SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying consolidated balance sheet as of December 31, 2017, which has been derived from audited financial statements, and unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Trust’s latest Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting of normal, recurring adjustments) necessary for a fair presentation for the periods presented have been included. The results of operations for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the full year.

Principles of Consolidation

Our consolidated financial statements include the accounts of the Trust, its corporate subsidiaries, and all entities in which the Trust has a controlling interest or has been determined to be the primary beneficiary of a variable interest entity (“VIE”). The equity interests of other investors are reflected as noncontrolling interests or redeemable noncontrolling interests. All significant intercompany transactions and balances are eliminated in consolidation. We account for our interests in joint ventures, which we do not control, using the equity method of accounting. Certain 2017 amounts have been reclassified to conform to current period presentation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, referred to as “GAAP,” requires management to make estimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and revenues and expenses. These estimates are prepared using management’s best judgment, after considering past, current and expected events and economic conditions. Actual results could differ from these estimates.

Recently Adopted and Issued Accounting Pronouncements



Standard	Description	Date of Adoption	Effect on the financial statements or significant matters

Recently Adopted:

Revenue from Contracts with Customers (Topic 606) and related updates: ASU 2014-09, May 2014, Revenue from Contracts with Customers ASU 2015-14, August 2015, Revenue from Contracts with Customers: Deferral of the Effective Date ASU 2016-08, March 2016, Revenue from Contracts with Customers: Principal versus Agent Considerations ASU 2016-10, April 2016, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing ASU 2016-12, May 2016, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients ASU 2016-20, December 2016, Revenue from Contracts with Customers: Technical Corrections and Improvements	In May 2014, the the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." ASU 2014-09 as amended and interpreted by ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12, and ASU 2016-20, supersedes nearly all existing revenue recognition guidance under GAAP and replaces it with a core revenue recognition principle, that an entity will recognize revenue when it transfers control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, and creates a five-step model for revenue recognition in accordance with this principle. ASU 2014-09 also requires new disclosures in both interim and annual reporting periods. The guidance in ASU 2014-09 does not apply to contracts within the scope of ASC 840, Leases. ASU 2016-08 clarifies how to identify the unit of accounting for the principal versus agent evaluation, how to apply the control principle to certain types of arrangements, such as service transactions, and reframed the indicators in the guidance to focus on evidence that an entity is acting as a principal rather than as an agent. ASU 2016-10 clarifies the existing guidance on identifying performance obligations and licensing implementation. ASU 2016-12 adds practical expedients related to the transition for contract modifications and further defines a completed contract, clarifies the objective of the collectability assessment and how revenue is recognized if collectability is not probable, and when non-cash considerations should be measured. ASU 2016-20 corrects or improves guidance in thirteen narrowly focused aspects of the guidance. The standard allows for either "full retrospective" adoption, meaning the standard is applied to all of the periods presented, or "modified retrospective" adoption, meaning the cumulative impact of applying the standard is recognized in accumulated dividends in excess of net income on the date of application.	January 2018	We implemented the new revenue recognition guidance retrospectively with the cumulative effect recognized in accumulated dividends in excess of net income at the date of initial application. The primary impact relates to condominium sales. Most of our revenue is accounted for under the leasing standard, and therefore is not subject to this standard. In 2017, gains on contracted condominium sales were recognized using the percentage-of-completion method, with the gain recognized once certain criteria were met in advance of legal closing. Under the new guidance, condominium sale gains are recognized as the condominium units are legally sold, which is typically upon closing. $5.4 million of condominium gains (net of $1.4 million of income taxes) recorded under the percentage-of-completion method in 2017 were reversed through opening accumulated dividends in excess of net income. With the exception of condominium sales, the adoption of the standard did not have a significant impact on our consolidated financial statements, with an additional cumulative effect of $0.6 million reflected in opening accumulated dividends in excess of net income.



Standard	Description	Date of Adoption	Effect on the financial statements or significant matters
ASU 2016-15, August 2016, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments	This ASU provides classification guidance for eight specific topics including debt extinguishment costs, contingent consideration payments made after a business combination, and distributions received from equity method investees.	January 2018	This standard did not have an impact on our consolidated financial statements.

ASU 2016-18, November 2016, Statement of Cash Flows (Topic 203) - Restricted Cash	This ASU requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or cash equivalents. Amounts generally described as restricted cash and equivalents should be included with cash and cash equivalents when reconciling the beginning and end of period total amounts on the statement of cash flows.	January 2018	Prior to the adoption of this standard, "net cash provided by operating activities" was $241.8 million and "net cash used in investing activities" was $390.0 million, for the six months ended June 30, 2017. After the adoption, "net cash provided by operating activities" was $238.7 million and "net cash used in investing activities" was $386.7 million, for the six months ended June 30, 2017. The reclassification is reflected in "increase in cash, cash equivalents, and restricted cash" in the Consolidated Statements of Cash Flows. See additional disclosures in "Consolidated Statement of Cash Flows - Supplemental Disclosures."

