August 14, 2001 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2001

Commission file number 1-12672

AVALONBAY COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)

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 offices, including zip code)

(703) 329-6300
(Registrants telephone number, including area code)

(Former name, if changed since last report)

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 ninety (90) days.

Yes ý No o

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuers classes of common stock as of the latest practicable date:

68,082,637 shares outstanding as of August 1, 2001

AVALONBAY COMMUNITIES, INC.
INDEX

	PART I - FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements

	Condensed Consolidated Balance Sheets as of June 30, 2001 (unaudited) and December 31, 2000 (audited)

	Condensed Consolidated Statements of Operations and Other Comprehensive Income (unaudited) for the three and six months ended June 30, 2001 and 2000

	Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2001 and 2000

	Notes to Condensed Consolidated Financial Statements (unaudited)


Item 2.	Managements Discussion and Analysis of Financial Condition and Results of Operations

Item 3.	Quantitative and Qualitative Disclosures About Market Risk

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings

Item 2.	Changes in Securities

Item 3.	Defaults Upon Senior Securities

Item 4.	Submission of Matters to a Vote of Security Holders

Item 5.	Other Information

Item 6.	Exhibits and Reports on Form 8-K

Signature

Part I FINANCIAL INFORMATION
Item 1. Financial Statements

AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)

				6-30-01			12-31-00
				(unaudited)			(audited)

ASSETS
Real estate:
	Land			$	810,488		$	742,863
	Buildings and improvements			3,280,822			3,047,560
	Furniture, fixtures and equipment			103,422			98,880

				4,194,732			3,889,303
	Less accumulated depreciation			(378,623		)	(316,045		)

	Net operating real estate			3,816,109			3,573,258
	Construction in progress (including land)			334,761			418,583
	Communities held for sale, net			185,785			208,118

		Total real estate, net		4,336,655			4,199,959

Cash and cash equivalents				14,169			57,234
Cash in escrow				8,504			16,733
Resident security deposits				20,474			18,281
Investments in unconsolidated real estate joint ventures				13,043			12,215
Deferred financing costs, net				17,342			15,265
Deferred development costs, net				21,721			16,359
Participating mortgage notes				21,483			21,483
Prepaid expenses and other assets				38,053			39,696

			Total assets	$	4,491,444		$	4,397,225

LIABILITIES AND STOCKHOLDERS' EQUITY
Unsecured notes				$	1,335,000		$	1,335,000
Variable rate unsecured credit facility				117,000			--
Mortgage notes payable				436,841			394,924
Dividends payable				50,903			47,572
Payables for construction				29,747			19,997
Accrued expenses and other liabilities				64,279			46,771
Accrued interest payable				33,081			32,829
Resident security deposits				31,176			28,138

			Total liabilities	2,098,027			1,905,231

Minority interest of unitholders in consolidated partnerships				49,116			49,501

Commitments and contingencies
Stockholders' equity:
	Preferred stock, $.01 par value; $25 liquidation value; 50,000,000 shares authorized at both June 30, 2001 and December 31, 2000; 13,867,700 and 18,322,700 shares outstanding at June 30, 2001 and December 31, 2000, respectively.			139			183
	Common stock, $.01 par value; 140,000,000 shares authorized at both June 30, 2001 and December 31, 2000; 67,912,560 and 67,191,542 shares both issued and outstanding at June 30, 2001 and December 31, 2000, respectively.			679			672
	Additional paid-in capital			2,411,206			2,493,033
	Deferred compensation			(8,653		)	(3,550		)
	Dividends in excess of accumulated earnings			(52,554		)	(47,845		)
	Accumulated other comprehensive loss			(6,516		)	--

			Total stockholders' equity	2,344,301			2,442,493

			Total liabilities and stockholders' equity	$	4,491,444		$	4,397,225

See accompanying notes to Condensed Consolidated Financial Statements.

AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND OTHER COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands, except per share data)

			For the three months ended						For the six months ended

			6-30-01			6-30-00			6-30-01			6-30-00

Revenue:
	Rental income		$	161,932		$	139,632		$	317,261		$	274,417
	Management fees		318			252			649			500
	Other income		109			74			206			129

		Total revenue	162,359			139,958			318,116			275,046

Expenses:
	Operating expenses, excluding property taxes		40,831			35,132			80,631			68,470
	Property taxes		12,912			11,329			25,710			22,559
	Interest expense		25,313			20,363			48,437			40,430
	Depreciation expense		32,161			31,209			63,290			60,628
	General and administrative		3,743			3,285			7,548			6,232

		Total expenses	114,960			101,318			225,616			198,319

Equity in income (loss) of unconsolidated joint ventures			(178		)	702			(72		)	1,396
Interest income			1,461			948			3,277			1,968
Minority interest in consolidated partnerships			(164		)	(475		)	(489		)	(1,014		)

Income before gain on sale of communities			48,518			39,815			95,216			79,077
Gain on sale of communities			--			10,842			4,901			18,752

Net income			48,518			50,657			100,117			97,829
Dividends attributable to preferred stock			(9,387		)	(9,945		)	(19,332		)	(19,890		)

Net income available to common stockholders			$	39,131		$	40,712		$	80,785		$	77,939

Other comprehensive income:
Unrealized gain (loss) on derivative instruments			1,577			--			(6,516		)	--

Other comprehensive income (loss)			1,577			--			(6,516		)	--

Comprehensive income			$	40,708		$	40,712		$	74,269		$	77,939


Dividends declared per common share			$	0.64		$	0.56		$	1.28		$	1.12

Earnings per common share:
	Basic		$	0.58		$	0.62		$	1.20		$	1.18

	Diluted		$	0.57		$	0.61		$	1.18		$	1.17

See accompanying notes to Condensed Consolidated Financial Statements.

AVALONBAY COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)

			For the six months ended

			6-30-01			6-30-00

Cash flows from operating activities:
	Net income		$	100,117		$	97,829
	Adjustments to reconcile net income to cash provided by operating activities:
		Depreciation expense	63,290			60,628
		Amortization of deferred financing costs	1,758			1,437
		Amortization of deferred compensation	1,262			1,830
		Decrease (increase) in investments in unconsolidated real estate joint ventures	(828		)	591
		Income allocated to minority interest in consolidated partnerships	489			1,014
		Gain on sale of communities	(4,901		)	(18,752		)
		Decrease (increase) in cash in operating escrows	133			(9,501		)
		Increase in resident security deposits, accrued interest receivable on participating mortgage notes, prepaid expenses and other assets	(5,912		)	(7,431		)
		Increase (decrease) in accrued expenses, other liabilities and accrued interest payable	16,252			(4,204		)

		Net cash provided by operating activities	171,660			123,441

Cash flows used in investing activities:
	Purchase and development of real estate		(217,744		)	(187,941		)
	Proceeds from sale of communities, net of selling costs		22,677			60,629
	Increase in construction payables		9,750			1,025
	Decrease (increase) in cash in investing escrows		8,096			(20,773		)

		Net cash used in investing activities	(177,221		)	(147,060		)

Cash flows from financing activities:
	Issuance of common stock		21,237			16,237
	Redemption of preferred stock and related costs		(111,472		)
	Dividends paid		(101,495		)	(91,026		)
	Net borrowings under unsecured credit facility		117,000			92,000
	Issuance of secured notes payable		62,605
	Repayments of notes payable		(20,688		)	(6,930		)
	Payment of deferred financing costs		(3,835		)	(66		)
	Contributions from (distributions to) minority partners		(856		)	7,455

		Net cash provided by (used in) financing activities	(37,504		)	17,670

		Net decrease in cash and cash equivalents	(43,065		)	(5,949		)

Cash and cash equivalents, beginning of period			57,234			7,621

Cash and cash equivalents, end of period			$	14,169		$	1,672

Cash paid during period for interest, net of amount capitalized			$	44,080		$	37,768

See accompanying notes to Condensed Consolidated Financial Statements.

Supplemental disclosures of non-cash investing and financing activities (dollars in thousands):

During the six months ended June 30, 2001, 762 units of limited partnership, valued at $36, were presented for redemption to the DownREIT partnership that issued such units and were acquired by the Company in exchange for an equal number of shares of the Companys common stock.

During the six months ended June 30, 2000, 119,588 units of limited partnership, valued at $4,772, were presented for redemption to the DownREIT partnership that issued such units and were acquired by the Company in exchange for an equal number of shares of the Companys common stock. In addition, the Company issued $30 in limited partnership units as consideration for acquisitions of apartment communities that were pursuant to the terms of a forward purchase contract agreed to in 1997 with an unaffiliated party.

Common and preferred dividends declared but not paid as of June 30, 2001 and 2000 totaled $50,903 and $47,160, respectively.

During the six months ended June 30, 2001, the Company issued 182,077 shares of restricted common stock valued at $8,351. During the six months ended June 30, 2000, the Company issued 127,576 shares of restricted common stock valued at $3,057.

During the six months ended June 30, 2001, the Company recorded a liability and a corresponding charge to Other Comprehensive Loss of $6,516 to adjust the Companys Swap Agreements (as defined in footnote 5 of the notes to the Condensed Consolidated Financial Statements) to their fair value.

AVALONBAY COMMUNITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share data)

1. Organization and Significant Accounting Policies

Organization and Recent Developments

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 taxed as a real estate investment trust (REIT) under the Internal Revenue Code of 1986, as amended. The Company focuses on the ownership and operation of upscale apartment communities in high barrier-to-entry markets of the United States. These markets include Northern and Southern California and selected markets in the Mid-Atlantic, Northeast, Midwest and Pacific Northwest regions of the country.

At June 30, 2001, the Company owned or held a direct or indirect ownership interest in 128 operating apartment communities containing 38,552 apartment homes in twelve states and the District of Columbia, of which three communities containing 1,917 apartment homes were under reconstruction. The Company also owned thirteen communities with 3,680 apartment homes under construction and rights to develop an additional 34 communities that, if developed as expected, will contain an estimated 9,890 apartment homes.

During the three months ended June 30, 2001:

		The Company completed the development of Avalon Bellevue, a 202 apartment home community located in Bellevue, Washington, and Avalon at Florham Park, a 270 apartment home community located in Florham Park, New Jersey.
		The Company completed the redevelopment of Avalon at Cortez Hill, a 294 apartment home community located in San Diego, California.
		The Company commenced development of Avalon Orchards, located in Marlborough, Massachusetts, and Avalon Ledges, located in Weymouth, Massachusetts. These communities are expected to contain an aggregate of 460 apartment homes with a projected combined total investment of approximately $59,400.

The interim unaudited financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements required by GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited financial statements should be read in conjunction with the financial statements and notes included in the Companys Annual Report on Form 10-K for the year ended December 31, 2000. The results of operations for the three and six months ended June 30, 2001 are not necessarily indicative of the operating results for the full year. Management believes the disclosures are adequate to ensure the information presented is not misleading. In the opinion of management, all adjustments and eliminations, consisting only of normal, recurring adjustments necessary for a fair presentation of the financial statements for the interim periods, have been included.

Principles of Consolidation

The accompanying Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned partnerships and certain joint venture partnerships in addition to subsidiary partnerships structured as DownREITs. All significant intercompany balances and transactions have been eliminated in consolidation.

In each of the partnerships structured as DownREITs, either the Company or one of the Companys 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 distributions 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 approximate the Companys current common stock dividend per share. Each DownREIT partnership has been structured so that it is unlikely the limited partners will be entitled to a distribution greater than the initial distribution provided for in the partnership agreement. The holders of units of limited partnership interest have the right to present each unit of limited partnership interest for redemption for cash equal to the fair market value of a share of the Companys common stock on the date of redemption. In lieu of a cash redemption of a limited partners unit, the Company may elect to acquire any unit presented for redemption for one share of common stock.

The Company has minority interest investments in five technology companies. The Company accounts for these unconsolidated entities in accordance with Accounting Principles Board (APB) Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock. The Company applies the equity method of accounting to its investment in Realeum, Inc., a company involved in the development and deployment of a property management and leasing automation system. The remaining investments are accounted for under the cost method of accounting. As of June 30, 2001, the aggregate investment in these five companies was $3,377 net of a $934 valuation allowance for one of these investments.

