10-K 1 form10k_12312012.htm 10-K Form 10K _12.31.2012

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-K
 
 
R
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________                     
 
 
 
 
Commission File Number 1-12358 (Colonial Properties Trust)
Commission File Number 0-20707 (Colonial Realty Limited Partnership)
 
 
 
 
 
 
COLONIAL PROPERTIES TRUST
COLONIAL REALTY LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Alabama (Colonial Properties Trust)
 
 
 
59-7007599
Delaware (Colonial Realty Limited Partnership)
 
 
63-1098468
  (State or other jurisdiction of incorporation or organization)
 
 
(IRS Employer Identification Number)
 
 
2101 Sixth Avenue North, Suite 750, Birmingham, Alabama 35203
 
 
 
(Address of principal executive offices) (Zip Code)
 
 
 
Registrant's telephone number, including area code: (205) 250-8700
 
 
 
 
 
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
 
 
Title of each class
 
Name of each exchange on which registered
Common Shares of Beneficial Interest of Colonial Properties Trust,
 
New York Stock Exchange
$.01 par value per share
 
 
 
Securities registered pursuant to Section 12(g) of the Act: Class A Units of Limited Partnership Interest of Colonial Realty Limited Partnership
 
 
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
Colonial Properties Trust
YES R
No o
Colonial Realty Limited Partnership
YES o
No R
 
 
 
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
 
Colonial Properties Trust
YES o
No R
Colonial Realty Limited Partnership
YES o
No R
 
 
 
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Colonial Properties Trust
YES R
No o
Colonial Realty Limited Partnership
YES R
No o
 
 
 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files).
Colonial Properties Trust
YES R
No o
Colonial Realty Limited Partnership
YES R
No o
 
 
 
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
 
 
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Colonial Properties Trust
 
 
 
 
Large accelerated filer R
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
 
(Do not check if a smaller reporting company)
Colonial Realty Limited Partnership
 
 
 
 
Large accelerated filer o
Accelerated filer o
Non-accelerated filer R
Smaller reporting company o
 
 
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Colonial Properties Trust
YES o
No R
Colonial Realty Limited Partnership
YES o
No R
The aggregate market value of the 83,013,686 Common Shares of Beneficial Interest held by non-affiliates of Colonial Properties Trust was approximately $1,819,024,821 based on the closing price of $22.14 as reported on the New York Stock Exchange for such Common Shares of Beneficial Interest on June 30, 2012. The aggregate market value of the 3,260,403 common units of partnership interest held by non-affiliates of Colonial Realty Limited Partnership was approximately $72,185,322 based on the closing price of $22.14 of the Common Shares of Beneficial Interest of Colonial Properties Trust into which the common units are exchangeable, as reported on the New York Stock Exchange on June 30, 2012. Number of Colonial Properties Trust’s Common Shares of Beneficial Interest outstanding as of February 25, 2013: 88,449,934.

Documents Incorporated by Reference
Portions of the proxy statement for the annual shareholders meeting to be held on April 24, 2013 are incorporated by reference into Part III of this report. We expect to file our proxy statement within 120 days after December 31, 2012.



COLONIAL PROPERTIES TRUST
COLONIAL REALTY LIMITED PARTNERSHIP
INDEX TO FORM 10-K
 
 
Page
 
 
 
 
 
 
PART I
 
 
 
 
 
Item 1
Business
Item 1A
Risk Factors
Item 1B
Unresolved Staff Comments
Item 2
Properties
Item 3
Legal Proceedings
Item 4
Mine Safety Disclosure
 
 
 
PART II
 
 
 
 
 
Item 5
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Item 6
Selected Financial Data
Item 7
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A
Quantitative and Qualitative Disclosures about Market Risk
Item 8
Financial Statements and Supplementary Data
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A
Controls and Procedures
Item 9B
Other Information
 
 
 
PART III
 
 
 
 
 
Item 10
Trustees, Executive Officers and Corporate Governance
Item 11
Executive Compensation
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13
Certain Relationships and Related Transactions, and Trustee Independence
Item 14
Principal Accounting Fees and Services
 
 
 
PART IV
 
 
 
 
 
Item 15
Exhibits and Financial Statement Schedules
 
 
 
 
Signatures
 
 
 




Explanatory Note

This report combines the annual reports on Form 10-K for the year ended December 31, 2012 of Colonial Properties Trust and Colonial Realty Limited Partnership. References to “the Trust” or “Colonial” mean to Colonial Properties Trust, an Alabama real estate investment trust (“REIT”), and its consolidated subsidiaries, and references to “CRLP” mean Colonial Realty Limited Partnership, a Delaware limited partnership, and its consolidated subsidiaries. The term “the Company” refers to the Trust and CRLP, collectively.
The Trust is the sole general partner of, and, as of December 31, 2012, owned a 92.5% limited partner interest in, CRLP. The remaining limited partner interests are held by persons (including certain officers and trustees of the Trust) who, at the time of the Trust's initial public offering, elected to hold all or a portion of their interest in the form of units rather than receiving common shares of the Trust, or individuals from whom CRLP acquired certain properties and who received units in exchange for such properties. The Trust conducts all of its business and owns all of its properties through CRLP and CRLP's various subsidiaries and, as the sole general partner of CRLP, is vested with managerial control and authority over the business and affairs of CRLP.
The Company believes combining the annual reports on Form 10-K of the Trust and CRLP, including the notes to the consolidated financial statements, into this single report results in the following benefits:
enhances investors' understanding of the Trust and CRLP by enabling investors to view the business as a whole in the same manner that management views and operates the business;
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure in this report applies to both the Trust and CRLP; and
creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

The Company believes it is important to understand the few differences between the Trust and CRLP in the context of how the Trust and CRLP operate as a consolidated company. The Trust and CRLP are structured as an "umbrella partnership REIT," or UPREIT. The Trust's interest in CRLP entitles the Trust to share in cash distributions from, and in the profits and losses of, CRLP in proportion to the Trust's percentage interest therein and entitles the Trust to vote on all matters requiring a vote of the limited partners. The Trust's only material asset is its ownership of limited partner interests in CRLP; therefore, the Trust does not conduct business itself, other than acting as the sole general partner of CRLP, issuing public equity from time to time and guaranteeing certain debt of CRLP. The Trust itself is not directly obligated under any indebtedness, but guarantees some of the debt of CRLP. CRLP holds all the real estate assets of the Company. Except for net proceeds from public equity issuances by the Trust, which are contributed to CRLP in exchange for limited partner interests, CRLP generates the capital required by the Company's business through CRLP's operations, direct or indirect incurrence of indebtedness and issuance of partnership units.

The presentation of the Trust's shareholders' equity and CRLP's equity are the principal areas of difference between the consolidated financial statements of the Trust and those of CRLP. The Trust's shareholders' equity includes preferred shares, common shares, additional paid-in capital, cumulative earnings, cumulative distributions, noncontrolling interest, preferred units, treasury shares, accumulated other comprehensive loss and redeemable common units. CRLP's equity includes common equity and preferred equity of the general partner (the Trust), limited partners' preferred equity, limited partners' noncontrolling interest, accumulated other comprehensive loss and redeemable common units. Redeemable common units represent the number of outstanding limited partnership units as of the date of the applicable balance sheet, valued at the greater of the closing market price of the Trust's common shares or the aggregate value of the individual partners' capital balances. Each redeemable unit may be redeemed by the holder thereof for either cash equal to the fair market value of one common share of the Trust at the time of such redemption or, at the option of the Trust, one common share of the Trust.

In order to highlight the material differences between the Trust and CRLP, this report includes sections that separately present and discuss areas that are materially different between the Trust and CRLP, including:
 
the selected financial data in Item 6 of this report;
the consolidated financial statements in Item 8 of this report;
certain accompanying notes to the financial statements, including Note 6 - Net Loss Per Share of the Trust and Note 7 - Net Loss Per Unit of CRLP; Note 8 - Equity of the Trust and Note 9 - Capital Structure of CRLP; Note 10 - Redeemable Noncontrolling Interests of the Trust and Note 11 - Redeemable Partnership Units of CRLP; and Note 23 - Quarterly Financial Information for the Trust (Unaudited) and Note 24 - Quarterly Financial Information for CRLP (Unaudited);
the controls and procedures in Item 9A of this report; and

1


the certifications of the Chief Executive Officer and Interim Chief Financial Officer included as Exhibits 31 and 32 to this report.

In the sections that combine disclosure for the Trust and CRLP, this report refers to actions or holdings as being actions or holdings of the Company. Although CRLP (directly or indirectly through one of its subsidiaries) is generally the entity that enters into contracts, holds assets and issues debt, management believes this presentation is appropriate for the reasons set forth above and because the business is one enterprise and the Company operates the business through CRLP.



2


PART I

This annual report on Form 10-K contains certain “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. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “estimates,” “predicts,” “potential,” or the negative of these terms or comparable terminology. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our and our affiliates, or the industry’s actual results, performance, achievements or transactions to be materially different from any future results, performance, achievements or transactions expressed or implied by such forward-looking statements including, but not limited to, the risks described herein. Such factors include, among others, the following:

changes in national, regional and local economic conditions, which may be negatively impacted by concerns about inflation, deflation, government deficits (including the European sovereign debt crisis), high unemployment rates, decreased consumer confidence and liquidity concerns, particularly in markets in which we have a high concentration of properties;
adverse changes in real estate markets, including, but not limited to, the extent of tenant bankruptcies, financial difficulties and defaults, the extent of future demand for multifamily units and commercial space in our primary markets and barriers of entry into new markets which we may seek to enter in the future, the extent of decreases in rental rates, competition, our ability to identify and consummate attractive acquisitions on favorable terms, our ability to consummate any planned dispositions in a timely manner on acceptable terms, and our ability to reinvest sale proceeds in a manner that generates favorable returns;
exposure, as a multifamily focused real estate investment trust (“REIT”), to risks inherent in investments in a single industry;
risks associated with having to perform under various financial guarantees that we have provided with respect to certain of our joint ventures and developments;
ability to obtain financing at favorable rates, if at all, and refinance existing debt as it matures;
actions, strategies and performance of affiliates that we may not control or companies, including joint ventures, in which we have made investments;
changes in operating costs, including real estate taxes, utilities, and insurance;
higher than expected construction costs;
uncertainties associated with our ability to sell our existing inventory of condominium and for-sale residential assets, including timing, volume and terms of sales;
uncertainties associated with the timing and amount of real estate dispositions and the resulting gains/losses associated with such dispositions;
legislative or other regulatory decisions, including tax legislation, government approvals, actions and initiatives, including the need for compliance with environmental and safety requirements, and changes in laws and regulations or the interpretation thereof;
the Trust’s ability to continue to satisfy complex rules in order for it to maintain its status as a REIT for federal income tax purposes, the ability of CRLP to satisfy the rules to maintain its status as a partnership for federal income tax purposes, the ability of Colonial Properties Services, Inc. to maintain its status as a taxable REIT subsidiary for federal income tax purposes, and our ability and the ability of our subsidiaries to operate effectively within the limitations imposed by these rules;
price volatility, dislocations and liquidity disruptions in the financial markets and the resulting impact on availability of financing;
effect of any rating agency actions on the cost and availability of new debt financing;
level and volatility of interest or capitalization rates or capital market conditions;
effect of any terrorist activity or other heightened geopolitical crisis; and
other risks identified in this annual report on Form 10-K and, from time to time, in other reports we file with the Securities and Exchange Commission (the “SEC”) or in other documents that we publicly disseminate.

We undertake no obligation to publicly update or revise these forward-looking statements to reflect events, circumstances or changes in expectations after the date of this report.


3


Item 1.
Business.
As used herein, the term the “Trust” refers to Colonial Properties Trust, and the term “CRLP” refers to Colonial Realty Limited Partnership, of which the Trust is the sole general partner and in which the Trust owned a 92.5% limited partner interest as of December 31, 2012. The Trust conducts all of its business and owns all of its properties through CRLP and CRLP’s various subsidiaries. Except as otherwise required by the context, the “Company,” “Colonial,” “we,” “us” and “our” refer to the Trust and CRLP together, as well as CRLP’s subsidiaries, including Colonial Properties Services Limited Partnership (“CPSLP”) and Colonial Properties Services, Inc. (“CPSI”).
We are a multifamily-focused self-administered equity REIT that owns, operates and develops multifamily apartment communities primarily located in the Sunbelt region of the United States. Also, we create additional value for our shareholders from investments in commercial assets and by pursuing development opportunities. We are a fully-integrated real estate company, which means that we are engaged in the acquisition, development, ownership, management and leasing of multifamily apartment communities and other commercial real estate properties. Our activities include full or partial ownership and operation of 125 properties as of December 31, 2012, located in Alabama, Arizona, Florida, Georgia, Louisiana, Nevada, North Carolina, South Carolina, Tennessee, Texas and Virginia, the development of new properties, acquisition of existing properties, build-to-suit development and the provision of management, leasing and brokerage services for commercial real estate.

As of December 31, 2012, we owned or maintained a partial ownership in the following properties:
 
 
 
 
 
 
 
 
 
 
 
Total
 
 Consolidated
 
Units/Sq.
 
Unconsolidated
 
Units/Sq.
 
 Total
 
Units/ Sq.
 
