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: June 30, Commission File Number: 1-12358
1998
COLONIAL PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
Alabama 59-7007599
(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 ___
As of August 7, 1998, Colonial Properties Trust had 25,948,557 Common
Shares of Beneficial Interest outstanding.
<PAGE>
COLONIAL PROPERTIES TRUST
INDEX TO FORM 10-Q
Page
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets as of
June 30, 1998 and December 31, 1997 3
Consolidated Condensed Statements of Income for the
Three Months and for the Six Months Ended June 30, 1998 4
and 1997
Consolidated Condensed Statements of Cash Flows
for the Six Months Ended June 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 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
EXHIBIT 17
Page 2
<PAGE>
<TABLE>
COLONIAL PROPERTIES TRUST
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
--------------------
<CAPTION>
June 30, 1998
(Unaudited) December 31, 1997
----------- -----------
ASSETS
<S> <C> <C>
Land, buildings, and equipment, net ......................................... $ 1,483,365 $ 1,268,432
Undeveloped land and construction in progress ............................... 54,113 98,555
Cash and equivalents ........................................................ 3,116 4,531
Restricted cash ............................................................. 2,697 2,665
Accounts receivable, net .................................................... 8,382 7,301
Prepaid expenses ............................................................ 2,971 3,164
Deferred debt and lease costs, net .......................................... 6,646 6,901
Other assets ................................................................ 5,590 5,529
----------- -----------
$ 1,566,880 $ 1,397,078
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes and mortgages payable ................................................. $ 743,441 $ 702,044
Accounts payable ............................................................ 7,251 15,026
Accrued interest ............................................................ 6,812 6,526
Accrued expenses ............................................................ 10,510 2,814
Tenant deposits ............................................................. 4,031 3,715
Unearned rent ............................................................... 2,331 2,253
----------- -----------
Total liabilities ...................................................... 774,376 732,378
----------- -----------
Minority interest ........................................................... 187,490 174,281
----------- -----------
Preferred shares of beneficial interest, $.01 par value, 10,000,000 shares
authorized; 5,000,000 shares issued and outstanding at June 30, 1998 and
December 31, 1997, respectively ....................................... 50 50
Common shares of beneficial interest, $.01 par value,
65,000,000 shares authorized; 25,939,326 and 21,152,754 shares issued and
outstanding at June 30, 1998 and
December 31, 1997, respectively ........................................ 259 212
Additional paid-in capital .................................................. 649,056 524,605
Cumulative earnings ......................................................... 104,074 82,716
Cumulative distributions .................................................... (148,067) (116,768)
Deferred compensation on restricted shares .................................. (358) (396)
----------- -----------
Total shareholders' equity ............................................. 605,014 490,419
----------- -----------
$ 1,566,880 $ 1,397,078
=========== ===========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
Page 3
<PAGE>
<TABLE>
COLONIAL PROPERTIES TRUST
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share data)
_____________________
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
--------- --------- --------- ---------
Revenue:
<S> <C> <C> <C> <C>
Minimum rent .......................................... $ 48,822 $ 36,100 $ 96,005 $ 69,760
Percentage rent ....................................... 664 370 1,442 692
Tenant recoveries ..................................... 6,958 3,785 14,239 7,205
Other ................................................. 3,139 2,568 5,957 4,336
--------- --------- --------- ---------
Total revenue ...................................... 59,583 42,823 117,643 81,993
--------- --------- --------- ---------
Property operating expenses:
General operating expenses ............................ 4,396 2,949 8,706 5,617
Salaries and benefits ................................. 3,004 2,413 5,873 4,687
Repairs and maintenance ............................... 5,598 4,444 11,094 8,024
Taxes, licenses, and insurance ........................ 5,082 3,816 9,936 7,434
General and administrative ................................. 1,363 1,551 3,917 2,764
Depreciation ............................................... 10,794 7,385 20,955 14,054
Amortization ............................................... 343 371 680 725
--------- --------- --------- ---------
Total operating expenses ........................... 30,580 22,929 61,161 43,305
--------- --------- --------- ---------
