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

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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, including those 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;

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

	•		we depend on our key personnel;

	•		changes in litigation risks could affect our business;

	•		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.

Executive Summary

We are primarily engaged in the ownership, management, development, acquisition and construction of multifamily apartment communities. As of December 31, 2011, we owned interests in, operated, or were developing 206 multifamily properties comprising 69,794 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.

Property Operations

Our results for the year ended December 31, 2011 reflect an increase in rental revenue as compared to 2010, which we believe was primarily due to a gradually improving economy, favorable demographics, a modest supply of new multifamily housing, and a decrease in home ownership rates, which have resulted in increases in realized rental rates and average occupancy levels. Same store revenues increased 5.5% as compared to 2010. We believe economic and employment conditions will improve slightly during 2012 and the supply of new multifamily homes will continue to be modest. However, we believe significant risks to the economy remain prevalent, and while there has been a slight increase in employment levels in the majority of our markets, the unemployment rate remains at higher than historical levels. If economic conditions in the United States were to worsen, our operating results could be adversely affected.

Development Activity

During the year ended December 31, 2011, we began construction on eight development projects including two development projects in our discretionary funds, in which we own a 20% ownership interest (the “Funds”). These eight projects contain 2,190 units, with initial occupancy expected throughout 2012 and 2013. At December 31, 2011, we had a total of ten development projects under construction containing 2,797 units with initial occupancy expected between 2011 and 2013. Excluding the two Fund development projects containing 520 units, we have remaining anticipated construction expenditures of approximately $180.0 million on the eight consolidated projects under construction as of December 31, 2011.

Acquisitions and Dispositions

In August 2011, we acquired 30.1 acres of land located in Atlanta, Georgia for approximately $40.1 million. In December 2011, we acquired 2.2 acres of land in Glendale, California for approximately $21.4 million. We intend to utilize these land holdings for development of multiple multifamily apartment communities, subject to, among other matters, market conditions.

During the fourth quarter of 2011, we sold two properties consisting of 788 units located in Dallas, Texas for approximately $39.7 million and recognized a gain of approximately $24.6 million on the sale. During January 2012, we sold one property consisting of 357 units located in Phoenix, Arizona for approximately $24.5 million.

In April 2011, we sold one of our land parcels to one of the Funds for approximately $9.4 million and we were reimbursed for previously written-off third-party development costs, resulting in a gain of approximately $4.7 million. In June 2011, we sold another land parcel to this Fund for approximately $3.1 million, resulting in a gain of approximately $0.1 million. Development of 520 units on these two parcels commenced in 2011.

During the year ended December 31, 2011, the Funds acquired eighteen multifamily properties totaling 6,076 units located in the Houston, Dallas, Austin, San Antonio, Tampa, and Atlanta metropolitan areas. In January 2012, one of the Funds acquired one multifamily property comprised of 350 units located in Raleigh, North Carolina.

In January 2012, we issued approximately 6.6 million common shares in a public equity offering and received approximately $391.6 million in net proceeds. We utilized these proceeds to fund the acquisition of the 80% interest not owned by us in twelve related joint ventures for approximately $99.5 million and the repayment of approximately $272.6 million in mortgage debt associated with these joint ventures. In connection with this acquisition of the joint venture interests, we acquired twelve operating properties consisting of 4,034 units located in Dallas, Houston, Las Vegas, Phoenix and Southern California.

During the fourth quarter of 2011, one of our unconsolidated joint ventures sold four operating properties consisting of 1,194 units located in Louisville, Kentucky. Our proportionate share of the gain was approximately $6.4 million.

In March 2011, we sold our ownership interests in three unconsolidated joint ventures for total proceeds of approximately $19.3 million and recognized a gain of approximately $1.1 million. Two of these joint ventures owned multifamily properties in Houston comprised of 459 units, and the remaining joint venture owned 6.1 acres of land in Houston.

Future Outlook

Subject to market conditions, we intend to continue to look for opportunities to expand our development pipeline, acquire existing communities, and complete selective dispositions. We also intend to continue to strengthen our capital and liquidity positions by continuing to focus on our core fundamentals, which are generating positive cash flows from operations, maintaining appropriate debt levels 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, equity issued from our 2011 at-the-market share offering program, and the use of debt and equity offerings under our automatic shelf registration statement.

As of December 31, 2011, we had approximately $55.2 million in cash and cash equivalents and no balances outstanding on our $500 million unsecured line of credit; we recently extended the maturity date of our unsecured line of credit to September 2015, with options to extend the maturity to September 2016. Additionally, we now have the option to increase this credit facility to $750 million by either adding additional banks to the credit facility or obtaining the agreement of existing banks to increase their commitments. We believe payments on debt maturing in 2012 are manageable at $294.2 million, which represents approximately 12% of our total outstanding debt. Included in these maturities are four debt instruments of approximately $102.1 million which have automatic one year extensions which we may or may not exercise at our election. We also 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 we believe prudent to meet our objectives and capital requirements.

