SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

Commission file number 1-12672

AVALONBAY COMMUNITIES, INC.

Maryland		77-0404318
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		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
8.70% Series H Cumulative Redeemable Preferred Stock,		New York Stock Exchange
par value $.01 per share
(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 x       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 x

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 x       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 Exchange registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act).

Large accelerated filer x       Accelerated filer o       Non-accelerated filer o

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

Yes o       No x

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, 2006 was $8,231,895,376.

The number of shares of the registrant’s Common Stock, par value $.01 per share, outstanding as of January 31, 2007 was 79,344,557.

Documents Incorporated by Reference

Portions of AvalonBay Communities, Inc.’s Proxy Statement for the 2007 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

				PAGE
PART I
ITEM 1.		BUSINESS			1
ITEM 1a.		RISK FACTORS			8
ITEM 1b.		UNRESOLVED STAFF COMMENTS			15
ITEM 2.		COMMUNITIES			16
ITEM 3.		LEGAL PROCEEDINGS			43
ITEM 4.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			43
PART II
ITEM 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES			44
ITEM 6.		SELECTED FINANCIAL DATA			46
ITEM 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			49
ITEM 7a.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			66
ITEM 8.		FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA			68
ITEM 9.		CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE			68
ITEM 9a.		CONTROLS AND PROCEDURES			68
ITEM 9b.		OTHER INFORMATION			68
PART III
ITEM 10.		DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE			69
ITEM 11.		EXECUTIVE COMPENSATION			69
ITEM 12.		SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS			69
ITEM 13.		CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE			70
ITEM 14.		PRINCIPAL ACCOUNTING FEES AND SERVICES			70
PART IV
ITEM 15.		EXHIBITS, FINANCIAL STATEMENT SCHEDULE			71
SIGNATURES					76

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” on page 65 of 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, or 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 the Northeast, Mid-Atlantic, Midwest, Pacific Northwest, and Northern and Southern California regions of the United States. We focus on these markets because we believe that, long term, the limited new supply of apartment homes and lower housing affordability in these markets will result in larger increases in cash flows relative to other markets. In addition to increasing the rental revenues of our operating assets, we believe these market attributes will increase the value of our operating assets and enable us to create additional value through the development and selective acquisition of multifamily housing.

At January 31, 2007, we owned or held a direct or indirect ownership interest in:

	•		151 operating apartment communities containing 43,533 apartment homes in ten states and the District of Columbia, of which six communities containing 2,381 apartment homes were under reconstruction;
	•		17 communities under construction that are expected to contain an aggregate of 5,153 apartment homes when completed; and
	•		rights to develop an additional 54 communities that, if developed in the manner expected, will contain an estimated 14,185 apartment homes.

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

Our 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 are consolidated for financial reporting purposes and that were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year. 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. 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 by successfully and cost-effectively developing, redeveloping, acquiring, owning and operating high-quality communities in our selected markets that contain features and amenities desired by residents, as well as by providing our residents with efficient and effective service.

To help fulfill this goal, we regularly (i) monitor our investment allocation by geographic market and product type, (ii) develop, redevelop and acquire 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 such that we maintain continuous access to cost-effective capital. Our long-term strategy is to more deeply penetrate the high barrier-to-entry markets in our chosen regions with a broad range of products and services and an intense focus on our customer. 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, 2006, we acquired two apartment communities whose financial results are consolidated for financial reporting purposes, disposed of 16 apartment communities, and completed the development of 20 apartment communities and the redevelopment of six apartment communities. In anticipation of continued improvement in apartment fundamentals and to help position us for future growth, we increased our construction volume during 2006 (as measured by total projected capitalized cost at completion) and continued to secure new development opportunities, including the acquisition of land for future development. We also increased our investments in apartment communities through an institutional discretionary investment fund, AvalonBay Value Added Fund, L.P. (the “Fund”), which we manage and in which we own approximately a 15% interest. The Fund acquired communities that we believe we can redevelop or reposition, or take advantage of market cycle timing and improved operating performance, to create value. Since its inception in March 2005, the Fund has acquired 13 communities. A more detailed description of the Fund and its investment activity can be found in Financing Activities and Note 6, “Investments in Unconsolidated Entities” of the Consolidated Financial Statements in Item 8 of this report. As a result of strong capital flows to the industry, we also continued to dispose of assets at prices that enabled significant realized gains on cost.

In 2007, we expect additional new development activity to be in the range of $1,000,000,000 to $1,300,000,000, and we expect the Fund will continue to selectively acquire additional communities. We also anticipate asset sales, dependent on strategic and value realization opportunities. The level of development, acquisition and disposition activity, however, is heavily influenced by capital market conditions, including prevailing interest rates. 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 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 and administrative 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 Jose, California;
	•		Seattle, Washington;
	•		Shelton, Connecticut; and
	•		Woodbridge, New Jersey.

