Item 1. Business.
As used herein, the terms "CRLP" and "Operating Partnership" include Colonial Realty Limited Partnership, a Delaware limited partnership, and its subsidiary and other affiliates (including Colonial Properties Services Limited Partnership) or, as the context may require, Colonial Realty Limited Partnership only. As used herein, the term "Company" includes Colonial Properties Trust, an Alabama real estate investment trust, and one or more if its subsidiaries and other affiliates (including Colonial Properties Holding Company, Inc., CRLP, Colonial Properties Services Limited Partnership and Colonial Properties Services, Inc.) or, as the context may require, Colonial Properties Trust only.
CRLP is the Operating Partnership of the Company, which is one of the largest owners, developers and operators of multifamily, retail and office properties in the southeastern United States. It is a fully-integrated real estate company, whose activities include ownership of a diversified portfolio of 73 properties located in Alabama, Florida, Georgia, and South Carolina, 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. CRLP currently owns 42 multifamily apartment communities containing a total of 13,617 apartment units (the "Multifamily Properties"), 21 retail properties containing a total of approximately 5.6 million square feet of retail space (the "Retail Properties"), 10 office properties containing a total of approximately 1.0 million square feet of office space (the "Office Properties"), and certain parcels of land adjacent to 5 of these properties (the "Land"). (The Multifamily Properties, the Retail Properties, the Office Properties and the Land are referred to collectively as the "Properties"). As of December 31, 1996, the Multifamily Properties that had achieved stabilized occupancy, the Retail Properties, and the Office Properties were 94.8%, 93.8% and 97.4% leased, respectively.
CRLP's executive offices are located at 2101 Sixth Avenue North, Suite 750, Birmingham, Alabama, 35203 and its telephone number is (205) 250-8700. CRLP was formed in Delaware on August 6, 1993.
Formation of the Company
The Operating Partnership was formed to succeed to substantially all of the interests of Colonial Properties, Inc., an Alabama corporation ("Colonial"), its affiliates and certain others in a diversified portfolio of multifamily, retail, and office properties located in Alabama, Florida, and Georgia and to the development, acquisition, management, leasing, and brokerage businesses of Colonial.
On September 29, 1993, (i) the Company consummated an initial public offering (the "IPO") of 8,480,000 of its common shares of beneficial interest, $.01 par value per share ("Common Shares"), (ii) the Operating Partnership assumed ownership of 36 Properties (or interests therein) held by Thomas H. Lowder, James K. Lowder, Robert E. Lowder, and their mother, Catherine Lowder (the "Lowder family"), and third-party partners of the Lowder family, and the operating businesses of Colonial, (iii) the Company transferred the net proceeds from the IPO through Colonial Properties Holding Company, Inc. to the Operating Partnership, in exchange for 8,480,000 units of limited partnership interest in the Operating Partnership ("Units"), (iv) the Operating Partnership repaid approximately $150.2 million of indebtedness and prepayment penalties associated therewith secured by certain of the Properties, and (v) the Operating Partnership established a $35.0 million line of credit with SouthTrust Bank, which has since been increased to $125.0 million, to fund development activities and property acquisitions and for general corporate purposes (collectively, the "Formation Transactions"). On October 28, 1993, the underwriters of the IPO exercised an over-allotment option to purchase an additional 686,200 shares.
Recent Developments
Since the Company's IPO, CRLP has significantly expanded its portfolio of Properties and its operating businesses. Acquisitions by CRLP of new properties represent a total investment of $573.1 million. CRLP has also completed the expansion of four multifamily properties since the IPO, adding a total of 728 units to the multifamily portfolio. CRLP currently has seven active expansion and development projects in progress for Multifamily Properties (including additional phases of two existing Multifamily Properties) and major expansions of the CRLP's Macon Mall and Montgomery Promenade Retail Properties.
The following is a summary of CRLP's acquisition and development activity in 1996.
Acquisition Activity
CRLP acquired three retail shopping centers in central Florida and one regional mall in South Carolina containing approximately 1.1 million leasable square feet for a total purchase price of approximately $90.0 million. CRLP spent $4.3 million to acquire tenant-owned space and underlying land at an existing retail center.
CRLP also acquired five multifamily properties in Alabama and two multifamily properties in Georgia containing 1,505 units for a total purchase price of approximately $79.0 million.
Development Activity
During 1996 CRLP constructed 873 new apartment units in six multifamily communities (three of which were completed during the year) and acquired land on which it intends to develop two additional multifamily communities during 1997. The aggregate cost of this multifamily development activity was $68.2 million. As of December 31, 1996, CRLP has 1,216 apartment units in six multifamily communities under development and expansion. Management anticipates that two of the multifamily projects will be completed during the first half of 1997 and three others will be completed during the second half of the year. The remaining multifamily project will be completed during the first half of 1998. Management expects to invest approximately $31.8 million over these periods to complete these projects.
During 1996 CRLP also continued the 422,000 square foot expansion of its regional mall in Macon, Georgia and began a 225,000 square foot expansion of a community shopping center in Montgomery, Alabama. The aggregate cost of this retail development activity was $31.6 million. The Macon Mall expansion was completed and opened during February 1997, and management anticipates completing its Montgomery project during the last half of 1997. Management expects to invest approximately $19.8 million during 1997 to complete these projects.
The table below provides an overview of CRLP's acquisition and development activity during 1996:
Multifamily Property Acquisitions
Spring Creek Apartments--On April 1, 1996, CRLP acquired Spring Creek Apartments, a 296-unit luxury multifamily community in Macon, Georgia at a purchase price of $14.4 million which was financed through an advance on CRLP's unsecured line of credit. Spring Creek was constructed in two phases completed in 1992 and 1994. The development consists of 33 two-story buildings and a separate clubhouse on approximately 27 acres of land. Amenities include two swimming pools, a fitness center, and racquetball and tennis courts.
Crowne Chase Apartments--On April 15, 1996, CRLP acquired Crowne Chase Apartments, a 244-unit luxury multifamily community in Birmingham, Alabama. Crowne Chase was acquired for a purchase price of $13.7 million which was financed through an advance on CRLP's unsecured line of credit. The development, which was constructed in 1994, consists of 16 two-story buildings and a separate clubhouse on approximately 20.3 acres. Amenities include a fitness center, a swimming pool with sauna, lighted tennis courts, and breathtaking landscaping and waterscaping.
Crowne Point Apartments--On May 10, 1996, CRLP acquired Crowne Point Apartments, a 392-unit complex comprising 26 two-story buildings in a suburb of Birmingham, Alabama. The buildings were constructed in two phases in 1987 and 1991. Crowne Point was acquired for a purchase price of $23.1 million which was financed through the assumption of a mortgage with a balance of $12.4 million, which bears interest at 8.0%, and an advance on CRLP's unsecured line of credit. Crowne Point's amenities include a recreational building, two swimming pools, a clubhouse with an exercise room, and lighted tennis courts.
Pointe West Apartments and Ashford Place Apartments--On April 1, 1996, CRLP acquired Pointe West Apartments in Mobile, Alabama. Pointe West was completed in 1981 and consists of 104 units in 14 two-story buildings with a separate clubhouse on approximately 7.6 acres of land.
Also on April 1, 1996, CRLP acquired Ashford Place Apartments in Mobile, Alabama. Ashford Place was completed in 1983 and consists of 168 units in 11 two-story buildings with a separate clubhouse on approximately 8.8 acres of land.
Both properties offer a swimming pool, exercise room, a fireplace in each unit, and controlled access parking. Pointe West also offers covered parking to its residents. The combined purchase price of approximately $11.1 million for Ashford Place and Pointe West was paid through the issuance of 182,804 limited partnership units at $24.00 per unit, the assumption of approximately $6.4 million of indebtedness at an interest rate of 7.125%, and payment of other acquisition costs estimated at approximately $330,000.
Crowne Ridge Apartments--On May 10, 1996, CRLP acquired Crowne Ridge Apartments, located in a suburb of Birmingham, Alabama. Crowne Ridge consists of 125 units in eight two-story buildings which were built in 1992. The purchase price of $7.2 million was financed through CRLP's assumption of a mortgage with a balance of $3.8 million which bears interest at 8.06% and through an advance on CRLP's line of credit. Crowne Ridge's amenities include a clubhouse with an exercise room, a swimming pool, and extensive landscaping.
Barrington Club Apartments--On September 13, 1996, CRLP acquired Barrington Club Apartments, a 176-unit luxury multifamily community in Macon, Georgia. Barrington Club was acquired for a purchase price of $9.5 million which was financed through an advance on CRLP's unsecured line of credit. The development, which was completed earlier this year, consists of eight two- and three-story buildings and a separate clubhouse on approximately 14 acres of land. Amenities include a swimming pool, a fitness center, tennis courts, and a playground. The property is located in the Barrington Hall, a 650-acre Planned Unit Development, which includes a golf club with an 18-hole course, estate homes, and single family homes. Residents of Barrington Club Apartments have golf privileges at the club.
CRLP intends to continue to pursue acquisitions in the southeastern United States that meet CRLP's acquisition criteria for property quality, market strength and investment return.
Completed Multifamily Expansions
McGehee Place V Apartments--CRLP completed the 16-unit expansion of McGehee Place Apartments in Montgomery, Alabama in May 1996 at a total cost of $0.8 million, including land acquisition costs funded through advances under CRLP's line of credit. CRLP expects to complete lease-up of this completed expansion during the first quarter of 1997. Colonial Grand at Galleria--CRLP completed the 160-unit expansion of Colonial Grand at Galleria located in Birmingham, Alabama in October 1996 at a total cost of $8.7 million including land acquisition costs funded through advances under CRLP's line of credit. CRLP expects to complete lease-up of this completed expansion during the second quarter of 1997.
Inverness Lakes Apartments--CRLP completed the 180-unit expansion of Inverness Lakes Apartments located in Mobile, Alabama in September 1996 at a total cost of $9.5 million including land acquisition costs, which were funded through advances under CRLP's line of credit. CRLP expects to complete lease-up of this completed expansion during the first quarter of 1997.
Continuing Multifamily Expansion and Development Activity
Riverchase III--CRLP continued construction on a 276-unit expansion of Riverchase III Apartments located in Tampa, Florida. The community amenities will include a clubhouse, a swimming pool, an exercise center, an air conditioned racquetball court, tennis courts, and laundry facilities. Project development costs, including land acquisition costs, are expected to total $14.9 million and will be funded through advances on CRLP's line of credit. CRLP expects to complete construction in the first quarter of 1997 and to complete lease-up during the second quarter of 1998.
Colonial Grand at Bayshore--CRLP continued construction on a 212-unit development located in Bradenton, Florida. The new community will offer a variety of amenities, including a club house, an exercise center, a swimming pool overlooking a five-acre lake, tennis and basketball courts, a children's playground, tenant garages, and storage units. Project costs, including land acquisition costs, are expected to total $11.6 million and will be funded through advances on CRLP's line of credit. CRLP expects to complete construction in the second quarter of 1997 and to complete lease-up during the third quarter of 1997.
Colonial Grand at Heathrow--CRLP continued construction on a 312-unit development located in Heathrow (Orlando), Florida. CRLP acquired the land (30 acres) in December 1994 at a cost of $2.2 million. The new development will be located adjacent to Heathrow International Business Center and Heathrow Country Club. The new apartment community will offer a variety of amenities, including a clubhouse with conference and computer rooms, an exercise center, tennis and basketball courts, a swimming pool, and laundry facilities. Project development costs, including land acquisition costs, are expected to total $20.4 million and will be funded through advances on CRLP's line of credit. CRLP expects to complete construction in the first quarter of 1997 and to complete lease-up during the second quarter of 1997.
