UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q/A
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarterly Period Ended:
March 31, 1999 Commission File Number: 0-20707
COLONIAL REALTY LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 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 ___
Explanatory note: The registrant is filing this Quarterly Report on Form 10-Q/A
to reflect an adjustment made to previously reported depreciation expense in the
registrant's original report on Form 10-Q as of and for the three months ended
March 31, 1999. See Note 7 in the Notes to Consolidated Condensed Financial
Statements for further discussion and the effect of the adjustment.
The restatement of the original report on Form 10-Q as of and for the three
months ended March 31, 1999 does not affect the federal income tax treatment of
distributions or dividends previously paid to unitholders.
<PAGE>
COLONIAL REALTY LIMITED PARTNERSHIP
INDEX TO FORM 10-Q/A
Page
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets as of
March 31, 1999 and December 31, 1998 3
Consolidated Condensed Statements of Income for the
Three Months Ended March 31, 1999 and 1998 4
Consolidated Condensed Statements of Cash Flows
For the Three Months Ended March 31, 1999 and 1998 5
Notes to Consolidated Condensed Financial Statements 6
Report of Independent Accountants 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II: OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
EXHIBITS 19
<PAGE>
COLONIAL REALTY LIMITED PARTNERSHIP
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
--------------------
<TABLE>
March 31, 1999 December 31,
(Unaudited) 1998
--------------- ------------
ASSETS
<S> <C> <C>
Land, buildings, & equipment, net $1,543,608 $1,566,840
Undeveloped land and construction in progress 164,537 128,336
Cash and equivalents 6,134 4,582
Restricted cash 2,925 2,897
Accounts receivable, net 8,849 9,151
Prepaid expenses 4,873 3,116
Notes receivable 694 696
Deferred debt and lease costs, net 9,352 9,644
Investment in unconsolidated subsidiaries 26,701 26,079
Other assets 3,034 5,207
---------- ----------
$1,770,707 $1,756,548
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Notes and mortgages payable $ 836,724 $ 909,322
Accounts payable 14,839 8,150
Accounts payable to affiliates 4,235 4,670
Accrued interest 10,292 12,051
Accrued expenses 6,641 3,559
Tenant deposits 4,296 4,272
Unearned rent 1,782 2,800
---------- ----------
Total liabilities 878,809 944,824
---------- ----------
Redeemable units, at redemption value 270,519 282,597
Preferred units:
Series A Preferred Units 125,000 125,000
Series B Preferred Units 100,000 0
Partners' capital 396,379 404,127
---------- ----------
Total partners' capital 621,379 529,127
---------- ----------
$1,770,707 $1,756,548
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
COLONIAL REALTY LIMITED PARTNERSHIP
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share data)
---------------------
<TABLE>
Three Months Ended
March 31,
-------- --------
1999 1998
-------- --------
Revenue:
<S> <C> <C>
Minimum rent $ 54,981 $ 47,271
Percentage rent 896 778
Tenant recoveries 8,424 7,281
Other 3,158 2,980
-------- --------
Total revenue 67,459 58,310
-------- --------
Property operating expenses:
General operating expenses 5,121 4,310
Salaries and benefits 3,476 2,869
Repairs and maintenance 6,580 5,746
Taxes, licenses, and insurance 6,119 4,854
General and administrative 2,267 2,554
Depreciation 12,888 10,161
Amortization 525 337
-------- --------
Total operating expenses 36,976 30,831
-------- --------
Income from operations 30,483 27,479
-------- --------
Other income (expense):
Interest expense (13,954) (12,579)
Income from unconsolidated subsidiaries 509 9
Gains (losses) from sales of property 3,005 (32)
Minority interest in consolidated operating property (61) -0-
-------- --------
Total other expense (10,501) (12,602)
-------- --------
Income before extraordinary items 19,982 14,877
Extraordinary loss from early extinguishment of debt -0- (395)
-------- --------
Net Income 19,982 14,482
Distributions to preferred unitholders (3,622) (2,734)
-------- --------
Net income available to common unitholders $ 16,360 $ 11,748
======== ========
Net income per common unit - basic and diluted $ 0.44 $ 0.37
======== ========
Weighted average common units outstanding 36,803 31,440
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
COLONIAL REALTY LIMITED PARTNERSHIP
