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 and discretionary funds involve risks not present in investments in which we are the sole investor;


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


•	we rely on information technology in our operations, and any breach, interruption or security failure of that technology could have a negative impact to our business and/or financial condition;


•	we depend on our key personnel;


•	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, 2012, we owned interests in, operated, or were developing 202 multifamily properties comprising 68,620 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, 2012 reflect an increase in rental revenue as compared to 2011, 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 6.5% in 2012, following a 5.5% increase in 2011. We believe U.S. economic and employment growth will continue during 2013 and the supply of new multifamily homes, although increasing, will continue to be below historical levels. However, we believe significant risks to the economy remain prevalent, and while there have been increases 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, 2012, we completed construction of seven development projects, including one community containing 244 units owned by one of our discretionary funds in which we have a 20% ownership interest. As of December 31, 2012, five of these projects reached stabilization. At December 31, 2012, we had a total of nine development projects under construction containing 2,845 units, including two development projects containing 576 units owned by one of our discretionary funds, with initial occupancy expected within the next 24 months. Excluding the development projects owned by one of our discretionary funds, we have remaining expected costs to complete of approximately $353.9 million on the seven consolidated projects under construction as of December 31, 2012.

Acquisitions

During the year ended December 31, 2012, we acquired twenty operating properties in nine transactions totaling approximately $770.2 million, including the assumption of approximately $298.8 million in secured debt. Thirteen of these operating properties were owned by former unconsolidated joint ventures in which we acquired the remaining ownership interests. We also acquired approximately 22.6 acres of land in four transactions for approximately $33.6 million and intend to utilize these land holdings for development of multifamily apartment communities. We funded these acquisitions through cash generated from operations, proceeds from our at-the-market share offering programs (“ATM programs”), proceeds from an equity offering completed in January 2012, proceeds from a debt offering completed in December 2012 and proceeds from property dispositions.

During the year ended December 31, 2012, one of our discretionary funds acquired one operating property and two land holdings totaling 18.7 acres, which it intends to utilize for development of multifamily apartment communities.

Dispositions

During the year ended December 31, 2012, we sold eleven operating properties consisting of 3,213 units for approximately $233.2 million and recognized a gain of approximately $115.1 million on these transactions. During January 2013, we sold one operating property consisting of 770 units.

During the year ended December 31, 2012, two of our unconsolidated joint ventures sold seven operating properties consisting of 2,406 units for approximately $232.8 million. Our proportionate share of the gains on these transactions was approximately $17.4 million.

Future Outlook

Subject to market conditions, we intend to continue to look for opportunities to expand our development pipeline and acquire existing communities. We continually evaluate our operating property and land development portfolio and plan to continue our practice of selective dispositions as market conditions warrant and opportunities develop. We also intend to continue to strengthen our capital and liquidity positions by continuing to focus on our core fundamentals which we believe 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 cash flows generated from operations, available cash balances, draws on our unsecured credit facility, proceeds from property dispositions, equity issued from our ATM program, the use of debt and equity offerings under our automatic shelf registration statement and secured mortgages.

As of December 31, 2012, we had approximately $26.7 million in cash and cash equivalents and no balances outstanding on our $500 million unsecured line of credit. As of the date of this filing, we had common shares having an aggregate offering price of up to $123.6 million remaining available for sale under our ATM program. We believe payments on debt maturing in 2013 are manageable at $229.2 million, which represents approximately 9% of our total outstanding debt and includes scheduled principal amortizations of approximately $3.4 million. In January 2013, we repaid a $26.1 million secured conventional mortgage note which was scheduled to mature in April 2013. 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 we believe are prudent to meet our objectives and capital requirements.

Property Portfolio

Our multifamily property portfolio is summarized as follows:



	December 31, 2012		December 31, 2011
	Apartment Homes	Properties	Apartment Homes	Properties
Operating Properties
Houston, Texas	8,440	24	9,354	26
Las Vegas, Nevada	8,016	29	8,016	29
Tampa, Florida (1)	6,493	15	5,953	13
Dallas, Texas	6,227	16	5,979	15
Washington, D.C. Metro	5,791	17	5,604	16
Orlando, Florida	4,202	10	3,564	9
Atlanta, Georgia	3,351	11	3,546	12
Charlotte, North Carolina	3,134	13	3,574	15
Raleigh, North Carolina	3,054	8	2,704	7
Austin, Texas	3,030	9	3,222	10
Phoenix, Arizona	2,645	9	2,433	8
Southeast Florida	2,520	7	2,520	7
Los Angeles/Orange County, California	2,481	6	2,481	6
Denver, Colorado	2,441	8	2,171	7
San Diego/Inland Empire, California	1,665	5	1,196	4
Other	2,285	6	4,680	12
Total Operating Properties	65,775	193	66,997	196



	December 31, 2012		December 31, 2011
	Apartment Homes	Properties	Apartment Homes	Properties
Properties Under Development
Washington, D.C. Metro	596	2	783	3
Denver, Colorado	424	1	—	—
Atlanta, Georgia	379	1	—	—
Austin, Texas	314	1	244	1
Los Angeles/Orange County, California	303	1	—	—
Orlando, Florida	300	1	858	2
Houston, Texas	268	1	372	2
Southeast Florida	261	1	—	—
Tampa, Florida	—	—	540	2
Total Properties Under Development	2,845	9	2,797	10
Total Properties	68,620	202	69,794	206
Less: Unconsolidated Joint Venture Properties (2)
Houston, Texas	3,152	10	4,368	13
Las Vegas, Nevada	3,098	14	4,047	17
Austin, Texas	1,360	4	1,613	5
Dallas, Texas	1,250	3	1,706	4
Tampa, Florida	450	1	450	1
Raleigh, North Carolina	350	1	—	—
Orlando, Florida	300	1	—	—
Washington, D. C. Metro	276	1	276	1
Atlanta, Georgia	234	1	344	2
Denver, Colorado	—	—	320	1
Phoenix, Arizona	—	—	992	4
Los Angeles/Orange County, California	—	—	421	1
Other	798	3	2,841	8
Total Unconsolidated Joint Venture Properties	11,268	39	17,378	57
Total Properties Fully Consolidated	57,352	163	52,416	149


(1)	Includes one property consisting of 770 apartment homes which was included in properties held for sale at December 31, 2012. This property was sold in January 2013.


