UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the quarterly period ended June 30, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission file number: 1-12672

AVALONBAY COMMUNITIES, INC.

(Exact name of registrant as specified in its charter)

Maryland	77-0404318
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

4040 Wilson Blvd., Suite 1000

Arlington, Virginia 22203

(Address of principal executive offices) (Zip Code)

(703) 329-6300

(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report) 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.01 per share		AVB	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒                    No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒                    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐                    No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date:

142,015,558 shares of common stock, par value $0.01 per share, were outstanding as of July 31, 2023.

AVALONBAY COMMUNITIES, INC.

FORM 10-Q

INDEX

		PAGE
PART I - FINANCIAL INFORMATION
ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2023 (UNAUDITED) AND DECEMBER 31, 2022	1
	CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022	2
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022	3
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		45
ITEM 4. CONTROLS AND PROCEDURES		45
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS		45
ITEM 1A. RISK FACTORS		45
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		46
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		46
ITEM 4. MINE SAFETY DISCLOSURES		46
ITEM 5. OTHER INFORMATION		46
ITEM 6. EXHIBITS		47
SIGNATURES		48

AVALONBAY COMMUNITIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

	June 30, 2023		December 31, 2022
	(unaudited)
ASSETS
Real estate:
Land and improvements	$	4,647,879	$	4,640,971
Buildings and improvements	18,906,003		18,804,510
Furniture, fixtures and equipment	1,221,610		1,174,135
	24,775,492		24,619,616
Less accumulated depreciation	(7,193,053)		(6,878,556)
Net operating real estate	17,582,439		17,741,060
Construction in progress, including land	1,202,977		1,072,543
Land held for development	195,115		179,204
Real estate assets held for sale, net	81,047		—
Total real estate, net	19,061,578		18,992,807
Cash and cash equivalents	769,622		613,189
Cash in escrow	177,376		121,056
Resident security deposits	39,027		36,815
Unconsolidated investments	216,533		212,084
Deferred development costs	71,421		58,489
Prepaid expenses and other assets	334,460		279,993
Right of use lease assets	136,180		143,331
Total assets	$	20,806,197	$	20,457,764
LIABILITIES AND EQUITY
Unsecured notes, net	$	7,355,693	$	7,602,305
Variable rate unsecured credit facility and commercial paper	—		—
Mortgage notes payable, net	707,006		713,740
Dividends payable	237,147		226,022
Payables for construction	88,961		72,802
Accrued expenses and other liabilities	319,271		306,186
Lease liabilities	154,957		162,671
Accrued interest payable	61,014		54,100
Resident security deposits	65,070		63,700
Total liabilities	8,989,119		9,201,526
Commitments and contingencies
Redeemable noncontrolling interests	1,513		2,685
Equity:
Preferred stock, $0.01 par value; $25 liquidation preference; 50,000,000 shares authorized at June 30, 2023 and December 31, 2022; zero shares issued and outstanding at June 30, 2023 and December 31, 2022	—		—
Common stock, $0.01 par value; 280,000,000 shares authorized at June 30, 2023 and December 31, 2022; 142,014,755 and 139,916,864 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively	1,420		1,400
Additional paid-in capital	11,269,159		10,765,431
Accumulated earnings less dividends	534,291		485,221
Accumulated other comprehensive income	10,618		1,424
Total stockholders' equity	11,815,488		11,253,476
Noncontrolling interests	77		77
Total equity	11,815,565		11,253,553
Total liabilities and equity	$	20,806,197	$	20,457,764

See accompanying notes to Condensed Consolidated Financial Statements.

1

AVALONBAY COMMUNITIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(Dollars in thousands, except per share data)

	For the three months ended June 30,				For the six months ended June 30,
	2023		2022		2023		2022
Revenue:
Rental and other income	$	688,148	$	643,655	$	1,361,791	$	1,256,830
Management, development and other fees	2,712		904		3,778		1,656
Total revenue	690,860		644,559		1,365,569		1,258,486
Expenses:
Operating expenses, excluding property taxes	169,848		156,389		334,680		307,701
Property taxes	74,987		70,865		149,483		141,603
Expensed transaction, development and other pursuit costs, net of recoveries	1,261		2,364		4,253		3,351
Interest expense, net	51,585		58,797		108,406		115,323
Depreciation expense	200,546		199,302		405,289		401,088
General and administrative expense	17,676		21,291		38,076		38,712
Casualty loss	—		—		5,051		—
Total expenses	515,903		509,008		1,045,238		1,007,778
Income from unconsolidated investments	4,970		2,480		9,815		2,797
Gain on sale of communities	187,322		404		187,309		149,204
Other real estate activity	341		(28)		470		245
Income before income taxes	367,590		138,407		517,925		402,954
Income tax benefit (expense)	217		159		(3,343)		(2,312)
Net income	367,807		138,566		514,582		400,642
Net loss attributable to noncontrolling interests	116		125		243		93
Net income attributable to common stockholders	$	367,923	$	138,691	$	514,825	$	400,735
Other comprehensive income:
Gain on cash flow hedges	8,826		7,759		8,486		17,914
Cash flow hedge losses reclassified to earnings	354		1,013		708		2,026
Comprehensive income	$	377,103	$	147,463	$	524,019	$	420,675
Earnings per common share - basic:
Net income attributable to common stockholders	$	2.59	$	0.99	$	3.65	$	2.87
Earnings per common share - diluted:
Net income attributable to common stockholders	$	2.59	$	0.99	$	3.65	$	2.86

See accompanying notes to Condensed Consolidated Financial Statements.

