AvalonBay Communities, Inc. (NYSE:AVB) reported today a Net Loss Available to Common Stockholders for the quarter ended December 31, 2008 of $1,806,000. This resulted in a Loss per Share - diluted of $0.02 for the quarter ended December 31, 2008, compared to Earnings per Share – diluted (“EPS”) of $1.65 for the comparable period of 2007, a per share decrease of 101.2%. The decrease is due primarily to non-cash charges from land impairments and abandoned pursuit costs incurred in the fourth quarter 2008, coupled with a decrease in gains on asset sales in the fourth quarter 2008 as compared to the prior year period. For the full year ended December 31, 2008, EPS was $5.17 compared to $4.38 for 2007, a per share increase of 18.0%. The increase is primarily attributable to gains from the sale of communities and increases in community operating performance, offset partially by non-cash charges for land impairments and abandoned pursuit costs.

Funds from Operations attributable to common stockholders - diluted (“FFO”) for the quarter ended December 31, 2008 decreased 73.7% to $0.30 per share from $1.14 per share for the comparable period of 2007. FFO per share for the full year ended December 31, 2008 decreased by 11.7% to $4.07 from $4.61 for the comparable period of 2007.

EPS and FFO per share for the fourth quarter and full year 2008 include the following non-recurring items:

The non-cash charges for land impairments, the increase in abandoned pursuit costs and the charges for severance are associated with the reduction in the Company’s planned development activity announced in December 2008. In addition, as a result of the historically high level of gains from asset sales completed in 2008, the Company has recorded a charge for federal excise taxes and declared a combined special and regular dividend (“Combined Dividend”). Shares issued under the Combined Dividend are considered outstanding as of December 17, 2008, the dividend declaration date. Accordingly, the 2008 FFO per share includes $0.01 for the impact of the incremental shares issued for the period they were outstanding. The Company also recognized the impact of the other items listed in the table above, as discussed further in this and prior releases. Adjusting for these items, FFO per share increased by 6.7% for the fourth quarter of 2008 and 8.9% for the full year 2008 as compared to the prior year periods.

Operating Results for the Quarter Ended December 31, 2008 Compared to the Prior Year Period

For the Company, including discontinued operations, total revenue increased by $8,312,000, or 3.9% to $221,268,000. For Established Communities, rental revenue increased 1.7%, comprised of an increase in Average Rental Rates of 2.2% and a decrease in Economic Occupancy of 0.5%. As a result, total revenue for Established Communities increased $2,488,000 to $151,562,000. Operating expenses for Established Communities increased $99,000, or 0.2% to $47,704,000. Accordingly, Net Operating Income (“NOI”) for Established Communities increased by $2,389,000, or 2.4%, to $103,858,000.

The following table reflects the percentage changes in rental revenue, operating expenses and NOI for Established Communities from the fourth quarter of 2007 to the fourth quarter of 2008:

Operating Results for the Full Year December 31, 2008 Compared to the Prior Year

For the Company, including discontinued operations, total revenue increased by $59,053,000, or 7.2% to $882,705,000. For Established Communities, rental revenue increased 3.1%, comprised entirely of an increase in Average Rental Rates of 3.1%, as there was no change in Economic Occupancy. As a result, total revenue for Established Communities increased $17,885,000 to $605,952,000. Operating expenses for Established Communities increased $3,628,000 or 1.9% to $191,818,000. Accordingly, NOI for Established Communities increased by $14,257,000 or 3.6% to $414,134,000.

