AvalonBay Communities Provides Initial 2004 Financial Outlook.

Business Editors

ALEXANDRIA, Va.--(BUSINESS WIRE)--Dec. 18, 2003

AvalonBay Communities, Inc. (NYSE/PCX:AVB) announced today its initial financial outlook for 2004. A summary table of the narrative that follows is included as Attachment A.

2003 Update

The Company expects diluted Earnings per Share ("EPS") for 2003 to be between $3.69 and $3.71.

The Company expects diluted Funds from Operations ("FFO") per share for 2003 to be between $3.25 and $3.27.

2004 Outlook

The Company expects EPS for the full year 2004 to be in the range of $1.49 to $1.67 and expects FFO per share for the full year 2004 to be in the range of $3.13 to $3.31. The Company expects EPS for the first quarter 2004 to be in the range of $0.36 to $0.40 and expects FFO per share for the first quarter 2004 to be in the range of $0.75 to $0.79.

The Company expects FFO per share for the full year 2004 to be relatively flat as compared to 2003 due to an expected decline in Established Communities Net Operating Income ("NOI"), the short-term dilutive impact of 2003 asset sales and planned asset sales in 2004, higher G&A costs and the dilutive impact of the Company's August 2003 common equity offering. These factors that adversely impact FFO are substantially offset by an expected increase in NOI from development communities and continued interest savings.

Management expects sequential quarter growth in FFO per share to be down in the first quarter 2004 as compared to the fourth quarter 2003 and then to increase modestly each quarter on a sequential basis throughout 2004 due to improving operating fundamentals, decreasing disposition activity and contributions from new development.

The Company's projections are based on a number of assumptions and estimates, including the following:

-- The Company expects the percentage change in Established

Communities revenue to be within the range of a decline of -2%

to 0% for the full year of 2004 compared to 2003. This is

based on the Company's review of third party sources of

economic forecasts and the Company's adjusted outlook based on

consideration of operating statistics such as projected market

rents, current leased rents (which includes the impact of

rental concessions), turnover and vacancy rates.

In this financial outlook, the collective economic outlook of

selected third party economists, as interpreted by the

Company, is referred to as the "consensus" outlook; however,

others may use different economic sources than those used by

the Company in developing their consensus economic outlook.

The consensus economic forecast suggests modest job growth in

2004 for both the national economy and AvalonBay markets.

Consistent with the consensus forecast, the Company has

assumed annual job growth of approximately 1% in its markets

for 2004.

-- Operating expenses for Established Communities are

expected to increase between 1% and 3%, which is primarily

driven by management's expectation for increased property

taxes.

-- The Company expects a decline in full year 2004 NOI for

Established Communities between -4% and 0%. The Company's

expectation is that Established Communities NOI in the

first quarter 2004 will decline from the comparable period

of 2003 by approximately -3% to -5%. The Company expects

that on a sequential quarter basis, Established

Communities NOI will be negative for most of the year

before turning positive in the fourth quarter of 2004.

-- The budgeted Total Capital Cost of expected development starts

is anticipated to increase by 20% in 2004, for a range of $375

to $525 million. Initial apartment deliveries related to these

development starts will primarily occur in 2005. These

development starts will be financed with a combination of

capital sources, including internal AvalonBay funding through

debt (credit facility, new issuances of debt, secured

construction loans), dispositions and retained cash as well as

joint venture equity and debt contributions. The expected cash

disbursements ("Development Investments") in 2004 pertaining 

to all development communities currently under construction

as well as planned 2004 Development Starts is anticipated to

total $300 to $450 million.

-- The budgeted Total Capital Cost of those development starts

expected to be partially financed with joint venture equity

and debt contributions is between $200 and $300 million, with

approximately $100 to $150 million of related cash

disbursements planned for 2004. The Company expects joint

venture equity and debt contributions will be partially funded

at the start of the joint venture, with the majority of

contributions made upon construction completion.

-- In the first quarter 2004, the Company expects to close $117

million of tax-exempt bonds relating to a joint venture entity

in which the Company will own a 20% equity interest. The

expected total capitalization of the venture, which relates to

a fourth quarter 2003 development start, is $150 million. Due

to the timing of the construction start, the Total Capital

Cost for development starts expected to be partially financed

with joint venture equity and debt contributions reflected

above does not include the expected total capitalization of

this venture. However, approximately $70 million of cash

disbursements pertaining to this venture are expected in 2004

and are included in the above amounts.

-- The Company expects to continue its current disposition

program into 2004 and expects to be a net seller for the year.

