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

The following discussion should be read in conjunction with the consolidated financial statements and notes appearing elsewhere in this report. Historical results and trends which might appear in the consolidated financial statements should not be interpreted as being indicative of future operations.

Discussion of our year-to-date comparisons between 2019 and 2018 is presented below. Year-to-date comparisons between 2018 and 2017 can be found in "Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

We consider portions of this report to be "forward-looking" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended, with respect to our expectations for future periods. Forward-looking statements do not discuss historical fact, but instead include statements related to expectations, projections, intentions, or other items relating to the future; forward-looking statements are not guarantees of future performance, results, or events. Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, we can give no assurance our expectations will be achieved. Any statements contained herein which are not statements of historical fact should be deemed forward-looking statements. Reliance should not be placed on these forward-looking statements as these statements are subject to known and unknown risks, uncertainties, and other factors beyond our control and could differ materially from our actual results and performance.

Factors which may cause our actual results or performance to differ materially from those contemplated by forward-looking statements include, but are not limited to, the following:

•	Volatility in capital and credit markets, or other unfavorable changes in economic conditions, either nationally or regionally in one or more of the markets in which we operate, could adversely impact us;

•	Short-term leases expose us to the effects of declining market rents;

•	Competition could limit our ability to lease apartments or increase or maintain rental income;

•	We face risks associated with land holdings and related activities;

•	Development, redevelopment and construction risks could impact our profitability;

•	Investments through joint ventures and investment funds involve risks not present in investments in which we are the sole investor;

•	Competition could adversely affect our ability to acquire properties;

•	Our acquisition strategy may not produce the cash flows expected;

•	Changes in rent control or rent stabilization laws and regulations could adversely affect our operations and property values;

•	Failure to qualify as a REIT could have adverse consequences;

•	Tax laws have recently changed and may continue to change at any time, and any such legislative or other actions could have a negative effect on us;

•	Litigation risks could affect our business;

•	Damage from catastrophic weather and other natural events could result in losses;

•	The implementation of future enhancements to our new enterprise resource planning system could interfere with our business and operations;

•	A cybersecurity incident and other technology disruptions could negatively impact our business;

•	We have significant debt, which could have adverse consequences;

•	Insufficient cash flows could limit our ability to make required payments for debt obligations or pay distributions to shareholders;

•	Issuances of additional debt may adversely impact our financial condition;

•	We may be unable to renew, repay, or refinance our outstanding debt;

•	We may be adversely affected by changes in LIBOR reporting practices or the method in which LIBOR is determined**;**

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•	Rising interest rates could both increase our borrowing costs, thereby adversely affecting our cash flows and the amounts available for distribution to our shareholders, and decrease our share price, if investors seek higher yields through other investments;

•	Failure to maintain our current credit ratings could adversely affect our cost of funds, related margins, liquidity, and access to capital markets;

•	Share ownership limits and our ability to issue additional equity securities may prevent takeovers beneficial to shareholders;

•	Our share price will fluctuate; and

•	The form, timing and amount of dividend distributions in future periods may vary and be impacted by economic and other considerations.

These forward-looking statements represent our estimates and assumptions as of the date of this report, and we assume no obligation to update or supplement forward-looking statements because of subsequent events.

Executive Summary

We are primarily engaged in the ownership, management, development, redevelopment, acquisition, and construction of multifamily apartment communities. Overall, we focus on investing in markets characterized by high-growth economic conditions, strong employment, and attractive quality of life which we believe leads to higher demand and retention of our apartments. As of December 31, 2019, we owned interests in, operated, or were developing 172 multifamily properties comprised of 58,315 apartment homes across the United States as detailed in the following Property Portfolio table. In addition, we own other land holdings which we may develop into multifamily apartment communities in the future.

Consolidated Results

Net income attributable to common shareholders was approximately $219.6 million for the year ended December 31, 2019 as compared to $156.1 million for the same period in 2018. The approximately $63.5 million, or 40.7% increase was primarily due to an increase from property operations relating to our existing operating, newly developed and acquired operating communities. The increase also related to gains recognized on dispositions in 2019, including two consolidated operating properties and our proportionate share of one operating property by one of our unconsolidated joint ventures. These increases were partially offset by an increase in depreciation expense and a loss on early retirement of debt.

Property Operations

Our results for the year ended December 31, 2019 reflect an increase in same store revenues of 3.7% as compared to 2018. These increases were primarily due to higher average rental rates which we believe was primarily attributable to improving job growth, favorable demographics, a manageable supply of new multifamily housing, and in part to more individuals choosing to rent versus buy as evidenced by the continued low level of homeownership rates. We believe the continued low levels of homeownership rates are mainly attributable to costs of obtaining mortgage loans as well as changing trends of certain age-sectors having a higher propensity to rent, all of which promote apartment rentals. We also believe U.S. economic and employment growth are likely to continue during 2020 and the supply of new multifamily homes will likely remain at manageable levels. If economic conditions were to worsen or any of these factors were to adversely change, our operating results could be adversely affected.

Construction Activity

At December 31, 2019, we had a total of eight projects under construction to be comprised of 2,208 apartment homes, including one development project to be comprised of 234 apartment homes owned by one of our unconsolidated discretionary investment funds in which we have a 31.3% ownership interest. Initial occupancies of these eight projects are currently scheduled to occur within the next 24 months. Excluding the project owned by one of the Funds, we estimate the additional cost to complete the construction of the seven projects to be approximately $358.6 million.

Acquisitions

Operating properties: In December 2019, we acquired one operating property comprised of 186 apartment homes in Raleigh, North Carolina for approximately $75.1 million, and one operating property comprised of 552 apartment homes in Houston, Texas for approximately $147.2 million. In May 2019, we acquired one operating property comprised of 326 apartment homes located in Austin, Texas for approximately $120.4 million. In February 2019, we acquired one operating property comprised of 316 apartment homes located in Scottsdale, Arizona for approximately $97.1 million.

