Essex Portfolio LP - 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and notes thereto. These consolidated financial statements include all adjustments which are, in the opinion of management, necessary to reflect a fair statement of the results and all such adjustments are of a normal recurring nature.

OVERVIEW

Essex is a self-administered and self-managed REIT that acquires, develops, redevelops, and manages apartment home communities in selected residential areas located on the West Coast of the United States. Essex owns all of its interests in its real estate investments, directly or indirectly, through the Operating Partnership. Essex is the sole general partner of the Operating Partnership and, as of December 31, 2025, had an approximately 96.6% general partner interest in the Operating Partnership.

The Company’s investment strategy has two components: constant monitoring of existing markets, and evaluation of new markets to identify areas with the characteristics that underlie rental growth. 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, 2025, the Company owned or had ownership interests in 259 operating apartment communities, comprising 63,077 apartment homes, excluding the Company’s ownership in preferred equity co-investments, loan investments, two operating commercial buildings and a development pipeline comprised of one consolidated project and various predevelopment projects.

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

Southern California  (primarily Los Angeles, Orange, San Diego, and Ventura counties)

Northern California  (the San Francisco Bay Area)

Seattle Metro  (Seattle metropolitan area)

By region, the Company’s operating results for 2025 and 2024 and projection for 2026 new housing supply (defined as new multifamily apartment homes and single family homes, excluding developments with fewer than 50 apartment homes as well as student, senior and 100% affordable housing) are as follows:

Southern California Region : As of December 31, 2025, this region represented 42% of the Company’s consolidated operating apartment homes. Revenues for “2025 Same-Properties” (as defined below), or “Same-Property revenues,” increased 3.3% in 2025 as compared to 2024.

Northern California Region : As of December 31, 2025, this region represented 38% of the Company’s consolidated operating apartment homes. 2025 Same-Property revenues increased 3.6% in 2025 as compared to 2024.

Seattle Metro Region : As of December 31, 2025, this region represented 20% of the Company’s consolidated operating apartment homes. 2025 Same-Property revenues increased 2.8% in 2025 as compared to 2024.

In each of these regions, projected 2026 growth in new residential supply of apartment homes and single family homes is expected to be less than 1% of the total housing stock.

The Company’s consolidated operating communities as of December 31, 2025 and 2024 were as follows:

December 31, 2025

December 31, 2024

Apartment Homes

Apartment Homes

Southern California

Northern California

Seattle Metro

Total

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Co-investments, including Wesco I, Wesco III, Wesco IV, Wesco V, Wesco VI, BEX IV, and other 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

Domestic and international policy actions, including tariff and trade policy, as well as continuing geopolitical tensions and regional conflicts have the potential to trigger broad market uncertainty. The long-term impact of these developments on our company will largely depend on the impact on broader trends in job growth, inflation, the economy, and reactions by consumers, companies, governmental entities and capital market participants.

The foregoing macroeconomic conditions have not negatively impacted the Company’s ability to access traditional funding sources which have been historically available to it. The Company is not at material risk of failing to meet the covenants in its credit agreements and is able to timely service its debt and other obligations.

RESULTS OF OPERATIONS

Comparison of Year Ended December 31, 2025 to the Year Ended December 31, 2024

The average financial occupancy for the Company’s 2025 Same-Property portfolio (stabilized properties consolidated by the Company for the years ended December 31, 2025 and 2024) was 96.2% for each of the years ended December 31, 2025 and 2024. Financial occupancy is defined as the percentage resulting from dividing actual rental income by total scheduled rental income. Actual rental income represents contractual rental income pursuant to leases without considering delinquency and concessions. Total scheduled rental income represents the value of all apartment homes, with occupied apartment homes valued at contractual rental rates pursuant to leases and vacant apartment homes valued at estimated market rents. The Company believes that financial occupancy is a meaningful measure of occupancy because it considers the value of each vacant apartment home at its estimated market rate.

