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: 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 May 3, 1999, Colonial Properties Trust had 25,400,903 Common
Shares of Beneficial Interest outstanding.
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 8 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 Company's previously reported
calculations of funds from operations ("FFO") or FFO per share, nor does it
affect the federal income tax treatment of distributions or dividends previously
paid to shareholders or unitholders.
<PAGE>
COLONIAL PROPERTIES TRUST
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 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II: OTHER INFORMATION
Item 2. Changes in Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
EXHIBIT 20
<PAGE>
COLONIAL PROPERTIES TRUST
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
March 31, 1999 December 31,
(Unaudited) 1998
----------- -----------
ASSETS
<S> <C> <C>
Land, buildings, & equipment, net $ 1,543,606 $ 1,566,841
Undeveloped land and construction in progress 164,537 128,336
Cash and equivalents 6,136 4,583
Restricted cash 2,925 2,897
Accounts receivable, net 9,554 9,428
Prepaid expenses 3,003 3,224
Deferred debt and lease costs 9,352 9,644
Investment in unconsolidated subsidiaries 25,842 25,181
Other assets 4,608 5,315
----------- -----------
$ 1,769,563 $ 1,755,449
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes and mortgages payable $ 836,724 $ 909,322
Accounts payable 14,827 8,614
Accounts payable to affiliates 4,235 5,540
Accrued interest 10,292 12,051
Accrued expenses 7,612 3,456
Tenant deposits 4,296 4,272
Unearned rent 1,782 2,800
----------- -----------
Total liabilities 879,768 946,055
----------- -----------
Minority interest:
Preferred units 100,000 0
Common units 193,029 198,947
----------- -----------
Total minority interest 293,029 198,947
----------- -----------
Preferred shares of beneficial interest,
$.01 par value, 10,000,000 shares authorized;
5,000,000 shares issued and outstanding at
March 31, 1999 and December 31, 1998, respectively 50 50
Common shares of beneficial interest, $.01 par value,
65,000,000 shares authorized; 25,694,469 and
26,147,054 shares issued and outstanding at
March 31, 1999 and December 31, 1998, respectively 257 261
Additional paid-in capital 669,103 662,895
Cumulative earnings 144,974 129,684
Cumulative distributions (200,937) (182,135)
Treasury shares, at cost; 623,500 shares at
March 31, 1999 and 0 shares at December 31, 1998 (15,862) 0
Deferred compensation on restricted shares (819) (308)
----------- -----------
Total shareholders' equity 596,766 610,447
----------- -----------
$ 1,769,563 $ 1,755,449
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
COLONIAL PROPERTIES TRUST
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(in thousands)
<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 (loss) from unconsolidated subsidiaries 552 (428)
Gains (losses) from sales of property 3,005 (32)
Minority interest in consolidated operating property (61) -0-
-------- --------
Total other expense (10,458) (13,039)
-------- --------
Income before extraordinary items and
minority interest in CRLP 20,025 14,440
Extraordinary loss from early extinguishment of debt -0- (395)
-------- --------
Income before minority interest in CRLP 20,025 14,045
Minority interest in income of CRLP 4,731 3,607
Distribution to preferred unitholders of CRLP 888 0
-------- --------
Net income $ 14,406 $ 10,438
Dividends to preferred shareholders (2,734) (2,734)
-------- --------
Net income available to common shareholders $ 11,672 $ 7,704
======== ========
Net income per common share - basic $ 0.45 $ 0.36
======== ========
Net income per common share - diluted $ 0.45 $ 0.36
======== ========
Weighted average common shares outstanding 26,192 21,411
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
COLONIAL PROPERTIES TRUST
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 $ 15,294 $ 10,438
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 13,413 10,498
(Income) loss from unconsolidated subsidiaries (552) 428
Minority interest 4,731 3,607
(Gains) losses from sales of property (3,005) 32
Other 452 528
Decrease (increase) in:
Restricted cash (28) (13)
Accounts receivable (516) 4
Prepaid expenses 221 209
Other assets 246 (638)
Increase (decrease) in:
Accounts payable 4,908 (10,175)
Accrued interest (1,759) 1,423
Accrued expenses and other 3,176 3,606
-------- --------
Net cash provided by operating activities 36,581 19,947
-------- --------
Cash flows from investing activities:
Acquisition of properties (2,854) (24,879)
Development expenditures (37,709) (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 subsidiaries 965 52
Capital contributions to subsidiaries (1,074) (20)
-------- --------
Net cash used in investing activities (22,958) (36,294)
-------- --------
Cash flows from financing activities:
Proceeds from common stock issuances,
net of expenses paid -0- 47,806
Proceeds from CRLP preferred units issuance,
net of expenses paid 97,445 -0-
Principal reductions of debt (485) (11,303)
Proceeds from dividend reinvestment 4,161 -0-
Net change in revolving credit balances (72,128) (1,438)
Dividends paid to common and preferred shareholders (18,803) (14,373)
Purchase of treasury stock (15,862) -0-
Distributions to minority partners (6,368) (5,307)
Payment of mortgage financing cost (30) (30)
Debt prepayment penalties -0- (395)
-------- --------
Net cash (used in) provided by
financing activities (12,070) 14,960
-------- --------
Increase (decrease) in cash and equivalents 1,553 (1,387)
Cash and equivalents, beginning of period 4,583 4,531
-------- --------
Cash and equivalents, end of period $ 6,136 $ 3,144
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
COLONIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
March 31, 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. 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 periods beginning January 1, 2000.