Income from operations ............................. 29,003 19,894 56,482 38,688
--------- --------- --------- ---------
Other income (expense):
Interest expense ...................................... (11,612) (9,374) (24,191) (17,862)
Income (loss) from unconsolidated subsidiaries ........ (538) (14) (966) 26
Gains (losses) from sales of property ................. 65 -0- 33 (1)
Minority interest in consolidated operating property .. -0- (58) -0- (114)
--------- --------- --------- ---------
Total other expense ................................ (12,085) (9,446) (25,124) (17,951)
--------- --------- --------- ---------
Income before extraordinary item and
minority interest in CRLP .......................... 16,918 10,448 31,358 20,737
Extraordinary loss from early extinguishment of debt ....... (5) (97) (400) (481)
--------- --------- --------- ---------
Income before minority interest in CRLP ............ 16,913 10,351 30,958 20,256
Minority interest in income of CRLP ........................ 5,122 3,209 9,601 6,301
--------- --------- --------- ---------
Net income ......................................... $ 11,791 $ 7,142 $ 21,357 $ 13,955
Dividends to preferred shareholders ........................ (2,735) -0- (5,469) -0-
--------- --------- --------- ---------
Net income available to common shareholders ........... $ 9,056 $ 7,142 $ 15,888 $ 13,955
========= ========= ========= =========
Net income per common share - basic and diluted ............ $ 0.36 $ 0.37 $ 0.68 $ 0.74
========= ========= ========= =========
Weighted average common shares outstanding ................. 24,984 19,195 23,207 18,928
========= ========= ========= =========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
Page 4
<PAGE>
<TABLE>
COLONIAL PROPERTIES TRUST
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
___________________
<CAPTION>
Six Months Ended
June 30,
1998 1997
--------- ---------
Cash flows from operating activities:
<S> <C> <C>
Net income ............................................... $ 21,357 $ 13,955
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ......................... 21,635 14,779
(Income) loss from unconsolidated subsidiaries ........ 966 (26)
Minority interest ..................................... 9,601 6,415
Other ................................................. 689 787
Decrease (increase) in:
Restricted cash ....................................... (32) (143)
Accounts receivable ................................... (1,433) (3)
Prepaid expenses ...................................... 196 781
Other assets .......................................... (1,423) (339)
Increase (decrease) in:
Accounts payable ...................................... (7,775) (3,778)
Accrued interest ...................................... 286 1,064
Accrued expenses and other ............................ 6,737 2,550
--------- ---------
Net cash provided by operating activities .......... 50,804 36,042
--------- ---------
Cash flows from investing activities:
Acquisition of properties ................................. (143,203) (83,412)
Development expenditures .................................. (33,946) (52,467)
Tenant improvements ....................................... (1,420) (784)
Capital expenditures ...................................... (4,712) (4,609)
Proceeds from sales of property, net of selling costs ..... 908 -0-
Distributions from unconsolidated subsidiaries ............ 75 426
Capital contributions to unconsolidated subsidiaries ...... (21) (136)
--------- ---------
Net cash used in investing activities .............. (182,319) (140,982)
--------- ---------
Cash flows from financing activities:
Proceeds from common stock issuances, net of expenses paid 136,972 43,355
Principal reductions of debt .............................. (11,869) (32,397)
Proceeds from additional borrowings ....................... -0- 50,000
Net change in revolving credit balances ................... 47,524 72,943
Dividends paid to common and preferred shareholders ....... (31,299) (19,945)
Distributions to minority partners in CRLP ................ (10,796) (8,792)
Payment of mortgage financing cost ........................ (32) (1,021)
Other, net ................................................ (400) 388
--------- ---------
Net cash provided by financing activities .......... 130,100 104,531
--------- ---------
Increase (decrease) in cash and equivalents ........ (1,415) (409)
Cash and equivalents, beginning of period ...................... 4,531 3,342
--------- ---------
Cash and equivalents, end of period ............................ $ 3,116 $ 2,933
========= =========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
Page 5
<PAGE>
COLONIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
Note 1 -- Basis of Presentation
The accompanying unaudited consolidated condensed financial statements of
Colonial Properties Trust (the "Company") 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 the
Company'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 Form 10-Q for the quarter ended
March 31, 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 therefore the
Company will adopt the new requirements retroactively in 1998. Management is
currently considering the disclosure impact of the adoption of SFAS 131.