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
-------------------
<TABLE>
Three Months Ended
March 31,
-----------------------
1999 1998
----------- ----------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 19,982 $ 14,482
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 13,413 10,498
Income from partnerships (509) (9)
(Gains) losses from sales of property (3,005) 32
Other 33 428
Decrease (increase) in:
Restricted cash (28) (13)
Accounts receivable and notes receivable 271 133
Prepaid expenses (1,757) 161
Other assets 1,970 (584)
Increase (decrease) in:
Accounts payable 6,254 (10,408)
Accrued interest (1,759) 1,423
Accrued expenses and other 2,104 3,674
--------- ---------
Net cash provided by operating activities 36,969 19,817
--------- ---------
Cash flows from investing activities:
Acquisition of properties (2,854) (24,879)
Development expenditures (37,712) (9,455)
Tenant improvements (2,249) (672)
Capital expenditures (3,623) (1,320)
Proceeds from sales of property,
net of selling costs 23,586 -0-
Distributions from partnerships 964 35
Capital contributions to partnerships (1,077) (22)
--------- ---------
Net cash used in investing activities (22,965) (36,313)
--------- ---------
Cash flows from financing activities:
Cash contributions 101,225 47,947
Principal reductions of debt (485) (11,303)
Net change in revolving credit balances (72,129) (1,438)
Capital distributions (25,171) (19,676)
Purchase of treasury units (15,862) -0-
Payment of mortgage financing cost (30) (30)
Debt prepayment penalties -0- (395)
--------- ---------
Net cash (used in) provided by
financing activities (12,452) 15,105
--------- ---------
Increase (Decrease) in cash and equivalents 1,552 (1,391)
Cash and equivalents, beginning of period 4,582 4,534
--------- ---------
Cash and equivalents, end of period $ 6,134 $ 3,143
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 7
<PAGE>
COLONIAL REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
March 31, 1999
(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 Financial Statements as filed with the Securities
and Exchange Commission on Form 10-K for the year ended December 31, 1998. The
December 31, 1998 balance sheet data presented herein was derived from audited
financial statements but does not include all disclosures required by generally
accepted accounting principles.
In July 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 (SFAS 133), Accounting for Derivative
Instruments and Hedging Activities, which addresses the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and hedging activities. Under SFAS 133, CRLP will be required
to account for derivative financial instruments, if any, at their fair market
value, and make certain required disclosures. CRLP is required to adopt SFAS 133
for periods beginning January 1, 2000.
Certain previously reported amounts have been reclassified to conform
with the current financial statement presentation.
Note 2 -- Acquisitions and Dispositions
During the first quarter of 1999, there were no property acquisitions
made by CRLP. However, an additional $2.8 million was paid by CRLP in the first
quarter of 1999 related to acquisitions made in prior periods, of which
approximately $2.0 million relates to an "earn-out" of a previously acquired
property.
Also during the first quarter of 1999, CRLP completed the sale of its
Colonial Grand at Kirkman multifamily property, which was a 370-unit property
located in Orlando, Florida. CRLP recognized a gain on the sale of the asset of
approximately $3.0 million.
Note 3 -- Distribution
On April 22, 1999, a cash distribution was declared to partners of CRLP
and partners of Colonial Realty Limited Partnership in the amount of $0.58 per
unit, totaling $20.8 million. The distribution was declared to shareholders and
partners of record as of May 3, 1999, and was paid on May 10, 1999.
<PAGE>
Note 4 -- Preferred Units
In November 1997, the Company issued 5.0 million of $0.01 par value
8.75% Series A Preferred Shares of beneficial interest ("Preferred Shares ").
The Preferred Shares may be called by the Company on or after November 6, 2002,
and have a liquidation preference of $25.00 per share. The Preferred Shares have
no stated maturity, sinking fund or mandatory redemption. All of the Series A
Preferred Shares were contributed to CRLP in exchange for a like number of
Preferred Units. The preference on the Series A Preferred Units are the same as
the Company's Series A Preferred Shares.
