SECURITIES AND EXCHANGE COMMISSION
                                Washington, D.C.
                              -------------------


                                    FORM 10-K
(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
     ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]

                   For the Fiscal Year Ended December 31, 1997

[ ]  TRANSITION  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

                        Commission File Number: 000-22683

                        GABLES REALTY LIMITED PARTNERSHIP
             (Exact name of Registrant as specified in its charter)
                               ------------------

          Delaware                                             58-2077966
(State or other jurisdiction of                             (I.R.S. employer
 incorporation or organization)                            identification no.)

 2859 Paces Ferry Road, Suite 1450
        Atlanta, Georgia                                         30339
(Address of principal executive offices)                       (Zip Code)

       Registrant's telephone number, including area code: (770) 436-4600
                              ---------------------
        Securities registered pursuant to Section 12(b) of the Act: None

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

                     Units of Limited Partnership Interest
                                (Title of Class)

     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.

                                (1) Yes  X    No
                                       ----      ----
                                (2) Yes  X    No
                                       ----      ----

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

     As of March 20, 1998, the aggregate  market value of the 3,437,211 units of
limited partnership  interest ("Units") held by non-affiliates of the Registrant
was  $90,226,789  based upon the  closing  price  ($26.25) on the New York Stock
Exchange  composite  tape  on such  date  of the  common  shares  of  beneficial
interest, par value $.01 per share, of Gables Residential Trust (the "Company"),
a Maryland real estate  investment  trust and the 100% owner of Gables GP, Inc.,
the sole  general  partner of the  Registrant,  into which Units are  redeemable
under  certain   circumstances  at  the  election  of  the  Company.  (For  this
computation,  the Registrant has excluded the market value of all Units reported
as beneficially  owned by the Company and by executive officers and directors of
the  Registrant;  such exclusion  shall not be deemed to constitute an admission
that any such person is an "affiliate" of the Registrant.)

                       DOCUMENTS INCORPORATED BY REFERENCE

     Certain information contained in Gables Residential Trust's Proxy Statement
relating  to its Annual  Meeting  of  Shareholders  to be held May 19,  1998 are
incorporated by reference in Part III, Items 10, 11, 12 and 13.

<PAGE>

                            FORM 10-K ANNUAL REPORT
                      FISCAL YEAR ENDED DECEMBER 31, 1997
                               TABLE OF CONTENTS


                                     PART I

Item                                                                        Page
 No.                                                                         No.
----                                                                       -----
1.      Business ........................................................      1
2.      Properties  .....................................................     10
3.      Legal Proceedings  ..............................................     18
4.      Submission of Matters to a Vote of Security Holders .............     18

                                    PART II

5.      Market for Registrant's Common Equity and Related Stockholder
          Matters........................................................     18
6.      Selected Financial and Operating Information ....................     19
7.      Management's Discussion and Analysis of Financial Condition
          and Results of Operations .....................................     22
8.      Financial Statements and Supplementary Data .....................     35
9.      Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure  ...................................     35


                                    PART III

10.     Directors and Executive Officers of the Registrant ..............     35
11.     Executive Compensation  .........................................     35
12.     Security Ownership of Certain Beneficial Owners and Management...     35
13.     Certain Relationships and Related Transactions  .................     35

                                    PART IV

14.     Exhibits, Financial Statements and Schedule and Reports on Form
            8-K .........................................................     35
<PAGE>
                                     Page-1

                                     PART I
ITEM 1.  BUSINESS

General

Gables Realty Limited  Partnership  (the "Operating  Partnership") is the entity
through which Gables Residential Trust (the "Company"),  a self-administered and
self-managed real estate investment trust (a "REIT"), conducts substantially all
of its business and owns (either directly or through subsidiaries) substantially
all of its assets.  The  Operating  Partnership  is one of the  largest  owners,
operators and developers of  multifamily  communities  in the  Southwestern  and
Southeastern region of the United States (the "Sunbelt" or "Sunbelt Region"). In
1993,  the Company was formed under  Maryland law and the Operating  Partnership
was organized as a Delaware  limited  partnership  to continue and to expand the
multifamily  apartment  community  management,  development,   construction  and
acquisition  operations of its privately  owned  predecessor  organization  (the
"Company's Predecessor"). The term "Gables Residential Group" or "Group" as used
herein refers to the Company's  Predecessor  organization prior to the Company's
initial public offering in January,  1994 (the "Initial  Offering" or "IPO") and
the   concurrent   completion   of  the  various   transactions   that  occurred
simultaneously therewith (the "Formation  Transactions").  The term "Company" as
used  herein  means  Gables   Residential   Trust  and  its  subsidiaries  on  a
consolidated  basis  (including  Gables  Realty  Limited   Partnership  and  its
subsidiaries) or, where the context so requires,  Gables Residential Trust only,
and,  as the  context  may  require,  their  predecessors.  The term  "Operating
Partnership" or "Gables" as used herein means Gables Realty Limited  Partnership
and its subsidiaries on a consolidated basis, or, where the context so requires,
Gables Realty Limited  Partnership only, and, as the context may require,  their
predecessors.

The Company controls the Operating Partnership through Gables GP, Inc. ("GGPI"),
a  wholly-owned  subsidiary  and  the  sole  general  partner  of the  Operating
Partnership (this structure is commonly  referred to as an umbrella  partnership
REIT or "UPREIT"). At December 31, 1997, the Company was an 84.4% economic owner
of the Operating  Partnership  (excluding the Company's ownership of 100% of the
Operating  Partnership's  Series A Preferred  Units).  The Board of Directors of
GGPI,  the members of which are the same as the members of the Board of Trustees
of the Company,  manages the affairs of the Operating  Partnership  by directing
the affairs of GGPI. The Company's  limited partner and indirect general partner
interests in the Operating Partnership entitle it to share in cash distributions
from, and in the profits and losses of, the Operating  Partnership in proportion
to its ownership interest therein and entitle the Company to vote on all matters
requiring a vote of the limited partners.

The  other  limited  partners  of the  Operating  Partnership  are  persons  who
contributed  their  direct or indirect  interests in certain  properties  to the
Operating Partnership  primarily in connection with the Formation  Transactions.
The  Operating   Partnership  is  obligated  to  redeem  each  unit  of  limited
partnership  interest  ("Unit")  at the  request of the holder  thereof for cash
equal to the fair  market  value of a share of the  Company's  common  shares of
beneficial interest,  par value $.01 per share ("Common Shares"), at the time of
such  redemption,  provided  that the Company at its option may elect to acquire
any such Unit presented for redemption for one Common Share or cash. The Company
presently anticipates that it will elect to issue Common Shares to acquire Units
presented for redemption, rather than paying cash. With each such redemption the
Company's  percentage  ownership  interest  in the  Operating  Partnership  will
increase. In addition, whenever the Company issues Common Shares, the Company is
obligated to contribute any net proceeds therefrom to the Operating  Partnership
and the  Operating  Partnership  is obligated to issue an  equivalent  number of
Units to the  Company.  Units  issued  to the  Company  in  connection  with the
issuance  and sale by the  Company  of a series  of  preferred  shares  (and the
subsequent  contribution  to  the  Operating  Partnership  of the  net  proceeds
therefrom)  ("Preferred Shares"),  will, in general, have, with respect to other
Units,  rights and  preferences  that the series of  Preferred  Shares have with
respect to the Common Shares.

The Operating Partnership may issue additional Units to acquire land parcels for
the development of apartment  communities or operating apartment  communities in
transactions that in certain circumstances defer some or all of the sellers' tax
consequences.  The Operating Partnership believes that many potential sellers of
multifamily  residential properties have a low tax basis in their properties and
would be more willing to sell the properties in transactions  that defer Federal
income  taxes.  Offering  Units  instead  of cash  for  properties  may  provide
potential sellers partial Federal income tax deferral.

<PAGE>
                                     Page-2


As of December 31, 1997, Gables owned 59 multifamily  apartment  communities and
had  an  indirect  25%  interest  in  two  multifamily   apartment   communities
(collectively,  the "Current Communities") located in the following major cities
in Texas, Georgia and Tennessee:  Houston, Dallas, Austin, San Antonio, Atlanta,
Memphis and Nashville  (the "Core  Markets").  The Current  Communities  totaled
18,479 apartment homes and included one multifamily  apartment  community in the
final  stages  of  lease-up.   Gables  also  owned  five  multifamily  apartment
communities  that were under  construction  at  December  31,  1997 that  Gables
expects will comprise 1,409 apartment homes upon completion  (collectively,  the
"Development Communities" and, with the Current Communities, the "Communities").
Three of the Development  Communities are located in Atlanta, Austin and Houston
and two of the Development  Communities are located in Orlando,  Florida. Gables
also owns sites (the  "Undeveloped  Sites") on which it intends to develop seven
additional  multifamily  apartment communities that Gables expects will comprise
an estimated 1,792 apartment homes and has rights (the "Development  Rights") to
acquire  additional sites on which Gables believes it could develop  multifamily
apartment  communities  comprising an estimated 2,596 apartment homes. Gables is
pursuing the acquisition of additional  multifamily apartment  communities.  See
"Recent  Developments" for acquisitions that were under contract as of March 16,
1998.

Gables'  executive  offices are  located at 2859 Paces  Ferry Road,  in Atlanta,
Georgia 30339 and its telephone number is (770) 436-4600.

Management  Structure.  Gables  has  been  responsible  for the  development  or
acquisition of  approximately  42,700  apartment homes since 1982 and its senior
management  team has, on average,  in excess of fifteen years  experience in the
multifamily  industry.  Gables  provides a full range of integrated  real estate
services through a staff of  approximately  900 employees who have experience in
property operations, development, acquisition and construction. Gables maintains
offices in  Atlanta,  Houston  and  Dallas,  each with its own fully  integrated
organization,   including  experienced  in-house  management,   development  and
acquisition  staffs with specific  knowledge of the particular  markets  served.
Gables  believes  that its  competitive  strength  and growth  potential  lie in
management's in-depth knowledge of the changing opportunities  available in each
local market and in its locally  focused  management  structure,  which  enables
highly  experienced   development  and  acquisition   personnel  to  pursue  new
opportunities in each market and highly experienced on-site managers to make the
day-to-day  decisions needed to maximize the performance of existing properties.
The finance,  accounting and administrative  functions for Gables are controlled
by a central staff located in Atlanta.

COMPETITIVE  ADVANTAGES.   Gables  believes  that  it  has  several  competitive
advantages. These advantages include:

     SERVICE-ORIENTED PHILOSOPHY: a service-oriented philosophy which focuses on
offering extensive resident amenities and services in quality apartment homes to
increase occupancy and rental rates and reduce resident turnover.

     GEOGRAPHIC  DIVERSIFICATION:  an  established  market  presence in multiple
major markets in the Sunbelt Region which are geographically  independent,  rely
on diverse  economic  foundations,  and during the past several years have shown
job growth substantially above national averages.

     PRODUCT  FOCUS:  a portfolio  concentration  of Class A properties  located
primarily in in-fill locations and  master-planned  communities,  which includes
garden,  townhome and higher density apartment  communities that were developed,
acquired,  rehabilitated or repositioned by Gables,  targeted toward a lifestyle
renter segment.

     LOCAL  PRESENCE IN MULTIPLE  MARKETS:  a local  presence for  approximately
fifteen  years  in  each  of the  Core  Markets  served  by  Gables  through  an
experienced  staff with superior  knowledge of local markets and a culture which
provides incentives for outstanding performance at all levels.

     FULLY INTEGRATED ORGANIZATION: a fully integrated organization with a track
record of  approximately  fifteen  years in all phases of real  estate  property
management, development, acquisition,  construction,  rehabilitation,  financing
(including tax- exempt bond financing) and marketing.

     INCREASED SIZE: Gables' increased size has allowed it to generate economies
of scale by spreading its corporate  overhead costs over a larger  portfolio and
increasing its buying power with vendors.
<PAGE>
                                     Page-3

THE MANAGEMENT COMPANIES
------------------------
Gables'  management  operations  with respect to properties in which Gables does
not  have an  interest  are  conducted  through  subsidiaries  of the  Operating
Partnership (the "Management Companies").  The Management Companies also provide
other services to third parties,  including  construction and brokerage services
and the provision of corporate rental housing. Certain of these services are, or
may also be,  provided  by the  Operating  Partnership  directly,  to the extent
consistent  with the gross  income  requirements  for REITs  under the Code.  To
maintain the Company's  qualifications as a REIT while realizing income from its
fee management and related service business, the Operating Partnership owns 100%
of the nonvoting common stock (representing  98.99% of the total equity) of each
Management  Company and 1% of the voting common stock  (representing .01% of the
total equity) of each Management Company.  The nonvoting common stock and voting
common stock owned by the Operating  Partnership  together  represent 99% of the
equity interests in each Management  Company.  Executive officers of the Company
hold,  in the  aggregate,  the  remaining  1% of the  equity in each  Management
Company,  representing  99% of the voting  interest  therein.  The voting common
stock held by such  executive  officers is subject to a provision of the by-laws
of each  Management  Company  that is  designed to ensure that the stock will be
held by officers of the Management  Companies at all times. This bylaw provision
of each  Management  Company  cannot be amended  without the vote of 100% of the
outstanding voting common stock of such company.

BRAND NAME STRATEGY
-------------------
Gables  is  continuing  to  pursue  a  long  standing  strategy  of  brand  name
development  by linking the "Gables"  name to its  properties.  This strategy is
intended  to  reinforce  Gables'  reputation  and to  build  recognition  of its
multifamily  communities as a high quality,  recognizable brand. Gables believes
that  increased  consumer  recognition of the "Gables" brand name in each of its
markets  has  enhanced  its  ability to attract  new  residents,  increased  the
markets' perception of the Communities as high quality residential  developments
and enhanced its relationships with local authorities.

BUSINESS OBJECTIVES AND STRATEGY OF GABLES
------------------------------------------
The  Company's  objective  is to increase  shareowner  value by being a dominant
owner and operator of Class A multifamily  communities in the Sunbelt Region. To
achieve its objective, Gables employs a number of strategies including operating
high quality,  well-located  assets in a diverse set of select  Sunbelt  markets
which have similar  demographic  characteristics  such as diverse economies with
projected  job growth.  Gables'  primary  target  customer is the more  affluent
renter-by-choice,  which  requires a focus on customer  service  through  highly
trained  associates  and the  maintenance  of Gables' assets to a high standard.
Gables intends to grow cash flow from operating  communities through innovative,
proactive  property  management  that  focuses  on  resident   satisfaction  and
retention, increases in rents and occupancy levels, and the control of operating
expenses through improved  economies of scale. Due to the cyclical nature of the
real estate markets,  Gables has adopted an investment  strategy based on strong
local presence and expertise  which will allow for growth in assets through both
acquisition and development as warranted by underlying market fundamentals,  and
that will  provide  for both  favorable  initial  returns and  long-term  growth
prospects.  Gables  believes the  successful  execution of these  operating  and
investment strategies will result in consistent high quality growth in operating
cash flow.

Gables  believes that it is well positioned to achieve its objective as a result
of its  long-established  presence as a fully integrated real estate management,
development,  construction  and  acquisition  company  in each of  Gables'  Core
Markets for the past fifteen years.  Gables believes that this long-term,  local
market  presence gives it a competitive  advantage with regard to its ability to
generate increased cash flow from property  operations during different economic
cycles and to new investment  opportunities that involve site selection,  market
information and requests for entitlements and zoning petitions. The Core Markets
are geographically  independent,  rely on diverse economic  foundations and have
experienced job growth  substantially  above national averages.  Gables recently
entered the Orlando  market which has the common growth  characteristics  of the
Core Markets.

PROPERTY  OPERATIONS.  The property management group operates the Communities to
maximize  cash flow and create long- term value.  This is achieved by aggressive
marketing and leasing of apartment homes,  providing the best possible  resident
service and  maintaining the  Communities to the highest  standards.  Management
believes that excellent service will distinguish Gables from its competitors and
will retain current  residents and attract new  prospects.  Gables has a service
oriented   philosophy  which  is  reinforced  through  its  "College  of  Career
Development"  named Gables University.  This  comprehensive  training system for
Gables'  employees is overseen by  full-time  training  coordinators  and offers

<PAGE>
                                     Page-4

classes in a variety of different  schools,  such as the School of Leasing,  the
School  of  People   Resources  and  the  School  of  Maintenance   Development.
Additionally,  there are "degree"  programs which are completed with  graduation
ceremonies.  Service is also  reinforced  with  quarterly "I Made a  Difference"
recognition ceremonies, where personal achievement by associates is acknowledged
by senior management in each of the markets where Gables operates.

Financial and marketing information is collected and distributed through on-site
computer  systems at all Communities and  effectively  summarizes  operating and
marketing  data critical for making  accurate daily  decisions.  The system also
compiles  demographic  profile information on prospective and current residents,
allowing Gables to effectively target its customer base.

The property management group is strategically focused on the following areas:

     EMPLOYEES. Hiring the highest quality associates possible through extensive
screening  and  proactive  recruiting,  and  encouraging  loyalty  and  reducing
employee turnover by providing  outstanding  training,  career opportunities and
benefit  programs.  The average tenure for vice presidents and regional managers
of the group is over eight years and the average tenure of property  managers is
over six years.

     RESIDENTS.  Providing  exceptional  services to Gables' relatively affluent
residents, who expect a service level commensurate with the high quality product
and resultant high level rents.

     FINANCIAL   PERFORMANCE.   Maximizing  revenues  from  the  Communities  by
empowering and inciting  property  managers to make decisions  regarding  rental
rates and  implementation of marketing programs to attract and retain residents;
reducing  property  operating  expenses by continuously  evaluating  vendors and
service contracts,  utilizing volume discount  purchasing programs and analyzing
tax and utility expenses;  and monitoring  overall  appearance and appeal of the
Communities by ensuring cleanliness,  investing wisely in major capital expenses
and ensuring the quality of the landscaping.

DEVELOPMENT. The development team has extensive experience in the identification
of sites,  land planning,  product  development and  construction in the Sunbelt
Region. In evaluating whether to develop an apartment community, the development
team analyzes current demographics and economic data such as household formation
rates,  income  levels,  rental  rates and  occupancies.  Gables  relies both on
internal and external market  research to determine the current  position of the
real estate cycle.

Successful  development has been instrumental to the growth of Gables and, since
1982, Gables has developed approximately 28,300 apartment homes. Gables seeks to
develop  properties in markets where it discerns a strong  demand,  which Gables
anticipates  will  enable it to achieve  its  targeted  initial  yields.  Gables
expects to  continue to focus on the Sunbelt  Region  which,  as a result of job
growth and household formation,  has generally experienced high occupancy levels
and rising rents in recent years.  The typical  submarket  where Gables develops
its communities is one where resident profiles, including relatively high income
households,  justify the development of Class A multifamily communities offering
extensive resident amenities and services. Fundamental to Gables' development is
its in-house  construction  group, which allows Gables to act as its own general
contractor,  which helps  control  quality,  scheduling  and cost.  In addition,
Gables'  development  and  construction  expertise  has  enabled it to develop a
variety  of  multifamily  communities,  including  Class  A  garden  apartments,
townhomes and higher density apartments in a variety of geographic areas.

ACQUISITION.  Gables also  focuses its  efforts on the  acquisition  of existing
multifamily  communities  which  management  believes  are  consistent  with the
characteristics of its existing portfolio or present  opportunities for creating
value,   including  properties   requiring  extensive   renovations  and  market
repositioning.  Since 1982,  Gables has  acquired and  repositioned  communities
comprising  a  total  of   approximately   14,400   apartment  homes,  of  which
approximately 3,000 apartment homes were value-added acquisitions which required
substantial redevelopment,  repositioning,  and strong management skills. Gables
will seek to invest in those  properties that management  believes are available
at prices below  estimated  replacement  cost, are located in submarkets  with a
relatively  high income  population  with close  proximity  to major  employment
centers,  and are capable of growth in cash flow through  application of Gables'
management ability and strategic capital improvements.
<PAGE>
                                     Page-5

FEE MANAGEMENT  BUSINESS AND RELATED  SERVICES.  As of December 31, 1997, Gables
managed for third parties 27 multifamily  communities  comprising  approximately
9,600  apartment  homes.  These fee management  contracts are maintained  with a
total of approximately 17 owners. In addition to contributing  modestly to funds
from  operations,  engaging in fee  management  allows  Gables to  leverage  its
management  operations  costs,  provides  access to development  and acquisition
opportunities and provides Gables with additional market knowledge.  In addition
to its fee management  business,  Gables  provides  other  services  through the
Management  Companies,  including  construction  and brokerage  services and the
provision of corporate rental housing.

COMPETITION
-----------
All of the  Communities  are  located  in  developed  areas that  include  other
apartment communities.  The number of competitive  multifamily  communities in a
particular  area  could  have a  material  effect on  Gables'  ability  to lease
apartment  homes  at the  Communities  or at any  newly  developed  or  acquired
community,  as  well  as on the  rents  charged.  Gables  may be  competing  for
development  and  acquisition   opportunities  with  others  that  have  greater
resources than Gables (including other REITs). In addition, the Communities must
compete for residents  with new and existing  homes and  condominiums.  The home
affordability  index in all of Gables'  markets is above the  national  average.
This  competitive  environment is partially offset by the propensity to rent for
households in Gables' markets which in all cases exceeds the national average.

The fee management business is highly competitive,  and Gables faces competition
from a variety of local,  regional and national firms.  Gables competes  against
these firms by  stressing  the  quality and  experience  of its  employees,  the
services  provided  by Gables  and the market  presence  and  experience  it has
developed over the past fifteen years.  Gables may,  nevertheless,  lose some of
its third party management business, particularly when such properties are sold.

ENVIRONMENTAL MATTERS
---------------------
Under  various  Federal,  state and local  environmental  laws,  ordinances  and
regulations,  a current or previous  owner or operator of real  property  may be
required to investigate and clean up hazardous or toxic  substances or petroleum
product  releases at such  property,  and may be held  liable to a  governmental
entity  or to third  parties  for  property  damage  and for  investigation  and
clean-up  costs incurred by such parties in connection  with the  contamination.
Such laws, ordinances and regulations  typically impose clean-up  responsibility
and liability without regard to whether the owner knew of or caused the presence
of the  contaminants,  and the liability under such laws has been interpreted to
be joint and  several  unless the harm is  divisible  and there is a  reasonable
basis for allocation of responsibility.  The cost of investigation,  remediation
or removal of such  substances  may be  substantial,  and the  presence  of such
substances,  or the  failure to properly  remediate  the  contamination  on such
property, may adversely affect the owner's ability to sell or rent such property
or to borrow  using such  property  as  collateral.  Persons who arrange for the
disposal or treatment of  hazardous or toxic  substances  also may be liable for
the costs of  removal or  remediation  of such  substances  at the  disposal  or
treatment  facility,  whether or not such  facility is owned or operated by such
person. In addition,  some  environmental laws create a lien on the contaminated
site in favor of the  government  for damages and costs it incurs in  connection
with the contamination.  Finally, the owner or operator of a site may be subject
to common law claims by third parties based on damages and costs  resulting from
environmental  contamination  emanating  from a site.  In  connection  with  the
ownership,  operation,  management and  development of the Communities and other
real properties, Gables may be potentially liable for such damages and costs.

Certain  Federal,  state and local laws,  ordinances and regulations  govern the
removal, encapsulation and disturbance of asbestos-containing materials ("ACMs")
when such  materials  are in poor  condition  or in the  event of  construction,
remodeling,  renovation or demolition of a building.  Such laws,  ordinances and
regulations  may impose  liability for release of ACMs and may provide for third
parties  to seek  recovery  from  owners or  operators  of real  properties  for
personal  injury  associated  with  ACMs.  In  connection  with  its  ownership,
operation,  management  and  development  of  the  Communities  and  other  real
properties, Gables may be potentially liable for such costs.

In addition, recent studies have linked radon, a naturally-occurring  substance,
to increased risks of lung cancer. While there are currently no state or Federal
requirements regarding the monitoring for, presence of, or exposure to, radon in
indoor air, the U.S.  Environmental  Protection  Agency  ("EPA") and the Surgeon
General  recommend  testing  residences for the presence of radon in indoor air,
and the EPA further  recommends  that  concentrations  of radon in indoor air be
limited to less than 4  picocuries  per liter of air (pCi/L)  (the  "Recommended
Action Level"). The presence of radon in concentrations equal to or greater than
the Recommended Action Level in a Community may adversely affect Gables' ability
to rent apartment homes in that Community and the market value of the Community.
<PAGE>
                                     Page-6

Finally, recently-enacted Federal legislation will eventually require owners and
landlords  of  residential  housing  constructed  prior to 1978 to  disclose  to
potential tenants or purchasers of the Communities any known lead-paint  hazards
and will impose treble damages for failure to so notify. In addition, lead-based
paint  in any of the  Communities  may  result  in lead  poisoning  in  children
residing in that  Community if chips or particles of such  lead-based  paint are
ingested,  and Gables may be held liable under state laws for any such  injuries
caused by ingestion of lead-based paint by children living at the Communities.

Gables'  assessments  of the  Communities  have not revealed  any  environmental
liability that Gables  believes would have a material  adverse effect on Gables'
business,  assets or  results  of  operations,  nor is Gables  aware of any such
material  environmental  liability.  Nevertheless,  it is possible  that Gables'
assessments  do not  reveal  all  environmental  liabilities  or that  there are
material environmental  liabilities of which Gables is unaware.  Moreover, there
can be no assurance  that (i) future laws,  ordinances or  regulations  will not
impose any material  environmental  liability or (ii) the current  environmental
condition of the Communities  will not be affected by tenants,  by the condition
of land or operations in the vicinity of the properties (such as the presence of
underground storage tanks), or by third parties unrelated to Gables.

Gables  believes that no ACMs were used in connection  with the  construction of
the  Communities or will be used in connection  with future  construction by the
Company.  Gables'  environmental  assessments  have  revealed  the  presence  of
"potentially  friable" ACMs at two Current  Communities and non-friable  ACMs at
four Current  Communities.  Gables has programs in place to maintain and monitor
ACMs.  Gables  believes that the  Communities  are in compliance in all material
respects  with all Federal,  state and local laws,  ordinances  and  regulations
regarding  hazardous or toxic substances or petroleum  products.  Gables has not
been notified by any governmental authority,  and is not otherwise aware, of any
material  noncompliance,  liability  or claim  relating  to  hazardous  or toxic
substances  or  petroleum  products  in  connection  with  any  of  its  present
properties  that would  involve  substantial  expenditure,  and Gables  does not
believe that compliance with applicable  environmental  laws or regulations will
have a material  adverse effect on Gables or its financial  condition or results
of operations.

COSTS OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT AND SIMILAR LAWS
-------------------------------------------------------------------------
Under the Americans  with  Disabilities  Act of 1990 (the "ADA"),  all places of
public  accommodation are required to meet certain Federal  requirements related
to access and use by disabled persons.  These  requirements  became effective in
1992.  Management of Gables believes that the Communities are  substantially  in
compliance  with present  requirements  of the ADA, as they apply to multifamily
dwellings. A number of additional Federal, state and local laws exist which also
may  require  modifications  to the  Communities,  or regulate  certain  further
renovations  thereof,  with respect to access thereto by disabled  persons.  For
example, the Fair Housing Amendments Act of 1988 (the "FHAA") requires apartment
communities  first  occupied  after  March  13,  1990  to be  accessible  to the
handicapped. Noncompliance with the FHAA could result in the imposition of fines
or  an  award  of  damages  to  private  litigants.  Gables  believes  that  the
Communities that are subject to the FHAA are in compliance with such law.

