UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

                      

FORM 10-Q
                       

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                    For the quarterly period ended: September 30, 2004

or

[    ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

Commission File Number: 0-20707

COLONIAL REALTY LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)

2101 Sixth Avenue North, Suite 750, Birmingham, Alabama 35202
(Address of principal executive offices) (Zip Code)

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

Not applicable
(Former name or former address, if changed since last report)

        Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

YES    X       NO        

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

YES    X       NO        

COLONIAL REALTY LIMITED PARTNERSHIP
INDEX TO FORM 10-Q

Page

PART I: FINANCIAL INFORMATION

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COLONIAL REALTY LIMITED PARTNERSHIPCONSOLIDATED
CONDENSED BALANCE SHEETS
(in thousands, except unit data)

The accompanying notes are an integral part of these consolidated financial statements.

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COLONIAL REALTY LIMITED PARTNERSHIP
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(in thousands, except per unit data)

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COLONIAL REALTY LIMITED PARTNERSHIP
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)

        The accompanying notes are an integral part of these consolidated financial statements.

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COLONIAL REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
September 30, 2004
(Unaudited)

        The consolidated financial statements of Colonial Realty Limited Partnership have been prepared pursuant to the Securities and Exchange Commission (“SEC”) rules and regulations. The following notes, which represent interim disclosures as required by the SEC, highlight significant changes to the notes to the December 31, 2003 audited consolidated financial statements of Colonial Realty Limited Partnership and should be read together with the financial statements and notes thereto included in the Form 10-K filed on March 15, 2004.

Note 1 — Organization and Business

        Colonial Realty Limited Partnership (“CRLP”) is the operating partnership of Colonial Properties Trust (“the Trust”), an Alabama real estate investment trust whose shares are traded on the New York Stock Exchange. The Trust was originally formed as a Maryland real estate investment trust on July 9, 1993 and reorganized as an Alabama real estate investment trust under a new Alabama REIT statute on August 21, 1995. The Trust is is a fully integrated, self-administered and self-managed REIT, which means that it is engaged in the acquisition, development, ownership, management and leasing of commercial real estate property. The Trust’s activities include ownership or partial ownership and operation of a diversified portfolio of properties located in the Sunbelt region of the United States, consisting of 59 multifamily apartment communities (including 42 wholly-owned consolidated properties and 17 properties partially-owned through unconsolidated joint venture entities), 26 office properties (including 25 wholly-owned consolidated properties and one property partially-owned through an unconsolidated joint venture entity) and 49 retail properties (including 45 consolidated properties and four properties partially-owned through unconsolidated joint venture entities), as of September 30, 2004.

Note 2 — Summary of Significant Accounting Policies

     Basis of Presentation

        The consolidated financial statements include CRLP, Colonial Properties Services Limited Partnership (in which CRLP holds 99% general and limited partner interests), and Colonial Properties Services, Inc. (“CPSI”). CPSI is a taxable REIT subisidiary of the Trust that is not entitled to a dividends paid deduction and is subject to federal, state and local income taxes. CPSI provides property development, leasing and management for third-party owned properties and administrative services to CRLP. CRLP generally reimburses CPSI for payroll and other costs incurred in providing services to CRLP. All inter-company transactions are eliminated in the accompanying consolidated financial statements. Entities in which CRLP owns, directly or indirectly, a fifty percent or less interest and does not control are reflected in the consolidated financial statements as investments accounted for under the equity method, except as discussed below. Under this method the investment is carried at cost plus or minus equity in undistributed earnings or losses since the date of acquisition. For those entities in which we own less than 100% of the equity interest, we consolidate the property if we have the direct or indirect ability to make major decisions about the entities’ activities based on the terms of the respective joint venture agreements which specify the sharing of participating and protective rights such as decisions regarding major leases, encumbering the entities with debt and whether to dispose of entities. We would also consolidate certain partially-owned entities and other subsidiaries if we own less than 100% equity interest and are deemed to be the primary beneficiary as defined by FASB Interpretation 46 Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, as revised (“FIN 46(R)”).

     Use of Estimates

        The preparation of consolidated condensed financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that effect the reported amounts of assets and liablities and disclosure of contingent assets and liablities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

     Unaudited Interim Statements

        The consolidated financial statements as of and for the three and nine months ended September 30, 2004 and 2003 and related footnote disclosures are unaudited. In the opinion of management, such financial statements reflect all adjustments necessary for a fair presentation of the results of the interim periods. All such adjustments are of a normal, recurring nature.

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     Reclassifications

        Certain reclassifications have been made to the previously reported 2003 statements in order to provide comparability with the 2004 statements reported herein. These reclassifications have no impact on partners’ equity or net income.

     Recent Pronouncements of the Financial Accounting Standards Board (“FASB”)

        On January 15, 2003, FASB completed its redeliberations of the project related to the consolidation of variable interest entities which culminated with the issuance of FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities. FIN 46 states that if a business enterprise has a controlling financial interest in a variable interest entity, the assets, liabilities and results of the activities of the variable interest entity should be included in the consolidated financial statements of the business enterprise. This Interpretation explains how to identify variable interest entities and how an enterprise assesses its interests in a variable interest entity to decide whether to consolidate that entity. FIN 46 also requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. Variable interest entities that effectively disperse risks will not be consolidated unless a single party holds an interest or combination of interests that effectively recombines risks that were previously dispersed. This Interpretation applied immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. In December 2003, the FASB revised FIN 46 through the release of FIN 46R, which clarified certain aspects of FIN 46 and contained certain provisions that deferred the effective date of FIN 46 to periods ending after March 15, 2004 for variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003.