2

AVALONBAY COMMUNITIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(Dollars in thousands)

	For the six months ended June 30,
	2023		2022
Cash flows from operating activities:
Net income	$	514,582	$	400,642
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	405,289		401,088
Amortization of deferred financing costs and debt discount	6,352		5,337
Amortization of stock-based compensation	15,115		17,681
Equity in loss (income) of, and return on, unconsolidated investments and noncontrolling interests, net of eliminations	622		(1)
Casualty loss	2,407		—
Abandonment of development pursuits	4,253		738
Cash flow hedge losses reclassified to earnings	708		2,026
Gain on sale of real estate assets	(188,078)		(150,753)
Decrease in resident security deposits, prepaid expenses and other assets	(28,456)		(31,336)
Increase (decrease) in accrued expenses, other liabilities and accrued interest payable	9,785		(5,374)
Net cash provided by operating activities	742,579		640,048
Cash flows from investing activities:
Development/redevelopment of real estate assets including land acquisitions and deferred development costs	(453,139)		(414,107)
Acquisition of real estate assets	—		(165,117)
Capital expenditures - existing real estate assets	(73,746)		(64,356)
Capital expenditures - non-real estate assets	(8,106)		(5,665)
Increase (decrease) in payables for construction	16,159		(5,024)
Proceeds from sale of real estate and for-sale condominiums, net of selling costs	252,904		305,842
Note receivable lending	(27,108)		(6,055)
Note receivable payments	230		4,021
Distributions from unconsolidated entities	3,859		2,000
Unconsolidated investments	(8,930)		(8,047)
Net cash used in investing activities	(297,877)		(356,508)
Cash flows from financing activities:
Issuance of common stock, net	494,959		2,010
Repurchase of common stock, net	(1,911)		—
Dividends paid	(454,323)		(445,226)
Repayments of mortgage notes payable, including prepayment penalties	(7,401)		(6,427)
Repayment of unsecured notes	(250,000)		(100,000)
Payment of deferred financing costs	(662)		(421)
Redemption of noncontrolling interest and units for cash by minority partners	(1,355)		—
Payments to noncontrolling interest	—		(29)
Payments related to tax withholding for share-based compensation	(10,509)		(16,379)
Distributions to DownREIT partnership unitholders	(25)		(24)
Distributions to joint venture and profit-sharing partners	(202)		(181)
Preferred interest obligation redemption and dividends	(520)		(460)
Net cash used in financing activities	(231,949)		(567,137)
Net increase (decrease) in cash, cash equivalents and cash in escrow	212,753		(283,597)
Cash, cash equivalents and cash in escrow, beginning of period	734,245		543,788
Cash, cash equivalents and cash in escrow, end of period	$	946,998	$	260,191
Cash paid during the period for interest, net of amount capitalized	$	94,241	$	106,443

See accompanying notes to Condensed Consolidated Financial Statements.

3

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

The following table provides a reconciliation of cash, cash equivalents and cash in escrow reported in the Condensed Consolidated Statements of Cash Flows (dollars in thousands):

	June 30, 2023		June 30, 2022
Cash and cash equivalents	$	769,622	$	152,522
Cash in escrow	177,376		107,669
Cash, cash equivalents and cash in escrow reported in the Condensed Consolidated Statements of Cash Flows	$	946,998	$	260,191

Supplemental disclosures of non-cash investing and financing activities:

During the six months ended June 30, 2023:

•As described in Note 4, "Equity," the Company issued 152,708 shares of common stock as part of the Company's stock-based compensation plans, of which 60,016 shares related to the conversion of performance awards to shares of common stock, and the remaining 92,692 shares valued at $16,472,000 were issued in connection with new stock grants; 1,703 shares valued at $293,000 were issued through the Company's dividend reinvestment plan; 62,215 shares valued at $10,509,000 were withheld to satisfy employees' tax withholding and other liabilities; and 566 restricted shares with an aggregate value of $108,000 previously issued in connection with employee compensation were canceled upon forfeiture.

•Common stock dividends declared but not paid totaled $235,206,000.

•The Company recorded (i) an increase to prepaid expenses and other assets of $8,486,000 and a corresponding adjustment to accumulated other comprehensive income; and (ii) reclassified $708,000 of cash flow hedge losses from other comprehensive income to interest expense, net, to record the impact of the Company's derivative and hedging activity.

During the six months ended June 30, 2022:

•The Company issued 135,860 shares of common stock as part of the Company's stock-based compensation plans, of which 54,053 shares related to the conversion of performance awards to shares of common stock, and the remaining 81,807 shares valued at $19,236,000 were issued in connection with new stock grants; 1,211 shares valued at $298,000 were issued through the Company's dividend reinvestment plan; 69,834 shares valued at $16,389,000 were withheld to satisfy employees' tax withholding and other liabilities; and 2,878 restricted shares with an aggregate value of $610,000 previously issued in connection with employee compensation were canceled upon forfeiture.

•Common stock dividends declared but not paid totaled $223,215,000.

