UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2001

Commission file number 112672

AVALONBAY COMMUNITIES, INC.

(Exact name of registrant as specified in its charter)

Maryland		77-0404318
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer 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:

69,597,014 shares outstanding as of November 1, 2001

AVALONBAY COMMUNITIES, INC.

FORM 10-Q

INDEX

PART I - FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements

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

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

	Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 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)

	9-30-01			12-31-00
	(unaudited)			(audited)
ASSETS
Real estate:
Land	$	816,407		$	742,863
Buildings and improvements	3,394,622			3,047,560
Furniture, fixtures and equipment	106,110			98,880
	4,317,139			3,889,303
Less accumulated depreciation	(410,789		)	(316,045		)
Net operating real estate	3,906,350			3,573,258
Construction in progress (including land)	336,634			418,583
Communities held for sale, net	73,851			208,118
Total real estate, net	4,316,835			4,199,959

Cash and cash equivalents	201,393			57,234
Cash in escrow	78,207			16,733
Resident security deposits	19,967			18,281
Investments in unconsolidated real estate joint ventures	13,131			12,215
Deferred financing costs, net	20,942			15,265
Deferred development costs, net	20,273			16,359
Participating mortgage notes	21,483			21,483
Prepaid expenses and other assets	37,237			39,696
Total assets	$	4,729,468		$	4,397,225

LIABILITIES AND STOCKHOLDERS' EQUITY
Unsecured notes	$	1,635,000		$	1,335,000
Variable rate unsecured credit facility	--			--
Mortgage notes payable	444,463			394,924
Dividends payable	50,814			47,572
Payables for construction	36,816			19,997
Accrued expenses and other liabilities	61,281			46,771
Accrued interest payable	21,858			32,829
Resident security deposits	30,452			28,138
Total liabilities	2,280,684			1,905,231

Minority interest of unitholders in consolidated partnerships	48,706			49,501

Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; $25 liquidation preference; 50,000,000 shares authorized at both September 30, 2001 and December 31, 2000; 13,867,700 and 18,322,700 shares outstanding at September 30, 2001 and December 31, 2000, respectively.	139			183
Common stock, $.01 par value; 140,000,000 shares authorized at both September 30, 2001 and December 31, 2000; 68,571,151 and 67,191,542 shares both issued and outstanding at September 30, 2001 and December 31, 2000, respectively.	686			672
Additional paid-in capital	2,435,564			2,493,033
Deferred compensation	(7,648		)	(3,550		)
Dividends in excess of accumulated earnings	(16,700		)	(47,845		)
Accumulated other comprehensive loss	(11,963		)	--
Total stockholders' equity	2,400,078			2,442,493

Total liabilities and stockholders' equity	$	4,729,468		$	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 nine months ended
	9-30-01			9-30-00			9-30-01			9-30-00
Revenue:
Rental income	$	162,822		$	145,954		$	480,083		$	420,371
Management fees	336			261			985			761
Other income	111			136			317			265
Total revenue	163,269			146,351			481,385			421,397

Expenses:
Operating expenses, excluding property taxes	42,205			36,390			122,837			104,860
Property taxes	13,371			12,158			39,081			34,717
Interest expense	26,701			21,385			75,138			61,815
Depreciation expense	32,165			30,599			95,455			91,227
General and administrative	3,421			3,359			10,969			9,591
Total expenses	117,863			103,891			343,480			302,210

Equity in income of unconsolidated joint ventures	599			721			527			2,117
Interest income	1,599			1,277			4,876			3,245
Minority interest in consolidated partnerships	(34		)	(485		)	(522		)	(1,499		)

Income before gain on sale of communities	47,570			43,973			142,786			123,050
Gain on sale of communities	39,098			14,521			43,999			33,273
Net income	86,668			58,494			186,785			156,323
Dividends attributable to preferred stock	(7,439		)	(9,944		)	(26,771		)	(29,834		)

Net income available to common stockholders	$	79,229		$	48,550		$	160,014		$	126,489
Other comprehensive income:
Unrealized loss on derivative instruments	(5,447		)	--			(11,963		)	--
Other comprehensive loss	(5,447		)	--			(11,963		)	--
Comprehensive income	$	73,782		$	48,550		$	148,051		$	126,489

Dividends declared per common share	$	0.64		$	0.56		$	1.92		$	1.68

Earnings per common share:
Basic	$	1.16		$	0.73		$	2.37		$	1.91
Diluted	$	1.14		$	0.71		$	2.32		$	1.88

See accompanying notes to Condensed Consolidated Financial Statements.

AVALONBAY COMMUNITIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

	For the nine months ended
	9-30-01			9-30-00
Cash flows from operating activities:
Net income	$	186,785		$	156,323
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation expense	95,455			91,227
Amortization of deferred financing costs	2,729			2,168
Amortization of deferred compensation	2,105			2,394
Undistributed earnings from unconsolidated real estate joint ventures	(300		)	--
Income allocated to minority interest in consolidated partnerships	522			1,499
Gain on sale of communities	(43,999		)	(33,273		)
Decrease (increase) in cash in operating escrows	(616		)	115
Increase in resident security deposits, accrued interest receivable on participating mortgage notes, prepaid expenses and other assets	(3,187		)	(22,472		)
Increase (decrease) in accrued expenses, other liabilities and accrued interest payable	(4,140		)	6,286
Net cash provided by operating activities	235,354			204,267

Cash flows used in investing activities:
Purchase and development of real estate	(343,571		)	(304,008		)
Proceeds from sale of communities, net of selling costs	175,257			120,418
Increase in payables for construction	16,819			1,769
Increase in cash in investing escrows	(60,858		)	(25,473		)
Increase in investments in unconsolidated real estate joint ventures	(616		)	(349		)
Net cash used in investing activities	(212,969		)	(207,643		)

Cash flows from financing activities:
Issuance of common stock	45,810			25,513
Redemption of preferred stock and related costs	(111,472		)	--
Dividends paid	(152,398		)	(138,186		)
Net repayments of unsecured credit facility	--			(32,600		)
Issuance of secured mortgage notes payable	71,014			--
Proceeds from sale of unsecured notes	300,000			150,000
Repayments of notes payable	(21,475		)	(21,616		)
Payment of deferred financing costs	(8,406		)	(1,482		)
Contributions from (distributions to) minority partners	(1,299		)	24,488
Net cash provided by financing activities	121,774			6,117

Net increase in cash and cash equivalents	144,159			2,741

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

Cash and cash equivalents, end of period	$	201,393		$	10,362

Cash paid during period for interest, net of amount capitalized	$	79,975		$	68,158

See accompanying notes to Condensed Consolidated Financial Statements.

