Results
AvalonBay Communities Inc.
05/07/2026 | Press release | Distributed by Public on 05/07/2026 10:29
Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)
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 Condensed Consolidated Financial Statements and the accompanying Notes to Condensed 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 our Annual Report on Form 10-K for the year ended December 31, 2025 (the "Form 10-K") and in Part II, Item 1A. "Risk Factors" in this report.
Capitalized terms used without definition have the meanings provided elsewhere in this Form 10-Q.
Executive Overview
Business Description
AvalonBay Communities, Inc. (the "Company," "we," "our" and "us" which terms, unless the context otherwise requires, refer 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 apartment communities in Boston, Massachusetts, the New York/New Jersey metro area, the Mid-Atlantic, Seattle, Washington, and Northern and Southern California, as well as in our expansion regions of Raleigh-Durham and Charlotte, North Carolina, Southeast Florida, Dallas and Austin, Texas, and Denver, Colorado. We use the term apartment communities to refer to properties that consist of apartment homes or townhomes or a combination of both. We focus on leading metropolitan areas that we believe have offered, and will continue to offer, the opportunity for superior risk-adjusted returns over the long-term on apartment community investments relative to other markets.
Our principal financial goal is to increase long-term shareholder value through the development, redevelopment, acquisition, ownership, operation and asset management 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) efficiently operate our communities to maximize resident satisfaction and shareholder return, (iv) 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 (v) 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."
First Quarter 2026 Operating Highlights
•Net income attributable to common stockholders for the three months ended March 31, 2026 was $325,730,000, an increase of $89,133,000, or 37.7%, over the prior year period. The increase was primarily attributable to an increase in gains from real estate sales and NOI from communities, partially offset by an increase in depreciation expense from newly acquired or developed communities.
•Same Store NOI attributable to our apartment rental operations, including parking and other ancillary residential ("Residential") revenue, for the three months ended March 31, 2026 was $479,937,000, an increase of $1,087,000, or 0.2%, over the prior year period. The increase was primarily attributable to an increase in Residential revenue of $11,053,000, or 1.6%, partially offset by an increase in Residential property operating expenses of $9,966,000, or 4.7%.
•Other Stabilized Residential NOI, for the three months ended March 31, 2026 was $19,014,000, an increase of $15,713,000, over the prior year period due to newly acquired and recently completed Development communities.
First Quarter 2026 Development Highlights
At March 31, 2026, we owned or held a direct or indirect interest in:
•25 wholly-owned communities under construction, which are expected to contain 8,673 apartment homes with a projected total capitalized cost of $3,390,000,000.
•Land or rights to land on which we expect to develop an additional 30 apartment communities that, if developed as expected, will contain 9,866 apartment homes.
First Quarter 2026 Real Estate Transactions Highlights
During the three months ended March 31, 2026, we sold three wholly-owned communities containing 884 apartment homes for $340,750,000, for a gain in accordance with GAAP of $179,688,000.
Communities Overview
Our real estate investments consist primarily of current apartment operating communities ("Current Communities"), consolidated and unconsolidated communities in various stages of development ("Development" communities and "Unconsolidated Development" communities) and Development Rights (as defined below). Our Current Communities are further classified as Same Store communities, Other Stabilized communities, Redevelopment communities and Unconsolidated communities. While we generally establish the classification of communities on an annual basis, we 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, or if something occurs that materially impacts the operations of a community such as a casualty loss. The following is a description of each category:
Current Communities are categorized as Same Store, Other Stabilized, Redevelopment, or Unconsolidated according to the following attributes:
•Same Store is composed of consolidated communities where a comparison of operating results from the prior year to the current year is meaningful as these communities were owned and had stabilized occupancy as of the beginning of the respective prior year period. For the three month periods ended March 31, 2026 and 2025, Same Store communities are consolidated for financial reporting purposes, had stabilized occupancy as of January 1, 2025, are not conducting or expected to conduct substantial redevelopment activities and are not held for sale as of March 31, 2026 or probable for disposition to unrelated third parties within the current year. A community is considered to have stabilized occupancy at the earlier of (i) attainment of 90% physical occupancy or (ii) the one year anniversary of completion of development or redevelopment.
•Other Stabilized is composed of completed consolidated communities that we own and that are not Same Store but which have stabilized occupancy, as defined above, as of January 1, 2026, or which were acquired subsequent to January 1, 2025. Other Stabilized excludes communities that are conducting, or are probable to conduct substantial redevelopment activities within the current year, as defined below.
•Redevelopment is composed of consolidated communities where substantial redevelopment occurred, is in progress, or is probable to begin during the fiscal year. Redevelopment is considered substantial when (i) capital invested is expected to exceed the lesser of $5,000,000 or 10% of the community's pre-redevelopment basis and (ii) physical occupancy is below or is expected to be below 90% during, or as a result of, the redevelopment activity.
•Unconsolidated is composed of communities that we have an indirect ownership interest in through our investment interest in an unconsolidated joint venture.
Development is composed of consolidated communities that are either currently under construction, were under construction and were completed during the current year or where construction has been complete for less than one year and that do not have stabilized occupancy. These communities may be partially or fully complete and operating.
Unconsolidated Development is composed of communities that are either currently under construction, or were under construction and were completed during the current year, in which we have an indirect ownership interest through an unconsolidated joint venture. These communities may be partially or fully 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.
As of March 31, 2026, communities that we owned or held a direct or indirect interest in were classified as follows:
|
Number of communities |
Number of apartment homes |
|||||||||||||
| Current Communities | ||||||||||||||
| Same Store: | ||||||||||||||
| Boston, MA | 39 | 9,697 | ||||||||||||
| Metro NY/NJ | 41 | 12,795 | ||||||||||||
| Mid-Atlantic | 37 | 12,872 | ||||||||||||
| Southeast Florida | 9 | 3,091 | ||||||||||||
| Denver, CO | 8 | 2,192 | ||||||||||||
| Seattle, WA | 19 | 5,624 | ||||||||||||
| Northern California | 39 | 12,320 | ||||||||||||
| Southern California | 59 | 17,899 | ||||||||||||
| Other Expansion Regions | 12 | 3,200 | ||||||||||||
| Total Same Store | 263 | 79,690 | ||||||||||||
| Other Stabilized: | ||||||||||||||
| Boston, MA | - | - | ||||||||||||
| Metro NY/NJ | 2 | 549 | ||||||||||||
| Mid-Atlantic | - | - | ||||||||||||
| Southeast Florida | 1 | 270 | ||||||||||||
| Denver, CO | 2 | 616 | ||||||||||||
| Seattle, WA | 2 | 368 | ||||||||||||
| Northern California | - | - | ||||||||||||
| Southern California | - | - | ||||||||||||
| Other Expansion Regions | 11 | 3,404 | ||||||||||||
| Total Other Stabilized | 18 | 5,207 | ||||||||||||
| Redevelopment | 1 | 842 | ||||||||||||
| Unconsolidated | 8 | 2,394 | ||||||||||||
| Total Current | 290 | 88,133 | ||||||||||||
| Development | 29 | 10,138 | ||||||||||||
| Unconsolidated Development | - | - | ||||||||||||
| Total Communities | 319 | 98,271 | ||||||||||||
| Development Rights | 30 | 9,866 | ||||||||||||
Results of Operations
Our results of operations are driven by our operating platform and are also affected by national and local market conditions and are reflected in changes in Same Store NOI; 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 the three months ended March 31, 2026 and 2025 is as follows (unaudited, dollars in thousands).
