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:
September 30, 1999 Commission File Number: 1-12358
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 October 29, 1999, Colonial Properties Trust had 22,711,527
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
September 30, 1999 and December 31, 1998 3
Consolidated Condensed Statements of Income for the
Three Months and for the Nine Months Ended
September 30, 1999 and 1998 4
Consolidated Condensed Statements of Cash Flows
for the Nine Months Ended September 30, 1999 and 1998 5
Notes to Consolidated Condensed Financial Statements 6
Report of Independent Accountants 11
Item 2. Management's Discussion and Analysis of Financial 12
Condition and Results of Operations
PART II: OTHER INFORMATION
Item 2. Changes in Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
EXHIBIT 19
<PAGE>
COLONIAL PROPERTIES TRUST
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except per share data)
--------------------
<TABLE>
<CAPTION>
Sept 30, 1999 December 31,
(Unaudited) 1998
------------ ------------
ASSETS
<S> <C> <C>
Land, buildings, & equipment, net $ 1,506,156 $ 1,566,841
Undeveloped land and construction in progress 235,621 128,336
Cash and equivalents 3,847 4,583
Restricted cash 2,876 2,897
Accounts receivable, net 8,762 9,428
Prepaid expenses 2,591 3,224
Deferred debt and lease costs 10,126 9,644
Investment in unconsolidated subsidiaries 24,497 25,181
Other assets 5,090 5,315
------------ ------------
$ 1,799,566 $ 1,755,449
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes and mortgages payable $ 954,802 $ 909,322
Accounts payable 16,686 14,154
Accrued interest 11,681 12,051
Accrued expenses 15,610 3,456
Tenant deposits 4,038 4,272
Unearned rent 1,644 2,800
------------ ------------
Total liabilities 1,004,461 946,055
------------ ------------
Minority interest:
Preferred units 100,000 0
Common units 183,128 198,947
------------ ------------
------------ ------------
Total minority interest 283,128 198,947
------------ ------------
Preferred shares of beneficial interest, $.01 par value,
10,000,000 shares authorized; 5,000,000 shares issued
and outstanding at September 30, 1999 and
December 31, 1998, respectively 50 50
Common shares of beneficial interest, $.01 par value,
65,000,000 shares authorized; 22,754,742 and
26,147,054 shares issued and outstanding at
September 30, 1999 and December 31, 1998, respectively 228 261
Additional paid-in capital 672,283 662,895
Cumulative earnings 175,977 129,684
Cumulative distributions (239,823) (182,135)
Treasury shares, at cost; 3,569,000 shares at
September 30, 1999 and 0 shares at December 31, 1998 (96,069) 0
Deferred compensation on restricted shares (669) (308)
------------ ------------
Total shareholders' equity 511,977 610,447
------------ ------------
$ 1,799,566 $ 1,755,449
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COLONIAL PROPERTIES TRUST
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share data)
---------------------
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
--------- --------- --------- ---------
Revenue:
<S> <C> <C> <C> <C>
Minimum rent $ 57,798 $ 54,664 $ 168,620 $ 150,669
Percentage rent 483 551 2,103 1,993
Tenant recoveries 7,908 8,171 24,176 22,409
Other 3,946 4,796 12,596 10,753
--------- --------- --------- ---------
Total revenue 70,135 68,182 207,495 185,824
--------- --------- --------- ---------
Property operating expenses:
General operating expenses 5,243 5,838 15,402 14,543
Salaries and benefits 3,936 3,191 10,977 9,065
Repairs and maintenance 6,982 6,837 20,407 17,931
Taxes, licenses, and insurance 6,036 6,099 17,909 16,035
General and administrative 1,801 2,207 6,608 6,124
Depreciation 13,292 11,942 39,213 32,897
Amortization 563 528 1,645 1,208
--------- --------- --------- ---------
Total operating expenses 37,853 36,642 112,161 97,803
--------- --------- --------- ---------
Income from operations 32,282 31,540 95,334 88,021
--------- --------- --------- ---------
Other income (expense):
Interest expense (14,829) (13,917) (42,288) (38,108)
Income (loss) from unconsolidated subsidiaries 1,319 (343) 2,173 (1,309)
Gains from sales of property 2,161 (16) 5,639 17
