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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended: March 31, 2005 or o
    
    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  Delaware
    
    63-1098468(State or other jurisdiction
    
    (IRS Employerof incorporation)
    
    Identification Number)
 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 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 þ       NO o Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange
Act Rule 12-b-2). YES þ       NO o




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COLONIAL REALTY LIMITED PARTNERSHIP
INDEX TO FORM 10-Q PagePART I: FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Consolidated Condensed Balance Sheets as of March 31, 2005 and December 31, 2004
    
    3Consolidated Condensed Statements of Income and Comprehensive Income for the Three Month Periods Ended March 31, 2005 and 2004
    
    4Consolidated Condensed Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004
    
    5Notes to Consolidated Condensed Financial Statements
    
    6Report of Independent Registered Public Accounting Firm
    
    16Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    17Item 3.Quantitative and Qualitative Disclosures about Market Risk
    
    24Item 4.Controls and Procedures
    
    25PART II: OTHER INFORMATIONItem 2. Changes in Securities
    
    25Item 5. Other Information
    
    25Item 6. Exhibits
    
    26SIGNATURES
    
    27EXHIBITS
    
    28EX-12.1 RATIO OF EARNINGS TO FIXED CHARGESEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO
  2




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COLONIAL REALTY LIMITED PARTNERSHIP 
 CONSOLIDATED CONDENSED BALANCE SHEETS  (in thousands, except unit data)
    (Unaudited)March 31, 2005
    
    
    December 31, 2004ASSETSLand, buildings, & equipment
    
    $
    2,702,635
    
    
    $
    2,696,302Undeveloped land and construction in progress
    
    
    170,583
    
    
    
    158,954Less: Accumulated depreciation
    
    
    (427,800
    )
    
    
    (437,635
    )Real estate assets held for sale, net
    
    
    153,189
    
    
    
    167,712Net real estate assets
    
    
    2,598,607
    
    
    
    2,585,333Cash and equivalents
    
    
    146,317
    
    
    
    10,725Restricted cash
    
    
    4,613
    
    
    
    2,333Accounts receivable, net
    
    
    20,638
    
    
    
    20,642Prepaid expenses
    
    
    8,615
    
    
    
    11,238Notes receivable
    
    
    879
    
    
    
    906Deferred debt and lease costs
    
    
    43,659
    
    
    
    36,750Investment in partially owned entities
    
    
    64,935
    
    
    
    65,472Other assets
    
    
    82,994
    
    
    
    67,925$
    2,971,257
    
    
    $
    2,801,324LIABILITIES AND PARTNERS EQUITYNotes and mortgages payable
    
    $
    1,677,438
    
    
    $
    1,615,817Unsecured credit facility
    
    
    253,520
    
    
    
    239,970Total long-term liabilities
    
    
    1,930,958
    
    
    
    1,855,787Accounts payable
    
    
    28,802
    
    
    
    29,164Accrued interest
    
    
    22,034
    
    
    
    17,722Accrued expenses
    
    
    16,821
    
    
    
    10,622Tenant deposits
    
    
    4,438
    
    
    
    4,455Unearned rent
    
    
    2,866
    
    
    
    9,334Other liabilities
    
    
    973
    
    
    
    1,737Total liabilities
    
    
    2,006,892
    
    
    
    1,928,821Redeemable units, at redemption value - 10,339,755 units outstanding
at March 31, 2005 and 10,372,650 at December 31, 2004
    
    
    397,150
    
    
    
    407,334Limited partners minority interest in consolidated partnership
    
    
    1,397
    
    
    
    1,389General partner -Common equity - 27,962,347 and 27,599,409
units outstanding at
March 31, 2005 and December 31, 2004,
respectively
    
    
    291,320
    
    
    
    199,637Preferred equity ($175,000 liquidation preference)
    
    
    168,703
    
    
    
    168,703Limited partners preferred equity ($100,000
liquidation preference)
    
    
    97,406
    
    
    
    97,406Accumulated other comprehensive income(loss)
    
    
    8,389
    
    
    
    (1,966
    )Total general partners equity
    
    
    565,818
    
    
    
    463,780$
    2,971,257
    
    
    $
    2,801,324
 The accompanying notes are an integral part of these consolidated financial statements. 3




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COLONIAL REALTY LIMITED PARTNERSHIP 
 CONSOLIDATED CONDENSED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)  (in thousands, except per unit data)
 _____________________ Three Months EndedMarch 31,2005
    
    
    2004Revenue:Minimum rent
    
    $
    74,546
    
    
    $
    58,511Percentage rent
    
    
    629
    
    
    
    434Tenant recoveries
    
    
    8,747
    
    
    
    6,981Other property related revenue
    
    
    4,542
    
    
    
    3,772Other non-property related revenue
    
    
    3,306
    
    
    
    1,330Total revenue
    
    
    91,770
    
    
    
    71,028Operating Expenses:Property operating expenses:General operating expenses
    
    
    6,635
    
    
    
    5,303Salaries and benefits
    
    
    4,573
    
    
    
    3,370Repairs and maintenance
    
    
    8,215
    
    
    
    6,327Taxes, licenses, and insurance
    
    
    9,611
    
    
    
    6,878General and administrative
    
    
    8,401
    
    
    
    5,460Depreciation
    
    
    24,222
    
    
    
    17,565Amortization
    
    
    4,554
    
    
    
    2,245Total operating expenses
    
    
    66,211
    
    
    
    47,148Income from operations
    
    
    25,559
    
    
    
    23,880Other income (expense):Interest expense
    
    
    (23,696
    )
    
    
    (15,474
    )Income from partially owned entities
    
    
    100
    
    
    
    105Gains (losses) on hedging activities
    
    
    280
    
    
    
    (80
    )Gains from sales of property
    
    
    1,126
    
    
    
    1,002Minority interest of limited partners
    
    
    (229
    )
    
    
    Other
    
    
    (210
    )
    
    
    (20
    )Total other income (expense)
    
    
    (22,629
    )
    
    
    (14,467
    )Income from continuing operations
    
    
    2,930
    
    
    
    9,413Income from discontinued operations
    
    
    6,685
    
    
    
    5,537Gain (loss) on disposal of discontinued operations
    
    
    91,772
    
    
    
    9,391Income from discontinued operations
    
    
    98,457
    
    
    
    14,928Net income
    
    
    101,387
    
    
    
    24,341Distributions to general partner preferred unitholders
    
    
    (3,695
    )
    
    
    (3,695
    )Distributions to limited partner preferred unitholders
    
    
    (1,813
    )
    
    
    (2,055
    )Net income available to common unitholders
    
    $
    95,879
    
    
    $
    18,591Net income available to common unitholders allocated to limited partners
    
    
    (25,974
    )
    
    
    (5,202
    )Net income available to common unitholders allocated to general partner
    
    $
    69,905
    
    
    $
    13,389Net income per common unit  Basic:Income from continuing operations
    
    $
    (0.07
    )
    
    $
    0.10Income from discontinued operations
    
    
    2.58
    
    
    
    0.40Net income per common unit  Basic
    
    $
    2.51
    
    
    $
    0.50Net income per common unit  Diluted:Income from continuing operations
    
    $
    (0.07
    )
    
    $
    0.10Income from discontinued operations
    
    
    2.58
    
    
    
    0.40Net income per common unit  Diluted
    
    $
    2.51
    
    
    $
    0.50Average units outstanding:Basic
    
    
    38,162
    
    
    
    37,031Diluted
    
    
    38,162
    
    
    
    37,406CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOMENet income
    
    $
    101,387
    
    
    $
    24,341Other comprehensive incomeUnrealized income on cash flow hedging activities
    
    
    10,355
    
    
    
    180Comprehensive income
    
    $
    111,742
    
    
    $
    24,521
 The accompanying notes are an integral part of these consolidated financial statements. 4




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COLONIAL REALTY LIMITED PARTNERSHIP 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS  (amounts in thousands)
 Three Months EndedMarch 31,2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    101,387
    
    
    $
    24,341Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    29,590
    
    
    