| For the three months ended March 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| Revenue: | |||||||||||
| Rental and other income | $ | 768,446 | $ | 744,138 | |||||||
| Management, development and other fees | 1,833 | 1,742 | |||||||||
| Total revenue | 770,279 | 745,880 | |||||||||
| Expenses: | |||||||||||
| Direct property operating expenses, excluding property taxes | (158,486) | (149,187) | |||||||||
| Property taxes | (90,109) | (81,831) | |||||||||
| Total community operating expenses | (248,595) | (231,018) | |||||||||
| Property management and other indirect operating expenses | (39,933) | (37,843) | |||||||||
| Expensed transaction, development and other pursuit costs, net of recoveries | (3,416) | (4,744) | |||||||||
| Interest expense, net | (71,489) | (59,864) | |||||||||
| Depreciation expense | (233,104) | (217,888) | |||||||||
| General and administrative expense | (22,077) | (19,780) | |||||||||
| Casualty and impairment loss | (4,619) | - | |||||||||
| Loss from unconsolidated investments | (6,527) | (999) | |||||||||
| Structured Investment Program interest income | 7,481 | 6,113 | |||||||||
| Gain on sale of communities | 179,912 | 56,469 | |||||||||
| Other real estate activity | 84 | 155 | |||||||||
| Income before income taxes | 327,996 | 236,481 | |||||||||
| Income tax benefit | 294 | 116 | |||||||||
| Net income | 328,290 | 236,597 | |||||||||
| Net income attributable to noncontrolling interests | (2,560) | - | |||||||||
| Net income attributable to common stockholders | $ | 325,730 | $ | 236,597 | |||||||
Net income attributable to common stockholders increased $89,133,000, or 37.7%, to $325,730,000 for the three months ended March 31, 2026, as compared to the prior year period, primarily due to an increase in gains from real estate sales and NOI from communities, partially offset by (i) an increase in depreciation expense from newly acquired or developed communities and (ii) increased interest expense, net over the prior year period due to a higher effective rate for our unsecured indebtedness and increased commercial paper outstanding.
NOI. We define NOI as total property revenue less direct property operating expenses (including property taxes), and excluding:
•corporate-level income (such as management, development and other fees);
•property management and other 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;
•income (loss) from unconsolidated investments;
•SIP interest income;
•depreciation expense;
•income tax expense (benefit);
•casualty and impairment loss;
•gain on sale of communities;
•other real estate activity; and
•net operating income from real estate assets sold or held for sale.
Management considers NOI 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 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 group of assets.
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. Residential NOI represents results attributable to our apartment rental operations, including parking and other ancillary residential revenue. Reconciliations of NOI and Residential NOI for the three months ended March 31, 2026 and 2025 to net income for each period are as follows (unaudited, dollars in thousands):
| For the three months ended March 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| Net income | $ | 328,290 | $ | 236,597 | |||||||
| Property management and other indirect operating expenses, net of corporate income | 38,100 | 36,100 | |||||||||
| Expensed transaction, development and other pursuit costs, net of recoveries | 3,416 | 4,744 | |||||||||
| Interest expense, net | 71,489 | 59,864 | |||||||||
| General and administrative expense | 22,077 | 19,780 | |||||||||
| Loss from unconsolidated investments | 6,527 | 999 | |||||||||
| Structured Investment Program interest income | (7,481) | (6,113) | |||||||||
| Depreciation expense | 233,104 | 217,888 | |||||||||
| Income tax benefit | (294) | (116) | |||||||||
| Casualty and impairment loss | 4,619 | - | |||||||||
| Gain on sale of communities | (179,912) | (56,469) | |||||||||
| Other real estate activity | (84) | (155) | |||||||||
| Net operating income from real estate assets sold or held for sale | (2,358) | (16,724) | |||||||||
| NOI | 517,493 | 496,395 | |||||||||
| Commercial NOI (1) | (8,317) | (9,892) | |||||||||
| Residential NOI | $ | 509,176 | $ | 486,503 | |||||||
_________________________
(1)Represents results attributable to the retail and other non-residential operations at our communities ("Commercial").
The Residential NOI changes for the three months ended March 31, 2026 compared to the three months ended March 31, 2025 consist of changes in the following categories (unaudited, dollars in thousands):
| For the three months ended March 31, | |||||||||||||||||
| 2026 | 2025 | Increase/ (Decrease) | |||||||||||||||
| Same Store | $ | 479,937 | $ | 478,850 | $ | 1,087 | |||||||||||
| Other Stabilized | 19,014 | 3,301 | 15,713 | ||||||||||||||
| Development / Redevelopment | 10,225 | 4,352 | 5,873 | ||||||||||||||
| Total | $ | 509,176 | $ | 486,503 | $ | 22,673 | |||||||||||
The 0.2% increase in Same Store Residential NOI for the three months ended March 31, 2026 is due to an increase in Residential revenue of $11,053,000, or 1.6%, partially offset by an increase in Residential property operating expenses of $9,966,000, or 4.7%, over the prior year period.
Rental and other income increased $24,308,000, or 3.3%, for the three months ended March 31, 2026, compared to the prior year period, primarily due to an increase in rental revenue from our stabilized operating communities, discussed below.
Consolidated Communities - The weighted average number of occupied apartment homes for consolidated communities increased to 84,277 apartment homes for the three months ended March 31, 2026, compared to 80,703 apartment homes for the prior year period. The weighted average monthly Residential revenue per occupied apartment home was $2,991 for the three months ended March 31, 2026, compared to $3,020 in the prior year period.
