* IFC = Investment and Finance Committee, AC = Audit Committee, CC = Compensation Committee, NCG = Nominating and Corporate Governance Committee

** Lead Independent Director

The Board of Directors currently consists of ten members. As previously announced, John J. Healy, Jr., a current director, has decided not to stand for re-election. The Board of Directors has nominated for election the other nine current directors, and has reduced the size of the Board to nine to eliminate the resulting vacancy, effective immediately following the Annual Meeting. Accordingly, nine nominees will stand for election at the Annual Meeting and if elected will serve until the 2017 Annual Meeting of Stockholders and until their successors are elected and qualify. The following individuals have been nominated by the Board of Directors to serve as directors: Glyn F.

Aeppel, Terry S. Brown, Alan B. Buckelew, Ronald L. Havner, Jr., Timothy J. Naughton, Lance R. Primis, Peter S. Rummell, H. Jay Sarles, and W. Edward Walter (each, a "Nominee" and, collectively, the "Nominees"). The Board of Directors anticipates that each of the Nominees, if elected, will serve as a director. However, if any person nominated by the Board of Directors is unable to serve or for good cause will not serve, the proxies will be voted for the election of such other person as the Board of Directors may recommend. You may not vote for more than nine directors at the Annual Meeting.

Only holders of record of Common Stock as of the close of business on the Record Date are entitled to vote on this proposal. Proxies will be voted for all of the Nominees unless contrary instructions are set forth on the enclosed proxy card. Under the Company's Bylaws, the affirmative vote of a

majority of the total votes cast for and affirmatively withheld as to each Nominee is required to elect such Nominee. Under Maryland law, abstentions and broker non-votes are not treated as votes cast. Accordingly, an abstention or broker non-vote will have no effect on the result of the vote.

The following biographical descriptions set forth information with respect to the Nominees, based on information furnished to the Company by each Nominee, and include the specific experience, qualifications, attributes and skills that led to the

Board'sconclusion that each should serve as a director in light of the Company's business and structure. There is no family relationship between any Nominee or executive officer of the Company.

Mr. Naughton, 54, is the Company's Chairman of the Board, Chief Executive Officer and President and has been a director of the Company since September 2005. He has served as Chairman of the Board since May 2013, as Chief Executive Officer since January 2012, and as President since February 2005. Previously, Mr. Naughton's prior roles included serving as the Company's Chief

Operating Officer, Chief Investment Officer, and Regional Vice President—Development and Acquisitions. Mr. Naughton has been with the Company and its predecessors since 1989. Mr. Naughton has served as a director of Welltower Inc., a publicly traded investor in healthcare real estate, since December 2013, serves as an officer (First Vice Chair) of the

National Association of Real Estate Investment Trusts ("NAREIT"), is a member of The Real Estate Round Table, is a member and past chairman of the Multifamily Council of the Urban Land Institute ("ULI"), and is a member of the Real Estate Forum. Mr. Naughton received his Masters of Business Administration from Harvard Business School in 1987 and earned his undergraduate degree in Economics with High Distinction from

the University of Virginia, where he was elected to Phi Beta Kappa. The Board has concluded that Mr. Naughton should serve as a director based on his history with and knowledge of the Company, his performance and achievements as Chairman of the Board, President and Chief Executive Officer of the Company, and his strong background in the real estate business, including years of experience in both property investment and development.

Ms. Aeppel, 57, has been a director of the Company since May 2013, and has more than 30 years of experience in property acquisitions, development and financing. Ms. Aeppel established a hotel investment and advisory company, Glencove Capital, in June 2010 and serves as its President and Chief Executive Officer. From October 2008 to May 2010, Ms. Aeppel served as Chief Investment Officer of Andre Balazs Properties, an owner, developer and operator of luxury hotels. From April 2006 to October 2008, she served as Executive Vice President of Acquisitions and Development for Loews Hotels and as a member of its Executive Committee. From April 2004 to April 2006, she was a principal of Aeppel and Associates, a hospitality advisory development company, during which time she

assisted Fairmont Hotels and Resorts in expanding in the United States and Europe. Prior to April 2004, Ms. Aeppel held executive positions with Le Meridien Hotels, Interstate Hotels & Resorts, Inc., FFC Hospitality, LLC, Holiday Inn Worldwide and Marriott Corporation. Ms. Aeppel has been nominated for election to the board of Simon Property Group, Inc., a publicly traded retail real estate company, at its annual meeting of stockholers in May 2016. Ms. Aeppel also serves on the board of Exclusive Resorts, a private luxury resort and vacation rental home company. The Board has concluded that Ms. Aeppel should serve as a director based on her broad background and long experience in property acquisitions, branding, development and financing.

Mr. Brown, 54, has been a director of the Company since January 1, 2015, and is the Chairman and Chief Executive Officer of Asana Partners, a private real estate investment company, which he helped found in 2015. Prior to that he was Chairman and Chief Executive Officer of EDENS, one of the country's leading private owners, operators and developers of real estate. Mr. Brown joined EDENS as its CEO in 2002. Before joining Edens he was Chief Executive Officer of Andersen Corporate Finance LLC (NASD

broker-dealer subsidiary of Arthur Andersen LLP) where he was responsible for strategy and investment banking activities on a global basis across the real estate, manufacturing, technology, services and energy industries. The Board has concluded that Mr. Brown should serve as a director based on his significant experience in a sector of the real estate industry that is complementary to the Company's multifamily platform.

Mr. Buckelew, 67, has been a director of the Company since September 2011. He has been the Chief Operations Officer of Carnival Corporation, a publicly traded cruise line holding company, since December 2013. Prior to that he was President of Princess Cruises, Inc. from 2004 to 2013,

overseeing the brand and operations of Princess Cruises.

Mr. Buckelew also served as Chief Operating Officer for Cunard Line from 2004 to 2007. Prior to these roles, Mr. Buckelew served from 2000 to 2004 as Executive Vice President of Corporate

Services for Princess Cruises, with responsibility for the Company's strategic planning, marketing and yield management functions. The Board has concluded that Mr. Buckelew should serve as a

director based on his significant experience as an executive in an industry that, like multifamily apartment communities, is capital intensive and consumer-driven.