    23,546Income from partially owned entities
    
    
    (42
    )
    
    
    (249
    )Gains from sales of property
    
    
    (92,898
    )
    
    
    (10,393
    )Decrease (increase) in:Restricted cash
    
    
    (2,280
    )
    
    
    (131
    )Accounts receivable
    
    
    4
    
    
    
    787Prepaid expenses
    
    
    2,623
    
    
    
    767Other assets
    
    
    (489
    )
    
    
    (1,152
    )Increase (decrease) in:Accounts payable
    
    
    (672
    )
    
    
    3,893Accrued interest
    
    
    4,312
    
    
    
    (688
    )Accrued expenses and other
    
    
    (2,307
    )
    
    
    (1,116
    )Net cash provided by operating activities
    
    
    39,228
    
    
    
    39,605Cash flows from investing activities:Acquisition of properties
    
    
    (119,343
    )
    
    
    (13,136
    )Direct costs of Cornerstone merger
    
    
    (2,402
    )
    
    
    Development expenditures
    
    
    (28,673
    )
    
    
    (19,257
    )Tenant improvements
    
    
    (6,264
    )
    
    
    (4,351
    )Capital expenditures
    
    
    (4,121
    )
    
    
    (2,835
    )Proceeds from (issuance of) notes receivable
    
    
    27
    
    
    
    (921
    )Proceeds from sales of property, net of selling costs
    
    
    205,199
    
    
    
    23,434Distributions from partially owned entities
    
    
    3,335
    
    
    
    687Capital contributions to partially owned entities
    
    
    (324
    )
    
    
    (1,295
    )Net cash used in investing activities
    
    
    47,434
    
    
    
    (17,674
    )Cash flows from financing activities:Principal reductions of debt
    
    
    (215,065
    )
    
    
    (1,302
    )Proceeds from additional borrowings
    
    
    275,030
    
    
    
    Net change in revolving credit balances
    
    
    13,550
    
    
    
    8,875Cash contributions
    
    
    11,806
    
    
    
    14,100Distributions to common and preferred unitholders
    
    
    (31,163
    )
    
    
    (30,539
    )Payment of mortgage financing cost
    
    
    (5,228
    )
    
    
    (354
    )Net cash used in financing activities
    
    
    48,930
    
    
    
    (9,220
    )Increase (decrease) in cash and equivalents
    
    
    135,592
    
    
    
    12,711Cash and equivalents, beginning of period
    
    
    10,725
    
    
    
    8,070Cash and equivalents, end of period
    
    $
    146,317
    
    
    $
    20,781
 The accompanying notes are an integral part of these consolidated financial statements. 5




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COLONIAL REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED 
 CONDENSED FINANCIAL STATEMENTS
March 31, 2005
(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, 2004 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 16, 2005. 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 147 wholly and
partially-owned properties as of March 31, 2005, consisting of 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 March 31, 2005, the Trust owned
interests in 70 multifamily apartment communities (including 39 wholly-owned consolidated properties
and 31 properties partially-owned through unconsolidated joint venture entities), 29 office
properties (including 28 wholly-owned consolidated properties and one property partially-owned
through an unconsolidated joint venture entity) and 48 retail properties (including 45 consolidated
properties and three properties partially-owned through unconsolidated joint venture entities). On April 1, 2005, the Trust announced the completion of the merger of Cornerstone Realty
Income Trust, Inc., pursuant to an Agreement and Plan of Merger dated as of October 25, 2004, as
amended. For information regarding the closing, see Note 10  Subsequent Events. 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 if we are deemed to be the primary beneficiary in a variable
interest entity (as defined in 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 6




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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 months ended March 31, 2005 and
2004 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. Recent Pronouncements of the Financial Accounting Standards Board (FASB) In December 2004, the FASB issued SFAS No. 123 (Revised), Share Based Payment, that will
require compensation costs related to share-based payment transactions to be recognized in
financial statements. With limited exceptions, the amount of compensation cost will be measured
based on the grant date fair value of the equity or liability instruments issued. Compensation
cost will be recognized over the period that an employee provides service in exchange for the
award. SFAS No. 123 (R) replaces SFAS No. 123, Accounting for Stock Based Compensation, and
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123 (R) is
effective for CRLP as of the beginning of the first annual reporting period that begins after June
15, 2005. CRLP does not expect the adoption of SFAS No. 123 (R) to have a material impact on its
consolidated financial statements. Reclassifications Certain reclassifications have been made to the previously reported 2004 statements in order
to provide comparability with the 2005 statements reported herein. These reclassifications have no
impact on partners equity or net income. Note 3 Capital Structure At March 31, 2005, the Trust controlled CRLP as the sole general partner and as the holder of
72.9% 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. Note 4  Acquisition and Disposition Activity Property Acquisitions On January 13, 2005, CRLP acquired a 373,000 square foot retail asset, Colonial Promenade
Portofino, located in Houston, Texas. The asset was acquired for a total price of $60.3 million,
which was funded through borrowings under the CRLPs bridge credit facility. On January 31, 2005, CRLP acquired a 371,000 square foot office asset, Colonial Place I & II,
(formerly Westshore Place I & II), located in Tampa, Florida. The asset was acquired for a total
price of $54.9 million, which was funded through borrowings under CRLPs bridge credit facility. 7




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On February 1, 2005, CRLP acquired an additional 60,000 square foot office asset in Research
Park Office Center. This asset, located in Huntsville, Alabama, is adjacent to the three Research
Park Office Center assets purchased in the fourth quarter of 2004. The asset was acquired for a
total price of $5.0 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 March 31, 2005. For the Quarter EndedAssets Acquired and Liabilities Assumed
    
    March 31, 2005(amounts in thousands)Land, buildings and equipment
    
    $
    108,920Above-market leases
    
    
    190In-place lease assets
    
    
    10,945Total assets
    
    
    120,055Accounts payable
    
    
    (310
    )Accrued expenses
    
    
    (213
    )Tennant deposits
    
    
    (152
    )Other liabilities and minority interest
    
    
    (37
    )Total liabilities
    
    
    (712
    )Net assets acquired
    
    $
    119,343
 Property Dispositions On February 18, 2005, CRLP sold its 15% interest in Colonial Village at Cahaba Heights, a
125-unit multifamily apartment community located in Birmingham, Alabama. CRLPs interest in 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 CRLPs unsecured line of credit. On February 25, 2005, CRLP sold its 15% interest in Colonial Grand at River Hills, a 776-unit
multifamily apartment community located in Tampa, Florida. CRLPs interest in 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 CRLPs unsecured line of credit. On March 30, 2005, CRLP disposed of a 414-unit multifamily asset, Colonial Village at Ashley
Plantation, located in Bluffton, South Carolina. The asset was sold for $27.9 million, of which
$24.0 million of the proceeds was used to payoff mortgage debt associated with the property and the
remaining proceeds were used to fund other investment activities. On March 30, 2005, CRLP disposed of a 560-unit multifamily asset, Colonial Village at
Gainesville, located in Gainesville, Florida. The asset was sold for $37.4 million and the
proceeds were used to pay down CRLPs unsecured line of credit and to fund other investment
activities. On March 30, 2005, CRLP disposed of a 244-unit multifamily asset, Colonial Grand at Galleria
Woods, located in Birmingham, Alabama. The asset was sold for $14.8 million, of which $9.1 million
of the proceeds was used to payoff mortgage debt associated with the property and the remaining
proceeds were used to fund other investment activities. On March 30, 2005, CRLP disposed of a 272-unit multifamily asset, Colonial Village at TownPark
(Sarasota), located in Bradenton, Florida. The asset was sold for $28.0 million and the proceeds
were used to pay down CRLPs unsecured line of credit and to fund other investment activities. On March 30, 2005, CRLP disposed of a 256-unit multifamily asset, Colonial Village at Walton
Way, located in Augusta, Georgia. The asset was sold for $15.0 million and the proceeds were used
to pay down CRLPs unsecured line of credit and to fund other investment activities. 8




