SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006
Commission file number 1-12672
AVALONBAY COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
 
     
Maryland   77-0404318
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
2900 Eisenhower Avenue, Suite 300
Alexandria, Virginia 22314
(Address of principal executive office)
(703) 329-6300
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
     
Common Stock, par value $.01 per share   New York Stock Exchange
8.70% Series H Cumulative Redeemable Preferred Stock,   New York Stock Exchange
par value $.01 per share    
(Title of each class)   (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes x       No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o       No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x       No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the Exchange registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act).
Large accelerated filer x       Accelerated filer o       Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o       No x
The aggregate market value of the Registrant’s Common Stock, par value $.01 per share, held by nonaffiliates of the registrant, as of June 30, 2006 was $8,231,895,376.
The number of shares of the registrant’s Common Stock, par value $.01 per share, outstanding as of January 31, 2007 was 79,344,557.
Documents Incorporated by Reference
Portions of AvalonBay Communities, Inc.’s Proxy Statement for the 2007 annual meeting of stockholders, a definitive copy of which will be filed with the SEC within 120 days after the year end of the year covered by this Form 10-K, are incorporated by reference herein as portions of Part III of this Form 10-K.
 
 

 


 

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

 


 

PART I
This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Our actual results could differ materially from those set forth in each forward-looking statement. Certain factors that might cause such a difference are discussed in this report, including in the section entitled “Forward-Looking Statements” on page 65 of this Form 10-K. You should also review Item 1a., “Risk Factors,” for a discussion of various risks that could adversely affect us.
ITEM 1.   BUSINESS
General
AvalonBay Communities, Inc. (the “Company,” which term, unless the context otherwise requires, refers to AvalonBay Communities, Inc. together with its subsidiaries) is a Maryland corporation that has elected to be treated as a real estate investment trust, or REIT, for federal income tax purposes. We engage in the development, redevelopment, acquisition, ownership and operation of multifamily communities in high barrier-to-entry markets of the United States. These barriers-to-entry generally include a difficult and lengthy entitlement process with local jurisdictions and dense urban or suburban areas where zoned and entitled land is in limited supply. Our markets are located in the Northeast, Mid-Atlantic, Midwest, Pacific Northwest, and Northern and Southern California regions of the United States. We focus on these markets because we believe that, long term, the limited new supply of apartment homes and lower housing affordability in these markets will result in larger increases in cash flows relative to other markets. In addition to increasing the rental revenues of our operating assets, we believe these market attributes will increase the value of our operating assets and enable us to create additional value through the development and selective acquisition of multifamily housing.
At January 31, 2007, we owned or held a direct or indirect ownership interest in:
    151 operating apartment communities containing 43,533 apartment homes in ten states and the District of Columbia, of which six communities containing 2,381 apartment homes were under reconstruction;
 
    17 communities under construction that are expected to contain an aggregate of 5,153 apartment homes when completed; and
 
    rights to develop an additional 54 communities that, if developed in the manner expected, will contain an estimated 14,185 apartment homes.
We generally obtain ownership in an apartment community by developing a new community on vacant land or by acquiring and either repositioning or redeveloping an existing community. In selecting sites for development, redevelopment or acquisition, we favor locations that are near expanding employment centers and convenient to transportation, recreation areas, entertainment, shopping and dining.
Our real estate investments consist of the following reportable segments: Established Communities, Other Stabilized Communities and Development/Redevelopment Communities. Established Communities are generally operating communities that are consolidated for financial reporting purposes and that were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year. Other Stabilized Communities are generally all other operating communities that have stabilized occupancy and operating expenses during the current year, but that had not achieved stabilization as of the beginning of the prior year. Development/ Redevelopment Communities consist of communities that are under construction, communities where substantial redevelopment is in progress or is planned to begin during the current year and communities under lease-up. A more detailed description of these segments and other related information can be found in Note 9, “Segment Reporting,” of the Consolidated Financial Statements set forth in Item 8 of this report.
Our principal financial goal is to increase long-term stockholder value by successfully and cost-effectively developing, redeveloping, acquiring, owning and operating high-quality communities in our selected markets that contain features and amenities desired by residents, as well as by providing our residents with efficient and effective service.

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To help fulfill this goal, we regularly (i) monitor our investment allocation by geographic market and product type, (ii) develop, redevelop and acquire apartment communities in high barrier-to-entry markets with growing or high potential for demand and high for-sale housing costs, (iii) selectively sell apartment communities that no longer meet our long-term strategy or when opportunities are presented to realize a portion of the value created through our investment and redeploy the proceeds from those sales, and (iv) endeavor to maintain a capital structure that is aligned with our business risks such that we maintain continuous access to cost-effective capital. Our long-term strategy is to more deeply penetrate the high barrier-to-entry markets in our chosen regions with a broad range of products and services and an intense focus on our customer. A substantial majority of our current communities are upscale, which generally command among the highest rents in their markets. However, we also pursue the ownership and operation of apartment communities that target a variety of customer segments and price points, consistent with our goal of offering a broad range of products and services.
During the three years ended December 31, 2006, we acquired two apartment communities whose financial results are consolidated for financial reporting purposes, disposed of 16 apartment communities, and completed the development of 20 apartment communities and the redevelopment of six apartment communities. In anticipation of continued improvement in apartment fundamentals and to help position us for future growth, we increased our construction volume during 2006 (as measured by total projected capitalized cost at completion) and continued to secure new development opportunities, including the acquisition of land for future development. We also increased our investments in apartment communities through an institutional discretionary investment fund, AvalonBay Value Added Fund, L.P. (the “Fund”), which we manage and in which we own approximately a 15% interest. The Fund acquired communities that we believe we can redevelop or reposition, or take advantage of market cycle timing and improved operating performance, to create value. Since its inception in March 2005, the Fund has acquired 13 communities. A more detailed description of the Fund and its investment activity can be found in Financing Activities and Note 6, “Investments in Unconsolidated Entities” of the Consolidated Financial Statements in Item 8 of this report. As a result of strong capital flows to the industry, we also continued to dispose of assets at prices that enabled significant realized gains on cost.
In 2007, we expect additional new development activity to be in the range of $1,000,000,000 to $1,300,000,000, and we expect the Fund will continue to selectively acquire additional communities. We also anticipate asset sales, dependent on strategic and value realization opportunities. The level of development, acquisition and disposition activity, however, is heavily influenced by capital market conditions, including prevailing interest rates. A further discussion of our development, redevelopment, disposition, acquisition, property management and related strategies follows.
Development Strategy. We select land for development and follow established procedures that we believe minimize both the cost and the risks of development. As one of the largest developers of multifamily apartment communities in high barrier-to-entry markets of the United States, we identify development opportunities through local market presence and access to local market information achieved through our regional offices. In addition to our principal executive office in Alexandria, Virginia, we also maintain regional offices and administrative or specialty offices in or near the following cities:
    Boston, Massachusetts;
 
    Chicago, Illinois;
 
    Long Island, New York;
 
    Los Angeles, California;
 
    New York, New York;
 
    Newport Beach, California;
 
    San Jose, California;
 
    Seattle, Washington;
 
    Shelton, Connecticut; and
 
    Woodbridge, New Jersey.
After selecting a target site, we usually negotiate for the right to acquire the site either through an option or a long-term conditional contract. Options and long-term conditional contracts generally enable us to acquire the target site shortly before the start of construction, which reduces development-related risks and preserves capital. However, we will acquire and hold land when business conditions warrant. Due to increased competition for land based on current market conditions, we have, at times, acquired land earlier in the development cycle or acquired land zoned for uses other than residential with the potential for rezoning. After we acquire land, we generally shift our focus to construction. Except for certain mid-rise and high-rise apartment communities where we may elect to use third-party general contractors or construction managers, we act as our own general contractor and construction manager.

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We generally perform these functions directly (although we may use a wholly-owned subsidiary) both for ourselves and for the joint ventures and partnerships of which we are a member or a partner. We believe this enables us to achieve higher construction quality, greater control over construction schedules and significant cost savings. Our development, property management and construction teams monitor construction progress to ensure high-quality workmanship and a smooth and timely transition into the leasing and operating phase.
As competition for desirable development opportunities has increased in recent years, we will in some cases be engaged in more complicated development pursuits. For example, at times we have acquired and may in the future acquire existing commercial buildings with the intent to pursue rezoning, tenant terminations or expirations and demolition of the existing structures. Generally, during the period that we hold these buildings for future development, the net revenue from these operations, which we consider to be incidental, is accounted for as a reduction in our investment in the development pursuit and not as net income. We have also participated, and may in the future participate, in master planned or other large multi-use developments where we commit to build infrastructure (such as roads) to be used by other participants or commit to act as construction manager or general contractor in building structures or spaces for third parties (such as municipal garages or parks). Costs we incur in connection with these activities may be accounted for as additional invested capital in the community or we may earn fee income for providing these services. Particularly with large scale, urban in-fill developments, we may engage in significant environmental remediation efforts to prepare a site for construction.
Throughout this report, the term “development” is used to refer to the entire property development cycle, including pursuit of zoning approvals, procurement of architectural and engineering designs and the construction process. References to “construction” refer to the actual construction of the property, which is only one element of the development cycle.
Redevelopment Strategy . When we undertake the redevelopment of a community, our goal is to renovate and/or rebuild an existing community so that our total investment is generally below replacement cost and the community is well positioned in the market to achieve attractive returns on our capital. We have established procedures to minimize both the cost and risks of redevelopment. Our redevelopment teams, which include key redevelopment, construction and property management personnel, monitor redevelopment progress. We believe we achieve significant cost savings by acting as our own general contractor. More importantly, this helps to ensure high-quality design and workmanship and a smooth and timely transition into the lease-up and restabilization phase.
Throughout this report, the term “redevelopment” is used to refer to the entire redevelopment cycle, including planning and procurement of architectural and engineering designs, budgeting and actual renovation work. The actual renovation work is referred to as “reconstruction,” which is only one element of the redevelopment cycle.
Disposition Strategy. We sell assets when market conditions are favorable and redeploy the proceeds from those sales to develop, redevelop and acquire communities and to rebalance our portfolio across geographic regions. This also allows us to realize a portion of the value created through our investments, and provides additional liquidity. We are then able to redeploy the net proceeds from our dispositions in lieu of raising that amount of capital externally by issuing debt or equity securities. When we decide to sell a community, we generally solicit competing bids from unrelated parties for these individual assets and consider the sales price of each proposal.
Acquisition Strategy. Our core competencies in development and redevelopment discussed above allow us to be selective in the acquisitions we target. Acquisitions allow us to achieve rapid penetration into markets in which we desire an increased presence. Acquisitions (and dispositions) also help us achieve our desired product mix or rebalance our portfolio. In 2005 we formed the Fund, which during its investment period (ending no later than March 2008) will be the principal vehicle for us to acquire additional investments in apartment communities, subject to certain exceptions. Through the Fund’s investment period (or until fully invested), we expect to continue our acquisition activity through the Fund, focusing in particular on communities in our markets that can benefit from redevelopment, repositioning or market cycle opportunities.
Property Management Strategy . We intend to increase operating income through innovative, proactive property management that will result in higher revenue from communities and controlled operating expenses.

