What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-02-23 compared with 2022-02-25 · 99 added, 105 removed, 271 unchanged (43% of the section changed)

8 unchanged sentences

The Company’s strong financial condition supports its investment strategy by enhancing its ability to quickly shift acquisition, development, redevelopment, and disposition activities to markets that will optimize the performance of the Company's portfolio.

As of December 31, 2021, the Company owned or had ownership interests in 252 operating apartment communities, comprising 61,911 apartment homes, excluding the Company's ownership in preferred equity co-investments, loan investments, three operating commercial buildings, and a development pipeline comprised of one consolidated project and one unconsolidated joint venture project.

As of December 31, 2022, the Company owned or had ownership interests in 252 operating apartment communities, comprising 62,147 apartment homes, excluding the Company's ownership in preferred equity co-investments, loan investments, three operating commercial buildings, and a development pipeline comprised of one unconsolidated joint venture project.

The Company’s apartment communities are predominately located in the following major regions:

2 unchanged sentences

Seattle Metro (Seattle metropolitan area)

As of December 31, 2021, the Company’s development pipeline was comprised of one consolidated project under development, one unconsolidated joint venture project under development, and various predevelopment projects aggregating 371 apartment homes, with total incurred costs of $156.0 million, and estimated remaining project costs of approximately $61.0 million, $32.6 million of which represents the Company's estimated remaining costs, for total estimated project costs of $217.0 million.

As of December 31, 2022, the Company’s development pipeline was comprised of one unconsolidated joint venture project under development aggregating 264 apartment homes and various predevelopment projects, with total incurred costs of $102.0 million.

The estimated remaining project costs are approximately $25.0 million, $12.8 million of which represents the Company's estimated remaining costs, for total estimated project costs of $127.0 million.

As of December 31, 2022, the Company also had an ownership interest in three operating commercial buildings (totaling approximately 283,000 square feet).

7 unchanged sentences

As of December 31, 2022, this region represented 37% of the Company’s consolidated operating apartment homes.

Same-Property revenues decreased 5.6% in 2021 as compared to 2020.

Same-Property revenues increased 8.4% in 2022 as compared to 2021.

In 2023, the Company projects new residential supply of 12,750 apartment homes and single family homes, which represents 0.5% of the total housing stock.

2 unchanged sentences

As of December 31, 2022, this region represented 20% of the Company’s consolidated operating apartment homes.

Same-Property revenues decreased 1.7% in 2021 as compared to 2020.

Same-Property revenues increased 12.0% in 2022 as compared to 2021.

In 2023, the Company projects new residential supply of 14,450 apartment homes and single family homes, which represents 1.1% of the total housing stock.

9 unchanged sentences

Total 51,722 100 % 51,654 100 %

Co-investments, including Wesco I, Wesco III, Wesco IV, Wesco V, Wesco VI, BEXAEW, BEX II, BEX IV, and 500 Folsom communities, developments under construction, and preferred equity interest co-investment communities are not included in the table presented above for both periods.

A community previously held in the BEX III co-investment was consolidated in the second quarter of 2021 and is excluded from the December 31, 2020 table but included in the December 31, 2021 table.

The COVID-19 Pandemic

The United States and other countries around the world are continuing to experience impacts related to the COVID-19 pandemic and its related variants which has created considerable instability, disruption, and uncertainty.

Governmental authorities in impacted regions are taking extraordinary steps in an effort to slow down the spread of the viruses and mitigate its impact on affected populations.

Federal, state and local jurisdictions have implemented varying forms of requirements related to sponsors and patrons of public gatherings and required businesses to make changes to their operations in a manner that negatively affects profitability, resulting in job losses and related financial impacts that may affect future operations to an unknown extent.

While the California eviction moratorium sunsetted during the third quarter of 2021, other state and local eviction moratoriums and laws that limit rent increases during times of emergency and prohibit the ability to collect unpaid rent during certain timeframes continue to be in effect in various formats at various regions in which Essex's communities are located, impacting Essex and its properties.

The Company is working to comply with the stated intent of local, county, state and federal laws.

In that regard, the Company has implemented a wide range of practices to protect and support its employees and residents.

Such measures include instituting a hybrid work model for corporate associates to work at the Company's corporate offices and remotely, and transitioning many public interactions with leasing staff to on-line and telephonic communications;

Due to the COVID-19 pandemic, some of the Company's residents, their health, their employment, and, thus, their ability to pay rent, have been and may continue to be impacted.

To support residents, the Company has implemented the following steps, including, but not limited to:

• assembling a Resident Response Team to effectively and efficiently respond to resident needs and concerns with respect to the pandemic;

• structuring payment plans for residents who are unable to pay their rent as a result of the outbreak and waiving late fees where required or applicable for those residents;

• establishing the Essex Cares fund for the purpose of supporting the Company’s residents and communities that are experiencing financial hardships caused by the COVID-19 pandemic.

The impact of the COVID-19 pandemic on the U.S.

and world economies generally, and on the Company's results in particular, has been, and may continue to be significant.

The long-term impact will largely depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, whether employees and employers will continue to promote remote work if and when the pandemic concludes.