On February 23 1999, CRLP issued 2.0 million units of $50 par value
8.875% Series B Cumulative Redeemable Perpetual Preferred Units (the "Preferred
Units"), valued at $100 million in a private placement. CRLP has the right to
redeem the Preferred Units, in whole or in part, after five years at the
original capital contribution plus the cumulative priority return, whether or
not declared, to the redemption date to the extent not previously distributed.
The Preferred Units are exchangeable for 8.875% Series B Preferred Shares of the
Company, after ten years at the option of the holders of the Preferred Units.
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 Months Three Months
Ended March 31, Ended March 31,
1999 1998
---------------- ----------------
Numerator:
Numerator for basic and diluted net
income per unit - net income available
to common unitholders $ 16,360 $ 11,748
============ ============
Denominator:
Denominator for basic net income per
unit - weighted average common units 36,803 31,440
Effect of dilutive securities:
Trustee and employee stock options 20 54
============= ============
Denominator for diluted net income per
unit - adjusted weighted average common
units 36,823 31,494
============== ============
Basic net income per unit $ .44 $ .37
============== ============
Diluted net income per unit $ .44 $ .37
============== ============
Options to purchase 369,348 Common Shares at a weighted average exercise price
of $28.832 per share were outstanding during 1999 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.
Note 6 -- Segment Information
CRLP is organized into, and manages its business based on the
performance of three separate and distinct operating divisions: Multifamily,
Retail, and Office. Each division has a separate management team that is
responsible for acquiring, developing, managing, and leasing properties within
each division. The applicable accounting policies of the segments are
substantially the same as those described in the "Summary of Significant
Accounting Policies" in CRLP's 1998 Annual Report. However, the pro rata portion
of the revenues, net operating income ("NOI"), and assets of the partially owned
entities and joint ventures that CRLP has entered into are included in the
applicable segment information. Subsequently, in the reconciliation to total
revenues, total NOI, and total assets, the amounts are eliminated, as the
investment in the partially owned entities and joint ventures are reflected in
the consolidated financial statements as investments accounted for under the
equity method. Management evaluates the performance of its segments and
allocates resources to them based on NOI. NOI consists of revenues in excess of
general operating expenses, salaries and wages, repairs and maintenance, taxes,
licenses, and insurance. Segment information for the three months ended March
31, 1999 and 1998 is as follows:
<TABLE>
As of and for the
Three Months Ended
March 31, 1999 Multifamily Retail Office Total
----------- ---------- --------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Total Divisional Revenues $ 28,071 $ 32,033 $ 9,822 $ 69,926
NOI 18,163 22,510 6,974 47,647
Divisional assets 787,199 745,244 247,528 1,779,971
Three Months Ended
March 31, 1998 Multifamily Retail Office Total
----------- ---------- --------- ----------
(in thousands)
Total Divisional Revenues $ 24,148 $ 26,033 $ 7,510 $ 57,691
NOI 16,261 18,487 5,466 40,214
For the Period Ended
December 31, 1998 Multifamily Retail Office Total
----------- ---------- --------- ----------
(in thousands)
Divisional assets $ 783,097 742,761 241,131 1,766,989
</TABLE>
A reconciliation of total segment revenues to total revenues, total
segment NOI to income from operations, for the three months ended March 31, 1999
and 1998, and total divisional assets to total assets, for the periods ended
March 31, 1999 and December 31, 1998, is presented below:
<TABLE>
Three Months Ended
------------------
(in thousands) March 31, March 31,
1999 1998
Revenues ----------- -----------
<S> <C> <C>
Total divisional revenues $ 69,926 $ 57,691
Unallocated corporate revenues 201 687
Partially-owned subsidiaries (2,668) (68)
----------- -----------
Total Revenues $ 67,459 $ 58,310
----------- -----------
NOI
----------- -----------
Total divisional NOI $ 47,647 $ 40,214
Unallocated corporate revenues 201 687
Partially-owned subsidiaries (1,589) (63)
General and administrative expenses (2,267) (2,554)
Depreciation (12,888) (10,161)
Amortization (525) (337)
Other (96) (307)
----------- -----------
Income from operations $ 30,483 $ 27,479
----------- -----------
For the Period Ended
March 31, December 31,
1999 1998
Assets
----------- -----------
Total divisional assets $ 1,779,971 $ 1,766,989
Unallocated corporate assets (1) 51,742 49,149
Partially-owned subsidiaries (61,006) (60,689)
----------- -----------
Total assets $ 1,770,707 $ 1,755,449
----------- -----------
</TABLE>
(1) Includes the Company's investment in partially owned entities of $25,842 as
of March 31, 1999, and $25,181 as of December 31, 1998.