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On March 30, 2005, CRLP disposed of a 328-unit multifamily asset, Colonial Village at
Wesleyan, located in Macon, Georgia. The asset was sold for $20.7 million and the proceeds were
used to pay down CRLPs unsecured line of credit and to fund other investment activities. On March 31, 2005, CRLP disposed of a 517,000 square foot retail asset, Colonial Gadsden Mall,
located in Gadsden, Alabama. The asset was sold for $58.8 million and the proceeds were used to
pay down CRLPs unsecured line of credit and to fund other investment activities. In some cases, CRLP uses disposition proceeds to fund investment activities through
tax-deferred exchanges under Section 1031 of the Internal Revenue Code. Certain of the proceeds
described above were received into temporary cash accounts pending the fulfillment of Section 1031
exchange requirements. Subsequently, the funds are utilized for payment on the unsecured line of
credit or financing of other investment activities. In accordance with SFAS No. 144, Accounting for the Impairment on Disposal of Long-Lived
Assets(SFAS No. 144), net income and gain on disposition of real estate for properties sold, in
which CRLP does not maintain continuing involvement, are reflected in the consolidated condensed
statements of income as discontinued operations for all periods presented. During the quarter
ended March 31, 2005, all of the operating properties sold were classified as discontinued
operations and the sales of parcels of land were classified in continuing operations. Following is
a listing of the properties CRLP disposed of in 2005 and 2004 that are classified as discontinued
operations: Property
    
    Location
    
    Date
    
    Units/Square FeetMultifamilyColonial Grand at Galleria Woods
    
    Birmingham, AL
    
    March 2005
    
    
    244Colonial Grand at Wesleyan
    
    Macon, GA
    
    March 2005
    
    
    328Colonial Village at Ashley Plantation
    
    Bluffton, SC
    
    March 2005
    
    
    414Colonial Village at Gainesville
    
    Gainesville, FL
    
    March 2005
    
    
    560Colonial Village at TownPark (Sarasota)
    
    Bradenton, FL
    
    March 2005
    
    
    272Colonial Village at Walton Way
    
    Augusta, GA
    
    March 2005
    
    
    256Colonial Grand at River Hills (1)
    
    Tampa, FL
    
    February 2005
    
    
    776Colonial Village at Cahaba Heights (1)
    
    Birmingham, AL
    
    February 2005
    
    
    125Colonial Village at Vernon Marsh
    
    Savannah, GA
    
    October 2004
    
    
    178Colonial Grand at Ponte Vedra (1)
    
    Jacksonville, FL
    
    May 2004
    
    
    240OfficeVillage at Roswell Summit
    
    Atlanta, GA
    
    July 2004
    
    
    25,500RetailColonial Mall Gadsden
    
    Gadsden, AL
    
    March 2005
    
    
    517,000Orlando Fashion Square (1)
    
    Orlando, FL
    
    December 2004
    
    
    1,083,049Colonial Shoppes at Inverness
    
    Birmingham, AL
    
    September 2004
    
    
    28,243Colonial Shoppes at Stanly
    
    Locust, NC
    
    July 2004
    
    
    47,100Colonial Promenade University Park I
    
    Orlando, FL
    
    March 2004
    
    
    215,590
   (1) Properties
were partially owned. CRLP sold its interest in these
properties.
 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 March 31, 2005, CRLP had classified 6 retail assets containing approximately 3.1
million square feet as held for sale. These real estate assets are reflected in the accompanying
consolidated balance sheet at $153.2 million at March 31, 2005, which represents the lower of
depreciated cost or fair value less costs to sell. 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 2005 and 2004 that
are classified as discontinued operations: 9




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##### Table of Contents



Three Months Ended(amounts in thousands)
    
    March 31,2005
    
    
    2004Property revenues:Base rent
    
    $
    10,680
    
    
    $
    11,521Percentage rent
    
    
    275
    
    
    
    247Tenant recoveries
    
    
    2,737
    
    
    
    2,840Other property revenue
    
    
    735
    
    
    
    729Total property revenues
    
    
    14,427
    
    
    
    15,337Property operating and maintenance expense
    
    
    5,209
    
    
    
    5,210Depreciation
    
    
    1,185
    
    
    
    3,410Amortization
    
    
    109
    
    
    
    325Total operating expenses
    
    
    6,503
    
    
    
    8,945Interest expense
    
    
    (1,181
    )
    
    
    (999
    )Income (loss) from partially owned entities
    
    
    (58
    )
    
    
    144Income from discontinued operations before net gain
on disposition of discontinued operations
    
    
    6,685
    
    
    
    5,537Net gain on disposition of discontinued operations
    
    
    91,772
    
    
    
    9,391Income from discontinued operations
    
    $
    98,457
    
    
    $
    14,928
 Note 5  Net Income Per Unit The following table sets forth the computation of basic and diluted earnings per unit: Three Months
    
    
    Three MonthsEnded
    
    
    EndedMarch 31,
    
    
    March 31,(amounts in thousands, except per unit data)
    
    2005
    
    
    2004Numerator:Net income
    
    $
    101,387
    
    
    $
    24,341Less: Preferred distributions
    
    
    (5,508
    )
    
    
    (5,750
    )Net income available to common unitholders
    
    
    95,879
    
    
    
    18,591Denominator:Denominator for basic net income per unit -
    
    
    38,162
    
    
    
    37,031weighted average unitsEffect of dilutive securities:Trustee and employee stock options,
treasury method
    
    
    
    
    
    
    375Denominator for diluted net income per unit -
adjusted weighted average units
    
    
    38,162
    
    
    
    37,406Basic net income per unit
    
    $
    2.51
    
    
    $
    0.50Diluted net income per unit
    
    $
    2.51
    
    
    $
    0.50
 For the three months ended March 31, 2005, CRLP reported a net loss from continuing
operations (after preferred dividends), as such, the effect of dilutive shares has been excluded
from per share computations as including such shares would be anti-dilutive. Options to purchase
48,208 of the Trusts common shares at a weighted average exercise price of $38.49 per share were
outstanding during the three months ended March 31, 2005, but would not have been included in the
computation of diluted net income per share because the options exercise prices were greater than
the average market price of common shares and, therefore the effect would have been anti-dilutive.
All options to purchase the Trusts common shares were included in the computation of diluted net
income per share for the three months ended March 31, 2004. 10




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##### Table of Contents



Note 6 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 2004 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). Property
operating expenses for fully owned retail properties do not include approximately $162,000 of
landlord contributions to marketing funds. Presented below is divisional information including the
reconciliation of total divisional revenues to total revenues and total divisional NOI to income
from continuing operations for the three months ended March 31, 2005 and 2004, and total divisional
assets to total assets as of March 31, 2005 and December 31, 2004: Three Months EndedMarch 31, 2005(in thousands)
    
    2005
    
    
    2004Revenues:Divisional Revenues:Multifamily
    
    $
    38,278
    
    
    $
    26,548Office
    
    
    25,082
    
    
    
    24,028Retail
    
    
    44,452
    
    
    
    38,555Total Divisional Revenues
    
    
    107,812
    
    
    
    89,131Partially-owned subsidiaries
    
    
    (4,921
    )
    
    
    (4,063
    )Unallocated corporate revenues
    
    
    3,306
    
    
    
    1,297Discontinued operations revenues
    
    
    (14,427
    )
    
    
    (15,337
    )Total Consolidated Revenues
    
    $
    91,770
    
    
    $
    71,028NOI:Divisional NOI:Multifamily
    
    $
    23,062
    
    
    $
    16,175Office
    
    
    17,261
    
    
    
    17,001Retail
    
    
    31,289
    
    
    
    27,198Total Divisional NOI
    
    
    71,612
    
    
    
    60,374Partially-owned subsidiaries
    
    
    (2,948
    )
    
    
    (2,378
    )Unallocated corporate revenues
    
    
    3,306
    
    
    
    1,297Discontinued operations NOI
    
    
    (9,218
    )
    
    
    (10,128
    )General and administrative expenses
    
    
    (8,401
    )
    