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Our principal strategies to maximize revenue include:
    strong focus on resident satisfaction;
 
    staggering lease terms such that lease expirations are better matched to traffic patterns;
 
    balancing high occupancy with premium pricing, and increasing rents as market conditions permit; and
 
    managing community occupancy for optimal rental revenue levels.
Controlling operating expenses is another way in which we intend to increase earnings growth. Growth in our portfolio and the resulting increase in revenue allows for fixed operating costs to be spread over a larger volume of revenue, thereby increasing operating margins. We control operating expenses in a variety of ways, which include the following, among others:
    we use purchase order controls, acquiring goods and services from pre-approved vendors;
 
    we purchase supplies in bulk where possible;
 
    we bid third-party contracts on a volume basis;
 
    we strive to retain residents through high levels of service in order to eliminate the cost of preparing an apartment home for a new resident and to reduce marketing and vacant apartment utility costs;
 
    we perform turnover work in-house or hire third parties, generally depending upon the least costly alternative;
 
    we undertake preventive maintenance regularly to maximize resident satisfaction and property and equipment life; and
 
    we aggressively pursue real estate tax appeals.
On-site property management teams receive bonuses based largely upon the net operating income produced at their respective communities. We use and continuously seek ways to improve technology applications to help manage our communities, believing that the accurate collection of financial and resident data will enable us to maximize revenue and control costs through careful leasing decisions, maintenance decisions and financial management.
We generally manage the operation and leasing activity of our communities directly (although we may use a wholly-owned subsidiary) both for ourselves and the joint ventures and partnerships of which we are a member or a partner.
From time to time, we also pursue or arrange ancillary services for our residents to provide additional revenue sources or increase resident satisfaction. In general, as a REIT we cannot directly provide services to our tenants that are not customarily provided by a landlord, nor can we share in the income of a third party that provides such services. However, we can provide such non-customary services to residents or share in the revenue from such services if we do so through a “taxable REIT subsidiary,” which is a subsidiary that is treated as a “C corporation” and is therefore subject to federal income taxes.
Financing Strategy. We have consistently maintained, and intend to continue to maintain, a capital structure that is aligned to the business risks presented by our corporate strategy. For the year ended December 31, 2006, our fixed charge ratio on an incurred and expensed basis was 1.90 and 2.68, respectively. We believe that fixed charge coverage is an important measure of balance sheet strength, as it measures our ability to service fixed payment obligations from operating cash flow. At December 31, 2006, our debt-to-total market capitalization was 22.3%, and our long-term floating rate debt was 3.4% of total market capitalization. Total market capitalization reflects the aggregate of the market value of our common stock, the market value of our operating partnership units outstanding (based on the market value of our common stock), the liquidation preference of our preferred stock and the outstanding principal amount of our debt. We believe that debt-to-total market capitalization can be one useful measure of a real estate operating company’s long-term liquidity and balance sheet strength, because it shows an approximate relationship between a company’s total debt and the current total market value of its assets based on the current price at which the company’s common stock trades. However, because debt-to-total market capitalization changes with fluctuations in our stock price, which occur regularly, our debt-to-total market capitalization may change even when our earnings and debt levels remain stable.

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We estimate that a portion of our short-term liquidity needs will be met from retained operating cash and borrowings under our variable rate unsecured credit facility. If required to meet the balance of our current or anticipated liquidity needs, we will attempt to arrange additional capacity under our existing unsecured credit facility, sell existing communities or land and/or issue additional debt or equity securities. A determination to engage in an equity or debt offering depends on a variety of factors such as general market and economic conditions, including interest rates, our short and long term liquidity needs, the adequacy of our expected liquidity sources, the relative costs of debt and equity capital, and growth opportunities. A summary of debt and equity activity for the last three years is reflected on our Consolidated Statement of Cash Flows of the Consolidated Financial Statements set forth in Item 8 of this report.
We have entered into, and may continue in the future to enter into, joint ventures (including limited liability companies) or partnerships through which we would own an indirect economic interest of less than 100% of the community or communities owned directly by such joint venture or partnership. Our decision whether to hold an apartment community in fee simple or to have an indirect interest in the community through a joint venture or partnership is based on a variety of factors and considerations, including: (i) the economic and tax terms required by a seller of land or of a community, who may prefer that (or who may require less payment if) the land or community is contributed to a joint venture or partnership; (ii) our desire to diversify our portfolio of communities by market, submarket and product type; (iii) our desire at times to preserve our capital resources to maintain liquidity or balance sheet strength; and (iv) our projection, in some circumstances, that we will achieve higher returns on our invested capital or reduce our risk if a joint venture or partnership vehicle is used. Investments in joint ventures or partnerships are not limited to a specified percentage of our assets. Each joint venture or partnership agreement is individually negotiated, and our ability to operate and/or dispose of a community in our sole discretion may be limited to varying degrees depending on the terms of the joint venture or partnership agreement.
We have invested in the Fund, a private, discretionary investment vehicle that acquires and operates apartment communities in our markets. The Fund will serve, until March 16, 2008 or until 80% of its committed capital is invested, as the principal vehicle through which we will invest in the acquisition of apartment communities, subject to certain exceptions. These exceptions include significant individual asset and portfolio acquisitions, properties acquired in tax-deferred transactions and acquisitions that are inadvisable or inappropriate for the Fund. The Fund will not restrict our development activities, and will terminate after a term of eight years, subject to two one-year extensions. The Fund has nine institutional investors, including us, with a combined equity capital commitment of $330,000,000. A significant portion of the investments made in the Fund by its investors are being made through AvalonBay Value Added Fund, Inc., a Maryland corporation that qualifies as a REIT under the Internal Revenue Code (the “Fund REIT”). A wholly-owned subsidiary of the Company is the general partner of the Fund and has committed $50,000,000 to the Fund and the Fund REIT (of which approximately $22,944,000 has been invested as of January 31, 2007) representing a 15.2% combined general partner and limited partner equity interest. Under the Fund documents, the Fund has the ability to employ leverage through debt financings up to 65% on a portfolio basis, which, if achieved, would enable the Fund to invest up to $940,000,000. We currently expect that leverage of less than 65% will be employed, reducing the projected investment value to between $850,000,000 and $900,000,000 (of which approximately $514,000,000 has been invested as of January 31, 2007).
In addition, we may, from time to time, offer shares of our equity securities, debt securities or options to purchase stock in exchange for property.
Other Strategies and Activities . While we emphasize equity real estate investments in rental apartment communities, we have the ability to invest in other types of real estate, mortgages (including participating or convertible mortgages), securities of other REITs or real estate operating companies, or securities of technology companies that relate to our real estate operations or of companies that provide services to us or our residents, in each case consistent with our qualification as a REIT. On occasion, we own and operate retail space at our communities when either (i) the highest and best use of the space is for retail (e.g., street level in an urban area) or (ii) we believe the retail space will enhance the attractiveness of the community to residents. As of December 31, 2006, we had a total of 327,010 square feet of rentable retail space that produced gross rental revenue in 2006 of $5,258,000 (0.7% of total revenue). If we secure a development right and believe that its best use, in whole or in part, is to develop the real estate with the intent to sell rather than hold the asset, we may, through a taxable REIT subsidiary, develop real estate for sale. At present, we expect to develop with the intent to sell, directly through a taxable REIT subsidiary or indirectly through a joint venture partnership, one or more land parcels. Any investment in securities of other entities, and any development of real estate for sale, is subject to the percentage of ownership limitations, gross income tests, and other limitations that must be observed for REIT qualification.

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We have not engaged in trading, underwriting or agency distribution or sale of securities of other issuers and do not intend to do so. At all times we intend to make investments in a manner so as to qualify as a REIT unless, because of circumstances or changes to the Internal Revenue Code (or the Treasury Regulations), the Board of Directors determines that it is no longer in our best interest to qualify as a REIT.
Inflation and Deflation
Substantially all of our apartment leases are for a term of one year or less. In an inflationary environment, this may allow us to realize increased rents upon renewal of existing leases or the beginning of new leases. Short-term leases generally minimize our risk from the adverse effects of inflation, although these leases generally permit residents to leave at the end of the lease term and therefore expose us to the effect of a decline in market rents. In a deflationary rent environment, we may be exposed to declining rents more quickly under these shorter-term leases.
Tax Matters
We filed an election with our 1994 federal income tax return to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, and intend to maintain our qualification as a REIT in the future. As a qualified REIT, with limited exceptions, we will not be taxed under federal and certain state income tax laws at the corporate level on our net income to the extent net income is distributed to our stockholders. We expect to make sufficient distributions to avoid income tax at the corporate level. While we believe that we are organized and qualified as a REIT and we intend to operate in a manner that will allow us to continue to qualify as a REIT, there can be no assurance that we will be successful in this regard. Qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code for which there are limited judicial and administrative interpretations and involves the determination of a variety of factual matters and circumstances not entirely within our control.
Competition
We face competition from other real estate investors, including insurance companies, pension and investment funds, partnerships and investment companies and other apartment REITs, to acquire and develop apartment communities and acquire land for future development. As an owner and operator of apartment communities, we also face competition for prospective residents from other operators whose communities may be perceived to offer a better location or better amenities or whose rent may be perceived as a better value proposition given the quality, location and amenities that the resident seeks. We also compete with the condominium and single-family home markets. Although we often compete against large sophisticated developers and operators for development opportunities and for prospective residents, real estate developers and operators of any size can provide effective competition for both real estate assets and potential residents.
Environmental and Related Matters
As a current or prior owner, operator and developer of real estate, we are subject to various federal, state and local environmental laws, regulations and ordinances and also could be liable to third parties resulting from environmental contamination or noncompliance at our communities. For some development communities, we undertake extensive environmental remediation to prepare the site for construction, which could be a significant portion of our total construction cost. Environmental remediation efforts could expose us to possible liabilities for accidents or improper handling of contaminated materials during construction. These and other risks related to environmental matters are described in more detail in Item 1a., “Risk Factors”.

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Other Information
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. Our SEC filings are also available to the public from the SEC’s website at www.sec.gov . In addition, you may read our SEC fillings at the offices of the New York Stock Exchange (“NYSE”), which is located at 20 Board Street, New York, New York 10005. Our SEC filings are available at the NYSE because our common stock and an outstanding series of preferred stock are listed on the NYSE.
We maintain a website at www.avalonbay.com . Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934 are available free of charge in the “Investor Relations” section of our website as soon as reasonably practicable after the reports are filed with or furnished to the SEC. In addition, the charters of our Board’s Nominating and Corporate Governance Committee, Audit Committee and Compensation Committee, as well as our Corporate Governance Guidelines and Code of Conduct, are available free of charge in that section of our website or by writing to AvalonBay Communities, Inc., 2900 Eisenhower Avenue, Suite 300, Alexandria, Virginia 22314, Attention: Chief Financial Officer.
We were incorporated under the laws of the State of California in 1978. In 1995, we reincorporated in the State of Maryland and have been focused on the ownership and operation of apartment communities since that time. As of December 31, 2006, we had 1,767 employees.

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ITEM 1a. RISK FACTORS
Our operations involve various risks that could have adverse consequences, including those described below. This Item 1a includes forward-looking statements. You should refer to our discussion of the qualifications and limitations on forward-looking statements on page 65.
Development, redevelopment and construction risks could affect our profitability.
We intend to continue to develop and redevelop apartment home communities. These activities can include long planning and entitlement timelines and can involve complex and costly activities, including significant environmental remediation or construction work in high-density urban areas. These activities may be exposed to the following risks:
    we may be unable to obtain, or experience delays in obtaining, necessary zoning, occupancy, or other required governmental or third party permits and authorizations, which could result in increased costs or the delay or abandonment of opportunities;
 
    we may abandon opportunities that we have already begun to explore for a number of reasons, including changes in local market conditions or increases in construction or financing costs, and, as a result, we may fail to recover expenses already incurred in exploring those opportunities;
 
    we may incur costs that exceed our original estimates due to increased material, labor or other costs;
 
    occupancy rates and rents at a community may fail to meet our expectations for a number of reasons, including changes in market and economic conditions beyond our control and the development by competitors of competing communities;
 
    we may be unable to complete construction and lease up of a community on schedule, resulting in increased construction and financing costs and a decrease in expected rental revenues;
 
    we may be unable to obtain financing with favorable terms, or at all, for the proposed development of a community, which may cause us to delay or abandon an opportunity;
 
    we may incur liabilities to third parties during the development process, for example, in connection with managing existing improvements on the site prior to tenant terminations and demolition (such as commercial space) or in connection with providing services to third parties, such as the construction of shared infrastructure or other improvements; and
 
    we may incur liability if our communities are not constructed and operated in compliance with the accessibility provisions of the Americans with Disabilities Acts, the Fair Housing Act or other federal, state or local requirements. Noncompliance could result in imposition of fines, an award of damages to private litigants, and a requirement that we undertake structural modifications to remedy the noncompliance. We are currently engaged in a lawsuit alleging noncompliance with these statutes. See “Legal Proceedings.”
We project construction costs based on market conditions at the time we prepare our budgets, and our projections include changes that we anticipate but cannot predict with certainty. Construction costs have been increasing, particularly for materials such as steel, concrete and lumber, and, for some of our Development Communities and Development Rights, the total construction costs may be higher than the original budget. Total capitalized cost includes all capitalized costs projected to be incurred to develop or redevelop a community, determined in accordance with United States Generally Accepted Accounting Principles (“GAAP”), including:
    land and/or property acquisition costs;
 
    construction or reconstruction costs;
 
    costs of environmental remediation;
 
    real estate taxes;
 
    capitalized interest;
 
    loan fees;
 
    permits;
 
    professional fees;
 
    allocated development or redevelopment overhead; and
 
    other regulatory fees.