 Properties
 
Feet (1)
 
 Properties
 
Feet (1)
 
 Properties
 
Feet (1)
Multifamily apartment communities
112

(2) 
33,851

 
2

 
646

 
114

 
34,497

Commercial properties
8

 
2,167,000

 
3

 
350,000

 
11

 
2,517,000

_____________________________
(1)
Units refer to multifamily apartment units. Square feet refers to commercial space and excludes space owned by anchor tenants.  
(2)
Includes one property partially-owned through a joint venture entity.
In addition, we own certain parcels of land adjacent to or near certain of these properties (the “land”). The multifamily apartment communities, commercial properties and the land are referred to herein collectively as the “properties.” As of December 31, 2012, consolidated multifamily apartment communities and commercial properties that were no longer in lease-up were 95.8% and 92.3% leased, respectively. We generally consider a property to be in lease-up until it first attains physical occupancy of at least 93%.
The Trust is the direct general partner of CRLP, and as of December 31, 2012, held approximately 92.5% of the interests in CRLP. We conduct all of our business through CRLP, CPSLP, which provides management services for our properties, and CPSI, which provides management services for properties owned by third parties, including unconsolidated joint venture entities. We perform all of our for-sale residential activities through CPSI.
As a lessor, the majority of our revenue is derived from residents and tenants under existing leases at our properties. Therefore, our operating cash flow is dependent upon the rents that we are able to charge to our residents and tenants, and the ability of these residents and tenants to make their rental payments. We also receive management fees generated from third-party management agreements related to management of properties held in joint ventures.
The Trust was formed in Maryland on July 9, 1993. The Trust was reorganized as an Alabama real estate investment trust in 1995. Our executive offices are located at 2101 Sixth Avenue North, Suite 750, Birmingham, Alabama, 35203 and our telephone number is (205) 250-8700.
Business Strategy
Our general business objectives as a multifamily-focused REIT are to generate increasing cash flow that will fund our future dividend payments and to create shareholder value by growing in a disciplined manner through a strategy of:
realizing growth in income from our existing portfolio of properties;
selectively acquiring and developing primarily multifamily apartment communities to grow our portfolio and improve the age and quality of our multifamily apartment portfolio in growth markets located in the Sunbelt region of the United States;

4


employing a comprehensive capital maintenance program to maintain properties in first-class condition, including recycling capital by selectively disposing of assets and reinvesting the proceeds into opportunities with more perceived growth potential;
managing our own properties, which enables us to better control our operating expenses and establish and maintain long-term relationships with our residents and tenants; and
executing our asset recycling plan for our multifamily portfolio and our plan to dispose of select commercial assets and land held for future sale.
During 2012, our primary business directives were to grow the company, improve our portfolio and continue efforts to maintain a strong balance sheet and improve margins to help re-establish an investment grade rating.
We made significant progress on each of these directives as outlined below.
Grow the Company

We continued to grow the Company by:

producing a 7.6% increase in multifamily same-property net operating income from continuing operations when compared with the year ended December 31, 2011 (see Note 12 to the Trust's and CRLP's Consolidated Finanical Statements — "Segment Information"); and
developing multifamily apartment communities on land that we already own.
We achieved a 7.6% increase in multifamily same-property net operating income through continued increases in lease rates while maintaining a high level of occupancy. Average monthly rent per unit for our multifamily same-property communities increased to $787 per unit for the year ended December 31, 2012 compared to $749 per unit for the same period in 2011. Average occupancy for our multifamily same-property communities was 95.5% for the year ended December 31, 2012 compared to 95.4% for the same period in 2011.
We added 718 units through the completion of two developments: Colonial Grand at Hampton Preserve, located in Tampa, Florida, and Colonial Grand at Lake Mary (Phase I), located in Orlando, Florida. In addition, we continued the development of Colonial Grand at Double Creek, located in Austin, Texas and started construction on four additional apartment community developments: Colonial Grand at Ayrsley (Phase II) and Colonial Reserve at South End, located in Charlotte, North Carolina, and Colonial Grand at Lake Mary (Phase II) and Colonial Grand at Randal Lakes, located in Orlando, Florida. The five active developments are expected to add 1,300 units once completed. We also started construction of Colonial Brookwood West, a commercial asset located in Birmingham, Alabama, that is expected to add approximately 41,300 square-feet once completed.
Improve our portfolio

We improved our portfolio by:

increasing the percentage of net operating income from our multifamily portfolio through disposition of investments in certain commercial properties;
recycling older multifamily apartment communities; and
selectively acquiring newer multifamily apartment communities attractively priced in our higher growth Sunbelt markets.
During 2012, we sold one wholly-owned commercial asset, representing approximately 219,000 square-feet (excluding anchor-owned square-feet) for $37.4 million and exited our interest in three commercial joint ventures, comprised of 28 commercial properties. For the full year, the percentage of net operating income from the multifamily portfolio to total net operating income was 85% compared to 79% for 2011 while 87% of our net operating income in the fourth quarter was generated from our multifamily portfolio.
We also sold four wholly-owned multifamily apartment communities for $95.5 million, representing 1,380 units with an average age of 31 years and average monthly rent of $695 per unit. We reinvested proceeds from the multifamily and commercial dispositions into five multifamily apartment communities located in Austin and Dallas, Texas, and Raleigh, North Carolina. These five acquisitions added 1,554 units with an average age of six years and average monthly rent of $1,076 per unit.


5


Maintain a strong balance sheet and achieve an investment grade rating
During 2012, we continued to reduce our leverage by selectively disposing of non-income producing assets and extended our debt maturities primarily through a new $500.0 million unsecured revolving credit facility and a new $150.0 million senior unsecured term loan. Also, in February 2012, Standard & Poors upgraded our senior unsecured debt rating to BBB- and, in September 2012, Moody's Investment Services upgraded our senior unsecured debt rating to Baa3. In addition, we reduced our exposure with respect to joint venture indebtedness by unwinding certain joint venture arrangements, eliminating approximately $127.1 million of unconsolidated debt, which represented our pro rata share of the mortgage debt of these various joint ventures.
We also simplified our portfolio, as well as our organizational structure, by unwinding certain joint venture arrangements. During 2012, we completed the following transactions:

redeemed our 15% noncontrolling interest in the 18-asset DRA/CLP joint venture; representing approximately 5.2 million commercial square-feet;
sold our 10% noncontrolling interest in the nine-asset Bluerock office portfolio, representing approximately 1.7 million commercial square-feet
sold our 25% noncontrolling interest in Colonial Promenade Madison, representing approximately 111,000 commercial square-feet; and
purchased Colonial Grand at Research Park, a 370-unit multifamily apartment community (prior to the acquisition of Colonial Grand at Research Park, we owned a 20% noncontrolling interest in this joint venture).

Simplified and stronger, our business directives for 2013 are to further grow the Company, fortify our balance sheet and enhance our portfolio. We intend to grow the Company's multifamily business by completing the projects we have in our development pipeline as well as initiating the development of several additional multifamily communities in 2013 on land we already own. We also intend to grow the Company through continued expansion of our core operations with the focus on quality of earnings from our multifamily product, which we are continually improving. We intend to fortify our balance sheet by continuing to lower our overall debt levels, primarily through the sale of commercial assets, and improving our financial ratios through improved earnings. We intend to enhance our portfolio by reducing the average age of our assets, increasing average rents and lowering our capital expenditure requirements, each through our multifamily asset recycling program, and by bringing new developments successfully on-line, within budget and on schedule. In addition, we intend to further enhance our portfolio by continuing to reduce our commercial asset exposure.

Operating Strategy
Our primary operating objective is to maximize our return on invested capital in each property and our portfolio by increasing revenues, controlling operating expenses, maintaining optimal occupancy levels and reinvesting as appropriate. The steps taken to meet these objectives include:
diversifying portfolio investments in the Sunbelt markets, with a target of no more than 10% of our net operating income coming from one market;
utilizing systems to enhance property managers' ability to optimize revenue by adjusting rents in response to local market conditions and individual unit amenities;
aggressively managing lease expirations to align with peak leasing traffic patterns and to maximize productivity of property staff;
developing ancillary income programs aimed at offering services to residents and tenants, on which we generate revenue;
implementing programs to control expenses through investment and cost-saving initiatives, including measuring and passing on to residents and tenants the cost of various expenses, including cable, water and other utility costs;
maintaining the physical condition of each property in first class condition;
allocating additional capital, including capital for selective interior and exterior improvements, where the investment will generate the highest returns;
compensating employees through performance-based compensation and stock ownership programs; and
repurchasing and issuing common or preferred shares when cost of capital and asset values are favorable.




6


Financing Strategy
We seek to maintain a well-balanced, conservative and flexible capital structure by:
pursuing long-term debt financings and refinancings on an unsecured or secured basis subject to market conditions;
borrowing primarily at fixed rates;
extending and sequencing the maturity dates of our debt; and
targeting appropriate debt service and fixed charge coverage.
We believe these strategies have enabled, and should continue to enable, us to access the debt and equity capital markets to fund debt refinancings and the development and acquisition of additional properties consistent with our 2013 business objectives. As further discussed under “Liquidity and Capital Resources” in Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-K, we expect that cash generated from operations, proceeds from asset dispositions and additional borrowings will provide sufficient liquidity to execute our business plan. This liquidity, along with our projected asset sales, is expected to allow us to execute our plan in the short-term. See Item 1A — “Risk Factors – Risks Associated with Our Indebtedness and Financing Activities — A downgrade in our credit ratings could have a material adverse effect on our business, financial condition and results of operations.”
We may modify our borrowing policy and may increase or decrease our ratio of debt to gross asset value in the future. To the extent that the Trust's Board of Trustees determines to seek additional capital, we may raise such capital through additional asset dispositions, equity offerings, secured financings, debt financings or retention of cash flow (subject to provisions in the Internal Revenue Code of 1986, as amended (the "Code"), requiring the distribution by a REIT of a certain percentage of taxable income and taking into account taxes that would be imposed on undistributed taxable income) or a combination of these methods.
Property Management
We are experienced in managing and leasing multifamily and commercial properties and believe that managing and leasing our own portfolio have helped maintain consistent income growth and have resulted in reduced operating expenses from the properties.
Operational Structure and Segments
We manage our business based on the performance of two operating segments: multifamily and commercial. See Note 12 - "Segment Information" in the Notes to Consolidated Financial Statements of the Trust and CRLP contained in Item 8 of this Form 10-K, and incorporated by reference herein, for information on our segments and the reconciliation of total segment revenues to total revenues, total segment net operating income to income/loss from continuing operations before noncontrolling interest for the years ended December 31, 2012, 2011 and 2010, and total segment capitalized expenditures to total capitalized expenditures and total segment assets to total assets as of December 31, 2012, and 2011.
Additional information with respect to each operating segment as of December 31, 2012, is set forth below:
Multifamily Operations — Multifamily management is responsible for all aspects of multifamily operations, including day-to-day management and leasing of our 114 multifamily apartment communities (including two properties partially-owned through unconsolidated joint ventures). Multifamily management is also responsible for all aspects of our for-sale residential disposition activities. As of December 31, 2012, we had two for-sale properties remaining, one residential development located in Charlotte, North Carolina, and one lot development located in Mobile, Alabama.

Commercial Operations — Commercial management is responsible for all aspects of our commercial property operations, including management and leasing services as well as third-party management services for one commercial property in which we do not have an ownership interest. Of the 11 commercial properties that we have a full or partial ownership interest in, four are office properties and seven are retail properties.








7


Completed Developments

The following table summarizes our developments that were completed in 2012. Throughout this Form 10-K, multifamily properties are measured by the number of units and commercial properties are measured in square feet. Project development costs, including land acquisition costs, were funded through commercial asset dispositions and borrowings on our unsecured credit facility.
 
 
 
Total Units/
 
 
 
Location
 
Square Feet (1)
 
Total Cost
($ in thousands)
 
 
(unaudited)
 
 
Multifamily Projects:
 
 
 
 
 
Colonial Grand at Hampton Preserve
Tampa, FL
 
486

 
$
52,244

Colonial Grand at Lake Mary (Phase I)
Orlando, FL
 
232

 
25,702

 
 
 
718

 
$
77,946

Commercial Project:
 
 
 
 
 
Colonial Promenade Huntsville (Phase I) (2)
Huntsville, AL
 

 
$
4,116

Total Completed Developments
 
 
 
 
$
82,062

_____________________________
(1)
Units refer to multifamily apartment units. Square feet refers to commercial space and excludes space owned by anchor tenants.
(2)
Development costs for this project are net of reimbursements received from the shadow-anchor.

Ongoing Development Activity

As of December 31, 2012, we had six development projects under construction — five multifamily projects and one commercial project. These developments are expected to be funded through our unsecured credit facility (discussed in this Form 10-K below under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources”).
 
 
 
 
Total
 
Expected
 
Expected
 
Costs
 
 
 
 
Units/Square
 
Completion
 
Project
 
Capitalized
 
 
Location
 
Feet (1)
 
Date
 
Costs
 
to Date
($ in thousands)
 
 
 
(unaudited)
 
 
 
 
 
 
Multifamily Projects:
 
 
 
 

 
 
 
 
 
 

Colonial Grand at Ayrsley (Phase II)
 
Charlotte, NC
 
81

 
2Q13
 
$
9,146

 
$
3,454

Colonial Grand at Double Creek
 
Austin, TX
 
296

 
1Q13
 
31,668

 
27,297

Colonial Grand at Lake Mary (Phase II)
 
Orlando, FL
 
108

 
1Q13
 
13,981

 
11,382

Colonial Grand at Randal Lakes
 
Orlando, FL
 
462

 
1Q14
 
57,000

 
19,579

Colonial Reserve at South End
 
Charlotte, NC
 
353

 
4Q13
 
59,333

 
26,133

 
 
 
 
1,300

 
 
 
$
171,128

 
$
87,845

Commercial Project:
 
 
 
 
 
 
 
 
 
 
Brookwood West Retail
 
Birmingham, AL
 
41,300

 
3Q13
 
$
8,272

 
$
914

Total Active Developments
 
 
 
 
 
 
 
$
179,400

 
$
88,759

_____________________________
(1)
Units refer to multifamily apartment units. Square feet refers to commercial space and excludes space owned by anchor tenants.









8


Future Development Activity
Of the future developments listed below, we expect to initiate development of at least four multifamily apartment communities in 2013. Although we believe that it is probable that we will develop certain of the other projects in the future as market conditions dictate, there can be no assurance that we will pursue any of these particular future development projects.
 
 
Location
 
Total Units/Square Feet (1)
 
Costs Capitalized to Date
($ in thousands)
 
 
 
(unaudited)
 
 
Multifamily:
 
 
 
 

 
 

Colonial Grand at Bellevue (Phase II)
 
Nashville, TN
 
220

 
$
3,701

Colonial Grand at Lake Mary (Phase III)
 
Orlando, FL
 
132

 
1,851

Colonial Grand at Randal Park
 
Orlando, FL
 
314

 
6,232

Colonial Grand at Thunderbird
 
Phoenix, AZ
 
244

 
8,042

Colonial Grand at Sweetwater
 
Phoenix, AZ
 
195

 
7,240

Colonial Grand at Azure
 
Las Vegas, NV
 
438

 
10,575

 
 
 
 
1,543

 
$
37,641

Commercial:
 
 
 
 

 
 

Colonial Promenade Huntsville (Phase II)
 
Huntsville, AL
 

 
$
5,215

Colonial Promenade Nord du Lac (2)
 
Covington, LA
 
236,000

 
25,634

Randal Park
 
Orlando, FL
 

 
10,996

 
 
 
 
236,000

 
$
41,845

Other Undeveloped Land:
 
 
 
 

 
 

Multifamily
 
 
 
 

 
$
1,496

Commercial
 
 
 
 

 
42,095

Commercial Outparcels/Pads
 
 
 
 
 
17,629

For-Sale Residential Land (3)
 
 
 
 

 
66,688

 
 
 
 
 

 
$
127,908

Consolidated Construction in Progress
 
 
 
 

 
$
207,394

_____________________________
(1)
Units refer to multifamily apartment units. Square feet refers to commercial space and excludes space owned by anchor tenants.
(2)
The Company intends to develop this project in phases over time. Costs capitalized to date for this development are presented net of an aggregate $18.1 million of non-cash impairment charges recorded during 2009 and 2008.
(3)
These costs are presented net of $27.9 million of non-cash impairment charges recorded on two of the projects in 2012, 2009, 2008 and 2007. Of these charges $3.3 million were recorded during 2012.
Acquisitions
During 2012, we acquired the following five multifamily apartment communities:
 
 
 
 
 
 
Effective
 
 
Acquisitions
 
Location
 
Units
 
Acquisition Date
 
Purchase Price
 
 
 
 
 
 
 
 
($ in millions)
Colonial Grand at Brier Falls
 
Raleigh, NC
 
350

 
January 10, 2012
 
$
45.0

Colonial Grand at Fairview
 
Dallas, TX
 
256

 
May 30, 2012
 
29.8

Colonial Grand at Research Park (1)
 
Raleigh, NC
 
370

 
October 1, 2012
 
38.0

Colonial Grand at Canyon Ranch
 
Austin, TX
 
272

 
November 13, 2012
 
24.5

Colonial Reserve at Las Colinas
 
Dallas, TX
 
306

 
November 20, 2012
 
42.8

Total
 
 
 
1,554

 
 
 
$
180.1

_____________________________
(1)
Prior to the acquisition, the Company owned a 20% noncontrolling interest in the joint venture that owned the property.