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

Acquisitions

During the year ended December 31, 2012, we completed acquisitions of twenty operating properties and one of our unconsolidated joint ventures completed an acquisition of one operating property as follows:



Acquisitions of Operating Properties	Location	Number of Apartment Homes	Date of Acquisition (1)
Camden Addison	Dallas, TX	456	1/25/2012
Camden Holly Springs	Houston, TX	548	1/25/2012
Camden Park	Houston, TX	288	1/25/2012
Camden Sugar Grove	Houston, TX	380	1/25/2012
Camden Parkside	Fullerton, CA	421	1/25/2012
Camden Fountain Palms	Phoenix, AZ	192	1/25/2012
Camden Pecos Ranch	Phoenix, AZ	272	1/25/2012
Camden Sierra	Phoenix, AZ	288	1/25/2012
Camden Towne Center	Phoenix, AZ	240	1/25/2012
Camden Pines	Las Vegas, NV	315	1/25/2012
Camden Summit	Las Vegas, NV	234	1/25/2012
Camden Tiara	Las Vegas, NV	400	1/25/2012
Camden Belmont	Dallas, TX	477	6/28/2012
Camden Creekstone	Atlanta, GA	223	7/12/2012
Camden Landmark	Ontario, CA	469	9/27/2012
Camden Henderson	Dallas, TX	106	9/28/2012
Camden Montierra	Scottsdale, AZ	249	12/11/2012
Camden San Marcos	Scottsdale, AZ	320	12/11/2012
Camden Belleview Station	Denver, CO	270	12/20/2012
Camden Denver West	Denver, CO	320	12/27/2012
Consolidated total		6,468

Camden Asbury Village (2)	Raleigh, NC	350	1/27/2012

(1) The properties acquired on January 25, 2012 were former unconsolidated joint ventures in which we acquired the remaining 80% ownership interests. The 4,034 apartment homes were previously included in our unconsolidated joint venture property count. The property acquired on December 27, 2012 was also a former unconsolidated joint venture in which we acquired the remaining 50% ownership interest and the 320 apartment homes were previously included in our unconsolidated joint venture property count.

(2) Property owned through an unconsolidated joint venture in which we own a 20% interest.

During the year ended December 31, 2012, we acquired the remaining non-controlling ownership interest in three fully consolidated joint ventures, consisting of 680 units located in Houston, Texas and Charlotte, North Carolina, for approximately $16.5 million. The apartment homes were previously included in our consolidated property count.

During the year ended December 31, 2012, we acquired four land tracts and one of our unconsolidated joint ventures acquired two land tracts as follows:



Location of Land Tract Acquisitions	Acreage	Date of Acquisition
Dallas, TX	4.7	5/8/2012
Austin, TX	12.0	8/23/2012
Plantation, FL	2.4	11/1/2012
Charlotte, NC	3.5	11/30/2012
Consolidated total	22.6

Orange County, FL (1)	15.0	3/22/2012
Charlotte, NC (1)	3.7	9/28/2012
Unconsolidated total	18.7

(1) Land tract owned through an unconsolidated joint venture in which we own a 20% interest.

Dispositions

During the year ended December 31, 2012, we sold eleven operating properties and two of our unconsolidated joint ventures sold seven operating properties as follows:



Dispositions of Operating Properties	Location	Number of Apartment Homes	Date of Disposition
Camden Vista Valley	Phoenix, AZ	357	1/12/2012
Camden Landings	Orlando, FL	220	3/7/2012
Camden Creek	Houston, TX	456	3/16/2012
Camden Laurel Ridge	Austin, TX	183	10/12/2012
Camden Steeplechase	Houston, TX	290	10/23/2012
Camden Sweetwater	Lawrenceville, GA	308	11/29/2012
Camden Valleybrook	Philadelphia, PA	352	11/30/2012
Camden Forest	Charlotte, NC	208	12/6/2012
Camden Park Commons	Charlotte, NC	232	12/6/2012
Camden Baytown	Baytown, TX	272	12/13/2012
Camden Westview	Dallas, TX	335	12/18/2012
Consolidated total		3,213

Camden South Congress (1)	Austin, TX	253	8/30/2012
Camden Passage (2)	Kansas City, MO	596	10/30/2012
Camden Ivy Hall (1)	Atlanta, GA	110	11/15/2012
Camden Cedar Lakes (2)	St. Louis, MO	420	11/21/2012
Camden Cove West (2)	St. Louis, MO	276	11/21/2012
Camden Cross Creek (2)	St. Louis, MO	591	11/21/2012
Camden Westchase (2)	St. Louis, MO	160	11/21/2012
Unconsolidated total		2,406

(1) Property formerly owned through an unconsolidated joint venture in which we own a 20% interest.

(2) Property formerly owned through an unconsolidated joint venture in which we own a 15% interest.

During January 2013, we sold one operating property, Camden Live Oaks, consisting of 770 apartment homes.

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, 2012, stabilization was achieved at four recently completed consolidated development properties and one completed development property owned by one of our unconsolidated joint ventures as follows:



Stabilized Property and Location	Number of Apartment Homes	Total Cost Incurred		% Occupied at 1/27/13		Date of Construction Completion	Date of Stabilization
Camden LaVina
Orlando, FL	420	$	55.5	93	%	1Q12	3Q12
Camden Summerfield II
Landover, MD	187	25.0		92	%	1Q12	3Q12
Camden Montague
Tampa, FL	192	20.1		95	%	2Q12	3Q12
Camden Westchase Park
Tampa, FL	348	48.4		97	%	3Q12	4Q12
Consolidated total	1,147	$	149.0

Camden Amber Oaks II (1)
Austin, TX	244	$	22.3	95	%	3Q12	4Q12

(1) Property owned through an unconsolidated joint venture in which we own a 20% interest.