        The Company has identified certain relationships that it deems to be variable interest entities in which it holds a significant variable interest. As disclosed in Note 8, relative to these entities, the Company’s maximum exposure to loss is limited to the carrying value of the Company’s investments in those entities, which is $63.1 million as of September 30, 2004. In addition to these variable interest entities, the Company considers its relationship with another entity to also be a variable interest entity. The maximum exposure related to this entity is limited to the amount of a guarantee and is $1.0 million as of September 30, 2004, which results in a total maximum exposure to the Company attributable to all variable interest entities in the aggregate amount of $64.1 million. The adoption of FIN 46 and FIN 46R did not have a material effect on the Company’s consolidated financial statements.

Note 3 — Capital Structure

        At September 30, 2004, the Trust controlled CRLP as the sole general partner and as the holder of 72.5% of the common units of CRLP and 63.6% of the preferred units (the “Series C Preferred Units” and “Series D Preferred Units”). The limited partners of CRLP who hold common units or “redeemable units”, are those persons (including certain officers and directors) who, at the time of the Initial Public Offering, elected to hold all or a portion of their interest in the form of units rather than receiving shares of common stock of the Trust, or individuals from whom CRLP acquired certain properties, who elected to receive units in exchange for the properties. Redeemable units represent the number of outstanding limited partnership units as of the date of the applicable balance sheet, valued at the closing market value of the Trust’s common shares. Each redeemable unit may be redeemed by the holder thereof for either one share of common stock of the Trust or cash equal to the fair market value thereof at the time of such redemption, at the option of the Trust. Additionally, CRLP has issued and outstanding $100 million of Series B Cumulative Redeemable Perpetual Preferred Units (“Series B Units”) in a private placement, that are exchangeable for Series B Preferred Shares of the Trust on or after February 24, 2009 at the option of the holders of the Series B Units.

        The Board of Trustees of the Trust manages CRLP by directing the affairs of the Trust. The Trust’s interests in CRLP entitle it to share in cash distributions from, and in the profits and losses of, CRLP in proportion to the Trust’s percentage interest therein and entitle the Trust to vote on all matters requiring a vote of the limited partners.

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Note 4 — Acquisition and Disposition Activity

        On July 15, 2004, CRLP disposed of a 47,100 square foot retail asset, Colonial Shoppes at Stanley, located in Locust, North Carolina. The asset was sold for $2.4 million and the proceeds were used to fund other investment activities.

        On July 27, 2004, CRLP disposed of a 25,500 square foot office asset, Village at Roswell Summit, located in Atlanta, Georgia. The asset was sold for $4.0 million and the proceeds were used to fund other investment activities.

        On August 2, 2004, CRLP acquired three retail assets totaling approximately 526,000 square feet in South Florida. The 379,000 square foot Deerfield Mall 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 79,000 square foot College Parkway property is located in Fort Myers, Florida and includes such tenants as Office Depot and the Blue Pepper Market. Pines Plaza, which is 100.0% occupied, is a 68,000 square foot center 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 CRLP’s unsecured line of credit.

        On August 19, 2004, CRLP acquired a 25% partnership interest and the management of 618 multifamily units in two communities in Nashville, Tennessee. Brentwood Gables apartments, which will be renamed Colonial Grand at Brentwood, is located in the Brentwood submarket. The complex consists of 254 units and is 94 % occupied. The 364-unit Gables at Henderson Apartments is located in the Hendersonville submarket and is 85 % occupied; the property will be renamed Colonial Village at Hendersonville. 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 CRLP’s unsecured line of credit.

        On September 9, 2004, CRLP announced the development of Colonial Pinnacle at Craft Farms, a 285,000 square foot lifestyle center in Gulf Shores, Alabama. Cobb Theaters, LLC will open a 17-screen megaplex stadium seating theatre in the development. Scheduled to open in May 2005, the 54,000 square-foot cinema will be joined by upscale specialty stores that will offer fashion apparel, home décor, a book store and a music store, as well as upscale restaurants. Additionally, CRLP expects to include a department store and a grocery store. Total project costs, including land costs, are expected to be approximately $45 million.

        On September 10, 2004, CRLP acquired a 232-unit multifamily property, Villas on South Creek, which is 94 % occupied. The class-A property is located in the Round Rock sub-market in Austin, Texas and will be renamed Colonial Village at Sierra Vista. The asset was acquired for a total price of $14.0 million, which was funded through borrowings under CRLP’s line of credit.

        On September 10, 2004, CRLP acquired Boulevard Square, a 221,000 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 CRLP’s line of credit.

        On September 22, 2004, CRLP made a $9.0 million investment in the acquisition of a majority interest in Colonnade Properties LLC, a New York based real estate investment company that has focused on the acquisition, management, redevelopment and stabilization of 11 million square feet of office assets and is a direct owner of Douglas Entrance, a five-building complex in Coral Gables, Florida. The investment was funded through borrowings under CRLP’s unsecured line of credit.

        On September 28, 2004, CRLP disposed of a 28,243 square foot retail asset, Colonial Shoppes at Inverness, located in Birmingham, Alabama. The asset was sold for $3.4 million and the proceeds were used to fund other investment activities.

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        On September 30, 2004, CRLP acquired a 318-unit multifamily property, Seven Oaks, which was in lease-up upon acquisition. The property is located in Tampa, Florida and will be renamed Colonial Grand at Seven Oaks. The asset was acquired for a total price of $23.6 million, which was funded through borrowings under CRLP’s unsecured line of credit.

        The results of operations of the above mentioned acquisitions have been included in the consolidated financial statements since their respective dates of acquisition. The following table summarizes the estimated fair values of the assets acquired and liablities assumed as of the respective acquisition dates during the quarter ended September 30, 2004.

Note 5 — Net Income Per Unit

        The following table sets forth the computation of basic and diluted earnings per unit:

        
All options to purchase the Trust’s comon shares were included in the computation of diluted net income per unit.

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Note 6 — Income from Discontinued Operations

        During the quarter ended September 30, 2004, CRLP sold two retail assets for proceeds of approximately $5.9 million and one office asset for proceeds of approximately $4.0 million. During the quarter ended June 30, 2004, CRLP sold its interest in one multifamily asset for proceeds of approximately $2.4 million. During the quarter ended March 31, 2004, CRLP sold one retail asset for proceeds of approximately $21.3 million. In accordance with SFAS No. 144 Accounting for the Impairment on Disposal of Long-Lived Assets, net income and gain (loss) on disposition of real estate for properties sold, in which CRLP does not maintain continuing involvement, are reflected in the consolidated statements of income as “discontinued operations” for all periods presented.

