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 Boston, Massachusetts, the New York/New Jersey metro area, the Mid-Atlantic, Seattle, Washington, 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.

As of June 30, 2026, the Company owned or held a direct or indirect ownership interest in 322 apartment communities containing 99,072 apartment homes in 11 states and the District of Columbia, of which 27 communities were under construction. 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 31 communities that, if developed as expected, will contain an estimated 9,997 apartment homes.

On May 20, 2026, the Company, Equity Residential, a Maryland real estate investment trust (“Equity Residential”), ERP Operating Limited Partnership, an Illinois limited partnership (the “ERP Operating Partnership”), and Canopy Merger Sub LLC, a Maryland limited liability company and a direct wholly owned subsidiary of Equity Residential (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the Merger Agreement, (i) on the closing date but prior to the effective time (the “Effective Time”) of the Merger (as defined below), the Company will contribute certain assets set forth in an exhibit to the Merger Agreement (the “Asset Contribution”) in exchange for units of partnership interest in the ERP Operating Partnership that have, in the aggregate, a value equal to the fair market value of such contributed assets and (ii) following the Asset Contribution and at the Effective Time, AvalonBay will merge with and into Merger Sub, with Merger Sub surviving as a direct, wholly owned subsidiary of Equity Residential (the “Merger” and, together with the Asset Contribution and the other transactions contemplated by the Merger Agreement, the “Transactions”). At the Effective Time, each outstanding share of AvalonBay common stock will be converted into the right to receive 2.793 Equity Residential common shares (the “Exchange Ratio”), resulting in legacy Equity Residential shareholders and former AvalonBay stockholders owning approximately 49% and 51% of the combined company, respectively. The board of trustees and board of directors of both companies, as applicable, have each unanimously approved the Merger Agreement and the Transactions.

The Merger will be accounted for as a reverse acquisition under the business combination accounting rules in which Equity Residential is considered the legal acquirer because Equity Residential will issue common shares to AvalonBay stockholders, while AvalonBay is designated as the accounting acquirer based primarily on post-Merger relative ownership percentage and the composition of senior executive leadership. Consequently, Equity Residential’s historical assets and liabilities will be recorded at estimated fair value as of the closing date of the Merger, and the combined financial statements will present AvalonBay’s historical balances and results.

The Merger Agreement contains provisions granting each of AvalonBay and Equity Residential the right to terminate the Merger Agreement under specified circumstances. Upon a termination of the Merger Agreement, under certain circumstances, (i) Equity Residential may be required to pay AvalonBay a termination fee of the lesser of approximately $1,005,000,000 or the maximum amount that could be paid to AvalonBay without causing it to fail to meet the REIT requirements for such year, or (ii) AvalonBay may be required to pay Equity Residential a termination fee of the lesser of approximately $1,070,000,000 or the maximum amount that could be paid to Equity Residential without causing it to fail to meet the REIT requirements for such year.

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, 2025 (the "Form 10-K"). The results of operations for the three and six months ended June 30, 2026 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.

The Company classifies the carrying value of the DownREIT Units as noncontrolling interests, as the units may be redeemed by unitholders on or after April 30, 2026 for cash or common stock at the Company's election. Net income and comprehensive income is allocated to the DownREIT Units pro-rata based on the weighted average proportion of DownREIT Units to the weighted average combined total of outstanding common stock, participating securities, and DownREIT Units for the period.

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.

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, participating securities and forward contracts, and using the if-converted


	For the three months ended June 30,				For the six months ended June 30,
	2026		2025		2026		2025
Basic and diluted shares outstanding
Weighted average common shares - basic	140,555,264		142,195,859		140,052,487		142,154,571
Effect of dilutive securities	1,279,505		1,096,447		1,271,292		734,861
Weighted average common shares - diluted	141,834,769		143,292,306		141,323,779		142,889,432

Calculation of Earnings per Common Share - basic
Net income attributable to common stockholders	$	155,720	$	268,665	$	481,450	$	505,262
Net income allocated to unvested restricted shares	(327)		(497)		(984)		(942)
Net income attributable to common stockholders - basic	$	155,393	$	268,168	$	480,466	$	504,320

Weighted average common shares - basic	140,555,264		142,195,859		140,052,487		142,154,571

Earnings per common share - basic	$	1.11	$	1.89	$	3.43	$	3.55

Calculation of Earnings per Common Share - diluted
Net income attributable to common stockholders	$	155,720	$	268,665	$	481,450	$	505,262
Net income attributable to DownREIT unitholders in consolidated partnerships	1,173		1,190		3,733		1,190
Net income - diluted	$	156,893	$	269,855	$	485,183	$	506,452

Weighted average common shares - diluted	141,834,769		143,292,306		141,323,779		142,889,432

Earnings per common share - diluted	$	1.11	$	1.88	$	3.43	$	3.54

Certain options to purchase shares of common stock in the amounts of 42,582, forward contracts to sell shares of common stock in the amounts of 920,000, and unvested performance awards in the amounts of 96,506 as of June 30, 2026 were not included in the computation of diluted earnings per common share because they were anti-dilutive for the period. Certain options to purchase shares of common stock in the amounts of 19,266, forward contracts to sell shares of common stock in the amounts of 4,047,113, and unvested performance awards in the amount of 42,790 as of June 30, 2025 were not included in the computation of diluted earnings per common share because they were anti-dilutive for the period.