    
    (5,460
    )Depreciation
    
    
    (24,222
    )
    
    
    (17,565
    )Amortization
    
    
    (4,554
    )
    
    
    (2,245
    )Other
    
    
    (16
    )
    
    
    (15
    )Income from operations
    
    
    25,559
    
    
    
    23,880Total other expense
    
    
    (22,629
    )
    
    
    (14,467
    )Income from continuing operations
    
    $
    2,930
    
    
    $
    9,413
 March 31,
    
    
    December 31,(in thousands)
    
    2005
    
    
    2004AssetsDivisional AssetsMultifamily
    
    $
    844,787
    
    
    $
    937,935Office
    
    
    694,275
    
    
    
    632,010Retail
    
    
    1,134,381
    
    
    
    1,082,517Total Divisional Assets
    
    
    2,673,443
    
    
    
    2,652,462Unallocated corporate assets(1)
    
    
    297,814
    
    
    
    148,862$
    2,971,257
    
    
    $
    2,801,324
   (1)Includes the Companys investment in partially-owned entities of $64,935 as of March 31,
2005, and $64,472 as of December 31, 2004. 11




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##### Table of Contents



Note 7  Investment in Partially Owned Entities At March 31, 2005, 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 March 31, 2005 and December 31, 2004: (in thousands)Percent
    
    
    March 31,
    
    
    December 31,Owned
    
    
    2005
    
    
    2004Multifamily:CMS / Colonial Joint Venture I
    
    
    15.00
    %
    
    $
    1,189
    
    
    $
    1,435CMS / Colonial Joint Venture II
    
    
    15.00
    %
    
    
    677
    
    
    
    670CMS Florida
    
    
    25.00
    %
    
    
    2,937
    
    
    
    2,925CMS Tennessee
    
    
    25.00
    %
    
    
    2,658
    
    
    
    2,727DRA Alabama
    
    
    10.00
    %
    
    
    2,523
    
    
    
    2,500DRA Cunningham, Austin, TX
    
    
    20.00
    %
    
    
    1,199
    
    
    
    1,266DRA Southwest Partnership
    
    
    20.00
    %
    
    
    18,989
    
    
    
    19,02230,172
    
    
    
    30,545Office:600 Building Partnership, Birmingham, AL
    
    
    33.33
    %
    
    
    (12
    )
    
    
    (16
    )Douglas HCI
    
    
    25.00
    %
    
    
    6,268
    
    
    
    6,4576,256
    
    
    
    6,441Retail:Colonial Promenade Madison, Huntsville, AL
    
    
    25.00
    %
    
    
    2,273
    
    
    
    2,298Highway 150, LLC, Birmingham, AL
    
    
    10.00
    %
    
    
    101
    
    
    
    94Orlando Fashion Square Joint Venture, Orlando, FL
    
    
    50.00
    %
    
    
    (33
    )
    
    
    6Parkway Place Limited Partnership, Huntsville, AL
    
    
    45.00
    %
    
    
    12,619
    
    
    
    12,554Turkey Creek, Parkside Drive LLC Partnership
    
    
    50.00
    %
    
    
    13,532
    
    
    
    13,50228,492
    
    
    
    28,454Other:Colonial / Polar-BEK Management Company,
    
    
    50.00
    %
    
    
    15
    
    
    
    32Birmingham, AL15
    
    
    
    32$
    64,935
    
    
    $
    65,472
 Note 8  Financing Activities On January 31, 2005, CRLP completed a $275 million senior notes offering of 4.750% unsecured
notes due February 1, 2010. Interest on the notes is payable semi-annually on the first day of
every February and August beginning August 1, 2005. The net proceeds of approximately $273.3
million were used to pay down CRLPs bridge credit facility and a portion of CRLPs unsecured line
of credit. On March 22, 2005, CRLP, and the Trust as guarantor, entered into a $500.0 million unsecured
revolving credit facility and a $100.0 million unsecured term loan facility (the Credit
Facilities) with Wachovia Bank, National Association (Wachovia), as Agent for the lenders, Bank
of America, N.A. as Syndication Agent, Wells Fargo Bank, National Association, Citicorp North
America, Inc. and AmSouth Bank, as Co-Documentation Agents, and U.S. Bank National Association and
PNC Bank, National Association (PNC Bank), as Co-Senior Managing Agents and other lenders named
therein. Base rate loans and revolving loans are available under the Credit Facilities. The Credit
Facilities also include a competitive bid feature that will allow CRLP to convert up to $250.0
million under the Credit Facilities to a fixed rate and for a fixed term not to exceed 90 days.
Generally, base rate loans bear interest at Wachovias designated base rate, plus a base rate
margin ranging from 0.00% to 0.25% based on our unsecured debt ratings from time to time. Revolving
loans bear interest at LIBOR plus a margin ranging from 0.50% to 1.15% based on our unsecured debt
ratings from time to time. Competitive bid loans bear interest at LIBOR plus a margin, as specified
by the participating lenders. Term loans are available under the term loan facility and bear
interest at LIBOR plus a margin ranging from 0.55% to 1.35% based on our unsecured debt ratings
from time to time. 12




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##### Table of Contents



The Credit Facilities contain various covenants and events of default which could trigger
early repayment obligations, including, but not limited to: nonpayment, violation or breach of
certain covenants; failure to perform certain covenants beyond a cure period; and generally not
paying our debts as they become due. The proceeds from the Credit Facilities were used to payoff the $250.0 million balance of
CRLPs previous credit facility and revolving bridge credit facility (each of which has been
terminated). At March 31, 2005, $253.5 million was outstanding under the Credit Facilities,
comprised of $153.5 million under the revolving credit facility and $100.0 million under the term
loan facility. Additional proceeds from the Credit Facilities may be used for predevelopment costs,
development costs, acquisition costs, working capital, equity investments, repayment of
indebtedness and general corporate purposes. The Credit Facilities mature on March 22, 2008, with
an option to extend for one year. Note 9  Derivatives and Hedging Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities(SFAS No. 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 No. 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. 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 quarters ended March 31, 2005 and 2004, such derivatives were used to
hedge the variable cash flows associated with existing variable-rate debt and forecasted issuances
of debt. CRLP also 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 quarters ended
March 31, 2005, such swaps were used to hedge the change in fair value of fixed rate debt. During January 2005, CRLP 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: InterestProduct Type
    
    Notional Value
    
    
    Rate
    
    
    MaturityInterest Rate SWAP, Cash Flow
    
    $250 million
    
    
    4.721
    %
    
    
    8/3/2015Interest Rate SWAP, Cash Flow
    
    $200 million
    
    
    4.830
    %
    
    
    2/15/2016
 During January 2005, CRLP 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. 13




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##### Table of Contents



The following table summarizes the notional values, fair values and other characteristics of
CRLPs derivative financial instruments at March 31, 2005. The notional value at March 31, 2005
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. Fair ValueAt March 31, 2005Interest
    
    
    
    
    
    
    Asset (Liability)Product Type
    
    Notional Value
    
    
    Rate
    
    
    Maturity
    
    
    (in thousands)Interest Rate SWAP, Cash Flow
    
    $19.3 - $19.1 million
    
    
    5.932
    %
    
    
    1/1/06
    
    
    $
    (497
    )Interest Rate SWAP, Cash Flow
    
    $17.0 million
    
    
    7.380
    %
    
    
    5/5/06
    
    
    
    (390
    )Interest Rate SWAP, Fair Value
    
    $100.0 million
    
    
    4.803
    %
    
    
    4/1/11
    
    
    
    440Interest Rate CAP, Cash Flow
    
    $19.7 million
    
    
    6.850
    %
    
    
    6/29/07
    
    
    
    4Interest Rate CAP, Cash Flow
    
    $16.7 million
    
    
    6.850
    %
    
    
    7/3/07
    
    
    
    4Interest Rate CAP, Cash Flow
    
    $30.4 million
    
    
    11.200
    %
    
    
    7/3/06
    
    
    