Land: In connection with the acquisition of the operating property in Houston, Texas in December 2019, we acquired approximately 2.3 acres of land adjacent to the operating property for approximately $8.0 million for the future development of

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approximately 300 apartment homes. In May 2019, we acquired approximately 11.6 acres of land in Tempe, Arizona for approximately $18.0 million for the future development of approximately 400 apartment homes. In April 2019, we acquired approximately 4.3 acres of land in Charlotte, North Carolina for approximately $10.9 million for the future development of approximately 400 apartment homes.

In January 2020, we acquired 4.9 acres of land in Raleigh, North Carolina for approximately $18.2 million for the future development of approximately 355 apartment homes.

Dispositions

Sale of Operating Properties: During the year ended December 31, 2019, we sold our remaining three operating properties in Corpus Christi, Texas. The operating properties sold included two consolidated communities comprised of 632 apartment homes and one joint venture community with 270 apartment homes. The total net proceeds from the disposition of the two consolidated communities was approximately $69.4 million and we recognized a gain of approximately $49.9 million. The proceeds from the disposition of the one property owned through the unconsolidated joint venture was approximately $38.5 million and our portion of the gain of approximately $6.2 million was recognized in equity in income of joint ventures.

Other

•	In February 2019, we issued approximately 3.4 million common shares in an underwritten equity offering and received approximately $328.4 million in net proceeds.

•

In March 2019, we amended and restated our $600 million unsecured credit facility to, among other things, extend the maturity date from August 2019 to March 2023, with two options to further extend the facility at our election for two additional six-month periods, and increased the facility from $600 million to $900 million, which may be expanded three times by up to an additional $500 million upon satisfaction of certain conditions.

•	In February and March 2019, we repaid a total of approximately $439.3 million of secured conventional mortgage debt.

•	In June 2019, we issued $600 million of senior unsecured notes due July 1, 2029 under our existing shelf registration statement.

•	In October 2019, we issued $300 million of senior unsecured notes due November 1, 2049 under our existing shelf registration statement.

•	In October 2019, we redeemed all of our 4.78% $250 million Senior Notes due 2021 and prepaid our 4.38% $45.3 million secured mortgage notes due 2045. In connection with these transactions, we recorded an approximate $12 million loss on early retirement of debt.

•	In 2019, we issued approximately 0.2 million shares under our 2017 ATM program and received approximately $24.8 million in net proceeds.

Future Outlook

Subject to market conditions, we intend to continue to seek opportunities to develop new communities, and to redevelop, reposition and acquire existing communities. We also intend to evaluate our operating property and land development portfolio and plan to continue our practice of selective dispositions as market conditions warrant and opportunities arise. We expect to maintain a strong balance sheet and preserve our financial flexibility by continuing to focus on our core fundamentals which currently are generating positive cash flows from operations, maintaining appropriate debt levels and leverage ratios, and controlling overhead costs. We intend to meet our near-term liquidity requirements through a combination of one or more of the following: cash flows generated from operations, draws on our unsecured credit facility, the use of debt and equity offerings under our automatic shelf registration statement, proceeds from property dispositions, equity issued from our ATM programs, other unsecured borrowings, or secured mortgages.

As of December 31, 2019, we had approximately $23.2 million in cash and cash equivalents, and $847.1 million available under our $900.0 million unsecured credit facility. As of the date of this filing, we had common shares having an aggregate offering price of up to $287.7 million remaining available for sale under our 2017 ATM program and do not have any debt maturing through the year ending 2021. Additionally, as of December 31, 2019 and through the date of this filing, 100% of our consolidated properties were unencumbered. We believe we are well-positioned with a strong balance sheet and sufficient liquidity to fund new development, redevelopment, and other capital funding requirements. We will, however, continue to assess and take further actions we believe are prudent to meet our objectives and capital requirements.

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Property Portfolio

Our multifamily property portfolio is summarized as follows:

	December 31, 2019						December 31, 2018
	Apartment Homes			Properties			Apartment Homes			Properties
Operating Properties
Houston, Texas	9,301			26			8,749			25
Washington, D.C. Metro	6,862			19			6,862			19
Dallas, Texas	5,666			14			5,666			14
Atlanta, Georgia	4,496			14			4,496			14
Phoenix, Arizona	3,686			12			2,929			10
Austin, Texas	3,686			11			3,360			10
Orlando, Florida	3,594			10			3,594			10
Raleigh, North Carolina	3,240			9			3,054			8
Charlotte, North Carolina	3,104			14			3,076			13
Southeast Florida	2,781			8			2,781			8
Tampa, Florida	2,736			7			2,736			7
Los Angeles/Orange County, California	2,658			7			2,658			7
Denver, Colorado	2,632			8			2,632			8
San Diego/Inland Empire, California	1,665			5			1,665			5
Corpus Christi, Texas	—			—			902			3
Total Operating Properties	56,107			164			55,160			161

Properties Under Construction
Houston, Texas	505			2			271			1
Atlanta, Georgia	366			1			365			1
Orlando, Florida	360			1			360			1
Phoenix, Arizona	343			1			441			1
Southeast Florida	269			1			—			—
Denver, Colorado	233			1			233			1
San Diego/Inland Empire, California	132			1			—			—
Charlotte, North Carolina	—			—			28			1
Total Properties Under Construction	2,208			8			1,698			6
Total Properties	58,315			172			56,858			167

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Less: Unconsolidated Joint Venture Properties (1)
Houston, Texas (2)	2,756			9			2,522			8
Austin, Texas	1,360			4			1,360			4
Dallas, Texas	1,250			3			1,250			3
Tampa, Florida	450			1			450			1
Raleigh, North Carolina	350			1			350			1
Orlando, Florida	300			1			300			1
Washington, D.C. Metro	281			1			281			1
Charlotte, North Carolina	266			1			266			1
Atlanta, Georgia	234			1			234			1
Corpus Christi, Texas	—			—			270			1
Total Unconsolidated Joint Venture Properties	7,247			22			7,283			22
Total Properties Fully Consolidated	51,068			150			49,575			145

(1)	Refer to Note 8, "Investments in Joint Ventures," in the notes to Consolidated Financial Statements for further discussion of our joint venture investments.

(2)	Includes a property under construction owned by one of the Funds. See Communities Under Construction below for details.