Development and Lease-Up Properties

At December 31, 2012, we had two consolidated completed properties in lease-up as follows:



($ in millions) Property and Location	Number of Apartment Homes	Cost Incurred		% Leased at 1/27/13		Date of Construction Completion	Estimated Date of Stabilization
Camden Royal Oaks II
Houston, TX	104	$	13.3	81	%	1Q12	3Q13
Camden Town Square
Orlando, FL	438	58.7		72	%	4Q12	3Q13
Consolidated total	542	$	72.0

Our consolidated balance sheet at December 31, 2012 included approximately $334.5 million related to properties under development and land. Of this amount, approximately $196.1 million related to our projects currently under development. In addition, we had approximately $138.4 million primarily invested in land held for future development, which included approximately $85.9 million related to projects we expect to begin constructing during the next two years, and approximately $52.5 million invested in land tracts for which we may develop in the future.

Communities Under Construction. At December 31, 2012, we had seven consolidated properties and one of our unconsolidated joint ventures had two properties in various stages of construction as follows:



($ 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 City Centre II Houston, TX	268	$	36.0	$	28.8	$	28.8	2Q13	3Q14
Camden NOMA Washington, DC	320	110.0		71.6		71.6		2Q14	2Q15
Camden Lamar Heights Austin, TX	314	47.0		10.5		10.5		2Q14	3Q15
Camden Flatirons Denver, CO	424	78.0		20.4		20.4		4Q14	4Q16
Camden Glendale Glendale, CA	303	115.0		33.8		33.8		3Q15	1Q16
Camden Boca Raton Boca Raton, FL	261	54.0		7.7		7.7		4Q14	1Q16
Camden Paces Atlanta, GA	379	110.0		23.3		23.3		1Q15	1Q17
Consolidated total	2,269	$	550.0	$	196.1	$	196.1

Camden South Capitol (1) Washington, DC	276	$	88.0	$	70.0	$	70.0	4Q13	3Q14
Camden Waterford Lakes (1) Orlando, FL	300	40.0		6.5		6.5		3Q14	4Q15
Unconsolidated total	576	$	128.0	$	76.5	$	76.5


(1)	Property owned through an unconsolidated joint venture in which we own a 20% interest.

Development Pipeline Communities. At December 31, 2012, we had the following communities undergoing development activities:



($ in millions) Property and Location	Projected Homes	Total Estimated Cost (1)		Cost to Date
Camden La Frontera
Austin, TX	300	$	32.0	$	4.8
Camden Victory Park
Dallas, TX	425	70.0		14.7
Camden Hollywood
Los Angeles, CA	299	125.0		18.7
Camden Centro
Charlotte, NC	324	56.0		8.6
Camden Lincoln Station
Denver, CO	275	48.0		5.2
Camden Atlantic
Plantation, FL	286	62.0		9.4
Camden McGowen Station
Houston, TX	251	40.0		7.1
Camden Buckhead
Atlanta, GA	390	70.0		17.4
Total	2,550	$	503.0	$	85.9

(1) Represents our best estimate of the total costs we expect to incur on these projects. However, forward-looking statements are not guarantees of future performance, results, or events. Although we believe these expectations are based upon reasonable assumptions, future events rarely develop exactly as forecasted, and the best estimates routinely require adjustment.

Land Holdings. At December 31, 2012, we had the following land tracts:



($ in millions) Location	Acreage	Cost to Date
Washington, DC	0.9	$	17.3
Atlanta, GA	5.0	10.1
Dallas, TX	7.2	8.6
Houston, TX	13.2	6.9
Las Vegas, NV	19.6	4.2
Other	4.8	5.4
Total	50.7	$	52.5

Geographic Diversification

At December 31, 2012 and 2011, our real estate assets by various markets, excluding depreciation, investments in joint ventures and properties held for sale, were as follows:



(in thousands)	2012				2011
Washington, D.C. Metro	$	1,276,153	19.1	%	$	1,234,401	21.2	%
Los Angeles/Orange County, California	621,480		9.3		452,451		7.8
Houston, Texas	546,761		8.2		452,830		7.8
Southeast Florida	482,213		7.2		462,384		8.0
Dallas, Texas	447,539		6.7		302,299		5.2
Orlando, Florida	445,112		6.7		422,811		7.3
Tampa, Florida	412,010		6.2		436,922		7.5
Las Vegas, Nevada	411,270		6.2		315,330		5.4
Atlanta, Georgia	384,658		5.8		369,107		6.3
Charlotte, North Carolina	330,849		5.0		331,518		5.7
Denver, Colorado	322,534		4.8		193,285		3.3
Phoenix, Arizona	278,671		4.2		98,698		1.7
Raleigh, North Carolina	248,458		3.7		243,114		4.2
San Diego/Inland Empire, California	230,515		3.4		228,582		3.9
Austin, Texas	161,841		2.4		156,833		2.7
Other	73,850		1.1		118,975		2.0
Total	$	6,673,914	100.0	%	$	5,819,540	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 for 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:



($ in thousands)	2012			2011			2010
Average monthly property revenue per apartment home	$	1,182		$	1,121		$	1,051
Annualized total property expenses per apartment home	$	5,256		$	5,201		$	5,036
Weighted average number of operating apartment homes owned 100%	51,308			46,167			45,030
Weighted average occupancy of operating apartment homes owned 100% *	95.2		%	94.7		%	93.8		%

* 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, 2012 as compared to 2011 and for the year ended December 31, 2011 as compared to 2010:



	Apartment Homes	Year Ended December 31,				Change
($ in thousands)	at 12/31/12	2012		2011		$			%
Property revenues:
Same store communities	44,774	$	636,904	$	598,003	$	38,901		6.5	%
Non-same store communities	8,997	82,733		18,028		64,705			358.9
Development and lease-up communities	2,811	2,161		1		2,160			*
Other	—	6,110		5,042		1,068			21.2
Total property revenues	56,582	$	727,908	$	621,074	$	106,834		17.2	%
Property expenses:
Same store communities	44,774	$	234,391	$	229,434	$	4,957		2.2	%
Non-same store communities	8,997	31,208		6,537		24,671			377.4
Development and lease-up communities	2,811	1,035		—		1,035			*
Other	—	3,035		4,157		(1,122		)	(27.0	)
Total property expenses	56,582	$	269,669	$	240,128	$	29,541		12.3	%

Not a meaningful percentage.

