FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON , D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For
the quarterly period ended: March 31, 2009
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
1-12358 (Colonial Properties Trust)
0-20707 (Colonial Realty Limited Partnership)
COLONIAL PROPERTIES TRUST
COLONIAL REALTY LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
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Alabama (Colonial Properties Trust)
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59-7007599 |
Delaware (Colonial Realty Limited Partnership)
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63-1098468 |
(State or other jurisdiction
of incorporation or organization)
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(IRS Employer .
Identification Number) |
2101 Sixth Avenue North, Suite 750, Birmingham, Alabama 35203
(Address of principal executive offices) (Zip code)
(205) 250-8700
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
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Colonial Properties Trust
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YES þ NO o |
Colonial Realty Limited Partnership
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YES þ NO o |
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
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Colonial Properties Trust
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YES o NO o |
Colonial Realty Limited Partnership
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YES o NO o |
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer”
and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Colonial Properties Trust
Large accelerated filer þ |
Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Colonial Realty Limited Partnership
Large accelerated filer o |
Accelerated filer þ |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
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Colonial Properties Trust
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YES o NO þ |
Colonial Realty Limited Partnership
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YES o NO þ |
As of May 5, 2009, Colonial Properties Trust had 48,777,226 Common Shares of Beneficial Interest
outstanding.
COLONIAL PROPERTIES TRUST
COLONIAL REALTY LIMITED PARTNERSHIP
INDEX TO FORM 10-Q
2
Explanatory Note
This Form 10-Q includes information with respect to both Colonial Properties Trust (the “Trust”)
and Colonial Realty Limited Partnership (“CRLP”), of which the Trust is the sole general partner
and in which the Trust owned an 84.6% limited partner interest as of March 31, 2009. The Trust
conducts all of its business and owns all of its properties through CRLP and CRLP’s various
subsidiaries. Separate financial statements and accompanying notes are provided for each of the
Trust and CRLP. Except as specifically noted otherwise, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” is presented as a single discussion with respect to
both the Trust and CRLP since the Trust conducts all of its business and owns all of its properties
through CRLP and CRLP’s various subsidiaries.
3
COLONIAL PROPERTIES TRUST
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share and per share data)
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(unaudited) |
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(as adjusted) |
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March 31, 2009 |
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December 31, 2008 |
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ASSETS |
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Land, buildings & equipment |
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$ |
2,915,908 |
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$ |
2,897,779 |
|
Undeveloped land and construction in progress |
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291,297 |
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380,676 |
|
Less: Accumulated depreciation |
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|
(431,644 |
) |
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|
(406,444 |
) |
Real estate assets held for sale, net |
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155,560 |
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|
102,699 |
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Net real estate assets |
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2,931,121 |
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2,974,710 |
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Cash and cash equivalents |
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9,564 |
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|
9,185 |
|
Restricted cash |
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31,418 |
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29,766 |
|
Accounts receivable, net |
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31,789 |
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25,702 |
|
Notes receivable |
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19,613 |
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|
2,946 |
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Prepaid expenses |
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12,522 |
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|
5,332 |
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Deferred debt and lease costs |
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19,834 |
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16,783 |
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Investment in partially-owned entities |
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40,890 |
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46,221 |
|
Deferred tax asset |
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|
3,049 |
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|
9,311 |
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Other assets |
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30,496 |
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35,213 |
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Total assets |
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$ |
3,130,296 |
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$ |
3,155,169 |
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LIABILITIES AND EQUITY |
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Notes and mortgages payable |
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$ |
1,703,793 |
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$ |
1,450,389 |
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Unsecured credit facility |
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|
37,745 |
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|
311,630 |
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Total debt |
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1,741,538 |
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|
1,762,019 |
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Accounts payable |
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32,850 |
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53,565 |
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Accrued interest |
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23,547 |
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|
20,717 |
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Accrued expenses |
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|
19,940 |
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|
7,521 |
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Other liabilities |
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36,902 |
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|
38,890 |
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Total liabilities |
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1,854,777 |
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1,882,712 |
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Redeemable Noncontrolling interest: |
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Common units |
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117,965 |
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124,848 |
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Equity: |
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Preferred shares of beneficial interest, $.01 par value, 20,000,000
shares authorized: |
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8 1/8% Series D Cumulative Redeemable Preferred Shares of
Beneficial Interest, liquidation preference $25 per depositary share,
4,011,250 depositary shares issued and outstanding at March 31, 2009
and
December 31, 2008 |
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4 |
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4 |
|
Common shares of beneficial interest, $.01 par value, 125,000,000
shares
authorized; 54,237,516 and 54,169,418 shares issued and outstanding
at March 31, 2009 and December 31, 2008, respectively |
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542 |
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|
542 |
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Additional paid-in capital |
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1,627,367 |
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1,619,897 |
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Cumulative earnings |
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1,299,095 |
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1,281,330 |
|
Cumulative distributions |
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(1,716,781 |
) |
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(1,700,739 |
) |
Noncontrolling interest |
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101,489 |
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|
101,943 |
|
Treasury shares, at cost; 5,623,150 shares at March 31, 2009 and
December 31, 2008 |
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(150,163 |
) |
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(150,163 |
) |
Accumulated other comprehensive loss |
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(3,999 |
) |
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(5,205 |
) |
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Total equity |
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1,157,554 |
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1,147,609 |
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Total liabilities and equity |
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$ |
3,130,296 |
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$ |
3,155,169 |
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The accompanying notes are an integral part of these consolidated
condensed financial statements.
4
COLONIAL PROPERTIES TRUST
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except share and per share data)
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Three Months Ended |
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March 31, |
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2009 |
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2008 |
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Revenues: |
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Minimum rent |
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$ |
70,233 |
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$ |
66,795 |
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Tenant recoveries |
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1,066 |
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|
848 |
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Other property related revenue |
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9,501 |
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8,107 |
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Construction revenues |
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35 |
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7,879 |
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Other non-property related revenue |
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3,455 |
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5,206 |
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Total revenue |
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84,290 |
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88,835 |
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Expenses: |
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Property operating expenses |
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22,469 |
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19,678 |
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Taxes, licenses and insurance |
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|
10,976 |
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|
9,589 |
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Construction expenses |
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34 |
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7,266 |
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Property management expenses |
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1,918 |
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2,241 |
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General and administrative expenses |
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4,383 |
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|
5,780 |
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Management fee and other expense |
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|
4,217 |
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3,591 |
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Restructuring charges |
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|
812 |
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|
— |
|
Investment and development |
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165 |
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|
769 |
|
Depreciation |
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|
27,785 |
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|
23,257 |
|
Amortization |
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|
873 |
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|
759 |
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Impairment |
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|
736 |
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— |
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Total operating expenses |
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74,368 |
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|
72,930 |
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Income from operations |
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|
9,922 |
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|
15,905 |
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Other income (expense): |
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Interest expense and debt cost amortization |
|
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(21,735 |
) |
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|
(18,707 |
) |
Gains on retirement of debt |
|
|
25,319 |
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|
|
5,471 |
|
Interest income |
|
|
301 |
|
|
|
790 |
|
Income (loss) from partially-owned unconsolidated entities |
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|
(650 |
) |
|
|
10,269 |
|
Loss on hedging activities |
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|
(1,063 |
) |
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|
— |
|
Gains from sales of property, net of income taxes of $3,177 (Q109) and $406 (Q108) |
|
|
5,380 |
|
|
|
1,931 |
|
Income taxes and other |
|
|
3,090 |
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|
|
874 |
|
|
|
|
|
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Total other income (expense) |
|
|
10,642 |
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|
|
628 |
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|
|
|
|
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|
Income from continuing operations |
|
|
20,564 |
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|
|
16,533 |
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|
|
|
|
|
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|
Income from discontinued operations |
|
|
229 |
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|
|
2,365 |
|
Gain on disposal of discontinued operations, net of income taxes (benefit) of $26 (Q109)
and ($14) (Q108) |
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|
45 |
|
|
|
2,913 |
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|
|
|
|
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|
Income from discontinued operations |
|
|
274 |
|
|
|
5,278 |
|
|
|
|
|
|
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Net income |
|
|
20,838 |
|
|
|
21,811 |
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|
|
|
|
|
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|
|
|
|
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|
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Noncontrolling interest |
|
|
|
|
|
|
|
|
Continuing
Operations
|
|
|
|
|
|
|
|
Noncontrolling interest in CRLP — common unitholders |
|
|
(2,416 |
) |
|
|
(2,069 |
) |
Noncontrolling interest in CRLP — preferred unitholders |
|
|
(1,813 |
) |
|
|
(1,827 |
) |
Noncontrolling interest of limited partners |
|
|
(1,009 |
) |
|
|
(123 |
) |
Discontinued Operations
|
|
|
|
|
|
|
|
Noncontrolling interest in CRLP from discontinued operations |
|
|
(115 |
) |
|
|
(947 |
) |
Noncontrolling interest of limited partners |
|
|
468 |
|
|
|
141 |
|
|
|
|
|
|
|
|
Income attributable to noncontrolling interest |
|
|
(4,885 |
) |
|
|
(4,825 |
) |
|
|
|
|
|
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|
|
|
|
|
|
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|
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|
Net income attributable to parent company |
|
|
15,953 |
|
|
|
16,986 |
|
|
|
|
|
|
|
|
|
|
Dividends to preferred shareholders |
|
|
(2,073 |
) |
|
|
(2,488 |
) |
Preferred share issuance costs write-off, net of discount |
|
|
(5 |
) |
|
|
(271 |
) |
|
|
|
|
|
|
|
Net income available to common shareholders |
|
$ |
13,875 |
|
|
$ |
14,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net income per common share — Basic: |
|
|
|
|
|
|
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|
Income from continuing operations |
|
$ |
0.28 |
|
|
$ |
0.21 |
|
Income from discontinued operations |
|
|
0.01 |
|
|
|
0.09 |
|
|
|
|
|
|
|
|
Net income per common share — Basic |
|
$ |
0.29 |
|
|
$ |
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net income per common share — Diluted: |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.28 |
|
|
$ |
0.21 |
|
Income from discontinued operations |
|
|
0.01 |
|
|
|
0.09 |
|
|
|
|
|
|
|
|
Net income per common share — Diluted |
|
$ |
0.29 |
|
|
$ |
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
48,202 |
|
|
|
46,853 |
|
Diluted |
|
|
48,202 |
|
|
|
47,014 |
|
The accompanying notes are an integral part of these consolidated condensed financial statements.
5
COLONIAL PROPERTIES TRUST
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
|
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|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
20,838 |
|
|
$ |
21,811 |
|
Adjustments to reconcile net income to net cash provided
by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
29,296 |
|
|
|
24,810 |
|
Loss (Income) from unconsolidated entities |
|
|
650 |
|
|
|
(10,269 |
) |
Gains from sales of property |
|
|
(8,537 |
) |
|
|
(5,236 |
) |
Impairment |
|
|
1,054 |
|
|
|
— |
|
Gain on retirement of debt |
|
|
(25,319 |
) |
|
|
(5,471 |
) |
Distributions of income from unconsolidated entities |
|
|
3,800 |
|
|
|
3,217 |
|
Other, net |
|
|
1,094 |
|
|
|
|
|
Change in: |
|
|
|
|
|
|
|
|
Restricted cash |
|
|
(1,652 |
) |
|
|
(160 |
) |
Accounts receivable |
|
|
175 |
|
|
|
7,328 |
|
Prepaid expenses |
|
|
(7,190 |
) |
|
|
(2,833 |
) |
Other assets |
|
|
3,832 |
|
|
|
(466 |
) |
Change in: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
(13,540 |
) |
|
|
(14,014 |
) |
Accrued interest |
|
|
2,830 |
|
|
|
2,582 |
|
Accrued expenses and other |
|
|
10,367 |
|
|
|
1,217 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
17,698 |
|
|
|
22,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Acquisition of properties |
|
|
— |
|
|
|
(7,369 |
) |
Development expenditures |
|
|
(22,758 |
) |
|
|
(70,409 |
) |
Tenant improvements and leasing commissions |
|
|
— |
|
|
|
(1,576 |
) |
Capital expenditures |
|
|
(2,759 |
) |
|
|
(4,584 |
) |
Proceeds from sales of property, net of selling costs |
|
|
32,805 |
|
|
|
6,430 |
|
Issuance of notes receivable |
|
|
(249 |
) |
|
|
(3,262 |
) |
Repayments of notes receivable |
|
|
55 |
|
|
|
4,259 |
|
Distributions from unconsolidated entities |
|
|
— |
|
|
|
17,194 |
|
Capital contributions to unconsolidated entities |
|
|
(41 |
) |
|
|
(4,517 |
) |
Sale of securities |
|
|
467 |
|
|
|
3,596 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
7,520 |
|
|
|
(60,238 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from additional borrowings |
|
|
350,000 |
|
|
|
57,630 |
|
Proceeds from dividend reinvestment plan and exercise of stock options |
|
|
109 |
|
|
|
491 |
|
Principal reductions of debt |
|
|
(71,777 |
) |
|
|
(73,692 |
) |
Payment of debt issuance costs |
|
|
(4,126 |
) |
|
|
(2,418 |
) |
Net change in revolving credit balances and overdrafts |
|
|
(280,788 |
) |
|
|
35,605 |
|
Dividends paid to common and preferred shareholders |
|
|
(16,042 |
) |
|
|
(28,233 |
) |
Distributions to minority partners in CRLP |
|
|
(2,215 |
) |
|
|
(4,996 |
) |
Repurchase of Preferred Series D Shares |
|
|
— |
|
|
|
(7,397 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(24,839 |
) |
|
|
(23,010 |
) |
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
379 |
|
|
|
(60,732 |
) |
Cash and cash equivalents, beginning of period |
|
|
9,185 |
|
|
|
93,033 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
9,564 |
|
|
$ |
32,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for interest, including amounts capitalized |
|
$ |
19,844 |
|
|
$ |
21,233 |
|
Cash paid during the period for income taxes |
|
|
— |
|
|
$ |
4,335 |
|
The accompanying notes are an integral part of these consolidated
condensed financial statements.
6
COLONIAL PROPERTIES TRUST
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2009
(Unaudited)
The consolidated condensed financial statements of Colonial Properties Trust have been
prepared pursuant to the Securities and Exchange Commission (“SEC”) rules and regulations. The
following notes, which represent interim disclosures as required by the SEC, highlight significant
changes to the notes included in the December 31, 2008 audited consolidated financial statements of
Colonial Properties Trust and should be read together with the consolidated financial statements
and notes thereto included in the Colonial Properties Trust 2008 Annual Report on Form 10-K.
Note 1 — Organization and Business
As used herein, “the Company” means Colonial Properties Trust, an Alabama real estate
investment trust (“REIT”) and one or more of its subsidiaries and other affiliates, including
Colonial Realty Limited Partnership, a Delaware limited partnership (“CRLP”), Colonial Properties
Services, Inc. (“CPSI”), Colonial Properties Services Limited Partnership (“CPSLP”) and CLNL
Acquisition Sub, LLC (“CLNL”). The Company was originally formed as a Maryland REIT on July 9,
1993 and reorganized as an Alabama REIT under a new Alabama REIT statute on August 21, 1995. The
Company is a multifamily-focused self-administered and self-managed equity REIT, which means that
it is engaged in the acquisition, development, ownership, management and leasing of multifamily
apartment communities and other commercial real estate properties. The Company’s activities
include full or partial ownership and operation of a portfolio of 192 properties as of March 31,
2009, consisting of multifamily and commercial properties located in Alabama, Arizona, Florida,
Georgia, Nevada, North Carolina, South Carolina, Tennessee, Texas and Virginia. As of March 31,
2009, including properties in lease-up, the Company owns interests in 117 multifamily apartment
communities (including 104 wholly-owned consolidated properties and 13 properties partially-owned
through unconsolidated joint venture entities), and 75 commercial properties, consisting of 48
office properties (including 3 wholly-owned consolidated properties and 45 properties
partially-owned through unconsolidated joint venture entities) and 27 retail properties (including
five wholly-owned consolidated properties and 22 properties partially-owned through unconsolidated
joint venture entities).
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
The Company owns substantially all of its assets and conducts all of its operations through
CRLP. The Company is the sole general partner of CRLP and owned an approximate 84.6% interest in
CRLP at March 31, 2009. Due to the Company’s ability as general partner to control CRLP and
various other subsidiaries, each such entity has been consolidated for financial reporting
purposes. Since CRLP is also required to file periodic reports with the SEC under the Securities
and Exchange Act of 1934, as amended, the financial statements of CRLP and its subsidiaries are
also presented separately in this joint filing by the Company and CRLP on Form 10-Q. The Company
allocates income to the noncontrolling interest in CRLP based on the weighted average
noncontrolling ownership percentage for the periods presented in the Consolidated Condensed
Statements of Income.
The Company also consolidates other entities in which it has a controlling interest or
entities where it is determined to be the primary beneficiary under Financial Accounting Standards Board (“FASB”) Interpretation No. 46R
(“FIN 46R”), “Consolidation of Variable Interest Entities.” Under FIN 46R, variable interest
entities (“VIEs”) are generally entities that lack sufficient equity to finance their activities
without additional financial support from other parties or whose equity holders lack adequate
decision-making ability. The primary beneficiary is required to consolidate the VIE for financial
reporting purposes. Additionally, Emerging Issues Task Force (“EITF”) Issue No. 04-5, “Determining
Whether a General Partner, or the General Partner as a Group, Controls a Limited Partnership or
Similar Entity When the Limited Partners Have Certain Rights” provides guidance in determining
whether a general partner controls and, therefore, should consolidate a limited partnership. The
application of FIN 46R and EITF No. 04-5 requires management to make significant estimates and
judgments about the Company’s and its other partners’ rights, obligations and economic interests in
such entities. Where the Company has less than a controlling financial interest in an entity or the
Company is not the primary beneficiary of the entity under FIN 46R, the entity is accounted for on
the equity method of accounting. Accordingly, the Company’s share of the net earnings or losses of
such unconsolidated entities is included in consolidated net income. A description of the Company’s
investments accounted for using the equity method of accounting is included in Note 11.
7
All significant intercompany accounts and transactions have
been eliminated in consolidation.
The Company recognizes noncontrolling interest in its Consolidated Condensed Balance Sheets
for partially-owned entities that the Company consolidates. The noncontrolling partners’ share of
current operations is reflected in noncontrolling interest of limited partners in the Consolidated
Condensed Statements of Income.
Reclassification
Certain prior year numbers have been reclassified to conform to current year presentation.
Federal Income Tax Status
The Company, which is considered a corporation for federal income tax purposes, qualifies as a
REIT and generally will not be subject to federal income tax to the extent it distributes its REIT
taxable income to its shareholders. REITs are subject to a number of organizational and
operational requirements. If 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.
The Company may also be subject to certain federal, state and local taxes on its income and
property and to federal income and excise taxes on its undistributed income even if it does qualify
as a REIT. For example, the Company will be subject to income tax to the extent it distributes
less than 100% of its REIT taxable income (including capital gains) and the Company has certain
gains that, if recognized, will be subject to corporate tax because it acquired the assets in
tax-free acquisitions of non-REIT corporations.
The Company’s consolidated financial statements include the operations of a taxable REIT
subsidiary, CPSI, which is not entitled to a dividends paid deduction and is subject to federal,
state and local income taxes. CPSI uses the liability method of accounting for income taxes.
Deferred income tax assets and liabilities result from temporary differences. Temporary
differences are differences between tax bases of assets and liabilities and their reported amounts
in the financial statements that will result in taxable or deductible amounts in future periods.
CPSI provides property development, construction services, leasing and management services for
joint-venture and third-party owned properties and administrative services to the Company and
engages in for-sale development and condominium conversion activity. The Company generally
reimburses CPSI for payroll and other costs incurred in providing services to the Company. All
inter-company transactions are eliminated in the accompanying consolidated condensed financial
statements. CPSI’s consolidated provision for income taxes was $0 and $0.6 million for the three
months ended March 31, 2009 and 2008, respectively. CPSI’s effective income tax rate was 0% and
38.1% for the three months ended March 31, 2009 and 2008, respectively. As of March 31, 2009, the
Company had a net deferred tax asset, after valuation allowance, of approximately $3.0 million,
which resulted primarily from the 2007 and 2008 impairment charges related to the Company’s
for-sale residential properties. The Company has assessed the recoverability of this asset and
believes that, as of March 31, 2009, recovery is more likely than not based upon future taxable
income and the ability to carry back taxable losses to prior periods.
Tax years 2005 through 2007 are subject to examination by the federal and state taxing
authorities. There are no income tax examinations currently in process.
The Company may from time to time be assessed interest or penalties by major tax
jurisdictions, although any such assessments historically have been minimal and immaterial to the
Company’s financial results. When the Company has received an assessment for interest and/or
penalties, it has been classified in the financial statements as income tax expense.
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment
Act of 2009 (the “Act”). Section 1231 of the Act allows some business taxpayers to elect to defer
cancellation of indebtedness income when the taxpayer repurchases applicable debt instruments after
December 31, 2008 and before January 1, 2011. Under the Act, the cancellation of indebtedness
income would be deferred for five years (until 2014), and the cancellation of indebtedness income
in 2010 would be deferred for four years (until 2014), subject in both cases to acceleration
events. After the deferral period, 20% of the cancellation of indebtedness income would be
included in taxpayer’s gross income in each of the next five taxable years. The deferral is an
irrevocable election made on the taxpayer’s income tax return for the taxable year of the
reacquisition. The Company is currently evaluating whether it qualifies for, and if so, whether it
will make this election with regard to debt repurchased in 2009.
8
Use of Estimates
The preparation of consolidated condensed financial statements in conformity with accounting
principles generally accepted in the United States (“GAAP”) requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual results could differ from those
estimates.
Unaudited Interim Statements
The consolidated condensed financial statements as of and for the three months ended March 31,
2009 and 2008 and related footnote disclosures are unaudited. In the opinion of management, such
financial statements reflect all adjustments necessary for a fair statement of the results of the
interim periods.
Revenue Recognition
Sales and the associated gains or losses on real estate assets, condominium conversion
projects and for-sale residential projects are recognized in accordance with the provisions of SFAS
No. 66, Accounting for Sales of Real Estate (“SFAS No. 66”). For condominium conversion and
for-sale residential projects, sales and the associated gains for individual condominium units are
recognized upon the closing of the sale transactions, as all conditions for full profit recognition
have been met (“Completed Contract Method”). Under SFAS No. 66, the Company uses the relative
sales value method to allocate costs and recognize profits from condominium conversion and for-sale
residential sales.
Estimated future warranty costs on condominium conversion and for-sale residential sales are
charged to cost of sales in the period when the revenues from such sales are recognized. Such
estimated warranty costs are approximately 0.5% of total revenue. As necessary, additional
warranty costs are charged to costs of sales based on management’s estimate of the costs to
remediate existing claims.
Revenue from construction contracts is recognized on the percentage-of-completion method,
measured by the percentage of costs incurred to date to estimated total costs. Provisions for
estimated losses on uncompleted contracts are made in the period in which such losses are
determined. Adjustments to estimated profits on contracts are recognized in the period in which
such adjustments become known.
Other income received from long-term contracts signed in the normal course of business,
including property management and development fee income, is recognized when earned for services
provided to third parties, including joint ventures in which the Company owns a noncontrolling
interest.
The Company, as lessor, retains substantially all the risks and benefits of property ownership
and accounts for its leases as operating leases. Rental income attributable to leases is
recognized on a straight-line basis over the terms of the leases. Certain leases contain
provisions for additional rent based on a percentage of tenant sales. Percentage rents are
recognized in the period in which sales thresholds are met. Recoveries from tenants for taxes,
insurance and other property operating expenses are recognized in the period the applicable costs
are incurred in accordance with the terms of the related lease.
Impairment
Management evaluates the recoverability of its investment in real estate assets in accordance
with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets (“SFAS No. 144”). This statement requires that long-lived assets be reviewed
for impairment whenever events or changes in circumstances indicate that recoverability of the
asset is not assured.
The Company evaluates the recoverability of its investments in real estate assets held for use
continuously and records an impairment charge when there is an indicator of impairment and the
undiscounted projected cash flows are less than the carrying amount for a particular asset. These
estimates of cash flows are significantly impacted by estimates of sales price, selling velocity,
sales incentives, construction costs and other factors. Due to uncertainties in the estimation
process, actual results could differ from such estimates.
9
Assets that are classified as held-for-sale are recorded at the lower of their carrying amount
or fair value less cost to sell. Management evaluates the fair value less cost to sell continuously
and records impairment charges when required. An asset is generally classified as held-for-sale
once management commits to a plan to sell the particular asset and has initiated an active program
to market the asset for sale.
Investment and Development
Investment and development expenses consist primarily of costs related to abandoned pursuits.
The Company incurs costs prior to land acquisition including contract deposits, as well as legal,
engineering and other external professional fees related to evaluating the feasibility of such
developments. If the Company determines that it is probable that it will not develop a particular
project, any related pre-development costs previously incurred are immediately expensed. The
Company recorded $0.2 million and $0.8 million in investment and development expenses during the
three months ended March 31, 2009 and 2008, respectively.
Notes Receivable
Notes receivable consists primarily of promissory notes issued by third parties. The Company
records notes receivable at cost. The Company evaluates the collectability of both interest and
principal for each of its notes to determine whether it is impaired. A note is considered to be
impaired when, based on current information and events, it is probable that the Company will be
unable to collect all amounts due according to the existing contractual terms. When a note is
considered to be impaired, the amount of the allowance is calculated by comparing the recorded
investment to either the value determined by discounting the expected future cash flows at the
note’s effective interest rate or to the value of the collateral if the note is collateral
dependent.
Note receivable activity for the three months ended March 31, 2009 consisted primarily of the
following: on February 2, 2009, the Company disposed of Colonial Promenade at Fultondale for
approximately $30.7 million, which included $16.9 million of seller-financing for a term of five
years at an interest rate of 5.6% (see Note 5).
The Company had recorded accrued interest related to its outstanding notes receivable of $0.1
million as of March 31, 2009 and December 31, 2008. As of March 31, 2009, the Company had a $1.5 million
reserve recorded against its outstanding notes receivable and accrued interest. The weighted
average interest rate on the notes receivable is approximately 5.7% and 5.9% per annum as of March
31, 2009 and December 31, 2008, respectively. Interest income is recognized on an accrual basis.
Assets and Liabilities Measured at Fair Value
On January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157,
Fair Value Measurements (“SFAS No. 157”) for financial assets and liabilities. On January 1, 2009,
the Company adopted the requirements of SFAS No. 157 for its non-financial assets and liabilities.
The adoption of SFAS No. 157 for non-financial assets and liabilities on January 1, 2009 did not
have a material impact on the Company’s consolidated financial statements. SFAS No. 157 defines
fair value, establishes a framework for measuring fair value, and expands disclosures about fair
value measurements. SFAS No. 157 applies to reported balances that are required or permitted to be
measured at fair value under existing accounting pronouncements; accordingly, the standard does not
require any new fair value measurements of reported balances.
SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific
measurement. Therefore, a fair value measurement should be determined based on the assumptions
that market participants would use in pricing an asset or liability. As a basis for considering
market participant assumptions in fair value measurements, SFAS No. 157 establishes a fair value
hierarchy that distinguishes between market participant assumptions based on market data obtained
from sources independent of the reporting entity (observable inputs that are classified within
Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market
participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or
liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted
prices included in Level 1 that are observable for the asset or liability, either directly or
indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active
markets, as well as inputs that are observable for the asset or liability (other than quoted
prices), such as interest rates, foreign exchange rates, and yield curves that are observable at
commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which
are typically based on an entity’s own assumptions, as there is little, if any, related market
activity. In instances where the determination of the fair value measurement is based on inputs from
10
different levels of the fair value hierarchy, the level in the fair value hierarchy within which
the entire fair value measurement falls is based on the lowest level input that is significant to
the fair value measurement in its entirety. The Company’s assessment of the significance of a
particular input to the fair value measurement in its entirety requires judgment, and considers
factors specific to the asset or liability.
New Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement, as discussed above.
SFAS No. 157 is effective for the Company’s financial assets and liabilities on January 1, 2008.
In February 2008, the FASB reached a conclusion to amend SFAS No. 157 to exclude SFAS No. 13
Accounting for Leases and its related interpretive accounting pronouncements. The Company adopted
the deferral provisions of FASB Staff Position, or FSP, SFAS No. 157-2, “Effective Date of FASB
Statement No. 157,” which delays the effective date of SFAS No. 157 for all nonrecurring fair value
measurements of non-financial assets and liabilities until fiscal years beginning after November
15, 2008. The Company also adopted FSP SFAS No. 157-3, “Determining the Fair Value of a Financial
Asset When the Market for That Asset is Not Active.” Adoption of these FSPs did not have a material
impact on the Company’s consolidated financial statements. In April 2009, the FASB issued FSP FAS
157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That are Not Orderly (“FSP FAS 157-4”). FSP
FAS 157-4 provides additional guidance for estimating fair value in accordance with SFAS No. 157
when the volume and level of activity for both financial and nonfinancial assets and liabilities
have significantly decreased. FSP FAS 157-4 is effective for fiscal years and interim periods
beginning after July 1, 2009 and shall be applied prospectively. The Company does not expect the
adoption of FSP FAS 157-4 to have a material impact on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements — an amendment of ARB No. 51 (“SFAS No. 160”). SFAS No. 160 amends Accounting
Research Bulletin 51 to establish accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that
should be reported as equity in the consolidated financial statements under certain circumstances.
SFAS No. 160 requires consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and the noncontrolling interest. SFAS No. 160 also requires
disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net
income attributable to the parent and to the noncontrolling interest. The provisions of SFAS No.
160 became effective for fiscal years beginning after November 15, 2008, including interim periods
beginning January 1, 2009. Based on the Company’s evaluation of SFAS No. 160, the Company has
concluded that it will continue to classify its noncontrolling interest related to CRLP common
units held by limited partners as “temporary equity” in its consolidated balance sheet. As
discussed in Note 9, these common units redeemable for either common shares of the Company or, at
the option of the Company, cash equal to the fair market value of a common share at the time of
redemption. The Company has classified these common units of CRLP as temporary equity. This is
primarily due to the fact that the Company has provided registration rights to its common
unitholders, which effectively require the Company to provide the ability to resell exchanged
shares when presented by the exchanging unitholders. As the ability to effectively issue
marketable shares under the provision of the Registration Rights Agreement is outside of the
exclusive control of the Company, the Company has concluded that it does not meet the requirements
for permanent equity classification under the provisions of EITF 00-19, Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock. All other
noncontrolling interests are classified as equity in the accompanying consolidated condensed
balance sheets. The adoption of SFAS No. 160 did not have a material impact on the Company’s
consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS No. 141(R)”),
which changes how business acquisitions are accounted for and will impact financial statements both
on the acquisition date and in subsequent periods. SFAS No. 141(R) requires the acquiring entity
in a business combination to recognize all (and only) the assets acquired and liabilities assumed
in the transaction and establishes the acquisition-date fair value as the measurement objective for
all assets acquired and liabilities assumed in a business combination. Certain provisions of this
standard will, among other things, impact the determination of acquisition-date fair value of
consideration paid in a business combination (including contingent consideration); exclude
transaction costs from acquisition accounting; and change accounting practices for acquired
contingencies, acquisition-related restructuring costs, and tax benefits. This Statement applies
prospectively to business combinations for which the acquisition date is on or after the beginning
of the first annual reporting period beginning on or after December 15, 2008. The adoption of SFAS
No. 141(R) did not have a material impact on the Company’s consolidated financial statements. In
April 2009, the FASB issued FSP FAS 141 (R)-1, Accounting for Assets Acquired and Liabilities
Assumed in a Business Combination That Arise from Contingencies (“FSP FAS 141 (R)-1”). FSP FAS 141
(R)-1 provides additional guidance on initial recognition and measurement, subsequent measurement
and accounting, and disclosure of assets and liabilities arising from contingencies in a business
11
combination. FSP FAS 141 (R)-1 is
effective for fiscal years and interim periods beginning after December 15, 2008. The Company does
not expect the adoption of FSP FAS 141 (R)-1 to have a material impact on its consolidated
financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities (“SFAS No. 161”), an amendment of FASB Statement No. 133. SFAS No. 161 is
intended to help investors better understand how derivative instruments and hedging activities
affect an entity’s financial position, financial performance and cash flows through enhanced
disclosure requirements. The enhanced disclosures primarily surround disclosing the objectives and
strategies for using derivative instruments by their underlying risk as well as a tabular format of
the fair values of the derivative instruments and their gains and losses. SFAS No.161 is effective
for financial statements issued for fiscal years and interim periods beginning after November 15,
2008, with early application encouraged. The adoption of SFAS No. 161 did not have a material
impact on the Company’s consolidated financial statements, but has resulted in certain additional
disclosures relating to the Company’s interest rate swaps (see Note 13).
In April 2008, the FASB issued FSP FAS No. 142-3, Determination of the Useful Life of
Intangible Assets (“FSP FAS No. 142-3”). This FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of a recognized
intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”. This FSP allows the
Company to use its historical experience in renewing or extending the useful life of intangible
assets. This FSP is effective for fiscal years beginning after December 15, 2008 and interim
periods within those fiscal years and shall be applied prospectively to intangible assets acquired
after the effective date. The application of this FSP did not have a material impact on the
Company’s consolidated financial statements.
In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities (“FSP EITF No. 03-6-1”), which
addresses whether instruments granted in share-based payment transactions are participating
securities prior to vesting and, therefore, need to be included in the earnings allocation in
computing earnings per share under the two-class method as described in SFAS No. 128, “Earnings per
Share.” Under the guidance in FSP EITF No. 03-6-1, unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the computation of earnings per share pursuant to
the two-class method. The FSP is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal years. All prior-period
earnings per share data presented shall be adjusted retrospectively. The adoption of FSP EITF No.
03-6-1 requires the Company to include participating securities in the computation of earnings per
share calculation (see Note 8). The application of this FSP did not have a material impact on the
Company’s consolidated financial statements.
In December 2008, the FASB’s Emerging Issues Task Force issued EITF 08-6, Equity Method
Investment Accounting Considerations, (“EITF 08-6”) which, amongst other items, clarifies that the initial
carrying value of an equity method investment should be based on the cost accumulation model. EITF
08-6 is effective on a prospective basis in fiscal years beginning on or after December 15, 2008,
and interim periods within those fiscal years. The application of EITF 08-6 did not have a
material impact on the Company’s consolidated financial statements.
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments (“FSP FAS 107-1”). FSP FAS 107-1 amends SFAS No. 107 to require
disclosures about fair value of financial instruments for interim reporting periods of publicly
traded companies in addition to the annual financial statements. FSP FAS 107-1 also amends APB No.
28 to require those disclosures in summarized financial information at interim reporting periods.
FSP FAS 107-1 is effective for interim periods ending after June 15, 2009. Prior period
presentation is not required for comparative purposes at initial adoption. The Company does not
expect the adoption of FSP FAS 107-1 to have a material impact on its consolidated financial
statements.
Note 3 — Restructuring Charges
In light of the ongoing recession and credit crisis, the Company announced in early 2009 that
it has renewed its focus on maintaining a strong balance sheet, improving liquidity, addressing
near term debt maturities, managing existing properties and operating the Company’s portfolio
efficiently, including reducing overhead and postponing future development activities. During the
first quarter of 2009, the Company reduced its workforce by an additional 30 employees through the
elimination of certain personnel resulting in the Company incurring an aggregate of $0.8 million in
termination benefits and severance related charges, of which $0.5 million is included in “Accrued
expenses” on the Company’s Consolidated Balance Sheet at March 31, 2009. Of the $0.8 million in
restructuring charges, approximately $0.4 million was associated with the Company’s multifamily
segment, including $0.2 million associated with development personnel; $0.3 million with the
Company’s commercial segment, including $0.2 million associated with development personnel;
and $0.1 million of these restructuring costs were non-divisional charges.
