2020
ANNUAL REPORT
Dear Fellow Stakeholders,
2020 was a challenging year for AvalonBay. The
economic downturn that occurred due to the COVID-
19 pandemic dramatically
impacted apartment
market fundamentals, particularly in our coastal and
urban markets. Public health concerns, work-from-
home mandates, shuttered store fronts and civil
unrest presented significant challenges for apartment
living. As demand for apartments fell, we experienced
rates and
unprecedented declines
occupancy across most of our markets.
rental
in
While it was a challenging year for the business, we
responded effectively as a company to protect our
customers, associates, and communities. We reacted
swiftly and creatively to address safety concerns of
customers and associates, find new ways to serve
residents and prospects, develop new safety
protocols at construction sites, and
insure we
maintained adequate liquidity and access to capital to
fulfill our commitments and reassure our financial
stakeholders.
By the end of the year, we began to see some early
signs of stabilization in our business, and, we even
began to look forward to the next expansion as the
rollout of COVID-19 vaccines held promise for a
return to the office, a recovery of urban centers and
renewed economic growth.
FINANCIAL & OPERATING PERFORMANCE
In 2020, full year:
→ Core FFO per share declined by 7.0%.
→ Same-store rental revenue declined by 3.7%,
primarily due to an increase in uncollectible lease
revenue and a decline in occupancy.
→ Same-store expense growth was modest, at
2.9%.
→ Same-store net operating
income
(“NOI”)
decreased by 6.4%.
INVESTMENT ACTIVITY
Over the course of 2020, we completed the
development of eight new communities containing
nearly 2,100 apartment homes for an aggregate Total
Capital Cost of approximately $800 million. We
project these communities will generate a weighted
average Initial Stabilized Yield of 5.2%, which is above
our estimate of market capitalization rates for
existing like-product in our markets.
We also commenced construction on three wholly-
owned development communities and one joint
venture development
community, which are
expected to contain over 1,000 apartment homes, for
an aggregate Total Capital Cost of approximately
$290 million (at share).
CAPITAL & BALANCE SHEET MANAGEMENT
We raised over $2 billion of new capital in 2020,
consisting of approximately $1.3 billion of new debt
issued at a weighted average effective interest rate of
2.6% per annum, and over $800 million of asset sales.
The proceeds from this activity were used to repay
approximately $1 billion of debt scheduled to mature
in 2020 and 2021 that carried a weighted average
effective interest rate of 3.2%, and to fund ongoing
investment activity.
At year-end 2020:
→ Leverage, as measured by Net Debt-to-Core
EBITDAre, was 5.4x - well within our target range
of 5x to 6x.
→ Unencumbered NOI stood at 94%.
→ The weighted average years to maturity on our
outstanding debt was 9.3 years.
→ We had approximately $215 million of cash and
cash equivalents available for use.
→ We had no amounts outstanding on our $1.75
billion unsecured credit facility.
→ We had less than $40 million of debt maturities
and amortization in 2021.
1
ENVIRONMENTAL, SOCIAL & GOVERNANCE
In 2020, we remained an industry leader in corporate
responsibility by establishing inclusion and diversity
goals and by making progress towards our science-
based emissions reduction targets.
In addition, in 2020, we:
→ Were named the Global and U.S. Leader in the
Residential Sector by the Global Real Estate
Sustainability Benchmark (GRESB) for a second
consecutive year.
→ Received an A- grade from the Carbon Disclosure
Project (CDP) for our carbon emission disclosure
practices for a second consecutive year.
→ Were included in Newsweek’s list of America’s
Most Responsible Companies.
→ Ranked #1 for online reputation among public
multifamily REITs by J. Turner Research for a
fourth consecutive year.
→ Remained
in the top quartile for associate
engagement among companies surveyed by
Perceptyx(1).
LEADERSHIP TRANSITION
In December, we announced that Benjamin (Ben) W.
Schall would become President of AvalonBay and a
member of the Company’s Board of Directors in early
2021, and that, upon my planned retirement as CEO
at the end of 2021, he would succeed me as CEO and
I would become Executive Chair.
Ben is an exceptionally talented executive who brings
a breadth of experience to AvalonBay. Over the
course of his career, Ben has successfully driven
growth and transformative strategies with his teams.
His experience in multiple sectors, across more than
40 states, and 24 of the top 25 MSAs in the U.S.,
combined with
leading
development, operations, asset management, and
leasing and marketing, make Ben the ideal choice as
the next leader of AvalonBay.
experience
his
in
I am confident that Ben and the rest of our seasoned
executive team will be excellent stewards for
AvalonBay’s next phase of growth, and I look forward
to supporting them in my new role as Executive Chair
in 2022.
CONCLUSION
2020 was a challenging year for the Company from a
financial and operating performance perspective.
However, we were able to continue to create value
investment and capital markets
through our
activities, and we made progress in other important
areas of our business.
We enter 2021 with some hope and optimism.
Vaccines are being rolled out with goals of guarding
our health and serving as the impetus to open the
economy more broadly.
Towards the end of 2020, we began to see the early
signs of a stabilization in apartment fundamentals in
our markets. Monthly average same-store physical
occupancy reached a low point in September, and
subsequently improved in each of the succeeding five
months, and we began to see a modest improvement
in rents during this period as well.
Further, our history suggests that many of the best
investment opportunities are discovered early in
economic expansions, and we believe our balance
sheet is extremely well-positioned to pursue these
opportunities.
In summary, while 2021 will
likely be another
challenging year, I believe AvalonBay is well-prepared
to capitalize on accretive investment opportunities as
apartment fundamentals improve and we enter the
next phase of growth at AvalonBay.
Thank you for your continued support.
Sincerely,
Timothy J. Naughton
Chairman and CEO
2
NOTES
1. Perceptyx is a third-party service provider that surveys associates of leading companies to measure
workforce engagement.
DEFINITIONS AND RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
AND OTHER TERMS USED IN THIS LETTER
EBITDA, EBITDAre and Core EBITDAre are considered by management to be supplemental measures of our financial
performance. EBITDA is defined by the Company as net income or loss attributable to the Company before interest
income and expense, income taxes, depreciation, and amortization. EBITDAre is calculated by the Company in
accordance with the definition adopted by the Board of Governors of the National Association of Real Estate
Investment Trusts (“NAREIT”), as EBITDA plus or minus losses and gains on the disposition of depreciated property,
plus impairment write-downs of depreciated property, with adjustments to reflect the Company's share of EBITDAre
of unconsolidated entities. Core EBITDAre is the Company’s EBITDAre as adjusted for non-core items outlined in the
table below. By further adjusting for items that are not considered part of the Company’s core business operations,
Core EBITDAre can help one compare the core operating and financial performance of the Company between
periods. A reconciliation of EBITDA, EBITDAre and Core EBITDAre to net income is as follows (dollars in thousands):
3
Q42020Net income341,114$ Interest expense, net51,589 Income tax benefit(2,178) Depreciation expense177,823 EBITDA568,348$ Gain on sale of communities(249,106) Joint venture EBITDAre adjustments3,294 EBITDAre322,536$ Gain on other real estate transactions(112) Business interruption insurance proceeds- Advocacy contributions5,484 Severance related costs27 Development pursuit write-offs and expensed transaction costs, net7,907 Gain on for-sale condominiums(39) For-sale condominium marketing, operating and administrative costs1,650 Asset management fee intangible write-off- Legal settlements455 Core EBITDAre337,908$
FFO and Core FFO are considered by management to be supplemental measures of our operating and financial
performance. FFO is calculated by the Company in accordance with the definition adopted by NAREIT. FFO is
calculated by the Company as Net income or loss attributable to common stockholders computed in accordance
with GAAP, adjusted for gains or losses on sales of previously depreciated operating communities, cumulative effect
of a change in accounting principle, impairment write-downs of depreciable real estate assets, write-downs of
investments in affiliates which are driven by a decrease in the value of depreciable real estate assets held by the
affiliate and depreciation of real estate assets, including adjustments for unconsolidated partnerships and joint
ventures. By excluding gains or losses related to dispositions of previously depreciated operating communities and
excluding real estate depreciation (which can vary among owners of identical assets in similar condition based on
historical cost accounting and useful life estimates), FFO can help one compare the operating and financial
performance of a company’s real estate between periods or as compared to different companies. Core FFO is the
Company's FFO as adjusted for non-core items outlined in the table below. By further adjusting for items that are
not considered by us to be part of our core business operations, Core FFO can help one compare the core operating
and financial performance of the Company between periods. A reconciliation of Net income attributable to common
stockholders to FFO and to Core FFO is as follows (dollars in thousands):
4
FULL YEARFULL YEAR20202019Net income attributable to common stockholders827,630$ 785,974$ Depreciation - real estate assets, including joint venture adjustments704,331 666,563 Distributions to noncontrolling interests48 46 Gain on sale of unconsolidated entities holding previously depreciated real estate(5,157) (5,788) Gain on sale of previously depreciated real estate(340,444) (166,105) FFO attributable to common stockholders1,186,408 1,280,690 Adjusting items:Joint venture losses375 87 Business interruption insurance proceeds(385) (1,441) Lost NOI from casualty losses covered by business interruption insurance48 675 Loss on extinguishment of consolidated debt9,333 602 Gain on interest rate contract(2,894) - Advocacy contributions8,558 50 Severance related costs2,142 2,327 Development pursuit write-offs and expensed transaction costs, net11,443 3,782 Gain on for-sale condominiums(8,213) - For-sale condominium marketing, operating and administrative costs5,662 3,812 For-sale condominium imputed carry cost11,317 6,351 Gain on other real estate transactions(440) (439) Legal settlements490 (6,292) Income tax (benefit) expense(3,247) 13,003 Core FFO attributable to common stockholders1,220,597$ 1,303,207$ Average shares outstanding - diluted140,435,195139,571,550Earnings per share - diluted5.89$ 5.63$ FFO per common share - diluted8.45$ 9.18$ Core FFO per common share - diluted8.69$ 9.34$
Net Debt-to-Core EBITDAre is calculated by the Company as total debt (secured and unsecured notes and the
Company's variable rate unsecured credit facility) that is consolidated for financial reporting purposes, less
consolidated cash and cash in escrow, divided by annualized fourth quarter 2020 Core EBITDAre, as adjusted. A
calculation of Net Debt-to-Core EBITDAre is as follows (dollars in thousands):
5
Q42020Total debt principal7,629,814$ Cash and cash in escrow(313,532) Net debt7,316,282$ Core EBITDAre337,908$ Core EBITDAre, annualized1,351,632 Net Debt-to-Core EBITDAre5.4x
NOI is defined by the Company as total property revenue less direct property operating expenses (including property
taxes), and excluding corporate-level income (including management, development and other fees), corporate-level
property management and other indirect operating expenses, expensed transaction, development and other pursuit
costs, net of recoveries, interest expense, net, loss (gain) on extinguishment of debt, net, general and administrative
expense, joint venture (income) loss, depreciation expense, corporate income tax expense (benefit), casualty and
impairment loss (gain), net, gain on sale of communities, (gain) loss on other real estate transactions, net for-sale
condominium activity and net operating income from real estate assets sold or held for sale. The Company considers
NOI to be an important and appropriate supplemental performance measure to Net Income of operating
performance of a community or communities because it helps both investors and management to understand the
core operations of a community or communities prior to the allocation of any corporate-level property management
overhead or financing-related costs. NOI reflects the operating performance of a community and allows for an easier
comparison of the operating performance of individual assets or groups of assets. In addition, because prospective
buyers of real estate have different financing and overhead structures, with varying marginal impact to overhead as
a result of acquiring real estate, NOI is considered by many in the real estate industry to be a useful measure for
determining the value of a real estate asset or groups of assets. A reconciliation of NOI to Net Income, as well as a
breakdown of NOI by operating segment, is as follows (dollars in thousands):
6
FULL YEARFULL YEAR20202019Net income827,706$ 786,103$ Indirect operating expenses, net of corporate income97,443 83,008 12,399 4,991 Interest expense, net214,151 203,585 9,333 602 General and administrative expense60,343 58,042 (6,422) (8,652) Depreciation expense707,331 661,578 (3,247) 13,003 Gain on sale of communities(340,444) (166,105) (440) (439) Net for-sale condominium activity(2,551) 3,812 (28,412) (45,354) NOI1,547,190$ 1,594,174$ 1,406,905$ 1,503,300$ Other Stabilized92,040 74,814 48,245 16,060 NOI1,547,190$ 1,594,174$ Total EstablishedDevelopment/RedevelopmentNOI from real estate assets sold or held for saleExpensed transaction, development and other pursuit costs, net of recoveriesLoss on extinguishment of debt, netJoint venture incomeIncome tax (benefit) expenseGain on other real estate transactions
Projected NOI represents management’s estimate of projected stabilized rental revenue minus projected stabilized
operating expenses. Projected NOI is calculated based on the first twelve months of Stabilized Operations following
the completion of construction. Projected stabilized rental revenue represents management’s estimate of projected
gross potential minus projected stabilized economic vacancy and adjusted for projected stabilized concessions plus
projected stabilized other rental revenue. Projected stabilized operating expenses do not include interest, income
taxes (if any), depreciation or amortization, or any allocation of corporate-level property management overhead or
general and administrative costs. In addition, projected stabilized operating expenses do not include property
management fee expense. Projected gross potential is based on leased rents for occupied homes and management’s
best estimate of rental levels for homes which are currently unleased, as well as those homes which will become
available for lease during the twelve month forward period used to develop Projected NOI.
Management believes that Projected NOI on an aggregated weighted average basis, assists investors in
understanding management's estimate of the likely impact on operations when the assets are complete and achieve
stabilized occupancy (before allocation of any corporate-level property management overhead, general and
administrative costs or interest expense). Projected NOI of these communities is not a projection of the Company's
overall financial performance or cash flow. There can be no assurance that the communities under development will
achieve the Projected NOI as described in this release.
Initial Stabilized Yield means Projected NOI as a percentage of Total Capital Cost. The weighted average Projected
NOI as a percentage of Total Capital Cost is weighted based on the Company’s share of the Total Capital Cost of each
community, based on its percentage ownership.
Same-Store (or Established) Communities are consolidated communities in the markets where the Company has a
significant presence, including the Company's Expansion Markets of Southeast Florida and Denver, Colorado, and
where a comparison of operating results from the prior year to the current year is meaningful, as these communities
were owned and had Stabilized Operations, as defined below, as of the beginning of the respective prior year period.
Therefore, for 2020 operating results, Established Communities are consolidated communities that have Stabilized
Operations as of January 1, 2019, are not conducting or are not probable to conduct substantial redevelopment
activities and are not held for sale or probable for disposition within the current year.
Stabilized Operations is defined as the earlier of (i) attainment of 90% physical occupancy or (ii) the one-year
anniversary of completion of development or redevelopment.
Total Capital Cost includes all capitalized costs projected to be or actually incurred to develop the respective
community, including land acquisition costs, construction costs, real estate taxes, capitalized interest and loan fees,
permits, professional fees, allocated development overhead and other regulatory fees, offset by proceeds from the
sale of any associated land or improvements, all as determined in accordance with GAAP. Total Capital Cost also
includes costs incurred related to first generation commercial tenants, such as tenant improvements and leasing
commissions. With respect to communities where development was completed in a prior or the current period,
Total Capital Cost reflects the actual cost incurred, plus any contingency estimate made by management.
Unencumbered NOI as calculated by the Company represents NOI generated by real estate assets unencumbered
by outstanding secured notes payable as of December 31, 2020 as a percentage of total NOI generated by real estate
assets. The Company believes that current and prospective unsecured creditors of the Company view
Unencumbered NOI as one indication of the borrowing capacity of the Company. Therefore, when reviewed together
with the Company’s Interest Coverage, EBITDA and cash flow from operations, the Company believes that investors
and creditors view Unencumbered NOI as a useful supplemental measure for determining the financial flexibility of
an entity. A calculation of Unencumbered NOI for the year ended December 31, 2020 is as follows (dollars in
thousands):
7
8
FULL YEAR2020NOI for Established Communities1,406,905NOI for Other Stabilized Communities92,040NOI for Development/Redevelopment Communities48,245NOI from real estate assets sold or held for sale28,412Total NOI generated by real estate assets1,575,602 NOI on encumbered assets94,775 NOI on unencumbered assets1,480,827$ Unencumbered NOI94%
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
Commission file number 1-12672
AVALONBAY COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
77-0404318
(I.R.S. Employer
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)
__________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.01 per share
Trading Symbol
AVB
Name of each exchange on which registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ý No o
Yes o No ý
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 ý No o
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ý No o
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. (Check one)
Large accelerated filer
Non-accelerated filer
☒
☐
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. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐ No ý
The aggregate market value of the registrant's Common Stock, par value $.01 per share, held by nonaffiliates of the registrant, as of June 30, 2020 was
$21,698,072,550.
The number of shares of the registrant's Common Stock, par value $.01 per share, outstanding as of January 29, 2021 was 139,527,493.
Portions of AvalonBay Communities, Inc.'s Proxy Statement for the 2021 annual meeting of stockholders, a definitive copy of which will be filed with
the SEC within 120 days after the year end of the year covered by this Form 10-K, are incorporated by reference herein as portions of Part III of this
Form 10-K.
Documents Incorporated by Reference
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TABLE OF CONTENTS
PART I
PAGE
ITEM 1.
BUSINESS
ITEM 1A.
RISK FACTORS
ITEM 1B.
UNRESOLVED STAFF COMMENTS
ITEM 2.
COMMUNITIES
ITEM 3.
LEGAL PROCEEDINGS
ITEM 4.
MINE SAFETY DISCLOSURES
PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6.
RESERVED
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
ITEM 9A.
CONTROLS AND PROCEDURES
ITEM 9B.
OTHER INFORMATION
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11.
EXECUTIVE COMPENSATION
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULE
ITEM 16.
FORM 10-K SUMMARY
SIGNATURES
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PART I
This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Our actual results could differ materially from those set forth in each
forward-looking statement. Certain factors that might cause such a difference are discussed in this report, including in the
section entitled “Forward-Looking Statements” included in this Form 10-K. You should also review Item 1A. “Risk Factors”
for a discussion of various risks that could adversely affect us.
ITEM 1. BUSINESS
General
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. We develop, redevelop, acquire, own and operate 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 our expansion markets in Southeast Florida and Denver, Colorado (the "Expansion
Markets"). We focus on leading metropolitan areas in these regions that we believe historically have been characterized by
growing employment in high wage sectors of the economy, higher cost of home ownership and a diverse and vibrant quality of
life. We believe these market characteristics have offered, and will continue in the future to offer, the opportunity for superior
risk-adjusted returns over the long-term on apartment community investments relative to other markets that do not have these
characteristics.
At January 31, 2021, we owned or held a direct or indirect ownership interest in:
•
•
•
•
272 operating apartment communities containing 79,856 apartment homes in 11 states and the District of Columbia, of
which 260 communities containing 76,737 apartment homes were consolidated for financial reporting purposes and 12
communities containing 3,119 apartment homes were held by unconsolidated entities in which we hold an ownership
interest.
16 wholly-owned apartment communities under development that are expected to contain an aggregate of 5,128
apartment homes when completed and two unconsolidated investments which each hold an apartment community
under development and together are expected to contain an aggregate of 803 apartment homes when completed.
The Park Loggia, which contains 172 for-sale residential condominiums, of which 73 have been sold as of January 31,
2021, and 66,000 square feet of commercial space, of which 69% has been leased as of January 31, 2021.
Rights to develop an additional 24 communities that, if developed as expected, will contain 7,853 apartment homes.
We generally obtain ownership in an apartment community by developing a new community on either vacant land or land with
improvements that we raze, or by acquiring an existing community. In selecting sites for development or acquisition, we favor
locations that are near expanding employment centers and convenient to transportation, recreation areas, entertainment,
shopping and dining.
1
Our principal financial goal is to increase long-term shareholder value through the development, redevelopment, acquisition,
ownership and, when appropriate, disposition of apartment communities in our markets. To help meet this goal, we regularly
(i) monitor our investment allocation by geographic market and product type, (ii) develop, redevelop and acquire interests in
apartment communities in our selected markets, (iii) selectively sell apartment communities that no longer meet our long-term
strategy or when opportunities are presented to realize a portion of the value created through our investment and redeploy the
proceeds from those sales and (iv) maintain a capital structure that we believe is aligned with our business risks and allows us to
maintain continuous access to cost-effective capital. We pursue our development, redevelopment, investment and operating
activities with the purpose of Creating a Better Way to Live. Our strategic vision is to be the leading apartment company in
select US markets, providing a range of distinctive living experiences that customers value. We pursue this vision by targeting
what we believe are among the best markets and submarkets, leveraging our strategic capabilities in market research and
consumer insight and being disciplined in our capital allocation and balance sheet management. As described in Item 2.
"Communities," we operate our apartment communities under three core brands, Avalon, AVA and eaves by Avalon, and in 2020
we introduced our Kanso brand. We pursue our development and redevelopment activities primarily through in-house
development and redevelopment teams, which are complemented by our in-house acquisition platform. We believe that our
organizational structure, which includes dedicated development and operational teams in each of our regions, and strong culture
are key differentiators, providing us with highly talented, dedicated and capable associates.
During the three years ended December 31, 2020, we:
•
•
•
•
acquired nine apartment communities, excluding unconsolidated investments, and in 2019 we purchased our joint
venture partner's interest in one operating community, obtaining a 100% ownership in that apartment community;
disposed of 23 apartment communities, excluding unconsolidated investments and the five wholly-owned communities
located in New York City that we contributed to a newly formed joint venture (the "NYC Joint Venture") in 2018,
retaining a 20.0% interest in the venture;
realized our pro rata share of the gain from the sale of four communities owned by unconsolidated real estate entities;
completed the development of 22 apartment communities and the redevelopment of 17 apartment communities.
A more detailed description of our unconsolidated real estate entities and the related investment activity can be found in Note 5,
“Investments in Real Estate Entities,” of the Consolidated Financial Statements in Item 8 of this report and in Item 7.
“Management's Discussion and Analysis of Financial Condition and Results of Operations.”
A further discussion of our development, redevelopment, disposition, acquisition, property management and related strategies
follows.
Development Strategy. We select land for development and follow established procedures that we believe minimize both the
cost and the risks of development. As one of the largest developers of multifamily rental apartment communities in our selected
markets, we maintain regional offices to identify and support development opportunities through local market presence and
access to local market information. In addition to our principal executive office in Arlington, Virginia, we also have regional
offices, administrative offices or specialty offices, including offices that are in or near the following cities:
Bellevue, Washington;
•
Boston, Massachusetts;
•
Denver, Colorado;
•
Fairfield, Connecticut;
•
•
Irvine, California;
• Westfield, New Jersey;
•
• Melville, New York;
•
•
•
•
New York, New York;
San Francisco, California;
San Jose, California; and
Virginia Beach, Virginia.
Los Angeles, California;
2
After selecting a site for development, we usually negotiate for the right to acquire the site either through an option or a long-
term conditional contract. Options and long-term conditional contracts generally allow us to acquire an interest in the site after
the completion of entitlements and shortly before the start of construction, which reduces development-related risks and
preserves capital. However, as a result of competitive market conditions for land suitable for development, we have sometimes
acquired and held land prior to construction for extended periods while entitlements are obtained, or acquired land zoned for
uses other than residential with the potential for rezoning. For further discussion of our Development Rights, refer to Item 2.
“Communities” in this report.
We generally act as our own general contractor and construction manager, except for certain mid-rise and high-rise apartment
communities, or in locations where we have limited historical experience, where we may elect to use third-party general
contractors as construction managers. We generally perform these functions directly (although we may use a wholly-owned
subsidiary) both for ourselves and for the joint ventures and partnerships of which we are a member or a partner. We believe
direct involvement in construction enables us to achieve higher construction quality, greater control over construction schedules
and cost savings. Our development, property management and construction teams monitor construction progress to ensure
quality workmanship and a smooth and timely transition into the leasing and operating phase.
During periods where competition for development land is more intense, we may acquire improved land with existing
commercial uses and rezone the site for multifamily residential use. During the period that we hold these buildings for future
development, any rent received in excess of expenses from these operations, which we consider to be incidental, is accounted
for as a reduction in our investment in the development pursuit and not as net income. Any expenses relating to these
operations, in excess of any rents received, are accounted for as a reduction in net income. We have also participated, and may
in the future participate, in master planned or other large multi-use developments where we commit to build infrastructure (such
as roads) to be used by other participants or commit to act as construction manager or general contractor in building structures
or spaces for third parties (such as unimproved ground floor commercial space, municipal garages or parks). Costs we incur in
connection with these activities may be accounted for as additional invested capital in the community or we may earn fee
income for providing these services. Particularly with large scale, urban in-fill developments, we may engage in significant
environmental remediation efforts to prepare a site for construction.
Throughout this report, the term “development” is used to refer to the entire property development cycle, including pursuit of
zoning approvals, procurement of architectural and engineering designs and the construction process. References to
“construction” refer to the actual construction of the property, which is only one element of the development cycle.
Redevelopment Strategy. When we undertake the redevelopment of a community, our goal is to renovate and/or rebuild an
existing community so that our total investment is generally below replacement cost and the community is well positioned in
the market to achieve attractive returns on our capital. We have dedicated redevelopment teams and procedures that are
intended to control both the cost and risks of redevelopment. Our redevelopment teams, which include redevelopment,
construction and property management personnel, monitor redevelopment progress.
Throughout this report, the term “redevelopment” is used to refer to the entire redevelopment cycle, including planning and
procurement of architectural and engineering designs, budgeting and actual renovation work. The actual renovation work is
referred to as “reconstruction,” which is only one element of the redevelopment cycle.
Disposition Strategy. We sell assets that no longer meet our long-term strategy or when real estate market conditions are
favorable, and we redeploy the proceeds from those sales to develop, redevelop and acquire communities and to rebalance our
portfolio across or within geographic regions. This also allows us to realize a portion of the value created through our
investments and provides additional liquidity by redeploying the net proceeds from our dispositions in lieu of raising that
amount of capital externally. When we decide to sell a community, we generally solicit competing bids from unrelated parties
for these individual assets and consider the sales price and other terms of each proposal.
3
As part of the Archstone Acquisition in 2013 (as defined in Item 1. “Business” in the Company's Form 10-K filed February 22,
2019), we acquired, and still own, 14 assets that had previously been contributed by third parties on a tax-deferred basis to an
Archstone partnership in which the third parties received ownership interests. To protect the tax-deferred nature of the
contribution, the third parties are entitled to cash payments if we trigger tax obligations to the third parties by selling, or failing
to maintain sufficient levels of secured financing on, the contributed assets. Our tax protection payment obligations with respect
to these assets expire at different times and in some cases don’t expire until the death of a third party who contributed
ownership interests to the Archstone partnership. After review and investigation of Archstone’s tax and accounting records, we
estimate that, had we sold or taken other triggering actions in 2020 with respect to all 14 assets, the aggregate amount of the tax
protection payments that would have been triggered would have been approximately $47,500,000. At the present time, we do
not intend to take actions that would cause us to be required to make tax protection payments with respect to any of these assets.
Acquisition Strategy. Our core competencies in development and redevelopment discussed above allow us to be selective in
the acquisitions we target. Acquisitions allow us to achieve rapid penetration into markets in which we desire an increased
presence. Acquisitions (and dispositions) also help us achieve our desired product mix or rebalance our portfolio. Portfolio
growth also allows for fixed general and administrative costs to be a smaller percentage of overall community Net Operating
Income (“NOI”).
Property Management Strategy. We seek to increase operating income through innovative, proactive property management
that will result in higher revenue from communities while constraining operating expenses. Our principal strategies to maximize
NOI include:
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focusing on resident satisfaction;
staggering lease terms such that lease expirations are better matched to traffic patterns;
balancing high occupancy with premium pricing and increasing rents as market conditions and local law permit; and
leveraging technology and data science, through revenue management software to optimize the pricing and term of
leases, implementation of self guided tours and other innovations.
Constraining growth in operating expenses is another way in which we seek to increase earnings growth. Growth in our
portfolio and the resulting increase in revenue allows for fixed operating costs to be spread over a larger volume of revenue,
thereby increasing operating margins. We constrain growth in operating expenses in a variety of ways, which include, but are
not limited to, the following:
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purchase order controls, acquiring goods and services from pre-approved vendors;
national negotiated contracts and bulk purchases where possible;
bidding third-party contracts on a volume basis;
retaining residents through high levels of service, which reduces apartment turnover costs, marketing and vacant
apartment utility costs;
performing turnover work in-house or hiring third parties, generally considering the most cost effective approach as
well as expertise needed to perform the work;
regular preventive maintenance to maximize resident safety and satisfaction and property and equipment life;
centralization of many community administration and support tasks at our shared service center;
pursuing real estate tax appeals;
installing high efficiency lighting and water fixtures, cogeneration systems and sustainability initiatives, such as solar,
in our operating platform; and
implementing technology for resident and prospect services such as package lockers and self guided or virtual tours.
On-site property management teams receive bonuses based largely upon the revenue, expense, NOI and customer service
metrics produced at their respective communities. We use and continuously seek ways to improve technology applications to
help manage our communities, believing that the accurate collection of financial and resident data will enable us to maximize
revenue and control costs through careful leasing decisions, maintenance decisions and financial management.
4
We generally manage the operation and leasing activity of our communities directly (although we may use a wholly-owned
subsidiary) both for ourselves and the joint ventures and partnerships of which we are a member or a partner. From time to time
we may engage a third party to manage leasing and/or maintenance activity at one or more of our communities where we have
limited historical experience or for other reasons.
From time to time we also pursue or arrange ancillary services for our residents to provide additional revenue sources or
increase resident satisfaction. We provide such non-customary services to residents or share in the revenue or income from such
services through a “taxable REIT subsidiary,” which is a subsidiary that is treated as a “C corporation” subject to federal
income taxes. See “Tax Matters” below.
Financing Strategy. Our financing strategy is to maintain a capital structure that provides financial flexibility to help ensure
we can select cost effective capital market options that are well matched to our business risks. We estimate that our short-term
liquidity needs will be met from cash on hand, borrowings under our $1,750,000,000 revolving variable rate unsecured credit
facility (the “Credit Facility”), sales of current operating communities and/or issuance of additional debt or equity securities. A
determination to engage in an equity or debt offering depends on a variety of factors such as general market and economic
conditions, our short and long-term liquidity needs, the relative costs of debt and equity capital and growth opportunities. A
summary of debt and equity activity for the last three years is reflected on our Consolidated Statement of Cash Flows of the
Consolidated Financial Statements set forth in Item 8 of this report.
We have entered into, and may continue in the future to enter into, joint ventures (including limited liability companies or
partnerships) through which we would develop and/or own an indirect economic interest of less than 100% of the community or
communities owned directly by such joint ventures. Our decision to either hold an apartment community in fee simple or to
have an indirect interest in the community through a joint venture is based on a variety of factors and considerations, including:
(i) the economic and tax terms required by a seller of land or of a community; (ii) our desire to diversify our portfolio of
communities by market, submarket and product type; (iii) our desire at times to preserve our capital resources to maintain
liquidity or balance sheet strength; and (iv) our projection, in some circumstances, that we will achieve higher returns on our
invested capital or reduce our risk if a joint venture vehicle is used. Investments in joint ventures are not limited to a specified
percentage of our assets. Each joint venture agreement is individually negotiated, and our ability to operate and/or dispose of a
community in our sole discretion may be limited to varying degrees depending on the terms of the joint venture agreement.
In addition, from time to time, we may offer shares of our equity securities, debt securities or options to purchase stock in
exchange for property. We may also acquire properties in exchange for properties we currently own.
Other Strategies and Activities. While we emphasize equity real estate investments in rental apartment communities, we have
the ability to invest in other types of real estate, mortgages (including participating or convertible mortgages), securities of other
REITs or real estate operating companies, or securities of technology companies that relate to our real estate operations or of
companies that provide services to us or our residents, in each case consistent with our qualification as a REIT. In addition, we
own and lease commercial space at our communities when either (i) the highest and best use of the space is for commercial
(e.g., street level in an urban area); (ii) we believe the commercial space will enhance the attractiveness of the community to
residents or; (iii) some component of commercial space is required to obtain entitlements to build apartment homes. As of
December 31, 2020, we had a total of approximately 768,000 square feet of rentable commercial space, excluding commercial
space within communities currently under development. Gross rental revenue provided by leased commercial space in 2020
was $20,434,000 (0.9% of total revenue). We may also develop a property in conjunction with another real estate company that
will own and operate the commercial or for-sale residential components of a mixed-use building or project that we help
develop. If we secure a development right and believe that its best use, in whole or in part, is to develop the real estate with the
intent to sell rather than hold the asset, we may, through a taxable REIT subsidiary, develop real estate for sale, or if we
determine that the best disposition opportunity for a development is a sale upon completion in whole or through individual
apartment home condominium sales, such as our Park Loggia condominium development. Any investment in securities of other
entities, and any development of real estate for sale, is subject to the percentage of ownership limitations, gross income tests,
and other limitations that must be observed for REIT qualification.
We conduct many of the administrative functions associated with our property operations (including billing, collections, and
response to resident inquiries) through an internally operated shared services center, rather than having on-site associates
conduct such activities. We believe this centralized platform allows our on-site associates to focus more on current and
prospective resident services, while at the same time enabling us to reduce costs, mitigate risk and increase our availability and
responsiveness to our residents. We are exploring the possibility of performing these shared service center administrative
functions for a third party as a means of creating an additional revenue stream and economies of scale at our center. We cannot
assure that we will provide such services to a third party or that it will be successful if we do so.
5
We have not engaged in trading, underwriting or agency distribution or sale of securities of other issuers and do not intend to do
so. At all times we intend to make investments in a manner so as to qualify as a REIT unless, because of circumstances or
changes to the Internal Revenue Code of 1986, as amended (the “Code”) (or the Treasury Regulations thereunder), our Board of
Directors determines that it is no longer in our best interest to qualify as a REIT.
Tax Matters
We filed an election with our 1994 federal income tax return to be taxed as a REIT under the Code and intend to maintain our
qualification as a REIT in the future. As a REIT, with limited exceptions, such as those described under “Property Management
Strategy” above, we will not be taxed under federal and certain state income tax laws at the corporate level on our taxable net
income to the extent such taxable net income is distributed to our stockholders. We expect to make sufficient distributions to
avoid income tax at the corporate level. While we believe that we are organized and qualified as a REIT and we intend to
operate in a manner that will allow us to continue to qualify as a REIT, there can be no assurance that we will be successful in
this regard. Qualification as a REIT involves the application of highly technical and complex provisions of the Code for which
there are limited judicial and administrative interpretations and involves the determination of a variety of factual matters and
circumstances not entirely within our control.
Competition
We face competition from other real estate investors, including insurance companies, pension and investment funds, REITs
both in the multifamily as well as other sectors, and other well capitalized investors, to acquire and develop apartment
communities and acquire land for future development. As an owner and operator of apartment communities, we also face
competition for prospective residents from other operators whose communities may be perceived to offer a better location or
better amenities or whose pricing may be perceived as a better value given the quality, location, terms and amenities that the
prospective resident seeks. We also compete against condominiums and single-family homes that are for sale or rent, including
those offered through online platforms. Although we often compete against large, sophisticated developers and operators for
development opportunities and for prospective residents, real estate developers and operators of any size can provide effective
competition for both real estate assets and potential residents.
Environmental and Related Matters
As a current or prior owner, operator and developer of real estate, we are subject to various federal, state and local
environmental laws, regulations and ordinances and also could be liable to third parties resulting from environmental
contamination or noncompliance at our communities. For some Development Communities we undertake extensive
environmental remediation to prepare the site for construction, which could be a significant portion of our total construction
cost. Environmental remediation efforts could expose us to possible liabilities for accidents or improper handling of
contaminated materials during construction. These and other risks related to environmental matters are described in more detail
in Item 1A. “Risk Factors.”
We believe that more government regulation of energy use, along with a greater focus on environmental protection, may, over
time, have a significant impact on urban growth patterns. If changes in zoning to encourage greater density and proximity to
mass transit do occur, such changes could benefit multifamily housing and those companies with a competency in high-density
development. However, there can be no assurance as to whether or when such changes in regulations or zoning will occur or, if
they do occur, whether the multifamily industry or the Company will benefit from such changes.
