Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and notes appearing elsewhere in this report. Historical results and trends which might appear in the consolidated financial statements should not be interpreted as being indicative of future operations.

We consider portions of this report to be “forward-looking” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended, with respect to our expectations for future periods. Forward-looking statements do not discuss historical fact, but instead include statements related to expectations, projections, intentions, or other items relating to the future; forward-looking statements are not guarantees of future performances, results, or events. Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, we can give no assurance our expectations will be achieved. Any statements contained herein which are not statements of historical fact should be deemed forward-looking statements. Reliance should not be placed on these forward-looking statements as they are subject to known and unknown risks, uncertainties, and other factors beyond our control and could differ materially from our actual results and performance.

Factors that may cause our actual results or performance to differ materially from those contemplated by forward-looking statements include, but are not limited to, the following:

	•		volatility in capital and credit markets, or other unfavorable changes in economic conditions could adversely impact us;

	•		short-term leases expose us to the effects of declining market rents;

	•		we face risks associated with land holdings and related activities;

	•		difficulties of selling real estate could limit our flexibility;

	•		we could be negatively impacted by the condition of Fannie Mae or Freddie Mac;

	•		compliance or failure to comply with laws requiring access to our properties by disabled persons could result in substantial cost;

	•		competition could limit our ability to lease apartments or increase or maintain rental income;

	•		development and construction risks could impact our profitability;

	•		our acquisition strategy may not produce the cash flows expected;

	•		competition could adversely affect our ability to acquire properties;

	•		losses from catastrophes may exceed our insurance coverage;

	•		investments through joint ventures involve risks not present in investments in which we are the sole investor;

	•		we face risks associated with investments in and management of discretionary funds;

	•		we depend on our key personnel;

	•		changes in litigation risks could affect our business;

	•		tax matters, including failure to qualify as a REIT, could have adverse consequences;

	•		insufficient cash flows could limit our ability to make required payments for debt obligations or pay distributions to shareholders;

	•		we have significant debt, which could have important adverse consequences;

	•		we may be unable to renew, repay, or refinance our outstanding debt;

	•		variable rate debt is subject to interest rate risk;

	•		we may incur losses on interest rate hedging arrangements;

	•		issuances of additional debt may adversely impact our financial condition;

	•		failure to maintain our current credit ratings could adversely affect our cost of funds, related margins, liquidity, and access to capital markets;

	•		share ownership limits and our ability to issue additional equity securities may prevent takeovers beneficial to shareholders;

	•		our share price will fluctuate; and

	•		the form, timing and/or amount of dividend distributions in future periods may vary and be impacted by economic or other considerations.

These forward-looking statements represent our estimates and assumptions as of the date of this report, and we assume no obligation to update or supplement forward-looking statements because of subsequent events.

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Executive Summary

We are primarily engaged in the ownership, management, development, acquisition and construction of multifamily apartment communities. As of December 31, 2010, we owned interests in, operated, or were developing 188 multifamily properties comprising 63,923 apartment homes across the United States as detailed in the following Property Portfolio table. In addition, we own other land parcels we may develop into multifamily apartment communities.

The U.S. economy has experienced a significant recession. Record levels of job losses and higher unemployment rates negatively impacted our business, particularly in the latter half of 2008 through the first quarter of 2010, when we experienced declines in both rental rates and occupancy levels. Despite unemployment rates remaining at high levels, our results for the most recent three quarters reflect sequential rental revenue growth as well as an increase in rental revenue growth for the three months ended December 31, 2010 as compared to the same period in 2009, primarily due to improvements in rental rates and slight improvements in average occupancy levels. We believe these improvements may be due in part to the continued decline in home ownership rates and the limited supply of new rental housing. We expect improvements in rental rates and occupancy to continue in 2011 and believe sustained revenue growth will depend on, among other things, the timing and extent of employment growth, supply levels of new multifamily housing, and the continuation of the decline in home ownership rates.

In 2010, we acquired three multifamily properties, totaling 686 units, for an aggregate of approximately $63.0 million on behalf of one of our discretionary investment funds in which we have a 20% ownership interest. Additionally, we restructured three of our joint ventures, which collectively own an aggregate of 1,069 units, resulting in our acquiring a controlling ownership interest in each joint venture.

During the second half of 2010, we began construction on two development projects, comprised of approximately 607 units; initial occupancy is expected in the last half of 2011. As of December 31, 2010, we intend to incur approximately $57.2 million of additional costs on these projects. We expect to fund these amounts through available cash balances and draws upon our unsecured line of credit. We expect to start several additional development projects currently held in our development pipeline in 2011 and are evaluating additional development projects to commence during fiscal year 2011 and beyond.

During the fourth quarter of 2010, we received net proceeds of approximately $101.9 million and recognized a gain of approximately $9.6 million from the sale of two operating properties, containing 1,066 apartment homes to unaffiliated third parties.

Subject to market conditions, we intend to continue to look for opportunities to develop and acquire existing communities through the Funds, expand our development pipeline, and complete selective dispositions. We also intend to continue to focus on strengthening our capital and liquidity positions by generating positive cash flows from operations, reducing outstanding debt and leverage ratios, and controlling overhead costs. We intend to meet our liquidity requirements through available cash balances, cash flows generated from operations, draws on our unsecured credit facility, proceeds from property dispositions and secured mortgage notes, and the use of debt and equity offerings under our automatic shelf registration statement.

As of December 31, 2010, we had approximately $170.6 million in cash and cash equivalents and no balances outstanding on our $500 million unsecured line of credit. We have approximately $154.4 million of debt maturities in 2011, excluding scheduled principal amortizations. We believe we are well-positioned with a strong balance sheet and sufficient liquidity to cover near-term debt maturities and new development funding requirements. We will, however, continue to assess and take further actions where prudent to meet our objectives and capital requirements.

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Property Portfolio

Our multifamily property portfolio, excluding land held for future development, is summarized as follows:

		December 31, 2010								December 31, 2009
		Apartment								Apartment
		Homes				Properties				Homes				Properties
Operating Properties
Las Vegas, Nevada			8,016				29				8,016				29
Houston, Texas (1)			6,967				19				6,289				16
Washington, D.C. Metro (2)			5,604				16				6,068				17
Dallas, Texas			5,517				14				6,119				15
Tampa, Florida			5,503				12				5,503				12
Charlotte, North Carolina			3,574				15				3,574				15
Orlando, Florida			3,557				9				3,557				9
Atlanta, Georgia			3,312				11				3,202				10
Raleigh, North Carolina			2,704				7				2,704				7
Southeast Florida			2,520				7				2,520				7
Los Angeles/Orange County, California (3)			2,481				6				2,481				6
Austin, Texas			2,454				8				2,454				8
Phoenix, Arizona			2,433				8				2,433				8
Denver, Colorado			2,171				7				2,171				7
San Diego/Inland Empire, California			1,196				4				1,196				4
Other			5,307				14				4,999				13
Total Operating Properties			63,316				186				63,286				183
Properties Under Development
Orlando, Florida			420				1				—				—
Washington, D.C. Metro			187				1				—				—
Houston, Texas			—				—				372				2
Total Properties Under Development			607				2				372				2
Total Properties			63,923				188				63,658				185
Less: Unconsolidated Joint Venture Properties (4)
Las Vegas, Nevada			4,047				17				4,047				17
Houston, Texas			1,981				6				1,946				6
Phoenix, Arizona			992				4				992				4
Austin, Texas			601				2				601				2
Dallas, Texas			456				1				456				1
Los Angeles/Orange County, California			421				1				711				2
Denver, Colorado			320				1				320				1
Atlanta, Georgia			110				1				—				—
Washington, D. C. Metro			—				—				508				1
Other			3,507				10				3,237				9
Total Joint Venture Properties			12,435				43				12,818				43
Total Properties Fully-Consolidated			51,488				145				50,840				142

