Item 1. Business.
As used herein, the terms "Company", "we", "us" and "our" refer to Colonial Properties Trust, an Alabama real estate investment trust, and one or more of its subsidiaries and other affiliates, including, Colonial Realty Limited Partnership, Colonial Properties Services Limited Partnership and Colonial Properties Services, Inc. or, as the context may require, Colonial Properties Trust only or Colonial Realty Limited Partnership only.
We are a self-administered equity real estate investment trust (a "REIT") that is one of the largest owners, developers and operators of multifamily, office and retail properties in the Sunbelt region of the United States. We are a fully-integrated real estate company, whose activities include ownership of a diversified portfolio of 106 properties as of December 31, 2002, located in Alabama, Florida, Georgia, Mississippi, North Carolina, South Carolina, Tennessee, Texas, and Virginia, development of new properties, acquisition of existing properties, build-to-suit development, and the provision of management, leasing, and brokerage services for commercial real estate.
As of December 31, 2002, we owned 41 multifamily apartment communities containing a total of 14,566 apartment units (the "multifamily properties"), 21 office properties containing a total of approximately 5.2 million square feet of office space (the "office properties"), 44 retail properties containing a total of approximately 15.5 million square feet of retail space (the "retail properties"), and certain parcels of land adjacent to or near certain of these properties (the "land"). The multifamily properties, the office properties, the retail properties and the land are referred to collectively as the "properties". As of December 31, 2002, the multifamily properties, the office properties, and the retail properties that had achieved stabilized occupancy were 88%, 91% and 89% leased, respectively.
We are the direct general partner of, and hold approximately 67.9% of the interests in, Colonial Realty Limited Partnership, a Delaware limited partnership ("Colonial Realty", the "Operating Partnership", or "CRLP"). We conduct all of our business through the Operating Partnership, Colonial Properties Services Limited Partnership (the "Management Partnership"), which provides management services for the Properties, and Colonial Properties Services, Inc. (the "Management Corporation"), which provides management services for properties owned by third parties.
Our executive offices are located at 2101 Sixth Avenue North, Suite 750, Birmingham, Alabama, 35203 and our telephone number is (205) 250-8700. We were formed in Maryland on July 9, 1993. We were reorganized as an Alabama real estate investment trust in 1995.
Acquisitions, Developments and Re-developments
The following table summarizes our acquisitions, developments and re-developments that were completed in 2002. For the purposes of the following table and throughout this Form 10-K, the size of a multifamily property is measured by the number of units and the size of an office property and retail property is measured in square feet.
Acquisitions
During 2002, we acquired three office properties and one retail property as described below.
Office Properties
901 Maitland Center - During March 2002, we acquired 901 Maitland Center, a 155,669 square foot office building located in Orlando, Florida, within Orlando's largest suburban office park. The total purchase price was $16.6 million and was funded through the sale of Colonial Grand at Palma Sola, a 340-unit multifamily asset located in Bradenton, Florida. See disposition activity below for further discussion.
Colonnade - During May 2002, we acquired The Colonnade, which includes five Class A office buildings totaling 419,377 square feet, located in the premier suburban office park in Birmingham, Alabama. The buildings are part of a mixed-use development, and adjacent sites include such amenities as hotels, restaurants, banking and financial services, and shopping. The office buildings were purchased for a total purchase price of $49.0 million, which was primarily funded through the sale of certain multifamily properties. See disposition activity below for further discussion.
Heathrow International Business Center - During August 2002, we acquired Heathrow International Business Center, a seven-building office park totaling 804,078 rentable square feet and 102 acres of land for potential future development, located in the Lake Mary/Heathrow submarket of Orlando, Florida. Current tenants include national and regional companies like Veritas, Bank One, FiServ, and The United States Government. The total purchase price of the office park was $122.0 million, which was primarily funded through our recent sales of multifamily and retail assets and the assumption of $44.0 million of existing debt. The remaining balance was funded through our unsecured line of credit.
Retail Property
Shops at Colonnade - During May 2002, we acquired the Shops at Colonnade, a 112,186 square foot village style retail center, located in Birmingham, Alabama. The property is part of a mixed-use development, and adjacent sites include such amenities as hotels, restaurants, banking and financial services, and office buildings. The retail property was purchased for a total purchase price of $6.6 million, which was primarily funded through the sale of certain multifamily properties. See disposition activity below for further discussion.
Completed Multifamily Development Activity
During 2002, we completed the development of two multifamily properties as described below.
Colonial Grand at TownPark - Sarasota--During the first quarter of 2002, we completed the development of Colonial Grand at TownPark - Sarasota, a 272-unit multifamily community located in Sarasota, Florida. The new apartments include numerous luxuries, including high-speed Internet access, fitness center, a swimming pool, and a resident business center. Project development costs, including land acquisition costs totaled $21.7 million and were funded through advances on our unsecured line of credit.
Colonial Grand at TownPark - Lake Mary--During the second quarter of 2002, we completed the development of Colonial Grand at TownPark - Lake Mary, a 456-unit multifamily community located in Orlando, Florida. The new apartments include numerous luxuries, including high-speed Internet access, fitness center, a swimming pool, and a resident business center. Project development costs, including land acquisition costs totaled $37.7 million and were funded through advances on our unsecured line of credit.
Completed Office Property Development Activity
Colonial Center TownPark 600--During the fourth quarter of 2002, we completed the development of Colonial Center TownPark 600, a 199,585 square foot Class A office building in Orlando, Florida, which is part of a mixed-use development integrating multifamily, office, and retail products. This building is a build-to-suit development for FiServ, Inc., a financial software company with approximately 14,000 employees worldwide. Project development costs, including land acquisitions totaled $27.6 million and were funded through advances on our unsecured line of credit.
Completed Retail Development and Redevelopment Activity
Colonial Promenade Hoover--During the third quarter of 2002, we completed the development of Colonial Promenade Hoover, a 166,000 square foot community shopping center located in Birmingham, Alabama. The center is anchored by a Super Wal-Mart Center. Project development costs including land acquisitions costs totaled $16.6 million and were funded through our unsecured line of credit.
Parkway Place--During the fourth quarter of 2002, we, together with a joint venture partner, completed the re-development of Parkway Place, a 630,000 square foot mall located in Huntsville, Alabama. The mall is anchored by Parisian and Dillard's Department Stores. Total project development costs totaled $76.5 million, of which our portion was $34.4 million, which was funded through a construction loan secured by the property, which matures in December 2003.
Continuing Development Activity
The following table summarizes our properties that are under construction and undeveloped land at December 31, 2002:
Continuing Office Property Development
Colonial Center TownPark 200--During the third quarter of 2001, we began the development of Colonial Center TownPark 200, a 155,000 square foot Class A office building in Orlando, Florida, which is part of a mixed-use development integrating multifamily, office, and retail products. The building will include the most advanced technology systems available in the market, including high-speed internet access and fiber optic network infrastructure. Project development costs, including land acquisitions are expected to total $21.9 million and will be funded through advances on our unsecured line of credit. We expect to complete the project in the fourth quarter of 2003.
New Retail Development Activity
Colonial Promenade Trussville II--During the fourth quarter of 2002, we began the development of Colonial Promenade Trussville II, a 65,000 square foot addition to Colonial Promenade Trussville, a community shopping center located in Birmingham, Alabama. The center will be anchored by a Sam's and Kohl's. Project development costs including land acquisitions costs are expected to total $8.4 million and will be funded through our unsecured line of credit. We expect to complete the project in the fourth quarter of 2003.
Dispositions
During 2002, we disposed of eight multifamily properties that contained an aggregate of 1,988 units for a total consideration of $94.5 million. In addition, we disposed of two office properties that contained an aggregate of 104,496 square feet and three retail properties that contained an aggregate of 449,443 square feet for a total consideration of $8.7 million and $35.4 million, respectively. The following table is a summary of our disposition activity in 2002:
Recent Developments
Orlando Fashion Square Joint Venture-- In October 1998, we sold a 50% interest in our Orlando Fashion Square retail property located in Orlando, Florida to a third party. Subsequently, we entered into a joint venture agreement with the third party, and the joint venture entered into an agreement with us relating to the management of the property. The joint venture agreement gives the third party the right, which became effective December 28, 2001, to convert its 50% interest in the property to our common shares if specified terms and conditions are met. The conversion value of the interest would be determined at the time of conversion in accordance with the procedures set forth in the joint venture agreement, and would be net of the third party's pro rata share of any indebtedness secured by the property. The terms and conditions also include an "accretion threshold", as defined, which must be met. At the time of the original transaction, we considered the terms of the agreement in their entirety (including the conversion right, the accretion threshold, and the conversion value determination procedures) and assessed whether the third party could compel us to repurchase the 50% interest sold. We concluded that the likelihood of a compelled repurchase was remote, and accordingly accounted for the transaction as a sale.
On May 31, 2002, the 50% joint venture partner elected to exercise its option to convert its 50% interest in the property to our common shares. In accordance with the terms of the joint venture agreement, we negotiated with our joint venture partner and were unable to reach an agreement. Therefore, on September 11, 2002, the joint venture partner elected to withdraw its conversion election.