Stabilized Communities

We generally consider a property stabilized once it reaches 90% occupancy. During the year ended December 31, 2019, stabilization was achieved at three consolidated operating properties as follows:

Stabilized Property and Location	Number of Apartment Homes			Date of Construction Completion		Date of Stabilization
Consolidated Operating Property
Camden Shady Grove
Rockville, MD	457			1Q18		1Q19
Camden Washingtonian
Gaithersburg, MD	365			4Q18		2Q19
Camden McGowen Station
Houston, TX	315			4Q18		4Q19
Consolidated total	1,137

Completed Construction in Lease-Up

At December 31, 2019, we had two consolidated completed operating properties in lease-up as follows:

($ in millions) Property and Location	Number of Apartment Homes			Cost Incurred (1)				% Leased at 1/29/2020			Date of Construction Completion		Estimated Date of Stabilization
Consolidated Operating Properties
Camden North End I
Phoenix, AZ	441			$	98.8			75	%		1Q19		2Q20
Camden Grandview II
Charlotte, NC	28			22.5				93	%		1Q19		1Q20
Consolidated total	469			$	121.3

(1) Excludes leasing costs, which are expensed as incurred.

Properties Under Development

Our consolidated balance sheet at December 31, 2019 included approximately $512.3 million related to properties under development and land. Of this amount, approximately $413.4 million related to our projects currently under construction. In

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addition, we had approximately $98.9 million primarily invested in land held for future development related to projects we currently expect to begin construction.

Communities Under Construction. At December 31, 2019, we had seven consolidated properties and one unconsolidated property held by one of the Funds, in various stages of construction as follows:

($ in millions) Property and Location	Number of Apartment Homes			Estimated Cost				Cost Incurred				Included in Properties Under Development				Estimated Date of Construction Completion		Estimated Date of Stabilization
Consolidated Communities Under Construction
Camden Downtown I Houston, TX	271			$	132.0			$	123.4			$	123.4			3Q20		1Q21
Camden RiNo Denver, CO	233			75.0				66.6				66.6				3Q20		4Q20
Camden Lake Eola Orlando, FL	360			120.0				75.0				75.0				4Q20		3Q21
Camden Buckhead Atlanta, GA	366			160.0				55.2				55.2				3Q21		2Q22
Camden North End II Phoenix, AZ	343			90.0				31.3				31.3				4Q21		2Q22
Camden Hillcrest San Diego, CA	132			95.0				42.7				42.7				3Q21		2Q22
Camden Atlantic Plantation, FL	269			100.0				19.2				19.2				4Q21		1Q23
Consolidated total	1,974			$	772.0			$	413.4			$	413.4
Unconsolidated Community Under Construction
Camden Cypress Creek II (1) Cypress, TX	234			$	38.0			$	10.4			$	10.4			1Q21		3Q21

*(1)*Property owned through an unconsolidated joint venture in which we own a 31.3% interest.

Development Pipeline Communities. At December 31, 2019, we had the following consolidated communities undergoing development activities:

($ in millions) Property and Location		Projected Homes			Total Estimated Cost (1)				Cost to Date
Camden Hayden II		400			$	110.0			$	22.0
Tempe, AZ
Camden NoDa		400			100.0				14.8
Charlotte, NC
Camden Arts District		354			150.0				26.9
Los Angeles, CA
Camden Paces III		350			100.0				15.8
Atlanta, GA
Camden Downtown II		271			145.0				11.4
Houston, TX
Camden Highland Village II		300			100.0				8.0
Houston, TX
Total		2,075			$	705.0			$	98.9

(1)	Represents our estimate of total costs we expect to incur on these projects. However, forward-looking statements are not guarantees of future performance, results, or events. Although we believe these expectations are based upon reasonable assumptions, future events rarely develop exactly as forecasted, and estimates routinely require adjustment.

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Geographic Diversification

At December 31, 2019 and 2018, our real estate assets by various markets, excluding depreciation and investments in joint ventures, were as follows:

($ in thousands)	2019							2018
Washington, D.C. Metro	$	1,574,746			17.3	%		$	1,551,925			18.6	%
Houston, Texas	1,126,255				12.3			899,458				10.8
Los Angeles/Orange County, California	755,976				8.3			738,856				8.9
Atlanta, Georgia	755,323				8.3			713,931				8.6
Phoenix, Arizona	708,681				7.7			563,797				6.8
Southeast Florida	625,468				6.9			599,907				7.2
Orlando, Florida	596,007				6.5			549,039				6.6
Denver, Colorado	543,234				6.0			502,761				6.0
Dallas, Texas	519,833				5.7			508,134				6.1
Charlotte, North Carolina	429,640				4.7			401,879				4.8
San Diego/Inland Empire, California	392,158				4.3			371,186				4.5
Raleigh, North Carolina	371,827				4.1			293,961				3.5
Tampa, Florida	362,334				4.0			350,517				4.2
Austin, Texas	354,311				3.9			234,743				2.8
Corpus Christi, Texas	—				—			48,381				0.6
Total	$	9,115,793			100.0	%		$	8,328,475			100.0	%

Results of Operations

Changes in revenues and expenses related to our operating properties from period to period are due primarily to the performance of stabilized properties in the portfolio, the lease-up of newly constructed properties, acquisitions, and dispositions. Where appropriate, comparisons of income and expense for communities included in continuing operations are made on a dollars-per-weighted average apartment home basis in order to adjust for such changes in the number of apartment homes owned during each period. Selected weighted averages for the years ended December 31 are as follows:

	2019				2018
Average monthly property revenue per apartment home	$	1,765			$	1,695
Annualized total property expenses per apartment home	$	7,546			$	7,322
Weighted average number of operating apartment homes owned 100%	48,549				46,925
Weighted average occupancy of operating apartment homes owned 100%	96.0		%		95.6		%

Management considers property net operating income ("NOI") to be an appropriate supplemental measure of operating performance to net income because it reflects the operating performance of our communities without an allocation of corporate level property management overhead or general and administrative costs. We define NOI as total property income less property operating and maintenance expenses less real estate taxes. NOI is further detailed in the Property-Level NOI table as seen below. NOI is not defined by accounting principles generally accepted in the United States of America ("GAAP") and should not be considered an alternative to net income as an indication of our operating performance, should not be considered an alternative to net cash from operating activities as a measure of liquidity, and should not be considered an indication of cash available to fund cash needs. Additionally, NOI as disclosed by other REITs may not be comparable to our calculation.