12
The expenses of the Company’s reduction in workforce and other termination costs, as described
above, are included in “Restructuring charges” in the Consolidated Statements of Income for the
quarter ended March 31, 2009, pursuant to SFAS No. 146.
Note 4 — Impairment
On March 11, 2009, the Company completed the sale of the remaining 17 unsold units at the
Regents Park for-sale residential project located in Atlanta, Georgia for $16.3 million in cash.
Since the sales price exceeded the carrying value of the units, the Company recorded an
impairment charge of $0.3 million, which is reflected in “Income from discontinued operations” in
the Consolidated Statements of Income for the quarter ended March 31, 2009 (see Note 6).
Additionally, in February 2009, the Company reached an agreement in principle to transfer its
remaining noncontrolling joint venture interest in Colonial Pinnacle Craft Farms I, a
220,000-square-foot (excluding anchor-owned square-footage) retail shopping center located in Gulf
Shores, Alabama, to the majority joint venture partner. As a result of this agreement and the
resulting asset valuation, the Company recorded an impairment charge of approximately $0.7 million
during the three months ended March 31, 2009, which represents the Company’s remaining equity
interest in the joint venture (see Note 11).
The Company calculates the fair value of each property and development project evaluated for
impairment under SFAS No. 144 based on current market conditions and assumptions made by
management, which may differ materially from actual results if market conditions continue to
deteriorate or improve. Specific facts and circumstances of each project are evaluated, including
local market conditions, traffic, sales velocity, relative pricing, and cost structure. The
Company will continue to monitor the specific facts and circumstances at the Company’s for-sale
properties and development projects. If market conditions do not improve or if there is further
market deterioration, it may impact the number of projects the Company can sell, the timing of the
sales and/or the prices at which the Company can sell them in future periods. If the Company is
unable to sell projects, the Company may incur additional impairment charges on projects previously
impaired as well as on projects not currently impaired but for which indicators of impairment may
exist, which would decrease the value of the Company’s assets as reflected on the balance sheet and
adversely affect net income and equity (see Note 2). There can be no assurances of the amount or
pace of future for-sale residential sales and closings, particularly given current market
conditions.
Note 5 — Disposition Activity
On February 2, 2009, the Company disposed of Colonial Promenade at Fultondale, a 159,000
square-foot (excluding anchor-owned square footage) retail asset, developed by the Company and
located in Birmingham, Alabama. The Company sold this asset for approximately $30.7 million, which
included $16.9 million of seller-financing for a term of five years at an interest rate of 5.6%.
The net proceeds were used to reduce the amount outstanding on the Company’s unsecured credit
facility. Because the Company provided seller-financing in the disposition, the gain on sale is
included in continuing operations.
In accordance with SFAS No. 144, net income and gain on disposition of real estate for
properties sold in which the Company does not maintain continuing involvement are reflected in the
Consolidated Condensed Statements of Income as “Discontinued operations” for all periods presented.
During the three months ended March 31, 2009 and 2008, all of the operating properties sold with
no continuing interest were classified as discontinued operations. The following is a listing of
the properties the Company disposed of in 2009 and 2008 that are classified as discontinued
operations:
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units/ Square |
|
Property |
|
Location |
|
|
Date Sold |
|
|
Feet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily |
|
|
|
|
|
|
|
|
|
|
|
|
Colonial Grand at Hunter’s Creek |
|
Orlando, FL |
|
September 2008 |
|
|
496 |
|
Colonial Grand at Shelby Farms
I & II |
|
Memphis, TN |
|
June 2008 |
|
|
450 |
|
Colonial Village at Bear Creek |
|
Fort Worth, TX |
|
June 2008 |
|
|
120 |
|
Colonial Village at Pear Ridge |
|
Dallas, TX |
|
June 2008 |
|
|
242 |
|
Colonial Village at Bedford |
|
Fort Worth, TX |
|
June 2008 |
|
|
238 |
|
Cottonwood Crossing |
|
Fort Worth, TX |
|
June 2008 |
|
|
200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office |
|
|
|
|
|
|
|
|
|
|
|
|
250 Commerce Center |
|
Montgomery, AL |
|
February 2008 |
|
|
37,000 |
|
Additionally, the Company classifies real estate assets as held for sale only after the
Company has received approval by its internal investment committee, the Company has commenced an
active program to sell the assets, the Company does not intend to retain a continuing interest in
the property, and in the opinion of the Company’s management, it is probable the assets will sell
within the next 12 months. As of March 31, 2009, the Company had classified two multifamily
apartment communities, one retail asset, two condominium conversion properties and nine for-sale
developments (including four for-sale projects that were classified as future developments at
December 31, 2008) as held for sale. These real estate assets are reflected in the accompanying
Consolidated Condensed Balance Sheet at $21.8 million, $16.9 million, $0.5 million and $116.4 million,
respectively, as of March 31, 2009, which represents the lower of depreciated cost or fair value
less costs to sell. There is no mortgage debt associated with these properties as of March 31,
2009. The operations of these held for sale properties have been reclassified to discontinued
operations for all periods presented in accordance with SFAS No. 144. Depreciation or amortization
expense suspended as a result of assets being classified as held for sale for the three months
ended March 31, 2009 was approximately $0.3 million. There is no depreciation or amortization
expense suspended as a result of these assets being classified as held for sale during the three
months ended March 31, 2008.
In accordance with SFAS No. 144, the operating results of properties (excluding condominium
conversion properties not previously operated) designated as held for sale, are included in
discontinued operations in the Consolidated Condensed Statements of Income for all periods
presented. Also under the provisions of SFAS No. 144, the reserves, if any, to write down the
carrying value of the real estate assets designated and classified as held for sale are also
included in discontinued operations (excluding condominium conversion properties not previously
operated). Additionally, under SFAS No. 144, any impairment losses on assets held for continuing
use are included in continuing operations.
Below is a summary of the operations of the properties sold or classified as held for sale
during the three months ended March 31, 2009 and 2008 that are classified as discontinued
operations:
14
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
(amounts in thousands) |
|
2009 |
|
|
2008 |
|
Property revenues: |
|
|
|
|
|
|
|
|
Base rent |
|
$ |
1,162 |
|
|
$ |
4,667 |
|
Tenant recoveries |
|
|
65 |
|
|
|
24 |
|
Other revenue |
|
|
104 |
|
|
|
473 |
|
|
|
|
|
|
|
|
Total revenues |
|
|
1,331 |
|
|
|
5,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and administrative expenses |
|
|
645 |
|
|
|
2,392 |
|
Impairment |
|
|
318 |
|
|
|
— |
|
Depreciation and amortization |
|
|
139 |
|
|
|
447 |
|
|
|
|
|
|
|
|
Total expenses |
|
|
1,102 |
|
|
|
2,839 |
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
— |
|
|
|
40 |
|
Other expenses |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
Income from discontinued operations before net gain
on disposition of discontinued operations |
|
|
229 |
|
|
|
2,365 |
|
Net gain on disposition of discontinued operations |
|
|
45 |
|
|
|
2,913 |
|
Noncontrolling interest in CRLP from discontinued operations |
|
|
(115 |
) |
|
|
(947 |
) |
Noncontrolling interest to limited partners |
|
|
468 |
|
|
|
141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
$ |
627 |
|
|
$ |
4,472 |
|
|
|
|
|
|
|
|
Note 6 — For-Sale Activities
On March 11, 2009, the Company completed the sale of the remaining 17 unsold units at the
Regents Park for-sale residential project located in Atlanta, Georgia, for $16.3 million in cash,
which resulted in a $0.3 million impairment charge (see Note 4). As a result of the sale price,
the Company recorded an impairment charge of $0.3 million. The disposition eliminates the
operating expenses and costs to carry the associated units. The proceeds from the sale were used
to reduce the outstanding balance on the Company’s unsecured line of credit.
During the three months ended March 31, 2009 and 2008, the Company, through CPSI, sold 27
(including the 17 units at Regents Park) and 14 units, respectively, at its for-sale residential
development properties. During the three months ended March 31, 2009 the Company, through CPSI,
disposed of six condominium units at the Company’s condominium conversion properties. The Company,
through CPSI, did not close on any units at its condominium conversion properties during the three
months ended March 31, 2008. During the three months ended March 31, 2009 and 2008, gains from
sales of property on the Company’s Consolidated Condensed Statements of Income included $47,000
($21,000, net of income taxes) and $33,000 ($65,000 including an income tax benefit), respectively,
from these condominium and for-sale residential sales. The following is a summary of revenues and
costs of condominium conversion and for-sale residential activities (including activities in
continuing and discontinued operations) for the three months ended March 31, 2009 and 2008:
15
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
(amounts in thousands) |
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Condominium revenues, net |
|
$ |
327 |
|
|
$ |
— |
|
Condominium costs |
|
|
(259 |
) |
|
|
— |
|
|
|
|
|
|
|
|
Gains (losses) on condominium sales, before income taxes |
|
|
68 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For-sale residential revenues, net |
|
|
19,234 |
|
|
|
2,776 |
|
For-sale residential costs |
|
|
(19,255 |
) |
|
|
(2,743 |
) |
|
|
|
|
|
|
|
Gains on for-sale residential sales, before income taxes |
|
|
(21 |
) |
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Provision) / benefit for income taxes |
|
|
(26 |
) |
|
|
32 |
|
|
|
|
|
|
|
|
Gains on condominium conversions and for-sale
residential sales,
net of income taxes |
|
$ |
21 |
|
|
$ |
65 |
|
|
|
|
|
|
|
|
The net gains on condominium unit sales are classified in discontinued operations if the
related condominium property was previously operated by the Company as an apartment community. For
the three months ended March 31, 2009, gains on condominium unit sales of $42,000, net of income
taxes, are included in discontinued operations. For the three months ended March 31, 2008, there
were no gains related to condominium unit sales included in discontinued operations.
For cash flow statement purposes, the Company classifies capital expenditures for newly
developed for-sale residential communities and for other condominium conversion communities in
investing activities. Likewise, the proceeds from the sales of condominium units and other
residential sales are also included in investing activities.
Note 7 — Undeveloped Land and Construction in Progress
The Company’s ongoing consolidated development projects are in various stages of the
development cycle. During the three months ended March 31, 2009, the Company completed the
construction of a multifamily development adding 300 apartment homes to the portfolio. This
development, Colonial Grand at Onion Creek, located in Austin, Texas, had a total cost of
approximately $32.3 million. Active developments as of March 31, 2009 consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
Costs |
|
|
|
|
|
|
|
Units/ |
|
|
|
|
|
|
Estimated |
|
|
Capitalized |
|
|
|
|
|
|
|
Square |
|
|
Estimated |
|
|
Total Costs |
|
|
to Date |
|
|
|
Location |
|
|
Feet (1) |
|
|
Completion |
|
|
(in thousands) |
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily Projects: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Colonial Grand at Desert Vista |
|
Las Vegas, NV |
|
|
380 |
|
|
|
2009 |
|
|
$ |
53,000 |
|
|
$ |
47,897 |
|
Colonial Grand at Ashton Oaks |
|
Austin, TX |
|
|
362 |
|
|
|
2009 |
|
|
|
35,100 |
|
|
|
32,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Projects: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Colonial Promenade Tannehill (2) |
|
Birmingham, AL |
|
|
201 |
|
|
|
2009 |
|
|
|
7,100 |
|
|
|
2,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction in Progress for Active Developments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
82,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Footnotes on following page |
16
(1) |
|
Square footage is presented in thousands. Square footage for the retail assets
excludes anchor-owned square-footage. |
(2) |
|
Total cost and development costs recorded through March 31, 2009 have been reduced by
$50.2 million for the portion of the development that was placed into service through March
31, 2009. Total cost for this project is expected to be approximately $57.3 million, of
which, $10.5 million is expected to be received from the city as reimbursement for
infrastructure costs. |
In addition to the Company’s consolidated developments included in the table above, the
Company also has an unconsolidated commercial development in progress, Colonial Pinnacle Turkey
Creek III, located in Knoxville, Tennessee. As of March 31, 2009, the Company’s pro-rata portion
of the costs incurred for this development is $11.5 million, with an additional $3.4 million
anticipated to complete the project.
Interest capitalized on construction in progress during the three months ended March 31, 2009
and 2008 was $2.2 million and $6.3 million, respectively.
There are no for-sale residential projects actively under development as of March 31, 2009.
As previously announced, in January 2009, the Company decided to postpone future development
activities (other than land parcels held for future sale and for-sale residential and mixed-use
developments, which the Company plans to sell) until it determines that the current economic
environment has sufficiently improved. These deferred developments and undeveloped land include:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs |
|
|
|
|
|
|
|
Total Units/ |
|
|
Capitalized |
|
|
|
|
|
|
|
Square Feet (1) |
|
|
to Date |
|
|
|
Location |
|
|
(unaudited) |
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily Projects: |
|
|
|
|
|
|
|
|
|
|
|
|
Colonial Grand at Sweetwater |
|
Phoenix, AZ |
|
|
195 |
|
|
$ |
7,281 |
|
Colonial Grand at Thunderbird |
|
Phoenix, AZ |
|
|
244 |
|
|
|
8,368 |
|
Colonial Grand at Randal Park (2) |
|
Orlando, FL |
|
|
750 |
|
|
|
19,576 |
|
Colonial Grand at Hampton Preserve |
|
Tampa, FL |
|
|
486 |
|
|
|
14,932 |
|
Colonial Grand at South End |
|
Charlotte, NC |
|
|
353 |
|
|
|
12,246 |
|
Colonial Grand at Wakefield |
|
Raleigh, NC |
|
|
369 |
|
|
|
7,210 |
|
Colonial Grand at Azure |
|
Las Vegas, NV |
|
|
188 |
|
|
|
7,798 |
|
Colonial Grand at Cityway |
|
Austin, TX |
|
|
320 |
|
|
|
4,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
|
|
|
|
|
|
|
|
|
|
|
Colonial Pinnacle Craft Farms II (2) |
|
Gulf Shores, AL |
|
|
74 |
|
|
|
2,027 |
|
Colonial Promenade Huntsville |
|
Huntsville, AL |
|
|
111 |
|
|
|
9,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Projects and Undeveloped Land |
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily |
|
|
|
|
|
|
|
|
|
|
3,080 |
|
Office |
|
|
|
|
|
|
|
|
|
|
2,104 |
|
Retail |
|
|
|
|
|
|
|
|
|
|
6,269 |
|
For-Sale Residential |
|
|
|
|
|
|
|
|
|
|
38,890 |
|
Mixed-Use |
|
|
|
|
|
|
|
|
|
|
64,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Construction in
Progress (3) |
|
|
|
|
|
|
|
|
|
$ |
208,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Square footage is presented in thousands. Square footage for the retail assets
excludes anchor-owned square-footage. |
|
(2) |
|
These projects are part of mixed-use developments. |
|
(3) |
|
Four for-sale projects were reclassed from “Undeveloped land and construction in
progress” to “Real estate assets held for sale, net” on the Company’s Consolidated
Condensed Balance Sheet as of March 31, 2009. |
17
Note 8 — Net Income Per Share
For the three months ended March 31, 2009 and 2008, a reconciliation of the numerator and
denominator used in the basic and diluted income from continuing operations per common share is as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
(amounts in thousands) |
|
2009 |
|
|
2008 |
|
|
Numerator: |
|
|
|
|
|
|
|
|
Net income attributable to parent company |
|
$ |
15,953 |
|
|
$ |
16,986 |
|
Less: |
|
|
|
|
|
|
|
|
Preferred stock dividends |
|
|
(2,073 |
) |
|
|
(2,488 |
) |
Income allocated to participating securities |
|
|
(106 |
) |
|
|
(94 |
) |
Preferred share issuance costs write-off, net of discount |
|
|
(5 |
) |
|
|
(271 |
) |
|
|
|
|
|
|
|
Income from continuing operations available to common shareholders |
|
$ |
13,769 |
|
|
$ |
14,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Denominator for basic net income per share — weighted average common shares |
|
|
48,202 |
|
|
|
46,853 |
|
Effect of dilutive securities |
|
|
— |
|
|
|
161 |
|
|
|
|
|
|
|
|
Denominator for diluted net income per share — adjusted weighted average common
shares |
|
|
48,202 |
|
|
|
47,014 |
|
|
|
|
|
|
|
|
For the three months ended March 31, 2009, there were 1,745,452 outstanding share equivalents
(stock options and restricted stock) excluded from the computation of diluted net income per share
because the grant date prices were greater than the average market price of the common shares, and
therefore, the effect would be anti-dilutive. For the three months ended March 31, 2008 , there
were 567,357 outstanding share equivalents (stock options and restricted stock), excluded from the
computation of diluted net income per share because the grant date prices were greater than the
average market price of the common shares, and therefore, the effect would be anti-dilutive.
Note 9 — Equity
The following table presents the changes in the issued common shares of beneficial interest
since December 31, 2008 (excluding 8,855,184 and 8,860,971 units of CRLP at March 31, 2009 and
December 31, 2008, respectively, which are redeemable for either cash equal to the fair market
value of a common share at the time of redemption or, at the option of the Company, one common
share):
|
|
|
|
|
Issued at December 31, 2008 |
|
|
54,169,418 |
|
|
|
|
|
|
Restricted shares issued (cancelled), net |
|
|
43,527 |
|
Redemption of CRLP units for common shares |
|
|
5,787 |
|
Issuances under other employee and nonemployee share plans |
|
|
18,784 |
|
|
|
|
|
|
|
|
|
|
|
Issued at March 31, 2009 |
|
|
54,237,516 |
|
|
|
|
|
|
18
In January 2008, the Company’s Board of Trustees authorized the repurchase of up to $25.0
million of the Company’s 81/8% Series D preferred depositary shares in a limited number of
separate, privately negotiated transactions. Each Series D preferred depositary share represents 1/10 of a share of the Company’s
81/8% Series D
Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per share. During
the three months ended March 31, 2008, the Company repurchased 306,750 shares of its outstanding
Series D preferred depositary shares in privately negotiated transactions for an aggregate purchase
price of $7.7 million, at an average price of $24.86 per depositary share. The Company received a
discount to the liquidation preference price of $25.00 per depositary share, of approximately $0.1
million, on the repurchase and wrote off approximately $0.3 million of issuance costs.
On October 29, 2008, the Company’s Board of Trustees authorized a repurchase program which
allows the Company to repurchase up to an additional $25.0 million of our outstanding Series D
preferred depositary shares over a 12 month period. The Company did not repurchase any of its
outstanding Series D preferred depositary shares during the three months ended March 31, 2009.
The Company will continue to monitor the equity markets and repurchase preferred shares if the
repurchases meet the required criteria, as funds are available. If the Company were to
repurchase outstanding Series D depositary shares, it would expect to record additional non-cash
charges related to the write-off of Series D preferred issuance costs.
In connection with our adoption of SFAS No. 160 effective January 1, 2009, the Company also
adopted the recent revisions to EITF Topic D-98, “Classification and Measurement of Redeemable
Securities (“D-98”).” As a result of the Company’s adoption of these standards, amounts
previously reported as limited partners’ interest in consolidated partnerships on the Company’s
consolidated condensed balance sheets are now presented as noncontrolling interests within
equity. There has been no change in the measurement of this line item from amounts previously
reported. Additionally, amounts previously reported as preferred units in CRLP are now
presented as noncontrolling interests within equity. There has been no change in the
measurement of this line item from amounts previously reported. Minority interests in common
units of CRLP have also been re-characterized as noncontrolling interests, but because of the
redemption feature of these units, they have been included in the temporary equity section
(between liabilities and equity) of the Company’s Consolidated Condensed Balance Sheets. These
units are redeemable at the option of the holders for cash equal to the fair market value of a
common share at the time of redemption or, at the option of the Company, one common share.
Based on the requirements of D-98, the measurement of noncontrolling interests is now presented
at “redemption value” — i.e., the fair value of the units (or limited partners’ interests) as
of the balance sheet date (based on the Company’s share price multiplied by the number of
outstanding units), or the aggregate value of the individual partners’ capital balances,
whichever is greater. Previously, these interests were measured based on the noncontrolling
interests in CRLP’s pro rata share of total common interests, in accordance with EITF 95-7. The
revised presentation and measurement required by SFAS No. 160 and D-98 has been adopted
retrospectively. A reconciliation between the amounts previously reported and their current
measurements at December 31, 2008 are presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling |
|
|
|
Noncontrolling |
|
|
Additional |
|
|
Interests in |
|
|
|
Interests in |
|
|
Paid-in |
|
|
Temporary |
|
|
|
Equity |
|
|
Capital |
|
|
Equity |
|
Balances at December 31, 2007, as previously reported |
|
$ |
— |
|
|
$ |
1,577,030 |
|
|
$ |
319,543 |
|
Allocation to noncontrolling interests in CRLP |
|
|
— |
|
|
|
(14,784 |
) |
|
|
14,784 |
|
Adjustment of common units to “redemption value” |
|
|
— |
|
|
|
17,722 |
|
|
|
(17,722 |
) |
Impact of the adoption of SFAS No. 160 on preferred units |
|
|
100,000 |
|
|
|
— |
|
|
|
(100,000 |
) |
Impact of the adoption of SFAS No. 160 on limited partners’ interests in
consolidated partnerships |
|
|
2,439 |
|
|
|
— |
|
|
|
(2,439 |
) |
|
|
|
|
|
|
|
|
|
|
Adjusted balance as of December 31, 2007 |
|
$ |
102,439 |
|
|
$ |
1,579,968 |
|
|
$ |
214,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008, as previously reported |
|
$ |
— |
|
|
$ |
1,578,992 |
|
|
$ |
267,696 |
|
Allocation to noncontrolling interests in CRLP |
|
|
— |
|
|
|
(30,688 |
) |
|
|
30,688 |
|
Adjustment of common units to “redemption value” |
|
|
— |
|
|
|
71,593 |
|
|
|
(71,593 |
) |
Impact of the adoption of SFAS No. 160 on preferred units |
|
|
100,000 |
|
|
|
— |
|
|
|
(100,000 |
) |
Impact of the adoption of SFAS No. 160 on limited partners’ interests in
consolidated partnerships |
|
|
1,943 |
|
|
|
— |
|
|
|
(1,943 |
) |
|
|
|
|
|
|
|
|
|
|
Adjusted balance as of December 31, 2008 |
|
$ |
101,943 |
|
|
$ |
1,619,897 |
|
|
$ |
124,848 |
|
|
|
|
|
|
|
|
|
|
|
19
The composition of noncontrolling interests included in equity is as follows at March 31, 2009
and December 31, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Preferred units in CRLP |
|
$ |
100,000 |
|
|
$ |
100,000 |
|
Limited partners’ interests in consolidated
partnerships |
|
|
1,489 |
|
|
|
1,943 |
|
|
|
|
|
|
|
|
Total |
|
$ |
101,489 |
|
|
$ |
101,943 |
|
|
|
|
|
|
|
|
The changes in redeemable noncontrolling interests for the three months ended March 31, 2009
and the year ended December 31, 2008 are presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
Ended |
|
|
Year Ended |
|
|
|
March 31, 2009 |
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
124,848 |
|
|
$ |
214,166 |
|
Redemption value of allocation of
redeemable noncontrolling interests |
|
|
(7,168 |
) |
|
|
(51,795 |
) |
Redemption of CRLP units for common shares |
|
|
(31 |
) |
|
|
(9,287 |
) |
Distributions to noncontrolling interests |
|
|
(2,215 |
) |
|
|
(17,011 |
) |
Net income (loss) |
|
|
2,531 |
|
|
|
(11,225 |
) |
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
117,965 |
|
|
$ |
124,848 |
|
|
|
|
|
|
|
|
Also effective with the adoption of SFAS No. 160, previously reported minority interests have
been re-characterized on the accompanying Consolidated Condensed Statements of Income to
noncontrolling interests and placed below “Net income (loss)” before arriving at “Net income (loss)
attributable to parent company.”
Note 10 — Segment Information
Prior to December 31, 2008, the Company had four operating segments: multifamily, office,
retail and for-sale residential. Since January 1, 2009, the Company has managed its business based
on the performance of two operating segments: multifamily and commercial. The change in reporting
segments is a result of the Company’s strategic initiative to become a multifamily-focused REIT
including reorganizing the Company and streamlining the business. The multifamily and commercial
segments have separate management teams that are responsible for acquiring, developing, managing
and leasing properties within each respective segment. The multifamily management team is
responsible for all aspects of for-sale developments, including disposition activities, as well as
the condominium conversion properties and related sales. The multifamily segment includes the
operations and assets of the for-sale developments due to the insignificance of these operations
(which were previously reported as a separate operating segment) in the periods presented.
The pro-rata portion of the revenues, net operating income (“NOI”), and assets of the
partially-owned unconsolidated entities that the Company has entered into are included in the
applicable segment information. Additionally, the revenues and NOI of properties sold that are
classified as discontinued operations are also included in the applicable segment information. In
reconciling the segment information presented below to total revenues, income from continuing
operations, and total assets, investments in partially-owned unconsolidated entities are eliminated
as equity investments and their related activity are reflected in the consolidated financial
statements as investments accounted for under the equity method, and discontinued operations are
reported separately. Management evaluates the performance of its multifamily and commercial
segments and allocates resources to them based on segment NOI. Segment NOI is defined as total
property revenues, including unconsolidated partnerships and joint ventures, less total property
operating expenses (such items as repairs and maintenance, payroll, utilities, property taxes, insurance and advertising). Presented below is segment
information, for the multifamily and commercial segments, including the reconciliation of total
segment revenues to total revenues and total segment NOI to income from continuing operations for
the three months ended March 31, 2009 and 2008, and total segment assets to total assets as of
March 31, 2009 and December 31, 2008.
20
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
Revenues: |
|
|
|
|
|
|
|
|
Segment Revenues: |
|
|
|
|
|
|
|
|
Multifamily |
|
$ |
77,142 |
|
|
$ |
78,295 |
|
Commercial |
|
|
23,474 |
|
|
|
23,318 |
|
|
|
|
|
|
|
|
Total Segment Revenues |
|
|
100,616 |
|
|
|
101,613 |
|
|
|
|
|
|
|
|
|
|
Partially-owned unconsolidated entities — Multifamily |
|
|
(1,999 |
) |
|
|
(2,219 |
) |
Partially-owned unconsolidated entities — Commercial |
|
|
(16,486 |
) |
|
|
(18,481 |
) |
Construction revenues |
|
|
35 |
|
|
|
7,879 |
|
Other non-property related revenue |
|
|
3,455 |
|
|
|
5,206 |
|
Discontinued operations property revenues |
|
|
(1,331 |
) |
|
|
(5,163 |
) |
|
|
|
|
|
|
|
Total Consolidated Revenues |
|
|
84,290 |
|
|
|
88,835 |
|
|
|
|
|
|
|
|
|
|
NOI: |
|
|
|
|
|
|
|
|
Segment NOI: |
|
|
|
|
|
|
|
|
Multifamily |
|
|
44,585 |
|
|
|
47,097 |
|
Commercial |
|
|
15,059 |
|
|
|
15,191 |
|
|
|
|
|
|
|
|
Total Segment NOI |
|
|
59,644 |
|
|
|
62,288 |
|
|
|
|
|
|
|
|
|
|
Partially-owned unconsolidated entities — Multifamily |
|
|
(1,031 |
) |
|
|
(1,129 |
) |
Partially-owned unconsolidated entities — Commercial |
|
|
(10,572 |
) |
|
|
(11,905 |
) |
Unallocated corporate revenues |
|
|
3,455 |
|
|
|
5,206 |
|
Discontinued operations property NOI |
|
|
(368 |
) |
|
|
(2,771 |
) |
Impairment — discontinued operations (1) |
|
|
(318 |
) |
|
|
— |
|
Construction NOI |
|
|
1 |
|
|
|
613 |
|
Property management expenses |
|
|
(1,918 |
) |
|
|
(2,241 |
) |
General and administrative expenses |
|
|
(4,383 |
) |
|
|
(5,780 |
) |
Management fee and other expenses |
|
|
(4,217 |
) |
|
|
(3,591 |
) |
Restructuring charges |
|
|
(812 |
) |
|
|
— |
|
Investment and development (2) |
|
|
(165 |
) |
|
|
(769 |
) |
Impairment — continuing operations (3) |
|
|
(736 |
) |
|
|
— |
|
Depreciation |
|
|
(27,785 |
) |
|
|
(23,257 |
) |
Amortization |
|
|
(873 |
) |
|
|
(759 |
) |
|
|
|
|
|
|
|
Income from operations |
|
|
9,922 |
|
|
|
15,905 |
|
|
|
|
|
|
|
|
Total other income, net (4) |
|
|
10,642 |
|
|
|
628 |
|
|
|
|
|
|
|
|
Income before minority interest
and discontinued operations |
|
$ |
20,564 |
|
|
$ |
16,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
Assets |
|
|
|
|
|
|
|
|
Segment Assets |
|
|
|
|
|
|
|
|
Multifamily |
|
$ |
2,563,147 |
|
|
$ |
2,579,376 |
|
Commercial |
|
|
393,928 |
|
|
|
402,914 |
|
|
|
|
|
|
|
|
Total Segment Assets |
|
|
2,957,075 |
|
|
|
2,982,290 |
|
|
|
|
|
|
|
|
|
|
Unallocated corporate assets (5) |
|
|
173,221 |
|
|
|
172,879 |
|
|
|
|
|
|
|
|
|
|
$ |
3,130,296 |
|
|
$ |
3,155,169 |
|
|
|
|
|
|
|
|
|
|
|
Footnotes on following page |
21
|
|
|
(1) |
|
The $0.3 million impairment charge recorded during the three months ended March 31, 2009
was a result of the sale of Regents Park (see Note 6). |
|
(2) |
|
Reflects costs incurred related to abandoned pursuits. Abandoned pursuits are volatile
and, therefore, may vary between periods. |
|
(3) |
|
The $0.7 million impairment charge recorded during the three months ended March 31, 2009 is
a result of the Company’s decision to transfer its remaining noncontrolling joint venture
interest in Colonial Pinnacle Craft Farms I to the majority joint venture partner (see Note
11). |
|
(4) |
|
For-sale residential activities including net gain on sales and income tax expense
(benefit) are included in other income (see Note 6 related to for-sale activities). |
|
(5) |
|
Includes the Company’s investment in partially-owned entities of $40,890 as of March 31,
2009 and $46,221 as of December 31, 2008. |
Note 11 — Investment in Partially-Owned Entities
The Company accounts for the following investments in partially-owned entities using the
equity method. The following table summarizes the investments in partially-owned entities as of
March 31, 2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
Percent |
|
|
March 31, |
|
|
December 31, |
|
|
|
Owned |
|
|
2009 |
|
|
2008 |
|
|
|
Multifamily: |
|
|
|
|
|
|
|
|
|
|
|
|
Belterra, Ft. Worth, TX |
|
|
10.00 |
% |
|
|
595 |
|
|
|
616 |
|
Regents Park (Phase II), Atlanta, GA |
|
|
40.00 |
%(1) |
|
|
3,417 |
|
|
|
3,424 |
|
CG at Huntcliff, Atlanta, GA |
|
|
20.00 |
% |
|
|
1,808 |
|
|
|
1,894 |
|
CG at McKinney, Dallas, TX (Development) |
|
|
25.00 |
% |
|
|
1,720 |
|
|
|
1,521 |
|
CG at Research Park, Raleigh, NC |
|
|
20.00 |
% |
|
|
1,024 |
|
|
|
1,053 |
|
CG at Traditions, Gulf Shores, AL |
|
|
35.00 |
% |
|
|
447 |
|
|
|
570 |
|
CMS / Colonial Joint Venture I |
|
|
15.00 |
% |
|
|
254 |
|
|
|
289 |
|
CMS / Colonial Joint Venture II |
|
|
15.00 |
% |
|
|
(481 |
) |
|
|
(461 |
) |
CMS Florida |
|
|
25.00 |
% |
|
|
(611 |
) |
|
|
(561 |
) |
CMS Tennessee |
|
|
25.00 |
% |
|
|
46 |
|
|
|
114 |
|
CMS V / CG at Canyon Creek, Austin, TX |
|
|
25.00 |
% |
|
|
584 |
|
|
|
638 |
|
DRA Alabama |
|
|
10.00 |
% |
|
|
800 |
|
|
|
921 |
|
DRA CV at Cary, Raleigh, NC |
|
|
20.00 |
% |
|
|
1,704 |
|
|
|
1,752 |
|
DRA Cunningham, Austin, TX |
|
|
20.00 |
% |
|
|
869 |
|
|
|
896 |
|
DRA The Grove at Riverchase, Birmingham, AL |
|
|
20.00 |
% |
|
|
1,256 |
|
|
|
1,291 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Multifamily |
|
|
|
|
|
|
13,432 |
|
|
|
13,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
600 Building Partnership, Birmingham, AL |
|
|
33.33 |
% |
|
|
132 |
|
|
|
118 |
|
Colonial Center Mansell JV |
|
|
15.00 |
% |
|
|
618 |
|
|
|
727 |
|
Colonial Promenade Alabaster II/Tutwiler II, Birmingham, AL |
|
|
5.00 |
% |
|
|
(178 |
) |
|
|
(173 |
) |
Colonial Promenade Craft Farms, Gulf Shores, AL |
|
|
15.00 |
%(2) |
|
|
— |
|
|
|
823 |
|
Colonial Promenade Madison, Huntsville, AL |
|
|
25.00 |
% |
|
|
2,173 |
|
|
|
2,187 |
|
Colonial Promenade Smyrna, Smyrna, TN |
|
|
50.00 |
% |
|
|
2,777 |
|
|
|
2,378 |
|
DRA / CRT JV |
|
|
15.00 |
%(3) |
|
|
21,626 |
|
|
|
24,091 |
|
DRA / CLP JV |
|
|
15.00 |
%(4) |
|
|
(12,037 |
) |
|
|
(10,976 |
) |
Highway 150, LLC, Birmingham, AL |
|
|
10.00 |
% |
|
|
67 |
|
|
|
67 |
|
Huntsville TIC, Huntsville , AL |
|
|
10.00 |
%(5) |
|
|
(3,966 |
) |
|
|
(3,746 |
) |
OZRE JV |
|
|
17.10 |
%(6) |
|
|
(7,972 |
) |
|
|
(7,579 |
) |
Parkside Drive LLC I, Knoxville, TN |
|
|
50.00 |
% |
|
|
4,363 |
|
|
|
4,673 |
|
Parkside Drive LLC II, Knoxville, TN (Development) |
|
|
50.00 |
% |
|
|
6,979 |
|
|
|
6,842 |
|
Parkway Place Limited Partnership, Huntsville, AL |
|
|
50.00 |
% |
|
|
11,097 |
|
|
|
10,690 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial |
|
|
|
|
|
|
25,679 |
|
|
|
30,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
Colonial / Polar-BEK Management Company, Birmingham, AL |
|
|
50.00 |
% |
|
|
17 |
|
|
|
33 |
|
Heathrow, Orlando, FL |
|
|
50.00 |
% |
|
|
1,762 |
|
|
|
2,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,779 |
|
|
|
2,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
40,890 |
|
|
$ |
46,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Footnotes on following page |
22
|
|
|
(1) |
|
The Regents Park Joint Venture (Phase II) consists of undeveloped land. |
|
(2) |
|
The Company has reached an agreement in principle to transfer its remaining 15%
noncontrolling joint venture interest in Colonial Pinnacle Craft Farms I (see below). |
|
(3) |
|
As of March 31, 2009, this joint venture included 17 properties located in Ft.