    Interest Rate CAP, Cash Flow
    
    $16.4 million
    
    
    4.840
    %
    
    
    4/1/06
    
    
    
    4Interest Rate CAP, Cash Flow
    
    $25.9 million
    
    
    4.840
    %

    
    
    4/1/06
    
    
    
    6Interest Rate CAP, Cash Flow
    
    $8.4 million
    
    
    4.840
    %
    
    
    4/1/06
    
    
    
    2Interest Rate SWAP, Cash Flow
    
    $250.0 million
    
    
    4.721
    %
    
    
    8/3/15
    
    
    
    5,585Interest Rate SWAP, Cash Flow
    
    $200.0 million
    
    
    4.830
    %
    
    
    2/15/16
    
    
    
    4,105
 As of March 31, 2005, 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 No. 133. The only swap that CRLP has that is not designated as a
hedge for SFAS No. 133 was acquired through the purchase of a property and its corresponding debt. 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 March 31, 2005, derivatives with a fair value of $0.7 million were included in other
liabilities and $10.2 million were included in other assets. Additionally, the fair value of our
fair value interest rate swap of $0.4 million was included in notes and mortgages payable. The
change in unrealized gain (losses) of $10.4 million for derivatives designated as cash flow hedges
for the three months ended March 31, 2005 is a component of shareholders equity. The change in
fair value of derivatives not designated as hedges of $0.2 million is included in gains (losses) on
hedging activities in the quarter ended March 31, 2005. Hedge ineffectiveness of approximately
$0.1 million on cash flow hedges due to index mismatches was recognized in gains (losses) on
hedging activities during the quarters ended March 31, 2005 and 2004. Note 10  Subsequent Events Cornerstone Merger On April 1, 2005, the Trust announced the completion of the merger of Cornerstone Realty
Income Trust, Inc. (Cornerstone), pursuant to an Agreement and Plan of Merger dated as of October
25, 2004, as amended (as so amended, the Merger Agreement). At the time of the merger, the
assets of Cornerstone primarily consisted of 87 apartment communities with 22,981 apartment homes,
a third party property management business, apartment land under development and ownership in four
real estate joint ventures. In connection with the completion of the merger, on April 1, 2005 the
Trust assumed obligations under approximately $830.4 million of indebtedness of Cornerstone, of
which $338.5 million was paid off subsequent to the merger. Such amount was funded through a draw
on CRLPs unsecured revolving credit facility. On April 1, 2005, each Cornerstone common share was converted into either the right to receive
the Trusts common shares or the Trusts Series E preferred depositary shares, depending on the
election of the Cornerstone shareholder made prior to the merger. Each Trust Series E preferred
depositary share represents 1/100th of a 7.62% Series E Cumulative Redeemable Preferred Share of
Beneficial Interest, liquidation preference $2,500 per share, of the Trust (the Trust Series E
preferred shares). The elections were subject to the restriction that the Trust Series E preferred
depositary shares issued may not exceed approximately 25 percent of the total merger consideration. 14




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##### Table of Contents



Each Cornerstone common share for which a Trust common share election was received, or for
which no election was received, was converted into the right to receive 0.2581 Trust common shares.
Each Cornerstone common share for which a valid Trust Series E preferred depositary share election
was received was converted into the right to receive 0.4194 Trust Series E preferred depositary
shares. In connection with the merger, the Trust issued approximately 11,278,110 common shares and
5,326,498 Series E preferred depositary shares to former shareholders of Cornerstone. Property Acquisitions On April 15, 2005, CRLP acquired a 214,000 square foot office asset, Colonial Center Bayside
(formerly Mangrove Bay), located in Clearwater, Florida. The asset was acquired for a total price
of $20.7 million, which was funded through borrowings under CRLPs unsecured line of credit. On April 27, 2005, CRLP acquired a 238,000 square foot office asset, Colonial Bank Centre,
located in Miami, Florida. The asset was acquired for a total price of $44.0 million, which was
funded through borrowings under CRLPs unsecured line of credit. Property Dispositions On April 15, 2005, CRLP disposed of a 556,000 square foot retail asset, Colonial Mall Temple,
located in Temple, Texas. The asset was sold for $33.5 million and the proceeds were used to pay
down CRLPs unsecured line of credit and to fund other investment activities. Distribution On April 27, 2005, the Board of Trustees of the Trust declared a cash distribution to partners
of CRLP in the amount of $0.675 per partnership unit, totaling $33.5 million. The distribution
was declared to partners of record as of May 9, 2005, and will be paid on May 16, 2005. Restricted Stock Issuance Subsequent to March 31, 2005, the Trust issued approximately 119,000 restricted shares to
employees and trustees of the Trust in connection with bonus and other discretionary award
payments. Deferred compensation will be recorded for the issuances as a component of shareholders
equity. The deferred compensation will be amortized to compensation expense based on the vesting
period for the shares. 15




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##### Table of Contents



Report of Independent Registered Public Accounting Firm To the Board of Trustees of
Colonial Properties Trust: We have reviewed the accompanying condensed consolidated balance sheet of Colonial Realty Limited
Partnership (the Partnership) as of March 31, 2005, and the related condensed consolidated
statements of income and cash flows for the three-month periods ended March 31, 2005 and 2004.
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 have previously audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet as of December 31, 2004, and the
related statements of income, partners equity, and cash flows for the year then ended,
managements assessment of the effectiveness of the Partnerships internal control over financial
reporting as of December 31, 2004 and the effectiveness of the Partnerships internal control over
financial reporting as of December 31, 2004; and in our report dated March 16, 2005, we expressed
unqualified opinions thereon. The consolidated financial statements and managements assessment of
the effectiveness of internal control over financial reporting referred to above are not presented
herein. In our opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 2004, is fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived. /s/
    
    PricewaterhouseCoopers LLPBirmingham, AlabamaMay 9, 2005
 16




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##### Table of Contents



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 2004 Annual
Report on Form 10-K filed with the Securities and Exchange Commission on March 16, 2005. Such
factors include, among others, the following:  
    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 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;
    Our ability to obtain insurance at a reasonable cost;
    Our ability to maintain our status as a REIT for federal and state income tax purposes;
    Governmental actions and initiatives; and
    Environmental/safety requirements. 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 147 properties as of March 31, 2005, located in Alabama,
Arizona, Florida, Georgia, Mississippi, Nevada, New Mexico, 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. 17




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##### Table of Contents



As of March 31, 2005, we owned or maintained a partial ownership in 70 multifamily apartment
communities containing a total of 22,213 apartment units (including 39 wholly-owned consolidated
properties and 31 properties partially-owned through unconsolidated joint venture entities
aggregating 13,594 and 8,619 units, respectively) (the multifamily properties), 29 office
properties containing a total of approximately 6.3 million square feet of office space (including
28 wholly-owned consolidated properties and one property partially-owned through an unconsolidated
joint-venture entity aggregating 6.3 million and 30,000 square feet, respectively ) (the office
properties), 48 retail properties containing a total of approximately 15.5 million square feet of
retail space (including 45 consolidated properties and three properties partially-owned through
unconsolidated joint venture entities aggregating 14.4 million and 1.1 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 March 31, 2005,
the multifamily properties that had achieved stabilized occupancy were 96.4% leased (96.6% for
consolidated properties and 95.0% for unconsolidated properties), the office properties that had
achieved stabilized occupancy were 89.5% leased (89.5% for consolidated properties and 100.0% for
unconsolidated properties), and the retail properties that had achieved stabilized occupancy were
91.0% leased (91.0% for consolidated properties and 90.9% 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 March 31, 2005 and 2004: Consolidated Properties
    
    
    
    Unconsolidated Properties
    
    
    
    Total PropertiesAs of and for the Quarter
    
    
    
    As of and for the Quarter
    
    
    
    As of and for the QuarterEnded March 31,
    
    
    
    Ended March 31,
    
    
    
    Ended March 31,2005
    
    
    2004
    
    
    
    2005
    
    
    2004
    
    
    
    2005
    
    
    2004Multifamily PropertiesPhysical Occupancy
    
    
    
