Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

November 8, 2022

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 September 30, 2022

OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______

Commission file number: 1-12672
AVALONBAY COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)

Maryland   77-0404318
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
 
4040 Wilson Blvd., Suite 1000
Arlington, Virginia 22203
(Address of principal executive offices) (Zip Code)
(703) 329-6300
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report) 

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) 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 90 days.
Yes ☒                    No ☐

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐                    No ☒
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date:

139,897,351 shares of common stock, par value $0.01 per share, were outstanding as of October 31, 2022.

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)
  9/30/2022 12/31/2021
  (unaudited)  
ASSETS    
Real estate:    
Land and improvements $ 4,625,920  $ 4,564,723 
Buildings and improvements 18,587,869  18,198,584 
Furniture, fixtures and equipment 1,130,525  1,036,640 
  24,344,314  23,799,947 
Less accumulated depreciation (6,671,984) (6,208,610)
Net operating real estate 17,672,330  17,591,337 
Construction in progress, including land 1,014,252  807,101 
Land held for development 167,277  147,546 
For-sale condominium inventory 38,509  146,535 
Real estate assets held for sale, net 56,275  17,065 
Total real estate, net 18,948,643  18,709,584 
Cash and cash equivalents 200,999  420,251 
Cash in escrow 286,127  123,537 
Resident security deposits 36,958  33,757 
Investments in unconsolidated entities 217,265  216,390 
Deferred development costs 54,806  40,414 
Prepaid expenses and other assets 274,272  211,484 
Right of use lease assets 145,700  146,599 
Total assets $ 20,164,770  $ 19,902,016 
LIABILITIES AND EQUITY    
Unsecured notes, net $ 7,254,365  $ 7,349,394 
Variable rate unsecured credit facility and commercial paper 49,985  — 
Mortgage notes payable, net 713,609  754,153 
Dividends payable 225,437  225,392 
Payables for construction 72,585  63,722 
Accrued expenses and other liabilities 338,661  296,006 
Lease liabilities 165,051  166,497 
Accrued interest payable 67,061  50,300 
Resident security deposits 63,506  59,787 
Liabilities related to real estate assets held for sale 1,067  304 
Total liabilities 8,951,327  8,965,555 
Commitments and contingencies
Redeemable noncontrolling interests 2,855  3,368 
Equity:    
Preferred stock, $0.01 par value; $25 liquidation preference; 50,000,000 shares authorized at September 30, 2022 and December 31, 2021; zero shares issued and outstanding at September 30, 2022 and December 31, 2021
 —  — 
Common stock, $0.01 par value; 280,000,000 shares authorized at September 30, 2022 and December 31, 2021; 139,828,342 and 139,751,926 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
 1,399  1,398 
Additional paid-in capital 10,738,715  10,716,414 
Accumulated earnings less dividends 466,888  240,821 
Accumulated other comprehensive income (loss) 3,035  (26,106)
Total stockholders' equity 11,210,037  10,932,527 
Noncontrolling interests 551  566 
Total equity 11,210,588  10,933,093 
Total liabilities and equity $ 20,164,770  $ 19,902,016 
 
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 For the nine months ended
  9/30/2022 9/30/2021 9/30/2022 9/30/2021
Revenue:    
Rental and other income $ 663,889  $ 580,079  $ 1,920,721  $ 1,691,273 
Management, development and other fees 1,399  695  3,054  2,380 
Total revenue 665,288  580,774  1,923,775  1,693,653 
Expenses:    
Operating expenses, excluding property taxes 165,580  148,704  473,281  430,377 
Property taxes 75,091  72,332  216,695  212,518 
Expensed transaction, development and other pursuit costs, net of recoveries 6,514  417  9,865  1,900 
Interest expense, net 57,290  55,987  172,613  164,704 
Loss on extinguishment of debt, net 1,646  17,890  1,646  17,768 
Depreciation expense 206,658  193,791  607,746  561,560 
General and administrative expense 14,611  17,313  53,323  53,130 
Casualty and impairment loss —  1,940  —  3,117 
Total expenses 527,390  508,374  1,535,169  1,445,074 
Income from investments in unconsolidated entities 43,777  6,867  46,574  32,959 
Gain on sale of communities 318,289  58  467,493  388,354 
Gain on other real estate transactions, net 15  1,543  95  2,002 
Net for-sale condominium activity 304  158  469  (1,402)
Income before income taxes 500,283  81,026  903,237  670,492 
Income tax expense (5,651) (2,179) (7,963) (1,434)
Net income 494,632  78,847  895,274  669,058 
Net loss attributable to noncontrolling interests 115  67  208  32 
Net income attributable to common stockholders $ 494,747  $ 78,914  $ 895,482  $ 669,090 
Other comprehensive income:    
Gain on cash flow hedges 8,188  2,010  26,102  1,188 
Cash flow hedge losses reclassified to earnings 1,013  7,405  3,039  12,138 
Comprehensive income $ 503,948  $ 88,329  $ 924,623  $ 682,416 
Earnings per common share - basic:    
Net income attributable to common stockholders $ 3.54  $ 0.57  $ 6.40  $ 4.79 
Earnings per common share - diluted:    
Net income attributable to common stockholders $ 3.53  $ 0.56  $ 6.40  $ 4.79 

