AvalonBay Communities Inc. Announces First Quarter 2006 Operating Results

AvalonBay Communities, Inc. (NYSE:AVB) reported todaythat Net Income Available to Common Stockholders for the quarter endedMarch 31, 2006 was $111,902,000. This resulted in Earnings per Share -diluted ("EPS") of $1.49 for the quarter ended March 31, 2006,compared to $0.92 for the comparable period of 2005, a per shareincrease of 62.0%. This increase is primarily attributable to thetiming and volume of gains on the sale of assets in the quarter endedMarch 31, 2006 as compared to the same period of 2005, coupled withgrowth in income from existing and newly developed communities.

Funds from Operations attributable to common stockholders -diluted ("FFO") for the quarter ended March 31, 2006 was $86,844,000,or $1.15 per share compared to $71,249,000, or $0.96 per share for thecomparable period of 2005, a per share increase of 19.8%. FFO pershare for the quarter ended March 31, 2006 includes $0.17 per sharerelated to the sale of a land parcel. FFO per share for the quarterended March 31, 2005 includes several non-routine items totaling $0.07per share. Adjusting for these non-routine items in both periods, FFOper share increased 10.1%, driven primarily by improved communityoperating results and contributions from newly developed communities.

Commenting on the Company's results, Bryce Blair, Chairman and CEOsaid, "We enjoyed double-digit FFO growth, which was driven by 7.5%NOI growth. This was our strongest operating performance in five yearsand underscores the increasing value of our operating portfolio and ofour communities under development and in planning."

Operating Results for the Quarter Ended March 31, 2006 Compared tothe Quarter Ended March 31, 2005

For the Company, including discontinued operations, total revenueincreased by $6,787,000, or 4.0% to $176,789,000. For EstablishedCommunities, rental revenue increased 6.1%, comprised of an increasein Average Rental Rates of 5.0% and an increase in Economic Occupancyof 1.1%. As a result, total revenue for Established Communitiesincreased $7,802,000 to $135,487,000. Operating expenses forEstablished Communities increased $1,177,000 or 2.9% to $41,897,000.Accordingly, Net Operating Income ("NOI") for Established Communitiesincreased by $6,625,000 or 7.6%, to $93,590,000.

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

1Q 06 Compared to 1Q 05
----------------------------------------------------------------------

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

Northeast 4.4% 5.8% 3.8% 41.6%
Mid-Atlantic 8.4% (0.6%) 12.2% 17.8%
Midwest 0.7% 2.8% (0.7%) 2.1%
Pacific NW 7.8% 7.8% 7.7% 4.5%
No. California 6.8% 1.1% 9.4% 22.9%
So. California 6.6% (0.5%) 9.7% 11.1%
--------- --------- --------- ---------
Total 6.1% 2.9% 7.6% 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 GAAP rental revenue andRental Revenue with Concessions on a Cash Basis for our EstablishedCommunities:

1Q 06 vs 1Q 05
---------------

GAAP Rental Revenue 6.1%

Rental Revenue with Concessions on a Cash Basis 6.5%

Development and Redevelopment Activity

The Company completed development of Avalon at Bedford Centerduring the first quarter of 2006 for a Total Capital Cost of$25,300,000. Avalon at Bedford Center is a garden-style and townhomecommunity containing 139 apartment homes and is located in the Boston,MA area.

In addition, the Company commenced construction of two communitiesduring the first quarter of 2006: Avalon on the Sound II, a high-risecommunity located in the New York, NY area, and Avalon Meydenbauer, amid-rise community located in the Seattle, WA area. These twocommunities are expected to contain an aggregate of 956 apartmenthomes when completed for a Total Capital Cost of $268,500,000.

The Company commenced redevelopment of two communities during thefirst quarter of 2006: 200 Arlington Place, located in the Chicago, ILarea, and Avalon Walk, a two-phase community located in theFairfield-New Haven, CT area. These communities contain an aggregateof 1,173 apartment homes. The expected Total Capital Cost to redevelopthese communities is $18,700,000, excluding costs incurred prior tothe start of redevelopment.

Disposition Activity

During the first quarter of 2006, the Company sold twocommunities, Avalon Estates, located in the Boston, MA area, andAvalon Cupertino, located in San Jose, CA. These two communities,which contained a total of 473 apartment homes, were sold for anaggregate sales price of $122,550,000. The sale of these twocommunities resulted in a gain as reported in accordance with GAAP of$65,419,000 and an Economic Gain of $51,469,000.

In April 2006, the Company sold Avalon Corners, located in theFairfield-New Haven, CT area. This community contained 195 apartmenthomes and was sold for a price of $60,200,000. This resulted in a GAAPgain of approximately $31,900,000 and an Economic Gain ofapproximately $26,800,000.

The weighted average Initial Year Market Cap Rate related to thesethree communities was 4.4%, and the Unleveraged IRR over anapproximate eight year weighted average holding period was 16.6%. Thebuyers of these three assets intend to continue to operate thesecommunities as rental apartments.