Same Store Communities - The following table presents the change in Same Store Residential revenue, including the attribution of the change between average revenue per occupied home and Economic Occupancy (as defined below) for the three months ended March 31, 2026 (unaudited, dollars in thousands).
| For the three months ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential revenue | Average monthly revenue per occupied home | Economic Occupancy (1) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 |
2026 to 2025 |
2026 to 2025 |
2026 | 2025 |
2026 to 2025 |
2026 | 2025 |
2026 to 2025 |
||||||||||||||||||||||||||||||||||||||||||||||||||
| $ Change | % Change | % Change | % Change | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Boston, MA | $ | 95,057 | $ | 94,686 | $ | 371 | 0.4 | % | $ | 3,425 | $ | 3,383 | 1.2 | % | 95.4 | % | 96.2 | % | (0.8) | % | |||||||||||||||||||||||||||||||||||||||
| Metro NY/NJ | 142,141 | 139,218 | 2,923 | 2.1 | % | 3,842 | 3,779 | 1.7 | % | 96.4 | % | 96.0 | % | 0.4 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Mid-Atlantic | 95,138 | 93,917 | 1,221 | 1.3 | % | 2,565 | 2,538 | 1.1 | % | 96.0 | % | 95.8 | % | 0.2 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Southeast Florida | 26,914 | 26,749 | 165 | 0.6 | % | 2,973 | 2,959 | 0.5 | % | 97.6 | % | 97.5 | % | 0.1 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Denver, CO | 13,451 | 13,892 | (441) | (3.2) | % | 2,131 | 2,266 | (6.0) | % | 96.0 | % | 93.2 | % | 2.8 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Seattle, WA | 46,944 | 47,057 | (113) | (0.2) | % | 2,902 | 2,900 | 0.1 | % | 95.9 | % | 96.2 | % | (0.3) | % | ||||||||||||||||||||||||||||||||||||||||||||
| Northern California | 114,262 | 109,947 | 4,315 | 3.9 | % | 3,202 | 3,092 | 3.6 | % | 96.6 | % | 96.3 | % | 0.3 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Southern California | 152,785 | 150,282 | 2,503 | 1.7 | % | 2,966 | 2,916 | 1.7 | % | 95.9 | % | 95.9 | % | - | % | ||||||||||||||||||||||||||||||||||||||||||||
| Other Expansion Regions | 17,284 | 17,175 | 109 | 0.6 | % | 1,888 | 1,880 | 0.4 | % | 95.4 | % | 95.2 | % | 0.2 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Total Same Store | $ | 703,976 | $ | 692,923 | $ | 11,053 | 1.6 | % | $ | 3,064 | $ | 3,020 | 1.5 | % | 96.1 | % | 96.0 | % | 0.1 | % | |||||||||||||||||||||||||||||||||||||||
_________________________________
(1) 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 contract rates and vacant homes at market rents. Vacancy loss is determined by valuing vacant units at current market rents. Economic Occupancy considers that apartment homes of different sizes and locations within a community have different economic impacts on a community's gross revenue.
Direct property operating expenses, excluding property taxes, increased $9,299,000, or 6.2%, for the three months ended March 31, 2026, compared to the prior year period, primarily due to the addition of newly developed and acquired apartment communities as well as increased Residential operating expenses at our Same Store communities as discussed below.
Same Store Residential direct property operating expenses, excluding property taxes, increased $5,376,000, or 3.9%, for the three months ended March 31, 2026, compared to the prior year period, primarily from increased (i) utility
costs due to higher rates for electricity and water/sewer, and (ii) repairs and maintenance costs due to the continued deployment of smart home technology and increased cleaning and third-party maintenance costs.
Property taxes increased $8,278,000, or 10.1%, for the three months ended March 31, 2026, compared to the prior year period, primarily due to the addition of newly developed and acquired apartment communities and increases for our Same Store Residential portfolio, partially offset by decreased property taxes from dispositions.
Same Store Residential property taxes increased $4,590,000, or 6.0%, for the three months ended March 31, 2026, compared to the prior year period, primarily due to (i) increased rates and assessments across the portfolio, (ii) a greater benefit from tax appeals realized in the prior year period and (iii) the expiration of property tax incentive programs primarily at certain New York City properties.
Property management and other indirect operating expenses, net of corporate income increased $2,090,000, or 5.5%, for the three months ended March 31, 2026, compared to the prior year period, primarily due to advocacy costs in the current year period, partially offset by a decrease in consulting costs for strategic initiatives.
Expensed transaction, development and other pursuit costs, net of recoveries includes costs incurred for write downs and abandonment of Development Rights and development pursuits not yet considered probable for development, as well as costs related to abandoned acquisition and disposition pursuits, offset by any recoveries of costs incurred. In periods of increased acquisition and pursuit activity, periods of economic downturn or when there is limited access to capital, these costs may vary significantly from year to year. In addition, the timing for recoveries will not always align with the timing for expensing an abandoned pursuit. Expensed transaction, development and other pursuit costs, net of recoveries, was $3,416,000 and $4,744,000 for the three months ended March 31, 2026 and 2025, respectively. The amount for the three months ended March 31, 2025 includes a write-off of $3,668,000 for one development opportunity that we determined was no longer probable.
Interest expense, net increased $11,625,000, or 19.4%, for the three months ended March 31, 2026, compared to the prior year period. This category includes interest costs offset by interest capitalized for development and redevelopment activities, amortization of premium/discount on debt and any deferred gains or losses from our hedging activity, interest income and any mark-to-market impact from derivatives not in qualifying hedge relationships. The increase for the three months ended March 31, 2026 is primarily due to higher effective interest expense for our unsecured indebtedness and increased commercial paper outstanding, partially offset by increased capitalized interest compared to the prior year period.
Depreciation expense increased $15,216,000, or 7.0%, for the three months ended March 31, 2026, compared to the prior year period, primarily due to the addition of newly developed and acquired apartment communities, partially offset by dispositions.
General and administrative expense increased $2,297,000, or 11.6%, for the three months ended March 31, 2026, compared to the prior year period, primarily due to an increase in legal costs and settlements and higher severance costs.
Casualty and impairment loss for the three months ended March 31, 2026 was $4,619,000, which represents property damage and emergency response at certain of our communities resulting from casualty events. These losses relate to damage from a water pipe break at a community in New Jersey and damage at communities throughout the portfolio from winter storms.
Loss from unconsolidated investments increased $5,528,000 for the three months ended March 31, 2026, compared to the prior year period, primarily due to a non-cash write down of one property technology investment.
Structured Investment Program interest income increased $1,368,000 for the three months ended March 31, 2026, compared to the prior year period, primarily due to the increased principal amount funded in our SIP investments.
Gain on sale of communities increased $123,443,000 for the three months ended March 31, 2026, compared to the prior year period. The amount of gain realized in a particular period depends on many factors, including the number of communities sold, expected operating performance of the communities and the market conditions in the local area. For the three months ended March 31, 2026, we sold three wholly-owned communities and recognized gains of $179,912,000. For the three months ended March 31, 2025, we sold one wholly-owned community and recognized a gain of $56,469,000.
Non-GAAP Financial Measures - Reconciliation of FFO and Core FFO
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.
Consistent with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts® ("Nareit"), we calculate Funds from Operations Attributable to Common Stockholders ("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 a 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.
FFO can help with the comparison of the operating and financial performance of a real estate company between periods or as compared to different companies because the adjustments such as (i) gains or losses on sales of previously depreciated property or (ii) real estate depreciation may impact comparability as the amount and timing of these or similar items can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates. By further adjusting for items that we do not consider part of our core business operations, Core FFO can help with the comparison of our core operating performance year over year. We believe that, in order to understand our operating results, FFO and Core FFO should be considered in conjunction with net income as presented in the Condensed Consolidated Statements of Operations included elsewhere in this report.
