AVALONBAY COMMUNITIES INCAVB
AVALONBAY COMMUNITIES INC Fair Value Disclosure
Fair Value
Financial Instruments Carried at Fair Value
Derivative Financial Instruments
Hedging Derivatives are carried at fair value in the Company's financial statements. The Company minimizes its credit risk on these transactions by dealing with major, creditworthy financial institutions which have an A- or better credit rating by the Standard & Poor's Ratings Group or equivalent, and monitors the credit ratings of counterparties and the exposure of the Company to any single entity. The Company believes the likelihood of realizing losses from counterparty nonperformance is remote. The Company determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, such as interest rate, term to maturity and volatility. The Hedging Derivatives credit valuation adjustments associated with its derivatives use Level 3 inputs, such as estimates of current credit spreads, which the Company concluded are not significant. As a result, the Company determined that its derivative valuations are classified in Level 2 of the fair value hierarchy.
The following table summarizes the consolidated derivative positions at December 31, 2025 (dollars in thousands):
| Non-designated Hedges | Cash Flow Hedges | |||||||||||||
| Interest Rate Caps | Interest Rate Swaps | |||||||||||||
| Notional balance | $ | 391,846 | $ | 550,000 | ||||||||||
| Weighted average interest rate (1) | 4.0 | % | N/A | |||||||||||
| Weighted average capped/swapped interest rate | 6.7 | % | 3.5 | % | ||||||||||
| Earliest maturity date | February 2026 | April 2029 | ||||||||||||
| Latest maturity date | January 2027 | April 2029 | ||||||||||||
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(1)For debt hedged by interest rate caps, represents the weighted average interest rate on the hedged debt prior to any impact of the associated interest rate caps.
The following derivative activity occurred during the year ended December 31, 2025:
•The Company entered into interest rate swap agreements with a notional amount of $550,000,000 to reduce the impact of variability in interest rates on the Term Loan, which the Company expects to remain outstanding through maturity of the Term Loan.
•In connection with the issuance of the Company's $400,000,000 unsecured notes in July 2025 maturing in August 2035, the Company terminated $200,000,000 of interest rate swap agreements designated as cash flow hedges of the interest rate variability on the issuance of the unsecured notes, receiving payments of $4,099,000 in July 2025 which will be recognized over the life of the unsecured notes as a reduction in the effective interest rate. Of the $200,000,000 forward interest rate swap agreements terminated, $100,000,000 were entered into during the year ended December 31,
2025. The Company has deferred these gains in accumulated other comprehensive income on the accompanying Consolidated Balance Sheets, and is recognizing the impact as a component of interest expense, net, over the term of the respective hedged debt.
•In connection with the issuance of the Company's $400,000,000 unsecured notes in December 2025 maturing in December 2030, the Company entered into and terminated $100,000,000 of interest rate swap agreements designated as cash flow hedges of the interest rate variability on the issuance of the unsecured notes, receiving payments of $242,000 in November 2025 which will be recognized over the life of the unsecured notes as a reduction in the effective interest rate. The Company has deferred these gains in accumulated other comprehensive income on the accompanying Consolidated Balance Sheets, and is recognizing the impact as a component of interest expense, net, over the term of the respective hedged debt.
The Company had certain derivatives not designated as hedges during the years ended December 31, 2025, 2024 and 2023, for which fair value changes during each of the respective years were not material.
Cash flow hedge gains reclassified from accumulated other comprehensive income into earnings were $3,330,000 and $471,000 for the years ended December 31, 2025 and 2024. Cash flow hedge losses reclassified from accumulated other comprehensive income into earnings were $1,360,000 for the year ended December 31, 2023.
The Company anticipates reclassifying approximately $2,478,000 of net hedging gains from accumulated other comprehensive income into earnings within the next 12 months as an offset to the hedged item during this period.
Financial Instruments Not Carried at Fair Value
Cash, Cash Equivalents and Restricted Cash
Cash, cash equivalent and restricted cash balances are held with various financial institutions within accounts designed to preserve principal. The Company monitors credit ratings of these financial institutions and the concentration of cash, cash equivalents and restricted cash balances with any one financial institution and believes the likelihood of realizing material losses related to cash, cash equivalent and restricted cash balances is remote. Cash, cash equivalents and restricted cash are carried at their face amounts, which reasonably approximate their fair values and are Level 1 within the fair value hierarchy.