Property Portfolio

Our multifamily property portfolio is summarized as follows:

		September 30,		September 30,		September 30,		September 30,
	December 31, 2011				December 31, 2010
	Apartment				Apartment
	Homes		Properties		Homes		Properties
Operating Properties
Houston, Texas (1)		9,354		26		6,967		19
Las Vegas, Nevada		8,016		29		8,016		29
Dallas, Texas		5,979		15		5,517		14
Tampa, Florida		5,953		13		5,503		12
Washington, D.C. Metro		5,604		16		5,604		16
Charlotte, North Carolina		3,574		15		3,574		15
Orlando, Florida		3,564		9		3,557		9
Atlanta, Georgia		3,546		12		3,312		11
Austin, Texas		3,222		10		2,454		8
Raleigh, North Carolina		2,704		7		2,704		7
Southeast Florida		2,520		7		2,520		7
Los Angeles/Orange County, California		2,481		6		2,481		6
Phoenix, Arizona (2)		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		4,680		12		5,307		14

Total Operating Properties		66,997		196		63,316		186

		September 30,		September 30,		September 30,		September 30,
	December 31, 2011				December 31, 2010
	Apartment				Apartment
	Homes		Properties		Homes		Properties
Properties Under Development
Orlando, Florida		858		2		420		1
Washington, D.C. Metro		783		3		187		1
Tampa, Florida		540		2		—		—
Houston, Texas		372		2		—		—
Austin, Texas		244		1		—		—

Total Properties Under Development		2,797		10		607		2

Total Properties		69,794		206		63,923		188

Less: Unconsolidated Joint Venture Properties (3)
Houston, Texas		4,368		13		1,981		6
Las Vegas, Nevada		4,047		17		4,047		17
Dallas, Texas		1,706		4		456		1
Austin, Texas		1,613		5		601		2
Phoenix, Arizona		992		4		992		4
Tampa, Florida		450		1		—		—
Los Angeles/Orange County, California		421		1		421		1
Denver, Colorado		320		1		320		1
Atlanta, Georgia		344		2		110		1
Washington, D. C. Metro		276		1		—		—
Other		2,841		8		3,507		10

Total Joint Venture Properties (4)		17,378		57		12,435		43

Total Properties Fully Consolidated		52,416		149		51,488		145

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

(2)	Includes one property consisting of 357 apartment homes located in Phoenix, which was included in properties held for sale at December 31, 2011. This property was sold in January 2012.

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

(4)	In January 2012, we acquired the remaining equity interests of twelve joint venture properties consisting of 4,034 apartments homes located in Dallas, Houston, Las Vegas, Phoenix and Southern California. Refer to Note 8, “Investments in Joint Ventures” in the Notes to Consolidated Financial Statements for further discussion of this transaction.

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, 2011, stabilization was achieved at one of our joint venture properties as follows:

		September 30,		September 30,		September 30,
Property and Location	Number of Apartment Homes		Date of Construction Completion		Date of Stabilization

Camden Ivy Hall – joint venture Atlanta, GA		110		4Q10		3Q11

Acquisitions

During the year ended December 31, 2011, the Funds acquired eighteen multifamily properties comprised of 2,846 units located in Houston, Texas, 1,250 units located in Dallas, Texas, 768 units located in Austin, Texas, 450 units located in Tampa, Florida, 528 units located in San Antonio, Texas, and 234 units located in Atlanta, Georgia. In January 2012, one of the Funds acquired one multifamily property comprised of 350 units located in Raleigh, North Carolina.

In January 2012, we purchased the remaining 80% ownership interest in twelve unconsolidated joint ventures for approximately $99.5 million and repaid approximately $272.6 million in mortgage debt associated with these joint ventures. In connection with this acquisition of the joint venture interests, we acquired twelve operating properties consisting of 4,034 units located in Dallas, Houston, Las Vegas, Phoenix and Southern California. We funded this acquisition and debt repayment with net proceeds raised through a public equity offering completed in January 2012.

Partial Sales, Dispositions to Joint Ventures and Dispositions by Joint Ventures

In April 2011, we sold one of our land parcels in Washington, D.C. to one of the Funds, in which we have a 20% interest, for approximately $9.4 million and we were reimbursed for previously written off third-party development costs, resulting in a gain of approximately $4.7 million. In June 2011, we sold one of our development properties in Austin, Texas, to this Fund for approximately $3.1 million, resulting in a gain of approximately $0.1 million.

During March 2011, we sold our ownership interests in three unconsolidated joint ventures for total proceeds of approximately $19.3 million and recognized a gain of approximately $1.1 million. Two of these joint ventures own multifamily properties in Houston, Texas with 459 units, and one joint venture owns 6.1 acres of land in Houston, Texas.

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

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, 2011. 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 2011 dispositions is as follows:

		September 30,		September 30,		September 30,
Property and Location	Number of Apartment Homes		Date of Disposition		Year Placed in Service
Camden Valley Creek Dallas, TX		380		4Q11		1984
Camden Valley Ridge Dallas, TX		408		4Q11		1987

During the fourth quarter of 2011, we received net proceeds of approximately $38.2 million and recognized a gain of approximately $24.6 million from the sale of the two wholly owned operating properties above, containing 788 apartment homes, to unaffiliated third parties. During the year ended December 31, 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 an unaffiliated third party. 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, 2010, we recognized a gain of approximately $0.2 million from the sale of land in Houston, Texas. The gain on this sale was not included in discontinued operations as the operations and cash flows of this asset was not clearly distinguished, operationally or for reporting purposes, from the adjacent assets.

Development and Lease-Up Properties

At December 31, 2011, we had eight consolidated properties in various stages of construction as follows:

		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,
($ in millions) Property and Location	Number of Apartment Homes		Estimated Cost		Cost Incurred		Included in Properties Under Development		Estimated Date of Construction Completion		Estimated Date of Stabilization

Camden LaVina (1) Orlando, FL		420	$	60.0	$	54.8	$	6.4		2Q12		1Q13
Camden Summerfield II (1) Landover, MD		187		30.0		24.3		10.0		1Q12		4Q12
Camden Royal Oaks II (2) Houston, TX		104		14.0		11.1		11.1		2Q12		3Q13
Camden Montague Tampa, FL		192		23.0		13.4		13.4		3Q12		2Q13
Camden Town Square Orlando, FL		438		66.0		28.7		28.7		3Q13		4Q14
Camden Westchase Park Tampa, FL		348		52.0		29.6		29.6		1Q13		4Q13
Camden City Centre II Houston, TX		268		36.0		10.1		10.1		2Q13		3Q14
Camden NOMA Washington, D. C. Metro		320		110.0		39.0		39.0		2Q14		2Q15

Total		2,277	$	391.0	$	211.0	$	148.3

(1)	Property in lease-up as of December 31, 2011.

