Interest expense and credit enhancement fees increased $14,661 or 57.9%, from $25,313 to $39,974 due to an increase in operating debt associated with the acquisition and development of additional communities, including the debt assumed in connection with the South Florida and Greystone acquisitions. These increases in interest expense have been offset in part as a result of the equity offerings Gables consummated between periods, the proceeds of which were primarily used to reduce indebtedness.

General and administrative expense increased $2,994, or 92.2%, from $3,248 to $6,242 due primarily to (1) compensation and other costs for new positions associated with the South Florida acquisition, (2) increased compensation costs, and (3) the expensing of internal costs of identifying and acquiring operating apartment communities effective March 20, 1998 in accordance with EITF No. 97-11.

Loss on treasury locks of $5,637 in 1998 represents mark to market losses recorded upon the expiration of the terms of treasury lock agreements that were (1) entered into in anticipation of a projected debt offering, (2) subsequently extended in connection with modifications in the projected timing of the debt offering, and (3) terminated due to economic conditions affecting the unsecured debt market.

Liquidity and Capital Resources

Gables' net cash provided by operating activities increased from $90,555 for the year ended December 31, 1998 to $105,221 for the year ended December 31, 1999 due to (1) an increase of $12,355 in income (a) before certain non-cash items or non-operating items, including depreciation, amortization, equity in income of joint ventures, minority interest of unitholders in Operating Partnership, gain on sale of real estate assets, long-term compensation expense and loss on treasury locks, and (b) after operating distributions received from joint ventures, (2) a change in other assets between periods of $6,850, and (3) a change in restricted cash between periods of $2,665. Such increases were offset in part by a change in other liabilities between periods of $7,204.

For the year ended December 31, 1999, Gables had $80,928 of net cash provided by investing activities compared to $359,263 of net cash used in investing activities for the year ended December 31, 1998. During the year ended December 31, 1999, Gables received cash of (1) $65.1 million in connection with the contribution of its interests in certain development communities to the Gables Residential Apartment Portfolio JV and (2) $96.7 million in connection with the sale of real estate assets. During the year ended December 31, 1999, Gables expended $56.5 million related to development expenditures, including related land acquisitions, $6.7 million related to its investment in the Gables Residential Apartment Portfolio JV, $10.0 million related to recurring, non-revenue enhancing capital expenditures for operating apartment communities, and $7.7 million related to non-recurring, renovation/revenue enhancing capital expenditures. During the year ended December 31, 1998, Gables expended $203.3 million related to acquisitions of operating apartment communities, including the South Florida acquisition, $138.1 million related to development expenditures, including related land acquisitions, $8.0 million related to recurring, non-revenue enhancing capital expenditures for operating apartment communities, and $8.9 million related to non-recurring, renovation/revenue enhancing capital expenditures.

For the year ended December 31, 1999, Gables had $185,240 of net cash used in financing activities compared to $272,583 of net cash provided by financing activities for the year ended December 31, 1998. During the year ended December 31, 1999, Gables had net repayments of borrowings of $57.3 million, net payments of dividends and distributions totaling $73.3 million, and payments for treasury share purchases and Unit redemptions in connection with the common equity repurchase program totaling $54.8 million. The repayments of borrowings were funded by the net cash provided by investing activities. During the year ended December 31, 1998, Gables had net borrowings of $210.5 million, which were used in conjunction with $136.2 million of proceeds from a common share offering and the Series B Preferred Unit offering primarily to fund Gables’ acquisition and development activities discussed in the above paragraph. These proceeds from financing activities were offset in part by net payments of dividends and distributions totaling $68.7 million.

Gables has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. REITs are subject to a number of organizational and operational requirements, including a requirement that they currently distribute 95% of their ordinary taxable income. Provided it maintains its qualification as a REIT, Gables generally will not be subject to federal income tax on distributed net income.