Avalon: Earnings News Release Avalon Bay Communities, Inc. For Immediate News Release July 16, 1998 AVALON BAY COMMUNITIES, INC. ANNOUNCES 2ND QUARTER 1998 OPERATING RESULTS (Alexandria, VA) Avalon Bay Communities, Inc. (NYSE/PCX Symbol: AVB) reported today that Funds from Operations ("FFO") for the quarter ended June 30, 1998 was $28,314,000 or $0.70 per share (diluted) compared to $14,591,000 or $0.59 per share (diluted) for the quarter ended June 30, 1997, a per share increase of approximately 19%. For the six month period ended June 30, 1998, FFO was $48,050,000 or $1.38 per share (diluted) compared to $27,913,000 or $1.17 per share (diluted) for the comparable period of 1997, a per share increase of approximately 18%. These results reflect the operating results of Bay Apartment Communities, Inc. ("Bay") through June 4, 1998 and reflect the results of the merger of Avalon Properties, Inc. ("Avalon") with and into Bay after that date, with Bay as the surviving corporation. The merger was structured as a tax-free transaction and was accounted for as a purchase of Avalon by Bay. At the time of the merger, Bay was renamed Avalon Bay Communities, Inc. (the "Company"). The Company will hold a conference call on Thursday, July 16, 1998 at 11:00 a.m. Eastern Time to review these results. The number to call to participate is (612) 332-0226. To hear a replay of this call, please call (USA) (800) 475-6701 or (international) (320) 365-3844 - Access Code: 398130. Operating Results for the Quarter Ended June 30, 1998 Compared to the Prior Year Period Total revenue increased $40,363,000 or 133.8% to $70,524,000 and earnings before interest, income taxes, depreciation and amortization ("EBITDA") increased by $24,969,000 or 133.8% to $43,629,000. The overall increase in revenue and EBITDA comes from a number of sources, including (listed in order of magnitude) the merger with Avalon on June 4, 1998, from newly developed, redeveloped and acquired communities and from Established Communities. Net income available to common stockholders was $13,748,000 or $0.34 per share (diluted) compared to $7,184,000 or $0.33 per share (diluted) for the prior year period. Under the basic calculation, net income available to common stockholders was $0.35 per share compared to $0.33 per share for the prior year period. For the West Coast's Established Communities, rental revenue increased 7.3%, comprised of a 7.0% increase in rental rates and a 0.3% increase in economic occupancy. Total revenue increased $1,403,000 to $20,686,000. Operating expenses increased $30,000 or 0.5%. Accordingly, EBITDA increased by $1,373,000 or 10.1% and operating margins increased from 70.5% to 72.3%. The West Coast's Established Communities portfolio is comprised of Bay's "same store" portfolio. For the East Coast's Established Communities, rental revenue increased 4.3%, comprised of a 4.5% increase in rental rates and a 0.2% decrease in economic occupancy. Total revenue increased $1,314,000 to $32,047,000. Operating expenses increased $331,000 or 3.4%. Accordingly, EBITDA increased by $980,000 or 4.7% and operating margins increased from 67.9% to 68.2%. The East Coast's Established Communities portfolio is the former "same store" portfolio operated by Avalon. This is presented on a pro forma basis as if the Avalon communities were a component of the Company's Established Communities pool during 1997 and 1998. Operating Results for the Six Months Ended June 30, 1998 Compared to the Prior Year Period Total revenue increased $59,576,000 or 105.2% to $116,230,000 and earnings before interest, income taxes, depreciation and amortization ("EBITDA") increased by $37,237,000 or 105.2% to $72,619,000. Net income available to common stockholders was $22,698,000 or $0.66 per share (diluted) compared to $13,810,000 or $0.65 per share (diluted) for the prior year period. Under the basic calculation, net income available to common stockholders was $0.68 per share compared to $0.65 per share for the prior year period. For the West Coast's Established Communities, rental revenue increased 7.9%, comprised of a 7.4% increase in rental rates and a 0.5% increase in economic occupancy. Total revenue increased $3,011,000 to $41,021,000. Operating expenses increased $11,000 or 0.1%. Accordingly, EBITDA increased by $3,000,000 or 11.2% and operating margins increased from 70.4% to 72.6%. For the East Coast's Established Communities, presented here on a pro forma basis only, rental revenue increased 4.6%, comprised entirely of a 4.6% increase in rental rates. Total revenue increased $2,758,000 to $63,095,000. Operating expenses increased $639,000 or 3.3%. Accordingly, EBITDA increased by $2,109,000 or 5.2% and operating margins increased from 67.8% to 68.2%. A Milestone Quarter "This was a milestone quarter in the history of the Company," noted Gilbert M. Meyer, Executive Chairman. "We completed the merger between Bay and Avalon, recorded strong internal earnings growth while integrating the operations of the two companies. We delivered 648 newly developed apartment homes and 614 redeveloped homes at higher than expected rental rates." Strong Markets Richard L. Michaux, Chief Executive Officer, added, "Our high barrier-to-entry markets remain strong and free from overbuilding, as evidenced by high occupancies and strong rental rate growth. There is very little competitive product under construction in any of our markets. These market conditions will provide strong internal earnings growth as well as earnings growth from newly developed and redeveloped communities for some time. We will continue to focus on higher yielding new development and redevelopment communities while limiting acquisitions to those assets that promise superior earnings growth potential." Development, Redevelopment and Acquisition Activity During the second quarter, the development of two new communities (Avalon Lake and Avalon Oaks) commenced that contain 339 apartment homes for a projected investment of $38.9 million. The Company also initiated the redevelopment of four communities during the second quarter that contain 2,043 apartment homes in which the Company's projected investment will total $187.8 million. These communities are Lakeside, The Park, Viewpoint and Waterhouse Place. The Company completed two new development communities containing 405 apartment homes for a total investment of $39.1 million. New development communities completed include Avalon at Faxon Park and Avalon at Fair Lakes. The Company also completed redevelopment of Longwood Towers, containing 276 apartment homes, for a total investment of $34.3 million. During the second quarter, the Company acquired a five acre land site on the Alameda in downtown San Jose, California on which it plans to build, subject to certain governmental approvals, an apartment home community with up to 288 apartment homes and approximately 8,500 square feet of retail space. This future development community is budgeted to cost $53.8 million. The Company also acquired Avalon Ridge, in the Seattle, Washington area for future redevelopment containing 420 apartment homes for a total purchase price of $25.1 million. Acquisitions completed include Gates of Edinburgh, Pinnacle at Oxford Hill and the Verandas at Bear Creek containing a total of 942 apartment homes for a total investment of $82 million. Financing Activity Charles Berman, President and Chief Operating Officer noted, "Financing accomplishments include the completion of a new $600 million unsecured credit facility with lower pricing (stated rate of .60% over LIBOR), expanded capacity for competitive bid (auction) pricing and extended maturity. A $44 million equity offering was completed and $250 million of senior unsecured notes were issued with an average maturity of approximately 7 years and all-in pricing of 6.86%. Ratings upgrades were achieved from Moody's Investors Service and Standard & Poor's, increasing to Baa1 and BBB+, respectively, for senior unsecured debt. The Company's debt-to-total market capitalization was 32% at June 30, 1998." About Avalon Bay Communities, Inc. Avalon Bay, named the NAHB Development Company of the year for 1998/1999 and the Property Management Company of the Year for 1996/1997, owns or holds an ownership interest in 131 stabilized apartment communities containing 38,547 apartment homes in sixteen states and the District of Columbia. Fifteen communities with 4,332 apartment homes are presently under construction. Twelve communities with 3,954 apartment homes are presently under reconstruction. Avalon Bay is an equity REIT in the business of developing, redeveloping, acquiring and managing multifamily apartment communities in high barrier-to-entry markets of the United States. More information on Avalon Bay may be found on Avalon Bay's Web Site at http://www.avalonbay.com. For additional information, please contact Richard L. Michaux, Chief Executive Officer at (703) 317-4601 or Thomas J. Sargeant, Chief Financial Officer at (703) 317-4635. This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements contained in this release are statements that involve risks and uncertainties, including, but not limited to, the demand for apartment homes, the effects of economic conditions, the impact of competition and competitive pricing, changes in construction costs, the results of financing efforts, potential acquisitions under agreement, the effects of the Company's accounting policies and other risks detailed in the Company's filings with the Securities and Exchange Commission. FFO is generally considered the primary earnings measure for equity REITs. FFO is calculated based on the revised definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") which may differ from the methodology for computing FFO used by other REITs, and, accordingly, may not be comparable to such other REITs. AVALON BAY COMMUNITIES, INC Company Profile at June 30, 1998 (Dollars in thousands except per share data) Selected Operating Information: Q2 98 Q2 97 % Change ----------- ----------- ---------- Funds from Operations $ 28,314 $ 14,591 94.1% Per common share - basic $ 0.71 $ 0.62 14.5% Per common share - diluted $ 0.70 $ 0.59 18.6% Net income available to common shareholders $ 13,748 $ 7,184 91.4% Per common share - basic $ 0.35 $ 0.33 6.1% Per common share - diluted $ 0.34 $ 0.33 3.0% Dividends declared - common $ 34,420 $ 8,244 293.3% Per common share $ 0.51 $ 0.38 34.2% EBITDA: Established Communities $ 14,966 $ 13,593 10.1% Other communities 33,260 7,292 356.1% Other income & expense (4,597) (2,225) 106.6% ----------- ----------- ---------- Total EBITDA $ 43,629 $ 18,660 133.8% =========== =========== ========== Average shares outstanding - basic 39,628,200 21,824,601 Average shares outstanding - diluted 40,345,983 24,833,801 YTD 98 YTD 97 % Change ----------- ----------- ---------- Funds from Operations $ 48,050 $ 27,913 72.1% Per common share - basic $ 1.41 $ 1.23 14.6% Per common share - diluted $ 1.38 $ 1.17 17.9% Net income available to common shareholders $ 22,698 $ 13,810 64.4% Per common share - basic $ 0.68 $ 0.65 4.6% Per common share - diluted $ 0.66 $ 0.65 1.5% Dividends declared - common $ 43,423 $ 16,038 170.8% Per common share $ 0.93 $ 0.77 20.8% EBITDA: Established Communities $ 29,764 $ 26,764 11.2% Other communities 50,023 12,469 301.2% Other income & expense (7,168) (3,851) 86.1% ----------- ----------- ---------- Total EBITDA $ 72,619 $ 35,382 105.2% =========== =========== ========== Average shares outstanding - basic 34,190,165 20,916,499 Average shares outstanding - diluted 34,930,243 23,924,863 Ends.