Mr. Havner, 58, has been a director of the Company since September 2014. Mr. Havner is the Chairman of the Board, Chief Executive Officer and President of Public Storage, a publicly traded real estate investment trust that primarily acquires, develops, owns and operates self-storage facilities. He was elected Vice Chairman and Chief Executive Officer of Public Storage in 2002 and was elected Chairman of the Board in August 2011. Mr. Havner has been Chairman of the Board of PS Business Parks, Inc., a publicly traded real estate company, since March 1998, and has served as a director of California Resources Corp., a publicly traded oil and natural gas exploration and production company, since 2014. Mr. Havner was the 2014 Chairman of the Board of Governors of NAREIT.

In considering the nomination of Mr. Havner for re-election to the Board, the Nominating and Corporate Governance Committee (the "Nominating and Governance Committee") and the full Board considered whether Mr. Havner's role at Public Storage and PS Business Parks, together with his service on the Board of California Resources Corp., would allow him to dedicate sufficient time and focus on his duties as a director of AvalonBay. The Board considered Mr. Havner's performance as a valued and reliable member of the Board and its Committees over the past year, including his attendance at 16 of 17 possible Board and Committee meetings (Mr. Havner missed one brief Investment and Finance Committee telephonic call). In accordance with the Board's standard practice, prior to joining the

Board and each year thereafter Mr. Havner reviews three years' of regularly scheduled AvalonBay Board and Committee meeting dates so that he has time to arrange his schedule to provide for availability at AvalonBay meetings.

In determining that Mr. Havner's other commitments would not prevent him from dedicating sufficient time and attention to the Company, the Board and the Nominating and Governance Committee considered the substantial overlap between his duties at Public Storage and at PS Business Parks. Public Storage owns 42% of PS Business Parks, PS Business Parks' financial records are reflected in Public Storage's financial statements under the equity method of accounting, and there are a number of contractual relationships between the two entities, including a cost sharing and administration services agreement.

The Board and the Nominating and Governance Committee also believe that Mr. Havner provides great value to the Board and is an important contributor to discussions and decision-making. Mr. Havner is a highly respected and experienced member of the real estate industry with current executive experience with a leading developer and operator. Accordingly, the Board has concluded that Mr. Havner should serve as a director based upon his business and investment expertise acquired in successfully leading an equity REIT for over a decade and his demonstrated reliability and commitment to service on the Board.

Mr. Primis, 68, has been a director of the Company since June 1998. Since 1997, Mr. Primis has been the managing partner of Lance R. Primis & Partners, LLC, a management consulting firm with clients in the media industry. From 1969 to 1996, Mr. Primis was employed in various positions by The New York Times Company, including the positions of President and Chief Operating Officer, which he held from 1992 to 1996. Mr. Primis was

the President and General Manager of The New York Times from 1988 to 1992. The Board has concluded that Mr. Primis should serve as a director based on his experience managing a public company with significant and varied operations and his performance in the role of Lead Independent Director. Mr. Primis served as the Lead Independent Director of the Company from 2003 through May 2015.

Mr. Rummell, 70, has been a director of the company since September 2007. He is currently a private investor and most recently served as the Chief Executive Officer of the Jack Nicklaus Companies in Palm Beach, Florida, from August 2008 through May 2009. The Jack Nicklaus Companies runs Mr. Nicklaus's worldwide golf course design and related licensing business. Prior to that, from January 1997 until his retirement in July 2008, Mr. Rummell was Chairman and CEO of The St. Joe Company, one of Florida's largest real estate operating companies and the state's largest private landowner. From 1985 until 1996,

Mr. Rummell served as President of Disney Development and then as Chairman of Walt Disney Imagineering, the division responsible for Disney's worldwide creative design, real estate, research and development activities. From 1983 until 1985, he was Vice Chairman of the Rockefeller Center Management Corporation in New York City. Mr. Rummell is a past chairman of the ULI. The Board has concluded that Mr. Rummell should serve as a director based on his experience in leadership positions of companies with significant real estate holdings and operations and his broad knowledge of the real estate industry.

Mr. Sarles, 70, has been a director of the Company since September 2005, and has served as the Lead Independent Director of the Company since May 2015 (see "Board of Directors and its Committees—Leadership Structure and Lead Independent Director"). He retired from full time business leadership positions in 2005, having most recently served as vice chairman of Bank of America Corporation. Prior to that he served as Vice Chairman and Chief Administrative Officer of Fleet Boston Financial ("Fleet") with responsibility for administrative functions, risk management, technology and operations, treasury services, corporate strategy and mergers and acquisitions. During his 37 years at Fleet, Mr. Sarles oversaw

virtually all of Fleet's businesses at one time or another, including the company's wholesale banking business from 2001 to 2003. These included commercial finance, real estate finance, capital markets, global services, industry banking, middle market and large corporate lending, small business services and investment banking businesses. Mr. Sarles has served as a director of Ameriprise Financial, Inc., a publicly traded financial planning services company, since September 2005. The Board has concluded that Mr. Sarles should serve as a director based on his extensive experience as an executive officer with a variety of responsibilities at a large financial institution with varied operations.

Mr. Walter, 60, has been a director of the Company since September 2008. He has served as President and Chief Executive Officer of Host Hotels & Resorts, Inc. ("Host"), a publicly traded premier lodging real estate company, since October 2007. From 2003 until October 2007, he served as Executive Vice President and Chief Financial Officer of Host. From 1996 until 2003, he served in various senior management positions with Host, including Chief Operating Officer. Mr. Walter has been a member of the Board of Directors of Host since October 2007. Mr. Walter is also past Chairman of the Board of Directors of the National Kidney Foundation, a Trustee of Friendship Public Charter Schools, a Director of

the Real Estate Round Table, an officer of the Federal City Council, and Chair of the American Hotel & Lodging Association's CEO Advocacy Steering Committee. In addition, he is the Robert and Lauren Steers Chair in Real Estate at the Steers Center for Global Real Estate at Georgetown University's McDonough School of Business. The Board has concluded that Mr. Walter should serve as a director based on his demonstrated business, financial and organizational experience as both the past chief financial officer and current chief executive officer of a publicly traded corporation with significant real estate investment holdings and operations.

The Board recommends that the stockholders ratify the Audit Committee's selection of Ernst & Young LLP ("Ernst & Young") as the independent auditors of the Company for fiscal year 2016. Ernst & Young was also the Company's principal independent auditors for fiscal year 2015. If the selection of Ernst & Young is not ratified, the Audit Committee anticipates that it will nevertheless engage Ernst & Young as auditors for fiscal year 2016 but will consider whether it should select a different auditor for fiscal year 2017. If the selection

of Ernst & Young is ratified by the stockholders, the Audit Committee may nevertheless determine, based on changes in fees, personnel or for other reasons, to engage a firm other than Ernst & Young for the 2016 audit.

