UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

Commission file number 1-12672

AVALONBAY COMMUNITIES, INC.

(Exact name of registrant as specified in its charter)

Maryland (State or other jurisdiction of incorporation or organization)		77-0404318 (I.R.S. Employer Identification No.)

2900 Eisenhower Avenue, Suite 300
Alexandria, Virginia 22314
(Address of principal executive office)

(703) 329-6300
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, par value $.01 per share		New York Stock Exchange
(Title of each class)		(Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes þ    No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o    No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes o    No þ

The aggregate market value of the registrant’s Common Stock, par value $.01 per share, held by nonaffiliates of the registrant, as of June 30, 2009 was $4,435,004,264.

The number of shares of the registrant’s Common Stock, par value $.01 per share, outstanding as of January 31, 2010 was 81,546,465.

Portions of AvalonBay Communities, Inc.’s Proxy Statement for the 2010 annual meeting of stockholders, a definitive copy of which will be filed with the SEC within 120 days after the year end of the year covered by this Form 10-K, are incorporated by reference herein as portions of Part III of this Form 10-K.

 

 

TABLE OF CONTENTS

		PART I
				PAGE
ITEM 1.		BUSINESS			1
ITEM 1a.		RISK FACTORS			8
ITEM 1b.		UNRESOLVED STAFF COMMENTS			17
ITEM 2.		COMMUNITIES			17
ITEM 3.		LEGAL PROCEEDINGS			31
ITEM 4.		[RESERVED]			32
		PART II
ITEM 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES			33
ITEM 6.		SELECTED FINANCIAL DATA			35
ITEM 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			38
ITEM 7a.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			58
ITEM 8.		FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA			60
ITEM 9.		CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE			60
ITEM 9a.		CONTROLS AND PROCEDURES			60
ITEM 9b.		OTHER INFORMATION			60
		PART III
ITEM 10.		DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE			61
ITEM 11.		EXECUTIVE COMPENSATION			61
ITEM 12.		SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS			61
ITEM 13.		CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPEND ENCE		62
ITEM 14.		PRINCIPAL ACCOUNTING FEES AND SERVICES			62
		PART IV
ITEM 15.		EXHIBITS, FINANCIAL STATEMENT SCHEDULE			63
SIGNATURES					70

PART I

This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Our actual results could differ materially from those set forth in each forward-looking statement. Certain factors that might cause such a difference are discussed in this report, including in the section entitled “Forward-Looking Statements” included in this Form 10-K. You should also review Item 1a., “Risk Factors,” for a discussion of various risks that could adversely affect us.

ITEM 1.		BUSINESS

General

AvalonBay Communities, Inc. (the “Company,” which term, unless the context otherwise requires, refers to AvalonBay Communities, Inc. together with its subsidiaries) is a Maryland corporation that has elected to be treated as a real estate investment trust, (“REIT”), for federal income tax purposes. We engage in the development, redevelopment, acquisition, ownership and operation of multifamily communities in high barrier to entry markets of the United States. These barriers to entry generally include a difficult and lengthy entitlement process with local jurisdictions and dense urban or suburban areas where zoned and entitled land is in limited supply. Our markets are located in New England, the New York/New Jersey metro area, the Washington DC Metro area, the Midwest, the Pacific Northwest, and the Northern and Southern California regions of the United States. We focus on these markets because we believe that over the long-term, a limited new supply of apartment homes and lower housing affordability in these markets will result in higher growth in cash flows relative to other markets.

At January 31, 2010, we owned or held a direct or indirect ownership interest in:

•

164 operating apartment communities containing 47,631 apartment homes in ten states and the District of Columbia, of which, 140 were consolidated communities containing 42,108 apartment homes, three communities containing 983 apartment homes were held by joint ventures in which we own an interest, and 21 communities containing 4,540 apartment homes were owned by the Funds (as defined below). Seven of the consolidated communities containing 2,615 apartment homes were under redevelopment, as discussed below;

•

seven communities under construction that are expected to contain an aggregate of 2,438 apartment homes when completed; and

•

rights to develop an additional 28 communities that, if developed in the manner expected, will contain an estimated 7,180 apartment homes.

We generally obtain ownership in an apartment community by developing a new community on vacant land or by acquiring an existing community. In selecting sites for development or acquisition, we favor locations that are near expanding employment centers and convenient to transportation, recreation areas, entertainment, shopping and dining.

Our consolidated real estate investments consist of the following reportable segments: Established Communities, Other Stabilized Communities and Development/Redevelopment Communities. Established Communities are generally operating communities that were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year such that year-over-year comparisons are meaningful. Other Stabilized Communities are generally all other operating communities that have stabilized occupancy and operating expenses during the current year, but that had not achieved stabilization as of the beginning of the prior year such that year-over-year comparisons are not meaningful as well as communities that are planned for disposition during the current year. Development/Redevelopment Communities consist of communities that are under construction, communities where substantial redevelopment is in progress or is planned to begin during the current year and communities under lease-up. A more detailed description of these segments and other related information can be found in Note 9, “Segment Reporting,” of the Consolidated Financial Statements set forth in Item 8 of this report.

Our principal financial goal is to increase long-term stockholder value through the development, acquisition, operation and, when appropriate, disposition of apartments in our markets. To help fulfill this goal, we regularly (i) monitor our investment allocation by geographic market and product type, (ii) develop, redevelop and acquire an interest in apartment communities in high barrier to entry markets with growing or high potential for demand and

high for-sale housing costs, (iii) selectively sell apartment communities that no longer meet our long-term strategy or when opportunities are presented to realize a portion of the value created through our investment and redeploy the proceeds from those sales, and (iv) endeavor to maintain a capital structure that is aligned with our business risks with a view to maintaining continuous access to cost-effective capital. Our time-tested strategy is to be leaders in customer insight, market research and capital allocation, delivering a range of multifamily offerings tailored to serve the needs of the most attractive customer segments in the best-performing US submarkets. A substantial majority of our current communities are upscale, which generally command among the highest rents in their markets. However, we also pursue the ownership and operation of apartment communities that target a variety of customer segments and price points, consistent with our goal of offering a broad range of products and services.

During the three years ended December 31, 2009, excluding activity for the Funds (as defined below), we acquired one apartment community. This community’s financial results are consolidated for financial reporting purposes. During the same three-year period, excluding dispositions in which we retained an ownership interest, we disposed of 19 apartment communities, disposed of one investment in a real estate joint venture and completed the development of 30 apartment communities and the redevelopment of 10 apartment communities.

During this period, we also realized gains from the sale of a community owned by AvalonBay Value Added Fund, L.P. (“Fund I”), an institutional discretionary investment fund, which we manage and in which we own a 15.2% interest. Fund I acquired communities with the objective of either redeveloping or repositioning them, or taking advantage of market cycle timing and improved operating performance. From its inception in March 2005 through the close of its investment period in March 2008, Fund I acquired 20 communities. Fund I sold one community in 2008.

In September 2008, we formed AvalonBay Value Added Fund II, L.P. (“Fund II”), an additional institutional discretionary investment fund which we manage and in which we currently own a 31.3% interest. After adding additional equity commitments in the second quarter of 2009, a total of five institutional investors and the Company collectively committed $400,000,000, of which our commitment is $125,000,000. During 2009, Fund II acquired two communities. A more detailed description of Fund I and Fund II (collectively, the “Funds”) and the related investment activity can be found in the discussion under Item I., “Business — General — Financing Strategy” and Note 6, “Investments in Real Estate Entities” of the Consolidated Financial Statements in Item 8 of this report.

During 2009, we sold seven real estate assets, resulting in a gain in accordance with U.S. generally accepted accounting principles (“GAAP”) of $65,946,000.

A further discussion of our development, redevelopment, disposition, acquisition, property management and related strategies follows.

Development Strategy. We select land for development and follow established procedures that we believe minimize both the cost and the risks of development. As one of the largest developers of multifamily rental apartment communities in high barrier to entry markets of the United States, we identify development opportunities through local market presence and access to local market information achieved through our regional offices. In addition to our principal executive office in Alexandria, Virginia, we also maintain regional offices, administrative offices or specialty offices in or near the following cities:

•

Boston, Massachusetts;

•

Chicago, Illinois;

•

Long Island, New York;

•

Los Angeles, California;

•

New York, New York;

•

Newport Beach, California;

•

San Francisco, California;

•

San Jose, California;

•

Seattle, Washington;

•

Shelton, Connecticut;

•

Virginia Beach, Virginia; and

•

Woodbridge, New Jersey.

We will be moving our principal executive office to Arlington, Virginia by June 2010.

After selecting a target site, we usually negotiate for the right to acquire the site either through an option or a long-term conditional contract. Options and long-term conditional contracts generally allow us to acquire the target site shortly before the start of construction, which reduces development-related risks and preserves capital. However, as a result of competitive market conditions for land suitable for development, we have sometimes acquired and held land prior to construction for extended periods while entitlements are obtained, or acquired land zoned for uses other than residential with the potential for rezoning. For further discussion of our Development Rights, refer to Item 2., “Communities” in this report.

We generally act as our own general contractor and construction manager, except for certain mid-rise and high-rise apartment communities where we may elect to use third-party general contractors or construction managers. We generally perform these functions directly (although we may use a wholly owned subsidiary) both for ourselves and for the joint ventures and partnerships of which we are a member or a partner. We believe this enables us to achieve higher construction quality, greater control over construction schedules and significant cost savings. Our development, property management and construction teams monitor construction progress to ensure quality workmanship and a smooth and timely transition into the leasing and operating phase.

During periods where competition for development land is more intense, we may acquire improved land with existing commercial uses and rezone the site for multi-family residential use. During the period that we hold these buildings for future development, the net revenue from these operations, which we consider to be incidental, is accounted for as a reduction in our investment in the development pursuit and not as net income. We have also participated, and may in the future participate, in master planned or other large multi-use developments where we commit to build infrastructure (such as roads) to be used by other participants or commit to act as construction manager or general contractor in building structures or spaces for third parties (such as municipal garages or parks). Costs we incur in connection with these activities may be accounted for as additional invested capital in the community or we may earn fee income for providing these services. Particularly with large scale, urban in-fill developments, we may engage in significant environmental remediation efforts to prepare a site for construction.