        Additionally, CRLP classifies real estate assets as held for sale, only after CRLP has received approval by its internal investment committee, has commenced an active program to sell the assets, and in the opinion of CRLP’s management it is probable the assets will sell within the next 12 months. At September 30, 2004, CRLP had classified one multifamily asset containing 178 units and 8 retail assets containing approximately 3.7 million square feet as held for sale. These real estate assets are reflected in the accompanying consolidated balance sheet at $146.3 million at September 30, 2004, which represents the lower of depreciated cost or fair value less costs to sell. CRLP has also classified one partially owned retail entity as held for sale containing approximately 1.1 million square feet and has a net equity investment balance of $19.2 million at September 30, 2004. Following is a listing of the properties CRLP disposed of in 2004 and 2003 that are classified as discontinued operations:

     (1)   CRLP sold its 15% interest in this property.

        Also under the provisions of SFAS No. 144, the reserves, if any, to write down the carrying value of the real estate assets designated and classified as held for sale are also included in discontinued operations. All subsequent gains and or additional losses on the sale of these assets are also included in discontinued operations. Additionally, under SFAS No. 144, any impairment losses on assets held for continuing use are included in continuing operations. Below is a summary of the operations of the properties sold or classified as held for sale during 2004 and 2003 that are classified as discontinued operations:

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Note 7 — Segment Information

        CRLP is organized into, and manages its business based on the performance of three separate and distinct operating divisions: Multifamily, Office, and Retail. Each division has a separate management team that is responsible for acquiring, developing, managing, and leasing properties within each division. The applicable accounting policies of the segments are the same as those described in the “Summary of Significant Accounting Policies” in CRLP’s 2003 Annual Report. The pro rata portion of the revenues, net operating income (NOI), and assets of the partially-owned entities and joint ventures that CRLP has entered into are included in the applicable segment information. Additionally, the revenues and NOI of properties sold that are classified as discontinued operations are also included in the applicable segment information. In reconciling the segment information presented below to total revenues, income from continuing operations, and total assets, investments in partially-owned entities and joint ventures are eliminated as equity investments and their related activity are reflected in the consolidated financial statements as investments accounted for under the equity method and discontinued operations are reported separately. Management evaluates the performance of its segments and allocates resources to them based on divisional NOI. Divisional NOI is defined as total property revenues, including unconsolidated partnerships and joint ventures, less total property operating expenses (such items as repairs and maintenance, payroll, utilities, property taxes, insurance, advertising). Divisional information and the reconciliation of total divisional revenues to total revenues, total divisional NOI to income from continuing, and total divisional assets to total assets, for the three and nine months ended September 30, 2004 and 2003, and for the periods ended September 30, 2004 and December 31, 2003 is presented below:

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Note 8 — Investment in Partially Owned Entities

        At September 30, 2004, CRLP had investments in fifteen partially-owned entities. CRLP accounts for these investments in partially-owned entities using the equity method. The following table summarizes the investments in partially-owned entities as of September 30, 2004 and December 31, 2003:

Note 9 — Financial Instruments: Derivatives and Hedging

        Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As required by SFAS 133, CRLP records all derivatives on the balance sheet at fair value.  The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

        For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. CRLP assesses the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction. For derivatives not designated as hedges, changes in fair value are recognized in earnings.

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        CRLP’s objective in using derivatives is to add stability to interest expense and to manage its exposure to interest rate movements or other identified risks.  To accomplish this objective, CRLP primarily uses interest rate swaps and caps as part of its cash flow hedging strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying principal amount.  During the quarter ended September 30, 2004, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt and forecasted issuances of debt. CRLP primarily uses interest rate swaps as part of its fair value hedging strategy. These swaps involve the receipt of fixed rate amounts in exchange for variable rate amounts over the life of the agreements without exchange of the underlying principal amount. During the quarter ended September 30, 2004, such swaps were used to hedge the change in fair value of fixed rate debt.

        As of September 30, 2004, no derivatives were designated as hedges of net investments in foreign operations. Additionally, CRLP does not use derivatives for trading or speculative purposes. Derivatives not designated as hedges are not speculative and are used to manage CRLP’s exposure to interest rate movements and other identified risks, but do not meet the strict hedge accounting requirements of SFAS 133. The only swap that CRLP has that is not designated as a hedge for SFAS 133 was acquired through the purchase of a property and its corresponding debt.

        CRLP has entered into several different hedging transactions in an effort to manage its exposure to changes in interest rates. The following table summarizes the notional values, fair values and other characteristics of CRLP’s derivative financial instruments at September 30, 2004. The notional value at September 30, 2004 provides an indication of the extent of CRLP’s involvement in these instruments at that time, but does not represent exposure to credit, interest rate, or market risk.

        
Further, CRLP has 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, CRLP has not sustained a material loss from those instruments nor does it anticipate any material adverse effect on its net income or financial position in the future from the use of derivatives.

        At September 30, 2004, derivatives with a fair value of $2.0 million were included in other liabilities and $38,000 were included in other assets. Additionally, the fair value of our fair value interest rate swap of $4.0 million was included in notes and mortgages payable. The change in unrealized gain (losses) of $1.1 million for derivatives designated as cash flow hedges and $4.0 million for derivatives designated as fair value hedges for the nine months ended September 30, 2004 is a component of partner’s equity. The change in fair value of derivatives not designated as hedges of $0.1 million is included in gains (losses) on hedging activities in the quarter ended September 30, 2004.  No hedge ineffectiveness on fair value hedges was recognized during the quarter ended September 30, 2004. Hedge ineffectiveness of approximately $4,000 on cash flow hedges due to index mismatches was recognized in gains (losses) on hedging activities during the quarter ended September 30, 2004.