Note 2 -- Acquisitions and Dispositions
During the first quarter of 1999, there were no property acquisitions
made by the Company. However, an additional $2.8 million was paid by the Company
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, the Company completed the sale
of its Colonial Grand at Kirkman multifamily property, which was a 370-unit
property located in Orlando, Florida. The Company 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 shareholders of
the Company and partners of Colonial Realty Limited Partnership in the amount of
$0.58 per share and 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.
Note 4 -- CRLP Preferred Unit Issuance
On February 23 1999, Colonial Realty Limited Partnership ("CRLP"), the
Company's Operating Partnership, 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.
<PAGE>
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 Months Three Months
Ended March 31, Ended March 31,
1999 1998
---------------- ----------------
Numerator:
Numerator for basic and diluted net
income per share - net income available
to common shareholders $ 11,672 $ 7,704
=============== ==============
Denominator:
Denominator for basic net income per
share - weighted average common shares 26,192 21,411
Effect of dilutive securities:
Trustee and employee stock options 20 54
=============== ===============
Denominator for diluted net income per
share - adjusted weighted average
common shares 26,212 21,465
=============== ==============
Basic net income per share $ .45 $ .36
=============== ==============
Diluted net income per share $ .45 $ .36
=============== ==============
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 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 6 -- 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
share 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 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) 50,598 49,149
Partially-owned subsidiaries (61,006) (60,689)
----------- -----------
Total assets $ 1,769,563 $ 1,755,449
----------- -----------
</TABLE>
(1) Includes the Company's investment in partially owned entities of $25,842 as
of March 31, 1999, and $25,181 as of December 31, 1998.
<PAGE>
Note 7 -- Revision of prior period statements
Net income available to common shareholders, minority interest in
income of CRLP, and net income per common share for the first quarter of 1998
have been revised from previously reported results to reflect an adjustment for
the application of dividends paid on the Series A Cumulative Preferred Shares of
Beneficial Interest that were issued by the Company in November 1997. The effect
of the adjustment is to apply a weighted-average pro rata portion of the
preferred dividends to the minority interest in income of CRLP, resulting in an
increase in net income available to common shareholders and net income per
share, and a decrease in minority interest in income of CRLP. The adjustment has
been applied to the Company's previously reported results for each of the other
fiscal quarters of 1998 also.
The adjustment results in the following changes to the Company's
Consolidated Condensed Statement of Income for the Three Months Ended March 31,
1998:
<TABLE>
Previously
Reported As Revised
----------- ------------
($ in thousands)
<S> <C> <C>
Income before minority interest $ 14,045 $ 14,045
Minority interst in income of CRLP (4,479) (3,607)
------ ------
Net income 9,566 10,438
Dividends to preferred shareholders (2,734) (2,734)
------ ------
Net income available to common shareholders $ 6,832 $ 7,704
====== ======
Net income per share, basic and diluted $ 0.32 $ 0.36
====== ======
</TABLE>
Note 8 - Restatement of Previously Issued Quarterly Information
Land, buildings and equipment, shareholders' equity, minority
interest, net income available to common shareholders, minority interest in
income of CRLP, and net income per common share 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
shareholders and net income per share, an increase to minority interest in
income of CRLP, and an increase to net land, buildings and equipment and
shareholders' equity as of and for the three months ended March 31, 1999.
