UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended: Commission File Number: 0-20707
September 30, 1998
COLONIAL REALTY LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Alabama 63-1098468
(State of organization) (IRS Employer
Identification Number)
2101 Sixth Avenue North 35203
Suite 750 (Zip Code)
Birmingham, Alabama
(Address of principal executive offices)
(205) 250-8700
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES X NO ___
<PAGE>
COLONIAL REALTY LIMITED PARTNERSHIP
INDEX TO FORM 10-Q
Page
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets as of
September 30, 1998 and December 31, 1997 3
Consolidated Condensed Statements of Income for the
Three Months and for the Nine Months Ended September 30, 4
1998 and 1997
Consolidated Condensed Statements of Cash Flows
for the Nine Months Ended September 30, 1998 and 1997 5
Notes to Consolidated Condensed Financial Statements 6
Report of Independent Accountants 10
Item 2. Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
PART II: OTHER INFORMATION
Item 2. Changes in Securities 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
EXHIBITS 16
Page 2
<PAGE>
<TABLE>
COLONIAL REALTY LIMITED PARTNERSHIP
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
____________________
<CAPTION>
September 30, 1998
(Unaudited) December 31, 1997
------------ -----------
ASSETS
<S> <C> <C>
Land, buildings, and equipment, net .................... $1,586,098 $1,268,430
Undeveloped land and construction in progress .......... 89,275 98,555
Cash and equivalents ................................... 2,890 4,534
Restricted cash ........................................ 2,886 2,665
Accounts receivable, net ............................... 8,282 7,174
Prepaid expenses ....................................... 2,671 3,038
Notes receivable ....................................... 685 575
Deferred debt and lease costs, net ..................... 6,837 7,031
Other assets ........................................... 7,666 4,658
---------- ----------
$1,707,290 $1,396,660
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Notes and mortgages payable ............................ $ 855,292 $ 702,044
Accounts payable ....................................... 6,801 14,233
Accrued interest ....................................... 10,379 6,526
Accrued expenses ....................................... 15,737 2,700
Tenant deposits ........................................ 4,197 3,715
Unearned rent .......................................... 3,567 2,253
---------- ----------
Total liabilities ................................. 895,973 731,471
---------- ----------
Minority interest in consolidated operating property ... 4,321 0
---------- ----------
Redeemable units, at redemption value .................. 298,692 299,492
---------- ----------
Partners' capital, excluding redeemable units .......... 508,304 365,697
---------- ----------
$1,707,290 $1,396,660
========== ==========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<TABLE>
Page 3
<PAGE>
COLONIAL REALTY LIMITED PARTNERSHIP
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per unit data)
_____________________
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------------
1998 1997 1998 1997
------------------------------------------------
Revenue:
<S> <C> <C> <C> <C>
Minimum rent ....................................... $ 54,664 $ 40,150 $ 150,669 $ 109,910
Percentage rent .................................... 551 214 1,993 906
Tenant recoveries .................................. 8,171 4,386 22,409 11,592
Other .............................................. 4,796 2,729 10,753 7,064
--------- --------- --------- ---------
Total revenue ................................... 68,182 47,479 185,824 129,472
--------- --------- --------- ---------
Property operating expenses:
General operating expenses ......................... 5,838 3,393 14,543 9,010
Salaries and benefits .............................. 3,191 2,781 9,065 7,468
Repairs and maintenance ............................ 6,837 5,180 17,931 13,204
Taxes, licenses, and insurance ..................... 6,099 4,055 16,035 11,489
General and administrative .............................. 2,207 1,508 6,124 4,272
Depreciation ............................................ 11,942 8,372 32,897 22,426
Amortization ............................................ 528 162 1,208 888
--------- --------- --------- ---------
Total operating expenses ........................ 36,642 25,451 97,803 68,757
--------- --------- --------- ---------
Income from operations .......................... 31,540 22,028 88,021 60,715
--------- --------- --------- ---------
Other income (expense):
Interest expense ................................... (13,917) (10,934) (38,108) (28,796)