Minority interest in consolidated operating property -- (62) (82) (62)
--------- --------- --------- ---------
Total other expense (11,349) (14,338) (34,558) (39,462)
--------- --------- --------- ---------
Income before extraordinary item and
minority interest in CRLP 20,933 17,202 60,776 48,559
Extraordinary loss (742) (1) (628) (401)
--------- --------- --------- ---------
Income before minority interest in CRLP 20,191 17,201 60,148 48,158
Minority interest in income of CRLP (4,682) (4,309) (13,855) (12,209)
Distribution to preferred unitholders of CRLP (2,219) -0- (5,374) -0-
--------- --------- --------- ---------
Net income $ 13,290 $ 12,892 $ 40,919 $ 35,949
Dividends to preferred shareholders (2,735) (2,735) (8,204) (8,203)
--------- --------- --------- ---------
Net income available to common shareholders $ 10,555 $ 10,157 $ 32,715 $ 27,746
========= ========= ========= =========
Net income per common share - basic $ 0.44 $ 0.39 $ 1.30 $ 1.15
========= ========= ========= =========
Net income per common share - diluted $ 0.44 $ 0.39 $ 1.30 $ 1.15
========= ========= ========= =========
Weighted average common shares outstanding 24,027 26,000 25,183 24,148
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
COLONIAL PROPERTIES TRUST
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
-------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
--------- ---------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 40,919 $ 35,949
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 40,858 34,105
(Income) loss from unconsolidated subsidiaries (2,173) 1,309
Distribution to preferred unitholders of CRLP 5,374 -0-
Minority interest 13,937 12,271
Gains from sales of property (5,639) -0-
Other 1,513 927
Decrease (increase) in:
Restricted cash 21 (222)
Accounts receivable (218) (1,822)
Prepaid expenses 633 342
Other assets (98) (3,697)
Increase (decrease) in:
Accounts payable 2,531 (7,226)
Accrued interest (370) 3,853
Accrued expenses and other 10,764 10,999
--------- ---------
Net cash provided by operating activities 108,052 86,788
--------- ---------
Cash flows from investing activities:
Acquisition of properties (48,648) (225,627)
Development expenditures (132,742) (68,547)
Tenant improvements (6,956) (2,702)
Capital expenditures (12,622) (12,388)
Proceeds from sales of property 120,795 908
Distributions from subsidiaries 8,084 142
Capital contributions to subsidiaries (5,227) (22)
--------- ---------
Net cash used in investing activities (77,316) (308,236)
--------- ---------
Cash flows from financing activities:
Proceeds from common stock issuances, net of expenses paid -0- 132,205
Proceeds from CRLP preferred units issuance, net of expenses paid 97,403 -0-
Proceeds from additional borrowings 136,200 198,976
Principal reductions of debt (59,156) (47,156)
Proceeds from dividend reinvestment 3,784 7,239
Net change in revolving credit balances (31,564) (6,152)
Dividends paid to common and preferred shareholders (57,688) (48,306)
Purchase of treasury stock (96,069) -0-
Purchase of common units (3,509) -0-
Distributions to minority partners in CRLP (18,773) (16,288)
Payment of mortgage financing cost (1,472) (311)
Other (628) (401)
--------- ---------
Net cash provided by (used in) financing activities (31,472) 219,806
--------- ---------
Decrease in cash and equivalents (736) (1,642)
Cash and equivalents, beginning of period 4,583 4,531
--------- ---------
Cash and equivalents, end of period $ 3,847 $ 2,889
========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
COLONIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
September 30, 1999
(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 and Form 10-K/A for the year ended December 31, 1998, and with the
information filed with the Securities and Exchange Commission on Form 10-Q for
the quarters ended March 31, 1999 and June 30, 1999. 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, the Company will be
required to account for derivative financial instruments, if any, at their fair
market value, and make certain required disclosures. The Company is required to
adopt SFAS 133 for all periods beginning after June 15, 2000.