Representatives of Ernst & Young are expected to be present at the Annual Meeting and will have the opportunity to make a statement, if they desire to do so, and to respond to appropriate questions.

Only holders of record of Common Stock as of the close of business on the Record Date are entitled to vote on this proposal. Proxies will be voted for ratification of the selection of Ernst & Young as the Company's independent auditors for fiscal year 2016 unless contrary instructions are set forth on the enclosed proxy card. A majority of the votes

cast on the proposal at the Annual Meeting is required to ratify the selection of Ernst & Young. Under Maryland law, abstentions and broker non-votes are not treated as votes cast. Accordingly, an abstention or broker non-vote will have no effect on the result of the vote.

The Compensation Discussion and Analysis beginning on page 19 of this proxy statement describes the Company's executive officer compensation program and decisions made by the Compensation Committee and the Board of Directors with respect to the 2015 compensation of our Chief Executive Officer and other officers named in the Summary Compensation Table on page 43 (the "Named Executive Officers"). As noted in the Compensation Discussion and Analysis, the Company's goals for its executive compensation program are (i) to attract, motivate and retain experienced, effective executives, (ii) to direct the performance of those executives with clearly defined goals and measures of achievement and (iii) to align the interests of management with the interests of our stockholders.

At our 2011 Annual Meeting of Stockholders, our stockholders voted on a proposal regarding the frequency of holding a non-binding, advisory vote on the compensation of our named executive officers (a "Say-on-Pay Vote"), among other

matters. A majority of the votes cast on the frequency proposal were cast in favor of holding a Say-on-Pay Vote every year, which was consistent with the recommendation of our Board of Directors. Our Board currently intends for the Company to hold a Say-on-Pay Vote every year at least until the 2017 Annual Meeting of Stockholders, which is the next required advisory vote on the frequency of holding a Say-on-Pay Vote.

While the vote on the following resolution is advisory in nature and therefore will not bind us to take any particular action, our Board of Directors intends to carefully consider the stockholder vote resulting from the proposal in making future decisions regarding our compensation program. The Board of Directors is asking stockholders to cast a non-binding, advisory vote on the following resolution:

"RESOLVED, that the compensation paid to the Company's Named Executive Officers, as

disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, compensation tables and any related

material disclosed in this proxy statement, is hereby APPROVED, on a non-binding, advisory basis, by the stockholders of the Company."

Only holders of record of Common Stock as of the close of business on the Record Date are entitled to vote on this proposal. Proxies will be voted for adoption of the resolution approving the compensation disclosed unless contrary instructions are set forth on the enclosed proxy card. A majority of the votes cast on the proposal at the Annual Meeting is required to provide

non-binding advisory approval of the compensation paid to the Company's Named Executive Officers. Under Maryland law, abstentions and broker non-votes are not treated as votes cast. Accordingly, an abstention or broker non-vote will have no effect on the result of the vote.

The Company has adopted a Code of Business Conduct and Ethics (the "Code"). The Code constitutes a "code of ethics," as defined by the SEC, that applies to the Company's Board of Directors as well as its Chief Executive Officer, Chief Financial Officer, principal accounting officer, controller, and other employees of the Company. In addition, the Company has adopted Corporate Governance Guidelines. Copies of the Code and the Corporate Governance Guidelines are available on the "Investor relations" section of the Company's website (www.avalonbay.com) under "Governance Documents." To the extent required

by the rules of the SEC and the NYSE, we will disclose amendments and waivers relating to these documents in the same place on our website. Additional information on corporate governance policies is included in "Compensation Policies" on page 40, including information on the following Company policies: Executive Stock Ownership Guidelines; Prohibition Against Hedging, Pledging or Borrowing against Company Stock; Severance Policy; and Policy on Recoupment of Incentive Compensation (Clawback Policy).

The Board of Directors currently consists of ten directors, nine of whom are candidates for election. As previously announced, John J. Healy, Jr., a current director, has decided not to stand for re-election. The Board of Directors met five times during 2015. The Board of Directors schedules regular executive sessions at each of its meetings in which the Company's independent directors meet without management participation. During 2015, each of the directors attended at least 75% of the total number of meetings of the Board of Directors and meetings of the committees of the Board of Directors of which he or she was a member. The Board's policy is that each director attend the Company's annual meetings of stockholders at which he or she is a nominee, and all directors were in attendance at the 2015 Annual Meeting of Stockholders with the exception of Peter Rummell.

As discussed below under Nominating and Corporate Governance Committee, the Board considers a variety of factors when choosing candidates for Board appointment or nomination. While the Board values long-tenured directors who know the Company and management well, the Board also believes that it is important to assure that from time to time vacancies occur on the Board that create opportunities for new directors

who may bring different or more recent experiences or expertise to the Board. Consistent with this philosophy, three new directors have joined the AvalonBay Board on or subsequent to the 2013 Annual Meeting of Stockholders: Glyn Aeppel, Ron Havner and Terry Brown.

On February 11, 2016, the Company's Board of Directors amended the Company's Corporate Governance Guidelines to incorporate new term limit expectations that reflect the Board's view of the importance of board succession planning. Specifically, the Corporate Governance Guidelines, as amended, (i) express an expectation that a director will not be re-nominated after the completion of 12 full years of service or within the several years that follow; (ii) express an expectation that the Lead Independent Director will serve in that role for approximately three to five years, and (iii) express an expectation that Committee chairs will serve for three to five years. In each case, the guideline is flexible and the exact timing for any transition will depend on the needs of the Board at the time and the timing of identification and nomination of a successor. The Board would not expect to apply this guideline to an employee director (at the present time, the only employee on the Company's Board is the CEO).