Market rates are determined using the recently signed effective rates on new leases at the property and are used as the starting point in the determination of the market rates of vacant apartment homes. The Company may increase or decrease these rates based on a variety of factors, including overall supply and demand for housing, concentration of new apartment deliveries within the same submarket which can cause periodic disruption due to greater rental concessions to increase leasing velocity, and rental affordability. Financial occupancy may not completely reflect short-term trends in physical occupancy and financial occupancy rates, and the Company’s calculation of financial occupancy may not be comparable to financial occupancy disclosed by other REITs.

The Company does not take into account delinquency and concessions to calculate actual rent for occupied apartment homes and market rents for vacant apartment homes. The calculation of financial occupancy compares contractual rates for occupied apartment homes to estimated market rents for unoccupied apartment homes, and thus the calculation compares the gross value of all apartment homes excluding delinquency and concessions. For apartment communities that are development properties in lease-up without stabilized occupancy figures, the Company believes the physical occupancy rate is the appropriate performance metric. While an apartment community is in the lease-up phase, the Company’s primary motivation is to stabilize the property, which may entail the use of rent concessions and other incentives, and thus financial occupancy, which is based on contractual income, is not considered the best metric to quantify occupancy.

The regional breakdown of the Company’s 2025 Same-Property portfolio for financial occupancy for the years ended December 31, 2025 and 2024 was as follows:

Year Ended December 31,

Southern California

Northern California

Seattle Metro

The following table provides a breakdown of rental and other property revenues, including the revenues attributable to 2025 Same-Properties ($ in thousands):

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Number of Apartment Homes

Year Ended

December 31,

Dollar Change

Percentage Change

2025 Same-Properties:

Southern California

Northern California

Seattle Metro

Total 2025 Same-Property

2025 Non-Same Property

Total rental and other property revenues

2025 Same-Property Revenues increased by $52.6 million or 3.3%. The increase was primarily attributable to an increase of 2.3% in average rental rates from $2,638 for 2024 to $2,699 for 2025 and 0.5% from a decrease in delinquencies.

2025 Non-Same Property Revenues increased by $61.2 million or 35.2% to $235.0 million in 2025 compared to $173.8 million in 2024. The increase was primarily due to the acquisitions of The Plaza, One Hundred Grand, ROEN Menlo Park, Revere

Campbell, The Parc at Pruneyard, ViO, 1250 Lakeside, and the consolidation of Artizan and TENTEN Downtown in 2025, as well as ARLO Mountain View, Maxwell Sunnyvale, and Beaumont, along with the Company’s acquisition of its joint venture partner’s interests in the BEXAEW and BEX II portfolios, Patina at Midtown, and Century Towers in 2024. The increases were partially offset by the sale of Highridge, Essex Skyline, The Grand, and Fourth & U in 2025 and Hillsdale Garden in 2024.

Property operating expenses, excluding real estate taxes increased by $25.3 million or 7.7% to $353.4 million in 2025 compared to $328.1 million in 2024, primarily due to acquisitions in 2024 and 2025 identified in the Non-Same Property revenues section above and the increase of Same-Property operating expenses discussed below, partially offset by dispositions in 2024 and 2025. 2025 Same-Property operating expenses, excluding real estate taxes, increased by $16.4 million or 5.5% to $316.5 million in 2025 compared to $300.1 million in 2024, primarily due to increases of $8.1 million in utilities expenses resulting from increases in trash removal, water and sewer costs, $3.7 million in personnel costs due to wage inflation, and $2.6 million in maintenance and repairs expenses due to increases in water damage remediation costs.

Real estate taxes increased by $12.2 million or 6.3% to $205.6 million in 2025 compared to $193.4 million in 2024, primarily due to the net impact of acquisitions and dispositions in 2024 and 2025 identified in the Non-Same Property revenues section above. 2025 Same-Property real estate taxes increased by $0.4 million or 0.3% to $176.1 million in 2025 compared to $175.7 million in 2024 primarily due to increases in tax rates in California, partially offset by decreases in both assessed values and tax rates in the Seattle Metro region for 2025.

