Gables Residential Trust 10Q 2005 Q2 Quarterly report

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

FORM 10 - Q

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

For the quarterly period ended June 30, 2005

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

Commission File Number: 1-12590

GABLES RESIDENTIAL TRUST
(Exact name of Registrant as specified in its Charter)

MARYLAND (State of Incorporation)		58-2077868 (I.R.S. Employer Identification No.)

777 Yamato Road, Suite 510
Boca Raton, Florida 33431
(Address of principal executive offices, including zip code)

(561) 997-9700

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or 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.

(X) YES ( ) NO

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act)
(X) YES ( ) NO

APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

29,372,144 common shares of beneficial interest, par value $0.01 per share
were outstanding as of July 29, 2005

GABLES RESIDENTIAL TRUST
FORM 10 - Q INDEX

Part I	Financial Information	Page
Item 1:	Unaudited Financial Statements
	Consolidated Balance Sheets as of June 30, 2005 and December 31, 2004	3
	Consolidated Statements of Operations for the three months and six months ended June 30, 2005 and 2004	4
	Consolidated Statements of Cash Flows for the six months ended June 30, 2005 and 2004	5
	Notes to Consolidated Financial Statements	6
Item 2:	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4:	Controls and Procedures	40
Part II	Other Information
Item 1:	Legal Proceedings	41
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3:	Defaults Upon Senior Securities	42
Item 4:	Submission of Matters to a Vote of Security Holders	42
Item 5:	Other Information	42
Item 6:	Exhibits	42

	Signatures	43

PART I. – FINANCIAL INFORMATION
ITEM 1. – UNAUDITED FINANCIAL STATEMENTS

GABLES RESIDENTIAL TRUST
CONSOLIDATED BALANCE SHEETS
(Unaudited and Amounts in Thousands, Except Per Share Data)


	June 30, 2005		December 31, 2004
ASSETS:
Real estate assets:
Land	$ 353,612		$ 287,115
Buildings and improvements	1,318,845		1,259,728
Furniture, fixtures and equipment	134,257		133,923
Construction in progress	159,300		100,245
Investment in joint ventures	71,912		74,902
Undeveloped land	45,584		13,411
Real estate assets before accumulated depreciation and assets held for sale	2,083,510		1,869,324
Accumulated depreciation	(275,179	)	(264,218	)
Assets held for sale, net of accumulated depreciation of $30,921	-		74,071
Net real estate assets	1,808,331		1,679,177

Cash and cash equivalents	10,718		8,963
Restricted cash	3,054		3,764
Deferred financing costs, net	5,544		3,243
Other assets, net	42,939		37,591
Total assets	$1,870,586		$ 1,732,738

LIABILITIES AND SHAREHOLDERS' EQUITY:
Notes payable, including $46,007 related to assets held for sale at December 31, 2004	$1,100,214		$ 982,535
Accrued interest payable	12,982		12,812
Preferred dividends payable	374		374
Real estate taxes payable	17,196		17,109
Accounts payable and accrued expenses – construction	20,801		10,669
Accounts payable and accrued expenses – operating	26,632		22,014
Security deposits	3,570		3,492
Series Z Preferred Shares, at $25.00 liquidation preference, 180 shares issued and outstanding, including accrued and unpaid dividends	6,083		5,971
Total liabilities	1,187,852		1,054,976

Minority interest of common unitholders in Operating Partnership	63,149		68,463

Commitments and contingencies

Shareholders' equity:
Excess shares, $0.01 par value, 51,000 shares authorized	-		-
Preferred shares, $0.01 par value, 20,000 shares authorized,
Series C-1 Preferred Shares, at $25.00 liquidation preference,
1,600 shares issued and outstanding	40,000		40,000
Series D Preferred Shares, at $25.00 liquidation preference,
3,000 shares issued and outstanding	75,000		75,000
Series Z Preferred Shares, reported above
Common shares, $0.01 par value, 100,000 shares authorized,
33,991 and 33,796 shares issued at June 30, 2005 and
December 31, 2004, respectively	340		338
Additional paid-in capital	589,441		589,022
Treasury shares at cost, 4,653 and 4,340 common shares at June 30, 2005 and December 31, 2004, respectively	(116,026	)	(105,174	)
Deferred long-term compensation	(1,774	)	( 2,307	)
Accumulated earnings	32,604		12,420
Total shareholders' equity	619,585		609,299
Total liabilities and shareholders' equity	$1,870,586		$1,732,738
See notes to consolidated financial statements.

GABLES RESIDENTIAL TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and Amounts in Thousands, Except Per Share Data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
Revenues:
Rental revenues	$ 51,941		$ 45,380		$ 101,004		$ 90,139
Other property revenues	4,334		3,829		7,939		7,191
Total property revenues	56,275		49,209		108,943		97,330

Property management revenues	2,176		2,078		4,410		4,232
Ancillary services revenues	817		1,337		1,896		2,551
Interest income	123		32		210		40
Other revenues	87		453		385		859
Total other revenues	3,203		3,900		6,901		7,682

Total revenues	59,478		53,109		115,844		105,012

Expenses:
Property operating and maintenance (exclusive of items shown separately below)	21,446		17,897		41,301		35,621
Real estate asset depreciation and amortization	12,905		11,412		25,161		23,165
Property management (owned and third party)	4,165		4,113		8,741		8,399
Ancillary services	845		1,010		1,710		2,074
Interest expense and credit enhancement fees	12,228		9,485		23,625		18,827
Amortization of deferred financing costs	382		426		874		840
General and administrative	2,925		2,751		6,075		5,725
Corporate asset depreciation and amortization	953		714		1,878		1,212
Unusual items	2,828		-		(472	)	-
Total expenses	58,677		47,808		108,893		95,863

Income from continuing operations before equity in income of joint ventures, gain on sale and minority interest	801		5,301		6,951		9,149

Equity in income of joint ventures	476		60		961		544
Gain on sale of technology investment	-		-		5,838		-
Minority interest of common unitholders in Operating Partnership	100		(399	)	(1,115	)	(674	)

Income from continuing operations	1,377		4,962		12,635		9,019

Operating income (loss) from discontinued operations, net of minority interest	(2	)	983		350		2,088
Gain on sale of discontinued operations, net of minority interest	16,588		12,419		47,127		14,498
Debt extinguishment costs associated with the sale of real estate assets, net of minority interest	-		(862	)	(137	)	(862	)
Income from discontinued operations, net of minority interest	16,586		12,540		47,340		15,724

Net income	17,963		17,502		59,975		24,743

Dividends to preferred shareholders	(2,193	)	(2,193	)	(4,387	)	(4,387	)

Net income available to common shareholders	$ 15,770		$ 15,309		$ 55,588		$ 20,356

Weighted average number of common shares outstanding – basic	29,283		29,258		29,351		29,119
Weighted average number of common shares outstanding – diluted	33,128		33,548		33,302		33,487

Per Common Share Information – Basic:
Income (loss) from continuing operations (net of preferred dividends)	$ (0.03	)	$ 0.09		$ 0.28		$ 0.16
Income from discontinued operations, net of minority interest	$ 0.57		$ 0.43		$ 1.61		$ 0.54
Net income available to common shareholders	$ 0.54		$ 0.52		$ 1.89		$ 0.70

Per Common Share Information – Diluted:
Income (loss) from continuing operations (net of preferred dividends)	$ (0.03	)	$ 0.09		$ 0.28		$ 0.16
Income from discontinued operations	$ 0.56		$ 0.43		$ 1.61		$ 0.54
Net income available to common shareholders	$ 0.54		$ 0.52		$ 1.89		$ 0.70
See notes to consolidated financial statements.

GABLES RESIDENTIAL TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited and Amounts in Thousands, Except Per Share Data)
		Six Months Ended June 30,
			2005		2004
	CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income		$ 59,975		$ 24,743
	Adjustments to reconcile net income to net cash provided
	by operating activities:
	Depreciation and amortization		28,296		30,137
	Equity in income of joint ventures		( 961	)	( 544	)
	Minority interest of unitholders in Operating Partnership		7,427		2,937
	Gain on sale of discontinued operations		(53,411	)	(16,580	)
	Gain on sale of technology investment		(5,838	)	-
	Long-term compensation expense		1,141		969
	Debt extinguishment costs associated with the sale of real estate assets		156		986
	Operating distributions received from joint ventures		3,962		977
	Change in operating assets and liabilities:
	Other assets		(2,121	)	1,152
	Other liabilities, net		4,716		711
	Net cash provided by operating activities		43,342		45,488
	CASH FLOWS FROM INVESTING ACTIVITIES:
	Acquisition, development, construction and renovation of real estate assets		(259,022	)	(109,425	)
	Recurring value retention capital expenditures		( 3,861	)	( 4,711	)
	Non-recurring and/or value-enhancing capital expenditures		( 2,424	)	( 2,558	)
	Net proceeds from sale of discontinued operations		98,783		52,602
	Restricted cash held in escrow, net				349
	Net proceeds from sale of undeveloped land		-		1,696
	Net proceeds from sale of technology investment		5,838		-
	Investment in joint ventures		-		( 7,745	)
	Net proceeds from sale of joint venture real estate assets		-		1,580
	Change in restricted cash		710		916
	Other		( 198	)	(2,592	)
	Net cash used in investing activities		(160,174	)	(70,237	)
	CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from the exercise of share options		613		5,313
	Treasury share purchases and unit redemptions		(19,673	)	-
	Payments of deferred financing costs		( 3,526	)	( 5	)
	Notes payable proceeds		542,179		195,618
	Notes payable repayments		(356,669	)	(118,076	)
	Debt extinguishment costs associated with the sale of real estate assets		-		( 617	)
	Principal escrow payments deposited into escrow, net		-		(10,922	)
	Preferred dividends paid		( 4,387	)	( 4,387	)
	Common dividends paid ($1.205 per share)		(35,404	)	(35,133	)
	Common distributions paid ($1.205 per unit)		(4,624	)	( 5,105	)
	Change in refundable security deposits		78		(89	)
	Net cash provided by financing activities		118,587		26,597

	Net change in cash and cash equivalents		$ 1,755		$ 1,848
	Cash and cash equivalents, beginning of period		8,963		5,915
	Cash and cash equivalents, end of period		$ 10,718		$ 7,763

	Supplemental disclosure of cash flow information:
	Cash paid for interest		$ 28,082		$ 26,178
	Interest capitalized		4,714		4,481
	Cash paid for interest, net of amounts capitalized		$ 23,368		$ 21,697
	See notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and Amounts in Thousands, Except Property and Per Share Data)

Unless the context otherwise requires, all references to "we," "our" or "us" in this report refer collectively to Gables Residential Trust ("Gables"), a Maryland real estate investment trust ("REIT"), and its subsidiaries, including Gables Realty Limited Partnership, a Delaware limited partnership, considered as a single enterprise. Gables GP, Inc., a wholly-owned subsidiary of Gables Residential Trust, is the sole general partner of Gables Realty Limited Partnership.

1. ORGANIZATION AND FORMATION

        We are a REIT formed in 1993 under Maryland law to continue and expand the operations of our privately owned predecessor organization. We completed our initial public offering on January 26, 1994.

        We are a fully integrated real estate company engaged in the multifamily apartment community management, development, construction, acquisition and disposition businesses. We also provide management, development and construction, corporate rental housing and brokerage services to third parties and unconsolidated joint ventures. Substantially all of these businesses are conducted through Gables Realty Limited Partnership (the "Operating Partnership"). We control the Operating Partnership through Gables GP, Inc., a wholly-owned subsidiary that is the sole general partner of the Operating Partnership. This organizational structure is commonly referred to as an umbrella partnership REIT or "UPREIT." At June 30, 2005, we were an 88.9% economic owner of the common equity of the Operating Partnership. Substantially all of our third-party management businesses are conducted through a wholly-owned subsidiary, Gables Residential Services.

        Our limited partnership and indirect general partnership interests in the Operating Partnership entitle us to share in cash distributions from, and in the profits and losses of, the Operating Partnership in proportion to our ownership interest therein and entitle us to vote on all matters requiring a vote of the limited partners. Generally, the other limited partners of the Operating Partnership are persons who contributed their direct or indirect interests in certain real estate assets to the Operating Partnership primarily in connection with the IPO and the 1998 acquisition of the real estate assets and operations of Trammell Crow Residential South Florida. A unit of limited partnership interest in the Operating Partnership is referred to herein as a “unit.” The Operating Partnership is obligated to redeem each common unit held by a person other than us at the request of the holder for an amount equal to the fair market value of one of our common shares at the time of such redemption, provided that we, at our option, may elect to acquire each common unit presented for redemption for one common share or cash. With each redemption, our percentage ownership interest in the Operating Partnership will increase. In addition, whenever we issue common shares or preferred shares, we are obligated to contribute any net proceeds to the Operating Partnership, and the Operating Partnership is obligated to issue an equivalent number of common or preferred units, with substantially identical rights as the common or preferred shares, as applicable, to us.

     As of June 30, 2005, we managed a total of 162 multifamily apartment communities owned by us and our third-party clients comprising 41,555 apartment homes. As of June 30, 2005, we owned 75 stabilized multifamily apartment communities comprising 18,203 apartment homes, an indirect 60% interest in two stabilized apartment communities comprising 709 apartment homes, an indirect 51% interest in one stabilized apartment community comprising 211 apartment homes, an indirect 50% interest in three stabilized apartment communities comprising 1,163 apartment homes, an indirect 49% interest in two stabilized apartment communities comprising 532 apartment homes and an indirect 25% interest in one stabilized apartment community comprising 345 apartment homes. We also owned 11 multifamily apartment communities under development or in lease-up at June 30, 2005 that are expected to comprise 2,673 apartment homes upon completion. In addition, as of June 30, 2005, we owned or leased five parcels of land on which we intend to develop five apartment communities that we currently expect will comprise an estimated 1,190 apartment homes upon completion. We also have rights to acquire additional parcels of land, either through options or long-term conditional contracts, on which we believe we could develop five communities that we currently expect would comprise an estimated 1,115 apartment homes upon completion. Any future development is subject to obtaining permits and other governmental approvals, as well as our ongoing business review, and may not be undertaken or completed.

Agreement and Plan of Merger

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and Amounts in Thousands, Except Property and Per Share Data)

holder so elects, a Class A Common Unit of limited partnership interest in the surviving partnership plus a per unit distribution equal to the pro-rata dividend, provided that the issuance of Class A Common Units would be exempt from registration under the Securities Act and applicable state securities laws. Holders of not more than $75 million of existing common units in the Operating Partnership in the aggregate may elect to receive Class A common units (any excess will be subject to pro-rata reduction among all holders electing to receive Class A common units).

The merger has been unanimously approved by our Board of Trustees and is subject to approval by our common shareholders and other customary closing conditions. It is currently anticipated that the merger will be closed by the end of the third quarter of 2005.