Throughout this report, the term “development” is used to refer to the entire property development cycle, including pursuit of zoning approvals, procurement of architectural and engineering designs and the construction process. References to “construction” refer to the actual construction of the property, which is only one element of the development cycle.

Redevelopment Strategy. When we undertake the redevelopment of a community, our goal is to renovate and/or rebuild an existing community so that our total investment is generally below replacement cost and the community is well positioned in the market to achieve attractive returns on our capital. We have established a dedicated group

of associates and procedures to control both the cost and risks of redevelopment. Our redevelopment teams, which include key redevelopment, construction and property management personnel, monitor redevelopment progress. We believe we achieve significant cost savings by acting as our own general contractor. More importantly, this helps to ensure quality design and workmanship and a smooth and timely transition into the lease-up and restabilization phases.

Throughout this report, the term “redevelopment” is used to refer to the entire redevelopment cycle, including planning and procurement of architectural and engineering designs, budgeting and actual renovation work. The actual renovation work is referred to as “reconstruction,” which is only one element of the redevelopment cycle.

Disposition Strategy. We sell assets that no longer meet our long-term strategy or when market conditions are favorable, and we redeploy the proceeds from those sales to develop, redevelop and acquire communities and to rebalance our portfolio across or within geographic regions. This also allows us to realize a portion of the value created through our investments and provides additional liquidity. We are then able to redeploy the net proceeds from our dispositions in lieu of raising that amount of capital externally. When we decide to sell a community, we solicit competing bids from unrelated parties for these individual assets and consider the sales price of each proposal.

Acquisition Strategy. Our core competencies in development and redevelopment discussed above allow us to be selective in the acquisitions we target. Acquisitions allow us to achieve rapid penetration into markets in which we desire an increased presence. Acquisitions (and dispositions) also help us achieve our desired product mix or rebalance our portfolio. In September 2008, we formed Fund II, which serves as the exclusive vehicle through which we acquire additional investments in apartment communities until the earlier of September 2011 or until 90% of its committed capital is invested, subject to limited exceptions. As of December 31, 2009, Fund II had acquired two communities.

Property Management Strategy. We seek to increase operating income through innovative, proactive property management that will result in higher revenue from communities while constraining operating expenses. Our principal strategies to maximize revenue include:

•

strong focus on resident satisfaction;

•

staggering lease terms such that lease expirations are better matched to traffic patterns;

•

balancing high occupancy with premium pricing, and increasing rents as market conditions permit; and

•

managing community occupancy for optimal rental revenue levels.

Constraining growth in operating expenses is another way in which we seek to increase earnings growth. Growth in our portfolio and the resulting increase in revenue allows for fixed operating costs to be spread over a larger volume of revenue, thereby increasing operating margins. We constrain growth in operating expenses in a variety of ways, which include the following, among others:

•

we use purchase order controls, acquiring goods and services from pre-approved vendors;

•

we purchase supplies in bulk where possible;

•

we bid third-party contracts on a volume basis;

•

we strive to retain residents through high levels of service in order to eliminate the cost of preparing an apartment home for a new resident and to reduce marketing and vacant apartment utility costs;

•

we perform turnover work in-house or hire third parties, generally depending upon the least costly alternative;

•

we undertake preventive maintenance regularly to maximize resident satisfaction and property and equipment life; and

•

we aggressively pursue real estate tax appeals.

On-site property management teams receive bonuses based largely upon the net operating income (“NOI”) produced at their respective communities. We use and continuously seek ways to improve technology applications to help manage our communities, believing that the accurate collection of financial and resident data will enable us to maximize revenue and control costs through careful leasing decisions, maintenance decisions and financial management.

We generally manage the operation and leasing activity of our communities directly (although we may use a wholly owned subsidiary) both for ourselves and the joint ventures and partnerships of which we are a member or a partner.

From time to time we also pursue or arrange ancillary services for our residents to provide additional revenue sources or increase resident satisfaction. In general, as a REIT we cannot directly provide services to our tenants that are not customarily provided by a landlord, nor can we share in the income of a third party that provides such services. However, we can provide such non-customary services to residents or share in the revenue from such services if we do so through a “taxable REIT subsidiary,” which is a subsidiary that is treated as a “C corporation” and is therefore subject to federal income taxes.

Financing Strategy. We maintain a capital structure that provides financial flexibility to ensure we can select cost effective capital market options that are well matched to our business risks. We estimate that our short-term liquidity needs will be met from cash on hand, borrowings under our $1,000,000,000 revolving variable rate unsecured credit facility (the “Credit Facility”), sales of current operating communities and/or issuance of additional debt or equity securities. A determination to engage in an equity or debt offering depends on a variety of factors such as general market and economic conditions, including interest rates, our short and long-term liquidity needs, the adequacy of our expected liquidity sources, the relative costs of debt and equity capital and growth opportunities. A summary of debt and equity activity for the last three years is reflected on our Consolidated Statement of Cash Flows of the Consolidated Financial Statements set forth in Item 8 of this report.

We have entered into, and may continue in the future to enter into, joint ventures (including limited liability companies or partnerships) through which we would own an indirect economic interest of less than 100% of the community or communities owned directly by such joint ventures. Our decision whether to hold an apartment community in fee simple or to have an indirect interest in the community through a joint venture is based on a variety of factors and considerations, including: (i) the economic and tax terms required by a seller of land or of a community; (ii) our desire to diversify our portfolio of communities by market, submarket and product type; (iii) our desire at times to preserve our capital resources to maintain liquidity or balance sheet strength; and (iv) our projection, in some circumstances, that we will achieve higher returns on our invested capital or reduce our risk if a joint venture vehicle is used. Investments in joint ventures are not limited to a specified percentage of our assets. Each joint venture agreement is individually negotiated, and our ability to operate and/or dispose of a community in our sole discretion may be limited to varying degrees depending on the terms of the joint venture agreement.

From its inception in 2005 until the investment period closed in March 2008, Fund I was the exclusive vehicle through which we invested in the acquisition of apartment communities, subject to certain exceptions. In September 2008, we formed Fund II. Fund II now serves as the exclusive vehicle through which we invest in the acquisition of apartment communities, subject to certain exceptions, until the earlier of September 2011 or until 90% of its committed capital is invested. These exceptions include significant individual asset and portfolio acquisitions, properties acquired in tax-deferred transactions and acquisitions that are inadvisable or inappropriate for Fund II. Fund II does not restrict our development activities, and will terminate after a term of ten years, subject to two one-year extensions. Fund II has equity commitments from five institutional investors who, with the Company, collectively committed $400,000,000, of which our commitment is $125,000,000. A significant portion of the investments made in the Funds by investors have been or will be made through an entity that qualifies, or that will qualify as a REIT and in which we also own an equity interest. As of January 31, 2010, Fund II has made two investments, for a total of $104,330,000 invested. In February 2010, Fund II purchased its third community for a purchase price of $31,250,000.

In addition, we may, from time to time, offer shares of our equity securities, debt securities or options to purchase stock in exchange for property.

Other Strategies and Activities. While we emphasize equity real estate investments in rental apartment communities, we have the ability to invest in other types of real estate, mortgages (including participating or convertible mortgages), securities of other REITs or real estate operating companies, or securities of technology companies that relate to our real estate operations or of companies that provide services to us or our residents, in each case consistent with our qualification as a REIT. In addition, we own and lease retail space at our communities when either (i) the highest and best use of the space is for retail (e.g., street level in an urban area) or (ii) we believe the retail space will enhance the attractiveness of the community to residents. As of December 31, 2009, we had a

total of 456,260 square feet of rentable retail space, excluding retail space within communities currently under construction. Gross rental revenue provided by leased retail space in 2009 was $8,915,000 (1.0% of total revenue). If we secure a development right and believe that its best use, in whole or in part, is to develop the real estate with the intent to sell rather than hold the asset, we may, through a taxable REIT subsidiary, develop real estate for sale. At present, through a taxable REIT subsidiary that is a 50% partner in Aria at Hathorne, LLC, we have an economic interest in the development of for-sale town homes that have a total projected capital cost of $23,621,000. This for-sale development is on a site that is adjacent to our Avalon Danvers community and that is zoned for for-sale development. Any investment in securities of other entities, and any development of real estate for sale, is subject to the percentage of ownership limitations, gross income tests, and other limitations that must be observed for REIT qualification.

We have not engaged in trading, underwriting or agency distribution or sale of securities of other issuers and do not intend to do so. At all times we intend to make investments in a manner so as to qualify as a REIT unless, because of circumstances or changes to the Internal Revenue Code (or the Treasury Regulations), our Board of Directors determines that it is no longer in our best interest to qualify as a REIT.

Tax Matters

We filed an election with our 1994 federal income tax return to be taxed as a REIT under the Internal Revenue Code of 1986 (“the Code”), as amended, and intend to maintain our qualification as a REIT in the future. As a qualified REIT, with limited exceptions, we will not be taxed under federal and certain state income tax laws at the corporate level on our taxable net income to the extent taxable net income is distributed to our stockholders. We expect to make sufficient distributions to avoid income tax at the corporate level. While we believe that we are organized and qualified as a REIT and we intend to operate in a manner that will allow us to continue to qualify as a REIT, there can be no assurance that we will be successful in this regard. Qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code for which there are limited judicial and administrative interpretations and involves the determination of a variety of factual matters and circumstances not entirely within our control.