8


 

Costs to redevelop communities that have been acquired have, in some cases, exceeded our original estimates and similar increases in costs may be experienced in the future. We cannot assure you that market rents in effect at the time new development or redevelopment communities complete lease-up will be sufficient to fully offset the effects of any increased construction or reconstruction costs.
Unfavorable changes in market and economic conditions could hurt occupancy or rental rates.
Local conditions in our markets significantly affect occupancy or rental rates at our communities. The risks that may adversely affect conditions in those markets include the following:
    plant closings, industry slowdowns and other factors that adversely affect the local economy;
 
    an oversupply of, or a reduced demand for, apartment homes;
 
    a decline in household formation or employment or lack of employment growth;
 
    the inability or unwillingness of residents to pay rent increases; and
 
    rent control or rent stabilization laws, or other laws regulating housing, that could prevent us from raising rents to offset increases in operating costs.
Changes in applicable laws, or noncompliance with applicable laws, could adversely affect our operations or expose us to liability.
We must operate our communities in compliance with numerous federal, state and local laws and regulations, including landlord tenant laws and other laws generally applicable to business operations. Noncompliance with laws could expose us to liability.
Compliance with changes in (i) laws increasing the potential liability for environmental conditions existing on properties or the restrictions on discharges or other conditions, (ii) rent control or rent stabilization laws or (iii) other governmental rules and regulations or enforcement policies affecting the use and operation of our communities, including changes to building codes and fire and life-safety codes, may result in lower revenue growth or significant unanticipated expenditures.
Short-term leases expose us to the effects of declining market rents.
Substantially all of our apartment leases are for a term of one year or less. Because these leases generally permit the residents to leave at the end of the lease term without penalty, our rental revenues are impacted by declines in market rents more quickly than if our leases were for longer terms.
Competition could limit our ability to lease apartment homes or increase or maintain rents.
Our apartment communities compete with other housing alternatives to attract residents, including other rental apartments, condominiums and single-family homes that are available for rent, as well as new and existing condominiums and single-family homes for sale. Competitive residential housing in a particular area could adversely affect our ability to lease apartment homes and to increase or maintain rental rates.
Attractive investment opportunities may not be available, which could adversely affect our profitability.
We expect that other real estate investors, including insurance companies, pension funds, other REITs and other well-capitalized investors, will compete with us to acquire existing properties and to develop new properties. This competition could increase prices for properties of the type we would likely pursue and adversely affect our profitability.

9


 

Insufficient cash flow could affect our debt financing and create refinancing risk.
We are subject to the risks associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments of principal and interest. In this regard, we note that we are required to annually distribute dividends generally equal to at least 90% of our REIT taxable income, computed without regard to the dividends paid deduction and our net capital gain, in order for us to continue to qualify as a REIT, and this requirement limits the amount of our cash flow available to meet required principal and interest payments. The principal outstanding balance on a portion of our debt will not be fully amortized prior to its maturity. Although we may be able to repay our debt by using our cash flows, we cannot assure you that we will have sufficient cash flows available to make all required principal payments. Therefore, we may need to refinance at least a portion of our outstanding debt as it matures. There is a risk that we may not be able to refinance existing debt or that a refinancing will not be done on as favorable terms, either of which could have a material adverse effect on our financial condition and results of operations.
Rising interest rates could increase interest costs and could affect the market price of our common stock.
We currently have, and may in the future, incur variable interest rate debt. Accordingly, if interest rates increase, our interest costs will also rise, unless we have made arrangements that hedge the risk of rising interest rates. In addition, an increase in market interest rates may lead purchasers of our common stock to demand a greater annual dividend yield, which could adversely affect the market price of our common stock.
Bond financing and zoning compliance requirements could limit our income, restrict the use of communities and cause favorable financing to become unavailable.
We have financed some of our apartment communities with obligations issued by local government agencies because the interest paid to the holders of this debt is generally exempt from federal income taxes and, therefore, the interest rate is generally more favorable to us. These obligations are commonly referred to as “tax-exempt bonds” and generally must be secured by communities. As a condition to obtaining tax-exempt financing, or on occasion as a condition to obtaining favorable zoning in some jurisdictions, we will commit to make some of the apartments in a community available to households whose income does not exceed certain thresholds (e.g., 50% or 80% of area median income), or who meet other qualifying tests. As of December 31, 2006, approximately 7% of our apartment homes at current operating communities were under use limitations such as these. These commitments, which may run without expiration or may expire after a period of time (such as 15 or 20 years) may limit our ability to raise rents aggressively and, in consequence, can also limit increases in the value of the communities subject to these restrictions.
In addition, some of our tax-exempt bond financing documents require us to obtain a guarantee from a financial institution of payment of the principal of, and interest on, the bonds. The guarantee may take the form of a letter of credit, surety bond, guarantee agreement or other additional collateral. If the financial institution defaults in its guarantee obligations, or if we are unable to renew the applicable guarantee or otherwise post satisfactory collateral, a default will occur under the applicable tax-exempt bonds and the community could be foreclosed upon.
Risks related to indebtedness.
We have a $650,000,000 revolving variable rate unsecured credit facility with JPMorgan Chase Bank, N.A., and Wachovia Bank, N.A., serving together as syndication agent and as banks, Bank of America, N.A., serving as administrative agent, swing lender, issuing bank and a bank, Morgan Stanley Bank, Wells Fargo Bank, N.A., and Deutsche Bank Trust Company Americas, serving collectively as documentation agent and as banks, and a syndicate of other financial institutions, serving as banks. Our organizational documents do not limit the amount or percentage of indebtedness that may be incurred. Accordingly, subject to compliance with outstanding debt covenants, we could incur more debt, resulting in an increased risk of default on our obligations and an increase in debt service requirements that could adversely affect our financial condition and results of operations.

10


 

The mortgages on those of our properties subject to secured debt, our unsecured credit facility and the indentures under which a substantial portion of our debt was issued contain customary restrictions, requirements and other limitations, as well as certain financial and operating covenants including maintenance of certain financial ratios. Maintaining compliance with these restrictions could limit our flexibility. A default in these requirements, if uncured, could result in a requirement that we repay indebtedness, which could severely affect our liquidity and increase our financing costs.
Failure to generate sufficient revenue could limit cash flow available for distributions to stockholders.
A decrease in rental revenue could have an adverse effect on our ability to pay distributions to our stockholders and our ability to maintain our status as a REIT. Significant expenditures associated with each community such as debt service payments, if any, real estate taxes, insurance and maintenance costs are generally not reduced when circumstances cause a reduction in income from a community.
Debt financing may not be available and equity issuances could be dilutive to our stockholders.
Our ability to execute our business strategy depends on our access to an appropriate blend of debt and equity financing. Debt financing may not be available in sufficient amounts or on favorable terms. If we issue additional equity securities, the interests of existing stockholders could be diluted.
Difficulty of selling apartment communities could limit flexibility.
Federal tax laws may limit our ability to earn a gain on the sale of a community (unless we own it through a subsidiary which will incur a taxable gain upon sale) if we are found to have held, acquired or developed the community primarily with the intent to resell the community, and this limitation may affect our ability to sell communities without adversely affecting returns to our stockholders. In addition, real estate in our markets can at times be hard to sell, especially if market conditions are poor. These potential difficulties in selling real estate in our markets may limit our ability to change or reduce the apartment communities in our portfolio promptly in response to changes in economic or other conditions.
Acquisitions may not yield anticipated results.
Subject to the requirements related to the Fund, we may in the future acquire apartment communities on a select basis. Our acquisition activities and their success may be exposed to the following risks:
    an acquired property may fail to perform as we expected in analyzing our investment; and
 
    our estimate of the costs of repositioning or redeveloping an acquired property may prove inaccurate.
Failure to succeed in new markets or in activities other than the development, ownership and operation of residential rental communities may have adverse consequences.
We may from time to time commence development activity or make acquisitions outside of our existing market areas if appropriate opportunities arise. As noted in the business description above, we also own and operate retail space when a retail component represents the best use of the space, as is often the case with large urban in-fill developments. Also as noted in the business description above, we expect to develop, through a taxable REIT subsidiary, directly or through a joint venture partnership, one or more parcels with the intent to sell, which we believe represents the best use for those parcels. Our historical experience in our existing markets in developing, owning and operating rental communities does not ensure that we will be able to operate successfully in new markets, should we choose to enter them, or that we will be successful in these other activities. We may be exposed to a variety of risks if we choose to enter new markets, including an inability to evaluate accurately local apartment market conditions; an inability to obtain land for development or to identify appropriate acquisition opportunities; an inability to hire and retain key personnel; and lack of familiarity with local governmental and permitting procedures. We may be unsuccessful in owning and operating retail space at our communities or in developing real estate with the intent to sell.

11


 

Risks involved in real estate activity through joint ventures.
Instead of acquiring or developing apartment communities directly, at times we invest as a partner or a co-venturer. Partnership or joint venture investments involve risks, including the possibility that our partner might become insolvent or otherwise refuse to make capital contributions when due; that we may be responsible to our partner for indemnifiable losses; that our partner might at any time have business goals which are inconsistent with ours; and that our partner may be in a position to take action or withhold consent contrary to our instructions or requests. Frequently, we and our partner may each have the right to trigger a buy-sell arrangement, which could cause us to sell our interest, or acquire our partner’s interest, at a time when we otherwise would not have initiated such a transaction.
Risks associated with an investment in and management of a discretionary investment fund .
We have formed the Fund which, through a wholly-owned subsidiary, we manage as the general partner and to which we have committed $50,000,000, representing an approximate 15% equity interest. This presents risks, including the following:
    investors in the Fund may fail to make their capital contributions when due and, as a result, the Fund may be unable to execute its investment objectives;
 
    our subsidiary that is the general partner of the Fund is generally liable, under partnership law, for the debts and obligations of the Fund, subject to certain exculpation and indemnification rights pursuant to the terms of the partnership agreement of the Fund;
 
    investors in the Fund holding a majority of the partnership interests may remove us as the general partner without cause, subject to our right to receive an additional nine months of management fees after such removal and our right to acquire one of the properties then held by the Fund;
 
    while we have broad discretion to manage the Fund and make investment decisions on behalf of the Fund, the investors or an advisory committee comprised of representatives of the investors must approve certain matters, and as a result we may be unable to cause the Fund to make certain investments or implement certain decisions that we consider beneficial;
 
    we can develop communities but are generally prohibited from making acquisitions of apartment communities outside of the Fund until the earlier of March 16, 2008 or until 80% of the Fund’s committed capital is invested, subject to certain exceptions; and
 
    we may be liable if either the Fund, or the REIT through which a number of investors have invested in the Fund and which we manage, fails to comply with various tax or other regulatory matters.
Risk of earthquake damage.
As further described in Item 2., “Communities – Insurance and Risk of Uninsured Losses,” many of our West Coast communities are located in the general vicinity of active earthquake faults. We cannot assure you that an earthquake would not cause damage or losses greater than insured levels. In the event of a loss in excess of insured limits, we could lose our capital invested in the affected community, as well as anticipated future revenue from that community. We would also continue to be obligated to repay any mortgage indebtedness or other obligations related to the community. Any such loss could materially and adversely affect our business and our financial condition and results of operations.
Insurance coverage for earthquakes is expensive due to limited industry capacity. As a result, we may experience shortages in desired coverage levels if market conditions are such that insurance is not available.
A significant uninsured property or liability loss could have a material adverse effect on our financial condition and results of operations.
In addition to the earthquake insurance discussed above, we carry commercial general liability insurance, property insurance and terrorism insurance with respect to our communities on terms we consider commercially reasonable.