Depreciation and amortization expense increased by $27.3 million or 4.7% to $607.5 million in 2025 compared to $580.2 million in 2024, primarily due to acquisitions in 2024 and 2025 identified in the Non-Same Property revenues section above. The increase was partially offset by dispositions in 2024 and 2025.

General and administrative expense decreased by $27.0 million or 27.3% to $71.9 million in 2025 compared to $98.9 million in 2024, primarily due to a decrease of $31.3 million in political advocacy costs, partially offset by an increase of $5.8 million in personnel costs due to wage inflation.

Gain on sale of real estate and land increased to $299.5 million in 2025 compared to $175.6 million in 2024. The increase was primarily attributable to the dispositions of Highridge, Essex Skyline, The Grand and Fourth & U in 2025 compared to the disposition of Hillsdale Garden in 2024.

Interest expense increased by $22.9 million or 9.7% to $258.4 million in 2025 compared to $235.5 million in 2024 , primarily due to the issuance in March 2024 and August 2024 of $550.0 million senior unsecured notes due April 2034, the issuance in February 2025 of $400.0 million senior unsecured notes due April 2035, borrowing on the new $300.0 million unsecured term loan in June and September 2025, and increased borrowing on the two unsecured lines of credit and the commercial paper program which resulted in an increase in interest expense of $46.2 million in 2025. These increases to interest expense were partially offset by various debt that was paid off, matured, or due to regular principal amortization during and after 2024, primarily due to the payoff of $400.0 million of senior unsecured notes due May 1, 2024 and $500.0 million of senior unsecured notes due April 1, 2025, which resulted in a decrease in interest expense of $19.9 million in 2025. Additionally, there

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was an increase in capitalized interest of $3.4 million in 2025 due to an increase in development activity as compared to the same period in 2024.

Interest and other income decreased by $61.0 million or 75.3% to $20.0 million in 2025 compared to $81.0 million in 2024, primarily due to a decrease of $42.9 million in gains from legal settlements. During the first quarter of 2024, the Company settled two lawsuits related to construction defects at two communities and received cash recoveries of $42.5 million. The Company determined that all uncertainties were resolved upon receipt of cash and recorded a gain. There were no material gains from legal settlements during 2025.

Equity income from co-investments decreased by $12.7 million or 26.3% to $35.5 million in 2025 compared to $48.2 million in 2024, primarily due to $12.6 million of impairment losses from unconsolidated co-investments in 2025 compared to $3.7 million in 2024. Additionally, there was a decrease of $9.8 million in income from preferred equity investments due to a lower average outstanding investment balance in 2025 compared to 2024. The overall decrease was offset by a $5.2 million gain recognized on the sale of a co-investment community during 2025 with no prior year equivalent.

Gain on remeasurement of co-investment of $0.3 million in 2025 resulted from the Company’s consolidation of its investment in Artizan. Gain on remeasurement of $210.6 million in 2024 resulted from the Company’s acquisition of its joint venture partner’s interests in the BEXAEW and BEX II portfolios, Patina at Midtown and Century Towers.

Comparison of Year Ended December 31, 2024 to the Year Ended December 31, 2023

For the comparison of the years ended December 31, 2024 and December 31, 2023, refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on February 21, 2025 under the subheading “Comparison of Year Ended December 31, 2024 to the Year Ended December 31, 2023.”

Liquidity and Capital Resources

The following table sets forth the Company’s cash flows for the periods presented ($ in thousands):

Year Ended December 31,

Cash flow provided by (used in):

Operating activities

Investing activities

Financing activities

Essex’s business is operated primarily through the Operating Partnership. Essex issues public equity from time to time, but does not otherwise generate any capital itself or conduct any business itself, other than incurring certain expenses from operating as a public company which are fully reimbursed by the Operating Partnership.

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

As of December 31, 2025, Essex owned a 96.6% general partner interest and the limited partners owned the remaining 3.4% interest in the Operating Partnership.

