0404318
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
 
4040 Wilson Blvd., Suite 1000
Arlington, Virginia  22203
(Address of principal executive offices, including zip code)
(703) 329-6300
(Registrant's telephone number, including area code)  
(Former name, if changed since last report) 

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol Name of each exchange on which registered
Common Stock, par value $0.01 per share AVB New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days.
Yes ☒                    No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒                    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐                    No ☒

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

139,604,637 shares of common stock, par value $0.01 per share, were outstanding as of April 30, 2021.

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



Table of Contents


AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
  3/31/2021 12/31/2020
  (unaudited)  
ASSETS    
Real estate:    
Land and improvements $ 4,422,683  $ 4,394,298 
Buildings and improvements 17,439,415  17,231,275 
Furniture, fixtures and equipment 941,756  924,583 
  22,803,854  22,550,156 
Less accumulated depreciation (5,859,490) (5,700,179)
Net operating real estate 16,944,364  16,849,977 
Construction in progress, including land 818,232  989,765 
Land held for development 184,058  110,142 
For-sale condominium inventory 253,859  267,219 
Real estate assets held for sale, net 52,776  16,678 
Total real estate, net 18,253,289  18,233,781 
Cash and cash equivalents 129,298  216,976 
Cash in escrow 100,434  96,556 
Resident security deposits 30,914  30,811 
Investments in unconsolidated real estate entities 210,650  202,612 
Deferred development costs 47,081  55,427 
Prepaid expenses and other assets 195,965  207,715 
Right of use lease assets 152,901  155,266 
Total assets $ 19,120,532  $ 19,199,144 
LIABILITIES AND EQUITY    
Unsecured notes, net $ 6,703,759  $ 6,702,005 
Variable rate unsecured credit facility —  — 
Mortgage notes payable, net 834,025  862,332 
Dividends payable 223,805  224,897 
Payables for construction 84,954  93,609 
Accrued expenses and other liabilities 303,188  274,699 
Lease liabilities 179,968  181,479 
Accrued interest payable 62,203  49,033 
Resident security deposits 56,426  55,928 
Liabilities related to real estate assets held for sale 443  311 
Total liabilities 8,448,771  8,444,293 
Commitments and contingencies
Redeemable noncontrolling interests 2,857  2,677 
Equity:    
Preferred stock, $0.01 par value; $25 liquidation preference; 50,000,000 shares authorized at March 31, 2021 and December 31, 2020; zero shares issued and outstanding at March 31, 2021 and December 31, 2020
 —  — 
Common stock, $0.01 par value; 280,000,000 shares authorized at March 31, 2021 and December 31, 2020; 139,604,087 and 139,526,671 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively
 1,396  1,395 
Additional paid-in capital 10,657,665  10,664,416 
Accumulated earnings less dividends 47,151  126,022 
Accumulated other comprehensive loss (37,883) (40,250)
Total stockholders' equity 10,668,329  10,751,583 
Noncontrolling interests 575  591 
Total equity 10,668,904  10,752,174 
Total liabilities and equity $ 19,120,532  $ 19,199,144 
 
See accompanying notes to Condensed Consolidated Financial Statements.
1
Table of Contents
AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(Dollars in thousands, except per share data)
  For the three months ended
  3/31/2021 3/31/2020
Revenue:    
Rental and other income $ 550,258  $ 601,260 
Management, development and other fees 877  1,007 
Total revenue 551,135  602,267 
Expenses:    
Operating expenses, excluding property taxes 140,050  132,609 
Property taxes 69,410  67,026 
Expensed transaction, development and other pursuit costs, net of recoveries (170) 3,334 
Interest expense, net 52,613  55,914 
(Gain) loss on extinguishment of debt, net (122) 9,170 
Depreciation expense 183,297  177,911 
General and administrative expense 17,352  17,320 
Total expenses 462,430  463,284 
Equity in (loss) income of unconsolidated real estate entities (467) 1,175 
Gain on sale of communities 53,727  24,436 
Gain on other real estate transactions, net 427  43 
Net for-sale condominium activity (913) 3,460 
Income before income taxes 141,479  168,097 
Income tax benefit (expense) 755  (91)
Net income 142,234  168,006 
Net income attributable to noncontrolling interests (11) (35)
Net income attributable to common stockholders $ 142,223  $ 167,971 
Other comprehensive income:    
Loss on cash flow hedges —  (17,603)
Cash flow hedge losses reclassified to earnings 2,367  1,949 
Comprehensive income $ 144,590  $ 152,317 
Earnings per common share - basic:    
Net income attributable to common stockholders $ 1.02  $ 1.19 
Earnings per common share - diluted:    
Net income attributable to common stockholders $ 1.02  $ 1.19 