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Note 10 — Subsequent Events

     Acquisitions

        On October 22, 2004, CRLP acquired Research Park Office Center, comprising 176,570 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 CRLP’s unsecured line of credit.

        On October 25, 2004, CRLP and Dreyfuss Real Estate Advisors (“DRA”) entered into a partnership agreement, in which CRLP maintains a 20% interest and manages sixteen multifamily properties located in Arizona, New Mexico and Nevada containing a combined 4,223 units. CRLP’s 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 CRLP’s unsecured line of credit.

        On October 29, 2004, CRLP acquired two multifamily assets for a total purchase price of $44.7 million. North Creek, a 252 unit complex, is located in Durham, North Carolina and Montclair Parc, a 300 unit complex, is located in Charlotte, North Carolina. The acquisition was funded through borrowings under CRLP’s bridge credit facility.

     Merger Agreement

        On October 25, 2004, the Trust and Cornerstone Realty Income Trust, Inc. (NYSE: TCR) (“Cornerstone”), a Richmond, Virginia-based REIT focused on multifamily communities, entered into a definitive merger agreement under which Cornerstone will merge into the Trust. The total transaction value, including the assumption or repayment of Cornerstone debt, is approximately $1.5 billion, or $10.80 per share, based on the Trusts’ closing price as of October 22, 2004. The transaction is expected to close during the first quarter of 2005.

        The transaction will be structured as a common and preferred stock election merger, with Cornerstone shareholders having the right to elect to receive the merger consideration in the Trusts’ common or preferred depositary shares, subject to the restriction that the preferred depositary shares issued shall not exceed 25 percent of the total merger consideration. The merger agreement provides that Cornerstone shareholders who elect to receive common stock will receive 0.2584 Trust shares for each Cornerstone share. Cornerstone shareholders who elect to receive redeemable preferred depositary shares will receive 0.4200 shares of $25 liquidation preference redeemable Series E Preferred Depositary Shares with a dividend rate of 7.62 percent which will be listed on the NYSE. The exchange ratios are subject to adjustments related to certain tax matters. Depending upon the shareholder elections, the Trusts 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 to approval by the common shareholders of the Trust and Cornerstone, has been unanimously approved by both boards.

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

     Dispositions

        On October 15, 2004, CRLP sold Colonial Village at Vernon Marsh, a 178 unit multifamily complex located in Savannah, Georgia. The total sales price was $10.0 million, of which $3.4 million was used to repay a secured loan, and the remaining proceeds were used to support CRLP’s investment activities.

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     Investments held for sale

        On October 19, 2004, CRLP and its third party partner signed a binding agreement with Pennsylvania Real Estate Trust (NYSE: PEI) to sell Orlando Fashion Square, a 1,080,535 square-foot retail asset located in Orlando, Florida. CRLP’s investment in the partially-owned entity is $19.2 million as of September 30, 2004, which is reflected within investment in partially-owned entities on CRLP’s balance sheet. The sell of this mall is expected to close in the fourth quarter of 2004.

     Distribution

        On October 19, 2004, a cash distribution was declared to partners of CRLP in the amount of $0.67 per share and per unit, totaling $25.3 million. The distribution was declared to partners of record as of October 29, 2004, and was paid on November 5, 2004.

     Bridge Credit Agreement

        On October 28, 2004, CRLP entered into an additional $200.0 million bridge credit facility with certain participants of its 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 SouthTrust´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.

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Report of Independent Registered Public Accounting Firm

To the Board of Trustees ofColonial
Properties Trust:

We have reviewed the accompanying condensed consolidated balance sheet of Colonial Realty Limited Partnership (“the Partnership) as of September 30, 2004, and the related condensed consolidated statements of income for each of the three-month and nine-month periods ended September 30, 2004 and 2003 and the condensed consolidated statement of cash flows for the nine-month periods ended September 30, 2004 and 2003. These interim financial statements are the responsibility of the Partnership’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2003, and the related consolidated statements of income, partners’ equity, and of cash flows for the year then ended (not presented herein), and in our report dated March 1, 2004 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2003, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

COLONIAL REALTY LIMITED PARTNERSHIP

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

        The following discussion and analysis of the consolidated financial condition and consolidated results of operations should be read together with the consolidated financial statements of Colonial Realty Limited Partnership and notes thereto contained in this Form 10-Q. This report on Form 10-Q 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. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, but not limited to, the risks described in our 2003 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 15, 2004. Such factors include, among others, the following:

General

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

        We are the operating partnership of the Trust, which is a self-administered equity real estate investment trust (a “REIT”) that owns, develops and operates 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 activities include full or partial ownership of a diversified portfolio of 134 properties as of September 30, 2004, located in Alabama, Florida, Georgia, Mississippi, North Carolina, South Carolina, Tennessee, Texas, and Virginia, development of new properties, acquisition of existing properties, build-to-suit development, and the provision of management, leasing, and brokerage services for commercial real estate.

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        As of September 30, 2004, we owned or maintained a partial ownership in 59 multifamily apartment communities containing a total of 19,695 apartment units (including 42 wholly-owned consolidated properties and 17 properties partially-owned through unconsolidated joint venture entities aggregating 14,398 and 5,297 units, respectively) (the “multifamily properties”), 26 office properties containing a total of approximately 5.7 million square feet of office space (including 25 wholly-owned consolidated properties and one property partially-owned through an unconsolidated joint-venture entity aggregating 5,658,900 and 30,000 square feet, respectively )(the “office properties”), 49 retail properties containing a total of approximately 16.3 million square feet of retail space (including 45 consolidated properties and four properties partially-owned through unconsolidated joint venture entities aggregating 14.1 million and 2.2 million square feet, respectively) (the “retail properties”), and certain parcels of land adjacent to or near certain of these properties (the “land”). The multifamily properties, the office properties, the retail properties and the land are referred to collectively as the “properties”. As of September 30, 2004, the multifamily properties that had achieved stabilized occupancy were 95.4% leased (95.5% for consolidated properties and 94.4% for unconsolidated properties), the office properties that had achieved stabilized occupancy were 92.2% leased (92.2% for consolidated properties and 100.0% for unconsolidated properties), and the retail properties that had achieved stabilized occupancy were 89.9% leased (89.8% for consolidated properties and 90.6% for unconsolidated properties).