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 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 and the fair values of Hedging Derivatives that are in a liability position are included in accrued expenses and other liabilities on the accompanying Condensed Consolidated Balance Sheets. Fair value changes for derivatives that are not in qualifying hedge relationships are reported as a component of interest expense, net on the accompanying Condensed Consolidated Statements of Operations. 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 on the accompanying Condensed Consolidated Statements of Comprehensive Income. Amounts recorded in accumulated other comprehensive income will be reclassified into earnings in the periods in which earnings are affected by the hedged cash flow. The effective portion of the change in fair value of the Hedging Derivatives that qualify as effective fair value hedges is reported as an adjustment to the carrying amount of the corresponding hedged item. Receipts or payments associated with the gains and losses on the Company’s cash flow hedges of future fixed rate debt issuances are presented as a component of cash flows from financing activities in the period the hedges are terminated and the receipt or payments for the Company’s cash flow hedges of interest on variable rate debt are presented as a component of cash flows from operating activities. Payments for derivatives that are not designated in 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.

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.

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 determines 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 not recognize the lease asset and liability.

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.

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 as residential and commercial rental and other lease income 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, 2026 and 2025. Segment information for total revenue excludes real estate assets that were sold from January 1, 2025 through June 30, 2026, or otherwise qualify as held for sale as of June 30, 2026, 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, 2026
Management, development and other fees and other ancillary items	$	—	$	—	$	—	$	1,782	$	1,782
Non-lease related revenue (2)	2,938		1,661		194		—		4,793
Total non-lease revenue	2,938		1,661		194		1,782		6,575

Lease income (3)	713,370		32,236		24,017		—		769,623

Total revenue	$	716,308	$	33,897	$	24,211	$	1,782	$	776,198

For the three months ended June 30, 2025
Management, development and other fees and other ancillary items	$	—	$	—	$	—	$	1,594	$	1,594
Non-lease related revenue (2)	2,716		1,520		73		—		4,309
Total non-lease revenue	2,716		1,520		73		1,594		5,903

Lease income (3)	701,671		20,129		8,827		—		730,627

Total revenue	$	704,387	$	21,649	$	8,900	$	1,594	$	736,530


	Same Store		Other Stabilized		Development/ Redevelopment		Non- allocated (1)		Total
For the six months ended June 30, 2026
Management, development and other fees and other ancillary items	$	—	$	—	$	—	$	3,615	$	3,615
Non-lease related revenue (2)	5,230		3,217		372		—		8,819
Total non-lease revenue	5,230		3,217		372		3,615		12,434

Lease income (3)	1,420,939		64,547		42,602		—		1,528,088

Total revenue	$	1,426,169	$	67,764	$	42,974	$	3,615	$	1,540,522

For the six months ended June 30, 2025
Management, development and other fees and other ancillary items	$	—	$	—	$	—	$	3,336	$	3,336
Non-lease related revenue (2)	4,915		2,885		119		—		7,919
Total non-lease revenue	4,915		2,885		119		3,336		11,255

Lease income (3)	1,398,938		28,774		16,701		—		1,444,413

Total revenue	$	1,403,853	$	31,659	$	16,820	$	3,336	$	1,455,668

In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses, which requires the disaggregation for certain expenses presented on the face of an entity’s income statement in the entity's disclosures. Additionally, it requires the disclosure of selling expenses and descriptions of amounts not separately disaggregated. The new standard will be effective for annual reporting periods beginning January 1, 2027, and interim reporting periods beginning January 1, 2028. The Company is assessing the standard and does not expect it to have a material effect on the Company’s consolidated financial statements.

In September 2025, the FASB issued ASU 2025-06, Targeted Improvements to the Accounting for Internal-Use Software, which updates the accounting for software implementation and development, specifically with respect to cost capitalization. The amendments replace the former model which considered prescriptive and sequential software development stages with an approach that is focused on management authorization and probability that the project will be completed and used for its intended purpose. The new standard will be effective for annual reporting periods beginning January 1, 2027, and interim reporting periods within those annual periods. The Company is assessing the standard and does not expect it to have a material effect on the Company's financial position or results of operations.