In addition, the Company sold a parcel of land located in theNorthern NJ area during the first quarter of 2006, for a sales priceof $15,000,000. This land parcel was purchased in 1997 in connectionwith the development of the Tower at Avalon Cove, which was sold inDecember 2005. The sale of this land parcel resulted in a GAAP gainand an Economic Gain of $13,166,000.

Investment Activity

During the first quarter of 2006, AvalonBay Value Added Fund, L.P.(the "Fund"), the private, discretionary investment vehicle in whichthe Company holds an equity interest of approximately 15%, acquiredone community, Aurora at Yerba Buena for $66,000,000. Aurora at YerbaBuena is a mixed-use community located in San Francisco, CA,containing 160 apartment homes and 32,000 square feet of fully leasedretail space. The Company's pro rata share of the capital invested inthis acquisition is approximately $10,000,000.

In addition, the Company transferred the assets of Avalon atJuanita Village, a 211 apartment-home community located in theSeattle, WA area, to a joint venture entity. The Company completedconstruction of Avalon at Juanita Village at the end of 2005 for aTotal Capital Cost of $45,300,000. The Company was reimbursed for theTotal Capital Cost upon transfer of the assets to the joint venture.The Company does not hold an equity interest in the joint venture, butretained a promoted residual interest in the profits of the entity.

Financing, Liquidity and Balance Sheet Statistics

As of March 31, 2006, the Company had no outstanding balance underits $500,000,000 unsecured credit facility. Leverage, calculated astotal debt as a percentage of Total Market Capitalization, was 21.8%at March 31, 2006. Unencumbered NOI for the year ended March 31, 2006was approximately 85% and Interest Coverage for the first quarter of2006 was 3.3 times.

The Company currently has an effective shelf registrationstatement on file with the Securities and Exchange Commission. Duringthe first quarter of 2006, the Company increased its debt and equitycapacity under its shelf registration statement to $750,000,000.

Second Quarter and Full Year Outlook

The Company expects EPS in the range of $1.36 to $1.40 for thesecond quarter of 2006. The Company expects EPS in the range of $3.79to $3.93 for the full year 2006.

The Company expects Projected FFO per share in the range of $0.97to $1.01 for the second quarter of 2006. The sale of the land parcelin the first quarter of 2006 was not included in the full year 2006Projected FFO range provided on January 24, 2006. The Company isincreasing its outlook for Projected FFO per share to a range of $4.18to $4.32 for the full year 2006. This revised outlook reflects thegain on the sale of land during the first quarter 2006, as well asbetter than expected operating results in the first quarter of 2006.

Second Quarter 2006 Conference Schedule

Management is scheduled to present and conduct a question andanswer session at the REITWeek 2006: NAREIT Investor Forum on June 6 -8, 2006, which may include reference to the Company's operatingenvironment and trends; development, redevelopment, disposition andacquisition activity; the Company's outlook and other business andfinancial matters affecting the Company. Details on how to access awebcast and/or related materials will be available athttp://www.avalonbay.com/events on June 1, 2006.

Other Matters

The Company will hold a conference call on April 26, 2006 at 1:00PM EDT to review and answer questions about its first quarter results,the Attachments (described below) and related matters. To participateon the call, dial 1-877-510-2397 domestically and 1-706-634-5877internationally. To hear a replay of the call, which will be availablefrom April 26, 2006 at 4:00 PM EDT until May 3, 2006 at 11:59 PM EDT,dial 1-800-642-1687 domestically and 1-706-645-9291 internationally,and use Access Code: 6627245.

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 athttp://www.adobe.com/products/acrobat/readstep2.html.

About AvalonBay Communities, Inc.

As of March 31, 2006, the Company owned or held an ownershipinterest in 158 apartment communities containing 46,117 apartmenthomes in ten states and the District of Columbia, of which 16communities were under construction and four communities were underreconstruction. The Company is an equity REIT in the business ofdeveloping, redeveloping, acquiring and managing apartment communitiesin high barrier-to-entry markets of the United States. Moreinformation may be found on the Company's website athttp://www.avalonbay.com. For additional information, please contactThomas J. Sargeant, Chief Financial Officer, at 1-703-317-4635 or GaryTiedemann, Director of Investor Relations, at 1-703-317-4704.

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" and similar expressions that do notrelate to historical matters. Actual results may differ materiallyfrom those expressed or implied by the forward-looking statements as aresult of risks and uncertainties, which include the following:changes in local employment conditions, demand for apartment homes,supply of competitive housing products, and other economic conditionsmay result in lower than expected occupancy and/or rental rates andadversely affect the profitability of our communities; increases incosts of materials, labor or other expenses may result in communitiesthat we develop or redevelop failing to achieve expectedprofitability; delays in completing development, redevelopment and/orlease-up may result in increased financing and construction costs, andmay delay and/or reduce the profitability of a community; debt and/orequity financing for development, redevelopment or acquisitions ofcommunities may not be available on favorable terms; we may be unableto obtain, or experience delays in obtaining, necessary governmentalpermits and authorizations; or we may abandon development orredevelopment opportunities for which we have already incurred 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"Management's Discussion and Analysis of Financial Condition andResults of Operations - Forward-Looking Statements."