(2)	Property in lease-up as of January 2012.

Our consolidated balance sheet at December 31, 2011 included approximately $299.9 million related to properties under development and land. Of this amount, approximately $148.3 million related to our projects currently under development. In addition, we had approximately $151.6 million primarily invested in land held for future development, which included approximately $84.8 million related to projects we expect to begin constructing during the next two years, and approximately $66.8 million invested in land tracts for which we may develop in the future.

At December 31, 2011, we had investments in unconsolidated joint ventures which were developing the following multifamily communities:

		September 30,			September 30,		September 30,
($ in millions) Property and Location	Ownership %			Number of Apartment Homes		Total Cost Incurred
Under Construction:
Camden South Capitol Washington, DC		20	%		276	$	29.8
Camden Amber Oaks II Austin, TX		20	%		244		8.6

Total Under Construction					520	$	38.4

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

Geographic Diversification

At December 31, 2011 and 2010, our investments in various geographic areas, excluding depreciation, investments in joint ventures and properties held for sale, were as follows:

		September 30,	September 30,			September 30,	September 30,
(in thousands)	2011				2010

Washington, D.C. Metro	$	1,234,401	21.2	%	$	1,214,165	21.5	%
Southeast Florida		462,384	8.0			456,127	8.1
Houston, Texas		452,830	7.8			432,697	7.7
Los Angeles/Orange County, California		452,451	7.8			426,527	7.5
Tampa, Florida		436,922	7.5			404,718	7.2
Orlando, Florida		422,811	7.3			381,642	6.8
Atlanta, Georgia		369,107	6.3			322,741	5.7
Dallas, Texas		302,299	5.2			329,222	5.8
Charlotte, North Carolina		331,518	5.7			321,838	5.7
Las Vegas, Nevada		315,330	5.4			311,186	5.5
Raleigh, North Carolina		243,114	4.2			239,840	4.2
San Diego/Inland Empire, California		228,582	3.9			227,784	4.0
Denver, Colorado		193,285	3.3			189,644	3.4
Austin, Texas		156,833	2.7			155,714	2.8
Phoenix, Arizona		98,698	1.7			119,826	2.1
Other		118,975	2.0			114,006	2.0

Total	$	5,819,540	100.0	%	$	5,647,677	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:

		September 30,			September 30,			September 30,
	2011			2010			2009
Average monthly property revenue per apartment home	$	1,098		$	1,030		$	1,045
Annualized total property expenses per apartment home	$	5,155		$	4,992		$	4,944
Weighted average number of consolidated operating apartment homes		49,793			48,656			48,061
Weighted average occupancy of consolidated operating apartment homes*		94.6	%		93.7	%		94.8	%

*	The student housing community is excluded from this calculation.

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, 2011 as compared to 2010 and for the year ended December 31, 2010 as compared to 2009:

		September 30,		September 30,		September 30,		September 30,			September 30,
	Apartment Homes		Year Ended December 31,				Change
($ in thousands)	at 12/31/11		2011		2010		$			%
Property revenues:
Same store communities		46,164	$	595,217	$	564,218	$	30,999			5.5	%
Non-same store communities		3,618		54,887		32,967		21,920			66.5
Development and lease-up communities		2,277		715		—		715			—
Other		—		5,049		4,265		784			18.4

Total property revenues		52,059	$	655,868	$	601,450	$	54,418			9.0	%


Property expenses:
Same store communities		46,164	$	231,925	$	225,072	$	6,853			3.0	%
Non-same store communities		3,618		20,571		12,922		7,649			59.2
Development and lease-up communities		2,277		222		—		222			—
Other		—		3,961		4,918		(957	)		(19.5	)

Total property expenses		52,059	$	256,679	$	242,912	$	13,767			5.7	%

Same store communities are communities we owned and which were stabilized as of January 1, 2010. Non-same store communities are stabilized communities we have acquired, developed, or re-developed after January 1, 2010. Development and lease-up communities are non-stabilized communities we have acquired or developed after January 1, 2010. Other includes results from non-multifamily rental properties and expenses primarily relating to land holdings not under active development.

		September 30,		September 30,		September 30,		September 30,			September 30,
	Apartment Homes		Year Ended December 31,				Change
($ in thousands)	at 12/31/10		2010		2009		$			%
Property revenues:
Same store communities		45,148	$	548,588	$	559,564	$	(10,976	)		(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		50,343	$	601,450	$	602,648	$	(1,198	)		(0.2	)%


Property expenses:
Same store communities		45,148	$	218,940	$	218,217	$	723			0.3	%
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		50,343	$	242,912	$	237,599	$	5,313			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 developed or acquired after January 1, 2009. Other includes results from non-multifamily rental properties and expenses primarily relating to land holdings not under active development.

Same store analysis:

Same store property revenues for the year ended December 31, 2011 increased approximately $31.0 million, or 5.5%, from 2010. Same store rental revenues increased approximately $25.3 million for the year ended December 31, 2011 as compared to 2010, primarily due to a 4.6% increase in average rental rates and a 0.7% increase in average occupancy for our same store portfolio. During the year ended December 31, 2011, average rental rates on new leases were 3.6% higher than expiring lease rates and average renewal rates were 7.9% higher than expiring lease rates. We believe the increases to rental revenue were due in part to the continued decline in home ownership rates and the limited supply of new rental housing. Additionally, there was a $5.7 million increase in other property revenue during the year ended December 31, 2011 as compared to 2010 primarily due to increases in revenues from our utility rebilling programs and miscellaneous fees and charges.

Same store property revenues for the year ended December 31, 2010 decreased approximately $11.0 million, or 2.0%, from 2009. Same store rental revenues decreased approximately $11.4 million, or 2.4%, from 2009 primarily due to a 2.3% decline in average rental rates 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 last three quarters of 2010 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 in revenue from our utility rebilling programs.

Property expenses from our same store communities increased approximately $6.9 million, or 3.0%, for the year ended December 31, 2011 as compared to 2010. The increase was primarily due to increases in utility expenses relating to costs associated with our utility rebilling programs mentioned above, and higher water costs, increased salaries and benefits due to increases in annual compensation and higher medical benefit costs, and higher repairs and maintenance expenses. The increase was also due to slightly higher real estate taxes as a result of increasing property valuations and property tax rates at a number of our communities. Excluding the expenses associated with our rebilling programs, same store property expenses for the year ended December 31, 2011 increased approximately $5.6 million, or 2.7%, as compared to 2010.

Property expenses from our same store communities increased approximately $0.7 million, or 0.3%, 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 of our communities. Excluding the expenses associated with our utility rebilling programs, same store property expenses for 2010 decreased approximately $1.0 million, or 0.5%, from 2009.

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

Property revenues from non-same store and development and lease-up communities increased approximately $22.6 million for the year ended December 31, 2011 as compared to 2010 and increased approximately $10.3 million for the year ended December 31, 2010 as compared to 2009. The increase in 2011 was primarily due to $18.0 million of revenues during 2011 relating to three joint venture communities we consolidated during the second half of 2010, which were previously accounted for in accordance with the equity method of accounting. The increase in revenues was also related to two properties in our development and re-development pipelines reaching stabilization during the second and third quarters of 2010. One of these properties is owned by a fully consolidated joint venture, of which we hold a 25% ownership interest. 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 the three joint venture communities we consolidated as discussed above.

Property expenses from non-same store and development and lease-up communities increased approximately $7.9 million for the year ended December 31, 2011 as compared to 2010 and increased approximately $3.0 million for 2010 as compared to 2009. The increase in 2011 was primarily due to $7.1 million of expenses during 2011 relating to three joint venture communities we consolidated during the second half of 2010. The increase in 2010 was due to a number of consolidated properties in our development and re-development pipelines reaching stabilization during 2009 and 2010. The increase in 2010 was also due to approximately $1.1 million of expenses recognized in the second half of 2010 related to the three joint venture communities we consolidated as discussed above.

Other property analysis:

Other property revenues increased approximately $0.8 million for the year ended December 31, 2011 as compared to 2010 and decreased $0.5 million for the year ended December 31, 2010 as compared to 2009. The increase in 2011 was primarily related to increases in rental income from our non-multifamily rental properties as compared to 2010. The decrease in 2010 as compared to 2009 was due to lower rental income from our non-multifamily rental properties.

Other property expenses decreased approximately $1.0 million for the year ended December 31, 2011 as compared to 2010 and increased $1.6 million for the year ended December 31, 2010 as compared to 2009. The decrease in 2011 was primarily related to decreases in property taxes expensed on land holdings for projects which were approved during 2011 and the second half of 2010 for development activities. As a result, we started

capitalizing expenses, including property taxes, on these development projects. The increase 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.

Non-property income

		September 30,		September 30,		September 30,			September 30,			September 30,		September 30,		September 30,			September 30,
	Year Ended December 31,				Change						Year Ended December 31,				Change
($ in thousands)	2011		2010		$			%			2010		2009		$			%
Fee and asset management	$	9,973	$	8,172	$	1,801			22.0	%	$	8,172	$	8,008	$	164			2.0	%
Interest and other income		4,649		8,584		(3,935	)		(45.8	)		8,584		2,826		5,758			203.8
Income on deferred compensation plans		6,773		11,581		(4,808	)		(41.5	)		11,581		14,609		(3,028	)		(20.7	)

Total non-property income	$	21,395	$	28,337	$	(6,942	)		(24.5	)%	$	28,337	$	25,443	$	2,894			11.4	%

Fee and asset management income, increased approximately $1.8 million for the year ended December 31, 2011 as compared to 2010 and increased approximately $0.2 million for the year ended December 31, 2010 as compared to 2009. The increase for 2011 was primarily due to an increase in property management, development and construction fees due to acquisitions by our Funds during 2011 and the fourth quarter of 2010. The increase was partially offset by a decrease due to our consolidation of three joint venture communities during the second half of 2010, which were previously accounted for in accordance with the equity method of accounting. The increase was further offset by a decrease in construction fees due to a reduction in third-party construction activities during 2011 as compared to 2010.

The increase in fee and asset management income for 2010 as compared to 2009 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.

Interest and other income decreased approximately $3.9 million for 2011 as compared to 2010 and increased approximately $5.8 million for 2010 as compared to 2009. Interest income decreased approximately $1.2 million in 2011 as compared to 2010 and decreased approximately $0.9 million in 2010 as compared to 2009. The decreases were primarily due to a decline in interest income on our mezzanine loan portfolio due to 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 2010 and 2009.

Other income decreased approximately $2.8 million in 2011 as compared to 2010 and increased approximately $6.7 million for 2010 as compared to 2009. The changes between periods were due to approximately $2.7 million recognized in 2010 relating to the expiration of an indemnification provision in an operating joint venture agreement which expired in January 2010, and approximately $4.2 million recognized in 2010 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. During the first quarter of 2011, we recognized approximately $4.3 million in other income from the sale of an available-for-sale investment.

Our deferred compensation plans earned income of approximately $6.8 million, $11.6 million and $14.6 million in 2011, 2010 and 2009, respectively. 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 related to these plans, as set forth in the table below.

Other expenses

		September 30,		September 30,		September 30,			September 30,			September 30,		September 30,		September 30,			September 30,
	Year Ended December 31,				Change						Year Ended December 31,				Change
($ in thousands)	2011		2010		$			%			2010		2009		$			%
Property management	$	20,686	$	19,982	$	704			3.5	%	$	19,982	$	18,864	$	1,118			5.9	%
Fee and asset management		5,935		4,841		1,094			22.6			4,841		4,878		(37	)		(0.8	)
General and administrative		35,456		30,762		4,694			15.3			30,762		31,243		(481	)		(1.5	)
Interest		112,414		125,893		(13,479	)		(10.7	)		125,893		128,296		(2,403	)		(1.9	)
Depreciation and amortization		179,867		170,362		9,505			5.6			170,362		168,845		1,517			0.9
Amortization of deferred financing costs		5,877		4,102		1,775			43.3			4,102		3,925		177			4.5
Expense on deferred compensation plans		6,773		11,581		(4,808	)		(41.5	)		11,581		14,609		(3,028	)		(20.7	)

Total other expenses	$	367,008	$	367,523	$	(515	)		(0.1	%)	$	367,523	$	370,660	$	(3,137	)		(0.8	%)

Property management expense, which represents regional supervision and accounting costs related to property operations, increased approximately $0.7 million for the year ended December 31, 2011 as compared to 2010 and increased approximately $1.1 million for 2010 as compared to 2009. The increases as compared to the prior year periods were primarily due to higher salaries, benefits and incentive compensation for our property management personnel. Property management expenses were 3.2%, 3.3%, and 3.1% of total property revenues for the years ended December 31, 2011, 2010, and 2009, respectively.

Fee and asset management expense, which represents expenses related to third-party construction projects and development projects and property management of our joint venture communities, increased approximately $1.1 million for the year ended December 31, 2011 as compared to 2010. This increase was primarily due to an increase in expenses resulting from the acquisitions completed by our Funds during 2011 and the fourth quarter of 2010. These increases were partially offset by a decrease in expenses resulting from our consolidation of three joint venture communities during the second half of 2010, which were previously accounted for in accordance with the equity method of accounting. Fee and asset management expense was relatively flat in 2010 as compared to 2009 due in part to an increase in fees earned on third-party construction activities, offset by decreases in development and construction fees related to our development joint ventures as compared to 2009 due to the completion of construction activities during 2009 and 2010.

General and administrative expenses increased approximately $4.7 million during the year ended December 31, 2011 as compared to 2010 and decreased approximately $0.5 million during the year ended December 31, 2010 as compared to 2009. General and administrative expenses were 5.3%, 5.0% and 5.1% of total revenues, excluding income on deferred compensation plans, for the years ended December 31, 2011, 2010 and 2009, respectively. The increase in 2011 was primarily due to awards of $2.1 million in one-time bonuses to all non-executive employees in the first quarter of 2011 and increases in salaries, benefits and incentive compensation of approximately $3.2 million, offset partially by approximately $0.5 million decrease in other discretionary expenses. 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 as compared to 2009.

The decrease in interest expense in 2011 as compared to 2010 was due to the retirement of unsecured notes payable during 2010 and 2011 and the repayment of our $500 million term loan in June 2011. Additionally, the decrease was due to higher capitalized interest of approximately $3.1 million as compared to 2010 primarily due to higher average balances in our development pipeline. These decreases were partially offset by additional interest expense related to the issuance of $500 million in senior unsecured notes in June 2011. These decreases were also partially offset by an increase in secured notes payable relating to debt assumed in connection with the consolidation of two joint venture communities during the second half of 2010, which were previously accounted for using the equity method of accounting.

The decrease in interest expense in 2010 as compared to 2009 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. The decrease was partially offset by additional interest expense incurred on our $420 million credit facility entered into during the second quarter of 2009 and additional interest expense relating to secured debt assumed in connection with the consolidation of two joint venture communities during the second half of 2010, which were previously accounted for using the equity method of accounting. The decrease was also partially offset by 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.

Depreciation and amortization expense increased approximately $9.5 million during the year ended December 31, 2011 as compared to 2010 and increased approximately $1.5 million during the year ended December 31, 2010 as compared to 2009. The increases were primarily due to depreciation on capital improvements placed in service throughout 2011, 2010 and 2009. The increases were also due to the consolidation of three joint venture communities during the second half of 2010, which were previously accounted for using the equity method of accounting.

Amortization of deferred financing costs increased approximately $1.8 million during the year ended December 31, 2011 as compared to 2010 and increased approximately $0.2 million during the year ended December 31, 2010 as compared to 2009. The increase for 2011 was due to the amortization of additional financing costs incurred on our $500 million unsecured credit facility we entered into in August 2010 and on our offering of $500 million senior unsecured notes completed in June 2011. The increase was also due to the write-off of approximately $0.5 million of unamortized loan costs associated with the $500 million term loan we repaid in June 2011. 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.

Our deferred compensation plans incurred expenses of approximately $6.8 million, $11.6 million and $14.6 million in 2011, 2010 and 2009, respectively. 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 related to these plans, as discussed above.

Other

		September 30,			September 30,			September 30,			September 30,			September 30,			September 30,			September 30,			September 30,
	Year Ended December 31,						Change						Year Ended December 31,						Change
($ in thousands)	2011			2010			$			%			2010			2009			$			%
Loss on discontinuation of hedging relationship	$	(29,791	)	$	—		$	(29,791	)		*	%	$	—		$	—		$	—			—
Gain on sale of properties, including land		4,748			236			4,512			*			236			—			236			*
Gain on sale of unconsolidated joint venture interests		1,136			—			1,136			*			—			—			—			—
Loss on early retirement of debt		—			—			—			—			—			(2,550	)		2,550			100.0
Impairment associated with land development activities		—			—			—			—			—			(85,614	)		85,614			100.0
Impairment provision on technology investment		—			(1,000	)		1,000			100.0			(1,000	)		—			(1,000	)		*
Equity in income (loss) of joint ventures		5,679			(839	)		6,518			*			(839	)		695			(1,534	)		(220.7	)
Income tax expense – current		(2,220	)		(1,581	)		(639	)		(40.4	)		(1,581	)		(967	)		(614	)		(63.5	)

*	Not a meaningful percentage.

The loss on discontinuation of hedging relationship was due to the discontinuation of a cash flow hedge associated with the repayment of our $500 million term loan in June 2011. Refer to Note 10, “Derivative Instruments and Hedging Activities” in the notes to condensed consolidated financial statements for further discussion.

The $4.7 million gain on sale of properties, including land, in 2011 was due to a sale of one of our land development properties located in Washington, DC in April 2011 to one of the Funds and the sale of one of our development properties located in Austin, Texas to this Fund in June 2011. The $0.2 million gain in 2010 was due to a gain on the sale of a land parcel in Houston, Texas to an unaffiliated third-party.

Gain on sale of unconsolidated joint venture interests totaled approximately $1.1 million for the year ended December 31, 2011 due to the sale of our ownership interests in three unconsolidated joint ventures in March 2011.

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. The loss on early retirement of debt for these transactions also includes reductions for the write-off of applicable loan costs.

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. 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 years ended December 31, 2011 and 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 increased approximately $6.5 million for the year ended December 31, 2011 as compared to 2010, and decreased approximately $1.5 million for the year ended December 31, 2010 as compared to 2009. The increase in 2011 was primarily due to a $6.4 million gain recognized in equity in income (loss) of joint ventures relating to the sale of four operating properties by one of our unconsolidated joint ventures during the fourth quarter of 2011. The increase was also due to two development properties held by our joint ventures which were sold in March 2011. These two development properties reached stabilization in late 2010 and early 2011 and we recognized our proportionate interest in losses in 2010 during the lease-up phase of operations. These increases were partially offset by our proportionate interest in overall losses recognized by the Funds relating to acquisitions of operating properties during 2010 and 2011, which resulted in additional amortization expense for in-place leases over the underlying lease term. 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.

We had current income tax expense of approximately $2.2 million, $1.6 million, and $1.0 million for the tax years ended December 31, 2011, 2010, and 2009, respectively. The increase in income tax during 2011 was due to approximately $1.0 million associated with income taxes from the gain recognized on the sale of our available-for-sale investment during the first quarter of 2011 by a taxable REIT subsidiary. This increase was partially offset by a decrease in taxable income related to our third-party construction activities conducted in a taxable REIT subsidiary. 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 third-party construction activities conducted in a taxable REIT subsidiary.

Noncontrolling interests

		September 30,			September 30,			September 30,		September 30,			September 30,			September 30,			September 30,		September 30,
	Year Ended December 31,						Change					Year Ended December 31,						Change
($ in thousands)	2011			2010			$		%			2010			2009			$		%
(Income) loss allocated to noncontrolling interests from continuing operations	$	(3,582	)	$	(926	)	$	2,656		286.8	%	$	(926	)	$	403		$	1,329		329.8	%
(Income) allocated to perpetual preferred units		(7,000	)		(7,000	)		—		—			(7,000	)		(7,000	)		—		—

Income allocated to noncontrolling interests from continuing operations increased approximately $2.7 million in 2011 as compared to 2010, and increased approximately $1.3 million in 2010 as compared to 2009. The increase for 2011 was primarily due to an increase in earnings from a fully-consolidated joint venture which reached stabilization during the third quarter of 2010, of which we hold a 25% ownership. The increase was also due to increased earnings associated with properties held by our operating partnerships during 2011 as compared to 2010. 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 in the impairment. Excluding this impairment charge, income allocated to noncontrolling interests from continuing operations decreased approximately $2.3 million in 2010 as compared to 2009. 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.

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, impairments of depreciable assets, 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, depreciation, and impairments of depreciable assets, FFO can help one compare the operating performance of a company’s real estate investments 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 (loss) 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:

		September 30,			September 30,			September 30,
(in thousands)	2011			2010			2009
Funds from operations
Net income (loss) attributable to common shareholders (1)	$	49,379		$	23,216		$	(50,800	)
Real estate depreciation and amortization, including discontinued operations		177,187			170,660			170,480
Adjustments for unconsolidated joint ventures		10,534			8,943			7,800
Gain on sale of properties and discontinued operations, net of tax		(24,621	)		(9,614	)		(16,887	)
Gain on sale of unconsolidated joint venture properties (2)		(6,394	)		—			—
Gain on sale of unconsolidated joint venture interests		(1,136	)		—			—
Income (loss) allocated to noncontrolling interests		2,586			1,104			(646	)

Funds from operations – diluted	$	207,535		$	194,309		$	109,947


Weighted average shares – basic		72,756			68,608			62,359
Incremental shares issuable from assumed conversion of:
Common share options and share awards granted		706			348			55
Common units		2,466			2,596			2,852

Weighted average shares – diluted		75,928			71,552			65,266

(1)	Includes a $29.8 million charge related to a loss on discontinuation of a hedging relationship for the year ended December 31, 2011 and an $85.6 million impairment associated with land development activities for the year ended December 31, 2009.

(2)	Represents our proportionate share of the gain on sale relating to one of our unconsolidated joint venture’s sale of four operating properties during the fourth quarter 2011.

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 equity.

Our interest expense coverage ratio, net of capitalized interest, was approximately 3.2 times for the year ended December 31, 2011 and approximately 2.6 times for each of the years ended December 31, 2010 and 2009. This ratio is a method for calculating the amount of operating cash flows available to cover interest expense and 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. At December 31, 2011, 2010, and 2009, approximately 71.7%, 71.1%, and 72.8%, respectively, of our properties (based on invested capital) were unencumbered. Our weighted average maturity of debt, including our line of credit, was 6.8 years at December 31, 2011.

For the longer term, we intend to continue to focus on strengthening our capital and liquidity position by generating positive cash flows from operations, maintaining appropriate debt levels 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, 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 2012 including:

	•		normal recurring operating expenses;

	•		current debt service requirements;

	•		recurring capital expenditures;

	•		initial funding of property developments, acquisitions, joint venture investments; 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, 2011 and 2010.

Net cash provided by operating activities was approximately $244.8 million during the year ended December 31, 2011 as compared to approximately $224.0 million during the year ended December 31, 2010. The increase was primarily due to growth in property revenues directly attributable to increased rental and occupancy rates from our stabilized communities and the growth in non-stabilized communities as we consolidated three joint ventures during the second half of 2010. This increase in revenues was partially offset by the increase in property expenses from our stabilized and non-stabilized communities which include the property expenses of these three

joint ventures. See further discussions of our 2011 operations as compared to 2010 in our “Results of Operations.” The increase was further offset by a decrease in net cash from operating activities due to the timing of payments in operating accounts, primarily relating to the timing of payments relating to third-party construction activities and the timing of interest payments. These decreases from operating activities were partially offset by the timing of accounts receivable receipts relating to third-party construction activities.

Net cash used by investing activities during the year ended December 31, 2011 totaled approximately $187.4 million as compared to net cash provided by investing activities of approximately $35.2 million during the year ended December 31, 2010. Cash outflows for property development, acquisition, and capital improvements were approximately $227.8 million during 2011 as compared to approximately $63.7 million during 2010 due primarily to an increase in construction and development activity in 2011 as compared to 2010 and the acquisitions of 30.1 acres of land for approximately $40.1 million in August 2011 and 2.2 acres of land for approximately $21.4 million in December 2011. Additionally, cash outflows for investments in joint ventures were approximately $46.0 million during the year ended December 31, 2011 primarily relating to eighteen acquisitions completed by our Funds, in which we own a 20% interest, compared to approximately $6.5 million for the year ended December 31, 2010. These outflows were partially offset by proceeds of approximately $19.3 million from the sale of our interests in three unconsolidated joint ventures in March 2011. These outflows were further offset by proceeds received from the sale of our available-for-sale investment of $4.5 million during February 2011, payments received on notes receivable from affiliates of approximately $3.3 million and approximately $6.0 million in distributions of investments from our joint ventures which included cash distributions of approximately $2.0 million received from an unconsolidated joint venture’s sale of operating properties in the fourth quarter of 2011. Cash inflows from sales of properties including land and discontinued operations were approximately $57.3 million for the year ended December 31, 2011 as compared to approximately $102.8 million for the year ended December 31, 2010. During 2011, we received proceeds of approximately $19.1 million from the sale of two land development properties to one of our joint ventures, and approximately $38.2 million from the sale of two operating properties to unaffiliated third parties. During 2010, we received proceeds of approximately $102.8 million from the sale of two operating properties and one land holding to unaffiliated third parties.

Net cash used in financing activities totaled approximately $172.9 million during the year ended December 31, 2011 as compared to $152.8 million during the year ended December 31, 2010. During 2011, we used approximately $627.6 million to repay our outstanding $500 million term loan in June 2011 and approximately $127.6 million to retire maturing secured and unsecured notes. Also during 2011, approximately $152.2 million was used for distributions paid to common shareholders, perpetual preferred unit holders, and noncontrolling interest holders. During this same period, net proceeds of approximately $495.7 million was provided from the issuance of two series of unsecured notes completed in June 2011, and net proceeds of approximately $106.6 million from the issuance of 1.7 million common shares under our at-the-market (“ATM”) share offering programs which offset these cash outflows. These cash outflows were further offset by proceeds from common share options exercised during the period of approximately $11.4 million.

Financial Flexibility

In September 2011, we amended our $500 million unsecured credit facility to extend the maturity date from August 2012 to September 2015 with an option to extend to September 2016. Additionally, we now have the option to increase this credit facility to $750 million by either adding additional banks to the credit facility or obtaining the agreement of existing banks to increase their commitments. The interest rate is based upon LIBOR plus a margin which is 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, with 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, 2011, we had outstanding letters of credit totaling approximately $10.4 million, leaving approximately $489.6 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 110.0 million shares of beneficial interest, consisting of 100.0 million common shares and 10.0 million preferred shares. As of December 31, 2011, we had approximately 72.0

million common shares outstanding, net of treasury shares and shares held in our deferred compensation arrangements, and no preferred shares outstanding. In January 2012, we issued approximately 6.6 million common shares in a public equity offering and received approximately $391.6 million in net proceeds.

In March 2010, we announced the creation of an ATM share offering program through which we could, but had no obligation to, sell common shares having an aggregate offering price of up to $250 million (“2010 ATM program”), in amounts and at times as we determined, into the existing trading market at current market prices as well as through negotiated transactions. The 2010 ATM program was terminated and no further common shares are available for sale under the 2010 ATM program.

In May 2011, we created a second ATM share offering program through which we can sell common shares having an aggregate offering price of up to $300 million (“2011 ATM program”) from time to time into the existing trading market at current market prices as well as through negotiated transactions. We may, but have no obligation to, sell common shares through the 2011 ATM share offering program in amounts and at times as we determine. 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 $202.4 million remaining available for sale under the 2011 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.

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 2012, approximately $294.2 million of unsecured debt, including scheduled principal amortizations of approximately $3.5 million, are scheduled to mature. Included in these maturities are four debt instruments of approximately $102.1 million which have automatic one year extensions which we may or may not exercise at our election. See Note 9, “Notes Payable,” in the Notes to Consolidated Financial Statements for further discussion of scheduled maturities. Additionally, we intend to incur approximately $180.0 million of additional capital expenditures on our current development projects. 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, equity issued from our 2011 ATM program, 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 2011, we announced our Board of Trust Managers had declared a dividend distribution of $0.49 per share to our common shareholders of record as of December 19, 2011. The dividend was subsequently paid on January 17, 2012. We paid equivalent amounts per unit to holders of common operating partnership units. When aggregated with previous 2011 dividends, this distribution to common shareholders and holders of common operating partnership units equates to an annual dividend rate of $1.96 per share or unit for the year ended December 31, 2011.

The following table summarizes our known contractual cash obligations as of December 31, 2011:

		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,
(in millions)	Total		2012		2013		2014		2015		2016		Thereafter
Debt maturities (1)	$	2,432.1	$	294.2	$	228.0	$	11.0	$	252.4	$	2.6	$	1,643.9
Interest payments (2)		725.2		115.6		101.5		90.4		83.2		75.6		258.9
Non-cancelable lease payments		9.3		2.4		2.4		2.2		1.4		0.2		0.7
Postretirement benefit obligations		3.7		0.2		0.2		0.2		0.2		0.2		2.7

	$	3,170.3	$	412.4	$	332.1	$	103.8	$	337.2	$	78.6	$	1,906.2

(1)	Includes scheduled principal amortizations and does not include all available extension options.

(2)	Includes contractual interest payments for our senior unsecured notes, medium-term notes, and secured notes. The interest payments on certain secured notes with floating interest rates were calculated based on the interest rates in effect as of December 31, 2011 or the most recent practicable date.

In February 2012, we redeemed the 4.0 million outstanding 7.0% Series B Cumulative Redeemable Perpetual Preferred Units at their redemption price of $25.00 per unit, or an aggregate of $100.0 million, plus accrued and unpaid distributions. In connection with this redemption, we expensed the unamortized issuance costs relating to these Series B units, which will result in a charge to earnings of approximately $2.1 million in the first quarter of 2012.

Off-Balance Sheet Arrangements

The joint ventures in which we have an interest have been funded in part with secured, third-party debt. As of December 31, 2011, we have no outstanding guarantees related to loans of our unconsolidated joint ventures.

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.

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, and estimates related to the valuation of our investments in joint ventures. 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 which maximize inputs from a marketplace participant’s perspective.

In addition, we evaluate our equity 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 the judgment and assumptions applied in the impairment analyses, 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 could 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 operating real estate assets are expensed, and 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 capitalized development cost for the apartment homes and the associated land is transferred to buildings and improvements and land, respectively. Included in capitalized costs are 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.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2011-04 (“ASU 2011-04”), “Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS.” ASU 2011-04 requires entities to separately disclose the amounts and reasons for any transfers of assets and liabilities into and out of Level 1 and Level 2 of the fair value hierarchy. For fair value measurements using significant unobservable inputs (Level 3), entities will be required to disclose quantitative information about the significant unobservable inputs used for all Level 3 measurements and a description of the valuation processes in determining fair value. In addition, ASU 2011-04 requires entities to provide a qualitative discussion about the sensitivity of recurring Level 3 measurements to changes in the unobservable inputs disclosed, including the interrelationship between inputs. Entities will also be required to disclose information about when the current use of a non-financial asset measured at fair value differs from its highest and best use and the hierarchy classification for items whose fair value is not recorded on the balance sheet but is disclosed in the notes. We do not anticipate changes to our existing classification and measurement of fair value when the amended standard becomes effective on January 1, 2012; however, we do expect our disclosures will be expanded as a result.

In June 2011, the FASB issued Accounting Standards Update 2011-05 (“ASU 2011-05”), “Presentation of Comprehensive Income.” ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity and requires all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, ASU 2011-05 requires an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income. ASU 2011-05 is effective for us beginning January 1, 2012. We do not expect ASU 2011-05 to have a material effect on our financial statements as we currently present other comprehensive income components in a separate but consecutive statement.

In December 2011, the FASB issued Accounting Standards Update 2011-10 (“ASU 2011-10”), “Property Plant & Equipment (Topic 360): Derecognition of In-Substance Real Estate - a Scope Clarification,” ASU 2011-10 resolves the diversity in practice about whether the guidance under FASB Accounting Standards Codification (“ASC”) Subtopic 360-20, “Property, Plant, and Equipment - Real Estate Sales,” applies to the derecognition of in substance real estate when a parent ceases to have a controlling financial interest in a subsidiary, as specified under ASC Subtopic 810-10, “Non-Controlling Interests in Consolidated Financial Statements - an amendment of ARB No. 51,” that is in substance real estate as a result of default by the subsidiary on its nonrecourse debt. The new guidance is intended to emphasize the accounting for such transactions which is based upon substance over form. ASU 2011-10 is effective for us beginning July 1, 2012 and is not expected to have a material effect on our financial statements.

In December 2011, the FASB issued Accounting Standards Update 2011-12 (“ASU 2011-12”), “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05.” ASU 2011-12 indefinitely defers the requirements for entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented. Entities will still be required to comply with the other aspects of ASU 2011-05 as noted above. ASU 2011-12 is effective for us beginning January 1, 2012 and is not expected to have a material effect on our financial statements.

Previous: Item 6. Selected Financial Data · Next: Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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

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

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