Investments in Real Estate Entities

9 Months Ended

Sep. 30, 2021

Equity Method Investments and Joint Ventures [Abstract]

Investments in Unconsolidated Real Estate Entities

As of September 30, 2021, the Company had investments in eight unconsolidated real estate entities with ownership interest percentages ranging from 20.0% to 50.0% and other unconsolidated investments. The Company accounts for its investments in unconsolidated real estate entities under the equity method of accounting or under the measurement alternative with the carrying amount of the investment adjusted to fair value when there is an observable transaction for the same or similar investment of the same issuer indicating a change in fair value. The significant accounting policies of the Company's unconsolidated real estate entities are consistent with those of the Company in all material respects.

During the nine months ended September 30, 2021, Archstone Multifamily Partners AC JV LP (the "AC JV") sold its final two communities, Avalon North Point and Avalon North Point Lofts, located in Cambridge, MA, containing an aggregate of 529 apartment homes, for $325,000,000. The Company's share of the gain was $23,305,000. In conjunction with the disposition of Avalon North Point, the AC JV repaid a $111,653,000 loan to the equity investors in the venture at par.

The following is a combined summary of the financial position of the entities accounted for using the equity method or the measurement alternative discussed above as of the dates presented, including development joint ventures started and unconsolidated communities sold during the respective periods (dollars in thousands):


	9/30/2021		12/31/2020
	(unaudited)
Assets:
Real estate, net	$	1,171,955	$	1,249,730
Other assets	326,339		255,606
Total assets	$	1,498,294	$	1,505,336

Liabilities and partners' capital:
Mortgage notes payable, net (1)	$	636,796	$	751,257
Other liabilities	172,660		163,808
Partners' capital	688,838		590,271
Total liabilities and partners' capital	$	1,498,294	$	1,505,336

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(1) Includes the variable rate construction loan secured by AVA Arts District, of which $1,032,000 has been drawn as of September 30, 2021. The Company has guaranteed the construction loan on behalf of the venture, and any obligations the Company may incur under the guarantee, except for those due to misconduct by the Company, are required capital contributions of the partners based on ownership interest. The Company has not guaranteed any other outstanding debt, nor does the Company have any obligation to fund this debt should the unconsolidated entity be unable to do so.

The following is a combined summary of the operating results of the entities accounted for using the equity method discussed above for the periods presented (dollars in thousands):


	For the three months ended				For the nine months ended
	9/30/2021		9/30/2020		9/30/2021		9/30/2020
	(unaudited)				(unaudited)
Rental and other income (1)	$	44,819	$	28,800	$	111,562	$	92,299
Operating and other expenses	(10,698)		(12,782)		(34,992)		(37,034)
Gain on sale of communities	—		18,408		164,317		18,448
Interest expense, net	(6,137)		(8,024)		(21,386)		(24,133)
Depreciation expense	(6,912)		(8,704)		(22,831)		(26,106)
Net income	$	21,072	$	17,698	$	196,670	$	23,474

Company's share of net income from investments in unconsolidated entities	$	7,287	$	5,611	$	34,435	$	8,357
Amortization of excess investment and other	(420)		(528)		(1,476)		(1,587)
Income from investments in unconsolidated entities	$	6,867	$	5,083	$	32,959	$	6,770

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(1) Includes unrealized gains on property technology investments during the three and nine months ended September 30, 2021.

Investments in Consolidated Real Estate Entities

During the nine months ended September 30, 2021, the Company acquired four consolidated communities:

•Avalon Arundel Crossing East, located in Linthicum Heights, MD, which contains 384 apartment homes and was acquired for a purchase price of $119,000,000.

•The Nexus Lakeside, located in Flower Mound, TX, which contains 425 apartment homes and 18,000 square feet of commercial space and was acquired for a purchase price of $117,000,000.

•Hub South End, located in Charlotte, NC, which contains 265 apartment homes and 23,000 square feet of commercial space and was acquired for a purchase price of $104,350,000.