Note 2 -- Acquisitions and Joint Ventures
The Plaza Mall -- On August 16, 1999, the Company acquired The Plaza
Mall, a 436,427 square-foot mall in Greenville, North Carolina for a total
purchase price of $28.5 million. The mall anchors include two Belk stores, a
recently expanded and renovated JC Penney, and Proffitt's. The purchase price
was partially funded through the proceeds received from the disposition of
assets, and an advance on the Company's unsecured line of credit.
CMS Joint Venture -- During the third quarter, the Company sold six
multifamily properties, representing 1,949 apartment units, which included
Colonial Village at Stockbridge, Colonial Grand at Barrington Club, Colonial
Grand at Ponte Vedra, Colonial Village at River Hills, Colonial Grand at
Mountain Brook, and Colonial Village at Cahaba Heights. The properties were
purchased by a joint venture formed by CMS Companies, a private investment
banking firm, and the Company. The Company will maintain a 15% interest in the
joint venture and serve as manager of the properties.
The properties were sold for a total purchase price of $94.8 million, of which
$15 million was used to repay two secured loans, and the remaining proceeds were
used to repay a portion of the borrowings under the Company's unsecured line of
credit, purchase the Plaza Mall, and to support the Company's future investment
activities.
Note 3 -- Debt Offering
On August 4, 1999, the Company completed an offering of unsecured
medium term notes by its subsidiary Colonial Realty Limited Partnership totaling
$82.5 million. The securities were issued in two tranches of $57.5 million
maturing in August 2002 at 7.93% and $25 million maturing in August 2004 at
8.19%. The Company used the net proceeds of the offering to repay a portion of
the outstanding balance on its unsecured line of credit.
<PAGE>
Note 4 -- Net Income Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
(Amounts in thousands,
except per share data)
--------------------------------------------------------------------------
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
----------------- ---------------- ---------------- -----------------
Numerator:
Numerator for basic and diluted
net income per share - net
income available to common
<S> <C> <C> <C> <C>
shareholders $ 10,555 $ 10,157 $ 32,715 $ 27,746
================= ================ ================ =================
Denominator:
Denominator for basic net
income per share - weighted
average common shares 24,027 26,000 25,183 24,148
Effect of dilutive securities:
Trustee and employee stock 21 44 21 44
options
----------------- ----------------- ---------------- ----------------
Denominator for diluted net
income per share - adjusted
weighted average common shares 24,048 26,044 25,204 24,192
================= ================ ================ =================
Basic net income per share $ .44 $ .39 $ 1.30 $ 1.15
================= ================ ================ =================
Diluted net income per share $ .44 $ .39 $ 1.30 $ 1.15
================= ================ ================ =================
</TABLE>
Options to purchase 409,348 Common Shares at a weighted average exercise price
of $28.72 per share were outstanding during 1999 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.