•The Company recorded a decrease of $125,000 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 (i) an increase to prepaid expenses and other assets of $17,914,000 and a corresponding adjustment to accumulated other comprehensive income and (ii) reclassified $2,026,000 of cash flow hedge losses from other comprehensive income to interest expense, net, to record the impact of the Company's derivative and hedging activity.

4

AVALONBAY COMMUNITIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.  Organization, Basis of Presentation and Significant Accounting Policies

Organization and Basis of Presentation

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

At June 30, 2023, the Company owned or held a direct or indirect ownership interest in 294 operating apartment communities containing 88,659 apartment homes in 12 states and the District of Columbia, of which 18 communities were under development and one was under redevelopment. The Company also owned or held a direct or indirect ownership interest in land or rights to land on which the Company expects to develop an additional 43 communities that, if developed as expected, will contain an estimated 14,993 apartment homes.

The interim unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements required by GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited financial statements should be read in conjunction with the financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the operating results for the full year. Management believes the disclosures are adequate to ensure the information presented is not misleading. In the opinion of management, all adjustments and eliminations, consisting only of normal, recurring adjustments necessary for a fair presentation of the financial statements for the interim periods, have been included.

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

Cash, Cash Equivalents and Cash in Escrow

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

Earnings per Common Share

Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted average number of shares outstanding during the period. All outstanding unvested restricted share awards contain rights to non-forfeitable dividends and participate in undistributed earnings with common shareholders and, accordingly, are considered participating securities that are included in the two-class method of computing basic earnings per share ("EPS"). Both the unvested restricted shares and other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis. The Company's earnings per common share are determined as follows (dollars in thousands, except per share data):

5

	For the three months ended June 30,				For the six months ended June 30,
	2023		2022		2023		2022
Basic and diluted shares outstanding
Weighted average common shares - basic	141,779,951		139,630,291		140,773,339		139,595,098
Weighted average DownREIT units outstanding	6,511		7,500		7,005		7,500
Effect of dilutive securities	337,655		296,687		293,620		352,682
Weighted average common shares - diluted	142,124,117		139,934,478		141,073,964		139,955,280
Calculation of Earnings per Share - basic
Net income attributable to common stockholders	$	367,923	$	138,691	$	514,825	$	400,735
Net income allocated to unvested restricted shares	(645)		(247)		(919)		(756)
Net income attributable to common stockholders - basic	$	367,278	$	138,444	$	513,906	$	399,979
Weighted average common shares - basic	141,779,951		139,630,291		140,773,339		139,595,098
Earnings per common share - basic	$	2.59	$	0.99	$	3.65	$	2.87
Calculation of Earnings per Share - diluted
Net income attributable to common stockholders	$	367,923	$	138,691	$	514,825	$	400,735
Add: noncontrolling interests of DownREIT unitholders in consolidated partnerships, including discontinued operations	13		12		25		24
Net income attributable to common stockholders - diluted	$	367,936	$	138,703	$	514,850	$	400,759
Weighted average common shares - diluted	142,124,117		139,934,478		141,073,964		139,955,280
Earnings per common share - diluted	$	2.59	$	0.99	$	3.65	$	2.86

Certain options to purchase shares of common stock in the amounts of 303,784 and 8,222 were outstanding as of June 30, 2023 and 2022, respectively, but were not included in the computation of diluted earnings per share because such options were anti-dilutive for the period.

Derivative Instruments and Hedging Activities

The Company enters into interest rate swap and interest rate cap agreements (collectively, "Hedging Derivatives") for interest rate risk management purposes and in conjunction with certain variable rate secured debt to satisfy lender requirements. The Company does not enter into Hedging Derivatives for trading or other speculative purposes. The Company assesses the effectiveness of qualifying cash flow and fair value hedges, both at inception and on an ongoing basis. The fair values of Hedging Derivatives that are in an asset position are recorded in prepaid expenses and other assets. The fair values of Hedging Derivatives that are in a liability position are included in accrued expenses and other liabilities. The Company does not present or disclose the fair value of Hedging Derivatives on a net basis. Fair value changes for derivatives that are not in qualifying hedge relationships are reported as a component of interest expense, net. For the Hedging Derivatives that qualify as effective cash flow hedges, the Company has recorded the cumulative changes in the fair value of Hedging Derivatives in accumulated other comprehensive income. Amounts recorded in accumulated other comprehensive income will be reclassified into earnings in the periods in which earnings are affected by the hedged cash flow. The effective portion of the change in fair value of the Hedging Derivatives that qualify as effective fair value hedges is reported as an adjustment to the carrying amount of the corresponding hedged item. See Note 11, “Fair Value,” for further discussion of derivative financial instruments.

Legal and Other Contingencies

The Company is involved in various claims and/or administrative proceedings that arise in the ordinary course of its business. The Company recognizes a loss associated with contingent legal matters when the loss is probable and estimable. 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.

6

Acquisitions of Investments in Real Estate

The Company accounts for real estate acquisitions by first determining if the real estate investment is the acquisition of an asset or a business combination. Under either model, the Company identifies and determines the fair value of any assets acquired, liabilities assumed and any noncontrolling interest in the acquiree. Typical assets acquired and liabilities assumed include land, building, furniture, fixtures and equipment, debt and identified intangible assets and liabilities, consisting of the value of above or below market leases and in-place leases. The Company utilizes various sources to determine fair value, including its own analysis of recently acquired and existing comparable properties in its portfolio and other market data. Consideration for acquisitions is typically in the form of cash unless otherwise disclosed. For a business combination, the Company records the assets acquired and liabilities assumed based on the fair value of each respective item. For an asset acquisition, the purchase price is allocated based on the relative fair value of the net assets. The Company expenses all applicable acquisition costs for a business combination and capitalizes all applicable acquisition costs for an asset acquisition. The Company expects that acquisitions of individual operating communities will generally be asset acquisitions.