New Multifamily Expansion and Development Activity
Colonial Village at Inverness--CRLP began construction on an 84-unit expansion of Colonial Village at Inverness located in Birmingham, Alabama during the third quarter of 1996. Project development costs, including land acquisition costs, are expected to total $4.1 million and will be funded through advances on CRLP's line of credit. CRLP expects to complete construction in the fourth quarter of 1997 and to complete lease-up during the first quarter of 1998.
Colonial Grand at Bayshore II--CRLP began construction on a 164-unit expansion to this development located in Bradenton, Florida. CRLP acquired the land (12.5 acres) at a cost of $1.0 million pursuant to an option acquired at the time CRLP purchased the land for the existing Colonial Grand at Bayshore development in November 1995. This expansion phase will offer the same amenities as the existing community. Project development costs, including land acquisition costs, are expected to total $9.1 million and will be funded through advances on CRLP's line of credit. CRLP expects to complete construction in the fourth quarter of 1997 and to complete lease-up during the second quarter of 1998.
Colonial Grand at Wesleyan--CRLP began construction on a 240-unit development located in Macon, Georgia. CRLP acquired the land (49.8 acres) at a cost of $1.4 million, which was determined pursuant to an option acquired at the time of the Company's IPO in September 1993. The new community will offer a variety of amenities, including a clubhouse, an exercise center, a swimming pool, tennis courts, and storage units for rent. Project development costs, including land acquisition costs, are expected to total $12.8 million and will be funded through advances on CRLP's line of credit. CRLP expects to complete construction in the fourth quarter of 1997 and to complete lease-up during the second quarter of 1998.
Colonial Grand at Hunter's Creek--CRLP began construction on a 496-unit development located in Orlando, Florida. CRLP acquired the land (36 acres) at a cost of $4.0 million. The new apartment community will offer a variety of amenities, including a swimming pool and spa, an exercise room, enclosed garages, tennis courts, and a car wash. Project development costs, including land acquisition costs, are expected to total $33.0 million and will be funded through advances on CRLP's line of credit. CRLP expects to complete construction in the second quarter of 1998 and to complete lease-up during the first quarter of 1999.
Retail Property Acquisitions
Briarcliffe Mall--On July 1, 1996, CRLP acquired Briarcliffe Mall, a 488,000 square foot regional mall in Myrtle Beach, South Carolina, for a purchase price of $42.8 million. The mall includes a 50,745 square foot J.C. Penney, an 84,000 square foot K-Mart, and two Belk's stores, one having 58,000 square feet and the other having 61,000 square feet under a ground lease. The mall was constructed in 1986 and was 96% leased at December 31, 1996. The acquisition includes approximately 9 acres of land adjacent to the mall property which is available for expansion. CRLP used proceeds from its July 1996 debt offering to fund $41.6 million of the acquisition price and issued 48,905 limited partnership units valued at $1.2 million. The units have been allocated to the expansion land portion of the acquisition and as such will not be eligible to receive distributions for 24 months after closing.
Wekiva River Walk--On October 1, 1996, CRLP acquired Wekiva River Walk Shopping Center, a 209,000 square foot shopping center in Orlando, Florida, for a purchase price of $18.1 million. The center includes a 58,000 square foot Goodings Supermarket, a 36,000 square foot Beall's Department Store, a 26,000 square foot United Artists Cinema, and ground leases for NationsBank and Barnett Bank. The center includes approximately 34,000 square feet of vacant in-line shop space the Company anticipates using to enhance the center's performance. The center was built in 1990 and was 84% leased at December 31, 1996.
Bardmoor Village--On October 1, 1996, CRLP acquired Bardmoor Village Shopping Center, a 158,000 square foot shopping center in St. Petersburg, Florida, for a purchase price of $11.9 million. The center includes a 66,000 square foot Publix Super Market, a 36,000 square foot Craft Depot, a 10,000 square foot Eckerd Drug Store, and a ground lease for First Union Bank. The center was built in 1981, renovated and expanded in 1991, and was 99% leased at December 31, 1996.
Island Walk--On October 1, 1996, CRLP also acquired Island Walk Shopping Center, a 222,000 square foot shopping center in Orlando, Florida, for a purchase price of $17.2 million. The center includes a 108,000 square foot K-mart and a 56,000 square foot Publix Super Market. The center was built in two phases with the first phase completed in 1993 and the second phase in 1995. The center was 95% leased at December 31, 1996. In the acquisition of this property CRLP assumed an existing mortgage of $10.4 million that matures in October 2001 and bears an interest rate of 8.8%.
Retail Expansion Activity
Macon Mall--On February 12, 1997, CRLP completed its 422,000 square foot expansion of Macon Mall, a super regional mall located in Macon, Georgia. The mall expansion will include new anchor tenants Parisian, Inc. and Dillard Department Stores, Inc. together with 50 specialty shops, which have joined existing department stores including Macy's Primary Real Estate, Inc., Belk-Matthews Company of Macon, Georgia, a Georgia Corporation, Sears, Roebuck and Company and J.C. Penney Company, Inc. Macon Mall now contains approximately 1,431,000 square feet of retail shopping space. The project expansion costs totaled approximately $52 million and were funded through advances on CRLP's line of credit. CRLP expects to complete lease-up of this expansion during the first quarter of 1998. Montgomery Promenade--CRLP began the 225,000 square foot expansion of Montgomery Promenade, a power center containing approximately 210,000 square feet located in Montgomery, Alabama. The expansion, which will be known as Montgomery Promenade North, will increase the shopping center to 435,000 square feet of leasable area and will include a 130,000 square foot tenant-owned Home Depot. Montgomery Promenade is anchored by Winn Dixie Market Place, Stein Mart, Michael's Arts & Crafts, Goody's, Books-A-Million, and K & B Drugs. Project expansion costs are expected to total approximately $7 million and will be funded through advances on CRLP's line of credit. CRLP expects to complete construction in the fourth quarter of 1997 and to complete lease-up during the first quarter of 1998.
Financing Activity
In January 1996 the Company completed a public offering of 4.6 million Common Shares at a price of $24.625 per share. The $106.6 million proceeds of this offering, net of offering costs of $6.6 million, were used to fund acquisition and development activity, repay the balances outstanding under CRLP's revolving credit agreements, and to repay the $8.2 million balance outstanding under a mortgage loan.
In July 1996 CRLP completed a public issuance of senior, unsecured debt securities totaling $130.0 million. The securities were issued in two series of $65 million each requiring semi-annual payments of interest only. One series, which matures in July 2001, bears interest at 7.50% and was priced at a spread of 95 basis points over the five-year treasury bond rate, resulting in an original issue discount of $145,383. The other series, which matures in July 2006, bears interest at 8.05% and was priced at a spread of 128 basis points over the ten-year treasury bond rate, resulting in an original issue discount of $288,410.
In July 1996 the Company refinanced loans collateralized by five of the Company's multifamily properties and representing a total of approximately $53.0 million in outstanding indebtedness. The loans are financed through tax-exempt bonds which are credit enhanced by Fannie Mae. The loans, which bear interest at a weekly variable interest rate, require monthly interest payments through June 2006 and principal and interest payments from July 2006 through June 2026. The weighted average interest rate of these five loans was 3.42% at December 31, 1996.
In December 1996 CRLP completed a public issuance of unsecured medium-term debt securities totaling $50.0 million. The securities mature in December 2003 and bear interest at 7.05% which, at the time of issuance, equated to a spread of 90 basis points over the seven-year treasury bond rate.
In January 1997 CRLP completed an additional issuance of unsecured medium-term debt securities also totaling $50.0 million. These securities mature in January 2003 and bear interst at 7.16% which, at the time of issuance, equated to a spread of 80 basis points over the six-year treasury bond rate.
In January 1997 the Company completed a public offering of 1.5 million Common Shares at a price of $29.875 per share. The $43.4 million proceeds of this offering, net of offering costs of $1.4 million, were used to fund acquisition and development activity, repay the balances outstanding under CRLP's revolving credit agreement, and to repay $24.5 million outstanding under four mortgage loans.
Business Strategy
The general business strategy of the Company and CRLP is to generate stable and increasing cash flow and portfolio value for its shareholders. The Company and CRLP (and their predecessor) have implemented this strategy principally by (i) realizing growth in income from their existing portfolio of properties, (ii) developing, expanding, and selectively acquiring additional multifamily, retail, and office properties in growth markets located in the southeastern United States, where CRLP has first-hand knowledge of growth patterns and local economic conditions, (iii) managing their own properties, which has enabled them to better control operating expenses and establish long-term relationships with their retail and office tenants, (iv) maintaining the Company's third-party property management business, which has increased cash flow and established additional relationships with tenants, and (v) employing a comprehensive capital maintenance program to maintain properties in first-class condition. CRLP's business strategy and the implementation of that strategy are determined by CRLP's partners and may be changed from time to time.
Financing Strategy
CRLP intends to maintain a ratio of debt to total market capitalization (i.e., the total debt divided by the market value of issued Units plus total debt) of approximately 50% or less. At December 31, 1996, after considering the effect of the January 1997 debt offering and the Company's equity offering, CRLP's total debt included fixed-rate debt of $426.7 million, or 86.9%, and floating-rate debt of $64.5 million, or 13.1%. CRLP has obtained interest rate protection for $17.8 million of the floating-rate debt.
CRLP may from time to time reevaluate its borrowing policies in light of then current economic conditions, relative costs of debt and equity capital, market values of properties, growth and acquisition opportunities and other factors. CRLP may modify its borrowing policy and may increase or decrease its ratio of debt to total market capitalization. To the extent that the partners of CRLP determine to seek additional capital, CRLP may raise such capital through additional equity offerings by the Company, debt financings, or retention of cash flow (subject to provisions in the Code 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
CRLP is experienced in the management and leasing of multifamily, retail, and office properties and believes that the management and leasing of its own portfolio has helped the Properties maintain consistent income growth and has resulted in reduced operating expenses from the Properties. This also allows CRLP to establish additional relationships with tenants who may require additional retail or office space and to identify potential acquisitions.
Operational Structure
Multifamily Division--The multifamily division of CRLP is responsible for all aspects of CRLP's multifamily operations, including day-to-day management and leasing of the 42 Multifamily Properties, as well as development and acquisition of additional multifamily properties. The multifamily division also is responsible for the provision of third-party management services for apartment communities in which CRLP does not have an ownership interest.
Retail Division--CRLP's retail division is responsible for all aspects of CRLP's retail operations, including the provision of management and leasing services for the 21 Retail Properties, as well as the development and acquisition of additional retail properties. The retail division also is responsible for the provision of third-party management services for retail properties in which CRLP does not have an ownership interest and for brokerage services in other retail property transactions. The retail division has regional offices in Huntsville and Montgomery, Alabama and Orlando, Florida and satellite leasing offices in two cities in central Florida.
Office Division--CRLP's office division is responsible for all aspects of CRLP's commercial office operations, including the provision of management and leasing services for the 10 Office Properties, as well as the development and acquisition of additional office properties. The office division also is responsible for the provision of third-party management services for office properties in which CRLP does not have an ownership interest and for brokerage services in other office property transactions.
Employees
CRLP employs approximately 560 persons, including on-site property employees who provide services for the Properties that CRLP owns and/or manages.