Income from unconsolidated subsidiaries ............ 24 196 61 556
Gains (losses) from sales of property .............. (16) -0- 17 (1)
Minority interest in consolidated operating property (62) (64) (62) (179)
--------- --------- --------- ---------
Total other expense ............................. (13,971) (10,802) (38,092) (28,420)
--------- --------- --------- ---------
Income before extraordinary item ................ 17,569 11,226 49,929 32,295
Extraordinary loss from early extinguishment of debt .... (1) (2,927) (401) (3,408)
--------- --------- --------- ---------
Net income ...................................... $ 17,568 $ 8,299 $ 49,528 $ 28,887
Distributions to preferred unitholders .................. (2,735) -0- (8,203) -0-
--------- --------- --------- ---------
Net income available to common unitholders ......... $ 14,833 $ 8,299 $ 41,325 $ 28,887
========= ========= ========= =========
Net income per common unit - basic and diluted .......... $ 0.41 $ 0.28 $ 1.20 $ 1.03
========= ========= ========= =========
Weighted average common units outstanding ............... 36,541 29,327 34,353 28,062
========= ========= ========= =========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<TABLE>
Page 4
<PAGE>
COLONIAL REALTY LIMITED PARTNERSHIP
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
___________________
<CAPTION>
Nine Months Ended
September 30,
------------------------
1998 1997
---------- -----------
Cash flows from operating activities:
<S> <C> <C>
Net income ............................................ $ 49,528 $ 28,887
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ....................... 34,105 23,314
Income from unconsolidated subsidiaries ............. (61) (556)
Minority interest in income of property partnership . 62 179
Other ............................................... 927 3,807
Decrease (increase) in:
Restricted cash ..................................... (221) (381)
Accounts and notes receivable ....................... (1,789) (596)
Prepaid expenses .................................... 370 963
Other assets ........................................ (3,714) (69)
Increase (decrease) in:
Accounts payable .................................... (7,432) (12,158)
Accrued interest .................................... 3,853 957
Accrued expenses and other .......................... 10,968 5,522
--------- ---------
Net cash provided by operating activities ....... 86,596 49,869
--------- ---------
Cash flows from investing activities:
Acquisition of properties .............................. (225,627) (113,400)
Development expenditures ............................... (68,547) (68,450)
Tenant improvements .................................... (2,702) (1,289)
Capital expenditures ................................... (12,389) (8,052)
Proceeds from sales of property, net of selling costs .. 908 -0-
Distributions from unconsolidated subsidiaries ......... 85 778
Capital contributions to unconsolidated subsidiaries ... (21) (272)
--------- ---------
Net cash used in investing activities ........... (308,293) (190,685)
--------- ---------
Cash flows from financing activities:
Principal reductions of debt ........................... (47,156) (101,589)
Proceeds from additional borrowings .................... 198,976 175,246
Net change in revolving credit balances ................ (6,152) 21,211
Cash contributions ..................................... 139,679 94,651
Capital distributions .................................. (64,582) (44,083)
Payment of mortgage financing cost ..................... (311) (1,299)
Other, net ............................................. (401) (3,408)
--------- ---------
Net cash provided by financing activities ....... 220,053 140,729
--------- ---------
Decrease in cash and equivalents ................ (1,644) (87)
Cash and equivalents, beginning of period ................... 4,534 3,340
--------- ---------
Cash and equivalents, end of period ......................... $ 2,890 $ 3,253
========= =========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
Page 5
<PAGE>
COLONIAL REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
Note 1 -- Basis of Presentation
Colonial Realty Limited Partnership ("CRLP") is the operating partnership
of Colonial Properties Trust (the "Company"), an Alabama real estate investment
trust whose shares are traded on the New York Stock Exchange. The accompanying
unaudited consolidated condensed financial statements of CRLP have been prepared
by management in accordance with generally accepted accounting principles for
interim financial reporting and in conjunction with the rules and regulations of
the Securities and Exchange Commission. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included.