    96.6
    %
    
    
    95.4
    %
    
    
    
    95.0
    %
    
    
    93.4
    %
    
    
    
    96.4
    %
    
    
    95.3
    %Same-Property Economic Occupancy (1)
    
    
    
    84.9
    %
    
    
    80.3
    %
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    
    84.9
    %
    
    
    80.3
    %Same-Property NOI Growth (2)
    
    
    
    6.7
    %
    
    
    1.7
    %
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    
    6.7
    %
    
    
    1.7
    %End of Month Scheduled Base
Rent per Unit per Month
    
    
    $
    838
    
    
    $
    799
    
    
    
    $
    791
    
    
    $
    768
    
    
    
    $
    833
    
    
    $
    796Capital Expenditures per Unit
    
    
    $
    137
    
    
    $
    115
    
    
    
    $
    183
    
    
    $
    47
    
    
    
    $
    142
    
    
    $
    113Office PropertiesPhysical Occupancy
    
    
    
    89.5
    %
    
    
    89.9
    %
    
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    
    89.5
    %
    
    
    90.0
    %Same-Property NOI Growth (2)
    
    
    
    -7.5
    %
    
    
    -0.9
    %
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    
    -7.5
    %
    
    
    -0.9
    %Base Rent per Square Foot
    
    
    $
    17.86
    
    
    $
    18.37
    
    
    
    $
    17.24
    
    
    $
    18.91
    
    
    
    $
    17.84
    
    
    $
    18.39Capital Expenditures per Square Foot
    
    
    $
    0.90
    
    
    $
    0.41
    
    
    
    $
    
    
    
    $
    
    
    
    
    $
    0.90
    
    
    $
    0.41Retail PropertiesSame-Property NOI Growth (2)
    
    
    
    1.0
    %
    
    
    -0.7
    %
    
    
    
    7.9
    %
    
    
    13.2
    %
    
    
    
    1.3
    %
    
    
    0.3
    %Regional Malls:Physical Occupancy
    
    
    
    93.1
    %
    
    
    90.5
    %
    
    
    
    82.6
    %
    
    
    79.8
    %
    
    
    
    92.7
    %
    
    
    90.1
    %Base Rent per Square Foot
    
    
    $
    22.41
    
    
    $
    21.97
    
    
    
    $
    28.85
    
    
    $
    29.33
    
    
    
    $
    23.01
    
    
    $
    23.72Tenant Gross Sales per Square Foot
    
    
    $
    272.95
    
    
    $
    273.94
    
    
    
    $
    249.48
    
    
    $
    269.64
    
    
    
    $
    270.80
    
    
    $
    272.88Shopping Centers:Physical Occupancy
    
    
    
    88.4
    %
    
    
    85.3
    %
    
    
    
    99.3
    %
    
    
    98.8
    %
    
    
    
    88.9
    %
    
    
    86.2
    %Base Rent per Square Foot
    
    
    $
    16.90
    
    
    $
    14.51
    
    
    
    $
    17.23
    
    
    $
    17.34
    
    
    
    $
    16.92
    
    
    $
    14.78Tenant Gross Sales per Square Foot
    
    
    $
    228.70
    
    
    $
    225.57
    
    
    
    $
    251.90
    
    
    $
    233.80
    
    
    
    $
    229.80
    
    
    $
    225.82
   (1)
    
    Economic Occupancy represents scheduled base rents, less vacancy loss, all concessions adjusted for straightline (including
but not limited to: renewals, move-ins, models, employee units), and bad debts divided by scheduled base rents.(2)
    
    NOI amounts are based on our segment data. See Note 6  Segment Information in our Notes to Consolidated Condensed
Financial Statements. 18




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##### Table of Contents



As shown in the table above, multifamily occupancy and base rents continued to trend upward
in the first quarter of 2005. Improvements in 2005 were due primarily to the strengthening of
the overall economy and acquisitions during 2004 of multifamily properties in cities such as
Atlanta, GA, Austin, TX, Charlotte, NC, Raleigh-Durham, NC, and Tampa, FL. We expect to
continue to make acquisitions of attractive multifamily properties in existing markets as well
as in new markets as a result of our exposure to those new markets through joint ventures in
multifamily properties. As previously disclosed, our merger with Cornerstone closed in April
2005. As a result of the completion of the merger, we will be more subject to the economic
trends specific to the multifamily sector, such as:  
    changes in job growth, household formation and population growth in our markets;
    changes in interest rates;
    supply and demand for apartment properties in our current markets; and
    competition, which could limit our ability to secure attractive investment
opportunities, lease apartment properties, or increase or maintain rents. As shown in the above table, physical occupancy of our office properties decreased slightly to
89.5% during the first quarter of 2005 from 90.0% during the first quarter of 2004. This decrease
was due primarily to the build out of space for two significant tenants during the quarter, each of
which occupied the respective space effective April 1, 2005. Office properties continue to be
affected by the decreases in rental rates. Base rent per square foot decreased 3% from the first
quarter of 2004 to $17.84 for the first quarter of 2005. Additionally, for the quarter ended March
31, 2005, we had approximately 24,000 square feet of early lease terminations generating fees of
approximately $67,000 from our office properties. 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 also
presently believe the challenges that have faced the office division will continue to decrease
throughout 2005 and that improved operating performance will be achieved throughout the year. During the first quarter of 2005, our retail property performance indicators signaled
continued improvement. Our average rents for malls and shopping centers showed continued growth
with strong increases in rates on new leases over the rates for the previous tenants in the same
spaces. Although same property mall tenant trailing 12 month sales are slightly below (-0.7%)
those a year ago, sales have been increasing since the third quarter of 2004. Same property
shopping center tenant trailing 12 month sales are showing positive increases (5%) over a year ago.
There was 85,000 square feet of new leases signed in the first quarter of 2005 and we expect
significant additional retail leasing in the coming months. Overall, occupancy for retail
properties rose 2.3% to 91.0% in the first quarter of 2005 from 88.7% in the first quarter of 2004
due to increases in occupancies in the anchor and big box spaces as well as in our specialty
retail spaces. We currently expect these retail occupancy and rental rate trends to continue
throughout 2005. Our total retail assets have grown with a shift from traditional malls to
lifestyle and power centers. We sold three malls from December 2004 through April 2005,
acquired seven shopping centers in the past four quarters, and currently have four lifestyle/power
centers under development. With our diversified strategy of investing in multifamily, office and retail property types,
we are able to alter our asset mix to leverage market timing and maximize our investment returns.
Currently, we are encouraged to see the multifamily market beginning to stabilize, and we are
positioning our portfolio to benefit from that stabilization. Our diversified strategy allows us
to balance risk and reward, and to leverage changing market conditions in three distinct sectors,
which we believe lowers our risk profile, adds stability and sets us apart from our industry peers
that are invested in a single property type. Cornerstone Merger On April 1, 2005, the Trust announced the completion of the merger of Cornerstone Realty
Income Trust, Inc. (Cornerstone) pursuant to an Agreement and Plan of Merger dated as of October
25, 2004, as amended, (as so amended, the Merger Agreement). At the time of the merger, the
assets of Cornerstone primarily consisted of 87 apartment communities with 22,981 apartment homes,
a third party property management business, apartment land under development and ownership in four
real estate joint ventures. In connection with the completion of the merger, on April 1, 2005 the
Trust assumed obligations of approximately $830.4 million of indebtedness of Cornerstone, of which
$338.5 million was paid off subsequent to the merger. Such amount was funded through a draw on
CRLPs unsecured revolving credit facility. 19