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 enable us to acquire the target site shortly before the start of construction, which reduces development-related risks and preserves capital. However, we will acquire and hold land when business conditions warrant. Due to increased competition for land based on current market conditions, we have, at times, acquired land earlier in the development cycle or acquired land zoned for uses other than residential with the potential for rezoning. After we acquire land, we generally shift our focus to construction. Except for certain mid-rise and high-rise apartment communities where we may elect to use third-party general contractors or construction managers, we act as our own general contractor and construction manager.

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 high-quality workmanship and a smooth and timely transition into the leasing and operating phase.

As competition for desirable development opportunities has increased in recent years, we will in some cases be engaged in more complicated development pursuits. For example, at times we have acquired and may in the future acquire existing commercial buildings with the intent to pursue rezoning, tenant terminations or expirations and demolition of the existing structures. Generally, 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 procedures to minimize 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 high-quality design and workmanship and a smooth and timely transition into the lease-up and restabilization phase.

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 when market conditions are favorable and redeploy the proceeds from those sales to develop, redevelop and acquire communities and to rebalance our portfolio across 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 by issuing debt or equity securities. When we decide to sell a community, we generally 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 2005 we formed the Fund, which during its investment period (ending no later than March 2008) will be the principal vehicle for us to acquire additional investments in apartment communities, subject to certain exceptions. Through the Fund’s investment period (or until fully invested), we expect to continue our acquisition activity through the Fund, focusing in particular on communities in our markets that can benefit from redevelopment, repositioning or market cycle opportunities.

Property Management Strategy. We intend to increase operating income through innovative, proactive property management that will result in higher revenue from communities and controlled 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.

Controlling operating expenses is another way in which we intend 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 control 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 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 have consistently maintained, and intend to continue to maintain, a capital structure that is aligned to the business risks presented by our corporate strategy. For the year ended December 31, 2006, our fixed charge ratio on an incurred and expensed basis was 1.90 and 2.68, respectively. We believe that fixed charge coverage is an important measure of balance sheet strength, as it measures our ability to service fixed payment obligations from operating cash flow. At December 31, 2006, our debt-to-total market capitalization was 22.3%, and our long-term floating rate debt was 3.4% of total market capitalization. Total market capitalization reflects the aggregate of the market value of our common stock, the market value of our operating partnership units outstanding (based on the market value of our common stock), the liquidation preference of our preferred stock and the outstanding principal amount of our debt. We believe that debt-to-total market capitalization can be one useful measure of a real estate operating company’s long-term liquidity and balance sheet strength, because it shows an approximate relationship between a company’s total debt and the current total market value of its assets based on the current price at which the company’s common stock trades. However, because debt-to-total market capitalization changes with fluctuations in our stock price, which occur regularly, our debt-to-total market capitalization may change even when our earnings and debt levels remain stable.

We estimate that a portion of our short-term liquidity needs will be met from retained operating cash and borrowings under our variable rate unsecured credit facility. If required to meet the balance of our current or anticipated liquidity needs, we will attempt to arrange additional capacity under our existing unsecured credit facility, sell existing communities or land and/or issue 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 venture or partnership. Our decision whether to hold an apartment community in fee simple or to have an indirect interest in the community through a joint venture or partnership 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, who may prefer that (or who may require less payment if) the land or community is contributed to a joint venture or partnership; (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 or partnership vehicle is used. Investments in joint ventures or partnerships are not limited to a specified percentage of our assets. Each joint venture or partnership 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 or partnership agreement.

We have invested in the Fund, a private, discretionary investment vehicle that acquires and operates apartment communities in our markets. The Fund will serve, until March 16, 2008 or until 80% of its committed capital is invested, as the principal vehicle through which we will invest in the acquisition of apartment communities, subject to certain exceptions. These exceptions include significant individual asset and portfolio acquisitions, properties acquired in tax-deferred transactions and acquisitions that are inadvisable or inappropriate for the Fund. The Fund will not restrict our development activities, and will terminate after a term of eight years, subject to two one-year extensions. The Fund has nine institutional investors, including us, with a combined equity capital commitment of $330,000,000. A significant portion of the investments made in the Fund by its investors are being made through AvalonBay Value Added Fund, Inc., a Maryland corporation that qualifies as a REIT under the Internal Revenue Code (the “Fund REIT”). A wholly-owned subsidiary of the Company is the general partner of the Fund and has committed $50,000,000 to the Fund and the Fund REIT (of which approximately $22,944,000 has been invested as of January 31, 2007) representing a 15.2% combined general partner and limited partner equity interest. Under the Fund documents, the Fund has the ability to employ leverage through debt financings up to 65% on a portfolio basis, which, if achieved, would enable the Fund to invest up to $940,000,000. We currently expect that leverage of less than 65% will be employed, reducing the projected investment value to between $850,000,000 and $900,000,000 (of which approximately $514,000,000 has been invested as of January 31, 2007).