These financial statements should be read in conjunction with the information
included in CRLP's Annual Report as filed with the Securities and Exchange
Commission on Form 10-K for the year ended December 31, 1997, and with the
information filed with the Securities and Exchange Commission on Forms 10-Q for
the quarters ended March 31, 1998 and June 30, 1998. The December 31, 1997
balance sheet data presented herein was derived from audited financial
statements but does not include all disclosures required by generally accepted
accounting principles.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information (SFAS 131), which is effective for years
beginning after December 15, 1997. SFAS 131 establishes standards for the way
that public enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. SFAS 131 is effective for financial
statements for fiscal years beginning after December 15, 1997, and, in
accordance with the provisions of this Statement CRLP will adopt the new
requirements retroactively in 1998.
Note 2 -- Acquisitions
River Hills I--On July 1, 1998, CRLP acquired River Hills I, a 248-unit
phase of the River Hills apartment complex on approximately 30 acres of land in
Tampa, Florida. The multifamily community was developed in 1985 and was 90%
leased at the time of acquisition. The purchase price of $8.5 million was funded
through an advance on CRLP's unsecured line of credit. The average unit size is
907 square feet with average unit market rent of $549 per month.
Haverhill Apartments--On July 1, 1998, CRLP acquired a 79.8% interest in
Haverhill Apartments, a 322-unit apartment complex on approximately 19 acres of
land in San Antonio, Texas. The multifamily community was developed in 1998 and
was 90% leased at the time of acquisition. The purchase price of $17.2 million
was funded through an advance on CRLP's unsecured line of credit. The average
unit size is 1,019 square feet with average unit market rent of $857 per month.
The remaining 20.2% ownership in this property is reflected as "minority
interest in consolidated operating property" in CRLP's balance sheet and
statement of income, and is included in "minority interest in income of property
partnership" on CRLP's statement of cash flows.
Page 6
<PAGE>
Mansell Overlook 200 and Shoppes at Mansell--On July 1, 1998, CRLP
completed the final phase of its merger with certain affiliates of Johnson
Development Company, LLC. The final phase included Mansell Overlook 200, a
six-story office building containing 163,000 square feet of space, and the
Shoppes at Mansell, a 21,000 square foot community shopping center.
Mansell Overlook 200 was developed in 1997 and was 95% occupied at the
time of the merger. This part of the merger, valued at $27.7 million, was funded
through the issuance of 396,365 limited partnership units valued at $11.7
million, and an advance on CRLP's unsecured line of credit.
The Shoppes at Mansell was also developed in 1997 and was 95% occupied at
the time of the merger. The merger of Shoppes at Mansell, valued at $3.7
million, was funded through the issuance of 76,809 limited partnership units
valued at $2.3 million, and an advance on CRLP's unsecured line of credit.
Shades Brook Building--On July 13, 1998, CRLP acquired the Shades Brook
Building, a three-story office building containing 35,000 square feet of space
in Birmingham, Alabama. Shades Brook was acquired for a total purchase price of
$3.1 million, which was financed through the issuance of 28,492 limited
partnership units valued at $871,000, and an advance on CRLP's unsecured line of
credit. Shades Brook was built in 1979 and was 93% occupied at the time of
acquisition.
Concourse Center--On July 23, 1998, CRLP acquired Concourse Center, an
office park comprised of four multi-tenant buildings in Tampa, Florida totaling
290,000 square feet of leasable area. The purchase price of $30.1 million was
financed through an advance on CRLP's unsecured line of credit. Concourse Center
was built between 1981 and 1985 and was 99% occupied at the time of acquisition.
In The Pines Apartments--On July 30, 1998, CRLP acquired In The Pines, a
256-unit multifamily apartment community on approximately 22 acres of land in
Augusta, Georgia. The community was developed in 1970 and 1988, and was 98%
leased at the time of acquisition. The purchase price of $8.8 million was funded
through an advance on CRLP's unsecured line of credit. The average unit size is
993 square feet with average unit market rent of $671 per month.