Additional legislation may impose further burdens or restrictions on owners with
respect  to access  by  disabled  persons.  The  ultimate  amount of the cost of
compliance with the ADA or such legislation is not currently ascertainable, and,
while such costs are not  expected  to have a  material  effect on Gables,  such
costs could be  substantial.  Limitations or  restrictions  on the completion of
certain  renovations  may limit  application of Gables'  investment  strategy in
certain instances or reduce overall returns on Gables' investments.

INSURANCE
---------
Gables carries comprehensive liability,  fire, extended coverage and rental loss
insurance  with  respect  to  all  of  the  Current  Communities,   with  policy
specifications,  insured limits and deductibles  customarily carried for similar
properties.   Gables  carries  similar  insurance  with  respect  to  its  other
properties,  but with such exceptions as are  appropriate  given the undeveloped
nature of certain of these  properties.  There are,  however,  certain  types of
losses (such as losses arising from acts of war) that are not generally  insured
because they are either  uninsurable or not  economically  insurable.  Should an
uninsured  loss or a loss in excess of insured  limits occur,  Gables could lose
its capital invested in a property,  as well as the anticipated  future revenues
from  such  property  and  would  continue  to  be  obligated  on  any  mortgage
indebtedness or other obligations  related to the property.  Any such loss would
adversely affect Gables.
<PAGE>
                                     Page-7

EMPLOYEES
---------
Gables  provides  a full  range  of real  estate  services  through  a staff  of
approximately 900 employees, including an experienced management team. There are
no collective bargaining agreements with any of Gables' employees.

TAX MATTERS
-----------
The Operating Partnership is a limited partnership and as such is not subject to
Federal or state income  taxes.  The partners of the Operating  Partnership  are
required to include their respective share of profits and losses in their income
tax  returns.  The  Company  elected  to be  taxed  as a REIT  under  the  Code,
commencing  with the  taxable  year ended  December  31,  1994,  and  intends to
maintain its  qualification  as a REIT in the future.  As a qualified REIT, with
limited  exceptions,  the Company  will not be taxed  under  Federal and certain
state income tax laws at the corporate level on its net income.

POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
-------------------------------------------
The  following  is a  discussion  of  certain  investment,  financing  and other
policies of Gables.  These policies have been  determined by the Company's Board
of Trustees and GGPI's Board of Directors (collectively, the "Board") and may be
amended  or  revised  from  time  to  time by the  Board  without  a vote of the
Company's shareholders,  except that (i) the Company cannot change its policy of
holding its assets and  conducting  its  business  only  through  the  Operating
Partnership,  the Management Companies and other permitted  subsidiaries without
the consent of the holders of Units as provided in the partnership  agreement of
the  Operating  Partnership,  (ii) changes in certain  policies  with respect to
conflicts of interest must be consistent with legal requirements,  and (iii) the
Company cannot take any action intended to terminate its qualification as a REIT
without the approval of the holders of two-thirds of the Common Shares.

INVESTMENT  POLICIES.  The Company  will conduct all its  investment  activities
through the  Operating  Partnership  and its  subsidiaries.  Gables'  investment
objectives are to provide  quarterly cash  distributions  and achieve  long-term
capital  appreciation  through  increases  in the value of  Gables.  Gables  may
purchase  income-producing  multifamily  apartments or other types of properties
for long-term investment,  expand and improve the communities presently owned or
other properties  purchased,  or sell such communities or other  properties,  in
whole or in part, when circumstances  warrant.  Gables may also participate with
third parties in apartment community ownership,  through joint ventures or other
types of co-ownership.  Equity  investments may be subject to existing  mortgage
financing and other  indebtedness  or such financing or  indebtedness  as may be
incurred in connection  with acquiring or refinancing  these  investments.  Debt
service  on such  financing  or  indebtedness  will  have a  priority  over  the
Company's Common Shares and any distributions thereon.

While Gables emphasizes equity real estate investments in multifamily  apartment
communities,  it may, in the  discretion of the Board,  invest in other types of
equity  real  estate   investments,   mortgages   (including   participating  or
convertible mortgages) and other real estate interests. Gables currently intends
to invest in  apartment  communities  in the  Sunbelt  Region.  However,  future
development or investment  activities will not be limited to any geographic area
or product type or to a specified percentage of Gables' assets.  Gables will not
have any limit on the amount or percent of its assets  invested in one property.
Subject to the  percentage of ownership  limitations  and gross income and asset
tests necessary for REIT qualification,  Gables also may invest in securities of
other REITs,  other entities engaged in real estate  activities or securities of
other  issuers,  including  for the  purpose  of  exercising  control  over such
entities,  although it does not presently intend to do so and it has not done so
in the past.  Gables may enter  into  joint  ventures  or  partnerships  for the
purpose of obtaining an equity  interest in a particular  property in accordance
with Gables'  investment  policies.  Such  investments  may permit Gables to own
interests in larger  assets  without  unduly  restricting  diversification  and,
therefore,  add flexibility in structuring its portfolio.  Gables will not enter
into a joint  venture  or  partnership  to make an  investment  that  would  not
otherwise meet its investment  policies.  Investment in these securities is also
subject to Gables'  policy not to be treated as an investment  company under the
Investment Company Act of 1940.

FINANCING  POLICIES.  The debt to total  market  capitalization  ratio of Gables
(i.e., the total consolidated debt of Gables as a percentage of the December 31,
1997 market  value of  outstanding  Common  Shares of the Company and  Operating
Partnership  Units,  plus  total  consolidated  debt  and  Preferred  Shares  at
liquidation  value)  was  approximately  34% at  December  31,  1997.  Excluding
construction-related indebtedness, this ratio was 30% at December 31, 1997. This
ratio will  fluctuate  with  changes in the price of the Common  Shares (and the
issuance of  additional  Common  Shares,  or other forms of shares of beneficial
interest,  if any) and differs from the debt to book capitalization ratio, which
is based upon book values.
<PAGE>
                                     Page-8

This percentage will increase as Gables uses financing to continue  construction
of the Development  Communities and to acquire additional  multifamily apartment
communities.  As the  debt to book  capitalization  ratio  may not  reflect  the
current income potential of a company's  assets and operations,  Gables believes
that the debt to total  market  capitalization  ratio  provides  an  alternative
indication of leverage for a company whose assets are primarily income-producing
real estate and should be  evaluated  along with the debt  service  coverage and
underlying components of Gables' indebtedness.  Gables currently has a policy of
incurring  debt only if upon such  incurrence  the ratio of debt to total market
capitalization  would  be  60% or  less.  The  Company's  Amended  and  Restated
Declaration  of Trust and Second  Amended and Restated  Bylaws do not,  however,
limit the amount or percentage of  indebtedness  that the Company may incur.  In
addition,  Gables  may from  time to time  modify  its debt  policy  in light of
current economic conditions,  relative costs of debt and equity capital,  market
values of its Communities,  general conditions in the market for debt and equity
securities,   fluctuations  in  the  market  price  of  Common  Shares,   growth
opportunities  and other factors.  Accordingly,  Gables may increase or decrease
its debt to total market capitalization ratio beyond the limits described above.
To the extent that the Board decides to obtain  additional  capital,  Gables may
raise such capital through additional equity offerings  (including  offerings of
senior  securities),  debt  financings  or  retention  of Funds from  Operations
(subject to satisfying  provisions in the Code, requiring minimum  distributions
of net income in order to maintain tax status as a REIT),  or a  combination  of
these methods. Gables presently anticipates that any additional borrowings would
be made through the  Operating  Partnership,  although  the Company  might incur
indebtedness,  the  proceeds  of  which  would  be  reloaned  to  the  Operating
Partnership.  Borrowings may be unsecured or may be secured by any or all of the
assets of the Company, the Operating Partnership or any existing or new property
owning  partnership and may have full or limited  recourse to all or any portion
of the assets of the Company,  the Operating  Partnership or any existing or new
property owning partnership.  Indebtedness incurred by Gables may be in the form
of bank borrowings,  tax-exempt bonds,  purchase money obligations to sellers of
apartment  communities or other  properties,  publicly or privately  placed debt
instruments or financing  from  institutional  investors or other  lenders.  The
proceeds  from any  borrowings  by Gables may be used for  working  capital,  to
refinance  existing  indebtedness  and to finance  acquisitions,  expansions  or
development  of new  communities  and other  properties,  and for the payment of
distributions.  Gables has not  established any limit on the number or amount of
mortgages  that may be placed on any single  property or on its  portfolio  as a
whole.

Gables  currently  has a senior  unsecured  debt rating of BBB from Standard and
Poor's and Baa2 from Moody's Investors Service. The Company's Series A Preferred
Shares  currently  have a rating of BBB- from  Standard and Poor's and baa3 from
Moody's Investors  Service.  Gables intends to adhere to financing policies that
will allow it to maintain these investment grade credit ratings.

CONFLICT OF INTEREST POLICIES. As part of their employment  agreements,  each of
Messrs. Bromley,  Rippel, Clark and Banks is bound by a non-competition covenant
with the Company.  These non-competition  covenants provide that during the term
of employment,  and for a period of one year following termination of employment
under certain  circumstances,  each individual is prohibited  from,  directly or
indirectly, competing with the Company with respect to any multifamily apartment
residential  real estate  property  development,  construction,  acquisition  or
management activities then undertaken or being considered by the Company.  These
employment agreements also contain certain non-solicitation  covenants,  whereby
each individual  subject to such an agreement is prohibited,  during the term of
employment and for a period of one year thereafter, from, directly or indirectly
(i)  soliciting  or inducing  any  present or future  employee of the Company to
accept  employment with such individual or any person or entity  associated with
such individual, (ii) employing, or causing any person or entity associated with
such individual to employ, any present or future employee of the Company without
providing the Company with prior written  notice of such proposed  employment or
(iii)  either for himself or for any other  person or entity,  competing  for or
soliciting the third party owners with whom the Company has an existing property
management  agreement.  Such employment  agreements terminate on January 1, 1999
but are automatically  extended for additional one-year periods unless notice is
given by the Company or the  employee,  three  months  prior to the  agreement's
expiration, that the agreement will not be renewed.

The Company has adopted a policy that, without the approval of a majority of the
trustees  who are  neither  officers  of the  Company  nor  affiliated  with the
Company,  it will  not (i)  acquire  from or  sell to any  trustee,  officer  or
employee of the Company,  or any entity in which a trustee,  officer or employee
of the Company  beneficially  owns more than a 1%  interest,  or acquire from or
sell to any  affiliate  of any of the  foregoing,  any of the  assets  or  other
property  of the  Company,  (ii)  make  any  loan to or  borrow  from any of the
foregoing  persons  or (iii)  engage  in any other  transaction  with any of the
foregoing persons.
<PAGE>
                                     Page-9

RECENT DEVELOPMENTS
-------------------
The following sections contain 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.  Forward-looking  statements  are
inherently subject to risks and uncertainties, many of which cannot be predicted
with  accuracy.  Acquisitions  that are pursued by Gables may not be consummated
for a variety of  reasons,  including  the  failure of either  party to meet the
required conditions to closing.

PENDING ACQUISITIONS - SOUTH FLORIDA
------------------------------------
Gables has entered into a Contribution Agreement with an effective date of March
16, 1998 (the "Contribution Agreement") to acquire the properties and operations
of Trammell Crow Residential South Florida ("TCR/SF"), which consist of up to 15
multifamily apartment communities (the "South Florida Communities") containing a
total of 4,197  apartment  homes  (assuming  completion  of three South  Florida
Communities  currently  under  construction),  and all of  TCR/SF's  residential
construction  and  development  and third party  management  activities in South
Florida (the "South Florida  Transaction").  The South Florida  Communities  are
located in Palm Beach County,  Broward  County and Dade County and encompass the
metropolitan areas of Palm Beach, Fort Lauderdale and Miami,  respectively.  The
South Florida Transaction is expected to be consummated in the second quarter of
1998.

Gables believes the South Florida Transaction,  if successfully completed,  will
facilitate the following goals:

-    establish a growth platform in the South Florida markets by integrating the
     existing operating, acquisition,  development and construction personnel of
     TCR/SF into Gables'  existing  management  team;

-    allow Gables to enter into the South  Florida  markets with a critical mass
     of multifamily  apartment  communities  that have internal  earnings growth
     potential  and product  quality  characteristics  consistent  with  Gables'
     existing portfolio;

-    provide  further   geographic  and  economic   diversification  of  Gables'
     portfolio of  multifamily  apartment  communities,  thereby  enhancing  the
     stability of Gables' cash flow;

-    generate a pipeline of acquisition  and  development  opportunities  in the
     South Florida markets,  which are characterized by high job growth and high
     barriers to entry;

-    allow  Gables to generate  economies of scale by  spreading  its  corporate
     overhead costs over a larger portfolio and increasing its buying power with
     vendors; and

-    produce immediate earnings growth and accelerate long-term earnings growth.

There can be no assurance that all South Florida Communities will be included in
the South  Florida  Transaction  or that the South Florida  Transaction  will be
consummated at all. Additionally, although Gables expects that the South Florida
Transaction  and  Gables'  entry into new  markets  will  provide  the  benefits
discussed above, there can be no assurance that these benefits will be realized.

At December  31, 1997,  12 of the South  Florida  Communities,  which were built
between  1984 and 1997,  were  stabilized  and had a weighted  average  physical
occupancy rate of approximately 94.8%, two of the South Florida Communities were
under  construction  and  lease-up,  and one South  Florida  Community was under
construction  but  had not  yet  commenced  leasing.  All of the  South  Florida
Communities under construction are anticipated to be substantially  completed by
September,  1998. The average unit size for all South Florida Communities is 984
square feet and the  scheduled  rent at December  31, 1997 was $875 per unit and
$0.89 per square foot. Gables currently expects it will also acquire from TCR/SF
third party management contracts for approximately 8,000 apartment homes.
<PAGE>
                                    Page-10

Under the terms of the  Contribution  Agreement,  Gables will  acquire the South
Florida  Communities,  the third party management  business and other properties
and assets of TCR/SF in exchange for (i)  approximately  $149.0 million in cash,
(ii) the assumption of approximately  $135.9 million of tax-exempt debt (subject
to certain required  consents) and (iii) the initial issuance of Units valued at
up to  approximately  $71.1 million based on an agreed upon price of $27.625 per
Unit (the  "Share  Price").  The Share  Price is subject to  decrease in certain
circumstances  as  set  forth  in  the  Contribution   Agreement.  In  addition,
approximately  $12.5  million of the  purchase  price will be retained by Gables
until  January 1, 2000,  at which time Gables will issue to the sellers a number
of Units (the "Deferred  Units") equal in value to such retained amount (subject
to possible decrease pursuant to the terms of the Contribution  Agreement).  The
Deferred  Units will be valued based on the average of the closing prices of the
Common  Shares on the NYSE during a 15 trading day period  preceding the date of
issuance.

In the event that the South Florida Communities are not contributed by TCR/SF in
accordance with the terms of the  Contribution  Agreement,  Gables or TCR/SF may
elect to  terminate  the  Contribution  Agreement  in its  entirety,  subject to
certain payments specified in the Contribution  Agreement.  In addition,  if the
average  of the  closing  prices of the  Common  Shares on the NYSE  during a 15
trading day period  preceding the closing is less than $23.50,  either TCR/SF or
Gables may elect to terminate the Contribution Agreement.

PENDING ACQUISITIONS - HOUSTON
------------------------------
On February 18, 1998,  Gables  entered into  contribution  agreements  with four
partnerships  under common  control  pursuant to which Gables expects to acquire
four multifamily apartment communities (the "Greystone  Communities") comprising
a total of 913 apartment homes located in the Houston  metropolitan  area, which
at  December  31,  1997  had a  weighted  average  physical  occupancy  rate  of
approximately  99.0% (the  "Greystone  Transaction").  In  connection  with such
acquisition,  Gables will assume approximately $28.0 million of indebtedness and
issue Units valued at up to approximately  $21.0 million, of which approximately
$2.0 million will be deferred for up to two years.  The closing of the Greystone
Transaction is subject to certain conditions, including receipt of certain third
party consents.  There can be no assurance that the Greystone  Transaction  will
close as contemplated,  that the required  conditions to closing will be met, or
that the contribution agreements will not be amended or terminated.

PENDING ACQUISITION - AUSTIN
----------------------------
On March 11, 1998,  Gables  entered  into an agreement to acquire a  multifamily
apartment  community in Austin comprising 308 apartment homes. The acquistion of
this  community is subject to the completion of due diligence as well as ongoing
business review by Gables.  No assurance can be made that the  acquisition  will
close.

ITEM 2.        PROPERTIES

As of  December  31,  1997,  Gables  owned  or had  an  interest  in 61  Current
Communities,  consisting of 18,479  apartment  homes, and owned five Development
Communities,  consisting of 1,409 apartment homes. The Communities, comprising a
total of 19,888 apartment homes,  are located in Texas,  Georgia,  Tennessee and
Florida.  The  following  table shows the locations of the  Communities  and the
number of apartment homes in each metropolitan area:
<TABLE>
<CAPTION>

                         Number of Communities           Number of Apartment Homes            Percent of
Location             Current  Development    Total     Current    Development    Total     Total Apt.Homes
--------             -------  -----------    -----     -------    -----------    -----     ---------------

<S>                  <C>       <C>           <C>       <C>         <C>           <C>        <C>

Houston, TX (1)        17           1          18       6,091          256        6,347           31.9%
Atlanta, GA            20           1          21       5,841          386        6,227           31.3%
Dallas, TX              9          --           9       2,085           --        2,085           10.5%
Memphis, TN (2)         5          --           5       1,799           --        1,799            9.0%
Austin, TX              4           1           5         953          256        1,209            6.1%
Nashville, TN           4          --           4       1,166           --        1,166            5.9%
San Antonio, TX         2          --           2         544           --          544            2.7%
Orlando, FL            --           2           2          --          511          511            2.6%
                    -----       -----       -----      ------        -----       ------          -----
                       61           5          66      18,479        1,409       19,888          100.0%
                    =====       =====       =====      ======        =====       ======          =====

<FN>

(1)  Includes a Current Community comprising 318 apartment homes in which Gables
     has a 25%  general  partner  interest.

(2)  Includes a Current Community comprising 345 apartment homes in which Gables
     has a 25% general partner interest.
</FN>
</TABLE>
<PAGE>
                                    Page-11

CURRENT  COMMUNITIES.  Gables  developed 37 Current  Communities  (consisting of
10,353  apartment  homes),  and acquired 24 Current  Communities  (consisting of
8,126 apartment homes). All but one (Rivercrest) of the Current  Communities are
managed and operated by the Company.  The Current Communities  typically are two
and three story garden apartments,  townhomes and higher-density  apartments. As
of December 31, 1997, the Current  Communities had an average  scheduled monthly
rental rate per apartment home of approximately  $812 and, with the exception of
one Community in the final lease-up phase, had a physical occupancy rate of 95%.
The average age of the Current Communities is approximately 7.5 years.

Most of the Communities offer many attractive features designed to enhance their
market appeal,  such as vaulted ceilings,  fireplaces,  dishwashers,  disposals,
washer/dryer connections,  ice-makers, patios and decks. Recreational facilities
include swimming pools, fitness facilities, playgrounds, picnic areas and tennis
and racquetball courts. In many Communities, Gables makes amenities and services
available to residents,  such as aerobic  classes,  resident social events,  dry
cleaning pick up and delivery,  and the use of fax, computer and copy equipment.
In-depth  market  research,  including  periodic focus groups with residents and
feedback  from  on-site  management  personnel,  is used to refine  and  enhance
management services and community design.

DEVELOPMENT  COMMUNITIES.  The  Development  Communities  have been  designed to
generally  resemble  the Current  Communities  developed  by Gables and to offer
similar  amenities.  The  Development  Communities  and the  recently  completed
Current Communities reflect Gables' continuing research of consumer  preferences
for upscale  multifamily  rental housing and  incorporate  and emphasize  garage
parking,  increased  privacy,  high quality  interiors and private telephone and
television systems.

UNDEVELOPED  SITES. At December 31, 1997,  Gables owned seven  Undeveloped Sites
and intends to develop multifamily communities at those sites in the future:

                                           Metropolitan       Estimated Number
Undeveloped Sites                             Area           of Apartment Homes
-----------------                             ----           ------------------
Gables Metropolitan I                     Atlanta,  GA                  365
Gables Metropolitan II                    Atlanta,  GA                  355
Gables at the Galleria                    Dallas,  TX                   222
Gables State Thomas                       Dallas,  TX                   202
Gables Green Oaks II                      Dallas, TX                    250
Gables Quail Ridge II                     Memphis,  TN                  148
Gables Colonnade II                       San Antonio, TX               250
                                                                      -----
                                                                      1,792
                                                                      =====

DEVELOPMENT  RIGHTS.  As of March 16, 1998,  Gables had nine Development  Rights
which are located in four cities:

                                         Metropolitan        Estimated Number
Development Right                           Area            of Apartment Homes
-----------------                           ----            ------------------
Gables Plaza                              Atlanta, GA                  200
Gables Sugarloaf II                       Atlanta, GA                  690 (1)
Gables at First Street                    Austin, TX                   400
Gables Meyer Park II                      Houston, TX                  200
Gables New Territory II                   Houston, TX                  240
Gables White Oak                          Houston, TX                  183
Gables at Little Lake Bryan II            Orlando, FL                  246 (1)
Gables at Little Lake Bryan III           Orlando, FL                  230 (1)
Gables at Little Lake Bryan IV            Orlando, FL                  207 (1)
                                                                     -----
                                                                     2,596
                                                                     =====

(1)  Gables has these land parcels under options with various termination dates.

There can be no  assurance of when or if Gables will  exercise  the  Development
Rights.
<PAGE>
                                    Page-12


The  following  is a  "Safe  Harbor"  Statement  under  the  Private  Securities
Litigation Reform Act of 1995 and Section 21E of the Securities  Exchange Act of
1934,  as  amended.  The  projections  contained  in the tables  above under the
captions  "Undeveloped  Sites"  and  "Development  Rights"  are  forward-looking
statements. These forward-looking statements involve risks and uncertainties and
actual results may differ materially from those projected in the forward-looking
statements.  Risks  associated with Gables'  development,  construction and land
acquisition activities,  which could impact the forward-looking statements made,
include:   development   and   acquisition   opportunities   may  be  abandoned;
construction costs of a community may exceed original estimates, possibly making
the community  uneconomical;  and construction may not be completed on schedule,
resulting in increased debt service and construction  costs.  Development of the
Undeveloped  Sites and the  Development  Rights is subject to permits  and other
governmental  approvals, as well as ongoing business review by Gables. There can
be no  assurance  that Gables will decide or be able to develop the  Undeveloped
Sites, to complete  development of all or any of the communities  subject to the
Development Rights, or to complete the number of apartment homes shown above.
<PAGE>
                                    Page-13

DEVELOPMENT COMMUNITIES AS OF DECEMBER 31, 1997

Certain information  regarding Gables'  Development  Communities at December 31,
1997 is presented below.

<TABLE>
<CAPTION>


                     Number of  Total      Average                                           Actual or Estimated Quarter of
                     Apartment Budgeted   Apartment    Percent at December 31, 1997  Construction  Initial   Construction Stabilized
Community             Homes      Cost     Home Size     Complete  Leased  Occupied      Start     Occupancy      End      Occupancy
---------             -----      ----     ---------     --------  ------  --------      -----     ---------      ---      ---------
                              (millions)  (sq. ft.)
<S>                   <C>      <C>         <C>            <C>     <C>      <C>       <C>          <C>         <C>          <C>

ATLANTA, GA
Gables at Sugarloaf     386    $28.7       1,099           35%     ---       ---      2 Q 1997     2 Q 1998    1 Q 1999    2 Q 1999

AUSTIN, TX
Gables Bluffstone       256     20.5         984           87%       5%        2%     1 Q 1997     4 Q 1997    2 Q 1998    4 Q 1998

HOUSTON, TX
Gables New Territory    256     15.2         913           27%     ---       ---      3 Q 1997     2 Q 1998    4 Q 1998    2 Q 1999

ORLANDO, FL
The Commons at
   Little Lake Bryan I  280     21.7       1,034           54%     100%      ---      2 Q 1997     1 Q 1998    3 Q 1998    3 Q 1998
Gables Celebration      231     23.4       1,128           17%     ---       ---      3 Q 1997     2 Q 1998    4 Q 1998    4 Q 1998
                     ------   ------       -----
  TOTALS              1,409   $109.5       1,036
                     ======   ======       =====
<FN>



The  following  is a  "Safe  Harbor"  Statement  under  the  Private  Securities
Litigation Reform Act of 1995 and Section 21E of the Securities  Exchange Act of
1934, as amended. The projections and estimates contained in the table above are
forward-looking  statements.  These forward-looking statements involve risks and
uncertainties  and actual results may differ  materially from those projected in
such statements.  Risks associated with Gables' development,  construction,  and
lease-up  activities,  which could impact the  forward-looking  statements made,
include:  development  opportunities may be abandoned;  construction  costs of a
community  may  exceed  original   estimates,   possibly  making  the  community
uneconomical;  and  construction  and lease-up may not be completed on schedule,
resulting in increased debt service and construction costs.


Total Budgeted Cost includes all capitalized  costs incurred and projected to be
incurred  to develop the  respective  community  presented  in  accordance  with
generally  accepted  accounting  principles,  including land acquisition  costs,
construction  costs,  real  estate  taxes,  interest  and  loan  fees,  permits,
professional fees, allocated development overhead, and other regulatory fees.