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Reconciliations of net income to NOI for the year ended December 31, 2019 and 2018 are as follows:

(in thousands)		2019				2018
Net income		$224,270				$160,694
Less: Fee and asset management income		(8,696		)		(7,231		)
Less: Interest and other income		(3,090		)		(2,101		)
Less: (Income)/loss on deferred compensation plans		(21,694		)		6,535
Plus: Property management expense		25,290				25,581
Plus: Fee and asset management expense		5,759				4,451
Plus: General and administrative expense		53,201				50,735
Plus: Interest expense		80,706				84,263
Plus: Depreciation and amortization expense		336,274				300,946
Plus: Expense/(benefit) on deferred compensation plans		21,694				(6,535		)
Plus: Loss on early retirement of debt		11,995				—
Less: Gain on sale of operating properties		(49,901		)		—
Less: Equity in income of joint ventures		(14,783		)		(7,836		)
Plus: Income tax expense		1,089				1,424
Net operating income		$	662,114			$	610,926

Property-Level NOI (1)(2)

Property NOI, as reconciled above, is detailed further into the categories below for the year ended December 31, 2019 as compared to 2018:

	Apartment Homes at			Year Ended December 31,								Change
($ in thousands)	12/31/2019			2019				2018				$				%
Property revenues:
Same store communities	41,986			$	856,066			$	825,606			$	30,460			3.7	%
Non-same store communities	6,639			147,259				110,048				37,211				33.8
Development and lease-up communities	2,443			6,936				1,751				5,185				*
Dispositions/other	—			18,200				17,100				1,100				6.4
Total property revenues	51,068			$	1,028,461			$	954,505			$	73,956			7.7	%
Property expenses:
Same store communities	41,986			$	303,647			$	297,826			$	5,821			2.0	%
Non-same store communities	6,639			52,822				38,611				14,211				36.8
Development and lease-up communities	2,443			2,685				491				2,194				*
Dispositions/other	—			7,193				6,651				542				8.1
Total property expenses	51,068			$	366,347			$	343,579			$	22,768			6.6	%
Property NOI:
Same store communities	41,986			$	552,419			$	527,780			$	24,639			4.7	%
Non-same store communities	6,639			94,437				71,437				23,000				32.2
Development and lease-up communities	2,443			4,251				1,260				2,991				*
Dispositions/other	—			11,007				10,449				558				5.3
Total property NOI	51,068			$	662,114			$	610,926			$	51,188			8.4	%

** Not a meaningful percentage.*

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(1)

For 2019, s**ame store communities are communities we owned and were stabilized since January 1, 2018, excluding communities under redevelopment and properties held for sale. Non-same store communities are stabilized communities not owned or stabilized since January 1, 2018, including communities under redevelopment and excluding properties held for sale. We define communities under redevelopment as communities with capital expenditures that improve a community's cash flow and competitive position through extensive unit, exterior building, common area, and amenity upgrades. Management believes same store information is useful as it allows both management and investors to determine financial results over a particular period for the same set of communities. Development and lease-up communities are non-stabilized communities we have developed since January 1, 2018, excluding properties held for sale. Dispositions/other includes those communities disposed of or held for sale which are not classified as discontinued operations, non-multifamily rental properties, expenses related to land holdings not under active development, and other miscellaneous revenues and expenses.

Same Store Analysis

Year ended December 2019 compared to year ended December 2018

Same store property NOI increased approximately $24.6 million for the year ended December 31, 2019 as compared to the same period in 2018. The increase was due to an increase of approximately $30.5 million in same store property revenues for the year ended December 31, 2019, partially offset by an increase of approximately $5.8 million in same store property expenses for the year ended December 31, 2019, as compared to the same period in 2018.

The $30.5 million increase in same store property revenues for the year ended December 31, 2019, as compared to the same period in 2018, was primarily due to an increase of approximately $28.6 million in rental revenues primarily from a 3.4% increase in average rental rates and an approximately $1.9 million increase in income from our bulk internet rebilling program.

The $5.8 million increase in same store property expenses for the year ended December 31, 2019, as compared to the same period in 2018, was primarily due to higher salary expenses of approximately $3.9 million, higher property insurance expenses of approximately $1.0 million as a result of higher premiums, higher real estate taxes of approximately $0.7 million as a result of higher property valuations and tax rates at a number of our communities, and higher other miscellaneous property expenses of approximately $0.6 million. These increases were partially offset by an approximate $0.4 million decrease related to lower repair and maintenance costs as compared to the same period in 2018.

Non-same Store and Development and Lease-up Analysis

Property NOI from non-same store and development and lease-up communities increased approximately $26.0 million for the year ended December 31, 2019 as compared to the same period in 2018. The increase was due to an increase of approximately $42.4 million in revenues for the year ended December 31, 2019, partially offset by an increase of approximately $16.4 million in expenses for the year ended December 31, 2019, as compared to the same period in 2018. The increases in property revenues and expenses from our non-same store communities were primarily due to the acquisition of three operating properties in 2018 and four operating properties in 2019 and the stabilization of one operating property in 2018 and three operating properties in 2019. The increases in property revenues and expenses from our development and lease-up communities were primarily due to the timing of completion and partial lease-up of two properties during 2019. The following table details the changes, described above, relating to non-same store and development and lease-up NOI:

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		For the year ended December 31,
(in millions)		2019 compared to 2018
Property Revenues
Revenues from non-same store stabilized properties		$	15.7
Revenues from acquisitions		19.3
Revenues from development and lease-up properties		5.2
Other		2.2
		$	42.4
Property Expenses
Expenses from non-same store stabilized properties		$	5.1
Expenses from acquisitions		8.2
Expenses from development and lease-up properties		2.2
Other		0.9
		$	16.4
Property NOI
NOI from non-same store stabilized properties		$	10.6
NOI from acquisitions		11.1
NOI from development and lease-up properties		3.0
Other		1.3
		$	26.0

Dispositions/Other Property Analysis

Dispositions/other property NOI increased approximately $0.6 million for the year ended December 31, 2019 as compared to the same period in 2018. The increase was primarily due to the receipt of business interruption insurance proceeds.