Note 3 -- Increase in Revolving Credit Agreement
On July 10, 1998, CRLP increased the borrowing capacity under its
unsecured line of credit from $200 million to $250 million. The credit facility,
which is used by CRLP primarily to finance additional property investments,
bears interest at a rate ranging between 80 and 135 basis points above LIBOR.
The credit facility is renewable in July 2000 with approval of all parties
involved and provides for a two-year amortization in the event of non-renewal.
Note 4 -- Debt Offering
On July 14, 1998, CRLP completed a $175 million public offering of
unsecured senior notes. The securities, which mature in July 2007, bear a coupon
rate of 7.0%, and were priced to yield an effective rate of 7.09% over the
nine-year term. CRLP used the net proceeds of the offering to repay a portion of
the outstanding balance on its unsecured line of credit.
Page 7
<PAGE>
Note 5 -- Net Income Per Unit
The following table sets forth the computation of basic and diluted
earnings per unit:
(Amounts in thousands,
except per unit data)
-----------------------------------------
Three Three Nine Nine
Months Months
Ended Ended Months Months
September September Ended Ended
30, 30, September September
30, 30,
1998 1997 1998 1997
-------- -------- -------- --------
Numerator:
Numerator for basic and
diluted net income per
unit - net income $ 14,833 $ 8,299 $ 41,325 $ 28,887
available to common
unitholders
======== ======== ======== ========
Denominator:
Denominator for basic
net income per unit - 36,541 29,327 34,353 28,062
weighted average common
units
Effect of dilutive
securities:
Trustee and employee 44 46 44 46
stock options
-------- -------- -------- --------
Denominator for diluted
net income per unit -
adjusted weighted 36,585 29,373 34,397 28,108
average common units
======== ======== ======== ========
Basic and diluted net $ .41 $ .28 $ 1.20 $ 1.03
income per unit
======== ======== ======== ========
Options to purchase 55,000 of Colonial Properties Trust's common shares at a
weighted average exercise price of $29.45 per share were outstanding during 1998
but were not included in the computation of diluted net income per unit because
the options' exercise price was greater than the average market price of the
common shares and, therefore, the effect would be antidilutive.
Page 8
<PAGE>
Note 6 -- Pro Forma Information (Unaudited)
The following unaudited pro forma operating results for CRLP have been
presented as if the 1997 and 1998 equity and debt offerings and the 1997 and
1998 property acquisitions and dispositions had occurred on January 1, 1997.
Unaudited pro forma financial information is presented for informational
purposes only and may not be indicative of what the actual results of operations
of CRLP would have been had the events occurred as of January 1, 1997, nor does
it purport to represent the results of operations for future periods.
(Amounts in
thousands,
except per unit
data)
---------------------
Nine Months Ended
September 30,
1998 1997
-------- ---------
Revenues $ 199,162 $ 177,526
======== =========
Income before preferred $ 52,448 $ 53,292
distributions
======== =========
Net income available to common $ 44,245 $ 45,089
unitholders
======== =========
Net income per unit - basic and $ 1.21 $ 1.23
diluted
======== =========
The pro forma information includes the operations of the properties acquired and
disposed in 1997, as discussed in CRLP's 1997 Form 10-K, the properties acquired
in 1998 through September 30, as discussed in CRLP's Forms 10-Q for the quarters
ended March 31, 1998 and June 30, 1998, and the properties acquired in the third
quarter 1998, as discussed in Note 2 above.
Note 7 -- Subsequent Event
Quarterly Distribution
On October 22, 1998, a cash distribution was declared to partners of CRLP in the
amount of $0.55 per unit, totaling $20.1 million. The distribution was declared
to partners of record as of November 2, 1998, and was paid on November 9, 1998.