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##### Table of Contents



On April 1, 2005, each Cornerstone common share was converted into either the right to receive
the Trusts common shares or the Trusts Series E preferred depositary shares, depending on the
election of the Cornerstone shareholder made prior to the merger. Each Trust Series E preferred
depositary share represents 1/100th of a 7.62% Series E Cumulative Redeemable Preferred Share of
Beneficial Interest, liquidation preference $2,500 per share, of the Trust (the Trust Series E
preferred shares). The elections were subject to the restriction that the Trusts Series E
preferred depositary shares issued may not exceed approximately 25 percent of the total merger
consideration. Each Cornerstone common share for which a Trust common share election was received, or for
which no election was received, was converted into the right to receive 0.2581 Trust common shares.
Each Cornerstone common share for which a valid Trust Series E preferred depositary share election
was received was converted into the right to receive 0.4194 Trust Series E preferred depositary
shares. In connection with the merger, the Trust issued approximately 11,278,110 common shares and
5,326,498 Series E preferred depositary shares to former shareholders of Cornerstone. Results of Operations  Three Months Ended March 31, 2005 and 2004 Minimum rentfor the quarter ended March 31, 2005 increased $16.0 million or 27.4% as
compared with the quarter ended March 31, 2004. Minimum rent increased $14.0 million as a
result of the acquisitions that have occurred since March 31, 2004, coupled with the completion
of Colonial Promenade Trussville II, which became a completed development in 2004. The
remaining increase is primarily a result of an increase in leasing activity in our multifamily
and retail divisions. Tenant recoveriesfor the quarter ended March 31, 2005 increased $1.8 million or 25.3% as
compared with the quarter ended March 31, 2004. The increase is attributable to the properties
acquired in the last three quarters of 2004 and the first quarter of 2005. Other property related revenuefor the quarter ended March 31, 2005 increased $0.7 million
or 20.4% as compared with the quarter ended March 31, 2004. Other income of $0.6 million is
attributable to the properties acquired during the last three quarters of 2004 and the first
quarter of 2005. Other non-property related revenuefor the quarter ended March 31, 2005 increased $2.0
million as compared with the quarter ended March 31, 2004. Of the increase, $1.8 million is
management fee revenue associated with our Colonnade Management Company. Total operating expensesfor the quarter ended March 31, 2005 increased $19.1 million or
40.4% as compared to the quarter ended March 31, 2004. Of this increase, $11.7 million is
attributable to the properties acquired in the last three quarters of 2004 and the first quarter
of 2005. Of the remainder, $1.0 million is related to an increase in salaries associated with
the growth of the Company, most of which is attributable to the multifamily division, retail
development and corporate support functions, $0.4 million is expenses related to the integration
of the Cornerstone merger, $0.4 million is due to Sarbanes-Oxley and other compliance costs, and
$1.1 million is related to Colonnade Management Company expenses. The remaining increase is
primarly due to increased depreciation expense related to capital expenditures subsequent to
March 31, 2004. Interest expensefor the quarter ended March 31, 2005 increased $8.2 million or 53.1% as
compared to the quarter ended March 31, 2004. This increase is attributable to the issuance of
$275 million of senior notes in January 2005, and the assumption of $190.7 million of mortgage
debt related to properties acquired since March 31, 2004. Additionally, our consolidated debt
balance increased from $1.3 billion at March 31, 2004 to $1.9 billion at March 31, 2005. Gains from sales of propertyincluded in continuing operations for the quarter ended March
31, 2005 increased $0.1 million as compared to the quarter ended March 31, 2004. The increase
is a result of the sale of four parcels of land in the first quarter of 2005 as compared to the
sale of two parcels of land in the first quarter of 2004. The operating property sales that
occurred in the first quarter of 2005 and 2004, which resulted in a gain on disposal of $91.8
million and $9.4 million, respectively, are classified as discontinued operations (see Note 3
for additional discussion). 20




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##### Table of Contents



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. 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 three months of 2005, we sold six multi-family properties representing 2,074
units, one retail property with 480,000 square feet and our 15% ownership interest in two
multifamily properties consisting of 901 units. The aggregate sales price was $210.7 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. On March 22, 2005, CRLP, and Trust as guarantor, entered into a $500.0 million unsecured
revolving credit facility and a $100.0 million unsecured term loan facility (the Credit
Facilities) with Wachovia Bank, National Association (Wachovia), as Agent for the lenders, Bank
of America, N.A. as Syndication Agent, Wells Fargo Bank, National Association, Citicorp North
America, Inc. and AmSouth Bank, as Co-Documentation Agents, and U.S. Bank National Association and
PNC Bank, National Association (PNC Bank), as Co-Senior Managing Agents and other lenders named
therein. 21




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##### Table of Contents



Base rate loans and revolving loans are available under the Credit Facilities. The Credit
Facilities also include a competitive bid feature that will allow CRLP to convert up to $250.0
million under the Credit Facilities to a fixed rate and for a fixed term not to exceed 90 days.
Generally, base rate loans bear interest at Wachovias designated base rate, plus a base rate
margin ranging from 0.00% to 0.25% based on our unsecured debt ratings from time to time. Revolving
loans bear interest at LIBOR plus a margin ranging from 0.50% to 1.15% based on our unsecured debt
ratings from time to time. Competitive bid loans bear interest at LIBOR plus a margin, as specified
by the participating lenders. Term loans are available under the term loan facility and bear
interest at LIBOR plus a margin ranging from 0.55% to 1.35% based on our unsecured debt ratings
from time to time. The Credit Facilities contain various covenants and events of default which could trigger
early repayment obligations, including, but not limited to: nonpayment, violation or breach of
certain covenants; failure to perform certain covenants beyond a cure period; and generally not
paying our debts as they become due. The proceeds from the Credit Facilities were used to payoff the $250.0 million balance of
CRLPs previous credit facility and revolving bridge credit facility (each of which has been
terminated). Additional proceeds from the Credit Facilities may be used for predevelopment costs,
development costs, acquisition costs, working capital, equity investments, repayment of
indebtedness and general corporate purposes. The Credit Facilities mature on March 22, 2008, with
an option to extend for one year. As of March 31, 2005, $253.5 million is outstanding under the
Credit Facilities, comprised of $153.5 million under the revolving credit facility and $100.0
million under the term loan facility. As of March 31, 2005, we have unsecured Credit Facilities providing for total borrowings of up
to $600 million. These Credit Facilities 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 80
basis points. The Credit Facilities are renewable in March 2008, and provide for a one-year
extension. The Credit Facilities agreement includes a competitive bid feature that will allow us
to convert up to $250 million under the line of credit to a fixed rate, for a fixed term not to
exceed 90 days. At March 31, 2005, our total outstanding debt balance was $1.9 billion. The outstanding
balance includes fixed-rate debt of $1.5 billion, or 76.2% of the total debt balance, and
floating-rate debt of $459.3 million, or 23.8% 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 March 31, 2005 was $3.7 billion and our
ratio of debt to market capitalization was 52.5%. We have certain loan agreements that contain
restrictive covenants, which among other things require maintenance of various financial ratios.
At March 31, 2005, we were in compliance with these covenants. Investing Activities During the first quarter of 2005, we acquired a 373,000 square foot retail asset, Colonial
Promenade Portofino, located in Houston, Texas. The asset was acquired for a total price of $60.3
million, which was funded through borrowings under our bridge credit facility. During the first quarter of 2005, we acquired a 371,000 square foot office asset, Colonial
Place I & II (formely Westshore Place I & II), located in Tampa, Florida. The asset was acquired
for a total price of $54.9 million, which was funded through borrowings under our bridge credit
facility. During the first quarter of 2005, we acquired an additional 60,000 square foot office asset in
Research Park Office Center. This asset, located in Huntsville, Alabama, is adjacent to the three
Research Park Office Center assets purchased in the fourth quarter of 2004. The asset was acquired
for a total price of $5.0 million, which was funded through borrowings under our unsecured line of
credit. During the first quarter of 2005, 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 two retail
properties and the redevelopment of two retail properties. Upon completion of the retail
developments and redevelopments, we expect to have invested approximately $152.4 million, including
land acquisition costs. During the three months ended March 31, 2005, we invested an aggregate of
$129.5 million of these aforementioned development projects and certain parcels of land that were
acquired for future development. 22




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##### Table of Contents



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. We also incur expenditures for certain recurring capital expenses.
During the three months ended March 31, 2005, we incurred approximately $10.1 million related to
tenant improvements and leasing commissions, and approximately $4.2 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 $0.675 per unit for the first
quarter of 2005. 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. Critical Accounting Policies and Estimates Refer to our 2004 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 three months ended
March 31, 2005, there were no material changes to these policies. Derivatives and Hedging Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities(SFAS No. 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 No. 133, we record 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. We assess 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. Our 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, we
primarily use 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 quarters ended March 31, 2005, and 2004, such derivatives were used
to hedge the variable cash flows associated with existing variable-rate debt and forecasted
issuances of debt. We also use 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
quarters ended March 31, 2005, and 2004, such swaps were used to hedge the change in fair value of
fixed rate 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 March 31, 2005. The
notional value at March 31, 2005 provides an indication of 23




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##### Table of Contents



the extent of our involvement in these
instruments at that time, but does not represent exposure to credit, interest rate, or market risk. Fair ValueAt March 31, 2005Interest
    
    
    
    
    
    
    Asset (Liability)Product Type
    
    Notional Value
    
    Rate
    
    
    Maturity
    
    
    (in thousands)Interest Rate SWAP, Cash Flow
    
    $19.3 - $19.1 million
    
    
    5.932
    %
    
    
    1/1/06
    
    
    $
    (497
    )Interest Rate SWAP, Cash Flow
    
    $17.0 million
    
    
    7.380
    %
    
    
    5/5/06
    
    
    
    (390
    )Interest Rate SWAP, Fair Value
    
    $100.0 million
    
    
    4.803
    %
    
    
    4/1/11
    
    
    
    440Interest Rate CAP, Cash Flow
    
    $19.7 million
    
    
    6.850
    %
    
    
    6/29/07
    
    
    
    4Interest Rate CAP, Cash Flow
    
    $16.7 million
    
    
    6.850
    %
    
    
    7/3/07
    
    
    
    4Interest Rate CAP, Cash Flow
    
    $30.4 million
    
    
    11.200
    %
    
    
    7/3/06
    
    
    
    Interest Rate CAP, Cash Flow
    
    $16.4 million
    
    
    4.840
    %
    
    
    4/1/06
    
    
    
    4Interest Rate CAP, Cash Flow
    
    $25.9 million
    
    
    4.840
    %
    
    
    4/1/06
    
    
    
    6Interest Rate CAP, Cash Flow
    
    $8.4 million
    
    
    4.840
    %
    
    
    4/1/06
    
    
    
    2Interest Rate SWAP, Cash Flow
    
    $250.0 million
    
    
    4.721
    %
    
    
    8/3/15
    
    
    
    5,585Interest Rate SWAP, Cash Flow
    
    $200.0 million
    
    
    4.830
    %
    
    
    2/15/16
    
    
    
    4,105
 As of March 31, 2005, 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 No. 133. The only swap that we have that is not
designated as a hedge for SFAS No. 133 was acquired through the purchase of a property and its
corresponding debt. 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 does it anticipate any material adverse effect on its net
income or financial position in the future from the use of derivatives. At March 31, 2005, derivatives with a fair value of $0.7 million were included in other
liabilities and $10.2 million were included in other assets. Additionally, the fair value of our
fair value interest rate swap of $0.4 million was included in notes and mortgages payable. The
change in unrealized gain (losses) of $10.4 million for derivatives designated as cash flow hedges
for the three months ended March 31, 2005 is a component of shareholders equity. The change in
fair value of derivatives not designated as hedges of $0.2 million is included in gains (losses) on
hedging activities in the quarter ended March 31, 2005. Hedge ineffectiveness of approximately
$0.1 million on cash flow hedges due to index mismatches was recognized in gains (losses) on
hedging activities during the quarter ended March 31, 2005 and 2004. 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. An increase in general price levels may immediately preceed, or accompany, an increase in
interest rates. At March 31, 2005, our exposure to rising interest rates was mitigated by the
existing debt level of 52.5% of our total market capitalization, the high percentage of fixed rate
debt (76.2%), 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 March 31, 2005, we had approximately $459.3 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 March 31, 2005, in relation to our $1.9 billion of outstanding total debt, our $3.0 billion of
total assets and $3.7 billion total market capitalization as of that date. 24




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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 $459.3 million, the balance as of March 31, 2005. As of March 31, 2005, 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. (a.) Disclosure controls and procedures. Our chief executive officer and our chief financial officer, based on their evaluation of our
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of
the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that our
disclosure controls and procedures are effective for ensuring that information required to be
disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified in the SECs rules
and forms. (b) Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting that occurred during
our last fiscal quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting. 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 March 31, 2005, CRLP issued no Units. 
 Item 5. Other Information. On January 21, 2005, the Executive Compensation Committee of the Board of Trustees of the
Trust adopted specific performance goals and business criteria for the award of 2005 bonus payments
to our executive officers of the Trust. The performance goals and business criteria are based on
the following:  
    Achievement of funds from operations performance as compared to an index of comparable REITs
    Achievement of total shareholder return as compared to an index of comparable REITs
    Achievement of division funds from operation performance as compared to an index of
comparable REITs
    Achievement of division same store net operating income as compared to an index of
comparable REITs On January 21, 2005, our Board of Trustees adopted a new trustee compensation policy. The new
trustee compensation policy is attached hereto as Exhibit 10.22.1 and incorporated by reference
herein. The new trustee compensation policy adds an additional annual retainer payment of $15,000
for the chairman of the audit committee. 25




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##### Table of Contents



The new trustee compensation policy also adds an annual
retainer payment of $7,500 for the chairman of the executive compensation committee, the chairman
of the governance committee and the lead trustee. 
 Item 6. Exhibits Exhibit No.
    
    Exhibit
    
    Reference2.3
    
    Amendment No. 1 to Agreement and
Plan of Merger by and among the
Company, CLNL Acquisition Sub LLC
and Cornerstone Realty Income
Trust, Inc.
    
    Incorporated by
reference to Exhibit
2.2 to the Trusts
Current Report on
Form 8-K filed with
the SEC on January
25, 20053.14
    
    Articles Supplementary of 7.62%
Series E Cumulative Redeemable
Preferred Shares of Beneficial
Interest of Colonial Properties
Trust
    
    Incorporated by
reference to Exhibit
3.1 to the Trusts
Current Report on
Form 8-K filed with
the SEC on March 21,
20053.4.1
    
    Eighth Amendment to Third Amended
and Restated Agreement of Limited
Partnership of CRLP.
    
    Incorporated by
reference to Exhibit
10.4.1 in the
Trusts Annual
Report on Form 10-K
for the period
ending December 31,
200410.16.1
    
    Trustee Compensation Policy
    
    Incorporated by
reference to Exhibit
10.22.1 in the
Trusts Quarterly
Report on Form 10-Q
for the period
ending March 31,
200510.38
    
    Credit Agreement dated as of March
22, 2005, by and among Colonial
Realty Limited Partnership, as
Borrower, Colonial Properties
Trust, as Guarantor, Wachovia
Bank, as Agent for the Lenders,
and the Lenders named therein.
    
    Incorporated by
reference to Exhibit
10.38 to the Trusts
Current Report on
Form 8-K filed with
the SEC on March 25,
200512.1
    
    Ratio of Earnings to Fixed Charges
    
    Filed herewith31.1
    
    CEO Certification pursuant to
Section 302 of the Sarbanes-Oxley
Act of 2002
    
    Filed herewith31.2
    
    CFO Certification pursuant to
Section 302 of the Sarbanes-Oxley
Act of 2002
    
    Filed herewith32.1
    
    CEO Certification pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002
    
    Filed herewith32.2
    
    CFO Certification pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002
    
    Filed herewith
 26




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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 partnershipBy:
    Colonial Properties Trust,its general partner Date: May 9, 2005
    By:
    /s/ Weston M. AndressWeston M. AndressChief Financial Officer Date:  May 9, 2005
    /s/   John E. TomlinsonJohn E. TomlinsonExecutive Vice President and
Chief Accounting Officer
(Principal Accounting Officer) 27