This includes new information which may emerge concerning the severity of COVID-19 and related variants, the success of actions taken to contain or treat COVID-19, future laws that may be enacted, the impact on job growth and the broader economy, and reactions by consumers, companies, governmental entities and capital markets.

The labor shortage due partly to various government mandates and vaccine requirements implemented during the COVID-19 pandemic and supply chain disruptions may negatively impact the Company's results of operations.

Primarily as a result of the impact of the COVID-19 pandemic, the Company's cash delinquencies as a percentage of scheduled rental income for the Company’s stabilized apartment communities or "Same-Property" (stabilized properties consolidated by the Company for the years ended December 31, 2021 and 2020) remained higher than the pre-pandemic period but improved from 2.5% for 2020 to 1.9% for 2021.

The Company has executed some payment plans and will continue to work with residents

to collect such cash delinquencies.

As a result of continued analysis of the collectability of delinquencies, reported delinquencies as a percentage of scheduled rent for the Company's Same-Property portfolio was 2.0% for the year ended December 31, 2021.

Co-investments, developments under construction, and preferred equity interest co-investment communities are not included in the table presented above for both periods.

Market Considerations, including the COVID-19 Pandemic

Though diminishing, the COVID-19 pandemic and its related variants continue to impact the U.S.

and world economies.

In an effort to mitigate its impact on affected populations, federal, state and local jurisdictions implemented varying forms of requirements which may continue to negatively affect profitability.

While the California eviction moratorium sunsetted during the third quarter of 2021, other state and local eviction moratoriums and laws that limit rent increases during times of emergency and impair the ability to collect unpaid rent during certain timeframes continue to be in effect in various formats at various regions in which our communities are located, impacting the Company and its properties.

The Company continues to work to comply with the stated intent of local, county, state and federal laws.

While COVID-19’s impact begins to dissipate, geopolitical tensions between Russian and Ukraine increased uncertainty during

Inflation has caused an increase in consumer prices, thereby reducing purchasing power and elevating the risks of a

Due to increased inflation, the U.S.

Federal Reserve raised the federal funds rate a total of seven times during 2022.

In response, market interest rates have increased significantly during this time.

At the same time, the labor market remains historically tight and companies continue to look to add employees, pushing unemployment lower.

The long-term impact of these developments will largely depend on new information which may emerge concerning the

COVID-19 pandemic, future laws that may be enacted, geopolitical tensions, inflation, the impact on job growth and the broader economy, and reactions by consumers, companies, governmental entities and capital markets.

Primarily as a result of the impact of the COVID-19 pandemic, the Company's cash delinquencies as a percentage of scheduled rental income for the Company’s stabilized apartment communities or "Same-Property" (stabilized properties consolidated by the Company for the years ended December 31, 2022 and 2021) have generally remained higher than the pre-pandemic period due to on-going eviction moratoria related to the COVID-19 pandemic, and above the typical historical range of 0.3% to 0.4% since the second quarter of 2020.

Cash delinquencies remained elevated at 1.9% for 2021 but decreased to 1.2% in 2022, attributable to government payments for Emergency Rental Assistance which was mostly depleted by December 31, 2022.

The Company continues to work with residents to collect such cash delinquencies.

As of December 31, 2022, the delinquencies have not had a material adverse impact to the Company's liquidity position.

The COVID-19 pandemic has not negatively impacted the Company's ability to access traditional funding sources on the same or reasonably similar terms as were available in recent periods prior to the pandemic, as demonstrated by the Company's financing activity during the year ended December 31, 2021 discussed in the “Liquidity and Capital Resources" section below.

The Company's average financial occupancy for the Company's Same-Property portfolio decreased slightly from 96.4% for the year ended December 31, 2021 to 96.1% for the year ended December 31, 2022.

The COVID-19 pandemic and the resulting macroeconomic conditions have not negatively impacted the Company's ability to access traditional funding sources on the same or reasonably similar terms as were available in recent periods prior to the pandemic, as demonstrated by the Company's financing activity during the year ended December 31, 2022 discussed in the “Liquidity and Capital Resources" section below.

The Company is not at material risk of not meeting the covenants in its credit agreements and is able to timely service its debt and other obligations .

1 unchanged sentence

Comparison of Year Ended December 31, 2022 to the Year Ended December 31, 2021

The Company’s average financial occupancy for the Company’s stabilized apartment communities or "2021 Same-Property" (stabilized properties consolidated by the Company for the years ended December 31, 2021 and 2020) increased 40 basis points to 96.4% in 2021 from 96.0% in 2020.

The Company’s average financial occupancy for the Company’s stabilized apartment communities or "2022 Same-Property" (stabilized properties consolidated by the Company for the years ended December 31, 2022 and 2021) decreased 30

basis points to 96.1% in 2022 from 96.4% in 2021.

Financial occupancy is defined as the percentage resulting from dividing actual rental income by total scheduled rental income.

25 unchanged sentences

Total Property Revenues $ 1,595,675 $ 1,431,418 $ 164,257 11.5 %

2021 Same-Property Revenues decreased by $16.2 million or 1.2% to $1.3 billion for 2021.

The decrease was primarily attributable to an additional $5.3 million of cash concessions and $1.2 million in delinquencies compared to the prior year and due to a decrease of 1.5% in average rental rates from $2,349 for 2020 to $2,313 for 2021.