Tax Status
CRLP has no provision for income taxes since all taxable income or loss or tax credits are passed through to the partners. The Company has made an election to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with its taxable year ending December 31, 1993. If the Company qualifies for taxation as a REIT, the Company generally will not be subject to Federal income tax to the extent it distributes at least 95% of its REIT taxable income to its shareholders. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property and to federal income and excise taxes on its undistributed income.
Item 2.
Item 2. Properties.
General
The 73 Properties consist of 42 Multifamily Properties, 21 Retail Properties, and 10 Office Properties, as described in more detail below. Thirty-five of the Properties were acquired in connection with the Formation Transactions, 19 Properties and one additional phase of an existing Property were acquired during 1994, six Properties were acquired during 1995, and 11 Properties were acquired in 1996. Also, two new multifamily communities are currently being developed by CRLP.
Multifamily Properties
The 42 Multifamily Properties contain a total of 13,617 garden-style apartments and range in size from 104 to 1,080 apartment units. Sixteen of the Multifamily Properties were acquired by CRLP in connection with the Formation Transactions, 17 Properties and one additional phase of an existing Property were acquired during 1994 from third parties, and seven Properties were acquired during 1996. Also, two new communities were being developed by CRLP during 1996. Twenty-three Multifamily Properties (containing a total of 8,621 apartment units) are located in Alabama, 13 Multifamily Properties (containing a total of 3,846 apartment units) are located in Florida and six Multifamily Properties (containing a total of 1,150 apartments units) are located in Georgia. Each of the Multifamily Properties is established in its local market and provides residents with numerous amenities, including a swimming pool, jacuzzi, clubhouse, laundry room, tennis court(s), and/or a playground.
The following table sets forth certain additional information relating to the Multifamily Properties as of and for the year ended December 31, 1996.
The following table sets forth the total number of apartment units, percent leased and average base rental rate per apartment unit as of the end of each of the last five years for the Multifamily Properties:
Retail Properties
The 21 Retail Properties contain a total of approximately 5.6 million square feet (including space owned by anchor tenants). Eight of the Retail Properties are located in Alabama, 10 are located in Florida, two are located in Georgia, and one Retail Property is located in South Carolina. The Retail Properties consist of five enclosed regional malls (Briarcliffe Mall, Gadsden Mall, Macon Mall, River Oaks Center, and Village Mall), two power centers, and 14 neighborhood shopping centers. Nine of the 21 Retail Properties were originally developed by Colonial (two Retail Properties were acquired in 1994, six were acquired in 1995, and four were acquired in 1996), and all of them are now managed by CRLP.
The following table sets forth certain information relating to the Retail Properties as of and for the year ended December 31, 1996.
The following table sets forth the total gross leasable 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:
The following table sets out a schedule of the lease expirations for leases in place as of December 31, 1996, for the Retail Properties:
The following is a brief description of certain of the Retail Properties.
Macon Mall--Macon Mall is a super-regional mall with approximately 1,431,000 square feet of rental space (including the recently completed expansion) located in Macon, Georgia, approximately 100 miles south of Atlanta, Georgia and serving a trade area of more than 650,000 people. Colonial developed Macon Mall in 1975, completely renovated its interior in 1988, and completed a 422,000 square foot expansion of the mall in February 1997. As of December 31, 1996, the mall was 93.3% leased to a total of 115 tenants. Parisian, Dillard's, Macy's, Sears, Belk Matthews and J.C. Penney are the anchor department stores. As of February 28, 1997, J.C. Penney occupied approximately 169,000 square feet (approximately 11.8% of the gross leasable area) pursuant to a lease which expires in August 2000 and Parisian occupied 102,000 square feet (approximately 7.2% of the gross leasable area) pursuant to a lease which expires in March 2017. J.C. Penney has five options to extend the lease for five years each. Each of Dillard's, Macy's, Sears, and Belk Matthews owns its store. In the opinion of CRLP, Macon Mall is adequately covered by insurance.
The following table sets out a schedule of the lease expirations for Macon Mall beginning with 1997. Leases accounting for approximately 11.6% of the leased space (all of which is specialty space) in the Macon Mall will exprire on or before December 31, 1997. The aggregate tax basis of depreciable real property of Macon Mall for Federal income tax purposes was $21,511,000 as of December 31, 1996. The aggregate tax basis of depreciable personal property associated with the Property for Federal income tax purposes was $996,000 as of December 31, 1996. Depreciation and amortization are computed on a straight-line method or appropriate accelerated methods over the estimated useful life of the Property's assets, which range from seven to 40 years. The current realty tax rate for Macon Mall is $41.30 per $1,000 of assessed value. The aggregate real estate tax obligation of Macon Mall for 1996 was $786,000, or approximately $1.18 per square foot of taxable building area.
A 336,457 square foot portion of the land underlying Macon Mall is subject to a ground lease that expires in 2071. The ground lease requires ground rent payments of $24,000 each year and is subject to a one-time adjustment per the wholesale index in the year 2000.
River Oaks Center--River Oaks Center is a 575,000 square foot regional mall located in Decatur, Alabama. Parisian, J.C. Penney, Sears, Castner Knott, and Rogers are the anchor tenants. The mall was originally developed in 1979 and renovated in 1989. CRLP acquired the mall in 1995.
Gadsden Mall--Gadsden Mall is a 492,000 square foot regional mall located in Gadsden, Alabama, approximately 60 miles northeast of Birmingham, Alabama. J.C. Penney, Sears, McRae's, and Belk's are the anchor tenants. The mall was expanded in 1990 to allow Belk's to relocate and expand within the mall with its newest prototype store and to allow J.C. Penney the opportunity to move to the mall from its downtown location. In addition, the interior of the mall was totally renovated, including the addition of a food court. McRae's, an anchor tenant, exercised a one-time option in August 1994 to extend its initial lease term to July 2014 and completed a major renovation of its store at a cost of approximately $2 million.
Briarcliffe Mall--Briarcliffe Mall is a 488,000 square foot regional mall located in Myrtle Beach, South Carolina. J.C. Penney, K-Mart, and two Belk's stores are the anchor tenants. The mall was originally developed in 1986 and acquired by CRLP in 1996.
Village Mall--Village Mall is a 399,000 square foot regional mall located in Auburn, Alabama, which is approximately 55 miles east of Montgomery, Alabama and 45 miles northwest of Columbus, Georgia. Anchored by Gayfer's (Mercantile), Sears, and J.C. Penney, it is the only enclosed mall in east central Alabama. Originally built in 1973, the mall was expanded to its current size in 1984 with the addition of J.C. Penney and approximately 60,000 square feet of specialty shops. An extensive renovation of the interior in 1989 included the creation of a food court.
University Park--University Park is a 399,000 square foot power center located in Orlando, Florida. The anchor tenants are Beall's, Stein Mart, Baby Superstore, Waccamaw, Albertson's, and Books-A-Million. The shopping center was constructed in two phases, with Phase I and Phase II opening in 1986 and 1989, respectively.
Office Properties
The 10 Office Properties contain a total of approximately 1.0 million rentable square feet. Nine of the Office Properties are located in Alabama (representing 93% of the office portfolio's net rentable square feet) and one is located in Orlando, Florida. The Office Properties range in size from approximately 25,000 square feet to 227,000 square feet. Four of the Office Properties were developed by Colonial, and Colonial acquired the other six Properties at various times between 1980 and 1990. All of the Office Properties are now managed by CRLP.
The following table sets forth certain additional information relating to the Office Properties as of and for the year ended December 31, 1996.
The following table sets out a schedule of the lease expirations for leases in place as of December 31, 1996, 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:
The following is a brief description of certain of the Office Properties.
Interstate Park--Interstate Park is a master planned suburban office park located in east Montgomery, Alabama containing a total of 227,000 rentable square feet. The Property consists of the Interstate Park Center, a four-story building completed in 1989 containing a total of 78,000 rentable square feet, and the Interstate Buildings 100 through 600, which were constructed between 1982 and 1985 and which contain a total of 149,000 rentable square feet. The Property's major tenants include affiliates of The Colonial Company, including Lowder Construction Company, Inc., Colonial Mortgage Company; Goodwyn Mills & Cawood; CACI; Webb Crumpton, and the Alabama Housing Finance Authority.
Historical Rehabilitation Properties--Anderson Block (in which CRLP has only a 33.3% interest) and 250 Commerce Street are historic buildings located in Montgomery, Alabama which have been renovated to Class A office space. The two Properties benefit from their presence on the National Historic Register and from their prime locations in Montgomery's downtown financial district. Both Properties were originally constructed as warehouses in the late 1800s/early 1900s and later underwent complete renovation in the early 1980s. The Colonial BancGroup, Inc. occupies approximately 43% of 250 Commerce Street, with the remainder leased to smaller tenants. Anderson Block leases its entire space to seven separate tenants.
Energen Plaza--Energen Plaza is a 12-story Class A office building located in the downtown central business district of Birmingham, Alabama containing a total of 168,000 rentable square feet and in which CRLP owns a 50% interest. The building was constructed in 1982 and includes a four-level parking garage with 417 parking spaces. It is the headquarters building for Energen Corp. (the parent company of Alabama Gas Corporation) and for CRLP, which occupies 18,000 square feet. The remainder of the Property is leased to Gorham & Waldrep (a law firm) and to other smaller tenants.
International Park--International Park is a 100-acre master planned office park located 15 minutes south of Birmingham in the Highway 280/Southeast suburban submarket. The Property consists of three separate office buildings (the 1900, 2000 and 2100 Buildings) which contain a total of 222,000 rentable square feet. CRLP owns 37.5% of the 1900 Building, 25% of the 2000 Building and 37.5% of the 2100 Building in partnership with BE&K, an international design engineering and construction company, and other partners. The 1900 Building was constructed in 1987 and contains 65,000 rentable square feet. Its largest tenants include Hoar Construction, A.B. Shopping Centers and Innovative Healthcare. The 2000 Building was built in 1987, contains 129,000 rentable square feet and is solely occupied by BE&K. The most recently constructed building, the 2100 Building (completed in 1989), contains 28,000 rentable square feet and also is solely occupied by BE&K.
AmSouth Center--AmSouth Center is an 11-story Class A office building located in downtown Huntsville, Alabama. Constructed in 1990, the Property contains a total of 157,000 rentable square feet and has an attached six-story parking deck with 424 parking spaces. The building is anchored by AmSouth Bank. Other major tenants include New York Life; Watson, Gammons & Fees; the Tennessee Valley Authority; and the law firms of Sirote & Permutt and Bradley, Arant, Rose & White.
Undeveloped Land
CRLP owns seven undeveloped land parcels consisting of approximately 61.0 acres (collectively, the "Land"). These parcels are adjacent to five of the Properties and are suitable for potential expansion at those Properties. The Land suitable for expansion is located adjacent to a Multifamily Property and four Retail Properties. Land adjacent to Multifamily Properties typically will be considered for potential development of another phase of an existing Multifamily Property if CRLP determines that the particular market can absorb additional apartment units. CRLP currently owns one such parcel. For expansions at Retail Properties, CRLP owns parcels both contiguous to the boundaries of Retail Properties, which would accommodate expansion of the mall or shopping center, and outparcels which are suitable for restaurants, financial institutions or free standing retailers. CRLP owns six such parcels.