Pending completion of the merger, we have agreed to carry on our business in the usual, regular and ordinary course consistent with past practice. Under the merger agreement, we have agreed to various covenants regarding the conduct of our business and other general matters. These covenants include, among other things, limitations on our ability to purchase, acquire, sell, encumber, transfer or dispose of our assets, enter into or amend any material contract and, subject to a list of enumerated exceptions in the merger agreement, incur or repay indebtedness, issue or repurchase equity, make capital contributions to joint ventures or encumber any material assets.

2. COMMON AND PREFERRED EQUITY ACTIVITY

Issuances of Common Operating Partnership Units

On June 17, 2004, the Operating Partnership issued 66 common units to fund $2.1 million of the $12.3 million purchase price of a parcel of land we acquired for the future development of an apartment community expected to comprise 448 apartment homes upon completion.

Common Equity Repurchase Program

Our board of trustees implemented a common equity repurchase program pursuant to which we are authorized to purchase up to $200 million of our outstanding common shares or units. We view the repurchase of common equity with consideration of other investment alternatives when capital is available to be deployed. We have repurchased shares from time to time in open market and privately negotiated transactions, depending on market prices and other prevailing conditions, using proceeds from sales of selected assets. We have also repurchased common units for cash upon their presentation for redemption by unitholders. During the first quarter of 2005, we repurchased 311 common shares and 254 common units for a total of $19.7 million. There were no such repurchases during 2004 or the second quarter of 2005. As of June 30, 2005, we had repurchased an aggregate of 4,817 common shares and 554 common units for a total of $135.7 million, including $0.2 million in related commissions, under the common equity repurchase program.

Shelf Registration Statement

We have an effective shelf registration statement on file with the Securities and Exchange Commission providing $500 million of equity capacity and $500 million of debt capacity. We believe it is prudent to maintain shelf registration capacity in order to facilitate future capital raising activities. As of June 30, 2005, we had issued $150 million of senior unsecured notes and there have been no issuances of equity securities under this shelf registration statement.

3. BASIS OF PRESENTATION

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the consolidated accounts of Gables and its subsidiaries, including the Operating Partnership and Gables Residential Services. We consolidate the financial statements of all entities in which we have a controlling financial interest, as that term is defined under GAAP, through either majority voting interest or contractual agreements. Our investments in non-controlled joint ventures are accounted for using the equity method. All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements have been adjusted for the minority interest of common unitholders in the Operating Partnership. Common units, if presented for redemption, can be exchanged for common shares on a one-for-one basis. Minority interest of common unitholders in the Operating Partnership, as reflected in the accompanying balance sheets, is calculated at the balance sheet date based upon the percentage of common units outstanding owned by partners other than Gables to the total number of common units outstanding. Minority interest of common unitholders in the Operating Partnership’s earnings is calculated based upon the weighted average of common units outstanding during the applicable period.

The accompanying interim unaudited financial statements have been prepared in accordance with GAAP for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, all adjustments (consisting only of normally recurring adjustments) considered necessary for a fair presentation for these interim periods have been included. The results of operations for the interim period ended June 30, 2005 are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with the financial statements included in our Form 10-K for the year ended December 31, 2004.

In the accompanying consolidated statement of cash flows for the six months ended June 30, 2005, we changed the classification of changes in restricted cash to present such changes as an investing activity and changes in refundable security deposits to present such changes as a financing activity. We previously presented such changes as operating activities. In the accompanying consolidated statements of cash flows for the six months ended June 30, 2004, we reclassified changes in restricted cash and changes in refundable security deposits to be consistent with our 2005 presentation which resulted in a $916 increase to investing cash flows, an $89 decrease to financing cash flows and an $827 decrease to operating cash flows from the amounts previously reported.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and Amounts in Thousands, Except Property and Per Share Data)

4. PORTFOLIO AND OTHER FINANCING ACTIVITY

Community Dispositions Subject to Discontinued Operations Reporting

In January 2005, we sold an apartment community located in Orlando comprising 315 apartment homes to a condominium converter for $47.0 million. In connection with such transaction, we were relieved of a $0.7 million note payable obligation. In January 2005, we sold four apartment communities located in Atlanta comprising a total of 1,100 apartment homes for $56.1 million. The buyer of the four Atlanta communities assumed $45.3 million of tax-exempt variable-rate bonds encumbering such communities in connection with the transaction. The bonds were enhanced by $46.0 million of letters of credit that were cancelled in connection with the closing of the sale. These communities were classified as assets held for sale at December 31, 2004 in accordance with SFAS No. 144.

In March 2005, we sold an apartment community located in Memphis comprising 464 apartment homes for $24.2 million. The buyer of the community assumed $21.8 million of tax-exempt variable-rate bonds encumbering such community in connection with the transaction. The bonds were enhanced by a $22.1 million letter of credit that was cancelled in connection with the closing of the sale. This community was not classified as an asset held for sale at December 31, 2004 in accordance with SFAS No. 144 as the related criteria were not met as of such date.

The net proceeds from these sales, after closing costs and the buyers’ assumption of $67.1 million of debt, were $58.3 million and were used to pay down outstanding borrowings under our unsecured credit facilities and to repurchase common shares and units under our common equity repurchase program. The aggregate gain from the sale of these six communities, exclusive of the $0.2 million in associated debt extinguishment costs, was $34.7 million, or $30.5 million, net of the $4.2 million portion of the gain attributable to the minority interest of common unitholders and was recognized in the first quarter of 2005.

On April 28, 2005, we sold an apartment community located in Tampa comprising 166 apartment homes to a condominium converter for $41.2 million. The net sale proceeds of $40.5 million were used to repay outstanding borrowings under our unsecured credit facilities. The gain from the sale of this community was $18.7 million, or $16.6 million, net of the $2.1 million portion of the gain attributable to the minority interest of common unitholders and was recognized in the second quarter of 2005. This community was not classified as an asset held for sale at March 31, 2005 in accordance with SFAS No. 144 as the related criteria were not met as of such date.

During 2004, we sold five apartment communities located in South Florida comprising 1,608 apartment homes, two apartment communities located in Tennessee comprising 548 apartment homes, one apartment community located in Atlanta comprising 603 apartment homes and one apartment community located in Orlando comprising 231 apartment homes for $217.6 million. Seven of the sold communities were encumbered by tax-exempt bonds totaling $106.2 million. A total of $95.7 million of these tax-exempt bonds were enhanced by $96.2 million of letters of credit that were cancelled in connection with the closing of the related sales. The buyers of four of the communities assumed $67.7 million of variable-rate tax-exempt bonds encumbering such communities in connection with the sale transactions. The net proceeds from these sales, after closing costs and the buyers’ assumption of such debt, were $146.1 million and were used to repay $38.5 million of bond indebtedness and to pay down outstanding borrowings under our unsecured credit facilities. We were relieved of a $1.9 million note payable obligation in connection with the sale of the Orlando apartment community. In connection with the sale transactions, we incurred approximately $1.6 million of debt extinguishment costs, including $0.4 million of credit enhancement prepayment costs, $0.6 million of defeasance costs and $0.6 million relating to the write-off of unamortized deferred financing costs. The aggregate gain from the sale of these nine communities, exclusive of the debt extinguishment costs, was $71.2 million, or $62.3 million, net of the $8.9 million portion of the gain attributable to the minority interest of common unitholders. The sale of the community in Orlando closed during the first quarter of 2004, resulting in a $2.4 million gain, or a $2.1 million gain, net of the $0.3 million portion of the gain attributable to the minority interest of common unitholders, which was recognized in the first quarter of 2004. The net proceeds from this sale were $27.0 million. The sale of the community in Atlanta closed during the second quarter of 2004, resulting in a $14.2 million gain, exclusive of debt extinguishment costs, or a $12.4 million gain, net of the $1.8 million portion of the gain attributable to the minority interest of common unitholders, which was recognized in the second quarter of 2004. The net proceeds from this sale were $25.6 million. The remaining sales closed during the balance of 2004.

Historical operating results and gains are reflected as discontinued operations in the accompanying consolidated statements of operations (Note 6).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and Amounts in Thousands, Except Property and Per Share Data)

Community and Land Dispositions Not Subject to Discontinued Operations Reporting

During 2004, we acquired and sold a parcel of land in Arlington, Virginia, sold a parcel of land in San Antonio and sold a parcel of land in Tennessee. The net proceeds from these land sales were $29.1 million and were used to pay down outstanding borrowings under our unsecured credit facilities. The gain from the land sales was $12.0 million, net of an applicable income tax provision of $0.9 million. The sale of the parcel of land in San Antonio closed during the first quarter of 2004. The net proceeds from this sale were $1.7 million and resulted in no gain or loss. The remaining transactions closed in the second half of 2004.

During 2004, we sold our 20% ownership interest in an apartment community located in Houston comprising 186 apartment homes to our partner in the Gables Residential Apartment Portfolio JV Two (the "GRAP JV Two") and sold our 8.3% ownership interest in the CMS Tennessee Multifamily JV, which owns three apartment communities located in Tennessee comprising 1,118 apartment homes. In addition, during 2004, the GRAP JV Two sold an apartment community located in Tampa comprising 76 apartment homes to a condominium converter upon completion of construction. Our share of the net sales proceeds from these transactions was $3.7 million, resulting in a gain of $0.7 million related to the sales of the apartment communities and $1.7 million related to the sale of our joint venture interest. The sale of our 20% interest in the apartment community in Houston closed during the first quarter of 2004. The net proceeds from this sale were $1.6 million, resulting in a gain of $0.4 million which was recognized in the first quarter of 2004. The remaining transactions closed in the second half of 2004.

During the second quarter of 2004, we contributed two apartment communities located in South Florida comprising 411 apartment homes to a joint venture with New York State Teachers’ Retirement System (“NYSTRS”) in which we have a 50% interest. Also, during the third quarter of 2004, we admitted NYSTRS as a 49% member in a wholly-owned subsidiary that owns an apartment community located in Washington, D.C. comprising 211 apartment homes. These transactions did not meet the criteria for gain recognition. See “NYSTRS Joint Venture Arrangements” below for further discussion.

During the fourth quarter of 2004, we exchanged our 20% ownership interest in two apartment communities located in Tampa comprising 617 apartment homes owned by the GRAP JV Two with our joint venture partner in return for an increase in our ownership interest from 20% to 60% in the remaining two apartment communities located in Atlanta comprising 709 apartment homes owned by the Gables Residential Apartment Portfolio JV (the "GRAP JV") and the GRAP JV Two. In connection with these transactions we also paid $5.7 million in cash to our joint venture partner. These transactions did not meet the criteria for gain recognition.

       Historical operating results and gains are included in continuing operations in the accompanying consolidated statements of operations.

Community Acquisitions

       During the first quarter of 2005, we acquired an apartment community located in Atlanta and an apartment community located in South Florida comprising an aggregate 715 apartment homes for approximately $91.9 million in cash.

        During the second quarter of 2005, we acquired seven apartment communities located in Atlanta, Dallas and Houston comprising an aggregate 945 apartment homes for approximately $80 million in cash.

During the second quarter of 2004, we acquired an apartment community located in Dallas and an apartment community located in Atlanta comprising an aggregate 302 apartment homes for approximately $34.9 million in cash.

During the third quarter of 2004, we acquired one apartment community located in Atlanta and two apartment communities located in Dallas comprising an aggregate 433 apartment homes for approximately $66.4 million in cash.

The cash portion of the consideration for each denoted acquisition was funded with advances under our unsecured credit facilities.

Other Acquisitions

In May 2004, we acquired Income Growth Property Management, Inc. ("IGPM"), a property management company based in San Diego, CA that managed 2,141 apartment homes in 17 multifamily apartment communities located in the San Diego and Inland Empire areas at the time of acquisition. The estimated purchase price of approximately $2.0 million, inclusive of related commissions, is structured to be paid in three installments based on retention of the management contracts in place upon acquisition. The purchase price may increase if certain additional management contracts are obtained. As of June 30, 2005, we had funded $1.7 million of the $2.0 million estimated purchase price. The third and final installment is expected to be paid in the second quarter of 2006.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and Amounts in Thousands, Except Property and Per Share Data)

NYSTRS Joint Venture Arrangements

The GN Apartment Fund LLC was formed in June 2004. In connection with the formation transactions, we contributed 100% of our ownership interest in two communities in South Florida comprising 411 apartment homes with an agreed upon fair value of $51.1 million, subject to $30.7 million of indebtedness, and $7.2 million in cash in return for a 50% ownership interest in the venture. Our venture partner, NYSTRS, as advised by JPMorgan Fleming Asset Management, contributed 98% of its ownership interest in two communities in the Inland Empire comprising 532 apartment homes with an agreed upon fair value of $66.1 million, subject to $31.4 million of indebtedness, and other net liabilities of $0.6 million, in return for its 50% ownership interest in the venture and $6.5 million in cash. Our initial investment in this joint venture is equal to the net book value of the assets and liabilities we contributed to the venture.

In October 2004, we entered into another joint venture arrangement with NYSTRS whereby we admitted NYSTRS as a 49% member in our wholly-owned subsidiary, Henry Adams House Apartments LLC, which owns one community in Washington, D.C. comprising 211 apartment homes. In connection with this transaction, the community owned by Henry Adams House Apartments LLC was deemed to have a fair value of $54.7 million, subject to $35.6 million of indebtedness. In return for its 49% member interest, NYSTRS contributed $9.7 million in cash, including $0.3 million related to its share of due diligence costs, which was subsequently disbursed to us. This transaction was contemplated as part of the original June 2004 GN Apartment Fund LLC formation transactions.

The Summerset Village LLC was formed in December 2004. Our ownership interest in this venture is 50%. In connection with the formation transactions, we and NYSTRS each contributed $31.6 million in cash in order to acquire an apartment community located in the Inland Empire comprising 752 apartment homes for a purchase price of $138.2 million. This community is subject to $75.0 million of indebtedness.

We serve as the managing member of each of the ventures and have responsibility for all day-to-day operating matters, and we serve as property manager for each of the communities owned by the ventures. In connection with these transactions, we have discussed making future investments with NYSTRS through the formation of additional joint ventures whereby the ventures, on a collective basis, intend to own, operate, acquire and develop up to $800 million of multifamily apartment communities located primarily in the San Diego, Inland Empire and Washington, D.C. markets. We have granted NYSTRS a three-year right-of-first-opportunity for investment opportunities in San Diego and Washington, D.C. that exceed $50 million and those that exceed $35 million in the Inland Empire. As of June 30, 2005, approximately $310 million of the $800 million target has been invested.

$100 Million Secured Debt Arrangement

On September 29, 2004, we entered into a $100 million secured debt arrangement which bears interest at a fixed rate of 4.37% and matures October 5, 2009. The net proceeds of approximately $99.1 million were used to pay down outstanding borrowings under our unsecured credit facilities. There are no principal amortization payment requirements and the loan is secured by five wholly-owned assets.