<PAGE>
Note 7 - Restatement of Previously Issued Quarterly Information
Land, buildings and equipment, partners' capital, net income available
to common unitholders, and net income per common unit as of and for the three
months ended March 31, 1999 have been revised from previously reported results
to reflect an adjustment made to previously reported depreciation expense. The
effect of this adjustment is an increase in net income available to common
unitholders and net income per unit, and an increase to net land, buildings and
equipment and partners' capital as of and for the three months ended March 31,
1999.
The adjustment results in the following changes to CRLP's Consolidated
Condensed Balance Sheet and Consolidated Condensed Statement of Income for the
Three Months Ended March 31, 1999:
($ in thousands, except per share data )
Previously As
Reported Restated
--------------- ----------------
Land, buildings and equipment, net $ 1,542,735 $ 1,543,608
Partners' capital 395,506 396,379
Net income available to common unitholders 15,487 16,360
Net income per common unit $ 0.42 $ 0.44
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Colonial Properties Trust:
We have reviewed the accompanying consolidated condensed balance sheet of
Colonial Realty Limited Partnership (the "Partnership") as of March 31, 1999,
and the related consolidated condensed statements of income and cash flows for
the three-month periods ended March 31, 1999 and 1998. 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, after giving effect to the restatement described in Note 7,
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, 1998, 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 13,
1999, except for Note 16, as to which the date is February 10, 1999, 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, 1998, 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
April 21, 1999, except for Note 7,
as to which the date is November 15, 1999
<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. CRLP is engaged in the ownership, development,
management, and leasing of multifamily communities, retail malls and shopping
centers, and office buildings. Colonial 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 March 31, 1999, CRLP's real estate portfolio
consisted of 48 multifamily communities, 40 retail properties, and 17 office
properties.
CRLP is one of the largest diversified REITs in the United States.
Consistent with its diversified strategy, Colonial 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.
Constant communication among the Executive Vice Presidents and centralized
functions of accounting, information technology, due diligence and
administrative services provide CRLP with unique synergy allowing CRLP to take
advantage of a variety of investment opportunities. Decisions for investments in
acquisitions and developments and for dispositions are also centralized.
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 1998 Annual
Report 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 CRLP's anticipated sources and amounts of financing and the timing, cost
and expected results of CRLP'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 filings 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>
Results of Operations -- Three Months Ended March 31, 1999 and 1998 Revenues --
Total revenues increased by $9.1 million, or 15.7%, for the
first quarter of 1999 when compared to the first quarter of 1998. This increase
primarily represents revenues generated by properties acquired or developed
during 1999 and 1998. The remaining increase relates to increases in rental
rates at existing properties.
Operating Expenses -- Total operating expenses increased by $6.1
million, or 19.9%, for the first quarter of 1999 when compared to the first
quarter of 1998. This increase primarily represents additional operating
expenses associated with properties that were acquired or developed during 1999
and 1998. The remaining increase primarily relates to increases in operating
expenses at existing properties and overall increases in corporate overhead and
personnel costs associated with CRLP's continued growth.
Other Income and Expenses -- Interest expense increased by $1.3
million, or 10.9%, for the first quarter of 1999 when compared to the first
quarter of 1998. 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 first quarter of 1999, CRLP invested approximately $40.5
million in its acquisition and development of properties. CRLP financed this
growth through net proceeds from a private offering of preferred units totaling
$100.0 million during the first quarter (as discussed below), advances on its
bank line of credit, and cash from operations. As of March 31, 1999, CRLP had an
unsecured bank line of credit providing for total borrowings of $250 million.