ASU 2017-05, February 2017, Other Income - Gains and Losses from the Recognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets	This ASU clarifies that ASC 610-20 applies to all nonfinancial assets (including real estate) for which the counterparty is not a customer and also clarifies that all businesses are derecognized using the deconsolidation guidance. Additionally, it defines an insubstance nonfinancial asset as a financial asset that is promised to a counterparty in a contract in which substantially all of the fair value of the assets promised in the contract is concentrated in nonfinancial assets, which excludes cash or cash equivalents and liabilities. Under the current guidance, a partial sale is recognized and carryover basis is used for the retained interest, however, the new guidance eliminates the use of carryover basis and generally requires a full gain to be recognized for prospective disposals of nonfinancial assets.	January 2018	The new guidance impacts the gain recognized when a real estate asset is sold to a non-customer and a noncontrolling interest is retained. The adoption of this standard did not have a significant impact on our consolidated financial statements.

ASU 2017-09, May 2017, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting	The ASU clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Under the new guidance, an entity will not apply modification accounting if the awards' fair value, vesting conditions, and the classification of the award as equity or a liability are the same immediately before and after the change. The new guidance is applied prospectively to awards granted or modified after the adoption date.	January 2018	The adoption of this standard did not have an impact to our financial statements, as there have been no modifications to awards for the six months ended June 30, 2018.

Consolidated Statements of Cash Flows—Supplemental Disclosures

The following tables provide supplemental disclosures related to the Consolidated Statements of Cash Flows:



	Six Months Ended
	June 30,
	2018			2017
	(In thousands)
SUPPLEMENTAL DISCLOSURES:
Total interest costs incurred	$	64,685		$	59,304
Interest capitalized	(10,735		)	(11,639		)
Interest expense	$	53,950		$	47,665
Cash paid for interest, net of amounts capitalized	$	52,997		$	47,995
Cash paid for income taxes	$	692		$	341
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Mortgage loan refinanced	$	—		$	125,000
DownREIT operating partnership units issued with acquisition of noncontrolling interest	$	—		$	5,918
DownREIT operating partnership units redeemed for common shares	$	—		$	2,569
Shares issued under dividend reinvestment plan	$	955		$	1,036



	June 30,		December 31,
	2018		2017
	(In thousands)
RECONCILIATION OF CASH, CASH EQUIVALENTS, AND RESTRICTED CASH:
Cash and cash equivalents	$	56,116	$	15,188
Restricted cash (1)	52,846		10,012
Total cash, cash equivalents, and restricted cash	$	108,962	$	25,200


(1)	Restricted cash balances are included in "prepaid expenses and other assets" on our consolidated balance sheets.

Description

Date of Adoption

Effect on the financial statements or significant matters

Not Yet Adopted:

Leases (Topic 842) and related updates:

ASU 2016-02,
  February 2016,
  Leases (Topic 842)

  ASU 2018-10, July
  2018, Codification
  improvements to Topic
  842, Leases

  ASU 2018-11, July
  2018, Leases (Topic
  842)

This ASU significantly changes the accounting for leases by requiring lessees to recognize assets and liabilities for leases greater than 12 months on their balance sheet. The lessor model stays substantially the same; however, there were modifications to conform lessor accounting with the lessee model, eliminate real estate specific guidance, further define certain lease and non-lease components, and change the definition of initial direct costs of leases requiring significantly more leasing related costs to be expensed upfront.

ASU 2018-10 provides narrow amendments that clarify how to apply certain aspects of the guidance in ASU 2016-02. ASU 2018-11 provides the option of an additional transition method, by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. It also provides lessors an option to not separate lease and non-lease components when certain criteria are met.

January 2019

We are currently assessing the full impact of this standard to our consolidated financial statements. We have, however, identified certain areas which will be impacted as follows:

We are currently a lessee for land underneath all or a portion of 14 properties that are subject to ground leases (in addition to 4 other properties that we currently account for as capital leases). Upon adoption, we will recognize the lease obligation for the 14 ground leases and a corresponding right of use asset on our consolidated balance sheet.

Additionally, we will no longer be able to capitalize certain internal leasing and external legal leasing costs. For the six months ended June 30, 2018, we have capitalized approximately $3.6 million of internal leasing and external legal leasing costs, of which a portion will will be expensed when we adopt ASU 2016-02.