Stabilized  occupancy  is  defined as the  earlier to occur of (i) 93%  physical
occupancy or (ii) one year after completion of construction.
</FN>
</TABLE>
<PAGE>
                                    Page-14


<TABLE>
<CAPTION>

                                              CURRENT COMMUNITY FEATURES AS OF DECEMBER 31, 1997

                                    Number of  Approximate               Year                 Average               Scheduled Rent
                                    Apartment   Rentable      Total   Constructed/   Year    Unit Size  Occupancy   @ 12/31/97 Per
Community Name (1)                    Homes    Sq. Ft. (2)   Acreage   Renovated   Acquired  (Sq. Ft.)   12/31/97   Unit    Sq. Ft.
------------------                    -----    -----------   -------   ---------   --------  ---------   --------   ----    -------
<S>                                 <C>          <C>         <C>       <C>         <C>        <C>        <C>        <C>      <C>

HOUSTON, TX
Baybrook Village ...............         776     620,428      26.4       1981        1990       800        99%     $ 562    $ 0.70
Gables Bradford Place ..........         372     320,322      13.3       1991          --       861        95%       717      0.83
Gables Bradford Pointe .........         360     276,417      13.5       1990          --       768        96%       629      0.82
Gables Champions ...............         404     367,588      29.7       1995        1997       910        96%       774      0.85
Gables CityPlaza ...............         246     217,374       7.5       1995          --       884        98%       848      0.96
Gables Cityscape ...............         252     214,824       6.8       1991          --       852        93%       895      1.05
Gables CityWalk/Waterford Square         317     255,823       8.7    1990/85     --/1992       807        94%       893      1.11
Gables Edgewater ...............         292     257,339      12.2       1990          --       881        93%       816      0.93
Gables Meyer Park ..............         345     297,054      11.0       1993          --       861        95%       852      0.99
Gables of First Colony .........         324     321,848      13.3       1996        1997       993        94%       919      0.93
Gables Piney Point .............         246     227,880       7.5       1994          --       926        97%       907      0.98
Gables Pin Oak Green ...........         582     593,478      14.4       1990        1996     1,020        93%       944      0.93
Gables Pin Oak Park ............         477     486,308      11.9       1992        1996     1,020        95%       975      0.96
Gables River Oaks ..............         228     277,908       5.7       1993        1996     1,219        98%     1,332      1.09
Metropolitan Uptown (3) ........         318     290,141       8.9       1995          --       912        94%       986      1.08
Rivercrest .....................         140     118,020       5.1       1982        1987       843        99%       710      0.84
Westhollow Park ................         412     370,640      18.3    1978-79        1990       900        92%       591      0.66
                                     -------    --------    ------                             ----      ----      -----     -----
 Totals/ Weighted Averages ....        6,091   5,513,392     214.2                              905        95%     $ 819     $0.90
                                     =======   =========    ======                             ====      ====      =====     =====
ATLANTA, GA
Briarcliff Gables ..............         104     128,976       5.2       1995          --     1,240        96%     1,081      0.87
Buckhead Gables ................         162     122,548       3.5       1994 (4)    1994       756        99%       783      1.04
Dunwoody Gables ................         311     290,396      10.4       1995          --       934        98%       797      0.85
Gables Cinnamon Ridge ..........         200     192,016      14.5       1980        1994       960        96%       637      0.66
Gables Cityscape ...............         192     159,360       5.5       1989        1994       830        95%       805      0.97
Gables Mill ....................         438     406,676      36.1       1988        1997       928        95%       787      0.85
Gables Northcliff ..............          82     127,990      12.7       1978        1997     1,561       100%     1,097      0.70
Gables Over Peachtree ..........         263     239,814(5)    1.4       1996 (4)    1995       912        94%     1,009      1.11
Gables Vinings .................         315     336,735      15.2       1997          --     1,069        97%       939      0.88
Gables Walk ....................         310     367,226      19.7    1996-97        1997     1,185        89%       974      0.82
Gables Wood Arbor ..............         140     127,540       9.9       1987          --       911        98%       683      0.75
Gables Wood Crossing ...........         268     257,012      22.3    1985-86          --       959        97%       735      0.77
Gables Wood Glen ...............         380     377,340      23.8       1983          --       993        94%       653      0.66
Gables Wood Knoll ..............         312     311,064      19.6       1984          --       997        92%       679      0.68
Lakes at Indian Creek ..........         603     552,384      49.8    1969-72        1993       916        94%       563      0.61
Rock Springs Estates ...........         295     298,302      28.7    1945-92        1997     1,011        96%       871      0.86
Roswell Gables I ...............         384     417,288      28.3       1995          --     1,087        95%       793      0.73
Roswell Gables II ..............         284     334,268      28.3       1997          --     1,177        93%       831      0.71
Spalding Gables ................         252     249,333      11.2       1995          --       989        99%       839      0.85
Wildwood Gables ................         546     619,710      37.9    1992-93 (4)    1991     1,135        95%       822      0.72
                                      ------   ---------    ------                          -------      ----      -----     -----
 Totals/ Weighted Averages ....        5,841   5,915,978     384.0                            1,013        95%     $ 790     $0.78
                                      ======   =========    ======                          =======      ====      =====     =====
DALLAS, TX
Arborstone .....................         536     383,360      24.5       1985        1993       715        96%       480      0.67
Gables at Pearl Street .........         108     117,688       3.6       1995          --     1,090        96%     1,390      1.28
Gables CityPlace ...............         232     244,056       7.1       1995        1997     1,052        99%     1,324      1.26
Gables Green Oaks I ............         300     286,740      12.8       1996          --       956        95%       822      0.86
Gables Mirabella ...............         126     114,902       1.4       1996        1997       912        97%     1,190      1.30
Gables Preston .................         126     138,107      10.6       1995          --     1,096        93%     1,030      0.94
Gables Spring Park .............         188     198,178      12.3       1996          --     1,054        97%       939      0.89
Gables Turtle Creek ............         150     150,930       3.1       1995        1996     1,006        95%     1,165      1.16
Gables Valley Ranch ............         319     325,534      14.8       1994          --     1,020        97%       927      0.91
                                       -----   ---------     -----                           ------      ----      -----     -----
  Totals/ Weighted Averages ....       2,085   1,959,495      90.2                              940        96%     $ 906     $0.96
                                       =====   =========     =====                           ======      ====      =====     =====
<PAGE>
                                    Page-15


                                              CURRENT COMMUNITY FEATURES AS OF DECEMBER 31, 1997

<CAPTION>

                                   Number of   Approximate              Year               Average                   Scheduled Rent
                                   Apartment     Rentable    Total   Constructed/    Year  Unit Size   Occupancy     @ 12/31/97 Per
Community Name (1)                   Homes      Sq. Ft.(2)  Acreage   Renovated   Acquired (Sq. Ft.)   12/31/97      Unit   Sq. Ft.
------------------                   -----        -------   -------   ---------   ------------------   --------      ----   -------
<S>                                  <C>         <C>        <C>       <C>         <C>       <C>          <C>       <C>       <C>

MEMPHIS, TN
Arbors of Harbortown (3) .......         345     341,258      15.0       1991          --       989        96%       841      0.85
Gables Cordova .................         464     434,461      32.2       1986          --       936        98%       661      0.71
Gables Germantown ..............         252     293,012      30.5       1997          --     1,163        98%       906      0.78
Gables Quail Ridge .............         238     283,848      20.3       1997          --     1,193        94%       794      0.67
Gables Stonebridge .............         500     439,646      34.0    1993-96        1996       879        95%       634      0.72
                                       -----   ---------    ------                           ------      ----      -----     -----
  Totals/ Weighted Averages ....       1,799   1,792,225     132.0                              996        96%     $ 740     $0.74
                                       =====   =========    ======                           ======      ====      =====     =====
NASHVILLE, TN
Brentwood Gables ..........              254     287,594      14.5       1996          --     1,132        96%       977      0.86
Gables Hendersonville .....              364     342,982      21.0       1991          --       942        97%       650      0.69
Gables Hickory Hollow I ...              272     247,322      19.0       1988          --       909        93%       618      0.68
Gables Hickory Hollow II ..              276     259,704      18.0       1987          --       941        93%       618      0.66
                                       -----   ---------    ------                           ------      ----      -----     -----
  Totals/ Weighted Averages            1,166   1,137,602      72.5                              976        95%     $ 684     $0.70
                                       =====   =========    ======                           ======      ====      =====     =====
AUSTIN, TX
Gables Central Park .......              273     257,043       6.9       1997          --       942        -- (6)  1,087      1.15
Gables Great Hills ........              276     228,930      23.7       1993          --       829        92%       793      0.96
Gables Park Mesa ..........              148     161,540      24.3       1992        1997     1,091        90%     1,092      1.00
Gables Town Lake ..........              256     239,264      12.0       1996          --       935        94%     1,083      1.16
                                       -----     -------     -----                           ------      ----     ------     -----
  Totals/ Weighted Averages              953     886,777      66.9                              931        93%    $1,001     $1.08
                                       =====     =======     =====                           ======      ====     ======     =====
SAN ANTONIO, TX
Gables Colonnade I ........              312     284,196      12.0       1995          --       911        95%       785      0.86
Gables Wall Street ........              232     220,180      16.2       1996          --       949        94%       799      0.84
                                       -----     -------     -----                           ------      ----     ------     -----
  Totals/ Weighted Averages              544     504,376      28.2                              927        94%     $ 791    $ 0.85
                                       =====     =======     =====                           ======      ====     ======     =====

  GRAND TOTALS/WEIGHTED AVERAGES      18,479  17,709,845       988                              958        95%     $ 812    $ 0.85
                                      ======  ==========     =====                           ======      ====     ======     =====

<FN>

(1)  Except as noted in footnote  (3) hereof,  Gables  holds fee simple title to
     each of the Communities.

(2)  In the Atlanta and Tennessee  markets,  rentable area is measured including
     any patio or balcony. In the Texas markets, rentable area is measured using
     only the heated  area.  In the Florida  market,  rentable  area is measured
     using only the air conditioned area.

(3)  Gables holds an indirect 25% general partner interest in these communities.

(4)  Year renovated;  these communities were originally  constructed as follows:
     Buckhead  Gables:  1964;  Gables Over  Peachtree:  1969-1970;  and Wildwood
     Gables: 1972.

(5)  This  rentable  area is exclusive of  approximately  18,000  square feet of
     rentable commercial space.

(6)  This  Community is in the lease-up stage and as of December 31, 1997 it was
     85% occupied.

</FN>
</TABLE>
<PAGE>
                                    Page-16

<TABLE>
<CAPTION>

                                                  DEBT SUMMARY AS OF DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)


                                                                           Projected
                                                                Projected    Annual
                                                    Principal    Principal  Interest      Scheduled Principal Payments
                               Interest  Maturity    Balance   Amortization  Payment              at Maturity                There-
Property Collateral             Rate     Date (1)   12/31/97 (2)   1998       1998    1998  1999  2000   2001     2002       after
-------------------             ----     --------   ------------   ----       ----    ----  ----  ----   ----     ----       -----
<S>                            <C>       <C>          <C>         <C>        <C>      <C>   <C>   <C>    <C>      <C>        <C>

SECURED CONVENTIONAL FIXED RATE

Gables Cityscape .............  7.13%    02/10/04      $9,099      $124      $ 635     $--   $--   $ --     $--     $--     $ 8,191

Gables Citywalk/Waterford Sq .  7.13%    02/10/04      11,528       156        805      --    --     --      --      --      10,377

Gables Stonebridge ...........  7.50%    05/01/03      19,419       265      1,425      --    --     --      --      --      17,746

NWML Properties (3) ..........  8.77%    12/01/09      52,385       670      4,501      --    --     --      --      --      38,940

Gables Northcliff ............  8.16%    12/01/20       3,704        58        295      --    --     --      --      --          --
                                                      -------     -----      -----    ----  ----   ----    ----    ----     -------
     SUBTOTAL                                          96,135     1,273      7,661       0     0      0       0       0      75,254
                                                      -------     -----      -----    ----  ----   ----    ----    ----     -------

UNSECURED CONVENTIONAL FIXED RATE

Unsecured term loan ..........  6.15%(4) 11/22/01      40,000        --      2,460      --    --     --  40,000      --          --

Unsecured TIAA Note 1 ........  8.30%    12/31/02      86,346       621      7,083      --    --     --      --  82,392          --

Unsecured TIAA Note 2 ........  8.62%    12/31/07      29,681       200      2,529      --    --     --      --      --      26,398

Unsecured other...............  6.10%    10/01/16       2,499        80        152      --    --     --      --      --          --
                                                      -------     -----     ------    ----  ----   ----  ------  ------      ------
     SUBTOTAL                                         158,526       901     12,224       0     0      0  40,000  82,392      26,398
                                                      -------     -----     ------    ----  ----   ----  ------  ------      ------

TAX-EXEMPT FIXED RATE

Providian Properties (5) .....  6.38%    08/01/04      48,365       538 (6)  3,083      --    --     --      --      --      48,365

Lakes at Indian Creek ........  7.03%(7) 01/31/25      11,785       155        802      --    --     --      --      --          --
                                                      -------     -----     ------    ----  ----   ----    ----    ----      ------
     SUBTOTAL                                          60,150       693      3,885       0     0      0       0       0      48,365
                                                      -------     -----     ------    ----  ----   ----    ----    ----      ------

TAX-EXEMPT FLOATING RATE

Gables Wood Crossing .........  (8)      10/01/02(9)   11,650        --        437      --    --     --      --  11,650         --

Gables Wood Arbor ............  (8)      10/01/02(9)    7,130        --        267      --    --     --      --   7,130         --

Gables Hickory Hollow I  .....  (8)      10/01/02(9)   12,750        --        503      --    --     --      --  12,750         --

Gables Hickory Hollow II .....  (8)      10/01/02(9)   13,400        --        478      --    --     --      --  13,400         --
                                                      -------      ----      -----    ----  ----  -----   -----  ------     ------
     SUBTOTAL                                          44,930         0      1,685       0     0      0       0  44,930          0
                                                      -------      ----      -----    ----  ----  -----   -----  ------     ------
CREDIT FACILITIES

$175 million unsecured ... LIBOR+0.80%   03/22/00(10)  60,000        --  Varies(11)    --     --  60,000      --     --         --

$20 million unsecured ...  LIBOR+0.80%   10/09/98(12)  15,621        --  Varies(11) 15,621    --      --      --     --         --
                                                       ------      ----  -------    ------  ----  ------    ----  -----     ------
     SUBTOTAL                                          75,621         0  Varies(11) 15,621     0  60,000       0      0          0
                                                       ------      ----  -------    ------  ----  ------    ----  -----     ------

TOTAL INDEBTEDNESS (13)                             $ 435,362   $ 2,867 $25,455    $15,621     0 $60,000 $40,000 $127,322 $150,017
                                                    =========   ======= =======    =======  ==== ======= ======= ======== ========
</TABLE>
<PAGE>
                                    Page-17


NOTES TO DEBT SUMMARY AS OF DECEMBER 31, 1997
---------------------------------------------

(1)  All of the mortgages can be prepaid at any time without penalty or premium,
     except for the  unsecured  TIAA  Notes and the  mortgages  encumbering  the
     Providian  Properties,  Lakes at Indian  Creek,  Gables  Cityscape,  Gables
     CityWalk/Waterford  Square and Gables  Stonebridge.

(2)  All of the debt is  recourse  to Gables in whole or in part  except for the
     mortgages encumbering Gables Cityscape,  Gables CityWalk/Waterford  Square,
     Gables Stonebridge and Gables Northcliff.

(3)  The NWML Properties (Wildwood Gables,  Gables Valley Ranch and Gables Piney
     Point)  together  secure the $53 million  mortgage  loan from  Northwestern
     Mutual Life Insurance Co.

(4)  This $40 million term loan  currently  bears  interest at LIBOR plus 0.80%.
     This  financing  is  effectively  fixed at 6.15% after  application  of $40
     million  of the  $44.53  million  interest  rate  swap  and cap  agreements
     described elsewhere herein.

(5)  The Providian  Properties  together secure the $48.4 million  mortgage loan
     from Providian  Corporation and are comprised of three  properties  induced
     for  tax-exempt  bond  financing  (Gables Wood Glen,  Gables Wood Knoll and
     Gables Cordova) and three  additional  properties  (Gables Bradford Pointe,
     Gables Hendersonville and Rivercrest).

(6)  Principal  amortization  payments are retained in an escrow account and are
     not  applied  to reduce  the  outstanding  principal  balance  of the loan.
     Interest earned on the escrow account accrues to Gables' benefit.

(7)  The interest  rate does not include  credit  enhancement  fees of 0.60% per
     annum, which fees were prepaid in January,  1995 for a period of ten years.
     In addition,  certain of the bond documents  require the payment of certain
     other customary fees ranging up to approximately 0.25% per annum.

(8)  These bonds bear interest at a variable rate of interest,  adjusted  weekly
     based upon a negotiated  rate. The payment  schedules  reflect a 3.75% rate
     which  represents   Gables'  budgeted  rate  for  1998.  The  average  rate
     experienced  for 1997 and  1996  were  3.7%  and  3.5%,  respectively.  The
     interest rates do not include the payment of credit  enhancement fees which
     are currently 0.95% per annum.  In addition,  certain of the bond documents
     require  the  payment  of  certain  other  customary  fees  ranging  up  to
     approximately 0.25% per annum.

(9)  The maturity date noted represents the date on which the credit enhancement
     facility for the bonds expires.  Such facility may be extended  pursuant to
     Gables' unlimited one-year extension options.  The stated maturity date for
     the loans range from December,  2007 to August, 2024.

(10) Gables has two remaining one-year extension options.

(11) Debt service will be variable based on the principal  balance which will be
     outstanding.

(12) Gables has  unlimited  one-year  extension  options.

(13) Excludes   $16.4  million  of   tax-exempt   bonds  and  $17.9  million  of
     conventional  indebtedness related to joint ventures in which Gables has an
     indirect 25% general partner interest.

Joint Venture Indebtedness
--------------------------

The Arbors of Harbortown  apartment community secures a $16.4 million tax-exempt
bond obligation,  which is recourse to Gables up to $1.0 million (this amount is
fully  cash-collateralized  and is held by the Arbors of Harbortown  JV),  bears
interest at a variable low-floater rate, has a maturity date of April, 2013, and
is payable in monthly  installments of interest only. The credit enhancement for
the bond  obligation  expires in May, 2001. The  Metropolitan  Uptown  apartment
community secures a conventional  fixed-rate loan with $17.9 million outstanding
at December 31, 1997, 25% of which has been guaranteed by Gables. The loan has a
maturity date of December 31, 2002, and bears interest at a rate of 7.18%.
<PAGE>
                                    Page-18

ITEM  3.        LEGAL PROCEEDINGS

Neither Gables nor any of the  Communities is presently  subject to any material
litigation or, to Gables' knowledge, is any litigation threatened against Gables
or any of the  Communities,  other than routine  actions for negligence or other
claims  and  administrative  proceedings  arising  in  the  ordinary  course  of
business,  some of which are expected to be covered by liability  insurance  and
all of which  collectively are not expected to have a material adverse effect on
the business or financial condition of Gables.

ITEM 4.         SUBMISSION OF MATTERS  TO A VOTE OF SECURITY HOLDERS

Not applicable.


                                    PART II

ITEM 5.         MARKET FOR REGISTRANT'S COMMON EQUITY AND
                RELATED STOCKHOLDER MATTERS

There is no established  public  trading  market for the Units.  As of March 20,
1998, there were 63 holders of record of Units.

The following table sets forth the quarterly  distributions  per Unit to holders
of its Units for the period indicated.

                                                   Distribution
Quarter Ended                                        Declared
-------------                                      ------------

March 31, 1996                                         $0.48
June 30, 1996                                           0.48
September 30, 1996                                      0.49
December 31, 1996                                       0.49
March 31, 1997                                          0.49
June 30, 1997                                           0.49
September 30, 1997                                      0.50
December 31, 1997                                       0.50
March 31, 1998                                          0.50



The Operating Partnership  currently intends to make quarterly  distributions to
holders of its Units.  Distributions are declared at the discretion of the Board
of Directors of GGPI, the general partner of the Operating Partnership, and will
depend on  actual  funds  from  operations  of the  Operating  Partnership,  its
financial condition, capital requirements,  the annual distribution requirements
under the REIT  provisions  of the Code and such  other  factors as the board of
directors  may deem  relevant.  The Board of Directors  may modify the Operating
Partnership's distribution policy from time to time.

Certain  of  the  Operating  Partnership's  loan  agreements  contain  customary
representations,  covenants  and events of default,  including  covenants  which
restrict  the ability of the  Operating  Partnership  to make  distributions  in
excess of stated  amounts.  In  general,  during any fiscal  year the  Operating
Partnership  may  only  distribute  up to  95% of  the  Operating  Partnership's
consolidated  income  available  for  distribution  (as  defined in the  related
agreement)  exclusive  of  distributions  of capital  gains for such  year.  The
applicable loan agreements  contain exceptions to these limitations to allow the
Operating  Partnership to make any distributions  necessary to allow the Company
to maintain its status as a REIT. The Operating  Partnership does not anticipate
that  this  provision  will  adversely  effect  the  ability  of  the  Operating
Partnership to make distributions, as currently anticipated.

October 17, 1997,  the  Operating  Partnership  issued  453,272 Units (valued at
approximately  $12,180,000  at the  time of  issuance)  in  connection  with the
acquisition of an apartment community comprising 295 apartment homes. Such Units
were issued in reliance on an exemption from registration  under Section 4(2) of
the Securities Act and the rules and regulation promulgated thereunder.
<PAGE>
                                    Page-19


Each time the Company issues shares of beneficial  interest,  it contributes the
proceeds of such  issuance  to the  Operating  Partnership  in return for a like
number of Units with  rights and  preferences  analogous  to the shares  issued.
During the period commencing on October 1, 1997 and ending on December 31, 1997,
in  connection  with such  issuances  of shares by the Company  during that time
period,  the Operating  Partnership  issued an aggregate  1,745,938 Units to the
Company.  Such Units were issued in reliance on an exemption  from  registration
under  Section  4(2)  of the  Securities  Act  and  the  rules  and  regulations
promulgated thereunder.

ITEM 6.        SELECTED FINANCIAL AND OPERATING INFORMATION

The following table sets forth selected financial and operating information on a
historical basis for the Operating  Partnership and on a combined historical and
pro forma basis for the Operating Partnership's  predecessors as applicable. The
following  information  should be read in conjunction  with all of the financial
statements  and  notes  thereto  included  elsewhere  herein.  The  consolidated
operating  information of the Operating Partnership for the years ended December
31, 1997, 1996 and 1995 have been derived from the financial  statements audited
by Arthur  Andersen  LLP,  independent  public  accountants,  whose  report with
respect  thereto  is  included  elsewhere  herein.  The  consolidated  operating
information of the Operating Partnership for the period from January 26, 1994 to
December 31, 1994 and the combined  operating  information  of the Group for the
period from January 1, 1994 to January 25, 1994 and for the year ended  December
31, 1993 has been derived from audited financial statements not included in such
report.

The unaudited selected pro forma financial operating information is presented as
if the Initial Offering and Formation  Transactions occurred as of the beginning
of the period presented.  The pro forma financial information is not necessarily
indicative  of what the actual  financial  position and results of operations of
the  Operating  Partnership  would  have  been as of the date or for the  period
indicated,  nor does it purport to represent the Operating  Partnership's future
financial position and results of operations.

<PAGE>
                                    Page-20

<TABLE>
<CAPTION>
                                                                    SELECTED FINANCIAL AND OPERATING INFORMATION


                                                             Gables Realty Limited Partnership and its Predecessors
                                                             ------------------------------------------------------

                                                                        Historical              Pro Forma        Historical
                                                          1997             1996       1995       1994 (1)     1994 (2)    1993
                                                          ----             ----       ----       --------     --------    ----
                                                                                                (Unaudited)
                                                             (in thousands, except property and per Unit information)
<S>                                                       <C>           <C>           <C>        <C>          <C>         <C>
OPERATING INFORMATION:
Rental revenues ....................................   $   132,371    $ 104,543      $72,703     $57,291     $57,201     $41,330
Other property revenues ............................         6,322        4,928        3,268       2,228       2,225       1,462
                                                           -------      -------      -------     -------    --------     -------
     Total property revenues .......................       138,693      109,471       75,971      59,519      59,426      42,792
Other revenues .....................................         4,745        6,710        5,789       7,350       7,396       8,373
                                                           -------      -------      -------     -------    --------     -------
     Total revenues ................................       143,438      116,181       81,760      66,869      66,822      51,165
                                                           -------      -------      -------     -------    --------     -------

Property operating and maintenance expenses
  (exclusive of items shown separately below) ......        47,592       38,693       28,228      22,868      22,847      18,295
Depreciation and amortization ......................        25,194       18,892       12,669       9,974       9,906       7,635
Property management expenses (owned and third party)         5,696        5,617        5,348       5,603       5,774       6,175
General and administrative expenses ................         3,248        3,045        2,869       1,779       1,742       1,078
Interest and credit enhancement fees ...............        25,313       21,688       13,798       9,584      10,084      12,844
Amortization of deferred financing costs ...........           992        1,348          932       1,057       1,127       1,132
Loss on treasury lock extension ....................(3)      1,178            0            0           0           0           0
                                                           -------      -------      -------     -------    --------     -------
     Total expenses ................................       109,213       89,283       63,844      50,865      51,480      47,159
                                                           -------      -------      -------     -------    --------     -------

Equity in income of joint ventures .................           320          280           64         270         270         251
Interest income ....................................           371          363          389         268         268         263
                                                           -------      -------      -------     -------    --------     -------
Income before gain on sale of real estate assets ...        34,916       27,541       18,369      16,542      15,880       4,520

Gain on sale of real estate assets .................         5,349            0            0           0           0           0
                                                           -------      -------      -------     -------    --------     -------
Income before extraordinary loss ...................        40,265       27,541       18,369      16,542      15,880       4,520
Extraordinary loss .................................          (712)        (631)        (955)       (148)       (148)          0
                                                           -------      -------      -------     -------    --------     -------
Net income .........................................        39,553       26,910       17,414      16,394      15,732       4,520
Dividends to preferred unitholders .................        (4,163)           0            0           0           0           0
                                                           -------      -------      -------     -------    --------     -------
Net income available to common unitholders .........       $35,390      $26,910      $17,414     $16,394     $15,732      $4,520
                                                           =======      =======      =======     =======    ========     =======

Weighted average common Units outstanding - basic ..        23,441       20,194       14,644      13,435      13,442
Weighted average common Units outstanding - diluted         23,591       20,283       14,660      13,452      13,459

Per Common Unit Information:
Income before extraordinary loss  - basic ..........        $ 1.54       $ 1.36       $ 1.25      $ 1.23      $ 1.19
Net income - basic .................................          1.51         1.33         1.19        1.22        1.18
Income before extraordinary loss  - diluted ........          1.53         1.35         1.25        1.23        1.19
Net income - diluted ...............................          1.50         1.32         1.18        1.22        1.18
Distributions paid .................................(4)       2.47         1.93         1.83         N/A        1.225
Distributions declared .............................(4)       1.98         1.94         1.86         N/A        1.675

Other Information:
Cash flows provided by operating activities ........       $69,519      $51,629      $29,088     $28,868     $28,868     $13,407
Cash flows used in investing activities ............      (228,969)    (213,596)    (148,234)   (150,534)   (150,534)    (67,043)
Cash flows provided by financing activities ........       158,244      157,823      123,619     114,245     114,245      54,054
Funds from operations ..............................(5)     56,866       46,238       30,927      26,313      25,561      11,749
Gross operating margin .............................(6)      65.7%        64.7%        62.8%       61.6%       61.6%       57.3%
Completed communities at year-end ..................            61           48           38          29          29          24
Apartment homes in completed communities at year-end        18,479       15,244       11,946       9,785       9,785       8,666
Average monthly revenue per apartment home .........(7)     $  755        $ 700        $ 620       $ 574       $ 574       $ 560
<PAGE>

Balance Sheet Information:
Real estate, before accumulated depreciation .......(8)$ 1,056,228    $ 784,600    $ 591,233   $ 437,782   $ 437,782   $ 290,903
Total assets .......................................(8)    981,167      759,660      562,827     416,847     416,847     277,420
Total debt .........................................       435,362      390,321      286,259     229,305     229,305     261,294
Limited partners' capital interest at redemption
  value/predecessors' equity .......................       110,866       98,482       75,314      67,188      67,188       1,236
Partners' capital ..................................       402,631      234,426      171,107      92,966      92,966           0

Funds From Operations Reconciliation:
Net income available to common unitholders .........       $35,390      $26,910      $17,414     $16,394     $15,732      $4,520
Extraordinary loss .................................(9)        712          631        1,003         148         148           0
Gain on sale of real estate assets .................        (5,349)           0            0           0           0           0
Loss on treasury lock extension ....................(3)      1,178            0            0           0           0           0
Real estate depreciation ...........................(9)     24,935       18,697       12,510       9,771       9,681       7,229
                                                           -------      -------      -------     -------      ------     -------
Funds from operations ..............................       $56,866      $46,238      $30,927     $26,313     $25,561     $11,749
                                                           =======      =======      =======     =======      ======     =======
</TABLE>
<PAGE>
                                    Page-21


             NOTES TO SELECTED FINANCIAL AND OPERATING INFORMATION
            (In Thousands, except Property and Per Unit Information)

     (1)  The pro  forma  information  reflects  adjustments  to the  historical
information of the Operating Partnership's  predecessors from January 1, 1994 to
January 25, 1994  related to the Initial  Offering  and  Formation  Transactions
principally  for the acquisition of certain  properties and additional  expenses
associated with reporting as a public company, reduction of interest expense due
to debt repayment and increased depreciation.

