AvalonBay Communities Announces Second Quarter 2004 Operating Results.

ALEXANDRIA, Va. -- AvalonBay Communities, Inc. (NYSE/PCX:AVB) reported today that fewer dispositions in the second quarter 2004 resulted in lower Earnings per Share - diluted ("EPS") than in the same quarter of 2003, but the Company's Funds from Operations attributable to common stockholders - diluted ("FFO") per share was flat as compared to second quarter 2003.

Net Income Available to Common Stockholders for the quarter ended June 30, 2004 was $32,859,000, resulting in EPS of $0.46, compared to $1.08 for the comparable period of 2003, a per share decrease of 57.4%.

FFO per share for the quarter ended June 30, 2004 was $60,450,000, or $0.83 per share compared to $57,153,000, or $0.83 per share for the comparable period of 2003. The Company's second quarter 2004 FFO per share is higher than the estimate of $0.77 to $0.81 provided in April 2004 due to better than expected community operating results, lower than expected interest expense and lower than expected property taxes due to a property tax refund pertaining to prior periods.

Commenting on the Company's results, Bryce Blair, Chairman, CEO and President said, "It is becoming increasingly apparent that our markets are transitioning to growth. Although seasonal factors will temper the third quarter, our expectation for the second half of the year is driving us to increase the mid-point of our full year financial outlook by $0.06."

Highlights from the Company's second quarter that suggest the economic expansion is leading to improved apartment fundamentals include:

--Five consecutive months of sequential Established Community revenue growth, largely due to increases in occupancy;

--A 140 bps increase in Economic Occupancy over the second quarter 2003; and

--A decline in availability to levels not seen in three years.

Year-to-Date 2004 Financial Results

For the six months ended June 30, 2004, EPS was $0.79 compared to $1.57 for the comparable period of 2003, a per share decrease of 49.7%. FFO per share for the six months ended June 30, 2004 decreased by 2.4% to $1.62 from $1.66 for the comparable period in 2003.

Operating Results for the Three and Six Months Ended June 30, 2004

Total revenue for the second quarter 2004 increased by $5,396,000, or 3.4% to $163,734,000 from the second quarter 2003. Total revenue for the six months ended June 30, 2004 increased by $4,636,000, or 1.5% to $323,198,000 as compared to the comparable period of 2003.

For Established Communities, rental revenue decreased 0.8%, operating expenses increased 0.2%, and Net Operating Income ("NOI") decreased 1.2% during the second quarter 2004 as compared to the second quarter 2003. For the six months ended June 30, 2004, Established Communities rental revenue decreased 1.5%, operating expenses increased 1.6%, and NOI decreased 2.8% as compared to the comparable period of 2003.

Sequentially, as compared to the first quarter 2004, Established Communities rental revenue increased 1.2%, operating expenses decreased 1.6% and NOI increased 2.5%.

Outlook

The Company has lowered its range for projected EPS for 2004 due to changes in its disposition plan. The Company expects EPS in the range of $0.39 to $0.43 for the third quarter of 2004 and in the range of $1.47 to $1.57 for the full year 2004.

Although market fundamentals are improving in many of the Company's markets, concessions remain prevalent and rental rates are flat sequentially. The third quarter has historically been a period of high turnover, resulting in increased operating expenses, increased availability and continued pressure on rental rates. Accordingly, the Company expects Projected FFO per share in the third quarter of 2004 to be essentially flat as compared to the second quarter of 2004, and to increase sequentially in the fourth quarter of 2004 from the third quarter of 2004.

As such, the Company expects Projected FFO per share in the range of $0.80 to $0.84 for the third quarter of 2004 and in the range of $3.23 to $3.33 for the full year 2004.

Conference Call

The Company will hold a conference call on July 20, 2004 at 11:00 AM EDT to review and answer appropriate questions about these results and projections, the earnings release attachments described below, and related matters. The domestic number to call to participate is 1-877-510-2397. The international number to call to participate is 1-706-634-5877. The domestic number to hear a replay of this call is 1-800-642-1687, and the international number to hear a replay of this call is 1-706-645-9291 - Access Code: 8106223.