The following table reflects the percentage changes in rental revenue, operating expenses and NOI for Established Communities for the full year December 31, 2008 as compared to the full year December 31, 2007:

Cash concessions are recognized in accordance with generally accepted accounting principles (“GAAP”) and are amortized over the approximate lease term, which is generally one year. The following table reflects the percentage changes in rental revenue with concessions on a GAAP basis and Rental Revenue with Concessions on a Cash Basis for our Established Communities:

Development and Redevelopment Activity

The Company completed the development of three communities during the fourth quarter of 2008 totaling 391 apartment homes for an aggregate Total Capital Cost of $152,400,000:

• Avalon Encino, located in Los Angeles, CA, is a mid-rise community containing 131 apartment homes that was completed for a Total Capital Cost of $62,200,000;
• Avalon Fashion Valley, located in San Diego, CA, is a mid-rise community containing 161 apartment homes that was completed for a Total Capital Cost of $64,700,000; and
• Avalon Huntington, located in Shelton, CT, is a garden style community containing 99 apartment homes that was completed for a Total Capital Cost of $25,500,000.

During 2008, the Company completed development of 13 communities containing an aggregate of 4,036 apartment homes for a Total Capital Cost of $1,044,300,000. In addition, the Company completed redevelopment of two wholly-owned communities containing an aggregate of 642 apartment homes for a Total Capital Cost of $11,400,000, excluding costs incurred prior to the start of redevelopment.

The Company commenced the development of two communities during the fourth quarter of 2008: Avalon Northborough I, located in Northborough, MA and Avalon Towers Bellevue, located in Bellevue, WA. These two communities will contain an aggregate of 559 apartment homes when completed for an estimated Total Capital Cost of $153,500,000. In addition, the Company acquired land for an expected future development in Brooklyn, NY for an aggregate purchase price of approximately $48,481,000.

During 2008, the Company commenced the development of six communities which are expected to contain a total of 1,768 apartment homes for an expected aggregate Total Capital Cost of $491,000,000. In addition the Company commenced the redevelopment of four wholly-owned communities which contain a total of 1,040 apartment homes for an expected aggregate Total Capital Cost of $42,500,000, excluding costs incurred prior to the start of redevelopment.

Disposition Activity

During the fourth quarter of 2008, the Company sold Avalon Ledges, located in Weymouth, MA. Avalon Ledges contains 304 apartment homes and was sold for $57,500,000. This disposition resulted in a gain in accordance with GAAP of approximately $27,051,000 and an Economic Gain of approximately $19,553,000 and an Unleveraged IRR over an approximate seven-year holding period of 13.2%.

Including a disposition by the Fund (as described below), the Company sold 11 communities during 2008, containing a total of 3,459 apartment homes. These communities were sold for an aggregate sales price of approximately $646,200,000, resulting in a GAAP gain of $288,384,000 and an Economic Gain of $231,915,000. The weighted average Initial Year Market Cap Rate related to these dispositions was 5.1% and the Unleveraged IRR over a weighted average hold period of approximately eleven years was 14.1%.

Investment Management Fund Activity

AvalonBay Value Added Fund, L.P. (the “Fund”) is a private, discretionary investment vehicle in which the Company holds an equity interest of approximately 15%.

During the fourth quarter of 2008, the Company commenced the redevelopment of The Covington, located in Lombard, IL and Colonial Towers, located in Weymouth, MA on behalf of the Fund. These two communities contain an aggregate of 467 apartment homes and will be completed for an estimated Total Capital Cost of $6,300,000, excluding costs incurred prior to the start of redevelopment.

AvalonBay Value Added Fund II, L.P. ("Fund II") is a private, discretionary investment vehicle with commitments from four institutional investors including the Company. Fund II has equity commitments totaling $333,000,000. The Company has committed $150,000,000 to Fund II, representing a 45% equity interest. As of December 31, 2008, there has been no capital contributed to Fund II, and Fund II has not made any investments.

In the fourth quarter of 2008, Fund II entered into a $75,000,000 unsecured credit facility, with an option to increase the facility up to $200,000,000, subject to certain lender requirements. The credit facility bears interest at LIBOR plus 2.50% per annum, and matures in December 2011, assuming the exercise of a one-year extension option. At December 31, 2008, there was $760,000 outstanding under the Fund II credit facility.

Financing, Liquidity and Balance Sheet Statistics

During 2008 the Company raised approximately $1,900,000,000 from a variety of sources as detailed below:

• Secured debt of approximately $830,000,000;
• Excluding a disposition by the Fund, gross proceeds from asset sales of approximately $560,000,000;
• An unsecured corporate term loan of $330,000,000; and
• Joint venture partner capital commitments for Fund II of approximately $180,000,000.

