Edgar Filing: AVALONBAY COMMUNITIES INC

Form 10-K/A

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

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

For the fiscal year ended December 31, 2002

Commission file number 1-12672

AVALONBAY COMMUNITIES, INC.

(Exact name of registrant as specified in its charter)


Maryland (State or other jurisdiction of incorporation or organization)		77-0404318 (I.R.S. Employer Identification No.)

2900 Eisenhower Avenue, Suite 300
Alexandria, Virginia 22314
(Address of principal executive office, including zip code)

(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, Pacific Exchange
8.00% Series D Cumulative Redeemable Preferred Stock, par value $.01 per share		New York Stock Exchange, Pacific Exchange
8.70% Series H Cumulative Redeemable Preferred Stock, par value $.01 per share (Title of each class)		New York Stock Exchange, Pacific Exchange (Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days.


Yes		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/A or any amendment to this Form 10-K/A. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).


Yes		x		No		o

The aggregate market value of the Registrant’s Common Stock, par value $.01 per share, held by nonaffiliates of the Registrant, as of June 28, 2002 was $3,239,807,363.

The number of shares of the Registrant’s Common Stock, par value $.01 per share, outstanding as of February 1, 2003 was 68,149,232.

Documents Incorporated by Reference

Portions of AvalonBay Communities, Inc.’s Proxy Statement for the 2003 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/A, are incorporated by reference herein as portions of Part III of this Form 10-K/A.

Explanatory Note

AvalonBay Communities, Inc. (the “Company”) is filing this Form 10-K/A to amend its Annual Report on Form 10-K for the year ended December 31, 2002, which was filed with the Securities and Exchange Commission (the “SEC”) on March 11, 2003, (i) to update its historical financial statements for the fiscal years ended December 31, 2002, 2001 and 2000 in connection with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” and (ii) in connection with the filing of its Registration Statement on Form S-3 with the SEC on March 11, 2003, as thereafter amended.

From January 1, 2003 through March 31, 2003, the Company sold one community and reclassified six communities as real estate held for sale. In compliance with SFAS No. 144, the Company has reported the operations of these communities as discontinued operations in its quarterly report on Form 10-Q for the period ended March 31, 2003, including any comparable periods presented. Under SEC requirements, the same reclassification as discontinued operations is required for previously issued annual financial statements for each of the three years shown in the Company’s most recently filed Annual Report on Form 10-K, if those financial statements are incorporated by reference in subsequent filings with the SEC made under the Securities Act of 1933, even though those financial statements relate to periods prior to the date of sale or transfer. This reclassification has no effect on the Company’s reported net income available to common stockholders or funds from operations (“FFO”).

The following Items are amended in this Form 10-K/A, however, all Items have been presented in this Form 10-K/A in their entirety. This Form 10-K/A speaks as of the original filing date and, except as expressly provided above, has not been updated to reflect events occurring subsequent to the original filing date.


Item 1.		Business
Item 2.		Communities
Item 3.		Legal Proceedings
Item 6.		Selected Financial Data
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7a		Quantitative and Qualitative Disclosures About Market Risk
Item 15(a)(1)		Financial Statements

TABLE OF CONTENTS


		PAGE

	PART I
ITEM 1	BUSINESS		1
ITEM 2	COMMUNITIES		8
ITEM 3	LEGAL PROCEEDINGS		34
ITEM 4	SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS		35

	PART II
ITEM 5	MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
	STOCKHOLDER MATTERS		36
ITEM 6	SELECTED FINANCIAL DATA		37
ITEM 7	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
	CONDITION AND RESULTS OF OPERATIONS		40
ITEM 7a	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
	MARKET RISK		57
ITEM 8	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		59
ITEM 9	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
	ON ACCOUNTING AND FINANCIAL DISCLOSURE		59

	PART III
ITEM 10	DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT		59
ITEM 11	EXECUTIVE COMPENSATION		59
ITEM 12	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
	AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		59
ITEM 13	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS		60
ITEM 14	CONTROLS AND PROCEDURES		61

	PART IV
ITEM 15	EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND
	REPORTS ON FORM 8-K		62
SIGNATURE			67
CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002			68

PART I

This Form 10-K/A 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 40 of this Form 10-K/A.

ITEM 1. BUSINESS

General

AvalonBay Communities, Inc. is a Maryland corporation that has elected to be treated as a real estate investment trust, or REIT, for federal income tax purposes. We focus on the ownership and operation of upscale apartment communities (which generally command among the highest rents in their submarkets) in high barrier-to-entry markets of the United States. This is because we believe that, long term, the limited new supply of upscale apartment homes and lower housing affordability in these markets will result in larger increases in cash flows relative to other markets over an entire business cycle. 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 (“in-fill locations”) 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 believe that we have penetrated substantially all of the high barrier-to-entry markets of the country.

At February 1, 2003, we owned or held a direct or indirect ownership interest in 137 operating apartment communities containing 40,179 apartment homes in eleven states and the District of Columbia, of which two communities containing 1,089 apartment homes were under reconstruction. In addition, we owned or held a direct or indirect ownership interest in 12 communities under construction that are expected to contain an aggregate of 3,429 apartment homes when completed. We also owned a direct or indirect ownership interest in rights to develop an additional 38 communities that, if developed in the manner expected, will contain an estimated 9,950 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 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 were owned and had stabilized occupancy and costs as of the beginning of the prior year. Other Stabilized Communities are generally all other operating communities that have stabilized occupancy and costs as of the beginning of the current year, but 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, 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. To help fulfill this goal, our investment policy is (i) to selectively develop, redevelop and acquire apartment communities in high barrier-to-entry markets with growing or high potential for demand and (ii) to selectively sell apartment communities that no longer meet our long-term strategy due to product type, location or relative potential for future value creation and redeploy the proceeds from those sales to develop and redevelop apartment communities. In implementing our investment policy, we endeavor to maintain a conservative capital structure to provide continuous access to cost-effective capital and ensure balance sheet flexibility.

During the three years ended December 31, 2002, we acquired 11 apartment communities, disposed of 16 apartment communities, and completed the development of 22 apartment communities and the redevelopment of seven apartment communities. We presently expect to decrease acquisition and development during 2003 as compared to

prior years and to increase disposition activity during 2003 in response to current and anticipated real estate and capital market conditions. The level of disposition, acquisition or development activity, however, is heavily influenced by capital market conditions, including prevailing interest rates. As a result, we cannot assure you that assets can be sold on terms that we consider satisfactory. A further discussion of our development, redevelopment, disposition and acquisition strategy follows.

Development Strategy. We carefully 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 offices in Alexandria, Virginia, we also maintain regional offices and administrative or specialty offices in or near the following cities:

	•		Boston, Massachusetts;

	•		Chicago, Illinois;

	•		New Canaan, Connecticut;

	•		New York, New York;

	•		Newport Beach, California;

	•		San Jose, California;

	•		Seattle, Washington; 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 as well as preserves capital. 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. 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 operational phase.

During the development process, we generally act as our own construction manager and general contractor. We perform these functions directly (and not through a subsidiary) both for ourselves and for the joint ventures and partnerships of which we are a member or a partner. From time to time, in lieu of managing construction ourselves, we will hire a third-party construction manager, particularly for high-rise construction.

Throughout this report, the term “development” has been 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 only to one element of the development cycle – the actual construction of the property.

Redevelopment Strategy. When we undertake the redevelopment of a community, our goal is to generally renovate and/or rebuild an existing community so that our total investment is significantly below replacement cost and the community is the highest quality apartment community or best rental value for an upscale apartment community in its local area. 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” has been used to refer to the entire redevelopment cycle – planning and procurement of architectural and engineering designs, budgeting and actual renovation work. The actual renovation work is referred to as “reconstruction” and is only one element of the redevelopment cycle.

Disposition Strategy. To optimize our concentration of communities in selected high barrier-to-entry markets, we sell assets that do not meet our long-term investment criteria when market conditions are favorable and redeploy the proceeds from those sales to develop and redevelop communities under construction or reconstruction. This disposition strategy acts as a source of capital because we are 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 and tax ramifications of each proposal. In connection with this disposition strategy, we disposed of one community during the period from January 1, 2002 through February 1, 2003. The net proceeds from the sale of this community were approximately $78,454,000. We expect to increase our disposition activity during 2003 in response to current and anticipated real estate and capital markets conditions. However, we cannot assure you that assets can be sold on terms that we consider satisfactory, or at all, or that market conditions will continue to make the sale of assets an appealing strategy.

Acquisition Strategy. Our core competencies in development and redevelopment discussed above allow us to be selective in the acquisitions we target. Between January 1, 2002 and February 1, 2003, we acquired two communities containing 706 apartment homes, one of which was acquired in connection with a forward purchase contract agreed to in 1997. The acquisition of these communities was designed to achieve rapid penetration into markets that are generally supply constrained and in which we desired an increased presence.

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.

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;

	•		managing community occupancy for optimal rental revenue levels; and

	•		applying new technology to optimize revenue from each community.

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 aggressively pursue real estate tax appeals and control operating expenses as follows:

	•		receive and approve invoices on-site to ensure careful monitoring of budgeted versus actual expenses;

	•		purchase supplies in bulk where possible;

	•		bid third-party contracts on a volume basis;

	•		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;

	•		perform turnover work in-house or hire third-parties, generally depending upon the least costly alternative; and

	•		undertake preventive maintenance regularly to maximize resident satisfaction and property and equipment life.

On-site property management teams receive bonuses based largely upon the net operating income produced at their respective communities.

We generally manage the operation and leasing activity of our communities directly (and not through a subsidiary) both for ourselves and the joint ventures and partnerships of which we are a member or a partner.

We are also pursuing ancillary services which could provide additional revenue sources. 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 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. We have used taxable REIT subsidiaries on a limited basis, such as to receive a commission from a “preferred provider” maid service company used by residents.

Technology Strategy. We believe that an innovative management information system infrastructure is an important element in managing our future growth. This is because timely and accurate collection of financial and resident profile data will enable us to maximize revenue through careful leasing decisions and financial management.

We currently have investments in three technology companies. These investments were made with the belief that they would promote the development and application of technology and services which would improve the operating performance of our real estate holdings. Historically, our most significant technology investment has been Realeum, Inc., (“Realeum”), an entity engaged in the development and deployment of an on-site property management and leasing automation system that enables management to capture, review and analyze data to a greater extent than is possible using existing commercial software. To help monitor this investment, Thomas J. Sargeant, our Executive Vice President and Chief Financial Officer, is a director of Realeum. After consideration of our share of Realeum’s losses, the carrying value of our investment in Realeum has been reduced to zero as of December 31, 2002. We are also a member of Constellation Real Technologies LLC, (“Constellation”), an entity formed by a number of real estate investment trusts and real estate operating companies for the purpose of investing in multi-sector real estate technology opportunities. Our original commitment to Constellation was $4,000,000 but, as a result of an agreement among the members reducing the commitment due from each member, our commitment is currently $2,600,000, of which we have contributed $959,000 to date. The remaining unfunded commitment of $1,641,000 is expected to be funded over the next five years. Our third investment is in Rent.com, an internet-based rental housing information provider. The aggregate carrying value of our technology investments at February 1, 2003 was $1,404,000.

Financing Strategy. We have consistently maintained, and intend to continue to maintain, a conservative capital structure. At December 31, 2002, our debt-to-total market capitalization was 46.1%, and our permanent long-term floating rate debt, not including borrowings under the unsecured credit facility, was only 2.0% of total market capitalization. Market capitalization reflects the aggregate of the market value of common stock, the liquidation preference of preferred stock and the principal amount of debt.

Before planned construction or reconstruction activity begins, we intend to arrange adequate capital sources to complete such undertakings, although we cannot assure you that we will be able to obtain such financing. During 2002, substantially all of our construction and reconstruction activities were funded by the issuance of unsecured debt securities, net proceeds from asset sales and retained operating cash. In the event that financing cannot be obtained, we may have to abandon planned development activities, write-off associated pursuit costs and/or forego reconstruction activity. In such instances, we will not realize the increased revenues and earnings that we expected from such pursuits.

We estimate that a portion of our short-term liquidity needs will be met from retained operating cash and borrowings under our $500,000,000 variable rate unsecured credit facility. At February 28, 2003, $155,470,000 was outstanding, $15,529,000 was used to provide letters of credit and $329,001,000 was available for borrowing under the 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 additional 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. During the three years ended December 31, 2002, we issued an aggregate of approximately $1,100,000,000 principal amount of senior debt securities (including the issuance of medium-term notes), and we repaid an aggregate of $100,000,000 in principal of senior debt securities. In addition, we repaid an aggregate of $50,000,000 in principal of senior debt securities in January 2003. Also, during the three years ended December 31, 2002, in the aggregate our issuances and redemptions of preferred stock resulted in net redemptions of $276,375,000 (based on liquidation preference).

While we believe we have the financial position to expand our short-term credit capacity and access the capital markets as needed, we cannot assure you that we will be successful in completing these arrangements, sales or offerings. The failure to complete these transactions on a cost-effective basis or at all could have a material adverse impact on our operating results and financial condition, including the abandonment of development pursuits.

We may, from time to time, enter into joint ventures (including limited liability companies) or partnerships through which we would own an indirect economic interest in less than 100% of the property or properties owned directly by such joint venture or partnership. As of February 1, 2003, we had an interest in 14 joint ventures or partnerships (including the six “DownREIT” partnerships referred to below) through which we have an indirect economic interest in 27 of our communities. 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 facts 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. Any future investments in joint ventures or partnerships will not be 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 may, from time to time, offer shares of our equity securities, debt securities or options to purchase stock in exchange for property. During the three years ended December 31, 2002, we issued an aggregate of 361,835 units of limited partnership interest in DownREITs in connection with the acquisition of properties or communities. Our DownREIT partnerships are described further under Item 2, “Communities.”

While we emphasize equity real estate investments in apartment communities, we have the ability, which would be exercised in the discretion of our Board of Directors, 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, 2002, we had a total of 176,253 square feet of rentable retail space that produced gross rental revenue in 2002 of $2,255,960 (0.4% of total revenue). Any investment in securities of other entities is subject to the percentage of ownership limitations and gross income tests necessary for REIT qualification. Our current policy does not contemplate future investments in mortgages or deeds of trust.

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 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 leases are for a term of one year or less, which may enable us to realize increased rents upon renewal of existing leases or the beginning of new leases. Such short-term leases generally minimize the risk to us of the adverse effects of inflation, although as a general rule these leases permit residents to leave at the end of the lease term without penalty and therefore expose us to the effect of a decline in market rent. Our current policy is generally to allow residents to terminate leases upon an agreed advance written notice and a lease termination payment, as provided for in the resident’s lease. Short-term leases combined with relatively consistent demand have allowed rents, and therefore cash flow from the portfolio, to provide an attractive inflation hedge. However, in a deflationary rent environment as is currently being experienced, we are exposed to declining rents more quickly under these shorter-term leases.

Tax Matters

We filed an election with our initial 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.

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 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.

Environmental and Related Matters

Under various federal, state and local environmental laws, regulations and ordinances, a current or previous owner or operator of real estate may be required, regardless of knowledge or responsibility, to investigate and remediate the effects of hazardous or toxic substances or petroleum product releases at the property and may be held liable to a governmental entity or to third parties for property damage and for investigation and remediation costs incurred by these parties 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 the owner’s 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.

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 reconstruction, remodeling, renovation, or demolition of a building. These laws may impose liability for release of ACMs and may provide for 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 have implemented an operations and maintenance program for each of the communities at which ACMs have been detected. We do not 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 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 operations. In connection with our ownership, operation and development of communities, from time to time we undertake 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. 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 assure 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 develop at communities that we have sold for which we may have liability.

Other Information

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 (www.avalonbay.com) as soon as reasonably practicable after the reports are filed with or furnished to the SEC.

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, 2002, we had 1,775 employees.

ITEM 2. COMMUNITIES

Our real estate investments consist of current operating apartment communities, communities in various stages of development, and land or land options held for development (“Development Rights”). The following is a description of each category:


	Current Communities are categorized as Established, Other Stabilized, Lease-Up, or Redevelopment according to the following attributes:

	•		Established Communities (also known as Same Store Communities) are communities where a comparison of operating results from the prior year to the current year is meaningful, as these communities were owned and had stabilized occupancy and costs as of the beginning of the prior year. We determine which of our communities fall into the Established Communities category annually as of January 1st of each year and maintain that classification throughout the year. For the year 2002, the Established Communities were communities that had stabilized occupancy and costs as of January 1, 2001 and are not conducting or planning to conduct substantial redevelopment activities, as described below, within the current year. We consider a community 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. Established Communities do not include communities that are currently held for sale or planned for disposition during the current year.

	•		Other Stabilized Communities are all other completed communities that have stabilized occupancy and are not conducting or planning redevelopment activities within the current year. Other Stabilized Communities therefore include communities that were either acquired or achieved stabilization after January 1, 2001 and that were not conducting or planning to start redevelopment activities within the current year. Other Stabilized Communities do not include communities that are currently held for sale.

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

	•		Redevelopment Communities are communities where substantial redevelopment is in progress or is planned to begin during the current year. Redevelopment is considered substantial when capital invested during the reconstruction effort exceeds the lesser of $5,000,000 or 10% of the community’s acquisition cost.


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

Development Rights are development opportunities in the early phase of the development process 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 all related pre-development costs incurred in pursuit of new developments for which we currently believe future development is probable.

As of December 31, 2002, our communities were classified as follows:


				Number of		Number of
				communities		apartment homes

Current Communities
	Established Communities:
		Northeast			27		7,196
		Mid-Atlantic			18		5,154
		Midwest			4		1,296
		Pacific Northwest			3		907
		Northern California			29		8,601
		Southern California			10		3,004

			Total Established		91		26,158

	Other Stabilized Communities:
		Northeast			11		3,040
		Mid-Atlantic			2		960
		Midwest			—		—
		Pacific Northwest			8		2,152
		Northern California			2		499
		Southern California			5		1,890

			Total Other Stabilized		28		8,541

	Held for Sale Communities (1)				7		2,091
	Lease-Up Communities				9		2,300
	Redevelopment Communities				2		1,089

	Total Current Communities				137		40,179

Development Communities					12		3,429

Development Rights					38		9,950

(1)

Represents assets sold or transferred to held for sale during the period January 1, 2003 through March 31, 2003.

Our holdings under each of the above categories are discussed on the following pages.

Current Communities

The Current Communities are primarily garden-style apartment communities consisting of two and three-story buildings in landscaped settings. The Current Communities, as of February 1, 2003, include 106 garden-style, 17 high-rise and 14 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. 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.

These Current Communities are located in the following geographic markets:




		Number of				Number of				Percentage of total
		communities at				apartment homes at				apartment homes at

		1-1-02		2-1-03		1-1-02		2-1-03		1-1-02			2-1-03


Northeast			38		45		10,877		12,667		29.3	%		31.5	%
	Boston, MA		11		13		2,839		3,142		7.6	%		7.8	%
	Fairfield County, CT		11		13		2,939		3,350		7.9	%		8.3	%
	Long Island, NY		3		3		915		915		2.5	%		2.3	%
	Northern New Jersey		4		5		1,394		1,802		3.8	%		4.5	%
	Central New Jersey		3		4		1,144		1,440		3.1	%		3.6	%
	New York, NY		6		7		1,646		2,018		4.4	%		5.0	%

Mid-Atlantic			21		22		6,422		6,754		17.2	%		16.8	%
	Baltimore, MD		4		4		1,054		1,054		2.8	%		2.6	%
	Washington, DC		17		18		5,368		5,700		14.4	%		14.2	%

Midwest			9		9		2,624		2,624		7.1	%		6.5	%
	Chicago, IL		4		4		1,296		1,296		3.5	%		3.2	%
	Minneapolis, MN		5		5		1,328		1,328		3.6	%		3.3	%

Pacific Northwest			12		12		3,159		3,159		8.5	%		7.9	%
	Seattle, WA		12		12		3,159		3,159		8.5	%		7.9	%

Northern California			30		32		8,889		9,318		23.8	%		23.2	%
	Oakland-East Bay, CA		6		6		2,090		2,090		5.6	%		5.2	%
	San Francisco, CA		8		8		1,765		1,765		4.7	%		4.4	%
	San Jose, CA		16		18		5,034		5,463		13.5	%		13.6	%

Southern California			16		17		5,257		5,657		14.1	%		14.1	%
	Los Angeles, CA		4		5		2,001		2,401		5.4	%		6.0	%
	Orange County, CA		8		8		2,022		2,022		5.4	%		5.0	%
	San Diego, CA		4		4		1,234		1,234		3.3	%		3.1	%

			126		137		37,228		40,179		100.0	%		100.0	%

We manage and operate all of the Current Communities. During the year ended December 31, 2002, we completed construction of 2,521 apartment homes in ten communities for a total cost of $466,600,000. The average age of the Current Communities, on a weighted average basis according to number of apartment homes, is 8.1 years.

Of the Current Communities, as of February 1, 2003, we own:

	•		a fee simple, or absolute, ownership interest in 112 operating communities, one of which is on land subject to a land lease expiring in March 2142;

	•		a general partnership interest in three partnerships that each own a fee simple interest in an operating community;

	•		a general partnership interest in four partnerships structured as “DownREITs,” as described more fully below, that own an aggregate of 17 communities;

	•		a membership interest in four limited liability companies that each hold a fee simple interest in an operating community; and

	•		a 100% interest in a senior participating mortgage note secured by one community, which allows us to share in part of the rental income or resale proceeds of the community.

We also hold a fee simple ownership interest in nine of the Development Communities, a membership interest in a limited liability company that holds a fee simple interest in a Development Community and a general partnership interest in two partnerships structured as “DownREITs” that each own one Development Community.

In each of the six partnerships structured as DownREITs, either we 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. Each DownREIT partnership has been structured so that it is unlikely the limited partners will be entitled to a distribution greater than the initial distribution provided for in the applicable partnership agreement. The holders of units of limited partnership interest have the right to present each unit of limited partnership interest for redemption for cash equal to the fair market value of a share of our common stock on the date of redemption. In lieu of cash, we may elect to acquire any unit presented for redemption for one share of our common stock. As of February 1, 2003, there were 975,751 DownREIT partnership units outstanding. The DownREIT partnerships are consolidated for financial reporting purposes.

Profile of Current, Development and Unconsolidated Communities (1)
(Dollars in thousands, except per apartment home data)


						Approx.				Year of		Average
				Number of		rentable area				completion or		size
			City and state	homes		(Sq. Ft.)		Acres		acquisition		(Sq. Ft.)

		CURRENT COMMUNITIES
*NORTHEAST*
Boston, MA
	Avalon at Center Place (10)		Providence, RI		225		231,671		1.2		1997		1,030
	Avalon at Faxon Park		Quincy, MA		171		175,494		8.3		1998		1,026
	Avalon at Lexington		Lexington, MA		198		231,182		18.0		1994		1,168
	Avalon at Prudential Center		Boston, MA		781		747,954		1.0		1968/1998		958
	Avalon Essex		Peabody, MA		154		173,520		11.1		2000		1,127
	Avalon Estates		Hull, MA		162		188,392		55.0		2001		1,163
	Avalon Ledges		Weymouth, MA		304		315,554		58.0		2002		1,023
	Avalon Oaks		Wilmington, MA		204		229,748		22.5		1999		1,023
	Avalon Oaks West		Wilmington, MA		120		123,960		27.0		2002		1,033
	Avalon Orchards		Marlborough, MA		156		186,500		23.0		2002		1,219
	Avalon Summit		Quincy, MA		245		203,848		9.1		1996		832
	Avalon West		Westborough, MA		120		147,472		10.1		1996		1,229
Fairfield-New Haven, CT
	Avalon at Greyrock Place		Stamford, CT		306		201,500		3.0		2002		1,040
	Avalon Corners		Stamford, CT		195		192,174		3.2		2000		986
	Avalon Gates		Trumbull, CT		340		381,322		37.0		1997		1,122
	Avalon Glen		Stamford, CT		238		221,828		4.1		1991		932
	Avalon Haven		North Haven, CT		128		140,107		10.6		2000		1,095
	Avalon Lake		Danbury, CT		135		166,231		32.0		1999		1,184
	Avalon New Canaan (6)		New Canaan, CT		104		130,104		9.1		2002		1,251
	Avalon Springs		Wilton, CT		102		158,259		12.0		1996		1,552
	Avalon Valley		Danbury, CT		268		297,479		17.1		1999		1,070
	Avalon Walk I & II		Hamden, CT		764		761,441		38.4		1992/1994		996
Long Island, NY
	Avalon Commons		Smithtown, NY		312		363,049		20.6		1997		1,164
	Avalon Court		Melville, NY		494		597,104		35.4		1997/2000		1,209
	Avalon Towers		Long Beach, NY		109		124,836		1.3		1995		1,145
Northern New Jersey
	Avalon at Edgewater		Edgewater, NJ		408		405,144		7.1		2002		993
	Avalon at Florham Park		Florham Park, NJ		270		331,560		41.9		2001		1,228
	Avalon Cove		Jersey City, NJ		504		574,675		11.1		1997		1,140
	Avalon Crest		Fort Lee, NJ		351		371,411		13.1		1999		1,058
	The Tower at Avalon Cove		Jersey City, NJ		269		241,825		2.8		1999		905
Central New Jersey
	Avalon at Freehold		Freehold, NJ		296		317,608		42.3		2002		1,073
	Avalon Run East		Lawrenceville, NJ		206		265,198		27.0		1996		1,287
	Avalon Watch		West Windsor, NJ		512		485,871		64.0		1988		949

[Additional columns below]

[Continued from above table, first column(s) repeated]


						Average economic						Average
						occupancy						rental rate
			Physical														Financial
			occupancy at									$ per		$ per			reporting cost
			12/31/02			2002			2001			Apt (4)		Sq. Ft.			(5)

		CURRENT COMMUNITIES
*NORTHEAST*
Boston, MA
	Avalon at Center Place (10)			94.7	%		96.2	%		96.1	%	$	2,172	$	2.03		$	27,318
	Avalon at Faxon Park			93.6	%		93.9	%		97.4	%		1,833		1.68			15,231
	Avalon at Lexington			93.9	%		93.8	%		96.5	%		1,933		1.55			15,347
	Avalon at Prudential Center			93.3	%		89.2%	(2)		94.9%	(2)		2,612		2.43	(2)		151,813
	Avalon Essex			95.5	%		94.0	%		96.4	%		1,870		1.56			21,537
	Avalon Estates			83.3	%		88.5	%		91.2%	(3)		1,736		1.32			20,216
	Avalon Ledges			71.1	%		37.5%	(3)		N/A			1,603		0.58	(3)		35,527
	Avalon Oaks			94.6	%		92.2	%		96.3	%		1,687		1.38			20,823
	Avalon Oaks West			94.6	%		76.3%	(3)		N/A			1,495		1.10	(3)		16,619
	Avalon Orchards			93.0	%		63.1%	(3)		N/A			1,546		0.82	(3)		20,835
	Avalon Summit			88.2	%		90.7	%		96.8	%		1,375		1.50			16,748
	Avalon West			95.0	%		92.1	%		97.8	%		1,625		1.22			10,921
Fairfield-New Haven, CT
	Avalon at Greyrock Place			83.0	%		66.7%	(3)		N/A			1,998		2.02	(3)		69,673
	Avalon Corners			82.1	%		87.7	%		96.5	%		2,145		1.91			31,778
	Avalon Gates			88.2	%		93.0	%		98.8	%		1,672		1.39			36,100
	Avalon Glen			89.1	%		91.4	%		96.5	%		1,763		1.73			31,295
	Avalon Haven			82.0	%		91.0	%		98.8	%		1,638		1.36			13,750
	Avalon Lake			87.4	%		95.2	%		98.1	%		1,800		1.39			16,995
	Avalon New Canaan (6)			69.2	%		31.0%	(3)		N/A			2,852		0.71	(3)		32,050
	Avalon Springs			79.4	%		86.1	%		95.9	%		2,777		1.54			16,873
	Avalon Valley			90.3	%		96.4	%		99.0	%		1,646		1.43			26,059
	Avalon Walk I & II			91.4	%		94.6	%		98.5	%		1,313		1.25			59,044
Long Island, NY
	Avalon Commons			99.7	%		98.1	%		97.1	%		1,796		1.51			33,293
	Avalon Court			99.4	%		98.9	%		99.3	%		2,201		1.80			59,272
	Avalon Towers			99.1	%		97.6	%		99.0	%		2,850		2.43			16,913
Northern New Jersey
	Avalon at Edgewater			90.2	%		71.9%	(3)		N/A			2,167		1.57	(3)		74,590
	Avalon at Florham Park			88.9	%		93.4	%		91.8%	(3)		2,404		1.83			41,569
	Avalon Cove			91.7	%		87.4	%		96.7	%		2,565		1.97			91,953
	Avalon Crest			83.2	%		90.2	%		94.2	%		2,167		1.85			56,062
	The Tower at Avalon Cove			91.5	%		85.6	%		96.6	%		2,364		2.25			49,659
Central New Jersey
	Avalon at Freehold			89.9	%		80.7%	(3)		N/A			1,560		1.17	(3)		34,307
	Avalon Run East			93.7	%		93.0	%		97.2	%		1,658		1.20			16,272
	Avalon Watch			92.8	%		92.0	%		96.7	%		1,378		1.34			29,597

Profile of Current, Development and Unconsolidated Communities (1)
(Dollars in thousands, except per apartment home data)


					Approx.				Year of		Average
			Number of		rentable area				completion or		size
		City and state	homes		(Sq. Ft.)		Acres		acquisition		(Sq. Ft.)

New York, NY
	Avalon Riverview I	Long Island City, NY		372		332,940		1.0		2002		895
	Avalon Gardens	Nanuet, NY		504		638,439		55.0		1998		1,267
	Avalon Green	Elmsford, NY		105		113,538		16.9		1995		1,081
	Avalon on the Sound (8)	New Rochelle, NY		412		372,860		2.4		2001		905
	Avalon View	Wappingers Falls, NY		288		335,088		41.0		1993		1,164
	Avalon Willow	Mamaroneck, NY		227		199,945		4.0		2000		881
	The Avalon	Bronxville, NY		110		119,186		1.5		1999		1,085
*MID-ATLANTIC*
Baltimore, MD
	Avalon at Fairway Hills I & II	Columbia, MD		720		724,253		42.1		1987/1996		1,005
	Avalon at Symphony Glen	Columbia, MD		176		179,867		10.0		1986		1,022
	Avalon Landing	Annapolis, MD		158		117,033		13.8		1984/1995		741
Washington, DC
	4100 Massachusetts Avenue	Washington, D.C.		308		298,725		2.7		1982		970
	AutumnWoods	Fairfax, VA		420		355,228		24.2		1996		846
	Avalon at Arlington Square I	Arlington, VA		510		583,950		14.2		2001		1,145
	Avalon at Arlington Square II	Arlington, VA		332		325,499		6.1		2002		980
	Avalon at Ballston — Vermont & Quincy Towers (7)	Arlington, VA		454		420,242		2.3		1997		926
	Avalon at Ballston — Washington Towers	Arlington, VA		344		294,786		4.1		1990		857
	Avalon at Cameron Court	Alexandria, VA		460		467,292		16.0		1998		1,016
	Avalon at Decoverly	Rockville, MD		368		368,446		25.0		1995		1,001
	Avalon at Dulles	Sterling, VA		236		232,632		15.7		1986		986
	Avalon at Fair Lakes	Fairfax, VA		234		285,822		10.0		1998		1,221
	Avalon at Fox Mill	Herndon, VA		165		219,360		12.8		2000		1,329
	Avalon at Providence Park	Fairfax, VA		141		148,211		4.0		1988/1997		1,051
	Avalon Crescent	McLean, VA		558		613,426		19.1		1996		1,099
	Avalon Crossing	Rockville, MD		132		147,690		5.0		1996		1,119
	Avalon Fields I & II	Gaithersburg, MD		288		292,282		9.2		1998		1,050
	Avalon Knoll	Germantown, MD		300		290,365		26.7		1985		968
*MIDWEST*
Chicago, IL
	200 Arlington Place	Arlington Heights, IL		409		346,832		2.8		2000		848
	Avalon at Danada Farms (7)	Wheaton, IL		295		350,606		19.2		1997		1,188
	Avalon at Stratford Green (7)	Bloomingdale, IL		192		237,204		12.7		1997		1,235
	Avalon at West Grove (7)	Westmont, IL		400		388,500		17.4		1967		971
Minneapolis, MN
	Avalon at Devonshire (7)	Bloomington, MN		498		470,762		42.0		1988		945
	Avalon at Edinburgh (7)	Brooklyn Park, MN		198		222,130		11.3		1992		1,122
	Avalon at Town Centre	Eagan, MN		248		235,518		18.7		1986		950
	Avalon at Town Square	Plymouth, MN		160		144,026		8.3		1986		900
	Avalon at Woodbury (7)	Woodbury, MN		224		287,975		15.0		1998		1,286

[Additional columns below]

[Continued from above table, first column(s) repeated]


					Average economic						Average
					occupancy						rental rate
		Physical														Financial
		occupancy at									$ per		$ per			reporting cost
		12/31/02			2002			2001			Apt (4)		Sq. Ft.			(5)

New York, NY
	Avalon Riverview I		71.5	%		37.3%	(3)		N/A			2,520		1.05	(3)		94,045
	Avalon Gardens		95.4	%		90.7	%		94.3	%		1,863		1.33			54,265
	Avalon Green		88.6	%		94.8	%		94.5	%		2,419		2.12			12,603
	Avalon on the Sound (8)		94.2	%		87.7	%		35.5%	(3)		2,182		2.11			91,614
	Avalon View		92.7	%		95.3	%		98.4	%		1,343		1.10			18,290
	Avalon Willow		92.1	%		90.3	%		95.5	%		2,276		2.33			47,000
	The Avalon		96.4	%		96.0	%		97.8	%		3,373		2.99			31,228
*MID-ATLANTIC*
Baltimore, MD
	Avalon at Fairway Hills I & II		95.2	%		95.0	%		96.8	%		1,121		1.06			44,855
	Avalon at Symphony Glen		97.7	%		97.2	%		97.1	%		1,143		1.09			9,172
	Avalon Landing		96.8	%		97.7	%		97.5	%		1,030		1.36			9,791
Washington, DC
	4100 Massachusetts Avenue		81.5	%		88.4%	(2)		96.4	%		1,822		1.66	(2)		36,028
	AutumnWoods		93.1	%		93.8	%		95.7	%		1,134		1.26			30,928
	Avalon at Arlington Square I		88.0	%		90.7	%		49.9%	(3)		1,730		1.37			69,678
	Avalon at Arlington Square II		68.4	%		40.1%	(3)		N/A			1,619		0.66	(3)		42,405
	Avalon at Ballston — Vermont & Quincy Towers (7)		87.4	%		90.9	%		95.3	%		1,456		1.43			47,169
	Avalon at Ballston — Washington Towers		88.1	%		91.9	%		96.9	%		1,444		1.55			37,359
	Avalon at Cameron Court		92.6	%		94.6	%		96.3	%		1,631		1.52			43,246
	Avalon at Decoverly		94.6	%		92.7	%		97.0	%		1,327		1.23			31,772
	Avalon at Dulles		96.2	%		92.2	%		95.5	%		1,069		1.00			12,164
	Avalon at Fair Lakes		96.6	%		94.0	%		96.0	%		1,497		1.15			23,476
	Avalon at Fox Mill		88.5	%		93.3	%		95.6	%		1,560		1.09			19,513
	Avalon at Providence Park		96.5	%		96.0	%		96.4	%		1,271		1.16			11,299
	Avalon Crescent		90.1	%		93.4	%		93.9	%		1,622		1.38			57,283
	Avalon Crossing		92.4	%		94.0	%		95.3	%		1,740		1.46			13,895
	Avalon Fields I & II		90.9	%		92.3	%		97.2	%		1,341		1.22			22,700
	Avalon Knoll		96.3	%		95.0	%		97.8	%		1,067		1.05			8,609
*MIDWEST*
Chicago, IL
	200 Arlington Place		91.7	%		92.3	%		95.1	%		1,190		1.30			49,962
	Avalon at Danada Farms (7)		92.9	%		93.5	%		95.7	%		1,347		1.06			38,423
	Avalon at Stratford Green (7)		86.5	%		91.5	%		95.2	%		1,339		0.99			21,949
	Avalon at West Grove (7)		91.5	%		91.5	%		96.4	%		904		0.85			29,915
Minneapolis, MN
	Avalon at Devonshire (7)		91.2	%		93.7	%		95.4	%		1,022		1.01			37,686
	Avalon at Edinburgh (7)		93.4	%		93.6	%		96.5	%		1,138		0.95			18,559
	Avalon at Town Centre		95.2	%		93.6	%		95.9	%		1,000		0.99			18,214
	Avalon at Town Square		93.1	%		91.5	%		96.8	%		1,020		1.04			10,898
	Avalon at Woodbury (7)		94.6	%		94.9	%		93.9	%		1,153		0.85			25,985

Profile of Current, Development and Unconsolidated Communities (1)
(Dollars in thousands, except per apartment home data)


					Approx.				Year of		Average
			Number of		rentable area				completion or		size
		City and state	homes		(Sq. Ft.)		Acres		acquisition		(Sq. Ft.)