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. On occasion, we own and operate 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, 2006, we had a total of 327,010 square feet of rentable retail space that produced gross rental revenue in 2006 of $5,258,000 (0.7% 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, we expect to develop with the intent to sell, directly through a taxable REIT subsidiary or indirectly through a joint venture partnership, one or more land parcels. 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), the Board of Directors determines that it is no longer in our best interest to qualify as a REIT.

Inflation and Deflation

Substantially all of our apartment leases are for a term of one year or less. In an inflationary environment, this may allow us to realize increased rents upon renewal of existing leases or the beginning of new leases. Short-term leases generally minimize our risk from the adverse effects of inflation, although these leases generally permit residents to leave at the end of the lease term and therefore expose us to the effect of a decline in market rents. In a deflationary rent environment, we may be exposed to declining rents more quickly under these shorter-term leases.

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, 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 net income to the extent 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 apartment 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 proposition given the quality, location and amenities that the resident seeks. We also compete with the condominium and single-family home markets. 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”.

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 450 Fifth Street, N.W., Washington, D.C. 20549. You may call the SEC at 1-800-SEC-0330 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 20 Board Street, New York, New York 10005. Our SEC filings are available at the NYSE because our common stock and an outstanding series of preferred stock are 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.

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 December 31, 2006, we had 1,767 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 on page 65.

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 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 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;
	•		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 a lawsuit alleging noncompliance with these statutes. See “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 have been increasing, particularly for materials such as steel, concrete and lumber, and, for some of our Development Communities and Development Rights, the total construction costs may be higher than the original budget. Total capitalized cost includes all capitalized costs projected to be incurred to develop or redevelop a community, determined in accordance with United States Generally Accepted Accounting Principles (“GAAP”), including:

	•		land and/or property acquisition costs;
	•		construction or reconstruction costs;
	•		costs of environmental remediation;
	•		real estate taxes;
	•		capitalized interest;
	•		loan fees;
	•		permits;
	•		professional fees;
	•		allocated development or redevelopment overhead; and
	•		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 or rental rates.

Local conditions in our markets significantly affect occupancy or rental rates at our communities. The risks that may adversely affect conditions in those markets include the following:

	•		plant closings, industry slowdowns and other factors that adversely affect the local economy;
	•		an oversupply of, or a reduced demand for, apartment homes;
	•		a decline in household formation or employment or lack of employment growth;
	•		the inability or unwillingness of residents to pay rent increases; and
	•		rent control or rent stabilization laws, or other laws regulating housing, that could prevent us from raising rents to offset increases in operating costs.

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

We must operate our communities in compliance with numerous federal, state and local laws and regulations, including landlord tenant laws and other laws generally applicable to business operations. Noncompliance with laws could expose us to liability.

Compliance with changes in (i) laws increasing 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 (iii) other governmental rules and regulations or enforcement policies affecting the use and operation of our communities, including changes to building codes and fire and life-safety codes, may result in lower revenue growth or significant unanticipated expenditures.

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.

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 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, in order for us to continue to qualify as a REIT, and 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 variable interest rate debt. 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 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, 2006, approximately 7% of our apartment homes at current operating communities were under use 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 aggressively and, in consequence, can also limit increases in 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.

Risks related to indebtedness.

We have a $650,000,000 revolving variable rate unsecured 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 unsecured credit facility and the indentures 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.

Failure to generate sufficient revenue could limit cash flow available for distributions to stockholders.

A decrease in rental revenue could have an adverse effect on our ability to pay distributions to our stockholders and our ability to maintain our status as a REIT. 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.

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 hard to sell, especially if market conditions are poor. 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 the Fund, 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 in the business description above, we also own and operate 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 in the business description above, we expect to develop, through a taxable REIT subsidiary, directly or through a joint venture partnership, one or more parcels with the intent to sell, which we believe represents the best use for those parcels. 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 these other activities. We may be exposed to a variety of risks if we choose to enter new markets, including an inability to evaluate accurately 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 operating retail space at our communities or in developing real estate with the intent to sell.

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. Partnership or joint venture investments 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 a discretionary investment fund.

