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, 2024

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:

142,216,792 shares of common stock, par value $0.01 per share, were outstanding as of July 31, 2024.

Table of Contents

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, 2024 (UNAUDITED) AND DECEMBER 31, 2023	1
	CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023	2
	CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023	3
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023	4
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		44
ITEM 4. CONTROLS AND PROCEDURES		44
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS		44
ITEM 1A. RISK FACTORS		44
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		45
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		45
ITEM 4. MINE SAFETY DISCLOSURES		45
ITEM 5. OTHER INFORMATION		45
ITEM 6. EXHIBITS		46
SIGNATURES		47

Table of Contents

AVALONBAY COMMUNITIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

	June 30, 2024		December 31, 2023
	(unaudited)
ASSETS
Real estate:
Land and improvements	$	4,784,515	$	4,720,331
Buildings and improvements	19,684,414		19,438,195
Furniture, fixtures and equipment	1,302,726		1,238,330
	25,771,655		25,396,856
Less accumulated depreciation	(7,811,650)		(7,521,962)
Net operating real estate	17,960,005		17,874,894
Construction in progress, including land	1,122,699		1,268,915
Land held for development	174,997		199,062
Real estate assets held for sale, net	154,887		—
Total real estate, net	19,412,588		19,342,871
Cash and cash equivalents	545,769		397,890
Restricted cash	219,584		133,070
Unconsolidated investments	222,065		220,145
Deferred development costs	48,747		53,122
Prepaid expenses and other assets	455,081		396,442
Right of use lease assets	133,196		134,674
Total assets	$	21,037,030	$	20,678,214
LIABILITIES AND EQUITY
Unsecured notes, net	$	7,655,152	$	7,256,152
Variable rate unsecured credit facility and commercial paper, net	—		—
Mortgage notes payable, net	718,879		725,670
Dividends payable	244,082		238,072
Payables for construction	83,912		87,703
Accrued expenses and other liabilities	315,880		310,868
Lease liabilities	151,587		153,232
Accrued interest payable	60,830		57,911
Resident security deposits	65,214		63,815
Total liabilities	9,295,536		8,893,423
Commitments and contingencies
Redeemable noncontrolling interests	—		1,473
Equity:
Preferred stock, $0.01 par value; $25 liquidation preference; 50,000,000 shares authorized at June 30, 2024 and December 31, 2023; zero shares issued and outstanding at June 30, 2024 and December 31, 2023	—		—
Common stock, $0.01 par value; 280,000,000 shares authorized at June 30, 2024 and December 31, 2023; 142,217,019 and 142,025,456 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively	1,422		1,420
Additional paid-in capital	11,290,907		11,287,626
Accumulated earnings less dividends	421,134		478,156
Accumulated other comprehensive income	28,031		16,116
Total equity	11,741,494		11,783,318
Total liabilities and equity	$	21,037,030	$	20,678,214

See accompanying notes to Condensed Consolidated Financial Statements.

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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,
	2024		2023		2024		2023
Revenue:
Rental and other income	$	724,211	$	688,148	$	1,435,275	$	1,361,791
Management, development and other fees	1,830		2,712		3,625		3,778
Total revenue	726,041		690,860		1,438,900		1,365,569
Expenses:
Operating expenses, excluding property taxes	179,595		169,848		355,511		334,680
Property taxes	81,056		74,987		160,836		149,483
Expensed transaction, development and other pursuit costs, net of recoveries	1,417		1,261		5,662		4,253
Interest expense, net	57,078		51,585		111,844		108,406
Depreciation expense	206,923		200,546		419,192		405,289
General and administrative expense	19,586		17,676		39,917		38,076
Casualty and impairment loss	—		—		2,935		5,051
Total expenses	545,655		515,903		1,095,897		1,045,238
Income from unconsolidated investments	4,822		4,970		15,669		9,815
Gain on sale of communities	68,556		187,322		68,486		187,309
Other real estate activity	181		341		322		470
Income before income taxes	253,945		367,590		427,480		517,925
Income tax benefit (expense)	62		217		84		(3,343)
Net income	254,007		367,807		427,564		514,582
Net (income) loss attributable to noncontrolling interests	(73)		116		(181)		243
Net income attributable to common stockholders	$	253,934	$	367,923	$	427,383	$	514,825
Other comprehensive income:
Gain on cash flow hedges	4,499		8,826		11,838		8,486
Cash flow hedge (gains) losses reclassified to earnings	(69)		354		77		708
Comprehensive income	$	258,364	$	377,103	$	439,298	$	524,019
Earnings per common share - basic:
Net income attributable to common stockholders	$	1.78	$	2.59	$	3.00	$	3.65
Earnings per common share - diluted:
Net income attributable to common stockholders	$	1.78	$	2.59	$	3.00	$	3.65

See accompanying notes to Condensed Consolidated Financial Statements.