See accompanying notes to Condensed Consolidated Financial Statements.
2
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AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Dollars in thousands)
  For the three months ended
  3/31/2021 3/31/2020
Cash flows from operating activities:
Net income $ 142,234  $ 168,006 
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation expense 183,297  177,911 
Amortization of deferred financing costs 1,837  1,882 
Amortization of debt discount 642  411 
(Gain) loss on extinguishment of debt, net (122) 9,170 
Amortization of stock-based compensation 5,382  5,338 
Equity in loss of, and return on, unconsolidated real estate entities and noncontrolling interests, net of eliminations 1,994  1,871 
Abandonment of development pursuits 246  1,988 
Unrealized gain on terminated cash flow hedges (2,654) — 
Cash flow hedge losses reclassified to earnings 2,367  1,949 
Gain on sale of real estate assets (54,154) (24,479)
Gain on for-sale condominiums (131) (4,903)
Decrease (increase) in resident security deposits, prepaid expenses and other assets 9,423  (1,239)
Increase in accrued expenses, other liabilities and accrued interest payable 39,784  3,799 
Net cash provided by operating activities 330,145  341,704 
Cash flows from investing activities:
Development/redevelopment of real estate assets including land acquisitions and deferred development costs (198,373) (245,789)
Capital expenditures - existing real estate assets (28,020) (32,922)
Capital expenditures - non-real estate assets (2,234) (10,663)
(Decrease) increase in payables for construction (8,655) 462 
Proceeds from sale of real estate, net of selling costs 76,543  63,073 
Proceeds from the sale of for-sale condominiums, net of selling costs 13,569  98,790 
Mortgage note receivable lending —  (179)
Mortgage note receivable payments 1,250  960 
Investments in unconsolidated real estate entities (10,032) (9,799)
Net cash used in investing activities (155,952) (136,067)
Cash flows from financing activities:
Issuance of common stock, net 11  125 
Dividends paid (222,734) (213,671)
Net borrowings under unsecured credit facility —  750,000 
Issuance of mortgage notes payable —  51,000 
Repayments of mortgage notes payable, including prepayment penalties (28,488) (51,484)
Issuance of unsecured notes —  699,252 
Repayment of unsecured notes, including prepayment penalties —  (658,655)
Payment of deferred financing costs —  (5,988)
Receipt (payment) for termination of forward interest rate swaps 6,962  (20,314)
Payment to noncontrolling interest (22) (35)
Payments related to tax withholding for share-based compensation (13,228) (14,346)
Distributions to DownREIT partnership unitholders (12) (12)
Distributions to joint venture and profit-sharing partners (82) (102)
Preferred interest obligation redemption and dividends (400) (600)
Net cash (used in) provided by financing activities (257,993) 535,170 
Net (decrease) increase in cash, cash equivalents and cash in escrow (83,800) 740,807 
Cash, cash equivalents and cash in escrow, beginning of period 313,532  127,614 
Cash, cash equivalents and cash in escrow, end of period $ 229,732  $ 868,421 
Cash paid during the period for interest, net of amount capitalized $ 37,252  $ 36,985 
See accompanying notes to Condensed Consolidated Financial Statements.
3
Table of Contents
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

The following table provides a reconciliation of cash, cash equivalents and cash in escrow reported in the Condensed Consolidated Statements of Cash Flows (dollars in thousands):
For the three months ended
3/31/2021 3/31/2020
Cash and cash equivalents $ 129,298  $ 777,995 
Cash in escrow 100,434  90,426 
Cash, cash equivalents and cash in escrow reported in the Condensed Consolidated Statements of Cash Flows $ 229,732  $ 868,421 

Supplemental disclosures of non-cash investing and financing activities:

During the three months ended March 31, 2021:

•As described in Note 4, "Equity," 149,520 shares of common stock were issued as part of the Company's stock-based compensation plans, of which 56,545 shares related to the conversion of performance awards to common shares, and the remaining 92,975 shares valued at $16,347,000 were issued in connection with new stock grants; 839 shares valued at $138,000 were issued through the Company's dividend reinvestment plan; 74,726 shares valued at $13,228,000 were withheld to satisfy employees' tax withholding and other liabilities; and 343 restricted shares with an aggregate value of $69,000 previously issued in connection with employee compensation were canceled upon forfeiture.