        As a lessor, the majority of our revenue is derived from tenants under existing leases at our properties. Therefore, our operating cash flow is dependent upon the rents that we are able to charge to our tenants, and the ability of these tenants to make their rental payments. We believe that the diversified nature of the properties in which we typically invest – multifamily, office and retail – provides a more stable revenue flow in uncertain economic times, in that our diversified property types generally do not have the same economic cycles and while one property type may be experiencing difficulty, the other property types may be maintaining their strength.

        The following table summarizes certain key operating performance measures for our properties as of and for the quarters ended September 30, 2004 and 2003:

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        As a result of the recent economic downturn in the United States, our operations have been negatively impacted. Our multifamily properties have been impacted by a liberal supply of new apartments and a robust single-family housing market, driven by low interest rates and weak job growth. However, our multifamily division’s physical occupancy percentage rose to 95.4% as of September 30, 2004, and our economic occupancy remained stable at 80.7%, as a result of the move-in concessions being offered to our new residents. During the third quarter of 2004, we acquired one multifamily asset located in Austin, Texas consisting of 232 units for $14.0 million, one multifamily asset located in Tampa, Florida consisting of 316 units for $23.6 million, and a 25% interest in two properties located in Nashville, Tennessee consisting of 364 units for $10.3 million. During the current year, our consolidated multifamily properties have experienced an increase in capital expenditures, as compared to the prior year, in connection with enhancing the newly acquired assets to the quality level of the Company’s existing multifamily properties. We believe there are signs of current job growth and rising interest rates and believe these factors should allow our multifamily division to improve its fundamentals in the quarters ahead. We remain cautiously optimistic regarding that sustained job growth will occur in the near term.

        Our office properties continue to be negatively impacted by the absence of corporate hiring and a “buyers market” for office space in which increased tenant leverage puts pressure on current rental rates. As a result, our office division’s base rent per square foot decreased from $19.08 in the third quarter of 2003 to $18.12 in the third quarter of 2004, or a -5.0% change. Rental rate reductions and concessions continue to pressure performance, but despite the difficult fundamentals, we believe our occupancy remains stong. Total occupancy for the quarter ended September 30, 2004 was 92% versus 91% for the second quarter of 2004. On a same-property basis, occupancy was 91% for the third quarter of 2004, an increase of 140 basis points from second quarter of 2004. Future rental income from our office properties may be affected by future lease terminations because we may be unable to collect the full amount that was due under the lease and may incur additional cost in re-leasing the space. We presently believe the office sector will remain challenged thoughout 2004 and 2005.

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        For the third quarter of 2004, our retail same property net operating income increased 1.1% over the same period in 2003. During the third quarter of 2004 our retail properties recognized lease termination fees of $0.1 million as compared to $0.2 million in the third quarter of 2003. Excluding the effects of lease termination fees, our retail same property net operating income for the third quarter of 2004 would have been an increase of 1.6% over the third quarter of 2003. During the third quarter of 2004, we acquired four retail assets totaling approximately 742,000 square feet in South Florida for $125.1 million and continued the redevelopment of two retail malls with total estimated costs of approximately $47.7 million. Additionally, the Company began the construction of one retail development and continued the development of another which combined total approximately 520,000 square feet. One development is located in Birmingham, Alabama and the other is located in Gulf Shores, Alabama. The total costs, including land, are projected to be approximately $75.8 million. As with any development, future rental income will be affected by the timing of completion of the redevelopment projects and the ability to timely lease the space at market rental rates. Throughout the recent economic downturn, consumer confidence has remained strong. As a result, we currently expect our retail division to show continued improved operating performance throughout 2004 and 2005.

Cornerstone Merger Agreement

        On October 25, 2004, the Trust and Cornerstone Realty Income Trust, Inc. (NYSE: TCR) (“Cornerstone”), a Richmond, Virginia-based REIT focused on multifamily communities, entered into a definitive merger agreement under which Cornerstone will merge into the Trust. The total transaction value, including the assumption or repayment of Cornerstone debt, is approximately $1.5 billion, or $10.80 per share, based on the Trusts’ closing price as of October 22, 2004. The transaction is expected to close during the first quarter of 2005.

        The transaction will be structured as a common and preferred stock election merger, with Cornerstone shareholders having the right to elect to receive the merger consideration in the Trusts’ common or preferred depositary shares, subject to the restriction that the preferred depositary shares issued shall not exceed 25 percent of the total merger consideration. The merger agreement provides that Cornerstone shareholders who elect to receive common stock will receive 0.2584 Trust shares for each Cornerstone share. Cornerstone shareholders who elect to receive redeemable preferred depositary shares will receive 0.4200 shares of $25 liquidation preference redeemable Series E Preferred Depositary Shares with a dividend rate of 7.62 percent which will be listed on the NYSE. The exchange ratios are subject to adjustments related to certain tax matters. Depending upon the shareholder elections, the Trusts 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 to approval by the common shareholders of the Trust and Cornerstone, has been unanimously approved by both boards.

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

Results of Operations — Three Months Ended September 30, 2004 and 2003

        Minimum rent for the quarter ended September 30, 2004 increased $11.9 million or 20.2% as compared with the quarter ended September 30, 2003. Minimum rent increased $11.3 million as a result of the acquisitions that have occurred since Setpember 30, 2003, coupled with the completion of TownPark 200, the retail portion of Colonial TownPark and Colonial Promenade Trussville II, which became completed developments in 2003 and 2004. The remaining increase is primarily a result of an increase in leasing activity in our multifamily and retail divisions.