Third Party Development-- During December 2002, we entered into an agreement with an unrelated third party in connection with the third party's development of a $23.5 million multi-family property in Tampa, Florida. We have agreed to loan approximately $4.0 million, which represents 17.0% of the development costs to the third party during the development of the property. Under the agreement, the balance of the loan matures in December 2007. At December 31, 2002, no amount had been funded to the unrelated third party and we have no liability recorded on our books for the potential loan amount. We have a right of first refusal to purchase the property should the third party elect to sell.
Investment in Partially Owned Entities and Other Arrangements-- During August 2002, in connection with the purchase of Heathrow International Business Center, we agreed to acquire one new office building that contains 192,000 square feet. The closing for this acquisition is anticipated to occur upon the earlier of August 2005 or at such time that the seller achieves certain leasing targets for the property. The purchase price will be determined based upon the percentage of gross leasable area actually leased and the net operating income generated by the leases at the time of acquisition.
During December 2002, we sold 90% of our interest in Colonial Promenade Hoover for a total sales price of $20.5 million, and formed the Highway 150, LLC, in which we maintain a 10% ownership and manage the property under contract with the Highway 150 LLC. In connection with the formation of the Highway 150 LLC, we are serving as a guarantor of $1.0 million of the debt related of the joint venture, which is collateralized by the Colonial Promenade Hoover retail property. The Company's maximum guarantee of $1.0 million may be requested by the lender, only after all of the rights and remedies available under the associated note and security agreements have been exercised and exhausted. At December 31, 2002, the total outstanding debt of the joint venture was approximately $17.8 million, which matures in December 2012. At December 31, 2002, no liability was recorded on our books for the guarantee. The proceeds of the joint venture transaction were used to repay a portion of the amount outstanding under our unsecured line of credit.
Additionally during December 2002, we sold 25% of our interest in the Colonial Promenade Madison Joint Venture for $3.2 million. Under the original joint venture, we held a 50% interest in the joint venture. Therefore, we now maintain a 25% ownership of the property and continues to manage and lease the property. Proceeds from the joint venture transaction were used to repay a portion of the associated construction loan.
Financing Activity
We funded a portion of our acquisition, development and re-development activities through the issuance of senior notes through CRLP, public offerings of common shares, proceeds received from the disposition of assets, proceeds related to the secured financing of three properties, and advances on our bank line of credit.
On February 28, 2002, we sold 560,380 shares of our common shares in two transactions at $33.37 per share, resulting in net proceeds of $17.6 million to us, which were used to repay outstanding balances under our unsecured line of credit. Salomon Smith Barney deposited 260,710 shares into The Equity Focus Trust REIT Portfolio Series, 2002-A, a newly formed unit investment trust, and 299,670 shares were deposited into Cohen & Steers Quality Income Realty Fund, Inc.
On July 31, 2002, we completed a $100.0 million public debt offering of unsecured senior notes by CRLP. The notes, which mature in July 2012, bear a coupon rate of 6.88%, and were priced to yield an effective rate of 6.99% over the ten-year term. We used the net proceeds of the offering to repay a $57.5 million medium-term note that matured on August 9, 2002 and the remaining amount was used to pay down a portion of the outstanding balance on our unsecured line of credit. Additionally during 2002, we received proceeds of $52.8 million related to the financing of three properties, which is collateralized by the related properties.
We continued our asset recycling program, which allows us to maximize our investment returns through the sale of assets that have reached their maximum investment potential and reinvest the proceeds into opportunities with more growth potential. During 2002, we sold assets for an aggregate sales price of $138.6 million. See "Dispositions" above for a listing of the properties sold during 2002. We used the proceeds to repay a portion of the borrowings under our unsecured line of credit and to support our investment activities.
In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we record individual property sales as discontinued operations, unless we maintain a significant continuing involvement with the properties that have been sold. During 2002, the properties that were sold and classified as discontinued operations were University Park, Colonial Promenade University Park II, and Colonnade 4100 & 4200. We maintain a significant continuing involvement through a management contract or an ownership percentage in the remaining properties.
Business Strategy
Our business objective is to generate stable and increasing cash flow and portfolio value for our shareholders through a strategy of:
o realizing growth in income from our existing portfolio of properties;
o developing, expanding, and selectively acquiring additional multifamily, office and retail properties in growth markets located in the Sunbelt region of the United States, where we have first-hand knowledge of growth patterns and local economic conditions and believe we have a competitive advantage due to our size and access to lower-cost capital;
o recycling capital by selectively disposing of assets that have reached their maximum investment potential and reinvesting the proceeds into opportunities with more growth potential;
o managing our own properties, which enables us to better control operating expenses and establish long-term relationships with our office and retail tenants;
o maintaining our third-party property management business, which increases cash flow and establishes additional relationships with potential tenants; and
o employing a comprehensive capital maintenance program to maintain properties in first-class condition.
Our business strategy and the implementation of that strategy are determined by our Board of Trustees and may be changed from time to time.
Financing Strategy
We seek to maintain a well-balanced, conservative and flexible capital structure by:
o maintaining conservative debt service and fixed charge coverage ratios in order to sustain our investment grade status;
o extending and sequencing the maturity dates of our debt;
o borrowing primarily at fixed rates; and
o generally pursuing long-term debt financings and refinancings on an unsecured basis.
We believe that these strategies have enabled and should continue to enable us to access the debt and equity capital markets to fund debt refinancings and the acquisition and development of additional properties.
We have an unsecured bank line of credit providing for total borrowings of up to $320 million. This line of credit agreement bears interest at LIBOR plus a spread calculated from a pricing grid based on our unsecured debt ratings. Based on our debt ratings at December 31, 2002, the spread was 105 basis points. The line of credit is renewable in November 2005 and provides for a one-year extension. The line of credit agreement includes a competitive bid feature that will allow us to convert up to $160 million under the line of credit to a fixed rate, for a fixed term not to exceed 90 days. The credit facility is primarily used to finance property acquisitions and developments and has an outstanding balance at December 31, 2002, of $208.3 million. The interest rate of this short-term borrowing facility, including the competitive bid balance, was 2.38% and 3.08% at December 31, 2002 and 2001, respectively.
At December 31, 2002, our total outstanding debt balance was $1.3 billion. The outstanding balance includes fixed rate debt of $995.0 million, or 78.8%, and floating-rate debt of $267.2 million, or 21.2%. Our total market capitalization as of December 31, 2002 was $2.7 billion and our ratio of debt to total market capitalization was 47.1%. We calculate debt to total market capitalization as total debt as a percentage of total debt, including preferred shares and units, plus the market value of our outstanding common shares and the outstanding units of CRLP. Some of our loan agreements contain restrictive covenants, which among other things require maintenance of various financial ratios. At December 31, 2002, we were in compliance with these covenants.
We have entered into several different hedging transactions in an effort to manage exposure to changes in interest rates. The following table summarizes the notional values, fair values and other characteristics of our derivative financial instruments at December 31, 2002. The notional value at December 31, 2002 provides an indication of the extent of our involvement in these instruments at that time, but does not represent exposure to credit, interest rate or market risk.
We do not use derivatives for trading or speculative purposes. Further, we have a policy of only entering into contracts with major financial institutions based upon their credit ratings and other factors. When viewed in conjunction with the underlying and offsetting exposure that the derivatives are designed to hedge, we have not sustained a material loss from those instruments nor do we anticipate any material adverse effect on our net income or financial position in the future from the use of derivatives.
At December 31, 2002, derivatives with a fair value of $2.6 million were included in other assets and derivatives with a fair value of $3.8 million were included in other liabilities. The change in net unrealized gains/losses of $3.6 million in 2002 for derivatives designated as cash flow hedges is separately disclosed in the statement of changes in shareholders' equity. Hedge ineffectiveness of $23,000 on cash flow hedges was recognized in other income (expense) during 2002.
Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. The change in net unrealized gains/losses on cash flow hedges reflects a reclassification of $2.2 million of net unrealized gains/losses from accumulated other comprehensive income (loss) to interest expense during 2002. During 2003, we estimate that an additional $2.3 million will be reclassified to earnings from the current balance held in accumulated other comprehensive income (loss).
We may modify our borrowing policy and may increase or decrease our ratio of debt to total market capitalization. To the extent that our Board of Trustees determines to seek additional capital, we may raise such capital through additional equity offerings, debt financings, asset dispositions or retention of cash flow (subject to provisions in the Internal Revenue Code of 1986 requiring the distribution by a REIT of a certain percentage of taxable income and taking into account taxes that would be imposed on undistributed taxable income) or a combination of these methods.
Property Management
We are experienced in the management and leasing of multifamily, office and retail properties and believe that the management and leasing of our own portfolio has helped maintain consistent income growth and has resulted in reduced operating expenses from the properties. The third-party management, leasing and brokerage businesses conducted through the Management Corporation have provided us both with a source of cash flow that is relatively stable and with the benefits of economies of scale in conjunction with the management and leasing of our own properties. These businesses also allow us to establish additional relationships with tenants who may require additional office or retail space and to identify potential acquisitions.