*PACIFIC NORTHWEST*
Seattle, WA
	Avalon at Bear Creek (7)	Redmond, WA		264		288,250		22.0		1998		1,092
	Avalon Bellevue	Bellevue, WA		202		164,226		1.7		2001		813
	Avalon Belltown	Seattle, WA		100		80,200		0.7		2001		802
	Avalon Brandemoor (7)	Lynwood, WA		424		453,602		22.6		2001		1,070
	Avalon Greenbriar	Renton, WA		421		382,382		20.0		1987/1988		908
	Avalon HighGrove (7)	Everett, WA		391		422,482		19.8		2000		1,081
	Avalon ParcSquare (7)	Redmond, WA		124		127,236		1.9		2000		1,026
	Avalon Redmond Place (7)	Redmond, WA		222		206,004		22.0		1997		928
	Avalon RockMeadow (7)	Mill Creek, WA		206		240,817		11.5		2000		1,169
	Avalon WildReed (7)	Everett, WA		234		259,080		22.3		2000		1,107
	Avalon WildWood (7)	Lynwood, WA		238		313,107		15.8		2001		1,316
	Avalon Wynhaven (7)	Issaquah, WA		333		424,604		11.6		2001		1,275
*NORTHERN CALIFORNIA*
Oakland-East Bay, CA
	Avalon at Union Square	Union City, CA		208		150,140		8.5		1973/1996		722
	Avalon at Willow Creek	Fremont, CA		235		197,575		3.5		1985/1994		841
	Avalon Dublin	Dublin, CA		204		179,004		13.0		1997		877
	Avalon Fremont	Fremont, CA		443		446,422		22.3		1994		1,008
	Avalon Pleasanton	Pleasanton, CA		456		377,438		14.7		1988/1994		828
	Waterford	Hayward, CA		544		451,937		11.1		1985/1986		831
San Francisco, CA
	Avalon at Cedar Ridge	Daly City, CA		195		141,411		8.0		1975/1997		725
	Avalon at Diamond Heights	San Francisco, CA		154		123,080		2.6		1972/1994		799
	Avalon at Nob Hill	San Francisco, CA		185		109,238		1.4		1990/1995		590
	Avalon Sunset Towers	San Francisco, CA		243		175,511		16.0		1961/1996		722
	Avalon Foster City	Foster City, CA		288		222,276		11.0		1973/1994		772
	Avalon Pacifica	Pacifica, CA		220		186,785		7.7		1971/1995		849
	Avalon Towers by the Bay	San Francisco, CA		226		243,033		1.0		1999		1,075
	Crowne Ridge	San Rafael, CA		254		221,525		21.9		1973/1996		872
San Jose, CA
	Avalon at Blossom Hill	San Jose, CA		324		322,207		7.5		1995		994
	Avalon at Cahill Park	San Jose, CA		218		218,245		3.8		2002		1,001
	Avalon at Creekside	Mountain View, CA		294		215,680		13.0		1962/1997		734
	Avalon at Foxchase	San Jose, CA		396		335,212		12.0		1986/1987		844
	Avalon at Parkside	Sunnyvale, CA		192		199,353		8.0		1991/1996		1,038
	Avalon at Pruneyard	Campbell, CA		252		197,000		8.5		1966/1997		782
	Avalon at River Oaks	San Jose, CA		226		210,050		4.0		1990/1996		929
	Avalon Campbell	Campbell, CA		348		326,796		8.0		1995		939
	Avalon Cupertino	Cupertino, CA		311		293,328		8.0		1999		943
	Avalon Mountain View (6)	Mountain View, CA		248		211,552		10.5		1986		853

[Additional columns below]

[Continued from above table, first column(s) repeated]


					Average economic						Average
					occupancy						rental rate
		Physical														Financial
		occupancy at									$ per		$ per			reporting cost
		12/31/02			2002			2001			Apt (4)		Sq. Ft.			(5)

*PACIFIC NORTHWEST*
Seattle, WA
	Avalon at Bear Creek (7)		93.9	%		94.3	%		94.2	%		1,164		1.01			34,437
	Avalon Bellevue		98.0	%		92.5	%		63.5%	(3)		1,131		1.29			30,633
	Avalon Belltown		98.0	%		83.8	%		16.1%	(3)		1,263		1.32			18,279
	Avalon Brandemoor (7)		96.0	%		93.9	%		96.5%	(3)		978		0.86			45,309
	Avalon Greenbriar		93.4	%		91.0	%		92.2	%		807		0.81			36,259
	Avalon HighGrove (7)		97.4	%		94.8	%		93.5	%		920		0.81			39,620
	Avalon ParcSquare (7)		96.0	%		95.7	%		94.2	%		1,254		1.17			18,995
	Avalon Redmond Place (7)		89.2	%		94.6	%		94.8	%		1,104		1.13			26,042
	Avalon RockMeadow (7)		95.6	%		93.3	%		92.7	%		1,058		0.84			24,457
	Avalon WildReed (7)		96.6	%		94.4	%		95.9	%		939		0.80			22,956
	Avalon WildWood (7)		95.4	%		94.1	%		96.0%	(3)		1,149		0.82			32,865
	Avalon Wynhaven (7)		86.2	%		89.3	%		95.1%	(3)		1,287		0.90			52,554
*NORTHERN CALIFORNIA*
Oakland-East Bay, CA
	Avalon at Union Square		99.5	%		94.8	%		95.5	%		1,188		1.56			21,891
	Avalon at Willow Creek		100.0	%		95.8	%		95.3	%		1,371		1.56			34,258
	Avalon Dublin		96.6	%		94.9	%		94.4	%		1,417		1.53			26,742
	Avalon Fremont		96.4	%		93.7	%		95.8	%		1,568		1.46			77,170
	Avalon Pleasanton		96.5	%		95.7	%		92.8	%		1,313		1.52			60,522
	Waterford		94.5	%		92.9	%		94.7	%		1,202		1.34			59,066
San Francisco, CA
	Avalon at Cedar Ridge		96.9	%		96.6	%		96.5	%		1,475		1.96			25,530
	Avalon at Diamond Heights		98.7	%		92.2	%		95.2	%		1,582		1.82			24,398
	Avalon at Nob Hill		94.1	%		94.3	%		93.7	%		1,503		2.40			27,500
	Avalon Sunset Towers		95.8	%		95.0	%		96.7	%		1,606		2.11			28,171
	Avalon Foster City		95.8	%		96.6	%		92.1	%		1,457		1.82			42,852
	Avalon Pacifica		97.7	%		95.9	%		97.3	%		1,471		1.66			31,298
	Avalon Towers by the Bay		94.7	%		93.8	%		91.4	%		2,730		2.38			66,882
	Crowne Ridge		92.9	%		93.4	%		97.1	%		1,448		1.55			31,050
San Jose, CA
	Avalon at Blossom Hill		97.2	%		93.4	%		93.2	%		1,637		1.54			60,886
	Avalon at Cahill Park		92.7	%		39.7%	(3)		N/A			1,761		0.70	(3)		52,114
	Avalon at Creekside		98.3	%		96.3	%		95.6	%		1,437		1.89			42,966
	Avalon at Foxchase		97.9	%		94.9	%		95.6	%		1,342		1.50			58,822
	Avalon at Parkside		97.9	%		95.8	%		95.6	%		1,756		1.62			37,853
	Avalon at Pruneyard		98.0	%		94.9	%		95.9	%		1,341		1.63			31,850
	Avalon at River Oaks		96.0	%		93.9	%		93.4	%		1,614		1.63			45,005
	Avalon Campbell		92.5	%		93.1	%		93.1	%		1,594		1.58			60,009
	Avalon Cupertino		95.2	%		93.9	%		96.3	%		1,868		1.86			49,098
	Avalon Mountain View (6)		96.0	%		93.8	%		97.5	%		1,736		1.91			50,512

Profile of Current, Development and Unconsolidated Communities (1)
(Dollars in thousands, except per apartment home data)


					Approx.				Year of		Average
			Number of		rentable area				completion or		size
		City and state	homes		(Sq. Ft.)		Acres		acquisition		(Sq. Ft.)

	Avalon on the Alameda	San Jose, CA		305		299,722		8.9		1999		983
	Avalon Rosewalk	San Jose, CA		456		450,252		16.6		1997/1999		987
	Avalon Silicon Valley	Sunnyvale, CA		710		658,591		13.6		1997		928
	Avalon Sunnyvale	Sunnyvale, CA		220		159,653		5.0		1987/1995		726
	Avalon Towers on the Peninsula	Mountain View, CA		211		218,392		1.9		2002		1,035
	CountryBrook (7)	San Jose, CA		360		323,012		14.0		1985/1996		897
	Fairway Glen	San Jose, CA		144		119,492		6.0		1986		830
	San Marino	San Jose, CA		248		209,465		11.5		1984/1988		845
SOUTHERN CALIFORNIA
Los Angeles, CA
	Avalon at Media Center	Burbank, CA		748		530,114		14.7		1969/1997		709
	Avalon at Warner Center	Woodland Hills, CA		227		191,645		6.8		1979/1998		844
	Avalon Westside Terrace	Los Angeles, CA		363		229,296		4.8		1966/1997		632
	Avalon Woodland Hills	Woodland Hills, CA		663		592,722		18.2		1989/1997		894
	The Promenade	Burbank, CA		400		360,587		6.9		1988/2002		923
Orange County, CA
	Amberway	Anaheim, CA		272		205,572		9.9		1983/1998		756
	Avalon at Laguna Niguel	Laguna Niguel, CA		176		174,848		10.0		1988/1998		993
	Avalon at Pacific Bay	Huntington Beach, CA		304		268,000		9.7		1971/1997		882
	Avalon at South Coast	Costa Mesa, CA		258		208,890		8.9		1973/1996		810
	Avalon Huntington Beach	Huntington Beach, CA		400		353,192		16.4		1972/1997		883
	Avalon Mission Viejo	Mission Viejo, CA		166		124,600		7.8		1984/1996		751
	Avalon Newport	Costa Mesa, CA		145		120,690		6.6		1956/1996		832
	Avalon Santa Margarita	Rancho Santa Margarita, CA		301		229,593		20.0		1990/1997		763
San Diego, CA
	Avalon at Cortez Hill	San Diego, CA		294		224,840		1.2		1973/1998		765
	Avalon at Mission Bay	San Diego, CA		564		402,327		5.7		1969/1997		713
	Avalon at Mission Ridge	San Diego, CA		200		208,100		4.0		1960/1997		1,041
	Avalon at Penasquitos Hills	San Diego, CA		176		141,120		8.8		1982/1997		802

[Additional columns below]

[Continued from above table, first column(s) repeated]


					Average economic						Average
					occupancy						rental rate
		Physical														Financial
		occupancy at									$ per		$ per			reporting cost
		12/31/02			2002			2001			Apt (4)		Sq. Ft.			(5)

	Avalon on the Alameda		95.7	%		92.7	%		89.5	%		1,882		1.77			56,426
	Avalon Rosewalk		96.7	%		92.7	%		91.9	%		1,609		1.51			78,210
	Avalon Silicon Valley		94.1	%		92.2	%		91.2	%		1,895		1.88			120,851
	Avalon Sunnyvale		98.2	%		95.2	%		94.9	%		1,429		1.87			34,897
	Avalon Towers on the Peninsula		97.2	%		62.4%	(3)		N/A			2,229		1.34	(3)		65,581
	CountryBrook (7)		95.3	%		93.1	%		91.6	%		1,342		1.39			47,792
	Fairway Glen		100.0	%		95.1	%		94.0	%		1,333		1.53			17,128
	San Marino		96.8	%		93.7	%		91.0	%		1,369		1.52			34,065
SOUTHERN CALIFORNIA
Los Angeles, CA
	Avalon at Media Center		94.5	%		90.3%	(2)		83.8%	(2)		1,127		1.44	(2)		75,508
	Avalon at Warner Center		97.4	%		96.5	%		97.2	%		1,329		1.52			26,414
	Avalon Westside Terrace		95.6	%		92.3	%		95.7	%		1,171		1.71			37,241
	Avalon Woodland Hills		97.6	%		95.4	%		96.1	%		1,273		1.36			71,590
	The Promenade		95.0	%		92.8%	(3)		N/A			1,443		1.49	(3)		70,996
Orange County, CA
	Amberway		96.7	%		95.7	%		93.9	%		1,003		1.27			21,400
	Avalon at Laguna Niguel		99.4	%		96.8	%		96.1	%		1,232		1.20			20,957
	Avalon at Pacific Bay		97.7	%		95.3	%		96.6	%		1,235		1.33			31,941
	Avalon at South Coast		98.8	%		96.5	%		94.8	%		1,137		1.35			24,596
	Avalon Huntington Beach		95.5	%		91.6	%		94.7	%		1,276		1.32			37,192
	Avalon Mission Viejo		98.8	%		95.9	%		96.9	%		1,138		1.45			13,167
	Avalon Newport		100.0	%		97.7	%		97.9	%		1,346		1.58			10,112
	Avalon Santa Margarita		94.0	%		94.4	%		96.0	%		1,153		1.43			23,635
San Diego, CA
	Avalon at Cortez Hill		96.3	%		92.5	%		84.0	%		1,216		1.47			34,368
	Avalon at Mission Bay		97.0	%		96.2	%		97.1	%		1,242		1.67			66,060
	Avalon at Mission Ridge		97.0	%		96.4	%		97.2	%		1,389		1.29			21,625
	Avalon at Penasquitos Hills		95.5	%		95.2	%		95.9	%		1,105		1.31			14,323

Profile of Current, Development and Unconsolidated Communities (1)
(Dollars in thousands, except per apartment home data)


					Approx.				Year of		Average
			Number of		rentable area				completion or		size
		City and state	homes		(Sq. Ft.)		Acres		acquisition		(Sq. Ft.)

	DEVELOPMENT COMMUNITIES
Avalon at Flanders Hill		Westborough, MA		280		299,978		62.0		N/A		1,099
Avalon at Gallery Place I		Washington, DC		203		183,326		0.5		N/A		903
Avalon at Glen Cove South		Glen Cove, NY		256		270,000		4.0		N/A		1,050
Avalon at Grosvenor Station		North Bethesda, MD		497		478,530		9.9		N/A		963
Avalon at Mission Bay North		San Francisco, CA		250		244,224		1.4		N/A		977
Avalon at Newton Highlands		Newton, MA		294		401,241		7.0		N/A		1,177
Avalon at Rock Spring		North Bethesda, MD		386		388,480		10.2		N/A		1,006
Avalon at Steven’s Pond		Saugus, MA		326		360,509		82.0		N/A		1,106
Avalon Darien		Darien, CT		189		242,311		30.0		N/A		1,282
Avalon Glendale		Burbank, CA		223		241,712		5.1		N/A		1,084
Avalon on Stamford Harbor		Stamford, CT		323		336,566		12.1		N/A		1,042
Avalon Traville Phase I		North Potomac, MD		200		231,800		23.8		N/A		1,159
	UNCONSOLIDATED COMMUNITIES
Avalon Arbor (9)		Shrewsbury, MA		302		297,989		26.0		1991		986
Avalon Bedford (8)		Stamford, CT		368		331,655		4.6		1961/1998		819
Avalon Grove (8)		Stamford, CT		402		363,408		12.0		1996		906
Avalon Run (6)		Lawrenceville, NJ		426		443,168		9.0		1994		1,010
Falkland Chase (8)		Silver Spring, MD		450		341,859		22.7		1936/1993		760

[Additional columns below]

[Continued from above table, first column(s) repeated]

Average economic

Average

occupancy

rental rate

Physical

Financial

occupancy at

$ per

reporting cost

12/31/02

2002

2001

Apt (4)

Sq. Ft.

(5)

DEVELOPMENT COMMUNITIES

Avalon at Flanders Hill

N/A

35,855

Avalon at Gallery Place I

N/A

41,414

Avalon at Glen Cove South

N/A

16,777

Avalon at Grosvenor Station

N/A

40,146

Avalon at Mission Bay North

N/A

71,470

Avalon at Newton Highlands

N/A

27,629

Avalon at Rock Spring

N/A

36,787

Avalon at Steven’s Pond

N/A

23,230

Avalon Darien

N/A

13,537

Avalon Glendale

N/A

17,132

Avalon on Stamford Harbor

N/A

61,146

Avalon Traville Phase I

N/A

8,882

UNCONSOLIDATED COMMUNITIES

Avalon Arbor (9)

90.7

92.0

97.7

1,360

1.27

N/A

Avalon Bedford (8)

88.6

90.9

80.6%

(2)

1,544

1.56

N/A

Avalon Grove (8)

85.8

84.9

95.2

2,155

2.02

N/A

Avalon Run (6)

92.5

91.4

97.1

1,431

1.26

N/A

Falkland Chase (8)

97.8

94.4

98.6

1,140

1.42

N/A

(1)		For this table, Current Communities excludes communities held by unconsolidated real estate joint ventures, which are listed separately. We own a fee simple interest in the Current 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, 2002. Financial reporting costs are excluded for unconsolidated communities, see Note 6, “Investments in Unconsolidated Entities,” of the Consolidated Financial Statements set forth in Item 8 of this report.

(6)		We own a general partnership interest in a partnership that owns a fee simple interest in this community.

(7)		We own a general partnership interest in a partnership structured as a DownREIT that owns this community.

(8)		We own a membership interest in a limited liability company that holds a fee simple interest in this community.

(9)		We have a 100% interest in a senior participating mortgage note secured by this community, which allows us to share in part of the rental income or resale proceeds of the community.

(10)		Community is located on land subject to a land lease expiring in March 2142.

Features and Recreational Amenities — Current and Development Communities


																					Washer &
			1 BR		2BR				3BR												dryer
													Studios/						Parking		hook-ups
			1/1.5 BA		1/1.5 BA		2/2.5/3 BA		2/2.5		3BA		efficiencies		Other		Total		spaces		or units

CURRENT COMMUNITIES (1)
	*NORTHEAST*
	Boston, MA
		Avalon at Center Place		103		—		111		5		—		6		—		225		345	All
		Avalon at Faxon Park		68		—		75		28		—		—		—		171		287	All
		Avalon at Lexington		28		24		90		56		—		—		—		198		355	All
		Avalon at Prudential Center		361		—		237		—		23		148		12		781		142	None
		Avalon Essex		50		—		62		—		—		—		42		154		259	All
		Avalon Estates		66		16		80		—		—		—		—		162		354	All
		Avalon Ledges		124		—		152		28		—		—		—		304		610	All
		Avalon Oaks		60		24		96		24		—		—		—		204		355	All
		Avalon Oaks West		48		12		48		12		—		—		—		120		233	All
		Avalon Orchards		69		12		75		—		—		—		—		156		312	All
		Avalon Summit		154		61		28		2		—		—		—		245		328	None
		Avalon West		40		—		55		25		—		—		—		120		145	All
	Fairfield-New Haven, CT
		Avalon at Greyrock Place		104		91		99		12		—		—		—		306		459	All
		Avalon Corners		118		—		77		—		—		—		—		195		273	All
		Avalon Gates		122		—		168		50		—		—		—		340		580	All
		Avalon Glen		124		—		114		—		—		—		—		238		400	Most
		Avalon Haven		44		60		—		24		—		—		—		128		256	All
		Avalon Lake		36		—		46		—		—		24		29		135		382	All
		Avalon New Canaan		16		—		64		24		—		—		—		104		202	All
		Avalon Springs		—		—		70		32		—		—		—		102		153	All
		Avalon Valley		106		—		134		28		—		—		—		268		626	All
		Avalon Walk I & II		272		116		122		74		—		—		180		764		1,528	All
	Long Island, NY
		Avalon Commons		128		40		112		32		—		—		—		312		538	All
		Avalon Court		172		54		194		44		30		—		—		494		1,110	All
		Avalon Towers		—		—		37		1		3		1		67		109		198	All
	Northern New Jersey
		Avalon at Edgewater		158		—		190		60		—		—		—		408		872	All
		Avalon at Florham Park		46		—		107		117		—		—		—		270		611	All
		Avalon Cove		190		—		190		46		2		—		76		504		464	All
		Avalon Crest		96		—		131		67		—		—		57		351		364	All
		The Tower at Avalon Cove		147		24		74		24		—		—		—		269		263	All
	Central New Jersey
		Avalon at Freehold		42		41		176		37		—		—		—		296		611	All
		Avalon Run East		64		—		106		36		—		—		—		206		345	All
		Avalon Watch		252		36		142		82		—		—		—		512		768	Most

Large

Non-

Homes w/

storage

Balcony,

direct

Direct

pre-wired

Vaulted

or walk-in

patio, deck

Built-in

access

security

ceilings

Lofts

Fireplaces

closet

or sunroom

bookcases

Carports

garages

systems

CURRENT COMMUNITIES (1)

NORTHEAST

Boston, MA

Avalon at Center Place Avalon at Faxon Park

None

Half

Some

None

Avalon at Lexington

Some

All

None

Yes

All

Avalon at Prudential

Some

Most

All

None

Yes

All

Center

None

Most

Some

None

Avalon Essex

None

Some

All

None

Yes

All

Avalon Estates

Some

All

None

Yes

All

Avalon Ledges

None

Some

All

Some

None

Yes

All

Avalon Oaks

Some

All

None

Yes

All

Avalon Oaks West

Some

All

None

Yes

All

Avalon Orchards

None

Half

Some

Most

All

None

Yes

All

Avalon Summit

None

All

None

Yes

None

Avalon West

Some

All

Half

None

Yes

All

Fairfield-New Haven, CT

Avalon at Greyrock Place

None

All

None

Yes

All

Avalon Corners

Some

All

None

Yes

All

Avalon Gates

Some

None

All

None

Yes

All

Avalon Glen

Some

Half

Most

None

Yes

Most

Avalon Haven

None

Some

All

None

Yes

All

Avalon Lake

Some

All

None

Yes

All

Avalon New Canaan

None

Some

All

None

Yes

All

Avalon Springs

Half

Most

All

None

Yes

All

Avalon Valley

Some

All

None

Yes

All

Avalon Walk I & II

Some

Half

All

Some

Yes

Half

Long Island, NY

Avalon Commons

Some

All

None

Yes

All

Avalon Court

Some

Most

Some

All

None

Yes

All

Avalon Towers

None

All

Most

None

Yes

All

Northern New Jersey

Avalon at Edgewater

None

Some

All

None

Yes

Some

Avalon at Florham Park

Most

None

Some

All

Some

None

Yes

All

Avalon Cove

Some

All

Most

None

Yes

Some

All

Avalon Crest

Some

All

None

Yes

All

The Tower at Avalon Cove

None

Half

Some

None

Yes

All

Central New Jersey

Avalon at Freehold

Some

All

None

Yes

None

Avalon Run East

Some

All

None

Yes

All

Avalon Watch

Some

None

Some

All

None

Yes

None

Features and Recreational Amenities — Current and Development Communities


																				Washer &
		1 BR		2BR				3BR												dryer
												Studios/						Parking		hook-ups
		1/1.5 BA		1/1.5 BA		2/2.5/3 BA		2/2.5		3BA		efficiencies		Other		Total		spaces		or units

New York, NY
	Avalon Riverview I		184		—		114		—		31		43		—		372		128	All
	Avalon Gardens		208		48		144		104		—		—		—		504		1,008	All
	Avalon Green		25		24		56		—		—		—		—		105		179	All
	Avalon on the Sound		143		—		184		22		20		43		—		412		645	Most
	Avalon View		115		47		62		64		—		—		—		288		576	All
	Avalon Willow		150		77		—		—		—		—		—		227		379	All
	The Avalon		55		2		43		10		—		—		—		110		167	All
*MID-ATLANTIC*
Baltimore, MD
	Avalon at Fairway Hills I & II		283		223		154		60		—		—		—		720		1,137	All
	Avalon at Symphony Glen		86		14		54		20		—		—		—		174		266	All
	Avalon Landing		65		18		57		—		—		—		18		158		257	All
Washington, DC
	4100 Massachusetts Avenue		160		70		—		3		—		27		48		308		330	All
	AutumnWoods		220		72		96		—		—		—		32		420		727	All
	Avalon at Arlington Square I		211		20		226		53		—		—		—		510		949	All
	Avalon at Arlington Square II		172		—		116		44		—		—		—		332		563	All
	Avalon at Ballston - Vermont & Quincy Towers		333		37		84		—		—		—		—		454		498	All
	Avalon at Ballston - Washington Towers		205		28		111		—		—		—		—		344		415	All
	Avalon at Cameron Court		208		—		168		—		—		—		84		460		736	All
	Avalon at Decoverly		156		—		104		64		44		—		—		368		584	All
	Avalon at Dulles		104		40		76		—		16		—		—		236		493	All
	Avalon at Fair Lakes		45		12		125		26		26		—		—		234		505	All
	Avalon at Fox Mill		—		—		92		73		—		—		—		165		343	All
	Avalon at Providence Park		19		—		112		4		—		—		6		141		287	All
	Avalon Crescent		186		26		346		—		—		—		—		558		662	All
	Avalon Crossing		—		27		105		—		—		—		—		132		224	All
	Avalon Fields I & II		74		32		84		32		—		—		66		288		443	All
	Avalon Knoll		136		55		81		28		—		—		—		300		482	All
*MIDWEST*
Chicago, IL
	200 Arlington Place		142		89		148		—		—		30		—		409		650	All
	Avalon at Danada Farms		80		52		134		29		—		—		—		295		714	All
	Avalon at Stratford Green		45		9		108		21		—		—		9		192		437	All
	Avalon at West Grove		200		200		—		—		—		—		—		400		860	None
Minneapolis, MN
	Avalon at Devonshire		194		—		304		—		—		—		—		498		498	Most
	Avalon at Edinburgh		56		—		114		26		—		2		—		198		210	All
	Avalon at Town Centre		104		—		111		33		—		—		—		248		250	All
	Avalon at Town Square		76		—		68		12		—		—		4		160		162	All
	Avalon at Woodbury		41		—		147		36		—		—		—		224		513	All

Large

Non-

Homes w/

storage

Balcony,

direct

Direct

pre-wired

Vaulted

or walk-in

patio, deck

Built-in

access

security

ceilings

Lofts

Fireplaces

closet

or sunroom

bookcases

Carports

garages

systems

New York, NY

Avalon Riverview I

None

Most

Some

None

Yes

Some

Avalon Gardens

Half

Some

All

Most

None

Yes

All

Avalon Green

Some

Half

Some

All

None

Yes

All

Avalon on the Sound

None

Some

None

Most

Some

None

Yes

Some

Avalon View

Some

Most

All

None

Yes

None

Avalon Willow

Some

None

Most

All

None

Yes

All

The Avalon

Some

Most

Half

None

Yes

All

MID-ATLANTIC

Baltimore, MD

Avalon at Fairway Hills I & II

Some

None

Some

All

Some

None

Avalon at Symphony Glen

Some

None

Most

All

Half

None

Avalon Landing

None

Most

All

None

Yes

None

Washington, DC

4100 Massachusetts Avenue

None

Some

Most

All

Some

Yes

None

AutumnWoods

Some

None

Some

All

Some

Yes

None

Avalon at Arlington Square I

Some

All

Some

Yes

All

Avalon at Arlington Square II

Some

All

Some

All

Avalon at Ballston - Vermont & Quincy Towers

None

Most

All

None

Yes

None

Avalon at Ballston - Washington Towers

None

Some

Most

All

None

Yes

None

Avalon at Cameron Court

Some

All

Most

None

Yes

All

Avalon at Decoverly

Some

Most

All

None

Avalon at Dulles

Some

None

Some

All

Some

None

Avalon at Fair Lakes

Half

None

Half

All

Most

None

Yes

None

Avalon at Fox Mill

Most

None

Most

All

None

Yes

All

Avalon at Providence Park

None

Most

All

None

Avalon Crescent

Some

Half

Most

All

Some

Yes

All

Avalon Crossing

Some

Half

All

Some

Yes

All

Avalon Fields I & II

Some

Half

All

Most

None

Yes

All

Avalon Knoll

Some

None

Half

All

Some

None

MIDWEST

Chicago, IL

200 Arlington Place

None

All

Some

None

Yes

None

Avalon at Danada Farms

None

Some

All

Some

Yes

None

Avalon at Stratford Green

None

Some

Most

Some

Yes

None

Avalon at West Grove

None

All

None

Yes

None

Minneapolis, MN

Avalon at Devonshire

Some

None

Some

Most

Some

Yes

None

Avalon at Edinburgh

None

Some

All

None

Yes

None

Avalon at Town Centre

Some

None

Some

All

None

Yes

None

Avalon at Town Square

Some

None

Some

All

None

Yes

None

Avalon at Woodbury

None

Some

None

Yes

None

Features and Recreational Amenities — Current and Development Communities


																				Washer &
		1 BR		2BR				3BR												dryer
												Studios/						Parking		hook-ups
		1/1.5 BA		1/1.5 BA		2/2.5/3 BA		2/2.5		3BA		efficiencies		Other		Total		spaces		or units

*PACIFIC NORTHWEST*
Seattle, WA
	Avalon at Bear Creek		55		40		110		59		—		—		—		264		470	All
	Avalon Bellevue		110		—		67		—		—		25		—		202		304	All
	Avalon Belltown		64		—		20		—		—		16		—		100		134	All
	Avalon Brandemoor		88		109		149		78		—		—		—		424		732	All
	Avalon Greenbriar		16		19		217		169		—		—		—		421		731	All
	Avalon HighGrove		84		119		124		56		8		—		—		391		713	All
	Avalon ParcSquare		31		26		55		5		7		—		—		124		196	All
	Avalon Redmond Place		76		44		67		35		—		—		—		222		384	All
	Avalon RockMeadow		28		48		86		28		16		—		—		206		308	All
	Avalon WildReed		36		60		78		60		—		—		—		234		462	All
	Avalon Wildwood		5		—		211		—		17		—		5		238		16	All
	Avalon Wynhaven		3		42		239		13		28		—		8		333		260	All
*NORTHERN CALIFORNIA*
Oakland-East Bay, CA
	Avalon at Union Square		124		84		—		—		—		—		—		208		210	None
	Avalon at Willow Creek		99		—		136		—		—		—		—		235		240	All
	Avalon Dublin		72		8		60		48		—		—		16		204		427	Most
	Avalon Fremont		130		81		176		—		56		—		—		443		830	All
	Avalon Pleasanton		238		—		218		—		—		—		—		456		856	All
	Waterford		208		—		336		—		—		—		—		544		876	Some
San Francisco, CA
	Avalon at Cedar Ridge		117		33		24		—		—		21		—		195		258	None
	Avalon at Diamond Heights		90		—		49		15		—		—		—		154		155	None
	Avalon at Nob Hill		114		—		25		—		—		46		—		185		104	None
	Avalon at Sunset Towers		183		20		20		—		—		20		—		243		244	None
	Avalon Foster City		124		123		1		—		—		40		—		288		490	None
	Avalon Pacifica		58		106		56		—		—		—		—		220		299	None
	Avalon Towers by the Bay		103		—		120		—		3		—		—		226		235	All
	Crowne Ridge		158		68		24		—		—		4		—		254		377	Some
San Jose, CA
	Avalon at Blossom Hill		90		—		210		—		24		—		—		324		562	All
	Avalon at Cahill Park		118		—		94		—		6		—		—		218		283	All
	Avalon at Creekside		158		128		—		—		—		8		—		294		376	None
	Avalon at Foxchase		168		—		228		—		—		—		—		396		719	All
	Avalon at Parkside		60		—		96		36		—		—		—		192		192	All
	Avalon at Pruneyard		212		40		—		—		—		—		—		252		395	All
	Avalon at River Oaks		100		—		126		—		—		—		—		226		354	All
	Avalon Campbell		156		—		180		—		12		—		—		348		588	All
	Avalon Cupertino		145		—		152		—		14		—		—		311		526	All
	Avalon Mountain View		108		—		88		52		—		—		—		248		248	All
	Avalon on the Alameda		113		—		164		—		28		—		—		305		558	All
	Avalon Rosewalk I & II		168		—		264		—		24		—		—		456		648	All
	Avalon Silicon Valley		338		—		336		18		15		3		—		710		1,400	All
	Avalon Sunnyvale		112		10		54		—		—		44		—		220		394	Some
	Avalon Towers on the Peninsula		90		—		115		—		6		—		—		211		512	All
	CountryBrook		108		—		252		—		—		—		—		360		694	All
	Fairway Glen		60		—		84		—		—		—		—		144		226	All
	San Marino		103		—		145		—		—		—		—		248		436	All

Large

Non-

Homes w/

storage

Balcony,

direct

Direct

pre-wired

Vaulted

or walk-in

patio, deck

Built-in

access

security

ceilings

Lofts

Fireplaces

closet

or sunroom

bookcases

Carports

garages

systems

PACIFIC NORTHWEST

Seattle, WA

Avalon at Bear Creek

All

None

Most

All

Some

Yes

All

Avalon Bellevue

None

Some

All

None

Avalon Belltown

None

All

Some

None

Some

Avalon Brandemoor

Some

None

Most

All

Some

Yes

All

Avalon Greenbriar

Some

None

Most

All

Some

Yes

None

Avalon HighGrove

Some

None

Most

All

Some

Yes

All

Avalon ParcSquare

None

All

None

All

Avalon Redmond Place

Some

None

Most

All

None

Yes

None

Avalon RockMeadow

Some

None

Most

All

Some

Yes

All

Avalon WildReed

Some

None

Most

All

Some

Yes

All

Avalon Wildwood

Some

None

Most

Some

Most

None

Yes

All

Avalon Wynhaven

Most

Some

Most

All

None

Yes

All

NORTHERN CALIFORNIA

Oakland-East Bay, CA

Avalon at Union Square

None

Most

All

None

Yes

None

Avalon at Willow Creek

None

All

None

Yes

None

Avalon Dublin

Some

None

Most

All

None

Yes

None

Avalon Fremont

Most

None

Some

Most

All

None

Yes

All

Avalon Pleasanton

Some

None

Most

All

None

Yes

None

Waterford

Some

None

All

None

Yes

None

San Francisco, CA

Avalon at Cedar Ridge

None

Some

None

Some

All

None

Yes

None

Avalon at Diamond Heights

Some

None

All

None

Yes

None

Avalon at Nob Hill

None

Some

Most

Yes

None

Avalon at Sunset Towers

None

Some

None

Yes

None

Avalon Foster City

None

Most

None

Yes

None

Avalon Pacifica

None

Some

All

None

Yes

None

Avalon Towers by the Bay

Some

None

Some

Half

Most

None

Yes

All

Crowne Ridge

Some

None

Some

None

All

None

Yes

None

San Jose, CA

Avalon at Blossom Hill

Some

None

Most

All

None

Yes

All

Avalon at Cahill Park

Some

Most

All

None

Yes

None

Avalon at Creekside

None

Some

None

Most

None

Yes

None

Avalon at Foxchase

Some

None

Some

All

None

Yes

None

Avalon at Parkside

Some

None

Half

All

Some

Yes

None

Avalon at Pruneyard

None

Half

None

Yes

None

Avalon at River Oaks

None

Most

All

None

Yes

None

Avalon Campbell

Some

None

All

None

Yes

All

Avalon Cupertino

Some

None

Some

All

Some

Yes

None

Avalon Mountain View

Some

None

Some

All

None

Yes

None

Avalon on the Alameda

Some

None

Some

All

Some

Yes

All

Avalon Rosewalk I & II

Some

None

Some

All

Most

Yes

All

Avalon Silicon Valley

Some

Most

All

Some

Yes

None

Avalon Sunnyvale

None

All

None

Yes

None

Avalon Towers on the Peninsula

None

Most

All

None

Yes

None

CountryBrook

Some

None

All

None

All

None

Yes

None

Fairway Glen

Some

None

All

None

Yes

Some

San Marino

Some

None

Most

All

None

Yes

None

Features and Recreational Amenities — Current and Development Communities


												Washer &
		1 BR	2BR		3BR							dryer
							Studios/			Parking		hook-ups
		1/1.5 BA	1/1.5 BA	2/2.5/3 BA	2/2.5	3BA	efficiencies	Other	Total	spaces		or units