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

During the nine months ended September 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 nine months ended September 30, 2000, 147,060 units of limited partnership, valued at $6,070, 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 $60 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 September 30, 2001 and 2000 totaled $50,814 and $47,320, respectively.

During the nine months ended September 30, 2001, the Company issued 187,077 shares of restricted common stock, net of forfeitures, valued at $8,572. During the nine months ended September 30, 2000, the Company issued 133,456 shares of restricted common stock valued at $3,035.

During the nine months ended September 30, 2001, the Company recorded a liability and a corresponding charge to Other Comprehensive Loss of $11,963 to adjust the Companys Swap Agreements (as defined in Note 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 are located in the Northeast, Mid-Atlantic, Midwest, Pacific Northwest, and Northern and Southern California regions of the country.

At September 30, 2001, the Company owned or held a direct or indirect ownership interest in 126 operating apartment communities containing 37,354 apartment homes in eleven states and the District of Columbia, of which three communities containing 1,917 apartment homes were under reconstruction. In addition, the Company also owned fifteen communities with 3,886 apartment homes under construction and rights to develop an additional 31 communities that, if developed as expected, will contain an estimated 9,196 apartment homes.

During the three months ended September 30, 2001:

The Company completed the development of Avalon at Arlington Square I, a 510 apartment home community located in Arlington, Virginia.

The Company commenced development of two communities in the Northeast region, Avalon at Flanders Hill, located in Westborough, Massachusetts, and Avalon New Canaan, located in New Canaan, Connecticut. These communities are expected to contain 384 apartment homes with a projected combined total investment of approximately $65,600.

The Company commenced development of one community in the Mid-Atlantic region, Avalon at Arlington Square II, located in Arlington, Virginia. The community is expected to contain 332 apartment homes with a projected total investment of approximately $43,900.

As further discussed in Note 7, Communities Held for Sale, the Company has adopted a strategy of disposing of certain assets in markets that do not meet its long-term investment criteria and redeploying the proceeds from such sales to help fund the Companys development and redevelopment activities. In connection with this strategy, the Company sold three communities containing a total of 1,708 apartment homes for net proceeds of approximately $152,600 during the three months ended September 30, 2001. The net proceeds from these dispositions will be redeployed to develop or redevelop communities currently under construction or reconstruction. Pending such redeployment, the proceeds from the sale of two of these communities were used to reduce amounts outstanding under the Companys variable rate unsecured credit facility. The net proceeds from one of these communities were deposited into an escrow account to facilitate a like-kind exchange transaction.

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 nine months ended September 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 September 30, 2001, the aggregate investment in these five companies, net of an allowance of $934, was $2,955.

Revenue Recognition

Rental income related to leases is recognized when due from residents in accordance with SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements. 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.

With few exceptions, we capitalize pre-development costs incurred in pursuit of new development opportunities. 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 nine months ended September 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				Nine months ended
	9-30-01		9-30-00		9-30-01		9-30-00
Basic and Diluted shares outstanding

Weighted average common shares - basic	68,100,249		66,490,846		67,652,285		66,109,093

Weighted average DownREIT units outstanding	671,083		851,677		670,992		901,854

Effect of dilutive securities	1,344,541		1,273,141		1,298,254		854,312

Weighted average common shares and DownREIT units - diluted	70,115,873		68,615,664		69,621,531		67,865,259

Calculation of Earnings per Share - Basic

Net income available to common stockholders	$	79,229	$	48,550	$	160,014	$	126,489

Weighted average common shares - basic	68,100,249		66,490,846		67,652,285		66,109,093

Earnings per common share - basic	$	1.16	$	0.73	$	2.37	$	1.91

Calculation of Earnings per Share - Diluted

Net income available to common stockholders	$	79,229	$	48,550	$	160,014	$	126,489

Add: Minority interest of DownREIT unitholders in consolidated partnerships	393		439		1,176		1,399

Adjusted net income available to common stockholders	$	79,622	$	48,989	$	161,190	$	127,888

Weighted average common shares and DownREIT units - diluted	70,115,873		68,615,664		69,621,531		67,865,259

Earnings per common share - diluted	$	1.14	$	0.71	$	2.32	$	1.88

Certain options to purchase shares of common stock in the amounts of 1,000 and 15,269 were outstanding during the three and nine months ended September 30, 2001, respectively, and 3,000 and 65,500 were outstanding during the three and nine months ended September 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 such departure.

Recently Issued Accounting Standards

During the third quarter of 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations, SFAS No. 142, Goodwill and Intangible Assets, SFAS No. 143, Accounting for Asset Retirement Obligations, and SFAS No. 144. Accounting for the Impairment or Disposal of Long-Lived Assets. In the opinion of management the adoption of these statements will not have a material effect on the Companys Condensed Consolidated Financial Statements.

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 $7,221 and $5,255 for the three months ended September 30, 2001 and 2000, respectively, and $19,340 and $12,912 for the nine months ended September 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:

	9-30-01		12-31-00

Fixed rate unsecured notes	$	1,635,000	$	1,335,000
Fixed rate mortgage notes payable - conventional and tax-exempt (1)	323,285		326,964
Variable rate mortgage notes payable - tax-exempt	67,960		67,960

Total mortgage notes payable and unsecured notes	2,026,245		1,729,924

Variable rate short term construction loan	53,218		--
Variable rate unsecured credit facility	--		--

Total mortgage notes payable, unsecured notes and unsecured credit facility	$	2,079,463	$	1,729,924

(1) Includes $167,587 of variable rate notes effectively fixed through swap agreements.

Mortgage notes payable are collateralized by certain apartment communities and mature at various dates from March 2002 through February 2041. The weighted average interest rate of the Companys variable rate notes and unsecured credit facility, including certain financing related fees, was 5.6% at September 30, 2001. The weighted average interest rate of the Companys fixed rate mortgage notes (conventional and tax-exempt) was 6.7% at September 30, 2001.