Note 2 -- Acquisitions
Ashley Plantation--On May 1, 1998, the Company acquired Ashley Plantation,
a 200-unit apartment complex developed in 1997 on approximately 21 acres of land
in Bluffton, South Carolina. The average unit size is 1,026 square feet, and the
average unit market rent is $768 per month. The purchase price of $13.7 million
was financed through an advance on the Company's unsecured line of credit.
Orlando Fashion Square--On May 29, 1998, the Company acquired Orlando
Fashion Square, a 1.1 million square foot regional mall (including 361,000
square feet of tenant-owned space) in Orlando, Florida, for a total purchase
price of $104 million. The mall anchors include Burdine's, Sears, Gayfers, JC
Penney and General Cinemas. The entire purchase price was funded through an
advance on the Company's unsecured line of credit.
Note 3 -- Increase in Revolving Credit Agreement
On July 10, 1998, the Company increased the borrowing capacity under its
unsecured line of credit from $200 million to $250 million. The credit facility,
which is used by the Company 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.
Page 6
<PAGE>
Note 4 -- Equity Offering
On April 27, 1998, the Company closed an underwritten public offering of
3,046,400 shares of the Company's common shares at $30.125 per share. The net
proceeds to the Company, after the underwriter's discount and minimal offering
expenses, were approximately $86.8 million. The Company used the net proceeds of
the offering to repay a portion of the outstanding balance on its unsecured line
of credit.
Note 5 -- Net Income Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
(Amounts in thousands,
except per share data)
-----------------------------------------
Three Three Six Six
Months Months
Ended Ended Months Months
June June Ended Ended
30, 30, June June
30, 30,
1998 1997 1998 1997
-------- -------- -------- --------
Numerator:
Numerator for basic and
diluted net income per
share - net income $ 9,056 $ 7,142 $ 15,888 $ 13,955
available to common
shareholders
======== ======== ======== ========
Denominator:
Denominator for basic
net income per share -
weighted average common 24,984 19,195 23,207 18,928
shares
Effect of dilutive
securities:
Trustee and employee 53 46 53 46
stock options
-------- -------- -------- --------
Denominator for diluted
net income per share -
adjusted weighted 25,037 19,241 23,260 18,974
average common shares
======== ======== ======== ========
Basic and diluted net $ .36 $ .37 $ .68 $ .74
income per share
======== ======== ======== ========
Options to purchase 15,000 Common Shares at a weighted average exercise price of
$30.69 per share were outstanding during 1998 but were not included in the
computation of diluted net income per share because the options' exercise price
was greater than the average market price of the common shares and, therefore,
the effect would be antidilutive.
Page 7
<PAGE>
Note 6 -- Pro Forma Information (Unaudited)
The following unaudited pro forma operating results for the Company 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 the Company 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 share data)
---------------------
Six Months Ended
June 30,
1998 1997
-------- ---------
Revenues $ 130,914 $ 113,998
======== =========
Income before minority interest and $ 33,875 $ 35,192
preferred dividends
======== =========
Net income available to common $ 18,621 $ 19,558
shareholders
======== =========
Net income per share - basic and $ .72 $ .75
diluted
======== =========
The pro forma information includes the operations of the properties acquired and
disposed in 1997, as discussed in the Company's 1997 Form 10-K, the properties
acquired in 1998 through June 30, as discussed in the Company's Form 10-Q for
the quarter ended March 31, 1998, and Note 2 above, and the properties acquired
subsequent to June 30, 1998, as discussed in Note 7 below.