•Common stock dividends declared but not paid totaled $222,424,000.

•The Company recorded an increase of $273,000 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 reclassified $2,367,000 of cash flow hedge losses from other comprehensive income (loss) to interest expense, net, to record the impact of the Company's derivative and hedge accounting activity.

During the three months ended March 31, 2020:

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

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

•The Company recorded a decrease of $471,000 in redeemable noncontrolling interest with a corresponding increase to accumulated earnings less dividends to adjust the redemption value associated with the put options held by joint venture partners and DownREIT partnership units.

•The Company recorded an increase to accrued expenses and other liabilities of $3,302,000, an increase in prepaid expenses and other assets of $22,000 and a corresponding adjustment to accumulated other comprehensive loss, and reclassified $1,949,000 of cash flow hedge losses from other comprehensive income (loss) to interest expense, net, to record the impact of the Company's derivative and hedge accounting activity.

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


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

1.  Organization, Basis of Presentation and Significant Accounting Policies

Organization and Basis of Presentation

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

At March 31, 2021, the Company owned or held a direct or indirect ownership interest in 275 operating apartment communities containing 81,227 apartment homes in 11 states and the District of Columbia. In addition, the Company owned or held a direct or indirect ownership interest in 15 communities under development that are expected to contain an aggregate of 4,560 apartment homes when completed, as well as The Park Loggia, which contains 172 for-sale residential condominiums, of which 80 have been sold as of March 31, 2021, and 66,000 square feet of commercial space, of which 87% has been leased as of March 31, 2021. The Company also owned or held a direct or indirect ownership interest in land or rights to land on which the Company expects to develop an additional 25 communities that, if developed as expected, will contain an estimated 8,075 apartment homes.

The interim unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements required by GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited financial statements should be read in conjunction with the financial statements and notes included in the Company's 2020 Annual Report on Form 10-K. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the operating results for the full year. Management believes the disclosures are adequate to ensure the information presented is not misleading. In the opinion of management, all adjustments and eliminations, consisting only of normal, recurring adjustments necessary for a fair presentation of the financial statements for the interim periods, have been included.

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

Earnings per Common Share

Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted average number of shares outstanding during the period. All outstanding unvested restricted share awards contain rights to non-forfeitable dividends and participate in undistributed earnings with common shareholders and, accordingly, are considered participating securities that are included in the two-class method of computing basic earnings per share ("EPS"). Both the unvested restricted shares and other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis. The Company's earnings per common share are determined as follows (dollars in thousands, except per share data):
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  For the three months ended
  3/31/2021 3/31/2020
Basic and diluted shares outstanding    
Weighted average common shares - basic 139,291,187  140,376,996 
Weighted average DownREIT units outstanding 7,500  7,500 
Effect of dilutive securities 253,726  393,377 
Weighted average common shares - diluted 139,552,413  140,777,873 
Calculation of Earnings per Share - basic    
Net income attributable to common stockholders $ 142,223  $ 167,971 
Net income allocated to unvested restricted shares (324) (427)
Net income attributable to common stockholders, adjusted $ 141,899  $ 167,544 
Weighted average common shares - basic 139,291,187  140,376,996 
Earnings per common share - basic $ 1.02  $ 1.19 
Calculation of Earnings per Share - diluted    
Net income attributable to common stockholders $ 142,223  $ 167,971 
Add: noncontrolling interests of DownREIT unitholders in consolidated partnerships 12  12 
Adjusted net income attributable to common stockholders $ 142,235  $ 167,983 
Weighted average common shares - diluted 139,552,413  140,777,873 
Earnings per common share - diluted $ 1.02  $ 1.19 
 
Certain options to purchase shares of common stock in the amount of 294,115 were outstanding as of March 31, 2021, but were not included in the computation of diluted earnings per share because such options were anti-dilutive for the period.

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.