The liquidity of Essex is dependent on the Operating Partnership’s ability to make sufficient distributions to Essex. The primary cash requirement of Essex is its payment of dividends to its stockholders. Essex also guarantees some of the Operating Partnership’s debt, as discussed further in Note 7, “Unsecured Debt”, and Note 8, “Mortgage Notes Payable”, to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K. If the Operating Partnership fails to fulfill certain of its debt requirements, which trigger Essex’s guarantee obligations, then Essex will be required to fulfill its cash payment commitments under such guarantees. However, Essex’s only significant asset is its investment in the Operating Partnership.

For Essex to maintain its qualification as a REIT, it must pay dividends to its stockholders aggregating annually at least 90% of its REIT taxable income, excluding net capital gains. While historically Essex has satisfied this distribution requirement by

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making cash distributions to its stockholders, it may choose to satisfy this requirement by making distributions of other property, including, in limited circumstances, Essex’s own stock. As a result of this distribution requirement, the Operating Partnership cannot rely on retained earnings to fund its ongoing operations to the same extent that other companies whose parent companies are not REITs can. Essex may need to continue to raise capital in the equity markets to fund the Operating Partnership’s working capital needs, acquisitions and developments.

As of December 31, 2025, the Company had $76.2 million of unrestricted cash and cash equivalents and $98.1 million in marketable securities, all of which were equity securities or available for sale debt securities. The Company believes that cash flows generated by its operations, existing cash and cash equivalents, marketable securities balances and availability under existing lines of credit are sufficient to meet all of its anticipated cash needs during 2026. 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 economic disruptions occur, the Company may further utilize other resources such as its cash reserves, lines of credit, commercial paper or decreased investment in redevelopment activities to supplement operating cash flows. The timing, source and amounts of cash flows provided by or used in financing activities and investing activities are sensitive to changes in interest rates and other fluctuations in the capital markets environment, which can affect the Company’s plans for acquisitions, dispositions, development and redevelopment activities.

As of December 31, 2025, Moody’s Investor Service and S&P’s credit agencies rated Essex Property Trust, Inc. and Essex Portfolio, L.P. Baa1/Stable and BBB+/Stable, respectively.

As of December 31, 2025, the Company had $5.5 billion of fixed rate public bonds outstanding at an average interest rate of 3.7% with maturity dates ranging from 2026 to 2050.

As of December 31, 2025, the Company’s mortgage notes payable totaled $784.3 million, net of unamortized premiums and debt issuance costs, which consisted of $526.7 million in fixed rate debt at an average interest rate of 4.7% with maturity dates ranging from 2026 to 2033 and $257.7 million of variable rate debt at an average interest rate of 3.6% with maturity dates ranging from 2027 to 2046. A total of $258.8 million of variable rate debt is tax-exempt demand notes which are subject to total return swaps.

As of December 31, 2025, the Company had two unsecured lines of credit aggregating $1.58 billion, including a $1.5 billion unsecured line of credit and a $75.0 million working capital unsecured line of credit. As of December 31, 2025, there was no amount outstanding on the $1.5 billion unsecured line of credit. The underlying interest rate is based on a tiered rate structure tied to the Company’s long-term unsecured credit ratings and was at SOFR plus 0.775% as of December 31, 2025. This facility is scheduled to mature in January 2030, with two six-month extensions, exercisable at the Company’s option. The Company may elect to increase the facility by up to an additional $1.0 billion, to an aggregate size of $2.5 billion, if the lenders permit. As of December 31, 2025, there was no amount outstanding on the Company’s $75.0 million working capital unsecured line of credit. The underlying interest rate on the $75.0 million line is based on a tiered rate structure tied to the Company’s credit ratings and was at Adjusted SOFR plus 0.775% as of December 31, 2025. This facility is scheduled to mature in July 2026.

As of December 31, 2025, the Company had an unsecured commercial paper program (the “Commercial Paper Program”) to issue unsecured commercial paper notes with varying maturities up to 397 days from the date of issue (the “Notes”). As of December 31, 2025, there was no amount of Notes outstanding under the Commercial Paper Program. Amounts available under the Commercial Paper Program may be borrowed, repaid and re-borrowed from time to time, with the maximum aggregate face or principal amount outstanding at any one time not exceeding $750.0 million. The Company’s $1.5 billion unsecured line of credit facility serves as a liquidity backstop and any issuances under the Commercial Paper Program reduce the available borrowing capacity. The Notes rank equally in right of payment with all other senior unsecured senior obligations of the Operating Partnership and are unconditionally guaranteed by the Company. The Company has used and expects to continue to use the proceeds from the Notes for general corporate purposes and working capital purposes.