(1)		Includes two fully-consolidated joint ventures Camden Travis Street, a fully-consolidated joint venture, of which we retain a 25% ownership, and Camden Plaza of which we retain a 99.99% ownership.
(2)		Includes Camden College Park, a fully-consolidated joint venture, of which we retain a 99.99% ownership.
(3)		Includes Camden Main and Jamboree, a fully-consolidated joint venture, of which we retain a 99.99% ownership.
(4)		Refer to Note 8, “Investments in Joint Ventures,” of the Notes to Consolidated Financial Statements for further discussion of our unconsolidated joint venture investments.

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Stabilized Communities

We generally consider a property stabilized once it reaches 90% occupancy at the beginning of a period. During the year ended December 31, 2010, stabilization was achieved at four recently completed development properties as follows:

		Number of				Date of
		Apartment				Construction				Date of
Property and Location		Homes				Completion				Stabilization
Camden Dulles Station Oak Hill, VA			366				1Q09				2Q10
Camden Amber Oaks — joint venture Austin, TX			348				2Q09				2Q10
Camden Travis Street (1) Houston, TX			253				1Q10				3Q10
Belle Meade — joint venture Houston, TX			119				1Q10				4Q10

(1)		Camden Travis Street is a fully-consolidated joint venture, of which we retain a 25% ownership

Partial Sales and Dispositions to Joint Ventures Included in Continuing Operations

There were no partial sales or dispositions to joint ventures for the years ended December 31, 2010 or 2009.

In March 2008, we sold a development community in Austin, Texas, to one of the Funds for approximately $8.9 million. No gain or loss was recognized on the sale. In August 2008, we sold a stabilized community to the same Fund for approximately $44.2 million and recognized a gain of approximately $1.8 million on the sale.

Discontinued Operations

We intend to maintain a long-term strategy of managing our invested capital through the selective sale of properties and to utilize the proceeds to reduce our outstanding debt and leverage ratios and fund investments with higher anticipated growth prospects in our markets. Income from discontinued operations includes the operations of properties sold during the year ended December 31, 2010. The components of earnings classified as discontinued operations include separately identifiable property-specific revenues, expenses, depreciation, and interest expense, if any. Any gain or loss on the disposal of the properties held for sale is also classified as discontinued operations.

A summary of our 2010 dispositions is as follows:

		Number of
		Apartment				Date of				Year Placed in
Property and Location		Homes				Disposition				Service
Camden Westwind Ashburn, VA			464				4Q10				2006
Camden Oasis Euless, TX			602				4Q10				1986

During the fourth quarter of 2010, we received net proceeds of approximately $101.9 million and recognized a gain of approximately $9.6 million from the sale of the two operating properties above, containing 1,066 apartment homes, to unaffiliated third parties. During the year ended December 31, 2009, we received net proceeds of approximately $28.0 million and recognized a gain of approximately $16.9 million from the sale of one operating property containing 671 apartment homes to an unaffiliated third party. During the year ended December 31, 2008, we received net proceeds of approximately $121.7 million and recognized gains of approximately $80.2 million from the sales of eight operating properties, containing 2,392 apartment homes, to unaffiliated third parties.

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During the year ended December 31, 2010, we recognized a gain of approximately $0.2 million from the sale of land in Houston, Texas. During the year ended December 31, 2008, we recognized a gain of approximately $1.1 million from the sale of land adjacent to our regional office in Las Vegas, Nevada. The gains on these sales were not included in discontinued operations as the operations and cash flows of these assets were not clearly distinguished, operationally or for reporting purposes, from the adjacent assets.

Development and Lease-Up Properties

We did not have any consolidated properties in lease-up at December 31, 2010.

At December 31, 2010, we had two consolidated properties under construction as follows:

														Included in				Estimated
		Number of												Properties				Date of				Estimated
($ in millions)		Apartment				Estimated				Cost				Under				Construction				Date of
Property and Location		Homes				Cost				Incurred				Development				Completion				Stabilization
Camden Lake Nona Orlando, FL			420			$	61.0			$	28.6			$	28.6				2Q12				3Q14
Camden Summerfield II Landover, MD			187				32.0				7.2				7.2				1Q12				4Q12
Total			607			$	93.0			$	35.8			$	35.8

Our consolidated balance sheet at December 31, 2010 included approximately $206.9 million related to properties under development and land. Of this amount, approximately $35.8 million related to our projects currently under development. In addition, we had approximately $171.1 million primarily invested in land held for future development, which includes approximately $95.6 million related to projects we expect to begin constructing during the next two years, and approximately $75.5 million invested in land tracts for which we may begin developing in the future.

At December 31, 2010, we had investments in unconsolidated joint ventures which were developing the following multifamily communities:

						Number of				Total				% Leased
($ in millions)						Apartment				Cost				At
Property and Location		Ownership %				Homes				Incurred				1/30/11
Completed Communities _(1) _
Braeswood Place_ Houston, TX_			72	%			340			$	50.4				91	%
Camden Ivy Hall_ Atlanta, GA_			20	%			110				16.9				68	%
							450			$	67.3
Pre-Development (2)						Total Acres
Lakes at 610_ Houston, TX_			30	%			6.1			$	7.4				N/A
Total Pre-Development							6.1			$	7.4

(1)		Properties in lease-up as of December 31, 2010.
(2)		Properties in pre-development by joint venture partner.

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Refer to Note 8, “Investments in Joint Ventures” of the Notes to Consolidated Financial Statements for further discussion of our unconsolidated joint venture investments.

Geographic Diversification

At December 31, 2010 and 2009, our investments in various geographic areas, excluding both depreciation and investments in joint ventures were as follows:

(in thousands)		2010								2009
Washington, D.C. Metro		$	1,214,165				21.5	%		$	1,193,269				21.9	%
Southeast Florida			456,127				8.1				453,021				8.3
Houston, Texas			432,697				7.7				389,848				7.1
Los Angeles/Orange County, California			426,527				7.5				332,414				6.1
Tampa, Florida			404,718				7.2				393,377				7.2
Orlando, Florida			381,642				6.8				371,862				6.8
Dallas, Texas			329,222				5.8				345,814				6.3
Atlanta, Georgia			322,741				5.7				320,748				5.9
Charlotte, North Carolina			321,838				5.7				318,493				5.8
Las Vegas, Nevada			311,186				5.5				308,054				5.6
Raleigh, North Carolina			239,840				4.2				237,284				4.4
San Diego/Inland Empire, California			227,784				4.0				227,108				4.2
Denver, Colorado			189,644				3.4				187,544				3.4
Austin, Texas			155,714				2.8				154,473				2.8
Phoenix, Arizona			119,826				2.1				118,828				2.2
Other			114,006				2.0				109,489				2.0
Total		$	5,647,677				100.0	%		$	5,461,626				100.0	%

Results of Operations

Changes in revenues and expenses related to our operating properties from period to period are due primarily to the performance of stabilized properties in the portfolio, the lease-up of newly constructed properties, acquisitions, and dispositions. Where appropriate, comparisons of income and expense on communities included in continuing operations are made on a dollars-per-weighted average apartment home basis in order to adjust for such changes in the number of apartment homes owned during each period. Selected weighted averages for the years ended December 31 are as follows:

		2010				2009				2008
Average monthly property revenue per apartment home		$	1,021			$	1,036			$	1,058
Annualized total property expenses per apartment home		$	4,970			$	4,920			$	4,862
Weighted average number of consolidated operating apartment homes			49,801				49,206				48,246
Weighted average occupancy of consolidated operating apartment homes			93.4	%			94.6	%			93.9	%

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Property-level operating results

The following tables present the property-level revenues and property-level expenses, excluding discontinued operations, for the year ended December 31, 2010 as compared to 2009 and for the year ended December 31, 2009 as compared to 2008:

		Apartment				Year Ended
		Homes				December 31,								Change
($ in thousands)		at 12/31/10				2010				2009				$				%
Property revenues:
Same store communities			46,293			$	557,542			$	568,926			$	(11,384	)			(2.0	)%
Non-same store communities			4,588				48,596				38,265				10,331				27.0
Development and lease-up communities			607				—				—				—				—
Other			—				4,266				4,819				(553	)			(11.5	)
Total property revenues			51,488			$	610,404			$	612,010			$	(1,606	)			(0.3	)%
Property expenses:
Same store communities			46,293			$	223,528			$	222,689			$	839				0.4	%
Non-same store communities			4,588				18,987				15,954				3,033				19.0
Development and lease-up communities			607				—				—				—				—
Other			—				4,985				3,428				1,557				45.4
Total property expenses			51,488			$	247,500			$	242,071			$	5,429				2.2	%

Same store communities are communities we owned and which were stabilized as of January 1, 2009. Non-same store communities are stabilized communities we have acquired, developed, or re-developed after January 1, 2009. Development and lease-up communities are non-stabilized communities we have acquired or developed after January 1, 2009. Other includes results from non-multifamily rental properties and expenses relating to land holdings no longer under active development.

		Apartment				Year Ended
		Homes				December 31,								Change
($in thousands)		at 12/31/09				2009				2008				$				%
Property revenues:
Same store communities			41,604			$	505,907			$	522,748			$	(16,841	)			(3.2	)%
Non-same store communities			7,551				96,840				81,034				15,806				19.5
Development and lease-up communities			619				4,527				1,213				3,314				273.2
Other			—				4,736				7,413				(2,677	)			(36.1	)
Total property revenues			49,774			$	612,010			$	612,408			$	(398	)			(0.1	)%
Property expenses:
Same store communities			41,604			$	198,685			$	195,242			$	3,443				1.8	%
Non-same store communities			7,551				37,985				34,201				3,784				11.1
Development and lease-up communities			619				2,028				515				1,513				293.8
Other			—				3,373				4,636				(1,263	)			(27.2	)
Total property expenses			49,774			$	242,071			$	234,594			$	7,477				3.2	%

Same store communities are communities we owned and which were stabilized as of January 1, 2008. Non-same store communities are stabilized communities we have acquired, developed, or re-developed after January 1, 2008. Development and lease-up communities are non-stabilized communities we have developed or acquired after January 1, 2008. Other includes results from non-multifamily rental properties and expenses relating to land holdings no longer under active development.

Same store analysis:

Same store property revenues for the year ended December 31, 2010 decreased approximately $11.4 million, or 2.0%, from 2009. Same store rental revenues decreased approximately $11.8 million for the year ended December 31, 2010 as compared to 2009, primarily due to a 2.3% decline in average rental rates from 2009 for our same store portfolio during 2010, partially offset by a slight increase in average occupancy. The decline in average rental rates was due to the continuation of the recession through the first quarter of 2010, offset by improving rental rates and slight improvements in average occupancy levels for the most recent three quarters which we believe is due in part to the continued decline in home ownership rates and the limited supply of new rental housing. The decrease was also partially offset by a $0.4 million increase in other property revenue primarily due to increases from our utility rebilling programs.

Same store property revenues for the year ended December 31, 2009 decreased approximately $16.8 million, or 3.2%, from 2008. Same store rental revenues decreased approximately $23.9 million, or 5.2%, from 2008 due to a slight decline in average occupancy and a 5.0% decline in average rental rates for our same store portfolio due to, among other factors, the challenges within the multifamily industry resulting from a significant recession experienced within the U.S. This decrease was partially offset by an approximate $7.1 million increase in other property revenue primarily due to the continued rollout of our utility rebilling programs.

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Property expenses from our same store communities increased approximately $0.8 million, or 0.4%, for the year ended December 31, 2010, as compared to 2009. The increase was primarily due to expenses related to our utility rebilling programs discussed above, higher salaries, and increases in property insurance and repair and maintenance costs. These increases were partially offset by lower real estate taxes as a result of declining rates and valuations at a number our communities. Excluding the expenses associated with our utility rebilling programs, same store property expenses for 2010 decreased approximately $0.8 million, or 0.4%, from 2009.

Property expenses from our same store communities increased approximately $3.4 million, or 1.8%, for the year ended December 31, 2009, as compared to 2008. This increase was primarily due to expenses related to our utility rebilling programs discussed above and increases in property insurance costs. This increase was partially offset by lower property taxes resulting from declining rates and valuations at a number of our communities, and lower repair and maintenance, and marketing and leasing, expenses. Excluding the expenses associated with our utility rebilling programs, same store property expenses for 2009 declined approximately $0.2 million, or 0.1% from 2008.

Non-same store and development and lease-up analysis:

Property revenues from non-same store and development and lease-up communities increased approximately $10.3 million for the year ended December 31, 2010 as compared to 2009 and increased approximately $19.1 million for the year ended December 31, 2009 as compared to 2008. The increase in 2010 as compared to 2009 was primarily due to seven consolidated properties in our development and re-development pipelines reaching stabilization during 2009 and 2010, in addition to approximately $2.6 million of revenues recognized in the second half of 2010 related to three newly consolidated joint ventures as more fully described in Note 7, “Property Acquisitions, Discontinued Operations, and Impairments.” The increase in 2009 as compared to 2008 was primarily due to nine consolidated properties in our development and re-development pipelines reaching stabilization during 2008 and 2009.

Property expenses from non-same store and development and lease-up communities increased approximately $3.0 million for the year ended December 31, 2010 as compared to 2009 and increased approximately $5.3 million for 2009 as compared to 2008. The increases in both periods were due to a number of consolidated properties in our development and re-development pipelines reaching stabilization as discussed above. The increase in 2010 was also due to approximately $1.1 million of expenses recognized in the second half of 2010 related to three newly consolidated joint ventures as more fully described in Note 7, “Property Acquisitions, Discontinued Operations, and Impairments.”

Other property analysis:

Other property revenues decreased approximately $0.6 million and $2.7 million for the year ended December 31, 2010 as compared to 2009 and for the year ended December 31, 2009 as compared to 2008, respectively. The decrease for 2009 as compared to 2008 was primarily due to the sale of one of our communities to one of the Funds in 2008.

Other property expenses increased approximately $1.6 million for the year ended December 31, 2010 as compared to 2009 and decreased $1.3 million for the year ended December 31, 2009 as compared to 2008, respectively. The increases in 2010 as compared to 2009 primarily related to increases in property taxes expensed on land holdings for eight projects for which we decided in 2009 to postpone development. As a result, we ceased capitalization of expenses, including property taxes. The decrease in 2009 as compared to 2008 was primarily due to costs we incurred related to Hurricane Ike in September 2008.

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Non-property income

		Year Ended																Year Ended
		December 31,								Change								December 31,								Change
($ in thousands)		2010				2009				$				%				2009				2008				$				%
Fee and asset management		$	8,172			$	8,008			$	164				2.0	%		$	8,008			$	9,167			$	(1,159	)			(12.6	)%
Interest and other income			8,584				2,826				5,758				203.8				2,826				4,736				(1,910	)			(40.3	)
Income (loss) on deferred compensation plans			11,581				14,609				(3,028	)			(20.7	)			14,609				(33,443	)			48,052				*
Total non-property income (loss)		$	28,337			$	25,443			$	2,894				(11.4	)%		$	25,443			$	(19,540	)		$	44,983				—	%*

*		Not a meaningful percentage.

Fee and asset management income, which represents income related to asset management, third-party construction and development projects and property management, increased approximately $0.2 million for the year ended December 31, 2010 as compared to 2009 and decreased approximately $1.2 million for the year ended December 31, 2009 as compared to 2008. The increase for 2010 was primarily related to an increase in third-party construction activities, offset by decreases in development and construction fees earned on our development joint ventures as compared to 2009 due to the completion of construction activities during 2009 and 2010. The increase was further offset by decreases in fees earned on our stabilized joint ventures due to declines in property revenues. The decrease for 2009 was primarily related to overall declines in development and construction fees earned on our development joint ventures in 2009 as compared to 2008 due to the completion of the associated construction activities at several joint venture communities in 2008 and 2009. The decrease in 2009 was partially offset by an increase in third-party construction activities in 2009.

Interest and other income increased approximately $5.8 million for 2010 as compared to 2009 and decreased approximately $1.9 million for 2009 as compared to 2008. The increase for 2010 was primarily due to the recognition of approximately $2.7 million of other income resulting from indemnification provisions in an operating joint venture agreement which expired in January 2010, and recognition of approximately $4.2 million of other income as a result of the dissolution of a joint venture and purchase by our joint venture partner of the third-party debt made by this joint venture from the note holder, which relieved us from our guarantee of our proportionate interest of this debt; we had previously recorded a charge for this indemnification. These increases were partially offset by an approximate $0.9 million decrease in interest income due to declines in interest income on our mezzanine loan portfolio related primarily to the lower balances of outstanding mezzanine loans due in part to conversion of mezzanine loans into additional equity interests in certain of our joint ventures in 2009 and 2010.

The $1.9 million decrease in 2009 as compared to 2008 was primarily due to declines in interest income on our mezzanine loan portfolio related to contractual reductions in interest rates, reductions in interest earned on certain variable rate mezzanine notes due to declines in LIBOR, and lower balances of outstanding mezzanine loans due in part to the conversion of mezzanine loans into additional equity interests in certain of our joint ventures in 2009.

Our deferred compensation plans earned income of approximately $11.6 million and $14.6 million in 2010 and 2009, respectively, and incurred losses of $33.4 million in 2008. The changes were related to the performance of the investments held in the deferred compensation plans for plan participants and were directly offset by the expense (benefit) related to these plans, as set forth in the table below.

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Other expenses

		Year Ended																Year Ended
		December 31,								Change								December 31,								Change
($ in thousands)		2010				2009				$				%				2009				2008				$				%
Property management		$	19,982			$	18,864			$	1,118				5.9	%		$	18,864			$	19,910			$	(1,046	)			(5.3	)%
Fee and asset management			4,841				4,878				(37	)			(0.8	)			4,878				6,054				(1,176	)			(19.4	)
General and administrative			30,762				31,243				(481	)			(1.5	)			31,243				31,586				(343	)			(1.1	)
Interest			125,893				128,296				(2,403	)			(1.9	)			128,296				132,399				(4,103	)			(3.1	)
Depreciation and amortization			172,849				171,322				1,527				0.9				171,322				168,488				2,834				1.7
Amortization of deferred financing costs			4,102				3,925				177				4.5				3,925				2,958				967				32.7
Expense (benefit) on deferred compensation plans			11,581				14,609				(3,028	)			(20.7	)			14,609				(33,443	)			48,052				143.7
Total other expenses		$	370,010			$	373,137			$	(3,127	)			(0.8	%)		$	373,137			$	327,952			$	45,185				13.8	%

Property management expense, which represents regional supervision and accounting costs related to property operations, increased approximately $1.1 million for the year ended December 31, 2010 as compared to 2009 and decreased approximately $1.0 million for 2009 as compared to 2008. Property management expenses were 3.3%, 3.1%, and 3.3% of total property revenues for the years ended December 31, 2010, 2009, and 2008, respectively. The $1.1 million increase in 2010 was primarily due to increases in salary and benefits, rental, marketing, and travel expenses as compared to 2009. The decrease in 2009 as compared to 2008 was due primarily to lower travel and legal expenses.

Fee and asset management expense, which represents expenses related to asset management, third-party construction and development projects and property management, was relatively flat in 2010 as compared to 2009 due in part to an increase in third-party construction activities, offset by decreases in development and construction on our development joint ventures as compared to 2009 due to the completion of construction activities during 2009 and 2010. The $1.2 million decrease for 2009 as compared to 2008 was primarily due to declines in development and construction activities related to our development joint ventures in 2009 as compared to 2008 due to the completion of the associated construction activities at several joint venture communities in 2008 and 2009.

General and administrative expenses decreased approximately $0.5 million during the year ended December 31, 2010 as compared to 2009 and decreased approximately $0.3 million during the year ended December 31, 2009 as compared to 2008. General and administrative expenses were 4.9% of total revenues, excluding income or loss on deferred compensation plans, for the year ended December 31, 2010, and 5.0% for each of the years ended December 31, 2009, and 2008. The decrease in 2010 as compared to 2009 was primarily due to a decrease in legal costs and other discretionary expenses, $1.6 million in severance payments made in connection with a reduction in force of certain construction and development staff in January 2009, and separation costs relating to the retirement of one executive officer during the fourth quarter of 2009. These decreases were partially offset by an increase in long-term incentive compensation of approximately $1.6 million during 2010 as compared to 2009. The decrease for 2009 as compared to 2008 was primarily due to various cost-saving initiatives implemented in 2009, and increased expenses in 2008 which did not recur in 2009 associated with the abandonment of potential acquisitions. The decrease was partially offset by $1.6 million in severance payments made in connection with the reduction in force of certain construction and development staff in 2009, and separation costs relating to the retirement of one executive officer during the fourth quarter of 2009.

Interest expense decreased approximately $2.4 million during the year ended December 31, 2010 as compared to 2009 and decreased approximately $4.1 million during the year ended December 31, 2009 as compared to 2008. The decrease in 2010 was primarily due to using the net proceeds of $272.1 million from the equity offering completed during the second quarter of 2009 and approximately $231.7 million in net proceeds from our ATM program during 2010 to retire outstanding debt, prior to its maturity, of approximately $325.0 million during the first six months of 2009 and repay maturing secured and unsecured notes during 2009 and 2010, as well as reduce the balances outstanding on our unsecured line of credit. This decrease was partially offset by the increased interest expense incurred on our $420 million credit facility entered into during the second quarter of 2009 and lower capitalized interest of approximately $4.6 million in 2010 as compared to 2009 primarily due to the completion of communities in our development pipeline and our decision in fiscal year 2009 to postpone the development of land holdings for eight future projects.

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The decrease for 2009 as compared to 2008 was primarily due to decreases in indebtedness as a result of early retirement of outstanding debt of approximately $325.0 million during the first six months of 2009. This decrease in interest expense was partially offset by a decrease in capitalized interest of approximately $7.4 million during the year ended December 31, 2009 as compared to 2008 as a result of the completion of units in our development pipeline and our decision in fiscal year 2008 not to continue with five future development projects. The decrease was further offset by higher interest rates on existing indebtedness resulting from paying down amounts outstanding under our unsecured line of credit with proceeds from our $420 million credit facility entered into in April 2009 and our $380 million credit facility entered into in September 2008.

Depreciation and amortization expense increased approximately $1.5 million during the year ended December 31, 2010 as compared to 2009 and increased approximately $2.8 million during the year ended December 31, 2009 as compared to 2008. The increase in 2010 as compared to 2009 was primarily due to new development and capital improvements placed in service during 2009 and 2010 and the consolidation of three joint ventures during the second half of 2010, which were previously accounted for under the equity method of accounting. These increases were partially offset by an increase in the number of assets being fully depreciated in 2010 as compared to 2009. The increase in 2009 as compared to 2008 was primarily due to completion of new development and capital improvements placed in service in 2009 as compared to the previous year.

Amortization of deferred financing costs increased approximately $0.2 million during the year ended December 31, 2010 as compared to 2009 and increased approximately $1.0 million during the year ended December 31, 2009 as compared to 2008. The increase for 2010 as compared to 2009 was primarily due to additional financing costs incurred on our $500 million unsecured credit facility, entered into in August 2010, and on our $420 million credit facility, entered into the second quarter of 2009. These increases were partially offset by lower amortization of deferred financing costs related to the repurchase and retirement of certain series of notes during 2010 and 2009. The increase for 2009 as compared to 2008 was primarily due to the amortization of our financing costs incurred upon the extension of our unsecured credit facility in October 2009, and financing costs related to our $380 million credit facility completed in September 2008 and our $420 million credit facility completed in April 2009. This increase was partially offset by the repurchase and retirement of certain series of notes during 2009.

Our deferred compensation plans incurred expenses of approximately $11.6 million and $14.6 million in 2010 and 2009, respectively, and earned a benefit of approximately $33.4 million in 2008. The changes were related to the performance of the investments held in the deferred compensation plans for plan participants and were directly offset by the income (loss) related to these plans, as discussed above.

Other

		Year Ended																Year Ended
		December 31,								Change								December 31,								Change
($ in thousands)		2010				2009				$				%				2009				2008				$				%
Gain on sale of properties, including land		$	236			$	—			$	236				100.0	%		$	—			$	2,929			$	(2,929	)			(100.0	)%
Gain (loss) on early retirement of debt			—				(2,550	)			2,550				100.0				(2,550	)			13,566				(16,116	)			(118.8	)
Impairment associated with land development activities			—				(85,614	)			85,614				100.0				(85,614	)			(51,323	)			(34,291	)			(66.8	)
Impairment provision for technology investment			(1,000	)			—				(1,000	)			(100.0	)			—				—				—				—
Equity in income (loss) of joint ventures			(839	)			695				(1,534	)			(220.7	)			695				(1,265	)			1,960				(154.9	)
Income tax expense — current			(1,581	)			(967	)			(614	)			(63.5	)			(967	)			(843	)			(124	)			(14.7	)

Gain on sale of properties, including land, totaled approximately $0.2 million and $2.9 million for the years ended December 31, 2010 and December 31, 2008, respectively. The gain in 2008 was due to the partial sale of properties to one of the Funds and a gain on the sale of a land parcel in Las Vegas, Nevada to an unaffiliated third party. There was no gain on sale of properties, including land, for the year ended December 31, 2009.

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Loss on early retirement of debt was approximately $2.6 million for the year ended December 31, 2009 due to the repurchase and retirement of approximately $325.0 million of various unsecured and secured notes from unrelated third parties for approximately $327.5 million during the first two quarters of 2009. Gain on early retirement of debt was approximately $13.6 million for the year ended December 31, 2008 due to the repurchases and retirements of debt, including a tender offer for certain series of outstanding debt which resulted in the repurchase and retirement of approximately $108.3 million of debt from unrelated third parties for approximately $100.6 million, and the repurchases and retirements of approximately $82.7 million of various series of other outstanding debt from unrelated third parties for approximately $75.7 million. The gain (loss) on early retirement of debt for these transactions also includes reductions for the write-off of applicable loan costs. There was no gain (loss) on early retirement of debt for the year ended December 31, 2010.

The impairment associated with land development activities for the year ended December 31, 2009 of approximately $85.6 million includes approximately $72.2 million related to land holdings for eight projects, and approximately $13.4 million related to a land development joint venture we put on hold. The impairment associated with land development activities for the year ended December 31, 2008 of approximately $51.3 million reflects impairments in the value of land holdings for several potential development projects, including approximately $48.6 million related to land holdings for five projects, approximately $1.6 million in the value of a land parcel held for future development, and approximately $1.1 million for costs capitalized for a potential joint venture development we did not develop. These impairment charges for land are the difference between each parcel’s estimated fair value and the carrying value. There were no impairments associated with land development activities for the year ended December 31, 2010.

During the fourth quarter of 2010, we wrote-off a $1.0 million investment associated with a technology investment which we determined was no longer recoverable.

Equity in income (loss) of joint ventures decreased approximately $1.5 million for the year ended December 31, 2010 as compared to 2009, and increased approximately $2.0 million for the year ended December 31, 2009 as compared to 2008. The decrease for 2010 as compared to 2009 was primarily the result of decreases in earnings by our stabilized operating joint ventures due to declines in rental income, and the recognition of net operating losses by certain development joint ventures during the lease-up phase of operations. The decreases were further impacted by the consolidation of three operating joint ventures during the second half of 2010, which were previously accounted for in accordance with the equity method of accounting. These decreases were partially offset by increases in earnings in development joint ventures reaching or nearing stabilization during 2009 and 2010. The increase for 2009 as compared to 2008 was primarily the result of certain properties owned by development joint ventures reaching or nearing stabilization in 2009 partially offset by declining earnings at our stabilized operating joint ventures due to declines in rental income.

We had current income tax expense of approximately $1.6 million, $1.0 million, and $0.8 million for the tax years ended December 31, 2010, 2009, and 2008, respectively. The increase in taxes in 2010 as compared to 2009 primarily related to an increase in federal income taxes resulting from increased profitability in our construction activities conducted in a taxable REIT subsidiary. The increase in taxes in 2009 as compared to 2008 primarily related to an increase in state income taxes.

Noncontrolling interests

		Year Ended																Year Ended
		December 31,								Change								December 31,								Change
($ in thousands)		2010				2009				$				%				2009				2008				$				%
(Income) loss allocated to noncontrolling interests from continuing operations		$	(926	)		$	403			$	1,329				329.8	%		$	403			$	(4,052	)		$	(4,455	)			(110.0	)%
Income allocated to perpetual preferred units			(7,000	)			(7,000	)			—				—				(7,000	)			(7,000	)			—				—

Income allocated to noncontrolling interests from continuing operations increased approximately $1.3 million in 2010 as compared to 2009, and decreased $4.5 million in 2009 as compared to 2008. During 2009, we recognized an approximately $72.2 million impairment associated with land holdings for eight projects we had put on hold, of which $3.6 million represented certain operating partnerships’ interests of the impairment. Excluding this impairment charge, income allocated to noncontrolling interests from continuing operations decreased approximately $2.3 million and $0.8 million in 2010 as compared to 2009, and 2009 as compared to 2008, respectively. The $2.3 million decrease in 2010 as compared to 2009 was primarily due to the completion during the three months ended March 31, 2010 and subsequent lease-up of a property by a fully consolidated joint venture of which we retain a 25% ownership, which resulted in our recording depreciation and interest expense on the property, upon completion of construction, in excess of income recognized during the lease-up period. The decrease was also due to lower earnings associated with properties held by operating partnerships during 2010 as compared to 2009. The $0.8 million decrease in 2009 was primarily due to lower earnings associated with properties held by operating partnerships during 2009 as compared to 2008.

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Funds from Operations (“FFO”)

Management considers FFO to be an appropriate measure of the financial performance of an equity REIT. The National Association of Real Estate Investment Trusts (“NAREIT”) currently defines FFO as net income (computed in accordance with accounting principles generally accepted in the United States of America (“GAAP”)), excluding gains (or losses) associated with the sale of previously depreciated operating properties, real estate depreciation and amortization, and adjustments for unconsolidated joint ventures. Our calculation of diluted FFO also assumes conversion of all potentially dilutive securities, including certain noncontrolling interests, which are convertible into common shares. We consider FFO to be an appropriate supplemental measure of operating performance because, by excluding gains or losses on dispositions of operating properties and depreciation, FFO can help one compare the operating performance of a company’s real estate between periods or as compared to different companies.

To facilitate a clear understanding of our consolidated historical operating results, we believe FFO should be examined in conjunction with net income attributable to common shareholders as presented in the consolidated statements of income and comprehensive income and data included elsewhere in this report. FFO is not defined by GAAP and should not be considered as an alternative to net income attributable to common shareholders as an indication of our operating performance. Additionally, FFO as disclosed by other REITs may not be comparable to our calculation.

Reconciliations of net income attributable to common shareholders to diluted FFO for the years ended December 31 are as follows:

(in thousands)		2010				2009				2008
Funds from operations
Net income (loss) attributable to common shareholders (1)		$	23,216			$	(50,800	)		$	70,973
Real estate depreciation and amortization, including discontinued operations			170,660				170,480				171,009
Adjustments for unconsolidated joint ventures			8,943				7,800				7,103
Gain on sale of properties and discontinued operations, net of taxes			(9,614	)			(16,887	)			(83,117	)
Income (loss) allocated to noncontrolling interests			1,104				(646	)			3,617
Funds from operations — diluted		$	194,309			$	109,947			$	169,585
Weighted average shares — basic			68,608				62,359				55,272
Incremental shares issuable from assumed conversion of:
Common share options and share awards granted			348				55				114
Common units			2,596				2,852				3,142
Weighted average shares — diluted			71,552				65,266				58,528

(1)		Includes an $85.6 million and $51.3 million impairment associated with land development activities for the years ended December 31, 2009 and 2008, respectively.

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Liquidity and Capital Resources

Financial Condition and Sources of Liquidity

We intend to maintain a strong balance sheet and preserve our financial flexibility, which we believe should enhance our ability to identify and capitalize on investment opportunities as they become available. We intend to maintain what management believes is a conservative capital structure by:

	•		extending and sequencing the maturity dates of our debt where practicable;
	•		managing interest rate exposure using what management believes to be prudent levels of fixed and floating rate debt;

	•		maintaining what management believes to be conservative coverage ratios; and

	•		using what management believes to be a prudent combination of debt and common and preferred equity.

Our interest expense coverage ratio, net of capitalized interest, was approximately 2.6 times for each of the years ended December 31, 2010, 2009, and 2008. Our interest expense coverage ratio is calculated by dividing interest expense for the period into the sum of property revenues and expenses, non-property income, other expenses, income from discontinued operations, after adding back depreciation, amortization, and interest expense from both continuing and discontinued operations. This ratio is a method for calculating the amount of operating cash flows available to cover interest expense. At December 31, 2010, 2009, and 2008, approximately 71.1%, 72.8%, and 78.3%, respectively, of our properties (based on invested capital) were unencumbered. Our weighted average maturity of debt, including our line of credit, was 5.5 years at December 31, 2010.

For the longer term, we intend to continue to focus on strengthening our capital and liquidity position by generating positive cash flows from operations, reducing outstanding debt and leverage ratios, and controlling overhead costs.

Our primary source of liquidity is cash flow generated from operations. Other sources include available cash balances, the availability under our unsecured credit facility and other short-term borrowings, proceeds from dispositions of properties and other investments, secured mortgage debt, and the use of debt and equity offerings under our automatic shelf registration statement. We believe our liquidity and financial condition are sufficient to meet all of our reasonably anticipated cash needs during 2011 including:

	•		normal recurring operating expenses;

	•		current debt service requirements;

	•		recurring capital expenditures;

	•		initial funding of property developments, acquisitions, joint venture investments, and notes receivable; and

	•		the minimum dividend payments required to maintain our REIT qualification under the Code.

Factors which could increase or decrease our future liquidity include but are not limited to volatility in capital and credit markets, sources of financing, our ability to complete asset sales, the effect our debt level and decreases in credit ratings could have on our costs of funds, and our ability to access capital markets.

Cash Flows

Certain sources and uses of cash, such as the level of discretionary capital expenditures, and repurchases of debt and common shares are within our control and are adjusted as necessary based upon, among other factors, market conditions. The following is a discussion of our cash flows for the years ended December 31, 2010 and 2009.

Net cash provided by operating activities was approximately $224.0 million during the year ended December 31, 2010 as compared to approximately $217.7 million during the year ended December 31, 2009. The increase was primarily due to lower interest expense and changes in operating accounts. The increase was partially offset by declines in property net operating income in 2010 as compared to 2009.

Net cash provided by investing activities during the year ended December 31, 2010 totaled approximately $35.2 million as compared to net cash used by investing activities of approximately $69.5 million during the year ended December 31, 2009. Cash outflows for property development, acquisition, and capital improvements were approximately $63.7 million during 2010 as compared to approximately $72.8 million during 2009. This decrease was due to the timing of completions of communities in our development pipeline and a reduction in construction and development activity in 2010 as compared to 2009. Cash inflows from sales of properties including land and discontinued operations were approximately $102.8 million for the year ended December 31, 2010 as compared to approximately $28.1 million for the year ended December 31, 2009. Additionally, cash outflows for investments in joint ventures were $6.5 million for the year ended December 31, 2010 as compared to $23.2 million in 2009. The decrease in cash outflows for investments in joint ventures in 2010 as compared to 2009 was primarily a result of our $22.2 million equity investment in one of our joint ventures during the third quarter 2009.

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Net cash used in financing activities totaled approximately $152.8 million during the year ended December 31, 2010 primarily as a result of the repayment of maturing outstanding unsecured notes payable of approximately $137.6 million, repayment of approximately $165.6 million of secured notes assumed in connection with obtaining controlling interests in three joint ventures and distributions paid to common shareholders, perpetual preferred unit holders, and noncontrolling interest holders of approximately $135.6 million. The cash outflows were partially offset by cash receipts of approximately $231.7 million relating to proceeds received from the sale of approximately 4.9 million common shares throughout fiscal year 2010 under our ATM share offering program. Cash outflows were further offset by decreases in accounts receivable from affiliates of approximately $4.2 million relating to proceeds received from participant withdrawals from our deferred compensation plans and approximately $53.0 million for proceeds received from secured notes payable relating to a secured credit agreement for a newly consolidated joint venture and $4.7 million for advances under a construction loan for one of our communities completing construction during 2010. Net cash provided by financing activities totaled approximately $91.4 million during the year ended December 31, 2009. During the year ended December 31, 2009, we used a total of approximately $648.7 million of cash to repay outstanding notes payable consisting of approximately $169.9 million of outstanding notes payable stemming from our April 2009 tender offer, the early retirement of outstanding debt consisting of approximately $139.1 million of secured notes, and approximately $18.2 million of senior unsecured notes. The remaining outstanding notes payable payments were primarily for maturing secured and unsecured notes payable of approximately $176.5 million, and payments of all remaining amounts outstanding on our unsecured line of credit. Also in 2009, $152.7 million was used for distributions paid to common shareholders, perpetual preferred unit holders, and noncontrolling interest holders. The cash outflows were offset by cash receipts of $420 million from a secured credit facility entered into during the second quarter, approximately $20.8 million of cash receipts from secured notes relating to a construction loan for a consolidated joint venture and net proceeds of approximately $272.1 million from the completion of our equity offering in May 2009.

Financial Flexibility

In August 2010, we entered into a $500 million unsecured credit facility, with the option to increase this credit facility to $600 million, which matures in August 2012 and may be extended at our option to August 2013. This facility replaces our $600 million unsecured credit facility which was scheduled to mature in January 2011. Interest rate spreads float on a margin based on LIBOR and are subject to change as our credit ratings change. Advances under the line of credit may be priced at the scheduled rates, or we may enter into bid rate loans with participating banks at rates below the scheduled rates. These bid rate loans have terms of 180 days or less and may not exceed the lesser of $250 million or the remaining amount available under the line of credit. The line of credit is subject to customary financial covenants and limitations, all of which we are in compliance.

Our line of credit provides us with the ability to issue up to $100 million in letters of credit. While our issuance of letters of credit does not increase our borrowings outstanding under our line of credit, it does reduce the amount available. At December 31, 2010, we had outstanding letters of credit totaling approximately $10.2 million, leaving approximately $489.8 million available under our unsecured line of credit.

We currently have an automatic shelf registration statement on file with the SEC which allows us to offer, from time to time, an unlimited amount of common shares, preferred shares, debt securities, or warrants. Our declaration of trust provides we may issue up to 110 million shares of beneficial interest, consisting of 100 million common shares and 10 million preferred shares. As of December 31, 2010, we had approximately 69.6 million common shares outstanding, net of treasury shares and shares held in our deferred compensation arrangements, and no preferred shares outstanding.

In March 2010, we announced the creation of our ATM share offering program through which we may, but have no obligation to, sell common shares having an aggregate offering price of up to $250 million, in amounts and at times as we determine, into the existing trading market at current market prices as well as through negotiated transactions. Actual sales from time to time may depend on a variety of factors including, among others, market conditions, the trading price of our common shares, and determinations of the appropriate sources of funding for us. As of the day of this filing, we had common shares having an aggregate offering price of up to $10.7 million remaining under the ATM program.

We believe our ability to access capital markets is enhanced by our senior unsecured debt ratings by Moody’s and Standard and Poor’s, which are currently Baa1 and BBB, respectively, with stable outlooks, as well as by our ability to borrow on a secured basis from various institutions including banks, Fannie Mae, Freddie Mac, or life insurance companies. However, we may not be able to maintain our current credit ratings and may not be able to borrow on a secured or unsecured basis in the future.

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Future Cash Requirements and Contractual Obligations

One of our principal long-term liquidity requirements includes the repayment of maturing debt, including any future borrowings under our unsecured line of credit. During 2011, approximately $154.4 million of unsecured debt, excluding scheduled principal amortizations, are scheduled to mature. See Note 9, “Notes Payable,” of the Notes to Consolidated Financial Statements for further discussion of scheduled maturities. Additionally, we intend to incur approximately $57.2 million of additional capital expenditures on our current development projects and we expect to fund these amounts through available cash balances and draws on our unsecured line of credit. We intend to meet our near-term liquidity requirements through available cash balances, cash flows generated from operations, draws on our unsecured credit facility, proceeds from property dispositions and secured mortgage notes, and the use of debt and equity offerings under our automatic shelf registration statement.

In order for us to continue to qualify as a REIT, we are required to distribute annual dividends to our shareholders equal to a minimum of 90% of our REIT taxable income, computed without regard to the dividends paid deduction and our net capital gains. In December 2010, we announced our Board of Trust Managers had declared a dividend distribution of $0.45 per share to our common shareholders of record as of December 20, 2010. The dividend was subsequently paid on January 18, 2011. We paid equivalent amounts per unit to holders of common operating partnership units. When aggregated with previous 2010 dividends, this distribution to common shareholders and holders of common operating partnership units equates to an annual dividend rate of $1.80 per share or unit for the year ended December 31, 2010.

The following table summarizes our known contractual cash obligations as of December 31, 2010:

(in millions)		Total				201****1				201****2				201****3				201****4				201****5				Thereafter
Debt maturities (1)		$	2,563.8			$	159.0			$	763.0			$	228.4			$	11.4			$	252.7			$	1,149.3
Interest payments (2)			621.4				123.2				112.0				77.9				66.8				59.6				181.9
Non-cancelable lease payments			10.0				2.5				2.1				1.9				1.8				1.1				0.6
Postretirement benefit obligations			2.8				0.2				0.2				0.2				0.2				0.2				1.8
		$	3,198.0			$	284.9			$	877.3			$	308.4			$	80.2			$	313.6			$	1,333.6

(1)		Includes scheduled principal amortizations.
(2)		Includes contractual interest payments for our senior unsecured notes, medium-term notes, and secured notes. Interest payments on hedged loans were calculated based on the interest rates effectively fixed by the interest rate swap agreements. The interest payments on certain secured notes with floating interest rates were calculated based on the interest rates in effect as of December 31, 2010 or the most recent practicable date.

Off-Balance Sheet Arrangements

The joint ventures in which we have an interest have been funded in part with secured, third-party debt. We have guaranteed no more than our proportionate interest, totaling approximately $11.0 million, of two loans utilized for construction and development activities for our joint ventures. We are also committed to additional funding under a mezzanine loan provided to one joint venture and our commitment to fund additional amounts under this mezzanine loan was an aggregate of approximately $6.0 million at December 31, 2010.

Inflation

Substantially all of our apartment leases are for a term generally ranging from six to fifteen months. In an inflationary environment, we may realize increased rents at the commencement of new leases or upon the renewal of existing leases. We believe the short-term nature of our leases generally minimizes our risk from the adverse effects of inflation.

Critical Accounting Policies

The preparation of our financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the balance sheet date, and the amounts of revenues and expenses recognized during the reporting period. These estimates are based on historical experience and other assumptions believed to be reasonable under the circumstances. The following is a discussion of our critical accounting estimates. For a discussion of all of our significant accounting policies, see Note 2 to the accompanying consolidated financial statements.

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Use of Estimates. In the application of GAAP, management is required to make estimates and assumptions which affect the reported amounts of assets and liabilities at the date of the financial statements, results of operations during the reporting periods, and related disclosures. Our more significant estimates include estimates supporting our impairment analysis related to the carrying values of our real estate assets, estimates related to the valuation of our investments in joint ventures, and estimates and assumptions used to determine the entity with the power to direct activities that most significantly impacts economic performance of variable interest entities. These estimates are based on historical experience and other assumptions believed to be reasonable under the circumstances. Future events rarely develop exactly as forecasted, and the best estimates routinely require adjustment.

Principles of Consolidation. We may enter into various joint venture agreements with unrelated third parties to hold or develop real estate assets. We must determine for each of these joint ventures whether to consolidate the entity or account for our investment under the equity or cost basis of accounting. Investments acquired or created are continuously evaluated based on the accounting guidance relating to variable interest entities (“VIEs”), which requires the consolidation of VIEs in which we are considered to be the primary beneficiary. If the investment is determined not to be a VIE, then the investment is evaluated for consolidation (primarily using a voting interest model) under the remaining consolidation guidance relating to real estate entities. If we are the general partner in a limited partnership, or manager of a limited liability company, we also consider the consolidation guidance relating to the rights of limited partners (non-managing members) to assess whether any rights held by the limited partners overcome the presumption of control by us. We evaluate our accounting for investments on a quarterly basis or when a reconsideration event (as defined in GAAP) with respect to our investments occurs. The analysis required to identify VIEs and primary beneficiaries is complex and requires substantial management judgment. Accordingly, we believe the decisions made to choose an appropriate accounting framework are critical.

Asset Impairment. Long-lived assets are reviewed for impairment annually or whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Impairment exists if estimated future undiscounted cash flows associated with long-lived assets are not sufficient to recover the carrying value of such assets. We consider projected future discounted and undiscounted cash flows, trends, strategic decisions regarding future development plans, and other factors in our assessment of whether impairment conditions exist. When impairment exists, the long-lived asset is adjusted to its fair value. While we believe our estimates of future cash flows are reasonable, different assumptions regarding a number of factors, including market rents, economic conditions, and occupancies could significantly affect these estimates. In estimating fair value, management uses appraisals, management estimates, and discounted cash flow calculations that maximize inputs from a marketplace participant’s perspective.

In addition, we evaluate our investments in joint ventures and if we believe there is an other than temporary decline in market value of our investment, we will record an impairment charge.

The value of our properties under development depends on market conditions, including estimates of the project start date as well as estimates of demand for multifamily communities. We have reviewed market trends and other marketplace information and have incorporated this information as well as our current outlook into the assumptions we use in our impairment analyses. Due to, among other factors, the judgment and assumptions applied in the impairment analyses and the fact limited market information regarding the value of comparable land exists at this time, it is possible actual results could differ substantially from those estimated.

We believe the carrying value of our operating real estate assets, properties under development, and land is currently recoverable. However, if market conditions deteriorate or if changes in our development strategy significantly affect any key assumptions used in our fair value calculations, we may need to take material charges in future periods for impairments related to existing assets. Any such material non-cash charges would have an adverse effect on our consolidated financial position and results of operations.

Cost Capitalization. Real estate assets are carried at cost plus capitalized carrying charges. Carrying charges are primarily interest and real estate taxes which are capitalized as part of properties under development. Capitalized interest is generally based on our weighted average interest rate of our unsecured debt. Transaction costs associated with the acquisition of real estate assets are expensed. Expenditures directly related to the development and improvement of real estate assets are capitalized at cost as land and buildings and improvements. Indirect development costs, including salaries and benefits and other related costs directly attributable to the development of properties are also capitalized. All construction and carrying costs are capitalized and reported in the balance sheet as properties under development until the apartment homes are substantially completed. Upon substantial completion of the apartment homes, the total cost for the apartment homes and the associated land is transferred to buildings and improvements and land, respectively. Included in capitalized costs are management’s estimates of indirect costs associated with our development and redevelopment activities. The estimates used by management require judgment, and accordingly we believe cost capitalization to be a critical accounting estimate.

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