Non-Property Income

	Year Ended December 31,								Change
($ in thousands)	2019				2018				$				%
Fee and asset management	$	8,696			$	7,231			$	1,465			20.3	%
Interest and other income	3,090				2,101				989				47.1
Income (loss) on deferred compensation plans	21,694				(6,535		)		28,229				*
Total non-property income	$	33,480			$	2,797			$	30,683			1,097.0	%

** Not a meaningful percentage*

Fee and asset management income from property management, asset management, construction, and development activities at our joint ventures and our third-party construction projects increased approximately $1.5 million for the year ended December 31, 2019 as compared to 2018. The increase for 2019 as compared to 2018 was primarily due to higher fees earned on capital projects at Fund communities, an increase in third-party construction activity, and higher property management fees.

Interest and other income increased approximately $1.0 million for the year ended December 31, 2019, as compared to 2018. The increase was primarily related to higher interest income earned on investments in cash and cash equivalents due to maintaining higher average cash balances in 2019, as compared to 2018.

Our deferred compensation plans recognized income of approximately $21.7 million in 2019 and a loss of approximately $6.5 million in 2018. The changes were related to the performance of the investments held in deferred compensation plans for participants and were directly offset by the expense (benefit) related to these plans, as discussed below.

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Other Expenses

	Year Ended December 31,								Change
($ in thousands)	2019				2018				$				%
Property management	$	25,290			$	25,581			$	(291	)		(1.1	)%
Fee and asset management	5,759				4,451				1,308				29.4
General and administrative	53,201				50,735				2,466				4.9
Interest	80,706				84,263				(3,557		)		(4.2	)
Depreciation and amortization	336,274				300,946				35,328				11.7
Expense (benefit) on deferred compensation plans	21,694				(6,535		)		28,229				*
Total other expenses	$	522,924			$	459,441			$	63,483			13.8	%

** Not a meaningful percentage*

Property management expenses, which primarily represent regional supervision and accounting costs related to property operations, decreased approximately $0.3 million for the year ended December 31, 2019 as compared to 2018 . The decrease was primarily related to lower discretionary expenses and lower incentive compensation expenses due to a decrease in amortization costs as a result of having substantially three-year awards outstanding in 2019 as compared to having three and five year awards in 2018. The decrease was partially offset by higher other compensation related costs. Property management expenses were 2.5% and 2.7% of total property revenues for the years ended December 31, 2019 and 2018, respectively.

Fee and asset management expense from property management, asset management, construction, and development activities at our joint ventures and our third-party construction projects increased approximately $1.3 million for the year ended December 31, 2019 as compared to 2018. The increase was primarily due to higher expenses incurred as a result of an increase in capital projects at Fund communities and an increase in third-party construction activity.

General and administrative expenses increased approximately $2.5 million during the year ended December 31, 2019 as compared to 2018. The increase was primarily due to higher compensation-related costs, professional fees, information technology costs, and other corporate initiative costs. Excluding deferred compensation plans, general and administrative expenses were 5.1% and 5.3% of total revenues for the years ended December 31, 2019 and 2018, respectively.

Interest expense decreased approximately $3.6 million for the year ended December 31, 2019 as compared to 2018. The decrease was primarily due to the repayment of $380 million of secured conventional mortgage notes with a weighted average interest rate of 4.43% in October 2018, the repayment of approximately $439.3 million of secured conventional mortgage debt with a weighted average interest rate of 5.2% in the first quarter of 2019, the early redemption of our $250 million, 4.78% senior unsecured notes due 2021, and the prepayment of an approximately $45.3 million, 4.38% secured conventional mortgage note in October 2019. The decrease was partially offset by the issuance of a $100 million unsecured floating rate term loan in September 2018; the issuance of $400 million, 3.74% senior unsecured notes in October 2018; the issuance of $600 million, 3.67% senior unsecured notes in June 2019; and the issuance of $300 million, 3.35% senior unsecured notes in October 2019. The decrease was further offset by an increase in interest expense recognized on our unsecured credit facility due to having higher balances outstanding in 2019 as compared to 2018.

Depreciation and amortization expense increased approximately $35.3 million for the year ended December 31, 2019 as compared to 2018. The increase was primarily due to the acquisition of one operating property in September 2018 and four operating properties in 2019, the completion of units in our development pipeline, the completion of repositions and the partial completion of redevelopments during 2019 and 2018.

Our deferred compensation plans incurred an expense of approximately $21.7 million in 2019 and a benefit of approximately $6.5 million in 2018. These changes were related to the performance of the investments held in deferred compensation plans for participants and were directly offset by the income (loss) related to these plans, as discussed in the non-property income section above.

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Other

	Year Ended December 31,								Change
(in thousands)	2019				2018				$
Loss on early retirement of debt	$	(11,995	)		$	—			$	(11,995	)
Gain on sale of operating properties	$	49,901			$	—			$	49,901
Equity in income of joint ventures	14,783				7,836				6,947
Income tax expense	(1,089		)		(1,424		)		335

The loss on early retirement of debt for the year ended December 31, 2019 related to the early redemption of our $250 million, 4.78% Senior Notes due 2021 and the prepayment of a $45.3 million, 4.38% secured conventional mortgage note due 2045.

Gain on sale of operating properties for the year ended December 31, 2019 was due to the sale of two operating properties located in Corpus Christi, Texas in the fourth quarter.

Equity in income of joint ventures increased approximately $6.9 million for the year ended December 31, 2019 as compared to 2018. The increase was primarily due to the recognition of a $6.2 million proportionate share of the gain related to the sale of one operating property by one of the Funds in December 2019 as well as increases in earnings from the operating properties owned by the Funds.