2021 Non-Same Property Revenues decreased by $38.6 million or 21.2% to $143.2 million in 2021 compared to $181.7 million in 2020.

The decrease was primarily due to property dispositions in 2020 and the sale of Hidden Valley, Axis 2300, Park 20, and Devonshire Apartments in 2021 partially offset by the acquisition of The Village at Toluca Lake.

Management and other fees from affiliates decreased by $0.5 million or 5.2% to $9.1 million in 2021 from $9.6 million in 2020.

The decrease was primarily due to a decrease in revenues used to calculate management fees as well as a decrease of the management fee rate for one of the joint ventures.

Property operating expenses, excluding real estate taxes increased by $1.5 million or 0.6% to $264.9 million in 2021 compared to $263.4 million in 2020, primarily due to an increase of $3.8 million in utilities expenses offset by a $2.4 million decrease in administrative expenses.

2021 Same-Property operating expenses, excluding real estate taxes, increased by $5.3 million or 2.2% to $241.8 million in 2021 compared to $236.5 million in 2020, primarily due to increases of $4.1 million in utilities expenses, $2.2 million in insurance and other expenses, and $1.2 million in maintenance and repairs expenses, offset by a decrease of $2.2 million in administrative expenses.

Real estate taxes increased by $3.4 million or 1.9% to $180.4 million in 2021 compared to $177.0 million in 2020, primarily due to increases in assessed valuations and tax rates.

2021 Same-Property real estate taxes increased by $3.6 million or 2.4% to $155.0 million in 2021 compared to $151.4 million in 2020 primarily due to increases in assessed valuations and tax rates.

2022 Same-Property Revenues increased by $138.3 million or 10.3% to $1.5 billion for 2022 compared to $1.3 billion in 2021.

The increase was primarily attributable to an increase of 7.2% in average rental rates from $2,320 for 2021 to $2,486 for 2022 and 2.3% of the increase was attributable to a decrease in cash concessions in 2022 compared to 2021.

2022 Non-Same Property Revenues increased by $26.0 million or 30.6% to $110.7 million in 2022 compared to $84.7 million in 2021.

The increase was primarily due to the acquisitions of The Village at Toluca Lake and Canvas in 2021, the acquisitions of Regency Palm Court and Windsor Court in 2022, and an increase in average rental rates.

Management and other fees from affiliates increased by $2.0 million or 22.0% to $11.1 million in 2022 from $9.1 million in 2021.

The increase was primarily due to the addition of Martha Lake Apartments, Monterra in Mill Creek, The Rexford, and Silver communities to the Company's joint venture portfolio in 2021 and Vela in 2022, partially offset by the Company's purchases of BEX III, LLC's 50.0% interest in The Village at Toluca Lake in 2021, and its joint venture partner's 49.8% interest in Essex JV LLC co-investment that owned Regency Palm Court and Windsor Court, in 2022.

Property operating expenses, excluding real estate taxes increased by $18.5 million or 7.0% to $283.4 million in 2022 compared to $264.9 million in 2021, primarily due to increases of $9.2 million in utilities expenses, $7.4 million in maintenance and repairs expenses, and $1.9 million in administrative expenses.

2022 Same-Property operating expenses, excluding real estate taxes, increased by $15.5 million or 6.1% to $268.6 million in 2022 compared to $253.1 million in 2021, primarily due to increases of $8.0 million in utilities expenses, $6.2 million in maintenance and repairs expenses, $0.8 million in insurance and other expenses, and $0.5 million in administrative expenses.

Real estate taxes increased by $3.5 million or 1.9% to $183.9 million in 2022 compared to $180.4 million in 2021, primarily due to real estate taxes from the completion of development properties Wallace on Sunset in 2021 and Station Park Green (Phase IV) in 2022, as well as the acquisitions of The Village at Toluca Lake, Canvas, and 7 S Linden Commercial properties during 2021.

2022 Same-Property real estate taxes increased by $0.3 million or 0.2% to $164.0 million in 2022 compared to $163.7 million in 2021 primarily due to increased valuations and tax rates.

Corporate-level property management expenses increased by $4.5 million or 12.4% to $40.7 million in 2022 compared to $36.2 million in 2021 due to costs pertaining to the centralization of certain property level functions.

Depreciation and amortization expense decreased by $5.4 million or 1.0% to $520.1 million in 2021 compared to $525.5 million in 2020, primarily due to a decrease in amortization expense resulting from certain lease intangibles becoming fully amortized during 2020 and the sale of Hidden Valley, Axis 2300, Park 20, and Devonshire Apartments during 2021.

Gain on sale of real estate and land of $143.0 million in 2021 was attributable to the sale of Hidden Valley, Axis 2300, Park 20, and Devonshire Apartments during 2021.

The Company's $65.0 million gain on sale of real estate and land in 2020 was primarily attributable to the portfolio sale of One South Market and Museum Park, and the sales of Delano and 416 on Broadway during 2020.