Page 9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Colonial Properties Holding Company, Inc.:
We have reviewed the accompanying consolidated condensed balance sheet of
Colonial Realty Limited Partnership (the "Partnership") as of September 30,
1998, and the related consolidated condensed statements of income for the
three-month and nine-month periods ended September 30, 1998 and 1997, and the
consolidated condensed statements of cash flows for the nine-month periods ended
September 30, 1998 and 1997. These financial statements are the responsibility
of the Partnership's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1997, and the
related consolidated statements of income, partners' capital, and cash flows for
the year then ended (not presented herein); and in our report dated January 19,
1998, except for Note 13, as to which the date is February 17, 1998, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying consolidated
condensed balance sheet as of December 31, 1997, is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Birmingham, Alabama
October 19, 1998
Page 10
<PAGE>
COLONIAL REALTY LIMITED PARTNERSHIP
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Colonial Realty Limited Partnership ("CRLP"), a Delaware limited
partnership, is the operating partnership of Colonial Properties Trust, an
Alabama real estate investment trust (the "Company") whose shares are listed on
the New York Stock Exchange. The Company is engaged in the ownership,
development, management, and leasing of multifamily communities, retail malls
and shopping centers, and office buildings. The Company is organized as a real
estate investment trust (REIT) and owns and operates properties in nine states
in the Sunbelt region of the United States. As of September 30, 1998, CRLP's
real estate portfolio consisted of 47 multifamily communities, 38 retail
properties, and 17 office properties.
CRLP manages its business with three separate and distinct operating
divisions: Multifamily, Retail, and Office. Each division has an Executive Vice
President that oversees growth and operations and has a separate management team
that is responsible for acquiring, developing, and leasing properties within
each division. This structure allows CRLP to utilize specialized management
personnel for each operating division. Although these divisions operate
independently from one another, constant communication among the Executive Vice
Presidents provides CRLP with synergy allowing it to take advantage of a variety
of investment opportunities.
The following discussion should be read in conjunction with management's
discussion and analysis of financial condition and results of operations and all
of the other information appearing in CRLP's 1997 Financial Statements as filed
with the Securities and Exchange Commission on Form 10-K and with the financial
statements included therein and the notes thereto.
Any statement contained in this report which is not a historical fact, or
which might be otherwise considered an opinion or projection concerning CRLP or
its business, whether express or implied, is meant as, and should be considered,
a forward-looking statement as that term is defined in the Private Securities
Litigation Reform Act of 1996. Examples of forward-looking statements include
the Company's anticipated sources and amounts of financing and the timing, cost
and expected results of the Company's Year 2000 compliance program.
Forward-looking statements are based upon assumptions and opinions concerning a
variety of known and unknown risks, including but not limited to changes in
market conditions, the supply and demand for leasable real estate, interest
rates, increased competition, changes in governmental regulations, and national
and local economic conditions generally, as well as other risks more completely
described in CRLP's prospectuses and annual reports filed with the Securities
and Exchange Commission. If any of these assumptions or opinions prove
incorrect, any forward-looking statements made on the basis of such assumptions
or opinions may also prove materially incorrect in one or more respects.
Page 11
<PAGE>
Results of Operations -- Three Months Ended September 30, 1998 and 1997
Revenue -- Total revenue increased by $20.7 million, or 43.6%, for the
third quarter of 1998 when compared to the third quarter of 1997. The majority
of this increase, $18.0 million, represents revenues generated by properties
acquired or developed during 1998 and the second half of 1997, net of revenues
from properties disposed of in 1997. The remaining increase primarily relates to
increases in rental rates at existing properties.
Operating Expenses -- Total operating expenses increased by $11.2 million,
or 44.0%, for the third quarter of 1998 when compared to the third quarter of
1997. The majority of this increase, $9.2 million, relates to additional
operating expenses associated with properties that were acquired or developed
during 1998 and the second half of 1997, net of operating expenses associated
with properties disposed of in 1997. The remaining increase primarily relates to
increases in operating expenses at existing properties and overall increases in
corporate overhead and personnel costs associated with the Company's continued
growth.