Use of Estimates

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

Reclassifications

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

Income Taxes

During the six months ended June 30, 2023 and 2022, the Company recognized income tax expense of $3,343,000 and $2,312,000, respectively, primarily related to The Park Loggia.

Leases

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

•lessor of residential and commercial space within its apartment communities; and

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

Lessee Considerations

The Company assesses whether a contract is or contains a lease based on whether the contract conveys the right to control the use of an identified asset, including specified portions of larger assets, for a period of time in exchange for consideration.

The Company’s leases include both fixed and variable lease payments that are based on an index or rate such as the consumer price index (CPI) or percentage rents based on total sales. Variable lease payments that are not based on an index or rate are not included in the measurement of the lease liability, but will be recognized as variable lease expense in the period in which they are incurred.

For leases that have options to extend the term or terminate the lease early, the Company only factored the impact of such options into the lease term if the option was considered reasonably certain to be exercised. The Company determined the discount rate associated with its ground and office leases on a lease-by-lease basis using the Company’s actual borrowing rates as well as indicative market pricing for longer term rates and taking into consideration the remaining term of the lease agreements. For leases that are 12 months or less, the Company has elected the practical expedient to not assess these leases under Accounting Standards Codification ("ASC") 842, Leases, and recognize the lease payments on a straight line basis.

7

Lessor Considerations

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

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

Revenue and Gain Recognition

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

The following table details the Company’s revenue disaggregated by reportable operating segment, further discussed in Note 8, “Segment Reporting,” for the three and six months ended June 30, 2023 and 2022. Segment information for total revenue excludes real estate assets that were sold from January 1, 2022 through June 30, 2023, or otherwise qualify as held for sale as of June 30, 2023, as described in Note 6, "Real Estate Disposition Activities" (dollars in thousands):

	Same Store		Other Stabilized		Development/ Redevelopment		Non- allocated (1)		Total
For the three months ended June 30, 2023
Management, development and other fees and other ancillary items	$	—	$	—	$	—	$	2,712	$	2,712
Non-lease related revenue (2)	2,639		1,258		79		—		3,976
Total non-lease revenue (3)	2,639		1,258		79		2,712		6,688
Lease income (4)	634,251		30,982		12,950		—		678,183
Total revenue	$	636,890	$	32,240	$	13,029	$	2,712	$	684,871
For the three months ended June 30, 2022
Management, development and other fees and other ancillary items	$	—	$	—	$	—	$	904	$	904
Non-lease related revenue (2)	2,767		556		32		—		3,355
Total non-lease revenue (3)	2,767		556		32		904		4,259
Lease income (4)	597,061		18,522		6,514		—		622,097
Total revenue	$	599,828	$	19,078	$	6,546	$	904	$	626,356

8

	Same Store		Other Stabilized		Development/ Redevelopment		Non- allocated (1)		Total
For the six months ended June 30, 2023
Management, development and other fees and other ancillary items	$	—	$	—	$	—	$	3,778	$	3,778
Non-lease related revenue (2)	5,211		2,400		115		—		7,726
Total non-lease revenue (3)	5,211		2,400		115		3,778		11,504
Lease income (4)	1,256,430		61,572		23,414		—		1,341,416
Total revenue	$	1,261,641	$	63,972	$	23,529	$	3,778	$	1,352,920
For the six months ended June 30, 2022
Management, development and other fees and other ancillary items	$	—	$	—	$	—	$	1,656	$	1,656
Non-lease related revenue (2)	5,020		966		45		—		6,031
Total non-lease revenue (3)	5,020		966		45		1,656		7,687
Lease income (4)	1,165,899		33,325		12,552		—		1,211,776
Total revenue	$	1,170,919	$	34,291	$	12,597	$	1,656	$	1,219,463

__________________________________

(1)Represents third-party property management, developer fees and miscellaneous income and other ancillary items which are not allocated to a reportable segment.

(2)Amounts include revenue streams related to leasing activities that are not considered components of a lease, and revenue streams not related to leasing activities including, but not limited to, application fees, renters insurance fees and vendor revenue sharing.

(3)Represents revenue accounted for under ASC 606.

(4)Represents residential and commercial rental and other lease income, accounted for under ASC 842.

Due to the nature and timing of the Company’s identified revenue streams, there were no material amounts of outstanding or unsatisfied performance obligations as of June 30, 2023.

Uncollectible Lease Revenue Reserves

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

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

The Company recorded an aggregate offset to income for uncollectible lease revenue, net of amounts received from government rent relief programs, for its residential and commercial portfolios of $13,333,000 and $7,061,000 for the three months ended June 30, 2023 and 2022, respectively, and $30,304,000 and $20,660,000 for the six months ended June 30, 2023 and 2022, respectively, under ASC 842 and ASC 450.

9

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 $11,606,000 and $8,193,000 for the three months ended June 30, 2023 and 2022, respectively, and $22,624,000 and $15,293,000 for the six months ended June 30, 2023 and 2022, respectively.