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

Year of maturity		Principal	Interest rate
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	%

2011	$	300,000	6.625	%

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.

The Company has 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, which had zero outstanding on September 30, 2001. Under the terms of the unsecured credit 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 (3.2% on September 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 nine months ended September 30, 2001:

	Preferred Stock			Common Stock		Additional paid-in capital			Deferred compensation			Dividends in excess of accumulated earnings			Accumulated other comprehensive income			Stockholders' equity
Stockholders' equity, December 31, 2000	$	183		$	672	$	2,493,033		$	(3,550	)	$	(47,845	)	$	--		$	2,442,493

Net income	--			--		--			--			186,785			--			186,785
Other comprehensive income	--			--		--			--			--			(11,963		)	(11,963		)
Dividends declared to common and preferred stockholders	--			--		--			--			(155,640		)	--			(155,640		)
Redemption of Preferred Stock Series F	(44		)	--		(111,428		)	--			--			--			(111,472		)
Issuance of Common Stock	--			14		53,959			(6,203		)	--			--			47,770
Amortization of deferred compensation	--			--		--			2,105			--			--			2,105

Stockholders' equity, September 30, 2001	$	139		$	686	$	2,435,564		$	(7,648	)	$	(16,700	)	$	(11,963	)	$	2,400,078

During the nine months ended September 30, 2001, the Company issued 711,230 shares of common stock in connection with stock options exercised, 485,556 shares through the Companys Dividend Reinvestment and Stock Purchase Plan, 762 shares to acquire DownREIT partnership units from a third party, 187,077 shares in connection with restricted stock grants to employees, less 5,016 shares of forfeited restricted stock.

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 Company has not entered into any interest rate hedge agreements or treasury locks for its conventional unsecured debt. The Swap Agreements are not held for trading or other speculative purposes. As of September 30, 2001, the effect of these Swap Agreements is to fix $167,587 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 Swap Agreement. The counterparties to these Swap Agreements 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 September 30, 2001, the Company recorded additional unrealized losses to other comprehensive loss of $6,079 to adjust the Swap Agreements to their fair value. In connection with the sale of a community during the first quarter of 2001, a Swap Agreement with a fair value of $528 was transferred to the new owner. Hedge ineffectiveness for the three and nine months ended September 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 September 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)
	9-30-01		12-31-00
Assets:
Real estate, net	$	146,190	$	132,832
Other assets	10,810		10,400

Total assets	$	157,000	$	143,232
Liabilities and partners' equity:
Mortgage notes payable	$	47,195	$	48,400
Other liabilities	9,487		8,656
Partners' equity	100,318		86,176

Total liabilities and partners' equity	$	157,000	$	143,232

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

	Three months ended						Nine months ended
	(unaudited)						(unaudited)
	9-30-01			9-30-00			9-30-01			9-30-00
Rental income	$	7,384		$	5,645		$	21,621		$	16,434
Other income	31			20			142			27
Operating and other expenses	(2,375		)	(1,597		)	(6,865		)	(4,363		)
Mortgage interest expense	(621		)	(274		)	(1,965		)	(816		)
Depreciation expense	(1,103		)	(808		)	(3,145		)	(2,390		)

Net income	$	3,316		$	2,986		$	9,788		$	8,892

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 due to the Companys significant influence over that entity. Operating results for the nine months ended September 30, 2001 reflect reclassifications made to amounts in prior periods financial statements to conform with current period presentations.

7. Communities Held for Sale

The Company has a policy of disposing of assets that are not consistent with its long-term investment criteria when market conditions are favorable. 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 four communities during the nine months ended September 30, 2001 and six communities during the nine months ended September 30, 2000.

Management intends to market additional communities for sale in 2001. 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 September 30, 2001, total real estate held for sale, net of accumulated depreciation, totaled $73,851. 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 September 30, 2001 of $1,599 and $697 for the three months ended September 30, 2001 and 2000, respectively, and $3,937 and $2,208 for the nine months ended September 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									Nine months ended
	Total revenue						Gross real estate			Total revenue						Gross real estate
			Net operating income		% NOI change from prior year period							Net operating income		% NOI change from prior year period
For the three and nine months ended 9-30-01

Segment Results

Established
Northeast	$	28,913	$	20,316	8.2	%	$		570,374	$	85,079	$	60,683	8.4	%	$	570,374
Mid-Atlantic	20,801		15,206		8.9	%	437,453			61,292		44,552		8.5	%	437,453
Midwest	5,260		3,241		0.5	%	144,607			15,831		9,758		2.1	%	144,607
Pacific Northwest	1,724		1,227		0.5	%	60,408			5,167		3,803		4.4	%	60,408
Northern California	39,420		29,814		1.8	%	1,215,580			120,684		93,415		12.8	%	1,215,580
Southern California	10,757		7,559		6.8	%	294,618			31,634		22,308		9.9	%	294,618

Total Established	106,875		77,363		5.2	%	2,723,040			319,687		234,519		9.9	%	2,723,040

Other Stabilized	40,368		27,647		10.8	%	1,072,491			122,500		85,999		22.1	%	1,072,491

Development / Redevelopment	16,026		9,740		50.2	%	854,992			39,198		23,951		30.6	%	854,992

Land Held for Future Development	n/a		n/a		n/a		55,664			n/a		n/a		n/a		55,664

Non-Allocated	n/a		n/a		n/a		27,919			n/a		n/a		n/a		27,919

Total AvalonBay	$	163,269	$	114,750	9.3	%	$	4,734,106		$	481,385	$	344,469	14.0	%	$	4,734,106

For the three and nine months ended 9-30-00

Segment Results

Established
Northeast	$	23,362	$	16,109	7.8	%	$	485,316		$	68,449	$	48,241	7.3	%	$	485,316
Mid-Atlantic	17,493		12,532		10.9	%	391,956			50,868		36,664		8.9	%	391,956
Midwest	5,176		3,225		0.3	%	144,338			15,245		9,554		5.2	%	144,338
Pacific Northwest	946		696		1.5	%	34,417			2,826		2,095		24.2	%	34,417
Northern California	27,457		20,940		17.9	%	936,683			78,315		59,729		12.9	%	936,683
Southern California	5,943		4,230		12.3	%	158,024			17,324		12,212		12.2	%	158,024