The proceeds from these capital markets transactions were used to fund development activity and to redeem outstanding secured and unsecured debt as well as redeem common and preferred stock.

At December 31, 2008, the Company had $124,000,000 outstanding under its $1,000,000,000 unsecured credit facility that matures in November 2011. At December 31, 2008, the Company had $259,305,000 in unrestricted cash and cash in escrow. The cash in escrow is available for development activity. Leverage, calculated as total debt as a percentage of Total Market Capitalization, was 44.0% at December 31, 2008. Unencumbered NOI for the full year December 31, 2008 was 76.6%. Interest Coverage for the fourth quarter of 2008, which includes the adverse impact of certain non-routine items discussed in this release, was 1.7 times.

New Financing Activity

Included in the secured debt financing above are three fixed rate mortgage loans that the Company completed in the fourth quarter of 2008. These mortgage loans represent an aggregate borrowing of $169,249,000 and have a weighted average life of 6.3 years, and a weighted average effective interest rate of approximately 6.0%. One of the mortgage loans was provided by a New York based community bank. The other two mortgage loans were provided by a Government Sponsored Enterprise.

Debt Repayment Activity

In October 2008, the Company repaid the $4,368,000, 6.99% fixed rate loan secured by a development right in Wheaton, MD pursuant to its scheduled maturity.

In November 2008, the Company repurchased $15,000,000 of its $250,000,000, 5.5% unsecured notes that mature in January 2012. The Company repurchased the notes at a discount price of 87% of par, for $13,050,000, representing a yield to maturity of 10.44%. In conjunction with the repurchase, the Company reported a gain of approximately $1,839,000 in the fourth quarter of 2008.

In January 2009, the Company made a cash tender offer for any and all of its 7.5% medium-term notes due in August 2009 and December 2010. The Company purchased $37,438,000 of its $150,000,000, 7.5% medium-term notes due in August 2009 at par. In addition, the Company purchased $64,423,000 of its $200,000,000, 7.5% medium-term notes due December 2010 at a discount of 98% of par, for approximately $63,135,000, representing a yield to maturity of 8.66%. The Company will report a gain of approximately $1,062,000 in the first quarter of 2009 in conjunction with the purchase of the medium-term notes due December 2010. All of the notes purchased in the tender offer were cancelled. The Company had previously acquired and cancelled an aggregate of $10,000,000 of the 7.5% medium-term notes due in August 2009.

Preferred Stock Redemption

On October 15, 2008, the Company exercised its option to redeem all 4,000,000 outstanding shares of its 8.70% Series H Cumulative Redeemable Preferred Stock for $100,701,000. The repayment amount includes the redemption value of the outstanding shares of $25 per share and accrued but unpaid dividends through the redemption date. The Company recorded a non-cash charge for deferred offering expenses of approximately $3,566,000 in the fourth quarter of 2008 related to this redemption.

Fourth Quarter 2008 Dividend Declaration

On December 17, 2008, the Company declared the Combined Dividend of $2.70 per share. A portion of the Combined Dividend in the amount of $0.8925 per share represented payment of the regular dividend for the quarter ended December 31, 2008, and the remaining portion represented an additional special dividend payment ("Special Dividend") in the amount of $1.8075 per share. The Special Dividend was declared to distribute a portion of the excess income attributable to gains on asset sales from the Company’s disposition activities during 2008 in which a historically high level of asset sales were completed. During 2008, the Company sold 11 communities, including a community sold by the Fund, with aggregate gains recognized for federal income tax purposes of $352,000,000. The Special Dividend is intended to enable the Company to avoid corporate level income taxes for 2008 and reduce federal excise taxes. The Company recorded a charge of approximately $3,200,000 for federal excise taxes in 2008 as a result of the gains from these asset sales.

Stockholders had the option to receive payment of the Combined Dividend in the form of cash, shares of common stock or a combination of cash and shares of common stock, provided that the aggregate amount of cash payable to all stockholders (other than cash payable in lieu of fractional shares) was limited to an amount equal to the regular dividend of $0.8925 per share, multiplied by the number of shares outstanding at the record date. In January 2009 the Company paid the Combined Dividend, comprised of cash equal to the regular dividend, and 2,626,823 shares of common stock.

In a January 28, 2009 press release announcing the results of stockholder elections relating to the Combined Dividend, the Company announced that stockholders who elected to receive the Combined Dividend in all cash would receive $1.02272 per share in cash and $1.67728 per share in shares of common stock. Because of a computational adjustment from five decimal places to four decimal places, the actual amounts paid to these shareholders are $1.0227 per share in cash and $1.6773 per share in shares of common stock.

2009 Financial Outlook

The following presents the Company’s financial outlook for 2009, the details of which are summarized on Attachments 15 and 16.

Management expects continued weakness in the for-sale housing market during 2009 and growth in those age groups that have historically demonstrated a higher propensity to rent. In addition, the level of new rental completions in the Company’s markets is anticipated to decline during 2009 from 2008 levels. However, third party forecasts call for accelerating levels of net job losses in most of the Company's markets during 2009, particularly in the first half of the year. The negative impacts to renter demand from net job losses will likely exceed any benefits from the positive demand drivers noted above.

Projected EPS is expected to be within a range of $2.40 to $2.70 for the full year 2009. Actual EPS will be impacted by the size and composition of disposition activity for the year.

The Company expects 2009 Projected FFO per share to be in the range of $4.50 to $4.80 as compared to $4.07 for the full year 2008, resulting in an increase in Projected FFO per share of approximately 14.3% at the mid-point of the range. The Company’s 2008 FFO per share of $4.07 included the non-recurring items discussed earlier in this release. The 2009 Projected FFO anticipates the Company will incur additional federal excise taxes for undistributed earnings of approximately $3,000,000. Projections also anticipate a gain of $1,062,000 associated with the repurchase of the 7.5% medium-term notes due in December 2010. Adjusting for these non-routine items in both years, the Company expects 2009 Projected FFO per share to decline by 7.0% at the mid-point of the range. FFO per share is also adversely impacted by the additional shares that were issued under the Special Dividend. FFO per share and EPS for 2007 under full year 2008 will not be adjusted for the additional shares outstanding pertaining to the Special Dividend.

Management expects the change in Projected FFO per share for the full year 2009 as compared to 2008 to be driven primarily by declines in NOI from Established Communities and other stabilized communities, offset somewhat by an increase in NOI from development and redevelopment.

For the first quarter of 2009, the Company expects Projected EPS within a range of $0.55 to $0.57. The Company expects Projected FFO per share for the first quarter of 2009 within a range of $1.19 to $1.23. The decline in the projected FFO per share in the first quarter of 2009 is expected to be 2.4% at the mid-point of the range.

The Company’s 2009 financial outlook is based on a number of assumptions and estimates, which are provided on Attachment 15 of this release. The primary assumptions and estimates include the following:

Property Operations

• The Company expects a decline in Established Communities revenue of 1.5% to 3.5%.
• The Company expects growth in Established Communities operating expenses of 3.0% to 4.0%, primarily attributable to increases in property taxes, utilities, insurance and office operations.
• The Company expects a decline in Established Communities NOI within a range of 4.25% to 6.25%.

Development

• The Company currently has 14 communities under development. During 2009, the Company expects to disburse approximately $650,000,000 related to these communities and expected acquisitions of land for future development. The Company expects approximately $100,000,000 of the projected 2009 disbursements will be financed by tax-exempt debt, that has been previously obtained. The Company expects to complete the development of eight communities during 2009 for an aggregate Total Capital Cost of approximately $800,000,000.
• As previously disclosed, the Company does not anticipate starting any new development during the first half of 2009. Development starts in the second half of 2009, if any, will be evaluated based on the Company’s then current assessment of economic and capital market conditions.