Interest expense decreased by $17.5 million or 7.9% to $203.1 million in 2021 compared to $220.6 million in 2020 , primarily due to various debt that was paid off, matured, or regular principal payments during and after 2020, and lower average interest rates, which resulted in a decrease in interest expense of $49.8 million for 2021.

These decreases in interest expense were partially offset by the issuance of new senior unsecured notes which resulted in an increase of $23.8 million interest expense for 2021 as compared to 2020.

Depreciation and amortization expense increased by $19.2 million or 3.7% to $539.3 million in 2022 compared to $520.1 million in 2021, primarily due to an increase in depreciation expense from the completion of development properties Mylo and Wallace on Sunset in 2021, Station Park Green (Phase IV) in 2022, as well as the acquisitions of The Village at Toluca Lake and Canvas in 2021, and Regency Palm Court and Windsor Court in 2022.

Gain on sale of real estate and land of $94.4 million in 2022 was attributable to the sale of Anavia in the fourth quarter of 2022.

The Company's $143.0 million gain on sale of real estate and land in 2021 was attributable to the sale of Hidden Valley, Axis 2300, Park 20, and Devonshire Apartments during 2021.

Interest expense increased by $1.7 million or 0.8% to $204.8 million in 2022 compared to $203.1 million in 2021 , primarily due to the issuance of new senior unsecured notes in 2021 which resulted in an increase in interest expense of $4.8 million and increased borrowing on the Company's unsecured lines of credit, and higher average interest rates, which resulted in an increase in interest expense of $3.0 million.

Additionally, there was a $3.9 million decrease in capitalized interest in 2022, due to a decrease in development activity as compared to the same period in 2021.

These increases in interest expense were partially offset by various debts that were paid off, matured, or regular principal payments during and after 2021 which resulted in a decrease in interest expense of $10.0 million for 2022.

Total return swap income of $7.9 million in 2022 consists of monthly settlements related to the Company's four total return swap contracts with an aggregate notional amount of $223.6 million.

Interest and other income increased by $57.7 million or 140.7% to $98.7 million in 2021 compared to $41.0 million in 2020, primarily due to increases of $34.3 million in insurance reimbursements, legal settlements and other driven by a one-time legal settlement claim, $20.6 million in unrealized gains on marketable securities, $7.9 million in marketable securities and other income, $4.9 million in income from early redemption of notes receivable, and $1.3 million in gain on sale of marketable securities.

These increases were offset by a $11.8 million decrease in interest income resulting from the maturity of a mortgage backed security investment in 2020.

Equity income from co-investments increased by $45.2 million or 68.0% to $111.7 million in 2021 compared to $66.5 million in 2020, primarily due to increases of $50.3 million in equity income from non-core co-investments and $11.6 million in income from preferred equity investments including income from early redemptions.

These increases were offset by decreases of $8.8 million in equity income from co-investments and $6.5 million in co-investment promote income.

Deferred tax expense on unrealized gain on unconsolidated co-investment of $15.7 million in 2021 resulted from a net unrealized gain of $53.7 million from an unconsolidated co-investments.

Loss on early retirement of debt, net of $19.0 million in 2021 was primarily due to the early termination of the Company's

five interest rate swap contracts in conjunction with the partial repayment of the Company's unsecured term debt and the early repayment of $300.0 million of senior unsecured notes.

Gain on remeasurement of co-investment of $2.3 million in 2021 resulted from the Company's purchase of BEX III's 50.0% interest in The Village at Toluca Lake community in the second quarter of 2021.

Gain on remeasurement of $234.7 million in 2020 resulted from the Company's purchase of Canada Pension Plan Investment Board's ("CPPIB") 45.0% co-investment interests during the first quarter of 2020.

Interest and other (loss) income decreased by $117.7 million or 119.3% to a loss of $19.0 million in 2022 compared to an income of $98.7 million in 2021, primarily due to unrealized losses resulting from a decrease in the fair value of marketable securities.

Equity income from co-investments decreased by $85.7 million or 76.7% to $26.0 million in 2022 compared to $111.7 million in 2021, primarily due to decreases of $93.6 million in equity income from non-core co-investments, $5.3 million in income from preferred equity investments including income from early redemptions, and a $2.1 million impairment loss from an unconsolidated co-investment.

These decreases were offset by $17.1 million in co-investment promote income during 2022 and an increase of $1.0 million in loss on early retirement of debt from unconsolidated co-investments.

Deferred tax benefit on unconsolidated co-investments of $10.2 million in 2022 is primarily due to net unrealized losses from non-core unconsolidated co-investments.

Gain on remeasurement of co-investment of $17.4 million in 2022 resulted from the Company's purchase of its joint venture partner's 49.8% membership interest in Essex JV, LLC co-investment that owned Regency Palm Court and Windsor Court.

Gain on remeasurement of $2.3 million in 2021 resulted from the Company's purchase of BEX III's 50.0% interest in The Village at Toluca Lake community in the second quarter of 2021.

Comparison of Year Ended December 31, 2021 to the Year Ended December 31, 2020

11 unchanged sentences

Essex itself does not hold any indebtedness, and its only material asset is its ownership of partnership interests of the Operating Partnership.