Income tax expense decreased approximately $0.3 million for the year ended December 31, 2019, as compared to 2018. The decrease was primarily due to lower state income taxes, which included an approximate $0.1 million state income tax refund. The decrease was partially offset by an increase in taxable income related to our third-party construction activities conducted in a taxable REIT subsidiary.

Funds from Operations (“FFO”) and Adjusted FFO ("AFFO")

Management considers FFO and AFFO to be appropriate supplementary measures of the financial performance of an equity REIT. The National Association of Real Estate Investment Trusts (“NAREIT”) currently defines FFO as net income (computed in accordance with GAAP), excluding gains (or losses) associated with the sale of previously depreciated operating properties, real estate depreciation and amortization, impairments of depreciable assets, and adjustments for unconsolidated joint ventures to reflect FFO on the same basis. Our calculation of diluted FFO also assumes conversion of all potentially dilutive securities, including certain non-controlling interests, which are convertible into common shares. We consider FFO to be an appropriate supplemental measure of operating performance because, by excluding gains or losses on dispositions of operating properties and depreciation, FFO can assist in the comparison of the operating performance of a company’s real estate investments between periods or to different companies.

AFFO is calculated utilizing FFO less recurring capitalized expenditures which are necessary to help preserve the value of and maintain the functionality at our communities. We also consider AFFO to be a useful supplemental measure because it is frequently used by analysts and investors to evaluate a REIT's operating performance between periods or different companies. Our definition of recurring capital expenditures may differ from other REITs, and there can be no assurance our basis for computing this measure is comparable to other REITs.

To facilitate a clear understanding of our consolidated historical operating results, we believe FFO and AFFO should be examined in conjunction with net income attributable to common shareholders as presented in the consolidated statements of income and comprehensive income and data included elsewhere in this report. FFO and AFFO are not defined by GAAP and should not be considered alternatives to net income attributable to common shareholders as an indication of our operating performance. Additionally, FFO and AFFO as disclosed by other REITs may not be comparable to our calculation.

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Reconciliations of net income attributable to common shareholders to FFO and AFFO for the years ended December 31 are as follows:

($ in thousands)	2019				2018
Funds from operations
Net income attributable to common shareholders (1)	$	219,623			$	156,128
Real estate depreciation and amortization	328,045				294,283
Adjustments for unconsolidated joint ventures	8,987				8,976
Gain on sale of operating properties	(49,901		)		—
Gain on sale of unconsolidated joint venture operating property	(6,204		)		—
Income allocated to non-controlling interests	4,838				4,595
Funds from operations	$	505,388			$	463,982
Less: recurring capitalized expenditures	(72,172		)		(72,296		)
Adjusted funds from operations	$	433,216			$	391,686
Weighted average shares – basic	98,460				95,208
Incremental shares issuable from assumed conversion of:
Common share options and awards granted	119				158
Common units	1,753				1,835
Weighted average shares – diluted	100,332				97,201

(1)	Net income attributable to common shareholders for the year ended December 31, 2019 included an approximate $12 million loss on early retirement of debt related to the redemption of our 4.78% Senior Notes due 2021 and the prepayment of a 4.38% secured conventional mortgage note due 2045.

Liquidity and Capital Resources

Financial Condition and Sources of Liquidity

We intend to maintain a strong balance sheet and preserve our financial flexibility, which we believe should enhance our ability to identify and capitalize on investment opportunities as they become available. We intend to maintain what management believes is a conservative capital structure by:

•	extending and sequencing the maturity dates of our debt where practicable;

•	managing interest rate exposure using what management believes to be prudent levels of fixed and floating rate debt;

•	maintaining what management believes to be conservative coverage ratios; and

•	using what management believes to be a prudent combination of debt and equity.

Our interest expense coverage ratio, net of capitalized interest, was approximately 7.3 and 6.4 times for the years ended December 31, 2019 and 2018, respectively. This ratio is a method for calculating the amount of operating cash flows available to cover interest expense and is calculated by dividing interest expense for the period into the sum of property revenues and expenses, non-property income, and other expenses after adding back depreciation, amortization, and interest expense. All of our properties were unencumbered at December 31, 2019 and approximately 89.6% and 80.0% of our properties were unencumbered at December 31, 2018 and 2017, respectively. Our weighted average maturity of debt was approximately 8.9 years at December 31, 2019.

We also intend to strengthen our capital and liquidity positions by continuing to focus on our core fundamentals, which currently are generating positive cash flows from operations, maintaining appropriate debt levels and leverage ratios, and controlling overhead costs.

Our primary sources of liquidity are cash and cash equivalents on hand and cash flow generated from operations. Other sources may include one or more of the following: availability under our unsecured credit facility, the use of debt and equity offerings under our automatic shelf registration statement, proceeds from property dispositions, equity issued from our ATM programs, and other unsecured borrowings or secured mortgages. We believe our liquidity and financial condition are sufficient to meet all of our reasonably anticipated cash needs during 2020 including:

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•	normal recurring operating expenses;

•	current debt service requirements, including debt maturities;

•	recurring capital expenditures;

•	reposition expenditures;

•	funding of property developments, redevelopments, acquisitions, and joint venture investments; and

•	the minimum dividend payments required to maintain our REIT qualification under the Code.

Factors which could increase or decrease our future liquidity include but are not limited to volatility in capital and credit markets, changes in rent control or rent stabilization laws, sources of financing, the minimum REIT dividend requirements, our ability to complete asset purchases, sales, or developments, the effect our debt level and changes in credit ratings could have on our cost of funds, and our ability to access capital markets.

Cash Flows

The following is a discussion of our cash flows for the years ended December 31, 2019 and 2018.

Net cash from operating activities was approximately $555.6 million during the year ended December 31, 2019 as compared to approximately $503.7 million during the year ended December 31, 2018. The increase was primarily due to growth attributable to our same store, non-same store communities, and development and lease-up communities and changes in our operating accounts. These increases were partially offset by cash outflows related to the settlement of our forward interest rate swaps in 2019 as compared to cash inflows received in 2018. See further discussions of our 2019 operations as compared to 2018 in "Results of Operations."