Other Financial Instruments
Rents and other receivables and prepaid expenses, accounts and construction payable and accrued expenses and other liabilities are carried at their face amounts, which reasonably approximate their fair values. The Company determined that its notes receivables approximate fair value, because interest rates, yields and other terms are consistent with interest rates, yields and other terms currently available for similar instruments and are considered to be a Level 2 price within the fair value hierarchy.
Equity Securities
The Company has direct equity investments in third-party property technology companies. These investments are accounted for using the measurement alternative and are valued at the market price of observable transactions. During the years ended December 31, 2025, 2024 and 2023, the Company recognized unrealized gains of $36,096,000, $21,790,000 and $1,899,000, respectively, related to these investments, which was reported as a component of income from unconsolidated investments on the accompanying Consolidated Statements of Comprehensive Income. As of December 31, 2025, the Company had recorded cumulative fair value adjustments of $67,572,000 for unrealized gains related to equity securities.
Indebtedness
The Company values its fixed rate unsecured debt using quoted market prices, a Level 1 price within the fair value hierarchy. The Company values its mortgage notes payable, the Term Loan and any outstanding amounts under the Credit Facility and Commercial Paper Program using a discounted cash flow analysis on the expected cash flows of each instrument. This analysis reflects the contractual terms of the instrument, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The process also considers credit valuation adjustments to appropriately reflect the Company's nonperformance risk. The Company has concluded that the value of its mortgage notes payable, Term Loan and any outstanding amounts under the Credit Facility and Commercial Paper Program are Level 2 prices as the majority of the inputs used to value its positions fall within Level 2 of the fair value hierarchy.
Financial Instruments Measured/Disclosed at Fair Value on a Recurring Basis
The following tables summarize the classification between the three levels of the fair value hierarchy of the Company's financial instruments measured or disclosed at fair value on a recurring basis (dollars in thousands):
| December 31, 2025 | ||||||||||||||||||||||||||
| Description | Total Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Investments | ||||||||||||||||||||||||||
| Notes Receivable, net | $ | 259,051 | $ | — | $ | 259,051 | $ | — | ||||||||||||||||||
| Total Assets | $ | 259,051 | $ | — | $ | 259,051 | $ | — | ||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Interest Rate Swaps - Liabilities | $ | 4,046 | $ | — | $ | 4,046 | $ | — | ||||||||||||||||||
| Indebtedness | ||||||||||||||||||||||||||
| Fixed rate unsecured debt | 7,025,656 | 7,025,656 | — | — | ||||||||||||||||||||||
Mortgage notes payable, Commercial Paper and Term Loan | 1,970,177 | — | 1,970,177 | — | ||||||||||||||||||||||
| Total Liabilities | $ | 8,999,879 | $ | 7,025,656 | $ | 1,974,223 | $ | — | ||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||
| Description | Total Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Investments | ||||||||||||||||||||||||||
| Notes Receivable, net | $ | 223,896 | $ | — | $ | 223,896 | $ | — | ||||||||||||||||||
| Non-Designated Hedges | ||||||||||||||||||||||||||
| Interest Rate Caps | 24 | — | 24 | — | ||||||||||||||||||||||
| Interest Rate Swaps - Assets | 6,821 | — | 6,821 | — | ||||||||||||||||||||||
| Total Assets | $ | 230,741 | $ | — | $ | 230,741 | $ | — | ||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Indebtedness | ||||||||||||||||||||||||||
| Fixed rate unsecured debt | $ | 6,796,066 | $ | 6,796,066 | $ | — | $ | — | ||||||||||||||||||
Mortgage notes payable and Commercial Paper Program | 660,170 | — | 660,170 | — | ||||||||||||||||||||||
| Total Liabilities | $ | 7,456,236 | $ | 6,796,066 | $ | 660,170 | $ | — | ||||||||||||||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Feb 27, 2025 | |
| 2023 | Feb 23, 2024 | |
| 2022 | Feb 24, 2023 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Feb 25, 2021 | |
| 2019 | Feb 21, 2020 | |
| 2018 | Feb 22, 2019 | |
| 2017 | Feb 23, 2018 | |
| 2016 | Feb 24, 2017 | |
| 2015 | Feb 26, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.