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. The Company was in compliance with the debt covenants as of December 31, 2025 and 2024.

Essex pays quarterly dividends from cash available for distribution. Until it is distributed, cash available for distribution is invested by the Company primarily in investment grade securities held available for sale or is used by the Company to reduce balances outstanding under its lines of credit or commercial paper.

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Derivative Activity

The Company uses interest rate swaps, interest rate caps, and total return swap contracts to manage certain interest rate risks. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps and total return swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. 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 five total return swap contracts, with an aggregate notional amount of $258.8 million, that effectively convert 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. The Company can currently settle all five total return swaps, with $258.8 million of the outstanding debt at par. These derivatives do not qualify for hedge accounting. The aggregate carrying and fair value of the total return swaps was zero at both December 31, 2025 and 2024.

As of December 31, 2025 and 2024 the aggregate carrying value of the interest rate swap contracts is an asset of $2.0 million and $5.5 million, respectively, and is included in prepaid expenses and other assets in the consolidated balance sheets.

The Company had no interest rate cap agreements as of December 31, 2025 and 2024, respectively.

Issuance of Common Stock

In August 2024, the Company entered into the 2024 ATM Program. In connection with the 2024 ATM Program, the Company may also enter into related forward sale agreements whereby, at the Company's discretion, it may sell shares of its common stock under the 2024 ATM Program under forward sale 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. Furthermore, it would permit the Company, at its election, to settle the agreements by issuing common stock in exchange for net proceeds at the then-applicable forward sale price specified by the agreement or, alternatively, to settle the agreements in whole or in part through the delivery or receipt of common stock or cash. Issuances of shares under these forward sale agreements are classified as equity transactions. Accordingly, no amounts relating to the forward sale agreements are recorded in the consolidated financial statements until settlement occurs. Prior to any settlements, the only impact to the consolidated financial statements is the inclusion of incremental shares, if any, within the calculation of diluted earnings per share and diluted earnings per unit using the treasury stock method. The actual forward price per share to be received by the Company upon settlement will be determined on the applicable settlement date based on adjustments made to the initial forward price to reflect the then-current overnight federal funds rate and the amount of dividends paid to holders of the Company’s common stock over the term of the forward sale agreement.

The 2024 ATM Program replaced the prior equity distribution agreement entered into in September 2021 (the “2021 ATM Program”), which was terminated upon the establishment of the 2024 ATM Program.

For the years ended December 31, 2025, 2024 and 2023, the Company did not issue any shares of common stock through the 2024 ATM Program nor the 2021 ATM Program.

For the year ended December 31, 2025, the Company entered into forward sale agreements with certain financial institutions acting as forward purchasers under the 2024 ATM Program with respect to 52,600 shares of common stock at an initial gross weighted average forward price of $314.06 per share, which are to be settled by September 2026.

As of December 31, 2025, $900.0 million of shares of common stock remained available to be sold under the 2024 ATM Program, pending the settlement of outstanding forward sale agreements.

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Capital Expenditures

Non-revenue generating capital expenditures are improvements and upgrades that extend the useful life of the property. For the year ended December 31, 2025, non-revenue generating capital expenditures averaged approximately $2,258 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, retail, furniture and fixtures, or expenditures for which the Company has been reimbursed or expects to be reimbursed. The Company expects that cash from operations and/or its lines of credit will fund such expenditures.

Development Pipeline

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.

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. The Company may also acquire land for future development purposes or sale. As of December 31, 2025, the Company’s development pipeline was comprised of one consolidated development project and various predevelopment projects, with total incurred costs of $157.1 million, and estimated remaining project costs of approximately $200.9 million, for total estimated project costs of $358.0 million.

