A real estate investment trust that owns and operates high-quality rental apartments in six major coastal U.S. markets, plus a handful of others like Denver and Austin, renting to affluent knowledge workers. It was founded by investor Sam Zell, who began his career managing student apartments at the University of Michigan in exchange for free room and board before taking the company public. Zell was nicknamed the "Grave Dancer" for buying and turning around struggling properties in downturns.
Q2 2026 net income fell 40.7% to $114.1M as property sale gains swung $229.2M lower year over year.
fell 41.0% as property sale gains evaporated. rose 2.1% to $785.0M and grew 1.4%, but dropped to $0.30 from $0.50 a year ago as the $229.2M swing in sale gains and higher litigation and merger costs overwhelmed the steady rental business. The pending merger with AvalonBay now dominates the outlook, with a $1.005 billion termination fee hanging on deal completion.
Key takeaways
fell 40.7% to $114.1M and dropped to $0.30, driven by a $229.2M swing in net gains on property sales as the company recorded no sales in the first half of 2026 versus two in the prior-year period.
was 15.3%, down 11.2 points and up 3.1 points from Q1, remaining well below the 31.7%-34.0% recurring range as the absence of one-off sale gains pulled the reported figure lower.
Total rose 1.4% on 2.2% growth, with physical occupancy at 96.3% and San Francisco leading at 6.7% revenue growth, while a $6.0M increase in utilities and $4.0M rise in real estate taxes pushed expenses up 3.3%.
Section summaries
Management's Discussion and Analysis
Same-store NOI rose 1.4% on 2.2% revenue growth, but net income fell 54.5% due to lower property sale gains and higher litigation and merger costs.
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Total same-store increased 2.2% driven by strong of 96.3% and better-than-expected renewal rates, with San Francisco leading at 6.7% revenue growth.
A $41.8M increase in other expenses from litigation accruals and merger costs further reduced profit, alongside a $5.3M rise in to $77.4M as the effective cost edged to 3.96%.
The company held $1.8B in readily available liquidity, including full availability on its , and has secured a $2.0B bridge loan to support the pending merger of equals with AvalonBay expected to close in the second half of 2026.
What changed
growth slowed to 1.4% in Q2 2026 from 2.2% for full-year 2025, crossing below the 2% historical floor that earlier filings flagged to watch, as expense growth of 3.3% outpaced the 2.2% increase.
printed at 15.3%, down from 26.6% a year ago and remaining below the 31.7%-34.0% recurring range for the seventh time in the last eleven quarters, confirming the pattern of sale-gain dependency flagged in prior periods.
The $229.2M swing in property sale gains realized the risk noted in Q1 2026 that the absence of sales would depress reported earnings, with no sales recorded in the first half of 2026.
Litigation and merger costs drove a $41.8M increase in other expenses, a material escalation from the $42.4M accrual baseline last stated in the 2024 10-K, with the company now stating it does not believe any pending litigation will have a material adverse effect.
What to watch
Q3 2026 growth to see if the 1.4% figure stabilizes or continues to fade below the 2% historical floor as expense growth outpaces .
Q3 2026 against the 31.7%-34.0% recurring range, and whether any property sales close to lift the reported figure back toward that range.
Progress and timing of the AvalonBay merger closing, given the $1.005 billion termination fee and the $2.0B bridge loan secured to support the transaction.
Any change in the litigation accrual or loss estimate disclosure, after the company stated it does not believe pending litigation will have a material adverse effect.
Same-store operating expenses rose 3.3%, primarily from a $6.0M increase in utilities and a $4.0M rise in real estate taxes, partially offset by from resident technology initiatives.
dropped 54.5% to $210.8M, largely due to a $229.2M swing in net gains/losses on property sales and a $41.8M increase in other expenses including litigation accruals and merger costs.
The company has $1.8B in readily available liquidity, including $1.8B in availability, and expects to meet short-term obligations through operating cash flows and borrowings.
A pending merger of equals with AvalonBay, expected to close in the second half of 2026, is a key strategic focus, with a $2.0B bridge loan facility secured to support the transaction.
Quantitative and Qualitative Disclosures About Market Risk
The Company’s and the Operating Partnership’s market risk has not changed materially from the amounts and information reported in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, to the Company’s and the Operating Partnership’s Annual Report on Form…
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The Company’s and the Operating Partnership’s market risk has not changed materially from the amounts and information reported in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, to the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2025.
As of June 30, 2026, the Company does not believe there is any litigation pending or threatened against it that, either individually or in the aggregate, may reasonably be expected to have a material adverse effect on the Company and its financial condition. See Note 11 in the N…
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As of June 30, 2026, the Company does not believe there is any litigation pending or threatened against it that, either individually or in the aggregate, may reasonably be expected to have a material adverse effect on the Company and its financial condition. See Note 11 in the Notes to Consolidated Financial Statements for further discussion.
All material risk changes relate to the pending merger with AvalonBay, including deal failure, integration challenges, and financial strain.
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Failure to complete the merger could trigger a $1.005 billion termination fee, depress the stock price, and divert management resources from other opportunities.
The fixed of 2.793 shares per AvalonBay share exposes AvalonBay stockholders to value fluctuations, with an implied per-share range of $179.00 to $195.93 as of late July 2026.
Pending deal restrictions limit the company's ability to pursue alternatives, enter contracts, incur debt, or make acquisitions, potentially harming ongoing operations.
Integration of two large multifamily platforms poses significant operational risks, including system consolidation, employee retention, and unforeseen costs that may exceed estimates.
The combined company will carry significantly greater debt, increasing interest rate exposure and potentially limiting financial flexibility, capacity, and credit ratings.
Loss of status by either party could trigger substantial corporate income tax liabilities, built-in gains taxes, and mandatory distributions, materially reducing shareholder funds.