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Investments in Real Estate Entities | 9 Months Ended
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Sep. 30, 2016
Equity Method Investments and Joint Ventures [Abstract] |
Investments in Real Estate Entities | Investments in Real Estate Entities Investment in Unconsolidated Real Estate Entities As of September 30, 2016, the Company had investments in five unconsolidated real estate entities with ownership interest percentages ranging from 20.0% to 31.3%, excluding development joint ventures and joint ventures formed with Equity Residential as part of the Archstone acquisition. The Company accounts for its investments in unconsolidated real estate entities under the equity method of accounting. The significant accounting policies of the Company’s unconsolidated real estate entities are consistent with those of the Company in all material respects. During the nine months ended September 30, 2016, AvalonBay Value Added Fund II, L.P. ("Fund II") sold two communities:
• | Eaves Rancho San Diego, located in El Cajon, CA, containing 676 apartment homes, was sold for $158,000,000. The Company's share of the gain in accordance with GAAP for the disposition was $13,057,000.
• | Eaves Tustin, located in Tustin, CA, containing 628 apartment homes, was sold for $163,550,000. The Company's share of the gain in accordance with GAAP for the disposition was $23,547,000.
In conjunction with the disposition of these communities during the nine months ended September 30, 2016, Fund II repaid $127,191,000 of secured indebtedness in advance of the scheduled maturity dates. This resulted in charges for prepayment penalties and write-offs of deferred financing costs, of which the Company's portion was $1,670,000, which is reported as a reduction of equity in (loss) income of unconsolidated real estate entities on the accompanying Condensed Consolidated Statements of Comprehensive Income. The Company has an equity interest of 31.3% in Fund II, and upon achievement of a threshold return, the Company has a right to incentive distributions for its promoted interest representing 20.0% of further Fund II distributions, which is in addition to its share of the remaining 80.0% of distributions. During the nine months ended September 30, 2016, the Company recognized income of $3,447,000 for its promoted interest, which is reported as a component of equity in (loss) income of unconsolidated real estate entities on the accompanying Condensed Consolidated Statements of Comprehensive Income. During the nine months ended September 30, 2016, Archstone Multifamily Partners AC LP (the "U.S. Fund") sold two communities:
• | Archstone Boca Town Center, located in Boca Raton, FL, containing 252 apartment homes, was sold for $56,300,000. The Company's share of the gain in accordance with GAAP for the disposition was $4,120,000.
• | Avalon Kips Bay, located in New York, NY, containing 209 apartment homes, was sold for $173,000,000. The Company's share of the gain in accordance with GAAP for the disposition was $12,448,000.
In conjunction with the disposition of these communities, during the nine months ended September 30, 2016, the U.S. Fund repaid an aggregate of $94,822,000 of secured indebtedness in advance of the scheduled maturity dates. This resulted in charges for prepayment penalties and write-offs of deferred financing costs, of which the Company's aggregate portion was $2,003,000, which is reported as a reduction of equity in (loss) income of unconsolidated real estate entities on the accompanying Condensed Consolidated Statements of Comprehensive Income. The following is a combined summary of the financial position of the entities accounted for using the equity method discussed above as of the dates presented (dollars in thousands):
| 9/30/2016 |  | 12/31/2015
| (unaudited) |  | (unaudited)
Assets: |  |  |  |  |
Real estate, net | $ | 1,005,924 |  |  | $ | 1,392,833 |
Other assets | 52,992 |  |  | 57,044 |
Total assets | $ | 1,058,916 |  |  | $ | 1,449,877 |
Liabilities and partners’ capital: |  |  |  |  |
Mortgage notes payable and credit facility | $ | 720,703 |  |  | $ | 947,205 |
Other liabilities | 20,771 |  |  | 20,471 |
Partners’ capital | 317,442 |  |  | 482,201 |
Total liabilities and partners’ capital | $ | 1,058,916 |  |  | $ | 1,449,877 |
The following is a combined summary of the operating results of the entities accounted for using the equity method discussed above for the periods presented (dollars in thousands):
| For the three months ended |  | For the nine months ended
| 9/30/2016 |  | 9/30/2015 |  | 9/30/2016 |  | 9/30/2015
| (unaudited) |  | (unaudited)
Rental and other income | $ | 30,771 |  |  | $ | 43,868 |  |  | $ | 101,534 |  |  | $ | 132,518 |
Operating and other expenses | (12,069 | ) |  | (17,910 | ) |  | (39,206 | ) |  | (52,622 | )
Gain on sale of communities | — |  |  | 66,410 |  |  | 180,256 |  |  | 98,899 |
Interest expense, net (1) | (7,919 | ) |  | (14,883 | ) |  | (37,857 | ) |  | (35,694 | )
Depreciation expense | (8,081 | ) |  | (11,213 | ) |  | (26,027 | ) |  | (35,058 | )
Net income | $ | 2,702 |  |  | $ | 66,272 |  |  | $ | 178,700 |  |  | $ | 108,043 |
_____________________________________
(1) | Amount for the nine months ended September 30, 2016 includes charges for prepayment penalties and write-offs of deferred financing costs of $12,344.