Senior Unsecured Note Issuances

On March 14, 2005, we issued $150 million of senior unsecured notes which bear interest at a rate of 5.00%, were priced to yield 5.09% and mature in March 2010. The net proceeds of approximately $148 million were used to repay $100 million of 6.80% senior unsecured notes that matured March 15, 2005 and to reduce outstanding borrowings under our unsecured credit facilities.

Sale of Technology Investment

In February 2005, we monetized our equity investment in privately-held Rent.com, an internet listing website in the apartment and rental housing industry, via eBay Inc.'s acquisition of Rent.com. We received cash proceeds, and recorded a gain, of approximately $5.8 million in the first quarter of 2005. Our original investment in Rent.com of approximately $0.3 million was fully-reserved for in the third quarter of 2001.

5. RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, FIN 46, "Consolidation of Variable Interest Entities," was issued, and was subsequently replaced by FIN 46R in December 2003. In general, a variable interest entity ("VIE") is an entity that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. Previously, a company generally had only consolidated another entity in its financial statements if it controlled the entity through voting interests. FIN 46R changes that by requiring a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss from the VIE's activities or is entitled to receive a majority of the entity's residual returns or both. The provisions of FIN 46R were effective for the first interim period ending after March 15, 2004. The adoption of FIN 46R did not result in the consolidation of any previously unconsolidated entities.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and Amounts in Thousands, Except Property and Per Share Data)

In December 2004, SFAS No. 123(R), “Share-Based Payment,” which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation,” was issued. SFAS No. 123(R) supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” and amends SFAS No. 95, “Statement of Cash Flows.” Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS No. 123(R) will be effective for us for the fiscal year beginning January 1, 2006. We began expensing stock-based employee compensation under the fair value recognition provisions of SFAS No. 123 on a prospective basis beginning January 1, 2003. Due to our limited use of options as a form of compensation since 1999, we do not expect the adoption of SFAS No. 123(R) to have a significant impact on our financial statements.

In December 2004, SFAS No. 153, “Exchanges of Nonmonetary Assets,” was issued. SFAS No. 153 amends APB Opinion No. 29, “Accounting for Nonmonetary Transactions” to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. That exception required that some nonmonetary exchanges be recorded on a carryover basis versus SFAS No. 153, which requires that an entity record a nonmonetary exchange at fair value and recognize any gain or loss if the transaction has commercial substance. The standard specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for us for the fiscal year beginning January 1, 2006. We do not believe that the adoption of SFAS No. 153 will have a significant impact on our financial statements.

6. DISCONTINUED OPERATIONS

We adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” effective January 1, 2002. SFAS No. 144 requires, among other things, that the operating results of certain real estate assets which have been sold subsequent to January 1, 2002, or otherwise qualify as held for sale (as defined by SFAS No. 144), be reflected as discontinued operations in the consolidated statements of operations for all periods presented. Under SFAS No. 144, an asset is generally considered to qualify as held for sale when (1) management, having the authority to approve the action, commits to a plan to sell the asset, (2) an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated and (3) the sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale, within one year. During the first quarter of 2005, we sold six wholly-owned operating real estate assets, five of which were classified as held for sale as of December 31, 2004. During the second quarter of 2005, we sold one wholly-owned operating real estate asset. During 2004, we sold nine wholly-owned operating real estate assets. The operating results for these sixteen wholly-owned assets classified as held for sale or sold are reflected as discontinued operations in the accompanying statements of operations for all periods presented. Interest expense has been allocated to the results of the discontinued operations in accordance with EITF No. 87-24. We had no assets that qualified as held for sale as defined by SFAS No. 144 at June 30, 2005.

During 2004, we contributed two apartment communities located in South Florida comprising 411 apartment homes to a joint venture with NYSTRS in which we have a 50% interest. Also during 2004, we admitted NYSTRS as a 49% member in a wholly-owned subsidiary that owns an apartment community located in Washington, D.C. comprising 211 apartment homes. Due to our continuing involvement with the operations of these three communities, the operating results of these assets are included in continuing operations for all periods presented.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and Amounts in Thousands, Except Property and Per Share Data)

Condensed financial information of the results of operations for the real estate assets sold reflected as discontinued operations is as follows:

Three Months
Ended June 30,

Six Months
Ended June 30,

	2005		2004		2005		2004
Total property revenues	$ 242		$ 9,646		$ 2,253		$ 20,131
Property operating and maintenance expense (exclusive of items shown separately below) Real estate asset depreciation and amortization Interest expense and credit enhancement fees Amortization of deferred financing costs Total expenses	138 67 39 - 244		4,366 2,268 1,799 90 8,523		1,075 370 398 13 1,856		9,059 4,739 3,759 181 17,738
Operating income (loss) from discontinued operations Minority interest of common unitholders in Operating Partnership Operating income (loss) from discontinued operations, net of minority interest	(2 - (2	) )	1,123 (140 983	)	397 (47 350	)	2,393 (305 2,088	)

Gain on sale of discontinued operations Minority interest of common unitholders in Operating Partnership Gain on sale of discontinued operations, net of minority interest	18,714 (2,126 16,588	)	14,198 (1,779 12,419	)	53,411 (6,284 47,127	)	16,580 (2,082 14,498	)
Debt extinguishment costs associated with the sale of real estate assets Minority interest of common unitholders in Operating Partnership	- -		(986 124	)	(156 19	)	(986 124	)
Debt extinguishment costs associated with the sale of real estate assets, net of minority interest	-		(862	)	(137	)	(862	)
Income from discontinued operations, net of minority interest	$16,586		$12,540		$47,340		$15,724
Summary: Income from discontinued operations Minority interest of common unitholders in Operating Partnership	$18,712 �� (2,126	)	$14,335 (1,795	)	$53,652 (6,312	)	$17,987 (2,263	)
Income from discontinued operations, net of minority interest	$16,586		$12,540		$47,340		$15,724

7. EARNINGS PER SHARE

Basic earnings per share are computed based on net income available to common shareholders and the weighted average number of common shares outstanding. Diluted earnings per share reflect the assumed issuance of common shares under our equity incentive plan and upon conversion of common units. The numerator and denominator used for both basic and diluted earnings per share computations are as follows:

Three Months
Ended June 30,

Six Months
Ended June 30,

	2005		2004	2005	2004
Basic and diluted income available to common shareholders (numerator):
Income (loss) from continuing operations (net of preferred dividends) - basic Minority interest of common unitholders in Operating Partnership attributable to continuing operations Income (loss) from continuing operations (net of preferred dividends) - diluted Income from discontinued operations, net of minority interest - basic Minority interest of common unitholders in Operating Partnership attributable to discontinued operations Income from discontinued operations - diluted Net income available to common shareholders – basic Minority interest of common unitholders in Operating Partnership Net income available to common shareholders – diluted Common shares (denominator): Average shares outstanding – basic Incremental shares from assumed conversions of: Outstanding common units Stock options Other Average shares outstanding – diluted	$ (816 (100 $ (916 $16,586 2,126 $18,712 $15,770 2,026 $17,796 29,283 3,724 100 21 33,128	) ) )	$ 2,769 399 $ 3,168 $12,540 1,795 $14,335 $15,309 2,194 $17,503 29,258 4,203 73 14 33,548	$8,248 1,115 $9,363 $47,340 6,312 $53,652 $55,588 7,427 $63,015 29,351 3,840 91 20 33,302	$4,632 674 $ 5,306 $15,724 2,263 $17,987 $20,356 2,937 $23,293 29,119 4,250 104 14 33,487

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and Amounts in Thousands, Except Property and Per Share Data)

8. SEGMENT REPORTING

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is our senior management group.

We own, operate and develop multifamily apartment communities in major markets located in Texas, Georgia, Florida, San Diego/Inland Empire, CA, Washington, D.C. and Tennessee. Such apartment communities generate rental revenue and other income through the leasing of apartment homes to a diverse base of residents. The operating performance of each of our communities is affected by the supply and demand dynamics within the immediate submarket or neighborhood of the major market in which each community is located. We evaluate the performance of each of our apartment communities on an individual basis. However, because each of our apartment communities has similar economic characteristics, residents, and products and services, our apartment communities have been aggregated into one reportable segment. This segment comprised 95% and 93% of our total revenues for the three months ended June 30, 2005 and 2004, respectively, and 94% and 93% of our total revenues for the six months ended June 30, 2005 and 2004, respectively.

The primary financial measure for our reportable business segment is net operating income (NOI), which represents total property revenues less property operating and maintenance expenses. Property operating and maintenance expenses represent direct property operating and maintenance expenses as reflected in our accompanying statements of operations and exclude certain expenses included in the determination of net income such as property management and other indirect operating expenses, interest expense and depreciation and amortization expense. These items are excluded from NOI in order to provide results that are more closely related to a property’s results of operations. NOI is also used by industry analysts and investors to measure operating performance of our apartment communities. Current year NOI is compared to prior year NOI and current year budgeted NOI as a measure of financial performance. The NOI yield or return on total capitalized costs is an additional measure of financial performance.

NOI from our wholly-owned apartment communities included in continuing operations is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004			2005		2004
Total property revenues Less: Property operating and maintenance expenses	$56,275 (21,446	)	$49,209 (17,897	)		$108,943 (41,301	)	$97,330 (35,621	)
Net operating income (NOI)	$34,829		$31,312			$67,642		$61,709

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and Amounts in Thousands, Except Property and Per Share Data)

Below is a reconciliation of NOI to income from continuing operations before equity in income of joint ventures, gain on sale and minority interest (this caption in the accompanying statements of operations is the most directly comparable GAAP measure to NOI).

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004			2005		2004

Net operating income (NOI)	$34,829		$31,312			$67,642		$61,709

Less other expenses:
Real estate asset depreciation and amortization	(12,905	)	(11,412	)		(25,161	)	(23,165	)
Property management (owned and third party)	(4,165	)	(4,113	)		(8,741	)	(8,399	)
Ancillary services	(845	)	(1,010	)		(1,710	)	(2,074	)
Interest expense and credit enhancement fees	(12,228	)	(9,485	)		(23,625	)	(18,827	)
Amortization of deferred financing costs	(382	)	(426	)		(874	)	(840	)
General and administrative	(2,925	)	(2,751	)		(6,075	)	(5,725	)
Corporate asset depreciation and amortization	(953	)	(714	)		(1,878	)	(1,212	)
Unusual items	(2,828	)	-			472		-
Total other expenses	(37,231	)	(29,911	)		(67,592	)	(60,242	)

Add other revenues:
Property management revenues	2,176		2,078			4,410		4,232
Ancillary services revenues	817		1,337			1,896		2,551
Interest income	123		32			210		40
Other revenues	87		453			385		859
Total other revenues	3,203		3,900			6,901		7,682

Income from continuing operations before equity in income of joint ventures, gain on sale and minority interest	$801		$5,301			$6,951		$9,149

All other measurements for our reportable segment are disclosed in our consolidated financial statements.

We also provide management, development and construction, corporate apartment home and brokerage services to third parties and unconsolidated joint ventures. These operations, on an individual and aggregate basis, do not meet the quantitative thresholds for segment reporting.

9. COMMITMENTS AND CONTINGENCIES

Development and Construction Commitments

We currently have ten communities under development that are expected to comprise 2,215 apartment homes upon completion. The estimated costs to complete the development of these assets total $167 million at June 30, 2005. These costs are expected to be initially funded by $15 million in construction loan proceeds and $152 million in borrowings under our credit facilities.

At June 30, 2005, we owned or leased five parcels of land on which we intend to develop five apartment communities that we currently expect will comprise 1,190 apartment homes upon completion. We also had rights to acquire additional parcels of land, either through options or long-term conditional contracts, on which we believe we could develop five communities that we currently expect would comprise an estimated 1,115 apartment homes upon completion. Total preliminary budgeted costs for the development of the 2,305 apartment homes are currently estimated to be approximately $400 million. Any future development is subject to obtaining permits and other governmental approvals, as well as our ongoing business review, and may not be undertaken or completed.

We have letter of credit and performance obligations of approximately $8.6 million related to our wholly-owned development and construction activities. As the related development and construction activities are completed, such obligations will be reduced accordingly.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and Amounts in Thousands, Except Property and Per Share Data)

We are currently serving as general contractor for the construction and/or renovation of five apartment communities for third parties under "cost plus a fee" contracts with guaranteed maximum prices on the costs of construction of approximately $57 million in aggregate. The construction of these assets was approximately 47% complete in aggregate at June 30, 2005. Under these contracts, we are obligated to fund any construction cost overruns that are not recovered through a change order. In addition, we are entitled to a share of the savings generated under these contracts, if any, in the form of an incentive fee. Because our clients are obligated to fund the costs that are incurred on their behalf pursuant to the related contract, we net the reimbursement of these costs against the billings for such costs. Development and construction fees are recognized when earned using the percentage of completion method. During the three months ended June 30, 2005 and 2004, we recognized $(0.1) million and $0.5 million, respectively, in development and construction fees under related contracts with gross billings of $7.0 million and $10.1 million, respectively. During the six months ended June 30, 2005 and 2004, we recognized $0.1 million and $0.9 million, respectively, in development and construction fees under related contracts with gross billings of $12.3 million and $18.9 million, respectively. We recorded a reduction to revenue of $0.4 million in the second quarter of 2005 for cost overruns that were not recovered through a change order.

Operating Leases

We are party to two long-term ground leases relating to two apartment communities in Austin with initial terms expiring in 2044 and 2065. We have paid the ground lease rent in full for these leases through the initial term. The prepaid lease payments, net of accumulated amortization, are included in other assets, net in the accompanying balance sheets. We are party to long-term ground leases for an apartment community in Atlanta and an apartment community in Austin with initial terms expiring in 2075 and 2069, respectively. In addition, in December 2004, we entered into a ground lease for a development community in Houston with an initial term expiration in 2054 and in April 2005, we entered into a ground lease for a development community in Dallas with an initial term expiration in 2080. We are also party to operating leases for office space with various terms. Rent incurred under these operating leases was $836 and $551 for the three months ended June 30, 2005 and 2004, respectively, and was $1,539 and $1,094 for the six months ended June 30, 2005 and 2004, respectively. Future minimum lease payments under these operating leases at June 30, 2005 are as follows:

2005	$ 1,659
2006	3,782
2007	3,583
2008	3,234
2009	2,574
2010 and thereafter	105,874
Total	$120,706

IGPM Acquisition

In May 2004, we acquired IGPM, a property management company that managed 2,141 apartment homes in 17 multifamily apartment communities at the time of acquisition. The estimated purchase price of approximately $2.0 million, inclusive of related commissions, is structured to be paid in three installments based on retention of the management contracts in place upon acquisition. The purchase price may increase if certain additional management contracts are obtained. As of June 30, 2005, we had funded $1.7 million of the $2.0 million purchase price. The third and final installment is expected to be paid in the second quarter of 2006.