Revenue Recognition

Rental income related to leases is recognized when due from residents. In accordance with the Companys standard lease terms, rental payments are generally due on a monthly basis.

Real Estate

Significant expenditures which improve or extend the life of an asset are capitalized. The operating real estate assets are stated at cost and consist of land, buildings and improvements, furniture, fixtures and equipment, and other costs incurred during their development, redevelopment and acquisition. Expenditures for maintenance and repairs are charged to operations as incurred.

The capitalization of costs during the development of assets (including interest and related loan fees, property taxes and other direct and indirect costs) begins when active development commences and ends when the asset is delivered and a final certificate of occupancy is issued. Cost capitalization during redevelopment of apartment homes (including interest and related loan fees, property taxes and other direct and indirect costs) begins when an apartment home is taken out-of-service for redevelopment and ends when the apartment home redevelopment is completed and the apartment home is placed in-service. The accompanying Condensed Consolidated Financial Statements include a charge to expense for unrecoverable deferred development costs related to pre-development communities that are unlikely to be developed.

Depreciation is calculated on buildings and improvements using the straight-line method over their estimated useful lives, which range from seven to thirty years. Furniture, fixtures and equipment are generally depreciated using the straight-line method over their estimated useful lives, which range from three years (primarily computer related equipment) to seven years.

Lease terms for apartment homes are generally one year or less. Rental income and operating costs incurred during the initial leaseup or post-redevelopment lease-up period are fully recognized as they accrue.

Earnings per Common Share

In accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share, basic earnings per share for the three and six months ended June 30, 2001 and 2000 is computed by dividing earnings available to common shares by the weighted average number of shares outstanding during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis.

The Companys earnings per common share are determined as follows:

	Three months ended				Six months ended

	6-30-01		6-30-00		6-30-01		6-30-00

Basic and Diluted shares outstanding
Weighted average common shares - basic	67,606,299		66,098,506		67,419,896		65,914,821
Weighted average DownREIT units outstanding	671,083		933,384		670,947		951,339
Effect of dilutive securities	1,192,266		861,628		1,276,419		634,045

Weighted average common shares and DownREIT units - diluted	69,469,648		67,893,518		69,367,262		67,500,205

Calculation of Earnings per Share - Basic
Net income available to common stockholders	$	39,131	$	40,712	$	80,785	$	77,939

Weighted average common shares - basic	67,606,299		66,098,506		67,419,896		65,914,821

Earnings per common share - basic	$	0.58	$	0.62	$	1.20	$	1.18

Calculation of Earnings per Share - Diluted
Net income available to common stockholders	$	39,131	$	40,712	$	80,785	$	77,939
Add: Minority interest of DownREIT unitholders in consolidated partnerships	392		451		783		960

Adjusted net income available to common stockholders	$	39,523	$	41,163	$	81,568	$	78,899

Weighted average common shares and DownREIT units - diluted	69,469,648		67,893,518		69,367,262		67,500,205

Earnings per common share - diluted	$	0.57	$	0.61	$	1.18	$	1.17

Certain options to purchase shares of common stock in the amounts of 877,043 and 14,500 were outstanding during the three and six months ended June 30, 2001, respectively, and 60,000 and 1,456,074 were outstanding during the three and six months ended June 30, 2000, respectively, but were not included in the computation of diluted earnings per share because the options exercise prices were greater than the average market price of the common shares for the period.

Executive Separation Costs

In February 2001, the Company announced certain management changes including the departure of a senior executive who became entitled to severance benefits in accordance with the terms of his employment agreement with the Company. The Company recorded a charge of approximately $2,500 in the first quarter of 2001 related to the expected costs associated with this separation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

Reclassifications

Certain reclassifications have been made to amounts in prior periods financial statements to conform with current period presentations.

2. Interest Capitalized

Capitalized interest associated with communities under development or redevelopment totaled $6,522 and $4,163 for the three months ended June 30, 2001 and 2000, respectively, and $12,119 and $7,657 for the six months ended June 30, 2001 and 2000, respectively.

3. Notes Payable, Unsecured Notes and Credit Facility

The Companys notes payable, unsecured notes and credit facility are summarized as follows:

		6-30-01		12-31-00

Fixed rate unsecured notes		$	1,335,000	$	1,335,000
Fixed rate mortgage notes payable (conventional and tax-exempt)		324,058		326,964
Variable rate mortgage notes payable (tax-exempt)		67,960		67,960

	Total mortgage notes payable and unsecured notes	1,727,018		1,729,924
Variable rate short term note		44,823		--
Variable rate unsecured credit facility		117,000		--

	Total mortgage notes payable, unsecured notes and unsecured credit facility	$	1,888,841	$	1,729,924

Mortgage notes payable are collateralized by certain apartment communities and mature at various dates from March 2002 through December 2036. The weighted average interest rate of the Companys variable rate notes and unsecured credit facility, including certain financing related fees, was 6.0% at June 30, 2001. The weighted average interest rate of the Companys fixed rate mortgage notes (conventional and tax-exempt) was 6.7% at June 30, 2001.

The maturity schedule for the Companys unsecured notes is as follows:

Year of maturity	Principal		Interest rate

2002	$	100,000	7.375	%
2003	$	50,000	6.250	%
	$	100,000	6.500	%
2004	$	125,000	6.580	%
2005	$	100,000	6.625	%
	$	50,000	6.500	%
2006	$	150,000	6.800	%
2007	$	110,000	6.875	%
2008	$	50,000	6.625	%
	$	150,000	8.250	%
2009	$	150,000	7.500	%
2010	$	200,000	7.500	%

The Companys unsecured notes contain a number of financial and other covenants with which the Company must comply, including, but not limited to, limits on the aggregate amount of total and secured indebtedness the Company may have on a consolidated basis and limits on the Companys required debt service payments.

During May 2001, the Company completed a new unsecured credit facility. The terms of the unsecured credit facility are substantially the same as the Company's previous credit facility, which was due to mature in June 2001. The new facility is a $500,000 variable rate unsecured credit facility with J.P. Morgan Chase and Fleet National Bank serving as co-agents for a syndicate of commercial banks. Under the terms of the facility, the Company has the option of increasing the facility up to $650,000. The unsecured credit facility bears interest at a spread over the London Interbank Offered Rate (LIBOR) based on rating levels achieved on the Companys unsecured notes and on a maturity schedule selected by the Company. The current stated pricing is LIBOR plus 0.6% per annum (4.5% on June 30, 2001). In addition, the unsecured credit facility includes a competitive bid option, which allows banks that are part of the lender consortium to bid to make loans to the Company at a rate that is lower than the stated rate provided by the unsecured credit facility for up to $400,000. The Company is subject to certain customary covenants under the unsecured credit facility, including, but not limited to, maintaining certain maximum leverage ratios, a minimum fixed charges coverage ratio, minimum unencumbered assets and equity levels and restrictions on paying dividends in amounts that exceed 95% of the Companys Funds from Operations, as defined therein. The existing facility matures in May 2005 after all applicable extensions.

4. Stockholders Equity

The following summarizes the changes in stockholders equity for the six months ended June 30, 2001:

	Preferred Stock			Common Stock		Additional paid-in capital			Deferred compensation			Accumulated other comprehensive income			Dividends in excess of accumulated earnings			Stockholders' equity

Stockholders' equity, December 31, 2000	$	183		$	672	$	2,493,033		$	(3,550	)	$	--		$	(47,845	)	$	2,442,493

Net income	--			--		--			--			--			100,117			100,117
Other comprehensive income	--			--		--			--			(6,516		)	--			(6,516		)
Dividends declared to common and preferred stockholders	--			--		--			--			--			(104,826		)	(104,826		)
Redemption of Preferred Stock Series F	(44		)	--		(111,428		)	--			--			--			(111,472		)
Issuance of Common Stock	--			7		29,601			(6,365		)	--			--			23,243
Amortization of deferred compensation	--			--		--			1,262			--			--			1,262

Stockholders' equity, June 30, 2001	$	139		$	679	$	2,411,206		$	(8,653	)	$	(6,516	)	$	(52,554	)	$	2,344,301

During the six months ended June 30, 2001, the Company issued 192,981 shares of common stock in connection with stock options exercised, 345,198 shares through the Companys Dividend Reinvestment and Stock Purchase Plan, 762 shares to acquire DownREIT partnership units from a third party, and 182,077 shares in connection with restricted stock grants to employees.

In June 2001, the Company redeemed all 4,455,000 outstanding shares of its 9.00% Series F Cumulative Redeemable Preferred Stock at a price of $25.00 per share, plus $0.1625 in accrued and unpaid dividends, for an aggregate redemption price of $25.1625 per share.

5. Derivative Instruments and Hedging Activities

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133, as amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities Deferral of the Effective Date of SFAS No. 133, and SFAS No. 138, Accounting for Certain Instruments and Certain Hedging Activities, an amendment of Statement 133, was adopted by the Company on January 1, 2001. SFAS No. 133, as amended, establishes accounting and reporting standards requiring that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 also requires that a change in the derivatives fair value be recognized currently in earnings unless specific hedge accounting criteria are met. For fair value hedge transactions, changes in the fair value of the derivative instrument and changes in the fair value of the hedged item due to the risk being hedged are recorded through the income statement. For cash flow hedge transactions, changes in the fair value of the derivative instrument are reported in other comprehensive income. The ineffective portion of all hedges is recognized in current period earnings. Derivatives which are not part of a hedge relationship are recorded at fair value through earnings.

The Company has historically used interest rate swap agreements (the Swap Agreements) to reduce the impact of interest rate fluctuations on its variable rate tax-exempt bonds. The Swap Agreements are not held for trading or other speculative purposes. The Company has not entered into any interest rate hedge agreements or treasury locks for its conventional unsecured debt. As of June 30, 2001, the effect of these Swap Agreements is to fix $167,897 of the Companys tax-exempt debt at a weighted average interest rate of 6.0% with an average maturity of 5 years. By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself to credit risk and market risk.

The credit risk is the risk of a counterparty not performing under the terms of the contract. The counterparties to these contracts are major financial institutions with AAA credit ratings by the Standard & Poors Ratings Group. The Company monitors the credit ratings of counterparties and the amount of the Companys debt subject to Swap Agreements with any one party. Therefore, the Company believes the likelihood of realizing material losses from counterparty nonperformance is remote.

Market risk is the adverse effect of the value of financial instruments that results from a change in interest rates. The market risk associated with interest-rate contracts is managed by the establishment and monitoring of parameters that limit the types and degree of market risk that may be undertaken. These risks are managed by the Companys Chief Financial Officer and Vice President of Finance.

The Company has determined that its Swap Agreements qualify as effective cash-flow hedges under SFAS No. 133. When entering into hedging transactions, the Company documents the relationships between hedging instruments and hedged items, as well as the risk management objective and strategy. The Company assesses, both at inception and on an on-going basis, the effectiveness of all hedges in offsetting cash flows of hedged items. In accordance with SFAS No. 133, the Company records all changes in the fair value of the Swap Agreements in other comprehensive income. Amounts recorded in other comprehensive income will be reclassified into earnings in the period in which earnings are affected by the hedged cash flows. In all situations where hedge accounting is discontinued, the derivative will be carried at fair value with changes in its fair value recognized in income. Upon the termination of a hedging relationship, the amount in other comprehensive income will be amortized over the remaining life of the hedged cash flows.

At January 1, 2001, in accordance with the transition provisions of SFAS No. 133, the Company recorded a cumulative effect adjustment of $6,412 to other comprehensive loss to recognize at fair value all of the derivatives that are designated as cash flow hedging instruments. Through June 30, 2001, the Company recorded additional unrealized losses to other comprehensive loss of $632 to adjust the Swap Agreements to their fair value. In connection with the sale of a community, a Swap Agreement with a fair value of $528 was transferred to the new owner. Hedge ineffectiveness for the three and six months ended June 30, 2001 did not have a material impact on earnings and the Company does not anticipate that the losses being reclassified to earnings during the next twelve months will be material. The Swap Agreements are included in accrued expenses and other liabilities on the accompanying Condensed Consolidated Balance Sheets.