Use of Estimates

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

Reclassifications

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

For-Sale Condominium Inventory

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

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Leases

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

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

Lessee Considerations

The Company assesses whether a contract is or contains a lease based on whether the contract conveys the right to control the use of an identified asset, including specified portions of larger assets, for a period of time in exchange for consideration. The Company’s leases include both fixed and variable lease payments, which are based on an index or rate such as the consumer price index (CPI) or percentage rents based on total sales. Lease payments included in the lease liability include only 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.

Lessor Considerations

The Company evaluates leases in which it is the lessor, which are composed of residential and commercial leases at its apartment communities, and determined these leases to be operating leases. For lease agreements that provide for rent concessions and/or scheduled fixed and determinable rent increases, rental income is recognized on a straight-line basis over the noncancellable term of the lease, which, for residential leases, is generally one year. Some of the Company’s commercial leases have fixed-price renewal options, and the lessee may be able to exercise its renewal option at an amount less than the fair value of the rent at such time. The Company only includes renewal options in the lease term if, at the commencement of the lease, it is reasonably certain that the lessee will exercise this option.

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

Revenue and Gain Recognition

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

The following table provides details of the Company’s revenue streams disaggregated by the Company’s reportable operating segments, further discussed in Note 8, “Segment Reporting,” for the three months ended March 31, 2021 and 2020. Segment information for total revenue has been adjusted to exclude the real estate assets that were sold from January 1, 2020 through March 31, 2021, or otherwise qualify as held for sale as of March 31, 2021, as described in Note 6, "Real Estate Disposition Activities" (dollars in thousands):
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  For the three months ended
Established
Communities 		Other
Stabilized
Communities 		Development/
Redevelopment
Communities 		Non-
allocated (1)		 Total
For the three months ended March 31, 2021
Management, development and other fees $ —  $ —  $ —  $ 877  $ 877 
Rental and non-rental related income (2) 1,668  427  135  —  2,230 
Total non-lease revenue (3) 1,668  427  135  877  3,107 
Lease income (4) 500,590  29,566  15,569  —  545,725 
Business interruption insurance proceeds —  —  —  —  — 
Total revenue $ 502,258  $ 29,993  $ 15,704  $ 877  $ 548,832 
For the three months ended March 31, 2020
Management, development and other fees $ —  $ —  $ —  $ 1,007  $ 1,007 
Rental and non-rental related income (2) 1,633  594  51  —  2,278 
Total non-lease revenue (3) 1,633  594  51  1,007  3,285 
Lease income (4) 551,000  27,991  4,738  —  583,729 
Business interruption insurance proceeds —  —  —  —  — 
Total revenue $ 552,633  $ 28,585  $ 4,789  $ 1,007  $ 587,014 
__________________________________
(1)Revenue represents third-party management, asset management and developer fees and miscellaneous income which are not allocated to a reportable segment.
(2)Amounts include revenue streams related to leasing activities that are not considered components of a lease, including but not limited to, apartment hold fees and application fees, as well as revenue streams not related to leasing activities, including but not limited to, vendor revenue sharing, building advertising, vending and dry cleaning revenue.
(3)Represents all revenue accounted for under ASC 606.
(4)Amounts include all revenue streams derived from residential and commercial rental income and other lease income, which are accounted for under ASC 842.

Due to the nature and timing of the Company’s identified revenue streams, there are no material amounts of outstanding or unsatisfied performance obligations as of March 31, 2021.

Lease Revenue Reserves

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

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

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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 effectiveness of vaccines and the rate of vaccinations, (iii) the duration and nature of governmental responses to contain the spread of the disease and assist consumers and businesses, (iv) consumer and business responses to the pandemic, including preferences for where and how to live and work, and (v) how quickly and to what extent normal economic and operating conditions can resume. Because of this uncertainty, any estimate of the expected impact of the COVID-19 pandemic on results of operations, cash flows, financial condition, or liquidity for periods beyond the three months ended March 31, 2021 is uncertain.

As of March 31, 2021, the Company assessed the collectibility of the outstanding lease income receivables as a result of the impact of the COVID-19 pandemic on its residential and commercial lease portfolios. The Company recorded an aggregate offset to income for uncollectible lease revenue for its residential and commercial portfolios of $18,645,000 for the three months ended March 31, 2021 under ASC 842 and ASC 450.

2.  Interest Capitalized

The Company capitalizes interest during the development and redevelopment of real estate assets. Capitalized interest associated with the Company's development or redevelopment activities totaled $8,799,000 and $11,498,000 for the three months ended March 31, 2021 and 2020, respectively.