     (2) The  historical  information  for the  year  ended  December  31,  1994
represents the combined  historical  information of the Operating  Partnership's
predecessors  from  January 1, 1994 to  January  25,  1994 and the  consolidated
historical  information  of the Operating  Partnership  from January 26, 1994 to
December 31, 1994. The weighted average number of Units  outstanding and the per
Unit  information  pertains only to the period from January 26, 1994 to December
31, 1994.

     (3) Gables  extended  its $75  million  forward  seven-year  treasury  lock
agreement in December, 1997. The loss recognized for GAAP purposes in connection
with such  extension is added back for FFO purposes as Gables intends to account
for such amount for FFO purposes as a finance cost which will be amortized  over
the life of the debt  transaction  for which the  treasury  lock is  intended to
hedge.

     (4) The Operating Partnership's distributions paid and declared include the
Operating  Partnership's first quarterly distribution of $0.325 per Unit for the
period  January  26,  1994 to  March  31,  1994.  These  distributions  were the
equivalent of a $1.80 per Unit distribution for the year.

     (5)  Gables  considers  funds  from  operations  ("FFO")  to  be  a  useful
performance  measure of the  operating  performance  of an equity REIT  because,
together  with net  income  and  cash  flows,  FFO  provides  investors  with an
additional basis to evaluate the ability of a REIT to incur and service debt and
to fund  acquisitions  and other capital  expenditures.  Gables believes that in
order to facilitate a clear  understanding of its operating results,  FFO should
be  examined  in  conjunction  with net  income as  presented  in the  financial
statements and data included  elsewhere in this report.  Gables  computes FFO in
accordance with standards established by the National Association of Real Estate
Investment  Trusts  ("NAREIT").  FFO as defined by NAREIT  represents net income
(loss) determined in accordance with GAAP,  excluding gains or losses from sales
of assets or debt  restructuring,  plus certain  non-cash items,  primarily real
estate depreciation,  and after adjustments for unconsolidated  partnerships and
joint  ventures.  FFO  presented  herein is not  necessarily  comparable  to FFO
presented  by other  real  estate  companies  due to the fact  that not all real
estate companies use the same definition.  However, Gables' FFO is comparable to
the FFO of real estate companies that use the NAREIT definition.  FFO should not
be  considered  as an  alternative  to net  income as an  indicator  of  Gables'
operating  performance  or as an  alternative  to  cash  flows  as  measures  of
liquidity.  FFO does not measure  whether cash flow is sufficient to fund all of
Gables' cash needs including principal amortization,  capital expenditures,  and
distributions  to  shareholders  and  unitholders.  Additionally,  FFO  does not
represent  cash flows from  operating,  investing  or  financing  activities  as
defined by GAAP.  Reference is made to "Management's  Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
for a  discussion  of Gables'  cash needs and cash  flows.

     (6) Gross  operating  margin  represents (i) total  property  revenues less
property operating and maintenance expenses (exclusive of depreciation  expense)
as a percentage of (ii) total property revenues.

     (7)  Average  monthly  revenue per  apartment  home is equal to the average
monthly  rental  revenue  collected  during the  period,  divided by the average
monthly number of apartment homes occupied  during the period.

     (8) In an  UPREIT  structure,  the  value  attributed  to Units  issued  to
controlling,  continuing  investors is not reflected  because such accounting is
not allowed  under GAAP.  On a pro forma basis,  the real estate  assets  before
accumulated  depreciation  and total  assets as of  December  31,  1997 would be
$1,168,722 and $1,093,661,  respectively, if such value (exclusive of the effect
of depreciation) was reflected.

     (9)  Reflects  extraordinary  loss and real  estate  depreciation  for both
wholly-owned communities and joint ventures, as applicable.

<PAGE>
                                    Page-22



ITEM 7.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
               AND RESULTS OF OPERATIONS
               (Dollars in Thousands, Except Per Unit Amounts)

OVERVIEW
--------
The  Operating   Partnership  is  the  entity  through  which  the  Company,   a
self-administered  and  self-managed  real  estate  investment  trust (a "REIT")
focused  within the  multifamily  industry in the  Sunbelt  Region of the United
States,  conducts substantially all of its business and owns (either directly or
through  subsidiaries)  substantially  all  of  its  assets.  Gables'  operating
performance  relies  predominantly  on net  operating  income from its apartment
communities.  Gables' net operating  income is influenced by operating  expenses
and rental revenues, which are affected by the supply and demand dynamics within
Gables'   markets.   Gables'   performance  is  also  affected  by  the  general
availability  and cost of capital  and by its  ability to develop and to acquire
additional  apartment  communities with returns in excess of its blended cost of
equity and debt capital.

The  Company's  objective  is to increase  shareowner  value by being a dominant
owner and operator of Class A multifamily  communities in the Sunbelt Region. To
achieve its objective, Gables employs a number of strategies including operating
high quality,  well-located  assets in a diverse set of select  Sunbelt  markets
which have similar  demographic  characteristics  such as diverse economies with
projected  job growth.  Gables'  primary  target  customer is the more  affluent
renter-by-choice,  which  requires a focus on customer  service  through  highly
trained  associates  and the  maintenance  of Gables' assets to a high standard.
Gables intends to grow cash flow from operating  communities through innovative,
proactive  property  management  that  focuses  on  resident   satisfaction  and
retention, increases in rents and occupancy levels, and the control of operating
expenses through improved  economies of scale. Due to the cyclical nature of the
real estate markets,  Gables has adopted an investment  strategy based on strong
local presence and expertise  which will allow for growth in assets through both
acquisition and development as warranted by underlying market fundamentals,  and
that will  provide  for both  favorable  initial  returns and  long-term  growth
prospects.  Gables  believes the  successful  execution of these  operating  and
investment strategies will result in consistent high quality growth in operating
cash flow.

Gables  believes that it is well positioned to achieve its objective as a result
of its  long-established  presence as a fully integrated real estate management,
development,  construction  and  acquisition  company  in each of  Gables'  core
markets for the past fifteen years.  Gables believes that this long-term,  local
market  presence gives it a competitive  advantage with regard to its ability to
generate increased cash flow from property  operations during different economic
cycles and to new investment  opportunities that involve site selection,  market
information and requests for entitlements and zoning petitions. The core markets
are geographically  independent,  rely on diverse economic  foundations and have
experienced job growth  substantially  above national averages.  Gables recently
entered the Orlando  market which has the common growth  characteristics  of the
core markets.

Portfolio  wide  occupancy  levels have remained high and portfolio  wide rental
rates have continued to increase  during each of the last several years.  Gables
expects  portfolio wide rental  expenses to increase at a rate slightly ahead of
inflation,  but less than the  increase  in  property  revenues,  for the coming
twelve  months.  In certain  situations,  management's  evaluation of the growth
prospects for a specific asset may result in a  determination  to dispose of the
asset. In this event,  management would intend to sell the asset and utilize the
net  proceeds  from any such sale to invest in new assets  which are expected to
have  better  growth  prospects  or to  reduce  indebtedness.  Gables  maintains
staffing levels sufficient to meet the existing construction,  acquisition,  and
leasing activities.  If market conditions  warrant,  management would anticipate
adjusting   staffing  levels  to  mitigate  a  negative  impact  on  results  of
operations.

The following  discussion and analysis of the financial condition and results of
operations  should be read in  conjunction  with the  accompanying  consolidated
financial statements and the notes thereto.

This Report on Form 10-K contains 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.  Actual  results or  developments
could differ  materially  from those projected in such statements as a result of
the  risk  factors  set  forth  in  the  relevant  paragraphs  of  "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  and
elsewhere in this report.
<PAGE>
                                    Page-23

MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Thousands, Except Per Unit Amounts)
-----------------------------------------------

GABLES  REALTY  LIMITED  PARTNERSHIP  AND  INITIAL  PUBLIC  OFFERING  OF  GABLES
--------------------------------------------------------------------------------
RESIDENTIAL TRUST
-----------------
Gables Realty Limited  Partnership  (the  "Operating  Partnership"),  a Delaware
limited  partnership,  was formed in 1993 to conduct the  multifamily  apartment
community management,  development,  construction and acquisition operations for
Gables  Residential  Trust (the  "Company").  On January 26,  1994,  the Company
completed its initial public offering (the "IPO") and, in connection  therewith,
sold  9,430,000  Common  Shares at a price to the  public of $22.50  per  Common
Share.  The net proceeds from such sale totaled  approximately  $190 million,  a
portion  of which was used by the  Company to  acquire  an  economic  and voting
interest  in  the  Operating  Partnership,   which  was  formed  to  succeed  to
substantially   all  of  the  interests  of  its  privately  owned   predecessor
organization.  The Company,  a  self-administered  and self-managed  real estate
investment  trust  (a  "REIT"),  became  the  majority  owner  of the  Operating
Partnership upon the completion of the IPO. The term "Gables  Residential Group"
or "Group" as used herein refers to the privately owned predecessor organization
prior to the  completion of the Company's IPO and the  concurrent  completion of
the various transactions that occurred simultaneously  therewith (the "Formation
Transactions").  The term  "Operating  Partnership"  or  "Gables" as used herein
means Gables Realty Limited  Partnership and its  subsidiaries on a consolidated
basis or, where the context so requires, Gables Realty Limited Partnership only,
and, as the context may require, their predecessors.

SECONDARY OFFERINGS AND ISSUANCES OF OPERATING PARTNERSHIP UNITS
----------------------------------------------------------------

SECONDARY OFFERINGS
-------------------
Since the IPO, the Company has had the following Common Share offerings:

                                  Number of                   Net
Closing Date                    Shares Issued              Proceeds
------------                    -------------              --------

October 7, 1994                    444,500                 $ 9,876
                                 =========                 =======

October 31, 1995                 4,600,000                 $94,364
                                 =========                 =======

March 25, 1996                     879,068                 $20,630
September 17, 1996               1,725,000                  38,600
September 27, 1996               1,435,000                  34,254
                                 ---------                 -------
        1996 Totals              4,039,068                 $93,484
                                 =========                 =======

September 16, 1997                 737,040                 $18,698
December 1, 1997                 1,700,000                  43,819
                                 ---------                 -------
        1997 Totals              2,437,040                 $62,517
                                 =========                ========

The  net  proceeds  from  these  offerings  were  contributed  to the  Operating
Partnership  in  exchange  for  units of  limited  partnership  interest  in the
Operating  Partnership ("Units") and the Operating Partnership used the proceeds
(i) to reduce outstanding indebtedness under interim financing vehicles utilized
to fund Gables'  development  and  acquisition  activities  and (ii) for general
working capital purposes including funding of future development and acquisition
activities.

PREFERRED SHARE OFFERING
------------------------
On July 24,  1997,  the  Company  issued  4,600,000  shares  of  8.30%  Series A
Cumulative Redeemable Preferred Shares (liquidation preference $25.00 per share)
(the  "Series A  Preferred  Shares").  The net  proceeds  from this  offering of
approximately  $111.2 million were  contributed to the Operating  Partnership in
exchange for preferred Units (the "Series A Preferred Units") which, in general,
have, with respect to other Units,  rights and preferences that are analogous to
the rights and preferences  that the Series A Preferred Shares have with respect
to the Common  Shares.  The  Operating  Partnership  used the proceeds from this
offering to reduce outstanding indebtedness under the interim financing vehicles
discussed above.
<PAGE>
                                    Page-24

MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Thousands, Except Per Unit Amounts)
-----------------------------------------------

ADDITIONAL ISSUANCES OF OPERATING PARTNERSHIP UNITS
---------------------------------------------------
On December 5, 1995,  Gables acquired a parcel of land for the development of an
apartment community,  financed in part through the issuance of 111,074 Units. On
July 26, 1996, Gables acquired an apartment  community  comprising 500 apartment
homes,  financed in part  through the issuance of 243,787  Units.  On August 21,
1997,  Gables  acquired an apartment  community  comprising 82 apartment  homes,
financed in part  through the  issuance of 94,869  Units.  On October 17,  1997,
Gables acquired an apartment community comprising 295 apartment homes,  financed
in part through the issuance of 453,272 Units.

RESULTS OF OPERATIONS
---------------------
COMPARISON OF OPERATING  RESULTS OF GABLES FOR THE YEAR ENDED  DECEMBER 31, 1997
(THE "1997 PERIOD") TO THE YEAR ENDED DECEMBER 31, 1996 (THE "1996 PERIOD").

Gables' net income is generated  primarily  from the  operation of its apartment
communities.  For  purposes of  evaluating  comparative  operating  performance,
Gables  categorizes its operating  communities based on the period in which each
community reaches stabilized  occupancy.  A community is considered by Gables to
have achieved stabilized  occupancy on the earlier to occur of (i) attainment of
93% physical  occupancy or (ii) one year after completion of  construction.  The
operating  performance for all of Gables' apartment communities combined for the
years ended December 31, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
                                                                                         Years Ended December 31,

                                                                            ----------- ----------- ----------- --------------
                                                                                                        $             %
                                                                               1997        1996       Change       Change
                                                                            ----------- ----------- ----------- --------------
<S>                                                                         <C>           <C>        <C>          <C>

Rental and other revenue:
Same store communities (1)                                                     $73,973     $71,983      $1,990       2.8%
Communities  stabilized  during the 1997  Period,  but not during the 1996      20,848      19,220       1,628       8.5%
     Period (2)
Development and lease-up communities (3)                                        13,103       3,920       9,183     234.3%
Acquired communities (4)                                                        30,591      11,009      19,582     177.9%
Sold communities (5)                                                               178       3,339      -3,161     -94.7%
                                                                              --------     -------    --------    -------
Total property revenues                                                       $138,693    $109,471     $29,222      26.7%
                                                                              --------     -------    --------    -------


Property operating and maintenance expense (exclusive of depreciation and
amortization):
Same store communities (1)                                                     $26,434     $25,637       $797        3.1%
Communities stabilized during the 1997 Period, but not during the 1996           6,360       6,223        137        2.2%
   Period  (2)
Development and lease-up communities (3)                                         4,703       1,476      3,227      218.6%
Acquired communities (4)                                                         9,980       3,887      6,093      156.8%
Sold communities (5)                                                               115       1,470     -1,355      -92.2%
                                                                              --------     -------     ------     -------
Total specified expenses                                                       $47,592     $38,693     $8,899       23.0%
                                                                              --------     -------     ------     -------

Revenues in excess of specified expenses                                       $91,101     $70,778    $20,323       28.7%
                                                                              ========     =======    =======     =======

Revenues in excess of specified expenses as a percentage of total                65.7%       64.7%        ---        1.0%
property revenues                                                             ========     =======    =======     =======
<FN>


(1)  Communities which were owned and fully stabilized  throughout both the 1997
     Period and 1996 Period.

(2)  Communities  which were  completed and fully  stabilized  during all of the
     1997 Period,  but were not completed and fully stabilized during all of the
     1996 Period.

(3)  Communities  in  the  development/lease-up   phase  which  were  not  fully
     stabilized during all or any of the 1997 Period.

(4)  Communities which were acquired subsequent to January 1, 1996.

(5)  Communities which were sold subsequent to January 1, 1996.

</FN>
</TABLE>
<PAGE>
                                    Page-25

MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Thousands, Except Per Unit Amounts)
-----------------------------------------------

Total property revenues increased  $29,222,  or 26.7%, from $109,471 to $138,693
due primarily to increases in the number of apartment  homes  resulting from the
development and acquisition of additional communities and to increases in rental
rates on communities stabilized throughout both periods ("same store"). Below is
additional  information  regarding the increases in total property  revenues for
three of the five community categories presented in the preceding table:
<TABLE>

Same store communities:
<CAPTION>
                                                                     Percent
                                                       Increase      Increase
                                                      (Decrease)    (Decrease)                    Increase
                          Number of                    in Total      in Total     Occupancy      (Decrease)
              Number of   Apartment      Percent       Property      Property     During the         in
  Market      Properties    Homes       of Total       Revenues      Revenues     1997 Period     Occupancy
  ------      ----------    -----       --------       --------      --------     -----------     ---------
<S>           <C>         <C>            <C>          <C>            <C>           <C>             <C>

Houston         10        3,512           37%          $1,125           4.3%           94.3%         -0.8%
Atlanta         11        3,159           33%             597           2.4%           94.7%          0.1%
Dallas           4        1,089           12%             245           2.8%           94.0%          0.0%
Nashville        3          912           10%              -7          -0.1%           95.9%          0.0%
Memphis          1          464            5%              44           1.4%           94.5%          0.0%
Austin           1          276            3%             -14          -0.6%           92.3%          0.7%
                --        -----          ---           ------           ---            ----           ---
                30        9,412          100%          $1,990           2.8%           94.5%         -0.2%
                ==        =====          ===           ======           ===            ====           ===

</TABLE>

Communities stabilized during the 1997 Period but not during the 1996 Period:

                                                        Increase
                                                       (Decrease)
                             Number of                  in Total    Occupancy
               Number of     Apartment     Percent      Property    During the
Market        Properties       Homes       of Total     Revenues   1997 Period
------        ----------       -----       --------     --------   -----------

Atlanta            2            695         32%           $-45          95.0%
San Antonio        2            544         25%            497          92.9%
Austin             1            256         12%            327          95.6%
Nashville          1            254         12%            338          96.1%
Houston            1            246         11%            205          95.0%
Dallas             1            188          8%            306          93.4%
                   -          -----        ---          ------          ----
                   8          2,183        100%         $1,628          94.6%
                   =          =====        ===          ======          ====


Development and lease-up communities:

                                                     Increase
                         Number of                   in Total      Occupancy
             Number of   Apartment     Percent       Property      During the
 Market     Properties     Homes       of Total      Revenues     1997 Period
 ------     ----------     -----       --------      --------     -----------

Atlanta          3         862            40%         $2,985         55.5%
Austin           2         529            24%          1,586         42.0%
Memphis          2         490            22%          3,185         84.6%
Dallas           1         300            14%          1,427         87.4%
                 -       -----           ---          ------         ----
                 8       2,181           100%         $9,183         64.3%
                 =       =====           ===          ======         ====


<PAGE>
                                    Page-26

MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Thousands, Except Per Unit Amounts)
-----------------------------------------------

Other revenues decreased $1,965, or 29.3%, from $6,710 to $4,745 due to (i) $900
of non-recurring net revenues  generated from certain  corporate  apartment home
leases  entered into in connection  with the 1996 Olympic games held in Atlanta,
(ii)  $557 of  interest  earned on an  investment  Gables  made in an  apartment
community on October 1, 1996 via a mortgage note  receivable (in January,  1997,
Gables acquired the apartment  community from the borrower and the mortgage note
receivable  was repaid in full),  and (iii) a decrease  in  property  management
revenues of $839, or 21.7%,  from $3,871 to $3,032 resulting from a net decrease
of  properties  managed  by Gables  for  third  parties  primarily  due to these
properties  being sold by the owners.  Such  decreases were offset in part by an
increase  in revenues in the 1997  Period  related to the  provision  of certain
ancillary services.

Property  operating  and  maintenance  expense  (exclusive of  depreciation  and
amortization)  increased  $8,899,  or 23.0%,  from  $38,693 to $47,592 due to an
increase in apartment  homes  resulting from the  development and acquisition of
additional  communities  and an increase in property  operating and  maintenance
expense for same store communities of 3.1%. The same store increase in operating
expenses represents  inflationary  increases in expenses and increased marketing
and  redecorating  expenses  in  certain  of  Gables'  markets.  Such same store
increases  have been  offset  in part by  certain  decreases  in  landscape  and
utilities  costs.  Gables  anticipates  that property  operating and maintenance
expense for same store  communities  will generally  increase at a rate slightly
ahead of inflation for the coming twelve months.

Depreciation and amortization  expense  increased $6,302, or 33.4%, from $18,892
to $25,194 due primarily to the completion of newly  developed  communities  and
acquisition of other communities.

Property  management  expense  for owned  communities  and  third/related  party
properties on a combined basis increased $79, or 1.4%, from $5,617 to $5,696 due
primarily  to  inflationary  increases  in  expenses,  offset in part by certain
non-recurring  expense  savings in the 1997 Period.  Gables  allocates  property
management expenses to both owned communities and third/related party properties
based on the proportionate share of total apartment homes and units managed.

General and  administrative  expense  increased  $203,  or 6.7%,  from $3,045 to
$3,248 due primarily to increases in certain costs  associated with increases in
Gables' size and inflationary increases in expenses.

Interest expense  increased  $3,692, or 17.5%, from $21,112 to $24,804 due to an
increase  in  operating  debt   associated  with  newly  developed  or  acquired
communities in addition to communities  currently in the lease-up  phase.  These
increases  in  interest  expense  have  been  offset  in part as a result of the
offerings the Company has  consummated  between  periods,  the proceeds of which
have been contributed to the Operating  Partnership and used primarily to reduce
indebtedness.

Loss on treasury  lock  extension  of $1,178 in the 1997 Period  represents  the
amount  Gables  would  have paid in  December,  1997 to settle  its $75  million
forward seven-year  treasury lock agreement had it not been extended.  Generally
accepted accounting principles ("GAAP") requires that such amount be recorded as
an expense  upon  extension  and that the  market  rate in effect on the date of
extension be used as the  "locked-in  rate" for  purposes of recording  interest
expense over the life of the debt  instrument  the treasury lock was  originally
intended to hedge.

Gain on sale of real estate assets of $5,349 in the 1997 Period  represents  the
gain generated in connection with (i) the January, 1997 sale of Club Candlewood,
a community  comprised of 486 apartment  homes and (ii) the July, 1997 sale of 2
acres of Gables' 12-acre Gables Colonnade Phase II land parcel.

Extraordinary  loss of $712 in the 1997 Period  represents  (i) the write-off of
unamortized  deferred  financing  costs  and  prepaid  credit  enhancement  fees
associated with the defeasance of the tax-exempt bond financing  encumbering the
Club Candlewood  property that was sold in January,  1997 and (ii) the write-off
of unamortized  deferred  financing costs  associated with the February 28, 1997
retirement of a conventional  mortgage note payable that was scheduled to mature
on September 1, 1997.

Net income available to common  unitholders  increased  $8,480,  or 31.5%,  from
$26,910 to $35,390 primarily due to the reasons discussed above.

<PAGE>
                                    Page-27

MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Thousands, Except Per Unit Amounts)
-----------------------------------------------

RESULTS OF OPERATIONS
---------------------
COMPARISON OF OPERATING  RESULTS OF GABLES FOR THE YEAR ENDED  DECEMBER 31, 1996
(THE "1996 PERIOD") TO THE YEAR ENDED DECEMBER 31, 1995 (THE "1995 PERIOD").

Gables' net income is generated  primarily  from the  operation of its apartment
communities.  For  purposes of  evaluating  comparative  operating  performance,
Gables  categorizes its operating  communities based on the period in which each
community reaches stabilized  occupancy.  A community is considered by Gables to
have achieved stabilized  occupancy on the earlier to occur of (i) attainment of
93% physical  occupancy or (ii) one year after completion of  construction.  The
operating  performance for all of Gables' apartment communities combined for the
years ended December 31, 1996 and 1995 is summarized as follows:
<TABLE>
<CAPTION>
                                                                                        Years Ended December 31,

                                                                               ---------- --------- ----------- ----------
                                                                                                         $          %
                                                                                   1996      1995     Change     Change
                                                                               ---------- --------- ----------- ----------
<S>                                                                              <C>       <C>        <C>        <C>
Rental and other revenue:
Fully stabilized communities (1)                                                 $68,610   $66,755      $1,855       2.8%
Communities stabilized during the 1996 Period, but not during the 1995             6,495     2,626       3,869     147.3%
   Period (2)
Development and lease-up communities (3)                                          23,141     5,699      17,442     306.1%
Acquired communities (4)                                                          11,007         0      11,007         --
Sold community (5)                                                                   218       891        -673     -75.5%
                                                                               --------- ---------     -------    -------
Total property revenues                                                         $109,471   $75,971     $33,500      44.1%
                                                                               --------- ---------     --------   -------

Property operating and maintenance expense (exclusive of depreciation and
amortization):
Fully stabilized communities (1)                                                 $25,088   $25,108        $-20     - 0.1%
Communities stabilized during the 1996 Period, but not during the 1995             1,966       869       1,097     126.2%
   Period  (2)
Development and lease-up communities (3)                                           7,624     1,815       5,809     320.1%
Acquired communities (4)                                                           3,887         0       3,887         --
Sold community (5)                                                                   128       436        -308     -70.6%
                                                                               --------- ---------   ---------    -------
Total specified expenses                                                         $38,693   $28,228     $10,465      37.1%
                                                                               --------- ---------   ---------    -------

Revenues in excess of specified expenses                                         $70,778   $47,743     $23,035      48.2%
                                                                               ========= =========   =========    =======
Revenues in excess of specified expenses as a percentage of total  property
revenues                                                                           64.7%     62.8%          --       1.9%
                                                                               ========= =========   =========    =======
<FN>

(1)  Communities which were owned and fully stabilized  throughout both the 1996
     Period and 1995 Period.

(2)  Communities  which were  completed and fully  stabilized  during all of the
     1996 Period,  but were not completed and fully stabilized during all of the
     1995 Period.

(3)  Communities in the  development  and/or lease-up phase which were not fully
     stabilized during all or any of the 1996 Period.

(4)  Communities which were acquired subsequent to January 1, 1995.

(5)  Community which was sold subsequent to January 1, 1995.