6. Investments in Unconsolidated Real Estate Joint Ventures

The Company accounts for investments in unconsolidated real estate entities in accordance with Statement of Position (SOP) 78-9, Accounting for Investments in Real Estate Ventures and APB Opinion No. 18. The Company applies the equity method of accounting to an investment in an entity if it has the ability to significantly influence that entity. All other unconsolidated real estate investments are recorded under the cost method of accounting.

At June 30, 2001, the Companys investments in unconsolidated real estate joint ventures consisted of:

	a 50% limited liability company membership interest in a limited liability company that owns the Falkland Chase community;
	a 49% general partnership interest in a partnership that owns the Avalon Run community;
	a 50% limited liability company membership interest in a limited liability company that owns the Avalon Grove community; and
	a 50% limited liability company membership interest in a limited liability company that owns the Avalon Terrace community.

The following is a combined summary of the financial position of these joint ventures as of the dates presented:

		(Unaudited)

		6-30-01		12-31-00

Assets:
Real estate, net		$	140,525	$	132,832
Other assets		6,822		10,400

	Total assets	$	147,347	$	143,232

Liabilities and partners' equity:
Mortgage notes payable		$	47,195	$	48,400
Other liabilities		9,473		8,656
Partners' equity		90,679		86,176

	Total liabilities and partners' equity	$	147,347	$	143,232

The following is a combined summary of the operating results of these joint ventures for the periods presented:

		Three months ended						Six months ended
		(unaudited)						(unaudited)

		6-30-01			6-30-00			6-30-01			6-30-00

Rental income		$	5,909		$	5,526		$	11,768		$	10,789
Other income		11			29			26			8
Operating and other expenses		(1,709		)	(1,405		)	(3,350		)	(2,766		)
Mortgage interest expense		(209		)	(304		)	(411		)	(542		)
Depreciation expense		(771		)	(806		)	(1,529		)	(1,582		)

	Net income	$	3,231		$	3,040		$	6,504		$	5,907

The Company also holds a 25% limited liability company membership interest in Avalon on the Sound, which is presented on a consolidated basis in the financial statements in accordance with GAAP.

7. Communities Held for Sale

The Company has a policy of disposing of assets that are not consistent with its long-term strategic direction. In connection with this strategy, the Company solicits competing bids from unrelated parties for individual assets, and considers the sales price and tax ramifications of each proposal. In connection with this policy, the Company sold one community during the six months ended June 30, 2001 and three communities during the six months ended June 30, 2000.

Management intends to market additional communities for sale. However, there can be no assurance that such assets will be sold, or that we will sell the assets on financially advantageous terms. The assets targeted for sale include land, buildings and improvements and furniture, fixtures and equipment, and are recorded at the lower of cost or fair value less estimated selling costs. The Company has not determined a need to recognize a write-down in this real estate to arrive at net realizable value, although there can be no assurance that the Company can sell these assets for amounts that equal or exceed its estimates of net realizable value. At June 30, 2001, total real estate, net of accumulated depreciation, held for sale totaled $185,785. Certain individual assets are secured by mortgage indebtedness which may be assumed by the purchaser or repaid by the Company from the net sales proceeds.

The Companys Condensed Consolidated Statements of Operations and Other Comprehensive Income include net income of the communities held for sale at June 30, 2001 of $4,969 and $1,834 for the three months ended June 30, 2001 and 2000, respectively, and $9,013 and $4,673 for the six months ended June 30, 2001 and 2000 respectively.

8. Segment Reporting

The Companys reportable operating segments include Established Communities, Other Stabilized Communities, and Development/Redevelopment Communities:

	Established Communities (also known as Same Store Communities) are 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 costs as of the beginning of the prior year. These communities are divided into geographic regions. We determine which of our communities fall into the Established Communities category annually on January 1^st of each year and maintain that classification throughout the year. For the year 2001, the Established Communities were communities that had stabilized occupancy and costs as of January 1, 2000. We consider a community to have stabilized occupancy at the earlier of (i) attainment of 95% occupancy or (ii) the one-year anniversary of completion of development or redevelopment.
	Other Stabilized includes all other completed communities that have stabilized occupancy and communities held for sale.
	Development/Redevelopment consists of communities that are under construction and have not received a final certificate of occupancy and communities where substantial redevelopment is in progress or is planned to take place during the current year.

The primary financial measure for Established and Other Stabilized Communities is Net Operating Income (NOI), which represents total revenue less operating expenses and property taxes. The primary performance measure for communities under development or redevelopment depends on the stage of completion. While under development, management monitors actual construction costs against budgeted costs as well as economic occupancy. While under lease-up, the primary performance measures for these assets are lease-up pace compared to budget and rent levels compared to budget.

Net Operating Income for each community is generally equal to that communitys contribution to Funds from Operations (FFO), except that interest expense related to indebtedness secured by an individual community and depreciation and amortization on non-real estate assets are not included in the communitys NOI although such expenses decrease the Companys consolidated net income and FFO.

The segments are classified based on the individual communitys status as of the beginning of the given calendar year. Therefore, each year the composition of communities within each business segment is adjusted. Accordingly, the amounts between years are not directly comparable.

The accounting policies applicable to the operating segments described above are the same as those described in the summary of significant accounting policies.

(Dollars in thousands)
								Three months ended																Six months ended

								Total revenue				Net operating income				% NOI change from prior year period				Gross real estate				Total revenue				Net operating income				% NOI change from prior year period				Gross real estate

For the three and six months ended 6/30/01

Segment Results

		Northern California						$		40,601		$		31,391		15.5		%		$		1,214,772		$		81,264		$		63,602		18.8		%		$		1,214,772
		Southern California						10,487				7,272				9.2		%		294,409				20,877				14,749				11.5		%		294,409
		Northeast						28,459				20,396				8.9		%		569,742				56,166				40,367				8.5		%		569,742
		Mid-Atlantic						20,495				14,637				8.1		%		436,545				40,491				29,345				8.2		%		436,545
		Midwest						5,296				3,322				3.6		%		144,457				10,571				6,517				3.0		%		144,457
		Pacific Northwest						1,730				1,280				4.5		%		60,365				3,443				2,576				6.3		%		60,365

					Total Same Store			107,068				78,298				11.0		%		2,720,290				212,812				157,156				12.4		%		2,720,290

		Other Stabilized						42,421				30,237				27.6		%		1,196,690				82,133				58,352				28.4		%		1,196,690
		Development / Redevelopment						12,870				7,979				32.2		%		731,068				23,171				14,212				19.9		%		731,068
		Non-Allocated						n/a				n/a				n/a				86,829				n/a				n/a				n/a				86,829

					Total AvalonBay			$		162,359		$		116,514		16.2		%		$		4,734,877		$		318,116		$		229,720		16.5		%		$		4,734,877



	For the three and six months ended 6/30/00

	Segment Results

			Northern California				$		25,811		$		19,665		11.1		%		$		936,008		$		50,858		$		38,789		10.3		%		$		936,008
			Southern California				5,744				4,025				11.6		%		158,010				11,380				7,981				12.2		%		158,010
			Northeast				22,865				16,196				6.3		%		485,146				45,087				32,133				7.1		%		485,146
			Mid-Atlantic				16,958				12,057				8.0		%		391,889				33,375				24,132				7.9		%		391,889
			Midwest				5,064				3,207				10.1		%		144,096				10,069				6,330				8.0		%		144,096
			Pacific Northwest				932				719				29.6		%		34,382				1,880				1,399				39.7		%		34,382

				Total Same Store			77,374				55,869				9.2		%		2,149,531				152,649				110,764				9.1		%		2,149,531

			Other Stabilized				48,665				34,669				20.6		%		1,359,874				96,061				68,070				27.0		%		1,359,874
			Development / Redevelopment				13,919				9,765				103.7		%		864,662				26,336				18,361				100.7		%		864,662
			Non-Allocated				n/a				n/a				n/a				33,352				n/a				n/a				n/a				33,352

						Total AvalonBay	$		139,958		$		100,303		18.2		%		$		4,407,419		$		275,046		$		197,195		19.4		%		$		4,407,419

Operating expenses as reflected on the Condensed Consolidated Statements of Operations and Comprehensive Income include $7,898 and $6,806 for the three months ended June 30, 2001 and 2000, respectively, and $17,945 and $13,178 for the six months ended June 30, 2001 and 2000, respectively, of property management overhead costs that are not allocated to individual communities. These costs are not reflected in NOI as shown in the above tables. The amount reflected for Communities held for sale on the Condensed Consolidated Balance Sheets is net of $19,599 and $19,763 of accumulated depreciation as of June 30, 2001 and December 31, 2000, respectively.

9. Subsequent Events

On August 1, 2001, the Company sold Avalon Pavilions, a 932 apartment home community located in the Hartford, Connecticut area. The net proceeds of approximately $81,003 were deposited into an escrow account to facilitate a like-kind exchange transaction.

Subsequent to June 30, 2001, the Company acquired two parcels of land for an aggregate purchase price of $7,831. The Company expects to develop two new communities containing an aggregate of 434 apartment homes on these parcels.

ITEM 2.

MANAGMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Form 10-Q, including the footnotes to our Condensed Consolidated Financial Statements, contains forward-looking statements as that term is defined under the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by our use of the words believe, expect, anticipate, intend, estimate, assume, project, and other similar expressions in this Form 10-Q, that predict or indicate future events and trends or that do not report historical matters. In addition, information concerning the following are forward-looking statements:

	the timing and cost of completion of apartment communities under construction, reconstruction, development or redevelopment;
	the timing of lease-up and occupancy of apartment communities;
	the pursuit of land on which we are considering future development;
	cost, yield and earnings estimates; and
	the development of management information systems by companies in which we have an investment and our implementation and use of those systems.

We cannot assure the future results or outcome of the matters described in these statements; rather, these statements merely reflect our current expectations of the approximate outcomes of the matters discussed. You should not rely on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. These risks, uncertainties and other factors may cause our actual results, performance or achievements to differ materially from the anticipated future results, performance or achievements expressed or implied by these forward-looking statements. Some of the factors that could cause our actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements include, but are not limited to, the following:

	we may fail to secure development opportunities due to an inability to reach agreements with third parties or to obtain desired zoning and other local approvals;
	we may abandon development opportunities for a number of reasons, including changes in local market conditions which make development less desirable, increases in costs of development and increases in the cost of capital;
	construction costs of a community may exceed our original estimates;
	we may not complete construction and lease-up of communities under development or redevelopment on schedule, resulting in increased interest expense, construction costs and reduced rental revenues;
	occupancy rates and market rents may be adversely affected by local economic and market conditions which are beyond our control;
	financing may not be available on favorable terms or at all, and our cash flow from operations and access to cost effective capital may be insufficient for the development of our pipeline and could limit our pursuit of opportunities;
	our previous or possible future expansion into new geographic market areas may not produce financial results that are consistent with our historical performance;
	our cash flow may be insufficient to meet required payments of principal and interest, and we may be unable to refinance existing indebtedness or the terms of such refinancing may not be as favorable as the terms of existing indebtedness;
	we may be unsuccessful in managing our current growth in the number of apartment communities; and
	software applications and ancillary services being developed by companies in which we have invested may be unsuccessful in achieving their business plans or unsuccessful in obtaining additional funding, which could lead to a partial or complete loss of the investment in these companies.

You should read our unaudited Condensed Consolidated Financial Statements and notes included in this report and the audited financial statements for the year ended December 31, 2000 and the notes included in our annual report on Form 10-K in conjunction with the following discussion. These forward-looking statements represent our estimates and assumptions only as of the date of this report. We do not undertake to update these forward-looking statements, and you should not rely upon them after the date of this report.