9


Dispositions
During 2012, we disposed of the following properties:
 
 
 
 
Units/
 
Effective
 
 
Dispositions
 
Location
 
Sq. Feet (1)
 
Disposal Date
 
Sales Price
 
 
 
 
 
 
 
 
($ in millions)
Multifamily Properties:
 
 
 
 
 
 
 
 
Autumn Hill
 
Charlottesville, VA
 
425

 
December 20, 2012
 
$
32.0

Colonial Village at Canyon Hills
 
Austin, TX
 
229

 
December 20, 2012
 
16.9

Colonial Village at Highland Hills
 
Raleigh, NC
 
250

 
December 20, 2012
 
17.8

Heatherwood
 
Charlotte, NC
 
476

 
December 20, 2012
 
28.8

 
 
 
 
1,380

 
 
 
$
95.5

 
 
 
 
 
 
 
 
 
Commercial Property:
 
 
 
 
 
 
 
 
Colonial Promenade Alabaster
 
Birmingham, AL
 
219,000

 
October 24, 2012
 
$
37.4

 
 
 
 
219,000

 
 
 
$
37.4

 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
$
132.9

_____________________________
(1)
Units refer to multifamily apartment units. Square feet refers to commercial space and excludes space owned by anchor tenants.
Additionally, in 2012, we sold 53,000 square feet at Colonial Promenade Tannehill, a 234,000 square-foot (excluding anchor-owned square footage) commercial asset located in Birmingham, Alabama, for a sales price of $5.6 million. The Company also sold various consolidated parcels of land for an aggregate sales price of $4.3 million. The net proceeds from the sale of these assets were used to partially fund the acquisition of multifamily apartment communities discussed above, as well as to repay a portion of the borrowings under our unsecured credit facility.
For-Sale
During 2012, we sold eight residential units at Metropolitan Midtown, located in Charlotte, North Carolina, and one residential lot at Whitehouse Creek, located in Mobile, Alabama, for total sales proceeds of $4.9 million. Our portion of the proceeds from the sales was used to repay a portion of the outstanding borrowings on our unsecured credit facility.
For cash flow statement purposes, we classify capital expenditures for newly developed for-sale residential communities in investing activities. Likewise, the proceeds from the sales of condominium units and other residential sales are also included in investing activities.
Impairment, Legal Contingencies and Other Losses
During 2012, we recorded impairment charges, legal contingencies and other losses totaling $26.0 million. Of the charges recorded, $7.0 million was non-cash impairment charges on various properties, $17.6 million was for loss contingencies related to certain ongoing litigation, $0.9 million was the result of warranty claims on units previously sold at two of the Company's for-sale residential projects and $0.5 million was related to a fire at one of the Company's multifamily properties. See Note 3 - "Real Estate Activity - Impairment, Legal Contingencies and Other Losses" and Note 20 - "Legal Proceedings" for additional detail regarding these charges.
Recent Events
Dispositions
On February 1, 2013, we sold Metropolitan Midtown, a commercial asset located in Charlotte, North Carolina, comprised of 170,000 square-feet of office space and 172,000 square-feet of retail space, for an aggregate sales price of $94.4 million. We intend to use the proceeds from the sale to fund our multifamily development pipeline and to repay a portion of the outstanding balance on our unsecured credit facility.
On January 14, 2013, we sold our 10% noncontrolling interest in Colonial Promenade Hoover, a 172,000 square-foot (excluding anchor-owned square-footage) retail asset located in Birmingham, Alabama. We received $0.5 million in cash and no longer have responsibility for $1.5 million of associated mortgage debt, which represented our pro-rata share of such debt. The remaining proceeds from the sale were used to repay a portion of the outstanding balance on our unsecured credit facility.

10


Distribution
On January 23, 2013, the Trust's Board of Trustees declared a cash distribution to shareholders of the Trust in the amount of $0.21 per common share and to partners of CRLP in the amount of $0.21 per partnership unit totaling approximately $20.1 million. The $0.21 per common share and per common unit distribution represents a 16.7% increase ($0.03 per share/unit) when compared to the previous distribution. The distributions were declared to shareholders and partners of record as of February 4, 2013 and paid on February 11, 2013.
Competition
The business of owning, developing, operating and leasing of multifamily and commercial properties is highly competitive. We compete with domestic and foreign financial institutions, other REITs, life insurance companies, pension trusts, trust funds, partnerships and individual investors for the acquisition of properties. See Item 1A — “Risk Factors – Risks Associated with Our Operations – We may not be able to complete acquisitions and, even if we complete acquisitions, we may not achieve the anticipated financial and operating results from our acquisitions, which would adversely affect our results of operations” in this Form 10-K for further discussion. With respect to our multifamily business, we also compete with other quality apartment and for-sale (condominium) projects owned by public and private companies. The number of competitive multifamily apartment communities in a particular market could adversely affect our ability to lease our multifamily apartment communities, to develop and lease new properties or sell existing properties, as well as the rents we are able to charge. In addition, other forms of residential properties, including single family housing and town homes, provide housing alternatives to potential residents of quality apartment communities or potential purchasers of for-sale (condominium) units. With respect to the multifamily business, we compete for residents in our apartment communities based on our high level of resident service, the quality of our apartment communities (including our landscaping and amenity offerings) and the desirability of our locations. Resident leases at our apartment communities are priced competitively based on market conditions, supply and demand characteristics, and the quality and resident service offerings of the communities. In addition, we compete for tenants in our markets primarily on the basis of property location, rent charged, services provided and the design and condition of the properties.
Environmental Matters
We believe that our properties are in compliance in all material respects with all federal, state and local ordinances and regulations regarding hazardous or toxic substances. We are not aware of any environmental condition that we believe would have a material adverse effect on our capital expenditures, earnings or competitive position (before consideration of any potential insurance coverage). Nevertheless, it is possible that there are material environmental conditions and liabilities of which we are unaware. Moreover, no assurances can be given that (i) future laws, ordinances or regulations or future interpretations of existing requirements will not impose any material environmental liability or (ii) the current environmental condition of our properties has not been or will not be affected by tenants and occupants of our properties, by the condition of properties in the vicinity of our properties or by third parties. See Item 1A - “Risk Factors—Risks Associated with Our Operations – We could incur significant costs related to environmental issues which could adversely affect our results of operations through increased compliance costs or our financial condition if we become subject to a significant liability," "Costs associated with addressing indoor air quality issues, moisture infiltration and/or resulting mold remediation may be costly," and "As the owner or operator of real property, we could become subject to liability for asbestos-containing building materials or other hazardous materials in the building components on our properties" in this Form 10-K for further discussion.
Insurance
We carry comprehensive liability, fire, extended coverage and rental loss insurance on all of our majority-owned properties. We believe the policy specifications, insured limits of these policies and self insurance reserves are adequate and appropriate. There are, however, certain types of losses, such as lease and other contract claims, which generally are not insured. We anticipate that we will review our insurance coverage and policies from time to time to determine the appropriate levels of coverage, but we cannot predict at this time if we will be able to obtain or maintain full coverage at reasonable costs in the future. In addition, as of December 31, 2012, we are self-insured up to $0.8 million, $0.9 million and $1.8 million for general liability, workers’ compensation and property insurance, respectively. We are also self-insured for health insurance and responsible for amounts up to $135,000 per claim and up to $2.0 million per person. Our policy for all self-insured risk is to accrue for expected losses on reported claims and for estimated losses related to claims incurred but not reported as of the end of the reporting period. See Item 1A - “Risk Factors – Risks Associated with Our Operations – Uninsured losses or losses in excess of insurance coverage could adversely affect our financial condition.


11


Employees
As of December 31, 2012, CRLP employed 911 persons, including on-site property employees who provide services for the properties that we own and/or manage. The Trust employs all employees through CRLP and its subsidiaries.
Tax Status
The Trust is considered a corporation for federal income tax purposes. The Trust qualifies as a REIT and generally will not be subject to federal income tax to the extent it distributes its REIT taxable income to its shareholders. REITs are subject to a number of organizational and operational requirements. If the Trust fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate rates. The Trust may be subject to certain state and local taxes on its income and property. Distributions to shareholders are generally partially taxable as ordinary income and long-term capital gains, and partially non-taxable as return of capital. During 2012, total common distributions had the following overall characteristics:
Quarter
 
Distribution Per Share
 
Ordinary Income
 
Return of Capital
 
Capital Gain
 
Unrecaptured §1250 Gain
1st
 
$0.18
 
65.57%
 
22.86%
 
5.67%
 
5.90%
2nd
 
$0.18
 
65.57%
 
22.86%
 
5.67%
 
5.90%
3rd
 
$0.18
 
65.57%
 
22.86%
 
5.67%
 
5.90%
4th
 
$0.18
 
65.57%
 
22.86%
 
5.67%
 
5.90%
The Company's financial statements include the operations of a taxable REIT subsidiary, CPSI, which is not entitled to a dividends paid deduction and is subject to federal, state and local income taxes. CPSI provides property management, construction management and development services for joint ventures and third party owned properties and administrative services to us. All of the Company's for-sale residential activities are performed through CPSI. The Trust generally reimburses CPSI for payroll and other costs incurred in providing services to the Trust. All inter-company transactions are eliminated in the accompanying consolidated financial statements. During the years ended December 31, 2012, 2011 and 2010, we did not recognize an income tax expense/(benefit) related to the taxable income of CPSI. See Note 17 - "Income Taxes" in the Notes to Consolidated Financial Statements of the Trust and CRLP included in Item 8 of this Form 10-K.
Available Information

Our website address is www.colonialprop.com. The information contained on our website is not incorporated by reference into this report and such information should not be considered a part of this report. You can obtain on our website in the “Investors” section, free of charge, a copy of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to these reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Also available on our website, free of charge, are our corporate governance guidelines, the charters of the governance, audit and executive compensation committees of the Trust's Board of Trustees and our code of ethics (which applies to all trustees and employees, including our principal executive officer, principal financial officer and principal accounting officer). If you are not able to access our website, the information is available in print form to any shareholder who should request the information directly from us at 1-800-645-3917.



12


Executive Officers of the Company

The following is a biographical summary of our executive officers:

Thomas H. Lowder, 63, was re-appointed Chief Executive Officer effective December 30, 2008. Mr. Lowder has served as Chairman of the Trust's Board of Trustees since the Company's formation in July 1993. Additionally he served as President and Chief Executive Officer from July 1993 until April 2006. Mr. Lowder became President and Chief Executive Officer of Colonial Properties, Inc., the Company's predecessor, in 1976, and has been actively engaged in the acquisition, development, management, leasing and sale of multifamily, office and retail properties for the Company and its predecessors. He presently serves as a member of the Board of the following organizations: Children's Hospital of Alabama, Crippled Children's Foundation, the National Association of Real Estate Investment Trusts (“NAREIT”), the University of Alabama Health System Board and the University of Alabama Health Services Foundation. Mr. Lowder is a past board member of Birmingham-Southern College, and The Community Foundation of Greater Birmingham, past chairman of the Birmingham Area Chapter of the American Red Cross, past chairman of Children's Hospital of Alabama and he served as chairman of the 2001 United Way Campaign for Central Alabama and Chairman of the Board in 2007. He graduated with honors from Auburn University with a Bachelor of Science Degree. Mr. Lowder holds an honorary Doctorate of Humanities from University of Alabama at Birmingham and a honorary Doctorate of Law from Birmingham Southern College. Mr. Lowder is the brother of James K. Lowder, one of the Company's trustees.
C. Reynolds Thompson, III, 49, served as President and Chief Financial Officer from December 30, 2008 to December 31, 2012. Mr. Thompson previously served in the following additional positions within the Company since being hired in February 1997: Chief Executive Officer; Chief Operating Officer; Chief Investment Officer; Executive Vice President, Office Division; Senior Vice President, Office Acquisitions; and Trustee. Responsibilities within these positions included overseeing management, leasing acquisitions and development within operating divisions; investment strategies; market research; due diligence; merger and acquisitions; joint venture development and cross-divisional acquisitions. Prior to joining the Company, Mr. Thompson worked for CarrAmerica Realty Corporation, a then publicly traded office REIT, in office building acquisitions and due diligence. Mr. Thompson serves on the Board of Directors of Birmingham Business Alliance and the Board of Directors of United Way of Central Alabama. Mr. Thompson holds a Bachelor of Science Degree from Washington and Lee University.
Paul F. Earle, 55, has been our Chief Operating Officer since January 2008 and is responsible for all operations of the properties owned and/or managed by the Company. From May 1997 to January 2008, Mr. Earle served as Executive Vice President-Multifamily Division and was responsible for management of all multifamily properties owned and/or managed by us. He joined the Company in 1991 and has previously served as Vice President - Acquisitions, as well as Senior Vice President - Multifamily Division. Mr. Earle is past Chairman of the Alabama Multifamily Council and is an active member of the National Apartment Association. He also is a board member and is on the Executive Committee of the National Multifamily Housing Council. He is past President and current Board member of Big Brothers/Big Sisters and is a current member of the American Red Cross Board of Directors-Mid-Alabama Region and Chair of the Blood Services Committee. Before joining the Company, Mr. Earle was the President and Chief Operating Officer of American Residential Management, Inc., Executive Vice President of Great Atlantic Management, Inc. and Senior Vice President of Balcor Property Management, Inc.
John P. Rigrish, 64, has been our Chief Administrative Officer and Corporate Secretary since August 1998 and is responsible for the supervision of Corporate Governance, Information Technology, Human Resources and Employee Services. Prior to joining the Company, Mr. Rigrish worked for BellSouth Corporation in Corporate Administration and Services. Mr. Rigrish holds a Bachelor's degree from Samford University and did his postgraduate study at Birmingham-Southern College. He previously served on the Board of Directors of Senior Citizens, Inc. in Nashville, Tennessee. Mr. Rigrish is a current member and previous Chairman of the American Red Cross Board of Directors-Alabama Chapter. He also serves on the City of Hoover Veterans Committee, John Carroll Educational Foundation Board of Directors, the Edward Lee Norton Board of Advisors at Birmingham-Southern College and the Finance Committee of the Birmingham Diocese.

Jerry A. Brewer, 41, has been our Executive Vice President, Finance since January 2008, and is responsible for all Corporate Finance and Investor Relations activities of the Company. Mr. Brewer previously served as our Senior Vice President – Corporate Treasury since September 2004. Mr. Brewer joined the Company in February 1999 and served as Vice President of Financial Reporting for the Company until September 2004 and was responsible for overseeing all of the Company’s filings with the Securities and Exchange Commission, and internal and external consolidated financial reporting. Prior to joining the Company, Mr. Brewer worked for Arthur Andersen LLP, serving on independent audits of public and private entity financial statements, mergers and acquisitions due diligence, business risk assessment and registration statement work for public debt and stock offerings. Mr. Brewer is a member of the American Institute of Certified Public Accountants, the Alabama State Board of Public Accountancy and Auburn University School of Accountancy Advisory Council. He is a Certified Public

13


Accountant, and holds a Bachelor of Science degree in Accounting from Auburn University and a Masters of Business Administration from the University of Alabama at Birmingham.

Bradley P. Sandidge, 43, has been our Executive Vice President, Accounting since January 2009, and our interim Chief Financial Officer since January 1, 2013, and is responsible for all accounting operations of the Company to include Internal Control functions, compliance with generally accepted accounting principles, SEC financial reporting, regulatory agency compliance and reporting and management reporting. As interim Chief Financial Officer, Mr. Sandidge is also responsible for financial planning and analysis, investment strategy and underwriting, capital allocation and market research. Mr. Sandidge previously served as our Senior Vice President, Multifamily Accounting and Finance, since joining the Company in 2004, and was responsible for overseeing the accounting operations of the Company’s multifamily operations. Mr. Sandidge is a Certified Public Accountant with over 15 years of real estate experience. Prior to joining the Company, Mr. Sandidge served as Tax Manager for the North American and Asian portfolios of Archon Group, L.P. / Goldman Sachs from January 2001 through June 2004, and worked in the tax real estate practice of Deloitte & Touche LLP from January 1994 through October 1999. Mr. Sandidge holds a Bachelor's degree in accounting and a Master's degree in tax accounting from the University of Alabama. Mr. Sandidge is a board member of the Birmingham Business Alliance.



14


Item 1A.    Risk Factors.

In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, set forth below are cautionary statements identifying important factors that could cause actual events or results to differ materially from any forward-looking statements made by or on behalf of us, whether oral or written. We wish to ensure that any forward-looking statements are accompanied by meaningful cautionary statements in order to maximize to the fullest extent possible the protections of the safe harbor established in the Private Securities Litigation Reform Act of 1995. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors that could cause actual events or results to differ materially from our forward-looking statements. If any of the following risks actually occur, our business, financial condition, results of operations, cash flows and ability to make distributions to the Trust's shareholders could be materially and adversely affected, and the trading price of the Trust's common shares could decline.
 
These forward-looking statements are based on management's present expectations and beliefs about future events. As with any projection or forecast, these statements are inherently susceptible to uncertainty and changes in circumstances. There may be additional risks and uncertainties not presently known to us or that we currently deem immaterial that also may impair our business operations. You should not consider this list to be a complete statement of all potential risks or uncertainties.

Risks Associated with Real Estate

We face numerous risks associated with the real estate industry that could adversely affect our results of operations through decreased revenues or increased costs.

As a real estate company, we are subject to various changes in real estate conditions, particularly in the Sunbelt region where our properties are concentrated, and any negative trends in such real estate conditions may adversely affect our results of operations through decreased revenues or increased costs. These conditions include:

changes in national, regional and local economic conditions, which may be negatively impacted by concerns about inflation, deflation, government deficits (including the European sovereign debt crisis), high unemployment rates, decreased consumer confidence and liquidity concerns, particularly in markets in which we have a high concentration of properties;
fluctuations in interest rates, which could adversely affect our ability to obtain financing on favorable terms or at all;
the inability of residents and tenants to pay rent;
the existence and quality of the competition, such as the attractiveness of our properties as compared to our competitors' properties based on considerations such as convenience of location, rental rates, amenities and safety record;
increased operating costs, including increased real property taxes, maintenance, insurance and utilities costs;
weather conditions that may increase or decrease energy costs and other weather-related expenses;
oversupply of multifamily, commercial space or single-family housing or a reduction in demand for real estate in the markets in which our properties are located;
a favorable interest rate environment that may result in a significant number of potential residents of our multifamily apartment communities deciding to purchase homes instead of renting;
changes in, or increased costs of compliance with, laws and/or governmental regulations, including those governing usage, zoning, the environment and taxes;
rent control or stabilization laws, or other laws regulating rental housing, which could prevent us from raising rents to offset increases in operating costs; and
changing trends in the demand by consumers for merchandise offered by retailers conducting business at our retail properties.

Moreover, other factors may adversely affect our results of operations, including potential liability under environmental and other laws and other unforeseen events, many of which are discussed elsewhere in the following risk factors. Any or all of these factors could materially adversely affect our results of operations through decreased revenues or increased costs.







15


Increased competition and increased affordability of residential homes could limit our ability to retain our residents, lease apartment homes or increase or maintain rents.

Our multifamily apartment communities compete with numerous housing alternatives in attracting residents, including other multifamily apartment communities and single-family rental homes, as well as owner-occupied single-family and multifamily homes. Competitive housing in a particular area and an increase in the affordability of owner-occupied single-family and multifamily homes due to, among other things, declining housing prices, mortgage interest rates and tax incentives and government programs to promote home ownership, could adversely affect our ability to retain residents, lease apartment homes and increase or maintain rents. As a result, our financial condition, results of operations and cash flows could be adversely affected.

We are subject to significant regulations, which could adversely affect our results of operations through increased costs and/or an inability to pursue business opportunities.

Local zoning and use laws, environmental statutes and other governmental requirements may restrict or increase the costs of our development, expansion, rehabilitation and reconstruction activities and thus may prevent or delay us from taking advantage of business opportunities. Failure to comply with these requirements could result in the imposition of fines, awards to private litigants of damages against us, substantial litigation costs and substantial costs of remediation or compliance. In addition, we cannot predict what requirements may be enacted in the future or that such requirements will not increase our costs of regulatory compliance or prohibit us from pursuing business opportunities that could be profitable to us, which could adversely affect our results of operations.

The illiquidity of real estate investments may significantly impede our ability to respond to changes in economic or market conditions, which could adversely affect our results of operations or financial condition.

Real estate investments are relatively illiquid generally, and may become even more illiquid during periods of economic downturn. As a result, we may not be able to sell a property or properties quickly or on favorable terms in response to changes in the economy or other conditions when it otherwise may be prudent to do so. This inability to respond quickly to changes in the performance of our properties could adversely affect our results of operations if we cannot sell an unprofitable property. Our financial condition could also be adversely affected if we were, for example, unable to sell one or more of our properties in order to meet our debt obligations upon maturity. In addition, the tax laws applicable to REITs require that we hold our properties for investment, rather than primarily for sale in the ordinary course of business, which may cause us to forgo or defer sales of properties that otherwise would be in our best interest. Therefore, we may be unable to vary our portfolio promptly in response to economic, market or other conditions, which could adversely affect our results of operations and financial position.

Compliance or failure to comply with the Americans with Disabilities Act and Fair Housing Act could result in substantial costs.
 
Under the Americans with Disabilities Act of 1990, its implementing regulations, the Accessibility Guidelines promulgated under the Act, and certain state and local laws related to disability, which we refer to collectively as the ADA, all public accommodations must meet various requirements related to access and use by disabled persons. Our properties must comply with the applicable provisions of the ADA to the extent that such properties are "public accommodations" as defined by the ADA. In September 2010, the Department of Justice published revised regulations that adopted revised, enforceable accessibility standards called the 2010 ADA Standards for Accessible Design. These standards generally became effective on March 15, 2012. The new standards could cause some of our properties to incur costly measures to become fully compliant. If we are required to make substantial modifications to the properties as a result we could be materially and adversely affected.

Similarly, the Fair Housing Amendment Act of 1988, or FHAA, contains design and construction accessibility provisions for certain new multifamily dwellings developed for first occupancy on or after March 31, 1991. Compliance with the FHAA, its implementing regulations, and any related state or local requirements could involve removal of barriers to access from certain disabled persons' properties or restrict further renovations of our properties with respect to means of access.

Noncompliance with the ADA, FHAA or related laws or regulations could result in the imposition of fines by government authorities, awards to private litigants of damages, substantial litigation costs and the incurrence of additional costs associated with bringing the properties into compliance, any of which could adversely affect our financial condition, results of operations and cash flows.




16


Risks Associated with Our Operations
          
Our revenues are significantly influenced by demand for multifamily properties generally, and a decrease in such demand will likely have a greater adverse effect on our revenues than if we owned a more diversified real estate portfolio.
          
Our portfolio is focused predominately on multifamily properties. As a result, we are subject to risks inherent in investments in a single industry, and a decrease in the demand for multifamily properties would likely have a greater adverse effect on our rental revenues than if we owned a more diversified real estate portfolio. Resident demand at multifamily properties was adversely affected by the recent U.S. recession, including the reduction in spending, reduced home prices and high unemployment, together with the price volatility, dislocations and liquidity disruptions in the debt and equity markets, as well as the rate of household formation or population growth in our markets, changes in interest rates or changes in supply of, or demand for, similar or competing multifamily properties in an area. If the economic recovery slows or stalls, these conditions could persist and we could experience downward pressure on occupancy and market rents at our multifamily properties, which could cause a decrease in our rental revenue. Any such decrease could impair our ability to satisfy our substantial debt service obligations or make distributions to our shareholders.
          
Substantially all of our properties are located in the Sunbelt region, and adverse economic, weather and other developments in that region could adversely affect our results of operations and financial condition.

Substantially all of our properties are located in the Sunbelt region of the United States. In particular, we derived approximately 87.6% of our net operating income in 2012 from top quartile cities located in the Sunbelt region. As a result, we are particularly susceptible to adverse economic, market and other conditions in these geographic areas, including increased unemployment, industry slowdowns, business layoffs or downsizing, decreased consumer confidence and relocation of businesses. Additionally, the geographic concentration of our exposure makes us particularly susceptible to adverse weather conditions that threaten southern and coastal states, such as hurricanes and flooding. Although we anticipate and plan for losses, even a single catastrophe or destructive weather event may have a significant negative effect on our financial condition and results of operations because of the concentration of our properties. Any such adverse economic or weather developments in the Sunbelt region — and in particular the areas of or near to Atlanta, GA, Charlotte, NC or Austin and Dallas/Fort Worth, TX — could adversely affect our results of operations and financial condition.

Our inability to dispose of our existing inventory of for-sale residential assets could adversely affect our results of operations.
         
As of December 31, 2012, we had five for-sale residential units remaining and 39 residential lots for sale, which may expose us to the following risks, many of which could cause us to hold properties for a longer period than is otherwise desirable:

local real estate market conditions, such as oversupply or reduction in demand, may result in reduced or fluctuating sales;
for-sale properties acquired for development usually generate little or no cash flow until completion of development and sale of a significant number of homes or condominium units and may experience operating deficits after the date of completion and until such homes or condominium units are sold;
we may abandon development or conversion opportunities that we have already begun to explore, and we may fail to recover expenses already incurred in connection with exploring any such opportunities;
we may be unable to close on sales of individual units under contract;
buyers may be unable to qualify for financing;
sales prices may be lower than anticipated;
competition from other condominiums and other types of residential housing may result in reduced or fluctuating sales;
we could be subject to liability claims from condominium associations or others asserting that construction performed was defective, resulting in litigation and/or settlement discussions; and
we may be unable to achieve sales prices with respect to our for-sale assets that compensate us for our costs (which may result in impairment charges).        

During 2012, 2011, and 2010, we recorded $7.0 million, $0.2 million and $0.3 million, respectively, of non-cash impairment charges primarily related to certain for-sale residential units, a commercial development and certain land parcels. See Note 3 — “Real Estate Activity — Impairment, Legal Contingencies and Other Losses” in the Notes to Consolidated Financial Statements of the Trust and CRLP contained in Item 8 of this Form 10-K for additional information regarding these impairment charges. If market conditions do not improve or if there is further market deterioration, it may impact the number of

17


projects we can sell, the timing of the sales and/or the prices at which we can sell them. If we are unable to sell projects, we may incur additional impairment charges on projects previously impaired as well as on projects not currently impaired but for which indicators of impairment may exist, which would decrease the value of our assets as reflected on our balance sheet and adversely affect our shareholders’ equity. There can be no assurances of the amount or pace of future for-sale residential sales and closings.

We may be unable to lease space at our new properties or renew leases or re-lease space at our existing properties, which could adversely affect our financial condition and results of operations.
          
We derive the majority of our income from residents and tenants who lease space from us at our properties. A number of factors may adversely affect our ability to attract residents and tenants at favorable rental rates and generate sufficient income, including:

local conditions such as an oversupply of, or reduction in demand for, multifamily or commercial properties;
the attractiveness of our properties to residents, shoppers and tenants;
the availability of low interest mortgages for single-family home buyers;
decreases in market rental rates; and
our ability to collect rent from our residents and tenants.

The residents at our multifamily properties generally enter into leases with an initial term ranging from six months to one year. Tenants at our office properties generally enter into leases with an initial term ranging from three to ten years and tenants at our retail properties generally enter into leases with an initial term ranging from one to ten years. As leases expire at our existing properties, residents and tenants may elect not to renew them. Even if our residents and tenants do renew or if we can re-lease the space, the terms of renewal or re-leasing, including the cost of required renovations may be less favorable than current lease terms. In addition, for new properties, we may be unable to attract enough residents and tenants, or the occupancy rates and rents may not be sufficient to make the property profitable. Moreover, continued weakness in the economy or a future recession may impede the ability of our residents or tenants to perform their contractual obligations, which could lead to an increase in defaults by residents and tenants. If we are unable to renew the leases or re-lease the space at our existing properties promptly and/or lease the space at our new properties, or if the rental rates upon renewal or re-leasing at existing properties are significantly lower than expected rates, or if there is an increase in tenant defaults, our financial condition and results of operations could be adversely affected.
          
If recent adverse global market and economic conditions worsen or do not fully recover, our financial condition, results of operations and cash flow may be materially adversely affected.
 
Overall financial market and economic conditions have been challenging in recent years, beginning with the credit crisis and recession in 2008. Challenging economic conditions persisted throughout 2011, including a worsening European sovereign debt crisis and volatility in the debt and equity markets, and although the U.S. economy has emerged from the recent recession, high levels of unemployment have persisted and residential and commercial real estate markets are slowly recovering. These markets may fail to grow or decline for many reasons, including insufficient consumer demand or confidence, lack of access to credit, the impacts of “sequestration” under the Budget Control Act of 2011 or other changes in the U.S. federal budgetary process, changes in regulatory environments, and other macro-economic factors. If these conditions do not improve or worsen, there could be an increase in defaults by residents at our multifamily properties and tenants at our commercial properties, which could adversely affect our revenues. With regard to our ability to lease our multifamily properties, the increasing rental of excess for-sale condominiums, which increases the supply of multifamily units and housing alternatives, may further reduce our ability to lease our multifamily units and further depress rental rates in certain markets. With regard to for-sale residential properties, the market for our for-sale residential properties depends on an active demand for new for-sale housing and high consumer confidence. Decreased demand, exacerbated by tighter credit standards for home buyers and foreclosures, has further contributed to an oversupply of housing alternatives, adversely affecting the timing of sales and price at which we are able to sell our for-sale residential properties and thereby adversely affecting our profits from for-sale residential properties. We cannot predict how long demand and other factors in the real estate market will remain unfavorable, but if the economic recovery slows or stalls, our ability to lease our properties, our ability to increase or maintain rental rates in certain markets and the pace of condominium sales and closings and/or the related sales prices may weaken in 2013.





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Our expenses may remain constant or increase, even if our revenues decrease, causing our results of operations to be adversely affected.
                    
Costs associated with our business, such as mortgage payments, real estate taxes, insurance premiums and maintenance costs, are relatively inflexible and generally do not decrease, and may increase, when a property is not fully occupied, rental rates decrease, a tenant fails to pay rent or other circumstances cause a reduction in property revenues. As a result, if revenues drop, we may not be able to reduce our expenses accordingly, which would adversely affect our financial condition and results of operations.
          
We may be unable to collect balances due from any tenants in bankruptcy.
         
We cannot assure you that any tenant that files for bankruptcy protection or becomes subject to bankruptcy proceedings will continue to pay us rent. A bankruptcy filing by or relating to one of our tenants would bar all efforts by us to collect pre-bankruptcy debts from that tenant, or its property, unless we receive an order permitting us to do so from the bankruptcy court. A tenant bankruptcy could delay our efforts to collect past due balances under the relevant leases, and could ultimately preclude collection of these sums. If a lease is rejected by a tenant in bankruptcy, we would have only a general unsecured claim for damages. Any unsecured claim we hold may be paid only to the extent that funds are available and only in the same percentage as is paid to all other holders of unsecured claims, and there are restrictions under bankruptcy laws that limit the amount of the claim we can make if a lease is rejected. As a result, it is likely that we will recover substantially less than the full value of any unsecured claims we hold which would result in a reduction in our cash flow and in the amount of cash available for distribution to our shareholders.
       
We could incur significant costs related to environmental issues which could adversely affect our results of operations through increased compliance costs or our financial condition if we become subject to a significant liability.
          
Under federal, state and local laws and regulations relating to the protection of the environment, a current or previous owner or operator of real property, and parties that generate or transport hazardous substances that are disposed of on real property, may be liable for the costs of investigating and remediating hazardous substances on or under or released from the property and for damages to natural resources. The federal Comprehensive Environmental Response, Compensation & Liability Act, and similar state laws, may impose liability on a joint and several basis, regardless of whether the owner, operator or other responsible party knew of or was at fault for the release or presence of hazardous substances. In connection with the ownership or operation of our properties, we could be liable in the future for costs associated with investigation and remediation of hazardous substances released at or from such properties. The costs of any required remediation and related liability as to any property could be substantial under these laws and could exceed the value of the property and/or our assets. The presence of hazardous substances or the failure to properly remediate those substances may result in our being liable for damages suffered by a third party for personal injury, property damage, cleanup costs, damage to natural resources or otherwise and may adversely affect our ability to sell or rent a property or to borrow funds using the property as collateral. Environmental laws also may create liens on contaminated sites in favor of the government for damages and costs it incurs to address such contamination. Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which that property may be used or how businesses may be operated on that property.

In addition, our properties are subject to various federal, state and local environmental, health and safety laws, including laws governing the management of wastes and underground and aboveground storage tanks. Noncompliance with these environmental, health and safety laws could subject us or our tenants to liability. These environmental liabilities could affect a tenant's ability to make rental payments to us. Moreover, compliance with these laws may require significant expenditures. Interpretation of these laws and the restrictions themselves may change from time to time, and these changes may result in additional expenditures in order to achieve compliance. We cannot assure you that a material environmental claim or compliance obligation will not arise in the future. The costs of defending against any claims of liability, of remediating a contaminated property, or of complying with future environmental requirements could be substantial and affect our operating results. In addition, if a judgment is obtained against us or we otherwise become subject to a significant environmental liability, our financial condition may be adversely affected.








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Costs associated with addressing indoor air quality issues, moisture infiltration and resulting mold remediation may be costly.
          
As a general matter, the potential for indoor exposure to mold or other air contaminants continues to be a concern as such exposure has been alleged to have a variety of adverse effects on health. As a result, there have been a number of lawsuits in our industry against owners and managers of apartment communities relating to indoor air quality, moisture infiltration and/or resulting mold. The terms of our property and general liability policies generally exclude certain mold-related claims. Should an uninsured loss arise against us, we would be required to use our funds to resolve the issue, including litigation costs. We make no assurance that liabilities resulting from indoor air quality, moisture infiltration and/or the presence of or exposure to mold will not have a future impact on our business, results of operations and financial condition.
          
As the owner or operator of real property, we could become subject to liability for asbestos-containing building materials or other hazardous materials in the building components on our properties.
          
Some of our properties may contain asbestos-containing materials or other hazardous materials (e.g., lead-based paint). With respect to asbestos-containing materials, environmental laws typically require that owners or operators of buildings with asbestos-containing building materials properly manage and maintain these materials, adequately inform or train those who may come in contact with asbestos and undertake special precautions, including removal or other abatement, in the event that asbestos is disturbed during building renovation or demolition. Other hazardous materials are subject to similar regulations. In addition, federal law requires owners or operators of certain residential dwellings to disclose the potential presence of lead-based paint to residents. These laws may impose fines and penalties on building owners or operators for failure to comply with these requirements. In addition, third parties may be entitled to seek recovery from owners or operators for personal injury associated with exposure to asbestos-containing building materials or other hazardous materials in building components.

Uninsured losses or losses in excess of insurance coverage could adversely affect our financial condition.
          
As of December 31, 2012, we are self-insured up to $0.8 million, $0.9 million and $1.8 million for general liability, workers’ compensation and property insurance, respectively. We are also self-insured for health insurance and responsible for amounts up to $135,000 per claim and up to $2.0 million per person, according to plan policy limits. If the actual costs incurred to cover such uninsured claims are significantly greater than our budgeted costs, our financial condition will be adversely affected.

We carry comprehensive liability, fire, extended coverage and rental loss insurance in amounts that we believe are in line with coverage customarily obtained by owners of similar properties and appropriate given the relative risk of loss and the cost of the coverage. There are, however, certain types of losses, such as lease and other contract claims, acts of war or terrorism, acts of God, and in some cases, earthquakes, hurricanes and flooding that generally are not insured because such coverage is not available or it is not available at commercially reasonable rates. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in the damaged property, as well as the anticipated future revenue from the property. Inflation, changes in building codes and ordinances, environmental considerations, and other factors also might make it impractical or undesirable to use insurance proceeds to replace a property after it has been damaged or destroyed. In addition, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these properties were irreparably damaged. Furthermore, we may not be able to obtain adequate insurance coverage at reasonable costs in the future, as the costs associated with property and casualty renewals may be higher than anticipated.
       
We may be unable to develop new properties or redevelop existing properties successfully, which could adversely affect our results of operations due to unexpected costs, delays and other contingencies.
          
As part of our operating strategy, we intend to continue to develop new properties and to expand and/or redevelop existing properties as market conditions warrant. Development activity may be conducted through wholly-owned affiliates or through joint ventures. In addition to the risks associated with real estate investments in general as described above, there are significant risks associated with development activities including the following:

we may be unable to obtain, or face delays in obtaining, necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations, which could result in increased development costs and/or lower than expected leases;
we may incur development costs for a property that exceed original estimates due to increased materials, labor or other costs, changes in development plans or unforeseen environmental conditions, which could make completion of the property more costly or uneconomical;

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land, insurance and construction costs may be higher than expected in our markets; therefore, we may be unable to attract rents that compensate for these increases in costs;
we may abandon development opportunities that we have already begun to explore, and we may fail to recover expenses already incurred in connection with exploring any such opportunities;
rental rates and occupancy levels may be lower than anticipated;
changes in applicable zoning and land use laws may require us to abandon projects prior to their completion, resulting in the loss of development costs incurred up to the time of abandonment; and
possible delays in completion because of construction delays, delays in the receipt of zoning, occupancy and other approvals, or other factors outside of our control.
        
In addition, if a project is delayed, certain residents and tenants may have the right to terminate their leases. Furthermore, from time to time we may utilize tax-exempt bond financing through the issuance of community development and special assessment district bonds to fund development costs. Under the terms of such bond financings, we may be responsible for paying assessments on the underlying property to meet debt service obligations on the bonds until the underlying property is sold. Accordingly, if we are unable to complete or sell a development property subject to such bond financing and we are forced to hold the property longer than we originally projected, we may be obligated to continue to pay assessments to meet debt service obligations under the bonds. If we are unable to pay the assessments, a default will occur under the bonds and the property could be foreclosed upon. Any one or more of these risks may cause us to incur unexpected development costs, which would negatively affect our results of operations.
        
Our joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on our joint venture partners’ financial condition, any disputes that may arise between us and our joint venture partners and our exposure to potential losses from the actions of our joint venture partners.
          
We have in the past and may in the future develop and acquire properties with other persons or entities when we believe circumstances warrant the use of such structures. Our investments in these joint ventures involve risks not customarily associated with our wholly-owned properties, including the following:

we share decision-making authority with some of our joint venture partners regarding major decisions affecting the ownership or operation of the joint venture and the joint venture properties, such as the acquisition of properties, the sale of the properties or the making of additional capital contributions for the benefit of the properties, which may prevent us from taking actions that are opposed by those joint venture partners;
prior consent of our joint venture partners is required for a sale or transfer to a third party of our interests in the joint venture, which restricts our ability to dispose of our interest in the joint venture;
our joint venture partners might become bankrupt or fail to fund their share of required capital contributions, which may delay construction or development of a joint venture property or increase our financial commitment to the joint venture;
our joint venture partners may have business interests or goals with respect to the joint venture properties that conflict with our business interests and goals, which could increase the likelihood of disputes regarding the ownership, management or disposition of such properties;
disputes with our joint venture partners may result in litigation or arbitration that would increase our expenses and distract our officers and/or trustees from focusing their time and effort on our business, and possibly disrupt the day-to-day operations of the property such as by delaying the implementation of important decisions until the conflict or dispute is resolved (see, for example, the discussion under Item 3 - "Legal Proceedings" in this Form 10-K);
our joint venture partners may be unsuccessful in refinancing or replacing existing mortgage indebtedness, or may choose not to do so, which could adversely affect the value of our joint venture interest;
we may suffer losses as a result of the actions of our joint venture partners with respect to our joint venture investments;
our joint venture partner may elect to sell or transfer its interests in the joint venture to a third party, which may result in our loss of management and leasing responsibilities and fees that we currently receive from the joint venture properties; and
we may, in certain circumstances, be liable for the actions of our joint venture partners, and their activities could adversely affect our ability to qualify as a REIT, even though we do not control the joint venture.
 
If any of the foregoing were to occur, our financial condition and results of operations could be adversely affected.



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We intend to cooperate with our joint venture partners in connection with their efforts to refinance and/or replace any outstanding joint venture indebtedness, which may include property dispositions by the joint venture and/or additional capital contributions by us from time to time. There can be no assurance that our joint ventures will be successful in refinancing and/or replacing such existing debt at maturity or otherwise. The failure to refinance and/or restructure such debt could materially adversely affect the value of our joint venture interests and therefore the value of our joint venture investments, which, in turn, could have a material adverse effect on our financial condition and results of operations.
                    
We may not be able to complete acquisitions and, even if we complete acquisitions, we may not achieve the anticipated financial and operating results from our acquisitions, which would adversely affect our results of operations.
          
We will acquire multifamily properties only if they meet our criteria and we believe that they will enhance our future financial performance and the value of our portfolio. Our belief, however, is based on certain assumptions regarding the expected future performance of that property and is subject to risks, uncertainties and other factors, many of which are forward-looking and are uncertain in nature or are beyond our control. In particular, our acquisition activities pose the following risks to our ongoing operations:

we may be unable to acquire a desired property because of competition from other real estate investors, including other publicly traded REITs, private REITs, domestic and foreign financial institutions, life insurance companies, pension trusts, trust funds, investment banking firms, and private institutional investment funds;
even if we are able to acquire a desired property, competition from other potential acquirers may significantly increase the purchase price;
we may not achieve the increased occupancy, cost savings and operational efficiencies projected at the time of acquiring a property;
management may incur significant costs and expend significant resources evaluating and negotiating potential acquisitions, including those that we subsequently are unable to complete;
we may acquire properties or other real estate-related investments that are not initially accretive to our results upon acquisition, and we may not successfully manage and operate those properties to meet our expectations;
we may acquire properties outside of our existing markets where we are less familiar with local economic and market conditions;
some properties may be worth less or may generate less revenue than, or simply not perform as well as, we believed at the time of the acquisition;
we may be unable to obtain financing for acquisitions on favorable terms or at all;
we may be unable to reinvest restricted proceeds pending the fulfillment of the exchange requirements of Section 1031 of the Code;
we may spend more than budgeted to make necessary improvements or renovations to acquired properties; and
we may acquire properties without any recourse, or with only limited recourse, for liabilities, whether known or unknown, such as clean-up of environmental contamination, claims by tenants, vendors or other persons against the former owners of the properties, and claims for indemnification by general partners, trustees, officers, and others indemnified by the former owners of the properties.

If we cannot finance property acquisitions in a timely manner and on favorable terms, or operate acquired properties to meet our financial expectations, our financial condition and results of operations could be adversely affected.           

Breaches of our data security could materially harm our business and reputation.

We collect and retain certain personal information provided by our tenants and employees. While we have implemented a variety of security measures to protect the confidentiality of this information and periodically review and improve our security measures, there can be no assurance that we will be able to prevent unauthorized access to this information. Any breach of our data security measures and loss of this information may result in legal liability and costs (including damages and penalties), as well as damage to our reputation, that could materially and adversely affect our business and financial performance.










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Risks Associated with Our Indebtedness and Financing Activities

Our substantial indebtedness could adversely affect our financial condition and results of operations.

As of December 31, 2012, the amount of our total debt was approximately $1.9 billion, consisting of $1.8 billion of consolidated debt and $20.7 million of our pro rata share of joint venture debt. We may incur additional indebtedness in the future in connection with, among other things, our acquisition, development and operating activities.

The degree of our leverage creates significant risks, including the following:

we may be required to dedicate a substantial portion of our funds from operations to servicing our debt and our cash flow may be insufficient to make required payments of principal and interest;
we may not be able to refinance some or all of our indebtedness and any refinancing may not be on terms as favorable as those of our existing indebtedness;
to repay indebtedness as it matures, we may be forced to sell one or more properties, possibly on unfavorable terms, or raise additional equity at prices that may be dilutive to existing shareholders;
we may be subject to prepayment penalties if we elect to repay our indebtedness prior to the stated maturity date;
debt service obligations will reduce funds available for distribution to our shareholders and funds available for acquisitions, development and redevelopment;
we may be more vulnerable to economic and industry downturns than our competitors that have less debt;
we may be limited in our ability to respond to changing business and economic conditions;
we may not be able to obtain additional financing in the future for working capital, capital expenditures, acquisitions, development or other general corporate purposes; and
we may default on our indebtedness, which could result in acceleration of those obligations, assignment of rents and leases and loss of properties to foreclosure.

If any one of these events were to occur, our financial condition and results of operations could be materially and adversely affected.
We depend on external sources of capital that are outside of our control, which may affect our ability to pursue strategic opportunities, refinance or repay our indebtedness and make distributions to our shareholders.

To qualify as a REIT, we must distribute to our shareholders each year at least 90% of our REIT taxable income, excluding any net capital gain. Because of these distribution requirements, it is not likely that we will be able to fund all future capital needs from income from operations. As a result, when we engage in the development or acquisition of new properties or expansion or redevelopment of existing properties, we will continue to rely on third-party sources of capital, including lines of credit, collateralized or unsecured debt (both construction financing and permanent debt), and equity issuances. Our access to third-party sources of capital depends on a number of factors, including general market conditions, the market's view of the quality of our assets, the market's perception of our growth potential, our current debt levels and our current and expected future earnings. There can be no assurance that we will be able to obtain the financing necessary to fund our current or new developments or project expansions or our acquisition activities on terms favorable to us or at all. If we are unable to obtain a sufficient level of third party financing to fund our capital needs, our results of operations, financial condition and ability to make distributions to our shareholders may be adversely affected.

In addition, although most of our indebtedness does not require significant principal payments prior to maturity, we will need to raise additional equity capital, obtain collateralized or unsecured debt financing, issue private or public debt, or sell some of our assets to either refinance or repay our indebtedness as it matures. If we are not successful in refinancing our debt when it becomes due, we may default under our loan obligations, enter into foreclosure proceedings, or be forced to dispose of properties on disadvantageous terms, any of which could adversely affect our ability to service other debt and to meet our other obligations.






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Covenants in our debt agreements could adversely affect our financial condition, results of operations and ability to make distributions to our shareholders.
Our unsecured credit facility and unsecured term loans contain restrictions on the amount of debt we may incur and other restrictions and requirements on our operations, including the following financial ratios:

secured debt to total asset value ratio;
fixed charge coverage ratio;
total liabilities to total asset value ratio;
total permitted investments to total asset value ratio; and
unencumbered leverage ratio.

The indenture under which our senior unsecured debt is issued also contains financial and operating covenants including coverage ratios and limitations on the amount of debt we may incur. Certain of our mortgage indebtedness also contains customary covenants which, among other things, limit our ability, without the prior consent of the lender, to further mortgage the property, to enter into new leases or materially modify existing leases, and to discontinue insurance coverage.

These restrictions, as well as any additional restrictions which we may become subject to in connection with additional financings or refinancings, could restrict our ability to pursue some business initiatives, effect certain transactions or make other changes to our business that may otherwise be beneficial to our company, which would adversely affect our results of operations. In addition, violations of these covenants could cause the declaration of defaults and acceleration of any related indebtedness, which would result in adverse consequences to our financial condition. Our credit facility and unsecured term loan also contain cross-default provisions that give the lenders the right to declare a default if we are in default under other loans in excess of certain amounts. In the event of a default, we may be required to repay such debt with capital from other sources, which may not be available to us on attractive terms, or at all, which would have a material adverse effect on our financial condition, results of operations and ability to make distributions to our shareholders.

Potential reduction or elimination of the role that Fannie Mae and Freddie Mac play in the multifamily financing sector could materially and adversely affect our financial condition, liquidity and results of operations.

Fannie Mae and Freddie Mac are a major source of financing for secured multifamily real estate in the United States, and we have benefited from our ability to borrow from these entities. In February 2011, as part of the Obama administration's financial industry recovery proposal, the U.S. Treasury, in consultation with the Department of Housing and Urban Development and other government agencies, issued a report that set forth options to reform the U.S. housing market, all of which involve an eventual phasing out of Fannie Mae and Freddie Mac. In August 2012, the U.S. Treasury and Federal Housing Finance Agency announced further steps to expedite the phasing out of Fannie Mae and Freddie Mac. However, it is not now possible to predict the impact such a phase-out may have on financing for the multifamily sector and thus on our business. If the U.S. government decides to eliminate Fannie Mae or Freddie Mac or reduce government support for apartment mortgage loans, and if other sources of financing do not enter the market to replace Fannie Mae and Freddie Mac, it may adversely affect our ability to obtain financing on favorable terms and thus to acquire or develop new properties. In addition, such a decision by the U.S. government may adversely affect the number of properties we can sell, the timing of the sales and/or the prices at which we can sell them, as prospective buyers also may experience difficulty in obtaining financing on favorable terms. As a result, our financial condition, liquidity and results of operations could be materially and adversely affected.
Indebtedness secured by our properties exposes us to the possibility of foreclosure, which could result in the loss of the property that secures the indebtedness and any rents to which we would be entitled from leases on that property.

As of December 31, 2012, approximately 37.8% of our consolidated indebtedness was secured by our real estate assets. If a property is mortgaged to secure payment of indebtedness and we are unable to meet mortgage payments, the mortgagee could foreclose upon that property, appoint a receiver and receive an assignment of rents and leases or pursue other remedies. In addition, as a result of cross-collateralization or cross-default provisions contained in certain of our mortgage loans, a default under one mortgage loan could result in a default on other indebtedness and cause us to lose other better performing properties, which could materially and adversely affect our financial condition and results of operations
 




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For tax purposes, a foreclosure of any nonrecourse mortgage on any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt exceeds our tax basis in the property, we would recognize taxable income on foreclosure but would not receive any cash proceeds from the disposition of the property, which could adversely affect our ability to our ability to make distributions to our shareholders.

Disruptions in the financial markets could adversely affect our ability to obtain sufficient third party financing for our capital needs, including development, expansion, acquisition and other activities, on favorable terms or at all, which could materially and adversely affect us.

Disruptions in the credit markets generally, or relating to the real estate industry specifically, may adversely affect our ability to obtain debt financing at favorable rates or at all. In 2008 and 2009, the U.S. stock and credit markets experienced significant price volatility, dislocations and liquidity disruptions, which caused market prices of many stocks to fluctuate substantially and the spreads on prospective debt financings to widen considerably. Those circumstances materially impacted liquidity in the financial markets, making terms for certain financings less attractive, and in some cases resulted in the unavailability of financing, even for companies that were otherwise qualified to obtain financing. Continued volatility and uncertainty in the stock and credit markets may negatively impact our ability to access additional financing for our capital needs, including development, expansion, acquisition and other activities, on favorable terms or at all, which may negatively affect our business. Additionally, we may be unable to refinance or extend our existing indebtedness or the terms of any refinancing may not be as favorable as the terms of our existing indebtedness. If a dislocation similar to that which occurred in 2008 and 2009 occurs in the future, we may be forced to seek alternative sources of potentially less attractive financing and to adjust our business plan accordingly. Such events also may make it more difficult or costly for us to raise capital through the issuance of the Trust's common shares, preferred shares or subordinated notes.

Our results of operations could be adversely affected if we are required to perform under various financial guarantees that we have provided with respect to certain of our joint ventures and retail developments.
          
From time to time, we guarantee portions of the indebtedness of certain of our unconsolidated joint ventures. See Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations - Guarantees and Other Arrangements” of this Annual Report on Form 10-K, for a description of the guarantees that we have provided with respect to the indebtedness of certain of our joint ventures as of December 31, 2012. From time to time, in connection with certain retail developments, we receive funding from municipalities for infrastructure costs through the issuance of bonds that are repaid primarily from sales tax revenues generated from the tenants at each respective development. In some instances, we guarantee the shortfall, if any, of tax revenues to the debt service requirements on these bonds. If we are required to fund any amounts related to any of these guarantees, our results of operations and cash flows could be adversely affected. In addition, we may not be able to ultimately recover funded amounts.

Due to the amount of our variable rate debt, rising interest rates would adversely affect our results of operation.
 
As of December 31, 2012, we had approximately $201.1 million of consolidated variable rate debt outstanding. While we have sought to cap our exposure to interest rate fluctuations by using interest rate swap agreements where appropriate, failure to hedge effectively against interest rate changes may adversely affect our results of operations. Furthermore, interest rate swap agreements and other hedging arrangements may expose us to additional risks, including a risk that a counterparty to a hedging arrangement may fail to honor its obligations. Developing an effective interest rate risk strategy is complex and no strategy can completely insulate us from risks associated with interest rate fluctuations. There can be no assurance that our hedging activities will have the desired beneficial impact on our results of operations or financial condition. In addition, as opportunities arise, we may borrow additional money with variable interest rates in the future. As a result, a significant increase in interest rates would adversely affect our results of operations.
Our senior notes do not have an established trading market; therefore, holders of our notes may not be able to sell their notes.

Each series of CRLP's senior notes is a new issue of securities with no established trading market. We do not intend to apply for listing of any series of notes on any national securities exchange. The underwriters in an offering of senior notes may advise us that they intend to make a market in the notes, but they are not obligated to do so and may discontinue market making at any time without notice. We can give no assurance as to the liquidity of or any trading market for any series of our notes.




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A downgrade in our credit ratings could have a material adverse effect on our business, financial condition and results of operations.

We have a significant amount of debt outstanding, consisting mostly of unsecured debt. We are currently assigned corporate credit ratings from Moody's Investors Service, Inc. and Standard and Poor's Ratings Group based on their evaluation of our creditworthiness. If our credit ratings are downgraded or other negative action is taken, we could be required to pay additional interest and fees on our outstanding borrowings. In addition, a downgrade may adversely impact our ability to borrow secured and unsecured debt and otherwise limit our access to capital, which could adversely affect our business, financial condition and results of operations. 

Risks Associated with Our Organization and Structure

Some of our trustees and officers have conflicts of interest that could conflict with the interests of our shareholders.

Certain of our officers and members of our Board of Trustees own limited partner units in CRLP. These individuals may have personal interests that conflict with the interests of our shareholders with respect to business decisions affecting us and CRLP, such as interests in the timing and pricing of property sales or refinancings in order to obtain favorable tax treatment. As a result, the effect of certain transactions on these unit holders may influence our decisions affecting these properties.
Thomas Lowder and James Lowder each has a 50% ownership interest in The Colonial Company, which owns Colonial Insurance Agency.  Colonial Insurance Agency has provided insurance risk management, administrative and brokerage services for the Company. This company is expected to perform similar services for us in the future. As a result, Messrs. Thomas and James Lowder may realize benefits from transactions between this company and us that are not realized by other holders of interests in us.

Pursuant to our charter, our audit committee reviews and discusses with management and our independent registered public accounting firm any such transaction if deemed material and relevant to an understanding of our financial statements. Other than a specific procedure for reviewing and approving related party construction activities, we have not adopted a formal policy for the review and approval of conflict of interest transactions generally. Our policies and practices may not be successful in eliminating the influence of conflicts.

Restrictions on the acquisition and change in control of the Company may have adverse effects on the value of the Trust's common shares and CRLP's partnership units.

Various provisions of the Trust's Declaration of Trust restrict the possibility for acquisition or change in control of us, even if the acquisition or change in control were in the shareholders' interest. As a result, the value of the Trust's common shares and CRLP's partnership units may be less than they would otherwise be in the absence of such restrictions.

The Trust's Declaration of Trust contains ownership limits and restrictions on transferability. The Trust's Declaration of Trust contains certain restrictions on the number of common shares and preferred shares that individual shareholders may own, which is intended to ensure that we maintain our qualification as a REIT. In order for us to qualify as a REIT, no more than 50% of the value of our outstanding shares may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) during the last half of a taxable year and the shares must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year. To help avoid violating these requirements, the Trust's Declaration of Trust contains provisions restricting the ownership and transfer of shares in certain circumstances. These ownership limitations provide that no person may beneficially own, or be deemed to own by virtue of the attribution provisions of the Code, more than:

9.8%, in either number of shares or value (whichever is more restrictive), of any class of our outstanding shares;
5% in number or value (whichever is more restrictive), of our outstanding common shares and any outstanding excess shares; and
in the case of certain excluded holders related to the Lowder family: 29% by one individual; 34% by two individuals; 39% by three individuals; or 44% by four individuals.

These ownership limitations may be waived by the Trust's Board of Trustees if it receives representations and undertakings of certain facts for the protection of our REIT status, and if requested, an IRS ruling or opinion of counsel.



26


The Trust's Declaration of Trust permits the Trust's Board of Trustees to issue preferred shares with terms that may discourage a third party from acquiring us. The Trust's Declaration of Trust permits the Board of Trustees of the Trust to issue up to 20,000,000 preferred shares, having those preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications, or terms or conditions of redemption as determined by the Board of Trustees. Thus, the Board of Trustees of the Trust could authorize the issuance of preferred shares with terms and conditions that could have the effect of discouraging a takeover or other transaction in which some or a majority of shareholders might receive a premium for their shares over the then-prevailing market price of shares.

The Trust's Declaration of Trust and Bylaws contain other possible anti-takeover provisions. The Trust's Declaration of Trust and Bylaws contain other provisions that may have the effect of delaying, deferring or preventing an acquisition or change in control of the Company, and, as a result could prevent our shareholders from being paid a premium for their common shares over the then-prevailing market prices. These provisions include:

a prohibition on shareholder action by written consent;
the ability to remove trustees only at a meeting of shareholders called for that purpose, by the affirmative vote of the holders of not less than two-thirds of the shares then outstanding and entitled to vote in the election of trustees;
the limitation that a special meeting of shareholders can be called only by the president or chairman of the board or upon the written request of shareholders holding outstanding shares representing at least 25% of all votes entitled to be cast at the special meeting;
the advance written notice requirement for shareholders to nominate a trustee or submit other business before a meeting of shareholders; and
the requirement that the amendment of certain provisions of the Declaration of Trust relating to the removal of trustees, the termination of the Company and any provision that would have the effect of amending these provisions, require the affirmative vote of the holders of two-thirds of the shares then outstanding.

We may change our business policies in the future, which could adversely affect our financial condition or results of operations.

Our major policies, including our policies with respect to development, acquisitions, financing, growth, operations, debt capitalization and distributions, are determined by the Trust's Board of Trustees. A change in these policies could adversely affect our financial condition or results of operations, including our ability to service debt. The Trust's Board of Trustees may amend or revise policies from time to time in the future, and no assurance can be given that additional amendments or revisions to these policies will not result in additional charges or otherwise materially adversely affect our financial condition or results of operations.

Risks Related to the Trust's Shares

Market interest rates and low trading volume may have an adverse effect on the market value of the Trust's common shares.

The market price of shares of a REIT may be affected by the distribution rate on those shares, as a percentage of the price of the shares, relative to market interest rates. If market interest rates increase, prospective purchasers of the Trust's shares may expect a higher annual distribution rate. Higher interest rates would not, however, result in more funds for us to distribute and, in fact, would likely increase our borrowing costs and potentially decrease funds available for distribution. This could cause the market price of the Trust's common shares to go down. In addition, although the Trust's common shares are listed on the New York Stock Exchange, the daily trading volume of the Trust's shares may be lower than the trading volume for other industries. As a result, our investors who desire to liquidate substantial holdings may find that they are unable to dispose of their shares in the market without causing a substantial decline in the market value of the shares.

A large number of shares available for future sale could adversely affect the market price of the Trust's common shares and may be dilutive to current shareholders.

The sales of a substantial number of our common shares, or the perception that such sales could occur, could adversely affect prevailing market prices for our common shares. As of December 31, 2012 there were 125,000,000 common shares authorized under our Declaration of Trust, as amended, of which 88,212,644 were outstanding as of December 31, 2012. Our Board of Trustees may authorize the issuance of additional authorized but unissued common shares or other authorized but unissued securities at any time, including pursuant to share option and share purchase plans. In addition to issuances of shares pursuant to share option and share purchase plans, as of December 31, 2012, we may issue up to 7,152,752 common shares

27


upon redemption of currently outstanding units of our operating partnership. We also have filed a registration statement with the Securities and Exchange Commission allowing the Trust to offer, from time to time, an unspecified amount of equity securities of the Trust (including common and preferred shares) and allowing CRLP to offer, from time to time, an unspecified amount of debt securities. Our ability to execute our business strategy depends on our access to an appropriate blend of debt financing, including unsecured lines of credit and other forms of secured and unsecured debt, and equity financing, including issuances of common and preferred equity. No prediction can be made about the effect that future distribution or sales of the Trust's common or preferred shares or CRLP's debt securities will have on the market price of the Trust's common shares.

We may change our dividend policy.

The Trust intends to continue to declare quarterly distributions on its common shares. Future distributions will be declared and paid at the discretion of the Trust's Board of Trustees and the amount and timing of distributions will depend upon cash generated by operating activities, our financial condition, capital requirements, annual distribution requirements under the REIT provisions of the Code, and such other factors as the Trust's Board of Trustees deem relevant. The Trust's Board of Trustees reviews the dividend quarterly and there can be no assurance as to the manner in which future dividends will be paid or that the current dividend level will be maintained in future periods.

Changes in market conditions or a failure to meet the market's expectations with regard to our earnings and cash distributions could adversely affect the market price of the Trust's common shares.

We believe that the market value of a REIT's equity securities is based primarily upon the market's perception of the REIT's growth potential and its current and potential future cash distributions, and is secondarily based upon the real estate market value of the underlying assets. For that reason, our shares may trade at prices that are higher or lower than the net asset value per share. To the extent we retain operating cash flow for investment purposes, working capital reserves or other purposes, these retained funds, while increasing the value of our underlying assets, may not correspondingly increase the market price of the Trust's common shares. In addition, we are subject to the risk that our cash flow will be insufficient to meet the required payments on our preferred shares and the Operating Partnership's preferred units. Our failure to meet the market's expectations with regard to future earnings and cash distributions would likely adversely affect the market price of our shares.

The stock markets, including the New York Stock Exchange, on which the Trust lists its common shares, historically have experienced significant price and volume fluctuations. As a result, the market price of the Trust's common shares could be similarly volatile, and investors in the Trust's common shares may experience a decrease in the value of their shares, including decreases unrelated to our operating performance or prospects. Among the market conditions that may affect the market price of our publicly traded securities are the following:

our financial condition and operating performance and the performance of other similar companies;
actual or anticipated differences in our quarterly operating results;
changes in our revenues or earnings estimates or recommendations by securities analysts;
publication of research reports about us or our industry by securities analysts;
additions and departures of key personnel;
strategic decisions by us or our competitors, such as acquisitions, divestments, spin-offs, joint ventures, strategic investments or changes in business strategy;
the reputation of REITs generally and the reputation of REITs with portfolios similar to ours;
the attractiveness of the securities of REITs in comparison to securities issued by other entities (including securities issued by other real estate companies);
an increase in market interest rates, which may lead prospective investors to demand a higher distribution rate in relation to the price paid for our shares;
the passage of legislation or other regulatory developments that adversely affect us or our industry;
speculation in the press or investment community;
actions by institutional shareholders or hedge funds;
changes in accounting principles;
terrorist acts; and
general market conditions, including factors unrelated to our performance.

In the past, securities class action litigation has often been instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management's attention and resources.




28


Risks Associated with Income Tax Laws
          
The Trust’s failure to qualify as a REIT would decrease the funds available for distribution to its shareholders and adversely affect the market price of the Trust’s common shares.

We believe that the Trust has qualified for taxation as a REIT for federal income tax purposes commencing with its taxable year ended December 31, 1993. The Trust intends to continue to meet the requirements for taxation as a REIT, but it cannot assure shareholders that the Trust will qualify as a REIT. The Trust has not requested and does not plan to request a ruling from the IRS that the Trust qualifies as a REIT, and the statements in this Form 10-K are not binding on the IRS or any court. As a REIT, the Trust generally will not be subject to federal income tax on its income that it distributes currently to its shareholders. Many of the REIT requirements are highly technical and complex. The determination that the Trust is a REIT requires an analysis of various factual matters and circumstances that may not be totally within its control. For example, to qualify as a REIT, at least 95% of our gross income must come from sources that are itemized in the REIT tax laws. The Trust generally is prohibited from owning more than 10% of the voting securities or more than 10% of the value of the outstanding securities of any one issuer, subject to certain exceptions, including an exception with respect to certain debt instruments and corporations electing to be “taxable REIT subsidiaries.” The Trust is also required to distribute to its shareholders at least 90% of its REIT taxable income (excluding capital gains). The fact that the Trust holds most of its assets through CRLP further complicates the application of the REIT requirements. Even a technical or inadvertent mistake could jeopardize the Trust’s REIT status. Furthermore, Congress or the Internal Revenue Service might make changes to the tax laws and regulations, or the courts might issue new rulings that make it more difficult, or impossible, for the Trust to remain qualified as a REIT.
          
If the Trust fails to qualify as a REIT for federal income tax purposes, and is unable to avail itself of certain savings provisions set forth in the Code, the Trust would be subject to federal income tax at regular corporate rates. As a taxable corporation, the Trust would not be allowed to take a deduction for distributions to shareholders in computing its taxable income or pass through long term capital gains to individual shareholders at favorable rates. The Trust also could be subject to the federal alternative minimum tax and possibly increased state and local taxes. The Trust would not be able to elect to be taxed as a REIT for four years following the year it first failed to qualify unless the IRS were to grant it relief under certain statutory provisions. If the Trust failed to qualify as a REIT, it would have to pay significant income taxes, which would reduce its net earnings available for investment or distribution to its shareholders. This likely would have a significant adverse effect on the Trust’s earnings and the value of the Trust’s common shares and CRLP’s partnership units. In addition, the Trust would no longer be required to pay any distributions to shareholders and all distributions to shareholders would be taxable as ordinary C corporation dividends to the extent of the Trust's current and accumulated earnings and profits. If the Trust fails to qualify as a REIT for federal income tax purposes and is able to avail itself of one or more of the statutory savings provisions in order to maintain its REIT status, the Trust would nevertheless be required to pay penalty taxes of at least $50,000 or more for each such failure. Moreover, the Trust’s failure to qualify as a REIT also would cause an event of default under its credit facility and may adversely affect the Trust’s ability to raise capital and to service its debt.
          
Even if the Trust qualifies as a REIT, it will be required to pay some taxes (particularly related to the Trust’s taxable REIT subsidiary).
          
Even if the Trust qualifies as a REIT for federal income tax purposes, the Trust will be required to pay certain federal, state and local taxes on its income and property. For example, the Trust will be subject to income tax to the extent it distributes less than 100% of its REIT taxable income (including capital gains). Moreover, if the Trust has net income from “prohibited transactions,” that income will be subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of property held primarily for sale to customers in the ordinary course of business. The determination as to whether a particular sale is a prohibited transaction depends on the facts and circumstances related to that sale. However, the Trust will not be treated as a dealer in real property with respect to a property that it sells for the purposes of the 100% tax if (i) the Trust has held the property for at least two years for the production of rental income prior to the sale, (ii) capitalized expenditures on the property in the two years preceding the sale are less than 30% of the net selling price of the property, and (iii) the Trust either (a) has seven or fewer sales of property (excluding certain property obtained through foreclosure) for the year of sale or (b) the aggregate tax basis of property sold during the year of sale is 10% or less of the aggregate tax basis of all of the Trust’s assets as of the beginning of the taxable year or (c) the fair market value of the property sold during the year of sale is 10% or less of the aggregate fair market value of all of the Trust’s assets as of the beginning of the taxable year and in the case of (b) or (c), substantially all of the marketing and development expenditures with respect to the property sold are made through an independent contractor from whom the Trust derives no income. The sale of more than one property to one buyer as part of one transaction constitutes one sale for purposes of this “safe harbor”. The Trust intends to hold its properties, and CRLP intends to hold its properties, for investment with a view to long-term appreciation, to engage in the business of acquiring, developing, owning and operating properties, and to make occasional sales of properties as are consistent with our investment objectives. However, not all of the Trust’s sales will satisfy the “safe harbor” requirements described above. Furthermore, there are certain

29


interpretive issues related to the application of the “safe harbor” that are not free from doubt under the federal income tax law. While the Trust acquires and holds properties with an investment objective and does not believe they constitute dealer property, we cannot provide any assurance that the IRS might not contend that one or more of these sales are subject to the 100% penalty tax or that the IRS would not challenge our interpretation of, or any reliance on, the “safe harbor” provisions.
          
In addition, any net taxable income earned directly by the Trust’s taxable REIT subsidiaries, or through entities that are disregarded for federal income tax purposes as entities separate from the Trust’s taxable REIT subsidiaries, will be subject to federal and possibly state corporate income tax. The Trust has elected to treat CPSI as a taxable REIT subsidiary, and it may elect to treat other subsidiaries as taxable REIT subsidiaries in the future. In this regard, several provisions of the laws applicable to REITs and their subsidiaries ensure that a taxable REIT subsidiary will be subject to an appropriate level of federal income taxation. For example, a taxable REIT subsidiary is limited in its ability to deduct interest payments made to an affiliated REIT. In addition, the REIT has to pay a 100% penalty tax on some payments that it receives or on some deductions taken by the taxable REIT subsidiaries if the economic arrangements between the REIT, the REIT’s tenants, and the taxable REIT subsidiary are not comparable to similar arrangements between unrelated parties. Finally, some state and local jurisdictions may tax some of the Trust’s income even though as a REIT it is not subject to federal income tax on that income because not all states and localities treat REITs the same as they are treated for federal income tax purposes. To the extent that the Trust and its affiliates are required to pay federal, state and local taxes, the Trust will have less cash available for distributions to the Trust’s shareholders.

REIT distribution requirements may increase our indebtedness.
          
The Trust may be required from time to time, under certain circumstances, to accrue as income for tax purposes interest and rent earned but not yet received. In such event, or upon the Trust’s repayment of principal on debt, it could have taxable income without sufficient cash to enable us to meet the distribution requirements of a REIT. Accordingly, the Trust could be required to borrow funds or liquidate investments on adverse terms in order to meet these distribution requirements.
     
Tax elections regarding distributions may impact our future liquidity.
          
Under certain circumstances, the Trust may make a tax election to treat future distributions to shareholders as distributions in the current year. This election may allow the Trust to avoid increasing its dividends or paying additional income taxes in the current year. However, this could result in a constraint on the Trust’s ability to decrease its dividends in future years without creating risk of either violating the REIT distribution requirements or generating additional income tax liability.
       
Item 1B.
Unresolved Staff Comments.
None.

Item 2.
Properties.
General
As of December 31, 2012, our consolidated real estate portfolio consisted of 120 consolidated operating properties, including one property that was in lease-up as of December 31, 2012. In addition, we maintain non-controlling partial interests ranging from 10% to 50% in five properties held through unconsolidated joint ventures. These 125 properties, including consolidated and unconsolidated properties, are located in 11 states in the Sunbelt region of the United States.
Multifamily Properties
Our multifamily segment is comprised of 114 multifamily apartment communities, including 112 consolidated properties, of which 111 are wholly-owned and one is partially-owned, and two properties held through unconsolidated joint ventures, which properties contain, in the aggregate, a total of 34,497 apartments and range in size from 80 to 586 units. Each of the multifamily properties is established in its local market and provides residents with numerous amenities, which may include a swimming pool, fitness center, clubhouse, internet café, laundry room, tennis court(s) and/or a playground. We manage all of the multifamily properties.



30


The following table sets forth certain additional information relating to the consolidated multifamily properties as of and for the year ended December 31, 2012.
Consolidated Multifamily Properties
Consolidated Multifamily Property (1)
 
Location
 
Year Completed (2)
 
Number of Units (3)
 
Approximate Rentable Area(Square Feet)
 
Percent Occupied
 
Average Rental Rate Per Unit (4)
Alabama:
 
 
 
 
 
 
 
 
 
 
 
 
 CG at Liberty Park
 
 Birmingham
 
2000
 
300

 
349,282

 
92.7
%
 
$
1,049

 CG at Riverchase Trails
 
 Birmingham
 
1996
 
346

 
337,803

 
97.7
%
 
767

 CV at Inverness
 
 Birmingham
 
1986/87/90/97
 
586

 
508,472

 
93.5
%
 
597

 CV at Trussville
 
 Birmingham
 
1996
 
376

 
413,664

 
93.4
%
 
761

 CG at Traditions
 
 Gulf Shores
 
2008
 
324

 
324,869

 
96.0
%
 
635

 Cypress Village Rental
 
 Gulf Shores
 
2008
 
96

 
212,508

 
96.9
%
 
1,233

 CG at Edgewater
 
 Huntsville
 
1990/99
 
500

 
552,993

 
92.0
%
 
710

 CG at Madison
 
 Huntsville
 
1999
 
336

 
361,202

 
96.4
%
 
764

 CV at Ashford Place
 
 Mobile
 
1983
 
168

 
148,400

 
97.0
%
 
568

 CV at Huntleigh Woods
 
 Mobile
 
1978
 
233

 
201,532

 
93.6
%
 
537

Subtotal — Alabama
 
 
 
 
 
3,265

 
3,410,725

 
94.5
%
 
725

Arizona:
 
 
 
 
 
 
 
 
 
 
 
 
CG at Inverness Commons
 
 Phoenix
 
2002
 
300

 
314,539

 
97.0
%
 
728

CG at OldTown Scottsdale North
 
 Phoenix
 
1995
 
208

 
209,124

 
97.1
%
 
857

CG at OldTown Scottsdale South
 
 Phoenix
 
1994
 
264

 
267,868

 
94.3
%
 
882

CG at Scottsdale
 
 Phoenix
 
1999
 
180

 
207,204

 
93.3
%
 
954

Subtotal — Arizona
 
 
 
 
 
952

 
998,735

 
95.6
%
 
842

Florida:
 
 
 
 
 
 
 
 
 
 
 
 
CG at Heather Glen
 
 Orlando
 
2000
 
448

 
532,666

 
95.1
%
 
1,015

CG at Heathrow
 
 Orlando
 
1997
 
312

 
356,550

 
93.3
%
 
952

CG at Lake Mary
 
 Orlando
 
2012
 
232

 
242,463

 
94.0
%
 
1,145

CG at Town Park
 
 Orlando
 
2002
 
456

 
538,909

 
94.1
%
 
1,036

CG at Town Park Reserve
 
 Orlando
 
2004
 
80

 
89,455

 
96.3
%
 
1,094

CV at Twin Lakes
 
 Orlando
 
2004
 
460

 
420,586

 
95.0
%
 
817

CG at Lakewood Ranch
 
 Sarasota
 
1999
 
288

 
309,757

 
98.6
%
 
1,055

CG at Hampton Preserve
 
 Tampa
 
2012
 
486

 
520,768

 
95.5
%
 
986

CG at Seven Oaks
 
 Tampa
 
2004
 
318

 
307,280

 
97.5
%
 
896

Subtotal — Florida
 
 
 
 
 
3,080

 
3,318,434

 
95.3
%
 
968

Georgia:
 
 
 
 
 
 
 
 
 
 
 
 
CG at Barrett Creek
 
 Atlanta
 
1999
 
332

 
312,957

 
97.3
%
 
774

CG at Berkeley Lake
 
 Atlanta
 
1998
 
180

 
249,438

 
96.7
%
 
906

CG at McDaniel Farm
 
 Atlanta
 
1997
 
425

 
457,525

 
97.6
%
 
760

CG at Mount Vernon
 
 Atlanta
 
1997
 
213

 
262,032

 
97.7
%
 
1,066

CG at Pleasant Hill
 
 Atlanta
 
1996
 
502

 
507,755

 
98.4
%
 
735

CG at River Oaks
 
 Atlanta
 
1992
 
216

 
282,456

 
99.1
%
 
861

CG at River Plantation
 
 Atlanta
 
1994
 
232

 
331,351

 
98.3
%
 
846

CG at Shiloh
 
 Atlanta
 
2002
 
498

 
544,737

 
94.0
%
 
812

CG at Godley Station
 
 Savannah
 
2005
 
312

 
341,423

 
95.8
%
 
859

CG at Hammocks
 
 Savannah
 
1997
 
308

 
329,760

 
96.8
%
 
964

CV at Godley Lake
 
 Savannah
 
2008
 
288

 
273,308

 
98.3
%
 
819

CV at Greentree
 
 Savannah
 
1983
 
194

 
168,730

 
94.3
%
 
663

CV at Huntington
 
 Savannah
 
1986
 
147

 
126,267

 
96.6
%
 
750

CV at Marsh Cove
 
 Savannah
 
1983
 
188

 
202,150

 
94.7
%
 
781

Subtotal — Georgia
 
 
 
 
 
4,035

 
4,389,889

 
96.8
%
 
820

Nevada:
 
 
 
 
 
 
 
 
 
 
 
 
 CG at Desert Vista
 
 Las Vegas
 
2008
 
380

 
343,710

 
92.9
%
 
722

 CG at Palm Vista
 
 Las Vegas
 
2007
 
341

 
355,321

 
97.1
%
 
746

Subtotal — Nevada
 
 
 
 
 
721

 
699,031

 
94.9
%
 
734

North Carolina:
 
 
 
 
 
 
 
 
 
 
 
 
 CV at Pinnacle Ridge
 
 Asheville
 
1948/85
 
166

 
150,632

 
98.2
%
 
733

 CG at Ayrsley
 
 Charlotte
 
2008
 
368

 
387,075

 
98.1
%
 
856

 CG at Beverly Crest
 
 Charlotte
 
1996
 
300

 
287,574

 
93.7
%
 
782

 CG at Cornelius
 
 Charlotte
 
2007
 
236

 
256,199

 
97.5
%
 
868

 CG at Huntersville
 
 Charlotte
 
2008
 
250

 
255,937

 
94.8
%
 
873

 CG at Legacy Park
 
 Charlotte
 
2001
 
288

 
306,139

 
98.3
%
 
775


31


Consolidated Multifamily Property (1)
 
Location
 
Year Completed (2)
 
Number of Units (3)
 
Approximate Rentable Area(Square Feet)
 
Percent Occupied
 
Average Rental Rate Per Unit (4)
 CG at Mallard Creek
 
 Charlotte
 
2004
 
252

 
242,439

 
97.2
%
 
807

 CG at Mallard Lake
 
 Charlotte
 
1998
 
302

 
306,211

 
98.7
%
 
824

 CG at Matthews Commons
 
 Charlotte
 
2008
 
216

 
206,314

 
98.6
%
 
893

 CG at University Center
 
 Charlotte
 
2005
 
156

 
176,142

 
97.4
%
 
791

 CV at Chancellor Park
 
 Charlotte
 
1999
 
340

 
333,797

 
96.2
%
 
737

 CV at Charleston Place
 
 Charlotte
 
1986
 
214

 
176,107

 
98.6
%
 
563

 CV at Greystone
 
 Charlotte
 
1998/2000
 
408

 
396,810

 
96.8
%
 
641

 CV at Matthews
 
 Charlotte
 
1990
 
270

 
262,326

 
97.8
%
 
780

 CV at South Tryon
 
 Charlotte
 
2002
 
216

 
239,478

 
97.2
%
 
729

 CV at Stone Point
 
 Charlotte
 
1986
 
192

 
175,695

 
96.9
%
 
678

 CV at Timber Crest
 
 Charlotte
 
1999
 
282

 
278,290

 
97.5
%
 
657

 Enclave
 
 Charlotte
 
2008
 
85

 
146,614

 
96.5
%
 
1,633

 CG at Autumn Park
 
 Greensboro
 
2001/04
 
402

 
420,319

 
93.3
%
 
774

 CG at Arringdon
 
 Raleigh
 
2003
 
320

 
315,198

 
98.1
%
 
836

 CV at Beaver Creek
 
 Raleigh
 
2000/2003
 
316

 
315,533

 
95.9
%
 
810

 CG at Brier Creek
 
 Raleigh
 
2009
 
364

 
406,668

 
98.4
%
 
932

 CG at Brier Falls
 
 Raleigh
 
2008
 
350

 
389,508

 
96.3
%
 
991

 CG at Crabtree Valley
 
 Raleigh
 
1997
 
210

 
215,938

 
93.8
%
 
765

 CG at Patterson Place
 
 Raleigh
 
1997
 
252

 
246,482

 
98.0
%
 
842

 CG at Research Park
 
 Raleigh
 
2002
 
370

 
384,512

 
94.1
%
 
819

 CG at Trinity Commons
 
 Raleigh
 
2000/2002
 
462

 
493,836

 
94.8
%
 
806

 CV at Deerfield
 
 Raleigh
 
1985
 
204

 
202,165

 
95.6
%
 
799

 CV at Woodlake
 
 Raleigh
 
1996
 
266

 
259,892

 
94.7
%
 
718

 CG at Wilmington
 
 Wilmington
 
1998/2002
 
390

 
365,272

 
94.4
%
 
728

 CV at Mill Creek
 
 Winston-Salem
 
1984
 
220

 
213,770

 
90.5
%
 
543

 Glen Eagles
 
 Winston-Salem
 
1990/2000
 
310

 
322,390

 
93.2
%
 
620

Subtotal — North Carolina
 
 
 
 
 
8,977

 
9,135,262

 
96.2
%
 
785

South Carolina:
 
 
 
 
 
 
 
 
 
 

 
 
 CG at Commerce Park
 
 Charleston
 
2008
 
312

 
311,420

 
91.7
%
 
830

 CG at Cypress Cove
 
 Charleston
 
2001
 
264

 
308,981

 
95.8
%
 
950

 CG at Quarterdeck
 
 Charleston
 
1986
 
230

 
221,668

 
99.6
%
 
968

 CV at Hampton Pointe
 
 Charleston
 
1986
 
304

 
318,450

 
96.4
%
 
792

 CV at Waters Edge
 
 Charleston
 
1985
 
204

 
190,360

 
95.1
%
 
693

 CV at Westchase
 
 Charleston
 
1986
 
352

 
260,930

 
97.2
%
 
641

 CV at Windsor Place
 
 Charleston
 
1984
 
224

 
216,165

 
95.5
%
 
691

Subtotal — South Carolina
 
 
 
 
 
1,890

 
1,827,974

 
95.8
%
 
797

Tennessee:
 
 
 
 
 
 
 
 
 
 
 
 
CG at Bellevue
 
Nashville
 
1996
 
349

 
356,407

 
99.1
%
 
945

Subtotal — Tennessee
 
 
 
 
 
349

 
356,407

 
99.1
%
 
945

Texas:
 
 
 
 
 
 
 
 
 
 

 
 
 CG at Ashton Oaks
 
 Austin
 
2008
 
362

 
313,704

 
95.3
%
 
799

 CG at Canyon Creek
 
 Austin
 
2007
 
336

 
358,568

 
94.0
%
 
874

 CG at Canyon Ranch
 
 Austin
 
2003
 
272

 
262,240

 
98.5
%
 
870

 CG at Onion Creek
 
 Austin
 
2008
 
300

 
322,162

 
95.0
%
 
974

 CG at Round Rock
 
 Austin
 
2007
 
422

 
439,723

 
94.3
%
 
891

 CG at Silverado
 
 Austin
 
2004
 
238

 
253,101

 
95.4
%
 
849

 CG at Silverado Reserve
 
 Austin
 
2006
 
256

 
276,469

 
94.5
%
 
959

 CG at Wells Branch
 
 Austin
 
2007
 
336

 
329,027

 
94.6
%
 
900

 CV at Quarry Oaks
 
 Austin
 
1996
 
533

 
468,610

 
95.3
%
 
764

 CV at Sierra Vista
 
 Austin
 
1999
 
232

 
210,251

 
97.8
%
 
726

 CG at Bear Creek
 
 Dallas/Fort Worth
 
1998
 
436

 
411,210

 
97.5
%
 
826

 CG at Fairview (5)
 
 Dallas/Fort Worth
 
2012
 
256

 
258,016

 
LU

 
LU

 CG at Hebron
 
 Dallas/Fort Worth
 
2011
 
312

 
355,526

 
98.4
%
 
1,118

 CG at Valley Ranch
 
 Dallas/Fort Worth
 
1995
 
396

 
477,088

 
96.2
%
 
1,088

 CR at Las Colinas
 
 Dallas/Fort Worth
 
2006
 
306

 
277,949

 
91.2
%
 
1,179

 CR at Medical District
 
 Dallas/Fort Worth
 
2007
 
278

 
256,824

 
93.5
%
 
1,059

 CV at Grapevine
 
 Dallas/Fort Worth
 
1985
 
450

 
395,202

 
96.9
%
 
713

 CV at Main Park
 
 Dallas/Fort Worth
 
1984
 
192

 
184,030

 
95.3
%
 
713

 CV at North Arlington
 
 Dallas/Fort Worth
 
1985
 
240

 
196,805

 
92.9
%
 
577

 CV at Oakbend
 
 Dallas/Fort Worth
 
1997
 
426

 
400,237

 
94.8
%
 
767


32


Consolidated Multifamily Property (1)
 
Location
 
Year Completed (2)
 
Number of Units (3)
 
Approximate Rentable Area(Square Feet)
 
Percent Occupied
 
Average Rental Rate Per Unit (4)
 CV at Shoal Creek
 
 Dallas/Fort Worth
 
1996
 
408

 
389,483

 
96.6
%
 
796

 CV at Vista Ridge
 
 Dallas/Fort Worth
 
1985
 
300

 
242,077

 
93.7
%
 
619

 CV at Willow Creek
 
 Dallas/Fort Worth
 
1996
 
478

 
433,534

 
97.9
%
 
734

 Remington Hills
 
 Dallas/Fort Worth
 
1985