AvalonBay Communities, Inc. Announces Second Quarter 2006 Operating Results

AvalonBay Communities, Inc. (NYSE: AVB) reported todaythat Net Income Available to Common Stockholders for the quarter endedJune 30, 2006 was $67,794,000. This resulted in Earnings per Share -diluted ("EPS") of $0.90 for the quarter ended June 30, 2006, comparedto $0.74 for the comparable period of 2005, a per share increase of21.6%. For the six months ended June 30, 2006, EPS was $2.39 comparedto $1.65 for the comparable period of 2005, a per share increase of44.8%. These increases are primarily attributable to the timing andvolume of gains on the sale of assets in 2006 as compared to 2005,coupled with growth in income from existing and newly developedcommunities.

Funds from Operations attributable to common stockholders -diluted ("FFO") for the quarter ended June 30, 2006 was $77,510,000 or$1.03 per share compared to $72,325,000, or $0.97 per share for thecomparable period of 2005, a per share increase of 6.2%. Prior yearFFO per share (for the quarter ended June 30, 2005) includes severalnon-routine items totaling $0.04 per share. Adjusting for thesenon-routine items, FFO per share increased 10.8% during the quarterended June 30, 2006 as compared to 2005, driven primarily by improvedcommunity operating results and contributions from newly developedcommunities.

FFO per share for the six months ended June 30, 2006 increased by13.0% to $2.18 from $1.93 for the comparable period of 2005. FFO pershare for the six months ended June 30, 2006 includes $0.17 per sharerelated to the sale of a land parcel. FFO per share for the six monthsended June 30, 2005 includes several non-routine items totaling $0.11per share, including the $0.04 discussed above. Adjusting for thesenon-routine items in both six-month periods, FFO per share increased10.4%, driven primarily by improved community operating results andcontributions from newly developed communities.

Commenting on the Company's results, Tim Naughton, President,said, "Our second quarter results were driven in large part by strongoperating performance, as same-store NOI increased over 8%. Steady jobgrowth and low housing affordability are driving rental housing demandwhile new supply continues to be delivered at a modest rate. Solidfundamentals are translating into improved operating performance, suchthat we have raised the mid-point of our full year financial outlookfor FFO by $0.08 to a range of $4.28 to $4.38 per share."

Operating Results for the Quarter Ended June 30, 2006 Compared tothe Quarter Ended June 30, 2005

For the Company, including discontinued operations, total revenueincreased by $7,903,000, or 4.6% to $180,832,000. For EstablishedCommunities, rental revenue increased 6.6%, comprised of an increasein Average Rental Rates of 5.8% and an increase in Economic Occupancyof 0.8%. As a result, total revenue for Established Communitiesincreased $8,562,000 to $138,448,000. Operating expenses forEstablished Communities increased $1,440,000 or 3.5% to $43,015,000.Accordingly, Net Operating Income ("NOI") for Established Communitiesincreased by $7,122,000 or 8.1%, to $95,433,000.

The following table reflects the percentage changes in rentalrevenue, operating expenses and NOI for Established Communities fromthe second quarter of 2005 to the second quarter of 2006:

2Q 06 Compared to 2Q 05
------------------------------------------------------------
Rental Operating % of
Revenue Expenses NOI NOI (1)
--------- ------------ --------- ----------

Northeast 5.0% 3.4% 5.7% 42.5%
Mid-Atlantic 8.2% 3.5% 10.3% 17.5%
Midwest 1.2% 5.4% (1.1%) 2.2%
Pacific NW 9.9% 8.0% 10.9% 4.4%
No. California 7.5% 4.4% 8.8% 21.6%
So. California 6.6% (2.4%) 10.5% 11.8%
--------- ------------ --------- ----------
Total 6.6% 3.5% 8.1% 100.0%
========= ============ ========= ==========


(1) Total represents each region's % of total NOI from the Company,
including discontinued operations.