Total Established	80,377		57,732		11.7	%	2,150,734			233,027		168,495		10.0	%	2,150,734

Other Stabilized	49,905		35,849		9.8	%	1,382,426			145,965		103,919		17.6	%	1,382,426

Development / Redevelopment	16,069		11,466		97.6	%	860,658			42,405		29,828		99.5	%	860,658

Land Held for Future Development	n/a		n/a		n/a		57,332			n/a		n/a		n/a		57,332

Non-Allocated	n/a		n/a		n/a		24,852			n/a		n/a		n/a		24,852

Total AvalonBay	$	146,351	$	105,047	16.6	%	$	4,476,002		$	421,397	$	302,242	17.8	%	$	4,476,002

Operating expenses as reflected on the Condensed Consolidated Statements of Operations and Comprehensive Income include $7,057 and $7,244 for the three months ended September 30, 2001 and 2000, respectively, and $25,002 and $20,422 for the nine months ended September 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 $6,482 of accumulated depreciation as of September 30, 2001.

9. Subsequent Events

The Company announced during the third quarter that it had begun construction on Avalon Madison in downtown Seattle, Washington. Given the uncertain national economy and deteriorating market conditions in Seattle, the Company has elected to defer construction of Avalon Madison until economic conditions improve.

In October 2001, the Company redeemed all 4,300,000 outstanding shares of its 8.96% Series G Cumulative Redeemable Preferred Stock at a price of $25.00 per share, plus $0.4418 in accrued and unpaid dividends, for an aggregate redemption price of $25.4418 per share.

In October 2001, the Company announced the suspension of its Dividend Reinvestment and Stock Purchase Plan (the Plan) until further notice. Accordingly, stockholders can not purchase shares of AvalonBay common stock under the Plan, whether with an optional cash payment or a reinvestment of dividends, until the Company announces that it has resumed the Plan.

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 or defer 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 the Northeast, Mid-Atlantic, Midwest, Pacific Northwest, and Northern and Southern California 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.

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. 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. Given current capital market and transactional related conditions, we are carefully considering the appropriate allocation of capital investment among development and redevelopment communities as well as the acquisition of established communities. 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. See Liquidity and Capital Resources and Future Financing and Capital Needs.

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. With few exceptions, we capitalize pre-development costs incurred in pursuit of these new developments.

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

	Number of	Number of
	communities	apartment homes
Current Communities

Established Communities:
Northeast	20	5,416
Mid-Atlantic	18	5,297
Midwest	6	1,591
Pacific Northwest	2	486
Northern California	27	7,851
Southern California	11	3,112
Total Established	84	23,753

Other Stabilized Communities:
Northeast	15	3,958
Mid-Atlantic	2	615
Midwest	3	1,033
Pacific Northwest	9	2,573
Northern California	3	1,038
Southern California	6	1,957
Total Other Stabilized	38	11,174

Lease-Up Communities	1	510

Redevelopment Communities	3	1,917

Total Current Communities	126	37,354

Development Communities	15	3,886

Development Rights	31	9,196

In October, we sold a community containing 57 apartment homes which was combined with an existing current community for reporting purposes. As of November 1, 2001, our 126 apartment home communities consisted of 37,297 apartment homes. 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 17 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 thirteen of the Development Communities, and membership interests in two separate partnerships that each hold a fee simple interest in a 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 September 30, 2001, there were 671,083 units outstanding. The DownREIT partnerships are consolidated for financial reporting purposes.

At September 30, 2001, we had positioned our portfolio of Stabilized Communities, excluding communities owned by unconsolidated joint ventures, to an average physical occupancy level of 95.7%. 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 expect that any rental revenue and net income gains that are achieved will be realized through higher rental rates and lower average operating costs as well as from growth in our portfolio from development and acquisition activities. Occupancy in many of our markets has declined from historically high levels in 2000. We expect further declines in occupancy levels as certain markets continue to respond to supply-demand fundamentals.

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;

Woodbridge, New Jersey;

Newport Beach, California;

New York, New York; and

Seattle, Washington.

Recent Developments

The terrorist attacks on the World Trade Center and the Pentagon have had an immediate impact on global economic and social conditions. While the future impact of these and related events are unknown, we do not believe that our financial condition or operations will be directly and adversely impacted in a material way other than as relates to any acceleration in the decline in the economy caused by these events. We own interests in a total of 39 apartment communities located in or near, or in submarkets proximate to, New York City and Washington, D.C. that contain approximately 12,277 apartment homes, representing approximately 30% of AvalonBay's total portfolio (including 2,653 homes at 7 communities that are in development or lease-up).

Considering the communities' proximity to these two cities, there is some short-term uncertainty as to the rents that can be achieved at communities that are either in lease-up currently or expected to begin lease-up in the near term. The attacks also could decrease consumer confidence, and the resulting decline in the U.S. and local economies could impact future rent growth. At present, it is not possible to predict either the severity or duration of such declines. Adverse economic conditions could also result in decreased or delayed development of new communities, which could result in decreased earnings growth.

Notwithstanding the above, in the long-term we believe that the real estate fundamentals for the metropolitan New York and Washington, D.C. apartment markets will not be materially impacted by the events of September 11. We expect that assets in these markets will contribute long-term growth and stability to our portfolio, and we remain committed to maintaining a significant investment in these markets.

Sales of Existing Communities. We seek to allocate capital in order to optimize the level of 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 optimal 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, we sold three communities during the three months ended September 30, 2001 containing 1,708 apartment homes for net proceeds of approximately $152,600,000. 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 September 30, 2001, we completed the development of one community, Avalon at Arlington Square I, located in Arlington, Virginia. This community, containing 510 apartment homes, was completed for a total investment of $69,900,000.

We also commenced the development of three communities during the third quarter of 2001, Avalon at Flanders Hill (located in Westborough, Massachusetts), Avalon New Canaan (located in New Canaan, Connecticut) and Avalon at Arlington Square II (located in Arlington, Virginia). When completed, these communities are expected to contain a total of 716 apartment homes with a projected total investment of $109,500,000.