The adjustment results in the following changes to the Company'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 $ 1,542,733 $ 1,543,606
Shareholders' equity 596,148 596,766
Minority Interest 292,774 293,029
Income before minority interest in CRLP 19,152 20,025
Net income available to common shareholders 11,051 11,672
Net income per common share $ 0.42 $ 0.45
<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 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 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, after giving effect to the restatement described in Note 8,
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, shareholders' equity, and cash flows
for the year then ended (not presented herein); and in our report dated January
13, 1999, 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
April 21, 1999, except for Note 8,
as to which the date is 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 March 31, 1999,
Colonial's real estate portfolio consisted of 48 multifamily communities, 40
retail properties, and 17 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. Examples of forward-looking statements
include the Company's anticipated sources and amounts of financing and the
timing, cost and expected results of the Company's Year 2000 compliance program.
Forward-looking statements are based upon assumptions and opinions concerning a
variety of known and unknown risks, including but not limited to changes in
market conditions, the supply and demand for leasable real estate, interest
rates, increased competition, changes in governmental regulations, and national
and local economic conditions generally, as well as other risks more completely
described in the Company'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 the Company'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 the
Company's revolving credit agreement in conjunction with the financing of
acquisitions and developments.
Liquidity and Capital Resources
During the first quarter of 1999, the Company invested approximately
$40.5 million in its acquisition and development of properties. The Company
financed this growth through net proceeds from a private offering of debt
through its Operating Partnership CRLP 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, 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 basis points and LIBOR plus 135 basis points 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 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 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 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 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, 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, 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.
Phase One - Assessing the Company's Y2K Readiness
As a result of potential risks posed by 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.
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 the Company'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 the Company's home and
regional offices and at the Company's properties. The initial step of
identifying systems has been completed by the Company'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, the
Company is attempting to determine which of the systems actually have a Y2K
problem. Much of the required information is within the exclusive control of the
Company'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
The Company 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, the Company 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. The Company 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 the
Company's ability to conduct business if a failure occurs. At this time the
Company 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,
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 the Company 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
the Company during the first quarter of 1999. The Company found the new versions
would not run in the current environment. The vendor continues to develop the
software systems and has represented to the Company that it expects to deliver
Y2K compliant systems during the early part of the third quarter. Upon receipt,
the Company 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,
the Company intends to pursue alternative software systems offered by other
vendors. If the Company finds an acceptable alternative software system that is
Y2K compliant, it may implement that system instead of the system being revised
by the Company's current vendor. If the Company were to implement an alternative
system, the Company 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
the Company 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
the Company'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 the Company of Noncompliance
Management does not believe that the impact of Y2K will have a material
adverse effect on the Company's financial condition, results of operations and
cash flows. Such belief is based on management's analysis of the risks to the
Company related to the Company'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
the Company's financial condition and operations associated with a failure of
building management systems is immaterial due to the fact that each of the
Company'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 the Company's control before the Year 2000.
In the event a failure of essential property management systems occurs
at one or more of the Company'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 the Company 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 the Company's efforts to identify and
solve Y2K problems will minimize such risk. The Company 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 the Company'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 the Company'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 the Company to
produce complete and accurate financial information in a timely fashion could be
impaired. This situation would affect the Company's anticipated development
projects or acquisitions of new properties. Management expects to correct any
information system problems within the Company's control before the Year 2000,
thereby minimizing or avoiding the increased cost of correcting problems after
the fact.
Our Vendors - The success of the Company'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 the Company's
financial condition, results of operations, or cash flows.
Our Customers - Because of a broad customer/tenant base, the Company'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 the Company's financial condition, results of operations, or cash
flows if any tenant ceases to conduct business due to Y2K related problems. The
Company has requested that major tenants provide periodic updates as to their
Y2K readiness.
Phase Four - Developing Contingency Plans
The Company 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. The Company'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 the Company's
suppliers and customers.
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 first quarter of 1999 and 1998 was computed as follows:
<PAGE>
(in thousands) 1999 1998
- ------------------------------------------- ---------------- -----------------
Net income available to common shareholders $11,672 $7,704
Adjustments:
Minority interest in CRLP 4,731 3,607
Real estate depreciation (1) 12,973 10,184
Losses from sales of property (1) (3,005) 35
Debt prepayment penalties 380 395
- ------ ----------------------------------- ---------------- -----------------
Funds From Operations $ 26,751 $ 21,925
- ------------------------------------------ ---------------- -----------------
(1) Includes pro-rata share of adjustments for subsidiaries.
The revision of the Company's financial statements as discussed in
Note 7 of the Consolidated Condensed Financial Statements, had no effect on the
Company's previously reported calculations of Funds From Operations ("FFO") or
FFO per share, nor did it effect the federal income tax treatment of
distributions or dividends previously paid to shareholders or unitholders.
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) Exhibit
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 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 April 21, 1999, except for Note 8, as to
which the date is November 15, 1999, on our review of interim financial
information of Colonial Properties Trust for the quarters ended March 31, 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-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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