Options to Acquire Additional Land -- In addition to the Land, CRLP has options to acquire certain additional land parcels owned by the Lowder family (collectively, the "Option Parcels"). The name, location, proposed use and acreage of each Option Parcel is as follows:
Each option has a term of five years from the date of the closing of the Company's IPO, subject to earlier termination if the Company elects not to exercise a right of first opportunity on a proposed sale of such Option Parcel by the Lowder family. The Company also has a five-year right of first opportunity with respect to each Option Parcel beginning on the expiration date of the option term (if the option is not exercised).
Property Markets
The table below sets forth certain information with respect to the geographic concentration of the Properties as of December 31, 1996.
CRLP believes 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, Georgia, South Carolina, and Florida; however, Birmingham, Alabama, Orlando, Florida, Huntsville, Alabama, Macon, Georgia, Montgomery, Alabama, Tampa, Florida, and Sarasota/Bradenton, Florida are the Company's primary markets. CRLP believes that these seven markets, which are characterized by stable and increasing population and employment growth, should continue to reflect a steady demand for multifamily, retail, and office properties.
Mortgage Financing
Certain of the Properties are subject to mortgage indebtedness. The Properties whose financial results are consolidated in the financial statements of CRLP are subject to existing mortgage indebtedness and other notes payable in an aggregate amount as of December 31, 1996, of approximately $506.4 million carrying a weighted average interest rate of 7.45% and a weighted average maturity of 8.5 years. The mortgage indebtedness on the Properties as of December 31, 1996, is set forth in the table below:
In addition to the foregoing mortgage debt, the four Properties in which CRLP owns partial interests (and which therefore are not consolidated in the financial statements of CRLP) also are subject to existing mortgage indebtedness. CRLP's pro-rata share of such indebtedness as of December 31, 1996, was $7,283,000 which carried a weighted average interest rate of 8.9%. The maturity dates of these loans range from February 28, 1997 to July 17, 2000, and as of December 31, 1996, the loans had a weighted average maturity of 1.1 years.
Item 3.
Item 3. Legal Proceedings.
Neither CRLP nor the Properties are presently subject to any material litigation nor, to CRLP's knowledge, is any material litigation threatened against CRLP or the Properties, other than routine litigation arising in the ordinary course of business which is expected to be covered by liability insurance.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to CRLP's unit holders during the fourth quarter of 1996.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
There is no established public trading market for the Units. As of March 10, 1997, there were 28 holders of record of Units.
CRLP has made consecutive quarterly distributions since its formation in the third quarter of 1993. The current indicated annual distribution rate is $2.08 per Unit ($.52 per Unit per quarter). CRLP's ability to make distributions depends on a number of factors, including its net cash provided by operating activities, capital commitments and debt repayment schedules. Holders of Units are entitled to receive distributions when, as and if declared by the Board of Directors of CPHC, its general partner, out of any funds legally available for that purpose.
The following table sets forth the distributions per Unit paid by CRLP during the periods noted:
Item 6.
Item 6. Selected Financial Data.
The following table sets forth selected financial and operating information on a historical basis for CRLP (and, for periods prior to the Company's IPO, the Colonial Group) for each of the five years ended December 31, 1996. The historical operating data for the year ended December 31, 1992, has been derived, and the historical operating data for the year ended December 31, 1993, has been partially derived, from the historical financial statements of the Colonial Group, whose real estate interest were acquired in connection with the formation of CRLP in 1993. The "Colonial Group" consists of Colonial Properties, Inc., Equity Partners Joint Venture, Colonial Properties Management Association, and certain real estate interests of Thomas H. Lowder, Robert E. Lowder, James K. Lowder, Catherine K. Lowder and the Bellwood Trust.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
General The following commentary should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements appearing elsewhere in this report. Historical results and trends which might appear should not be taken as indicative of future operations.
Any statement contained in this report which is not a historical fact, or which might be otherwise considered an opinion or projection concerning CRLP or its business, whether express or implied, is meant as and should be considered a forward-looking statement as that term is defined in the Private Securities Litigation Reform Act of 1996. Forward-looking statements are based upon assumptions and opinions concerning a variety of known and unknown risks, including but not necessarily limited to changes in market conditions, the supply and demand for leasable real estate, interest rates, increased competition, changes in governmental regulations, and national and local economic conditions generally, as well as other risks more completely described in CRLP's filings with the Securities and Exchange Commission. If any of these assumptions or opinions prove incorrect, any forward-looking statements made on the basis of such assumptions or opinions may also prove materially incorrect in one or more respects.
Results of Operations--1996 and 1995 The Operating Partnership reported net income of $40.5 million for 1996 compared to $25.2 million for 1995. On a per Unit basis, net income was $1.58 for 1996 compared to $1.28 for 1995. Net income increased during 1996 when compared to 1995 primarily due to the acquisition of 17 properties during 1995 and 1996, the completion and placement in service during 1995 and 1996 of five properties developed or expanded by the Operating Partnership, and the operations of several properties whose development was in various stages of completion during 1995 and 1996.
Revenue--Total revenue increased by $23.4 million, or 21.0%, for 1996 when compared to 1995, primarily due to an increase in rent revenue, which increased by $23.2 million, or 21.7%, during the same period. Of this increase, $21.2 million represents rent revenues generated by the properties acquired/placed in service during 1995 and 1996. The $2.0 million remainder of the increase in rental revenue primarily represents increases in rental rates charged for existing space. Other revenue increased $0.2 million, or 5.8%, for 1996 when compared to 1995. This increase is partially attributable to $0.5 million of other revenues generated by the properties acquired/placed in service during 1995 and 1996. Other revenue also decreased $0.5 million during 1996 compared to 1995 due to one-time revenues received from lease cancellations during the second quarter of 1995. The remainder of the increase in other revenue of $0.2 million represents increases in other revenues at existing properties.
Operating Expenses--Total operating expenses increased by $7.5 million, or 11.9%, for 1996 when compared to 1995. Of this increase, $9.4 million represents operating expenses of the properties acquired/placed in service during 1995 and 1996. Operating expenses also decreased by $1.9 million due to the resolution of certain state tax contingencies and the resulting reduction in related reserves.
Other Income and Expenses--Interest expense reflected a net increase of $0.6 million, or 2.6%, for 1996 when compared to 1995. Interest expense increased $5.3 million due to an increase in indebtedness, which was incurred to finance acquisition and development activity. Interest expense also decreased by $1.9 million, which represents interest savings on two mortgages and one revolving credit agreement that were repaid through a portion of the Operating Partnership's issuance of limited partnership units in January 1996. Interest expense also decreased by $2.8 million due to the capitalization of $3.7 million in interest on construction expenditures during 1996 compared to $0.9 million capitalized during 1995.
Results of Operations--1995 and 1994 The Operating Partnership reported net income of $25.2 million for 1995 compared to $16.7 million for 1994. On a per Unit basis, net income was $1.28 for 1995 compared to $1.17 for 1994. Net income increased during 1995 when compared to 1994 primarily due to the acquisition of 26 properties during 1994 and 1995, the completion and placement in service during 1995 of two properties developed or expanded by the Operating Partnership, and the operations of several properties whose development was in various stages of completion during 1994 and 1995.
Revenue--Total revenue increased by $47.5 million, or 74.2%, for 1995 when compared to 1994, primarily due to an increase in rent revenue, which increased by $44.9 million during the same period. Of this increase, $39.9 million represents rent revenues generated by the properties acquired/placed in service during 1994 and 1995. The $5.0 million remainder of the increase in rental revenue primarily represents increases in rental rates charged for existing space. Other revenue increased $2.6 million, or 150.2%, for 1995 when compared to 1994. This increase is attributable primarily to $1.5 million of other revenues generated by the properties acquired/placed in service during 1994 and 1995 and $0.5 million received from lease cancellations during the second quarter of 1995.
Operating Expenses--Total operating expenses increased by $25.8 million, or 69.7%, for 1995 when compared to 1994. Of this increase, $21.2 million represents operating expenses of the properties acquired/placed in service during 1994 and 1995. General and administrative expenses increased by $2.3 million, or 65.1%, during 1995 when compared to 1994 due to administrative expenses associated with the properties acquired/placed in service during 1994 and 1995, an increase in reserve for contingencies, and a general increase in administrative expenses.
Other Income and Expenses--Interest expense increased $13.2 million, or 121.2%, for 1995 when compared to 1994. This increase is attributed primarily to properties acquired/placed in service during 1994 and 1995 that were financed through advances under CRLP's lines of credit and the assumption of debt. The financing of these properties increased interest expense by $13.3 million for 1995 over 1994. The Company capitalized interest on its development projects during the construction period, which reduced interest expense by $0.9 million in 1995, compared to $0.3 million capitalized in 1994.
Liquidity and Capital Resources During 1996 CRLP invested approximately $273.1 million through acquisition and development of properties. This acquisition and development activity added to CRLP's multifamily and retail property holdings. CRLP financed this property investment through proceeds from the issuance of limited partnership units and debt totaling approximately $286.6 million during 1996, net of offering costs, advances on its bank line of credit and cash from operations. CRLP also used proceeds from these sources of funds to repay $42.6 million outstanding on two mortgage loans and to reduce its outstanding revolving credit balances by $21.9 million.
Acquisition Activities--During 1996 CRLP added 1,505 apartment units through its acquisition of seven multifamily communities at an aggregate cost of $79.0 million. CRLP also added 1.1 million square feet of retail leasable area through its acquisition of three community shopping centers and one regional shopping mall and purchased tenant-owned space and the underlying land at an existing retail center. CRLP completed these retail acquisitions at an aggregate cost of approximately $94.3 million.
Development Activities--During 1996 CRLP constructed 873 new apartment units in six multifamily communities (three of which were completed for development during the year) and acquired land on which it intends to develop two additional multifamily communities during 1997. The aggregate investment during 1996 in this multifamily development activity was $68.2 million. As of December 31, 1996, CRLP has 1,216 apartment units in six multifamily communities under development and expansion. Management anticipates that two of the multifamily projects will be completed during the first half of 1997 and three others will be completed during the second half of the year. The remaining multifamily project will be completed during the first half of 1998. Management expects to invest approximately $31.8 million over these periods to complete these projects.
During 1996 CRLP also continued its 423,000 square foot expansion of its regional mall in Macon, Georgia and began a 225,000 square foot expansion of a community shopping center in Montgomery, Alabama. The aggregate investment in this retail development activity was $31.6 million. The Macon Mall expansion was completed and opened during February 1997, and management anticipates completing its Montgomery project during the last half of 1997. Management expects to invest approximately $19.8 million during 1997 to complete these projects.
Financing Activities--CRLP funded a portion of this investment in acquisition and development by raising capital. In January 1996 the Company completed a public offering of 4.6 million common shares of beneficial interest at a price of $24.625 per share. The $106.6 million proceeds of this offering, net of offering costs of $6.6 million, were used to fund acquisition and development activity, repay the balances outstanding under CRLP's revolving credit agreements, and to repay the $8.2 million balance outstanding under a mortgage loan.
CRLP also funded its investment in acquisition and development by incurring additional debt. During 1996 notes and mortgages payable increased $152.3 million to total $506.4 million at December 31, 1996. During the year CRLP borrowed $220.0 million through the public issuance of debt securities and through debt assumed in property acquisitions. During the year CRLP also reduced the principal outstanding on its notes and mortgages payable by $45.8 million (including $42.6 million on mortgage loans that were extinguished) and reduced its outstanding revolving credit balances by $21.9 million.