Essex’s principal funding requirement is the payment of dividends on its common stock and preferred stock.

Essex’s principal funding requirement is the payment of dividends on its common stock.

Essex’s sole source of funding for its dividend payments is distributions it receives from the Operating Partnership.

12 unchanged sentences

Additionally, the capital markets continue to be available and the Company is able to generate cash from the disposition of real estate assets to finance additional cash flow needs, including continued development and select acquisitions.

In the event that conditions become further exacerbated due to the COVID-19 pandemic and related economic disruptions or otherwise, the Company may further utilize other resources such as its cash reserves, lines of credit, or decreased investment in redevelopment activities to supplement operating cash flows.

In the event that economic disruptions occur, the Company may further utilize other resources such as its cash reserves, lines of credit, or decreased investment in redevelopment activities to supplement operating cash flows.

The Company is carefully monitoring and managing its cash position in light of ongoing conditions and levels of operations.

5 unchanged sentences

As of December 31, 2022, the Company had two unsecured lines of credit aggregating $1.24 billion, including a $1.2 billion unsecured line of credit and a $35.0 million working capital unsecured line of credit.

As of December 31, 2021, there was $340.0 million amount outstanding on the $1.2 billion unsecured line of credit.

The interest rate is based on a tiered rate structure tied to the Company's credit ratings and was LIBOR plus 0.775% as of December 31, 2021.

There was $1.3 million outstanding on the Company's $35.0 million working capital unsecured line of credit as of December 31, 2021.

The interest rate on the amended line is based on a tiered rate structure tied to the Company's credit ratings and is currently at LIBOR plus 0.775%.

As of December 31, 2022, there was $40.0 million outstanding on the $1.2 billion unsecured line of credit.

The underlying interest rate is based on a tiered rate structure tied to the Company's credit ratings, adjusted for the Company's sustainability metric grid, and was at Adjusted SOFR plus 0.75% as of December 31, 2022.

This facility is scheduled to mature in January 2027, with two six-month extensions, exercisable at the Company's option.

As of December 31, 2022, there was $12.1 million outstanding on the Company's $35.0 million working capital unsecured line of credit.

This facility is scheduled to mature in July 2024.

The Company’s unsecured lines of credit and unsecured debt agreements contain debt covenants related to limitations on indebtedness and liabilities and maintenance of minimum levels of consolidated earnings before depreciation, interest and amortization.

9 unchanged sentences

The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements.

The Company has four total return swap contracts, with an aggregate notional amount of $224.4 million, that effectively converts $224.4 million of mortgage notes payable to a floating interest rate based on the Securities Industry and Financial Markets Association Municipal Swap Index ("SIFMA") plus a spread.

The Company has four total return swap contracts, with an aggregate notional amount of $223.6 million, that effectively converts $223.6 million of fixed mortgage notes payable to a floating interest rate based on the Securities Industry and Financial Markets Association Municipal Swap Index ("SIFMA") plus a spread.

The total return swaps provide fair market value protection on the mortgage notes payable to our counterparties during the initial period of the total return swap until the Company's option to call the mortgage notes at par can be exercised.

1 unchanged sentence

These derivatives do not qualify for hedge accounting.

As of December 31, 2021 and 2020, the aggregate carrying value of the interest rate swap contracts was a liability of zero and $2.4 million, respectively.

As of December 31, 2021 and 2020, the swap contracts were presented in the consolidated balance sheets as a liability of zero and $2.4 million, respectively, and were included in other liabilities on the consolidated balance sheets.

As of December 31, 2022 and 2021, the aggregate carrying value of the interest rate swap contracts were an asset of $5.6 million and zero, respectively.

As of December 31, 2022 and 2021, the swap contracts were presented in the consolidated balance sheets as an asset of $5.6 million and zero, respectively, and were included in prepaid expenses and other assets on the consolidated balance sheets.

The aggregate carrying and fair value of the total return swaps was zero at both December 31, 2022 and 2021.

Hedge ineffectiveness related to cash flow hedges, which is reported in current year income as interest expense, net was zero, zero, and a loss of $0.2 million, for the years ended December 31, 2021, 2020, and 2019, respectively.

Hedge ineffectiveness related to cash flow hedges, which is reported in current year income as interest expense, net was zero for the years ended December 31, 2022, 2021, and 2020.

Issuance of Common Stock

1 unchanged sentence

In connection with the 2021 ATM Program, the Company may also enter into related forward sale agreements, and may sell shares of its common stock pursuant to these agreements.

The use of a forward sale agreement would allow the Company to lock in a share price on the sale of shares of its common stock at the time the agreement is executed, but defer receipt of the proceeds from the sale of shares until a later date should the Company elect to settle such forward sale agreement, in whole or in part, in shares of common stock.

The 2021 ATM Program replaces the prior equity distribution agreement entered into in September 2018 (the "2018 ATM Program"), which was terminated upon the establishment of the 2021 ATM Program.

For the year ended December 31, 2021, the Company did not sell any shares of its common stock through the 2021 ATM Program or through the 2018 ATM Program.

As of December 31, 2021, there were no outstanding forward purchase agreements, and $900.0 million of shares remain available to be sold under the 2021 ATM Program.