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 nine months ended September 30, 2001 and September 30, 2000 follows (dollars in thousands):


	For the three months ended											For the nine months ended
	9-30-01			9-30-00			$	Change		% Change		9-30-01			9-30-00			$	Change		% Change
Revenue:
Rental income	$	162,822		$	145,954		$	16,868		11.6	%	$	480,083		$	420,371		$	59,712		14.2	%
Management fees	336			261			75			28.7	%	985			761			224			29.4	%
Other income	111			136			(25		)	(18.4	)%	317			265			52			19.6	%
Total revenue	163,269			146,351			16,918			11.6	%	481,385			421,397			59,988			14.2	%

Expenses:
Operating expenses, excluding property taxes	42,205			36,390			5,815			16.0	%	122,837			104,860			17,977			17.1	%
Property taxes	13,371			12,158			1,213			10.0	%	39,081			34,717			4,364			12.6	%
Total operating expenses	55,576			48,548			7,028			14.5	%	161,918			139,577			22,341			16.0	%

Net Operating Income	107,693			97,803			9,890			10.1	%	319,467			281,820			37,647			13.4	%

Interest expense	26,701			21,385			5,316			24.9	%	75,138			61,815			13,323			21.6	%
Depreciation expense	32,165			30,599			1,566			5.1	%	95,455			91,227			4,228			4.6	%
General and administrative	3,421			3,359			62			1.8	%	10,969			9,591			1,378			14.4	%
Total other expenses	62,287			55,343			6,944			12.5	%	181,562			162,633			18,929			11.6	%

Equity in income of unconsolidated joint ventures	599			721			(122		)	(16.9	)%	527			2,117			(1,590		)	(75.1	)%
Interest income	1,599			1,277			322			25.2	%	4,876			3,245			1,631			50.3	%
Minority interest of unitholders in consolidated partnerships	(34		)	(485		)	451			(93.0	)%	(522		)	(1,499		)	977			(65.2	)%

Income before gain on sale of communities	47,570			43,973			3,597			8.2	%	142,786			123,050			19,736			16.0	%
Gain on sale of communities	39,098			14,521			24,577			169.3	%	43,999			33,273			10,726			32.2	%

Net income	86,668			58,494			28,174			48.2	%	186,785			156,323			30,462			19.5	%
Preferred dividends	(7,439		)	(9,944		)	2,505			(25.2	)%	(26,771		)	(29,834		)	3,063			(10.3	)%
Net income available to common stockholders	$	79,229		$	48,550		$	30,679		63.2	%	$	160,014		$	126,489		$	33,525		26.5	%

Net income available to common stockholders increased $30,679,000 (63.2%) to $79,229,000 for the three months ended September 30, 2001 and increased by $33,525,000 (26.5%) to $160,014,000 for the nine months ended September 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 $6,102,000 for the three months ended September 30, 2001 and $25,292,000 for the nine months ended September 30, 2001 compared to the same periods of 2000. These increases in net income, as adjusted, for the three and nine months ended September 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 investment criteria. 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 $37,647,000 for the nine months ended September 30, 2001 as compared to the same period of 2000 is attributable to:

an increase of $9,462,000 related to communities where development activities, redevelopment activities or acquisitions were completed subsequent to January 1, 2000;

an increase of $21,119,000 related to Established Communities;

a decrease of $10,697,000 related to communities sold subsequent to January 1, 2000;

an increase of $22,343,000 related to all other communities; and

less $4,580,000 related to an increase in unallocated overhead expense including $2,493,000 of 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 11.6% for the three months ended and 14.2% for the nine months ended September 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 $16,868,000 (11.6%) for the three months ended September 30, 2001 compared to the same period of 2000. Rental revenue increased $59,712,000 (14.2%) for the nine months ended September 30, 2001 compared to the same period of 2000. The weighted average number of occupied apartment homes increased to 34,995 apartment homes for the nine months ended September 30, 2001 from 33,941 apartment homes for the nine months ended September 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 nine months ended September 30, 2001, the weighted average monthly revenue per occupied apartment home increased $148 (10.8%) to $1,523 compared to $1,375 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 $5,637,000 (5.6%) for the three months ended September 30, 2001 compared to the same period of 2000. Rental revenue increased $26,775,000 (9.1%) for the nine months ended September 30, 2001 compared to the same period of 2000. The increase for the nine 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 nine months ended September 30, 2001, weighted average monthly revenue per occupied apartment home increased $149 (10.6%) to $1,556 compared to $1,407 for the same period of the preceding year. The average economic occupancy decreased from 97.6% for the nine months ended September 30, 2000 to 96.1% for the nine months ended September 30, 2001.

We have observed increased volatility in certain Northern California sub-markets over the past two years, which accounts for approximately 36.9% of current Established Community rental revenue. While market rental rates increased substantially in 2000, we have experienced reductions in market rental rates in 2001 (18.1% from January to September) as market conditions reset to more sustainable levels. Economic occupancy decreased in the Northern California region from 97.8% for the nine months ended September 30, 2000 to 94.8% for the same period of 2001.

Management fees increased 28.7% for the three months ended and 29.4% for the nine months ended September 30, 2001 primarily due to the formation of the Avalon Terrace joint venture and the management of a new third-party community in connection with the development of a new community.

Operating expenses, excluding property taxes increased 16.0% for the three months ended and 17.1% for the nine months ended September 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 during the first quarter of 2001. 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 $1,668,000 (8.7%) to $20,775,000 for the three months ended September 30, 2001 compared to $19,107,000 for the same period of 2000. These expenses increased $5,009,000 (9.2%) to $59,514,000 for the nine months ended September 30, 2001 compared to $54,505,000 for the same period of 2000. These increases are primarily the result of higher insurance, marketing and redecorating costs.

Property taxes increased 10.0% for the three months ended and 12.6% for the nine months ended September 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 $172,000 (2.0%) to $8,737,000 for the three months ended September 30, 2001 compared to $8,565,000 for the same period of 2000. Property taxes increased $674,000 (2.7%) to $25,654,000 for the nine months ended September 30, 2001 compared to $24,980,000 for the same period of 2000. These increases are primarily due to higher assessments throughout all regions.