The Board of Directors has established an Audit Committee. The current members of this committee are Mr. Buckelew (Chair), Ms. Aeppel and Messrs. Brown, Havner and Healy. Following the Annual Meeting, Mr. Healy will no longer serve as a director. The Board of Directors has determined that Mr. Buckelew is an "audit committee financial expert" as defined by the SEC, based on his MBA, experience as Chief Financial Officer at Princess Cruises, and the fact that the Internal Audit function of Carnival Corporation reports to him. The designation of Mr. Buckelew by the Board as an "audit committee financial expert" is not intended to be a representation that he is an expert for any purpose as a result of this designation, nor is it intended to impose on him any duties, obligations or liabilities that are greater than the duties, obligations or liabilities imposed on him as a member of the Audit Committee and the Board in the absence of this designation. The Board of Directors has determined that the

members of the Audit Committee, including the audit committee financial expert, are "independent" under the rules of the NYSE. The Audit Committee, among other functions, has the sole authority to appoint and replace the independent auditors, is responsible for the compensation and oversight of the work of the independent auditors, reviews the results of the audit engagement with the independent auditors, and reviews and discusses with management and the independent auditors quarterly and annual financial statements and major changes in accounting and auditing principles. The Audit Committee met seven times during 2015. The Board of Directors has adopted a written charter for the Audit Committee. A copy of the Audit Committee charter is available on the "Investor relations" section of the Company's website (www.avalonbay.com) under "Corporate Governance Documents."

The Board of Directors has established a Compensation Committee. The current members of this committee are Messrs. Walter (Chair), Primis and Sarles. The Board of Directors has determined that the members of the Compensation Committee are "independent" under the rules of the NYSE. The Compensation Committee, among other functions, reviews, designs and determines management compensation structures, programs and amounts, establishes corporate and management performance goals and objectives, and reviews and makes recommendations to the Board of Directors regarding the Company's incentive compensation plans, including the Company's 1994 Stock Incentive Plan and the Company's 2009 Stock Option and Incentive Plan (collectively, the "Stock Incentive Plans"). The Compensation Committee also reviews employment agreements and arrangements with senior officers. In addition, our Stock Incentive Plans provide that the Committee, in its discretion, may delegate to the Chief Executive Officer of the

Company all or part of the Committee's authority and duties under the Stock Incentive Plans with respect to awards, including the granting of awards to individuals who are not subject to the reporting and other provisions of Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act"). The Compensation Committee has engaged Steven Hall & Partners, an executive compensation consulting firm, to provide it with independent advice and counsel on executive and board compensation, as well as competitive pay practices. Steven Hall & Partners does not provide any services directly to the Company or its management. The Compensation Committee met six times during 2015. The Board of Directors has adopted a written charter for the Compensation Committee. A copy of the Compensation Committee charter is available on the "Investor relations" section of the Company's website (www.avalonbay.com) under "Corporate Governance Documents."

The Board of Directors has established a Nominating and Corporate Governance Committee. The current members of this committee are Messrs. Primis (Chair), Rummell,

Sarles and Healy. Following the Annual Meeting, Mr. Healy will no longer serve as a director and the Board expects to appoint Jay Sarles to serve as the Chairman of the Nominating and Governance

Committee, along with its remaining current members. The Board of Directors has determined that the members of the Nominating and Governance Committee are "independent" under the rules of the NYSE. The Nominating and Governance Committee's functions include: identifying individuals qualified to become Board members; considering policies relating to Board and committee meetings; recommending the establishment or dissolution of Board committees; reviewing and considering succession plans with respect to the positions of Chairman of the Board and Chief Executive Officer (including through periodic evaluation and discussion with the Board of internal candidates for such succession); reviewing policies and activities in the areas of political contributions, charitable giving and corporate responsibility; and addressing other issues regarding corporate governance. The Nominating and Governance Committee met five times during 2015. The Board of Directors has adopted a written charter for the Nominating and Governance Committee. A copy of the Nominating and Governance Committee charter is available on the "Investor relations" section of the Company's website (www.avalonbay.com) under "Corporate Governance Documents."

In evaluating and determining whether to recommend a person as a candidate for election as a director, the Nominating and Governance Committee considers the qualifications set forth in the Company's corporate governance guidelines, which include the nominee's business and professional background; history of leadership or contributions to other organizations; functional skill set and expertise; general understanding of marketing, finance, accounting and other elements relevant to the success of a publicly-traded company in today's business environment; and service on other boards of directors. In addition, the Board may consider diversity of background, experience and thought in evaluating and recommending candidates for election. The Board believes that diversity is important because a variety of points of view can contribute to a more effective decision-making process. The Nominating and Governance Committee may employ a variety of methods for identifying and evaluating nominees for director. The Nominating and Governance Committee may assess the size of the Board, the need for particular expertise on the Board, the upcoming election cycle of the Board and whether any vacancies are expected, due to retirement or otherwise. In the event that vacancies are anticipated or otherwise arise, the Nominating and

Governance Committee will consider various potential candidates for director which may come to the Nominating and Governance Committee's attention through current Board members, professional search firms, stockholders or other persons. These candidates are evaluated at regular or special meetings of the Nominating and Governance Committee, and may be considered at any time during the year.

In exercising its function of recommending individuals for nomination by the Board for election as directors, the Nominating and Governance Committee will consider nominees recommended by stockholders. The procedure by which stockholders may submit such recommendations is set forth in the Company's Bylaws. See "Other Matters – Stockholder Proposals for Annual Meetings" for a summary of these requirements. When nominations are properly submitted, the Nominating and Governance Committee will consider candidates recommended by stockholders under the criteria summarized above. Following verification of the stockholder status of persons proposing candidates, the Nominating and Governance Committee makes an initial analysis of the qualifications of any candidate recommended by stockholders or others pursuant to the criteria summarized above to determine whether the candidate is qualified for service on the Board of Directors before deciding to undertake a complete evaluation of the candidate. If any materials are provided by a stockholder or professional search firm in connection with the nomination of a director candidate, such materials are forwarded to the Nominating and Governance Committee as part of its review. The same identifying and evaluating procedures apply to all candidates for director nomination, including candidates submitted by stockholders. In the case of stockholder nominations, the Board may also consider the specific information required to be provided by the nominating stockholder pursuant to the requirements of the Company's Bylaws.

If you would like the Nominating and Governance Committee to consider a prospective candidate, please submit the candidate's name and qualifications and other information in accordance with the requirements for director nominations by stockholders in the Company's Bylaws to: AvalonBay Communities, Inc., Ballston Tower, 671 N. Glebe Road, Suite 800, Arlington, VA 22203, Attention: Corporate Secretary.

The Board of Directors has established an Investment and Finance Committee. The current members of this committee are Ms. Aeppel (Chair), and Messrs. Brown, Buckelew, Havner, Naughton, and Rummell. The Investment and Finance Committee was formed, among other things, to review and monitor the acquisition, disposition, development and redevelopment of the Company's communities, and review and monitor

the financial structure, capital sourcing strategy and financial plans and projections of the Company. The Investment and Finance Committee has authority, subject to certain limits and guidelines set by the Board of Directors and Maryland law, to approve investment and financing activity. The Investment and Finance Committee met five times during 2015.