12


 

There are, however, certain types of losses (such as losses arising from acts of war) that are not insured, in full or in part, because they are either uninsurable or the cost of insurance makes it, in management’s view, economically impractical. If an uninsured property loss or a property loss in excess of insured limits were to occur, we could lose our capital invested in a community, as well as the anticipated future revenues from such community. We would also continue to be obligated to repay any mortgage indebtedness or other obligations related to the community. If an uninsured liability to a third party were to occur, we would incur the cost of defense and settlement with, or court ordered damages to, that third party. A significant uninsured property or liability loss could materially and adversely affect our business and our financial condition and results of operations.
We may incur costs and increased expenses to repair property damage resulting from inclement weather.
Particularly in the Northeast and Midwest we are exposed to risks associated with inclement winter weather, including increased costs for the removal of snow and ice as well as from delays in construction. In addition, inclement weather could increase the need for maintenance and repair of our communities.
We may incur costs due to environmental contamination or non-compliance.
Under various federal, state and local environmental laws, regulations and ordinances, we may be required, regardless of knowledge or responsibility, to investigate and remediate the effects of hazardous or toxic substances or petroleum product releases at our properties and may be held liable under these laws or common law to a governmental entity or to third parties for property, personal injury or natural resources damages and for investigation and remediation costs incurred as a result of the contamination. These damages and costs may be substantial. The presence of such substances, or the failure to properly remediate the contamination, may adversely affect our ability to borrow against, sell or rent the affected property.
In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs it incurs as a result of the contamination.
The development, construction and operation of our communities are subject to regulations and permitting under various federal, state and local laws, regulations and ordinances, which regulate matters including wetlands protection, storm water runoff and wastewater discharge. Noncompliance with such laws and regulations may subject us to fines and penalties. We do not currently anticipate that we will incur any material liabilities as a result of noncompliance with these laws.
Certain federal, state and local laws, regulations and ordinances govern the removal, encapsulation or disturbance of asbestos containing materials (“ACMs”) when such materials are in poor condition or in the event of renovation or demolition of a building. These laws and the common law may impose liability for release of ACMs and may allow third parties to seek recovery from owners or operators of real properties for personal injury associated with exposure to ACMs. We are not aware that any ACMs were used in the construction of the communities we developed. ACMs were, however, used in the construction of several of the communities that we acquired. We implement an operations and maintenance program at each of the communities at which ACMs are detected. We do not currently anticipate that we will incur any material liabilities as a result of the presence of ACMs at our communities.
We are aware that some of our communities have lead paint and have implemented an operations and maintenance program at each of those communities. We do not currently anticipate that we will incur any material liabilities as a result of the presence of lead paint at our communities.
All of our stabilized operating communities, and all of the communities that we are currently developing or redeveloping, have been subjected to at least a Phase I or similar environmental assessment, which generally does not involve invasive techniques such as soil or ground water sampling. These assessments, together with subsurface assessments conducted on some properties, have not revealed, and we are not otherwise aware of, any environmental conditions that we believe would have a material adverse effect on our business, assets, financial condition or results of operation. In connection with our ownership, operation and development of communities, from time to time we undertake substantial remedial action in response to the presence of subsurface or other contaminants. In some cases, an indemnity exists upon which we may be able to rely if environmental liability arises from the contamination or remediation costs exceed estimates.

13


 

There can be no assurance, however, that all necessary remediation actions have been or will be undertaken at our properties or that we will be indemnified, in full or at all, in the event that environmental liability arises.
Mold growth may occur when excessive moisture accumulates in buildings or on building materials, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Although the occurrence of mold at multifamily and other structures, and the need to remediate such mold, is not a new phenomenon, there has been increased awareness in recent years that certain molds may in some instances lead to adverse health effects, including allergic or other reactions. To help limit mold growth, we educate residents about the importance of adequate ventilation and request or require that they notify us when they see mold or excessive moisture. We have established procedures for promptly addressing and remediating mold or excessive moisture from apartment homes when we become aware of its presence regardless of whether we or the resident believe a health risk is presented. However, we cannot provide assurance that mold or excessive moisture will be detected and remediated in a timely manner. If a significant mold problem arises at one of our communities, we could be required to undertake a costly remediation program to contain or remove the mold from the affected community and could be exposed to other liabilities.
Additionally, we have occasionally been involved in developing, managing, leasing and operating various properties for third parties. Consequently, we may be considered to have been an operator of such properties and, therefore, potentially liable for removal or remediation costs or other potential costs which could relate to hazardous or toxic substances. We are not aware of any material environmental liabilities with respect to properties managed or developed by us or our predecessors for such third parties.
We cannot assure you that:
    the environmental assessments described above have identified all potential environmental liabilities;
 
    no prior owner created any material environmental condition not known to us or the consultants who prepared the assessments;
 
    no environmental liabilities have developed since the environmental assessments were prepared;
 
    the condition of land or operations in the vicinity of our communities, such as the presence of underground storage tanks, will not affect the environmental condition of our communities;
 
    future uses or conditions, including, without limitation, changes in applicable environmental laws and regulations, will not result in the imposition of environmental liability; and
 
    no environmental liabilities will arise at communities that we have sold for which we may have liability.
Failure to qualify as a REIT would cause us to be taxed as a corporation, which would significantly reduce funds available for distribution to stockholders.
If we fail to qualify as a REIT for federal income tax purposes, we will be subject to federal income tax on our taxable income at regular corporate rates (subject to any applicable alternative minimum tax). In addition, unless we are entitled to relief under applicable statutory provisions, we would be ineligible to make an election for treatment as a REIT for the four taxable years following the year in which we lose our qualification. The additional tax liability resulting from the failure to qualify as a REIT would significantly reduce or eliminate the amount of funds available for distribution to our stockholders. Furthermore, we would no longer be required to make distributions to our stockholders. Thus, our failure to qualify as a REIT could also impair our ability to expand our business and raise capital, and would adversely affect the value of our common stock.
We believe that we are organized and qualified as a REIT, and we intend to operate in a manner that will allow us to continue to qualify as a REIT. However, we cannot assure you that we are qualified as a REIT, or that we will remain qualified in the future. This is because qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code for which there are only limited judicial and administrative interpretations and involves the determination of a variety of factual matters and circumstances not entirely within our control. In addition, future legislation, new regulations, administrative interpretations or court decisions may significantly change the tax laws or the application of the tax laws with respect to qualification as a REIT for federal income tax purposes or the federal income tax consequences of this qualification.

14


 

Even if we qualify as a REIT, we will be subject to certain federal, state and local taxes on our income and property and on taxable income that we do not distribute to our shareholders. In addition, we may engage in activities through taxable subsidiaries and will be subject to federal income tax at regular corporate rates on the income of those subsidiaries.
The ability of our stockholders to control our policies and effect a change of control of our company is limited by certain provisions of our charter and bylaws and by Maryland law.
There are provisions in our charter and bylaws that may discourage a third party from making a proposal to acquire us, even if some of our stockholders might consider the proposal to be in their best interests. These provisions include the following:
Our charter authorizes our Board of Directors to issue up to 50,000,000 shares of preferred stock without stockholder approval and to establish the preferences and rights, including voting rights, of any series of preferred stock issued. The Board of Directors may issue preferred stock without stockholder approval, which could allow the Board to issue one or more classes or series of preferred stock that could discourage or delay a tender offer or a change in control.
To maintain our qualification as a REIT for federal income tax purposes, not more than 50% in value of our outstanding stock may be owned, directly or indirectly, by or for five or fewer individuals at any time during the last half of any taxable year. To maintain this qualification, and to otherwise address concerns about concentrations of ownership of our stock, our charter generally prohibits ownership (directly, indirectly by virtue of the attribution provisions of the Internal Revenue Code, or beneficially as defined in Section 13 of the Securities Exchange Act) by any single stockholder of more than 9.8% of the issued and outstanding shares of any class or series of our stock. In general, under our charter, pension plans and mutual funds may directly and beneficially own up to 15% of the outstanding shares of any class or series of stock. Under our charter, our Board of Directors may in its sole discretion waive or modify the ownership limit for one or more persons. These ownership limits may prevent or delay a change in control and, as a result, could adversely affect our stockholders’ ability to realize a premium for their shares of common stock.
Our bylaws provide that the affirmative vote of holders of a majority of all of the shares entitled to be cast in the election of directors is required to elect a director. In a contested election, if no nominee receives the vote of holders of a majority of all of the shares entitled to be cast, the incumbent directors would remain in office. This requirement may prevent or delay a change in control and, as a result, could adversely affect our stockholders’ ability to realize a premium for their shares of common stock.
As a Maryland corporation, we are subject to the provisions of the Maryland General Corporation Law. Maryland law imposes restrictions on some business combinations and requires compliance with statutory procedures before some mergers and acquisitions may occur, which may delay or prevent offers to acquire us or increase the difficulty of completing any offers, even if they are in our stockholders’ best interests. In addition, other provisions of the Maryland General Corporation Law permit the Board of Directors to make elections and to take actions without stockholder approval (such as classifying our Board such that the entire Board is not up for reelection annually) that, if made or taken, could have the effect of discouraging or delaying a change in control.
ITEM 1b.       UNRESOLVED STAFF COMMENTS
None.

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ITEM 2.       COMMUNITIES
Our real estate investments consist primarily of current operating apartment communities, communities in various stages of development (“Development Communities”) and Development Rights as defined below. Our current operating communities are further distinguished as Established Communities, Other Stabilized Communities, Lease-Up Communities and Redevelopment Communities. 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 consolidated 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 operating expenses as of the beginning of the prior year. For the year ended December 31, 2006, the Established Communities are communities that are consolidated for financial reporting purposes, had stabilized occupancy and operating expenses as of January 1, 2005, are not conducting or planning to conduct substantial redevelopment activities and are not held for sale or planned for disposition within the current year. A community is considered to have stabilized occupancy at the earlier of (i) attainment of 95% physical occupancy or (ii) the one-year anniversary of completion of development or redevelopment.
 
    Other Stabilized Communities includes all other completed communities that we own or have a direct or indirect ownership interest in, and that have stabilized occupancy, as defined above. Other Stabilized Communities do not include communities that are conducting or planning to conduct substantial redevelopment activities within the current year.
 
    Lease-Up Communities are communities where construction has been complete for less than one year and where physical occupancy has not reached 95%.
 
    Redevelopment Communities are communities where substantial redevelopment is in progress or is planned to begin during the current year. For communities that we wholly own, redevelopment is considered substantial when capital invested during the reconstruction effort is expected to exceed the lesser of $5,000,000 or 10% of the community’s acquisition cost. The definition of substantial redevelopment may differ for communities owned through a joint venture arrangement.
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 for which we either have an option to acquire land or enter into a leasehold interest, for which we are the buyer under a long-term conditional contract to purchase land or where we own land to develop a new community. We capitalize related pre-development costs incurred in pursuit of new developments for which we currently believe future development is probable.
In addition, we own approximately 60,000 square feet of office space in Alexandria, Virginia, for our corporate office, with all other regional and administrative offices leased under operating leases.