The Company's planned 2004 combined transactional activity

(dispositions and acquisitions) is expected to result in net

sales totaling $150 to $200 million. After considering

property specific tax-exempt debt, net sales proceeds from all

disposition and acquisition activity is expected to total

between $100 and $150 million and will be used to pay down

debt and to fund development activity. While asset sales have

a short-term adverse impact to FFO per share, the proceeds

from the sales provide a cost-effective source of capital to

fund planned debt redemptions and development activity. Sales

also allow the Company to realize a portion of the embedded 

value created through its development, redevelopment,

acquisition and operating activities.

-- The Company expects an aggregate net increase (after debt

repayments) of $100 to $150 million in outstanding debt

capital, both secured and unsecured. Net proceeds will be used

to fund development and/or acquisition activity.

-- The Company expects an increase in total "General and

administrative expense", as presented on Attachment 2 of the

Company's quarterly earnings releases, of 10% to 15%. Annual

"Property management overhead and other indirect operating

expenses," as presented on Attachment 2 of the Company's

quarterly earnings releases, is expected to increase by

approximately 5% to 8% during 2004. Construction and

development overhead (capitalized), as presented on Attachment

1 of the Company's quarterly earnings releases, is expected to

increase by approximately 6% to 9%.

-- Capitalized interest is expected to remain constant at

approximately $25 million.

The Company does not undertake a duty to update information provided regarding its expected operating results. The Company may 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 information contained in this release.

This release contains certain non-generally accepted accounting principles ("GAAP") financial measures and other terms. These non-GAAP financial measures and other terms are defined, calculated and, where appropriate, reconciled to GAAP on Attachment B.

About AvalonBay Communities

AvalonBay Communities, Inc., headquartered in Alexandria, Virginia, currently owns or holds an ownership interest in 139 apartment communities containing 41,237 apartment homes in ten states and the District of Columbia, of which ten communities are under construction and two communities are under reconstruction. AvalonBay is in the business of developing, redeveloping, acquiring and managing upscale apartment communities in high barrier-to-entry markets of the United States. More information on AvalonBay may be found on AvalonBay's Web site at http://www.avalonbay.com.

Forward-Looking Statements 

This release 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 the use of the words "believe," "expect," "anticipate," "intend," "estimate," "assume," and other similar expressions that predict or indicate future events, achievements or trends or that do not relate to historical matters. In addition, all statements about expected 2003 and 2004 financial and operating data and trends that may affect them are forward-looking statements.

The Company cannot assure the future results or outcome of the matters described in forward-looking statements; rather, these statements merely reflect management's 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 the Company's control. These factors may cause the Company's actual performance to differ materially from the anticipated future performance expressed or implied by these forward-looking statements. Some of the factors that could cause the Company's actual performance to differ materially from those expressed or implied by these forward-looking statements include, but are not limited to, the following:

-- the rents charged and the occupancy rates at the Company's

communities could be lower than expected as a result of

economic factors such as unexpected increases in the supply of

apartments and unexpected changes in population or employment

levels;

-- the expenses incurred by the Company could be higher than

expected as a result of economic factors such as unexpected

increases in prevailing wage levels or in insurance, taxes,

utilities and other supplies or services;

-- the Company 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;

-- the Company may abandon or delay development opportunities for

a number of reasons, including changes in local market

conditions which make development less desirable, increases in

costs of development, increases in the cost of capital or

delays in obtaining or an inability to obtain zoning,

land-use, building, occupancy and other regulatory approvals

or permits on conditions acceptable to management;

-- construction costs of a community may exceed management's

original estimates;

-- the Company may not complete construction and lease-up of

communities under development or redevelopment on schedule,

resulting in increased interest and construction costs and

rental revenues that are lower than originally expected;

-- financing may not be available on favorable terms, or at all,

and the Company's cash flow from operations and access to

cost-effective capital may be insufficient for future

development activity and could limit the Company's pursuit of

opportunities;

-- the Company may not be able to acquire communities at prices

management considers reasonable or sell communities for the

prices management expects. Furthermore, unexpected

circumstances may occur that alter the timing of planned

acquisitions or dispositions. Changes in the timing of planned

acquisitions or dispositions could have a favorable or

unfavorable impact on estimated rental revenues and operating

expenses;

-- newly developed or acquired communities may not produce

financial results that are consistent with the Company's

historical performance; and

-- actual economic conditions may be worse than those used in

management's projections.