Note 5 -- Segment Information
The Company 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 the Company'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 the Company 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 as of and for
the three months and nine months ended September 30, 1999 and 1998, and for the
period ended December 31, 1998 is as follows:
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
As of and for the
Three Months Ended
September 30, 1999 Multifamily Retail Office Total
--------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Total Divisional Revenues $ 30,329 $ 31,712 $ 10,359 $ 72,400
NOI 19,351 22,599 7,198 49,148
Divisional assets 757,472 775,603 279,348 1,812,423
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Three Months Ended
September 30, 1998 Multifamily Retail Office Total
--------------------------------------------------------------------
(in thousands)
Total Divisional Revenues $ 27,414 $ 30,692 $ 9,659 $ 67,765
NOI 17,611 21,387 6,986 45,984
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30, 1999 Multifamily Retail Office Total
--------------------------------------------------------------------
(in thousands)
Total Divisional Revenues $ 87,632 $ 96,582 $ 29,871 $ 214,085
NOI 56,837 69,027 20,840 146,704
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30, 1998 Multifamily Retail Office Total
--------------------------------------------------------------------
(in thousands)
Total Divisional Revenues $ 76,490 $ 83,947 $ 24,632 $ 185,069
NOI 50,399 59,564 17,873 127,836
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
For the Period Ended
December 31, 1998
(in thousands) Multifamily Retail Office Total
--------------------------------------------------------------------
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 and nine months ended September
30, 1999 and 1998, and total divisional assets to total assets, for the periods
ended September 30, 1999 and December 31, 1998 is presented below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
As of and for the As of and for the As of and for the As of and for the
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
(in thousands) September 30, 1999 September 30, 1998 September 30, 1999 September 30, 1998
Revenues
- --------------------------------------------------------------------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
Total divisional revenues $ 72,400 $ 67,765 $ 214,085 $ 185,069
Unallocated corporate revenues 220 485 961 959
Partially-owned subsidiaries (2,485) (68) (7,551) (204)
- --------------------------------------------------------------------------------- ---------------------- ---------------------
Total Revenues $ 70,135 $ 68,182 $ 207,495 $ 185,824
- --------------------------------------------------------------------------------- ---------------------- ---------------------
NOI
- --------------------------------------------------------------------------------- ---------------------- ---------------------
Total divisional NOI $ 49,148 $ 45,984 $ 146,704 $ 127,836
Unallocated corporate revenues 220 485 961 959
Partially-owned subsidiaries (1,448) (40) (4,531) (121)
General and administrative expenses (1,801) (2,207) (6,608) (6,124)
Depreciation (13,292) (11,942) (39,213) (32,897)
Amortization (563) (528) (1,645) (1,208)
Other 18 (212) (334) (424)
- --------------------------------------------------------------------------------- ---------------------- ---------------------
- --------------------------------------------------------------------------------- ---------------------- ---------------------
Income from operations $ 32,282 $ 31,540 $ 95,334 $ 88,021
- -------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
For the Period Ended For the Period Ended
Assets September 30, 1999 December 31, 1998
- ---------------------------------------------------------------------------------
Total divisional assets $ 1,812,423 $ 1,766,989
Unallocated corporate assets (1) 62,883 49,149
Partially-owned subsidiaries (75,740) (60,689)
- ---------------------------------------------------------------------------------
Total assets $ 1,799,566 $ 1,755,449
- ---------------------------------------------------------------------------------
(1) Includes the Company's investment in partially owned entities of $24,497 as
of September 30, 1999, and $25,181 as of December 31, 1998.
</TABLE>
<PAGE>
Note 6 -- Revision of prior period statements
Net income available to common shareholders, minority interest in
income of CRLP, and net income per common share for the third quarter and year
to date 1998 have been revised from previously reported results to reflect an
adjustment for the application of dividends paid on the Series A Cumulative
Preferred Shares of Beneficial Interest that were issued by the Company in
November 1997. The effect of the adjustment is to apply a weighted-average pro
rata portion of the preferred dividends to the minority interest in income of
CRLP, resulting in an increase in net income available to common shareholders
and net income per share, and a decrease in minority interest in income of CRLP.
The adjustment has been applied to the Company's previously reported results for
each of the other fiscal quarters of 1998.