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As of December 31, 2006, communities that we owned or held a direct or indirect interest in were classified as follows:
                 
    Number of   Number of
    communities   apartment homes
 
       
Current Communities
               
 
               
Established Communities:
               
Northeast
    35       8,674  
Mid-Atlantic
    17       5,413  
Midwest
    3       887  
Pacific Northwest
    10       2,500  
Northern California
    29       8,450  
Southern California
    11       3,430  
 
           
Total Established
    105       29,354  
 
           
 
               
Other Stabilized Communities:
               
Northeast
    19       6,088  
Mid-Atlantic
    5       1,397  
Midwest
    2       460  
Pacific Northwest
    1       211  
Northern California
    3       603  
Southern California
    7       2,128  
 
           
Total Other Stabilized
    37       10,887  
 
           
 
               
Lease-Up Communities
    2       519  
 
               
Redevelopment Communities
    6       2,381  
 
           
 
               
Total Current Communities
    150       43,141  
 
           
 
               
Development Communities
    17       5,153  
 
           
 
               
Development Rights
    54       14,185  
 
           
Our holdings under each of the above categories are discussed on the following pages.
Current Communities
Our Current Communities are primarily garden-style apartment communities consisting of two and three-story buildings in landscaped settings. In January 2007, the Fund acquired one community containing 392 apartment homes. The Current Communities, as of January 31, 2007, include 115 garden-style (of which 15 are mixed communities and include townhomes), 21 high-rise and 15 mid-rise apartment communities. The Current Communities offer many attractive amenities including some or all of the following:
    vaulted ceilings;
 
    lofts;
 
    fireplaces;
 
    patios/decks; and
 
    modern appliances.
     Other features at various communities may include:
    swimming pools;
 
    fitness centers;
 
    tennis courts; and
 
    business centers.
We also have an extensive and ongoing maintenance program to keep all communities and apartment homes substantially free of deferred maintenance and, where vacant, available for immediate occupancy.

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We believe that the aesthetic appeal of our communities and a service oriented property management team, focused on the specific needs of residents, enhances market appeal to discriminating residents. We believe this will ultimately achieve higher rental rates and occupancy levels while minimizing resident turnover and operating expenses.
Our Current Communities are located in the following geographic markets:
                                                 
    Number of   Number of apartment   Percentage of total
    communities at   homes at   apartment homes at
    1-1-06   1-31-07   1-1-06   1-31-07   1-1-06   1-31-07
 
                                   
 
                                               
Northeast
    55       56       15,671       15,732       37.8 %     36.1 %
Boston, MA
    18       18       4,514       4,490       10.9 %     10.3 %
Fairfield County, CT
    16       14       4,375       3,812       10.6 %     8.8 %
Long Island, NY
    3       6       915       1,621       2.2 %     3.7 %
Northern New Jersey
    3       3       1,182       1,182       2.9 %     2.7 %
Central New Jersey
    5       6       1,752       2,042       4.2 %     4.7 %
New York, NY
    10       9       2,933       2,585       7.1 %     5.9 %
 
                                               
Mid-Atlantic
    21       24       6,859       7,622       16.6 %     17.5 %
Baltimore, MD
    6       9       1,224       1,987       3.0 %     4.6 %
Washington, DC
    15       15       5,635       5,635       13.6 %     12.9 %
 
                                               
Midwest
    6       7       1,696       1,952       4.1 %     4.5 %
Chicago, IL
    6       7       1,696       1,952       4.1 %     4.5 %
 
                                               
Pacific Northwest
    12       12       3,111       3,111       7.5 %     7.2 %
Seattle, WA
    12       12       3,111       3,111       7.5 %     7.2 %
 
                                               
Northern California
    32       33       9,203       9,366       22.2 %     21.5 %
Oakland-East Bay, CA
    7       7       2,089       2,089       5.0 %     4.8 %
San Francisco, CA
    9       11       2,015       2,489       4.9 %     5.7 %
San Jose, CA
    16       15       5,099       4,788       12.3 %     11.0 %
 
                                               
Southern California
    16       19       4,872       5,750       11.8 %     13.2 %
Los Angeles, CA
    7       9       2,448       3,006       5.9 %     6.9 %
Orange County, CA
    6       7       1,366       1,686       3.3 %     3.9 %
San Diego, CA
    3       3       1,058       1,058       2.6 %     2.4 %
 
                                               
 
                                               
 
    142       151       41,412       43,533       100.0 %     100.0 %
 
                                               
We manage and operate substantially all of our Current Communities. During the year ended December 31, 2006, including communities owned by joint ventures and the Fund, we completed construction of 1,368 apartment homes in six communities, acquired 1,397 apartment homes in six communities and sold 1,036 apartment homes in four communities. The average age of our Current Communities, on a weighted average basis according to number of apartment homes, is 14.1 years. When adjusted to reflect redevelopment activity, as if redevelopment were a new construction completion date, the average age of our Current Communities is 9.3 years.
Of the Current Communities, as of January 31, 2007, we own:
    a full fee simple, or absolute, ownership interest in 113 operating communities, six of which are on land subject to land leases expiring in November 2028, July 2029, December 2034, January 2062, April 2095, and March 2142;
 
    a general partnership interest in two partnerships that each own a fee simple interest in an operating community;
 
    a general partnership interest and an indirect limited partnership interest in the Fund, which owns a fee simple interest in 14 operating communities;
 
    a general partnership interest in five partnerships structured as “DownREITs,” as described more fully below, that own an aggregate of 16 communities;
 
    a membership interest in five limited liability companies that each hold a fee simple interest in an operating community, three of which are on land subject to land leases expiring in December 2026, November 2089, and December 2103; and

18


 

    a residual profits interest (with no ownership interest) in a limited liability company to which an operating community was transferred upon completion of construction in the second quarter of 2006.
We also hold, directly or through wholly-owned subsidiaries, the full fee simple ownership interest in 17 of the Development Communities.
In each of our five partnerships structured as DownREITs, either AvalonBay or one of our wholly-owned subsidiaries is the general partner, and there are one or more limited partners whose interest in the partnership is represented by units of limited partnership interest. For each DownREIT partnership, limited partners are entitled to receive an initial distribution before any distribution is made to the general partner. Although the partnership agreements for each of the DownREITs are different, generally the distributions per unit paid to the holders of units of limited partnership interests have approximated our current common stock dividend amount. The holders of units of limited partnership interest have the right to present all or some of their units for redemption for a cash amount as determined by the applicable partnership agreement and based on the fair value of our common stock. In lieu of a cash redemption by the partnership, we may elect to acquire any unit presented for redemption for one share of our common stock or for such cash amount. As of January 31, 2007, there were 144,955 DownREIT partnership units outstanding. The DownREIT partnerships are consolidated for financial reporting purposes.

19


 

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

20


 

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

21


 

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

22


 

Profile of Current, Development and Unconsolidated Communities (1)
(Dollars in thousands, except per apartment home data)
                                                                                         
                                                    Average economic     Average        
                Approx.             Year of   Average     Physical     occupancy     rental rate     Financial  
        Number of     rentable area             completion/   Size     occupancy at                   $ per     $ per     reporting cost  
    City and state   homes     (Sq. Ft.)     Acres     acquisition   (Sq. Ft.)     12/31/06     2006     2005     Apt (4)     Sq. Ft.     (5)  
San Jose, CA
                                                                                       
Avalon at Blossom Hill
  San Jose, CA     324       323,496       7.5     1995     998       97.8 %     96.7 %     96.2 %     1,484       1.44       62,060  
Avalon at Cahill Park
  San Jose, CA     218       218,177       3.8     2002     1,001       95.9 %     97.0 %     97.1 %     1,868       1.81       52,570  
Avalon at Creekside
  Mountain View, CA     294       215,680       13.0     1962/1997     734       98.0 %     97.7 %     96.5 %     1,257       1.67       43,423  
Avalon at Foxchase I & II
  San Jose, CA     396       334,956       12.0     1988/1987     844       97.5 %     96.9 %     96.0 %     1,247       1.43       60,670  
Avalon at Parkside
  Sunnyvale, CA     192       203,990       8.0     1991/1996     1,062       99.5 %     98.0 %     97.4 %     1,655       1.53       38,218  
Avalon at Pruneyard
  Campbell, CA     252       197,000       8.5     1968/1997     782       99.6 %     97.4 %     97.0 %     1,251       1.56       32,141  
Avalon at River Oaks
  San Jose, CA     226       210,050       4.0     1990/1996     929       97.3 %     97.6 %     96.7 %     1,487       1.56       45,009  
Avalon Campbell
  Campbell, CA     348       326,796       10.8     1995     939       98.3 %     96.9 %     96.2 %     1,528       1.58       60,114  
Avalon Mountain View (7)
  Mountain View, CA     248       211,552       10.5     1986     853       96.4 %     95.9 %     95.1 %     1,567       1.76       51,609  
Avalon on the Alameda
  San Jose, CA     305       299,762       8.9     1999     983       97.0 %     96.9 %     95.2 %     1,850       1.82       56,506  
Avalon Rosewalk
  San Jose, CA     456       448,488       16.6     1997/1999     984       98.0 %     96.4 %     95.7 %     1,480       1.45       79,364  
Avalon Silicon Valley
  Sunnyvale, CA     710       653,929       13.6     1997     921       95.2 %     96.5 %     95.8 %     1,732       1.81       122,123  
Avalon Towers on the Peninsula
  Mountain View, CA     211       218,392       1.9     2002     1,035       97.6 %     96.5 %     96.7 %     2,422       2.26       65,752  
CountryBrook (8)
  San Jose, CA     360       322,992       14.0     1985/1996     897       99.4 %     97.8 %     96.8 %     1,347       1.47       48,790  
San Marino
  San Jose, CA     248       209,000       11.5     1984/1988     843       99.2 %     97.4 %     96.7 %     1,249       1.44       35,017  
 
                                                                                       
SOUTHERN CALIFORNIA
                                                                                       
Los Angeles, CA
                                                                                       
Avalon at Media Center
  Burbank, CA     748       530,084       14.1     1961/1997     709       96.7 %     95.7 %     95.9 %     1,370       1.85       76,461  
Avalon at Warner Center
  Woodland Hills, CA     227       191,114       7.0     1979/1998     842       96.0 %     96.8 %     97.5 %     1,614       1.86       26,943  
Avalon Camarillo
  Camarillo, CA     249       233,267       10.0     2006     937       99.2 %     54.4 %(3)     N/A       3,196       1.85 (3)     47,174  
Avalon Glendale (11)
  Burbank, CA     223       241,714       5.1     2003     1,084       96.0 %     95.4 %     95.7 %     2,237       1.97       40,248  
Avalon Woodland Hills
  Woodland Hills, CA     663       594,396       18.2     1989/1997     897       97.0 %     95.5 %     96.0 %     1,491       1.59       72,073  
The Promenade
  Burbank, CA     400       360,587       6.9     1988/2002     901       98.0 %     97.4 %     96.9 %     1,759       1.90       71,003  
Avalon Del Rey (9)(12)
  Los Angeles, CA     309       284,636       5.0     2006     921       97.4 %     51.5 %(3)     N/A       3,710       2.07 (3)     65,075  
 
                                                                                       
Orange County, CA
                                                                                       
Avalon at Pacific Bay
  Huntington Beach, CA     304       268,000       9.7     1971/1997     882       96.7 %     96.0 %     96.7 %     1,455       1.58       32,296  
Avalon at South Coast
  Costa Mesa, CA     258       207,672       8.0     1973/1996     805       98.1 %     98.3 %     97.2 %     1,356       1.66       25,490  
Avalon Mission Viejo
  Mission Viejo, CA     166       124,600       7.8     1984/1996     751       95.8 %     95.5 %     95.4 %     1,233       1.57       14,012  
Avalon Newport
  Costa Mesa, CA     145       122,415       6.6     1956/1996     844       100.0 %     98.2 %     97.5 %     1,566       1.82       10,352  
Avalon Santa Margarita
  Rancho Santa Margarita, CA     301       229,593       20.0     1990/1997     763       97.7 %     96.9 %     96.5 %     1,295       1.64       24,361  
 
                                                                                       
San Diego, CA
                                                                                       
Avalon at Cortez Hill
  San Diego, CA     294       226,140       1.4     1973/1998     769       95.6 %     95.1 %     95.0 %     1,404       1.74       34,556  
Avalon at Mission Bay
  San Diego, CA     564       402,285       12.9     1969/1997     713       97.3 %     95.7 %     95.1 %     1,378       1.85       66,281  
Avalon at Mission Ridge
  San Diego, CA     200       207,625       4.0     1960/1997     1,038       97.0 %     96.3 %     96.1 %     1,509       1.40       22,421  

23


 

Profile of Current, Development and Unconsolidated Communities (1)
(Dollars in thousands, except per apartment home data)
                                                                                         