*SOUTHERN CALIFORNIA*
Los Angeles, CA
	Avalon at Media Center	296	102	117	12	—	221	—	748		838	Some
	Avalon at Warner Center	88	54	65	20	—	—	—	227		252	All
	Avalon Westside Terrace	126	—	102	—	—	135	—	363		487	None
	Avalon Woodland Hills	222	—	441	—	—	—	—	663		1,300	Some
	The Promenade	153	—	196	51	—	—	—	400		720	Some
Orange County, CA
	Amberway	114	48	48	—	—	62	—	272		454	None
	Avalon at Laguna Niguel	—	—	176	—	—	—	—	176		335	None
	Avalon at Pacific Bay	144	56	104	—	—	—	—	304		478	All
	Avalon at South Coast	124	—	86	—	—	48		258		403	Some
	Avalon Huntington Beach	—	36	324	40	—	—	—	400		790	None
	Avalon Mission Viejo	94	28	44	—	—	—	—	166		250	None
	Avalon Newport	44	54	—	35	—	12	—	145		235	Most
	Avalon Santa Margarita	160	—	141	—	—	—	—	301		523	All
San Diego, CA
	Avalon at Cortez Hill	114	—	83	—	—	97	—	294		292	None
	Avalon at Mission Bay	270	9	165	—	—	120	—	564		695	None
	Avalon at Mission Ridge	18	1	98	83	—	—	—	200		384	Most
	Avalon at Penasquitos Hills	48	48	80	—	—	—	—	176		176	All
DEVELOPMENT COMMUNITIES
	Avalon at Flanders Hill	108	—	142	30	—	—	—	280		569	All
	Avalon at Gallery Place I	111	77	—	4	—	11	—	203		125	All
	Avalon at Glen Cove South	112	—	91	—	—	53	—	256		458	All
	Avalon at Grosvenor Station	265	33	185	13	—	1	—	497		742	All
	Avalon at Mission Bay North	148	—	95	6	—	1	—	250		198	All
	Avalon at Newton Highlands	90	46	92	56	4	6	—	294		540	All
	Avalon at Rock Spring	178	39	133	36	—	—	—	386		678	All
	Avalon at Steven’s Pond	102	—	202	22	—	—	—	326		663	All
	Avalon Darien	77	—	78	32	—	—	2	189		472	All
	Avalon Glendale	75	—	121	—	27	—	—	223		460	All
	Avalon on Stamford Harbor	159	—	130	20	—	14	—	323		543	All
	Avalon Traville Phase I	67	16	87	30	—	—	—	200		431	All

Large

Non-

Homes w/

storage

Balcony,

direct

Direct

pre-wired

Vaulted

or walk-in

patio, deck

Built-in

access

security

ceilings

Lofts

Fireplaces

closet

or sunroom

bookcases

Carports

garages

systems

SOUTHERN CALIFORNIA

Los Angeles, CA

Avalon at Media Center

None

Some

None

Yes

None

Avalon at Warner Center

Some

None

Some

All

None

Yes

None

Avalon Westside Terrace

None

All

Some

None

Avalon Woodland Hills

None

Some

None

Most

All

None

The Promenade

None

Some

All

Some

All

None

Orange County, CA

Amberway

Some

None

All

None

Yes

None

Avalon at Laguna Niguel

Some

None

All

None

Most

None

Yes

None

Avalon at Pacific Bay

None

Half

All

None

Yes

None

Avalon at South Coast

Half

None

Half

All

None

Yes

None

Avalon Huntington Beach

None

Most

None

Yes

None

Avalon Mission Viejo

None

All

None

Yes

None

Avalon Newport

Some

None

Some

Most

Some

Yes

None

Avalon Santa Margarita

None

All

None

Yes

None

San Diego, CA

Avalon at Cortez Hill

None

All

None

Yes

None

Avalon at Mission Bay

None

Some

All

None

Yes

None

Avalon at Mission Ridge

None

Most

None

Yes

None

Avalon at Penasquitos Hills

None

All

Some

All

Yes

None

DEVELOPMENT COMMUNITIES

Avalon at Flanders Hill

None

Some

All

Some

None

Yes

All

Avalon at Gallery Place I

Some

None

All

Some

None

Avalon at Glen Cove South

None

Some

Most

Some

None

Some

Avalon at Grosvenor Station

Some

Most

All

None

Yes

All

Avalon at Mission Bay North

None

Some

None

All

Some

None

Yes

None

Avalon at Newton Highlands

Some

Most

None

Yes

All

Avalon at Rock Spring

Some

Most

Some

Yes

All

Avalon at Steven’s Pond

Some

All

Some

Yes

All

Avalon Darien

Some

All

None

Yes

All

Avalon Glendale

None

Some

All

None

Yes

All

Avalon on Stamford Harbor

Some

Most

All

None

All

Avalon Traville Phase I

Some

Most

All

Some

Yes

None

Features and Recreational Amenities — Current and Development Communities

Community

Building

Buildings w/

entrance

Under-

Aerobics

security

controlled

ground

dance

Picnic

Walking /

Sauna /

systems

access

parking

studio

Car wash

area

jogging trail

Pool

whirlpool

CURRENT COMMUNITIES (1)

NORTHEAST

Boston, MA

Avalon at Center Place

None

Yes

Avalon at Faxon Park

None

Yes

Avalon at Lexington

None

Yes

Avalon at Prudential Center

None

Yes

Avalon Essex

None

Yes

Avalon Estates

None

Yes

Avalon Ledges

All

Yes

Avalon Oaks

None

Yes

Avalon Oaks West

All

Yes

Avalon Orchards

None

Yes

Avalon Summit

None

Yes

Avalon West

None

Yes

Fairfield-New Haven, CT

Avalon at Greyrock Place

All

Yes

Avalon Corners

All

Yes

Avalon Gates

None

Yes

Avalon Glen

None

Yes

Avalon Haven

None

Yes

Avalon Lake

None

Yes

Avalon New Canaan

All

Yes

Avalon Springs

All

Yes

Avalon Valley

None

Yes

Avalon Walk I & II

None

Yes

Long Island, NY

Avalon Commons

All

Yes

Avalon Court

All

Yes

Avalon Towers

All

Yes

Northern New Jersey

Avalon at Edgewater

All

Yes

Avalon at Florham Park

None

Yes

Avalon Cove

All

Yes

Avalon Crest

All

Yes

The Tower at Avalon Cove

All

Yes

Central New Jersey

Avalon at Freehold

None

Yes

Avalon Run East

None

Yes

Avalon Watch

None

Yes

Indoor /

Tennis

Fitness

Sand

outdoor

Clubhouse /

Business

court

Racquetball

center

volleyball

basketball

clubroom

center

Totlot

Concierge

CURRENT COMMUNITIES (1)

NORTHEAST

Boston, MA

Avalon at Center Place

Yes

Avalon at Faxon Park

Yes

Avalon at Lexington

Yes

Avalon at Prudential Center

Yes

Avalon Essex

Yes

Avalon Estates

Yes

Avalon Ledges

Yes

Avalon Oaks

Yes

Avalon Oaks West

Yes

Avalon Orchards

Yes

Avalon Summit

Yes

Avalon West

Yes

Fairfield-New Haven, CT

Avalon at Greyrock Place

Yes

Avalon Corners

Yes

Avalon Gates

Yes

Avalon Glen

Yes

Avalon Haven

Yes

Avalon Lake

Yes

Avalon New Canaan

Yes

Avalon Springs

Yes

Avalon Valley

Yes

Avalon Walk I & II

Yes

Long Island, NY

Avalon Commons

Yes

Avalon Court

Yes

Avalon Towers

Yes

Northern New Jersey

Avalon at Edgewater

Yes

Avalon at Florham Park

Yes

Avalon Cove

Yes

Avalon Crest

Yes

The Tower at Avalon Cove

Yes

Central New Jersey

Avalon at Freehold

Yes

Avalon Run East

Yes

Avalon Watch

Yes

Features and Recreational Amenities — Current and Development Communities

Community

Building

Buildings w/

entrance

Under-

Aerobics

security

controlled

ground

dance

Picnic

Walking /

Sauna /

systems

access

parking

studio

Car wash

area

jogging trail

Pool

whirlpool

New York, NY

Avalon Riverview I

All

Yes

Avalon Gardens

All

Yes

Avalon Green

All

Yes

Avalon on the Sound

All

Yes

Avalon View

None

Yes

Avalon Willow

All

Yes

The Avalon

All

Yes

MID-ATLANTIC

Baltimore, MD

Avalon at Fairway Hills I & II

None

Yes

Avalon at Symphony Glen

None

Yes

Avalon Landing

None

Yes

Washington, DC

4100 Massachusetts Avenue

None

Yes

AutumnWoods

None

Yes

Avalon at Arlington Square I

None

Yes

Avalon at Arlington Square II

All

Yes

Avalon at Ballston — Vermont & Quincy Towers

None

Yes

Avalon at Ballston — Washington Towers

None

Yes

Avalon at Cameron Court

All

Yes

Avalon at Decoverly

None

Yes

Avalon at Dulles

None

Yes

Avalon at Fair Lakes

None

Yes

Avalon at Fox Mill

None

Yes

Avalon at Providence Park

None

Yes

Avalon Crescent

None

Yes

Avalon Crossing

None

Yes

Avalon Fields I & II

All

Yes

Avalon Knoll

None

Yes

MIDWEST

Chicago, IL

200 Arlington Place

None

Yes

Avalon at Danada Farms

None

Yes

Avalon at Stratford Green

None

Yes

Avalon at West Grove

None

Yes

Minneapolis, MN

Avalon at Devonshire

None

Yes

Avalon at Edinburgh

None

Yes

Avalon at Town Centre

None

Yes

Avalon at Town Square

None

Yes

Avalon at Woodbury

None

Yes

Indoor /

Tennis

Fitness

Sand

outdoor

Clubhouse /

Business

court

Racquetball

center

volleyball

basketball

clubroom

center

Totlot

Concierge

New York, NY

Avalon Riverview I

Yes

Avalon Gardens

Yes

Avalon Green

Yes

Avalon on the Sound

Yes

Avalon View

Yes

Avalon Willow

Yes

The Avalon

Yes

MID-ATLANTIC

Baltimore, MD

Avalon at Fairway Hills I & II

Yes

Avalon at Symphony Glen

Yes

Avalon Landing

Yes

Washington, DC

4100 Massachusetts Avenue

Yes

AutumnWoods

Yes

Avalon at Arlington Square I

Yes

Avalon at Arlington Square II

Yes

Avalon at Ballston — Vermont & Quincy Towers

Yes

Avalon at Ballston — Washington Towers

Yes

Avalon at Cameron Court

Yes

Avalon at Decoverly

Yes

Avalon at Dulles

Yes

Avalon at Fair Lakes

Yes

Avalon at Fox Mill

Yes

Avalon at Providence Park

Yes

Avalon Crescent

Yes

Avalon Crossing

Yes

Avalon Fields I & II

Yes

Avalon Knoll

Yes

MIDWEST

Chicago, IL

200 Arlington Place

Yes

Avalon at Danada Farms

Yes

Avalon at Stratford Green

Yes

Avalon at West Grove

Yes

Minneapolis, MN

Avalon at Devonshire

Yes

Avalon at Edinburgh

Yes

Avalon at Town Centre

Yes

Avalon at Town Square

Yes

Avalon at Woodbury

Yes

Features and Recreational Amenities — Current and Development Communities

Community

Building

Buildings w/

entrance

Under-

Aerobics

security

controlled

ground

dance

Picnic

Walking /

Sauna /

systems

access

parking

studio

Car wash

area

jogging trail

Pool

whirlpool

PACIFIC NORTHWEST

Seattle, WA

Avalon at Bear Creek

All

Yes

Avalon Bellevue

None

Yes

Avalon Belltown

None

Yes

Avalon Brandemoor

All

Yes

Avalon Greenbriar

None

Yes

Avalon HighGrove

None

Yes

Avalon ParcSquare

None

Yes

Avalon Redmond Place

None

Yes

Avalon RockMeadow

None

Yes

Avalon WildReed

None

Yes

Avalon Wildwood

All

Yes

Avalon Wynhaven

None

Yes

NORTHERN CALIFORNIA

Oakland-East Bay, CA

Avalon at Union Square

None

Yes

Avalon at Willow Creek

Some

Yes

Avalon Dublin

None

Yes

Avalon Fremont

All

Yes

Avalon Pleasanton

None

Yes

Waterford

Some

Yes

San Francisco, CA

Avalon at Cedar Ridge

None

Yes

Avalon at Diamond Heights

None

Yes

Avalon at Nob Hill

None

Yes

Avalon at Sunset Towers

All

Yes

Avalon Foster City

Some

Yes

Avalon Pacifica

None

Yes

Avalon Towers by the Bay

None

Yes

Crowne Ridge

None

Yes

San Jose, CA

Avalon at Blossom Hill

None

Yes

Avalon at Cahill Park

All

Yes

Avalon at Creekside

Some

Yes

Avalon at Foxchase

None

Yes

Avalon at Parkside

None

Yes

Avalon at Pruneyard

None

Yes

Avalon at River Oaks

None

Yes

Avalon Campbell

Some

Yes

Avalon Cupertino

None

Yes

Avalon Mountain View

None

Yes

Avalon on the Alameda

All

Yes

Avalon Rosewalk I & II

None

Yes

Avalon Silicon Valley

Some

Yes

Avalon Sunnyvale

None

Yes

Avalon Towers on the Peninsula

All

Yes

CountryBrook

None

Yes

Fairway Glen

Some

Yes

San Marino

None

Yes

Indoor /

Tennis

Fitness

Sand

outdoor

Clubhouse /

Business

court

Racquetball

center

volleyball

basketball

clubroom

center

Totlot

Concierge

PACIFIC NORTHWEST

Seattle, WA

Avalon at Bear Creek

Yes

Avalon Bellevue

Yes

Avalon Belltown

Yes

Avalon Brandemoor

Yes

Avalon Greenbriar

Yes

Avalon HighGrove

Yes

Avalon ParcSquare

Yes

Avalon Redmond Place

Yes

Avalon RockMeadow

Yes

Avalon WildReed

Yes

Avalon Wildwood

Yes

Avalon Wynhaven

Yes

NORTHERN CALIFORNIA

Oakland-East Bay, CA

Avalon at Union Square

Yes

Avalon at Willow Creek

Yes

Avalon Dublin

Yes

Avalon Fremont

Yes

Avalon Pleasanton

Yes

Waterford

Yes

San Francisco, CA

Avalon at Cedar Ridge

Yes

Avalon at Diamond Heights

Yes

Avalon at Nob Hill

Yes

Avalon at Sunset Towers

Avalon Foster City

Yes

Avalon Pacifica

Yes

Avalon Towers by the Bay

Yes

Crowne Ridge

Yes

San Jose, CA

Avalon at Blossom Hill

Yes

Avalon at Cahill Park

Yes

Avalon at Creekside

Yes

Avalon at Foxchase

Yes

Avalon at Parkside

Yes

Avalon at Pruneyard

Yes

Avalon at River Oaks

Yes

Avalon Campbell

Yes

Avalon Cupertino

Yes

Avalon Mountain View

Yes

Avalon on the Alameda

Yes

Avalon Rosewalk I & II

Yes

Avalon Silicon Valley

Yes

Avalon Sunnyvale

Yes

Avalon Towers on the Peninsula

Yes

CountryBrook

Yes

Fairway Glen

Yes

San Marino

Yes

Features and Recreational Amenities — Current and Development Communities

Community

Building

Buildings w/

entrance

Under-

Aerobics

security

controlled

ground

dance

Picnic

Walking /

Sauna /

systems

access

parking

studio

Car wash

area

jogging trail

Pool

whirlpool

SOUTHERN CALIFORNIA

Los Angeles, CA

Avalon at Media Center

None

Yes

Avalon at Warner Center

None

Yes

Avalon Westside Terrace

None

Yes

Avalon Woodland Hills

None

Yes

The Promenade

None

Yes

Orange County, CA

Amberway

None

Yes

Avalon at Laguna Niguel

None

Yes

Avalon at Pacific Bay

None

Yes

Avalon at South Coast

None

Yes

Avalon Huntington Beach

None

Yes

Avalon Mission Viejo

None

Yes

Avalon Newport

None

Yes

Avalon Santa Margarita

None

Yes

San Diego, CA

Avalon at Cortez Hill

All

Yes

Avalon at Mission Bay

None

Yes

Avalon at Mission Ridge

Some

Yes

Avalon at Penasquitos Hills

None

Yes

DEVELOPMENT COMMUNITIES

Avalon at Flanders Hill

All

Yes

Avalon at Gallery Place I

All

Yes

Avalon at Glen Cove South

Some

Yes

Avalon at Grosvenor Station

All

Yes

Avalon at Mission Bay North

All

Yes

Avalon at Newton Highlands

All

Yes

Avalon at Rock Spring

None

Yes

Avalon at Steven’s Pond

All

Yes

Avalon Darien

None

Yes

Avalon Glendale

None

Yes

Avalon on Stamford Harbor

All

Yes

Avalon Traville Phase I

None

Yes

Indoor /

Tennis

Fitness

Sand

outdoor

Clubhouse /

Business

court

Racquetball

center

volleyball

basketball

clubroom

center

Totlot

Concierge

SOUTHERN CALIFORNIA

Los Angeles, CA

Avalon at Media Center

Yes

Avalon at Warner Center

Yes

Avalon Westside Terrace

Yes

Avalon Woodland Hills

Yes

The Promenade

Yes

Orange County, CA

Amberway

Yes

Avalon at Laguna Niguel

Yes

Avalon at Pacific Bay

Yes

Avalon at South Coast

Yes

Avalon Huntington Beach

Yes

Avalon Mission Viejo

Yes

Avalon Newport

Yes

Avalon Santa Margarita

Yes

San Diego, CA

Avalon at Cortez Hill

Yes

Avalon at Mission Bay

Yes

Avalon at Mission Ridge

Yes

Avalon at Penasquitos Hills

Yes

DEVELOPMENT COMMUNITIES

Avalon at Flanders Hill

Yes

Avalon at Gallery Place I

Yes

Avalon at Glen Cove South

Yes

Avalon at Grosvenor Station

Yes

Avalon at Mission Bay North

Yes

Avalon at Newton Highlands

Yes

Avalon at Rock Spring

Yes

Avalon at Steven’s Pond

Yes

Avalon Darien

Yes

Avalon Glendale

Yes

Avalon on Stamford Harbor

Yes

Avalon Traville Phase I

Yes

(1)

For the purpose of this table, Current Communities excludes communities held by unconsolidated real estate joint ventures.

Development Communities

As of February 1, 2003, we had 12 Development Communities under construction. We expect these Development Communities, when completed, to add a total of 3,429 apartment homes to our portfolio for a total capitalized cost, including land acquisition costs, of approximately $645,700,000. Statements regarding the future development or performance of the Development Communities are forward-looking statements. We cannot assure you that:

	•		we will complete the Development Communities;

	•		our budgeted costs or estimates of occupancy rates will be realized;

	•		our schedule of leasing start dates, construction completion dates or stabilization dates will be achieved; or

	•		future developments will realize returns comparable to our past developments.

You should carefully review the discussion under “Risks of Development and Redevelopment” included elsewhere in this Item 2.

The following table presents a summary of the Development Communities. We hold a direct or indirect fee simple ownership interest in these communities except where noted.

Total

Number of

budgeted

Estimated

apartment

cost (1)

Construction

Initial

completion

stabilization

homes

($ millions)

start

occupancy (2)

date

date (3)

Avalon on Stamford Harbor
Stamford, CT

323

60.7

Q3 2000

Q1 2002

Q1 2003

Q3 2003

Avalon at Mission Bay North
San Francisco, CA

250

79.5

Q1 2001

Q4 2002

Q2 2003

Q4 2003

Avalon at Flanders Hill
Westborough, MA

280

38.4

Q3 2001

Q2 2002

Q1 2003

Q3 2003

Avalon at Rock Spring (4)
North Bethesda, MD

386

45.9

Q4 2001

Q4 2002

Q3 2003

Q1 2004

Avalon at Gallery Place I (5)
Washington, DC

203

50.0

Q4 2001

Q2 2003

Q4 2003

Q2 2004

Avalon Glendale
Glendale, CA

223

40.4

Q1 2002

Q2 2003

Q1 2004

Q3 2004

Avalon at Grosvenor Station (6)
North Bethesda, MD

499

82.3

Q1 2002

Q3 2003

Q4 2004

Q2 2005

Avalon at Newton Highlands (6)
Newton, MA

294

58.7

Q2 2002

Q3 2003

Q1 2004

Q3 2004

Avalon at Glen Cove South
Glen Cove, NY

256

62.0

Q3 2002

Q1 2004

Q2 2004

Q4 2004

10.

Avalon at Steven’s Pond
Saugus, MA

326

55.4

Q3 2002

Q2 2003

Q2 2004

Q4 2004

11.

Avalon Darien
Darien, CT

189

43.6

Q4 2002

Q4 2003

Q3 2004

Q1 2005

12.

Avalon Traville Phase I
North Potomac, MD

200

28.8

Q4 2002

Q4 2003

Q2 2004

Q4 2004

Total

3,429

645.7

(1)		Total budgeted cost includes all capitalized costs projected to be incurred to develop the respective Development Community, determined in accordance with generally accepted accounting principles (“GAAP”), including land acquisition costs, construction costs, real estate taxes, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees.

(2)		Future initial occupancy dates are estimates.

(3)		Stabilized operations is defined as the first full quarter of 95% or greater physical occupancy after completion of construction.

(4)		This community is owned by a limited liability company in which we are a majority equity holder. The costs reflected above exclude construction and management fees due to us. This limited liability company is consolidated for financial reporting purposes.

(5)		The total budgeted cost for this community is net of approximately $4,000,000 of proceeds that we estimate we will receive upon the sale of transferable development rights associated with the development of the community. These rights do not become transferable until construction completion and there can be no assurance that the projected amount of proceeds will be achieved.

(6)		The community is owned by a DownREIT partnership in which one of our wholly-owned subsidiaries is the general partner with a majority equity interest. This partnership is consolidated for financial reporting purposes.

Redevelopment Communities

As of February 1, 2003, we had two communities under redevelopment. We expect the total budgeted cost to complete these communities, including the cost of acquisition, capital expenditures subsequent to acquisition and redevelopment, to be approximately $197,800,000, of which approximately $28,200,000 is the additional capital invested or expected to be invested during redevelopment and $5,800,000 has been invested since acquisition unrelated to redevelopment. Statements regarding the future redevelopment or performance of the Redevelopment Communities are forward-looking statements. We have found that the cost to redevelop an existing apartment community is more difficult to budget and estimate than the cost to develop a new community. Accordingly, we expect that actual costs may vary from our budget by a wider range than for a new development community. We cannot assure you that we will meet our schedules for reconstruction completion or restabilized operations, or that we will meet our budgeted costs, either individually or in the aggregate. See the discussion under “Risks of Development and Redevelopment” included elsewhere in this Item 2.

The following presents a summary of these Redevelopment Communities:

Total cost

($ millions)

Number of

Estimated

apartment

Acquisition

Total budgeted

Reconstruction

restabilized

homes

cost (1)

cost (2)

start

completion (3)

operations (4)

4100 Massachusetts Avenue
Washington, DC

308

35.7

43.3

Q4 2002

Q2 2004

Q4 2004

Avalon at Prudential Center
Boston, MA

781

133.9

154.5

Q4 2000

Q1 2003

Q3 2003

Total

1,089

169.6

197.8

(1)		Acquisition cost includes capital expenditures subsequent to acquisition unrelated to redevelopment.

(2)		Total budgeted cost includes all capitalized costs projected to be incurred to redevelop the respective Redevelopment Community, including costs to acquire the community, reconstruction costs, real estate taxes, capitalized interest and loan fees, permits, professional fees, allocated redevelopment overhead and other regulatory fees determined in accordance with GAAP.

(3)		Reconstruction completion dates are estimates.

(4)		Restabilized operations is defined as the first full quarter of 95% or greater physical occupancy after completion of reconstruction.

Development Rights

As of February 1, 2003, we are considering the development of 38 new apartment communities on land that is either owned by us, under contract, subject to a leasehold interest, or for which we hold a purchase option. We generally hold Development Rights through options to acquire land, although for 11 of the Development Rights we currently own the land on which a community would be built if we proceeded with development. The Development Rights range from those beginning design and architectural planning to those that have completed site plans and drawings and can begin construction almost immediately. We estimate that the successful completion of all of these communities would ultimately add 9,950 upscale apartment homes to our portfolio. Substantially all of these apartment homes will offer features like those offered by the communities we currently own. At December 31, 2002, there were cumulative net capitalized costs (including legal fees, design fees and related overhead costs, but excluding land costs and net of an allowance for abandoned pursuit costs) of $31,461,000 relating to Development Rights. In addition, land costs related to the pursuit of Development Rights (consisting of original land and additional carrying costs) of $78,688,000 are reflected as land held for development on the accompanying Consolidated Balance Sheets as of December 31, 2002. These land costs include $19,939,000 associated with two land parcels that were determined not likely to proceed to development and were planned for disposition as of December 31, 2002.

The properties comprising the Development Rights are in different stages of the due diligence and regulatory approval process. The decisions as to which of the Development Rights to pursue, if any, or to continue to pursue once an investment in a Development Right is made, are business judgments that we make after we perform

financial, demographic and other analyses. In the event that we do not proceed with a Development Right, we generally would not recover capitalized costs incurred in the pursuit of those communities, unless we were to recover amounts in connection with the sale of land; however we cannot guarantee a recovery. To recognize the possibility of such loss, we recognize a charge to expense to provide an allowance for potentially unrecoverable capitalized pre-development costs related to these Development Rights. The determination of a charge to expense relative to Development Rights involves management judgment regarding the probability that a Development Right will not proceed to development. The amount charged to expense and reflected in operating expenses in the accompanying Consolidated Financial Statements related to possible abandoned Development Rights was $2,800,000 and $2,200,000 for the years ended December 31, 2002 and 2001, respectively.

Because we intend to limit the percentage of debt used to finance new developments, other financing alternatives may be required to help finance the development of those Development Rights scheduled to start construction after January 1, 2003.

Although the development of any particular Development Right cannot be assured, we believe that the Development Rights, in the aggregate, present attractive potential opportunities for future development and growth of long-term stockholder value.

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

	•		we will succeed in obtaining zoning and other necessary governmental approvals or the financing required to develop these communities, or that we will decide to develop any particular community; or

	•		if we undertake construction of any particular community, that we will complete construction at the total budgeted cost assumed in the financial projections in the following table.

The following presents a summary of the 38 Development Rights we are currently pursuing:


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

1.	Plymouth, MA Phase I	(1	)		98	$	21
2.	Milford, CT	(1	)		246		37
3.	New York, NY	(2	)		361		138
4.	Lawrence, NJ				312		43
5.	Danvers & Peabody, MA				387		63
6.	Danbury, CT	(1	)		234		36
7.	Coram, NY Phase I				298		49
8.	Los Angeles, CA	(1	)		309		63
9.	Washington, DC	(1	)		144		30
10.	Kirkland, WA				211		50
11.	Oakland, CA	(1	)		180		40
12.	Norwalk, CT				314		63
13.	New Rochelle, NY Phase II and III				588		144
14.	Hingham, MA				236		44
15.	Long Island City, NY Phase II and III				552		162
16.	Glen Cove, NY				111		31
17.	Plymouth, MA Phase II				72		13
18.	North Potomac, MD Phase II	(1	)		320		46
19.	Bedford, MA				139		21
20.	Quincy, MA	(1	)		156		24
21.	Orange, CT	(1	)		168		22
22.	Andover, MA				115		21
23.	Milford, CT				284		41
24.	Seattle, WA	(1	)		154		50
25.	Bellevue, WA				368		71
26.	Newton, MA				235		60
27.	San Francisco, CA				313		100
28.	Stratford, CT				146		18
29.	Los Angeles, CA				173		47
30.	Camarillo, CA	(1	)		249		43
31.	Cohasset, MA				200		38
32.	Sharon, MA				190		31
33.	Greenburgh, NY Phase II				766		139
34.	Coram, NY Phase II				152		26
35.	Long Beach, CA				299		57
36.	Wilton, CT				100		24
37.	Yaphank, NY				450		71
38.	College Park, MD				320		44

	Total				9,950	$	2,021

(1)		We own the land parcel, but construction has not yet begun.

(2)		Total budgeted cost for this community includes costs associated with the construction of 89,000 square feet of retail space and 30,000 square feet for a neighborhood facility.

Risks of Development and Redevelopment

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

	•		we may abandon opportunities we have already begun to explore based on further review of, or changes in, financial, demographic, environmental or other factors;

	•		we may encounter liquidity constraints, including the unavailability of financing on favorable terms for the development or redevelopment of a community;

	•		we may be unable to obtain, or we may experience delays in obtaining, all necessary zoning, land-use, building, occupancy, and other required governmental permits and authorizations;

	•		we may incur construction or reconstruction costs for a community that exceed our original estimates due to increased materials, labor or other expenses, which could make completion of development or redevelopment of the community uneconomical;

	•		occupancy rates and rents at a newly completed development or redevelopment community may fluctuate depending on a number of factors, including market and general economic conditions, and may not be sufficient to make the community profitable; and

	•		we may be unable to complete construction and lease-up on schedule, resulting in increased debt service expense and construction costs.

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

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

	•		land and/or property acquisition costs;

	•		construction or reconstruction costs;

	•		real estate taxes;

	•		capitalized interest;

	•		loan fees;

	•		permits;

	•		professional fees;

	•		allocated development or redevelopment overhead; and

	•		other regulatory fees.

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 communities or redevelopment communities complete lease-up will be sufficient to fully offset the effects of any increased construction or reconstruction costs.

Capitalized Interest

In accordance with GAAP, we capitalize interest expense during construction or reconstruction until a building obtains a final certificate of occupancy. Interest that is incurred thereafter and allocated to a completed apartment

home within the community is expensed. Capitalized interest during the years ended December 31, 2002 and 2001 totaled $29,937,000 and $27,635,000, respectively.

Acquisition Activities and Other Recent Developments

Acquisitions of Existing Communities. During the year ended December 31, 2002, we acquired two communities. The Promenade, located in Burbank, California, contains 400 apartment homes and was acquired for a total price of $70,300,000, which includes the assumption of $33,900,000 of floating-rate, tax-exempt debt. Avalon Greyrock, located in Stamford, Connecticut, contains 306 apartment homes and was acquired pursuant to a forward purchase contract agreed to in 1997 with an unaffiliated third party for a total acquisition cost of approximately $69,900,000.

One DownREIT partnership was formed since January 1, 2002 in conjunction with the acquisition of land by that partnership.

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

	•		apply sufficient market and management presence to enhance revenue growth;

	•		reduce operating expenses; and

	•		leverage management talent.

To achieve this increased concentration, we sell assets that do not meet our long-term investment criteria and redeploy the proceeds from those sales to develop and redevelop communities. Pending such redeployment, we will generally use the proceeds from the sale of these communities to reduce amounts outstanding under our variable rate unsecured credit facility. On occasion, we will set aside the proceeds from the sale of communities into a cash escrow account to facilitate a nontaxable, like-kind exchange transaction. We sold one community, totaling 277 apartment homes, during the period from January 1, 2002 through February 1, 2003. Net proceeds from the sale of this asset were $78,454,000.

Land Acquisitions and Leases for New Developments. We carefully select land for development and follow established procedures that we believe minimize both the cost and the risks of development. During 2002, we acquired the following land parcels which are currently held for future development:


				Estimated		Total
				number		budgeted
		Gross		of apartment		cost (1)		Date	Construction	Construction
		acres		homes		($ millions)		acquired	start (2)	completion (2)

1.	Avalon at Pinehills Phase I Plymouth, MA		6.0		98	$	21	September 2002	Q3 2003	Q3 2004
2.	Avalon at Milford Phase I Milford, CT		22.0		246		37	December 2002	Q3 2003	Q4 2004
3.	Avalon Traville Phase II North Potomac, MD		42.0		320		46	October 2002	Q1 2004	Q2 2005
4.	Avalon at Faxon West Quincy, MA		14.4		156		24	July 2002	Q1 2004	Q1 2005
5.	Avalon Camarillo Camarillo, CA		9.6		249		43	November 2002	Q2 2004	Q4 2005

	Total		94.0		1,069	$	171

	(1)		Total budgeted cost includes all capitalized costs projected to be incurred to develop the respective Development Community, including land acquisition costs, construction costs, real estate taxes, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees determined in accordance with GAAP.

	(2)		Future construction start and completion dates are estimates. There can be no assurance that we will pursue to completion any or all of these proposed developments.

Insurance and Risk of Uninsured Losses

We carry commercial general liability insurance and property insurance with respect to all of our communities. These policies, and other insurance policies we carry, have policy specifications, insured limits and deductibles that we consider commercially reasonable. 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 are not economically feasible. 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 have noted that the insurance and reinsurance markets have worsened as compared to the prior year, which we believe have resulted in higher insurance costs for the entire real estate sector. Although we will continue to maintain commercially reasonable insurance coverage, we believe that the cost of such coverage will increase at a faster rate than other operating expenses.

Many of our West Coast communities are located in the general vicinity of active earthquake faults. A large concentration of our communities lie near, and thus are susceptible to, the major fault lines in the San Francisco Bay Area, including the San Andreas fault and Hayward fault. We cannot assure you that an earthquake would not cause damage or losses greater than insured levels. In November 2002, we renewed our earthquake insurance. We have in place with respect to communities located in California, for any single occurrence and in the aggregate, $75,000,000 of coverage with a deductible per building equal to five percent of the insured value of that building. The five percent deductible is subject to a minimum of $100,000 per occurrence. Earthquake coverage outside of California is subject to a $100,000,000 limit, except with respect to the state of Washington, for which the limit is $65,000,000. Our earthquake insurance outside of California provides for a $100,000 deductible per occurrence. In

addition, up to an annual aggregate of $2,000,000, the next $400,000 of loss per occurrence outside California will be treated as an additional deductible.

Our annual general liability policy and workman’s compensation coverage was renewed on August 1, 2002. Although the insurance coverage provided for in the renewal policies did not materially change from the preceding year, the level of our deductible and premiums costs has increased. Including the costs we may incur as a result of deductibles, we expect the cost related to these insurance categories for the policy period from August 1, 2002 to July 31, 2003 to increase approximately $1,200,000 as compared to the prior period.