In July 1996 CRLP completed a public issuance of senior, unsecured debt securities totaling $130.0 million. The securities were issued in two series of $65 million each requiring semi-annual payments of interest only. One series, which matures in July 2001, bears interest at 7.50% and was priced at a spread of 95 basis points over the five-year treasury bond rate, resulting in an original issue discount of $145,383. The other series, which matures in July 2006, bears interest at 8.05% and was priced at a spread of 128 basis points over the ten-year treasury bond rate, resulting in an original issue discount of $288,410.
In July 1996 CRLP refinanced loans collateralized by five of CRLP's multifamily properties and representing a total of approximately $53.0 million in outstanding indebtedness. The loans are financed through tax-exempt bonds which are credit enhanced by Fannie Mae. The loans, which bear interest at a weekly variable rate, require monthly interest payments through June 2006 and principal and interest payments from July 2006 through June 2026. The weighted average interest rate of these five loans was 3.42% at December 31, 1996.
In December 1996 CRLP completed a public issuance of unsecured medium-term debt securities totaling $50.0 million. The securities mature in December 2003 and bear interest at 7.05% which, at the time of issuance, equated to a spread of 90 basis points over the seven-year treasury bond rate.
In January 1997, subsequent to year-end, CRLP completed an additional issuance of unsecured medium-term debt securities also totaling $50.0 million. These securities mature in January 2003 and bear interst at 7.16% which, at the time of issuance, equated to a spread of 80 basis points over the six-year treasury bond rate.
In January 1997 the Company also completed a public offering of 1.5 million common shares of beneficial interest at a price of $29.875 per share. The $43.4 million proceeds of this offering, net of offering costs of $1.4 million, were used to fund acquisition and development activity, repay the balances outstanding under CRLP's revolving credit agreement, and to repay $24.5 million outstanding under four mortgage loans.
At December 31, 1996, after considering the effect of the January 1997 debt and equity offerings, CRLP's total debt included fixed-rate debt of $426.7 million, or 86.9%, and floating-rate debt of $64.5 million, or 13.1%. CRLP has obtained interest rate protection for $17.8 million of the floating-rate debt, which limits this debt to an interest rate of 5.96% through September 30, 1998.
At December 31, 1996, CRLP has one unsecured bank line of credit, which provides for borrowings up to $125 million, bears interest at LIBOR plus 100 to 150 basis points, has a term of two years beginning in December 1996, and provides for a one-year amortization in the case of non-renewal. As of December 31, 1996, after considering the effect of the January 1997 debt and equity offerings, the balance outstanding on CRLP's line of credit was $0.5 million.
Management intends to maintain CRLP's strength through diversification, while continuing to pursue acquisitions that meet CRLP's acquisition criteria for property quality, market strength, and investment return. Management expects to use its line of credit agreement to fund its investment in acquisition and development activities and plans to continue to replace significant borrowings under the bank line of credit with funds generated from the sale of additional securities, including sales of Units to CPHC in connection with public offerings of securities by the Company, and/or permanent financing, as market conditions permit. Management believes that these potential sources of funds, along with the possibility of issuing Units in exchange for properties, will provide CRLP with the means to finance additional acquisitions and development.
Cash and equivalents increased by $1,755,000 during 1996. Management anticipates that its net cash provided by operations and its existing cash balances will provide the necessary funds on a short- and long-term basis to cover its operating expenses, interest expense on outstanding indebtedness, recurring capital expenditures, and distributions to Unit holders. Management does not anticipate any significant costs associated with Year 2000 software requirements.
Inflation--Substantially all of the leases at the retail properties provide for pass-through to tenants of certain operating costs, including real estate taxes, common area maintenance expenses, and insurance. Leases at the multifamily properties generally provide for an initial term of six months or one year and allow for rent adjustments at the time of renewal. Leases at the office properties typically provide for rent adjustment and pass-through of certain operating expenses during the term of the lease. All of these provisions permit CRLP to increase rental rates or other charges to tenants in response to rising prices and, therefore, serve to minimize CRLP's exposure to the adverse effects of inflation.
Item 8.
Item 8. Financial Statements and Supplementary Data.
The following financial statements are filed as a part of this report:
Report of Independent Accountants
Financial Statements:
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Income for the years ended December 31, 1996, 1995, and 1994
Consolidated Statements of Partners' Capital for the years ended December 31, 1996, 1995, and 1994
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995, and 1994
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors Colonial Properties Holding Company, Inc.
We have audited the accompanying consolidated balance sheets of Colonial Realty Limited Partnership as of December 31, 1996 and 1995 and the consolidated statements of operations, partners' capital, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Colonial Realty Limited Partnership as of December 31, 1996 and 1995 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Birmingham, Alabama January 24, 1997
COLONIAL REALTY LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation Organization--Colonial Realty Limited Partnership (the "Operating Partnership" or "CRLP"), a Delaware limited partnership, was formed on August 6, 1993, to succeed as owner of substantially all of the predecessor interests of Colonial Properties, Inc. (CPI), and certain real estate interests of persons and companies affiliated with CPI. CRLP is the operating partnership of Colonial Properties Trust, an Alabama real estate investment trust (the "Company") whose shares are listed on the New York Stock Exchange ("NYSE"). The Company is engaged in the ownership, development, management, and leasing of multifamily housing communities, retail malls and centers, and office buildings. Certain parcels of land are also included. The Company manages CRLP through the Company's wholly owned subsidiary, Colonial Properties Holding Company, Inc. ("CPHC"), which in turn owns approximately 68% of the general and limited partnership interests in CRLP and serves as the sole general partner of CRLP. The limited partners who hold partnership units can require that CRLP redeem their partnership units. Unless the Company elects the right to issue common shares in exchange for these partnership units, the redeeming limited partner will receive cash in an amount equal to the market value of the partnership units to be redeemed. The Company currently intends to exercise its right to issue the common shares for these redeemed partnership units. Partners' capital allocable to limited partnership interests is included in "redeemable units" in the Consolidated Balance Sheets at the cash redemption amount at the balance sheet date. Net income, distributions, and adjustments to partners' capital allocable to limited partnership interests are reflected as "allocations to redeemable units" in the Consolidated Statements of Partners' Capital. At December 31, 1996 and 1995, CRLP had redeemable units outstanding in the amount of 8,431,198 and 8,141,023, respectively. Federal Income Tax Status--No provision for income taxes is provided since all taxable income or loss or tax credits are passed through to the partners. The Company, which is considered a corporation for federal income tax purposes, qualifies as a real estate investment trust for federal income tax purposes 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 the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax on its taxable income at regular corporate rates. Principles Of Consolidation--The consolidated financial statements include the Operating Partnership and Colonial Properties Services Limited Partnership (in which Colonial Realty Limited Partnership holds 99% general and limited partner interests). Investments In Partnerships--Partnerships in which CRLP owns a fifty percent or less interest and does not control are reflected in the consolidated financial statements as investments accounted for under the equity method. Under this method the investment is carried at cost plus or minus equity in undistributed earnings or losses since the date of acquisition.
2. Summary of Significant Accounting Policies Land, Buildings, and Equipment--Land, buildings, and equipment is stated at the lower of cost, less accumulated depreciation, or net realizable value. Where an impairment of a property's value is determined to be other than temporary, an allowance for the estimated potential loss is established to record the property at its net realizable value. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from 7 to 40 years. Maintenance and repairs are charged to expense as incurred. Replacements and improvements are capitalized and depreciated over the estimated remaining useful lives of the assets. When items of land, buildings, or equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in the results of operations. Undeveloped Land and Construction in Progress--Undeveloped land and construction in progress is stated at the lower of cost or net realizable value. CRLP capitalizes all costs associated with land development including construction period interest and property taxes during periods in which property is undergoing development activities necessary to prepare the asset for its intended use. Cash and Equivalents--CRLP includes highly liquid marketable securities and debt instruments purchased with a maturity of three months or less in cash equivalents. Restricted Cash--Cash which is legally restricted as to use consists primarily of tenant deposits. Deferred Debt and Lease Costs--Amortization of mortgage costs is recorded using the straight-line method, which approximates the effective interest method, over the terms of the related mortgages. Leasing commissions and fees are amortized using the straight-line method over the terms of the related leases. Interest rate cap agreements are used to reduce the potential impact of increases in interest rates on variable-rate debt. Premiums paid for purchased interest rate cap agreements are amortized to expense over the terms of the caps. Unamortized premiums are included in other assets in the balance sheets. Amounts receivable under cap agreements are accrued as a reduction of interest expense. Revenue Recognition--Rental income attributable to leases is recognized on a straight-line basis over the terms of the leases. Use of Estimates--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Reclassifications--Certain immaterial reclassifications have been made to the 1994 and 1995 financial statements in order to conform them to the 1996 financial statement presentation.
3. Property Acquisitions CRLP acquired 11 properties during 1996, six properties during 1995, and 20 properties during 1994 at aggregate costs of approximately $173,700,000, $68,400,000, and $331,000,000, respectively. CRLP funded these acquisitions with cash proceeds from its public offerings of debt (see Note 7), advances on bank lines of credit, proceeds from the issuance of limited partnership units, and cash from operations. A portion of the purchase price of Rime Village-Huntsville was subject to adjustment during 1995 based upon the operating results of the second phase of the property which was in lease-up when it was acquired. This portion of the purchase price was paid through the issuance of 70,864 additional limited partnership units. The properties acquired during 1996, 1995, and 1994 are listed below:
Results of operations of these properties, subsequent to their respective acquisition dates, are included in the consolidated financial statements of CRLP. The cash paid to acquire these properties is included in the statements of cash flows. The acquisitions during 1996, 1995, and 1994 are comprised of the following:
CRLP's unaudited pro forma results of operations, assuming these acquisitions had been effected by CRLP prior to January 1, 1994, are as follows:
On January 8, 1997, subsequent to year end, CRLP acquired Riverchase Center, an office park comprised of eight one-level buildings in Birmingham, Alabama totaling 306,000 square feet of leasable area. The total purchase price of $20,800,000 was funded by the assumption of $8,710,000 in mortgage debt, the issuance of 25,163 limited partnership units valued at $750,000, and an advance on CRLP's bank line of credit agreement. The effects of this acquisition are not included in CRLP's accompanying consolidated financial statements or in the pro forma information above.
4. Land, Buildings, and Equipment Land, buildings, and equipment consists of the following at December 31, 1996 and 1995:
5. Undeveloped Land and Construction in Progress During 1996 CRLP completed the construction of three multifamily expansion projects at a combined total cost of approximately $18,960,000. The expansion projects produced 356 new apartment units (51 units completed during 1995 and 305 units completed during 1996), 16 units at McGehee Place in Montgomery, Alabama, 180 units at Colonial Grand at Inverness in Mobile, Alabama, and 160 units at Colonial Grand at Galleria in Birmingham, Alabama. CRLP currently has nine active expansion and development projects in progress and various parcels of land available for expansion, construction, or sale. During 1996 CRLP completed construction on 873 apartment units (including the 305 units in completed projects mentioned above), and CRLP has an additional 1,216 apartment units in progress at December 31, 1996. Undeveloped land and construction in progress is comprised of the following at December 31, 1996:
Interest capitalized on construction in progress during 1996, 1995, and 1994 was $3,745,000, $868,000 and $333,000, respectively. During February 1997, the Company completed its expansion of Macon Mall.
6. INVESTMENT IN PARTNERSHIPS Investment in partnerships at December 31, 1996 and 1995 consists of the following:
7. NOTES AND MORTGAGES PAYABLE Notes and mortgages payable at December 31, 1996 and 1995 consists of the following:
As of December 31, 1996, CRLP has one unsecured bank line of credit providing for total borrowings of up to $125,000,000. The line of credit agreement bears interest at LIBOR plus 100 to 150 basis points, has a term of two years beginning in December 1996, and provides for a one-year amortization in the case of non-renewal. The credit facility is primarily used by CRLP to finance property acquisitions and development and had an outstanding balance at December 31, 1996, of $48,815,000. The weighted average interest rate of this short-term borrowing facility was 6.81% and 7.47% at December 31, 1996 and 1995, respectively. In July 1996 CRLP completed a public offering of senior, unsecured debt securities totaling $130,000,000. The securities were issued in two series of $65,000,000 each requiring semi-annual payments of interest only. One series, which matures in July 2001, bears interest at 7.50% and was priced at a spread of 95 basis points over the five-year treasury bond rate, resulting in an original issue discount of $145,383. The other series, which matures in July 2006, bears interest at 8.05% and was priced at a spread of 128 basis points over the ten-year treasury bond rate, resulting in an original issue discount of $288,410. The issue discounts are being amortized to interest expense over the life of the corresponding issue. In July 1996 CRLP refinanced loans collateralized by five of CRLP's multifamily properties and representing a total of approximately $53.0 million in outstanding indebtedness. The loans are financed through tax-exempt bonds which are credit enhanced by Fannie Mae. The loans, which bear interest at a weekly variable rate, require monthly interest payments through June 2006 and principal and interest payments from July 2006 through June 2026. The weighted average interest rate of these five loans was 3.42% at December 31, 1996. In December 1996 CRLP completed a public offering of unsecured medium term debt securities totaling $50,000,000. The securities mature in December 2003 and pay a coupon rate of 7.05% which equated to a spread of 90 basis points over the seven-year treasury bond rate. In January 1997, subsequent to year-end, CRLP completed a public offering of unsecured medium term debt securities totaling $50,000,000. The securities mature in January 2003 and pay a coupon rate of 7.16% which equated to a spread of 80 basis points over the six-year treasury bond rate. The effect of this issuance is not reflected in CRLP's consolidated financial statements. In February 1995 CRLP entered into a note payable agreement with Nationwide Life Insurance Company in the amount of $61,520,000. The ten-year note requires monthly payments of interest only at 8.87% for the first five years and monthly payments of interest only at a redetermined interest rate for the remainder of the term. At the end of the first five years of the term, CRLP may elect to repay the note without penalty. CRLP has entered into an interest rate cap agreement which limits debt of $17,800,000 to an interest rate of 5.96% through September 30, 1998. CRLP paid approximately $374,000 in total for the interest rate cap, which is being amortized over the life of the agreement. CRLP is exposed to credit losses in the event of nonperformance by the counterparties to its interest rate cap and nonderivative financial assets but has no off-balance-sheet credit risk of accounting loss. CRLP anticipates, however, that counterparties will be able to fully satisfy their obligations under the contracts. CRLP does not obtain collateral or other security to support financial instruments subject to credit risk but monitors the credit standing of counterparties. At December 31, 1996, CRLP had $228,815,000 in unsecured indebtedness including balances outstanding on its bank line of credit and certain other notes payable. The remainder of CRLP's notes and mortgages payable are collateralized by the assignment of rents and leases of certain properties and assets with an aggregate net book value of $467,203,240 at December 31, 1996. The aggregate maturities of notes and mortgages payable at December 31, 1996, are as follows:
A substantial majority of CRLP's notes and mortgages payable have been recently financed or are covered by interest rate cap agreements, and as such, the balances outstanding on these notes and mortgages are considered to be the fair values. CRLP's line of credit arrangement bears interest at a rate that varies with changes in LIBOR; therefore, the balances outstanding are considered to be the fair value. Certain partners of CRLP have guaranteed indebtedness of CRLP totaling approximately $25,348,000 (of which $19,048,000 was guaranteed during 1996 in conjunction with the acquisition of Briarcliffe Mall) at December 31, 1996. CRLP has indemnified these individuals from their guarantees of approximately $3,304,000 of this indebtedness.
8. Cash Contributions During 1995 and 1996 and in the first quarter of 1997, the Company completed three public offerings of stock totaling 9,550,000 common shares of beneficial interest (Common Shares). The net proceeds of the offerings were contributed to CRLP and used to fund acquisitions and development expenditures, repay balances outstanding on CRLP's revolving credit agreements, repay certain notes and mortgages payable, and for general corporate purposes. Details relating to these equity offerings are as follows:
The effect of the January 1997 offering is not reflected in CRLP's consolidated financial statements.
9. Employee Benefits Employees of CRLP have participated with those of Colonial Properties Services, Inc. (CPSI) (an affiliate of the Company) and The Colonial Company (TCC) (an affiliate of certain limited partners) and its other related entities in a noncontributory defined benefit pension plan covering substantially all employees. TCC's policy was to currently fund the amount of pension cost allowed by the Internal Revenue Code. Pension expense includes service and interest costs adjusted by actual earnings on plan assets and amortization of prior service cost and the transition amount, calculated using the guidelines of Statement of Financial Accounting Standards No. 87. The benefits are based on years of service and the employees' final compensation. The allocated pension cost of CRLP and CPSI, based on their portion of total payroll expense for the year ended December 31, 1994, was $186,000, which was paid to The Colonial Company. Effective January 1, 1995, the Company created a new noncontributory defined benefit pension plan designed to cover substantially all employees of CRLP and CPSI. Therefore, these employees did not participate in the pension plan mentioned above after December 31, 1994. The benefits provided by this plan are based on years of service and the employee's final average compensation. The Company's policy is to fund the minimum required contribution under ERISA and the Internal Revenue Code. The table below presents a summary of pension plan status as of December 31, 1996 and 1995, as it relates to the employees of CRLP and CPSI.
Actuarial assumptions used in determining the actuarial present value of projected benefit obligations at January 1, 1996 are as follows:
CRLP and CPSI also participated with TCC and its other related entities in a salary reduction profit sharing plan covering substantially all employees. This plan provided, with certain restrictions, that employees may contribute a portion of their earnings with the employer matching one-half of such contributions. Contributions by CRLP and CPSI were $108,000 for the year ended December 31, 1994. Effective January 1, 1995, the Company also created a new salary reduction profit sharing plan covering substantially all employees of CRLP and CPSI. Similar to TCC's salary reduction profit sharing plan, this plan provides, with certain restrictions, that employees may contribute a portion of their earnings with the employer matching one-half of such contributions. Therefore, the employees of CRLP and CPSI did not participate in the salary reduction profit sharing plan mentioned above after December 31, 1994. Contributions by CRLP and CPSI were $164,000 and $155,000 for the years ended December 31, 1996 and 1995, respectively.
10. Leasing Operations CRLP is in the business of leasing and managing commercial, retail, and residential property. For properties owned by CRLP, minimum rentals due in future periods under noncancelable operating leases extending beyond one year at December 31, 1996, are as follows:
The noncancelable leases are primarily with tenants engaged in retail and commercial operations in Alabama, Georgia, Florida, and South Carolina. Performance in accordance with the lease terms is in part dependent upon the economic conditions of the respective areas. No additional credit risk exposure relating to the leasing arrangements exists beyond the accounts receivable amounts shown in the December 31, 1996, balance sheet. Leases with tenants in multifamily properties are generally for one year or less and are thus excluded from the above table. Substantially all of CRLP's land, buildings, and equipment represent property leased under the above and other short-term leasing arrangements. Rental income for 1996, 1995, and 1994 includes contingent rent of $1,841,000, $1,782,000, and $1,729,000, respectively. This rental income was earned when certain retail tenants attained sales volumes specified in their respective lease agreements.
11. Related Party Transactions CRLP has generally used affiliated construction companies to manage and oversee its development projects. CRLP paid $42,554,000, $16,124,000, and $8,934,000 for property development costs to Lowder Construction Company, Inc., a construction company owned by TCC, during the years ended December 31, 1996, 1995, and 1994, respectively. CRLP had outstanding construction invoices and retainage payable to Lowder Construction Company, Inc. totaling $6,746,000 and $3,306,000 at December 31, 1996 and 1995, respectively. The $3,440,000 increase in construction-related payables to this affiliate, representing non-cash increases in construction in progress, have been excluded from the 1996 statement of cash flows. CRLP also paid $27,861,000 and $5,522,000 for property development costs to two construction companies owned by three trustees during the years ended December 31, 1996 and 1995, respectively. CRLP had outstanding construction invoices and retainage payable to these construction companies totaling $3,227,000 and $678,000 at December 31, 1996 and 1995, respectively. The $2,549,000 increase in construction-related payables to this affiliate, representing non-cash increases in construction in progress, have been excluded from the 1996 statement of cash flows. CRLP received rental income totaling $758,000, $836,000, and $775,000 from TCC, CPSI, and other affiliated companies during the years ended December 31, 1996, 1995, and 1994, respectively. During 1994, TCC performed certain administrative services for CRLP including payroll processing and computer processing. CRLP paid TCC $82,000 for these services during that year. Colonial Insurance Company provides insurance brokerage services for CRLP for which CRLP paid $187,000, $168,000, and $172,000 during the years ended December 31, 1996, 1995, and 1994, respectively. CRLP paid rent to Polar BEK/Colonial Partnership I, which is a partnership accounted for by CRLP under the equity method (listed in Note 6), in the amounts of $211,000, $209,000, and $213,000 during the years ended December 31, 1996, 1995, and 1994, respectively. Colonial Commercial Investments, Inc., which is owned by trustees James K. Lowder and Thomas H. Lowder, has guaranteed indebtedness totaling $1,438,000 at December 31, 1996 for Anderson Block Properties, which is a partnership accounted for by CRLP under the equity method (listed in Note 6). CRLP has indemnified Colonial Commercial Investments, Inc. from its guarantees of this indebtedness. In July 1996 CRLP acquired land in Macon, Georgia, on which CRLP is developing its Colonial Grand at Wesleyan multifamily community. CRLP acquired this land from Colonial Commercial Investments, Inc. The purchase price of $1,440,000, which was determined pursuant to an option acquired at the time of the Company's initial public offering in September 1993, was paid through the issuance of 58,466 units of limited partnership interest. In December 1994 CRLP acquired, in exchange for units of limited partnership interest ("Units"), ten multifamily properties developed and owned by The Rime Companies, in which Messrs. Ripps and Meisler owned an interest. Subsequent to the acquisition, Messrs. Ripps and Meisler were elected to serve on the Board of Trustees of the Company. The acquisition agreements relating to the acquisition transaction provided for the possible issuance of additional Units to the owners of The Rime Companies if one of the properties met certain performance criteria after the acquisition. During 1995 CRLP issued 33,661 Units to Mr. Ripps and 33,660 Units to the adult children of Mr. Meisler, pursuant to these acquisition agreements.