                                                    Average economic     Average        
                Approx.             Year of   Average     Physical     occupancy     rental rate     Financial  
        Number of     rentable area             completion/   Size     occupancy at                   $ per     $ per     reporting cost  
    City and state   homes     (Sq. Ft.)     Acres     acquisition   (Sq. Ft.)     12/31/06     2006     2005     Apt (4)     Sq. Ft.     (5)  
DEVELOPMENT COMMUNITIES
                                                                                       
 
                                                                                       
Avalon at Decoverly II
  Rockville, MD     196       182,560       10.8     N/A     931       N/A       N/A       N/A       N/A       N/A       29,423  
Avalon at Dublin Station I
  Dublin, CA     305       299,329       4.7     N/A     981       N/A       N/A       N/A       N/A       N/A       42,351  
Avalon at Glen Cove North (11)
  Glen Cove, NY     111       101,161       1.3     N/A     911       N/A       N/A       N/A       N/A       N/A       27,137  
Avalon at Lexington Hills
  Lexington, MA     387       487,139       2.3     N/A     1,259       N/A       N/A       N/A       N/A       N/A       22,611  
Avalon Acton
  Acton, MA     380       353,790       5.0     N/A     931       N/A       N/A       N/A       N/A       N/A       16,672  
Avalon Bowery Place II
  New York, NY     90       73,624       1.1     N/A     838       N/A       N/A       N/A       N/A       N/A       15,007  
Avalon Chestnut Hill
  Chestnut Hill, MA     204       275,563       4.7     N/A     1,351       N/A       N/A       N/A       N/A       N/A       59,926  
Avalon Danvers
  Danvers, MA     433       493,095       75.0     N/A     1,139       N/A       N/A       N/A       N/A       N/A       46,433  
Avalon Encino
  Los Angeles, CA     131       131,252       2.0     N/A     1,002       N/A       N/A       N/A       N/A       N/A       22,871  
Avalon Lyndhurst
  Lyndhurst, NJ     328       331,122       5.8     N/A     1,010       N/A       N/A       N/A       N/A       N/A       64,226  
Avalon Meydenbauer
  Bellevue, WA     368       329,613       3.6     N/A     896       N/A       N/A       N/A       N/A       N/A       36,089  
Avalon on the Sound II (11)
  New Rochelle, NY     588       561,981       1.7     N/A     956       N/A       N/A       N/A       N/A       N/A       102,073  
Avalon Riverview North
  Long Island City, NY     602       477,657       1.8     N/A     793       N/A       N/A       N/A       N/A       N/A       85,814  
Avalon Shrewsbury
  Shrewbury, MA     251       209,548       25.5     N/A     835       N/A       N/A       N/A       N/A       N/A       33,543  
Avalon Wilshire
  Los Angeles, CA     123       125,109       1.6     N/A     1,017       N/A       N/A       N/A       N/A       N/A       38,338  
Avalon Woburn
  Woburn, MA     446       483,995       56.0     N/A     1,085       N/A       N/A       N/A       N/A       N/A       61,277  
Avalon Canoga Park
  Conoga Park, CA     210       186,599       3.3     N/A     889       N/A       N/A       N/A       N/A       N/A       14,031  
 
                                                                                       
UNCONSOLIDATED COMMUNITIES
                                                                                       
 
                                                                                       
Aurora at Yerba Buena (6)
  San Francisco, CA     160       125,636       0.9     2000/2006     785       94.4 %     95.4 %(3)     N/A       2,523       3.07 (3)     N/A  
Avalon at Aberdeen Station (6)
  Aberdeen, NJ     290       296,033       16.8     2002/2006     1,021       97.0 %     95.0 %(3)     N/A       1,736       1.61 (3)     N/A  
Avalon at Mission Bay North II (9)(11)
  San Francisco, CA     313       291,817       1.5     2006     932       36.4 %     27.8 %(3)     N/A       9,048       2.69 (3)     N/A  
Avalon at Poplar Creek (6)
  Schaumburg, IL     196       178,490       12.8     1986/2005     911       90.8 %     95.9 %(2)     94.3 %(3)     1,073       1.13 (2)     N/A  
Avalon Chrystie Place I (9)(11)
  New York, NY     361       266,940       1.5     2005     739       98.6 %     98.4 %     62.5 %(3)     3,125       4.16       N/A  
Avalon Columbia (6)
  Columbia, MD     170       177,284       11.3     1989/2004     1,043       96.5 %     96.1 %(2)     84.4 %(3)     1,273       1.17 (2)     N/A  
Avalon Grove (9)
  Stamford, CT     402       365,252       5.1     1996     906       96.8 %     96.9 %     96.6 %     2,101       2.24       N/A  
Avalon Lakeside (6)
  Wheaton, IL     204       162,821       12.4     2004     798       96.6 %     95.5 %     79.6 %     894       1.07       N/A  
Avalon at Redondo Beach (6)
  Redondo Beach, CA     105       85,380       1.2     1971/2004     813       97.1 %     94.4 %     95.9 %     1,929       2.24       N/A  
Cedar Valley (6)
  Columbia, MD     156       150,276       11.4     1972/2006     963       97.0 %     96.6 %(3)     N/A       1,187       1.19       N/A  
Civic Center (6)
  Norwalk, CA     192       173,568       8.7     1987/2005     904       89.1 %     94.8 %(2)     98.6 %(3)     1,468       1.54 (2)     N/A  
Fuller Martel (6)
  Los Angeles, CA     82       71,846       0.8     1987/2005     876       96.3 %     96.1 %     97.4 %(3)     1,650       1.81       N/A  
Paseo Park (6)
  Fremont, CA     134       105,900       7.0     1987/2005     790       100.0 %     96.9 %     96.0 %(3)     1,114       1.37 (3)     N/A  
Avalon Redmond (6)
  Redmond, WA     400       340,448       24.0     1983/2004     851       87.5 %     88.4 %(2)     93.9 %     1,016       1.06 (2)     N/A  
The Covington (6)
  Schaumburg, IL     256       201,924       13.2     1988/2006     789       85.9 %     83.8 %(3)     N/A       1,008       1.07 (3)     N/A  
Avalon Juanita Village (10)
  Kirkland, WA     211       207,511       2.9     2005     983       94.3 %     94.1 %     45.4 %(3)     1,289       1.23       N/A  
The Springs (6)
  Corona, CA     320       241,440       13.3     1987/2006     755       94.1 %     94.7 %(3)     N/A       1,066       1.34 (3)     N/A  

24


 

Profile of Current, Development and Unconsolidated Communities (1)
(Dollars in thousands, except per apartment home data)
(1)   We own a fee simple interest in the communities listed, excepted as noted below.
 
(2)   Represents community which was under redevelopment during the year, resulting in lower average economic occupancy and average rental rate per square foot for the year.
 
(3)   Represents community that completed development or was purchased during the year, which could result in lower average economic occupancy and average rental rate per square foot for the year.
 
(4)   Represents the average rental revenue per occupied apartment home.
 
(5)   Costs are presented in accordance with generally accepted accounting principles. For current Development Communities, cost represents total costs incurred through December 31, 2006. Financial reporting costs are excluded for unconsolidated communities, see Note 6, “Investments in Unconsolidated Entities” of our Consolidated Financial Statements in Item 8 of this report.
 
(6)   We own a 15.2% combined general partnership and indirect limited partner equity interest in this community.
 
(7)   We own a general partnership interest in a partnership that owns a fee simple interest in this community.
 
(8)   We own a general partnership interest in a partnership structured as a DownREIT that owns this community.
 
(9)   We own a membership interest in a limited liability company that holds a fee simple interest in this community.
 
(10)   This community was transferred to a joint venture entity upon completion of development. We do not hold an equity interest in the entity, but retain a promoted residual interest in the profits of the entity. We receive a property management fee for this community.
 
(11)   Community is located on land subject to a land lease.
 
(12)   Upon completion of this community we admitted a 70% joint venture partner to the LLC. However, due to an operating guarantee provided to the joint venture partner, this community is consolidated for financial reporting purposes.
 
(13)   In December 2006, we completed the purchase of our partner’s interest in Avalon Run, and this community is now a wholly-owned community. See Note 6, “Investments in Unconsolidated Entities” of our Consolidated Financial Statements in Item 8 of this report.

25


 

Features and Recreational Amenities — Current and Development Communities
                                                                                                                     
                                                                            Washer &               Large   Balcony,           Non-       Homes w/
    1 BR     2BR     3BR                                     dryer               storage or   patio, deck           direct   Direct   pre-wired
                      Studios /                     Parking     hook-ups   Vaulted           walk-in   or   Built-in       access   access   security
    1/1.5 BA     1/1.5 BA     2/2.5/3 BA     2/2.5 BA     3BA     efficiencies     Other     Total     spaces     or units   ceilings   Lofts   Fireplaces   closet   sunroom   bookcases   Carports   garages   garages   systems
CURRENT COMMUNITIES (1)
                                                                                                                   
 
                                                                                                                   
NORTHEAST
                                                                                                                   
Boston, MA
                                                                                                                   
Avalon at Bedford Center
    52             87                               139       269     All   Some   Some   Some   Some   All   None   No   No   Yes   None
Avalon at Center Place
    103             112       4             6             225       371     All   None   None   None   Some   Some   None   No   No   No   None
Avalon at Crane Brook
    162       12       175       38                         387       658     All   Some   Some   Some   All   All   None   No   Yes   No   All
Avalon at Faxon Park
    68             75       28                         171       327     All   Some   Some   Some   Most   All   None   No   Yes   No   All
Avalon at Flanders Hill
    108       22       120       30                         280       589     All   Some   Some   Some   All   All   None   No   Yes   Yes   All
Avalon at Lexington
    28       25       89       56                           198       362     All   Some   Some   Some   Most   All   None   Yes   Yes   No   None
Avalon at Newton Highlands
    90       40       99       55       4       6             294       551     All   Some   Some   Some   Most   Most   None   No   No   No   All
Avalon at Prudential Center
    361             242             29       149             781       538     None   None   None   None   Most   Some   None   No   No   No   None
Avalon at Steven’s Pond
    102             202       22                         326       749     All   Some   Some   Some   All   All   None   No   Yes   Yes   All
Avalon at The Pinehills I
    12             73       16                         101       235     All   Most   Some   Some   All   All   None   No   No   Yes   All
Avalon Essex
    50             104                               154       336     All   Some   Some   Half   Most   All   None   No   Yes   Yes   All
Avalon Ledges
    124       28       124       28                         304       594     All   Some   Some   Some   All   All   None   No   Yes   No   All
Avalon Oaks
    60       24       96       24                         204       394     All   Some   Some   Some   All   All   None   No   Yes   No   All
Avalon Oaks West
    48       12       48       12                         120       232     All   Some   Some   Some   All   All   None   No   Yes   No   All
Avalon Orchards
    69       87                                     156       307     All   Some   Some   Some   All   All   None   No   Yes   Yes   All
Avalon Summit
    154       58       31       1                   1       245       359     None   None   None   None   Some   Most   None   No   No   Yes   None
Avalon West
    40             55       25                         120       285     All   Some   Some   Some   All   Half   None   No   Yes   Yes   All
Essex Place
    40       246                                     286       450     Some   None   None   None   Some   Some   None   No   No   No   None
 