Operational Structure
We manage our business with three separate and distinct operating divisions: multifamily, office and retail. We have centralized functions that are common to each division, including accounting, information technology, due diligence and administrative services. Decisions regarding acquisitions, developments and dispositions are also centralized. 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 us to utilize specialized management personnel for each operating division. Although these divisions operate independently from one another, constant communication among the Executive Vice Presidents provides us with unique synergies allowing us to take advantage of a variety of investment opportunities. In addition, the third-party management, leasing and brokerage businesses have provided us both with a source of cash flow that is relatively stable and with the benefits of economies of scale in conjunction with the management and leasing of our own properties. These businesses also allow us to establish additional relations with tenants that may require additional retail or office space and to identify potential acquisitions. See note 7 - Segment Reporting in our Notes to Consolidated Financial Statements within exhibit 13 for information on our three segments and the reconciliation of total segment revenues to total revenues, total segment net operating income to income from continuing operations and minority interest, and total divisional assets to total assets for the years ended December 31, 2002, 2001 and 2000. Additional information with respect to each of the operating divisions is set forth below:
Multifamily Division. Our multifamily division is responsible for all aspects of multifamily operations, including day-to-day management and leasing of the 41 multifamily properties, as well as the provision of third-party management services for apartment communities in which we do not have an ownership interest or have a non-controlling ownership interest.
Office Division. Our office division is responsible for all aspects of our commercial office operations, including the provision of management and leasing services for the 21 office properties, as well as the provision of third-party management services for office properties in which we do not have an ownership interest and for brokerage services in other office property transactions.
Retail Division. Our retail division is responsible for all aspects of our retail operations, including the provision of management and leasing services for the 44 retail properties, as well as the provision of third-party management services for retail properties in which we do not have an ownership interest and for brokerage services in other retail property transactions.
Competition
The ownership, development, operation and leasing of multifamily, office and retail properties are highly competitive. We compete with domestic and foreign financial institutions, other REITs, life insurance companies, pension trusts, trust funds, partnerships and individual investors for the acquisition of properties. In addition, we compete for tenants in our markets primarily on the basis of property location, rent charged, services provided and the design and condition of improvements. Our diversified business strategy of investing in multifamily, office and retail property types that are located in high-growth, demographically attractive cities in key Sunbelt states allows us to shift assets within our portfolio in order to take advantage of market timing and economic cycles, and to maximize investment returns.
Seasonality
Our multifamily properties and office properties generally are not affected by seasonality. However, the retail shopping center industry is seasonal in nature, with shopping center tenant sales peaking during the fourth quarter due to the holiday season. As a result, a substantial portion of the percentage rent at our retail properties is not recognized until the fourth quarter. Furthermore, most new lease-up occurs towards the later part of the year in anticipation of the holiday season and most vacancies occur toward the beginning of the year. In addition, the majority of the temporary tenants take occupancy in the fourth quarter. Accordingly, cash flow and occupancy levels are generally lowest in the first quarter and highest in the fourth quarter. This seasonality also impacts the quarter-by-quarter results of net operating income, although this impact is largely mitigated by recognizing minimum rent on a straight-line basis over the term of related leases in accordance with GAAP.
Environmental Matters
We believe that our properties are in compliance in all material respects with all federal, state and local ordinances and regulations regarding hazardous or toxic substances. We are not aware of any environmental condition which we believe would have a material adverse effect on our financial condition or results of operations (before consideration of any potential insurance coverage). Nevertheless, it is possible that there are material environmental liabilities of which we are unaware. Moreover, no assurances can be given that (i) future laws, ordinances or regulations will not impose any material environmental liability or (ii) the current environmental condition of our properties have not been or will not be affected by tenants and occupants of our properties, by the condition of properties in the vicinity of our properties or by third parties unrelated to us. See "Risk Factors--Risks Associated with Our Operations--We could incur significant costs related to environmental issues" for a further discussion.
Insurance
We carry comprehensive liability, fire, extended coverage and rental loss insurance on all of our properties. We believe the policy specifications and insured limits of these policies are adequate and appropriate. There are, however, certain types of losses, such as lease and other contract claims that generally are not insured. We anticipate that we will review our insurance coverage and policies from time to time to determine the appropriate level of coverage but we cannot predict at this time if we will be able to obtain or maintain full coverage at a reasonable cost in the future.
Employees
As of December 31, 2002, we employed approximately 950 persons, including on-site property employees who provide services for the Properties that we own and/or manage.
Tax Status
The Company, which is considered a corporation for federal income tax purposes, qualifies as a REIT and generally will not be subject to federal income tax to the extent it distributes its REIT taxable income to its shareholders. REITs are subject to a number of organizational and operational requirements. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates. We may be subject to certain state and local taxes on our income and property. Distributions to shareholders are partially taxable as ordinary income and unrecaptured section 1250 gains, and partially non-taxable as return of capital. During 2002 our distributions had the following characteristics:
In addition, our financial statements include the operations of a taxable REIT subsidiary, Colonial Properties Services, Inc. (CPSI), that is not entitled to a dividends paid deduction and is subject to federal, state and local income taxes. CPSI provides property management services for third-party owned properties and administrative services to us. We generally reimburse CPSI for payroll and other costs incurred in providing services to us. All inter-company transactions are eliminated in the accompanying consolidated financial statements. We recognized tax expense of $0.6 million in 2002 related to the taxable income of CPSI.
Available Information
Our website address is www.colonialprop.com and provides access in the "Investor Relations" section, free of charge, to our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to these reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission.
Executive Officers of the Company
The following is a biographical summary of our executive officers:
Thomas H. Lowder, 53, has been a trustee since 1993. He has served as our Chairman of the Board, President and Chief Executive Officer since July 1993. Mr. Lowder became president of Colonial Properties, Inc., our predecessor, in 1976, and since that time has been actively engaged in the acquisition, development, management, leasing and sale of multifamily, office and retail properties for Colonial Properties Trust. Mr. Lowder's most recent board appointment was his election to the National Association of Real Estate Investment Trust (NAREIT) Board in June 1999. He presently serves on the board of directors of Community Foundation of Greater Birmingham, United Way of Central Alabama, Children's Hospital, Birmingham Southern College, and Crippled Children's Foundation. Mr. Lowder is a member of the executive committee of the Board of Trustees. Mr. Lowder is the brother of James K. Lowder, one of our trustees.
C. Reynolds Thompson, III, 40, has been our Chief Operating Officer since September 1999, and is responsible for the Multifamily, Office, Retail and Mixed-Use divisions. Mr. Thompson oversees the management, acquisition, leasing and development of properties within its three operating divisions and development in the mixed-use division. Prior to his appointment as Chief Operating Officer, Mr. Thompson was Chief Investment Officer, responsible for investment strategies, market research, due diligence, mergers and acquisitions, joint venture development and cross-divisional acquisitions. Prior to his position as Chief Investment Officer, Thompson served as Executive Vice President--Office Division, with responsibility for management of all office properties owned and/or managed by us, from May 1997 to May 1998. Mr. Thompson joined us in February 1997 as Senior Vice President--Office Acquisitions, with responsibility for all acquisitions of office properties. Prior to joining Colonial Properties Trust, Thompson worked for CarrAmerica Realty Corporation in office building acquisitions and due diligence. His fourteen-year real estate background includes acquisitions, development, leasing, and management of office properties in the south. Mr. Thompson is a member of the Executive Committee of the Metropolitan Development Board, an active member of the National Association of Industrial and Office Parks, and he serves on the Board of Trustees for the Alabama Real Estate Research and Education Center. Thompson holds a Bachelor of Science Degree from Washington and Lee University.
Howard B. Nelson, Jr., 55, has been our Chief Financial Officer since May 1997 and is responsible for financing matters. Mr. Nelson was our Senior Vice President and Chief Operating Officer, with responsibility for the day-to-day management, from September 1993 to May 1997. He joined Colonial Properties in 1984 as Vice President and became Senior Vice President - Finance in 1987. Nelson presently serves on the Birmingham-Southern College Edward Lee Norton Board of Advisors for Management and Professional Education, the College of Business Advisory Council of Auburn University and the Business Council of Alabama's Progress PAC Board of Directors. Mr. Nelson has served in the past on the Accounting and Technology committee of the Real Estate Roundtable, as treasurer, vice president, president and board member of the Birmingham Chapter of the National Association of Industrial and Office Parks (NAIOP) and on the Board of Directors of the Children's Harbor Family Center. Mr. Nelson holds a Bachelor of Science Degree from Auburn University.
John P. Rigrish, 54, has been our Chief Administrative Officer since 1998, and is responsible for the supervision of Accounting Operations, Information Technology, Human Resources and Employee Services. Prior to joining the Company, Mr. Rigrish worked for BellSouth Corporation in Corporate Administration and Services. Mr. Rigrish holds a Bachelor of Science degree from Samford University and did his postgraduate study at Birmingham-Southern College. He served on the Edward Lee Norton Board of Advisors for Management and Professional Education at Birmingham-Southern College and the Board of Directors of Senior Citizens, Inc. in Nashville, Tennessee.
Paul F. Earle, 44, has been our Executive Vice-President-Multifamily Division since May 1997, and is responsible for management of all multifamily properties we own and/or manage. He joined us in 1991 and has served as Vice President - Acquisitions, as well as Senior Vice President - Multifamily Division. Mr. Earle serves as Chairman of the Alabama Multifamily Council and is an active member of the National Apartment Association. He also serves as President of the Board of Directors of Big Brother/Big Sisters and is a Board member of the National Multifamily Housing Council. Before joining Colonial, Mr. Earle was the President and Chief Operating Officer of American Residential Management, Inc., Executive Vice President of Great Atlantic Management, Inc. and Senior Vice President of Balcor Property Management, Inc.