Contingencies

We have been named as a party in a class action lawsuit filed in the Florida State Circuit Court alleging that fees charged when residents terminate their leases prior to the end of term or terminate without sufficient notice are not in compliance with state law. We have appealed the Court's December 2004 Order certifying the class. In the first quarter of 2005, we recorded $1.8 million of expected costs associated with a preliminary agreement to settle the class action lawsuit. The preliminary agreement to settle the class action lawsuit is subject to court approval once finalized between the parties and published to the class. The charge of $1.8 million represents an estimate and is comprised of two components: (1) expected plaintiffs’ attorneys fees and other costs of the settlement of approximately $1.2 million, payable upon court approval of the settlement, and (2) an estimate of $0.6 million for the amount of contested fees we expect to be substantiated by eligible class members who elect to make a claim, payable if and when proven according to procedures included in the settlement. The proposed settlement caps contested fees at $3.0 million, with no minimum and requires that $0.35 million be initially placed into an escrow account controlled by us to pre-fund the payment of expected claims. There can be no assurance that the settlement of the class action lawsuit will be finalized as currently proposed or that actual contested fees will not ultimately exceed our current estimate.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and Amounts in Thousands, Except Property and Per Share Data)

On June 10, 2005, a purported class action complaint was filed in the Circuit Court for Baltimore City in the State of Maryland by a plaintiff who is an alleged shareholder of Gables Residential Trust. This complaint names as defendants our company, each member of the Board of Trustees and Clarion and principally alleges that the merger and the acts of our trustees constitute a breach of our company’s and our Board of Trustees’ duties to our shareholders. The plaintiff in the lawsuit seeks, among other things (1) a declaration that the merger agreement was entered into in a breach of the defendants’ duties and is therefore unenforceable and unlawful, (2) to enjoin the merger unless and until we adopt and implement a process to obtain the highest possible price for our company, (3) to rescind the merger agreement to the extent already implemented, (4) an order directing the defendants to exercise their duties to obtain a transaction which is in the best interests of the shareholders until the process for the sale or auction of our company is completed, (5) unspecified compensatory damages and (6) attorneys’ and experts’ fees. On June 20, 2005, a purported second class action complaint was filed in the Circuit Court of Baltimore City in the State of Maryland. This complaint names as defendants our company, each member of our Board of Trustees and Clarion and alleges the same or substantially similar causes of action and seeks the same or substantially similar relief as the first complaint. We intend to vigorously defend these lawsuits. While no assurances can be given, we do not believe that these lawsuits, if adversely determined, will have a material adverse effect on our financial condition or results of operations. Legal defense costs are being expensed as incurred.

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

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that we believe have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

We account for our joint venture arrangements using the equity method. Total indebtedness of our unconsolidated joint ventures is $236.2 million at June 30, 2005. None of this indebtedness is recourse to us. See Note 6 to the consolidated financial statements included in our Form 10-K for the year ended December 31, 2004 for further information regarding our unconsolidated joint ventures.

10. UNUSUAL ITEMS

During the first quarter of 2005, we recorded a net reduction to expenses of $3.3 million in connection with (1) $5.1 million of net proceeds pertaining to our settlement of insurance claims associated with previous water-infiltration issues at our Gables State Thomas Ravello community in Dallas, offset by (2) $1.8 million of estimated costs associated with a preliminary agreement to settle the class action lawsuit in Florida in which we have been named a party (Note 9).

During the second quarter of 2005, we recorded expenses of $2.8 million incurred in connection with our merger transaction that is currently anticipated to close by the end of the third quarter of 2005 (Note 1).

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Amounts in Thousands, Except Property and Per Share Data)

      We are a real estate investment trust (“REIT”) focused within the multifamily industry in demand-driven markets throughout the United States that have exhibited high job growth and resiliency to economic downturns. Our operating performance is based predominantly on net operating income (NOI) from our apartment communities. NOI, which represents total property revenues less property operating and maintenance expenses (as reflected in the consolidated statements of operations), is affected by the demand and supply dynamics within our markets. See Note 8, Segment Reporting, to the accompanying consolidated financial statements for further discussion of our use of NOI as the primary financial measure of performance for our apartment communities. Our performance is also affected by the general availability and cost of capital and our ability to develop and acquire additional apartment communities with returns in excess of our long-term weighted average cost of capital.

Business Objective and Strategies

       Our objective is to increase shareholder value by producing consistent high quality earnings to sustain dividends and annual total returns that exceed the NAREIT Apartment Index. To achieve that objective, we employ a number of business strategies. First, our long-term investment strategy is research-driven, with the objective of creating a portfolio of high quality assets in strategically selected markets that are complementary through economic diversity and characterized by high job growth and resiliency to national economic downturns. We believe such a portfolio will provide predictable operating cash flow performance that exceeds the national average on a sustainable basis. Second, we adhere to a strategy of owning and operating high quality, class AA/A apartment communities under the Gables brand in Established Premium Neighborhoods,™ or EPNs. EPNs are generally characterized as areas with the highest prices for single-family homes on a per square foot basis. We believe that communities, when located in EPNs and supplemented with high quality service and amenities, attract the affluent renter-by-choice who is willing to pay a premium for location preference, superior service and high quality communities. The resulting portfolio should maintain high levels of occupancy and rental rates relative to overall market conditions. This, coupled with more predictable operating expenses and reduced on-going capital expenditure requirements associated with high quality construction materials, should lead to operating margins that exceed national averages for the apartment sector and sustainable growth in operating cash flow. Third, our aim is to be recognized as the employer of choice within the industry. Our mission of Taking Care of the Way People Live® involves innovative human resource practices that we believe will attract and retain the highest caliber associates. Because of our long-established presence as a fully integrated apartment management, development, construction, acquisition and disposition company within our markets, we have the ability to offer multi-faceted career opportunities among the various disciplines within the industry. Finally, our capital strategy is to generate a return on invested capital that exceeds our long-term weighted average cost of capital while maintaining financial flexibility through a conservative, investment grade credit profile. We judiciously manage our capital and we redeploy capital through the reinvestment of asset disposition proceeds into our business.

       We believe we are well positioned to continue achieving our objectives because (1) the markets we have selected for investment are projected to continue to experience job growth that exceeds national averages, (2) our EPN locations are expected to outperform local market results and (3) national demand for apartments is expected to increase during the next five to ten years as the demographic group referred to as the Echo Boomer generation begins to form new households.

       In the ordinary course of our business, we evaluate the continued ownership of our assets relative to available opportunities to acquire and develop new assets and relative to available equity and debt capital financing. We sell assets if we determine that such sales are the most attractive sources of capital for redeployment in our business, for repayment of debt, for repurchase of stock and for other uses. We maintain staffing levels sufficient to meet our existing development, construction, acquisition and property operating activities. When market conditions warrant, we adjust staffing levels in an attempt to mitigate a negative impact on our results of operations.

     Between 2002 and late 2004, national economic weakness, coupled with low mortgage rates that resulted in an increase in home purchases by apartment residents, led to slight declines in rental revenues on a same store basis as compared to prior years. During 2004, we adjusted our tactics on rents and target economic occupancy in a number of our markets based on our assessment of economic fundamentals during the course of the year. These changes in pricing tactics led to fluctuations in occupancy during the year, but ultimately resulted in increased occupancy and revenues in the fourth quarter of 2004 for our same-store communities. We expect that operating fundamentals for our business will continue to improve as job growth, and the balance between supply and demand, improves in our markets. Job growth, however, is partially dependent on national economic conditions, which is inherently uncertain.

MANAGEMENT’S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)

On a same store basis, for 2005, we expect (1) total property revenues to increase slightly from 2004 levels and (2) property operating and maintenance expenses to increase over 2004 levels generally in line with inflation. We intend to capitalize on our expectations of improving operating fundamentals by increasing our investment activity for both acquisition and development of new communities. At the same time, we intend to take advantage of attractive valuations for apartment communities by continuing to sell assets that are no longer consistent with our strategy.

Agreement and Plan of Merger

On June 7, 2005, we entered into an agreement and plan of merger pursuant to which a newly formed affiliate of ING Clarion Partners, LLC, an indirect wholly owned subsidiary of ING Groep, N.V. will acquire us and our subsidiaries through the mergers of Gables Residential Trust and Gables Realty Limited Partnership with merger subsidiaries of the ING Groep, N.V. Pursuant to the terms of the agreement and plan of merger, each issued and outstanding common share of beneficial interest of Gables will be converted into the right to receive $43.50 in cash, without interest. In addition, holders of common shares will receive additional merger consideration that represents a pro-rata portion of the monthly dividend allocable to the month in which the mergers are closed and will be based on the number of days having elapsed in such monthly period (the “pro-rata dividend”). Each existing common unit of limited partnership in the Operating Partnership (other than common units held by Gables) will be converted into and cancelled in exchange for the right to receive (1) $43.50 in cash, without interest, plus a distribution equal to the pro-rata dividend or (2) if the holder so elects, a Class A Common Unit of limited partnership interest in the surviving partnership plus a per unit distribution equal to the pro-rata dividend, provided that the issuance of Class A Common Units would be exempt from registration under the Securities Act and applicable state securities laws. Holders of not more than $75 million of existing common units in the Operating Partnership in the aggregate may elect to receive Class A common units (any excess will be subject to pro-rata reduction among all holders electing to receive Class A common units).

Forward-Looking Statements

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

Common and Preferred Equity Activity

Issuances of Common Operating Partnership Units

MANAGEMENT’S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)

Shelf Registration Statement

We have an effective shelf registration statement on file with the Securities and Exchange Commission providing $500 million of equity capacity and $500 million of debt capacity. We believe it is prudent to maintain shelf registration capacity in order to facilitate future capital raising activities. As of June 30, 2005, we had issued $150 million of senior unsecured notes and there have been no issuances of equity securities under this shelf registration statement.

Portfolio and Other Financing Activity

Community Dispositions Subject to Discontinued Operations Reporting

MANAGEMENT’S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)

Historical operating results and gains are reflected as discontinued operations in the accompanying consolidated statements of operations. See Note 6 to the accompanying consolidated financial statements for further discussion.

Community and Land Dispositions Not Subject to Discontinued Operations Reporting

During 2004, we acquired and sold a parcel of land in Arlington, Virginia, sold a parcel of land in San Antonio and sold a parcel of land in Tennessee. The net proceeds from these land sales were $29.1 million and were used to pay down outstanding borrowings under our unsecured credit facilities. The gain from the land sales was $12.0 million, net of an applicable income tax provision of $0.9 million. The sale of the parcel of land in San Antonio closed during the first quarter of 2004. The net proceeds from this sale were $1.7 million and resulted in no gain or loss. The remaining transactions closed in the second half of 2004.

During the second quarter of 2005, we acquired seven apartment communities located in Atlanta, Dallas and Houston comprising an aggregate 945 apartment homes for approximately $80.0 million in cash.

The cash portion of the consideration for each denoted acquisition was funded with advances under our unsecured credit facilities.

Other Acquisitions

MANAGEMENT’S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)

June 30, 2005, we had funded $1.7 million of the $2.0 million estimated purchase price. The third and final installment is expected to be paid in the second quarter of 2006.

NYSTRS Joint Venture Arrangements

$100 Million Secured Debt Arrangement

Senior Unsecured Note Issuances

Sale of Technology Investment

MANAGEMENT’S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)

Critical Accounting Policies and Recent Accounting Pronouncements

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and a summary of our significant accounting policies is included in Notes 4 and 6 to the consolidated financial statements included in our Form 10-K for the year ended December 31, 2004. Note 5 to the accompanying consolidated financial statements includes a summary of recent accounting pronouncements and their actual or expected impact on our consolidated financial statements. Our preparation of the financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. Our actual results may differ from these estimates. As an owner, operator and developer of apartment communities, our critical accounting policies relate to revenue recognition, cost capitalization, depreciation and asset impairment evaluation and purchase price allocation for apartment community acquisitions.

Revenue Recognition

Rental: We lease our residential properties under operating leases with terms generally equal to one year or less. In the second quarter of 2004, we changed our revenue recognition policy for our communities under lease-up whereby we began recognizing revenue on a straight-line basis for these communities. In the first quarter of 2005, we changed our revenue recognition policy for the rest of our communities whereby we began recognizing revenue on a straight-line basis for these communities. These changes did not have a significant impact on our financial statements. Rental income was previously recognized when earned, which materially approximated revenue recognition on a straight-line basis.

Under the terms of residential leases at applicable communities, our residents are obligated to reimburse us for certain utility usage, principally water and electricity, where we are the primary obligor to the public utility entity. These utility reimbursements from residents are included in other property revenues in the accompanying consolidated statements of operations.

Property management: We provide property management services to third parties and unconsolidated joint ventures. Property management fees are recognized when earned.

Ancillary services: We provide development and construction, corporate rental housing and brokerage services to third parties and unconsolidated joint ventures. Development and construction services are typically provided under "cost plus a fee" contracts. Because our clients are obligated to fund the costs that are incurred on their behalf pursuant to the related contract, we net the reimbursement of these costs against the billings for such costs. Development and construction fees are recognized when earned using the percentage of completion method. During the three months ended June 30, 2005 and 2004, we recognized $(0.1) million and $0.5 million, respectively, in development and construction fees under related contracts with gross billings of $7.0 million and $10.1 million, respectively. During the six months ended June 30, 2005 and 2004, we recognized $0.1 million and $0.9 million, respectively, in development and construction fees under related contracts with gross billings of $12.3 million and $18.9 million, respectively. We recorded a reduction to revenue of $0.4 million in the second quarter of 2005 for cost overruns that were not recovered through a change order. Corporate rental housing revenues and brokerage commissions are recognized when earned.

Gains on sales of real estate assets: Gains on sales of real estate assets are recognized pursuant to the provisions of SFAS No. 66, "Accounting for Sales of Real Estate." The specific timing of the recognition of the sale and the related gain is measured against the various criteria in SFAS No. 66 related to the terms of the transactions and any continuing involvement associated with the assets sold. To the extent the sales criteria are not met, we defer gain recognition until the sales criteria are met.

Cost Capitalization

As a vertically integrated real estate company, we have in-house investment professionals involved in the development, construction and acquisition of apartment communities. Direct internal costs associated with development and construction activities for wholly-owned assets are included in the capitalized development cost of such assets and depreciated accordingly. During the six months ended June 30, 2005 and 2004, we capitalized $5.4 million and $4.8 million, respectively, of direct internal costs incurred for such activities. Direct internal costs associated with development and construction activities for third parties and unconsolidated joint ventures are reflected in ancillary services expense as the related services are being rendered. Direct internal costs associated with the acquisition of operating apartment communities are reflected in general and administrative expense in the period such costs are incurred.