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        Other property related revenue for the quarter ended September 30, 2004 increased $1.5 million or 38.9% as compared with the quarter ended September 30, 2003. This increase is primarily attributable to an increase of $0.9 million in early lease terminations primarily within our office division in the third quarter of 2004 as compared to 2003. Additionally, other income attributable to the properties acquired or developed during the last quarter of 2003 and the first three quarters of 2004 increased $0.5 million during the third quarter of 2004 as compared to the same period in 2003.

        Total operating expenses for the quarter ended September 30, 2004 increased $12.3 million or 25.6% as compared to the quarter ended September 30, 2003. Of this increase, $8.7 million is attributable to the properties acquired or developed in the last quarter of 2003 and the first three quarters of 2004. The remaining increase is a result of an increase of approximately $2.1 million in our corporate overhead expenses as a result of the continued growth of the Company and an increase in insurance costs incurred in the third quarter as a result of the four hurricanes that hit Florida and the southern panhandle.

        Interest expense for the quarter ended September 30, 2004 increased $4.7 million or 28.2% as compared to the quarter ended September 30, 2003. This increase is primarily attributable to the issuance of $100 million of senior notes in April 2004, $300 million of senior notes in June 2004 through CRLP, and the assumption of $181.9 million of mortgage debt related to properties acquired during the nine months ended September 30, 2004. Additionally, our consolidated debt balance increased from $1.2 billion at September 30, 2003 to $1.7 billion at September 30, 2004.

        Gains from sales of property included in continuing operations for the quarter ended September 30, 2004 decreased $3.0 million as compared to the quarter ended September 30, 2003. The decrease is a result of the sale of three parcels of land in the third quarter of 2004 as compared to the sale of seven parcels of land in the third quarter of 2003, resulting in less gains recognized in 2004. The operating property sales that occurred in the third quarter of 2004 and 2003 are classified as discontinued operations.

Results of Operations — Nine Months Ended September 30, 2004 and 2003

        Minimum rent for the nine months ended September 30, 2004 increased $23.6 million or 13.5% as compared with the nine months ended September 30, 2003. Minimum rent increased $21.4 million as a result of the acquisitions that have occurred since September 30, 2003 coupled with the completion of TownPark 200, the retail portion of Colonial TownPark and Colonial Promenade Trussville II, which became completed developments in 2003 and 2004. The remaining increase is primarily a result of an increase in leasing activity in our multifamily and retail divisions.

        Other property related revenue for the nine months ended September 30, 2004 increased approximately $0.3 or 2.3% as compared with the nine months ended September 30, 2004. The increase is primarily due to an increase of $0.8 million attributable to the properties acquired or developed during the fourth quarter of 2003 and the first three quarters of 2004. This increase is offset by a decrease of $1.2 million in early lease terminations within our office division in 2004 as compared to 2003.

        Total operating expenses for the nine months ended September 30, 2004 increased $21.5 million or 15.1% as compared to the nine months ended September 30, 2003. Of this increase, $15.5 million is attributable to the properties acquired or developed in the fourth quarter of 2003 and the first three quarters of 2004, and $3.2 million is attributable to an increase in our corporate overhead expenses as a result of the continued growth of the Company and an increase in recruiting and hiring costs related to the replacement of our Chief Financial Officer who retired in the first quarter of 2004 and other new employees. The remaining increase is a result of an overall increase in property operating expenses at our existing properties.

        Interest expense for the nine months ended September 30, 2004 increased $6.1 million or 12.2% as compared to the nine months ended September 30, 2003. This increase is primarily attributable to the issuance of $100 million of senior notes in April 2004, $300 million of senior notes in June 2004 through CRLP, and the assumption of $181.9 million of mortgage debt related to properties acquired during the nine months ended September 30, 2004. Additionally, our consolidated debt balance increased from $1.2 billion at September 30, 2003 to $1.7 billion at September 30, 2004.

        Gains from sales of property included in continuing operations for the nine months ended September 30, 2004 decreased $3.0 million as compared to the nine months ended September 30, 2003. The decrease is a result of the sale of seven parcels of land in the first nine months of 2004 as compared to the sale of twelve parcels of land in the first nine months of 2003, resulting in less gains recognized in 2004. The operating property sales that occurred in the first nine months of 2004 and 2003 are classified as discontinued operations.

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Liquidity and Capital Resources

     Short-Term Liquidity Needs

        Our short-term liquidity requirements consist primarily of funds necessary to pay for operating expenses directly associated with our portfolio of properties (including regular maintenance items), capital expenditures incurred to lease our space (e.g., tenant improvements and leasing commissions), interest expense and scheduled principal payments on our outstanding debt, and quarterly distributions that we pay to our common and preferred unitholders. In the past, we have primarily satisfied these requirements through cash generated from operations. We believe that cash generated from operations and borrowings under our unsecured line of credit will be sufficient to meet our short-term liquidity requirements. However, factors described below and elsewhere herein may have a material adverse effect on our cash flow.

        The majority of our revenue is derived from tenants under existing leases at our properties. Therefore, our operating cash flow is dependent upon the rents that we are able to charge to our tenants, and the ability of these tenants to make their rental payments. We believe that the diversified nature of the properties in which we typically invest – multifamily, office and retail – provides a more stable revenue flow in uncertain economic times, in that our diversified property types generally do not have the same economic cycles and while one property type may be experiencing difficulty, the other property types may be maintaining their strength.

     Long-Term Liquidity Needs

        Our long-term liquidity requirements consist primarily of funds necessary to pay for the principal amount of our long-term debt as it matures, significant non-recurring capital expenditures that need to be made periodically at our properties, development projects that we undertake and costs associated with acquisitions of properties that we pursue. As a result of our merger agreement with Cornerstone Realty Income Trust, we will have additional long-term liquidity requirements, consisting of the planned conversion of approximately $350.0 million of secured financing to unsecured financing and payment of transactional costs incurred with the merger. Historically, we have satisfied these requirements principally through the most advantageous source of capital at that time, which has included the incurrence of new debt through borrowings (through public offerings of unsecured debt and private incurrence of secured and unsecured debt), sales of common and preferred stock, capital raised through the disposition of assets, and joint venture capital transactions. We believe these sources of capital will continue to be available in the future to fund our long-term capital needs. However, factors described below and elsewhere herein may have a material adverse effect on our access to these capital sources.