Timothy J. Naughton, our Chief Executive Officer and President, also serves as the Company's Chairman of the Board. The Board believes that the Company is best served by having Mr. Naughton serve as Chairman of the Board in addition to Chief Executive Officer and President, as opposed to appointing one of the other current directors or a future director to serve as Chairman of the Board. Among other benefits, Mr. Naughton's role as Chief Executive Officer and President enables him, working with the Lead Independent Director, to act as a bridge between management and the Board, helping management and the Board to act with a common purpose. Mr. Naughton's combined roles as Chief Executive Officer, President and Chairman of the Board promote unified leadership and direction for the

Company. To help assure sound corporate governance practices, the Board of Directors established the position of Lead Independent Director in 2003 and Mr. Sarles currently serves in that role. Mr. Sarles' role as Lead Independent Director includes presiding at all meetings of the Board of Directors at which the Chairman of the Board is not present, serving as a liaison between the Chairman of the Board and the independent directors, establishing and approving meeting agendas for the Board, having the authority to call meetings of the independent directors, conferring with the Chairman of the Board and the Chief Executive Officer regularly, and acting as a contact person for stockholders and others who wish to communicate with the independent directors.

The Company and the Board have a number of practices with regard to Board oversight of risk management matters. The charter of each of the Company's Board committees provides that each committee shall, from time to time to the extent that committee deems appropriate, review risk and compliance matters relevant to that committee and report the results of such review to the full Board. As required by NYSE rules, the charter of the Audit Committee states that the Audit Committee will assist with Board oversight of risk and compliance matters, and in any event will review the perceived major financial risk exposures of the Company and the steps management has taken to monitor and control such exposures. At most regularly scheduled Board meetings, the Board reviews key matters relating to the Company's finances, liquidity, operations and investment activity. On an annual basis, the Board engages in a broader discussion about company-wide risk management.

Although it is not the primary reason for the selection of the current leadership structure by the Board, the Company and the Board believe that the current leadership structure of the Board, including both a Chairman of the Board and a separate Lead Independent Director, helps facilitate these risk oversight functions by providing multiple channels for risk related concerns and comments. The Company's operations involve various risks that could have adverse consequences, including those described in the Company's Annual Report on Form 10-K and other filings with the SEC. The Board recognizes that it is neither possible nor prudent to eliminate all risk. Despite the risk oversight activities described above, there can be no assurance that the Company's current practices have identified every potential material risk, are sufficient to address these risks, or that any risks will not result in a material adverse effect on the Company's business or operations.

The NYSE has adopted independence standards for companies listed on the NYSE, which apply to the Company. These standards require a majority of the Board of Directors to be independent and every member of the Audit Committee, Compensation Committee and Nominating and Governance Committee to be independent. NYSE standards provide that a director is considered independent only if the Board of Directors "affirmatively determines that the director has no material relationship with the listed company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company)." In addition, NYSE rules and related NYSE commentary generally provide that:

•

A director who is an employee, or whose immediate family member is an executive officer, of the Company is not independent until three years after the end of such employment relationship;

•

A director who receives, or whose immediate family member receives, more than $120,000 per year in direct compensation from the Company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service), is not independent until three years after he or she ceases to receive more than $120,000 per year in such compensation; compensation received by an immediate family member for service as an employee of the Company (other than an executive officer) need not be considered in determining independence under this test;

•

A director is not independent if (A) the director is a current partner or employee of a firm that is the Company's internal or external auditor; (B) the director has an immediate family member who is a current partner of such a firm; (C) the director has an immediate family member who is a current employee of such a firm and personally works on the Company's audit; or (D) the director or an immediate

family member was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on the Company's audit within that time;

•

A director who is employed, or whose immediate family member is employed, as an executive officer of another company where any of the Company's present executives serve on that company's compensation committee is not independent until three years after the end of such service or the employment relationship; and

•

A director who is an executive officer or an employee, or whose immediate family member is an executive officer, of a company that makes payments to, or receives payments from, the Company for property or services in an amount which, in a single fiscal year, exceeds the greater of $1 million or 2% of such other company's consolidated gross revenues, is not independent until three years after falling below such threshold.

To determine which of its members is independent, the Board of Directors used the above standards and also considered whether a director had any other past or present relationships with the Company which created conflicts or the appearance of conflicts.

Based on consideration of the foregoing and the absence of any other such transactions, relationships or arrangements found as a result of this review, the Board determined that all nominees for directors are independent, except for Mr. Naughton, who currently serves as the Company's Chairman of the Board, Chief Executive Officer and President.

NYSE rules provide for additional independence standards that apply to members of the Audit Committee and the Compensation Committee. The Board has determined that each member of these committees satisfies these additional standards.

The Company considers its relationship with its stockholders to be an important part of its success and we value the outlook and opinions of our investors. In connection with the proxy access

stockholder proposal the Company received last year for consideration at the 2015 Annual Stockholders' Meeting, both before and after the meeting our management engaged in discussions

with a number of stockholders owning a significant percentage of our stock to discuss governance issues, including but not limited to, proxy access. The feedback was conveyed to and discussed with the Nominating and Governance Committee and full Board.

The goal of these conversations was to ensure that management and the Board understood and considered the issues that matter most to our stockholders and to enable the Company to address them effectively.

Based in part on the feedback received during these engagements and communicated to the Board, the Board adopted a proxy access bylaw last year. The proxy access bylaw provides that, subject to the eligibility, procedural and disclosure requirements set forth in the bylaws, a stockholder, or group of up to 20 stockholders, owning 3% or

more of the Company's outstanding common stock continuously for at least 3 years, can require the Company to include in its proxy materials for an annual meeting director nominations for up to 20% of the number of seats on the board of directors before the nomination, rounding down to the nearest whole number, but not less than two nominees. Two or more funds that are part of the same family of funds under common management and investment control count as one stockholder for purposes of determining whether a group of stockholders exceeds 20.

In addition to conversations with our stockholders, the Company receives correspondence throughout the year from stockholders and stockholder advocacy groups and responds and/or shares this correspondence with the Nominating and Governance Committee and the full Board where requested or otherwise appropriate.