Interest expense increased 24.9% for the three months ended and 21.6% for the nine months ended September 30, 2001 primarily due to the issuance of $350,000,000 of unsecured notes during the second half of 2000 and the issuance of $300,000,000 of unsecured notes in September 2001.

Depreciation expense increased 5.1% for the three months ended and 4.6% for the nine months ended September 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 1.8% for the three months ended and 14.4% for the nine months ended September 30, 2001 primarily due to an increase in office personnel and related payroll costs. In addition, there was an increase in compensation expense as costs for certain officers and associates were expensed in the current period but were capitalized a year ago as those officers and associates served the Company in a different capacity.

Equity in income of unconsolidated joint ventures decreased 16.9% for the three months ended and 75.1% for the nine months ended September 30, 2001 primarily due to our pro rata share of net losses from a technology investment accounted for under the equity method as well as a valuation allowance of $934,000 for the nine months ended September 30, 2001 recorded for an investment in a technology company accounted for under the cost method.

Interest income increased 25.2% for the three months ended and 50.3% for the nine months ended September 30, 2001 due to an increase in average cash balances invested.

Gain on sale of communities increased $24,577,000 (169.3%) to $39,098,000 from $14,521,000 for the three months ended September 30, 2001 compared to the same period of the previous year. Gain on sale of communities increased by $10,726,000 (32.2%) to $43,999,000 from $33,273,000 for the nine months ended September 30, 2001 compared to the same periods of 2000. These gains represent the sale of three communities containing an aggregate of 1,708 apartment homes in the third quarter of 2001 and three communities consisting of an aggregate of 708 apartment homes in the same period of 2000. The gains for the nine months ended September 30 represent the sale of four communities containing 1,934 apartment homes in the year 2001 and six communities containing 1,554 apartment homes in the year 2000.

Funds from Operations

We consider Funds from Operations (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, 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 September 30, 2001, FFO increased to $72,319,000 from $64,498,000 for the same period of 2000. For the nine months ended September 30, 2001, FFO increased to $211,187,000 from $184,082,000 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 nine months ended
	(dollars in thousands)						(dollars in thousands)
	9-30-01			9-30-00			9-30-01			9-30-00
Net income	$	86,668		$	58,494		$	186,785		$	156,323
Preferred dividends	(7,439		)	(9,944		)	(26,771		)	(29,834		)
Depreciation - real estate assets	31,512			29,830			93,183			88,877
Joint venture adjustments	283			200			813			590
Minority interest expense	393			439			1,176			1,399
Gain on sale of communities	(39,098		)	(14,521		)	(43,999		)	(33,273		)
Funds from Operations	$	72,319		$	64,498		$	211,187		$	184,082

Net cash provided by operating activities	$	63,694		$	80,826		$	235,354		$	204,267
Net cash used in investing activities	$	(35,748	)	$	(60,583	)	$	(212,969	)	$	(207,643	)
Net cash provided by (used in) financing activities	$	159,278		$	(11,553	)	$	121,774		$	6,117

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 nine months ended September 30, 2001 resulted in non-revenue generating capitalized expenditures for Stabilized Communities of approximately $191 per apartment home. For Stabilized Communities, we charged an average of $941 per apartment home to maintenance expense for the nine months ended September 30, 2001, including carpet and appliance replacements. This compares to $114 and $866 per apartment home for capital expenditures and maintenance, respectively, 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 increased $144,159,000 to $201,393,000 for the nine months ended September 30, 2001 compared to an increase in cash and cash equivalents of $2,741,000 to $10,362,000 for the nine months ended September 30, 2000.

Net cash provided by operating activities totaled $235,354,000 for the nine months ended September 30, 2001, an increase of $31,087,000 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 partially offset by the sale of communities.

Net cash used in investing activities totaled $212,969,000 for the nine months ended September 30, 2001, an increase of $5,326,000 used over the same period of 2000. This increase is primarily due to an increase in expenditures in development and redevelopment activity partially offset by an increase in proceeds from the sale of communities.

Net cash provided by financing activities totaled $121,774,000 for the nine months ended September 30, 2001, an increase of $115,657,000 over the same period of 2000. Net cash provided for the nine months ended September 30, 2001 is primarily due to proceeds from the issuance of $300,000,000 of senior notes in September 2001 partially offset by the redemption of our Series F Preferred Stock.

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;

opportunities for the acquisition of improved property; 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

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 $650,000,000. We pay participating 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 (2.9% on November 1, 2001). 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 0.43% for amounts most recently borrowed under the competitive bid option. At November 1, 2001, zero was outstanding, $86,691,000 was used to provide letters of credit and $413,309,000 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 $168,000,000 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 September 30, 2001, we had 15 new communities under construction. Also, one additional community is being built by an unaffiliated third party with whom we have entered into a forward purchase commitment. As of September 30, 2001, a total estimated cost of $459,645,000 remained to be invested in these communities. In addition, we had three other communities under reconstruction, for which an estimated $20,961,000 remained to be invested as of September 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. 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 resulting charge to earnings.

It is our policy to sell assets that do not meet our long-term investment criteria when market conditions are favorable, and redeploy 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 September 30, 2001 totaled $73,851,000. Certain individual assets are secured by mortgage indebtedness which may be assumed by the purchaser or repaid from our net sales proceeds. Our Condensed Consolidated Statements of Operations and Other Comprehensive Income include net income from these communities of $1,599,000 for the three months ended September 30, 2001 and $3,937,000 for the nine months ended September 30, 2001. Our Condensed Consolidated Statements of Operations and Other Comprehensive Income include net income from these communities of $698,000 for the three months ended September 30, 2000 and $2,208,000 for the nine months ended September 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 September 30, 2001, we have contributed approximately $959,000.