Daryl K. Mangan, 59, has been our Executive Vice President - Retail Division since December 2001 and is responsible for all aspects of the company's retail portfolio. His thirty-year real estate background includes acquisitions, dispositions, development, leasing, and management of retail properties including his position as Executive Vice President at Equitable Real Estate Investment Management, Inc where he was responsible for the management of a $6 billion retail portfolio consisting of 75 regional malls and 40 other retail properties. Prior to joining us, Mr. Mangan worked for Cole National as Vice President responsible for new store development for their 2,200-store optical division. Mr. Mangan also worked for Safeco Properties, Inc. as Senior Vice President responsible for its' national shopping center portfolio and for Federated Department Stores, Inc as Senior Vice President responsible for all new store development for 15 retail divisions. Mr. Mangan is an active member of The International Council of Shopping Centers where he serves as chairman of the Design and Development Awards Program. Mr. Mangan holds a Bachelor of Arts Degree in Design and Industry as well as a Masters Degree in Business Administration from California State University at San Francisco.
John N. Hughey, 43, has been our Executive Vice President-Retail Development Division since December 2001 and is responsible for all retail development. He joined us in 1982 and assumed management responsibility for an increasing number of shopping centers until being named Senior Vice President - Retail Division in 1991 and was named Executive Vice President in May 1997. Mr. Hughey served as the Alabama/Mississippi State Operations Chairman for the International Council of Shopping Centers from 1993-1995. He holds a Bachelor of Science Degree from Auburn University.
Charles A. McGehee, 56, has been our Executive Vice President - Mixed-Use Development Division since September 1999 and is responsible for our development of properties with mixed-use product types. Mr. McGehee also oversees land acquisitions and dispositions. From September 1993 to September 1999 Mr. McGehee was responsible for Land Acquisitions and Development, Brokerage and Dispositions for us. From January 1990 to September 1993 Mr. McGehee was Senior Vice President - Office Division. He joined us in 1976 as Vice President of Retail Leasing and was responsible for leasing all retail space owned and/or managed. Mr. McGehee has served as president and as a board member of the National Association of Industrial and Office Parks (NAIOP) and is a member of the Board of Directors of the Birmingham Area Board of Realtors. Mr. McGehee is currently on the Board of Trustees for the Birmingham Chamber of Commerce. He holds a Bachelor of Science Degree from Auburn University.
Robert A. "Bo" Jackson, 48, has been our Executive Vice President-Office Division, and is responsible for management of all office properties we own and manage. Prior to joining us, Mr. Jackson worked for Beacon Properties as a Vice President responsible for leasing performance, new office development and acquisitions throughout the Southeast. He has been involved in over 10 million square feet of Atlanta urban and suburban office development. Mr. Jackson has received professional accolades from The Atlanta Board of Realtors, The Downtown Developers Group and The National Association of Industrial and Office Parks (NAIOP). Mr. Jackson is active member of NAIOP and an active member of the Urban Land Institute. He is also a member of the Board of Directors of the Greater North Fulton Chamber of Commerce. Mr. Jackson holds a Bachelor of Science Degree in Business Administration from the University of Delaware.
Kenneth E. Howell, 53, has been our Senior Vice President-Chief Accounting Officer since August 1998 and is responsible for the supervision of accounting for all of the properties we own and/or manage. Mr. Howell joined us in 1981, and served as Controller for us from 1986 through 1998. From 1981 to 1986 he held the position of Assistant Controller of the Colonial Company, parent company of the then private Colonial Properties, Inc. He serves on the Auburn University School of Accountancy Advisory Board. Mr. Howell holds a Bachelor of Science Degree in Accounting and a minor in Finance from Auburn University.
Risk Factors
Set forth below are the risks that we believe are material to investors who purchase or own our securities. You should consider carefully the following risks, together with the other information contained in and incorporated by reference in this Form 10-K, and the descriptions included in our consolidated financial statements and accompanying notes.
Risks Associated with Real Estate
We face risks associated with numerous national, regional and local economic conditions that are not in our control, any or all of which could adversely affect our properties and our business.
During the last two years, we have seen a dramatic slowdown in the U.S. economy, and the general business climate has been negatively impacted. The Sunbelt region has similarly experienced a slowdown in its economy. The industry slowdowns, higher unemployment rates, reduced demand for apartment homes and declines in household formations resulting from the economic slowdown, particularly in the Sunbelt region in which we operate, have adversely impacted, and may continue to impact, our business.
Although each of our three business segments has been adversely impacted by the decline in the economy, our multifamily properties, which rely on heavily on short-term leases, have been most affected. In addition to the general slowdown in the economy, the low interest rate environment which we have experienced also impacted our multifamily properties as more people consider buying their homes instead of renting. Any continuation or worsening of current economic conditions generally and in our principal market areas may continue to have a negative impact on our results of operation and financial condition.
As a real estate company, we face numerous risks in real estate conditions that could adversely affect our properties.
In addition to the economic risks that we face, as a real estate company, we are subject to various changes in the real estate conditions, any negative trends of which may adversely affect our properties and business. These conditions include:
o the existence and quality of the competition, such as the attractiveness of our property as compared to our competitors' properties based on considerations such as convenience of location, rental rates, amenities and safety record;
o increased operating costs, including increased real property taxes and utilities costs;
o oversupply of multifamily, office or retail space or a reduction in demand for real estate in the area; and
o changing trends in the demand by consumers for merchandise offered by retailers conducting business at our retail properties.
Moreover, other factors may affect us adversely, including changes in government regulations and other laws, rules and regulations governing real estate, zoning or taxes, changes in interest rate levels, the availability of financing and potential liability under environmental and other laws and other unforeseen events, most of which are discussed elsewhere in the following risk factors. Any or all of these factors could materially adversely affect our properties and our business.
Because real estate investments are illiquid, we may not be able to sell our properties in response to economic changes.
Real estate investments generally are relatively illiquid and as a result cannot be sold quickly in response to changes in the economy or other conditions when it may be prudent to do so. This inability to respond quickly to changes in the performance of our properties could adversely affect our business and ability to meet our debt obligations and distribute earnings to our stockholders.
We are subject to significant regulation that inhibits our activities.
Local zoning and use laws, environmental statutes and other governmental requirements restrict our development, expansion, rehabilitation and reconstruction activities. These regulations may prevent or delay us from taking advantage of economic opportunities. We cannot predict what requirements may be enacted and there can be no assurance that such enactment will not have a materially adverse impact on us.
Risks Associated with Our Operations
Our properties may not generate sufficient income to pay our expenses, and we may not be able to control our operating costs.
If our properties do not generate income sufficient to pay our expenses and maintain our properties, or if we do not adequately control our operating costs, we may not be able to pay our expenses, maintain our properties or service our debt. A number of factors may adversely affect our ability to generate sufficient income. These factors include:
o whether or not we can attract tenants at favorable rental rates, which will depend on several factors, including:
o local conditions such as an oversupply of, or reduction in demand for, multifamily, office or retail properties; o the attractiveness of our properties to residents, shoppers and tenants, and o decreases in market rental rates;
o our ability to collect rent from our tenants.
Factors that may adversely affect our operating costs include:
o the need to pay for insurance and other operating costs, including real estate taxes, which could increase over time;
o the need periodically to repair, renovate and re-lease space;
o the cost of compliance with governmental regulation, including zoning and tax laws;
o the potential for liability under applicable laws;
o interest rate levels; and
o the availability of financing.
Our expenses may remain constant even if our revenues decrease
The expense of owning and operating a property is not necessarily reduced when circumstances such as market factors and competition cause a reduction in income from the property. As a result, if revenues drop, we may not be able to reduce our expenses accordingly. Loan payments are an example of a cost that will not be reduced if our revenues decrease. If a property is mortgaged and we are unable to meet the mortgage payments, the lender could foreclose on the mortgage and take the property, resulting in a further reduction in revenues.
We may be unable to lease our new properties or renew leases or re-lease space at our existing properties as leases expire which may adversely affect our operating results.
The tenants at our office properties generally enter into leases with an initial term ranging from three to ten years and tenants at our retail properties generally enter into leases with an initial term ranging from one to ten years. As leases expire at our existing properties, tenants may elect not to renew them. Even if the tenants do renew or we can re-lease the space, the terms of renewal or re-leasing, including the cost of required renovations, may be less favorable than current lease terms. In addition, for new properties, we may be unable to attract enough tenants and the occupancy rates and rents may not be sufficient to make the property profitable. If we are unable to renew the leases or re-lease the space at our existing properties promptly or lease the space at our new properties, or if the rental rates upon renewal or re-leasing at existing properties are significantly lower than expected rates, our operating results will be negatively affected.
We face risks due to lack of geographic diversity.