Net cash used in investing activities during the year ended December 31, 2019 totaled approximately $792.4 million as compared to $640.9 million during the year ended December 31, 2018. Cash outflows during 2019 primarily related to property development and capital improvements of approximately $407.6 million, the acquisition of four operating properties for approximately $436.3 million, and increases in non-real estate assets of $17.2 million. These outflows were partially offset by net proceeds from the sale of two operating properties of approximately $67.6 million and a net decrease in notes receivable of $1.4 million. Cash outflows during 2018 primarily related to property development and capital improvements of approximately $359.2 million, the acquisition of three operating properties for approximately $290.0 million, and increases in non-real estate assets of $14.5 million. These outflows were partially offset by the sale of land of approximately $11.3 million and a net decrease in notes receivable of $9.5 million. The increase in property development and capital improvements for 2019, as compared to the same period in 2018, was primarily due to the acquisition of three development properties in 2019 as compared to one development property in 2018, the timing and completion of five consolidated operating properties in 2018 and 2019, and the completion of repositions at several of our operating properties. The property development and capital improvements during 2019 and 2018, included the following:

		December 31,
(in millions)		2019				2018
Expenditures for new development, including land		$	217.5			$	177.9
Capital expenditures		80.9				83.6
Reposition expenditures		66.7				49.8
Capitalized interest, real estate taxes, and other capitalized indirect costs		26.6				24.3
Redevelopment expenditures		15.9				23.6
Total		$	407.6			$	359.2

Net cash from financing activities totaled approximately $220.7 million during the year ended December 31, 2019 as compared to net cash used of approximately $197.0 million during the year ended December 31, 2018. Cash inflows during 2019 primarily related to net proceeds of approximately $890.0 million from the issuance of $600.0 million senior unsecured notes in June 2019 and $300.0 million senior unsecured notes in October 2019, as well as net proceeds of approximately $353.2 million from the issuance of approximately 3.4 million common shares through an underwritten equity offering completed in February 2019 and approximately 0.2 million common shares through our 2017 ATM program. We also had net proceeds of $44.0 million of borrowings from our unsecured line of credit. These cash inflows were partially offset by the repayment of approximately $439.3 million of secured conventional mortgage debt in the first quarter of 2019, and the early redemption of our $250 million unsecured notes payable due 2021 and the prepayment of the approximate $45.3 million secured conventional mortgage note due 2045 and associated prepayment penalties in the fourth quarter of 2019. We also used approximately $317.3 million to pay

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distributions to common shareholders and non-controlling interest holders. Cash outflows during 2018 primarily related to the repayment of approximately $380.0 million variable and fixed rate secured conventional mortgage notes, approximately $298.0 million to pay distributions to common shareholders and non-controlling interest holders, and approximately $14.7 million for the repurchase of our common shares and redemption of units. These cash outflows during 2018 were partially offset by net proceeds of approximately $495.5 million from the issuance of $400.0 million senior unsecured notes and the issuance of a $100.0 million unsecured floating-rate term loan.

Financial Flexibility

In March 2019, we amended and restated our $600 million unsecured credit facility to, among other things, extend the maturity date from August 2019 to March 2023, with two options to further extend the facility at our election for two additional six-month periods, and increase the facility from $600 million to $900 million, which may be expanded three times by up to an additional $500 million upon the satisfaction of certain conditions. The interest rate on our unsecured credit facility is based upon the London Interbank Offered Rate ("LIBOR") plus a margin which is subject to change as our credit ratings change. Advances under our credit facility may be priced at the scheduled rates, or we may enter into bid rate loans with participating banks at rates below the scheduled rates. These bid rate loans have terms of 180 days or less and may not exceed the lesser of $450 million or the remaining amount available under our credit facility. Our credit facility is subject to customary financial covenants and limitations. We believe we are in compliance with all such financial covenants and limitations as of December 31, 2019 and through the date of this filing.

Our credit facility provides us with the ability to issue up to $50.0 million in letters of credit. While our issuance of letters of credit does not increase our borrowings outstanding under our credit facility, it does reduce the amount available. At December 31, 2019, we had approximately $44.0 million of borrowings outstanding on our $900.0 million credit facility and we had outstanding letters of credit totaling approximately $8.9 million, leaving approximately $847.1 million available under our credit facility.

We currently have an automatic shelf registration statement which allows us to offer common shares, preferred shares, debt securities, or warrants, and our Amended and Restated Declaration of Trust provides we may issue up to 185 million shares of beneficial interest, consisting of 175 million common shares and 10 million preferred shares. At December 31, 2019, we had approximately 97.2 million common shares outstanding, net of treasury shares and shares held in our deferred compensation arrangements, and no preferred shares outstanding.

In May 2017, we created an at-the market ("ATM") share offering program through which we can, but have no obligation to, sell common shares having an aggregate offering price of up to $315.3 million (the "2017 ATM program"), in amounts and at times as we determine, into the existing trading market at current market prices as well as through negotiated transactions. Actual sales from time to time may depend on a variety of factors including, among others, market conditions, the trading price of our common shares, and determinations by management of the appropriate sources of funding for us. The proceeds from the sale of our common shares under the 2017 ATM program are intended to be used for general corporate purposes, which may include reducing future borrowings under our unsecured line of credit, the repayment of other indebtedness, the redemption or other repurchase of outstanding debt or equity securities, funding for development activities, and financing for acquisitions. As of the date of this filing, we had common shares having an aggregate offering price of up to $287.7 million remaining available for sale under the 2017 ATM program. No additional shares under the 2017 ATM program were sold subsequent to December 31, 2019 through the date of this filing.

We believe our ability to access capital markets is enhanced by our senior unsecured debt ratings by Moody’s, Fitch, and Standard and Poor's, which were A3 with stable outlook, A- with stable outlook, and A- with stable outlook, respectively, as of December 31, 2019. We believe our ability to access capital markets is also enhanced by our ability to borrow on a secured basis from various institutions including banks, Fannie Mae, Freddie Mac, or life insurance companies. However, we may not be able to maintain our current credit ratings and may not be able to borrow on a secured or unsecured basis in the future.