Our property insurance, which includes the earthquake coverage as previously described and builder’s risk, was renewed on November 1, 2002, with an increase in the annual premium of approximately $1,100,000 over the prior period.

Just as with office buildings, transportation systems and government buildings, there have been recent reports that apartment communities could become targets of terrorism. In November 2002, Congress passed the Terrorism Risk Insurance Act (“TRIA”) which is designed to make terrorism insurance available. In connection with this legislation, we have purchased insurance for property damage due to terrorism up to $200,000,000, with the first $15,000,000 of damage costs payable by us. Our general liability policy provides coverage (subject to deductibles and insured limits) for liability to third parties that result from terrorist acts at our communities. In connection with TRIA, we purchased third party liability terrorism insurance for communities with greater than 24 floors, which were previously excluded under our general liability policy.

We cannot assure that we will have full coverage under our existing policies for property damage or liability to third parties arising as a result of exposure to mold or a claim of exposure to mold at one of our communities. See discussion under “Environmental Matters” included in Item 1 of this report.

In March 2003, we expect to renew our directors and officers insurance (“D&O”). In the past year, the D&O market has experienced increased and high profile claim activity. We estimate that our costs for this insurance will increase approximately 80% at renewal.

Americans with Disabilities Act

The apartment communities we own and any apartment communities that we acquire must comply with Title III of the Americans with Disabilities Act to the extent that such properties are “public accommodations” and/or “commercial facilities” as defined by the Americans with Disabilities Act. Compliance with the Americans with Disabilities Act requirements could require removal of structural barriers to handicapped access in certain public areas of our properties where such removal is readily achievable. The Americans with Disabilities Act does not, however, consider residential properties, such as apartment communities, to be public accommodations or commercial facilities, except to the extent portions of such facilities, such as leasing offices, are open to the public. We believe our properties comply in all material respects with all present requirements under the Americans with Disabilities Act and applicable state laws. Noncompliance could result in imposition of fines or an award of damages to private litigants.

ITEM 3. LEGAL PROCEEDINGS

We are from time to time subject to claims and administrative proceedings arising in the ordinary course of business. Some of these claims and proceedings are expected to be covered by liability insurance. The following matter, for which, based on the advice of counsel, we believe we have meritorious defenses and are therefore vigorously defending against, is not covered by liability insurance. However, outstanding litigation matters, individually and in the aggregate, including the matter described below, are not expected to have a material adverse effect on our business or financial condition.

We are currently involved in litigation with York Hunter Construction, Inc. and National Union Fire Insurance Company. The action arises from our October 1999 termination of York Hunter as construction manager under a

contract relating to construction of the Avalon Willow community in Mamaroneck, New York, because of alleged failures and deficiencies by York Hunter and its subcontractors in performing under the contract. York Hunter initiated the litigation in October 1999 by filing a complaint against us and other defendants claiming more than $15,000,000 in damages. We have filed counterclaims against York Hunter seeking more than $9,000,000 in compensatory damages, including lost rental income and costs to complete the community. We have also filed a claim against National Union Fire Insurance, which furnished construction and performance bonds to us on behalf of York Hunter. Although no assurances can be made with respect to any litigation, based on the advice of our counsel in this matter, Wachtel & Masyr LLP, we believe that we have meritorious defenses against all of York Hunter’s claims and are vigorously contesting those claims. We also intend to pursue our counterclaims against York Hunter and National Union Fire Insurance aggressively. The litigation is pending in the Supreme Court of the State of New York, County of Westchester. A trial date has been set for April 2003.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS

No matter was submitted to a vote of our security holders during the fourth quarter of 2002.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is traded on the New York Stock Exchange (NYSE) and the Pacific Exchange (PCX) under the ticker symbol AVB. The following table sets forth the quarterly high and low sales prices per share of our common stock on the NYSE for the years 2002 and 2001, as reported by the NYSE. On February 1, 2003 there were 795 holders of record of an aggregate of 68,149,232 shares of our outstanding common stock. The number of holders does not include individuals or entities who beneficially own shares but whose shares are held of record by a broker or clearing agency, but does include each such broker or clearing agency as one recordholder.


	2002						2001

	Sales Price						Sales Price
					Dividends						Dividends
	High		Low		declared		High		Low		declared

Quarter ended March 31	$	50.660	$	44.440	$	0.70	$	50.000	$	45.200	$	0.64

Quarter ended June 30	$	52.650	$	45.660	$	0.70	$	47.450	$	42.450	$	0.64

Quarter ended September 30	$	46.150	$	40.480	$	0.70	$	51.900	$	43.800	$	0.64

Quarter ended December 31	$	41.830	$	36.720	$	0.70	$	49.700	$	44.010	$	0.64

We expect to continue our policy of paying regular quarterly cash dividends. However, dividend distributions will be declared at the discretion of the Board of Directors and will depend on actual cash from operations, our financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code and other factors as the Board of Directors may consider relevant. The Board of Directors may modify our dividend policy from time to time.

ITEM 6. SELECTED FINANCIAL DATA

The following table provides historical consolidated financial, operating and other data for AvalonBay Communities, Inc. You should read the table with our Consolidated Financial Statements and the Notes included in this report. Dollars in thousands, except per share information.


				For the year ended

				12-31-02			12-31-01			12-31-00			12-31-99			12-31-98

Revenue:
	Rental income			$	604,411		$	602,916		$	539,269		$	475,311		$	347,857
	Management fees				1,355			1,325			1,051			1,176			1,377
	Other income				7,110			2,953			401			236			81

			Total revenue		612,876			607,194			540,721			476,723			349,315

Expenses:
	Operating expenses, excluding property taxes				169,268			152,593			133,857			127,444			97,973
	Property taxes				53,790			48,742			43,607			39,976			29,077
	Interest expense				120,559			102,069			81,973			73,337			53,179
	Depreciation expense				138,080			123,007			115,338			103,443			72,932
	General and administrative expense				14,332			15,224			13,013			9,592			9,124
	Non-recurring items				—			—			—			16,782			—
	Impairment loss				6,800			—			—			—			—

			Total expenses		502,829			441,635			387,788			370,574			262,285

Equity in income of unconsolidated entities					55			856			2,428			2,867			2,638
Interest income					3,978			6,823			4,764			7,362			3,508
Minority interest in consolidated partnerships					(1,771	)		161			(1,086	)		(1,231	)		(1,373	)

	Income before gain on sale of communities and extraordinary item				112,309			173,399			159,039			115,147			91,803
Gain on sale of communities					—			62,852			40,779			47,093			25,270

	Income from continuing operations before extraordinary item				112,309			236,251			199,818			162,240			117,073

Discontinued operations:
	Income from discontinued operations				12,416			12,746			10,786			10,036			6,707
	Gain on sale of communities				48,893			—			—			—			—

			Total discontinued operations		61,309			12,746			10,786			10,036			6,707

	Income before extraordinary item				173,618			248,997			210,604			172,276			123,780
Extraordinary item					—			—			—			—			(245	)

	Net income				173,618			248,997			210,604			172,276			123,535
	Dividends attributable to preferred stock				(17,896	)		(32,497	)		(39,779	)		(39,779	)		(28,132	)

	Net income available to common stockholders			$	155,722		$	216,500		$	170,825		$	132,497		$	95,403

Per Common Share and Share Information:

Earnings per common share — basic
	Income from continuing operations (net of dividends attributable to preferred stock)			$	1.37		$	3.00		$	2.42		$	1.89		$	1.76
		Discontinued operations		$	0.89		$	0.19		$	0.16		$	0.16		$	0.13
	Net income available to common stockholders			$	2.26		$	3.19		$	2.58		$	2.05		$	1.89
		Weighted average common shares outstanding			68,772,139			67,842,752			66,309,707			64,724,799			50,387,258

Earnings per common share — diluted
	Income from continuing operations (net of dividends attributable to preferred stock)			$	1.35		$	2.93		$	2.36		$	1.87		$	1.74
		Discontinued operations		$	0.88		$	0.19		$	0.17		$	0.16		$	0.14
	Net income available to common stockholders			$	2.23		$	3.12		$	2.53		$	2.03		$	1.88
	Weighted average common shares and DownREIT units outstanding				70,674,211			69,781,719			68,140,998			66,110,664			51,771,247
Cash dividends declared				$	2.80		$	2.56		$	2.24		$	2.06		$	2.04


		For the year ended

		12-31-02			12-31-01			12-31-00			12-31-99			12-31-98

Other Information:
	Net income	$	173,618		$	248,997		$	210,604		$	172,276		$	123,535
	Depreciation — continuing operations		138,080			123,007			115,338			103,443			72,932
	Depreciation — discontinued operations		6,397			7,072			7,272			6,316			4,442
	Interest expense — continuing operations		120,559			102,069			81,973			73,337			53,179
	Interest expense — discontinued operations		823			1,134			1,636			1,362			1,471
	Interest income		(3,978	)		(6,823	)		(4,764	)		(7,362	)		(3,508	)

	EBITDA (1)	$	435,499		$	475,456		$	412,059		$	349,372		$	252,051

	Funds from Operations (2)	$	258,210		$	283,293		$	252,013		$	196,058		$	148,487
	Number of Current Communities (3)		137			126			126			122			127
	Number of apartment homes		40,179			37,228			37,147			36,008			37,911

Balance Sheet Information:
	Real estate, before accumulated depreciation	$	5,369,453		$	4,837,869		$	4,535,969		$	4,266,426		$	4,006,456
	Total assets	$	4,950,835		$	4,664,289		$	4,397,255		$	4,154,662		$	4,005,013
	Notes payable and unsecured credit facilities	$	2,471,163		$	2,082,769		$	1,729,924		$	1,593,647		$	1,484,371

Cash Flow Information:
	Net cash flows provided by operating activities	$	307,810		$	320,528		$	302,083		$	251,779		$	192,339
	Net cash flows used in investing activities	$	(440,331	)	$	(270,406	)	$	(258,155	)	$	(236,687	)	$	(566,516	)
	Net cash flows provided by (used in) financing activities	$	72,543		$	(34,444	)	$	5,685		$	(16,361	)	$	376,345

Notes to Selected Financial Data

(1)		EBITDA is defined by us as earnings before interest income and expense, income taxes, depreciation and amortization from both continuing and discontinued operations. Management generally considers EBITDA to be an appropriate supplemental measure to net income of our operating performance because it helps investors to understand our ability to incur and service debt and to make capital expenditures. EBITDA should not be considered as an alternative to net income (as determined in accordance with generally accepted accounting principles, or “GAAP”), as an indicator of our operating performance, or to cash flows from operating activities (as determined in accordance with GAAP) as a measure of liquidity. Our calculation of EBITDA may not be comparable to EBITDA as calculated by other companies.

(2)		We generally consider Funds from Operations, or FFO, to be an appropriate supplemental measure of our operating and financial performance because, by excluding gains or losses related to dispositions of property and excluding real estate depreciation, which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates, FFO can help one compare the operating performance of a company’s real estate between periods or as compared to different companies. We believe that to gain a clear understanding of our operating results, FFO should be examined with net income as presented in the Consolidated Statements of Operations and Other Comprehensive Income included elsewhere in this report. Consistent with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts® , we calculate FFO as:

	•		net income or loss computed in accordance with GAAP, except that excluded from net income or loss are gains or losses on sales of property, impairment losses on planned dispositions and extraordinary gains or losses (as defined by GAAP);

	•		plus depreciation of real estate assets; and

	•		after adjustments for unconsolidated partnerships and joint ventures.


	FFO does not represent net income in accordance with GAAP, and therefore it should not be considered as an alternative to net income, which remains the primary measure, as an indication of performance. In addition, FFO as calculated by other REITs may not be comparable to our calculation of FFO. Calculations for FFO are presented below:


	For the year ended

	12-31-02			12-31-01			12-31-00			12-31-99			12-31-98

Net income	$	173,618		$	248,997		$	210,604		$	172,276		$	123,535
Dividends attributable to preferred stock		(17,896	)		(32,497	)		(39,779	)		(39,779	)		(28,132	)
Depreciation — real estate assets		135,262			119,912			112,144			101,612			71,172
Depreciation — discontinued operations		6,397			7,072			7,272			6,316			4,442
Joint venture adjustments		1,321			1,102			792			751			725
Minority interest expense — continuing operations		802			801			937			1,231			1,373
Minority interest expense — discontinued operations		799			758			822			744			397
Gain on sale of communities, net of impairment loss on planned dispositions		(42,093	)		(62,852	)		(40,779	)		(47,093	)		(25,270	)
Extraordinary items		—			—			—			—			245

Funds from Operations	$	258,210		$	283,293		$	252,013		$	196,058		$	148,487


	FFO also does not represent cash generated from operating activities in accordance with GAAP, and therefore should not be considered an alternative to net cash flows from operating activities, as determined by GAAP, as a measure of liquidity. Additionally, it is not necessarily indicative of cash available to fund cash needs. A presentation of GAAP based cash flow metrics is as follows:


Net cash provided by operating activities	$	307,810		$	320,528		$	302,083		$	251,779		$	192,339

Net cash used in investing activities	$	(440,331	)	$	(270,406	)	$	(258,155	)	$	(236,687	)	$	(566,516	)

Net cash provided by (used in) financing activities	$	72,543		$	(34,444	)	$	5,685		$	(16,361	)	$	376,345

(3)

Current Communities consist of all communities other than those which are still under construction and have not received a final certificate of occupancy.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Form 10-K/A, including the footnotes to our Consolidated Financial Statements which immediately follow, contains “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by our use of the words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “assume,” “project,” “plan,” “will” and other similar expressions in this Form 10-K/A, that predict or indicate future events and trends or that do not report historical matters. These statements include, among other things, statements regarding our intent, belief or expectations with respect to:

	•		our potential development, redevelopment, acquisition or disposition of communities;

	•		the timing and cost of completion of apartment communities under construction, reconstruction, development or redevelopment;

	•		the timing of lease-up, occupancy and stabilization of apartment communities;

	•		the pursuit of land on which we are considering future development;

	•		the anticipated operating performance of our communities;

	•		cost, yield and earnings estimates;

	•		our declaration or payment of distributions;

	•		our policies regarding investments, indebtedness, acquisitions, dispositions, financings and other matters;

	•		our qualification as a REIT under the Internal Revenue Code;

	•		the real estate markets in Northern and Southern California and markets in selected states in the Mid-Atlantic, Northeast, Midwest and Pacific Northwest regions of the United States and in general;

	•		the availability of debt and equity financing;

	•		interest rates;

	•		general economic conditions; and

	•		trends affecting our financial condition or results of operations.

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

	•		we may fail to secure development opportunities due to an inability to reach agreements with third parties or to obtain desired zoning and other local approvals;

	•		we may abandon or defer development opportunities for a number of reasons, including changes in local market conditions which make development less desirable, increases in costs of development and increases in the cost of capital;

	•		construction costs of a community may exceed our original estimates;

	•		we may not complete construction and lease-up of communities under development or redevelopment on schedule, resulting in increased interest expense and construction costs and a decrease in our expected rental revenues;

	•		occupancy rates and market rents may be adversely affected by competition and local economic and market conditions which are beyond our control;

	•		financing may not be available on favorable terms or at all, and our cash flow from operations and access to cost effective capital may be insufficient for the development of our pipeline which could limit our pursuit of opportunities;

	•		our cash flow may be insufficient to meet required payments of principal and interest, and we may be unable to refinance existing indebtedness or the terms of such refinancing may not be as favorable as the terms of existing indebtedness;

	•		we may be unsuccessful in managing changes in our portfolio composition; and

	•		companies developing software applications and ancillary services in which we have invested may be unsuccessful in achieving their business plans or unsuccessful in obtaining additional funding, which could lead to a partial or complete loss of our investment in these companies.

You should read our Consolidated Financial Statements and notes included in this report in conjunction with the following discussion. These forward-looking statements represent our estimates and assumptions only as of the date of this report. We do not undertake to update these forward-looking statements, and you should not rely upon them after the date of this report.

Business Description and Community Information

We are a Maryland corporation that has elected to be treated as a real estate investment trust, or REIT, for federal income tax purposes. We focus on the ownership and operation of upscale apartment communities (which generally command among the highest rents in their submarkets) in high barrier-to-entry markets of the United States. This is because we believe that, long term, the limited new supply of upscale apartment homes and lower housing affordability in these markets will result in larger increases in cash flows relative to other markets over an entire business cycle. However, we are in a period of a business cycle where rents are resetting to lower levels, resulting in a decline in cash flows in 2002 compared to 2001. 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 (“in-fill locations”) 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 are a fully-integrated real estate organization with in-house expertise in the following areas:

	•		development and redevelopment;

	•		construction and reconstruction;

	•		leasing and management;

	•		acquisition and disposition;

	•		financing;

	•		marketing; and

	•		information technologies.

We believe apartment communities present an attractive long-term investment opportunity compared to other real estate investments because a broad potential resident base should result in relatively stable demand over a real estate cycle. We intend to pursue real estate investments in markets where constraints to new supply exist and where new household formations are expected to out-pace multifamily permit activity over the course of the real estate cycle. A number of our markets are experiencing economic contraction due to continuing job losses, particularly in the technology, telecom and financial services sectors. We expect these conditions to continue for most of 2003.

Although we believe we are well-positioned to continue to pursue opportunities to develop and acquire upscale apartment homes based on our in-house capabilities and expertise, we expect to decrease acquisition and development activity during 2003 as compared to prior years and plan to increase disposition activity. The level of disposition, acquisition or development volume is heavily influenced by

capital market conditions, including prevailing interest rates. Given current capital market and real estate market conditions, we are evaluating the appropriate allocation of capital investment among development and redevelopment communities, the acquisition of existing communities, and stock redemptions/repurchases. In addition, we expect to increase disposition activity to realize a portion of the value created over the past business cycle as well as to provide additional liquidity. See “Liquidity and Capital Resources” and “Future Financing and Capital Needs.”

Our real estate investments consist primarily of current operating apartment communities, communities in various stages of development (“Development Communities”), and Development Rights (i.e., land or land options held for development), as further described in Item 2 of this report. Our current operating communities are further distinguished as Established Communities, Other Stabilized Communities, Lease-Up Communities and Redevelopment Communities. Established Communities are generally operating communities that were owned and had stabilized occupancy and costs as of the beginning of the prior year. Other Stabilized Communities are generally all other operating communities that have stabilized occupancy and costs as of the beginning of the current year, but had not achieved stabilization as of the beginning of the prior year. Lease-Up Communities consist of communities where construction is complete but stabilization has not been achieved. Redevelopment Communities consist of communities where substantial redevelopment is in progress or is planned to begin during the current year. A more detailed description of these categories and operating performance information can be found in Note 9, “Segment Reporting,” in our Consolidated Financial Statements included in this report. In addition, although each of these categories is important to our business, we generally evaluate overall operating, industry and market trends based on the operating results of our Established Communities, for which a detailed discussion can be found in “Results of Operations” as part of our discussion of overall operating results. We evaluate our current and future cash needs and future operating potential based on acquisition, disposition, development, redevelopment and financing activities within Other Stabilized, Redevelopment and Development Communities, for which detailed discussions can be found in “Liquidity and Capital Resources” and “Future Financing and Capital Needs.”

On December 31, 2002, we owned or had an ownership interest in these categories as follows:


				Number of		Number of
				communities		apartment homes

Current Communities
	Established Communities:
		Northeast			27		7,196
		Mid-Atlantic			18		5,154
		Midwest			4		1,296
		Pacific Northwest			3		907
		Northern California			29		8,601
		Southern California			10		3,004

			Total Established		91		26,158

	Other Stabilized Communities:
		Northeast			11		3,040
		Mid-Atlantic			2		960
		Midwest			—		—
		Pacific Northwest			8		2,152
		Northern California			2		499
		Southern California			5		1,890

			Total Other Stabilized		28		8,541

	Held for Sale Communities (1)				7		2,091
	Lease-Up Communities				9		2,300
	Redevelopment Communities				2		1,089

	Total Current Communities				137		40,179

Development Communities					12		3,429

Development Rights					38		9,950

(1)

Represents assets sold or transferred to held for sale during the period January 1, 2003 through March 31, 2003.

Results of Operations and Funds From Operations

A comparison of our operating results for the years 2002, 2001 and 2000 follows (dollars in thousands):


									Change												Change

			2002			2001			$			%			2001			2000			$			%

Revenue:
	Rental income		$	604,411		$	602,916		$	1,495			0.2	%	$	602,916		$	539,269		$	63,647			11.8	%
	Management fees			1,355			1,325			30			2.3	%		1,325			1,051			274			26.1	%
	Other income			7,110			2,953			4,157			140.8	%		2,953			401			2,552			636.4	%

		Total revenue		612,876			607,194			5,682			0.9	%		607,194			540,721			66,473			12.3	%

Expenses:
	Direct property operating expenses,			137,105			119,626			17,479			14.6	%		119,626			105,746			13,880			13.1	%
	excluding property taxes
	Property taxes			53,790			48,742			5,048			10.4	%		48,742			43,607			5,135			11.8	%

		Total community operating expenses		190,895			168,368			22,527			13.4	%		168,368			149,353			19,015			12.7	%

Net operating income				421,981			438,826			(16,845	)		(3.8	%)		438,826			391,368			47,458			12.1	%
	Corporate-level property management and other indirect operating expenses			32,163			32,967			(804	)		(2.4	%)		32,967			28,111			4,856			17.3	%
	Interest expense			120,559			102,069			18,490			18.1	%		102,069			81,973			20,096			24.5	%
	Depreciation expense			138,080			123,007			15,073			12.3	%		123,007			115,338			7,669			6.6	%
	General and administrative expense			14,332			15,224			(892	)		(5.9	%)		15,224			13,013			2,211			17.0	%
	Impairment loss			6,800			—			6,800			100.0	%		—			—			—			—

		Total other expenses		311,934			273,267			38,667			14.1	%		273,267			238,435			34,832			14.6	%

	Equity in income of unconsolidated entities			55			856			(801	)		(93.6	%)		856			2,428			(1,572	)		(64.7	%)
	Interest income			3,978			6,823			(2,845	)		(41.7	%)		6,823			4,764			2,059			43.2	%
	Minority interest in consolidated partnerships			(1,771	)		161			(1,932	)		(1,200.0	%)		161			(1,086	)		1,247			(114.8	%)

Income before gain on sale of communities				112,309			173,399			(61,090	)		(35.2	%)		173,399			159,039			14,360			9.0	%
	Gain on sale of communities			—			62,852			(62,852	)		(100.0	%)		62,852			40,779			22,073			54.1	%

Income from continuing operations				112,309			236,251			(123,942	)		(52.5	%)		236,251			199,818			36,433			18.2	%
Discontinued operations:
	Income from discontinued operations			12,416			12,746			(330	)		(2.6	%)		12,746			10,786			1,960			18.2	%
	Gain on sale of communities			48,893			—			48,893			100.0	%		—			—			—			—

		Total discontinued operations		61,309			12,746			48,563			381.0	%		12,746			10,786			1,960			18.2	%

Net income				173,618			248,997			(75,379	)		(30.3	%)		248,997			210,604			38,393			18.2	%
Dividends attributable to preferred stock				(17,896	)		(32,497	)		14,601			(44.9	%)		(32,497	)		(39,779	)		7,282			(18.3	%)

Net income available to common stockholders			$	155,722		$	216,500		$	(60,778	)		(28.1	%)	$	216,500		$	170,825		$	45,675			26.7	%

Net income available to common stockholders decreased $60,778,000 (28.1%) to $155,722,000 in 2002. This decrease is primarily attributable to fewer gains on sales of communities in 2002, coupled with a decline in net operating income due to deteriorating market conditions in several of our principal markets and increases in interest and depreciation expenses. Net income available to common stockholders increased by $45,675,000 (26.7%) to $216,500,000 in 2001 due to additional net operating income from newly developed and redeveloped communities, as well as growth in net operating income from Established Communities and increased gain on sale of communities.

Net operating income (“NOI”) is defined by us as total revenue less direct property operating expenses, including property taxes, and excludes corporate-level property management and other indirect operating expenses, interest income and expense, general and administrative expense, equity in income of unconsolidated entities, minority interest in consolidated partnerships, depreciation expense, gain on sale of communities, impairment losses and income from discontinued operations. We believe that NOI is an appropriate supplemental measure to net income of our operating performance because it helps both investors and management to understand the core operations of a community or communities prior to the allocation of any corporate-level property management overhead or general and administrative costs. This is more reflective of the operating performance of a community, and allows for an easier comparison of the operating performance of single assets or groups of assets. In addition, because prospective buyers of real estate have different overhead structures, with varying marginal impacts to overhead by acquiring real estate, NOI is considered by many in the real estate industry to be a useful measure for determining the value of a real estate asset or group of assets. NOI does not represent cash generated from operating activities in accordance with generally accepted accounting principles (“GAAP”). Therefore, it should not be considered an alternative to net income as an indication of our performance. NOI should also not be considered an alternative to net cash flows from operating activities, as determined by GAAP, as a measure of liquidity. Additionally, NOI is not necessarily indicative of cash available to fund cash needs. A calculation of NOI, along with a reconciliation to net income, is provided in the preceding table.

The NOI decrease of $16,845,000 for the year ended December 31, 2002 and the increase of $47,458,000 for the year ended December 31, 2001 as compared to the prior years consist of changes in the following categories:


	2002			2001
	Increase (Decrease)			Increase (Decrease)

Established Communities	$	(36,410,000	)	$	21,220,000
Other Stabilized Communities		(405,000	)		13,254,000
Development and Redevelopment Communities		19,138,000			12,919,000
Non-allocated		832,000			65,000

Total NOI	$	(16,845,000	)	$	47,458,000

The NOI decrease in Established Communities in 2002 was largely due to the effects of the weakened economy in many of our submarkets. Strong single family home sales, partially fueled by a low mortgage rate environment, in addition to continuing job losses in many of our submarkets, have aggravated a weak demand environment, causing market rental rates and occupancies to decline. We currently expect to continue to experience weak demand during most of 2003. We also anticipate that any growth or improvement that we may experience in late 2003 will be at a slower rate than that experienced by the overall market and economy, if any, due to the types of industries (technology, telecom, financial services) that make up a large proportion of the jobs in our markets.

Rental income increased due to rental income generated from acquired and newly developed communities offset by a decline in occupancies and effective rental rates for Established Communities.

Overall Portfolio – The weighted average number of occupied apartment homes increased to 32,708 apartment homes for 2002 compared to 32,155 apartment homes for 2001 and 31,662 in 2000. This change in 2002 is primarily the result of increased homes available from acquired and newly developed communities, offset by occupancy declines related to the weakened demand in certain of our submarkets. The weighted average monthly revenue per occupied apartment home decreased to $1,539 in 2002 compared to $1,562 in 2001 and $1,418 in 2000.


	Established Communities – Rental revenue decreased $30,184,000 (6.3%) in 2002 and increased by $25,424,000 (6.7%) in 2001. The decrease in 2002 is due to both declining effective rental

rates and declining economic occupancy. The increase in 2001 is due to market conditions during the year that allowed for higher average rents partially offset by lower economic occupancy. For 2002, the weighted average monthly revenue per occupied apartment home decreased (4.3%) to $1,537 compared to $1,607 for 2001, partially due to increased concessions granted in 2002. The average economic occupancy decreased from 95.5% in 2001 to 93.5% for 2002. Economic occupancy takes into account the fact that apartment homes of different sizes and locations within a community have different economic impacts on a community’s gross revenue. Economic occupancy is defined as gross potential revenue less vacancy loss as a percentage of gross potential revenue. Gross potential revenue is determined by valuing occupied homes at contract rates and vacant homes at market rents.

Although most of our markets have experienced weak demand, we have observed the most significant declines in average rental rates and occupancy during 2002 in certain Northern California and Northeast submarkets. Northern California, which accounts for approximately 33.6% of current Established Community rental revenue, experienced a decline in rental revenue in 2002, partially related to job losses in the technology sector. Although economic occupancy remained flat in Northern California in 2002 as compared to 2001, average rental rates dropped 12.6% from $1,788 to $1,562 for those same periods.

The Northeast region accounts for approximately 33.5% of current Established Community rental revenue and has been experiencing a decline in rental revenue, primarily the result of job losses in the financial services sector. Economic occupancy decreased in the Northeast, from 96.9% in 2001 to 92.6% for 2002, while average rental rates improved slightly during 2002.

In accordance with GAAP, cash concessions are amortized into rental income over the approximate lease term, which is generally one year. However, we consider rental revenue with concessions stated on a cash basis to be a supplemental measure to rental revenue in conformity with GAAP in helping investors to evaluate the impact of both current and historical concessions on GAAP based rental revenue and to more readily enable comparisons to revenue as reported by other companies. In addition, rental revenue with concessions stated on a cash basis allows an investor to understand the historical trend in cash concessions, which is an indicator of current rental market conditions. The following reconciles total revenue in conformity with GAAP to total revenue adjusted to state concessions on a cash basis for the years ended December 31, 2002, 2001 and 2000 (dollars in thousands):


	For the year ended

		12-31-02			12-31-01			12-31-00

Total revenue (GAAP basis)	$	612,876		$	607,194		$	540,721
Concessions amortized		10,714			3,875			2,873
Concessions granted		(16,956	)		(6,141	)		(2,186	)

Total revenue adjusted to state concessions on a cash basis	$	606,634		$	604,928		$	541,408

Other income increased primarily due to the recognition of $5,800,000 and $2,500,000 in 2002 and 2001, respectively, of business interruption insurance related to the settlement of a fire insurance claim that occurred during the construction of Avalon at Edgewater. In addition, we recognized $711,000 in the first quarter of 2002 in construction management fees in connection with the redevelopment of a community owned by a limited liability company in which we have a membership interest.

Direct property operating expenses, excluding property taxes increased due to the addition of newly developed, redeveloped and acquired apartment homes coupled with increased insurance, marketing and bad debt. Insurance expense has increased over the past two years, particularly during 2001 as the insurance and reinsurance markets deteriorated, resulting in higher insurance costs for the entire real estate sector. We renewed our general liability policy on August 1, 2002 and our property coverage on November 1, 2002. See “Insurance and Risk of Uninsured Losses” for a discussion of our insurance

policies and related coverage. Capitalization of insurance and other costs associated with Development and Redevelopment Communities ends, and such costs are expensed, as the related assets, or portions of assets, within a community are delivered and are ready for their intended use. Marketing initiatives have been expanded in response to the weak demand, and bad debt expense has increased as a direct result of continuing job losses and the weakened economy.

For Established Communities, direct property operating expenses, excluding property taxes, increased $5,408,000 (6.3%) to $91,151,000 due to the increases in insurance, marketing and bad debt expenses discussed above. During 2001, operating expenses increased $3,370,000 (4.9%) due to increases in insurance, utilities, marketing and office and administration expenses.

Property taxes increased due to higher assessments and the addition of newly developed and redeveloped apartment homes. Property taxes on Development and Redevelopment Communities are capitalized while the community is under construction or reconstruction. We begin to expense these costs as assets, or portions of assets, within the community are delivered and are ready for their intended use.

For Established Communities, the increases in property taxes in 2002 and 2001 of $943,000 and $878,000, respectively, were primarily due to higher assessments throughout all regions.

Corporate-level property management and other indirect operating expenses decreased in 2002 and increased in 2001 as a result of executive separation costs that were recognized in 2001 but not in 2002 or 2000. The decrease in 2002 is partially offset by increases in unallocated central marketing costs and abandoned pursuit costs. Similar to the community level, central marketing initiatives have been expanded in response to the weak demand. Abandoned pursuit costs increased $600,000 from $2,200,000 in 2001 to $2,800,000 in 2002 related to Development Rights which may not be developed as planned.

Interest expense increased in 2002 due to the issuance of $750,000,000 of unsecured notes between September 2001 and December 2002, partially offset by the repayment of $100,000,000 of unsecured notes in September 2002 and overall lower interest rates on both short-term and long-term borrowings. In addition, higher average outstanding balances on our unsecured credit facility resulted in higher interest expense between years. Interest expense increased in 2001 due to the issuance of $650,000,000 of unsecured notes during 2000 and 2001.

Depreciation expense increased primarily related to acquisitions and completion of development or redevelopment activities. We expect depreciation expense to continue to increase as we complete additional development and redevelopment communities, partially offset by the elimination of depreciation of communities that are sold or designated as held for sale during 2003.

General and administrative expense decreased in 2002 and increased in 2001 as a result of additional compensation expense recognized in the fourth quarter of 2001 due to the retirement of a senior executive. Unfilled positions and lower incentive compensation also contributed to the decrease in 2002.

Impairment loss of $6,800,000 was recorded during 2002 related to two land parcels that as of December 31, 2002 were determined not likely to proceed to development and therefore were planned for disposition. This loss was recorded to reflect the parcels at fair market value (based on their entitlement status as of December 31, 2002.) In February 2003, we won an appeal regarding the entitlement status of one of these parcels. If we decide to continue with the planned disposition, this change in entitlement status may increase the potential value of the land and therefore decrease the previously estimated loss that would be recognized at the date of disposal. However, we are currently reevaluating our plans for this parcel, which may result in 2003 in the partial recovery of the impairment loss recognized in 2002, if we decide to hold the land for development.

Equity in income of unconsolidated entities decreased during 2002 primarily due to losses recorded for an investment in a technology company accounted for under the equity method. During 2002 and 2001, we

recorded losses of $3,166,000 and $1,730,000, respectively, related to this investment, bringing the carrying value of this investment to zero as of December 31, 2002. In addition, a $934,000 valuation allowance was recorded during 2001 for an investment in a different technology company which contributed to the decrease in 2001 over the prior year period.

Interest income during 2002 decreased due to lower average cash balances invested and lower interest rates. The increase in interest income during 2001 resulted from higher average cash balances invested.

Gain on sale of communities, including discontinued operations, of $48,893,000, $62,852,000 and $40,779,000 were realized in 2002, 2001 and 2000, respectively. These gains on the sale of communities are the result of our strategy to sell communities that do not meet our long-term strategic objectives and redeploy the proceeds to current Development and Redevelopment Communities. The amount of gains realized depend on many factors, including the number of communities sold, the size and carrying value of those communities, and the market conditions in the local area. In 2003, we expect to increase our disposition activity as compared to 2002.

Funds from Operations

We consider Funds from Operations (“FFO”) to be an appropriate supplemental measure of our operating and financial performance because, by excluding gains or losses related to dispositions of property and excluding real estate depreciation, which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates, FFO can help one compare the operating performance of a company’s real estate between periods or as compared to different companies. We believe that in order to understand our operating results, FFO should be examined with net income as presented in the Consolidated Statements of Operations and Other Comprehensive Income included elsewhere in this report. Consistent with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts®, we calculate FFO as:

	•		net income or loss computed in accordance with GAAP, except that excluded from net income or loss are gains or losses on sales of property, impairment losses on planned dispositions and extraordinary gains or losses (as defined by GAAP);

	•		plus depreciation of real estate assets; and

	•		after adjustments for unconsolidated partnerships and joint ventures.