We have formed the Fund which, through a wholly-owned subsidiary, we manage as the general partner and to which we have committed $50,000,000, representing an approximate 15% equity interest. This presents risks, including the following:

	•		investors in the Fund may fail to make their capital contributions when due and, as a result, the Fund may be unable to execute its investment objectives;
	•		our subsidiary that is the general partner of the Fund is generally liable, under partnership law, for the debts and obligations of the Fund, subject to certain exculpation and indemnification rights pursuant to the terms of the partnership agreement of the Fund;
	•		investors in the Fund 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 Fund;
	•		while we have broad discretion to manage the Fund and make investment decisions on behalf of the Fund, 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 Fund to make certain investments or implement certain decisions that we consider beneficial;
	•		we can develop communities but are generally prohibited from making acquisitions of apartment communities outside of the Fund until the earlier of March 16, 2008 or until 80% of the Fund’s committed capital is invested, subject to certain exceptions; and
	•		we may be liable if either the Fund, or the REIT through which a number of investors have invested in the Fund and which we manage, fails 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 is expensive 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.

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.

12

As of December 31, 2006, 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:
Northeast			35				8,674
Mid-Atlantic			17				5,413
Midwest			3				887
Pacific Northwest			10				2,500
Northern California			29				8,450
Southern California			11				3,430
Total Established			105				29,354
Other Stabilized Communities:
Northeast			19				6,088
Mid-Atlantic			5				1,397
Midwest			2				460
Pacific Northwest			1				211
Northern California			3				603
Southern California			7				2,128
Total Other Stabilized			37				10,887
Lease-Up Communities			2				519
Redevelopment Communities			6				2,381
Total Current Communities			150				43,141
Development Communities			17				5,153
Development Rights			54				14,185

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. In January 2007, the Fund acquired one community containing 392 apartment homes. The Current Communities, as of January 31, 2007, include 115 garden-style (of which 15 are mixed communities and include townhomes), 21 high-rise and 15 mid-rise apartment communities. The Current Communities offer many attractive amenities including some or all of the following:

	•		vaulted ceilings;
	•		lofts;
	•		fireplaces;
	•		patios/decks; and
	•		modern appliances.

     Other features at various communities may include:

	•		swimming pools;
	•		fitness centers;
	•		tennis courts; and
	•		business centers.

We also have an extensive and ongoing maintenance program to keep all communities and apartment homes substantially free of deferred maintenance and, where vacant, available for immediate occupancy.

We believe that 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 this will ultimately 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
		1-1-06				1-31-07				1-1-06				1-31-07				1-1-06				1-31-07
Northeast			55				56				15,671				15,732				37.8	%			36.1	%
Boston, MA			18				18				4,514				4,490				10.9	%			10.3	%
Fairfield County, CT			16				14				4,375				3,812				10.6	%			8.8	%
Long Island, NY			3				6				915				1,621				2.2	%			3.7	%
Northern New Jersey			3				3				1,182				1,182				2.9	%			2.7	%
Central New Jersey			5				6				1,752				2,042				4.2	%			4.7	%
New York, NY			10				9				2,933				2,585				7.1	%			5.9	%
Mid-Atlantic			21				24				6,859				7,622				16.6	%			17.5	%
Baltimore, MD			6				9				1,224				1,987				3.0	%			4.6	%
Washington, DC			15				15				5,635				5,635				13.6	%			12.9	%
Midwest			6				7				1,696				1,952				4.1	%			4.5	%
Chicago, IL			6				7				1,696				1,952				4.1	%			4.5	%
Pacific Northwest			12				12				3,111				3,111				7.5	%			7.2	%
Seattle, WA			12				12				3,111				3,111				7.5	%			7.2	%
Northern California			32				33				9,203				9,366				22.2	%			21.5	%
Oakland-East Bay, CA			7				7				2,089				2,089				5.0	%			4.8	%
San Francisco, CA			9				11				2,015				2,489				4.9	%			5.7	%
San Jose, CA			16				15				5,099				4,788				12.3	%			11.0	%
Southern California			16				19				4,872				5,750				11.8	%			13.2	%
Los Angeles, CA			7				9				2,448				3,006				5.9	%			6.9	%
Orange County, CA			6				7				1,366				1,686				3.3	%			3.9	%
San Diego, CA			3				3				1,058				1,058				2.6	%			2.4	%
			142				151				41,412				43,533				100.0	%			100.0	%

We manage and operate substantially all of our Current Communities. During the year ended December 31, 2006, including communities owned by joint ventures and the Fund, we completed construction of 1,368 apartment homes in six communities, acquired 1,397 apartment homes in six communities and sold 1,036 apartment homes in four communities. The average age of our Current Communities, on a weighted average basis according to number of apartment homes, is 14.1 years. When adjusted to reflect redevelopment activity, as if redevelopment were a new construction completion date, the average age of our Current Communities is 9.3 years.

Of the Current Communities, as of January 31, 2007, we own:

	•		a full fee simple, or absolute, ownership interest in 113 operating communities, six of which are on land subject to land leases expiring in November 2028, July 2029, December 2034, January 2062, April 2095, and March 2142;
	•		a general partnership interest in two partnerships that each own a fee simple interest in an operating community;
	•		a general partnership interest and an indirect limited partnership interest in the Fund, which owns a fee simple interest in 14 operating communities;
	•		a general partnership interest in five partnerships structured as “DownREITs,” as described more fully below, that own an aggregate of 16 communities;
	•		a membership interest in five limited liability companies that each hold a fee simple interest in an operating community, three of which are on land subject to land leases expiring in December 2026, November 2089, and December 2103; 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.