        Our ability to incur additional debt is dependent upon a number of factors, including our credit ratings, the value of our unencumbered assets, our degree of leverage and borrowing restrictions imposed by our current lenders. We currently have investment grade ratings for prospective unsecured debt offerings from three major rating agencies. If we experienced a credit downgrade, we may be limited in our access to capital in the unsecured debt market, which we have historically utilized to fund investment activities, and the interest rate we are paying under our existing credit facility would increase.

        Our general partner’s ability to raise funds through sales of common stock and preferred stock is dependent on, among other things, general market conditions for REITs, market perceptions about the Trust and the current trading price of the Trust’s stock. We will continue to analyze which source of capital is most advantageous to us at any particular point in time, but the equity markets may not be consistently available on terms that are attractive.

        Over the last few years, we have maintained our asset recycling program, which 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. During the first nine months of 2004, we sold three retail properties representing 290,933 square feet, one office property with 25,500 square feet and our 15% ownership interest in one multifamily property consisting of 240 units. The aggregate sales price was $33.5 million, which was used to repay a portion of the borrowings under our unsecured line of credit and the mortgages associated with the properties. 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.

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        As of September 30, 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 a balance of $228.0 million outstanding at September 30, 2004.

        At September 30, 2004, our total outstanding debt balance was $1.7 billion. The outstanding balance includes fixed-rate debt of $1.3 billion, or 73.3% of the total debt balance, and floating-rate debt of $463.0 million, or 26.7% of the total debt balance. Our total market capitalization, calculated as a sum of our consolidated debt, preferred shares and units and market equity of our outstanding common shares and units, as of September 30, 2004 was $3.5 billion and our ratio of debt to market capitalization was 49.2%. We have certain loan agreements that contain restrictive covenants, which among other things require maintenance of various financial ratios. At September 30, 2004, we were in compliance with these covenants.

        On October 28, 2004, we entered into an additional $200.0 million bridge credit facility with certain participants of our current $320.0 million unsecured bank line of credit. The bridge credit facility bears interest at LIBOR plus a spread calculated based on our unsecured debt ratings from time to time. The bridge credit facility matures in November of 2005.

     Investing Activities

        During the third quarter of 2004, we acquired two wholly-owned multifamily properties containing 548 units at a cost of approximately $37.6 million, a partial ownership interest in two multifamily assets containing 364 units for approximately $10.3 million, four wholly-owned retail assets containing 742,645 square feet at a total cost of $125.1 million and a majority interest in a real estate investment company that focuses on the acquisition, management, redevelopment and stabilization of 11 million square feet of office assets for approximately $9.0 million.

        During the third quarter of 2004, we continued the development of three multifamily apartment communities. These communities, if developed as expected, will contain 950 units, and the total investment, including land acquisition costs, is projected to be approximately $75.0 million. We began the development of one retail property and continued with the development of one retail property and the redevelopment of two retail properties. Upon completion of the retail developments and redevelopments, we expect to have invested approximately $123.5 million, including land acquisition costs. Additionally, we have one ongoing mixed-use project that integrates multifamily, office and/or retail products. If developed as expected, this investment is projected to be approximately $66.5 million. During the nine months ended September 30, 2004, we invested an aggregate of $85.9 million of these aforementioned development projects and certain parcels of land that were acquired for future development.

        We regularly incur significant expenditures in connection with the re-leasing of our office and retail space, principally in the form of tenant improvements and leasing commissions. The amounts of these expenditures can vary significantly, depending on negotiations with tenants and the willingness of tenants to pay higher base rents over the life of the leases. We also incur expenditures for certain recurring capital expenses. During the nine months ended September 30, 2004, we incurred approximately $20.6 million related to tenant improvements and leasing commissions, and approximately $11.9 million of recurring capital expenditures. We expect to pay for future re-leasing and recurring capital expenditures out of cash from operations.

     Distribution

        The distribution on our common units of partnership interest was $0.67 per unit for the third quarter of 2004. We also pay regular quarterly distributions on our preferred units. The maintenance of these distributions is subject to various factors, including the discretion of our general partner’s Board of Trustees, our ability to pay dividends under Delaware law, the availability of cash to make the necessary dividend payments and the effect of REIT distribution requirements, which require at least 90% of the Trust’s taxable income to be distributed to shareholders.

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Critical Accounting Policies and Estimates

        Refer to our 2003 Annual Report on Form 10-K for a discussion of our critical accounting policies, which include real estate development, principles of consolidation, revenue recognition, valuation of receivables, and accounting policies for derivatives. During the nine months ended September 30, 2004, there were no material changes to these policies.

Financial Instruments: Derivatives and Hedging

        Our objective in using derivatives is to add stability to interest expense and to manage our exposure to interest rate movements or other identified risks.  To accomplish this objective, we primarily use interest rate swaps and caps as part of our cash flow hedging strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying principal amount.  During the quarter ended September 30, 2004, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt and forecasted issuances of debt. We primarily use interest rate swaps as part of our fair value hedging strategy. These swaps involve the receipt of fixed rate amounts in exchange for variable rate amounts over the life of the agreements without exchange of the underlying principal amount. During the quarter ended September 30, 2004, such swaps were used to hedge the change in fair value of fixed rate debt.

        As of September 30, 2004, no derivatives were designated as hedges of net investments in foreign operations. Additionally, we do not use derivatives for trading or speculative purposes. Derivatives not designated as hedges are not speculative and are used to manage our exposure to interest rate movements and other identified risks, but do not meet the strict hedge accounting requirements of SFAS 133. The only swap that we have that is not designated as a hedge for SFAS 133 was acquired through the purchase of a property and its corresponding debt.