Dispositions

• The Company expects gross sales proceeds from planned asset dispositions of $100,000,000 to $200,000,000 in 2009.

Capital Markets

• The Company expects that it may issue approximately $750,000,000 in new secured or unsecured debt during 2009.
• After considering amounts repaid as part of the January 2009 cash tender offer, the Company has $267,017,000 of remaining indebtedness maturing in 2009 consisting of one tranche of a variable rate unsecured term loan, the remaining principal of the 7.5% medium-term notes due in August 2009 and three mortgage notes. The funds for repayment of this indebtedness are expected to be obtained from a combination of capital sources, which could include corporate securities (unsecured debt and equity), secured debt, disposition proceeds, joint ventures or retained cash.

The Company expects to release its first quarter 2009 earnings on April 29, 2009 after the market closes. The Company expects to hold a conference call on April 30, 2009 at 1:00 PM EDT to discuss the first quarter 2009 results.

First Quarter 2009 Conference/Event Schedule

Management is scheduled to attend Citi’s Global Property CEO Conference from March 1-4, 2009. Management may discuss the Company's current operating environment; operating trends; development, redevelopment, disposition and acquisition activity; financial outlook and other business and financial matters affecting the Company. Details on how to access related materials will be available beginning February 5, 2009 on the Company’s website at http://www.avalonbay.com/events.

Other Matters

The Company will hold a conference call on February 5, 2009 at 1:00 PM EST to review and answer questions about this release, its fourth quarter and full year results, the Attachments (described below) and related matters. To participate on the call, dial 1-877-510-2397 domestically and 1-763-416-6924 internationally.

To hear a replay of the call, which will be available from February 5, 2009 at 2:00 PM EST to February 11, 2009 at 11:59 PM EST, dial 1-800-642-1687 domestically and 1-706-645-9291 internationally, and use Access Code: 80506385.

A webcast of the conference call will also be available at http://www.avalonbay.com/earnings, and an on-line playback of the webcast will be available for at least 30 days following the call.

The Company produces Earnings Release Attachments (the "Attachments") that provide detailed information regarding operating, development, redevelopment, disposition and acquisition activity. These Attachments are considered a part of this earnings release and are available in full with this earnings release via the Company's website at http://www.avalonbay.com/earnings. To receive future press releases via e-mail, please submit a request through http://www.avalonbay.com/email.

About AvalonBay Communities, Inc.

As of December 31, 2008, the Company owned or held a direct or indirect ownership interest in 178 apartment communities containing 50,292 apartment homes in ten states and the District of Columbia, of which 14 communities were under construction and nine communities were under reconstruction. The Company is an equity REIT in the business of developing, redeveloping, acquiring and managing apartment communities in high barrier-to-entry markets of the United States. More information may be found on the Company’s website at the following address http://www.avalonbay.com. For additional information, please contact John Christie, Senior Director of Investor Relations and Research at 1-703-317-4747 or Thomas J. Sargeant, Chief Financial Officer at 1-703-317-4635.

Forward-Looking Statements

This release, including its Attachments, 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. You can identify these forward-looking statements by the Company’s use of words such as “expects,” “plans,” “estimates,” “projects,” “intends,” “believes,” “outlook” and similar expressions that do not relate to historical matters. Actual results may differ materially from those expressed or implied by the forward-looking statements as a result of risks and uncertainties, which include the following: adverse capital and credit market conditions may affect our access to various sources of capital and/or cost of capital, which may affect our business activities, earnings and common stock price, among other things; changes in local employment conditions, demand for apartment homes, supply of competitive housing products, and other economic conditions may result in lower than expected occupancy and/or rental rates and adversely affect the profitability of our communities; increases in costs of materials, labor or other expenses may result in communities that we develop or redevelop failing to achieve expected profitability; delays in completing development, redevelopment and/or lease-up may result in increased financing and construction costs and may delay and/or reduce the profitability of a community; debt and/or equity financing for development, redevelopment or acquisitions of communities may not be available or may not be available on favorable terms; we may be unable to obtain, or experience delays in obtaining, necessary governmental permits and authorizations; or we may abandon development or redevelopment opportunities for which we have already incurred costs. Additional discussions of risks and uncertainties appear in the Company’s filings with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 under the headings “Risk Factors” and under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements” and in subsequent quarterly reports on Form 10-Q.