3.  Mortgage Notes Payable, Unsecured Notes, Term Loans and Credit Facility

The Company's mortgage notes payable, unsecured notes, variable rate unsecured term loans (the "Term Loans") and Credit Facility, as defined below, as of March 31, 2021 and December 31, 2020 are summarized below. The following amounts and discussion do not include the mortgage notes related to the communities classified as held for sale, if any, as of March 31, 2021 and December 31, 2020, as shown in the accompanying Condensed Consolidated Balance Sheets (dollars in thousands) (see Note 6, "Real Estate Disposition Activities").
  3/31/2021 12/31/2020
Fixed rate unsecured notes (1) $ 6,500,000  $ 6,500,000 
Term Loans (1) 250,000  250,000 
Fixed rate mortgage notes payable - conventional and tax-exempt (2) 380,576  408,964 
Variable rate mortgage notes payable - conventional and tax-exempt (2) 470,750  470,850 
Total mortgage notes payable and unsecured notes and Term Loans 7,601,326  7,629,814 
Credit Facility —  — 
Total mortgage notes payable, unsecured notes, Term Loans and Credit Facility $ 7,601,326  $ 7,629,814 
_____________________________________
(1)Balances at March 31, 2021 and December 31, 2020 exclude $9,978 and $10,380, respectively, of debt discount, and $36,263 and $37,615, respectively, of deferred financing costs, as reflected in unsecured notes, net on the accompanying Condensed Consolidated Balance Sheets.
(2)Balances at March 31, 2021 and December 31, 2020 exclude $14,361 and $14,478, respectively, of debt discount, and $2,940 and $3,004, respectively, of deferred financing costs, as reflected in mortgage notes payable, net on the accompanying Condensed Consolidated Balance Sheets.

The following debt activity occurred during the three months ended March 31, 2021:

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

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At March 31, 2021, the Company has 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 (0.89% at March 31, 2021), assuming a one month borrowing rate. The annual facility fee for the Credit Facility remained 0.125%, resulting in a fee of $2,188,000 annually based on the $1,750,000,000 facility size and based on the Company's current credit rating.

The Company had no borrowings outstanding under the Credit Facility and had $2,613,000 and $2,900,000 outstanding in letters of credit that reduced the borrowing capacity as of March 31, 2021 and December 31, 2020, respectively. In addition, the Company had $33,482,000 and $32,079,000 outstanding in additional letters of credit unrelated to the Credit Facility as of March 31, 2021 and December 31, 2020, respectively.

In the aggregate, secured notes payable mature at various dates from March 2027 through July 2066, and are secured by certain apartment communities (with a net carrying value of $1,382,452,000, excluding communities classified as held for sale, as of March 31, 2021).

The weighted average interest rate of the Company's fixed rate secured notes payable (conventional and tax-exempt) was 3.8% at both March 31, 2021 and December 31, 2020. The weighted average interest rate of the Company's variable rate secured notes payable (conventional and tax-exempt), including the effect of certain financing related fees, was 1.7% at both March 31, 2021 and December 31, 2020.

Scheduled payments and maturities of secured notes payable and unsecured notes outstanding at March 31, 2021 are as follows (dollars in thousands):
Year Secured notes
principal payments		 Secured notes maturities Unsecured notes and Term Loans maturities Stated interest rate of unsecured notes and Term Loans
2021 $ 8,660  $ —  $ —  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 11,677  —  300,000  3.500  %
150,000 
LIBOR + 0.85%
2025 12,408  —  525,000  3.450  %
300,000  3.500  %
2026 13,445  —  475,000  2.950  %
300,000  2.900  %
2027 15,880  236,100  400,000  3.350  %
2028 20,707  —  450,000  3.200  %
2029 11,742  66,250  450,000  3.300  %
2030 12,384  —  700,000  2.300  %
Thereafter 176,078  245,338  600,000  2.450  %
350,000  3.900  %
300,000  4.150  %
300,000  4.350  %
  $ 303,638  $ 547,688  $ 6,750,000   
 

The Company was in compliance at March 31, 2021 with customary financial covenants under the Credit Facility, the Term Loans and the Company's fixed rate unsecured notes.
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4.  Equity