Lauderdale, Jacksonville and Orlando, Florida; Atlanta, Georgia; Charlotte, North Carolina;
Memphis, Tennessee and Houston, Texas. |
|
(4) |
|
As of March 31, 2009, this joint venture included 16 office properties and 2 retail
properties located in Birmingham, Alabama; Orlando and Tampa, Florida; Atlanta, Georgia;
Charlotte, North Carolina and Austin, Texas. Equity investment includes the value of the
Company’s investment of approximately $21.7 million, offset by the excess basis difference
on the June 2007 joint venture transaction of approximately $33.7 million, which is being
amortized over the life of the properties. |
|
(5) |
|
Equity investment includes the Company’s investment of approximately $3.5 million,
offset by the excess basis difference on the transaction of approximately $7.5 million,
which is being amortized over the life of the properties. |
|
(6) |
|
As of March 31, 2009, this joint venture included 11 retail properties located in
Birmingham, Alabama; Jacksonville, Orlando, Punta Gorda and Tampa, Florida; Athens, Georgia
and Houston, Texas. Equity investment includes the value of the Company’s investment of
approximately $8.6 million, offset by the excess basis difference on the June 2007 joint
venture transaction of approximately $16.6 million, which is being amortized over the life
of the properties. |
In February 2009, the Company reached an agreement in principle to transfer its remaining
15% noncontrolling joint venture interest in Colonial Pinnacle Craft Farms I, a
220,000-square-foot (excluding anchor-owned square-footage) retail shopping center located in
Gulf Shores, Alabama, to the majority joint venture partner. The Company had previously sold 85%
of its interest in this development for $45.7 million in July 2007 and recognized a gain of
approximately $4.2 million, after tax, from that sale. As a result of this agreement and the
resulting valuation, the Company recorded an impairment of approximately $0.7 million during the
three months ended March 31, 2009 with respect to the Company’s remaining equity interest in the
joint venture. The Company’s pro-rata share of the existing joint venture’s mortgage debt is
approximately $6.5 million.
The following table summarizes balance sheet financial data of significant unconsolidated
joint ventures in which the Company had ownership interests as of March 31, 2009 and December 31,
2008 (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
|
Total Debt |
|
|
Total Equity |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DRA/CRT |
|
$ |
1,157,408 |
|
|
$ |
1,189,996 |
|
|
$ |
940,829 |
|
|
$ |
940,981 |
|
|
$ |
185,284 |
|
|
$ |
201,447 |
|
DRA/CLP |
|
|
901,032 |
|
|
|
927,397 |
|
|
|
741,907 |
|
|
|
741,907 |
|
|
|
144,488 |
|
|
|
153,962 |
|
OZRE |
|
|
345,467 |
|
|
|
363,589 |
|
|
|
292,370 |
|
|
|
292,714 |
|
|
|
49,495 |
|
|
|
52,890 |
|
Huntsville TIC |
|
|
223,045 |
|
|
|
224,644 |
|
|
|
107,540 |
|
|
|
107,540 |
|
|
|
34,538 |
|
|
|
36,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,626,952 |
|
|
$ |
2,705,626 |
|
|
$ |
2,082,646 |
|
|
$ |
2,083,142 |
|
|
$ |
413,805 |
|
|
$ |
444,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes income statement financial data of significant unconsolidated
joint ventures in which the Company had ownership interests for the three months ended March 31,
2009 and 2008 (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
|
Net Income |
|
|
Share of Net Income |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DRA/CRT |
|
$ |
40,560 |
|
|
$ |
42,495 |
|
|
$ |
(3,433 |
) |
|
$ |
(4,668 |
) |
|
$ |
(344 |
) |
|
$ |
(530 |
) |
DRA/CLP |
|
|
28,454 |
|
|
|
28,397 |
|
|
|
(4,054 |
) |
|
|
(4,360 |
) |
|
|
(60 |
) |
|
|
(96 |
) |
OZRE |
|
|
8,687 |
|
|
|
8,583 |
|
|
|
(2,044 |
) |
|
|
(2,493 |
) |
|
|
(128 |
) |
|
|
(38 |
) |
Huntsville TIC |
|
|
6,463 |
|
|
|
5,762 |
|
|
|
(2,090 |
) |
|
|
(2,619 |
) |
|
|
(117 |
) |
|
|
1,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
84,164 |
|
|
$ |
85,237 |
|
|
$ |
(11,621 |
) |
|
$ |
(14,140 |
) |
|
$ |
(649 |
) |
|
$ |
1,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Investments in Variable Interest Entities
The Company evaluates all transactions and relationships with variable interest entities
(VIEs) to determine whether the Company is the primary beneficiary of the entities in accordance
with FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities — An Interpretation
of ARB No. 51” (FIN 46R).
An overall methodology for evaluating transactions and relationships under the VIE
requirements includes the following two steps:
|
• |
|
determine whether the entity meets the criteria to qualify as a VIE, and |
|
|
• |
|
determine whether the Company is the primary beneficiary of the VIE. |
When evaluating whether an investment (or other transaction) qualifies as a VIE, the
significant factors and judgments that the Company considers consist of the following:
|
• |
|
the design of the entity, including the nature of its risks and the purpose for
which the entity was created, to determine the variability that the entity was
designed to create and distribute to its interest holders; |
|
|
• |
|
the nature of the Company’s involvement with the entity; |
|
|
• |
|
whether control of the entity may be achieved through arrangements that do not
involve voting equity; |
|
|
• |
|
whether there is sufficient equity investment at risk to finance the activities
of the entity; |
|
|
• |
|
whether parties other than the equity holders have the obligation to absorb
expected losses or the right to receive residual returns; and |
|
|
• |
|
whether the voting rights and the economic rights are proportional. |
For each VIE identified, the Company evaluates whether it is the primary beneficiary by
considering the following significant factors and judgments:
|
• |
|
whether the Company’s variable interest absorbs the majority of the VIE’s
expected losses, |
|
|
• |
|
whether the Company’s variable interest receives the majority of the VIE’s
expected returns, and |
|
|
• |
|
whether the Company has the ability to make decisions that significantly affect
the VIE’s results and activities. |
Based on the Company’s evaluation of the above factors and judgments, as of March 31, 2009,
the Company does not have a controlling interest, nor is the Company the primary beneficiary of any
VIEs for which there is a significant variable interest. Also, as of March 31, 2009, the Company
has interests in three VIEs with significant variable interests for which the Company is not the
primary beneficiary.
Unconsolidated Variable Interest Entities
As of March 31, 2009, the Company has interests in three VIEs with significant variable
interests for which the Company is not the primary beneficiary. The following is summary
information as of March 31, 2009 regarding these unconsolidated VIEs:
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum |
|
|
Carrying Amount |
|
Potential Additonal |
|
Exposure to |
VIE |
|
of Investment |
|
Support Obligation |
|
Loss |
|
DRA/CRT JV |
|
$ |
21,626 |
|
|
$ |
17,000 |
|
|
$ |
38,626 |
|
CG at Canyon Creek |
|
|
584 |
|
|
|
4,000 |
|
|
|
4,584 |
|
CG at Traditions |
|
|
447 |
|
|
|
3,500 |
|
|
|
3,947 |
|
24
In September 2005, the Company acquired, through CRLP, a 15% partnership interest in CRT
Properties, Inc. (“CRT”) through a joint venture (the “DRA CRT JV”) with DRA Advisors LLC (“DRA”).
CRT owns a portfolio of 17 office properties located primarily in the southeastern United States.
With respect to the Company’s investment in DRA/CRT JV, the Company is entitled to receive
distributions in excess of its ownership interest if certain target return thresholds are
satisfied. In addition, during September 2005, in connection with the acquisition of CRT with DRA,
CRLP guaranteed approximately $50.0 million of third-party financing obtained by the DRA/CRT JV
with respect to 10 of the CRT properties. During 2006, seven of the ten properties were sold. The
DRA/CRT JV is obligated to reimburse CRLP for any payments made under the guaranty before making
distributions of cash flows or capital proceeds to the DRA/CRT JV partners. As of March 31, 2009,
this guarantee, which matures in January 2010, has been reduced to $17.0 million as a result of the
pay down of the associated collateralized debt from the sales of assets.
The Company committed to guarantee up to $4.0 million of a $27.4 million construction loan
obtained by the Colonial Grand at Canyon Creek joint venture, which represents a guaranty that is
greater than the Company’s proportionate interest in this joint venture. Accordingly, this
investment qualifies as a VIE. However, the Company has determined that it is remote that it would
absorb a majority of the expected losses for this joint venture and, therefore, does not
consolidate this investment.
The Company committed with its joint venture partner to guarantee up to $7.0 million of a
$34.1 million construction loan obtained by the Colonial Grand at Traditions joint venture. The
Company and its joint venture partner each committed to provide 50% of the guarantee, which is
different from the venture’s voting and economic interests. As a result, this investment qualifies as a VIE but the Company has determined that it is remote that it would absorb a
majority of the expected losses for this joint venture and, therefore, does not consolidate this
investment.
Note 12 — Financing Activities
In the first quarter 2009, the Company, through a wholly-owned special purpose subsidiary of
CRLP, closed on a $350 million collateralized loan (the “Loan”) originated by PNC ARCS LLC for
repurchase by Fannie Mae (NYSE: FNM). Of the $350 million, $259 million bears interest at a fixed
interest rate equal to 6.07% and $91 million bears interest at a fixed interest rate of 5.96%.
The weighted average interest rate for the Loan is 6.04%. The Loan matures on March 1, 2019 and
requires accrued interest to be paid monthly with no scheduled principal payments required prior
to the maturity date. The Loan is collateralized by 19 of CRLP’s multifamily apartment
communities totaling 6,565 units. The entire Loan amount was drawn on February 27, 2009. The
proceeds from the Loan were used to repay a portion of the outstanding borrowings under the
Company’s $675.0 million Credit Facility (defined below).
As of March 31, 2009, CRLP, with the Company as guarantor, had a $675.0 million unsecured
credit facility (as amended, the “Credit Facility”) with Wachovia Bank, National Association
(“Wachovia”), as Agent for the lenders, Bank of America, N.A. as Syndication Agent, Wells Fargo
Bank, National Association, Citicorp North America, Inc. and Regions Bank, as Co-Documentation
Agents, and U.S. Bank National Association and PNC Bank, National Association, as Co-Senior
Managing Agents and other lenders named therein. The Credit Facility has a maturity date of
June 21, 2012. In addition to the Credit Facility, the Company has a $35.0 million cash
management line provided by Wachovia that will expire on June 21, 2012.
Base rate loans and revolving loans are available under the Credit Facility. The Credit
Facility also includes a competitive bid feature that allows the Company to convert up to $337.5
million under the Credit Facility to a fixed rate and for a fixed term not to exceed 90 days.
Generally, base rate loans bear interest at Wachovia’s designated base rate, plus a base rate
margin ranging up to 0.25% based on the Company’s unsecured debt ratings from time to time.
Revolving loans bear interest at LIBOR plus a margin ranging from 0.325% to 1.05% based on the
Company’s unsecured debt ratings. Competitive bid loans bear interest at LIBOR plus a margin,
as specified by the participating lenders. Based on CRLP’s current unsecured debt rating, the
revolving loans currently bear interest at a rate of LIBOR plus 105 basis points.
The Credit Facility, which is primarily used by the Company to finance property acquisitions
and developments and more recently to also fund repurchases of CRLP senior notes and Series D
preferred depositary shares of the Company, had an outstanding balance at March 31, 2009 of $27.0
million. The cash management line had an outstanding balance of $10.7 million as of March 31, 2009.
The interest rate of the Credit Facility (including the case management line) was 1.26% and 3.50%
at March 31, 2009 and 2008, respectively.
The Credit Facility contains various restrictions, representations, covenants and events of
default that could preclude future borrowings (including future issuances of letters of credit) or
trigger early repayment obligations, including, but not limited to the following: nonpayment;
violation or breach of certain covenants; failure to perform certain covenants beyond a cure
period; failure to satisfy certain financial ratios; a material adverse change in the consolidated
financial condition, results of operations, business or prospects of the Company; and generally not
paying the Company’s debts as it becomes due. At March 31, 2009, the Company was in compliance
with these covenants. Specific financial
25
ratios with which the Company must comply pursuant to the
Credit Facility consist of the Fixed Charge Coverage Ratio as well as the Debt to Total Asset Value
Ratio. Both of these ratios are measured quarterly. The Fixed Charge Coverage Ratio generally
requires that the Company’s earnings before interest, taxes, depreciation and amortization be at
least equal 1.5 times the Company’s Fixed Charges. Fixed Charges generally include interest
payments (including capitalized interest) and preferred dividends. The Debt to Total Asset Value
Ratio generally requires the Company’s debt to be less than 60% of its total asset value. The
ongoing recession and continued uncertainty in the stock and credit markets may negatively impact
the Company’s ability to generate earnings sufficient to maintain compliance with these ratios and
other debt covenants. The Company expects to be able to comply with these ratios in 2009, but no
assurance can be given that the Company will be able to maintain compliance with these ratios and
other debt covenants, particularly if economic conditions worsen.
Many of the recent disruptions in the financial markets have been brought about in large part
by failures in the U.S. banking system. If Wachovia or any of the other financial institutions that
have extended credit commitments to the Company under the Credit Facility or otherwise are
adversely affected by the conditions of the financial markets, these financial institutions may
become unable to fund borrowings under credit commitments to the Company under the Credit Facility,
the cash management line or otherwise. If these lenders become unable to fund the Company’s
borrowings pursuant to the
financial institutions’ commitments, the Company may need to obtain replacement financing, and
such financing, if available, may not be available on commercially attractive terms.
In January 2008, the Company’s Board of Trustees authorized the repurchase up to $50.0
million of outstanding unsecured senior notes of CRLP. On April 2008, the Board of Trustees
authorized a senior note repurchase program to allow us to repurchase up to an additional $200.0
million of outstanding unsecured senior notes of CRLP. In December 2008, the April 2008
repurchase program was expanded to authorize repurchases of up to $500.0 million. Under the
repurchase program, senior notes may be repurchased from time to time in open market
transactions or privately negotiated transactions through December 31, 2009, subject to
applicable legal requirements, market conditions and other factors. The repurchase program does
not obligate the Company to repurchase any specific amounts of senior notes, and repurchases
pursuant to the program may be suspended or resumed at any time without further notice or
announcement.
During the three months ended March 31, 2009, the Company repurchased $96.9 million of CRLP’s
outstanding unsecured senior notes in separate transactions at an average 27.1% discount to par
value, which represents a 12.6% yield to maturity. As a result of these repurchases, the Company
recognized an aggregate gain of approximately $25.3 million, which is included in “Gain on
retirement of debt” on the Company’s Consolidated Statements of Income. When senior notes are
repurchased, the Company will generally reclassify amounts in “Accumulated Other Comprehensive
Income” because the repurchases cause interest payments on the hedged debt to become probable of
not occurring. Accordingly, as a result of these first quarter 2009 repurchases, the Company
recognized a loss on hedging activities of approximately $1.0 million as a result of a
reclassification of amounts in Accumulated Other Comprehensive Income in connection with the
conclusion that it is probable that the Company will not make interest payments associated with
previously hedged debt as a result of repurchases under the senior note repurchase program. The
Company will continue to monitor the debt markets and repurchase certain senior notes that meet the
Company’s required criteria, as funds are available.
On March 1, 2009, a loan collateralized by Broward Financial Center, a 326,000 office
building located in Ft. Lauderdale, Florida, in the amount of $46.5 million matured. This
property is one of the properties in the DRA/CRT joint venture, in which the Company is a 15%
minority partner. The joint venture did not repay the principal amount due on the loan when it
matured, but continues to make interest payments. The loan is non-recourse to the Company, but
the Company’s pro rata share of the principal amount of the loan is $7.0 million (based on its
ownership interest in the joint venture). The Company and its joint venture partner are
currently in negotiations with the special servicer regarding refinancing options that may be
available from the current lender. While no assurance can be given that the joint venture
partnership will be able to refinance the loan on reasonable terms, the Company anticipates that
the joint venture will be able to renegotiate an extension of the current loan with the existing
lender. If the joint venture is unable to obtain additional financing, payoff the existing
loan, or renegotiate suitable terms with the existing lender, the lender would have the right to
foreclose on the property in question and, accordingly, the joint venture will lose its interest
in the asset.
26
Note 13 — Derivatives and Hedging
The Company is exposed to certain risks arising from both its business operations and economic
conditions. The Company principally manages its exposures to a wide variety of business and
operational risks through management of its core business activities. The Company manages economic
risks, including interest rate, liquidity, and credit risk primarily by managing the amount,
sources, and duration of its debt funding and the use of derivative financial instruments.
Specifically, the Company enters into derivative financial instruments to manage exposures that
arise from business activities that result in the receipt or payment of future known and uncertain
cash amounts, the value of which is determined by interest rates. The Company’s derivative
financial instruments are used to manage differences in the amount, timing, and duration of the
Company’s known or expected cash receipts and its known or expected cash payments principally
related to the Company’s investments and borrowings.
The Company’s objectives in using interest rate derivatives are to add stability to interest
expense and to manage its exposure to interest rate movements. To accomplish this objective, the
Company primarily uses interest rate swaps and caps as part of its interest rate risk management
strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate
amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of
the agreements without exchange of the underlying notional amount. Interest rate caps designated
as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike
rate on the contract in exchange for an upfront premium.
The effective portion of changes in the fair value of derivatives that are designated and that
qualify as cash flow hedges is recorded in “Accumulated other comprehensive loss” on the
Consolidated Condensed Balance Sheet and is subsequently reclassified into earnings in the period that the
hedged forecasted transaction affects earnings. The Company did not have any active cash flow
hedges during the three months ended March 31, 2009.
At March 31, 2009, the Company had $4.0 million in “Accumulated other comprehensive loss”
related to settled or terminated derivatives. Amounts reported in “Accumulated other comprehensive
loss” related to derivatives will be reclassified to “Interest expense and debt cost amortization”
as interest payments are made on the Company’s variable-rate debt or to “Loss on hedging
activities” at such time that the interest payments on the hedged debt become probable of not
occurring as a result of the Company’s senior note repurchase program. The changes in “Accumulated other
comprehensive loss” for reclassifications to “Interest expense and debt cost amortization” tied to
interest payments on the hedged debt was $0.1 million and $0.2 million during the three months
ended March 31, 2009 and 2008, respectively. The changes in “Accumulated other comprehensive loss”
for reclassification to “Loss on hedging activities” related to interest payments on the hedged
debt that have been deemed no longer probable to occur as a result of the Company’s senior note
repurchase program was $1.1 million for the three months ended March 31, 2009. The Company did not
reclassify amounts to “Loss on hedging activities” for the three months ended March 31, 2008.
Derivatives not designated as hedges are not speculative and are used to manage the Company’s
exposure to interest rate movements and other identified risks but do not meet the strict hedge
accounting requirements of SFAS 133. As of March 31, 2009, the Company had no derivatives that
were not designated as a hedge in a qualifying hedging relationship.
The table below presents the effect of the Company’s derivative financial instruments on the
Consolidated Condensed Statements of Income as of March 31, 2009.
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain or |
|
|
|
|
|
|
|
|
|
Location of Gain or |
|
Amount of Gain or |
Derivatives in |
|
|
|
|
|
|
|
|
|
(Loss) Reclassified |
|
Amount of Gain or |
|
(Loss) Recognized in |
|
(Loss) Recognized in |
SFAS 133 |
|
Amount of Gain or (Loss) |
|
from |
|
(Loss) Reclassified from |
|
Income on Derivative |
|
Income on Derivative |
Cash Flow |
|
Recognized in OCI on |
|
Accumulated OCI into |
|
Accumulated OCI into |
|
(Ineffective Portion and |
|
(Ineffective Portion and |
Hedging |
|
Derivative (Effective |
|
Income (Effective |
|
Income (Effective |
|
Amount Excluded from |
|
Amount Excluded from |
Relationships |
|
Portion) |
|
Portion) |
|
Portion) |
|
Effectiveness Testing) |
|
Effectiveness Testing) |
|
|
Three months ended |
|
|
|
|
|
Three months ended |
|
|
|
|
|
Three months ended |
|
|
March 31, |
|
March 31, |
|
|
|
|
|
March 31, |
|
March 31, |
|
|
|
|
|
March 31, |
|
March 31, |
|
|
2009 |
|
2008 |
|
|
|
|
|
2009 |
|
2008 |
|
|
|
|
|
2009 |
|
2008 |
Interest Rate Products |
|
|
— |
|
|
|
— |
|
|
Interest Expense and Debt Cost Amortization |
|
$ |
(137 |
) |
|
$ |
(75 |
) |
|
Loss on Hedging Activities |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Loss on Hedging Activities |
|
|
(1,063 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1,200 |
) |
|
$ |
(75 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 14 —Contingencies and Guarantees
Contingencies
The Company is involved in a contract dispute with a general contractor in connection with
construction costs and cost overruns with respect to certain of its for-sale projects, which were
being developed in a joint venture in which the Company is a majority owner. The contractor is
affiliated with the Company’s joint venture partner.
|
• |
|
In connection with the dispute, in January 2008, the contractor filed a lawsuit
against the Company alleging, among other things, breach of contract, enforcement of
a lien against real property, misrepresentation, conversion, declaratory judgment
and an accounting of costs, and is seeking $10.3 million in damages, plus
consequential and punitive damages. Discovery is underway regarding these
proceedings. |
|
|
• |
|
Certain of the subcontractors, vendors and other parties, involved in the
projects, including purchasers of units, have also made claims in the form of lien
claims, general claims or lawsuits. The Company has been sued by purchasers of
certain condominium units alleging breach of contract, fraud, construction
deficiencies and misleading sales practices. Both compensatory and punitive damages
are sought in these actions. Some of these claims have been resolved by
negotiations and mediations, and others may also be similarly resolved. Some of
these claims will likely be arbitrated or litigated to conclusion. |
The Company is continuing to evaluate its options and investigate these claims, including
possible claims against the contractor and other parties. The Company intends to vigorously defend
itself against these claims. However, no prediction of the likelihood, or amount, of any resulting
loss or recovery can be made at this time and no assurance can be given that the matter will be
resolved favorably.
In connection with certain retail developments, the Company has received funding from
municipalities for infrastructure costs. In most cases, the municipalities issue bonds that are
repaid primarily from sales tax revenues generated from the tenants at each respective development.
The Company has guaranteed the shortfall, if any, of tax revenues to the debt service requirements
on the bonds. The total amount outstanding on these bonds is approximately $13.5 million at March
31, 2009 and December 31, 2008. At March 31, 2009 and December 31, 2008, no liability was recorded
for these guarantees.
As previously discussed, the Company has postponed future development activities, which
includes the Colonial Pinnacle Nord du Lac development in Covington, Louisiana. Prior to the
decision to postpone this development, the Nord du Lac community development district (the “CDD”),
a third-party governmental entity, had issued $24.0 million of special assessment bonds, the
proceeds from which were to be used by the CDD to construct
infrastructure for the benefit of the development. In addition, the Company had entered into leasing commitments and other agreements
with certain future tenants at this development. As a result of the postponement of this
development, the Company is
28
evaluating various alternatives for this development, including with
respect to its existing contractual obligations to certain future tenants who had previously
committed to this development before it was postponed and with respect to the outstanding CDD
bonds. If the Company is unable to reach alternative agreements with these future tenants, the
tenants may choose not to participate in this development or seek damages from the Company as a
result of the postponement of the development, or both. With respect to the CDD bonds, interest
payments for 2009 will be made from an interest reserve account funded with bond proceeds.
Thereafter, repayment of the bonds will be funded by special assessments on the property owner(s)
within the CDD. The first special assessment is expected to be due on or about December 31, 2009.
As the property owner, the Company intended to fund the special assessments from payments by
tenants in the development. Until Colonial Pinnacle Nord du Lac is developed and leased, it is not
expected to generate sufficient tenant revenues to support the full amount of the special
assessments, in which case, the Company would be obligated to pay the special assessments to the
extent not funded through tenant payments. The special assessments are not a personal liability of
the property owner, but constitute a lien on the assessed property. In the event of a failure to
pay the special assessments, the CDD would have the right to force the sale of the property
included in the project.
The Company has reclassified the amount spent to date with respect to the Colonial Pinnacle
Nord du Lac development ($38.5 million, net of impairment charge recorded during 2008, as of March
31, 2009) from an active development to “Real estate assets held for sale, net” on the Company’s
Consolidated Condensed Balance Sheet. In accordance with EITF 91-10, the Company recorded
restricted cash and other liabilities for the $24.0 million CDD bond issuance. This transaction
was treated as a non-cash transaction in the Company’s Consolidated Condensed Statement of Cash Flows for the
twelve months ended December 31, 2008.
In connection with the office and retail joint venture transactions that closed in 2007, the
Company assumed certain contingent obligations for a total of $15.7 million, of which $6.6 million
remains outstanding as of March 31, 2009.
In January 2008, the Company received notification related to an unclaimed property audit for
the States of Alabama and Tennessee. As of March 31, 2009, the Company has accrued an estimated
liability.
The Company is a party to various legal proceedings incidental to its business. In the opinion
of management, the ultimate liability, if any, with respect to those proceedings is not presently
expected to materially adversely affect the financial position or results of operations or cash
flows of the Company.
Guarantees and Other Arrangements
During April 2007, the Company committed with its joint venture partner to guarantee up to
$7.0 million of a $34.1 million construction loan obtained by the Colonial Grand at Traditions
joint venture. The Company and its joint venture partner each committed to provide 50% of the
guarantee. Construction at this site is substantially complete as the project was placed into
service during 2008. As of March 31, 2009, the joint venture had drawn $33.1 million on the
construction loan, which matures in April 2010. At March 31, 2009, no liability was recorded for
the guarantee.
During November 2006, the Company committed with its joint venture partner to guarantee up to
$17.3 million of a $34.6 million construction loan obtained by the Colonial Promenade Smyrna joint
venture. The Company and its joint venture partner each committed to provide 50% of the $17.3
million guarantee, as each partner has a 50% ownership interest in the joint venture. Construction
at this site is substantially complete as the project was placed into service during 2008. As of
March 31, 2009, the Colonial Promenade Smyrna joint venture had $30.1 million outstanding on the
construction loan, which matures in December 2009. At March 31, 2009, no liability was recorded for
the guarantee.
During February 2006, the Company committed to guarantee up to $4.0 million of a $27.4 million
construction loan obtained by the Colonial Grand at Canyon Creek joint venture. Construction at
this site is complete as the project was placed into service during 2007. As of March 31, 2009,
the joint venture had drawn all $27.4 million on the construction loan, which matures in June 2009.
At March 31, 2009, no liability was recorded for the guarantee.
During September 2005, in connection with the acquisition of CRT with DRA, CRLP guaranteed
approximately $50.0 million of third-party financing obtained by the DRA/CRT JV with respect to 10
of the CRT properties. During 2006, seven of the ten properties were sold. The DRA/CRT JV is
obligated to reimburse CRLP for any payments made under the guaranty before making distributions of
cash flows or capital proceeds to the DRA/CRT JV partners. As of March 31, 2009, this guarantee,
which matures in January 2010,
had been reduced to $17.0 million, as a result of the pay down of
the associated collateralized debt from the sales of assets. At March 31, 2009, no liability was
recorded for the guarantee.
29
In connection with the formation of Highway 150 LLC in 2002, the Company executed a guarantee,
pursuant to which the Company serves as a guarantor of $1.0 million of the debt related to the
joint venture, which is collateralized by the Colonial Promenade Hoover retail property. The
Company’s maximum guarantee of $1.0 million may be requested by the lender, only after all of the
rights and remedies available under the associated note and security agreements have been exercised
and exhausted. At March 31, 2009, the total amount of debt of the joint venture was approximately
$16.3 million and matures in December 2012. At March 31, 2009, no liability was recorded for the
guarantee.
In connection with the contribution of certain assets to CRLP, certain partners of CRLP have
guaranteed indebtedness of the Company totaling $26.5 million at March 31, 2009. The guarantees
are held in order for the contributing partners to maintain their tax deferred status on the
contributed assets. These individuals have not been indemnified by the Company.
As discussed above, in connection with certain retail developments, the Company has received
funding from municipalities for infrastructure costs. In most cases, the municipalities issue
bonds that are repaid primarily from sales tax revenues generated from the tenants at each respective development. The Company has
guaranteed the shortfall, if any, of tax revenues to the debt service requirements on the bonds.
The fair value of the above guarantees could change in the near term if the markets in which
these properties are located deteriorate or if there are other negative indicators.
Note 15 — Subsequent Events
Dispositions
On April 30, 2009, the Company closed on the transaction to transfer its remaining
noncontrolling joint venture interest in Colonial Pinnacle Craft Farms I, a 220,000 square foot
(excluding anchor-owned square-footage) retail asset located in Gulf Shores, Alabama, to the
majority joint venture partner (see Note 11).
Debt Tender Offer
On May 4, 2009, CRLP accepted for purchase $250 million in principal amount of the following
outstanding notes maturing in 2010 and 2011 that were validly tendered pursuant to its previously
announced cash tender offer for such notes:
|
|
|
|
|
|
|
Aggregate Principal |
|
|
|
Amount Accepted for |
|
Title of Security |
|
Purchase |
|
|
|
|
|
|
|
4.75% Senior Notes due 2010 (CUSIP-195891AH9) |
|
$ |
206,374,000 |
|
|
|
|
|
|
8.80% Medium-Term Notes due 2010 (CUSIP-195896AK1)
|
|
|
5,000,000 |
|
|
|
|
|
|
4.80% Senior Notes due 2011 (CUSIP-195891AF3) |
|
|
38,626,000 |
|
|
|
|
|
TOTAL |
|
$ |
250,000,000 |
|
|
|
|
|
The Company funded the purchase of these outstanding unsecured senior notes through borrowings
under its unsecured credit facility.
30
Financing Activity
On April 20, 2009, the Company entered into a sixty-day lock on an all-in fixed interest rate
of 5.29% for a 10-year term with Fannie Mae on $145 million of additional financing that is
expected to be collateralized by seven of the Company’s existing multifamily properties. The
Company is considering adding one additional property to this facility, which would bring total
proceeds to $155 million. The Company expects to close this financing in the second quarter 2009,
but the closing remains subject to the negotiation of final documentation and the satisfaction of
all closing conditions. No assurance can be given that the Company will be able to consummate this
financing.
During April 2009, the Company repurchased $54.6 million of CRLP’s outstanding unsecured
senior notes in separate transactions under the Company’s previously announced $500 million
unsecured senior note repurchase program at an average 28.1% discount to par value, which
represents a 14.0% yield to maturity. As a result of these repurchases, the Company expects to
recognize an aggregate gain of approximately $14.8 million with respect to these repurchases during
the second quarter of 2009.
Distribution
On April 22, 2009, a cash distribution was declared to shareholders of the Company and
partners of CRLP in the amount of $0.15 per common share and per unit, totaling approximately $8.6
million. The distribution was declared to shareholders and partners of record as of May 4, 2009
and will be paid on May 11, 2009.
31
COLONIAL REALTY LIMITED PARTNERSHIP
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except unit data)
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
(as adjusted) |
|
|
|
March 31, 2009 |
|
|
December 31, 2008 |
|
ASSETS |
|
|
|
|
|
|
|
|
Land, buildings, & equipment |
|
$ |
2,915,890 |
|
|
$ |
2,897,761 |
|
Undeveloped land and construction in progress |
|
|
291,297 |
|
|
|
380,676 |
|
Less: Accumulated depreciation |
|
|
(431,628 |
) |
|
|
(406,428 |
) |
Real estate assets held for sale, net |
|
|
155,560 |
|
|
|
102,699 |
|
|
|
|
|
|
|
|
Net real estate assets |
|
|
2,931,119 |
|
|
|
2,974,708 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
9,564 |
|
|
|
9,185 |
|
Restricted cash |
|
|
31,418 |
|
|
|
29,766 |
|
Accounts receivable, net |
|
|
31,789 |
|
|
|
25,702 |
|
Notes receivable |
|
|
19,613 |
|
|
|
2,946 |
|
Prepaid expenses |
|
|
12,522 |
|
|
|
5,332 |
|
Deferred debt and lease costs |
|
|
19,834 |
|
|
|
16,783 |
|
Investment in partially-owned entities |
|
|
40,890 |
|
|
|
46,221 |
|
Deferred tax asset |
|
|
3,049 |
|
|
|
9,311 |
|
Other assets |
|
|
29,754 |
|
|
|
34,547 |
|
|
Total assets |
|
$ |
3,129,552 |
|
|
$ |
3,154,501 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
Notes and mortgages payable |
|
$ |
1,703,793 |
|
|
$ |
1,450,389 |
|
Unsecured credit facility |
|
|
37,745 |
|
|
|
311,630 |
|
|
|
|
|
|
|
|
Total debt |
|
|
1,741,538 |
|
|
|
1,762,019 |
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
31,987 |
|
|
|
52,898 |
|
Accrued interest |
|
|
23,547 |
|
|
|
20,716 |
|
Accrued expenses |
|
|
19,938 |
|
|
|
7,520 |
|
Other liabilities |
|
|
30,268 |
|
|
|
32,140 |
|
|
Total liabilities |
|
|
1,847,278 |
|
|
|
1,875,293 |
|
|
|
|
|
|
|
|
|
|
|
Redeemable units, at redemption value — 8,855,184
and 8,860,971 units
outstanding at March 31, 2009 and December 31,
2008, respectively |
|
|
117,965 |
|
|
|
124,848 |
|
|
|
|
|
|
|
|
|
|
General
partner — |
|
|
|
|
|
|
|
|
Common equity — 48,614,366 and 48,546,268 units
outstanding at
March 31, 2009 and December 31, 2008, respectively |
|
|
972,706 |
|
|
|
963,509 |
|
Preferred equity ($125,000 liquidation preference) |
|
|
96,707 |
|
|
|
96,707 |
|
Limited partners’ preferred equity ($100,000
liquidation preference) |
|
|
97,406 |
|
|
|
97,406 |
|
Limited partners’ noncontrolling interest in
consolidated partnership |
|
|
1,489 |
|
|
|
1,943 |
|
Accumulated other comprehensive loss |
|
|
(3,999 |
) |
|
|
(5,205 |
) |
|
Total equity |
|
|
1,164,309 |
|
|
|
1,154,360 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
3,129,552 |
|
|
$ |
3,154,501 |
|
|
The accompanying notes are an integral part of these consolidated condensed
financial statements.