12. Subsequent Event On January 24, 1997, the Trustees declared a cash distribution to partners of Colonial Realty Limited Partnership in the amount of $.52 per partnership unit, totaling $14,322,531. The distribution was made to partners of record as of February 3, 1997, and was paid on February 10, 1997.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
CRLP is managed by the Company, through CPHC, the general partner of CRLP. The directors and executive officers of the Company are as follows:
Directors of the Company
Thomas H. Lowder, 47, has been a trustee of the Company since its formation in July 1993. He is the chairman of the board, president and chief executive officer of the Company and Colonial Properties Holding Company, Inc. ("CPHC") and is the president and a director of Colonial Properties Services, Inc. (the "Management Corporation"), which conducts the Company's third-party management leasing and brokerage operations. Mr. Lowder became President of Colonial Properties, Inc. ("Colonial"), the Company's predecessor, in 1976 and since that time has been actively engaged in the acquisition, development, management, leasing and sale of multifamily, retail and office properties for Colonial and the Company. Mr. Lowder is a member and past president of the Alabama Chapter of the Commercial Investment Real Estate Institute. Mr. Lowder is a former state Chairman of the Young Presidents' Organization and is a member of the Birmingham Area Board of Realtors, the National Association of Industrial Office Parks, the International Council of Shopping Centers and the National Association of Real Estate Investment Trusts (NAREIT). He serves on the Board of Directors for, among other companies, the Children's Hospital of Alabama, American Red Cross - Birmingham Area Chapter and the United Way of Central Alabama. Mr. Lowder is a member of the Executive Committee of the Board of Trustees. Mr. Lowder also is a member of the executive committee of the board of directors of CPHC. Mr. Lowder is the brother of James K. Lowder, who also serves as a trustee.
Carl F. Bailey, 66, has been a trustee of the Company and a director of CPHC and the Management Corporation since September 1993. Mr. Bailey is a former co-chairman of BellSouth Telecommunications, Inc. and former chairman and chief executive officer of South Central Bell Telephone Company, positions from which he retired in 1991. He worked for South Central Bell in a number of capacities over the past three and a half decades and was elected president and a member of the board of directors in 1982. Mr. Bailey is president of BDI and is a member of the board of directors of SouthTrust Corporation and Delchamps of Mobile. Mr. Bailey serves on the board of trustees and executive committee of Southern Research Institute and Birmingham Southern College. Mr. Bailey is a member of the Executive Committee and is chairman of the Audit Committee of the Board of Trustees. He also is a member of the executive committee of the board of directors of CPHC.
M. Miller Gorrie, 61, is a trustee of the Company and a director of CPHC and the Management Corporation. Mr. Gorrie is, chairman of the board and chief executive officer of Brasfield & Gorrie, Inc., a general contracting firm located in Birmingham, Alabama that is ranked consistently among ENR's "Top 100 Contractors." He serves on the board of directors for, among other organizations, AmSouth Bank of Alabama, Southern Research Institute and American Cast Iron Pipe Co. He is a past director of the Alabama Chamber of Commerce, the Associated General Contractors, the Building Science Advisory Board of Auburn University, the Business Council of Alabama and the March of Dimes. Mr. Gorrie is chairman of the Executive Committee and the Executive Compensation Committee of the Board of Trustees. He also is the chairman of the executive committee and the executive compensation committee of the board of directors of CPHC.
James K. Lowder, 47, has been a trustee of the Company since its formation in July 1993. He is also a director of CPHC. Mr. Lowder is also chairman of the board of The Colonial Company, chairman of the board of Lowder Construction Company, Inc. and chairman of the board of Lowder New Homes, Inc. and Lowder Realty Company, Inc. He is also a member of the Alabama Association of Realtors, Montgomery Board of Realtors, the Home Builders Association of Alabama and the Greater Montgomery Home Builders Association. Mr. Lowder is a member of the Executive Compensation Committee of the Board of Trustees. Mr. Lowder also is a member of the executive compensation committee of the board of directors of CPHC.
Herbert A. Meisler, 69, is a trustee of the Company and a director of CPHC. Together with Mr. Ripps, he formed The Rime Companies, a real estate development, construction and management firm specializing in the development of multifamily properties. In December 1994, the Company purchased ten multifamily properties from partners associated with The Rime Companies. While with The Rime Companies, Mr. Meisler oversaw the development and construction of approximately 15,000 multifamily apartment units in the southeastern United States. He currently serves on the board of directors for the Community Foundation of South Alabama and the Mobile Airport Authority and is the president of Wichita Greyhound Park. He is a past director of the Alabama Eye and Tissue Bank and past president of the Mobile Jewish Welfare Fund. Mr. Meisler is a member of the Executive Compensation Committee and the Audit Committee of the Board of Trustees. He also is a member of the executive compensation committee of the board of directors of CPHC.
Claude B. Nielsen, 46, is a trustee of the Company and a director of CPHC. Since 1990, Mr. Nielsen has been president of Coca-Cola Bottling Company United, Inc., headquartered in Birmingham, Alabama, serving also as chief operating officer from 1990 to 1991 and as chief executive officer since 1991. Prior to 1990, Mr. Nielsen served as president of Birmingham Coca-Cola Bottling Company. Mr. Nielsen is on the board of directors of AmSouth Bancorporation and Cobb Theatres. He also currently serves as a board member and finance committee chairman of the Birmingham Civil Rights Institute as well as a board member of the Birmingham Airport Authority. Mr. Nielsen is a member of the Executive Compensation Committee of the Board of Trustees. Mr. Nielsen also is a member of the executive compensation committee of the board of directors of CPHC.
Harold W. Ripps, 58, is a trustee of the Company and a director of CPHC and the Management Corporation. Together with Mr. Meisler, they formed The Rime Companies, a real estate development, construction and management firm specializing in the development of multifamily properties. In December 1994, the Company purchased ten multifamily properties from partners associated with The Rime Companies. While with The Rime Companies, Mr. Ripps oversaw the development and construction of approximately 15,000 multifamily apartment units in the southeastern United States. He is a member of the executive committee of the Birmingham Council of Boy Scouts of America, the President's Advisory Committee of Birmingham Southern College and the President's Council of the University of Alabama in Birmingham. Mr. Ripps is a member of the Executive Committee and the Executive Compensation Committee of the Board of Trustees. He also is a member of the executive committee and the executive compensation committee of the board of directors of CPHC.
Donald T. Senterfitt, 77, has been a trustee of the Company and a director of CPHC since September 1993. Mr. Senterfitt is a former director and vice chairman of SunTrust Banks, Inc., a bank holding company. He is past president of the American Bankers Association and former General Counsel to the Florida Bankers Association, and served both organizations in a variety of other capacities. He currently serves as president and chief executive officer of The Pilot Group, L.C., a financial institutions consulting firm headquartered in Orlando, Florida. He is a director of Colonial Bank of Florida. Mr. Senterfitt is a member of the Audit Committee of the Board of Trustees.
Executive Officers of the Company
Thomas H. Lowder, 47, is the President and Chief Executive Officer of the Company and CPHC, a trustee of the Company, and a director of CPHC and the Management Corporation. Mr. Lowder became President of Colonial in 1976 and since that time has been actively engaged in the acquisition, development, management, leasing, and sale of multifamily, retail, and office properties for Colonial. Mr. Lowder is a member and past president of the Alabama Chapter of the Commercial Investment Real Estate Institute. Mr. Lowder is a former state Chairman of the Young Presidents' Organization and a member of the Birmingham Area Board of Realtors, the National Association of Industrial Office Parks, the International Council of Shopping Centers, and the National Association of Real Estate Investment Trusts (NAREIT). He serves on the board of directors for Discovery 2000, the Children's Hospital of Alabama, American Red Cross-Birmingham Area Chapter, and the United Way of Central Alabama. He graduated with honors from Auburn University with a Bachelor of Science Degree.
Howard B. Nelson, Jr., 49, has been Senior Vice President and Chief Operating Officer of the Company and CPHC, with responsibility for the day-to-day management of the Company, since September 1993. He joined Colonial in 1984 as a vice president and became Senior Vice President-Finance in 1987. Mr. Nelson has served as treasurer, vice president, president, and board member of the Birmingham Chapter of the National Association of Industrial and Office Parks as well as vice president and board member of the Building Owners and Managers Association of Metropolitan Birmingham. He also serves on the Board of Directors of the Children's Harbor Family Center and the College of Business Advisory Council of Auburn University. He holds a Bachelor of Science Degree from Auburn University.
Douglas B. Nunnelley, 54, has been Senior Vice President and Chief Financial Officer of the Company and CPHC, with general responsibility for financing matters, since 1993. From 1979 until 1993, Mr. Nunnelley served as Executive Vice President, Comptroller, and Chief Accounting Officer of the AmSouth Bancorporation, and as Senior Vice President and Comptroller of the First National Bank of Birmingham. He serves on the Board of Directors of Eastern Health Systems, Inc. Mr. Nunnelley holds a Bachelor of Science Degree in accounting from the University of Alabama and is a graduate of the Stonier Graduate School of Banking at Rutgers University and is a Certified Public Accountant.
Paul F. Earle, 39, has been Senior Vice-President-Multifamily Division of CPHC, with responsibility for management of all multifamily properties owned and/or managed by the Company, since April 1996. He joined Colonial in 1991 and has served as Vice President-Acquisitions. Mr. Earle is an active member of the Alabama Multifamily Council and National Apartment Association. 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.
John N. Hughey, 37, has been Senior Vice President-Retail Division Development of CPHC, with responsibility for the expansion and new development of Retail Properties, since September 1993. He joined Colonial in 1982 and assumed responsibility for an increasing number of shopping centers until being named to Senior Vice President-Retail Division of Colonial in 1991. 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.
Thomas M. LaDow, 46, has been Senior Vice-President Office Division of CPHC, with responsibility for management and leasing of all office properties owned and/or managed by the Company, since September 1993. He joined Colonial in 1975 as a property manager and became Senior Vice-President-Office Division of Colonial in September 1993. Mr. LaDow is a Certified Property Manager (CPM) and is an active member of the Institute of Real Estate Management, Building Owner's and Manager's Association and the National Association of Industrial and Office Park. He holds a Bachelor of Science Degree from Birmingham Southern College in Birmingham, Alabama.
Charles A. McGehee, 51, has been Senior Vice President-Multifamily Acquisitions/Development of CPHC, in charge of the Company's Multifamily Property acquisitions and the Birmingham sales brokerage departments, since September 1993. He joined Colonial in 1976 as vice president of retail leasing and was responsible for leasing all retail space owned and/or managed by Colonial. He became Senior Vice President-Office Division of Colonial in 1990, a position he held until assuming his current position. Mr. McGehee has served as president and a board member of the National Association of Industrial and Office Parks as well as a member of the board of directors of the Birmingham Area Board of Realtors. He holds a Bachelor of Science Degree from Auburn University.
John L. Moss, 47, has been Senior Vice President-Retail Division of CPHC, with responsibility for management, leasing, and marketing of all retail property owned and/or managed by the Company, since September 1993. He joined Colonial in 1973 as a property manager and assumed various positions of increasing responsibility in the retail area until becoming Senior Vice President-Retail Division of Colonial in 1990. Mr. Moss, who is a Certified Shopping Center Manager (CSM), has served as the state director and the Alabama/Mississippi state governmental affairs chairman of the International Council of Shopping Centers. He holds a Bachelor of Science Degree from Auburn University.
C. Reynolds Thompson, III, 34, joined CPHC in February 1997 as Senior Vice-President Office Acquisitions, with responsibility for all acquisitions of office properties. Prior to joining Colonial, Mr. Thompson worked for CarrAmerica Realty Corporation in office building acquisitions and due diligence. Mr. Thompson's ten year real estate background includes acquisitions, development, leasing, and management of office properties in the Southeast. He is an active member of the National Association of Industrial and Office Parks and holds a Bachelor of Science degree from Washington and Lee University.