Same store communities are communities we owned and were stabilized as of January 1, 2011, excluding communities under major redevelopment. Non-same store communities are stabilized communities we have acquired or developed after January 1, 2011 or communities which underwent major redevelopment after January 1, 2011. Development and lease-up communities are non-stabilized communities we have acquired or developed after January 1, 2011, excluding communities under major redevelopment. Other includes results from non-multifamily rental properties, above/below market lease amortization related to acquired communities, and expenses primarily relating to land holdings not under active development. Properties held for sale are excluded from the above results.



	Apartment Homes	Year Ended December 31,				Change
($ in thousands)	at 12/31/11	2011		2010		$			%
Property revenues:
Same store communities	42,538	$	560,423	$	530,840	$	29,583		5.6	%
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	48,433	$	621,074	$	568,072	$	53,002		9.3	%
Property expenses:
Same store communities	42,538	$	215,374	$	208,938	$	6,436		3.1	%
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	48,433	$	240,128	$	226,778	$	13,350		5.9	%

Not a meaningful percentage.

Same store communities are communities we owned and which were stabilized as of January 1, 2010, excluding communities under major redevelopment. Non-same store communities are stabilized communities we have acquired or developed after January 1, 2010 or communities which underwent major redevelopment after January 1, 2010. Development and lease-up communities are non-stabilized communities we have developed or acquired after January 1, 2010, excluding communities under major redevelopment. Other includes results from non-multifamily rental properties, above/below market lease amortization related to acquired communities, and expenses primarily relating to land holdings not under active development. Properties held for sale are excluded from the above results.

Same store analysis:

Same store property revenues for the year ended December 31, 2012 increased approximately $38.9 million, or 6.5%, from 2011. Same store rental revenues increased approximately $33.6 million for the year ended December 31, 2012 as compared to 2011, primarily due to a 5.7% increase in average rental rates and a 0.6% increase in average occupancy for our same store portfolio, from 94.7% in 2011 to 95.3% in 2012. During the year ended December 31, 2012, average rental rates on new leases were 3.9% higher than expiring lease rates and average renewal rates were 7.9% higher than expiring lease rates. We believe the increase to rental revenue was due in part to a gradually improving economy, favorable demographics, a modest supply of new multifamily housing, and a decline in home ownership rates. Additionally, there was a $5.3 million increase in other property revenue during the year ended December 31, 2012 as compared to 2011 primarily due to increases in miscellaneous fees and charges and revenues from ancillary income from our utility rebilling programs.

Same store property revenues for the year ended December 31, 2011 increased approximately $29.6 million, or 5.6%, from 2010. Same store rental revenues increased approximately $23.9 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 3.7% higher than expiring lease rates and average renewal rates were 8.0% higher than expiring lease rates. We believe the increase to rental revenue was 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.

Property expenses from our same store communities increased approximately $5.0 million, or 2.2%, for the year ended December 31, 2012 as compared to 2011. The increase was due to a $1.9 million, or 3%, increase in real estate taxes as a result of higher property valuations and property tax rates at a number of our communities, offset partially by refunds received on successful protests of prior year tax assessments. The increase was also due to a $3.0 million, or 5.5%, increase in salaries and benefit expenses due to increases in salaries and incentive compensation and higher medical benefit costs. Utility expenses, including costs associated with our utility rebilling programs, increased approximately $0.2 million during the year ended December 31, 2012 as compared to the same period in 2011. Excluding the expenses associated with our utility rebilling programs, same store property expenses for the year ended December 31, 2012 increased approximately $4.7 million, or 2.2%, as compared to 2011.

Property expenses from our same store communities increased approximately $6.4 million, or 3.1%, 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, 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 utility rebilling programs, same store property expenses for 2011 increased approximately $5.4 million, or 2.8%, from 2010.

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

Property revenues from non-same store and development and lease-up communities increased approximately $66.9 million for the year ended December 31, 2012 as compared to 2011 and increased approximately $22.6 million for the year ended December 31, 2011 as compared to 2010. The increase in 2012 as compared to 2011 was primarily due to approximately $44.9 million of revenues recognized in 2012 related to twelve joint venture communities we consolidated during January 2012 and one joint venture community we consolidated during December 2012, which were previously accounted for in accordance with the equity method of accounting. The increase in revenues was also due to approximately $7.8 million in revenues related to the acquisition of seven properties during 2012. The increase for non-same store and development and lease-up communities was also related to four properties in our development pipeline reaching stabilization and the completion and partial lease-up of two properties in our development pipeline during 2012. The increase in 2011 as compared to 2010 was primarily due to approximately $18.0 million of revenues during 2011 related 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 for 2011 for non-same store and development and lease-up communities was also due to two properties in our development and re-development pipelines reaching stabilization during the second and third quarters of 2010 and the completion and partial lease-up of two properties in our development pipeline during 2011.

Property expenses from non-same store and development and lease-up communities increased approximately $25.7 million for the year ended December 31, 2012 as compared to 2011 and increased approximately $7.9 million for 2011 as compared to 2010. The increase in 2012 as compared to 2011 was primarily due to $17.9 million of expenses during 2012 relating to twelve joint venture communities we consolidated during January 2012 and one joint venture community we consolidated during December 2012, $3.1 million of expenses related to the acquisition of seven properties during 2012, and $3.8 million of expenses related to

four properties in our development pipeline reaching stabilization, and the partial lease-up of two properties in our development pipeline during 2012. The increase in 2011 as compared to 2010 was primarily due to approximately $7.1 million of expenses recognized during 2011 related to three joint venture communities we consolidated during the second half of 2010 and the completion and partial lease-up of two properties in our development pipeline during 2011.