Competition

We face competition from other real estate investors, including insurance companies, pension and investment funds, partnerships and investment companies and other REITs, to acquire and develop apartment communities and acquire land for future development. As an owner and operator of apartment communities, we also face competition for prospective residents from other operators whose communities may be perceived to offer a better location or better amenities or whose rent may be perceived as a better value given the quality, location and amenities that the resident seeks. We also compete against condominiums and single-family homes that are for sale or rent. Although we often compete against large sophisticated developers and operators for development opportunities and for prospective residents, real estate developers and operators of any size can provide effective competition for both real estate assets and potential residents.

Environmental and Related Matters

As a current or prior owner, operator and developer of real estate, we are subject to various federal, state and local environmental laws, regulations and ordinances and also could be liable to third parties resulting from environmental contamination or noncompliance at our communities. For some development communities, we undertake extensive environmental remediation to prepare the site for construction, which could be a significant portion of our total construction cost. Environmental remediation efforts could expose us to possible liabilities for accidents or improper handling of contaminated materials during construction. These and other risks related to environmental matters are described in more detail in Item 1a., “Risk Factors”.

We believe that more government regulation of energy use, along with a greater focus on environmental protection may, over time, have a significant impact on urban growth patterns. If changes in zoning to encourage greater density and proximity to mass transit do occur, such changes could benefit multifamily housing and those companies with a competency in high-density development. However, there can be no assurance as to whether or

when such changes in regulations or zoning will occur or, if they do occur, whether the multifamily industry or the Company will benefit from such changes.

Other Information

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may call the SEC at 1-202-551-8090 for further information on the operation of the Public Reference Room. Our SEC filings are also available to the public from the SEC’s website at www.sec.gov. In addition, you may read our SEC fillings at the offices of the New York Stock Exchange (“NYSE”), which is located at 11 Wall Street, New York, New York 10005. Our SEC filings are available at the NYSE because our common stock is listed on the NYSE.

We maintain a website at www.avalonbay.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to the Securities Exchange Act of 1934 are available free of charge in the “Investor Relations” section of our website as soon as reasonably practicable after the reports are filed with or furnished to the SEC. In addition, the charters of our Board’s Nominating and Corporate Governance Committee, Audit Committee and Compensation Committee, as well as our Corporate Governance Guidelines and Code of Conduct, are available free of charge in that section of our website or by writing to AvalonBay Communities, Inc., 2900 Eisenhower Avenue, Suite 300, Alexandria, Virginia 22314, Attention: Chief Financial Officer. To the extent required by the rules of the SEC and the NYSE, we will disclose amendments and waivers relating to these documents in the same place on our website.

We were incorporated under the laws of the State of California in 1978. In 1995, we reincorporated in the State of Maryland and have been focused on the ownership and operation of apartment communities since that time. As of January 31, 2010, we had 1,877 employees.

ITEM 1a. RISK FACTORS

Our operations involve various risks that could have adverse consequences, including those described below. This Item 1a. includes forward-looking statements. You should refer to our discussion of the qualifications and limitations on forward-looking statements in this Form 10-K.

Development, redevelopment and construction risks could affect our profitability.

We intend to continue to develop and redevelop apartment home communities. These activities can include long planning and entitlement timelines and can involve complex and costly activities, including significant environmental remediation or construction work in high-density urban areas. These activities may be exposed to the following risks:

•

we may abandon opportunities that we have already begun to explore for a number of reasons, including changes in local market conditions or increases in construction or financing costs, and, as a result, we may fail to recover expenses already incurred in exploring those opportunities;

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occupancy rates and rents at a community may fail to meet our original expectations for a number of reasons, including changes in market and economic conditions beyond our control and the development by competitors of competing communities;

•

we may be unable to obtain, or experience delays in obtaining, necessary zoning, occupancy, or other required governmental or third party permits and authorizations, which could result in increased costs or the delay or abandonment of opportunities;

•

we may incur costs that exceed our original estimates due to increased material, labor or other costs;

•

occupancy rates and rents at a community may fail to meet our expectations for a number of reasons, including changes in market and economic conditions beyond our control and the development by competitors of competing communities;

•

we may be unable to complete construction and lease-up of a community on schedule, resulting in increased construction and financing costs and a decrease in expected rental revenues;

•

we may be unable to obtain financing with favorable terms, or at all, for the proposed development of a community, which may cause us to delay or abandon an opportunity;

•

we may incur liabilities to third parties during the development process, for example, in connection with managing existing improvements on the site prior to tenant terminations and demolition (such as commercial space) or in connection with providing services to third parties (such as the construction of shared infrastructure or other improvements); and

•

we may incur liability if our communities are not constructed and operated in compliance with the accessibility provisions of the Americans with Disabilities Acts, the Fair Housing Act or other federal, state or local requirements. Noncompliance could result in imposition of fines, an award of damages to private litigants, and a requirement that we undertake structural modifications to remedy the noncompliance. We are currently engaged in litigation alleging noncompliance with these statutes. See Item 3., “Legal Proceedings.”

We project construction costs based on market conditions at the time we prepare our budgets, and our projections include changes that we anticipate but cannot predict with certainty. Construction costs may increase, particularly for labor and certain materials and, for some of our Development Communities and Development Rights (as defined below), the total construction costs may be higher than the original budget. Total capitalized cost includes all capitalized costs incurred and projected to be incurred to develop or redevelop a community, determined in accordance with GAAP, including:

•

land and/or property acquisition costs;

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fees paid to secure air rights and/or tax abatements;

•

construction or reconstruction costs;

•

costs of environmental remediation;

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real estate taxes;

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capitalized interest;

	•		loan fees;
	•		permits;

•

professional fees;

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allocated development or redevelopment overhead; and

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other regulatory fees.

Costs to redevelop communities that have been acquired have, in some cases, exceeded our original estimates and similar increases in costs may be experienced in the future. We cannot assure you that market rents in effect at the time new development or redevelopment communities complete lease-up will be sufficient to fully offset the effects of any increased construction or reconstruction costs.

Unfavorable changes in market and economic conditions could hurt occupancy, rental rates, operating expenses, and the overall market value of our assets, including joint ventures and investments in the Funds.

Local conditions in our markets significantly affect occupancy, rental rates and the operating performance of our communities. The risks that may adversely affect conditions in those markets include the following:

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plant closings, industry slowdowns and other factors that adversely affect the local economy;

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an oversupply of, or a reduced demand for, apartment homes;

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a decline in household formation or employment or lack of employment growth;

•

the inability or unwillingness of residents to pay rent increases;

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rent control or rent stabilization laws, or other laws regulating housing, that could prevent us from raising rents to offset increases in operating costs; and

•

economic conditions that could cause an increase in our operating expenses, such as increases in property taxes, utilities, compensation of on-site associates and routine maintenance.

Changes in applicable laws, or noncompliance with applicable laws, could adversely affect our operations or expose us to liability.

We must develop, construct and operate our communities in compliance with numerous federal, state and local laws and regulations, some of which may conflict with one another or be subject to limited judicial or regulatory interpretations. These laws and regulations may include zoning laws, building codes, landlord tenant laws and other laws generally applicable to business operations. Noncompliance with laws could expose us to liability.

Lower revenue growth or significant unanticipated expenditures may result from our need to comply with changes in (i) laws imposing remediation requirements and the potential liability for environmental conditions existing on properties or the restrictions on discharges or other conditions, (ii) rent control or rent stabilization laws or other residential landlord/tenant laws, or (iii) other governmental rules and regulations or enforcement policies affecting the development, use and operation of our communities, including changes to building codes and fire and life-safety codes.

Short-term leases expose us to the effects of declining market rents.

Substantially all of our apartment leases are for a term of one year or less. Because these leases generally permit the residents to leave at the end of the lease term without penalty, our rental revenues are impacted by declines in market rents more quickly than if our leases were for longer terms.

Competition could limit our ability to lease apartment homes or increase or maintain rents.

Our apartment communities compete with other housing alternatives to attract residents, including other rental apartments, condominiums and single-family homes that are available for rent, as well as new and existing condominiums and single-family homes for sale. Competitive residential housing in a particular area could adversely affect our ability to lease apartment homes and to increase or maintain rental rates.

Attractive investment opportunities may not be available, which could adversely affect our profitability.

We expect that other real estate investors, including insurance companies, pension funds, other REITs and other well-capitalized investors, will compete with us to acquire existing properties and to develop new properties. This competition could increase prices for properties of the type we would likely pursue and adversely affect our profitability.

Capital and credit market conditions may adversely affect our access to various sources of capital and/or the cost of capital, which could impact our business activities, dividends, earnings, and common stock price, among other things.

In periods when the capital and credit markets experience significant volatility, the amounts, sources and cost of capital available to us may be adversely affected. We primarily use external financing to fund construction and to refinance indebtedness as it matures. If sufficient sources of external financing are not available to us on cost effective terms, we could be forced to limit our development and redevelopment activity and/or take other actions to fund our business activities and repayment of debt, such as selling assets, reducing our cash dividend or paying out less than 100% of our taxable income. To the extent that we are able and/or choose to access capital at a higher cost than we have experienced in recent years (reflected in higher interest rates for debt financing or a lower stock price for equity financing) our earnings per share and cash flows could be adversely affected. In addition, the price of our common stock may fluctuate significantly and/or decline in a high interest rate or volatile economic environment. We believe that the lenders under our Credit Facility will fulfill their lending obligations thereunder, but if economic conditions deteriorate there can be no assurance that the ability of those lenders to fulfill their obligations would not be adversely impacted.

Insufficient cash flow could affect our debt financing and create refinancing risk.

We are subject to the risks associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments of principal and interest. In this regard, we note that in order for us to continue to qualify as a REIT, we are required to annually distribute dividends generally equal to at least 90% of our REIT taxable income, computed without regard to the dividends paid deduction and our net capital gain. This requirement limits the amount of our cash flow available to meet required principal and interest payments. The principal outstanding balance on a portion of our debt will not be fully amortized prior to its maturity. Although we may be able to repay our debt by using our cash flows, we cannot assure you that we will have sufficient cash flows available to make all required principal payments. Therefore, we may need to refinance at least a portion of our outstanding debt as it matures. There is a risk that we may not be able to refinance existing debt or that a refinancing will not be done on as favorable terms, either of which could have a material adverse effect on our financial condition and results of operations.