The Company does not undertake a duty to update forward-lookingstatements, including its expected operating results for the secondquarter 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 12, "Definitions and Reconciliations ofNon-GAAP Financial Measures and Other Terms." Attachment 12 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):

Q1 Q1
2006 2005
------------ ------------

Net income $ 114,077 $ 69,610
Dividends attributable to preferred stock (2,175) (2,175)
Depreciation - real estate assets,
including discontinued operations and joint
venture adjustments 40,262 40,950
Minority interest, including
discontinued operations 99 477
Gain on sale of previously depreciated
real estate assets (65,419) (37,613)
------------ ------------

FFO attributable to common stockholders $ 86,844 $ 71,249
============ ============

Average shares outstanding - diluted 75,290,124 74,258,296

EPS - diluted $ 1.49 $ 0.92
============ ============

FFO per common share - diluted $ 1.15 $ 0.96
============ ============

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):
Q1 Q1
2006 2005
-------------- --------------

Net income $114,077 $69,610
Property management and other
indirect operating expenses 8,631 7,129
Corporate-level other income (1,196) (548)
Investments and investment management 1,471 992
Interest expense, net 28,664 32,118
General and administrative expense 6,283 7,159
Joint venture income, minority interest (95) (6,070)
Depreciation expense 39,619 38,874
Gain on sale of real estate assets (78,585) (37,613)
Income from discontinued operations (1,770) (4,605)
-------------- --------------

NOI from continuing operations $117,099 $107,046
============== ==============

Established:
Northeast $33,073 $31,871
Mid-Atlantic 18,490 16,481
Midwest 1,666 1,677
Pacific NW 5,167 4,795
No. California 24,995 22,840
So. California 10,199 9,301
-------------- --------------
Total Established 93,590 86,965
-------------- --------------
Other Stabilized 14,287 12,395
Development/Redevelopment 9,222 7,686
-------------- --------------

NOI from continuing operations $117,099 $107,046
============== ==============

NOI as reported by the Company does not include the operatingresults from discontinued operations (i.e., assets sold or held forsale as of March 31, 2006). A reconciliation of NOI from communitiessold or held for sale to net income for these communities is asfollows (dollars in thousands):

Q1 Q1
2006 2005
-------------- --------------

Income from discontinued operations $ 1,770 $ 4,605
Interest expense, net -- 4
Depreciation expense 298 2,232
-------------- --------------

NOI from discontinued operations $ 2,068 $ 6,841
============== ==============

NOI from assets sold $ 296 $ 5,258
NOI from assets held for sale 1,772 1,583
-------------- --------------

NOI from discontinued operations $ 2,068 $ 6,841
============== ==============

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):

Q1 Q1
2006 2005
-------------- --------------

Rental revenue (GAAP basis) $ 135,412 $ 127,619
Concessions amortized 4,015 5,489
Concessions granted (1,776) (3,907)
-------------- --------------

Rental revenue (with concessions on a
cash basis) $ 137,651 $ 129,201
============== ==============

% change -- GAAP revenue 6.1%

% change -- cash revenue 6.5%

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 quarter ended March 31, 2006to gain on sale in accordance with GAAP is presented on Attachment 11.For the disposition of Avalon Corners, which occurred subsequent toMarch 31, 2006, the Economic Gain of approximately $26,800,000represents a GAAP gain of approximately $31,900,000 less accumulateddepreciation of $5,100,000.

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 second quarter and full year 2006 to the rangeprovided for projected EPS (diluted) is as follows:

Low High
range range
--------- ---------

Projected EPS (diluted) - Q2 06 $ 1.36 $ 1.40
Projected depreciation (real estate related) 0.53 0.57
Projected gain on sale of operating communities (0.92) (0.96)
--------- ---------

Projected FFO per share (diluted) - Q2 06 $ 0.97 $ 1.01
========= =========


Projected EPS (diluted) - Full Year 2006 $ 3.79 $ 3.93
Projected depreciation (real estate related) 2.17 2.21
Projected gain on sale of operating communities (1.78) (1.82)
--------- ---------

Projected FFO per share (diluted) - Full Year 2006 $ 4.18 $ 4.32
========= =========

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 first quarter of 2006 are as follows (dollars in thousands):

Net income $ 114,077
Interest expense, net 28,664
Depreciation expense 39,619
Depreciation expense (discontinued operations) 298
--------------

EBITDA $ 182,658
==============

EBITDA from continuing operations $ 115,171
EBITDA from discontinued operations 67,487
--------------

EBITDA $ 182,658
==============

EBITDA from continuing operations $ 115,171
Land gains (13,166)
--------------
EBITDA from continuing operations, excluding land gains $ 102,005
==============

Interest expense, net 28,664
Dividends attributable to preferred stock 2,175
--------------
Interest charges 30,839
--------------


Interest coverage 3.3
==============

In the calculations of EBITDA above, EBITDA from discontinuedoperations includes $65,419 in gain on sale of communities.