In conjunction with the formation of Fund II, and the acquisition of the U.S. Fund, Multifamily Partners AC JV LP (the "AC JV") and Brandywine Apartments of Maryland, LLC ("Brandywine"), the Company incurred costs in excess of its equity in the underlying net assets of the respective investments. These costs represent $38,485,000 and $40,978,000 at September 30, 2016 and December 31, 2015, respectively, of the Company's respective investment balances. These amounts are being amortized over the lives of the underlying assets as a component of equity in (loss) income of unconsolidated entities on the accompanying Condensed Consolidated Statements of Comprehensive Income. In May 2016, the Company entered into a joint venture agreement to facilitate the acquisition of Avalon Clarendon, located in Arlington, VA. Avalon Clarendon is part of a mixed-use development containing residential, retail, office and public parking. The Company contributed $120,300,000 to the venture for the Company's share of the purchase price. The Company had shared control of the overall venture with its partner, but had all of the rights and obligations associated with the residential component of Avalon Clarendon, containing 300 apartment homes. The joint venture partner had all of the rights and obligations associated with the retail, office and public parking components of the mixed-use development. During the three months ended September 30, 2016, the Company and its venture partner established separate legal ownership of the residential and retail, office and public parking components of the venture, and the Company retained all of the rights and obligations associated with the residential component. After this legal separation, the Company will report the operating results of Avalon Clarendon as part of its consolidated operations. In conjunction with the consolidation of Avalon Clarendon, the Company recorded the consolidated assets at fair value applying the framework discussed below under "Investments in Consolidated Real Estate Entities" for valuation, resulting in a gain of $4,322,000 for the difference between the fair value of Avalon Clarendon and the Company's equity interest at the date of consolidation of $115,848,000, primarily attributable to depreciation recognized during the period the community was owned in the joint venture. The Company has included this gain as a component of gain on sale of communities on the accompanying Condensed Consolidated Statements of Comprehensive Income. During the three months ended September 30, 2016, the Company entered into a joint venture to develop, own, and operate AVA North Point, an apartment community located in Cambridge, MA, which is currently under construction and expected to contain 265 apartment homes upon completion. The Company owns a 55.0% interest in the venture, and the venture partner owns the remaining 45.0% interest. AVA North Point is the third phase of a master planned development, the other phases of which are owned through the AC JV. The AC JV’s partnership agreement contains provisions that require the Company to provide a right of first offer (“ROFO”) to the venture partners in connection with opportunities to acquire or develop additional interests in multifamily real estate assets within a specified geographic radius of the AC JV’s existing assets, generally one mile or less. During the three months ended September 30, 2016, the Company provided the partners of the AC JV the opportunity to acquire the AVA North Point land parcel owned by the Company as required in the ROFO provisions for the AC JV. After certain partners of the AC JV declined to participate, the Company entered into the new joint venture and sold the land parcel to the venture in exchange for a cash payment and a capital account credit, and is overseeing the development in exchange for a developer fee. Upon sale of the land parcel, the Company recognized a gain of $10,621,000, included in gain on sale of other real estate on the accompanying Condensed Consolidated Statements of Comprehensive Income. Investments in Consolidated Real Estate Entities During the nine months ended September 30, 2016, in addition to Avalon Clarendon discussed above, the Company acquired four consolidated communities:
• | Avalon Hoboken, located in Hoboken, NJ, contains 217 apartment homes and was acquired for a purchase price of $129,700,000. In conjunction with the acquisition, the Company assumed a fixed rate secured mortgage note with a principal balance of $67,904,000 and a contractual interest rate of 4.18% maturing in December 2020.