For the year ended December 31, 2020, the Company did not issue any shares of its common stock through the 2018 ATM Program.

For the year ended December 31, 2019, the Company issued 228,271 shares of common stock through the 2018 ATM Program at an average price of $321.56 per share for proceeds of $73.4 million.

The use of a forward sale agreement would allow the Company to

lock in a share price on the sale of shares of its common stock at the time the agreement is executed, but defer receipt of the proceeds from the sale of shares until a later date should the Company elect to settle such forward sale agreement, in whole or in part, in shares of common stock.

The 2021 ATM Program replaced the prior equity distribution agreement entered into in September 2018 (the "2018 ATM Program"), which was terminated upon the establishment of the 2021 ATM Program.

For the year ended December 31, 2022, the Company did not sell any shares of its common stock through the 2021 ATM Program.

As of December 31, 2022, there were no outstanding forward purchase agreements, and $900.0 million of shares of common stock remain available to be sold under the 2021 ATM Program.

For the years ended December 31, 2021 and 2020, the Company did not issue any shares of its common stock through the 2021 ATM Program or through the 2018 ATM Program.

Capital Expenditures

1 unchanged sentence

For the year ended December 31, 2022, non-revenue generating capital expenditures totaled approximately $2,670 per apartment home.

These expenditures do not include expenditures for deferred maintenance on acquisition properties, expenditures for property renovations and improvements which are expected to generate additional revenue or cost savings, and do not include expenditures incurred due to changes in government regulations that the Company would not have incurred otherwise, costs related to the COVID-19 pandemic, retail, furniture and fixtures, or expenditures for which the Company expects to be reimbursed.

These expenditures do not include expenditures for deferred maintenance on acquisition properties, expenditures for property renovations and improvements which are expected to generate additional revenue or cost savings, and do not include expenditures incurred due to changes in government regulations that the Company would not have incurred otherwise, retail, furniture and fixtures, or expenditures for which the Company expects to be reimbursed.

The Company expects that cash from operations and/or its lines of credit will fund such expenditures.

1 unchanged sentence

The Company defines development projects as new communities that are being constructed, or are newly constructed and are in a phase of lease-up and have not yet reached stabilized operations.

As of December 31, 2021, the Company's development pipeline was comprised of one consolidated project under development, one unconsolidated joint venture project under development and various consolidated predevelopment projects, aggregating 371 apartment homes, with total incurred costs of $156.0 million, and estimated remaining project costs of approximately $61.0 million, $32.6 million of which represents the Company's estimated remaining costs, for total estimated project costs of $217.0 million.

As of December 31, 2022, the Company's development pipeline was comprised of one unconsolidated joint venture project under development aggregating 264 apartment homes and various predevelopment projects, with total incurred costs of $102.0 million.

Estimated remaining project costs are approximately $25.0 million, $12.8 million of which represents the Company's estimated remaining costs, for total estimated project costs of $127.0 million.

The Company defines predevelopment projects as proposed communities in negotiation or in the entitlement process with an expected high likelihood of becoming entitled development projects.

12 unchanged sentences

Preferred equity investments 2 $ 98,000 $ 38,000

Mezzanine loans 2 140,000 52,734

Non-core co-investments — 87,000 50,120

Consolidated:

Real estate under development 1 91,162 3,000

Mezzanine loans 2 82,110 60,932

$ 267,110 $ 149,052

(1) Excludes approximately $29.6 million of the Company's share of estimated project costs for Scripps Mesa Apartments which have been fully funded.

(1) Excludes approximately $12.8 million of the Company's share of estimated project costs for LIVIA (fka Scripps Mesa Apartments) which have been fully funded.

At December 31, 2022, the Company had operating lease commitments of $162.1 million for ground, building and garage leases with maturity dates ranging from 2025 to 2083.

1 unchanged sentence

Variable Interest Entities

In accordance with accounting standards for consolidation of variable interest entities ("VIEs"), the Company consolidates the Operating Partnership, 18 DownREIT entities (comprising nine communities) and six co-investments as of December 31, 2021.

As of December 31, 2020, the Company consolidated the Operating Partnership, 17 DownREIT entities (comprising nine communities), and five co-investments.

In accordance with accounting standards for consolidation of variable interest entities ("VIEs"), the Company consolidated the Operating Partnership, 18 DownREIT entities (comprising nine communities) and six co-investments as of December 31, 2022 and 2021.

The Company consolidates these entities because it is deemed the primary beneficiary.

3 unchanged sentences

The Company's financial risk in each VIE is limited to its equity investment in the VIE.

As of December 31, 2021, the Company did not have any other VIEs of which it was deemed to be the primary beneficiary and did not have any VIEs of which it was not deemed to be the primary beneficiary.

As of December 31, 2022, the Company did not have any other VIEs of which it was deemed to be the primary beneficiary.

Critical Accounting Estimates

3 unchanged sentences

The Company’s critical accounting estimates relate principally to the following key areas:

(i) accounting for the acquisition of investments in real estate (specifically, the allocation between land and buildings during the

year ended December 31, 2020);

(i) accounting for the acquisition of investments in real estate (specifically, the allocation between land and buildings during the year ended December 31, 2020);

and (ii) evaluation of events and changes in circumstances indicating whether the Company’s rental properties may be impaired.