While our properties are diversified in three different segments, all of our properties are located in the Sunbelt region of the United States. In particular, we derived an aggregate of approximately 46.9% of our net operating income in 2002 from properties located in or near three key cities: (a) Birmingham, Alabama, which accounted for 19.4% of our 2002 net operating income; (b) Orlando, Florida, which accounted for 16.9% of our 2002 net operating income; and (c) Huntsville/Decatur, Alabama, which accounted for 10.6% of our 2002 net operating income. If the Sunbelt region of the United States, and in particular the areas of or near Birmingham, Orlando and Huntsville/Decatur, experiences a slowdown in the economy or a natural disaster, our operating performance and our assets may be negatively affected.
We have been and may continue to be affected negatively by tenant bankruptcies and downturns in tenants' businesses, which may adversely affect our operating results and reduce our cash flow.
At any time, a tenant may experience a downturn in its business that may weaken its financial condition due to a slowing economy generally or a downturn in the retail sector. As a result, our tenants may delay lease commencement, cease or defer making rental payments or declare bankruptcy. If a tenant files for bankruptcy, the tenant may have the right to reject and terminate its lease and we cannot be sure that it will affirm its leases and continue to make rental payments in a timely manner. We also cannot be sure that we will be able to lease vacant space in our properties on economically favorable terms. During 2002, we were negatively impacted by the bankruptcy of Kmart Corporation, one of our retail tenants that had stores at five of our properties. As recently as the first quarter 2002, Kmart was our fourth largest retail tenant, based on its annual rent payments as a percentage of our total revenue of 0.6%. During 2002, Kmart closed three of the five stores at our properties. Recently, we were informed that Kmart will be closing one of its two remaining stores at our properties in the near term and we reasonably believe that Kmart will close its last store in the near future. Any other bankruptcy or financial difficulties of our tenants may negatively affect our operating results.
We are subject to risks associated with the property management, leasing and brokerage businesses.
In addition to the risks we face as a result of our ownership of real estate, we face risks relating to the property management, leasing and brokerage businesses of CPSI including risks that:
o management contracts or service agreements with third-party owners will be lost to competitors;
o contracts will not be renewed upon expiration or will not be renewed on terms consistent with current terms; and
o leasing and brokerage activity generally may decline.
Each of these developments could adversely affect our ability to pay our expenses, maintain our properties or service our debt.
We could incur significant costs related to environmental issues.
Federal, state and local laws and regulations relating to the protection of the environment, a current or previous owner or operator of real property, and parties that generate or transport hazardous substances that are disposed of on real property, may be liable for the costs of investigating and remediating hazardous substances on or under or released from the property and for damages to natural resources. The federal Comprehensive Environmental Response, Compensation & Liability Act, and similar state laws, impose liability on a joint and several basis, regardless of whether the owner, operator or other responsible party knew of or was at fault for the release or presence of hazardous substances. In connection with the ownership or operation of our properties, we could be liable for costs associated with investigation and remediation in the future. The costs of any required remediation and related liability as to any property could be substantial under these laws and could exceed the value of the property and/or our aggregate assets. The presence of hazardous substances, or the failure to properly remediate those substances, also may adversely affect our ability to sell or rent a property or to borrow funds using the property as collateral. In addition, environmental laws may impose restrictions on the manner in which we use our properties or operate our business, and these restrictions may require expenditures for compliance. We cannot assure you that a material environmental claim or compliance obligation will not arise in the future. The costs of defending against any claims of liability, of remediating a contaminated property, or of complying with future environmental requirements could be substantial and affect our operating results and financial conditions.
On December 29, 1998, we acquired Bel Air Mall in Mobile, Alabama. During the course of our environmental due diligence, we identified several different areas of the property in which contamination is present. One of those areas involves drycleaner solvent; the others involve petroleum contamination. The Alabama Department of Environmental Management (ADEM) is overseeing the investigation and cleanup of the drycleaner contamination. Under the terms of the purchase and sale agreement, the former owner of the property purchased a $10 million environmental insurance policy (including paying the $275,000 up front deductible) and established an escrow account totaling $1,000,000 to cover any costs associated with investigation and re-mediation of the contaminated areas not covered by the insurance policy. Under the agreement the seller will be performing all required remediation of the drycleaner contamination until a "no further action" status is obtained from ADEM. In addition, two locations, which contained petroleum contamination, have now received a "no further action" status from ADEM.
Uninsured losses could adversely affect our financial condition.
We carry comprehensive liability, fire, extended coverage and rental loss insurance on all of our properties. We believe the policy specifications and insured limits of these policies are adequate and appropriate. There are, however, certain types of losses, such as lease and other contract claims that generally are not insured. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenue from the property. In such an event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property, which could have a materially adverse effect on our financial conditions.
Competition for acquisitions could result in increased prices for properties.
We compete with other major real estate investors with significant capital for attractive investment opportunities in multifamily, office or retail properties. These competitors include publicly traded REITs, private REITs, investment banking firms, private institutional investment funds and national, regional and local real estate investors. This competition could increase the prices that we have to pay for multifamily, office or retail properties, in which case our projected return from investment in these properties will deteriorate.
We may be unable to successfully integrate and effectively manage the properties we acquire.
So long as we are able to obtain capital on commercially reasonable terms, we intend to continue to selectively acquire multifamily, office or retail properties that meet our criteria for investment opportunities, are consistent with our business strategies and we believe will be profitable or will enhance the value of our portfolio. The success of these acquisitions will depend, in part, on our ability to efficiently integrate the acquired properties into our organization, and apply our business, operating, administrative, financial and accounting strategies and controls to these acquired properties. If we are unable to successfully integrate the acquired properties into our operations, our results of operations and financial condition may be adversely affected.
We may not be able to achieve the anticipated financial and operating results from our acquisitions, which would adversely affect our operating results.
We will continue to acquire multifamily, office or retail properties only if they meet our criteria and we believe that that they will enhance our future financial performance and the value of our portfolio. Our belief, however, is based on and is subject to risks, uncertainties and other factors, many of which are forward-looking and are uncertain in nature or are beyond our control. In addition, some of these properties may have unknown characteristics or deficiencies or may not complement our portfolio of existing properties. As a result, some properties may be worth less or may generate less revenue than, or simply not perform as well as, we believed at the time of the acquisition, negatively affecting our operating results.
We may be unable to develop new properties or redevelop existing properties successfully.
To complement our acquisition strategy, we will continue to develop new properties or expand or redevelop existing properties as opportunities arise. However, there are significant risks associated with our development activities in addition to those generally associated with the ownership and operation of developed properties. These risks include the following:
o significant expenditure of money and time on projects that may be delayed or never be completed,
o higher than projected construction costs,
o lack of availability of debt or equity financing on acceptable terms,
o failure to meet anticipated occupancy or rent levels,
o failure to obtain zoning, occupancy or other governmental approvals,
o changes in applicable zoning and land use laws may require us to abandon projects prior to their completion, resulting in the loss of development costs incurred up to the time of abandonment, and
o late completion because of construction delays, delays in the receipt of zoning, occupancy and other approvals or other factors outside of our control.
Any one or more of these risks may hinder our acquisition strategy, which would negatively affect our overall business.
Risks Associated with Our Indebtedness and Financing
We have substantial indebtedness and we require significant cash flow to make required payments on our indebtedness.
We rely heavily on debt financing for our business. As of December 31, 2002, we had total debt of approximately $1.34 billion, including our pro rata share of joint venture debt. Due to our high level of debt our cash flow may be insufficient to meet required payments of principal and interest. If a property were mortgaged to secure payment of indebtedness and we were unable to meet mortgage payments, the mortgagee could foreclose upon that property, appoint a receiver and receive an assignment of rents and leases or pursue other remedies.
In addition, if principal payments due at maturity cannot be refinanced, extended or paid with proceeds of other capital transactions, such as new equity capital, our cash flow will not be sufficient in all years to repay all maturing debt.
We may be unable to repay our existing indebtedness as they mature which could adversely affect our financial condition.
Most of our indebtedness does not require significant principal payments prior to maturity. However, we will need to raise additional equity capital, obtain secured or unsecured debt financing, issue private or public debt, or sell some of our assets to either refinance or repay our indebtedness as it matures. We cannot assure you that these sources of financing or refinancing will be available to us at reasonable terms or at all. Our inability to obtain financing or refinancing to repay our maturing indebtedness, and our inability to refinance existing indebtedness on reasonable terms, may require us to make higher interest and principal payments, issue additional equity securities, or sell some of our assets on disadvantageous terms, all or any of which may result in foreclosure of properties, partial or complete loss on our investment and otherwise adversely affect our financial conditions and results of operation.
Our degree of leverage could limit our ability to obtain additional financing which would negatively impact our business.
As of December 31, 2002, our consolidated borrowings and pro rata share of unconsolidated borrowings totaled approximately $1.34 billion, which represented approximately 48.6% of our total market capitalization. Total market capitalization represents the sum of the outstanding indebtedness (including our share of joint venture indebtedness), the total liquidation preference of all our preferred shares and the total market value of our common shares and units of partnership interest of our operating partnership, based on the closing price of our common shares as of December 31, 2002. Our high leverage and any future increases in our leverage could adversely affect our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, development or other general corporate purposes which would negatively impact our business overall.
Due to the significant amount of our variable rate debt, rising interest rates would adversely affect our results of operation.