Any stockholder or other interested party may contact any of our directors, including the Lead Independent Director or our independent directors as a group, by writing to them at the following address. The envelope in which you send your

letter should clearly specify the name of the individual director or group of directors to whom your letter is addressed. Any communications received in this manner will be forwarded as addressed.

The Audit Committee of the Board of Directors of AvalonBay Communities, Inc., a Maryland corporation (the "Company"), reviews the financial reporting process of the Company on behalf of the Board of Directors. Management has primary responsibility for this process, including the Company's system of internal controls, and for the preparation of the Company's consolidated financial statements in accordance with generally accepted accounting principles. The Company's independent auditors, and not the Audit Committee, are responsible for auditing and expressing an opinion on the conformity of the Company's audited financial statements to generally accepted accounting principles.

In this context, during 2015 and 2016, the Audit Committee reviewed and discussed the audited financial statements with management and the independent auditors. The Audit Committee has discussed with the independent auditors the matters required to be discussed by Auditing Standard N. 61, as amended, as adopted by the Public Company Accounting Oversight Board (PCAOB) in Rule 3200T. In addition, the Audit Committee received from the independent auditors the written disclosures required by the PCAOB regarding the independent auditor's communications with the Audit Committee regarding independence, and the Audit Committee discussed with the independent auditors their independence from the Company and its management.

Relying on the reviews, disclosures and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015, for filing with the SEC, and the Board of Directors has approved this recommendation.

Submitted by the Audit Committee

                        Alan B. Buckelew (Chair)
                        Glyn F. Aeppel
                        Terry S. Brown
                        Ronald J. Havner, Jr.
                        John J. Healy, Jr.

The Audit Committee pre-approves all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval is provided for up to one year, and any pre-approval is detailed as to the particular service or category of services and is subject to a specific budget.

The independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis.

The Company's Code of Business Conduct and Ethics, adopted by the Company's Board of Directors and evidenced in writing, provides that no employee of the Company, including an executive officer or director, may engage in activities that create a conflict of interest with the Company unless all relevant details have been disclosed and an appropriate waiver permitting the conduct has been received. An activity constitutes a conflict of interest under the Code if (i) the activity could adversely affect or compete with the Company, (ii) any interest, connection or benefit to the employee or director from the activity could reasonably be expected to cause such employee or director to consider anything other than the best interest of the Company when deliberating and

voting on Company matters or (iii) any interest, connection or benefit to the employee or director from the activity could give such employee or director or a member of his or her family an improper benefit that he or she obtains on account of his or her position within the Company. An executive officer or member of the Board of Directors may only receive a waiver from the Board or any designated committee of the Board, and any waiver granted to an executive officer or director will be disclosed to the Company's stockholders to the extent required by law or NYSE rules. The Nominating and Governance Committee of the Board (or any other committee that is designated) is responsible for administering the Code for executive officers and directors.

Summary:    In 2015, our operating and development capabilities, supported by continued sound apartment fundamentals, allowed us to again deliver strong operating results. Some highlights for the year include:

Operating Activity:    Rental revenue for Established Communities for 2015 increased 5.0% over the prior year period. NOI for Established Communities increased 5.8% for the same period.

Development Activity:    We completed 13 new development communities, representing a total capital investment of approximately $1.3 billion. These new communities were delivered at an average cost basis of approximately $310,000 per apartment home, below the current market value of our existing 18 year old stabilized portfolio. We also started 13 new apartment communities that are projected to contain approximately 3,800 apartment homes, at a total capital cost of $1.2 billion.

At year-end 2015, we had $2.9 billion in projected total capital cost under construction and our development rights pipeline consisted of 32 communities, representing $3.3 billion in projected total capital cost.

Redevelopment Activity:    During 2015, the Company completed the redevelopment of four communities containing an aggregate of 1,144 apartment homes, for a total capital cost of $59.5 million, excluding costs incurred prior to redevelopment. We also commenced the redevelopment of 13 communities containing an aggregate of 4,115 apartment homes, for a projected total capital cost of $129.9 million, excluding costs incurred prior to redevelopment.

Dividend Growth:    In January 2016 we announced a dividend increase of 8%. Since the first quarter of 2011 we have increased our quarterly dividend value by just over 50%.

Capital Markets Activity:    We raised approximately $1.9 billion by borrowing approximately $875 million, issuing $660 million of new equity (using a forward equity contract executed in late 2014), and sourcing $345 million through asset sales.

Portfolio Management:    During 2015 the Company sold three wholly-owned communities. These communities, containing 851 apartment homes, were sold for an aggregate sales price of approximately $265.5 million resulting in an aggregate gain in accordance with GAAP of $115.6 million.

Also during 2015, real estate ventures in which the Company had a direct investment, or in which the Company held a residual profits interest, sold eight communities containing 2,870 apartment homes, resulting in an aggregate gain in accordance with GAAP for the Company of $33.5 million.

Earnings and Core FFO Growth:    Earnings per share for the year was $5.51. "Core FFO" increased by 11.4% over the prior year to $7.55. For the two years ended December 31, 2015 (the period measured for this metric in our maturing performance awards), our Core FFO grew at a 10.1% annualized rate (future maturing awards use a three-year measurement period).

Other Achievements:    The Company was ranked #1 for its positive online reputation among the top 50 multifamily rental housing providers in the United States based on J. Turner Research's most recent Online Reputation Assessment™ Power Rankings.

Our Employee Engagement and Manager Effectiveness results from our 2015 Associate Perspective survey were very strong, placing us in the top 10% of companies surveyed by IBM-Kenexa.

In the area of corporate responsibility, AvalonBay was named the 2015 Residential Leader in the Light by NAREIT. The Leader in the Light award recognizes companies that have demonstrated a superior commitment to sustainability and environmental responsibility. In addition, the Company was named a leader in residential real estate by the annual Global Real Estate Sustainability Benchmark (GRESB) survey. AvalonBay also was awarded a Green Star by GRESB for its top ratings in the various environmental categories.

The GRESB survey evaluates hundreds of real estate companies in such areas as management, policy, development, governance, sustainability, and environmental and social programs/policies. In every category, AvalonBay scored well above the average score of its peers in residential real estate, ranking second in the United States. Its rating was also above the global industry average in almost every category, ranking third worldwide. In attaining the coveted Green Star for environmental achievement, AvalonBay ranked in the top quartile in terms of implementation and measurement, management and policy, and development. AvalonBay's overall 2015 GRESB score marks the third consecutive year of improvement in the rankings, beginning with its first year of participation in 2013.