Human Capital
Attracting, motivating, developing, and retaining talented associates who share our purpose, core values and cultural norms is
important to our long-term success. We train our associates to understand our purpose (Creating a Better Way to Live), our core
values (a commitment to integrity, a spirit of caring and a focus on continuous improvement) and our cultural norms (we
collaborate, excel, innovate, act like owners, are thoughtful and thorough, and show appreciation).
At January 31, 2021, we had 3,090 employees, of which approximately 96% were employed on a full-time basis.
Approximately 71% of our associates work on-site at our operating communities and the balance work on other matters. None
of our associates are represented by a union except for approximately 25 maintenance associates at communities in Westchester
County, New York, where we are in the process of negotiating a collective bargaining agreement.
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We consider the following aspects of human capital management to be important:
Diversity and Inclusion. We value workforce diversity and an inclusive culture. We believe that a diverse workplace will
produce a variety of perspectives, motivate associates and help us understand and better serve our customers and the
communities in which we do business. At January 31, 2021, 40% of our associates self-identified as White, 27% as Hispanic,
15% as Black, 6% as Asian, and 12% as other ethnicities, two or more ethnicities or did not respond. We are committed to
promoting and achieving greater workplace diversity and have undertaken active steps to further this goal.
Associate Engagement. We monitor the engagement of our associates, receive feedback from our associates, and benchmark our
performance by having a third party firm conduct anonymous associate perspective surveys each year. The results are discussed
and presented both on a company-wide basis and within each functional group.
Safety. We take workplace safety seriously at our construction sites, our operating communities and our offices. Through our
Construction Site Safety Observation program and our dedicated safety team, we monitor project-level safety performance
metrics at our construction sites, and elements of compensation for our construction group and our CEO are based on safety
compliance performance. Our maintenance associates are required to take monthly safety training on a variety of subjects, and
our risk management group monitors incident reports from our offices and communities. The COVID-19 pandemic has
presented unique health and safety challenges, and we have taken a number of actions in response to promote the well-being of
our associates, including permitting remote work and flexible schedules where feasible, providing extended Company paid
leave for associates who needed to miss work for COVID-19 related reasons, establishing office and community protocols for
associate safety, conducting training and refresher courses on COVID-19 prevention and communicating regularly with
associates on COVID-19 topics, including advising on how to sign up for vaccination.
Training. We help our associates develop the skills they need to advance in their careers and succeed at AvalonBay. We train
our associates in a variety of ways, including through our learning management system, AvalonBay University, which offers
approximately 700 courses providing technical, management, ethics, compliance and cyber-awareness training.
Other Information
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may obtain copies of
our SEC filings, free of charge, from the SEC's website at www.sec.gov.
We maintain a website at www.avalonbay.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to the Securities Exchange Act of 1934 are
available free of charge in the “Investor Relations” section of our website as soon as reasonably practicable after the reports are
filed with or furnished to the SEC. In addition, the charters of our Board's Nominating and Corporate Governance Committee,
Audit Committee and Compensation Committee, as well as our Director Independence Standards, Corporate Governance
Guidelines, Code of Business Conduct and Ethics, Policy Regarding Shareholder Rights Agreements, Policy Regarding
Shareholder Approval of Future Severance Agreements, Senior Officer Stock Ownership Guidelines, Policy on Political
Contributions and Government Relations, Policy on Recoupment of Incentive Compensation, and Sustainability Reports, are
available free of charge in that section of our website or by writing to AvalonBay Communities, Inc., 4040 Wilson Blvd., Suite
1000, Arlington, Virginia 22203, Attention: Chief Financial Officer. To the extent required by the rules of the SEC and the
NYSE, we will disclose amendments and waivers relating to these documents in the same place on our website. The
information posted on our website is not incorporated into this Annual Report on Form 10-K.
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ITEM 1A. RISK FACTORS
Our operations involve various risks that could have adverse consequences, including those described below. This Item 1A.
includes forward-looking statements. You should refer to our discussion of the qualifications and limitations on forward-
looking statements in this Form 10-K.
Risks related to the COVID-19 pandemic’s impact on multifamily rental housing
The national and global impacts of the COVID-19 pandemic continue to evolve. Regulatory measures taken to date to limit the
impact and spread of COVID-19 have at times included varying requirements for social distancing, limitations on landlords'
rights with respect to delinquent tenants, and restrictions on travel, congregation and business operations. Business and
consumer preferences for work and living arrangements during the pandemic continue to evolve as well. These developments,
along with the resulting negative employment and economic impacts, have adversely affected the Company as described in this
report. The long-term impact of COVID-19 on the United States and world economies remains uncertain, and the duration,
scope and significance of any resulting economic downturn cannot currently be predicted. The COVID-19 pandemic presents
material uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows.
Moreover, many of the risk factors set forth in this Form 10-K should be interpreted as heightened risks as a result of the impact
of the COVID-19 pandemic. In addition, if in the future there is an outbreak of another highly infectious or contagious disease,
the Company and our properties may be subject to similar risks as the risks posed by COVID-19.
Regulatory, business and consumer responses to the COVID-19 pandemic impact our operations.
Operating impacts from the COVID-19 pandemic include the following:
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The spread of the COVID-19 virus and related government actions and consumer responses could result in further
increases in unemployment, and residents who experience deteriorating financial conditions as a result of the pandemic
may be unwilling or unable to pay rent in full on a timely basis. In some cases, we have and may continue to
restructure tenants’ rent obligations and may not be able to do so on terms as favorable to us as the lease terms that are
currently in place. In response to the COVID-19 pandemic, numerous state, local, and federal efforts have also
imposed restrictions, for varying times and to varying degrees, on our ability to enforce residents’ contractual lease
obligations, and this will affect our ability (until a restriction is lifted or expires) to collect rent or enforce all our
remedies (such as pursuing collections and seeking evictions) for the failure to pay rent. In addition to these regulatory
limits on evictions, in practical terms many of the housing courts and sheriff’s offices on which we rely to enforce our
rights are not operating at the same level of volume or effectiveness as before the pandemic.
Our occupancy levels and pricing across our portfolio have declined and may continue to decline due to changes in
demand. Consumers whose income has declined, who are working remotely or who cannot freely access neighborhood
amenities like restaurants, gyms and entertainment venues, may decide during the pandemic to live in a location other
than our markets. Low interest rates that are caused by the pandemic and government responses, as well as general
health concerns, may encourage consumers who would otherwise rent a multifamily apartment to rent instead a single
family home or purchase a home. Additionally, to the extent that some institutions of higher learning continue to turn
to online education and business activity and travel remain at lower levels, we expect that demand from students and
corporate apartment homes will continue below pre-pandemic levels.
Various state, local and federal rules have required us, in some jurisdictions or for some properties, to waive late fees
and certain other customary fees associated with our apartment rental business, and may do so in the future. We have
elected at times also to waive these fees even where or when not required, and may do so in the future. These
requirements or practices have resulted, and to the extent implemented or continued may in the future result, in
foregone revenue.
Our properties may also incur significant costs or losses related to shelter-in-place or stay-at-home orders, quarantines,
infection, clean-up costs or other related factors.
Social distancing and other measures in response to the pandemic have caused us to revise the manner in which we
meet with prospective residents and serve current residents. For example, many prospective residents are visiting
apartments virtually or on a self-tour rather than being accompanied by a leasing consultant. In addition, in many
communities various common area amenities are closed or their access is limited. These factors may affect resident
satisfaction and leasing velocity.
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In addition to renting apartment homes directly to residents, we also lease ancillary commercial space at our communities and
lease apartment homes to corporate apartment home providers. In 2020, 0.9% of our total revenue was from commercial tenants
and 2.5% of our total residential revenue was from corporate apartment home providers. We are experiencing a higher rate of
delinquency from commercial and corporate apartment home tenants than from residential tenants. There may also be a greater
risk of bankruptcy and default from commercial and corporate apartment home providers.
Until such time as vaccines that have been developed are widely distributed or the virus is otherwise contained or eradicated,
commerce and employment may not return to more customary levels and we may experience material reductions in our
operating revenue and NOI compared to our pre-pandemic experience.
Emergency orders shutting down non-essential businesses, limiting congregations of people, and requiring social distancing
have at times disrupted, and may in the future disrupt, our development and construction activity. To the extent we experience
further cessations or delays in construction, our construction costs may increase and we may not achieve, on the schedule we
originally planned, the cash flows that we expect when we begin leasing a completed property. We may also delay the start of
construction of additional development communities which, if constructed and leased as originally planned, would have been a
source of future additional cash flow.
The same factors as described immediately above may also impact our workforce. Many associates, particularly in overhead
positions, are working remotely. This disruption in the normal operations of our workforce, as well as the possibility of illness
among our associates or a substantial portion of our workforce, could also adversely affect our operations.
Changes in available financing or investor demand for apartment communities as a result of the COVID-19 pandemic could
impact our liquidity.
As a result of the current economic downturn, the real estate market may be unable to attract the same level of capital
investment that it attracted before the COVID-19 pandemic, and there may be a reduction in the number of companies seeking
to acquire properties, which may result in the value of our properties not appreciating, or decreasing significantly below the
amount for which we acquired or developed them. This may also limit our ability to promptly sell our properties if desired,
realize a cash return on our investment and reinvest the sales proceeds in new properties.
In light of the disruptions caused by the COVID-19 pandemic, bank lending, capital and other financial markets and sources
may deteriorate and our access to capital and other sources of funding may become constrained, which could adversely affect
the availability and terms of future borrowings, renewals or refinancings. A constriction on lending by financial institutions
could reduce the number of properties we can develop, redevelop or acquire, our cash flow from operations and our ability to
make cash distributions to our stockholders.
Risks related to investments through acquisitions, construction, development, and joint ventures
Development, redevelopment and construction risks could affect our profitability.
We intend to continue to develop and redevelop apartment home communities. These activities can include long planning and
entitlement timelines and can involve complex and costly activities, including significant environmental remediation or
construction work in high-density urban areas. These activities may expose us to the following risks, among others:
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we may abandon opportunities that we have already begun to explore for a number of reasons, including changes in
local market conditions or increases in construction or financing costs, and, as a result, we may fail to recover
expenses already incurred in exploring those opportunities;
occupancy rates and rents at a community may fail to meet our original expectations for a number of reasons,
including changes in market and economic conditions beyond our control and the development by competitors of
competing communities;
we may be unable to obtain, or experience delays in obtaining, necessary zoning, occupancy or other required
governmental or third party permits and authorizations, which could result in increased costs, or the delay or
abandonment of opportunities;
we may incur costs that exceed our original estimates due to increased material, labor or other costs;
we may be unable to complete construction of a community on schedule or for the originally projected cost resulting in
increased construction and financing costs;
we may incur liabilities to third parties during the development process, for example, in connection with managing
existing improvements on the site prior to tenant terminations and demolition (such as commercial space) or in
connection with providing services to third parties (such as the construction of shared infrastructure or other
improvements); and
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we may incur liability if our communities are not constructed in compliance with the accessibility provisions of the
Americans with Disabilities Acts, the Fair Housing Act or other federal, state or local requirements. Noncompliance
could result in imposition of fines, an award of damages to private litigants and a requirement that we undertake
structural modifications to remedy the noncompliance.
Refer to our “Risks related to liquidity and financing” section below for additional construction and development risks related
to financing.
Attractive investment opportunities may not be available, which could adversely affect our profitability.
We expect that other real estate investors, including insurance companies, pension and investment funds, other REITs and other
well-capitalized investors will compete with us to acquire existing properties and to develop new properties. This competition
could increase prices for properties of the type we would likely pursue and adversely affect our profitability for new
investments.
Acquisitions may not yield anticipated results.
Our business strategy includes acquiring as well as developing communities. Our acquisition activities may be exposed to the
following risks:
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an acquired property may fail to perform as we expected in analyzing our investment; and
our estimate of the costs of operating, repositioning or redeveloping an acquired property may prove inaccurate.
Failure to succeed in new markets, or with new brands and community formats, or in activities other than the development,
ownership and operation of residential rental communities may have adverse consequences.
We may from time to time commence development activity or make acquisitions outside of our existing market areas if
appropriate opportunities arise. Our historical experience in our existing markets in developing, owning and operating rental
communities does not ensure that we will be able to operate successfully in new markets. We may be exposed to a variety of
risks when we enter a new market, including an inability to accurately evaluate local apartment market conditions and an
inability to obtain land for development or to identify appropriate acquisition opportunities.
We also may engage or have an interest in for-sale activity, such as the sale of the residential condominiums at The Park
Loggia, a mixed-use development located in New York, New York. We may be unsuccessful at developing real estate with the
intent to sell or in selling condominiums at originally underwritten values, or at all, as a disposition strategy for an asset, which
could have an adverse effect on our results of operations.
We are exposed to risks associated with investment in, and management of, discretionary real estate investment funds and
joint ventures.
At times we invest in real estate as a partner or a co-venturer with other investors. Joint venture investments (including
investments through partnerships or limited liability companies) involve risks, including the possibility that our partner might
become insolvent or otherwise refuse to make capital contributions when due; that we may be responsible to our partner for
indemnifiable losses or the debt and obligations of a venture; that our partner might have business goals that are inconsistent
with ours which may result in the venture being unable to implement certain decisions that we consider beneficial; that our
partner may be in a position to take action or withhold consent contrary to our instructions or requests; that our partners holding
a majority of the equity interests may remove us as the general partner or managing member in certain cases involving cause;
and we may be liable and/or our status as a REIT may be jeopardized if either the ventures, or the REIT entities associated with
the ventures, fail to comply with various tax or other regulatory matters. Frequently, we and our partner may each have the right
to trigger a buy-sell or similar arrangement that could cause us to sell our interest, acquire our partner's interest or force a sale of
the asset, at a time when we otherwise would not have initiated such a transaction and on terms that are not most advantageous
to us.
We are exposed to risks associated with real estate assets that are subject to ground leases that may restrict our ability to
finance, sell or otherwise transfer our interests in those assets, limit our use and expose us to loss if such agreements are
breached by us or terminated.
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We own assets which are subject to long-term ground leases. These ground leases may impose limitations on our use of the
properties, restrict our ability to finance, sell or otherwise transfer our interests or restrict the leasing of the properties. These
restrictions may limit our ability to timely sell or exchange the properties, impair the properties’ value or negatively impact our
ability to operate the properties. In addition, we could lose our interests in the properties if the ground leases are breached by us,
terminated or lapse. As we get closer to the lease termination dates, the values of the properties could decrease if we are unable
to agree upon an extension of the lease with the lessor. Certain of these ground leases have payments subject to annual
escalations and/or periodic fair market value adjustments which could adversely affect our financial condition or results of
operations.
Land we hold with no current intent to develop may be subject to future impairment charges.
We own land parcels that we do not currently intend to develop. As discussed in Item 2. “Communities—Other Land and Real
Estate Assets,” in the event that the fair market value less the cost to dispose of a parcel changes such that it is less than the
carrying basis of the parcel, we would be subject to an impairment charge, which would reduce our net income.
Risks related to liquidity and financing
Capital and credit market conditions may adversely affect our access to various sources of capital and/or the cost of capital,
which could impact our business activities, dividends, earnings and common stock price, among other things.
In periods when the capital and credit markets experience significant volatility, the amounts, sources and cost of capital
available to us may be adversely affected. We primarily use external financing to fund construction and to refinance
indebtedness as it matures. If sufficient sources of external financing are not available to us on cost effective terms, we could be
forced to limit our development and redevelopment activity and/or take other actions to fund our business activities and
repayment of debt, such as selling assets, reducing our cash dividend or issuing equity. If we are able and/or choose to access
capital at a higher cost than we have experienced in recent years, our earnings per share and cash flows could be adversely
affected. In addition, the price of our common stock may fluctuate significantly and/or decline in a high interest rate
environment or a volatile economic environment, or if we dilute the interest of stockholders by issuing additional equity. We
believe that the lenders under our Credit Facility will fulfill their lending obligations thereunder, but if economic conditions
deteriorate, the ability of those lenders to fulfill their obligations may be adversely impacted.
Insufficient cash flow could affect our debt financing and create refinancing risk.
We are subject to the risks associated with debt financing, including the risk that our available cash will be insufficient to meet
required payments of principal and interest on our debt. For us to continue to qualify as a REIT, we are required to annually
distribute dividends generally equal to at least 90% of our REIT taxable income, which limits the amount of our cash flow
available to meet required principal and interest payments. The principal outstanding balance on a portion of our debt will not
be fully amortized prior to its maturity. We cannot assure you that we will have sufficient cash flows available to make all
required principal payments. Therefore, we expect that we will generally need to refinance at least a portion of our outstanding
debt as it matures. There is a risk that we may not be able to refinance existing debt or that a refinancing will not be done on as
favorable terms; either of these outcomes could have a material adverse effect on our financial condition and results of
operations.
Rising interest rates could increase interest costs and could affect the market price of our common stock, and efforts to
hedge such risk could be ineffective and cause us to incur costs.
If interest rates increase, our interest costs on variable rate debt will rise unless we have hedged the risk of rising interest rates.
In addition, an increase in market interest rates may lead purchasers of our common stock to demand a greater annual dividend
yield, which could adversely affect the market price of our common stock.
From time to time we use interest rate derivatives to hedge and manage our exposure to certain interest rate risks. For example,
when we anticipate issuing debt securities, we may seek to limit our exposure to fluctuations in interest rates prior to debt
issuance by entering into interest rate hedging contracts. Although these agreements may partially protect against rising interest
rates, they also may reduce the benefits to the Company if interest rates decline. The settlement or termination of interest rate
hedging contracts may involve material charges to our earnings including net costs, such as transaction fees, settlement costs
and/or breakage costs. In addition, our use of interest rate hedging arrangements may expose us to additional risks, including a
risk that a counterparty to a hedging arrangement may fail to honor its obligations. Developing and implementing an interest
rate risk strategy is complex and no strategy can completely insulate us from risks associated with interest rate fluctuations and
there can be no assurance that our hedging activities will be effective.
11
Bond financing and zoning and other compliance requirements could limit our income, restrict the use of communities and
cause favorable financing to become unavailable.
We have financed some of our apartment communities with obligations issued by local government agencies because the
interest paid to the holders of this debt is generally exempt from federal income taxes which typically provides a more favorable
interest rate for us. These obligations are commonly referred to as “tax-exempt bonds” and generally must be secured by
mortgages on our communities. As a condition to obtaining tax-exempt financing, or as a condition to obtaining favorable
zoning or an agreement relating to property taxes in some jurisdictions, we will commit to make some of the apartments in a
community available to households whose income does not exceed certain thresholds (e.g., 50% or 80% of area median
income), or who meet other qualifying tests. As of December 31, 2020, 5.1% of our apartment homes at current operating
communities were under income limitations such as these. These commitments, which may or may not expire, may limit our
ability to raise rents and, as a consequence, adversely affect the value of the communities subject to these restrictions. If we fail
to observe these commitments, we could lose benefits (such as reduced property taxes) or face liabilities including liability for
the benefits we received under tax exempt bonds, tax credits or agreements related to property taxes.
Some of our tax-exempt bond financing documents require us to obtain a guarantee from a financial institution of payment of
the principal and interest on the bonds. The guarantee may take the form of a letter of credit, surety bond, guarantee agreement
or other additional collateral. If the financial institution defaults in its guarantee obligations, or if we are unable to renew the
applicable guarantee or otherwise post satisfactory collateral, a default will occur and the community could be foreclosed upon
if we do not redeem the tax exempt bonds.
Risks related to indebtedness.
We have a Credit Facility with a syndicate of commercial banks. Our organizational documents do not limit the amount or
percentage of indebtedness that may be incurred. Accordingly, subject to compliance with outstanding debt covenants, we
could incur more debt, resulting in an increased risk of default on our obligations and an increase in debt service requirements
that could adversely affect our financial condition and results of operations.
The mortgages on properties that are subject to secured debt, our Credit Facility and the indentures under which a substantial
portion of our debt was issued contain customary restrictions, requirements and other limitations, as well as certain financial
and operating covenants including maintenance of certain financial ratios. Maintaining compliance with these restrictions could
limit our flexibility. A default in these requirements, if uncured, could result in a requirement that we repay indebtedness, which
could materially adversely affect our liquidity and increase our financing costs. Refer to Item 7. “Management's Discussion and
Analysis of Financial Condition and Results of Operations” for further discussion.
A substantial portion of our debt is subject to prepayment penalties or premiums that we will be obligated to pay in the event
that we elect to prepay the debt prior to the earlier of (i) its stated maturity or (ii) another stated date. If we elect to prepay a
significant amount of outstanding debt, our prepayment penalties or payments under these provisions could materially adversely
affect our results of operations.
The phase-out of LIBOR and transition to SOFR as a benchmark interest rate will have uncertain and possibly adverse
effects.
In 2018, the Alternative Reference Rate Committee identified the Secured Overnight Financing Rate (“SOFR”) as the
alternative to LIBOR. SOFR is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury
securities, published by the Federal Reserve Bank of New York. By the end of 2021, it is expected that no new contracts will
reference LIBOR and will instead use SOFR. Due to the broad use of LIBOR as a reference rate, the impact of this transition on
the interest rates charged to the Company could possibly adversely affect our financing costs, including spread pricing on our
Credit Facility and variable rate unsecured term loans ( the "Term Loans") and certain other floating rate debt obligations, as
well as our operations and cash flows.
Failure to maintain our current credit ratings could adversely affect our cost of funds, related margins, liquidity and access
to capital markets.
There are two major debt rating agencies that routinely evaluate and rate our debt. Their ratings are based on a number of
factors, which include their assessment of our financial strength, liquidity, capital structure, asset quality, amount of real estate
under development, and sustainability of cash flow and earnings, among other factors. If market conditions change, we may not
be able to maintain our current credit ratings, which could adversely affect our cost of funds and related margins, liquidity and
access to capital markets.
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The form, timing and/or amount of dividend distributions in future periods may vary and be impacted by our revenue
generation, other liquidity needs and economic and other considerations.
The form, timing and/or amount of dividend distributions will be declared at the discretion of the Board of Directors and will
depend on our rental revenue, actual cash from operations, our financial condition, capital requirements, the annual distribution
requirements under the REIT provisions of the Code and other factors as the Board of Directors may consider relevant. The
Board of Directors may modify our dividend policy from time to time.
We may experience barriers to selling apartment communities that could limit financial flexibility.
Potential difficulties in promptly selling real estate at prices we find acceptable may limit our ability to quickly change or
reduce the apartment communities in our portfolio in response to changes in economic, regulatory, or other conditions. Federal
tax laws may also limit our ability to sell properties when desired. See “Risks related to our REIT or tax status” section for
more information on federal tax law risks.
Risks related to ongoing operations of our communities
Rent control and other changes in applicable laws, or noncompliance with applicable laws, could adversely affect our
operations or expose us to liability.
We must develop, construct and operate our communities in compliance with federal, state and local laws and regulations, some
of which may conflict with one another or be subject to limited judicial or regulatory interpretations. These laws and regulations
may include zoning laws, building codes, landlord/tenant laws and other laws generally applicable to business operations.
Noncompliance with laws could expose us to liability. Lower revenue growth or significant unanticipated expenditures may
result from our need to comply with changes in (i) laws imposing remediation requirements or other conditions, (ii) rent control
or rent stabilization laws or other residential landlord/tenant laws, or (iii) other governmental rules and regulations or
enforcement policies affecting the development, use and operation of our communities, including changes to building codes and
fire and life-safety codes.
We have seen a recent increase in states and municipalities implementing, considering or being urged by advocacy groups to
consider rent control or rent stabilization laws and regulations or take other actions that could limit the amount by which we can
raise rents or charge non-rent fees. For example, in 2019 the State of California adopted statewide rent control for communities
older than fifteen years, limiting rent increases to the lesser of 10% or 5% plus local CPI. Also in 2019 the State of New York
adopted new rules for rent-controlled and rent-stabilized units that revised and limited the way rent increases are calculated for
renewal leases, basing increases solely on rent actually paid and eliminating the ability to increase the renewal rent to a higher
“registered rent.” Furthermore, in California the Governor has the ability to enact local or statewide states of emergency which
limit our ability to increase new and renewal rents more than 10% over the rent in place on the date such state of emergency
was declared, which has impacted some of our California communities. Current and future enactments of rent control or rent
stabilization laws or other laws regulating multi-family housing may limit our ability to charge market rents, increase rents,
evict tenants or recover increases in our operating expenses and could make it more difficult for us to dispose of properties in
certain circumstances. Expenses associated with our investment in these communities, such as debt service, real estate taxes,
insurance and maintenance costs, are generally not reduced when circumstances cause a reduction in rental income from the
community.
Short-term leases expose us to the effects of declining market rents.
Substantially all of our apartment leases are for a term of one year or less. Because these leases generally permit the residents to
leave at the end of the lease term without penalty, our rental revenues are impacted by declines in market rents more quickly
than if our leases were for longer terms.
Competition could limit our ability to lease apartment homes or increase or maintain rents.
Our apartment communities compete with other apartment operators as well as rental housing alternatives such as single-family
homes for rent, and short term furnished offerings such as those available from extended stay hotels or through on-line listing
services. In addition, our residents and prospective residents also consider as an alternative to renting the purchase of a new or
existing condominium or single-family home for sale. Competitive residential housing could adversely affect our ability to lease
apartment homes and to increase or maintain rental rates.
Unfavorable changes in market and economic conditions could adversely affect occupancy, rental rates, operating expenses,
and the overall market value of our real estate assets.
13
Local conditions in our markets significantly affect occupancy, rental rates and the operating performance of our communities,
and may be adversely affected by the following risks:
•
•
•
•
•
corporate restructurings and/or layoffs, and industry slowdowns;
an oversupply of, or a reduced demand for, apartment homes;
a decline in household formation or employment or lack of employment growth;
the inability or unwillingness of residents to pay rent increases; and
economic conditions that could cause an increase in our operating expenses, such as increases in property taxes,
utilities, compensation of on-site associates and routine maintenance.
Risks related to commercial operations
Although we are primarily in the multifamily rental business, we also own and lease ancillary commercial space. Gross rental
revenue provided by leased commercial space in our portfolio represented 0.9% of our total revenue in 2020. The long term
nature of our commercial leases and characteristics of many of our tenants (small, local businesses) may subject us to certain
risks. We may not be able to lease new space for rents that are consistent with our projections or at market rates. Also, when
leases for our existing commercial space expire, the space may not be relet or the terms of reletting, including the cost of
allowances and concessions to tenants, may be less favorable than the current lease terms. Our properties compete with other
properties with commercial space. The presence of competitive alternatives may affect our ability to lease space and the level of
rents we can obtain. If our commercial tenants experience financial distress or bankruptcy, they may fail to comply with their
contractual obligations, seek concessions in order to continue operations or cease their operations, which could adversely
impact our results of operations and financial condition.
Risks related to our REIT or tax status
Failure to qualify as a REIT would cause us to be taxed as a corporation, which would significantly reduce funds available
for distribution to stockholders.
If we fail to qualify as a REIT for federal income tax purposes, we will be subject to regular federal corporate income tax on our
taxable income. In addition, unless we are entitled to relief under applicable statutory provisions, we would be ineligible to
make an election for treatment as a REIT for the four taxable years following the year we lose our qualification. The additional
tax liability resulting from the failure to qualify as a REIT would significantly reduce or eliminate the amount of funds available
for distribution to our stockholders. Furthermore, we would no longer be required to make distributions to our stockholders.
Thus, our failure to qualify as a REIT could also impair our ability to expand our business and raise capital and would adversely
affect the value of our common stock.
We believe that we are organized and qualified as a REIT, and we intend to operate in a manner that will allow us to continue to
qualify as a REIT. However, we cannot assure you that we are qualified as a REIT, or that we will remain qualified in the
future. This is because qualification as a REIT involves the application of highly technical and complex provisions of the Code
for which there are only limited judicial and administrative interpretations and involves the determination of a variety of factual
matters and circumstances not entirely within our control. Our qualification as a REIT depends on our satisfaction of certain
asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis. In addition,
future legislation, new regulations, administrative interpretations or court decisions may significantly change the tax laws or the
application of the tax laws with respect to qualification as a REIT for federal income tax purposes or the federal income tax
consequences of this qualification.
Even if we qualify as a REIT, we will be subject to certain federal, state and local taxes on our income and property and on
taxable income that we do not distribute to our stockholders. In addition, we hold certain assets and engage in certain activities
through our taxable REIT subsidiaries that a REIT could not engage in directly. We also use taxable REIT subsidiaries to hold
certain assets that we believe would be subject to the 100% prohibited transaction tax if sold at a gain outside of a taxable REIT
subsidiary or to engage in activities that generate non-qualifying REIT income. Our taxable REIT subsidiaries are subject to
federal income tax as regular corporations.
We may choose to pay dividends in our own stock, in which case stockholders may be required to pay tax in excess of the
cash they receive.
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We may distribute taxable dividends that are payable in part in our stock. Taxable stockholders receiving such dividends will be
required to include the full amount of the dividend as income to the extent of our current and accumulated earnings and profits
for federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in
excess of the cash dividend received. If a U.S. stockholder sells the stock it receives as a dividend in order to pay this tax, the
sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of
our stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax
with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, the
trading price of our stock would experience downward pressure if a significant number of our stockholders sell shares of our
stock in order to pay taxes owed on dividends.
We may experience regulatory and federal tax barriers to selling apartment communities that could limit financial
flexibility.
Federal tax laws may limit our ability to earn a gain on the sale of a community (unless we own it through a subsidiary which
will incur a taxable gain upon sale) if we are found to have held, acquired or developed the community primarily with the intent
to resell the community, and this limitation may affect our ability to sell communities without adversely affecting returns to our
stockholders.
From time to time we dispose of properties in transactions intended to qualify as “like-kind exchanges” under Section 1031 of
the Code. If a transaction intended to qualify as a Section 1031 exchange is later determined to be taxable, we may face adverse
tax consequences, and if the laws applicable to such transactions are amended or repealed, we may not be able to dispose of
properties on a tax deferred basis.
We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common stock
or debt securities.
At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended.
We cannot predict when or if any new federal income tax law, regulation, or administrative interpretation, or any amendment to
any existing federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become
effective and any such law, regulation, or interpretation may take effect retroactively. We and our stockholders and holders of
our debt securities could be adversely affected by any such change in, or any new, federal income tax law, regulation or
administrative interpretation.
Risks that may not be insured in full or in part
We are exposed to risks that are either uninsurable, not economically insurable or in excess of our insurance coverage,
including risks discussed below.
Insurance coverage for various risks can be costly and in limited supply. As a result, we may experience shortages in desired
coverage levels if market conditions are such that insurance is not available or the cost of insurance makes it, in the Company's
view, economically impractical. Incidents that directly or indirectly damage our communities, both physically and financially,
or cause losses that exceed our insurance coverage could have a material adverse effect on our business, financial condition and
results of operations including increased maintenance, repair, and delays in construction. In addition, we would also continue to
be obligated to repay any mortgage indebtedness or other obligations related to the community which could have a material
adverse effect on our business and our financial condition and results of operations. The following risks are uninsurable or
insurance coverage is limited due to premium rates (See Item 2. “Communities—Insurance and Risk of Uninsured Losses”):
•
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•
Earthquake risk. As further described in Item 2. “Communities—Insurance and Risk of Uninsured Losses,” many of
our West Coast communities are located in the general vicinity of active earthquake faults. Insurance coverage for
earthquakes can be costly and in limited supply.
Severe or inclement weather risk. Many of our markets, particularly those located in coastal cities, are exposed to
risks associated with inclement or severe weather, including hurricanes, severe winter storms and coastal flooding.
Climate change risk. To the extent that significant changes in the climate occur in areas where our communities are
located, we may experience extreme weather and changes in precipitation and temperature, all of which may result in
physical damage to or a decrease in demand for properties located in these areas or affected by these conditions. In
addition, changes in regulations based on concerns about climate change could result in increased capital expenditures
on our existing properties and our new development properties (for example, to improve energy efficiency and/or
resistance to inclement weather) without a corresponding increase in revenue, resulting in adverse impacts to our net
income.
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•
Terrorism and other risk. We have significant investments in large metropolitan markets, such as Metro New York/
New Jersey and Washington, D.C., which have in the past been or may in the future be the target of actual or
threatened terrorist attacks. We carry commercial general liability insurance, property insurance and terrorism
insurance with respect to our communities on terms and in amounts we consider commercially reasonable. There are,
however, certain types of losses (such as losses arising from acts of war) that are not insured, in full or in part, because
they are either uninsurable or the cost of insurance makes it, in the Company's view, economically impractical.
We may incur costs due to environmental contamination or non-compliance.
Under various public health laws and regulations, we may be required, regardless of knowledge or responsibility, to investigate
and remediate the presence or effects of hazardous or toxic substances such as asbestos, lead paint, chemical vapors from soils
or groundwater, petroleum product releases, and natural substances such as methane and radon gas. We may be held liable
under these laws or common law to a governmental entity or to third parties for property, personal injury or natural resources
damages and for investigation and remediation costs incurred as a result of the contamination. These damages and costs may be
substantial and may exceed any insurance coverage we have for such events. The presence of these substances, or the failure to
properly remediate or contain the contamination, may adversely affect our ability to borrow against, develop, sell or rent the
affected property. In addition, some environmental laws create or allow a government agency to impose a lien on the
contaminated site in favor of the government for damages and costs it incurs as a result of the contamination.
The development, construction and operation of our communities are subject to regulations and permitting under various
federal, state and local laws, regulations and ordinances, which regulate matters including wetlands protection, storm water
runoff and wastewater discharge. These laws and regulations may impose restrictions on the manner in which our communities
may be developed, and noncompliance with these laws and regulations may subject us to fines and penalties and may subject us
to liability in connection with personal injury.
Certain laws and regulations govern the removal, encapsulation or disturbance of asbestos containing materials (“ACMs”) when
such materials are in poor condition or in the event of renovation or demolition of a building. These laws and the common law
may impose liability for release of ACMs and may allow third parties to seek recovery from owners or operators of real
properties for personal injury associated with exposure to ACMs. We are not aware that any ACMs were used in the
construction of the communities we developed. ACMs were, however, used in the construction of a number of the communities
that we have acquired. Although we implement an operations and maintenance program at each of the communities at which
ACMs are detected, we may fail to adequately observe such program or a disturbance of ACMs may occur nevertheless,
exposing us to liability. We are aware that some of our communities have lead paint and have implemented an operations and
maintenance program at each of those communities.
All of our stabilized operating communities, and all of the communities that we are currently developing, have been subjected
to at least a Phase I or similar environmental assessment, which generally does not involve invasive techniques such as soil or
groundwater sampling. These assessments, together with subsurface assessments conducted on some properties, have not
revealed, and we are not otherwise aware of, any environmental conditions that we believe would have a material adverse effect
on our business, assets, financial condition or results of operations. In connection with our ownership, operation and
development of communities, from time to time we undertake substantial remedial action in response to the presence of
subsurface or other contaminants, including contaminants in soil, groundwater and soil vapor beneath or affecting our
buildings. In some cases, an indemnity exists upon which we may be able to rely if environmental liability arises from the
contamination or remediation costs exceed estimates. There can be no assurance, however, that all necessary remediation
actions have been or will be undertaken at our properties or that we will be indemnified, in full or at all, in the event that
environmental liability arises.
Mold growth may occur when excessive moisture accumulates in buildings or on building materials, particularly if the moisture
problem remains undiscovered or is not addressed over a period of time. Certain molds may in some instances lead to adverse
health effects, including allergic or other reactions. We cannot provide assurance that mold or excessive moisture will be
detected and remediated in a timely manner. If a significant mold problem arises at one of our communities, we could be
required to undertake a costly remediation program to contain or remove the mold from the affected community and could be
exposed to other liabilities that may exceed any applicable insurance coverage.
Additionally, we have occasionally been involved in developing, managing, leasing and operating various properties for third
parties. Consequently, we may be considered to have been an operator of such properties and, therefore, potentially liable for
removal or remediation costs or other potential costs which relate to the release or presence of hazardous or toxic substances or
petroleum products at such properties.