FFO does not represent net income in accordance with GAAP, and therefore it should not be considered an alternative to net income, which remains the primary measure, as an indication of our performance. In addition, FFO as calculated by other REITs may not be comparable to our calculation of FFO. The following is a reconciliation of net income to FFO (dollars in thousands):


		For the year ended

			2002			2001			2000

Funds from Operations

Net income			$	173,618		$	248,997		$	210,604
Dividends attributable to preferred stock				(17,896	)		(32,497	)		(39,779	)
Depreciation — real estate assets				135,262			119,912			112,144
Depreciation — discontinued operations				6,397			7,072			7,272
Joint venture adjustments				1,321			1,102			792
Minority interest expense — continuing operations				802			801			937
Minority interest expense — discontinued operations				799			758			822
Gain on sale of communities, net of impairment loss on planned dispositions				(42,093	)		(62,852	)		(40,779	)

	Funds from Operations		$	258,210		$	283,293		$	252,013

FFO also does not represent cash generated from operating activities in accordance with GAAP, and therefore should not be considered an alternative to net cash flows from operating activities, as determined by GAAP, as a measure of liquidity. Additionally, it is not necessarily indicative of cash available to fund cash needs. A presentation of GAAP based cash flow metrics is as follows (dollars in thousands):


	For the year ended

	2002			2001			2000

GAAP based Cash Flow Metrics

Net cash provided by operating activities	$	307,810		$	320,528		$	302,083

Net cash used in investing activities	$	(440,331	)	$	(270,406	)	$	(258,155	)

Net cash provided by (used in) financing activities	$	72,543		$	(34,444	)	$	5,685

Capitalization of Fixed Assets and Community Improvements

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

	•		exceeds $15,000;

	•		extends the useful life of the asset; and

	•		is not related to making an apartment home ready for the next resident.

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

	•		carpet and appliance replacements;

	•		floor coverings;

	•		interior painting; and

	•		other redecorating costs.

We capitalize purchases of personal property, such as computers and furniture, only if the item is a new addition and the item exceeds $2,500. We generally expense purchases of personal property made for replacement purposes. For Established and Other Stabilized Communities, we recorded non-revenue generating capitalized expenditures of approximately $297 per apartment home in 2002 and $251 per apartment home in 2001. The average maintenance costs charged to expense, including carpet and appliance replacements, related to these communities was $1,214 per apartment home in 2002 and $1,163 in 2001. We anticipate that capitalized costs per apartment home will gradually increase as the average age of our communities increases. We expect expensed maintenance costs to increase as the average age of our communities increases, and to fluctuate with changes in turnover.

We have expanded our Consolidated Statements of Cash Flows included elsewhere in this report to include additional information on capital expenditures. For the years ended December 31, 2002 and 2001, the amounts capitalized (excluding land costs) related to (i) acquisitions, development and redevelopment were $457,851,000 and $401,359,000, respectively, (ii) revenue generating expenditures, such as water sub-metering equipment and cable installations were $697,000 and $1,675,000, respectively, and (iii) non-revenue generating expenditures were $11,375,000 and $12,234,000, respectively.

Liquidity and Capital Resources

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

	•		the number of apartment homes;

	•		rental rates;

	•		occupancy levels; and

	•		our expenses with respect to these apartment homes.

The timing, source and amount of cash flows provided by financing activities and used in investing activities are sensitive to the capital markets environment, particularly to changes in interest rates. Changes in the capital markets environment affect our plans for undertaking construction and development as well as acquisition and disposition activity.

Cash and cash equivalents totaled $12,934,000 at December 31, 2002, a decrease of $59,978,000 for the year. The following discussion relates to changes in cash due to operating, investing and financing activities, which are presented in our Consolidated Statements of Cash Flows included in this report.

Operating Activities – Net cash provided by operating activities decreased to $307,810,000 in 2002 from $320,528,000 in 2001 primarily due to the decline in net operating income from Established Communities and the loss of net operating income from communities sold during 2002 and 2001, partially offset by additional net operating income from newly developed and redeveloped communities.

Investing Activities – Net cash used in investing activities of $440,331,000 in 2002 related to investments in assets through development, redevelopment and acquisition of apartment communities, partially offset by proceeds from the sales of apartment communities.

During 2002, we invested $545,202,000 in the purchase and development of real estate and capital expenditures.


	•		We began the development of seven new communities. These communities, if developed as expected, will contain a total of 1,987 apartment homes, and the total investment, including land acquisition costs, is projected to be approximately $371,200,000. We also completed the development of ten new communities containing a total of 2,521 apartment homes for a total investment, including land acquisition cost, of $466,600,000.

	•		We completed the redevelopment of two communities containing 1,116 apartment homes for a total investment in redevelopment (excluding acquisition costs) of $44,200,000.

	•		We acquired two communities containing 706 apartment homes for a total investment of $140,200,000, including the assumption of $33,900,000 in debt.

	•		We had capital expenditures relating to current communities’ real estate assets of $10,930,000 and non-real estate capital expenditures of $1,142,000.

	The development and redevelopment of communities involve risks that the investment will fail to perform in accordance with expectations. See “Risks of Development and Redevelopment” in Item 2 of this report for our discussion of these and other risks inherent in developing or redeveloping communities.

	We sold one community during 2002, generating net proceeds of $78,454,000. These proceeds are being used to develop and redevelop communities currently under construction and reconstruction, as well as to repay and redeem certain debt and equity securities, as discussed below.

Financing Activities – Net cash provided by financing activities totaled $72,543,000 for the year ended December 31, 2002, primarily due to the issuance of unsecured notes and an increase in borrowings under our unsecured credit facility, partially offset by dividends paid, common stock repurchases, and the redemption of the Series C Preferred Stock. See Note 3, “Notes Payable, Unsecured Notes and

Credit Facility,” and Note 4, “Stockholders’ Equity,” in our Consolidated Financial Statements, for additional information.

We regularly review our short and long-term liquidity needs, the adequacy of cash flow from operations and other expected liquidity sources to meet these needs. We believe our principal short-term liquidity needs are to fund:

	•		normal recurring operating expenses;

	•		debt service and maturity payments;

	•		the distributions required with respect to preferred stock;

	•		the minimum dividend payments required to maintain our REIT qualification under the Internal Revenue Code of 1986;

	•		opportunities for the acquisition of improved property; and

	•		development and redevelopment activity in which we are currently engaged.

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

One of our principal long-term liquidity needs is the repayment of medium and long-term debt at the time that such debt matures. For unsecured notes, we anticipate that no significant portion of the principal of these notes will be repaid prior to maturity. On January 15, 2003, $50,000,000 in unsecured notes matured and was paid, including the balance of accrued interest. During the remainder of 2003, we have $100,000,000 in maturing unsecured notes. If we do not have funds on hand sufficient to repay our indebtedness, it will be necessary for us to refinance this debt. This refinancing may be accomplished by uncollateralized private or public debt offerings, additional debt financing that is collateralized by mortgages on individual communities or groups of communities, draws on our credit facility or by additional equity offerings. We also anticipate having retained cash flow available in each year so that when a debt obligation matures, some or all of each maturity can be satisfied from this retained cash. Although we believe we will have the capacity to meet our long-term liquidity needs, we cannot assure you that additional debt financing or debt or equity offerings will be available or, if available, that they will be on terms we consider satisfactory.

Capital Resources. We intend to match the long-term nature of our real estate assets with long-term cost- effective capital to the extent permitted by prevailing market conditions. From January 1, 2000 through February 1, 2003, we issued $1,100,000,000 of unsecured notes through public offerings. We expect this source of capital, together with cash flow from operating activities, dispositions, and other sources of capital, to remain available to meet our capital needs, for the foreseeable future, although no assurance can be provided that the debt capital markets will remain available or that such debt will be available on attractive terms.

Off Balance Sheet Arrangements. We own interests in unconsolidated real estate entities, with ownership interests up to 50%. However, based on the provisions of the related partnership or limited liability company agreements, which grant varying degrees of control, we are not deemed to have control of these entities sufficient to require or permit consolidation for accounting purposes. Two of these unconsolidated real estate entities have aggregate debt outstanding of $47,195,000 as of February 1, 2003, which mature in 2005 ($22,500,000) and 2030 ($24,695,000) and are payable by the unconsolidated real estate entity with operating cash flow from the underlying real estate. We have not guaranteed any of this debt, nor do we have any obligation to fund this debt should the unconsolidated real estate entities be unable to do so. There are no lines of credit, side agreements, financial guarantees, or any other derivative financial instruments related to or between us and our unconsolidated real estate entities. However, in evaluating our capital structure and overall leverage, management takes into consideration our proportionate share of this unconsolidated debt.

Variable Rate Unsecured Credit Facility

We have a $500,000,000 revolving variable rate unsecured credit facility with J.P. Morgan Chase and Fleet National Bank serving as co-agents for a syndicate of commercial banks. Under the terms of the credit facility, if we elect to increase the facility up to $650,000,000, and one or more banks (from the syndicate or otherwise) voluntarily agree to provide the additional commitment, then we will be able to increase the facility up to $650,000,000, and no member of the syndicate of banks can prohibit such increase; such an increase in the facility will only be effective to the extent banks (from the syndicate or otherwise) choose to commit to lend additional funds. We pay participating banks, in the aggregate, an annual facility fee of approximately $750,000 in quarterly installments. The unsecured credit facility bears interest at varying levels based on the London Interbank Offered Rate (“LIBOR”), rating levels achieved on our unsecured notes and on a maturity schedule selected by us. The current stated pricing is LIBOR plus 0.60% per annum (1.94% on February 28, 2003). Pricing could vary if there is a change in rating by either of the two leading national rating agencies; a change in rating of one level would impact the unsecured credit facility pricing by 0.05% to 0.15%. A competitive bid option is available for borrowings of up to $400,000,000. This option allows banks that are part of the lender consortium to bid to provide us loans at a rate that is lower than the stated pricing provided by the unsecured credit facility. The competitive bid option may result in lower pricing if market conditions allow. Pricing under the competitive bid option resulted in average pricing of LIBOR plus 0.34% for amounts most recently borrowed under the competitive bid option. We are subject to (i) certain customary covenants under the unsecured credit facility, including, but not limited to, maintaining certain maximum leverage ratios, a minimum fixed charges coverage ratio and minimum unencumbered assets and equity levels, and (ii) prohibitions on paying dividends in amounts that exceed 95% of our FFO, except as may be required to maintain our REIT status. The existing facility matures in May 2005 assuming exercise of a one-year renewal at our option. At February 28, 2003, $155,470,000 was outstanding, $15,529,000 was used to provide letters of credit and $329,001,000 was available for borrowing under the unsecured credit facility.

Interest Rate Protection Agreements

We are not a party to any long-term interest rate agreements, other than interest rate protection and swap agreements on approximately $166,000,000 of our variable rate tax-exempt indebtedness. We intend, however, to evaluate the need for long-term interest rate protection agreements as interest rate market conditions dictate, and we have engaged a consultant to assist in managing our interest rate risks and exposure.

Future Financing and Capital Needs

As of December 31, 2002, we had 12 new communities under construction, for which a total estimated cost of $254,146,000 remained to be invested. In addition, we had two communities under reconstruction, for which a total estimated cost of $7,656,000 remained to be invested.

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

	•		the remaining capacity under our current $500,000,000 unsecured credit facility;

	•		the net proceeds from sales of existing communities;

	•		retained operating cash; and/or

	•		the issuance of debt or equity securities.

We expect to continue to fund development costs related to pursuing Development Rights from retained operating cash and borrowings under the unsecured credit facility. We believe these sources of capital will be adequate to take the proposed communities to the point in the development cycle where construction can begin. Before planned reconstruction activity or the construction of a Development Right begins, we intend to arrange adequate financing to complete these undertakings, although we cannot assure you that

we will be able to obtain such financing. In the event that financing cannot be obtained, we may have to abandon Development Rights, write-off associated pre-development costs that were capitalized and/or forego reconstruction activity. In such instances, we will not realize the increased revenues and earnings that we expected from such Development Rights.

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

It is our policy to sell assets that do not meet our long-term investment criteria when market conditions are favorable, and to redeploy the proceeds. When we decide to sell a community, we generally solicit competing bids from unrelated parties for these individual assets and consider the sales price and tax ramifications of each proposal. We intend to actively seek buyers for communities that we determine to hold for sale. We expect to accelerate our disposition program during 2003 in response to current and anticipated real estate and capital markets conditions. However, we cannot assure you that assets can be sold on terms that we consider satisfactory or that market conditions will continue to make the sale of assets an appealing strategy. Because the proceeds from the sale of communities may not be immediately redeployed into revenue generating assets, the immediate effect of a sale of a community is to reduce total revenues, total expenses and funds from operations. Therefore, an acceleration of our disposition program in 2003 may adversely impact total revenues and funds from operations. During the period January 1, 2003 through March 31, 2003, we sold one community and reclassified six communities as held for sale under GAAP. We are actively pursuing the disposition of these held for sale communities and expect to close during the second quarter of 2003. However, we cannot assure you that these communities will be sold as planned.

We have minority interest investments in three technology companies, including Constellation Real Technologies LLC, (“Constellation”), an entity formed by a number of real estate investment trusts and real estate operating companies for the purpose of investing in multi-sector real estate technology opportunities. Our original commitment to Constellation was $4,000,000 but, as a result of an agreement among the members reducing the commitment due from each member, our commitment is currently $2,600,000, of which we have contributed $959,000 to date. The remaining unfunded commitment of $1,641,000 is expected to be funded over the next five years. In January 2002, we invested an additional $2,300,000 in Realeum, Inc., (“Realeum”), a company involved in the development and deployment of a property management and leasing automation system. Pursuant to an agreement with Realeum, we utilize the property management and leasing automation system in exchange for payments under a licensing arrangement. Realeum is negotiating licensing arrangements with other real estate companies that we are unaffiliated with. If unsuccessful in negotiating additional licensing agreements, Realeum may be required to obtain additional sources of funding. Our third technology investment is in Rent.com, an internet-based rental housing information provider. We have no obligation to contribute additional funds to these technology investments, other than the commitment to Constellation as previously described.

Debt Maturities

The following table details debt maturities for the next five years, excluding the unsecured credit facility for debt outstanding at December 31, 2002 (dollars in thousands):


			All-In			Principal		Balance outstanding
			interest			maturity
Community			rate (1)			date		12-31-01		12-31-02

Tax-exempt Bonds
	Fixed rate
		Avalon at Foxchase I		5.88	%	Nov-2007		$	16,800	$	16,800	(2	)
		Avalon at Foxchase II		5.88	%	Nov-2007			9,600		9,600	(2	)
		Fairway Glen		5.88	%	Nov-2007			9,580		9,580	(2	)
		CountryBrook		6.30	%	Mar-2012			18,577		18,124
		Waterford		5.88	%	Aug-2014			33,100		33,100	(2	)
		Avalon at Mountain View		5.88	%	Mar-2017			18,300		18,300	(2	)
		Avalon at Dulles		7.04	%	Jul-2024			12,360		12,360
		Avalon at Symphony Glen		7.00	%	Jul-2024			9,780		9,780
		Avalon View		7.55	%	Aug-2024			18,115		17,743
		Avalon at Lexington		6.56	%	Feb-2025			14,073		13,784
		Avalon at Nob Hill		5.80	%	Jun-2025			19,745		19,457	(2	)
		Avalon Campbell		6.48	%	Jun-2025			36,386		35,749	(2	)
		Avalon Pacifica		6.48	%	Jun-2025			16,505		16,216	(2	)
		Avalon Knoll		6.95	%	Jun-2026			13,193		12,978
		Avalon Landing		6.85	%	Jun-2026			6,525		6,417
		Avalon Fields		7.05	%	May-2027			11,454		11,286
		Avalon West		7.73	%	Dec-2036			8,522		8,461
		Avalon Oaks		7.45	%	Feb-2041			17,718		17,628

									290,333		287,363
	Variable rate (4)
		Avalon at Laguna Niguel		2.52	%	Mar-2009			10,400		10,400
		The Promenade		2.95	%	Jan-2010			—		33,670
		Avalon at Mission Viejo		2.45	%	Jun-2025			7,256		7,151	(3	)
		Avalon Devonshire (5)		2.71	%	Dec-2025			27,305		27,305
		Avalon Greenbriar		2.37	%	May-2026			18,755		18,755
		Avalon at Fairway Hills I		2.29	%	Jun-2026			11,500		11,500

									75,216		108,781
Conventional loans (6)
	Fixed rate
		$100 Million unsecured notes		7.375	%	Sep-2002			100,000		—
		$50 Million unsecured notes		6.25	%	Jan-2003			50,000		50,000
		$100 Million unsecured notes		6.50	%	Jul-2003			100,000		100,000
		$125 Million unsecured notes		6.58	%	Feb-2004			125,000		125,000
		$100 Million unsecured notes		6.625	%	Jan-2005			100,000		100,000
		$50 Million unsecured notes		6.50	%	Jan-2005			50,000		50,000
		$150 Million unsecured notes		6.80	%	Jul-2006			150,000		150,000
		$150 Million unsecured notes		5.00	%	Aug-2007			—		150,000
		$110 Million unsecured notes		6.875	%	Dec-2007			110,000		110,000
		$50 Million unsecured notes		6.625	%	Jan-2008			50,000		50,000
		$150 Million unsecured notes		8.25	%	Jul-2008			150,000		150,000
		$150 Million unsecured notes		7.50	%	Aug-2009			150,000		150,000
		$200 Million unsecured notes		7.50	%	Dec-2010			200,000		200,000
		$300 Million unsecured notes		6.625	%	Sep-2011			300,000		300,000
		$50 Million unsecured notes		6.625	%	Sep-2011			—		50,000
		$250 Million unsecured notes		6.125	%	Nov-2012			—		250,000
		Avalon at Pruneyard		7.25	%	May-2004			12,870		12,870
		Avalon Walk II		8.93	%	Aug-2004			12,036		11,748

									1,659,906		2,009,618
	Variable rate (4)
		Avalon on the Sound		2.93	%		2003		57,314		36,089

Total indebtedness - excluding unsecured credit facility								$	2,082,769	$	2,441,851

[Additional columns below]

[Continued from above table, first column(s) repeated]


			Scheduled maturities

Community			2003		2004		2005		2006		2007		Thereafter

Tax-exempt Bonds
	Fixed rate
		Avalon at Foxchase I	$	—	$	—	$	—	$	—	$	16,800	$	—
		Avalon at Foxchase II		—		—		—		—		9,600		—
		Fairway Glen		—		—		—		—		9,580		—
		CountryBrook		496		528		562		599		638		15,301
		Waterford		—		—		—		—		—		33,100
		Avalon at Mountain View		—		—		—		—		—		18,300
		Avalon at Dulles		—		—		—		—		—		12,360
		Avalon at Symphony Glen		—		—		—		—		—		9,780
		Avalon View		398		425		455		485		518		15,462
		Avalon at Lexington		307		326		347		368		391		12,045
		Avalon at Nob Hill		308		331		355		380		408		17,675
		Avalon Campbell		684		733		786		843		904		31,799
		Avalon Pacifica		310		332		356		382		410		14,426
		Avalon Knoll		229		246		263		282		302		11,656
		Avalon Landing		116		124		132		142		152		5,751
		Avalon Fields		181		193		207		222		239		10,244
		Avalon West		65		70		75		80		85		8,086
		Avalon Oaks		98		104		112		120		128		17,066


				3,192		3,412		3,650		3,903		40,155		233,051
	Variable rate (4)
		Avalon at Laguna Niguel		—		—		—		—		—		10,400
		The Promenade		485		522		562		605		652		30,844
		Avalon at Mission Viejo		112		121		129		139		149		6,501
		Avalon Devonshire (5)		—		—		—		—		—		27,305
		Avalon Greenbriar		—		—		—		—		—		18,755
		Avalon at Fairway Hills I		—		—		—		—		—		11,500

				597		643		691		744		801		105,305
Conventional loans (6)
	Fixed rate
		$100 Million unsecured notes		—		—		—		—		—		—
		$50 Million unsecured notes		50,000		—		—		—		—		—
		$100 Million unsecured notes		100,000		—		—		—		—		—
		$125 Million unsecured notes		—		125,000		—		—		—		—
		$100 Million unsecured notes		—		—		100,000		—		—		—
		$50 Million unsecured notes		—		—		50,000		—		—		—
		$150 Million unsecured notes		—		—		—		150,000		—		—
		$150 Million unsecured notes		—		—		—		—		150,000		—
		$110 Million unsecured notes		—		—		—		—		110,000		—
		$50 Million unsecured notes		—		—		—		—		—		50,000
		$150 Million unsecured notes		—		—		—		—		—		150,000
		$150 Million unsecured notes		—		—		—		—		—		150,000
		$200 Million unsecured notes		—		—		—		—		—		200,000
		$300 Million unsecured notes		—		—		—		—		—		300,000
		$50 Million unsecured notes		—		—		—		—		—		50,000
		$250 Million unsecured notes		—		—		—		—		—		250,000
		Avalon at Pruneyard		—		12,870		—		—		—		—
		Avalon Walk II		315		11,433		—		—		—		—

				150,315		149,303		150,000		150,000		260,000		1,150,000
	Variable rate (4)
		Avalon on the Sound		36,089		—		—		—		—		—

Total indebtedness - excluding unsecured credit facility			$	190,193	$	153,358	$	154,341	$	154,647	$	300,956	$	1,488,356

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

(2)		Financed by variable rate tax-exempt debt, but interest rate is effectively fixed at the rate indicated through a swap agreement. The weighted average maturity of these swap agreements is 3.6 years.

(3)		Financed by variable rate tax-exempt debt, but interest rate is capped through an interest rate cap agreement. The remaining term of this interest rate cap agreement is 4.7 years.

(4)		Variable rates are given as of December 31, 2002.

(5)		Included in liabilities related to real estate assets held for sale on our Consolidated Balance Sheets included elsewhere in this report.

(6)		Balances outstanding do not include $342 as of December 31, 2002 of debt premium reflected in unsecured notes on our Consolidated Balance Sheets included elsewhere in this report.

Stock Repurchase Program

In July 2002 we announced that our Board of Directors had authorized a common stock repurchase program. Under this program, we may acquire shares of our common stock in open market or negotiated transactions up to an aggregate purchase price of $100,000,000. Actual purchases of stock will vary with market conditions. The size of the stock repurchase program was designed so that retained cash flow, as well as the proceeds from sales of existing apartment communities and a reduction in planned acquisitions, will provide the source of funding for the program, with our unsecured credit facility providing temporary funding as needed. Through February 28, 2003, we have acquired 2,042,600 shares at an aggregate cost of $77,381,000 under this program.

Redemption of Preferred Stock

In July 2002, we redeemed all 2,300,000 outstanding shares of our 8.50% Series C Cumulative Redeemable Preferred Stock at a price of $25.00 per share, plus $0.1417 in accrued and unpaid dividends, for an aggregate redemption price of $57,826,000, including accrued dividends of $326,000. The redemption price was funded in part by the sale on July 11, 2002 of 592,000 shares of Series I Cumulative Redeemable Preferred Stock through a private placement to an institutional investor for a net purchase price of $14,504,000. The dividend rate on such shares was initially equal to 3.36% per annum (three month LIBOR plus 1.5%) of the liquidation preference. As permitted under the terms of such preferred stock, we redeemed all of the Series I Cumulative Redeemable Preferred Stock on August 29, 2002 for an aggregate redemption price of $14,609,000 including accrued dividends of $68,000.

As of February 1, 2003, we have the following series of redeemable preferred stock outstanding at an aggregate stated value of $181,692,500. These series have no stated maturity and are not subject to any sinking fund or mandatory redemptions. As these series become redeemable, we will evaluate the requirements necessary for such redemptions as well as the cost-effectiveness based on the existing market conditions.

Shares outstanding

Payable

Annual

Liquidation

Non-redeemable

Series

February 1, 2003

quarterly

rate

preference

prior to

3,267,700

March, June, September,

8.00

December 15, 2002 —

December

Currently Redeemable

4,000,000

March, June, September,

8.70

October 15, 2008

December

On February 18, 2003, we gave notice of our intent to redeem all 3,267,700 outstanding shares of our 8.00% Series D Cumulative Redeemable Preferred Stock. We anticipate closing this redemption on March 20, 2003 at a price of $25.00 per share, plus $0.0167 in accrued and unpaid dividends, for an aggregate redemption price of $81,747,000, including accrued dividends of $55,000. This redemption will be funded by the sale of shares of Series J Cumulative Redeemable Preferred Stock through a private placement to an institutional investor. The dividend rate on such shares will initially be based on three month LIBOR plus 1.5%. The Series J Cumulative Redeemable Preferred Stock will be redeemable at any time at our option.

Inflation and Deflation

Substantially all of our apartment leases are for a term of one year or less. In the event of significant inflation, this may enable 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 without penalty and therefore expose us to the effect of a decline in market rents. In a deflationary rent environment, as is currently being experienced, we are exposed to declining rents more quickly under these shorter-term leases.

Critical Accounting Policies

Our accounting policies are in conformity with GAAP. The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied resulting in a different presentation of our financial statements. Below is a discussion of accounting policies which we consider critical in that they may require complex judgment in their application or require estimates about matters which are inherently uncertain. Additional discussion of accounting policies which we consider significant, including further discussion of the critical accounting policies described below, can be found in the Notes to our Consolidated Financial Statements.

Real Estate Development Rights

We capitalize pre-development costs incurred in pursuit of Development Rights for which we currently believe future development is probable. These costs include legal fees, design fees and related overhead costs. The accompanying Consolidated Financial Statements include a charge to expense to provide an allowance for potentially unrecoverable capitalized pre-development costs. The determination of the charge to expense involves management judgement, based on historical experience, regarding the probability that a Development Right will not proceed to development.

Revenue Recognition

Rental income related to leases is recognized on an accrual basis when due from residents in accordance with SEC Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements.” In accordance with our standard lease terms, rental payments are generally due on a monthly basis. Any cash concessions given at the inception of the lease are amortized over the approximate life of the lease — generally one year.

Real Estate

If there is an event or change in circumstance that indicates an impairment in the value of a community, our policy is to assess the impairment by making a comparison of the current and projected operating cash flows of the community over its remaining useful life, on an undiscounted basis, to the carrying amount of the community. If the carrying amount is in excess of the estimated projected operating cash flows of the community, we would recognize an impairment loss equivalent to an amount required to adjust the carrying amount to its estimated fair market value.

Discontinued Operations

On January 1, 2002, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which requires that the assets and liabilities and the results of operations of any communities which have been sold since January 1, 2002, or otherwise qualify as held for sale, be presented as discontinued operations in our Consolidated Financial Statements in both current and prior periods presented. The community specific components of net income that are presented as discontinued operations include net operating income, depreciation and interest expense. In addition, the net gain or loss (including any impairment loss) on the eventual disposal of communities held for sale is presented as discontinued operations when recognized. Real estate assets held for sale are measured at the lower of the carrying amount or the fair value less the cost to sell, and are presented separately in our Consolidated Balance Sheets. Subsequent to classification of a community as held for sale, no further depreciation is recorded on the assets.

Investments in Technology Companies

We account for our investments in technology companies in accordance with Accounting Principles Board Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock.” If there is an event or change in circumstance that indicates a loss in the value of an investment, our policy is to record the loss and reduce the value of the investment to its fair value. A loss in value would be indicated if we could not recover the carrying value of the investment or if the investee could not sustain an earnings capacity that would justify the carrying amount of the investment. Due to the nature of these investments, an impairment in value can be difficult to determine.

Stock-Based Compensation

During the periods presented in this report, we applied APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, in accounting for our employee stock options. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. See Note 10, “Stock-Based Compensation Plans,” in our Consolidated Financial Statements for information regarding the effect on net income and earnings per share if we had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation.

Legal Contingencies

We are subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are frequently covered by insurance. While the resolution of these matters cannot be predicted with certainty, we believe the final outcome of such matters will not have a material adverse effect on our financial position or the results of operations. Once it has been determined that a loss is probable to occur, the estimated amount of the loss is recorded in the financial statements. Both the amount of the loss and the point at which its occurrence is considered probable can be difficult to determine.

ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain financial market risks, the most predominant being fluctuations in interest rates. We monitor interest rate fluctuations as an integral part of our overall risk management program, which recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse effect on our results of operations. The effect of interest rate fluctuations historically has been small relative to other factors affecting operating results, such as rental rates and occupancy. The specific market risks and the potential impact on our operating results are described below.

Our operating results are affected by changes in interest rates as a result of borrowings under our variable rate unsecured credit facility as well as outstanding bonds with variable interest rates. We had

$173,840,000 and $125,274,000 in variable rate debt outstanding as of December 31, 2002 and 2001, respectively. If interest rates on the variable rate debt had been 100 basis points higher throughout 2002 and 2001, our annual interest costs would have increased by approximately $2,557,000 and $1,500,000, respectively, based on balances outstanding during the applicable years.

We currently use interest rate swap agreements to reduce the impact of interest rate fluctuations on certain variable rate indebtedness. Under swap agreements,


	•	we agree to pay to a counterparty the interest that would have been incurred on a fixed principal amount at a fixed interest rate (generally, the interest rate on a particular treasury bond on the date the agreement is entered into, plus a fixed increment), and


	•	the counterparty agrees to pay to us the interest that would have been incurred on the same principal amount at an assumed floating interest rate tied to a particular market index.

As of December 31, 2002, the effect of swap agreements is to fix the interest rate on approximately $166,000,000 of our variable rate tax-exempt debt. Furthermore, a swap agreement to fix the interest rate on approximately $22,500,000 of unconsolidated variable rate debt exists as of December 31, 2002. The swap agreements on the consolidated variable rate tax-exempt debt were not electively entered into by us but, rather, were a requirement of either the bond issuer or the credit enhancement provider related to certain of our tax-exempt bond financings. Because the counterparties providing the swap agreements are major financial institutions which have an A+ or better credit rating by the Standard & Poor’s Ratings Group and the interest rates fixed by the swap agreements are significantly higher than current market rates for such agreements, we do not believe there is exposure at this time to a default by a counterparty provider. Had these swap agreements not been in place during 2002 and 2001, our annual interest costs would have been approximately $5,674,000 and $4,227,000 lower, respectively, based on balances outstanding and reported interest rates during the applicable years. However, if the variable interest rates on this debt had been 100 basis points higher throughout 2002 and 2001 and these swap agreements had not been in place, our annual interest costs would have been approximately $4,024,000 and $2,535,000 lower, respectively.

In addition, changes in interest rates affect the fair value of our fixed rate debt, which impacts the fair value of our aggregate indebtedness. Debt securities and notes payable (excluding our variable rate unsecured credit facility) with an aggregate carrying value of $2,441,851,000 at December 31, 2002 had an estimated aggregate fair value of $2,639,341,000 at December 31, 2002. Fixed rate debt represented $2,296,981,000 of the carrying value and $2,494,471,000 of the fair value at December 31, 2002. If interest rates had been 100 basis points higher as of December 31, 2002, the fair value of this fixed rate debt would have decreased by $111,595,000.


ITEM 8.		FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this Item 8 is included as a separate section of this Annual Report on Form 10-K/A.


ITEM 9.		CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

As discussed more fully in the registrant’s Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the end of the year covered by this Form 10-K/A with respect to the Annual Meeting of Stockholders to be held on May 14, 2003, during 2002 the Company dismissed Arthur Andersen LLP and engaged Ernst & Young LLP to be the Company’s principal independent public accountant.

PART III


ITEM 10.		DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

Information pertaining to directors and executive officers of the registrant is incorporated herein by reference to the registrant’s Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the end of the year covered by this Form 10-K/A with respect to the Annual Meeting of Stockholders to be held on May 14, 2003.


ITEM 11.		EXECUTIVE COMPENSATION

Information pertaining to executive compensation is incorporated herein by reference to the registrant’s Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the end of the year covered by this Form 10-K/A with respect to the Annual Meeting of Stockholders to be held on May 14, 2003.


ITEM 12.		SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information pertaining to security ownership of management and certain beneficial owners of the registrant’s Common Stock is incorporated herein by reference to the registrant’s Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the end of the year covered by this Form 10-K/A with respect to the Annual Meeting of Stockholders to be held on May 14, 2003.

The Company maintains the 1994 Stock Incentive Plan (the “1994 Plan”) and the 1996 Non-Qualified Employee Stock Purchase Plan (the “ESPP”), pursuant to which common stock or other equity awards may be issued or granted to eligible persons.

The following table gives information about equity awards under the Company’s 1994 Plan and ESPP as of December 31, 2002:

(a)

(b)

(c)

Number of securities

remaining available for

Number of securities to be

Weighted-average

future issuance under equity

issued upon exercise of

exercise price of

compensation plans

outstanding options,

(excluding securities

Plan category

warrants and rights

reflected in column (a))

Equity compensation plans approved by security holders⁽¹⁾

3,245,145

⁽²⁾⁽³⁾

39.05

⁽³⁾⁽⁴⁾

1,415,862

⁽⁵⁾

Equity compensation plans not approved by security holders⁽⁶⁾

—

n/a

702,342

Total

3,245,145

39.05

⁽³⁾⁽⁴⁾

2,118,204

(1)		Consists of the 1994 Plan.

(2)		Includes 79,138 deferred units granted under the 1994 Plan, which, subject to vesting requirements, will convert in the future to common stock on a one-for-one basis, but does not include 199,127 shares of restricted stock that are outstanding and that are already reflected in the Company’s outstanding shares.

(3)		Does not include outstanding options to acquire 640,506 shares, at a weighted-average exercise price of $35.27 per share, that were assumed, in connection with the 1998 merger of Avalon Properties, Inc. with and into the Company, under the Avalon Properties, Inc. 1995 Equity Incentive Plan and the Avalon Properties, Inc. 1993 Stock Option and Incentive Plan.

(4)		Excludes deferred units granted under the 1994 Plan, which, subject to vesting requirements, will convert in the future to common stock on a one-for-one basis.

(5)		The 1994 Plan incorporates an evergreen formula pursuant to which the aggregate number of shares reserved for issuance under the 1994 Plan will increase annually. On each January 1, the aggregate number of shares reserved for issuance under the 1994 Plan will increase by a number of shares equal to a percentage (ranging from 0.48% to 1.00%) of all outstanding shares of Common Stock at the end of the year. The exact percentage used is determined based on the percentage of all awards made under the 1994 Plan during the calendar year that were in the form of stock options with an exercise price equal to the fair market value of a share of Common Stock on the date of the grant. In accordance with this procedure, on January 1, 2003, the maximum number of shares remaining available for future issuance under the 1994 Plan was increased by 664,115 to 2,079,977.

(6)		Consists of the ESPP.

The ESPP, which was adopted by the Board of Directors on October 29, 1996, has not been approved by our shareholders. A further description of the ESPP appears in Note 10, “Stock-Based Compensation Plans,” of our Consolidated Financial Statements included in this report.


ITEM 13.		CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information pertaining to certain relationships and related transactions is incorporated herein by reference to the registrant’s Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the end of the year covered by this Form 10-K/A with respect to the Annual Meeting of Stockholders to be held on May 14, 2003.


ITEM 14.		CONTROLS AND PROCEDURES

(a)

Evaluation of Disclosure Controls and Procedures.

Within the 90 days prior to the date of this report, the Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. We continue to review and document our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

(b)

Changes in Internal Controls.

There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls, subsequent to the date of their evaluation.

PART IV


ITEM 15.		EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

15(a)(1) Financial Statements

Index to Financial Statements

Consolidated Financial Statements and Financial Statement Schedule:


Report of Independent Auditors			F-1
Consolidated Balance Sheets as of December 31, 2002 and 2001			F-2
Consolidated Statements of Operations and Other Comprehensive Income for the years ended December 31, 2002, 2001 and 2000			F-3
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2002, 2001 and 2000			F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000			F-5
Notes to Consolidated Financial Statements			F-7

15(a)(2) Financial Statement Schedule

Schedule III — Real Estate and Accumulated Depreciation			F-30

15(a)(3) Exhibits

The exhibits listed on the accompanying Index to Exhibits are filed as a part of this report.

15(b) Reports on Form 8-K

None.

INDEX TO EXHIBITS


EXHIBIT
NO.		DESCRIPTION

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

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

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

3(i).4	—	Articles Supplementary of the Company relating to its Series I Cumulative Redeemable Preferred Stock. (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed July 15, 2002.)

3(ii)	—	Amended and Restated Bylaws of the Company, as adopted by the Board of Directors on February 13, 2003. (Incorporated by reference to Exhibit 3(ii) to Form 10-K of the Company filed March 11, 2003.)