Cash concessions are recognized in accordance with GenerallyAccepted Accounting Principles ("GAAP") and are amortized over theapproximate lease term, which is generally one year. The followingtable reflects the percentage changes in rental revenue on a GAAPbasis and Rental Revenue with Concessions on a Cash Basis for ourEstablished Communities:

2Q 06 vs 2Q 05
-------------------

GAAP Rental Revenue 6.6%

Rental Revenue with
Concessions on a Cash Basis 7.6%

Operating Results for the Six Months Ended June 30, 2006 Comparedto the Prior Year Period

For the Company, including discontinued operations, total revenueincreased by $14,689,000, or 4.3% to $357,620,000. For EstablishedCommunities, rental revenue increased 6.4%, comprised of an increasein Average Rental Rates of 5.4% and an increase in Economic Occupancyof 1.0%. As a result, total revenue for Established Communitiesincreased $16,364,000 to $273,936,000, and operating expenses forEstablished Communities increased $2,618,000 or 3.2% to $84,913,000.Accordingly, NOI for Established Communities increased by $13,746,000or 7.8%, to $189,023,000.

The following table reflects the percentage changes in rentalrevenue, operating expenses and NOI for Established Communities forthe six months ended June 30, 2006 as compared to the six months endedJune 30, 2005:

YTD 2006 Compared to YTD 2005
------------------------------------------------------------

Rental Operating % of
Revenue Expenses NOI NOI (1)
--------- ------------- --------- ----------

Northeast 4.7% 4.6% 4.8% 42.2%
Mid-Atlantic 8.3% 1.5% 11.3% 17.7%
Midwest 0.9% 4.1% (0.9%) 2.2%
Pacific NW 8.9% 7.9% 9.3% 4.5%
No. California 7.1% 2.8% 9.1% 21.9%
So. California 6.6% (1.5%) 10.1% 11.5%
--------- ------------- --------- ----------
Total 6.4% 3.2% 7.8% 100.0%
========= ============= ========= ==========


(1) Total represents each region's % of total NOI from the Company,
including discontinued operations.

Development and Redevelopment Activity

The Company completed development of Avalon Pines II during thesecond quarter of 2006 for a Total Capital Cost of $25,100,000. AvalonPines II is the second phase of a multi-phase apartment communitycontaining an aggregate of 450 apartment homes that were completed fora Total Capital Cost of $73,200,000.

In addition, the Company commenced construction of two communitiesduring the second quarter of 2006: Avalon at Dublin Station I, amid-rise community located at the BART station in Dublin, CA andAvalon at Lexington Hills, a garden-style community located inLexington, MA. These two communities are expected to contain anaggregate of 692 apartment homes when completed for a Total CapitalCost of $172,000,000.

The Company completed the redevelopment of Avalon at Fairway HillsIII located in Columbia, MD. The redevelopment of Avalon at FairwayHills III, a garden-style community containing 336 apartment homes,was completed for a Total Capital Cost of $6,000,000, excluding costsincurred prior to redevelopment.

The Company recently determined that soil at its Avalon Lyndhurstdevelopment site, located in Lyndhurst, NJ, was contaminated fromimported fill delivered to the site by third parties. The contaminantsexceeded allowable levels for residential use under New Jersey stateand local regulations, and the Company is in the process ofremediating the site as required. As a result, the Company estimatesthat the cost to complete construction of this community, includingcosts associated with construction delays, may increase byapproximately $10,000,000. The Company is pursuing the recovery ofthese additional costs through its insurance as well as the thirdparties involved, but no assurance can be given as to the amount ortiming of reimbursements to the Company.

Disposition Activity

In April 2006, the Company sold Avalon Corners, located inStamford, CT. This community contains 195 apartment homes and was soldfor a price of $60,200,000. This resulted in a GAAP gain of$31,992,000 and an Economic Gain of $26,859,000. The Unleveraged IRRover an approximate eight-year holding period was 16.9%. The buyer ofthis asset intends to continue to operate this community as rentalapartments.

Investment Management Fund Activity

During the second quarter of 2006, AvalonBay Value Added Fund,L.P. (the "Fund"), the private, discretionary investment vehicle inwhich the Company holds an equity interest of approximately 15%,acquired one community. Avalon at Aberdeen Station, located inAberdeen, NJ, was acquired for a purchase price of $57,600,000. Avalonat Aberdeen Station is a garden-style community containing 290apartment homes.