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We cannot assure you that:
•
•
•
•
•
•
the environmental assessments described above have identified all potential environmental liabilities;
no prior owner created any material environmental condition not known to us or the consultants who prepared the
assessments;
no environmental liabilities have developed since the environmental assessments were prepared;
the condition of land or operations in the vicinity of our communities, such as the presence of underground storage
tanks, will not affect the environmental condition of our communities;
future uses or conditions, including, without limitation, changes in applicable environmental laws and regulations, will
not result in the imposition of environmental liability; and
no environmental liabilities will arise at communities that we have sold for which we may have liability.
General Risk Factors
The ability of our stockholders to control our policies and effect a change of control of our company is limited by certain
provisions of our charter and bylaws and by Maryland law.
There are provisions in our charter and bylaws that may discourage a third party from making a proposal to acquire us. These
provisions include the following:
Our charter authorizes our Board of Directors to issue up to 50,000,000 shares of preferred stock without stockholder approval
and to establish the preferences and rights, including voting rights, of any series of preferred stock issued. This could allow the
Board to issue one or more classes or series of preferred stock that could discourage or delay a tender offer or a change in
control.
To maintain our qualification as a REIT for federal income tax purposes, not more than 50% in value of our outstanding stock
may be owned, directly or indirectly, by or for five or fewer individuals at any time during the last half of any taxable year. To
maintain this qualification, and/or to address other concerns about concentrations of ownership of our stock, our charter
generally prohibits ownership (directly, indirectly by virtue of the attribution provisions of the Code, or beneficially as defined
in Section 13 of the Securities Exchange Act) by any single stockholder of more than 9.8% of the issued and outstanding shares
of any class or series of our stock. In general, under our charter, pension plans and mutual funds may directly and beneficially
own up to 15% of the outstanding shares of any class or series of stock. Under our charter, our Board of Directors may in its
sole discretion waive or modify the ownership limit for one or more persons, but it is not required to do so even if such waiver
would not affect our qualification as a REIT. These ownership limits may prevent or delay a change in control and, as a result,
could adversely affect our stockholders' ability to realize a premium for their shares of common stock.
As a Maryland corporation, we are subject to the provisions of the Maryland General Corporation Law. Maryland law restricts
some business combinations and requires compliance with statutory procedures before some mergers and acquisitions may
occur, which may delay or prevent offers to acquire us or increase the difficulty of completing any offers, even if they are in our
stockholders' best interests. In addition, other provisions of the Maryland General Corporation Law permit the Board of
Directors to make elections and to take actions without stockholder approval (such as classifying our Board such that the entire
Board is not up for re-election annually) that, if made or taken, could have the effect of discouraging or delaying a change in
control.
Changes in U.S. accounting standards may materially and adversely affect the reporting of our operations.
The Company follows accounting principles generally accepted in the United States (“GAAP”). GAAP is established by the
Financial Accounting Standards Board (“FASB”), an independent body whose standards are recognized by the SEC as
authoritative for publicly held companies. The FASB and the SEC create and interpret accounting standards and may issue new
accounting pronouncements or change the interpretation and application of these standards that govern the preparation of our
financial statements. These changes could have a material impact on our reported consolidated results of operations and
financial position.
We rely on information technology in our operations, and any breach, interruption or security failure of that technology, or
any non-compliance with applicable laws with respect to the use of that technology, could have a negative impact on our
business, results of operations, financial condition and/or reputation.
Information security risks have generally increased in recent years due to the rise in new technologies and the increased
sophistication and activities of perpetrators of cyber attacks.
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We collect and hold personally identifiable information of our residents and prospective residents in connection with our
leasing and property management activities, and we collect and hold personally identifiable information of our associates in
connection with their employment. In addition, we engage third party service providers that may have access to such personally
identifiable information in connection with providing necessary information technology and security and other business
services to us.
There can be no assurance that we will be able to prevent unauthorized access to this information. Any failure in or breach of
our operational or information security systems, or those of our third party service providers, as a result of cyber attacks or
information security breaches, could result in a wide range of potentially serious harm to our business operations and financial
prospects, including (among others) disruption of our business and operations, disclosure or misuse of confidential or
proprietary information (including personal information of our residents and/or associates), damage to our reputation, and/or
potentially significant legal and/or financial liabilities and penalties.
Various laws and regulations and interpretations thereof, as well as agreements with payment processors, require, or may
require, us to comply with rules related to our websites for use by residents and prospective residents, including requirements
related to accessibility of our websites to persons with disabilities and our handling and use of data we collect. We could face
liabilities for failure to comply with these requirements. New statutes, such as the California Consumer Privacy Act (“CCPA”),
and related regulations are evolving and may be subject to differing interpretations. We could incur costs to comply with
stricter and more complex data privacy, data collection and information security laws and standards.
Our success depends on key personnel whose continued service is not guaranteed.
Our success depends in part on our ability to attract and retain the services of executive officers and other personnel. Our
executive officers make important capital allocation decisions or recommendations to our Board of Directors from among the
opportunities identified by our regional offices. There is substantial competition for qualified personnel in the real estate
industry, and the loss of our key personnel could adversely affect the Company.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. COMMUNITIES
Our real estate investments consist primarily of current operating apartment communities, communities in various stages of
development (“Development Communities”) and Development Rights (as defined below). Our current operating communities
are further classified as Established Communities, Other Stabilized Communities, Lease-Up Communities, Redevelopment
Communities and Unconsolidated Communities. While we generally establish the classification of communities on an annual
basis, we intend to update the classification of communities during the calendar year to the extent that our plans with regard to
the disposition or redevelopment of a community change during the year. The following is a description of each category:
Current Communities are categorized as Established, Other Stabilized, Lease-Up, Redevelopment or Unconsolidated
according to the following attributes:
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•
Established Communities (also known as Same Store Communities) for the year ended December 31, 2020 are
consolidated communities in the markets where we have a significant presence (New England, New York/New Jersey,
Mid-Atlantic, Pacific Northwest, Northern and Southern California and our expansion markets of Southeast Florida
and Denver, Colorado), and where a comparison of operating results from the prior year to the current year is
meaningful, as these communities were owned and had stabilized occupancy, as defined below, as of the beginning of
the respective prior year. The Established Communities for the year ended December 31, 2020 are communities that
are consolidated for financial reporting purposes, had stabilized occupancy as of January 1, 2019, are not conducting
or are not probable to conduct substantial redevelopment activities, and are not held for sale or probable for disposition
to unrelated third parties within the fiscal year. A community is considered to have stabilized occupancy at the earlier
of (i) attainment of 90% physical occupancy or (ii) the one-year anniversary of completion of development or
redevelopment.
Other Stabilized Communities are all other completed consolidated communities that have stabilized occupancy, as
defined above, as of January 1, 2020, or which were acquired during the years ended December 31, 2020 or 2019.
Other Stabilized Communities for the year ended December 31, 2020 excludes communities that are conducting or are
probable to conduct substantial redevelopment activities within the fiscal year.
Lease-Up Communities are consolidated communities where construction has been complete for less than one year and
that do not have stabilized occupancy.
Redevelopment Communities are consolidated communities where substantial redevelopment is in progress or is
probable to begin during the fiscal year. Redevelopment is considered substantial when (i) capital invested during the
reconstruction effort is expected to exceed the lesser of $5,000,000 or 10% of the community's pre-redevelopment
gross cost basis and (ii) physical occupancy is below or is expected to be below 90% during, or as a result of, the
redevelopment activity.
Unconsolidated Communities are communities that we have an indirect ownership interest in through our investment
interest in an unconsolidated joint venture.
Development Communities are consolidated communities that are under construction and for which a certificate or
certificates of occupancy for the entire community have not been received. These communities may be partially complete
and operating.
Unconsolidated Development Communities are communities that are under construction and for which a certificate or
certificates of occupancy for the entire community have not been received that we have an indirect ownership interest in
through our investment interest in an unconsolidated joint venture. These communities may be partially complete and
operating.
Development Rights are development opportunities in the early phase of the development process where we either have an
option to acquire land or enter into a leasehold interest, where we are the buyer under a long-term conditional contract to
purchase land, where we control the land through a ground lease or own land to develop a new community, or where we
are the designated developer in a public-private partnership. We capitalize related pre-development costs incurred in
pursuit of new developments for which we currently believe future development is probable.
We currently lease our corporate headquarters located in Arlington, Virginia, as well as our other regional and administrative
offices under operating leases.
19
As of December 31, 2020, communities that we owned or held a direct or indirect interest in were classified as follows:
Number of
communities
Number of
apartment homes
36
45
38
16
38
56
3
232
4
2
1
2
1
2
5
17
11
1
12
273
16
2
291
24
9,367
12,775
13,494
4,116
10,954
16,379
912
67,997
943
854
151
745
873
681
1,388
5,635
2,999
344
3,119
80,094
5,128
803
86,025
7,853
Current Communities
Established Communities:
New England
Metro NY/NJ
Mid-Atlantic
Pacific Northwest
Northern California
Southern California
Expansion Markets
Total Established
Other Stabilized Communities:
New England
Metro NY/NJ
Mid-Atlantic
Pacific Northwest
Northern California
Southern California
Expansion Markets
Total Other Stabilized
Lease-Up Communities
Redevelopment Communities
Unconsolidated Communities
Total Current Communities
Development Communities
Unconsolidated Development Communities
Total Communities
Development Rights
Our holdings under each of the above categories are discussed on the following pages.
20
We generally establish the composition of our Established Communities portfolio annually. Changes in the Established
Communities portfolios for the years ended December 31, 2020, 2019 and 2018 were as follows:
Established Communities as of December 31, 2017
Communities added
Communities removed (1)
Redevelopment Communities
Disposed Communities (2)
Other Stabilized (3)
Communities with multiple phases separated
Established Communities as of December 31, 2018
Communities added
Communities removed (1)
Redevelopment Communities
Disposed Communities
Other Stabilized (3)
Established Communities as of December 31, 2019
Communities added
Communities removed (1)
Redevelopment Communities
Disposed Communities
Established Communities as of December 31, 2020
_________________________________
Number of
communities
190
25
(9)
(13)
(1)
2
194
22
(2)
(3)
(1)
210
32
(1)
(9)
232
(1) We remove a community from our Established Communities portfolio if we believe that planned activity for the upcoming year will
result in that community's expected operations not being comparable to the prior year, including when we intend either (i) to undertake a
significant capital renovation, such that the community will be classified as a Redevelopment Community; (ii) to dispose of a
community; or (iii) when a significant casualty loss occurs.
(2) Includes the five wholly-owned communities contributed to the NYC Joint Venture.
(3) Community was moved from the Established Communities portfolio to the Other Stabilized portfolio as a result of a casualty loss that
occurred during the year and impacted operations.
Current Communities
Our Current Communities include garden-style apartment communities consisting of multi-story buildings of stacked flats and/
or townhome apartments in landscaped settings, as well as mid and high rise apartment communities consisting of larger
elevator-served buildings of four or more stories, frequently with structured parking. As of January 31, 2021, our Current
Communities consisted of the following:
Garden-style
Mid-rise
High-rise
Total Current Communities
Number of
communities
Number of
apartment homes
128
115
29
272
39,767
31,338
8,751
79,856
21
As discussed in Item 1. “Business,” we operate under three core brands: Avalon, AVA and eaves by Avalon. We believe that this
branding differentiation allows us to target our product offerings to multiple customer groups and submarkets within our
existing geographic footprint. Our core “Avalon” brand focuses on upscale apartment living and high end amenities and
services. “AVA” targets customers in high energy, transit-served urban neighborhoods and generally feature smaller apartments,
many of which are designed for roommate living with an emphasis on modern design and a technology focus. “eaves by
Avalon” is targeted to the cost conscious, “value” segment in suburban areas. In 2020, we introduced our "Kanso" brand
through one of our current Development Communities. The Kanso brand is designed to create an apartment living experience
that offers simplicity without sacrifice at a more moderate price point – featuring high-quality apartment homes, limited-to-no
community amenities and supported by a low-touch, largely self-service operating model that leverages technology and smart
access. We believe that these brands allow us to further penetrate our existing markets by appealing to different consumer
preferences.
We also have an extensive and ongoing maintenance program to continually maintain and enhance our communities and
apartment homes. The aesthetic appeal of our communities, and a service-oriented property management team that is focused
on the specific needs of residents, enhances market appeal. We believe our mission of Creating a Better Way To Live helps us
achieve higher rental rates and occupancy levels while minimizing resident turnover and operating expenses.
Our Current Communities are located in the following geographic markets:
Number of
communities at
Number of
apartment homes at
Percentage of total
apartment homes at
1/31/2020
1/31/2021
1/31/2020
1/31/2021
1/31/2020
1/31/2021
New England
Boston, MA
Fairfield, CT
Metro NY/NJ
New York City, NY
New York Suburban
New Jersey
Mid-Atlantic
Washington Metro
Baltimore, MD
Pacific Northwest
Seattle, WA
Northern California
San Jose, CA
Oakland-East Bay, CA
San Francisco, CA
Southern California
Los Angeles, CA
Orange County, CA
San Diego, CA
Expansion markets
Denver, CO
Southeast Florida
47
39
8
56
14
19
23
42
37
5
19
19
42
12
13
17
60
40
12
8
8
4
4
45
40
5
54
14
18
22
43
38
5
20
20
42
12
15
15
59
39
12
8
9
4
5
11,854
10,440
1,414
15,989
5,089
4,573
6,327
14,531
12,969
1,562
5,135
5,135
12,548
4,713
3,847
3,988
17,279
11,843
3,370
2,066
2,300
1,086
1,214
11,487
10,541
946
15,528
5,089
4,464
5,975
14,902
13,340
1,562
5,451
5,451
12,629
4,713
4,336
3,580
17,209
11,773
3,370
2,066
2,650
1,086
1,564
14.9 %
13.1 %
1.8 %
20.1 %
6.5 %
5.7 %
7.9 %
18.2 %
16.2 %
2.0 %
6.5 %
6.5 %
15.7 %
5.9 %
4.8 %
5.0 %
21.7 %
14.9 %
4.2 %
2.6 %
2.9 %
1.4 %
1.5 %
14.4 %
13.2 %
1.2 %
19.4 %
6.4 %
5.6 %
7.4 %
18.7 %
16.7 %
2.0 %
6.8 %
6.8 %
15.8 %
5.9 %
5.4 %
4.5 %
21.5 %
14.7 %
4.2 %
2.6 %
3.4 %
1.4 %
2.0 %
274
272
79,636
79,856
100.0 %
100.0 %
22
We manage and operate substantially all of our Current Communities. During the year ended December 31, 2020, we
completed construction of eight communities containing 2,095 apartment homes and sold 10 operating communities containing
1,887 apartment homes. The average age of our Current Communities, on a weighted average basis according to number of
apartment homes, is 19.9 years. When adjusted to reflect redevelopment activity, as if redevelopment were a new construction
completion date, the weighted average age of our Current Communities is 11.1 years.
Of the Current Communities, as of January 31, 2021, we owned (directly or through wholly-owned subsidiaries):
•
•
•
•
258 operating communities, including 248 with a full fee simple, or absolute, ownership interest and 10 that are on
land subject to a land lease. The land leases have various expiration dates from May 2041 to March 2142, and four of
the land leases are used to support tax advantaged structures that ultimately allow us to purchase the land upon lease
expiration.
A general partnership interest and an indirect limited partnership interest in Archstone Multifamily Partners AC LP
(the “U.S. Fund”) and Multifamily Partners AC JV LP (the “AC JV”), subsidiaries of which own three and two
operating communities, respectively.
A membership interest in four limited liability companies. One of the ventures, the NYC Joint Venture, through
subsidiaries owns a fee simple interest in three operating communities and a leasehold interest in two additional
operating communities. The other three ventures that each hold a fee simple interest in an operating community, one of
which is consolidated for financial reporting purposes.
A general partnership interest in one partnership structured as a “DownREIT,” which is consolidated and owns one
community. In this partnership, one of our wholly-owned subsidiaries is the general partner. Limited partners are
entitled to receive an initial distribution before any distribution is made to the general partner. The distributions per
unit paid to the holders of units of limited partnership interests are equal to our current common stock dividend
amount. The limited partnership interests have the right to present all or some of their units for redemption for a cash
amount based on the fair value of our common stock. In lieu of a cash redemption by the partnership, we may elect to
acquire any unit presented for redemption for one share of our common stock. At January 31, 2021, there were 7,500
DownREIT partnership units outstanding.
In addition to our Current Communities, we also hold, directly or through wholly-owned subsidiaries, a full fee simple
ownership interest in our wholly-owned Development Communities, a membership interest in two limited liability companies
that each hold an interest in an Unconsolidated Development Community, and a wholly-owned mixed-use project with for-sale
condominiums.
Development Communities
As of December 31, 2020, we owned or held a direct interest in 16 Development Communities. We expect these Development
Communities, when completed, to add a total of 5,128 apartment homes and 62,000 square feet of commercial space to our
portfolio for a total capitalized cost, including land acquisition costs, of approximately $1,951,000,000. We cannot assure you
that we will meet our schedule for construction completion or that we will meet our budgeted costs, either individually, or in the
aggregate. You should carefully review Item 1A. “Risk Factors” for a discussion of the risks associated with development
activity and our discussion under Item 7. “Management's Discussion and Analysis of Financial Condition and Results of
Operations” (including the factors identified under “Forward-Looking Statements”) for further discussion of development
activity.
The following table presents a summary of the Development Communities.
23
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
Avalon Yonkers
Yonkers, NY
AVA Hollywood (4)
Hollywood, CA
Avalon Old Bridge
Old Bridge, NJ
Avalon 555 President
Baltimore, MD
Avalon Newcastle Commons II
Newcastle, WA
Kanso Twinbrook
Rockville, MD
Avalon Harrison (4)
Harrison, NY
Avalon Brea Place
Brea, CA
Avalon Foundry Row
Owings Mill, MD
Avalon Acton II
Acton, MA
Avalon Woburn
Woburn, MA
AVA RiNo
Denver, CO
Avalon Monrovia
Monrovia, CA
Avalon Harbor Isle
Island Park, NY
Avalon Easton II
Easton, MA
Avalon Somerville Station
Somerville, NJ
Number of
apartment
homes
Projected total
capitalized cost (1)
($ millions)
590 $
196
Construction
start
Q4 2017
Initial projected
or actual
occupancy (2)
Q3 2019
Estimated
completion
Q1 2021
Estimated
stabilized
operations (3)
Q3 2021
695
252
400
293
238
143
653
437
86
350
246
154
172
44
375
375
Q4 2016
Q4 2019
Q1 2021
Q4 2021
72
Q3 2018
Q3 2020
Q2 2021
Q4 2021
139
Q3 2018
Q3 2020
Q3 2021
Q1 2022
107
Q4 2018
Q4 2020
Q3 2021
Q2 2022
66
77
Q4 2018
Q4 2020
Q2 2021
Q4 2021
Q4 2018
Q2 2021
Q2 2022
Q3 2022
290
Q2 2019
Q1 2021
Q2 2022
Q1 2023
100
Q2 2019
Q1 2021
Q1 2022
Q3 2022
32
Q4 2019
Q3 2020
Q1 2021
Q2 2021
121
Q4 2019
Q3 2021
Q2 2022
Q4 2022
87
68
90
15
Q4 2019
Q1 2022
Q2 2022
Q4 2022
Q4 2019
Q1 2021
Q3 2021
Q1 2022
Q4 2020
Q1 2022
Q3 2022
Q1 2023
Q4 2020
Q3 2021
Q4 2021
Q1 2022
116
Q4 2020
Q2 2022
Q3 2023
Q1 2024
Total
5,128 $
1,951
_________________________________
(1) Projected total capitalized cost includes all capitalized costs projected to be or actually incurred to develop the respective Development
Community, determined in accordance with GAAP, including land acquisition costs, construction costs, real estate taxes, capitalized
interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees, as well as costs incurred for
first generation commercial tenants such as tenant improvements and leasing commissions.
(2)
Initial projected occupancy dates are estimates.
(3) Stabilized operations is defined as the earlier of (i) attainment of 90% or greater physical occupancy or (ii) the one-year anniversary of
completion of development.
(4) Development Communities containing at least 10,000 square feet of commercial space include AVA Hollywood (19,000 square feet) and
Avalon Harrison (27,000 square feet).
During the year ended December 31, 2020, the Company completed the development of the following communities:
24
Number of
apartment
homes
Total capitalized
cost (1)
($ millions)
Approximate
rentable area
(sq. ft.)
Total
capitalized cost
per sq. ft.
242,988 $
300
Quarter of
completion
Q1 2020
1.
2.
3.
4.
5.
6.
7.
8.
Avalon Teaneck
Teaneck, NJ
Avalon North Creek
Bothwell, WA
Avalon Norwood
Norwood, MA
Avalon Public Market
Emeryville, CA
Avalon Marlborough II
Marlborough, MA
Avalon Towson
Towson, MD
Avalon Walnut Creek II
Walnut Creek, CA
Avalon Doral
Doral, FL
Total
248 $
316
198
289
123
371
200
350
2,095 $
73
83
61
175
42
114
113
116
777
304,083
244,361
287,658
166,364
320,840
202,916
324,057
273
Q1 2020
250
Q1 2020
608
Q3 2020
252
Q4 2020
355
Q4 2020
557
Q4 2020
358
Q4 2020
____________________________________
(1) Total capitalized cost is as of December 31, 2020. We generally anticipate incurring additional costs associated with these communities
that are customary for new developments.
Unconsolidated Development Communities
As of December 31, 2020, we had an indirect interest in the following Unconsolidated Development Communities.
Unconsolidated
Development Community
1. Avalon Alderwood Mall
Lynnwood, WA
2. AVA Arts District (3)
Los Angeles, CA
Company
ownership
percentage
# of
apartment
homes
Projected total
capitalized cost (1)
($ millions)
Construction
start
Initial projected
occupancy
(2)
Estimated
completion
50.0 %
328
$
25.0 %
475
Q4 2019
Q4 2021
Q3 2022
Q3 2020
Q1 2023
Q4 2023
110
276
386
Total
803 $
_____________________________
(1) Projected total capitalized cost includes all capitalized costs projected to be incurred to develop the respective Unconsolidated
Development Community, determined in accordance with GAAP, including land acquisition costs, construction costs, real estate
taxes, capitalized interest and loan fees, permits, professional fees and other regulatory fees, as well as costs incurred for first
generation commercial tenants such as tenant improvements and leasing commissions. Projected total capitalized cost is the total
projected joint venture amount.
(2)
Initial projected occupancy dates are estimates.
(3) AVA Arts District is expected to contain 56,000 square feet of commercial space.
Development Rights
At December 31, 2020, we had $110,142,000 in acquisition and related capitalized costs for direct interests in five land parcels
we own. In addition, we own the land for four development Rights that are additional development phases of existing stabilized
operating communities we own and which will be constructed on land currently adjacent to or directly associated with those
operating communities. In addition, we had $55,427,000 in capitalized costs (including legal fees, design fees and related
overhead costs) related to 15 Development Rights for which we control the land parcel, typically through a conditional
agreement or option to purchase or lease the land. Collectively, the land held for development and associated costs for deferred
development rights relate to 24 Development Rights for which we expect to develop new apartment communities in the future.
The Development Rights range from those beginning design and architectural planning to those that have completed site plans
and drawings and can begin construction almost immediately. We estimate that the successful completion of all of these
25
communities would ultimately add approximately 7,853 apartment homes to our portfolio. Substantially all of these apartment
homes will offer features like those offered by the communities we currently own.
The properties comprising the Development Rights are in different stages of the due diligence and regulatory approval process.
The decisions as to which of the Development Rights to invest in, if any, or to continue to pursue once an investment in a
Development Right is made, are business judgments that we make after we perform financial, demographic and other analyses.
In the event that we do not proceed with a Development Right, we generally would not recover any of the capitalized costs
incurred in the pursuit of those communities, unless we were to recover amounts in connection with the sale of land; however,
we cannot guarantee a recovery. Pre-development costs incurred in the pursuit of Development Rights, 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 no longer probable, any unrecoverable capitalized pre-development costs are charged to
expense. During 2020, we incurred a charge of $12,399,000 for expensed transaction, development and other pursuit costs, net
of recoveries, which include development pursuits that were not yet probable of future development at the time incurred, or for
pursuits that we determined were no longer probable of being developed. This charge includes the write-off of $7,264,000
related to a Development Right in New York City, with a projected total capitalized cost of $688,000,000, that we no longer
expect is probable.
You should carefully review Item 1A. “Risk Factors,” for a discussion of the risks associated with Development Rights.
Land Acquisitions
We select land for development and follow established procedures that we believe minimize both the cost and the risks of
development. During 2020, we acquired the following land parcels for an aggregate investment of $114,395,000.
1.
2.
3.
4.
5.
6.
7.
Avalon Harbor Isle (2)
Island Park, NY
Avalon Merrick Park
Coral Gables, FL
Avalon Somerville Station (2)
Somerville, NJ
Avalon Bothell Commons (3)
Bothell, WA
Avalon Easton II (2)
Easton, MA
Avalon South Miami
Miami, FL
Avalon Westminster Promenade
Westminster, CO
Total
Estimated
number of
apartment
homes
Projected total
capitalized
cost (1)
($ millions)
172 $
254
375
908
44
248
312
2,313 $
90
96
116
360
15
108
99
884
Date
acquired
February 2020
March 2020
October 2020
October 2020
October 2020
November 2020
December 2020
____________________________________
(1) Projected total capitalized cost includes all capitalized costs incurred to date (if any) and projected to be incurred to develop the
respective community, determined in accordance with GAAP, including land and related acquisition costs, construction costs, real estate
taxes, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees, as well as
costs incurred for first generation commercial tenants such as tenant improvements and leasing commissions, net of projected proceeds
for any planned sales of associated outparcels and other real estate.
(2) Construction on this land parcel commenced during 2020.
(3) Land purchased for the expected development of two adjacent operating communities.
26
Disposition Activity
We sell assets when they do not meet our long-term investment strategy or when real estate markets allow us to realize a
portion of the value created over our periods of ownership, and we generally redeploy the proceeds from those sales to develop,
redevelop and acquire communities. Pending such redeployment, we will generally use the proceeds from the sale of these
communities to reduce amounts outstanding under our Credit Facility or retain the cash proceeds on our balance sheet until it is
redeployed into acquisition, development or redevelopment activity. On occasion, we will set aside the proceeds from the sale
of communities into a cash escrow account to facilitate a tax-deferred, like-kind exchange transaction. From January 1, 2020 to
January 31, 2021, we sold our interest in ten wholly-owned operating communities, containing 2,055 apartment homes, with an
aggregate gross sales price of $699,750,000.
Insurance and Risk of Uninsured Losses
We maintain commercial general liability insurance and property insurance with respect to all of our communities, with
insurance policies issued by a combination of third party insurers as well as a wholly-owned captive insurance company. These
policies, along with other insurance policies we maintain, have policy specifications, insured and self-insured limits, exclusions
and deductibles that we consider commercially reasonable. We utilize a wholly-owned captive insurance company to insure
certain types and amounts of risks, which include property damage and resulting business interruption losses, general liability
insurance and other construction related liability risks. The captive is utilized to insure other limited levels of risk, which may
be in part reinsured by third party insurance. There are, however, certain types of losses (including, but not limited to, losses
arising from nuclear liability, pandemic or acts of war) that are not insured, in full or in part, because they are either uninsurable
or the cost of insurance makes it, in management’s view, economically impractical. You should carefully review the discussion
under Part I, Item 1A. “Risk Factors” of this Form 10-K for a discussion of risks associated with an uninsured property or
casualty loss.
Our communities are insured for certain property damage and business interruption losses through a combination of community
specific insurance policies and/or a master property insurance program which covers the majority of our communities. This
master property program provides a $400,000,000 limit for any single occurrence, subject to certain sub-limits and exclusions.
Under the master property program, we are subject to various deductibles per occurrence, as well as additional self-insured
retentions. In addition to our potential liability for the various policy self-insured retentions and deductibles, our captive
insurance company is directly responsible for 100% of the first $25,000,000 of losses (per occurrence) and 10% of the second
$25,000,000 of losses (per occurrence) incurred by the master property insurance policy. Our master property insurance
program includes coverage for losses resulting from wildfires and windstorm. Limits, deductibles, self-insured retentions, and
coverages are consistent with customary market programs and may increase or decrease annually during the insurance renewal
process, which occurs on different dates throughout the calendar year.
Many of our West Coast communities are located within the general vicinity of active earthquake faults. Many of our
communities are near, and thus susceptible to, the major fault lines in California, including the San Andreas Fault, the Hayward
Fault or other geological faults that are known or unknown. We cannot assure you that an earthquake would not cause damage
or losses greater than our current insured levels. We procure property damage and resulting business interruption insurance
coverage with a loss limit of $175,000,000 for any single occurrence and in the annual aggregate for losses resulting from
earthquakes. However, for any losses resulting from earthquakes at communities located in California or Washington, the loss
limit is $200,000,000 for any single occurrence and in the annual aggregate.
Our communities are insured for third-party liability losses through a combination of community specific insurance policies
and/or coverage provided under a master commercial general liability and umbrella/excess insurance program. The master
commercial general liability and umbrella/excess insurance policies cover the majority of our communities and are subject to
certain coverage limitations and exclusions. Our captive insurance company is directly responsible for covered liability claims
arising out of our primary commercial general liability policy, subject to a $2,000,000 per occurrence loss limit.
We also maintain certain casualty policies (general liability, umbrella/excess and workers compensation) for construction
related risks which have various exclusions and deductibles that, in management’s view, are commercially reasonable.
27
Just as with office buildings, transportation systems and government buildings, there have been reports that apartment
communities could become targets of terrorism. Our communities are insured for terrorism related losses through the Terrorism
Risk Insurance Program Reauthorization Act (“TRIPRA”) program. This coverage extends to most of our casualty exposures
(subject to deductibles and insured limits) and certain property insurance policies. We have also purchased private-market
insurance for property damage due to terrorism with limits of $600,000,000 per occurrence and in the annual aggregate that
includes certain coverages (not covered under TRIPRA) such as domestic-based terrorism. This insurance, often referred to as
“non-certified” terrorism insurance, is subject to deductibles, limits, and exclusions.
An additional consideration for insurance coverage and potential uninsured losses is mold growth or other environmental
contamination. Mold growth may occur when excessive moisture accumulates in buildings or on building materials, particularly
if the moisture problem remains undiscovered or is not addressed over a period of time. If a significant mold problem arises at
one of our communities, we could be required to undertake a costly remediation program to contain or remove the mold from
the affected community and could be exposed to other liabilities. For further discussion of the risks and our related prevention
and remediation activities, please refer to the discussion under Part I, Item 1A. “Risk Factors - We may incur costs due to
environmental contamination or non-compliance” elsewhere in this report. We cannot provide assurance that we will have
coverage under our existing policies for property damage or liability to third parties arising as a result of exposure to mold or a
claim of exposure to mold at one of our communities.
We also maintain a crime policy (also commonly referred to as a fidelity policy or employee dishonesty policy) that applies to
losses from employee theft of money, securities or property and a cyber liability insurance policy that applies to losses from
breaches of data privacy. These policies are subject to maximum loss limits and include coverage limitations or exclusion that
may preclude a full insurance recovery of losses related to employee theft or breaches of data privacy.
The amount or types of insurance we maintain may not be sufficient to cover all losses and we may change our policy limits,
coverages, and self-insured retentions at any time.
28
ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
29
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NYSE under the ticker symbol AVB. On January 29, 2021 there were 443 holders of record
of an aggregate of 139,527,493 shares of our outstanding common stock. The number of holders does not include individuals or
entities who beneficially own shares but whose shares are held of record by a broker or clearing agency, but does include each
such broker or clearing agency as one record holder.
At present, we expect to continue our policy of paying regular quarterly cash dividends. However, the form, timing and/or
amount of dividend distributions will be declared at the discretion of the Board of Directors and will depend on actual cash
from operations, our financial condition, capital requirements, the annual distribution requirements under the REIT provisions
of the Code and other factors as the Board of Directors may consider relevant. The Board of Directors may modify our dividend
policy from time to time.
In February 2021, we announced that our Board of Directors declared a dividend on our common stock for the first quarter of
2021 of $1.59 per share, consistent with our previous quarterly dividend. The dividend will be payable on April 15, 2021 to all
common stockholders of record as of March 31, 2021.
Issuer Purchases of Equity Securities
Period
October 1- October 31, 2020
November 1- November 30, 2020
December 1- December 31, 2020
_________________________________
(a)
Total Number
of Shares
Purchased (1)
(b)
Average
Price Paid
Per Share
220,220 $
93,871 $
36 $
148.20
148.45
169.28
(c)
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
(d)
Maximum Dollar
Amount that May Yet
be Purchased Under
the Plans or Programs
(in thousands) (2)
219,186 $
93,871 $
— $
330,083
316,148
316,148
(1) Consists primarily of activity under the 2020 Stock Repurchase Program and includes shares surrendered to the Company in connection
with exercise of stock options as payment of exercise price, as well as for taxes associated with the vesting of restricted share grants.
(2)
In July 2020, the Board of Directors approved the 2020 Stock Repurchase Program, under which the Company may acquire shares of its
common stock in open market or negotiated transactions up to an aggregate purchase price of $500,000,000. Purchases of common stock
under the 2020 Stock Repurchase Program may be exercised from time to time in the Company’s discretion and in such amounts as
market conditions warrant. The timing and actual number of shares repurchased will depend on a variety of factors including price,
corporate and regulatory requirements, market conditions and other corporate liquidity requirements and priorities. The 2020 Stock
Repurchase Program does not have an expiration date and may be suspended or terminated at any time without prior notice.
Information regarding securities authorized for issuance under equity compensation plans is included in the section entitled
Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in this
Form 10-K.
ITEM 6. RESERVED
30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help
provide an understanding of our business, financial condition and results of operations. This MD&A should be read in
conjunction with our Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements
included elsewhere in this report. This report, including the following MD&A, contains forward-looking statements regarding
future events or trends that should be read in conjunction with the factors described under “Forward-Looking Statements”
included in this report. Actual results or developments could differ materially from those projected in such statements as a result
of the factors described under “Forward-Looking Statements” as well as the risk factors described in Part I, Item 1A. “Risk
Factors” of this report.
Capitalized terms used without definition have the meanings provided elsewhere in this Form 10-K.
Executive Overview
Business Description
Our strategic vision is to be the leading apartment company in select U.S. markets, providing a range of distinctive living
experiences that customers value. We pursue this vision by targeting what we believe are among the best markets and
submarkets, leveraging our strategic capabilities in market research and consumer insight and being disciplined in our capital
allocation and balance sheet management. Our communities are predominately upscale and generally command among the
highest rents in their markets. However, we also pursue the ownership and operation of apartment communities that target a
variety of customer segments and price points, consistent with our goal of offering a broad range of products and services. We
regularly evaluate the market allocation of our investments by current market value and share of total revenue and NOI, as well
as relative asset value and submarket positioning.
We develop, redevelop, acquire, own and operate multifamily apartment communities in New England, the New York/New
Jersey metro area, the Mid-Atlantic, the Pacific Northwest, Northern and Southern California, as well as in our expansion
markets in Southeast Florida and Denver, Colorado (the "Expansion Markets"). We focus on leading metropolitan areas that we
believe historically have been characterized by growing employment in high wage sectors of the economy, higher cost of home
ownership and a diverse and vibrant quality of life. We believe these market characteristics have offered and will continue in
the future to offer the opportunity for superior risk-adjusted returns over the long-term on apartment community investments
relative to other markets that do not have these characteristics. We seek to create long-term shareholder value by accessing
capital on cost effective terms; deploying that capital to develop, redevelop and acquire apartment communities in our selected
markets; leveraging our scale and competencies in technology and data science to operate apartment communities; and selling
communities when they no longer meet our long-term investment strategy or when pricing is attractive.
2020 Financial Highlights
Net income attributable to common stockholders for the year ended December 31, 2020 was $827,630,000, an increase of
$41,656,000, or 5.3%, as compared to the prior year. The increase is primarily attributable to increases in real estate sales and
related gains, as well as NOI from Development and Other Stabilized Communities in the current year. These amounts were
partially offset by a decrease in NOI from Established Communities and communities sold in 2019 and 2020, and an increase in
depreciation expense in the current year.
Established Communities NOI for the year ended December 31, 2020 decreased by $96,395,000, or 6.4%, from the prior year.