Business Description and Community Information

AvalonBay is a Maryland corporation that has elected to be treated as a real estate investment trust, or REIT, for federal income tax purposes. We focus on the ownership and operation of upscale apartment communities (which generally command among the highest rents in their submarkets) in high barrier-to-entry markets of the United States. This is because we believe that the limited new supply of upscale apartment homes in these markets helps achieve more predictable growth in cash flows. These barriers-to-entry generally include a difficult and lengthy entitlement process with local jurisdictions and dense in-fill locations where zoned and entitled land is in limited supply. These markets are located in Northern and Southern California and selected states in the Mid-Atlantic, Northeast, Midwest and Pacific Northwest regions of the United States.

We are a fully-integrated real estate organization with in-house expertise in the following areas:

	development and redevelopment;
	construction and reconstruction;
	leasing and management;
	acquisition and disposition;
	financing;
	marketing; and
	information technologies.

With our expertise and in-house capabilities, we believe we are well-positioned to continue to pursue opportunities to develop and acquire upscale apartment homes in our target markets. Our ability to pursue attractive opportunities, however, may be constrained by capital market conditions that limit the availability of cost effective capital to finance these activities. We have limited our acquisition activity due to these capital constraints, and we expect to direct most of our invested capital to new developments and redevelopments, rather than acquisitions, for the foreseeable future. See Liquidity and Capital Resources and Future Financing and Capital Needs.

We believe apartment communities present an attractive investment opportunity compared to other real estate investments because a broad potential resident base results in relatively stable demand during all phases of a real estate cycle. We intend to pursue appropriate new investments, including both new developments and acquisitions of communities, subject to the availability of cost-effective capital. We intend to pursue these investments in markets where constraints to new supply exist and where new household formations have out-paced multifamily permit activity in recent years.

Our real estate investments consist primarily of current operating apartment communities, communities in various stages of development, and land or land options held for development. 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 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 costs as of the beginning of the prior year. We determine which of our communities fall into the Established Communities category annually on January 1^st of each year and maintain that classification throughout the year. For the year 2001, the Established Communities were communities that had stabilized occupancy and costs as of January 1, 2000. We consider a community to have stabilized occupancy at the earlier of (i) attainment of 95% occupancy or (ii) the one- year anniversary of completion of development or redevelopment.

	Other Stabilized Communities are all other completed communities that have stabilized occupancy and are not conducting or planning redevelopment activities. Other Stabilized Communities therefore include communities that were either acquired or achieved stabilization after January 1, 2000 and that were not conducting or planning to start redevelopment activities within the current year.

	Lease-Up Communities are communities where construction has been complete for less than one year and where occupancy has not reached 95%.

	Redevelopment Communities are communities where substantial redevelopment is in progress or is planned to take place during the current year. Redevelopment is considered substantial when capital invested during the reconstruction effort exceeds the lesser of $5 million or 10% of the communitys acquisition cost.

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

Development Rights are development opportunities in the early phase of the development process, which are usually represented by one of the following: we have an option to acquire land, we are the buyer under a long-term conditional contract to purchase land, or we own land for possible future development of a new community. We capitalize all related pre-development costs incurred in pursuit of these new developments.

As of June 30, 2001, our communities were classified as follows:

				Number of communities	Number of apartment homes

Current Communities

	Established Communities:
		Northern California		27	7,851
		Southern California		11	3,112
		Mid-Atlantic		18	5,297
		Northeast		20	5,416
		Midwest		6	1,591
		Pacific Northwest		2	486

			Total Estabilshed	84	23,753

	Other Stabilized Communities:
		Northern California		3	1,038
		Southern California		6	1,957
		Mid-Atlantic		2	615
		Northeast		16	4,890
		Midwest		3	1,033
		Pacific Northwest		10	3,147

			Total Other Stabilized	40	12,680

	Lease-Up Communities			1	202

	Redevelopment Communities			3	1,917

	Total Current Communities			128	38,552

Development Communities				13	3,680

Development Rights				34	9,890

We have sold one community since June 30, 2001, Avalon Pavilions, a 932 apartment home community, which brought our total Current Communities as of August 1, 2001 to 127. Of those Communities, we owned:

	a fee simple, or absolute, ownership interest in 103 operating communities, one of which is on land subject to a 149 year land lease;
	a general partnership interest in four partnerships that each own a fee simple interest in an operating community;
	a general partnership interest in four partnerships structured as DownREITs, as described more fully below, that own an aggregate of 18 communities;
	a 100% interest in a senior participating mortgage note secured by one community, which allows us to share in part of the rental income or resale proceeds of the community; and
	a membership interest in a limited liability company that holds a fee simple interest in one Redevelopment Community.

We also hold a fee simple ownership interest in twelve of the Development Communities and a membership interest in a limited liability company that holds a fee simple interest in one Development Community.

In each of the four 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 distributions 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 approximate the current AvalonBay common stock dividend amount. Each DownREIT partnership has been structured so that it is unlikely the limited partners will be entitled to a distribution greater than the initial distribution provided for in the partnership agreement. The holders of units of limited partnership interest have the right to present each unit of limited partnership interest for redemption for cash equal to the fair market value of a share of AvalonBay common stock on the date of redemption. In lieu of cash, we may elect to acquire any unit presented for redemption for one share of our common stock. As of June 30, 2001, there were 671,083 units outstanding. The DownREIT partnerships are consolidated for financial reporting purposes.

At June 30, 2001, we had positioned our portfolio of Stabilized Communities, excluding communities owned by unconsolidated joint ventures, to an average physical occupancy level of 97.1%. Our strategy is to maximize total rental revenue through management of rental rates and occupancy levels. This strategy of maximizing total rental revenue could lead to lower occupancy levels. We believe that rental revenue and net income gains will be achieved primarily through higher rental rates and lower average operating costs as well as from growth in our portfolio from development and acquisition activities.

We elected to be taxed as a REIT for federal income tax purposes for the year ended December 31, 1994 and we have not revoked that election. We were incorporated under the laws of the State of California in 1978, and we were reincorporated in the State of Maryland in July 1995. Our principal executive offices are located at 2900 Eisenhower Avenue, Suite 300, Alexandria, Virginia, 22314, and our telephone number at that location is (703) 329-6300. We also maintain regional offices and administrative or specialty offices in or near the following cities:

            San Jose, California;
            Wilton, Connecticut;
            Boston, Massachusetts;
            Chicago, Illinois;
            Iselin, New Jersey;
            Minneapolis, Minnesota;
            Newport Beach, California;
            New York, New York; and
            Seattle, Washington.

Recent Developments

Sales of Existing Communities. We seek to increase our geographical concentration in selected high barrier-to-entry markets where we believe we can:

            apply sufficient market and management presence to enhance revenue growth;
            reduce operating expenses; and
            leverage management talent.

To effect this increased concentration, we are selling assets in certain submarkets and intend to redeploy the proceeds from those sales to develop and redevelop communities currently under construction or reconstruction. Pending such redeployment, we will generally use the proceeds from the sale of these communities to reduce amounts outstanding under our variable rate unsecured credit facility. On occasion, we will set aside the proceeds from the sale of communities into a cash escrow account to facilitate a like-kind exchange transaction. Accordingly, on August 1, 2001 we sold one community containing 932 apartment homes for net proceeds of $81,003,000. We intend to dispose of additional assets as described more fully under Future Financing and Capital Needs.

Development and Redevelopment Activities. During the three months ended June 30, 2001, we completed the development of two communities, Avalon Bellevue (located in Bellevue, Washington) and Avalon at Florham Park (located in Florham Park, New Jersey). These communities, containing an aggregate of 472 apartment homes, were completed for a total investment of $72,200,000. The Company also completed the redevelopment of Avalon at Cortez Hill, a 294 apartment home high-rise community located in downtown San Diego, California.

The development of two communities in the greater Boston area commenced during the second quarter of 2001, Avalon Orchards (located in Marlborough, Massachusetts) and Avalon Ledges (located in Weymouth, Massachusetts). When completed, these communities are expected to contain a total of 460 apartment homes with a projected total investment of $59,400,000.

The development and redevelopment of communities involves risks that the investment will fail to perform in accordance with our expectations. See Risks of Development and Redevelopment for our discussion of these and other risks inherent in developing or redeveloping communities.

Results of Operations and Funds From Operations

A comparison of our operating results for the three and six months ended June 30, 2001 and June 30, 2000 follows (dollars in thousands):

			For the three months ended											For the six months ended

			6-30-01			6-30-00			$	Change		% Change		6-30-01			6-30-00			$	Change		% Change

Revenue:
	Rental income		$	161,932		$	139,632		$	22,300		16.0	%	$	317,261		$	274,417		$	42,844		15.6	%
	Management fees		318			252			66			26.2	%	649			500			149			29.8	%
	Other income		109			74			35			47.3	%	206			129			77			59.7	%

	Total revenue		162,359			139,958			22,401			16.0	%	318,116			275,046			43,070			15.7	%

Expenses:
	Operating expenses, excluding property taxes		40,831			35,132			5,699			16.2	%	80,631			68,470			12,161			17.8	%
	Property taxes		12,912			11,329			1,583			14.0	%	25,710			22,559			3,151			14.0	%

		Total operating expenses	53,743			46,461			7,282			15.7	%	106,341			91,029			15,312			16.8	%

Net Operating Income			108,616			93,497			15,119			16.2	%	211,775			184,017			27,758			15.1	%

	Interest expense		25,313			20,363			4,950			24.3	%	48,437			40,430			8,007			19.8	%
	Depreciation expense		32,161			31,209			952			3.1	%	63,290			60,628			2,662			4.4	%
	General and administrative		3,743			3,285			458			13.9	%	7,548			6,232			1,316			21.1	%

		Total other expenses	61,217			54,857			6,360			11.6	%	119,275			107,290			11,985			11.2	%

	Equity in income of unconsolidated joint ventures		(178		)	702			(880		)	(125.4	)%	(72		)	1,396			(1,468		)	(105.2	)%
	Interest income		1,461			948			513			54.1	%	3,277			1,968			1,309			66.5	%
	Minority interest of unitholders in consolidated partnerships		(164		)	(475		)	311			(65.5	)%	(489		)	(1,014		)	525			(51.8	)%

	Income before gain on sale of communities		48,518			39,815			8,703			21.9	%	95,216			79,077			16,139			20.4	%
	Gain on sale of communities		-			10,842			(10,842		)	(100.0	)%	4,901			18,752			(13,851		)	(73.9	)%

	Net income		48,518			50,657			(2,139		)	(4.2	)%	100,117			97,829			2,288			2.3	%
	Preferred dividends		(9,387		)	(9,945		)	558			(5.6	)%	(19,332		)	(19,890		)	558			(2.8	)%

	Net income available to common stockholders		$	39,131		$	40,712		$	(1,581	)	(3.9	)%	$	80,785		$	77,939		$	2,846		3.7	%

Net income available to common stockholders decreased $1,581,000 (3.9%) to $39,131,000 for the three months ended June 30, 2001 and increased by $2,846,000 (3.7%) to $80,785,000 for the six months ended June 30, 2001 compared to the same periods of 2000. Excluding separation costs related to the departure of a senior executive and gain on sale of communities, net income available to common stockholders increased by $9,261,000 for the three months ended June 30, 2001 and $19,190,000 for the six months ended June 30, 2001 compared to the same periods of 2000. These increases in net income, as adjusted, for the three and six months ended June 30, 2001 are primarily attributable to additional operating income from newly developed and redeveloped communities as well as growth in operating income from Established Communities.

As discussed in Recent Developments Sales of Existing Communities and Future Financing and Capital Needs, we funded a portion of our development and redevelopment activities through the sale of assets which do not meet our long-term strategic objectives. The short-term effect of a sale of a community is that net operating income will be negatively impacted because that communitys contribution to net operating income has been eliminated and the development or redevelopment community in which the proceeds from the sale are being invested is not yet complete. Interest expense will also decrease as the proceeds from the sale of communities are initially used to repay amounts outstanding on our unsecured credit facility. We believe this strategy will contribute, over time, to increased net operating income because our historical experience has been that net operating income attributable to newly developed and redeveloped communities is higher than net operating income of assets sold or identified for sale.