The Company expects to fund the development and predevelopment communities by using a combination of some or all of the following sources: its working capital, amounts available on its lines of credit, commercial paper, construction loans, net proceeds from public and private equity and debt issuances, and proceeds from the disposition of assets, if any.

Alternative Capital Sources

The Company utilizes co-investments as an alternative source of capital for acquisitions of both operating and development communities. The Company had an interest in 7,483 apartment homes in operating communities with joint ventures and technology co-investments for a total book value of $304.4 million as of December 31, 2025.

Real Estate and Other Commitments

The following table summarizes the Company’s unfunded real estate and other future commitments as of December 31, 2025 ($ in thousands):

Number of Properties

Investment

Remaining Unfunded Commitment

Joint ventures:

Preferred equity investments

Technology co-investments

Consolidated:

Real estate under development

As of December 31, 2025, the Company had remaining unfunded commitments of $94.8 million for operating co-investments. As of December 31, 2025, the Company had operating lease commitments of $122.0 million for ground, building and garage leases with maturity dates ranging from 2026 to 2083. $6.3 million of these commitments are due during the year ended December 31, 2026.

Variable Interest Entities

In accordance with accounting standards for consolidation of variable interest entities (“VIEs”), the Company consolidated the Operating Partnership, 18 DownREIT entities (comprising ten communities) and four co-investments as of December 31, 2025. As of December 31, 2024, the Company consolidated the Operating Partnership, 18 DownREIT entities (comprising nine

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communities) and five co-investments. The Company consolidates these entities because it is the primary beneficiary. Essex has no assets or liabilities other than its investment in the Operating Partnership. The consolidated total assets and liabilities related to the above consolidated co-investments and DownREIT entities, net of intercompany eliminations, were $970.6 million and $242.5 million, respectively, as of December 31, 2025, and $893.0 million and $319.1 million, respectively, as of December 31, 2024. Noncontrolling interests in these entities were $101.2 million and $105.1 million as of December 31, 2025 and 2024, respectively. The Company’s financial risk in each VIE is limited to its equity investment in the VIE. As of December 31, 2025, the Company did not have any VIEs of which it was not the primary beneficiary.

Critical Accounting Estimates

The preparation of consolidated financial statements, in accordance with U.S. GAAP, requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. The Company defines critical accounting estimates as those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the Company. The Company’s critical accounting estimates relate principally to the following key areas: (i) accounting for the acquisition of investments in real estate; and (ii) evaluation of events and changes in circumstances indicating that the carrying value of any of the Company’s rental properties may not be recoverable.

The Company accounts for its acquisitions of investments in real estate by assessing each acquisition to determine if it meets the definition of a business or if it qualifies as an asset acquisition. We expect that acquisitions of individual operating communities will generally be viewed as asset acquisitions, and result in the capitalization of acquisition costs, and the allocation of purchase price to the assets acquired and liabilities assumed based on the relative fair value of the respective assets and liabilities.

In making estimates of fair values for purposes of allocating purchase price, the Company utilizes a number of sources, including independent land appraisals which consider comparable market transactions, its own analysis of recently acquired or developed comparable properties in our portfolio for land comparables and building replacement costs, and other publicly available market data. In calculating the fair value of identified intangible assets of an acquired property, the in-place leases are valued based on in-place rent rates and amortized over the average remaining term of all acquired leases. The allocation of the total consideration exchanged for a real estate acquisition between the identifiable assets and liabilities and the depreciation we recognize over the estimated useful life of the asset could be impacted by different assumptions and estimates used in the calculation. 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 Company periodically assesses its real estate investments for events or changes in circumstances that indicate the carrying value may not be recoverable. The judgments regarding the existence of impairment indicators are based on monitoring investment market conditions and performance for operating properties including the net operating income for the most recent 12 month period, monitoring estimated costs for properties under development, the Company’s ability to hold and its intent with regard to each asset, and each property’s remaining useful life. Although each of these may result in an impairment indicator, the shortening of an expected holding period due to the potential sale of a property is the most likely impairment indicator. Whenever events or changes in circumstances indicate that the carrying amount of a property held for investment may not be fully recoverable, the carrying amount is evaluated. If the sum of the property’s expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the property, then the Company will recognize an impairment loss equal to the excess of the carrying amount over the fair value of the property. Changes in operating and market conditions may result in a change of our intent to hold the property through the end of its useful life and may impact the assumptions utilized to determine the future cash flows of the real estate investment.

