Avalon: Earnings News Release AvalonBay Communities, Inc. For Immediate News Release October 16, 1998 AVALONBAY COMMUNITIES, INC. ANNOUNCES THIRD QUARTER 1998 OPERATING RESULTS (Alexandria, VA) AvalonBay Communities, Inc. (NYSE/PCX Symbol: AVB) reported today that Funds from Operations ("FFO") for the quarter ended September 30, 1998 was $47,492,000 or $.73 per share (diluted) compared to $16,178,000 or $.63 per share (diluted) for the comparable period of 1997, a per share increase of approximately 16%. The third quarter of 1998 represents the first full quarter of combined operations of the merged Company. For the nine month period ended September 30, 1998, FFO was $95,542,000 or $2.12 per share (diluted) compared to $44,088,000 or $1.79 per share (diluted) for the comparable period of 1997, a per share increase of approximately 18%. The nine month results for 1998 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. In connection with the merger, Bay was renamed AvalonBay Communities, Inc. (the "Company"). The Company will hold a conference call on October 16, 1998 at 11:00 a.m. Eastern Time to review these results. The number to call to participate is (612) 332-1214. To hear a replay of this call, please call (USA) 1 (800) 475-6701 or (international) (320) 365-3844 - Access Code: 408732. Operating Results for the Quarter Ended September 30, 1998 Compared to the Prior Year Period Total revenue increased by $84,888,000 or 256% to $118,064,000 and earnings before interest, income taxes, depreciation and amortization ("EBITDA") increased by $51,471,000 or 248% to $72,242,000. 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 $23,771,000 or $.37 per share (basic and diluted) compared to $8,257,000 or $.36 per share (basic and diluted) for the prior year period. For Established Communities, on a pro forma basis, rental revenue increased 4.7%, comprised of a 4.9% increase in rental rates and a .2% decrease in economic occupancy. Operating expenses increased $404,000 or 2.5%. Accordingly, EBITDA increased by $1,997,000 or 5.8% and operating margins increased from 68% to 68.6%. These amounts are pro forma to include the East Coast Established Communities as if they were owned during both years. Total revenue increased $2,401,000 to $53,271,000. The number of apartment homes included in the pro forma pool of Established Communities totals 17,858, comprised of 11,504 in the east and 6,354 in the San Francisco Bay area. Operating Results for the Nine Months Ended September 30, 1998 Compared to the Prior Year Period Total revenue increased $144,464,000 or 161% to $234,294,000 and EBITDA increased by $88,709,000 or 158% to $144,861,000. Net income available to common stockholders was $46,469,000 or $1.03 per share (diluted) compared to $22,065,000 or $1.01 per share (diluted) for the prior year period. Under the basic calculation, net income available to common stockholders was $1.05 per share compared to $1.01 per share for the prior year period. For Established Communities, on a pro forma basis, rental revenue increased 5.5%, comprised of a 5.4% increase in rental rates and a .1% increase in economic occupancy. Total revenue increased $8,170,000 to $157,388,000. Operating expenses increased $1,054,000 or 2.2%. Accordingly, EBITDA increased by $7,116,000 or 7.0% and operating margins increased from 68.5% to 69.5%. Focus During the Quarter: Operations, Integration and Refining our Strategic Plan "We worked hard this quarter to ensure our focus on merger integration did not divert our attention from community and development operations" noted Gilbert M. Meyer, Executive Chairman. "We are substantially complete with our integration efforts and have produced strong internal earnings growth while delivering 433 newly developed homes and 363 redeveloped homes--at higher than expected rental rates. Significant effort was also made in finalizing our new AvalonBay Strategic Plan to reflect opportunities provided by the merger and to anticipate new business development initiatives." Strong Real Estate Markets-Uncertain Capital Markets Richard L. Michaux, Chief Executive Officer, added, "We continue to monitor both real estate and capital market conditions for change. Our high barrier-to-entry markets remain strong and free from overbuilding, as evidenced by high occupancies and strong rental rate growth. While current real estate market conditions remain healthy, both the capital markets environment and economic environment are volatile. In response, we have significantly curtailed acquisition activity and have focused on asset sales. If current capital market conditions continue for an extended period or worsen, we will adjust the pace of new development activity accordingly." Development, Redevelopment and Acquisition Activity