The Company does not undertake a duty to update forward-looking statements, including its expected operating results for the first quarter and full year 2009. The Company may, in its discretion, provide information in future public announcements regarding its outlook that may be of interest to the investment community. The format and extent of future outlooks may be different from the format and extent of the information contained in this release.

Definitions and Reconciliations

Non-GAAP financial measures and other capitalized terms, as used in this earnings release, are defined and further explained on Attachment 17, “Definitions and Reconciliations of Non-GAAP Financial Measures and Other Terms.” Attachment 17 is included in the full earnings release available at the Company’s website at http://www.avalonbay.com/earnings. This wire distribution includes only definitions and reconciliations of the following Non-GAAP financial measures:

FFO is determined based on a definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). FFO is calculated by the Company as net income or loss computed in accordance with GAAP, adjusted for gains or losses on sales of previously depreciated operating communities, extraordinary gains or losses (as defined by GAAP), cumulative effect of a change in accounting principle and depreciation of real estate assets, including adjustments for unconsolidated partnerships and joint ventures. Management generally considers FFO to be an appropriate supplemental measure of operating performance because, by excluding gains or losses related to dispositions of previously depreciated operating communities and excluding real estate depreciation (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO can help one compare the operating performance of a company’s real estate between periods or as compared to different companies. A reconciliation of FFO to net income is as follows (dollars in thousands):

Projected FFO, as provided within this release in the Company’s outlook, is calculated on a basis consistent with historical FFO, and is therefore considered to be an appropriate supplemental measure to projected net income from projected operating performance. A reconciliation of the range provided for Projected FFO per share (diluted) for the first quarter and full year 2009 to the range provided for projected EPS (diluted) is as follows:

NOI is defined by the Company as total property revenue less direct property operating expenses (including property taxes), and excludes corporate-level income (including management, development and other fees), corporate-level property management and other indirect operating expenses, investments and investment management, net interest expense, general and administrative expense, joint venture income, minority interest expense, depreciation expense, gain on sale of real estate assets and income from discontinued operations. The Company considers NOI to be an appropriate supplemental measure to net income of operating performance of a community or communities because it helps both investors and management to understand the core operations of a community or communities prior to the allocation of corporate-level property management overhead or general and administrative costs. This is more reflective of the operating performance of a community, and allows for an easier comparison of the operating performance of single assets or groups of assets. In addition, because prospective buyers of real estate have different overhead structures, with varying marginal impact to overhead by acquiring real estate, NOI is considered by many in the real estate industry to be a useful measure for determining the value of a real estate asset or groups of assets.

A reconciliation of NOI (from continuing operations) to net income, as well as a breakdown of NOI by operating segment, is as follows (dollars in thousands):

NOI as reported by the Company does not include the operating results from discontinued operations (i.e., assets sold during the period January 1, 2007 through December 31, 2008). A reconciliation of NOI from communities sold or classified as discontinued operations to net income for these communities is as follows (dollars in thousands):

Projected NOI, as used within this release for certain development and redevelopment communities and in calculating the Initial Year Market Cap Rate for dispositions, represents management’s estimate, as of the date of this release (or as of the date of the buyer’s valuation in the case of dispositions), of projected stabilized rental revenue minus projected stabilized operating expenses. For development and redevelopment communities, Projected NOI is calculated based on the first year of stabilized operations, following the completion of construction. In calculating the Initial Year Market Cap Rate, Projected NOI for dispositions is calculated for the first twelve months following the date of the buyer’s valuation. Projected stabilized rental revenue represents management’s estimate of projected gross potential (based on leased rents for occupied homes and market rents for vacant homes) minus projected economic vacancy and adjusted for concessions. Projected stabilized operating expenses do not include interest, income taxes (if any), depreciation or amortization, or any allocation of corporate-level property management overhead or general and administrative costs. The weighted average Projected NOI as a percentage of Total Capital Cost is weighted based on the Company’s share of the Total Capital Cost of each community, based on its percentage ownership.