Other property analysis:

Other property revenues increased approximately $1.1 million for the year ended December 31, 2012 as compared to 2011 and increased $0.8 million for the year ended December 31, 2011 as compared to 2010. The increase in 2012 was primarily due to revenues of approximately $1.4 million for the year ended December 31, 2012 from above and below market lease amortization related to our 2012 acquisitions. The increase in 2011 as compared to 2010 was primarily related to increases in rental income from our non-multifamily rental properties.

Other property expenses decreased approximately $1.1 million for the year ended December 31, 2012 as compared to 2011 and decreased $1.0 million for the year ended December 31, 2011 as compared to 2010. The decrease in 2012 was primarily related to decreases in property taxes expensed on four land holdings for projects which were approved during 2012 and the second half of 2011 for development activities. As a result, we started capitalizing expenses, including property taxes, on these development projects. The decrease in 2011 as compared to 2010 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.

Non-property income



	Year Ended December 31,					Change					Year Ended December 31,				Change
($ in thousands)	2012			2011		$			%		2011		2010		$			%
Fee and asset management	$	12,345		$	9,973	$	2,372		23.8	%	$	9,973	$	8,172	$	1,801		22.0	%
Interest and other income (loss)	(710		)	4,649		(5,359		)	(115.3	)	4,649		8,584		(3,935		)	(45.8	)
Income on deferred compensation plans	4,772			6,773		(2,001		)	(29.5	)	6,773		11,581		(4,808		)	(41.5	)
Total non-property income	$	16,407		$	21,395	$	(4,988	)	(23.3	)%	$	21,395	$	28,337	$	(6,942	)	(24.5	)%

Fee and asset management income increased approximately $2.4 million for the year ended December 31, 2012 as compared to 2011 and increased approximately $1.8 million for the year ended December 31, 2011 as compared to 2010. The increase for 2012 was primarily due to an increase in property management, development and construction fees due to acquisitions completed and development communities started by our funds in 2011 and 2012. The increase was partially offset by a decrease in property management fees due to our consolidation of twelve joint venture communities in January 2012, which were previously accounted for in accordance with the equity method of accounting, and the sale of seven operating properties by two of our unconsolidated joint ventures during the third and fourth quarters of 2012.

The increase in fee and asset management income for 2011 as compared to 2010 was primarily related to an increase in property management, development and construction fees due to acquisitions completed and development communities started by our funds during 2011 and the fourth quarter of 2010. The increase was partially offset by a decrease in construction fees due to a reduction in third party construction activities during 2011 as compared to 2010. The increase was further 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.

Interest and other income (loss) decreased approximately $5.4 million for the year ended December 31, 2012 as compared to 2011 and decreased approximately $3.9 million for the year ended December 31, 2011 as compared to 2010. The decrease during 2012 as compared to 2011 was primarily due to a $4.3 million gain recognized in 2011 relating to the sale of an available-for-sale investment, and an increase in losses recognized on non-designated hedges of approximately $0.6 million during the year ended December 31, 2012. The decrease during 2011 as compared to 2010 was primarily due to $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 guarantee obligation. The decrease in 2011 as compared to 2010 was also 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. These decreases were partially offset by a $4.3 million gain relating to the sale of an available-for-sale investment recognized in 2011.

Our deferred compensation plans earned income of approximately $4.8 million, $6.8 million and $11.6 million in 2012, 2011 and 2010, respectively. The changes were related to the performance of the investments held in the deferred compensation plans for participants and were directly offset by the expense related to these plans, as discussed below.

Other expenses



	Year Ended December 31,				Change					Year Ended December 31,				Change
($ in thousands)	2012		2011		$			%		2011		2010		$			%
Property management	$	21,796	$	20,686	$	1,110		5.4	%	$	20,686	$	19,982	$	704		3.5	%
Fee and asset management	6,631		5,935		696			11.7		5,935		4,841		1,094			22.6
General and administrative	37,528		35,456		2,072			5.8		35,456		30,762		4,694			15.3
Interest	104,282		112,414		(8,132		)	(7.2	)	112,414		125,893		(13,479		)	(10.7	)
Depreciation and amortization	203,077		171,127		31,950			18.7		171,127		161,760		9,367			5.8
Amortization of deferred financing costs	3,608		5,877		(2,269		)	(38.6	)	5,877		4,102		1,775			43.3
Expense on deferred compensation plans	4,772		6,773		(2,001		)	(29.5	)	6,773		11,581		(4,808		)	(41.5	)
Total other expenses	$	381,694	$	358,268	$	23,426		6.5	%	$	358,268	$	358,921	$	(653	)	(0.2	)%

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, 2012 as compared to 2011 and increased approximately $0.7 million for the year ended December 31, 2011 as compared to 2010. The increases as compared to the prior year periods were primarily due to higher salaries, benefits and incentive compensation for our property management personnel. The increase in 2012 as compared to 2011 was partially offset by a decrease in administrative costs. Property management expenses were 3.0%, 3.3%, and 3.5% of total property revenues for the years ended December 31, 2012, 2011, and 2010, respectively.

Fee and asset management expense, which represents expenses related to third party construction projects and property management of our joint ventures, increased approximately $0.7 million for the year ended December 31, 2012 as compared to 2011 and increased approximately $1.1 million for the year ended December 31, 2011 as compared to 2010. The increase in 2012 as compared to 2011 primarily related to an increase in expenses related to the management of acquisitions completed and development communities started by our funds during 2011 and 2012. The increase was partially offset by a decrease in expenses resulting from our consolidation of twelve joint venture communities in January 2012, which were previously accounted for in accordance with the equity method of accounting, and the sale of seven operating properties by two of our unconsolidated joint ventures during the third and fourth quarters of 2012.

The increase in fee and asset management expense for 2011 as compared to 2010 was primarily related to an increase in expenses related to the management of acquisitions completed and development communities started by our funds during 2011 and the fourth quarter of 2010. The increase was 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.

General and administrative expenses increased approximately $2.1 million during the year ended December 31, 2012 as compared to 2011 and increased approximately $4.7 million during the year ended December 31, 2011 as compared to 2010. General and administrative expenses were 5.1%, 5.6% and 5.3% of total revenues, excluding income on deferred compensation plans, for the years ended December 31, 2012, 2011 and 2010, respectively. The increase in 2012 as compared to 2011 was primarily due to increases in salaries, benefits and incentive compensation expenses of approximately $2.4 million and an increase in professional fees of approximately $1.5 million primarily relating to higher consulting costs, legal expenses and audit costs. The increase was also due to an increase in expensed costs related to our acquisitions completed in 2012 of approximately $0.6 million. These increases were offset by approximately $2.1 million in one-time bonuses awarded to all non-executive employees in the first quarter of 2011.

The increase in general and administrative expenses for the year ended December 31, 2011 as compared to 2010 was primarily due to approximately $2.1 million in one-time bonuses awarded to all non-executive employees in the first quarter of 2011 mentioned above 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.

Interest expense decreased approximately $8.1 million for the year ended December 31, 2012 as compared to 2011 and decreased approximately $13.5 million for the year ended December 31, 2011 as compared to 2010. The decrease in interest expense in 2012 as compared to 2011 was primarily due to the repayment of our $500 million term loan in June 2011, the retirement of two unsecured notes payable during the first half of 2011, the retirement of four secured notes payable and one unsecured note payable during 2012, and higher capitalized interest of approximately $3.7 million as compared to 2011 due to higher average balances in our development pipeline. These decreases were partially offset by an increase in interest expense related to our issuance in June 2011 of $500 million senior unsecured notes payable and our issuance in December 2012 of $350 million senior unsecured notes payable.

The decrease in interest expense in 2011 as compared to 2010 was primarily due to the repayment of our $500 million term loan in June 2011, the retirement of four unsecured notes payable during 2010, the retirement of two unsecured notes payable during 2011, and 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 in June 2011 of $500 million in senior unsecured notes payable and the 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.

Depreciation and amortization expense increased approximately $32.0 million during the year ended December 31, 2012 as compared to 2011 and increased approximately $9.4 million during the year ended December 31, 2011 as compared to 2010. The increase in 2012 was primarily due to the consolidation of twelve joint venture communities in January 2012, which were previously accounted for using the equity method of accounting and the acquisition of seven operating properties during 2012. The increases were also due to the completion of units in our development pipeline and an increase in capital improvements placed in service throughout 2011 and 2012. The increase in 2011 as compared to 2010 was primarily due to depreciation on capital improvements placed in service throughout 2011 and 2010. The increase was 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 decreased approximately $2.3 million during the year ended December 31, 2012 as compared to 2011 and increased approximately $1.8 million during the year ended December 31, 2011 as compared to 2010. The decrease for 2012 was due to lower amortization of financing costs as a result of an amendment to our $500 million credit facility in September 2011 which extended the maturity date three years. The decrease was also due to lower amortization and the write-off of approximately $0.5 million of unamortized loan costs associated with the repayment of the $500 million term loan in June 2011. This decrease was partially offset by higher amortization of financing costs associated with the issuance in June 2011 of $500 million senior unsecured notes payable. The increase for 2011 as compared to 2010 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 issuance in June 2011 of $500 million senior unsecured notes payable. 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.

Our deferred compensation plans incurred expenses of approximately $4.8 million, $6.8 million and $11.6 million in 2012, 2011 and 2010, 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



	Year Ended December 31,						Change			Year Ended December 31,						Change
($ in thousands)	2012			2011			$			2011			2010			$
Gain on acquisition of controlling interest in joint ventures	$	57,418		$	—		$	57,418		$	—		$	—		$	—
Gain on sale of properties, including land	—			4,748			(4,748		)	4,748			236			4,512
Gain on sale of unconsolidated joint venture interests	—			1,136			(1,136		)	1,136			—			1,136
Loss on discontinuation of hedging relationship	—			(29,791		)	29,791			(29,791		)	—			(29,791		)
Impairment provision on technology investment	—			—			—			—			(1,000		)	1,000
Equity in income (loss) of joint ventures	20,175			5,679			14,496			5,679			(839		)	6,518
Income tax expense – current	(1,208		)	(2,220		)	1,012			(2,220		)	(1,581		)	(639		)

As of December 31, 2011, we held a 20% ownership interest in twelve unconsolidated joint ventures which owned twelve apartment communities containing 4,034 apartment homes located in Dallas, Houston, Las Vegas, Phoenix, and Southern California. In January 2012, we acquired the remaining 80% ownership interests in these joint ventures resulting in these entities being wholly-owned. In December 2012, we acquired the remaining 50% ownership interest in another unconsolidated joint venture which owned one apartment community, containing 320 apartment homes located in Denver, Colorado. We previously accounted for

these 13 joint ventures under the equity method of accounting. Our acquisitions of these remaining ownership interests resulted in a gain of approximately $57.4 million, which represented the difference between the fair market value of our previously owned equity interests and the cost basis in our investment on the date of acquisition.

Gain on sale of properties, including land, totaled approximately $4.7 million and $0.2 million for the years ended December 31, 2011 and 2010, respectively. The gain 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 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.

The loss on discontinuation of hedging relationship during the year ended December 31, 2011 was due to the discontinuation of a cash flow hedge associated with the repayment of our $500 million term loan in June 2011.

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 $14.5 million for the year ended December 31, 2012 as compared to 2011, and increased approximately $6.5 million for the year ended December 31, 2011 as compared to 2010. The increase in 2012 as compared to 2011 was primarily due to a $17.4 million gain relating to our proportionate share of the gain on the sale of seven operating properties by two of our unconsolidated joint ventures in 2012. The increase was also due to an increase in earnings recognized in 2012 relating to 18 acquisitions of operating properties completed by the funds during 2011. These increases were partially offset by the acquisition and consolidation by us of twelve operating joint ventures in January 2012 which were previously accounted for in accordance with the equity method of accounting. These increases were further offset by a $6.4 million gain relating to our proportionate share of the gain on sale of four operating properties by one of our unconsolidated joint ventures during the fourth quarter of 2011.

The increase in 2011 as compared to 2010 was primarily due to a $6.4 million gain related to our proportionate share of the gain on 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.

We had current income tax expense of approximately $1.2 million, $2.2 million, and $1.6 million for the tax years ended December 31, 2012, 2011, and 2010, respectively. The decrease in income tax expense during 2012 as compared to 2011 and the increase in income tax expense during 2011 as compared to 2010 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. The increase in 2011 as compared to 2010 was partially offset by a decrease in taxable income related to our third party construction activities conducted in a taxable REIT subsidiary.

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 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 non-controlling 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 assist in the comparison of 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 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)	2012			2011			2010
Funds from operations
Net income attributable to common shareholders (1)	$	283,390		$	49,379		$	23,216
Real estate depreciation and amortization, including discontinued operations	205,437			177,187			170,660
Adjustments for unconsolidated joint ventures	7,939			10,534			8,943
Gain on acquisition of controlling interests in joint ventures	(57,418		)	—			—
Gain on sale of unconsolidated joint venture properties (2)	(17,418		)	(6,394		)	—
Gain on sale of unconsolidated joint venture interests	—			(1,136		)	—
Gain on sale of properties and discontinued operations, net of tax	(115,068		)	(24,621		)	(9,614		)
Income allocated to non-controlling interests	6,475			2,586			1,104
Funds from operations – diluted	$	313,337		$	207,535		$	194,309
Weighted average shares – basic	83,772			72,756			68,608
Incremental shares issuable from assumed conversion of:
Common share options and share awards granted	647			706			348
Common units	2,200			2,466			2,596
Weighted average shares – diluted	86,619			75,928			71,552


(1)	Includes a $29.8 million charge related to a loss on discontinuation of a hedging relationship for the year ended December 31, 2011.


(2)	The gain in 2012 represents our proportionate share of the gain on sale of seven operating properties sold during 2012 by two of our unconsolidated joint ventures. The gain in 2011 represents our proportionate share of the gain on sale of four operating properties sold by an unconsolidated joint venture during 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 4.0, 3.2, and 2.6 times for the years ended December 31, 2012, 2011, and 2010, respectively. 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, 2012, 2011, and 2010, approximately 76.5%, 71.7%, and 71.1%, respectively, of our properties (based on invested capital) were unencumbered. Our weighted average maturity of debt was approximately 7.0 years at December 31, 2012.

We intend to continue to focus on strengthening 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.

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, equity issued from our ATM program, the use of debt and equity offerings under our automatic shelf registration statement and secured mortgages.

We believe our liquidity and financial condition are sufficient to meet all of our reasonably anticipated cash needs during 2013 including:


•	normal recurring operating expenses;


•	current debt service requirements, including debt maturities;


•	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 purchases or sales, the effect our debt level and changes 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, 2012 and 2011.

Net cash provided by operating activities was approximately $324.3 million during the year ended December 31, 2012 as compared to approximately $244.8 million during the year ended December 31, 2011. The increase was primarily due to growth in property revenues directly attributable to increased rental and occupancy rates from our same store communities and the growth in non-same store communities as we consolidated twelve joint ventures in the first quarter of 2012 and one unconsolidated joint venture in December 2012. The increase in non-same store revenues also related to acquisitions of seven operating properties completed in 2012. This increase in revenues was partially offset by the increase in property expenses from our same store and non-same store communities related to the above noted activity. See further discussions of our 2012 operations as compared to 2011 in our “Results of Operations.”

Net cash used by investing activities during the year ended December 31, 2012 totaled approximately $527.7 million as compared to approximately $187.4 million during the year ended December 31, 2011. Cash outflows for property development and capital improvements were approximately $290.7 million during 2012 as compared to approximately $227.8 million during 2011 due primarily to an increase in construction and development activity in 2012 as compared to 2011. The property development and capital improvements during 2012 included expenditures for new development, including land, of approximately $169.6 million, capitalized interest, real estate taxes, and other capitalized indirect costs of approximately $20.3 million, approximately $37.7 million related to redevelopment expenditures, and approximately $63.0 million of other capital expenditures. The property development and capital improvements during 2011 included expenditures for new development, including land, of approximately $145.3 million, capitalized interest, real estate taxes, and other capitalized indirect costs of approximately $14.2 million, approximately $14.5 million related to redevelopment expenditures, and approximately $53.7 million of other capital expenditures.

Additional cash outflows used in investing activities during the year ended December 31, 2012 related to acquisitions of seven operating properties and the controlling interests in thirteen former joint ventures, net of cash acquired totaling approximately $465.4 million. During 2012, we also used approximately $7.0 million for investments in joint ventures relating to acquisitions of an operating property and two land development properties by one of our funds, in which we own a 20% interest. During 2011, cash outflows for investments in joint ventures were approximately $46.0 million due to eighteen acquisitions of operating properties completed by our funds. During the year ended December 31, 2012, cash outflows were partially offset by proceeds of approximately $226.9 million from the sale of eleven operating properties. Cash outflows were further offset by distributions of investments from joint ventures of approximately $17.4 million during the year ended December 31, 2012, which included $14.2 million in distributions of investments from two unconsolidated joint ventures relating to the sale of seven operating properties in the third and fourth quarters of 2012. Distributions of investments from joint ventures received during the year ended December 31, 2011 was approximately $6.0 million. During 2011, cash 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, 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. These outflows were further offset by proceeds received from the sale of our available-for-sale investment of $4.5 million during February 2011, and payments received on notes receivable from affiliates of approximately $3.3 million.

Net cash provided by financing activities totaled approximately $174.9 million during the year ended December 31, 2012 as compared to $172.9 million used during the year ended December 31, 2011. During 2012, we received net proceeds of approximately $693.4 million from the issuance of 11.2 million shares from our ATM programs and through an equity offering

completed in January 2012. Cash inflows during 2012 also included proceeds of approximately $346.3 million relating to issuance of $350 million unsecured notes payable completed in December 2012 and proceeds of approximately $13.0 million from common share options exercised during the period. The inflow during 2012 was partially offset by approximately $272.6 million used to repay the mortgage debt of twelve former joint ventures we acquired in January 2012, and $295.0 million used to repay maturing secured and unsecured notes payable. Cash inflows during this period were also offset by approximately $100.0 million used to redeem our perpetual preferred units and approximately $189.0 million used for distributions paid to common shareholders, perpetual preferred unit holders, and non-controlling interest holders. During 2011 we used approximately $627.6 million to repay our outstanding $500 million term loan and maturing secured and unsecured notes. We also used approximately $152.2 million during this period for distributions paid to common shareholders, perpetual preferred unit holders, and non-controlling interest holders. The cash outflows were partially offset by net proceeds of approximately $495.7 million provided from the issuance of two series of unsecured notes completed in June 2011, net proceeds of approximately $106.6 million from the issuance of 1.7 million common shares under our ATM programs, and net proceeds of approximately $11.4 million provided from common share options exercised during the period.

Financial Flexibility

We have a $500 million unsecured credit facility which matures in September 2015 with an option to extend at our election to September 2016. Additionally, we 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 the existing banks in the credit facility 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. We are in compliance with all such financial covenants and limitations.

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, 2012, we had no balances outstanding on our $500 million unsecured line of credit. However, we had outstanding letters of credit totaling approximately $11.0 million, leaving approximately $489.0 million available under our unsecured line of credit. As an alternative to our unsecured line of credit, from time to time, we may borrow using an unsecured overnight borrowing facility. Our use of short-term borrowings does not decrease the amount available under our unsecured line of credit.

We currently have an automatic shelf registration statement with the SEC which allows us to offer, from time to time, an unlimited amount of common shares, preferred shares, debt securities, or warrants. On May 11, 2012, the shareholders of the Company approved an amendment to our Amended and Restated Declaration of Trust to increase our total number of authorized shares from 110.0 million to 185.0 million shares of beneficial interest, consisting of 175.0 million common shares and 10.0 million preferred shares.

In May 2012, we created an ATM program through which we can, but have no obligation to, sell common shares having an aggregate offering price of up to $300 million (the “2012 ATM program”), 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 by management of the appropriate sources of funding for us. We intend to use the net proceeds from the 2012 ATM program for general corporate purposes, which may include funding for development activities, financing for acquisitions, the redemption or other repurchase of outstanding debt or equity securities, reducing future borrowings under our $500 million unsecured line of credit, and the repayment of other indebtedness. As of the date of this filing, we had common shares having an aggregate offering price of up to $123.6 million remaining available for sale under the 2012 ATM program.

We believe our ability to access capital markets is enhanced by our senior unsecured debt ratings by Moody’s, Fitch, and Standard and Poors, which are currently Baa1, BBB+ and BBB, respectively, with stable, stable and positive outlooks, respectively, 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 2013, approximately $229.2 million of debt, including scheduled principal amortizations of approximately $3.4 million, is scheduled to mature. In January 2013, we repaid a $26.1 million secured third party note payable which was scheduled to mature in April 2013. See Note 9, “Notes Payable,” in the Notes to Consolidated Financial Statements for further discussion of scheduled maturities.

We intend to incur approximately $353.9 million of additional expected costs to complete our consolidated communities under construction. Of this amount, we expect approximately $200.7 million will be incurred during 2013 and the remainder of the costs to be incurred during 2014. Additionally, we also expect to incur between approximately $50 million and $60 million of additional redevelopment expenditures and $60 million and $64 million of additional other capital expenditures during 2013.

We intend to meet our near-term liquidity requirements through cash flows generated from operations, available cash balances, draws on our unsecured credit facility, and proceeds from property dispositions. We continually evaluate our operating property and land development portfolio and plan to continue our practice of selective dispositions as market conditions warrant and opportunities develop. We also intend to meet our near-term liquidity requirements through equity issued from our ATM program, the use of debt and equity offerings under our automatic shelf registration statement and secured mortgages.

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 2012, we announced our Board of Trust Managers had declared a dividend distribution of $0.56 per share to our common shareholders of record as of December 17, 2012. The dividend was subsequently paid on January 17, 2013. We paid equivalent amounts per unit to holders of common operating partnership units. When aggregated with previous 2012 dividends, this distribution to common shareholders and holders of common operating partnership units equates to an annual dividend rate of $2.24 per share or unit for the year ended December 31, 2012.

In the first quarter of 2013, the Company's Board of Trust Managers increased the quarterly dividend rate from $0.56 to $0.63 per common share. Future dividend payments are paid at the discretion of the Board of Trust Managers and depend on cash flows generated from operations, the Company's financial condition and capital requirements, distribution requirements under the REIT provisions of the Internal Revenue Code of 1986, as amended, and other factors which may be deemed relevant by our Board of Trust Managers. Assuming dividend distributions for the remainder of 2013 are similar to those declared for the first quarter 2013, the annualized dividend rate for 2013 would be $2.52.

The following table summarizes our known contractual cash obligations as of December 31, 2012:



(in millions)	Total		2013		2014		2015		2016		2017		Thereafter
Debt maturities (1)	$	2,510.5	$	229.2	$	35.4	$	252.0	$	2.3	$	249.2	$	1,742.4
Interest payments (2)	719.4		112.3		101.5		93.8		89.1		81.3		241.4
Non-cancelable lease payments	7.7		2.5		2.4		1.5		0.4		0.3		0.6
Postretirement benefit obligations	4.0		0.2		0.2		0.2		0.3		0.3		2.8
	$	3,241.6	$	344.2	$	139.5	$	347.5	$	92.1	$	331.1	$	1,987.2


(1)	Includes scheduled principal amortizations.


(2)	Includes contractual interest payments for our senior unsecured 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, 2012 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. As of December 31, 2012, 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 by 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 below our carrying value, 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 estimates, 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. 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. We begin capitalizing development, construction, and carrying costs when the development of the future real estate asset is probable and activities necessary to get the underlying real estate asset ready for its intended use have been initiated. 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.

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