2019 ANNUAL REPORT Dear Fellow Shareholders, We had a productive year at AvalonBay as our 2019 construction on one development community, and financial performance modestly exceeded the secured a development right in Denver. At year-end expectation we provided early in the year. Core FFO 2019, we had committed over $600 million to each of $9.34 per share surpassed our initial outlook(1) by expansion market. $0.04 per share, and this outperformance was primarily driven by accretive acquisition activity and favorable capital market conditions. CAPITAL & BALANCE SHEET MANAGEMENT Throughout 2019, we raised approximately $1.3 OPERATIONS billion of new capital from a mix of (i) asset sales, (ii) new debt, net of debt redemptions, and (iii) common Apartment market fundamentals improved equity issuances. Importantly, our leverage, as moderately in 2019. Same-store revenue growth of measured by Net Debt-to-Total Market Capitalization 2.9% was 40 basis points above the levels achieved and Net Debt-to-Core EBITDAre, remained low at 20% in the preceding two years, and same-store and 4.6x, respectively. In addition, our economic occupancy remained healthy at 96.0%. Unencumbered NOI increased 200 basis points over the course of the year, to 93%, and our weighted Other key operating metrics also performed average years to maturity on total debt outstanding favorably. Same-store turnover(2) fell to 51% in stood at 8.9 years at the end of 2019. 2019, a ten-year low; same-store operating expenses increased 2.8%, 20 basis points below the expectation included in our initial outlook(1); and, our same-store Net Operating Income (“NOI”) Margin CORPORATE RESPONSIBILITY reached 72%, a ten-year high. We were also excited We believe that to be a great company we must apply to incorporate several new technologies and a multi-stakeholder approach to our business. processes into our operating platform that we Delivering strong financial results over a sustained believe will enable us to better serve our customers’ period requires engaged associates, satisfied needs, contain operating expense growth, and customers, and the support of our local communities, improve NOI Margins in the future. which we earn by taking an active leadership role in addressing important environmental and social challenges. INVESTMENT ACTIVITY In 2019, we: We completed the development of seven new → Remained in the top decile for associate communities containing over 2,000 apartment homes engagement among companies surveyed by for approximately $665 million in total capitalized Perceptyx (3). cost in 2019. We also commenced construction on → Were recognized by Glassdoor’s Employees’ eight new development communities that, if Choice Awards as one of the top 100 companies developed as expected, will contain nearly 2,400 to work for in the U.S. for a second consecutive apartment homes and represent approximately $850 year. million in total capitalized cost. → Were ranked #1 for online reputation among Over the course of the year, we continued to grow our public multifamily REITs by J. Turner Research for presence in our expansion markets. We (i) acquired a fourth consecutive year. two operating communities and secured a → Were named the Global and U.S. Leader in the development right in Southeast Florida and, (ii) Residential Sector by the Global Real Estate acquired one operating community, commenced Sustainability Benchmark (GRESB). 1 → Received an A- grade from the Carbon Disclosure during this public healthcare crisis. Far from Project (CDP) for our carbon emission disclosure retreating from our product, our residents will be practices. We were one of four REITs, and the increasing their usage of their apartment homes. At only apartment company, to receive a grade of A- the same time, constraints on business activity will or better. impact our development activity in ways that are not yet known. In all events, we are prepared to navigate We are proud of these accomplishments, but also this public healthcare crisis with a view to serving all recognize that we must continually strive to improve our stakeholders. how we support the key constituencies that drive our business forward. Thank you for your continued support. Sincerely, CONCLUSION 2019 was another productive year for AvalonBay. A modest improvement in apartment market fundamentals, accretive development and Timothy J. Naughton investment activity, and favorable capital market conditions helped deliver a 24.1% total return(4) to Chairman and CEO our shareholders during the year. March 20, 2020 As we close out the decade, we feel it is important to recognize the growth that has occurred at AvalonBay over the last 10 years. Since the beginning of 2010, (i) Core FFO per share increased by 135%, (ii) we completed the development of 96 new apartment communities containing nearly 27,000 apartment homes for approximately $8.3 billion in total capitalized cost, and (iii) we increased our annual common dividend per share by 70%. Lastly, as of this writing, the spread of the COVID-19 coronavirus has impacted much of the country, including in our markets, with each day bringing new news. With institutions, retail outlets, restaurants, entertainment venues, conferences and gatherings closing or limiting their operations to increase social distancing and slow the spread of the virus, 2020 presents new and unique challenges for us and the rest of the nation. We are taking recommended actions to increase the social distancing among our associates and residents, and we are monitoring and implementing protocols to help protect our communities and residents. A consensus has not yet emerged as to how long COVID-19 will impact daily living in the United States and what the size and duration of the impact will be on the economy. As a developer and provider of residential housing, we are in a unique position 2 NOTES 1. Initial (2019) outlook was provided by the Company on February 4, 2019. 2. Turnover represents the number of apartment homes turned over during the period, divided by the total number of apartment homes in the respective reporting period. 3. Perceptyx is a third-party service provider that surveys associates of leading companies to measure workforce engagement. 4. Total return (“total shareholder return”) is calculated by S&P Global Market Intelligence and represents the change in value over the period stated with all dividends reinvested. DEFINITIONS AND RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES AND OTHER TERMS USED IN THIS LETTER Development rights are development opportunities in the early phase of the development process for which the Company either has an option to acquire land or enter into a leasehold interest, for which the Company is the buyer under a long-term conditional contract to purchase land, where the Company controls the land through a ground lease or owns land to develop a new community, or where the Company is the designated developer in a public-private partnership. The Company capitalizes related pre-development costs incurred in pursuit of new developments for which the Company currently believes future development is probable. EBITDA, EBITDAre and Core EBITDAre are considered by management to be supplemental measures of our financial performance. EBITDA is defined by the Company as net income or loss attributable to the Company before interest income and expense, income taxes, depreciation and amortization. EBITDAre is calculated by the Company in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”), as EBITDA plus or minus losses and gains on the disposition of depreciated property, plus impairment write-downs of depreciated property, with adjustments to reflect the Company's share of EBITDAre of unconsolidated entities. Core EBITDAre is the Company’s EBITDAre as adjusted for noncore items outlined in the table below. By further adjusting for items that are not considered part of the Company’s core business operations, Core EBITDAre can help one compare the core operating and financial performance of the Company between periods. A reconciliation of EBITDA, EBITDAre and Core EBITDAre to net income is as follows (dollars in thousands): 3 Q4 2019 Net income $ 167,671 Interest expense, net, inclusive of loss on extinguishment of debt, net 54,190 Income tax expense 1,825 Depreciation expense 171,364 EBITDA $ 395,050 Gain on sale of communities (256) Joint venture EBITDAre adjustments (2,079) EBITDAre $ 392,715 Gain on other real estate transactions (65) Lost NOI from casualty losses covered by business interruption insurance 265 Business interruption insurance proceeds (527) Advocacy contributions 50 Severance related costs 60 Development pursuit write-offs and expensed transaction costs, net 2,093 For-sale condominium marketing and administrative costs 1,286 Asset management fee intangible write-off and other joint venture losses 52 Legal settlements (2,221) Casualty and impairment loss - Core EBITDAre $ 393,708 Economic occupancy is defined as total possible revenue less vacancy loss as a percentage of total possible revenue. Total possible revenue (also known as “gross potential”) 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