32
COLONIAL REALTY LIMITED PARTNERSHIP
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per unit data)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
Revenue: |
|
|
|
|
|
|
|
|
Minimum rent |
|
$ |
70,233 |
|
|
$ |
66,795 |
|
Tenant recoveries |
|
|
1,066 |
|
|
|
848 |
|
Other property related revenue |
|
|
9,501 |
|
|
|
8,107 |
|
Construction revenues |
|
|
35 |
|
|
|
7,879 |
|
Other non-property related revenue |
|
|
3,455 |
|
|
|
5,206 |
|
|
|
|
|
|
|
|
Total revenue |
|
|
84,290 |
|
|
|
88,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
Property operating expenses |
|
|
22,469 |
|
|
|
19,678 |
|
Taxes, licenses, and insurance |
|
|
10,976 |
|
|
|
9,589 |
|
Construction expenses |
|
|
34 |
|
|
|
7,266 |
|
Property management expenses |
|
|
1,918 |
|
|
|
2,241 |
|
General and administrative expenses |
|
|
4,383 |
|
|
|
5,780 |
|
Management fee and other expense |
|
|
4,217 |
|
|
|
3,591 |
|
Restructuring charges |
|
|
812 |
|
|
|
— |
|
Investment and development |
|
|
165 |
|
|
|
769 |
|
Depreciation |
|
|
27,785 |
|
|
|
23,257 |
|
Amortization |
|
|
873 |
|
|
|
759 |
|
Impairment |
|
|
736 |
|
|
|
— |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
74,368 |
|
|
|
72,930 |
|
|
|
|
|
|
|
|
Income from operations |
|
|
9,922 |
|
|
|
15,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Interest expense and debt cost amortization |
|
|
(21,735 |
) |
|
|
(18,707 |
) |
Gains on retirement of debt |
|
|
25,319 |
|
|
|
5,471 |
|
Interest income |
|
|
301 |
|
|
|
790 |
|
Income (loss) from partially-owned unconsolidated entities |
|
|
(650 |
) |
|
|
10,269 |
|
Loss on hedging activities |
|
|
(1,063 |
) |
|
|
— |
|
Gains from sales of property, net of income taxes of $3,177 (Q109) and $406 (Q108) |
|
|
5,380 |
|
|
|
1,931 |
|
Income taxes and other |
|
|
3,090 |
|
|
|
874 |
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
10,642 |
|
|
|
628 |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
20,564 |
|
|
|
16,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
229 |
|
|
|
2,365 |
|
Gains on disposal of discontinued operations, net of income taxes (benefit) of $26 (Q109)
and ($14) (Q108) |
|
|
45 |
|
|
|
2,913 |
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
274 |
|
|
|
5,278 |
|
|
|
|
|
|
|
|
Net income |
|
|
20,838 |
|
|
|
21,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest of limited partners — continuing operations |
|
|
(1,009 |
) |
|
|
(123 |
) |
Noncontrolling interest of limited partners — discontinued operations |
|
|
468 |
|
|
|
141 |
|
|
|
|
|
|
|
|
Income attributable to noncontrolling interest |
|
|
(541 |
) |
|
|
18 |
|
|
|
|
|
|
|
|
Net income attributable to CRLP |
|
|
20,297 |
|
|
|
21,829 |
|
|
|
|
|
|
|
|
|
|
Distributions to limited partner preferred unitholders |
|
|
(1,813 |
) |
|
|
(1,827 |
) |
Distributions to general partner preferred unitholders |
|
|
(2,073 |
) |
|
|
(2,488 |
) |
Preferred unit issuance costs write-off, net of discount |
|
|
(5 |
) |
|
|
(271 |
) |
|
|
|
|
|
|
|
Net income available to common unitholders |
|
$ |
16,406 |
|
|
$ |
17,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common unitholders allocated to limited partners |
|
|
(2,531 |
) |
|
|
(3,016 |
) |
|
|
|
|
|
|
|
|
|
|
Net income available to common unitholders allocated to general partner |
|
$ |
13,875 |
|
|
$ |
14,227 |
|
|
|
|
|
|
|
|
|
|
|
Net income per common unit — Basic: |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.28 |
|
|
$ |
0.21 |
|
Income from discontinued operations |
|
|
0.01 |
|
|
|
0.09 |
|
|
|
|
|
|
|
|
Net income per common unit — Basic |
|
$ |
0.29 |
|
|
$ |
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common unit — Diluted: |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.28 |
|
|
$ |
0.21 |
|
Income from discontinued operations |
|
|
0.01 |
|
|
|
0.09 |
|
|
|
|
|
|
|
|
Net income per common unit — Diluted |
|
$ |
0.29 |
|
|
$ |
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average units outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
57,025 |
|
|
|
56,868 |
|
Diluted |
|
|
57,025 |
|
|
|
57,029 |
|
The accompanying notes are an integral part of these consolidated condensed financial statements.
33
COLONIAL REALTY LIMITED PARTNERSHIP
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income attributable to CRLP |
|
$ |
20,297 |
|
|
$ |
21,829 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
29,296 |
|
|
|
24,810 |
|
Loss (income) from partially-owned unconsolidated entities |
|
|
650 |
|
|
|
(10,269 |
) |
Gains from sales of property |
|
|
(8,537 |
) |
|
|
(5,236 |
) |
Impairment |
|
|
1,054 |
|
|
|
— |
|
Gain on retirement of debt |
|
|
(25,319 |
) |
|
|
(5,471 |
) |
Distributions of income from partially-owned unconsolidated entities |
|
|
3,800 |
|
|
|
3,217 |
|
Other |
|
|
1,204 |
|
|
|
— |
|
Decrease (increase) in: |
|
|
|
|
|
|
|
|
Restricted cash |
|
|
(1,652 |
) |
|
|
(160 |
) |
Accounts receivable |
|
|
175 |
|
|
|
7,331 |
|
Prepaid expenses |
|
|
(7,190 |
) |
|
|
(2,833 |
) |
Other assets |
|
|
4,381 |
|
|
|
(382 |
) |
Increase (decrease) in: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
(13,540 |
) |
|
|
(14,140 |
) |
Accrued interest |
|
|
2,830 |
|
|
|
2,582 |
|
Accrued expenses and other |
|
|
10,367 |
|
|
|
1,215 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
17,816 |
|
|
|
22,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Acquisition of properties |
|
|
— |
|
|
|
(7,369 |
) |
Development expenditures |
|
|
(22,758 |
) |
|
|
(70,409 |
) |
Tenant improvements and leasing commissions |
|
|
— |
|
|
|
(1,576 |
) |
Capital expenditures |
|
|
(2,759 |
) |
|
|
(4,584 |
) |
Proceeds from sales of property, net of selling costs |
|
|
32,805 |
|
|
|
6,430 |
|
Issuance of notes receivable |
|
|
(249 |
) |
|
|
(3,262 |
) |
Repayments of notes receivable |
|
|
55 |
|
|
|
4,259 |
|
Distributions from partially-owned unconsolidated entities |
|
|
— |
|
|
|
17,194 |
|
Capital contributions to partially-owned unconsolidated entities |
|
|
(41 |
) |
|
|
(4,517 |
) |
Sale of securities |
|
|
467 |
|
|
|
3,596 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
7,520 |
|
|
|
(60,238 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from additional borrowings |
|
|
350,000 |
|
|
|
57,630 |
|
Proceeds from dividend reinvestment plan and exercise of stock options |
|
|
109 |
|
|
|
(1,927 |
) |
Principal reductions of debt |
|
|
(71,777 |
) |
|
|
(73,692 |
) |
Payment of debt issuance costs |
|
|
(4,126 |
) |
|
|
— |
|
Net change in revolving credit balances and overdrafts |
|
|
(280,788 |
) |
|
|
35,605 |
|
Dividends paid to common and preferred unitholders |
|
|
(16,042 |
) |
|
|
(28,233 |
) |
Distributions to minority partners in CRLP |
|
|
(2,215 |
) |
|
|
(4,996 |
) |
Repurchase of Preferred Series D Units |
|
|
— |
|
|
|
(7,397 |
) |
Other financing activities, net |
|
|
(118 |
) |
|
|
— |
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(24,957 |
) |
|
|
(23,010 |
) |
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
379 |
|
|
|
(60,755 |
) |
Cash and cash equivalents, beginning of period |
|
|
9,185 |
|
|
|
92,841 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
9,564 |
|
|
$ |
32,086 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for interest, including amounts capitalized |
|
$ |
19,844 |
|
|
$ |
21,233 |
|
Cash paid during the period for income taxes |
|
$ |
— |
|
|
$ |
4,335 |
|
The accompanying notes are an integral part of these consolidated condensed financial statements.
34
COLONIAL REALTY LIMITED PARTNERSHIP
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2009
(Unaudited)
The consolidated condensed financial statements of Colonial Realty Limited Partnership have
been prepared pursuant to the Securities and Exchange Commission (“SEC”) rules and regulations.
The following notes, which represent interim disclosures as required by the SEC, highlight
significant changes to the notes included in the December 31, 2008 audited consolidated financial
statements of Colonial Realty Limited Partnership and should be read together with the consolidated
financial statements and notes thereto included in Colonial Realty Limited Partnership’s 2008
Annual Report on Form 10-K.
Note 1 — Organization and Business
Colonial Realty Limited Partnership (“CRLP”) is the operating partnership of Colonial
Properties Trust (the “Trust”), an Alabama real estate investment trust (“REIT”) whose shares are
traded on the New York Stock Exchange. The Trust was originally formed as a Maryland REIT on July
9, 1993 and reorganized as an Alabama REIT under a new Alabama REIT statute on August 21, 1995. The
Trust is a multifamily-focused, self-administered and self-managed equity REIT, which means that it
is engaged in the acquisition, development, ownership, management and leasing of multifamily
apartment communities and other commercial real estate properties. The Trust’s activities include
full or partial ownership and operation of a portfolio of 192 properties as of March 31, 2009,
consisting of multifamily and commercial properties located in Alabama, Arizona, Florida, Georgia,
Nevada, North Carolina, South Carolina, Tennessee, Texas and Virginia. As of March 31, 2009,
including properties in lease-up, the Trust owns interests in 117 multifamily apartment communities
(including 104 wholly-owned consolidated properties and 13 properties partially-owned through
unconsolidated joint venture entities), and 75 commercial properties, consisting of 48 office
properties (including 3 wholly-owned consolidated properties and 45 properties partially-owned
through unconsolidated joint venture entities) and 27 retail properties (including five
wholly-owned consolidated properties and 22 properties partially-owned through unconsolidated joint
venture entities).
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include CRLP, Colonial Properties Services Inc.
(“CPSI”), Colonial Properties Services Limited Partnership (“CPSLP”) and CLNL Acquisition Sub, LLC.
CPSI is a taxable REIT subsidiary of the Trust that is not entitled to a dividend paid deduction
and is subject to federal, state and local income taxes. CPSI provides property development,
leasing and management for third-party owned properties and administrative services to CRLP. CRLP
generally reimburses CPSI for payroll and other costs incurred in providing services to CRLP. All
inter-company transactions are eliminated in the accompanying consolidated financial statements.
Entities in which CRLP owns, directly or indirectly, 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. For those entities in which
CRLP owns less than 100% of the equity interest, CRLP consolidates the entity if CRLP has the
direct or indirect ability to make major decisions about the entities’ activities based on the
terms of the respective joint venture agreements which specify the sharing of participating and
protective rights such as decisions regarding major leases, encumbering the entities with debt and
whether to dispose of entities. CRLP also consolidates certain partially-owned entities and other
subsidiaries if CRLP owns less than 100% of the equity interest and is deemed to be the primary
beneficiary as defined by the Financial Accounting Standards Board (“FASB”) Interpretation 46
“Consolidation of Variable Interest Entities”, an Interpretation of ARB No. 51, as revised (“FIN
46(R)”). CRLP eliminates in consolidation revenues and expenses associated with its percentage
interest in unconsolidated subsidiaries.
CRLP recognizes noncontrolling interest in its Consolidated Balance Sheets for partially-owned
entities that CRLP consolidates. The noncontrolling partners’ share of current operations is
reflected in noncontrolling interest of limited partners in the Consolidated Statements of Income.
35
Pursuant to CRLP’s Third Amended and Restated Agreement of Limited Partnership, as amended,
each time the Trust issues shares, it contributes to CRLP any net proceeds raised in connection
with the issuance and CRLP issues an equivalent number of units to the Trust. Similarly, whenever
the Trust purchases or redeems its preferred and common shares, CRLP purchases, redeems or cancels
an equivalent number of its units.
Reclassification
Certain prior year numbers have been reclassified to conform to current year presentation.
Federal Income Tax Status
CRLP is a partnership for federal income tax purposes. As a partnership CRLP is not subject to
federal income tax on its income. Instead, each of CRLP’s partners, including the Trust, is
required to pay tax on such partner’s allocable share of income. The Trust has elected to be taxed
as a REIT under Sections 856 through 860 of the Code, commencing with its short taxable year ending
December 31, 1993. A REIT generally is not subject to federal income tax on the income that it
distributes to shareholders provided that the REIT meets the applicable REIT distribution
requirements and other requirements for qualification as a REIT under the Code. The Trust believes
that it is organized and has operated and intends to continue to operate, in a manner to qualify
for taxation as a REIT under the Code. For each taxable year in which the Trust qualifies for
taxation as a REIT, the Trust generally will not be subject to federal corporate tax on its net
income that is distributed currently to its shareholders. While the Trust generally will not be
subject to corporate federal income tax on income that it distributes currently to shareholders, it
will be subject to federal income tax in certain circumstances including: the Trust will be subject
to income tax to the extent it distributes less than 100% of its REIT taxable income (including
capital gains); and, if the Trust acquires any assets from a non-REIT “C” corporation in a
carry-over basis transaction, the Trust would be liable for corporate federal income tax, at the
highest applicable corporate rate for the “built-in gain” with respect to those assets if it
disposed of those assets within 10 years after they were acquired. CRLP and the REIT are subject
to certain state and local taxes on income and property, including the margin-based tax in Texas
and franchise taxes in Tennessee and North Carolina.
CRLP’s consolidated financial statements include the operations of a taxable REIT subsidiary,
CPSI, which is not entitled to a dividends paid deduction and is subject to federal, state and
local income taxes. CPSI uses the liability method of accounting for income taxes. Deferred
income tax assets and liabilities result from temporary differences. Temporary differences are
differences between tax bases of assets and liabilities and their reported amounts in the financial
statements that will result in taxable or deductible amounts in future periods. CPSI provides
property development, construction services, leasing and management services for joint-venture and
third-party owned properties and administrative services to CRLP and engages in for-sale
development and condominium conversion activity. CRLP generally reimburses CPSI for payroll and
other costs incurred in providing services to CRLP. All inter-company transactions are eliminated
in the accompanying consolidated condensed financial statements. CPSI’s consolidated provision for
income taxes was $0 and $0.6 million for the three months ended March 31, 2009 and 2008,
respectively. CPSI’s effective income tax rate was 0% and 38.1% for the three months ended March
31, 2009 and 2008, respectively. As of March 31, 2009, CPSI had a net deferred tax asset, after
valuation allowance, of approximately $3.0 million, which resulted primarily from the 2007 and 2008
impairment charges related to the Company’s for-sale residential properties. CPSI has assessed the
recoverability of this asset and believes that, as of March 31, 2009, recovery is more likely than
not based upon future taxable income and the ability to carry back taxable losses to prior periods.
Tax years 2005 through 2007 are subject to examination by the federal and state taxing
authorities. There are no income tax examinations currently in process.
CRLP may from time to time be assessed interest or penalties by major tax jurisdictions,
although any such assessments historically have been minimal and immaterial to CRLP’s financial
results. When CRLP has received an assessment for interest and/or penalties, it has been
classified in the financial statements as income tax expense.
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment
Act of 2009 (the “Act”). Section 1231 of the Act allows some business taxpayers to elect to defer
cancellation of indebtedness income when the taxpayer repurchases applicable debt instruments after
December 31, 2008 and before January 1, 2011. Under the Act, the cancellation of indebtedness
income would be deferred for five years (until 2014), and the cancellation of indebtedness income
in 2010 would be deferred for four years (until 2014), subject in both cases to acceleration
events. After the deferral period, 20% of the cancellation of indebtedness income would be
included in taxpayer’s gross income in each of the next five taxable years. The deferral is an
irrevocable election made on the taxpayer’s income tax return for the taxable year of the
reacquisition. The Company is currently evaluating whether it qualifies for, and if so, whether it
will make this election with regard to debt repurchased in 2009.
36
Use of Estimates
The preparation of consolidated condensed financial statements in conformity with accounting
principles generally accepted in the United States (“GAAP”) requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual results could differ from those
estimates.
Unaudited Interim Statements
The consolidated condensed financial statements as of and for the three months ended March 31,
2009 and 2008 and related footnote disclosures are unaudited. In the opinion of management, such
financial statements reflect all adjustments necessary for a fair statement of the results of the
interim periods.
Revenue Recognition
Sales and the associated gains or losses on real estate assets, condominium conversion
projects and for-sale residential projects are recognized in accordance with the provisions of SFAS
No. 66, Accounting for Sales of Real Estate (“SFAS No. 66”). For condominium conversion and
for-sale residential projects, sales and the associated gains for individual condominium units are
recognized upon the closing of the sale transactions, as all conditions for full profit recognition
have been met (“Completed Contract Method”). Under SFAS No. 66, CRLP uses the relative sales
value method to allocate costs and recognize profits from condominium conversion and for-sale
residential sales.
Estimated future warranty costs on condominium conversion and for-sale residential sales are
charged to cost of sales in the period when the revenues from such sales are recognized. Such
estimated warranty costs are approximately 0.5% of total revenue. As necessary, additional
warranty costs are charged to costs of sales based on management’s estimate of the costs to
remediate existing claims.
Revenue from construction contracts is recognized on the percentage-of-completion method,
measured by the percentage of costs incurred to date to estimated total costs. Provisions for
estimated losses on uncompleted contracts are made in the period in which such losses are
determined. Adjustments to estimated profits on contracts are recognized in the period in which
such adjustments become known.
Other income received from long-term contracts signed in the normal course of business,
including property management and development fee income, is recognized when earned for services
provided to third parties, including joint ventures in which CRLP owns a noncontrolling interest.
CRLP, as lessor, retains substantially all the risks and benefits of property ownership and
accounts for its leases as operating leases. Rental income attributable to leases is recognized on
a straight-line basis over the terms of the leases. Certain leases contain provisions for
additional rent based on a percentage of tenant sales. Percentage rents are recognized in the
period in which sales thresholds are met. Recoveries from tenants for taxes, insurance and other
property operating expenses are recognized in the period the applicable costs are incurred in
accordance with the terms of the related lease.
Impairment
Management evaluates the recoverability of its investment in real estate assets in accordance
with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets (“SFAS No. 144”). This statement requires that long-lived assets be reviewed
for impairment whenever events or changes in circumstances indicate that recoverability of the
asset is not assured.
CRLP evaluates the recoverability of its investments in real estate assets held for use
continuously and records an impairment charge when there is an indicator of impairment and the
undiscounted projected cash flows are less than the carrying amount for a particular asset. These
estimates of cash flows are significantly impacted by estimates of sales price, selling velocity,
sales incentives, construction costs and other factors. Due to uncertainties in the estimation
process, actual results could differ from such estimates.
37
Assets that are classified as held-for-sale are recorded at the lower of their carrying amount
or fair value less cost to sell. Management evaluates the fair value less cost to sell continuously
and records impairment charges when required. An asset is generally classified as held-for-sale
once management commits to a plan to sell the particular asset and has initiated an active program
to market the asset for sale.
Investment and Development
Investment and development expenses consist primarily of costs related to abandoned pursuits.
CRLP incurs costs prior to land acquisition including contract deposits, as well as legal,
engineering and other external professional fees related to evaluating the feasibility of such
developments. If CRLP determines that it is probable that it will not develop a particular
project, any related pre-development costs previously incurred are immediately expensed. The
Company recorded $0.2 million and $0.8 million in investment and development expenses during the
three months ended March 31, 2009 and 2008, respectively.
Notes Receivable
Notes receivable consists primarily of promissory notes issued by third parties. CRLP records
notes receivable at cost. CRLP evaluates the collectability of both interest and principal for
each of its notes to determine whether it is impaired. A note is considered to be impaired when,
based on current information and events, it is probable that CRLP will be unable to collect all
amounts due according to the existing contractual terms. When a note is considered to be impaired,
the amount of the allowance is calculated by comparing the recorded investment to either the value
determined by discounting the expected future cash flows at the note’s effective interest rate or
to the value of the collateral if the note is collateral dependent.
Note receivable activity for the three months ended March 31, 2009 consisted primarily of the
following: on February 2, 2009, CRLP disposed of Colonial Promenade at Fultondale for approximately
$30.7 million, which included $16.9 million of seller-financing for a term of five years at an
interest rate of 5.6% (see Note 5).
CRLP had recorded accrued interest related to its outstanding notes receivable of $0.1 million
as of March 31, 2009 and December 31, 2008. As of March 31, 2009, CRLP had a $1.5 million reserve recorded
against its outstanding notes receivable and accrued interest. The weighted average interest rate
on the notes receivable is approximately 5.7% and 5.9% per annum as of March 31, 2009 and December
31, 2008, respectively. Interest income is recognized on an accrual basis.
Assets and Liabilities Measured at Fair Value
On January 1, 2008, CRLP adopted Statement of Financial Accounting Standards No. 157, Fair
Value Measurements (“SFAS No. 157”) for financial assets and liabilities. On January 1, 2009, CRLP
adopted the requirements of SFAS No. 157 for its non-financial assets and liabilities. The
adoption of SFAS No. 157 for non-financial assets and liabilities on January 1, 2009 did not have a
material impact on CRLP’s consolidated financial statements. SFAS No. 157 defines fair value,
establishes a framework for measuring fair value, and expands disclosures about fair value
measurements. SFAS No. 157 applies to reported balances that are required or permitted to be
measured at fair value under existing accounting pronouncements; accordingly, the standard does not
require any new fair value measurements of reported balances.
SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific
measurement. Therefore, a fair value measurement should be determined based on the assumptions
that market participants would use in pricing an asset or liability. As a basis for considering
market participant assumptions in fair value measurements, SFAS No. 157 establishes a fair value
hierarchy that distinguishes between market participant assumptions based on market data obtained
from sources independent of the reporting entity (observable inputs that are classified within
Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market
participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or
liabilities that CRLP has the ability to access. Level 2 inputs are inputs other than quoted prices
included in Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as
well as inputs that are observable for the asset or liability (other than quoted prices), such as
interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted
intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically
based on an entity’s own assumptions, as there is little, if any, related market activity. In
instances where the determination of the fair value measurement is based on inputs from different
levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire
fair value measurement falls is based on the lowest level
38
input that is significant to the fair value measurement in its entirety. CRLP’s assessment of
the significance of a particular input to the fair value measurement in its entirety requires
judgment, and considers factors specific to the asset or liability.
New Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement, as discussed above.
SFAS No. 157 is effective for CRLP’s financial assets and liabilities on January 1, 2008. In
February 2008, the FASB reached a conclusion to amend SFAS No. 157 to exclude SFAS No. 13
Accounting for Leases and its related interpretive accounting pronouncements. CRLP adopted the
deferral provisions of FASB Staff Position, or FSP, SFAS No. 157-2, “Effective Date of FASB
Statement No. 157,” which delays the effective date of SFAS No. 157 for all nonrecurring fair value
measurements of non-financial assets and liabilities until fiscal years beginning after November
15, 2008. CRLP also adopted FSP SFAS No. 157-3, “Determining the Fair Value of a Financial Asset
When the Market for That Asset is Not Active.” Adoption of these FSPs did not have a material
impact on CRLP’s consolidated financial statements. In April 2009, the FASB issued FSP FAS 157-4,
Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That are Not Orderly (“FSP FAS 157-4”). FSP
FAS 157-4 provides additional guidance for estimating fair value in accordance with SFAS No. 157
when the volume and level of activity for both financial and nonfinancial assets and liabilities
have significantly decreased. FSP FAS 157-4 is effective for fiscal years and interim periods
beginning after July 1, 2009 and shall be applied prospectively. CRLP does not expect the adoption
of FSP FAS 157-4 to have a material impact on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements — an amendment of ARB No. 51 (“SFAS No. 160”). SFAS No. 160 amends Accounting
Research Bulletin 51 to establish accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that
should be reported as equity in the consolidated financial statements under certain circumstances.
SFAS No. 160 requires consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and the noncontrolling interest. SFAS No. 160 also requires
disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net
income attributable to the parent and to the noncontrolling interest. The provisions of SFAS No.
160 became effective for fiscal years beginning after November 15, 2008, including interim periods
beginning January 1, 2009. Based on CRLP’s evaluation of SFAS No. 160, CRLP has concluded that it
will continue to classify limited partners’ redeemable units as “temporary equity” in its
consolidated balance sheet. Each limited partners’ redeemable units may be redeemed by the holder
thereof for either one common share of the Trust or cash equal to the fair market value thereof at
the time of such redemption, at the option of the Trust. CRLP has classified these redeemable
units as temporary equity. This is primarily due to the fact that the election to settle
redeemable units in common shares of the Trust or cash is made by the Trust. As the ability to
issue common shares of the Trust in exchange for redeemable units of CRLP is outside of the
exclusive control of CRLP, CRLP concluded that it does not meet the requirements for permanent
equity classification under the provisions of EITF 00-19, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock. All other
noncontrolling interests are classified as equity in the accompanying consolidated condensed
balance sheets. The adoption of SFAS No. 160 did not have a material impact on the Company’s
consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS No. 141(R)”),
which changes how business acquisitions are accounted for and will impact financial statements both
on the acquisition date and in subsequent periods. SFAS No. 141(R) requires the acquiring entity
in a business combination to recognize all (and only) the assets acquired and liabilities assumed
in the transaction and establishes the acquisition-date fair value as the measurement objective for
all assets acquired and liabilities assumed in a business combination. Certain provisions of this
standard will, among other things, impact the determination of acquisition-date fair value of
consideration paid in a business combination (including contingent consideration); exclude
transaction costs from acquisition accounting; and change accounting practices for acquired
contingencies, acquisition-related restructuring costs, and tax benefits. This Statement applies
prospectively to business combinations for which the acquisition date is on or after the beginning
of the first annual reporting period beginning on or after December 15, 2008. The adoption of SFAS
No. 141(R) did not have a material impact on CRLP’s consolidated financial statements. In April
2009, the FASB issued FSP FAS 141 (R)-1, Accounting for Assets Acquired and Liabilities Assumed in
a Business Combination That Arise from Contingencies (“FSP FAS 141 (R)-1”). FSP FAS 141 (R)-1
provides additional guidance on initial recognition and measurement, subsequent measurement and
accounting, and disclosure of assets and liabilities arising from contingencies in a business
combination. FSP FAS 141 (R)-1 is effective for fiscal years and interim periods beginning after
December 15, 2008. CRLP does not expect the adoption of FSP FAS 141 (R)-1 to have a material
impact on its consolidated financial statements.
39
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities (“SFAS No. 161”), an amendment of FASB Statement No. 133. SFAS No. 161 is
intended to help investors better understand how derivative instruments and hedging activities
affect an entity’s financial position, financial performance and cash flows through enhanced
disclosure requirements. The enhanced disclosures primarily surround disclosing the objectives and
strategies for using derivative instruments by their underlying risk as well as a tabular format of
the fair values of the derivative instruments and their gains and losses. SFAS No.161 is effective
for financial statements issued for fiscal years and interim periods beginning after November 15,
2008, with early application encouraged. The adoption of SFAS No. 161 did not have a material
impact on CRLP’s consolidated financial statements, but has resulted in certain additional
disclosures relating to CRLP’s interest rate swaps (see Note 13).
In April 2008, the FASB issued FSP FAS No. 142-3, Determination of the Useful Life of
Intangible Assets (“FSP FAS No. 142-3”). This FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of a recognized
intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”. This FSP allows CRLP
to use its historical experience in renewing or extending the useful life of intangible assets.
This FSP is effective for fiscal years beginning after December 15, 2008 and interim periods within
those fiscal years and shall be applied prospectively to intangible assets acquired after the
effective date. The application of this FSP did not have a material impact on CRLP’s consolidated
financial statements.
In June 2008, the FASB issued a FSP EITF 03-6-1, Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities (“FSP EITF No. 03-6-1”), which
addresses whether instruments granted in share-based payment transactions are participating
securities prior to vesting and, therefore, need to be included in the earnings allocation in
computing earnings per share under the two-class method as described in SFAS No. 128, “Earnings per
Share.” Under the guidance in FSP EITF No. 03-6-1, unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the computation of earnings per share pursuant to
the two-class method. The FSP is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal years. All prior-period
earnings per share data presented shall be adjusted retrospectively. The adoption of FSP EITF No.
03-6-1 requires CRLP to include participating securities in the earnings per unit calculation (see
Note 9). The application of this FSP did not have a material impact on the Company’s consolidated
financial statements.
In December 2008, the FASB’s Emerging Issues Task Force issued EITF 08-6, Equity Method
Investment Accounting Considerations (“EITF 08-6”), which, amongst other items, clarifies that the initial
carrying value of an equity method investment should be based on the cost accumulation model. EITF
08-6 is effective on a prospective basis in fiscal years beginning on or after December 15, 2008,
and interim periods within those fiscal years. The application of EITF 08-6 did not have a
material impact on CRLP’s consolidated financial statements.
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments (“FSP FAS 107-1”). FSP FAS 107-1 amends SFAS No. 107 to require
disclosures about fair value of financial instruments for interim reporting periods of publicly
traded companies in addition to the annual financial statements. FSP FAS 107-1 also amends APB No.
28 to require those disclosures in summarized financial information at interim reporting periods.
FSP FAS 107-1 is effective for interim periods ending after June 15, 2009. Prior period
presentation is not required for comparative purposes at initial adoption. CRLP does not expect the
adoption of FSP FAS 107-1 to have a material impact on its consolidated financial statements.
Note 3 — Capital Structure
At March 31, 2009, the Trust controlled CRLP as CRLP’s sole general partner and as the holder
of approximately 84.6% interest in CRLP. The limited partners of CRLP who hold redeemable common
units are those persons (including certain officers and trustees of the Trust) who, at the time of
the Trust’s initial public offering, elected to hold all or a portion of their interest in the form
of units rather than receiving common shares of the Trust, or individuals from whom CRLP acquired
certain properties who elected to receive units in exchange for the properties. Redeemable units
represent the number of outstanding limited partnership units as of the date of the applicable
balance sheet, valued at the closing market value of the Trust’s common shares. Each redeemable
unit may be redeemed by the holder thereof for either cash equal to the fair market value of one
common share of the Trust at the time of such redemption or, at the option of the Trust, one common
share of the Trust. Additionally, CRLP has outstanding $100 million of Series B Preferred Units
issued in a private placement, that are exchangeable for 7.25% Series B Cumulative Redeemable
Perpetual Preferred Shares of the Trust in whole or in part at anytime on or after January 1, 2014
at the option of the holders of the Series B Preferred Units. CRLP also has 401,125 outstanding
Series D Preferred Units, all of which are held by the Trust, as general partner of CRLP.
40
The Board of Trustees of the Trust manages CRLP by directing the affairs of CRLP. The Trust’s
interest in CRLP entitles the Trust to share in cash distributions from, and in the profits and
losses of, CRLP in proportion to the Trust’s percentage interest therein and entitle the Trust to
vote on all matters requiring a vote of the limited partners.
In January 2008, the Trust’s Board of Trustees authorized the repurchase of up to $25.0
million of the Company’s 81/8% Series D preferred depositary shares in a limited number of
separate, privately negotiated transactions. Each Series D preferred depositary share represents
1/10 of a share of the Trust’s 81/8% Series D Cumulative Redeemable Preferred Shares of
Beneficial Interest, par value $0.01 per share. In connection with the repurchase of the Series
D preferred depositary shares, the Board of Trustees of the Trust, as general partner of CRLP,
also authorized the repurchase of a corresponding amount of Series D Preferred Units. During
the three months ended March 31, 2008, the Trust repurchased 306,750 shares of its outstanding
Series D preferred depositary shares in privately negotiated transactions for an aggregate
purchase price of $7.7 million, at an average price of $24.86 per depositary share. The Trust
received a discount to the liquidation preference price of $25.00 per depositary share, of
approximately $0.1 million, on the repurchase and wrote off approximately $0.3 million of
issuance costs.
On October 29, 2008, the Trust’s Board of Trustees authorized a repurchase program which
allows the Trust to repurchase up to an additional $25.0 million of its outstanding Series D
preferred depositary shares over a 12 month period (and a corresponding amount of Series D
Preferred Units). The Trust did not repurchase any of its outstanding Series D preferred
depositary shares during the three months ended March 31, 2009. The Trust will continue to
monitor the equity markets and repurchase preferred shares if the repurchases meet the required
criteria, as funds are available. If the Trust were to repurchase outstanding Series D
depositary shares, it would expect to record additional non-cash charges related to the
write-off of Series D preferred issuance costs.
In connection with our adoption of SFAS No. 160 effective January 1, 2009, CRLP also
adopted the recent revisions to EITF Topic D-98, “Classification and Measurement of Redeemable
Securities (“D-98”).” As a result of CRLP’s adoption of these standards, amounts previously
reported as limited partners’ interest in consolidated partnerships on CRLP’s Consolidated
Condensed Balance Sheets are now presented as noncontrolling interests within equity. There has
been no change in the measurement of this line item from amounts previously reported.
Additionally, amounts previously reported as preferred units in CRLP are now presented as
noncontrolling interests within equity. There has been no change in the measurement of this
line item from amounts previously reported. Minority interests in common units of CRLP have
also been re-characterized as noncontrolling interests, but because of the redemption feature of
these units, they have been included in the temporary equity section (between liabilities and
equity) on CRLP’s Consolidated Condensed Balance Sheets. Each limited partners’ redeemable
units may be redeemed by the holder thereof for either cash equal to the fair market value of
one common share of the Trust at the time of such redemption or, at the option of the Trust, one
common share of the Trust. Based on the requirements of D-98, the measurement of
noncontrolling interests is now presented at “redemption value” — i.e., the fair value of the
units (or limited partners’ interests) as of the balance sheet date (based on the Trust’s share
price multiplied by the number of outstanding units), or the aggregate value of the individual
partners’ capital balances, whichever is greater. Previously, these interests were measured
based on the noncontrolling interests in CRLP’s pro rata share of total common interests, in
accordance with EITF 95-7. The revised presentation and measurement required by SFAS No. 160
and D-98 has been adopted retrospectively. A reconciliation between the amounts previously
reported and their current measurements at December 31, 2008 are presented below (in thousands):
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling |
|
|
|
Noncontrolling |
|
|
|
|
|
|
Interests in |
|
|
|
Interests in |
|
|
Common |
|
|
Temporary |
|
|
|
Equity |
|
|
Equity |
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2007, as previously
reported |
|
$ |
— |
|
|
$ |
1,025,654 |
|
|
$ |
229,933 |
|
Adjustment of common units to “redemption value” |
|
|
— |
|
|
|
13,328 |
|
|
|
(13,328 |
) |
Impact of the adoption of SFAS 160 on limited partners’ interests in
consolidated partnerships |
|
|
2,439 |
|
|
|
— |
|
|
|
(2,439 |
) |
|
|
|
|
|
|
|
|
|
|
Adjusted balance as of December 31, 2007 |
|
$ |
2,439 |
|
|
$ |
1,038,982 |
|
|
$ |
214,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008, as previously
reported |
|
$ |
— |
|
|
$ |
1,014,545 |
|
|
$ |
75,755 |
|
Adjustment of common units to “redemption value” |
|
|
— |
|
|
|
(51,036 |
) |
|
|
51,036 |
|
Impact of the adoption of SFAS 160 on limited partners’ interests in
consolidated partnerships |
|
|
1,943 |
|
|
|
— |
|
|
|
(1,943 |
) |
|
|
|
|
|
|
|
|
|
|
Adjusted balance as of December 31, 2008 |
|
$ |
1,943 |
|
|
$ |
963,509 |
|
|
$ |
124,848 |
|
|
|
|
|
|
|
|
|
|
|
The changes in redeemable noncontrolling interests for the three months ended March 31, 2009
and the year ended December 31, 2008 are presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
Ended |
|
|
Year Ended |
|
|
|
March 31, 2009 |
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
124,848 |
|
|
$ |
214,166 |
|
Redemption value of allocation of redeemable
noncontrolling interests |
|
|
(7,168 |
) |
|
|
(51,795 |
) |
Redemption of CRLP units for common shares |
|
|
(31 |
) |
|
|
(9,287 |
) |
Distributions to noncontrolling interests |
|
|
(2,215 |
) |
|
|
(17,011 |
) |
Net income (loss) |
|
|
2,531 |
|
|
|
(11,225 |
) |
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
117,965 |
|
|
$ |
124,848 |
|
|
|
|
|
|
|
|
Also effective with the adoption of SFAS No. 160, previously reported minority interests have
been re-characterized on the accompanying Consolidated Condensed Statements of Income to
noncontrolling interests and placed below “Net income (loss)” before arriving at “Net income (loss)
attributable to CRLP”.