The decrease was due to a decrease in rental revenue of 3.7%, of which $43,970,000 was due to uncollectible lease revenue,
$33,768,000 of which was for residential revenue and $10,202,000 was for commercial revenue, as well as an increase in
property operating expenses of $17,424,000, or 2.9%, over 2019.
During 2020, we raised approximately $2,150,622,000 of gross capital through the issuance of unsecured notes and the sale of
nine consolidated operating communities, condominiums at The Park Loggia and other real estate. This amount does not
include our share of proceeds from joint venture dispositions. We believe that our current capital structure will continue to
provide financial flexibility to access capital on attractive terms.
31
We believe our development activity will continue to create long-term value. During 2020, we:
•
•
•
Completed the construction of eight consolidated apartment communities containing an aggregate of 2,095 apartment
homes for an aggregate total capitalized cost of $777,000,000.
Started the construction of three consolidated apartment communities containing an aggregate of 591 apartment
homes, which are expected to be completed for an estimated total capitalized cost of $221,000,000.
Started the construction of one unconsolidated apartment community containing 475 apartment homes, which is
expected to be completed for an estimated total capitalized cost of $276,000,000, or $69,000,000 when including only
our 25.0% interest.
We believe that our balance sheet strength, as measured by our current level of indebtedness, our current ability to service
interest and other fixed charges, and our current moderate use of financial encumbrances (such as secured financing), provide
us with adequate access to liquidity from the capital markets. We expect to be able to meet our reasonably foreseeable liquidity
needs, as they arise, through a combination of one or more of the following sources: existing cash on hand; operating cash
flows; borrowings under our Credit Facility; secured debt; the issuance of corporate securities (which could include unsecured
debt, preferred equity and/or common equity); the sale of apartment communities; or through the formation of joint ventures.
See the discussion under "Liquidity and Capital Resources."
COVID-19 Pandemic
We have taken various actions in response to the COVID-19 pandemic to adjust our business operations and to address the
health and safety of our residents and associates. During the year ended December 31, 2020, we adopted varying measures to
help mitigate the financial impact arising from the national emergency on our residents, including providing flexible lease
renewal options, creating payment plans for residents who are unable to pay their rent because they are impacted by this
national emergency and, in certain jurisdictions, waiving late fees and certain other customary fees associated with apartment
rentals. To the extent still implemented, we may discontinue these measures at any time except where required by law.
The impact on our consolidated results of operations from COVID-19 for periods beyond 2020 will depend on the duration and
severity of the pandemic, the effectiveness of vaccines and the timing of vaccine availability, the duration and nature of
governmental responses to contain the spread of the disease and cushion the impact on consumers, the responses of consumers
and businesses with respect to living and work preferences, and how quickly and to what extent normal economic and operating
conditions can resume. The current and potential future impacts of the COVID-19 pandemic on our business, particularly on (i)
rent levels, collectibility of rents, occupancy and the extent to which we waive certain other customary fees associated with our
apartment rental business and (ii) development timing and volume, mean that our historical results of operations and financial
condition are not indicative of future results of operations and financial condition.
The COVID-19 pandemic has impacted our rental operations including (i) revenues and expenses, as well as (ii) our collections
and associated outstanding receivables. For further discussion see "Results of Operations." The following table presents the
percentage of (i) apartment base rent charged to residents and (ii) other rentable items, including parking and storage rent, along
with pet and other fees in accordance with residential leases, that has been collected ("Collected Residential Revenue") for
Established Communities for the three months ended June 30, 2020, September 30, 2020 and December 31, 2020. Collected
Residential Revenue excludes transactional and other fees.
Q2 2020
Q3 2020
Q4 2020
_________________________
At quarter end (1)(2)
95.4%
95.2%
94.8%
At January 31, 2021 (3)(4)
98.1%
97.1%
95.9%
(1) Collections presented reflect our Established Communities for 2020 and excludes commercial revenue, which was 0.7% and 1.2%
of our 2020 and 2019 Established Communities' total revenue, respectively.
(2) The Collected Residential Revenue percentage as of June 30, 2020 for Q2 2020, September 30, 2020 for Q3 2020 and December
31, 2020 for Q4 2020, respectively.
(3) The percentage of Collected Residential Revenue as of January 31, 2021 for Q2 2020, Q3 2020 and Q4 2020.
(4) Collected Residential Revenue for January 2021 as of January 31, 2021 was 92.9%.
32
The collection rates are based on individual resident activity as reflected in our property management systems and are presented
to provide information about collections trends during the COVID-19 pandemic. Prior to the COVID-19 pandemic, the
collections information provided was not routinely produced for internal use by senior management or publicly disclosed by the
Company and is a result of analysis that is not subject to internal controls over financial reporting. This information is not
prepared in accordance with GAAP, does not reflect GAAP revenue or cash flow metrics and may be subject to adjustment in
preparing GAAP revenue and cash flow metrics. Additionally, this information should not be interpreted as predicting the
Company’s financial performance, results of operations or liquidity for any period. At December 31, 2020, our outstanding rent
receivable balance for residential and commercial tenants, net of reserves, increased to $18,159,000 from $11,594,000 at
December 31, 2019.
Communities Overview
As of December 31, 2020 we owned or held a direct or indirect ownership interest in 291 apartment communities containing
86,025 apartment homes in 11 states and the District of Columbia, of which 16 consolidated communities were under
development and one community was under redevelopment. We have an indirect interest in 14 of the 291 apartment
communities which were owned by entities that were not consolidated for financial reporting purposes, including two that are
being developed within joint ventures. In addition, we held a direct or indirect ownership interest in Development Rights to
develop an additional 24 communities that, if developed as expected, will contain an estimated 7,853 apartment homes.
Our real estate investments consist primarily of Current Communities, Development Communities, Unconsolidated
Development Communities and Development Rights. Our Current Communities are further distinguished as Established
Communities, Other Stabilized Communities, Lease-Up Communities, Redevelopment Communities and Unconsolidated
Communities.
Established Communities are generally consolidated communities in markets where we have a significant presence that were
owned and had stabilized occupancy as of the beginning of the prior year, allowing for a meaningful comparison of operating
results between years. Other Stabilized Communities are generally all other completed consolidated communities that have
stabilized occupancy at the beginning of the current year or were acquired during the year. Lease-Up Communities are
consolidated communities where construction has been complete for less than one year and stabilized occupancy has not been
achieved. Redevelopment Communities are consolidated communities where substantial redevelopment is in progress or is
planned to begin during the fiscal year. Unconsolidated Communities are communities in which we have an indirect ownership
interest through our investment interest in an unconsolidated entity. A more detailed description of our reportable segments and
other related operating information can be found in Note 8, “Segment Reporting,” of our Consolidated Financial Statements.
Although each of these categories is important to our business, we generally evaluate overall operating, industry and market
trends based on the operating results of Established Communities, for which a detailed discussion can be found in “Results of
Operations” as part of our discussion of overall operating results. We evaluate our current and future cash needs and future
operating potential based on acquisition, disposition, development, redevelopment and financing activities within Other
Stabilized, Redevelopment and Development Communities. Discussions related to current and future cash needs and financing
activities can be found under "Liquidity and Capital Resources."
NOI of our current operating communities is one of the financial measures that we use to evaluate the performance of our
communities. NOI is affected by the demand and supply dynamics within our markets, our rental rates and occupancy levels
and our ability to control operating costs. Our overall financial performance is also impacted by the general availability and cost
of capital and the performance of newly developed, redeveloped and acquired apartment communities.
33
Results of Operations
As discussed above under “Executive Overview - COVID-19 Pandemic” and elsewhere in this report, the COVID-19 pandemic
has affected our business, and may continue to do so. See also Part I, Item 1A, “Risk Factors.” Our year-over-year operating
performance is primarily affected by both overall and individual geographic market conditions and apartment fundamentals and
is reflected in changes in NOI of our Established Communities; NOI derived from acquisitions, development completions and
development under construction and in lease-up; loss of NOI related to disposed communities; and capital market and financing
activity. A comparison of our operating results for 2020 and 2019 follows (dollars in thousands). Discussion of our operating
results for 2019 and comparison to 2018 can be found in Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's Form 10-K filed with the SEC on February 21, 2020.
For the year ended
2020 vs. 2019
2020
2019
$ Change
% Change
Revenue:
Rental and other income
Management, development and other fees
Total revenue
Expenses:
Direct property operating expenses, excluding property taxes
Property taxes
Total community operating expenses
Corporate-level property management and other indirect
operating expenses
Expensed transaction, development and other pursuit costs, net of
recoveries
Interest expense, net
Loss on extinguishment of debt, net
Depreciation expense
General and administrative expense
Total other expenses
Equity in income of unconsolidated real estate entities
Gain on sale of communities
Gain on other real estate transactions, net
Net for-sale condominium activity
Income before income taxes
Income tax benefit (expense)
Net income
$
2,297,442 $
2,319,666
$
3,819
2,301,261
4,960
2,324,626
448,658
273,189
721,847
101,255
12,399
214,151
9,333
707,331
60,343
427,114
252,961
680,075
88,031
4,991
203,585
602
661,578
58,042
1,104,812
1,016,829
6,422
340,444
440
2,551
824,459
3,247
827,706
8,652
166,105
439
(3,812)
799,106
(13,003)
786,103
(22,224)
(1,141)
(23,365)
21,544
20,228
41,772
13,224
7,408
10,566
8,731
45,753
2,301
87,983
(2,230)
174,339
1
6,363
25,353
16,250
41,603
(1.0) %
(23.0) %
(1.0) %
5.0 %
8.0 %
6.1 %
15.0 %
148.4 %
5.2 %
1,450.3 %
6.9 %
4.0 %
8.7 %
(25.8) %
105.0 %
0.2 %
N/A (1)
3.2 %
N/A (1)
5.3 %
Net income attributable to noncontrolling interests
(76)
(129)
53
(41.1) %
Net income attributable to common stockholders
$
827,630 $
785,974
$
41,656
5.3 %
_________________________________
(1) Percent change is not meaningful.
Net income attributable to common stockholders increased $41,656,000, or 5.3%, to $827,630,000 in 2020 from 2019,
primarily attributable to increases in real estate sales and related gains, as well as NOI from Development and Other Stabilized
Communities in the current year. These amounts were partially offset by a decrease in NOI from Established Communities and
communities sold in 2019 and 2020, and an increase in depreciation expense in the current year.
34
NOI is considered by management to be an important and appropriate supplemental performance measure to net income
because it helps both investors and management to understand the core operations of a community or communities prior to the
allocation of any corporate-level or financing-related costs. NOI reflects the operating performance of a community and allows
for an easier comparison of the operating performance of individual assets or groups of assets. In addition, because prospective
buyers of real estate have different financing and overhead structures, with varying marginal impact to overhead as a result of
acquiring real estate, NOI is considered by many in the real estate industry to be a useful measure for determining the value of a
real estate asset or group of assets. We define NOI 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 for-sale condominium
activity and net operating income from real estate assets sold or held for sale.
NOI does not represent cash generated from operating activities in accordance with GAAP, and NOI should not be considered
an alternative to net income as an indication of our performance. NOI should also not be considered an alternative to net cash
flow from operating activities, as determined by GAAP, as a measure of liquidity, nor is NOI indicative of cash available to
fund cash needs. Reconciliations of NOI for the years ended December 31, 2020 and 2019 to net income for each year are as
follows (dollars in thousands):
For the year ended
12/31/20
12/31/19
Net income
$
827,706 $
Indirect operating expenses, net of corporate income
Expensed transaction, development and other pursuit costs, net of recoveries
Interest expense, net
Loss on extinguishment of debt, net
General and administrative expense
Equity in income of unconsolidated real estate entities
Depreciation expense
Income tax (benefit) expense
Gain on sale of real estate assets
Gain on other real estate transactions, net
Net for-sale condominium activity
Net operating income from real estate assets sold or held for sale
97,443
12,399
214,151
9,333
60,343
(6,422)
707,331
(3,247)
(340,444)
(440)
(2,551)
(28,412)
Net operating income
$
1,547,190 $
786,103
83,008
4,991
203,585
602
58,042
(8,652)
661,578
13,003
(166,105)
(439)
3,812
(45,354)
1,594,174
The NOI decrease for 2020 as compared to 2019 consists of changes in the following categories (dollars in thousands):
Established Communities
Other Stabilized Communities
Development and Redevelopment Communities
Total
Full Year
2020
$
$
(96,395)
17,226
32,185
(46,984)
The decrease in our Established Communities' NOI in 2020 is due to a decrease in rental revenue of 3.7%, of which
$43,970,000 was due to uncollectible lease revenue, $33,768,000 of which was for residential revenue and $10,202,000 was for
commercial revenue, as well as an increase in property operating expenses of $17,424,000, or 2.9%, over 2019.
35
Rental and other income for the consolidated portfolio decreased $22,224,000, or 1.0%, in 2020 compared to the prior year due
to an increase of $53,298,000 in uncollectible lease revenue as a result of the COVID-19 pandemic, of which $39,600,000
relates to residential revenue and $13,698,000 relates to commercial revenue, as well as decreased occupancy and rental rates at
our Established Communities and revenue from communities sold in 2019 and 2020, partially offset by additional rental income
generated from development completions, development under construction and in lease-up and acquired operating
communities.
During 2020 as a result of the pandemic, we increased our use of residential concessions. The increased concessions, which are
amortized on a straight-line basis over the life of the respective leases (generally one year), contributed to the overall decline in
our rental revenue in 2020 and will continue to impact rental revenue in 2021. The amortization of residential concessions
increased by $21,434,000 in 2020 as compared to the prior year, and the remaining net unamortized balance of residential
concessions as of December 31, 2020 was $35,367,000.
As discussed elsewhere in this report, the COVID-19 impact and related economic, regulatory and operating impacts are likely
to continue to adversely affect our rental revenue, and comparisons to prior year periods, during the COVID-19 pandemic. If
job losses in our markets and nationally continue, this would likely continue to decrease our ability to maintain and/or increase
rents and/or maintain occupancy at our historical levels. Deteriorating financial conditions among our residents and commercial
tenants, as well as regulations that limit our ability to evict residents and tenants, may continue to result in higher than normal
uncollectible lease revenue. The pandemic may also continue to depress demand among consumers for our apartments for a
variety of other reasons, including the following: consumers whose income has declined, who are working from home remotely
or who cannot freely access neighborhood amenities like restaurants, gyms and entertainment venues, may decide during the
pandemic to live in markets or submarkets that are less costly than ours; low interest rates that are caused by government
response to the pandemic may encourage consumers who would otherwise rent to seek out home ownership; and various
sources of demand for our apartments (e.g., students, corporate apartment homes, seasonal job-related demand as in the
entertainment industry) may remain below pre-pandemic levels.
Consolidated Communities—The weighted average number of occupied apartment homes for consolidated communities
increased to 73,724 apartment homes for 2020, as compared to 72,901 homes for 2019. The weighted average monthly
rental revenue per occupied apartment home decreased to $2,593 for 2020 as compared to $2,647 in 2019.
The following table presents the year to date change in rental revenue, including the attribution of the change between
rental rates and Economic Occupancy, for Established Communities.
For the year ended
Rental revenue (000s) (1)
Average rental rates
Economic Occupancy (2)
2020
2019
$ Change % Change
2020 to
2019
2020 to
2019
2020
2019
% Change
2020 to
2019
2020
2019
% Change
2020 to
2019
New England
$ 297,915 $ 303,993 $
(6,078)
(2.0) % $ 2,821 $ 2,836
(0.5) %
93.9 %
95.4 %
Metro NY/NJ
445,585
465,498
(19,913)
(4.3) % 3,065
Mid-Atlantic
341,008
351,183
(10,175)
(2.9) % 2,245
Pacific Northwest
108,981
112,553
(3,572)
(3.2) % 2,319
Northern California
377,840
396,828
(18,988)
(4.8) % 3,043
Southern California
432,123
451,065
(18,942)
(4.2) % 2,298
Expansion Markets
23,267
23,401
(134)
(0.6) % 2,268
Total Established
$ 2,026,719 $ 2,104,521 $ (77,802)
(3.7) % 2,624
3,159
2,256
2,368
3,139
2,398
2,270
2,689
(3.0) %
94.8 %
96.1 %
(0.5) %
93.8 %
96.2 %
(2.1) %
95.1 %
96.2 %
(3.1) %
94.5 %
96.2 %
(4.2) %
95.7 %
95.7 %
(0.1) %
93.7 %
94.2 %
(2.4) %
94.6 %
95.9 %
(1.5) %
(1.3) %
(2.4) %
(1.1) %
(1.7) %
— %
(0.5) %
(1.3) %
_________________________________
(1) Includes both residential and commercial rental revenue. Total Established Communities residential rental revenue decreased
3.2% in 2020 from 2019.
(2) Economic occupancy takes into account the fact that apartment homes of different sizes and locations within a community have
different economic impacts on a community's gross revenue. Economic occupancy is defined as gross potential revenue less
vacancy loss, as a percentage of gross potential revenue. Gross potential revenue is determined by valuing occupied homes at
leased rates and vacant homes at market rents. Vacancy loss is determined by valuing vacant units at current market rents.
36
The following table presents the change in rental revenue for Established Communities for the year ended December 31,
2020, compared to the prior year:
Residential rental revenue
Lease rates
Concessions and other discounts
Economic occupancy
Other rental revenue
Uncollectible lease revenue (1)
Total residential rental revenue
Commercial rental revenue (2)
Total Established Communities change in rental revenue
_________________________________
For the year ended
12/31/2020
0.5 %
(0.7) %
(1.3) %
(0.1) %
(1.6) %
(3.2) %
(0.5) %
(3.7) %
(1) Uncollectible lease revenue increased $33,768,000 to $44,829,000, or 2.18% of total residential revenue, as compared to 0.53%
of total residential revenue for 2019.
(2) Consists primarily of $11,157,000 of recognized uncollectible commercial lease revenue, of which $5,514,000 represents the
write-off of straight line rent receivables.
Management, development and other fees decreased $1,141,000, or 23.0%, in 2020 as a result of dispositions by unconsolidated
ventures resulting in lower property and asset management fees earned in the current year, coupled with lower revenue within
the ventures.
Direct property operating expenses, excluding property taxes increased $21,544,000, or 5.0%, in 2020 as compared to the prior
year, primarily due to the addition of newly developed and acquired apartment communities. The increase is also partially due
to operating expenses at our Established Communities, including increased turnover expenses and an increase in COVID-19
related costs for personal protective equipment and cleaning.
For Established Communities, direct property operating expenses, excluding property taxes, increased $9,034,000, or
2.4%, in 2020 as compared to the prior year, primarily due to overall operating costs, including increased turnover
expenses and an increase in COVID-19 related costs for personal protective equipment and cleaning.
Property taxes increased $20,228,000, or 8.0%, in 2020 as compared to the prior year, primarily due to the addition of newly
developed and acquired apartment communities and increased assessments for the Company's stabilized portfolio, partially
offset by decreased property taxes from dispositions.
For Established Communities, property taxes increased $8,390,000, or 3.7%, in 2020 as compared to the prior year,
primarily due to increased assessments and rates across the portfolio in the current year, as well as successful appeals
in the prior year in excess of those in the current year. For communities in California, property tax changes are
determined by the change in the California Consumer Price Index, with increases limited by law (Proposition 13). We
evaluate property tax increases internally and also engage third-party consultants to assist in our evaluations. We
appeal property tax increases when appropriate.
Corporate-level property management and other indirect operating expenses increased $13,224,000, or 15.0%, in 2020 as
compared to the prior year, primarily due to costs related to an increased investment in technology initiatives to improve
efficiency in services for residents and prospects, increased compensation related costs and advocacy contributions of
$8,558,000 related to California Proposition 21 in the current year. Proposition 21 was a California referendum that failed in the
November 3, 2020 election.
37
Expensed transaction, development and other pursuit costs, net of recoveries primarily reflect costs incurred for development
pursuits not yet considered probable for development, as well as the abandonment of Development Rights and costs related to
abandoned acquisition and disposition pursuits. These costs can be volatile, particularly in periods of increased acquisition
pursuit activity, periods of economic downturn or when there is limited access to capital, and therefore may vary significantly
from year to year. Expensed transaction, development and other pursuit costs, net of recoveries, increased $7,408,000, or
148.4%, in 2020 as compared to the prior year. The amount for 2020 includes the write-off of $7,264,000 related to a
Development Right in New York City, with a projected total capitalized cost of $688,000,000, that we no longer expect is
probable.
Interest expense, net increased $10,566,000, or 5.2%, in 2020 as compared to the prior year. This category includes interest
costs offset by capitalized interest pertaining to development and redevelopment activity, amortization of premium/discount on
debt, and interest income. The increase in 2020 was primarily due to a decrease in capitalized interest and interest income,
coupled with an increase in outstanding unsecured indebtedness in the current year. This was partially offset by lower overall
effective rates on unsecured indebtedness, a combination of a decrease in variable rates on, and amounts of, secured
indebtedness, and gain on interest rate contract.
Loss on the extinguishment of debt, net reflects prepayment penalties, the write-off of unamortized deferred financing costs and
premiums from our debt repurchase and retirement activity, or payments to acquire our outstanding debt at amounts above or
below the carrying basis of the debt acquired. The loss of $9,333,000 in 2020 was primarily due to the repayments of unsecured
notes during the year, ahead of their scheduled maturity.
Depreciation expense increased $45,753,000, or 6.9%, in 2020 as compared to the prior year, primarily due to the addition of
newly developed and acquired apartment communities, partially offset by dispositions.
General and administrative expense (“G&A”) increased $2,301,000, or 4.0%, in 2020 as compared to the prior year, primarily
due to legal settlement proceeds that were present in the prior year, partially offset by a decrease in compensation related
expenses due to associate retirements in 2019.
Equity in income of unconsolidated real estate entities decreased $2,230,000, or 25.8%, in 2020 as compared to the prior year,
primarily due to decreased NOI from the ventures in the current year, including dispositions and our acquisition of the 45.0%
equity interest of AVA North Point that was owned by our venture partner in 2019, upon which we consolidated AVA North
Point as a wholly-owned operating community.
Gain on sale of communities increased in 2020 as compared to the prior year. The amount of gain realized in a given period
depends on many factors, including the number of communities sold, the size and carrying value of the communities sold and
the market conditions in the local area. The gain of $340,444,000 in 2020 was primarily due to the sale of nine wholly-owned
operating communities. The gain of $166,105,000 in 2019 was primarily due to the sale of six wholly-owned operating
communities.
Net for-sale condominium activity is a net gain of $2,551,000 for the year ended December 31, 2020 and an expense of
$3,812,000 for the year ended December 31, 2019, and in 2020 is comprised of the gain before taxes on the sale of
condominiums at The Park Loggia, net of marketing, operating and administrative costs. During the year ended December 31,
2020, we sold 70 residential condominiums at The Park Loggia, for gross proceeds of $216,372,000, resulting in a gain in
accordance with GAAP of $8,213,000. In addition, we incurred $5,662,000 and $3,812,000 for the years ended December 31,
2020 and 2019, respectively, in marketing, operating and administrative costs.
Income tax benefit (expense) of $3,247,000 for the year ended December 31, 2020 was primarily due to losses generated
through taxable REIT subsidiaries ("TRS") and provisions of the Coronavirus Aid, Relief, and Economic Security Act, allowing
for further carryback of net operating losses. Income tax expense for the year ended December 31, 2019 consists of $5,782,000
of income tax expenses for a deferred tax liability for the GAAP to tax basis differences at The Park Loggia, which is being
realized as we sell the condominiums, and $7,221,000 related to other activity we undertook through TRSs including the
disposition of two wholly-owned operating communities and expense for deferred tax liabilities related to our sustainability
initiatives.
38
Reconciliation of Non-GAAP Financial Measures
Funds from Operations attributable to common stockholders, or “FFO,” and FFO adjusted for non-core items, or “Core FFO,”
as defined below, are generally considered by management to be appropriate supplemental measures of our operating and
financial performance. In calculating FFO, we exclude gains or losses related to dispositions of previously depreciated property
and exclude real estate depreciation, which can vary among owners of identical assets in similar condition based on historical
cost accounting and useful life estimates. FFO can help one compare the operating performance of a real estate company
between periods or as compared to different companies. By further adjusting for items that are not considered by us to be part
of our core business operations, Core FFO allows one to compare the core operating performance of the Company year over
year. We believe that, in order to understand our operating results, FFO and Core FFO should be examined with net income as
presented in the Consolidated Statements of Comprehensive Income included elsewhere in this report.
Consistent with the definition adopted by the Board of Governors of the National Association of Real Estate Investment
Trusts® (“NAREIT”), we calculate FFO as net income or loss attributable to common stockholders computed in accordance
with GAAP, adjusted for:
•
•
•
•
•
•
gains or losses on sales of previously depreciated operating communities;
cumulative effect of change in accounting principle;
impairment write-downs of depreciable real estate assets;
write-downs of investments in affiliates due to a decrease in the value of depreciable real estate assets held by those
affiliates;
depreciation of real estate assets; and
similar adjustments for unconsolidated partnerships and joint ventures, including those from a change in control.
We calculate Core FFO as FFO, adjusted for:
•
•
•
•
•
•
•
•
•
•
•
•
•
joint venture gains (if not adjusted through FFO), non-core costs and promoted interests from partnerships;
casualty and impairment losses or gains, net on non-depreciable real estate;
gains or losses from early extinguishment of consolidated borrowings;
abandoned pursuits;
business interruption insurance proceeds and the related lost NOI that is covered by the expected business interruption
insurance proceeds;
property and casualty insurance proceeds and legal settlements;
gains or losses on sales of assets not subject to depreciation;
advocacy contributions, representing payments to promote our business interests;
hedge ineffectiveness or gains or losses from derivatives not designated as hedges for accounting purposes;
severance related costs;
net for-sale condominium activity, including gains, marketing, operating and administrative costs and imputed carry
cost;
income taxes; and
other non-core items.
FFO and Core FFO do not represent net income in accordance with GAAP, and therefore should not be considered an
alternative to net income, which remains the primary measure, as an indication of our performance. In addition, FFO and Core
FFO as calculated by other REITs may not be comparable to our calculations of FFO and Core FFO.
FFO and Core FFO also do not represent cash generated from operating activities in accordance with GAAP, and therefore
should not be considered an alternative to net cash flows from operating activities, as determined by GAAP, as a measure of
liquidity. Additionally, it is not necessarily indicative of cash available to fund cash needs. A presentation of GAAP based cash
flow metrics is included in our Consolidated Financial Statements included elsewhere in this report.
The following is a reconciliation of net income attributable to common stockholders to FFO attributable to common
stockholders and to Core FFO attributable to common stockholders (dollars in thousands, except per share data).
39
Net income attributable to common stockholders
Depreciation - real estate assets, including joint venture adjustments
Distributions to noncontrolling interests
Gain on sale of unconsolidated entities holding previously depreciated real estate
Gain on sale of previously depreciated real estate
FFO attributable to common stockholders
Adjusting items:
Joint venture losses
Business interruption insurance proceeds
Lost NOI from casualty losses covered by business interruption insurance
Loss on extinguishment of consolidated debt
Gain on interest rate contract
Advocacy contributions
Severance related costs
Development pursuit write-offs and expensed transaction costs, net (1)
Gain on for-sale condominiums (2)
For-sale condominium marketing, operating and administrative costs (2)
For-sale condominium imputed carry cost (3)
Gain on other real estate transactions
Legal settlements (4)
Income tax (benefit) expense (5)
For the year ended
12/31/20
12/31/19
$
827,630 $
704,331
48
(5,157)
(340,444)
$
1,186,408 $
785,974
666,563
46
(5,788)
(166,105)
1,280,690
375
(385)
48
9,333
(2,894)
8,558
2,142
11,443
(8,213)
5,662
11,317
(440)
490
(3,247)
87
(1,441)
675
602
—
50
2,327
3,782
—
3,812
6,351
(439)
(6,292)
13,003
Core FFO attributable to common stockholders
$
1,220,597 $
1,303,207
Weighted average common shares outstanding - diluted
140,435,195
139,571,550
EPS per common share - diluted
FFO per common share - diluted
Core FFO per common share - diluted
_________________________________
$
$
$
5.89 $
8.45 $
8.69 $
5.63
9.18
9.34
(1) Amounts for 2020 includes the write-off of $7,264 related to a Development Right in New York City, with a projected total capitalized
cost of $688,000, that we no longer expect is probable.
(2) The aggregate impact of (i) gain on for-sale condominiums and (ii) for-sale condominium marketing, operating and administrative costs
is a net gain of $2,551 for 2020, and an expense of $3,812 for 2019.
(3) Represents the imputed carry cost of for-sale residential condominiums at The Park Loggia. We compute this adjustment by multiplying
the total capitalized cost of completed and unsold for-sale residential condominiums by our weighted average unsecured debt rate.
(4) Amounts for 2019 include $2,237 in legal settlement proceeds related to a construction defect at a community and $3,126 in legal
settlement proceeds related to a former Development Right.
(5) Amount for 2020 relates to tax losses generated through taxable REIT subsidiaries ("TRS") as well as provisions of the Coronavirus Aid,
Relief, and Economic Security Act. Amount for 2019 consists of $5,782 primarily related to a net deferred tax liability for the GAAP to
tax basis differences at The Park Loggia and $7,221 related to the other activity we undertook through TRSs, including the disposition of
two wholly-owned operating communities and deferred tax obligations related to our sustainability initiatives.
40
Liquidity and Capital Resources
We employ a disciplined approach to our liquidity and capital management. When we source capital, we take into account both
our view of the most cost effective alternative available and our desire to maintain a balance sheet that provides us with
flexibility. Our principal focus on near-term and intermediate-term liquidity is to ensure we have adequate capital to fund:
•
•
•
•
•
development and redevelopment activity in which we are currently engaged or in which we plan to engage;
the minimum dividend payments on our common stock required to maintain our REIT qualification under the Code;
debt service and principal payments either at maturity or opportunistically before maturity;
normal recurring operating expenses and corporate overhead expenses; and
investment in our operating platform, including strategic investments.
Factors affecting our liquidity and capital resources are our cash flows from operations, financing activities and investing
activities (including dispositions) as well as general economic and market conditions. Cash flows from operations are
determined by: operating activities and factors including but not limited to (i) the number of apartment homes currently owned,
(ii) rental rates, (iii) occupancy levels (iv) uncollectible lease revenue levels or interruptions in collections caused by market
conditions and (v) operating expenses with respect to apartment homes. The timing and type of capital markets activity in
which we engage is affected by changes in the capital markets environment, such as changes in interest rates or the availability
of cost-effective capital. Our plans for development, redevelopment, non-routine capital expenditure, acquisition and
disposition activity are affected by market conditions and capital availability. We frequently review our liquidity needs,
especially in periods with volatile market conditions, as well as the adequacy of cash flows from operations and other expected
liquidity sources to meet these needs.
We had cash, cash equivalents and cash in escrow of $313,532,000 at December 31, 2020, an increase of $185,918,000 from
$127,614,000 at December 31, 2019. The following discussion relates to changes in cash, cash equivalents and cash in escrow
due to operating, investing and financing activities, which are presented in our Consolidated Statements of Cash Flows included
elsewhere in this report.
Operating Activities—Net cash provided by operating activities decreased to $1,219,615,000 in 2020 from $1,321,804,000
in 2019, primarily due to decreases in rental income, including the impact of uncollectible lease revenue.
Investing Activities—Net cash used in investing activities totaled $179,433,000 in 2020. The net cash used was primarily
due to:
•
•
investment of $843,907,000 in the development and redevelopment of communities; and
capital expenditures of $137,036,000 for our operating communities and non-real estate assets (primarily related
to our corporate and certain regional offices).
These amounts are partially offset by:
•
•
net proceeds from the disposition of nine operating communities of $619,773,000; and
net proceeds from the sale of for-sale residential condominiums of $202,033,000.
Financing Activities—Net cash used in financing activities totaled $854,264,000 in 2020. The net cash used was primarily
due to:
•
•
•
•
repayments of unsecured notes in the amount of $958,680,000;
payment of cash dividends in the amount of $883,212,000;
the repurchase of 1,225,790 shares of our common stock at an average price of $149.99 per share for a total
purchase price including fees of $183,876,000; and
the repayment of mortgage notes payable in the amount of $126,712,000, of which $56,852,000 was subsequently
refinanced, as discussed below.
These amounts are partially offset by:
•
•
proceeds from the issuance of unsecured notes in the amount of $1,296,581,000; and
the issuance of a secured note that was part of a refinancing, as discussed above, in the amount of $51,000,000.
41
Variable Rate Unsecured Credit Facility
We have 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 January 31, 2021), assuming a one month borrowing rate. The
annual facility fee for the Credit Facility remained at 0.125%, resulting in a fee of $2,188,000 annually based on the
$1,750,000,000 facility size and based on our current credit rating.
We had no borrowings outstanding under the Credit Facility and had $2,900,000 outstanding in letters of credit that reduced our
borrowing capacity as of January 31, 2021. In addition, we had $32,943,000 outstanding in additional letters of credit on a
separate facility unrelated to the Credit Facility as of January 31, 2021.
The phase-out of LIBOR and expected transition to SOFR as a benchmark interest rate will have uncertain and possibly adverse
effects on our LIBOR borrowings. See Item 1A. “Risk Factors” for further discussion.
Financial Covenants
We are subject to financial covenants contained in the Credit Facility, Term Loans and the indentures under which our
unsecured notes were issued. The principal financial covenants include the following:
•
•
limitations on the amount of total and secured debt in relation to our overall capital structure;
limitations on the amount of our unsecured debt relative to the undepreciated basis of real estate assets that are not
encumbered by property-specific financing; and
• minimum levels of debt service coverage.
We were in compliance with these covenants at December 31, 2020.
In addition, some of our secured borrowings include yield maintenance, defeasance, or prepayment penalty provisions, which
would result in us incurring an additional charge in the event of a full or partial prepayment of outstanding principal before the
scheduled maturity. These provisions in our secured borrowings are generally consistent with other similar types of debt
instruments issued during the same time period in which our borrowings were secured.
Continuous Equity Offering Program
In May 2019, we commenced our fifth continuous equity program ("CEP V") under which we may sell (and/or enter into
forward sale agreements for the sale of) up to $1,000,000,000 of our common stock from time to time. Actual sales will depend
on a variety of factors to be determined, including market conditions, the trading price of our common stock and determinations
of the appropriate sources of funding. In conjunction with CEP V, we engaged sales agents who will receive compensation of
up to 1.5% of the gross sales price for shares sold. We expect that, if entered into, we will physically settle each forward sale
agreement on one or more dates prior to the maturity date of that particular forward sale agreement, in which case we 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, we may also elect to cash settle or net share settle a forward
sale agreement. In connection with each forward sale agreement, we 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 2020 and through January 31, 2021, we had no sales under the program. As of January 31, 2021, there are no
outstanding forward sale agreements and we had $752,878,000 remaining authorized for issuance under this program.
Forward Interest Rate Swap Agreements
The following activity occurred during the year ended December 31, 2020:
• We settled an aggregate of $600,000,000 of forward interest rate swap agreements, making aggregate payments of
$25,135,000. Of the positions settled by us, $250,000,000 were forward interest swaps that we had entered into during
2020. The settled positions were comprised of the following:
42
◦
◦
In conjunction with the issuance of our $700,000,000 unsecured notes due 2030 in February 2020, we settled
$350,000,000 of forward interest rate swap agreements designated as cash flow hedges of the interest rate
variability on the issuance of the unsecured notes, making a payment of $20,314,000.
In conjunction with the issuance of our $600,000,000 unsecured notes due 2031 in May 2020, we settled
$250,000,000 of forward interest rate swap agreements designated as cash flow hedges of the interest rate
variability on the issuance of the unsecured notes, making a payment of $4,821,000.
We have deferred these amounts in accumulated other comprehensive loss on the accompanying Consolidated Balance
Sheets, and are recognizing the impact as a component of interest expense, net, over the term of the respective hedged
debt.
• We entered into an additional $150,000,000 of new forward interest rate swap agreements that were executed to reduce
the impact of variability of interest rates on a portion of expected debt issuance activity in 2021 (the "Swaps"). Based
on changes in our expected capital needs in 2021 as of December 31, 2020, while we may still issue debt in 2021, it is
no longer probable that we will issue the debt for which the Swaps were executed. As a result, we ceased hedge
accounting and recognized a gain of $2,894,000 for the change in fair of the Swaps for the three months ended
December 31, 2020. In January 2021, we terminated the Swaps and received a payment of $6,962,000.