See accompanying notes to Condensed Consolidated Financial Statements.
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AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Dollars in thousands)
  For the nine months ended
  9/30/2022 9/30/2021
Cash flows from operating activities:
Net income $ 895,274  $ 669,058 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense 607,746  561,560 
Amortization of deferred financing costs 6,022  5,519 
Amortization of debt discount 2,080  1,998 
Loss on extinguishment of debt, net 1,646  17,768 
Amortization of stock-based compensation 26,774  20,660 
Equity in (income) loss of, and return on, unconsolidated entities and noncontrolling interests, net of eliminations (4,180) 4,290 
Real estate casualty loss —  2,802 
Abandonment of development pursuits 4,069  685 
Unrealized gain on terminated cash flow hedges —  (2,654)
Cash flow hedge losses reclassified to earnings 3,039  6,874 
Gain on sale of real estate assets (505,650) (413,661)
Gain on sale of for-sale condominiums (2,113) (2,051)
Decrease in resident security deposits, prepaid expenses and other assets (22,511) (20,555)
Increase in accrued expenses, other liabilities and accrued interest payable 68,244  59,449 
Net cash provided by operating activities 1,080,440  911,742 
Cash flows from investing activities:
Development/redevelopment of real estate assets including land acquisitions and deferred development costs (681,937) (476,307)
Acquisition of real estate assets, including partnership interest (459,695) (392,746)
Capital expenditures - existing real estate assets (117,812) (105,621)
Capital expenditures - non-real estate assets (5,667) (4,689)
Increase (decrease) in payables for construction 8,863  (35,639)
Proceeds from sale of real estate, net of selling costs 768,781  576,973 
Proceeds from the sale of for-sale condominiums, net of selling costs 111,047  98,752 
Note receivable lending (15,584) (118)
Note receivable payments 4,021  1,556 
Distributions from unconsolidated entities 50,990  62,157 
Investments in unconsolidated entities (11,496) (40,071)
Net cash used in investing activities (348,489) (315,753)
Cash flows from financing activities:
Issuance of common stock, net 1,962  7,011 
Dividends paid (667,393) (666,420)
Net borrowings under unsecured credit facility and commercial paper 49,985  — 
Repayments of mortgage notes payable, including prepayment penalties (43,131) (35,688)
Issuance of unsecured notes —  699,167 
Repayment of unsecured notes (100,000) (462,147)
Payment of deferred financing costs (11,953) (5,281)
Receipt for termination of forward interest rate swaps —  4,751 
Payment to noncontrolling interest (38) (45)
Payments related to tax withholding for share-based compensation (16,872) (13,409)
Distributions to DownREIT partnership unitholders (36) (36)
Distributions to joint venture and profit-sharing partners (277) (234)
Preferred interest obligation redemption and dividends (860) (1,340)
Net cash used in financing activities (788,613) (473,671)
Net (decrease) increase in cash, cash equivalents and cash in escrow (56,662) 122,318 
Cash, cash equivalents and cash in escrow, beginning of period 543,788  313,532 
Cash, cash equivalents and cash in escrow, end of period $ 487,126  $ 435,850 
Cash paid during the period for interest, net of amount capitalized $ 144,833  $ 127,575 
See accompanying notes to Condensed Consolidated Financial Statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

The following table provides a reconciliation of cash, cash equivalents and cash in escrow reported in the Condensed Consolidated Statements of Cash Flows (dollars in thousands):
For the nine months ended
9/30/2022 9/30/2021
Cash and cash equivalents $ 200,999  $ 322,294 
Cash in escrow 286,127  113,556 
Cash, cash equivalents and cash in escrow reported in the Condensed Consolidated Statements of Cash Flows $ 487,126  $ 435,850 