Note 4 — Restructuring Charges
In light of the ongoing recession and credit crisis, CRLP announced in early 2009 that it has
renewed its focus on maintaining a strong balance sheet, improving liquidity, addressing near term
debt maturities, managing existing properties and operating CRLP’s portfolio efficiently, including
reducing overhead and postponing future development activities. During the first quarter of 2009,
CRLP reduced its workforce by an additional 30 employees through the elimination of certain
personnel resulting in CRLP incurring an aggregate of $0.8 million in termination benefits and
severance related charges, of which $0.5 million is included in “Accrued expenses” on CRLP’s
Consolidated Balance Sheet at March 31, 2009. Of the $0.8 million in restructuring charges,
approximately $0.4 million was associated with CRLP’s multifamily segment, including $0.2 million
associated with development personnel; $0.3 million with CRLP’s commercial segment, including $0.2
million associated with development personnel; and $0.1 million of these restructuring costs were
non-divisional charges.
The expenses of CRLP’s reduction in workforce and other termination costs, as described above,
are included in “Restructuring charges” in the Consolidated Statements of Income for the quarter
ended March 31, 2009, pursuant to SFAS No. 146.
42
Note 5 — Impairment
On March 11, 2009, CRLP completed the sale of the remaining 17 unsold units at the Regents
Park for-sale residential project located in Atlanta, Georgia for $16.3 million in cash. Since
the sales price exceeded the carrying value of the units, CRLP recorded an impairment charge of $0.3 million, which is reflected in “Income
from discontinued operations” in the Consolidated Statements of Income for the quarter ended
March 31, 2009 (see Note 7).
Additionally, in February 2009, CRLP reached an agreement in principle to transfer its
remaining noncontrolling joint venture interest in Colonial Pinnacle Craft Farms I, a
220,000-square-foot (excluding anchor-owned square-footage) retail shopping center located in Gulf
Shores, Alabama, to the majority joint venture partner. As a result of this agreement and the
resulting asset valuation, CRLP recorded an impairment charge of approximately $0.7 million during
the three months ended March 31, 2009, which represents CRLP’s remaining equity interest in the
joint venture (see Note 11).
CRLP calculates the fair value of each property and development project evaluated for
impairment under SFAS No. 144 based on current market conditions and assumptions made by
management, which may differ materially from actual results if market conditions continue to
deteriorate or improve. Specific facts and circumstances of each project are evaluated, including
local market conditions, traffic, sales velocity, relative pricing, and cost structure. CRLP will
continue to monitor the specific facts and circumstances at CRLP’s for-sale properties and
development projects. If market conditions do not improve or if there is further market
deterioration, it may impact the number of projects CRLP can sell, the timing of the sales and/or
the prices at which CRLP can sell them in future periods. If CRLP is unable to sell projects, CRLP
may incur additional impairment charges on projects previously impaired as well as on projects not
currently impaired but for which indicators of impairment may exist, which would decrease the value
of CRLP’s assets as reflected on the balance sheet and adversely affect net income and equity (see
Note 2). There can be no assurances of the amount or pace of future for-sale residential sales and
closings, particularly given current market conditions.
Note 6 — Disposition Activity
On February 2, 2009, CRLP disposed of Colonial Promenade at Fultondale, a 159,000 square-foot
(excluding anchor-owned square footage) retail asset, developed by CRLP and located in Birmingham,
Alabama. CRLP sold this asset for approximately $30.7 million, which included $16.9 million of
seller-financing for a term of five years at an interest rate of 5.6%. The net proceeds were used
to reduce the amount outstanding on CRLP’s unsecured credit facility. Because CRLP provided
seller-financing in the disposition, the gain on sale is included in continuing operations.
In accordance with SFAS No. 144, net income and gain on disposition of real estate for
properties sold in which CRLP does not maintain continuing involvement are reflected in the
Consolidated Condensed Statements of Income as “Discontinued operations” for all periods presented.
During the three months ended March 31, 2009 and 2008, all of the operating properties sold with
no continuing interest were classified as discontinued operations. The following is a listing of
the properties CRLP disposed of in 2009 and 2008 that are classified as discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units/ Square |
|
Property |
|
Location |
|
Date Sold |
|
Feet |
|
|
|
|
|
|
|
|
|
|
Multifamily |
|
|
|
|
|
|
|
|
Colonial Grand at Hunter’s Creek |
|
Orlando, FL |
|
September 2008 |
|
|
496 |
|
Colonial Grand at Shelby Farms
I & II |
|
Memphis, TN |
|
June 2008 |
|
|
450 |
|
Colonial Village at Bear Creek |
|
Fort Worth, TX |
|
June 2008 |
|
|
120 |
|
Colonial Village at Pear Ridge |
|
Dallas, TX |
|
June 2008 |
|
|
242 |
|
Colonial Village at Bedford |
|
Fort Worth, TX |
|
June 2008 |
|
|
238 |
|
Cottonwood Crossing |
|
Fort Worth, TX |
|
June 2008 |
|
|
200 |
|
|
|
|
|
|
|
|
|
|
Office |
|
|
|
|
|
|
|
|
250 Commerce Center |
|
Montgomery, AL |
|
February 2008 |
|
|
37,000 |
|
Additionally, CRLP classifies real estate assets as held for sale only after CRLP has received
approval by its internal investment committee, CRLP has commenced an active program to sell the
assets, CRLP does not intend to retain a continuing interest in the property, and in the opinion of
CRLP’s management, it is probable the assets will sell within the next 12 months.
43
As of March 31, 2009, CRLP had classified two multifamily apartment communities, one retail asset, two condominium
conversion properties and nine for-sale developments (including four for-sale projects that were
classified as future developments at December 31, 2008) as held for sale. These real estate assets
are reflected in the accompanying Consolidated Condensed Balance Sheet at $21.8 million, $16.9 million, $0.5
million and $116.4 million, respectively, as of March 31, 2009, which represents the lower of
depreciated cost or fair value less costs to sell. There is no mortgage debt associated with these
properties as of March 31, 2009. The operations of these held for sale properties have been
reclassified to discontinued operations for all periods presented in accordance with SFAS No. 144.
Depreciation or amortization expense suspended as a result of assets being classified as held for
sale for the three months ended March 31, 2009 was approximately $0.3 million. There is no
depreciation or amortization expense suspended as a result of these assets being classified as held
for sale during the three months ended March 31, 2008.
In accordance with SFAS No. 144, the operating results of properties (excluding condominium
conversion properties not previously operated) designated as held for sale, are included in
discontinued operations in the Consolidated Condensed Statements of Income for all periods
presented. Also under the provisions of SFAS No. 144, the reserves, if any, to write down the
carrying value of the real estate assets designated and classified as held for sale are also
included in discontinued operations (excluding condominium conversion properties not previously
operated). Additionally, under SFAS No. 144, any impairment losses on assets held for continuing
use are included in continuing operations.
Below is a summary of the operations of the properties sold or classified as held for sale
during the three months ended March 31, 2009 and 2008 that are classified as discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
(amounts in thousands) |
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Property revenues: |
|
|
|
|
|
|
|
|
Base rent |
|
$ |
1,162 |
|
|
$ |
4,667 |
|
Tenant recoveries |
|
|
65 |
|
|
|
24 |
|
Other revenue |
|
|
104 |
|
|
|
473 |
|
|
|
|
|
|
|
|
Total revenues |
|
|
1,331 |
|
|
|
5,164 |
|
|
|
|
|
|
|
|
|
|
Property operating and administrative expenses |
|
|
645 |
|
|
|
2,392 |
|
Impairment |
|
|
318 |
|
|
|
— |
|
Depreciation and amortization |
|
|
139 |
|
|
|
447 |
|
|
|
|
|
|
|
|
Total expenses |
|
|
1,102 |
|
|
|
2,839 |
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
— |
|
|
|
40 |
|
Other expenses |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
Income from discontinued operations before net gain
on disposition of discontinued operations |
|
|
229 |
|
|
|
2,365 |
|
Net gain on disposition of discontinued operations |
|
|
45 |
|
|
|
2,913 |
|
Noncontrolling interest to limited partners |
|
|
468 |
|
|
|
141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
$ |
742 |
|
|
$ |
5,419 |
|
|
|
|
|
|
|
|
Note 7 — For-Sale Activities
On March 11, 2009, CRLP completed the sale of the remaining 17 unsold units at the Regents
Park for-sale residential project located in Atlanta, Georgia, for $16.3 million in cash, which
resulted in a $0.3 million impairment charge (see Note 5). As a result of the sale price, CRLP
recorded an impairment charge of $0.3 million. The disposition eliminates the operating expenses
and costs to carry the associated units. The proceeds from the sale were used to reduce the
outstanding balance on CRLP’s unsecured line of credit.
During the three months ended March 31, 2009 and 2008, CRLP, through CPSI, sold 27 (including
the 17 units at Regents Park) and 14 units, respectively, at its for-sale residential development
properties. During the three months ended March 31, 2009, CRLP, through CPSI, disposed of six
condominium units at CRLP’s condominium conversion properties. CRLP, through CPSI, did not close
on any units at its condominium conversion properties during the three months ended March 31, 2008.
44
During the three months ended March 31, 2009 and 2008, gains from sales of property on CRLP’s
Consolidated Condensed Statements of Income included $47,000 ($21,000, net of income taxes) and
$33,000 ($65,000 including an income tax benefit), respectively, from these condominium and
for-sale residential sales. The following is a summary of revenues and costs of condominium
conversion and for-sale residential activities (including activities in continuing and discontinued
operations) for the three months ended March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
(amounts in thousands) |
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Condominium revenues, net |
|
$ |
327 |
|
|
$ |
— |
|
Condominium costs |
|
|
(259 |
) |
|
|
— |
|
|
|
|
|
|
|
|
Gains (losses) on condominium sales, before income taxes |
|
|
68 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For-sale residential revenues, net |
|
|
19,234 |
|
|
|
2,776 |
|
For-sale residential costs |
|
|
(19,255 |
) |
|
|
(2,743 |
) |
|
|
|
|
|
|
|
Gains on for-sale residential sales, before income taxes |
|
|
(21 |
) |
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Provision) / benefit for income taxes |
|
|
(26 |
) |
|
|
32 |
|
|
|
|
|
|
|
|
Gains on condominium conversions and for-sale residential sales,
net of income taxes |
|
$ |
21 |
|
|
$ |
65 |
|
|
|
|
|
|
|
|
The net gains on condominium unit sales are classified in discontinued operations if the
related condominium property was previously operated by CRLP as an apartment community. For the
three months ended March 31, 2009, gains on condominium unit sales of $42,000, net of income taxes,
are included in discontinued operations. For the three months ended March 31, 2008, there were no
gains related to condominium unit sales included in discontinued operations.
For cash flow statement purposes, CRLP classifies capital expenditures for newly developed
for-sale residential communities and for other condominium conversion communities in investing
activities. Likewise, the proceeds from the sales of condominium units and other residential sales
are also included in investing activities.
Note 8 — Undeveloped Land and Construction in Progress
CRLP’s ongoing consolidated development projects are in various stages of the development
cycle. During the three months ended March 31, 2009, CRLP completed the construction of a
multifamily development adding 300 apartment homes to the portfolio. This development, Colonial
Grand at Onion Creek, located in Austin, Texas, had a total cost of approximately $32.3 million.
Active developments as of March 31, 2009 consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
Costs |
|
|
|
|
|
Units/ |
|
|
|
|
|
|
Estimated |
|
|
Capitalized |
|
|
|
|
|
Square |
|
|
Estimated |
|
|
Total Costs |
|
|
to Date |
|
|
|
Location |
|
Feet (1) |
|
|
Completion |
|
|
(in thousands) |
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily Projects: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Colonial Grand at Desert Vista |
|
Las Vegas, NV |
|
|
380 |
|
|
|
2009 |
|
|
$ |
53,000 |
|
|
$ |
47,897 |
|
Colonial Grand at Ashton Oaks |
|
Austin, TX |
|
|
362 |
|
|
|
2009 |
|
|
|
35,100 |
|
|
|
32,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Projects: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Colonial Promenade Tannehill
(2) |
|
Birmingham, AL |
|
|
201 |
|
|
|
2009 |
|
|
|
7,100 |
|
|
|
2,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction in Progress for Active Developments |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
82,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Footnotes on following page |
45
|
|
|
(1) |
|
Square footage is presented in thousands. Square footage for the retail assets
excludes anchor-owned square-footage. |
|
(2) |
|
Total cost and development costs recorded through March 31, 2009 have been reduced by
$50.2 million for the portion of the development that was placed into service through March
31, 2009. Total cost for this project is expected to be approximately $57.3 million, of
which, $10.5 million is expected to be received from the city as reimbursement for
infrastructure costs. |
In addition to CRLP’s consolidated developments included in the table above, CRLP also has an
unconsolidated commercial development in progress, Colonial Pinnacle Turkey Creek III, located in
Knoxville, Tennessee. As of March 31, 2009, CRLP’s pro-rata portion of the costs incurred for this
development is $11.5 million, with an additional $3.4 million anticipated to complete the project.
Interest capitalized on construction in progress during the three months ended March 31, 2009
and 2008 was $2.2 million and $6.3 million, respectively.
There are no for-sale residential projects actively under development as of March 31, 2009.
As previously announced, in January 2009, the Company decided to postpone future development
activities (other than land parcels held for future sale and for-sale residential and mixed-use
developments, which the Company plans to sell) until it determines that the current economic
environment has sufficiently improved. These deferred developments and undeveloped land include:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs |
|
|
|
|
|
Total Units/ |
|
|
Capitalized |
|
|
|
|
|
Square Feet (1) |
|
|
to Date |
|
|
|
Location |
|
(unaudited) |
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily Projects: |
|
|
|
|
|
|
|
|
|
|
Colonial Grand at Sweetwater |
|
Phoenix, AZ |
|
|
195 |
|
|
$ |
7,281 |
|
Colonial Grand at Thunderbird |
|
Phoenix, AZ |
|
|
244 |
|
|
|
8,368 |
|
Colonial Grand at Randal Park (2) |
|
Orlando, FL |
|
|
750 |
|
|
|
19,576 |
|
Colonial Grand at Hampton Preserve |
|
Tampa, FL |
|
|
486 |
|
|
|
14,932 |
|
Colonial Grand at South End |
|
Charlotte, NC |
|
|
353 |
|
|
|
12,246 |
|
Colonial Grand at Wakefield |
|
Raleigh, NC |
|
|
369 |
|
|
|
7,210 |
|
Colonial Grand at Azure |
|
Las Vegas, NV |
|
|
188 |
|
|
|
7,798 |
|
Colonial Grand at Cityway |
|
Austin, TX |
|
|
320 |
|
|
|
4,967 |
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
|
|
|
|
|
|
|
|
|
Colonial Pinnacle Craft Farms II (2) |
|
Gulf Shores, AL |
|
|
74 |
|
|
|
2,027 |
|
Colonial Promenade Huntsville |
|
Huntsville, AL |
|
|
111 |
|
|
|
9,668 |
|
|
|
|
|
|
|
|
|
|
|
|
Other Projects and Undeveloped Land |
|
|
|
|
|
|
|
|
|
|
Multifamily |
|
|
|
|
|
|
|
|
3,080 |
|
Office |
|
|
|
|
|
|
|
|
2,104 |
|
Retail |
|
|
|
|
|
|
|
|
6,269 |
|
For-Sale Residential |
|
|
|
|
|
|
|
|
38,890 |
|
Mixed-Use |
|
|
|
|
|
|
|
|
64,379 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated Construction in
Progress (3) |
|
|
|
|
|
|
|
$ |
208,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Square footage is presented in thousands. Square footage for the retail
assets excludes anchor-owned square-footage. |
|
(2) |
|
These projects are part of mixed-use developments. |
|
(3) |
|
Four for-sale projects were reclassed from “Undeveloped land and construction
in progress” to “Real estate assets held for sale, net” on CRLP’s Consolidated
Condensed Balance Sheet as of March 31, 2009. |
46
Note 9 — Net Income Per Unit
For the three months ended March 31, 2009 and 2008, a reconciliation of the numerator and
denominator used in the basic and diluted income from continuing operations per common share is as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
(amounts in table in thousands) |
|
2009 |
|
|
2008 |
|
Numerator: |
|
|
|
|
|
|
|
|
Net income available to parent company |
|
$ |
20,297 |
|
|
$ |
21,829 |
|
Less: |
|
|
|
|
|
|
|
|
Income allocated to participating securities |
|
|
(106 |
) |
|
|
(94 |
) |
Distributions to general partner preferred unitholders |
|
|
(2,073 |
) |
|
|
(2,488 |
) |
Preferred unit issuance costs, net of discount |
|
|
(5 |
) |
|
|
(271 |
) |
|
|
|
|
|
|
|
Net income available to common unitholders |
|
$ |
18,113 |
|
|
$ |
18,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Denominator for basic net income per unit — weighted
average units |
|
|
57,025 |
|
|
|
56,868 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Trustee and employee stock options, treasury method |
|
|
— |
|
|
|
161 |
|
|
|
|
|
|
|
|
Denominator
for diluted net income per unit —
adjusted weighted average units |
|
|
57,025 |
|
|
|
57,029 |
|
|
|
|
|
|
|
|
For the three months ended March 31, 2009, there were 1,745,452 outstanding share equivalents
(stock options and restricted stock) excluded from the computation of diluted net income per unit
because the grant date prices were greater than the average market price of the common shares, and
therefore, the effect would be anti-dilutive. For the three months ended March 31, 2008, there
were 567,357 outstanding share equivalents (stock options and restricted stock), excluded from the
computation of diluted net income per unit because the grant date prices were greater than the
average market price of the common shares, and therefore, the effect would be anti-dilutive.
Note 10 — Segment Information
Prior to December 31, 2008, CRLP had four operating segments: multifamily, office, retail and
for-sale residential. Since January 1, 2009, CRLP has managed its business based on the
performance of two operating segments: multifamily and commercial. The change in reporting
segments is a result of CRLP’s strategic initiative to become a multifamily-focused REIT including
reorganizing CRLP and streamlining the business. The multifamily and commercial segments have
separate management teams that are responsible for acquiring, developing, managing and leasing
properties within each respective segment. The multifamily segment management team is responsible
for all aspects of for-sale developments, including disposition activities, as well as the
condominium conversion properties and related sales. The multifamily segment includes the
operations and assets of the for-sale developments due to the insignificance of these operations
(which were previously reported as a separate operating segment) in the periods presented.
The pro-rata portion of the revenues, net operating income (“NOI”), and assets of the
partially-owned unconsolidated entities that CRLP has entered into are included in the applicable
segment information. Additionally, the revenues and NOI of properties sold that are classified as
discontinued operations are also included in the applicable segment information. In reconciling
the segment information presented below to total revenues, income from continuing operations, and
total assets, investments in partially-owned unconsolidated entities are eliminated as equity
investments and their related activity are reflected in the consolidated financial statements as
investments accounted for under the equity method, and discontinued operations are reported
separately. Management evaluates the performance of its multifamily and commercial segments and
allocates resources to them based on segment NOI. Segment NOI is defined as total property
revenues, including unconsolidated partnerships and joint ventures, less total property operating
expenses (such items as repairs and maintenance, payroll, utilities, property taxes, insurance and
advertising). Presented below is segment information, for the multifamily and commercial segments,
including the reconciliation of total segment revenues to total revenues and total segment NOI to
income from continuing operations for the three months ended March 31, 2009 and 2008, and total
segment assets to total assets as of March 31, 2009 and December 31, 2008.
47
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
Revenues: |
|
|
|
|
|
|
|
|
Segment Revenues: |
|
|
|
|
|
|
|
|
Multifamily |
|
$ |
77,142 |
|
|
$ |
78,295 |
|
Commercial |
|
|
23,474 |
|
|
|
23,318 |
|
|
|
|
|
|
|
|
Total Segment Revenues |
|
|
100,616 |
|
|
|
101,613 |
|
|
|
|
|
|
|
|
|
|
Partially-owned unconsolidated entities — Multifamily |
|
|
(1,999 |
) |
|
|
(2,219 |
) |
Partially-owned unconsolidated entities — Commercial |
|
|
(16,486 |
) |
|
|
(18,481 |
) |
Construction revenues |
|
|
35 |
|
|
|
7,879 |
|
Unallocated corporate revenues |
|
|
3,455 |
|
|
|
5,206 |
|
Discontinued operations property revenues |
|
|
(1,331 |
) |
|
|
(5,163 |
) |
|
|
|
|
|
|
|
Total Consolidated Revenues |
|
|
84,290 |
|
|
|
88,835 |
|
|
|
|
|
|
|
|
|
|
NOI: |
|
|
|
|
|
|
|
|
Segment NOI: |
|
|
|
|
|
|
|
|
Multifamily |
|
|
44,585 |
|
|
|
47,097 |
|
Commercial |
|
|
15,059 |
|
|
|
15,191 |
|
|
|
|
|
|
|
|
Total Segment NOI |
|
|
59,644 |
|
|
|
62,288 |
|
|
|
|
|
|
|
|
|
|
Partially-owned unconsolidated entities — Multifamily |
|
|
(1,031 |
) |
|
|
(1,129 |
) |
Partially-owned unconsolidated entities — Commercial |
|
|
(10,572 |
) |
|
|
(11,905 |
) |
Unallocated corporate revenues |
|
|
3,455 |
|
|
|
5,206 |
|
Discontinued operations property NOI |
|
|
(368 |
) |
|
|
(2,771 |
) |
Impairment — discontinued operations (1) |
|
|
(318 |
) |
|
|
— |
|
Construction NOI |
|
|
1 |
|
|
|
613 |
|
Property management expenses |
|
|
(1,918 |
) |
|
|
(2,241 |
) |
General and administrative expenses |
|
|
(4,383 |
) |
|
|
(5,780 |
) |
Management fee and other expenses |
|
|
(4,217 |
) |
|
|
(3,591 |
) |
Restructuring charges |
|
|
(812 |
) |
|
|
— |
|
Investment and development (3) |
|
|
(165 |
) |
|
|
(769 |
) |
Impairment — continuing operations (2) |
|
|
(736 |
) |
|
|
— |
|
Depreciation |
|
|
(27,785 |
) |
|
|
(23,257 |
) |
Amortization |
|
|
(873 |
) |
|
|
(759 |
) |
|
|
|
|
|
|
|
Income from operations |
|
|
9,922 |
|
|
|
15,905 |
|
|
|
|
|
|
|
|
Total other income, net (4) |
|
|
10,642 |
|
|
|
628 |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
20,564 |
|
|
$ |
16,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
Assets |
|
|
|
|
|
|
|
|
Segment Assets |
|
|
|
|
|
|
|
|
Multifamily |
|
$ |
2,563,147 |
|
|
$ |
2,579,376 |
|
Commercial |
|
|
393,928 |
|
|
|
402,914 |
|
|
|
|
|
|
|
|
Total Segment Assets |
|
|
2,957,075 |
|
|
|
2,982,290 |
|
|
|
|
|
|
|
|
|
|
Unallocated corporate assets (5) |
|
|
172,477 |
|
|
|
172,211 |
|
|
|
|
|
|
|
|
|
|
$ |
3,129,552 |
|
|
$ |
3,154,501 |
|
|
|
|
|
|
|
|
|
|
|
Footnotes on following page |
48
|
|
|
(1) |
|
The $0.3 million impairment charge recorded during the three months ended March 31, 2009
was a result of the sale of Regents Park (see Note 7). |
|
(2) |
|
Reflects costs incurred related to abandoned pursuits. Abandoned pursuits are volatile
and, therefore, may vary between periods. |
|
(3) |
|
The $0.7 million impairment charge recorded during the three months ended March 31, 2009 is
a result of CRLP’s decision to transfer its remaining noncontrolling joint venture interest
in Colonial Pinnacle Craft Farms I to the majority joint venture partner (see Note 11). |
|
(4) |
|
For-sale residential activities including net gain on sales and income tax expense
(benefit) are included in other income (see Note 7 related to for-sale activities). |
|
(5) |
|
Includes CRLP’s investment in partially-owned entities of $40,890 as of March 31, 2009 and
$46,221 as of December 31, 2008. |
Note 11 — Investment in Partially-Owned Entities
CRLP accounts for the following investments in partially-owned entities using the equity
method. The following table summarizes the investments in partially-owned entities as of March 31,
2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
Percent |
|
|
March 31, |
|
|
December 31, |
|
|
|
Owned |
|
|
2009 |
|
|
2008 |
|
Multifamily: |
|
|
|
|
|
|
|
|
|
|
|
|
Belterra, Ft. Worth, TX |
|
|
10.00 |
% |
|
|
595 |
|
|
|
616 |
|
Regents Park (Phase II), Atlanta, GA |
|
|
40.00% |
(1) |
|
|
3,417 |
|
|
|
3,424 |
|
CG at Huntcliff, Atlanta, GA |
|
|
20.00 |
% |
|
|
1,808 |
|
|
|
1,894 |
|
CG at McKinney, Dallas, TX (Development) |
|
|
25.00 |
% |
|
|
1,720 |
|
|
|
1,521 |
|
CG at Research Park, Raleigh, NC |
|
|
20.00 |
% |
|
|
1,024 |
|
|
|
1,053 |
|
CG at Traditions, Gulf Shores, AL |
|
|
35.00 |
% |
|
|
447 |
|
|
|
570 |
|
CMS / Colonial Joint Venture I |
|
|
15.00 |
% |
|
|
254 |
|
|
|
289 |
|
CMS / Colonial Joint Venture II |
|
|
15.00 |
% |
|
|
(481 |
) |
|
|
(461 |
) |
CMS Florida |
|
|
25.00 |
% |
|
|
(611 |
) |
|
|
(561 |
) |
CMS Tennessee |
|
|
25.00 |
% |
|
|
46 |
|
|
|
114 |
|
CMS V / CG at Canyon Creek, Austin, TX |
|
|
25.00 |
% |
|
|
584 |
|
|
|
638 |
|
DRA Alabama |
|
|
10.00 |
% |
|
|
800 |
|
|
|
921 |
|
DRA CV at Cary, Raleigh, NC |
|
|
20.00 |
% |
|
|
1,704 |
|
|
|
1,752 |
|
DRA Cunningham, Austin, TX |
|
|
20.00 |
% |
|
|
869 |
|
|
|
896 |
|
DRA The Grove at Riverchase, Birmingham, AL |
|
|
20.00 |
% |
|
|
1,256 |
|
|
|
1,291 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Multifamily |
|
|
|
|
|
|
13,432 |
|
|
|
13,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
600 Building Partnership, Birmingham, AL |
|
|
33.33 |
% |
|
|
132 |
|
|
|
118 |
|
Colonial Center Mansell JV |
|
|
15.00 |
% |
|
|
618 |
|
|
|
727 |
|
Colonial Promenade Alabaster II/Tutwiler II, Birmingham, AL |
|
|
5.00 |
% |
|
|
(178 |
) |
|
|
(173 |
) |
Colonial Promenade Craft Farms, Gulf Shores, AL |
|
|
15.00% |
(2) |
|
|
— |
|
|
|
823 |
|
Colonial Promenade Madison, Huntsville, AL |
|
|
25.00 |
% |
|
|
2,173 |
|
|
|
2,187 |
|
Colonial Promenade Smyrna, Smyrna, TN |
|
|
50.00 |
% |
|
|
2,777 |
|
|
|
2,378 |
|
DRA / CRT JV |
|
|
15.00% |
(3) |
|
|
21,626 |
|
|
|
24,091 |
|
DRA / CLP JV |
|
|
15.00% |
(4) |
|
|
(12,037 |
) |
|
|
(10,976 |
) |
Highway 150, LLC, Birmingham, AL |
|
|
10.00 |
% |
|
|
67 |
|
|
|
67 |
|
Huntsville TIC, Huntsville , AL |
|
|
10.00% |
(5) |
|
|
(3,966 |
) |
|
|
(3,746 |
) |
OZRE JV |
|
|
17.10% |
(6) |
|
|
(7,972 |
) |
|
|
(7,579 |
) |
Parkside Drive LLC I, Knoxville, TN |
|
|
50.00 |
% |
|
|
4,363 |
|
|
|
4,673 |
|
Parkside Drive LLC II, Knoxville, TN (Development) |
|
|
50.00 |
% |
|
|
6,979 |
|
|
|
6,842 |
|
Parkway Place Limited Partnership, Huntsville, AL |
|
|
50.00 |
% |
|
|
11,097 |
|
|
|
10,690 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial |
|
|
|
|
|
|
25,679 |
|
|
|
30,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
Colonial / Polar-BEK Management Company,
Birmingham, AL |
|
|
50.00 |
% |
|
|
17 |
|
|
|
33 |
|
Heathrow, Orlando, FL |
|
|
50.00 |
% |
|
|
1,762 |
|
|
|
2,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,779 |
|
|
|
2,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
40,890 |
|
|
$ |
46,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Footnotes on following page |
49
|
|
|
(1) |
|
The Regents Park Joint Venture (Phase II) consists of undeveloped land. |
|
(2) |
|
CRLP has reached an agreement in principle to transfer its remaining 15% noncontrolling
joint venture interest in Colonial Pinnacle Craft Farms I (see below). |
|
(3) |
|
As of March 31, 2009, this joint venture included 17 properties located in Ft.
Lauderdale, Jacksonville and Orlando, Florida; Atlanta, Georgia; Charlotte, North Carolina;
Memphis, Tennessee and Houston, Texas. |
|
(4) |
|
As of March 31, 2009, this joint venture included 16 office properties and 2 retail
properties located in Birmingham, Alabama; Orlando and Tampa, Florida; Atlanta, Georgia;
Charlotte, North Carolina and Austin, Texas. Equity investment includes the value of
CRLP’s investment of approximately $21.7 million, offset by the excess basis difference on
the June 2007 joint venture transaction of approximately $33.7 million, which is being
amortized over the life of the properties. |
|
(5) |
|
Equity investment includes CRLP’s investment of approximately $3.5 million, offset by
the excess basis difference on the transaction of approximately $7.5 million, which is
being amortized over the life of the properties. |
|
(6) |
|
As of March 31, 2009, this joint venture included 11 retail properties located in
Birmingham, Alabama; Jacksonville, Orlando, Punta Gorda and Tampa, Florida; Athens, Georgia
and Houston, Texas. Equity investment includes the value of CRLP’s investment of
approximately $8.6 million, offset by the excess basis difference on the June 2007 joint
venture transaction of approximately $16.6 million, which is being amortized over the life
of the properties. |
In February 2009, CRLP reached an agreement in principle to transfer its remaining 15%
noncontrolling joint venture interest in Colonial Pinnacle Craft Farms I, a 220,000-square-foot
(excluding anchor-owned square-footage) retail shopping center located in Gulf Shores, Alabama,
to the majority joint venture partner. CRLP had previously sold 85% of its interest in this
development for $45.7 million in July 2007 and recognized a gain of approximately $4.2 million,
after tax, from that sale. As a result of this agreement and the resulting asset valuation, CRLP
recorded an impairment of approximately $0.7 million during the three months ended March 31, 2009
with respect to CRLP’s remaining equity interest in the joint venture. CRLP’s pro-rata share of
the existing joint venture’s mortgage debt is approximately $6.5 million.
The following table summarizes balance sheet financial data of significant unconsolidated
joint ventures in which CRLP had ownership interests as of March 31, 2009 and December 31, 2008
(dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
|
Total Debt |
|
|
Total Equity |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DRA/CRT |
|
$ |
1,157,408 |
|
|
$ |
1,189,996 |
|
|
$ |
940,829 |
|
|
$ |
940,981 |
|
|
$ |
185,284 |
|
|
$ |
201,447 |
|
DRA/CLP |
|
|
901,032 |
|
|
|
927,397 |
|
|
|
741,907 |
|
|
|
741,907 |
|
|
|
144,488 |
|
|
|
153,962 |
|
OZRE |
|
|
345,467 |
|
|
|
363,589 |
|
|
|
292,370 |
|
|
|
292,714 |
|
|
|
49,495 |
|
|
|
52,890 |
|
Huntsville TIC |
|
|
223,045 |
|
|
|
224,644 |
|
|
|
107,540 |
|
|
|
107,540 |
|
|
|
34,538 |
|
|
|
36,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,626,952 |
|
|
$ |
2,705,626 |
|
|
$ |
2,082,646 |
|
|
$ |
2,083,142 |
|
|
$ |
413,805 |
|
|
$ |
444,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes income statement financial data of significant unconsolidated
joint ventures in which CRLP had ownership interests for the three months ended March 31, 2009 and
2008 (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
|
Net Income |
|
|
Share of Net Income |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DRA/CRT |
|
$ |
40,560 |
|
|
$ |
42,495 |
|
|
$ |
(3,433 |
) |
|
$ |
(4,668 |
) |
|
$ |
(344 |
) |
|
$ |
(530 |
) |
DRA/CLP |
|
|
28,454 |
|
|
|
28,397 |
|
|
|
(4,054 |
) |
|
|
(4,360 |
) |
|
|
(60 |
) |
|
|
(96 |
) |
OZRE |
|
|
8,687 |
|
|
|
8,583 |
|
|
|
(2,044 |
) |
|
|
(2,493 |
) |
|
|
(128 |
) |
|
|
(38 |
) |
Huntsville TIC |
|
|
6,463 |
|
|
|
5,762 |
|
|
|
(2,090 |
) |
|
|
(2,619 |
) |
|
|
(117 |
) |
|
|
1,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
84,164 |
|
|
$ |
85,237 |
|
|
$ |
(11,621 |
) |
|
$ |
(14,140 |
) |
|
$ |
(649 |
) |
|
$ |
1,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
Investments in Variable Interest Entities
CRLP evaluates all transactions and relationships with variable interest entities (VIEs) to
determine whether CRLP is the primary beneficiary of the entities in accordance with FASB
Interpretation No. 46R, “Consolidation of Variable Interest Entities — An Interpretation of ARB
No. 51” (FIN 46R).