</FN>
</TABLE>
<PAGE>
                                    Page-28

MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Thousands, Except Per Unit Amounts)
-----------------------------------------------

Total property revenues  increased  $33,500,  or 44.1%, from $75,971 to $109,471
due primarily to increases in the number of apartment  homes  resulting from the
development and acquisition of additional communities and to increases in rental
rates on communities stabilized throughout both periods ("same store"). Below is
additional  information  regarding the increases in total property  revenues for
three of the five community categories presented in the preceding table:

  Fully stabilized communities ("same store"):

                                              Percent
                                 Increase     Increase
            Number               (Decrease)  (Decrease)  Occupancy
             of                  in Total     in Total   During the   Increase
          Apartment   Percent    Property     Property     1996     (Decrease)in
Market      Homes     of Total   Revenues     Revenues    Period      Occupancy
------      -----     --------   --------     --------    ------      ---------


Houston       3,512        38%        $444          1.7%     95.2%         0.6%
Atlanta       3,289        35%       1,040          4.4%     94.3%        -0.3%
Nashville       912        10%         198          3.1%     95.9%         0.1%
Dallas          855         9%         107          1.9%     92.9%        -1.3%
Memphis         464         5%         106          3.4%     94.6%         0.6%
Austin          276         3%         -40         -1.7%     91.6%        -1.2%
             ------     ------       -----        ------     -----        -----
              9,308       100%      $1,855          2.8%     94.6%         0.0%
             ======     ======       =====        ======     =====        =====


  Communities stabilized during the 1996 Period but not during the 1995 Period:

                                        Increase
            Number of                   in Total      Occupancy
            Apartment      Percent      Property     During the
Market        Homes       of Total      Revenues     1996 Period
------        -----       --------      --------     -----------

Atlanta        356            60%        $2,218         96.0%
Dallas         234            40%         1,651         94.9%
               ---           ----         -----         -----
               590           100%        $3,869         95.5%
               ===           ====         =====         =====


  Development and lease-up communities:

                                        Increase
              Number of                 In Total      Occupancy
              Apartment     Percent     Property     During the
Market          Homes       of Total    Revenues     1996 Period
------          -----       --------    --------     -----------

Atlanta            958          30%      $5,364          82.8%
San Antonio        544          17%       2,904          84.7%
Memphis            490          15%         759          22.6%
Dallas             488          15%       2,405          54.1%
Austin             256           8%       2,615          89.5%
Nashville          254           8%       2,092          83.0%
Houston            246           7%       1,303          89.9%
                 -----        -----     -------         -----
                 3,236         100%     $17,442          79.4%
                 =====        =====     =======         =====


Other revenues  increased $921, or 15.9%,  from $5,789 to $6,710 due to (i) $900
of non-recurring net revenues  generated from certain  corporate  apartment home
leases  entered into in  connection  with the 1996 Olympic games held in Atlanta
and (ii) $557 of interest  earned on an  investment  Gables made in an apartment
community on October 1, 1996 via a mortgage note receivable.  In January,  1997,
Gables acquired the apartment community from the borrower, and the mortgage note
receivable  was repaid in full.  Such increases in other revenues were offset in
part by a decrease in property management revenues of $418, or 9.8%, from $4,289
to $3,871 due  primarily to a net decrease of  properties  managed by Gables for
third  parties  primarily  as a result  of these  properties  being  sold by the
owners.
<PAGE>
                                    Page-29

MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Thousands, Except Per Unit Amounts)
-----------------------------------------------

Property  operating  and  maintenance  expense  (exclusive of  depreciation  and
amortization)  increased  $10,465,  or 37.1%,  from $28,228 to $38,693 due to an
increase in apartment  homes  resulting from the  development and acquisition of
additional  communities partially offset by a decrease in property operating and
maintenance  expense for same store communities of 0.1%. The same store decrease
in  operating  expenses  represents  reduced  health  and  workers  compensation
expenses,  offset by inflationary increases in expenses. Gables anticipates that
property  operating  and  maintenance  expense for same store  communities  will
generally increase at a rate slightly ahead of inflation.

Depreciation and amortization  expense  increased $6,223, or 49.1%, from $12,669
to $18,892 due primarily to the completion of newly  developed  communities  and
acquisition of other communities.

Property  management  expense  for owned  communities  and  third/related  party
properties on a combined basis  increased  $269, or 5.0%,  from $5,348 to $5,617
due primarily to increased data  processing  costs.  Gables  allocates  property
management expenses to both owned communities and third/related party properties
based on the proportionate share of total apartment homes and units managed.

General and  administrative  expense  increased  $176,  or 6.1%,  from $2,869 to
$3,045 due to increased personnel and administrative  costs associated primarily
with the  appointment of the new Chief  Operating  Officer and Vice President of
Portfolio  Management  positions  effective  January 1, 1996,  offset in part by
certain  non-recurring  costs  incurred  during  the 1995  Period  that were not
incurred during the 1996 Period.

Interest expense  increased  $8,024, or 61.3%, from $13,088 to $21,112 due to an
increase  in  operating  debt   associated  with  newly  developed  or  acquired
communities  in  addition  to  communities  currently  in  the  lease-up  phase.
Additionally,  interest  costs  increased  due to  the  refinancing  of  certain
variable  rate debt to a higher fixed rate cost  structure.  These  increases in
interest  expense  have been  offset in part as a result  of the  offerings  the
Company  has  consummated  between  periods,  the  proceeds  of which  have been
contributed  to  the  Operating   Partnership   and  used  primarily  to  reduce
indebtedness.

Extraordinary  loss of $631 for the year ended December 31, 1996  represents the
write-off of unamortized  deferred  financing  costs  associated  with the early
retirement of Gables'  Original  Credit  Facility.  The Original Credit Facility
that was scheduled to mature in January,  1997,  was  refinanced in March,  1996
with a new $175 million  unsecured  revolving  credit  facility (the "New Credit
Facility").

Net income increased  $9,496, or 54.5%, from $17,414 to $26,910 primarily due to
the reasons discussed above.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Gables' net cash provided by operating activities increased from $51,629 for the
year ended  December  31, 1996 to $69,519 for the year ended  December 31, 1997,
due to (i) an  increase  of  $14,625 in income  before  certain  non-cash  items
including depreciation,  amortization,  equity in income of joint ventures, gain
on sale of real estate assets,  long-term compensation expense, loss on treasury
lock extension and  extraordinary  losses and (ii) the change in restricted cash
between periods of $6,982.  Such increases were offset in part by (i) the change
in other assets between periods of $773 and (ii) the change in other liabilities
between periods of $2,944.

Gables' net cash used in investing  activities  increased  from $213,596 for the
year ended  December 31, 1996 to $228,969 for the year ended  December 31, 1997,
due primarily to increased  development and acquisition  activities in 1997 when
compared to 1996, offset in part by increased net proceeds from the sale of real
estate assets in 1997 when compared to 1996.  During the year ended December 31,
1997,  Gables  expended  approximately  $93.6  million  related  to  development
expenditures, including related land acquisitions;  approximately $137.9 million
for the  acquisition  of  existing  apartment  communities;  approximately  $4.9
million related to capital expenditures for operating apartment communities; and
approximately $5.2 million related to renovation expenditures.

Gables' net cash provided by financing  activities  increased  from $157,823 for
the year ended  December  31, 1996 to $158,244  for the year ended  December 31,
1997.  During the year ended  December 31, 1997,  Gables had net  borrowings  of
$45.0 million  which were used in  conjunction  with $173.5  million of proceeds
from  the  common  and  preferred  share  offerings  primarily  to fund  Gables'
development and acquisition activities discussed previously. These proceeds from
financing  activities  were  offset  in part  by the  payment  of  distributions
totaling approximately $62.4 million.

<PAGE>
                                    Page-30

MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Thousands, Except Per Unit Amounts)
-----------------------------------------------

As of December 31, 1997,  Gables had total  indebtedness  of $435,362,  cash and
cash equivalents of $3,179 and principal escrow deposits reflected in restricted
cash of $1,902. Gables' indebtedness includes $96,135 in conventional fixed-rate
mortgage   notes  payable   secured  by  individual   properties,   $118,526  in
conventional  fixed-rate unsecured notes payable, a $40,000 unsecured term loan,
$105,080 in tax-exempt bond  indebtedness and $75,621 in borrowings  outstanding
under its Credit Facilities. Gables' indebtedness has an average of 6.6 years to
maturity  at  December  31,  1997.  Excluding  monthly  principal   amortization
payments,  over the next five years  Gables  has the  following  scheduled  debt
maturities for indebtedness outstanding at December 31, 1997:

                        1998    $15,621
                        1999          0
                        2000     60,000
                        2001     40,000
                        2002    127,322

The debt maturities in 1998 of $15,621 relate to outstanding  indebtedness under
the $20 Million Credit Facility which has unlimited  one-year extension options.
The debt maturities in 2000 of $60,000 relate to outstanding  indebtedness under
the $175 Million  Credit  Facility  which has two remaining  one-year  extension
options.  The  debt  maturities  in 2002  include  $44,930  of  tax-exempt  bond
indebtedness  credit-enhanced  through  a letter of  credit  facility  which has
unlimited one-year extension options.

Gables'  distributions  through  the fourth  quarter of 1997 have been paid from
cash provided by operating  activities.  Gables  anticipates that  distributions
will  continue to be paid on a quarterly  basis from cash  provided by operating
activities.

In March,  1998, Gables closed a $100.0 million offering of its senior unsecured
notes  and used the net  proceeds  of  approximately  $98.8  million  to  reduce
borrowings  under its Credit  Facilities.  The notes will bear interest at 6.80%
and will mature in March, 2005.

Gables  has  met and  expects  to  continue  to meet  its  short-term  liquidity
requirements generally through net cash provided by operations. Gables' net cash
provided  by  operations  has been  adequate  and Gables  believes  that it will
continue  to be  adequate  to meet both  operating  requirements  and payment of
dividends in accordance with REIT  requirements.  The budgeted  expenditures for
improvements  and  renovations  to  the  communities,  in  addition  to  monthly
principal  amortization  payments,  are also expected to be funded from net cash
provided  by  operations.   Gables  anticipates   construction  and  development
activities  and  land  purchases  will be  initially  funded  primarily  through
borrowings under its Credit Facilities described below.

Gables expects to meet certain of its long-term liquidity requirements,  such as
scheduled debt maturities, repayment of short-term financing of construction and
development  activities and possible  property  acquisitions,  through long-term
secured  and  unsecured  borrowings  and  the  issuance  of debt  securities  or
additional  equity  securities or through the  disposition  of assets which,  in
management's evaluation, may no longer meet Gables' investment requirements.

$175 MILLION CREDIT FACILITY
----------------------------
In conjunction with the IPO, Gables closed a $175 million  three-year  revolving
credit facility (the "Original  Credit  Facility") which had an initial maturity
of January,  1997. In March,  1996,  Gables closed a new $175 million  unsecured
revolving  credit  facility (the "New Credit  Facility" or "$175 Million  Credit
Facility") that replaced the Original Credit  Facility.  Although the New Credit
Facility is unsecured, there were certain designated real estate assets that had
escrowed  mortgages that were released  promptly after the attainment of implied
senior  unsecured  debt  ratings of BBB from  Standard  and Poor's and Baa2 from
Moody's Investors Service (the "Credit Ratings"). The New Credit Facility has an
initial term of three years and three  one-year  extension  options.  Gables has
exercised the first of its one-year  extension  options  resulting in a maturity
date for the facility of March, 2000.

Borrowings  bore  interest at LIBOR plus 1.50%  (reduced from 1.65% in November,
1996) through April,  1997. In April,  1997,  Gables'  borrowing costs under the
facility were reduced to LIBOR plus 1.10% in connection  with the  attainment of
the Credit Ratings.  In August,  1997, Gables' borrowing costs were renegotiated
and were reduced to LIBOR plus 0.80%. Additionally, a competitive bid option was
added for up to 50% of the $175 million commitment.
<PAGE>
                                    Page-31

MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Thousands, Except Per Unit Amounts)
-----------------------------------------------

Gables'  availability  under the  facility is limited to the lesser of the total
$175 million  commitment or the borrowing  base.  The borrowing  base  available
under the facility is currently based on the value of Gables'  unencumbered real
estate assets as compared to the amount of Gables' unsecured indebtedness. As of
December 31, 1997,  Gables had $60 million in borrowings  outstanding  under the
facility  and,  therefore,  had $115 million of  remaining  capacity on the $175
million available commitment.

$20 MILLION CREDIT FACILITY
---------------------------
In November,  1996,  Gables closed an unsecured  revolving  credit facility that
currently  provides for up to $20 million in  borrowings.  This  facility has an
initial term of one year and has unlimited one-year  extension  options.  Gables
has  exercised  the  first of its  one-year  extension  options  resulting  in a
maturity date for the facility of October,  1998. Borrowings bore interest under
this facility at LIBOR plus 1.50% through April,  1997. In April,  1997, Gables'
borrowing  costs  were  reduced  to  LIBOR  plus  1.10% in  connection  with the
attainment of the Credit Ratings. In August,  1997, Gables' borrowing costs were
renegotiated  and were  reduced to LIBOR plus 0.80%.  As of December  31,  1997,
Gables had  approximately  $15.6  million in borrowings  outstanding  under this
facility.

RESTRICTIVE COVENANTS
---------------------
Certain of Gables' debt agreements contain customary representations,  covenants
and events of default,  including  covenants  which  restrict the ability of the
Operating  Partnership to make distributions in excess of stated amounts,  which
in turn restricts the discretion of the Company to declare and pay dividends. In
general, during any fiscal year the Operating Partnership may only distribute up
to  95%  of  the  Operating  Partnership's  consolidated  income  available  for
distribution (as defined in the related agreement) exclusive of distributions of
capital gains for such year. The applicable debt agreements  contain  exceptions
to  these   limitations   to  allow  the  Operating   Partnership  to  make  any
distributions  necessary  to allow the Company to maintain its status as a REIT.
Gables does not anticipate that this provision will adversely effect the ability
of the Operating  Partnership  to make  distributions  or the Company to declare
dividends, as currently anticipated.
<PAGE>
                                    Page-32

MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Thousands, Except Per Unit Amounts)
-----------------------------------------------

PORTFOLIO INDEBTEDNESS SUMMARY AND INTEREST RATE PROTECTION AGREEMENT SUMMARY

A summary  of  Gables'  portfolio  indebtedness  and  interest  rate  protection
agreements as of December 31, 1997 follows:

PORTFOLIO INDEBTEDNESS SUMMARY

<TABLE>
<CAPTION>
                                                      Percentage    Interest          Total        Years to
Type of Indebtedness                    Balance         of Total    Rate (1)         Rate (2)      Maturity
--------------------                    -------         --------    --------         --------      --------

<S>                                    <C>            <C>           <C>              <C>            <C>

Secured conventional fixed-rate        $96,135         22.1%           8.14%           8.14%           9.84
Unsecured conventional fixed-rate (3)  158,526         36.4%           7.78%           7.78%           5.94
Tax-exempt fixed-rate                   60,150         13.8%           6.50%           6.62%          10.67
                                      --------       -------          ------         -------         ------
     Total fixed-rate                 $314,811         72.3%           7.65%           7.67%           8.03
                                      --------       -------          ------         -------         ------

Tax-exempt variable-rate               $44,930         10.3%           4.20%           5.15%           4.67
                                      --------       -------          ------         -------         ------

Unsecured credit facilities            $75,621         17.4%           6.62%           6.62%           1.94
                                      --------       -------          ------         -------         ------

Total portfolio debt (4), (5)         $435,362        100.0%           7.11%           7.23%           6.63
                                      ========       =======          ======         =======         ======
<FN>

(1)  Interest Rate represents the weighted average interest rate incurred on the
     indebtedness,  exclusive of deferred financing cost amortization and credit
     enhancement fees, as applicable.

(2)  Total Rate represents the Interest Rate (1) plus credit  enhancement  fees,
     as applicable.

(3)  Unsecured conventional  fixed-rate debt includes $40,000 of financing which
     bears  interest  at  LIBOR  plus a  spread  of  0.80%.  Such  financing  is
     effectively  fixed at an  all-in  rate of 6.15%  after the  application  of
     $40,000 of the  $44,530  interest  rate cap and swap  agreements  described
     below.

(4)  Interest  associated with construction  activities is capitalized as a cost
     of  development  and does  not  impact  current  earnings.  The  qualifying
     construction  expenditures  at December  31, 1997 for  purposes of interest
     capitalization were $74,225.

(5)  Excludes $16.4 million of tax-exempt bonds and $17.9 million of outstanding
     conventional  indebtedness related to joint ventures in which Gables owns a
     25% interest.
</FN>
</TABLE>

INTEREST RATE PROTECTION AGREEMENT SUMMARY
<TABLE>
<CAPTION>

                                       Notional         Strike/Swap/       Effective      Termination
Description of Agreement                Amount          Lock Price           Date             Date
------------------------                ------          ----------           ----             ----
<S>                                      <C>             <C>               <C>              <C>

LIBOR, 30-day    - "Rate Cap"           $44,530         6.25%   (6)        01/27/94          01/30/99

LIBOR, 30-day    - "Rate Swap"          $44,530         5.35%   (6)        08/30/96          08/30/99  (7)

LIBOR, 30-day    - "Rate Swap"          $25,000         5.76%   (6)        02/27/98          02/27/00  (8)

Treasury, 7-year - "Treasury Lock"      $75,000         6.18%              09/22/97          05/28/98

Treasury, 7-year - "Treasury Lock"      $25,000         5.88%              12/17/97          05/28/98
<FN>

(6)  The 30-day LIBOR rate in effect at December 31, 1997 was 6.0%.

(7)  This is a knock-out swap agreement  which fixes Gables'  underlying  30-day
     LIBOR rate at 5.35%.  The swap  terminates upon the earlier to occur of (i)
     the  termination  date or (ii) a rate reset date on which the 30-day  LIBOR
     rate is 6.26% or higher.

(8)  This is a knock-out swap agreement  which fixes Gables'  underlying  30-day
     LIBOR rate at 5.76%.  The swap  terminates upon the earlier to occur of (i)
     the  termination  date or (ii) a rate reset date on which the 30-day  LIBOR
     rate is 6.70% or higher.
</FN>
</TABLE>
<PAGE>
                                    Page-33

MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Thousands, Except Per Unit Amounts)
-----------------------------------------------

BOOK VALUE OF ASSETS AND PARTNERS' CAPITAL
------------------------------------------

The  application  of historical  cost  accounting  in  accordance  with GAAP for
Gables'  UPREIT  structure  results  in an  understatement  of total  assets and
partners'  capital  compared  to the  amounts  that  would be  recorded  via the
application of purchase  accounting in accordance  with GAAP had Gables not been
organized as an UPREIT.  Management believes it is imperative to understand this
difference when evaluating the book value of assets and partners'  capital.  The
understatement of basis related to this difference in  organizational  structure
at  December  31, 1997 is  $112,494,  exclusive  of the effect of  depreciation.
Accordingly,  on a pro forma basis,  the real estate assets  before  accumulated
depreciation,  total assets and partners' capital  (including  limited partners'
capital  interest  at  redemption  value)  as of  December  31,  1997  would  be
$1,168,722,  $1,093,661 and $625,991,  respectively,  if such $112,494 value was
reflected.

INFLATION
---------
Substantially  all of Gables'  leases at the  communities  are for a term of one
year or less,  which may enable Gables to seek  increased  rents upon renewal of
existing  leases or  commencement  of new leases in times of rising prices.  The
short-term  nature of these leases generally serves to lessen the impact of cost
increases arising from inflation.

CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
--------------------------------------------------
This Report on Form 10-K contains 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.  The words  "believe,"  "expect,"
"anticipate," "intend," "estimate," "assume" and other similar expressions which
are  predictions of or indicate future events and trends and which do not relate
solely to  historical  matters  identify  forward-looking  statements.  Reliance
should not be placed on  forward-looking  statements  because they involve known
and unknown  risks,  uncertainties  and other  factors,  which are in some cases
beyond the control of Gables and may cause the actual  results,  performance  or
achievements  of Gables to differ  materially from  anticipated  future results,
performance  or  achievements  expressed  or  implied  by  such  forward-looking
statements.

Factors that might cause such a difference include,  but are not limited to, the
following:  Gables  may fail to secure  or  abandon  development  opportunities;
construction  costs of a community may exceed original  estimates;  construction
and  lease-up may not be  completed  on  schedule,  resulting in increased  debt
service expense and construction  costs and reduced rental  revenues;  occupancy
rates and market  rents may be adversely  affected by local  economic and market
conditions  which  are  beyond  management's  control;   financing  may  not  be
available,  or may not be available on favorable terms; Gables' cash flow may be
insufficient to meet required  payments of principal and interest;  and existing
indebtedness may mature in an unfavorable  credit  environment,  preventing such
indebtedness from being refinanced, or, if financed, causing such refinancing to
occur on terms that are not as favorable as the terms of existing indebtedness.

OTHER MATTERS
-------------
Gables has assessed  the impact of the year 2000 issue on its  computer  systems
and is in the process of  remediating  the affected  hardware and software.  The
year 2000  issue is the  result of many  computer  programs  recognizing  a date
ending with "00" as the year 1900 rather than the year 2000,  causing  potential
system failures or  miscalculations  which could result in disruptions of normal
business  operations.  Gables'  primary  financial  and  operating  systems  are
supplied by third party  suppliers  and its hardware  and  software  systems are
either  currently  year 2000  compliant or will be compliant  well in advance of
January  1,  2000.  Gables'  costs of  addressing  the year  2000  issue are not
expected  to be  material  and  will  relate  primarily  to  costs  of  existing
information system personnel.

<PAGE>
                                    Page-34

MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Thousands, Except Per Unit Amounts)
-----------------------------------------------

SUPPLEMENTAL  DISCUSSION  -  Funds  From  Operations  and  Adjusted  Funds  From
Operations

Gables  considers  funds  from  operations  ("FFO")  to be a useful  performance
measure of the operating  performance  of an equity REIT because,  together with
net income and cash flows,  FFO provides  investors with an additional  basis to
evaluate  the  ability  of a  REIT  to  incur  and  service  debt  and  to  fund
acquisitions  and other capital  expenditures.  Gables believes that in order to
facilitate  a clear  understanding  of its  operating  results,  FFO  should  be
examined in conjunction with net income as presented in the financial statements
and data included  elsewhere in this report.  Gables  computes FFO in accordance
with standards established by the National Association of Real Estate Investment
Trusts  ("NAREIT").  FFO as  defined  by NAREIT  represents  net  income  (loss)
determined  in  accordance  with GAAP,  excluding  gains or losses from sales of
assets or debt restructuring, plus certain non-cash items, primarily real estate
depreciation,  and after adjustments for  unconsolidated  partnerships and joint
ventures. FFO presented herein is not necessarily comparable to FFO presented by
other real estate  companies due to the fact that not all real estate  companies
use the same definition.  However,  Gables' FFO is comparable to the FFO of real
estate companies that use the NAREIT definition.  Adjusted funds from operations
("AFFO") is defined as FFO less capital  expenditures funded by operations.  FFO
and AFFO should not be considered as alternatives to net income as indicators of
Gables'  operating  performance or as  alternatives to cash flows as measures of
liquidity.  FFO does not measure  whether cash flow is sufficient to fund all of
Gables' cash needs including principal amortization,  capital expenditures,  and
distributions  to  shareholders  and  unitholders.  Additionally,  FFO  does not
represent  cash flows from  operating,  investing  or  financing  activities  as
defined by GAAP.  Reference is made to "Management's  Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
for a discussion of Gables' cash needs and cash flows.

A  reconciliation  of funds from  operations and adjusted funds from  operations
follows:

                                                      Years ended December 31,
                                                        1997             1996
                                                        ----             ----


Net income available to common unitholders           $35,390            $26,910
Extraordinary loss                                       712                631
Loss on treasury lock extension (1)                    1,178                  0
Gain on sale of real estate assets                    (5,349)                 0
Real estate asset depreciation:
     Wholly-owned real estate assets                  24,712             18,477
     Joint venture real estate assets                    223                220
                                                      ------            -------
            Total                                     24,935             18,697
                                                      ------            -------
FUNDS FROM OPERATIONS                                $56,866            $46,238
                                                      ======             ======

Capital expenditures for operating apartment communities:
      Carpet                                           1,860              1,245
      Roofing                                            139                297
      Exterior painting                                  283                145
      Appliances                                         204                179
      Other additions and improvements                 2,392              1,988
                                                     -------            -------
           Total                                       4,878              3,854
                                                     -------            -------
ADJUSTED FUNDS FROM OPERATIONS                       $51,988            $42,384
                                                     =======            =======

(1)  Gables extended its $75 million forward seven-year  treasury lock agreement
     in December, 1997. The loss recognized for GAAP purposes in connection with
     such  extension is added back for FFO purposes as Gables intends to account
     for such amount for FFO  purposes as a finance cost which will be amortized
     over  the life of the debt  transaction  for  which  the  treasury  lock is
     intended to hedge.
<PAGE>
                                    Page-35

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial  statements and supplementary data are listed under Item 14(a) and
filed as part of this report on the pages indicated.

ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS  ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

                                    PART III

GGPI, the sole general partner of the Registrant,  is a wholly-owned  subsidiary
of Gables  Residential  Trust. The members of the Board of Directors of GGPI are
the same as the members of the Board of Trustees  of Gables  Residential  Trust.
The  "executive  officers" of GGPI are the same as the  "executive  officers" of
Gables   Residential   Trust.   Other  than  Gables   Residential  Trust,  which
beneficially  owns 84.5% of the Registrant's  outstanding  Units as of March 20,
1998, no person  beneficially owns more than 5% of the Registrant's  outstanding
Units. All information  required by this Part III with respect to the Registrant
will be included in Gables  Residential  Trust's Proxy  Statement to be filed in
connection with its 1998 Annual Meeting of Shareholders.

ITEM 10.        DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The  information   concerning  the  Directors  and  Executive  Officers  of  the
Registrant  required by Item 10 shall be included in Gables Residential  Trust's
Proxy  Statement to be filed relating to its 1998 Annual Meeting of Shareholders
and is incorporated herein by reference.

ITEM 11.       EXECUTIVE COMPENSATION

The information  concerning Executive  Compensation required by Item 11 shall be
included in Gables  Residential  Trust's Proxy Statement to be filed relating to
its 1998 Annual Meeting of Shareholders and is incorporated herein by reference.

ITEM 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
               MANAGEMENT

The information  concerning  Security Ownership of Certain Beneficial Owners and
Management  required by Item 12 shall be included in Gables Residential  Trust's
Proxy  Statement to be filed relating to its 1998 Annual Meeting of Shareholders
and is incorporated herein by reference.

ITEM 13.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  information  concerning  Certain  Relationships  and  Related  Transactions
required  by Item 13 shall be  included  in  Gables  Residential  Trust's  Proxy
Statement to be filed relating to its 1998 Annual Meeting of Shareholders and is
incorporated herein by reference.

                                     PART IV

ITEM 14.       EXHIBITS, FINANCIAL STATEMENTS AND  SCHEDULE AND REPORTS ON
               FORM 8-K

14(A)(1)AND(2) FINANCIAL STATEMENTS AND SCHEDULE

The  financial  statements  and schedule  listed below are filed as part of this
annual report on the pages indicated.

Report of Independent Public Accountants                                      39

Consolidated Balance Sheets as of December 31, 1997 and
     December 31, 1996                                                        40

Consolidated Statements of Operations for the years ended
     December 31, 1997, 1996 and 1995                                         41

Consolidated Statements of Partners' Capital for the years
     ended December 31, 1997, 1996 and 1995                                   42

Consolidated Statements of Cash Flows for the years ended
     December 31, 1997, 1996 and 1995                                         43

Notes to Consolidated Financial Statements                                    44

Schedule III - Real Estate Investments and Accumulated Depreciation           56
     as of December 31, 1997
<PAGE>
                                    Page-36


14(a)(3) Exhibits

Certain of the exhibits  required by Item 601 of Regulation  S-K have been filed
with previous  reports by the  Registrant or the Company (File No.  1-12590) and
are incorporated herein by reference to the filing in the corresponding numbered
footnote.