The increase in net operating income of $27,758,000 for the six months ended June 30, 2001 as compared to the same period of 2000 is attributable to:

	an increase of $19,761,000 related to communities where development activities, redevelopment activities or acquisitions were completed subsequent to January 1, 2000;
	an increase of $17,313,000 related to Established Communities;
	a decrease of $7,203,000 related to communities sold subsequent to January 1, 2000;
	an increase of $380,000 related to all other communities and overhead costs; and
	a decrease of $2,493,000 related to executive separation costs.

Depreciation expense is impacted by the timing of asset sales, acquisitions and completion of development or redevelopment activities. Gain on sale of communities is impacted by the number of assets sold in a given period, the carrying value of those assets, and the local market conditions in which the individual assets are located.

Rental income increased (16.0% for the three months ended and 15.6% for the six months ended June 30, 2001) primarily due to an increase in the weighted average monthly rental income per occupied apartment home and an increase in the weighted average number of occupied apartment homes.

Overall Portfolio - Rental revenue increased $22,300,000 (16.0%) for the three months ended June 30, 2001 compared to same period of 2000. Rental revenue increased $42,844,000 (15.6%) for the six months ended June 30, 2001 compared to the same period of 2000. The weighted average number of occupied apartment homes increased to 34,698 apartment homes for the six months ended June 30, 2001 from 33,512 apartment homes for the six months ended June 30, 2000 primarily as a result of development, redevelopment and acquisition of new communities offset by the sale of communities and occupancy declines for our portfolio of Established Communities related to softening conditions in certain of our markets. For the six months ended June 30, 2001, the weighted average monthly revenue per occupied apartment home increased $172 (12.7%) to $1,523 compared to $1,351 for the same period of 2000, which is primarily attributable to increased rental rates. In addition, the development of new apartment communities with higher average rents and the sale of communities with lower average rents favorably impacted average revenue per home. These newly developed apartment communities were funded in part from the proceeds of communities sold in markets where rental rates are lower.

Established Communities Rental revenue increased $9,988,000 (10.3%) for the three months ended June 30, 2001 compared to same period of 2000. Rental revenue increased $21,138,000 (11.0%) for the six months ended June 30, 2001 compared to the same period of 2000. The increase for the six months is due to market conditions during the past year that allowed for higher average rents partially offset by lower economic occupancy levels. For the six months ended June 30, 2001, weighted average monthly revenue per occupied apartment home increased $170 (12.3%) to $1,548 compared to $1,378 for the same period of the preceding year. The average economic occupancy decreased from 97.7% for the six months ended June 30, 2000 to 96.4% for the six months ended June 30, 2001.

We have observed increased volatility in certain Northern California sub-markets over the past two years, which accounts for approximately 38.2% of current Established Community rental revenue. While market rental rates increased substantially in 2000, we have experienced reductions in market rental rates in 2001 (13.0% from January to June) as market conditions reset to more sustainable levels of growth. For the six months ended June 30, 2001 economic occupancy decreased in the Northern California region from 98.0% in 2000 to 95.6% in 2001.

Management fees increased (26.2% for the three months ended and 29.8% for the six months ended June 30, 2001) primarily due to the formation of the Avalon Terrace joint venture.

Operating expenses, excluding property taxes increased (16.2% for the three months ended and 17.8% for the six months ended June 30, 2001) primarily due to the addition of newly developed, redeveloped and acquired apartment homes, and separation costs of $2,493,000 due to the departure of a senior executive. Maintenance, insurance and other costs associated with Development and Redevelopment Communities are expensed as communities move from the initial construction and lease-up phase to the stabilized operating phase.

Established Communities - Operating expenses, excluding property taxes increased $2,032,000 (11.1%) to $20,360,000 for the three months ended June 30, 2001 compared to $18,328,000 for the same period of 2000. These expenses increased $3,341,000 (9.4%) to $38,739,000 for the six months ended June 30, 2001 compared to $35,398,000 for the same period of 2000. These increases are primarily the result of higher insurance, marketing and redecorating costs.

Property taxes increased (14.0% for both the three months and six months ended June 30, 2001) primarily due to the addition of newly developed, redeveloped or acquired apartment homes, partially offset by the sale of communities. Property taxes on Development and Redevelopment Communities are expensed as communities move from the initial construction and lease-up phase to the stabilized operating phase.

Established Communities - Property taxes increased $195,000 (2.4%) to $8,411,000 for the three months ended June 30, 2001 compared to $8,216,000 for the same period of 2000. Property taxes increased $501,000 (3.1%) to $16,916,000 for the six months ended June 30, 2001 compared to $16,415,000 for the same period of 2000. These increases are primarily due to higher assessments throughout all regions.

Interest expense increased (24.3% for the three months ended and 19.8% for the six months ended June 30, 2001) primarily due to the issuance of $350,000,000 of unsecured notes during the second half of 2000. This reflects our strategy to mitigate the risk of floating rate debt by repaying floating rate debt under the unsecured credit facility (with relatively lower current interest rates) with longer dated fixed rate unsecured debt that has a higher current interest rate.

Depreciation expense increased (3.1% for the three months ended and 4.4% for the six months ended June 30, 2001) due to the addition of newly developed, redeveloped and acquired apartment homes, partially offset by the sale of communities.

General and administrative increased (13.9% for the three months ended and 21.1% for the six months ended June 30, 2001) primarily due to an increase in consulting fees as well as compensation expense for officers and associates that was expensed in the current period but capitalized a year ago when those officers and associates served the Company in a different capacity.

Equity in income of unconsolidated joint ventures decreased (125.4% for the three months ended and 105.2% for the six months ended June 30, 2001). These decreases are primarily attributable to a valuation allowance of $624,000 for the three months and $934,000 for the six months ended June 30, 2001 recorded for an investment in a technology company accounted for under the cost method, as well as our pro rata share of losses from a technology investment accounted for under the equity method.

Interest income increased (54.1% for the three months ended and 66.5% for the six months ended June 30, 2001) due to an increase in average cash balances invested.

Gain on sale of communities of $4,901,000 for the six months ended June 30, 2001 was attributable to the sale of one community.

Funds from Operations

We consider Funds from Operations, or FFO, to be an appropriate measure of our operating performance because it helps investors understand our ability to incur and service debt and to make capital expenditures. We believe that to understand our operating results, FFO should be examined with net income as presented in the Condensed Consolidated Statements of Operations and Other Comprehensive Income included elsewhere in this report. FFO is determined based on a definition adopted by the Board of Governors of the National Association of Real Estate Investment Trustsâ (NAREIT), and is defined as:

	net income or loss computed in accordance with generally accepted accounting principles (GAAP), except that excluded from net income or loss are gains or losses on sales of property and extraordinary (as defined by GAAP) gains or losses on debt restructuring;
	plus depreciation of real estate assets; and
	after adjustments for unconsolidated partnerships and joint ventures.

FFO does not represent cash generated from operating activities in accordance with GAAP. Therefore it should not be considered an alternative to net income as an indication of our performance. FFO should also not be considered an alternative to net cash flows from operating activities as determined by GAAP as a measure of liquidity. Additionally, it is not necessarily indicative of cash available to fund cash needs. Further, FFO as calculated by other REITs may not be comparable to our calculation of FFO.

For the three months ended June 30, 2001, FFO increased to $71,169,000 from $60,970,000 for the same period of 2000. For the six months ended June 30, 2001, FFO increased to $138,868,000 from $119,584,000 for the same period of 2000. These increases are primarily due to the completion of new Development and Redevelopment Communities as well as growth in earnings from Established Communities.

		For the three months ended						For the six months ended
		(Dollars in thousands)						(Dollars in thousands)

		6-30-01			6-30-00			6-30-01			6-30-00

Net income		$	48,518		$	50,657		$	100,117		$	97,829
Preferred dividends		(9,387		)	(9,945		)	(19,332		)	(19,890		)
Depreciation - real estate assets		31,377			30,453			61,671			59,047
Joint venture adjustments		269			196			530			390
Minority interest expense		392			451			783			960
Gain on sale of communities		--			(10,842		)	(4,901		)	(18,752		)

	Funds from Operations	$	71,169		$	60,970		$	138,868		$	119,584

	Net cash provided by operating activities	$	107,593		$	62,412		$	171,660		$	123,441

	Net cash used in investing activities	$	(110,456	)	$	(101,542	)	$	(177,221	)	$	(147,060	)

	Net cash provided by (used in) financing activities	$	(40,619	)	$	32,726		$	(37,504	)	$	17,670

Capitalization of Fixed Assets and Community Improvements

Our policy with respect to capital expenditures is generally to capitalize only non-recurring expenditures. We capitalize improvements and upgrades only if the item:

exceeds $15,000;
extends the useful life of the asset; and
is not related to making an apartment home ready for the next resident.

Under this policy, virtually all capitalized costs are non-recurring, as recurring make-ready costs are expensed as incurred. Recurring make-ready costs include the following:

carpet and appliance replacements;
floor coverings;
interior painting; and
other redecorating costs.

We capitalize purchases of personal property, such as computers and furniture, only if the item is a new addition and the item exceeds $2,500. We generally expense purchases of personal property made for replacement purposes. The application of these policies for the six months ended June 30, 2001 resulted in non-revenue generating capitalized expenditures for Stabilized Communities of approximately $50 per apartment home. For Stabilized Communities, we charged $597 per apartment home to maintenance expense for the six months ended June 30, 2001, including carpet and appliance replacements. This compares to $83 and $576 per apartment home for capital expenditures and maintenance expensed for the comparable period of 2000. We anticipate that capitalized costs per apartment home will gradually increase as the average age of our communities increases.

Liquidity and Capital Resources

Liquidity. The primary source of liquidity is our cash flows from operations. Operating cash flows have historically been determined by:

	the number of apartment homes;
	rental rates;
	occupancy levels; and
	our expenses with respect to these apartment homes.

The timing, source and amount of cash flows provided by financing activities and used in investing activities are sensitive to the capital markets environment, particularly to changes in interest rates that are charged to us as changes in interest rates affect our decision as to whether to issue debt securities, borrow money and invest in real estate. Thus, changes in the capital markets environment affect our plans for the undertaking of construction and development as well as acquisition activity.

Cash and cash equivalents decreased $43,065,000 to $14,169,000 for the six months ended June 30, 2001 compared to a decrease in cash and cash equivalents of $5,949,000 to $1,672,000 for the six months ended June 30, 2000.

Net cash provided by operating activities totaled $171,660,000 for the six months ended June 30, 2001, an increase of $48,219,000 provided over the same period of 2000. The increase was primarily attributable to additional operating income from newly developed and redeveloped communities as well as growth in operating income from Established Communities.

Net cash used in investing activities totaled $177,221,000 for the six months ended June 30, 2001, an increase of $30,161,000 used over the same period of 2000. This increase is primarily due to an increase in expenditures in development, redevelopment and acquisition activity.

Net cash used in financing activities totaled $37,504,000 for the six months ended June 30, 2001, a decrease of $55,174,000 over the same period of 2000. The change is primarily due to a decrease in our borrowings under our unsecured credit facility excluding the redemption of our Series F Preferred Stock which was primarily funded by borrowing under our unsecured credit facility. The repayment of a note of approximately $11,000,000 in the second quarter of 2001 and higher dividends paid also contributed to the change.

We regularly review our short and long-term liquidity needs and the adequacy of Funds from Operations, as defined above, and other expected liquidity sources to meet these needs. We believe our principal shortterm liquidity needs are to fund:

	normal recurring operating expenses;
	debt service payments;
	the distributions required with respect to preferred stock;
	the minimum dividend payments required to maintain our REIT qualification under the Internal Revenue Code of 1986; and
	development and redevelopment activity in which we are currently engaged.

We anticipate that we can fully satisfy these needs from a combination of cash flows provided by operating activities and capacity under the unsecured credit facility.