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AVALONBAY COMMUNITIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(unaudited)

(Dollars in thousands)

	Common stock		Additional paid-in capital		Accumulated earnings less dividends		Accumulated other comprehensive income (loss)		Total equity
Balance at December 31, 2023	$	1,420	$	11,287,626	$	478,156	$	16,116	$	11,783,318
Net income attributable to common stockholders	—		—		173,449		—		173,449
Gain on cash flow hedges, net	—		—		—		7,339		7,339
Cash flow hedge losses reclassified to earnings	—		—		—		146		146
Dividends declared to common stockholders ($1.70 per share)	—		—		(242,701)		—		(242,701)
Issuance of common stock, net of withholdings	2		(16,226)		467		—		(15,757)
Amortization of deferred compensation	—		8,440		—		—		8,440
Balance at March 31, 2024	$	1,422	$	11,279,840	$	409,371	$	23,601	$	11,714,234
Net income attributable to common stockholders	—		—		253,934		—		253,934
Gain on cash flow hedges, net	—		—		—		4,499		4,499
Cash flow hedge gains reclassified to earnings	—		—		—		(69)		(69)
Noncontrolling interest activity	—		(77)		—		—		(77)
Dividends declared to common stockholders ($1.70 per share)	—		—		(242,173)		—		(242,173)
Issuance of common stock, net of withholdings	—		(153)		2		—		(151)
Amortization of deferred compensation	—		11,297		—		—		11,297
Balance at June 30, 2024	$	1,422	$	11,290,907	$	421,134	$	28,031	$	11,741,494

	Common stock		Additional paid-in capital		Accumulated earnings less dividends		Accumulated other comprehensive income (loss)		Total equity
Balance at December 31, 2022	$	1,400	$	10,765,508	$	485,221	$	1,424	$	11,253,553
Net income attributable to common stockholders	—		—		146,902		—		146,902
Loss on cash flow hedges, net	—		—		—		(340)		(340)
Cash flow hedge losses reclassified to earnings	—		—		—		354		354
Noncontrolling interest activity	—		—		(286)		—		(286)
Dividends declared to common stockholders ($1.65 per share)	—		—		(230,958)		—		(230,958)
Issuance of common stock, net of withholdings	1		(11,554)		1,590		—		(9,963)
Repurchase of common stock, including repurchase costs	—		(539)		(590)		—		(1,129)
Amortization of deferred compensation	—		11,123		—		—		11,123
Balance at March 31, 2023	$	1,401	$	10,764,538	$	401,879	$	1,438	$	11,169,256
Net income attributable to common stockholders	—		—		367,923		—		367,923
Gain on cash flow hedges, net	—		—		—		8,826		8,826
Cash flow hedge losses reclassified to earnings	—		—		—		354		354
Noncontrolling interest activity	—		—		(367)		—		(367)
Dividends declared to common stockholders ($1.65 per share)	—		—		(234,774)		—		(234,774)
Issuance of common stock, net of withholdings	19		494,643		43		—		494,705
Repurchase of common stock, including repurchase costs	—		(369)		(413)		—		(782)
Amortization of deferred compensation	—		10,424		—		—		10,424
Balance at June 30, 2023	$	1,420	$	11,269,236	$	534,291	$	10,618	$	11,815,565

See accompanying notes to Condensed Consolidated Financial Statements.

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AVALONBAY COMMUNITIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(Dollars in thousands)