A webcast of the conference call will also be available at http://www.avalonbay.com/earnings, and an on-line playback of the webcast will be available for at least 30 days following the call.

Earnings Release and Attachments

In addition to this release, the Company also publishes a complete discussion of its second quarter 2004 operating results ("the Full Release") and Earnings Release Attachments ("the Attachments") that provide detailed information regarding operating, development, redevelopment, disposition and acquisition activity. The Full Release and the Attachments are considered a part of this release and are available through the Company's website at http://www.avalonbay.com/earnings and via e-mail distribution. The ability to access the Full Release and the Attachments on the Company's website requires the Adobe Acrobat 6.0 Reader, which may be downloaded at the following website address: http://www.adobe.com/products/acrobat/readstep.html.

Definitions and Reconciliations

The following non-GAAP financial measures and other terms, as used in the text of this earnings release, are defined and further explained on Attachment 1, "Definitions and Reconciliations of Non-GAAP Financial Measures and Other Terms":

--FFO

--Projected FFO

--Established Communities

--Stabilized Operations

--NOI

--Economic Occupancy

--Market Rents

About AvalonBay Communities, Inc.

As of June 30, 2004, AvalonBay owned or held an ownership interest in 147 apartment communities containing 42,676 apartment homes in ten states and the District of Columbia, of which 14 communities were under construction and one community was under reconstruction. AvalonBay is an equity REIT in the business of developing, redeveloping, acquiring and managing apartment communities in high barrier-to-entry markets of the United States. More information on AvalonBay may be found on AvalonBay's website at http://www.avalonbay.com.

Forward-Looking Statements

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You can identify these forward-looking statements by the Company's use of words such as "expects," "plans," "estimates," "projects," "intends," "believes" and similar expressions that do not relate to historical matters. Actual results may differ materially from those expressed or implied by the forward-looking statements as a result of risks and uncertainties, including possible changes in demand for apartment homes, the effects of economic conditions (including interest rates), the impact of competition and competitive pricing, delays in completing developments and lease-ups on schedule, changes in construction costs, the results of financing efforts, the timing and closing of planned dispositions under agreement, the effects of the Company's accounting policies and other matters detailed in the Company's filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2003 under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements."

The Company does not undertake a duty to update forward-looking statements, including its expected operating results for the third quarter or the full year 2004. The Company may, in its discretion, provide information in future public announcements regarding its outlook that may be of interest to the investment community. The format and extent of future outlooks may be different from the format and extent of the information contained in this release.

AvalonBay Communities, Inc.
 Definitions and Reconciliations of Non-GAAP Financial Measures and
                              Other Terms


This release, including its attachments, contains certain non-GAAP
financial measures and other terms. The definition and calculation of
these non-GAAP financial measures and other terms may differ from the
definitions and methodologies used by other REITs and, accordingly,
may not be comparable. The non-GAAP financial measures referred to
below should not be considered an alternative to net income as an
indication of our performance. In addition, these non-GAAP financial
measures do not represent cash generated from operating activities in
accordance with GAAP and therefore should not be considered as an
alternative measure of liquidity or as indicative of cash available to
fund cash needs.

FFO is determined based on a definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT"). FFO is calculated by the Company as net income or loss computed in accordance with GAAP, adjusted for gains or losses on sales of property, extraordinary gains or losses (as defined by GAAP), cumulative effect of a change in accounting principle and depreciation of real estate assets, including adjustments for unconsolidated partnerships and joint ventures. Management generally considers FFO to be an appropriate supplemental measure of operating performance because, by excluding gains or losses related to dispositions of property and excluding real estate depreciation (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO can help one compare the operating performance of a company's real estate between periods or as compared to different companies. A reconciliation of FFO to net income is as follows (dollars in thousands):

Q2          Q2          YTD         YTD
                          2004        2003        2004        2003
                       ----------- ----------- ----------- -----------