Debt Maturities

The following table 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		9-30-01			2001		2002		2003		2004		2005		Thereafter
Tax-Exempt Bonds

*Fixed Rate*
Avalon at Foxchase I	5.88	%	Nov-2007	$	16,800	$	16,800	(3)	$	--	$	--	$	--	$	--	$	--	$	16,800
Avalon at Foxchase II	5.88	%	Nov-2007	9,600		9,600		(3)	--		--		--		--		--		9,600
Fairway Glen	5.88	%	Nov-2007	9,580		9,580		(3)	--		--		--		--		--		9,580
CountryBrook	7.87	%	Mar-2012	18,934		18,668			91		386		417		451		488		16,835
Waterford	5.88	%	Aug-2014	33,100		33,100		(3)	--		--		--		--		--		33,100
Avalon at Mountain View	5.88	%	Mar-2017	18,300		18,300		(3)	--		--		--		--		--		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		18,205			90		373		397		425		455		16,465
Avalon at Lexington	6.56	%	Feb-2025	14,347		14,143			67		288		307		326		347		12,808
Avalon Oaks	6.95	%	Feb-2041	--		17,740			71		90		97		104		111		17,267
Avalon at Nob Hill	5.80	%	Jun-2025	20,013		19,814		(3)	69		288		308		331		355		18,463
Avalon at Mission Viejo	5.50	%	Jun-2025	7,354		7,281		(3)	25		105		112		121		129		6,789
Avalon Campbell	6.48	%	Jun-2025	36,981		36,538		(3)	151		637		684		733		786		33,547
Avalon Pacifica	6.48	%	Jun-2025	16,775		16,574		(3)	69		289		310		332		356		15,218
Crossbrook	6.48	%	Jun-2025	8,156		--		(2)	--		--		--		--		--		--
Avalon Knoll	6.95	%	Jun-2026	13,393		13,244			51		214		230		246		263		12,240
Avalon Landing	6.85	%	Jun-2026	6,626		6,551			26		108		116		124		132		6,045
Avalon Fields	7.05	%	May-2027	11,609		11,494			42		169		180		193		207		10,703
Avalon West	7.73	%	Dec-2036	8,579		8,537			15		61		65		70		75		8,251
				290,752		298,309			767		3,008		3,223		3,456		3,704		284,151
*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
$300 Million medium-term notes	6.625	%	Sep-2011	--		300,000			--		--		--		--		--		300,000
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		12,106			70		288		315		11,433		--		--
				1,371,212		1,659,976			70		100,288		150,315		149,303		150,000		1,110,000
*Variable Rate*
Avalon on the Sound			2002	--		53,218			--		53,218		--		--		--		--

Total indebtedness - excluding unsecured credit facility				$	1,729,924	$	2,079,463		$	837	$	156,514	$	153,538	$	152,759	$	153,704	$	1,462,111

(1) Includes credit enhancement fees, facility fees, trustees, etc.

(2) The remaining loan balance was repaid in connection with the disposition of the community during 2001.

(3) Interest rate is effectively fixed through a swap agreement.

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. In October 2001, we redeemed all 4,300,000 outstanding shares of our 8.96% Series G Cumulative Redeemable Preferred Stock at a price of $25.00 per share, plus $0.4418 in accrued and unpaid dividends, for an aggregate redemption price of $25.4418 per share. We currently have other series of redeemable preferred stock outstanding sharing an aggregate stated value of $239,192,500. These series become redeemable at our option at various times over the next seven years. As such series become redeemable, we will evaluate the requirements necessary for such redemptions as well as the cost-effectiveness based on the existing market conditions.

	Shares outstanding	Payable quarterly	Annual rate	Liquidation preference	Non-redeemable prior to
Series	November 1, 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

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.

We are currently completing a new PML analysis which we expect to be complete before the end of the year.

In November 2001, we renewed our earthquake insurance. For any single occurrence, and in the aggregate, we have in place with respect to communities located in California, $67,000,000 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, with the exception of Washington State, is subject to a $100,000,000 limit and a $100,000 deductible per occurrence. In addition, up to an aggregate of $2,000,000, the next $400,000 of loss per occurrence will be treated as an additional deductible. Coverage in Washington State is subject to a $65,000,000 limit, with the same deductible. 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.

Insurance

We have noted that the insurance and reinsurance markets have worsened as compared to the prior year, which we believe will result in higher insurance costs for the entire real estate sector. The impact of the terrorist attacks on the World Trade Center and the Pentagon on September 11, 2001 have further deteriorated these markets.

Our annual general liability policy was renewed on August 1, 2001, and our property coverage was renewed on November 1, 2001. While the insurance coverage provided for in the renewal policies has not materially changed from the preceding year, the level of our deductible and premiums costs have increased significantly. We expect that our insurance costs will increase by approximately $9.2 million (of which $4 million is for the primary layer of property coverage) including the cost of deductible allocations, which represents uninsured losses that previously would have been covered by insurance. The remaining $5.2 million increase is for the upper layers of property coverage and casualty coverage.

Development Communities

As of September 30, 2001, we had 15 Development Communities under construction. We expect these Development Communities, when completed, to add a total of 3,886 apartment homes to our portfolio for a total capitalized cost, including land acquisition costs, of approximately $765,700,000. 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 on the following page.

We hold a fee simple ownership interest in thirteen of the Development Communities, and membership interests in two separate partnerships that each hold a fee simple interest in a Development Community.

The following table presents a summary of the Development Communities:

Number of

Budgeted

Estimated

apartment

cost (1)

Construction

Initial

completion

stabilization

homes

($ millions)

start

occupancy (2)

date

date (3)

Avalon at Edgewater
Edgewater, NJ

408

$75.6

Q3 1999

Q2 2001

Q2 2002

Q4 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

Q3 2001

Q4 2001

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

Q1 2002

Q3 2002

Q1 2003

Avalon Riverview I
Long Island City, NY

372

$102.5

Q4 2000

Q2 2002

Q4 2002

Q2 2003

Avalon at Mission Bay North
San Francisco, CA

250

$79.5

Q1 2001

Q4 2002

Q1 2003

Q3 2003

10.

Avalon Oaks West
Wilmington, MA

120

$17.7

Q1 2001

Q4 2001

Q2 2002

Q4 2002

11.

Avalon Ledges
Weymouth, MA

304

$37.7

Q2 2001

Q2 2002

Q1 2003

Q3 2003

12.

Avalon Orchards
Marlborough, MA

156

$21.7

Q2 2001

Q1 2002

Q4 2002

Q2 2003

13.

Avalon at Arlington Square II
Arlington, VA

332

$43.9

Q3 2001

Q3 2002

Q1 2003

Q3 2003

14.

Avalon at Flanders Hill
Westborough, MA

280

$38.4

Q3 2001

Q3 2002

Q2 2003

Q4 2003

15.

