AvalonBay Communities Announces Disposition and Acquisition Activity

Disposition Activity

Avalon Cupertino, which was developed by the Company for a TotalCapital Cost of $49.0 million, was sold for a gross sales price of$88.0 million. The Company previously announced the sale of AvalonEstates, a 162 apartment home community located in the Boston,Massachusetts area. Avalon Estates was developed by the Company for aTotal Capital Cost of $20.1 million and sold for a gross sales priceof $34.6 million. Both communities were sold in January 2006 to buyersthat intend to continue to operate the communities as rentalapartments.

Financial information regarding these sales is set forth in thefollowing table:
All amounts in $millions

Sales Net Depreciation Economic
Community Price Proceeds GAAP Gain and Other Gain
---------------- ---------- ---------- --------- ------------ --------
Avalon Estates $34.6 $33.9 $16.5 $3.0 $13.5
Avalon Cupertino 88.0 87.1 49.1 11.0 38.1
---------------- ---------- ---------- --------- ------------ --------
Total $122.6 $121.0 $65.6 $14.0 $51.6
================ ========== ========== ========= ============ ========

The net proceeds of $121.0 million from these sales were used torepay a portion of amounts outstanding on the Company's unsecuredcredit facility. These two communities were sold for a weightedaverage Initial Year Market Capitalization rate of 4.4% and a GrossUnleveraged Internal Rate of Return ("Unleveraged IRR") of 16.5%, overan approximate 8 year weighted average holding period. The aggregateEconomic Gain on Total Capital Cost for the two communities wasapproximately 74.0%.

Acquisition Activity

The Fund, a private, discretionary investment vehicle in which theCompany has a 15% equity interest, acquired Aurora Yerba Buena for$66.0 million. The community features a fitness center overlooking asun deck, a sauna, three business centers and two conference rooms.Additionally, the community includes a 32,000 square foot Whole FoodsMarket and a 155-space parking garage.

The South of Market district is the center of San Francisco's artcommunity and is home to the San Francisco Museum of Modern Art andmany restaurants and nightclubs. This is one of the most sought aftersubmarkets due to its local attractions and proximity to the FinancialDistrict to the North and Mission Bay to the South. The community islocated adjacent to Interstate 80, which provides easy access toOakland and the East Bay, and near Interstate 280 and US Highway 101which are major thoroughfares connecting San Francisco to San Jose.

Definitions and Notes

GAAP Gain represents the gain on sale in accordance with GAAP.

Economic Gain is calculated as the gain on sale in accordance withGAAP, less accumulated depreciation through the date of sale and anyother non-cash adjustments that may be required under GAAP accounting.Management generally considers Economic Gain to be an appropriatesupplemental measure to gain on sale in accordance with GAAP becauseit helps investors understand the relationship between the cashproceeds from a sale and the cash invested in the sold community.

Total Capital Cost reflects actual capital costs incurred todevelop or acquire a community, including acquisition costs,construction costs, real estate taxes, capitalized interest and loanfees, permits, professional fees, allocated development overhead andother regulatory fees, all as determined in accordance with GAAP.

Initial Year Market Capitalization Rate is defined by the Companyas Projected NOI of a single community for the first 12 months ofoperations (assuming no repositioning), less estimates for non-routineallowance of approximately $200 to $300 per apartment, divided by thegross sales price for the community. The gross sales price is adjustedfor transaction costs and deferred maintenance in determining theInitial Year Market Capitalization Rate for acquisitions. ProjectedNOI, as referred to above, represents management's estimate ofprojected rental revenue minus projected operating expenses beforeinterest, income taxes (if any), depreciation, amortization andextraordinary items. For this purpose, management's projection ofoperating expenses for the community includes a management fee of 3.0%to 3.5%. The Initial Year Market Capitalization Rate, which may bedetermined in a different manner by others, is a measure frequentlyused in the real estate industry when determining the appropriatepurchase price for a property or estimating the value for theproperty. Buyers may assign different Initial Year MarketCapitalization Rates to different communities when determining theappropriate value because they (i) may project different rates ofchange in operating expenses, including capital expenditure estimatesand (ii) may project different rates of change in future rentalrevenue due to different estimates for changes in rent and occupancylevels. The weighted average Initial Year Market Capitalization Rateis weighted based on the gross sales price of each community (fordispositions) and on the expected total investment in each community(for acquisitions).

Unleveraged IRR on sold communities refers to the Internal Rate ofReturn calculated by the Company considering the timing and amounts of(i) total revenue during the period owned by the Company and (ii) thegross sales price net of selling costs, offset by (iii) theundepreciated capital cost of the communities at the time of sale and(iv) total direct operating expenses during the period owned by theCompany. Each of the items (i), (ii), (iii) and (iv) are calculated inaccordance with GAAP.

The calculation of Unleveraged IRR does not include an adjustmentfor the Company's general and administrative expense, interestexpense, or corporate-level property management and other indirectoperating expenses. Therefore, Unleveraged IRR is not a substitute fornet income as a measure of our performance. Management believes thatthe Unleveraged IRR achieved during the period a community is owned bythe Company is useful because it is one indication of the gross valuecreated by the Company's acquisition, development or redevelopment,management and sale of the community, before the impact of indirectexpenses and Company overhead. The Unleveraged IRR achieved on thecommunities as cited in this release should not be viewed as anindication of the gross value created with respect to othercommunities owned by the Company, and the Company does not representthat it will achieve similar Unleveraged IRRs upon the disposition ofother communities. The weighted average Unleveraged IRR for soldcommunities is weighted based on all cash flows over the holdingperiod for each respective community, including net sales proceeds.

About AvalonBay Communities, Inc.

AvalonBay Communities, Inc., headquartered in Alexandria,Virginia, currently owns or holds an ownership interest in 156apartment communities containing 45,161 apartment homes in ten statesand the District of Columbia, of which fifteen communities are underconstruction and two communities are under reconstruction. AvalonBayis in the business of developing, redeveloping, acquiring, andmanaging apartment communities in high barrier-to-entry markets of theUnited States. More information on AvalonBay may be found onAvalonBay's Web site at http://www.avalonbay.com.

Copyright (C) 2006 AvalonBay Communities, Inc. All Rights Reserved