In July 2006, the Fund acquired The Springs, located in Corona,CA, part of the Inland Empire, for a purchase price of $47,120,000.The Springs is a garden-style community containing 320 apartmenthomes.

Financing, Liquidity and Balance Sheet Statistics

As of June 30, 2006, the Company had $6,000,000 outstanding underits $500,000,000 unsecured credit facility. Leverage, calculated astotal debt as a percentage of Total Market Capitalization, was 21.9%at June 30, 2006. Unencumbered NOI for the six months ended June 30,2006 was approximately 85% and Interest Coverage for the secondquarter of 2006 was 3.7 times.

In July 2006, the Company repaid $150,000,000 of unsecured noteswith an annual interest rate of 6.8%, along with any unpaid interest,pursuant to their scheduled maturity.

Third Quarter and Full Year Outlook

The Company expects EPS in the range of $0.49 to $0.53 for thethird quarter of 2006. Based on changes to the Company's dispositionplan, the Company is revising its projected EPS to a range of $3.68 to$3.78 for the full year 2006.

Strong apartment fundamentals in the Company's markets droverevenue and NOI growth, resulting in better than expected operatingresults for the second quarter of 2006. These positive trends arecontinuing into July 2006. As such, the Company expects Projected FFOper share in the range of $1.04 to $1.08 for the third quarter of2006. In addition, the Company expects Projected NOI growth forEstablished Communities of 8% to 9% for the full year 2006. As such,the Company is increasing its outlook for Projected FFO per share to arange of $4.28 to $4.38 for the full year 2006.

Other Matters

The Company will hold a conference call on July 27, 2006 at 1:00PM EDT to review and answer questions about its second quarterresults, the Attachments (described below) and related matters. Toparticipate on the call, dial 1-877-510-2397 domestically and1-706-634-5877 internationally.

To hear a replay of the call, which will be available from July27, 2006 at 3:00 PM EDT until August 3, 2006 at 11:59 PM EDT, dial1-800-642-1687 domestically and 1-706-645-9291 internationally, anduse Access Code: 1551386.

A webcast of the conference call will also be available athttp://www.avalonbay.com/earnings, and an on-line playback of thewebcast will be available for at least 30 days following the call.

The Company produces Earnings Release Attachments (the"Attachments") that provide detailed information regarding operating,development, redevelopment, disposition and acquisition activity.These Attachments are considered a part of this earnings release andare available in full with this earnings release via the Company'swebsite at http://www.avalonbay.com/earnings and through e-maildistribution. To receive future press releases via e-mail, please senda request to IR@avalonbay.com. Some items referenced in the earningsrelease may require the Adobe Acrobat Reader. If you do not have theAdobe Acrobat Reader, you may download it at:http://www.adobe.com/products/acrobat/readstep2.html.

About AvalonBay Communities, Inc.

As of June 30, 2006, the Company owned or held a direct orindirect ownership interest in 160 apartment communities containing46,904 apartment homes in ten states and the District of Columbia, ofwhich 17 communities were under construction and three communitieswere under reconstruction. The Company is an equity REIT in thebusiness of developing, redeveloping, acquiring and managing apartmentcommunities in high barrier-to-entry markets of the United States.More information may be found on the Company's website athttp://www.avalonbay.com. For additional information, please contactTimothy J. Naughton, President, at 1-703-317-4620, or Thomas J.Sargeant, Chief Financial Officer, at 1-703-317-4635.

Forward-Looking Statements

This release, including its Attachments, contains forward-lookingstatements within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of1934, as amended. You can identify these forward-looking statements bythe Company's use of words such as "expects," "plans," "estimates,""projects," "intends," "believes," "outlook" and similar expressionsthat do not relate to historical matters. Actual results may differmaterially from those expressed or implied by the forward-lookingstatements as a result of risks and uncertainties, which include thefollowing: changes in local employment conditions, demand forapartment homes, supply of competitive housing products, and othereconomic conditions may result in lower than expected occupancy and/orrental rates and adversely affect the profitability of ourcommunities; increases in costs of materials, labor or other expensesmay result in communities that we develop or redevelop failing toachieve expected profitability; delays in completing development,redevelopment and/or lease-up may result in increased financing andconstruction costs, and may delay and/or reduce the profitability of acommunity; debt and/or equity financing for development, redevelopmentor acquisitions of communities may not be available on favorableterms; we may be unable to obtain, or experience delays in obtaining,necessary governmental permits and authorizations; or we may abandondevelopment or redevelopment opportunities for which we have alreadyincurred costs.