Additional factors are described in the Company's filings with the Securities and Exchange Commission ("SEC"), including the Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 2002 under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements." Further, the Company encourages readers to read all of its disclosures in its SEC filings, which discuss factors that may be material to investors and may materially affect the Company's business, financial condition and results of operations. Because of these and other risks and uncertainties, EPS, FFO per share, funds invested in development, amount of development, acquisitions and dispositions completed, changes in Established Communities revenue, operating expense and NOI, amount of debt offered, joint venture equity and debt contributions, and actual changes in expensed and capitalized overhead and interest expense incurred by the Company may be greater or less than indicated by the outlook information described in this release.

Copyright (C) 2003 AvalonBay Communities, Inc. All Rights Reserved

                             ATTACHMENT A
                             ------------
                    Initial 2004 Financial Outlook
                          As of December 2003

             (Dollars in millions, except per share data)

                                                      Annual 2004
                                                 ---------------------

 Earnings per Share                                 $1.49 to $1.67

    Net gain on asset sales, per share              $ .52 to $ .56

    Real estate depreciation, per share             $2.16 to $2.20

 Funds from Operations per share (1)                $3.13 to $3.31


 Established Communities (1)

    Rental revenue change                           -2.0% to 0.0%
    Operating expense change                         1.0% to 3.0%
    Net Operating Income change (1)                 -4.0% to 0.0%

 Investment Activity

    Net Acquisition / (Disposition) volume         ($150) to ($200)

    AVB Owned
    ---------
         Development Starts (1)                      $175 to $225
         Development Investments (1)
          (cash disbursed)                           $200 to $300
         Development Completions (1)                 $300 to $400

    Joint Venture Activity
    ----------------------
         Development Starts (1)                      $200 to $300
         Development Investments (1)
          (cash disbursed)                           $100 to $150

 Financing Activity

    Debt offerings (Secured and Unsecured)           $100 to $250
    Secured tax-exempt debt refinancings                 $87
    Securities redemptions (debt, preferred,
     common)                                             $150
    Joint venture construction bonds                     $117


(1) In the chart above a term marked with the notation "(1)" indicates
    a non- GAAP measure or other term that is described more fully at
    the end of this release on Attachment B.


                             ATTACHMENT B
                             ------------

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 the Company's 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) 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 the ranges provided for FFO per share for the full year 2003, the full year 2004 and the first quarter 2004 to the ranges provided for EPS is as follows:

                       Full Year 2003  Full Year 2004      1Q '04
                       --------------- --------------- ---------------
                         Low    High     Low    High     Low    High
                        range   range   range   range   range   range
                       ------- ------- ------- ------- ------- -------

EPS (diluted)           $3.69   $3.71   $1.49   $1.67   $0.36   $0.40
Depreciation (real
 estate related)         2.14    2.18    2.16    2.20    0.51    0.56
Gain on sale of
 communities            (2.58)  (2.62)  (0.52)  (0.56)  (0.12)  (0.17)
                       ------- ------- ------- ------- ------- -------

FFO per share
 (diluted)              $3.25   $3.27   $3.13   $3.31   $0.75   $0.79
                       ======= ======= ======= ======= ======= =======

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 of the beginning of the prior year. Therefore, for 2004, Established Communities are communities that have stabilized operations as of January 1, 2003 and for which the Company is 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 considered to be achieved at the earlier of the attainment of 95% physical occupancy or the one-year anniversary of development or redevelopment completion.

NOI for Established Communities 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 and income from discontinued operations. The Company considers NOI to be an appropriate supplemental measure to net income of operating performance because it helps both investors and management 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. Growth in NOI, as projected by the Company in this release, does not include projected operating results from discontinued operations (i.e., assets sold or held for sale as of the end of the reporting period).

In this release the Company has given projected NOI growth only for Established Communities and not on a company-wide basis. Management believes that NOI growth of the Established Communities assists investors in understanding management's estimate of the likely contribution to operations from Established Communities. The Company has not provided a projection of NOI growth on a company-wide basis due to the difficulty in projecting the timing of new development starts, dispositions and acquisitions as well as the complexities involved in projecting the allocation of corporate-level property management overhead, general and administrative costs and interest expense to communities not yet developed, disposed or acquired. NOI growth expected from Established Communities is not a projection of the Company's consolidated financial performance or cash flow. There can be no assurance that the Established Communities will achieve the NOI growth estimated by management.

Total Capital Cost includes all capitalized costs projected to be or actually incurred to develop a development community or development right, including land acquisition costs, construction costs, real estate taxes, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees, all as determined in accordance with GAAP.

Development Starts and Development Completions represent the budgeted Total Capital Cost, projected through construction completion, for those communities that start or complete development in the indicated period.

Development Investments (cash disbursements) represents that portion of the Total Capital Cost incurred during the indicated period with respect to all development communities, regardless of their start or completion date.