One of our principal long-term liquidity needs is the repayment of medium and long-term debt at the time at which such debt matures. We anticipate that no significant portion of the principal of any indebtedness will be repaid prior to maturity. If we do not have funds on hand sufficient to repay our indebtedness, it will be necessary for us to refinance this debt. This refinancing may be accomplished through additional debt financing, which may be collateralized by mortgages on individual communities or groups of communities, by uncollateralized private or public debt offerings or by additional equity offerings. We also anticipate having significant retained cash flow in each year so that when a debt obligation matures, some or all of each maturity can be satisfied from this retained cash. Although we believe we will have the capacity to meet our long-term liquidity needs, we cannot assure you that additional debt financing or debt or equity offerings will be available or, if available, that they will be on terms we consider satisfactory.

Capital Resources. We intend to match the long-term nature of our real estate assets with long-term cost effective capital to the extent permitted by prevailing market conditions. We follow a focused strategy to help facilitate uninterrupted access to capital. This strategy includes:

	hiring, training and retaining associates with a strong resident service focus, which should lead to higher rents, lower turnover and reduced operating costs;
	managing, acquiring and developing upscale communities in dense locations where the availability of zoned and entitled land is limited to provide consistent, sustained earnings growth;
	operating in markets with growing demand, as measured by household formation and job growth, and high barriers-to-entry. We believe these characteristics generally combine to provide a favorable demand-supply balance, which we believe will create a favorable environment for future rental rate growth while protecting existing and new communities from new supply. We expect this strategy to result in a high level of quality to the revenue stream;
	maintaining a conservative capital structure, largely comprised of equity, and with modest, cost-effective leverage. We generally avoid secured debt except in order to obtain low cost, tax-exempt debt. We believe that such a structure should promote an environment whereby current credit ratings levels can be maintained;
	following accounting practices that provide a high level of quality to reported earnings; and
	providing timely, accurate and detailed disclosures to the investment community.

We believe these strategies provide a disciplined approach to capital access to help position AvalonBay to fund portfolio growth.

See Future Financing and Capital Needs for a discussion of our view of the current capital markets environment.

Variable Rate Unsecured Credit Facility

During May 2001, the Company completed a new unsecured credit facility. The terms of the unsecured credit facility are substantially the same as the Company's previous credit facility, which was due to mature in June 2001. Our unsecured revolving credit facility is furnished by a consortium of banks and provides $500,000,000 in short-term credit. Under the terms of the credit facility, the Company has the option of increasing the facility up to $650,000. We pay these banks an annual facility fee of $750,000 in equal quarterly installments. The unsecured credit facility bears interest at varying levels tied to the London Interbank Offered Rate (LIBOR) based on ratings levels achieved on our unsecured notes and on a maturity schedule selected by us. The current stated pricing is LIBOR plus 0.60% per annum. A competitive bid option is available for borrowings of up to $400,000,000. This option allows banks that are part of the lender consortium to bid to provide us loans at a rate that is lower than the stated pricing provided by the unsecured credit facility. The competitive bid option may result in lower pricing if market conditions allow. Pricing under the competitive bid option resulted in average pricing of LIBOR plus 0.46% for amounts most recently borrowed under the competitive bid option. At August 1, 2001, $179,700,000 was outstanding, $82,538,000 was used to provide letters of credit and $237,762,000 was available for borrowing under the unsecured credit facility. We intend to use borrowings under the unsecured credit facility for:

	capital expenditures;
	construction, development, reconstruction and redevelopment costs;
	acquisitions;
	credit enhancement for tax-exempt bonds
	short-term financing of maturing long-term debt; and
	working capital purposes.

Interest Rate Protection Agreements

We are not a party to any long-term interest rate agreements, other than interest rate protection and swap agreements on approximately $168 million of our variable rate tax-exempt indebtedness. We intend, however, to evaluate the need for longterm interest rate protection agreements as interest rate market conditions dictate, and we have engaged a consultant to assist in managing our interest rate risks and exposure.

Future Financing and Capital Needs

As of June 30, 2001, we had 14 new communities under construction of which 13 are being built by our internal construction team, and one is being built by an unaffiliated third party with whom we have entered into a forward purchase commitment. As of June 30, 2001, a total estimated cost of $436,747,000 remained to be invested in these communities. In addition, we had three other communities under reconstruction, for which an estimated $23,754,000 remained to be invested as of June 30, 2001.

Substantially all of the capital expenditures necessary to complete the communities currently under construction and reconstruction will be funded from:

	the remaining capacity under our current $500,000,000 unsecured credit facility;
	the net proceeds from sales of existing communities;
	retained operating cash; and/or
	the issuance of debt or equity securities.

We expect to continue to fund deferred development costs related to future developments from retained operating cash and borrowings under the unsecured credit facility. We believe these sources of capital will be adequate to take the proposed communities to the point in the development cycle where construction can begin.

We have observed and been impacted by a reduction in the availability of cost effective capital since the third quarter of 1998. While the capital market environment has improved, we cannot assure you that cost effective capital will be available to meet future expenditures required to begin planned reconstruction activity or the construction of the Development Rights. Before planned reconstruction activity or the construction of a Development Right begins, we intend to arrange adequate financing to complete these undertakings, although we cannot assure you that we will be able to obtain such financing. In the event that financing cannot be obtained, we may have to abandon Development Rights, write off associated pursuit costs and/or forego reconstruction activity. In such instances, we will not realize the increased revenues and earnings that we expected from such pursuits, and the related write-off of costs will increase current period expenses.

Our liquidity could be adversely impacted by expanding development activities and/or reduced capital (as compared to prior years) available from asset sales. To meet the balance of our liquidity needs under such conditions, we would need to arrange additional capacity under our existing unsecured credit facility, sell additional existing communities and/or issue additional debt or equity securities. While we believe we have the financial position to expand our short-term credit capacity and support our capital markets activity, we cannot assure you that we will be successful in completing these arrangements, sales or offerings. The failure to complete these transactions on a cost-effective basis could have a material adverse impact on our operating results and financial condition, including the abandonment of deferred development costs and a resultant charge to earnings.

To increase our concentration of communities in selected high barrier-to-entry markets, we are selling assets which do not meet our long-term strategic objectives and redeploying the proceeds. Under our disposition program, we solicit competing bids from unrelated parties for these individual assets and consider the sales price and tax ramifications of each proposal. We intend to actively seek buyers for communities held for sale. However, we cannot assure you that these assets can be sold on terms that we consider satisfactory.

The assets that we have identified for disposition include land, buildings and improvements, and furniture, fixtures and equipment. Total real estate, net of accumulated depreciation, of all communities identified for sale at June 30, 2001 totaled $185,785,000. Certain individual assets are secured by mortgage indebtedness which may be assumed by the purchaser or repaid from our net sales proceeds. Our Consolidated Statements of Operations and Other Comprehensive Income include net income from these communities of $4,969,000 for the three months ended June 30, 2001 and $9,013,000 for the six months ended June 30, 2001. Our Consolidated Statements of Operations and Other Comprehensive Income include net income from these communities of $1,834,000 for the three months ended June 30, 2000 and $4,673,000 for the six months ended June 30, 2000.

Because the proceeds from the sale of communities are used initially to reduce borrowings under our unsecured credit facility, the immediate effect of a sale of a community is to have a negative effect on earnings. This is because the yield on a community that is sold exceeds the interest rate on the borrowings that are repaid from the net sale proceeds. Therefore, changes in the number and timing of dispositions, and the redeployment of the resulting net proceeds, may have a material and adverse effect on our earnings.

We are a member of Constellation Real Technologies LLC, an entity formed by a number of real estate investment trusts and real estate operating companies for the purpose of investing in multi-sector real estate technology opportunities. Our capital commitment to Constellation Real Technologies is $4.0 million. As of June 30, 2001, we have contributed approximately $959,000.

Debt Maturities

The table on the following page details debt maturities for the next five years, excluding the unsecured credit facility:

							(Dollars in thousands)
				All-In interest rate⁽¹⁾		Principal maturity date
							Balance Outstanding					Scheduled Maturities

Community							12-31-00		6-30-01			2001		2002		2003		2004		2005		Thereafter

Tax-Exempt Bonds
	*Fixed Rate*
			Avalon at Foxchase I	5.88	%	Nov-2007	$	16,800	$	16,800		$	--	$	--	$	--	$	--	$	--	$	16,800
			Avalon at Foxchase II	5.88	%	Nov-2007	9,600		9,600			--		--		--		--		--		9,600
			Fairway Glen	5.88	%	Nov-2007	9,580		9,580			--		--		--		--		--		9,580
			CountryBrook	7.87	%	Mar-2012	18,934		18,758			181		386		417		451		488		16,835
			Waterford	5.88	%	Aug-2014	33,100		33,100			--		--		--		--		--		33,100
			Avalon at Mountain View	5.88	%	Mar-2017	18,300		18,300			--		--		--		--		--		18,300
			Avalon at Dulles	7.04	%	Jul-2024	12,360		12,360			--		--		--		--		--		12,360
			Avalon at Symphony Glen	7.00	%	Jul-2024	9,780		9,780			--		--		--		--		--		9,780
			Avalon View	7.55	%	Aug-2024	18,465		18,295			180		373		397		425		455		16,465
			Avalon at Lexington	6.56	%	Feb-2025	14,347		14,212			136		288		307		326		347		12,808
			Avalon Oaks	6.95	%	Feb-2041	--		17,762			300		90		97		104		111		17,060
			Avalon at Nob Hill	5.80	%	Jun-2025	20,013		19,881			136		288		308		331		355		18,463
			Avalon at Mission Viejo	5.50	%	Jun-2025	7,354		7,306			50		105		112		121		129		6,789
			Avalon Campbell	6.48	%	Jun-2025	36,981		36,688			301		637		684		733		786		33,547
			Avalon Pacifica	6.48	%	Jun-2025	16,775		16,642			137		289		310		332		356		15,218
			Crossbrook	6.48	%	Jun-2025	8,156		--		⁽²⁾	--		--		--		--		--		--
			Avalon Knoll	6.95	%	Jun-2026	13,393		13,294			101		214		230		246		263		12,240
			Avalon Landing	6.85	%	Jun-2026	6,626		6,576			51		108		116		124		132		6,045
			Avalon Fields	7.05	%	May-2027	11,609		11,533			81		169		180		193		207		10,703
			Avalon West	7.73	%	Dec-2036	8,579		8,551			29		61		65		70		75		8,251

							290,752		299,018			1,683		3,008		3,223		3,456		3,704		283,944
	*Variable Rate*
			Avalon Devonshire			Dec-2025	27,305		27,305			--		--		--		--		--		27,305
			Avalon at Fairway Hills I			Jun-2026	11,500		11,500			--		--		--		--		--		11,500
			Avalon at Laguna Niguel			Mar-2009	10,400		10,400			--		--		--		--		--		10,400
			Avalon Greenbriar			May-2026	18,755		18,755			--		--		--		--		--		18,755

							67,960		67,960			--		--		--		--		--		67,960
Conventional Loans:
	*Fixed Rate*
		$100 Million unsecured notes		7.375	%	Sep-2002	100,000		100,000			--		100,000		--		--		--		--
		$50 Million unsecured notes		6.25	%	Jan-2003	50,000		50,000			--		--		50,000		--		--		--
		$100 Million unsecured notes		6.50	%	Jul-2003	100,000		100,000			--		--		100,000		--		--		--
		$125 Million medium-term notes		6.58	%	Feb-2004	125,000		125,000			--		--		--		125,000		--		--
		$100 Million unsecured notes		6.625	%	Jan-2005	100,000		100,000			--		--		--		--		100,000		--
		$50 Million unsecured notes		6.50	%	Jan-2005	50,000		50,000			--		--		--		--		50,000		--
		$150 Million unsecured notes		6.80	%	Jul-2006	150,000		150,000			--		--		--		--		--		150,000
		$110 Million unsecured notes		6.875	%	Dec-2007	110,000		110,000			--		--		--		--		--		110,000
		$50 Million unsecured notes		6.625	%	Jan-2008	50,000		50,000			--		--		--		--		--		50,000
		$150 Million medium-term notes		8.25	%	Jul-2008	150,000		150,000			--		--		--		--		--		150,000
		$150 Million medium-term notes		7.50	%	Aug-2009	150,000		150,000			--		--		--		--		--		150,000
		$200 Million medium-term notes		7.50	%	Dec-2010	200,000		200,000			--		--		--		--		--		200,000
		Avalon Redmond Place		7.31	%	May-2001	11,042		--			--		--		--		--		--		--
		Avalon at Pruneyard		7.25	%	May-2004	12,870		12,870			--		--		--		12,870		--		--
		Avalon Walk II		8.93	%	Aug-2004	12,300		12,170			134		288		315		11,433		--		--

							1,371,212		1,360,040			134		100,288		150,315		149,303		150,000		810,000
	*Variable Rate*						--		--			--		--		--		--		--		--
			Avalon on the Sound	7.45	%	2002	--		44,823			--		44,823		--		--		--		--

Total indebtedness - excluding unsecured credit facility							$	1,729,924	$	1,771,841		$	1,817	$	148,119	$	153,538	$	152,759	$	153,704	$	1,161,904

⁽¹⁾Includes credit enhancement fees, facility fees, trustees, etc.
⁽²⁾The remaining loan balance was repaid in connection with the disposition of the property during 2001.

