I have been wondering around on Gallifrey looking for a Timelord Citadel and have not located one yet. Are they even in the mod or is it just a rumor?

if you have worldedit you can go back to 1.7 and save it to a .schem file and paste it into 1.12

The Citadels currently do not spawn yet, as the schematic is too big or something. 

Source - Comments made by the SWDTeam account on Ambient's Update 48 Livestream.