4.1	—	Indenture of Avalon Properties, Inc. (hereinafter referred to as “Avalon Properties”) dated as of September 18, 1995. (Incorporated by reference to Avalon Properties’ Registration Statement on Form S-3 (33-95412), filed on August 4, 1995.)

4.2	—	First Supplemental Indenture of Avalon Properties dated as of September 18, 1995. (Incorporated by reference to Exhibit 4.2 to Form 10-K of the Company filed March 26, 2002.)

4.3	—	Second Supplemental Indenture of Avalon Properties dated as of December 16, 1997. (Incorporated by reference to Exhibit 4.3 to Form 10-K of the Company filed March 11, 2003.)

4.4	—	Third Supplemental Indenture of Avalon Properties dated as of January 22, 1998. (Incorporated by reference to Exhibit 4.4 to Form 10-K of the Company filed March 11, 2003.)

4.5	—	Indenture, dated as of January 16, 1998, between the Company and State Street Bank and Trust Company, as Trustee. (Incorporated by reference to Exhibit 4.5 to Form 10-K of the Company filed March 11, 2003.)

4.6	—	First Supplemental Indenture, dated as of January 20, 1998, between the Company and the Trustee. (Incorporated by reference to Exhibit 4.6 to Form 10-K of the Company filed March 11, 2003.)

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


EXHIBIT NO.		DESCRIPTION

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

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

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

4.11	—	Shareholder Rights Agreement (Expired), dated March 9, 1998 (the “Rights Agreement”), between the Company and First Union National Bank (as successor to American Stock Transfer and Trust Company) as Rights Agent (including the form of Rights Certificate as Exhibit B) (Incorporated by reference to Exhibit 4.1 to Form 8-A of the Company filed March 11, 1998); Amendment No. 1 to the Rights Agreement, dated as of February 28, 2000, between the Company and the Rights Agent (Incorporated by reference to Exhibit 4.2 to Form 8-A/A of the Company filed February 28, 2000); Amendment No. 2 to the Rights Agreement, dated January 4, 2002, between the Company and the Rights Agent (Incorporated by reference to Exhibit 4.3 to Form 8-K of the Company filed January 7, 2000). The Shareholder Rights Agreement, as amended, expired on March 31, 2002.

10.1	—	Distribution Agreement, dated December 21, 1998, among AvalonBay Communities, Inc. (the “Company”) and the Agents, including Administrative Procedures, relating to the MTNs. (Incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed December 21, 1998.)

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

10.3	—	Second Amendment, dated as of August 31, 2001, to Distribution Agreement, dated December 21, 1998, among the Company and the Agents. (Incorporated by reference to Exhibit 1.3 to the Company’s Current Report on Form 8-K filed September 4, 2001.)

10.4+	—	Employment Agreement, dated as of March 9, 1998, between the Company and Thomas J. Sargeant. (Incorporated by reference to Exhibit 10.4 to Form 10-Q of the Company filed August 14, 1998.)

10.5+	—	Employment Agreement, dated as of January 10, 2003, between the Company and Bryce Blair. (Incorporated by reference to Exhibit 10.5 to Form 10-K of the Company filed March 11, 2003.)

10.6+	—	Employment Agreement, dated as of February 26, 2001, between the Company and Timothy J. Naughton. (Incorporated by reference to Exhibit 10.5 to Form 10-K of the Company filed March 29, 2001.)

10.7+	—	Employment Agreement, dated as of September 10, 2001, between the Company and Leo S. Horey. (Incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company filed November 14, 2001.)


EXHIBIT
NO.		DESCRIPTION

10.8+	—	Employment Agreement, dated as of December 31, 2001, between the Company and Samuel B. Fuller. (Incorporated by reference to Exhibit 10.9 to Form 10-K of the Company filed March 26, 2002.)

10.9+	—	Letter Agreement regarding departure, dated February 26, 2001, by and between the Company and Robert H. Slater. (Incorporated by reference to Exhibit 10.8 to Form 10-K of the Company filed March 29, 2001.)

10.10+	—	Mutual Release and Separation Agreement, dated as of March 24, 2000, between the Company and Gilbert M. Meyer. (Incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company filed May 15, 2000.)

10.11+	—	Retirement Agreement, dated as of March 24, 2000, between the Company and Gilbert M. Meyer. (Incorporated by reference to Exhibit 10.2 to Form 10-Q of the Company filed May 15, 2000.)

10.12+	—	Consulting Agreement, dated as of March 24, 2000, between the Company and Gilbert M. Meyer. (Incorporated by reference to Exhibit 10.3 to Form 10-Q of the Company filed May 15, 2000.)

10.13+	—	Avalon Properties, Inc. 1993 Stock Option and Incentive Plan. (Incorporated by reference to Exhibit 10.14 to Form 10-K of the Company filed March 29, 2001.)

10.14+	—	Avalon Properties, Inc. 1995 Equity Incentive Plan. (Incorporated by reference to Exhibit 10.15 to Form 10-K of the Company filed March 29, 2001.)

10.15+	—	Amendment, dated May 6, 1999, to the Avalon Properties Amended and Restated 1995 Equity Incentive Plan. (Incorporated by reference to Exhibit 10.7 to Form 10-Q of the Company filed August 16, 1999.)

10.16+	—	AvalonBay Communities, Inc. 1994 Stock Incentive Plan, as amended and restated in full on May 8, 2001. (Incorporated by reference to Exhibit B to the Company’s Schedule 14A filed March 30, 2001.)

10.17+	—	1996 Non-Qualified Employee Stock Purchase Plan, dated June 26, 1997, as amended and restated. (Incorporated by reference to Exhibit 99.1 to Post-effective Amendment No. 1 to Form S-8 of the Company filed June 26, 1997, File No. 333-16837.)

10.18+	—	1996 Non-Qualified Employee Stock Purchase Plan — Plan Information Statement dated June 26, 1997. (Incorporated by reference to Exhibit 99.2 to Form S-8 of the company, File No. 333-16837.)

10. 19+	—	Indemnification Agreements between the Company and the Directors of the Company. (Incorporated by reference to Exhibit 10.39 to Form 10-K of the Company filed March 31, 1999.)

10.20+	—	The Company’s Officer Severance Plan. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 11, 2000.)

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


EXHIBIT
NO.		DESCRIPTION

		Administrative Agent. (Incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company filed August 14, 2001.)

12.1	—	Statements re: Computation of Ratios. (Filed herewith.)

21.1	—	Schedule of Subsidiaries of the Company. (Incorporated by reference to Exhibit 21.1 to Form 10-K of the Company filed March 11, 2003.)

23.1	—	Consent of Ernst & Young LLP. (Filed herewith.)

99.1	—	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer). (Filed herewith.)

99.2	—	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer). (Filed herewith.)

Management contract or compensatory plan or arrangement required to be filed or incorporated by reference as an exhibit to this Form 10-K/A pursuant to Item 14(c) of Form 10-K.

SIGNATURE

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


	AvalonBay Communities, Inc.

Date: July 23, 2003	By:	/s/ Thomas J. Sargeant

		Thomas J. Sargeant, Executive Vice President and Chief Financial Officer (Principal Executive Officer)

Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

CERTIFICATION

I, Bryce Blair, certify that:

	1.	I have reviewed this annual report on Form 10-K/A of AvalonBay Communities, Inc.;

	2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

	3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

	4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

	a)		Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

	b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	c)		Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

	a)		All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


Date: July 23, 2003				/s/ Bryce Blair

				Bryce Blair Chairman of the Board, Chief Executive Officer and President

CERTIFICATION

I, Thomas J. Sargeant, certify that:

	1.	I have reviewed this annual report on Form 10-K/A of AvalonBay Communities, Inc.;

	2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

	3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

	4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

	a)		Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

	b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	c)		Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

	a)		All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


Date: July 23, 2003
		/s/ Thomas J. Sargeant

		Thomas J. Sargeant Executive Vice President – Chief Financial Officer

Report of Independent Auditors

To the Board of Directors and Stockholders of
AvalonBay Communities, Inc.:

We have audited the accompanying consolidated balance sheets of AvalonBay Communities, Inc. (the “Company”) as of December 31, 2002 and 2001, and the related consolidated statements of operations and other comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2002. Our audits also included the financial statement schedule listed in the Index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AvalonBay Communities, Inc. at December 31, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, in 2002 the Company adopted Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” In addition, as discussed in Note 5 to the consolidated financial statements, in 2001 the Company changed its method of accounting for derivative instruments and hedging activities.

/s/ Ernst & Young LLP

McLean, Virginia

January 21, 2003, except as to the last paragraph of Note 1,
Note 7 and Note 9, for which the date is June 26, 2003

F-1

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


				12-31-02			12-31-01

ASSETS
Real estate:
	Land, including land held for development			$	895,506		$	787,917
	Buildings and improvements				3,853,100			3,286,477
	Furniture, fixtures and equipment				122,647			107,417

					4,871,253			4,181,811
	Less accumulated depreciation				(558,991	)		(420,931	)

	Net operating real estate				4,312,262			3,760,880
	Construction in progress (including land)				312,425			433,756
	Real estate assets held for sale, net				160,744			196,207

		Total real estate, net			4,785,431			4,390,843

Cash and cash equivalents					12,934			72,912
Cash in escrow					10,239			49,935
Resident security deposits					21,839			20,370
Investments in unconsolidated real estate entities					14,591			15,066
Deferred financing costs, net					20,312			20,199
Deferred development costs, net					31,461			26,038
Participating mortgage notes					21,483			21,483
Prepaid expenses and other assets					32,545			47,443

		Total assets		$	4,950,835		$	4,664,289

LIABILITIES AND STOCKHOLDERS’ EQUITY
Unsecured notes				$	1,985,342		$	1,635,000
Variable rate unsecured credit facility					28,970			—
Mortgage notes payable					429,546			420,464
Dividends payable					51,553			49,007
Payables for construction					29,768			43,656
Accrued expenses and other liabilities					50,641			50,017
Accrued interest payable					42,924			38,807
Resident security deposits					30,696			27,639
Liabilities related to real estate assets held for sale					29,412			29,951

		Total liabilities			2,678,852			2,294,541


Minority interest of unitholders in consolidated partnerships					77,443			55,193

Commitments and contingencies
Stockholders’ equity:
	Preferred stock, $.01 par value; $25 liquidation preference; 50,000,000 shares authorized at both December 31, 2002 and 2001; 7,267,700 and 9,567,700 shares issued and outstanding at December 31, 2002 and December 31, 2001, respectively				73			96
	Common stock, $.01 par value; 140,000,000 shares authorized at both December 31, 2002 and 2001; 68,202,926 and 68,713,384 shares issued and outstanding at December 31, 2002 and December 31, 2001, respectively				682			687
	Additional paid-in capital				2,266,130			2,333,241
	Deferred compensation				(7,855	)		(7,489	)
	Dividends in excess of accumulated earnings				(51,850	)		(3,497	)
	Accumulated other comprehensive loss				(12,640	)		(8,483	)

			Total stockholders’ equity		2,194,540			2,314,555


			Total liabilities and stockholders’ equity	$	4,950,835		$	4,664,289

See accompanying notes to Consolidated Financial Statements.

F-2

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


			For the year ended

			12-31-02			12-31-01			12-31-00

Revenue:
	Rental income		$	604,411		$	602,916		$	539,269
	Management fees			1,355			1,325			1,051
	Other income			7,110			2,953			401

		Total revenue		612,876			607,194			540,721

Expenses:
	Operating expenses, excluding property taxes			169,268			152,593			133,857
	Property taxes			53,790			48,742			43,607
	Interest expense			120,559			102,069			81,973
	Depreciation expense			138,080			123,007			115,338
	General and administrative expense			14,332			15,224			13,013
	Impairment loss			6,800			—			—

		Total expenses		502,829			441,635			387,788

Equity in income of unconsolidated entities				55			856			2,428
Interest income				3,978			6,823			4,764
Minority interest in consolidated partnerships				(1,771	)		161			(1,086	)

Income before gain on sale of communities				112,309			173,399			159,039
Gain on sale of communities				—			62,852			40,779

Income from continuing operations				112,309			236,251			199,818

Discontinued operations:
	Income from discontinued operations			12,416			12,746			10,786
	Gain on sale of communities			48,893			—			—

		Total discontinued operations		61,309			12,746			10,786

Net income				173,618			248,997			210,604
Dividends attributable to preferred stock				(17,896	)		(32,497	)		(39,779	)

Net income available to common stockholders			$	155,722		$	216,500		$	170,825

Other comprehensive loss:
	Cumulative effect of change in accounting principle			—			(6,412	)		—
	Unrealized loss on cash flow hedges			(4,157	)		(2,071	)		—

Other comprehensive loss				(4,157	)		(8,483	)		—

Comprehensive income			$	151,565		$	208,017		$	170,825

Earnings per common share — basic:
	Income from continuing operations (net of dividends attributable to preferred stock)		$	1.37		$	3.00		$	2.42
	Discontinued operations			0.89			0.19			0.16

		Net income available to common stockholders	$	2.26		$	3.19		$	2.58

Earnings per common share — diluted:
	Income from continuing operations (net of dividends attributable to preferred stock)		$	1.35		$	2.93		$	2.36
	Discontinued operations			0.88			0.19			0.17

		Net income available to common stockholders	$	2.23		$	3.12		$	2.53

See accompanying notes to Consolidated Financial Statements.

F-3

AVALONBAY COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands)


		Shares issued					Amount												Dividends in			Accumulated
													Additional						excess of			other
	Preferred			Common			Preferred			Common			paid-in			Deferred			accumulated			comprehensive			Stockholders'
	stock			stock			stock			stock			capital			compensation			earnings			loss			equity

Balance at December 31, 1999		18,322,700			65,758,009		$	183		$	658		$	2,442,510		$	(3,559	)	$	(69,507	)	$	—		$	2,370,285
Net income		—			—			—			—			—			—			210,604			—			210,604
Dividends declared to common and preferred stockholders		—			—			—			—			—			—			(188,942	)		—			(188,942	)
Issuance of common stock		—			1,433,533			—			14			50,523			(3,408	)		—			—			47,129
Amortization of deferred compensation		—			—			—			—			—			3,417			—			—			3,417

Balance at December 31, 2000		18,322,700			67,191,542			183			672			2,493,033			(3,550	)		(47,845	)		—			2,442,493

Cumulative effect of change in accounting principle		—			—			—			—			—			—			—			(6,412	)		(6,412	)
Net income		—			—			—			—			—			—			248,997			—			248,997
Unrealized loss on cash flow hedges		—			—			—			—			—			—			—			(2,071	)		(2,071	)
Dividends declared to common and preferred stockholders		—			—			—			—			—			—			(204,649	)		—			(204,649	)
Issuance of common stock		—			1,521,842			—			15			59,116			(7,545	)		—			—			51,586
Redemption of preferred stock		(8,755,000	)		—			(87	)		—			(218,908	)		—			—			—			(218,995	)
Amortization of deferred compensation		—			—			—			—			—			3,606			—			—			3,606

Balance at December 31, 2001		9,567,700			68,713,384			96			687			2,333,241			(7,489	)		(3,497	)		(8,483	)		2,314,555

Net income		—			—			—			—			—			—			173,618			—			173,618
Unrealized loss on cash flow hedges		—			—			—			—			—			—			—			(4,157	)		(4,157	)
Dividends declared to common and preferred stockholders		—			—			—			—			—			—			(209,996	)		—			(209,996	)
Issuance of common stock, net of withholdings		—			771,142			—			8			28,795			(4,463	)		(508	)		—			23,832
Repurchase of common stock, including repurchase costs of $39		—			(1,281,600	)		—			(13	)		(38,281	)		—			(11,467	)		—			(49,761	)
Issuance of preferred stock, net of offering costs of $407		592,000			—			6			—			14,387			—			—			—			14,393
Redemption of preferred stock		(2,892,000	)		—			(29	)		—			(72,012	)		—			—			—			(72,041	)
Amortization of deferred compensation		—			—			—			—			—			4,097			—			—			4,097

Stockholders’ equity, December 31, 2002		7,267,700			68,202,926		$	73		$	682		$	2,266,130		$	(7,855	)	$	(51,850	)	$	(12,640	)	$	2,194,540

See accompanying notes to Consolidated Financial Statements.

F-4

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


			For the year ended

			12-31-02			12-31-01			12-31-00

Cash flows from operating activities:
	Net income		$	173,618		$	248,997		$	210,604
	Adjustments to reconcile net income to cash provided by operating activities:
		Depreciation expense		138,080			123,007			115,338
		Depreciation expense from discontinued operations		6,397			7,072			7,272
		Amortization of deferred financing costs		3,913			3,716			2,924
		Amortization of deferred compensation		4,097			3,606			3,417
		Income allocated to minority interest in consolidated partnerships including discontinued operations		2,570			597			1,908
		Gain on sale of communities, net of impairment loss on planned dispositions		(42,093	)		(62,852	)		(40,779	)
		Decrease (increase) in cash in operating escrows		(134	)		41			1,144
		Decrease (increase) in resident security deposits, prepaid expenses and other assets		18,311			(8,581	)		(15,438	)
		Increase in accrued expenses, other liabilities and accrued interest payable		3,051			4,925			15,693

		Net cash provided by operating activities		307,810			320,528			302,083

Cash flows used in investing activities:
	Development/redevelopment of real estate assets including land acquisitions and deferred development costs			(426,830	)		(353,351	)		(171,985	)
	Acquisition of real estate assets			(106,300	)		(129,300	)		(252,400	)
	Capital expenditures — current real estate assets			(10,930	)		(9,649	)		(15,209	)
	Capital expenditures — non-real estate assets			(1,142	)		(4,183	)		(1,359	)
	Proceeds from sale of communities, net of selling costs			78,454			238,545			156,086
	Increase (decrease) in payables for construction			(13,888	)		23,656			1,123
	Decrease (increase) in cash in construction escrows			39,830			(33,273	)		(9,076	)
	Decrease (increase) in investments in unconsolidated real estate entities			475			(2,851	)		34,665

		Net cash used in investing activities		(440,331	)		(270,406	)		(258,155	)

Cash flows from financing activities:
	Issuance of common stock			22,296			50,912			36,203
	Repurchase of common stock			(49,761	)		—			—
	Issuance of preferred stock, net of related costs			14,393			—			—
	Redemption of preferred stock and related costs			(72,041	)		(218,995	)		—
	Dividends paid			(207,450	)		(203,214	)		(185,509	)
	Net borrowings (repayments) under unsecured credit facility			28,970			—			(178,600	)
	Issuance of mortgage notes payable			—			75,110			—
	Repayments of mortgage notes payable			(24,818	)		(22,265	)		(35,123	)
	Proceeds from sale of unsecured notes, net of repayments			350,342			300,000			350,000
	Payment of deferred financing costs			(4,026	)		(8,808	)		(4,428	)
	Redemption of units for cash by minority partners			(1,663	)		(864	)		—
	Contributions from (distributions to) minority partners			16,301			(6,320	)		23,142

		Net cash provided by (used in) financing activities		72,543			(34,444	)		5,685

		Net increase (decrease) in cash and cash equivalents		(59,978	)		15,678			49,613
Cash and cash equivalents, beginning of year				72,912			57,234			7,621

Cash and cash equivalents, end of year			$	12,934		$	72,912		$	57,234

Cash paid during year for interest, net of amount capitalized			$	108,903		$	88,996		$	72,712

See accompanying notes to Consolidated Financial Statements.

F-5

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

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

During the year ended December 31, 2002:

	•		The Company issued 102,756 units of limited partnership interest in DownREIT partnerships valued at $5,000 in connection with the formation of a DownREIT partnership and the acquisition by that partnership of land. See Note 1, “Organization and Significant Accounting Policies,” of the Consolidated Financial Statements for a description of DownREIT partnerships.

	•		As described in Note 4, “Stockholders’ Equity,” of the Consolidated Financial Statements, 144,718 shares of common stock were issued, 34,876 shares were withheld to satisfy employees’ tax withholding and other liabilities and 2,818 shares were forfeited, for a net value of $5,999.

	•		The Company assumed $33,900 in variable rate, tax-exempt debt related to the acquisition of one community.

	•		The Company recorded a liability and a corresponding charge to other comprehensive loss of $4,157 to adjust the Company’s Hedged Derivatives (as defined in Note 5, “Derivative Instruments and Hedging Activities,” of the Consolidated Financial Statements) to their fair value.

	•		Common and preferred dividends declared but not paid totaled $51,553.

During the year ended December 31, 2001:

	•		762 units of limited partnership, valued at $36, were presented for redemption to the DownREIT partnership that issued such units and were acquired by the Company in exchange for an equal number of shares of the Company’s common stock.

	•		The Company issued 619 units of limited partnership in DownREIT partnerships valued at $30 as consideration for acquisitions of apartment communities that were acquired pursuant to the terms of a forward purchase contract agreed to in 1997 with an unaffiliated party. In addition, the Company issued 256,940 units of limited partnership in a DownREIT partnership valued at $12,274 in connection with the formation of a DownREIT partnership and the acquisition by that partnership of land.

	•		186,877 shares of common stock were issued at a value of $8,570 and 19,646 shares were forfeited at a value of $235.

	•		$67 of deferred stock units were converted into 1,803 shares of common stock.

	•		The Company recorded a liability and a corresponding charge to other comprehensive loss of $8,483 to adjust the Company’s Hedged Derivatives to their fair value.

	•		Common and preferred dividends declared but not paid were $49,007.

During the year ended December 31, 2000:

	•		1,520 units of limited partnership in DownREIT partnerships, valued at $60, were issued in connection with an acquisition for cash and units pursuant to a forward purchase contract agreed to in 1997 with an unaffiliated party.

	•		304,602 units of limited partnership in DownREIT partnerships, valued at $10,926, were exchanged for an equal number of shares of the Company’s common stock.

	•		139,336 shares of common stock were issued at a value of $4,703 and 50,310 shares were forfeited at a value of $1,668.

	•		Real estate assets valued at $5,394 were contributed to a limited liability company in exchange for a 25% membership interest.

	•		Common and preferred dividends declared but not paid totaled $47,572.

F-6

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

1. Organization and Significant Accounting Policies

Organization

AvalonBay Communities, Inc. (the “Company,” which term, unless the context otherwise requires, refers to AvalonBay Communities, Inc. together with its subsidiaries) is a Maryland corporation that has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended. The Company focuses on the ownership and operation of upscale apartment communities in high barrier-to-entry markets of the United States. These markets are located in the Northeast, Mid-Atlantic, Midwest, Pacific Northwest, and Northern and Southern California regions of the country.

At December 31, 2002, the Company owned or held a direct or indirect ownership interest in 137 operating apartment communities containing 40,179 apartment homes in eleven states and the District of Columbia, of which two communities containing 1,089 apartment homes were under reconstruction. In addition, the Company owned or held a direct or indirect ownership interest in 12 communities under construction that are expected to contain an aggregate of 3,429 apartment homes when completed. The Company also owned a direct or indirect ownership interest in rights to develop an additional 38 communities that, if developed in the manner expected, will contain an estimated 9,950 apartment homes.

Principles of Consolidation

The Company is the surviving corporation from the merger (the “Merger”) of Bay Apartment Communities, Inc. (“Bay”) and Avalon Properties, Inc. (“Avalon”) on June 4, 1998, in which Avalon shareholders received 0.7683 of a share of common stock of the Company for each share owned of Avalon common stock. The Merger was accounted for under the purchase method of accounting, with the historical financial statements for Avalon presented prior to the Merger. At that time, Avalon ceased to legally exist, and Bay as the surviving legal entity adopted the historical financial statements of Avalon. Consequently, Bay’s assets were recorded in the historical financial statements of Avalon at an amount equal to Bay’s debt outstanding at that time plus the value of capital stock retained by the Bay stockholders, which approximates fair value. In connection with the Merger, the Company changed its name from Bay Apartment Communities, Inc. to AvalonBay Communities, Inc.

The Company accounts for joint venture partnerships and subsidiary partnerships structured as DownREITS in accordance with Statement of Position (“SOP”) 78-9, “Accounting for Investments in Real Estate Ventures.” Under SOP 78-9, the Company generally consolidates joint venture and DownREIT partnerships when the Company controls the major operating and financial policies of the partnership through majority ownership or in its capacity as general partner. The accompanying Consolidated Financial Statements include the accounts of the Company and its wholly-owned partnerships and certain joint venture partnerships in addition to subsidiary partnerships structured as DownREITs. All significant intercompany balances and transactions have been eliminated in consolidation.

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

F-7

The Company accounts for investments in unconsolidated entities in accordance with SOP 78-9 and Accounting Principles Board (“APB”) Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock.” The Company uses the equity method to account for investments in which it owns greater than 20% of the equity value or has significant and disproportionate influence over that entity. Investments in which the Company owns 20% or less of the equity value and does not have significant and disproportionate influence are accounted for using the cost method. If there is an event or change in circumstance that indicates a loss in the value of an investment, the Company’s policy is to record the loss and reduce the value of the investment to its fair value. A loss in value would be indicated if the Company could not recover the carrying value of the investment or if the investee could not sustain an earnings capacity that would justify the carrying amount of the investment. The Company did not recognize an impairment loss on any of its investments in unconsolidated entities during the year ended December 31, 2002. However, during the year ended December 31, 2001, the Company recorded an impairment loss of $934 related to a technology investment in which the Company no longer owns an equity interest.

Revenue Recognition

Rental income related to leases is recognized on an accrual basis when due from residents in accordance with SEC Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements.” In accordance with the Company’s standard lease terms, rental payments are generally due on a monthly basis. Any cash concessions given at the inception of the lease are amortized over the approximate life of the lease, which is generally one year.

Real Estate

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

The Company’s policy with respect to capital expenditures is generally to capitalize only non-recurring expenditures. Improvements and upgrades are capitalized only if the item exceeds $15, extends the useful life of the asset and is not related to making an apartment home ready for the next resident. Purchases of personal property, such as computers and furniture, are capitalized only if the item is a new addition. The Company generally expenses purchases of personal property made for replacement purposes.

The capitalization of costs during the development of assets (including interest and related loan fees, property taxes and other direct and indirect costs) begins when active development commences and ends when the asset, or a portion of an asset, is delivered and is ready for its intended use, which is generally indicated by the issuance of a certificate of occupancy. Cost capitalization during redevelopment of apartment homes (including interest and related loan fees, property taxes and other direct and indirect costs) begins when an apartment home is taken out-of-service for redevelopment and ends when the apartment home redevelopment is completed and the apartment home is placed in-service.

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 67, “Accounting for Costs and Initial Rental Operations of Real Estate Projects,” the Company capitalizes pre-development costs incurred in pursuit of new development opportunities for which the Company currently believes future development is probable (“Development Rights”). Future development of these Development Rights is dependent upon various factors, including zoning and regulatory approval, rental market conditions, construction costs and availability of capital. A charge to expense is included in operating expenses, excluding property taxes on the accompanying Consolidated Statements of Operations and Other Comprehensive Income to provide an allowance for potentially unrecoverable pre-development costs.

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

F-8

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

If there is an event or change in circumstance that indicates an impairment in the value of an operating community, the Company’s policy is to assess any impairment in value by making a comparison of the current and projected operating cash flows of the community over its remaining useful life, on an undiscounted basis, to the carrying amount of the community. If such carrying amounts are in excess of the estimated projected operating cash flows of the community, the Company would recognize an impairment loss equivalent to an amount required to adjust the carrying amount to its estimated fair market value. The Company has not recognized an impairment loss in 2002, 2001 or 2000 on any of its operating communities. However, the Company recognized an impairment loss in 2002 related to land planned for disposition as of December 31, 2002. See Note 7, “Discontinued Operations – Real Estate Assets Held for Sale” of the Consolidated Financial Statements.

Income Taxes

The Company elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, for the year ended December 31, 1994 and has not revoked such election. A corporate REIT is a legal entity which holds real estate interests and must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its adjusted taxable income to stockholders. As a REIT, the Company generally will not be subject to corporate level federal income tax on taxable income it distributes currently to its stockholders. Management believes that all such conditions for the avoidance of income taxes have been met for the periods presented. Accordingly, no provision for federal and state income taxes has been made. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, taxable income from non-REIT activities managed through taxable REIT subsidiaries is subject to federal, state and local income taxes.

The following reconciles net income available to common stockholders to taxable net income for the years ended December 31, 2002, 2001 and 2000:


		2002			2001			2000
		Estimate			Actual			Actual

Net income available to common stockholders		$	155,722		$	216,500		$	170,825
Dividends attributable to Preferred Stock, not deductible for tax			17,896			32,497			39,779
GAAP gain on sale of communities less than (in excess of) tax gain			5,164			(21,223	)		(15,146	)
Depreciation/Amortization timing differences on real estate			(5,893	)		(4,899	)		(826	)
Tax compensation expense in excess of GAAP			(8,568	)		(11,129	)		(5,873	)
Other adjustments			1,395			(124	)		(1,157	)

	Taxable net income	$	165,716		$	211,622		$	187,602

F-9

The following summarizes the tax components of the Company’s common and preferred dividends declared for the years ended December 31, 2002, 2001 and 2000:


	2002			2001			2000

Ordinary income		74	%		80	%		86	%
20% capital gain		23	%		14	%		9	%
Unrecaptured §1250 gain		3	%		6	%		5	%

Deferred Financing Costs

Deferred financing costs include fees and costs incurred to obtain debt financing and are amortized on a straight-line basis, which approximates the effective interest method, over the shorter of the term of the loan or the related credit enhancement facility, if applicable. Unamortized financing costs are written-off when debt is retired before the maturity date. Accumulated amortization of deferred financing costs was $15,765 and $11,916 at December 31, 2002 and 2001, respectively.

Cash, Cash Equivalents and Cash in Escrow

Cash and cash equivalents include all cash and liquid investments with an original maturity of three months or less from the date acquired. The majority of the Company’s cash, cash equivalents and cash in escrows is held at major commercial banks.

Interest Rate Contracts

The Company utilizes derivative financial instruments to manage interest rate risk and has designated these financial instruments as hedges under the guidance of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and SFAS No. 138, “Accounting for Certain Instruments and Certain Hedging Activities, an Amendment of Statement No. 133.” For fair value hedge transactions, changes in the fair value of the derivative instrument and changes in the fair value of the hedged item due to the risk being hedged are recognized in current period earnings. For cash flow hedge transactions, changes in the fair value of the derivative instrument are reported in other comprehensive income. For cash flow hedges where the changes in the fair value of the derivative exceeds the change in fair value of the hedged item, the ineffective portion is recognized in current period earnings. Derivatives which are not part of a hedge relationship are recorded at fair value through earnings. As of December 31, 2002, the Company has approximately $166,000 in variable rate tax-exempt debt subject to cash flow hedges. See Note 5, “Derivative Instruments and Hedging Activities,” of the Consolidated Financial Statements.

Comprehensive Income

Comprehensive income, which is defined as all changes in equity during each period except for those resulting from investments by or distributions to shareholders, is displayed in the accompanying Consolidated Statements of Stockholders’ Equity. Accumulated other comprehensive loss reflects the changes in the fair value of effective cash flow hedges.

F-10

Earnings per Common Share

In accordance with the provisions of SFAS No. 128, “Earnings per Share,” basic earnings per share is computed by dividing earnings available to common shareholders by the weighted average number of shares outstanding during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis. The Company’s earnings per common share are determined as follows:


	For the year ended

	12-31-02		12-31-01		12-31-00

Basic and Diluted shares outstanding
Weighted average common shares — basic		68,772,139		67,842,752		66,309,707
Weighted average DownREIT units outstanding		988,747		682,134		861,755
Effect of dilutive securities		913,325		1,256,833		969,536

Weighted average common shares and DownREIT units — diluted		70,674,211		69,781,719		68,140,998

Calculation of Earnings per Share — Basic
Net income available to common stockholders	$	155,722	$	216,500	$	170,825

Weighted average common shares — basic		68,772,139		67,842,752		66,309,707

Earnings per common share — basic	$	2.26	$	3.19	$	2.58

Calculation of Earnings per Share — Diluted
Net income available to common stockholders	$	155,722	$	216,500	$	170,825
Add: Minority interest of DownREIT unitholders in consolidated partnerships		1,601		1,559		1,759

Adjusted net income available to common stockholders	$	157,323	$	218,059	$	172,584

Weighted average common shares and DownREIT units — diluted		70,674,211		69,781,719		68,140,998

Earnings per common share — diluted	$	2.23	$	3.12	$	2.53

For each of the years presented, certain options to purchase shares of common stock were outstanding, but were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares for the period. The number of options not included totaled 1,410,397, 18,269 and 7,500 in 2002, 2001 and 2000, respectively.

In 2002, 42,697 units of limited partnership (“DownREIT units”) were presented for redemption and were purchased by the Company for $1,663. In addition, the Company issued 102,756 DownREIT units valued at $5,000 in connection with the acquisition of land. In 2001, 762 DownREIT units, valued at $36, were exchanged for an equal number of shares of the Company’s common stock, and 22,076 DownREIT units were presented for redemption and purchased by the Company for $864. The Company also issued 257,559 DownREIT units valued at $12,304 as consideration for acquisitions of apartment communities and land. In 2000, 1,520 DownREIT units, valued at $60, were issued as partial consideration for the acquisition of an apartment community. In addition, 304,602 DownREIT units, valued at $10,926, were exchanged for an equal number of shares of the Company’s common stock.

Stock-Based Compensation

During the years ended December 31, 2002, 2001 and 2000, the Company applied the intrinsic value method as provided in APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, in accounting for its employee stock options. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. See Note 10, “Stock-Based Compensation Plans,” for information regarding the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation.

F-11

Business Interruption Insurance

During 2000, a fire occurred at one of the Company’s development communities, which was under construction and unoccupied at the time. The Company had property damage and business interruption insurance which covered this event. Business interruption insurance proceeds of $5,800 and $2,500 are included in other income in the accompanying Consolidated Statements of Operations and Other Comprehensive Income for the years ended December 31, 2002 and 2001, respectively. This settlement was finalized in 2002.

Executive Separation Costs

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

In December 2001, a senior executive of the Company retired from his management position. Upon retirement, the Company recognized compensation expense of approximately $784, relating to the accelerated vesting of restricted stock grants.

Recently Issued Accounting Standards

In May 2002, SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections” was issued. SFAS No. 145, among other items, rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishments of Debt,” which provided that gains and losses from early debt retirements be treated as extraordinary items. Under SFAS No. 145, gains and losses from early debt retirements will only be treated as extraordinary items if they meet the criteria for extraordinary items under APB No. 30. This statement is effective for fiscal years beginning after May 15, 2002. The Company will adopt this pronouncement effective January 1, 2003, but does not expect it to have a material impact on its financial condition or results of operations.

In June 2002, SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” was issued. This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity.” Under SFAS No. 146, a liability for costs associated with exit or disposal activities is only to be recognized when the liability is incurred and the definition of a liability under Concepts Statement No. 6 is met, rather than at the date of an entity’s commitment to an exit or disposal plan. This statement is effective for exit or disposal activities that are initiated after December 31, 2002. The Company will adopt this pronouncement effective January 1, 2003, but does not expect it to have a material impact on its financial condition or results of operations.

In November 2002, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. (“FIN”) 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Direct Guarantees of Indebtedness of Others.” FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The Company will apply the initial recognition and initial measurement provisions of FIN 45 on a prospective basis for any guarantees issued or modified after December 31, 2002, but does not expect the adoption of FIN 45 to have a material impact on its financial condition or results of operations.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” which amends SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 on both an annual and interim basis to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002 while the interim disclosure provisions are effective for interim periods beginning after December 15, 2002.

F-12

In January 2003, the FASB issued FIN 46, “Consolidation of Variable Interest Entities,” which changes the guidelines for consolidation of and disclosure related to unconsolidated entities, if those unconsolidated entities qualify as variable interest entities, as defined in FIN 46. The provisions of FIN 46 are to be applied effective immediately for variable interest entities created after January 31, 2003, and effective July 1, 2003 for variable interest entities created prior to February 1, 2003. If it is reasonably possible that an enterprise will consolidate or disclose information about a variable interest entity when FIN 46 becomes effective, the enterprise should make certain disclosures in all financial statements initially issued after January 31, 2003, regardless of the date on which the variable interest entity was created. The Company does not believe that it is reasonably possible that the adoption of FIN 46 will result in the consolidation of any previously unconsolidated entities. The adoption of FIN 46 may result in additional disclosure about a limited number of investments in variable interest entities, but such disclosure is not expected to be material.

Use of Estimates

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

Reclassifications

Certain reclassifications have been made to amounts in prior years’ financial statements to conform with current year presentations.

Discontinued Operations

On January 1, 2002, the Company adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” which requires that the assets and liabilities and the results of operations of any communities which have been sold since January 1, 2002, or otherwise qualify as held for sale, be presented as discontinued operations in the Company’s Consolidated Financial Statements in both current and prior periods presented. The community specific components of net income that are presented as discontinued operations include net operating income, depreciation and interest expense. In addition, the net gain or loss (including any impairment loss) on the eventual disposal of communities held for sale will be presented as discontinued operations when recognized. This change in presentation will not have any impact on the Company’s financial condition or results of operations. Real estate assets held for sale will continue to be measured at the lower of the carrying amount or the fair value less the cost to sell, and are presented separately in the accompanying Consolidated Balance Sheets. Subsequent to classification of a community as held for sale, no further depreciation is recorded on the assets.

2. Interest Capitalized

Capitalized interest associated with communities under development or redevelopment totaled $29,937, $27,635 and $18,328 for the years ended December 31, 2002, 2001 and 2000, respectively.

F-13

3. Notes Payable, Unsecured Notes and Credit Facility

The Company’s mortgage notes payable, unsecured notes and variable rate unsecured credit facility as of December 31, 2002 and 2001 are summarized as follows:


		12-31-02		12-31-01

Fixed rate unsecured notes (1)		$	1,985,342	$	1,635,000
Fixed rate mortgage notes payable — conventional and tax-exempt (2)			311,981		322,495
Variable rate mortgage notes payable — tax-exempt (3)			108,781		67,960

	Total notes payable and unsecured notes		2,406,104		2,025,455
Variable rate secured short-term construction loan			36,089		57,314
Variable rate unsecured credit facility			28,970		—

	Total mortgage notes payable, unsecured notes and unsecured credit facility	$	2,471,163	$	2,082,769

	(1)		Balance at December 31, 2002 includes $342 of debt premium received at issuance of unsecured notes.

	(2)		Includes approximately $166,000 of variable rate notes in both years effectively fixed through Hedged Derivatives, as described in Note 5, “Derivative Instruments and Hedging Activities,” of the Consolidated Financial Statements.

	(3)		Balances at both December 31, 2002 and 2001 include $27,305 related to a real estate asset held for sale.

During the year ended December 31, 2002, the Company assumed $33,900 in variable rate, tax-exempt debt related to a community acquisition and repaid $21,225 related to a short-term construction loan, in addition to normal monthly principal and interest payments. In the aggregate, mortgage notes payable, excluding the short-term construction loan, mature at various dates from May 2004 through February 2041 and are collateralized by certain apartment communities. As of December 31, 2002, the Company has guaranteed approximately $149,000 of mortgage notes payable held by subsidiaries; all such mortgage notes payable are consolidated for financial reporting purposes. The weighted average interest rate of the Company’s fixed rate mortgage notes payable (conventional and tax-exempt) was 6.6% and 6.7% at December 31, 2002 and 2001, respectively. The weighted average interest rate of the Company’s variable rate mortgage notes payable and its unsecured credit facility (as discussed below), including the effect of certain financing related fees, was 3.5% and 3.1% at December 31, 2002 and 2001, respectively.

During the year ended December 31, 2002, the Company issued $450,000 in additional unsecured notes. The Company repaid $100,000 of previously issued unsecured notes pursuant to their scheduled maturity, and no prepayment fees were incurred. The Company’s unsecured notes contain a number of financial and other covenants with which the Company must comply, including, but not limited to, limits on the aggregate amount of total and secured indebtedness the Company may have on a consolidated basis and limits on the Company’s required debt service payments.

F-14

Scheduled payments and maturities of mortgage notes payable, including a mortgage note payable in the amount of $27,305 relating to a real estate asset held for sale, and unsecured notes outstanding at December 31, 2002 are as follows:


					Unsecured		Interest rate
	Secured notes		Secured notes		notes		of unsecured
Year	payments		maturities		maturities		notes

2003	$	4,104	$	36,089	$	50,000		6.250	%
						100,000		6.500	%
2004		4,252		24,106		125,000		6.580	%
2005		4,341		—		100,000		6.625	%
						50,000		6.500	%
2006		4,647		—		150,000		6.800	%
2007		4,976		35,980		110,000		6.875	%
						150,000		5.000	%
2008		5,327		—		50,000		6.625	%
						150,000		8.250	%
2009		5,704		10,400		150,000		7.500	%
2010		5,293		29,388		200,000		7.500	%
2011		5,664		—		300,000		6.625	%
						50,000		6.625	%
2012		5,401		12,095		250,000		6.125	%
Thereafter		123,228		135,856		—

	$	172,937	$	283,914	$	1,985,000

The Company has a $500,000 revolving variable rate unsecured credit facility with J.P. Morgan Chase and Fleet National Bank serving as co-agents for a syndicate of commercial banks, which had $28,970 and $0 outstanding and $79,999 and $85,420 in letters of credit on December 31, 2002 and 2001, respectively. Under the terms of the unsecured credit facility, if the Company elects to increase the facility up to $650,000, and one or more banks (from the syndicate or otherwise) voluntarily agree to provide the additional commitment, then the Company will be able to increase the facility up to $650,000, and no member of the syndicate of banks can prohibit such increase; such an increase in the facility will only be effective to the extent banks (from the syndicate or otherwise) choose to commit to lend additional funds. The Company pays participating banks, in the aggregate, an annual facility fee of approximately $750 in quarterly installments. The unsecured credit facility bears interest at varying levels based on the London Interbank Offered Rate (“LIBOR”), rating levels achieved on the Company’s unsecured notes and on a maturity schedule selected by the Company. The current stated pricing is LIBOR plus 0.60% per annum (1.98% on December 31, 2002). Pricing could vary if there is a change in rating by either of the two leading national rating agencies; a change in rating of one level would impact the unsecured credit facility pricing by 0.05% to 0.15%. In addition, the unsecured credit facility includes a competitive bid option, which allows banks that are part of the lender consortium to bid to make loans to the Company at a rate that is lower than the stated rate provided by the unsecured credit facility for up to $400,000. The Company is subject to (i) certain customary covenants under the unsecured credit facility, including, but not limited to, maintaining certain maximum leverage ratios, a minimum fixed charges coverage ratio and minimum unencumbered assets and equity levels, and (ii) prohibitions on paying dividends in amounts that exceed 95% of the Company’s Funds from Operations, as defined therein, except as may be required to maintain the Company’s REIT status. The existing facility matures in May 2005 assuming exercise of a one-year renewal option by the Company.

F-15

4. Stockholders’ Equity

As of both December 31, 2002 and 2001, the Company had authorized for issuance 140,000,000 and 50,000,000 shares of common and preferred stock, respectively. Dividends on all series of issued preferred stock are cumulative from the date of original issue and are payable quarterly in arrears on or before the 15th day of each month as stated in the table below. None of the series of preferred stock are redeemable prior to the date stated in the table below, but on or after the stated date, may be redeemed for cash at the option of the Company in whole or in part at a redemption price of $25.00 per share, plus all accrued and unpaid dividends, if any. In July 2002, the Company redeemed all 2,300,000 outstanding shares of its 8.50% Series C Cumulative Redeemable Preferred Stock at a price of $25.00 per share, plus $0.1417 in accrued and unpaid dividends, for an aggregate redemption price of $57,826, including accrued dividends of $326. The redemption price was funded in part by the sale on July 11, 2002 of 592,000 shares of Series I Cumulative Redeemable Preferred Stock through a private placement to an institutional investor for a net purchase price of $14,504. The dividend rate on such shares was initially equal to 3.36% per annum (three month LIBOR plus 1.5%) of the liquidation preference. As permitted under the terms of such preferred stock, the Company redeemed all of the Series I Cumulative Redeemable Preferred Stock on August 29, 2002 for an aggregate redemption price of $14,609 including accrued dividends of $68. The series of preferred stock outstanding have no stated maturity and are not subject to any sinking fund or mandatory redemptions. Preferred stock outstanding as of December 31, 2002 were as follows:

Shares outstanding

Payable

Annual

Liquidation

Non-redeemable

Series

December 31, 2002

quarterly

rate

preference

prior to

3,267,700

March, June, September,
December

8.00

December 15, 2002 —
Currently Redeemable

4,000,000

March, June, September,
December

8.70

October 15, 2008

During the year ended December 31, 2002, the Company (i) issued 664,118 shares of common stock in connection with stock options exercised, (ii) issued 144,718 common shares in connection with stock grants to employees of which 80% are restricted, (iii) had forfeitures of 2,818 shares of restricted stock grants to employees and (iv) withheld 34,876 shares to satisfy employees’ tax withholding and other liabilities.

In addition, the Company announced in July 2002 that its Board of Directors had authorized a common stock repurchase program. Under this program, the Company may acquire shares of its common stock in open market or negotiated transactions up to an aggregate purchase price of $100,000. Actual purchases of stock will vary with market conditions. The size of the stock repurchase program was designed so that retained cash flow, as well as the proceeds from sales of existing apartment communities and a reduction in planned acquisitions, will provide the source of funding for the program, with the Company’s unsecured credit facility providing temporary funding as needed. As of December 31, 2002, the Company had repurchased 1,281,600 shares of common stock at an aggregate cost of $49,722 through this program.

Dividends per common share for the years ended December 31, 2002, 2001 and 2000 were $2.80, $2.56 and $2.24 per share, respectively. In 2002, dividends for preferred shares redeemed during the year were $0.92 per share and dividends for all non-redeemed preferred shares were $2.10 per share. In 2001, dividends for preferred shares redeemed during the year were $1.41 per share and dividends for all non-redeemed preferred shares were $2.10 per share. Dividends were $2.17 per preferred share in 2000.

5. Derivative Instruments and Hedging Activities

The Company has historically used interest rate swap and cap agreements (collectively, the “Hedged Derivatives”) to reduce the impact of interest rate fluctuations on its variable rate tax-exempt bonds. The Company has not entered into any interest rate hedge agreements or treasury locks for its conventional unsecured debt and does not hold interest rate hedge agreements for trading or other speculative purposes. As of December 31, 2002, the effect of Hedged Derivatives is to fix approximately $166,000 of the Company’s tax-exempt debt at a weighted average interest rate of 5.9% with an average maturity of 3.7 years. In addition, one of the Company’s unconsolidated real estate

F-16

investments (see Note 6, “Investments in Unconsolidated Entities”) has $22,500 of variable rate debt outstanding that is subject to an interest rate swap. This debt is not recourse to or guaranteed by the Company. The Hedged Derivatives are accounted for in accordance with SFAS No. 133, which as amended, was adopted by the Company on January 1, 2001. SFAS No. 133 requires that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at its fair value, with changes in fair value recognized currently in earnings unless specific hedge accounting criteria are met.

The Company has determined that its Hedged Derivatives qualify as effective cash-flow hedges under SFAS No. 133, resulting in the Company recording all changes in the fair value of the Hedged Derivatives in other comprehensive income. Amounts recorded in other comprehensive income will be reclassified into earnings in the period in which earnings are affected by the hedged cash flows. At January 1, 2001, in accordance with the transition provisions of SFAS No. 133, the Company recorded a cumulative effect adjustment of $6,412 to other comprehensive loss to recognize at fair value all of the derivatives that are designated as cash flow hedging instruments. During the years ended December 31, 2002 and 2001, the Company recorded additional unrealized losses to other comprehensive loss of $4,157 and $2,599, respectively, to adjust the Hedged Derivatives to their fair value. In addition, a Swap Agreement with a fair value of $528 was transferred in connection with the sale of a community during the first quarter of 2001. The estimated amount, included in accumulated other comprehensive loss as of December 31, 2002, expected to be reclassified into earnings within the next twelve months to offset the variability of cash flows during this period is not material.

The Company assesses, both at inception and on an on-going basis, the effectiveness of all hedges in offsetting cash flows of hedged items. Hedge ineffectiveness did not have a material impact on earnings and the Company does not anticipate that it will have a material effect in the future. The fair values of the obligations under the Hedged Derivatives are included in accrued expenses and other liabilities on the accompanying Consolidated Balance Sheets.

By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself to credit risk and market risk. The credit risk is the risk of a counterparty not performing under the terms of the Hedged Derivatives. The counterparties to these Hedged Derivatives are major financial institutions which have an A+ or better credit rating by the Standard & Poor’s Ratings Group. The Company monitors the credit ratings of counterparties and the amount of the Company’s debt subject to Hedged Derivatives with any one party. Therefore, the Company believes the likelihood of realizing material losses from counterparty non-performance is remote. Market risk is the adverse effect of the value of financial instruments that results from a change in interest rates. The market risk associated with interest-rate contracts is managed by the establishment and monitoring of parameters that limit the types and degree of market risk that may be undertaken. These risks are managed by the Company’s Chief Financial Officer and Vice President of Finance.

6. Investments in Unconsolidated Entities

Investments in Unconsolidated Real Estate Entities

As of December 31, 2002, the Company had investments in the following unconsolidated real estate entities, which are accounted for under the equity method of accounting, except as described below:

•

Falkland Partners, LLC was formed as a general partnership in July 1985 to own and operate Falkland Chase, a 450 apartment-home community located in Silver Spring, Maryland. In 1993, Avalon acquired a 50% ownership and economic interest in the partnership for an investment of $2,200. The Company, as successor by merger to Avalon in 1998, became the managing member of the limited liability company in 2000 after conversion from a general partnership. The Company has responsibility for the day-to-day operations of the Falkland Chase community and is the management agent subject to the terms of a management agreement. As of December 31, 2002, Falkland Chase has $24,695 of tax-exempt floating rate debt outstanding (1.0% as of December 31, 2002), which matures in December 2030.

F-17

	•		Town Run Associates was formed as a general partnership in November 1994 to develop, own and operate Avalon Run, a 426 apartment-home community located in Lawrenceville, New Jersey. Since formation of this venture, the Company has invested $1,803 and, following a preferred return on all contributed equity (which was achieved in 2002), has a 40% ownership and cash flow interest with a 49% residual economic interest. The Company is responsible for the day-to-day operations of the Avalon Run community and is the management agent subject to the terms of a management agreement. The development of Avalon Run was funded entirely through equity contributions from Avalon as well as the other venture partner, and therefore Avalon Run is not subject to any outstanding debt as of December 31, 2002.

	•		Town Grove, LLC was formed as a limited liability corporation in December 1997 to develop, own and operate Avalon Grove, a 402 apartment-home community located in Stamford, Connecticut. Since formation of this venture, the Company has invested $14,653 and, following a preferred return on all contributed equity (which was achieved in 2002), has a 50% ownership and a 50% cash flow and residual economic interest. The Company is responsible for the day-to-day operations of the Avalon Grove community and is the management agent subject to the terms of a management agreement. The development of Avalon Grove was funded through contributions from the Company and the other venture partner, and therefore Avalon Grove is not subject to any outstanding debt as of December 31, 2002.

	•		Avalon Terrace, LLC — The Company acquired Avalon Bedford, a 388 apartment-home community located in Stamford, Connecticut in December 1998. In May 2000, the Company transferred Avalon Bedford to Avalon Terrace, LLC and subsequently admitted a joint venture partner, while retaining a 25% ownership interest in this limited liability company for an investment of $5,394 and a right to 50% of cash flow distributions after achievement of a threshold return (which was not achieved in 2002). The Company is responsible for the day-to-day operations of the Avalon Bedford community and is the management agent subject to the terms of a management agreement. As of December 31, 2002, Avalon Bedford has $22,500 in variable rate debt outstanding, which came due in November 2002, but was extended until November 2005. The interest rate on this debt is fixed through a Hedged Derivative as discussed in Note 5, “Derivative Instruments and Hedging Activities.”

	•		Arna Valley View Limited Partnership — In connection with the municipal approval process for the development of two consolidated communities, the Company agreed to participate in the formation of a limited partnership in February 1999 to develop, finance, own and operate Arna Valley View, a 101 apartment-home community located in Arlington, Virginia. This community has affordable rents for 100% of apartment homes related to the tax-exempt bond financing and tax credits used to finance construction of the community. A subsidiary of the Company is the general partner of the partnership with a 0.01% ownership interest. The Company is responsible for the day-to-day operations of the community, and is the management agent subject to the terms of a management agreement. As of December 31, 2002, Arna Valley View has $6,150 of variable rate tax-exempt bonds outstanding, which mature in June 2032. In addition, Arna Valley View has $4,134 of 4% fixed rate county bonds outstanding that mature in December 2030. Due to the Company’s limited ownership and investment in this venture, it is accounted for using the cost method.

F-18

The following is a combined summary of the financial position of the entities accounted for using the equity method, as of the dates presented:


		(Unaudited)

		12-31-02		12-31-01

Assets:
Real estate, net		$	136,096	$	136,679
Other assets			5,323		10,886

	Total assets	$	141,419	$	147,565

Liabilities and partners’ equity:
Mortgage notes payable		$	47,195	$	47,195
Other liabilities			3,820		5,172
Partners’ equity			90,404		95,198

	Total liabilities and partners’ equity	$	141,419	$	147,565

The following is a combined summary of the operating results of the entities accounted for using the equity method, for the years presented:


		For the year ended
					(unaudited)

		12-31-02			12-31-01			12-31-00

Rental income		$	27,678		$	28,746		$	22,653
Operating and other expenses			(9,604	)		(9,098	)		(6,295	)
Interest expense, net			(2,125	)		(2,402	)		(1,209	)
Depreciation expense			(4,988	)		(4,253	)		(3,287	)

	Net income	$	10,961		$	12,993		$	11,862

The financial position and operating results in the preceding tables reflect reclassifications made to amounts in prior years’ financial statements to conform with current year presentations. The Company also holds a 25% limited liability company membership interest in the limited liability company that owns Avalon on the Sound, which is presented on a consolidated basis in the Consolidated Financial Statements in accordance with GAAP as a result of a purchase option held by the Company.

Investments in Unconsolidated Non-Real Estate Entities

At December 31, 2002, the Company holds minority interest investments in five non-real estate entities, three of which are technology companies. Based on ownership and control criteria, the Company accounts for two of these investments using the equity method, with the remaining non-real estate investments accounted for at cost. During the years ended December 31, 2002, 2001 and 2000, the Company recorded losses of $3,166, $1,730 and $719, respectively, related to Realeum, Inc., one of the two investments accounted for under the equity method, bringing the carrying value of this investment to zero as of December 31, 2002. The aggregate carrying value of the Company’s investment in unconsolidated non-real estate entities was $1,855 and $2,737 as of December 31, 2002 and 2001, respectively.

F-19

The following is a summary of the Company’s equity in income of unconsolidated entities for the years presented:


		For the year ended

		12-31-02			12-31-01			12-31-00

Town Grove, LLC		$	1,391		$	1,977		$	1,977
Falkland Partners, LLC			1,058			924			577
Town Run Associates			481			606			555
Avalon Terrace, LLC			253			(3	)		38
Realeum, Inc.			(3,166	)		(1,730	)		(719	)
Other unconsolidated non-real estate entites			38			(918	)		—

	Total	$	55		$	856		$	2,428

7. Discontinued Operations – Real Estate Assets Held for Sale

The Company has a policy of disposing of assets that are not consistent with its long-term investment criteria when market conditions are favorable. In connection with this strategy, the Company generally solicits competing bids from unrelated parties for individual assets, and considers the sales price and tax ramifications of each proposal. During the year ended December 31, 2002, the Company sold one community, as summarized below:


		Period	Apartment				Gross sales		Net
Community Name	Location	of sale	homes			Debt	price		proceeds

Longwood	Brookline, MA	4Q02		277	$	—	$	80,100	$	78,454

Total of all 2002 asset sales				277	$	—	$	80,100	$	78,454

Total of all 2001 asset sales				2,551	$	8,145	$	241,130	$	230,400

Total of all 2000 asset sales				1,932	$	31,694	$	160,085	$	124,392

As of December 31, 2002, the Company did not have any communities that qualified as held for sale under the provisions of SFAS No. 144. However, during the three months ended March 31, 2003, the Company sold one community and reclassified six communities to held for sale. Therefore, as required under SFAS No. 144, the operations for communities sold from January 1, 2002 through March 31, 2003 and communities held for sale as of March 31, 2003 have been presented as discontinued operations in the accompanying Consolidated Financial Statements for the years ended December 31, 2002, 2001 and 2000. The following is a summary of income from discontinued operations for the years presented:


		For the year ended
					(unaudited)

		12-31-02			12-31-01			12-31-00

Total revenue		$	32,797		$	34,463		$	32,674
Operating and other expenses			(12,362	)		(12,753	)		(12,158	)
Interest expense, net			(823	)		(1,134	)		(1,636	)
Minority interest			(799	)		(758	)		(822	)
Depreciation expense			(6,397	)		(7,072	)		(7,272	)
Gain on sale			48,893			—			—

	Income from discontinued operations	$	61,309		$	12,746		$	10,786

The Company’s Consolidated Balance Sheets include other assets (excluding net real estate) of $1,464 and $1,086, mortgage notes payable of $27,305 and $27,305 and other liabilities of $2,107 and $2,646 as of December 31, 2002 and 2001, respectively, relating to real estate assets sold or held for sale. The estimated proceeds less anticipated

F-20

costs to sell for assets held for sale as of March 31, 2003 are greater than the carrying values as of December 31, 2002, and therefore no provision for possible losses have been recorded.

As of December 31, 2002, the Company has determined that two land parcels with an aggregate carrying value (prior to adjustment) of $26,739 would not likely proceed to development and are planned for disposition. Although these assets do not qualify as held for sale under the provisions of SFAS No. 144, the Company performed an analysis of the carrying value of these assets in connection with this change in anticipated use. As a result, the Company recorded an impairment loss of $6,800 during the year ended December 31, 2002 to reflect these parcels at fair market value (based on their entitlement status as of December 31, 2002.) See Note 14, “Subsequent Events,” of the Consolidated Financial Statements.

8. Commitments and Contingencies

Employment Agreements and Arrangements

As of December 31, 2002, the Company has employment agreements with six executive officers. The employment agreements provide for severance payments and generally also provide for accelerated vesting of stock options and restricted stock in the event of a termination of employment (except for a termination by the Company with cause or a voluntary termination by the employee). The current term of these agreements ends on dates that vary between December 2003 and December 2006. The employment agreements provide for one-year automatic renewals (two years in the case of the CEO) after the initial term unless an advance notice of non-renewal is provided by either party. Under five of the agreements, upon a notice of non-renewal by the Company, the officer may terminate his employment and receive a severance payment. Upon a change in control, the agreements provide for an automatic extension of up to three years from the date of the change in control. The employment agreements provide for base salary and incentive compensation in the form of cash awards, stock options and stock grants subject to the discretion of, and attainment of performance goals established by, the Compensation Committee of the Board of Directors.

During the fourth quarter of 1999, the Company adopted an Officer Severance Program (the “Program”) for the benefit of those officers of the Company who do not have employment agreements. Under the Program, in the event an officer who is not otherwise covered by a severance arrangement is terminated (other than for cause) within two years of a change in control (as defined) of the Company, such officer will generally receive a cash lump sum payment equal to the sum of such officer’s base salary and cash bonus, as well as accelerated vesting of stock options and restricted stock.

Legal Contingencies

The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are frequently covered by insurance. If it has been determined that a loss is probable to occur, the estimated amount of the loss is expensed in the financial statements. While the resolution of these matters cannot be predicted with certainty, management believes the final outcome of such matters will not have a material adverse effect on the financial position or results of operations of the Company.

9. Segment Reporting

The Company’s reportable operating segments include Established Communities, Other Stabilized Communities, and Development/Redevelopment Communities. Annually as of January 1st, the Company determines which of its communities fall into each of these categories and maintains that classification throughout the year for the purpose of reporting segment operations.

•

Established Communities (also known as Same Store Communities) are communities where a comparison of operating results from the prior year to the current year is meaningful, as these communities were owned and had stabilized occupancy and costs as of the beginning of the prior year. These communities are divided into geographic regions. For the year 2002, the Established Communities were

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			communities that had stabilized occupancy and costs as of January 1, 2001 and are not conducting or planning to conduct substantial redevelopment activities 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. Established Communities do not include communities that are currently held for sale or planned for disposition during the current year.

	•		Other Stabilized Communities includes all other completed communities that have stabilized occupancy, as defined above, and are not conducting or planning to conduct substantial redevelopment activities within the current year. Other Stabilized Communities do not include communities that are currently held for sale.

	•		Development/Redevelopment Communities consists of communities that are under construction and have not received a final certificate of occupancy, communities where substantial redevelopment is in progress or is planned to begin during the current year and communities under lease-up, that have not reached stabilized occupancy, as defined above, as of January 1, 2002.

In addition, the Company owns land held for future development and has other corporate assets that are not allocated to an operating segment.

SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” requires that segment disclosures present the measure(s) used by the chief operating decision maker for purposes of assessing such segments’ performance. The Company’s chief operating decision maker is comprised of several members of its executive management team who use Net Operating Income (“NOI”) as the primary financial measure for Established and Other Stabilized Communities. NOI is defined by the Company as total revenue less direct property operating expenses, including property taxes, and excludes corporate-level property management and other indirect operating expenses, interest income and expense, general and administrative expense, equity in income of unconsolidated entities, minority interest in consolidated partnerships, depreciation expense, gain on sale of communities, impairment losses and income from discontinued operations. Although the Company considers NOI a useful measure of operating performance, NOI should not be considered an alternative to net income or net cash flow from operating activities, as determined in accordance with GAAP. A reconciliation of NOI to net income for the years ended December 31, 2002, 2001 and 2000 is as follows:


	For the year ended

	12-31-02			12-31-01			12-31-00

Net income	$	173,618		$	248,997		$	210,604
Corporate-level property management and other indirect operating expenses		32,163			32,967			28,111
Interest income		(3,978	)		(6,823	)		(4,764	)
Interest expense		120,559			102,069			81,973
General and administrative expense		14,332			15,224			13,013
Equity in income of unconsolidated entities		(55	)		(856	)		(2,428	)
Minority interest in consolidated partnerships		1,771			(161	)		1,086
Depreciation expense		138,080			123,007			115,338
Gain on sale of communities		(48,893	)		(62,852	)		(40,779	)
Impairment loss		6,800			—			—
Income from discontinued operations		(12,416	)		(12,746	)		(10,786	)

Net operating income	$	421,981		$	438,826		$	391,368

The primary performance measure for communities under development or redevelopment depends on the stage of completion. While under development, management monitors actual construction costs against budgeted costs as well as lease-up pace and rent levels compared to budget.

The table on the following page provides details of the Company’s segment information as of the dates specified.

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				Total				% NOI			Gross
				revenue		NOI		change from prior year			real estate (1)

For the year ended December 31, 2002
	Established
		Northeast		$	151,565	$	104,782		(8.5	%)	$	840,939
		Mid-Atlantic			77,811		55,695		(3.6	%)		423,229
		Midwest			17,222		10,321		(8.2	%)		140,248
		Pacific Northwest			10,664		6,550		(12.2	%)		96,738
		Northern California			151,619		110,845		(17.5	%)		1,340,846
		Southern California			42,765		30,561		2.5	%		303,464

			Total Established		451,646		318,754		(10.3	%)		3,145,464

	Other Stabilized				82,184		55,953		n/a			794,113
	Development / Redevelopment				76,728		44,956		n/a			1,143,623
	Land Held for Future Development				n/a		n/a		n/a			78,688
	Non-allocated (2)				2,318		2,318		n/a			21,790

			Total	$	612,876	$	421,981		(3.8	%)	$	5,183,678


For the year ended December 31, 2001
	Established
		Northeast		$	113,564	$	81,777		8.4	%	$	570,551
		Mid-Atlantic			81,976		60,256		8.4	%		438,010
		Midwest			7,922		5,428		(1.6	%)		60,299
		Pacific Northwest			6,784		4,985		3.3	%		60,426
		Northern California			157,736		121,923		6.9	%		1,216,489
		Southern California			36,846		26,144		9.6	%		257,499

			Total Established		404,828		300,513		7.6	%		2,603,274

	Other Stabilized				141,611		99,795		n/a			933,366
	Development / Redevelopment				59,269		37,032		n/a			991,667
	Land Held for Future Development				n/a		n/a		n/a			66,608
	Non-allocated (2)				1,486		1,486		n/a			20,652

			Total	$	607,194	$	438,826		12.1	%	$	4,615,567


For the year ended December 31, 2000
	Established
		Northeast		$	84,764	$	60,297		6.5	%	$	444,158
		Mid-Atlantic			68,646		49,694		9.2	%		392,758
		Midwest			7,772		5,515		5.4	%		60,101
		Pacific Northwest			3,778		2,751		17.1	%		34,382
		Northern California			107,342		82,126		15.9	%		938,630
		Southern California			18,223		12,848		12.7	%		121,148

			Total Established		290,525		213,231		11.1	%		1,991,177

	Other Stabilized				189,597		135,224		n/a			1,386,868
	Development / Redevelopment				59,178		41,492		n/a			882,043
	Land Held for Future Development				n/a		n/a		n/a			33,161
	Non-allocated (2)				1,421		1,421		n/a			16,184

			Total	$	540,721	$	391,368		19.0	%	$	4,309,433

(1)		Does not include real estate assets held for sale of $160,744 and $196,207 as of December 31, 2002 and 2001, respectively.

(2)		Revenue and NOI amounts represent third-party management, accounting and developer fees which are not allocated to a reportable segment.

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The segments are classified based on the individual community’s status as of the beginning of the given calendar year. Therefore, each year the composition of communities within each business segment is adjusted. Accordingly, the amounts between years are not directly comparable. The accounting policies applicable to the operating segments described above are the same as those described in the summary of significant accounting policies.

Segment information for the years ending December 31, 2002, 2001 and 2000 has been adjusted for the communities that were designated as held for sale as of March 31, 2003 or sold from January 1, 2002 through March 31, 2003 as described in Note 7, “Discontinued Operations – Real Estate Assets Held for Sale,” of the Consolidated Financial Statements.

10. Stock-Based Compensation Plans

The Company adopted the 1994 Stock Incentive Plan, as amended and restated on March 31, 2001 (the “1994 Plan”), for the purpose of encouraging and enabling the Company’s officers, associates and directors to acquire a proprietary interest in the Company and as a means of aligning management and stockholder interests and as a retention incentive for key associates. Individuals who are eligible to participate in the 1994 Plan include officers, other associates, outside directors and other key persons of the Company and its subsidiaries who are responsible for or contribute to the management, growth or profitability of the Company and its subsidiaries. The 1994 Plan authorizes (i) the grant of stock options that qualify as incentive stock options under Section 422 of the Internal Revenue Code (“ISOs”), (ii) the grant of stock options that do not so qualify, (iii) grants of shares of restricted and unrestricted common stock, (iv) grants of deferred stock awards, (v) performance share awards entitling the recipient to acquire shares of common stock and (vi) dividend equivalent rights.

As of December 31, 2002, under the 1994 Plan a maximum of 1,415,862 shares of common stock were available for issuance. On each January 1, the maximum number available for issuance under the 1994 Plan is increased by between 0.48% and 1.00% of the total number of shares of common stock and DownREIT units actually outstanding on such date. On January 1, 2003, the maximum number available for issuance was increased by 664,115 to 2,079,977. Notwithstanding the foregoing, the maximum number of shares of stock for which ISOs may be issued under the 1994 Plan shall not exceed 2,500,000 and no awards shall be granted under the 1994 Plan after May 11, 2011. For purposes of this limitation, shares of common stock which are forfeited, canceled and reacquired by the Company, satisfied without the issuance of common stock or otherwise terminated (other than by exercise) shall be added back to the shares of common stock available for issuance under the 1994 Plan. Stock options with respect to no more than 300,000 shares of stock may be granted to any one individual participant during any one calendar year period. Options granted to officers and employees under the 1994 Plan vest over periods (and may be subject to accelerated vesting under certain circumstances) as determined by the Compensation Committee of the Board of Directors and must expire no later than ten years from the date of grant. Options granted to non-employee directors under the 1994 Plan are subject to accelerated vesting under certain limited circumstances, become exercisable on the first anniversary of the date of grant, and expire ten years from the date of grant. Restricted stock granted to officers and employees under the 1994 Plan vest over periods (and may be subject to accelerated vesting under certain circumstances) as determined by the Compensation Committee of the Board of Directors. Generally, the restricted stock grants that have been awarded to officers and employees vest over four years, with 20% vesting immediately on the grant date and the remaining 80% vesting equally over the next four years from the date of grant. Restricted stock granted to non-employee directors vests 20% on the date of issuance and 20% on each of the first four anniversaries of the date of issuance. Options to purchase 1,497,504, 2,780,757, and 3,123,713 shares of common stock were available for grant under the 1994 Plan at December 31, 2002, 2001 and 2000, respectively.

Before the Merger, Avalon had adopted its 1995 Equity Incentive Plan (the “Avalon 1995 Incentive Plan”). Under the Avalon 1995 Incentive Plan, a maximum number of 3,315,054 shares (or 2,546,956 shares as adjusted for the Merger) of common stock were issuable, plus any shares of common stock represented by awards under Avalon’s 1993 Stock Option and Incentive Plan (the “Avalon 1993 Plan”) that were forfeited, canceled, reacquired by Avalon, satisfied without the issuance of common stock or otherwise terminated (other than by exercise). Options

F-24

granted to officers, non-employee directors and associates under the Avalon 1995 Incentive Plan generally vested over a three-year term, expire ten years from the date of grant and are exercisable at the market price on the date of grant.

In connection with the Merger, the exercise prices and the number of options under the Avalon 1995 Incentive Plan and the Avalon 1993 Plan were adjusted to reflect the equivalent Bay shares and exercise prices based on the 0.7683 share conversion ratio used in the Merger. Officers, non-employee directors and associates with Avalon 1995 Incentive Plan or Avalon 1993 Plan options may exercise their adjusted number of options for the Company’s common stock at the adjusted exercise price. As of June 4, 1998, the date of the Merger, options and other awards ceased to be granted under the Avalon 1993 Plan or the Avalon 1995 Incentive Plan. Accordingly, there were no options to purchase shares of common stock available for grant under the Avalon 1995 Incentive Plan or the Avalon 1993 Plan at December 31, 2002, 2001 or 2000.

Information with respect to stock options granted under the 1994 Plan, the Avalon 1995 Incentive Plan and the Avalon 1993 Plan is as follows:


						Weighted		Avalon 1995			Weighted
						average		and Avalon			average
			1994 Plan			exercise price		1993 Plan			exercise price
			shares			per share		shares			per share

Options outstanding, December 31, 1999				2,033,274		$	32.63		1,828,337		$	34.63
	Exercised			(172,376	)		34.78		(327,582	)		28.65
	Granted			631,795			34.56		—			—
	Forfeited			(66,736	)		33.50		(16,410	)		35.84

Options outstanding, December 31, 2000				2,425,957		$	32.96		1,484,345		$	35.94
	Exercised			(367,652	)		33.05		(487,312	)		35.79
	Granted			946,612			45.90		—			—
	Forfeited			(111,639	)		40.34		(4,836	)		36.61

Options outstanding, December 31, 2001				2,893,278		$	36.91		992,197		$	36.03
	Exercised			(281,206	)		31.65		(350,157	)		37.39
	Granted			719,198			45.63		—			—
	Forfeited			(165,263	)		42.72		(1,534	)		39.86

Options outstanding, December 31, 2002				3,166,007		$	39.05		640,506		$	35.27

		Options exercisable:
		December 31, 2000		1,183,551		$	32.05		1,313,219		$	35.71

		December 31, 2001		1,537,194		$	33.58		976,830		$	35.99

		December 31, 2002		2,003,395		$	35.95		640,506		$	35.27

For options outstanding at December 31, 2002 under the 1994 Plan, 170,600 options had exercise prices ranging between $18.37 and $29.99 and a weighted average contractual life of 2.2 years, 1,473,010 options had exercise prices ranging between $30.00 and $39.99 and a weighted average contractual life of 6.2 years, and 1,522,397 options had exercise prices ranging between $40.00 and $49.90 and a weighted average contractual life of 8.6 years. Options outstanding at December 31, 2002 for the Avalon 1993 and Avalon 1995 Plans had exercise prices ranging from $26.68 to $39.70 and a weighted average contractual life of 4.1 years.

The Company applies the intrinsic value method as provided in APB Opinion No. 25 and related interpretations in accounting for its Plans. Accordingly, no compensation expense has been recognized for the stock option portion of the stock-based compensation plan.

F-25

The following table illustrates the effect on the Company’s net income available to common stockholders and earnings per share if the Company had applied the fair value recognition provisions as prescribed under SFAS No. 123, “Accounting for Stock-Based Compensation,” to the Plans (unaudited):


		For the year ended

		12-31-02			12-31-01			12-31-00

Net income available to common stockholders, as reported		$	155,722		$	216,500		$	170,825
Deduct: Total compensation expense determined under fair value based method, net of related tax effects			(2,904	)		(3,576	)		(2,767	)

Pro forma net income available to common stockholders		$	152,818		$	212,924		$	168,058

Earnings per share:
	Basic — as reported	$	2.26		$	3.19		$	2.58

	Basic — pro forma	$	2.22		$	3.14		$	2.53

	Diluted — as reported	$	2.23		$	3.12		$	2.53

	Diluted — pro forma	$	2.18		$	3.07		$	2.49

The fair value of the options granted during 2002 is estimated at $4.52 per share on the date of grant using the Black-Scholes option pricing model with the following assumptions: dividend yield of 6.15%, volatility of 18.9%, risk-free interest rates of 4.81%, actual number of forfeitures, and an expected life of approximately 7 years. The fair value of the options granted during 2001 is estimated at $4.83 per share on the date of grant using the Black-Scholes option pricing model with the following assumptions: dividend yield of 5.58%, volatility of 16.47%, risk-free interest rates of 5.07%, actual number of forfeitures, and an expected life of approximately 3 years. The fair value of the options granted during 2000 is estimated at $3.76 per share on the date of grant using the Black-Scholes option pricing model with the following assumptions: dividend yield of 6.51%, volatility of 15.93%, risk-free interest rates of 6.61%, actual number of forfeitures, and an expected life of approximately 3 years.

In October 1996, the Company adopted the 1996 Non-Qualified Employee Stock Purchase Plan (as amended, the “ESPP”). Initially 1,000,000 shares of common stock were reserved for issuance under this plan. There are currently 702,342 shares remaining available for issuance under the plan. Full-time employees of the Company generally are eligible to participate in the ESPP if, as of the last day of the applicable election period, they have been employed by the Company for at least one month. All other employees of the Company are eligible to participate provided that as of the applicable election period they have been employed by the Company for twelve months. Under the ESPP, eligible employees are permitted to acquire shares of the Company’s common stock through payroll deductions, subject to maximum purchase limitations. The ESPP provides for a series of “purchase periods.” Prior to 2000, there were two purchase periods per year of six months each. Since 2000, there has been one purchase period per year. Beginning in 2003, the purchase period will be a period of seven months beginning each May 1 and ending each November 30. The purchase price for common stock purchased under the plan is 85% of the lesser of the fair market value of the Company’s common stock on the first day of the applicable purchase period or the last day of the applicable purchase period. The offering dates, purchase dates and duration of purchase periods may be changed by the Board of Directors, if the change is announced prior to the beginning of the affected date or purchase period. The Company issued 29,345, 14,917 and 34,055 shares under the ESPP for 2002, 2001 and 2000, respectively.

11. Fair Value of Financial Instruments

Cash and cash equivalent balances are held with various financial institutions and may at times exceed the applicable Federal Deposit Insurance Corporation limit. The Company monitors credit ratings of these financial institutions and the concentration of cash and cash equivalent balances with any one financial institution and believes the likelihood of realizing material losses from the excess of cash and cash equivalent balances over insurance limits is remote.

F-26

The following estimated fair values of financial instruments were determined by management using available market information and established valuation methodologies, including discounted cash flows. Accordingly, the estimates presented are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

	•		Cash equivalents, rents receivable, accounts payable and accrued expenses, and other liabilities are carried at their face amounts, which reasonably approximate their fair values.

	•		Bond indebtedness and notes payable with an aggregate carrying value of approximately $2,442,000 and $2,083,000 had an estimated aggregate fair value of $2,639,000 and $2,191,000 at December 31, 2002 and 2001, respectively.

12. Related Party Arrangements

Purchase of Mortgage Loan

The Company’s Chairman and CEO, and the Company’s former Chairman and CEO, are partners of an entity that is the general partner of Arbor Commons Associates Limited Partnership (“Arbor Commons Associates”). Arbor Commons Associates owns Avalon Arbor, a 302 apartment home community in Shrewsbury, Massachusetts. Concurrently with its initial public offering in November 1993, Avalon purchased an existing participating mortgage loan made to Arbor Commons Associates that was originated by CIGNA Investments, Inc. The mortgage loan is secured by Arbor Commons Associates’ interest in Avalon Arbor. This loan accrues interest at a fixed rate of 10.2% per annum, payable at 9.0% per annum. The balance of the note receivable at both December 31, 2002 and 2001 was $21,483. The balance of accrued interest on the note receivable as of December 31, 2002 and 2001, respectively, was $4,965 and $5,231, and is included in other assets on the accompanying Consolidated Balance Sheets. Related interest income of $3,091, $3,081 and $3,009 was recorded for the years ended December 31, 2002, 2001 and 2000, respectively. Under the terms of the loan, the Company (as successor to Avalon) receives (as contingent interest) 50% of the cash flow after the 10.2% accrual rate is paid and 50% of the residual profits upon the sale of the community.

Unconsolidated entities

The Company manages several unconsolidated real estate joint venture entities for which it receives management fee revenue. From these entities the Company received management fee revenue of $1,019, $1,011 and $691 in the years ended December 31, 2002, 2001 and 2000, respectively.

Indebtedness of Management

The Company has a recourse loan program under which the Company lends amounts to or on behalf of employees (“Stock Loans”) equivalent to the estimated employees’ tax withholding liabilities related to the vesting of restricted stock under the 1994 Stock Incentive Plan, as amended and restated on March 31, 2001. In accordance with the Sarbanes-Oxley Act of 2002, no loans to senior officers will be renewed and the Company intends to phase out the Stock Loan program for all other participants over a period of approximately one year. The principal balance outstanding under the Stock Loans to employees was $1,133 at both December 31, 2002 and 2001. The balance of accrued interest on the notes receivable was $45 and $100 as of December 31, 2002 and 2001, respectively. Interest income on the notes of $61, $62 and $76 was recorded for the years ended December 31, 2002, 2001 and 2000, respectively. Each Stock Loan is made for a one-year term, is a full personal recourse obligation of the borrower

F-27

and is secured by a pledge to the Company of the stock that vested and gave rise to the tax withholding liability for which the loan was made. In addition, dividends on the pledged stock are automatically remitted to the Company and applied toward repayment of the Stock Loan.

Consulting Agreement with Mr. Meyer

In March 2000, the Company and Gilbert M. Meyer announced that Mr. Meyer would retire as Executive Chairman of the Company in May 2000. Although Mr. Meyer ceased his day-to-day involvement with the Company as an executive officer, he continues to serve as a director. In addition, pursuant to a consulting agreement which terminates in May 2003, Mr. Meyer agreed to serve as a consultant to the Company for three years following his retirement for an annual fee of $1,395. In such capacity he responds to requests for assistance or information concerning business matters with which he became familiar while employed and he provides business advice and counsel to the Company with respect to business strategies and acquisitions, dispositions, development and redevelopment of multifamily rental properties.

Director Compensation

The Company’s Stock Incentive Plan provides that directors of the Company who are also employees receive no additional compensation for their services as a director. Under the Stock Incentive Plan, on the fifth business day following each annual meeting of stockholders, each of the Company’s non-employee directors automatically receives options to purchase 7,000 shares of common stock at the last reported sale price of the common stock on the NYSE on such date, and a restricted stock (or deferred stock award) grant of 2,500 shares of common stock. The Company recorded compensation expense relating to these deferred stock awards in the amount of $743, $624 and $525 in the years ended December 31, 2002, 2001 and 2000, respectively. Deferred compensation relating to these deferred stock awards was $757 and $688 on December 31, 2002 and 2001, respectively.

Investment in Realeum, Inc.

As an employee incentive and retention mechanism, the Company arranged for officers of the Company to hold direct or indirect economic interest in Realeum, Inc. Realeum, Inc. is a company involved in the development and deployment of a property management and leasing automation system, in which the Company invested $2,300 in January 2002. The Company currently utilizes this property management and leasing automation system and has paid $480, $80 and $0 to Realeum, Inc. under the terms of its licensing arrangements during the years ended December 31, 2002, 2001 and 2000, respectively.

F-28

13. Quarterly Financial Information (Unaudited)

The following summary represents the quarterly results of operations for the years ended December 31, 2002 and 2001:


	For the three months ended

	3-31-02		6-30-02		9-30-02		12-31-02

Total revenue	$	151,766	$	152,368	$	153,865	$	154,876
Net income available to common stockholders	$	35,690	$	32,315	$	24,685	$	63,033
Net income per common share — basic	$	0.52	$	0.47	$	0.36	$	0.92
Net income per common share — diluted	$	0.51	$	0.46	$	0.35	$	0.91


	For the three months ended

	3-31-01		6-30-01		9-30-01		12-31-01

Total revenue	$	147,235	$	153,673	$	154,524	$	151,762
Net income available to common stockholders	$	41,654	$	39,131	$	79,229	$	56,486
Net income per common share — basic	$	0.62	$	0.58	$	1.16	$	0.83
Net income per common share — diluted	$	0.61	$	0.57	$	1.14	$	0.81

14. Subsequent Events (Unaudited)

For the period January 1, 2003 through February 28, 2003, the Company has repurchased an additional 761,000 shares of common stock at an aggregate cost of $27,659 through its common stock repurchase program.

On January 15, 2003, $50,000 in unsecured notes matured and was paid, including the balance of accrued interest.

On February 18, 2003, the Company gave notice of its intent to redeem all 3,267,700 outstanding shares of its 8.00% Series D Cumulative Redeemable Preferred Stock. The closing of this redemption is anticipated on March 20, 2003 at a price of $25.00 per share, plus $0.0167 in accrued and unpaid dividends, for an aggregate redemption price of $81,747, including accrued dividends of $55. This redemption will be funded by the sale of shares of Series J Cumulative Redeemable Preferred Stock through a private placement to an institutional investor. The dividend rate on such shares will initially be based on three month LIBOR plus 1.5%. The Series J Cumulative Redeemable Preferred Stock will be redeemable at any time at the Company’s option.

In February 2003, the Company won an appeal regarding the entitlement status of one of the two land parcels planned for disposition as of December 31, 2002. If the Company decides to continue with the planned disposition, this change in entitlement status may increase the potential value of the land and therefore decrease the previously estimated loss that would be recognized at the date of disposal. However, the Company is currently reevaluating the planned disposal of this parcel, which may result in 2003 in the partial recovery of the impairment loss recognized in 2002, if the Company decides to hold the land for development.

F-29

AVALONBAY COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2002
(Dollars in thousands)


	Initial Cost						Total Cost

			Building /		Costs				Building /
			Construction in		Subsequent to				Construction in
			Progress &		Acquisition /				Progress &
	Land		Improvements		Construction		Land		Improvements		Total

Current Communities
Avalon at Center Place	$	—	$	26,816	$	502	$	—	$	27,318	$	27,318
Avalon at Faxon Park		1,136		14,019		76		1,136		14,095		15,231
Avalon at Lexington		2,124		12,599		624		2,124		13,223		15,347
Avalon at Prudential Center		25,811		103,233		22,769		25,811		126,002		151,813
Avalon Essex		5,230		15,483		824		5,230		16,307		21,537
Avalon Estates		1,972		18,167		77		1,972		18,244		20,216
Avalon Ledges		2,627		32,900		—		2,627		32,900		35,527
Avalon Oaks		2,129		18,640		54		2,129		18,694		20,823
Avalon Oaks West		3,303		13,316		—		3,303		13,316		16,619
Avalon Orchards		2,975		17,860		—		2,975		17,860		20,835
Avalon Summit		1,743		14,654		351		1,743		15,005		16,748
Avalon West		943		9,881		97		943		9,978		10,921
Avalon at Greyrock Place		13,819		55,846		8		13,819		55,854		69,673
Avalon Corners		6,305		24,179		1,294		6,305		25,473		31,778
Avalon Gates		4,414		31,305		381		4,414		31,686		36,100
Avalon Glen		5,956		23,993		1,346		5,956		25,339		31,295
Avalon Haven		1,264		11,762		724		1,264		12,486		13,750
Avalon Lake		3,314		13,139		542		3,314		13,681		16,995
Avalon New Canaan		8,874		23,176		—		8,874		23,176		32,050
Avalon Springs		2,116		14,512		245		2,116		14,757		16,873
Avalon Valley		2,277		22,424		1,358		2,277		23,782		26,059
Avalon Walk I & II		9,102		48,796		1,146		9,102		49,942		59,044
Avalon Commons		4,679		28,552		62		4,679		28,614		33,293
Avalon Court		9,228		48,920		1,124		9,228		50,044		59,272
Avalon Towers		3,118		12,709		1,086		3,118		13,795		16,913
Avalon at Edgewater		14,529		60,061		—		14,529		60,061		74,590
Avalon at Florham Park		6,647		34,639		283		6,647		34,922		41,569
Avalon Cove		8,760		82,356		837		8,760		83,193		91,953
Avalon Crest		11,468		44,035		559		11,468		44,594		56,062
The Tower at Avalon Cove		3,738		45,755		166		3,738		45,921		49,659
Avalon at Freehold		4,116		30,191		—		4,116		30,191		34,307
Avalon Run East		1,579		14,669		24		1,579		14,693		16,272

[Additional columns below]

[Continued from above table, first column(s) repeated]


			Total Cost, Net				Year of
	Accumulated		of Accumulated				Completion /
	Depreciation		Depreciation		Encumbrances		Acquisition

Current Communities
Avalon at Center Place	$	5,308	$	22,010	$	—		1997
Avalon at Faxon Park		2,447		12,784		—		1998
Avalon at Lexington		3,766		11,581		13,784		1994
Avalon at Prudential Center		16,904		134,909		—		1968/98
Avalon Essex		1,624		19,913		—		2000
Avalon Estates		1,385		18,831		—		2001
Avalon Ledges		640		34,887		—		2002
Avalon Oaks		2,567		18,256		17,628		1999
Avalon Oaks West		479		16,140		—		2002
Avalon Orchards		495		20,340		—		2002
Avalon Summit		3,488		13,260		—		1996
Avalon West		2,198		8,723		8,461		1996
Avalon at Greyrock Place		1,156		68,517		—		2002
Avalon Corners		2,931		28,847		—		2000
Avalon Gates		6,164		29,936		—		1997
Avalon Glen		7,415		23,880		—		1991
Avalon Haven		1,153		12,597		—		2000
Avalon Lake		1,772		15,223		—		1999
Avalon New Canaan		338		31,712		—		2002
Avalon Springs		2,969		13,904		—		1996
Avalon Valley		3,067		22,992		—		1999
Avalon Walk I & II		14,246		44,798		11,748		1992/94
Avalon Commons		5,451		27,842		—		1997
Avalon Court		6,901		52,371		—		1997/2000
Avalon Towers		3,423		13,490		—		1995
Avalon at Edgewater		2,448		72,142		—		2002
Avalon at Florham Park		2,758		38,811		—		2001
Avalon Cove		16,720		75,233		—		1997
Avalon Crest		5,607		50,455		—		1998
The Tower at Avalon Cove		5,723		43,936		—		1999
Avalon at Freehold		1,107		33,200		—		2002
Avalon Run East		3,266		13,006		—		1996

F - 30

AVALONBAY COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2002
(Dollars in thousands)


	Initial Cost						Total Cost

			Building /		Costs				Building /
			Construction in		Subsequent to				Construction in
			Progress &		Acquisition /				Progress &
	Land		Improvements		Construction		Land		Improvements		Total

Avalon Watch		5,585		22,394		1,618		5,585		24,012		29,597
Avalon Riverview I		3,959		90,086		—		3,959		90,086		94,045
Avalon Gardens		8,428		45,706		131		8,428		45,837		54,265
Avalon Green		1,820		10,525		258		1,820		10,783		12,603
Avalon on the Sound		717		89,501		1,396		717		90,897		91,614
Avalon View		3,529		14,140		621		3,529		14,761		18,290
Avalon Willow		6,207		39,852		941		6,207		40,793		47,000
The Avalon		2,889		28,273		66		2,889		28,339		31,228
Avalon at Fairway Hills I & II		8,612		34,463		1,780		8,612		36,243		44,855
Avalon at Symphony Glen		1,594		6,384		1,194		1,594		7,578		9,172
Avalon Landing		1,849		7,409		533		1,849		7,942		9,791
4100 Massachusetts Avenue		6,848		27,614		1,566		6,848		29,180		36,028
AutumnWoods		6,096		24,400		432		6,096		24,832		30,928
Avalon at Arlington Square I		13,453		55,918		307		13,453		56,225		69,678
Avalon at Arlington Square II		8,588		33,817		—		8,588		33,817		42,405
Avalon at Ballston Vermont & Quincy Towers		9,340		37,360		469		9,340		37,829		47,169
Avalon at Ballston — Washington Towers		7,291		29,177		891		7,291		30,068		37,359
Avalon at Cameron Court		10,292		32,931		23		10,292		32,954		43,246
Avalon at Decoverly		6,157		24,800		815		6,157		25,615		31,772
Avalon at Dulles		2,302		9,212		650		2,302		9,862		12,164
Avalon at Fair Lakes		4,334		19,127		15		4,334		19,142		23,476
Avalon at Fox Mill		2,713		16,678		122		2,713		16,800		19,513
Avalon at Providence Park		2,152		8,907		240		2,152		9,147		11,299
Avalon Crescent		13,851		43,401		31		13,851		43,432		57,283
Avalon Crossing		2,207		11,683		5		2,207		11,688		13,895
Avalon Fields I & II		4,047		18,611		42		4,047		18,653		22,700
Avalon Knoll		1,528		6,136		945		1,528		7,081		8,609
200 Arlington Place		9,728		39,527		707		9,728		40,234		49,962
Avalon at Danada Farms		7,535		30,444		444		7,535		30,888		38,423
Avalon at Stratford Green		4,326		17,569		54		4,326		17,623		21,949
Avalon at West Grove		5,149		20,657		4,109		5,149		24,766		29,915
Avalon at Devonshire		7,250		29,641		795		7,250		30,436		37,686
Avalon at Edinburgh		3,541		14,758		260		3,541		15,018		18,559

[Additional columns below]

[Continued from above table, first column(s) repeated]


			Total Cost, Net				Year of
	Accumulated		of Accumulated				Completion /
	Depreciation		Depreciation		Encumbrances		Acquisition

Avalon Watch		7,489		22,108		—		1999
Avalon Riverview I		1,229		92,816		—		2002
Avalon Gardens		8,018		46,247		—		1998
Avalon Green		2,843		9,760		—		1995
Avalon on the Sound		4,632		86,982		36,089		2001
Avalon View		4,460		13,830		17,743		1993
Avalon Willow		4,533		42,467		—		2000
The Avalon		3,444		27,784		—		1999
Avalon at Fairway Hills I & II		8,936		35,919		11,500		1987/96
Avalon at Symphony Glen		2,409		6,763		9,780		1986
Avalon Landing		2,128		7,663		6,417		1995
4100 Massachusetts Avenue		8,257		27,771		—		1982
AutumnWoods		5,304		25,624		—		1996
Avalon at Arlington Square I		3,301		66,377		—		2001
Avalon at Arlington Square II		670		41,735		—		2002
Avalon at Ballston Vermont & Quincy Towers		7,649		39,520		—		1997
Avalon at Ballston — Washington Towers		8,846		28,513		—		1990
Avalon at Cameron Court		5,716		37,530		—		1998
Avalon at Decoverly		6,391		25,381		—		1995
Avalon at Dulles		2,993		9,171		12,360		1986
Avalon at Fair Lakes		3,408		20,068		—		1998
Avalon at Fox Mill		1,975		17,538		—		2000
Avalon at Providence Park		1,803		9,496		—		1997
Avalon Crescent		8,684		48,599		—		1996
Avalon Crossing		2,596		11,299		—		1996
Avalon Fields I & II		4,176		18,524		11,286		1998
Avalon Knoll		2,517		6,092		12,978		1985
200 Arlington Place		2,837		47,125		—		1987/2000
Avalon at Danada Farms		5,320		33,103		—		1997
Avalon at Stratford Green		3,051		18,898		—		1997
Avalon at West Grove		4,344		25,571		—		1967
Avalon at Devonshire		5,364		32,322		27,305		1988
Avalon at Edinburgh		2,483		16,076		—		1992

F - 31

AVALONBAY COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2002
(Dollars in thousands)


	Initial Cost						Total Cost

			Building /		Costs				Building /
			Construction in		Subsequent to				Construction in
			Progress &		Acquisition /				Progress &
	Land		Improvements		Construction		Land		Improvements		Total

Avalon at Town Centre		3,450		14,449		315		3,450		14,764		18,214
Avalon at Town Square		2,099		8,642		157		2,099		8,799		10,898
Avalon at Woodbury		5,034		20,857		94		5,034		20,951		25,985
Avalon at Bear Creek		6,786		27,035		616		6,786		27,651		34,437
Avalon Bellevue		6,664		23,908		61		6,664		23,969		30,633
Avalon Belltown		5,644		12,453		182		5,644		12,635		18,279
Avalon Brandemoor		8,630		36,679		—		8,630		36,679		45,309
Avalon Greenbriar		3,808		21,239		11,212		3,808		32,451		36,259
Avalon HighGrove		7,569		32,035		16		7,569		32,051		39,620
Avalon ParcSquare		3,789		15,093		113		3,789		15,206		18,995
Avalon Redmond Place		4,558		17,504		3,980		4,558		21,484		26,042
Avalon RockMeadow		4,777		19,671		9		4,777		19,680		24,457
Avalon WildReed		4,253		18,676		27		4,253		18,703		22,956
Avalon WildWood		6,268		26,597		—		6,268		26,597		32,865
Avalon Wynhaven		11,412		41,142		—		11,412		41,142		52,554
Avalon at Union Square		4,249		16,820		822		4,249		17,642		21,891
Avalon at Willow Creek		6,581		26,583		1,094		6,581		27,677		34,258
Avalon Dublin		5,276		19,642		1,824		5,276		21,466		26,742
Avalon Fremont		15,016		60,681		1,473		15,016		62,154		77,170
Avalon Pleasanton		11,610		46,552		2,360		11,610		48,912		60,522
Waterford		11,324		45,717		2,025		11,324		47,742		59,066
Avalon at Cedar Ridge		4,230		9,659		11,641		4,230		21,300		25,530
Avalon at Diamond Heights		4,726		19,130		542		4,726		19,672		24,398
Avalon at Nob Hill		5,403		21,567		530		5,403		22,097		27,500
Avalon at Sunset Towers		3,561		21,321		3,289		3,561		24,610		28,171
Avalon Foster City		7,852		31,445		3,555		7,852		35,000		42,852
Avalon Pacifica		6,125		24,796		377		6,125		25,173		31,298
Avalon Towers by the Bay		9,155		57,630		97		9,155		57,727		66,882
Crowne Ridge		5,982		16,885		8,183		5,982		25,068		31,050
Avalon at Blossom Hill		11,933		48,313		640		11,933		48,953		60,886
Avalon at Cahill Park		4,760		47,354		—		4,760		47,354		52,114
Avalon at Creekside		6,546		26,301		10,119		6,546		36,420		42,966
Avalon at Foxchase I & II		11,340		45,532		1,950		11,340		47,482		58,822

[Additional columns below]

[Continued from above table, first column(s) repeated]


			Total Cost, Net				Year of
	Accumulated		of Accumulated				Completion /
	Depreciation		Depreciation		Encumbrances		Acquisition

Avalon at Town Centre		2,610		15,604		—		1986
Avalon at Town Square		1,583		9,315		—		1986
Avalon at Woodbury		2,550		23,435		—		1999
Avalon at Bear Creek		4,430		30,007		—		1998
Avalon Bellevue		1,653		28,980		—		2001
Avalon Belltown		610		17,669		—		2001
Avalon Brandemoor		2,321		42,988		—		2001
Avalon Greenbriar		5,024		31,235		18,755		1987/88
Avalon HighGrove		2,409		37,211		—		2000
Avalon ParcSquare		1,387		17,608		—		2000
Avalon Redmond Place		3,877		22,165		—		1991/97
Avalon RockMeadow		1,816		22,641		—		2000
Avalon WildReed		1,659		21,297		—		2000
Avalon WildWood		1,662		31,203		—		2001
Avalon Wynhaven		2,674		49,880		—		2001
Avalon at Union Square		2,844		19,047		—		1973/96
Avalon at Willow Creek		4,480		29,778		—		1985/94
Avalon Dublin		3,446		23,296		—		1989/97
Avalon Fremont		10,102		67,068		—		1992/94
Avalon Pleasanton		7,990		52,532		—		1988/94
Waterford		7,948		51,118		33,100		1985/86
Avalon at Cedar Ridge		3,608		21,922		—		1975/97
Avalon at Diamond Heights		3,191		21,207		—		1972/94
Avalon at Nob Hill		3,518		23,982		19,457		1990/95
Avalon at Sunset Towers		4,375		23,796		—		1961/96
Avalon Foster City		5,389		37,463		—		1973/94
Avalon Pacifica		4,020		27,278		16,216		1971/95
Avalon Towers by the Bay		6,619		60,263		—		1999
Crowne Ridge		4,070		26,980		—		1973/96
Avalon at Blossom Hill		7,911		52,975		—		1995
Avalon at Cahill Park		723		51,391		—		2002
Avalon at Creekside		5,238		37,728		—		1962/97
Avalon at Foxchase I & II		7,718		51,104		26,400		1986/87

F - 32

AVALONBAY COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2002
(Dollars in thousands)


	Initial Cost						Total Cost

			Building /		Costs				Building /
			Construction in		Subsequent to				Construction in
			Progress &		Acquisition /				Progress &
	Land		Improvements		Construction		Land		Improvements		Total

Avalon at Parkside		7,406		29,823		624		7,406		30,447		37,853
Avalon at Pruneyard		3,414		15,469		12,967		3,414		28,436		31,850
Avalon at River Oaks		8,904		35,126		975		8,904		36,101		45,005
Avalon Campbell		11,830		47,828		351		11,830		48,179		60,009
Avalon Cupertino		9,099		39,926		73		9,099		39,999		49,098
Avalon Mountain View		9,755		39,393		1,364		9,755		40,757		50,512
Avalon on the Alameda		6,119		50,164		143		6,119		50,307		56,426
Avalon Rosewalk I & II		15,814		62,028		368		15,814		62,396		78,210
Avalon Silicon Valley		20,713		99,304		834		20,713		100,138		120,851
Avalon Sunnyvale		6,786		27,388		723		6,786		28,111		34,897
Avalon Towers on the Peninsula		9,560		56,021		—		9,560		56,021		65,581
CountryBrook		9,384		34,794		3,614		9,384		38,408		47,792
Fairway Glen		3,341		13,338		449		3,341		13,787		17,128
San Marino		6,607		26,673		785		6,607		27,458		34,065
Avalon at Media Center		22,483		28,104		24,921		22,483		53,025		75,508
Avalon at Warner Center		7,045		12,986		6,383		7,045		19,369		26,414
Avalon Westside Terrace		5,878		23,708		7,655		5,878		31,363		37,241
Avalon Woodland Hills		23,828		40,372		7,390		23,828		47,762		71,590
The Promenade		14,052		56,820		124		14,052		56,944		70,996
Amberway		10,285		7,249		3,866		10,285		11,115		21,400
Avalon Laguna Niguel		656		16,588		3,713		656		20,301		20,957
Avalon at Pacific Bay		4,871		19,745		7,325		4,871		27,070		31,941
Avalon at South Coast		4,709		16,063		3,824		4,709		19,887		24,596
Avalon Huntington Beach		6,663		21,647		8,882		6,663		30,529		37,192
Avalon Mission Viejo		2,517		9,257		1,393		2,517		10,650		13,167
Avalon Newport		1,975		3,814		4,323		1,975		8,137		10,112
Avalon Santa Margarita		4,607		16,911		2,117		4,607		19,028		23,635
Avalon at Cortez Hill		2,768		20,134		11,466		2,768		31,600		34,368
Avalon at Mission Bay		9,922		40,633		15,505		9,922		56,138		66,060
Avalon at Mission Ridge		2,710		10,924		7,991		2,710		18,915		21,625
Avalon at Penasquitos Hills		2,760		9,391		2,172		2,760		11,563		14,323

	$	836,084	$	3,763,217	$	267,642	$	836,084	$	4,030,859	$	4,866,943

[Additional columns below]

[Continued from above table, first column(s) repeated]


			Total Cost, Net				Year of
	Accumulated		of Accumulated				Completion /
	Depreciation		Depreciation		Encumbrances		Acquisition

Avalon at Parkside		4,857		32,996		—		1991/96
Avalon at Pruneyard		4,521		27,329		12,870		1966/97
Avalon at River Oaks		5,704		39,301		—		1990/96
Avalon Campbell		7,672		52,337		35,749		1995
Avalon Cupertino		6,645		42,453		—		1999
Avalon Mountain View		6,523		43,989		18,300		1986
Avalon on the Alameda		6,828		49,598		—		1999
Avalon Rosewalk I & II		9,434		68,776		—		1997
Avalon Silicon Valley		15,853		104,998		—		1997
Avalon Sunnyvale		4,483		30,414		—		1987/1995
Avalon Towers on the Peninsula		1,666		63,915		—		2002
CountryBrook		6,207		41,585		18,124		1985/96
Fairway Glen		2,256		14,872		9,580		1986
San Marino		4,401		29,664		—		1984/88
Avalon at Media Center		7,228		68,280		—		1969/97
Avalon at Warner Center		3,440		22,974		—		1979/98
Avalon Westside Terrace		4,961		32,280		—		1966/97
Avalon Woodland Hills		8,610		62,980		—		1989/97
The Promenade		1,041		69,955		33,670		1988/2002
Amberway		2,025		19,375		—		1983/98
Avalon Laguna Niguel		3,494		17,463		10,400		1988/98
Avalon at Pacific Bay		4,204		27,737		—		1971/97
Avalon at South Coast		3,334		21,262		—		1973/96
Avalon Huntington Beach		5,480		31,712		—		1972/97
Avalon Mission Viejo		1,741		11,426		7,151		1984/96
Avalon Newport		1,343		8,769		—		1956/96
Avalon Santa Margarita		3,147		20,488		—		1990/97
Avalon at Cortez Hill		4,470		29,898		—		1973/98
Avalon at Mission Bay		8,240		57,820		—		1969/97
Avalon at Mission Ridge		3,142		18,483		—		1960/97
Avalon at Penasquitos Hills		1,895		12,428		—		1982/97

	$	568,022	$	4,298,921	$	456,851

F - 33

AVALONBAY COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2002
(Dollars in thousands)


	Initial Cost						Total Cost

			Building /		Costs				Building /
			Construction in		Subsequent to				Construction in
			Progress &		Acquisition /				Progress &
	Land		Improvements		Construction		Land		Improvements		Total

Development Communities
Avalon at Flanders Hill		2,981		32,874		—		2,981		32,874		35,855
Avalon at Gallery Place I		—		41,414		—		—		41,414		41,414
Avalon at Glen Cove South		—		16,777		—		—		16,777		16,777
Avalon at Grosvenor Station		—		40,146		—		—		40,146		40,146
Avalon at Mission Bay North		461		71,009		—		461		71,009		71,470
Avalon at Newton Highlands		—		27,629		—		—		27,629		27,629
Avalon at Rock Spring		264		36,523		—		264		36,523		36,787
Avalon at Steven’s Pond		—		23,230		—		—		23,230		23,230
Avalon Darien		—		13,537		—		—		13,537		13,537
Avalon Glendale		—		17,132		—		—		17,132		17,132
Avalon on Stamford Harbor		9,348		51,798		—		9,348		51,798		61,146
Avalon Traville Phase I		—		8,882		—		—		8,882		8,882

	$	13,054	$	380,951	$	—	$	13,054	$	380,951	$	394,005

Land held for development		78,688		—		—		78,688		—		78,688
Corporate overhead		1,571		8,242		20,004		1,571		28,246		29,817

	$	929,397	$	4,152,410	$	287,646	$	929,397	$	4,440,056	$	5,369,453

[Additional columns below]

[Continued from above table, first column(s) repeated]


			Total Cost, Net				Year of
	Accumulated		of Accumulated				Completion /
	Depreciation		Depreciation		Encumbrances		Acquisition

Development Communities
Avalon at Flanders Hill		359		35,496		—		N/A
Avalon at Gallery Place I		—		41,414		—		N/A
Avalon at Glen Cove South		—		16,777		—		N/A
Avalon at Grosvenor Station		—		40,146		—		N/A
Avalon at Mission Bay North		46		71,424		—		N/A
Avalon at Newton Highlands		—		27,629		—		N/A
Avalon at Rock Spring		58		36,729		—		N/A
Avalon at Steven’s Pond		—		23,230		—		N/A
Avalon Darien		—		13,537		—		N/A
Avalon Glendale		—		17,132		—		N/A
Avalon on Stamford Harbor		721		60,425		—		N/A
Avalon Traville Phase I		—		8,882		—		N/A

	$	1,184	$	392,821	$	—

Land held for development		—		78,688		—
Corporate overhead		14,816		15,001		—

	$	584,022	$	4,785,431	$	456,851

F - 34

AVALONBAY COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2002
(Dollars in thousands)

Amounts include real estate assets held for sale.

Depreciation of AvalonBay Communities, Inc. building, improvements, upgrades and furniture, fixtures and equipment (FF&E) is calculated over the following useful lives, on a straight line basis:

Building - 30 years
Improvements, upgrades and FF&E - not to exceed 7 years

The aggregate cost of total real estate for Federal income tax purposes was approximately $5,400,000 at December 31, 2002.

The changes in total real estate assets for the years ended December 31, 2002, 2001 and 2000 are as follows:


	Years ended December 31,

	2002			2001			2000

Balance, beginning of period	$	4,837,869		$	4,535,969		$	4,235,938
Acquisitions, Construction Costs and Improvements		575,879			496,908			393,359
Dispositions, including impairment loss on planned dispositions		(44,295	)		(195,008	)		(123,816	)

Balance, end of period	$	5,369,453		$	4,837,869		$	4,535,969

The changes in accumulated depreciation for the years ended December 31, 2002, 2001 and 2000, are as follows:


	Years ended December 31,

	2002			2001			2000

Balance, beginning of period	$	447,026		$	336,010		$	225,103
Depreciation, including discontinued operations		144,477			126,984			119,416
Dispositions		(7,481	)		(15,968	)		(8,509	)

Balance, end of period	$	584,022		$	447,026		$	336,010

F-35