The following summarizes the changes in equity for the three months ended March 31, 2021 (dollars in thousands):
Common
stock		 Additional
paid-in
capital		 Accumulated
earnings
less
dividends		 Accumulated
other
comprehensive
loss		 Total stockholder's equity Noncontrolling interests Total
equity
Balance at December 31, 2020 $ 1,395  $ 10,664,416  $ 126,022  $ (40,250) $ 10,751,583  $ 591  $ 10,752,174 
Net income attributable to common stockholders —  —  142,223  —  142,223  —  142,223 
Cash flow hedge losses reclassified to earnings —  —  —  2,367  2,367  —  2,367 
Change in redemption value of redeemable noncontrolling interest —  —  (273) —  (273) —  (273)
Noncontrolling interest distribution and income allocation —  —  —  —  —  (16) (16)
Dividends declared to common stockholders ($1.59 per share)
 —  —  (221,779) —  (221,779) —  (221,779)
Issuance of common stock, net of withholdings 1  (14,037) 958  —  (13,078) —  (13,078)
Amortization of deferred compensation —  7,286  —  —  7,286  —  7,286 
Balance at March 31, 2021 $ 1,396  $ 10,657,665  $ 47,151  $ (37,883) $ 10,668,329  $ 575  $ 10,668,904 

The following summarizes the changes in equity for the three months ended March 31, 2020 (dollars in thousands):
Common
stock		 Additional
paid-in
capital		 Accumulated
earnings
less
dividends		 Accumulated
other
comprehensive
loss		 Total 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 

As of March 31, 2021 and December 31, 2020, the Company's charter had authorized for issuance a total of 280,000,000 shares of common stock and 50,000,000 shares of preferred stock.

During the three months ended March 31, 2021, the Company:

i.issued 2,126 shares of common stock in connection with stock options exercised;
ii.issued 839 common shares through the Company's dividend reinvestment plan;
iii.issued 149,520 common shares in connection with restricted stock grants and the conversion of performance awards to restricted shares;
iv.withheld 74,726 common shares to satisfy employees' tax withholding and other liabilities; and
v.canceled 343 common shares of restricted stock upon forfeiture.

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Any deferred compensation related to the Company's stock option, restricted stock and performance award grants during the three months ended March 31, 2021 is not reflected on the accompanying Condensed Consolidated Balance Sheets as of March 31, 2021, and will not be reflected until recognized as compensation cost.

In July 2020, the Company’s Board of Directors voted to terminate the Company’s prior $500,000,000 Stock Repurchase Program (the "Amended 2005 Stock Repurchase Program") and approved a new stock repurchase program under which the Company may acquire shares of its common stock in open market or negotiated transactions up to an aggregate purchase price of $500,000,000 (the "2020 Stock Repurchase Program"). Purchases of common stock under the 2020 Stock Repurchase Program may be exercised from time to time in the Company’s discretion and in such amounts as market conditions warrant. The timing and actual number of shares repurchased will depend on a variety of factors, including price, corporate and regulatory requirements, market conditions and other corporate liquidity requirements and priorities. The 2020 Stock Repurchase Program does not have an expiration date and may be suspended or terminated at any time without prior notice. During the three months ended March 31, 2021, the Company had no repurchases of shares under this program. As of March 31, 2021, the Company had $316,148,000 remaining authorized for purchase under this program.

In May 2019, the Company commenced a fifth continuous equity program ("CEP V") under which the Company may sell (and/or enter into forward sale agreements for the sale of) up to $1,000,000,000 of its common stock from time to time. Actual sales will depend on a variety of factors to be determined by the Company, including market conditions, the trading price of the Company's common stock and determinations by the Company of the appropriate sources of funding for the Company. In conjunction with CEP V, the Company engaged sales agents who will receive compensation of up to 1.5% of the gross sales price for shares sold. The Company expects that, if entered into, it will physically settle each forward sale agreement on one or more dates specified by the Company on or prior to the maturity date of that particular forward sale agreement, in which case the Company will expect to receive aggregate net cash proceeds at settlement equal to the number of shares underlying the particular forward agreement multiplied by the relevant forward sale price. However, the Company may also elect to cash settle or net share settle a forward sale agreement. In connection with each forward sale agreement, the Company will pay the relevant forward seller, in the form of a reduced initial forward sale price, a commission of up to 1.5% of the sales prices of all borrowed shares of common stock sold. During the three months ended March 31, 2021, the Company had no sales under the program. As of March 31, 2021, the Company had $752,878,000 remaining authorized for issuance under CEP V.