Additional discussions of risks and uncertainties appear in theCompany's filings with the Securities and Exchange Commission,including the Company's Annual Report on Form 10-K for the fiscal yearended December 31, 2005 under the headings "Risk Factors" and underthe heading "Management's Discussion and Analysis of FinancialCondition and Results of Operations - Forward-Looking Statements", aswell as the Company's Quarterly Report on Form 10-Q for the subsequentquarter under the heading "Management's Discussion and Analysis ofFinancial Condition and Results of Operations - Forward-LookingStatements."

The Company does not undertake a duty to update forward-lookingstatements, including its expected operating results for the thirdquarter and full year 2006. The Company may, in its discretion,provide information in future public announcements regarding itsoutlook that may be of interest to the investment community. Theformat and extent of future outlooks may be different from the formatand extent of the information contained in this release.

Definitions and Reconciliations

Non-GAAP financial measures and other capitalized terms, as usedin the text of this earnings release, are defined and furtherexplained on Attachment 14, "Definitions and Reconciliations ofNon-GAAP Financial Measures and Other Terms." Attachment 14 isincluded in the full earnings release available on the Company'swebsite at http://www.avalonbay.com/earnings. This wire distributionincludes only definitions and reconciliations of the followingNon-GAAP financial measures:

FFO is determined based on a definition adopted by the Board ofGovernors of the National Association of Real Estate Investment Trusts("NAREIT"). FFO is calculated by the Company as net income or losscomputed in accordance with GAAP, adjusted for gains or losses onsales of previously depreciated operating communities, extraordinarygains or losses (as defined by GAAP), cumulative effect of a change inaccounting principle and depreciation of real estate assets, includingadjustments for unconsolidated partnerships and joint ventures.Management generally considers FFO to be an appropriate supplementalmeasure of operating performance because, by excluding gains or lossesrelated to dispositions of previously depreciated operatingcommunities and excluding real estate depreciation (which can varyamong owners of identical assets in similar condition based onhistorical cost accounting and useful life estimates), FFO can helpone compare the operating performance of a company's real estatebetween periods or as compared to different companies. Areconciliation of FFO to net income is as follows (dollars inthousands):
Q2 Q2 YTD YTD
2006 2005 2006 2005
----------- ----------- ----------- -----------


Net income $ 69,969 $ 56,911 $ 184,046 $ 126,521
Dividends
attributable
to preferred
stock (2,175) (2,175) (4,350) (4,350)
Depreciation -
real estate
assets,
including
discontinued
operations
and joint
venture
adjustments 41,609 39,933 81,871 80,884
Minority
interest,
including
discontinued
operations 99 303 198 780
Gain on sale
of previously
depreciated
real estate
assets (31,992) (22,647) (97,411) (60,261)
----------- ----------- ----------- -----------

FFO
attributable
to common
stockholders $ 77,510 $ 72,325 $ 164,354 $ 143,574
=========== =========== =========== ===========

Average shares
outstanding -
diluted 75,361,911 74,589,236 75,285,946 74,417,505

EPS - diluted $ 0.90 $ 0.74 $ 2.39 $ 1.65
=========== =========== =========== ===========

FFO per common
share -
diluted $ 1.03 $ 0.97 (1) $ 2.18 (2) $ 1.93 (3)
=========== =========== =========== ===========


(1) FFO per common share - diluted for the three months ended June 30,
2005 includes gains on the sale of two land parcels, partially
offset by the accrual of costs related to various litigation
matters, totaling $0.04 per share.

(2) FFO per common share - diluted for the six months ended June 30,
2006 includes $0.17 per share related to the sale of a land
parcel.

(3) FFO per common share - diluted for the six months ended June 30,
2005 includes the items in (1) above, as well as the following
non-routine items, totaling $0.11 per share:

- Gain on sale of a technology investment; and
- Income related to the impact of the development by a third-
party of a hotel adjacent to one of the Company's existing
communities; partially offset by
- Separation costs due to the departure of a senior executive.

NOI is defined by the Company as total property revenue lessdirect property operating expenses (including property taxes), andexcludes corporate-level income (including management, development andother fees), corporate-level property management and other indirectoperating expenses, investments and investment management, netinterest expense, general and administrative expense, joint ventureincome, minority interest, depreciation expense, gain on sale of realestate assets and income from discontinued operations. The Companyconsiders NOI to be an appropriate supplemental measure to net incomeof operating performance of a community or communities because ithelps both investors and management to understand the core operationsof a community or communities prior to the allocation ofcorporate-level property management overhead or general andadministrative costs. This is more reflective of the operatingperformance of a community, and allows for an easier comparison of theoperating performance of single assets or groups of assets. Inaddition, because prospective buyers of real estate have differentoverhead structures, with varying marginal impact to overhead byacquiring real estate, NOI is considered by many in the real estateindustry to be a useful measure for determining the value of a realestate asset or groups of assets.

A reconciliation of NOI (from continuing operations) to netincome, as well as a breakdown of NOI by operating segment, is asfollows (dollars in thousands):
Q2 Q2 YTD YTD
2006 2005 2006 2005
--------- ---------- ---------- ----------


Net income $ 69,969 $ 56,911 $ 184,046 $ 126,521
Property management and
other indirect operating
expenses 8,307 7,594 16,938 14,722
Corporate-level other income (1,394) (1,441) (2,600) (2,054)
Investments and investment
management 2,398 1,171 3,869 2,164
Interest expense, net 26,595 32,112 55,259 64,232
General and administrative
expense 6,479 6,262 12,762 13,421
Joint venture income and
minority interest (79) 159 (174) (5,910)
Depreciation expense 41,238 39,377 81,153 78,693
Gain on sale of real estate
assets (31,992) (27,264) (110,577) (64,878)
Income from discontinued
operations (71) (4,222) (1,147) (8,291)
--------- ---------- ---------- ----------

NOI from continuing
operations $121,450 $ 110,659 $ 239,529 $ 218,620
========= ========== ========== ==========

Established:
Northeast $ 34,280 $ 32,421 $ 67,353 $ 64,292
Mid-Atlantic 18,531 16,794 37,021 33,275
Midwest 1,778 1,798 3,444 3,475
Pacific NW 5,338 4,812 10,506 9,608
No. California 25,167 23,125 50,161 45,965
So. California 10,339 9,361 20,538 18,662
--------- ---------- ---------- ----------
Total Established 95,433 88,311 189,023 175,277
--------- ---------- ---------- ----------
Other Stabilized 15,486 14,267 30,764 27,575
Development/Redevelopment 10,531 8,081 19,742 15,768
--------- ---------- ---------- ----------

NOI from continuing
operations $121,450 $ 110,659 $ 239,529 $ 218,620
========= ========== ========== ==========

NOI as reported by the Company does not include the operatingresults from discontinued operations (i.e., assets sold during theperiod January 1, 2005 through June 30, 2006). A reconciliation of NOIfrom communities sold to net income for these communities is asfollows (dollars in thousands):
Q2 Q2 YTD YTD
2006 2005 2006 2005
------- ------- ------- --------


Income from discontinued operations $ 71 $4,222 $1,147 $ 8,291
Interest expense, net -- -- -- --
Depreciation expense -- 825 -- 2,615
------- ------- ------- --------

NOI from discontinued operations $ 71 $5,047 $1,147 $10,906
======= ======= ======= ========

NOI from assets sold $ 71 $5,047 $1,147 $10,906
NOI from assets held for sale -- -- -- --
------- ------- ------- --------

NOI from discontinued operations $ 71 $5,047 $1,147 $10,906
======= ======= ======= ========

Projected NOI, as used within this release for EstablishedCommunities' Projected NOI growth for the full year 2006 as comparedto Established Communities' NOI for the full year 2005, representsEstablished Communities' NOI for the six months ended June 30, 2006,as presented elsewhere in this release, plus management's estimate ofEstablished Communities' revenue less Established Communities'operating expenses for the remainder of 2006. In this release theCompany has not given a projection of NOI on a company-wide basis.Management believes that Projected NOI growth for EstablishedCommunities, in the aggregate, provides investors with a betterunderstanding of current trends and apartment market fundamentals. Theprojected allocation of corporate-level property management overhead,general & administrative costs and interest expense is complex,impractical to develop, and of uncertain meaningfulness. Projected NOIof Established Communities is not a projection of the Company'soverall financial performance or cash flow.

Rental Revenue with Concessions on a Cash Basis is considered bythe Company to be a supplemental measure to rental revenue inconformity with GAAP in helping investors to evaluate the impact ofboth current and historical concessions on GAAP based rental revenueand to more readily enable comparisons to revenue as reported by othercompanies. In addition, rental revenue (with concessions on a cashbasis) allows an investor to understand the historical trend in cashconcessions. A reconciliation of rental revenue from EstablishedCommunities in conformity with GAAP to rental revenue (withconcessions on a cash basis) is as follows (dollars in thousands):
Q2 Q2
2006 2005
--------- ---------

Rental revenue (GAAP basis) $138,384 $129,813
Concessions amortized 3,384 5,191
Concessions granted (1,755) (4,940)
--------- ---------

Rental revenue (with
concessions on a cash basis) $140,013 $130,064
========= =========

% change -- GAAP revenue 6.6%

% change -- cash revenue 7.6%

Economic Gain is calculated by the Company as the gain on sale inaccordance with GAAP, less accumulated depreciation through the dateof sale and any other non-cash adjustments that may be required underGAAP accounting. Management generally considers Economic Gain to be anappropriate supplemental measure to gain on sale in accordance withGAAP because it helps investors to understand the relationship betweenthe cash proceeds from a sale and the cash invested in the soldcommunity. The Economic Gain for each of the communities presented isestimated based on their respective final settlement statements. Areconciliation of Economic Gain for the six months ended June 30, 2006to gain on sale in accordance with GAAP is presented on Attachment 13.

Projected FFO, as provided within this release in the Company'soutlook, is calculated on a consistent basis as historical FFO, and istherefore considered to be an appropriate supplemental measure toprojected net income of projected operating performance. Areconciliation of the range provided for Projected FFO per share(diluted) for the third quarter and full year 2006 to the rangeprovided for projected EPS (diluted) is as follows:
Low High
range range
------- -------

Projected EPS (diluted) - Q3 06 $ 0.49 $ 0.53
Projected depreciation (real estate related) 0.55 0.55
------- -------

Projected FFO per share (diluted) - Q3 06 $ 1.04 $ 1.08
======= =======


Projected EPS (diluted) - Full Year 2006 $ 3.68 $ 3.78
Projected depreciation (real estate related) 2.17 2.21
Projected gain on sale of operating communities (1.57) (1.61)
------- -------

Projected FFO per share (diluted) - Full Year 2006 $ 4.28 $ 4.38
======= =======

Interest Coverage is calculated by the Company as EBITDA fromcontinuing operations, excluding land gains, divided by the sum ofinterest expense, net, and preferred dividends. Interest Coverage ispresented by the Company because it provides rating agencies andinvestors an additional means of comparing our liquidity to that ofother companies. EBITDA is defined by the Company as net income beforeinterest income and expense, income taxes, depreciation andamortization.

A reconciliation of EBITDA and a calculation of Interest Coveragefor the second quarter of 2006 are as follows (dollars in thousands):
Net income $ 69,969
Interest expense, net 26,595
Depreciation expense 41,238
---------

EBITDA $137,802
=========

EBITDA from continuing operations $105,739
EBITDA from discontinued operations 32,063
---------

EBITDA $137,802
=========

EBITDA from continuing operations $105,739

Interest expense, net 26,595
Dividends attributable to preferred stock 2,175
---------
Interest charges 28,770
---------


Interest coverage 3.7
=========

In the calculations of EBITDA above, EBITDA from discontinuedoperations includes $31,992 in gain on sale of communities.