The line, which is used by CRLP primarily to finance property acquisitions and
development, bears interest at LIBOR plus 80-135 basis points, based on the
Company's investment grade rating, and is renewable in July 2000 and provides
for a two-year amortization in the case of nonrenewal The line of credit
agreement includees a competitive bid feature that will allow CRLP to convert up
to $125 million under the line of credit to a fixed rate, for a fixed term not
to exceed 90 days. The balance outstanding on this line at March 31, 1999, was
$102.4 million.
On February 23 1999, CRLP issued 2.0 million units of $50 par value
8.875% Series B Cumulative Redeemable Perpetual Preferred Units (the "Preferred
Units"), valued at $100 million in a private placement. CRLP has the right to
redeem the Preferred Units, in whole or in part, after five years at the
original capital contribution plus the cumulative priority return, whether or
not declared, to the redemption date to the extent not previously distributed.
The Preferred Units are exchangeable for 8.875% Series B Preferred Shares of the
Company, after ten years at the option of the holders of the Preferred Units.
The proceeds of the issuance were used to reduce the Company's outstanding line
of credit and to fund development expenditures.
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 of CRLP
in exchange for properties, will provide CRLP with the means to finance
additional acquisitions and development. 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.
<PAGE>
Year 2000 Issue
Overview of Y2K Problem
The Year 2000 or "Y2K" problem refers to the inability of many existing
computer programs having time-sensitive software to recognize a date using "00"
as the year 2000. Instead, the computer programs interpret such data as the year
1900. This failure to accurately recognize the year 2000 and other key dates
could result in a variety of problems ranging from data miscalculations to the
failure of entire systems. In an attempt to eliminate or minimize this potential
risk, CRLP has initiated an effort to identify, understand, and address the
myriad of issues associated with the Y2K problem. CRLP has identified two main
areas where potential Y2K problems exist: (a) Property Management Systems and;
(b) Information Systems.
Phase One - Assessing CRLP's Y2K Readiness
As a result of potential risks posed by Y2K problems on CRLP's
operations, in the early months of 1998, CRLP formed a Year 2000 Committee to
oversee, manage, and implement a Year 2000 Compliance Program (the "Program").
The Committee is comprised of representatives from senior management and various
departments and advisors at the home and regional offices, including the
telecommunications, information systems, and office services departments.
Because of the wide-ranging implications of the Y2K problem, management decided
to carry out the Program in multiple phases over 1998 and 1999. Many of the
phases of the Program are being carried out simultaneously.
The initial step in assessing CRLP's Y2K readiness consisted of
identifying systems that are date sensitive and, accordingly, could pose
potential Y2K problems. The process included an examination of information
technology and non-information technology systems at CRLP's home and regional
offices and at CRLP's properties. The initial step of identifying systems has
been completed by CRLP's information services department and building services
department through a combination of physical inspections and informational
interviews with Company employees.
Having identified systems that could have a potential Y2K problem, CRLP
is attempting to determine which of the systems actually have a Y2K problem.
Much of the required information is within the exclusive control of CRLP's
vendors and manufacturers, who are being contacted through standard form letters
and telephone calls requesting such information. In the case of property
management systems, a database was compiled for the types of equipment, names of
manufacturers and model numbers. The following is a summary of the Phase One
results obtained to date.
Property Management Systems
CRLP has identified six categories of property management systems in
which it has the most exposure to potential Y2K problems. These categories
include:
o Building automation (e.g., energy management, HVAC) o Security card access o
Fire and life safety o Elevator o Garage revenue control o Office equipment
In April 1998, CRLP began gathering data from vendors to catalog the
equipment in all of its buildings. To date, approximately 75% of the information
requested has been received. CRLP does not expect to receive 100% of the
information requested due to a number of nonresponsive vendors or unavailable
information.
All of the responses have confirmed that their systems would not be
affected in an adverse way due to the Y2K date change. The Y2K steering
committee is in the process of evaluating if any of these property management
systems are mission critical in nature and would have a negative impact on
CRLP's ability to conduct business if a failure occurs. At this time CRLP does
not believe these systems are mission critical. Regardless, efforts continue to
obtain additional evidence from vendors concerning these systems such as
processes followed, test scripts, and actual findings. Once received, CRLP will
further evaluate these systems and will determine if it will be necessary to
confirm the information received from the vendors. Due to the positive responses
received CRLP does not feel that this will be necessary.
Information Systems
Information systems fall into four general categories: Accounting and
property management; network operating systems; desktop software; and secondary
systems.
Accounting and Property Management - The general ledger software system
is not currently compliant. New versions were written and delivered to CRLP
during the first quarter of 1999. CRLP found the new versions would not run in
the current environment. The vendor continues to develop the software systems
and has represented to CRLP that it expects to deliver Y2K compliant systems
during the early part of the third quarter. Upon receipt, CRLP will test the
systems and the software upgrades and, assuming that the systems and upgrades
are found to be operational, will install the systems in the third and fourth
quarters with a goal of becoming fully compliant during the early part of the
fourth quarter. While the vendor is revising the systems, CRLP intends to pursue
alternative software systems offered by other vendors. If CRLP finds an
acceptable alternative software system that is Y2K compliant, it may implement
that system instead of the system being revised by CRLP's current vendor. If
CRLP were to implement an alternative system, CRLP may be able to achieve full
Y2K compliance as early as the third quarter.
Network Operating Systems - Management believes that the network
operating servers are currently Y2K compliant subject to certain possible
exceptions. Microsoft Corporation recently announced that Windows NT 4.0, which
CRLP uses, is not Y2K compliant with service pak level III. However, Microsoft
has stated that service pak level IV will need to be loaded to become completely
Y2K compliant. Upgrades of Company network operating systems are expected to be
installed in the second quarter of 1999, bringing the network operating servers
into full compliance. Management believes that testing of this new software will
not be necessary, as it has already been proven in the industry to be Y2K
compliant.
Desktop Software - Management has reviewed all desktop systems and
software applications, identified those that are not in compliance and compiled
a list of necessary upgrades. Those upgrades have been completed for 95% of the
current systems and are now Y2K compliant. The remaining upgrades for 5% of the
systems are anticipated to be completed by the end of the first quarter. As part
of the continuing efforts to be Y2K compliant, every new system is tested upon
installation.
The status of desktop compliance is as follows:
o Systems (hardware and software) testing - Complete
o Installation of updated software that also provides Y2K compliance - Complete
o Complete installation/full compliance - Second Quarter 1999
Secondary Information Systems - "Secondary" information systems
include, but are not limited to: payroll; fixed-asset system; and forecasting
modeling software, which provide projections on property returns and other
items. Letters have been received confirming Y2K compliance from the vendors of
CRLP's secondary systems. The number of computers related to these secondary
systems are nominal and testing is expected to be completed by the end of the
second quarter of 1999.
Telecommunications Systems - In general, management believes that the
internal telephone systems are not date sensitive and should not be materially
affected by Y2K problems. A letter has been received from the telephone system
vendor confirming Y2K readiness of the voice mail system, telephone system and
telephone hardware. Testing will be completed by the end of the second quarter
of 1999.
Phase Two - Determining the Cost of Achieving Y2K Readiness and
Implementing the Y2K Action Plan
During the last two years, costs for new technology to ensure Y2K
readiness, including computers, telephone systems, and software, has been
approximately $1 million and an additional $400,000 is estimated to be spent on
property management software upgrades and testing from a third-party consultant
on current secondary systems. However, the costs of the project and the
completion date are based on management's best estimates, which are based on
numerous assumptions of future events.
Phase Three - Assessing the Risks to CRLP of Noncompliance Management
does not believe that the impact of Y2K will have a material
adverse effect on CRLP's financial condition, results of operations and cash
flows. Such belief is based on management's analysis of the risks to CRLP
related to CRLP's own potential Y2K problems discussed above and the assessment
of the Y2K problems of vendors, suppliers, and customers.
Property Management Systems - Management believes that the Y2K risks to
CRLP's financial condition and operations associated with a failure of building
management systems is immaterial due to the fact that each of CRLP's properties
have, for the most part, separate building management systems. In addition,
based upon the investigation results received to date, management believes there
is sufficient time to correct those system problems within CRLP's control before
the Year 2000.