Other Income and Expense -- Interest expense increased by $3.0 million, or
27.3%, for the third quarter of 1998 when compared to the third quarter of 1997.
The increase in interest expense is primarily attributable to the assumption of
acquisition-related debt, and the increased usage of CRLP's revolving credit
agreement in conjunction with the financing of acquisitions and developments.
Results of Operations -- Nine Months Ended September 30, 1998 and 1997
Revenue -- Total revenue increased by $56.4 million, or 43.5%, for the nine
months ended September 30, 1998 when compared to the nine months ended September
30, 1997. The majority of this increase, $50.0 million, represents revenues
generated by properties acquired or developed during 1998 and 1997, net of
revenues from properties disposed of in 1997. The remaining increase primarily
relates to increases in rental rates at existing properties.
Operating Expenses -- Total operating expenses increased by $29.0 million,
or 42.2%, for the nine months ended September 30, 1998 when compared to the nine
months ended September 30, 1997. The majority of this increase, $24.1 million,
relates to additional operating expenses associated with properties that were
acquired or developed during 1998 and 1997, net of operating expenses associated
with properties disposed of in 1997. The remaining increase primarily relates to
increases in operating expenses at existing properties and overall increases in
corporate overhead and personnel costs associated with the Company's continued
growth.
Other Income and Expense -- Interest expense increased by $9.3 million, or
32.3%, for the nine months ended September 30, 1998 when compared to the nine
months ended September 30, 1997. The increase in interest expense is primarily
attributable to the assumption of acquisition-related debt, and the increased
usage of CRLP's revolving credit agreement in conjunction with the financing of
acquisitions and developments.
Liquidity and Capital Resources
During the third quarter of 1998, CRLP invested $134.3 million in the
acquisition and development of properties. CRLP financed this growth through net
proceeds from public offerings of debt totaling $172.5 million during the third
quarter (as discussed below), advances on its bank line of credit, and cash from
operations. As of September 30, 1998, CRLP had one bank line of credit with a
balance outstanding of $110.9 million. On July 10, 1998, CRLP increased its line
of credit to provide for total borrowings of up to $250 million. The increased
line, which is used by CRLP primarily to finance property acquisitions and
development, bears interest at a rate ranging between LIBOR plus 80 to LIBOR
plus 135 basis points, expires in July 2000, and provides for a two-year
amortization in the event of non-renewal.
Page 12
<PAGE>
On July 14, 1998, CRLP completed a $175 million public offering of
unsecured senior notes. The securities, which mature in July 2007, bear a coupon
rate of 7.0%, and were priced to yield an effective rate of 7.09% over the
nine-year term. CRLP used the net proceeds of the offering of $172.5 million to
repay a portion of the outstanding balance on its unsecured line of credit.
Management intends to replace significant borrowings that may accumulate
under the bank line of credit with funds generated from the sale of additional
limited partnership units to Colonial Properties Trust in connection with public
offerings of securities by the Company, and/or permanent financing, as market
conditions permit. Management believes that these potential sources of funds,
along with the possibility of issuing limited partnership units in exchange for
properties, will provide CRLP with the means to finance additional acquisitions.
Management anticipates that its net cash provided by operations and its existing
cash balances will provide the necessary funds on a short- and long-term basis
to cover its operating expenses, interest expense on outstanding indebtedness,
recurring capital expenditures, distributions to unitholders, and dividends to
shareholders in accordance with Internal Revenue Code requirements applicable to
real estate investment trusts.
Year 2000 Issue
CRLP utilizes management information systems and software technology that
may be affected by Year 2000 issues throughout its businesses. The "Year 2000"
problem relates to computer systems that have time and date-sensitive programs
that were designed to read years beginning with "19," but may not properly
recognize the year 2000. If a computer system or software application used by
CRLP or a third party dealing with CRLP fails because of the inability of the
system or application to properly read the year "2000," the results could
conceivably have a material adverse effect on CRLP.