	For the six months ended June 30,
	2024		2023
Cash flows from operating activities:
Net income	$	427,564	$	514,582
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	419,192		405,289
Amortization of deferred financing costs and debt discount	6,608		6,352
Amortization of stock-based compensation	13,494		15,115
Equity in (income) loss of, and return on, unconsolidated investments and noncontrolling interests, net of eliminations	(4,572)		622
Impairment loss	1,415		2,407
Abandonment of development pursuits	5,662		4,253
Cash flow hedge losses reclassified to earnings	77		708
Gain on sale of real estate assets	(68,705)		(188,078)
Increase in prepaid expenses and other assets	(12,171)		(28,456)
Increase in accrued expenses, other liabilities and accrued interest payable	4,332		9,785
Net cash provided by operating activities	792,896		742,579
Cash flows from investing activities:
Development/redevelopment of real estate assets including land acquisitions and deferred development costs	(439,900)		(453,139)
Acquisition of real estate assets	(62,192)		—
Capital expenditures - existing real estate assets	(84,500)		(73,746)
Capital expenditures - non-real estate assets	(2,536)		(8,106)
(Decrease) increase in payables for construction	(3,791)		16,159
Proceeds from sale of real estate and for-sale condominiums, net of selling costs	176,325		252,904
Note receivable lending	(42,510)		(27,108)
Note receivable payments	237		230
Distributions from unconsolidated entities	—		3,859
Unconsolidated investments	(4,936)		(8,930)
Net cash used in investing activities	(463,803)		(297,877)
Cash flows from financing activities:
Issuance of common stock, net	3,971		494,959
Repurchase of common stock, net	—		(1,911)
Dividends paid	(478,533)		(454,323)
Repayments of mortgage notes payable, including prepayment penalties	(7,981)		(7,401)
Issuance of unsecured notes	398,787		—
Repayment of unsecured notes	—		(250,000)
Payment of deferred financing costs	(3,572)		(662)
Receipt for termination of forward interest rate swaps	16,839		—
Payments related to tax withholding for share-based compensation	(16,384)		(10,509)
Noncontrolling interests, joint venture and preferred equity transactions	(7,827)		(2,102)
Net cash used in financing activities	(94,700)		(231,949)
Net increase in cash, cash equivalents and restricted cash	234,393		212,753
Cash, cash equivalents and restricted cash, beginning of period	530,960		734,245
Cash, cash equivalents and restricted cash, end of period	$	765,353	$	946,998
Cash paid during the period for interest, net of amount capitalized	$	102,184	$	94,241

See accompanying notes to Condensed Consolidated Financial Statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

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

	June 30, 2024		June 30, 2023
Cash and cash equivalents	$	545,769	$	769,622
Restricted cash	219,584		177,376
Cash, cash equivalents and restricted cash reported in the Condensed Consolidated Statements of Cash Flows	$	765,353	$	946,998

Supplemental disclosures of non-cash investing and financing activities:

During the six months ended June 30, 2024:

•As described in Note 4, "Equity," the Company issued 248,420 shares of common stock as part of the Company's stock-based compensation plans, of which 146,725 shares related to the conversion of performance awards to shares of common stock, and the remaining 101,695 shares valued at $17,505,000 were issued in connection with new stock grants; 12,290 shares valued at $1,972,000 were issued in conjunction with the conversion of deferred stock awards; 1,891 shares valued at $341,000 were issued through the Company's dividend reinvestment plan; 92,333 shares valued at $16,460,000 were withheld to satisfy employees' tax withholding and other liabilities; and 2,702 restricted shares with an aggregate value of $506,000 were forfeited.

•Common stock dividends declared but not paid totaled $242,576,000.

•The Company recorded (i) an increase to prepaid expenses and other assets of $11,838,000 and a corresponding adjustment to accumulated other comprehensive income; and (ii) reclassified $77,000 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, 2023:

•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 were forfeited.

•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.

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AVALONBAY COMMUNITIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.  Organization, Basis of Presentation and Significant Accounting Policies

Organization and Basis of Presentation

AvalonBay Communities, Inc. (the "Company," which term, unless the context otherwise requires, refers to AvalonBay Communities, Inc. together with its subsidiaries) is a Maryland corporation that has elected to be treated as a real estate investment trust ("REIT") for federal income tax purposes under the Internal Revenue Code of 1986, as amended (the "Code"). The Company develops, redevelops, acquires, owns and operates 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, 2024, the Company owned or held a direct or indirect ownership interest in 300 apartment communities containing 91,399 apartment homes in 12 states and the District of Columbia, of which 17 communities were under development. 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 30 communities that, if developed as expected, will contain an estimated 9,991 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, 2023 (the "Form 10-K"). The results of operations for the three and six months ended June 30, 2024 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 Restricted Cash

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

Earnings per Common Share

Basic earnings per common 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 stockholders and, accordingly, are considered participating securities that are included in the two-class method of computing basic earnings per common share. Both the unvested restricted shares and other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per common share on a diluted basis. Diluted earnings per common share was computed using the treasury stock method for performance awards, options and participating securities. The Company's earnings per common share are determined as follows (dollars in thousands, except per share data):