Supplemental disclosures of non-cash investing and financing activities:

During the nine months ended September 30, 2022:

•As described in Note 4, "Equity," the Company issued 136,115 shares of common stock as part of the Company's stock-based compensation plans, of which 54,053 shares related to the conversion of performance awards to shares of common stock, and the remaining 82,062 shares valued at $19,286,000 were issued in connection with new stock grants; 2,057 shares valued at $461,000 were issued through the Company's dividend reinvestment plan; 72,132 shares valued at $16,872,000 were withheld to satisfy employees' tax withholding and other liabilities; and 3,235 restricted shares with an aggregate value of $689,000 previously issued in connection with employee compensation were canceled upon forfeiture.

•Common stock dividends declared but not paid totaled $223,638,000.

•The Company recorded an increase of $33,000 in redeemable noncontrolling interest with a corresponding decrease to accumulated earnings less dividends to adjust the redemption value associated with the put options held by joint venture partners and DownREIT partnership units.

•The Company recorded (i) an increase to prepaid expenses and other assets of $26,102,000 and a corresponding adjustment to accumulated other comprehensive loss and (ii) reclassified $3,039,000 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 nine months ended September 30, 2021:

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

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

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

•The Company recorded an increase to prepaid expense and other assets of $3,399,000 and a corresponding adjustment to accumulated other comprehensive loss, and reclassified $6,874,000 and $5,264,000 of cash flow hedge losses from other comprehensive income (loss) to interest expense, net, and loss on extinguishment of debt, net, respectively, to record the impact of the Company's derivative and hedge accounting activity.
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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, as amended (the "Code"). The Company focuses on the development, redevelopment, acquisition, ownership and operation of multifamily communities in New England, the New York/New Jersey metro area, the Mid-Atlantic, the Pacific Northwest, and Northern and Southern California, as well as in the Company's expansion markets of Raleigh-Durham and Charlotte, North Carolina, Southeast Florida, Dallas and Austin, Texas, and Denver, Colorado.

At September 30, 2022, the Company owned or held a direct or indirect ownership interest in 293 operating apartment communities containing 88,405 apartment homes in 12 states and the District of Columbia, of which 18 communities were under development and one was under redevelopment. The Company also has an ownership interest in The Park Loggia. The Park Loggia contains 172 for-sale residential condominiums and 66,000 square feet of commercial space, of which 161 condominiums have been sold and the leasing of the commercial space has been completed as of September 30, 2022. 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 34 communities that, if developed as expected, will contain an estimated 11,451 apartment homes.

The interim unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements required by GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited financial statements should be read in conjunction with the financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the operating results for the full year. Management believes the disclosures are adequate to ensure the information presented is not misleading. In the opinion of management, all adjustments and eliminations, consisting only of normal, recurring adjustments necessary for a fair presentation of the financial statements for the interim periods, have been included.

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

Cash, Cash Equivalents and Cash in Escrow

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

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 nine months ended
  9/30/2022 9/30/2021 9/30/2022 9/30/2021
Basic and diluted shares outstanding    
Weighted average common shares - basic 139,640,421  139,386,413  139,610,205  139,338,800 
Weighted average DownREIT units outstanding 7,500  7,500  7,500  7,500 
Effect of dilutive securities 334,038  343,812  346,467  298,769 
Weighted average common shares - diluted 139,981,959  139,737,725  139,964,172  139,645,069 
Calculation of Earnings per Share - basic    
Net income attributable to common stockholders $ 494,747  $ 78,914  $ 895,482  $ 669,090 
Net income allocated to unvested restricted shares (888) (160) (1,662) (1,443)
Net income attributable to common stockholders, adjusted $ 493,859  $ 78,754  $ 893,820  $ 667,647 
Weighted average common shares - basic 139,640,421  139,386,413  139,610,205  139,338,800 
Earnings per common share - basic $ 3.54  $ 0.57  $ 6.40  $ 4.79 
Calculation of Earnings per Share - diluted    
Net income attributable to common stockholders $ 494,747  $ 78,914  $ 895,482  $ 669,090 
Add: noncontrolling interests of DownREIT unitholders in consolidated partnerships, including discontinued operations 12  12  36  36 
Adjusted net income attributable to common stockholders $ 494,759  $ 78,926  $ 895,518  $ 669,126 
Weighted average common shares - diluted 139,981,959  139,737,725  139,964,172  139,645,069 
Earnings per common share - diluted $ 3.53  $ 0.56  $ 6.40  $ 4.79 
 