As of December 31, 2002, we had approximately $297.0 million of variable rate debt outstanding, including our pro rata share of variable rate unconsolidated joint venture debt. While we have sought to refinance our variable rate debt with fixed rate debt or cap our exposure to interest rate fluctuations by using interest rate swap agreements where appropriate, it is not possible for us to only have fixed rate debt. In addition, as opportunities arise, we may borrow additional money with variable interest rates in the future. As a result, a significant increase in interest rates would adversely affect our results of operations.
We have entered into debt agreements that impose a number of restrictive covenants that restrict our operating activities and violation of these restrictive covenants carries serious consequences.
Our credit facility contains customary numerous customary restrictions, requirements and other limitations on our ability to incur debt, including:
o debt to assets ratios;
o secured debt to total assets ratios;
o debt service coverage ratios; and
o minimum ratios of unencumbered assets to unsecured debt.
In addition, the indenture under which our senior unsecured debt is issued contains financial and operating covenants including coverage ratios. Our indenture also limits our ability to:
o incur secured and unsecured indebtedness;
o sell all or substantially all or our assets; and
o engage in mergers, consolidations and acquisitions.
These restrictions will continue to hinder our operational flexibility and violations of these covenants will have result in adverse consequences to us.
We depend on third party financing for our development, expansion or acquisition activities.
To qualify as a REIT, we must distribute to our shareholders each year at least 90% of our REIT taxable income, excluding any net capital gain. Because of these distribution requirements, it is not likely that we will be able to fund all future capital needs from income from operations. As a result, as we continue to develop or acquire new properties or expand existing properties, we will to rely on third-party sources of capital, including lines of credit, secured or unsecured debt (both construction financing and permanent debt), and equity issuances. These sources, however, may not be available on favorable terms or at all. Our access to third-party sources of capital depends on a number of factors, including the market's perception of our growth potential and our current and potential future earnings. Moreover, additional equity offerings may result in substantial dilution of our shareholders' interests, and additional debt financing may substantially increase our leverage. There can be no assurance that we will be able to obtain the financing necessary to fund new development or project expansions or our acquisition activities on terms favorable to us or at all. If we are unable to obtain sufficient level of third party financing to fund our growth, our business will be negatively impacted.
Our senior notes do not have an established trading market. As a result, you may not be able to sell your notes.
The senior notes are a new issue of securities with no established trading market. We do not intend to apply for listing of the notes on any national securities exchange. The underwriters have advised us that they intend to make a market in the notes, but they are not obligated to do so and may discontinue market making at any time without notice. We can give no assurance as to the liquidity of or any trading market for the notes.
Risks Associated with Our Organization
Some of our trustees and officers have conflicts of interest and could exercise influence in a manner inconsistent with our shareholders.
As a result of their substantial ownership of common shares and units, Messrs. Thomas Lowder, our Chairman of the Board, Chief Executive Officer and President, and James Lowder, Harold Ripps, Herbert Meisler, M. Miller Gorrie, and William Johnson, each of whom is our trustee, might seek to exert influence over our decisions as to sales or re-financings of particular properties we own. Any such exercise of influence might produce decisions that are not in the best interest of all of the holders of interests in us.
The Lowder family and their affiliates, holds interests in companies that have performed construction, management, insurance brokerage and other services with respect to our properties. These companies may perform similar services for us in the future. As a result, the Lowder family may realize benefits from transactions between such companies and us that are not realized by other holders of interests in us. In addition, Thomas and James Lowder, as our trustees, may be in a position to influence the Company to do business with companies in which the Lowder family has a financial interest. Our policies may not be successful in eliminating the influence of conflicts. Moreover, transactions with companies controlled by the Lowder family, if any, may not be on terms as favorable to us as we could obtain in an arms-length transaction with a third party.
Restrictions on the acquisition and change in control of the Company may have adverse affects on the value of our common shares.
Various provisions of our Declaration of Trust restrict the possibility for acquisition or change in control of us, even if the acquisition or change in control were in the shareholders' interest.
We may change our business policies in the future.
Our major policies, including our policies with respect to development, acquisitions, financing, growth, operations, debt capitalization and distributions, are determined by our Board of Trustees. Although it has no present intention to do so, our Board of Trustees may amend or revise these and other policies from time to time. A change in these policies could adversely affect our financial condition, results of operations or ability to service debt.
Risks Related to Our Capital Stock
Market interest rates and low trading volume may have an effect on the value of our shares.
The market price of shares of a REIT may be affected by the distribution rate on those shares, as a percentage of the price of the share s, relative to market interest rates. If market interest rates increase, prospective purchasers of our shares may expect a higher annual distribution rate. Higher interest rates would not, however, result in more funds for us to distribute and, in fact, would likely increase our borrowing costs and potentially decrease funds available for distribution. This could cause the market price of our common shares to go down. In addition, although our common shares are listed on the New York Stock Exchange, the daily trading volume of our shares may be lower than the trading volume for other industries. As a result, our investors who desire to liquidate substantial holdings may find that they are unable to dispose of their shares in the market without causing a substantial decline in the market value of the shares.
A large number of shares available for future sale could adversely affect the market price of our common shares.
The sales of a substantial number of common shares, or the perception that such sales could occur, could adversely affect prevailing market prices for shares. The Company may currently issue up to 10,470,841 common shares upon redemption of currently outstanding units. No prediction can be made about the effect that future sales of common shares will have on the market price of our common shares.
Our earnings and cash distributions will affect the market price of our common shares.
We believe that the market value of a REIT's equity securities is based primarily upon the market's perception of the REIT's growth potential and its current and potential future cash distributions, and is secondarily based upon the real estate market value of the underlying assets. For that reason, our shares may trade at prices that are higher or lower than the net asset value per share. To the extent we retain operating cash flow for investment purposes, working capital reserves or other purposes, these retained funds, while increasing the value of our underlying assets, may not correspondingly increase the market price of our common shares. In addition, we are subject to the risk that our cash flow will be insufficient to meet the required payments on our preferred shares and the Operating Partnership's preferred units. Our failure to meet the market's expectations with regard to future earnings and cash distributions would likely adversely affect the market price of our shares.
Risks Associated with Income Tax Laws
We intend to qualify as a REIT, but we cannot guarantee that we will qualify REIT.
We believe that we have qualified for taxation as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 1993. If we qualify as a REIT, we generally will not be subject to federal income tax on our income that we distribute to our shareholders. We plan to continue to meet the requirements for taxation as a REIT, but we may not qualify. Many of the REIT requirements are highly technical and complex. The determination that we are a REIT requires an analysis of various factual matters and circumstances that may not be totally within our control. For example, to qualify as a REIT, at least 95% of our gross income must come from sources that are itemized in the REIT tax laws. We generally are prohibited from owning more than 10% of the voting securities or more than 10% of the value of the outstanding securities of any one issuer, subject to certain exceptions, including an exception with respect to corporations electing to be "taxable REIT subsidiaries," and we are also required to distribute to shareholders at least 90% of our REIT taxable income, excluding capital gains. The fact that we hold most of our assets through the Operating Partnership further complicates the application of the REIT requirements. Even a technical or inadvertent mistake could jeopardize our REIT status. Furthermore, Congress and the Internal Revenue Service might make changes to the tax laws and regulations, and the courts might issue new rulings that make it more difficult, or impossible, for us to remain qualified as a REIT. We do not believe, however, that any pending or proposed tax law changes would jeopardize our REIT status.
If we failed to qualify as a REIT, we would be subject to federal income tax at regular corporate rates. Also, unless the Internal Revenue Service granted us relief under certain statutory provisions, we would remain disqualified as a REIT for the four years following the year we first failed to qualify. If we failed to qualify as a REIT, we would have to pay significant income taxes and would therefore have less money available for investments or for distributions to shareholders. This would likely have a significant adverse affect on the value of our common shares. In addition, we would no longer be required to make any distributions to shareholders, but we would still be required to distribute quarterly substantially all of our net cash revenues to our unitholders.
Proposed change in taxation of corporate dividends may adversely affect value of REIT stock.
The federal income tax laws governing REITs and other corporations or the administrative interpretations of those laws may be amended at any time. Any new laws or interpretations may take effect retroactively and could adversely affect us or you, as our shareholder. On January 7, 2003, the Bush Administration released a proposal intended to eliminate one level of the "double taxation" that is currently imposed on corporate income for regular C corporations by excluding corporate dividends from an individual's taxable income to the extent that corporate income tax has been paid on the earnings from which the dividends are paid. REITs currently are tax-advantaged relative to regular C corporations because they are not subject to corporate-level federal income tax on income that they distribute to shareholders, but shareholders do include REIT dividends in taxable income. The tax treatment of REITs generally would not be affected by the Bush Administration's proposal in its current form, except that a REIT that receives dividends from a C corporation that have been subject to corporate income tax could distribute or retain those amounts without a second tax being imposed on the REIT or its shareholders. The Bush Administration's proposal, if enacted, could cause individual investors to view stocks of regular C corporations as more attractive relative to stocks of REITs than is the case currently because part or all of the dividends on the stocks of the regular C corporation would be exempt from tax for the individual. It is not possible to predict whether in fact this change in relative perceived value will occur or whether, if it occurs, what the impact will be on the value of our common shares. In any event, there can be no assurance regarding whether the Bush Administration's proposal ultimately will be enacted or the form in which it might in fact be enacted.
Item 2.
Item 2. Properties.