We also hold, directly or through wholly-owned subsidiaries, the full fee simple ownership interest in 17 of the Development Communities.

In each of our five 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, 2007, there were 144,955 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 economic								Average
								Approx.								Year of		Average				Physical				occupancy								rental rate								Financial
				Number of				rentable area								completion/		Size				occupancy at												$ per				$ per				reporting cost
		City and state		homes				(Sq. Ft.)				Acres				acquisition		(Sq. Ft.)				12/31/06				2006				2005				Apt (4)				Sq. Ft.				(5)
CURRENT COMMUNITIES
NORTHEAST
Boston, MA
Avalon at Bedford Center		Bedford, MA			139				159,704				38.0			2006			1,149				95.7	%			85.4	%(3)			17.1	%		$	1,705			$	1.27	(3)			24,716
Avalon at Center Place (11)		Providence, RI			225				222,834				1.2			1991/1997			990				88.0	%			93.8	%			95.6	%			2,247				2.13				28,744
Avalon at Crane Brook		Danvers & Peabody, MA			387				410,454				20.0			2004			1,271				95.3	%			95.5	%			85.6	%			1,349				1.21				54,781
Avalon at Faxon Park		Quincy, MA			171				175,649				8.3			1998			1,027				95.3	%			96.3	%			95.7	%			1,596				1.50				15,657
Avalon at Flanders Hill		Westborough, MA			280				299,828				62.0			2003			1,099				95.7	%			95.4	%			97.0	%			1,515				1.35				37,202
Avalon at Lexington		Lexington, MA			198				230,277				16.1			1994			1,163				98.0	%			95.9	%			97.1	%			1,775				1.46				16,034
Avalon at Newton Highlands (8)		Newton, MA			294				339,484				7.0			2003			1,177				95.2	%			95.2	%			96.0	%			2,220				1.83				56,664
Avalon at Prudential Center		Boston, MA			780				732,237				1.0			1968/1998			939				97.4	%			97.5	%			96.8	%			2,767				2.87				156,653
Avalon at Steven’s Pond		Saugus, MA			326				381,825				82.6			2004			1,106				96.0	%			95.7	%			94.6	%			1,587				1.30				54,285
Avalon at The Pinehills I		Plymouth, MA			101				151,712				6.0			2004			1,954				96.0	%			93.4	%			83.9	%			1,814				1.13				19,943
Avalon Essex		Peabody, MA			154				198,478				11.1			2000			1,289				98.1	%			97.3	%			96.6	%			1,605				1.21				21,817
Avalon Ledges		Weymouth, MA			304				329,822				57.6			2002			1,023				95.4	%			95.3	%			94.3	%			1,432				1.26				36,367
Avalon Oaks		Wilmington, MA			204				229,752				22.5			1999			1,023				98.5	%			95.1	%			93.5	%			1,515				1.28				21,257
Avalon Oaks West		Wilmington, MA			120				133,376				27.0			2002			1,033				97.5	%			93.7	%			93.8	%			1,432				1.21				16,844
Avalon Orchards		Marlborough, MA			156				176,497				23.0			2002			1,219				95.5	%			96.4	%			97.2	%			1,495				1.27				21,150