3.  Debt

The Company's debt, which consists of unsecured notes, the variable rate unsecured term loan (the "Term Loan"), mortgage notes payable, the Credit Facility and the Commercial Paper Program, each as defined below, as of June 30, 2023 and December 31, 2022 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 June 30, 2023 and December 31, 2022, as shown in the accompanying Condensed Consolidated Balance Sheets (dollars in thousands) (see Note 6, "Real Estate Disposition Activities"). The weighted average interest rates in the following table for secured and unsecured notes include costs of financing such as credit enhancement fees, trustees' fees, the impact of interest rate hedges and mark-to-market adjustments.

	June 30, 2023				December 31, 2022
Fixed rate unsecured notes	$	7,250,000	3.3	%	$	7,500,000	3.3	%
Term Loan	150,000		6.2	%	150,000		5.4	%
Fixed rate mortgage notes payable - conventional and tax-exempt	270,677		3.4	%	270,677		3.4	%
Variable rate mortgage notes payable - conventional and tax-exempt	449,750		5.6	%	457,150		5.3	%
Total mortgage notes payable and unsecured notes and Term Loan	8,120,427		3.5	%	8,377,827		3.4	%
Credit Facility	—		—	%	—		—	%
Commercial paper	—		—	%	—		—	%
Total principal outstanding	8,120,427		3.5	%	8,377,827		3.4	%
Less deferred financing costs and debt discount (1)	(57,728)				(61,782)
Total	$	8,062,699			$	8,316,045

_____________________________________

(1)Excludes deferred financing costs and debt discount associated with the Credit Facility and the Commercial Paper Program which are included in prepaid expenses and other assets on the accompanying Condensed Consolidated Balance Sheets.

The Company has a $2,250,000,000 revolving variable rate unsecured credit facility with a syndicate of banks (the "Credit Facility") which matures in September 2026. The interest rate that would be applicable to borrowings under the Credit Facility was 5.92% at June 30, 2023 and was composed of (i) the Secured Overnight Financing Rate ("SOFR") plus (ii) the current borrowing spread to SOFR of 0.825% per annum, which consisted of a 0.10% SOFR adjustment plus 0.725% 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 the Company's unsecured and unsubordinated long-term indebtedness. There is also an annual facility commitment fee of 0.125% of the borrowing capacity under the facility, which can vary from 0.10% to 0.30% based upon the rating of the Company's unsecured and unsubordinated long-term indebtedness. The Credit Facility contains a sustainability-linked pricing component which provides for interest rate margin and commitment fee reductions or increases by meeting or missing targets related to environmental sustainability, specifically greenhouse gas emission reductions, with the adjustment determined annually beginning in July 2023.

10

The availability on the Company's Credit Facility as of June 30, 2023 and December 31, 2022, respectively, was as follows (dollars in thousands):

	June 30, 2023		December 31, 2022
Credit Facility commitment	$	2,250,000	$	2,250,000
Credit Facility outstanding	—		—
Commercial paper outstanding	—		—
Letters of credit outstanding (1)	(1,914)		(1,914)
Total Credit Facility available	$	2,248,086	$	2,248,086

_____________________________________

(1)In addition, the Company had $51,832 and $48,740 outstanding in additional letters of credit unrelated to the Credit Facility as of June 30, 2023 and December 31, 2022, respectively.

The Company has an unsecured commercial paper note program (the “Commercial Paper Program”) with the maximum aggregate face or principal amount outstanding at any one time not to exceed $500,000,000. The Commercial Paper Program is backstopped by the Company's commitment to maintain available borrowing capacity under the Credit Facility in an amount equal to actual borrowings under the Commercial Paper Program.

During the six months ended June 30, 2023, the Company repaid $250,000,000 principal amount of its 2.85% unsecured notes at its maturity.

In the aggregate, secured notes payable mature at various dates from March 2027 through July 2066, and are secured by certain apartment communities (with a net carrying value of $1,166,698,000, excluding communities classified as held for sale, as of June 30, 2023).

Scheduled payments and maturities of secured notes payable and unsecured notes outstanding at June 30, 2023 were as follows (dollars in thousands):

Year	Secured notes principal payments and maturities		Unsecured notes and Term Loan maturities			Stated interest rate of unsecured notes and Term Loan
2023	$	900	$	350,000		4.200	%
2024	9,100		300,000			3.500	%
			150,000		(1)	SOFR + 0.95%
2025	9,700		525,000			3.450	%
			300,000			3.500	%
2026	10,600		475,000			2.950	%
			300,000			2.900	%
2027	249,000		400,000			3.350	%
2028	17,600		450,000			3.200	%
			400,000			1.900	%
2029	74,750		450,000			3.300	%
2030	9,000		700,000			2.300	%
2031	9,600		600,000			2.450	%
2032	10,300		700,000			2.050	%
Thereafter	319,877		350,000			5.000	%
			350,000			3.900	%
			300,000			4.150	%
			300,000			4.350	%
	$	720,427	$	7,400,000

_________________________________

(1)     The borrowing spread to SOFR of 0.95% per annum, consists of a 0.10% SOFR adjustment plus 0.85% per annum.

The Company was in compliance at June 30, 2023 with customary covenants under the Credit Facility and the Commercial Paper Program, the Term Loan and the indentures under which the Company's unsecured notes were issued.