Exhibit No.                 Description
----------                  -----------

     3.1             ---   Second Amended and Restated Agreement of Limited
                           Partnership of the Operating Partnership (1)

     3.2             ---   Amended and Restated Declaration of Trust of the
                           Company (2)

     3.3             ---   Articles  Supplementary  to the Company's  Amended
                           and Restated  Declaration of Trust creating a series
                           of preferred shares of beneficial  interest,  par
                           value $0.01 per share, called the 8.30% Series A
                           Cumulative Redeemable Preferred Shares (3)

     3.4             ---   Second Amended and Restated Bylaws of the Company (4)

     3.5             ---   Articles of Incorporation of Gables GP, Inc. (5)

     3.6             ---   Bylaws of Gables GP, Inc. (5)

    10.1             ---   Articles of Incorporation of East Apartment
                           Management, Inc. (5)

    10.2             ---   Bylaws of East Apartment Management, Inc. (5)

    10.3             ---   Articles of Incorporation of Central Apartment
                           Management, Inc. (5)

    10.4             ---   Bylaws of Central Apartment Management, Inc. (5)

    10.5             ---   Interest rate protection  agreement  (notional
                           amount of $44,530,000)  between the Operating
                           Partnership and NationsBank of North Carolina, N.A.
                           dated January 25, 1994 (6)

    10.6             ---   Interest rate protection agreement (notional  amount
                           of $44,530,000) between the Operating Partnership and
                           First Union National Bank of Georgia, dated August
                           21, 1996 (7)

    10.7             ---   Interest rate protection  agreement (notional  amount
                           of $25,000,000) between the Operating Partnership and
                           First Union National Bank of Georgia,  dated as of
                           May 23, 1997 (8)

    10.8             ---   Forward Treasury Lock Agreement (notional amount of
                           $75,000,000) between the Operating  Partnership and
                           J.P. Morgan  Securities,  Inc. dated as of September
                           22, 1997 (8)

    10.9             ---   Forward Treasury Lock Agreement (notional amount of
                           $75,000,000) between the Operating Partnership and
                           J.P. Morgan  Securities,  Inc. dated as of September
                           22, 1997 and amended on December 17, 1997 (9)

   10.10             ---   Forward Treasury Lock Agreement (notional amount of
                           $75,000,000) between the Operating  Partnership and
                           J.P. Morgan  Securities,  Inc. dated as of September
                           22, 1997 and amended on February 11, 1998 (9)

   10.11             ---   Forward Treasury Lock Agreement (notional amount of
                           $25,000,000) between the Operating  Partnership  and
                           J.P. Morgan  Securities,  Inc. dated as of December
                           17, 1997 (9)

   10.12             ---   Forward Treasury Lock Agreement (notional amount of
                           $25,000,000) between the Operating  Partnership  and
                           J.P. Morgan  Securities,  Inc. dated as of December
                           17, 1997 and amended on February 11, 1998 (9)

   10.13             ---   Loan  Application  and  Commitment  Agreement between
                           Teachers Insurance and Annuity Association of America
                           ("lender")  and  the  Operating   Partnership   and
                           Gables-Tennessee Properties (the "Tennessee
                           Partnership")(collectively,  the borrower) for a
                           $130,689,000 loan (10)

   10.14             ---   Loan Agreement,  Conversion and Note Agreement,
                           Security Deed Note and Deed of Trust Notes between
                           Teachers Insurance and Annuity  Association of
                           America ("lender")and the Operating  Partnership  and
                           the Tennessee Partnership(collectively, the borrower)
                           for a $130,689,000 loan, dated December 29, 1995 (11)

   10.15             ---   First Amendment to Conversion and Note Agreement
                           effective December 30, 1996 between the Operating
                           Partnership, the Tennessee Partnership, the Company
                           and Teachers Insurance and Annuity Association of
                           America (8)

   10.16             ---   Second Amendment to Conversion and Note Agreement
                           effective August 13, 1997 between the Operating
                           Partnership, the Tennessee Partnership, the Company
                           and Teachers Insurance and Annuity Association of
                           America (8)

   10.17             ---   Unsecured Note No. 1 for $86,346,000 date August 13,
                           1997 between the Operating Partnership, the Tennessee
                           Partnership and Teachers Insurance and Annuity
                           Association of America (8)

   10.18             ---   Unsecured  Note No.  2 for  $29,681,000 dated  August
                           13,  1997  between  the Operating Partnership,  the
                           Tennessee  Partnership  and Teachers  Insurance  and
                           Annuity Association of America  (8)
<PAGE>
                                    Page-37


Exhibit No.                 Description
----------                  -----------

   10.19             ---   $175,000,000 Credit Agreement dated as of March 28,
                           1996 among the Operating Partnership  (as  Borrower)
                           and Wachovia  Bank of Georgia,  N.A.,  First Union
                           National Bank of Georgia,  Guaranty  Federal Bank,
                           AmSouth Bank of Alabama,  and Commerzbank AG,
                           Atlanta Agency  (collectively,  as Lenders) and
                           Wachovia Bank of Georgia,  N.A. (as Agent)(12)

   10.20             ---   Guaranty  Agreement  dated as of March 28,  1996
                           among  Gables GP,  Inc.,  the Company and the
                           Tennessee  Partnership  in favor of the Agent,  for
                           the ratable  benefit of the Lenders, under the
                           $175,000,000 Credit Agreement dated as of March 28,
                           1996 (12)

   10.21             ---   First Amendment to the $175,000,000  Credit Agreement
                           dated as of November 22, 1996 among the Operating
                           Partnership and the Lenders (7)

   10.22             ---   Second Amendment to the $175,000,000 Credit Amendment
                           dated as of March 18, 1997 among the Operating
                           Partnership and the Lenders (7)

   10.23             ---   $175,000,000  Amended and Restated Credit  Agreement
                           dated as of August 5, 1997 among the Operating
                           Partnership and the Lenders (8)

   10.24             ---   $45,820,180 Letter of Credit Facility Reimbursement
                           Agreement dated as of October 1, 1997 among the
                           Operating  Partnership (as Borrower), and Wachovia
                           Bank,  N.A., Guaranty Federal  Bank,  F.S.B.  and
                           AmSouth  Bank of Alabama (as  Lenders) and Wachovia
                           Bank, N.A. (as Agent) (8)

   10.25             ---   $40,000,000  Term Loan Credit  Agreement  dated as of
                           November 20, 1996 between the Operating  Partnership
                           (as Borrower)  and Wachovia  Bank of Georgia,  N.A.
                           (as Agent and Lender) (7)

   10.26             ---   First  Amendment  to the $40,000,000 Term Loan Credit
                           Agreement dated as of August 5, 1997 between the
                           Operating Partnership and Wachovia Bank of Georgia,
                           N.A. (8)

   10.27             ---   Promissory  Note dated  November 29, 1994 for a
                           $53,000,000  mortgage loan from the Northwestern
                           Mutual Life Insurance Company to the Operating
                           Partnership (6)

    21.1  *          ---   Schedule of Subsidiaries of the Operating Partnership

    23.1  *          ---   Consent of Arthur Andersen LLP

    27.1  *          ---   Financial Data Schedule for the fiscal year ended
                           December 31, 1997

    27.2  *          ---   Financial  Data Schedule for the fiscal year ended
                           December 31, 1996, the three months ended March 31,
                           1997,  the six months  ended June 30, 1997 and the
                           nine months ended September 30, 1997

--------------------------

*    Filed herewith

(1)  The Operating Partnership's Registration Statement on Form 10/A-1

(2)  The Company's Registration  Statement on Form S-11 (File No. 33-70570),  as
     amended

(3)  The Company's Current Report on Form 8-K dated July 24, 1997

(4)  The Company's Registration Statement on Form 8-A/A-2

(5)  The Company's Annual Report on Form 10-K for the fiscal year ended December
     31, 1993

(6)  The Company's Annual Report on Form 10-K for the fiscal year ended December
     31, 1994

(7)  The Company's Annual Report on Form 10-K for the fiscal year ended December
     31, 1996

(8)  The Company's Quarterly Report on Form 10-Q for the quarter ended September
     30, 1997

(9)  The Company's Annual Report on Form 10-K for the fiscal year ended December
     31, 1997

(10) The Company's  Quarterly Report on Form 10-Q for the quarter ended June 30,
     1995

(11) The Company's Annual Report on Form 10-K for the fiscal year ended December
     31, 1995

(12) The Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
     1996

Gables Residential Trust's proxy statement is to be filed with the Commission on
or about March 31, 1998.

14(B) REPORTS ON FORM 8-K

A Form 8-K dated  November  24,  1997 was  filed  with the  Commission  with the
required  financial  information  regarding the acquisition of certain apartment
communities.

14(C)  EXHIBITS

See Item 14(a)(3) above.

<PAGE>
                                    Page-38

                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange  Act of 1934,  Gables GP,  Inc.,  as general  partner of Gables  Realty
Limited Partnership,  certifies that it has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

                                   GABLES REALTY LIMITED PARTNERSHIP
                                   By:   Gables GP, Inc.
                                   Its:    General Partner

                                   By: /s/ Marcus E. Bromley
                                      --------------------------------
                                      Marcus  E.  Bromley,   Chairman
                                      of the Board of Directors and
                                      President


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed by the following persons on behalf of Gables GP, Inc., as
general partner of Gables Realty Limited Partnership,  and in the capacities and
on the dates indicated.

<TABLE>
<CAPTION>

         Signatures                     Title                                           Date
         ----------                     -----                                           ----

<S>                                     <C>                                            <C>

/s/ Marcus E. Bromley                   Chairman of the Board of Directors              March  25, 1998
------------------------                and President
Marcus E. Bromley                       (Principal Executive Officer)


/s/ Marvin R. Banks, Jr.                Chief Financial Officer (Principal Financial    March  25, 1998
------------------------                Officer and Principal Accounting Officer)
Marvin R. Banks, Jr.


/s/ John T. Rippel                      President, Chief Operating Officer              March  25, 1998
------------------------                and Director
John T. Rippel

/s/ David M. Holland                    Director                                        March  25, 1998
------------------------
David M. Holland


/s/ Lauralee E. Martin                  Director                                        March  25, 1998
------------------------
Lauralee E. Martin


/s/ John W. McIntyre                    Director                                        March  25, 1998
------------------------
John W. McIntyre


/s/ D. Raymond Riddle                   Director                                        March 25, 1998
------------------------
D. Raymond Riddle
</TABLE>
<PAGE>
                                    Page-39


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Gables Realty Limited Partnership:

We have audited the  accompanying  consolidated  balance sheets of Gables Realty
Limited  Partnership  and  subsidiaries as of December 31, 1997 and 1996 and the
related consolidated statements of operations,  partners' capital and cash flows
for the years ended December 31, 1997, 1996 and 1995. These financial statements
and schedule are the  responsibility  of the management of Gables Realty Limited
Partnership.  Our  responsibility  is to express  an opinion on these  financial
statements and schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of Gables  Realty
Limited  Partnership  and  subsidiaries as of December 31, 1997 and 1996 and the
results of their  operations  and their cash flows for the years ended  December
31, 1997,  1996 and 1995,  in  conformity  with  generally  accepted  accounting
principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
financial  statements  taken as a whole.  The  schedule  listed  in the index to
financial  statements is presented for purposes of complying with the Securities
and  Exchange  Commission's  rules  and  is not  part  of  the  basic  financial
statements.  This schedule has been subjected to the auditing procedures applied
in the audit of the basic  financial  statements  and,  in our  opinion,  fairly
states in all material  respects  the  financial  data  required to be set forth
therein in relation to the basic financial statements taken as a whole.


/s/ Arthur Andersen LLP

Atlanta, Georgia
March 6, 1998

<PAGE>
                                    Page-40
<TABLE>
<CAPTION>


                        GABLES REALTY LIMITED PARTNERSHIP
                           CONSOLIDATED BALANCE SHEETS
                 (Amounts in Thousands, Except Per Unit Amounts)


                                                                                           December 31,
                                                                                       1997            1996
                                                                                     --------       ---------
<S>                                                                                  <C>              <C>
ASSETS:
Real estate assets:
   Land  .......................................................................     $ 150,894       $102,762
   Buildings ...................................................................       770,305        558,569
   Furniture, fixtures and equipment ...........................................        60,015         45,830
   Construction in progress ....................................................        53,240         74,690
   Land held for future development ............................................        21,774          2,749
                                                                                     ---------       --------
      Real estate assets before accumulated depreciation .......................     1,056,228        784,600
   Less:  accumulated depreciation .............................................       (98,236)       (74,903)
                                                                                     ---------       --------
     Net real estate assets ....................................................       957,992        709,697

Cash and cash equivalents ......................................................         3,179          4,385
Restricted cash ................................................................         4,498          8,430
Deferred charges, net of accumulated amortization of $2,735 and
  $3,328 at December 31, 1997 and 1996, respectively ...........................         4,194          5,412
Other assets, net ..............................................................        11,304         31,736
                                                                                     ---------      ---------
     Total assets ..............................................................     $ 981,167      $ 759,660
                                                                                     =========      =========

LIABILITIES AND PARTNERS' CAPITAL:
Notes payable ..................................................................     $ 435,362      $ 390,321
Accrued interest payable .......................................................         1,999          1,811
Common distributions payable ...................................................             0         11,194
Preferred distributions payable.................................................           424              0
Real estate taxes payable ......................................................        13,568          9,785
Accounts payable and accrued expenses - construction ...........................         8,505          6,218
Accounts payable and accrued expenses - operating ..............................         5,552          5,455
Security deposits ..............................................................         2,260          1,968
                                                                                      --------       --------
     Total liabilities .........................................................       467,670        426,752
                                                                                      --------       --------

Limited partners' capital interest (4,056 and 3,528 common Units),
   at redemption value .........................................................       110,866         98,482
                                                                                      --------       --------
Commitments and contingencies

Partners' capital:
  Preferred partners (4,600 and 0 preferred Units), at $25.00
    liquidation preference .....................................................       115,000              0
  General partner (260 and 228 common Units) ...................................         3,907          3,245
  Limited partner (21,730 and 19,089 common Units) .............................       283,724        231,181
                                                                                     ---------      ---------
   Total partners' capital .....................................................       402,631        234,426
                                                                                     ---------      ---------
     Total liabilities, limited partners' capital interest and partner's capital     $ 981,167      $ 759,660
                                                                                     =========      =========
<FN>
The accompanying notes are an integral part of these balance sheets.
</FN>
</TABLE>
<PAGE>
                                    Page-41
<TABLE>
<CAPTION>

                        GABLES REALTY LIMITED PARTNERSHIP
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (Amounts in Thousands, Except Per Unit Amounts)


                                                                               Years ended December 31,
                                                                          1997         1996          1995
                                                                         ------       ------        ------
<S>                                                                     <C>           <C>        <C>
Rental revenues ....................................................   $ 132,371    $ 104,543    $  72,703
Other property revenues ............................................       6,322        4,928        3,268
                                                                         -------      -------      -------
     Total property revenues .......................................     138,693      109,471       75,971
                                                                         -------      -------      -------

Property management - third party ..................................       2,173        2,960        3,324
Property management - related party ................................         859          911          965
                                                                         -------      -------      -------
  Total property management revenues ...............................       3,032        3,871        4,289
Non-recurring Olympic revenues, net ................................           0          900            0
Other ..............................................................       1,713        1,939        1,500
                                                                         -------      -------      -------
     Total other revenues ..........................................       4,745        6,710        5,789
                                                                         -------      -------      -------
     Total revenues ................................................     143,438      116,181       81,760
                                                                         -------      -------      -------

Property operating and maintenance (exclusive of items shown
     separately below) .............................................      47,592       38,693       28,228
Depreciation and amortization ......................................      25,194       18,892       12,669
Amortization of deferred financing costs ...........................         992        1,348          932
Property management - owned ........................................       3,364        2,824        2,170
Property management - third/related party ..........................       2,332        2,793        3,178
General and administrative .........................................       3,248        3,045        2,869
Interest ...........................................................      24,804       21,112       13,088
Credit enhancement fees ............................................         509          576          710
Loss on treasury lock extension ....................................       1,178            0            0
                                                                        --------      -------      -------
     Total expenses ................................................     109,213       89,283       63,844
                                                                        --------      -------      -------

Income before equity in income of joint ventures and interest income      34,225       26,898       17,916
Equity in income of joint ventures .................................         320          280           64
Interest income ....................................................         371          363          389
                                                                        --------      -------      -------
Income before gain on sale of real estate assets ...................      34,916       27,541       18,369
Gain on sale of real estate assets .................................       5,349            0            0
                                                                        --------      -------      -------
Income before extraordinary loss ...................................      40,265       27,541       18,369
Extraordinary loss .................................................        (712)        (631)        (955)
                                                                        --------      -------      -------
Net income .........................................................      39,553       26,910       17,414
Dividends to preferred unitholders .................................      (4,163)           0            0
                                                                        --------      -------      -------
Net income available to common unitholders .........................   $  35,390    $  26,910    $  17,414
                                                                        ========      =======      =======

Weighted average number of common Units outstanding - basic ........      23,441       20,194       14,644
Weighted average number of common Units outstanding - diluted ......      23,591       20,283       14,660

PER COMMON UNIT INFORMATION:
Income before extraordinary loss - basic ...........................   $    1.54    $    1.36    $    1.25
Extraordinary loss - basic .........................................  ($    0.03)  ($    0.03)  ($    0.06)
Net income - basic .................................................   $    1.51    $    1.33    $    1.19

Income before extraordinary loss - diluted .........................   $    1.53    $    1.35    $    1.25
Extraordinary loss - diluted .......................................  ($    0.03)  ($    0.03)  ($    0.07)
Net income - diluted ...............................................   $    1.50    $    1.32    $    1.18
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>

                                    Page-42
<TABLE>
<CAPTION>

                        GABLES REALTY LIMITED PARTNERSHIP
                  CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
                 (Amounts in Thousands, Except Per Unit Amounts)
                                                                                                                   Limited
                                                                                                         Total     Partners'
                                                                   General   Limited      Preferred    Partners'    Capital
                                                                   Partner   Partner      Partners      Capital     Interest
                                                                   -------   -------      --------      -------     --------
<S>                                                              <C>        <C>           <C>        <C>           <C>
BALANCE, DECEMBER 31, 1994 .................................   $   1,792    $  91,174         $  0   $  92,966    $  67,188

  Proceeds of 4,600 common share offering, net of under-
   writing discounts and issuance costs of $6,261 ..........         944       93,420            0      94,364            0
  Proceeds from Share Builder Plan .........................           2          175            0         177            0
  Filing costs for Share Builder Plan, Profit Sharing
    Plan and $200,000 shelf registration statement .........          (2)        (235)           0        (237)           0
  Contribution related to land acquisition .................          24          (24)           0           0        2,437
  Net income ...............................................         174       13,382            0      13,556        3,858
  Distributions paid ($1.38 per Unit) ......................        (190)     (14,406)           0     (14,596)      (4,415)
  Distributions declared ($0.48 per Unit) ..................         (89)      (7,199)           0      (7,288)      (1,589)
  Adjustment to reflect limited partners' redeemable capital
   at redemption value at balance sheet date ...............         (78)      (7,757)           0      (7,835)       7,835
                                                                 -------      -------       ------     -------     --------

BALANCE, DECEMBER 31, 1995 .................................       2,577      168,530            0     171,107       75,314

  Proceeds of 4,039 common share offerings, net of under-
   writing discounts and issuance costs of $3,302 ..........         935       92,549            0      93,484            0
  Proceeds from exercise of share options ..................          14        1,416            0       1,430            0
  Proceeds from Share Builder Plan .........................           0           32            0          32            0
  Filing costs for $300,000 shelf registration statement ...          (1)         (96)           0         (97)           0
  Contribution related to apartment community acquisition ..          57          (57)           0           0        5,697
  Conversion of redeemable Units to common shares ..........          25        2,516            0       2,541       (2,541)
  Net income ...............................................         269       22,112            0      22,381        4,529
  Distributions paid ($1.45 per Unit) ......................        (298)     (24,603)           0     (24,901)      (4,874)
  Distributions declared ($0.49 per Unit) ..................        (112)      (9,353)           0      (9,465)      (1,729)
  Adjustment to reflect limited partners' redeemable capital
   at redemption value at balance sheet date ...............        (221)     (21,865)           0     (22,086)      22,086
                                                                 -------      -------       ------    --------      -------

BALANCE, DECEMBER 31, 1996 .................................       3,245      231,181            0     234,426       98,482

  Proceeds from exercise of share options ..................          31        3,090            0       3,121            0
  Proceeds from Share Builder Plan .........................           0           60            0          60            0
  Proceeds of 2,437 common share offerings, net of under-
   writing discounts and issuance costs of $3,463 ..........         625       61,892            0      62,517            0
  Proceeds of 4,600 preferred share offering ...............         (40)      (3,969)     115,000     110,991            0
  Contributions related to property acquisitions ...........         147         (147)           0           0       14,725
  Issuance of shares for trustee compensation ..............           0           25            0          25            0
  Conversion of redeemable Units to common shares ..........           5          528            0         533         (533)
  Net income ...............................................         354       29,535            0      29,889        5,501
  Issuance of share grants, net of deferred compensation ...          12        1,178            0       1,190            0
  Distributions paid ($1.98 per Unit) ......................        (474)     (39,659)           0     (40,133)      (7,297)
  Adjustment to reflect limited partners' redeemable capital
   at redemption value at balance sheet date ...............           2           10            0          12          (12)
                                                                 -------      -------      -------     -------     --------
BALANCE, DECEMBER 31, 1997 .................................   $   3,907    $ 283,724    $ 115,000   $ 402,631    $ 110,866
                                                                 =======      =======      =======     =======     ========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
                                    Page-43

<TABLE>
<CAPTION>

                        GABLES REALTY LIMITED PARTNERSHIP
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 (Amounts in Thousands, Except Per Unit Amounts)


                                                                      Years Ended December 31,
                                                                     1997         1996         1995
                                                                   -------      -------      -------
<S>                                                               <C>          <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................   $  39,553    $  26,910    $  17,414
Adjustments to reconcile net income to net cash provided
  by operating activities:
   Depreciation and amortization .............................      26,186       20,240       13,601
   Equity in income of joint ventures ........................        (320)        (280)         (64)
   Gain on sale of real estate assets ........................      (5,349)           0            0
   Long-term compensation expense ............................         574          408            0
   Loss on treasury lock extension ...........................       1,178            0            0
   Extraordinary loss ........................................         712          631          955
   Change in operating assets and liabilities:
     Restricted cash .........................................       4,616       (2,366)      (1,695)
     Other assets ............................................      (1,055)        (282)        (260)
     Other liabilities, net ..................................       3,424        6,368         (863)
                                                                 ---------     --------     --------
          Net cash provided by operating activities ..........      69,519       51,629       29,088
                                                                 ---------     --------     --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase and construction of real estate assets ..............    (241,585)    (194,886)    (148,475)
Investment in mortgage note receivable .......................           0      (21,505)           0
Net proceeds from sale of real estate assets .................      13,174        3,968            0
Long-term land lease payments ................................      (1,000)      (1,500)           0
Distributions received from joint ventures ...................         442          327          241
                                                                  --------      -------      -------
     Net cash used in investing activities ...................    (228,969)    (213,596)    (148,234)
                                                                  --------      -------      -------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common share offerings, net of issuance costs ..      62,517       93,484       94,364
Proceeds from preferred share offering, net of issuance costs.     110,991            0            0
Payment of filing costs for shelf registration statement .....           0          (97)        (237)
Proceeds from the exercise of share options ..................       3,121        1,430            0
Share Builder Plan contributions .............................          61           32          177
Payments of deferred financing costs .........................        (440)      (1,668)      (1,777)
Notes payable proceeds .......................................     233,849      282,569      281,597
Notes payable repayments .....................................    (188,808)    (178,507)    (224,643)
Principal escrow deposits ....................................        (684)        (768)        (652)
Preferred distributions paid .................................      (3,739)           0            0
Common distributions paid ($2.47, $1.93 and $1.83 per Unit) ..     (58,624)     (38,652)     (25,210)
                                                                  --------     --------     --------
     Net cash provided by financing activities ...............     158,244      157,823      123,619
                                                                  --------     --------     --------

Net change in cash and cash equivalents ......................      (1,206)      (4,144)       4,473
Cash and cash equivalents, beginning of period ...............       4,385        8,529        4,056
                                                                  --------     --------     --------
Cash and cash equivalents, end of period .....................   $   3,179    $   4,385    $   8,529
                                                                  ========     ========     ========

Supplemental disclosure of cash flow information:
     Cash paid for interest ..................................   $  29,777    $  24,749    $  20,669
     Interest capitalized ....................................       5,161        4,373        7,481
                                                                  --------     --------     --------
     Cash paid for interest, net of amounts capitalized ......   $  24,616    $  20,376    $  13,188
                                                                  ========     ========     ========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
                                    Page-44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Thousands, Except Property and Per Unit Information
---------------------------------------------------------------

1. ORGANIZATION AND FORMATION OF THE OPERATING PARTNERSHIP

Gables Realty Limited  Partnership  (the "Operating  Partnership") is the entity
through which Gables Residential Trust (the "Company"),  a self-administered and
self-managed real estate investment trust (a "REIT"), conducts substantially all
of its business and owns (either directly or through subsidiaries) substantially
all of its assets.  In 1993,  the Company was formed under  Maryland law and the
Operating  Partnership  was  organized  as a  Delaware  limited  partnership  to
continue  and  to  expand  the  multifamily   apartment  community   management,
development,  construction  and  acquisition  operations of its privately  owned
predecessor organization. The term "Gables Residential Group" or "Group" as used
herein  refers to the  privately  owned  predecessor  organization  prior to the
Company's  initial  public  offering  in  January,  1994  (the  "IPO")  and  the
concurrent completion of the transactions that occured simultaneously  therewith
(the "Formation Transactions").  The term "Operating Partnership" or "Gables" as
used herein means Gables Realty Limited  Partnership  and its  subsidiaries on a
consolidated  basis,  or, where the context so requires,  Gables Realty  Limited
Partnership only. The Operating  Partnership's third party management businesses
are conducted through two subsidiaries,  Central Apartment  Management,  Inc., a
Texas corporation,  and East Apartment  Management,  Inc., a Georgia corporation
(each, a "Management Company").

The Company  was an 84.4%  economic  owner of the  Operating  Partnership  as of
December 31, 1997 (excluding the Company's direct or indirect  ownership of 100%
of the Operating  Partnership's  Series A Preferred Units). The Company controls
the Operating  Partnership  through  Gables GP, Inc.  ("GGPI"),  a  wholly-owned
subsidiary  of the  Company  and  the  sole  general  partner  of the  Operating
Partnership (this structure is commonly  referred to as an umbrella  partnership
REIT or "UPREIT").  The board of directors of GGPI, the members of which are the
same as the members of the Board of Trustees of the Company, manages the affairs
of the Operating  Partnership  by directing  the affairs of GGPI.  The Company's
limited  partner  and  indirect  general  partner  interests  in  the  Operating
Partnership  entitle it to share in cash distributions  from, and in the profits
and losses of, the Operating Partnership in proportion to its ownership interest
therein and  entitle the Company to vote on all matters  requiring a vote of the
limited partners.

The  other  limited  partners  of the  Operating  Partnership  are  persons  who
contributed  their  direct or indirect  interests in certain  properties  to the
Operating Partnership  primarily in connection with the Formation  Transactions.
The  Operating   Partnership  is  obligated  to  redeem  each  unit  of  limited
partnership  interest  ("Unit") held by a person other than the Company,  at the
request of the holder  thereof,  for cash  equal to the fair  market  value of a
share of the Company's common shares of beneficial interest,  par value $.01 per
share, at the time of such  redemption,  provided that the Company at its option
may elect to acquire any such Unit presented for redemption for one common share
or cash.  The  Company  presently  anticipates  that it will  elect to issue its
common shares to acquire  Units  presented  for  redemption,  rather than paying
cash.  Such  limited  partners'  redemption  rights are  reflected  in  "limited
partners' capital interest" in the accompanying  consolidated  balance sheets at
the cash redemption  amount at the balance sheet date. With each such redemption
the Company's  percentage  ownership interest in the Operating  Partnership will
increase.  In addition,  whenever the Company  issues common shares or preferred
shares of  beneficial  interest,  par  value  $.01 per  share,  the  Company  is
obligated to contribute any net proceeds therefrom to the Operating  Partnership
and the  Operating  Partnership  is obligated to issue an  equivalent  number of
Units to the Company.