Avalon Summit		Quincy, MA			245				224,418				8.0			1986/1996			916				97.6	%			95.5	%			95.2	%			1,221				1.27				17,345
Avalon West		Westborough, MA			120				147,472				8.0			1996			1,229				95.8	%			95.9	%			96.7	%			1,432				1.12				11,332
Essex Place		Peabody, MA			286				250,322				18.0			2004			875				96.2	%			97.8	%			96.3	%			1,090				1.22				23,727
Fairfield-New Haven, CT
Avalon at Greyrock Place		Stamford, CT			306				314,600				3.0			2002			1,040				97.4	%			97.9	%			97.6	%			2,088				1.99				70,393
Avalon Danbury		Danbury, CT			234				235,320				36.0			2005			1,006				94.0	%			94.5	%			40.8	%(3)			1,619				1.52				35,454
Avalon Darien		Darien, CT			189				242,533				32.0			2004			1,282				95.8	%			93.7	%			97.7	%			2,500				1.82				41,519
Avalon Gates		Trumbull, CT			340				379,282				37.0			1997			1,116				95.0	%			98.1	%			96.3	%			1,554				1.37				37,105
Avalon Glen		Stamford, CT			238				229,644				4.1			1991			965				93.7	%			97.2	%			98.0	%			1,878				1.89				32,143
Avalon Haven		North Haven, CT			128				139,972				10.6			2000			1,094				96.1	%			97.4	%			95.9	%			1,511				1.35				13,987
Avalon Milford I		Milford, CT			246				216,746				22.0			2004			886				95.9	%			98.1	%			93.9	%			1,363				1.52				31,441
Avalon New Canaan (7)		New Canaan, CT			104				131,782				9.1			2002			1,251				92.3	%			95.7	%			96.4	%			2,910				2.20				24,364
Avalon on Stamford Harbor		Stamford, CT			323				323,587				12.1			2003			1,002				98.8	%			97.6	%			96.5	%			2,334				2.27				62,886
Avalon Orange		Orange, CT			168				163,238				9.6			2005			972				95.2	%			97.9	%			64.1	%(3)			1,436				1.45				22,096
Avalon Springs		Wilton, CT			102				158,259				12.0			1996			1,552				95.1	%			92.7	%			93.9	%			2,845				1.70				17,194
Avalon Valley		Danbury, CT			268				300,044				17.1			1999			1,070				97.4	%			98.1	%			94.9	%			1,621				1.42				26,310
Avalon Walk I & II		Hamden, CT			764				766,604				38.4			1992/1994			996				89.9	%			91.7	%(2)			93.2	%			1,242				1.14	(2)			65,461
Long Island, NY
Avalon at Glen Cove South		Glen Cove, NY			256				261,425				4.0			2004			1,050				96.9	%			95.5	%			95.8	%			2,289				2.14				67,902
Avalon Commons		Smithtown, NY			312				377,240				20.6			1997			1,209				96.8	%			97.1	%			97.4	%			2,014				1.62				33,715
Avalon Court		Melville, NY			494				596,942				35.4			1997/2000			1,208				96.4	%			96.3	%			96.8	%			2,394				1.91				59,822
Avalon Pines I		Coram, NY			298				362,124				32.0			2005			1,485				95.3	%			95.9	%			71.6	%(3)			1,816				1.43				46,537
Avalon Pines II		Coram, NY			152				185,954				42.0			2006			1,223				98.7	%			71.0	%(3)			N/A				2,310				1.34	(3)			23,866
Avalon Towers		Long Beach, NY			109				124,611				1.3			1990/1995			1,143				98.2	%			97.7	%			97.7	%			3,339				2.85				21,278