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	For the three months ended June 30,				For the six months ended June 30,
	2024		2023		2024		2023
Basic and diluted shares outstanding
Weighted average common shares - basic	142,004,857		141,779,951		141,953,462		140,773,339
Weighted average DownREIT units outstanding	—		6,511		—		7,005
Effect of dilutive securities	385,009		337,655		352,848		293,620
Weighted average common shares - diluted	142,389,866		142,124,117		142,306,310		141,073,964
Calculation of Earnings per Common Share - basic
Net income attributable to common stockholders	$	253,934	$	367,923	$	427,383	$	514,825
Net income allocated to unvested restricted shares	(488)		(645)		(827)		(919)
Net income attributable to common stockholders - basic	$	253,446	$	367,278	$	426,556	$	513,906
Weighted average common shares - basic	142,004,857		141,779,951		141,953,462		140,773,339
Earnings per common share - basic	$	1.78	$	2.59	$	3.00	$	3.65
Calculation of Earnings per Common Share - diluted
Net income attributable to common stockholders	$	253,934	$	367,923	$	427,383	$	514,825
Add: noncontrolling interests of DownREIT unitholders in consolidated partnerships, including discontinued operations	—		13		—		25
Net income attributable to common stockholders - diluted	$	253,934	$	367,936	$	427,383	$	514,850
Weighted average common shares - diluted	142,389,866		142,124,117		142,306,310		141,073,964
Earnings per common share - diluted	$	1.78	$	2.59	$	3.00	$	3.65

Certain options to purchase shares of common stock in the amounts of 38,231 and 303,784 were outstanding as of June 30, 2024 and 2023, respectively, but were not included in the computation of diluted earnings per common 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. 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 records the cumulative changes in the Hedging Derivatives fair value in accumulated other comprehensive income. Amounts recorded in accumulated other comprehensive income will be reclassified into earnings in the periods 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. Receipts or payments associated with the gains and losses on the Company’s cash flow hedges are presented as a component of cash flows from financing activities in the period the hedges are terminated and the payments for the Company’s derivatives that are not qualifying for hedging relationships are presented as a component of cash flows from operating activities. See Note 11, “Fair Value,” for further discussion of derivative financial instruments.

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Acquisitions of Investments in Real Estate

The Company accounts for real estate acquisitions as either an asset acquisition 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 and segment classification.

Income Taxes

The Company recognized an income tax benefit of $62,000 and $84,000 for the three and six months ended June 30, 2024, respectively, and an income tax benefit of $217,000 and an income tax expense of $3,343,000 for the three and six months ended June 30, 2023, respectively. The income tax expense for the six months ended June 30, 2023 is 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 are generally not included in the lease liability, but 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 elected the practical expedient to recognize the lease payments on a straight line basis.

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Lessor Considerations

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

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

Revenue and Gain Recognition

Under Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, the Company recognizes revenue for the transfer of goods and services to customers for consideration that the Company expects to receive. The majority of the Company’s revenue is derived from residential and commercial rental and other lease income, which are accounted for as discussed above, under "Leases". The Company's revenue streams that are not accounted for under ASC 842, Leases, include (i) management, development and other fees, (ii) 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, 2024 and 2023. Segment information for total revenue excludes real estate assets that were sold from January 1, 2023 through June 30, 2024, or otherwise qualify as held for sale as of June 30, 2024, 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, 2024
Management, development and other fees and other ancillary items	$	—	$	—	$	—	$	1,830	$	1,830
Non-lease related revenue (2)	2,637		1,317		147		—		4,101
Total non-lease revenue (3)	2,637		1,317		147		1,830		5,931
Lease income (4)	670,305		26,245		13,601		—		710,151
Total revenue	$	672,942	$	27,562	$	13,748	$	1,830	$	716,082
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)	2,763		1,136		29		—		3,928
Total non-lease revenue (3)	2,763		1,136		29		2,712		6,640
Lease income (4)	649,251		15,929		222		—		665,402
Total revenue	$	652,014	$	17,065	$	251	$	2,712	$	672,042

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	Same Store		Other Stabilized		Development/ Redevelopment		Non- allocated (1)		Total
For the six months ended June 30, 2024
Management, development and other fees and other ancillary items	$	—	$	—	$	—	$	3,625	$	3,625
Non-lease related revenue (2)	5,048		2,617		247		—		7,912
Total non-lease revenue (3)	5,048		2,617		247		3,625		11,537
Lease income (4)	1,335,082		50,014		21,562		—		1,406,658
Total revenue	$	1,340,130	$	52,631	$	21,809	$	3,625	$	1,418,195
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)	5,436		2,168		29		—		7,633
Total non-lease revenue (3)	5,436		2,168		29		3,778		11,411
Lease income (4)	1,286,083		29,587		226		—		1,315,896
Total revenue	$	1,291,519	$	31,755	$	255	$	3,778	$	1,327,307

__________________________________

(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, 2024.