We calculate Core FFO as FFO, adjusted for:
•joint venture gains and losses (if not adjusted through FFO), non-core costs, promoted interests from partnerships and distributions from unconsolidated ventures where income recognition is deferred;
•casualty and impairment losses or gains, net on non-depreciable real estate or other investments;
•gains or losses from early extinguishment of consolidated borrowings;
•expensed transaction, development and other pursuit costs, net of recoveries;
•legal recoveries, settlement proceeds, and certain legal costs;
•property and casualty insurance proceeds;
•gains or losses on sales of assets not subject to depreciation and other investment gains or losses;
•advocacy contributions, representing payments to promote our business interests;
•hedge ineffectiveness or gains or losses from derivatives not designated as hedges for accounting purposes;
•changes to expected credit losses associated with the lending commitments under the SIP;
•severance related costs;
•executive transition compensation costs;
•net for-sale condominium activity, including gains, marketing, operating and administrative costs and imputed carry cost; and
•income taxes.
FFO and Core FFO do not represent (i) 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, or (ii) 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. In addition, FFO and Core FFO are not necessarily indicative of cash available to fund cash needs and may not be comparable to FFO and Core FFO as calculated by other REITs.
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 (unaudited, dollars in thousands, except per share amounts):
| For the three months ended March 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| Net income attributable to common stockholders | $ | 325,730 | $ | 236,597 | |||||||
| Depreciation - real estate assets, including joint venture adjustments | 230,602 | 216,627 | |||||||||
| Income attributable to noncontrolling interests | 2,560 | - | |||||||||
| Gain on sale of previously depreciated real estate | (179,912) | (56,469) | |||||||||
| Casualty loss and impairment on real estate | 4,619 | - | |||||||||
| FFO | 383,599 | 396,755 | |||||||||
| Adjusting items: | |||||||||||
| Unconsolidated entity activity (1) | 7,116 | 1,242 | |||||||||
| Structured Investment Program loan reserve (2) | (264) | 17 | |||||||||
| Hedge accounting activity | 12 | 19 | |||||||||
| Advocacy contributions | 2,134 | - | |||||||||
| Severance related costs | 1,113 | 176 | |||||||||
| Expensed transaction, development and other pursuit costs, net of recoveries (3) | 2,581 | 3,888 | |||||||||
| Other real estate activity (4) | (84) | (133) | |||||||||
| Legal settlements and costs | 2,774 | 1,478 | |||||||||
| Income tax benefit | (294) | (116) | |||||||||
| Core FFO | $ | 398,687 | $ | 403,326 | |||||||
| Weighted average common shares outstanding - diluted | 140,812,786 | 142,486,558 | |||||||||
| Earnings per common share - diluted | $ | 2.33 | $ | 1.66 | |||||||
| FFO per common share - diluted | $ | 2.72 | $ | 2.78 | |||||||
| Core FFO per common share - diluted | $ | 2.83 | $ | 2.83 | |||||||
_________________________
(1)Amounts for the three months ended March 31, 2026 consist primarily of unrealized losses on property technology and sustainability fund investments, as well as the distribution from an unconsolidated real estate venture. The amount for three months ended March 31, 2025 consists primarily of unrealized losses on property technology and sustainability fund investments.
(2)Reflects changes to expected credit losses associated with our lending commitments primarily under the SIP. The timing and amount of actual losses that will be incurred, if any, is to be determined at the maturity of each respective lending agreement.
(3)Amount for the three months ended March 31, 2025 includes a write-off of $3,668 for one development opportunity that we determined was no longer probable.
(4)Amount for the three months ended March 31, 2026 consists primarily of gains on sale of other non-operating real estate. Amount for the three months ended March 31, 2025 consists primarily of gains on sale of non-operating real estate, as well as the imputed carry cost of for-sale residential condominiums at The Park Loggia. We compute this adjustment by multiplying the total capitalized cost of the unsold for-sale residential condominiums by the weighted average effective interest rate on our unsecured debt.
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;
•regularly scheduled principal and interest payments and principal payments either at maturity or opportunistically before maturity;
•normal recurring operating and corporate overhead expenses; and
•investment in our operating platform, including strategic investments.
Factors affecting our liquidity and capital resources include 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 owned, (ii) rental
rates, (iii) occupancy levels, (iv) uncollectible lease revenue levels or interruptions in collections caused by market conditions (v) operating expenses and (vi) capital expenditures with respect to our communities. 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 restricted cash of $291,094,000 at March 31, 2026, a decrease of $61,989,000 from $353,083,000 at December 31, 2025. The following discussion relates to changes in cash, cash equivalents and restricted cash due to operating, investing and financing activities.
A presentation of GAAP based cash flow metrics is as follows (unaudited, dollars in thousands):
| For the three months ended March 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| Net cash provided by operating activities | $ | 418,933 | $ | 415,903 | |||||||
| Net cash used in investing activities | $ | (48,980) | $ | (427,865) | |||||||
| Net cash used in financing activities | $ | (431,942) | $ | (36,007) | |||||||
•Net cash provided by operating activities increased primarily due to an increase in NOI from our stabilized operating communities as well as from our Development communities.
•Net cash used in investing activities decreased primarily due to (i) an increase in net proceeds from the disposition of real estate assets and (ii) a decrease in the acquisition of real estate assets from the prior year period, partially offset by increased investment in the development and redevelopment of apartment communities.
•Net cash used in financing activities increased primarily due to (i) the repurchase of 1,130,336 shares of common stock at an average price of $175.59 per share for a total purchase price including fees of $198,480,000 in the current year period and (ii) a decrease in net borrowings under our Commercial Paper Program over the prior year period.
Variable Rate Unsecured Credit Facility
We have a $2,500,000,000 revolving variable rate unsecured credit facility with a syndicate of banks which matures in April 2030. The interest rate that would be applicable to borrowings under the Credit Facility was 4.33% at May 5, 2026 and is composed of (i) SOFR, applicable to the period of borrowing for a particular draw of funds from the Credit Facility (e.g., one month to maturity, three months to maturity, etc.), plus (ii) the current borrowing spread to SOFR of 0.705% per annum, assuming a daily SOFR borrowing rate. The borrowing spread to SOFR can vary from SOFR plus 0.65% to SOFR plus 1.40% based upon the rating of our unsecured senior notes. There is also an annual facility commitment fee of 0.12% of the borrowing capacity under the Credit Facility, which can vary from 0.10% to 0.30% based upon the rating of our unsecured senior notes. The Credit Facility contains a sustainability-linked pricing component which provides for interest rate margin and commitment fee reductions or increases related to certain environmental sustainability targets, specifically greenhouse gas emission reductions, with the adjustment determined annually. The most recent annual determination under the sustainability-linked pricing component occurred in July 2025, maintaining reductions of approximately 0.02% to the interest rate margin and 0.005% to the commitment fee due to our achievement of sustainability targets.