The adjustment results in the following changes to the Company's
Consolidated Condensed Statement of Income for the Three Months and Nine Months
Ended September 30, 1998:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
($ in thousands) Previously As Previously As
Reported Revised Reported Revised
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Income before minority interest $ 17,201 $ 17,201 $ 48,158 $ 48,158
Minority interest in income of CRLP (5,125) (4,309) (14,726) (12,209)
------- ------- -------- --------
Net income 12,076 12,892 33,432 35,949
Dividends to preferred shareholders (2,735) (2,735) (8,203) (8,203)
------- ------- ------- -------
Net income available to common shareholders $ 9,341 $ 10,157 $ 25,229 $ 27,746
======== ========= ========= ========
Basic net income per share $ 0.36 $ 0.39 $ 1.04 $ 1.15
======= ======= ======= ======
Diluted net income per share $ 0.36 $ 0.39 $ 1.04 $ 1.15
======= ======= ======= ======
</TABLE>
Note 7 -- Subsequent Events
Quarterly Distribution
On October 19, 1999, a cash distribution was declared to shareholders
of the Company and partners of Colonial Realty Limited Partnership in the amount
of $0.58 per share and per unit, respectively, totaling $19.3 million. The
distribution was declared to shareholders of record as of October 29, 1999, and
will be paid on November 8, 1999.
Common Share Repurchase Program
On October 19, 1999, the Board of Trustees increased the previously
authorized amount of the common share repurchase program from $100 million to
$150 million, under which the Company may repurchase its currently outstanding
common shares and units from time to time at the discretion of management in
open market and negotiated transactions. A portion of the shares repurchased may
be reserved for re-issuance (upon conversion to partnership units) through a
Unit Purchase Program. Under the Unit Purchase Program, executives, management
and members of the Board of Trustees will be offered an opportunity to purchase
units of the Company's operating partnership.
<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 September 30, 1999, and the
related consolidated condensed statements of income for the three-month and
nine-month periods ended September 30, 1999 and 1998, and the consolidated
condensed statements of cash flows for the nine-month periods ended September
30, 1999 and 1998. 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 consolidated condensed 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 operations, shareholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
January 13, 1998, except for Notes 16 and 17, as to which the date is April 21,
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
November 15, 1999
<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 September 30,
1999, Colonial's real estate portfolio consisted of 51 multifamily communities,
41 retail properties, and 19 office properties.
Colonial 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
Colonial 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 the Company with unique synergy allowing the
Company 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 the Company's 1998
Annual Report as filed with the Securities and Exchange Commission on Form 10-K
and Form 10-K/A 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 September 30, 1999 and 1998
Revenue -- Total revenue increased by $1.9 million, or 2.9%, for the
third quarter of 1999 when compared to the third quarter of 1998. The majority
of this increase, $1.1 million, represents revenues generated by properties
acquired or developed during 1999 and the fourth quarter of 1998, net of
revenues from properties disposed of in 1998 and the first nine months of 1999.
The remaining increase primarily relates to increases in rental rates at
existing properties.
Operating Expenses -- Total operating expenses increased by $1.2
million, or 3.3%, for the third quarter of 1999 when compared to the third
quarter of 1998. The majority of this increase, is primarily related to
additional operating expenses associated with properties that were acquired or
developed during 1999 and the fourth quarter of 1998, net of operating expenses
associated with properties disposed of in 1998 and the first nine months of
1999. 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 $0.9 million,
or 6.6%, for the third quarter of 1999 when compared to the third quarter of
1998. The increase in interest expense is primarily attributable to the
increased usage of the Company's revolving credit agreement in conjunction with
the financing of acquisitions and developments.
Results of Operations -- Nine Months Ended September 30, 1999 and 1998
Revenue -- Total revenue increased by $21.7 million, or 11.7%, for the
nine months ended September 30, 1999 when compared to the nine months ended
September 30, 1998. This majority of this increase, $20.0 million, represents
revenues generated by properties acquired or developed during 1999 and the
fourth quarter of 1998, net of revenues from properties disposed of in 1998. The
remaining increase primarily relates to increases in rental rates at existing
properties, certain lease cancellations that occurred during 1999, and income
associated with the exchange of certain parcels of land.