Future Cash Requirements and Contractual Obligations

One of our principal long-term liquidity requirements includes the repayment of maturing debt, including any future borrowings under our unsecured credit facility. As of the date of this filing, we did not have any debt maturing through the year ending December 31, 2021. See Note 9, “Notes Payable,” in the notes to Consolidated Financial Statements for further discussion of scheduled maturities.

We estimate the additional cost to complete the construction of the seven consolidated projects to be approximately $358.6 million. Of this amount, we expect to incur costs between approximately $220 million and $240 million during 2020 and to incur the remaining costs during 2021. Additionally, we expect to incur costs between approximately $65 million and $75 million related to the start of new development activities, between approximately $52 million and $56 million of repositions and revenue enhancing

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expenditures, between approximately $16 million and $20 million in redevelopment expenditures and between approximately $72 million and $76 million of additional recurring capital expenditures.

We anticipate meeting our near-term liquidity requirements through a combination of one or more of the following: cash flows generated from operations, draws on our unsecured credit facility, the use of debt and equity offerings under our automatic shelf registration statement, proceeds from property dispositions, equity issued from our 2017 ATM program, other unsecured borrowings, or secured mortgages. We continue to evaluate our operating properties and land development portfolio and plan to continue our practice of selective dispositions as market conditions warrant and opportunities arise.

As a REIT, we are subject to a number of organizational and operational requirements, including a requirement to distribute current dividends to our shareholders equal to a minimum of 90% of our annual taxable income. In order to reduce the amount of income taxes, our general policy is to distribute at least 100% of our taxable income. In December 2019, we announced our Board of Trust Managers had declared a quarterly dividend of $0.80 per common share to our common shareholders of record as of December 16, 2019. This dividend was subsequently paid on January 17, 2020 and we paid equivalent amounts per unit to holders of common operating partnership units. When aggregated with previous 2019 dividends, this distribution to common shareholders and holders of the common operating partnership units equates to an annual dividend rate of $3.20 per share or unit for the year ended December 31, 2019.

In the first quarter of 2020, the Company's Board of Trust Managers declared a first quarter dividend of $0.83 per common share to our common shareholders of record as of March 31, 2020. Future dividend payments are paid at the discretion of the Board of Trust Managers and depend on cash flows generated from operations, the Company's financial condition and capital requirements, distribution requirements under the REIT provisions of the Code and other factors which may be deemed relevant by our Board of Trust Managers. Assuming similar dividend distributions for the remainder of 2020, our annualized dividend rate for 2020 would be $3.32 as compared to a dividend rate of $3.20 in 2019.

The following table summarizes our known contractual cash obligations as of December 31, 2019:

(in millions)	Total				2020				2021				2022				2023				2024				Thereafter
Debt maturities (1)	$	2,524.1			$	(3.1	)		$	(3.1	)		$	447.0			$	247.9			$	542.6			$	1,292.8
Interest payments (2)	790.6				91.1				91.1				87.9				71.5				52.2				396.8
Non-cancelable lease payments	17.1				3.4				3.2				2.9				2.7				2.8				2.1
	$	3,331.8			$	91.4			$	91.2			$	537.8			$	322.1			$	597.6			$	1,691.7

(1)	Includes all available extension options, amortization of debt discounts and debt issuance costs, net of scheduled principal payments.

(2)	Includes contractual interest payments for our senior unsecured notes and all available extension options. The interest payments on our unsecured term loan with floating interest rates were calculated based on the interest rates in effect as of December 31, 2019*.*

Off-Balance Sheet Arrangements

The joint ventures in which we have an interest have been funded in part with secured, third-party debt. At December 31, 2019, our unconsolidated joint ventures had outstanding debt of approximately $496.9 million. As of December 31, 2019, we had no outstanding guarantees related to the loans of our unconsolidated joint ventures.

Inflation

Substantially all of our apartment leases are for a term generally ranging from twelve to fifteen months. In an inflationary environment, we may realize increased rents at the commencement of new leases or upon the renewal of existing leases. We believe the short-term nature of our leases generally minimizes our risk from the adverse effects of inflation.

Critical Accounting Policies

The preparation of our financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the balance sheet date, and the amounts of revenues and expenses recognized during the reporting period. These estimates are based on historical experience and other assumptions believed to be reasonable under the circumstances. The following is a discussion of our critical accounting policies. For a discussion of all of our significant accounting policies, see Note 2, "Summary of Significant Accounting Policies and Recent Accounting Pronouncements," to the accompanying consolidated financial statements.

Valuation of Assets. Long-lived assets are reviewed for impairment annually or whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Impairment may exist if estimated future undiscounted cash flows associated with long-lived assets are not sufficient to recover the carrying value of such assets. We consider projected future

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undiscounted cash flows, trends, strategic decisions regarding future development plans, and other factors in our assessment of whether impairment conditions exist. While we believe our estimates of future cash flows are reasonable, different assumptions regarding a number of factors, including market rents, economic conditions, and occupancies, could significantly affect these estimates. When impairment exists, the long-lived asset is adjusted to its fair value. In estimating fair value, management uses appraisals, management estimates, and discounted cash flow calculations which utilize inputs from a marketplace participant’s perspective. In addition, we evaluate our equity investments in joint ventures and if we believe there is an other than temporary decline in market value of our investment below our carrying value, we will record an impairment charge.

The value of our properties under development depends on market conditions, including estimates of the project start date as well as estimates of demand for multifamily communities. We have reviewed market trends and other marketplace information and have incorporated this information as well as our current outlook into the assumptions we use in our impairment analyses. Due to the judgment and assumptions applied in the impairment analyses, it is possible actual results could differ substantially from those estimated.

We believe the carrying value of our operating real estate assets, properties under development, and land is currently recoverable. However, if market conditions deteriorate or if changes in our development strategy significantly affect any key assumptions used in our fair value estimates, we may need to take material charges in future periods for impairments related to existing assets. Any such material non-cash charges could have an adverse effect on our consolidated financial position and results of operations.

Recent Accounting Pronouncements

See Note 2, "Summary of Significant Accounting Policies and Recent Accounting Pronouncements" in the notes to Consolidated Financial Statements for further discussion of recent accounting pronouncements issued during the year ended December 31, 2019.