Certain options to purchase shares of common stock in the amount of 9,793 were outstanding as of September 30, 2022, but were not included in the computation of diluted earnings per share because such options were anti-dilutive for the period. All options to purchase shares of common stock outstanding as of September 30, 2021 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 Derivatives for trading or other speculative purposes. The Company assesses the effectiveness of qualifying cash flow and fair value hedges, both at inception and on an 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 values 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 Derivatives that qualify as effective cash flow hedges, the Company has recorded the cumulative changes in the fair value of Hedging Derivatives in accumulated other comprehensive 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 qualify as effective fair value hedges is reported as an adjustment to the carrying amount of the corresponding hedged item. 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 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 asset acquisitions.

Use of Estimates

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

Reclassifications

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

For-Sale Condominium Inventory

The Company presents for-sale condominium inventory at historical cost and evaluates the condominiums for impairment when potential indicators exist, as further discussed in Note 5, "Investments."

Income Taxes

During the three and nine months ended September 30, 2022, the Company recognized income tax expense of $5,651,000 and $7,963,000, respectively, primarily related to the condominium dispositions at The Park Loggia and other taxable REIT subsidiary ("TRS") activity.

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. Lease payments included in the lease liability include only fixed lease payments. For leases that have options to extend the term or terminate the lease early, the Company only factored the impact of such options into the lease term if the option was considered reasonably certain to be exercised. The Company determined the discount rate associated with its ground and office leases on a lease by lease basis using the Company’s actual borrowing rates as well as indicative market pricing for longer term rates and taking into consideration the remaining term of the lease agreements.

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Lessor Considerations

The Company has determined that the residential and commercial leases at its apartment communities are operating leases. For leases that include rent concessions and/or fixed and determinable rent increases, rental income is recognized on a straight-line basis over the noncancellable term of the lease, which, for residential leases, is generally one year. Some of the Company’s commercial leases have renewal options which the Company will only include in the lease term if, at the commencement of the lease, it is reasonably certain that the lessee will exercise this option.

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

Revenue and Gain Recognition

Under Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, the Company recognizes revenue for the transfer of goods and services to customers for consideration that the Company expects to receive. The majority of the Company’s revenue is derived from residential and commercial rental and other lease income, which are accounted for as discussed above, under "Leases". The Company's revenue streams that are not accounted for under ASC 842, Leases, include (i) management, development and other fees, (ii) rental and non-rental related income and (iii) gains or losses on the sale of real estate.

The following table details the Company’s revenue disaggregated by reportable operating segment, further discussed in Note 8, “Segment Reporting,” for the three and nine months ended September 30, 2022 and 2021. Segment information for total revenue excludes real estate assets that were sold from January 1, 2021 through September 30, 2022, or otherwise qualify as held for sale as of September 30, 2022, as described in Note 6, "Real Estate Disposition Activities" (dollars in thousands):
Same Store Other
Stabilized 		Development/
Redevelopment 		Non-
allocated (1)		 Total
For the three months ended September 30, 2022
Management, development and other fees and other ancillary items $ —  $ —  $ —  $ 1,399  $ 1,399 
Rental and non-rental related income (2) 2,201  1,048  92  —  3,341 
Total non-lease revenue (3) 2,201  1,048  92  1,399  4,740 
Lease income (4) 572,581  55,840  24,812  —  653,233 
Total revenue $ 574,782  $ 56,888  $ 24,904  $ 1,399  $ 657,973 
For the three months ended September 30, 2021
Management, development and other fees and other ancillary items $ —  $ —  $ —  $ 695  $ 695 
Rental and non-rental related income (2) 1,883  425  69  —  2,377 
Total non-lease revenue (3) 1,883  425  69  695  3,072 
Lease income (4) 511,898  32,176  11,992  —  556,066 
Total revenue $ 513,781  $ 32,601  $ 12,061  $ 695  $ 559,138 

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Same Store Other
Stabilized 		Development/
Redevelopment 		Non-
allocated (1)		 Total
For the nine months ended September 30, 2022
Management, development and other fees and other ancillary items $ —  $ —  $ —  $ 3,054  $ 3,054 
Rental and non-rental related income (2) 6,763  2,396  237  —  9,396 
Total non-lease revenue (3) 6,763  2,396  237  3,054  12,450 
Lease income (4) 1,665,157  148,802  63,256  —  1,877,215 
Total revenue $ 1,671,920  $ 151,198  $ 63,493  $ 3,054  $ 1,889,665 
For the nine months ended September 30, 2021
Management, development and other fees and other ancillary items $ —  $ —  $ —  $ 2,380  $ 2,380 
Rental and non-rental related income (2) 5,483  1,300  181  —  6,964 
Total non-lease revenue (3) 5,483  1,300  181  2,380  9,344 
Lease income (4) 1,497,270  79,147  27,903  —  1,604,320 
Total revenue $ 1,502,753  $ 80,447  $ 28,084  $ 2,380  $ 1,613,664 
__________________________________
(1)Revenue represents third-party property management, developer fees and miscellaneous income and other ancillary items which are not allocated to a reportable segment.
(2)Amounts include revenue streams related to leasing activities that are not considered components of a lease, 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 revenue accounted for under ASC 606.
(4)Represents residential and commercial rental and other lease income, accounted for under ASC 842.

Due to the nature and timing of the Company’s identified revenue streams, there were no material amounts of outstanding or unsatisfied performance obligations as of September 30, 2022.

Uncollectible Lease Revenue Reserves

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

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

The Company recorded an aggregate offset to income for uncollectible lease revenue, net of amounts received from government rent relief programs, for its residential and commercial portfolios of $10,607,000 and $8,586,000 for the three months ended September 30, 2022 and 2021, respectively, and $31,267,000 and $42,295,000 for the nine months ended September 30, 2022 and 2021, respectively, under ASC 842 and ASC 450.

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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 $9,131,000 and $7,862,000 for the three months ended September 30, 2022 and 2021, respectively, and $24,424,000 and $25,023,000 for the nine months ended September 30, 2022 and 2021, respectively.

3.  Debt

The Company's debt, which consists of unsecured notes, variable rate unsecured term loans (the "Term Loans"), mortgage notes payable, the Credit Facility and the Commercial Paper Program, each as defined below, as of September 30, 2022 and December 31, 2021 are summarized below. The following amounts and discussion do not include the mortgage notes related to the communities classified as held for sale, if any, as of September 30, 2022 and December 31, 2021, as shown in the accompanying Condensed Consolidated Balance Sheets (dollars in thousands) (see Note 6, "Real Estate Disposition Activities").
  9/30/2022 12/31/2021
Fixed rate unsecured notes (1) $ 7,150,000  $ 7,150,000 
Term Loans (1) 150,000  250,000 
Fixed rate mortgage notes payable - conventional and tax-exempt (2) 270,677  306,281 
Variable rate mortgage notes payable - conventional and tax-exempt (2) 457,350  464,150 
Total mortgage notes payable and unsecured notes and Term Loans 8,028,027  8,170,431 
Credit Facility —  — 
Commercial paper 49,985  — 
Total $ 8,078,012  $ 8,170,431 
_____________________________________
(1)Balances at September 30, 2022 and December 31, 2021 exclude $8,784 and $10,033, respectively, of debt discount, and $36,851 and $40,573, respectively, of deferred financing costs, as reflected in unsecured notes, net on the accompanying Condensed Consolidated Balance Sheets.
(2)Balances at September 30, 2022 and December 31, 2021 exclude $12,696 and $13,528, respectively, of debt discount, and $1,722 and $2,750, respectively, of deferred financing costs, as reflected in mortgage notes payable, net on the accompanying Condensed Consolidated Balance Sheets.

The following debt activity occurred during the nine months ended September 30, 2022:

•In February 2022, the Company repaid its $100,000,000 variable rate unsecured term loan at par upon maturity.

•In March 2022, the Company established an unsecured commercial paper note program (the “Commercial Paper Program”). Under the terms of the Commercial Paper Program, the Company may issue, from time to time, unsecured commercial paper notes with varying maturities of less than one year. Amounts available under the Commercial Paper Program may be issued, repaid and re-issued from time to time, with the maximum aggregate face or principal amount outstanding at any one time not to exceed $500,000,000. The Commercial Paper Program is backstopped by the Company's commitment to maintain available borrowing capacity under the Credit Facility in an amount equal to actual borrowings under the Commercial Paper Program. The Company had $49,985,000 outstanding under the Commercial Paper Program as of September 30, 2022.

•In September 2022, the Company repaid $35,276,000 principal amount of its secured fixed rate debt with an effective rate of 6.16% in advance of the October 2047 scheduled maturity, recognizing a loss on debt extinguishment of $1,399,000, composed of prepayment penalties and the non-cash write off of unamortized deferred financing costs.

•In September 2022, the Company entered into the Sixth Amended and Restated Revolving Loan Agreement (the “Credit Facility”) with a syndicate of banks, which replaces its prior credit facility dated as of February 28, 2019. The amended and restated Credit Facility (i) increased the borrowing capacity from $1,750,000,000 to $2,250,000,000, (ii) extended the term of the Credit Facility from February 28, 2024 to September 27, 2026, with two six-month extension options available to the Company, provided the Company is not in default and upon payment of a $1,406,000 extension fee, (iii) amended certain provisions, notably to reduce the capitalization rate used to derive certain financial
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covenants from 6.0% to 5.75% and (iv) transitioned the benchmark rate from the London Interbank Offered Rate ("LIBOR") to the Secured Overnight Financing Rate ("SOFR"). The Company may elect to expand the Credit Facility to $3,000,000,000, provided that one or more banks (from the syndicate or otherwise) voluntarily agree to provide the additional commitment. No member of the syndicate of banks can prohibit the increase, which will only be effective to the extent banks (from the syndicate or otherwise) choose to commit to lend additional funds.

The interest rate that would be applicable to borrowings under the Credit Facility is 3.81% at September 30, 2022 and is composed of (i) SOFR, applicable to the period of borrowing for a particular draw of funds from the facility (e.g., one month to maturity, three months to maturity, etc.), plus (ii) the current borrowing spread to SOFR of 0.825% per annum, which consists of a 0.10% SOFR adjustment plus 0.725% per annum, assuming a one month term SOFR borrowing rate. The borrowing spread to SOFR can vary from SOFR plus 0.65% to SOFR plus 1.40% based upon the rating of the Company's unsecured and unsubordinated long-term indebtedness. There is also an annual facility commitment fee of 0.125% of the borrowing capacity under the facility, which can vary from 0.10% to 0.30% based upon the rating of the Company's unsecured and unsubordinated long-term indebtedness. The Credit Facility contains a sustainability-linked pricing component which provides for interest rate margin and commitment fee reductions or increases by meeting or missing targets related to environmental sustainability, specifically greenhouse gas emission reductions, with the adjustment determined annually beginning in July 2023. The Credit Facility also contains a competitive bid option that is available for borrowings of up to 65% of the Credit Facility amount. This option allows banks that are part of the lender consortium to bid to provide the Company loans at a rate that is lower than the stated pricing provided by the Credit Facility. The competitive bid option may result in lower pricing than the stated rate if market conditions allow.

Prior to the amended and restated Credit Facility, the Company's cost of borrowing was comprised of LIBOR plus 0.775% and an annual facility fee at 0.125%, both as determined by the Company's credit ratings.

The Company had no borrowings outstanding under the Credit Facility and had $6,914,000 and $11,969,000 outstanding in letters of credit that reduced the borrowing capacity as of September 30, 2022 and December 31, 2021, respectively. After taking into account its Commercial Paper Program and letters of credit, the Company had $2,193,101,000 available under the Credit Facility as of September 30, 2022. In addition, the Company had $45,182,000 and $39,581,000 outstanding in additional letters of credit unrelated to the Credit Facility as of September 30, 2022 and December 31, 2021, 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 $1,189,325,000, excluding communities classified as held for sale, as of September 30, 2022).

The weighted average interest rate of the Company's fixed rate secured notes payable (conventional and tax-exempt) was 3.4% and 3.7% at September 30, 2022 and December 31, 2021, 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 4.1% and 1.7% at September 30, 2022 and December 31, 2021, respectively.

In addition to the Commercial Paper Program, scheduled payments and maturities of secured notes payable and unsecured notes outstanding at September 30, 2022 were as follows (dollars in thousands):
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Year Secured notes
principal payments		 Secured notes maturities Unsecured notes and Term Loan maturities Stated interest rate of unsecured notes and Term Loan
2022 $ 800  $ —  $ —  — 
2023 8,300  —  350,000  4.200  %
250,000  2.850  %
2024 9,100  —  300,000  3.500  %
150,000 
LIBOR + 0.85%
2025 9,700  —  525,000  3.450  %
300,000  3.500  %
2026 10,600  —  475,000  2.950  %
300,000  2.900  %
2027 12,900  236,100  400,000  3.350  %
2028 17,600  —  450,000  3.200  %
400,000  1.900  %
2029 8,500  66,250  450,000