Business Objectives and Strategy

Gables’ objective is to increase shareowner value by producing consistent high quality earnings to sustain dividend growth and annual total returns that exceed the multifamily sector average. To achieve that objective, Gables employs a number of business strategies. First, Gables’ long-term investment strategy is research-driven with an objective of creating a portfolio of high quality assets in approximately six to eight strategically selected markets that are complementary through economic diversity and characterized by high job growth and resiliency to national economic downturns. Gables believes such a portfolio will provide predictable growth in operating cash flow on a sustainable basis. Second, Gables adheres to a strategy of owning and operating high quality, class AA/A apartment communities under the Gables ^® brand. Gables believes that such communities, when located in highly desirable areas to live 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. This, coupled with more predictable operating expenses and reduced capital expenditure requirements associated with high quality construction materials, should lead to operating margins that exceed national averages for the multifamily sector and sustainable growth in operating cash flow. Third, Gables’ aim is to be recognized as the employer of choice within the industry. Gables’ mission of “Taking Care of the Way People Live” is a cornerstone of its strategy, involving innovative human resource practices that Gables believes will attract and retain the highest caliber associates. Because of its long-established presence as a fully integrated apartment management, development, construction, acquisition and disposition company within its markets, Gables has the ability to offer multi-faceted career opportunities among the various disciplines within the industry. Finally, Gables’ capital strategy is to maximize return on invested capital while maintaining financial flexibility through a conservative, investment grade credit profile. Gables judiciously manages its capital and is able to recycle existing capital through asset dispositions. Gables believes the successful execution of these strategies will result in operating cash flow and dividend growth that will produce annual total returns that exceed the multifamily REIT sector average.

Gables believes it is well positioned to continue achieving its objective because of its long-established presence as a fully integrated real estate company in its markets. Gables believes that its local market presence creates a competitive advantage in generating increased cash flow from (1) property operations during different economic cycles and (2) new investment opportunities that involve site selection, market information and requests for entitlements and zoning petitions.

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

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