Management believes that Projected NOI of the development and redevelopment communities, on an aggregated weighted average basis, assists investors in understanding management's estimate of the likely impact on operations of the development and redevelopment communities when the assets are complete and achieve stabilized occupancy (before allocation of any corporate-level property management overhead, general and administrative costs or interest expense). However, in this release the Company has not given a projection of NOI on a company-wide basis. Given the different dates and fiscal years for which NOI is projected for these communities, the projected allocation of corporate-level property management overhead, general and administrative costs and interest expense to communities under development or redevelopment is complex, impractical to develop, and may not be meaningful. Projected NOI of these communities is not a projection of the Company's overall financial performance or cash flow. There can be no assurance that the communities under development or redevelopment will achieve the Projected NOI as described in this release.

Rental Revenue with Concessions on a Cash Basis is considered by the Company to be a supplemental measure to rental revenue in conformity with GAAP to help investors 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 on a cash basis) allows an investor to understand the historical trend in cash concessions.

A reconciliation of rental revenue from Established Communities in conformity with GAAP to rental revenue (with concessions on a cash basis) is as follows (dollars in thousands):

Economic Gain is calculated by the Company as the gain on sale in accordance with GAAP, less accumulated depreciation through the date of sale and any other non-cash adjustments that may be required under GAAP accounting. Management generally considers Economic Gain to be an appropriate supplemental measure to gain on sale in accordance with GAAP because it helps investors to understand the relationship between the cash proceeds from a sale and the cash invested in the sold community. The Economic Gain for each of the communities presented is estimated based on their respective final settlement statements. A reconciliation of Economic Gain to gain on sale in accordance with GAAP for both the full year ended December 31, 2008 as well as prior years’ activities is presented in the full earnings release.

Interest Coverage is calculated by the Company as EBITDA from continuing operations, excluding land gains and gain on the sale of investments in real estate joint ventures, divided by the sum of interest expense, net, and preferred dividends. Interest Coverage is presented by the Company because it provides rating agencies and investors an additional means of comparing our ability to service debt obligations to that of other companies. EBITDA is defined by the Company as net income before interest income and expense, income taxes, depreciation and amortization.

A reconciliation of EBITDA and a calculation of Interest Coverage for the fourth quarter of 2008 are as follows (dollars in thousands):

Total Capital Cost includes all capitalized costs projected to be or actually incurred to develop the respective development or redevelopment community, or development right, including land acquisition costs, construction costs, real estate taxes, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees, all as determined in accordance with GAAP. For redevelopment communities, Total Capital Cost excludes costs incurred prior to the start of redevelopment when indicated. With respect to communities where development or redevelopment was completed in a prior or the current period, Total Capital Cost reflects the actual cost incurred, plus any contingency estimate made by management. Total Capital Cost for communities identified as having joint venture ownership, either during construction or upon construction completion, represents the total projected joint venture contribution amount. For joint ventures not in construction as presented in the full earnings release, Total Capital Cost is equal to gross real estate cost.

Initial Year Market Cap Rate is defined by the Company as Projected NOI of a single community for the first 12 months of operations (assuming no repositioning), less estimates for non-routine allowance of approximately $200 - $300 per apartment home, divided by the gross sales price for the community. Projected NOI, as referred to above, represents management’s estimate of projected rental revenue minus projected operating expenses before interest, income taxes (if any), depreciation, amortization and extraordinary items. For this purpose, management’s projection of operating expenses for the community includes a management fee of 3.0% -3.5%. The Initial Year Market Cap Rate, which may be determined in a different manner by others, is a measure frequently used in the real estate industry when determining the appropriate purchase price for a property or estimating the value for a property. Buyers may assign different Initial Year Market Cap Rates to different communities when determining the appropriate value because they (i) may project different rates of change in operating expenses and capital expenditure estimates and (ii) may project different rates of change in future rental revenue due to different estimates for changes in rent and occupancy levels. The weighted average Initial Year Market Cap Rate is weighted based on the gross sales price of each community.