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) fully reserving for 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 Company’s revenue and receivables not 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 $12,300,000 and $13,333,000 for the three months ended June 30, 2024 and 2023, respectively, and $23,782,000 and $30,304,000 for the six months ended June 30, 2024 and 2023, respectively, under ASC 842 and ASC 450.

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Recently Issued Accounting Standards

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting - Improvements to Reportable Segment Disclosures, which requires disclosures of significant segment expenses provided to the chief operating decision maker (“CODM”) and will be effective for annual periods beginning January 1, 2024 and interim periods beginning January 1, 2025. The Company is assessing the standard and does not expect the standard to have a material effect on the Company’s financial position or results of operations.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires (i) a tabular rate reconciliation of the reported income tax expense (benefit) from continuing operations into specific categories, (ii) separate disclosure for any reconciling items within certain categories above a quantitative threshold, (iii) disclosure of income taxes paid disaggregated by federal, state and material jurisdictions and (iv) disclosure of income tax expense from continuing operations disaggregated by federal and state. The new standard will be effective for annual periods beginning January 1, 2025. The Company is assessing the standard and does not expect the standard to have a material effect on the Company’s financial position or results of operations.

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 $11,207,000 and $11,606,000 for the three months ended June 30, 2024 and 2023, respectively, and $22,798,000 and $22,624,000 for the six months ended June 30, 2024 and 2023, respectively.

3.  Debt

The Company's debt, which consists of unsecured notes, mortgage notes payable, the Credit Facility and the Commercial Paper Program, each as defined below, as of June 30, 2024 and December 31, 2023 is 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, 2024 and December 31, 2023, 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, 2024				December 31, 2023
Fixed rate unsecured notes	$	7,700,000	3.4	%	$	7,300,000	3.3	%
Fixed rate mortgage notes payable - conventional and tax-exempt	333,811		3.9	%	333,892		3.9	%
Variable rate mortgage notes payable - conventional and tax-exempt	402,250		5.5	%	410,150		5.5	%
Total mortgage notes payable and unsecured notes	8,436,061		3.5	%	8,044,042		3.5	%
Credit Facility	—		—	%	—		—	%
Commercial paper	—		—	%	—		—	%
Total principal outstanding	8,436,061		3.5	%	8,044,042		3.5	%
Less deferred financing costs and debt discount (1)	(62,030)				(62,220)
Total	$	8,374,031			$	7,981,822

_____________________________________

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

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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 6.14% at June 30, 2024 and was composed of (i) the Secured Overnight Financing Rate ("SOFR"), applicable to the period of borrowing for a particular draw of funds from the facility (e.g., one month to maturity, three months to maturity, etc.), plus (ii) the current borrowing spread to SOFR of 0.805% per annum, which consisted of a 0.10% SOFR adjustment plus 0.705% per annum, assuming a daily SOFR borrowing rate. The borrowing spread to SOFR can vary from SOFR plus 0.63% to SOFR plus 1.38% based upon the rating of the Company's unsecured senior notes. There is also an annual facility commitment fee of 0.12% of the borrowing capacity under the facility, which can vary from 0.095% to 0.295% based upon the rating of the Company's unsecured senior notes. 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. The first determination under the sustainability-linked pricing component occurred in July 2023, resulting in 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 Company's Credit Facility as of June 30, 2024 and December 31, 2023, respectively, was as follows (dollars in thousands):

	June 30, 2024		December 31, 2023
Credit Facility commitment	$	2,250,000	$	2,250,000
Credit Facility outstanding	—		—
Commercial paper outstanding	—		—
Letters of credit outstanding (1)	(1,814)		(1,914)
Total Credit Facility available	$	2,248,186	$	2,248,086

_____________________________________

(1)In addition, the Company had $62,816 and $58,116 outstanding in additional letters of credit unrelated to the Credit Facility as of June 30, 2024 and December 31, 2023, 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. Under the terms of the Commercial Paper Program, the Company may issue, from time to time, unsecured commercial paper notes with varying maturities of less than one year. 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.