•Three30Five, located in Charlotte, NC, which contains 164 apartment homes and was acquired for a purchase price of $52,650,000.

The Company accounted for these purchases 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 value of the land, a valuation model for the value of the building, and an internal model to determine the fair value 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.

Expensed Transaction, Development and Other Pursuit Costs

The Company capitalizes pre-development costs incurred in pursuit of new development opportunities for which the Company currently believes future development is probable ("Development Rights"). Future development of these Development Rights is dependent upon various factors, including zoning and regulatory approval, rental market conditions, construction costs and the availability of capital. Initial pre-development costs incurred for pursuits for which future development is not yet considered probable are expensed as incurred. In addition, if the status of a Development Right changes, making future development by the Company no longer probable, any non-recoverable capitalized pre-development costs are expensed. The Company expensed costs related to development pursuits not yet considered probable for development and the abandonment of Development Rights, as well as costs incurred in pursuing the acquisition or disposition of assets for which such acquisition and disposition activity did not occur. The amounts for the three and nine months ended September 30, 2021 and 2020, were $417,000 and $1,900,000 and $567,000 and $4,289,000, respectively. These costs are included in expensed transaction, development and other pursuit costs, net of recoveries on the accompanying Condensed Consolidated Statements of Comprehensive Income. Abandoned pursuit costs can vary greatly, and the costs incurred in any given period may be significantly different in future periods.

Casualty and Impairment of Long-Lived Assets

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

The Company evaluates its real estate and other long-lived assets for impairment when potential indicators of impairment exist. Such assets are stated at cost, less accumulated depreciation and amortization, unless the carrying amount of the asset is not recoverable. If events or circumstances indicate that the carrying amount of a property or long-lived asset may not be recoverable, the Company assesses its recoverability by comparing the carrying amount of the property or long-lived asset to its estimated undiscounted future cash flows. If the carrying amount exceeds the aggregate undiscounted future cash flows, the Company recognizes an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property or long-lived asset. Based on periodic tests of recoverability of long-lived assets, the Company did not recognize any impairment losses for the three and nine months ended September 30, 2021 and 2020, other than those related to casualty losses from property damage. During the three and nine months ended September 30, 2021, the Company recognized a charge of $1,971,000 for the property and casualty damages across several communities in its East Coast markets related to severe storms, reported as casualty and impairment loss on the accompanying Condensed Consolidated Statements of Comprehensive Income. In addition, during the nine months ended September 30, 2021, the Company recognized a charge of $1,146,000 for

the property and casualty damages resulting from a fire at an operating community, reported as casualty and impairment loss on the accompanying Condensed Consolidated Statements of Comprehensive Income.

The Company evaluates its for-sale condominium inventory for potential indicators of impairment, considering whether the fair value of the individual for-sale condominium units exceeds the carrying value of those units. For-sale condominium inventory is stated at cost, unless the carrying amount of the inventory is not recoverable when compared to the fair value of each unit. The Company determines the fair value of its for-sale condominium inventory as the estimated sales price less direct costs to sell. For the three and nine months ended September 30, 2021 and 2020, the Company did not recognize any impairment losses on its for-sale condominium inventory.

The Company assesses its portfolio of land held for both development and investment for impairment if the intent of the Company changes with respect to either the development of, or the expected holding period for, the land. During the three and nine months ended September 30, 2021 and 2020, the Company did not recognize any impairment charges on its investment in land.

The Company evaluates its unconsolidated investments for other than temporary impairment, considering both the extent and amount by which the carrying value of the investment exceeds the fair value, and the Company's intent and ability to hold the investment to recover its carrying value. The Company also evaluates its proportionate share of any impairment of assets held by unconsolidated investments. There were no other than temporary impairment losses recognized for any of the Company's investments in unconsolidated real estate entities during the three and nine months ended September 30, 2021 and 2020.