Note 7 -- Subsequent Events
Acquisitions
River Hills I--On July 1, 1998, the Company 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 the Company'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, the Company 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 the Company'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 will be
reflected as "minority interest in consolidated operating property" in the
Company's balance sheet and statement of income, and will be included in
"minority interest" on the Company's statement of cash flows.
Page 8
<PAGE>
Mansell Overlook 200 and Shoppes at Mansell--On July 1, 1998, the Company
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 in Colonial Realty
Limited Partnership valued at $11.7 million, and an advance on the Company'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 in
Colonial Realty Limited Partnership valued at $2.3 million, and an advance on
the Company's unsecured line of credit.
Shades Brook Building--On July 13, 1998, the Company 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 in Colonial Realty Limited Partnership valued at $871,000, and
an advance on the Company'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, the Company 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 the Company'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, the Company 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 the Company's unsecured line of credit. The average
unit size is 993 square feet with average unit market rent of $671 per month.
Debt Offering
On July 14, 1998, the Company completed a $175 million public offering of
unsecured senior notes by Colonial Realty Limited Partnership, its operating
partnership. 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. The Company used the net proceeds of the offering to repay a portion of
the outstanding balance on its unsecured line of credit.
Quarterly Distribution
On July 23, 1998, a cash distribution was declared to shareholders of the
Company and partners of Colonial Realty Limited Partnership in the amount of
$0.55 per share and per unit, respectively, totaling $19.8 million. The
distribution was declared to shareholders of record as of August 3, 1998, and
was paid on August 10, 1998.
Page 9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
Colonial Properties Trust:
We have reviewed the accompanying consolidated condensed balance sheet of
Colonial Properties Trust (the "Company") as of June 30, 1998, and the related
consolidated condensed statements of income for the three-month and six-month
periods ended June 30, 1998 and 1997, and the consolidated condensed statements
of cash flows for the six-month periods ended June 30, 1998 and 1997. These
financial statements are the responsibility of the Company'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 operations, shareholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
January 19, 1998, except for Note 14, 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
July 17, 1998
Page 10
<PAGE>
COLONIAL PROPERTIES TRUST
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Colonial Properties Trust (Colonial or the Company) 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 June 30, 1998,
Colonial's real estate portfolio consisted of 44 multifamily communities, 38
retail properties, and 15 office properties.
As of June 30, 1998, Colonial was 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 Colonial 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 the
Company 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 the Company's 1997 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. As used herein, the terms
"Colonial" or "the Company" include Colonial Properties Trust, and one or more
of its subsidiaries including, among others, Colonial Realty Limited Partnership
(CRLP).
Any statement contained in this report which is not a historical fact, or
which might be otherwise considered an opinion or projection concerning the
Company 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. 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 the Company'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.
Results of Operations -- Three Months Ended June 30, 1998 and 1997 Revenue --
Total revenue increased by $16.8 million, or 39.1%, for the
second quarter of 1998 when compared to the second quarter of 1997. The majority
of this increase, $15.4 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.
Page 11
<PAGE>
Operating Expenses -- Total operating expenses increased by $7.7 million,
or 33.4%, for the second quarter of 1998 when compared to the second quarter of
1997. The majority of this increase, $7.2 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.
Other Income and Expense -- Interest expense increased by $2.2 million, or
23.9%, for the second quarter of 1998 when compared to the second quarter of
1997. The increase in interest expense is primarily attributable to the
assumption of acquisition-related debt, and the increased usage of the Company's
revolving credit agreement in conjunction with the financing of acquisitions and
developments.