As a real estate owner, developer and manager, CRLP's major exposure for
Year 2000 problems is the inability of automated systems (e.g., elevators, HVAC
systems, and security access systems) at properties to function properly on
January 1, 2000. CRLP has no internally generated programmed software coding to
correct, as substantially all of the software utilized by CRLP is purchased or
licensed from external providers.
CRLP has authorized the use of internal and external resources to ensure
that all automated systems are Year 2000 compliant. CRLP has developed a
cross-functional task force, comprised of senior management, MIS personnel,
internal audit personnel, and all lines of business to address the Year 2000
issue. Weekly meetings are held to ensure the commitments set forth by the task
force are met. The task force has been charged with minimizing the impact of
Year 2000 problems on internal operations and transactions that involve CRLP's
customers, suppliers, or strategic business partners. This is being achieved
through a four-step process:
I. Awareness
II. Assessment
III. Validation
IV. Implementation
The Awareness Phase was the first step in addressing the Year 2000 issue. The
Awareness Phase included a definition of the problem, notification of key
personnel, implementation of the plan, and development of the task force to
address the issues.
The Assessment Phase was an evaluation of the size and complexity of the issues
surrounding Year 2000. This included communications with all divisional
management teams, who conducted inventories of potential internal Year 2000
compliance problems. A second component of the Assessment Phase was the
evaluation of the effect that customers', vendors', and strategic business
partners' compliance problems would have on CRLP.
Page 13
<PAGE>
The Validation Phase includes the testing of the systems and components for Year
2000 compliance. CRLP, along with external resources, have jointly tested and
identified all hardware and software applications that will need to be upgraded
to ensure Year 2000 compliancy. Based on the results of the evaluations in the
Awareness Phase, CRLP decided to obtain written confirmation of compliance from
vendors of the previously identified potential problems. CRLP also decided to
confirm compliance with vendors of other key products and services as well as
compliance of certain customers' ability to comply with leases.
The Implementation Phase includes performing upgrades on all information
technology systems (e.g., personal computers, printers and software
applications) to ensure Year 2000 compliancy.
CRLP has completed the first two phases of the plan and is currently
working internally and with external vendors on the final two phases. The
hardware and software testing and upgrades that are part of the Implementation
Phase are expected to be completed by year-end 1998.
The Year 2000 costs incurred by CRLP through September 30, 1998, totaled
approximately $727,000, the majority of which was related to hardware and
software costs. This amount does not include the implicit costs associated with
the reallocation of internal staff hours to Year 2000 project related efforts.
At this time, management currently estimates additional Year 2000 compliance
costs at between $75,000 and $100,000. This estimate is based on management's
current assessment of CRLP's state of Year 2000 readiness, and there can be no
assurance that management's assessment of its compliance requirements and the
cost of corrective measures will not change as CRLP proceeds with the Validation
and Implementation Phases. CRLP anticipates all phases of the plan to address
the Year 2000 problem to be implemented by mid-year 1999.
CRLP's assessment of its readiness for the Year 2000 and the cost and
timing of bringing its systems into compliance has not caused CRLP to believe
that the Year 2000 problem will have a material adverse effect on CRLP's
financial condition or results of operations. CRLP is continually assessing the
extent of Year 2000 compliance, by CRLP and third parties on whose systems CRLP
may depend, and CRLP plans to address compliance issues as they arise. Because
CRLP has not, at this time, identified any significant problems that do not
appear remediable through current compliance efforts, CRLP has not developed a
comprehensive contingency plan. However, if CRLP identifies significant risks
related to its Year 2000 compliance or if CRLP's progress deviates from the
anticipated timeline, CRLP will develop contingency plans as deemed necessary at
that time.
Page 14
<PAGE>
COLONIAL REALTY LIMITED PARTNERSHIP
PART II -- OTHER INFORMATION
Item 2. Changes in Securities.
The Company from time to time issues common shares of beneficial interest
("Common Shares") pursuant to its Dividend Reinvestment and Share Purchase Plan,
its Non-Employee Trustee Share Option Plan, its Non-Employee Trustee Share Plan,
and its Employee Share Option and Restricted Share Plan, in transactions that
are registered under the Securities Act of 1933, as amended (the "Act").