An overall methodology for evaluating transactions and relationships under the VIE
requirements includes the following two steps:
|
• |
|
determine whether the entity meets the criteria to qualify as a VIE, and |
|
|
• |
|
determine whether CRLP is the primary beneficiary of the VIE. |
When evaluating whether an investment (or other transaction) qualifies as a VIE, the
significant factors and judgments that CRLP considers consist of the following:
|
• |
|
the design of the entity, including the nature of its risks and the purpose for
which the entity was created, to determine the variability that the entity was
designed to create and distribute to its interest holders; |
|
|
• |
|
the nature of CRLP’s involvement with the entity; |
|
|
• |
|
whether control of the entity may be achieved through arrangements that do not
involve voting equity; |
|
|
• |
|
whether there is sufficient equity investment at risk to finance the activities
of the entity; |
|
|
• |
|
whether parties other than the equity holders have the obligation to absorb
expected losses or the right to receive residual returns; and |
|
|
• |
|
whether the voting rights and the economic rights are proportional. |
For each VIE identified, CRLP evaluates whether it is the primary beneficiary by considering
the following significant factors and judgments:
|
• |
|
whether CRLP’s variable interest absorbs the majority of the VIE’s expected
losses, |
|
|
• |
|
whether CRLP’s variable interest receives the majority of the VIE’s expected
returns, and |
|
|
• |
|
whether CRLP has the ability to make decisions that significantly affect the
VIE’s results and activities. |
Based on CRLP’s evaluation of the above factors and judgments, as of March 31, 2009, CRLP does
not have a controlling interest, nor is CRLP the primary beneficiary of any VIEs for which there is
a significant variable interest. Also, as of March 31, 2009, CRLP has interests in three VIEs with
significant variable interests for which CRLP is not the primary beneficiary.
Unconsolidated Variable Interest Entities
As of March 31, 2009, CRLP has interests in three VIEs with significant variable interests for
which CRLP is not the primary beneficiary. The following is summary information as of March 31,
2009 regarding these unconsolidated VIEs:
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum |
|
|
Carrying Amount |
|
Potential Additonal |
|
Exposure to |
VIE |
|
of Investment |
|
Support Obligation |
|
Loss |
|
DRA/CRT JV |
|
$ |
21,626 |
|
|
$ |
17,000 |
|
|
$ |
38,626 |
|
CG at Canyon Creek |
|
|
584 |
|
|
|
4,000 |
|
|
|
4,584 |
|
CG at Traditions |
|
|
447 |
|
|
|
3,500 |
|
|
|
3,947 |
|
In September 2005, the Company acquired, through CRLP, a 15% partnership interest in CRT
Properties, Inc. (“CRT”) through a joint venture (the “DRA CRT JV”) with DRA Advisors LLC (“DRA”).
CRT owns a portfolio of 17 office properties located primarily in the southeastern United States.
With respect to CRLP’s investment in DRA/CRT JV, CRLP is entitled to receive distributions in
excess of its ownership interest if certain target return thresholds are satisfied. In addition,
during September 2005, in connection with the acquisition of CRT with DRA, CRLP fully guaranteed
approximately $50.0 million of third-party financing obtained by the DRA/CRT JV with respect to 10
of the CRT properties. During 2006, seven of the ten properties were sold.
51
The DRA/CRT JV is
obligated to reimburse CRLP for any payments made under the guaranty before making distributions of
cash flows or capital proceeds to the DRA/CRT JV partners. As of March 31, 2009, this guarantee,
which matures in January 2010, has been reduced to $17.0 million as a result of the pay down of the
associated collateralized debt from the sales of assets.
CRLP committed to guarantee up to $4.0 million of a $27.4 million construction loan obtained
by the Colonial Grand at Canyon Creek joint venture, which represents a guaranty that is greater
than CRLP’s proportionate interest in this joint venture. Accordingly, this investment qualifies as
a VIE. However, CRLP has determined that it is remote that it would absorb a majority of the
expected losses for this joint venture and, therefore, does not consolidate this investment.
CRLP committed with its joint venture partner to guarantee up to $7.0 million of a $34.1
million construction loan obtained by the Colonial Grand at Traditions joint venture. CRLP and its
joint venture partner each committed to provide 50% of the guarantee, which is different from the
venture’s voting and economic interests. As a result, this investment qualifies as a VIE but CRLP
has determined that it is remote that it would absorb a majority of the expected losses for this
joint venture and, therefore, does not consolidate this investment.
Note 12 — Financing Activities
In the first quarter 2009, CRLP, through a wholly-owned special purpose subsidiary, closed
on a $350 million collateralized loan (the “Loan”) originated by PNC ARCS LLC for repurchase by
Fannie Mae (NYSE: FNM). Of the $350 million, $259 million bears interest at a fixed interest rate
equal to 6.07% and $91 million bears interest at a fixed interest rate of 5.96%. The weighted
average interest rate for the Loan is 6.04%. The Loan matures on March 1, 2019 and requires
accrued interest to be paid monthly with no scheduled principal payments required prior to the
maturity date. The Loan is collateralized by 19 of CRLP’s multifamily apartment communities
totaling 6,565 units. The entire Loan amount was drawn on February 27, 2009. The proceeds from
the Loan were used to repay a portion of the outstanding borrowings under CRLP’s $675.0 million
Credit Facility (defined below).
As of March 31, 2009, CRLP, with the Trust as guarantor, had a $675.0 million unsecured
credit facility (as amended, the “Credit Facility”) with Wachovia Bank, National Association
(“Wachovia”), as Agent for the lenders, Bank of America, N.A. as Syndication Agent, Wells Fargo
Bank, National Association, Citicorp North America, Inc. and Regions Bank, as Co-Documentation
Agents, and U.S. Bank National Association and PNC Bank, National Association, as Co-Senior
Managing Agents and other lenders named therein. The Credit Facility has a maturity date of
June 21, 2012. In addition to the Credit Facility, CRLP has a $35.0 million cash management
line provided by Wachovia that will expire on June 21, 2012.
Base rate loans and revolving loans are available under the Credit Facility. The Credit
Facility also includes a competitive bid feature that allows CRLP to convert up to $337.5
million under the Credit Facility to a fixed rate and for a fixed term not to exceed 90 days.
Generally, base rate loans bear interest at Wachovia’s designated base rate, plus a base rate
margin ranging up to 0.25% based on CRLP’s unsecured debt ratings from time to time. Revolving
loans bear interest at LIBOR plus a margin ranging from 0.325% to 1.05% based on CRLP’s
unsecured debt ratings. Competitive bid loans bear interest at LIBOR plus a margin, as
specified by the participating lenders. Based on CRLP’s current unsecured debt rating, the
revolving loans currently bear interest at a rate of LIBOR plus 105 basis points.
The Credit Facility, which is primarily used by CRLP to finance property acquisitions and
developments and more recently to also fund repurchases of CRLP senior notes and Series D preferred
depositary shares of the Trust, had an outstanding balance at March 31, 2009 of $27.0 million. The
cash management line had an outstanding balance of $10.7 million as of March 31, 2009. The
interest rate of the Credit Facility (including the case management line) was 1.26% and 3.50% at
March 31, 2009 and 2008, respectively.
The Credit Facility contains various restrictions, representations, covenants and events of
default that could preclude future borrowings (including future issuances of letters of credit) or
trigger early repayment obligations, including, but not limited to the following: nonpayment;
violation or breach of certain covenants; failure to perform certain covenants beyond a cure
period; failure to satisfy certain financial ratios; a material adverse change in the consolidated
financial condition, results of operations, business or prospects of CRLP; and generally not paying
CRLP’s debts as it becomes due. At March 31, 2009, CRLP was in compliance with these covenants.
Specific financial ratios with which the Company must comply pursuant to the Credit Facility
consist of the Fixed Charge Coverage Ratio as well as the Debt to Total Asset Value Ratio. Both of
these ratios are measured quarterly. The Fixed Charge Coverage Ratio generally requires that the
Company’s earnings before interest, taxes, depreciation and amortization be at least equal 1.5
times the Company’s Fixed Charges. Fixed Charges generally include
52
interest payments (including
capitalized interest) and preferred dividends. The Debt to Total Asset Value Ratio generally
requires the Company’s debt to be less than 60% of its total asset value. The ongoing recession
and continued uncertainty in the stock and credit markets may negatively impact the Company’s
ability to generate earnings sufficient to maintain compliance with these ratios and other debt
covenants. The Company expects to be able to comply with these ratios in 2009, but no assurance
can be given that the Company will be able to maintain compliance with these ratios and other debt
covenants, particularly if economic conditions worsen.
Many of the recent disruptions in the financial markets have been brought about in large part
by failures in the U.S. banking system. If Wachovia or any of the other financial institutions that
have extended credit commitments to CRLP under the Credit Facility or otherwise are adversely
affected by the conditions of the financial markets, these financial institutions may become unable
to fund borrowings under credit commitments to CRLP under the Credit Facility, the cash management
line or otherwise. If these lenders become unable to fund CRLP’s borrowings pursuant to the
financial institutions’ commitments, CRLP may need to obtain replacement financing, and such
financing, if available, may not be available on commercially attractive terms.
In January 2008, the Company’s Board of Trustees authorized the repurchase up to $50.0
million of outstanding unsecured senior notes of CRLP. On April 2008, the Board of Trustees
authorized a senior note repurchase program to allow us to repurchase up to an additional $200.0
million of outstanding unsecured senior notes of CRLP. In December 2008, the April 2008
repurchase program was expanded to authorize repurchases of up to $500.0 million. Under the
repurchase program, the senior notes may be repurchased from time to time in open market
transactions or privately negotiated transactions through December 31, 2009, subject to
applicable legal requirements, market conditions and other factors. The repurchase program does
not obligate CRLP to repurchase any specific amounts of senior notes, and repurchases pursuant
to the program may be suspended or resumed at any time without further notice or announcement.
During the three months ended March 31, 2009, CRLP repurchased $96.9 million of its
outstanding unsecured senior notes in separate transactions at an average 27.1% discount to par
value, which represents a 12.6% yield to maturity. As a result of these repurchases, CRLP
recognized an aggregate gain of approximately $25.3 million, which is included in
“Gain on retirement of debt” on CRLP’s Consolidated Statements of Income. When senior
notes are repurchased, CRLP will generally reclassify amounts in “Accumulated Other
Comprehensive Income” because the repurchases cause interest payments on the hedged debt to
become probable of not occurring. Accordingly, as a result of these first quarter 2009
repurchases, CRLP recognized a loss on hedging activities of approximately $1.0 million as a
result of a reclassification of amounts in Accumulated Other Comprehensive Income in connection
with the conclusion that it is probable that CRLP will not make interest payments associated
with previously hedged debt as a result of repurchases under the senior note repurchase program.
CRLP will continue to monitor the debt markets and repurchase certain senior notes that meet
CRLP’s required criteria, as funds are available.
On March 1, 2009, a loan collateralized by Broward Financial Center, a 326,000 office
building located in Ft. Lauderdale, Florida, in the amount of $46.5 million matured. This
property is one of the properties in the DRA/CRT joint venture, in which CRLP is a 15% minority
partner. The joint venture did not repay the principal amount due on the loan when it matured,
but continues to make interest payments. The loan is non-recourse to CRLP, but CRLP’s pro rata
share of the principal amount of the loan is $7.0 million (based on its ownership interest in
the joint venture). CRLP and its joint venture partner are currently in negotiations with the
special servicer regarding refinancing options that may be available from the current lender.
While no assurance can be given that the joint venture partnership will be able to refinance the
loan on reasonable terms, CRLP anticipates that the joint venture will be able to renegotiate an
extension of the current loan with the existing lender. If the joint venture is unable to
obtain additional financing, payoff the existing loan, or renegotiate suitable terms with the
existing lender, the lender would have the right to foreclose on the property in question and,
accordingly, the joint venture will lose its interest in the asset.
Note 13 — Derivatives and Hedging
CRLP is exposed to certain risks arising from both its business operations and economic
conditions. CRLP principally manages its exposures to a wide variety of business and operational
risks through management of its core business activities. CRLP manages economic risks, including
interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration
of its debt funding and the use of derivative financial instruments. Specifically, CRLP enters
into derivative financial instruments to manage exposures that arise from business activities that
result in the receipt or payment of future known and uncertain cash amounts, the value of which is
determined by interest rates. CRLP’s derivative financial instruments are used to manage
differences in the amount, timing, and duration of CRLP’s known or expected cash receipts and its
known or expected cash payments principally related to CRLP’s investments and borrowings.
53
CRLP’s objectives in using interest rate derivatives are to add stability to interest expense
and to manage its exposure to interest rate movements. To accomplish this objective, CRLP primarily
uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest
rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a
counterparty in exchange for CRLP making fixed-rate payments over the life of the agreements
without exchange of the underlying notional amount. Interest rate caps designated as cash flow
hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise
above the strike rate on the contract in exchange for an upfront premium.
The effective portion of changes in the fair value of derivatives that are designated and that
qualify as cash flow hedges is recorded in “Accumulated other comprehensive loss” on the
Consolidated Condensed Balance Sheet and is subsequently reclassified into earnings in the period that the
hedged forecasted transaction affects earnings. CRLP did not have any active cash flow hedges
during the three months ended March 31, 2009.
At March 31, 2009 CRLP had $4.0 million in “Accumulated other comprehensive loss” related to
settled or terminated derivatives. Amounts reported in “Accumulated other comprehensive loss”
related to derivatives will be reclassified to “Interest expense and debt cost amortization” as
interest payments are made on CRLP’s variable-rate debt or to “Loss on hedging activities” at such
time that the interest payments on the hedged debt become probable of not occurring as a result of
CRLP’s senior note repurchase program. The changes in “Accumulated other comprehensive loss” for
reclassifications to “Interest expense and debt cost amortization” tied to interest payments on the
hedged debt was $0.1 million and $0.2 million during the three months ended March 31, 2009 and
2008, respectively. The changes in “Accumulated other comprehensive loss” for reclassification to
“Loss on hedging activities” related to interest payments on the hedged debt that have been deemed
no longer probable to occur as a result of CRLP’s senior note repurchase program was $1.1
million for the three months ended March 31, 2009. CRLP did not reclassify amounts to “Loss on
hedging activities” for the three months ended March 31, 2008.
Derivatives not designated as hedges are not speculative and are used to manage CRLP’s
exposure to interest rate movements and other identified risks but do not meet the strict hedge
accounting requirements of SFAS 133. As of March 31, 2009, CRLP had no derivatives that were not
designated as a hedge in a qualifying hedging relationship.
The table below presents the effect of CRLP’s derivative financial instruments on the
Consolidated Condensed Statements of Income as of March 31, 2009.
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain or |
|
Amount of Gain or |
Derivatives in |
|
|
|
|
|
|
|
|
|
Location of Gain or |
|
Amount of Gain or |
|
(Loss) Recognized in |
|
(Loss) Recognized in |
SFAS 133 |
|
Amount of Gain or (Loss) |
|
(Loss) Reclassified from |
|
(Loss) Reclassified from |
|
Income on Derivative |
|
Income on Derivative |
Cash Flow |
|
Recognzied in OCI on |
|
Accumulated OCI into |
|
Accumulated OCI into |
|
(Ineffective Portion and |
|
(Ineffective Portion and |
Hedging |
|
Derivative (Effective |
|
Income (Effective |
|
Income (Effective |
|
Amount Excluded from |
|
Amount Excluded from |
Relationships |
|
Portion) |
|
Portion) |
|
Portion) |
|
Effectiveness Testing) |
|
Effectiveness Testing) |
|
|
|
Three months ended |
|
|
|
Three months ended |
|
|
|
Three months ended |
|
|
March 31, |
|
March 31, |
|
|
|
March 31, |
|
March 31, |
|
|
|
March 31, |
|
March 31, |
|
|
2009 |
|
2008 |
|
|
|
2009 |
|
2008 |
|
|
|
2009 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Products |
|
|
— |
|
|
|
— |
|
|
Interest Expense and Debt Cost Amortization |
|
$ |
(137 |
) |
|
$ |
(75 |
) |
|
Loss on Hedging Activities |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Loss on Hedging Activities |
|
|
(1,063 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
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$ |
(1,200 |
) |
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$ |
(75 |
) |
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Note 14 —Contingencies and Guarantees
Contingencies
CRLP is involved in a contract dispute with a general contractor in connection with
construction costs and cost overruns with respect to certain of its for-sale projects, which were
being developed in a joint venture in which CRLP is a majority owner. The contractor is affiliated
with CRLP’s joint venture partner.
54
|
• |
|
In connection with the dispute, in January 2008, the contractor filed a lawsuit
against CRLP alleging, among other things, breach of contract, enforcement of a lien
against real property, misrepresentation, conversion, declaratory judgment and an
accounting of costs, and is seeking $10.3 million in damages, plus consequential and
punitive damages. Discovery is underway regarding these proceedings. |
|
|
• |
|
Certain of the subcontractors, vendors and other parties, involved in the
projects, including purchasers of units, have also made claims in the form of lien
claims, general claims or lawsuits. CRLP has been sued by purchasers of certain
condominium units alleging breach of contract, fraud, construction deficiencies and
misleading sales practices. Both compensatory and punitive damages are sought in
these actions. Some of these claims have been resolved by negotiations and
mediations, and others may also be similarly resolved. Some of these claims will
likely be arbitrated or litigated to conclusion. |
CRLP is continuing to evaluate its options and investigate these claims, including possible
claims against the contractor and other parties. CRLP intends to vigorously defend itself against
these claims. However, no prediction of the likelihood, or amount, of any resulting loss or
recovery can be made at this time and no assurance can be given that the matter will be resolved
favorably.
In connection with certain retail developments, CRLP has received funding from municipalities
for infrastructure costs. In most cases, the municipalities issue bonds that are repaid primarily
from sales tax revenues generated from the tenants at each respective development. CRLP has
guaranteed the shortfall, if any, of tax revenues to the debt service requirements on the bonds.
The total amount outstanding on these bonds is approximately $13.5 million at March 31, 2009 and
December 31, 2008. At March 31, 2009 and December 31, 2008, no liability was recorded for these
guarantees.
As previously discussed, CRLP has postponed future development activities, which includes the
Colonial Pinnacle Nord du Lac development in Covington, Louisiana. Prior to the decision to
postpone this development, the Nord du Lac community development district (the “CDD”), a
third-party governmental entity, had issued $24.0 million of special assessment bonds, the proceeds
from which were to be used by the CDD to construct infrastructure for the benefit of the
development. In addition, CRLP had entered into leasing commitments and other agreements with
certain future tenants at this development. As a result of the postponement of this development,
CRLP is evaluating various alternatives for this development, including with respect to its
existing contractual obligations to certain future tenants who had previously committed to this
development before it was postponed and with respect to the outstanding CDD bonds. If CRLP is
unable to reach alternative agreements with these future tenants, the tenants may choose not to
participate in this development or seek damages from CRLP as a result of the postponement of the
development, or both. With respect to the CDD bonds, interest payments for 2009 will be made from
an interest reserve account funded with bond proceeds. Thereafter, repayment of the bonds will be
funded by special assessments on the property owner(s) within the CDD. The first special
assessment is expected to be due on or about December 31, 2009. As the property owner, CRLP
intended to fund the special assessments from payments by tenants in the development. Until
Colonial Pinnacle Nord du Lac is developed and leased, it is not expected to generate sufficient
tenant revenues to support the full amount of the special assessments, in which case, CRLP would be
obligated to pay the special assessments to the extent not funded through tenant payments. The
special assessments are not a personal liability of the property owner, but constitute a lien on
the assessed property. In the event of a failure to pay the special assessments, the CDD would
have the right to force the sale of the property included in the project.
CRLP has reclassified the amount spent to date with respect to the Colonial Pinnacle Nord du
Lac development ($38.5 million, net of impairment charge recorded during 2008, as of March 31,
2009) from an active development to “Real estate assets held for sale, net” on CRLP’s Consolidated
Condensed Balance Sheet. In accordance with EITF 91-10, CRLP recorded restricted cash and other
liabilities for the $24.0 million CDD bond issuance. This transaction was treated as a non-cash
transaction in CRLP’s Consolidated Condensed Statement of Cash Flows for the twelve months ended December 31,
2008.
In connection with the office and retail joint venture transactions that closed in 2007, CRLP
assumed certain contingent obligations for a total of $15.7 million, of which $6.6 million remains
outstanding as of March 31, 2009.
In January 2008, CRLP received notification related to an unclaimed property audit for the
States of Alabama and Tennessee. As of March 31, 2009, CRLP has accrued an estimated liability.
55
CRLP is a party to various legal proceedings incidental to its business. In the opinion of
management, the ultimate liability, if any, with respect to those proceedings is not presently
expected to materially adversely affect the financial position or results of operations or cash
flows of CRLP.
Guarantees and Other Arrangements
During April 2007, CRLP committed with its joint venture partner to guarantee up to $7.0
million of a $34.1 million construction loan obtained by the Colonial Grand at Traditions joint
venture. CRLP and its joint venture partner each committed to provide 50% of the guarantee.
Construction at this site is substantially complete as the project was placed into service during
2008. As of March 31, 2009, the joint venture had drawn $33.1 million on the construction loan,
which matures in April 2010. At March 31, 2009, no liability was recorded for the guarantee.
During November 2006, CRLP committed with its joint venture partner to guarantee up to $17.3
million of a $34.6 million construction loan obtained by the Colonial Promenade Smyrna joint
venture. CRLP and its joint venture partner each committed to provide 50% of the $17.3 million
guarantee, as each partner has a 50% ownership interest in the joint venture. Construction at this
site is substantially complete as the project was placed into service during 2008. As of March 31,
2009, the Colonial Promenade Smyrna joint venture had $30.1 million outstanding on the construction
loan, which matures in December 2009. At March 31, 2009, no liability was recorded for the
guarantee.
During February 2006, CRLP committed to guarantee up to $4.0 million of a $27.4 million
construction loan obtained by the Colonial Grand at Canyon Creek joint venture. Construction at
this site is complete as the project was placed into service during 2007. As of March 31, 2009,
the joint venture had drawn all $27.4 million on the construction loan, which matures in June 2009.
At March 31, 2009, no liability was recorded for the guarantee.
During September 2005, in connection with the acquisition of CRT with DRA, CRLP guaranteed
approximately $50.0 million of third-party financing obtained by the DRA/CRT JV with respect to 10
of the CRT properties. During 2006, seven of the ten properties were sold. The DRA/CRT JV is
obligated to reimburse CRLP for any payments made under the guaranty before making distributions of
cash flows or capital proceeds to the DRA/CRT JV partners. As of March 31, 2009, this guarantee,
which matures in January 2010, had been reduced to $17.0 million, as a result of the pay down of
the associated collateralized debt from the sales of assets. At March 31, 2009, no liability was
recorded for the guarantee.
In connection with the formation of Highway 150 LLC in 2002, CRLP executed a guarantee,
pursuant to which CRLP serves as a guarantor of $1.0 million of the debt related to the joint
venture, which is collateralized by the Colonial Promenade Hoover retail property. CRLP’s maximum
guarantee of $1.0 million may be requested by the lender, only after all of the rights and remedies
available under the associated note and security agreements have been exercised and exhausted. At
March 31, 2009, the total amount of debt of the joint venture was approximately $16.3 million and
matures in December 2012. At March 31, 2009, no liability was recorded for the guarantee.
In connection with the contribution of certain assets to CRLP, certain partners of CRLP have
guaranteed indebtedness of CRLP totaling $26.5 million at March 31, 2009. The guarantees are held
in order for the contributing partners to maintain their tax deferred status on the contributed
assets. These individuals have not been indemnified by CRLP.
As discussed above, in connection with certain retail developments, CRLP has received funding
from municipalities for infrastructure costs. In most cases, the municipalities issue bonds that
are repaid primarily from sales tax revenues generated from the tenants at each respective
development. CRLP has guaranteed the shortfall, if any, of tax revenues to the debt service
requirements on the bonds.
The fair value of the above guarantees could change in the near term if the markets in which
these properties are located deteriorate or if there are other negative indicators.
Note 15 — Subsequent Events
Dispositions
On April 30, 2009, the Company closed on the transaction to transfer its remaining
noncontrolling joint venture interest in Colonial Pinnacle Craft Farms I, a 220,000 square foot
(excluding anchor-owned square-footage) retail asset located in Gulf Shores, Alabama, to the
majority joint venture partner (see Note 11).
56
Debt Tender Offer
On May 4, 2009, CRLP accepted for purchase $250 million in principal amount of the following
outstanding notes maturing in 2010 and 2011 that were validly tendered pursuant to its previously
announced cash tender offer for such notes:
|
|
|
|
|
|
|
Aggregate Principal |
|
|
|
Amount Accepted for |
|
Title of Security |
|
Purchase |
|
|
|
|
|
|
|
4.75% Senior Notes due 2010 (CUSIP-195891AH9) |
|
$ |
206,374,000 |
|
|
|
|
|
|
8.80% Medium-Term Notes due 2010 (CUSIP-195896AK1) |
|
|
5,000,000 |
|
|
|
|
|
|
4.80% Senior Notes due 2011 (CUSIP-195891AF3) |
|
|
38,626,000 |
|
|
|
|
|
TOTAL |
|
$ |
250,000,000 |
|
|
|
|
|
CRLP funded the purchase of these outstanding unsecured senior notes through borrowings under its
unsecured credit facility.
Financing Activity
On April 20, 2009, CRLP, together with the Trust, entered into a sixty-day lock on an all-in
fixed interest rate of 5.29% for a 10-year term with Fannie Mae on $145 million of additional
financing that is expected to be collateralized by seven of the CRLP’s existing multifamily
properties. CRLP is considering adding one additional property to this facility, which would bring
total proceeds to $155 million. CRLP expects to close this financing in the second quarter 2009,
but the closing remains subject to the negotiation of final documentation and the satisfaction of
all closing conditions. No assurance can be given that the Company will be able to consummate this
financing.
During April 2009, CRLP repurchased $54.6 million of its outstanding unsecured senior notes in
separate transactions under CRLP’s previously announced $500 million unsecured senior note
repurchase program at an average 28.1% discount to par value, which represents a 14.0% yield to
maturity. As a result of these repurchases, CRLP expects to recognize an aggregate gain of
approximately $14.8 million with respect to these repurchases during the second quarter of 2009.
Distribution
On April 22, 2009, a cash distribution was declared to shareholders of the Trust and partners
of CRLP in the amount of $0.15 per common share and per unit, totaling approximately $8.6 million.
The distribution was declared to shareholders and partners of record as of May 4, 2009 and will be
paid on May 11, 2009.
57
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion analyzes the financial condition and results of operations of both
Colonial Properties Trust, or “the Trust”, and Colonial Realty Limited Partnership, or “CRLP”, of
which the Trust is the sole general partner and in which the Trust owned a 84.6% limited partner
interest as of March 31, 2009. the Trust conducts all of its business and owns all of its
properties through CRLP and CRLP’s various subsidiaries. Except as otherwise required by the
context, the “Company,” “Colonial,” “we,” “us” and “our” refer to the Trust and CRLP together, as
well as CRLP’s subsidiaries, including Colonial Properties Services Limited Partnership (“CPSLP”),
Colonial Properties Services, Inc. (“CPSI”) and CLNL Acquisition Sub, LLC.
The following discussion and analysis of the consolidated condensed financial condition and
consolidated results of operations should be read together with the consolidated financial
statements of the Trust and CRLP and the notes thereto contained in this Form 10-Q. This Quarterly
Report on Form 10-Q contains certain “forward-looking statements” within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. In some cases, you can identify forward-looking statements by terms such as “may,”
“will,” “should,” “expects,” “plans,” “anticipates,” “estimates,” “predicts,” “potential,” or the
negative of these terms or comparable terminology. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause our, and our affiliates, or the
industry’s actual results, performance, achievements or transactions to be materially different
from any future results, performance, achievements or transactions expressed or implied by such
forward-looking statements including, but not limited to, the risks described under the caption
“Risk Factors” in the Trust’s 2008 Annual Report on Form 10-K and CRLP’s 2008 Annual Report on
Form 10-K. Such factors include, among others, the following:
|
• |
|
the weakening economy and mounting job losses in the U.S., together with the
downturn in the overall U.S. housing market resulting in increased supply and all
leading to deterioration in the multifamily market; |
|
|
• |
|
national and local economic, business and real estate conditions, including, but
not limited to, the effect of demand for multifamily units, office and retail rental
space or the creation of new multifamily and commercial developments, the extent,
strength and duration of the current recession or recovery, the availability and
creditworthiness of tenants, the level of lease rents, and the availability of
financing for both tenants and us; |
|
|
• |
|
adverse changes in real estate markets, including, but not limited to, the extent
of tenant bankruptcies, financial difficulties and defaults, the extent of future
demand for multifamily units and office and retail space in our core markets and
barriers of entry into new markets which we may seek to enter in the future, the
extent of decreases in rental rates, competition, our ability to identify and
consummate attractive acquisitions on favorable terms, our ability to consummate any
planned dispositions in a timely manner on acceptable terms, and our ability to
reinvest sales proceeds in a manner that generates favorable terms; |
|
|
• |
|
increased exposure, as a multifamily focused real estate investment trust
(“REIT”), to risks inherent in investments in a single industry; |
|
|
• |
|
risks associated with having to perform under various financial guarantees that
we have provided with respect to certain of our joint ventures and retail
developments; |
|
|
• |
|
ability to obtain financing at reasonable rates, if at all; |
|
|
• |
|
actions, strategies and performance of affiliates that we may not control or
companies, including joint ventures, in which we have made investments; |
|
|
• |
|
changes in operating costs, including real estate taxes, utilities, and
insurance; |
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|
• |
|
higher than expected construction costs; |
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|
• |
|
uncertainties associated with our ability to sell our existing inventory of
condominium and for-sale residential assets, including timing, volume and terms of
sales; |
|
|
• |
|
uncertainties associated with the timing and amount of real estate dispositions
and the resulting gains/losses associated with such dispositions; |
|
|
• |
|
legislative or other regulatory decisions, including government approvals,
actions and initiatives, including the need for compliance with environmental and
safety requirements, and changes in laws and regulations or the interpretation
thereof; |
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|
• |
|
effects of tax legislative action; |
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|
• |
|
the Trust’s ability to continue to satisfy complex rules in order for it to
maintain its status as a “REIT” for federal income tax purposes, the ability of CRLP
to satisfy the rules to maintain its status as a partnership for federal income tax
purposes, the ability of certain of our subsidiaries to maintain their status as
taxable REIT |
58
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|
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subsidiaries for federal income tax purposes, and our ability and the ability of our
subsidiaries to operate effectively within the limitations imposed by these rules; |
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|
• |
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price volatility, dislocations and liquidity disruptions in the financial markets
and the resulting impact on availability of financing; |
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|
• |
|
effect of any rating agency actions on the cost and availability of new debt
financing; |
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|
• |
|
level and volatility of interest rates or capital market conditions; |
|
|
• |
|
effect of any terrorist activity or other heightened geopolitical crisis; |
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|
• |
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other factors affecting the real estate industry generally; and |
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|
• |
|
other risks identified in the Trust’s 2008 Annual Report on Form 10-K and CRLP’s
2008 Annual Report on Form 10-K and, from time to time, in other reports we file
with the Securities and Exchange Commission (the “SEC”) or in other documents that
we publicly disseminate. |
We undertake no obligation to publicly update or revise these forward-looking statements to
reflect events, circumstances or changes in expectations after the date of this report.
General
We are a multifamily-focused self-administered equity REIT that owns, develops and operates
multifamily apartment communities primarily located in the Sunbelt region of the United States.
Also, we create additional value for our shareholders by managing commercial assets through joint
venture investments and pursuing development opportunities. We are a fully-integrated real estate
company, which means that we are engaged in the acquisition, development, ownership, management and
leasing of multifamily apartment communities and other commercial real estate properties. Our
activities include full or partial ownership and operation of 192 properties as of March 31, 2009,
located in Alabama, Arizona, Florida, Georgia, Nevada, North Carolina, South Carolina, Tennessee,
Texas, and Virginia, development of new properties, acquisition of existing properties,
build-to-suit development and the provision of management, leasing and brokerage services for
commercial real estate.
As of March 31, 2009, we owned or maintained a partial ownership in 117 multifamily apartment
communities containing a total of 35,430 apartment units (consisting of 104 wholly-owned
consolidated properties and 13 properties partially-owned through unconsolidated joint venture
entities aggregating 31,529 and 3,901 units, respectively) (the “multifamily apartment
communities”), 75 commercial properties, consisting of 48 office properties containing a total of
approximately 16.3 million square feet of office space (consisting of three wholly-owned
consolidated properties and 45 properties partially-owned through unconsolidated joint-venture
entities aggregating 0.5 million and 15.8 million square feet, respectively) (the “office
properties”), 27 retail properties containing a total of approximately 5.4 million square feet of
retail space, excluding anchor-owned square-footage (consisting of five wholly-owned properties and
22 properties partially-owned through unconsolidated joint venture entities aggregating 1.0 million
and 4.4 million square feet, respectively) (the “retail properties”), and certain parcels of land
adjacent to or near certain of these properties (the “land”). The multifamily apartment
communities, the office properties, the retail properties and the land are referred to herein
collectively as the “properties”. As of March 31, 2009, consolidated multifamily, office and
retail properties that had achieved stabilized occupancy (which we have defined as having occurred
once the property has attained 93% physical occupancy) were 94.7%, 87.6% and 91.4% leased,
respectively.
The Trust is the direct general partner of, and as of March 31, 2009, held approximately 84.6%
of the interests in CRLP. We conduct all of our business through CRLP, CPSLP, which provides
management services for our properties and CPSI, which provides management services for properties
owned by third parties, including unconsolidated joint venture entities. We perform all of our
for-sale residential and condominium conversion activities through CPSI.
As a lessor, the majority of our revenue is derived from residents under existing leases at
our properties. Therefore, our operating cash flow is dependent upon the rents that we are able to
charge to our residents, and the ability of these residents to make their rental payments. We also
receive third-party management fees generated from third party management agreements related to
management of properties held in joint ventures.
The Trust was formed in Maryland on July 9, 1993. The Trust was reorganized as an Alabama
real estate investment trust in 1995. Our executive offices are located at 2101 Sixth Avenue
North, Suite 750, Birmingham, Alabama, 35203 and our telephone number is (205) 250-8700.
59
Business Strategy and Outlook
We continue to experience a global financial and economic crisis, which has included, among
other things, significant reductions and disruptions in available capital and liquidity from
banks and other providers of credit, substantial reductions and/or volatility in equity values
worldwide and concerns that the weakening U.S. and worldwide economies may enter into a
prolonged recessionary period. These circumstances have materially impacted liquidity in the
financial markets, making terms for certain financings less attractive, and in some cases, have
resulted in the unavailability of financing even for companies who are otherwise qualified to
obtain financing. In addition, the weakening economy and mounting job losses in the U.S., and
the slowdown in the overall U.S. housing market, resulting in increased supply (and in some
markets, oversupply), have led to deterioration in the multifamily market. The turmoil in the
credit and capital markets, continuing job losses, the increased housing supply and our
expectation that the economy will continue to remain weak or weaken further before we see any
improvements have caused us to recalibrate our business plan.
As a result of the economic crisis, our outlook for the remainder of 2009 reflects a
challenging year. In light of the ongoing recession and the credit crisis, we announced in early
2009 that our priorities are strengthening our balance sheet, improving liquidity, addressing our
near term debt maturities, managing our existing properties and operating our portfolio
efficiently, including reducing our overhead, and postponing future development activities. We
have made significant progress in implementing this business strategy in the first three months of
the year and will continue to execute on our strategic initiatives as outlined below.
Strengthen the Balance Sheet
Our primary method of strengthening the balance sheet will be through asset sales,
particularly non-core assets. In February 2009, we closed on the sale of Colonial Promenade
Fultondale, a 159,000 square-foot (excluding anchor-owned square footage) retail asset developed by
us and located in Birmingham, Alabama, for $30.7 million (including $16.9 million of
seller-financing), recognizing a gain of $4.5 million.