Our real estate development pursuits are subject to obtaining permits and other governmental approvals, as well as our ongoing business review of the underlying real estate fundamentals and the impact on our capital structure. We do not always move forward with development of our real estate pursuits, and therefore, we evaluate the viability of real estate pursuits and the recoverability of capitalized pursuit costs. Based on this review, we expense any costs that are deemed unrealizable at that time to general and administrative expense. During the six months ended June 30, 2005 and 2004, we expensed $0.3 million and $0.2 million, respectively, of abandoned real estate pursuit costs. At June 30, 2005, we had approximately $4.4 million of capitalized real estate development pursuit costs reflected in other assets.

MANAGEMENT’S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)

During the development and construction of a new apartment community, we capitalize related interest costs, as well as other carrying costs such as property taxes and insurance. We begin to expense these items as the related construction of the community becomes substantially complete and the residential apartment homes become available for initial occupancy. Accordingly, we gradually reduce the amounts we capitalize as construction is being completed. During the six months ended June 30, 2005 and 2004, we capitalized interest of $4.7 million and $4.5 million, respectively, using a weighted average interest rate of 5.8% and 5.8%, respectively. We anticipate an increase in capitalized interest for the balance of 2005 as compared to 2004 as a result of increased development and construction activity.

Expenditures in excess of $1 for purchases of a new asset with a useful life in excess of one year and for replacements and repairs that extend the useful life of the asset are capitalized and depreciated over their useful lives. Capitalized recurring value retention capital expenditures are typically incurred every year during the life of an apartment community and include such expenditures as carpet, flooring and appliances. Capitalized non-recurring capital expenditures are costs that are generally incurred in connection with a major project impacting an entire community, such as roof replacement, parking lot resurfacing, exterior painting and siding replacement. Capitalized value-enhancing capital expenditures are costs for which an incremental value is expected to be achieved from increasing the NOI potential for a community or recharacterizing the quality of the income stream with an anticipated reduction in potential sales cap rate for items such as replacement of wood siding with a masonry-based hardi-board product, amenity upgrades and additions, installation of security gates and additions of covered parking. Recurring value retention and non-recurring and/or value-enhancing capital expenditures do not include costs incurred in connection with a major renovation of an apartment community. Repairs and maintenance, such as landscaping maintenance, interior painting and cleaning and supplies used in such activities, are expensed as incurred.

Depreciation and Asset Impairment Evaluation

Under GAAP, real estate assets are stated at the lower of depreciated cost or fair value, if deemed impaired. Depreciation is computed on a straight-line basis over the estimated useful lives of 20 to 40 years for buildings and improvements and 5 years for furniture, fixtures and equipment. Depreciation for communities that we develop and construct is recorded as the related construction becomes substantially complete and the residential apartment homes become available for initial occupancy. Accordingly, we gradually increase the amount of depreciation expense recorded as construction is being completed. As required by GAAP, we evaluate our real estate assets to determine if there has been any impairment in their carrying value and record impairment losses if there are indicators of impairment and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. No such impairment losses have been recognized to date.

Purchase Price Allocation for Apartment Community Acquisitions

In connection with the acquisition of an apartment community, we perform a valuation and allocation to each asset and liability acquired in such transaction, based on their estimated fair values at the date of acquisition. The valuation of assets acquired subsequent to July 1, 2001, the effective date of SFAS No. 141, "Business Combinations," includes both tangible assets and intangible assets. Tangible asset values, consisting of land, buildings and improvements, and furniture, fixtures and equipment, are reflected in real estate assets and depreciated over their estimated useful lives. Intangible asset values, consisting of at-market, in-place leases and resident relationships, are reflected in other assets and amortized over the average remaining lease term of the acquired resident relationships. The estimated average remaining lease term of the acquired resident relationships has ranged from 10 to 37 months for our acquired communities since July 1, 2001. Amounts allocated to intangible assets represented approximately 1% on average of the total purchase price of our apartment community acquisitions since July 1, 2001.

Discontinued Operations

We adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” effective January 1, 2002. SFAS No. 144 requires, among other things, that the operating results of certain real estate assets which have been sold subsequent to January 1, 2002, or otherwise qualify as held for sale (as defined by SFAS No. 144), be reflected as discontinued operations in the consolidated statements of operations for all periods presented. Under SFAS No. 144, an asset is generally considered to qualify as held for sale when (1) management, having the authority to approve the action, commits to a plan to sell the asset, (2) an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated and (3) the sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale, within one year. During the first quarter of 2005, we sold six wholly-owned operating real estate assets, five of which were classified as held for sale at December 31, 2004. During the second quarter of 2005, we sold one wholly-owned operating real estate asset. During 2004, we sold nine wholly-owned operating real estate assets. The operating results for these sixteen wholly-owned assets classified as held for sale or sold are reflected as discontinued operations in the accompanying statements of operations for all periods presented. Interest expense has been allocated to the results of the discontinued operations in accordance with EITF No. 87-24. We had no assets that qualified as held for sale as defined by SFAS No. 144 at June 30, 2005.

MANAGEMENT’S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)

During 2004, we contributed two apartment communities located in South Florida comprising 411 apartment homes to a joint venture with NYSTRS in which we have a 50% interest. Also during 2004, we admitted NYSTRS as a 49% member in a wholly-owned subsidiary that owns an apartment community located in Washington, D.C. comprising 211 apartment homes. Due to our continuing involvement with the operations of these three communities, the operating results of these assets are included in continuing operations for all periods presented.

Results of Operations

Comparison of operating results for the three months ended June 30, 2005 (the “2005 Period”) to the three months ended June 30, 2004 (the “2004 Period”)

Our net income is generated primarily from the operation of our apartment communities and the disposition of assets that no longer meet our investment criteria. For purposes of evaluating comparative operating performance, we categorize our operating communities based on the period each community reaches a stabilized occupancy and expense level. A community is considered to have achieved stabilized occupancy on the earlier to occur of (1) attainment of 93% physical occupancy or (2) one year after completion of construction. The combined operating performance for all of our wholly-owned apartment communities that are included in continuing operations for the 2005 Period and the 2004 Period is summarized as follows:

	Number of 2005 Period Apt. Homes	2005 Period	2004 Period	$ Change		% Change
Rental and other property revenues: Same-store communities (a) Triple net master lease communities Communities stabilized in the 2005 Period, but not in the 2004 Period Communities not stabilized in the 2005 Period (b) Sold communities (c) Total property revenues	13,454 728 1,337 3,335 - 18,854	$41,182 1,864 4,721 8,508 - $56,275	$40,020 1,862 1,702 3,170 2,455 $49,209	$1,162 2 3,019 5,338 (2,455 $7,066	)	2.9% 0.1% 177.4% 168.4% -100.0% 14.4%
Property operating and maintenance expenses (d): Same-store communities (a) Triple net master lease communities Communities stabilized in the 2005 Period, but not in the 2004 Period Communities not stabilized in the 2005 Period (b) Sold communities (c) Total property operating and maintenance expenses		$15,877 218 2,054 3,297 - $21,446	$15,140 216 626 951 964 $17,897	$ 737 2 1,428 2,346 (964 $ 3,549	)	4.9% 0.9% 228.1% 246.7% -100.0% 19.8%
Property net operating income (NOI) (e): Same-store communities (a) Triple net master lease communities Communities stabilized in the 2005 Period, but not in the 2004 Period Communities not stabilized in the 2005 Period (b) Sold communities (c) Total property net operating income (NOI)		$25,305 1,646 2,667 5,211 - $34,829	$24,880 1,646 1,076 2,219 1,491 $31,312	$ 425 - 1,591 2,992 (1,491 $ 3,517	)	1.7% 0.0% 147.9% 134.8% -100.0% 11.2%
Total property NOI as a percentage of total property revenues		61.9%	63.6%	-		-1.7%

(a) Communities that were owned and fully stabilized throughout both the 2005 Period and the 2004 Period ("same-store").

(b) Communities that were under development/lease-up, in renovation or not fully operational, acquired, or had not reached a
stabilized operating expense level subsequent to April 1, 2005, as applicable.

(c) Communities that were sold subsequent to April 1, 2004. Includes the results of Gables Palma Vista, Gables Wellington and
Gables Woodley Park which are now owned by our NYSTRS joint ventures that were formed during 2004.

(d)      Represents direct property operating and maintenance expenses as reflected in the accompanying consolidated statements of
    operations and excludes certain expenses included in the determination of net income such as property management and other
    indirect operating expenses, interest expense and depreciation and amortization expense.

MANAGEMENT’S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)

(e)      Calculated as total property revenues less property operating and maintenance expenses (d). See Note 8, Segment
    Reporting, to the accompanying financial statements for further discussion of our use of NOI as the primary financial measure
    of performance for our apartment communities. In addition, NOI from this reportable segment is reconciled to the most directly
    comparable GAAP measure in Note 8.

Total property revenues increased $7,066, or 14.4%, from $49,209 to $56,275 due to an increase in the number of apartment homes resulting from the development, lease-up and acquisition of additional communities, as well as an increase in the number of available apartment homes associated with renovation activities at several of our communities. These increases were enhanced by a 2.9% increase in same-store performance and partially offset by a decrease resulting from the three communities which are now owned by the NYSTRS joint ventures that were formed during 2004. The change implemented in the 2005 Period to recognize revenues on a straight-line basis for our stabilized communities as previously disclosed in “Critical Accounting Policies and Recent Accounting Pronouncements” contributed approximately $335 to the increase between periods, of which approximately $184 impacted our same-store communities.

Property operating and maintenance expenses, as reflected in our consolidated statements of operations, increased $3,549, or 19.8%, from $17,897 to $21,446 due to an increase in the number of apartment homes resulting from the development, lease-up and acquisition of additional communities, as well as an increase in the number of available apartment homes associated with renovation activities at several of our communities. In addition, same-store expenses increased 4.9% due primarily to increases in property tax, payroll and utilities expenses.

Additional information for the 53 same-store apartment communities presented in the preceding table is as follows:

	Number of	% of 2005	Physical Occupancy	Economic Occupancy	% Change from the 2004 Period to the 2005 Period in
Market	Apartment Homes	Period NOI	in the 2005 Period (a)	in the 2005 Period (a)	Economic Occupancy	Revenues		Expenses	NOI
Houston	3,857	23.4%	95.1%	93.8%	3.2%		1.5%	5.6%		-1.2%
So. Florida	2,398	22.8%	95.9%	94.8%	2.1%		5.2%	5.3%		5.2%
Atlanta	3,322	21.2%	93.6%	91.7%	2.8%		2.4%	0.8%		3.5%
Dallas	1,879	16.0%	95.5%	94.1%	2.2%		2.1%	7.6%		-1.1%
Austin	1,916	14.7%	91.3%	90.3%	2.5%		3.5%	5.6%		2.1%
Washington, D.C.	82	1.9%	97.0%	96.8%	0.5%		3.0%	15.9%		-1.7%
Totals	13,454	100.0%	94.5%	93.1%	2.6%		2.9%	4.9%		1.7%

(a) Physical occupancy represents gross potential rent less physical vacancy loss as a percentage of gross potential rent. Economic occupancy represents actual rental revenue earned divided by gross potential rent. Thus, economic occupancy differs from physical occupancy in that it takes into account concessions, non-revenue producing apartment homes and delinquencies.

Property management revenues increased $98, or 4.7%, from $2,078 to $2,176 due primarily to the May 2004 acquisition of IGPM and the 2004 NYSTRS joint venture transactions. Such increases have been substantially offset by a decrease in the number of apartment homes managed for third parties due primarily to increased sales activity resulting from attractive apartment valuations. The average number of apartment homes managed for third parties and unconsolidated joint ventures declined slightly from an average of approximately 25,900 in the 2004 Period to an average of 23,600 in the 2005 Period.

Ancillary services revenues decreased $520, or 38.9%, from $1,337 to $817 due primarily to a decrease of $582 in development and construction fee revenue resulting from a reduction in revenue of $406 in the 2005 Period for cost overruns that were not recovered through a change order and a volume decline in services rendered. Such decrease was offset in part by an increase of $73 in corporate housing revenue.

Interest income increased $91, or 284.4%, from $32 to $123 due to an increase in interest-bearing deposits and an increase in interest rates.

Other revenues decreased $366, or 80.8%, from $453 to $87 due primarily to income earned during the 2004 Period related to certain non-routine items.

Real estate asset depreciation and amortization increased $1,493, or 13.1%, from $11,412 to $12,905 due primarily to the impact of the development and acquisition of additional communities and capital improvements made to existing operating communities.

MANAGEMENT’S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)

Property management expense for communities owned by us and third parties increased $52, or 1.3%, from $4,113 to $4,165 due primarily to the May 2004 acquisition of IGPM, offset in part by cost savings achieved between periods. The average number of apartment homes under management declined between periods from an average of approximately 46,600 in the 2004 Period to an average of 41,200 in the 2005 Period resulting primarily from our 2004 and 2005 sales activity.

Ancillary services expense decreased $165 or 16.3%, from $1,010 to $845 due primarily to a decrease in development and construction expenses of $173 due to volume declines in services rendered.

Interest expense and credit enhancement fees increased $2,743, or 28.9%, from $9,485 to $12,228 due to an increase in outstanding indebtedness and an increase in interest rates for variable-rate borrowings. The increase in operating debt associated with the development and acquisition of additional communities and repurchases under our common equity repurchase program was offset in part by a decrease in outstanding indebtedness associated with 2004 and 2005 sale activities.

Amortization of deferred financing costs decreased $44, or 10.3%, from $426 to $382 due primarily to certain loan costs becoming fully amortized during 2004 and 2005, offset by increased financing costs associated with the $100 million secured debt financing closed in September 2004 and the March 2005 issuance of $150 million of senior unsecured notes.

General and administrative expense increased $174, or 6.3%, from $2,751 to $2,925 due primarily to increases in internal acquisition costs associated with the acquisition of operating apartment communities in the 2005 Period.

Unusual items of $2,828 in the 2005 Period represent expenses incurred in connection with our merger transaction that is currently anticipated to close by the end of the third quarter of 2005. See Note 1 to the accompanying consolidated financial statements for further discussion.

Corporate asset depreciation and amortization increased $239, or 33.5%, from $714 to $953 due primarily to an increase in amortization resulting from the management contracts acquired in connection with the May 2004 acquisition of IGPM.

Equity in income of joint ventures increased $416, or 693.3%, from $60 to $476 due primarily to increased joint venture investments in the 2005 Period.