The availability on the Credit Facility as of May 5, 2026 is as follows (dollars in thousands):
| May 5, 2026 | |||||
| Credit Facility commitment | $ | 2,500,000 | |||
| Credit Facility outstanding | - | ||||
| Commercial paper outstanding | (910,000) | ||||
| Letters of credit outstanding (1) | (864) | ||||
| Total Credit Facility available | $ | 1,589,136 | |||
_____________________________________
(1)In addition, we had $51,574 outstanding in additional letters of credit unrelated to the Credit Facility as of May 5, 2026.
Commercial Paper Program
We have a Commercial Paper Program with a maximum amount of commercial paper notes that can be outstanding at any one time not to exceed $1,000,000,000. Under the terms of the Commercial Paper Program, we may issue unsecured commercial paper notes with maturities of less than one year. The Commercial Paper Program is backstopped by our commitment to maintain available borrowing capacity under the Credit Facility in an amount equal to actual borrowings under the Commercial Paper Program. As of May 5, 2026, we had $910,000,000 of borrowings outstanding under the Commercial Paper Program.
Secured and Unsecured Borrowings - Financial Covenants and Early Repayment Provisions
We are subject to financial covenants contained in the Credit Facility, the Term Loan 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 March 31, 2026.
In addition, some of our secured and unsecured borrowings include yield maintenance, defeasance or prepayment penalty provisions, which could 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 borrowings are generally consistent with other similar types of debt instruments issued during the same time period in which our borrowings were issued.
Continuous Equity Offering Program
Under our continuous equity program (the "CEP"), 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. During the three months ended March 31, 2026 and through May 5, 2026, we had no sales under the CEP. As of May 5, 2026, we had $623,997,000 remaining authorized for issuance under the program.
Forward Equity Offering
In addition to the CEP, during the year ended December 31, 2024, we completed an underwritten public offering pursuant to which we entered into forward contracts to sell 3,680,000 shares of common stock at a discount to the closing price of $226.52 per share for approximate net proceeds of $808,606,000 based on the initial forward price. Settlement of the forward contracts is expected to occur on one or more dates not later than December 31, 2026. The final proceeds will be determined on the date(s) of settlement and are subject to certain customary adjustments for dividends and a daily interest factor.
Stock Repurchases
In February 2026, we terminated the Company's then-existing stock repurchase program (the "2025 Stock Repurchase Program") and adopted 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 $1,000,000,000 (the "2026 Stock Repurchase Program"). Purchases of common stock under the 2026 Stock Repurchase Program may occur from time to time at the Company's discretion. 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 2026 Stock Repurchase Program does not have an expiration date and may be suspended or terminated at any time without prior notice. During the three months ended March 31, 2026, we repurchased 1,130,336 shares of common stock at an average price of $175.59 per share, including fees, for a total of $198,480,000 under the 2025 Stock Repurchase Program and the 2026 Stock Repurchase Program. As of March 31, 2026, the Company had $914,354,000 remaining capacity under the 2026 Stock Repurchase Program. There have been no repurchases subsequent to March 31, 2026.
Interest Rate Swap Agreements
During the three months ended March 31, 2026, we entered into $150,000,000 of forward starting interest rate swap agreements designated as cash flow hedges of interest rate variability on future debt issuance activity through December 31, 2026. We expect to cash settle the swaps and either pay or receive cash for the then current fair value, and will amortize the deferred hedging gain or loss over the life of the hedged debt as a component of interest expense, net.
Future Financing and Capital Needs - Debt Maturities and Material Obligations
One of our principal long-term liquidity needs is the repayment of long-term debt at maturity. For both our unsecured and secured debt, a portion of the principal of the debt may be repaid prior to maturity. Early retirement of our unsecured or secured debt could result in gains or losses on extinguishment. We may use capital from a variety of sources to repay debt at maturity, including cash from operations and proceeds received from the dispositions of our operating communities or other direct and indirect investments in real estate. 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, including through the settlement of the outstanding equity forwards, additional debt financing that is secured by mortgages on individual communities or groups of communities or borrowings under our Credit Facility or Commercial Paper Program. In addition, to the extent we have amounts outstanding under the Commercial Paper Program, we are obligated to repay the short-term indebtedness at maturity through either current cash on hand or by incurring other indebtedness, including by way of borrowing under our Credit Facility. While 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.
The following table details our consolidated debt obligations, including the effective interest rate and contractual maturity dates, and principal payments for periodic amortization and maturities for the next five years, excluding our Credit Facility and Commercial Paper Program and amounts outstanding related to communities classified as held for sale, at March 31, 2026 and December 31, 2025 (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 other than as disclosed related to the AVA Arts District loan (see "Unconsolidated Operating Communities" for further discussion of the AVA Arts District loan).
|
Effective interest rate (1) |
Principal maturity date |
Balance Outstanding (2) | Scheduled Maturities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt | 3/31/2026 | 12/31/2025 | 2026 | 2027 | 2028 | 2029 | 2030 | Thereafter | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tax-exempt bonds | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Variable rate | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Avalon Acton | 3.46 | % | Jul-2040 | (3) | $ | 45,000 | $ | 45,000 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 45,000 | ||||||||||||||||||||||||||||||||||||||||||
| Avalon Clinton North | 4.11 | % | Nov-2038 | (3) | 126,400 | 126,400 | - | - | - | - | - | 126,400 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Avalon Clinton South | 4.11 | % | Nov-2038 | (3) | 104,500 | 104,500 | - | - | - | - | - | 104,500 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Avalon Midtown West | 4.11 | % | May-2029 | (3) | 62,500 | 62,500 | 8,800 | 8,900 | 9,800 | 35,000 | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Avalon San Bruno I | 4.00 | % | Dec-2037 | (3) | 51,450 | 52,150 | 1,200 | 2,700 | 2,900 | 3,100 | 3,300 | 38,250 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 389,850 | 390,550 | 10,000 | 11,600 | 12,700 | 38,100 | 3,300 | 314,150 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conventional loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed rate | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| $475 million unsecured notes | 3.35 | % | May-2026 | 475,000 | 475,000 | 475,000 | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| $300 million unsecured notes | 3.01 | % | Oct-2026 | 300,000 | 300,000 | 300,000 | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| $350 million unsecured notes | 3.95 | % | Oct-2046 | 350,000 | 350,000 | - | - | - | - | - | 350,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| $400 million unsecured notes | 3.50 | % | May-2027 | 400,000 | 400,000 | - | 400,000 | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| $300 million unsecured notes | 4.09 | % | Jul-2047 | 300,000 | 300,000 | - | - | - | - | - | 300,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| $450 million unsecured notes | 3.32 | % | Jan-2028 | 450,000 | 450,000 | - | - | 450,000 | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| $300 million unsecured notes | 3.97 | % | Apr-2048 | 300,000 | 300,000 | - | - | - | - | - | 300,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| $450 million unsecured notes | 3.66 | % | Jun-2029 | 450,000 | 450,000 | - | - | - | 450,000 | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| $700 million unsecured notes | 2.69 | % | Mar-2030 | 700,000 | 700,000 | - | - | - | - | 700,000 | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| $600 million unsecured notes | 2.65 | % | Jan-2031 | 600,000 | 600,000 | - | - | - | - | - | 600,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| $700 million unsecured notes | 2.16 | % | Jan-2032 | 700,000 | 700,000 | - | - | - | - | - | 700,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| $400 million unsecured notes | 2.03 | % | Dec-2028 | 400,000 | 400,000 | - | - | 400,000 | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| $350 million unsecured notes | 4.38 | % | Feb-2033 | 350,000 | 350,000 | - | - | - | - | - | 350,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| $400 million unsecured notes | 5.19 | % | Dec-2033 | 400,000 | 400,000 | - | - | - | - | - | 400,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| $400 million unsecured notes | 5.05 | % | Jun-2034 | 400,000 | 400,000 | - | - | - | - | - | 400,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| $400 million unsecured notes | 5.05 | % | Aug-2035 | 400,000 | 400,000 | - | - | - | - | - | 400,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| $400 million unsecured notes | 4.52 | % | Dec-2030 | 400,000 | 400,000 | - | - | - | - | 400,000 | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| $550 million Term Loan | 4.44 | % | Apr-2029 | (4) | 550,000 | 550,000 | - | - | - | 550,000 | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Avalon Walnut Creek | 4.00 | % | Jul-2066 | 4,868 | 4,868 | - | - | - | - | - | 4,868 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| eaves Los Feliz | 3.68 | % | Jun-2027 | 41,400 | 41,400 | - | 41,400 | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| eaves Woodland Hills | 3.67 | % | Jun-2027 | 111,500 | 111,500 | - | 111,500 | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Avalon Russett | 3.77 | % | Jun-2027 | 32,200 | 32,200 | - | 32,200 | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Avalon San Bruno III | 2.38 | % | Mar-2027 | 51,000 | 51,000 | - | 51,000 | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Avalon Cerritos | 3.34 | % | Aug-2029 | 30,250 | 30,250 | - | - | - | 30,250 | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Avalon West Plano | 5.97 | % | May-2029 | 61,102 | 61,384 | 829 | 1,159 | 1,202 | 57,912 | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 8,257,320 | 8,257,602 | 775,829 | 637,259 | 851,202 | 1,088,162 | 1,100,000 | 3,804,868 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total indebtedness - excluding Credit Facility and Commercial Paper | $ | 8,647,170 | $ | 8,648,152 | $ | 785,829 | $ | 648,859 | $ | 863,902 | $ | 1,126,262 | $ | 1,103,300 | $ | 4,119,018 | ||||||||||||||||||||||||||||||||||||||||||||||
_________________________
(1)Rates are as of March 31, 2026 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 debt of $43,680 and $45,620 as of March 31, 2026 and December 31, 2025, respectively, and deferred financing costs and debt discount for the secured notes of $12,994 and $13,588 as of March 31, 2026 and December 31, 2025, respectively, as reflected on our Condensed Consolidated Balance Sheets included elsewhere in this report.
(3)Financed by variable rate debt, but interest rate is capped through an interest rate protection agreement.
(4)The variable rate Term Loan has been swapped to an effective fixed rate using interest rate swaps.
In addition to consolidated debt, we have scheduled contractual obligations associated with (i) ground leases for land underlying current operating or development communities and commercial and parking facilities and (ii) office leases for our corporate headquarters and regional offices. As of March 31, 2026, other than as discussed in this Form 10-Q, there have been no other material changes in our scheduled contractual obligations as disclosed in the Form 10-K.
Future Financing and Capital Needs - Portfolio and Capital Markets Activity
We invest in various real estate and real estate related investments, which include (i) the acquisition, development and redevelopment of communities both wholly-owned and through the formation of joint ventures, (ii) other indirect investments in real estate through the SIP, all as discussed further below and (iii) investments in other real estate-related ventures through direct and indirect investments in third-party property technology and sustainability focused companies and investment management funds.
In 2026, we expect to continue to meet our liquidity needs from one or more of a variety of internal and external sources, which may include (i) settlement of our outstanding equity forward contracts, (ii) real estate dispositions, (iii) cash balances on hand as well as cash generated from our operating activities, (iv) borrowing capacity under the Credit Facility, (v) borrowings under the Commercial Paper Program and (vi) secured and unsecured debt financings. Additional sources of liquidity in 2026 may include the issuance of common and preferred equity, including the issuance of additional shares of our common stock under the CEP. 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 financial prospects.
Before beginning new construction or reconstruction activity, 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 on acceptable terms or at all. In the event that financing cannot be obtained, we may 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.
From time to time, we use joint ventures to hold or develop individual real estate assets. We generally employ joint ventures to mitigate asset concentration or market risk and 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 addition, we may invest, through mezzanine loans or preferred equity investments, in multifamily development projects being undertaken by third parties. In these cases, we do not expect to acquire the underlying real estate but rather to earn a return on our investment (through interest or fixed rate preferred equity returns) and a return of the invested capital generally following completion of construction either on or before a set due date.
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, redevelop and acquire 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. While we believe that the temporary absence of future cash flows from communities sold will not materially impair our liquidity, the timing and success of reinvestment of sale proceeds may vary and is subject to market conditions.
Unconsolidated Operating Communities
As of March 31, 2026, we had investments in the following unconsolidated real estate entities accounted for under the equity method of accounting. See Note 5, "Investments," of the Condensed Consolidated Financial Statements included elsewhere in this report. For joint ventures holding operating apartment communities as of March 31, 2026, detail of the real estate and associated indebtedness underlying our unconsolidated investments is presented in the following table (dollars in thousands).