During the third quarter, the development of one new community commenced that will contain 195 apartment homes for a projected investment of $32.5 million. The Company also initiated the redevelopment of five communities during the third quarter that contain 1,846 apartment homes in which the Company's projected incremental investment (i.e., investment above the initial cost of acquisition) will total $40.4 million. Two new development communities were completed this quarter containing 600 apartment homes for a total investment of $61.7 million. The Company also completed redevelopment of five communities, containing 1,247 apartment homes, for a total investment value of $126.2 million. Land was acquired to develop two additional new communities that will start in the fourth quarter and have a total projected investment of $60.4 million and a projected weighted average yield of 11.2%. Acquisition investments totaled $154.0 million, comprised principally of the Prudential Center in Boston. Disposition Activity During the third quarter, the Company sold three existing communities, two in suburban Detroit, Michigan and one in Upland, California. Proceeds from the sale of the Michigan communities, which contain a total of 758 apartment homes, were approximately $44.0 million. Proceeds from the sale of the California community, which contains 260 apartment homes, were approximately $12.5 million, all of which were used to repay amounts outstanding under our unsecured credit facility. Financing Activity The Company completed an offering of $250 million of senior unsecured notes 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. In early October, the Company issued $100 million of perpetual preferred stock with a dividend yield of 8.7%, which lowered the Company's debt to total market capitalization to 35.1%. Tom Sargeant, Chief Financial Officer, noted, "Volatility in the financial markets has made capital raising difficult and more costly. Liquidity is an important consideration to management. Pro forma for the preferred offering, we have $230 million outstanding under our $600 million unsecured credit facility which, combined with modest leverage, provides the Company with significant financial flexibility. The Company has no interest rate hedge agreements, treasury locks, forward equity arrangements or other derivative transactions that could result in a loss to the Company." About AvalonBay Communities, Inc. AvalonBay, 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 130 stabilized apartment communities containing 38,132 apartment homes in sixteen states and the District of Columbia. Sixteen communities which will contain 4,432 apartment homes are presently under construction. Thirteen communities with 4,855 apartment homes are presently under reconstruction. AvalonBay 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 AvalonBay may be found on AvalonBay'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. Copyright (c) 1998 AvalonBay Communities, Inc. All Rights Reserved AVALONBAY COMMUNITIES, INC Company Profile at September 30, 1998 (Dollars in thousands except per share data) Selected Operating Information: Q3 98 Q3 97 % Change ----------- ----------- ---------- Funds from Operations $ 47,492 $ 16,178 193.6% Per common share - basic $ 0.74 $ 0.65 13.8% Per common share - diluted $ 0.73 $ 0.63 15.9% Net income available to common shareholders $ 23,771 $ 8,257 187.9% Per common share - basic $ 0.37 $ 0.36 2.8% Per common share - diluted $ 0.37 $ 0.36 2.8% Dividends declared - common $ 32,479 $ 10,487 209.7% Per common share $ 0.51 $ 0.42 21.4% EBITDA: Established Communities $ 15,128 $ 14,104 7.3% Other communities 64,642 9,002 618.1% Other income & expense (7,528) (2,335) 222.4% ----------- ----------- ---------- Total EBITDA $ 72,242 $ 20,771 247.8% =========== =========== ========== Average shares outstanding - basic 64,317,021 22,745,075 Average shares outstanding - diluted 64,932,566 25,803,370 YTD 98 YTD 97 % Change ----------- ----------- ---------- Funds from Operations $ 95,542 $ 44,088 116.7% Per common share - basic $ 2.15 $ 1.86 15.6% Per common share - diluted $ 2.12 $ 1.79 18.4% Net income available to common shareholders $ 46,469 $ 22,065 110.6% Per common share - basic $ 1.05 $ 1.01 4.0% Per common share - diluted $ 1.03 $ 1.01 2.0% Dividends declared - common $ 75,902 $ 26,525 186.2% Per common share $ 1.44 $ 1.19 21.0% EBITDA: Established Communities $ 44,893 $ 40,869 9.8% Other communities 114,663 21,470 434.1% Other income & expense (14,695) (6,187) 137.5% ----------- ----------- ---------- Total EBITDA $ 144,861 $ 56,152 158.0% =========== =========== ========== Average shares outstanding - basic 44,432,272 21,532,999 Average shares outstanding - diluted 45,120,305 24,531,207 Ends.