Avalon New Canaan (5)
New Canaan, CT

104

$27.2

Q3 2001

Q3 2002

Q4 2002

Q2 2003

Subtotal

3,886

$765.7

(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 GAAP.

(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 is being 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.

(5) The land for this community is currently owned by Town Close Associates Limited Partnership in which the Company is a majority partner. It is currently anticipated that the land seller will retain a minority limited partner interest. The costs reflected above are net of construction and management fees due to AvalonBay.

Redevelopment Communities

As of September 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:


		Number of apartment		Budgeted Cost ($ millions)			Estimated restabilized
		homes	Acquisition cost	Total cost (1)	Reconstruction	Reconstruction	operations

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 (4) Stamford, CT	388	$37.5	$61.0	Q4 2000	Q2 2002	Q4 2002

	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.

(4) This community is being redeveloped in a joint venture structure with third party financing. Our portion of the total cost for this unconsolidated joint venture is projected to be $9.6 million after project based debt.

Development Rights

As of September 30, 2001, we are considering the development of 31 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 9,196 upscale apartment homes to our portfolio. At September 30, 2001, the cumulative capitalized cost incurred in pursuit of the 31 Development Rights, including the cost of land acquired in connection with seven of the Development Rights, was approximately $79,400,000, of which $55,700,000 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. We will consider the use of debt as well as other financing structures to finance the development of these Development Rights scheduled to start construction after October 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 below.

The following presents a summary of the 31 Development Rights we are currently pursuing:

				Total
			Estimated	budgeted
			number	costs
	Location		of homes	($ millions)
1.	North Bethesda, MD		386	$	46
2.	Washington, D.C.	(1)	203	50
3.	North Bethesda, MD		499	85
4.	Darien, CT	(1)	189	39
5.	Wilton, CT		113	24
6.	Glendale, CA		223	49
7.	Newton, MA		294	58
8.	Lawrence, NJ		312	43
9.	Danbury, CT		253	36
10.	Seattle, WA	(1)	154	50
11.	Coram, NY		450	65
12.	Los Angeles, CA	(1)	309	59
13.	Kirkland, WA		215	50
14.	Oakland, CA	(1)	180	40
15.	Orange, CT	(1)	168	21
16.	Bellevue, WA		349	63
17.	Glen Cove, NY		256	71
18.	Hingham, MA		270	44
19.	Bedford, MA		139	21
20.	North Potomac, MD		520	61
21.	New Rochelle, NY Phase II and III		588	144
22.	Washington, D.C.	(1)	144	30
23.	Cohasset, MA		240	38
24.	Stratford, CT		146	18
25.	Milford, CT		284	35
26.	Long Island City, NY Phase II and III		539	162
27.	Greenburgh, NY Phase II and III		766	139
28.	Andover, MA		136	21
29.	San Francisco, CA		303	106
30.	Hopewell, NJ Phase I		280	40
31.	Hopewell, NJ Phase II		288	43

	Totals		9,196	$	1,751

(1) Company owns land, but construction has not yet begun.

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, or defer development once started, 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. 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 GAAP.

We believe that we could experience increases in construction costs with respect to 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 either fully offset the effects of any increased construction or reconstruction costs or to achieve the original projected yields for these communities (i.e., return on invested capital).

Capitalized Interest

In accordance with GAAP, 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 $7,221,000 for the three months ended September 30, 2001 and $19,340,000 for the nine months ended September 30, 2001. Capitalized interest totaled $5,255,000 for the three months ended September 30, 2000 and $12,912,000 for the nine months ended September 30, 2000.

Part I.	FINANCIAL INFORMATION (continued)

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

		None

Item 5.		Other Information

		None

Item 6.		Exhibits and Reports on Form 8-K

		(a) Exhibits

Exhibit No.		Description

1.1	--	Distribution Agreement, dated December 21, 1998, among the Company and the Agents, including Administrative Procedures, relating to the Companys medium-term notes. (Incorporated by reference to Exhibit 4.4 to the Company's Current Report on Form 8-K filed on December 21, 1998.)

1.2	--	First Amendment, dated as of June 27, 2000, to Distribution Agreement, dated December 21, 1998, among the Company and the Agents. (Incorporated by reference to Exhibit 1.2 to the Company's Current Report on Form 8-K filed on July 11, 2000.)

1.3	--	Second Amendment, dated as of August 31, 2001, to the Distribution Agreement, dated December 21, 1998, by and among the Company and the Agents named therein. (Incorporated by reference to Exhibit 1.3 to the Company's Current Report on Form 8-K filed on September 5, 2001.)

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	--	Employment Agreement, dated as of September 10, 2001, between the Company and Leo S. Horey. (Filed herewith.)

12.1	--	Statements re: Computation of Ratios.

		(b) Reports on Form 8-K

		On September 5, 2001, the Company filed a Report on Form 8-K to disclose that the Company filed a prospectus supplement to the prospectus contained in its Registration Statement on Form S-3 (File No. 333-57888), which was declared effective by the Securities and Exchange Commission on April 11, 2001, relating to the offering from time to time of medium-term notes in an aggregate principal amount of up to $750,000,000. In connection with the filing of the prospectus supplement, the Company amended the Distribution Agreement, dated December 21, 1998, by and among the Company and the Agents identified therein, as previously amended on June 27, 2000, to effect a change in the Agents involved in the distribution of the medium-term notes.

		On September 28, 2001, the Company filed a Report on Form 8-K to disclose that it published and mailed notice of its intention to redeem all outstanding shares of its 8.96% Series G Cumulative Redeemable Preferred Stock (the "Series G Preferred Stock") on October 26, 2001 at a price of $25.00 per share, plus $0.4418 in accrued and unpaid dividends to the redemption date, for an aggregate redemption price of $25.4418 per share of Series G Preferred Stock

filed herewith

SIGNATURES

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:	November 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

Funds from Operations

Future Financing and Capital Needs

Inflation

Natural Disasters

Insurance

Development Rights

Risks of Development and Redevelopment

Capitalized Interest

10-Q: Quarterly report pursuant to Section 13 or 15(d)

Funds from Operations

Future Financing and Capital Needs

Inflation

Natural Disasters

Insurance

Development Rights

Risks of Development and Redevelopment

Capitalized Interest