Redemption of Preferred Stock

In June 2001, we redeemed all 4,455,000 outstanding shares of our 9.00% Series F Cumulative Redeemable Preferred Stock at a price of $25.00 per share, plus $0.1625 in accrued and unpaid dividends, for an aggregate redemption price of $25.1625 per share. We currently have other series of redeemable preferred stock outstanding sharing an aggregate stated value of $13,867,700. The series become redeemable at our option at various times over the next seven years. As such series become redeemable, we will evaluate the cost-effectiveness of redemptions based on the existing market conditions.

Series	Shares outstanding June 30, 2001	Payable quarterly	Annual rate	Liquidation preference		Non-redeemable prior to

C	2,300,000	March, June, September, December	8.50%	$25	June 20, 2002

D	3,267,700	March, June, September, December	8.00%	$25	December 15, 2002

G	4,300,000	February, May, August, November	8.96%	$25	October 15, 2001

H	4,000,000	March, June, September, December	8.70%	$25	October 15, 2008

Inflation

Substantially all of our leases are for a term of one year or less. This may enable us to realize increased rents upon renewal of existing leases or the beginning of new leases. Shortterm 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 without penalty. We believe that short-term leases, combined with relatively consistent demand, results in rents and cash flow which provide an attractive inflation hedge.

Natural Disasters

Many of our West Coast communities are located in the general vicinity of active earthquake faults. In July 1998, we obtained a seismic risk analysis from an engineering firm which estimated the probable maximum loss (PML) for each of the 60 West Coast communities that we owned at that time and for each of the five West Coast communities under development at that time. To establish a PML, the engineers define a severe earthquake event for the applicable geographic area. The PML is the building damage and business interruption loss that is estimated to have only a 10% probability of being exceeded in a fifty year period in the event of such an earthquake. Because a significant number of our communities are located in the San Francisco Bay area, the engineers' analysis assumed an earthquake on the Hayward Fault with a Richter Scale magnitude of 7.1. Based on this earthquake scenario, the engineers determined the PML at that time to be $113,000,000 for the 60 West Coast communities that we owned at that time and the five West Coast communities then under development. The actual aggregate PML could be higher or lower as a result of variations in soil classifications and structural vulnerabilities. For each community, the engineers' analysis calculated an individual PML as a percentage of the community's replacement cost and projected revenues. We cannot assure you that:

	an earthquake would not cause damage or losses greater than the PML assessments indicate;
	future PML levels will not be higher than the current PML levels described above for our communities located on the West Coast; or
	acquisitions or developments after July 1998 will not have PML assessments indicating the possibility of greater damage or losses than currently indicated.

In November 2000, we renewed our earthquake insurance, both for physical damage and lost revenue, with respect to all communities we owned at that time and all of the communities then under development. For any single occurrence, we have in place with respect to communities located in California $75,000,000 of coverage with a five percent deductible. The five percent deductible is subject to a minimum of $100,000 per occurrence. Earthquake coverage outside of California is subject to a $200,000,000 limit and a $25,000 deductible per occurrence. In addition, our general liability and property insurance program provides coverage for public liability and fire damage. In the event an uninsured disaster or a loss in excess of insured limits were to occur, 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.

Development Communities

As of June 30, 2001, we had 13 Development Communities under construction. We expect these Development Communities, when completed, to add a total of 3,680 apartment homes to our portfolio for a total capitalized cost, including land acquisition costs, of approximately $726,100,000. Statements regarding the future development or performance of the Development Communities are forward-looking statements. We cannot assure you that:

	we will complete the Development Communities;
	our budgeted costs or estimates of occupancy rates will be realized;
	our schedule of leasing start dates or construction completion dates will be achieved; or
	future developments will realize returns comparable to our past developments.

You should carefully review the discussion under Risks of Development and Redevelopment below.

We hold a fee simple ownership interest in 12 of the Development Communities and a membership interest in a limited liability company that holds a fee simple interest in one Development Community. The following table presents a summary of the Development Communities:

Number of apartment homes

Budgeted cost (1) ($millions)

Construction start

Initial occupancy (2)

Estimated
completion date

Estimated stabilization date (3)

Avalon at Edgewater
Edgewater, NJ

408

$75.6

Q3 1999

Q2 2001

Q2 2002

Q4 2002

Avalon at Arlington Square I
Arlington, VA

510

$69.9

Q4 1999

Q4 2000

Q4 2001

Q2 2002

Avalon on the Sound (4)
New Rochelle, NY

412

$92.1

Q4 1999

Q2 2001

Q4 2001

Q3 2002

Avalon at Freehold
Freehold, NJ

296

$33.1

Q2 2000

Q3 2001

Q1 2002

Q3 2002

Avalon Harbor
Stamford, CT

323

$60.7

Q3 2000

Q1 2002

Q4 2002

Q2 2003

Avalon Belltown
Seattle, WA

100

$19.2

Q3 2000

Q4 2001

Q1 2002

Q3 2002

Avalon Towers on the Peninsula
Mountain View, CA

211

$65.9

Q3 2000

Q1 2002

Q2 2002

Q4 2002

Avalon at Cahill Park
San Jose, CA

218

$50.5

Q4 2000

Q2 2002

Q3 2002

Q1 2003

Avalon Riverview I
Long Island City, NY

372

$102.5

Q4 2000

Q2 2002

Q4 2002

Q2 2003

10.

Avalon at Mission Bay North
San Francisco, CA

250

$79.5

Q1 2001

Q4 2002

Q1 2003

Q3 2003

11.

Avalon Oaks West
Wilmington, MA

120

$17.7

Q1 2001

Q1 2002

Q2 2002

Q4 2002

12.

Avalon Ledges
Weymouth, MA

304

$37.7

Q2 2001

Q2 2002

Q1 2003

Q3 2003

13.

Avalon Orchards
Marlborough, MA

156

$21.7

Q2 2001

Q1 2002

Q4 2002

Q2 2003

Total

3,680

$726.1

(1)	Total budgeted cost includes all capitalized costs projected to be incurred to develop the respective Development Community, including land acquisition costs, construction costs, real estate taxes, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees determined in accordance with generally accepted accounting principles.
(2)	Future initial occupancy dates are estimates.
(3)	Stabilized operations is defined as the first full quarter of 95% or greater occupancy after completion of construction.
(4)	This community will be developed under a joint venture structure and the joint venture entity (a limited liability company) has obtained third-party debt financing. Our equity funding of the total budgeted costs is expected to be $13.3 million.

Redevelopment Communities

As of June 30, 2001 we had three communities under redevelopment. We expect the total budgeted cost to complete these Redevelopment Communities, including the cost of acquisition and redevelopment, to be approximately $290,800,000, of which approximately $64,100,000 is the additional capital invested or expected to be invested above the original purchase cost. Statements regarding the future redevelopment or performance of the Redevelopment Communities are forward-looking statements. We have found that the cost to redevelop an existing apartment community is more difficult to budget than the cost to develop a new community. Accordingly, we expect that actual costs may vary from budget by a wider range than for a new development community. We cannot assure you that we will meet our schedules for redevelopment completion, or that we will meet our budgeted costs, either individually or in the aggregate. See the discussion under Risks of Development and Redevelopment below.

The following presents a summary of Redevelopment Communities:

			Budgeted Cost ($millions)

		Number of apartment homes	Acquisition cost	Total cost (1)	Reconstruction start	Reconstruction completion (2)	Estimated restabilized operations (3)

1.	Avalon at Media Center Burbank, CA	748	$55.3	$75.3	Q1 2000	Q1 2002	Q2 2002
2.	Avalon at Prudential Center Boston, MA	781	$133.9	$154.5	Q4 2000	Q4 2002	Q2 2003
3.	Avalon Terrace Stamford, CT	388	$37.5	$61.0	Q4 2000	Q3 2002	Q1 2003

	Total	1,917	$226.7	$290.8

(1)	Total budgeted cost includes all capitalized costs projected to be incurred to redevelop the respective Redevelopment Community, including costs to acquire the community, reconstruction costs, real estate taxes, capitalized interest and loan fees, permits, professional fees, allocated redevelopment overhead and other regulatory fees determined in accordance with GAAP.
(2)	Reconstruction completion dates are estimates.
(3)	Restabilized operations is defined as the first full quarter of 95% or greater occupancy after completion of reconstruction.

Development Rights

As of June 30, 2001, we are considering the development of 34 new apartment communities. These Development Rights range from land owned or under contract for which design and architectural planning has just begun to land under contract or owned by us with completed site plans and drawings where construction can begin almost immediately. We estimate that the successful completion of all of these communities would ultimately add 9,890 upscale apartment homes to our portfolio. At June 30, 2001, the cumulative capitalized costs incurred in pursuit of the 34 Development Rights, including the cost of land acquired in connection with eight of the Development Rights, was approximately $97,300,000, of which $72,800,000 was the cost of land. Substantially all of these apartment homes will offer features like those offered by the communities we currently own.

We generally hold Development Rights through options to acquire land. The properties comprising the Development Rights are in different stages of the due diligence and regulatory approval process. The decisions as to which of the Development Rights to pursue, if any, or to continue to pursue once an investment in a Development Right is made are business judgments that we make after we perform financial, demographic and/or other analyses. Finally, we currently intend to limit the percentage of debt used to finance new developments in order to maintain our general historical practice with respect to the proportion of debt in our capital structure. Therefore, other financing alternatives may be required to finance the development of those Development Rights scheduled to start construction after July 1, 2001. Although the development of any particular Development Right cannot be assured, we believe that the Development Rights, in the aggregate, present attractive potential opportunities for future development and growth of our FFO.

Statements regarding the future development of the Development Rights are forward-looking statements. We cannot assure you that:

	we will succeed in obtaining zoning and other necessary governmental approvals or the financing required to develop these communities, or that we will decide to develop any particular community; or
	if we undertake construction of any particular community, that we will complete construction at the total budgeted cost assumed in the financial projections on the following page.

The following presents a summary of the 34 Development Rights we are currently pursuing:

	Location		Estimated number of homes	Total budgeted costs ($millions)

1.	New Canaan, CT	(1) (2)	104	$29
2.	Seattle, WA		154	50
3.	Westborough, MA		280	39
4.	North Bethesda, MD		386	46
5.	Arlington II, VA	(1)	332	43
6.	Lawrence, NJ		312	43
7.	Washington, D.C.	(1)	203	50
8.	North Bethesda, MD		499	85
9.	Glen Cove, NY		256	71
10.	Andover, MA		136	21
11.	Newton, MA		294	58
12.	Darien, CT	(1)	189	39
13.	Wilton, CT		113	24
14.	Danbury, CT		253	36
15.	Glendale, CA		223	49
16.	Oakland, CA	(1)	176	36
17.	Los Angeles, CA	(1)	309	59
18.	San Francisco, CA		303	106
19.	Kirkland, WA		213	49
20.	Orange, CT	(1)	168	21
21.	Bellevue, WA		330	61
22.	Coram, NY		450	65
23.	Washington, D.C.	(1)	144	30
24.	Bedford, MA		128	19
25.	Hingham, MA		270	44
26.	Cohasset, MA		240	38
27.	New Rochelle, NY Phase II and III		588	144
28.	North Potomac, MD		520	61
29.	Long Island City, NY Phase II and III		539	162
30.	Stratford, CT		160	18
31.	Milford, CT		284	35
32.	Greenburgh, NY Phase II and III		766	139
33.	Hopewell, NJ Phase I		280	40
34.	Hopewell, NJ Phase II		288	43

	Totals		9,890	$1,853

(1)	Company owns land, but construction has not yet begun.
(2)	The land is currently owned by Town Close Associates Limited Partnership in which we are a majority partner. It is currently anticipated that the land seller will retain a minority limited partner interest.