Results of Operations -- Six Months Ended June 30, 1998 and 1997 Revenue --
Total revenue increased by $35.7 million, or 43.5%, for the
six months ended June 30, 1998 when compared to the six months ended June 30,
1997. This majority of this increase, $31.6 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 $17.9 million,
or 41.2%, for the six months ended June 30, 1998 when compared to the six months
ended June 30, 1997. The majority of this increase, $14.6 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 $6.3 million, or
35.4%, for the six months ended June 30, 1998 when compared to the six months
ended June 30, 1997. The increase in interest expense is primarily attributable
to the assumption of acquisition-related debt, and the increased usage of the
Company's revolving credit agreement in conjunction with the financing of
acquisitions and developments.
Liquidity and Capital Resources
During the second quarter of 1998, the Company invested $142.7 million in
the acquisition and development of properties. The Company financed this growth
through net proceeds from public offerings of equity totaling $86.8 million
during the second quarter, advances on its bank line of credit, and cash from
operations. As of June 30, 1998, the Company had one bank line of credit with a
balance outstanding of $164.6 million. On July 10, 1998, the Company increased
its line of credit to provide for total borrowings of up to $250 million. The
increased line, which is used by the Company 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, the Company completed a $175 million public offering of
unsecured senior notes by Colonial Realty Limited Partnership, its operating
partnership. 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. The Company used the net proceeds of the offering 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
equity securities 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 Colonial Realty Limited
Partnership in exchange for properties, will provide the Company 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, and
dividends to shareholders in accordance with Internal Revenue Code requirements
applicable to real estate investment trusts.
The Company is aware of the potential issues associated with the data
conversion and system upgrades necessary for its computer systems to be year
2000 compliant. The Company currently believes that, with modifications to
existing software at the corporate level and upgrading operational systems at
the property level, the year 2000 issue will not have a material impact on the
operations of the Company. At the current time, the Company has not determined
the cost that will ultimately be incurred to be year 2000 compliant.
Funds from Operations
The Company considers Funds From Operations ("FFO") a widely accepted and
appropriate measure of performance for an equity REIT that provides a relevant
basis for comparison among REITs. FFO, as defined by the National Association of
Real Estate Investment Trusts (NAREIT), means income (loss) before minority
interest (determined in accordance with GAAP), excluding gains (losses) from
debt restructuring and sales of property, plus real estate related depreciation
and after adjustments for unconsolidated partnerships and joint ventures. FFO is
presented to assist investors in analyzing the performance of the Company. The
Company's method of calculating FFO may be different from methods used by other
REITs and, accordingly, may not be comparable to such other REITs. FFO (i) does
not represent cash flows from operations as defined by GAAP, (ii) is not
indicative of cash available to fund all cash flow needs and liquidity,
including its ability to make distributions, and (iii) should not be considered
as an alternative to net income (as determined in accordance with GAAP) for
purposes of evaluating the Company's operating performance. The Company's FFO
for the second quarter of 1998 and 1997 and six months ended June 30, 1998 and
1997 was computed as follows:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
(in thousands) 1998 1997 1998 1997
- ----------------------------------------------- -------- --------- ---------
Net income available to common $ 9,056 $ $ $
shareholders 7,142 15,888 13,955
Adjustments:
Minority interest in CRLP 5,122 3,209 9,601 6,301
Real estate depreciation (1) 10,803 7,478 20,987 14,269
(Gains) losses from sales of (68) -0- (33) 3
property (1)
Debt prepayment penalties 5 97 400 481
- ----------------------------------------------- -------- --------- ---------
Funds From Operations $ 24,918 $17,926 $ 46,843 $ 35,009
- ----------------------------------------------- -------- --------- ---------
(1) Includes pro-rata share of adjustments for subsidiaries.
Page 13
<PAGE>
COLONIAL PROPERTIES TRUST
PART II -- OTHER INFORMATION
Item 2. Changes in Securities.