Pursuant to CRLP's Second Amended and Restated Agreement of Limited Partnership,
each time the Company issues Common Shares pursuant to the foregoing plans, CRLP
issues to Colonial Properties Holding Company, Inc., its general partner, an
equal number of Units for the same price at which the Common Shares were sold,
in transactions that are not registered under the Act in reliance on Section
4(2) of the Act. During the quarter ended September 30, 1998, CRLP issued
113,298 Units in such transactions for an aggregate of $2.5 million.
On July 1, 1998, CRLP issued a total of 473,174 Units to William M.
Johnson and related affiliates to complete CRLP's merger of selected assets of
Johnson Development Company (see Note 2 to the Notes to Consolidated Condensed
Financial Statements). The Units were valued at an aggregate of $14.0 million
for purposes of the transaction. Mr. Johnson is on the Board of Directors of
Colonial Properties Holding Company, Inc., CRLP's general partner.
On July 1, 1998, CRLP issued 28,492 Units to Campco Investments II, Fred
W. Rock, Robin K. Conner, and Pei-Cheng Chi in exchange for their interests in
an office property (see Note 2 to the Notes to Consolidated Condensed Financial
Statements). The Units were valued at an aggregate of $871,000 for purposes of
the transaction.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
12. Ratio of Earnings to Fixed Charges
15. Letter re: Unaudited Interim Financial Information
27. Financial Data Schedule (EDGAR Version Only)
(b) Reports on Form 8-K
Form 8-K dated July 8, 1998, reported certain property acquisitions
during 1998 up to July 8, 1998, under Item 5, "Other Events," and
Form 8-K dated July 20, 1998, filed certain documents related to
CRLP's debt offering under Item 5, "Other Events."
Page 15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned hereunto duly authorized.
COLONIAL REALTY LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Colonial Properties Holding Company, Inc.,
its general partner
Date: November 13, 1998 By: /s/ Howard B. Nelson, Jr.
-------------------------------------
Howard B. Nelson, Jr.
Chief Financial Officer
(Duly Authorized Officer
and Principal Financial Officer)
Date: November 13, 1998 /s/ Kenneth E. Howell
-------------------------------------
Kenneth E. Howell
Senior Vice President and Chief
Accounting Officer
(Principal Accounting Officer)
Page 16
<PAGE>
COLONIAL REALTY LIMITED PARTNERSHIP
EXHIBIT 12 - Ratio of Earnings to Fixed Charges
CRLP's ratio of earnings to fixed charges for the three months ended
September 30, 1998 and 1997, was 1.98 and 1.88, respectively. CRLP's ratio of
earnings to fixed charges for the nine months ended September 30, 1998 and 1997,
was 2.01 and 1.97, respectively.
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of income (loss) before
gains from sales of property and extraordinary items plus fixed charges. Fixed
charges consist of interest expense (including interest costs capitalized),
distributions to preferred unitholders, and the amortization of debt issuance
costs.
Page 17
<PAGE>
Securities and Exchange Commission
450 Fifth Street, N. W.
Washington, D. C. 20549
Re: Colonial Realty Limited Partnership
(File No. 0-20707)
Registration on Form S-3
We are aware that our report dated October 19, 1998 on our review of interim
financial information of Colonial Realty Limited Partnership for the three-month
and nine-month periods ended September 30, 1998 and 1997 and included in the
Partnership's quarterly report on Form 10-Q for the periods then ended, is
incorporated by reference in the registration statement on Form S-3 related to
the Shelf Registration filed on December 11, 1997 (File No. 333-42049). Pursuant
to Rule 436(c) under the Securities Act of 1933, this report should not be
considered a part of the registration statement prepared or certified by us
within the meaning of Sections 7 and 11 of that Act.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Birmingham, Alabama
November 13, 1998
Page 18
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