Risks of Development and Redevelopment

We intend to continue to pursue the development and redevelopment of apartment home communities. Our development and redevelopment activities may be exposed to the following industry risks:

	we may abandon opportunities we have already begun to explore based on further review of, or changes in, financial, demographic, environmental or other factors;
	we may encounter liquidity constraints, including the unavailability of financing on favorable terms for the development or redevelopment of a community;
	we may be unable to obtain, or we may experience delays in obtaining, all necessary zoning, land-use, building, occupancy, and other required governmental permits and authorizations;
	we may incur construction or reconstruction costs for a community that exceed our original estimates due to increased materials, labor or other expenses, which could make completion or redevelopment of the community uneconomical;
	occupancy rates and rents at a newly completed or redeveloped community may fluctuate depending on a number of factors, including market and general economic conditions, and may not be sufficient to make the community profitable; and
	we may be unable to complete construction and lease-up on schedule, resulting in increased debt service expense and construction costs.

The occurrence of any of the events described above could adversely affect our ability to achieve our projected yields on communities under development or redevelopment and could affect our payment of distributions to our stockholders.

Construction costs are projected by us based on market conditions prevailing in the communitys market at the time our budgets are prepared and reflect changes to those market conditions that we anticipated at that time. Although we attempt to anticipate changes in market conditions, we cannot predict with certainty what those changes will be. Construction costs have been increasing and, for some of our Development Communities, the total construction costs have been or are expected to be higher than the original budget. Total budgeted cost includes all capitalized costs projected to be incurred to develop the respective Development or Redevelopment Community, including:

	land and/or property acquisition costs;
	construction costs or reconstruction costs;
	real estate taxes;
	capitalized interest;
	loan fees;
	permits;
	professional fees;
	allocated development or redevelopment overhead; and
	other regulatory fees determined in accordance with generally accepted accounting principles.

We believe that, in the aggregate, we will still achieve our projected yield (i.e., return on invested capital) for those communities experiencing costs in excess of the original budget because of increases in prevailing market rents. We believe that we could experience similar increases in construction costs and market rents with respect to other development communities resulting in total construction costs that exceed original budgets. Likewise, 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 that market rents in effect at the time new development communities or redeveloped communities complete lease-up will be sufficient to fully offset the effects of any increased construction or reconstruction costs.

Capitalized Interest

In accordance with generally accepted accounting principles, we capitalize interest expense during construction or reconstruction until a building obtains a certificate of occupancy. Interest that is incurred thereafter and allocated to a completed apartment home within the community is expensed. Capitalized interest totaled $6,522,000 for the three months ended June 30, 2001 and $12,119,000 for the six months ended June 30, 2001. Capitalized interest totaled $4,163,000 for the three months ended June 30, 2000 and $7,657,000 for the six months ended June 30, 2000.

Item 3.		Quantitative and Qualitative Disclosures About Market Risk

		There have been no material changes to our exposures to market risk since December 31, 2000.

Part II. OTHER INFORMATION

Item 1.	Legal Proceedings

	We are involved in certain ordinary routine litigation incidental to the conduct of our business. In addition, as reported in the Companys Form 10-K for the year ended December 31, 1999, we are currently involved in litigation with York Hunter Construction, Inc., and National Union Fire Insurance Company. While the outcome of such litigation cannot be predicted with certainty, we do not expect any current litigation, including the litigation with York Hunter and National Union, to have a material effect on our business or financial condition.

Item 2.	Changes in Securities

	None

Item 3.	Defaults Upon Senior Securities

	None

Item 4.	Submission of Matters to a Vote of Security Holders

	The Company held its 2001 Annual Meeting of Stockholders on May 8, 2001. The stockholders voted to elect Gilbert M. Meyer, Richard L. Michaux, Bryce Blair, Bruce A. Choate, John J. Healy, Jr., Lance R. Primis, Allan D. Schuster, Charles D. Peebler, Jr. and Amy P. Williams to serve as directors of the Company until the 2002 Annual Meeting of Stockholders and until their respective successors are duly elected and qualified.

	50,490,417 votes were cast for and 6,659,650 votes were withheld from the election of Mr. Meyer.

	56,941,268 votes were cast for and 208,799 votes were withheld from the election of Mr. Michaux.

	56,940,074 votes were cast for and 209,993 votes were withheld from the election of Mr. Blair.

	56,921,091 votes were cast for and 228,976 votes were withheld from the election of Mr. Choate.

	56,921,282 votes were cast for and 228,785 votes were withheld from the election of Mr. Healy.

	56,935,752 votes were cast for and 214,315 votes were withheld from the election of Mr. Primis.

	56,941,181 votes were cast for and 208,886 votes were withheld from the election of Mr. Schuster.

	56,919,063 votes were cast for and 231,004 votes were withheld from the election of Mr. Peebler.

	56,927,946 votes were cast for and 222,121 votes were withheld from the election of Ms. Williams.

The stockholders also voted to amend the Companys 1994 Stock Incentive Plan to change the manner in which increases in the size of the Stock Incentive Plan will be determined. The plan, as amended by this vote, was filed as Exhibit B to the Company's Schedule 14A filed with the SEC on April 2, 2001. Of the votes cast on this proposal, 36,287,301 were cast for, 15,540,492 were cast against, and 25,934 abstained. There were 5,296,340 broken non-votes on this proposal.

The following stockholder proposal was proposed and approved at the meeting:

BE IT RESOLVED: That the shareholders of AvalonBay Communities, Inc. (Company) urge the Board of Directors to redeem the shareholder rights issued pursuant to the Companys Shareholder Rights Plan unless said Plan is approved by a majority of the voting shares at a meeting of shareholders held as soon as is practical.

Of the votes cast on this proposal, 39,845,353 were cast for, 11,395,650 were cast against, and 669,683 abstained. There were 5,230,381 broken non-votes on this proposal.

Item 5.	Other Information

	None

Item 6.	Exhibits and Reports on Form 8-K

	(a) Exhibits

Exhibit No.		Description

3(i).1		Articles of Amendment and Restatement of Articles of Incorporation of AvalonBay Communities (the Company), dated as of June 4, 1998. (Incorporated by reference to Exhibit 3(i).1 to Form 10-Q of the Company filed August 14, 1998.)

3(i).2		Articles of Amendment, dated as of October 2, 1998. (Incorporated by reference to Exhibit 3.1(ii) to Form 8-K of the Company filed on October 6, 1998.)

3(i).3		Articles Supplementary, dated as of October 13, 1998, relating to the 8.70% Series H Cumulative Redeemable Preferred Stock. (Incorporated by reference to Exhibit 1 to Form 8-A of the Company filed October 14, 1998.)

3(ii).1		Bylaws of the Company, as amended and restated, dated as of July 24, 1998. (Incorporated by reference to Exhibit 3(ii).1 to Form 10-Q of the Company filed August 14, 1998.)

3(ii).2		Amendment to Bylaws of the Company, dated February 10, 1999. (Incorporated by reference to Exhibit 3(ii).2 to Form 10-K of the Company filed March 31, 1999.)
3(ii).3		Amendment to Bylaws of the Company, dated May 5, 1999. (Incorporated by reference to Exhibit 3(ii).3 to Form 10-Q of the Company filed on August 16, 1999.)

4.1		Indenture of Avalon Properties, Inc. (hereinafter referred to as Avalon Properties) dated as of September 18, 1995. (Incorporated by reference to Form 8-K of Avalon Properties dated September 18, 1995.)

4.2		First Supplemental Indenture of Avalon Properties dated as of September 18, 1995. (Incorporated by reference to Avalon Properties Current Report on Form 8-K dated September 18, 1995.)

4.3		Second Supplemental Indenture of Avalon Properties dated as of December 16, 1997. (Incorporated by reference to Avalon Properties Current Report on Form 8-K filed January 26, 1998.)

4.4		Third Supplemental Indenture of Avalon Properties dated as of January 22, 1998. (Incorporated by reference to Avalon Properties Current Report on Form 8-K filed on January 26, 1998.)

4.5		Indenture, dated as of January 16, 1998, between the Company and State Street Bank and Trust Company, as Trustee. (Incorporated by reference to Exhibit 4.1 to Form 8-K of the Company filed on January 21, 1998.)

4.6		First Supplemental Indenture, dated as of January 20, 1998, between the Company and the Trustee. (Incorporated by reference to Exhibit 4.2 to Form 8-K of the Company filed on January 21, 1998.)

4.7		Second Supplemental Indenture, dated as of July 7, 1998, between the Company and the Trustee. (Incorporated by reference to Exhibit 4.2 to Form 8-K of the Company filed on July 9, 1998.)

4.8		Third Supplemental Indenture, dated as of December 21, 1998 between the Company and the Trustee, including forms of Floating Rate Note and Fixed Rate Note (Incorporated by reference to Exhibit 4.4 to Form 8-K filed on December 21, 1998.)

4.9		Amended and Restated Third Supplemental Indenture, dated as of July 10, 2000 between the Company and the Trustee, including forms of Floating Rate Note and Fixed Rate Note. (Incorporated by reference to Exhibit 4.4 to the Companys Current Report on Form 8-K filed on July 11, 2000.)

4.10		Dividend Reinvestment and Stock Purchase Plan of the Company filed on September 14, 1999. (Incorporated by reference to Form 3-S of the Company, File No. 333-87063.)

4.11		Amendment to the Companys Dividend Reinvestment and Stock Purchase Plan filed on December 17, 1999. (Incorporated by reference to the Prospectus Supplement filed pursuant to Rule 424(b)(2) of the Securities Act of 1933 on December 17, 1999.)

4.12		Shareholder Rights Agreement, dated as of March 9, 1998 (the Rights Agreement), between the Company and First Union National Bank (as successor to American Stock Transfer and Trust Company) as Rights Agent (including the form of Rights Certificate as Exhibit B). (Incorporated by reference to Exhibit 4.1 to Form 8-A of the Company filed March 11, 1998.)

4.13		Amendment No. 1 to the Rights Agreement, dated as of February 28, 2000, between the Company and the Rights Agent. (Incorporated by reference to Exhibit 4.2 of Form 8-A/A of the Company filed February 28, 2000.)

10.1		Revolving Loan Agreement, dated as of May 24, 2001, among AvalonBay Communities, Inc., as Borrower, The Chase Manhattan Bank, as a Bank, Co-Agent and Syndication Agent, Fleet National Bank, as a Bank and Co-Agent, Bank of America, N.A., First Union National Bank and Citicorp Real Estate, Inc., each as a Bank and Documentation Agent, the other banks signatory thereto, each as a Bank, J.P. Morgan Securities, Inc., as Sole Bookrunner and Lead Arranger, and Fleet National Bank, as Administrative Agent.

10.2		1994 Stock Incentive Plan, as amended and restated to date after giving effect to an amendment approved by stockholders at the 2001 Annual Meeting of Stockholders. (Incorporated by reference to Exhibit B of Schedule 14A of the Company filed April 2, 2001.)

12.1		Statements re: Computation of Ratios.

(b) Reports on Form 8-K

None

filed herewith

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

AVALONBAY COMMUNITIES, INC.

Date: August 14, 2001	/S/ THOMAS J. SARGEANT

		Thomas J. Sargeant Executive Vice President, Chief Financial Officer and Treasurer (Duly Authorized Officer and Principal Financial and Accounting Officer)

Form: 10-Q

Documents