Our share of the operating results for the apartment communities owned by the unconsolidated joint ventures in which we have an interest during the 2005 Period and the 2004 Period is as follows:

	2005 Period		2004 Period
Our share of joint venture results:
Rental and other property revenues	$5,193		$1,603
Property operating and maintenance expense (exclusive of items shown separately below)	(1,939	)	(641	)
Property net operating income (NOI)	3,254		962
Interest expense and credit enhancement fees	(1,441	)	(372	)
Amortization of deferred costs	(42	)	(20	)
Other	(24	)	(15	)
Funds from operations (FFO)	1,747		555
Gain on sale of previously depreciated operating real estate assets	-		-
Real estate asset depreciation and amortization	(1,271	)	(495	)
Equity in income of joint ventures	$476		$60

Number of operating communities	9		12
Number of apartment homes in operating communities	2,960		3,732

Income from discontinued operations, net of minority interest, increased $4,046, or 32.3%, from $12,540 to $16,586 due primarily to the $16,588 gain on sale of discontinued operations, net of minority interest recognized in the 2005 Period, partially offset by the $12,419 gain on sale of discontinued operations, net of minority interest recognized in the 2004 Period.

MANAGEMENT’S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)

Comparison of operating results for the six months ended June 30, 2005 (the “2005 Period”) to the six months ended June 30, 2004 (the “2004 Period”)

	Number of 2005 Period Apt. Homes	2005 Period	2004 Period	$ Change		% Change
Rental and other property revenues: Same-store communities (a) Triple net master lease communities Communities stabilized in the 2005 Period, but not in the 2004 Period Communities not stabilized in the 2005 Period (b) Sold communities (c) Total property revenues	13,454 728 1,337 3,335 - 18,854	$82,080 3,728 9,321 13,814 - $108,943	$80,216 3,724 2,820 5,413 5,157 $97,330	$ 1,864 4 6,501 8,401 (5,157 $11,613	)	2.3% 0.1% 230.5% 155.2% -100.0% 11.9%
Property operating and maintenance expenses (d): Same-store communities (a) Triple net master lease communities Communities stabilized in the 2005 Period, but not in the 2004 Period Communities not stabilized in the 2005 Period (b) Sold communities (c) Total property operating and maintenance expenses		$31,451 435 4,047 5,368 - $41,301	$30,295 431 1,092 1,796 2,007 $35,621	$ 1,156 4 2,955 3,572 (2,007 $ 5,680	)	3.8% 0.9% 270.6% 198.9% -100.0% 15.9%
Property net operating income (NOI) (e): Same-store communities (a) Triple net master lease communities Communities stabilized in the 2005 Period, but not in the 2004 Period Communities not stabilized in the 2005 Period (b) Sold communities (c) Total property net operating income (NOI)		$50,629 3,293 5,274 8,446 - $67,642	$49,921 3,293 1,728 3,617 3,150 $61,709	$708 - 3,546 4,829 (3,150 $5,933	)	1.4% 0.0% 205.2% 133.5% -100.0% 9.6%
Total property NOI as a percentage of total property revenues		62.1%	63.4%	-		-1.3%

(a) Communities that were owned and fully stabilized throughout both the 2005 Period and the 2004 Period ("same-store").

(c) Communities that were sold subsequent to January 1, 2004. Includes the results of Gables Palma Vista, Gables Wellington and
Gables Woodley Park which are now owned by our NYSTRS joint ventures that were formed during 2004.

(d)     Represents direct property operating and maintenance expenses as reflected in the accompanying consolidated statements of
   operations and excludes certain expenses included in the determination of net income such as property management and other
   indirect operating expenses, interest expense and depreciation and amortization expense.

(e)    Calculated as total property revenues less property operating and maintenance expenses (d). See Note 8, Segment Reporting,
   to the accompanying financial statements for further discussion of our use of NOI as the primary financial measure of
   performance for our apartment communities. In addition, NOI from this reportable segment is reconciled to the most directly
   comparable GAAP measure in Note 8.

MANAGEMENT’S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)

Total property revenues increased $11,613, or 11.9%, from $97,330 to $108,943 due to an increase in the number of apartment homes resulting from the development, lease-up and acquisition of additional communities, as well as an increase in the number of available apartment homes associated with renovation activities at several of our communities. These increases were enhanced by a 2.3% increase in same-store performance and partially offset by a decrease resulting from the three communities which are now owned by the NYSTRS joint ventures that were formed during 2004. The change implemented in the 2005 Period to recognize revenues on a straight-line basis for our stabilized communities as previously disclosed in “Critical Accounting Policies and Recent Accounting Pronouncements” contributed approximately $585 to the increase between periods, of which approximately $384 impacted our same-store communities.

Property operating and maintenance expenses, as reflected in our consolidated statements of operations, increased $5,680, or 15.9%, from $35,621 to $41,301 due to an increase in the number of apartment homes resulting from the development, lease-up and acquisition of additional communities, as well as an increase in the number of available apartment homes associated with renovation activities at several of our communities. In addition, same-store expenses increased 3.8% due primarily to increases in property tax, payroll and utilities expenses.

Additional information for the 53 same-store apartment communities presented in the preceding table is as follows:

	Number of	% of 2005	Physical Occupancy	Economic Occupancy	% Change from the 2004 Period to the 2005 Period in
Market	Apartment Homes	Period NOI	in the 2005 Period (a)	in the 2005 Period (a)	Economic Occupancy	Revenues		Expenses	NOI
Houston	3,857	23.1%	95.1%	93.9%	2.5%		0.2%	3.8%		-2.1%
So. Florida	2,398	22.9%	96.3%	95.2%	2.6%		5.9%	4.9%		6.4%
Atlanta	3,322	21.4%	93.7%	92.0%	2.2%		1.9%	2.3%		1.5%
Dallas	1,879	15.6%	94.6%	93.3%	1.6%		1.3%	8.1%		-2.8%
Austin	1,916	15.1%	93.3%	92.2%	2.3%		2.6%	0.1%		4.2%
Washington, D.C.	82	1.9%	96.5%	96.2%	1.1%		2.8%	6.4%		1.3%
Totals	13,454	100.0%	94.7%	93.5%	2.3%		2.3%	3.8%		1.4%

Property management revenues increased $178, or 4.2%, from $4,232 to $4,410 due primarily to the May 2004 acquisition of IGPM and the 2004 NYSTRS joint venture transactions. Such increases have been substantially offset by a decrease in the number of apartment homes managed for third parties due primarily to increased sales activity resulting from attractive apartment valuations. The average number of apartment homes managed for third parties and unconsolidated joint ventures declined slightly from an average of approximately 25,800 in the 2004 Period to an average of 24,200 in the 2005 Period.

Ancillary services revenues decreased $655, or 25.7%, from $2,551 to $1,896 due primarily to a decrease of (1) $838 in development and construction fee revenue resulting from a reduction in revenue of $406 in the 2005 Period for cost overruns that were not recovered through a change order and a volume decline in services rendered and (2) $71 in third-party brokerage services revenue. Such decreases were offset in part by an increase of $254 in corporate housing revenue.

Interest income increased $170, or 425.0%, from $40 to $210 due to an increase in interest-bearing deposits and an increase in interest rates.

Other revenues decreased $474, or 55.2%, from $859 to $385 due primarily to income earned during the 2004 Period related to certain non-routine items.

Real estate asset depreciation and amortization increased $1,996, or 8.6%, from $23,165 to $25,161 due primarily to the impact of the development and acquisition of additional communities and capital improvements made to existing operating communities.

Property management expense for communities owned by us and third parties increased $342, or 4.1%, from $8,399 to $8,741 due primarily to the May 2004 acquisition of IGPM, offset in part by cost savings achieved between periods. The average number of apartment homes under management declined between periods from an average of approximately 46,700 in the 2004 Period to an average of 41,600 in the 2005 Period resulting primarily from our 2004 and 2005 sales activity.

Ancillary services expense decreased $364, or 17.6%, from $2,074 to $1,710 due primarily to a decrease in development and construction expenses of $299 and a decrease in brokerage services expenses of $87 due to volume declines in services rendered.

Interest expense and credit enhancement fees increased $4,798, or 25.5%, from $18,827 to $23,625 due to an increase in outstanding indebtedness and an increase in interest rates for variable-rate borrowings. The increase in operating debt associated with the development and acquisition of additional communities and repurchases under our common equity repurchase program was offset in part by a decrease in outstanding indebtedness associated with 2004 and 2005 sale activities.

Amortization of deferred financing costs increased $34, or 4.0%, from $840 to $874 due primarily to increased financing costs associated with the $100 million secured debt financing closed in September 2004 and the March 2005 issuance of $150 million of senior unsecured notes. These increases were partially offset by certain loan costs becoming fully amortized during 2004 and 2005.

MANAGEMENT’S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)

General and administrative expense increased $350, or 6.1%, from $5,725 to $6,075 due primarily to increases in abandoned real estate pursuit costs and internal acquisition costs associated with the acquisition of operating apartment communities in the 2005 Period. These increases were partially offset by a decrease in travel expenses related to a national meeting that was held in 2004 that was not held in 2005.

Unusual items representing a net reduction to expenses of $472 in the 2005 Period are comprised of (1) $5,100 of net proceeds pertaining to our settlement of insurance claims associated with previous water infiltration issues at our Gables State Thomas Ravello community in Dallas, offset by (2) $1,800 of estimated costs associated with a preliminary agreement to settle the class action lawsuit in Florida in which we have been named a party and (3) $2,828 of expenses incurred in connection with our merger transaction that is currently anticipated to close by the end of the third quarter of 2005. See Notes 1 and 9 to the accompanying consolidated financial statements for further discussion.

Corporate asset depreciation and amortization increased $666, or 55.0%, from $1,212 to $1,878 due primarily to an increase in amortization resulting from the management contracts acquired in connection with the May 2004 acquisition of IGPM.

Equity in income of joint ventures increased $417, or 76.7%, from $544 to $961 due primarily to increased joint venture investments in the 2005 Period offset by a $432 gain in the 2004 Period pertaining to the sale of our 20% ownership interest in an apartment community located in Houston to our joint venture partner.

Our share of the operating results for the apartment communities owned by the unconsolidated joint ventures in which we have an interest during the 2005 Period and the 2004 Period is as follows:

	2005 Period		2004 Period
Our share of joint venture results:
Rental and other property revenues	$10,329		$2,892
Property operating and maintenance expense (exclusive of items shown separately below)	(3,856	)	(1,175	)
Property net operating income (NOI)	6,473		1,717
Interest expense and credit enhancement fees	(2,854	)	(655	)
Amortization of deferred costs	(85	)	(38	)
Other	(48	)	(26	)
Funds from operations (FFO)	3,486		998
Gain on sale of previously depreciated operating real estate assets	-		432
Real estate asset depreciation and amortization	(2,525	)	(886	)
Equity in income of joint ventures	$961		$544

Number of operating communities	9		13
Number of apartment homes in operating communities	2,960		3,918

Income from discontinued operations, net of minority interest, increased $31,616, or 201.1%, from $15,724 to $47,340 due primarily to the $47,127 gain on sale of discontinued operations, net of minority interest recognized in the 2005 Period, partially offset by the $14,498 gain on sale of discontinued operations, net of minority interest recognized in the 2004 Period.

Liquidity and Capital Resources

Cash Flows from Operating, Investing and Financing Activities

Net cash provided by operating activities remained relatively consistent between periods at $45,488 for the six months ended June 30, 2004 and $43,342 for the six months ended June 30, 2005.

Net cash used in investing activities increased from $70,237 for the six months ended June 30, 2004 to $160,174 for the six months ended June 30, 2005 due primarily to increased acquisition activity offset in part by increased sales activity between the periods.

Net cash provided by financing activities increased from $26,597 for the six months ended June 30, 2004 to $118,587 for the six months ended June 30, 2005 due primarily to an increase in cash needed from financing activities to fund investment activities given the increased investment activity previously noted.

MANAGEMENT’S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)

We have elected to be taxed as a REIT under the Internal Revenue Code. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our annual ordinary taxable income at the REIT level to shareholders. It is our current intention to adhere to these requirements and maintain our REIT status. As a REIT, we generally will not be subject to federal income tax on distributed taxable income. We utilize Gables Residential Services, a taxable REIT subsidiary, to engage in activities that REITs may be prohibited from performing, including the provision of management and other services to third parties and the conduct of certain nonqualifying real estate transactions. Taxable REIT subsidiaries are subject to federal, state and local income taxes.

Contractual Obligations

A summary of our contractual obligations at June 30, 2005 is as follows:

	Payments Due by Year
	2005	2006	2007	2008	2009	2010 & Thereafter	Total

Regularly scheduled principal amortization payments	$ 678	$ 1,244	$ 1,341	$ 932	$ 829	$ 730	$5,754
Balloon principal payments due at maturity (a)	16,860	223,694	206,398	280,314	191,242	175,952	1,094,460
Total notes payable	17,538	224,938	207,739	281,246	192,071	176,682	1,100,214

Operating leases (b)	1,659	3,782	3,583	3,234	2,574	105,874	120,706

Deferred purchase price of IGPM (c)	-	327	-	-	-	-	327

Series Z Preferred Shares subject to mandatory redemption (d)	-	-	-	2,250	-	4,500	6,750

Total	$19,197	$229,047	$211,322	$286,730	$194,645	$287,056	$1,227,997

(a) Outstanding indebtedness for each tax-exempt bond issue is reflected in the preceding table using the earlier of the related bond maturity date
or the bond enhancement facility maturity date, as applicable.

(b) Includes four ground leases relating to apartment communities owned and under development or operated by us.

(c) Amount represents the maximum amount contingently payable for the contracts in place at the acquisition date in accordance with the purchase agreement.

(d) Includes cumulative dividends of $2,250 from the June 1998 issuance date that are payable in June 2008. Dividends from June 2008 to the June 2018
mandatory redemption date are payable annually and thus are excluded from the preceding table.

We have various standing or renewable service contracts with vendors related to the operation of our communities. These contracts have terms generally equal to one year or less and provide for cancellation with insignificant or no penalties.

In addition to these contractual obligations, we currently have ten communities under development that are expected to comprise 2,215 apartment homes upon completion. The estimated costs to complete the development of these assets total $167 million at June 30, 2005. These costs are expected to be initially funded by $15 million in construction loan proceeds and $152 million in borrowings under our credit facilities described below.

At June 30, 2005, we owned or leased five parcels of land on which we intend to develop five communities that we currently expect will comprise 1,190 apartment homes. We also had rights to acquire additional parcels of land, either through options or long-term conditional contracts, on which we believe we could develop five communities that we currently expect would comprise an estimated 1,115 apartment homes. Total preliminary budgeted costs for the development of the 2,305 apartment homes are currently estimated to be approximately $400 million. Any future development is subject to obtaining permits and other governmental approvals, as well as our ongoing business review, and may not be undertaken or completed.

Additional information regarding our development activity is included in the “Development and Lease-up Communities” table below.

Funding of Short-term and Long-term Liquidity Requirements

Our common and preferred dividends historically have been paid from cash provided by recurring real estate activities. We anticipate that such dividends will continue to be paid from cash provided by recurring real estate activities that include both operating activities and asset disposition activities when evaluated over a twelve-month period. This twelve-month evaluation period is relevant due to the timing of disposition activities and the payment of particular expense items that are accrued monthly but are paid on a less frequent basis, such as real estate taxes and interest on our senior unsecured notes.

MANAGEMENT’S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)

We have met and expect to continue to meet our short-term liquidity requirements through net cash provided by recurring real estate activities. Our net cash from recurring real estate activities has been adequate, and we believe that it will continue to be adequate, to meet both operating requirements and payment of dividends in accordance with REIT requirements. Recurring value retention capital expenditures and non-recurring and/or value-enhancing capital expenditures, in addition to regularly scheduled principal amortization payments, are also expected to be funded from recurring real estate activities that include both operating and asset disposition activities. We anticipate that acquisition, construction, development and renovation activities as well as land purchases, will be initially funded primarily through borrowings under our credit facilities and construction loans described below.

We expect to meet our long-term liquidity requirements, including the balloon principal payments due at maturity of our notes payable and possible land and property acquisitions, through long-term secured and unsecured borrowings, the issuance of debt securities or equity securities, private equity investments in the form of joint ventures, or through the disposition of assets which, in our evaluation, may no longer meet our investment requirements.

$400 Million Credit Facility

We have an unsecured revolving credit facility with a committed capacity of $400 million provided by a syndicate of banks that has an initial maturity date of June 30, 2008. The $400 million facility replaces our existing unsecured revolving credit facility which had a committed capacity of $300 million provided by a syndicate of banks that had a maturity date of May 2005. We have the option to further increase the capacity under the facility up to $600 million from $400 million to the extent banks (from the syndicate or otherwise) agree to provide the additional commitment. In addition, we have the ability to extend the maturity date of the facility for an additional one-year period to June 30, 2009. Syndicated borrowings under the facility currently bear interest at our option of LIBOR plus 0.70% or prime minus 0.25%. Fees for letters of credit issued under the facility are equal to the spread over LIBOR for syndicated borrowings. In addition, we pay a facility fee currently equal to 0.15% of the $400 million committed capacity. The spread over LIBOR for syndicated borrowings and the facility fee may be adjusted up or down based on changes in our senior unsecured credit ratings. There are four stated pricing levels for (1) the spread over LIBOR for syndicated borrowings ranging from 0.60% to 1.20% and (2) the facility fee ranging from 0.15% to 0.30%. A competitive bid option is available for borrowings up to 50% of the $400 million committed capacity, or $200 million. This option allows participating banks to bid to provide us loans at a rate that is lower than the stated rate for syndicated borrowings.

At June 30, 2005, we had outstanding under the facility (1) $162.0 million in competitive bid option borrowings, (2) $50.0 million in syndicated borrowings, (3) $35.0 million in swingline borrowings and (4) $0.5 million in letters of credit. Thus, we had $152.5 million of remaining availability under the facility at June 30, 2005.

$25 Million Credit Facility

We have a $25 million unsecured revolving credit facility with a bank that has an initial maturity date of June 30, 2008. Borrowings under this facility bear interest at LIBOR plus the same scheduled spread for syndicated borrowings as the $400 million credit facility. At June 30, 2005, we had $12.6 million in borrowings outstanding under this facility and therefore had $12.4 million of remaining capacity.

Secured Construction Loans

At June 30, 2005, we have committed fundings under four construction-related financing vehicles totaling $35.1 million from a bank relating to two wholly-owned development communities that have a maturity date of September 2006. At June 30, 2005, we had drawn $20.5 million under these variable-rate financing vehicles and therefore have $14.6 million of remaining capacity. During the first quarter of 2005, we repaid two construction-related financing vehicles secured by one wholly-owned community that had outstanding balances upon repayment totaling $17.7 million with an advance under our unsecured credit facilities.

Restrictive Covenants

Our secured and unsecured debt agreements generally contain representations, financial and other covenants and events of default typical for each specific type of facility or borrowing.

The indentures under which our publicly traded and other unsecured fixed-rate debt securities have been issued, and the terms of our $100 million secured debt arrangement, contain the following limitations on the incurrence of indebtedness: (1) a maximum leverage ratio of 60% of total assets; (2) a minimum debt service coverage ratio of 1.50:1; (3) a maximum secured debt ratio of 40% of total assets; and (4) a minimum amount of unencumbered assets of 150% of total unsecured debt. Our indentures also include other affirmative and restrictive covenants.

MANAGEMENT’S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)

Our ability to borrow under our unsecured credit facilities and secured construction loans is subject to our compliance with a number of financial covenants, affirmative covenants and other restrictions on an ongoing basis. The principal financial covenants impacting our leverage are (1) our total debt may not exceed 60% of our total assets; (2) our annualized fixed charge coverage ratio may not be less than 1.70:1; (3) our total secured debt may not exceed 35% of our total assets, and the recourse portion of our secured debt may not exceed 10% of our total assets; (4) our unencumbered assets may not be less than 167% of our total unsecured debt; (5) our annualized unencumbered interest coverage ratio may not be less than 2.0 to 1; (6) our tangible net worth may not be less than $680 million; (7) our floating rate debt may not exceed 30% of our total assets; and (8) our unsecured implied debt service coverage ratio may not be less than 1.25:1. Such financing vehicles also restrict the amount of capital we can invest in specific categories of assets, such as unimproved land, properties under construction, non-multifamily properties, debt or equity securities, notes receivable and unconsolidated affiliates.

In addition, we have a covenant under our unsecured credit facilities and secured construction loans that restricts the ability of the Operating Partnership to make distributions in excess of stated amounts, which in turn restricts our ability to declare and pay dividends. In general, during any twelve-month period, the Operating Partnership may only distribute up to 100% of its consolidated income available for distribution, as defined in the agreement. This provision contains an exception to this limitation to allow the Operating Partnership to make any distributions necessary to (1) allow us to maintain our status as a REIT or (2) distribute 100% of our taxable income at the REIT level. We do not anticipate that this provision will adversely affect the ability of the Operating Partnership to make distributions sufficient for us to pay dividends under our current dividend policy.

Our credit facilities, construction loans and indentures are cross-defaulted and also contain cross default provisions with other of our material indebtedness. We were in compliance with covenants and other restrictions included in our debt agreements as of June 30, 2005. The indentures and the $400 million credit facility agreement containing the financial covenants discussed above, as well as the other material terms of our indebtedness, including definitions of the many terms used in and the calculations required by financial covenants, have been filed with the Securities and Exchange Commission as exhibits to our periodic or other reports.

Our tax-exempt bonds contain customary covenants for this type of financing which require a specified percentage of the apartments in the bond-financed communities to be rented to individuals based upon income levels specified by U.S. government programs.

Off-Balance Sheet Arrangements

Inflation

Substantially all of the leases at our apartment communities are for a term of one year or less. In the event of significant inflation, this may enable us to realize increased rents upon renewal of existing leases or the beginning of new leases. Short-term leases generally minimize our risk from the adverse effects of inflation, although these leases generally permit residents to leave at the end of the lease term without penalty and therefore expose us to the effect of a decline in market rents. In a deflationary rent environment, we are exposed to declining rents more quickly under these shorter term leases.

Certain Factors Affecting Future Operating Results

This report 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," "plan," "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. These statements include, among other things, statements regarding our intent, belief or expectations with respect to the following:

our proposed merger with merger subsidiaries of ING Groep, N.V. announced on June 7, 2005 and anticipated to close by the end of the third quarter of 2005, including the satisfaction of the closing conditions to such merger and any actual or potential litigation challenging the proposed merger;

our ability to increase shareholder value by producing consistent high quality earnings to sustain dividends and annual total returns that exceed the multifamily sector average;

our ability to create a portfolio of high quality assets in strategically selected markets that are complementary through economic diversity and characterized by high job growth and resiliency to economic downturns;

MANAGEMENT’S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)

the ability of our portfolio to maintain high levels of occupancy and rental rates relative to overall market conditions;

our ability to generate a return on invested capital that exceeds our long-term weighted average cost of capital while maintaining financial flexibility through a conservative, investment grade credit profile;

our expectation that the markets we have selected for investment will continue to experience job growth that exceeds national averages, and that our EPN locations will outperform local market results;

our ability to meet short-term liquidity requirements, including the payment of common and preferred dividends, through net cash provided by recurring real estate activities, and to meet long-term liquidity requirements through long-term secured and unsecured borrowings, the issuance of debt securities or equity securities, private equity investments in the form of joint ventures, or through the disposition of assets which, in our evaluation, may no longer meet our investment requirements; and

estimated development and construction costs for our development and lease-up communities, and anticipated construction commencement, completion, lease-up and stabilization dates for these communities.

You should not rely on forward-looking statements because they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and may cause our actual results, performance or achievements to differ materially from anticipated future results, or the 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 delay in or failure to close the merger of Gables Residential Trust and Gables Realty Limited Partnership with merger subsidiaries of ING Groep, N.V.;

national and local economic conditions generally, and the real estate market specifically, including changes in occupancy rates and market rents, a continued deceleration of economic conditions in our markets, and a failure of national and local economic conditions to rebound in a timely manner;

changes in job growth, household formation and population growth in our markets;

excess supply of and insufficient demand for apartment communities in our markets;

competition, which could limit our ability to secure attractive investment opportunities, lease apartment homes or increase or maintain rents;

our failure to sell apartment communities in a timely manner or on favorable terms;

uncertainties associated with our development and construction activities, including the failure to obtain zoning and other approvals, actual development and construction costs exceeding our budgeted estimates and construction material defects;

construction and lease-up may not be completed on schedule, resulting in increased debt service expense and construction costs and reduced rental revenues;

new debt or equity financing may not be available or may not be available on favorable terms, 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;

changes in interest rates;

MANAGEMENT’S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)

cash flow from recurring real estate activities may be insufficient to meet our short-term liquidity requirements, including the payment of common and preferred dividends;

legislative, regulatory and accounting changes, including changes to laws governing the taxation of REITs or changes in GAAP; and

potential liability for uninsured losses and environmental contamination.

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, future events or otherwise.

Development and Lease-up Communities at June 30, 2005:

					Percent at June 30, 2005			Actual or Estimated Quarter of
Market	Community	No. of Apt. Homes	Total Budgeted Cost	Cost to Complete	Complete	Leased	Occupied	Constr- uction Start	Initial Occu- pancy	Constr- uction End	Stab- ilized Occupancy
			(millions)	(millions)							(a)

Wholly-Owned Development/Lease-up Communities:
Atlanta, GA	Gables Rock Springs III (b)		193	$ 19	$ 3	86%	78%	64%	1 Q 2004	1 Q 2005	4 Q 2005	4 Q 2005
Houston, TX	Gables Upper Kirby (c)		144	21	6	64%	--	--	2 Q 2004	3 Q 2005	2 Q 2006	3 Q 2006
Houston, TX	Gables Kipling		27	6	4	6%	--	--	1 Q 2005	2 Q 2006	2 Q 2006	4 Q 2006
Washington, D.C.	Gables Rothbury		203	26	10	58%	--	--	3 Q 2004	3 Q 2005	1 Q 2006	3 Q 2006
Dallas, TX	Gables Uptown Place (c)		311	45	16	61%	--	--	2 Q 2004	4 Q 2005	3 Q 2006	4 Q 2006
Dallas, TX	Gables West Village		75	9	4	19%	--	--	1 Q 2005	2 Q 2006	3 Q 2006	4 Q 2006
Dallas, TX	Gables City Place Block 7c		103	13	10	8%	--	--	1 Q 2005	2 Q 2006	3 Q 2006	4 Q 2006
South FL	Gables Montecito		450	60	29	45%	--	--	2 Q 2004	4 Q 2005	1 Q 2007	2 Q 2007
South FL	Gables Marbella		261	62	45	3%	--	--	1 Q 2005	2 Q 2006	2 Q 2007	3 Q 2007
Atlanta, GA	Gables Metropolitan III		448	62	40	15%	--	--	1 Q 2005	2 Q 2006	2 Q 2007	4 Q 2007
	Wholly-Owned Totals		2,215	$ 323	$ 167
Wholly-Owned Completed Communities in Lease-up:
Austin, TX		Gables Grandview	458	$ 56	$ -	100%	82%	79%	1 Q 2003	4 Q 2003	4 Q 2004	4 Q 2005
		Grand Total	2,673

		(a) Stabilized occupancy is defined as the earlier to occur of (i) 93% occupancy or (ii) one year after completion of construction. (b) This community represents the reconstruction of 56 apartment homes previously owned and operated by us into 193 apartment homes. (c) These communities are secured by construction loans with an aggregate committed capacity of $35.1 million, of which $20.5 million was outstanding at June 30, 2005.

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 and estimated in such statements. Risks associated with our 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.