Distributions to holders of Units are made to enable distributions to be made to
the Company's  shareholders  under its dividend policy.  Federal income tax laws
require the  Company,  as a REIT,  to  distribute  95% of its  ordinary  taxable
income. The Operating  Partnership makes  distributions to the Company to enable
it to satisfy this requirement.

As of  December  31,  1997,  Gables  owned 59  completed  multifamily  apartment
communities comprising 17,816 apartment homes, of which 35 were developed and 24
were  acquired by Gables,  and an indirect 25% general  partner  interest in two
apartment communities developed by Gables comprising 663 apartment homes. One of
the completed  communities  comprising  273 apartment  homes was in the lease-up
stage at  December  31,  1997.  Gables  also  owned five  multifamily  apartment
communities that were under  construction at December 31, 1997 that are expected
to comprise  1,409  apartment  homes upon  completion.  As of December 31, 1997,
Gables  owned  parcels of land for the  future  development  of seven  apartment
communities   expected  to  comprise  an  estimated   1,792   apartment   homes.
Additionally,  Gables has contracts or options to acquire  additional parcels of
land.  There can be no assurance  that Gables will acquire  these land  parcels,
however it is Gables' intent to develop an apartment community on each such land
parcel, if purchased.
<PAGE>
                                    Page-45


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Thousands, Except Property and Per Unit Information
---------------------------------------------------------------

On February 18, 1998,  Gables  entered into  contribution  agreements  with four
partnerships  under common  control  pursuant to which Gables expects to acquire
four multifamily apartment communities comprising a total of 913 apartment homes
located in Houston,  Texas.  In connection  with such  acquisition,  Gables will
assume approximately $28 million of indebtedness and issue Units valued at up to
approximately  $21 million,  of which  approximately $2 million will be deferred
for up to two years.

On March 11, 1998,  Gables  entered  into an agreement to acquire a  multifamily
apartment community in Austin, Texas comprising 308 apartment homes.

Gables has entered into a Contribution Agreement with an effective date of March
16, 1998 (the "Contribution Agreement") to acquire the properties and operations
of Trammell Crow Residential South Florida ("TCR/SF"), which consist of up to 15
multifamily apartment communities (the "South Florida Communities") containing a
total of 4,197  apartment  homes  (assuming  completion  of three South  Florida
Communities  currently  under  construction),  and all of  TCR/SF's  residential
construction  and  development  and third party  management  activities in South
Florida (collectively,  the "South Florida  Transaction").  In consideration for
such properties and operations,  the Company will (i) pay  approximately  $149.0
million in cash, (ii) assume approximately $135.9 million of tax-exempt debt and
(iii) issue Units valued at up to  approximately  $83.6 million,  of which $12.5
million will be deferred  until January 1, 2000.  The South Florida  Communities
are located in Palm Beach County,  Broward  County and Dade County and encompass
the metropolitan  areas of Palm Beach, Ft.  Lauderdale and Miami,  respectively.
The South  Florida  Transaction  is  expected  to be  consummated  in the second
quarter of 1998.

There can be no assurance that the  acquisitions  described  above will close as
contemplated,  or that the  acquisitions  will be consummated at all.  Gables is
pursuing  other  acquisition  opportunities  in the ordinary  course of business
which have not yet been, or may never be, put under contract.

2.  SECONDARY OFFERINGS AND ISSUANCES OF OPERATING PARTNERSHIP UNITS

Secondary Common Share Offerings
--------------------------------
Since the IPO, the Company has issued a total of 11,521  common  shares in seven
offerings  generating  $260,241 in net proceeds  which were  contributed  to the
Operating  Partnership  in exchange for an equal number of common Units and were
generally used (i) to reduce  outstanding  indebtedness  under interim financing
vehicles  utilized to fund Gables'  development and  acquisition  activities and
(ii)  for  general  working  capital  purposes   including   funding  of  future
development and acquisition activities.

Preferred Share Offering
------------------------
On July 24, 1997,  the Company  issued 4,600 shares of 8.30% Series A Cumulative
Redeemable  Preferred  Shares  (liquidation  preference  $25.00 per share)  (the
"Series  A  Preferred   Shares").   The  net  proceeds  from  this  offering  of
approximately  $111 million were  contributed  to the Operating  Partnership  in
exchange for an equal number of preferred Units with similar economic rights and
preferences and Gables used the net proceeds to reduce outstanding  indebtedness
under the interim  financing  vehicles  discussed  above. The Series A Preferred
Shares,  which may be redeemed by the Company at $25.00 per share,  plus accrued
and  unpaid  dividends,  on or after  July 24,  2002,  have no stated  maturity,
sinking  fund or mandatory  redemption  and are not  convertible  into any other
securities of the Company.

Additional Issuances of Operating Partnership Units
---------------------------------------------------
On December 5, 1995,  Gables acquired a parcel of land for the development of an
apartment community, financed in part through the issuance of 111 Units. On July
26, 1996, Gables acquired an apartment community comprising 500 apartment homes,
financed in part through the issuance of 244 Units.  On August 21, 1997,  Gables
acquired an apartment community comprising 82 apartment homes,  financed in part
through  the  issuance  of 95 Units.  On October 17,  1997,  Gables  acquired an
apartment community comprising 295 apartment homes, financed in part through the
issuance of 453 Units.
<PAGE>
                                    Page-46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Thousands, Except Property and Per Unit Information
---------------------------------------------------------------

3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations
--------------------
Gables engages in the multifamily apartment community  management,  development,
construction,  and  acquisition  businesses,  including the provision of related
brokerage and corporate rental housing services.  Gables' operating  performance
relies  predominantly  on net operating  income from the  multifamily  apartment
communities  it owns which are located in seven core  cities in Texas,  Georgia,
and  Tennessee.  Gables  recently  entered an eighth market,  Orlando,  Florida,
through an  association  with a subsidiary  of the Walt Disney  Company,  and in
connection therewith currently has two communities under development in Orlando.

Basis of Presentation
---------------------
The  accompanying  consolidated  financial  statements of Gables Realty  Limited
Partnership   include  the  consolidated   accounts  of  Gables  Realty  Limited
Partnership and its  subsidiaries.  As a result of the structure of the business
combination,  certain partners and owners of the entities in Gables  Residential
Group  received  common  shares of the  Company  and/or  Units in the  Operating
Partnership.   Purchase  accounting  was  applied  to  the  acquisition  of  all
non-controlled  interests.  The acquisition of all other interests was accounted
for as a reorganization of entities under common control and,  accordingly,  was
reflected at historical cost in a manner similar to that in pooling of interests
accounting.  All significant  intercompany  accounts and transactions  have been
eliminated in consolidation.

Use of Estimates
----------------

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amount  of  assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.

Real Estate Assets and Depreciation
-----------------------------------
Real estate  assets are stated at  depreciated  cost.  The cost of buildings and
improvements  includes  interest,   property  taxes,   insurance  and  allocated
development overhead incurred during the construction  period.  Ordinary repairs
and maintenance are expensed as incurred; major replacements and betterments are
capitalized and depreciated over their useful lives. Depreciation is computed on
a straight-line basis over the useful lives of the real estate assets (buildings
and improvements 19-40 years; furniture, fixtures and equipment 5-10 years).

Gables adopted  Statement of Financial  Accounting  Standards No. 121 (FAS 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," effective  January 1, 1996. FAS 121  established  new standards
for determining  when impairment  losses on long-lived  assets have occurred and
how  impairment  losses  should be measured.  There was no  financial  statement
impact  resulting  from  the  adoption  of FAS  121.  In  addition,  Gables  has
determined that no impairment provision is necessary at December 31, 1997.

Other Assets
------------
Gables invested $21.5 million in an apartment community comprising 232 apartment
homes on October 1, 1996 via a mortgage note receivable. The note receivable and
related costs are included in other assets in the accompanying  balance sheet at
December  31,  1996 and  interest  income  earned  thereon is  included in other
revenues in the accompanying statement of operations for the year ended December
31, 1996. In January,  1997,  Gables  acquired the apartment  community from the
borrower, and the mortgage note receivable was repaid in full.

Investment in Joint Ventures
----------------------------
Gables'  25%  general   partner   interests  in  Arbors  of  Harbortown  JV  and
Metropolitan Apartments JV are accounted for on the equity method of accounting.
<PAGE>
                                    Page-47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Thousands, Except Property and Per Unit Information
---------------------------------------------------------------

Revenue Recognition
-------------------
     Rental:  Gables leases its residential  properties  under operating  leases
with terms generally equal to one year or less. Rental income is recognized when
earned which  materially  approximates  revenue  recognition on a  straight-line
basis.

     Property  management:  Gables  provides  property  management  services for
properties in which it does not own a controlling interest. Income is recognized
when earned.

     Development  and  construction   services:   Gables  periodically  provides
development and construction  services for properties in which it does not own a
controlling  interest.  Income is  recognized  when  earned on a  percentage  of
completion basis.

Cash and Cash Equivalents
-------------------------
For purposes of the statement of cash flows,  all investments  purchased with an
original maturity of three months or less are considered to be cash equivalents.

Restricted Cash
---------------
Restricted cash is primarily  comprised of residential  security  deposits,  tax
escrow funds,  repairs and maintenance  reserve funds, and principal escrow bond
funds.

Deferred Financing Costs and Amortization
-----------------------------------------

Deferred financing costs include fees and costs incurred to obtain financing and
are  capitalized  and amortized  over the terms of the related notes payable and
are written off upon the expiration thereof.

Interest Rate Protection Agreements
-----------------------------------
Gables uses interest rate  protection  agreements in the form of "rate caps" and
"rate swaps" to manage its exposure to interest rate changes.  These  agreements
are considered  hedges of Gables'  borrowings.  Upfront amounts paid to purchase
rate cap agreements are  capitalized and amortized over the terms of the related
agreements and are written off upon the expiration thereof. Such amortization is
included  in  amortization  of  deferred  financing  costs  in the  accompanying
statements of  operations.  Monthly  amounts paid or received under rate cap and
rate swap agreements are recognized as adjustments to interest expense.

Gables uses forward treasury lock agreements to lock-in its effective  borrowing
rate for prospectve debt transactions. Payments made or received upon settlement
of such agreements that represent an effective hedge of a specific borrowing are
deferred and amortized as an adjustment to interest expense over the life of the
related debt  instrument.  To the extent a forward  treasury lock agreement does
not represent an effective hedge of a specific borrowing,  the settlement amount
is  recorded  as a gain or loss  upon  settlement.  In  December,  1997,  Gables
extended its $75 million  forward  seven-year  treasury lock  agreement.  On the
extension  date,  Gables  would  have paid  $1,178 to settle the  treasury  lock
agreement  had it not been  extended.  Such  amount  was  recorded  as a loss on
treasury lock extension in December, 1997 and Gables will use the market rate in
effect on the extension date as its  "locked-in  rate" for purposes of recording
interest  expense over the life of the debt  instrument  the  treasury  lock was
originally intended to hedge. Gables currently expects that the debt transaction
for which the treasury lock was originally intended to hedge will be consummated
in 1998.

Property Management Expenses
----------------------------
Gables manages its owned  properties,  as well as properties  owned by third and
related  parties  for  which  Gables  provides  services  for  a  fee.  Property
management  expenses have been allocated between owned and  third/related  party
properties  in  the   accompanying   statements  of  operations   based  on  the
proportionate number of owned and third/related party apartment homes managed by
Gables during the applicable periods.
<PAGE>
                                    Page-48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Thousands, Except Property and Per Unit Information
---------------------------------------------------------------

Income Taxes
------------
No federal or state income taxes are  reflected  in the  accompanying  financial
statements  since Gables Realty  Limited  Partnership  is a partnership  and its
partners are required to include their respective share of profits and losses in
their income tax returns.  Additionally,  certain subsidiaries of Gables, formed
to provide management and other services to third and related parties, are taxed
based on reportable  income. The tax attributes of these entities are immaterial
to the accompanying consolidated financial statements.

4.  NOTES PAYABLE

Notes payable consist of the following:

                                                       December 31,
                                                 1997               1996
                                                 ----               ----
Secured conventional fixed-rate                $96,135            $219,046
Unsecured conventional fixed-rate              158,526              40,000
Tax-exempt fixed-rate                           60,150              67,270
                                               -------            --------
     Total fixed-rate                          314,811             326,316
Tax-exempt variable-rate                        44,930              44,930
Unsecured credit facilities                     75,621              19,075
                                              --------            --------
     Total notes payable                      $435,362            $390,321
                                              ========            ========


Secured Conventional Fixed-Rate Notes Payable
---------------------------------------------
At December 31, 1996,  the  fixed-rate  notes payable were comprised of thirteen
loans  collateralized by fifteen apartment  communities  included in real estate
assets.  At December 31, 1996,  the interest rates on these notes payable ranged
from 7.00% to 8.77%  (weighted  average of 8.11%) and the maturity  dates ranged
from September, 1997 through December, 2009.

In February,  1997, Gables repaid a $9,452 loan which was scheduled to mature in
September,  1997. In August,  1997, eight loans financed with Teachers Insurance
and Annuity Association totaling $116,027 (the "TIAA Loans") were converted from
secured to unsecured as a result of Gables'  attainment of senior unsecured debt
ratings of BBB from Standard and Poor's and Baa2 from Moody's  Investors Service
(the  "Credit  Ratings").  Accordingly,  this  indebtedness  is  included in the
unsecured  conventional  fixed-rate  category at December 31,  1997.  In August,
1997, Gables acquired an apartment  community and assumed a $3,722 mortgage note
payable in connection with that acquisition.

At December 31, 1997, the  fixed-rate  notes payable are comprised of five loans
collateralized by seven apartment communities included in real estate assets. At
December 31, 1997,  the interest  rates on these notes payable ranged from 7.13%
to 8.77%  (weighted  average of 8.14%) and the  maturity  dates ranged from May,
2003 to  December,  2020.  Principal  amortization  payments  are  required on a
monthly basis for all notes payable based on amortization schedules ranging from
25 to 27 years.

Unsecured Conventional Fixed-Rate Notes Payable
-----------------------------------------------
At  December  31,  1996,  the  unsecured  conventional  fixed-rate  indebtedness
represented  a five-year  $40,000 term loan with a maturity of  November,  2001,
that bore interest at LIBOR plus 1.25%.  In April,  1997, the borrowing costs on
this loan were reduced to LIBOR plus 1.10% in connection  with the attainment of
the Credit Ratings.  In August,  1997, the borrowing costs were renegotiated and
were reduced to LIBOR plus 0.80%. At December 31, 1997, this loan is effectively
fixed at an all-in  rate of 6.15%  after  application  of $40,000 of the $44,530
interest rate protection agreements discussed elsewhere herein.

In  January,  1997,  Gables  acquired  a parcel  of land and  assumed  $2,646 of
indebtedness associated with that acquisition.  Such indebtedness bears interest
at 6.10%, requires annual principal amortization payments over its 20 year term,
and has a maturity of October, 2016.
<PAGE>
                                    Page-49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Thousands, Except Property and Per Unit Information
---------------------------------------------------------------

In August,  1997, the eight TIAA Loans were  converted into two unsecured  notes
payable.  The first such note  payable for $86,346  bears  interest at 8.30% and
matures in  December,  2002.  The second such note  payable  for  $29,681  bears
interest at 8.62% and  matures in  December,  2007.  Beginning  February,  1998,
monthly principal amortization payments will be required for these notes payable
based on a 30 year amortization schedule.

Tax-Exempt Fixed-Rate Notes Payable
-----------------------------------
At December  31, 1997 and 1996,  the  tax-exempt,  fixed-rate  indebtedness  was
comprised of two and three loans,  respectively.  One such loan  outstanding  at
December  31,  1997  and  1996  has a  principal  balance  of  $48,365,  and  is
collateralized by three communities  induced for tax-exempt  financing and three
additional  communities.  Principal  amortization  payments  based  on a 30 year
amortization  schedule  are  required on a monthly  basis.  These  payments  are
retained  in an escrow  account  and are not  applied to reduce the  outstanding
principal balance of the loan.  Principal payments through December 31, 1997 and
1996 are included in restricted cash in the  accompanying  balance  sheets.  The
note  payable  bears  interest at 6.38% and matures in August,  2004.  The three
underlying  tax-exempt  bond issues mature in August,  2024. The other two loans
outstanding at December 31, 1996 represented a $19,020 tax-exempt bond financing
secured by two apartment communities.  Both bond issues were credit enhanced for
an annual fee of 0.60%.  The bonds bear  interest at a weighted  average rate of
7.03% on a fixed basis for 30 years.  Principal amortization payments are due in
January  each  year  pursuant  to the  terms of the bond  documents.  Gables  is
required to make monthly escrow payments each year totaling the annual principal
payment  due to the  bondholders  in the month of  January  thereafter.  Monthly
principal  escrow  payments  are included in  restricted  cash until the January
payments are made. One of these loans, with an outstanding  principal balance of
$6,975 at December  31,  1996,  was  economically  defeased in January,  1997 in
connection with the sale of the property.  The tax-exempt  bonds contain certain
covenants which require minimum rentals to individuals  based upon income levels
specified by U.S. government programs, as defined.

Tax-Exempt Variable-Rate Notes Payable
--------------------------------------
At December 31, 1997 and 1996, the variable-rate mortgage notes payable securing
tax-exempt bonds were comprised of four loans,  each of which is  collateralized
by an apartment  community  included in real estate assets. The tax-exempt bonds
contain certain  covenants  which require  minimum rentals to individuals  based
upon income levels  specified by U.S.  government  programs,  as defined.  These
bonds bear interest at a variable rate of interest, adjusted weekly based upon a
negotiated  rate.  The interest rate in effect at December 31, 1997 and 1996 was
4.2%.  Tax-exempt variable rates are, and historically have been,  significantly
higher at year-end than during the year. The effective interest rates were 3.7%,
3.5% and 3.9% for the years ended  December 31, 1997,  1996 and 1995.  The bonds
are currently  secured by four letters of credit  provided by a letter of credit
facility entered into in October,  1997. The fee for these letters of credit was
1.5% per annum through June 30, 1995, 1.25% per annum through March,  1996, 1.0%
through  September,  1997 and is currently 0.95% per annum. The letter of credit
facility has an initial  term of 5 years and has  unlimited  one-year  extension
options.  Three of the underlying  bond issues mature in December,  2007 and the
fourth underlying bond issue matures in August, 2024.

$175 Million Credit Facility
----------------------------
In conjunction with the IPO, Gables closed a $175 million  three-year  revolving
credit facility (the "Original  Credit  Facility") which had an initial maturity
of January,  1997. In March,  1996,  Gables closed a new $175 million  unsecured
revolving  credit  facility (the "New Credit  Facility" or "$175 Million  Credit
Facility") that replaced the Original Credit  Facility.  Although the New Credit
Facility is unsecured, there were certain designated real estate assets that had
escrowed  mortgages  that were  released  promptly  after the  attainment of the
Credit  Rating.  The New Credit  Facility has an initial term of three years and
three one-year extension options. Gables has exercised the first of its one-year
extension options resulting in a maturity date for the facility of March, 2000.

Borrowings  bore  interest at LIBOR plus 1.50%  (reduced from 1.65% in November,
1996) through April,  1997. In April,  1997,  Gables'  borrowing costs under the
facility were reduced to LIBOR plus 1.10% in connection  with the  attainment of
the Credit Ratings.  In August,  1997, Gables' borrowing costs were renegotiated
and were reduced to LIBOR plus 0.80%. Additionally, a competitive bid option was
added for up to 50% of the $175 million commitment.
<PAGE>
                                    Page-50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Thousands, Except Property and Per Unit Information
---------------------------------------------------------------

Gables'  availability  under the  facility is limited to the lesser of the total
$175 million  commitment or the borrowing  base.  The borrowing  base  available
under the facility is currently based on the value of Gables'  unencumbered real
estate assets as compared to the amount of Gables' unsecured indebtedness. As of
December 31, 1997, Gables had $60.0 million in borrowings  outstanding under the
facility and,  therefore,  had $115 .0 million of remaining capacity on the $175
million available commitment.

$20 Million Credit Facility
---------------------------
In November,  1996,  Gables closed an unsecured  revolving  credit facility that
currently  provides for up to $20 million in  borrowings.  This  facility has an
initial term of one year and has unlimited one-year  extension  options.  Gables
has  exercised  the  first of its  one-year  extension  options  resulting  in a
maturity date for the facility of October,  1998. Borrowings bore interest under
this facility at LIBOR plus 1.50% through April,  1997. In April,  1997, Gables'
borrowing  costs  were  reduced  to  LIBOR  plus  1.10% in  connection  with the
attainment of the Credit Ratings. In August,  1997, Gables' borrowing costs were
negotiated and were reduced to LIBOR plus 0.80%. As of December 31, 1997, Gables
had approximately $15.6 million in borrowings outstanding under this facility.

Restrictive Covenants
---------------------
Certain  of the  Gables'  debt  agreements  contain  customary  representations,
covenants and events of default,  including covenants which restrict the ability
of the Operating  Partnership to make distributions in excess of stated amounts,
which in turn  restricts  the  discretion  of the  Company  to  declare  and pay
dividends. In general, during any fiscal year the Operating Partnership may only
distribute  up  to  95%  of  the  Operating  Partnership's  consolidated  income
available for  distribution (as defined in the related  agreement)  exclusive of
distributions  of capital gains for such year.  The applicable  debt  agreements
contain  exceptions to these  limitations to allow the Operating  Partnership to
make any distributions  necessary to allow the Company to maintain its status as
a REIT. Gables does not anticipate that this provision will adversely effect the
ability of the Operating  Partnership  to make  distributions  or the Company to
declare dividends, as currently anticipated.

Maturities
----------

The aggregate maturities of notes payable at December 31, 1997 are as follows:

          1998                               $17,950
          1999                                 2,596
          2000                                62,810
          2001                                43,046
          2002                               130,620
          2003 and thereafter                178,340
                                             -------
                                            $435,362
                                             =======

The debt  maturities in 1998 include $15,621 of outstanding  indebtedness  under
the $20 Million Credit Facility which has unlimited  one-year extension options.
The debt  maturities in 2000 include $60,000 of outstanding  indebtedness  under
the $175 Million  Credit  Facility  which has two remaining  one-year  extension
options.  The  debt  maturities  in 2002  include  $44,930  of  tax-exempt  bond
indebtedness  credit-enhanced  through  a letter of  credit  facility  which has
unlimited one-year extension options. Three of the underlying bond issues mature
in December, 2007 and the fourth underlying bond issue matures in August, 2024.

Joint Venture Indebtedness
--------------------------
The Arbors of Harbortown  apartment community secures a $16.4 million tax-exempt
bond obligation,  which is recourse to Gables up to $1.0 million (this amount is
fully  cash-collateralized  and is held by the Arbors of Harbortown  JV),  bears
interest at a variable low-floater rate, has a maturity date of April, 2013, and
is payable in monthly  installments of interest only. The credit enhancement for
the bond  obligation  expires in May, 2001.
<PAGE>
                                    Page-51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Thousands, Except Property and Per Unit Information
---------------------------------------------------------------

The Metropolitan  Uptown apartment  community secures a conventional  fixed-rate
loan with  $17.9million  outstanding at December 31, 1997, 25% of which has been
guaranteed  by Gables.  The loan has a maturity  date of  December  31, 2002 and
bears interest at a rate of 7.18%.

Interest Rate Protection Agreements
-----------------------------------
Gables has five  interest  rate  protection  agreements in place at December 31,
1997, the current terms of which are discussed below:

                                      Notional Strike   Effective  Termination
   Description of Agreement            Amount  Price       Date        Date
   ------------------------           -------  ------    --------   ---------

LIBOR, 30-day - "Rate Cap"            $44,530  6.25%(a)  01/27/94   01/30/99
LIBOR, 30-day - "Knock-out Rate Swap" $44,530  5.35%(a)  08/30/96   08/30/99 (b)
LIBOR, 30-day - "Knock-out Rate Swap" $25,000  5.76%(a)  02/27/98   02/27/00 (c)
Treasury, 7-year - "Treasury Lock"    $75,000  6.18%     09/22/97   05/28/98
Treasury, 7-year - "Treasury Lock"    $25,000  5.88%     12/17/97   05/28/98


(a)  The 30-day LIBOR rate in effect at December 31, 1997 was 6.0%.

(b)  This  agreement  fixes  Gables'  underlying  30-day LIBOR rate at 5.35% and
     terminates upon the earlier to occur of (i) the termination  date or (ii) a
     rate reset date on which the 30-day LIBOR rate is 6.26% or higher.

(c)  This  agreement  fixes  Gables'  underlying  30-day LIBOR rate at 5.76% and
     terminates upon the earlier to occur of (i) the termination  date or (ii) a
     rate reset date on which the 30-day LIBOR rate is 6.70% or higher.


5.  COMMITMENTS AND CONTINGENCIES

Office Leases
-------------
Gables is party to office  operating  leases with various terms.  Future minimum
lease payments and rent expense for such leases are not material.

Contingencies
-------------
The various entities  comprising Gables are subject to various legal proceedings
and claims that arise in the  ordinary  course of  business.  These  matters are
generally covered by insurance.  While the resolution of these matters cannot be
predicted  with  certainty,  management  believes that the final outcome of such
matters will not have a material  adverse  effect on the  financial  position or
results of operations of Gables.

6.  EXTRAORDINARY LOSS

Extraordinary  loss of $712 for the year ended December 31, 1997  represents (i)
the  write-off  of  unamortized  deferred  financing  costs and  prepaid  credit
enhancement fees associated with the defeasance of the tax-exempt bond financing
encumbering the Club Candlewood property that was sold in January, 1997 and (ii)
the  write-off of  unamortized  deferred  financing  costs  associated  with the
February 28, 1997  retirement of a  conventional  mortgage note payable that was
scheduled to mature on September 1, 1997.

Extraordinary  loss of $631 for the year ended December 31, 1996  represents the
write-off of unamortized  deferred  financing  costs  associated  with the early
retirement of Gables'  Original  Credit  Facility.  The Original Credit Facility
that was scheduled to mature in January,  1997,  was  refinanced in March,  1996
with the New Credit Facility.

Extraordinary  loss of $955 for the year ended December 31, 1995  represents the
write-off of unamortized  deferred  financing  costs  associated  with the early
retirement of Gables' construction loans.
<PAGE>
                                    Page-52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Thousands, Except Property and Per Unit Information
---------------------------------------------------------------

7.  EARNINGS PER UNIT

Basic  earnings  per Unit are computed  based on net income  available to common
unitholders and the weighted average number of common Units outstanding. Diluted
earnings  per Unit  reflect  the assumed  issuance  of common  Units under share
option and incentive  plans.  In February,  1997,  the FASB issued SFAS No. 128,
"Earnings  Per  Share,"  which  specifies  the  computation,   presentation  and
disclosure  requirements for earnings per share. Gables adopted SFAS No. 128 for
the year ended December 31, 1997.  All prior period  earnings per Unit data were
restated to conform  with the  provisions  of SFAS No. 128. The per Unit amounts
reported under SFAS No. 128 are not materially  different from those  calculated
and presented under APB Opinion No. 15.

The numerator and denominator  used for both basic and diluted earnings per Unit
computations are as follows:
<TABLE>
<CAPTION>
                                                                          Years Ended December 31,
                                                               1997                 1996             1995
                                                             --------             --------         --------
<S>                                                          <C>                 <C>               <C>

BASIC AND DILUTED INCOME AVAILABLE TO
   COMMON UNITHOLDERS (NUMERATOR):
Income before extraordinary loss                             $36,102               $27,541          $18,369
Extraordinary loss                                              (712)                 (631)            (955)
Net income                                                    35,390                26,910           17,414

COMMON UNITS (DENOMINATOR):
Average Units outstanding - basic                             23,441                20,194           14,644
Incremental Units from assumed
   conversions of stock options                                  150                    89               16
                                                            --------              --------         --------
Average Units outstanding - diluted                           23,591                20,283           14,660
                                                            ========              ========         ========

</TABLE>


8.  DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Disclosure  about the estimated fair value of financial  instruments is based on
pertinent  information  available to  management  as of December 31, 1997.  Such
amounts have not been  comprehensively  revalued for purposes of these financial
statements  since  that date and  current  estimates  of fair  value may  differ
significantly from the amounts presented herein.

Cash equivalents
----------------
Gables estimates that the fair value of cash equivalents  approximates  carrying
value due to the relatively short maturity of these instruments.

Notes payable
-------------
Gables  estimates  that the fair value of notes  payable  approximates  carrying
value based upon its effective  current borrowing rate for issuance of debt with
similar terms and remaining maturities.

Interest rate protection agreements
-----------------------------------
The estimated fair value and the net carrying value of the $44,530 interest rate
cap agreement at December 31, 1997 is $31 and $186, respectively.  The estimated
fair value of the two  interest  rate swap  agreements  is $404 at December  31,
1997.  The  estimated  fair value for these  agreements is based on the value of
cash flows arising in the  difference in the strike price per the agreements and
projected LIBOR rates over the remaining term of these agreements.

The estimated fair value of the $75,000 and $25,000 forward seven-year  treasury
lock  agreements at December 31, 1997 is ($1,717) and ($136),  respectively.  In
December,  1997, the $75,000 treasury lock agreement was extended, and a loss of
$1,178 was accrued as of December 31, 1997.  The estimated  fair value for these
agreements is based on the difference  between the  seven-year  treasury rate in
effect on December 31, 1997 and the locked-in rate per the agreements.
<PAGE>
                                    Page-53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Thousands, Except Property and Per Unit Information
---------------------------------------------------------------

9.  PROFIT SHARING PLAN

Eligible  employees of Gables may  participate in a profit sharing plan pursuant
to Section 401(k) of the Internal  Revenue Code.  Under the plan,  employees may
defer a  portion  of  their  salary  on a  pre-tax  basis.  Gables  also has the
discretion  to  make  matching  contributions,  currently  equal  to  50%  of an
employee's first 4% salary deferral  contribution.  Expenses under this plan for
the years ended December 31, 1997, 1996 and 1995 were not material.

During January,  1996, the Company added the Gables Residential Trust Stock Fund
(the  "Fund") as an  investment  option for the plan.  The Fund is  comprised of
common shares of the Company.  In connection  therewith,  100 common shares were
registered for issuance  under the plan.  The plan trustee will purchase  common
shares of the  Company for the Fund,  at the  direction  of the plan  investment
committee, either on the open market or directly from the Company.

10.  DIVIDENDS AND SHARE BUILDER PLAN

The  Operating  Partnership  has declared and paid  distributions  for the years
ended December 31, 1997, 1996 and 1995 as follows:

                                     Per Share Distributions
                                     -----------------------
                                    First Qtr. to     Fourth
                  Year               Fourth Qtr.       Qtr.
                  ----               ---------       ------
                  1997                $1.98           $0.50  (a)
                  1996                 1.94            0.49  (b)
                  1995                 1.86            0.48  (b)

(a)  The  fourth  quarter  distributions  in  1997  were  declared  and  paid in
     December.

(b)  The fourth  quarter  distributions  for each year denoted were  declared in
     December of the related year and were paid in the January thereafter.

In 1995, the Company implemented its Share Builder Plan, a dividend reinvestment
and share  purchase  program that provides its  shareholders  a method,  without
brokerage  commissions  or service  charges,  of  investing  cash  dividends  or
optional cash payments in additional common shares. Under the plan, shareholders
may elect to reinvest  dividends in additional common shares at a 2% discount to
the then  current  market  price of common  shares and may  purchase  additional
common  shares  for cash  (up to $20 per  quarter)  at 100% of the then  current
market price.

11.  1994 SHARE OPTION AND INCENTIVE PLAN

The Company  adopted the 1994 Share  Option and  Incentive  Plan (the "Plan") to
provide incentives to officers,  employees and non-employee  trustees.  The Plan
provides  for the grant of options  to  purchase  a  specified  number of common
shares  ("Options")  or the grant of  restricted or  unrestricted  common shares
("Restricted Shares" or "Unrestricted Shares").  Under the Plan, as amended, the
total number of shares  available  for grant is 8% of the total number of common
shares and Units  (other than common  shares or Units held by the Company or its
subsidiaries) outstanding at any time, and the number of common shares which may
be issued as  Restricted  Shares or  Unrestricted  Shares is equal to 50% of the
number  of shares  available  for  issuance  under  the Plan at such  time.  The
Operating  Partnership  will issue a Unit for each  common  share of the Company
issued under the Plan.

To date, Options have been granted in two series during each of 1994, 1995, 1996
and 1997 with an exercise price equal to the fair value of the Company's  common
shares on the dates the Options were granted.  The Options granted are generally
exercisable in  installments  over three years beginning one year after the date
of grant.  At December 31, 1997,  937 common  shares are subject to  outstanding
Options  granted to officers,  employees  and trustees of the Company,  of which
Options to purchase approximately 550 shares are currently exercisable.

The total  number of  common  shares  reserved  for  issuance  under the Plan at
December  31, 1997 is 2,084,  which is equal to 8% of the total number of common
shares and Units outstanding at that time.
<PAGE>
                                    Page-54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Thousands, Except Property and Per Unit Information
---------------------------------------------------------------

A summary of the Options  activity for the years ended  December 31, 1997,  1996
and 1995 is as follows:

                                  1997                1996                  1995
                                  ----                ----                  ----
Balance, beginning of year         904                773                   678
Granted                            235                270                   110
Forfeited                          (55)               (72)                  (15)
Exercised                         (147)               (67)                    0
                                 -----              -----                 -----
Balance, end of year               937                904                   773
                                 =====              =====                 =====

Option prices:
   Granted             $25.000-  $25.50   $22.750- $23.00      $19.125 - $20.375
   Forfeited            19.500-   25.50    19.500-  22.75       19.500 -  22.500
   Exercised            19.500-   22.75    19.500-  22.50                    N/A
Balance, end of year    19.125-   25.50    19.125-  23.00       19.125 -  22.500

Gables  accounts for stock options issued under the Plan in accordance  with APB
Opinion  No. 25,  "Accounting  for Stock  Issued to  Employees,"  under which no
compensation cost has been recognized,  since all options have been granted with
an exercise price equal to the fair value of the Company's  common shares on the
date of grant. Had compensation cost for these plans been determined  consistent
with Statement of Financial  Accounting  Standards No. 123 (FAS 123) "Accounting
for  Stock-Based  Compensation,"  the  Operating  Partnership's  net  income and
earnings per Unit would have been reduced to the following pro forma amounts:

                                           1997              1996         1995
                                           ----              ----         ----
Net income available to
common unitholders:        As Reported   $35,390            $26,910     $17,414
                           Pro Forma      35,130             26,762      17,370

Basic earnings per Unit:   As Reported      1.51               1.33        1.19
                           Pro Forma        1.50               1.33        1.19

Diluted earnings per Unit: As Reported      1.50               1.32        1.18
                           Pro Forma        1.49               1.32        1.18

Because the FAS 123 method of accounting has not been applied to options granted
prior to January 1, 1995, the resulting pro forma  compensation  cost may not be
representative of that to be expected in future years.

The weighted average fair value of options granted is $2.14, $1.91 and $1.45 for
1997, 1996 and 1995, respectively. The fair value of each option grant as of the
date of grant has been estimated using the  Black-Scholes  option pricing models
with the following  weighted-average  assumptions  for grants in 1997,  1996 and
1995, respectively: risk free interest rates of 6.45%, 6.44% and 6.42%; expected
lives of 3.91,  4.90 and 6.64;  dividend yields of 7.99%,  8.43% and 8.94%,  and
expected volatility of 18%, 19% and 19%.

On  February  21,  1997,  the  Company  granted  23  Unrestricted  Shares and 46
Restricted  Shares  (collectively,  the "1997 Share Grants") to certain officers
and employees of Gables. The 1997 Share Grants were awarded based on the closing
price of the Company's common shares on February 21, 1997 of $25.875. Gables had
accrued  $595 as of  December  31,  1996 equal to the value of the  Unrestricted
Shares. The Restricted Shares vest in two equal annual installments beginning on
January 1, 1998. Upon issuance of the Share Grants, the $1,784 value of the 1997
Share Grants was recorded in partners' capital and the approximate  $1,189 value
of the  Restricted  Shares was recorded as a reduction  to partners'  capital as
deferred  compensation.  Such deferred  compensation is being amortized  ratably
over the two-year vesting period.

On  February  12,  1998,  the  Company  granted  13  Unrestricted  Shares and 40
Restricted  Shares  (collectively,  the "1998 Share Grants") to certain officers
and employees of Gables. The 1998 Share Grants were awarded based on the closing
price of the Company's  common  shares on February 12, 1998 of $26.6875.  Gables
has accrued approximately $350 as of December 31, 1997 equal to the value of the
Unrestricted   Shares.   The  Restricted  Shares  vest  in  three  equal  annual
<PAGE>
                                    Page-55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Thousands, Except Property and Per Unit Information
---------------------------------------------------------------

installments  beginning on January 1, 1999. Upon issuance of the Share Grants in
1998,  the  approximate  $1,400  value of the Share  Grants  will be recorded in
partners' capital and the approximate $1,050 value of the Restricted Shares will
be recorded as a reduction to partners' capital as deferred  compensation.  Such
deferred  compensation  will be amortized  ratably over the  three-year  vesting
period.


12.  QUARTERLY FINANCIAL INFORMATION (Unaudited)

Quarterly  financial  information for the years ended December 31, 1997 and 1996
is as follows:
<TABLE>
<CAPTION>

                                                                        Year Ended December 31, 1997

                                                        First          Second             Third                Fourth
                                                       Quarter         Quarter           Quarter               Quarter
                                                       -------        --------          ---------             --------
<S>                                                    <C>            <C>               <C>                   <C>
Total revenues                                          $32,232         $33,741           $36,893             $40,572
Gain on sale of real estate assets                        4,858               0               491                   0
Loss on treasury lock extension                               0               0                 0              (1,178)
Income before extraordinary loss                         12,310           7,925            10,594               9,436
Extraordinary loss                                         (712)              0                 0                   0
Net income                                               11,598           7,925            10,594               9,436
Net income available to common unitholders               11,598           7,925             8,819               7,048
Basic earnings per common Unit:
   Income before extraordinary loss                        0.54            0.34              0.38                0.28
   Net income                                              0.51            0.34              0.38                0.28
Diluted earnings per common Unit:
   Income before extraordinary loss                        0.53            0.34              0.38                0.28
   Net income                                              0.50            0.34              0.38                0.28
</TABLE>
<TABLE>
<CAPTION>

                                                                        Year Ended December 31, 1996

                                                        First          Second             Third                Fourth
                                                       Quarter         Quarter           Quarter               Quarter
                                                       -------        --------          ---------             --------
<S>                                                    <C>            <C>               <C>                   <C>
Total revenues                                          $24,442          $28,143           $31,768             $31,828
Non-recurring Olympic revenues, net                           0              230               670                   0
Income before extraordinary loss                          6,326            6,549             7,005               7,661
Extraordinary loss                                         (631)               0                 0                   0
Net income                                                5,695            6,549             7,005               7,661
Basic earnings per common Unit:
   Income before extraordinary loss                        0.34             0.34              0.35                0.33
   Net income                                              0.31             0.34              0.35                0.33
Diluted earnings per common Unit:
   Income before extraordinary loss                        0.33             0.34              0.35                0.33
   Net income                                              0.30             0.34              0.35                0.33
</TABLE>
<PAGE>
                                    Page-56

<TABLE>
<CAPTION>
GABLES REALTY LIMITED PARTNERSHIP                                                                     SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)


                                                                             Gross Amount at Which          Year
                                              Initial Costs    Costs Cap-  Carried at Close of Period   Construction/
                         Number of Related    -------------   italized Sub- ------------------------     Substantial         Acqui-
                         Apartment  Encum-          Bldg.and   sequent to        Bldg.and         Accum.  Renovation  Year   sition
Apartment Description      Homes   brances  Land  Improvement Acquisition  Land Improvement Total Deprec. Complete Acquired Comments
---------------------    --------  -------  ----  ----------- -----------  ---- ----------- ----- ------- -------- -------- --------
<S>                        <C>     <C>     <C>    <C>         <C>        <C>    <C>         <C>   <C>     <C>      <C>       <C>

Completed Communities:
----------------------
HOUSTON, TEXAS
Baybrook Village ............ 776 $    --   $2,875  $17,479   $3,223    $ 2,875  $20,702  $23,577  $4,936  1981     1990       (3)
Gables Bradford Place ....... 372      --    2,072        0   15,375      2,072   15,375   17,447   2,959  1991     1990       (4)
Gables Bradford Pointe ...... 360   7,637(1) 1,660        0    9,694      1,660    9,694   11,354   2,508  1990     1989       (4)
Gables Champions ............ 404      --    3,463   19,038      133      3,463   19,171   22,634     214  1995     1997       (3)
Gables CityPlaza ............ 246      --    2,889        0   10,476      2,889   10,476   13,365     991  1995     1994       (4)
Gables Cityscape ............ 252   9,100    4,313        0   12,665      4,313   12,665   16,978   2,336  1991     1990       (4)
Gables CityWalk/Waterford Sq. 317  11,528    4,246    3,441   12,050      5,055   14,682   19,737   3,006  1990/85  1989/92  (4),(3)
Gables Edgewater ............ 292      --    1,607        0   11,441      1,838   11,210   13,048   2,337  1990     1990       (4)
Gables Meyer Park ........... 345      --    3,398        0   13,679      3,418   13,659   17,077   2,370  1993     1992       (4)
Gables of First Colony ...... 324      --    2,607   19,875      111      2,607   19,986   22,593     167  1996     1997       (3)
Gables Piney Point .......... 246  10,965(2) 2,794        0   10,868      2,794   10,868   13,662   1,495  1994     1992       (4)
Gables Pin Oak Green ........ 582      --    7,511   28,543      351      7,511   28,894   36,405   1,700  1990     1996       (3)
Gables Pin Oak Park ......... 477      --    6,234   23,288      288      6,234   23,576   29,810   1,393  1992     1996       (3)
Gables River Oaks ........... 228      --    4,935   16,200      430      4,935   16,630   21,565     920  1993     1996       (3)
Rivercrest .................. 140   3,403(1)   500    3,706    1,043        582    4,667    5,249   1,287  1982     1987       (3)
Westhollow Park ............. 412      --    2,000    5,790    2,899      2,000    8,689   10,689   2,037  1978-79  1990       (4)

ATLANTA, GEORGIA
Briarcliff Gables ........... 104      --    1,322        0    6,505      1,322    6,505    7,827     570  1995     1994       (4)
Buckhead Gables ............. 162      --    2,978      993    3,731      2,978    4,724    7,702     661  1964/94  1993     (3),(5)
Dunwoody Gables ... ......... 311      --    3,567        0   14,295      3,567   14,295   17,862   1,067  1995     1994       (4)
Gables Cinnamon Ridge........ 200      --    1,500    6,239      474      1,500    6,713    8,213     889  1980     1994       (3)
Gables Cityscape ............ 192      --    2,250    5,750      767      2,250    6,517    8,767   1,028  1989     1994       (3)
Gables Mill ................. 438      --    6,570   22,381      386      6,570   22,767   29,337     462  1988     1997       (3)
Gables Northcliff ...........  82   3,704    1,230    5,366       97      1,230    5,463    6,693      69  1978     1997       (3)
Gables Over Peachtree........ 263      --    2,644    8,400    9,522      2,644   17,922   20,566   1,468  1970/96  1995     (3),(5)
Gables Vinings .............. 315      --    3,679        0   20,547      3,718   20,508   24,226     312  1997     1995       (4)
Gables Walk ................. 310      --    4,650   22,667       59      4,650   22,726   27,376     192  1997     1997       (3)
Gables Wood Arbor ........... 140   7,130      915        0    6,079        915    6,079    6,994   1,972  1987     1985       (4)
Gables Wood Crossing......... 268  11,650    1,605        0   12,339      1,605   12,339   13,944   4,591  1985-86  1983       (4)
Gables Wood Glen ............ 380   9,387(1) 1,323        0   16,510      1,487   16,346   17,833   5,499  1983     1983       (4)
Gables Wood Knoll ........... 312   7,744(1) 1,865   10,856    1,921      1,865   12,777   14,642   3,049  1984     1990       (6)
Lakes at Indian Creek........ 603  11,785    1,400    9,100    3,704      1,391   12,813   14,204   2,463  1969-72  1993       (3)
Rock Springs Estates......... 295      --   11,822    7,932       29     11,822    7,961   19,783      61  1945,    1997       (3)
                                                                                                           87,92
Roswell Gables I ............ 384      --    3,231        0   18,180      3,231   18,180   21,411   1,476  1995     1994       (4)
Roswell Gables II ........... 284      --    3,275        0   18,005      3,313   17,967   21,280     183  1997     1996       (4)
Spalding Gables.............. 252      --    2,292        0   13,908      2,292   13,908   16,200   1,071  1995     1994       (4)
Wildwood Gables.............. 546  27,173(2) 4,810    1,100   22,198      4,810   23,298   28,108   3,742  1972/    1991     (3),(5)
                                                                                                           92-93

DALLAS, TEXAS
Arborstone .................. 536      --    1,022    7,815    1,642      1,022    9,457   10,479   1,393  1985     1993       (3)
Gables at Pearl Street....... 108      --    1,680        0    7,486      1,680    7,486    9,166     694  1995     1994       (4)
Gables CityPlace ............ 232      --    4,914   16,511      147      4,914   16,658   21,572     520  1995     1997       (3)
Gables Green Oaks ........... 300      --      737        0   15,704        737   15,704   16,441     783  1996     1994       (4)
Gables Mirabella ............ 126      --    1,917   10,722       61      1,917   10,783   12,700     152  1996     1997       (3)
Gables Preston .............. 126      --    1,056        0    7,839      1,056    7,839    8,895     625  1995     1994       (4)
Gables Spring Park........... 188      --      901        0   11,375        901   11,375   12,276     750  1996     1994       (4)
Gables Turtle Creek.......... 150      --    2,181   11,001       47      2,181   11,048   13,229     487  1995     1996       (3)
Gables Valley Ranch.......... 319  14,247(2) 1,899        0   14,721      1,899   14,721   16,620   1,798  1994     1993       (4)

<PAGE>
                                    Page-57

<CAPTION>
GABLES REALTY LIMIED PARTNERSHIP                                                                                   SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)


                                                                             Gross Amount at Which          Year
                                              Initial Costs    Costs Cap-  Carried at Close of Period   Construction/
                         Number of Related    -------------   italized Sub- ------------------------     Substantial         Acqui-
                         Apartment  Encum-          Bldg.and   sequent to        Bldg.and         Accum.  Renovation  Year   sition
Apartment Description      Homes   brances  Land  Improvement Acquisition  Land Improvement Total Deprec. Complete Acquired Comments
---------------------    --------  -------  ----  ----------- -----------  ---- ----------- ----- ------- -------- -------- --------
<S>                        <C>     <C>     <C>    <C>         <C>        <C>    <C>         <C>   <C>     <C>      <C>       <C>

Completed Communities:
----------------------
MEMPHIS, TENNESSEE
Gables Cordova .............  464  $10,487(1)$1,865        0  $24,231   $1,865  $24,231    $26,096  $7,648  1986     1985       (4)
Gables Germantown ..........  252       --    1,478        0   18,430    1,478   18,430     19,908     676  1997     1994       (4)
Gables Quail Ridge .........  238       --    1,053        0   16,109    1,053   16,109     17,162     585  1997     1994       (4)
Gables Stonebridge .........  500   19,419    2,312   23,674      954    2,312   24,628     26,940   1,285  1993-96  1996       (3)

NASHVILLE, TENNESSEE
Brentwood Gables ...........  254       --      849        0   15,690      849   15,690     16,539     994  1996     1994       (4)
Gables Hendersonville ......  364    9,706(1) 1,182        0   14,801    1,237   14,746     15,983   3,359  1991     1989       (4)
Gables Hickory Hollow I       272   12,750      974        0   12,521      974   12,521     13,495   4,802  1988     1985       (4)
Gables Hickory Hollow II ...  276   13,400    1,027        0   12,539    1,027   12,539     13,566   5,221  1987     1985       (4)

SAN ANTONIO, TEXAS
Gables Colonnade I .........  312       --    1,616        0   13,734    1,616   13,734     15,350   1,209  1995     1994       (4)
Gables Wall Street .........  232       --    1,223        0   11,410    1,223   11,410     12,633     873  1996     1994       (4)

AUSTIN, TEXAS
Gables Central Park ........  273       --        0        0   15,986        0   15,986     15,986     280  1997     1996    (4),(7)
Gables Great Hills .........  276       --    1,475        0   10,277    1,475   10,277     11,752   1,541  1993     1992       (4)
Gables Park Mesa ...........  148       --    2,072   10,331      137    2,072   10,468     12,540     116  1992     1997       (3)
Gables Town Lake ...........  256       --        0        0   13,728        0   13,728     13,728     964  1996     1994    (4),(7)
                          -------  -------  -------- ------- --------- -------  -------    -------    ----
Category Total ............17,816 $201,215 $149,465 $318,198 $513,551 $150,894 $830,320   $981,214 $98,236
                          ======= ======== ======== ========  =======  =======  =======    =======  ======

DEVELOPMENT COMMUNITIES:
ATLANTA, GEORGIA
Gables at Sugarloaf .......   386       --    3,249        0    7,511    3,249    7,511     10,760       0  1999(8)  1996       (4)
AUSTIN, TEXAS
Gables Bluffstone .........   256       --    2,129        0   14,217    2,129   14,217     16,346       0  1998(8)  1996       (4)
HOUSTON, TEXAS
Gables New Territory.......   256       --    1,338        0    3,806    1,338    3,806      5,144       0  1998(8)  1997       (4)
ORLANDO, FLORIDA
Gables Celebration ........   231       --    3,235        0    4,704    3,235    4,704      7,939       0  1998(8)  1997       (4)
The Commons at Little
      Lake Bryan I ........   280       --    2,477        0   10,574    2,477   10,574     13,051       0  1998(8)  1996       (4)
                            -----    -----  -------    -----  -------  -------  -------    -------  ------
Category Total ............ 1,409        0  $12,428       $0  $40,812  $12,428  $40,812    $53,240      $0
                            =====    =====  =======    =====  =======  =======  =======    =======  ======

LAND HELD FOR FUTURE DEVELOPMENT:
ATLANTA,  GEORGIA
Gables Metropolitan I and II  720       --   12,452        0        0   12,452        0     12,452       0   (9)     1997       (4)
DALLAS, TEXAS
Gables Green Oaks II .......  250       --      606        0        0      606        0        606       0   (9)     1994       (4)
Gables State Thomas ........  202       --    4,120        0        0    4,120        0      4,120       0   (9)     1997       (4)
Gables at the Galleria .....  222       --    2,800        0        0    2,800        0      2,800       0   (9)     1997       (4)
SAN ANTONIO, TEXAS
Gables Colonnade II ........  250       --    1,549        0     (353)   1,196        0      1,196       0   (9)     1994       (4)
MEMPHIS, TENNESSEE
Gables Quail Ridge II ......  148       --      600        0        0      600        0        600       0   (9)     1996       (4)
                           ------   ------  -------    -----   ------  -------  -------    -------  ------
Category Total .............1,792     $  0  $22,127       $0    ($353) $21,774       $0    $21,774      $0
                           ======   ======  =======    =====  =======  =======  =======    =======  ======

GRAND TOTALS ...........   21,017 $201,215 $184,020 $318,198 $554,010 $185,096 $871,132 $1,056,228 $98,236
                           ====== ======== ======== ======== ======== ======== ======== ========== =======
<PAGE>
                                    Page-58
<FN>
                                                                                                            SCHEDULE III
GABLES REALTY LIMITED PARTNERSHIP
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)

Notes to preceding two pages:

(1)  These properties  together secure a $48,365  tax-exempt fixed rate mortgage
     note payable.  The principal  balance  outstanding  under the note has been
     allocated to these properties proportionately based on each property's 1997
     net  operating  income  (equal to total  property  revenues  less  property
     operating and maintenance expenses, exclusive of depreciation expense).

(2)  These properties together secure a $52,385 conventional fixed rate mortgage
     note payable.  The principal  balance  outstanding  under the note has been
     allocated to these properties proportionately based on each property's 1997
     net  operating  income  (equal to total  property  revenues  less  property
     operating and maintenance expenses, exclusive of depreciation expense).

(3)  Acquisition of existing apartment community.

(4)  Acquisition of land for development.

(5)  Property was substantially renovated following acquisition.

(6)  Property was developed by Gables, sold and subsequently  reacquired through
     foreclosure.

(7)  Land subject to a long-term lease.

(8)  Represents the year in which construction is expected to be completed.

(9)  The   development   timetable  has  not  yet  been   determined  for  these
     communities.

Depreciation  is calculated  on a straight  line basis over an estimated  useful
life ranging from 19 to 40 years for buildings and improvements and an estimated
useful life ranging from 5 to 10 years for furniture, fixtures and equipment.

A summary of activity for real estate  investments and accumulated  depreciation
is as follows:

</FN>
</TABLE>
<TABLE>
<CAPTION>
                                                                                   Years ended December 31
                                                                                   -----------------------
                                                                          1997             1996           1995
                                                                          ----             ----           ----
REAL ESTATE INVESTMENTS:
<S>                                                                     <C>              <C>            <C>

Balance, beginning of year ......................................   $   784,600       $   591,233   $   437,782
Additions:
  Acquisitions, including renovation expenditures ...............       179,346           128,472        18,727
  Development costs incurred, including related land acquisitions        96,551            65,867       131,725
  Capital expenditures for completed communities ................         4,878             3,854         2,999
                                                                      ---------          --------      --------
    Total additions .............................................       280,775           198,193       153,451
Sales ...........................................................        (9,147)           (4,826)            0
                                                                      ---------          --------      --------
Balance, end of year ............................................   $ 1,056,228       $   784,600   $   591,233
                                                                      =========          ========      ========

ACCUMULATED DEPRECIATION:

Balance, beginning of year ......................................      $ 74,903         $  57,343      $45,010
Depreciation ....................................................        24,655            18,457       12,333
Sales ...........................................................        (1,322)             (897)           0
                                                                       --------           -------       ------
Balance, end of year ............................................       $98,236         $  74,903      $57,343
                                                                       ========           =======       ======
</TABLE>