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

																										Average economic								Average
								Approx.								Year of		Average				Physical				occupancy								rental rate								Financial
				Number of				rentable area								completion/		Size				occupancy at												$ per				$ per				reporting cost
		City and state		homes				(Sq. Ft.)				Acres				acquisition		(Sq. Ft.)				12/31/06				2006				2005				Apt (4)				Sq. Ft.				(5)
Northern New Jersey
Avalon at Edgewater		Edgewater, NJ			408				428,611				7.6			2002			1,051				96.3	%			95.8	%			96.3	%			2,269				2.07				75,214
Avalon at Florham Park		Florham Park, NJ			270				330,410				41.9			2001			1,224				95.6	%			97.6	%			96.4	%			2,467				1.97				41,816
Avalon Cove		Jersey City, NJ			504				575,334				11.0			1997			1,142				98.8	%			97.7	%			97.5	%			2,677				2.29				92,872
Central New Jersey
Avalon at Freehold		Freehold, NJ			296				317,331				40.3			2002			1,072				98.0	%			96.3	%			95.6	%			1,679				1.51				34,748
Avalon Run (13)		Lawrenceville, NJ			426				443,168				9.0			1994			1,010				95.8	%			94.6	%			95.5	%			1,401				1.27				60,045
Avalon Run East		Lawrenceville, NJ			206				257,938				27.1			1996			1,287				97.1	%			95.8	%			96.0	%			1,594				1.22				16,358
Avalon Run East II (8)		Lawrenceville, NJ			312				341,320				70.5			2003			1,095				96.5	%			96.2	%			87.6	%			1,722				1.51				52,144
Avalon Watch		West Windsor, NJ			512				486,069				64.4			1988			949				96.1	%			96.4	%			95.3	%			1,368				1.39				30,138
New York, NY
Avalon Bowery Place I		New York, NY			206				162,000				1.1			2006			786				59.7	%			32.2	%(3)			N/A				3,418				1.40	(3)			89,577
Avalon Gardens		Nanuet, NY			504				608,842				62.5			1998			1,208				95.2	%			97.0	%			97.8	%			2,035				1.63				55,112
Avalon Green		Elmsford, NY			105				113,538				16.9			1995			1,081				94.3	%			96.5	%			96.3	%			2,148				1.92				13,243
Avalon on the Sound (11)		New Rochelle, NY			412				372,860				2.4			2001			905				96.4	%			96.2	%			96.2	%			2,237				2.38				117,098
Avalon Riverview I (11)		Long Island City, NY			372				332,947				1.0			2002			895				97.0	%			96.7	%			96.7	%			2,956				3.19				94,561
Avalon View		Wappingers Falls, NY			288				327,547				41.0			1993			1,137				92.0	%			95.0	%			92.7	%			1,320				1.10				19,267
Avalon Willow		Mamaroneck, NY			227				199,842				4.0			2000			880				98.2	%			98.9	%			96.4	%			2,044				2.29				47,514
The Avalon		Bronxville, NY			110				119,410				1.5			1999			1,085				96.4	%			97.0	%			96.4	%			3,438				3.07				31,356
MID-ATLANTIC
Baltimore, MD
Avalon at Fairway Hills I & II		Columbia, MD			384				386,344				23.8			1987/1996			1,005				95.1	%			97.0	%			94.7	%			1,207				1.16				22,771
Avalon at Fairway Hills III		Columbia, MD			336				337,683				20.2			1987/1996			1,005				94.9	%			95.1	%(2)			91.1	%(2)			1,293				1.22	(2)			29,353
Avalon at Symphony Glen		Columbia, MD			176				179,880				10.0			1986			1,022				91.0	%			96.6	%			95.9	%			1,200				1.13				9,355
Avalon Landing		Annapolis, MD			158				117,033				13.8			1984/1995			741				97.5	%			97.8	%			97.2	%			1,177				1.55				10,188
Southgate Crossing		Columbia, MD			215				212,420				12.7			1986/2006			988				95.3	%			93.8	%			N/A				248				0.24				36,358
Washington, DC
AutumnWoods		Fairfax, VA			420				355,228				24.3			1989/1996			846				86.4	%			94.6	%(2)			95.2	%			1,225				1.37	(2)			33,201
Avalon at Arlington Square		Arlington, VA			842				901,120				20.1			2001			1,070				97.1	%			96.5	%			94.7	%			1,770				1.60				112,609
Avalon at Ballston — Washington Towers		Arlington, VA			344				294,954				4.1			1990			857				95.9	%			97.8	%			97.2	%			1,602				1.83				38,110
Avalon at Cameron Court		Alexandria, VA			460				467,292				16.0			1998			1,016				95.2	%			97.3	%			95.3	%			1,725				1.65				43,533
Avalon at Decoverly		Rockville, MD			368				368,374				24.0			1991/1995			1,001				94.8	%			97.0	%			95.3	%			1,369				1.33				32,298
Avalon at Foxhall		Washington, DC			308				297,875				2.7			1982			967				98.7	%			96.6	%			94.3	%			2,050				2.05				44,388
Avalon at Gallery Place I		Washington, DC			203				184,230				0.5			2003			903				97.5	%			95.7	%			95.6	%			2,235				2.36				48,873
Avalon at Grosvenor Station (8)		North Bethesda, MD			497				477,459				10.0			2004			963				96.8	%			97.3	%			95.7	%			1,627				1.65				82,157
Avalon at Providence Park		Fairfax, VA			141				148,282				9.3			1988/1997			1,052				100.0	%			96.9	%			96.8	%			1,387				1.28				11,680
Avalon at Rock Spring (9) (11)		North Bethesda, MD			386				388,232				10.2			2003			1,006				97.2	%			96.6	%			94.9	%			1,659				1.59				46,260
Avalon at Traville (8)		North Potomac, MD			520				573,717				47.9			2004			1,103				96.5	%			97.7	%			94.7	%			1,595				1.41				69,747
Avalon Crescent		McLean, VA			558				613,426				19.1			1996			1,099				96.1	%			96.0	%			96.2	%			1,770				1.55				57,601
Avalon Fields I & II		Gaithersburg, MD			288				292,282				9.2			1998			1,050				92.7	%			97.0	%			95.7	%			1,350				1.29				22,778
Avalon Knoll		Germantown, MD			300				290,544				26.7			1985			968				95.7	%			97.2	%			95.8	%			1,147				1.15				9,395