The Company bases its accounting estimates on historical experience, current market conditions and various other assumptions that are believed to be reasonable under the circumstances. Actual results may vary from those estimates made by management and those estimates could be different under different assumptions or conditions.

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. FFO and Core FFO are not used by the Company as, nor should they be considered to be, alternatives to net income computed under U.S. GAAP as an indicator of the Company’s operating performance or as alternatives to cash from operating activities computed under U.S. GAAP as an indicator of the Company’s ability to fund its cash needs.

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FFO and Core FFO are not meant to represent a comprehensive system of financial reporting and do not present, nor do they intend to present, a complete picture of the Company’s financial condition and operating performance. The Company believes that net income computed under U.S. GAAP is the primary measure of performance and that FFO and Core FFO are only meaningful when they are used in conjunction with net income.

The Company considers FFO and Core FFO to be useful financial performance measurements of an equity REIT because, together with net income and cash flows, FFO and Core FFO provide investors with additional bases to evaluate operating performance and ability of a REIT to incur and service debt and to fund acquisitions and other capital expenditures and to pay dividends. By excluding gains or losses related to sales of depreciated operating properties and land, excluding real estate depreciation (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates) and excluding impairment write-downs from operating real estate and unconsolidated co-investments driven by a measurable decrease in the fair value of real estate held by the co-investment, 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. The Company believes that its consolidated financial statements, prepared in accordance with U.S. GAAP, provide the most meaningful picture of its financial condition and its operating performance.

In calculating FFO, the Company follows the definition for this measure published by NAREIT, which is the leading REIT industry association. The Company believes that, under the NAREIT FFO definition, the two most significant adjustments made to net income are (i) the exclusion of historical cost depreciation and (ii) the exclusion of gains and losses from the sale of previously depreciated properties. The Company agrees that these two NAREIT adjustments are useful to investors for the following reasons:

(a) Historical cost accounting for real estate assets in accordance with U.S. 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. GAAP do not reflect the underlying economic realities.

(b) REITs were created as a legal form of organization in order to encourage public ownership of real estate as an asset class through investment in firms that were in the business of long-term ownership and management of real estate.  The exclusion, in NAREIT’s definition of FFO, of gains and losses from the sales of previously depreciated operating real estate assets allows investors and analysts to readily identify the operating results of the long-term assets that form the core of a REIT’s activity and assists in comparing those operating results between periods.

Management believes that it has consistently applied the NAREIT definition of FFO to all periods presented. However, there is judgment involved and other REITs’ calculation of FFO may vary from the NAREIT definition for this measure, and thus their disclosure of FFO may not be comparable to the Company’s calculation.

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The table below is a reconciliation of net income available to common stockholders to FFO and Core FFO for the periods presented ($ in thousands, except per share amounts):

Year Ended December 31,

Net income available to common stockholders

Adjustments:

Depreciation and amortization

Gains not included in FFO

Casualty loss

Impairment loss from unconsolidated co-investments

Depreciation and amortization from unconsolidated co-investments

Noncontrolling interest related to Operating Partnership units

Depreciation attributable to third party ownership and other

Funds from operations attributable to common stockholders and unitholders

FFO per share-diluted

Non-core items:

Expensed acquisition and investment related costs

Tax (benefit) expense on unconsolidated technology co-investments

Realized and unrealized gains on marketable securities, net

Provision for credit losses

Equity income from unconsolidated technology co-investments

Loss on early retirement of debt

Loss on early retirement of debt from unconsolidated co-investments

Co-investment promote income

Income from early redemption of preferred equity investments and notes receivable

General and administrative and other, net (1)

Insurance reimbursements, legal settlements, and other, net (2)

Core funds from operations attributable to common stockholders and unitholders

Core FFO per share-diluted

Weighted average number of shares outstanding, diluted (3)

(1) Includes political advocacy costs of $2.0 million, $33.3 million, and $4.1 million for the years ended December 31, 2025, 2024 and 2023, respectively.