On May 1, 1998, the Company issued a total of 7,222 common shares of
beneficial interest to two limited partners of Colonial Realty Limited
Partnership in redemption of an equal number of limited partnership units in
Colonial Realty Limited Partnership. The shares were issued in a nonpublic
offering in reliance on the exemption from registration provided by Section 4(2)
of the Securities Act of 1933.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders of Colonial Properties Trust was held on
April 23, 1998. The following is a tabulation of the voting on each proposal
presented at the Annual Meeting and a listing of trustees whose term of office
as a trustee continued after the meeting:
Proposal 1 - Election of Trustees
Term Votes
Expires Votes For Withheld
-----------------------------------
Elected Trustees:
M. Miller Gorrie 2001 19,395,230 303,370
James K. Lowder 2001 19,393,330 305,270
Herbert A. Meisler 2001 19,408,285 290,315
William M. Johnson 1999 19,395,699 302,901
Continuing Trustees:
Claude B. Nielsen 1999
Donald T. Senterfitt 1999
Carl F. Bailey 2000
Thomas H. Lowder 2000
Harold W. Ripps 2000
Proposal 2 - Adoption and Approval of the Second Amended and Restated
Employee Share Option and Restricted Share Plan
Votes For 10,631,887
Votes Against 2,992,446
Votes Withheld 120,393
Broker Non-Votes 5,953,575
Proposal 3 - Ratification of Appointment of Independent Auditors
Votes For 19,625,052
Votes Against 16,392
Votes Withheld 56,856
Broker Non-Votes -0-
Page 14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
15. Letter re: Unaudited Interim Financial Information
27. Financial Data Schedule (EDGAR Version Only)
(b) Reports on Form 8-K
Form 8-K dated May 6, 1998, filed certain documents related to the
Company's offering of common shares under Item 5, "Other Events."
Form 8-K dated June 11, 1998, reported certain property acquisitions
during 1998 up to June 11, 1998, under Item 5, "Other Events."
Subsequent to quarter end, Form 8-K dated July 8, 1998, reported
certain property acquisitions during 1998 up to July 8, 1998, 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 PROPERTIES TRUST
Date: August 12, 1998 /s/ Howard B. Nelson, Jr.
-------------------------
Howard B. Nelson, Jr.
Chief Financial Officer
(Duly Authorized Officer
and Principal Financial Officer)
Date: August 12, 1998 /s/ Kenneth E. Howell
---------------------
Kenneth E. Howell
Vice President and Controller
(Principal Accounting Officer)
Page 16
<PAGE>
Securities and Exchange Commission
450 Fifth Street, N. W.
Washington, D. C. 20549
Re: Colonial Properties Trust
(File No. 1-12358)
Registrations on Form S-8
Registrations on Form S-3
We are aware that our report dated July 17, 1998 on our review of interim
financial information of Colonial Properties Trust for the three-month and
six-month periods ended June 30, 1998 and 1997 and included in the Company's
quarterly report on Form 10-Q for the quarters then ended, is incorporated by
reference in the registration statements on Form S-8 related to certain
restricted shares and stock options filed on September 29, 1994, Form S-8
related to the Employee Share Option and Restricted Share Plan filed on
September 29, 1994; Form S-3 related to the Shelf Registration filed on November
20, 1997; Form S-3 related to the Dividend Reinvestment Plan filed on April 11,
1995, as amended; Form S-8 related to the registration of common stock issuable
under the Colonial Properties Trust 401(K)/Profit-Sharing Plan filed on October
15, 1996; Form S-8 related to the Employee Share Purchase Plan filed on May 15,
1997; Form S-8 related to the Non-employee Trustee Share Plan filed on May 15,
1997; Form S-8 related to changes to the First Amended and Restated Employee
Share Option and Restricted Share Plan and the Non-employee Trustee Share Option
Plan filed on May 15, 1997; and Form S-8 related to the Second Amended and
Restated Employee Share Option and Restricted Share Plan filed on July 31, 1998.
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
August 12, 1998
Page 17
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