In the event a failure of essential property management systems occurs
at one or more of CRLP's buildings, whether due to a failure of a Company system
or an interruption of utilities, management believes that the individual tenant
leases will protect CRLP from claims of constructive eviction or other remedies
that could result in a termination of lease rights. It is also management's
belief that most of the leases eliminate, limit or qualify the rights of a
tenant to receive an abatement under such circumstances. Although there is
always a risk of claims being brought on a noncontractual basis (e.g., in tort),
it is management's belief that CRLP's efforts to identify and solve Y2K problems
will minimize such risk. CRLP has also attempted to allocate the risk of
noncompliance to the vendors and manufacturers of the property management and
information systems by establishing standard riders and addenda to be attached
to new contracts for systems using time sensitive data.
Information Systems - Because CRLP's major source of income is rental
payments under long-term leases, the failure of key information systems is not
expected to have a material adverse effect on CRLP's financial condition,
results of operations, or cash flows for its existing properties. Even if
problems with the information systems are experienced, the payment of rent under
leases would not be excused. However, the ability of CRLP to produce complete
and accurate financial information in a timely fashion could be impaired. This
situation would affect CRLP's anticipated development projects or acquisitions
of new properties. Management expects to correct any information system problems
within CRLP's control before the Year 2000, thereby minimizing or avoiding the
increased cost of correcting problems after the fact.
Our Vendors - The success of CRLP's business is not closely tied to the
operations of any one manufacturer, vendor or supplier. Accordingly, if any
manufacturers, vendors or suppliers cease to conduct business due to Y2K related
problems, management expects to be able to contract with alternate providers
without experiencing any material adverse effect on CRLP's financial condition,
results of operations, or cash flows.
Our Customers - Because of a broad customer/tenant base, CRLP's success
is not closely tied to the success of any particular tenant. Accordingly,
management believes that there should not be a material adverse effect on CRLP's
financial condition, results of operations, or cash flows if any tenant ceases
to conduct business due to Y2K related problems. CRLP has requested that major
tenants provide periodic updates as to their Y2K readiness.
Phase Four - Developing Contingency Plans
CRLP currently does not have contingency plans in place; however,
management expects to develop and implement contingency plans by the end of the
second quarter of 1999. CRLP's contingency plans will be structured to address
both restoration of systems and their components and overall business operating
risk. These plans are intended to mitigate both internal risks, as well as
potential risks in the supply chain of CRLP's suppliers and customers.
<PAGE>
Page 16
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, its Employee Share Option and Restricted Share Plan, and its
Employee Share Purchase 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 the
Company, its general partner, an equal number of limited partnership units
("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 March 31, 1999, CRLP issued 170,919 Units
in such transactions for an aggregate of $4.4 million.
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
(b) Reports on Form 8-K
The following reports on Form 8-K have been filed during the
quarter ended March 31, 1999:
Form 8-K dated February 25, 1999, reported certain property
acquisitions during 1998 up to December 29, 1998, under Item
5, "Other Events."
<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 Trust,
its general partner
Date: November 15, 1999 /s/ Howard B. Nelson, Jr.
--------------------------
Howard B. Nelson, Jr.
Chief Financial Officer
(Duly Authorized Officer
and Principal Financial Officer)
Date: November 15, 1999 /s/ Kenneth E. Howell
---------------------------
Kenneth E. Howell
Senior Vice President, and
Chief Accounting Officer
(Principal Accounting Officer)
<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
March 31, 1999 and 1998, was 2.02 and 2.36, 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>
Securities and Exchange Commission
450 Fifth Street, N. W.
Washington, D. C. 20549
Re: Colonial Realty Limited Partnership
(File No. 0-20707)
Registrations on Form S-3
We are aware that our report dated April 21, 1999, except for Note 7, as to
which the date is November 15, 1999, on our review of interim financial
information of Colonial Realty Limited Partnership for the quarters ended March
31, 1999 and 1998 and included in the Partnership's quarterly report on Form
10-Q for the quarters then ended, is incorporated by reference in the
registration statements on Forms S-3 related to the Shelf Registrations filed on
October 25, 1996 (File No. 333-14401) and 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 15, 1999
<PAGE>
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