                                                                                                                   
Fairfield-New Haven, CT
                                                                                                                   
Avalon at Greyrock Place
    52       91       99       12                   52       306       464     All   None   None   None   Most   All   None   No   No   No   All
Avalon Danbury
    112             98       24                         234       54     All   None   Some   Some   Some   All   None   No   Yes   No   Some
Avalon Darien
    77             80       32                         189       443     All   All   Some   Some   All   All   None   No   Yes   Yes   All
Avalon Gates
    122             168       50                         340       688     All   Some   Some   Half   All   All   None   Yes   Yes   No   All
Avalon Glen
    112             125       1                         238       363     Most   Some   Some   Some   Some   Most   Some   Yes   No   Yes   Most
Avalon Haven
    28             40       24                   36       128       256     All   Some   Some   Some   All   All   None   Yes   Yes   No   All
Avalon Milford I
    184             62                               246       426     All   Some   None   Some   Some   All   None   Yes   Yes   No   All
Avalon New Canaan
    16             64       24                         104       194     All   Some   Some   Some   All   All   None   No   Yes   Yes   All
Avalon on Stamford Harbor
    159             130       20             14             323       503     All   Some   Some   Some   All   Most   None   No   No   No   All
Avalon Orange
    84             28       28                   28       168       362     All   Some   Some   Some   All   All   None   Yes   No   No   All
Avalon Springs
                70       32                         102       264     All   Half   Half   Most   All   All   None   No   No   Yes   All
Avalon Valley
    106             134       28                         268       637     All   Some   Some   Some   All   All   None   Yes   Yes   No   All
Avalon Walk I & II
    272       116       122       98                   156       764       1,411     All   Some   Some   Some   Most   All   None   Yes   No   No   Half
 
                                                                                                                   
Long Island, NY
                                                                                                                   
Avalon at Glen Cove South
    124             91                   41             256       366     All   None   None   Some   All   Some   None   No   No   Some   Some
Avalon Commons
    128       40       112       32                         312       485     All   Some   Some   Some   All   All   None   No   Yes   No   All
Avalon Court
    172       54       194       74                         494       797     All   Half   Half   Some   Some   All   None   No   Yes   Yes   All
Avalon Pines I
    72             220             6                   298       1,094     All   Most   Some   Some   Most   All   None   No   Yes   Yes   All
Avalon Pines II
    50             102                               152       135     All   Most   Some   Some   All   All   None   No   Some   Some   All
Avalon Towers
                38             3       1       67       109       198     All   None   None   None   Most   Most   None   No   Yes   No   None

26


 

Features and Recreational Amenities — Current and Development Communities
                                                                                                                     
                                                                            Washer &               Large   Balcony,           Non-       Homes w/
    1 BR     2BR     3BR                                     dryer               storage or   patio, deck           direct   Direct   pre-wired
                      Studios /                     Parking     hook-ups   Vaulted           walk-in   or   Built-in       access   access   security
    1/1.5 BA     1/1.5 BA     2/2.5/3 BA     2/2.5 BA     3BA     efficiencies     Other     Total     spaces     or units   ceilings   Lofts   Fireplaces   closet   sunroom   bookcases   Carports   garages   garages   systems
Northern New Jersey
                                                                                                                   
Avalon at Edgewater
    158             190       60                         408       872     All   Some   Some   Some   All   Half   None   No   No   Yes   Some
Avalon at Florham Park
    46             162       62                         270       583     All   All   None   Some   Most   Some   None   No   No   Yes   All
Avalon Cove
    197             231       26       2             48       504       460     All   Some   Some   Some   All   Some   None   No   Yes   No   None
 
                                                                                                                   
Central New Jersey
                                                                                                                   
Avalon at Freehold
    40       24       192       40                         296       591     All   Some   Some   Half   All   All   None   No   Yes   No   None
Avalon Run
    144       90       108       84                         426       640     All   Some   Some   Some   Some   All   None   Yes   No   No   All
Avalon Run East
    64       106             36                         206       401     All   Some   Some   Some   Most   Most   None   Yes   Yes   Yes   All
Avalon Run East II
    72       36       148       56                         312       500     All   Some   Some   Some   Some   All   None   Yes   Yes   Yes   All
Avalon Watch
    252       48       172       40                         512       781     All   Some   None   Half   All   All   None   No   Yes   No   None
 
                                                                                                                   
New York, NY
                                                                                                                   
Avalon Bowery Place I
    98       54                         54             206       131     All   None   None   None   Some   Some   None   No   No   Yes   Some
Avalon Gardens
    208       48       144       104                         504       1,382     All   Half   Half   Some   All   All   Some   Yes   Yes   Yes   All
Avalon Green
    25       24       56                               105       208     All   Some   Some   Some   All   All   None   Yes   No   No   All
Avalon on the Sound
    142             185       21       21       43             412       648     Most   Some   Some   None   Most   Some   None   No   No   Yes   None
Avalon Riverview I
    186             114       15       14       43             372       426     All   None   Some   None   Most   Some   None   No   No   Yes   None
Avalon View
    112       47       65       64                         288       598     All   Some   Some   Some   Most   All   None   Yes   No   No   None
Avalon Willow
    151             76                               227       371     All   Some   Some   Some   Some   All   None   No   No   No   No
The Avalon
    55       2       43       10                         110       170     All   Some   Some   Some   Most   Half   None   No   No   Yes   All
 
                                                                                                                   
MID-ATLANTIC
                                                                                                                   
Baltimore, MD
                                                                                                                   
Avalon at Fairway Hills I & II
    185       78       100       38                         401       283     All   Some   None   Most   Some   All   Some   No   No   No   None
Avalon at Fairway Hills III
    97       146       54       22                   23       342       522     All   Some   None   Most   Some   All   Some   No   No   No   None
Avalon at Symphony Glen
    88       14       54       20                         176       268     All   Some   None   Most   All   Most   Some   No   No   No   None
Avalon Landing
    83       18       57                               158       256     All   None   None   Most   Most   All   None   Yes   No   No   None
Southgate Crossing
            63 94       48       10                         2       15 353     All   None   None   Most   None   All   None   No   No   No   None
 
                                                                                                                   
Washington, DC
                                                                                                                   
AutumnWoods
    220       104       96                               420       720     All   Some   None   Some   All   All   None   Yes   No   No   None
Avalon at Arlington Square
    404       24       196       60                   158       842       1,411     All   Some   Some   Some   All   All   Some   No   Yes   Yes   All
Avalon at Ballston — Washington Towers
    233       111                                     344       470     All   None   None   Some   Most   All   Some   No   No   No   None
Avalon at Cameron Court
    208             168                         84       460       897     All   Most   Some   Some   All   Most   None   No   Yes   Yes   All
Avalon at Decoverly
    156             168       44                         368       627     All   Some   Some   Some   Most   All   None   No   Yes   No   None
Avalon at Foxhall
    160       70       32       2             28       16       308       349     All   Some   None   Some   All   All   Some   No   No   Yes   None
Avalon at Gallery Place I
    113       75             4             11             203       148     All   Some   None   None   Most   Some   None   No   No   Yes   None
Avalon at Grosvenor Station
    265       33       185       13             1             497       746     All   Some   Some   None   Most   Most   None   No   Yes   Yes   All
Avalon at Providence Park
    19             112       4                   6       141       299     All   Some   None   Most   All   All   None   No   No   No   None
Avalon at Rock Spring
    178       39       133       36                         386       680     All   Some   Some   Some   Most   All   None   No   Yes   No   All
Avalon at Traville
    190       30       232       68                         520       1,062     All   Some   Some   Some   All   Most   Some   Yes   Yes   Yes   None
Avalon Crescent
    186       26       346                               558       989     All   Some   Some   Most   Most   All   Some   No   Yes   Yes   All
Avalon Fields I & II
    112       32       112       32                   66       288       461     All   Some   Some   Some   Most   Most   None   No   Yes   No   All
Avalon Knoll
    136       56       80       28                         300       477     All   Some   None   Most   All   All   Most   No   No   No   None

27


 

Features and Recreational Amenities — Current and Development Communities
                                                                                                                     
                                                                            Washer &               Large   Balcony,           Non-       Homes w/
    1 BR     2BR     3BR                                     dryer               storage or   patio, deck           direct   Direct   pre-wired
                      Studios /                     Parking     hook-ups   Vaulted           walk-in   or   Built-in       access   access   security
    1/1.5 BA     1/1.5 BA     2/2.5/3 BA     2/2.5 BA     3BA     efficiencies     Other     Total     spaces     or units   ceilings   Lofts   Fireplaces   closet   sunroom   bookcases   Carports   garages   garages   systems
MIDWEST
                                                                                                                   
Chicago, IL
                                                                                                                   
Avalon at Arlington Heights
    232             147                   30             409       650     All   None   None   None   Some   Half   None   No   No   No   None
Avalon at Danada Farms
    132             134       14       15                   295       555     All   None   None   Some   Most   Some   Some   No   No   Yes   None
Avalon at Stratford Green
    63             108       21                         192       424     All   None   None   Some   Most   Most   Some   No   Yes   Yes   None
Avalon at West Grove
    200       200                                     400       594     None   None   None   None   Some   Half   None   Yes   No   No   None
 
                                                                                                                   
PACIFIC NORTHWEST
                                                                                                                   
Seattle, WA
                                                                                                                   
Avalon at Bear Creek
    55       40       110       56       3                   264       515     All   Some   None   Most   All   All   Half   Yes   Yes   Yes   All
Avalon Bellevue
    112             67                   23             202       300     All   Some   Some   Some   Most   Some   None   No   No   No   Some
Avalon Belltown
    64             20                   16             100       118     All   None   None   None   Most   Some   None   No   No   No   Yes
Avalon Brandemoor
    88       109       149       78                         424       737     All   Some   None   Most   All   All   Some   Yes   Yes   Yes   All
Avalon HighGrove
    84       119       124       56       8                   391       721     All   Half   None   Most   All   All   Some   Yes   Yes   Yes   All
Avalon ParcSquare
    31       26       55       12                   117       124       189     All   Some   None   None   All   All   None   No   Yes   Yes   Some
Avalon Redmond Place
    76       44       67       35                         222       161     All   Some   None   Most   Most   All   None   Yes   Yes   No   None
Avalon RockMeadow
    28       48       86       28       16                   206       415     All   Some   None   Most   Most   All   Some   Yes   No   Yes   All
Avalon WildReed
    36       60       78       60                         234       463     All   Some   None   Most   All   All   Some   Yes   Yes   No   All
Avalon Wynhaven
    3       42       239       13       28             8       333       780     All   Most   Some   Most   Half   Most   None   Yes   Yes   Yes   All
 
                                                                                                                   
NORTHERN CALIFORNIA
                                                                                                                   
Oakland-East Bay, CA
                                                                                                                   
Avalon at Union Square
    124       84                                     208       296     None   None   None   Most   All   All   None   Yes   No   No   None
Avalon at Willow Creek
    99             136                               235       240     All   None   None   None   All   All   None   Yes   No   No   None
Avalon Dublin
    72       8       60       48                   16       204       428     Most   Some   None   Most   All   All   None   No   Yes   No   None
Avalon Fremont I
    88             176             44                   308       609     All   Some   None   Some   Half   All   None   Yes   Yes   No   All
Avalon Pleasanton
    238             218                               456       941     All   Some   None   Most   Some   All   None   Yes   Yes   Yes   None
Waterford
    208             336                               544       927     Some   Some   None   None   All   All   None   Yes   No   No   None
 
                                                                                                                   
San Francisco, CA
                                                                                                                   
Avalon at Cedar Ridge
    117       33       24                   21             195       259     None   None   Some   None   Some   All   None   Yes   No   Yes   None
Avalon at Diamond Heights
    90             49       15                         154       155     None   Some   None   None   All   All   None   No   Yes   No   None
Avalon at Mission Bay North
    148             95       6             1             250       191     All   None   Some   None   All   Most   Some   No   Yes   No   Some
Avalon at Nob Hill
    114             25                   46             185       105     None   None   None   None   Some   Some   Most   No   Yes   No   None
Avalon Foster City
    125       122       1                   40             288       290     None   None   None   None   Most   All   Some   Yes   No   No   None
Avalon Pacifica
    58       106       56                               220       301     None   None   None   Some   Some   All   None   Yes   Yes   No   None
Avalon Sunset Towers
    183       20       20                   20             243       244     None   None   None   None   None   Some   None   No   No   Yes   None
Avalon Towers by the Bay
    103             120             3                   226       212     All   None   None   Some   Half   Most   None   No   No   No   None
Crowne Ridge
    158       68       24                   4             254       404     Some   Some   None   Some   None   All   None   Yes   No   Yes   None

28


 