Item 11.
Item 11. Executive Compensation.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the annual and long-term compensation for the chief executive officer and the four other most highly compensated executive officers of the Company (the "Named Executive Officers"):
The following table sets forth certain information concerning exercised and unexercised options held by the Named Executive Officers at December 31, 1996:
The following table shows certain information relating to options to purchase Common Shares granted to the Named Executive Officers during 1996:
All options granted in 1996 become exercisable in three equal annual installments beginning on the first anniversary of the date of grant and have a term of ten years.
Defined Benefit Plan
The Company has adopted a Retirement Plan (the "Plan") for all of the employees of the Company and its subsidiaries. The Plan also has been adopted by the Management Corporation. An employee becomes eligible to participate in the Plan on January 1 or July 1 following the first anniversary of the person's employment by the Company or one of its consolidated or unconsolidated subsidiaries or age 21 if later. Benefits are based upon the number of years of service (maximum 25 years), and the average of the participant's earnings during the five highest years of compensation during the final 10 years of employment. Each participant accrues a benefit at a specified percentage of compensation up to the Social Security wage base, and at a higher percentage of compensation above the Social Security wage base. Employment by Colonial, the Company's predecessor, or certain of its affiliated entities is treated as covered service for purposes of the Plan. A participant receives credit for a year of service for every year in which 1,000 hours are completed in the employment of the Company or its subsidiaries.
The following table reflects estimated annual benefits payable upon retirement under the Plan as a single life annuity commencing at age 65. These benefits ignore the lower benefit rate applicable to earnings below the Social Security covered compensation level.
The benefits shown are limited by the current statutory limitations which restrict the amount of benefits which can be paid from a qualified retirement plan. The statutory limit on compensation which may be recognized in calculating benefits is $160,000 in 1997. This limit is scheduled to increase periodically with the cost of living.
Covered compensation under the Plan includes only the employees' base salary. Thomas H. Lowder has 22 years of covered service under the Plan, Howard B. Nelson, Jr. has 12 years of service, John N. Hughey has 14 years of service, Charles A. McGehee has 19 years, and John L. Moss has 21 years of service.
Employment Agreement
Thomas H. Lowder, the chief executive officer of the Company, entered into an employment agreement with the Company in September 1993. This agreement provided for an initial term of three years, and is renewable automatically for successive one year terms if neither party delivers notice of non-renewal at least six months prior to the next scheduled expiration date. The agreement provides for annual compensation of at least $275,000 and incentive compensation on substantially the same terms as set forth in the description of the Annual Incentive Plan. See "Report on Executive Compensation -- Annual Incentive Plan." The agreement includes provisions restricting Mr. Lowder from competing with the Company during employment and, except in certain circumstances, for two years after termination of employment. The employment agreement provides for certain severance payments in the event of disability or termination by the Company without cause or by the employee with cause.
EXECUTIVE COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the five members of the Executive Compensation Committee is an employee of the Company. As described below, M. Miller Gorrie, James K. Lowder, Herbert A. Meisler and Harold W. Ripps, who are members of the Committee, own interests in certain entities that, during 1996, were parties to certain transactions involving the Company.
Brasfield & Gorrie General Contractors, Inc., a corporation of which M. Miller Gorrie is a shareholder and chairman of the board, was engaged during 1995 to construct the expansion of the Company's Macon Mall. The Company paid the corporation a total of $22.8 million ($21.8 million of which was then paid to unaffiliated subcontractors) during 1996 pursuant to this engagement.
In July 1996, the Company acquired land in Macon, Georgia on which it is developing a multifamily community. The Company acquired this land from Colonial Commercial Investments, Inc., which was owned by James K. Lowder and his brother Thomas H. Lowder. The purchase price of $1,440,000, which was determined pursuant to an option acquired at the time of the Company's initial public offering in September, 1993, was paid through the issuance of 58,446 units of limited partnership interest in the Company's subsidiary Colonial Realty Limited Partnership.
The Management Corporation provided management and leasing services during 1996 to certain entities in which James K. Lowder and his brothers Thomas H. Lowder and Robert E. Lowder, have an interest. The aggregate amount of fees paid to the Management Corporation by such entities during 1996 was approximately $356,000.
Colonial Insurance Company, a corporation indirectly owned by the Lowder family, provided insurance brokerage services for the Company during 1996. The aggregate amount paid by the Company to Colonial Insurance Company for these services for the year ended December 31, 1996, was approximately $187,000.
The Company leased space to certain entities in which the Lowder family has an interest and received rent from these entities totaling approximately $758,000 during 1996.
The Company engaged Lowder Construction Company, Inc., of which James K. Lowder serves as chairman of the board and which is indirectly owned by James K. Lowder and Thomas H. Lowder, to serve as construction manager for 11 multifamily development and expansion projects during 1996. The Company paid a total of $42.6 million ($41.2 million of which was then paid to unaffiliated subcontractors) for the construction of these development and expansion projects during 1996.
The Company also paid to Rime Construction Company, Inc., a corporation in which Harold W. Ripps, Herbert A. Meisler, and Mr. Meisler's son own an interest, a total of $5.1 million ($4.9 million of which was then paid to unaffiliated subcontractors) for construction of one multifamily expansion project during 1996. The information required by this item is hereby incorporated by reference to the material appearing in the Proxy Statement under the caption "Executive Compensation."
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information, as of March 10, 1997, regarding the beneficial ownership of Units by (1) each person known by CRLP to be the beneficial owner of more than five percent of CRLP's outstanding Units, (2) each trustee of the Company (each of whom also serves as a director of CPHC) and each of the chief executive officer and the four other most highly compensated executive officers of the Company (the "Named Executive Officers") (each of whom also is an executive officer of CPHC) and (3) the trustees and executive officers of Colonial as a group. Each person named in the table has sole voting and investment power with respect to all Units shown as beneficially owned by such person, except as otherwise set forth in the notes to the table. The extent to which a person held Common Shares of Colonial as of March 10, 1997, is set forth in Colonial's Proxy Statement dated March 24, 1997, under the caption "Voting Securities and Principal Holders Thereof," and is incorporated by reference in this Annual Report and shall be deemed a part hereof. Unless otherwise provided in the table, the address of each beneficial owner is Energen Plaza, Suite 750, 2101 Sixth Avenue North, Birmingham, Alabama 35203.
Item 13.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is included in Item 11 of this Form 10-K.
Part IV
Item 14.
Item 14. Exhibits, Financial Schedules, and Reports on Form 8-K.
14(a)(1) and (2) Financial Statements and Schedules
Index to Financial Statements and Financial Statement Schedules
Financial Statements:
The following financial statements of CRLP are included in Part II, Item 8:
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Income for the years ended December 31, 1996, 1995, and 1994
Consolidated Statements of Partners' Capital for the years ended December 31, 1996, 1995, and 1994
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995, and 1994
Notes to Consolidated Financial Statements
Financial Statement Schedules:
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.
14(a)(3) Exhibits
* 3.1 Declaration of Trust of Company. * 3.2 Bylaws of the Company. ** 10.1 Second Amended and Restated Agreement of Limited Partnership of the Operating Partnership, as amended. + 10.2 Registration Rights and Lock-Up Agreement among the Company and the persons named herein. ** 10.3 ++ First Amended and Restated Employee Share Option and Restricted Share Plan. + 10.4 Non-employee Trustee Share Option Plan. + 10.5 Non-employee Trustee Option Agreement. + 10.6 ++ Employment Agreement between the Company and Thomas H. Lowder. + 10.7 Officers and Trustees Indemnification Agreement. + 10.8 Partnership Agreement of the Management Partnership. ** 10.9 Articles of Incorporation of the Management Corporation, as amended. + 10.10 Bylaws of the Management Corporation. ** 10.11 Articles of Incorporation of CPHC, as amended. + 10.12 Bylaws of CPHC. + 10.13 Land Option Agreement. ++ 10.14 Credit agreement between the Company and SouthTrust Bank of Alabama, National Association, AmSouth Bank of Alabama, Wells Fargo Realty Advisors Funding, Incorporated, and National Bank of Commerce of Birmingham dated December 18, 1995 and related promissory notes. + 10.16 ++ Annual Incentive Plan. ++++10.17 Indenture dated as of July 22, 1996, by and between Colonial Realty Limited Partnership and Bankers Trust Company, as amended + 21.1 List of Subsidiaries. 23.1 Consent of Independent Accountants. 27 Financial Data Schedules. - --------------------
* Incorporated by reference to the Annexes to the Company's Proxy Statement dated September 1, 1995. ** Incorporated by reference to the same titled and number exhibit in Colonial's Annual Report on Form 10-K dated December 31, 1994. + Incorporated by reference to the same titled and numbered exhibit in Colonial's Registration Statement on Form S-11, No. 33-65954. ++ Management contract or compensatory plan required to be filed pursuant to Item 14(c) of Form 10-K. ++ Incorporated by reference to the same titled and number exhibit in the Company's Annual Report on Form 10-K dated December 31, 1995. ++++ 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.
14(b) Reports on Form 8-K
Reports on Form 8-K filed during the last quarter of 1996: - Form 8-K dated December 5, 1996, reported certain property acquisitions during 1996 under Item 5, "Other Events." - Form 8-K dated December 6, 1996, reported the required filings for the issuance of medium term debt securities under Item 5, "Other Events."
14(c) Exhibits
The list of Exhibits filed with this report is set forth in response to Item 14(a)(3).
14(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, 1997.
COLONIAL REALTY LIMITED PARTNERSHIP, a Delaware limited partnership
By: Colonial Properties Holding Company, Inc., its general partner
By: /s/ Douglas B. Nunnelley ------------------------- Douglas B. Nunnelley Senior Vice President and Chief Financial 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 the capacities indicated on March 28, 1997.
Signature
/s/ Thomas H. Lowder Chairman of the Board, President, - ------------------------------------------- and Chief Executive Officer Thomas H. Lowder
/s/ Douglas B. Nunnelley Senior Vice President and Chief - ------------------------------------------- Financial Officer Douglas B. Nunnelley
/s/ Kenneth E. Howell Vice President, Controller, - ------------------------------------------- and Secretary Kenneth E. Howell (Chief Accounting Officer)
/s/ Carl F. Bailey Director - ------------------------------------------- Carl F. Bailey
/s/ M. Miller Gorrie Director - ------------------------------------------- M. Miller Gorrie
/s/ James K. Lowder Director - ------------------------------------------- James K. Lowder
Director - ------------------------------------------- Herbert A. Meisler
/s/ Claude B. Nielsen Director - ------------------------------------------- Claude B. Nielsen
/s/ Harold W. Ripps Director - ------------------------------------------- Harold W. Ripps
/s/ Donald T. Senterfitt Director - ------------------------------------------- Donald T. Senterfitt
NOTES TO SCHEDULE III COLONIAL REALTY LIMITED PARTNERSHIP December 31, 1996
The aggregate cost for Federal Income Tax purposes was approximately (1) $711,887,000 at December 31, 1996.
See description of mortgage notes payable in Note 7 of Notes to (2) Consolidated Financial Statements.
The following is a reconciliation of real estate to balances (3) reported at the beginning of the year:
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors Colonial Properties Holding Company, Inc.
Our report on the consolidated financial statements of Colonial Realty Limited Partnership is included in Item 8 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedules listed in the index in Item 14 of this Form 10-K.
In our opinion, the financial statements referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
/s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Birmingham, Alabama January 24, 1997