        We have entered into several different hedging transactions in an effort to manage its exposure to changes in interest rates. The following table summarizes the notional values, fair values and other characteristics of our derivative financial instruments at September 30, 2004. The notional value at September 30, 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.

        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 its net income or financial position in the future from the use of derivatives.

Inflation

        Leases at our multifamily properties generally provide for an initial term of six months to one year and allow for rent adjustments at the time of renewal. Leases at the office properties typically provide for rent adjustments and the pass-through of certain operating expenses during the term of the lease. Leases at the retail properties typically provide for the pass-through to tenants of certain operating costs, including real estate taxes, common area maintenance expenses, and insurance. All of these provisions permit us to increase rental rates or other charges to tenants in response to rising prices and, therefore, serve to minimize our exposure to the adverse effects of inflation.

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        An increase in general price levels may immediately preceed, or accompany, an increase in interest rates. At September 30, 2004, our exposure to rising interest rates was mitigated by the existing debt level of 49.2% of our total market capitalization, the high percentage of fixed rate debt (73.3%), and the use of interest rate swaps to effectively fix the interest rate on approximately $30.2 million through January 2006 and $17.0 million through May 2006. As it relates to the short-term, increases in interest expense resulting from increasing inflation is anticipated to be less than future increases in income before interest.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

        As of September 30, 2004, we had approximately $463.0 million of outstanding floating rate debt. We do not believe that the interest rate risk represented by our floating rate debt is material as of September 30, 2004, in relation to our $1.7 billion of outstanding total debt, our $2.7 billion of total assets and $3.5 billion total market capitalization as of that date.

        If market rates of interest on our variable rate debt increase by 1%, the increase in annual interest expense on our variable rate debt would decrease future earnings and cash flows by approximately $4.6 million. If market rates of interest on our variable rate debt decrease by 1%, the decrease in interest expense on our variable rate debt would increase future earnings and cash flows by approximately $4.6 million. This assumes that the amount outstanding under our variable rate debt remains approximately $463.0 million, the balance as of September 30, 2004. If market rates of interest increase by 1%, the fair value of our total outstanding debt would decrease by approximately $85.7 million. If market rates of interest decreased by 1%, the fair value of our total outstanding debt would increase by approximately $85.7 million. This assumes our total outstanding debt remains at $1.7 billion, the balance as of September 30, 2004.

        As of September 30, 2004, we had no material exposure to market risk (including foreign currency exchange risk, commodity price risk or equity price risk).

Item 4. Controls and Procedures.

        As of the end of the period covered by this report, our management, including the Chief Executive Officer and the Chief Financial Officer of the Trust, carried out an evaluation of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15 of the rules promulgated under the Securities and Exchange Act of 1934, as amended. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer of the Trust concluded that the design and operation of these disclosure controls and procedures are effective. There have been no changes in our internal controls over financial reporting identified in connection with such evaluation that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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COLONIAL REALTY LIMITED PARTNERSHIP
PART II — OTHER INFORMATION

Item 2. Changes in Securities.

        The Trust from time to time issues common shares of beneficial interest (“Common Shares”) pursuant to its Dividend Reinvestment and Share Purchase Plan, its Non-Employee Trustee Share Option Plan, its Non-Employee Trustee Share Plan, and its Employee Share Option and Restricted Share Plan, in transactions that are registered under the Securities Act of 1933, as amended (the “Act”). Pursuant to CRLP’s Third Amended and Restated Agreement of Limited Partnership, each time the Trust issues Common Shares pursuant to the foregoing plans, CRLP issues to the Trust, its general partner, an equal number of Units for the same price at which the Common Shares were sold, in transactions that are not registered under the Act in reliance on Section 4(2) of the Act. During the quarter ended September 30, 2004, CRLP issued 127,835 Units in such transactions for an aggregate of approximately $6.4 million.

Item 6. Exhibits

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

            COLONIAL REALTY LIMITED PARTNERSHIP,
a Delaware limited partnership

By: Colonial Properties Trust,
    Its General Partner

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Exhibit 12

COLONIAL REALTY LIMITED PARTNERSHIP
RATIO OF EARNINGS TO FIXED CHARGES

        CRLP’s ratio of earnings to fixed charges for the three months ended September 30, 2004 and 2003, was 1.39 and 1.60, respectively. CRLP’s ratio of earnings to fixed charges for the nine months ended September 30, 2004 and 2003, was 1.59 and 1.68, respectively.

        The ratios of earnings to fixed charges were computed by dividing earnings by fixed charges. For this purpose, earnings consist of pre-tax income from continuing operations before income, loss from equity investees, extraordinary gain or loss, gains on sales of properties, distributed income of equity investees, excluding interest costs capitalized plus fixed charges. Fixed charges consist of interest expense (including interest costs capitalized) and amortization of debt issuance costs.

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Exhibit 15

We are aware that our report dated November 5, 2004 on our review of interim financial information of Colonial Realty Limited Partnership for the three and nine-month periods ended September 30, 2004 and 2003 and included in the Partnership’s quarterly report on Form 10-Q for the periods then ended, is incorporated by reference in the registration statement on Form S-3/A related to the Shelf Registration filed on October 10, 2003 (File No. 333-105329). Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not be considered a part of the registration statement prepared or certified by us within the meaning of Sections 7 and 11 of that Act.

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Exhibit 31.1

CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT

I, Thomas H. Lowder, certify that:

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Exhibit 31.2

CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT

I, Weston M. Andress, certify that:

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Exhibit 32.1

Written Statement of Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

The undersigned, the Chief Executive Officer of Colonial Properties Trust, our general partner, hereby certifies that, to his knowledge on the date hereof:

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Exhibit 32.2

Written Statement of Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

The undersigned, the Chief Financial Officer of Colonial Properties Trust, our general partner, hereby certifies that, to his knowledge on the date hereof: