UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

Commission File Number 0-20707

COLONIAL REALTY LIMITED PARTNERSHIP

2101 Sixth Avenue North, Suite 750, Birmingham, Alabama 35203
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (205) 250-8700

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: Class A Units of Limited Partnership Interest

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes þ  No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12-b-2).

     Yes þ  No o

     The aggregate market value of the common units of partnership interest held by non-affiliates of the registrant as of June 30, 2004 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $1,128,463,897, based on the last reported sale price of the common shares of Colonial Properties Trust into which common units are exchangeable.

Table of Contents

     Documents Incorporated by Reference

     Portions of Colonial Properties Trust’s proxy statement for the annual shareholders meeting to be held in 2005 are incorporated by reference to Items 10, 11, 12, 13 and 14 of Part III. Colonial Properties Trust expects to file its proxy within 120 days after December 31, 2004.

     This annual report on Form 10-K contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our, and our affiliates, or the industry’s actual results, performance, achievements or transactions to be materially different from any future results, performance, achievements or transactions expressed or implied by such forward-looking statements. Such factors include, among others, the following:

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National, regional and local economic and business conditions that will, among other things, affect:

	•	Demand for multifamily, office and retail properties,
	•	The ability of the general economy to recover timely from the current economic downturn,
	•	Availability and creditworthiness of tenants,
	•	The level of lease rents, and
	•	The availability of financing for both tenants and us;

•

Adverse changes in the real estate markets, including, among other things:

	•	Competition with other companies, and
	•	Risks of real estate acquisition and development, including our Cornerstone Realty Income Trust merger (discussed below) and the failure of pending developments to be completed on time and within budget;

	•	Actions, strategies and performance of affiliates that we may not control or companies in which we have made investments;
	•	Ability to obtain insurance at a reasonable cost;
	•	Ability to maintain our general partner’s status as a real estate investment trust (“REIT”) for federal and state income tax purposes;
	•	Governmental actions and initiatives; and
	•	Environmental/safety requirements.

PART I

Item 1. Business.

     As used herein, the terms “CRLP”, “we”, “us” and “our” refer to Colonial Realty Limited Partnership, a Delaware limited partnership, and its subsidiaries and other affiliates, including, Colonial Properties Services Limited Partnership(“CPSLP”) and Colonial VRS L.L.C. or, as the context may require, Colonial Realty Limited Partnership only. As used herein, the term the “Trust” includes Colonial Properties Trust, an Alabama real estate investment trust, and one or more of its subsidiaries and other affiliates, including CRLP, CPSLP and Colonial Properties Services, Inc. (“CPSI”) or, as the context may require, Colonial Properties Trust only.

     We are the operating partnership of the Trust, our general partner, which is an owner, developer and operator of multifamily, office and retail properties in the Sunbelt region of the United States. The Trust is a fully-integrated real estate company, which means that it is engaged in the acquisition, development, ownership, management and leasing of commercial real estate property. The Trust’s assets are owned by, and substantially all of its business is conducted through, CRLP and its subsidiaries and other affiliates. The Trust holds approximately 72.7% of the interest in us. Our activities include ownership and operation of a diversified portfolio of 153 properties as of December 31, 2004, consisting of

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multifamily, office and retail properties located in Alabama, Arizona, Florida, Georgia, Mississippi, Nevada, New Mexico, North Carolina, South Carolina, Tennessee, Texas, and Virginia.

     As of December 31, 2004, we owned interests in 78 multifamily apartment communities (the “multifamily properties”) containing a total of 25,009 apartment units (including 45 wholly-owned consolidated properties and 33 properties owned through unconsolidated joint-venture entities aggregating 15,489 and 9,520 units, respectively), 27 office properties (the “office properties”) containing a total of approximately 5.9 million square feet of office space (including 26 wholly-owned consolidated properties and one partially-owned property owned through an unconsolidated joint-venture entity aggregating 5.8 million and 30,000 square feet, respectively), 48 retail properties (the “retail properties”) containing a total of approximately 15.3 million square feet of retail space (including 45 wholly-owned consolidated properties and three properties owned through an unconsolidated joint-venture entity aggregating approximately 14.2 million and 1.1 million square feet, respectively) and parcels of land (the “land”) adjacent to or near certain of these properties. The multifamily properties, the office properties, the retail properties and the land are referred to collectively as the “properties”. As of December 31, 2004, the multifamily properties, the office properties, and the retail properties that had achieved stabilized occupancy were 94.6%, 92.2% and 91.4% leased, respectively.

     Our executive offices are located at 2101 Sixth Avenue North, Suite 750, Birmingham, Alabama, 35203 and our telephone number is (205) 250-8700. We were formed in Delaware on August 6, 1993.

Formation of the Trust and CRLP

     The Trust and CRLP were formed to succeed to substantially all of the interests of Colonial Properties, Inc., an Alabama corporation, its affiliates and certain other entities in a diversified portfolio of multifamily, office, and retail properties located in Alabama, Florida, and Georgia and to the development, acquisition, management, leasing, and brokerage businesses of Colonial Properties, Inc.

Cornerstone Merger

     During October 2004, the Trust entered into a definitive merger agreement with Cornerstone Realty Income Trust, Inc. (“Cornerstone”), a Richmond, Virginia-based REIT focused on multifamily communities. The transaction, which is expected to close during April of 2005, is valued at approximately $1.5 billion, including the assumption or repayment of Cornerstone debt.

     The transaction is structured as a common and preferred share election merger, with Cornerstone shareholders having the right to elect to receive the merger consideration in Trust common or preferred depositary shares. More specifically, in the merger, Cornerstone shareholders will have the right to elect to receive either:

	•	a number of Colonial common shares equal to the common share conversion rate, which we currently expect to be 0.2581; or
	•	a number of Colonial 7.62% Series E preferred depositary shares, $25.00 liquidation preference per depositary share, equal to the preferred depositary share conversion rate, which we currently expect to be 0.4194;

for each outstanding common share of Cornerstone, subject to the restriction that the Colonial Series E preferred depositary shares issued will not exceed approximately 25% of the total merger consideration. If the number of Colonial Series E preferred depositary shares to be issued in the merger or the number of holders of Colonial Series E preferred depositary shares does not satisfy New York Stock Exchange listing conditions specified in the merger agreement, then each Cornerstone common share will be converted into a number of Colonial common shares equal to the common share conversion rate. In addition, the conversion rates are subject to various adjustments provided for in the merger agreement, although Colonial and Cornerstone do not currently expect any further material adjustments to the conversion rates. Depending upon the shareholder elections, the Trust expects to issue approximately 11 to 14 million new common shares and up to approximately $150 million of new preferred securities and refinance or assume approximately $850 million of Cornerstone’s existing secured debt. The transaction, which remains subject

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to approval by the common shareholders of Colonial and Cornerstone, has been unanimously approved by both boards.

     Cornerstone will have the right to terminate the transaction if our average share price for the 20 trading days preceding 10 trading days prior to the close of the transaction is below $31.00. However, in the event our share price is below such level, we have the right to continue the transaction through the payment, at our sole option, of additional Colonial common shares or cash to provide Cornerstone shareholders value equivalent to that which they would have received had our share price been $31.00 for such measurement period. We have the right to terminate if our average share price exceeds $49.00 for 20 consecutive trading days preceding 10 trading days prior to the close of the transaction.

     Pursuant to the merger agreement, subsequent to the closing of the merger, the Trust will contribute its entire interest in Cornerstone’s successor by merger to CRLP and such successor by merger will become a wholly owned subsidiary of CRLP.

Acquisitions and Developments

     The following table summarizes our acquisitions and developments that were completed in 2004. For the purposes of the following table and throughout this Form 10-K, the size of a multifamily property is measured by the number of units and the size of an office property and retail property is measured in square feet.

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Acquisitions

     During 2004, we acquired 11 multifamily properties, two office properties and six retail properties, including one retail property which is 90% owned. In addition, we also acquired a partnership interest in 21 multifamily communities and one office management company during the twelve months ended December 31, 2004.

     Multifamily Properties

     Colonial Grand at Arringdon – During April 2004, we acquired Colonial Grand at Arringdon, a 320-unit multifamily asset located in Raleigh, North Carolina. Colonial Grand at Arringdon was a development that was completed in the second quarter of 2003 and was acquired with a 90.0% physical occupancy. The total purchase price was $26.8 million and was funded through borrowings on our unsecured line of credit. We served as development consultant and leasing and management agent for the third-party developer in connection with this property.

     Colonial Grand at Berkeley Lake, Colonial Grand at River Plantation, Colonial Grand at Mount Vernon, Colonial Grand at River Oaks, and Colonial Grand at Sugarloaf – During June 2004, we acquired five multifamily assets located in Atlanta, Georgia from Roberts Realty Investors, Inc. The five assets total 1,091 units and include four properties located in the Gwinnett submarket and one property located in the Dunwoody submarket. All five properties are class-A multifamily assets. The assets were acquired for a total purchase price of $109.2 million, which consisted of approximately $50.4 million of cash and the assumption of approximately $58.8 million of existing mortgage debt that bears interest at a stated rate ranging from 5.54% to 7.38%. The cash portion of the acquisition was funded through borrowings under our unsecured line of credit.

     Colonial Village at Sierra Vista – During September 2004, we acquired Colonial Village at Sierra Vista, a 232-unit multifamily property which is 94.0% occupied. The class-A property is located in the Round Rock submarket in Austin, Texas. The asset was acquired for a total price of $14.0 million, which was funded through borrowings under our unsecured line of credit.

     Colonial Grand at Seven Oaks – During September 2004, we acquired Colonial Grand at Seven Oaks, a 318-unit multifamily property located in Tampa, Florida, which was in lease-up upon acquisition. The asset was acquired for a total price of $23.6 million, which was funded through borrowings under our unsecured line of credit. We served as development consultant and leasing and management agent for the third-party developer in connection with this property.

     Colonial Grand at Beverly Crest and Colonial Grand at Patterson Place – During October 2004, we acquired two multifamily assets for a total purchase price of $44.7 million. Colonial Village at Patterson Place, a 252-unit complex, is located in Durham, North Carolina and Colonial Village at Beverly Crest, a 300 unit complex, is located in Charlotte, North Carolina. The acquisition was funded through borrowings under our bridge credit facility.

     Colonial Grand at McGinnis Ferry – During December 2004, we acquired Colonial Grand at McGinnis Ferry, a 434-unit complex located in Atlanta, Georgia. The total purchase price was $40.0 million and was funded through borrowings under our bridge credit facility.

     Office Properties

     DRS Building – During February 2004, we acquired the DRS Building, a 215,500 square foot office building, located in Huntsville, Alabama. The DRS Building was completed in 1984 and is located adjacent to our existing development Colonial Center at Research Park. The total purchase price was $13.1 million and was funded through borrowings under our unsecured line of credit.

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     Research Park Office Center – During October 2004, we acquired Research Park Office Center comprising 176,600 square feet of office space in Huntsville, Alabama. The asset was acquired for a total purchase price of $16.8 million, which was funded through borrowings under our unsecured line of credit.

     Retail Properties

     Colonial Pinnacle Kingwood Commons – During April 2004, we acquired Colonial Pinnacle Kingwood Commons, a 164,356 square-foot retail lifestyle center located in the northeastern submarket of Houston, Texas. The first development phase of Kingwood Commons was completed in 2001, which positioned the property as a neighborhood grocery center, anchored by Randall’s grocery store, a division of Safeway, Inc. The property expanded and broadened its tenants, creating a lifestyle center, through the next two phases of development, which completed construction in 2004. Upon acquisition, Kingwood Commons included high-end retailers such as Talbot’s, Chico’s, Ann Taylor Loft, Jos. A. Banks, Bombay/Bombay Kids, James Avery, and Carrabba’s Italian Grill. The total purchase price was $34.5 million and was funded through borrowings under our unsecured line of credit.

     Colonial Shoppes College Parkway, Colonial Promenade Deerfield and Colonial Shoppes Pines Plaza – During August 2004, we acquired three retail assets totaling approximately 526,000 square feet in South Florida. The 378,745 square foot Colonial Promenade Deerfield is located in Deerfield Beach, Florida, south of Boca Raton. With a current occupancy of 98.0%, the property is anchored by Publix, Walgreens, Marshall’s, Sports Authority, TJ Maxx and OfficeMax. With 100.0% occupancy, the 78,879 square foot Colonial Shoppes College Parkway property is located in Fort Myers, Florida and includes such tenants as Office Depot and the Blue Pepper Market. Colonial Shoppes Pines Plaza, which is 100.0% occupied, is a 68,170 square foot center located in Pembroke Pines, Florida and is anchored by Comp USA, Office Depot and Sound Advice. The assets were acquired for a total purchase price of $81.7 million, which consisted of approximately $32.8 million of cash and the assumption of approximately $48.9 million of existing mortgage debt. The cash portion of the acquisition was funded through borrowings under our unsecured line of credit.

     Colonial Promenade Boulevard Square – During September 2004, we acquired Colonial Promenade Boulevard Square, a 220,656 square foot retail shopping center in Pembroke Pines, Florida. The center is anchored by Office Max, Ross Dress for Less, Sports Authority and TJ Maxx. The asset was acquired for a total purchase price of $43.4 million, which consisted of approximately $16.2 million of cash and the assumption of approximately $27.2 million of existing mortgage debt. This acquisition was funded through borrowings under our unsecured line of credit.

Completed Development / Redevelopment

     Retail Property

     Colonial Promenade Trussville II — During the third quarter of 2004, we completed the development of Colonial Promenade Trussville II, a 59,000 square foot addition to Colonial Promenade Trussville, a community shopping center located in Birmingham, Alabama. The center is anchored by a Sam’s and Kohl’s. Project development costs, including land acquisitions costs, were $8.3 million and were funded through our unsecured line of credit.

     Colonial Shoppes Clay (redevelopment) – During the first quarter of 2004, we completed the redevelopment of Colonial Shoppes Clay, a 66,000 square foot community shopping center located in Birmingham, Alabama. The center is anchored by a Publix Super Market. Project redevelopment costs were $4.3 million and were funded through our unsecured line of credit.

Joint Ventures

     The following summarizes the joint ventures that we entered into during 2004:

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     Consolidated

     The Village on the Parkway – During June 2004, we acquired a 90% partnership interest in The Village on the Parkway, a 381,166 square foot retail lifestyle center located in Dallas, Texas. Our 90% investment in the partnership was $56.4 million, which consisted of $14.1 million of equity investment and $42.3 million of newly issued mortgage debt, representing our allocated portion of mortgage debt for the property. As we maintain controlling financial interest of this property, the assets, liabilities and results of operations of the property are consolidated within our financial statements. The third party’s partnership interest is reflected in the financial statements as a minority interest in the consolidated partnership. Under the partnership agreement, we will receive a 9% preferred return on its equity investment and 65% of any remaining available cash. The 10% third-party equity partner will receive the remaining 35% of available cash after payment of the 9% return on our equity investment. Our equity investment was funded through borrowings under our unsecured line of credit.

     Colonnade Properties LLC – During September 2004, we made a $9.0 million investment, consisting of a $2.0 million equity investment and $7.0 million in debt, in the acquisition of a majority interest in Colonnade Properties LLC, a New York based real estate investment company that focuses on the acquisition, management, redevelopment and stabilization of office assets. At the date of the acquisition, Colonnade Properties LLC had contracts to manage approximately 11 million square feet of office space. In addition to the management contracts, Colonnade Properties LLC also holds a 25% interest in the Douglas HCI, a five building complex located in Coral Gables, Florida. Our investment was funded through borrowings under our unsecured line of credit.

     Equity Method Investments

     The Cunningham Apartments – During June 2004, we entered into a partnership agreement with Dreyfuss Real Estate Advisors (“DRA”), in which we maintain a 20% interest and manage The Cunningham Apartments, a 280-unit multifamily asset located in Austin, Texas. Our total investment in The Cunningham Apartments was $3.9 million, which consisted of $2.8 million of newly issued mortgage debt and $1.1 million of cash, which was funded through borrowings under our unsecured line of credit.

     Colonial Grand at Bayshore and Colonial Grand at Palma Sola – During June 2004, we acquired a 25% partnership interest in Colonial Grand at Bayshore, a 376-unit multifamily asset and Colonial Grand at Palma Sola, a 340-unit multifamily asset, both located in Bradenton, Florida. We acquired the partnership interest from CMS Entrepreneurial III and IV Partners, a Delaware general partnership. Our 25% investment in the partnership was $11.9 million, which consisted of $3.0 million of equity investment and $8.9 million of mortgage debt, representing our allocated portion of mortgage debt for the property. Our equity investment was funded through available cash.

     Colonial Grand at Brentwood and Colonial Village at Hendersonville – During August 2004, we acquired a 25% partnership interest and the management of 618 multifamily units in two communities in Nashville, Tennessee from CMS. Colonial Grand at Brentwood is located in the Brentwood submarket and consists of 254 units. The 364-unit Colonial Village at Hendersonville is located in the Hendersonville submarket. The assets were acquired for a total purchase price of $10.3 million, which consisted of approximately $2.9 million of cash and the assumption of approximately $7.4 million of existing mortgage debt. The cash portion of the acquisition was funded through borrowings under our unsecured line of credit.

     DRA Southwest Joint Venture – During October 2004, we entered into a partnership agreement with DRA in which we acquired a 20% interest and management of 16 multifamily properties located in Arizona, New Mexico and Nevada containing a combined 4,223 units. Our total investment in the DRA partnership was $64.5 million, which consisted of $45.4 million of newly issued mortgage debt and $19.1 million of cash, which was funded through borrowings under our unsecured line of credit.

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Continuing Development Activity

     The following table summarizes our properties that are under construction, including undeveloped land, at December 31, 2004:

Continuing Multifamily Development Activity

     Colonial Grand at Mallard Creek — During the fourth quarter of 2003, we began the development of Colonial Grand at Mallard Creek, a 252-unit multifamily community located in Charlotte, North Carolina. The new apartments will include numerous luxuries, including high-speed internet access, fitness center, a swimming pool, and a resident business center. Project development costs, including land acquisition costs, are expected to be $20.0 million and will be funded through our unsecured line of credit. The development is expected to be completed in the fourth quarter of 2005.

     Colonial Village at Twin Lakes — During the fourth quarter of 2003, we began the development of Colonial Village at Twin Lakes, a 460-unit multifamily community located in Orlando, Florida. The new apartments will include numerous luxuries, including high-speed internet access, fitness center, a swimming pool, and a resident business center. Project development costs, including land acquisition costs, are expected to be $35.0 million and will be funded through our unsecured line of credit. The development is expected to be completed during the second quarter of 2005.

     Colonial Grand at Silverado — During the second quarter of 2004, we began the development of Colonial Grand at Silverado, a 238-unit multifamily community located in Austin, Texas. The new apartments will include numerous luxuries, including high-speed internet access, fitness center, a swimming pool, and a resident business center. Project development costs, including land acquisition costs, are expected to be $19.9 million and will be funded through our unsecured line of credit. The development is expected to be completed during the third quarter of 2005.

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Continuing Retail Development and Redevelopment Activity

     Colonial Mall Myrtle Beach (redevelopment) – During 2003, we began the redevelopment of Colonial Mall Myrtle Beach, a 530,000 square foot regional mall located in Myrtle Beach, South Carolina. The redeveloped mall includes a new Bass Pro Shops Outdoor World, remodeling of the common area and remerchandising. Project redevelopment costs are expected to total $27.5 million and will be funded through our unsecured line of credit. We expect to complete the project in the fourth quarter of 2005.

     Colonial Shops Colonnade (redevelopment) – During 2004, we began the redevelopment of Colonial Shops Colonnade, a 122,000 square foot shopping center located in Birmingham, Alabama. The redeveloped shopping center will include the addition of a 30,000 square foot Gold’s Gym and three new restaurants (Cracker Barrel, Fox & Hound and Logan Farms Deli) as well as an upgrade of the landscaping and building exteriors. Project redevelopment costs are expected to total $6.5 million and will be funded through our unsecured line of credit. We expect to complete the project in the third quarter of 2005.

     Colonial Pinnacle Craft Farms – During the third quarter of 2004, we began the development of Colonial Pinnacle at Craft Farms, a 440,000 square foot development located in Gulf Shores, Alabama. The center will include a 55,000 square foot Cobb Theatre cinema, upscale specialty stores that offer fashion apparel, home décor, a book store, a music store and upscale restaurants. We also plan to include a grocery store and a department store. Project development costs are expected to total $39.0 million and will be funded through our unsecured line of credit. We expect to complete the project in the second quarter of 2006.

     Colonial Pinnacle Turkey Creek – During the second quarter of 2004, we began the development of Colonial Pinnacle at Turkey Creek, a 50% joint venture development with Turkey Creek Land Partners. The center is expected to total approximately 520,000 square feet and is located in Knoxville, Tennessee. Anchors will include Proffitt’s, Bed Bath & Beyond and Regal Theaters. The center will also include other large format stores, specialty fashion retailers and high-end restaurants. Our portion of project development costs are expected to total $37.0 and will be funded through our unsecured line of credit and a construction loan. We expect to complete the project in the second quarter of 2006.

     Colonial Pinnacle Tutwiler Farms – During the fourth quarter of 2004, we began the development of Colonial Pinnacle at Tutwiler Farms, a 450,000 square foot development located in northeast Birmingham, Alabama. The center anchors will include Belk, Parisian, JC Penney and Best Buy. The center will also include other large format stores, specialty fashion retailers and high-end restaurants. Project development costs are expected to total $35.5 million and will be funded through our unsecured line of credit. We expect to complete the project in the fourth quarter of 2006.

     Colonial Promenade Alabaster – During the second quarter of 2004, we began the development of Colonial Promenade at Alabaster, a 650,000 square foot development located in Birmingham, Alabama. The center will include Lowes, Wal-Mart, Ross Dress for Less, Pier-1 Imports, Belk, Books-A-Million, Old Navy, Bed Bath & Beyond and an Amstar Theater. Project development costs are expected to total $30.0 million and will be funded through our unsecured line of credit. We expect to complete the project in the fourth quarter of 2005.

     Colonial University Village (redevelopment) – During 2003, we began the redevelopment of Colonial University Village, a 555,000 square foot regional mall located in Auburn, Alabama. The redeveloped mall will be anchored by J.C. Penney, Dillard’s, Sears and Belk’s Department Store. The redevelopment will also add an additional 41,000 square feet of specialty shops and restaurants to the existing mall. Project redevelopment costs are expected to total $18.7 million and will be funded through our unsecured line of credit. We expect to complete the project in the first quarter of 2006.

Continuing Mixed Use Development Activity

     Colonial TownPark Lake Mary – During 2004, we continued the development of Colonial TownPark Lake Mary, a mixed use project located in Orlando, Florida. The activity in 2004 included the development of a 67-unit multifamily apartment community, a 34,900 square foot office center and a 146,500 square foot retail center. The retail center is anchored by Albertson’s and AmStar Theater.

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Project development costs of these phases are expected to total $16.1 million and will be funded through our unsecured line of credit. We expect to complete the project in the second quarter of 2005.

Dispositions

     During 2004, we disposed of two multifamily properties including one property representing 178 units and our 15% interest in a second property representing 240 units, one office property representing 25,500 square feet, and four retail properties including three wholly-owned properties representing 290,933 square feet and our 50% interest in a fourth property representing 1.1 million square feet, including 0.4 million square feet owned by anchor tenants. The multifamily, office and retail properties were sold for a total sales price of $105.1 million, which was used to repay a portion of the borrowings under our unsecured line of credit and fund future investment activities. Additionally, throughout 2004, we sold various parcels of land located adjacent to our existing properties for an aggregate sales price of $16.7 million, which was also used to repay a portion of the borrowings under our unsecured line of credit and to support our investment activities.

     The following table is a summary of our disposition activity in 2004:

     In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we record individual property sales as discontinued operations, unless we maintain a continuing involvement with the properties that have been sold. During 2004, all of the operating properties sold were classified as discontinued operations and the sales of the parcels of land were classified within continuing operations.

Recent Developments

     Distribution – During January 2005, the Board of Trustees of the Trust declared a cash distribution to the partners of CRLP in the amount of $0.675 per partnership unit, totaling $25.7 million. The distribution was made to partners of record as of January 31, 2005, and was paid on February 7, 2005.

     Portofino Shopping Center – During January 2005, we acquired Portofino Shopping Center, a 373,000 square foot retail shopping center located in Houston, Texas. The center is anchored by Home Depot and Sam’s Wholesale Club. Other tenants include Oshman’s, Steinmart, Old Navy, Petsmart, Michael’s and Conn’s. The asset was acquired for a total purchase price of $60.3 million, which was funded through borrowings under our bridge credit facility.

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     Westshore Place I & II – During January 2005, we acquired Westshore Place I & II, two ten story Class A office buildings comprising 370,994 square feet in Tampa, Florida. The asset was acquired for a total purchase price of $54.9 million, which was funded through borrowings under our bridge credit facility.

     Senior Notes Offering – During January 2005, we completed a $275 million offering of 4.75% senior unsecured notes due February 1, 2010. Interest on the notes is payable semi-annually on the 1^st of every February and August beginning August 1, 2005. The net proceeds of approximately $273.3 million were used to pay down our bridge credit facility and a portion of our unsecured line of credit.

     Derivative Transactions - During January 2005, we entered into two interest rate swap agreements to hedge the interest rate risk associated with forecasted debt issuances that are expected to occur during 2005. The following table summarizes the notional values and other characteristics these interest rate swap agreements:

During January 2005, we settled one interest rate swap agreement and terminated one interest rate swap agreement for approximately $0.8 million, both of which were outstanding at December 31, 2004. This amount will remain in accumulated other comprehensive income and be reclassified to interest expense over the applicable period of the associated debt.

     Colonial Village at Cahaba Heights – During February 2005, we sold our 15% interest in Colonial Village at Cahaba Heights, a 125-unit multifamily apartment community located in Birmingham, Alabama. The asset was sold for a total sales price of $1.2 million and the proceeds were used to repay a portion of the borrowings under our unsecured line of credit.

     Colonial Grand at River Hills – During February 2005, we sold our 15% interest in Colonial Grand at River Hills, a 776-unit multifamily apartment community located in Tampa, Florida. The asset was sold for a total sales price of $6.9 million and the proceeds were used to repay a portion of the borrowings under our unsecured line of credit.

Financing Activity

     We funded our acquisition, development and redevelopment activities primarily through proceeds received from the disposition of assets, unsecured senior notes offerings and advances on our bank line of credit and bridge credit facility (the “bridge facility”).

     On February 18, 2004, we modified the terms of the $100.0 million 8.875% Series B Preferred Units (the “Preferred Units”), which were originally issued in a private placement. Under the modified terms, the Preferred Units bear a distribution rate of 7.25% and are redeemable at our option, in whole or in part, after February 24, 2009, at the cost of the original capital contribution plus the cumulative priority return, whether or not declared. The terms of the Preferred Units were further modified on March 14, 2005 to extend the redemption date from February 24, 2009 to August 24, 2009 . The Preferred Units are exchangeable for 7.25% Series B Preferred Shares of the Trust, in whole or in part at anytime on or after January 1, 2014, at the option of the holders.

     On April 2, 2004, we completed a $100.0 million public debt offering of unsecured senior notes. The notes, which mature in April 2011 bear a coupon rate of 4.80%, and were priced to yield an effective rate of 4.82% over the seven-year term. We used the net proceeds of the offering to repay a portion of the outstanding balance on our unsecured line of credit. On June 21, 2004, we entered into a reverse swap agreement on the $100.0 million senior notes, maturing in April 2011, to a floating rate equal to the 6-month LIBOR rate, which was 2.17% as of December 31, 2004.

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     On June 17, 2004, we completed a $300.0 million public debt offering of unsecured senior notes. The notes, which mature in June 2014 bear a coupon rate of 6.25%, and were priced to yield an effective rate of 6.35% over the ten-year term. We used the net proceeds of the offering to repay the outstanding balance on its unsecured line of credit, and the remaining amount was used for general corporate purposes and acquisitions of properties. In anticipation of closing the above mentioned public debt offering, we entered into a $232.0 million treasury lock on June 14, 2004 with a fixed 10-year treasury rate of 4.84%. On June 17, 2004, we settled the treasury lock agreement with a payment of approximately $2.1 million, which will be amortized over the life of the associated debt.

     On October 28, 2004, we entered into an additional $200.0 million bridge facility with certain participants of our current $320.0 million unsecured bank line of credit. Base rate loans and euro-dollar loans are available under the bridge facility. Generally, base rate loans bear interest at Wachovia’s designated base rate, plus a base rate margin ranging from 0.00% to 1.00% based on our unsecured debt ratings from time to time. Euro-dollar loans bear interest at LIBOR plus a margin ranging from 0.70% to 1.35% based on our unsecured debt ratings from time to time. The bridge credit facility matures in November of 2005.

     We are currently in the process of negotiating a new unsecured credit facility that will replace our existing unsecured bank line of credit and bridge facility. We expect to complete this transaction in the first quarter of 2005. However, we are not able to predict the terms of this new unsecured credit facility or whether it will be successful in completing this transaction.

     Over the last few years, we have maintained our asset recycling program, which we believe allows us to maximize our investment returns through the sale of assets that have reached their maximum investment potential and reinvest the proceeds into opportunities with more growth potential. As noted above, during 2004, we disposed of two multifamily properties including one property representing 178 units and our 15% interest in a second property representing 240 units, one office property representing 25,500 square feet, and four retail properties including three wholly owned properties representing 290,933 square feet and our 50% interest in a fourth property representing 1.1 million square feet. The multifamily, office and retail properties were sold for a total sales price of $105.1 million, which was used to repay a portion of the borrowings under our unsecured line of credit and to support our investment activities. Our ability to generate cash from asset sales is limited by market conditions and certain rules applicable to REITs. Our ability to sell properties in the future to raise cash will be limited if market conditions make such sales unattractive. Additionally, throughout 2004, we sold various parcels of land located adjacent to our existing properties for an aggregate sales price of $16.7 million, which was also used to repay a portion of the borrowings under our unsecured line of credit and to support our investment activities.

Business Strategy

     Our business objective is to generate stable and increasing cash flow and portfolio value for our shareholders through a strategy of:

	•	realizing growth in income from our existing portfolio of properties;
	•	developing, expanding, and selectively acquiring additional multifamily, office and retail properties in growth markets located in the Sunbelt region of the United States, where we have first-hand knowledge of growth patterns and local economic conditions;
	•	recycling capital by selectively disposing of assets that have reached their maximum investment potential and reinvesting the proceeds into opportunities with more growth potential;
	•	managing our own properties, which enables us to better control operating expenses and establish long-term relationships with our office and retail tenants;
	•	maintaining our third-party property management business, which increases cash flow and establishes additional relationships with investors and tenants; and

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•

employing a comprehensive capital maintenance program to maintain properties in first-class condition.

     Our business strategy and the implementation of that strategy is determined by the Trust’s Board of Trustees and may be changed from time to time.

Financing Strategy

     We seek to maintain a well-balanced, conservative and flexible capital structure by:

	•	maintaining conservative debt service and fixed charge coverage ratios in order to sustain our investment grade status;
	•	extending and sequencing the maturity dates of our debt;
	•	borrowing primarily at fixed rates; and
	•	generally pursuing long-term debt financings and refinancings on an unsecured basis.

     We believe that these strategies have enabled and should continue to enable us to access the debt and equity capital markets to fund debt refinancings and the acquisition and development of additional properties.

     As of December 31, 2004, we have an unsecured bank line of credit providing for total borrowings of up to $320 million. This line of credit agreement bears interest at LIBOR plus a spread calculated based on our unsecured debt ratings from time to time. Based on our current debt ratings, the spread is 105 basis points. The line of credit is renewable in November 2005, and provides for a one-year extension. The line of credit agreement includes a competitive bid feature that will allow us to convert up to $160 million under the line of credit to a fixed rate, for a fixed term not to exceed 90 days. The credit facility had an outstanding balance of $240.0 million at December 31, 2004. The floating weighted average interest rate of this short-term borrowing facility, including the competitive bid balance, was 3.14% at December 31, 2004.

     As of December 31, 2004, we have a $200.0 million bridge credit facility with certain participants of our current $320.0 million unsecured bank line of credit. Base rate loans and euro-dollar loans are available under the Bridge Facility. Generally, base rate loans bear interest at Wachovia’s designated base rate, plus a base rate margin ranging from 0.00% to 1.00% based on our unsecured debt ratings from time to time. Euro-dollar loans bear interest at LIBOR plus a margin ranging from 0.70% to 1.35% based on our unsecured debt ratings from time to time. The bridge facility had an outstanding balance of $119.0 million at December 31, 2004, with an average interest rate of 3.45%. This facility matures in November of 2005.

     We are currently in the process of negotiating a new unsecured credit facility that will replace the existing unsecured bank line of credit and bridge facility. We expect to complete this transaction in the first quarter of 2005. However, we are not able to predict the terms of this new unsecured credit facility or whether we will be successful in completing this transaction.

     At December 31, 2004, our total consolidated outstanding debt balance was $1.9 billion. The outstanding balance includes fixed-rate debt of $1.3 billion, or 68.2% of the total debt balance, and floating-rate debt of $590.0 million, or 31.8% of the total debt balance. Our total market capitalization (which we define as the sum of our outstanding indebtedness, the total liquidation preference of all our preferred units and the total market value of our common units) as of December 31, 2004 was $3.7 billion and our ratio of debt to market capitalization was 49.7%. We have certain loan agreements that contain restrictive covenants, which among other things require maintenance of various financial ratios. At December 31, 2004, we were in compliance with these covenants.

     We may modify our borrowing policy and may increase or decrease our ratio of debt to total market capitalization in the future. To the extent that the Board of Trustees of the Trust determines to seek additional capital, we may raise such capital through additional equity offerings, debt financings, asset

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dispositions or retention of cash flow (subject to provisions in the Internal Revenue Code of 1986 requiring the distribution by a REIT of a certain percentage of taxable income and taking into account taxes that would be imposed on undistributed taxable income) or a combination of these methods.

     We have entered into several different hedging transactions in an effort to manage our exposure to changes in interest rates. The following table summarizes the notional values, fair values and other characteristics of our derivative financial instruments at December 31, 2004. The notional value at December 31, 2004 provides an indication of the extent of our involvement in these instruments at that time, but does not represent exposure to credit, interest rate, or market risk.

     We do not use derivatives for trading or speculative purposes. Further, we have a policy of only entering into contracts with major financial institutions based upon their credit ratings and other factors. When viewed in conjunction with the underlying and offsetting exposure that the derivatives are designed to hedge, we have not sustained a material loss from those instruments nor do we anticipate any material adverse effect on our net income or financial position in the future from the use of derivatives.

Property Management

     We are experienced in the management and leasing of multifamily, office and retail properties and believe that the management and leasing of our own portfolio has helped maintain consistent income growth and has resulted in reduced operating expenses from the properties. The third-party management, leasing and brokerage businesses conducted through CPSI have provided us both with a source of cash flow that is relatively stable and with the benefits of economies of scale in conjunction with the management and leasing of our own properties. These businesses also allow us to establish additional relationships with tenants who may require additional office or retail space and to identify potential acquisitions.

Operational Structure

     We manage our business with three separate and distinct operating divisions: multifamily, office and retail. We have centralized functions that are common to each division, including accounting, information technology and administrative services. Decisions regarding acquisitions, developments and dispositions are also centralized. Each division has an Executive Vice President that oversees growth and operations and has a separate management team that is responsible for acquiring, developing, and leasing properties within each division. This structure allows us to utilize specialized management personnel for each operating division. Although these divisions operate independently from one another, constant communication among the Executive Vice Presidents provides us with unique synergies allowing us to take advantage of a variety of investment opportunities. In addition, the third-party management, leasing and brokerage businesses have provided us both with a source of cash flow that is relatively stable and with the benefits of economies of scale in conjunction with the management and leasing of our own properties. These businesses also allow us to establish additional relations with tenants that may require additional retail or office space and to identify potential acquisitions. See Note 7 – Segment Information in our Notes to Consolidated Financial Statements contained in this Form 10-K for information on our three segments and the reconciliation of total segment revenues to total revenues, total segment net operating income to income from continuing operations and minority interest, and total divisional assets to total assets for the

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years ended December 31, 2004, 2003 and 2002. Information regarding our segments contained in such Note 7 – Segment Information in our Notes to Consolidated Financial Statements is incorporated by reference herein. Additional information with respect to each of the operating divisions is set forth below:

     Multifamily Division. Our multifamily division is responsible for all aspects of multifamily operations, including day-to-day management and leasing of the 78 multifamily properties, as well as the provision of third-party management services for apartment communities in which we do not have an ownership interest or have a non-controlling ownership interest.

     Office Division. Our office division is responsible for all aspects of our commercial office operations, including the provision of management and leasing services for the 27 office properties, as well as the provision of third-party management services for office properties in which we do not have an ownership interest and for brokerage services in other office property transactions.

     Retail Division. Our retail division is responsible for all aspects of our retail operations, including the provision of management and leasing services for the 48 retail properties, as well as the provision of third-party management services for retail properties in which we do not have an ownership interest and for brokerage services in other retail property transactions.

Competition

     The ownership, development, operation and leasing of multifamily, office and retail properties are highly competitive. We compete with domestic and foreign financial institutions, REITs, life insurance companies, pension trusts, trust funds, partnerships and individual investors for the acquisition of properties. In addition, we compete for tenants in our markets primarily on the basis of property location, rent charged, services provided and the design and condition of improvements. Our diversified business strategy of investing in multifamily, office and retail property types that are located in high-growth, demographically attractive cities primarily in key Sunbelt states allows us to shift assets within our portfolio in order to take advantage of market timing and economic cycles, and to maximize investment returns.

Seasonality

     Our multifamily properties and office properties generally are not affected by seasonality. However, the retail shopping center industry is seasonal in nature, with shopping center tenant sales peaking during the fourth quarter due to the holiday season. As a result, a substantial portion of the percentage rent at our retail properties is not recognized until the fourth quarter. Furthermore, most new lease-up occurs towards the later part of the year in anticipation of the holiday season and most vacancies occur toward the beginning of the year. In addition, the majority of the temporary tenants take occupancy in the fourth quarter. Accordingly, cash flow and occupancy levels are generally lowest in the first quarter and highest in the fourth quarter.

Environmental Matters

     We believe that our properties are in compliance in all material respects with all federal, state and local ordinances and regulations regarding hazardous or toxic substances. We are not aware of any environmental condition which we believe would have a material adverse effect on our financial condition or results of operations (before consideration of any potential insurance coverage). Nevertheless, it is possible that there are material environmental liabilities of which we are unaware. Moreover, no assurances can be given that (i) future laws, ordinances or regulations will not impose any material environmental liability or (ii) the current environmental condition of our properties have not been or will not be affected by tenants and occupants of our properties, by the condition of properties in the vicinity of our properties or by third parties unrelated to us. See “Risk Factors—Risks Associated with Our Operations— We could incur significant costs related to environmental issues which could adversely affect our results of operations through increased compliance costs or our financial condition if we become subject to a significant liability” for a further discussion.

Insurance

     We carry comprehensive liability, fire, extended coverage and rental loss insurance on all of our properties. We believe the policy specifications, insured limits of these policies and self insurance reserves

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are adequate and appropriate. There are, however, certain types of losses, such as lease and other contract claims that generally are not insured. We anticipate that we will review our insurance coverage and policies from time to time to determine the appropriate level of coverage, but we cannot predict at this time if we will be able to obtain or maintain full coverage at a reasonable cost in the future. In addition, as of December 31, 2004, we are self insured up to $0.7 million, $0.7 million and $1.8 million for general liability, workers’ compensation and property insurance, respectively. We are also self insured for health insurance and responsible for claims up to $125,000 per claim and up to $1.0 million per person. Our policy for all self insured risk is to accrue for expected losses on reported claims and for estimated losses related to claims incurred but not reported as of the end of the reporting period.

Employees

     As of December 31, 2004, CRLP employed approximately 1,110 persons, including on-site property employees who provide services for the properties that we own and/or manage.

Tax Status

     CRLP has no provision for income taxes since all taxable income or loss or tax credits are passed through to the partners. The Trust has made an election to be taxed as a REIT under Sections 856 through 860 of the Code, commencing with its taxable year ending December 31, 1993. If the Trust qualifies for taxation as a REIT, the Trust generally will not be subject to Federal income tax to the extent it distributes at least 90% of its REIT taxable income to its shareholders. Even if the Trust qualifies for taxation as a REIT, the Trust may be subject to certain state and local taxes on its income and property and to federal income and excise taxes on its undistributed income.

     In addition, our consolidated financial statements include the operations of a taxable REIT subsidiary, CPSI, that is not entitled to a dividends paid deduction and is subject to federal, state and local income taxes. CPSI provides property management, construction management and development services for third-party owned properties and administrative services to us. We generally reimburse CPSI for payroll and other costs incurred in providing services to us. All inter-company transactions are eliminated in the accompanying consolidated financial statements. We recognized tax expense of $0.7 million in 2004 related to the taxable income of CPSI.

Available Information

     Our general partner’s website address is www.colonialprop.com and provides access in the “Investor Relations” section, free of charge, to our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to these reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. Additionally, the Trust’s corporate governance guidelines, charter of the governance committee, audit committee charter, executive compensation committee charter, the Trust’s code of ethics for its trustees, officers and employees, and the Trust’s code of ethical conduct for its chief executive officer and senior financial officers are available on our website as well. If you are not able to access our website, the information is available in print form to any partner who should request the information directly from us.

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Executive Officers of the Trust

     We are managed by the Trust, the general partner of CRLP. The following is a biographical summary of the executive officers of the Trust:

     Thomas H. Lowder, 55, has been a trustee since July 1993. He has served as the Trust’s Chairman of the Board, President and Chief Executive Officer since July 1993. Mr. Lowder became President of Colonial Properties, Inc., our predecessor, in 1976, and since that time has been actively engaged in the acquisition, development, management, leasing and sale of multifamily, office and retail properties for the Company and its predecessors. Mr. Lowder is a current member of the National Association of Industrial and Office Parks (NAIOP) and the International Council of Shopping Centers. He is also a member and past president of the Alabama Chapter of the Realtors National Marketing Institute through which he successfully completed commercial real estate investment courses to receive the CCIM (Certified Commercial Investment Member) designation. He presently serves as the Chairman of the Board for Children’s Hospital and is on the Board of Directors of the Community Foundation of Greater Birmingham, Birmingham-Southern College and Crippled Children’s Foundation. Mr. Lowder is a past member of the National Association of Real Estate Investment Trust’s (“NAREIT”) Board, past Chairman of the Birmingham Area Chapter of the American Red Cross and he served as Chairman of the 2001 United Way Campaign for Central Alabama. He graduated with honors from Auburn University with a Bachelor of Science Degree. Mr. Lowder is the brother of James K. Lowder, one of our trustees.

     C. Reynolds Thompson, III, 42, has been the Trust’s Chief Operating Officer since September 1999, responsible for the multifamily, office, retail and mixed-use divisions. Mr. Thompson oversees the management, acquisition, leasing and development of properties within its three operating divisions and development in the mixed-use division. Prior to his appointment as Chief Operating Officer, Mr. Thompson was Chief Investment Officer, responsible for investment strategies, market research, due diligence, mergers and acquisitions, joint venture development and cross-divisional acquisitions. Prior to his position as Chief Investment Officer, Mr. Thompson served as Executive Vice President—Office Division, with responsibility for management of all office properties owned and/or managed by us, from May 1997 to May 1998. Mr. Thompson joined us in February 1997 as Senior Vice President—Office Acquisitions, with responsibility for all acquisitions of office properties. Prior to joining us, Mr. Thompson worked for CarrAmerica Realty Corporation in office building acquisitions and due diligence. Mr. Thompson is a member of the Executive Committee of the Metropolitan Development Board, a member of the NAIOP, and he serves on the Board of Visitors for The University of Alabama Culverhouse College of Commerce and Business Administration. Mr. Thompson holds a Bachelor of Science Degree from Washington and Lee University.

     Weston M. Andress, 44, joined our team as Chief Financial and Investment Officer of the Trust in April of 2004 and is responsible for financing and investment matters. Prior to joining the Trust, Mr. Andress held the position of Managing Director of the Corporate and Investment Banking Department of Bank of America. Prior to his 15 year tenure with Bank of America, he was Vice President in the Real Estate Capital Markets Group of Salomon Brothers in New York. Mr. Andress holds a holds a Masters of Business Administration from the University of North Carolina at Chapel Hill.

     John P. Rigrish, 56, has been the Trust’s Administrative Officer since 1998, and is responsible for the supervision of Accounting Operations, Information Technology, Human Resources and Employee Services. Prior to joining the Trust, Mr. Rigrish worked for BellSouth Corporation in Corporate Administration and Services. Mr. Rigrish holds a Bachelor of Science degree from Samford University and did his postgraduate study at Birmingham-Southern College. He served on the Edward Lee Norton Board of Advisors for Management and Professional Education at Birmingham-Southern College and the Board of Directors of Senior Citizens, Inc. in Nashville, Tennessee.

     Paul F. Earle, 47, has been the Trust’s Executive Vice-President-Multifamily Division since May 1997, and is responsible for management of all multifamily properties we own and/or manage. He joined us in 1991 and has served as Vice President – Acquisitions, as well as Senior Vice President – Multifamily Division. Mr. Earle serves as Chairman of the Alabama Multifamily Council and is an active member of

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the National Apartment Association. He also serves as President of the Board of Directors of Big Brothers/Big Sisters and is a board member of the National Multifamily Housing Council. Before joining us, Mr. Earle was the President and Chief Operating Officer of American Residential Management, Inc., Executive Vice President of Great Atlantic Management, Inc. and Senior Vice President of Balcor Property Management, Inc.

     Robert A. “Bo” Jackson, 50, has been the Trust’s Executive Vice President-Office Division since December 1997, and is responsible for leading all office properties owned and managed by us. Prior to joining us, Mr. Jackson was involved in several of the signature office properties in Atlanta including Concourse, One Ninety One Peachtree Tower, and Perimeter Center. Mr. Jackson has been involved in over 15 million square feet of Southeastern U.S. urban and suburban office development. Under his leadership, Colonial TownPark, our mixed-use community in Orlando, Florida, was recognized by the National Association of Industrial and Office Parks (NAIOP) three times, twice as “Orlando Developer of the Year,” and once as “2003 National Developer of the Year.” Mr. Jackson is a member of the Board of Directors of the CoreNet Global Atlanta Chapter and holds a Bachelor of Science degree in Business Administration from the University of Delaware.

     Charles E. “Chip” Light, 44, has been the Trust’s Executive Vice President, Retail Division since February 2004, and is responsible for the leasing of retail assets owned and managed by us. Mr. Light has 18 years of retail leasing experience with such companies as Faison Associates, Jacobs Group, Homart Development and LaSalle Partners. Prior to joining us, Mr. Light was Managing Director of Retail with Faison & Associates. Mr. Light’s 18 year career includes leasing assignments with the Jacobs Company, Homart and La Salle Partners which extended from coast to coast. Mr. Light holds a Bachelor of Science degree from The University of Nebraska and a Master of Business Administration from Southern Methodist University.

     Charles A. McGehee, 59, has been the Trust’s Executive Vice President — Mixed-Use Development Division since September 1999 and is responsible for our development of properties with mixed-use product types. Mr. McGehee also oversees land acquisitions and dispositions. From September 1993 to September 1999 Mr. McGehee was responsible for Land Acquisitions and Development, Brokerage and Dispositions for us. From January 1990 to September 1993 Mr. McGehee was Senior Vice President – Office Division. He joined us in 1976 as Vice President of Retail Leasing and was responsible for leasing all retail space owned and/or managed. Mr. McGehee has served as president and as a board member of the NAIOP and is a member of the Board of Directors of the Birmingham Area Board of Realtors. Mr. McGehee is currently on the Board of Trustees for the Birmingham Chamber of Commerce. He holds a Bachelor of Science Degree from Auburn University.

     John E. Tomlinson, 36, has been the Trust’s Executive Vice President and Chief Accounting Officer since February 2005, and is responsible for Internal Control functions, compliance with generally accepted accounting principles, SEC reporting, regulatory agency compliance and reporting, management reporting and accounting operations. Mr. Tomlinson is a Certified Public Accountant (CPA) with over 10 years of experience in public accounting. Mr. Tomlinson holds a Bachelor of Science of Professional Accountancy and a Master of Business Administration from Mississippi State University. Prior to joining us, Mr. Tomlinson served as a Senior Manager at Deloitte & Touche LLP from May 2002 through January 2005 and as a Senior Manager / Manager at Arthur Andersen LLP from September 1996 through May 2002. Mr. Tomlinson’s previous experience includes independent audits of public and private entity financial statements, merger and acquisition due diligence, business risk assessment and registration statement work for public debt and stock offerings.

     Kenneth E. Howell, 54, the Trust’s Senior Vice President of Accounting Operations, is responsible for Accounts Payable, Accounts Receivable, Fixed Assets, management reports and compliance with generally accepted accounting principles. Mr. Howell joined us in 1981, and served as Controller for us from 1986 through 1998. From 1981 to 1986 he held the position of Assistant Controller of the Colonial Company, parent company of the then private Colonial Properties, Inc. He serves on the Auburn University School of Accountancy Advisory Board. Mr. Howell holds a Bachelor of Science Degree in Accounting and a minor in Finance from Auburn University.

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Risk Factors

     Set forth below are the risks that we believe are material to investors who purchase or own our common or preferred units of limited partnership interest or our debt securities. Our units are redeemable for cash or, at the election of the Trust, on a one-for-one basis for the Trust’s common shares of beneficial interest.

Risks Associated with Real Estate

     We face risks associated with numerous national, regional and local economic conditions that are not in our control, any or all of which could adversely affect our results of operations through decreased revenues.

     The modest strengthening of the U.S. economy during the last year has offset the dramatic slowdown in the U.S. economy experienced in the recent prior years. The Sunbelt region has similarly experienced a gradual strengthening during the last year. Related factors such as the industry downturns, increased unemployment rates, and reduced demand for apartment homes of recent prior years began to reverse during the last year. We expect the continued upturn to will continue to positively impact our results of operations through increased revenues and leasing activity.

     In spite of the general strengthening of the economy, the low interest rate environment which we have continued to experience during the last year has offset the positive growth to our multifamily properties as more people considered buying their homes instead of renting. Any worsening of current economic conditions generally and in our principal market areas may have a negative impact on our results of operations.

     As a real estate company, we face numerous risks in real estate conditions that could adversely affect our results of operations through decreased revenues or increased costs.

     In addition to the economic risks that we face, as a real estate company, we are subject to various changes in real estate conditions, any negative trends of which may adversely affect our results of operations through decreased revenues or increased costs. These conditions include:

	•	the existence and quality of the competition, such as the attractiveness of our property as compared to our competitors’ properties based on considerations such as convenience of location, rental rates, amenities and safety record;
	•	increased operating costs, including increased real property taxes and utilities costs;
	•	oversupply of multifamily, office or retail space or a reduction in demand for real estate in the area; and
	•	changing trends in the demand by consumers for merchandise offered by retailers conducting business at our retail properties.

     Moreover, other factors may affect our results of operations adversely, including changes in government regulations and other laws, rules and regulations governing real estate, zoning or taxes, changes in interest rate levels, the availability of financing and potential liability under environmental and other laws and other unforeseen events, most of which are discussed elsewhere in the following risk factors. Any or all of these factors could materially adversely affect our results of operations through decreased revenues or increased costs.

     Because real estate investments are illiquid, we may not be able to sell our properties in response to economic changes which could adversely affect our results of operations or financial condition.

     Real estate investments generally are relatively illiquid and as a result cannot be sold quickly in response to changes in the economy or other conditions when it may be prudent to do so. This inability to respond quickly to changes in the performance of our properties could adversely affect our results of operations if we cannot sell an unprofitable property. As well, our financial condition could also be adversely

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affected if we were, for example, unable to sell one or more of our properties in order to meet our debt obligations upon maturity.

     We are subject to significant regulation that inhibits our activities, which could adversely affect our results of operations through increased costs or inability to pursue business opportunities.

     Local zoning and use laws, environmental statutes and other governmental requirements restrict our development, expansion, rehabilitation and reconstruction activities. These regulations may prevent or delay us from taking advantage of economic opportunities. We cannot predict what requirements may be enacted and there can be no assurance that such enactment will not increase our costs of regulatory compliance or prohibit us from pursuing business opportunities that could be profitable to us.

Risks Associated with Our Operations

     Our properties may not generate sufficient income to pay our expenses, and we may not be able to control our operating costs, either of which circumstances could adversely affect our results of operations.

     A number of factors may adversely affect our ability to generate sufficient income. These factors include:

•

whether or not we can attract tenants at favorable rental rates, which will depend on several factors, including:

	•	local conditions such as an oversupply of, or reduction in demand for, multifamily, office or retail properties;
	•	the attractiveness of our properties to residents, shoppers and tenants, and
	•	decreases in market rental rates;

•

our ability to collect rent from our tenants.

If we cannot generate sufficient income to pay our expenses, maintain our properties and service our debt as a result of any of these factors, our results of operations may be adversely affected.

     Factors that may adversely affect our operating costs include:

	•	the need to pay for insurance and other operating costs, including real estate taxes, which could increase over time;
	•	the need periodically to repair, renovate and re-lease space;
	•	the cost of compliance with governmental regulation, including zoning and tax laws;
	•	the potential for liability under applicable laws;
	•	interest rate levels; and
	•	the availability of financing.

If our operating costs increase as a result of any of the foregoing factors, our results of operations may be adversely affected.

     Our expenses may remain constant even if our revenues decrease, causing our results of operations to be adversely affected.

     The expense of owning and operating a property is not necessarily reduced when circumstances such as market factors and competition cause a reduction in income from the property. As a result, if revenues drop, we may not be able to reduce our expenses accordingly. Loan payments are an example of a cost that will not be reduced if our revenues decrease. If a property is mortgaged and we are unable to meet the mortgage payments, the lender could foreclose on the mortgage and take the property, resulting in a further reduction in revenues.

     We may be unable to lease our new properties or renew leases or re-lease space at our existing properties as leases expire, which may adversely affect our operating results.

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          The tenants at our office properties generally enter into leases with an initial term ranging from three to ten years and tenants at our retail properties generally enter into leases with an initial term ranging from one to ten years. As leases expire at our existing properties, tenants may elect not to renew them. Even if the tenants do renew or we can re-lease the space, the terms of renewal or re-leasing, including the cost of required renovations, may be less favorable than current lease terms. In addition, for new properties, we may be unable to attract enough tenants and the occupancy rates and rents may not be sufficient to make the property profitable. If we are unable to renew the leases or re-lease the space at our existing properties promptly or lease the space at our new properties, or if the rental rates upon renewal or re-leasing at existing properties are significantly lower than expected rates, our operating results will be negatively affected.

          Due to our lack of geographic diversity, an economic downturn or natural disaster in an area in which our properties are concentrated could adversely affect our results of operations or financial condition.

          While our properties are diversified in three different segments, all of our properties are located in the Sunbelt region of the United States. In particular, we derived an aggregate of approximately 48.4% of our net operating income in 2004 from properties located in or near three key cities: (a) Birmingham, Alabama, which accounted for 18.6% of our 2004 net operating income; (b) Orlando, Florida, which accounted for 18.7% of our 2004 net operating income; and (c) Huntsville/Decatur, Alabama, which accounted for 11.1% of our 2004 net operating income. If the Sunbelt region of the United States, and in particular the areas of or near Birmingham, Orlando and Huntsville/Decatur, experiences a slowdown in the economy or a natural disaster, our results of operations may be negatively affected through decreased revenues or increased costs. Also, our financial condition may be negatively affected through the damage or loss of assets.

          We have been and may continue to be affected negatively by tenant bankruptcies and downturns in tenants’ businesses, which may adversely affect our operating results by decreasing our revenues.

          At any time, a tenant may experience a downturn in its business that may weaken its financial condition due to a slowing economy generally or a downturn in the retail sector. As a result, our tenants may delay lease commencement, cease or defer making rental payments or declare bankruptcy. If a tenant files for bankruptcy, the tenant may have the right to reject and terminate its lease and we cannot be sure that it will affirm its leases and continue to make rental payments in a timely manner. We also cannot be sure that we will be able to lease vacant space in our properties on economically favorable terms. Any other bankruptcy or financial difficulties of our tenants may negatively affect our operating results by decreasing our revenues.

          Risks associated with the property management, leasing and brokerage businesses could adversely affect our results of operations by decreasing our revenues.

          In addition to the risks we face as a result of our ownership of real estate, we face risks relating to the property management, leasing and brokerage businesses of CPSI, including risks that:

	•	management contracts or service agreements with third-party owners will be lost to competitors;
	•	contracts will not be renewed upon expiration or will not be renewed on terms consistent with current terms; and
	•	leasing and brokerage activity generally may decline.

Each of these developments could adversely affect our results of operations by decreasing our revenues.

          We could incur significant costs related to environmental issues which could adversely affect our results of operations through increased compliance costs or our financial condition if we become subject to a significant liability.

          Under federal, state and local laws and regulations relating to the protection of the environment, a current or previous owner or operator of real property, and parties that generate or transport hazardous substances that are disposed of on real property, may be liable for the costs of investigating and remediating

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hazardous substances on or under or released from the property and for damages to natural resources. The federal Comprehensive Environmental Response, Compensation & Liability Act, and similar state laws, impose liability on a joint and several basis, regardless of whether the owner, operator or other responsible party knew of or was at fault for the release or presence of hazardous substances. In connection with the ownership or operation of our properties, we could be liable for costs associated with investigation and remediation in the future. The costs of any required remediation and related liability as to any property could be substantial under these laws and could exceed the value of the property and/or our aggregate assets. The presence of hazardous substances, or the failure to properly remediate those substances, also may adversely affect our ability to sell or rent a property or to borrow funds using the property as collateral. In addition, environmental laws may impose restrictions on the manner in which we use our properties or operate our business, and these restrictions may require expenditures for compliance. We cannot assure you that a material environmental claim or compliance obligation will not arise in the future. The costs of defending against any claims of liability, of remediating a contaminated property, or of complying with future environmental requirements could be substantial and affect our operating results. In addition, if a judgment is obtained against us or we otherwise become subject to a significant environmental liability, our financial condition may be adversely affected.

     On December 29, 1998, we acquired Bel Air Mall in Mobile, Alabama. During the course of our environmental due diligence, we identified several different areas of the property in which contamination is present. One of those areas involves drycleaner solvent; the others involve petroleum contamination. The Alabama Department of Environmental Management (ADEM) is overseeing the investigation and cleanup of the drycleaner contamination. Under the terms of the purchase and sale agreement, the former owner of the property purchased a $10 million environmental insurance policy (including paying the $275,000 up front deductible) and established an escrow account totaling $1,000,000 to cover any costs associated with investigation and remediation of the contaminated areas not covered by the insurance policy. Under the agreement the seller is currently performing all required remediation of the drycleaner contamination until a “no further action” status is obtained from ADEM. In addition, an out parcel, previously occupied by an Amoco Gas station, currently has ongoing remediation activity on the now vacant site. In addition, two locations, which contained petroleum contamination, have now received a “no further action” status from ADEM.

          Uninsured losses could adversely affect our financial condition.

          We carry comprehensive liability, fire, extended coverage and rental loss insurance on all of our properties. We believe the policy specifications and insured limits of these policies are adequate and appropriate. There are, however, certain types of losses, such as lease and other contract claims that generally are not insured. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenue from the property. In such an event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property, which could have a materially adverse effect on our financial conditions.

          Competition for acquisitions could result in increased prices for properties, which could adversely affect our return on properties we purchase.

          We compete with other major real estate investors with significant capital for attractive investment opportunities in multifamily, office or retail properties. These competitors include publicly traded REITs, private REITs, investment banking firms, private institutional investment funds and national, regional and local real estate investors. This competition could increase the prices that we have to pay for multifamily, office or retail properties, in which case our expected return from investment in these properties will deteriorate.

          We may be unable to successfully integrate and effectively manage the properties we acquire, which could adversely affect our results of operations.

          So long as we are able to obtain capital on commercially reasonable terms, we intend to continue to selectively acquire multifamily, office or retail properties that meet our criteria for investment opportunities, are consistent with our business strategies and we believe will be profitable or will enhance the value of our portfolio. The success of these acquisitions will depend, in part, on our ability to

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efficiently integrate the acquired properties into our organization, and apply our business, operating, administrative, financial and accounting strategies and controls to these acquired properties. If we are unable to successfully integrate the acquired properties into our operations, our results of operations may be adversely affected.

          We may not be able to achieve the anticipated financial and operating results from our acquisitions, which would adversely affect our operating results.

          We will continue to acquire multifamily, office or retail properties only if they meet our criteria and we believe that that they will enhance our future financial performance and the value of our portfolio. Our belief, however, is based on and is subject to risks, uncertainties and other factors, many of which are forward-looking and are uncertain in nature or are beyond our control. In addition, some of these properties may have unknown characteristics or deficiencies or may not complement our portfolio of existing properties. As a result, some properties may be worth less or may generate less revenue than, or simply not perform as well as, we believed at the time of the acquisition, negatively affecting our operating results.

          We may be unable to develop new properties or redevelop existing properties successfully, which could adversely affect our results of operations due to unexpected costs, delays and other contingencies.

          To complement our acquisition strategy, we will continue to develop new properties or expand or redevelop existing properties as opportunities arise. However, there are significant risks associated with our development activities in addition to those generally associated with the ownership and operation of developed properties. These risks include the following:

	•	significant expenditure of money and time on projects that may be delayed or never be completed,
	•	higher than projected construction costs,
	•	lack of availability of debt or equity financing on acceptable terms,
	•	failure to meet anticipated occupancy or rent levels,
	•	failure to obtain zoning, occupancy or other governmental approvals,
	•	changes in applicable zoning and land use laws may require us to abandon projects prior to their completion, resulting in the loss of development costs incurred up to the time of abandonment, and
	•	late completion because of construction delays, delays in the receipt of zoning, occupancy and other approvals or other factors outside of our control.

Any one or more of these risks may cause us to incur unexpected costs in connection with our development strategy, which would negatively affect our results of operations.

Risks Associated with Our Indebtedness and Financing

          We have substantial indebtedness and our cash flow may not be sufficient to make required payments on our indebtedness.

          We rely heavily on debt financing for our business. As of December 31, 2004, we had total debt of approximately $1.97 billion, consisting of $1.86 billion of consolidated debt and $0.11 billion of our pro rata share of joint venture debt. Due to our high level of debt our cash flow may be insufficient to meet required payments of principal and interest. If a property were mortgaged to secure payment of indebtedness and we were unable to meet mortgage payments, the mortgagee could foreclose upon that property, appoint a receiver and receive an assignment of rents and leases or pursue other remedies.

          In addition, if principal payments due at maturity cannot be refinanced, extended or paid with proceeds of other capital transactions, such as new equity capital, our cash flow will not be sufficient in all years to repay all maturing debt.

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          We may be unable to repay our existing indebtedness as it matures, which could adversely affect our financial condition and results of operations.

          Most of our indebtedness does not require significant principal payments prior to maturity. However, we will need to raise additional equity capital, obtain secured or unsecured debt financing, issue private or public debt, or sell some of our assets to either refinance or repay our indebtedness as it matures. We cannot assure you that these sources of financing or refinancing will be available to us at reasonable terms or at all. Our inability to obtain financing or refinancing to repay our maturing indebtedness, and our inability to refinance existing indebtedness on reasonable terms, may require us to make higher interest and principal payments, issue additional equity securities, or sell some of our assets on disadvantageous terms, all or any of which may result in foreclosure of properties, partial or complete loss on our investment and otherwise adversely affect our financial conditions and results of operation.

          Our degree of leverage could limit our ability to obtain additional financing which would negatively impact our results of operation and financial condition.

          As of December 31, 2004, our consolidated borrowings and pro rata share of unconsolidated borrowings totaled approximately $1.97 billion (as described above), which represented approximately 52.7% of our total market capitalization. Total market capitalization represents the sum of the outstanding indebtedness (including our share of joint venture indebtedness), the total liquidation preference of all our preferred units and the total market value of our units of partnership interest based on the closing price of the Trust’s common shares as of December 31, 2004. Our leverage and any future increases in our leverage could adversely affect our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, development or other general corporate purposes which would negatively impact our results of operation and financial condition.

          Due to the significant amount of our variable rate debt, rising interest rates would adversely affect our results of operation.

          As of December 31, 2004, we had approximately $627.6 million of variable rate debt outstanding, consisting of $590.0 million of our consolidated debt and $37.6 million of our pro rata share of variable rate unconsolidated joint venture debt. While we have sought to refinance our variable rate debt with fixed rate debt or cap our exposure to interest rate fluctuations by using interest rate swap agreements where appropriate, it is not possible for us to only have fixed rate debt. In addition, as opportunities arise, we may borrow additional money with variable interest rates in the future. As a result, a significant increase in interest rates would adversely affect our results of operations.

          We have entered into debt agreements with covenants that restrict our operating activities, which could adversely affect our results of operations, and violation of these restrictive covenants could adversely affect our financial condition through debt defaults or acceleration.

          Our credit facility contains numerous customary restrictions, requirements and other limitations on our ability to incur debt, including:

	•	debt to assets ratios;
	•	secured debt to total assets ratios;
	•	debt service coverage ratios; and
	•	minimum ratios of unencumbered assets to unsecured debt.

          In addition, the indenture under which our senior unsecured debt is issued contains financial and operating covenants including coverage ratios. Our indenture also limits our ability to:

	•	incur secured and unsecured indebtedness;
	•	sell all or substantially all or our assets; and
	•	engage in mergers, consolidations and acquisitions.

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          These restrictions will continue to hinder our operational flexibility through limitations on our ability to incur additional indebtedness or make other changes to our business. These limitations could adversely affect our results of operations. In addition, violations of these covenants will result in adverse consequences to our financial condition, including through the declaration of defaults and any related acceleration of indebtedness.

          Because we depend on third party financing for our development, expansion or acquisition activities, an inability to obtain sufficient third party financing could adversely affect our results of operations and financial condition.

          To order for the Trust to qualify as a REIT, the Trust must distribute to its shareholders each year at least 90% of its REIT taxable income, excluding any net capital gain. Our partnership agreement generally requires us to distribute all of our net cash revenues (other than capital contributions) each quarter and to make reasonable efforts to distribute to the Trust enough cash for it to meet the 90% distribution requirement. Because of these distribution requirements, it is not likely that we will be able to fund all future capital needs from income from operations. As a result, as we continue to develop or acquire new properties or expand existing properties, we will continue to rely on third-party sources of capital, including lines of credit, secured or unsecured debt (both construction financing and permanent debt), and equity issuances. These sources, however, may not be available on favorable terms or at all. Our access to third-party sources of capital depends on a number of factors, including the market’s perception of our growth potential and our current and potential future earnings. Moreover, additional equity offerings of the Trust may result in substantial dilution of its shareholders’ interests, and additional debt financing may substantially increase our leverage. There can be no assurance that we will be able to obtain the financing necessary to fund new development or project expansions or our acquisition activities on terms favorable to us or at all. If we are unable to obtain sufficient level of third party financing to fund our growth, our results of operations and financial condition may be adversely affected.

          Our senior notes do not have an established trading market. As a result, you may not be able to sell your notes.

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

Risks Associated with Our Organization

          In order to maintain the Trust’s REIT status, we may need to borrow funds on a short-term basis during unfavorable market conditions.

          In order to maintain the Trust’s REIT status, we may need to borrow funds on a short-term basis to permit the Trust to meet the REIT distribution requirements, even if the then prevailing market conditions are not favorable for these borrowings. To qualify as a REIT, the Trust generally must distribute to its shareholders at least 90% of its REIT taxable income each year, excluding net capital gains. In addition, the Trust will be subject to a 4% nondeductible excise tax on the amount, if any, by which dividends paid by it in any calendar year are less than the sum of 85% of its REIT ordinary income, 95% of its REIT capital gain net income and 100% of its undistributed taxable income from prior taxable years. We may need short-term debt to fund required distributions as a result of differences in timing between the actual receipt of income and the recognition of income for federal income tax purposes, or the effect of nondeductible capital expenditures, the creation of reserves or required debt or amortization payments. Any such incurrence of short-term debt, particularly during unfavorable market conditions, could adversely affect our results of operations or financial condition. As a result, the value of our securities could decline.

          Some of the Trust’s trustees and officers have conflicts of interest and could exercise influence in a manner inconsistent with holders of interests in CRLP.

          As a result of their substantial ownership of common units, Messrs. Thomas Lowder, the Trust’s Chairman of the Board, Chief Executive Officer and President, and James Lowder, Harold Ripps, Herbert Meisler, M. Miller Gorrie, and William Johnson, each of whom is a trustee of the Trust, might seek to exert influence over our decisions as to sales or re-financings of particular properties we own. Any such exercise of influence might produce decisions that are not in the best interest of all of the holders of interests in us.

          The Lowder family and their affiliates hold interests in companies that have performed construction, insurance brokerage and other services with respect to our properties. These companies may perform similar services for us in the future. As a result, the Lowder family may realize benefits from transactions between such companies and us that are not realized by other holders of interests in us. In addition, Thomas and James Lowder, as our trustees, may be in a position to influence us to do business with companies in which the Lowder family has a financial interest. Our policies may not be successful in eliminating the influence of conflicts. Moreover, transactions with companies controlled by the Lowder family, if any, may not be on terms as favorable to us as we could obtain in an arms-length transaction with a third party.

          Restrictions on the acquisition and change in control of the Company may have adverse effects on the value of our common units.

          Various provisions of our Declaration of Trust of the Trust restrict the possibility for acquisition or change in control of us, even if the acquisition or change in control were in the unitholders’ interest. As a

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result, the value of our common units may be less than they would otherwise be in the absence of such restrictions.

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

          Our major policies, including our policies with respect to development, acquisitions, financing, growth, operations, debt capitalization and distributions, are determined by the Board of Trustees of the Trust. Although it has no present intention to do so, the Board of Trustees of the Trust may amend or revise these and other policies from time to time. A change in these policies could adversely affect our financial condition or results of operations, including our ability to service debt.

Risks Associated with Income Tax Laws

          If the Trust fails to qualify as a REIT, its shareholders and our unitholders would be adversely affected.

          We believe that the Trust has qualified for taxation as a REIT for federal income tax purposes commencing with its taxable year ended December 31, 1993. If the Trust qualifies as a REIT, it generally will not be subject to federal income tax on its income that it distributes to its shareholders. The Trust plans to continue to meet the requirements for taxation as a REIT, but it may not qualify. Many of the REIT requirements are highly technical and complex. The determination that the Trust is a REIT requires an analysis of various factual matters and circumstances that may not be totally within its control. For example, to qualify as a REIT, at least 95% of the Trust’s gross income must come from sources that are itemized in the REIT tax laws. The Trust generally is prohibited from owning more than 10% of the voting securities or more than 10% of the value of the outstanding securities of any one issuer, subject to certain exceptions, including an exception with respect to certain debt instruments and corporations electing to be “taxable REIT subsidiaries.” The Trust is also required to distribute to shareholders at least 90% of its REIT taxable income, excluding net capital gains. The fact that the Trust holds most of its assets through us and the fact of its ongoing reliance on factual determinations, such as determinations related to the valuation of its assets, further complicate the application of the REIT requirements. Even a technical or inadvertent mistake could jeopardize its REIT status. Furthermore, Congress or the Internal Revenue Service might make changes to the tax laws and regulations, or the courts might issue new rulings that make it more difficult, or impossible, for the Trust to remain qualified as a REIT. We do not believe, however, that any pending or proposed tax law changes would jeopardize the Trust’s REIT status. We cannot guarantee, however, that the Trust will continue to be qualified and taxed as a REIT because it’s qualification and taxation as a REIT will depend upon its ability to meet the requirements imposed under the Internal Revenue Code of 1986, as amended, on an ongoing basis.

          If the Trust failed to qualify as a REIT, and was unable to avail itself to certain savings provisions, it would be subject to federal income tax at regular corporate rates. This would likely have a significant adverse affect on the value of the Trust’s securities and, as a result, on the redemption value of our units. In addition, the Trust would no longer be required to make any distributions to its shareholders, but we would still be required to distribute quarterly substantially all of our net cash revenues (other than capital contributions) to our unitholders, including the Trust.

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          If we fail to qualify as a partnership, the Trust’s shareholders and our unitholders would be adversely affected.

          We intend to qualify as a partnership for federal income tax purpose. However, we will be treated as a corporation for federal income tax purposes if we are a “publicly traded partnership,” unless at least 90% of our income is qualifying income as defined in the Internal Revenue Code. We believe that we are not a publicy traded partnership and, in addition, we believe that we would have sufficient qualifying income, which includes real property rents and other passive income, to ensure that we would be taxed as a partnership even if we were a publicly traded partnership. If we were to be taxed as a corporation, we would incur substantial tax liabilities, the Trust would fail to qualify as a REIT for tax purposes and the Trust’s and our ability to raise additional capital would be impaired. We cannot, however, offer any assurance that we are or will be taxed as a partnership.

          To the extent that we, the Trust or any taxable REIT subsidiary is required to pay federal, state or local taxes, we will have less cash available for distribution to our unitholders and the Trust will have less cash available for distribution to its shareholders, as applicable.

          Even if the Trust qualifies as a REIT for federal income tax purposes, it is required to pay some federal, state and local taxes on its income and property. For example, if the Trust has net income from “prohibited transactions,” that income will be subject to a 100% federal tax. In general, prohibited transactions are sales or other dispositions of property held primarily for sale to customers in the ordinary course of business. The determination as to whether a particular sale is a prohibited transaction depends on the facts and circumstances related to that sale. Although we occasionally undertake sales of assets that become inconsistent with our long-term strategic or return objectives, we do not believe that those sales should be considered prohibited transactions. There can be no assurance, however, that the IRS would not contend otherwise. In addition, the Trust may have to pay some state or local income taxes because not all states and localities treat REITs the same as they are treated for federal income tax purposes. CPSI and other corporate subsidiaries have elected to be treated as “taxable REIT subsidiaries” for federal income tax purposes. A taxable REIT subsidiary is a fully taxable corporation and is limited in its ability to deduct interest payments made to us. In addition, the Trust will be subject to a 100% penalty tax on some payments that it receives if the economic arrangements among our tenants, our taxable REIT subsidiaries and us are not comparable to similar arrangements among unrelated parties. To the extent that we, the Trust or any taxable REIT subsidiary is required to pay federal, state or local taxes, we will have less cash available for distribution to unitholders and the Trust will have less cash available for distribution to its shareholders, as applicable.

Risks Associated with Cornerstone Merger

          The operations of the Trust and Colonial and Cornerstone may not be integrated successfully and intended benefits of the merger may not be realized, which could materially harm the combined company’s operating results and financial condition.

          The Cornerstone merger involves the integration of two large and complex real estate businesses that currently operate independently. In addition, the merger poses specific risks for our ongoing operations following completion of the merger, including that:

	•	we may not achieve the expected operating efficiencies, value-creation potential, economies of scale or other benefits;
	•	we may not have adequate financial, personnel and other resources to successfully handle our substantially increased operations;
	•	the combined portfolio may not perform at the level we anticipate; and
	•	we may experience difficulties and incur unforeseen expenses in connection with assimilating and retaining Cornerstone employees and assimilating Cornerstone’s business and properties.

          If we fail to successfully integrate Cornerstone and/or fail to realize the intended benefits of the merger, our operating results and financial condition following completion of the merger may be materially harmed.

          Cornerstone’s outstanding debt obligations could materially adversely affect our future financial condition and operating results.

          As of December 31, 2004, Cornerstone had approximately $807.0 million in total debt outstanding, all of which was secured by its properties and $233.6 million of which was subject to variable interest rates. As part of the merger, we will assume the debt of Cornerstone. We currently expect to repay a portion of Cornerstone’s outstanding debt with proceeds from debt financings, asset sales, and our renegotiated unsecured line of credit. However, we cannot assure you that we can obtain a new unsecured line of credit on favorable terms, if at all or complete the asset sales. Our increased leverage as a result of the merger could have negative consequences to our partners and debt holders, including:

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	•	requiring us to use a significant portion of our cash flow from operations to make interest and principal payments on debt rather than for other purposes such as working capital, capital expenditures or dividends;
	•	limiting our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, development or other general corporate purposes;
	•	limiting our flexibility to plan for or react to changes in business and economic conditions; and
	•	making us more vulnerable to a downturn in our business or the economy generally.

          As a result of these debt obligations, we may not have sufficient cash flow from operations to meet required payments of principal and interest, pay distributions on our securities, which could affect the Trust’s ability to qualify as a REIT, or make necessary investments in new business activities. In addition, our ability to refinance Cornerstone’s debt may be adversely affected by increases in interest rates. Moreover, higher interest rates would increase our interest expense under the variable interest rate debt assumed from Cornerstone.

Item 2. Properties.

General

          As of December 31, 2004, our real estate portfolio consisted of 153 properties consisting of whole or partial ownership interests, located in twelve states in the Sunbelt region of the United States. We maintain non-controlling partial interests of 10% to 50% in 37 of the 153 operating properties. The 153 properties we owned or maintained partial ownership in at December 31, 2004 consisted of the following:

Summary of Properties

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Multifamily Properties

          The 78 multifamily properties contain a total of 25,009 garden-style apartments and range in size from 125 to 1,080 units. Twenty-one multifamily properties (containing a total of 7,902 apartment units) are located in Alabama, ten multifamily properties (containing a total of 2,340 units) are located in Arizona, sixteen multifamily properties (containing a total of 5,998 units) are located in Florida, eleven multifamily properties (containing a total of 2,729 units) are located in Georgia, two multifamily properties (containing a total of 498 units) are located in Mississippi, three multifamily properties (containing a total of 858 units) are located in Nevada, three multifamily properties (containing a total of 1,025 units) are located in New Mexico, three multifamily properties (containing 872 units) are located in North Carolina, two multifamily properties (containing a total of 764 units) are located in South Carolina, two multifamily properties (containing 618 units) are located in Tennessee and five multifamily properties (containing 1,405 units) are located in Texas. Each of the multifamily properties is established in its local market and provides residents with numerous amenities, which may include a swimming pool, exercise room, jacuzzi, clubhouse, laundry room, tennis court(s), and/or a playground. All of the multifamily properties are managed by us.

          The following table sets forth certain additional information relating to the multifamily properties as of and for the year ended December 31, 2004.

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Multifamily Properties

                                                            
(footnotes on next page)

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     The following table sets forth the total number of units, percent leased and average base rental rate per unit as of the end of each of the last five years for the multifamily properties:

Office Properties

     The 27 office properties contain a total of approximately 5.9 million net rentable square feet. Seventeen of the office properties are located in Alabama (representing 54.7% of the office portfolio’s net rentable square feet), seven are located in Florida, and three are located in Atlanta, Georgia. The office properties range in size from approximately 20,900 square feet to 807,100 square feet. All of the office properties are managed by us.

     The following table sets forth certain additional information relating to the office properties as of and for the year ended December 31, 2004.

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Office Properties