General
As of December 31, 2002, our real estate portfolio consisted of 106 properties consisting of whole or partial ownership interests, located in nine states in the Sunbelt region of the United States. Additionally, we maintain non-controlling partial interests of 15% to 50% in 15 operating properties. The 106 properties we owned at December 31, 2002 consisted of the following:
Multifamily Properties
The 41 multifamily properties, contain a total of 14,556 garden-style apartments and range in size from 125 to 1,080 units. Eighteen multifamily properties (containing a total of 6,812 units) are located in Alabama, 12 multifamily properties (containing a total of 4,778 apartment units) are located in Florida, six multifamily properties (containing a total of 1,382 units) are located in Georgia, two multifamily property (containing a total of 498 units) are located in Mississippi, two multifamily properties (containing a total of 764 units) are located in South Carolina, and one multifamily property (containing 322 units) is located in Texas. Each of the multifamily properties is established in its local market and provides residents with numerous amenities, which may include a swimming pool, exercise room, jacuzzi, clubhouse, laundry room, tennis court(s), and/or a playground. All of the multifamily properties are managed us.
The following table sets forth certain additional information relating to the multifamily properties as of and for the year ended December 31, 2002.
The following table sets forth the total number of units, percent leased and average base rental rate per unit as of the end of each of the last five years for the multifamily properties:
Office Properties
The 21 office properties, contain a total of approximately 5.2 million rentable square feet. Fourteen of the office properties are located in Alabama (representing 49% of the office portfolio's net rentable square feet) , one is located in Atlanta, Georgia and six are located in Florida. The office properties range in size from approximately 30,000 square feet to 863,000 square feet. All of the office properties are managed us.
The following table sets forth certain additional information relating to the office properties as of and for the year ended December 31, 2002.
The following table sets out a schedule of the lease expirations for leases in place as of December 31, 2002, for the office properties (including all lease expirations for partially-owned properties).
The following sets forth the net rentable area, total percent leased and average base rent per leased square foot for each of the last five years for the office properties:
Retail Properties
The 44 retail properties contain a total of approximately 15.5 million square feet (including space owned by anchor tenants). Seventeen of the retail properties are located in Alabama, ten are located in Florida, seven are located in Georgia, six are located in North Carolina, one is located in South Carolina, one is located in Tennessee, one is located in Texas, and one is located in Virginia. The retail properties consist of 17 enclosed regional malls and 27 community shopping centers. All of the retail properties are managed by us.
The following table sets forth certain information relating to the retail properties as of and for the year ended December 31, 2002.
The following table sets out a schedule of the lease expirations for leases in place as of December 31, 2002, for the retail properties:
The following table sets forth the total gross retail area, percent leased and average base rent per leased square foot as of the end of each of the last five years for the retail properties:
Undeveloped Land
We own various parcels of land, which are held for future development (collectively, the "land"). Land adjacent to multifamily properties typically will be considered for potential development of another phase of an existing multifamily property if we determine that the particular market can absorb additional apartment units. For expansions at office and retail properties, we own parcels both contiguous to the boundaries of the properties, which would accommodate additional office buildings, expansion of the mall or shopping center, and outparcels which are suitable for restaurants, financial institutions, hotels, or free standing retailers.
Property Markets
The table below sets forth certain information with respect to the geographic concentration of the properties as of December 31, 2002.
We believe that the demographic and economic trends and conditions in the markets where the properties are located indicate a potential for continued growth in property net operating income. The properties are located in a variety of distinct submarkets within Alabama, Florida, Georgia, Mississippi, North Carolina, South Carolina, Tennessee, Texas and Virginia. However, Birmingham and Huntsville, Alabama, Orlando, Tampa and Sarasota/Bradenton, Florida, and Macon and Atlanta, Georgia, are our primary markets. We believe that our markets in these nine states, which are characterized by stable and increasing population and employment growth, should continue to provide a steady demand for multifamily, office, and retail properties.
Mortgage Financing
As of December 31, 2002, we had approximately $1.26 billion of secured and unsecured indebtedness outstanding with a weighted average interest rate of 5.89% and a weighted average maturity of 5.6 years. Of this amount, approximately $383.2 million was secured mortgage financing and $878.9 was unsecured debt. Our mortgaged indebtedness was secured by 24 of our consolidated properties and carried a weighted average interest rate of 5.7% and a weighted average maturity of 9.6 years. The following table sets forth our secured and unsecured indebtedness in more detail.
In addition, the properties in which we own partial interests (and which therefore are not consolidated in our financial statements) also are subject to existing mortgage indebtedness. Our pro-rata share of such indebtedness as of December 31, 2002 were as follows:
Item 3.
Item 3. Legal Proceedings.
Neither we nor the properties are presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against us or the properties, other than routine litigation arising in the ordinary course of business, which is expected to primarily be covered by liability insurance.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to our shareholders during the fourth quarter of 2002.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
The following sets forth the high and low sale prices for the common shares for each quarter in the two-year period ended December 31, 2002, as reported by the New York Stock Exchange Composite Tape, and the dividends paid by us with respect to each such period.
On February 28, 2003, the last reported sale price of the common shares on the NYSE was $32.02. On February 28, 2003, we had approximately 1,800 shareholders of record.
Item 6.
Item 6. Selected Financial Data.
The information required by this item is hereby incorporated by reference to the material appearing in the 2002 annual report to shareholders (the "Annual Report to Shareholders"), filed as Exhibit 13.1 hereto, under the caption "Selected Financial Information."
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The information required by this item is hereby incorporated by reference to the material appearing in the Annual Report to Shareholders, filed as Exhibit 13.1 hereto, under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations".
Item 7a.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to interest rate changes primarily as a result of its unsecured line of credit and long-term debt used to maintain liquidity and fund capital expenditures and expansion of our real estate investment portfolio and operations. Our interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve our objectives, we borrow primarily at fixed rates and may enter into derivative financial instruments such as interest rate swaps, caps and treasury locks in order to mitigate its interest rate risk on a related financial instrument. The Company does not enter into derivative or interest rate transactions for speculative purposes.
The table below presents the principal amounts, weighted average interest rates, fair values and other terms required by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes. Also included is a summary of our swap contracts and rate caps at December 31, 2002.
The table incorporates only those exposures that exist as of December 31, 2002; it does not consider those exposures or positions, which could arise after that date. Moreover, because firm commitments are not presented in the table above, the information presented therein has limited predictive value. As a result, our ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period, our hedging strategies at that time, and interest rates.
Item 8.
Item 8. Financial Statements and Supplementary Data.
Our financial statements are hereby incorporated by reference from the Consolidated Financial Statements of Colonial Properties Trust appearing in the Annual Report to Shareholders, filed as Exhibit 13.1 hereto.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
PART III
Item 10.
Item 10. Trustees and Executive Officers of the Registrant.
The information required by this item with respect to trustees and compliance with the Section 16(a) reporting requirements is hereby incorporated by reference from the material appearing in our definitive proxy statement for the annual meeting of shareholders to be held in 2003 (the "Proxy Statement") under the captions "Election of Trustees" and "Section 16(a) Beneficial Ownership Reporting Compliance." Information required by this item with respect to executive officers is provided in Item 1 of this report. See "Executive Officers of the Company."
Item 11.
Item 11. Executive Compensation.
The information required by this item is hereby incorporated by reference from the material appearing in the Proxy Statement under the caption "Executive Compensation."
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information pertaining to security ownership of certain beneficial owners and management required by this item is hereby incorporated by reference from the material appearing in the Proxy Statement under the caption "Voting Securities by Principal Shareholders and Management."
The following table summarizes information, as of December 31, 2002, relating to our equity compensation plans pursuant to which options to purchase our common shares and our restricted common shares may be granted from time to time.
Item 13.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is hereby incorporated by reference to the material appearing in the Proxy Statement under the captions "Executive Compensation Committee Interlocks and Insider Participation" and "Certain Relationships and Related Transactions."
Item 14.
Item 14. Controls and Procedures.
Within 90 days prior to the date of filing of this report, we carried out an evaluation, under the supervision and with the participation of our management and support from our external auditors, including the Chief Executive Officer and the Chief Financial Officer, of the design and operation of our disclosure controls and procedures. Based on this evaluation our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective for gathering, analyzing and disclosing the information we are required to disclose in the reports it files under the Securities Exchange Act of 1934, within the time periods specified in the Securities and Exchange Commission's rules and forms. There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date of this evaluation.
Part IV
Item 15.
Item 15. Exhibits, Financial Schedules, and Reports on Form 8-K.
15(a)(1) and (2) Financial Statements and Schedules
Index to Financial Statements and Financial Statement Schedule
Financial Statements:
The following financial statements of the Company are hereby incorporated by reference to the Consolidated Financial Statements of Colonial Properties Trust appearing in the Annual Report to Shareholders:
Consolidated Balance Sheets as of December 31, 2002 and 2001
Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2002, 2001, and 2000
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2002, 2001, and 2000
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001, and 2000
Notes to Consolidated Financial Statements
Report of Independent Accountants
Financial Statement Schedule:
Schedule III Real Estate and Accumulated Depreciation
Report of Independent Accountants
All other schedules have been omitted because the required information of such other schedules is not present in amounts sufficient to require submission of the schedule or because the required information is included in the consolidated financial statements.