Net income             $   35,034  $   76,468  $   60,311  $  113,856
Dividends attributable
 to preferred stock        (2,175)     (2,706)     (4,350)     (6,394)
Depreciation - real
 estate assets,
 including
 discontinued
 operations and joint
 venture adjustments       39,054      37,523      77,551      75,069
Minority interest,
 including
 discontinued
 operations                   912         379       1,239         762
Cumulative effect of
 change in accounting
 principle                     --          --      (4,547)         --
Gain on sale of
 communities              (12,375)    (54,511)    (12,375)    (68,583)
                       ----------- ----------- ----------- -----------

FFO attributable to
 common stockholders   $   60,450  $   57,153  $  117,829  $  114,710
                       =========== =========== =========== ===========

Average shares
 outstanding - diluted 73,037,484  68,903,145  72,791,470  69,007,504

EPS - diluted          $     0.46  $     1.08  $     0.79  $     1.57
                       =========== =========== =========== ===========

FFO per common share -
 diluted               $     0.83  $     0.83  $     1.62  $     1.66
                       =========== =========== =========== ===========

Projected FFO, as provided within this release in the Company's outlook, is calculated on a consistent basis as historical FFO, and is therefore considered to be an appropriate supplemental measure to projected net income of projected operating performance. A reconciliation of the range provided for Projected FFO per share (diluted) for the third quarter and full year 2004 to the range provided for projected EPS (diluted) is as follows:

Low       High
                                                     range      range
                                                    --------  --------

Projected EPS (diluted) - Q3 04                     $  0.39   $  0.43
Projected depreciation (real estate related)           0.53      0.58
Projected gain on sale of communities                 (0.12)    (0.17)
                                                    --------  --------

Projected FFO per share (diluted) - Q3 04           $  0.80   $  0.84
                                                    ========  ========


Projected EPS (diluted) - Full Year 2004            $  1.47   $  1.57
Projected depreciation (real estate related)           2.12      2.22
Projected gain on sale of communities                 (0.29)    (0.39)
Cumulative effect of change in accounting principle   (0.07)    (0.07)
                                                    --------  --------

Projected FFO per share (diluted) - Full Year 2004  $  3.23   $  3.33
                                                    ========  ========

Established Communities are identified by the Company as 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 Operations, as defined below, as of the beginning of the prior year. Therefore, for 2004, Established Communities are communities that have Stabilized Operations as of January 1, 2003 and are not conducting or planning to conduct substantial redevelopment activities within the current year. Established Communities do not include communities that are currently held for sale or planned for disposition during the current year.

Stabilized Operations is defined as the earlier of (i) attainment of 95% physical occupancy or (ii) the one-year anniversary of completion of development.

NOI is defined by the Company as total revenue less direct property operating expenses (including property taxes), and excludes corporate-level property management and other indirect operating expenses, interest income and expense, general and administrative expense, joint venture income, minority interest and venture partner interest in profit-sharing, depreciation expense, gain on sale of communities, impairment losses, cumulative effect of change in accounting principle and income from discontinued operations. The Company considers NOI to be an appropriate supplemental measure to net income of operating performance of a community or communities because it helps both investors and management to understand the core operations of a community or communities prior to the allocation of any corporate-level property management overhead or general and administrative costs. This is more reflective of the operating performance of a community, and allows for an easier comparison of the operating performance of single assets or groups of assets. In addition, because prospective buyers of real estate have different overhead structures, with varying marginal impact to overhead by acquiring real estate, NOI is considered by many in the real estate industry to be a useful measure for determining the value of a real estate asset or groups of assets.

A reconciliation of NOI (from continuing operations) to net income, as well as a breakdown of NOI by operating segment, is as follows (dollars in thousands):

Q2        Q2        Q1
                                           2004      2003      2004
                                         --------- --------- ---------

Net income                               $ 35,034  $ 76,468  $ 25,277
Property management and other indirect
 operating expenses                         9,248     7,056     8,157
Interest income                               (36)     (880)      (20)
Interest expense                           32,482    34,067    32,286
General and administrative expense          4,071     3,623     3,971
Joint venture income, minority interest
 and venture partner interest in profit-
 sharing                                      496        27        (7)
Depreciation expense                       40,173    37,053    39,571
Cumulative effect of change in
 accounting principle                          --        --    (4,547)
Gain on sale of communities               (12,375)  (54,511)       --
Income from discontinued operations          (608)   (3,011)   (1,184)
                                         --------- --------- ---------

NOI from continuing operations           $108,485  $ 99,892  $103,504
                                         ========= ========= =========

Established:
    Northeast                            $ 25,363  $ 25,560  $ 23,477
    Mid-Atlantic                           11,328    10,899    11,062
    Midwest                                 1,547     1,521     1,573
    Pacific NW                              4,924     4,785     4,977
    No. California                         23,218    24,835    23,380
    So. California                         10,197     9,897    10,249
                                         --------- --------- ---------
        Total Established                  76,577    77,497    74,718
                                         --------- --------- ---------
Other Stabilized                           18,651    14,682    18,415
Development/Redevelopment                  13,116     7,636    10,197
Non-Allocated                                 141        77       174
                                         --------- --------- ---------

NOI from continuing operations           $108,485  $ 99,892  $103,504
                                         ========= ========= =========


                                            YTD       YTD
                                           2004      2003
                                         --------- ---------

Net income                               $ 60,311  $113,856
Property management and other indirect
 operating expenses                        17,404    15,053
Interest income                               (56)   (1,782)
Interest expense                           64,768    68,041
General and administrative expense          8,041     7,254
Joint venture income, minority interest
 and venture partner interest in profit-
 sharing                                      489        97
Depreciation expense                       79,745    73,723
Cumulative effect of change in
 accounting principle                      (4,547)       --
Gain on sale of communities               (12,375)  (68,583)
Income from discontinued operations        (1,792)   (8,002)
                                         --------- ---------

NOI from continuing operations           $211,988  $199,657
                                         ========= =========

Established:
    Northeast                            $ 48,840  $ 50,337
    Mid-Atlantic                           22,390    21,735
    Midwest                                 3,120     2,943
    Pacific NW                              9,901     9,827
    No. California                         46,598    50,709
    So. California                         20,446    20,129
                                         --------- ---------
        Total Established                 151,295   155,680
                                         --------- ---------
Other Stabilized                           37,065    28,181
Development/Redevelopment                  23,313    15,339
Non-Allocated                                 315       457
                                         --------- ---------

NOI from continuing operations           $211,988  $199,657
                                         ========= =========

NOI as reported by the Company does not include the operating results from discontinued operations (i.e., assets sold or held for sale as of June 30, 2004). A reconciliation of NOI from communities sold or held for sale to net income for these communities for the second quarter and year-to-date 2004 is as follows (dollars in thousands):

Q2       YTD
                                                    2004      2004
                                                  --------  --------


NOI from assets held for sale                     $   464   $   990
NOI from assets sold                                  196     1,140
                                                  --------  --------

    NOI from discontinued operations              $   660   $ 2,130
                                                  ========  ========

Income from discontinued operations               $   608   $ 1,792
Interest expense, net                                  52       213
Depreciation expense                                   --       125
                                                  --------  --------

NOI from discontinued operations                  $   660   $ 2,130
                                                  ========  ========

Economic Occupancy is defined as total possible revenue less vacancy loss as a percentage of total possible revenue. Total possible revenue is determined by valuing occupied units at contract rates and vacant units at Market Rents. Vacancy loss is determined by valuing vacant units at current Market Rents. By measuring vacant apartments at their Market Rents, Economic Occupancy takes into account the fact that apartment homes of different sizes and locations within a community have different economic impacts on a community's gross revenue.

Market Rents as reported by the Company are based on the current market rates set by the managers of the Company's communities based on their experience in renting their communities' apartments and publicly available market data. Trends in market rents for a region as reported by others could vary. Market Rents for a period are based on the average Market Rents during that period and do not reflect any impact for cash concessions.