• | Avalon Potomac Yard, located in Alexandria, VA, contains 323 apartment homes and was acquired for a purchase price of $108,250,000.
• | Avalon Columbia Pike, located in Arlington, VA, contains 269 apartment homes and was acquired for a purchase price of $102,000,000. In conjunction with the acquisition, the Company assumed a fixed rate secured mortgage note with a principal balance of $70,507,000 and a contractual interest rate of 3.38% maturing in November 2019.
• | Studio 77, located in North Hollywood, CA, contains 156 apartment homes and was acquired for a purchase price of $72,100,000.
The Company accounted for these acquisitions as business combinations and recorded the acquired assets and assumed liabilities, including identifiable intangibles, at their fair values. The Company used third party pricing or internal models for the values of the land, a valuation model for the values of the buildings and debt, and an internal model to determine the fair values of the remaining real estate assets and in-place leases. Given the heterogeneous nature of multifamily real estate, the fair values for the land, debt, real estate assets and in-place leases incorporated significant unobservable inputs and therefore are considered to be Level 3 prices within the fair value hierarchy. Expensed Acquisition, Development and Other Pursuit Costs and Impairment of Long-Lived Assets The Company capitalizes pre-development costs incurred in pursuit of new development opportunities for which the Company currently believes future development is probable (“Development Rights”). Future development of these Development Rights is dependent upon various factors, including zoning and regulatory approval, rental market conditions, construction costs and the availability of capital. Initial pre-development costs incurred for pursuits for which future development is not yet considered probable are expensed as incurred. In addition, if the status of a Development Right changes, making future development by the Company no longer probable, any capitalized pre-development costs are expensed. The Company expensed costs related to the abandonment of Development Rights as well as costs incurred in pursuing the acquisition of assets or costs incurred pursuing the disposition of assets for which such disposition activity did not occur, in the amounts of $3,804,000 and $3,391,000 for the three months ended September 30, 2016 and 2015, respectively, and $7,086,000 and $5,251,000 for the nine months ended September 30, 2016 and 2015, respectively. These costs are included in expensed acquisition, development, and other pursuit costs, net of recoveries on the accompanying Condensed Consolidated Statements of Comprehensive Income. Abandoned pursuit costs can vary greatly, and the costs incurred in any given period may be significantly different in future periods. The Company evaluates its real estate and other long-lived assets for impairment when potential indicators of impairment exist. Such assets are stated at cost, less accumulated depreciation and amortization, unless the carrying amount of the asset is not recoverable. If events or circumstances indicate that the carrying amount of a property or long-lived asset may not be recoverable, the Company assesses its recoverability by comparing the carrying amount of the property or long-lived asset to its estimated undiscounted future cash flows. If the carrying amount exceeds the aggregate undiscounted future cash flows, the Company recognizes an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property or long-lived asset. Based on periodic tests of recoverability of long-lived assets for the three and nine months ended September 30, 2016 and 2015, the Company did not recognize any impairment losses for wholly-owned operating real estate assets. The Company assesses its portfolio of land held for both development and investment for impairment if the intent of the Company changes with respect to either the development of, or the expected holding period for, the land. During the nine months ended September 30, 2016, the Company recognized $10,500,000 of aggregate impairment charges related to three ancillary land parcels. This charge was determined as the excess of the Company's carrying basis over the expected sales price for each parcel, and is included in casualty and impairment loss (gain), net on the accompanying Condensed Consolidated Statements of Comprehensive Income. The Company did not recognize any material impairment charges on its investment in land during the three and nine months ended September 