(2) There were no material gains from legal settlements for the year ended December 31, 2025. For the year ended December 31, 2024, the Company settled two lawsuits related to construction defects at two communities and received cash recoveries of $42.5 million. For the year ended December 31, 2023, the Company settled a lawsuit related to construction defects at one of its communities and received cash recovery of $7.7 million. The Company determined that all uncertainties were resolved upon receipt of cash and recorded a gain which was excluded from Core FFO.

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

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Net Operating Income

Net operating income (“NOI”) and Same-Property NOI are considered by management to be important supplemental performance measures to earnings from operations included in the Company’s consolidated statements of income. The presentation of Same-Property NOI assists with the presentation of the Company’s operations prior to the allocation of depreciation and any corporate-level or financing-related costs. NOI reflects the operating performance of a community and allows for an easy comparison of the operating performance of individual communities or groups of communities. In addition, because prospective buyers of real estate have different financing and overhead structures, with varying marginal impacts to overhead by acquiring real estate, NOI is considered by many in the real estate industry to be a useful measure for determining the value of a real estate asset or group of assets. The Company defines Same-Property NOI as Same-Property revenues less Same-Property operating expenses, including property taxes. Please see the reconciliation of earnings from operations to NOI and Same-Property NOI, which in the table below is the NOI for stabilized properties consolidated by the Company for the periods presented ($ in thousands):

Year Ended December 31,

Earnings from operations

Adjustments:

Corporate-level property management expenses

Depreciation and amortization

Management and other fees from affiliates

General and administrative

Expensed acquisition and investment related costs

Casualty loss

Gain on sale of real estate and land

NOI

Less: Non Same-Property NOI

Same-Property NOI

Forward-Looking Statements

Certain statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Annual Report on Form 10-K which are not historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the Company’s expectations, estimates, assumptions, hopes, intentions, beliefs and strategies regarding the future. 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 expected operating performance and results (including projected Same-Property revenues and expenses), qualification as a REIT under the Internal Revenue Code of 1986, as amended, property stabilizations, property acquisition and disposition activity, joint venture and co-investment activity, development and redevelopment activity and other capital expenditures, capital raising and financing activity, revenue and expense growth, financial occupancy, interest rate and other economic expectations, including estimated remaining and total project costs related to the Company’s development pipeline and projected new housing supply.

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. 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: occupancy rates and rental demand may be adversely affected by competition and local economic and market conditions; there may be increased interest rates, inflation, escalated operating costs and possible recessionary impacts; including from tariffs imposed by the current presidential administration and the threat of such tariffs; geopolitical tensions and regional conflicts, and the related impacts on macroeconomic conditions, including, among other things, interest rates and inflation; the terms of any refinancing may not be as favorable as the terms of

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existing indebtedness; the Company’s inability to maintain its investment grade credit rating with the rating agencies; the Company may be unsuccessful in the management of its relationships with its co-investment partners; the Company may fail to achieve its business objectives; time of actual completion and/or stabilization of development and redevelopment projects; including potential delays due to supply shortages related to tariffs and/or labor shortages related to deportations or threat of deportations; estimates of future income from an acquired property may prove to be inaccurate; future cash flows may be inadequate to meet operating requirements and/or may be insufficient to provide for dividend payments in accordance with REIT requirements; changes in laws or regulations and the anticipated or actual impact of future changes in laws or regulations; including eviction moratoria; unexpected difficulties in leasing of future development projects; volatility in financial and securities markets; the Company’s failure to successfully operate acquired properties; unforeseen consequences from cyber-intrusion; government approvals, actions and initiatives, including the need for compliance with environmental requirements; 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. 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.