|
Company ownership percentage |
# of apartment homes | Total capitalized cost | Debt (1) | |||||||||||||||||||||||||||||||||||||||||
|
Principal amount |
Interest rate | Maturity date | ||||||||||||||||||||||||||||||||||||||||||
| Unconsolidated Real Estate Investments | Type | |||||||||||||||||||||||||||||||||||||||||||
| NYTA MF Investors, LLC | ||||||||||||||||||||||||||||||||||||||||||||
| 1. Avalon Bowery Place I - New York, NY | 206 | $ | 218,614 | $ | 93,800 | Fixed | 4.01 | % | Jan 2029 | |||||||||||||||||||||||||||||||||||
| 2. Avalon Bowery Place II - New York, NY | 90 | 91,793 | 39,639 | Fixed | 4.01 | % | Jan 2029 | |||||||||||||||||||||||||||||||||||||
| 3. Avalon Morningside - New York, NY (2) | 295 | 217,490 | 111,295 | Fixed | 3.55 | % | Jan 2029/May 2046 | |||||||||||||||||||||||||||||||||||||
| 4. Avalon West Chelsea - New York, NY (3) | 305 | 130,828 | 66,000 | Fixed | 4.01 | % | Jan 2029 | |||||||||||||||||||||||||||||||||||||
| 5. AVA High Line - New York, NY (3) | 405 | 123,366 | 84,000 | Fixed | 4.01 | % | Jan 2029 | |||||||||||||||||||||||||||||||||||||
| Total NYTA MF Investors, LLC | 20.0 | % | 1,301 | 782,091 | 394,734 | 3.88 | % | |||||||||||||||||||||||||||||||||||||
| Other Operating Joint Ventures | ||||||||||||||||||||||||||||||||||||||||||||
|
1. MVP I, LLC - Avalon at Mission Bay II - San Francisco, CA |
25.0 | % | 313 | 130,855 | - | - | - | - | ||||||||||||||||||||||||||||||||||||
|
2. Brandywine Apartments of Maryland, LLC - Brandywine - Washington, D.C. |
28.6 | % | 305 | 20,093 | 17,468 | Fixed | 3.40 | % | Jun 2028 | |||||||||||||||||||||||||||||||||||
|
3. Arts District Joint Venture - AVA Arts District - Los Angeles, CA (4) |
25.0 | % | 475 | 288,633 | 162,911 | Variable | 6.38 | % | Jul 2028 | |||||||||||||||||||||||||||||||||||
| Total Other Joint Ventures | 1,093 | 439,581 | 180,379 | 6.09 | % | |||||||||||||||||||||||||||||||||||||||
| Total Unconsolidated Real Estate Investments (5) | 2,394 | $ | 1,221,672 | $ | 575,113 | 4.57 | % | |||||||||||||||||||||||||||||||||||||
_____________________________
(1)We have not guaranteed the debt of these unconsolidated investees and bear no responsibility for the repayment other than for the Arts District joint venture as discussed below in footnote 4.
(2)Borrowing on this community is comprised of two mortgage loans. The interest rate is the weighted average interest rate as of March 31, 2026.
(3)Borrowing on this dual-branded community is comprised of a single mortgage loan. This dual-branded community is subject to a leasehold interest which is not included in the total capitalized cost.
(4)AVA Arts District completed development during the year ended December 31, 2024 and achieved stabilized residential operations. The outstanding borrowing is subject to an interest rate cap, which will limit the interest rate to 8.2%, based on the current borrowing spread. While we guarantee 25% of the venture's construction loan, any amounts payable under the guarantee are obligations of the joint venture partners in proportion to their ownership interest.
(5)In addition to leasehold assets, there were net other assets of $40,074 as of March 31, 2026 associated with our unconsolidated real estate investments which are primarily cash and cash equivalents.
Development Communities
As of March 31, 2026, we owned or held a direct interest in 25 Development communities under construction. We expect these Development communities, when completed, to add a total of 8,673 apartment homes and 69,000 square feet of commercial space to our portfolio for a total capitalized cost, including land acquisition costs, of approximately $3,390,000,000. We cannot assure you that we will meet our schedule for construction completion or that we will meet our budgeted costs, either individually, or in the aggregate.
The following table presents a summary of the Development communities.
|
Number of apartment homes |
Projected total capitalized cost (1) ($ millions) |
Construction start |
Initial projected or actual occupancy |
Estimated completion |
Estimated stabilized operations (2) |
||||||||||||||||||||||||||||||||||||
| 1. |
Avalon West Windsor (3) West Windsor, NJ |
535 | $ | 210 | Q2 2022 | Q3 2025 | Q4 2026 | Q2 2027 | |||||||||||||||||||||||||||||||||
| 2. |
Avalon Wayne Wayne, NJ |
473 | 171 | Q4 2023 | Q2 2025 | Q3 2026 | Q1 2027 | ||||||||||||||||||||||||||||||||||
| 3. |
Avalon Parsippany Parsippany, NJ |
410 | 147 | Q4 2023 | Q3 2025 | Q2 2026 | Q4 2026 | ||||||||||||||||||||||||||||||||||
| 4. |
Avalon Pleasanton Pleasanton, CA |
362 | 218 | Q2 2024 | Q3 2025 | Q3 2027 | Q1 2028 | ||||||||||||||||||||||||||||||||||
| 5. |
Avalon at Becker Farm Roseland, NJ |
533 | 190 | Q2 2024 | Q4 2025 | Q4 2026 | Q2 2027 | ||||||||||||||||||||||||||||||||||
| 6. |
Avalon Quincy Adams Quincy, MA |
288 | 122 | Q2 2024 | Q1 2026 | Q3 2026 | Q2 2027 | ||||||||||||||||||||||||||||||||||
| 7. |
Avalon Tech Ridge I Austin, TX |
544 | 153 | Q3 2024 | Q1 2026 | Q2 2027 | Q4 2027 | ||||||||||||||||||||||||||||||||||
| 8. |
Avalon Carmel (4) Charlotte, NC |
360 | 123 | Q3 2024 | Q2 2026 | Q4 2026 | Q3 2027 | ||||||||||||||||||||||||||||||||||
| 9. |
Avalon Plano (4) Plano, TX |
155 | 58 | Q3 2024 | Q3 2026 | Q2 2027 | Q1 2028 | ||||||||||||||||||||||||||||||||||
| 10. |
Avalon Oakridge I Durham, NC |
459 | 149 | Q3 2024 | Q1 2027 | Q1 2028 | Q3 2028 | ||||||||||||||||||||||||||||||||||
| 11. |
AVA Brewer's Hill Baltimore, MD |
418 | 134 | Q4 2024 | Q4 2026 | Q4 2027 | Q1 2028 | ||||||||||||||||||||||||||||||||||
| 12. |
Kanso Hillcrest San Diego, CA |
182 | 85 | Q4 2024 | Q1 2027 | Q2 2027 | Q4 2027 | ||||||||||||||||||||||||||||||||||
| 13. |
Avalon Parker Parker, CO |
312 | 122 | Q1 2025 | Q3 2026 | Q2 2027 | Q1 2028 | ||||||||||||||||||||||||||||||||||
| 14. |
Avalon North Palm Beach (3) Lake Park, FL |
279 | 118 | Q1 2025 | Q1 2027 | Q3 2027 | Q1 2028 | ||||||||||||||||||||||||||||||||||
| 15. |
Avalon Brier Creek Durham, NC |
400 | 126 | Q2 2025 | Q3 2026 | Q3 2027 | Q2 2028 | ||||||||||||||||||||||||||||||||||
| 16. |
Avalon Kendall (4) Kendall, FL |
224 | 83 | Q2 2025 | Q4 2026 | Q1 2027 | Q4 2027 | ||||||||||||||||||||||||||||||||||
| 17. |
Avalon Mission Valley (3) San Diego, CA |
621 | 302 | Q3 2025 | Q1 2028 | Q1 2029 | Q3 2029 | ||||||||||||||||||||||||||||||||||
| 18. |
Avalon Southpoint (4) Durham, NC |
394 | 132 | Q3 2025 | Q4 2026 | Q1 2028 | Q3 2028 | ||||||||||||||||||||||||||||||||||
| 19. |
Avalon Northwest Hills Austin, TX |
252 | 87 | Q4 2025 | Q3 2027 | Q1 2028 | Q3 2028 | ||||||||||||||||||||||||||||||||||
| 20. |
Kanso Parsippany Parsippany, NJ |
280 | 104 | Q4 2025 | Q2 2027 | Q4 2027 | Q3 2028 | ||||||||||||||||||||||||||||||||||
| 21. |
Avalon Billerica Billerica, MA |
200 | 73 | Q4 2025 | Q2 2027 | Q4 2027 | Q3 2028 | ||||||||||||||||||||||||||||||||||
| 22. |
Avalon Townhome Collection Arundel Mills (4) Hanover, MD |
90 | 45 | Q4 2025 | Q4 2026 | Q4 2026 | Q4 2027 | ||||||||||||||||||||||||||||||||||
| 23. |
Avalon San Ramon San Ramon, CA |
456 | 250 | Q4 2025 | Q3 2027 | Q3 2028 | Q1 2029 | ||||||||||||||||||||||||||||||||||
| 24. |
Avalon Somerville Station II Somerville, NJ |
171 | 65 | Q1 2026 | Q2 2027 | Q4 2027 | Q3 2028 | ||||||||||||||||||||||||||||||||||
| 25. |
Avalon Saddle River Saddle River, NJ |
275 | 123 | Q1 2026 | Q4 2027 | Q3 2028 | Q4 2028 | ||||||||||||||||||||||||||||||||||
| Total | 8,673 | $ | 3,390 | ||||||||||||||||||||||||||||||||||||||
_________________________________
(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)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.