Definitions and Reconciliations:    For definitions and reconciliations of FFO, Core FFO, Established Communities, and NOI, see pages 40-42 and F-26-F27, respectively, of the Company's Annual Report on Form 10-K for the year ended December 31, 2015.

Base Salary.    Mr. Naughton, our Chairman and CEO, continued to have a base salary of $950,000 in 2015, which remained unchanged since 2013 when he was appointed as Chairman of the Board.

Cash Bonus.    Mr. Naughton's target cash bonus for 2015 was $1,425,000 or 150% of base salary. Seventy-five percent of the target cash bonus is based on corporate performance factors and 25% is based on individual performance. The

achievement levels for the corporate performance and individual factors were judged to be 136.8% and 115%, respectively, resulting in a final cash bonus for 2015 of $1,871,738.

Performance Awards.    Two performance awards with performance periods ending in 2015 were made. The 2013 - 2015 performance awards are tied to total shareholder return (TSR) and the 2014 - 2015 performance awards are tied to

operating metrics. The Company achieved 133.5% of target payout for the TSR measures and 173% of target payout for the operating metrics. Based on the closing stock price of the Company's

common stock on the NYSE on February 12, 2016 of $164.42, the earned performance awards (paid out in restricted shares subject to three-year time vesting) are valued at $6,057,397.

*

In 2014 the Board phased in multi-year operating metrics awards, including a two-year performance award period ending December 31, 2015. 2014 is the last year where we awarded performance awards with a two year performance period.

(1)

Amounts in this column reflect the cash awards made in February 2016 with respect to performance under the Annual Bonus program in 2015.

(2)

Amounts in this column reflect the value of shares of restricted stock awarded in February 2016 (i) with respect to performance under the Annual Bonus program in 2015, and (ii) for achievement under the long-term incentive performance awards maturing on December 31, 2015, all with a value per share of $164.42, the closing price of the Company's common stock on the NYSE on February 12, 2016.

(3)

Amounts in this column include the same components described in the "All Other Compensation" column of the Summary Compensation Table.

As previously announced at the 2015 Annual Meeting of Stockholders, the Company's executive officer compensation for 2014 was approved by over 93% of the votes cast on the matter. The Compensation Committee and the Company considered these results to be an endorsement by stockholders of the Company's compensation structure, target level and actual executive compensation.

Also as previously announced, in accordance with a majority of the votes cast at the 2011 Annual Meeting of Stockholders, the Company intends to hold an advisory stockholder vote on its executive compensation annually. The Company intends to hold an advisory vote on the frequency of such advisory votes on executive compensation at its 2017 Annual Meeting of Stockholders.

In determining the total compensation for each NEO, which is the sum of base salary, bonus and long-term incentives, the Compensation Committee generally considers a number of factors on a subjective basis, including:

(i)

the scope of the officer's responsibilities within the Company and in relation to comparable officers at various companies within the peer group described below;



(ii)

the experience of the officer within our industry and at the Company;

(iii)

performance of the named executive officer and his or her contribution to the Company;



(iv)

the Company's financial budget and general level of wage increases throughout the Company for the coming year;



(v)

a review of historical compensation information for the individual officer;



(vi)

the recommendations of the Chief Executive Officer (other than with regard to his own compensation); and

(vii)

data regarding compensation paid to officers with comparable titles, positions or responsibilities at REITs that are considered by the Compensation Committee to be comparable for these purposes.

An officer's target compensation is not mechanically set to be a particular percentage of the peer group average, although, as noted, the Compensation Committee does review the officer's compensation relative to the peer group to help the Compensation Committee perform the subjective analysis described above.

Peer group data is not used as the determining factor in setting compensation for the following reasons:

(a)

the officer's role and experience within the Company may be different from the role and experience of comparable officers at the peer companies;

(b)

the actual compensation for comparable officers at the peer companies may be the result of a year of over performance or under performance by the peer group;



(c)

the target compensation for comparable officers at peer companies may not have the same rigor as the Company; and



(d)

the Compensation Committee believes that ultimately the decision as to appropriate target compensation for a particular officer should be made based on the full review described above.

Our incentive programs are designed so that actual performance in excess of the performance targets results in payouts above target and actual performance below the performance targets results in payouts below target or no payout, but there are caps on above-target payouts.

The Company regularly reviews the reference peer group described below it uses when evaluating the appropriate levels of executive compensation in order to maintain consistency and relevancy. In determining the peer group composition, the following elements are considered.

The final peers selected have one or more of the following characteristics:

•

Asset Focus (multi-family/complexity of operations): contains a meaningful portfolio of multifamily properties and/or intense property management operations

•

Size: defined as total capitalization (equity plus debt) within 0.5x to 2.0x of AvalonBay

•

Talent: contains companies where we compete for talent

During 2014 the Company added three new companies to its peer group for comparison of 2015 compensation for the following reasons:

•

Essex Property Trust, Inc. acquired BRE Properties on April 1, 2014 and is a direct multi-family peer

•

Federal Realty Inv Trust competes with the Company for talent

•

Welltower Inc. matches well in terms of the size parameter

The Company uses a different peer group for determining performance under its performance awards. The peer group for determining the level of total target compensation is based in part on size parameters since the Company is competing with similar sized companies for executive talent. For the performance awards, size is less of a consideration and more emphasis is placed on multi-family peers since operating performance and shareholder return are more appropriately compared with direct competitors in our specific industry.

For the 2015 – 2017 performance awards relating to three-year relative total shareholder return, the following indices are used:

–

FTSE NAREIT Apartment Total Return Index represents REITs in the multifamily housing industry across the U.S.

–

FTSE NAREIT Equity REITS Index represents a comprehensive family of REIT performance indexes that spans a

variety of commercial real estate space (such as retail, office, storage and multifamily) across the U.S.

For the 2015 – 2017 performance awards relating to operating metrics, the following multifamily REITs are used as peer companies:

–

Apartment Investment and Management Company

–

Associated Estates Realty Corporation

–

Mid-America Apartment Communities, Inc.

–

Camden Property Trust

–

Equity Residential

–

Essex Property Trust, Inc.

–

Home Properties, Inc.

–

Post Properties, Inc.

–

UDR, Inc.

These companies were chosen because they are in the multifamily industry.