5.  Investments in Real Estate Entities

Investments in Unconsolidated Real Estate Entities

As of March 31, 2021, the Company had investments in eight unconsolidated real estate entities with ownership interest percentages ranging from 20.0% to 50.0% and other unconsolidated investments. The Company accounts for its investments in unconsolidated real estate entities under the equity method of accounting. 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, including development joint ventures started and unconsolidated communities sold during the respective periods (dollars in thousands):
  3/31/2021 12/31/2020
  (unaudited)
Assets:    
Real estate, net $ 1,276,766  $ 1,249,730 
Other assets 248,999  255,606 
Total assets $ 1,525,765  $ 1,505,336 
Liabilities and partners' capital:    
Mortgage notes payable, net (1) $ 750,370  $ 751,257 
Other liabilities 172,082  163,808 
Partners' capital 603,313  590,271 
Total liabilities and partners' capital $ 1,525,765  $ 1,505,336 
_________________________________
(1)    The Company has not guaranteed the outstanding debt, nor does the Company have any obligation to fund this debt should the unconsolidated entity be unable to do so.

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The following is a combined summary of the operating results of the entities accounted for using the equity method discussed above for the periods presented (dollars in thousands):
For the three months ended
  3/31/2021 3/31/2020
(unaudited)
Rental and other income $ 26,398  $ 33,072 
Operating and other expenses (13,631) (12,181)
Interest expense, net (7,668) (8,056)
Depreciation expense (8,478) (8,689)
Net (loss) income $ (3,379) $ 4,146 
Company's share of net income (loss) $ 61  $ 1,705 
Amortization of excess investment and other (528) (530)
Equity in (loss) income from unconsolidated real estate investments $ (467) $ 1,175 

Expensed Transaction, Development and Other Pursuit Costs

The Company capitalizes pre-development costs incurred in pursuit of new development opportunities for which the Company currently believes future development is probable ("Development Rights"). Future development of these Development Rights is dependent upon various factors, including zoning and regulatory approval, rental market conditions, construction costs and the availability of capital. Initial pre-development costs incurred for pursuits for which future development is not yet considered probable are expensed as incurred. In addition, if the status of a Development Right changes, making future development by the Company no longer probable, any non-recoverable capitalized pre-development costs are expensed. The Company expensed costs related to development pursuits not yet considered probable for development and the abandonment of Development Rights, as well as costs incurred in pursuing the acquisition or disposition of assets for which such acquisition and disposition activity did not occur. The amount for the three months ended March 31, 2021, was a net recovery of $170,000. The amount for the three months ended March 31, 2020 was a net expense of $3,334,000. These costs are included in expensed transaction, development and other pursuit costs, net of recoveries on the accompanying Condensed Consolidated Statements of Comprehensive Income. Abandoned pursuit costs can vary greatly, and the costs incurred in any given period may be significantly different in future periods.

Casualty and Impairment of Long-Lived Assets

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

The Company evaluates its real estate and other long-lived assets for impairment when potential indicators of impairment exist. Such assets are stated at cost, less accumulated depreciation and amortization, unless the carrying amount of the asset is not recoverable. If events or circumstances indicate that the carrying amount of a property or long-lived asset may not be recoverable, the Company assesses its recoverability by comparing the carrying amount of the property or long-lived asset to its estimated undiscounted future cash flows. If the carrying amount exceeds the aggregate undiscounted future cash flows, the Company recognizes an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property or long-lived asset. Based on periodic tests of recoverability of long-lived assets, the Company did not recognize any impairment losses for the three months ended March 31, 2021 and 2020.

The Company evaluates its for-sale condominium inventory for potential indicators of impairment, considering whether the fair value of the individual for-sale condominium units exceeds the carrying value of those units. For-sale condominium inventory is stated at cost, unless the carrying amount of the inventory is not recoverable when compared to the fair value of each unit. The Company determines the fair value of its for-sale condominium inventory as the estimated sales price less direct costs to sell. For the three months ended March 31, 2021 and 2020, the Company did not recognize any impairment losses on its for-sale condominium inventory.

The Company assesses its portfolio of land held for both development and investment for impairment if the intent of the Company changes with respect to either the development of, or the expected holding period for, the land. During the three months ended March 31, 2021 and 2020, 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 by any of the Company's investments in unconsolidated real estate entities during the three months ended March 31, 2021 and 2020.