Features and Recreational Amenities — Current and Development Communities
                                                                                                                     
                                                                            Washer &               Large   Balcony,           Non-       Homes w/
    1 BR     2BR     3BR                                     dryer               storage or   patio, deck           direct   Direct   pre-wired
                      Studios /                     Parking     hook-ups   Vaulted           walk-in   or   Built-in       access   access   security
    1/1.5 BA     1/1.5 BA     2/2.5/3 BA     2/2.5 BA     3BA     efficiencies     Other     Total     spaces     or units   ceilings   Lofts   Fireplaces   closet   sunroom   bookcases   Carports   garages   garages   systems
San Jose, CA
                                                                                                                   
Avalon at Blossom Hill
    90             210             24                   324       549     All   Some   None   None   Most   All   None   Yes   No   No   None
Avalon at Cahill Park
    118             94             6                   218       314     All   Some   Some   None   All   Some   None   No   No   No   Yes
Avalon at Creekside
    158       128                         8             294       441     None   None   None   Some   None   Most   None   Yes   No   No   None
Avalon at Foxchase I & II
    156             240                               396       666     All   Some   None   None   ALL   All   None   Yes   Yes   No   None
Avalon at Parkside
    60             96       36                         192       353     All   Some   None   Half   All   All   Some   Yes   Yes   No   None
Avalon at Pruneyard
    212       40                                     252       400     All   None   None   None   None   Half   None   Yes   Yes   No   None
Avalon at River Oaks
    100             126                               226       356     Most   None   None   Most   All   All   None   No   Yes   No   None
Avalon Campbell
    157             179             12                   348       454     All   Some   None   None   All   All   None   Yes   No   No   All
Avalon Mountain View
    108             88       52                         248       672     All   Some   None   None   Some   All   None   Yes   No   No   None
Avalon on the Alameda
    113             164             28                   305       534     All   Some   Some   Some   Most   All   None   Some   Yes   No   None
Avalon Rosewalk
    168             264             24                   456       684     All   Some   None   Some   ALL   All   Most   Yes   Yes   No   None
Avalon Silicon Valley
    338             336       18       15       3             710       2,000     All   Some   Some   Some   All   All   Some   Yes   Yes   No   None
Avalon Towers on the Peninsula
    88             117             6                   211       307     All   Some   None   None   Most   All   None   No   No   Yes   None
CountryBrook
    108             252                               360       692     All   None   None   All   None   All   None   Yes   Yes   No   None
San Marino
    102             146                               248       439     All   Some   None   None   None   All   None   Yes   No   No   None
 
                                                                                                                   
SOUTHERN CALIFORNIA
                                                                                                                   
Los Angeles, CA
                                                                                                                   
Avalon at Media Center
    296       169       50       12             221             748       893     Most   Some   None   Some   Some   Some   None   Yes   Yes   No   None
Avalon at Warner Center
    88       54       65       20                         227       427     All   Some   None   Some   Some   All   None   Yes   Yes   No   None
Avalon Camarillo
    125                   124                         249       482     All   None   None   None   All   All   None   No   Yes   Yes   None
Avalon Glendale
    75             121             27                   223       519     All   None   Some   Some   All   All   None   No   No   No   All
Avalon Woodland Hills
    222             441                               663       1,356     Some   Some   Some   None   Most   All   None   No   No   No   None
The Promenade
    153             196       51                         400       736     Some   Some   Some   All   Some   All   None   No   No   No   None
Avalon Del Rey
    190                   119                         309       623     All   None   Some   None   All   All   None   No   Yes   No   None
 
                                                                                                                   
Orange County, CA
                                                                                                                   
Avalon at Pacific Bay
    144       56       104                               304       492     All   None   None   None   All   All   None   Yes   Yes   No   None
Avalon at South Coast
    124             86                   48             258       428     Some   Half   None   None   Half   All   None   Yes   Yes   No   None
Avalon Mission Viejo
    94       28       44                               166       232     None   None   None   None   None   All   None   Yes   Yes   No   None
Avalon Newport
    44       54             35             12             145       249     Most   Some   None   Some   Most   Most   Some   Yes   Yes   No   None
Avalon Santa Margarita
    160             141                               301       521     All   None   None   None   None   All   None   Yes   Yes   No   None
San Diego, CA
                                                                                                                   
Avalon at Cortez Hill
    113             84                   97             294       298     None   None   None   None   None   All   None   No   No   No   None
Avalon at Mission Bay
    270       9       165                   120             564       755     None   None   None   None   Some   All   None   No   No   No   None
Avalon at Mission Ridge
    18       98       1       83                         200       387     Most   None   None   Most   Most   Most   Most   No   Yes   No   None

29


 

Features and Recreational Amenities — Current and Development Communities
                                                                                                                     
                                                                            Washer &               Large   Balcony,           Non-       Homes w/
    1 BR     2BR     3BR                                     dryer               storage or   patio, deck           direct   Direct   pre-wired
                      Studios /                     Parking     hook-ups   Vaulted           walk-in   or   Built-in       access   access   security
    1/1.5 BA     1/1.5 BA     2/2.5/3 BA     2/2.5 BA     3BA     efficiencies     Other     Total     spaces     or units   ceilings   Lofts   Fireplaces   closet   sunroom   bookcases   Carports   garages   garages   systems
DEVELOPMENT COMMUNITIES
                                                                                                           
Avalon at Decoverly II
    106             90                               196       327     All   Some   Some   None   Some   All   None   No   Yes   No   None
Avalon at Glen Cove North
    87       8                         16             111       190     All   None   None   None   All   Some   None   No   No   No   None
Avalon at Lexington Hills
    109             254       24                         387       823     All   Some   Some   Some   All   Some   None   No   Yes   No   None
Avalon Lyndhurst
    118       45       157                   8             328       569     Most   Some   Some   None   All   Most   None   No   No   No   None
Avalon Acton
    192             188                               380       732     All   Some   Some   Some   Most   Some   None   No   Yes   No   None
Avalon Bowery Place II
    62       18                         10             90       50     All   None   None   None   Most   Some   None   No   No   No   None
Avalon Canoga Park
    125             70       15                         210       370     All   Some   Some   None   Most   Most   None   No   Yes   No   None
Avalon Chestnut Hill
    36       28       85       50             5             204       427     All   None   Some   None   All   All   None   No   No   No   All
Avalon Danvers
    148             235       50                         433       856     All   Some   Some   Some   Some   Some   None   No   Yes   Yes   None
Avalon Encino
    61             56             14                   131       357     All   Some   None   None   Some   Some   None   No   Yes   No   None
Avalon Meydenbauer
    174       5       88       23             78             368       485     All   None   None   None   Some   Some   None   No   Yes   Yes   None
Avalon on the Sound II
    208             162       128             90             588       489     All   None   None   None   Some   None   None   No   All   None   None
Avalon Riverview North
    381             146             1       74             602       361     Some   None   None   None   Some   Some   None   No   Yes   No   None
Avalon Shrewsbury
    92       12       123       24                         251       529     All   None   Some   None   All   All   None   No   Yes   Yes   None
Avalon Woburn
    158             288                               446       892     All   None   Some   Some   All   Some   None   No   Yes   No   None
Avalon Wilshire
    53             62       8                         123       350     All   None   None   None   All   Most   None   No   Yes   No   None

30


 

Features and Recreational Amenities — Current and Development Communities
                                                                             
        Community   Building                                                                
    Buildings w/   entrance   entrance   Under-   Aerobicse                                       Indoor /                
    security   controlled   controlled   ground   dance       Picnic   Walking /       Sauna /   Tennis       Fitness   Sand   outdoor   Clubhouse /   Business        
    systems   access   access   parking   studio   Car wash   area   jogging trail   Pool   whirlpool   court   Racquetball   center   volleyball   basketball   clubroom   center   Tot lot   Concierge
CURRENT COMMUNITIES (1)
                                                                           
 
                                                                           
NORTHEAST
                                                                           
Boston, MA
                                                                           
Avalon at Bedford Center
  None   No   No   No   No   No   Yes   No   Yes   No   No   No   Yes   No   No   Yes   No   Yes   No
Avalon at Center Place
  Yes   Yes   Yes   Yes   No   Yes   Yes   No   Yes   No   No   No   Yes   No   No   Yes   No   No   Yes
Avalon at Crane Brook
  Some   Yes   Yes   No   No   No   Yes   No   Yes   Yes   No   No   Yes   No   Yes   Yes   No   Yes   Yes
Avalon at Faxon Park
  None   No   Yes   No   No   No   Yes   No   Yes   Yes   No   No   Yes   No   No   Yes   No   Yes   No
Avalon at Flanders Hill
  None   No   Yes   No   No   No   Yes   No   Yes   Yes   No   No   Yes   No   Yes   Yes   No   Yes   No
Avalon at Lexington
  None   No   Yes   No   No   No   Yes   No   Yes   No   No   No   Yes   No   Yes   Yes   No   Yes   No
Avalon at Newton Highlands
  All   No   Yes   Yes   No   No   Yes   No   Yes   Yes   No   No   Yes   No   Yes   Yes   No   Yes   Yes
Avalon at Prudential Center
  None   No   Yes   Yes   No   No   No   No   No   No   No   No   No   No   No   Yes   No   No   Yes
Avalon at Steven’s Pond
  All   No   No   No   No   No   Yes   No   Yes   Yes   No   No   Yes   No   Yes   Yes   No   Yes   No
Avalon at The Pinehills I
  None   No   No   No   No   No   Yes   No   Yes   No   No   No   Yes   No   No   Yes   No   No   No
Avalon Essex
  None   No   No   No   No   Yes   Yes   No   Yes   Yes   No   No   Yes   No   No   Yes   No   Yes   No
Avalon Ledges
  None   No   Yes   No   No   No   Yes   No   Yes   Yes   No   No   Yes   No   Yes   Yes   No   Yes   No
Avalon Oaks
  None   No   Yes   No   No   No   Yes   No   Yes   Yes   No   No   Yes   No   No   Yes   No   Yes   No
Avalon Oaks West
  None   No   Yes   No   No   No   Yes   No   Yes   Yes   No   No   Yes   No   No   Yes   No   Yes   No
Avalon Orchards
  None   No   No   No   No   No   Yes   Yes   Yes   Yes   No   No   Yes   No   No   Yes   Yes   Yes   No
Avalon Summit
  None   Yes   Yes   No   No   No   Yes   No   Yes   No   No   No   Yes   No   No   No   No   No   No
Avalon West
  None   No   Yes   No   No   No   Yes   No   Yes   No   No   No   No   No   Yes   Yes   No   Yes   No
Essex Place
  None   No   No   No   No   No   Yes   No   Yes   No   Yes   No   No   No   Yes   No   No   Yes   No
 
                                                                           
Fairfield-New Haven, CT
                                                                           
Avalon at Greyrock Place
  All   No   Yes   Yes   No   No   Yes   No   Yes   No   Yes   No   Yes   No   No   Yes   Yes   Yes   Yes
Avalon Danbury
  Some   No   Yes   No   No   No   Yes   Yes   Yes   No   No   No   Yes   No   No   Yes   No   Yes   No
Avalon Darien
  None   Yes   No   No   No   No   Yes   No   Yes   No   No   No   Yes   No   No   Yes   Yes   Yes   No
Avalon Gates
  None   Yes   No   No   No   No   Yes   No   Yes   No   No   Yes   Yes   Yes   Yes   Yes   No   Yes   No
Avalon Glen
  None   No   Yes   Yes   No   No   Yes   No   Yes   No   No   Yes   Yes   No   No   Yes   No   No   Yes
Avalon Haven
  All   Yes   Yes   No   No   No   Yes   No   Yes   No   No   No   Yes   No   No   No   No   Yes   No
Avalon Milford I
  None   No   Yes   No   No   No   No   No   Yes   No   No   No   Yes   No   Yes   Yes   No   Yes   No
Avalon New Canaan
  All   No   Yes   No   No   No   Yes   Yes   Yes   No   No   No   Yes   No   No   Yes   Yes   Yes   No
Avalon on Stamford HaCBor
  All   Yes   Yes   Yes   No   No   Yes   Yes   Yes   No   No   Yes   Yes   No   Yes   Yes   Yes   No   Yes
Ava