15(a)(3) Exhibits
(1) 3.1 Declaration of Trust of Company. (1) 3.2 Bylaws of the Company. (12) 4.1 Articles Supplementary of 83/4% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest of the Company. (14) 4.2 Articles Supplementary of Series 1998 Junior Participating Preferred Shares of Beneficial Interest of the Company. (14) 4.3 Articles Supplementary of 8.875% Series B Cumulative Redeemable Perpetual Preferred Shares of the Company. (16) 4.4 Articles Supplementary of 9.25% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest of the Company. (7) 4.5 Indenture dated as of July 22, 1996, by and between Colonial Realty Limited Partnership and Bankers Trust Company, as amended (13) 4.5.1 First Supplemental Indenture dated as of December 31, 1998, by and between Colonial Realty Limited Partnership and Bankers Trust Company. (13) 4.6 Rights Agreement dated as of November 2, 1998 between Colonial Properties Trust and BankBoston, N.A. (14) 10.1 Third Amended and Restated Agreement of Limited Partnership of the Operating Partnership, as amended. (4) 10.2.1 Registration Rights and Lock-Up Agreement dated September 29, 1993, among the Company and the persons named therein. (3) 10.2.2 Registration Rights and Lock-Up Agreement dated March 25, 1997, among the Company and the persons named therein. (3) 10.2.3 Registration Rights and Lock-Up Agreement dated November 4, 1994, among the Company and the persons named therein. (3) 10.2.4 Registration Rights and Lock-Up Agreement dated August 20, 1997, among the Company and the persons named therein. (3) 10.2.5 Registration Rights and Lock-Up Agreement dated November 1, 1997, among the Company and the persons named therein. (3) 10.2.6 Registration Rights and Lock-Up Agreement dated July 1, 1997, among the Company and the persons named therein. (3) 10.2.7 Registration Rights and Lock-Up Agreement dated July 1, 1996, among the Company and the persons named therein. (13) 10.2.8 Registration Rights Agreement dated February 23, 1999, among the Company, Belcrest Realty Corporation, and Belair Real Estate Corporation. (13) 10.2.9 Registration Rights and Lock-Up Agreement dated July 1, 1998, among the Company and the persons named therein. (13) 10.2.10 Registration Rights and Lock-Up Agreement dated July 31, 1997, among the Company and the persons named therein. (13) 10.2.11 Registration Rights and Lock-Up Agreement dated November 18, 1998, among the Company and the persons named therein. (13) 10.2.12 Registration Rights and Lock-Up Agreement dated December 29, 1994, among the Company and the persons named therein. (15) 10.2.13 Registration Rights and Lock-Up Agreement dated April 30, 1999, among the Company and the persons named therein. (8) 10.3.1(5)Second Amended and Restated Employee Share Option and Restricted Share Plan. (9) 10.3.2(5)Non-employee Trustee Share Option Plan. (10) 10.3.3(5)Non-employee Trustee Share Plan. (11) 10.3.4(5)Employee Share Purchase Plan. (4) 10.4 (5) Non-employee Trustee Option Agreement. (4) 10.5 (5) Employment Agreement between the Company and Thomas H. Lowder. (4) 10.6 (5) Officers and Trustees Indemnification Agreement. (4) 10.7 Partnership Agreement of the Management Partnership (2) 10.8 Articles of Incorporation of the Management Corporation, as amended. (4) 10.9 Bylaws of the Management Corporation. (6) 10.10 Credit Agreement between the Colonial Realty Limited Partnership and SouthTrust Bank, National Association, AmSouth Bank, N.A., Wells Fargo Bank, National Association, Wachovia Bank, N.A., First National Bank of Commerce, N.A., and PNC Bank, Ohio, National Association dated July 10, 1997, as amended on July 10, 1997 and related promissory notes. (13) 10.11.1 Amendment to Credit Agreement dated July 10, 1998. (13) 10.11.2 Second Amendment to Credit Agreement dated August 21, 1998. (4) 10.12(5)Annual Incentive Plan. (14) 10.13 Executive Unit Purchase Program - Program Summary (14) 10.14 Form of Promissory Note (14) 10.15 Form of Reimbursement Agreement dated January 25, 2000 between Colonial Realty Limited Partnership and Employee Unit Purchase Plan participants 12.1 Ratio of Earnings to Fixed Charges 13.1 Portions of the Annual Report to Shareholders incorporated by reference in Part II of this Form 10-K 21.1 List of Subsidiaries 23.1 Consent of PricewaterhouseCoopers LLP 99.1 CEO and CFO Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - --------------------
(1) Incorporated by reference to the Company's Form 8-K dated November 5, 1997. (2) Incorporated by reference to the same titled and number exhibit in the Company's Annual Report on Form 10-K dated December 31, 1994. (3) Incorporated by reference to the same titled and number exhibit in the Company's Annual Report on Form 10-K dated December 31, 1997. (4) Incorporated by reference to the same titled and numbered exhibit in the Company's Registration Statement on Form S-11, No. 33-65954. (5) Management contract or compensatory plan required to be filed pursuant to Item 15(c) of Form 10-K. (6) Incorporated by reference to the same titled and number exhibit in the Company's Quarterly Report on Form 10-Q dated June 30, 1997. (7) Incorporated by reference to (i) Exhibit D to the Form 8-K dated July 19, 1996, filed by Colonial Realty Limited Partnership, and (ii) Exhibit B to the Form 8-K dated December 6, 1996, filed by Colonial Realty Limited Partnership. (8) Incorporated by reference to Exhibit 99.1 to the Company's Registration Statement on Form S-8, No. 333-60333. (9) Incorporated by reference to the Company's Registration Statement on Form S-8, No. 333-27203. (10) Incorporated by reference to the Company's Registration Statement on Form S-8, No. 333-27205. (11) Incorporated by reference to the Company's Registration Statement on Form S-8, No. 333-27201. (12) Incorporated by reference to the Company's Registration Statement Amendment No. 1 on Form S-3 dated November 20, 1997. (13) Incorporated by reference to the same titled and numbered exhibit in the Company's Annual Report on Form 10-K dated December 31, 1998. (14) Incorporated by reference to the same titled and numbered exhibit in the Company's Annual Report on Form 10-K dated December 31, 1999. (15) Incorporated by reference to the same titled and numbered exhibit in the Company's Annual Report on Form 10-K dated December 31, 2000. (16) Incorporated by reference to the Company's Form 8-K dated June 19, 2001.
15(b) Reports on Form 8-K
Reports on Form 8-K filed during the last quarter of 2002: None.
15(c) Exhibits
The list of Exhibits filed with this report is set forth in response to Item 15(a)(3).
15(d) Financial Statements
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 28, 2003.
Colonial Properties Trust
By:/s/Thomas H. Lowder ----------------------- Thomas H. Lowder Chairman of the Board, President, and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 28, 2003.
Signature
/s/Thomas H. Lowder Chairman of the Board, President, - --------------------------------------------------- and Chief Executive Officer Thomas H. Lowder
/s/Howard B. Nelson, Jr. Chief Financial Officer - --------------------------------------------------- Howard B. Nelson, Jr.
/s/Kenneth E. Howell Senior Vice President-Chief - --------------------------------------------------- Accounting Officer Kenneth E. Howell
/s/Carl F. Bailey Trustee - --------------------------------------------------- Carl F. Bailey
/s/M. Miller Gorrie Trustee - --------------------------------------------------- M. Miller Gorrie
/s/William M. Johnson Trustee - --------------------------------------------------- William M. Johnson
/s/James K. Lowder Trustee - --------------------------------------------------- James K. Lowder
/s/Herbert A. Meisler Trustee - --------------------------------------------------- Herbert A. Meisler
/s/Clause B. Nielsen Trustee - --------------------------------------------------- Claude B. Nielsen
/s/Harold W. Ripps Trustee - --------------------------------------------------- Harold W. Ripps
/s/Donald T. Senterfitt Trustee - --------------------------------------------------- Donald T. Senterfitt
CERTIFICATIONS UNDER SECTION 302 OF THE SARBANES-OXLEY ACT
CERTIFICATION
I, Thomas H. Lowder, certify that:
1. I have reviewed this annual report of Colonial Properties Trust;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 28, 2003
/s/ Thomas H. Lowder - ------------------ Thomas H. Lowder Chief Executive Officer
CERTIFICATIONS UNDER SECTION 302 OF THE SARBANES-OXLEY ACT
CERTIFICATION
I, Howard B. Nelson Jr., certify that:
1. I have reviewed this annual report of Colonial Properties Trust;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 28, 2003
/s/ Howard B. Nelson Jr. - ------------------------ Howard B. Nelson Jr. Chief Financial Officer
Report of Independent Accountants on Financial Statement Schedules
To the Board of Trustees of Colonial Properties Trust
Our audits of the consolidated financial statements referred to in our report dated January 17, 2003, except for Note 18, as to which the date is February 28, 2003 appearing in the 2002 Annual Report to Shareholders of Colonial Properties Trust (which report and consolidated financial statements are incorporated by reference in this Annual Report of Form 10-K) also included an audit of the financial statement schedules listed in Item 15(a)(2) of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP Birmingham, Alabama January 17, 2003