6.  Real Estate Disposition Activities

The following real estate sale occurred during the three months ended March 31, 2021:

Community Name Location Period of sale Apartment homes Gross sales price Gain on Disposition (1)
eaves Stamford Stamford, CT Q121 238 $ 72,000  $ 53,775 
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(1)    Gain on disposition was reported in gain on sale of communities on the accompanying Condensed Consolidated Statements of Comprehensive Income.

At March 31, 2021, the Company had one real estate asset that qualified as held for sale.

The Park Loggia

The Park Loggia, located in New York, NY, contains 172 for-sale residential condominiums and 66,000 square feet of commercial space. During the three months ended March 31, 2021, the Company sold 10 residential condominiums at The Park Loggia, for gross proceeds of $14,609,000, resulting in a gain in accordance with GAAP of $131,000. As of March 31, 2021, there were 92 residential condominiums remaining to be sold. The Company incurred $1,044,000 and $1,443,000 during the three months ended March 31, 2021 and 2020, respectively, in marketing, operating and administrative costs. All amounts are included in net for-sale condominium activity, on the accompanying Condensed Consolidated Statements of Comprehensive Income. As of March 31, 2021 and December 31, 2020, the unsold for-sale residential condominiums at The Park Loggia have an aggregate carrying value of $253,859,000 and $267,219,000, respectively, presented as for-sale condominium inventory on the accompanying Condensed Consolidated Balance Sheets.

7. Commitments and Contingencies

Lease Obligations

The Company owns 10 apartment communities and two commercial properties, located on land subject to ground leases expiring between May 2041 and March 2142. The Company has purchase options for all ground leases expiring prior to 2060. The ground leases for nine of the 10 of the apartment communities and the rest of the ground leases are operating leases, with rental expense recognized on a straight-line basis over the lease term. In addition, the Company is party to 14 leases for its corporate and regional offices with varying terms through 2031, all of which are operating leases.

As of March 31, 2021 and December 31, 2020, the Company has total operating lease assets of $131,269,000 and $133,581,000, respectively, and lease obligations of $159,813,000 and $161,313,000, respectively, reported as components of right of use lease assets and lease liabilities, respectively, on the accompanying Condensed Consolidated Balance Sheets. The Company incurred costs of $3,827,000 and $3,917,000 for the three months ended March 31, 2021 and 2020, respectively, related to operating leases.

The Company has one apartment community located on land subject to a ground lease and two leases for portions of parking garages, adjacent to apartment communities, that are finance leases. As of March 31, 2021 and December 31, 2020, the Company has total finance lease assets of $21,632,000 and $21,685,000, respectively, and total finance lease obligations of $20,154,000 and $20,166,000, respectively, reported as components of right of use lease assets and lease liabilities, respectively, on the accompanying Condensed Consolidated Balance Sheets.

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8.  Segment Reporting

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

The Company's segment disclosures present the measure(s) used by the chief operating decision maker for purposes of assessing each segment's performance. The Company's chief operating decision maker ("CODM") is comprised of several members of its executive management team who use net operating income ("NOI") as the primary financial measure for Established Communities and Other Stabilized Communities. NOI is defined by the Company as total property revenue less direct property operating expenses (including property taxes), and excluding corporate-level income (including management, development and other fees), corporate-level property management and other indirect operating expenses, expensed transaction, development and other pursuit costs, net of recoveries, interest expense, net, (gain) loss on extinguishment of debt, net, general and administrative expense, equity in income of unconsolidated real estate entities, depreciation expense, corporate income tax (benefit) expense, casualty and impairment (gain) loss, net, gain on sale of communities, (gain) loss on other real estate transactions, net, net for-sale condominium activity and net operating income from real estate assets sold or held for sale. The CODM evaluates the Company's financial performance on a consolidated residential and commercial basis, as the Company's commercial results attributable to the non-apartment components of the Company's mixed-use communities and other nonresidential operations represents 1.5% and 1.6% of total NOI for the three months ended March 31, 2021 and 2020, respectively. Although the Company considers NOI a useful measure of a community's or communities' operating performance, NOI should not be considered an alternative to net income or net cash flow from operating activities, as determined in accordance with GAAP. NOI excludes a number of income and expense categories as detailed in the reconciliation of NOI to net income.

A reconciliation of NOI to net income for the three months ended March 31, 2021 and 2020 is as follows (dollars in thousands):<