30, 2015. The Company evaluates its unconsolidated investments for other than temporary impairment, considering both the extent and amount by which the carrying value of the investment exceeds the fair value, and the Company’s intent and ability to hold the investment to recover its carrying value. The Company also evaluates its proportionate share of any impairment of assets held by unconsolidated investments. There were no material other than temporary impairment losses recognized by any of the Company’s investments in unconsolidated real estate entities during the three and nine months ended September 30, 2016 and 2015. Casualty Gains and Losses During the nine months ended September 30, 2016, the Company reached a final insurance settlement for the Company's property damage and lost income for the Edgewater casualty loss, for which it received aggregate insurance proceeds for Edgewater of $73,150,000, after self-insurance and deductibles, as discussed below. During the nine months ended September 30, 2015, the Company received $44,142,000 in insurance proceeds, which were partially offset by casualty charges of $21,844,000 to write off the net book value of the building destroyed by the fire at Edgewater, and $6,635,000 to record demolition and additional incident expenses, resulting in a net casualty gain of $15,663,000. Of these amounts, during the three months ended September 30, 2015, the Company recorded casualty charges for additional demolition and incident costs related to Edgewater of $658,000. During the nine months ended September 30, 2016, the Company received the final $29,008,000 of insurance proceeds, of which $8,702,000 was recognized as an additional net casualty gain and $20,306,000 as business interruption insurance proceeds. The Company reported the net casualty gains from each of the respective reporting periods as casualty and impairment loss (gain), net on the accompanying Condensed Consolidated Statements of Comprehensive Income, and reported the business interruption insurance proceeds as a component of rental and other income on the accompanying Condensed Consolidated Statements of Comprehensive Income. See discussion in Note 1, "Organization, Basis of Presentation and Significant Accounting Policies, Legal and Other Contingencies," and Part II, Item 1, "Legal Proceedings," for further discussion of the Edgewater casualty loss. During the nine months ended September 30, 2015, several of the Company's communities in its Northeast markets incurred property and casualty damages from severe winter storms, for which the Company recorded an impairment due to a casualty loss of $4,195,000. During the nine months ended September 30, 2016, the Company recorded a net casualty gain related to the 2015 severe winter storms of $5,732,000, which is comprised of $8,493,000 in third-party insurance proceeds received, partially offset by incremental costs of $2,761,000. These amounts are included in casualty and impairment loss (gain), net on the accompanying Condensed Consolidated Statements of Comprehensive Income.

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- Definition The entire disclosure for certain real estate investment financial statements, real estate investment trust operating support agreements, real estate owned, retail land sales, time share transactions, as well as other real estate related disclosures. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 946 -SubTopic 210 -Section S99 -Paragraph 3 -Subparagraph (SX 210.6-06(1)) -URI http://asc.fasb.org/extlink&oid=6488278&loc=d3e604059-122996 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 210 -Section S99 -Paragraph 1 -Subparagraph (SX 210.7-03(a)(1)(d)) -URI http://asc.fasb.org/extlink&oid=6879938&loc=d3e572229-122910 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 10 -Section S99 -Paragraph 6 -Subparagraph (SX 210.5-04(c)(Schedule III)) -URI http://asc.fasb.org/extlink&oid=27047687&loc=d3e5864-122674 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 970 -SubTopic 360 -Section S99 -Paragraph 1 -Subparagraph (SX 210.12-28) -URI http://asc.fasb.org/extlink&oid=6590653&loc=d3e638233-123024 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 210 -Section S99 -Paragraph 1 -Subparagraph (SX 210.9-03(10)(4)) -URI http://asc.fasb.org/extlink&oid=6876686&loc=d3e534808-122878 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 946 -SubTopic 235 -Section S99 -Paragraph 1 -Subparagraph (SX 210.12-24) -URI http://asc.fasb.org/extlink&oid=34714203&loc=d3e608456-123001 + Details
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