During the three months ended March 31, 2009, we executed a bulk sale of the remaining 17
units at Regent’s Park, a for-sale residential community located in Atlanta, Georgia, for $16.3
million, resulting in our recording an impairment charge of $0.3 million. We also closed an
additional 10 units at our for-sale residential projects and six units at our condominium
conversion projects for sales proceeds of $3.0 million. Additionally, in April 2009, we closed on
seven more units and have contracts in place on another 36 condominium units.
We also expect to strengthen our balance sheet through additional repurchases of CRLP’s
outstanding unsecured senior notes under our previously announced $500 million repurchase program.
The purchases were made at an average 27.1% discount to par value, which represents a 12.6% yield
to maturity and resulted in the recognition of net gains of $24.3 million. Since inception of the
repurchase program through March 31, 2009, we had repurchased a total of $291.9 million of CRLP’s
outstanding unsecured senior notes, recognizing aggregate gains of approximately $40.3 million.
Improve Liquidity
As the global financial and economic crisis continues, ensuring adequate liquidity is
critical. During the first quarter 2009, we closed a 10-year, $350 million collateralized loan with
Fannie Mae (NYSE: FNM), as discussed further under “Liquidity and Capital Resources”. The proceeds
from this loan were used to repay a portion of the outstanding borrowings under our $675.0 million
unsecured credit facility.
In April 2009, we locked an all-in fixed interest rate of 5.29% for a 10-year term with Fannie
Mae on $145 million of additional financing that is expected to be collateralized by seven of our
existing multifamily apartment communities. We are considering adding one additional property to
this facility, which would bring total proceeds to $155 million. We expect to close this financing
in the second quarter 2009, but the closing remains subject to the negotiation of final
documentation and the satisfaction of all closing conditions. No assurance can be given that we
will be able to consummate this financing.
Additionally, in April 2009, our Board of Trustees authorized management to issue up to $50
million of common shares under a continuous equity issuance program, which we expect to put in
place during the second quarter of 2009, and declared a reduced quarterly cash dividend amount on
common shares of $0.15 per common share, compared with $0.25 for the fourth quarter 2008. These
actions are intended to help us further improve our liquidity position, enhance our ability to take
advantage of opportunities and help protect against uncertainties in the capital markets.
60
Address Near-Term Maturities
With $637.2 million available on our unsecured credit facility as of March 31, 2009, which
reflects the proceeds received from the $350.0 million Fannie Mae financing, we believe that we
have sufficient liquidity to address our capital needs through 2011. We have $30 million to $40
million in development spending committed for 2009 and no loans related to consolidated properties
maturing in 2009 for which we are wholly responsible. Our share of joint venture indebtness that
is expected to mature in 2009 is $88.3 million (80% of which can be extended by the joint venture).
As of March 31, 2009, we had $255.8 million of unsecured bonds maturing in 2010, after giving
effect to the repurchase of $96.9 million of outstanding senior notes during the first quarter 2009
described above. In addition, on May 4, 2009, we completed a tender offer for $250.0 million of
our unsecured bonds, including $211.4 million of unsecured bonds maturing in 2010. We believe the
proceeds from our unsecured credit facility should provide adequate liquidity to allow us to
continue with our previously announced $500 million unsecured note repurchase program in order to
address the remaining $44.4 million in 2010 maturities, as well as bonds maturing after 2010.
Reduce Overhead
We have continued to reduce our organizational size and overhead costs. Since October 2008,
we have aggressively cut overhead costs, primarily through the elimination of 135 employee
positions (many of which were construction and development personnel), of which 30 were eliminated
during the three months ended March 31, 2009. These actions resulted in our incurring an aggregate
of $0.8 million in termination benefits and severance related charges in the three months ended
March 31, 2009. With the staff reductions in 2009, we have now reduced our total workforce by 10%
compared to the October 2008 workforce size, which we expect to generate approximately $15.4
million in annualized savings. Throughout the remainder of 2009, we intend to continue to explore
additional ways to achieve overhead savings that will help preserve capital and improve liquidity.
Postpone Developments
As previously disclosed, in January 2009, we decided to postpone future development activities
until we determine that the current economic environment has sufficiently improved. Our
development expenditures during the three months ended March 31, 2009 were $21.4 million, and we
anticipate total expenditures for 2009 to be approximately $30 to $40 million. Postponing future
development activities will help us preserve capital and position us well until the current
economic environment has sufficiently improved.
We believe that our current business strategy, the availability of borrowings under our credit
facilities, limited debt maturities in 2009, the number of unencumbered properties in our
multifamily portfolio and the additional financing through Fannie Mae expected to be obtained
during the second quarter 2009 has us positioned to work through this challenging economic
environment. However, the ongoing recession and continued uncertainty in the stock and credit
markets may negatively impact our ability to access additional financing for capital needs at
reasonable terms, or at all, which may negatively affect our business. A prolonged downturn in the
financial markets may cause us to seek alternative sources of financing on less favorable terms.
These events may also make it more difficult or costly for us to raise capital through the issuance
of our common shares, preferred shares or subordinated notes or through private financings, and may
require us to further adjust our business plan accordingly.
Executive Summary of Results of Operations
The following discussion of results of operations should be read in conjunction with the
Consolidated Condensed Statements of Income of the Trust and CRLP and the Operating Results Summary
included below.
For the three months ended March 31, 2009, the Trust reported net income available to
common shareholders of $13.9 million, compared with net income available to common shareholders
of $14.2 million for the comparable prior year period. For the three months ended March 31,
2009, CRLP reported net income available to common unitholders of $16.4 million, compared with
net income available to common unitholders of $17.2 million for the comparable prior year
period. In addition to our results from operating activities, results for the 2009 period
include $24.3 million of gains from the repurchase of unsecured senior notes, $5.4 million of
gains, net of income taxes from the disposition of assets, a reduction in capitalized interest
of approximately $2.5 million and severance and impairment charges of $1.8 million.
61
In addition to the foregoing, the other principal factors that influenced our operating
results for the three months ended March 31, 2009 are as follows:
|
• |
|
Completed the disposition of Colonial Promenade Fultondale, a 159,000 square-foot
retail development located in Birmingham, Alabama, for sale proceeds of $30.7 million and
a gain of $4.5 million. |
|
|
• |
|
Completed the disposition of the remaining 17 unsold units at Regents Park for sale
proceeds of $16.3 million. |
|
|
• |
|
Repurchased $96.9 million of outstanding unsecured senior notes in separate
transactions at an average discount of 27.1% to par value, recognizing an aggregate gain
of $24.3 million, net of costs. |
|
|
• |
|
We completed the development of one multifamily apartment community adding 300
apartment homes to the portfolio. |
Our multifamily portfolio physical occupancy for consolidated properties was 94.6% and 95.1% for
the three months ended March 31, 2009 and 2008.
Operating Results Summary
The following operating results summary is provided for reference purposes and is intended to
be read in conjunction with the narrative discussion. This information is presented to correspond
with the manner in which we analyze our operating results.
62
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
Variance |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rent |
|
$ |
70,233 |
|
|
$ |
66,795 |
|
|
$ |
3,438 |
|
Tenant recoveries |
|
|
1,066 |
|
|
|
848 |
|
|
|
218 |
|
Other property related revenue |
|
|
9,501 |
|
|
|
8,107 |
|
|
|
1,394 |
|
Construction revenues |
|
|
35 |
|
|
|
7,879 |
|
|
|
(7,844 |
) |
Other non-property related revenues |
|
|
3,455 |
|
|
|
5,206 |
|
|
|
(1,751 |
) |
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
84,290 |
|
|
|
88,835 |
|
|
|
(4,545 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses |
|
|
22,469 |
|
|
|
19,678 |
|
|
|
2,791 |
|
Taxes, licenses and insurance |
|
|
10,976 |
|
|
|
9,589 |
|
|
|
1,387 |
|
Construction expenses |
|
|
34 |
|
|
|
7,266 |
|
|
|
(7,232 |
) |
Property management expenses |
|
|
1,918 |
|
|
|
2,241 |
|
|
|
(323 |
) |
General and administrative expenses |
|
|
4,383 |
|
|
|
5,780 |
|
|
|
(1,397 |
) |
Management fee and other expense |
|
|
4,217 |
|
|
|
3,591 |
|
|
|
626 |
|
Restructuring charges |
|
|
812 |
|
|
|
— |
|
|
|
812 |
|
Investment and development |
|
|
165 |
|
|
|
769 |
|
|
|
(604 |
) |
Depreciation & amortization |
|
|
28,658 |
|
|
|
24,016 |
|
|
|
4,642 |
|
Impairment |
|
|
736 |
|
|
|
— |
|
|
|
736 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
74,368 |
|
|
|
72,930 |
|
|
|
1,438 |
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
9,922 |
|
|
|
15,905 |
|
|
|
(5,983 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and debt cost amortization |
|
|
(21,735 |
) |
|
|
(18,707 |
) |
|
|
(3,028 |
) |
Gains on retirement of debt |
|
|
25,319 |
|
|
|
5,471 |
|
|
|
19,848 |
|
Interest income |
|
|
301 |
|
|
|
790 |
|
|
|
(489 |
) |
Income (loss) from partially-owned unconsolidated entities |
|
|
(650 |
) |
|
|
10,269 |
|
|
|
(10,919 |
) |
Loss on hedging activities |
|
|
(1,063 |
) |
|
|
— |
|
|
|
(1,063 |
) |
Gains from sales of property, net of income taxes |
|
|
5,380 |
|
|
|
1,931 |
|
|
|
3,449 |
|
Income taxes and other |
|
|
3,090 |
|
|
|
874 |
|
|
|
2,216 |
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
10,642 |
|
|
|
628 |
|
|
|
10,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
20,564 |
|
|
|
16,533 |
|
|
|
4,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
20,564 |
|
|
|
16,533 |
|
|
|
4,031 |
|
Income from discontinued operations |
|
|
274 |
|
|
|
5,278 |
|
|
|
(5,004 |
) |
Noncontrolling interest, continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest in CRLP — common unitholders |
|
|
(1,813 |
) |
|
|
(1,827 |
) |
|
|
14 |
|
Noncontrolling interest in CRLP — preferred unitholders |
|
|
(2,416 |
) |
|
|
(2,069 |
) |
|
|
(347 |
) |
Noncontrolling interest of limited partners |
|
|
(1,009 |
) |
|
|
(123 |
) |
|
|
(886 |
) |
Noncontrolling interest, discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest in CRLP — common |
|
|
(115 |
) |
|
|
(947 |
) |
|
|
832 |
|
Noncontrolling interest of limited partners |
|
|
468 |
|
|
|
141 |
|
|
|
327 |
|
|
|
|
|
|
|
|
|
|
|
Income attributable to noncontrolling interest |
|
|
(4,885 |
) |
|
|
(4,825 |
) |
|
|
(60 |
) |
|
|
|
|
|
|
|
|
|
|
Net income attributable to parent company |
|
|
15,953 |
|
|
|
16,986 |
|
|
|
(1,033 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends to preferred shareholders |
|
|
(2,073 |
) |
|
|
(2,488 |
) |
|
|
415 |
|
Preferred share issuance costs write-off, net of discount |
|
|
(5 |
) |
|
|
(271 |
) |
|
|
266 |
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders |
|
$ |
13,875 |
|
|
$ |
14,227 |
|
|
$ |
(352 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRLP |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
20,564 |
|
|
|
16,533 |
|
|
|
4,031 |
|
Income from discontinued operations |
|
|
274 |
|
|
|
5,278 |
|
|
|
(5,004 |
) |
Noncontrolling interest, continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest in CRLP — common unitholders |
|
|
(1,813 |
) |
|
|
(1,827 |
) |
|
|
14 |
|
Noncontrolling interest of limited partners |
|
|
(1,009 |
) |
|
|
(123 |
) |
|
|
(886 |
) |
Noncontrolling interest, discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest of limited partners |
|
|
468 |
|
|
|
141 |
|
|
|
327 |
|
|
|
|
|
|
|
|
|
|
|
Income attributable to noncontrolling interest |
|
|
(2,354 |
) |
|
|
(1,809 |
) |
|
|
(545 |
) |
|
|
|
|
|
|
|
|
|
|
Net income attributable to CRLP |
|
|
18,484 |
|
|
|
20,002 |
|
|
|
(1,518 |
) |
|
|
|
|
|
|
|
|
|
|
Dividends to preferred unitholders |
|
|
(2,073 |
) |
|
|
(2,488 |
) |
|
|
415 |
|
Preferred share issuance costs write-off, net of discount |
|
|
(5 |
) |
|
|
(271 |
) |
|
|
266 |
|
|
|
|
|
|
|
|
|
|
|
Net income available to common unitholders |
|
$ |
16,406 |
|
|
$ |
17,243 |
|
|
$ |
(837 |
) |
|
|
|
|
|
|
|
|
|
|
63
Results of Operations — Three Months Ended March 31, 2009 and 2008
Minimum rent
Minimum rent for the three months ended March 31, 2009 was $70.2 million, an increase of $3.4
million from the comparable prior year period. The increase in minimum rent was primarily
attributable to a $5.4 million increase in multifamily and retail developments placed into service,
offset by a $1.6 million decrease in minimum rent at our stabilized multifamily apartment
communities.
Tenant recoveries
Tenant recoveries for the three months ended March 31, 2009 was $1.1 million, an increase of
$0.2 million from the comparable prior year period as a result of development projects placed into
service.
Other property related revenue
Other property related revenue for the three months ended March 31, 2009 was $9.5 million, an
increase of $1.4 million from the comparable prior year period as a result of a $0.9 million
increase in multifamily cable revenue and $0.5 million of other ancillary income. As of March 31,
2009, we have implemented our bulk cable program at 108 of our multifamily apartment communities
and approximately 50% of our communities are fully subscribed. We expect to be fully subscribed
at each of these communities by the end of 2009.
Construction activities
Revenues and expenses from construction activities for the three months ended March 31, 2009
decreased approximately $7.8 million and $7.2 million, respectively, from the comparable prior year
period as a result of a decrease in construction activity year over year.
Other non-property related revenues
Other non-property related revenues, which consist primarily of management fees, development
fees, and other miscellaneous fees decreased $1.8 million for the three months ended March 31, 2009
as compared to the same period in 2008. The decrease is the result of $1.3 million in fees
recorded in the prior year from our partner’s sale in our Canyon Creek joint venture and GPT
Colonial Retail joint venture. The remaining decrease is attributable to a $0.5 million decline in
leasing and broker commission revenue.
Property operating expenses
Property operating expenses for the three months ended March 31, 2009 were $22.5 million, an
increase of $2.8 million from the comparable prior year period. The increase was due to property
operating expenses of approximately $1.0 million primarily related to development projects placed
into service since the first quarter of 2008, increases of $1.0 million in cable television
expenses related to our cable ancillary income program and an increase of $0.7 million in property
operating expenses at stabilized communities.
Taxes, licenses and insurance
Taxes, licenses and insurance expenses for the three months ended March 31, 2009 were $11.0
million, an increase of $1.4 million from the comparable prior year period. The increase was
primarily attributable to developments placed into service since the first quarter of 2008.
Property management expenses
Property management expenses consist of regional supervision and accounting costs related to
consolidated property operations. These expenses for the three months ended March 31, 2009 were
$1.9 million, a decrease of $0.3 million from the comparable prior year period. The decrease was
primarily due to an overall decrease in compensation expense as a result of employee terminations
pursuant to our current business strategy, which includes efforts to reduce overhead, including
personnel eliminations and other miscellaneous expenses.
64
General and administrative expenses
General and administrative expenses for the three months ended March 31, 2009 were $4.4
million, a decrease of $1.4 million from the comparable prior year period. The decrease was
primarily due to a reduction in salary expenses as a result of our strategic initiative to reduce
overhead.
Management fee and other expenses
Management fee and other expenses consist of property management and other services provided
to third parties. These expenses for the three months ended March 31, 2009 were $4.2 million, an
increase of $0.6 million from the comparable prior year period. The increase is related to legal
fees associated with various contingencies discussed in Note 14 to the Notes to Consolidated Condensed Financial Statements of the Trust and CRLP, respectively, included in this Form 10-Q.
Restructuring charges
The restructuring charges for the three months ended March 31, 2009 were $0.8 million, of
which $0.4 million was primarily due to the resignation of our Executive Vice President —
Multifamily division and $0.4 million associated with our plan to downsize construction and
development personnel in light of the current market conditions and our decision to delay future
development projects, which we communicated in October 2008. See Note 3 to the Notes to
Consolidated Condensed Financial Statements of the Trust and CRLP included in this Form 10-Q, respectively,
for additional details.
Investment and development
Investment and development expenses include costs incurred related to abandoned pursuits.
These expenses for the three months ended March 31, 2009 were $0.2 million, a decrease of $0.6
million from the comparable prior year period. The decrease in 2009 was the result of our 2008
actions to decrease the size of our development pipeline.
We incur costs prior to land acquisition including contract deposits, as well as legal,
engineering and other external professional fees related to evaluating the feasibility of such
developments. If we determine that it is probable that we will not develop a particular project,
any related pre-development costs previously incurred are immediately expensed. Abandoned pursuits
are volatile and, therefore, vary between periods.
Depreciation and amortization
Depreciation and amortization expense for the three months ended March 31, 2009 was $28.7
million, an increase of $4.6 million from the comparable prior year period which is attributable to
developments placed into service since the first quarter of 2008.
Impairment and other losses
Impairment charges and other losses for the three months ended March 31, 2009 were $1.0
million ($0.7 million in continuing operations and $0.3 million in discontinued operations, which
appears in “Income from discontinued operations”). Included in the impairment charge is $0.3
million associated with the closing on the sale of our remaining 17 units at Regents Park, a
for-sale residential development, and $0.7 million related to the anticipated sale of our remaining
15% interest in Colonial Pinnacle Craft Farms I. We have reached an agreement in principle to
transfer this interest to the majority joint venture partner. As a result of this agreement and the
resulting asset valuation, we recorded this impairment.
Interest expense and debt cost amortization
Interest expense and debt cost amortization for the three months ended March 31, 2009 was
$21.7 million, an increase of $3.0 million from the comparable prior year period. The increase is
primarily a result of a reduction in capitalized interest of approximately $2.5 million as a result
of no longer capitalizing interest on land held for future developments.
Gains on retirement of debt
Gains on retirement of debt for the three months ended March 31, 2009 were $25.3 million,
compared to $5.5 million for the comparable prior year period. In 2009, we recognized gains of
$25.3 million on the repurchase of $96.9 million of outstanding unsecured senior notes at an
average of 27.1% discount to par value. In the first quarter of 2008, we recognized gains of $5.5 million as a result of the repurchase of $50.0 million of
outstanding unsecured senior notes at an average 12.0% discount to par value.
65
Interest income
Interest income for the three months ended March 31, 2009 was $0.3 million, a decrease of
$0.5 million from the comparable prior year period. The decrease is attributable to less cash
and equivalents at year end 2008 and a decrease in interest income earned on mezzanine loans
outstanding in 2008.
Income (loss) from partially-owned unconsolidated entities
Income (loss) from partially-owned unconsolidated entities for the three months ended March
31, 2009 was a loss of $0.7 million compared to income of $10.3 million from the comparable prior
year period. The decrease in the first quarter of 2009 is the result of a $12.2 million gain
recognized during the three months ended March 31, 2008 from the sale of our interest in the
GPT/Colonial Retail joint venture.
Losses on hedging activities
Losses on hedging activities for the three months ended March 31, 2009 was $1.1 million. In
2009, we recognized a loss on hedging activities as a result of a reclassification of amounts in
Accumulated Other Comprehensive Loss in connection with the conclusion that it is probable that
we will not make interest payments associated with previously hedged debt as a result of
repurchases under our senior note repurchase program.
Gains from sales of property
Gains from sales of property for the three months ended March 31, 2009 was $5.4 million, an
increase of $3.4 million from the comparable prior year period. The $5.4 million of gains
recognized was attributable to the disposition of Colonial Promenade Fultondale, a retail
development, and a land outparcel at Colonial Promenade Tannehill.
Income taxes and other
Income taxes and other for the three months ended March 31, 2009 was $3.1 million, an increase
of $2.2 million from the comparable prior year period. Our provision for income taxes was $0 and
$0.6 million for the three months ended March 31, 2009 and 2008, respectively and our effective
income tax rate was 0% and 38.1% for the three months ended March 31, 2009 and 2008, respectively.
The income tax benefit of $3.1 million for the three months ended March 31, 2009 is offset by
income tax expense of $3.2 million included in “Gain on Sale of Property, net of income taxes”.
The three months ended March 31, 2008 includes $1.0 million received as a result of forfeited
earnest money.
Income from discontinued operations
The Trust’s income from discontinued operations for the three months ended March 31, 2009 was
$0.6 million ($0.3 million attributable to the Trust, $0.3 million attributable to noncontrolling
interest), compared to income of $4.5 million ($5.3 million attributable to the Trust, ($0.8)
million attributable to noncontrolling interest) from the comparable prior year period. At March
31, 2009 we had classified two multifamily apartment communities, one retail asset, two condominium
conversion properties and nine for-sale developments as held for sale. The operating property
sales that occurred in the three months ended March 31, 2009 and 2008, which resulted in gains on
disposal of $45,000 (net of income taxes of $26,000) and $2.9 million (net of income taxes of $0.4
million), respectively, are classified as discontinued operations (see Note 5 to our Notes to
Consolidated Condensed Financial Statements of the Trust and CRLP, respectively, included in this Form 10-Q).
Gains on dispositions in 2009 include the sale of one condominium unit at a for-sale residential
property. Gains on dispositions in 2008 are primarily attributable to the sale of one office
asset. Income from discontinued operations also includes $0.3 million of impairment charges
recorded during 2009 (See the discussion of “Impairment and other losses” above).
Of the $0.3 million of noncontrolling interest presented in income from discontinued
operations on the Trust’s Consolidated Condensed Statements of Income for March 31, 2009, ($0.1) million is
presented as a component of “Net income available to common unitholders allocated to limited
partners” on CRLP’s Consolidated Condensed Statements of Income.
66
Dividends to preferred shareholders of the Trust / Distributions to general partner preferred
unitholders of CRLP
Dividends to preferred shareholders of the Trust and Distributions to general partner
preferred unitholders of CRLP for the three months ended March 31, 2009, in each case, was $2.1
million, a decrease of $0.4 million from the comparable prior year period. The decrease was the
result of the repurchase of 988,750 shares of the Trust’s outstanding 8 1/8% Series D preferred
depositary shares during 2008. CRLP repurchased a number of Series D Preferred Units corresponding
to the number of Series D preferred shares of the Trust represented by such repurchased Series D
Depositary Shares.
Liquidity and Capital Resources
The following discussion relates to changes in cash due to operating, investing and financing
activities, which are presented in each of the Trust’s and CRLP’s Consolidated Condensed Statements of Cash
Flows contained in this Form 10-Q.
Operating Activities
Net cash provided by operating activities for the three months ended March 31, 2009 decreased
$4.8 million from the comparable prior year period for the Trust, to $17.7 million from $22.5
million, and decreased $4.7 million from the comparable prior year period for CRLP, to $17.8
million from $22.5 million. The primary reason for the change was due to the decline in operating
performance of our fully stabilized communities offset by increases in our bulk cable program and
favorable changes in our working capital components. In 2009, we expect cash flows from operating
activities to be consistent with or slightly less than 2008 primarily driven by the challenging
economic environment and a projected decrease in our core multifamily operations, which we expect
to be partially offset by reduced overhead expenses.
Investing Activities
Net cash provided by investing activities for the three months ended March 31, 2009 was
$7.5 million compared to net cash used of $60.2 million for the comparable prior year period for
each of the Trust and CRLP. The change is the result of a decrease in development expenditures,
capital expenditures, and issuances of notes receivable, as well as increase in the proceeds
from property sales, which consisted of the retail development and the for-sale residential
development previously discussed. In 2009, we expect cash used in investing activities to
substantially decrease as we have decided to accelerate our plan to dispose of our for-sale
residential assets including condominium conversions and land held for future sale and for-sale
residential and mixed-use developments, and as a result of reduced expenditures attributable to
the reduction in our development pipeline due to our decision to postpone future development
activities.
Financing Activities
Net cash used in financing activities for the three months ended March 31, 2009 increased
slightly to $24.8 million from $23.0 million for the comparable prior year period for the Trust.
CRLP also had a slight increase in cash used in financing activities of $25.0 million from $23.0
million for the comparable prior year period. The primary reason for the change in cash used in
financing activities for the quarter, for both the Trust and CRLP was due to costs associated with
obtaining our $350.0 million Fannie Mae loan, which was offset by a decrease in dividend
distributions to common and preferred shareholders and unitholders. Given our availability under
our collateralized and unsecured credit facilities, limited debt maturities in 2009 and 2010, the
number of unencumbered properties in our multifamily portfolio and the additional financing through
Fannie Mae expected to be obtained in the second quarter 2009, we expect to be able to meet our
short-term needs without having to access the public capital markets in 2009. This liquidity,
along with our projected asset sales, is expected to allow us to execute our plan in the
short-term.
67
Credit Ratings
As of March 31, 2009, our current credit ratings are as follows:
|
|
|
|
|
Rating Agency |
|
Rating |
|
Last update |
Fitch
|
|
BBB-(1)
|
|
March 13, 2009 |
Moody’s
|
|
Ba1(1)
|
|
March 24, 2009 |
Standard & Poor’s
|
|
BB+(2)
|
|
March 30, 2009 |
|
|
|
(1) |
|
Ratings outlook is “negative”. |
|
(2) |
|
Ratings outlook is “stable”. |
In March 2009, Moody’s Investors Service lowered the credit rating on CRLP’s senior
unsecured debt to Ba1 from Baa3 and Standard & Poor’s lowered the credit rating on CRLP’s senior
unsecured debt to BB+ from BBB-. While the downgrades by both Moody’s Investors Service and
Standard & Poor’s do not affect our ability to draw proceeds under our unsecured line of credit,
the pricing on the credit facility has adjusted from LIBOR plus 75 basis points to LIBOR plus 105
basis points. See below for further discussion on the effects of credit rating downgrades on
our ability to access the credit and capital markets.
Short-Term Liquidity Needs
Our short-term liquidity requirements consist primarily of funds necessary to pay for
operating expenses directly associated with our portfolio of properties (including regular
maintenance items), capital expenditures incurred to lease our space (e.g., tenant improvements and
leasing commissions), interest expense and scheduled principal payments on our outstanding debt,
and quarterly distributions that we pay to the Trust’s common and preferred shareholders and
holders of partnership units in CRLP. In the past, we have primarily satisfied these requirements
through cash generated from operations and borrowings under our unsecured credit facility.
The majority of our revenue is derived from residents and tenants under existing leases,
primarily at our multifamily properties. Therefore, our operating cash flow is dependent upon the
rents that we are able to charge to our tenants and residents, and the ability of these tenants and
residents to make their rental payments. The weakening economy and mounting job losses in the
U.S., and the slowdown in the overall U.S. housing market, which has resulted in increased supply
and deterioration in the multifamily market generally, could adversely affect our ability to lease
our multifamily properties as well as the rents we are able to charge and thereby adversely affect
our revenues.
We believe that cash generated from operations, dispositions of assets and borrowings under
our credit facilities and our recently announced $50.0 million continuous equity issuance program
will be sufficient to meet our short-term liquidity requirements in 2009. However, factors
described below and elsewhere herein may have a material adverse effect on our future cash flow.
The Trust has filed a registration statement with the Securities and Exchange Commission allowing
us to offer, from time to time, equity securities of the Trust (including common or preferred
shares) for an aggregate initial public offering price of up to $500 million on an as-needed basis
subject to our ability to affect offerings on satisfactory terms based on prevailing conditions.
In addition, as described above, the Trust’s Board of Trustees has authorized management to issue
up to $50 million in common shares under this registration statement through a continuous equity
issuance program, which we expect to put in place during the second quarter of 2009. We will
continue to review liquidity sufficiency, as well as events that could affect our credit ratings
and our ability to access the capital markets and our credit facilities. The volatility and
liquidity disruptions in the capital and credit markets may make it more difficult or costly for us
to raise capital through the issuance of our common shares, preferred shares or subordinated notes
or through private financings and may create additional risks in the upcoming months and possibly
years. A prolonged downturn in the financial markets may cause us to seek alternative sources of
financing potentially less attractive than our current financing, and may require us to further
adjust our business plan accordingly.
68
Through the Trust, we have 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 our taxable year
ending December 31, 1993. If we qualify for taxation as a REIT, we generally will not be subject
to Federal income tax to the extent we distribute at least 90% of our REIT taxable income to the
Trust’s shareholders. Even if we qualify for taxation as a REIT, we may be subject to certain
state and local taxes on our income and property and to federal income and excise taxes on our
undistributed income.
Long-Term Liquidity Needs
Our long-term liquidity requirements consist primarily of funds necessary to pay the principal
amount of our long-term debt as it matures, significant non-recurring capital expenditures that
need to be made periodically at our properties, development projects that we undertake and costs
associated with acquisitions of properties that we pursue. Historically, we have satisfied these
requirements principally through the most advantageous source of capital at that time, which has
included the incurrence of new debt through borrowings (through public offerings of unsecured debt
and private incurrence of collateralized and unsecured debt), sales of common and preferred shares,
capital raised through the disposition of assets and joint venture capital transactions. As
described above, the Trust has filed a registration statement to facilitate issuance of equity
securities on an as-needed basis subject to our ability to affect offerings on satisfactory terms
based on prevailing conditions. While the current market conditions for public offerings of
unsecured debt and large-scale public equity offerings are unfavorable, we believe these
capital-raising options will continue to be available in the future to fund our long-term capital
needs. However, factors described below and elsewhere herein may have a material adverse effect on
our continued access to these capital sources.
Our ability to incur additional debt is dependent upon a number of factors, including our
credit ratings, the value of our unencumbered assets, our degree of leverage and borrowing
restrictions imposed by our current lenders. As discussed above in “Credit Ratings,” we recently
received credit rating downgrades, making it less favorable and less likely, that we will access
the unsecured public debt market in the foreseeable future.
Our ability to raise funds through sales of common shares and preferred shares is dependent
on, among other things, general market conditions for REITs, market perceptions about our company
and the current trading price of our shares. The current financial and economic crisis and
significant deterioration in the stock and credit markets have resulted in significant price
volatility, which have caused market prices of many stocks, including the price of our common
shares, to fluctuate substantially and have adversely affected the market value of our common
shares. With respect to both debt and equity, a prolonged downturn in the financial markets may
cause us to seek alternative sources of potentially less attractive financing, and may require us
to adjust our business plan accordingly. These events also may make it more difficult or costly for
us to raise capital through the issuance of our common shares, preferred shares or subordinated
notes or through private financings. We will continue to analyze which source of capital is most
advantageous to us at any particular point in time, but the equity and credit markets may not be
consistently available on terms that are attractive.
Over the last few years, we have maintained our asset recycling program, which helps us to
maximize our investment returns through the sale of assets that have reached their investment
potential and reinvest the proceeds into opportunities with more growth potential. Our ability to
generate cash from asset sales is limited by market conditions and certain rules applicable to
REITs. In the current market, our ability to sell properties to raise cash is challenging. For
example, we may not be able to sell a property or properties as quickly as we have in the past or
on terms as favorable as we have previously received. During the first quarter 2009, we sold
Colonial Promenade Fultondale, a retail development for $30.7 million, the remaining 17 units at
Regents Park, a for-sale residential development, for $16.3 million and an additional 16 for-sale
residential units and condominium units for $3.0 million. The proceeds from the asset sales were
used to repay a portion of borrowings under our unsecured line of credit.
At March 31, 2009, our total outstanding debt balance was $1.7 billion. The outstanding
balance includes fixed-rate debt of $1.69 billion, or 97.1% of the total debt balance, and
floating-rate debt of $51.3 million, or 2.9% of the total debt balance. Our total market
capitalization as of March 31, 2009 was $2.2 billion and our ratio of total outstanding
indebtedness to market capitalization was 80.6%. As further discussed below, at March 31, 2009, we
had an unsecured revolving credit facility providing for total borrowings of up to $675.0 million
and a cash management line providing for borrowings up to $35.0 million.
69
Distributions
The distribution on the Trust’s common shares and CRLP’s common units payable on May 11, 2009
to holders of record on May 4, 2009, is $0.15 per share, a reduction of $0.10 per share from the
fourth quarter 2008 distribution of $0.25 per share. We had previously contemplated a common share
dividend that would have been paid in a combination of common shares and cash. Our Board of
Trustees instead elected to reduce the amount of the quarterly cash dividend. The reduction of
dividend will allow us to improve our liquidity position, further enhance our ability to take
advantage of opportunities, and protect against uncertainties in the capital markets without
diluting the current shareholder base. We also pay regular quarterly distributions on preferred
shares in the Trust and on preferred units in CRLP. The maintenance of these distributions is
subject to various factors, including the discretion of the Trust’s Board of Trustees, the Trust’s
ability to pay dividends under Alabama law, the availability of cash to make the necessary dividend
payments and the effect of REIT distribution requirements, which require at least 90% of the
Trust’s taxable income to be distributed to the Trust’s shareholders (excluding net capital gains).
Collateralized Credit Facility
In the first quarter of 2009, we closed on a $350 million collateralized loan (the “Loan”)
originated by PNC ARCS LLC for repurchase by Fannie Mae (NYSE: FNM). Of the $350 million, $259
million bears interest at a fixed interest rate equal to 6.07% and $91 million bears interest at
a fixed interest rate of 5.96%. The weighted average interest rate for the Loan is 6.04%. The
Loan matures on March 1, 2019 and requires accrued interest to be paid monthly with no scheduled
principal payments required prior to the maturity date. The Loan is collateralized by 19 of
CRLP’s multifamily apartment communities totaling 6,565 units. The entire Loan amount was drawn
on February 27, 2009. The proceeds from the Loan were used to repay a portion of the
outstanding borrowings under our $675.0 million Credit Facility (defined below).
In addition to the Loan, we have locked an all-in fixed interest rate for sixty days of
5.29% for a ten year term with Fannie Mae on additional financing of $145 million expected to be
collateralized by seven of our existing multifamily properties. We are considering adding one
additional property to this facility, which would bring total proceeds to $155 million. We
expect to close this financing during the second quarter 2009, but the closing remains subject
to the negotiation of final documentation and the satisfaction of all closing conditions. No
assurance can be given that we will be able to consummate this additional financing arrangement.
Proceeds received from additional financing transactions would be used to provide additional
liquidity for our unsecured note repurchase program and our debt maturities in 2010 and
subsequent years.
Unsecured Revolving Credit Facility
As of March 31, 2009, CRLP, with the Trust as guarantor, has a $675.0 million unsecured credit
facility (as amended, the “Credit Facility”) with Wachovia Bank, National Association (“Wachovia”),
as Agent for the lenders, Bank of America, N.A. as Syndication Agent, Wells Fargo Bank, National
Association, Citicorp North America, Inc. and Regions Bank, as Co-Documentation Agents, and U.S.
Bank National Association and PNC Bank, National Association, as Co-Senior Managing Agents and
other lenders named therein. The Credit Facility has a maturity date of June 21, 2012. In addition
to the Credit Facility, we have a $35.0 million cash management line provided by Wachovia that will
expire on June 21, 2012. The cash management line had an outstanding balance of $10.7 million as
of March 31, 2009.