Individual Goals and Achievement for Annual Cash Component

Individual goals for the officers include the executive's leadership and managerial performance, as well as specific objectives, and are evaluated on a subjective basis annually. Individual performance for Mr. Naughton was determined by the Compensation Committee. The Committee also determined individual performance for the other named executive officers after receiving recommendations from Mr. Naughton. The Compensation Committee determinations were ratified and approved by the independent members of the Board who are qualified to serve on the Compensation Committee.

Mr. Naughton's individual goals for 2015 included (i) planning for leadership succession and structure; (ii) monitoring and managing risks related to development and balance sheet and liquidity management; (iii) upgrading the Company's capabilities in the areas of technology and construction; and (iv) providing a greater focus on innovation.

Individual goals for Mr. O'Shea in 2015 primarily related to his transitioning into his role as Chief Financial Officer and included (i) management of the Company's capital plan; (ii) providing effective oversight of the accounting, financial reporting, financial planning and analysis, risk management, tax, treasury, and investment management functions; (iii) providing oversight of the Company's shared service center; (iv) providing administrative oversight of the Company's internal audit group; and (v) directing the Company's investor relations efforts.

Mr. Birenbaum's individual goals in 2015 included (i) reviewing and revising our portfolio management review process; (ii) supporting talent management efforts across the Company, including identification and support of high potential leaders; (iii) managing the Company's Management Investment Committee and investment strategy through a year of heavy transaction volume; (iv) supporting investor relations efforts; and (v) improving the quality and consistency of execution in the Company's development and construction efforts.

Mr. Breslin's individual goals in 2015 included (i) implementing certain sales, associate engagement and engineering and maintenance initiatives for the Residential Services group;

(ii) effectively managing the lease up performance of the Company's Development and Redevelopment communities; (iii) enhancing the Company's Net Promoter Score ("NPS") and Online Reputation customer satisfaction metrics; and (iv) increasing the efficiency of the Company's digital marketing efforts.

Mr. Wilson's individual goals in 2015 included: (i) effectively managing and staffing the West Coast and Mid Atlantic Development groups, with particular focus on building bench strength and succession planning, (ii) focusing on construction execution and lease up performance; (iii) replenishing the West Coast and Mid Atlantic development rights pipeline with a balanced mix of new opportunities; and (iv) managing development and construction risks.

The achievement of individual goals by each of the named executive officers in 2015 was determined to be within 20% of individual target performance

Annual Stock Bonus Component

As noted above, Messrs. O'Shea, Birenbaum, Breslin and Wilson each received an annual stock bonus based in part upon the achievement of the business unit goals. Mr. Naughton did not participate in the annual stock bonus component for 2015.

Mr. O'Shea:    Mr. O'Shea's business unit component was based on the achievements of the Financial Services group, for which Mr. O'Shea has direct supervisory responsibility. The Financial Services Group includes the areas of capital markets, accounting, financial reporting, financial planning and analysis, risk management, tax, internal audit (for which he has administrative oversight), investor relations, and investment fund management, as well as our call center operations which support our apartment communities. The major goals of the Financial Services Group in 2015 included: (i) sourcing an attractive mix of debt and equity capital from the capital and transaction markets to fund our capital uses, primarily related to our investment and financing activity; (ii) executing the Company's accounting, financial reporting, tax and risk management activities; (iii) executing and enhancing the Company's budgeting and forecasting process; (iv) executing our internal audit program; (iv) ongoing management of the Company's investment management funds; and (v) executing the Company's investor relations activities. For

2015, the overall achievement for Mr. O'Shea's business unit was determined to be 108.1% of target.

Mr. Birenbaum:    Mr. Birenbaum's business unit component was based on the achievements of the Market Research, Design, Sustainability/Corporate Responsibility (CR) and Investments groups, for which Mr. Birenbaum has direct oversight responsibility. The major goals of these groups in 2015 included: (i) development of new portfolio modeling and allocation tools to enhance portfolio management decisions; (ii) completion of updated design prototypes and refresh of product standards; (iii) bringing energy and water conservation projects to scale across the portfolio, improving the Company's reporting of CR data, and launching the new Building Strong Communities corporate philanthropy program; and (iv) execution of the annual disposition plan consistent with the annual capital plan and portfolio management objectives, including a significant expansion of the disposition plan to take advantage of favorable market conditions. For 2015, the overall achievement for Mr. Birenbaum's business unit was determined to be 121.1% of target.

Mr. Breslin:    Mr. Breslin's business unit component was based on the achievements of the Residential Services, Redevelopment & Asset Management

and Marketing, Consumer Insight and Brand Strategy functions, for which Mr. Breslin had direct oversight responsibility for during 2015. The major goals of these groups in 2015 included: (i) the achievement of certain absolute and relative revenue, expense and net operating income targets for the Company's portfolio of properties; (ii) redevelopment start volume and the completion of redevelopment communities at stabilized yields at or above pro forma expectations; and (iii) the execution of the Company's marketing and brand strategy business plan for the year. For 2015, the overall achievement for Mr. Breslin's business units was determined to be 120.6% of target.

Mr. Wilson:    Mr. Wilson's business unit component was based on the achievements of the West Coast and Mid Atlantic Development groups, as Mr. Wilson was the senior executive with oversight of those groups. Mr. Wilson's business unit was evaluated against the following goals: (i) sourcing of new development rights, (ii) construction start volume and projected stabilized yields relative to target yields; (iii) construction completion volume as determined by total capital cost and actual stabilized yields relative to target yields; and (iv) actual construction costs relative to budgeted costs and actual schedule performance relative to budgeted schedule performance. For 2015, the overall achievement for Mr. Wilson's business unit was determined to be 175.4% of target.

(1)

For results between threshold and target, or between target and maximum, payouts shall be based on interpolation.

(2)

The absolute and relative metrics above reflect the metrics used for the awards made in 2015 for the performance period maturing on December 31, 2017.

(3)

A basis point (bp) equals one one-hundredth of one percent. 100 bp equals 1.0%.

(4)

The peers used in calculating each of the Operating Performance Metrics include: Apartment Investment and Management Company, Associated Estates Realty Corporation, Mid-America Apartment Communities, Inc., Camden Property Trust, Equity Residential, Essex Property Trust, Inc., Home Properties, Inc., Post Properties, Inc. and UDR, Inc. For two companies that were acquired during the performance period, their operating metrics were factored in for the portion of the performance period for which they were publicly traded companies that published operating results.