(3)Development communities containing at least 10,000 square feet of commercial space include Avalon West Windsor (19,000 sf), Avalon North Palm Beach (10,000 sf), and Avalon Mission Valley (31,000 sf).
(4)Communities being developed through our Developer Funding Program ("DFP"). The DFP utilizes third-party multifamily developers to source and construct communities which we own and operate.
During the three months ended March 31, 2026, we completed the development of the following wholly-owned community:
|
Number of apartment homes |
Total capitalized cost (1) ($ millions) |
Approximate rentable area (sq. ft.) |
Total capitalized cost per sq. ft. | ||||||||||||||||||||||||||
| 1. |
Avalon Lake Norman Mooresville, NC |
345 | $ | 102 | 377,000 | $ | 271 | ||||||||||||||||||||||
| Total | 345 | $ | 102 | ||||||||||||||||||||||||||
____________________________________
(1)Total capitalized cost is as of March 31, 2026. We generally anticipate incurring additional costs associated with this community which is customary for new developments.
Development Rights
At March 31, 2026, we had $135,134,000 in acquisition and related capitalized costs for direct interests in seven land parcels we own and intend to develop. In addition, we had $68,765,000 in capitalized costs (including legal fees, design fees and related overhead costs) related to pursuits probable of future development including (i) 18 Development Rights for which we control the land parcel, typically through a conditional agreement or option to purchase or lease the land, as well as (ii) costs incurred for five Development Rights that we expect to construct as additional phases of our existing stabilized operating communities on land we own. Collectively, the land held for development and associated costs for deferred Development Rights relate to 30 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 communities would ultimately add approximately 9,866 apartment homes to our portfolio. Substantially all of these apartment homes will offer features like those offered by the communities we currently own.
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. We incurred expense of $3,416,000 and $4,744,000 for the three months ended March 31, 2026 and 2025, respectively, 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. The amount for the three months ended March 31, 2025 includes a write-off of $3,668,000 for one development opportunity that we determined was no longer probable.
Structured Investment Program
In April 2026, we entered into one new SIP commitment, agreeing to provide an aggregate investment of up to $15,000,000 in a multifamily development project in Metro NY/NJ.
As of May 5, 2026, we had nine commitments to fund up to $241,785,000 in the aggregate under the SIP. As of May 5, 2026, our investment commitments had a weighted average rate of return of 11.8% and a weighted average final maturity date of November 2028, inclusive of the impact of contractual extension options which typically allow the borrower to extend the maturity of their loan by up to two years from the initial maturity date. As of May 5, 2026, we had funded $221,459,000 of these commitments. See Note 5, "Investments," of the Condensed Consolidated Financial Statements included elsewhere in this report.
You should carefully review Part I, Item 1A. "Risk Factors" of the Form 10-K, as well as the discussion under Part II, Item 1A. "Risk Factors" in this report, for a discussion of the risks associated with our investment activity.
Forward-Looking Statements
This Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The Company's forward-looking statements generally use the words "believe," "expect," "anticipate," "intend," "estimate," "assume," "project," "plan," "may," "shall," "will," "pursue" and other similar expressions that indicate future events and trends and do not report historical matters. These statements, among other things, address the Company's intent, belief or expectations with respect to:
•development, redevelopment, acquisition or disposition of communities;
•the timing and cost of completion of communities under development or redevelopment;
•the timing of lease-up, occupancy and stabilization of communities;
•the pursuit of land for 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; including rent caps;
•our expansion into new regions;
•our declaration or payment of dividends;
•our joint venture 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 regions where we operate and in general;
•the availability of debt and equity financing;
•interest rates;
•inflation, tariffs and other economic conditions, and their potential impacts;
•trends affecting our financial condition or results of operations;
•regulatory changes that may affect us; and
•the impact of legal proceedings.
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 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 Part I, Item 1A. "Risk Factors" of the Form 10-K and Part II, Item 1A. "Risk Factors" in this report, for further discussion of risks associated with forward-looking statements.
Some of the factors that could cause our actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements include, but are not limited to, the following:
•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 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 expected rental revenues;
•occupancy rates and market rents may be adversely affected by competition and local economic and market conditions which are beyond our control;
•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;
•an outbreak of disease or other public health event may affect the multifamily industry and general economy;
•our cash flows may be insufficient to meet required payments of principal and interest, and we may be unable to refinance existing indebtedness or the terms of such refinancing may not be as favorable as the terms of existing indebtedness;
•we may be unsuccessful in our management of joint ventures and the REIT vehicles that are used with certain joint ventures;
•we may experience a casualty loss, natural disaster or severe weather event, including those caused by climate change;
•new or existing laws and regulations implementing rent control or rent stabilization, or otherwise limiting our ability to increase rents, charge non-rent 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 legal proceedings may change;
•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; and
•investments made under the SIP may not be repaid as expected or the development may not be completed on schedule, which could require us to engage in litigation, foreclosure actions, and/or first party project completion to recover our investment, which may not be recovered in full or at all in such event.
Critical Accounting Policies and Estimates
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. Our critical accounting policies consist of the following: (i) cost capitalization and (ii) abandoned pursuit costs and asset impairment. Our critical accounting policies and estimates have not changed materially from the discussion of our significant accounting policies found in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Form 10-K.
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