Rising interest rates could increase interest costs and could affect the market price of our common stock.

We currently have, and may in the future incur, contractual variable interest rate debt, as well as effective variable interest rate debt achieved through the use of qualifying hedging relationships. In addition, we regularly seek access to both fixed and variable rate debt financing to repay maturing debt and to finance our development and redevelopment activity. Accordingly, if interest rates increase, our interest costs will also rise, unless we have made arrangements that hedge the risk of rising interest rates. In addition, an increase in market interest rates may lead purchasers of our common stock to demand a greater annual dividend yield, which could adversely affect the market price of our common stock.

Bond financing and zoning compliance requirements could limit our income, restrict the use of communities and cause favorable financing to become unavailable.

We have financed some of our apartment communities with obligations issued by local government agencies because the interest paid to the holders of this debt is generally exempt from federal income taxes and, therefore, the interest rate is generally more favorable to us. These obligations are commonly referred to as “tax-exempt bonds” and generally must be secured by mortgages on our communities. As a condition to obtaining tax-exempt financing, or on occasion as a condition to obtaining favorable zoning in some jurisdictions, we will commit to make some of the apartments in a community available to households whose income does not exceed certain thresholds (e.g., 50% or 80% of area median income), or who meet other qualifying tests. As of December 31, 2009, approximately 6.8% of our apartment homes at current operating communities were under income limitations such as these. These commitments, which may run without expiration or may expire after a period of time (such as 15 or 20 years) may limit our ability to raise rents and, in consequence, can also adversely affect the value of the communities subject to these restrictions.

In addition, some of our tax-exempt bond financing documents require us to obtain a guarantee from a financial institution of payment of the principal of, and interest on, the bonds. The guarantee may take the form of a letter of credit, surety bond, guarantee agreement or other additional collateral. If the financial institution defaults in its guarantee obligations, or if we are unable to renew the applicable guarantee or otherwise post satisfactory collateral, a default will occur under the applicable tax-exempt bonds and the community could be foreclosed upon if we do not redeem the bonds.

Risks related to indebtedness.

We have a Credit Facility with JPMorgan Chase Bank, N.A., and Wachovia Bank, N.A., serving together as syndication agent and as banks, Bank of America, N.A., serving as administrative agent, swing lender, issuing bank and a bank, Morgan Stanley Bank, Wells Fargo Bank, N.A., and Deutsche Bank Trust Company Americas, serving collectively as documentation agent and as banks, and a syndicate of other financial institutions, serving as banks. Our organizational documents do not limit the amount or percentage of indebtedness that may be incurred. Accordingly, subject to compliance with outstanding debt covenants, we could incur more debt, resulting in an increased risk of default on our obligations and an increase in debt service requirements that could adversely affect our financial condition and results of operations.

The mortgages on those of our properties subject to secured debt, our Credit Facility and the indenture under which a substantial portion of our debt was issued contain customary restrictions, requirements and other limitations, as well as certain financial and operating covenants including maintenance of certain financial ratios. Maintaining compliance with these restrictions could limit our flexibility. A default in these requirements, if uncured, could result in a requirement that we repay indebtedness, which could severely affect our liquidity and increase our financing costs. Refer to Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for further discussion.

Failure to generate sufficient revenue or other liquidity needs could limit cash flow available for distributions to stockholders.

A decrease in rental revenue or other liquidity needs, including the repayment of indebtedness or funding of our development activities, could have an adverse effect on our ability to pay distributions to our stockholders. Significant expenditures associated with each community such as debt service payments, if any, real estate taxes, insurance and maintenance costs are generally not reduced when circumstances cause a reduction in income from a community.

The form, timing and/or amount of dividend distributions in future periods may vary and be impacted by economic and other considerations.

The form, timing and/or amount of dividend distributions will be declared at the discretion of the Board of Directors and will depend on actual cash from operations, our financial condition, capital requirements, the annual

distribution requirements under the REIT provisions of the Code and other factors as the Board of Directors may consider relevant. The Board of Directors may modify our dividend policy from time to time.

We may choose to pay dividends in our own stock, in which case stockholders may be required to pay tax in excess of the cash they receive.

We may distribute taxable dividends that are payable in part in our stock, as we did in the fourth quarter of 2008. Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as income to the extent of our current and accumulated earnings and profits for federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of the cash received. If a U.S. stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, the trading price of our stock would experience downward pressure if a significant number of our stockholders sell shares of our stock in order to pay taxes owed on dividends. .

Debt financing may not be available and equity issuances could be dilutive to our stockholders.

Our ability to execute our business strategy depends on our access to an appropriate blend of debt and equity financing. Debt financing may not be available in sufficient amounts or on favorable terms. If we issue additional equity securities, the interests of existing stockholders could be diluted.

Difficulty of selling apartment communities could limit flexibility.

Federal tax laws may limit our ability to earn a gain on the sale of a community (unless we own it through a subsidiary which will incur a taxable gain upon sale) if we are found to have held, acquired or developed the community primarily with the intent to resell the community, and this limitation may affect our ability to sell communities without adversely affecting returns to our stockholders. In addition, real estate in our markets can at times be difficult to sell quickly at prices we find acceptable. These potential difficulties in selling real estate in our markets may limit our ability to change or reduce the apartment communities in our portfolio promptly in response to changes in economic or other conditions.

Acquisitions may not yield anticipated results.

Subject to the requirements related to Fund II, we may in the future acquire apartment communities on a select basis. Our acquisition activities and their success may be exposed to the following risks:

•

an acquired property may fail to perform as we expected in analyzing our investment; and

•

our estimate of the costs of repositioning or redeveloping an acquired property may prove inaccurate.

Failure to succeed in new markets or in activities other than the development, ownership and operation of residential rental communities may have adverse consequences.

We may from time to time commence development activity or make acquisitions outside of our existing market areas if appropriate opportunities arise. As noted above, we also own and lease ancillary retail space when a retail component represents the best use of the space, as is often the case with large urban in-fill developments. Also, as noted above in Item 1., “Business,” through a taxable REIT subsidiary that is a joint venture partner, we have a 50% economic interest in a for-sale development with a total estimated capital cost at completion of $23,621,000, on a site adjacent to one of our communities. We may engage or have an interest in for-sale activity in the future. Our historical experience in our existing markets in developing, owning and operating rental communities does not ensure that we will be able to operate successfully in new markets, should we choose to enter them, or that we will be successful in other activities. We may be exposed to a variety of risks if we choose to enter new markets, including an inability to accurately evaluate local apartment market conditions; an inability to obtain land for development or to identify appropriate acquisition opportunities; an inability to hire and retain key personnel; and

lack of familiarity with local governmental and permitting procedures. We may be unsuccessful in owning and leasing retail space at our communities or in developing real estate with the intent to sell.

Land we hold with no current intent to develop may be subject to future impairment charges

We own parcels of land that we do not currently intend to develop. As discussed in Item 2., “Communities — Other Land and Real Estate Assets,” in the event that the fair market value of a parcel changes such that the we determine that the carrying basis of the parcel reflected in our financial statements is greater than the parcel’s then current fair value, less costs to dispose, we would be subject to an impairment charge, which would reduce our net income.

Risks involved in real estate activity through joint ventures.

Instead of acquiring or developing apartment communities directly, at times we invest as a partner or a co-venturer. Joint venture investments (including investments through partnerships or limited liability companies) involve risks, including the possibility that our partner might become insolvent or otherwise refuse to make capital contributions when due; that we may be responsible to our partner for indemnifiable losses; that our partner might at any time have business goals which are inconsistent with ours; and that our partner may be in a position to take action or withhold consent contrary to our instructions or requests. Frequently, we and our partner may each have the right to trigger a buy-sell arrangement, which could cause us to sell our interest, or acquire our partner’s interest, at a time when we otherwise would not have initiated such a transaction.

Risks associated with an investment in and management of discretionary investment funds.

We formed Fund I which, through a wholly owned subsidiary, we manage as the general partner and in which we have invested approximately $50,000,000 at December 31, 2009, representing our total capital commitment, for an equity interest of approximately 15%. We have also formed Fund II which, through a wholly owned subsidiary, we manage as the general partner and to which we have committed $125,000,000, representing a current equity interest of approximately 31%. We have invested approximately $17,500,000 at December 31, 2009 in Fund II. These Funds present risks, including the following:

•

investors in Fund II may fail to make their capital contributions when due and, as a result, Fund II may be unable to execute its investment objectives;

•

our subsidiaries that are the general partners of the Funds are generally liable, under partnership law, for the debts and obligations of the respective Funds, subject to certain exculpation and indemnification rights pursuant to the terms of the partnership agreement of the Funds;

•

investors in the Funds holding a majority of the partnership interests may remove us as the general partner without cause, subject to our right to receive an additional nine months of management fees after such removal and our right to acquire one of the properties then held by the Funds;

•

while we have broad discretion to manage the Funds and make investment decisions on behalf of the Funds, the investors or an advisory committee comprised of representatives of the investors must approve certain matters, and as a result we may be unable to cause the Funds to make certain investments or implement certain decisions that we consider beneficial;

•

we can develop communities but have been generally prohibited from making acquisitions of apartment communities outside of Fund II, which is our exclusive investment vehicle until September 2011 or when 90% of Fund II’s capital is invested, subject to certain exceptions; and

•

we may be liable and/or our status as a REIT may be jeopardized if either the Funds, or the REITs through which a number of investors have invested in the Funds and which we manage, fail to comply with various tax or other regulatory matters.

Risk of earthquake damage.

As further described in Item 2., “Communities — Insurance and Risk of Uninsured Losses,” many of our West Coast communities are located in the general vicinity of active earthquake faults. We cannot assure you that an earthquake would not cause damage or losses greater than insured levels. In the event of a loss in excess of insured limits, we could lose our capital invested in the affected community, as well as anticipated future revenue from that community. We would also continue to be obligated to repay any mortgage indebtedness or other obligations related to the community. Any such loss could materially and adversely affect our business and our financial condition and results of operations.

Insurance coverage for earthquakes can be costly due to limited industry capacity. As a result, we may experience shortages in desired coverage levels if market conditions are such that insurance is not available or the cost of insurance makes it, in management’s view, economically impractical.

A significant uninsured property or liability loss could have a material adverse effect on our financial condition and results of operations.

In addition to the earthquake insurance discussed above, we carry commercial general liability insurance, property insurance and terrorism insurance with respect to our communities on terms we consider commercially reasonable. There are, however, certain types of losses (such as losses arising from acts of war) that are not insured, in full or in part, because they are either uninsurable or the cost of insurance makes it, in management’s view, economically impractical. If an uninsured property loss or a property loss in excess of insured limits were to occur, we could lose our capital invested in a community, as well as the anticipated future revenues from such community. We would also continue to be obligated to repay any mortgage indebtedness or other obligations related to the community. If an uninsured liability to a third party were to occur, we would incur the cost of defense and settlement with, or court ordered damages to, that third party. A significant uninsured property or liability loss could materially and adversely affect our business and our financial condition and results of operations.

We may incur costs and increased expenses to repair property damage resulting from inclement weather.

Particularly in New England and the Midwest, we are exposed to risks associated with inclement winter weather, including increased costs for the removal of snow and ice as well as from delays in construction. In addition, inclement weather could increase the need for maintenance and repair of our communities.

We may incur costs due to environmental contamination or non-compliance.

Under various federal, state and local environmental and public health laws, regulations and ordinances, we may be required, regardless of knowledge or responsibility, to investigate and remediate the effects of hazardous or toxic substances or petroleum product releases at our properties (including in some cases natural substances such as methane and radon gas) and may be held liable under these laws or common law to a governmental entity or to third parties for property, personal injury or natural resources damages and for investigation and remediation costs incurred as a result of the contamination. These damages and costs may be substantial and may exceed any insurance coverage we have for such events. The presence of such substances, or the failure to properly remediate the contamination, may adversely affect our ability to borrow against, sell or rent the affected property.

In addition, some environmental laws create or allow a government agency to impose a lien on the contaminated site in favor of the government for damages and costs it incurs as a result of the contamination.

The development, construction and operation of our communities are subject to regulations and permitting under various federal, state and local laws, regulations and ordinances, which regulate matters including wetlands protection, storm water runoff and wastewater discharge. Noncompliance with such laws and regulations may subject us to fines and penalties. We do not currently anticipate that we will incur any material liabilities as a result of noncompliance with these laws.

Certain federal, state and local laws, regulations and ordinances govern the removal, encapsulation or disturbance of asbestos containing materials (“ACMs”) when such materials are in poor condition or in the event of renovation or demolition of a building. These laws and the common law may impose liability for release of ACMs and may allow third parties to seek recovery from owners or operators of real properties for personal injury associated with exposure to ACMs. We are not aware that any ACMs were used in the construction of the communities we developed. ACMs were, however, used in the construction of a number of the communities that we acquired. We implement an operations and maintenance program at each of the communities at which ACMs are detected. We do not currently anticipate that we will incur any material liabilities as a result of the presence of ACMs at our communities.

We are aware that some of our communities have lead paint and have implemented an operations and maintenance program at each of those communities. We do not currently anticipate that we will incur any material liabilities as a result of the presence of lead paint at our communities.

All of our stabilized operating communities, and all of the communities that we are currently developing, have been subjected to at least a Phase I or similar environmental assessment, which generally does not involve invasive techniques such as soil or ground water sampling. These assessments, together with subsurface assessments conducted on some properties, have not revealed, and we are not otherwise aware of, any environmental conditions that we believe would have a material adverse effect on our business, assets, financial condition or results of operations. In connection with our ownership, operation and development of communities, from time to time we undertake substantial remedial action in response to the presence of subsurface or other contaminants, including contaminants in soil, groundwater and soil vapor beneath or affecting our buildings. In some cases, an indemnity exists upon which we may be able to rely if environmental liability arises from the contamination or remediation costs exceed estimates. There can be no assurance, however, that all necessary remediation actions have been or will be undertaken at our properties or that we will be indemnified, in full or at all, in the event that environmental liability arises.

Mold growth may occur when excessive moisture accumulates in buildings or on building materials, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Although the occurrence of mold at multifamily and other structures, and the need to remediate such mold, is not a new phenomenon, there has been increased awareness in recent years that certain molds may in some instances lead to adverse health effects, including allergic or other reactions. To help limit mold growth, we educate residents about the importance of adequate ventilation and request or require that they notify us when they see mold or excessive moisture. We have established procedures for promptly addressing and remediating mold or excessive moisture from apartment homes when we become aware of its presence regardless of whether we or the resident believe a health risk is presented. However, we cannot provide assurance that mold or excessive moisture will be detected and remediated in a timely manner. If a significant mold problem arises at one of our communities, we could be required to undertake a costly remediation program to contain or remove the mold from the affected community and could be exposed to other liabilities that may exceed any applicable insurance coverage. Our communities may also be affected by potential vapor intrusion risks resulting from subsurface soil or groundwater contamination by volatile organic compounds, which may require investigation or remediation and could subject the Company to liability.

Additionally, we have occasionally been involved in developing, managing, leasing and operating various properties for third parties. Consequently, we may be considered to have been an operator of such properties and, therefore, potentially liable for removal or remediation costs or other potential costs which relate to the release or presence of hazardous or toxic substances. We are not aware of any material environmental liabilities with respect to properties managed or developed by us or our predecessors for such third parties.

We cannot assure you that:

•

the environmental assessments described above have identified all potential environmental liabilities;

•

no prior owner created any material environmental condition not known to us or the consultants who prepared the assessments;

•

no environmental liabilities have developed since the environmental assessments were prepared;

•

the condition of land or operations in the vicinity of our communities, such as the presence of underground storage tanks, will not affect the environmental condition of our communities;

•

future uses or conditions, including, without limitation, changes in applicable environmental laws and regulations, will not result in the imposition of environmental liability; and

•

no environmental liabilities will arise at communities that we have sold for which we may have liability.

Failure to qualify as a REIT would cause us to be taxed as a corporation, which would significantly reduce funds available for distribution to stockholders.

If we fail to qualify as a REIT for federal income tax purposes, we will be subject to federal income tax on our taxable income at regular corporate rates (subject to any applicable alternative minimum tax). In addition, unless we are entitled to relief under applicable statutory provisions, we would be ineligible to make an election for treatment as a REIT for the four taxable years following the year in which we lose our qualification. The additional tax liability resulting from the failure to qualify as a REIT would significantly reduce or eliminate the amount of funds available for distribution to our stockholders. Furthermore, we would no longer be required to make distributions to

our stockholders. Thus, our failure to qualify as a REIT could also impair our ability to expand our business and raise capital, and would adversely affect the value of our common stock.

We believe that we are organized and qualified as a REIT, and we intend to operate in a manner that will allow us to continue to qualify as a REIT. However, we cannot assure you that we are qualified as a REIT, or that we will remain qualified in the future. This is because qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code for which there are only limited judicial and administrative interpretations and involves the determination of a variety of factual matters and circumstances not entirely within our control. In addition, future legislation, new regulations, administrative interpretations or court decisions may significantly change the tax laws or the application of the tax laws with respect to qualification as a REIT for federal income tax purposes or the federal income tax consequences of this qualification.

Even if we qualify as a REIT, we will be subject to certain federal, state and local taxes on our income and property and on taxable income that we do not distribute to our shareholders. In addition, we may engage in activities that are not customarily provided by a landlord through taxable subsidiaries and will be subject to federal income tax at regular corporate rates on the income of those subsidiaries.

The ability of our stockholders to control our policies and effect a change of control of our company is limited by certain provisions of our charter and bylaws and by Maryland law.

There are provisions in our charter and bylaws that may discourage a third party from making a proposal to acquire us, even if some of our stockholders might consider the proposal to be in their best interests. These provisions include the following:

Our charter authorizes our Board of Directors to issue up to 50,000,000 shares of preferred stock without stockholder approval and to establish the preferences and rights, including voting rights, of any series of preferred stock issued. The Board of Directors may issue preferred stock without stockholder approval, which could allow the Board to issue one or more classes or series of preferred stock that could discourage or delay a tender offer or a change in control.

To maintain our qualification as a REIT for federal income tax purposes, not more than 50% in value of our outstanding stock may be owned, directly or indirectly, by or for five or fewer individuals at any time during the last half of any taxable year. To maintain this qualification, and/or to address other concerns about concentrations of ownership of our stock, our charter generally prohibits ownership (directly, indirectly by virtue of the attribution provisions of the Code, or beneficially as defined in Section 13 of the Securities Exchange Act) by any single stockholder of more than 9.8% of the issued and outstanding shares of any class or series of our stock. In general, under our charter, pension plans and mutual funds may directly and beneficially own up to 15% of the outstanding shares of any class or series of stock. Under our charter, our Board of Directors may in its sole discretion waive or modify the ownership limit for one or more persons, but is not required to do so even if such waiver would not affect our qualification as a REIT. These ownership limits may prevent or delay a change in control and, as a result, could adversely affect our stockholders’ ability to realize a premium for their shares of common stock.

Our bylaws provide that the affirmative vote of holders of a majority of all of the shares entitled to be cast in the election of directors is required to elect a director. In a contested election, if no nominee receives the vote of holders of a majority of all of the shares entitled to be cast, the incumbent directors would remain in office. This requirement may prevent or delay a change in control and, as a result, could adversely affect our stockholders’ ability to realize a premium for their shares of common stock.

As a Maryland corporation, we are subject to the provisions of the Maryland General Corporation Law. Maryland law imposes restrictions on some business combinations and requires compliance with statutory procedures before some mergers and acquisitions may occur, which may delay or prevent offers to acquire us or increase the difficulty of completing any offers, even if they are in our stockholders’ best interests. In addition, other provisions of the Maryland General Corporation Law permit the Board of Directors to make elections and to take actions without stockholder approval (such as classifying our Board such that the entire Board is not up for reelection annually) that, if made or taken, could have the effect of discouraging or delaying a change in control.

ITEM 1b. UNRESOLVED STAFF COMMENTS

None.

ITEM 2.		COMMUNITIES

Our real estate investments consist primarily of current operating apartment communities, communities in various stages of development (“Development Communities”) and Development Rights (as defined below). Our current operating communities are further distinguished as Established Communities, Other Stabilized Communities, Lease-Up Communities and Redevelopment Communities. The following is a description of each category:

Current Communities are categorized as Established, Other Stabilized, Lease-Up, or Redevelopment according to the following attributes:

	•		Established Communities (also known as Same Store Communities) are consolidated communities where a comparison of operating results from the prior year to the current year is meaningful, as these communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year. For the year ended December 31, 2009, the Established Communities are communities that are consolidated for financial reporting purposes, had stabilized occupancy and operating expenses as of January 1, 2008, are not conducting or planning to conduct substantial redevelopment activities and are not held for sale or planned for disposition within the current year. A community is considered to have stabilized occupancy at the earlier of (i) attainment of 95% physical occupancy or (ii) the one-year anniversary of completion of development or redevelopment.
	•		Other Stabilized Communities includes all other completed communities that we own or have a direct or indirect ownership interest in, and that have stabilized occupancy, as defined above. Other Stabilized Communities do not include communities that are conducting or planning to conduct substantial redevelopment activities within the current year.
	•		Lease-Up Communities are communities where construction has been complete for less than one year and where physical occupancy has not reached 95%.
	•		Redevelopment Communities are communities where substantial redevelopment is in progress or is planned to begin during the current year. For communities that we wholly own, redevelopment is considered substantial when capital invested during the reconstruction effort is expected to exceed the lesser of $5,000,000 or 10% of the community’s acquisition cost. The definition of substantial redevelopment may differ for communities owned through a joint venture arrangement, or by one of the Funds.

Development Communities are communities that are under construction and for which a certificate of occupancy has not been received for the entire community. These communities may be partially complete and operating.

Development Rights are development opportunities in the early phase of the development process for which we either have an option to acquire land or enter into a leasehold interest, for which we are the buyer under a long-term conditional contract to purchase land or where we own land to develop a new community. We capitalize related pre-development costs incurred in pursuit of new developments for which we currently believe future development is probable.

In addition, we own approximately 60,000 square feet of office space in Alexandria, Virginia, for our corporate office, with all other regional and administrative offices leased under operating leases. In the third quarter of 2009 we entered into a ten-year operating lease for approximately 50,744 square feet of office space in Arlington, Virginia, which will serve as the location for our corporate office by the end of the second quarter 2010. We are exploring alternatives to lease or sell the office space in Alexandria, Virginia.

As of December 31, 2009, communities that we owned or held a direct or indirect interest in were classified as follows:

		Number of				Number of
		communities				apartment homes
Current Communities
Established Communities:
New England			22				5,359
Metro NY/NJ			18				5,895
Mid-Atlantic/Midwest			15				6,088
Pacific Northwest			8				1,943
Northern California			15				4,432
Southern California			12				3,679
Total Established			90				27,396
Other Stabilized Communities:
New England			12				3,334
Metro NY/NJ			11				3,241
Mid-Atlantic/Midwest			13				3,616
Pacific Northwest			4				1,021
Northern California			11				2,989
Southern California			10				1,718
Total Other Stabilized			61				15,919
Lease-Up Communities			7				1,996
Redevelopment Communities			7				2,615
Total Current Communities			165				47,926
Development Communities			7				2,438
Development Rights			28				7,180

Our holdings under each of the above categories are discussed on the following pages.

Current Communities

Our Current Communities are primarily garden-style apartment communities consisting of two and three-story buildings in landscaped settings. As of January 31, 2010, these include 113 garden-style (of which 15 are mixed communities and/or include town homes), 22 high-rise and 29 mid-rise apartment communities.

Our communities offer a variety of quality amenities and features, including:

•

gourmet kitchens;

•

lofts and vaulted ceilings;

•

walk-in closets;

•

fireplaces;

•

patios/decks; and

•

modern appliances.

Other features at various communities may include:

•

swimming pools;

•

fitness centers;

	•		tennis courts; and
	•		wi-fi lounges.

We also have an extensive and ongoing maintenance program to continually maintain and enhance our communities and apartment homes. The aesthetic appeal of our communities and a service-oriented property management team, focused on the specific needs of residents, enhances market appeal to discriminating residents. We believe our mission of Enhancing the Lives of our Residents helps us achieve higher rental rates and occupancy levels while minimizing resident turnover and operating expenses.

Our Current Communities are located in the following geographic markets:

		Number of								Number of apartment								Percentage of total
		communities at								homes at								apartment homes at
		1-31-09				1-31-10				1-31-09				1-31-10				1-31-09				1-31-10
New England			36				36				9,077				9,132				19.9	%			19.2	%
Boston, MA			24				25				6,460				6,683				14.2	%			14.0	%
Fairfield County, CT			12				11				2,617				2,449				5.7	%			5.2	%
Metro NY/NJ			31				32				9,353				10,255				20.4	%			21.5	%
Long Island, NY			7				6				1,732				1,732				3.8	%			3.6	%
Northern New Jersey			5				5				1,618				1,618				3.5	%			3.4	%
Central New Jersey			7				6				2,258				2,258				4.9	%			4.7	%
New York, NY			12				15				3,745				4,647				8.2	%			9.8	%
Mid-Atlantic/Midwest			30				27				9,213				9,409				20.2	%			19.8	%
Washington, DC			24				22				7,661				8,152				16.8	%			17.1	%
Chicago, IL			6				5				1,552				1,257				3.4	%			2.7	%
Pacific Northwest			11				12				2,746				2,964				6.0	%			6.2	%
Seattle, WA			11				12				2,746				2,964				6.0	%			6.2	%
Northern California			32				32				8,879				9,160				19.4	%			19.2	%
Oakland-East Bay, CA			8				9				2,394				2,833				5.2	%			5.9	%
San Francisco, CA			11				12				2,489				2,749				5.4	%			5.8	%
San Jose, CA			13				11				3,996				3,578				8.8	%			7.5	%
Southern California			24				25				6,460				6,711				14.1	%			14.1	%
Los Angeles, CA			12				12				3,345				3,345				7.3	%			7.0	%
Orange County, CA			8				9				1,896				2,147				4.1	%			4.5	%
San Diego, CA			4				4				1,219				1,219				2.7	%			2.6	%
			164				164				45,728				47,631				100.0	%			100.0	%

We manage and operate substantially all of our Current Communities. During the year ended December 31, 2009, we completed construction of 2,526 apartment homes in nine communities and sold 1,037 apartment homes in five communities. The average age of our Current Communities, on a weighted average basis according to number of apartment homes, is 14.3 years. When adjusted to reflect redevelopment activity, as if redevelopment were a new construction completion date, the average age of our Current Communities is 9.2 years.

Of the Current Communities, as of January 31, 2010, we own:

•

a full fee simple, or absolute, ownership interest in 124 operating communities, ten of which are on land subject to land leases expiring in October 2026, November 2028, July 2029, December 2034, July 2062, December 2073, April 2095, September 2105 and March 2142;

•

a general partnership interest in three partnerships that each own a fee simple interest in an operating community;

•

a general partnership interest and an indirect limited partnership interest in both Fund I and Fund II. Subsidiaries of Fund I own a fee simple interest in 19 operating communities, and subsidiaries of Fund II own a fee simple interest in two operating communities;

•

a general partnership interest in two partnerships structured as “DownREITs,” as described more fully below, that own an aggregate of nine communities;

	•		a membership interest in six limited liability companies that each hold a fee simple interest in an operating community, two of which are on land subject to land leases expiring in September 2044, and November 2089; and
	•		a residual profits interest (with no ownership interest) in a limited liability company to which an operating community was transferred upon completion of construction in the second quarter of 2006.

For some communities, a land lease is used to support tax advantaged structures that ultimately allow us to purchase the land upon lease expiration. We have options to purchase the underlying land for the leases that expire in October 2026, November 2028, July 2029, December 2034, April 2095 and March 2142. We also hold, directly or through wholly owned subsidiaries, the full fee simple ownership interest in the seven Development Communities, all of which are currently consolidated for financial reporting purposes and two of which are subject to land leases expiring in May 2105 and April 2106.

In our two partnerships structured as DownREITs, either AvalonBay or one of our wholly owned subsidiaries is the general partner, and there are one or more limited partners whose interest in the partnership is represented by units of limited partnership interest. For each DownREIT partnership, limited partners are entitled to receive an initial distribution before any distribution is made to the general partner. Although the partnership agreements for each of the DownREITs are different, generally the distributions per unit paid to the holders of units of limited partnership interests have approximated our current common stock dividend amount. The holders of units of limited partnership interest have the right to present all or some of their units for redemption for a cash amount as determined by the applicable partnership agreement and based on the fair value of our common stock. In lieu of a cash redemption by the partnership, we may elect to acquire any unit presented for redemption for one share of our common stock or for such cash amount. As of January 31, 2010, there were 15,351 DownREIT partnership units outstanding. The DownREIT partnerships are consolidated for financial reporting purposes.

     

Profile of Current, Development and Unconsolidated Communities (1)
(Dollars in thousands, except per apartment home data)

																																Average
								Approx.								Year of		Average				Physical		Average								rental rate								Financial
				Number of				rentable								completion /		size				occupancy		economic occupancy								$ per				$ per				reporting
		City and state		homes				area (Sq. Ft.)				Acres				acquisition		(Sq. Ft.)				at 12/31/09		2009				2008				Apt (4)				Sq. Ft.				cost (5)
CURRENT COMMUNITIES
NEW ENGLAND
Boston, MA
Avalon at Lexington		Lexington, MA			198				237,855				16.1			1994			1,201			91.9%			95.0	%			97.6	%			1,818				1.44				16,460
Avalon Oaks		Wilmington, MA			204				237,167				22.5			1999			1,163			96.1%			97.1	%			95.6	%			1,467				1.23				21,290
Avalon Summit		Quincy, MA			245				224,974				8.0			1986/1996			918			91.4%			96.0	%			97.1	%			1,361				1.42				17,694
Avalon Essex		Peabody, MA			154				201,063				11.1			2000			1,306			95.5%			96.3	%			96.3	%			1,572				1.16				22,023
Avalon at Prudential Center		Boston, MA			780				759,130				1.0			1968/1998			973			95.1%			93.8	%			97.5	%			3,005				2.90				157,333
Avalon Oaks West		Wilmington, MA			120				133,376				27.0			2002			1,111			96.7%			96.3	%			93.9	%			1,355				1.17				16,984
Avalon Orchards		Marlborough, MA			156				179,227				23.0			2002			1,149			97.4%			96.4	%			97.0	%			1,528				1.28				21,417
Avalon at Newton Highlands (8)		Newton, MA			294				339,537				7.0			2003			1,155			94.9%			96.1	%			96.2	%			2,149				1.79				57,258
Avalon at The Pinehills I		Plymouth, MA			101				151,629				6.0			2004			1,501			95.1%			95.0	%			95.9	%			1,909				1.21				20,008
Avalon at Crane Brook		Peabody, MA			387				433,778				20.0			2004			1,121			95.4%			95.6	%			96.4	%			1,383				1.18				54,961
Essex Place		Peabody, MA			286				250,473				18.0			2004			876			94.4%			93.9	%(2)			88.8	%(2)			1,235				1.32	(2)			35,411
Avalon at Bedford Center		Bedford, MA			139				159,704				38.0			2005			1,149			92.8%			95.5	%			95.3	%			1,738				1.45				24,804
Avalon Chestnut Hill		Chestnut Hill, MA			204				271,899				4.7			2007			1,333			95.1%			96.0	%			93.1	%			2,316				1.67				60,483
Avalon Shrewsbury		Shrewsbury, MA			251				274,780				25.5			2007			1,095			92.0%			94.7	%			95.0	%			1,361				1.18				35,760
Avalon Danvers		Danvers, MA			433				512,991				75.0			2006			1,185			96.1%			95.1	%			86.4	%			1,492				1.20				82,956
Avalon Woburn		Woburn, MA			446				486,091				56.0			2007			1,090			95.5%			96.4	%			96.7	%			1,590				1.41				83,327
Avalon at Lexington Hills		Lexington, MA			387				511,454				23.0			2007			1,322			95.6%			94.8	%			71.1	%(3)			1,877				1.35				86,984
Avalon Acton		Acton, MA			380				373,690				50.3			2007			983			94.5%			95.0	%			59.2	%(3)			1,312				1.27				62,883
Avalon Sharon		Sharon, MA			156				178,628				27.2			2007			1,145			98.1%			96.5	%			62.3	%(3)			1,618				1.36				30,221
Avalon at Center Place (11)		Providence, RI			225				233,910				1.2			1991/1997			1,040			93.3%			95.0	%			94.5	%			1,952				1.78				29,537
Avalon at Hingham Shipyard		Hingham, MA			235				298,981				12.9			2009			1,272			97.5%			80.1	%(3)			17.1	%			1,735				1.09	(3)			54,221
Avalon Northborough I		Northborough, MA			163				183,000				14.0			2009			1,123			97.6%			53.0	%(3)			N/A				3,626				1.71	(3)			25,030
Avalon Blue Hills		Randolph, MA			276				307,085				23.1			2009			1,113			82.3%			42.7	%(3)			N/A				7,314				2.80	(3)			45,316
Fairfield-New Haven, CT
Avalon Gates		Trumbull, CT			340				389,047				37.0			1997			1,144			95.6%			96.9	%			96.5	%			1,618				1.37				37,712
Avalon Glen		Stamford, CT			238				265,940				4.1			1991			1,117			95.8%			95.2	%			97.1	%			1,892				1.61				32,566
Avalon Springs		Wilton, CT			102				160,159				12.0			1996			1,570			95.1%			95.2	%			94.2	%			2,825				1.71				17,299
Avalon Valley		Danbury, CT			268				303,193				17.1			1999			1,131			98.9%			96.4	%			95.7	%			1,616				1.38				26,443
Avalon on Stamford Harbor		Stamford, CT			323				337,572				12.1			2003			1,045			93.8%			94.8	%			96.5	%			2,421				2.19				62,969
Avalon New Canaan (9)		New Canaan, CT			104				145,118				9.1			2002			1,395			97.1%			94.2	%			96.1	%			2,648				1.79				24,469
Avalon at Greyrock Place		Stamford, CT			306				334,381				3.0			2002			1,093			95.8%			95.3	%			96.3	%			2,097				1.83				70,844
Avalon Danbury		Danbury, CT			234				238,952				36.0			2005			1,021			97.4%			95.6	%			96.0	%			1,584				1.48				35,621
Avalon Darien		Darien, CT			189				242,533				32.0			2004			1,283			94.7%			93.7	%			94.7	%			2,433				1.78				41,598
Avalon Milford I		Milford, CT			246				230,246				22.0			2004			936			97.2%			97.9	%			96.2	%			1,441				1.51				31,501
Avalon Huntington		Shelton, CT			99				145,573				7.1			2008			1,470			91.9%			86.8	%			17.0	%(3)			2,029				1.20				25,214

     

Profile of Current, Development and Unconsolidated Communities (1)
(Dollars in thousands, except per apartment home data)

																																Average
								Approx.								Year of		Average				Physical		Average								rental rate								Financial
				Number of				rentable								completion /		size				occupancy		economic occupancy								$ per				$ per				reporting
		City and state		homes				area (Sq. Ft.)				Acres				acquisition		(Sq. Ft.)				at 12/31/09		2009				2008				Apt (4)				Sq. Ft.				cost (5)
METRO NY/NJ
Long Island, NY
Avalon Commons		Smithtown, NY			312				385,290				20.6			1997			1,235			96.2%			94.5	%			95.0	%			2,060				1.58				34,105
Avalon Towers		Long Beach, NY			109				135,036				1.3			1990/1995			1,239			94.5%			96.0	%			97.4	%			3,551				2.75				21,594
Avalon Court		Melville, NY			494				601,342				35.4			1997/2000			1,217			97.4%			95.2	%			94.2	%			2,375				1.86				60,411
Avalon at Glen Cove South (11)		Glen Cove, NY			256				262,285				4.0			2004			1,025			93.8%			95.1	%			95.8	%			2,265				2.10				68,152
Avalon Pines I & II		Coram, NY			450				547,981				74.0			2005/2006			1,218			96.2%			94.7	%			95.8	%			1,958				1.52				71,712
Avalon at Glen Cove North (11)		Glen Cove, NY			111				100,851				1.3			2007			909			97.3%			95.3	%			96.8	%			2,076				2.18				39,944
Northern New Jersey
Avalon Cove		Jersey City, NJ			504				640,467				11.0			1997			1,271			96.4%			96.1	%			96.1	%			2,719				2.06				93,581
Avalon at Edgewater		Edgewater, NJ			408				438,670				7.6			2002			1,075			97.1%			95.8	%			96.3	%			2,290				2.04				75,438
Avalon at Florham Park		Florham Park, NJ			270				330,410				41.9			2001			1,224			95.6%			96.3	%			95.8	%			2,576				2.03				42,115
Avalon Lyndhurst		Lyndhurst, NJ			328				352,462				5.8			2006			1,075			93.9%			96.1	%			94.9	%			2,023				1.81				80,984
Central New Jersey
Avalon Run (7) & Run East (8)		Lawrenceville, NJ			632				718,101				36.1			1994/1996			1,136			95.7%			95.7	%			95.1	%			1,484				1.25				76,725
Avalon Watch		West Windsor, NJ			512				496,141				64.4			1988			969			93.8%			96.0	%(2)			96.0	%			1,393				1.38	(2)			36,111
Avalon at Freehold		Freehold, NJ			296				317,416				40.3			2002			1,072			94.6%			96.2	%			96.2	%			1,708				1.53				34,826
Avalon Run East II		Lawrenceville, NJ			312				341,292				70.5			2003			1,094			97.1%			95.5	%			96.0	%			1,753				1.53				52,238
Avalon at Tinton Falls		Tinton Falls, NJ			216				240,747				35.0			2007			1,115			96.3%			95.9	%			56.3	%(3)			1,756				1.51				41,045
New York, NY
Avalon Gardens		Nanuet, NY			504				617,992				62.5			1998			1,226			96.2%			96.9	%			97.0	%			2,082				1.64				55,579
Avalon Green		Elmsford, NY			105				115,038				16.9			1995			1,096			96.2%			97.3	%			97.4	%			2,327				2.07				13,951
Avalon Willow		Mamaroneck, NY			227				240,459				4.0			2000			1,059			96.0%			97.1	%			98.0	%			2,188				2.01				47,603
The Avalon		Bronxville, NY			110				148,335				1.5			1999			1,349			97.3%			96.1	%			97.7	%			3,660				2.61				31,579
Avalon Riverview I (11)		Long Island City, NY			372				352,988				1.0			2002			949			94.9%			96.8	%			96.8	%			3,139				3.20				95,234
Avalon Bowery Place I		New York, NY			206				162,000				1.1			2006			786			97.0%			95.5	%			96.2	%			4,037				4.90				92,810
Avalon Riverview North (11)		Long Island City, NY			602				519,092				1.8			2007			862			93.9%			96.2	%			92.2	%(3)			2,746				3.06				169,329
Avalon on the Sound (11)		New Rochelle, NY			412				415,369				2.4			2001			1,008			96.4%			96.7	%			96.2	%			2,204				2.11				117,354
Avalon on the Sound East (11)		New Rochelle, NY			588				622,999				1.7			2007			1,060			94.9%			96.1	%			79.6	%(3)			2,270				2.06				179,654
Avalon Bowery Place II		New York, NY			90				73,624				1.1			2007			818			96.0%			94.1	%			97.1	%			3,554				4.09				55,766
Avalon White Plains		White Plains, NY			407				379,555				0.1			2009			933			86.0%			54.3	%(3)			14.2	%			2,477				1.44	(3)			150,431
Avalon Morningside Park (11)		New York, NY			295				243,157				0.8			2009			824			93.2%			89.5	%(3)			25.5	%			2,857				3.10	(3)			109,654
Avalon Charles Pond		Coram, NY			200				176,000				39.0			2009			880			96.5%			50.5	%(3)			N/A				4,382				2.51	(3)			48,078
MID-ATLANTIC/MIDWEST
Baltimore, MD
Avalon at Fairway Hills I, II, & III (7)		Columbia, MD			720				724,027				59.0			1987/1996			1,006			95.4%			96.3	%			94.6	%			1,335				1.28				52,948
Avalon Symphony Woods (SGlen)		Columbia, MD			176				179,880				10.0			1986			1,022			94.9%			92.8	%(2)			88.8	%(2)			1,328				1.21	(2)			13,828
Avalon Symphony Woods (SGate)		Columbia, MD			216				214,670				12.7			1986/2006			994			98.2%			92.0	%(2)			90.3	%(2)			1,257				1.16	(2)			41,752
Washington, DC
Avalon at Foxhall		Washington, DC			308				297,876				2.7			1982			967			92.9%			95.3	%			96.3	%			2,307				2.27				45,086
Avalon at Gallery Place I		Washington, DC			203				184,157				0.5			2003			907			96.1%			96.8	%			96.7	%			2,577				2.75				49,045
Avalon at Decoverly		Rockville, MD			564				551,292				34.8			1991/1995/2007			977			94.9%			95.7	%			96.2	%			1,487				1.46				63,524
Avalon Fields I		Gaithersburg, MD			192				197,280				5.0			1996			1,028			95.8%			97.9	%			96.7	%			1,407				1.34				14,541
Avalon Fields II		Gaithersburg, MD			96				100,268				5.0			1998			1,044			96.9%			96.3	%			97.0	%			1,584				1.46				8,333
Avalon Knoll		Germantown, MD			300				290,544				26.7			1985			968			96.3%			96.0	%			96.5	%			1,236				1.23				9,003
Avalon at Rock Spring (9) (11)		North Bethesda, MD			386				387,884				10.2			2003			1,005			96.9%			97.5	%			96.8	%			1,779				1.73				82,586

     

Profile of Current, Development and Unconsolidated Communities (1)
(Dollars in thousands, except per apartment home data)

																																Average
								Approx.								Year of		Average				Physical		Average								rental rate								Financial
				Number of				rentable								completion /		size				occupancy		economic occupancy								$ per				$ per				reporting
		City and state		homes				area (Sq. Ft.)				Acres				acquisition		(Sq. Ft.)				at 12/31/09		2009				2008				Apt (4)				Sq. Ft.				cost (5)
Avalon at Grosvenor Station		North Bethesda, MD			497				472,001				10.0			2004			950			94.8%			96.9	%			97.0	%			1,798				1.84				82,452
Avalon at Traville (8)		North Potomac, MD			520				575,529				47.9			2004			1,107			95.6%			96.5	%			97.0	%			1,777				1.55				70,102
Avalon Fair Lakes		Fairfax, VA			420				354,945				24.3			1989/1996			845			95.5%			95.7	%			93.3%	(2)			1,382				1.57				37,886
Avalon at Ballston — Washington Towers		Arlington, VA			344				294,954				4.1			1990			857			95.1%			95.8	%			96.2	%			1,809				2.02				39,215
Avalon at Cameron Court		Alexandria, VA			460				478,068				16.0			1998			1,039			96.1%			96.4	%			96.2	%			1,878				1.74				44,582
Avalon at Providence Park		Fairfax, VA			141				148,282				9.3			1988/1997			1,052			97.9%			96.3	%			96.7	%			1,558				1.43				11,942
Avalon Crescent		McLean, VA			558				613,426				19.1			1996			1,099			97.0%			97.0	%			96.5	%			1,850				1.63				57,921
Avalon at Arlington Square		Arlington, VA			842				628,433				20.1			2001			746			95.1%			96.6	%			96.8	%			1,876				2.43				113,679
Chicago, IL
Avalon at Danada Farms (8)		Wheaton, IL			295				351,206				19.2			1997			1,191			95.3%			96.5	%			96.2	%			1,417				1.15				40,030
Avalon at Stratford Green (8)		Bloomingdale, IL			192				237,124				12.7			1997			1,235			95.3%			96.0	%			96.7	%			1,425				1.11				22,253
Avalon Arlington Heights		Arlington Heights, IL			409				352,236				2.8			1987/2000			861			93.6%			95.7	%			96.2	%			1,495				1.66				56,986
PACIFIC NORTHWEST
Seattle, WA
Avalon Redmond Place		Redmond, WA			222				219,075				8.4			1991/1997			987			94.1%			92.0	%			86.4	%(2)			1,358				1.27				31,922
Avalon at Bear Creek		Redmond, WA			264				296,530				22.2			1998			1,123			91.7%			94.4	%			96.6	%			1,380				1.16				36,283
Avalon Bellevue		Bellevue, WA			200				170,965				1.7			2001			855			94.0%			93.3	%			94.8	%			1,555				1.70				31,093
Avalon RockMeadow (8)		Bothell, WA			206				246,683				11.2			2000			1,197			91.8%			94.4	%			95.2	%			1,260				0.99				25,032
Avalon WildReed (8)		Everett, WA			234				266,580				23.0			2000			1,139			95.7%			95.3	%			95.8	%			1,100				0.92				23,132
Avalon HighGrove (8)		Everett, WA			391				428,962				19.0			2000			1,097			94.6%			93.9	%			94.8	%			1,108				0.95				39,942
Avalon ParcSquare (8)		Redmond, WA			124				131,706				2.0			2000			1,062			94.4%			93.0	%			96.9	%			1,611				1.41				19,542
Avalon Brandemoor (8)		Lynwood, WA			424				465,257				27.0			2001			1,097			95.1%			95.1	%			95.1	%			1,162				1.01				45,691
Avalon Belltown		Seattle, WA			100				95,201				0.7			2001			952			95.0%			93.1	%			95.3	%			1,757				1.72				18,499
Avalon Meydenbauer		Bellevue, WA			368				333,502				3.6			2008			906			96.2%			92.2	%			48.1	%(3)			1,616				1.65				89,365
NORTHERN CALIFORNIA
Oakland-East Bay, CA
Avalon Fremont		Fremont, CA			308				386,277				14.3			1994			1,254			96.8%			97.1	%			96.3	%			1,677				1.30				57,311
Avalon Dublin		Dublin, CA			204				179,004				13.0			1989/1997			877			95.1%			96.7	%			96.7	%			1,473				1.62				28,694
Avalon Pleasanton		Pleasanton, CA			456				366,062				14.7			1988/1994			803			94.5%			95.3	%(2)			96.8	%			1,371				1.63	(2)			66,026
Avalon at Union Square		Union City, CA			208				150,320				8.5			1973/1996			723			92.8%			95.9	%			96.7	%			1,243				1.65				22,924
Waterford		Hayward, CA			544				452,043				11.1			1985/1986			831			90.8%			91.8	%			93.9	%			1,250				1.38				62,190
Avalon at Willow Creek		Fremont, CA			235				191,935				13.5			1985/1994			817			96.2%			96.8	%(2)			97.0	%			1,457				1.73	(2)			36,493
Avalon at Dublin Station		Dublin, CA			305				300,760				4.7			2006			986			92.8%			94.1	%			67.6	%(3)			1,691				1.61				84,380
Avalon Union City		Union City, CA			439				428,730				6.0			2009			977			85.7%			42.5	%(3)			N/A				2,120				0.92	(3)			118,740
San Francisco, CA
Avalon at Cedar Ridge		Daly City, CA			195				141,411				7.0			1972/1997			725			90.3%			95.5	%(2)			97.0	%			1,621				2.13	(2)			29,141
Avalon at Nob Hill		San Francisco, CA			185				108,712				1.4			1990/1995			588			97.8%			96.0	%			96.8	%			1,921				3.14				28,192
Crowne Ridge		San Rafael, CA			254				222,685				21.9			1973/1996			877			96.9%			95.6	%			96.8	%			1,479				1.61				33,100
Avalon Foster City		Foster City, CA			288				222,364				11.0			1973/1994			772			94.1%			95.0	%			97.1	%			1,585				1.95				44,191
Avalon Towers by the Bay		San Francisco, CA			227				285,881				1.0			1999			1,259			94.3%			96.1	%			97.5	%			3,025				2.31				67,055
Avalon Pacifica		Pacifica, CA			220				186,800				21.9			1971/1995			849			94.1%			95.1	%			97.0	%			1,650				1.85				32,481
Avalon Sunset Towers		San Francisco, CA			243				171,854				16.0			1961/1996			707			94.2%			94.2	%			96.3	%			1,975				2.63				28,890
Avalon at Diamond Heights		San Francisco, CA			154				123,566				3.0			1972/1994			802			90.3%			93.2	% (2)			95.9	% (2)			1,901				2.21	(2)			28,933
Avalon at Mission Bay North		San Francisco, CA			250				240,368				1.4			2003			961			93.6%			96.3	%			96.0	%			3,122				3.13				93,148
Avalon at Mission Bay III		San Francisco, CA			260				261,361				1.5			2009			1,005			85.0%			46.3	%(3)			N/A				3,078				1.42	(3)			146,913