Stock Repurchase Program
In July 2020, our Board of Directors voted to terminate our prior $500,000,000 Stock Repurchase Program (the "Amended
2005 Stock Repurchase Program") and approved a new stock repurchase program under which we may acquire shares of our
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 our 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. As of January 31, 2021, we repurchased 1,225,790 shares of
common stock at an average price of $149.99 per share, of which all activity took place during the year ended December 31,
2020. As of January 31, 2021, we had $316,148,000 remaining authorized for purchase under this program.
Future Financing and Capital Needs—Debt Maturities
One of our principal long-term liquidity needs is the repayment of long-term debt at maturity. For both our unsecured and
secured notes, a portion of the principal of these notes may be repaid prior to maturity. Early retirement of our unsecured or
secured notes could result in gains or losses on extinguishment. If we do not have funds on hand sufficient to repay our
indebtedness as it becomes due, it will be necessary for us to refinance or otherwise provide liquidity to satisfy the debt at
maturity. This refinancing may be accomplished by uncollateralized private or public debt offerings, equity issuances,
additional debt financing that is secured by mortgages on individual communities or groups of communities or borrowings
under our Credit Facility. Although we believe we will have the capacity to meet our currently anticipated liquidity needs, we
cannot assure you that capital from additional debt financing or debt or equity offerings will be available or, if available, that
they will be on terms we consider satisfactory, especially in light of the uncertain impacts of the COVID-19 pandemic on
capital markets.
The following debt activity occurred during 2020:
•
•
In February 2020, we issued $700,000,000 principal amount of unsecured notes in a public offering under our existing
shelf registration statement for net proceeds of approximately $694,701,000. The notes mature in March 2030 and
were issued at a 2.30% interest rate.
In February 2020, we refinanced the secured borrowing for Avalon San Bruno III. The secured borrowing had a fixed
interest rate of 3.08% and was refinanced for a principal balance of $51,000,000, with a fixed interest rate of 2.38%
and maturity date of March 2027.
43
•
•
•
•
In March 2020, we repaid (i) $400,000,000 principal amount of our 3.625% unsecured notes in advance of the October
2020 scheduled maturity and (ii) $250,000,000 principal amount of our 3.95% unsecured notes in advance of the
January 2021 scheduled maturity. In conjunction with these repayments, we recognized a loss on debt extinguishment
of $9,170,000 for prepayment penalties and the non-cash write-off of unamortized deferred financing costs.
In May 2020, we issued $600,000,000 principal amount of unsecured notes in a public offering under our existing
shelf registration statement for net proceeds of approximately $593,430,000. The notes mature in January 2031 and
were issued at a 2.45% interest rate.
In May 2020, we repaid $300,000,000 principal amount of variable rate unsecured notes in advance of the January
2021 scheduled maturity, recognizing a charge of $268,000 for the non-cash write-off of deferred financing costs.
In August 2020, we repaid $67,904,000 principal amount of 4.18% fixed rate debt secured by Avalon Hoboken at par
in advance of the December 2020 maturity date.
In January 2021, we repaid $27,795,000 principal amount of 5.37% fixed rate debt secured by Avalon San Bruno II at par in
advance of the April 2021 maturity date.
The following table details our consolidated debt maturities for the next five years, excluding our Credit Facility and amounts
outstanding related to communities classified as held for sale, for debt outstanding at December 31, 2020 and 2019 (dollars in
thousands). We are not directly or indirectly (as borrower or guarantor) obligated in any material respect to pay principal or
interest on the indebtedness of any unconsolidated entities in which we have an equity or other interest.
All-In
interest
rate (1)
Principal
maturity
date
Balance Outstanding (2)
Scheduled Maturities
12/31/2019
12/31/2020
2021
2022
2023
2024
2025
Thereafter
Community
Tax-exempt bonds
Fixed rate
Avalon at Chestnut Hill
6.16 % Oct-2047
$
36,995
$
36,399
$
629
$
663
$
699
$
737
$
778
$
32,893
Avalon Westbury
3.86 % Nov-2036
(3)
62,200
99,195
62,200
98,599
—
629
—
663
—
699
—
737
—
778
62,200
95,093
Variable rate
Avalon Acton
Avalon Clinton North
Avalon Clinton South
1.13 %
Jul-2040
1.78 % Nov-2038
1.78 % Nov-2038
Avalon Midtown West
1.70 % May-2029
Avalon San Bruno I
1.67 % Dec-2037
Conventional loans
Fixed rate
(4)
(4)
(4)
(4)
(4)
45,000
147,000
121,500
98,200
64,450
45,000
147,000
121,500
93,500
63,850
476,150
470,850
—
—
—
5,200
1,900
7,100
—
—
—
5,600
2,000
7,600
—
—
—
6,100
2,200
8,300
$250 million unsecured notes
4.04 % Jan-2021
(5)
$450 million unsecured notes
4.30 % Sep-2022
$250 million unsecured notes
3.00 % Mar-2023
$400 million unsecured notes
3.78 % Oct-2020
(5)
$350 million unsecured notes
4.30 % Dec-2023
$300 million unsecured notes
3.66 % Nov-2024
$525 million unsecured notes
3.55 % Jun-2025
$300 million unsecured notes
3.62 % Nov-2025
$475 million unsecured notes
3.35 % May-2026
$300 million unsecured notes
3.01 % Oct-2026
$350 million unsecured notes
3.95 % Oct-2046
$400 million unsecured notes
3.50 % May-2027
$300 million unsecured notes
4.09 %
Jul-2047
$450 million unsecured notes
3.32 % Jan-2028
$300 million unsecured notes
3.97 % Apr-2048
$450 million unsecured notes
3.66 % Jun-2029
$700 million unsecured notes
2.69 % Mar-2030
$600 million unsecured notes
2.65 % Jan-2031
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
450,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
250,000
—
350,000
—
—
—
—
—
—
—
—
—
—
—
—
—
250,000
450,000
250,000
400,000
350,000
300,000
525,000
300,000
475,000
300,000
350,000
400,000
300,000
450,000
300,000
450,000
—
—
—
450,000
250,000
—
350,000
300,000
525,000
300,000
475,000
300,000
350,000
400,000
300,000
450,000
300,000
450,000
700,000
600,000
44
—
—
—
6,800
2,300
9,100
—
—
—
—
—
300,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7,300
2,400
9,700
—
—
—
—
—
—
525,000
300,000
—
—
—
—
—
—
—
—
—
—
45,000
147,000
121,500
62,500
53,050
429,050
—
—
—
—
—
—
—
—
475,000
300,000
350,000
400,000
300,000
450,000
300,000
450,000
700,000
600,000
Community
Avalon Walnut Creek
eaves Los Feliz
eaves Woodland Hills
Avalon Russett
Avalon San Bruno II
Avalon Westbury
All-In
interest
rate (1)
Principal
maturity
date
4.00 %
Jul-2066
3.68 % Jun-2027
3.67 % Jun-2027
3.77 % Jun-2027
3.85 % Apr-2021
4.88 % Nov-2036
Avalon San Bruno III
3.18 % Jun-2020
Avalon San Bruno III
Avalon Hoboken
Avalon Cerritos
2.38 % Mar-2027
3.55 % Dec-2020
3.35 % Aug-2029
(6)
(3)
(7)
(7)
(5)
Variable rate
Term Loan - $100 million
1.23 % Feb-2022
Term Loan - $150 million
1.16 % Feb-2024
$300 million unsecured notes
2.45 % Jan-2021
(5)
Balance Outstanding (2)
Scheduled Maturities
12/31/2019
12/31/2020
2021
2022
2023
2024
2025
Thereafter
3,847
41,400
111,500
32,200
28,435
13,665
50,825
4,001
41,400
111,500
32,200
—
—
—
—
27,844
27,844
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
12,170
1,575
1,655
1,740
1,840
1,930
—
—
51,000
67,904
30,250
—
30,250
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,230,026
6,810,365
29,419
451,655
601,740
301,840
826,930
4,598,781
100,000
150,000
300,000
550,000
100,000
150,000
—
250,000
—
—
—
—
100,000
—
—
100,000
—
—
—
—
—
150,000
—
150,000
—
—
—
—
—
—
—
—
4,001
41,400
111,500
32,200
—
3,430
—
51,000
—
30,250
Total indebtedness - excluding Credit Facility
$ 7,355,371
$ 7,629,814
$ 37,148
$ 559,918
$ 610,739
$ 461,677
$ 837,408
$ 5,122,924
_________________________________
(1) Rates are given as of December 31, 2020 and include credit enhancement fees, facility fees, trustees’ fees, the impact of interest rate
hedges, offering costs, mark to market amortization and other fees.
(2) Balances outstanding represent total amounts due at maturity, and exclude deferred financing costs and debt discount for the unsecured
notes of $47,995 and $41,352 as of December 31, 2020 and 2019, respectively, deferred financing costs and debt discount associated
with secured notes of $17,482 and $17,729 as of December 31, 2020 and 2019, respectively, as reflected on our Consolidated Balance
Sheets included elsewhere in this report.
(3) Maturity date reflects the contractual maturity of the underlying bond. There is also an associated earlier credit enhancement maturity
date.
(4) Financed by variable rate debt, but interest rate is capped through an interest rate protection agreement.
(5) During 2020, we repaid this borrowing in advance of its scheduled maturity date.
(6) During January 2021, we repaid this borrowing at par in advance of its scheduled maturity date.
(7) During 2020, we refinanced the secured borrowing.
Future Financing and Capital Needs—Portfolio and Capital Markets Activity
In light of the COVID-19 pandemic, we continue to monitor the availability of our various capital raising alternatives. In 2021,
we expect to meet our liquidity needs from one or more a variety of internal and external sources, which may include (i) real
estate dispositions, (ii) cash balances on hand as well as cash generated from our operating activities, (iii) borrowing capacity
under our Credit Facility and (iv) secured and unsecured debt financings. Additional sources of liquidity in 2021 may include
the issuance of common and preferred equity. Our ability to obtain additional financing will depend on a variety of factors such
as market conditions, the general availability of credit, the overall availability of credit to the real estate industry, our credit
ratings and credit capacity, as well as the perception of lenders regarding our long or short-term financial prospects. In addition,
the impacts of the COVID-19 pandemic on capital markets, including the availability and costs of debt and equity capital,
remain uncertain and may have material adverse effects on our access to capital on attractive terms.
Before beginning new construction or reconstruction activity in 2021, including activity related to communities owned by
unconsolidated joint ventures, we plan to source sufficient capital to complete these undertakings, although we cannot assure
you that we will be able to obtain such financing. In the event that financing cannot be obtained, we may have to abandon
Development Rights, write off associated pre-development costs that were capitalized and/or forego reconstruction activity. In
such instances, we will not realize the increased revenues and earnings that we expected from such Development Rights or
reconstruction activity and significant losses could be incurred.
45
From time to time we use joint ventures to hold or develop individual real estate assets. We generally employ joint ventures
primarily to mitigate asset concentration or market risk and secondarily as a source of liquidity. We may also use joint ventures
related to mixed-use land development opportunities and new markets where our partners bring development and operational
expertise and/or experience to the venture. Each joint venture or partnership agreement has been individually negotiated, and
our ability to operate and/or dispose of a community in our sole discretion may be limited to varying degrees depending on the
terms of the joint venture or partnership agreement. We cannot assure you that we will achieve our objectives through joint
ventures.
In evaluating our allocation of capital within our markets, we sell assets that do not meet our long-term investment criteria or
when capital and real estate markets allow us to realize a portion of the value created over our ownership periods and redeploy
the proceeds from those sales to develop and redevelop communities. Because the proceeds from the sale of communities may
not be immediately redeployed into revenue generating assets that we develop, redevelop or acquire, the immediate effect of a
sale of a community for a gain is to increase net income, but reduce future total revenues, total expenses and NOI until such
time as the proceeds have been redeployed into revenue generating assets. We believe that the temporary absence of future cash
flows from communities sold will not have a material impact on our ability to fund future liquidity and capital resource needs.
Unconsolidated Real Estate Investments and Off-Balance Sheet Arrangements
Unconsolidated Investments - Operating Communities
As of December 31, 2020, we had investments in the following unconsolidated real estate entities accounted for under the
equity method of accounting, excluding development joint ventures. Refer to Note 5, “Investments in Real Estate Entities,” of
the Consolidated Financial Statements included elsewhere in this report, which includes information on the aggregate assets,
liabilities and equity, as well as operating results, and our proportionate share of their operating results. For ventures holding
operating apartment communities as of December 31, 2020, detail of the real estate and associated indebtedness underlying our
unconsolidated investments is presented in the following table (dollars in thousands).
Unconsolidated Real Estate Investments
NYC Joint Venture
1. Avalon Bowery Place I—New York, NY
2. Avalon Bowery Place II—New York, NY
3. Avalon Morningside—New York, NY (2)
4. Avalon West Chelsea—New York, NY (3)
5. AVA High Line—New York, NY (3)
Company
Ownership
Percentage
# of
Apartment
Homes
Total
Capitalized
Cost
Principal
Amount
Type
Interest
Rate
Maturity
Date
Debt (1)
206
$ 209,264 $ 93,800 Fixed
90
295
305
405
90,973
39,639 Fixed
211,012
112,500 Fixed
127,966
121,357
66,000 Fixed
84,000 Fixed
Jan 2029
Jan 2029
Jan 2029/
May 2046
Jan 2029
Jan 2029
4.01 %
4.01 %
3.55 %
4.01 %
4.01 %
3.88 %
Total NYTA MF Investors LLC
20.0 %
1,301
760,572
395,939
U.S. Fund
1. Avalon Studio 4121—Studio City, CA
2. Avalon Station 250—Dedham, MA
3. Avalon Grosvenor Tower—Bethesda, MD
Total U.S. Fund
28.6 %
AC JV
1. Avalon North Point—Cambridge, MA (4)
2. Avalon North Point Lofts — Cambridge, MA
Total AC JV
Other Operating Joint Ventures
1. MVP I, LLC
2. Brandywine Apartments of Maryland, LLC
Total Other Joint Ventures
20.0 %
25.0 %
28.7 %
149
285
237
671
426
103
529
313
305
618
57,197
98,536
80,727
26,989 Fixed
52,570 Fixed
40,751 Fixed
3.34 % Nov 2022
3.73 % Sep 2022
3.74 % Sep 2022
236,460
120,310
3.65 %
190,192
111,653 Fixed
6.00 % Aug 2021
26,899
— N/A
217,091
111,653
128,600
103,000 Fixed
19,383
21,005 Fixed
147,983
124,005
N/A
Jul 2025
Jun 2028
N/A
6.00 %
3.24 %
3.40 %
3.27 %
4.06 %
Total Unconsolidated Investments
3,119 $ 1,362,106 $ 751,907
46
_________________________________
(1) We have not guaranteed the debt of these unconsolidated investees and bear no responsibility for the repayment.
(2) Borrowing on this community is comprised of two mortgage loans. The interest rate is the weighted average interest rate as of
December 31, 2020.
(3) Borrowing on this dual-branded community is comprised of a single mortgage loan.
(4) Borrowing is comprised of a loan made by the equity investors in the venture in proportion to their equity interests.
During 2020, the U.S. Fund sold one community containing 70 apartment homes and 9,000 square feet of commercial space for
$65,000,000. Our share of the gain in accordance with GAAP was $5,157,000. In conjunction with the disposition of the
community, the U.S. Fund repaid $27,117,000 of secured indebtedness at par.
Unconsolidated Investments - Development Communities
During 2020, we entered into a joint venture to develop, own and operate AVA Arts District, an apartment community located
in Los Angeles, CA, which is currently under construction and expected to contain 475 apartment homes and 56,000 square feet
of commercial space when completed. We own a 25.0% interest in the venture with a total expected equity investment of
$27,600,000, of which $19,500,000 has already been contributed. The venture has secured a $165,600,000 variable rate
construction loan to fund approximately 60% of the development of AVA Arts District of which no amounts have been drawn
as of December 31, 2020. The venture will commence draws under the loan subsequent to required equity contributions by the
venture partners. We have guaranteed the construction loan on behalf of the venture, and any obligations we may incur under
the construction loan guarantee, except to the extent that our misconduct gave rise to the obligation, are required capital
contributions of the partners based on ownership interest.
In addition, we have a 50.0% interest in Avalon Alderwood MF Member, LLC, a joint venture to develop, own, and operate
Avalon Alderwood Mall, an apartment community located in Lynnwood, WA, which is currently under construction and
expected to contain 328 apartment homes when complete.
Off-Balance Sheet Arrangements
In addition to our investment interests in consolidated and unconsolidated real estate entities, we have certain off-balance sheet
arrangements with the entities in which we invest. Additional discussion of these entities can be found in Note 5, “Investments
in Real Estate Entities,” of our Consolidated Financial Statements included elsewhere in this report.
Unless otherwise noted, we have not guaranteed the debt of our unconsolidated real estate entities, as referenced in the tables
above, nor do we have any obligation to fund this debt should the unconsolidated real estate entities be unable to do so. In the
future, in the event the unconsolidated real estate entities were unable to meet their obligations under a loan, we cannot predict
at this time whether we would provide any voluntary support, or take any other action, as any such action would depend on a
variety of factors, including the amount of support required and the possibility that such support could enhance the return of the
unconsolidated real estate entities and/or our returns by providing time for performance to improve.
There are no other material lines of credit, side agreements, financial guarantees or any other derivative financial instruments
related to or between our unconsolidated real estate entities and us. In evaluating our capital structure and overall leverage,
management takes into consideration our proportionate share of the indebtedness of unconsolidated entities in which we have
an interest.
47
Contractual Obligations
Scheduled contractual obligations required for the next five years and thereafter are as follows as of December 31, 2020 (dollars
in thousands):
Debt Obligations
Interest on Debt Obligations (1)
Operating Lease Obligations (2)
Finance Lease Obligations (2)(3)
_________________________________
Payments due by period
Total
Less than 1
Year
1-3 Years
3-5 Years
More than 5
Years
$ 7,629,814 $
37,148 $ 1,170,657 $ 1,299,085 $ 5,122,924
2,385,745
250,938
466,134
384,972
1,283,701
418,971
44,466
14,270
1,080
27,419
2,166
26,842
2,176
350,440
39,044
$ 10,478,996 $
303,436 $ 1,666,376 $ 1,713,075 $ 6,796,109
(1) Interest payments on variable rate debt obligations are calculated based on the rate as of December 31, 2020.
(2) Includes ground leases expiring between May 2041 and March 2142. Amounts do not include any adjustment for purchase options
available under the ground leases.
(3) Aggregate finance lease payments include $24,300 in interest costs.
Inflation and Deflation
Substantially all of our apartment leases are for a term of one year or less. In an inflationary environment, this may allow us to
realize increased rents upon renewal of existing leases or the beginning of new leases. Short-term leases generally minimize our
risk from the adverse effect of inflation, although these leases generally permit residents to leave at the end of the lease term
and therefore expose us to the effect of a decline in market rents.
Forward-Looking Statements
This Form 10-K contains “forward-looking statements” as that term is defined under the Private Securities Litigation Reform
Act of 1995. You can identify forward-looking statements by our use of the words “believe,” “expect,” “anticipate,” “intend,”
“estimate,” “assume,” “project,” “plan,” “may,” “shall,” “will” and other similar expressions in this Form 10-K, that predict or
indicate future events and trends and that do not report historical matters. These statements include, among other things,
statements regarding our intent, belief or expectations with respect to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the impact of the COVID-19 pandemic on our business, results of operations and financial condition;
our potential development, redevelopment, acquisition or disposition of communities;
the timing and cost of completion of apartment communities under construction, reconstruction, development or
redevelopment;
the timing of lease-up, occupancy and stabilization of apartment communities;
the timing and net sales proceeds of condominium sales;
the pursuit of land on which we are considering future development;
the anticipated operating performance of our communities;
cost, yield, revenue, NOI and earnings estimates;
the impact of landlord-tenant laws and rent regulations;
our declaration or payment of dividends;
our joint venture and discretionary fund activities;
our policies regarding investments, indebtedness, acquisitions, dispositions, financings and other matters;
our qualification as a REIT under the Code;
the real estate markets in Northern and Southern California, Denver, Colorado, and Southeast Florida, and markets in
selected states in the Mid-Atlantic, New England, Metro New York/New Jersey and Pacific Northwest regions of the
United States and in general;
the availability of debt and equity financing;
interest rates;
general economic conditions, including the potential impacts from current economic conditions and the COVID-19
pandemic;
trends affecting our financial condition or results of operations; and
the impact of outstanding legal proceedings.
48
We cannot assure the future results or outcome of the matters described in these statements; rather, these statements merely
reflect our current expectations of the approximate outcomes of the matters discussed. We do not undertake a duty to update
these forward-looking statements, and therefore they may not represent our estimates and assumptions after the date of this
report. You should not rely on forward-looking statements because they involve known and unknown risks, uncertainties and
other factors, some of which are beyond our control. These risks, uncertainties and other factors may cause our actual results,
performance or achievements to differ materially from the anticipated future results, performance or achievements expressed or
implied by these forward-looking statements. You should carefully review the discussion under Item 1A. “Risk Factors” in this
report for further discussion of risks associated with forward-looking statements.
Risks and uncertainties that might cause such differences include those related to the COVID-19 pandemic, about which there
are many uncertainties, including (i) the duration and severity of the pandemic, (ii) the effect on the multifamily industry and
the general economy of measures taken by businesses and the government to prevent the spread of the novel coronavirus and
relieve economic distress of consumers, such as governmental limitations on the ability of multifamily owners to evict residents
who are delinquent in the payment of their rent and (iii) the preferences of consumers and businesses for living and working
arrangements both during and after the pandemic. Due to this uncertainty we are not able at this time to estimate the effect of
these factors on our business, but the adverse impact of the pandemic on our business, results of operations, cash flows and
financial condition could be material. In addition, the effects of the pandemic are likely to heighten the following risks, which
we routinely face in our business:
•
•
•
•
•
•
•
•
•
•
•
•
•
we may fail to secure development opportunities due to an inability to reach agreements with third parties to obtain
land at attractive prices or to obtain desired zoning and other local approvals;
we may abandon or defer development opportunities for a number of reasons, including changes in local market
conditions which make development less desirable, increases in costs of development, increases in the cost of capital
or lack of capital availability, resulting in losses;
construction costs of a community may exceed our original estimates;
we may not complete construction and lease-up of communities under development or redevelopment on schedule,
resulting in increased interest costs and construction costs and a decrease in our expected rental revenues;
the timing and net proceeds of condominium sales may not equal our current expectations;
occupancy rates and market rents may be adversely affected by competition and local economic and market conditions
which are beyond our control;
financing may not be available on favorable terms or at all, and our cash flows from operations and access to cost
effective capital may be insufficient for the development of our pipeline, which could limit our pursuit of
opportunities;
the impact of new landlord-tenant laws and rent regulations may be greater than we expect;
our cash flows may be insufficient to meet required payments of principal and interest, and we may be unable to
refinance existing indebtedness or the terms of such refinancing may not be as favorable as the terms of existing
indebtedness;
we may be unsuccessful in our management of joint ventures and the REIT vehicles that are used with certain joint
ventures;
laws and regulations implementing rent control or rent stabilization, or otherwise limiting our ability to increase rents,
charge fees or evict tenants, may impact our revenue or increase our costs;
our expectations, estimates and assumptions as of the date of this filing regarding outstanding legal proceedings are
subject to change; and
the possibility that we may choose to pay dividends in our stock instead of cash, which may result in stockholders
having to pay taxes with respect to such dividends in excess of the cash received, if any.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of
accounting policies, including making estimates and assumptions. If our judgment or interpretation of the facts and
circumstances relating to various transactions had been different, or different assumptions were made, it is possible that
different accounting policies would have been applied, resulting in different financial results or a different presentation of our
financial statements. Below is a discussion of the accounting policies that we consider critical to an understanding of our
financial condition and operating results that may require complex or significant judgment in their application or require
estimates about matters which are inherently uncertain. A discussion of our significant accounting policies, including further
discussion of the accounting policies described below, can be found in Note 1, “Organization, Basis of Presentation and
Significant Accounting Policies,” of our Consolidated Financial Statements.
49
Cost Capitalization
We capitalize costs during the development of assets. Capitalization begins when we determine that development of a future
asset is probable and continues until the asset, or a portion of the asset, is delivered and is ready for its intended use. For
redevelopment efforts, we capitalize costs either (i) in advance of taking apartment homes out of service when significant
renovation of the common area has begun and continue until the redevelopment is completed, or (ii) when an apartment home is
taken out of service for redevelopment and continue until the redevelopment is completed and the apartment home is available
for a new resident. Rental income and operating expenses incurred during the initial lease-up or post-redevelopment lease-up
period are fully recognized in earnings as they accrue.
During the development and redevelopment efforts we capitalize all direct costs and indirect costs which have been incurred as
a result of the development and redevelopment activities. These costs include interest and related loan fees, property taxes as
well as other direct and indirect costs. Interest is capitalized for any project-specific financing, as well as for general corporate
financing to the extent of our aggregate investment in the projects. Indirect project costs, which include personnel and office
and administrative costs that are clearly associated with our development and redevelopment efforts, are also capitalized.
Capitalized indirect costs associated with our development and redevelopment activities are comprised primarily of
compensation related costs for associates dedicated to our development and redevelopment efforts and total $45,268,000 and
$48,168,000 for 2020 and 2019, respectively. The estimation of the direct and indirect costs to capitalize as part of our
development and redevelopment activities requires judgment and, as such, we believe cost capitalization to be a critical
accounting estimate.
There may be a change in our operating expenses in the event that there are changes in accounting guidance governing
capitalization or changes to our levels of development or redevelopment activity. If changes in the accounting guidance limit
our ability to capitalize costs or if we reduce our development and redevelopment activities without a corresponding decrease in
indirect project costs, there may be an increase in our operating expenses.
We capitalize pre-development costs incurred in pursuit of Development Rights. These costs include legal fees, design fees and
related overhead costs. Future development of these pursuits is dependent upon various factors, including zoning and regulatory
approval, rental market conditions, construction costs and availability of capital. 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 no longer probable, any capitalized pre-development costs are written off with a
charge to expense.
Due to the subjectivity in determining whether a pursuit will result in the development of an apartment community, and
therefore should be capitalized, the accounting for pursuit costs is a critical accounting estimate. As of December 31, 2020,
capitalized pursuit costs associated with Development Rights totaled $55,427,000.
Abandoned Pursuit Costs & Asset Impairment
We evaluate our direct and indirect investments in real estate and other long-lived assets for impairment when potential
indicators of impairment exist. If events or circumstances indicate that the carrying amount of a property may not be
recoverable, we assess its recoverability by comparing the carrying amount of the property to its estimated undiscounted future
cash flows. If the carrying amount exceeds the aggregate undiscounted future cash flows, we recognize an impairment loss to
the extent the carrying amount exceeds the estimated fair value of the property. We assess land held for development for
impairment if our intent changes with respect to the development of the land. We evaluate our unconsolidated investments for
impairment, considering both the carrying value of the investment, estimated to be the expected proceeds that it would receive
if the entity were dissolved and the net assets were liquidated, as well as our proportionate share of any impairment of assets
held by unconsolidated investments.
We expense costs related to abandoned pursuits, which include the abandonment of Development Rights and disposition
pursuits. These costs can vary greatly, and the costs incurred in any given period may be significantly different in future years.
Our focus on value creation through real estate development presents an impairment risk in the event of a future deterioration of
the real estate and/or capital markets or a decision by us to reduce or cease development. We cannot predict the occurrence of
future events that may cause an impairment assessment to be performed, or the likelihood of any future impairment charges, if
any. You should also review Item 1A. “Risk Factors” in this Form 10-K.
50
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks from our financial instruments primarily from changes in market interest rates. We do not have
exposure to any other significant market risk. We monitor interest rate risk as an integral part of our overall risk management,
which recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse effect on our results of
operations. Our operating results are affected by changes in interest rates, primarily in short-term LIBOR and the SIFMA index
as a result of borrowings under our Credit Facility and outstanding bonds and unsecured notes with variable interest rates. In
addition, the fair value of our fixed rate unsecured and secured notes are impacted by changes in market interest rates. The
effect of interest rate fluctuations on our results of operations historically has been small relative to other factors affecting
operating results, such as rental rates and occupancy.
We currently use interest rate protection agreements (consisting of interest rate swap and interest rate cap agreements) for our
risk management objectives, as well as for compliance with the requirements of certain lenders, and not for trading or
speculative purposes. During 2020, we settled an aggregate of $600,000,000 of forward interest rate swap agreements in
conjunction with our February 2020 and May 2020 unsecured note issuances, of which $250,000,000 had been entered into
during 2020. During 2020, we entered into an additional $150,000,000 of forward interest rate swap agreements to reduce the
impact of variability in interest rates on a portion of our expected debt issuance activity in 2021. Based on changes in our
expected capital needs in 2021 as of December 31, 2020, while we may still issue debt in 2021, it is no longer probable that we
will issue the debt for which the Swaps were executed, and as a result, we ceased hedge accounting.
In addition, we have interest rate caps that serve to effectively limit the amount of interest rate expense we would incur on a
floating rate borrowing. Further discussion of the financial instruments impacted and our exposure is presented below.
As of December 31, 2020 and 2019, we had $720,850,000 and $1,026,150,000, respectively, in variable rate debt outstanding,
with no amounts outstanding under our Credit Facility. If interest rates on the variable rate debt had been 100 basis points
higher throughout 2020 and 2019, our annual interest incurred would have increased by approximately $8,289,000 and
$11,221,000, respectively, based on balances outstanding during the applicable years.
Because the counterparties providing the interest rate cap and swap agreements are major financial institutions which have an A
or better credit rating by the Standard & Poor's Ratings Group, we do not believe there is exposure at this time to a default by a
counterparty provider.
In addition, changes in interest rates affect the fair value of our fixed rate debt, computed using quoted market prices for our
unsecured notes or a discounted cash flow model for our secured notes, considering our current market yields, which impacts
the fair value of our aggregate indebtedness. Debt securities and notes payable (including amounts outstanding under our Credit
Facility) with an aggregate principal amount outstanding of $7,629,814,000 at December 31, 2020 had an estimated aggregate
fair value of $8,315,775,000 at December 31, 2020. Contractual fixed rate debt represented $7,692,497,000 of the fair value at
December 31, 2020. If interest rates had been 100 basis points higher as of December 31, 2020, the fair value of this fixed rate
debt would have decreased by approximately $1,224,574,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item 8 is included as a separate section of this Annual Report on Form 10-K.
51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. As required by Rule 13a-15 under the Securities Exchange Act
of 1934, as of the end of the period covered by this report, the Company carried out an evaluation under the
supervision and with the participation of the Company's management, including the Company's Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure
controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective to ensure that information required
to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and
forms. We continue to review and document our disclosure controls and procedures, including our internal
controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their
effectiveness and to ensure that our systems evolve with our business.
(b) Management's Report on Internal Control Over Financial Reporting. Our management is responsible for
establishing and maintaining adequate internal control over financial reporting, as such term is defined in
Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of
the effectiveness of our internal control over financial reporting as of December 31, 2020 based on the framework
in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on that evaluation, our management concluded that our internal control over
financial reporting was effective as of December 31, 2020.
Our internal control over financial reporting as of December 31, 2020 has been audited by Ernst & Young LLP, an
independent registered public accounting firm, as stated in their report which is included elsewhere herein.
ITEM 9B. OTHER INFORMATION
None.
52
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 pertaining to directors and executive officers of the Company and the Company's Code of
Conduct is incorporated herein by reference to the Company's Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days after the end of the year covered by this Form 10-K with respect to the Annual Meeting of
Stockholders scheduled to be held on May 20, 2021.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 pertaining to executive compensation is incorporated herein by reference to the Company's
Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the end of the year covered by
this Form 10-K with respect to the Annual Meeting of Stockholders scheduled to be held on May 20, 2021.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by Item 12 pertaining to security ownership of management and certain beneficial owners of the
Company's common stock is incorporated herein by reference to the Company's Proxy Statement to be filed with the Securities
and Exchange Commission within 120 days after the end of the year covered by this Form 10-K with respect to the Annual
Meeting of Stockholders scheduled to be held on May 20, 2021, to the extent not set forth below.
The Company maintains the Second Amended and Restated 2009 Equity Incentive Plan (the “2009 Plan”) and the 1996 Non-
Qualified Employee Stock Purchase Plan (the “ESPP”), pursuant to which common stock or other equity awards may be issued
or granted to eligible persons.
The following table gives information about equity awards under the 2009 Plan and the ESPP as of December 31, 2020:
(a)
(b)
(c)
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
539,608 (2) $
129.35 (3)
—
539,608
$
N/A
129.35 (3)
6,913,585
634,273
7,547,858
Plan category
Equity compensation plans approved by security
holders (1)
Equity compensation plans not approved by
security holders (4)
Total
_________________________________
(1) Consists of the 2009 Plan.
(2) Includes 43,260 deferred restricted stock units granted under the 2009 Plan, which, subject to vesting requirements, will convert in the
future to common stock on a one-for-one basis. Also includes the maximum number of shares that may be issued upon settlement of
outstanding Performance Awards awarded to officers and maturing on December 31, 2020, 2021 and 2022. Does not include 278,043
shares of restricted stock that are outstanding and that are already reflected in the Company's outstanding shares.
(3) Excludes performance awards and deferred units granted under the 2009 Plan, which, subject to vesting requirements, will convert in the
future to common stock on a one-for-one basis.
(4) Consists of the ESPP.
The ESPP, which was adopted by the Board of Directors on October 29, 1996, has not been approved by our shareholders. A
further description of the ESPP appears in Note 9, “Stock-Based Compensation Plans,” of the Consolidated Financial
Statements set forth in Item 8 of this report.
53
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 pertaining to certain relationships and related transactions is incorporated herein by
reference to the Company's Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the
end of the year covered by this Form 10-K with respect to the Annual Meeting of Stockholders to be held on May 20, 2021.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 pertaining to the fees paid to and services provided by the Company's principal accountant
is incorporated herein by reference to the Company's Proxy Statement to be filed with the Securities and Exchange Commission
within 120 days after the end of the year covered by this Form 10-K with respect to the Annual Meeting of Stockholders to be
held on May 20, 2021.
54
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE
PART IV
15(a)(1) Financial Statements
Index to Financial Statements
Consolidated Financial Statements and Financial Statement Schedule:
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Equity for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
15(a)(2) Financial Statement Schedule
Schedule III—Real Estate and Accumulated Depreciation
All other schedules for which provision is made in the applicable accounting regulation of the Securities and
Exchange Commission are not required under the related instructions or are inapplicable and therefore have been
omitted.
15(a)(3) Exhibits
The exhibits listed on the accompanying Index to Exhibits are filed as a part of this report.
ITEM 16. FORM 10-K SUMMARY
Not Applicable.
F-1
F-4
F-5
F-6
F-7
F-10
F-38
55
Exhibit No.
Description
INDEX TO EXHIBITS
3(i).1
— Articles of Amendment and Restatement of Articles of Incorporation of the Company, dated as of
June 4, 1998. (Incorporated by reference to Exhibit 3(i).1 to Form 10-K of the Company filed
March 1, 2007.)
3(i).2
— Articles of Amendment, dated as of October 2, 1998. (Incorporated by reference to Exhibit 3(i).2 to
Form 10-K of the Company filed March 1, 2007.)
3(i).3
— Articles of Amendment, dated as of May 22, 2013. (Incorporated by reference to Exhibit 3(i).3 to
Form 8-K of the Company filed May 22, 2013.)
3(i).4
— Articles of Amendment, dated as of May 14, 2020. (Incorporated by reference to Exhibit 3(i).4 to
Form 8-K of the Company filed May 15, 2020.)
3(ii).1
— Amended and Restated Bylaws of the Company, as adopted by the Board of Directors on November
12, 2015, and as further amended on February 16, 2017, November 13, 2017, and May 6, 2019.
(Incorporated by reference to Exhibit 3(ii).1 to Form 10-Q of the Company filed August 6, 2019.)