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4.  Equity

The following summarizes the changes in equity for the six months ended June 30, 2023 and 2022 (dollars in thousands):

	Common stock		Additional paid-in capital		Accumulated earnings less dividends		Accumulated other comprehensive income (loss)		Total stockholder's equity		Noncontrolling interests		Total equity
Balance at December 31, 2022	$	1,400	$	10,765,431	$	485,221	$	1,424	$	11,253,476	$	77	$	11,253,553
Net income attributable to common stockholders	—		—		146,902		—		146,902		—		146,902
Loss on cash flow hedges, net	—		—		—		(340)		(340)		—		(340)
Cash flow hedge losses reclassified to earnings	—		—		—		354		354		—		354
Change in redemption value of redeemable noncontrolling interest	—		—		(286)		—		(286)		—		(286)
Dividends declared to common stockholders ($1.65 per share)	—		—		(230,958)		—		(230,958)		—		(230,958)
Issuance of common stock, net of withholdings	1		(11,554)		1,590		—		(9,963)		—		(9,963)
Repurchase of common stock, including repurchase costs	—		(539)		(590)		—		(1,129)		—		(1,129)
Amortization of deferred compensation	—		11,123		—		—		11,123		—		11,123
Balance at March 31, 2023	$	1,401	$	10,764,461	$	401,879	$	1,438	$	11,169,179	$	77	$	11,169,256
Net income attributable to common stockholders	—		—		367,923		—		367,923		—		367,923
Gain on cash flow hedges, net	—		—		—		8,826		8,826		—		8,826
Cash flow hedge losses reclassified to earnings	—		—		—		354		354		—		354
Change in redemption value of redeemable noncontrolling interest	—		—		(367)		—		(367)		—		(367)
Dividends declared to common stockholders ($1.65 per share)	—		—		(234,774)		—		(234,774)		—		(234,774)
Issuance of common stock, net of withholdings	19		494,643		43		—		494,705		—		494,705
Repurchase of common stock, including repurchase costs	—		(369)		(413)		—		(782)		—		(782)
Amortization of deferred compensation	—		10,424		—		—		10,424		—		10,424
Balance at June 30, 2023	$	1,420	$	11,269,159	$	534,291	$	10,618	$	11,815,488	$	77	$	11,815,565

12

	Common stock		Additional paid-in capital		Accumulated earnings less dividends		Accumulated other comprehensive income (loss)		Total stockholder's equity		Noncontrolling interests		Total equity
Balance at December 31, 2021	$	1,398	$	10,716,414	$	240,821	$	(26,106)	$	10,932,527	$	566	$	10,933,093
Net income attributable to common stockholders	—		—		262,044		—		262,044		—		262,044
Gain on cash flow hedges, net	—		—		—		10,155		10,155		—		10,155
Cash flow hedge losses reclassified to earnings	—		—		—		1,013		1,013		—		1,013
Change in redemption value of redeemable noncontrolling interest	—		—		(43)		—		(43)		—		(43)
Noncontrolling interest distribution and income allocation	—		—		—		—		—		(10)		(10)
Dividends declared to common stockholders ($1.59 per share)	—		—		(222,373)		—		(222,373)		—		(222,373)
Issuance of common stock, net of withholdings	1		(14,263)		(1,501)		—		(15,763)		—		(15,763)
Amortization of deferred compensation	—		9,176		—		—		9,176		—		9,176
Balance at March 31, 2022	$	1,399	$	10,711,327	$	278,948	$	(14,938)	$	10,976,736	$	556	$	10,977,292
Net income attributable to common stockholders	—		—		138,691		—		138,691		—		138,691
Gain on cash flow hedges, net	—		—		—		7,759		7,759		—		7,759
Cash flow hedge losses reclassified to earnings	—		—		—		1,013		1,013		—		1,013
Change in redemption value of redeemable noncontrolling interest	—		—		168		—		168		—		168
Noncontrolling interest distribution and income allocation	—		—		—		—		—		(6)		(6)
Dividends declared to common stockholders ($1.59 per share)	—		—		(222,772)		—		(222,772)		—		(222,772)
Issuance of common stock, net of withholdings	—		1,683		—		—		1,683		—		1,683
Amortization of deferred compensation	—		14,183		—		—		14,183		—		14,183
Balance at June 30, 2022	$	1,399	$	10,727,193	$	195,035	$	(6,166)	$	10,917,461	$	550	$	10,918,011

As of June 30, 2023 and December 31, 2022, 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 six months ended June 30, 2023, the Company:

i.issued 5,773 shares of common stock in connection with stock options exercised;

ii.issued 1,703 shares of common stock through the Company's dividend reinvestment plan;

iii.issued 152,708 shares of common stock in connection with restricted stock grants and the conversion of performance awards to shares of common stock;

iv.issued 2,000,000 shares of common stock in the settlement of the forward contracts, as discussed below;

v.issued 12,288 shares of common stock through the Employee Stock Purchase Plan;

vi.withheld 62,215 shares of common stock to satisfy employees' tax withholding and other liabilities;

vii.canceled 566 shares of restricted common stock upon forfeiture; and

viii.repurchased 11,800 common shares through the Stock Repurchase Program (as defined below).

Deferred compensation granted under the Company's Second Amended and Restated 2009 Equity Incentive Plan (the "2009 Plan") for the six months ended June 30, 2023 does not impact the Company's Condensed Consolidated Financial Statements until recognized as compensation cost.

The Company has a continuous equity program ("CEP") 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. During the three and six months ended June 30, 2023, the Company had no sales under this program. As of June 30, 2023, the Company had $705,961,000 remaining authorized for issuance under the CEP.

13

In addition to the CEP, during the three months ended June 30, 2023, the Company settled the outstanding forward contracts entered into in April 2022 (the "Equity Forward"), issuing 2,000,000 shares of common stock, net of offering fees and discounts for $491,912,000 or $245.96 per share.

The Company has a 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 "Stock Repurchase Program"). During the three and six months ended June 30, 2023, the Company repurchased 4,800 and 11,800 shares of common stock, respectively, at an average price of $162.93 per share and $161.96 per share, respectively. As of June 30, 2023, the Company had $314,237,000 remaining authorized for purchase under this program.

5.  Investments

Unconsolidated Investments

As of June 30, 2023, the Company had investments in five unconsolidated entities with real estate entities holdings, with ownership interest percentages ranging from 20.0% to 50.0%, coupled with other unconsolidated investments including property technology and environmentally focused companies and investment management funds. For one of the investments which is under development of which the Company has an investment of 25.0%, the Company has guaranteed a construction loan on behalf of the venture, which had an outstanding balance of $111,662,000 as of June 30, 2023. Any amounts under the guarantee of this construction loan are obligations of the venture partners in proportion to their ownership interest. The Company accounts for its unconsolidated investments 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 investments 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 interest from the Company's partner.

The Company also has an equity interest of 28.6% in the Archstone Multifamily Partners AC LP (the "U.S. Fund") and upon achievement of a threshold return, which has been met, the Company has a right to incentive distributions for its promoted interest based on the returns earned by the U.S. Fund. During the three months ended June 30, 2023, the Company recognized income of $1,072,000 for its promoted interest which is included in income from unconsolidated investments on the accompanying Condensed Consolidated Statements of Comprehensive Income. The U.S. Fund sold its final three communities in 2022 and is in the process of being dissolved.

Structured Investment Program

The Company has its Structured Investment Program (the “SIP”), an investment platform through which the Company provides mezzanine loans or preferred equity to third-party multifamily developers in the Company's existing markets. As of June 30, 2023, the Company had commitments to fund three mezzanine loans of up to $92,375,000 in the aggregate. The mezzanine loans have a weighted average rate of return of 9.8% and mature at various dates on or before June 2026. At June 30, 2023, the Company had funded $55,869,000 of these commitments.

The Company evaluates each SIP commitment to determine the classification as a loan or an investment in a real estate development project. As of June 30, 2023, all of the SIP commitments are classified as loans. The Company includes amounts outstanding under the SIP as a component of prepaid expenses and other assets on the accompanying Condensed Consolidated Balance Sheets. The Company evaluates the credit risk for each loan on an ongoing basis, estimating the reserve for credit losses using relevant available information from internal and external sources. Market-based historical credit loss data provides the basis for the estimation of expected credit losses, with adjustments, if necessary, for differences in current loan-specific risk characteristics, such as the amount of equity capital provided by a borrower, nature of the real estate being developed or other factors.

For the three existing loans, interest is recognized as earned as interest income, and interest income and any change in the expected credit loss are included as a component of income from unconsolidated investments, on the accompanying Condensed Consolidated Statements of Comprehensive Income.

14

Expensed Transaction, Development and Other Pursuit Costs

The Company capitalizes costs associated with its development activities when future development is probable ("Development Rights") to the basis of land held, or if the Company has either not yet acquired the land or if the project is subject to a leasehold interest, the costs are capitalized as deferred development costs. 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. Costs incurred for pursuits for which future development is not yet considered probable are expensed as incurred. In addition, if the Company determines a Development Right is no longer probable, the Company recognizes any necessary expense to write down its basis in the Development Right. 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 $1,261,000 and $2,364,000 for the three months ended June 30, 2023 and 2022, respectively, and $4,253,000 and $3,351,000 for the six months ended June 30, 2023 and 2022, 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. These costs can vary greatly, and the costs incurred in any given period may be significantly different in future periods.

Impairment of Long-Lived Assets and Casualty Loss

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 an asset may not be recoverable, the Company assesses its recoverability by comparing the carrying amount of the 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 asset. Based on periodic tests of recoverability of long-lived assets, for the three and six months ended June 30, 2023 and 2022, the Company did not recognize any material impairment losses. For the six months ended June 30, 2023, the Company recognized a charge of $5,051,000 for the property and casualty damages across certain communities in its Northeast and California regions related to severe weather, reported as casualty 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 the lower of cost or fair value. 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 six months ended June 30, 2023 and 2022, 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. For the three and six months ended June 30, 2023 and 2022, 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 unconsolidated investments for the three and six months ended June 30, 2023 and 2022.

6.  Real Estate Disposition Activities

The following real estate sales occurred during the six months ended June 30, 2023 (dollars in thousands):

Community name	Location	Period of sale	Apartment homes	Gross sales price		Gain on  disposition (1)
eaves Daly City	Daly City, CA	Q223	195	$	67,000	$	54,618
Avalon at Newton Highlands	Newton, MA	Q223	294	$	170,000	$	132,723

_________________________________

(1)    Gain on disposition was reported in gain on sale of communities on the accompanying Condensed Consolidated Statements of Comprehensive Income.

At June 30, 2023, the Company had one real estate asset that qualified as held for sale.

15

The Park Loggia

The Park Loggia, located in New York, NY, contains 172 for-sale residential condominiums and 66,000 square feet of commercial space. During the three and six months ended June 30, 2023, the Company sold three and four residential condominiums at The Park Loggia for gross proceeds of $15,435,000 and $19,342,000, respectively, resulting in a gain in accordance with GAAP of $382,000 and $410,000, respectively. During the three and six months ended June 30, 2022, the Company sold 13 and 28 residential condominiums at The Park Loggia for gross proceeds of $41,002,000 and $81,338,000, respectively, resulting in a gain in accordance with GAAP of $467,000 and $1,469,000, respectively. The Company incurred marketing, operating and administrative costs of $97,000 and $538,000 for the three months ended June 30, 2023 and 2022, respectively, and $299,000 and $1,304,000 for the six months ended June 30, 2023 and 2022, respectively. All amounts are included in other real estate activity on the accompanying Condensed Consolidated Statements of Comprehensive Income. As of June 30, 2023, there were five residential condominiums remaining to be sold. As of June 30, 2023 and December 31, 2022, the unsold for-sale residential condominiums at The Park Loggia had an aggregate carrying value of $15,336,000 and $32,532,000, respectively, presented in prepaid expenses and other assets on the accompanying Condensed Consolidated Balance Sheets.

7. Commitments and Contingencies

Lease Obligations

The Company owns seven apartment communities and two commercial properties, located on land subject to ground leases expiring between July 2046 and April 2106. The Company has purchase options for all ground leases expiring prior to 2062. The ground leases for six of the seven apartment communities and the two commercial properties are operating leases, with rental expense recognized on a straight-line basis over the lease term. In addition, the Company is party to 13 leases for its corporate and regional offices with varying terms through 2031, all of which are operating leases.

As of June 30, 2023 and December 31, 2022, the Company had total operating lease assets of $107,765,000 and $114,977,000, respectively, and lease obligations of $134,916,000 and $142,602,000, respectively, reported as components of right of use lease assets and lease liabilities, respectively, on the accompanying Condensed Consolidated Balance Sheets. The Company incurred costs of $4,081,000 and $3,964,000 for the three months ended June 30, 2023 and 2022, respectively, and $8,086,000 and $7,670,000 for the six months ended June 30, 2023 and 2022, respectively, related to operating leases.

The Company has one apartment community located on land subject to a ground lease and four leases for portions of parking garages adjacent to apartment communities, that are finance leases. As of June 30, 2023 and December 31, 2022, the Company had total finance lease assets of $28,415,000 and $28,354,000, respectively, and total finance lease obligations of $20,041,000 and $20,069,000, respectively, reported as components of right of use lease assets and lease liabilities on the accompanying Condensed Consolidated Balance Sheets.

16

8.  Segment Reporting

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

The Company's segment disclosures present the measure(s) used by the chief operating decision maker ("CODM") for assessing each segment's performance. The Company's CODM is comprised of several members of its executive management team who use net operating income ("NOI") as the primary financial measure for Same Store 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, loss on extinguishment of debt, net, general and administrative expense, income from unconsolidated investments, depreciation expense, income tax (benefit) expense, casualty loss, gain on sale of communities, other real estate activity and net operating income from real estate assets sold or held for sale. The CODM evaluates the Company's financial performance on a consolidated residential and commercial basis. The commercial results attributable to the non-apartment components of the Company's mixed-use communities and other nonresidential operations represent 1.8% and 1.7% of total NOI for the three months ended June 30, 2023 and 2022, respectively, and 1.8% and 1.9% for the six months ended June 30, 2023 and 2022, respectively. Although the Company considers NOI a useful measure of a community's or communities' operating performance, NOI should not be considered an alternative to net income or net cash flow from operating activities, as determined in accordance with GAAP. NOI excludes a number of income and expense categories as detailed in the reconciliation of NOI to net income.

A reconciliation of NOI to net income for the three and six months ended June 30, 2023 and 2022 is as follows (dollars in thousands):

	For the three months ended June 30,				For the six months ended June 30,
	2023		2022		2023		2022
Net income	$	367,807	$	138,566	$	514,582	$	400,642
Property management and other indirect operating expenses, net of corporate income	28,972		30,632		59,756		58,745
Expensed transaction, development and other pursuit costs, net of recoveries	1,261		2,364		4,253		3,351
Interest expense, net	51,585		58,797		108,406		115,323
General and administrative expense	17,676		21,291		38,076		38,712
Income from unconsolidated investments	(4,970)		(2,480)		(9,815)		(2,797)
Depreciation expense	200,546		199,302		405,289		401,088
Income tax (benefit) expense	(217)		(159)		3,343		2,312
Casualty loss	—		—		5,051		—
Gain on sale of communities	(187,322)		(404)		(187,309)		(149,204)
Other real estate activity	(341)		28		(470)		(245)
Net operating income from real estate assets sold or held for sale	(3,977)		(12,252)		(8,781)		(25,521)
Net operating income	$	471,020	$	435,685	$	932,381	$	842,406

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 three months ended June 30,	For the six months ended June 30,
2023