Operating Expenses -- Total operating expenses increased by $14.4
million, or 14.7%, for the nine months ended September 30, 1999 when compared to
the nine months ended September 30, 1998. The majority of this increase, $10.0
million, relates to additional operating expenses associated with properties
that were acquired or developed during 1999 and the fourth quarter of 1998, net
of operating expenses associated with properties disposed of in 1999. 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 $4.2 million,
or 11.0%, for the nine months ended September 30, 1999 when compared to the nine
months ended September 30, 1998. 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 third quarter of 1999, the Company invested $78.2 million in
the acquisition and development of properties. The Company financed this growth
through the sale of certain properties, advances on its bank line of credit,
issuance of unsecured medium term notes through its subsidiary Colonial Realty
Limited Partnership, and cash from operations. As of September 30, 1999, the
Company had an unsecured bank line of credit providing for total borrowings of
$250 million. The line, which is used by the Company 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 non-renewal. The
line of credit agreement includes a competitive bid feature that will allow the
Company 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
September 30, 1999, was $142.8 million.
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.
Common Share Repurchase Program
During 1999, the Board of Trustees authorized a share repurchase
program under which the Company may repurchase up to $100 million of its
currently outstanding common shares from time to time at the discretion of
management in open market and negotiated transactions. During the third quarter
of 1999, the Company repurchased 2,290,200 shares at an all-in cost of
approximately $62.3 million. For the nine-month period ended September 30, 1999,
the Company has repurchased 3,569,000 shares at an all-in cost of approximately
$96.1 million, which represents an average purchase price of $26.93 per share.
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.
As a result of the potential adverse effects of Y2K problems on the
Company's operations, in the early months of 1998, the Company 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.
In an attempt to eliminate or minimize this potential risk, the Company
has initiated an effort to identify, understand, and address the myriad of
issues associated with the Y2K problem. The Company has identified two main
areas where potential Y2K problems exist: (a) Property Management Systems and,
(b) Information Systems.
Property Management Systems
The Company has completed an inventory of the material computer systems
being utilized in its existing property management systems, which may be
adversely affected by the Year 2000 issue. Such systems include, but are not
limited to, building automation (e.g., energy management, HVAC) elevator
controls, fire and life safety devices, security card access, garage revenue
controls, and office equipment.
In April 1998, the Company began gathering data from vendors to catalog
the equipment in all of its buildings. To date, the majority of the data
requested has been received. The Company does not expect to receive 100% of the
data requested due to a number of non-responsive vendors or unavailable
information. Regardless, efforts continue to obtain additional evidence from
vendors concerning these systems such as processes followed, test scripts, and
actual findings. Once this data has been received, the Company 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 to
date from responding vendors, the Company does not feel that this will be
necessary.
No estimate can be made as to any potential adverse impact resulting
from the failure of any third party vendor or service provider to be Year 2000
compliant. To the extent the Year 2000 issue has a material adverse effect on
the business operations or financial condition of third parties with which the
Company has material relationships, such as vendors, suppliers, tenants and
financial institutions, the Year 2000 issue could also have a material adverse
effect on the Company's business, results of operations and financial condition.
Information Systems
The general ledger software system used by the Company through October
1999 was not Y2K compliant. Therefore, in order to become Y2K compliant, the
Company has purchased and installed a Y2K compliant software package from
another vendor. The Company installed and completed the testing phase of the
software in the Third Quarter of 1999. During the month of October 1999, the
Company ran certain properties within their portfolio parallel on both the
current and new general ledger systems. On November 1, 1999, the Company began
utilization of the new software package for all of their properties and
corporate accounting functions. The total cost incurred and cost to complete
implementation of this new software is estimated to be approximately $700,000.
The Company has also assessed its non-financial computer systems, and
is replacing, upgrading or modifying such systems as needed. The cost of the
upgrade to the non-financial computer systems is not expected to be material.
As of October 31, 1999, the Company has incurred approximately $1.8
million in costs to analyze and prepare for the Year 2000 issue. The Company
currently estimates that it will incur additional costs, which are not expected
to exceed $100,000 to complete its Year 2000 compliance work.