In May 2024, the Company issued $400,000,000 principal amount of unsecured notes in a public offering under its existing shelf registration statement for proceeds net of underwriting fees of approximately $396,188,000, before considering the impact of other offering costs. The notes mature in June 2034 and were issued at a 5.35% interest rate, resulting in a 5.05% effective rate including the impact of issuance costs and hedging activity.

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 $1,262,256,000, excluding communities classified as held for sale, as of June 30, 2024).

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Scheduled payments and maturities of secured notes payable and unsecured notes outstanding at June 30, 2024 were as follows (dollars in thousands):

Year	Secured notes principal payments and maturities		Unsecured notes maturities		Stated interest rate of  unsecured notes
2024	$	1,612	$	300,000	3.50	%
2025	10,765		525,000		3.45	%
			300,000		3.50	%
2026	11,811		475,000		2.95	%
			300,000		2.90	%
2027	250,159		400,000		3.35	%
2028	18,902		450,000		3.20	%
			400,000		1.90	%
2029	132,661		450,000		3.30	%
2030	9,100		700,000		2.30	%
2031	9,700		600,000		2.45	%
2032	10,400		700,000		2.05	%
2033	12,000		350,000		5.00	%
			400,000		5.30	%
Thereafter	268,951		400,000		5.35	%
			350,000		3.90	%
			300,000		4.15	%
			300,000		4.35	%
	$	736,061	$	7,700,000

The Company was in compliance at June 30, 2024 with customary covenants under the Credit Facility and the indentures under which the unsecured notes were issued.

4.  Equity

As of June 30, 2024 and December 31, 2023, 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, 2024, the Company:

i.issued 14,122 shares of common stock in connection with stock options exercised;

ii.issued 1,891 shares of common stock through the Company's dividend reinvestment plan;

iii.issued 248,420 shares of common stock in connection with restricted stock grants and the conversion of performance awards to shares of common stock;

iv.issued 12,290 shares of common stock in connection with the conversion of deferred stock awards;

v.issued 9,875 shares of common stock through the Employee Stock Purchase Plan;

vi.withheld 92,333 shares of common stock to satisfy employees' tax withholding and other liabilities; and

vii.canceled 2,702 shares of restricted common stock upon forfeiture.

Deferred compensation granted under the Company's Second Amended and Restated 2009 Equity Incentive Plan (the "Plan") does not impact the Company's Condensed Consolidated Financial Statements until recognized as compensation cost.

The Company has a continuous equity program (the "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, 2024 and 2023, the Company had no sales under this program. As of June 30, 2024, the Company had $705,961,000 remaining authorized for issuance under the CEP.

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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, 2024, the Company had no repurchases of shares under this 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, 2024, the Company had $314,237,000 remaining authorized for purchase under this program.

5.  Investments

Investments in Consolidated Real Estate Entities

The following real estate acquisition occurred during the six months ended June 30, 2024 (dollars in thousands):

Community name	Location	Period	Apartment homes	Purchase Price
Avalon at Pier 121	Lewisville, TX	Q2 2024	300	$	62,100

The Company accounted for this purchase as an asset acquisition 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 uses 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, 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.

Structured Investment Program

The Company operates a Structured Investment Program (the “SIP”), an investment platform through which the Company provides mezzanine loans or preferred equity to third-party multifamily developers. As of June 30, 2024, the Company had seven commitments to fund up to $191,585,000 in the aggregate. The Company's investment commitments have a weighted average rate of return of 11.5% and a weighted average initial maturity date of December 2026. At June 30, 2024, the Company had funded $138,970,000 of these commitments. The Company recognized interest income of $3,940,000 and $1,241,000 for the three months ended June 30, 2024 and 2023, respectively, and $7,116,000 and $2,113,000 for the six months ended June 30, 2024 and 2023, respectively, from the SIP. 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.

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, 2024, 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 commitment 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 commitment-specific risk characteristics, such as the amount of equity capital provided by a borrower, nature of the real estate being developed or other factors.

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Unconsolidated Investments

As of June 30, 2024, 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 the Arts District joint venture, which owns an apartment community that completed development during the six months ended June 30, 2024 and in which the Company has an ownership interest of 25.0%, the Company has provided the lender a payment guarantee for 30% of the venture's construction loan maximum borrowing capacity, on behalf of the venture. At June 30, 2024, the construction loan had an outstanding balance of $151,288,000 and maximum borrowing capacity of $167,147,000. Any amounts payable under the 30% construction loan guarantee by the Company are obligations of the venture partners in proportion to their ownership interest, and in the event the Company is obligated to perform under its construction loan guarantee, its joint venture partner is obligated to reimburse the Company for 75% of amounts paid.

The Company accounts for its unconsolidated investments under the equity method of accounting, net asset value 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.

Expensed Transaction, Development and Other Pursuit Costs

The Company capitalizes costs associated with its development activities to the basis of land held when future development is probable ("Development Rights"), 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. 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 assesses its portfolio of land held for development as well as for investment for impairment if the intent of the Company changes with respect to either the development of, or the expected holding period for, the land. The Company expensed costs related to development pursuits not yet considered probable for development and other development related activity, in the amounts of $1,417,000 and $1,261,000 for the three months ended June 30, 2024 and 2023, respectively, and $5,662,000 and $4,253,000 for the six months ended June 30, 2024 and 2023, 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.

Casualty and Impairment of Long-Lived Assets

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, 2024 and 2023, the Company did not recognize any material impairment losses. For the six months ended June 30, 2024 and 2023, the Company recognized charges of $2,935,000 and $5,051,000, respectively, for the property and casualty damage to certain of the Company's communities, reported as casualty and impairment loss on the accompanying Condensed Consolidated Statements of Comprehensive Income. The charge for the six months ended June 30, 2024, relates to damage at communities in California from extensive rainfall and a fire at a community in New Jersey. The charge for the six months ended June 30, 2023, relates to damage to certain communities in the Northeast and California regions from severe weather.

The Company evaluates its unconsolidated investments for other than temporary impairment, considering both whether 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. The Company did not recognize any other than temporary impairment losses during the three and six months ended June 30, 2024 and 2023.

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6.  Real Estate Disposition Activities

The following real estate sales occurred during the six months ended June 30, 2024 (dollars in thousands):

Community name	Location	Period of sale	Apartment homes	Gross sales price		Gain on  disposition (1)		Commercial square feet
AVA Belltown	Seattle, WA	Q2 2024	100	$	34,000	$	22,673	1,000
AVA North Hollywood	Los Angeles, CA	Q2 2024	156	$	62,100	$	874	11,000
Avalon Hackensack at Riverside	Hackensack, NJ	Q2 2024	226	$	85,600	$	44,834	—

_________________________________

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

At June 30, 2024, the Company had two real estate assets that qualified as held for sale.

7. Commitments and Contingencies

Legal Contingencies

The Company recognizes a loss associated with contingent legal matters when the loss is probable and estimable.

In 2022 and early 2023, the Company was named as a defendant in cases brought by private litigants alleging antitrust violations by RealPage, Inc. and owners and/or operators of multifamily housing which utilize revenue management systems provided by RealPage, Inc. The Company engaged with the plaintiffs' counsel to explain why it believed that these cases were without merit as they pertained to the Company. Following these discussions, the plaintiffs filed a notice of voluntary dismissal in July 2023, which resulted in the Company being dismissed without prejudice from these cases.

Subsequently, on November 1, 2023, the District of Columbia filed a lawsuit in the Superior Court of the District of Columbia against RealPage, Inc. and 14 owners and/or operators of multifamily housing in the District of Columbia, including the Company, alleging that the defendants violated the District of Columbia Antitrust Act by unlawfully agreeing to use RealPage, Inc. revenue management systems and sharing sensitive data. On May 29, 2024, the Superior Court granted, with prejudice, the Company’s motion to dismiss this case as it pertains to the Company. Once the judgment is entered by the court, which had not yet occurred as of June 30, 2024, the District of Columbia will have 30 days to appeal this ruling (unless a greater time period is granted by the court). The Company is unable to predict the outcome or estimate the loss, if any, that would result from the lawsuit if the District of Columbia were to appeal the lawsuit and the appeal were to be granted.

The Company is not currently a defendant of any other cases with allegations similar to those above.

The Company is involved in various other claims and/or administrative proceedings that arise in the ordinary course of its business. While no assurances can be given, the Company does not currently believe that any of these other outstanding litigation matters, individually or in the aggregate, will have a material adverse effect on its financial condition or results of operations.

Lease Obligations

The Company owns 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 15 leases for its corporate and regional offices with varying terms through 2031, all of which are operating leases.