7 unchanged sentences

The reasonable likelihood that the estimate could have a material impact on the financial condition of the Company is based on the total consideration exchanged for real estate during any given year.

The allocation of the value between land and building was a critical accounting estimate during the year ended December 31, 2020 as result of the potential material impact of the Company's acquisition of a land parcel and six communities for a total purchase price of $463.4 million.

The allocation of the value between land and

building was a critical accounting estimate during the year ended December 31, 2020 as result of the potential material impact of the Company's acquisition of a land parcel and six communities for a total purchase price of $463.4 million.

The Company periodically assesses the carrying value of its real estate investments for indicators of impairment.

6 unchanged sentences

Actual results may vary from those estimates and those estimates could be different under different assumptions or conditions.

Funds from Operations

Funds from Operations ("FFO") is a financial measure that is commonly used in the REIT industry.

Funds from Operations Attributable to Common Stockholders and Unitholders

Funds from Operations Attributable to Common Stockholders and Unitholders ("FFO") is a financial measure that is commonly used in the REIT industry.

The Company presents FFO and FFO excluding non-core items (referred to as "Core FFO") as supplemental operating performance measures.

7 unchanged sentences

By excluding gains or losses related to sales of depreciated operating properties and excluding real estate depreciation (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO can help investors compare the operating performance of a real estate company between periods or as compared to different companies.

By further adjusting for items that are not considered part of the Company’s core business operations, Core FFO allows investors to compare the core

operating performance of the Company to its performance in prior reporting periods and to the operating performance of other real estate companies without the effect of items that by their nature are not comparable from period to period and tend to obscure the Company’s actual operating results.

By further adjusting for items that are not considered part of the Company’s core business operations, Core FFO allows investors to compare the core operating performance of the Company to its performance in prior reporting periods and to the operating performance of other real estate companies without the effect of items that by their nature are not comparable from period to period and tend to obscure the Company’s actual operating results.

The Company believes that its consolidated financial statements, prepared in accordance with U.S.

5 unchanged sentences

GAAP assumes, through depreciation charges, that the value of real estate assets diminishes predictably over time.

NAREIT stated in its White Paper on Funds from Operations “since real estate asset values have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves." Consequently, NAREIT’s definition of FFO reflects the fact that real estate, as an asset class, generally appreciates over time and depreciation charges required by U.S.

estate, as an asset class, generally appreciates over time and depreciation charges required by U.S.

GAAP do not reflect the underlying economic realities.

11 unchanged sentences

Gains not included in FFO attributable to common stockholders and unitholders (111,839) (145,253) (301,886)

Impairment loss — 1,825 7,105

Impairment loss from unconsolidated co-investments 2,105 — 1,825

2 unchanged sentences

Depreciation attributable to third party ownership and other (1)

(1,421) (571) (539)

Funds from operations attributable to common stockholders and unitholders $ 923,361 $ 941,046 $ 865,273

1 unchanged sentence

Expensed acquisition and investment related costs 2,132 203 1,591

Deferred tax expense on unrealized gain on unconsolidated co-investment (1)

Deferred tax (benefit) expense on unconsolidated co-investments (2)

(10,236) 15,668 1,531

Gain on sale of marketable securities (12,436) (3,400) (2,131)

Unrealized gains on marketable securities (33,104) (12,515) (5,710)

Change in unrealized losses (gains) on marketable securities, net 57,983 (33,104) (12,515)

Provision for credit losses (381) 141 687

Equity income from non-core co-investment (2)

Equity loss (income) from non-core co-investments (3)

38,045 (55,602) (5,289)

Interest rate hedge ineffectiveness — — 181

Loss (gain) on early retirement of debt, net 19,010 22,883 (3,717)

Loss on early retirement of debt, net 2 19,010 22,883

Loss (gain) on early retirement of debt from unconsolidated co-investment 988 25 (38)

Co-investment promote income (17,076) — (6,455)

Income from early redemption of preferred equity investments (8,469) (210) (3,562)

Income from early redemption of preferred equity investments and notes receivable (1,669) (8,469) (210)

Accelerated interest income from maturity of investment in mortgage backed security — — (11,753)

6 unchanged sentences

Core funds from operations attributable to common stockholders and unitholders per share - diluted $ 14.51 $ 12.49 $ 12.82

(1) Represents deferred tax expense related to net unrealized gains on technology co-investments.

(2) Represents the Company's share of co-investment income from technology co-investments.

(3) Assumes conversion of all outstanding OP Units into shares of the Company's common stock and excludes DownREIT units.

(1) The Company consolidates certain co-investments.

The noncontrolling interest's share of net operating income in these investments for the twelve months ended December 31, 2022 was $3.3 million.

(2) Represents deferred tax (benefit) expense related to net unrealized gains or losses on technology co-investments.

(3) Represents the Company's share of co-investment loss (income) from technology co-investments.

(4) Assumes conversion of all outstanding OP Units into shares of the Company's common stock and excludes DownREIT limited partnership units.