4.1
4.2
4.3
— Indenture for Senior Debt Securities, dated as of January 16, 1998, between the Company and State
Street Bank and Trust Company, as Trustee. (Incorporated by reference to Exhibit 4.1 to Registration
Statement on Form S-3 of the Company (File No. 333-139839), filed January 8, 2007.)
— Amended and Restated Third Supplemental Indenture, dated as of July 10, 2000 between the
Company and State Street Bank and Trust Company, as Trustee. (Incorporated by reference to
Exhibit 4.4 to Registration Statement on Form S-3 of the Company (File No. 333-139839), filed
January 8, 2007.)
— Fourth Supplemental Indenture, dated as of September 18, 2006, between the Company and U.S.
Bank National Association as Trustee. (Incorporated by reference to Exhibit 4.5 to Registration
Statement on Form S-3 of the Company (File No. 333-139839), filed January 8, 2007.)
4.4
__
Fifth Supplemental Indenture, dated as of November 21, 2014, between the Company and the Bank
of New York Mellon, as Trustee. (Incorporated by reference to Exhibit 4.1 to Form 8-K of the
Company filed November 21, 2014.)
4.5
4.6
4.7
4.8
— Indenture for Debt Securities, dated as of February 23, 2018, between the Company and the Bank of
New York, as Trustee (Incorporated by reference to Exhibit 4.1 to Registration Statement on Form
S-3 of the Company (File No. 333-223183), filed February 23, 2018.)
— First Supplemental Indenture, dated as March 26, 2018, between the Company and the Bank of New
York Mellon, as Trustee, (Incorporated by reference to Exhibit 4.8 to Form 10-Q of the Company
filed May 4, 2018.)
— Second Supplemental Indenture, dated as of May 29, 2018, between the Company and the Bank of
New York Mellon, as Trustee, (Incorporated by reference to Exhibit 4.3 to Form 8-K of the
Company, filed May 29, 2018.)
— Dividend Reinvestment and Stock Purchase Plan of the Company. (Incorporated by reference to the
prospectus contained in the Registration Statement on Form S-3DPOS of the Company (File No.
333-87063), filed February 23, 2018.)
4.9
— Description of the Registrant's Securities Registered Pursuant to Section 12 of the Securities
Exchange Act of 1934. (Filed herewith.)
10.1+
— AvalonBay Communities, Inc. Second Amended and Restated 2009 Equity Incentive Plan.
(Incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company filed August 4, 2017.)
10.2+
— First Amendment to AvalonBay Communities, Inc. Second Amended and Restated 2009 Equity
Incentive Plan, dated February 14, 2019. (Incorporated by reference to Exhibit 10.4 to Form 10-K of
the Company filed February 22, 2019.)
56
10.3+
10.4+
Second Amendment to AvalonBay Communities, Inc. Second Amended and Restated 2009 Equity
Incentive Plan, dated March 18, 2020. (Incorporated by reference to Exhibit 10.1 to Form 10-Q of the
Company filed May 8, 2020.)
Third Amendment to AvalonBay Communities, Inc. Second Amended and Restated 2009 Equity
Incentive Plan, dated March 18, 2020. (Incorporated by reference to Exhibit 10.1 to Form 10-Q of the
Company filed November 4, 2020.)
10.5+
— Form of Stock Grant and Restricted Stock Agreement for use with officers and associates.
(Incorporated by reference to Exhibit 10.1 to Form 8-K of the Company filed February 22, 2018.)
10.6+
— Form of Incentive Stock Option/Non-Qualified Stock Option Agreement for use with officers and
associates. (Incorporated by reference to Exhibit 10.2 to Form 8-K of the Company filed February 22,
2018.)
10.7+
— 2018 Amended and Restated Directors Deferred Compensation Program. (Incorporated by reference
to Exhibit 10.4 to Form 8-K of the Company filed February 22, 2018.)
10.8+
— Form of Director Restricted Stock Agreement. (Incorporated by reference to Exhibit 10.5 to Form 8-
K of the Company filed February 22, 2018.)
10.9+
— Form of Director Restricted Unit Agreement (deferred stock award). (Incorporated by reference to
Exhibit 10.6 of Form 8-K of the Company filed February 22, 2018.)
10.10+
— Form of Agreement for Grant of Performance-Based Restricted Stock Units with attached Award
Terms (subject to changes in the following: weightings; target, threshold and maximum levels of
achievement; and metrics used.) (Incorporated by reference to Exhibit 10.10 to Form 10-K of the
Company filed February 22, 2019.)
10.11+
— Form of Indemnity Agreement between the Company and its Directors. (Incorporated by reference to
Exhibit 10.19 to Form 10-K of the Company filed February 19, 2015.)
10.12+
10.13
10.14+
10.15+
10.16+
10.17
10.18
— The Company's Officer Severance Plan, as amended and restated on February 11, 2016.
(Incorporated by reference to Exhibit 99.2 to Form 8-K of the Company filed February 16, 2016.)
— Fifth Amended and Restated Revolving Loan Agreement, dated as of February 28, 2019, among the
Company, as Borrower, Bank of America, N.A., as administrative agent, an issuing bank and a bank,
JPMorgan Chase Bank, N.A., as an issuing bank, a bank and as a syndication agent, Wells Fargo
Bank, N.A., as an issuing bank, a bank and a syndication agent, Barclays Bank PLC, Deutsche Bank
Securities, Inc., Goldman Sachs Bank USA, Morgan Stanley Senior Funding, Inc.. and Citibank,
N.A. as documentation agents, PNC Bank, National Association and SunTrust Bank as senior
managing agents, TD Bank, N.A., Royal Bank of Canada and U.S. Bank National Association as
managing agents, Branch Banking and Trust Company and The Bank of Nova Scotia as co-agents,
each (or its affiliate) as a bank, and the other bank parties signatory thereto. (Incorporated by
reference to Exhibit 1.2 to Form 8-K of the Company filed February 28, 2019.)
— Amended and Restated AvalonBay Communities, Inc. Deferred Compensation Plan, effective as of
January 1, 2011. (Incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company filed
August 6, 2010.)
— First Amendment to Amended and Restated AvalonBay Communities, Inc. Deferred Compensation
Plan, effective as of November 7, 2011. (Incorporated by reference to Exhibit 10.28 to Form 10-K of
the Company filed February 24, 2017.)
— Second Amendment
to Amended and Restated AvalonBay Communities, Inc. Deferred
Compensation Plan, effective as of November 15, 2012. (Incorporated by reference to Exhibit 10.29
to Form 10-K of the Company filed February 24, 2017.)
— Archstone Residual JV, LLC Limited Liability Company Agreement. (Incorporated by reference to
Exhibit 10.3 to Form 8-K of the Company filed March 5, 2013.)
— Archstone Parallel Residual JV, LLC Limited Liability Company Agreement. (Incorporated by
reference to Exhibit 10.4 to Form 8-K of the Company filed March 5, 2013.)
57
10.19
— Archstone Parallel Residual JV 2, LLC Limited Liability Company Agreement. (Incorporated by
reference to Exhibit 10.5 to Form 8-K of the Company filed March 5, 2013.)
10.20
— Legacy Holdings JV, LLC Limited Liability Company Agreement. (Incorporated by reference to
Exhibit 10.6 to Form 8-K of the Company filed March 5, 2013.)
10.21
10.22+
21.1
23.1
31.1
— Amended and Restated Term Loan Agreement, dated as of February 28, 2019, among the Company,
as Borrower, PNC Bank, National Association, as Administrative Agent and a bank, The Bank of
New York Mellon, as a Syndication Agent and a bank, SunTrust Bank, as a Syndication agent and a
bank, and a syndicate of other financial institutions, serving as banks. (Incorporated by reference to
Exhibit 1.1 to Form 8-K of the Company filed February 28, 2019.)
— Employment Agreement between the Company and Benjamin W. Schall, dated as of December 4,
2020 (Incorporated by reference to Exhibit 10.1 to Form 8-K of the Company filed December 10,
2020.)
— Schedule of Subsidiaries of the Company. (Filed herewith.)
— Consent of Ernst & Young LLP. (Filed herewith.)
— Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).
(Filed herewith.)
31.2
— Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).
(Filed herewith.)
32
— Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer
and Chief Financial Officer). (Furnished herewith.)
101
— The following financial materials from AvalonBay Communities, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 2020 formatted in Inline XBRL (Extensible Business Reporting
Language) includes: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of
Comprehensive Income, (iii) the Consolidated Statements of Equity, (iv) the Consolidated Statements
of Cash Flows and (v) Notes to the Consolidated Financial Statements. (Filed herewith.)
104
— Cover Page Interactive Data File (embedded within the Inline XBRL document). (Filed herewith.)
_______________________________________________________________________________
+
Management contract or compensatory plan or arrangement required to be filed or incorporated by reference as an
exhibit to this Form 10-K pursuant to Item 15(a)(3) of Form 10-K.
58
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 25, 2021
By:
/s/ TIMOTHY J. NAUGHTON
AvalonBay Communities, Inc.
Timothy J. Naughton, Director, Chairman and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: February 25, 2021
By:
Date: February 25, 2021
By:
Date: February 25, 2021
By:
Date: February 25, 2021
Date: February 25, 2021
Date: February 25, 2021
Date: February 25, 2021
Date: February 25, 2021
Date: February 25, 2021
Date: February 25, 2021
Date: February 25, 2021
Date: February 25, 2021
Date: February 25, 2021
By:
By:
By:
By:
By:
By:
By:
By:
By:
By:
/s/ TIMOTHY J. NAUGHTON
Timothy J. Naughton, Director, Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ KEVIN P. O’SHEA
Kevin P. O’Shea, Chief Financial Officer
(Principal Financial Officer)
/s/ KERI A. SHEA
Keri A. Shea, Senior Vice President—Finance & Treasurer
(Principal Accounting Officer)
/s/ BENJAMIN W. SCHALL
Benjamin W. Schall, President and Director
/s/ GLYN F. AEPPEL
Glyn F. Aeppel, Director
/s/ TERRY S. BROWN
Terry S. Brown, Director
/s/ ALAN B. BUCKELEW
Alan B. Buckelew, Director
/s/ RONALD L. HAVNER, JR.
Ronald L. Havner, Jr., Director
/s/ STEPHEN P. HILLS
Stephen P. Hills, Director
/s/ RICHARD J. LIEB
Richard J. Lieb, Director
/s/ H. JAY SARLES
H. Jay Sarles, Director
/s/ SUSAN SWANEZY
Susan Swanezy, Director
/s/ W. EDWARD WALTER
W. Edward Walter, Director
59
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of AvalonBay Communities, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of AvalonBay Communities, Inc. (the Company) as of
December 31, 2020 and 2019, the related consolidated statements of comprehensive income, equity and cash flows for each of
the three years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index
at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and
the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated February 25, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the account or disclosure to which it relates.
F-1
Valuation of Deferred Development Costs
Description of
the Matter
As of December 31, 2020, the Company’s capitalized deferred development costs totaled $55.4
million. As discussed in Footnote 1 of the consolidated financial statements, the Company capitalizes
pre-development costs incurred in pursuit of new development opportunities for which the Company
currently believes future development is probable. Future development is dependent upon various
factors, including zoning and regulatory approvals, rental market conditions, construction costs and the
availability of capital.
Auditing the valuation of deferred development costs involved a high degree of subjectivity as
management’s assessment of the probability that future development will occur was highly judgmental
and subject to the various factors affecting future development discussed above. The Company’s
assessment of probability of future development included an analysis of the likelihood of factors
outside their control that could prevent the development from occurring and factors that could cause
the Company to decide not to pursue or complete the development.
How We
Addressed
the Matter
in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls
over the Company’s process to assess the valuation of deferred development costs. For example, we
tested controls over the Company’s pursuit monitoring process and management’s review of the
probability assessment related to future development.
Our procedures included, among others, evaluating the Company’s determination that the future
development is probable. We performed procedures to test the accuracy and completeness of the
information included in the Company’s analysis by agreeing data to underlying agreements,
communications, minutes of management’s quarterly development meetings, and third-party evidence,
where available. We further assessed the likelihood of the Company’s ability to obtain zoning and
regulatory approvals for developments by considering, among other things, the Company’s prior
experience with other development projects and the current status of the future projects for which
pursuit or development rights costs were capitalized. We also met with executives who lead the
Company’s development team to further understand the probability of future development.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2002.
Tysons, Virginia
February 25, 2021
F-2
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of AvalonBay Communities, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited AvalonBay Communities, Inc.’s internal control over financial reporting as of December 31, 2020, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, AvalonBay Communities, Inc. (the Company)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated
statements of comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2020,
and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) and our report dated February 25,
2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report
on Internal Control over Financial Reporting in Item 9A. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Tysons, Virginia
February 25, 2021
F-3
AVALONBAY COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
ASSETS
Real estate:
Land and improvements
Buildings and improvements
Furniture, fixtures and equipment
Less accumulated depreciation
Net operating real estate
Construction in progress, including land
Land held for development
For-sale condominium inventory
Real estate assets held for sale, net
Total real estate, net
Cash and cash equivalents
Cash in escrow
Resident security deposits
Investments in unconsolidated real estate entities
Deferred development costs
Prepaid expenses and other assets
Right of use lease assets
Total assets
LIABILITIES AND EQUITY
Unsecured notes, net
Variable rate unsecured credit facility
Mortgage notes payable, net
Dividends payable
Payables for construction
Accrued expenses and other liabilities
Lease liabilities
Accrued interest payable
Resident security deposits
Liabilities related to real estate assets held for sale
Total liabilities
Commitments and contingencies
Redeemable noncontrolling interests
Equity:
Preferred stock, $0.01 par value; $25 liquidation preference; 50,000,000 shares authorized at
December 31, 2019 and December 31, 2018; zero shares issued and outstanding at December 31,
2020 and December 31, 2019
Common stock, $0.01 par value; 280,000,000 shares authorized at December 31, 2020 and
December 31, 2019; 139,526,671 and 140,643,962 shares issued and outstanding at December 31,
2020 and December 31, 2019, respectively
Additional paid-in capital
Accumulated earnings less dividends
Accumulated other comprehensive loss
Total stockholders' equity
Noncontrolling interests
Total equity
Total liabilities and equity
12/31/20
12/31/19
$
$
4,394,298 $
17,231,275
924,583
22,550,156
(5,700,179)
16,849,977
989,765
110,142
267,219
16,678
18,233,781
216,976
96,556
30,811
202,612
55,427
207,715
155,266
19,199,144 $
$
6,702,005 $
—
862,332
224,897
93,609
274,699
181,479
49,033
55,928
311
8,444,293
4,299,162
16,668,496
829,242
21,796,900
(5,164,398)
16,632,502
1,303,751
—
457,809
38,927
18,432,989
39,687
87,927
34,224
165,806
70,486
164,971
124,961
19,121,051
6,358,648
—
937,642
215,414
92,135
274,013
140,468
47,154
61,752
375
8,127,601
2,677
3,252
—
—
1,395
10,664,416
126,022
(40,250)
10,751,583
591
10,752,174
19,199,144 $
1,406
10,736,733
282,913
(31,503)
10,989,549
649
10,990,198
19,121,051
$
See accompanying notes to Consolidated Financial Statements.
F-4
AVALONBAY COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands, except per share data)
Revenue:
Rental and other income
Management, development and other fees
Total revenue
Expenses:
Operating expenses, excluding property taxes
Property taxes
Interest expense, net
Loss on extinguishment of debt, net
Depreciation expense
General and administrative expense
Expensed transaction, development and other pursuit costs, net of recoveries
Casualty and impairment loss, net
Total expenses
Equity in income of unconsolidated real estate entities
Gain on sale of communities
Gain on other real estate transactions, net
Net for-sale condominium activity
Income before income taxes
Income tax benefit (expense)
Net income
Net (income) loss attributable to noncontrolling interests
For the year ended
12/31/20
12/31/19
12/31/18
$
2,297,442 $
2,319,666 $
2,280,963
3,819
4,960
3,572
2,301,261
2,324,626
2,284,535
549,913
273,189
214,151
9,333
707,331
60,343
12,399
—
515,145
252,961
203,585
602
661,578
58,042
4,991
—
524,993
241,563
220,974
17,492
631,196
60,369
3,265
215
1,826,659
1,696,904
1,700,067
6,422
340,444
440
2,551
824,459
3,247
827,706
(76)
8,652
166,105
439
(3,812)
799,106
(13,003)
786,103
(129)
15,270
374,976
345
(1,044)
974,015
160
974,175
350
Net income attributable to common stockholders
$
827,630 $
785,974 $
974,525
Other comprehensive income (loss):
(Loss) gain on cash flow hedges
Cash flow hedge losses reclassified to earnings
Comprehensive income
Earnings per common share - basic:
Net income attributable to common stockholders
Earnings per common share - diluted:
Net income attributable to common stockholders
(17,731)
8,984
(11,930)
6,571
5,132
6,143
818,883 $
780,615 $
985,800
5.89 $
5.64 $
7.05
5.89 $
5.63 $
7.05
$
$
$
See accompanying notes to Consolidated Financial Statements.
F-5
AVALONBAY COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in thousands)
Shares issued
Preferred
stock
Common
stock
Preferred
stock
Common
stock
Additional
paid-in
capital
Accumulated
earnings
less
dividends
Accumulated
other
comprehensive
loss
Total
AvalonBay
stockholders'
equity
Noncontrolling
interests
Total
equity
Balance at December 31, 2017
—
138,094,154 $ — $ 1,381 $ 10,235,475 $ 188,609 $
(37,419) $ 10,388,046 $
— $ 10,388,046
Net income attributable to
common stockholders
Loss on cash flow hedges
Cash flow hedge losses
reclassified to earnings
Change in redemption value
and acquisition of
noncontrolling interest
Dividends declared to common
stockholders ($5.88 per share)
Issuance of common stock, net
of withholdings
Amortization of deferred
compensation
Balance at December 31, 2018
Net income attributable to
common stockholders
Gain on cash flow hedges
Cash flow hedge losses
reclassified to earnings
Change in redemption value
and acquisition of
noncontrolling interest
Noncontrolling interests
income allocation
Dividends declared to common
stockholders ($6.08 per share)
Issuance of common stock, net
of withholdings
Amortization of deferred
compensation
Balance at December 31, 2019
Net income attributable to
common stockholders
Loss on cash flow hedges
Cash flow hedge losses
reclassified to earnings
Change in redemption value of
noncontrolling interest
Noncontrolling interest
distribution and income
allocation
Dividends declared to common
stockholders ($6.36 per share)
Issuance of common stock, net
of withholdings
Repurchase of common stock,
including repurchase costs
Amortization of deferred
compensation
Balance at December 31, 2020
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
414,270
—
138,508,424
—
—
—
—
—
—
—
2,135,538
—
—
—
—
—
—
—
—
—
—
140,643,962
—
—
—
—
—
—
108,499
—
(1,225,790)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4
—
—
—
—
—
—
974,525
—
—
223
(813,722)
39,408
1,142
31,705
—
—
5,132
6,143
—
—
—
—
974,525
5,132
6,143
223
(813,722)
40,554
31,705
1,385
10,306,588
350,777
(26,144)
10,632,606
785,974
—
785,974
395,275
(2,178)
34,870
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(373)
—
(851,287)
—
—
210
—
(893,152)
—
—
—
—
—
—
21
—
—
—
—
—
—
—
1
(9,571)
(1,427)
(12)
(93,712)
(90,152)
—
30,966
—
(11,930)
(11,930)
6,571
6,571
—
—
—
—
—
(373)
—
(851,287)
393,118
34,870
(17,731)
(17,731)
8,984
8,984
—
—
—
—
—
—
210
—
(893,152)
(10,997)
(183,876)
30,966
—
—
—
—
—
—
—
—
—
—
—
—
649
—
—
—
974,525
5,132
6,143
223
(813,722)
40,554
31,705
10,632,606
785,974
(11,930)
6,571
(373)
649
(851,287)
393,118
34,870
—
—
—
—
827,630
(17,731)
8,984
210
(58)
(58)
—
—
—
—
(893,152)
(10,997)
(183,876)
30,966
1,406
10,736,733
282,913
(31,503)
10,989,549
649
10,990,198
827,630
—
827,630
139,526,671 $ — $ 1,395 $ 10,664,416 $ 126,022 $
(40,250) $ 10,751,583 $
591 $ 10,752,174
See accompanying notes to Consolidated Financial Statements.
F-6
AVALONBAY COMMUNITIES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation expense
Amortization of deferred financing costs
Amortization of debt discount
Loss on extinguishment of debt, net
Amortization of stock-based compensation
Equity in loss of, and return on, unconsolidated real estate entities and noncontrolling
interests, net of eliminations
Casualty and impairment gain, net
Abandonment of development pursuits
Unrealized gain on terminated cash flow hedges
Cash flow hedge losses reclassified to earnings
Gain on sale of real estate assets
Gain on for-sale condominiums
(Increase) decrease in resident security deposits, prepaid expenses and other assets
Increase in accrued expenses, other liabilities and accrued interest payable
Net cash provided by operating activities
Cash flows from investing activities:
Development/redevelopment of real estate assets including land acquisitions and
deferred development costs
Acquisition of real estate assets, including partnership interest
Capital expenditures - existing real estate assets
Capital expenditures - non-real estate assets
Increase (decrease) in payables for construction
Proceeds from sale of real estate, net of selling costs
Proceeds from the sale of for-sale condominiums, net of selling costs
Mortgage note receivable lending
Mortgage note receivable payments
Distributions from unconsolidated real estate entities
Investments in unconsolidated real estate entities
Net cash used in investing activities
Cash flows from financing activities:
Issuance of common stock, net
Repurchase of common stock, net
Dividends paid
Issuance of mortgage notes payable
Repayments of mortgage notes payable, including prepayment penalties
Issuance of unsecured notes
Repayment of unsecured notes, including prepayment penalties
Payment of deferred financing costs
Payment of finance lease obligation
(Payment) receipt for termination of forward interest rate swaps
(Payment to) contribution from noncontrolling interest
Payments related to tax withholding for share-based compensation
Distributions to DownREIT partnership unitholders
Distributions to joint venture and profit-sharing partners
Preferred interest obligation redemption and dividends
Net cash used in financing activities
For the year ended
12/31/20
12/31/19
12/31/18
$
827,706 $
786,103 $
974,175
707,331
7,454
1,880
9,333
21,603
8,673
—
9,262
(2,894)
8,984
(346,041)
(8,213)
(28,675)
3,212
1,219,615
(843,907)
—
(108,531)
(28,505)
1,474
619,773
202,033
(258)
3,419
11,157
(36,088)
(179,433)
3,464
(183,876)
(883,212)
51,000
(126,712)
1,296,581
(958,680)
(11,277)
—
(25,135)
(68)
(14,917)
(48)
(384)
(1,000)
(854,264)
661,578
7,346
1,591
602
25,621
12,278
—
2,943
—
6,571
(172,332)
—
(19,118)
8,621
1,321,804
(1,052,011)
(420,517)
(135,626)
(5,266)
(4,848)
422,041
—
(692)
2,779
10,454
(10,183)
(1,193,869)
409,725
—
(839,646)
30,250
(227,570)
449,804
—
(10,909)
—
(12,309)
456
(16,101)
(46)
(439)
(1,400)
(218,185)
631,196
7,939
1,701
17,492
20,280
6,583
826
501
—
6,143
(385,976)
—
12,583
7,668
1,301,111
(1,139,954)
(338,620)
(83,607)
(3,325)
11,606
883,313
—
(3,699)
53,136
35,516
(11,017)
(596,651)
52,261
(805,239)
295,939
(255,452)
299,442
(258,579)
(16,258)
(1,070)
12,598
—
(10,556)
(44)
(424)
(1,120)
(688,502)
Net increase in cash, cash equivalents and cash in escrow
185,918
(90,250)
15,958
Cash and cash equivalents and restricted cash, beginning of year
Cash and cash equivalents and restricted cash, end of year
Cash paid during the year for interest, net of amount capitalized
$
$
127,614
313,532 $
217,864
127,614 $
201,906
217,864
196,848 $
187,570 $
201,659
See accompanying notes to Consolidated Financial Statements.
F-7
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported with the Consolidated
Statements of Cash Flows (dollars in thousands):
Cash and cash equivalents
Cash in escrow
Cash, cash equivalents and restricted cash shown in the Consolidated
Statements of Cash Flows
Supplemental disclosures of non-cash investing and financing activities:
During the year ended December 31, 2020:
For the year ended
12/31/20
12/31/19
12/31/18
216,976 $
96,556
39,687 $
87,927
91,659
126,205
313,532 $
127,614 $
217,864
$
$
•
•
•
•
•
As described in Note 4, “Equity,” 165,545 shares of common stock were issued as part of the Company's stock based
compensation plans, of which 96,317 shares related to the conversion of performance awards to restricted shares, and
the remaining 69,228 shares valued at $15,305,000 were issued in connection with new stock grants; 2,747 shares
valued at $458,000 were issued through the Company’s dividend reinvestment plan; 74,173 shares valued at
$14,919,000 were withheld to satisfy employees’ tax withholding and other liabilities; and 7,683 restricted shares with
an aggregate value of $1,240,000 previously issued in connection with employee compensation were canceled upon
forfeiture.
Common stock dividends declared but not paid totaled $223,262,000.
The Company recorded a decrease of $210,000 in redeemable noncontrolling interest with a corresponding increase to
accumulated earnings less dividends to adjust the redemption value associated with the put options held by joint
venture partners and DownREIT partnership units.
The Company recorded an increase in prepaid expenses and other assets of $4,308,000, recorded an increase of
$1,413,000 to other comprehensive income and reclassified $8,984,000 of cash flow hedge losses from other
comprehensive income to interest expense, net, to record the impact of the Company’s derivative and hedge
accounting activity.
The Company recorded $46,875,000 of lease liabilities and offsetting right of use lease assets related to the execution
of two new office leases.
During the year ended December 31, 2019:
•
•
•
•
The Company issued 152,502 shares of common stock as part of the Company's stock based compensation plans, of
which 73,072 shares related to the conversion of performance awards to restricted shares, and the remaining 79,430
shares valued at $15,603,000 were issued in connection with new stock grants; 1,838 shares valued at $205,000 were
issued in conjunction with the conversion of deferred stock awards; 2,069 shares valued at $418,000 were issued
through the Company’s dividend reinvestment plan; 84,710 shares valued at $16,101,000 were withheld to satisfy
employees’ tax withholding and other liabilities; and 2,361 restricted shares with an aggregate value of $399,000
previously issued in connection with employee compensation were canceled upon forfeiture.
Common stock dividends declared but not paid totaled $214,832,000.
The Company recorded an increase of $373,000 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. For further discussion of the nature and valuation of these items,
see Note 11, “Fair Value.”
The Company recorded an increase in other liabilities of $6,379,000, an increase in prepaid expenses and other assets
of $388,000 and a corresponding adjustment to other comprehensive income, and reclassified $6,571,000 of cash flow
hedge losses from other comprehensive income to interest expense, net, to record the impact of the Company’s
derivative and hedge accounting activity.
F-8
•
The Company recorded $122,276,000 of lease liabilities and offsetting right of use lease assets for its ground and
office leases, upon the adoption of ASU 2016-02, Leases, as of January 1, 2019. For further discussion on the adoption
of the guidance, see Note 1, "Organization, Basis of Presentation and Significant Accounting Policies."
During the year ended December 31, 2018:
•
•
•
•
•
The Company issued 187,010 shares of common stock as part of the Company's stock based compensation plans, of
which 88,297 shares related to the conversion of performance awards to restricted shares, and the remaining 98,713
shares valued at $15,950,000 were issued in connection with new stock grants; 2,272 shares valued at $387,000 were
issued through the Company’s dividend reinvestment plan; 68,565 shares valued at $10,556,000 were withheld to
satisfy employees’ tax withholding and other liabilities; and 4,860 restricted shares with an aggregate value of
$717,000 previously issued in connection with employee compensation were canceled upon forfeiture.
Common stock dividends declared but not paid totaled $204,191,000.
The Company recorded a decrease of $223,000 in redeemable noncontrolling interest with a corresponding increase to
accumulated earnings less dividends to adjust the redemption value associated with the put options held by joint
venture partners and DownREIT partnership units.
The Company recorded an increase in other liabilities of $6,366,000, and a corresponding adjustment to other
comprehensive income, and reclassified $6,143,000 of cash flow hedge losses from other comprehensive income to
interest expense, net, to record the impact of the Company’s derivative and hedge accounting activity.
In conjunction with the formation of NYTA MF Investors LLC (the "NYC Joint Venture”), the venture assumed
$395,939,000 of secured indebtedness as partial consideration for the purchase of the associated operating
communities and the Company recorded an investment of $74,159,000 in unconsolidated real estate entities,
representing its 20.0% retained interest in the venture.
See accompanying notes to Consolidated Financial Statements.
F-9
AVALONBAY COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
primarily in New England, the New York/New Jersey metro area, the Mid-Atlantic, the Pacific Northwest, and Northern and
Southern California, as well as in the Company's expansion markets in Southeast Florida and Denver, Colorado (the "Expansion
Markets").
At December 31, 2020, the Company owned or held a direct or indirect ownership interest in 273 operating apartment
communities containing 80,094 apartment homes in 11 states and the District of Columbia. In addition, the Company owned or
held a direct or indirect ownership interest in 18 communities under development that are expected to contain an aggregate of
5,931 apartment homes (unaudited) when completed, as well as The Park Loggia, which contains 172 for-sale residential
condominiums, of which 70 have been sold as of December 31, 2020, and 66,000 square feet of commercial space, of which
69% has been leased as of December 31, 2020. The Company also owned or held a direct or indirect ownership interest in land
or rights to land on which the Company expects to develop an additional 24 communities that, if developed as expected, will
contain an estimated 7,853 apartment homes (unaudited).
Capitalized terms used without definition have meanings provided elsewhere in this Form 10-K.
Principles of Consolidation
The accompanying Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries,
certain joint venture partnerships, subsidiary partnerships structured as DownREITs and any variable interest entities that
qualify for consolidation. All significant intercompany balances and transactions have been eliminated in consolidation.
The Company accounts for joint venture entities and subsidiary partnerships in accordance with the consolidation guidance.
The Company evaluates the partnership of each joint venture entity and determines first whether to follow the variable interest
entity (“VIE”) or the voting interest entity (“VOE”) model. Once the appropriate consolidation model is identified, the
Company then evaluates whether it should consolidate the venture. Under the VIE model, the Company consolidates an
investment when it has control to direct the activities of the venture and the obligation to absorb losses or the right to receive
benefits that could potentially be significant to the VIE. Under the VOE model, the Company consolidates an investment when
1) it controls the investment through ownership of a majority voting interest if the investment is not a limited partnership or 2) it
controls the investment through its ability to remove the other partners in the investment, at its discretion, when the investment
is a limited partnership.
The Company generally uses the equity method of accounting for its investment in joint ventures, including when the Company
holds a noncontrolling limited partner interest in a joint venture. Any investment in excess of the Company's cost basis at
acquisition or formation of an equity method venture, will be recorded as a component of the Company's investment in the joint
venture and recognized over the life of the underlying fixed assets of the venture as a reduction to its equity in income from the
venture. Investments in which the Company has little or no influence are accounted for using the cost method.
F-10
Real Estate
Operating real estate assets are stated at cost and consist of land and improvements, buildings and improvements, furniture,
fixtures and equipment, and other costs incurred during their development, redevelopment and acquisition. Significant
expenditures which improve or extend the life of an existing asset and that will benefit the Company for periods greater than a
year, are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.
Project costs related to the development, construction and redevelopment of real estate projects (including interest and related
loan fees, property taxes and other direct costs) are capitalized as a cost of the project. Indirect project costs that relate to
several projects are capitalized and allocated to the projects to which they relate. Indirect costs not clearly related to
development, construction and redevelopment activity are expensed as incurred. For development, capitalization (i) begins
when the Company has determined that development of the future asset is probable, (ii) can be suspended if there is no current
development activity underway, but future development is still probable and (iii) ends when the asset, or a portion of an asset, is
delivered and is ready for its intended use, or the Company's intended use changes such that capitalization is no longer
appropriate.
For land parcels improved with operating real estate, for which the Company intends to pursue development, the Company
generally manages the current improvements until such time as all tenant obligations have been satisfied or eliminated through
negotiation, and construction of new apartment communities is ready to begin. Revenue from incidental operations received
from the current improvements on land parcels in excess of any incremental costs are recorded as a reduction of total
capitalized costs of the respective Development Right and not as part of net income. Incidental operating costs in excess of
incidental operating income are expensed in the period incurred.
For redevelopment efforts, the Company capitalizes costs either (i) in advance of taking homes out of service when significant
renovation of the common area has begun until the redevelopment is completed, or (ii) when an apartment home is taken out of
service for redevelopment until the redevelopment is completed and the apartment home is available for a new resident. Rental
income and operating costs incurred during the initial lease-up or post-redevelopment lease-up period are recognized in
earnings as incurred.
The Company assesses acquisitions of operating communities to determine if it meets the definition of a business or if it
qualifies as an asset acquisition. The Company generally views acquisitions of individual operating communities as asset
acquisitions, which results in the capitalization of acquisition costs and the allocation of purchase price to the assets acquired
and liabilities assumed, based on the relative fair value of the respective assets and liabilities.
The purchase price allocation to tangible assets is reflected in real estate assets and depreciated over their estimated useful lives.
Any purchase price allocation to intangible assets, other than in-place lease intangibles, is included in prepaid expenses and
other assets on the accompanying Consolidated Balance Sheets and amortized over the term of the acquired intangible asset.
The Company values land based on a market approach, looking to recent sales of similar properties, adjusting for differences
due to location, the state of entitlement as well as the shape and size of the parcel. Improvements to land are valued using a
replacement cost approach and consider the structures and amenities included for the communities and is reduced by estimated
depreciation. The value for furniture, fixtures and equipment is also determined based on a replacement cost approach,
considering costs for both items in the apartment homes as well as common areas and is adjusted for estimated depreciation.
The fair value of buildings is estimated using the replacement cost approach, assuming the buildings were vacant at acquisition.
The replacement cost approach considers the composition of structures acquired, adjusted for depreciation which considers
industry standard information and estimated useful life of the acquired property. The value of the lease-related intangibles
considers the estimated cost of leasing the apartment homes as if the acquired building(s) were vacant, as well as the value of
the current leases relative to market-rate leases. The in-place lease value is determined using an average total lease-up time, the
number of apartment homes and net revenues generated during the lease-up time. Net revenues use market rent considering
actual leasing and industry rental rate data. The value of current leases relative to a market-rate lease is based on market
comparables. Given the heterogeneous nature of multifamily real estate, the fair values for the land, debt, real estate assets and
in-place leases incorporate significant unobservable inputs and therefore are considered to be Level 3 prices within the fair
value hierarchy. Consideration for acquisitions is typically in the form of cash unless otherwise disclosed.
Depreciation is generally calculated on a straight-line basis over the estimated useful lives of the assets, which for buildings and
related improvements range from seven to 30 years and for furniture, fixtures and equipment range from three years (primarily
computer-related equipment) to seven years.
F-11
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 under "Abandoned Pursuit Costs and Impairment of Long-Lived Assets" below.
Income Taxes
The Company elected to be treated as a REIT for federal income tax purposes for its tax year ended December 31, 1994 and has
not revoked such election. A REIT is a corporate entity which holds real estate interests and can deduct from its federally
taxable income qualifying dividends it pays if it meets a number of organizational and operational requirements, including a
requirement that it distribute at least 90% of its adjusted taxable income to stockholders. Therefore, as a REIT, the Company
generally will not be subject to corporate level federal income tax on its taxable income if it annually distributes 100% of its
taxable income to its stockholders.
The states in which the Company operates have similar tax provisions which recognize the Company as a REIT for state
income tax purposes. Management believes that all such conditions for the exemption from income taxes on ordinary income
have been or will be met for the periods presented. Accordingly, no provision for federal and state income taxes has been made.
If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal corporate income taxes at regular
corporate rates and may not be able to qualify as a corporate REIT for four subsequent taxable years. Even if the Company
qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property, and to
federal income and excise taxes on its undistributed taxable income and in certain other instances.
The Company did not incur any charges or receive refunds of excise taxes related to the years ended December 31, 2020, 2019
and 2018.
Taxable income from activities performed through taxable REIT subsidiaries (“TRS”) is subject to federal, state and local
income taxes. The Company recognized income tax benefit of $3,247,000 in 2020, recorded an income tax expense of
$13,003,000 in 2019 and recognized income tax benefit of $160,000 in 2018, related to its activities through its TRSs. The
income tax benefit in 2020 was primarily due to provisions of the Coronavirus Aid, Relief, and Economic Security Act,
allowing for further carryback of net operating losses and operating losses for tax purposes. The income tax expense in 2019
was primarily due to (i) a net deferred tax liability of $5,782,000 for the GAAP to tax basis differences at the Company's for-
sale condominiums, The Park Loggia, and the associated 66,000 square feet of commercial space and (ii) expense for current
and net deferred tax liabilities of $7,221,000, associated with the disposition of two wholly-owned operating communities, as
well as the Company's sustainability initiatives. As of December 31, 2020 and 2019, the Company did not have any
unrecognized tax benefits. The Company does not believe that there will be any material changes in its unrecognized tax
positions over the next 12 months. The Company is subject to examination by the respective taxing authorities for the tax years
2017 through 2019.
The following summarizes the tax components of the Company's common dividends declared for the years ended December 31,
2020, 2019 and 2018 (unaudited):
Ordinary income
20% capital gain
Unrecaptured §1250 gain
Deferred Financing Costs
2020
2019
2018
66 %
24 %
10 %
96 %
3 %
1 %
76 %
11 %
13 %
Deferred financing costs include fees and other expenditures necessary to obtain debt financing and are amortized on a straight-
line basis, which approximates the effective interest method, over the shorter of the term of the loan or the related credit
enhancement facility, if applicable. Unamortized financing costs are charged to earnings when debt is retired before the
maturity date. Accumulated amortization of deferred financing costs related to unsecured notes was $25,239,000 and
$25,995,000 as of December 31, 2020 and 2019, respectively, and related to mortgage notes payable was $2,046,000 and
$1,784,000 as of December 31, 2020 and 2019, respectively. Deferred financing costs, except for costs associated with line-of-
credit arrangements, are presented as a direct deduction from the related debt liability. Accumulated amortization of deferred
financing costs related to the Company's Credit Facility was $13,501,000 and $11,815,000 as of December 31, 2020 and 2019,
respectively, and was included in prepaid expenses and other assets on the accompanying Consolidated Balance Sheets.
F-12
Cash, Cash Equivalents and Cash in Escrow
Cash and cash equivalents include 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. The majority of the Company's cash, cash equivalents and cash in escrow are held at major commercial banks.
Interest Rate Contracts
The Company utilizes derivative financial instruments to manage interest rate risk. See Note 11, “Fair Value,” for further
discussion of derivative financial instruments.
Comprehensive Income
Comprehensive income, as reflected on the Consolidated Statements of Comprehensive Income, is defined as all changes in
equity during each period except for those resulting from investments by or distributions to shareholders. Accumulated other
comprehensive loss, as reflected on the Consolidated Statements of Equity, reflects the effective portion of the cumulative
changes in the fair value of derivatives in qualifying cash flow hedge relationships.
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):
Basic and diluted shares outstanding
Weighted average common shares—basic
Weighted average DownREIT units outstanding
Effect of dilutive securities
Weighted average common shares—diluted
Calculation of Earnings per Share—basic
Net income attributable to common stockholders
Net income allocated to unvested restricted shares
Net income attributable to common stockholders, adjusted
For the year ended
12/31/20
12/31/19
12/31/18
140,094,722
139,054,191
137,844,755
7,500
332,973
7,500
509,859
7,500
436,986
140,435,195
139,571,550
138,289,241
$
$
827,630 $
785,974 $
974,525
(1,955)
(2,063)
(2,839)
825,675 $
783,911 $
971,686
Weighted average common shares—basic
140,094,722
139,054,191
137,844,755
Earnings per common share—basic
$
5.89 $
5.64 $
7.05
Calculation of Earnings per Share—diluted
Net income attributable to common stockholders
$
827,630 $
785,974 $
974,525
Add: noncontrolling interests of DownREIT unitholders in consolidated partnerships,
including discontinued operations
48
46
44
Adjusted net income attributable to common stockholders
$
827,678 $
786,020 $
974,569
Weighted average common shares—diluted
140,435,195
139,571,550
138,289,241
Earnings per common share—diluted
$
5.89 $
5.63 $
7.05
F-13
All options to purchase shares of common stock outstanding as of December 31, 2020, 2019 and 2018 are included in the
computation of diluted earnings per share.
Abandoned Pursuit Costs and Impairment of Long-Lived Assets
The Company capitalizes pre-development costs incurred in pursuit of new development opportunities for which the Company
currently believes future development is probable (“Development Rights”). Future development of these Development Rights is
dependent upon various factors, including zoning and regulatory approval, rental market conditions, construction costs and the
availability of capital. Initial pre-development costs incurred for pursuits for which future development is not yet considered
probable are expensed as incurred. In addition, if the status of a Development Right changes, making future development by the
Company no longer probable, any non-recoverable capitalized pre-development costs are expensed. The Company expensed
costs related to development pursuits not yet considered probable for development and the abandonment of Development
Rights, as well as costs incurred in pursuing the acquisition or disposition of assets for which such acquisition and disposition
activity did not occur, in the amounts of $12,317,000, $4,896,000 and $4,388,000 during the years ended December 31, 2020,
2019 and 2018, respectively. These costs are included in expensed transaction, development and other pursuit costs, net of
recoveries on the accompanying Consolidated Statements of Comprehensive Income. The amount for 2020 includes the write-
off of $7,264,000 related to a Development Right in New York City that the Company no longer expects is probable.
Abandoned pursuit costs can vary greatly, and the costs incurred in any given period may be significantly different in future
periods.
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, for the years ended December 31, 2020, 2019
and 2018, the Company did not recognize any impairment losses other than those related to the impairment on land held for
investment and casualty gains and losses from property damage as discussed below.
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 using estimated undiscounted future cash flows.
For the years ended December 31, 2020 and 2019, 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. The Company did not
recognize any impairment charges on its investment in land during the years ended December 31, 2020 and 2019. During the
year ended December 31, 2018, the Company recognized an impairment charge of $826,000 related to a land parcel the
Company had previously acquired for development and subsequently sold. This charge was determined as the excess of the
Company's carrying basis over the sales price, and is included in casualty and impairment loss (gain), net on the accompanying
Consolidated Statements of Comprehensive Income.
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 years ended December 31, 2020, 2019 or 2018.
F-14
Assets Held for Sale and Discontinued Operations
The Company presents the assets and liabilities of any communities which have been sold, or otherwise qualify as held for sale,
separately in the Consolidated Balance Sheets. In addition, the results of operations for those assets that meet the definition of
discontinued operations are presented as such in the accompanying Consolidated Statements of Comprehensive Income. Real
estate assets held for sale are measured at the lower of the carrying amount or the fair value less the cost to sell. Both the real
estate assets and corresponding liabilities are presented separately in the accompanying Consolidated Balance Sheets. Upon the
classification of an asset as held for sale, no further depreciation is recorded. Disposals representing a strategic shift in
operations (e.g., a disposal of a major geographic area, a major line of business or a major equity method investment) will be
presented as discontinued operations, and for those assets qualifying for classification as discontinued operations, the specific
components of net income presented as discontinued operations include net operating income, depreciation expense and interest
expense, net. For periods prior to the asset qualifying for discontinued operations, the Company reclassifies the results of
operations to discontinued operations. In addition, the net gain or loss (including any impairment loss) on the eventual disposal
of assets held for sale will be presented as discontinued operations when recognized. A change in presentation for held for sale
or discontinued operations has no impact on the Company's financial condition or results of operations. The Company combines
the operating, investing and financing portions of cash flows attributable to discontinued operations with the respective cash
flows from continuing operations on the accompanying Consolidated Statements of Cash Flows. The Company had one wholly-
owned operating community that qualified as held for sale presentation at December 31, 2020.
Derivative Instruments and Hedging Activities
The Company enters into interest rate swap and interest rate cap agreements (collectively, "Hedging Derivatives") for interest
rate risk management purposes and in conjunction with certain variable rate secured debt to satisfy lender requirements. The
Company does not enter into Hedging Derivative transactions for trading or other speculative purposes. The Company assesses
the effectiveness of qualifying cash flow and fair value hedges, both at inception and on an on-going basis. Hedge
ineffectiveness is reported as a component of interest expense, net. The fair values of Hedging Derivatives that are in an asset
position are recorded in prepaid expenses and other assets. The fair value of Hedging Derivatives that are in a liability position
are included in accrued expenses and other liabilities. The Company does not present or disclose the fair value of Hedging
Derivatives on a net basis. Fair value changes for derivatives that are not in qualifying hedge relationships are reported as a
component of interest expense, net. For the Hedging Derivative positions that the Company has determined qualify as effective
cash flow hedges, the Company has recorded the cumulative changes in the fair value of Hedging Derivatives in other
comprehensive loss. Amounts recorded in accumulated other comprehensive loss will be reclassified into earnings in the
periods in which earnings are affected by the hedged cash flow. The effective portion of the change in fair value of the Hedging
Derivatives that the Company has determined qualified as effective fair value hedges is reported as an adjustment to the
carrying amount of the corresponding debt being hedged. See Note 11, “Fair Value,” for further discussion of derivative
financial instruments.
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.
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.
F-15
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.
The Company changed its presentation of charges for uncollectible lease revenue associated with its residential and commercial
leasing activity, reflecting those amounts as a component of rental and other income on the accompanying Consolidated
Statement of Comprehensive Income beginning with the year ended December 31, 2019. However, in accordance with its
prospective adoption of the lease standard, the Company did not adjust the presentation of charges for uncollectible lease
revenue associated with its residential and commercial leasing activity as a component of operating expenses, excluding
property taxes, on the accompanying Consolidated Statement of Comprehensive Income for the year ended December 31, 2018.
Revenue and Gain Recognition
Under ASU 2014-09, Revenue from Contracts with Customers, the Company recognizes revenue 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:
• Management fees - The Company has investment interests in real estate joint ventures, for which the Company may
manage (i) the venture, (ii) the associated operating communities owned by the ventures and/or (iii) the development
or redevelopment of those operating communities. For these activities, the Company receives asset management,
property management, development and/or redevelopment fee revenue. The performance obligation is the management
of the venture, community or other defined task such as the development or redevelopment of the community. While
the individual activities that comprise the performance obligation of the management fees can vary day to day, the
nature of the overall performance obligation to provide management service is the same and considered by the
Company to be a series of services that have the same pattern of transfer to the customer and the same method to
measure progress toward satisfaction of the performance obligation. The Company recognizes revenue for fees as
earned on a monthly basis.
•
Rental and non-rental related income - The Company recognizes revenue for new rental related income not included as
components of a lease, such as reservation and application fees, as well as for non-rental related income, as earned.
F-16
•
Gains or losses on sales of real estate - The Company accounts for the sale of real estate assets and any related gain
recognition in accordance with the accounting guidance applicable to sales of real estate, which establishes standards
for recognition of profit on all real estate sales transactions, other than commercial land sales. The Company
recognizes the sale, and associated gain or loss from the disposition when the criteria for the sale of an asset have been
met, which include when (i) a contract exists and (ii) the buyer obtained control of the nonfinancial asset that was sold.
In addition, a gain or loss recognized on the sale of a nonfinancial asset to an unconsolidated entity is recognized at
100%, and not the Company’s proportionate ownership percentage.
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 years ended December 31, 2020, 2019 and 2018. The
segments are classified based on the individual community's status at January 1, 2020 for the years ended December 31, 2020
and 2019, and at January 1, 2019 for the year ended December 31, 2018. Segment information for total revenue has been
adjusted to exclude the real estate assets that were sold from January 1, 2018 through December 31, 2020, or otherwise qualify
as held for sale as of December 31, 2020, as described in Note 6, "Real Estate Disposition Activities." Additionally, as
discussed above, the Company changed its presentation of charges for uncollectible lease revenue beginning with the year
ended December 31, 2019, including it as an adjustment to revenue and not as a component of operating expenses. In order to
provide comparability between periods presented in the Company's segment reporting, the Company has included charges for
uncollectible lease revenue for its segment results as a component of revenue for the year ended December 31, 2018. Total
revenue for the year ended December 31, 2018 as presented in the following table includes $14,072,000 of charges for
uncollectible lease revenue. See Note 8, "Segment Reporting," for further discussion (dollars in thousands):
Established
Communities
Other
Stabilized
Communities
Development/
Redevelopment
Communities
Non-
allocated (1)
Total
For the year ended December 31, 2020
Management, development and other fees
Rental and non-rental related income (2)
Total non-lease revenue (3)
$
— $
— $
— $
6,970
6,970
1,790
1,790
1,064
1,064
82,937
—
$
3,819
—
3,819
3,819
9,824
13,643
—
—
2,242,282
385
Lease income (4)
Business interruption insurance proceeds
2,021,232
115
138,113
270
Total revenue
$
2,028,317 $
140,173 $
84,001 $
3,819
$
2,256,310
For the year ended December 31, 2019
Management, development and other fees
Rental and non-rental related income (2)
Total non-lease revenue (3)
$
— $
— $
7,028
7,028
1,224
1,224
— $
400
400
$
4,960
—
4,960
4,960
8,652
13,612
Lease income (4)
Business interruption insurance proceeds
2,099,273
987
108,756
454
28,376
—
—
—
2,236,405
1,441
Total revenue
$
2,107,288 $
110,434 $
28,776 $
4,960
$
2,251,458
For the year ended December 31, 2018
Management Fees
Rental and non-rental related income (2)
Total non-lease revenue (3)
$
— $
— $
4,245
4,245
1,732
1,732
— $
269
269
$
3,572
—
3,572
3,572
6,246
9,818
Lease income (4)
Business interruption insurance proceeds
1,727,299
26
236,852
—
120,553
—
—
—
2,084,704
26
Total revenue
$
1,731,570 $
238,584 $
120,822 $
3,572
$
2,094,548
__________________________________
(1) Revenue represents third-party management, asset management and developer fees and miscellaneous income which are not
allocated to a reportable segment.
F-17
(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 ASU 2014-09.
(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 December 31, 2020.
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.
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 timing of vaccine availability, (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 (iv) 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 year ended December 31, 2020 is uncertain.
As of December 31, 2020, the Company assessed the collectibility of the outstanding lease income receivables as a result of the
impact of the COVID-19 pandemic on its residential and commercial lease portfolios. The Company recorded an aggregate
offset to income for uncollectible lease revenue for its residential and commercial portfolios of $66,763,000 for the year ended
December 31, 2020 under ASC 842 and ASC 450, Contingencies.
Recently Issued and Adopted Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses
on Financial Instruments. This ASU requires entities to estimate a lifetime expected credit loss for most financial assets,
including (i) trade and other receivables, (ii) other long term financings including available for sale and held-to-maturity debt
securities and (iii) loans. Subsequently, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial
Instruments-Credit Losses, which amends the scope of ASU 2016-13 and clarified that receivables arising from operating leases
are not within the scope of the standard and should continue to be accounted for in accordance with the leases standard (Topic
842). The new standard was adopted on January 1, 2020 and does not have a material effect on the Company’s financial
position or results of operations.
F-18
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 $44,157,000, $62,823,000 and $60,331,000 for
years ended December 31, 2020, 2019 and 2018, 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 December 31, 2020 and 2019 are summarized below. The following amounts and discussion do
not include the mortgage notes related to the communities classified as held for sale, if any, as of December 31, 2020 and 2019,
as shown on the Consolidated Balance Sheets (dollars in thousands) (see Note 6, “Real Estate Disposition Activities”).
Fixed rate unsecured notes (1)
Variable rate unsecured notes (1)
Term Loans (1)
Fixed rate mortgage notes payable—conventional and tax-exempt (2)
Variable rate mortgage notes payable—conventional and tax-exempt (2)
Total mortgage notes payable and unsecured notes and Term Loans
Credit Facility
12/31/20
12/31/19
$
6,500,000 $
5,850,000
—
250,000
408,964
470,850
300,000
250,000
479,221
476,150
7,629,814
7,355,371
—
—
Total mortgage notes payable, unsecured notes, Term Loans and Credit Facility
$
7,629,814 $
7,355,371
_________________________________
(1) Balances at December 31, 2020 and 2019 exclude $10,380 and $8,610, respectively, of debt discount, and $37,615 and $32,742,
respectively, of deferred financing costs, as reflected in unsecured notes, net on the accompanying Consolidated Balance Sheets.
(2) Balances at December 31, 2020 and 2019 exclude $14,478 and $14,464 of debt discount, respectively, and $3,004 and $3,265,
respectively, of deferred financing costs, as reflected in mortgage notes payable, net on the accompanying Consolidated Balance Sheets.
The following debt activity occurred during the year ended December 31, 2020:
•
•
•
•
•
•
In February 2020, the Company issued $700,000,000 principal amount of unsecured notes in a public offering under
its existing shelf registration statement for net proceeds of approximately $694,701,000. The notes mature in March
2030 and were issued at a 2.30% interest rate.
In February 2020, the Company refinanced the secured borrowing for Avalon San Bruno III. The secured borrowing
had a fixed interest rate of 3.08% and was refinanced for a principal balance of $51,000,000, with a fixed interest rate
of 2.38% and maturity date of March 2027.
In March 2020, the Company repaid (i) $400,000,000 principal amount of its 3.625% unsecured notes in advance of
the October 2020 scheduled maturity and (ii) $250,000,000 principal amount of its 3.95% unsecured notes in advance
of the January 2021 scheduled maturity. In conjunction with these repayments, the Company recognized a loss on debt
extinguishment of $9,170,000 for prepayment penalties and the non-cash write-off of unamortized deferred financing
costs.
In May 2020, the Company issued $600,000,000 principal amount of unsecured notes in a public offering under its
existing shelf registration statement for net proceeds of approximately $593,430,000. The notes mature in January
2031 and were issued at a 2.45% interest rate.
In May 2020, the Company repaid $300,000,000 principal amount of its variable rate unsecured notes in advance of
the January 2021 scheduled maturity, recognizing a charge of $268,000 for the non-cash write-off of deferred
financing costs.
In August 2020, the Company repaid $67,904,000 principal amount of 4.18% fixed rate debt secured by Avalon
Hoboken at par in advance of its December 2020 maturity date.
F-19
At December 31, 2020, 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 (0.92% at December 31, 2020), 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 $2,900,000 and $11,488,000 outstanding in
letters of credit that reduced the borrowing capacity as of December 31, 2020 and 2019, respectively. In addition, the Company
had $32,079,000 and $24,939,000 outstanding in additional letters of credit on a separate facility unrelated to the Credit Facility
as of December 31, 2020 and 2019, respectively.
In the aggregate, secured notes payable mature at various dates from April 2021 through July 2066, and are secured by certain
apartment communities (with a net carrying value of $1,448,551,000, excluding communities classified as held for sale, as of
December 31, 2020).
The weighted average interest rate of the Company's fixed rate secured notes payable (conventional and tax-exempt) was 3.8%
and 3.9% at December 31, 2020 and 2019, respectively. The weighted average interest rate of the Company's variable rate
secured notes payable (conventional and tax exempt) including the effect of certain financing related fees, was 1.7% and 3.2%
at December 31, 2020 and 2019, respectively.
Scheduled payments and maturities of secured notes payable and unsecured notes outstanding at December 31, 2020 are as
follows (dollars in thousands):
Year
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Thereafter
Secured notes
principal payments
Secured notes
maturities
Unsecured notes and
Term Loans maturities
$
9,304 $
9,918
10,739
11,677
12,408
13,445
15,880
20,707
11,742
12,384
176,078
27,844 $
—
—
—
—
—
236,100
—
66,250
—
245,338
—
450,000
100,000
350,000
250,000
300,000
150,000
525,000
300,000
475,000
300,000
400,000
450,000
450,000
700,000
600,000
350,000
300,000
300,000
$
304,282 $
575,532 $
6,750,000
Stated interest rate of
unsecured notes and
Term Loans
N/A
2.950 %
LIBOR + 0.90%
4.200 %
2.850 %
3.500 %
LIBOR + 0.85%
3.450 %
3.500 %
2.950 %
2.900 %
3.350 %
3.200 %
3.300 %
2.300 %
2.450 %
3.900 %
4.150 %
4.350 %
F-20
The Company's unsecured notes are redeemable at the Company's option, in whole or in part, generally at a redemption price
equal to the greater of (i) 100% of their principal amount or (ii) the sum of the present value of the remaining scheduled
payments of principal and interest discounted at a rate equal to the yield on U.S. Treasury securities with a comparable maturity
plus a spread between 20 and 45 basis points depending on the specific series of unsecured notes, plus accrued and unpaid
interest to the redemption date.
The Company is subject to financial covenants contained in the Credit Facility, the Term Loans and the indentures under which
the unsecured notes were issued. The principal financial covenants include the following:
•
•
limitations on the amount of total and secured debt in relation to our overall capital structure;
limitations on the amount of our unsecured debt relative to the undepreciated basis of real estate assets that are not
encumbered by property-specific financing; and
• minimum levels of debt service coverage.
The Company was in compliance with these covenants at December 31, 2020.
4. Equity
As of December 31, 2020 and 2019, the Company's charter had authorized for issuance a total of 280,000,000 shares of
common stock and 50,000,000 shares of preferred stock.
During the year ended December 31, 2020, the Company:
i.
ii.
iii.
issued 1,902 shares of common stock in connection with stock options exercised;
issued 2,747 common shares through the Company's dividend reinvestment plan;
issued 165,545 common shares in connection with restricted stock grants and the conversion of performance awards to
restricted shares;
issued 20,161 common shares through the Employee Stock Purchase Plan;
iv. withheld 74,173 common shares to satisfy employees' tax withholding and other liabilities;
v.
vi. canceled 7,683 common shares of restricted stock upon forfeiture; and
vii. purchased 1,225,790 common shares through the 2020 Stock Repurchase Program, discussed below.
Any deferred compensation related to the Company’s stock option, restricted stock and performance award grants during the
year ended December 31, 2020 is not reflected on the accompanying Consolidated Balance Sheet as of December 31, 2020, 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 year ended December 31, 2020, the Company repurchased 1,225,790 shares of common stock at an average price of
$149.99 per share. As of December 31, 2020, the Company had $316,148,000 remaining authorized for purchase under this
program.
F-21
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 2020, the Company had no sales under the program. As of December 31, 2020,
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
The Company accounts for its investments in unconsolidated real estate entities under the equity method of accounting, as
discussed in Note 1, “Organization, Basis of Presentation and Significant Accounting Policies,” under Principles of
Consolidation. The significant accounting policies of the Company's unconsolidated real estate entities are consistent with those
of the Company in all material respects. Certain of these investments are subject to various buy‑sell provisions or other rights
which are customary in real estate joint venture agreements. The Company and its partners in these entities may initiate these
provisions to either sell the Company's interest or acquire the joint venture interest from the Company's partner.
The following presents the Company's activities in unconsolidated real estate entities for the years ended December 31, 2020,
2019 and 2018:
Archstone Multifamily Partners AC LP (the “U.S. Fund”)—The Company is the general partner of the U.S. Fund and has a
28.6% combined general partner and limited partner equity interest. The Company acquired its interest in the U.S. Fund as part
of the Archstone Acquisition (as defined in Note 5, “Investments in Real Estate Entities,” of the Consolidated Financial
Statements in Item 8 in the Company's Form 10-K filed February 22, 2019). During 2020, the U.S. Fund sold Avalon Venice on
Rose, located in Venice, CA, containing 70 apartment homes and 9,000 square feet of commercial space for $65,000,000. The
Company's proportionate share of the gain in accordance with GAAP was $5,157,000. In conjunction with the disposition of the
community, the U.S. Fund repaid $27,117,000 of secured indebtedness at par. The U.S. Fund sold one community in each 2019
and 2018, and the Company's proportionate share of the gains in accordance with GAAP was $5,788,000 and $8,636,000,
respectively.
Multifamily Partners AC JV LP (the “AC JV”)—The Company has a 20.0% equity interest in the AC JV, and acquired its
interest as part of the Archstone Acquisition. During 2018, the AC JV sold one community, and the Company's proportionate
share of the gain in accordance with GAAP was $2,019,000.
Legacy JV—As part of the Archstone Acquisition the Company entered into a limited liability company agreement with Equity
Residential, through which it assumed obligations of Archstone in the form of preferred interests, some of which are governed
by tax protection arrangements (the “Legacy JV”). The Company has a 40.0% interest in the Legacy JV. During the years
ended December 31, 2020, 2019 and 2018, the Legacy JV redeemed certain of the preferred interests and paid accrued
dividends, of which the Company's portion was $1,000,000, $1,400,000 and $1,120,000, respectively. At December 31, 2020,
the remaining preferred interests had an aggregate liquidation value of $35,382,000, the Company's 40.0% share of which was
included in accrued expenses and other liabilities in the accompanying Consolidated Balance Sheets.
North Point II JV, LP—During 2016, the Company entered into a joint venture to develop, own, and operate AVA North Point,
an apartment community located in Cambridge, MA, which completed construction during 2018 and contains 265 apartment
homes. The Company owned a 55.0% interest in the venture. During the year ended December 31, 2019, the Company acquired
the 45.0% equity interest of AVA North Point that was owned by the venture partner, for a purchase price of $71,280,000.
Upon acquisition, the Company consolidated AVA North Point as a wholly-owned operating community.
F-22
NYTA MF Investors LLC (“NYC Joint Venture”)—During 2018, the Company contributed five wholly-owned operating
communities located in New York City, NY to a newly formed joint venture with the intent to own and operate the
communities. The Company retained a 20.0% interest in the venture with the partners sharing in returns in accordance with
their ownership interests. In conjunction with the formation of the venture in 2018, the Company sold the five communities,
containing an aggregate of 1,301 apartment homes and 58,000 square feet of commercial space, to the venture for a sales price
of $758,900,000. The Company received net cash proceeds of $276,799,000 and the venture assumed $395,939,000 of secured
indebtedness from the Company. The Company recognized a gain on sale of $179,861,000, including the recognition of the
Company's 20.0% retained interest at fair value.
Avalon Alderwood MF Member, LLC—During 2019, the Company entered into a joint venture to develop, own, and operate
Avalon Alderwood Mall, an apartment community located in Lynnwood, WA, which is currently under construction and
expected to contain 328 apartment homes (unaudited) when complete. The Company has a 50.0% interest in the venture, which
is considered a VIE, though the Company was not considered to be the primary beneficiary because it shares control with its
venture partner. The Company and its venture partner share decision making authority for all significant aspects of the venture's
activities including, but not limited to, changes in the ownership or capital structure, and the capital budget to construct Avalon
Alderwood Mall.
Arts District Joint Venture—During 2020, the Company entered into a joint venture to develop, own, and operate AVA Arts
District, an apartment community located in Los Angeles, CA, which is currently under construction and expected to contain
475 apartment homes (unaudited) and 56,000 square feet (unaudited) of commercial space when completed. The Company has
a 25.0% interest in the venture with a total expected equity investment of approximately $27,600,000, of which $19,500,000
has already been contributed. The venture has secured a $165,600,000 variable rate construction loan to fund approximately
60% of the development of AVA Arts District, of which no amounts have been drawn as of December 31, 2020. The venture
will commence draws under the loan subsequent to required equity contributions by the venture partners. The Company has
guaranteed the construction loan on behalf of the venture, and any obligations under the construction loan guarantee, except for
obligations arising from misconduct by the Company, are required capital contributions of the partners based on ownership
interest. The venture is considered an unconsolidated VIE as the Company was not considered to be the primary beneficiary due
to shared control and decision making with its venture partner. The Company and its venture partner share decision making
authority for all significant aspects of the venture's activities including, but not limited to, changes in the ownership, changes to
the development plan or budget, and major operating decisions including annual business plans.
AvalonBay Value Added Fund II, L.P. (“Fund II”)—During 2018, the Company held an investment in and received the final
distributions for the AvalonBay Value Added Fund II, L.P. (“Fund II”), a private, discretionary real estate investment vehicle
formed in 2008. The Company completed the dissolution of Fund II in 2018. A wholly owned subsidiary of the Company was
the general partner of Fund II. The Company had an equity interest of 31.3% in Fund II, and upon achievement of a threshold
return the Company had a right to incentive distributions for its promoted interest based on current returns earned by Fund II
which represented 40.0% of further Fund II distributions, which was in addition to its proportionate share of the remaining
60.0% of distributions. During the year ended December 31, 2018, the Company recognized income of $925,000 for its
promoted interest which was reported as a component of equity in income of unconsolidated real estate entities on the
accompanying Consolidated Statements of Comprehensive Income.
The following is a combined summary of the financial position of the entities accounted for using the equity method discussed
above and presented on the accompanying Consolidated Balance Sheets as of the dates presented, including development joint
ventures started and unconsolidated communities sold during the respective periods (dollars in thousands):
Assets:
Real estate, net
Other assets
Total assets
Liabilities and partners' capital:
Mortgage notes payable, net (1)
Other liabilities
Partners' capital
Total liabilities and partners' capital
_________________________________
12/31/20
12/31/19
$
$
$
$
1,249,730 $
255,606
1,505,336 $
1,204,470
196,488
1,400,958
751,257 $
163,808
590,271
1,505,336 $
782,257
157,379
461,322
1,400,958
(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.
F-23
The following is a combined summary of the operating results of the entities accounted for using the equity method discussed
above and presented on the accompanying Consolidated Statements of Comprehensive Income, for the years presented (dollars
in thousands):
Rental and other income
Operating and other expenses
Gain on sale of communities
Interest expense, net
Depreciation expense
Net income
Company's share of net income (3)
Amortization of excess investment and other
Equity in income from unconsolidated real estate investments
_________________________________
For the year ended
12/31/20
12/31/19 (1)
12/31/18 (2)
$
118,474 $
144,431 $
(49,509)
18,450
(31,982)
(34,606)
(55,732)
21,748
(33,896)
(58,387)
20,827 $
18,164 $
8,538 $
10,779 $
(2,116)
(2,127)
6,422 $
8,652 $
$
$
$
92,533
(35,840)
54,202
(22,500)
(26,706)
61,689
17,519
(2,249)
15,270
(1) Amounts include results from AVA North Point through the date the Company acquired its venture partner's 45.0% equity interest.
(2) Amounts include results from the NYC Joint Venture from the date the venture was formed.
(3) Includes the Company's share of gain on sale of communities and income recognized for its promoted interest.
Investments in Consolidated Real Estate Entities
During the year ended December 31, 2020, the Company did not acquire any communities. In addition to AVA North Point,
during the year ended December 31, 2019, the Company acquired five communities, containing an aggregate 1,175 apartment
homes, which were acquired for an aggregate purchase price of $345,450,000. During the year ended December 31, 2018, the
Company acquired four communities, containing an aggregate 1,096 apartment homes, which were acquired for an aggregate
purchase price of $334,450,000.
The Company accounted for these as asset acquisitions and recorded the acquired assets and assumed liabilities, including
identifiable intangibles, at their relative fair values based on the purchase price and acquisition costs incurred. The Company
used third party pricing or internal models for the values of the land, a valuation model for the values of the buildings, and an
internal model to determine the fair values of the remaining real estate assets and in-place leases. Given the heterogeneous
nature of multifamily real estate, the fair values for the land, debt, real estate assets and in-place leases incorporated significant
unobservable inputs and therefore are considered to be Level 3 prices within the fair value hierarchy.
6. Real Estate Disposition Activities
During the year ended December 31, 2020, the Company sold nine wholly-owned operating communities, containing an
aggregate of 1,817 apartment homes for an aggregate sales price of $627,750,000 and an aggregate gain in accordance with
GAAP of $340,444,000.
Details regarding the real estate sales, excluding for-sale residential condominiums at the Park Loggia, are summarized in the
following table (dollars in thousands):
F-24
Community Name
Avalon Shelton
Avalon Tinton Falls
Avalon Towers
Avalon Somerset
eaves San Rafael
Avalon Cohasset
Location
Shelton, CT
Tinton Falls, NJ
Long Beach, NY
Somerset, NJ
San Rafael, CA
Cohasset, MA
Avalon Wilton on Danbury Rd
Wilton, CT
Stratford, CT
San Francisco, CA
Brooklyn, NY
Avalon Stratford
eaves Diamond Heights
Other real estate (1)
Total of 2020 asset sales
Total of 2019 asset sales
Total of 2018 asset sales
_________________________________
(1) Represents the sale of commercial space.
Period
of sale
Apartment
homes
Debt
Gross
sales price
Net cash
proceeds
Q120
Q220
Q320
Q420
Q420
Q420
Q420
Q420
Q420
2020
250 $
— $
64,750 $
63,030
216
109
384
254
220
100
130
154
N/A
—
—
—
—
—
—
—
—
—
64,900
54,000
110,000
106,000
90,250
34,750
30,600
72,500
6,500
63,371
53,079
107,415
104,462
88,673
33,744
29,808
69,469
6,722
1,817 $
— $ 634,250 $ 619,773
1,660 $
21,700 $ 431,280 $ 422,041
3,099 $ 395,939 $ 1,378,289 $ 883,313
As of December 31, 2020, the Company had one community 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 year ended December 31, 2020, the Company sold 70 residential condominiums at The Park
Loggia, for gross proceeds of $216,372,000 resulting in a gain in accordance with GAAP of $8,213,000. As of December 31,
2020, there were 102 residential condominiums remaining to be sold. The Company incurred $5,662,000, $3,812,000 and
$1,044,000 during the years ended December 31, 2020, 2019 and 2018, respectively, in marketing, operating and administrative
costs. All amounts are included in net for-sale condominium activity, on the accompanying Consolidated Statements of
Comprehensive Income. As of December 31, 2020 and 2019, the unsold for-sale residential condominiums at The Park Loggia
have an aggregate carrying value of $267,219,000 and $457,809,000, respectively, presented as for-sale condominium
inventory on the accompanying Consolidated Balance Sheets. The Company recognized a net deferred tax liability of
$5,782,000 during the year ended December 31, 2019 for the GAAP to tax basis differences of The Park Loggia and the
associated 66,000 square feet of commercial space. See Note 1, "Organization, Basis of Presentation and Significant
Accounting Policies," for further discussion of the income tax associated to The Park Loggia.
F-25
7. Commitments and Contingencies
Employment Agreements and Arrangements
At December 31, 2020, the Company has no employment agreements with its executive officers other than an agreement
executed on December 4, 2020, with Benjamin W. Schall, who joined the Company on January 25, 2021 as President and a
member of the Board of Directors.
The standard restricted stock and option agreements used by the Company in its compensation program provide that upon an
employee's termination without cause or the employee's Retirement (as defined in the agreement), all outstanding stock options
and restricted shares of stock held by the employee will vest, and the employee will have up to 12 months or until the fifth
anniversary of the grant date, if later, or until the option expiration date, if earlier, to exercise any options then held. Under the
agreements, Retirement generally means a termination of employment and other business relationships, other than for cause,
after attainment of age 50, provided that (i) the employee has worked for the Company for at least 10 years, (ii) the employee's
age at Retirement plus years of employment with the Company equals at least 70, (iii) the employee provides at least six
months written notice of intent to retire, and (iv) the employee enters into a one year non-compete and employee non-
solicitation agreement.
The Company also has an Officer Severance Program (the “Program”). Under the Program, in the event an officer who is not
otherwise covered by a severance arrangement is terminated (other than for cause), or chooses to terminate his or her
employment for good reason (as defined), in either case in connection with or within 24 months following a sale event (as
defined) of the Company, such officer will generally receive a cash lump sum payment equal to a multiple of the officer's
covered compensation (base salary plus annual cash bonus). The multiple is one time for vice presidents and senior vice
presidents, two times for executive vice presidents and three times for the chief executive officer. The officer's restricted stock
and options would also vest. Costs related to the Program are deferred and recognized over the requisite service period when
considered by management to be probable and estimable.
Legal Contingencies
The Company accounts for recoveries from legal matters as a reduction in the legal and related costs incurred associated with
the matter, with recoveries in excess of these costs reported as a gain or, where appropriate, a reduction in the net cost basis of a
community to which the suit related. During the years ended December 31, 2019 and 2018, the Company recognized
$6,292,000 and $946,000 in legal recoveries, respectively. Legal recoveries recognized during the year ended December 31,
2019 include $3,126,000 in proceeds related to a former Development Right and $2,237,000 in proceeds related to a
construction defect at a community, reported as a component of general and administrative expense on the accompanying
Consolidated Statements of Comprehensive Income. Amounts recognized during the year ended December 31, 2018 include
$554,000 in legal settlement proceeds relating to construction defects at communities acquired as part of the Archstone
Acquisition, reported as a component of casualty and impairment loss, net on the accompanying Consolidated Statements of
Comprehensive Income. There were no material receipts during the year ended December 31, 2020.
The Company is involved in various other 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.
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 December 31, 2020 and 2019, the Company has total operating lease assets of $133,581,000 and $103,063,000,
respectively, and lease obligations of $161,313,000 and $120,261,000, respectively, reported as components of right of use
lease assets and lease liabilities, respectively, on the accompanying Consolidated Balance Sheets. The Company incurred costs
of $16,011,000, $14,371,000 and $21,788,000 in the years ended December 31, 2020, 2019 and 2018, respectively, related to
operating leases.
F-26
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 December 31, 2020 and 2019, the Company has total
finance lease assets of $21,685,000 and $21,898,000, respectively, and total finance lease obligations of $20,166,000 and
$20,207,000, respectively, reported as components of right of use lease assets and lease liabilities, respectively, on the
accompanying Consolidated Balance Sheets.
During the year ended December 31, 2018, the Company contributed a dual-branded apartment community, Avalon West
Chelsea and AVA High Line, located on land subject to a single land lease, to the newly formed NYC Joint Venture. See Note
5, “Investments in Real Estate Entities,” for discussion of the formation of the venture.
The following table details the weighted average remaining lease term and discount rates for the Company’s ground and office
leases:
Weighted-average remaining lease term - finance leases
Weighted-average remaining lease term - operating leases
Weighted-average discount rate - finance leases
Weighted-average discount rate - operating leases
25 years
42 years
4.63 %
4.74 %
The following tables detail the future minimum lease payments under the Company's current leases and a reconciliation of
undiscounted and discounted cash flows for operating and finance leases (dollars in thousands):
Operating Lease Obligations
Finance Lease Obligations
Operating Lease Obligations
Finance Lease Obligations
8. Segment Reporting
Payments due by period
2021
2022
2023
2024
2025
Thereafter
$
$
14,270 $
1,080
15,350 $
13,950 $
1,082
15,032 $
13,469 $
1,084
14,553 $
13,316 $
1,087
14,403 $
13,526 $
1,089
14,615 $
350,440
39,044
389,484
Total undiscounted
cash flows
Total lease
liabilities
$
$
418,971 $
44,466
463,437 $
161,313 $
20,166
181,479 $
Difference between
discounted and
undiscounted cash flows
257,658
24,300
281,958
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.
•
Established Communities (also known as Same Store Communities) are consolidated communities where the Company
has a significant presence (New England, New York/New Jersey, Mid-Atlantic, Pacific Northwest, Northern and
Southern California and the expansion markets of Southeast Florida and Denver, Colorado) and where a comparison of
operating results from the prior year to the current year is meaningful, as these communities were owned and had
stabilized occupancy as of the beginning of the prior year. The Established Communities for the year ended
December 31, 2020, are communities that are consolidated for financial reporting purposes, had stabilized occupancy
as of January 1, 2019, are not conducting or planning to conduct substantial redevelopment activities and are not held
for sale or planned for disposition within the fiscal year. A community is considered to have stabilized occupancy at
the earlier of (i) attainment of 90% physical occupancy or (ii) the one year anniversary of completion of development
or redevelopment.
F-27
•
•
Other Stabilized Communities includes all other completed consolidated communities that have stabilized occupancy,
as defined above, as January 1, 2020, or which were acquired during the years ended December 31, 2020 or 2019.
Other Stabilized Communities excludes communities that are conducting or planning to conduct substantial
redevelopment activities within the fiscal year.
Development/Redevelopment Communities consists of (i) consolidated communities that are either currently under
construction, or were under construction during the fiscal year, which may be partially or fully complete and operating,
(ii) consolidated communities where substantial redevelopment is in progress or is planned to begin during the fiscal
year and (iii) communities under lease-up that have been complete for less than one year and have not reached
stabilized occupancy, as defined above, as of January 1, 2020.
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 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
expense, casualty and impairment (gain) loss, net, gain on sale of communities, (gain) loss on other real estate transactions, net
for-sale condominium activity and net operating income from real estate assets sold or held for sale. Although the Company
considers NOI a useful measure of a community's or communities' operating performance, NOI should not be considered an
alternative to net income or net cash flow from operating activities, as determined in accordance with GAAP. NOI excludes a
number of income and expense categories as detailed in the reconciliation of NOI to net income.
A reconciliation of NOI to net income for years ended December 31, 2020, 2019 and 2018 is as follows (dollars in thousands):
Net income
Indirect operating expenses, net of corporate income
Expensed transaction, development and other pursuit costs, net of recoveries
Interest expense, net
Loss on extinguishment of debt, net
General and administrative expense
Equity in income of unconsolidated real estate entities
Depreciation expense
Income tax (benefit) expense
Casualty and impairment loss, net
Gain on sale of communities
Gain on other real estate transactions, net
Net for-sale condominium activity
Net operating income from real estate assets sold or held for sale
For the year ended
12/31/20
12/31/19
12/31/18
$
827,706 $
786,103 $
974,175
97,443
12,399
214,151
9,333
60,343
(6,422)
707,331
(3,247)
—
83,008
4,991
203,585
602
58,042
(8,652)
661,578
13,003
—
80,227
3,265
220,974
17,492
60,369
(15,270)
631,196
(160)
215
(340,444)
(166,105)
(374,976)
(440)
(2,551)
(28,412)
(439)
3,812
(345)
1,044
(45,354)
(113,074)
Net operating income
$
1,547,190 $
1,594,174 $
1,485,132
F-28
The following is a summary of NOI from real estate assets sold or held for sale for the periods presented (dollars in thousands):
For the year ended
12/31/2020
12/31/2019
12/31/2018
Rental income from real estate assets sold or held for sale
Operating expenses from real estate assets sold or held for sale
Net operating income from real estate assets sold or held for sale
$
$
44,951 $
73,168 $
175,915
(16,539)
(27,814)
(62,841)
28,412 $
45,354 $
113,074
The primary performance measure for communities under development or redevelopment depends on the stage of completion.
While under development, management monitors actual construction costs against budgeted costs as well as lease-up pace and
rent levels compared to budget.
The following table provides details of the Company's segment information as of the dates specified (dollars in thousands). The
segments are classified based on the individual community's status at January 1, 2020 for the years ended December 31, 2020
and 2019 and at January 1, 2019, for the year ended December 31, 2018. Segment information for the years ended
December 31, 2020, 2019 and 2018 has been adjusted to exclude the real estate assets that were sold from January 1, 2018
through December 31, 2020, or otherwise qualify as held for sale as of December 31, 2020, as described in Note 6, “Real Estate
Disposition Activities.”
In addition to NOI, the Company's CODM considers total revenue in assessing each segment's performance. As discussed in
Note 1, "Organization, Basis of Presentation and Significant Accounting Policies," the Company changed its presentation of
charges for uncollectible lease revenue beginning with the year ended December 31, 2019, including it as an adjustment to
revenue and not as a component of operating expenses, as it is presented for prior year periods on the accompanying
Consolidated Statements of Comprehensive Income. Consistent with how the Company's CODM evaluates total revenue, and to
provide comparability between periods presented in the Company's segment reporting, the Company has included charges for
uncollectible lease revenue for its segment results as a component of revenue for the year ended December 31, 2018. Total
revenue for the year ended December 31, 2018 as presented in the following table includes $14,072,000 of charges for
uncollectible lease revenue.
F-29
For the period ended December 31, 2020
Established
New England
Metro NY/NJ
Mid-Atlantic
Pacific Northwest
Northern California
Southern California
Expansion Markets
Total Established (2)
Other Stabilized
Development / Redevelopment
Land Held for Future Development
Non-allocated (3)
Total
For the period ended December 31, 2019
Established
New England
Metro NY/NJ
Mid-Atlantic
Pacific Northwest
Northern California
Southern California
Expansion Markets
Total Established (2)
Other Stabilized
Development / Redevelopment
Land Held for Future Development
Non-allocated (3)
Total
For the year ended December 31, 2018
Established
New England
Metro NY/NJ
Mid-Atlantic
Pacific Northwest
Northern California
Southern California
Expansion Markets (4)
Total Established (2)
Other Stabilized
Development / Redevelopment
Land Held for Future Development
Non-allocated (3)
Total
_________________________________
Total
revenue
NOI
Gross
real estate (1)
$
297,674 $
193,053 $
445,939
341,311
109,321
378,362
432,441
23,269
305,408
237,063
76,093
283,012
298,900
13,376
2,617,725
4,235,524
3,511,960
996,317
3,201,926
4,160,754
321,252
$
$
$
$
2,028,317
1,406,905
19,045,458
140,173
84,001
N/A
3,819
92,040
48,245
N/A
N/A
1,596,656
2,789,062
110,142
375,964
2,256,310 $
1,547,190 $
23,917,282
303,816 $
202,812 $
466,135
351,680
113,021
397,593
451,640
23,403
327,356
250,142
82,186
305,450
321,776
13,578
2,595,907
4,214,565
3,484,610
990,563
3,186,075
4,131,539
320,355
2,107,288
1,503,300
18,923,614
110,434
28,776
N/A
4,960
74,814
16,060
N/A
N/A
2,251,458 $
1,594,174 $
223,594 $
148,310 $
379,968
284,381
108,861
340,247
394,519
N/A
271,767
200,381
78,313
262,055
283,795
N/A
1,587,398
2,086,519
—
559,777
23,157,308
1,890,304
3,367,198
2,669,040
985,102
2,753,596
3,573,952
N/A
1,731,570
1,244,621
15,239,192
238,584
120,822
N/A
3,572
159,745
80,766
N/A
N/A
3,063,670
2,652,968
84,712
504,230
$
2,094,548 $
1,485,132 $
21,544,772
(1) Does not include gross real estate assets held for sale of $44,940 as of December 31, 2020 and gross real estate either sold or classified as
held for sale subsequent to December 31, 2019 and 2018 of $401,152 and $732,397, respectively.
(2) Gross real estate for the Company's Established Communities includes capitalized additions of approximately $126,548, $128,324 and
$78,469 in 2020, 2019 and 2018, respectively.
F-30
(3) Revenue represents third-party management, accounting, and developer fees and miscellaneous income which are not allocated to a
reportable segment. Gross real estate includes the for-sale residential condominiums at The Park Loggia, as discussed in Note 6, "Real
Estate Disposition Activities."
(4) The Company had no communities in its Established Communities Expansion Markets for the year ended December 31, 2018.
9. Stock-Based Compensation Plans
The Company's Second Amended and Restated 2009 Equity Incentive Plan (the “2009 Plan”) includes an authorization to issue
shares of the Company's common stock, par value $0.01 per share. At December 31, 2020, the Company had 6,913,585 shares
remaining available to issue under the 2009 Plan, exclusive of shares that may be issued to satisfy currently outstanding awards
such as stock options or performance awards. In addition, any awards that were outstanding under the Company's 1994 Stock
Option and Incentive Plan (the “1994 Plan”) on May 21, 2009, the date the Company adopted the 2009 Plan, that are
subsequently forfeited, canceled, surrendered or terminated (other than by exercise) will become available for awards under the
2009 Plan. The 2009 Plan provides for various types of equity awards to associates, officers, non-employee directors and other
key personnel of the Company and its subsidiaries. The types of awards that may be granted under the 2009 Plan include
restricted stock, restricted stock units, stock options that qualify as incentive stock options (“ISOs”) under Section 422 of the
Code, non-qualified stock options, stock appreciation rights and performance awards, among others. No grants of stock options
and other awards will be made after May 15, 2027, and no grants of incentive stock options will be made after February 16,
2027.
Information with respect to stock options granted under the 2009 and 1994 Plans is as follows:
2009 Plan
shares
Weighted
average
exercise price
per share
1994 Plan
shares
Weighted
average
exercise price
per share
7,778 $
(7,778)
48.60
48.60
—
—
— $
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Options Outstanding, December 31, 2017
Exercised
Granted (1)
Forfeited
Options Outstanding, December 31, 2018
Exercised
Granted
Forfeited
Options Outstanding, December 31, 2019
Exercised
Granted
Forfeited
149,973 $
(32,756)
6,995
—
124,212 $
(109,804)
—
—
14,408 $
(1,902)
—
—
126.77
126.24
161.10
—
128.84
129.47
—
—
124.05
89.17
—
—
Options Outstanding, December 31, 2020
12,506 $
129.35
— $
Options Exercisable:
December 31, 2018
December 31, 2019
December 31, 2020
_________________________________
117,217 $
14,408 $
12,506 $
126.91
124.05
129.35
— $
— $
— $
(1) Options granted during the year ended December 31, 2018 are a result of recipient elections to receive a portion of earned performance
awards and time-vesting restricted stock in the form of stock options.
The following summarizes the exercise prices and contractual lives of options outstanding as of December 31, 2020:
2009 Plan
Number of Options
1,387
11,119
12,506
Range—Exercise Price
$110.00
$130.00
-
-
$119.99
$139.99
Weighted Average
Remaining Contractual Term
(in years)
0.1
1.8
F-31
Options outstanding and exercisable at December 31, 2020 had an intrinsic value of $389,000. Options exercisable had a
weighted average contractual life of 1.6 years. The intrinsic value of options exercised under the 2009 Plan during 2020, 2019
and 2018 was $251,000, $7,970,000 and $3,016,000, respectively. There were no stock options granted in 2020, 2019 and
2018, other than those elected under the Company's performance award plan discussed below.
The Company has a compensation framework under which share-based compensation granted is composed of annual restricted
stock awards for which one third of the award vests annually over a three-year period, and multi-year long term incentive
performance awards. For annual restricted stock awards, in lieu of time-vesting restricted stock, the recipient may elect to
receive up to 100% of the award value, in increments of 25%, in the form of stock options, for which one third of the award
vests annually over a three-year period. Under the Company's multi-year long term incentive compensation framework, the
Company grants a target number of performance awards, with the ultimate award determined by the total shareholder return of
the Company's common stock and/or operating performance metrics, measured in each case over a measurement period of up to
three years. Performance units for awards granted in 2017 or earlier that were earned at the end of the measurement period were
settled in the form of time-vesting restricted stock. Performance units for awards granted in 2018 and later years that are earned
at the end of the measurement period are settled in fully vested shares of common stock and an amount of cash equal to the
dividends that were paid, while the performance award was outstanding, on a number of shares equal to the number of units
earned.
After the first year of the performance period, if the employee's employment terminates on account of death, disability,
retirement, or termination without cause, the employee shall vest in a pro rata portion of the award (based on the employee's
service time during the performance period), with such vested portion to be earned and converted into shares and the cash
amount for the dividends described above at the end of the performance period based on actual achievement under the
performance award. For other terminating events, performance awards are generally forfeited.
Information with respect to performance awards granted is as follows:
Performance awards
Weighted average grant
date fair value per award
Outstanding at December 31, 2017
Granted (1)
Change in awards based on performance (2)
Converted to restricted stock
Forfeited
Outstanding at December 31, 2018
Granted (3)
Change in awards based on performance (2)
Converted to restricted stock
Forfeited
Outstanding at December 31, 2019
Granted (4)
Change in awards based on performance (2)
Converted to restricted stock
Forfeited
Outstanding at December 31, 2020
251,770 $
100,965
5,990
(88,477)
(3,119)
267,129 $
80,512
(16,760)
(73,072)
(4,377)
253,432 $
77,182
18,112
(96,317)
(10,488)
241,921 $
155.25
155.31
148.79
148.79
160.33
157.21
200.75
142.03
142.03
166.44
176.27
238.03
177.26
177.26
188.52
195.13
F-32
_________________________________
(1) The amount of restricted stock that ultimately may be earned is based on the total shareholder return metrics related to the Company’s
common stock for 62,043 performance awards and financial metrics related to operating performance, net asset value and leverage
metrics of the Company for 38,922 performance awards.
(2) Represents the change in the number of performance awards earned based on performance achievement for the performance period.
(3) The amount of restricted stock that ultimately may be earned is based on the total shareholder return metrics related to the Company’s
common stock for 47,502 performance awards and financial metrics related to operating performance and leverage metrics of the
Company for 33,010 performance awards.
(4) The amount of restricted stock that ultimately may be earned is based on the total shareholder return metrics related to the Company’s
common stock for 38,823 performance awards and financial metrics related to operating performance and leverage metrics of the
Company for 38,359 performance awards.
The Company used a Monte Carlo model to assess the compensation cost associated with the portion of the performance
awards granted for which achievement will be determined by using total shareholder return measures. The assumptions used are
as follows:
Dividend yield
Estimated volatility over the life of the plan (1)
Risk free rate
Estimated performance award value based on total
shareholder return measure
_________________________________
2020
2.8%
11.1% - 15.5%
1.45% - 1.62%
$254.72
2019
3.1%
13.9% - 18.8%
2.46% - 2.57%
$204.15
2018
3.7%
11.8% - 18.7%
1.86% - 2.46%
$151.67
(1) Estimated volatility of the life of the plan is using 50% historical volatility and 50% implied volatility.
For the portion of the performance awards granted for which achievement is determined by using financial metrics, the
compensation cost was based on a weighted average grant date value of $224.64, $195.86 and $161.10, for the years ended
December 31, 2020, 2019 and 2018, respectively, and the Company's estimate of corporate achievement for the financial
metrics.
Information with respect to restricted stock granted is as follows:
Outstanding at December 31, 2017
Granted - restricted stock shares
Vested - restricted stock shares
Forfeited
Outstanding at December 31, 2018
Granted - restricted stock shares
Vested - restricted stock shares
Forfeited
Outstanding at December 31, 2019
Granted - restricted stock shares
Vested - restricted stock shares
Forfeited
Outstanding at December 31, 2020
Restricted stock shares
Restricted stock shares
weighted average grant
date fair value per share
Restricted stock shares
converted from
performance awards
133,633 $
98,713
(67,832)
(4,103)
160,411 $
79,430
(89,289)
(2,226)
148,326 $
69,228
(79,931)
(5,899)
131,724 $
172.33
161.58
171.22
166.40
166.33
196.43
168.06
174.45
181.29
221.08
178.41
196.22
203.28
233,928
88,297
(112,230)
(757)
209,238
73,072
(119,064)
(135)
163,111
96,317
(111,325)
(1,784)
146,319
Total employee stock-based compensation cost recognized in income was $21,110,000, $24,885,000 and $19,707,000 for the
years ended December 31, 2020, 2019 and 2018, respectively, and total capitalized stock-based compensation cost was
$9,974,000, $9,396,000 and $10,208,000 for the years ended December 31, 2020, 2019 and 2018, respectively. At
December 31, 2020, there was a total unrecognized compensation cost of $25,200,000 for unvested restricted stock and
performance awards, which does not include forfeitures, and is expected to be recognized over a weighted average period of
1.8 years. Forfeitures are included in compensation cost as they occur.
F-33
Employee Stock Purchase Plan
In October 1996, the Company adopted the 1996 Non-Qualified Employee Stock Purchase Plan (as amended, the “ESPP”).
Initially 1,000,000 shares of common stock were reserved for issuance under this plan. There are currently 634,274 shares
remaining available for issuance under the ESPP. Employees of the Company generally are eligible to participate in the ESPP
if, as of the last day of the applicable purchase period, they have been employed by the Company for at least one month. Under
the ESPP, eligible employees are permitted to acquire shares of the Company's common stock through payroll deductions,
subject to maximum purchase limitations, during two purchase periods. The first purchase period begins January 1 and ends
June 10, and the second purchase period begins July 1 and ends December 10. The purchase price for common stock purchased
under the plan is 85% of the lesser of the fair market value of the Company's common stock on the first day of the applicable
purchase period or the last day of the applicable purchase period. The offering dates, purchase dates and duration of purchase
periods may be changed if the change is announced prior to the beginning of the affected date or purchase period. The
Company issued 20,161, 13,894 and 12,955 shares and recognized compensation expense of $537,000, $761,000 and $436,000
under the ESPP for the years ended December 31, 2020, 2019 and 2018, respectively. The Company accounts for transactions
under the ESPP using the fair value method prescribed by accounting guidance applicable to entities that use employee share
purchase plans.
10. Related Party Arrangements
Unconsolidated Entities
The Company manages unconsolidated real estate entities for which it receives asset management, property management,
development and redevelopment fee revenue. From these entities, the Company earned fees of $3,819,000, $4,960,000 and
$3,572,000 in the years ended December 31, 2020, 2019 and 2018, respectively. In addition, the Company had outstanding
receivables associated with its property and construction management role of $5,408,000 and $3,924,000 as of December 31,
2020 and 2019, respectively.
Director Compensation
Directors of the Company who are also employees receive no additional compensation for their services as a director.
Following each annual meeting of stockholders, non-employee directors receive (i) a number of shares of restricted stock (or
deferred stock units) having a value of $170,000 and (ii) a cash payment of $90,000, payable in equal quarterly installments of
$22,500. The number of shares of restricted stock (or deferred stock units) is calculated based on the closing price on the day of
the award. Non-employee directors may elect to receive all or a portion of cash payments in the form of deferred stock units.
Additionally, the Lead Independent Director receives in the aggregate an additional annual fee of $30,000 payable in equal
quarterly installments of $7,500, the non-employee director serving as the chairperson of the Audit Committee receives
additional cash compensation of $25,000 per year payable in equal quarterly installments of $6,250, the non-employee director
serving as the chairperson of the Compensation Committee receives additional cash compensation of $20,000 per year payable
in equal quarterly installments of $5,000 and the Nominating and Corporate Governance and Investment and Finance
Committee chairpersons receive an additional annual fee of $15,000 payable in equal quarterly installments of $3,750.
The Company recorded non-employee director compensation expense relating to restricted stock grants and deferred stock units
in the amount of $1,819,000, $1,725,000 and $1,624,000 for the years ended December 31, 2020, 2019 and 2018, respectively,
as a component of general and administrative expense. Deferred compensation relating to these restricted stock grants and
deferred stock units to non-employee directors was $614,000, $594,000 and $571,000 on December 31, 2020, 2019 and 2018,
respectively, reported as a component of prepaid expenses and other assets on the accompanying Consolidated Balance Sheets.
F-34
11. Fair Value
Financial Instruments Carried at Fair Value
Derivative Financial Instruments
The Company uses interest rate swap and interest rate cap agreements to manage its interest rate risk. These instruments are
carried at fair value in the Company's financial statements. In adjusting the fair value of its derivative contracts for the effect of
counterparty nonperformance risk, the Company has considered the impact of its net position with a given counterparty, as well
as any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. The Company
minimizes its credit risk on these transactions by dealing with major, creditworthy financial institutions which have an A or
better credit rating by the Standard & Poor's Ratings Group. As part of its on-going control procedures, the Company monitors
the credit ratings of counterparties and the exposure of the Company to any single entity, thus reducing credit risk
concentration. The Company believes the likelihood of realizing losses from counterparty nonperformance is remote. Although
the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value
hierarchy, such as interest rate, term to maturity and volatility, the credit valuation adjustments associated with its derivatives
use Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by itself and its
counterparties. As of December 31, 2020, the Company assessed the significance of the impact of the credit valuation
adjustments on the overall valuation of its derivative positions and has determined it is not significant. As a result, the Company
has determined that its derivative valuations are classified in Level 2 of the fair value hierarchy.
The following table summarizes the consolidated derivative positions at December 31, 2020 (dollars in thousands):
Notional balance
Weighted average interest rate (1)
Weighted average swapped/capped interest rate
Earliest maturity date
Latest maturity date
_________________________________
Non-designated Hedges
Interest Rate Caps
Interest Rate Swaps
$
679,167
$
150,000
1.7 %
6.4 %
January 2021
January 2024
N/A
0.7 %
May 2021
May 2021
(1) For debt hedged by interest rate caps, represents the weighted average interest rate on the hedged debt prior to any impact of the
associated interest rate caps.
The following activity occurred during the year ended December 31, 2020:
•
The Company settled an aggregate of $600,000,000 of forward interest rate swap agreements, making aggregate
payments of $25,135,000. Of the positions settled by the Company, $250,000,000 were forward interest swaps that the
Company had entered into during 2020. The settled positions were comprised of the following:
◦
◦
In conjunction with the issuance of the Company's $700,000,000 unsecured notes due 2030 in February 2020,
the Company settled $350,000,000 of forward interest rate swap agreements designated as cash flow hedges
of the interest rate variability on the issuance of the unsecured notes, making a payment of $20,314,000.
In conjunction with the issuance of the Company's $600,000,000 unsecured notes due 2031 in May 2020, the
Company settled $250,000,000 of forward interest rate swap agreements designated as cash flow hedges of
the interest rate variability on the issuance of the unsecured notes, making a payment of $4,821,000.
The Company has deferred these amounts in accumulated other comprehensive loss on the accompanying Condensed
Consolidated Balance Sheets, and is recognizing the impact as a component of interest expense, net, over the term of
the respective hedged debt.
F-35
•
The Company entered into an additional $150,000,000 of new forward interest rate swap agreements executed to
reduce the impact of variability of interest rates on a portion of the Company's expected debt issuance activity in 2021
(the "Swaps"). Based on changes in the Company's expected capital requirements for 2021 as of December 31, 2020,
while the Company may still issue debt in 2021, it is no longer probable that the Company will issue the debt for
which the Swaps were executed. As a result, the Company ceased hedge accounting and recognized a gain of
$2,894,000 for the change in fair value of the Swaps for the three months ended December 31, 2020, in interest
expense, net, on the accompanying Consolidated Statements of Comprehensive Income.
The Company had ten derivatives not designated as hedges at December 31, 2020 including the Swaps discussed above. Other
than the Swaps, fair value changes for derivatives not in qualifying hedge relationships for the years ended December 31, 2020
and 2019, were not material. During 2020, the Company deferred $17,731,000 of net losses for cash flow hedges reported as a
component of accumulated other comprehensive loss.
The following table summarizes the deferred losses reclassified from accumulated other comprehensive income as a component
of interest expense, net (dollars in thousands):
Cash flow hedge losses reclassified to earnings
$
8,984 $
6,571 $
6,143
The Company anticipates reclassifying approximately $9,467,000 of net hedging losses from accumulated other comprehensive
loss into earnings within the next 12 months as an offset to the hedged item during this period. The Company did not have any
derivatives designated as fair value hedges as of December 31, 2020 and 2019.
For the year ended
12/31/20
12/31/19
12/31/18
Financial Instruments Not Carried at Fair Value
Cash and Cash Equivalents
Cash and cash equivalent balances are held with various financial institutions within accounts designed to preserve principal.
The Company monitors credit ratings of these financial institutions and the concentration of cash and cash equivalent balances
with any one financial institution and believes the likelihood of realizing material losses related to cash and cash equivalent
balances is remote. Cash and cash equivalents are carried at their face amounts, which reasonably approximate their fair values
and are Level 1 within the fair value hierarchy.
Other Financial Instruments
Rents and other receivables and prepaid expenses, accounts and construction payable and accrued expenses and other liabilities
are carried at their face amounts, which reasonably approximate their fair values.
In conjunction with the development of Avalon Brooklyn Bay, the Company entered into a joint venture agreement to construct
a mixed-use building that included for-sale residential condominium units and related common elements, in addition to the
Company's rental apartments, in which the Company has a 100% interest. The venture partner has a 100% interest in the for-
sale residential condominium units. The Company was responsible for the development and construction of the structure, and
provided a loan to the venture partner for the venture partner's share of costs for the for-sale residential condominium units. As
of December 31, 2020, the Company has a receivable from the venture partner in the form of a variable rate mortgage note,
secured by the remaining for-sale residential condominium units. The balance as of December 31, 2020 was $3,645,000,
representing outstanding principal and interest, net of repayments, and as of December 31, 2019, was $10,650,000, representing
outstanding principal and interest. These amounts are reported as a component of prepaid expenses and other assets on the
accompanying Consolidated Balance Sheets. The Company recognizes interest income on the accrual basis.
The Company values its unsecured notes using quoted market prices, a Level 1 price within the fair value hierarchy. The
Company values its notes payable and outstanding amounts under the Credit Facility and Term Loans using a discounted cash
flow analysis on the expected cash flows of each instrument. This analysis reflects the contractual terms of the instrument,
including the period to maturity, and uses observable market-based inputs, including interest rate curves. The process also
considers credit valuation adjustments to appropriately reflect the Company’s nonperformance risk. The Company has
concluded that the value of its notes payable and amounts outstanding under its Credit Facility and Term Loans are Level 2
prices as the majority of the inputs used to value its positions fall within Level 2 of the fair value hierarchy.
F-36
Financial Instruments Measured/Disclosed at Fair Value on a Recurring Basis
The following tables summarize the classification between the three levels of the fair value hierarchy of the Company's
financial instruments measured/disclosed at fair value on a recurring basis (dollars in thousands):
Description
Non Designated Hedges
Interest Rate Caps
Interest Rate Swaps - Assets
DownREIT units
Indebtedness
Fixed rate unsecured notes
Secured notes and variable rate unsecured indebtedness
Total
Cash Flow Hedges
Interest Rate Swaps - Assets
Interest Rate Swaps - Liabilities
DownREIT units
Indebtedness
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total Fair
Value
$
6 $
4,308
(1,203)
12/31/2020
— $
—
(1,203)
6 $
4,308
—
$
$
(7,271,799)
(1,043,976)
(8,312,664) $
(7,271,799)
—
—
(1,043,976)
(7,273,002) $ (1,039,662) $
12/31/2019
388 $
(6,379)
(1,573)
— $
—
(1,573)
388 $
(6,379)
—
—
—
—
—
—
—
—
—
—
—
—
—
Fixed rate unsecured notes
Secured notes and variable rate unsecured indebtedness
Total
(6,197,771)
(1,398,147)
(7,603,482) $
$
(6,197,771)
—
—
(1,398,147)
(6,199,344) $ (1,404,138) $
12. Subsequent Events
The Company has evaluated subsequent events, through the date on which this Form 10-K was filed, the date on which these
financial statements were issued, and identified the items below for discussion.
In January 2021, the Company sold eaves Stamford, a wholly-owned operating community, located in Stamford, CT. eaves
Stamford contains 238 apartment homes, was sold for $72,000,000 and was classified as held for sale as of December 31, 2020.
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 the April 2021 maturity date.
F-37
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(
F-49
AVALONBAY COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2020
(Dollars in thousands)
Amounts include real estate assets held for sale.
Depreciation of AvalonBay Communities, Inc. building, improvements, upgrades and furniture, fixtures and equipment (FF&E)
is calculated over the following useful lives, on a straight line basis:
Building—30 years
Improvements, upgrades and FF&E—not to exceed 7 years
The aggregate cost of total real estate for federal income tax purposes was approximately $22,969,235 at December 31, 2020.
The changes in total real estate assets for the years ended December 31, 2020, 2019 and 2018 are as follows:
Balance, beginning of period
For the year ended
12/31/2020
12/31/2019
12/31/2018
$
23,606,872 $
22,342,576 $
21,935,936
Acquisitions, construction costs and improvements
860,594
1,615,949
1,568,878
Dispositions, including casualty losses and impairment loss on planned
dispositions
Balance, end of period
(505,244)
(351,653)
(1,162,238)
$
23,962,222 $
23,606,872 $
22,342,576
The changes in accumulated depreciation for the years ended December 31, 2020, 2019 and 2018, are as follows:
Balance, beginning of period
Depreciation, including discontinued operations
Dispositions, including casualty losses
Balance, end of period
For the year ended
12/31/2020
12/31/2019
12/31/2018
$
$
5,173,883 $
4,611,646 $
4,218,379
707,331
(152,774)
661,578
(99,341)
631,196
(237,929)
5,728,440 $
5,173,883 $
4,611,646
F-50
Board of Directors
Timothy J. Naughton
Chairman of the Board & Chief Executive Officer
AvalonBay Communities, Inc.
Investment & Finance Committee
Benjamin W. Schall
President
AvalonBay Communities, Inc.
Investment & Finance Committee
Terry S. Brown
Chairman of the Board &
Chief Executive Officer,
Asana Partners
A real estate investment company
Investment & Finance Committee (Chair);
Nominating & Corporate Governance
Committee
Ron L. Havner, Jr.
Chairman of the Board,
Public Storage, Inc.
A real estate investment trust
Audit Committee (Chair);
Investment & Finance Committee
Richard J. Lieb
Managing Director, Chairman of Real Estate
Greenhill & Co., LLC
An investment bank
Audit Committee;
Compensation Committee (Chair)
Susan Swanezy
Partner,
Hodes Weill & Associates, LP
A global advisory firm
Investment & Finance Committee;
Nominating & Corporate Governance
Committee (Chair)
Glyn F. Aeppel
Chief Executive Officer & President,
Glencove Capital
A hotel investment and advisory company
Investment & Finance Committee;
Nominating & Corporate Governance
Committee
Alan B. Buckelew
Private Investor
Audit Committee;
Compensation Committee
Stephen P. Hills
Founding Director,
Business Law Scholars Program,
Georgetown University Law Center
Audit Committee;
Investment & Finance Committee
H. Jay Sarles
Private Investor
Compensation Committee;
Nominating & Corporate Governance
Committee
W. Edward Walter
Global Chief Executive Officer,
Urban Land Institute
Nonprofit research and education program
Lead Independent Director;
Compensation Committee;
Nominating & Corporate Governance Committee
Executive and Senior Officers
Timothy J. Naughton
Chairman of the Board & Chief Executive Officer
Benjamin W. Schall
President
Matthew H. Birenbaum
Chief Investment Officer
Kevin P. O’Shea
Chief Financial Officer
Sean J. Breslin
Chief Operating Officer
Joanne M. Lockridge
Executive Vice President
Capital Markets
William M. McLaughlin
Executive Vice President
East Coast Development & Construction
Edward M. Schulman
Executive Vice President
General Counsel & Secretary
Keri A. Shea
Senior Vice President
Finance & Treasurer (Principal Accounting Officer)
Investor Information
Corporate Office
AvalonBay Communities, Inc.
4040 Wilson Boulevard
Suite 1000
Arlington, VA 22203
Phone: 703.329.6300
Website
www.avalonbay.com
Common Stock Listing
Ticker: AVB
New York Stock Exchange
Investor Relations Contact
Jason Reilley
AvalonBay Communities, Inc.
4040 Wilson Boulevard
Suite 1000
Arlington, VA 22203
Phone: 703.329.6300
Email: ir@avalonbay.com
Transfer Agent
Computershare
Regular Mail
P.O. Box 505000
Louisville, KY 40233
Overnight Delivery
462 South 4th Street, Suite 1600
Louisville, KY 40202
Phone: 866.230.0668
www.computershare.com
Forward-Looking Statements
This Annual Report contains “forward-looking
statements” within the meaning of the Securities Act
of 1933 and the Securities Exchange Act of 1934.
Please see our discussion titled “Forward-Looking
Statements” on page 48 of our accompanying Annual
Report on Form 10-K for a discussion regarding risks
associated with these statements.
Stock performance graph
The Stock Performance Graph provides a comparison, from December 31, 2015 through December 31, 2020, of the
cumulative total shareholder return (assuming reinvestment of dividends) among the Company, a peer group index
(the FTSE NAREIT Apartment REIT Index) that includes the Company, and the S&P 500 based on an initial purchase
price of $100. The FTSE NAREIT Apartment REIT Index includes only REITs that invest directly or indirectly primarily
in the equity ownership of multifamily residential apartment communities. Upon written request to the Company’s
Secretary, the Company will provide any stockholder with a list of REITs included in the FTSE NAREIT Apartment REIT
Index. The historical information set forth below is not necessarily indicative of future performance. Data for the
FTSE NAREIT Apartment REIT Index and the S&P 500 Index were provided to the Company by S&P Global Market
Intelligence.
Period EndingIndex12/31/1512/31/1612/31/1712/31/1812/31/1912/31/20AvalonBay Communities, Inc.100$ 99 103 104 129 103 FTSE NAREIT Apartment REIT Index100 103 107 111 140 118 S&P 500 Index100 112 136 130 171 203