Base rate loans and revolving loans are available under the Credit Facility. The Credit
Facility also includes a competitive bid feature that allows us to convert up to $337.5 million
under the Credit Facility to a fixed rate and for a fixed term not to exceed 90 days.
Generally, base rate loans bear interest at Wachovia’s designated base rate, plus a base rate
margin ranging up to 0.25% based on our unsecured debt ratings from time to time. Revolving
loans bear interest at LIBOR plus a margin ranging from 0.325% to 1.05% based on our unsecured
debt ratings. Competitive bid loans bear interest at LIBOR plus a margin, as specified by the
participating lenders. Based on CRLP’s unsecured debt rating downgrade, the revolving loans
currently bear interest at a rate of LIBOR plus 105 basis points.
The Credit Facility and cash management line, which are primarily used to finance property
acquisitions and developments and more recently to also fund repurchases of CRLP senior notes and
Series D preferred depositary shares of the Trust, had an aggregate outstanding balance at March
31, 2009 of $37.7 million. The interest rate of the Credit Facility, including the cash management
line, was 1.26% at March 31, 2009.
The Credit Facility contains various ratios and covenants that are more fully described in
Note 12 to the Notes to Consolidated Financial Statements of the Trust and CRLP, respectively,
included in this Form 10-Q for additional details. The
ongoing recession and continued uncertainty in the stock and credit markets may negatively
impact our ability to generate earnings sufficient to maintain
compliance with these ratios and
covenants in the future. We expect to be able to comply with these ratios and covenants in 2009,
but no assurance can be given that we will be able to maintain compliance with these ratios and
other debt covenants, particularly if conditions worsen.
70
As described above, many of the recent disruptions in the financial markets have been brought
about in large part by failures in the U.S. banking system. If Wachovia or any of the other
financial institutions that have extended credit commitments to us under the Credit Facility or
otherwise are adversely affected by the conditions of the financial markets, they may become unable
to fund borrowings under their credit commitments to us under the Credit Facility, the cash
management line or otherwise. If our lenders become unable to fund our borrowings pursuant to
their commitments to us, we may need to obtain replacement financing, and such financing, if
available, may not be available on commercially attractive terms.
Equity Repurchases
On October 29, 2008, the Trust’s Board of Trustees authorized a repurchase program which
allows the Trust to repurchase up to $25.0 million of our outstanding 81/8% Series D preferred
depositary shares over a 12 month period. Each Series D preferred depositary share represents
1/10 of a share of the Company’s 81/8% Series D Cumulative Redeemable Preferred Shares of
Beneficial Interest, par value $0.01 per share. In connection with the repurchase of the Series
D preferred depositary shares, the Board of Trustees of the Trust, as general partner of CRLP,
also authorized the repurchase of a corresponding amount of Series D Preferred Units. The Trust
did not repurchase any of its outstanding Series D preferred depositary shares during the three
months ended March 31, 2009. To date, the Trust has purchased $24.0 million of outstanding
Series D preferred depositary shares (and CRLP has repurchased a corresponding amount of Series
D Preferred Units) under this program. The Trust will continue to monitor the equity markets
and repurchase preferred shares if the repurchases meet the required criteria, as funds are
available. If the Trust were to repurchase outstanding Series D depositary shares, it would
expect to record additional non-cash charges related to the write-off of Series D preferred
issuance costs.
Unsecured Senior Note Repurchases
In January 2008, the Trust’s Board of Trustees authorized the repurchase up to $50.0
million of outstanding unsecured senior notes of CRLP. On April 2008, the Board of Trustees
authorized a senior note repurchase program to allow the repurchase up to an additional $200.0
million of outstanding unsecured senior notes of CRLP. In December 2008, the April 2008
repurchase program was expanded to authorize repurchases of up to $500.0 million. Under the
repurchase program, senior notes may be repurchased from time to time in open market
transactions or privately negotiated transactions through December 31, 2009, subject to
applicable legal requirements, market conditions and other factors. The repurchase program does
not obligate us to repurchase any specific amounts of senior notes, and repurchases pursuant to
the program may be suspended or resumed at any time without further notice or announcement.
During the three months ended March 31, 2009, we repurchased $96.9 million of CRLP’s
outstanding unsecured senior notes in separate transactions at an average 27.1% discount to par
value, which represents a 12.6% yield to maturity. As a result of the repurchases, we
recognized an aggregate gain of approximately $25.3 million, which is included in “Gain on
retirement of debt” on the Company’s Consolidated Statements of Income. We will continue to
monitor the debt markets and repurchase certain senior notes that meet the Company’s required
criteria, as funds are available.
During April 2009, we commenced a cash tender offer for up to $250.0 million of certain
series of CRLP’s outstanding senior notes maturing in 2010 and 2011. As of the early tender
date of April 17, 2009, holders had tendered a total of approximately $265.6 million in
aggregate principal of the notes. On May 4, 2009, CRLP accepted for purchase $250 million in
principal amount of outstanding notes maturing in 2010 and 2011 that were validly tendered
pursuant to cash tender offer (see Note 15 to the Notes to Consolidated Financial Statements of
the Trust and CRLP included in this Form 10-Q, respectively, for additional details.
Contingencies
We are involved in a contract dispute with a general contractor in connection with
construction costs and cost overruns with respect to certain of our for-sale projects, which were
being developed in a joint venture in which we are a majority owner. The contractor is affiliated
with our joint venture partner.
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In connection with the dispute, in January 2008, the contractor filed a lawsuit
against us alleging, among other things, breach of contract, enforcement of a lien
against real property, misrepresentation, conversion, declaratory judgment and an
accounting of costs, and is seeking $10.3 million in damages, plus consequential and
punitive damages. Discovery is underway regarding these proceedings. |
71
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• |
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Certain of the subcontractors, vendors and other parties, involved in the
projects, including purchasers of units, have also made claims in the form of lien
claims, general claims or lawsuits. We have been sued by purchasers of certain
condominium units alleging breach of contract, fraud, construction deficiencies and
misleading sales practices. Both compensatory and punitive damages are sought in
these actions. Some of these claims have been resolved by negotiations and
mediations, and others may also be similarly resolved. Some of these claims will
likely be arbitrated or litigated to conclusion. |
We are continuing to evaluate our options and investigate these claims, including possible
claims against the contractor and other parties. We intend to vigorously defend ourselves against
these claims. However, no prediction of the likelihood, or amount, of any resulting loss or
recovery can be made at this time and no assurance can be given that the matter will be resolved
favorably.
In connection with certain retail developments, we have received funding from municipalities
for infrastructure costs. In most cases, the municipalities issue bonds that are repaid primarily
from sales tax revenues generated from the tenants at each respective development. We have
guaranteed the shortfall, if any, of tax revenues to the debt service requirements on the bonds.
The total amount outstanding on these bonds was approximately $13.5 million at March 31, 2009 and
December 31, 2008. At March 31, 2009 and December 31, 2008, no liability was recorded for these
guarantees.
As previously discussed, we have postponed future development activities, which include the
Colonial Pinnacle Nord du Lac development in Covington, Louisiana. Prior to the decision to
postpone this development, the Nord du Lac community development district (the “CDD”), a
third-party governmental entity, had issued $24.0 million of special assessment bonds, the proceeds
from which were to be used by the CDD to construct infrastructure for the benefit of the
development. In addition, we have entered into leasing commitments and other agreements with
certain future tenants at this development. As a result of the postponement of this development,
we are evaluating various alternatives for this development, including with respect to our existing
contractual obligations to certain future tenants who had previously committed to this development
before it was postponed and with respect to the outstanding CDD bonds. If we are unable to reach
alternative agreements with these future tenants, the tenants may choose not to participate in this
development or seek damages from us as a result of the postponement of the development, or both.
With respect to the CDD bonds, interest payments for 2009 will be made from an interest reserve
account funded with bond proceeds. Thereafter, repayment of the bonds will be funded by special
assessments on the property owner(s) within the CDD. The first special assessment is expected to
be due on or about December 31, 2009. As the property owner, we intended to fund the special
assessments from payments by tenants in the development. Until Colonial Pinnacle Nord du Lac is
developed and leased, it is not expected to generate sufficient tenant revenues to support the full
amount of the special assessments, in which case, we would be obligated to pay the special
assessments to the extent not funded through tenant payments. The special assessments are not a
personal liability of the property owner, but constitute a lien on the assessed property. In the
event of a failure to pay the special assessments, the CDD would have the right to force the sale
of the property included in the project.
We have reclassified the amount spent to date with respect to the Colonial Pinnacle Nord du
Lac development ($38.5 million, net of impairment charge recorded during 2008, as of March 31,
2009) from an active development to “Real estate assets held for sale, net” on our Consolidated
Condensed Balance Sheet. In accordance with EITF 91-10, we recorded restricted cash and other
liabilities for the $24.0 million CDD bond issuance. This transaction was treated as a non-cash
transaction in our Consolidated Statement of Cash Flows for the twelve months ended December 31,
2008.
In connection with the office and retail joint venture transactions, which occurred in 2007,
we assumed certain contingent obligations for a total of $15.7 million, of which $6.6 million
remains outstanding as of March 31, 2009.
In January 2008, we received notification related to an unclaimed property audit for the
States of Alabama and Tennessee. As of March 31, 2009, we have accrued an estimated liability.
We are a party to various legal proceedings incidental to our business. In the opinion of
management, after consultation with legal counsel, the ultimate liability, if any, with respect to
those proceedings is not presently expected to materially affect our financial position or results
of operations or cash flows.
72
Guarantees and Other Arrangements
During April 2007, we committed, with our joint venture partner, to guarantee up to $7.0
million of a $34.1 million construction loan obtained by the Colonial Grand at Traditions joint
venture. We, along with our joint venture partner, committed to each provide 50% of the guarantee.
Construction at this site is substantially complete as the project was placed into service during
2008. As of March 31, 2009, the joint venture had drawn $33.1 million on the construction loan,
which matures in April 2010. At March 31, 2009, no liability was recorded for the guarantee.
During November 2006, we committed with our joint venture partner to guarantee up to $17.3
million of a $34.6 million construction loan obtained by the Colonial Promenade Smyrna joint
venture. We and our joint venture partner each committed to provide 50% of the $17.3 million
guarantee, as each partner has a 50% ownership interest in the joint venture. Construction at this
site is substantially complete as the project was placed into service during 2008. As of March 31,
2009, the Colonial Promenade Smyrna joint venture had $30.1 million outstanding on the construction
loan, which matures in December 2009. At March 31, 2009, no liability was recorded for the
guarantee.
During February 2006, we committed to guarantee up to $4.0 million of a $27.4 million
construction loan obtained by the Colonial Grand at Canyon Creek Joint Venture. Construction at
this site is complete as the project was placed into service in 2007. As of March 31, 2009, the
joint venture had drawn all $27.4 million on the construction loan, which matures in June 2009.
At March 31, 2009, no liability was recorded for the guarantee.
During September 2005, in connection with the acquisition of CRT with DRA, CRLP guaranteed
approximately $50.0 million of third-party financing obtained by the DRA/CRT JV with respect to 10
of the CRT properties. During 2006, seven of the ten properties were sold. The DRA/CRT JV is
obligated to reimburse CRLP for any payments made under the guaranty before making distributions of
cash flows or capital proceeds to the DRA/CRT JV partners. At March 31, 2009, no liability was
recorded for the guarantee. As of March 31, 2009, this guarantee, which, matures in January 2010,
had been reduced to $17.0 million as a result of the pay down of the associated secured debt from
the sales of assets.
In connection with the formation of Highway 150 LLC in 2002, we executed a guarantee, pursuant
to which we would serve as a guarantor of $1.0 million of the debt related to the joint venture,
which is collateralized by the Colonial Promenade Hoover retail property. Our maximum guarantee of
$1.0 million may be requested by the lender, only after all of the rights and remedies available
under the associated note and security agreements have been exercised and exhausted. At March 31,
2009, the total amount of debt of the joint venture was approximately $16.3 million and matures in
December 2012. At March 31, 2009, no liability was recorded for the guarantee.
In connection with the contribution of certain assets to CRLP, certain partners of CRLP have
guaranteed indebtedness of the Company totaling $26.5 million at March 31, 2009. The guarantees
are held in order for the contributing partners to maintain their tax deferred status on the
contributed assets. These individuals have not been indemnified by the Company.
As discussed above, in connection with certain retail developments, we have received funding
from municipalities for infrastructure costs. In most cases, the municipalities issue bonds that
are repaid primarily from sales tax revenues generated from the tenants at each respective
development. We have guaranteed the shortfall, if any, of tax revenues to the debt service
requirements on the bonds.
The fair value of the above guarantees could change in the near term if the markets in which
these properties are located deteriorate or if there are other negative indicators.
Off-Balance Sheet Arrangements
At March 31, 2009, our pro-rata share of mortgage debt of unconsolidated joint ventures is
$476.8 million.
The aggregate maturities of this mortgage debt are as follows:
73
|
|
|
|
|
|
|
(in millions) |
|
2009 |
|
$ |
88.3 |
|
2010 |
|
|
117.8 |
|
2011 |
|
|
10.8 |
|
2012 |
|
|
6.6 |
|
2013 |
|
|
12.9 |
|
Thereafter |
|
|
240.4 |
|
|
|
|
|
|
|
$ |
476.8 |
|
|
|
|
|
Of this debt, $70.4 million, $11.5 million and $4.2 million for years 2009, 2010 and 2011,
respectively, includes an option for at least a one-year extension.
As part of the DRA/CRT joint venture, in which we are a 15% minority partner, the loan
collateralized by Broward Financial Center, a 326,000 square foot office building located in Ft.
Lauderdale, Florida, in the amount of $46.5 million (our portion is $7.0 million), matured on
March 1, 2009. However, no refinancing options had been obtained for the loan upon maturity,
and the joint venture did not repay the principal amount due on the loan, but continues to
remain current on the interest payments. We and our joint venture partner are currently in
negotiations with the special servicer regarding refinancing options available by the current
lender. While no assurance can be given that the joint venture partnership will be able to
refinance the loan on reasonable terms, we anticipate that the joint venture will be able to
renegotiate an extension of the current loan with the existing lender. If the joint venture is
unable to obtain additional financing, payoff the existing loan, or renegotiate suitable terms
with the existing lender, the lender would have the right to foreclose on the property in
question and, accordingly, the joint venture will lose its interest in the asset.
Under these unconsolidated joint venture non-recourse mortgage loans, we could, under certain
circumstances, be responsible for portions of the mortgage indebtedness in connection with certain
customary non-recourse carve-out provisions, such as environmental conditions, misuse of funds, and
material misrepresentations. In addition, as more fully described above, we have made certain
guarantees in connection with our investment in unconsolidated joint ventures. We do not have any
other off-balance sheet arrangements with any unconsolidated investments or joint ventures that we
believe have or are reasonably likely to have a material effect on our financial condition, results
of operations, liquidity or capital resources.
Critical Accounting Policies and Estimates
Please refer to the Trust’s 2008 Annual Report on Form 10-K and to CRLP’s 2008 Annual Report
on Form 10-K for discussions of our critical accounting policies, which include principles of
consolidation; land, buildings and equipment (including impairment); acquisition of real estate
assets; undeveloped land and construction in progress; valuation of receivables; notes receivable;
deferred debt and lease costs; derivative instruments; share-based compensation; revenue
recognition; segment reporting; investments in joint ventures; investment and development expenses;
assets and liabilities at fair value; and recent accounting pronouncements. During the three
months ended March 31, 2009 there were no material changes to these policies.
Derivatives and Hedging
Our objectives in using interest rate derivatives are to add stability to interest expense and
to manage our exposure to interest rate movements. To accomplish this objective, we primarily use
interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate
swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a
counterparty in exchange for us making fixed-rate payments over the life of the agreements without
exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges
involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the
strike rate on the contract in exchange for an upfront premium.
The effective portion of changes in the fair value of derivatives that are designated and that
qualify as cash flow hedges is recorded in “Accumulated other comprehensive loss” on the
Consolidated Condensed Balance Sheet and is subsequently reclassified into earnings in the period that the
hedged forecasted transaction affects earnings. We did not have any active cash flow hedges during
the three months ended March 31, 2009.
74
At March 31, 2009, we had $4.0 million in “Accumulated other comprehensive loss” related to
settled or terminated derivatives. Amounts reported in “Accumulated other comprehensive loss”
related to derivatives will be reclassified to “Interest expense and debt cost amortization” as
interest payments are made on our variable-rate debt or to “Loss on hedging
activities” at such time that the interest payments on the hedged debt become probable of not
occurring as a result of our senior note repurchase program. The changes in “Accumulated other
comprehensive loss” for reclassifications to “Interest expense and debt cost amortization” tied to
interest payments on the hedged debt was $0.1 million and $0.2 million during the three months
ended March 31, 2009 and 2008, respectively. The changes in “Accumulated other comprehensive loss”
for reclassification to “Loss on hedging activities” related to interest payments on the hedged
debt that have been deemed no longer probable to occur as a result of our senior note repurchase
program was $1.1 million for the three months ended March 31, 2009. We did not reclassify amounts
to “Loss on hedging activities” for the three months ended March 31, 2008.
Derivatives not designated as hedges are not speculative and are used to manage our exposure
to interest rate movements and other identified risks but do not meet the strict hedge accounting
requirements of SFAS 133. As of March 31, 2009, we had no derivatives that were not designated as
a hedge in a qualifying hedging relationship.
Inflation
Leases at the multifamily properties generally provide for an initial term of six months to
one year and allow for rent adjustments at the time of renewal. Leases at the office properties
typically provide for rent adjustments and the pass-through of certain operating expenses during
the term of the lease. Substantially all of the leases at the retail properties provide for the
pass-through to tenants of certain operating costs, including real estate taxes, common area
maintenance expenses, and insurance. All of these provisions permit us to increase rental rates or
other charges to tenants in response to rising prices and, therefore, serve to minimize our
exposure to the adverse effects of inflation.
An increase in general price levels may immediately precede, or accompany, an increase in
interest rates. At March 31, 2009, our exposure to rising interest rates was mitigated by our
high percentage of consolidated fixed rate debt of 97%, which represents an increase of 15%
since December 31, 2008. This increase is a result of the proceeds received from the fixed-rate
Fannie Mae Loan which were used to pay down a portion of the borrowings outstanding on our
variable rate unsecured credit facility. As it relates to the short-term, an increase in
interest expense resulting from increasing inflation is anticipated to be less than future
increases in income before interest.
Funds From Operations
Funds from Operations (“FFO”), as defined by the National Association of Real Estate
Investment Trusts (NAREIT), means income (loss) before minority interest (determined in accordance
with GAAP), excluding gains (losses) from debt restructuring and sales of depreciated property,
plus real estate depreciation and after adjustments for unconsolidated partnerships and joint
ventures. FFO is presented to assist investors in analyzing our performance. We believe that FFO is
useful to investors because it provides an additional indicator of our financial and operating
performance. This is because, by excluding the effect of real estate depreciation and gains (or
losses) from sales of properties (all of which are based on historical costs which may be of
limited relevance in evaluating current performance), FFO can facilitate comparison of operating
performance among equity REITs. FFO is a widely recognized measure in our industry. We believe that
the line on our consolidated statement of operations entitled “net income available to common
shareholders” is the most directly comparable GAAP measure to FFO. Historical cost accounting for
real estate assets implicitly assumes that the value of real estate assets diminishes predictably
over time. Since real estate values instead have historically risen or fallen with market
conditions, many industry investors and analysts have considered presentation of operating results
for real estate companies that use historical cost accounting to be insufficient by themselves.
Thus, NAREIT created FFO as a supplemental measure of REIT operating performance that excludes
historical cost depreciation, among other items, from GAAP net income. Management believes that the
use of FFO, combined with the required primary GAAP presentations, has been fundamentally
beneficial, improving the understanding of operating results of REITs among the investing public
and making comparisons of REIT operating results more meaningful. In addition to company management
evaluating the operating performance of our reportable segments based on FFO results, management
uses FFO and FFO per share, along with other measures, to assess performance in connection with
evaluating and granting incentive compensation to key employees. Our method of calculating FFO may
be different from methods used by other REITs and, accordingly, may not be comparable to such other
REITs. FFO should not be considered (1) as an alternative to net income (determined in accordance
with GAAP), (2) as an indicator of financial performance, (3) as cash flow from operating
activities (determined in accordance with GAAP) or (4) as a measure of liquidity nor is it
indicative of sufficient cash flow to fund all of the company’s needs, including our ability to
make distributions.
75
The following information is provided to reconcile net income available to common shareholders
of the Trust, the most comparable GAAP measure, to FFO, and to show the items included in our FFO
for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
(in thousands, except per share and unit data) |
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders |
|
$ |
13,875 |
|
|
$ |
14,227 |
|
Income allocated to participating securities |
|
$ |
(106 |
) |
|
$ |
(94 |
) |
Noncontrolling interest in CRLP |
|
|
2,531 |
|
|
|
3,016 |
|
Noncontrolling interest in gain/(loss) on sales of undepreciated property |
|
|
992 |
|
|
|
— |
|
|
|
|
|
|
|
Total |
|
$ |
17,292 |
|
|
$ |
17,149 |
|
|
|
|
|
|
|
|
|
|
Adjustments (consolidated): |
|
|
|
|
|
|
|
|
Real estate depreciation |
|
|
27,408 |
|
|
|
23,218 |
|
Real estate amortization |
|
|
342 |
|
|
|
366 |
|
Consolidated gains from sales of property, net of income tax
and noncontrolling interest |
|
|
(5,425 |
) |
|
|
(4,844 |
) |
Gains from sales of undepreciated property, net of income tax
and noncontrolling interest (1) |
|
|
3,731 |
|
|
|
1,925 |
|
Adjustments (unconsolidated subsidiaries): |
|
|
— |
|
|
|
|
|
Real estate depreciation |
|
|
4,785 |
|
|
|
5,150 |
|
Real estate amortization |
|
|
1,814 |
|
|
|
2,358 |
|
Gains from sales of property |
|
|
19 |
|
|
|
(12,298 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations (2) |
|
$ |
49,966 |
|
|
$ |
33,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO per Share (2) |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.88 |
|
|
$ |
0.58 |
|
|
|
|
|
|
|
Diluted |
|
$ |
0.88 |
|
|
$ |
0.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding — basic |
|
|
48,202 |
|
|
|
46,853 |
|
Weighted average partnership units outstanding — basic (3) |
|
|
8,823 |
|
|
|
10,015 |
|
|
|
|
|
|
|
Weighted average shares and units outstanding — basic |
|
|
57,025 |
|
|
|
56,868 |
|
Effect of diluted securities |
|
|
— |
|
|
|
161 |
|
|
|
|
|
|
|
Weighted average shares and units outstanding — diluted |
|
|
57,025 |
|
|
|
57,029 |
|
|
|
|
|
|
|
|
|
|
(1) |
|
We recognize incremental gains on condominium sales in FFO, net of provision for income
taxes, to the extent that net sales proceeds, less costs of sales, from the sale of
condominium units exceeds the greater of their fair value or net book value as of the date
the property is acquired by our taxable REIT subsidiary. |
|
(2) |
|
FFO for the three months ended March 31, 2009 includes $1.0 million of non-cash
impairment charges, which is equivalent to $0.02per basic and diluted share (net of income
taxes). |
|
(3) |
|
Represents the weighted average of outstanding units of noncontrolling interest in
Colonial Realty Limited Partnership. |
76
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As of March 31, 2009, we had approximately $51.3 million of outstanding variable rate debt.
We do not believe that the interest rate risk represented by our variable rate debt is material in
relation to our $1.7 billion of outstanding total debt and our $3.1 billion of total assets as of
March 31, 2009.
If market rates of interest on our variable rate debt increase by 1%, the increase in annual
interest expense on our variable rate debt would decrease annual future earnings and cash flows by
approximately $0.5 million. If market rates of interest on our variable rate debt decrease by 1%,
the decrease in interest expense on our variable rate debt would increase future earnings and cash
flows by approximately $0.5 million. This assumes that the amount outstanding under our variable
rate debt remains approximately $51.3 million, the balance as of March 31, 2009.
As of March 31, 2009, we had no material exposure to market risk (including foreign currency
exchange risk, commodity price risk or equity price risk).
Item 4. Controls and Procedures
(a) |
|
Disclosure controls and procedures. |
|
|
|
The Company has evaluated the effectiveness of the design and operation of its disclosure
controls and procedures as of the end of the period covered by this quarterly report on Form
10-Q. An evaluation was performed under the supervision and with the participation of
management, including the Company’s chief executive officer and chief financial officer, on
behalf of both the Trust and CRLP, of the effectiveness as of March 31, 2009 of the design and
operation of the Company’s disclosure controls and procedures as defined in Exchange Act Rule
13a-15. Based on that evaluation, the chief executive officer and chief financial officer
concluded that the design and operation of these disclosure controls and procedures were
effective as of the end of the period covered by this report. |
|
(b) |
|
Changes in internal control over financial reporting. |
|
|
|
There were no changes in the Company’s internal control over financial reporting (as
defined in Exchange Act Rule 13a-15) that occurred during the quarter ended March 31, 2009 that
have materially affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting. |
77
PART II — OTHER INFORMATION
Item 1A. Risk Factors
You should carefully consider the risk factors contained in the Annual Reports on Form 10-K
for the fiscal year ended December 31, 2008 of the Trust and CRLP, respectively, and the
descriptions included in our consolidated financial statements and accompanying notes before making
an investment decision regarding our Company. The risks and uncertainties described herein and in
the 2008 Annual Reports on Form 10-K of the Trust and CRLP, respectively, are not the only ones
facing us and there may be additional risks that we do not presently know of or that we currently
consider not likely to have a significant impact. All of these risks could adversely affect our
business, financial condition, results of operations and cash flows. In addition to the risks
identified in the 2008 Annual Reports on Form 10-K of the Trust and CRLP, respectively, we are also
subject to the following additional risks:
Further Downgrades in Our Credit Ratings Could Adversely Affect Our Performance
During the first quarter of 2009, Moody’s Investors Service lowered the credit rating on our
senior unsecured debt to Ba1 from Baa3. Additionally, Standard & Poor’s lowered the credit rating
on our senior unsecured debt to BB+ from BBB- and the rating on our preferred stock to B+ from BB.
While the downgrades by both Moody’s Investors Service and Standard & Poor’s do not affect our
ability to draw proceeds under our unsecured line of credit, the pricing on the credit facility has
adjusted from LIBOR plus 75 basis points to LIBOR plus 105 basis points. The downgrade had the
effect of increasing our borrowing costs, and further downgrades, while not impacting our borrowing
costs, could shorten borrowing periods, thereby adversely impacting our ability to borrow secured
and unsecured debt and otherwise limiting our access to capital, which could adversely affect our
business, financial condition and results of operations.
A large number of shares available for future sale, and further issuances of equity securities,
could adversely affect the market price of our common shares and may be dilutive to current
shareholders.
The sales of a substantial number of common shares, or the perception that such sales could
occur, could adversely affect March 31, 2009: we may issue up to 8,855,184 common shares of the
Trust upon redemption of currently outstanding units of CRLP; the Trust has filed a registration
statement with the Securities and Exchange Commission allowing us to offer, from time to time,
equity securities of the Trust (including common or preferred shares) for an aggregate initial
public offering price of up to $500 million on an as-needed basis subject to our ability to affect
offerings on satisfactory terms based on prevailing conditions; and the Trust’s Board of Trustees
has authorized management to issue up to $50 million in common shares under this registration
statement through a continuous equity issuance program, which we expect to put in place during the
second quarter of 2009. Additionally, the Trust’s Board of Trustees can authorize the issuance of
additional securities without shareholder approval. Our ability to execute our business strategy
depends on our access to an appropriate blend of debt financing, including unsecured lines of
credit and other forms of secured and unsecured debt, and equity financing, including issuances of
common and preferred equity. No prediction can be made about the effect that future distribution
or sales of common shares of the Trust will have on the market price of the Trust’s common shares.
78
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On March 12, 2009, the Trust issued 5,787 common shares in exchange for common units of CRLP.
The units were tendered for redemption by certain limited partners of CRLP in accordance with the
terms of CRLP’s Third Amended and Restated Agreement of Limited Partnership, as amended (the “CRLP
Partnership Agreement”). These common shares were issued in private placement transactions exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, based on an
exchange ratio of one common share for each common unit of CRLP.
A summary of repurchases by the Trust of our common shares for the three months ended March
31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
|
Maximum Number of |
|
|
|
|
|
|
|
|
|
|
|
Part of Publicly |
|
|
Shares that may yet be |
|
|
|
Total Number of Shares |
|
|
Average Price Paid |
|
|
Announced Plans or |
|
|
Purchased Under the |
|
|
|
Purchased (1) |
|
|
per Share |
|
|
Programs |
|
|
Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1 —
January 31, 2009 |
|
|
3,489 |
|
|
$ |
8.30 |
|
|
|
— |
|
|
|
— |
|
February 1 —
February 28, 2009 |
|
|
1,359 |
|
|
$ |
5.74 |
|
|
|
— |
|
|
|
— |
|
March 1 —
March 31, 2009 |
|
|
140 |
|
|
$ |
4.05 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
4,988 |
|
|
$ |
7.48 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the number of shares acquired by us from employees as
payment of applicable statutory minimum withholding taxes owed upon
vesting of restricted stock granted under our Third Amended and
Restated Stock Option and Restricted Stock Plan. Whenever the Trust
purchases or redeems its preferred and common shares, CRLP purchases,
redeems or cancels an equivalent number of common units. Accordingly,
during the three months ended March 31, 2009, CRLP acquired a equal
number of common units corresponding to the number of common shares
listed in the Table above. |
The Trust from time to time issues common shares pursuant to its Direct Investment Program,
its Non-Employee Trustee Share Option Plan, its Non-Employee Trustee Share Plan, its Employee Share
Option and Restricted Share Plan, and its 2008 Omnibus Incentive Plan in transactions that are
registered under the Securities Act of 1933, as amended (the “Act”). Pursuant to the CRLP
Partnership Agreement each time the Trust issues common shares pursuant to the foregoing plans,
CRLP issues to the Trust, its general partner, an equal number of units for the same price at which
the common shares were sold, in transactions that are not registered under the Act in reliance on
Section 4(2) of the Act due to the fact that units were issued only to the Trust and therefore, did
not involve a public offering. During the quarter ended March 31, 2009, CRLP issued 87,964 common
units to the Trust for direct investments and other issuances under employee and nonemployee plans
for an aggregate of approximately $0.1 million.
Item 6. Exhibits
The exhibits required by this Item are set forth on the Index of Exhibits attached hereto.
79
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each of the registrants
has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
|
|
|
|
|
COLONIAL PROPERTIES TRUST
|
|
Date: May 8, 2009 |
By: |
/s/ C. Reynolds Thompson, III
|
|
|
|
C. Reynolds Thompson, III |
|
|
|
President and Chief Financial Officer |
|
|
|
|
Date: May 8, 2009 |
By: |
/s/ Bradley P. Sandidge
|
|
|
|
Bradley P. Sandidge |
|
|
|
Executive Vice President, Accounting |
|
|
|
COLONIAL REALTY LIMITED PARTNERSHIP,
A Delaware limited partnership
|
|
|
By: |
Colonial Properties Trust
|
|
|
|
Its General Partner |
|
|
|
|
Date: May 8, 2009 |
By: |
/s/ C. Reynolds Thompson, III
|
|
|
|
C. Reynolds Thompson, III |
|
|
|
President and Chief Financial Officer |
|
|
|
|
Date: May 8, 2009 |
By: |
/s/ Bradley P. Sandidge
|
|
|
|
Bradley P. Sandidge |
|
|
|
Executive Vice President, Accounting |
|
80
Index of Exhibits
|
|
|
|
|
|
|
10.1
|
|
Master Credit Facility
Agreement by and between
CMF 15 Portfolio LLC, as
Borrower, Colonial
Realty Limited
Partnership, as
Guarantor, and PNC ARCS
LLC, as Lender.
|
|
Incorporated by
reference to Exhibit
10.1 to the Company’s
Current Report on Form
8-K filed with the SEC
on March 5, 2009
|
|
— |
|
|
|
|
|
|
|
10.2
|
|
Fixed Facility Note
(Standard Maturity)
dated February 27, 2009,
in the original
principal amount of $259
million made by CMF 15
Portfolio LLC to the
order of PNC ARCS LLC.
|
|
Incorporated by
reference to Exhibit
10.2 to the Company’s
Current Report on Form
8-K filed with the SEC
on March 5, 2009
|
|
— |
|
|
|
|
|
|
|
10.3
|
|
Fixed Facility Note
(Standard Maturity)
dated February 27, 2009,
in the original
principal amount of $91
million made by CMF 15
Portfolio LLC to the
order of PNC ARCS LLC.
|
|
Incorporated by
reference to Exhibit
10.3 to the Company’s
Current Report on Form
8-K filed with the SEC
on March 5, 2009
|
|
— |
|
|
|
|
|
|
|
12.1
|
|
Computation of Ratio of
Earnings to Fixed
Charges and to Combined
Fixed Charges and
Preferred Share
Distributions for the
Trust
|
|
Filed herewith
|
|
Page 82 |
|
|
|
|
|
|
|
12.2
|
|
Computation of Ratio of
Earnings to Fixed
Charges for CRLP
|
|
Filed herewith
|
|
Page 83 |
|
|
|
|
|
|
|
31.1
|
|
Certification of the
Chief Executive Officer
of the Trust required by
Rule 13a-14(a) under the
Securities Exchange Act
of 1934
|
|
Filed herewith
|
|
Page 84 |
|
|
|
|
|
|
|
31.2
|
|
Certification of the
Chief Financial Officer
of the Trust required by
Rule 13a-14(a) under the
Securities Exchange Act
of 1934
|
|
Filed herewith
|
|
Page 85 |
|
|
|
|
|
|
|
31.3
|
|
Certification of the
Chief Executive Officer
of the Trust, in its
capacity as general
partner of CRLP,
required by Rule
13a-14(a) under the
Securities Exchange Act
of 1934
|
|
Filed herewith
|
|
Page 86 |
|
|
|
|
|
|
|
31.4
|
|
Certification of the
Chief Financial Officer
of the Trust, in its
capacity as general
partner of CRLP,
required by Rule
13a-14(a) under the
Securities Exchange Act
of 1934
|
|
Filed herewith
|
|
Page 87 |
|
|
|
|
|
|
|
32.1
|
|
Certification of the
Chief Executive Officer
of the Trust required by
Rule 13a-14(b) under the
Securities Exchange Act
of 1934 and 18 U.S.C.
Section 1350
|
|
Filed herewith
|
|
Page 88 |
|
|
|
|
|
|
|
32.2
|
|
Certification of the
Chief Financial Officer
of the Trust required by
Rule 13a-14(b) under the
Securities Exchange Act
of 1934 and 18 U.S.C.
Section 1350
|
|
Filed herewith
|
|
Page 89 |
|
|
|
|
|
|
|
32.3
|
|
Certification of the
Chief Executive Officer
of the Trust, in its
capacity as general
partner of CRLP,
required by Rule
13a-14(b) under the
Securities Exchange Act
of 1934 and 18 U.S.C.
Section 1350
|
|
Filed herewith
|
|
Page 90 |
|
|
|
|
|
|
|
32.4
|
|
Certification of the
Chief Financial Officer
of the Trust, in its
capacity as general
partner of CRLP,
required by Rule
13a-14(b) under the
Securities Exchange Act
of 1934 and 18 U.S.C.
Section 1350
|
|
Filed herewith
|
|
Page 91 |
81