Although the Company's Y2K efforts are intended to minimize the
potential risks of the Year 2000 issue on the Company's business and operations,
the actual effects of the Year 2000 issue and the success or failure of the
Company's efforts described above cannot be known until the year 2000. Failure
by the Company, its major vendors and other material service providers to
address adequately their respective Year 2000 issues in a timely manner (insofar
as such issues relate to the Company's business) could have a material adverse
effect on the Company's business, results of operations and financial condition.
There can be no assurance that the Company will be able to identify and correct
all aspects of the effect of the Year 2000 issue on the Company. However, the
Company does not currently expect the Year 2000 issue will have a material
impact on the Company's business, operations, or financial condition.
The Company has completed development of their contingency plans to
handle its most reasonable worst case Year 2000 scenarios. While it is not
possible at this time to determine the likely impact of the potential problems
of the Year 2000 issue, the Company will continue to evaluate its plans and
develop additional contingency plans, as appropriate.
The preceding "Year 2000" discussion contains various forward-looking
statements, within the meaning of the federal securities laws, which represent
the Company's beliefs or expectations regarding future events. When used in this
discussion, the words "expects" and "anticipates" and similar expressions are
intended to identify forward-looking statements. Forward-looking statements
include, without limitation, the Company's expectations as to when it will
complete its Year 2000 evaluation, the estimated costs of achieving Year 2000
readiness and the Company's expectation that Year 2000 issues will not have a
material impact on the Company's business, operations or financial condition.
All forward-looking statements involve a number of risks and uncertainties that
could cause the actual results to differ materially from the projected results.
Factors that may cause these differences include, but are not limited to, the
availability of qualified personnel to address potential Y2K issues, technology
resources, actions of third parties with respect to making their systems or
products Year 2000 compliant, and other risks detailed from time to time in the
Company's filing with the Securities and Exchange Commission.
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 third quarter of 1999 and 1998 and nine months ended
September 30, 1999 and 1998 was computed as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ----------------------------
(in thousands) 1999 1998 1999 1998
- --------------------------------------------------------- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net income available to common shareholders $10,555 $10,157 $32,715 $27,746
Adjustments:
Minority interest in CRLP 4,682 4,309 13,855 12,209
Real estate depreciation and amortization (1) 14,166 12,117 41,039 33,104
(Gains) losses from sales of property (1) (2,161) 16 (5,639) (17)
Extraordinary loss 742 1 627 401
- ------ -------------------------------------------------- ----------- ------------ ------------- ------------
Funds From Operations $27,984 $26,600 $82,597 $73,443
- --------------------------------------------------------- ----------- ------------ ------------- ------------
(1) Includes pro-rata share of adjustments for subsidiaries.
</TABLE>
<PAGE>
COLONIAL PROPERTIES TRUST
PART II -- OTHER INFORMATION
Item 2. Changes in Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
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
None
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: 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>
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 November 15, 1999 on our review of interim
financial information of Colonial Properties Trust for the three-month and
nine-month periods ended September 30, 1999 and 1998 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
November 15, 1999
<PAGE>
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<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1.0
<CASH> 3,847
<SECURITIES> 0
<RECEIVABLES> 8,762
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,698,908
<DEPRECIATION> 192,752
<TOTAL-ASSETS> 1,799,566
<CURRENT-LIABILITIES> 0
<BONDS> 954,802
0
50
<COMMON> 228
<OTHER-SE> 511,699
<TOTAL-LIABILITY-AND-EQUITY> 1,799,566
<SALES> 207,495
<TOTAL-REVENUES> 207,495
<CGS> 112,161
<TOTAL-COSTS> 112,161
<OTHER-EXPENSES> 34,558
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,288
<INCOME-PRETAX> 60,148
<INCOME-TAX> 0
<INCOME-CONTINUING> 60,148
<DISCONTINUED> 0
<EXTRAORDINARY> (628)
<CHANGES> 0
<NET-INCOME> 40,919
<EPS-BASIC> 1.30
<EPS-DILUTED> 1.30
</TABLE>