MANAGEMENT’S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)

Stabilized Apartment Communities at June 30, 2005
			June 30, 2005
		June 30, 2005	Market Rent per
Community	No. of Apt. Homes	Physical Occupancy	Home	Square Foot


Atlanta, GA
Briarcliff Gables	104	95%		$1,041	$ 0.84
Buckhead Gables	162	94%		778	1.03
Gables Cityscape	182	95%	(a)	864	1.02
Gables Druid Hills	272	93%		1,095	0.96
Gables Lenox Hills	480	95%		1,015	1.05
Gables Lindbergh	324	93%		1,109	1.09
Gables Metropolitan I (60% JV interest)	435	96%		1,204	1.07
Gables Metropolitan II (60% JV interest)	274	97%		1,256	1.13
Gables Mill	438	92%		774	0.83
Gables Montclair	183	93%		1,479	0.96
Gables Northcliff	82	96%		1,164	0.75
Gables Paces	80	98%		1,924	1.17
Gables Rock Springs I and II	365	95%		1,302	1.16
Gables Vinings	315	94%		971	0.91
Gables Walk	310	94%		985	0.83
Lindview	48	76%	(a)	761	0.72
Northmoor	176	99%		927	0.70
Roswell Gables I	384	93%		783	0.72
Roswell Gables II	284	93%		848	0.72
Spalding Gables	252	96%		847	0.86
Wildwood Gables	546	94%		866	0.76
Total/Averages	5,696	94%		$ 1,015	$0.92

Houston, TX
Gables Augusta	312	90%		$ 1,230	$ 1.40
Gables Austin Colony	237	96%		847	0.87
Gables Cityscape	252	98%		939	1.10
Gables CityWalk/Waterford Square	317	94%		923	1.14
Gables Edgewater	292	97%		878	1.00
Gables Lions Head	277	99%		731	0.87
Gables Memorial Hills	112	94%		706	0.94
Gables Metropolitan Uptown	318	98%		1,033	1.13
Gables of First Colony	324	93%		1,002	1.01
Gables Piney Point	246	97%		865	0.93
Gables Pin Oak Green	581	94%		963	0.94
Gables Pin Oak Park	474	97%		979	0.96
Gables Rivercrest I	140	98%		734	0.87
Gables Rivercrest II	140	99%		721	0.85
Gables Windmill Landing	259	93%		714	0.82
Total/Averages	4,281	96%		$ 918	$1.00

South FL
Belmar	36	97%		$ 1,511	$ 0.99
Gables Boca Place	180	95%		1,186	1.21
Gables Boynton Beach I	252	95%		1,133	0.95
Gables Boynton Beach II	296	96%		1,094	0.91
Gables Camino Real	235	92%		1,680	1.46

MANAGEMENT’S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)

Stabilized Apartment Communities at June 30, 2005

June 30, 2005

Market Rent per

Community

No. of
Apt. Homes

Physical
Occupancy

Home

Square Foot

South FL (continued)

Gables Floresta	311	96%		1,400	1.06
Gables Kings Colony	480	94%		984	1.08
Gables Mizner on the Green	246	97%		1,709	1.35
Gables Palma Vista (50% JV interest)	189	96%		1,665	1.15
Gables San Michele I	249	91%		1,587	1.13
Gables San Michele II	343	93%		1,577	1.14
Gables San Remo	180	96%		1,385	1.02
Gables Town Colony	172	97%		1,087	1.27
Gables Town Place	312	100%	(a)	1,007	1.21
Gables Wellington (50% JV interest)	222	96%		1,210	1.05
Totals/Averages	3,703	95%		$ 1,315	$ 1.13

Dallas, TX
Gables Carlisle on the Creek	176	82%		$ 704	$ 1.11
Gables Ellis Street	245	97%		1,556	1.30
Gables Highland Park	55	89%		3,121	1.60
Gables Katy Trail	158	99%		749	1.16
Gables Knoxbridge	334	97%		1,055	1.24
Gables Mirabella	126	98%		1,150	1.26
Gables Normandy	54	89%		1,141	0.98
Gables Parkwood	30	87%		822	1.31
Gables Pearl Street	108	94%		1,313	1.21
Gables Saltillo	79	76%		746	1.00
Gables Spring Park	188	94%		922	0.87
Gables State Thomas Townhomes	177	98%		1,877	1.25
Gables State Thomas Ravello	290	97%		1,545	1.35
Gables Turtle Creek Cityplace	232	94%		1,415	1.35
Gables Turtle Creek Dominion	150	99%		1,219	1.21
Gables Uptown Tower	196	98%		1,009	1.30
Gables Valley Ranch	319	94%		907	0.89
Totals/Averages	2,917	95%		$ 1,211	$ 1.20

Austin, TX
Gables at the Terrace	308	90%		$ 1,144	$ 1.21
Gables Barton Creek	160	88%		1,411	1.21
Gables Bluffstone	256	92%		1,002	1.02
Gables Central Park	273	88%		1,374	1.46
Gables Great Hills	276	89%		828	1.00
Gables Park Mesa	148	90%		1,170	1.07
Gables Town Lake	256	90%		1,349	1.44
Gables West Avenue	239	97%		1,458	1.70
Total/Averages	1,916	90%		$ 1,203	$ 1.27

MANAGEMENT’S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)

Stabilized Apartment Communities at June 30, 2005
			June 30, 2005
		June 30, 2005	Market Rent per
Community	No. of Apt. Homes	Physical Occupancy	Home	Square Foot

Inland Empire
Gables Solana Ridge (49% JV interest)	312	94%	$ 1,180		$ 1.27
Gables Summerset (50% JV interest)	752	92%	1,306		1.67
Gables Tuscany Ridge (49% JV interest)	220	95%	1,194		1.27
Total/Averages	1,284	93%	$ 1,256		$ 1.49

Washington, D.C.
Gables Dupont Circle	82	100%	$ 2,793		$ 2.87
Gables Woodley Park (51% JV interest)	211	98%	2,170		2.51
Total/Averages	293	99%	$ 2,344		$ 2.62

Orlando, FL
Gables Chatham Square	448	100%	$ --	(b)	$ --	(b)
The Commons at Little Lake Bryan I	280	100%	--	(b)	--	(b)
Total/Averages	728	100%	$ --		$ --

Memphis, TN
Arbors of Harbortown (25% JV interest)	345	94%	$ 916		$ 0.93
	345	94%	$ 916		$ 0.93

TOTALS	21,163	95%	$ 1,126		$ 1.10

(a) This community is not fully operational at June 30, 2005; therefore, occupancy is based on the number of apartment homes available for lease.
(b) This community is leased to a single user group pursuant to a triple net master lease. Accordingly, market rent data is not reflected as it is not comparable to the rest of our portfolio.

Portfolio Indebtedness Summary at June 30, 2005
Type of Indebtedness	Balance	Interest Rate (a)	Total Rate (b)	Years to Maturity
Fixed Rate: Unsecured fixed-rate notes Secured fixed-rate notes
	$547,504 216,117	6.11% 6.23%	6.11% 6.23%	2.59 3.84
Total fixed-rate indebtedness	763,621	6.14%	6.14%	2.94
Variable Rate: Secured tax-exempt variable-rate loans Unsecured variable-rate credit facilities (c) Secured variable-rate construction loans Total variable-rate indebtedness	56,525 259,614 20,454 336,593	2.46% 3.88% 4.86% 3.70%	3.46% 3.88% 4.86% 3.87%	1.59 3.00 1.25 2.66
Total portfolio debt (c), (d)	$1,100,214	5.40%	5.45%	2.85

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

(b) Total Rate represents the Interest Rate (a) plus credit enhancement fees, as applicable.

(c) Interest associated with construction activities is capitalized as a cost of development and does not impact current earnings. The qualifying
      construction expenditures at June 30, 2005 for purposes of interest capitalization were $198,518. We have an option to extend the maturity date
      of these facilities from June 30, 2008 to June 30, 2009.

(d) Excludes unconsolidated joint venture indebtedness.

MANAGEMENT’S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)

SUPPLEMENTAL DISCUSSION - Funds From Operations

Funds from operations (“FFO”) is used by industry analysts and investors as a supplemental operating performance measure of an equity REIT. We calculate FFO in accordance with the definition that was adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). FFO, as defined by NAREIT, represents net income (loss) determined in accordance with GAAP, excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated operating real estate assets, plus specified non-cash items, such as real estate asset depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.

Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Thus, NAREIT created FFO as a supplemental measure of REIT operating performance that excludes historical cost depreciation, among other items, from GAAP net income. The use of FFO, combined with the required primary GAAP presentations, has improved the understanding of operating results of REITs among the investing public and made comparisons of REIT operating results more meaningful. We generally consider FFO to be a useful measure for reviewing our comparative operating and financial performance (although FFO should be reviewed in conjunction with net income which remains the primary measure of performance) because by excluding gains or losses related to sales of previously depreciated operating real estate assets and excluding real estate asset depreciation and amortization, FFO can help users compare the operating performance of a company’s real estate between periods or as compared to different companies.

FFO presented herein is not necessarily comparable to the FFO of other REITs due to the fact that not all REITs use the NAREIT definition. However, our FFO is comparable to the FFO of REITs that use the NAREIT definition. FFO should not be considered an alternative to net income as an indicator of our operating performance. Additionally, FFO does not represent cash flows from operating, investing or financing activities as defined by GAAP. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” for a discussion of our cash needs and cash flows.

We also present FFO with a supplemental adjustment to exclude debt extinguishment costs associated with the sale of real estate assets. These debt extinguishment costs are incurred when the sale of an asset encumbered by debt requires us to pay the extinguishment costs prior to the debt’s stated maturity and to write-off unamortized loan costs at the date of the extinguishment. Such costs are excluded from the gain on sale of real estate assets reported in accordance with GAAP. However, we view the debt extinguishment costs associated with the sale of real estate assets as an incremental cost of the sale transaction because we extinguished the debt in connection with the consummation of the sale transaction and we had no intent to extinguish the debt absent such transaction. We believe that this supplemental adjustment more appropriately reflects the results of our operations exclusive of the impact of our sale transactions.

A reconciliation of FFO available to common shareholders from net income available to common shareholders (the most directly comparable GAAP measure to FFO available to common shareholders) is as follows:

MANAGEMENT’S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)

Three Months
Ended June 30,

Six Months
Ended June 30,

	2005		2004				2005			2004
Reconciliation of net income available to common shareholders to FFO available to common shareholders – diluted:

Net income available to common shareholders		$15,770			$15,309			$55,588			$20,356

Minority interest of common unitholders in Operating Partnership:
Continuing operations		(100		)	399			1,115			674
Discontinued operations		2,126			1,795			6,312			2,263
Total		2,026			2,194			7,427			2,937

Real estate asset depreciation and amortization:
Wholly-owned real estate assets – continuing operations		12,905			11,412			25,161			23,165
Wholly-owned real estate assets – discontinued operations		67			2,268			370			4,739
Joint venture real estate assets		1,271			495			2,525			886
Total		14,243			14,175			28,056			28,790

Gain on sale of operating real estate assets:
Wholly-owned real estate assets – discontinued operations		(18,714		)	(14,198	)		(53,411	)		(16,580	)
Joint venture real estate assets		-			-			-			(432	)
Total		(18,714		)	(14,198	)		(53,411	)		(17,012	)

FFO available to common shareholders – diluted		$13,325			$17,480			$37,660			$35,071

Debt extinguishment costs associated with the sale of real estate assets		-			986			156			986

FFO available to common shareholders, after a supplemental adjustment to exclude debt extinguishment costs associated with the sale of real estate assets – diluted		$13,325			$18,466			$37,816			$36,057

Average common shares outstanding – basic		29,283			29,258			29,351			29,119
Incremental shares from assumed conversions of:
Common units		3,724			4,203			3,840			4,250
Stock options		100			73			91			104
Other		21			14			20			14
Average common shares outstanding – diluted		33,128			33,548			33,302			33,487

Reconciliation of FFO available to common shareholders – diluted to FFO available to common shareholders – basic:

FFO available to common shareholders – diluted		$13,325			$17,480			$37,660			$35,071

Less: Minority interest of common unitholders in Operating Partnership		(1,508		)	(2,196	)		(4,369	)		(4,466	)

FFO available to common shareholders – basic		$11,817			$15,284			$33,291			$30,605

FFO available to common shareholders, after a supplemental adjustment to exclude debt extinguishment costs associated with the sale of real estate assets – diluted		$13,325			$18,466			$37,816			$36,057

Less: Minority interest of common unitholders in Operating Partnership		(1,508		)	(2,319	)		(4,387	)		(4,590	)

FFO available to common shareholders, after a supplemental adjustment to exclude debt extinguishment costs associated with the sale of real estate assets – basic		$11,817			$16,147			$33,429			$31,467

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our capital structure includes the use of fixed-rate and variable rate indebtedness. As such, we are exposed to the impact of changes in interest rates. We periodically seek input from third-party consultants regarding market interest rate and credit risk in order to evaluate our interest rate exposure. In some situations, we may utilize derivative financial instruments in the form of rate caps, rate swaps or rate locks to hedge interest rate exposure by modifying the interest rate characteristics of related balance sheet instruments and prospective financing transactions. We do not utilize such instruments for trading or speculative purposes. We did not have any derivative instruments in place at June 30, 2005 or December 31, 2004.

We typically refinance maturing debt instruments at then-existing market interest rates and terms, which may be more or less favorable than the interest rates and terms on the maturing debt.

Refer to our Annual Report on Form 10-K for the year ended December 31, 2004 for detailed disclosure about quantitative and qualitative disclosures about market risk. Quantitative and qualitative disclosures about market risk have not materially changed since December 31, 2004.

ITEM 4. CONTROLS AND PROCEDURES

We carried out an evaluation under the supervision and with the participation of senior management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness as of June 30, 2005 of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.

There was no change in internal control over financial reporting that occurred in the second quarter of 2005 that has materially affected or is reasonably likely to materially affect our internal controls over financial reporting.

Part II – Other Information

Item

Legal Proceedings


Item	2:	Unregistered Sales of Equity Securities and Use of Proceeds
		As of June 30, 2005, the Operating Partnership had 76 holders of common units (one general partner and 75 limited partners). On May 17, 2005, we issued 4,500 common shares valued at approximately $164,700 at the time of issuance, to a limited partner of the Operating Partnership in exchange for 4,500 common units. On May 19, 2005, we issued 22,228 common shares valued at approximately $831,327 at the time of issuance, to a limited partner of the Operating Partnership in exchange for 22,228 common units. On June 9, 2005, we issued 50,000 common shares valued at approximately $2,173,000 at the time of issuance, to a limited partner of the Operating Partnership in exchange for 50,000 common units. Such shares were issued in reliance on an exemption from registration under Section 4(2) of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, as these were transactions by an issuer not involving a public offering. In light of the information obtained by us from the limited partners in connection with these transactions, we believe we may rely on this exemption.

Item	3:	Defaults Upon Senior Securities
		None



Item	4:	Submission of Matters to a Vote of Security Holders We held our annual meeting of shareholders on May 17, 2005. Our shareholders voted to elect David D. Fitch, John W. McIntyre and Chris D. Wheeler to serve as Class II Trustees. These Class II Trustees were elected to serve until our 2008 annual meeting and until their successors are duly elected and qualified. The votes cast for, and withheld from, the election of the aforementioned trustees are listed below:

	Votes Cast For	Votes Withheld From

David D. Fitch	27,208,818	369,531
John W. McIntyre	26,748,701	829,648
Chris D. Wheeler	27,168,137	410,032



Item	5:			Other Information
				None

Item	6:			Exhibits

			2.1	Agreement and Plan of Merger, dated June 7, 2005, by and among Gables Residential Trust, Gables Realty Limited Partnership, Bulldog Properties Trust and Bulldog Merger Limited Partnership (Incorporated herein by reference to Exhibit 2.1 of Gables’ Current Report on Form 8-K dated June 7, 2005).
		*	3.1 (ii)	Second Amended and Restated Bylaws of Gables Residential Trust, as amended.
		*	31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer)
		*	31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)
		**	32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
				_____________

				* Filed herewith ** Furnished herewith

SIGNATURES

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

		GABLES RESIDENTIAL TRUST
Date:	August 9, 2005	/s/ Marvin R. Banks, Jr.
Date:	August 9, 2005	Marvin R. Banks, Jr. Senior Vice President and Chief Financial Officer (Authorized Officer of the Registrant and Principal Financial Officer) /s/ Dawn H. Severt Dawn H. Severt Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. sophomore Avg

Gables Residential Trust (GBP) Inactive 10-Q2005 Q2 Quarterly report

Content analysis

Six Months
Ended June 30,

Gables Residential Trust (GBP) Inactive 10-Q2005 Q2 Quarterly report

Content analysis

Six Months Ended June 30,

Six Months
Ended June 30,