As of June 30, 2024 and December 31, 2023, the Company had total operating lease assets of $104,891,000 and $106,146,000, respectively, and lease obligations of $131,606,000 and $133,220,000, 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 $4,206,000 and $4,081,000 for the three months ended June 30, 2024 and 2023, respectively, and $8,377,000 and $8,086,000, respectively, for the six months ended June 30, 2024 and 2023, respectively, related to operating leases.

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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, 2024 and December 31, 2023, the Company had total finance lease assets of $28,305,000 and $28,528,000, respectively, and total finance lease obligations of $19,981,000 and $20,012,000, respectively, reported as components of right of use lease assets and lease liabilities on the accompanying Condensed Consolidated Balance Sheets.

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 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), 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 from unconsolidated investments, depreciation expense, income tax (benefit) expense, 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. 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% of total NOI for both the three months ended June 30, 2024 and 2023 and 1.7% and 1.8% of total NOI for the six months ended June 30, 2024 and 2023, 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 and consistent with how the Company's CODM evaluates total NOI.

In conjunction with the Company’s continued centralization of operating activities into a shared services model, the Company changed its presentation for centralized shared service costs to reflect these platform costs in property management and other indirect operating expenses, net of corporate income for all periods presented. Total property management and other indirect operating expenses, net of corporate income for the three and six months ended June 30, 2023 as presented in the following table includes $3,143,000 and $6,295,000, respectively, of shared services costs for this change.

A reconciliation of NOI to net income for the three and six months ended June 30, 2024 and 2023 is as follows (dollars in thousands):

	For the three months ended June 30,				For the six months ended June 30,
	2024		2023		2024		2023
Net income	$	254,007	$	367,807	$	427,564	$	514,582
Property management and other indirect operating expenses, net of corporate income	37,553		32,115		72,757		66,051
Expensed transaction, development and other pursuit costs, net of recoveries	1,417		1,261		5,662		4,253
Interest expense, net	57,078		51,585		111,844		108,406
General and administrative expense	19,586		17,676		39,917		38,076
Income from unconsolidated investments	(4,822)		(4,970)		(15,669)		(9,815)
Depreciation expense	206,923		200,546		419,192		405,289
Income tax (benefit) expense	(62)		(217)		(84)		3,343
Casualty and impairment loss	—		—		2,935		5,051
Gain on sale of communities	(68,556)		(187,322)		(68,486)		(187,309)
Other real estate activity	(181)		(341)		(322)		(470)
Net operating income from real estate assets sold or held for sale	(6,511)		(12,467)		(13,571)		(25,755)
Net operating income	$	496,432	$	465,673	$	981,739	$	921,702

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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,
	2024		2023		2024		2023
Rental income from real estate assets sold or held for sale	$	9,959	$	18,818	$	20,705	$	38,262
Operating expenses from real estate assets sold or held for sale	(3,448)		(6,351)		(7,134)		(12,507)
Net operating income from real estate assets sold or held for sale	$	6,511	$	12,467	$	13,571	$	25,755

The primary performance measure for communities under development or redevelopment depends on the stage of completion. While under development, management monitors actual construction costs against budgeted costs as well as lease-up pace and rent levels compared to budget.

The following table details the Company's segment information as of the dates specified (dollars in thousands). The segments are classified based on the individual community's status at January 1, 2024. Segment information for the three and six months ended June 30, 2024 and 2023 has been adjusted to exclude the real estate assets that were sold from January 1, 2023 through June 30, 2024, or otherwise qualify as held for sale as of June 30, 2024, as described in Note 6, "Real Estate Disposition Activities."

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	For the three months ended				For the six months ended
	Total revenue		NOI		Total revenue		NOI		Gross real estate (1)
For the period ended June 30, 2024
Same Store
New England	$	91,816	$	63,444	$	182,112	$	124,532	$	2,826,523
Metro NY/NJ	134,396		92,735		268,088		184,648		4,365,817
Mid-Atlantic	103,458		70,888		205,297		142,100		3,754,148
Southeast Florida	24,540		15,886		48,979		31,753		1,099,906
Denver, CO	10,240		7,336		20,369		14,734		505,650
Pacific Northwest	43,817		31,403		87,034		62,386		1,529,151
Northern California	107,553		75,969		214,779		152,011		3,808,982
Southern California	148,654		104,483		296,529		208,526		5,069,842
Other Expansion Regions	8,468		5,678		16,943		11,225		477,609
Total Same Store	672,942		467,822		1,340,130		931,915		23,437,628
Other Stabilized	27,562		19,458		52,631		36,277		1,337,993
Development / Redevelopment	13,748		9,152		21,809		13,547