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

																										Average economic								Average
								Approx.								Year of		Average				Physical				occupancy								rental rate								Financial
				Number of				rentable area								completion/		Size				occupancy at												$ per				$ per				reporting cost
		City and state		homes				(Sq. Ft.)				Acres				acquisition		(Sq. Ft.)				12/31/06				2006				2005				Apt (4)				Sq. Ft.				(5)
MIDWEST
Chicago, IL
Avalon Arlington Heights		Arlington Heights, IL			409				346,416				2.8			1987/2000			848				91.9	%			92.9	%(2)			95.0	%			1,374				1.51	(2)			55,857
Avalon at Danada Farms (8)		Wheaton, IL			295				350,606				19.2			1997			1,188				95.9	%			95.3	%			95.6	%			1,346				1.08				38,972
Avalon at Stratford Green (8)		Bloomingdale, IL			192				237,084				12.7			1997			1,235				95.3	%			95.9	%			95.1	%			1,322				1.03				22,164
Avalon at West Grove (8)		Westmont, IL			400				388,500				17.4			1967			971				94.5	%			95.0	%			96.2	%			881				0.86				31,272
PACIFIC NORTHWEST
Seattle, WA
Avalon at Bear Creek (8)		Redmond, WA			264				288,250				22.2			1998			1,092				95.8	%			96.3	%			94.6	%			1,174				1.04				34,857
Avalon Bellevue		Bellevue, WA			202				167,069				1.7			2001			827				98.0	%			96.5	%			95.8	%			1,361				1.59				30,862
Avalon Belltown		Seattle, WA			100				82,418				0.7			2001			824				96.0	%			96.4	%			95.5	%			1,610				1.88				18,444
Avalon Brandemoor (8)		Lynwood, WA			424				453,602				27.0			2001			1,070				96.0	%			96.8	%			96.6	%			1,034				0.94				45,646
Avalon HighGrove (8)		Everett, WA			391				422,482				19.0			2000			1,081				96.4	%			96.5	%			94.9	%			962				0.86				39,879
Avalon ParcSquare (8)		Redmond, WA			124				126,951				2.0			2000			1,024				94.4	%			96.4	%			95.4	%			1,371				1.29				19,245
Avalon Redmond Place (8)		Redmond, WA			222				211,450				8.4			1991/1997			952				94.6	%			96.7	%			96.4	%			1,116				1.13				26,409
Avalon RockMeadow (8)		Bothell, WA			206				243,958				11.2			2000			1,184				97.1	%			96.1	%			95.0	%			1,132				0.92				24,806
Avalon WildReed (8)		Everett, WA			234				259,080				23.0			2000			1,107				96.2	%			96.7	%			95.7	%			955				0.83				23,095
Avalon Wynhaven (8)		Issaquah, WA			333				424,803				11.6			2001			1,276				93.7	%			95.4	%			94.0	%			1,286				0.96				52,844
NORTHERN CALIFORNIA
Oakland-East Bay, CA
Avalon at Union Square		Union City, CA			208				150,320				8.5			1973/1996			723				98.1	%			96.7	%			96.9	%			1,106				1.48				22,581
Avalon at Willow Creek		Fremont, CA			235				191,935				13.5			1985/1994			817				100.0	%			97.7	%			96.9	%			1,336				1.60				36,212
Avalon Dublin		Dublin, CA			204				179,004				13.0			1989/1997			877				96.6	%			97.2	%			96.2	%			1,400				1.55				27,866
Avalon Fremont I		Fremont, CA			308				316,052				14.3			1994			1,026				95.8	%			96.9	%			96.3	%			1,583				1.49				56,612
Avalon Pleasanton		Pleasanton, CA			456				366,062				14.7			1988/1994			803				97.4	%			96.8	%			95.9	%			1,304				1.57				62,350
Waterford		Hayward, CA			544				452,043				11.1			1985/1986			831				95.6	%			95.6	%			94.9	%			1,154				1.33				61,686
San Francisco, CA
Avalon at Cedar Ridge		Daly City, CA			195				141,411				7.0			1972/1997			725				97.4	%			96.8	%			96.0	%			1,404				1.87				26,546
Avalon at Diamond Heights		San Francisco, CA			154				123,047				3.0			1972/1994			799				98.1	%			97.4	%			95.9	%			1,649				2.01				25,327
Avalon at Mission Bay North		San Francisco, CA			250				243,089				1.4			2003			977				92.8	%			95.2	%			95.5	%			3,057				2.99				92,812
Avalon at Nob Hill		San Francisco, CA			185				108,745				1.4			1990/1995			588				97.3	%			96.4	%			96.3	%			1,672				2.74				28,071
Avalon Foster City		Foster City, CA			288				222,364				11.0			1973/1994			772				97.9	%			97.1	%			97.0	%			1,377				1.73				43,588
Avalon Pacifica		Pacifica, CA			220				186,800				21.9			1971/1995			849				96.8	%			96.7	%			96.1	%			1,495				1.70				32,165
Avalon Sunset Towers		San Francisco, CA			243				171,800				16.0			1961/1996			707				95.9	%			96.7	%			97.4	%			1,714				2.34				28,778
Avalon Towers by the Bay		San Francisco, CA			227				243,090				1.0			1999			1,071				97.8	%			96.8	%			96.2	%			2,843				2.57				67,006
Crowne Ridge		San Rafael, CA			254				221,635				21.9			1973/1996			873				98.4	%			96.3	%			95.8	%			1,324				1.46				33,063