Unleveraged IRR on sold communities refers to the internal rate of return calculated by the Company considering the timing and amounts of (i) total revenue during the period owned by the Company and (ii) the gross sales price net of selling costs, offset by (iii) the undepreciated capital cost of the communities at the time of sale and (iv) total direct operating expenses during the period owned by the Company. Each of the items (i), (ii), (iii) and (iv) are calculated in accordance with GAAP.

The calculation of Unleveraged IRR does not include an adjustment for the Company’s general and administrative expense, interest expense, or corporate-level property management and other indirect operating expenses. Therefore, Unleveraged IRR is not a substitute for net income as a measure of our performance. Management believes that the Unleveraged IRR achieved during the period a community is owned by the Company is useful because it is one indication of the gross value created by the Company’s acquisition, development or redevelopment, management and sale of a community, before the impact of indirect expenses and Company overhead. The Unleveraged IRR achieved on the communities as cited in this release should not be viewed as an indication of the gross value created with respect to other communities owned by the Company, and the Company does not represent that it will achieve similar Unleveraged IRRs upon the disposition of other communities. The weighted average Unleveraged IRR for sold communities is weighted based on all cash flows over the holding period for each respective community, including net sales proceeds.

Leverage is calculated by the Company as total debt as a percentage of Total Market Capitalization. Total Market Capitalization represents the aggregate of the market value of the Company’s common stock, the market value of the Company’s operating partnership units outstanding (based on the market value of the Company’s common stock), the liquidation preference of the Company’s preferred stock and the outstanding principal balance of the Company’s debt. Management believes that Leverage can be one useful measure of a real estate operating company’s long-term liquidity and balance sheet strength, because it shows an approximate relationship between a company’s total debt and the current total market value of its assets based on the current price at which the Company’s common stock trades. Changes in Leverage also can influence changes in per share results. A calculation of Leverage as of December 31, 2008 is as follows (dollars in thousands):

Because Leverage changes with fluctuations in the Company’s stock price, which occur regularly, the Company’s Leverage may change even when the Company’s earnings, interest and debt levels remain stable. Investors should also note that the net realizable value of the Company’s assets in liquidation is not easily determinable and may differ substantially from the Company’s Total Market Capitalization.

Unencumbered NOI as calculated by the Company represents NOI generated by real estate assets unencumbered by either outstanding secured debt or land leases (excluding land leases with purchase options that were put in place for governmental incentives or tax abatements) as a percentage of total NOI generated by real estate assets. The Company believes that current and prospective unsecured creditors of the Company view Unencumbered NOI as one indication of the borrowing capacity of the Company. Therefore, when reviewed together with the Company's Interest Coverage, EBITDA and cash flow from operations, the Company believes that investors and creditors view Unencumbered NOI as a useful supplemental measure for determining the financial flexibility of an entity. A calculation of Unencumbered NOI for the full year ended December 31, 2008, for assets owned at December 31, 2008, is as follows (dollars in thousands):

Established Communities are identified by the Company as communities where a comparison of operating results from the prior year to the current year is meaningful, as these communities were owned and had stabilized operations, as of the beginning of the prior year. Therefore, for 2008, Established Communities are consolidated communities that have stabilized operations as of January 1, 2007 and are not conducting or planning to conduct substantial redevelopment activities within the current year. Established Communities do not include communities that are currently held for sale or planned for disposition during the current year.

Economic Occupancy is defined as total possible revenue less vacancy loss as a percentage of total possible revenue. Total possible revenue is determined by valuing occupied units at contract rates and vacant units at market rents. Vacancy loss is determined by valuing vacant units at current market rents. By measuring vacant apartments at their market rents, 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.