Net Operating Income

11 unchanged sentences

General and administrative 56,577 51,838 65,388

Merger and integration expenses — — —

Expensed acquisition and investment related costs 2,132 203 1,591

Impairment loss — — 1,825

(Gain) Loss on sale of real estate and land (142,993) (64,967) 3,164

Gain on sale of real estate and land (94,416) (142,993) (64,967)

NOI 1,128,406 986,182 1,045,538

4 unchanged sentences

Words such as "expects," "assumes," "anticipates," "may," "will," "intends," "plans," "projects," "believes," "seeks," "future," "estimates," and variations of such words and similar expressions are intended to identify such forward-looking statements.

Such forward-looking statements include, among other things, statements regarding the Company's expectations related to the continued impact of the COVID-19 pandemic and related variants on the Company's business, financial condition and results of operations and the impact of any additional measures taken to mitigate the impact of the pandemic, the Company's intent, beliefs or expectations with respect to the timing of completion of current development and redevelopment projects and the stabilization of such projects, the timing of lease-up and occupancy of its apartment communities, the anticipated operating performance of its apartment communities, the total projected costs of development and redevelopment projects, co-investment activities, qualification as a REIT under the Internal Revenue Code of 1986, as amended, 2022 Same-Property revenue and operating expenses generally and in specific regions, the real estate markets in the geographies in which the Company's properties are located and in the United States in general, the adequacy of future cash flows to meet anticipated cash needs, its financing activities and the use of proceeds from such activities, the availability of debt and equity financing, general economic conditions including the potential impacts from such economic conditions, including as a result of the COVID-19 pandemic and governmental measures intended to prevent its spread, trends affecting the Company's financial condition or results of operations, changes to U.S.

Such forward-looking statements include, among other things, statements regarding the Company's expectations related to the continued evolution of the work-from-home trend in light of the COVID-19 pandemic, the Company's intent, beliefs or expectations with respect to the timing of completion of current development and redevelopment projects and the stabilization of such projects, the timing of lease-up and occupancy of its apartment communities, the anticipated operating performance of its apartment communities, the total projected costs of development and redevelopment projects, co-investment activities, qualification as a REIT under the Internal Revenue Code of 1986, as amended, 2022 Same-Property revenue and operating expenses generally and in specific regions, the real estate markets in the geographies in which the Company's properties are located and in the United States in general, the adequacy of future cash flows to meet anticipated cash needs, its financing activities and the use of proceeds from such activities, the availability of debt and equity financing, general economic conditions including the potential impacts from such economic conditions, inflation, the labor market, supply chain impacts and ongoing hostilities between Russia and Ukraine, trends affecting the Company's financial condition or results of operations, changes to U.S.

tax laws and regulations in general or specifically related to REITs or real estate, changes to laws and regulations in jurisdictions in which communities the Company owns are located, and other information that is not historical information.

While the Company's management believes the assumptions underlying its forward-looking statements are reasonable, such forward-looking statements involve known and unknown risks, uncertainties and other factors, many of which are beyond the Company’s control, which could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

Company cannot assure the future results or outcome of the matters described in these statements;

The Company cannot assure the future results or outcome of the matters described in these statements;

rather, these statements merely reflect the Company’s current expectations of the approximate outcomes of the matters discussed.

Factors that might cause the Company’s actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements include, but are not limited to, the following:

the continued impact of the COVID-19 pandemic and related variants, which remains inherently uncertain as to duration and severity, and any additional governmental measures taken to limit its spread, and other potential future outbreaks of infectious diseases or other health concerns, which could continue to adversely affect the Company's business and its tenants, and cause a significant downturn in general economic conditions, the real estate industry, and the markets in which the Company's communities are located;

uncertainty regarding ongoing hostility between Russia and the Ukraine and the related impact on macroeconomic conditions as a result of such conflict;

Factors that might

cause the Company’s actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements include, but are not limited to, the following:

potential future outbreaks of infectious diseases or other health concerns, which could adversely affect the Company's business and its tenants, and cause a significant downturn in general economic conditions, the real estate industry, and the markets in which the Company's communities are located;

the Company may fail to achieve its business objectives;

7 unchanged sentences

occupancy rates and rental demand may be adversely affected by competition and local economic and market conditions;

there may be increased interest rates and operating costs;

uncertainties regarding ongoing hostilities between Russia and Ukraine and the related impacts on macroeconomic conditions, including, among other things, interest rates and inflation;

the Company may be unsuccessful in the management of its relationships with its co-investment partners;

9 unchanged sentences

and those further risks, special considerations, and other factors discussed in Item 1A, Risk Factors, of this Form 10-K, and those risk factors and special considerations set forth in the Company’s other filings with the SEC which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

Additionally, the risks, uncertainties and other factors set forth above or otherwise referred to in this Annual Report on Form 10-K and the other reports that the Company has filed with the SEC may be further amplified by the global impact of the COVID-19 pandemic and related variants.

All forward-looking statements are made as of the date hereof, the Company assumes no obligation to update or supplement this information for any reason, and therefore, they may not represent the Company's estimates and assumptions after the date of this report.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis